OBLIGATIONS & CONTRACTS 4TH EXAM
DEFECTIVE CONTRACTS & estoppel
Case list of Atty. Lydia Galas
ADDULAWESTRELLADO2016
RESCISSIBLE CONTRACTS
EQUATORIAL REALTY v MAYFAIR
Carmelo (private petitioner) owned a parcel of land, together with two 2-
storey buildings.
Carmelo entered into a contract of lease with Mayfair (respondent) for the
latter's lease of a portion (1,610 sq meters) of Carmelo's property for a term
of twenty years.
Two years later, on March 31, 1969, Mayfair entered into a second contract
of lease with Carmelo for the lease of another portion (1,064 sq meters) of
Carmelo's property for another 20 years.
Both contracts of lease provides (sic) identically worded paragraph 8, which
reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease and be bound
by all the terms and conditions thereof.
In August 1974, Carmelo informed the president of Mayfair that he was
desirous of selling the entire property to a certain Jose Araneta. Mr. Pascal
told Mr. Yang that a certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the
latter was willing to buy the property for Six to Seven Million Pesos. Mr.
Yang replied that he would let Carmelo know of his decision. Carmelo did
not reply to this letter.
Four years later Carmelo sold its entire land and building, which included the
leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial.
In September 1978, Mayfair instituted the action for specific performance
and annulment of the sale of the leased premises to Equatorial.
RTC ruled in favour of the petitioners and held that the identically worded
paragraph 8 found in both aforecited lease contracts to be an option clause
which however cannot be deemed to be binding on Carmelo because of lack
of distinct consideration therefor.
The CA ruled in favour of the respondents ruling that the existence of four
separate parcels of land covering the whole Recto property demonstrates the
legal and physical possibility that each parcel of land, together with the
buildings and improvements thereof, could have been sold independently of
the other parcels.
At the time both parties executed the contracts, they were aware of the
physical and structural conditions of the buildings on which the theaters were
to be constructed in relation to the remainder of the whole Recto property.
The peculiar language of the stipulation would tend to limit Mayfair's right
under paragraph 8 of the Contract of Lease to the acquisition of the leased
areas only. Indeed, what is being contemplated by the questioned stipulation
is a departure from the customary situation wherein the buildings and
improvements are included in and form part of the sale of the subjacent land.
Although this situation is not common, especially considering the non-
condominium nature of the buildings, the sale would be valid and capable of
being performed. A sale limited to the leased premises only, if hypothetically
assumed, would have brought into operation the provisions of co-ownership
under which Mayfair would have become the exclusive owner of the leased
premises and at the same time a co-owner with Carmelo of the subjacent land
in proportion to Mayfair's interest over the premises sold to it. 10
Issue: Whether or not respondents petitioners acted in bad faith to
validly rescind the contract. Yes
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We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is a contract of a right of first refusal.
The said paragraph 8 grants the right of first refusal to Mayfair and is not an
option contract. It also correctly reasoned that as such, the requirement of a
separate consideration for the option, has no applicability in the instant case.
To rule that a contractual stipulation such as that found in paragraph 8 of the
contracts is governed by Article 1324 on withdrawal of the offer or Article
1479 on promise to buy and sell would render in effectual or "inutile" the
provisions on right of first refusal so commonly inserted in leases of real
estate nowadays. It is not also correct to say that there is no consideration in
an agreement of right of first refusal. The stipulation is part and parcel of the
entire contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect stating
that it consents to lease the premises and to pay the price agreed upon
provided the lessor also consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered purchase price and to
buy the property at that price.
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease contracts,
was that Mayfair will have the right of first refusal in the event Carmelo sells
the leased premises. It is undisputed that Carmelo did recognize this right of
Mayfair, for it informed the latter of its intention to sell the said property in
1974. There was an exchange of letters evidencing the offer and counter-
offers made by both parties. Carmelo, however, did not pursue the exercise to
its logical end. While it initially recognized Mayfair's right of first refusal,
Carmelo violated such right when without affording its negotiations with
Mayfair the full process to ripen to at least an interface of a definite offer and
a possible corresponding acceptance within the "30-day exclusive option"
time granted Mayfair, Carmelo abandoned negotiations, kept a low profile
for some time, and then sold, without prior notice to Mayfair, the entire Claro
M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of
the property in question rescissible. We agree with respondent Appellate
Court that the records bear out the fact that Equatorial was aware of the lease
contracts because its lawyers had, prior to the sale, studied the said contracts.
As such, Equatorial cannot tenably claim to be a purchaser in good faith, and,
therefore, rescission lies.
It is true that the acquisition by a third person of the property subject of the
contract is an obstacle to the action for its rescission where it is shown that
such third person is in lawful possession of the subject of the contract and
that he did not act in bad faith. However, this rule is not applicable in the
case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject property
be regarded as acquired lawfully and in good faith.
A purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in
such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim or interest of some other person
in the property. Good faith connotes an honest intention to abstain from
taking unconscientious advantage of another. Tested by these principles, the
petitioner cannot tenably claim to be a buyer in good faith as it had notice of
the lease of the property by the Bonnevies and such knowledge should have
cautioned it to look deeper into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Petitioners assert the alleged impossibility of performance because the entire
property is indivisible property. It was petitioner Carmelo which fixed the
limits of the property it was leasing out. Common sense and fairness dictate
that instead of nullifying the agreement on that basis, the stipulation should
be given effect by including the indivisible appurtenances in the sale of the
dominant portion under the right of first refusal. A valid and legal contract
where the ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of being nullified on a
selfish pretext posited by the owner. Following the arguments of petitioners
and the participation of the owner in the attempt to strip Mayfair of its rights,
the right of first refusal should include not only the property specified in the
contracts of lease but also the appurtenant portions sold to Equatorial which
are claimed by petitioners to be indivisible. Carmelo acted in bad faith when
it sold the entire property to Equatorial without informing Mayfair, a clear
 OBLIGATIONS & CONTRACTS 4TH EXAM
DEFECTIVE CONTRACTS & estoppel
Case list of Atty. Lydia Galas
ADDULAWESTRELLADO2016
violation of Mayfair's rights. While there was a series of exchanges of letters
evidencing the offer and counter-offers between the parties, Carmelo
abandoned the negotiations without giving Mayfair full opportunity to
negotiate within the 30-day period.
As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered into in
violation of the rights of and to the prejudice of Mayfair. In fact, as correctly
observed by the Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's knowledge of the
stipulations therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that would prejudice its
own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the
fraudulent sale is first set aside or rescinded. All of these matters are now
before us and so there should be no piecemeal determination of this case and
leave festering sores to deteriorate into endless litigation. The facts of the
case and considerations of justice and equity require that we order rescission
here and now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the
contract may cause or to protect some incompatible and preferred right by the
contract. 26 The sale of the subject real property by Carmelo to Equatorial
should now be rescinded considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by the sale of the subject
property to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period. 27
ROSENCOR v INQUING
This action was originally for the annulment of the Deed of Absolute Sale
between defendants Rosencor and Eufrocina de Leon but later amended
praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since
1971 of a two-story residential apartment owned by spouses Faustino and
Cresencia Tiangco. The lease was not covered by any contract. The lessees
were renting the premises then for P150.00 a month and were allegedly
verbally granted by the lessors the pre-emptive right to purchase the property
if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the
property was adjudicated to their heirs who were represented by Eufrocina de
Leon (de Leon). The lessees were allegedly promised the same pre-emptive
right by the heirs of Tiangcos since the latter had knowledge that this right
was extended to the former by the late spouses Tiangcos. The lessees
continued to stay in the premises and allegedly spent their own money
amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses
were never deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter demanding that they vacate the
premises so that the demolition of the building be undertaken. They refused
to leave the premises. In that same month, de Leon refused to accept the
lessees rental payment claiming that they have run out of receipts and that a
new collector has been assigned to receive the payments. Thereafter, they
received a letter from Eufrocina de Leon offering to sell to them the property
they were leasing for 2 million.
The lessees offered to buy the property from de Leon for the amount of 1
million. De Leon told them that she will be submitting the offer to the other
heirs. Since then, no answer was given by de Leon as to their offer to buy the
property. In November 1990, Rene Joaquin (owner of Rosencor) came to the
leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter demanding that
they vacate the premises. A month thereafter, the lessees received a letter
from de Leon advising them that the heirs of the late spouses Tiangcos have
already sold the property to Rosencor. The following month the petitioners,
through letter, demanded for payment of rentals.
The lessees requested from de Leon why she had disregarded the pre-emptive
right. They also asked for a copy of the deed of sale between her and the new
owners thereof but she refused to heed their request. When they asked
petitioner a copy of the deed of sale, the latter turned down their request and
instead wrote them letters demanding that they vacate the premises. The
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lessees offered to tender their rents de Leon but she refused to accept the
same.
In April 1992 before the demolition can be undertaken by the Building
Official, the barangay interceded between the parties herein after which
Rosencor raised the issue as to the rental payment of the premises. It was also
at this instance that the lessees were furnished with a copy of the Deed of
Sale and discovered that they were deceived by de Leon since the sale
between her and Rene Joaquin/Rosencor took place in September 4, 1990
while de Leon made the offer to them only in October 1990 or after the sale
with Rosencor had been consummated. The lessees also noted that the
property was sold only for P726 thousand.
The lessees offered to reimburse de Leon the selling price of Php 726T plus
an additional Php 274T to complete their Php 1M earlier offer. Their offer
was rejected hence, they filed a petition for the rescission of the Deed of sale
between the spouses Tiangcos and petitioner
RTC dismissed the complaint and held that the right of redemption on which
the complaint was based was merely an oral one and as such, is
unenforceable under the law.
Issue:
1.) W/N the right of first refusal should comply with the statute
of frauds to make it enforceable
2.) W/N the sale between the parties be rescinded on the grounds
that it violates a third partys right of first refusal
1.) Right of first refusal is enforceable.
The term "statute of frauds" is descriptive of statutes which require certain
classes of contracts to be in writing. This statute does not deprive the parties
of the right to contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary to render it
enforceable.
The purpose of the statute is to prevent fraud and perjury in the enforcement
of obligations depending for their evidence on the unassisted memory of
witnesses by requiring certain enumerated contracts and transactions to be
evidenced by a writing signed by the party to be charged. Moreover, the
statute of frauds refers to specific kinds of transactions and cannot apply to
any other transaction that is not enumerated therein. The application of such
statute presupposes the existence of a perfected contract.
We have previously held that not all agreements "affecting land" must be put
into writing to attain enforceability. We have held that the setting up of
boundaries, the oral partition of real property, and an agreement creating a
right of way are not covered by the provisions of the statute of frauds because
these agreements are not among those enumerated in the provision.
A right of first refusal is not among those listed as unenforceable under the
statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of
the New Civil Code presupposes the existence of a perfected, albeit
unwritten, contract of sale.18 A right of first refusal is not a perfected contract
of sale of real property. At best, it is a contractual grant of the right of first
refusal over the property sought to be sold19.
2.) There can be no recission since petitioner is a buyer in good faith
substantiated by Article 1381(3) and 1385
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a
contract of sale entered into in violation of a right of first refusal of another
person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of this
doctrine in the case at bench. In the cases cited above, the Court ordered the
rescission of sales made in violation of a right of first refusal precisely
because the vendees therein could not have acted in good faith as they were
aware or should have been aware of the right of first refusal granted to
another person by the vendors therein. The rationale for this is found in the
provisions of the New Civil Code on rescissible contracts. Under Article
1381 of the New Civil Code, paragraph 3, a contract validly agreed upon
may be rescinded if it is "undertaken in fraud of creditors when the latter
cannot in any manner collect the claim due them." Moreover, under Article
 OBLIGATIONS & CONTRACTS 4TH EXAM
DEFECTIVE CONTRACTS & estoppel
Case list of Atty. Lydia Galas
ADDULAWESTRELLADO2016
1385, rescission shall not take place "when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith."30
It must be borne in mind that, unlike previous jurisprudence, the right of first
refusal involved in this case was an oral one given to respondents by the
deceased spouses Tiangco and subsequently recognized by their heirs. As
such, in order to hold that petitioners were in bad faith, there must be clear
and convincing proof that petitioners were made aware of the said right of
first refusal either by the respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is
adduced.31 A purchaser in good faith is one who buys the property of another
without notice that some other person has a right or interest in such a
property and pays a full and fair price at the time of the purchase or before he
has notice of the claim or interest of some other person in the property. In
this regard, the rule on constructive notice would be inapplicable as it is
undisputed that the right of first refusal was an oral one and that the same
was never reduced to writing, much less registered with the Registry of
Deeds. In fact, even the lease contract by which respondents derive their right
to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to show that
petitioners acted in bad faith in entering into the deed of sale over the
disputed property with the heirs of the spouses Tiangco. Respondents failed
to present any evidence that prior to the sale of the property on September 4,
1990, petitioners were aware or had notice of the oral right of first refusal.
Respondents point to the letter sent by the petitioner demanding that
respondent Irene Guillermo vacate the structure they were occupying to make
way for its demolition.
The letter could give rise to bad faith on the part of the petitioner. No
mention is made of the right of first refusal granted to respondents. The name
of petitioner Rosencor or any of it officers did not appear on the letter and the
letter did not state that Atty. Aguila was writing in behalf of petitioner. In
fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the
heirs of the spouses Tiangco. Moreover, even assuming that Atty. Aguila was
indeed writing in behalf of petitioner Rosencor, there is no showing that
Rosencor was aware at that time that such a right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990 letter,
respondents notified Rosencor or Atty. Aguila of their right of first refusal
over the property. Respondents did not try to communicate with Atty. Aguila
and inform her about their preferential right over the disputed property. There
is even no showing that they contacted the heirs of the spouses Tiangco after
they received this letter to remind them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of de Leon,
where she recognized the right of first refusal of respondents, as indicative of
the bad faith of petitioners. This does not hold, De Leon wrote the letter on
her own behalf and not on behalf of petitioners and, as such, it only shows
that de Leon was aware of the existence of the oral right of first refusal. It
does not show that petitioners were likewise aware of the existence of the
said right. Moreover, the letter was made a month after the execution of the
Deed of Sale on September 4, 1990 between petitioner Rosencor and the
heirs of the spouses Tiangco. There is no showing that prior to the date of the
execution of the said Deed, petitioners were put on notice of the existence of
the right of first refusal.
Clearly, if there was any indication of bad faith based on respondents
evidence, it would only be on the part of de Leon as she was aware of the
right of first refusal yet she still sold the disputed property to Rosencor.
However, bad faith on the part of de Leon does not mean that petitioner
likewise acted in bad faith. There is no showing that prior to the execution of
the Deed of Sale, petitioners were made aware or put on notice of the
existence of the oral right of first refusal. Thus, absent evidence to the
contrary, petitioner will be presumed to have acted in good faith in entering
into the Deed of Sale over the disputed property.
Considering that there is no showing of bad faith on the part of the
petitioners, the CA thus erred in ordering the rescission. The acquisition by
Rosencor of the property subject of the right of first refusal is an obstacle to
the action for its rescission where, as in this case, it was shown that Rosencor
is in lawful possession of the subject of the contract and that it did not act in
bad faith.34
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The remedy of respondents is not an action for the rescission of the Deed of
Sale but an action for damages against the heirs of the Tiangco for the
unjustified disregard of their right of first refusal35.
SC reversed the CAs decision and reinstated the RTCs decision.
KHE HONG CHENG v CA
Petitioner Khe Hong Cheng is the owner of Butuan Shipping Lines. The
Philippine Agricultural Trading Corporation shipped on board the vessel
M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of
copra at Masbate for delivery to Zamboanga del Norte.
The said shipment of copra was covered by a marine insurance policy
issued by American Home Insurance Company (respondent Philam's
assured).
M/V PRINCE ERlC sank resulting in the total loss of the shipment.
Because of the loss American Home, paid the the value of the copra to
the consignee.
Having been subrogated into the rights of the consignee, American Home
instituted Civil Case to recover the money paid to the consignee, based on
breach of contract of carriage. While the case was still pending, petitioner
Khe Hong Cheng executed deeds of donations of parcels of land in favor of
his children.
RTC: rendered judgment against petitioner Khe Hong Cheng in Civil Case
An alias writ of execution was applied for and granted. Despite earnest
efforts, the sheriff found no property under the name of Butuan
Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish
for the satisfaction of the trial court's decision.
When the sheriff, accompanied by counsel of respondent Philam, went
to Butuan City, they discovered that petitioner Khe Hong Cheng no
longer had any property and that he had conveyed the subject properties
to his children.
Respondent Philam filed a complaint for the rescission of the deeds of
donation executed by petitioner Khe Hong Cheng in favor of his children and
for the nullification of their titles.
alleged that petitioner Khe Hong Cheng executed the aforesaid deeds in
fraud of his creditors, including respondent Philam.
Petitioners moved for its dismissal on the ground that the action had already
prescribed. They posited that the registration of the deeds of donation on
December 27, 1989 constituted constructive notice and since the
complaint was filed only on February 25, 1997, or more than four (4) years
after said registration, the action was already barred by prescription.
ISSUE: WON the action for rescission has prescribed. When did the
four (4) year prescriptive period as provided for in Article 1389 of the Civil
Code for respondent Philam to file its action for rescission of the subject
deeds of donation commence to run?
HELD:Article 1389: "The action to claim rescission must be commenced
within four years." Since this provision of law is silent as to when the
prescriptive period would commence, the general rule, i.e., from the moment
the cause of action accrues, therefore, apply Article 1150.
Art. 1150. The time for prescription for all kinds of actions, when there is no
special provision which ordains otherwise, shall be counted from the day
they may be brought.
Court enunciated the principle that it is the legal possibility of bringing the
action which determines the starting point for the computation of the
prescriptive period for the action.
Art. 1383. An action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to obtain
reparation for the same.
An action to rescind or an accion pauliana must be of last resort, availed
of only after all other legal remedies have been exhausted and have been
proven futile. For an accion pauliana to accrue, the following requisites
must concur:
1) That the plaintiff asking for rescission has a credit prior to, the alienation,
although demandable later;
2) That the debtor has made a subsequent contract conveying a patrimonial
benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but would
benefit by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent;
5) That the third person who received the property conveyed, if by onerous
title, has been an accomplice in the fraud.
 OBLIGATIONS & CONTRACTS 4TH EXAM
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To count the four year prescriptive period to rescind an allegedly fraudulent
contract from the date of registration of the conveyance with the Register of
Deeds, as alleged by the petitioners, would run counter to Article 1383 of the
Civil Code as well as settled jurisprudence. It would likewise violate the third
requisite to file an action for rescission of an allegedly fraudulent
conveyance of property, i.e., the creditor has no other legal remedy to satisfy
his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the
issuance by the trial court of a writ of execution for the satisfaction of the
judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment
of the court. It requires that the creditor has exhausted the property of the
debtor: The date of the decision of the trial court is immaterial. What is
important is that the credit of the plaintiff precedes that of the fraudulent
alienation by the debtor of his property. After all, the decision of the trial
court against the debtor will retroact to the time when the debtor became
indebted to the creditor.
Even if respondent Philam was aware, as of December 27, 1989, that
petitioner Khe Hong Cheng had executed the deeds of donation in favor of
his children, the complaint against Butuan Shipping Lines and/or petitioner
Khe Hong Cheng was still pending before the trial court.
Respondent Philam had no idea that the trial courts judgment would be
in its favor and further, that such judgment would not be satisfied due
to the deeds of donation executed by petitioner Khe Hong Cheng during
the pendency of the case.
Had respondent Philam filed his complaint on December 27, 1989, such
complaint would have been dismissed for being premature. Not only
were all other legal remedies for the enforcement of respondent
Philam's claims not yet exhausted at the time the deeds of donation
were executed and registered.
Philam would also not have been able to prove then that petitioner Khe
Hong Cheng had no more property other than those covered by the
subject deeds to satisfy a favorable judgment by the trial court.
Philam only learned about the unlawful conveyances made by petitioner Khe
Hong Cheng in January 1997 when its counsel accompanied the sheriff to
Butuan City to attach the properties of petitioner Khe Hong Cheng. There
they found that he no longer had any properties in his name. It was only then
that respondent Philam's action for rescission of the deeds of donation
accrued because then it could be said that respondent Philam had exhausted
all legal means to satisfy the trial court's judgment in its favor.
Since respondent Philam filed its complaint for accion pauliana against
petitioners on February 25, 1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other property to satisfy the
judgment award against him, its action for rescission of the subject
deeds clearly had not yet prescribed.
UNION BANK v ONG
Facts:
Respondents spouses Alfredo Ong and Susana Ong, own the majority capital
stock of Baliwag Mahogany Corporation (BMC). the spouses executed a
Continuing Surety Agreement in favor of Union Bank to secure
a P40,000,000.00-credit line facility made available to BMC. The agreement
expressly stipulated a solidary liability undertaking.
About a year after the execution of the surety agreement, the spouses Ong,
forP12,500,000.00, sold their 974-square meter lot located in Greenhills, San
Juan, Metro Manila, together with the house and other improvements
standing thereon, to their co-respondent, Jackson Lee. Lee registered the sale
and was then issued Transfer Certificate of Title (TCT) No. 4746-R. At about
this time, BMC had already availed itself of the credit facilities, and had in
fact executed a total of twenty-two (22) promissory notes in favor of Union
Bank.
BMC filed a Petition for Rehabilitation and for Declaration of Suspension of
Payments with the Securities and Exchange Commission (SEC). To protect
its interest, Union Bank lost no time in filing with the RTC of Pasig City an
action for rescission of the sale between the spouses Ong and Jackson Lee for
purportedly being in fraud of creditors.
Union Bank assailed the validity of the sale, alleging that the spouses Ong
and Lee entered into the transaction in question for the lone purpose of
fraudulently removing the property from the reach of Union Bank and other
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creditors. The fraudulent design is evidenced by the following circumstances:
(1) insufficiency of consideration, the purchase price of P12,500,000.00
being below the fair market value of the subject property at that time;
(2) lack of financial capacity on the part of Lee to buy the property. (3)
Lee did not assert absolute ownership over the property as he allowed
the spouses Ong to retain possession thereof under a purported Contract
of Lease.
Respondents maintained that both contracts of sale and lease over the
Greenhills property were founded on good and valid consideration and
executed in good faith.
RTC, applying Article 1381 of the Civil Code and noting that the evidence
on record "present[s] a holistic combination of circumstances distinctly
characterized by badges of fraud," rendered judgment for Union Bank, the
Deed of Sale executed on October 22, 1991 by the spouses Ong in favor of
Lee being declared null and void.
CA reversed and set aside the trial court's ruling, observing that the contract
of sale executed by the spouses Ong and Lee, being complete and regular on
its face, is clothed with the prima facie presumption of regularity and
legality.
Issue: Whether or not the sale between Spouses Ong and Jackson Lee
entered in fraud of creditors.
Ruling:NO
Contracts in fraud of creditors are those executed with the intention to
prejudice the rights of creditors. They should not be confused with those
entered into without such mal-intent, even if, as a direct consequence thereof,
the creditor may suffer some damage. In determining whether or not a certain
conveying contract is fraudulent, what comes to mind first is the question of
whether the conveyance was a bona fide transaction or a trick and
contrivance to defeat creditors. To creditors seeking contract rescission on
the ground of fraudulent conveyance rest the onus of proving by competent
evidence the existence of such fraudulent intent on the part of the debtor,
albeit they may fall back on the disputable presumptions, if proper,
established under Article 1387 of the Code.
In the present case, respondent spouses Ong, as the CA had determined, had
sufficiently established the validity and legitimacy of the sale in question.
The conveying deed, a duly notarized document, carries with it the
presumption of validity and regularity. Too, the sale was duly recorded and
annotated on the title of the property owners, the spouses Ong. As the
transferee of said property, respondent Lee caused the transfer of title to his
name.
There can be no quibbling about the transaction being supported by a valid
and sufficient consideration. Respondent Lee, as purchaser, paid the
stipulated contract price to the spouses Ong, as vendors. Receipts presented
in evidence covered and proved such payment. Accordingly, any suggestion
negating payment and receipt of valuable consideration for the subject
conveyance, or worse, that the sale was fictitious must simply be rejected.
The existence of fraud or the intent to defraud creditors cannot plausibly be
presumed from the fact that the price paid for a piece of real estate is
perceived to be slightly lower, if that really be the case, than its market value.
That the spouses Ong acquiesced to the price ofP12,500,000.00, which may
be lower than the market value of the house and lot at the time of alienation,
is certainly not an unusual business phenomenon.
It may be stressed that, when the validity of sales contract is in issue, two
veritable presumptions are relevant: first, that there was sufficient
consideration of the contract ; and, second, that it was the result of a fair and
regular private transaction. If shown to hold, these presumptions infer prima
facie the transaction's validity, except that it must yield to the evidence
adduced which the party disputing such presumptive validity has the burden
of overcoming. Unfortunately for the petitioner, it failed to discharge this
burden.
Parenthetically, the rescissory action to set aside contracts in fraud of
creditors is accion pauliana, essentially a subsidiary remedy accorded under
Article 1383 of the Civil Code which the party suffering damage can avail of
only when he has no other legal means to obtain reparation for the same. In
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net effect, the provision applies only when the creditor cannot recover in
any other manner what is due him.
It is true that respondent spouses, as surety for BMC, bound themselves to
answer for the latters debt. Nonetheless, for purposes of recovering what the
eventually insolvent BMC owed the bank, it behooved the petitioner to
show that it had exhausted all the properties of the spouses Ong. It does
not appear in this case that the petitioner sought other properties of the
spouses other than the subject Greenhills property. The CA categorically
said so. Absent proof, therefore, that the spouses Ong had no other property
except their Greenhills home, the sale thereof to respondent Lee cannot
simplistically be considered as one in fraud of creditors.
Neither was evidence adduced to show that the sale in question peremptorily
deprived the petitioner of means to collect its claim against the Ongs. Where
a creditor fails to show that he has no other legal recourse to obtain
satisfaction for his claim, then he is not entitled to the rescission asked.
For a contract to be rescinded for being in fraud of creditors, both contracting
parties must be shown to have acted maliciously so as to prejudice the
creditors who were prevented from collecting their claims. In this case, there
is no evidence tending to prove that the spouses Ong and Lee were conniving
cheats.
Rescission is generally unavailing should a third person, acting in good faith,
is in lawful possession of the property, that is to say, he is protected by law
against a suit for rescission by the registration of the transfer to him in the
registry.His possession is evidenced by no less than a certificate of title
issued him by the Registry of Deeds after the usual registration of the
corresponding conveying deed of sale. On the other hand, the bona fides of
his acquisition can be deduced from his conduct and outward acts previous to
the sale. Respondent Lee undertook what amounts to due diligence on the
possible defects in the title of the Ongs before proceeding with the sale. As it
were, Lee decided to buy the property only after being satisfied of the
absence of such defects.
Petitioner has made much of respondent Lee not taking immediate possession
of the property after the sale, stating that such failure is an indication of his
participation in the fraudulent scheme to prejudice petitioner bank.
The spouses' continuous possession of the property was by virtue of a one-
year lease they executed with respondent Lee. Respondent spouses insisted
on the lease arrangement as a condition for the sale in question. And pursuant
to the lease contract aforementioned, the respondent Ongs paid and Lee
collected rentals at the rate of P25,000.00 a month. Contrary thus to the
petitioners asseveration, respondent Lee, after the sale, exercised acts of
dominion over the said property and asserted his rights as the new owner. So,
when the respondent spouses continued to occupy the property after its sale,
they did so as mere tenants. While the failure of the vendee to take exclusive
possession of the property is generally recognized as a badge of fraud, the
same cannot be said here in the light of the existence of what appears to be a
genuine lessor-lessee relationship between the spouses Ong and Lee.
To borrow from Reyes vs. Court of Appeals, possession may be exercised in
ones own name or in the name of another; an owner of a piece of land has
possession, either when he himself physically occupies the same or when
another person who recognizes his right as owner is in such occupancy.
Petitioners assertion regarding respondent Lees lack of financial capacity to
acquire the property in question is clearly untenable. It is clearly incorrect to
measure ones purchasing capacity with ones income at a given period. But
the more important consideration in this regard is the uncontroverted fact that
respondent Lee paid the purchase price of said property. Where he sourced
the needed cash is, for the nonce, really of no moment.
In a last-ditch attempt to resuscitate a feeble cause, petitioner cites Section 70
of the Insolvency Law which, unlike the invoked Article 1381 of the Civil
Code that deals with a valid but rescissible contract, treats of a contractual
infirmity resulting in nullity no less of the transaction in question. Insofar as
pertinent, Section 70 of the Insolvency Law provides:
Sec. 70. If any debtor, being insolvent, or in contemplation of insolvency,
within thirty days before the filing of a petition by or against him, with a
view to giving a preference to any creditor or person having a claim against
him xxx makes any xxx sale or conveyance of any part of his property, xxx
such xxx sale, assignment or conveyance is void, and the assignee, or the
receiver, may recover the property or the value thereof, as assets of such
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insolvent debtor. xxx. Any payment, pledge, mortgage, conveyance, sale,
assignment, or transfer of property of whatever character made by the
insolvent within one (1) month before the filing of a petition in insolvency by
or against him, except for a valuable pecuniary consideration made in
good faith shall be void. xxx. (Emphasis added)
Petitioner avers that the Ong-Lee sales contract partakes of a fraudulent
transfer and is null and void in contemplation of the aforequoted provision,
the sale having occurred on October 22, 1991 or within thirty (30) days
before BMC filed a petition for suspension of payments on November 22,
1991.
Petitioner's reliance on the afore-quoted provision is misplaced for the
following reasons:
First, Section 70, supra, of the Insolvency Law specifically makes
reference to conveyance of properties made by a "debtor" or by an
"insolvent" who filed a petition, or against whom a petition for
insolvency has been filed. Respondent spouses Ong have
doubtlessly not filed a petition for a declaration of their own
insolvency. Neither has one been filed against them. And as the
CA aptly observed, it was never proven that respondent spouses
are likewise insolvent, petitioner having failed to show that they
were down to their Greenhills property as their only asset.
It may be that BMC had filed a petition for rehabilitation and
suspension of payments with the SEC. The nagging fact, however
is that BMC is a different juridical person from the respondent
spouses. Their seventy percent (70%) ownership of BMCs
capital stock does not change the legal situation. Accordingly, the
alleged insolvency of BMC cannot, as petitioner postulates,
extend to the respondent spouses such that transaction of the latter
comes within the purview of Section 70 of the Insolvency Law.
Second, the real debtor of petitioner bank in this case is BMC.
The fact that the respondent spouses bound themselves to answer
for BMCs indebtedness under the surety agreement referred to at
the outset is not reason enough to conclude that the spouses are
themselves debtors of petitioner bank. We have already passed
upon the simple reason for this proposition. We refer to the basic
precept in this jurisdiction that a corporation, upon coming into
existence, is invested by law with a personality separate and
distinct from those of the persons composing it.24 Mere ownership
by a single or small group of stockholders of nearly all of the
capital stock of the corporation is not, without more, sufficient to
disregard the fiction of separate corporate personality.25
Third, Section 70 of the Insolvency Law considers transfers made
within a month after the date of cleavage void, except those made
in good faith and for valuable pecuniary consideration. The twin
elements of good faith and valuable and sufficient consideration
have been duly established. Given the validity and the basic
legitimacy of the sale in question, there is simply no occasion to
apply Section 70 of the Insolvency Law to nullify the transaction
subject of the instant case.
HEIRS OF QUIRONG v DBP
The late Emilio Dalope left a 589-sq meter untitled lot in Sta. Barbara,
Pangasinan, to his wife, Felisa Dalope & their 9 children, one of whom was
Rosa Dalope-Funcion. To enable Rosa & her husband Antonio get a loan
from Respondent-Development Bank of the Philippines (DBP), Felisa sold
the whole lot to the Funcions.
12 Feb 1979, after the Funcions failed to pay their loan, the DBP foreclosed
the mortgage on the lot & consolidated ownership in its name on 17 June
1981.
4 years later the DBP conditionally sold the lot to Sofia Quirong for the price
of P78,000. In their contract of sale, Sofia waived any warranty against
eviction. The contract provided that the DBP did not guarantee possession of
the property & that it would not be liable for any lien/encumbrance on the
same.
2 months after that sale, Felisa & her children (collectively, the Dalopes)
filed an action for partition & declaration of nullity of documents with
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damages against the DBP & the Funcions before the RTC of Dagupan City,
in Civil Case D-7159.
27 Dec 1984, notwithstanding the suit, the DBP executed a deed of absolute
sale of the subject lot in Sofia favor.
11 May 1985, Sofia died, her heirs filed an answer in intervention in Civil
Case D-7159 in which they asked the RTC to award the lot to them &, should
it instead be given to the Dalopes, to allow the Quirong heirs to recover the
lots value from the DBP.
16Dec92 the RTC rendered a decision, declaring the DBPs sale to Sofia valid
only with respect to the shares of Felisa & Rosa in the property. It declared
Felisas sale to the Funcions, the latters mortgage to the DBP, & the latters
sale to Sofia void insofar as they prejudiced the shares of the 8 other children
of Emilio & Felisa who were each entitled to a share in the subject lot.
DBP received a copy of the decision on 13 Jan 1993 &, therefore, it had until
28 Jan 1993 w/n w/c to file a motion for its reconsideration/a notice of appeal
from it. But the DBP failed to appeal. RTC judgment became final & the
court issued a writ of execution.
10 June 1998 the Quirong heirs filed the present action against the DBP
before the RTC of Dagupan City for rescission of the contract of sale
between Sofia, their predecessor, & the DBP & praying for the
reimbursement of the price of P78,000 that she paid the bank plus damages.
The heirs alleged that they were entitled to the rescission of the sale because
the decision in Civil Case D-7159 stripped them of nearly the whole of the
lot that Sofia, bought from the DBP.
RTC: rendered a decision, rescinding the sale between Sofia & the DBP &
ordering the latter to return to the Quirong heirs the P78,000 Sofia paid the
bank.
CA: reversed the RTC decision & dismissed the heirs action on the ground of
prescription.
ISSUE: WON the CA erred in dismissing the case on the ground of
prescription.
RULING:
The remedy of rescission is not confined to the rescissible contracts
enumerated under Art 1381. Art 1191 gives the injured party in reciprocal
obligations, such as what contracts are about, the option to choose bet
fulfillment & rescission. The equivalent of Art 1191 in the old code actually
uses the term resolution rather than the present rescission (Arturo Tolentino).
The calibrated meanings of these terms are distinct.
Rescission is a subsidiary action based on injury to the plaintiffs economic
interests as described in Articles 1380 & 1381. Resolution, the action
referred to in Art 1191, on the other hand, is based on the defendants breach
of faith, a violation of the reciprocity between the parties. As an action based
on the binding force of a written contract, therefore, rescission (resolution)
under Art 1191 prescribes in 10 yrs. And also 10 yrs based on a written
contract under Art 1144.
Art 1191 gives the injured party an option to choose bet, 1st, fulfillment of
the contract &, 2nd, its rescission. An action to enforce a written contract
(fulfillment) is definitely an action upon a written contract, w/c prescribes in
10 yrs (Art 1144). It will not be logical to make the remedy of fulfillment
prescribe in 10 years while the alternative remedy of rescission (or
resolution) is made to prescribe after only 4 years as provided in Art 1389
when the injury from w/c the 2 kinds of actions derive is the same.
With the loss of 80% of the subject lot to the Dalopes by reason of the
judgment of the RTC in Civil Case D-7159, the Quirong heirs had the right
to file an action for rescission against the DBP pursuant to the provision of
Art 1556.
And that action for rescission, which is based on a subsequent economic loss
suffered by the buyer, was precisely the action that the Quirong heirs took
against the DBP. Consequently, it prescribed as Art 1389 provides in 4 yrs
from the time the action accrued. Since it accrued on 28Jan93 when the
decision in Civil Case D-7159 became final & executory & ousted the heirs
from a substantial portion of the lot, the latter had only until 28 Jan 1997
within which to file their action for rescission. Given that they filed their
action on 10 June 1998, they did so beyond the 4-yr period.
ADA v BAYLON
Facts: Petitioners and Respondents were the heirs of the deceased spouses
Florante and Maximina Baylon who left several parcels of land. To recover
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what is due for them, petitioners filed a complaint for partition, accounting
and damages against the defendants and alleged the following:
1) that Spouses Baylon, during their lifetime, owned 43 parcels of
land;
2) that after the death of Spouses Baylon, they claimed that Rita took
possession of the said parcels of land and appropriated for herself
the income from the same.
3) using the income produced by the said parcels of land, Rita
allegedly purchased Lot No. 4709 and half of Lot No. 4706 of
land; and
4) that Rita refused to effect a partition of the said parcels of land.
In their reply, defendants asserted the following:
a) that they and the petitioners co-owned 22 out of the 43 parcels of
land mentioned in the latters complaint;
b) Rita actually owned 10 parcels of land out of the 43 parcels which
the petitioners sought to partition while the remaining 11 parcels
of land are separately owned by third persons;
c) that Lot No. 4709 and half of Lot No. 4706 were acquired by Rita
using her own money; and
d) denied that Rita appropriated solely for herself the income of the
estate of Spouses Baylon, and expressed no objection to the
partition of the estate of Spouses Baylon, but only with respect to
the co-owned parcels of land.
However, during the pendency of the case, Rita through a Deed of Donation,
conveyed Lot No. 4709 and half of Lot No. 4706 to Florante. Consequently,
Rita died intestate and without any issue. Thereafter, learning of the said
donation inter vivos in favor of Florante, the petitioners filed a Supplemental
Pleading, praying that the said donation in favor of the respondent be
rescinded in accordance with Article 1381(4) of the Civil Code. They further
alleged that Rita was already sick and very weak when the said Deed of
Donation was supposedly executed and, thus, could not have validly given
her consent thereto. RTC granted the decision. However, it was reversed by
the CA.
Issue: W/N the the donation inter vivos of Lot No. 4709 and half of Lot No.
4706 in favor of Florante may be rescinded pursuant to Article 1381(4) of the
Civil Code on the ground that the same was made during the pendency of the
action for partition before the RTC.
Ruling: Contracts which are rescissible due to fraud or bad faith include
those which involve things under litigation, if they have been entered into by
the defendant without the knowledge and approval of the litigants or of
competent judicial authority.
The rescission of a contract under Article 1381(4) of the Civil Code only
requires the concurrence of the following: first, the defendant, during the
pendency of the case, enters into a contract which refers to the thing subject
of litigation; and second, the said contract was entered into without the
knowledge and approval of the litigants or of a competent judicial authority.
As long as the foregoing requisites concur, it becomes the duty of the court to
order the rescission of the said contract. The reason for this is simple. Article
1381(4) seeks to remedy the presence of bad faith among the parties to a case
and/or any fraudulent act which they may commit with respect to the thing
subject of litigation. The petitioners had sufficiently established the presence
of the requisites for the rescission of a contract pursuant to Article 1381(4) of
the Civil Code. It is undisputed that, at the time they were gratuitously
conveyed by Rita, Lot No. 4709 and half of Lot No. 4706 are among the
properties that were the subject of the partition case then pending with the
RTC. It is also undisputed that Rita, then one of the defendants in the
partition case with the RTC, did not inform nor sought the approval from the
petitioners or of the RTC with regard to the donation inter vivos of the said
parcels of land to Florante. Although the gratuitous conveyance of the said
parcels of land in favor of Florante was valid, the donation inter vivos of the
same being merely an exercise of ownership, Ritas failure to inform and
seek the approval of the petitioners or the RTC regarding the conveyance
gave the petitioners the right to have the said donation rescinded pursuant to
Article 1381(4) of the Civil Code.
VIODABLE CONTRACTS
SAMONTE v CA
Facts:
The subject of the dispute is the parcel of land originally covered
by Original Certificate of Title No. RO-238 (555) which was issued in the
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names of Apolonia Abao and her daughter IreneaTolero, pro indiviso. In the
Regional Trial Court of Agusan del Norte, two cases were separately filed
involving the entire lot, both cases were filed by the surviving heirs of
Apolonia and Irenea.
The first case (Civil case no. 1672) was an action for quieting of
title and recovery of possession of a parcel of land which originally formed
part of the entire property. The second case (Civil case no. 1816), is similarly
an action for quieting of title and recovery of possession which involved the
entire Lot 216. The complaint therein sought the annulment of several
certificates of title covering portions of Lot 216 and the reinstatement of
OCT No. RO-238(555).
The present case stems only from the Civil case no. 1816 where
Lot 216 which is covered by OCT No. RO-238 (555). That on August 8,
1957 based on an affidavit of Extra-judicial Settlement and Confirmation of
Sale it was cancelled and in lieu thereof a TCT was issued in the name of
Irenea , share and Nicolas Jadol share. That on February 13, 1959 based
on a subdivision plan Lot 216 was subdivided into Lot 216-A and Lot 216-B,
the Register of Deeds of Agusan then cancelled the TCT and issued in its
place a new one in the name of TiburcioSamonte for Lot 216-A and Irenea
and Nicolas for Lot 216-B which was also subdivided to Lot 216-B-1 and
216-B-2 issued in the name of Jacob Tagorda and Irenea and Nicolas Jadol.
Plaintiffs now claims ownership over the entire lot, as it was
registered in the name of their mother IreneaTolero and the other half was
registered in the name of their grandmother Apolonia Abao. They questioned
the series of cancellation of the certificate of title and the Deed of Extra-
judicial Settlement and Confirmation of Sale executed by Ignacio Atupan on
August 7, 1957 who is not a son of Apolonia but only grew up while living
with Apolonia. That when Lot 216 was subdivided into 2 lots, the plaintiffs
or their predecessors-in-interest have not signed any document agreeing as to
the manner how Lot 2166 was to be divided, nor have they consented to the
partition of the same.
Defendant Samonte claims that he bought portions of the Lot 216
in good faith as he was made to believe that all the papers in possession of
his vendors were all in order. One of the documents presented by him is a
Deed of Absolute Sale executed in 1939. That he has been in an open,
continuous, adverse and exclusive possession of the portions of Lot 216 he
bought for more than 20years and have declared the land for taxation
purposes and have paid the real estate taxes thereon. And that respondents
action for reconveyance, filed only in 1975, had long prescribed as the
registration of the lot was way back 1957.
The trial court in the 2 cases rendered separate decisions both In
favour of the plaintiffs. Defendants respectively appealed to the decision to
the CA. The CA affirmed the decisions of the trial court and dismissed the
appeals.
Issue: Whether or not the discovery of the fraud is deemed to have taken
place at the time of the registration.
Whether or not petitioner was a buyer in good faith.
Ruling:
Petitioners defense of prescription is untenable. The general rule
that the discovery of fraud is deemed to have taken place upon the
registration of real property does not apply in this case. Citing the case of
Adille vs CA the CA correctly reckoned the prescriptive period from the time
respondents had actually discovered the fraudulent act of Atupan.
On the issue whether petitioner is a buyer in bad faith as he
claims, the Court hold in negative. It was established that he knew that
respondents were the only surviving heirs of IreneaTolero. Despite this
knowledge, petitioner still bought a portion of the subject lot from the Jadol
spouses, when the same was still registered under the Original certificate title
in the name of Abao and Tolero. With respect to the particular lot, petitioner
cannot pretend to be a purchaser in good faith. It is axiomatic that one who
buys from a person who is not a registered owner is not a purchaser in good
faith.
Further, the general rule is that a person dealing with registered
land has a right to rely on the Torrens certificate of title and to dispense with
need of making inquiries. Exceptions are when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious
man to make inquiry or when the purchaser has knowledge of a defect or lack
of title in his vendor or of sufficient facts to induce a reasonably prudent man
to inquire into the status of the title. One who falls within the exception can
neither be denominated an innocent purchaser for value nor a purchaser in
god faith a.
A holder in bad faith of a certificate title is not entitled to the
protection of the law, for the law cannot be used as shield for frauds.
MENDEZONA v OZAMIZ
Facts:
A suit was instituted on September 25, 1991 by the petitioner spouses Mario
J. Mendezona and Teresita M. Mendezona as initial plaintiff and in the
amended complaint filed on October 7, 1991, herein co-petitioner spouses
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Luis J. Mendezona joined as co-plaintiff. In their compliant, the petitioners as
plaintiff therein alleged that petitioner spouses Mario J. Mendezona and
Teresita M. Mendezona petitioner spouses Luis J. Mendezona and Maricar
Mendezona own a parcel of land each in Lahug, Cebu city with similar areas
3462, 3466 and 3468 square meters covered and described in TCT Nos
116834, 116835 and 116836. The petitioners ultimately traced their titles of
ownership over their respective properties from a deed of Absolute Sale
executed in their favor by Carmen Ozamiz and in consideration of P
1,040,000.
It appears than on January 15, 1991, the respondents instituted the petition
for guardianship with RTC Oroquieta, City alleging that Carmen Ozamiz had
become disoriented and could not recognize most of her friends and could no
longer take care of her properties by reason pf weak mind and
absentmindedness. As guardians Roberto J. Montalvan and Julio H. Ozamiz
filed on August 6, 1991 with the guardianship court their Inventories and
Accounts including the 10,369 square meters Lahug property. Said Lahug
property covered by deed of Absolute Sale dated April 28, 1989 executed by
Carmen Ozamiz in favor of petitioners.
In their Answer, respondents opposed the claim of ownership of the Lahug
property and alleged that the titles issued to the petitioners are defective and
illegal and the ownership of said properties was acquired in bad faith and
without value inasmuch as the consideration for the sale is grossly inadequate
and unconscionable. Respondents further alleged that on April 28, 1989
Carmen Ozamiz was already ailing and not in full possession of her mental
faculties; and that her properties having been placed in administration, she
was in effect incapacitated to contract with petitioners. On September 23,
1992, the Trial court rendered decision in favor of petitioners. On appeal the
Court of Appeal reversed its decision and ruled that the Absolute Sale dated
April 28, 1989 was a simulated contract since the petitioners failed to prove
that the consideration was actually paid.
Issue:
Whether or not Carmen Ozamiz was incapacitated at the time of the
execution of the Deed of Sale.
Held:
The appellate court erred in ruling that at the time of the execution of
the Deed of Absolute Sale on April 28, 1989 the mental faculties of Carmen
Ozamiz were already seriously impaired.It placed too much reliance upon the
testimonies of the respondents witnesses. However, after a thorough scrutiny
of the transcripts of the testimonies of the witnesses, we find that the
respondents core witnesses all made sweeping statements which failed to
show the true state of mind of Carmen Ozamiz at the time of the execution of
the disputed document. The testimonies of the respondents witnesses on the
mental capacity of Carmen Ozamiz are far from being clear and convincing,
to say the least.
Carolina Lagura, a househelper of Carmen Ozamiz, testified that when
Carmen Ozamiz was confronted by Paz O. Montalvan in January 1989 with
the sale of theLahug property, Carmen Ozamiz denied the same. She testified
that Carmen Ozamiz understood the question then.However, this declaration
is inconsistent with her (Carolinas) statement that since 1988
CarmenOzamiz could not fully understand the things around her, that she
was physically fit but mentally could not carry a conversation or recognize
persons who visited her.Furthermore, the disputed sale occurred on April 28,
1989 or three (3) months after this alleged confrontation in January 1989.
This inconsistency was not explained by the respondents.
The revelation of Dr. Faith Go did not also shed light on the mental
capacity of Carmen Ozamiz on the relevant day - April 28, 1989 when the
Deed of Absolute Sale was executed and notarized. At best, she merely
revealed that Carmen Ozamiz was suffering from certain infirmities in her
body and at times, she was forgetful, but there was no categorical statement
that Carmen Ozamiz succumbed to what the respondents suggest as her
alleged second childhood as early as 1987. The petitioners rebuttal witness,
Dr. William Buot, a doctor of neurology, testified that no conclusion of
mental incapacity at the time the said deed was executed can be inferred from
Dr. Faith Gos clinical notes nor can such fact be deduced from the mere
prescription of a medication for episodic memory loss.
It has been held that a person is not incapacitated to contract merely
because of advanced years or by reason of physical infirmities. Only when
such age or infirmities impair her mental faculties to such extent as to
prevent her from properly, intelligently, and fairly protecting her property
rights, is she considered incapacitated. The respondents utterly failed to show
adequate proof that at the time of the sale on April 28, 1989
Carmen Ozamiz had allegedly lost control of her mental faculties.
We note that the respondents sought to impugn only one document,
namely, the Deed of Absolute Sale dated April 28, 1989, executed by
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Carmen Ozamiz. However, there are nine (9) other important documents that
were, signed by Carmen Ozamiz either before or after April 28, 1989 which
were not assailed by the respondents. Such is contrary to their assertion of
complete incapacity of Carmen Ozamiz to handle her affairs since 1987. We
agree with the trial courts assessment that it is unfair for the [respondents] to
claim soundness of mind of Carmen Ozamiz when it benefits them and
otherwise when it disadvantages them. A person is presumed to be of sound
mind at any particular time and the condition is presumed to continue to
exist, in the absence of proof to the contrary. Competency and freedom from
undue influence, shown to have existed in the other acts done or contracts
executed, are presumed to continue until the contrary is shown.
FAMANILA v CA
FACTS:
NFD International Manning Agents, Inc. (respondents) hired the services of
Famanila as Messman for Hansa Riga, a vessel registered and owned by
Barbership Management Limited.
When Hansa Riga was docked at the port in California, and while Famanila
was assisting in the loading operations, the latter complained of a headache.
He experienced dizziness and subsequently collapsed. Upon examination, it
was determined that he had a sudden attack of left cerebral hemorrhage from
a ruptured cerebral aneurysm. Famanila had a brain operation in Oregon.
Because of this, Famanila was repatriated to the Philippines and was declared
therein that he cannot go back to sea duty he is being declared permanently,
totally disabled.
Thereafter, authorized representatives of the respondents convinced him to
settle his claim amicably by accepting the amount of US$13,200. This was
accepted by Famanila as evidenced by his signature in the Receipt and
Release and witnessed by his wife and one Richard.
Famanila filed a complaint with the NLRC which was docketed praying for
an award of disability benefits, share in the insurance proceeds, moral
damages and attorneys fees.
He claims that he did not sign the Receipt and Release voluntarily
or freely because he was permanently disabled and in financial
constraints. His consent was vitiated and thus the Receipt and
Release was void and unforceable.
LA: Dismissed due to prescription.
NLRC: Dismissed.
ISSUE:
WON Famanilas consent was vitiated due to disability and financial
constraints.
HELD:
NO.
A VITIATED CONSENT DOES NOT MAKE A CONTRACT VOID
AND UNENFORCEABLE. A vitiated consent only gives rise to a voidable
agreement. If consent is given through any of the vices of consent, the
contract is voidable. It is binding unless annulled by a proper action in court.
DISABILITY IS NOT AMONG THE FACTORS THAT MAY
VITIATE CONSENT. Also, there is no proof that Famanilas consent was
vitiated on account of his disability. In the absence of such proof of vitiated
consent, the validity of the Receipt and Release must be upheld.
Granting that he has not fully recovered at the time of the signing
of the subject document, it cannot still be concluded that he did
not voluntarily accept the agreement, for his wife and another
relative witnessed his signing.
The Receipt and Release does not show on its face any violation
of law or public policy. In fact, Famanila did not present any
proof to show that the consideration for the same is not reasonable
and acceptable.
Not all waivers and quitclaims are invalid as against public policy. If the
agreement was voluntarily entered into and represents a reasonable
settlement, it is binding on the parties and may not later be disowned
simply because of change of mind. It is only where there is clear proof that
the waiver was wangled from an unsuspecting or gullible person, or the terms
of the settlement are unconscionable on its face, that the law will step in to
annul the questionable transaction.
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TO BE VALID AND EFFECTIVE, WAIVERS MUST BE COUCHED
IN CLEAR AND UNEQUIVOCAL TERMS, LEAVING NO DOUBT
AS TO THE INTENTION OF THOSE GIVING UP A RIGHT OR A
BENEFIT THAT LEGALLY PERTAINS TO THEM. We have reviewed
the terms and conditions contained in the Receipt and Release and we find
the same to be clear and unambiguous.
A contract is perfected by mere consent and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. Further, dire necessity is not an
acceptable ground for annulling the Receipt and Release since it has not
been shown that petitioner was forced to sign it.
CATALAN v BASA
FACTS:
On October 20, 1948, Feliciano was discharged from active military service.
The Board of Medical Officers of the Department of Veteran Affairs found
that he was unfit to render military service due to his schizophrenic reaction,
catatonic type, which incapacitates him because of flattening of mood and
affect, preoccupation with worries, withdrawal, and sparce (sic) and pointless
speech.
On June 16, 1951, Feliciano allegedly donated to his sister Mercedes of his
one-half of the real property.
December 11, 1953, PBTC (now BPI) filed a petition to declare Feliciano
incompetent. This was granted and it appointed BPI as guardian.
On November 22, 1978, Feliciano and Corazon donated Lots 1 and 3 of their
property to their son Eulogio.
On March 26, 1979, Mercedes sold the property in issue in favor of her
children Delia and Jesus.
On June 24, 1983, Feliciano and Corazon donated Lot 2 of their property
registered to their children Alex, Librada and Zenaida.
On February 14, 1983, Feliciano and Corazon Cerezo donated Lot 4 of their
property to Eulogio and Florida.
On April 1, 1997, BPI, acting as Felicianos guardian, filed a case for
Declaration of Nullity of Documents, Recovery of Possession and
Ownership, as well as damages against the respondents.
BPI alleged that the Deed of Absolute Donation to Mercedes was
void ab initio, as Feliciano never donated the property to
Mercedes.
BPI averred that even if Feliciano had truly intended to give the
property to her, the donation would still be void, as he was not of
sound mind and was therefore incapable of giving valid consent.
Thus, the subsequent Deed of Absolute Sale to Delia and Jesus
should likewise be nullified, for Mercedes Catalan had no right to
sell the property to anyone.
The registration of the deed of sale long after the death of
Mercedes indicated fraud.
RTC: Dismissed.
Evidence presented was insufficient to overcome the presumption
that Feliciano was sane and competent at the time he executed the
deed of donation in favor of Mercedes. The presumption of sanity
or competency not having been duly impugned, the presumption
of due execution of the donation in question must be upheld.
CA: Affirmed.
All the elements for validity of contracts having been present in
the 1951 donation coupled with compliance with certain
solemnities required by the Civil Code in donation inter vivos of
real property
ISSUE:
WON RTC and CA erred in disposing that petitioners failed to prove the
insanity or mental incapacity of the Feliciano at the precise moment when the
property in dispute was donated.
HELD:
No, the petition is bereft of merit, and SC affirmed the findings of the CA
and the TC.
Donations, like any other contracts, must have consent of the contracting
parties which presupposes the following requisites:
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1. it should be intelligent or with an exact notion of the matter to
which it refers;
2. it should be free; and
3. it should be spontaneous.
The parties intention must be clear and the attendance of a vice of consent,
like any contract, renders the donation voidable.
IN ORDER FOR DONATION OF PROPERTY TO BE VALID, WHAT
IS CRUCIAL IS THE DONORS CAPACITY TO GIVE CONSENT AT
THE TIME OF THE DONATION. Certainly, there lies no doubt in the
fact that insanity impinges on consent freely given. However, the burden of
proving such incapacity rests upon the person who alleges it; if no sufficient
proof to this effect is presented, capacity will be presumed.
EVIDENCE PRESENTED BY THE PETITIONERS WAS
INSUFFICIENT TO OVERCOME THE PRESUMPTION THAT
FELICIANO WAS COMPETENT WHEN HE DONATED THE
PROPERTY IN QUESTION TO MERCEDES. Petitioners make much
ado of the fact that, as early as 1948, Feliciano had been found to be
suffering from schizophrenia by the Board of Medical Officers of the
Department of Veteran Affairs. By itself, however, the allegation cannot
prove the incompetence of Feliciano.
A STUDY OF THE NATURE OF SCHIZOPHRENIA WILL SHOW
THAT FELICIANO COULD STILL BE PRESUMED CAPABLE OF
ATTENDING TO HIS PROPERTY RIGHTS. According to medical
references, in persons with schizophrenia, there is a gradual onset of
symptoms, with symptoms becoming increasingly bizarre as the disease
progresses. The condition improves (remission or residual stage) and
worsens (relapses) in cycles. Sometimes, sufferers may appear relatively
normal, while other patients in remission may appear strange because they
speak in a monotone, have odd speech habits, appear to have no emotional
feelings and are prone to have ideas of reference. The latter refers to the
idea that random social behaviors are directed against the sufferers. It has
been proven that the administration of the correct medicine helps the patient.
xxx The illness will wax and wane over many years, with only very slow
deterioration of intellect.
A PERSON SUFFERING FROM SCHIZOPHRENIA DOES NOT
NECESSARILY LOSE HIS COMPETENCE TO INTELLIGENTLY
DISPOSE HIS PROPERTY. By merely alleging the existence of
schizophrenia, petitioners failed to show substantial proof that at the date of
the donation (June 16, 1951) Feliciano had lost total control of his mental
faculties continued to exist until proof to the contrary was adduced.
Sufficient proof of his infirmity to give consent to contracts was only
established when the TC declared him an incompetent on December 22,
1953.
Also, petitioners only questioned Felicianos capacity at the time he donated
the property, yet did not see fit to question his mental competence when he
entered into a contract of marriage with Corazon Cerezo or when he executed
deeds of donation of his other properties in their favor. The presumption that
Feliciano remained competent to execute contracts, despite his illness, is
bolstered by the existence of these other contracts.
SINCE THE DONATION WAS VALID, MERCEDES HAD THE
RIGHT TO SELL THE PROPERTY TO WHOMEVER SHE CHOSE.
Not a shred of evidence has been presented to prove the claim that Mercedes
sale of the property to her children was tainted with fraud or falsehood.
VILLANUEVA v CHIONG
Facts:
Respondents Florentino and EliseraChiong were married but have
been separated in fact. During their marriage, they acquired Lot No. 997 D-
1 covered by a Transfer Certificate of Title issued by the Registry of Deeds
of Zamboanga del Norte. Sometime in 1985, Florentino sold the one-half
western portion of the lot to petitioner Villanueva for P8,000 payable in
instalments. Shortly after the last payment on December 1986, petitioners
demanded for the execution of a deed of sale in their favour. Elisera,
however, refused to sign a deed of sale.
On July 1991, Elisera filed with the RTC a Complaint for
Quieting of Title with Damages. On 1992, petitioners also filed with the RTC
a complaint for Specific Performance with damages. Upon proper motion,
the RTC consolidated these 2cases.
On May 1992, Florentino executed the questioned Deed of
Absolute Sale in favour of petitioners. The RTC in its Joint decision annulled
the deed of absolute sale and ordered petitioners to vacate the lot and remove
all improvements therein.
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The CA affirmed the RTCs decision. Petitioner sought
reconsideration, but to no avail. Hence, this petition.
Issue:
(1) Is the subject lot an exclusive property of Florentino or a conjugal
property of respondents.
(2) Was its sale by Florentino without Eliseras consent valid?
Petitioners Contention:
a. They claim that the lot belongs exclusively to Florentino because
respondents were already separated in fact at the time of the sale
and that the share of Elisera had previously been sold to Spouses
Castro and Cuenca.
b. That there was no formal liquidation of respondents properties,
their separation in fact resulted in its actual liquidation.
c. That assuming that the lot is still conjugal, the transaction should
not be entirely voided as Florentino had one-half share over it.
Ruling:
The court held that the respondents separation in fact neither
affected the conjugal nature of the lot nor prejudicdEliseras interest over it.
Under Article 178 of the Civil Code, the separation in fact between husband
and wife without judicial approval shall not affect the conjugal partnership.
The lot retains its conjugal nature.
Likewise, under Article 160 of the Civil Code, all property
acquired by the spouses during the marriage is presumed to belong to the
conjugal partnership of gains, unless it is proved that it pertains exclusively
to the husband or wife. Petitioners mere insistence is insufficient to
overcome such presumption taken against all the evidence for respondents.
(Elisera also presented a real property tax declaration
acknowledging her and Florentino as owners of the lot. In addition, (2)
Florentino and Elisera categorically declared in the Memorandum of
Agreement they executed that the lot is a conjugal property.(3) the conjugal
nature of the lot was also admitted by Florentino in the Deed of Absolute
Sale where he declared his capacity to sell as a co-owner of the subject lot.
Anent the second issue, the sale by Florentino without Eliseras
consent is not, however, void ab initio. It has been held (Vda. De Ramones
vs Agbayani) that without the wifes consent, the husbands alienation or
encumbrance of conjugal property prior to the effectivity of the Family Code
on August 3, 1988 is not void, but merely voidable.
Art. 166 provides that the husband cannot alienate or encumber
any real property of the conjugal partnership without the wifes consent.
Moreover, Art. 173 provides that the wife may, during the marriage and
within ten years from the transaction questioned ask the courts for the
annulment of any contract of the husband entered into without her consent.
Thus, the consent of Elisera and Florentino is necessary. In the
case at bar, the requisite of consent of Elisera was not obtained. Accordingly,
the contract is annullable at Eliseras instance, during the marriage and
within 10 years from the transaction questioned. Fortunately, Elisera timely
questioned the sale when she filed the Civil case on July 1991.
It was also held that the alienation by the husband without the
consent of the wife must be annulled in its entirety and not only insofar as the
share of the wie in the conjugal property. Although the transaction in the said
case was declared void and not merely voidable, the rationale for the
annulment of the whole transaction is the same.
Now, if a voidable contract is annulled, the restoration of what
has been given is proper pursuant to Article 1398 of the Civil Code. The
effect of annulment of the contract is to wipe it out of existence, and to
restore the parties, insofar as legally and equitably possible, to their original
situation before the contract was entered into.
Thus, petitioners should return to respondents the land with its
fruits and respondent Florentino should return to petitioners the sum of
P8000 which he received plust interest thereon.
AYSON v PARAGAS
FACTS:
Amado Z. Ayson filed an ejectment complaint against spouses Felix and
Maxima Paragas. They alleged that:
Amado is the registered owner of the property being occupied by
Spouses Paragas as shown in the TCT
Spouses Paragas are occupying the said land through his tolerance
without rent;
Spouses Paragas executed an Affidavit which declared among
others that
Spouses Paragas agree to vacate the aforesaid land
within 3 months from the date hereof and to remove
and transfer their house to another place;
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In consideration of vacating the property, the amount
of P20, 000 shall be paid to them. P10, 000 is payable
upon signing of the affidavit and the balance shall be
paid upon removal of their house on the third month
from date hereof.
Despite the receipt of the P10,000 upon the execution of the
Affidavit and subsequent demands, Spouses Paragas refused to
vacate the land
MTCC: In favor of petitioner.Duly affirmed by RTC, CA, and SC. Final
and executory.
The Court ordered the Spouses Paragas to vacate the land.
Spouses Paragas filed against the Amado, heirs of Rayos, and spouses Alog
for declaration of nullity of deed of sale, transactions, documents and titles
with a prayer for preliminary injunction and damages. They alleged that:
Maxima is a co-owner of a parcel of land, her share having an
area of 435.75 square meters.
Sometime prior to April 13, 1955, Felix (husband), then an
employee of the defunct Dagupan Colleges failed to account for
the amount of Php 3,000. It was agreed that Felix would pay the
said amount by installment to the Dagupan Colleges. Pursuant to
that agreement, Blas and Amado Ll, then both occupying high
positions in the said institution, required Spouses Paragas to sign,
without explaining to them, a Deed of Absolute Sale over
Maximas real property under threat that respondent Felix would
be incarcerated for misappropriation if they refused to do so.
Spouses Paragas took pains to pay their obligation in installments
regularly deducted from the salaries received by Felix from
Dagupan Colleges totaling P5,791.69
Notwithstanding the full payment of the obligation, Amado, Blas
did nothing to cancel the purported Deed of Absolute Sale and
that they were shocked when they received a copy of the
complaint for ejectment filed by Amado.
Upon partition, Blas sold his share to Spouses Alog and Amado
Li (father) passed his share over the property to Amado (son)
RTC: In favor of Spouses Paragas. It declared the Deed of Absolute Sale as
an equitable mortgage.
CA: Affirmed.
ISSUE/HELD:
WON Spouses Paragas are bound by the judicial admissions they made both
in the ejectment case and in the case for declaration of nullity of the Deed of
Absolute Sale.
AS EARLY AS THE SUBMISSION OF POSITION PAPERS BEFORE
THE MTCC, THEY ALREADY QUESTIONED THE SALE OF THE
SUBJECT PROPERTY TO AMADO LI AND BLAS FOR BEING
FICTITIOUS AND ASSERTED THEIR OWNERSHIP OVER THE
LAND. However, MTCC held them bound by the admissions made by their
counsel and decided that petitioner had a better right to possess the property.
In ejectment suits the issue to be resolved is merely the physical possession
over the property. Should the defendant in an ejectment case raise the
defense of ownership in his pleadings and the question of possession cannot
be resolved without deciding the issue of ownership, the issue of ownership
shall be resolved only to determine the issue of possession. The judgment
rendered in such an action shall be conclusive only with respect to physical
possession and shall in no wise bind the title to the realty or constitute a
binding and conclusive adjudication of the merits on the issue of ownership.
Also the records show that Spouses Paragas admitted only the existence
thereof, not necessarily the validity of their issuance.
WON the Deed of Absolute Sale was in reality an Equitable Mortgage.
YES.
THE DEED OF ABSOLUTE SALE IS, IN REALITY, AN EQUITABLE
MORTGAGE OR A CONTRACT OF LOAN SECURED BY A
MORTGAGE. Article 1602 of the CC enumerates the cases in which a
contract, purporting to be a sale, is considered only as a contract of loan
secured by a mortgage and one of which was when the vendor remains in
possession as lessee.
Evidence showed that possession of the property remained with
Spouses Paragas despite the execution of the Deed of Absolute
Sale. Amado never disturbed the possession of Spouses Paragas
until the filing of the ejectment case on April 12, 1992.
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THE EVIDENCE PRESENTED BY SPOUSES PARAGAS
INDUBITABLY REVEALS THAT THEY SIGNED THE CONTRACT
UNDER THREAT OF PROSECUTION, WITH THE VIEW TO
SECURE THE PAYMENT OF THE P3, 000 DEFALCATED BY
RESPONDENT FELIX. Amado LI. Ayson and Blas obviously exerted
undue influence on Felix taking advantage of the latters lack of education
and understanding of the legal effects of his signing the deed.
Spouses Paragas have clearly proven that they have already paid the
aforesaid amount. That the obligation was paid in installments through
salary deduction over a period of 10 years from the signing of the Deed of
Absolute Sale is of no moment. It is safe to assume that this repayment
scheme was in the nature of an easy payment plan based on the Spouses
Paragas capacity to pay. Also:
The deductions from Felixs salary amounted to P5, 791.69,25 or
almost double the obligation of P3, 000.
Petitioner failed to adduce countervailing proof that the payments,
as evidenced by the volume of receipts, were for some other
obligation.
Spouses Paragas only paid for the realty taxes only for the house
since Maxima was not aware that the land she co-owned was
already partitioned, such that the payments of real estate taxes in
her name were limited to the improvement on the land.
WON the action to declare the Deed of Absolute Sale null and void had
already prescribed.
NO.
An equitable mortgage is a voidable contract and may be annulled within 4
years from the time the cause of action accrues. As in this case, it does not
only involves a contract resulting from fraud, but covers a transaction ridden
with threat, intimidation, and continuing undue influence which prompted
Spouses Paragas to sign the Deed of Absolute Sale under threat of
incarceration. The four-year period should start from the time the defect in
the consent ceases. The defect of consent never ceased up to the time of the
signing of the Affidavit on April 8, 1992 which Amado caused Felix to be
brought to him, and taking advantage of the latter being unlettered, unduly
influenced Felix into executing the said Affidavit for a fee of P10,000. Since
the complaint was filed on October 11, 1993, it was well within the four-year
prescriptive period.
*** The right of possession is a necessary incident of ownership. This
adjudication of ownership of the property to respondent-spouses must
include the delivery of possession to them since petitioner has not shown a
superior right to retain possession of the land independently of his claim of
ownership which is herein rejected.
DESTREZA v ALAROS
Facts:
On November 16, 1989 Pedro L. Rioza died leaving several
heirs, which included respondents Ma. Gracia R. Plazo and Ma. Fe R. Alaras.
In the course of settling Riozas estate, respondent Plazo wrote a
letter to the Registry of Deeds of Nasugbo, Batangas requesting for the
certified true copies of all titles in Riozas name, including a sugarland
located at Brgy. Utod, Nasugbo, Batangas. Upn the delivey of the letter, she
also asked that she be shown the originals of the titles but they were not
available. She however talked to the Register of Deeds, Atty. Bonuan.
According to him, he had the titles in his personal files and there were no
transactions involving them.
Plazo wrote a letter again to Bonuan, reiterating her request for
copies of the titles. It was the acting Register of Deeds who granted her
request and furnished her with certified true copies of the titles, except that of
TCT 40353 which was missing.
On the same day, in an effort to find TCT 40353, respondent
Plazo found another title, TCT 55396, at the Assessors Office covering the
same Utod sugarland and canceling the missing TCT 40353. The new title,
entered on July 18, 1989, was in the name of petitioner Gregorio M. Destreza
and his wife Bernarda Butiong.
Plazo even went to the BIR Batangas City to inquire on any
record involving the sale of the sugarland and later on certified by them that
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they did not have any record of sale of the sugarland covered by TCT 40353.
Their discovery prodded respondents Plazo and Alaras to file a
complaint against the Destreza spouses and the Register of Deeds before the
RTC of Nasugbu . They claim serious irregularities in the issuance of TCT
55396 to petitioner Destreza. They asked, among others, that TCT 55396 be
nullified, that TCT 40353 be restored, and that the Destrezas be ordered to
reconvey the land to the Rioza estate.
The petitioner contends that he bought that Utod Sugarland from
Rioza through Toribio Origerio, a common kumpadre and paid him
PhP100,000. Destreza did not get a copy of the Deed of Sale nor a receipt
for the payment but Rioza accompanied him to the Registry of Deeds and
got a copy of the TCT 55396 in his name. After the sale, petitioner took
possession of the land, plowing and planting on it even against the case was
filed. There was no communication or demand letter from the respondents to
disturbed his occupation until he received the summon for the suit.
RTC ruled in favor of the respondents. They declared that the
deed of sale between Rioza and Destreza is not a public document for the
failure of the notary public to submit his report to the RTC Notarial Section.
Thus the RTC has no basis for the cancellation of the TCT 40253 and the
issuance of the TCT 55396 in the name of the Destreza spouses.
CA affirmed the decision of the RTC with modification. The CA
however found that the deed of sale and TCT 55396 maybe presumed
regularly executed despite the notarys failure to report to the RTC Notarial
Section, but the petitioners themselves destroyed the presumption when they
failed to prove its authenticity and genuineness. Further the petitioners claim
that they paid PhP100,000 when the price stated in the Deed of Sale was only
PhP60,000 placed the veracity of the Deed in doubt.
Issue: W/N sufficient evidence warranted the nullification of the deed of
sale that the late Rioza executed in favor of the Destrezas?
Held: NO!
The ruling of the CA was correct, indeed the notarized deed of
sale should be admitted as evidence despite the failure of the Notary public in
submitting his notarial report to the RTC notarial section. It is the swearing
of a person before the Notary Public and the latters act of signing and
affixing his seal on the deed that is material and not the submission of the
notarial report. Parties who appear before a notary public to have their
documents notarized should not be expected to follow up on the submission
of the notarial reports. They should not be made to suffer the consequences
of the negligence of the Notary Public in following the procedures prescribed
by the Notarial Law. Thus, the notarized deed of sale executed by Rioza is
admissible as evidence of the sale of the Utod sugarland to the Destrezas.
The CA however made a mistake with regard as to the assignment
of the burden of proof. No rule requires a party who relies on a notarized
deed of sale for establishing his ownership to present further evidence of
such deeds genuineness lest the presumption of its due execution be for
naught.
The burden of proof is the duty of a party to present such amount
of evidence on the facts in issue as the law deems necessary for the
establishment of his claim. Here, since respondents Plazo and Alaras claim,
despite the Destrezas evidence of title over the property and open possession
of it, that grave and serious doubts plague TCT 55396, the burden is on them
to prove such claim. Only when they are successful in doing so will the court
be justified in nullifying the notarized deed of sale that their father Rioza
executed in favor of the Destrezas.
Respondents alleged that the acquisition of copy of TCT 55396 is
questionable. Petitioner said that he got a copy of the TCT on July 15, 1989
but such TCT was entered into the registry of title on July 18, 1989.
Moreover, Bunuan testified that he did not issue the TCT to the petitioners
because of some lacking document. He did however say that he releases a
copy to Rioza upon his request. The circumstances may appear perplexing
but the problem is that they did not touch the validity of the sale.
Respondents did not confront petitioner regarding this circumstances when
he took the stand. It would be pure speculation to declare that Destreza
defrauded Rioza bases solely on them.
Here, the supposed irregularity lies in the release of a copy of the
title to the Destrezas even before it had been entered into the books of the
Register of Deeds. Furthermore, the Destrezas were able to acquire a copy of
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it when they still needed to submit some registration requirements. But the
premature release of a copy of the registered title cannot affect the validity of
the contract of sale between Rioza and the Destrezas. Registration only
serves as the operative act to convey or affect the land insofar as third
persons are concerned. It does not add anything to the efficacy of the contract
of sale between the buyer and the seller. In fact, if a deed is not registered,
the deed will continue to operate as a contract between the parties.
Furthermore, the declaration of Bunuan that he furnished Rioza with copy
of TCT 55396 strengthens the case of Destreza. This negates any possible
suggestion that the petitioners merely fabricated the sale of the sugarland on
the evidence that the Notary Public failed to submit his notarial report.
Alaras also claims that a month after the sale of the sugarland, her
father asked her to mortgage some land. He gave her the title, impressing on
her that such title covered a land located in Brgy. Utod. She, though
admitted that she did not see the number of the title handed to her. This does
not prove that the sale of the sugarland to petitioners is void.
Lastly, they questioned the testimony of Destreza that he paid
Php100,000 to Rioza when the figure appearing on the Deed of Sale
Php60,000. Again this is not a sufficient ground to nullify such deed. The
fact remains that Rioza sold his land to the Destreza under that document
and they paid for it. The explanation for the difference in the prices can be
explained only by Rioza and Destreza. Unfortunately, he had died. On the
other hand, respondents chose not to confront Destreza regarding that
difference when the latter took the witness stands.
In sum, the Court finds the notarized deed of sale that the late
Pedro Rioza executed in favor of the Destrezas valid and binding upon them
and their successors-in-interest. It served as authority to the Register of
Deeds to register the conveyance of the property and issue a new title in
favor of the Destrezas. That the Destrezas occupied and cultivated the land
openly for seven years before and after Riozas death negates any scheme to
steal the land.
KINGS PROPERTIES v GALIDO
Facts
On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo and
Maria Eniceo, were awarded with Homestead Patent No. 112947 consisting
of four parcels of land located in San Isidro, Antipolo, Rizal (Antipolo
property) which was registered under Original Certificate of Title (OCT) No.
535. The issuance of the homestead patent was subject to the following
conditions:
To have and to hold the said tract of land, with the appurtenances thereunto
of right belonging unto the said Heirs of Domingo Eniceo and to his heir or
heirs and assigns forever, subject to the provisions of sections 118, 121, 122
and 124 of Commonwealth Act No. 141, as amended, which provide that
except in favor of the Government or any of its branches, units or
institutions, the land hereby acquired shall be inalienable and shall not be
subject to incumbrance for a period of five (5) years next following the date
of this patent, and shall not be liable for the satisfaction of any debt
contracted prior to the expiration of that period; that it shall not be alienated,
transferred or conveyed after five (5) years and before twenty-five (25) years
next following the issuance of title, without the approval of the Secretary of
Agriculture and Natural Resources; that it shall not be incumbered, alienated,
or transferred to any person, corporation, association, or partnership not
qualified to acquire public lands under the said Act and its amendments; x x
x
On 10 September 1973, a deed of sale covering the Antipolo property was
executed between Rufina Eniceo and Maria Eniceo as vendors and
respondent as vendee. Rufina Eniceo and Maria Eniceo sold the Antipolo
property to respondent for P250,000. A certain Carmen Aldana delivered the
owners duplicate copy of OCT No. 535 to respondent.
Petitioner alleges that when Maria Eniceo died in June 1975, Rufina Eniceo
and the heirs of Maria Eniceo (Eniceo heirs), who continued to occupy the
Antipolo property as owners, thought that the owners duplicate copy of OCT
No. 535 was lost.
On 5 April 1988, the Eniceo heirs registered with the Registry of Deeds of
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Marikina City (Registry of Deeds) a Notice of Loss dated 2 April 1988 of the
owners copy of OCT No. 535. The Eniceo heirs also filed a petition for the
issuance of a new owners duplicate copy of OCT No. 535 with Branch 72 of
the Regional Trial Court (RTC) of Antipolo, Rizal.
On 31 January 1989, the RTC rendered a decision finding that the certified
true copy of OCT No. 535 contained no annotation in favor of any person,
corporation or entity. The RTC ordered the Registry of Deeds to issue a
second owners copy of OCT No. 535 in favor of the Eniceo heirs and
declared the original owners copy of OCT NO. 535 cancelled and considered
of no further value.
On 6 April 1989, the Registry of Deeds issued a second owners copy of OCT
No. 535 in favor of the Eniceo heirs.
Petitioner states that as early as 1991, respondent knew of the RTC decision
in LRC Case No. 584-A because respondent filed a criminal case against
Rufina Eniceo and Leonila Bolinas (Bolinas) for giving false testimony upon
a material fact during the trial of LRC Case No. 584-A.
Petitioner alleges that sometime in February 1995, Bolinas came to the office
of Alberto Tronio Jr. (Tronio), petitioners general manager, and offered to
sell the Antipolo property. During an on-site inspection, Tronio saw a house
and ascertained that the occupants were Bolinas relatives. Tronio also went to
the Registry of Deeds to verify the records on file. Tronio ascertained that
OCT No. 535 was clean and had no lien and encumbrances. After the
necessary verification, petitioner decided to buy the Antipolo property.
On 14 March 1995, respondent caused the annotation of his adverse claim in
OCT No. 535.
From March 20, 1995 to April 5, 1995, the Eniceo heirs executed several
deed of sale covering various lots of the Antipolo property in favor of the
petitioner.
On 17 August 1995, the Secretary of the Department of Environment and
Natural Resources (DENR Secretary) approved the deed of sale between the
Eniceo heirs and respondent.
On 16 January 1996, respondent filed a civil complaint with the trial court
against the Eniceo heirs and petitioner. Respondent prayed for the
cancellation of the certificates of title issued in favor of petitioner, and the
registration of the deed of sale and issuance of a new transfer certificate of
title in favor of respondent.
On 4 July 2000, the trial court rendered its decision dismissing the case for
lack of legal and factual basis.
Respondent appealed to the Court of Appeals (CA). On 20 December 2004,
the CA rendered a decision reversing the trial courts decision.[24]
Respondent filed a motion for reconsideration, which the CA denied in its
Resolution dated 10 October 2005.
ISSUE: W/N the sale between the heirs of Domingo Eniceo, namely Rufina
and Maria and the respondent is valid.
HELD:
The contract between the Eniceo heirs and respondent executed on 10
September 1973 was a perfected contract of sale. A contract is perfected once
there is consent of the contracting parties on the object certain and on the
cause of the obligation. In the present case, the object of the sale is the
Antipolo property and the price certain is P250,000.
The contract of sale has also been consummated because the vendors and
vendee have performed their respective obligations under the contract. In a
contract of sale, the seller obligates himself to transfer the ownership of the
determinate thing sold, and to deliver the same to the buyer, who obligates
himself to pay a price certain to the seller. The execution of the notarized
deed of sale and the delivery of the owners duplicate copy of OCT No. 535 to
respondent is tantamount to a constructive delivery of the object of the sale.
In Navera v. Court of Appeals, the Court ruled that since the sale was made
in a public instrument, it was clearly tantamount to a delivery of the land
resulting in the symbolic possession thereof being transferred to the buyer.
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Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs also
claimed in their answer that the deed of sale is fake and
spurious.[42]However, as correctly held by the CA, forgery can never be
presumed. The party alleging forgery is mandated to prove it with clear and
convincing evidence. Whoever alleges forgery has the burden of proving it.
In this case, petitioner and the Eniceo heirs failed to discharge this burden.
Petitioner invokes the belated approval by the DENR Secretary, made within
25 years from the issuance of the homestead, to nullify the sale of the
Antipolo property. The sale of the Antipolo property cannot be annulled on
the ground that the DENR Secretary gave his approval after 21 years from
the date the deed of sale in favor of respondent was executed.
The failure to secure the approval of the Secretary does not ipso facto make a
sale void. The absence of approval by the Secretary does not a sale made
after the expiration of the 5-year period, for in such event the requirement of
Section 118 of the Public Land Act becomes merely directory or a formality.
The approval may be secured later, producing the effect of ratifying and
adopting the transaction as if the sale had been previously authorized.
(Underscoring supplied)
WHEREFORE, we DENY the petition. We AFFIRM the 20 December 2004
Decision and 10 October 2005 Resolution of the Court of Appeals in CA-
G.R. CV No. 68828.
UNENFORCEABLE CONTRACTS
REGAL FILMS v CONCEPCION
Gabby Concepcion, through his manager Lolit Solis, entered into
a contract with Regal Films for services to be rendered in petitioners films.
Under the said contract, Regal Films is to give Concepcion two parcels of
land on top of the talent fees it had to pay. In 1993, parties renewed the
contract but still including to give the two parcels of land to Concepcion.
Subsequently, Regal Films failed to comply with its promise to
convey the lots. Gabby and Lolit filed an action of rescission of contract with
damages at RTC QC. Petitioner moved for dismissal saying that both parties
executed an agreement which was to operate as an addendum to the 1991 and
1993 contracts; agreement was signed by petitioners representative and Solis
in behalf of Gabby. Solis filed a motion to dismiss stating that she already
settled the case with Regal Films, acting for herself and Gabby.
Gabby opposed contending that the addendum:
1) Contains provisions grossly disadvantageous to him; and
2) Executed without his knowledge and consent
and Solis had ceased to be his manager and has no authority to sign the
addendum for him.
In the preliminary conference, Regal Films intimated respondent and
his counsel its willingness to allow him to be released from his contracts
rather than to pursue the addendum. Subsequently, respondent filed with the
RTC that he was now willing to honor the addendum and consider it as a
compromise agreement. The trial court issued an order rendering a
compromise based on the addendum. On the other hand, the Court of
Appeals affirmed the ruling of the TC.
ISSUE
Whether or not the addendum which lacks knowledge and consent of the
respondet renders it unenforceable
HELD
Yes. Consent could be given not only by the party himself but by
anyone duly authorized and acting for and in his behalf. But by respondent's
own admission, the addendum was entered into without his knowledge and
consent. A contract entered into in the name of another by one who
ostensibly might have but who, in reality, had no real authority or legal
representation, or who, having such authority, acted beyond his powers,
would be unenforceable.
The addendum, let us then assume, resulted in an unenforceable
contract, might it not then be susceptible to ratification by the person on
whose behalf it was executed? The answer would obviously be in the
affirmative; however, that ratification should be made before its revocation
by the other contracting party.The adamant refusal of respondent to accept
the terms of the addendum constrained petitioner, during the preliminary
conference, to instead express its willingness to release respondent from his
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contracts prayed for in his complaint and to thereby forego the rejected
addendum.
VALENCIA v LOCQUIAO
Facts:
This case involve a parcel of land consisting of 4876 sq situated in
Pangasinan owned by the spouses Hermigildo and Raymunda Locquiao as
evidenced by original certificate of title of No. 18383 issued on October 3,
1917 by the Register of Deeds of Pangasinan.
On May 22, 1944, Hermigildo and Raymunda Locquiao executed a deed of
donation propter nuptias which is written in "Ilocano dialect" , denominated
as "Inventario Ti Sagut" in favor of their son respondent Benito Locquiao
and his prospective bride Tomasa Mara.
By the terms of the deed, the donees were gifted with 4 parcels of land
including the land in question , a cow and a 1/3 portion of the conjugal house
of donor parents in consideration of the impending marriage of the donees.
On June 4, 1944, the donees took their marriage vows and the fact of their
marriage was inscribed at the back of OCT No. 18383.
Thereafter spouses Hermigildo and Raymunda died leaving as heirs their six
children namely : Respondent Benito , Marciano, Lucio , Emeteria ,
Anastacia and Petitioner Romana.
With the permission to the respondents, the petitioner Romana took
possession and cultivated the subject land. In 1977 when the Petitioner's
husband got sick her daughter Constacia Valencia took over and since then
possession of the land.
On May 15, 1970 , Respondent spouses registered the Inventario Ti Sagut
with the Office of the Register of Deeds. In due course the original title was
cancelled and instead Transfer Certificate Title No. 84897 was issued in the
name of the respondents.
On March 18,1973, The heirs executed a Deed of Partition with the
Recognition of Rights, wherein they distributed among only 3 of them the 12
parcels of land left by their common progenitors excluding the land in
question and other lots disposed by the locqiao spouses.
Contained in the deed is a statement that Benito, Marciano and Heirs of
Lucio " Have already received our shares in the estates of our parents by
virtue of previous donations and conveyances" and for that reason heirs of
Lucio were not made parties to the deed.
Later on disagreements among 5 heirs concerning the distribution of 2 of the
lots covered by the deed of partition. As their differences were settled, the
heirs concerned executed a Deed of Compromise agreement on June 12 ,
1976.Significantly,all the signatories to the compromise agreement, including
petitioner Romana, confirmed all the other stipulations and provisions of the
deed of partition.
Sometime in 1983 petitioner Constancia filed an action for annulment of title
against the respondents before the RTC of Pangasinan.
On December 13, 1983 respondent Benito filed a complaint seeking the
ejectment of the petitioner Constancia from the subject property.
Subsequently the MTC rendered a decision ordering petitioner to vacate the
land in question.
Petitioners Romana and Constancia countered a complaint for the annulment
of Transfer Certificate of Title 84897 against the respondents. They alleged
that the issuance of the transfer certificate of title was fraudulent , that the
Inventario Ti Sagut is spurious ,that the notary republic notarized the
document had no authority to do so and the donation did not observe the
form required by law as there was no written acceptance on the document
itself or in a separate public document.
On January 30,1989 the RTC rendered decision dismissing the complaint for
annulment of title on the grounds of prescription and laches.It likewise ruled
that the Inventario Ti Sagut is a valid document which transmitted ownership
over the subject land to the respondents. With the dismissal of the complaint
and the confirmation of the subject property.RTC affirmed in toto the
decision of MTC in the ejectment case.
Petitioner elevated the decision to the CA
November 24,1994 CA assailed the decision affirming the appealed RTC
decisions, the CA upheld the conclusion that the petitioner's cause of action
has already been prescribed, considering that the complaint was filed for
more 15 years after the issuance of the title or beyond 10 years prescriptive
period for actions for reconveyance.It likewise rejected the Petitioners
assertion that the donation propter nuptias is null and void for want
acceptance by the donee, positing that the implied acceptance flowing the
very fact of marriage between the respondents , coupled with the registration
of the fact of marriage at the back of the OCT No. 18383, constitutes
substantial compliance with the requirements of the law.
ISSUED: (1) WON the donation propter nuptias is authentic;
(2) W/ respect on the formal requirements of donation propter
nuptias, which one should be followed? OLD OR NCC?
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HELD:
FIRST ISSUE:
YES. The certification is not sufficient to prove the alleged inexistence or
spuriousness of the challenged document. The appellate court is correct in
pointing out that the mere absence of the notarial record does not prove that
the notary public does not have a valid notarial commission and neither does
the absence of a file copy of the document with the archives effect evidence
of the falsification of the document. The ruled that the failure of the
notary public to furnish a copy of the deed to the appropriate office is a
ground for disciplining him, but certainly not for invalidating the
document or for setting aside the transaction therein involved.
Similarly, Marciano Locquiao and the heirs of Lucio Locquiao were not
allocated any more share in the deed of partition since they received theirs by
virtue of prior donations or conveyances.
SECOND ISSUE:
Under the Old Civil Code, donations propter nuptias must be made in a
public instrument in which the property donated must be specifically
described.However, Article 1330 of the same Code provides that acceptance
is not necessary to the validity of such gifts. In other words, the celebration
of the marriage between the beneficiary couple, in tandem with compliance
with the prescribed form, was enough to effectuate the donation propter
nuptias under the Old Civil Code.
Under the New Civil Code, the rules are different. Article 127 thereof
provides that the form of donations propter nuptias are regulated by the
Statute of Frauds. Article 1403, paragraph 2, which contains the Statute of
Frauds requires that the contracts mentioned thereunder need be in writing
only to be enforceable. However, as provided in Article 129, express
acceptance is not necessary for the validity of these donations. Thus,
implied acceptance is sufficient.
Since the donation propter nuptias was executed in 1944 and the New Civil
Code took effect only on August 30, 1950. As a consequence, applying
Article 1330 of the Old Civil Code in the determination of the validity of
the questioned donation, it doesn't matter whether or not the donees had
accepted the donation. The validity of the donation is unaffected in either
case.
Even if the provisions of the New Civil Code were to be applied, still even
the implied acceptance of a donation propter nuptias suffices under the NCC.
LITOJUA v FERNANDEZ
Sometime in 1995, Alimario and Fisico who worked as brokers,
offered to sell to the petitioners the two parcels land.
Petitioners met with respondent Fernandez and the two brokers.
The parties agreed that petitioners would buy the property.
Thereafter, they agreed to meet on December 8, 1995 to finalize
the sale. It was agreed that on the said date, respondent would
present a special power of attorney executed by the owners of the
property, authorizing her to sell the property for and in behalf, and
to execute a deed of absolute sale thereon. However, it was only
Fisico who attended the said meeting. And informed petitioners
that Fernandez was encountering some problems with the tenants
and was trying to work out a settlement with them.
Petitioners wrote respondent, demanding that their transaction be
finalized. When respondent did not respond, the petitioner sent
again another letter, asking that the Deed of sale covering the
subject property be executed in accordance with their verbal
agreement and turnover of the subject properties to them within
15 days from receipt of the said letter; otherwise, they would have
no option but to protect their interest through legal means.
In Respondents reply letter to petitioners, she formally inform the
latter that they are no longer selling the subject property. And
since they have not demanded and received from petitioners any
earnest money, hence, no obligation exist.
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Thus, prompted petitioners to file an instant complaint for specific
performance and damages against respondent Fernandez and the
registered owners of the property. They alleged among others that
after their brief negotiation, defendants committed and
specifically agreed to sell to petitioners the subject parcels of
land.
Respondent Fernandez filed her Answer to the complaint. She
claimed that while the petitioners offered to buy the property
during the meeting of November 27, 1995, she did not accept the
offer; thus, no verbal contract to sell was ever perfected. She
specifically alleged that the said contract to sell was
unenforceable for failure to comply with the statute of frauds. She
also maintained that even assuming arguendo that she had,
indeed, made a commitment or promise to sell the property to the
petitioners, the same was not binding upon her in the absence of
any consideration distinct and separate from the price.
The RTC, ruled in favor of the Petitioners and held that there was a perfected
contract of sale. On appeal, the Court of Appeal, reversed and set aside the
decision of the RTC. The CA ruled that the petitioners failed to prove that a
sale or contract to sell over the property between the parties had been
perfected.
Issue
(1) Whether or not there was a perfected contract of sale between the
parties.
(2) Whether or not the letter sent by Fernandez to petitioner constitute
the note or memorandum contemplated under Article 1403(2)(e)
of the New Civil Code.
HELD
The Supreme Court held in the Negative and affirmed the decision of the
Court of Appeals.
Petitioners assert that there was a perfected contract of sale between the
petitioners as buyers and the respondents-owners, through respondents
Fernandez, as seller. Petitioners contend that the perfection of the said
contract is evidenced by the January 16, 1996 Letter of respondent
Fernandez. They argue that the said Letter is a sufficient note or
memorandum of the perfected contract, thus removing it from the coverage
of the Statute of frauds. The Supreme Court held such contention bereft of
merit. Citing the decision of the appellate court in this case which ruled that
the Letter of respondent is hardly the note or memorandum contemplated
under Article 1403(2)(e) of the New Civil Code which provides:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing,
or secondary evidence of its contents:
(e) An agreement for the leasing for a longer period than one year, or for the
sale of real property or of an interest therein.
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-appellant
can hardly be said to constitute the note or memorandum evidencing the
agreement of the parties to enter into a contract of sale as it is very clear that
defendant-appellant as seller did not accept the condition that she will be the
one to pay the registration fees and miscellaneous expenses and therein also
categorically denied she had already committed to execute the deed of sale as
claimed by the plaintiffs-appellees. The letter, in fact, stated the reasons
beyond the control of the defendant-appellant, why the sale could no longer
push through because of the problem with tenants.
The CA cited the case of Rosencor Development Corporation v.
CA which held that, the term statute of frauds is descriptive of
statutes which require certain classes of contracts to be in writing.
The statute does not deprive the parties of the right to contract
with respect to the matters therein involved, but merely regulates
the formalities of the contract necessary to render it enforceable.
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations, depending for their existence on the
unassisted memory of witnesses, by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by
the party to be charged. The statute is satisfied or, as it is often
stated, a contract or bargain is taken within the statute by making
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and executing a note or memorandum of the contract which is the
statute is satisfied or, as it is often stated, a contract or bargain is
taken within the statute by making and executing a note or
memorandum of the contract which is sufficient to state the
requirements of the statute. The application of such statute
presupposes the existence of a perfected contract. However, for a
note or memorandum to satisfy the statute, it must be complete in
itself and cannot rest partly in writing and partly in parol. The
note or memorandum must contain the names of the parties, the
terms and conditions of the contract and a description of the
property sufficient to render it capable of identification. Such note
or memorandum must contain the essential elements of the
contract expressed with certainty that may be ascertained from the
note or memorandum itself, or some other writing to which it
refers or within which it is connected, without resorting to parol
evidence. To be binding on the persons to be charged, such note
or memorandum must be signed by the said party or by his agent
duly authorized in writing.
In City of Cebu v. Heirs of Rubi the Supreme Court held that the
exchange of written correspondence between the parties may
constitute sufficient writing to evidence the agreement for
purposes of complying with the statute of frauds.
In this case, The Supreme Court agree with the findings of the appellate court
that there was no perfected contract of sale between the respondents-owners,
as sellers, and the petitioners, as buyers. There is no documentary evidence
on record that the respondents-owners specifically authorized respondent
Fernandez to sell their properties to another, including the petitioners.
Contrary to the petitioners contention, the letter of January 16, 1996 is not a
note or memorandum within the context of Article 1403(2) because it does
not contain the following: (a) all the essential terms and conditions of the sale
of the properties; (b) an accurate description of the property subject of the
sale; and, (c) the names of the respondents-owners of the properties.
GOZUN v MERCADO
FACTS: In 1995, respondent Mercado vied for the gubernatorial post in
Pampanga. Obviously, he was in need of campaign materials. Petitioner
Gozun, on the other hand, was an owner a printing shop located in San
Fernando, Pampanga.
Respondents wife, Annie Mercado, with respondents approval, contracted
petitioners services in the printing of respondents campaign materials. Due
to time constraints, petitioner Gozun had to avail the services and facilities of
2 other printing shops which were owned by his daughter and mother. Upon
the completion of the job order, petitioner delivered the campaign materials
to respondents headquarters.
Sometime on March 31, 1995, respondents sister-in-law, Lilian Soriano
(Soriano) came to petitioner Gozun early in the morning asking to borrow
money since they were not able to withdraw from the bank. Lilian Soriano
obtained from petitioner Gozun a "cash advance" of P253,000 allegedly for
the allowances of poll watchers who were attending a seminar and for other
related expenses. An acknowledgment receipt was issued, however the same
did not specify for what reason the said amount was delivered and in what
capacity did Soriano receive the money.
Subsequently, petitioner Gozun sent respondent Mercado a Statement of
Account itemized as follows:
Petitioner Gozun's printing shop P640,310
Other two printing shops P837,696
P446,900
"Cash advance" obtained by Soriano P253,000
TOTAL AMOUNT P2,177,906
----
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Respondent's wife paid P1,000,000
Unpaid Balance subject of litigation ---> P1,177,906
----
Less the "Cash advance" P253,000
Total amount payable by Respondent P924,906
On August 11, 1995, respondents wife partially paid P1M to petitioner who
issued a receipt therefor, leaving a balance of P1,177,906. For more than 3
years, petitioner demanded that the balance be paid but to no avail. He then
filed a complaint in court to collect the said amount.
Respondent Mercado in his Counterclaim, denied having given Lilian
Soriano the authority to obtain the said cash advance and having received the
same.
RTC: The case was decided in favor of petitioner Gozun ordering
respondent Mercado to pat the full unpaid balance including the cash
advance, with interest.
CA: Reversed the RTC decision and decreed that:
Other than petitioners testimony, there was no evidence to support his
claim that Lilian Soriano was authorized by respondent to borrow
money on his behalf. It noted that the acknowledgment receipt
signed by Lilian Soriano did not specify in what capacity she
received the money. Thus, applying Article 1317 of the Civil
Code, it held that petitioners claim for P253,000
unenforceable.
Moreover, the CA also stated that since petitioner already received P1M
as payment, his claim for the expenses incurred by his printing
shop (P640,310) had already been settled; and that petitioner
could not collect the amounts due to the other 2 printing shops
(P837,696 and P446,900) as his daughther and mother as owners
were not impleaded as parties to the case, and it was not shown
that petitioner Gozun was authorized to prosecute the same on
their behalf.
ISSUE:
WON the "cash advance" is unenforceable and ultimately, WON can
petitioner Gozun collect the full unpaid balance of P1,177,906 from
respondent Mercado.
RATIO:
Petitioner Gozun could not collect the full unpaid balance of P1,177,906 as
the "cash advance" obtained by Lilian Soriano was unauthorized and
therefore unenforceable.
Respondent Mercado cannot be bound by contracts he did not authorize to be
entered to on his behalf. Petitioner Gozun could only collect the balance due
less the said cash advance, P924,906.
As enshrined under Article 1317 and Article 1403 (1) of the Civil Code,
Contracts entered into in the name of another person by one who has been
given no authority or legal representation or who has acted beyond his
powers are classified as unauthorized contracts and are declared
unenforceable, unless they are ratified.
Generally, the agency may be oral, unless the law requires a specific form.
However, a special power of attorney is necessary for an agent to, as in this
case, borrow money, unless it be urgent and indispensable for the
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preservation of the things which are under administration. Since nothing in
this case involves the preservation of things under administration, a
determination of whether Soriano had the special authority to borrow money
on behalf of respondent is in order.
The requirement of a special power of attorney refers to the nature of the
authorization and not to its form. The requirements are met if there is a clear
mandate from the principal specifically authorizing the performance of the
act. A mandate may be either oral or written. The one thing vital being that it
shall be express. If the special authority is not written, then it must be duly
established by evidence.
Petitioner submits that his testimony suffices to establish that respondent had
authorized Lilian to obtain a loan from him. However, Petitioners testimony
failed to categorically state, however, whether the loan was made on behalf
of respondent or of his wife.
As to the acknowledgment receipt presented, the SC stated that nowhere in
the note can it be inferred that respondent Mercado was connected with the
said transaction.
Under Article 1317 of the New Civil Code, a person cannot be bound by
contracts he did not authorize to be entered into his behalf.
It bears noting that Lilian signed in the receipt in her name alone, without
is indicating therein that she was acting for and in behalf of respondent. She
thus bound herself in her personal capacity and not as an agent of respondent
or anyone for that matter.
Also the SC stated that the parties to a contract are the real parties in interest
in an action upon it. Indeed, petitioner Gozun is the real party in interest in
this case. The CA therefore erred in not ruling that petitioner as a real party
in interest insofar as recovery of the cost of campaign materials made by
petitioners mother and sister are concerned, upon the wrong notion that they
should have been, but were not, impleaded as plaintiffs.
In sum, respondent has the obligation to pay the total cost of printing his
campaign materials delivered by petitioner in the total of P1,924,906, less the
partial payment of P1,000,000, or P924,906.
CABALES v CA
Facts: When Rufino Cabales died, he left a 5,714 sq.m. parcel of land
(subject property) to his surviving wife Saturnina and six children named
Bonifacio, Albino, Francisco, Leonora, Alberto and petitioner Rito.
In 1971, Bonifacio, Albino and Alberto sold the subject property to Dr.
Cayetano Corrompido for P2,000 with a right to repurchase within eight (8)
years. The following year, in 1972, Alberto died leaving his wife and son,
petitioner Nelson.
Three years after the death of Alberto and within the eight-year redemption
period, Bonifacio and Albino repurchased the subject property from Dr.
Corrompido. But Dr. Corrompido only released the document of sale with
pacto de retro after Saturnina paid for the share of her deceased son, Alberto.
After repurchasing the subject property, Saturnina and her four (4) children
Bonifacio, Albino, Francisco and Leonora sold the subject parcel of land to
respondents-spouses Jesus and Anunciacion Feliano for P8,000. The Deed of
Sale provides that:
x x x the amount of P2,686 corresponding and
belonging to the Heirs of Alberto Cabales and to Rito Cabales
who are still minors upon the execution of the instrument are held
in trust by the VENDEE and to be paid and delivered only to
them upon reaching the age of 21.
When Rito Cabales was already 24 years old, he acknowledged receipt of the
sum of P1,143 from respondent Jesus Feliano, representing his share in the
proceeds of the sale of the subject property.
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With respect to petitioner Nelson, it was only in 1988 when he learned from
his uncle, petitioner Rito, of the sale of the subject property. In 1993, he
signified his intention to redeem the subject land during a barangay
conciliation process that he initiated.
Subsequently, due to the lack of amicable settlement, the petitioners filed a
complaint for redemption of the subject property plus damages before the
RTC contending that they could not have sold their respective shares in the
subject property when they were still minors.
Issue: Whether or not the sale in favor of the respondents-spouses Feliano is
valid with respect to petitioners Rito and Nelsons shares
Ruling: The contract of sale is unenforceable with respect to Ritos share.
However, the same contract became valid because of Ritos ratification of the
said contract. With respect to Nelson, the contract of sale is void.
RITOS SHARE. When Rufino Cabales died intestate, his wife Saturnina
and his six children including petitioner Rito survived and succeeded him.
Pursuant to Article 996 of the New Civil Code, the seven heirs inherited
equally on the subject property. Thus, Rito owns one-seventh of the subject
property just like the other six heirs.
When the subject property was redeemed from Dr. Corrompido (the buyer in
the first contract of sale), the said property was resold to respondents-spouses
Feliano by the co-owners. It must be noted that petitioner Rito was a minor
during that time. The SC applied Article 320, NCC. A portion of Article 320
provides:
Article 320. The father, or in his absence the mother, is the legal
administrator of the property pertaining to the child under parental authority.
xxx
Applying Article 320 in this case, Saturnina is the legal administrator of
petitioner Ritos share since Rufino, his father, already died.
Corollary to Article 320 is Section 7, Rule 93 of the Revised Rules of Court
of 1964 which provides:
Section 7. Parents as guardians. When the property of the child
under parental authority is worth two thousand pesos or less, the father or the
mother, without the necessity of court appointment, shall be his legal
guardian x x x
Applying the said provision, the Court held that Saturnina was clearly
petitioner Ritos legal guardian without necessity of court appointment
considering that the amount of his property, which was basically 1/7 of the
subject property, was only P1,143, which is less than two thousand pesos.
Having established that Saturnina was petitioner Ritos legal guardian, the
question is to what extent shall the guardianship cover. The SC cited Section
1, Rule 96 of the Revised Rules of Court. A portion of which provides that:
Section 1. To what guardianship shall extend. A guardian
appointed shall have the care and custody of the person of his ward, and the
management of his estate, or the management of the estate only, as the case
may be. x x x
Thus, the legal guardian only has the plenary power of administration of the
minors property. It does not include the power of alienation because such act
needs judicial authority.
In the case at bar, when Saturnina, as legal guardian of petitioner Rito, sold
the latters pro indiviso share in subject land, she did not have the legal
authority to do so.
Article 1403(1) of the NCC provides that the contract is
UNENFORCEABLE if it is:
entered into the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers; x x x
As provided by Article 1403, the contract of sale as to the pro indiviso share
of petitioner Rito was unenforceable because Saturnina, as his legal guardian,
acted beyond her authority when she sold Ritos share in favor of
respondents-spouses Feliano.
However, since the contract was unenforceable, it may be subject to
ratification. Now, the court ruled that when petitioner Rito acknowledged
receipt of the proceeds of the sale when he was already 24 years old,
petitioner Rito effectively ratified the said unenforceable contract. Therefore,
the said act of ratification rendered the sale valid and binding as to him.
NELSONS SHARE. Petitioner Nelson is the son of Alberto, one of the
heirs of Rufino Cabales. Thus, when Alberto died, by operation of law, his
rights and obligations to one-seventh (1/7) of the subject land were
transferred to his legal heirs his wife and his son petitioner Nelson.
Despite the fact that Saturnina was the one who paid for the redemption price
of Albertos share in the subject property, Saturnina only has a right to be
reimbursed by what she had paid for the redemption price. The said payment
did not vest her ownership of Albertos share. Therefore, at the time that the
said subject property was sold to respondents-spouses Feliano, one-seventh
of the subject property was still owned by Albertos heirs i.e. his wife and
his son, petitioner Nelson.
Just like petitioner Rito, petitioner Nelson was also a minor at the time the
subject property was sold to respondents-spouses Feliano. The SC ruled that
Saturnina or any and all the other co-owners were not the legal guardians of
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petitioner Nelson who has judicial authority to alienate or encumber Nelsons
property. In fact, it was Nelsons mother who was his legal guardian and, if
duly authorized by the courts, could validly sell his undivided share to the
property. However, she did not.
Thus, when Saturnina and the others sold the subject property in its entirety
to respondents-spouses Feliano, they only sold and transferred title with
respect to their pro indiviso shares and not that part pertaining to petitioner
Nelson and his mother. Therefore, petitioner Nelson and his mother retained
ownership over their undivided share of subject property.
PENALBER v RAMOS
FACTS:
First Cause of Action
Petitioner alleged in her Complaint that she was the owner Ugac properties.
Petitioner averred that in the middle part of 1986, she discovered that title
was cancelled and another title was issued in its in the name of respondent
spouses Ramos. Upon verification, petitioner learned that the basis for the
cancellation of her title was a Deed of Donation of a Registered Land,
Residential House and Camarin, which petitioner purportedly executed in
favor of respondent spouses Ramos. Petitioner insisted that her signature on
the said Deed of Donation was a forgery as she did not donate any property
to respondent spouses Ramos. When petitioner confronted the respondent
spouses Ramos about the false donation, the latter pleaded that they would
just pay for the Ugac properties in the amount of P1 Million. Petitioner
agreed to the proposition of the respondent spouses Ramos.
Subsequently, petitioner found out that the respondent spouses Ramos were
selling the Ugac properties to respondent Bartex, Inc. Petitioner then sent her
son, Johnson to caution respondent Bartex, Inc. that respondent spouses
Ramos were not the lawful owners of the said properties. Johnson was
allegedly able to convey petitioners caveat to a representative of respondent
Bartex, Inc. Petitioner also warned respondent spouses Ramos not to sell the
Ugac properties anymore, otherwise, she would file the necessary action
against them. The respondent spouses Ramos then assured her that they
would do no such thing. As a precaution, petitioner executed an Affidavit of
Adverse Claim over the Ugac Properties and caused the same to be
annotated. Despite petitioners warnings, respondent spouses Ramos still
executed in favor of respondent Bartex, Inc. a Deed of Absolute Sale over the
Ugac properties.
Petitioner contended that the Deed of Absolute Sale executed by respondent
spouses Ramos in favor of respondent Bartex, Inc. did not convey any valid
title, not only because respondent Bartex, Inc. was a buyer in bad faith, but
also because respondent spouses Ramos did not own the Ugac properties.
Thus, petitioner prayed for the declaration of nullity of Deeds and Titles,
Reconveyance, Damages, with Application for a Writ of Preliminary
Prohibitory Injunction against the respondents.
Second Cause of Action(Unenforceable Contract)-Verbal Agreement
Involving Immovable Property
Petitioner claimed that for many years prior to 1984, she operated a hardware
store in a building she owned along Bonifacio St., Tuguegarao, Cagayan.
However, the Bonifacio property upon which the building stood is owned by
and registered in the name of Mendoza, from whom petitioner rented the
same.
Petitioner allowed respondent spouses Ramos to manage the hardware store.
Thereafter, in 1984, Mendoza put the Bonifacio property up for sale. As
petitioner did not have available cash to buy the property, she allegedly
entered into a verbal agreement with respondent spouses Ramos with the
following terms:
1. The lot would be bought by herein respondent spouses Ramos for and in
behalf of herein petitioner;
2. The consideration of P80,000.00 for said lot would be paid by spouses
Ramos from the accumulated earnings of the store;
3. Since spouses Ramos have the better credit standing, they would be made
to appear in the Deed of Sale as the vendees so that the title to be issued in
their names could be used by them to secure a loan with which to build a
bigger building and expand the business of petitioner.
In accordance with the above agreement, respondent spouses Ramos
allegedly entered into a contract of sale with Mendoza over the Bonifacio
property, and TCT covering said property was issued in the names of
respondent spouses Ramos.
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Spouses Ramos returned the management of the hardware store to petitioner.
On the bases of receipts and disbursements, petitioner asserted that the
Bonifacio property was fully paid out of the funds of the store and if
respondent spouses Ramos had given any amount for the purchase price of
the said property, they had already sufficiently reimbursed themselves from
the funds of the store. Consequently, petitioner demanded from respondent
spouses Ramos the reconveyance of the title to the Bonifacio property to her
but the latter unjustifiably refused.
Petitioner insisted that spouses Ramos were, in reality, mere trustees of the
Bonifacio property, thus, they were under a moral and legal obligation to
reconvey title over the said property to her. Petitioner, therefore, prayed that
she be declared the owner of the Bonifacio property.
Spouses Ramos accordingly filed before the RTC their Answer to petitioners
Complaint. As regards the first cause of action, respondent spouses Ramos
alleged that petitioner, together with her son, Johnson, and the latters wife,
Maria Teresa Paredes, mortgaged the Ugac properties to the DBP for the
amount of P150,000.00. When the mortgage was about to be foreclosed
because of the failure of petitioner to pay the mortgage debt, petitioner asked
respondent spouses Ramos to redeem the mortgaged property or pay her
mortgage debt to DBP. In return, petitioner promised to cede, convey and
transfer full ownership of the Ugac properties to them
With regard to petitioners second cause of action involving the Bonifacio
property,spouses Ramos contended that they were given not only the
management, but also the full ownership of the hardware store by the
petitioner, on the condition that the stocks and merchandise of the store will
be inventoried, and out of the proceeds of the sales thereof, respondent
spouses Ramos shall pay petitioners outstanding obligations and liabilities.
After settling and paying the obligations and liabilities of petitioner,
respondent spouses Ramos bought the Bonifacio property from Mendoza out
of their own funds.
RTC DECISION:
On the first cause of action, the Court finds the testimony of herein petitioner
Lina Penalber denying her execution of the deed of donation over the Ugac
property in favor of respondent spouses Ramos insufficient to support the
said cause of action.
On the second cause of action, the Court finds the evidence preponderantly in
favor of the herein petitioner.
Spouses Ramos filed with the RTC a Motion for Reconsideration of the
afore-mentioned decision, assailing the ruling of the RTC on petitioners
second cause of action on the ground that the alleged express trust created
between them and petitioner involving the Bonifacio property could not be
proven by parol evidence. The RTC denied respondent spouses Ramos
Motion for Reconsideration for lack of merit, ratiocinating that respondent
spouses Ramos failed to interpose timely objections when petitioner testified
on their alleged verbal agreement regarding the purchase of the Bonifacio
property. As such, respondent spouses Ramos were deemed to have waived
such objections, which cannot be raised anymore in their Motion for
Reconsideration. The RTC then reiterated its finding that petitioners
evidence clearly established her second cause of action. Additionally, the
RTC held that the requirement that the parties exert earnest efforts towards
an amicable settlement of the dispute had likewise been waived by the
respondents as they filed no motion regarding the same before the trial.
The CA rendered the assailed Decision in favor of respondent spouses
Ramos.
ISSUE: Whether the trust agreement was valid and enforceable.
RULING:
In its technical legal sense, a trust is defined as the right, enforceable solely
in equity, to the beneficial enjoyment of property, the legal title to which is
vested in another, but the word "trust" is frequently employed to indicate
duties, relations, and responsibilities which are not strictly technical trusts. A
person who establishes a trust is called the trustor; one in whom confidence
is reposed is known as the trustee; and the person for whose benefit the trust
has been created is referred to as the beneficiary. There is a fiduciary relation
between the trustee and the beneficiary as regards certain property, real,
personal, money or choses in action.
Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties. Implied trusts come into being by
operation of law. Express trusts are those which are created by the direct and
positive acts of the parties, by some writing or deed, or will, or by words
either expressly or impliedly evincing an intention to create a trust. No
particular words are required for the creation of an express trust, it being
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sufficient that a trust is clearly intended. However, in accordance with Article
1443 of the Civil Code, when an express trust concerns an immovable
property or any interest therein, the same may not be proved by parol or oral
evidence.
From the allegations of the petitioners Complaint in Civil Case No. 3672,
the alleged verbal trust agreement between petitioner and respondent spouses
Ramos is in the nature of an express trust as petitioner explicitly agreed
therein to allow the respondent spouses Ramos to acquire title to the
Bonifacio property in their names, but to hold the same property for
petitioners benefit. Given that the alleged trust concerns an immovable
property, however, respondent spouses Ramos counter that the same is
unenforceable since the agreement was made verbally and no parol evidence
may be admitted to prove the existence of an express trust concerning an
immovable property or any interest therein.
On this score, we subscribe to the ruling of the RTC that said spouses were
deemed to have waived their objection to the parol evidence as they failed to
timely object when petitioner testified on the said verbal agreement. The
requirement in Article 1443 that the express trust concerning an immovable
or an interest therein be in writing is merely for purposes of proof, not for the
validity of the trust agreement. Therefore, the said article is in the nature of a
statute of frauds. The term statute of frauds is descriptive of statutes which
require certain classes of contracts to be in writing. The statute does not
deprive the parties of the right to contract with respect to the matters therein
involved, but merely regulates the formalities of the contract necessary to
render it enforceable. The effect of non-compliance is simply that no action
can be proved unless the requirement is complied with. Oral evidence of the
contract will be excluded upon timely objection. But if the parties to the
action, during the trial, make no objection to the admissibility of the oral
evidence to support the contract covered by the statute, and thereby permit
such contract to be proved orally, it will be just as binding upon the parties as
if it had been reduced to writing.
A careful perusal of the records of the case reveals that respondent spouses
Ramos did indeed fail to interpose their objections regarding the
admissibility of the afore-mentioned testimonies when the same were offered
to prove the alleged verbal trust agreement between them and petitioner.
Consequently, these testimonies were rendered admissible in evidence.
Nevertheless, while admissibility of evidence is an affair of logic and law,
determined as it is by its relevance and competence, the weight to be given to
such evidence, once admitted, still depends on judicial evaluation. Thus,
despite the admissibility of the said testimonies, the Court holds that the
same carried little weight in proving the alleged verbal trust agreement
between petitioner and respondent spouses.
Petitioners allegations as to the existence of an express trust agreement with
respondent spouses Ramos, supported only by her own and her son Johnsons
testimonies, do not hold water. As correctly ruled by the Court of Appeals, a
resulting difference of P116,946.15 in the beginning inventory of the stocks
of the hardware store (before management was transferred to respondent
spouses Ramos) and the second inventory thereof (after management was
returned to petitioner), by itself, is not conclusive proof that the said amount
was used to pay the purchase price of the Bonifacio property, such as would
make it the property of petitioner held merely in trust by respondent spouses
Ramos. Such a conclusion adopted by the RTC is purely speculative and non
sequitur.
The resulting difference in the two inventories might have been caused by
other factors and the same is capable of other interpretations, the exclusion of
which rested upon the shoulders of petitioner alone who has the burden of
proof in the instant case. This petitioner miserably failed to do. The fact that
respondent spouses Ramos never denied the P116,946.15 difference, or that
they failed to present proof that they indeed used the said amount to pay the
other obligations and liabilities of petitioner is not sufficient to discharge
petitioners burden to prove the existence of the alleged express trust
agreement.
GONZALES v PEREZ
FACTS
The former Municipality of used to own a parcel of land located in Barrio
Concepcion subdivided into three (3) lots, namely, lots A, B and C.
On January 14, 1966, the Municipal Council of Marikina passed Resolution
No. 9, series of 1966 which authorized the sale through public bidding of
Municipal Lots A and C. A public bidding was conducted wherein Pedro
Gonzales was the highest bidder.
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Sometime in September 1966, Pedro sold to Marcos Perez a portion of Lot C,
denominated as Lot C-3, which contains an area of 375 square meters. The
contract of sale was embodied in a Deed of Sale which, however, was not
notarized
Subsequently, Pedro and Marcos died.
In 1992, the Municipality of Marikina, through its then Mayor Rodolfo
Valentino, executed a Deed of Absolute Transfer of Real Property over Lots
A and C in favor of the Estate of Pedro C. Gonzales.
Subsequently, herein petitioners executed an extrajudicial partition wherein
Lot C was subdivided into three lots. As a result of the subdivision, new titles
were issued wherein the 370-square-meter portion of Lot C-3 is now
denominated as Lot C-1 and is covered by TCT No. 2444479 and the
remaining 5 square meters of the subject lot (Lot C-3) now forms a portion of
another lot denominated as Lot C-2 and is now covered by TCT No. 244448.
On October 1, 1992, herein respondents sent a demand letter to one of herein
petitioners asking for the reconveyance of the subject property. However,
petitioners refused to reconvey the said lot. As a consequence, respondents
filed an action for "Annulment and/or Rescission of Deed of Absolute
Transfer of Real Property and for Reconveyance with Damages.
ISSUE: Whether or not the Deed of Absolute Sale between Gonzales and
Perez were unenforceable due to the absence of notarization as a public
document
RULING
NO, the Deed of Sale was valid and enforceable.
On the question of whether the subject Deed of Sale is invalid on the ground
that it does not appear in a public document, Article 1358 of the same Code
enumerates the acts and contracts that should be embodied in a public
document, to wit:
Art. 1358. The following must appear in a public document: (1) Acts and
contracts which have for their object the creation, transmission, modification
or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by Articles 1403, No. 2 and
1405;
Art. 1403. The following contracts are unenforceable, unless they
are ratified: (2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents: Under Article
1403(2), the sale of real property should be in: a. writing and; b.
subscribed by the party charged for it to be enforceable
In the case before the Court, the Deed of Sale between Pedro and Marcos is
in writing and subscribed by Pedro and his wife Francisca; hence, it is
enforceable under the Statute of Frauds.
However, not having been subscribed and sworn to before a notary public,
the Deed of Sale is not a public document and, therefore, does not comply
with Article 1358 of the Civil Code.
Nonetheless, it is a settled rule that the failure to observe the proper form
prescribed by Article 1358 does not render the acts or contracts enumerated
therein invalid. It has been uniformly held that the form required under the
said Article is not essential to the validity or enforceability of the transaction,
but merely for convenience.
The Court agrees with the CA in holding that a sale of real property, though
not consigned in a public instrument or formal writing, is, nevertheless, valid
and binding among the parties, for the time-honored rule is that even a verbal
contract of sale of real estate produces legal effects between the parties.
Stated differently, although a conveyance of land is not made in a public
document, it does not affect the validity of such conveyance. Article 1358
does not require the accomplishment of the acts or contracts in a public
instrument in order to validate the act or contract but only to insure its
efficacy.
Thus, based on the foregoing, the Court finds that the CA did not err in ruling
that the contract of sale between Pedro and Marcos is valid and binding.
BUCTON v RURAL BANK OF EL SALVADOR
Facts:
Petitioner Nicanora G. Bucton filed a case4 for Annulment of Mortgage,
Foreclosure, and Special Power of Attorney (SPA) against Erlinda
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Concepcion (Concepcion) and respondents Rural Bank of El Salvador,
Misamis Oriental, and Sheriff Reynaldo Cuyong.5
Petitioner alleged that she is the owner of a parcel of land, covered by
Transfer Certificate of Title (TCT) No. T3838, that Concepcion borrowed
the title on the pretext that she was going to show it to an interested
buyer;7 that Concepcion obtained a loan in the amount of P30,000.00 from
respondent bank;8 that as security for the loan, Concepcion mortgaged
petitioners house and lot to respondent bank using a SPA9 allegedly
executed by petitioner in favor of Concepcion;10 that Concepcion failed to
pay the loan;11 that petitioners house and lot were foreclosed by respondent
sheriff without a Notice of ExtraJudicial Foreclosure or Notice of Auction
Sale;12 and that petitioners house and lot were sold in an auction sale in
favor of respondent bank.13
Respondent bank filed an Answer14 interposing lack of cause of action as a
defense.15 It denied the allegation of petitioner that the SPA was
forged16 and averred that, petitioner went to the bank and promised to settle
the loan of Concepcion. As to the alleged irregularities in the foreclosure
proceedings, respondent bank asserted that it complied with the requirements
of the law in foreclosing the house and lot.
Petitioner testified that a representative of respondent bank went to her house
to inform her that the loan secured by her house and lot was long
overdue.26 Since she did not mortgage any of her properties nor did she
obtain a loan from respondent bank, she decided to go to respondent bank on
June 22, 1987 to inquire about the matter.27 It was only then that she
discovered that her house and lot was mortgaged by virtue of a forged
SPA.28 She insisted that her signature and her husbands signature on the
SPA were forged. Petitioner also denied appearing before the notary public,
who notarized the SPA.31 She also testified that the property referred to in
the SPA, TCT No. 3838, is a vacant lot and that the house, which was
mortgaged and foreclosed, is covered by a different title, TCT No. 3839. 32
Respondent bank, on the other hand, presented the testimonies of its
employees36 and respondent sheriff. Based on their testimonies, it appears
that on June 8, 1982, Concepcion applied for a loan for her coconut
production business37 in the amount of P40,000.00 but only the amount of
P30,000.00 was approved;38 that she offered as collateral petitioners house
and lot using the SPA;39 and that the proceeds of the loan were released to
Concepcion and Lugod.
RTC:
The SPA was forged and declares the Real Estate Mortage as null and void.
CA:
Respondent bank elevated the case to the CA arguing that the SPA was not
forged53 and that being a notarized document, it enjoys the presumption of
regularity.54
Petitioner, on the other hand, maintained that the signatures were
forged55 and that she cannot be made liable as both the Promissory
Note56 and the Real Estate Mortgage, which were dated June 11, 1982, were
signed by Concepcion in her own personal capacity.57
CA reversed the findings of the RTC. The CA found no cogent reason to
invalidate the SPA, the Real Estate Mortgage, and Foreclosure Sale as it was
not convinced that the SPA was forged. The CA declared that although the
Promissory Note and the Real Estate Mortgage did not indicate that
Concepcion was signing for and on behalf of her principal, petitioner is
estopped from denying liability since it was her negligence in handing over
her title to Concepcion that caused the loss.58
Issue: W/N the real estate mortgage is valid.
Held:
The Real Estate Mortgage is void and unenforceable.
The Real Estate Mortgage was entered into by Concepcion in her own
personal capacity.
As early as the case of Philippine Sugar Estates Development Co. v.
Poizat,76 we already ruled that in order to bind the principal by a deed
executed by an agent, the deed must upon its face purport to be made, signed
and sealed in the name of the principal.77 In other words, the mere fact that
the agent was authorized to mortgage the property is not sufficient to bind the
principal, unless the deed was executed and signed by the agent for and on
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behalf of his principal. Furthermore, under Art. 1490, husband and wife are prohibited to sell
properties to each other. And where, as in this case, the sale is inexistent for
In this case, the authorized agent failed to indicate in the mortgage that she lack of consideration, the principle of in pari delicto non oritur actio does not
was acting for and on behalf of her principal. The Real Estate Mortgage,
apply.
explicitly shows on its face, that it was signed by Concepcion in her own
name and in her own personal capacity. In fact, there is nothing in the xxx xxx xxx
document to show that she was acting or signing as an agent of
petitioner. Thus, consistent with the law on agency and established The Court of Appeals, on the other hand, adopted the following findings a
jurisprudence, petitioner cannot be bound by the acts of Concepcion. quo: that there is no sufficient evidence establishing fault on the part of
MERLINDA, and therefore, the principle of in pari delicto is inapplicable
In light of the foregoing, there is no need to delve on the issues of forgery of and the sale was void for want of consideration. In effect, MERLINDA can
the SPA and the nullity of the foreclosure sale. For even if the SPA was
recover the lots sold by her husband to petitioner MODINA. However, the
valid, the Real Estate Mortgage would still not bind petitioner as it was
signed by Concepcion in her personal capacity and not as an agent of Court of Appeals ruled that the sale was void for violating Article 1490 of the
petitioner. Simply put, the Real Estate Mortgage is void and Civil Code, which prohibits sales between spouses.
unenforceable against petitioner.
The principle of in pari delicto non oritur actio denies all recovery to the
Respondent bank was negligent. guilty parties inter se. It applies to cases where the nullity arises from the
illegality of the consideration or the purpose of the contract. When two
Respondent bank has no one to blame but itself. Not only did it act with
persons are equally at fault, the law does not relieve them. The exception to
undue haste when it granted and released the loan in less than three days, it
also acted negligently in preparing the Real Estate Mortgage as it failed to this general rule is when the principle is invoked with respect to inexistent
indicate that Concepcion was signing it for and on behalf of petitioner. We contracts.
need not belabor that the words as attorneyinfact of, as agent of, or
for and on behalf of, are vital in order for the principal to be bound by the In the petition under consideration, the Trial Court found that subject Deed of
acts of his agent. Without these words, any mortgage, although signed by the Sale was a nullity for lack of any consideration. This finding duly supported
agent, cannot bind the principal as it is considered to have been signed by the
by evidence was affirmed by the Court of Appeals. Well-settled is the rule
agent in his personal capacity.
that this Court will not disturb such finding absent any evidence to the
contrary.
VIOD CONTRACTS
ISSUES: Whether the contract is void and whether the spouses are in pari
delicto.
MODINA v CA
RULING: Yes
FACTS: The parcels of land in question are those under the name of Ramon
Under Article 1409 of the New Civil Code, enumerating void contracts, a
Chiang. He theorized that subject properties were sold to him by his wife,
contract without consideration is one such void contract. One of the
Merlinda Plana Chiang (hereinafter referred to as MERLINDA), as
characteristics of a void or inexistent contract is that it produces no effect. So
evidenced by a Deed of Absolute Sale and were subsequently sold by
also, inexistent contracts can be invoked by any person whenever juridical
CHIANG to the petitioner Serafin Modina (MODINA), as shown by the
effects founded thereon are asserted against him. A transferor can recover the
Deeds of Sale.
object of such contract by accion reivindicatoria and any possessor may
refuse to deliver it to the transferee, who cannot enforce the transfer.
MODINA brought a Complaint for Recovery of Possession with Damages
against the private respondents.
Thus, petitioners insistence that MERLINDA cannot attack subject contract
of sale as she was a guilty party thereto is equally unavailing.
Upon learning the institution of the said case, MERLINDA presented a
Complaint-in-intervention, seeking the declaration of nullity of the Deed of
But the pivot of inquiry here is whether MERLINDA is barred by the
Sale between her husband and MODINA on the ground that the titles of the
principle of in pari delicto from questioning subject Deed of Sale.
parcels of land in dispute were never legally transferred to her husband.
Fraudulent acts were allegedly employed by him to obtain a Torrens Title in
It bears emphasizing that as the contracts under controversy are inexistent
his favor. However, she confirmed the validity of the lease contracts with the
contracts within legal contemplation, Articles 1411 and 1412 of the New
other private respondents.
Civil Code are inapplicable. In pari delicto doctrine applies only to contracts
with illegal consideration or subject matter, whether the attendant facts
After due hearing, the Trial Court decided in favor of MERLINDA, hereby
constitute an offense or misdemeanor or whether the consideration involved
rendered
is merely rendered illegal.
(1) declaring as void and inexistent the sale of Lots in favor of Ramon
Chiang;
The statement below that it is likewise null and void for being violative of
(2) declaring as void and inexistent the sale of the same properties by Ramon
Article 1490 should just be treated as a surplusage or an obiter dictum on the
Chiang in favor of Serafin Modina.
part of the Trial Court as the issue of whether the parcels of land in dispute
are conjugal in nature or they fall under the exceptions provided for by law,
On appeal, the Court of Appeals affirmed the aforesaid decision in toto.
was neither raised nor litigated upon before the lower Court. Whether the
said lots were ganancial properties was never brought to the fore by the
Raised for resolution here are: (1) whether the sale of subject lots should be
parties and it is too late to do so now.
nullified.

Records show that in the complaint-in-intervention of MERLINDA, she did

Petitioner theorizes that the sale in question is null and void for being
not aver the same as a ground to nullify subject Deed of Sale. In fact, she
violative of Article 1490 of the New Civil Code prohibiting sales between
denied the existence of the Deed of Sale in favor of her husband. In the said
spouses. Consequently, what is applicable is Article 1412 supra on the
Complaint, her allegations referred to the want of consideration of such Deed
principle of in pari delicto, which leaves both guilty parties where they are,
of Sale. She did not put up the defense under Article 1490, to nullify her sale
and keeps undisturbed the rights of third persons to whom the lots involved
to her husband CHIANG because such a defense would be inconsistent with
were sold; petitioner stressed.
her claim that the same sale was inexistent.
Petitioner anchors his submission on the following statements of the Trial
The Trial Court debunked petitioners theory that MERLINDA intentionally
Court which the Court of Appeals upheld, to wit:
gave away the bulk of her and her late husbands estate to defendant

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CHIANG as his exclusive property, for want of evidentiary anchor. They 2. The deed of sale is hereby declared null and void and fake.
insist on the Deed of Sale wherein MERLINDA made the misrepresentation
that she was a widow and CHIANG was single, when at the time of CA: Reversed and set aside. Spouses Rigonan are declared the owners of
the properties
execution thereof, they were in fact already married. Petitioner insists that
this document conclusively established bad faith on the part of MERLINDA ISSUE:
and therefore, the principle of in pari delicto should have been applied. Did Spouses Rigonan sufficiently establish the existence and due execution
of the Deed of Absolute and Irrevocable Sale of Real Property?
Since one of the characteristics of a void or inexistent contract is that it does
not produce any effect, MERLINDA can recover the property from petitioner HELD:
who never acquired title thereover. NO.
1. Spouses Rigonan presented only a carbon copy of this deed.
2. Register of Deeds was not able to present the original typewritten
deed but only a carbon copy.
DOMINGO v CA 3. The deed contained filled in blanks and alterations.
4. None of the witnesses directly testified to prove positively and
convincingly Paulinas execution of the original deed of sale.
FACTS:
5. The carbon copy did not bear Paulinas signature, but only her
Paulina owned 3 parcels of land including the house and warehouse on one
alleged thumbprint.
parcel. She allegedly sold them to spouses Rigonan, who claim to be her
6. Juan Franco testified that he was an instrumental witness to the
relatives.
deed. However, when cross-examined and shown a copy of the
subject deed, he retracted and said that said deed of sale was not
In 1966, Domingo, Mangabat and Capalungan (Domingo et al) who claim to
the document he signed as witness. He declared categorically he
be her closest surviving relatives, allegedly took possession of the properties
knew nothing about it.
by means of stealth, force and intimidation, and refused to vacate the same.
7. Efren Sibucao, whose testimony should have corroborated Atty.
Tagatags, was not presented and his affidavit was withdrawn
Spouses Rigonan filed a complaint for reinvindicacion against Domingo et.
from the court, leaving only Atty. Tagatags testimony, which
al alleging that:
aside from being uncorroborated, was self-serving.
They were the owners of the three parcels of land through the
deed of sale executed by Paulina;
They had been in continuous possession of the subject properties IRREGULARITIES ABOUND REGARDING THE EXECUTION AND
REGISTRATION OF THE ALLEGED DEED OF SALE.
and had introduced permanent improvements thereon;
1. Atty. Tagatag testified that he himself registered the original deed
Domingo et. al. entered the properties illegally, and they refused
with the Register of Deeds. Yet, the original was nowhere to be
to leave them when asked to do so.
found and none could be presented at the trial.
2. The carbon copy on file shows intercalations and discrepancies
Domingo et. al. alleged that:
when compared to purported copies in existence. The
The deed of absolute sale was void for being spurious as well as
intercalations were allegedly due to blanks left unfilled by Atty.
lacking consideration.
Tagatag at the time of the deeds registration. The blanks were
As her nearest surviving kin within the 5th degree of
allegedly filled in much later by a representative of the Register of
consanguinity, they inherited the three lots and the permanent
Deeds
improvements thereon when Paulina.
3. The alleged other copies of the document bore different dates of
entry
Franco testified that he was a witness to the execution of the deed of
4. The deed was apparently registered long after its alleged date of
absolute sale. However, when cross-examined and shown the deed he stated
execution and after Paulinas death
that the deed was not the document he signed as a witness, but rather it was
5. Paulina was not given a copy.
the will and testament made by Paulina.
6. Alleged vendor was never asked to vacate the premises she had
purportedly sold.
Atty. Tagatag testified that he personally prepared the deed, he saw Paulina
affix her thumbprint on it and he signed it both as witness and notary public.
Also, the PRICE ALLEGEDLY PAID BY SPOUSES RIGONAN FOR
He also notarized Paulinas last will and testament. The will mentioned the
NINE (9) PARCELS, INCLUDING THE THREE PARCELS IN
same lots sold to Spouses Rigonan. When asked why the subject lots were
still included in the last will and testament, he could not explain. DISPUTE, A HOUSE AND A WAREHOUSE, RAISES FURTHER
QUESTIONS. Consideration is the why of a contract, the essential reason
which moves the contracting parties to enter into the contract. On record,
Felipe Rigonan claimed that
there is unrebutted testimony that Paulina as landowner was financially well
He was Paulinas close relative. Their fathers were first cousins.
off. She loaned money to several people. We see no apparent and compelling
However, he could not recall the name of Paulinas grandfather
reason for her to sell the subject parcels of land with a house and warehouse
and claim was disputed by Domingo et. al., who lived with
at a meager price of P850 only.
Paulina.
He admitted the discrepancies between the Register of Deeds
AT THE TIME OF THE EXECUTION OF THE ALLEGED
copy of the deed and the copy in his possession. But he attributed
CONTRACT, PAULINA RIGONAN WAS ALREADY OF
them to the representative from the Office of the Register of
ADVANCED AGE AND SENILE. She died an octogenarian barely over a
Deeds.
year when the deed was allegedly executed, but before copies of the deed
were entered in the registry. The general rule is that a person is not
Jose Flores testified that he knew Domingo et. al,, who had lived on the land
incompetent to contract merely because of advanced years or by reason of
with Paulina since he could remember and continued to live there even after
physical infirmities. However, when such age or infirmities have impaired
Paulinas death. He said he did not receive any notice nor any offer to sell the
the mental faculties so as to prevent the person from properly, intelligently,
lots from Paulina, contrary to what was indicated in the deed of sale that the
and firmly protecting her property rights then she is undeniably
vendor had notified all the adjacent owners of the sale.
incapacitated.
Ruben Blanco, the acting Registrar of Deeds, testified that only the carbon
The unrebutted testimony of Zosima shows that AT THE TIME OF THE
copy, also called a duplicate original, of the deed of sale was filed in his
office, but he could not explain why this was so. ALLEGED EXECUTION OF THE DEED, PAULINA WAS ALREADY
INCAPACITATED PHYSICALLY AND MENTALLY. She narrated
that Paulina played with her waste and urinated in bed. Given these
Zosima Domingo testified that her husband, Eugenio, was Paulinas nephew
circumstances, there is in our view sufficient reason to seriously doubt that
and that they lived with Paulina and took care of her, spent for her daily
she consented to the sale of and the price for her parcels of land. Moreover,
needs and medical expenses, especially when she was hospitalized prior to
there is no receipt to show that said price was paid to and received by her.
her death. She stated that Paulina was never badly in need of money during
Thus, we are in agreement with the trial courts finding and conclusion on the
her lifetime.
matter:
RTC: In favor of Domingo et. al.
Also, the P850.00 consideration for the nine (9) parcels of land including the
1. Domingo et. al, by virtue of intestate succession, are the lawful
house and bodega is grossly and shockingly inadequate, and the sale is null
owners and possessors of the properties.
and void ab initio.

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BAUTISTA v SILVA
FACTS:
A Complaint for Annulment of Deed of Absolute Sale and Transfer
Certificate of Title, Reconveyance and Damages was filed with the RTC, by
Berlina F. Silva (Berlina), through Hermes Dorado (Dorado) as Attorney-in-
Fact, against Spouses Claro and Nida Bautista (Spouses Bautista).
1. A Transfer Certificate of Title over a parcel of land situated in
xxx Barrio of Parada, Valenzuela, Metro Manila, containing an area of 216
square meters, more or less, was registered in the names of Spouses Berlina
F. Silva and Pedro M. Silva on August 14, 1980;
2. That on March 3, 1988, Pedro M. Silva, for himself and as attorney-in-fact
of his wife Berlina F. Silva, thru a Special Power of Attorney purportedly
executed on November 18, 1987 by Berlina F. Silva in his favor, signed
and executed a Deed of Absolute Sale over the said parcel of land covered
by Transfer Certificate of Title No. B-37189 in favor of defendants-spouses
Claro Bautista and Nida Bautista; and
3. That as a consequence, Transfer Certificate of Title No. 37189 was
cancelled and in lieu thereof, Transfer Certificate of Title No. V-2765 of the
Registry of Deeds for the Valenzuela Branch was issued in the names of
Spouses Claro Bautista and Nida Bautista on March 4, 1988.11
RTC found that the signature appearing on the Special Power of Attorney
(SPA) as that of Berlina Silva is a forgery, and that consequently the Deed of
Absolute Sale executed by Pedro in favor of Spouses Bautista is not
authorized by Berlina. They declared the Deed of Absolute Sale null and
void and to reconvey the property.
ISSUE:
a. Whether the petitioners are purchasers in good faith when they
relied on the Special power of attorney
b. Whether or not the Deed of Absolute Sale is null and void.
RULING:
A. There is no merit to petitioners' claim that they are purchasers in
good faith.
That the SPA is a forgery is a finding of the RTC and the CA on a
question of fact. The same is conclusive upon the Court, especially as it is
based on the expert opinion of the NBI which constitutes more than clear,
positive and convincing evidence that respondent did not sign the SPA,
and on the uncontroverted Certification of Dorado that respondent was in
Germany working as a nurse when the SPA was purportedly executed in
1987.
The SPA being a forgery, it did not vest in Pedro any authority to alienate the
subject property without the consent of respondent. Absent such marital
consent, the deed of sale was a nullity.
But then petitioners disclaim any participation in the forgery of the SPA or in
the unauthorized sale of the subject property. They are adamant that even
with their knowledge that respondent was in Germany at the time of the sale,
they acted in good faith when they bought the subject property from
Pedro alone because the latter was equipped with a SPA which contains
a notarial acknowledgment that the same is valid and authentic. They
invoke the status of buyers in good faith whose registered title in the property
is already indefeasible and against which the remedy of reconveyance is no
longer available. In the alternative, petitioners offer that should respondent be
declared entitled to reconveyance, let it affect her portion only but not that of
Pedro.
A holder of registered title may invoke the status of a buyer for value in good
faith as a defense against any action questioning his title. Such status,
however, is never presumed but must be proven by the person invoking it.
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He buys the property with the well-founded belief that the person from
whom he receives the thing had title to the property and capacity to convey
it.36
To prove good faith, a buyer of registered and titled land need only show
that he relied on the face of the title to the property. He need not prove that
he made further inquiry for he is not obliged to explore beyond the four
corners of the title. Such degree of proof of good faith, however, is sufficient
only when the following conditions concur:
1. the seller is the registered owner of the land;
2. the latter is in possession thereof;
3. at the time of the sale, the buyer was not aware of any claim or
interest of some other person in the property, or of any defect or
restriction in the title of the seller or in his capacity to convey title
to the property.41
Absent one or two of the foregoing conditions, then the law itself puts the
buyer on notice and obliges the latter to exercise a higher degree of diligence
by scrutinizing the certificate of title and examining all factual circumstances
in order to determine the seller's title and capacity to transfer any interest in
the property. Under such circumstance, it is no longer sufficient for said
buyer to merely show that he relied on the face of the title; he must now
also show that he exercised reasonable precaution by inquiring beyond
the title. Failure to exercise such degree of precaution makes him a buyer in
bad faith.
In the present case, petitioners were dealing with a seller (Pedro) who had
title to and possession of the land but, as indicated on the face of his title,
whose capacity to sell was restricted, in that the marital consent of
respondent is required before he could convey the property
According to petitioners, to determine Pedro's capacity to sell, they
conducted the following forms of inquiry:
1. they inspected the photocopy of the SPA presented to them by
Pedro;
2. they brought said copy to Atty. Lorenzo Lucero (the notary public
who prepared the deed of sale) and asked whether it was genuine;
3. they inspected the original copy of the SPA after they advanced
payment of Php55,000.00 to Pedro.
Essentially, petitioners relied on the SPA, specifically on its notarial
acknowledgment which states that respondent appeared before the notary
public and acknowledged having executed the SPA in favor of Pedro.
When the document under scrutiny is a special power of attorney that is duly
notarized, we know it to be a public document where the notarial
acknowledgment is prima facie evidence of the fact of its due
execution. A buyer presented with such a document would have no choice
between knowing and finding out whether a forger lurks beneath the
signature on it. The notarial acknowledgment has removed that choice from
him and replaced it with a presumption sanctioned by law that the affiant
appeared before the notary public and acknowledged that he executed the
document, understood its import and signed it. In reality, he is deprived of
such choice not because he is incapable of knowing and finding out but
because, under our notarial system, he has been given the luxury of merely
relying on the presumption of regularity of a duly notarized SPA. And he
cannot be faulted for that because it is precisely that fiction of regularity
which holds together commercial transactions across borders and time.
In sum, all things being equal, a person dealing with a seller who has
possession and title to the property but whose capacity to sell is restricted,
qualifies as a buyer in good faith if he proves that he inquired into the title of
the seller as well as into the latter's capacity to sell; and that in his inquiry, he
relied on the notarial acknowledgment found in the seller's duly notarized
special power of attorney. He need not prove anything more for it is already
the function of the notarial acknowledgment to establish the appearance of
the parties to the document, its due execution and authenticity.
Note that we expressly made the foregoing rule applicable only under the
operative words "duly notarized" and "all things being equal." Thus, said
rule should not apply when there is an apparent flaw afflicting the
notarial acknowledgment of the special power of attorney as would cast
doubt on the due execution and authenticity of the document; or when the
buyer has actual notice of circumstances outside the document that would
render suspect its genuineness.
 OBLIGATIONS & CONTRACTS 4TH EXAM
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B. The Deed of Absolute Sale is null and void.
In Domingo v. Reed, we found that the special power of attorney relied upon
by the buyers contained a defective notarial acknowledgment in that it stated
there that only the agent-wife signed the document before the notary public
while the principal-husband did not. Such flaw rendered the notarial
acknowledgment of no effect and reduced the special power of attorney into
a private document.
In Lao v. Villones-Lao, and Estacio v. Jaranilla, we found that the buyers
knew of circumstances extrinsic to the special power of attorney which put in
question the actual execution of said document. In Domingo Lao, the buyer
knew that the agent-wife was estranged from the principal-husband but was
living within the same city. In the Estacio case, we found admissions by the
buyers that they knew that at the time of the purported execution of the
special power of attorney, the alleged principal was not in the Philippines. In
both cases we held that the buyers were not in good faith, not because we
found any outward defect in the notarial acknowledgment of the special
powers of attorney, but because the latter had actual notice of facts that
should have put them on deeper inquiry into the capacity to sell of the seller.
Thus, the Deed of Absolute Sale in the present case is nulld and void since
Art. 124 of the Civil Code provides that any disposition or encumbrance of
the conjugal properties is null and void without the courts authority or the
consent of the other spouse.
In the present case, petitioners knew that Berlina was in Germany at the time
they were buying the property and the SPA relied upon by petitioners
a. has a defective notarial acknowledgment.
b. The SPA was a mere photocopy and we are not convinced that
there ever was an original copy of said SPA as it was only this
photocopy that was testified to by petitioner Nida Bautista and
offered into evidence by her counsel.
c. Nida Bautista, upon inspection of the photocopy of the SPA, they
gave Pedro an advanced payment of Php55,000.00; this signifies
that, without further investigation on the SPA, petitioners had
agreed to buy the subject property from Pedro.
d. But then said photocopy of the SPA contains no notarial seal. A
notarial seal is a mark, image or impression on a document which
would indicate that the notary public has officially signed it.
There being no notarial seal, the signature of the notary
public on the notarial certificate was therefore incomplete.
The notarial certificate being deficient, it was as if the notarial
acknowledgment was unsigned. The photocopy of the SPA has no
notarial acknowledgment to speak of. It was a mere private
document which petitioners cannot foist as a banner of good faith.
All told, it was not sufficient evidence of good faith that petitioners merely
relied on the photocopy of the SPA as this turned out to be a mere private
document. They should have adduced more evidence that they looked
beyond it. They did not. Instead, they took no precautions at all. They
verified with Atty. Lucero whether the SPA was authentic but then the latter
was not the notary public who prepared the document. Worse, they purposely
failed to inquire who was the notary public who prepared the SPA. Finally,
petitioners conducted the transaction in haste. It took them all but three days
or from March 2 to 4, 1988 to enter into the deed of sale, notwithstanding the
restriction on the capacity to sell of Pedro. In no way then may petitioners
qualify as buyers for value in good faith.
RAMIREZ v RAMIREZ
Facts:
On October 8, 1996, petitioner filed a complaint against respondent Ma.
Cecilia Ramirez before the Regional Trial Court for annulment of: 1) a Deed
of Donation; 2) Waiver of Possessory Rights; and 3) Transfer Certificates of
Title (TCT) Nos. T-5618 and T-5617.
Petitioner claimed that respondent caused the execution of the Deed of
Donation and Waiver of Possessory Rights to acquire ownership over the
land and improvements using the Deed of Donation and Waiver of
Possessory Rights.
The Deed of Donation and Waiver of Possessory Rights were allegedly
executed by petitioner and his wife, Dolores Ramirez, on January 29,
1993 and October 24, 1995, respectively. However, the death certificate
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presented showed that Dolores died on April 5, 1991 and, consequently,
could not have executed the assailed documents. Petitioner repudiated the
other signatures and insisted that he did not intend to transfer the properties
to respondent.
Respondent claimed that it was her fathers idea to cause the preparation of
the Deed of Donation and Waiver of Possessory Rights to save on expenses
for publication and inheritance taxes.
RTC ruled that the signature of Dolores on the Deed of Donation was a
forgery and petitioners signatures on both documents to be genuine. It then
held petitioner and respondent in pari delicto, as participants to the forgery,
and ruled that they must bear the consequences of their acts without cause of
action against each other in accordance with Article 1412 of the Civil Code.
CA likewise held both parties in pari delicto.[4]
Issue: whether or not petitioner and respondent are in pari delicto.
Ruling: YES
Donations inter vivos are additionally governed by the general provisions on
obligations and contracts in all that is not determined by the title governing
donations.[5] Hence, the rule on pari delicto under the general provisions of
contracts is applicable to the present case.
The Court agrees with the rulings of the CA and the RTC that petitioner and
respondent are in pari delicto. Nevertheless, both courts erred on the
applicable law. Article 1412 of the Civil Code, which refers to a situation
where the cause of the contract is unlawful or forbidden but does not
constitute a violation of the criminal laws, thus:
On the other hand, where the act involved constitutes a criminal offense, the
applicable provision is Article 1411:
ARTICLE 1411. When the nullity proceeds from the illegality of the cause or
object of the contract, and the act constitutes a criminal offense, both parties
being in pari delicto, they shall have no action against each other, and both
shall be prosecuted. Moreover, the provisions of the Penal Code relative to
the disposal of effects or instruments of a crime shall be applicable to the
things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply
with his promise.
Forging a persons signature corresponds to the felony of falsification under
Section 4, Title IV of the Revised Penal Code. Hence, the act of forging
Doloress signature constitutes a criminal offense under the terms of Article
1411 of the Civil Code.
Under Article 1411 of the Civil Code for both parties to be in Pari Delico it
must be shown that the nullity of the contract proceeds from an illegal
cause or object, and the act of executing said contract constitutes a
criminal offense.
Petitioner claims that the object or cause of the Deed of Donation and of the
Waiver of Possessory Rights is the transferred real properties and that there is
nothing illegal about them. He even maintains that the illegality instead stems
from the act of forgery which pertains to consent, which is not material to the
application of Article 1411.
The argument is untenable. Object and cause are two separate elements of a
donation and the illegality of either element gives rise to the application of
the doctrine of pari delicto. Object is the subject matter of the donation,
while cause is the essential reason which moves the parties to enter into the
transaction. Petitioner wrongly asserts that the donated real properties are
both the object and cause of the donation.
While he is correct in stating that the object of the donation is legal, his
argument misses the point insofar as the cause is concerned.
The donated properties pertain only to the object and the cause which moved
the parties to execute the Deed of Donation and the Waiver
of Possessory Rights, the motive behind the forgery, is the desire to evade the
payment of publication expenses and inheritance taxes, which became due
upon the death of Dolores. Undeniably, the Deed of Donation and the Waiver
of Possessory Rights were executed for an illegal cause, thus completing all
the requisites for the application of Article 1411.
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BAUTISTA v BAUTISTA
FACTS: During her lifetime, Teodora Rosario was the owner of
a 211.80-square meter parcel of land in San Carlos City, Pangasinan She died
intestate on January 19, 1970, leaving behind her spouse Isidro Bautista
(Isidro) and five children, namely: Teofilo Bautista, Alegria Bautista,
Angelica Bautista, Pacita Bautista and Gil Bautista.
On April 21, 1981, Isidro and four of his five children executed a Deed of
Extra-Judicial Partition of the property in which Isidro waived his share in
favor of his said four children. Teofilo was excluded from the partition.
Alegria and Angelica, sold their share of property to their sibling Pacita and
her common-law husband Pedro who soon obtained tax declarations of the
property. Pacita, with Pedros conformity, later conveyed via Deed of
Absolute Sale of the property in favor of Cesar Tamondong, Pedros
nephew.
On January 24, 1994, herein petitioner Teofilo, filed a Complaint against his
siblings for annulment of documents, partition, recovery of ownership,
possession and damages.
In his complaint, petitioner claimed that his co-heirs defrauded him of his
rightful share of the property and that the deed of sale executed by Pacita in
favor of Cesar Tamondong was fictitious as it was impossible for her to have
executed the same in Manila, she being already seriously ill at the time.
In their Answer, the defendants-herein claimed that it was Pacita who caused
the execution of the Deed of Extra-Judicial Partition and because they trusted
Pacita, they signed the document without scrutinizing it; and that they
learned about the contents of the partition only upon Teofilos filing of the
Complaint.
In their Answer with Counterclaim, Pedro and Cesar Tamondong claimed
that they were buyers in good faith. In any event, they contended that
prescription had set in.
The RTC rendered judgment in favor of Teofilo, Declaring as null and void
and of no force and effect the Deed of Extra-Judicial Partition.
The CA reversed the RTCs decision in favor of the respondents that the
action to nullify the Deed of Extra-judicial partition had already prescribed.
ISSUE: WON the Deed of Extra-judicial partition is void and
that the action to have it annulled had already prescribe.
HELD: The SC ruled that extra-judicial partition executed by
Teofilos co-heirs was VOID. The SC sited the case of Segura v. Segura
wherein in the partition was void because it excluded six of the nine
heirs who were entitled to equal shares in the partitioned property. Under the
rule, "no extra-judicial settlement shall be binding upon any person who has
not participated therein or had no notice thereof." As the partition was a total
nullity and did not affect the excluded heirs, it was not correct for the trial
court to hold that their right to challenge the partition had prescribed after
two years.
The deed of extra-judicial partition in the case at bar being VOID, the action
to have it annulled does not prescribe.
HULST v PR BUILDERS
Facts:
Jacubos Bernard Hulst (Petitioner) and his spouse Ida Johanna
Hulst - Van Ijzeren, Dutch nationals, entered into a Contract to sell with PR
Builders Inc. the purchase of 210 sq residential unit in respondents town
house project in Brgy. Niyugan, Batangas.
When respondent failed to comply with its verbal promise to
complete the project in June 1995, the spouse Hulst filed before the Housing
and Land Use Regulatory Board for complaint for rescission of contract with
interest, damages, and attorneys fees.
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On April 1997 HLURB Arbiter Aquino rendered decision in favor
of spouses Hulst and issued a writ of execution. The Sheriff proceeded to
implement the writ of execution. However upon complaint of respondent
with CA on a Petition for Certiorari and Prohibition, the levy made by the
sheriff was se aside, requiring the sheriff to levy first on respondent personal
properties. He tried to implement the writ as directed but the writ was
returned and satisfied.
On January 1999, upon the petitioners motion, the HLUB issued
an Alias writ of execution. The sheriff levied respondents 15 parcel of land
in Brgy. Niyugan, Laurel, Batangas.
2 days before the scheduled public auction, respondent filed an
urgent motion to quash writ of levy with the HLURB on the ground that the
sheriff made an overlay since the aggregate appraised value s the levied
properties is at PhP6,500.00 per square meter is Php83,000.00, based on the
Appraisal Report of Henry Hunter Bayne Co. Inc dated December 11, 1996,
which is over and above the judgment award.
Absent from any restraining order from the HLURB, the sheriff proceed to
sell the 15 parcel of Land. Holy Properties Corporation was the winning
bidder for the total amount of Php5,450,000.00. The sum total was turned
over to the petitioner in satisfaction with the judgment award.
On August 2000, the HLURB Arbiter and HLURB Director
issued an order setting aside the sheriffs levy on respondents real properties.
Petitioner filed a Petition for Certiorari and Prohibition with the
CA. But the CA dismissed the petition affirming the HLURBs decision.
Issue: W/N the contract to sell entered into by the petitioner together with his
wife and the respondent is void and inexistent?
Held:
YES!
Since petitioner and his wife being a Dutch National are
proscribed under the constitution from acquiring real property, it is
unequivocal that the contract to sell entered into by the petitioner together
with his wife and the respondent is void.
Under Article 1409 (1) and (7) of the Civil Code, all contracts
whose cause, object or purpose is contrary to law or public policy and those
expressly prohibited or declared void by the law are inexistent and void from
the beginning. A void contract is equivalent to nothing, produces no civil
effects, it does not creat, modify or extinguish a juridical relation.
Generally, parties to a void contract cannot expect the aid of the
law. The court leave hem as they are because they are deemed in pari delicto
or in equal fault. In pari delicto is "a universal doctrine which holds that no
action arises, in equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the property agreed to
be sold or delivered, or the money agreed to be paid, or damages for its
violation; and where the parties are in pari delicto, no affirmative relief of
any kind will be given to one against the other."
This rule, however, is subject to exceptions that permit the return
of that which may have been given under a void contract to: (a) the innocent
party (Arts. 1411-1412, Civil Code); (b) the debtor who pays usurious
interest (Art. 1413, Civil Code); (c) the party repudiating the void contract
before the illegal purpose is accomplished or before damage is caused to
a third person and if public interest is subserved by allowing recovery
(Art. 1414, Civil Code); (d) the incapacitated party if the interest of justice
so demands (Art. 1415, Civil Code); (e) the party for whose protection the
prohibition by law is intended if the agreement is not illegal per se but
merely prohibited and if public policy would be enhanced by permitting
recovery (Art. 1416, Civil Code); and (f) the party for whose benefit the law
has been intended such as in price ceiling laws (Art. 1417, Civil Code) and
labor laws (Arts. 1418-1419, Civil Code).
It is significant to note that the agreement executed by the parties
in this case is a Contract to Sell and not a contract of sale. A distinction
between the two is material in the determination of when ownership is
deemed to have been transferred to the buyer or vendee and, ultimately, the
resolution of the question on whether the constitutional proscription has been
breached.
In a contract of sale, the title passes to the buyer upon the delivery
of the thing sold. The vendor has lost and cannot recover the ownership of
the property until and unless the contract of sale is itself resolved and set
aside. On the other hand, a contract to sell is akin to a conditional sale where
the efficacy or obligatory force of the vendor's obligation to transfer title is
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subordinated to the happening of a future and uncertain event, so that if the
suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. In other words, in a contract to sell,
the prospective seller agrees to transfer ownership of the property to the
buyer upon the happening of an event, which normally is the full payment of
the purchase price. But even upon the fulfillment of the suspensive condition,
ownership does not automatically transfer to the buyer. The prospective
seller still has to convey title to the prospective buyer by executing a contract
of absolute sale.
Since the contract involved here is a Contract to Sell, ownership
has not yet transferred to the petitioner when he filed the suit for rescission.
While the intent to circumvent the constitutional proscription on aliens
owning real property was evident by virtue of the execution of the Contract
to Sell, such violation of the law did not materialize because petitioner
caused the rescission of the contract before the execution of the final deed
transferring ownership.
Thus, exception (c) finds application in this case. Under Article
1414, one who repudiates the agreement and demands his money before
the illegal act has taken place is entitled to recover. Petitioner is therefore
entitled to recover what he has paid, although the basis of his claim for
rescission, which was granted by the HLURB, was not the fact that he is not
allowed to acquire private land under the Philippine Constitution. But
petitioner is entitled to the recovery only of the amount of P3,187,500.00,
representing the purchase price paid to respondent. No damages may be
recovered on the basis of a void contract; being nonexistent, the agreement
produces no juridical tie between the parties involved. Further, petitioner is
not entitled to actual as well as interests thereon, moral and exemplary
damages and attorney's fees.
QUIMPO v BELTRAN
FACTS:
Eustaquia was the owner of FOUR parcels of land in Goa, Camarines Sur,
described as follows:
(1) Residential land @ CAMSUR 684 sqm;
(2) Coconut land 4.3731 hectares;
(3) Residential land situated at San Jose Street
1,395 sqm
(4) Abaca and coconut land 42.6127 hectares.
Eustaquia died intestate in 1948 leaving these parcels of land to her
grandchild and great grandchildren, namely, petitioner Juaquin and
respondents Abad.
In 1966, Joaquin and respondents undertook an oral partition of parcel III
(San Joseproperty) and parcel IV. Half of the properties was given to Joaquin
and the other half to the respondents. However, no document of partition
was executed, because Joaquin refused to execute a deed. Consuelo and
Ireneo occupied their respective shares in the San Jose property, and installed
several tenants over their share in parcel IV. Joaquin, on the other hand,
became the administrator of the remaining undivided properties and of the
shares of respondents Danilo, Marites, Anita and Helen, who were still
minors at that time.
In 1989, Danilo, Marites, Anita and Helen wanted to take possession of the
portions allotted to them, but Joaquin prevented them from occupying the
same. Joaquin also refused to heed respondents demand for partition of
parcels I and II, prompting respondents to file a complaint for judicial
partition and/or recovery of possession with accounting and damages with
the Regional Trial Court (RTC) of Camarines Sur.[3]
Joaquin denied the material allegations in the complaint, and averred, as his
special and affirmative defenses, lack of cause of action and
prescription. He asserted absolute ownership over parcels III and IV,
claiming that he purchased these lands from Eustaquia in 1946,
evidenced by deeds of sale executed on August 23, 1946 and December 2,
1946. He, likewise, claimed continuous, peaceful and adverse possession of
these lots since 1946, and alleged that Consuelos occupation of the portion of
the San Jose property was by mere tolerance.
During the pendency of the case, Joaquin died. Accordingly, he was
substituted by his wife, Estela Tena-Quimpo and his children, namely, Jose,
Adelia, Joaquin, Anita, Angelita, Amelia, Arlene, Joy and Aleli, all surnamed
Quimpo (the Quimpos).
RTC declared respondents as co-owners of all the properties left by
Eustaquia. It rejected Joaquins claim of absolute ownership over parcels III
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and IV, and declared VOID the purported deeds of sale executed by
Eustaquia for lack of consideration and consent.
- the deeds of sale state a false and fictitious consideration because
at the time of the execution of these deeds, Joaquin was not
gainfully employed and had no known source of income,
- Likewise, Eustaquia was already 91 years old at that time,
hence she could not possibly give her consent
- oral partition among the heirs in 1966 sustained
- possession and occupation of land by respondents Consuelo and
Ireneo, and Joaquins acquiescence for 23 years, furnish
sufficient evidence that there was actual partition of the
properties.
- Joaquin and his heirs are now estopped from claiming ownership
over the entire San Jose property as well as over parcel IV.
CA affirmed
- it was plausible that Eustaquias consent was vitiated because she
was then 91 years old and sickly.
- deeds of sale only surfaced 43 years after its alleged execution
and 23 years from the time of the oral partition.
- prescription does not run against the heirs so long as the heirs, for
whose benefit prescription is invoked, have not expressly or
impliedly repudiated the co-ownership.
- The CA found no repudiation on Joaquins part. It, therefore,
concluded that respondents action could not be barred by
prescription or laches.
The Quimpos insist on the validity of the deeds of sale between Joaquin and
Eustaquia. They assail the probative value and weight given by the RTC and
the CA in favor of the respondents pieces of evidence while refusing to give
credence or value to the documents they presented which they contend
should have adequately established Joaquins ownership of parcels III and IV.
- notarized deeds of sale &
- tax declarations
ISSUE:
1. W/N the contract is void for lack of cause or consideration? YES
2. W/N respondents action is already barred by prescription? NO
HELD:
1. The stated consideration for the sale are P5,000.00 and P6,000.00,
respectively, an amount which was so difficult to raise in the year
1946. Respondents established that at the time of the purported
sale Joaquin Quimpo was not gainfully employed. He was
studying inManila and Eustaquia was the one supporting him; that
when Eustaquia died two (2) years later, Joaquin was not able to
continue his studies. The Quimpos failed to override this. Except
for the incredible and unpersuasive testimony of Joaquins
daughter, Adelia Magsino, no other testimonial or documentary
evidence was offered to prove that Joaquin was duly employed
and had the financial capacity to buy the subject properties in
1946.
A deed of sale, in which the stated consideration has not been,
in fact, paid is a false contract; that it is void ab
initio. Furthermore, a contract of purchase and sale is null and
void and produces no effect whatsoever where it appears that the
same is without cause or consideration which should have been
the motive thereof, or the purchase price which appears thereon as
paid but which in fact has never been paid by the purchaser to the
vendor.
Likewise, both TC and CA found that Eustaquia was 91 years old,
weak and senile, at the time the deeds of sale were executed. In
other words, she was already mentally incapacitated by then,
and could no longer be expected to give her consent to the
sale. The RTC and CA cannot, therefore, be faulted for not giving
credence to the deeds of sale in favor of Joaquin.
RE: Tax declarations as proof in claiming absolute dominion
over parcels III and IV. These tax declarations are all in the name
of Eustaquia Perfecto-Abad. These documents, therefore, do not
support their claim of absolute dominion since 1946, but enervate
it instead. Besides, the fact that the disputed property may have
been declared for taxation purposes in the name of Joaquin
Quimpo does not necessarily prove ownership for it is well settled
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that a tax declaration or tax receipts are not conclusive
evidence of ownership.
For forty-three (43) years, Consuelo and Ireneo occupied their
portions of the San Joseproperty and significantly, Joaquin
never disturbed their possession. They also installed tenants in
parcel IV, and Joaquin did not prevent them from doing so, nor
did he assert his ownership over the same. These unerringly point
to the fact that there was indeed an oral partition of parcels III
and IV.
2. Similarly, we affirm the CA ruling that respondents are co-owners
of the subject four (4) parcels of land, having inherited the same
from a common ancestor Eustaquia Perfecto-Abad. Petitioners
assertion that respondents failed to prove their relationship to the
late Eustaquia deserves scant consideration.
Consuelo was the grandchild of Eustaquia, while respondents
Danilo, Helen, Marites, Anita and also Joaquin Quimpo were
Eustaquias great grandchildren. As such, respondents can
rightfully ask for the confirmation of the oral partition over
parcels III and IV, and the partition of parcels I and
II. Jurisprudence is replete with rulings that any co-owner may
demand at any time the partition of the common property
unless a co-owner has repudiated the co-ownership. This
action for partition does not prescribe and is not subject to
laches.
ALINAS v ALINAS
Facts:
Spouses Onesiforo and Rosario Alinas (petitioners) separated sometime in
1982. They left behind two lots identified as Lot 896-B-9-A with a bodega
standing on it and Lot 896-B-9-B with petitioners' house.
Petitioner Onesiforo Alinas (Onesiforo) and respondent Victor Alinas (Victor)
are brothers.
- Petitioners allege that they entrusted their properties to Victor and
Elena Alinas (respondent spouses) with the agreement that any income from
rentals of the properties should be remitted to the Social Security System
(SSS) and to the Rural Bank of Oroquieta City (RBO) to pay off petitioners'
loans with said institutions.
petitioners discovered that their two lots were already titled in the name of
respondent spouses.
- Lot 896-B-9-A was extra-judicially foreclosed, a TCT was issued in the name
of mortgagee RBO -> RBO executed a Deed of Installment Sale of Bank's
Acquired Assets[4] conveying Lot 896-B-9-A to respondent spouses - a TCT
was issued in the name of respondent spouses.
- Lot 896-B-9-B was also foreclosed by the SSS -> however, pursuant to a
Special Power of Attorney[7] signed by Onesiforo in favor of Victor the latter
was able to redeem Lot 896-B-9-B from the SSS for the sum of P111,110.09.
Onesiforo's signature also appears in an Absolute Deed of
Sale[9] selling Lot 896-B-9-B to respondent spouses. The records also show a
notarized document and a captioned Agreement[10] whereby
petitioner Onesiforo acknowledged that his brother Victor used his own
money to redeem Lot 896-B-9-B from the SSS and, thus, Victor became the
owner of said lot.
petitioners filed with the Regional Trial Court (RTC) of Ozamis City a
complaint for recovery of possession and ownership of their conjugal
properties with damages against respondent spouses.
Issue: WON the sale of the conjugal property is void
Ruling:
*petitioners did no appeal to the Court of Appeals thus they can no longer seek the reversal
or modification of the RTCs decision regarding its affirmation of the validity of the
respondents acquisition of the first lot from RBO
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evidence on record which shows that ownership over the lot had duly passed
on to the RBO, as shown by TCT No. T-11853 registered in its name; and
subsequently, RBO sold the lot with its improvements to respondent
spouses.
with regard to Lot 896-B-9-B (with house), the Court finds it erroneous for the
CA to have applied the principle of equity in sustaining the validity of the sale
of Onesiforos one-half share in the subject property to respondent spouses.
Although petitioners were married before the enactment of the Family
Code on August 3, 1988, the sale in question occurred in 1989. Thus, their
property relations are governed by Chapter IV on Conjugal Partnership of
Gains of the Family Code.
Article 124 of the Family Code provides:
Art. 124. The administration and enjoyment of the conjugal partnership
property shall belong to both spouses jointly. x x x
In the event that one spouse is incapacitated or otherwise unable to participate
in the administration of the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not include the powers of
disposition or encumbrance which must have the authority of the court or the
written consent of the other spouse. In the absence of such authority or
consent the disposition or encumbrance shall be void. x x x (Underscoring
and emphasis supplied)
Thus, pursuant to Article 124 of the Family Code and jurisprudence, the sale of petitioners'
conjugal property made by petitioner Onesiforo alone is void in its entirety.
respondent spouses were well aware that Lot 896-B-9-B is a conjugal
property of petitioners.
knew that the disposition being made by Onesiforo is without the consent of
his wife, as they knew that petitioners had separated, and, the sale documents
do not bear the signature of petitioner Rosario.
CAMPOS v PASTRANA
Facts:
This case is the third one between essentially the same parties and
the 2nd among those cases to reach this CA, spanning a period of close to
three decades.
1st case: agrarian case; Carlito Campos, the father of the Petitioners,
refused to surrender the possession of a fishpond he leased from respondents
mother, Salvacion Buenvenida, despite the expiration of their contract of
lease in 1980.
agricultural lessee, Carlito filed an agrarian case docketed as CAR Case
No. 1196 against his lessor
RTC found that Carlito was not an agricultural tenant
2nd case: possession case; Respondents filed the civil case No. V-5417,
against Carlito for Recovery of Possession and Damages with Preliminary
Mandatory Injunction case involving the same fishpond subjct of the 1st case
- RTC found Carlito to have retained possession of the fishpond
notwithstanding the expiration of the contract of lease and ordering
him to pay rentals, the value of the produce and damages to the herein
respondents
- Decision became final and executory and Writ of Execution was issued
on February 7, 1995
- September 19, 1995, an Alias Writ of Execution was also issued
- Both were however returned unsatisfied as per Sheriffs Return of
Service dated November 14, 1995
During the pendency of the Agrarian Case and prior to the filing of the
Possession Case, Carlito was the registered owner of the following
properties:
1. Residential Lots 3715-A and 3715-B-2 covered by TCTs 18205 and
18417
2. Agricultural Lots 850 and 852 covered by OCT P-9199 and P-9200
Spouses Carlito and Margarita had already transferred the lots to
their children: Petitioners Rosemarie and Jesus Campos by virtue of Deeds of
Absolute Sale dated October 18, 1985 and November 2, 1988.
- lots 850 and 852
- 7,972 sqm
- P7,000 Rosemarie
- P5,600 Jesus
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3rd case: February 18, 1997, Respondents filed the Nullity of the Sale Case,
seeking to declare as null the aforesaid Deeds of Sale.
They alleged that the contracts of sale between spouses Campos and
petitioners were simulated for the sole purpose of evading the levy of the
abovementioned properties in satisfaction of a money judgment that might be
rendered in the Possession Case.
RTC: dismissed the complaint
- Jesus Campos was already leasing a fishpond in Capiz
- Rosemarie was engaged in the sari-sari store business starting 1985 so that
they were able to purchase the properties of their parents out of their
profits derived therefrom.
CA: Contracts were simulated. Thus void ab initio The conveyances were
made in 1990, and not in 1985 or 1988, or just before their actual registration
with the Registry of Deeds, evidently to avoid the properties from being
attached or levied upon by the respondents.
The zonal value of the subject properties we much higher than the
value for which they were actually sold.
Spouses Campos retained possession of the properties
Issues:
W/N the deeds of sale are simulated
W/N the action to declare them null and void have already prescribed
W/N Art. 1409 or Art. 1381(3) on rescissible contracts should be applied.
Petitioner:
1. Article 1409 of the CC on void contracts should not be applied
2. Art. 1381(3) of the CC on rescissible contracts in fraud of creditors,
considering that the questioned conveyances executed by the spouses
Campos to their children were allegedly done to evade the enforcement
of the writ of execution in the Possession Case.
3. CA misappreciated the facts of this case when it found that the
questioned transactions were tainted with badges of fraud
Respondents:
1. application of Article 1409 on void contracts was a natural and logical
consequence of the CAs finding that subject deeds of sale were
absolutely simulated and fictitious, consistent with the nature of the
respondents cause of action which was for declaration of nullity of said
contracts and the transfer certificates of titles issued pursuant thereto
2. CA finding is conclusive upon SC
Ruling:
THE SUBJECT DEED OF ABSOLUTE SALE EXECUTED BY THE
SPOUSES CAMPOS TO THEIR CHILDREN (HEREIN
PETITIONERS) ARE ABSOLUTE SIMULATED AND FICTITIOUS.
CA correctly held that the assailed Deeds of Absolute Sale were executed
when the Possession Case was already pending, evidently to avoid the
properties subject thereof from being attached or levied upon by the
respondents. While the sales in question transpired on October 18, 1985 and
November 2, 1988, as reflected on the Deeds of Absolute Sale, the same
were registered with the Registry of Deeds only on October 25, 1990 and
September 25, 1990.
PETITIONERS FAILED TO EXPLAIN THE REASONS FOR THE
DELAY IN THE registration of the sale, leading the appellate court to
conclude that the conveyances were made only in 1990 or sometime just
before their actual registration and that the corresponding Deeds of Absolute
Sale were antedated. This conclusion is bolstered by the fact that the
supposed notary public before whom the deeds of sale were acknowledged
had no valid notarial commission at the time of the notarization of said
documents.
The Deeds of Absolute Sale were executed for the purpose of putting the
lots in question beyond the reach of creditors.
1. Deeds of Absolute Sale were registered exactly one month apart from
each other and about another one month from the time of the
promulgation of the judgment in the Possession Case. The Deeds of
Absolute Sale were antedated and that the same were executed when the
Possession Case was already pending.
2. there was a wide disparity in the alleged consideration specified in the
Deeds of Absolute Sale and actual zonal valuation of the subject
properties as per the BIR Certification
- appraised value of the properties subject of this controversy may be lower
at the time of the sale in 1990 but it could not go lower than P7000 and
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P5600.
- considerations are inadequate considering the market values presented in
the tax declaration and the BIR zonal valuation
1. Rosemarie, the buyer of the 1,393 sqm residential land could not recall
the exact area of the two lots she purchase
2. The money judgement in the Possession Case has not been discharged
with
3. Spouses Campos continue to be in actual possession of the properties
in question
- testimony of Rolando Azoro was unrebutted
- Sps Campos continued to cultivate the rice lands which they purportedly
sold to their son Jesus
- despite the transfer to their children, the latter have not exercised
complete dominion over the same
- the petiitioners have not shown that their parents are paying rent for the
use of the properties
COURT HAS RULED IN SPS SANTIAGO VS. CA: THAT THE
FAILURE OF THE PETITIONERS TO TAKE EXCLUSIVE
POSSESSION OF THE PROPERTY ALLEGEDLY SOLD TO THEM,
OR IN THE ALTERNATIVE TO COLLECT RENTALS FROM THE
ALLEGED VENDOR IS CONTRARY TO THE PRINCIPLE OF
OWNERSHIP AND A CLEAR BADGE OF SIMULATION THAT
RENDERS THE WHOLE TRANSACTION VOID AND WITHOUT
FORCE AND EFFECT, PURSUANT TO ART. 1409 OF THE CC.
THE ISSUANCE OF TCT TO PETITIONERS DID NOT VEST UPON
THEM THE OWNERSHIP OF THE PROPERTIES. That act has never
been recognized as a mode of acquiring ownership. The Torrens system does
not create or vest title. It only confirms and records title already existing and
vested. It does not protect a usurper from the true owner. It cannot be a shield
for the commission of fraud.
ROSEMARIE CAMPOS IS NOT AN INNOCENT BUYER FOR
VALUE.
1. the purported deed was antedated: she bought the residential
properties in 1985 but did not have the assailed Deed of Absolute Sale
registered with the proper Registry of Deeds for more than five years, or
until a month before the promulgation of the judgment in the Possession
Case
2. her failure to take exclusive possession of the property allegedly sold,
or, alternatively, to collect rentals is contrary to the principle of
ownership and a clear badge of simulation.
JESUS CAMPOS IS NOT AN INNOCENT BUYER FOR VALUE
1. the purported deed was antedated: bought the riceland sin 1988 but
did not have the assailed Deed of Absolute Sale registered with the
proper Registry of Deeds for more than 2 years, or until two months
before the promulgation of the judgement in the Possession Case
2. he had knowledge of the prior pending cases when he supposedly
purchased his parents rice land
SINCE BOTH TRANSFEREES ARE NOT INNOCENT BUYERS FOR
VALUE, THE SUBSEQUENT REGISTRATION PROCURED BY THE
PRESENTATION OF THE VOID DEEDS OF ABSOLUTE SALE IS
LIKEWISE NULL AND VOID.
THE ACTION FOR THE DECLARATION OF THE INEXISTENCE
OF THE ASSAILED DEEDS OF ABSOLUTE SALE DOES NOT
PRESCRIBE. The sale of subject properties to herein petitioners are null
and void. And under Article 1410 of the Civil Code, an action or defense for
the declaration of the inexistence of a contract is imprescriptible. Hence,
petitioners contention that respondents cause of action is already barred by
prescription is without legal basis.
SINCE THE ASSAILED DEEDS OF ABSOLUTE SALE ARE NULL
AND VOID, THE CC PROVISIONS ON RESCISSION HAVE NO
APPLICATION. An action to rescind is founded upon and presupposes the
existence of a contract. A contract which is null and void is no contract at all
and hence could not be the subject of rescission.
It is true that CA cited instances that may constitute badges of fraud
under Art. 1387 of the CC on rescissible contracts. But there is nothing else
in the appealed decision to indicate that rescission was contemplated under
the said provision of the Civil Code. The aforementioned badges must have
been considered merely as grounds for holding that the sale is fictitious.
Consequently, we find that the CA properly applied the governing law over
the matter under consideration which is Article 1409 of the Civil Code on
void or inexistent contracts.
 OBLIGATIONS & CONTRACTS 4TH EXAM
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TECSON v FAUSTO
FACTS:
In 1974, Atty Agustin Fausto and his sister decided to partition a property
they owned in common designated as Lot 2189 with an area of 1015 sqm
located in Pagadian City. The mother title is silent to the extent of the
respective shares. A subdivision plan (first plan) has been prepared and
approved. Based on the first plan, Atty. Faustos share was 508 sqm and his
sisters 507 sqm. They executed the partition agreement but the same was not
registered on the Registry of Deeds. The following year, Atty. Fausto died.
On 7 July 1977, Waldetrudes entered into a Contract to Sell with herein
petitioner Aurora L. Tecson (Aurora). In it, Waldetrudes undertook to sell,
among others, her ideal share in the lot. A second subdivision plan for Lot
2189 was prepared without the knowledge of the respondents. The Second
Plan drastically altered the division of the subject lot. On the plan,
Waldetrudes share was increased by 964sqm.
On 28 September 1977, a second partition over the lot was executed between
the respondents (heirs of Atty. Fausto) on one hand, and Waldetrudes on the
other, presumably with the Second Plan as a new basis. The heirs were made
to believe that it was required to facilitate the sale of Waldetrudes share.
Also, the Second Partition Agreement failed to state the specific areas
allotted for each component of the lots. Up to that point, they do not have
knowledge about the existence of the second plan. The document was
presented to them by Atty. Tecson. The latter was a family friend and a long
time neighbor.
On 8 May 1978, Waldetrudes sold her share to Aurora which in turn sold it to
Atty. Tecson.
On 28 May 1987, the respondents filed a Complaint for the Declaration of
Nullity of Documents, Titles, Reconveyance and Damages the petitioners
before the Regional Trial Court (RTC) of Pagadian City. In essence, the
respondents seek the recovery of the portion which they believe was
unlawfully taken from the lawful share of their predecessor-in-interest, Atty.
Fausto.
ISSUE:
WON the Second Partition Agreement is void.
RULING: YES
The mother title of the subject lot is silent to the extent of the share of each
co-owner. This gives rise to presumption that the share is equal as provided
under Art. 485 of the Civil Code.
The Second Plan and Second Partition Agreement is VOID. Respondents are
misled by Atty. Tecson into signing the Second Partition Agreeement
without giving them notice of the existence of a Second Plan. Therefore it
cannot have a binding effect between the parties. It is absolutely simulated
because the parties thereto did not intend to be bound at all.
Atty. Tecson cannot be considered as an innocent purchaser. The fact that he
is the one behind the execution of the Second Partition Agreement, there is
no doubt that Atty. Tecson knew that Lot 2189 was owned in common by
Waldetrudes and Atty. Fausto. This, taken together with the instruments
unusual silence as to the definite area allotted for each component lot and the
Second Plan, reveals a deliberate attempt on the part of Atty. Tecson to
conceal from Waldetrudes and the respondents the unequal division of Lot
2189. Based on the facts and circumstances prevailing in this case, Atty.
Tecson may be charged with actual notice of the defect plaguing the Second
Partition Agreement.
The respondents may, therefore, recover.
BORROMOEO v MINA
FACTS:
Petitioner filed a Petition before the Provincial Agrarian Reform Office
(PARO) seeking that
a. His landholding over the subject landholding be exempted from
the coverage of the governments OLT program under
Presidential Decree No. 27
b. Respondents emancipation patent over the subject property be
consequently revoked and cancelled.
Petitioner alleged that he purchased the property from Garcia, as evidenced
by notarized 1982 deed of sale although he was not able to effect the transfer
of title in his name. Subsequently, to his surprise, he learned that an
emancipation patent was issued in respondents favor without any notice to
him. He equally maintained that his total agricultural landholdings was only
3.3635 hectares and thus, within the landowner's retention limits under both
PD 27 and Republic Act No. 6647. Thus, he claimed that the subject
landholding should have been excluded from the coverage of the
governments OLT program.
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Municipal Agrarian Reform Officer (MARO) discovered the property was
erroneously identified as the property of petitioners father. Because of this,
MARO recommended and was duly adopted by PARO:
a. The subject landholding be exempted from the coverage of the
OLT; and
b. Petitioner be allowed to withdraw any amortizations deposited by
respondent with LBP to serve as rental payments for use of the
subject property.
DAR Regional Director: Affirmed PAROs decision with modification.
He did not order for cancellation of respondents emancipation
patent. He merely directed petitioner to institute the proper
proceedings for such purpose before the DAR Adjudication Board
(DARAB).
DAR Secretary: Affirmed in toto the DAR Regional Directors ruling
CA: Reversed and set aside.
Doubted petitioners claim of ownership based on the 1982 deed
of sale due to the inconsistent allegations regarding the dates of its
notarization divergently stated in the two PARO Petitions, this
alongside the fact that a copy of the same was not even attached
to the records of the case for its examination.
The sale was null and void for being a prohibited transaction
under PD 27 which forbids the transfers or alienation of covered
agricultural lands after October 21, 1972 except to the tenant-
beneficiaries thereof, of which petitioner was not.
ISSUE:
WON the 1982 Deed of Sale was null and void.
HELD:
YES.
Validity of the sale of the subject property to petitioner
PD 27 PROHIBITS THE TRANSFER OF OWNERSHIP OVER
TENANTED RICE AND/OR CORN LANDS AFTER OCTOBER 21,
1972 EXCEPT ONLY IN FAVOR OF THE ACTUAL TENANT-
TILLERS THEREON. Records reveal that the subject landholding fell
under the coverage of PD 27 on October 21, 1972 and as such, could have
been subsequently sold only to the tenant thereof, i.e., the respondent.
Notably, the status of respondent as tenant is now beyond dispute considering
petitioners admission of such fact. Likewise, as earlier discussed, petitioner
is tied down to his initial theory that his claim of ownership over the subject
property was based on the 1982 deed of sale. Therefore, as Garcia sold the
property in 1982 to the petitioner who is evidently not the tenant-beneficiary
of the same, the said transaction is null and void for being contrary to law.
PETITIONER CANNOT ASSERT ANY RIGHT OVER THE
SUBJECT LANDHOLDING, SUCH AS HIS PRESENT CLAIM FOR
LANDHOLDING EXEMPTION, BECAUSE HIS TITLE SPRINGS
FROM A NULL AND VOID SOURCE. A void contract is equivalent to
nothing; it produces no civil effect; and it does not create, modify or
extinguish a juridical relation.
Hence, notwithstanding the erroneous identification of the subject
landholding by the MARO as owned by Cipriano Borromeo, the fact remains
that petitioner had no right to file a petition for landholding exemption since
the sale of the said property to him by Garcia in 1982 is null and void.
Proceeding from this, the finding that petitioners total agricultural
landholdings is way below the retention limits set forth by law thus, becomes
irrelevant to his claim for landholding exemption precisely because he has no
right over the aforementioned landholding.
GONZALO v TARNATE, JR
FACTS:
After the DPWH had awarded on July 22, 1997 the contract for the
improvement of the Sadsadan-Maba-ay Section of the Mountain Province-
Benguet Road to his company, Gonzalo Construction, petitioner Gonzalo
subcontracted to respondent Tarnate on October 15, 1997, the supply of
materials and labor for the project under the latters business known as JNT
Aggregates. Their agreement stipulated, among others, that Tarnate would
pay to Gonzalo eight percent and four percent of the contract price,
respectively, upon Tarnates first and second billing in the project.
In furtherance of their agreement, Gonzalo executed on April 6,
1999 a deed of assignment whereby he, as the contractor, was assigning to
Tarnate an amount equivalent to 10% of the total collection from the DPWH
for the project. This 10% retention fee was the rent for Tarnates equipment
that had been utilized in the project. In the deed of assignment, Gonzalo
further authorized Tarnate to use the official receipt of Gonzalo Construction
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in the processing of the documents relative to the collection of the 10%
retention fee and in encashing the check to be issued by the DPWH for that
purpose. The deed of assignment was submitted to the DPWH on April 15,
1999. During the processing of the documents for the retention fee, however,
Tarnate learned that Gonzalo had unilaterally rescinded the deed of
assignment by means of an affidavit of cancellation of deed of assignment
dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the
disbursement voucher for the 10% retention fee had then been issued in the
name of Gonzalo, and the retention fee released to him.
Tarnate demanded the payment of the retention fee from Gonzalo,
but to no avail.
RTC ruled in favor of Tarnate.
CA affirmed RTCs decision. Hence, this petition.
ISSUE:
Whether or not the subcontract and deed of assignment are void
contracts.
HELD: YES
Section 6 of Presidential Decree No.1594, which provides: Assignment and
Subcontract. he contractor shall not assign, transfer, pledge, subcontract or
make any other disposition of the contract or any part or interest therein
except with the approval of the Minister of Public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister of
Energy, as the case may be. Approval of the subcontract shall not relieve the
main contractor from any liability or obligation under his contract with the
Government nor shall it create any contractual relation between the
subcontractor and the Government.
Under Article 1409 (1) of the Civil Code, contract whose cause, object or
purpose is contrary to law is a void or inexistent contract. As such, a void
contract cannot produce a valid one. To the same effect is Article 1422 of the
Civil Code, which declares that contract, which is the direct result of a
previous illegal contract, is also void and inexistent.
According to Article 1412 (1) of the Civil Code, the guilty parties to an
illegal contract cannot recover from one another and are not entitled to an
affirmative relief because they are in pari delicto or in equal fault. The
doctrine of in pari delicto is a universal doctrine that holds that no action
arises, in equity or at law, from an illegal contract; no suit can be maintained
for its specific performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its violation; and
where the parties are in pari delicto, no affirmative relief of any kind will be
given to one against the other.
The letter and spirit of Article 22 of the Civil Code command Gonzalo to
make a full reparation or compensation to Tarnate. The illegality of their
contract should not be allowed to deprive Tarnate from being fully
compensated through the imposition of legal interest.
ESTOPPEL
LIM v QUEENSLAND TOKYO COMMODITIES
FACTS:
Private respondent Queensland Tokyo Commodities, Incorporated is a
duly licensed broker engaged in the trading of commodities futures with full
membership and with a floor trading right at the Manila Futures Exchange,
Inc.
Sometime in 1992, Benjamin Shia, a market analyst and trader
of Queensland, was introduced to petitioner Jefferson Lim
Shia suggested that Lim invest in the Foreign Exchange Market,
trading U.S. dollar against the Japanese yen, British pound, Deutsche Mark
and Swiss Franc.
Before investing, Lim requested Shia for proof that the foreign
exchange was really lucrative. They conducted mock tradings without money
involved. As the mock trading showed profitability, Lim decided to invest
with a marginal deposit of US$5,000 in managers check. The marginal
deposit represented the advance capital for his future tradings. It was made to
apply to any authorized future transactions, and for all obligations, which the
investor would incur with the broker.
Because respondent Queensland dealt in pesos only, it had to convert
US$5,000 in managers check to pesos, amounting to P125,000.
To accommodate petitioners request to trade right away, it advanced
the P125,000 from its own funds while waiting for the managers check to
clear. Thereafter, a deposit notice in the amount of P125,000 was issued
to Queensland, marked as Exhibit E. This was sent to Lim who received it as
indicated by his signature marked as Exhibit E-1. Then, Lim signed the
Customers Agreement, marked as Exhibit F, which provides as follows:
25. Upon signing of this Agreement, I shall deposit an initial margin
either by personal check, managers check or cash. In the case of the
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first, I shall not be permitted to trade until the check has been cleared
by my bank and credited to your account. In respect of margin calls or
additional deposits required, I shall likewise pay them either by
personal check, managers check or cash. In the event my personal
check is dishonored, the company has the right without call or notice
to settle/close my trading account against which the deposit was
made. In such event, any loss of whatever nature shall be borne by me
and I shall settle such loss upon demand together with interest and
reasonable cost of collection. However, in the event such liquidation
gives rise to a profit then such amount shall be credited to the
Company. The above notwithstanding, I am not relieved of any legal
responsibility as a result of my check being dishonored by my bank.[6]
Petitioner Lim was then allowed to trade with respondent company
which was coursed through Shia by virtue of the blank order forms, marked
as Exhibits G, G-1 to G-13,[7]all signed by Lim. Respondent furnished Lim
with the daily market report and statements of transactions as evidenced by
the receiving forms, marked as Exhibits J, J-1 to J-4,[8] some of which were
received by Lim.
During the first day of trading or on October 22, 1992, Lim made a net
profit of P6,845.57.[9] Shia went to the office of Lim and informed him about
it and he agreed to continue trading. However, on October 23, 1992, they lost
P44,465.[10]
Meanwhile, on October 22, 1992, respondent learned that it would
take seventeen (17) days to clear the managers check given by
petitioner. Hence, on October 23, 1992, Shia returned the check to petitioner
who informed Shia that petitioner would rather replace the managers check
with a travelers check
Shia went with petitioner to the bank to purchase a travelers check at
the PCI Bank. Shia noticed that the travelers check was not indorsed but Lim
told Shia that Queensland could sign the indorsee portion.[12] Because Shia
trusted the latters good credit rating, and out of ignorance, he brought the
check back to the office unsigned. Later, the travelers check was deposited
with Citibank.[14]
October 26, 1992: Shia informed petitioner that they incurred a
floating loss of P44,695[15] on October 23, 1992.
October 27, 1992: Citibank informed respondent that the travelers
check could not be cleared unless it was duly signed by Lim, the original
purchaser of the travelers check. A staff of Queensland, returned the check to
Lim for his signature, but the latter, aware of his P44,465 loss, demanded for
a liquidation of his account and said he would get back what was left of his
investment. Lim signed only one portion of the travelers check, leaving the
other half blank. He then kept it.
Respondent asked Shia to talk to petitioner for a settlement of his
account but petitioner refused to talk with Shia. Shia made follow-ups for
more than a week beginning October 27, 1992.
Respondent was compelled to engage the services of a lawyer, who
sent a demand letter[18] to petitioner. This letter went unheeded. Thus,
respondent filed a complaint[19] against petitioner, docketed as Civil Case No.
CEB-13737, for COLLECTION OF A SUM OF MONEY.
RTC: Dismissed the case without pronouncement as to cost
CA: REVERSED and SET ASiDE the decision of the RTC and ordered
petitioner to pay the 125 K
ISSUE: W/N the Petitioner is stopped from questioning the validity of the
Customers agreement
HELD:
Yes. He is stopped from questioning its validity.
The essential elements of estoppel are:
(1) conduct of a party amounting to false representation or
concealment of material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert
2) intent, or at least expectation, that this conduct shall be acted upon
by, or at least influence, the other party; and
(3) knowledge, actual or constructive, of the real facts
Indicators that the petitioner treated the Customers agreement as a valid and
binding contract:
He had signed the Customers Agreement in the
morning of October 22, 1992, knowing fully well the
nature of the contract he was entering into.
Next, petitioner paid his investment deposit to
respondent in the form of a managers check in the
amount of US$5,000 as evidenced by PCI Bank
Managers Check No. 69007, dated October 22, 1992.
Moreover, we agree that, on petitioners part, there was
MISREPRESENTATION OF FACTS. He replaced the managers check
with an unendorsed travelers check, instead of cash, while assuring Shia that
respondentQueensland could sign the indorsee portion thereof.[27] As it turned
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out, Citibank informed respondent that only the original purchaser (i.e. the
petitioner) could sign said check. When the check was returned to petitioner
for his signature, he refused to sign. Petitioner even admitted in his
Memorandum that he used the travelers check for his travel expenses. [29]
More significantly, petitioner already availed himself of the benefits
of the Customers Agreement whose validity he now impugns. As found by
the CA, even before petitioners initial marginal deposit (in the form of the
PCI managers check dated October 22, 1992)[30] was converted into cash, he
already started trading on October 22, 1992, thereby making a net profit
of P6,845.57. On October 23, he continued availing of said agreement,
although this time he incurred a floating loss of P44,645.[31] While he claimed
he had not authorized respondent to trade on those dates, this claim is belied
by his signature affixed in the order forms, marked as Exhibits G, G-1 to G-
13.[32]
Clearly, by his own acts, petitioner is estopped from impugning the
validity of the Customers Agreement. For a party to a contract cannot deny
the validity thereof after enjoying its benefits without outrage to ones sense
of justice and fairness.
It appears that petitioners reason to back out of the agreement is that
he began sustaining losses from the trade. However, this alone is insufficient
to nullify the contract or disregard its legal effects. By its very nature it is
already a perfected, if not a consummated, contract. Courts have no power to
relieve parties from obligations voluntarily assumed, simply because their
contracts turned out to be disastrous or unwise investments.Notably, in the
Customers Agreement, petitioner has been forewarned of the high risk
involved in the foreign currency investment as stated in the Risk Disclosure
Statement,located in the same box where petitioner signed.
The decision of the Court of Appeals is AFFIRMED. Costs against
petitioner.
REPUBLIC v CA
Is the immunity of the government from laches and estoppel absolute?
May it still recover the ownership of lots sold in good faith by a private
developer to innocent purchasers for value. Notwithstanding its approval of
the subdivision plan and its issuance of separate individual certificates of title
thereto?
FACTS:
St. Judes Enterprises, Inc. is the registered owner of a parcel of land located
in Caloocan City containing an area of 40,623 square meters.
Sometime in March 1966, St. Judes Enterprises subdivided the said Lot and
subsequently sold several to the private respondent buyers.
The subdivision of the subject lot was later found to have expanded and
enlarged from its original area of 40,523 sqm to 42,044 sqm or an increase
of 1,421 sqm. This expansion or increase in area was confirmed by the Land
Registration Commission to have been made on the northern portion of Lot.
In January 1985, the Solicitor General filed an action seeking the annulment
and cancellation of TCT issued in the name of St. Jude's Enterprises and the
other private respondents, principally on the ground that said Certificates of
Title were issued on the strength of a null and void subdivision plan which
expanded the original area of the subject lot from 40,623 square meters to
42,044 square meters upon its subdivision.
Contentions of the Respondents:
The private respondent buyers interposed defenses, among others,
that they acquired the lots in question in good faith from their
former owner, St. Jude's Enterprises, Inc. and for value and that
the titles issued to them were rendered incontrovertible,
conclusive and indefeasible after one year from the date of the
issuance of the titles by the ROD of Caloocan City.
On the other hand, St. Jude's Enterprises, Inc. interposed defenses,
among others, that the cause of action of petitioner is barred by
prior judgment; that the subdivision plan submitted having been
approved by the LRC, the government is now in estoppel to
question the approved subdivision plan; and the petitioner's
allegation that the area of the subdivision increased by 1,421 sqm
is without any basis in fact and in law.
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RTC: Dismissed the Complaint and held that the government was already
"in estoppel to question the approved subdivision plan."
CA: Affirmed the decision of the RTC and berated petitioner for bringing the
suit only after 19 years had passed since the issuance of St. Jude's title and
the approval of the subdivision plan.
ISSUE:
WON the government is estopped from questioning the approved subdivision
plan which expanded the areas covered by the TCTs in question.
RULING:
YES.
The General Rule is that the State cannot be put in estoppel by the
mistakes or error of its officials or agents. However, like all general
rules, this is also subject to exceptions.
Estoppels against the public are little favored. They should not be invoked
except in rare and unusual circumstances, and may not be invoked where
they would operate to defeat the effective operation of a policy adopted to
protect the public. They must be applied with circumspection and should be
applied only in those special cases where the interests of justice clearly
require it. Nevertheless, the government must not be allowed to deal
dishonorably or capriciously with its citizens, and must not play an ignoble
part or do a shabby thing; and subject to limitations x x x, the doctrine of
equitable estoppel may be invoked against public authorities as well as
against private individuals.
The State is immune from estoppel, but this concept is understood to
refer to acts and mistakes of its officials especially those which are
irregular, which peculiar circumstances are absent in the case at bar. It
is non sequitur* to suggest that a contract, freely and in good faith executed
between the parties thereto is susceptible to disturbance ad infinitum. A
different interpretation will lead to the absurd scenario of permitting a party
to unilaterally jettison a compromise agreement which is supposed to have
the authority of res judicata (Article 2037, NCC), and like any other contract,
has the force of law between parties thereto (Article 1159, NCC).
The Court further declared that the real office of the equitable norm
of estoppel is limited to supplying deficiency in the law, but it should not
supplant positive law.
In the case at bar, for nearly twenty years (starting from the
issuance of St. Judes titles in 1966 up to the filing of the Complaint in
1985), petitioner failed to correct and recover the alleged increase in the
land area of St. Jude. Its prolonged inaction strongly militates against
its cause, as it is tantamount to laches, which means the failure or neglect,
for an unreasonable and unexplained length of time, to do that which by
exercising due diligence could or should have been done earlier; it is
negligence or omission to assert a right within a reasonable time, warranting
a presumption that the party entitled to assert it either has abandoned it or
declined to assert it.
The Court notes private respondents argument that, prior to the
subdivision, the surveyors erred in the original survey of the whole tract of
land. So that less than the actual land area was indicated on the
title. Otherwise, the adjoining owners would have complained upon the
partition of the land in accordance with the LRC-approved subdivision
plan. As it is, the owner of the Quintos Village adjoining the northern
portion of St. Judes property (the portion allegedly expanded), even
attested on that there was no overlapping of boundaries as per the approved
plan. None of the other neighboring owners ever complained against St. Jude
or the purchasers of its property. It is clear, therefore, that there was no
actual damage to third persons caused by the resurvey and the subdivision.
Significantly, the other private respondents -- Spouses Santos,
Spouses Calaguian, Dela Fuente and Madaya -- bought such expanded lots
in good faith, relying on the clean certificates of St. Jude, which had no
notice of any flaw in them either. It is only fair and reasonable to apply
the equitable principle of estoppel by laches against the government to
avoid an injustice to the innocent purchasers for value.
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Likewise time-settled is the doctrine that where innocent third persons,
relying on the correctness of the certificate of title, acquire rights over the
property, courts cannot disregard such rights and order the cancellation of the
certificate. Such cancellation would impair public confidence in the
certificate of title, for everyone dealing with property registered under the
Torrens system would have to inquire in every instance whether the title has
been regularly issued or not. This would be contrary to the very purpose of
the law, which is to stabilize land titles. Verily, all persons dealing with
registered land may safely rely on the correctness of the certificate of title
issued therefor, and the law or the courts do not oblige them to go behind the
certificate in order to investigate again the true condition of the
property. They are only charged with notice of the liens and encumbrances
on the property that are noted on the certificate.
When private respondents-purchasers bought their lots from St. Jude,
they did not have to go behind the titles thereto to verify their contents or
search for hidden defects or inchoate rights that could defeat their rights to
said lots. Although they were bound by liens and encumbrances annotated
on the titles, private respondents-purchasers could not have had notice of
defects that only an inquiry beyond the face of the titles could have satisfied.
Petitioner never presented proof that the private respondents who had
bought their lots from St. Jude were buyers in bad faith. Consequently, their
claim of good faith prevails. A purchaser in good faith and for value is one
who buys the property of another without notice that some other person has a
right to or an interest in such property; and who pays a full and fair price for
the same at the time of such purchase or before he or she has notice of the
claims or interest of some other person. Good faith is the honest intention to
abstain from taking any unconscientious advantage of another.
Furthermore, it should be stressed that the total area of 40,623 sqm
indicated on St. Judes original title was not an exact area. Such figure was
followed by the phrase more or less. This plainly means that the land area
indicated was not precise.
The discrepancy in the figures could have been caused by the
inadvertence or the negligence of the surveyors. There is no proof, though,
that the land area indicated was intentionally and fraudulently increased. The
property originally registered was the same property that was subdivided. It
is well-settled that what defines a piece of titled property is not the numerical
date indicated as the area of the land, but the boundaries or metes and
bounds of the property specified in its technical description as enclosing it
and showing its limits.
THEREFORE, the petition is hereby DENIED and the assailed
Decision is AFFIRMED.
SO ORDERED.
HERMOSILLA v REMOQUILLO
Facts:
The subject of the controversy is a 65-square meter portion of a lot located in
Poblacion, San Pedro, Laguna.
On August 31, 1931, the Republic of the Philippines acquired through
purchase the San Pedro Tunasan Homesite.
Apolinario Hermosilla (Apolinario), who was occupying a lot in San Pedro
Tunasan Homesite until his death in 1964, caused the subdivision of the lot
into two, Lot 12 with an area of 341 square meters, and Lot 19 with an area
of 341 square meters of which the 65 square meters subject of this
controversy form part.
On April 30, 1962, Apolinario executed a Deed of Assignment transferring
possession of Lot 19 in favor of his grandson, herein respondent Jaime
Remoquillo (Jaime). As the Land Tenure Administration (LTA) later found
that Lot 19 was still available for disposition to qualified applicants, Jaime,
being its actual occupant, applied for its acquisition before the LTA on May
10, 1963.
On July 8, 1963, Apolinario conveyed Lot 12 to his son Salvador Hermosilla
(Salvador), Jaimes uncle.
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Salvador later filed an application to purchase Lot 12 which was awarded to
him by the defunct Land Authority on December 16, 1971.
On February 10, 1972, Jaime and his uncle Salvador forged a "Kasunduan ng
Paglipat Ng Karapatan sa Isang Lagay na Lupang Solar" (Kasunduan)
whereby Jaime transferred ownership of the 65 square meters (the questioned
property) in favor of Salvador.
After Apolinario died, his daughter Angela Hermosilla filed a protest before
the Land Authority, which became the National Housing Authority
(NHA),5 contending that as an heir of the deceased, she is also entitled to
Lots 12 and 19. By Resolution of June 10, 1981, the NHA dismissed the
protest.
The NHA later awarded on March 16, 1986 Lot 19 to Jaime for which he and
his wife were issued a title, Transfer Certificate of Title No. T-156296, on
September 15, 1987.
On May 25, 1992, petitioners filed an action for Annulment of Title on the
ground of fraud with damages against Jaime and his spouse, together with the
Register of Deeds, before the Regional Trial Court (RTC) of Bian, Laguna,
alleging that by virtue of the Kasunduan executed in 1972, Jaime had
conveyed to his uncle Salvador.
RTC
They found the Kasunduan a perfected contract of sale, there being a meeting
of the minds upon an identified object and upon a specific price, and that
ownership over the questioned property had already been transferred and
delivered to Salvador.
TC
On the alleged failure of consideration of the Kasunduan, they held that the
same did not render the contract void, but merely allowed an action for
specific performance.
CA
The Kasunduan was void because at the time of its execution in 1972, the
Republic of the Philippines was still the owner of Lot 19, hence, no right
thereover was transmitted by Jaime who was awarded the Lot in 1986, and
consequently no right was transmitted by Salvador through succession to
petitioners. And it found no evidence of fraud in Jaimes act of having Lot
19, including the questioned property, registered in his and his wifes name
in 1987.
ISSUE: Whether or not the principle of estoppel applies
RULING: No.
The Kasunduan executed in 1972 by Jaime in favor of Salvador petitioners
predecessor-in-interest Lot 19, of which the questioned property forms part,
was still owned by the Republic. Nemo dat quod non habet. Nobody can give
what he does not possess. Jaime could not thus have transferred anything to
Salvador via the Kasunduan.
Claiming exception to the rule, petitioners posit that at the time the
Kasunduan was executed by Jaime in 1972, his application which was filed
in 1963 for the award to him of Lot 19 was still pending, hence, the
Kasunduan transferred to Salvador Jaimes vested right to purchase the same,
in support of which they cite a law on estoppel,
Art. 1434 of the Civil Code, which provides that "[w]hen a person who is
not the owner of a thing sells or alienates and delivers it and later, the seller
or grantor acquires title thereto, such title passes by operation of law to the
buyer or grantee."15
Petitioners reliance on Article 1434 of the Civil Code does not lie. The
principles of estoppel apply insofar as they are not in conflict with the
provisions of the Civil Code, the Code of Commerce, the Rules of Court
and special laws.
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Land Authority Administrative Order No. 4 (1967), "Rules and Regulations
governing Disposition of the Laguna Settlement Project in San Pedro,
Laguna," proscribes the conveyance of the privilege or preference to
purchase a land from the San Pedro Tunasan project before it is awarded to a
tenant or bona fide occupant, thus:
SEC. 6. Privilege of Preference to Purchase Intransferable; Waiver or
Forfeiture Thereof. From the date of acquisition of the estate by the
Government and before issuance of the Order of Award, no tenant or bona
fide occupant in whose favor the land may be sold shall transfer or encumber
the privilege or preference to purchase the land, and any transfer or
encumbrance made in violation hereof shall be null and void: Provided,
however, That such privilege or preference may be waived or forfeited only
in favor of the Land Authority .
Petitioners insistence on any right to the property under the Kasunduan thus
fails.
[T]he transfer "became one in violation of law (the rules of the PHHC being
promulgated in pursuance of law have the force of law) and therefore void ab
initio." Hence, appellant acquired no right over the lot from a contract voidab
initio, no rights are created. Estoppel, as postulated by petitioner, will not
apply for it cannot be predicated on an illegal act. It is generally considered
that as between the parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy.
Petitioners go on to postulate that if the Kasunduan is void, it follows that the
1962 Deed of Assignment executed by Apolinario in favor of Jaime is
likewise void to thus deprive the latter of any legal basis for his occupation
and acquisition of Lot 19.
Petitioners position fails. Petitioners lose sight of the fact that, as reflected
above, Jaime acquired Lot 19 in his own right, independently of the Deed of
Assignment.
In another vein, since the property was previously a public land, petitioners
have no personality to impute fraud or misrepresentation against the State or
violation of the law.19 If the title was in fact fraudulently obtained, it is the
State which should file the suit to recover the property through the Office of
the Solicitor General. The title originated from a grant by the government,
hence, its cancellation is a matter between the grantor and the grantee.
Petitioners aver that the action of the respondents of unpaid wages,
separation pay and 13th month pay has already prescribed since the action
was filed almost five years from the time Jones severed his employment from
ASI. Jones filed his resignation on October 31, 1997. While the complaint
before the LA was instituted on September 29, 2002. Petitioners contend that
the three year prescriptive period under Article 291 of the Labor code had
already set-in, thereby barring all of respondents money claims arising from
their employer-employee relations.
Article 291:
All money claims arising from an employer-employee relationship shall be
filed with in years from the time the cause of action accrued. Otherwise they
shall be forever barred.
Based on the Labor arbiter, It was the ASI which was responsible for the
delay in the institution of the complaint. When Jones filed his resignation. He
asked for the payment of his money claims immediately. However, the
management of ASI promised him that he would be paid immediately after
the claims of the rank-and-file employees had been paid. Jones relied on this
representation. Unfortunately, the promise was never fulfilled even until the
time of Jones death.
We can apply the principle of promissory estoppel, which is an exception to
the three-year prescriptive period enunciated in Article 291 of the Labor
code.
Promissory Estoppel may arise from the making of a promise, even though
with out consideration. If it was intended that the promise should be relied
upon. As in fact it was relied upon, and if a refusal to enforce it would
virtually sanction the perpetration of fraud or would result in other injustice.
Promissory estoppel presupposes the existence of a promise on the part of
one against whom estoppel is claimed. The promise must be plain and
unambiguous and sufficiently specific so that the court can understand the
obligation assumed and enforce the promise according to its terms.
Requisites in arising a promissory estoppel.
1. A promise was reasonably expected to induce action or
forbearance
2. Such promise did. In fact, induce such action or forbearance
3. The party suffered detrimental
All the requisites of promissory estoppel are present in the case. Jones relied
on the promise of ASI that he would be paid soon as the claims of all the
rank-and-file employees had been paid. If not for the promise that he had
held on to until the time of his death. There is no reason why he would delay
filing his complaint before the LA. It was the petitioners own action that
prevented respondent from interposing the claims with in the required period.

ASILO, JR. v PEOPLE & SPS. BOMBASI

ACCESSORIES SPECIALISTS, INC. v ALABANZA Ponente: Perez, J

Facts:
On March 15, 1978 Private Respondent Visitacion Bombasis late mother
On September 22, 2002, Private respondent Erlinda B. Alabanza for and in
Marciana and the Municipality of Nagcarlan, Laguna entered into a lease
behalf of her husband Jones B. Alabanza filed a complaint against Petitioners
contract whereby the Municipality allowed the use and enjoyment of
Accessories Specialist, Inc. also known as Arts 21 Corporation, and
property comprising of a lot and a store located at the corner of Coronado
Tadahiko Hashimoto for non-payment of salaries, separation pay and 13th
and E. Fernandez Sts. At Poblacion Nagcarlan, Laguna in favor of
month pay.
respondents mother for a period of 20 years beginning March 15, 1978 until
Respondent Erlinda alleged, among others, that her husband Jones was the
March 15, 1998 extendible for another 20 years.
Vice-president, Manager and Director of ASI. Jones rendered outstanding
The lease contract provided that the late respondents mother could build a
services for the petitioners from 1975 to October 1997.
firewall on her rented property which must be at least as high as the store;
On October 17, 1997, Jones was compelled by the owner of ASI, here in
and in case of modification of the public market, she or her heir/s would be
petitioner Tadahiko Hashimoto, to file his involuntary resignation on the
given preferential right.
ground that ASI allegedly suffered losses due to lack of market and incurred
Visitacion took over the store when her mother died sometime in 1984. From
several debts caused by a slam in the market. At the time of his resignation,
then on up to January 1993, Visitacion secured the yearly Mayors permits.
Jones had unpaid salaries for 18 months from May 1995 to October 1997
Sometime in 1986, a fire razed the public market of Nagcarlan, Laguna.
equivalent to P396000 and $38880.
Upon Visitacion Bombasis request for inspection on May 15, 1986 found
He was not paid for his separation pay commensurate to his 21 years of
that the store of Visitacion remained intact and strong. The finding of then
service in the amount of P462000 and $45360 and 13 month pay amounting
Ministry of Public Works and Highways was contested by the Municipality
to P33,000.
of Nagcarlan.
Jones demanded payment of his money claims upon resignation but ASI
On September 1, 1993, Visitacion received a letter from the Municipal
informed him that it would just settle first the money claims of the rank-and-
Mayor Comendador directing her to demolish her store within 5 days from
file employees.
notice. Attached to the letter were copies of Sangguniang Bayan Resolution
Jones patiently waiting and made several demands but ASI just assuring him
dated August 30, 1993 and a Memorandum issued by Asst. Provincial
that he will be paid his monetary claims but Jones died on August 5, 2002
Prosecutor Sasondoncillo of Laguna.
and failed to receive the same.
It is also provided in the resolution that it authorized Mayor Comendador to
Petitioners contend that Jones voluntarily resigned on October 31, 1997.
enforce and order the demolition to give way for the construction of a new
Thus, Respondent cause of action has already prescribed and is forever
municipal market building. It further authorizes Mayor Comendador to file
barred under Article 291 of the Labor code, all money claims arising from an
an Unlawful Detainer Case with damages for the expenses incurred due to
employer-employee relationship shall be filed with in 3 years from the time
the delay in the completion of the project if Visitacion resists the order.
of the cause of action accrues. Since the complaint was filed on September
Visitacion in her reply addressed to the mayor stated that: (1) the lease
27, 2002. Almost 5 years from the date of the alleged illegal dismissal of her
contract between her late mother and the municipality of Nagcarlan was still
husband Jones, Erlindas complaint is now barred.
existing and legally binding; (2) she was willing to vacate as long as same
Issue: Whether the cause of action of respondents has already prescribed.
place and area would be given to her in the new public market; and (3) in

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case her proposals are not acceptable to Mayor Comendador, he can file the
appropriate action to enable the court to finally thresh out their differences.
On October 11, 1993, the Sangguniang Bayan of Nagcarlan authorize Mayor
Comendador to demolish the store being occupied by Visitacion Bombasi
using legal means.
On October 14, 1993, Municipal Administrator Asilo, Jr. petitioner of this
case, sent a letter to Visitacion informing her of the impending demolition of
her store the next day. Within the same day, Visitacion wrote a reply letter to
Asilo, Jr., alleging that there is no legal right to demolish the store in the
absence of the court order and that the Resolutions did not sanction the
demolition of her store only the filing of an appropriate unlawful detainer
case against her. She further replied that if the demolition will take place,
appropriate administrative, criminal and civil actions will be filed against
Mayor Comendador, Asilo, Jr. and all persons who will take part in the
demolition.
On October 15, 1993, Mayor Comendador relying on the strength of
Sangguniang Bayan resolutions authorized the demolition of the store with
petitioner Asilo, Jr. Supervising the work.
On August 19, 1994, Visitacion together with her husband Cesar Bombasi
(Spouses Bombasi) filed with the RTC of San Pablo City, Laguna a Civil
Case for damages with preliminary injunction against the Municipality of
Nagcarlan, Laguna, Mayor Demeterio Comendador and Paulino Asilo, Jr.
Spouses Bombasi thereafter filed a criminal complaint against Mayor
Commendador and Asilo Jr. for violation of Section 3 of Republic Act No.
3019 known as the Anti-Graft and Corrupt Practices Act.
On March 4, 1997 Sandiganbayan promulgated a Resolution consolidating
the Civil and Criminal Case pending before the 3rd division pursuant to
Section 4, Presidential Decree No. 1606.
Sandiganbayan: held for the criminal case Mayor Comendador and Asilo Jr.
guilty beyond reasonable doubt. For the civil case, it ruled in favor of the
respondent spouses Bombasi.
Legal Issue:
W/N Mayor Comendador, Asilo, Jr. and the Municipality of Nagcarlan,
Laguna is placed in estoppel?
Held:
Yes. In the petitions for certiorari, the Supreme Court had the chance to
discuss estoppel on the part of the petitioner Asilo, Jr., Mayor
Commendador, and the Municipality of Nagcaralan, Laguna.
The Municipality of Nagcarlan, Laguna, as represented by the then Mayor
Comendador, was placed in estoppel after it granted yearly business permits
in favor of the Spouses Bombasi. According to Article 1431 of the New Civil
Code provides that, through estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
The representation made by the municipality that the Spouses Bombasi had
the right to continuously operate its store bind the municipality. It is utterly
unjust for the municipality to receive the benefits of the store operation and
later claim the illegality of the business.
Therefore, the Municipality of Nagcarlan together with Mayor Comendador
and Municipal Administrator Asilo, Jr. is estopped from claiming illegality of
the spouses Bombasis business or its operations therefrom.
PRISMA CONSTRUCTION v MENCHAVEZ
On December 8, 1993, Pantaleon, the President and Chairman of the Board
of PRISMA, obtained a P1,000,000.00[4] loan from the respondent
Menchavez, with a monthly interest of P40,000.00 payable for six
months, or a total obligation of P1,240,000.00 to be paid within six (6)
months, from January 8, 1994 to June 8, 1994.
To secure the payment of the loan, Pantaleon issued a promissory note and
six (6) postdated checks corresponding to the schedule of payments.
Pantaleon signed the promissory note in his personal capacity, and as duly
authorized by the Board of Directors of PRISMA. The petitioners failed to
completely pay the loan within the stipulated six (6)-month period.
As of January 4, 1997, the petitioners had already paid a total of
P1,108,772.00. However, the respondent found that the petitioners still had
an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it
applied a 4% monthly interest basing on the board resolution of PRISMA
board of directors which authorizes Pantaleon to enter into a loan contract
with an interest of not more than 4%.
Menchavez filed a complaint for sum of money to enforce the unpaid
balance.
Pantaleon denied the stipulation on the 4% interest arguing that such was not
stated in the promissory note.
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RTC RULING: inding that the respondent issued a check for P1,000,000.00
in favor of the petitioners for a loan that would earn an interest of 4% or
P40,000.00 per month, or a total of P240,000.00 for a 6-month period. It
noted that the petitioners made several payments amounting to
P1,228,772.00, but they were still indebted to the respondent for
P3,526,117.00 as of February 11,1999 after considering the 4% monthly
interest.
CA RULING: Affirmed RTC ruling but reduced interest rate from 4% per
month to 12% per annum for being unconscionable.
The petitioners submit that the CA mistakenly relied on their board
resolution to conclude that the parties agreed to a 4% monthly interest
because the board resolution was not an evidence of a loan or forbearance of
money, but merely an authorization for Pantaleon to enter into a contract of
loan.
Even assuming that the loan is subject to 4% monthly interest, the interest
covers the six (6)-month period only and cannot be interpreted to apply
beyond it.
The respondent counters that the CA correctly ruled that the loan is subject to
a 4% monthly interest because the board resolution is attached to, and an
integral part of, the promissory note. The respondent further contends that
the petitioners are estopped from assailing the 4% monthly interest, since
they agreed to pay the 4% monthly interest on the principal amount
under the promissory note and the board resolution.
ISSUE:
1. Whether the parties agreed to the 4% monthly interest on the loan.
2. Does the rate of interest apply to the 6-month payment period
only or until full payment of the loan
3. Are petitioners estopped from assailing the 4% interest?
RULING:
The loan shall be payable in six months and shall earn 40,000.00 interest,
although this agreed sum can be computed at 4% interest per month, no
such rate of interest was stipulated in the promissory note; rather a fixed
sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that no interest shall be
due unless it has been expressly stipulated in writing. Under this provision,
the payment of interest in loans or forbearance of money is allowed only if:
(1) there was an express stipulation for the payment of interest; and (2) the
agreement for the payment of interest was reduced in writing. The
concurrence of the two conditions is required for the payment of interest
at a stipulated rate.
Applying this provision, the court found that the interest of P40,000.00 per
month corresponds only to the six (6)-month period of the loan, or from
January 8, 1994 to June 8, 1994, as agreed upon by the parties in the
promissory note. Thereafter, In the absence of a stipulation the interest on
the loan should be at the legal interest rate of 12% per annum.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped from disputing the
4% monthly interest beyond the six-month stipulated period, since they
agreed to pay this interest on the principal amount under the promissory note
and the board resolution.
We cannot apply the doctrine of estoppel in the present case since the facts
and circumstances, as established by the record, negate its application. Under
the promissory note, what the petitioners agreed to was the payment of a
specific sum of P40,000.00 per month for six months not a 4% rate of
interest per month for six (6) months on a loan whose principal is
P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason
exists to place the petitioners in estoppel, barring them from raising their
present defenses against a 4% per month interest after the six-month period
of the agreement.
The board resolution, on the other hand, simply authorizes Pantaleon to
contract for a loan with a monthly interest of not more than 4%. This
resolution merely embodies the extent of Pantaleons authority to contract and
does not create any right or obligation except as between Pantaleon and the
board. Again, no cause exists to place the petitioners in estoppel.
 OBLIGATIONS & CONTRACTS 4TH EXAM
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Other than to harass the respondent, the Court is at a loss as to what

DIZON v PHIL. VETERANS BANK
FACTS:
Rogelio Dizon and his wife Corazon were the owners of three parcels of
land. The Spouses Dizon mortgaged these lots to herein respondent
Philippine Veterans Bank (PVB) as security for a credit accommodation
which they obtained from PVB. The Spouses Dizon failed to pay their
obligation. As a consequence, PVB extrajudicially foreclosed the mortgage
and was able to acquire the subject properties at public auction.
Subsequently, a Certificate of Sale was issued in favor of PVB which was
registered with the Register of Deeds.
PVB filed with the RTC a Petition for Issuance of Owner's Duplicate Copy
of Transfer Certificate of Title over the same parcels of land. Herein
petitioner opposed the petition. Petitioner anchors his opposition to the
petition filed by PVB on the contention that the titles, which he presented to
the bank as evidence that the subject properties were used as security for the
loan he and his wife incurred with the said bank, were genuine but were later
on altered by the bank's officials and employees with whom he allegedly
entered a deal in order to have his loan approved. Petitioner claims that this
altered and spurious titles were the ones presented by PVB in its first petition
filed with the RTC in June 1986.
The RTC rendered judgment granting the petition of PVB. Feeling aggrieved,
Rogelio filed an appeal with the CA. CA dismissed the appeal.
ISSUE: WON the petitioner may oppose or question the validity of the titles
in question.
HELD: No, the petition lacks merit.
Petitioner anchors his opposition to the petition filed by PVB on the
contention that the titles, which he presented to the bank as evidence that the
subject properties were used as security for the loan he and his wife incurred
with the said bank, were genuine but were later on altered by the bank's
officials and employees with whom he allegedly entered a deal in order to
have his loan approved. Petitioner claims that this altered and spurious titles
were the ones presented by PVB in its first petition filed with the RTC in
June 1986. However, these allegations remain unsubstantiated. They are self-
serving statements which are not supported by any evidence whatsoever. It is
settled that one who alleges a fact has the burden of proving it and mere
allegation is not evidence. The established fact remains that petitioner and his
wife were the ones who submitted to PVB the authentic owner's copy of the
titles over the subject properties and that these copies were lost.
The Court cannot follow the logic in petitioner's arguments considering that,
in the first place, he and his wife were the ones who submitted the titles to
PVB. Now that PVB seeks to obtain a duplicate copy of the titles covering
the subject properties which it legally acquired, petitioner has made a
complete turnaround and now assails the authenticity of these titles which he
and his wife used to obtain their loan. Nonetheless, petitioner is estopped
from doing so.
Settled is the rule that a person, who by his deed or conduct has induced
another to act in a particular manner, is barred from adopting an inconsistent
position, attitude or course of conduct that thereby causes loss or injury to the
latter. The doctrine of estoppel is based upon the grounds of public policy,
fair dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one to
whom they were directed and who reasonably relied thereon.
Article 1431 of the Civil Code states that through estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon.
petitioner really desires to achieve in opposing the respondent bank's petition.
The Court agrees with respondent's observation that petitioner's actuations
are demonstrative of his desperate attempt to cling on to the subject
properties despite the fact that he has lost them by reason of foreclosure due
to his failure to pay his obligations and his subsequent inability to redeem
them during the period allowed by law.
HOJAS v PHILIPPINE AMANAH BANK
Facts:
The petitioners, Spouses Rubin and Portia Hojas, alleged that on April 11,
1980, they secured a loan from respondent Philippine Amanah Bank in the
amount of P450,000.00; that this loan was secured by a mortgage, covering
both personal and real properties; that from May 14, 1981 to June 27, 1986,
they made various payments amounting to P486,162.13; that PAB, however,
did not properly credit their payments; that based on the summary of
payments furnished by PAB to them on February 24, 1989, only 13 payments
were credited, erroneously amounting to P317,048.83; that PAB did not
credit the payment they made totalingP165,623.24; and that, in the statement
of their account as of October 17, 1984, PAB listed their total payment as
412,211.54 on the principal, and P138,472.09 as 30% interest, all
amounting to P550,683.63, despite the fact that at that time, petitioners had
already paid the total sum of P486,162.13.2
Petitioners further averred that for failure to pay the loan, PAB applied for
the extrajudicial foreclosure of the mortgaged real properties of petitioners
with the Ex-Officio Sheriff; that consequently, a Notice of Extrajudicial
Foreclosure was issued on January 12, 1987 setting the foreclosure sale on
April 21, 1987 and, stating therein the mortgage debt in the sum of
P450,000.00; and that, in the public auction conducted, PAB acquired said
real property.3
RTC dismissed petitioners complaint.
Petitioners filed an appeal assailing the May 27, 1996 RTC Decision. They
asserted that the March 9, 1988 Letter of Carpizo to Roberto Hojas extended
the redemption period from April 21 to December 31, 1988. Considering that
they had relied on Carpizos representation, PAB violated the principle of
estoppel when it conducted the public sale on November 4, 1988.7 Their
basis was the portion of said letter which stated:
xxxx
As the Bank has adopted an incentive scheme whereby payments are
liberalized to give chances to former owners to repossess their properties, we
suggest that you advise your parents to drop by at our Zamboanga Office so
they can avail of this rare privilege which shall be good only up to December
31, 1988. (Emphasis supplied)8
The CA affirmed the RTCs decision. It held that the period of redemption
was never extended. The date "December 31, 1988" was not an extension of
the redemption period. It was merely the last day for the availment of the
liberalized payment for the repossession of foreclosed assets under PABs
incentive scheme. PAB, through said letter, did not make an unqualified
representation to petitioners that it had extended the redemption period. As
such, PAB could not be said to have violated the principle of estoppel when
it conducted a public sale on November 4, 1988.

The essential elements of estoppel are: (1) conduct of a party amounting to Issue:
false representation or concealment of material facts or at least calculated to
convey the impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert; (2) intent, or at W/N the respondents violated the principles of estoppels.
least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and (3) knowledge, actual or constructive, of the Held:
real facts.

In the present case, petitioner may not renege on his own acts and
representations to the prejudice of respondent bank, which has relied on
them. Since petitioner entered into a binding contract on his own volition
using the titles which he now assails, he is therefore estopped from
questioning the authenticity of these documents which paved the way for the
consummation of the contract from which he derived benefit.
No!
Through estoppel, an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the
person relying on it.16 This doctrine is based on the grounds of public policy,

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fair dealing, good faith, and justice and its purpose is to forbid one to speak
against his own act, representations or commitments to the injury of one to
whom they were directed and who reasonably relied on it. 17 Thus, in order
for this doctrine to operate, a representation must have been made to the
detriment of another who relied on it. In other words, estoppel would not lie
against one who, in the first place, did not make any representation.

In this case, a perusal of the letter, on which petitioners based their position
that the redemption period had been extended, shows otherwise. Pertinent
portions of the said letter read:

xxxx

Our records show that the above account has already been foreclosed by the
bank. However, the borrowers concerned can still exercise the one (1) year
right of redemption over the foreclosed properties until April 21, 1988.

As the Bank has adopted an incentive scheme whereby payments are

liberalized to give chances to former owners to repossess their properties, we
suggest that you advise your parents to drop by at our Zamboanga Office so
they can avail of this rare privilege which shall be good only up to December
31, 1988. [Emphases and Underscoring Supplied] 18

As correctly held by the RTC and upheld by the CA, the date "December 31,
1988" refers to the last day when owners of foreclosed properties, like
petitioners, could submit their payment proposals to the bank. The letter was
very clear. It was about the availment of the liberalized payment scheme of
the bank. On the last day for redemption, the letter was also clear. It was
April 21, 1988. It was never extended.

The opportunity given to the petitioners was to avail of the liberalized

payment scheme which program would expire on December 31, 1988. As
explained by Abraham Iribani (Iribani), the OIC of the Project Development
Department of PAB, it was to give a chance to previous owners to repossess
their properties on easy term basis, possibly by condonation of charges and
penalties and payment on instalment. The letter of Carpizo was an invitation
to the petitioners to come to the bank with their proposal. It appears that the
petitioners could not come up with a proposal acceptable to the bank.

For said reason, the mortgaged property was included in the list of mortgaged
properties that would be sold through a scheduled public bidding. Thus, on
August 11, 1988, Iribani wrote the petitioners about the scheduled bidding. In
response, the petitioners told Iribani that they would go Manila to explain
their case. They did not, however, return even after the public bidding. In this
regard, the CA was correct when it wrote:

Here, there is no estoppel to speak of. The letter does not show that the Bank
had unqualifiedly represented to the Hojases that it had extended the
redemption period to December 31, 1988. Thus, the Hojases have no basis in
positing that the public sale conducted on November 4, 1988 was null and
void for having been prematurely conducted.19

Moreover, petitioners allegation that they had signified their intention to

avail of the incentive scheme (which they have equated to their intention to
redeem the property), did not amount to an exercise of redemption precluding
the bank from making the public sale.20 In the case of China Banking
Corporation v. Martir,21 this Court expounded on what constitutes a proper
exercise of the right of redemption, to wit:

The general rule in redemption is that it is not sufficient that a person

offering to redeem manifests his desire to do so. The statement of intention
must be accompanied by an actual and simultaneous tender of payment. This
constitutes the exercise of the right to repurchase.

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