Part 4 - Labeled But Full Text - Atty. Dela Peña

SIBAL V VALDEZ
5O PHIL 512
AUGUST 4, 1927
PONENTE: JOHNSON, J.:
PARTIES:
PETITIONERS: LEON SIBAL
RESPONDENTS: EMILIANO J. VALDEZ
RTC: April 10, 1995 (in favor of petitioners)

CA: June 26, 1998 (Reversed & set aside)
DATE OF APPEAL: January 28, 1999
WHO FILED THE CASE: MILAGROS and CARLITO MANONGSONG
WHEN DID THEY FILE THE CASE: June 19, 1992
WHAT CASE WAS FILED: Complaint alleging that Manongsong and respondents are the
owners pro indiviso of the Property. Invoking Article 494 of the Civil Code, petitioners prayed for
the partition and award to them of an area equivalent to one-fifth (1/5) of the Property or its
prevailing market value, and for damages.
WHAT WAS THE CONTROVERSY ALL ABOUT: Partitioning of a parcel of land located in San
Jose Street, Manuyo Uno, Las Pias, Metro Manila with an area of approximately 152 square
meters and awarding to petitioners a portion of such property.
HOW DID THE CONTROVERSY BEGIN:
DOCUMENTS:
FACTS:
As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal, deputy
sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the CFI of Pampanga,
attached and sold to the defendant Emiliano J. Valdez the sugar cane planted by the plaintiff and
his tenants on seven parcels of land described in the complaint in the third paragraph of the first
cause of action. Within one year from the date of the attachment and sale the plaintiff offered to
redeem said sugar cane and tendered to the defendant Valdez the amount sufficient to cover the
price paid by the latter, the interest thereon and any assessments or taxes which he may have
paid thereon after the purchase, and the interest corresponding thereto and that Valdez refused to
accept the money and to return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez was
attempting to harvest the palay planted in four of the seven parcels mentioned in the first cause of
action; that he had harvested and taken possession of the palay in one of said seven parcels and
in another parcel described in the second cause of action, amounting to 300 cavans; and that all of
said palay belonged to the plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against the defendant Emiliano
J. Valdez his attorneys and agents, restraining them
(1) from distributing him in the possession of the parcels of land described in the complaint;
P. CABAÑOG & M. YANONG SALES CASE DIGEST FROM THE LECTURES OF ATTY. DELA PEÑA
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(2) from taking possession of, or harvesting the sugar cane in question; and
(3) from taking possession, or harvesting the palay in said parcels of land.
Plaintiff also prayed that a judgment be rendered in his favor and against the defendants
ordering them to consent to the redemption of the sugar cane in question, and that the defendant
Valdez be condemned to pay to the plaintiff the sum of P1,056 the value of palay harvested by him
in the two parcels above-mentioned, with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon approval of the bond for
P6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied generally and specifically each
and every allegation of the complaint and step up the following defenses:
(a) That the sugar cane in question had the nature of personal property and was not,
therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of the
complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that by reason of the
preliminary injunction he was unable to gather the sugar cane, sugar-cane shoots (puntas de cana
dulce) palay in said parcels of land, representing a loss to him of P8,375.20 and that, in addition
thereto, he suffered damages amounting to P3,458.56. He prayed, for a judgment (1) absolving
him from all liability under the complaint; (2) declaring him to be the absolute owner of the sugar
cane in question and of the palay in parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him
the sum of P11,833.76, representing the value of the sugar cane and palay in question, including
damages.
Upon the issues thus presented by the pleadings the cause was brought on for trial. After hearing
the evidence, and on April 28, 1926, the Honorable Cayetano Lukban, judge, rendered a judgment
against the plaintiff and in favor of the defendants —
(1) Holding that the sugar cane in question was personal property and, as such, was not
subject to redemption;
(2) Absolving the defendants from all liability under the complaint; and
(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and
Marcos Sibal to jointly and severally pay to the defendant Emiliano J. Valdez the sum of
P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the defendant was not able to
raise by reason of the injunction, at P4 cavan. 9,439.08 From that judgment the
plaintiff appealed and in his assignments of error contends that the lower court erred:
(1) In holding that the sugar cane in question was personal property and, therefore,
not subject to redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as parcels 7
and 8, and that the palay therein was planted by Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction failed to realized
P6,757.40 from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de cana
dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant was
unable to raise palay on the land, which would have netted him the sum of P600; and.
(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of
P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of writ of
execution in civil case No. 20203 of the Court of First Instance of Manila (Macondray & Co.,
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Inc. vs. Leon Sibal),levied an attachment on eight parcels of land belonging to said Leon
Sibal, situated in the Province of Tarlac, designated in the second of attachment as parcels
1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at the
auction held by the sheriff of the Province of Tarlac, for the sum to P4,273.93, having paid
for the said parcels separately as follows (Exhibit C, and 2-A):
Parcel
1 ..................................................................... P1.00
2 ..................................................................... 2,000.00
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 ..................................................................... 1,000.00
==========
4,273.93
(3) That within one year from the sale of said parcel of land, and on the 24th day of
September, 1923, the judgment debtor, Leon Sibal, paid P2,000 to Macondray & Co., Inc.,
for the account of the redemption price of said parcels of land, without specifying the
particular parcels to which said amount was to applied. The redemption price said eight
parcels was reduced, by virtue of said transaction, to P2,579.97 including interest (Exhibit C
and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the Province
of Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province of Pampanga
(Emiliano J. Valdez vs. Leon Sibal 1.º — the same parties in the present case), attached the
personal property of said Leon Sibal located in Tarlac, among which was included the sugar
cane now in question in the seven parcels of land described in the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal
properties of Leon Sibal, including the sugar cane in question to Emilio J. Valdez, who paid
therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of execution, also
attached the real property of said Leon Sibal in Tarlac, including all of his rights, interest and
participation therein, which real property consisted of eleven parcels of land and a house
and camarin situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the house and the
camarin, were bought by Emilio J. Valdez at the auction held by the sheriff for the sum of
P12,200. Said eight parcels were designated in the certificate of sale as parcels 1, 3, 4, 5,
6, 7, 10 and 11. The house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels 2,
12, and 13, were released from the attachment by virtue of claims presented by Agustin
Cuyugan and Domiciano Tizon (Exhibit A).
(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to Emilio J.
Valdez for P2,579.97 all of its rights and interest in the eight parcels of land acquired by it at
public auction held by the deputy sheriff of Tarlac in connection with civil case No. 20203 of
the Court of First Instance of Manila, as stated above. Said amount represented the unpaid
balance of the redemption price of said eight parcels, after payment by Leon Sibal of
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P2,000 on September 24, 1923, fro the account of the redemption price, as stated above.
(Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question, located in the seven parcels of
land described in the first cause of action of the complaint at public auction on May 9 and
10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land
situated in the Province of Tarlac belonging to Leon Sibal and that on September 24, 1923,
Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption price of said
parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray & Co. all of its rights
and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the rights and interest which
Leon Sibal had or might have had on said eight parcels by virtue of the P2,000 paid by the
latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said eight parcels of land.
The first question raised by the appeal is, whether the sugar cane in question is personal or real
property. It is contended that sugar cane comes under the classification of real property as
"ungathered products" in paragraph 2 of article 334 of the Civil Code. Said paragraph 2 of article
334 enumerates as real property the following: Trees, plants, and ungathered products, while they
are annexed to the land or form an integral part of any immovable property." That article, however,
has received in recent years an interpretation by the Tribunal Supremo de España, which holds
that, under certain conditions, growing crops may be considered as personal property. (Decision of
March 18, 1904, vol. 97, Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334 of the
Civil Code, in view of the recent decisions of the supreme Court of Spain, admits that growing
crops are sometimes considered and treated as personal property. He says:
No creemos, sin embargo, que esto excluya la excepcionque muchos autores hacen
tocante a la venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa
frecuente con la uvay y la naranja), y a la de lenas, considerando ambas como muebles. El
Tribunal Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un contrato de
arrendamiento de un predio rustico, resuelve que su terminacion por desahucio no extingue
los derechos del arrendario, para recolectar o percibir los frutos correspondientes al año
agricola, dentro del que nacieron aquellos derechos, cuando el arrendor ha percibido a su
vez el importe de la renta integra correspondiente, aun cuando lo haya sido por precepto
legal durante el curso del juicio, fundandose para ello, no solo en que de otra suerte se
daria al desahucio un alcance que no tiene, sino en que, y esto es lo interesante a nuestro
proposito, la consideracion de inmuebles que el articulo 334 del Codigo Civil atribuge a los
frutos pendientes, no les priva del caracter de productos pertenecientes, como tales, a
quienes a ellos tenga derecho, Ilegado el momento de su recoleccion.
xxx xxx xxx
Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en 16 de
diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la hipoteca,
salvo pacto expreso que disponga lo contrario, y cualquiera que sea la naturaleza y forma
de la obligacion que garantice, no comprende los frutos cualquiera que sea la situacion en
que se encuentre. (3 Manresa, 5. edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities, pending fruits and ungathered
products may be sold and transferred as personal property; (2) that the Supreme Court of Spain,
in a case of ejectment of a lessee of an agricultural land, held that the lessee was entitled to
gather the products corresponding to the agricultural year, because said fruits did not go with the
land but belonged separately to the lessee; and (3) that under the Spanish Mortgage Law of 1909,
as amended, the mortgage of a piece of land does not include the fruits and products existing
thereon, unless the contract expressly provides otherwise.
An examination of the decisions of the Supreme Court of Louisiana may give us some light on the
question which we are discussing. Article 465 of the Civil Code of Louisiana, which corresponds to
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paragraph 2 of article 334 of our Civil Code, provides: "Standing crops and the fruits of trees not
gathered, and trees before they are cut down, are likewise immovable, and are considered as part
of the land to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that provision, held that in some
cases "standing crops" may be considered and dealt with as personal property. In the case
of Lumber Co. vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True, by
article 465 of the Civil Code it is provided that 'standing crops and the fruits of trees not gathered
and trees before they are cut down . . . are considered as part of the land to which they are
attached, but the immovability provided for is only one in abstracto and without reference to rights
on or to the crop acquired by others than the owners of the property to which the crop is
attached. . . . The existence of a right on the growing crop is a mobilization by anticipation, a
gathering as it were in advance, rendering the crop movable quoad the right acquired therein. Our
jurisprudence recognizes the possible mobilization of the growing crop." (Citizens' Bank vs. Wiltz,
31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass, 27 La. Ann., 629;
Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28 La. An.,
761) that "article 465 of the Revised Code says that standing crops are considered as immovable
and as part of the land to which they are attached, and article 466 declares that the fruits of an
immovable gathered or produced while it is under seizure are considered as making part thereof,
and incurred to the benefit of the person making the seizure. But the evident meaning of these
articles, is where the crops belong to the owner of the plantation they form part of the immovable,
and where it is seized, the fruits gathered or produced inure to the benefit of the seizing creditor.
A crop raised on leased premises in no sense forms part of the immovable. It belongs to the
lessee, and may be sold by him, whether it be gathered or not, and it may be sold by his
judgment creditors. If it necessarily forms part of the leased premises the result would be
that it could not be sold under execution separate and apart from the land. If a lessee obtain
supplies to make his crop, the factor's lien would not attach to the crop as a separate thing
belonging to his debtor, but the land belonging to the lessor would be affected with the
recorded privilege. The law cannot be construed so as to result in such absurd
consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would be
destructive of the very objects of the act, it would render the pledge of the crop objects of
the act, it would render the pledge of the crop impossible, for if the crop was an inseparable
part of the realty possession of the latter would be necessary to that of the former; but such
is not the case. True, by article 465 C. C. it is provided that "standing crops and the fruits of
trees not gathered and trees before they are cut down are likewise immovable and are
considered as part of the land to which they are attached;" but the immovability provided for
is only one in abstracto and without reference to rights on or to the crop acquired by other
than the owners of the property to which the crop was attached. The immovability of a
growing crop is in the order of things temporary, for the crop passes from the state of a
growing to that of a gathered one, from an immovable to a movable. The existence of a
right on the growing crop is a mobilization by anticipation, a gathering as it were in advance,
rendering the crop movable quoad the right acquired thereon. The provision of our Code is
identical with the Napoleon Code 520, and we may therefore obtain light by an examination
of the jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de España but by the Supreme
Court of Louisiana, is followed in practically every state of the Union.
From an examination of the reports and codes of the State of California and other states we find
that the settle doctrine followed in said states in connection with the attachment of property and
execution of judgment is, that growing crops raised by yearly labor and cultivation are considered
personal property. (6 Corpuz Juris, p. 197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329:
Raventas vs. Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am.
Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and
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Co., 65 Ga., 644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on
Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in
existence, is reasonably certain to come into existence as the natural increment or usual incident
of something already in existence, and then belonging to the vendor, and then title will vest in the
buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me.,
387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a
potential existence. A man may sell property of which he is potentially and not actually possessed.
He may make a valid sale of the wine that a vineyard is expected to produce; or the gain a field
may grow in a given time; or the milk a cow may yield during the coming year; or the wool that
shall thereafter grow upon sheep; or what may be taken at the next cast of a fisherman's net; or
fruits to grow; or young animals not yet in existence; or the good will of a trade and the like. The
thing sold, however, must be specific and identified. They must be also owned at the time by the
vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am. Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil Code has
been modified by section 450 of the Code of Civil Procedure as well as by Act No. 1508, the
Chattel Mortgage Law. Said section 450 enumerates the property of a judgment debtor which may
be subjected to execution. The pertinent portion of said section reads as follows: "All goods,
chattels, moneys, and other property, both real and personal, * * * shall be liable to execution. Said
section 450 and most of the other sections of the Code of Civil Procedure relating to the execution
of judgment were taken from the Code of Civil Procedure of California. The Supreme Court of
California, under section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has
held, without variation, that growing crops were personal property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing crops are personal
property. Section 2 of said Act provides: "All personal property shall be subject to mortgage,
agreeably to the provisions of this Act, and a mortgage executed in pursuance thereof shall be
termed a chattel mortgage." Section 7 in part provides: "If growing crops be mortgaged the
mortgage may contain an agreement stipulating that the mortgagor binds himself properly to tend,
care for and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted on the assumption that
"growing crops" are personal property. This consideration tends to support the conclusion
hereinbefore stated, that paragraph 2 of article 334 of the Civil Code has been modified by section
450 of Act No. 190 and by Act No. 1508 in the sense that "ungathered products" as mentioned in
said article of the Civil Code have the nature of personal property. In other words, the phrase
"personal property" should be understood to include "ungathered products."
At common law, and generally in the United States, all annual crops which are raised by
yearly manurance and labor, and essentially owe their annual existence to cultivation by
man, . may be levied on as personal property." (23 C. J., p. 329.) On this question
Freeman, in his treatise on the Law of Executions, says: "Crops, whether growing or
standing in the field ready to be harvested, are, when produced by annual cultivation, no
part of the realty. They are, therefore, liable to voluntary transfer as chattels. It is equally
well settled that they may be seized and sold under execution. (Freeman on Executions,
vol. p. 438.)
We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been modified
by section 450 of the Code of Civil Procedure and by Act No. 1508, in the sense that, for the
purpose of attachment and execution, and for the purposes of the Chattel Mortgage Law,
"ungathered products" have the nature of personal property. The lower court, therefore, committed
no error in holding that the sugar cane in question was personal property and, as such, was not
subject to redemption.
All the other assignments of error made by the appellant, as above stated, relate to questions of
fact only. Before entering upon a discussion of said assignments of error, we deem it opportune to
take special notice of the failure of the plaintiff to appear at the trial during the presentation of
evidence by the defendant. His absence from the trial and his failure to cross-examine the
defendant have lent considerable weight to the evidence then presented for the defense.
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Coming not to the ownership of parcels 1 and 2 described in the first cause of action of the
complaint, the plaintiff made a futile attempt to show that said two parcels belonged to Agustin
Cuyugan and were the identical parcel 2 which was excluded from the attachment and sale of real
property of Sibal to Valdez on June 25, 1924, as stated above. A comparison of the description of
parcel 2 in the certificate of sale by the sheriff (Exhibit A) and the description of parcels 1 and 2 of
the complaint will readily show that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.º en una parcela
de terreno de la pertenencia del citado ejecutado, situada en Libutad, Culubasa, Bamban,
Tarlac, de unas dos hectareas poco mas o menos de superficie.
2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.º, Ilamado Alejandro
Policarpio, en una parcela de terreno de la pertenencia del ejecutado, situada en Dalayap,
Culubasa, Bamban, Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros cuadrados
de superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro Dayrit; al E. con
Francisco Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit, Isidro Santos and
Melecio Mañu; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854, vador
amillarado P4,200 pesos.
On the other hand the evidence for the defendant purported to show that parcels 1 and 2 of the
complaint were included among the parcels bought by Valdez from Macondray on June 25, 1924,
and corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and were also included among
the parcels bought by Valdez at the auction of the real property of Leon Sibal on June 25, 1924,
and corresponded to parcel 3 in the certificate of sale made by the sheriff (Exhibit A). The
description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:
Parcels No. 4. — Terreno palayero, ubicado en el barrio de Culubasa,Bamban, Tarlac, I. F.
de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio of
Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y
Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma de
P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint and parcel
4 (Exhibit 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff did not care to appear at
the trial when the defendant offered his evidence, we are inclined to give more weight to the
evidence adduced by him that to the evidence adduced by the plaintiff, with respect to the
ownership of parcels 1 and 2 of the compliant. We, therefore, conclude that parcels 1 and 2 of the
complaint belong to the defendant, having acquired the same from Macondray & Co. on June 25,
1924, and from the plaintiff Leon Sibal on the same date.
It appears, however, that the plaintiff planted the palay in said parcels and harvested therefrom
190 cavans. There being no evidence of bad faith on his part, he is therefore entitled to one-half of
the crop, or 95 cavans. He should therefore be condemned to pay to the defendant for 95 cavans
only, at P3.40 a cavan, or the sum of P323, and not for the total of 190 cavans as held by the
lower court.
As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel corresponds
to parcel 1 of the deed of sale of Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in
the certificate of sale to Valdez of real property belonging to Sibal, executed by the sheriff as
above stated (Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired
the interest of both Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the second
cause of action, it appears from the testimony of the plaintiff himself that said parcel corresponds
to parcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to parcel 10 in the
deed of sale executed by the sheriff in favor of Valdez (Exhibit A). Valdez is therefore the absolute
owner of said parcel, having acquired the interest of both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were attached under
said execution. Said parcels of land were sold to Macondray & Co. on the 30th day of July, 1923.
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Rice paid P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray & Co. P2,000 on the
redemption of said parcels of land. (See Exhibits B and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached, including
the sugar cane in question. (Exhibit A) The said personal property so attached, sold at public
auction May 9 and 10, 1924. April 29, 1924, the real property was attached under the execution in
favor of Valdez (Exhibit A). June 25, 1924, said real property was sold and purchased by Valdez
(Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public auction
on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the injunction, the evidence shows that
the sugar cane in question covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c);
that said area would have yielded an average crop of 1039 picos and 60 cates; that one-half of the
quantity, or 519 picos and 80 cates would have corresponded to the defendant, as owner; that
during the season the sugar was selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the
defendant, as owner, would have netted P 6,757.40 from the sugar cane in question. The evidence
also shows that the defendant could have taken from the sugar cane 1,017,000 sugar-cane shoots
(puntas de cana) and not 1,170,000 as computed by the lower court. During the season the shoots
were selling at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore would have netted
P1,220.40 from sugar-cane shoots and not P1,435.68 as allowed by the lower court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting to 190
cavans, one-half of said quantity should belong to the plaintiff, as stated above, and the other half
to the defendant. The court erred in awarding the whole crop to the defendant. The plaintiff should
therefore pay the defendant for 95 cavans only, at P3.40 a cavan, or P323 instead of P646 as
allowed by the lower court.
The evidence also shows that the defendant was prevented by the acts of the plaintiff from
cultivating about 10 hectares of the land involved in the litigation. He expected to have raised
about 600 cavans of palay, 300 cavans of which would have corresponded to him as owner. The
lower court has wisely reduced his share to 150 cavans only. At P4 a cavan, the palay would have
netted him P600.
In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff and his
sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby ordered to pay to the
defendant jointly and severally the sum of P8,900.80, instead of P9,439.08 allowed by the lower
court, as follows:
P6,757.40 for the sugar cane;
1,220.40 for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels 1 and 2;
600.00 for the palay which defendant could have raised.
8,900.80
============
In all other respects, the judgment appealed from is hereby affirmed, with costs. So ordered.
PICHEL V ALONZO III

SCRA 34
G.R. No. L-36902 January 30, 1982
LUIS PICHEL, petitioner,

vs.
PRUDENCIO ALONZO, respondent.
8
GUERRERO, J.:
This is a petition to review on certiorari the decision of the Court of First Instance of Basilan City dated January
5, 1973 in Civil Case No. 820 entitled "Prudencio Alonzo, plaintiff, vs. Luis Pichel, defendant."
This case originated in the lower Court as an action for the annulment of a "Deed of Sale" dated August 14, 1968
and executed by Prudencio Alonzo, as vendor, in favor of Luis Pichel, as vendee, involving property awarded to
the former by the Philippine Government under Republic Act No. 477. Pertinent portions of the document sued
upon read as follows:
That the VENDOR for and in consideration of the sum of FOUR THOUSAND TWO HUNDRED
PESOS (P4,200.00), Philippine Currency, in hand paid by the VENDEE to the entire satisfaction
of the VENDOR, the VENDOR hereby sells transfers, and conveys, by way of absolute sale, all
the coconut fruits of his coconut land, designated as Lot No. 21 - Subdivision Plan No. Psd-
32465, situated at Balactasan Plantation, Lamitan, Basilan City, Philippines;
That for the herein sale of the coconut fruits are for all the fruits on the aforementioned parcel of
land presently found therein as well as for future fruits to be produced on the said parcel of land
during the years period; which shag commence to run as of SEPTEMBER 15,1968; up to
JANUARY 1, 1976 (sic);
That the delivery of the subject matter of the Deed of Sale shall be from time to time and at the
expense of the VENDEE who shall do the harvesting and gathering of the fruits;
That the Vendor's right, title, interest and participation herein conveyed is of his own exclusive
and absolute property, free from any liens and encumbrances and he warrants to the Vendee
good title thereto and to defend the same against any and all claims of all persons whomsoever. 1
After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972 which in part read thus:
The following facts are admitted by the parties:
Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot
No. 21 of Subdivision Plan Psd 32465 of Balactasan, Lamitan, Basilan City in accordance with
Republic Act No. 477. The award was cancelled by the Board of Liquidators on January 27, 1965
on the ground that, previous thereto, plaintiff was proved to have alienated the land to another, in
violation of law. In 197 2, plaintiff's rights to the land were reinstated.
On August 14, 1968, plaintiff and his wife sold to defendant an the fruits of the coconut trees
which may be harvested in the land in question for the period, September 15, 1968 to January 1,
1976, in consideration of P4,200.00. Even as of the date of sale, however, the land was still
under lease to one, Ramon Sua, and it was the agreement that part of the consideration of the
sale, in the sum of P3,650.00, was to be paid by defendant directly to Ramon Sua so as to
release the land from the clutches of the latter. Pending said payment plaintiff refused to snow
the defendant to make any harvest.
In July 1972, defendant for the first time since the execution of the deed of sale in his favor,
caused the harvest of the fruit of the coconut trees in the land.
xxx xxx xxx
Considering the foregoing, two issues appear posed by the complaint and the answer which
must needs be tested in the crucible of a trial on the merits, and they are:
First.— Whether or nor defendant actually paid to plaintiff the full sum of P4,200.00 upon
execution of the deed of sale.
Second.— Is the deed of sale, Exhibit 'A', the prohibited encumbrance contemplated in Section 8
of Republic Act No. 477? 2
9
Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and agreed that his client ... admits fun
payment thereof by defendant. 3 The remaining issue being one of law, the Court below considered the case
submitted for summary judgment on the basis of the pleadings of the parties, and the admission of facts and
documentary evidence presented at the pre-trial conference.
The lower court rendered its decision now under review, holding that although the agreement in question is
denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor's land, it actually
is, for all legal intents and purposes, a contract of lease of the land itself. According to the Court:
... the sale aforestated has given defendant complete control and enjoyment of the improvements
of the land. That the contract is consensual; that its purpose is to allow the enjoyment or use of a
thing; that it is onerous because rent or price certain is stipulated; and that the enjoyment or use
of the thing certain is stipulated to be for a certain and definite period of time, are characteristics
which admit of no other conclusion. ... The provisions of the contract itself and its characteristics
govern its nature. 4
The Court, therefore, concluded that the deed of sale in question is an encumbrance prohibited by Republic Act
No. 477 which provides thus:
Sec. 8. Except in favor of the Government or any of its branches, units, or institutions, land
acquired under the provisions of this Act or any permanent improvements thereon shall not be
thereon and for a term of ten years from and after the date of issuance of the certificate of title,
nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of
such period.
Any occupant or applicant of lands under this Act who transfers whatever rights he has acquired
on said lands and/or on the improvements thereon before the date of the award or signature of
the contract of sale, shall not be entitled to apply for another piece of agricultural land or urban,
homesite or residential lot, as the case may be, from the National Abaca and Other Fibers
Corporation; and such transfer shall be considered null and void. 5
The dispositive portion of the lower Court's decision states:
WHEREFORE, it is the judgment of this Court that the deed of sale, Exhibit 'A', should be, as it
is, hereby declared nun and void; that plaintiff be, as he is, ordered to pay back to defendant the
consideration of the sale in the sum of P4,200.00 the same to bear legal interest from the date of
the filing of the complaint until paid; that defendant shall pay to the plaintiff the sum of P500.00
as attorney's fees.
Costs against the defendant. 6
Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts of this case,
the respondent had the right or authority to execute the "Deed of Sale" in 1968, his award over Lot No. 21 having been
cancelled previously by the Board of Liquidators on January 27, 1965, must be clarified. The case in point is Ras vs.
Sua 7 wherein it was categorically stated by this Court that a cancellation of an award granted pursuant to the
provisions of Republic Act No. 477 does not automatically divest the awardee of his rights to the land. Such
cancellation does not result in the immediate reversion of the property subject of the award, to the State. Speaking
through Mr. Justice J.B.L. Reyes, this Court ruled that "until and unless an appropriate proceeding for reversion is
instituted by the State, and its reacquisition of the ownership and possession of the land decreed by a competent
court, the grantee cannot be said to have been divested of whatever right that he may have over the same property." 8
There is nothing in the record to show that at any time after the supposed cancellation of herein respondent's
award on January 27, 1965, reversion proceedings against Lot No. 21 were instituted by the State. Instead, the
admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the above-cited Ras
case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of Lot No. 21 under
Republic Act No. 477 during the period material to the case at bar, i.e., from the cancellation of the award in
1965 to its reinstatement in 1972. Within said period, respondent could exercise all the rights pertaining to a
grantee with respect to Lot No. 21.
This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends that the lower Court
erred:
10
1. In resorting to construction and interpretation of the deed of sale in question where the terms
thereof are clear and unambiguous and leave no doubt as to the intention of the parties;
2. In declaring — granting without admitting that an interpretation is necessary — the deed of

sale in question to be a contract of lease over the land itself where the respondent himself
waived and abandoned his claim that said deed did not express the true agreement of the
parties, and on the contrary, respondent admitted at the pre-trial that his agreement with
petitioner was one of sale of the fruits of the coconut trees on the land;
3. In deciding a question which was not in issue when it declared the deed of sale in question to
be a contract of lease over Lot 21;
4. In declaring furthermore the deed of sale in question to be a contract of lease over the land
itself on the basis of facts which were not proved in evidence;
5. In not holding that the deed of sale, Exhibit "A" and "2", expresses a valid contract of sale;
6. In not deciding squarely and to the point the issue as to whether or not the deed of sale in
question is an encumbrance on the land and its improvements prohibited by Section 8 of
Republic Act 477; and
7. In awarding respondent attorney's fees even granting, without admitting, that the deed of sale
in question is violative of Section 8 of Republic Act 477.
The first five assigned errors are interrelated, hence, We shall consider them together. To begin with, We agree
with petitioner that construction or interpretation of the document in question is not called for. A perusal of the
deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the
contracting parties. The terms of the agreement are clear and unequivocal, hence the literal and plain meaning
thereof should be observed. Such is the mandate of the Civil Code of the Philippines which provides that:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control ... .
Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is the application of the
contract according to its express terms, interpretation being resorted to only when such literal application is
impossible. 9
Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely what it purports to be. It is a
document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21, and not for
the lease of the land itself as found by the lower Court. In clear and express terms, the document defines the object of
the contract thus: "the herein sale of the coconut fruits are for an the fruits on the aforementioned parcel of land during
the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976." Moreover, as petitioner correctly asserts, the
document in question expresses a valid contract of sale. It has the essential elements of a contract of sale as defined
under Article 1485 of the New Civil Code which provides thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the
years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under Article
1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. And
in Sibal vs. Valdez, 50 Phil. 512, pending crops which have potential existence may be the subject matter of the
sale. Here, the Supreme Court, citing Mechem on Sales and American cases said which have potential
existence may be the subject matter of sale. Here, the Supreme Court, citing Mechem on Sales and American
cases said:
Mr. Mechem says that a valid sale may be made of a thing, which though not yet actually in
existence, is reasonably certain to come into existence as the natural increment or usual incident
11
of something already in existence, and then belonging to the vendor, and the title will vest in the
buyer the moment the thing comes into existence. (Emerson vs. European Railway Co., 67 Me.,
387; Cutting vs. Packers Exchange, 21 Am. St. Rep. 63) Things of this nature are said to have a
potential existence. A man may sell property of which he is potentially and not actually possess.
He may make a valid sale of the wine that a vineyard is expected to produce; or the grain a field
may grow in a given time; or the milk a cow may yield during the coming year; or the wool that
shall thereafter grow upon sheep; or what may be taken at the next case of a fisherman's net; or
fruits to grow; or young animals not yet in existence; or the goodwill of a trade and the like. The
thing sold, however, must be specific and Identified. They must be also owned at the time by the
vendor. (Hull vs. Hull 48 Conn. 250 (40 Am. Rep., 165) (pp. 522-523).
We do not agree with the trial court that the contract executed by and between the parties is "actually a contract
of lease of the land and the coconut trees there." (CFI Decision, p. 62, Records). The Court's holding that the
contract in question fits the definition of a lease of things wherein one of the parties binds himself to give to
another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite
(Art. 1643, Civil Code of the Philippines) is erroneous. The essential difference between a contract of sale and a
lease of things is that the delivery of the thing sold transfers ownership, while in lease no such transfer of
ownership results as the rights of the lessee are limited to the use and enjoyment of the thing leased.
In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:
Since according to article 1543 of the same Code the contract of lease is defined as the giving or
the concession of the enjoyment or use of a thing for a specified time and fixed price, and since
such contract is a form of enjoyment of the property, it is evident that it must be regarded as one
of the means of enjoyment referred to in said article 398, inasmuch as the terms enjoyment, use,
and benefit involve the same and analogous meaning relative to the general utility of which a
given thing is capable. (104 Jurisprudencia Civil, 443)
In concluding that the possession and enjoyment of the coconut trees can therefore be said to be the possession
and enjoyment of the land itself because the defendant-lessee in order to enjoy his right under the contract, he
actually takes possession of the land, at least during harvest time, gather all of the fruits of the coconut trees in
the land, and gain exclusive use thereof without the interference or intervention of the plaintiff-lessor such that
said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the trial court erred. The contract
was clearly a "sale of the coconut fruits." The vendor sold, transferred and conveyed "by way of absolute sale, all
the coconut fruits of his land," thereby divesting himself of all ownership or dominion over the fruits during the
seven-year period. The possession and enjoyment of the coconut trees cannot be said to be the possession and
enjoyment of the land itself because these rights are distinct and separate from each other, the first pertaining to
the accessory or improvements (coconut trees) while the second, to the principal (the land). A transfer of the
accessory or improvement is not a transfer of the principal. It is the other way around, the accessory follows the
principal. Hence, the sale of the nuts cannot be interpreted nor construed to be a lease of the trees, much less
extended further to include the lease of the land itself.
The real and pivotal issue of this case which is taken up in petitioner's sixth assignment of error and as already
stated above, refers to the validity of the "Deed of Sale", as such contract of sale, vis-a-vis the provisions of Sec.
8, R.A. No. 477. The lower Court did not rule on this question, having reached the conclusion that the contract at
bar was one of lease. It was from the context of a lease contract that the Court below determined the
applicability of Sec. 8, R.A. No. 477, to the instant case.
Resolving now this principal issue, We find after a close and careful examination of the terms of the first
paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R.A. No. 477 is not
prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him. What the
law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent improvements
thereon. Permanent improvements on a parcel of land are things incorporated or attached to the property in a
fixed manner, naturally or artificially. They include whatever is built, planted or sown on the land which is
characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal houses, trees and
plants would fall under the category of permanent improvements, the alienation or encumbrance of which is
prohibited by R.A. No. 477. While coconut trees are permanent improvements of a land, their nuts are natural or
industrial fruits which are meant to be gathered or severed from the trees, to be used, enjoyed, sold or otherwise
disposed of by the owner of the land. Herein respondents, as the grantee of Lot No. 21 from the Government,
had the right and prerogative to sell the coconut fruits of the trees growing on the property.
12
By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations and other qualified
persons were given the opportunity to acquire government lands by purchase, taking into account their limited
means. It was intended for these persons to make good and productive use of the lands awarded to them, not
only to enable them to improve their standard of living, but likewise to help provide for the annual payments to
the Government of the purchase price of the lots awarded to them. Section 8 was included, as stated by the
Court a quo, to protect the grantees from themselves and the incursions of opportunists who prey on their misery
and poverty." It is there to insure that the grantees themselves benefit from their respective lots, to the exclusion
of other persons.
The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary, the
aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and
productive, thus making it possible for him and his family to be economically self-sufficient and to lead a
respectable life. At the same time, the Government is assured of payment on the annual installments on the
land. We agree with herein petitioner that it could not have been the intention of the legislature to prohibit the
grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd situation
wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and complete
sense.
Respondent through counsel, in his Answer to the Petition contends that even granting arguendo that he
executed a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as (an)
implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." He
claims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner.
(sic). 10 Respondent's counsel either misapplies the law or is trying too hard and going too far to defend his client's
hopeless cause. Suffice it to say that respondent-grantee, after having received the consideration for the sale of his
coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the prejudice of petitioner
who contracted in good faith and for a consideration.
The issue raised by the seventh assignment of error as to the propriety of the award of attorney's fees made by
the lower Court need not be passed upon, such award having been apparently based on the erroneous finding
and conclusion that the contract at bar is one of lease. We shall limit Ourselves to the question of whether or not
in accordance with Our ruling in this case, respondent is entitled to an award of attorney's fees. The Civil Code
provides that:
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons
or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered.
13
In all cases, the attorney's fees and expenses of litigation must be reasonable.
We find that none of the legal grounds enumerated above exists to justify or warrant the grant of attorney's fees
to herein respondent.
IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and another one is entered
dismissing the Complaint. Without costs.
SO ORDERED.
MANANZALA VS CA
286 SCRA 722
G.R. No. 115101. March 2, 1998
FIDELA MANANZALA, Petitioner, v. COURT OF APPEALS, and

CORAZON ARAEZ, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of

Appeals in C.A.-G.R. CV No. 31546, reversing the decision of the Regional
Trial Court, Branch 106, Quezon City, dismissing the complaint for specific
performance brought by private respondent. The appellate court instead
ordered petitioner to convey the property in question to private respondent.
The background of this case is as follows.
Petitioner Fidela Mananzala is the registered owner of a parcel of land

located at Bagong Pagasa, Quezon City, under Transfer Certificate of Title
No. 32314, issued on January 15, 1985. Petitioner had been in actual
possession of the land since 1955 by virtue of a conditional sale made in her
favor by the Philippine Homesite and Housing Corporation (PHHC), now the
National Housing Authority (NHA). In 1960, however, the PHHC awarded the
land to Nestor and Elisea Mercado who took possession of the land in that
year.
Petitioner contested the award in court. She claimed precedence not only in
actual occupation of the land but also in application for its purchase. Her
right to the land was upheld by the Court of First Instance of Quezon City,
whose decision was later affirmed by the Intermediate Appellate Court.
Consequently, the PHHC cancelled the award made to the Mercado spouses.
On December 14, 1984, petitioner paid in full the price of the land under the
deed of conditional sale. The NHA therefore executed a deed of sale in her
14
favor on January 14, 1985.2 The next day a transfer certificate of title to the
lot was issued in the name of petitioner.3 cräläwvirtualibräry
On January 31, 1985, private respondent Corazon Aranez brought this

action below for specific performance against petitioner to enforce a deed of
sale covering the same lot allegedly entered into between her and petitioner
on March 22, 1960. The contract4stipulated that title to the land shall be
transferred to private respondent within 30 days after full payment of the
purchase price by petitioner to the PHHC.5 The deed was notarized by Atty.
Pio Lopez, who was petitioners counsel in her case against the Mercado
spouses.6 Private respondent alleged that petitioner refused, despite
repeated demands made by her, to comply with the stipulation in their
contract. She prayed that petitioner be ordered to transfer ownership of the
land to her.
Petitioner denied selling the land to private respondent. She contended that
the deed was a forgery and that her signature was secured through fraud by
private respondent and by Atty. Pio Lopez. In the alternative, she averred
that the deed of sale was void because it was made before the actual award
of the land to her and that it was made in violation of the prohibition in the
rules and regulations of the PHHC against the subsequent disposition of the
land within one year of the issuance of the title.
The trial court dismissed the complaint. Although finding petitioners

signature on the deed to be genuine, it nevertheless ruled that there was no
perfected contract of sale because petitioner never really intended to sell
the land. Furthermore, the trial court also found the alleged contract to be
null and void because, at the time of the sale, petitioner was not yet the
owner thereof.7 cräläwvirtualibräry
On appeal, the Court of Appeals reversed.8 It held that there was a meeting
of the minds between the parties as evidenced by the signature of the
petitioner on the deed of sale which the National Bureau of Investigation
found to be genuine. The notarization of the deed gave rise to the
presumption of its regularity.9 The Court of Appeals further held that
petitioner could validly sell the land even before the actual award to her
pursuant to Art. 1461 of the Civil Code, which provides that things having a
potential existence may be the object of a contract of sale. Consequently,
the court ordered petitioner to transfer ownership of the land to private
respondent. Hence this petition.
Petitioner alleges two grounds for her petition, to wit:
I.
THE RESPONDENT COURT OF APPEALS ERRED IN VALIDATING A CONTRACT

EXECUTED IN VIOLATION OF LAW AND PUBLIC POLICY.
15
II.
THE CHALLENGED NOTARIAL DOCUMENT, APART FROM BEING CONTRARY

TO LAW AND PUBLIC POLICY, DOES NOT SERVE THE PRESUMPTION OF
REGULARITY.
We shall deal with these questions in inverse order.
First. Petitioner avers that the appellate court erred in relying on the
presumption of regularity accorded to notarial documents in holding the
deed of sale between her and private respondent to be valid.
This is not true. The decision of the appellate court shows that the court
also took into account the evidence of the parties. It relied on the report of
the National Bureau of Investigation which found the signature of the
petitioner on the questioned document to be genuine.10 The NBI report was
based on a comparison of the signature on the deed and ten specimen
signatures of petitioners. The trial court itself arrived at the same conclusion
as to the genuiness and due execution of the deed.11 Indeed, petitioners
claim that her signature on the deed had been procured through fraud is
contradicted by her allegation in court that the signature on the deed was
not hers. As she claimed in her testimony, That is not my signature.12 If the
signature on the deed was not her signature, then it could not have been
procured by fraud.
Anyway, that the signature of petitioner in the deed in question is genuine is

a factual finding of both the trial court and the Court of Appeals which, in
the absence of very clear evidence to the contrary, this Court will not
revise.13cräläwvirtualibräry
Second. The other question is whether the contract between petitioner and
private respondent is valid and binding. Petitioner invokes the ruling in Ibay
v. Intermediate Appellate Court.14 In that case the transfer of rights to
petitioner was disapproved by the PHHC in view of Resolution No. 82
providing that the sale of more than one lot per person shall not be
permitted. Petitioner was already the holder of a land by reason of a
previous award made to him by the PHHC. Accordingly, the right of the
awardee to recover the possession of the lot from him was upheld. In this
case, however, there is no evidence that the sale to private respondent of
the lot was made in violation of any rule of the PHHC. This issue was never
passed upon by either the trial court or the Court of Appeals.
The above argument, as well as petitioners contention that the sale to

private respondent is void because it was made within one year after the
title to the property was issued in the name of petitioner, while raised by
petitioner in her answer in the trial court, was not passed upon and she did
not urge it anymore except now. As already noted, the trial court based its
16
decision on its finding that the sale was void on the ground that there was
no meeting of the minds of the parties. When its decision was appealed,
petitioner (as appellee) did not urge her original defenses to uphold the
decision in her favor. She merely relied on the ruling of the trial court.15 The
appellate court, in reversing the trial court, simply considered the issues
raised by the trial courts decision, namely, whether petitioners signature on
the deed was a forgery, whether there was a meeting of the minds of the
parties, and whether there could be a sale of future property. The question
whether the sale was void because it was made within the one-year period
of prohibition to petitioner as awardee was never briefed or in any way
argued below. For all intents and purposes, therefore, petitioner waived this
ground and cannot now urge it as ground for reversing the decision of the
Court of Appeals.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
CAVITE DEVELOPMENT BANK AND FAR EAST BANK, VS. SPOUSES CYRUS LIM AND
LOLITA CHAN LIM
G.R. NO. 131679
FEBRUARY 1, 2000
G. R. No. 131679 - February 1, 2000
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY,Petitioners, v. SPOUSES CYRUS
LIM and LOLITA CHAN LIM and COURT OF APPEALS,Respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No. 42315 and the
order dated December 9, 1997 denying petitioners' motion for reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are banking
institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a certain Rodolfo
Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land
situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No. 300809 registered in his name.
As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on
March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing failed to redeem, and
on March 2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in the name of Guansing
was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan, offered
to purchase the property from CDB. The written Offer to Purchase, signed by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon City for P300,000.00
under the following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
17
(3) Provided that the property shall be cleared of illegal occupants or tenants.
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, for which
she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some time following up the
sale, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, father of
mortgagor Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property registered in his
name under TCT No. 300809, the same title he mortgaged to CDB and from which the latter's title (TCT No.
355588) was derived. It appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the
Regional Trial Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial
court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT No. 300809 on
the ground that the latter was fraudulently secured by Rodolfo. This decision has since become final and
executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, on their
ability to sell the subject property, Lim, joined by her husband, filed on August 29, 1989 an action for specific
performance and damages against petitioners in the Regional Trial Court, Branch 96, Quezon City, where it was
docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint was amended by impleading the Register
of Deeds of Quezon City as an additional defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was a
perfected contract of sale between Lim and CDB, contrary to the latter's contention that the written offer to
purchase and the payment of P30,000.00 were merely pre-conditions to the sale and still subject to the approval
of FEBTC; (2) performance by CDB of its obligation under the perfected contract of sale had become impossible on
account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor Rodolfo
Guansing; (3) CDB and FEBTC were not exempt from liability despite the impossibility of performance, because
they could not credibly disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting
their failure to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are
liable for damages for the prejudice caused against the Lims. 3 Based on the foregoing findings, the trial court
ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of P30,000.00 plus interest
at the legal rate computed from June 17, 1988 until full payment. It also ordered petitioners to pay private
respondents, jointly and severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary
damages, P30,000.00 as attorney's fees, and the costs of the suit. 4
Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the decision
of the Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by the appellate
court on December 9, 1997. Hence, this petition. Petitioners contend that
1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were aware of the decision
dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit of THIRTY
THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code.
3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages, exemplary damages,
attorney's fees and costs of suit.
I.
At the outset, it is necessary to determine the legal relation, if any, of the parties.
Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita Chan Lim.
They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was given as option money, not as
earnest money.5 They thus conclude that the contract between CDB and Lim was merely an option contract, not a
contract of sale.
The contention has no merit. Contracts are not defined by the parries thereto but by principles of law. 6 In
determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting
parties.7 In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as "option
money," is actually in the nature of earnest money or down payment when considered with the other terms of the
offer. In Carceler v. Court of Appeals,8 we explained the nature of an option contract, viz.
An option contract is a preparatory contract in which one party grants to the other, for a fixed period and under
specified conditions, the power to decide, whether or not to enter into a principal contract, it binds the party who
has given the option not to enter into the principal contract with any other person during the period; designated,
and within that period, to enter into such contract with the one to whom the option was granted, if the latter
18
should decide to use the option. It is a separate agreement distinct from the contract to which the parties may
enter upon the consummation of the option.
An option contract is therefore a contract separate from and preparatory to a contract of sale which, if perfected,
does not result in the perfection or consummation of the sale. Only when the option is exercised may a sale be
perfected.
In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for the
payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase
price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that
the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the
price. Moreover, the following findings of the trial court based on the testimony of the witnesses establish that
CDB accepted Lim's offer to purchase:
It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and no longer subject to a
final approval. In his testimony for the defendants on February 13, 1992, FEBTC's Leomar Guzman stated that he
was then in the Acquired Assets Department of FEBTC wherein plaintiffs' offer to purchase was endorsed thereto
by Myoresco Abadilla, CDB's senior vice-president, with a recommendation that the necessary petition for writ of
possession be filed in the proper court; that the recommendation was in accord with one of the conditions of the
offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12); that, in compliance with the
request, a petition for writ of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer
met the requirements of the banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p.
17); which was not a normal procedure, and neither did the banks return the amount of P30,000.00 to the
plaintiffs.9
Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected and, indeed,
partially executed because of the partial payment of the purchase price. There is, however, a serious legal obstacle
to such sale, rendering it impossible for CDB to perform its obligation as seller to deliver and transfer ownership of
the property.
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. In applying
this precept to a contract of sale, a distinction must be kept in mind between the "perfection" and "consummation"
stages of the contract.
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price.10 It is, therefore, not required that, at the perfection stage, the seller be the owner of
the thing sold or even that such subject matter of the sale exists at that point in time. 11 Thus, under Art. 1434 of
the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title
thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of
"future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or
consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not
be able to comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where
the principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the subject land were
no longer the owners of the same because of a prior sale. 13 Again, in Nool v. Court of Appeals,14 we ruled that a
contract of repurchase, in which the seller does not have any title to the property sold, is invalid:
We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and enforceable
contracts. The Regional Trial Court and the Court of Appeals rules that the principal contract of sale contained in
Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower
courts appears to find support in Dignos v. Court of Appeals, where the Court held:
Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer
owners of the same and the sale is null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale.
Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A
void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract which
is the direct result of a previous illegal contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers
"were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not
appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself
recognizes a sale where the goods are to be acquired . . . by the seller after the perfection of the contract of sale,
clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he
acquires title to the property later on.
19
In the present case, however, it is likewise clear that the sellers can no longer deliver the object of the sale to the
buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the
DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of
Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil Code
provides that "the vendor must have a right to transfer the ownership thereof [subject of the sale] at the time it is
delivered." Here, delivery of ownership is no longer possible. It has become impossible. 15
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore, be
deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid
title to the property because the foreclosure sale, by virtue of which, the property had been awarded to CDB as
highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code,
under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing
sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a
sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the
reason Art. 208516 of the Civil Code, in providing for the essential requisites of the contract of mortgage and
pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thing pledged or
mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged
property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given
effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all
persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required
to go beyond what appears on the face of the title. 17 The public interest in upholding the indefeasibility of a
certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a
buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailed
investigation of the history of the title of the property given as security before accepting a mortgage.
We are not convinced, however, that under the circumstances of this case, CDB can be considered a mortgagee in
good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the
mortgagor's title, they cannot be excused from the duty of exercising the due diligence required of banking
institutions. In Tomas v. Tomas,18 we noted that it is standard practice for banks, before approving a loan, to send
representatives to the premises of the land offered as collateral and to investigate who are real owners thereof,
noting that banks are expected to exercise more care and prudence than private individuals in their dealings, even
those involving registered lands, for their business is affected with public interest. We held thus:
We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original
registered owner who obtained his certificate of title through perfectly legal and regular proceedings, than one
who obtains his certificate from a totally void one, as to prevail over judicial pronouncements to the effect that one
dealing with a registered land, such as a purchaser, is under no obligation to look beyond the certificate of title of
the vendor, for in the latter case, good faith has yet to be established by the vendee or transferee, being the most
essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired title even
as against the holder of an earlier and perfectly valid title. There might be circumstances apparent on the face of
the certificate of title which could excite suspicion as to prompt inquiry, such as when the transfer is not by virtue
of a voluntary act of the original registered owner, as in the instant case, where it was by means of a self-
executed deed of extra-judicial settlement, a fact which should be noted on the face of Eusebia Tomas certificate
of title. Failing to make such inquiry would hardly be consistent with any pretense of good faith, which the
appellant bank invokes to claim the right to be protected as a mortgagee, and for the reversal of the judgment
rendered against it by the lower court. 19
In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo
Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-Judicial
Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only
surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. This self-executed deed
should have placed CDB on guard against any possible defect in or question as to the mortgagor's title. Moreover,
the alleged ocular inspection report20 by CDB's representative was never formally offered in evidence. Indeed,
petitioners admit that they are aware that the subject land was being occupied by persons other than Rodolfo
Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo. 21
II.
The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at fault for
the nullity of the contract. Both the trial court and the appellate court found petitioners guilty of fraud, because on
June 16, 1988, when Lim was asked by CDB to pay the 10% option money, CDB already knew that it was no
20
longer the owner of the said property, its title having been cancelled. 22 Petitioners contend that: (1) such finding of
the appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a party in
the case where the mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings;
and (4) the final decision cancelling the mortgagor's title was not annotated in the latter's title.
As a rule, only questions of law may be raised in a petition for review, except in circumstances where questions of
fact may be properly raised.23 Here, while petitioners raise these factual issues, they have not sufficiently shown
that the instant case falls under any of the exceptions to the above rule. We are thus bound by the findings of fact
of the appellate court. In any case, we are convinced of petitioners' negligence in approving the mortgage
application of Rodolfo Guansing.
III.
We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the Civil Code
provides:
If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following
rules shall be observed:
xxx-xxx-xxx
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his promise.
Private respondents are thus entitled to recover the P30,000,00 option money paid by them. Moreover, since the
filing of the action for damages against petitioners amounted to a demand by respondents for the return of their
money, interest thereon at the legal rate should be computed from August 29, 1989, the date of filing of Civil Case
No. Q-89-2863, not June 17, 1988, when petitioners accepted the payment. This is in accord with our ruling
in Castillo v.Abalayan24 that in case of avoid sale, the seller has no right whatsoever to keep the money paid by
virtue thereof and should refund it, with interest at the legal rate, computed from the date of filing of the
complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return
of what he has given" clearly implies that without such prior demand, the obligation to return what was given does
not become legally demandable.
Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 of the
Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be recovered even if a bank's
negligence is not attended with malice and bad faith. We find, however, that the sum of P250,000.00 awarded by
the trial court is excessive. Moral damages are only intended to alleviate the moral suffering undergone by private
respondent, not to enrich them at the expenses of the petitioners. 26 Accordingly, the award of moral damages
must be reduced to P50,000.00.
Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code, is
excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's fees based on Art. 2208,
pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award of
damages as above stated.
SO ORDERED.
RESOLUTORY CONDITION
GAITE V FONACIER
2 SCRA 830
FERNANDO A. GAITE, plaintiff-appellee,

vs.
21
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS,
FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more
than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative
capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose
Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-
appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or
juridical person for the exploration and development of the mining claims aforementioned on a royalty basis of
not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed
a general assignment (Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining
claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same
royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of
the mining claims in question, opening and paving roads within and outside their boundaries, making other
improvements and installing facilities therein for use in the development of the mines, and in time extracted
therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit
and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. As a result,
a document entitled "Revocation of Power of Attorney and Contract" was executed on December 8, 1954
(Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties
that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements,
and facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its goodwill,
and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all
his rights and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted
from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the
signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first
letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale
of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in
interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a
surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954
with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders George
Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1").
Gaite testified, however, that when this bond was presented to him by Fonacier together with the "Revocation of
Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A" unless
another bond under written by a bonding company was put up by defendants to secure the payment of the
P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond,
also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with
the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety
company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co.
for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney
and Contract", Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed
the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining
Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop,
exploit, and explore the mining claims in question, together with the improvements therein and the use of the
name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, in
22
the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from
Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and
Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines &
Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and
his sureties payment of said amount, on the theory that they had lost right to make use of the period given them
when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties
failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First
Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore,
consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite
was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit
covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the
Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had
been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due
and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron
ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages.
At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and
demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety and
Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in
existence in the mining claims when these parties executed the "Revocation of Power of Attorney and Contract",
Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00
balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid
upon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December
8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and that as
the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which
expired on December 8, 1955, the obligation became due and demandable under Article 1198 of the New Civil
Code.
As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron
ore at the mining claims in question at the time of the execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and
severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. From this
judgment, defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare
the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant Fonacier,
and two motions to dismiss the appeal as having become academic and a motion for new trial and/or to take
judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritorious because
the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron
ore here in question, which allegedly is "property in litigation", has not been substantiated; and even if true, does
not make these appellants guilty of contempt, because what is under litigation in this appeal is appellee Gaite's
right to the payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions
presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results that we have
reached in this case, which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
23
(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the
P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a
suspensive condition, and that the term expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold
by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and
interests over the 24,000 tons of iron ore, more or less, above-referred to together with all his rights and
interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first
letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its
assigns, administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a
condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive
period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as
distinguished from its demandability) is 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. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported
by several circumstances:
1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five
Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . .
." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is
merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the
obligation to pay is recognized; only its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a
correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the
price),but each party anticipates performance by the other from the very start. While in a sale the obligation of
one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the
risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is
not in the usual course of business to do so; hence, the contingent character of the obligation must clearly
appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his
right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This
is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a
bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety
company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence
of their obligation to pay the balance of P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a
condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or
shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to
postpone payment indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A" needs
no stressing.
4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive
condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation
would incline the scales in favor of "the greater reciprocity of interests", since sale is essentially onerous. The
Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.
24
and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually
existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as non-
existent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an
aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the
previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the
agreed price, but was intended merely to fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to
insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words,
whether or not they are entitled to take full advantage of the period granted them for making the payment.
We agree with the court below that the appellant have forfeited the right court below that the appellants have
forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with
an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security that
Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to
Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of
the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities which he has promised.
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and
when through fortuitous event they disappear, unless he immediately gives new ones equally
satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the
securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full
knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the
expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain
barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and
pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the
defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier
by virtue of the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment
and instituting this action one year from and after the contract (Exhibit "A") was executed, either because the
appellant debtors had impaired the securities originally given and thereby forfeited any further time within which
to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00
became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the
stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery as
claimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress two
things: first, that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the
quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a mere estimate by
the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the
parties had actually measured of weighed the mass, so that they both tried to arrive at the total quantity by
making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton
of each cubic meter.
The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their
contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price
25
of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, second par., New
Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual
number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good
faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the
amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872,
applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to
appellants all the ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied
with his promise to deliver, and appellants in turn are bound to pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but
approximately 24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle the
buyers to recover damages for the short-delivery, was there really a short-delivery in this case?
We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore
cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an estimated
number of cubic meters of ore multiplied by the average tonnage factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to
Fonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlañgit found the total
volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic meter,
the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons to a
cubic meter, while appellee Gaite claims that the correct tonnage factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in
this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of
Mines, a government pensionado to the States and a mining engineering graduate of the Universities of Nevada
and California, with almost 22 years of experience in the Bureau of Mines. This witness placed the tonnage
factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This
estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report
(Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining
claims involved at the request of appellant Krakower, precisely to make an official estimate of the amount of iron
ore in Gaite's stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness
Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the
product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appellee Gaite,
considering that actual weighing of each unit of the mass was practically impossible, so that a reasonable
percentage of error should be allowed anyone making an estimate of the exact quantity in tons found in the
mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more
or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages,
nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total
quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since Gaite's
estimate appears to be substantially correct.
WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against
appellants.
POLYTECHNIC UNIVERSITY VS CA
368 SCRA 691
G.R. No. 183612 March 15, 2010
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner,

vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
26
G.R. No. 184260
NATIONAL DEVELOPMENT COMPANY, Petitioner,

vs.
GOLDEN HORIZON REALTY CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
seek to reverse the Decision1 dated June 25, 2008 and Resolution dated August 22, 2008 of the Court of
Appeals (CA) in CA-G.R. CV No. 84399 which affirmed the Decision 2 dated November 25, 2004 of the Regional
Trial Court (RTC) of Makati City, Branch 144 in Civil Case No. 88-2238.
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created
under Commonwealth Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668.
Petitioner Polytechnic University of the Philippines (PUP) is a public, non-sectarian, non-profit educational
institution created in 1978 by virtue of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa,
Manila. The estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title Nos.
92885, 110301 and 145470.
On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty
Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a period of ten (10)
years, renewable for another ten (10) years with mutual consent of the parties. 3
On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering
3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year lease
period. In addition, GHRC as lessee was granted the "option to purchase the area leased, the price to be
negotiated and determined at the time the option to purchase is exercised." 4
Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at
no less than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor
upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and structures
as required by the terms of the contract. After the completion of the industrial complex project, for which GHRC
spent ₱5 million, it was leased to various manufacturers, industrialists and other businessmen thereby
generating hundreds of jobs.5
On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC
wrote a letter to NDC indicating its exercise of the option to renew the lease for another ten (10) years. As no
response was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew
the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased
premises.6 NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to
remain in possession of the property.
Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a
third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with
preliminary injunction and temporary restraining order. 7
In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989,
ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey the
said property in favor of PUP at acquisition cost. The memorandum order cited the serious need of PUP,
considered the "Poor Man’s University," to expand its campus, which adjoins the NDC Compound, to
accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its property.
The order of conveyance of the 10.31-hectare property would automatically result in the cancellation of NDC’s
total obligation in favor of the National Government in the amount of ₱57,193,201.64. 8
27
On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys,
representatives, agents and any other persons assisting it from proceeding with the sale and disposition of the
leased premises.9
On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming that as a
purchaser pendente lite of a property subject of litigation it is entitled to intervene in the proceedings. The RTC
granted the said motion and directed PUP to file its Answer-in-Intervention. 10
PUP also demanded that GHRC vacate the premises, insisting that the latter’s lease contract had already
expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case (Civil Case No. 134416) before the
Metropolitan Trial Court (MeTC) of Manila on January 14, 1991.11
Due to this development, GHRC filed an Amended and/or Supplemental Complaint to include as additional
defendants PUP, Honorable Executive Secretary Oscar Orbos and Judge Ernesto A. Reyes of the Manila MeTC,
and to enjoin the afore-mentioned defendants from prosecuting Civil Case No. 134416 for ejectment. A
temporary restraining order was subsequently issued by the RTC enjoining PUP from prosecuting and Judge
Francisco Brillantes, Jr. from proceeding with the ejectment case. 12
In its Second Amended and/or Supplemental Complaint, GHRC argued that Memorandum Order No. 214 is a
nullity, for being violative of the writ of injunction issued by the trial court, apart from being an infringement of the
Constitutional prohibition against impairment of obligation of contracts, an encroachment on legislative functions
and a bill of attainder. In the alternative, should the trial court adjudge the memorandum order as valid, GHRC
contended that its existing right must still be respected by allowing it to purchase the leased premises. 13
Pre-trial was set but was suspended upon agreement of the parties to await the final resolution of a similar case
involving NDC, PUP and another lessee of NDC, Firestone Ceramics, Inc. (Firestone), then pending before the
RTC of Pasay City.14
On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513 (Polytechnic University of the
Philippines v. Court of Appeals) and 143590 (National Development Corporation v. Firestone Ceramics,
Inc.),15which declared that the sale to PUP by NDC of the portion leased by Firestone pursuant to Memorandum
Order No. 214 violated the right of first refusal granted to Firestone under its third lease contract with NDC. We
thus decreed:
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first
contract of lease fixed the area of the leased premises at 2.90118 hectares while the second contract placed it at
2.60 hectares, let a ground survey of the leased premises be immediately conducted by a duly licensed,
registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within two (2) months
from the finality of the judgment in this case. Thereafter, private respondent FIRESTONE CERAMICS, INC.,
shall have six (6) months from receipt of the approved survey within which to exercise its right to purchase the
leased property at P1,500.00 per square meter, and petitioner Polytechnic University of the Philippines is
ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal
upon payment of the purchase price thereof.
SO ORDERED.16
The RTC resumed the proceedings and when mediation and pre-trial failed to settle the case amicably, trial on
the merits ensued.17
On November 25, 2004, the RTC rendered its decision upholding the right of first refusal granted to GHRC under
its lease contract with NDC and ordering PUP to reconvey the said portion of the property in favor of GHRC. The
dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendants ordering the plaintiff to cause immediate ground survey of the premises subject of the leased
contract under Lease Contract No. C-33-77 and C-12-78 measuring 2,407 and 3,222.8 square meters
respectively, by a duly licensed and registered surveyor at the expense of the plaintiff within two months from
receipt of this Decision and thereafter, the plaintiff shall have six (6) months from receipt of the approved survey
within which to exercise its right to purchase the leased property at P554.74 per square meter. And finally, the
defendant PUP, in whose name the property is titled, is hereby ordered to reconvey the aforesaid property to the
plaintiff in the exercise of its right of its option to buy or first refusal upon payment of the purchase price thereof.
28
The defendant NDC is hereby further ordered to pay the plaintiff attorney’s fees in the amount of P100,000.00.
The case against defendant Executive Secretary is dismissed and this decision shall bind defendant
Metropolitan Trial Court, Branch 20 of Manila.
With costs against defendants NDC and PUP.
SO ORDERED.18
NDC and PUP separately appealed the decision to the CA.19 By Decision of June 25, 2008, the CA affirmed in
toto the decision of the RTC.20
Both the RTC and the CA applied this Court’s ruling in Polytechnic University of the Philippines v. Court of
Appeals (supra), considering that GHRC is similarly situated as a lessee of NDC whose right of first refusal
under the lease contract was violated by the sale of the property to PUP without NDC having first offered to sell
the same to GHRC despite the latter’s request for the renewal of the lease and/or to purchase the leased
premises prior to the expiration of the second lease contract. The CA further agreed with the RTC’s finding that
there was an implied renewal of the lease upon the failure of NDC to act on GHRC’s repeated requests for
renewal of the lease contract, both verbal and written, and continuing to accept monthly rental payments from
GHRC which was allowed to continue in possession of the leased premises.
The CA also rejected the argument of NDC and PUP that even assuming that GHRC had the right of first refusal,
said right pertained only to the second lease contract, C-12-78 covering 3,222.80 square meters, and not to the
first lease contract, C-33-77 covering 2,407 square meters, which had already expired. It sustained the RTC’s
finding that the two (2) lease contracts were interrelated because each formed part of GHRC’s industrial
complex, such that business operations would be rendered useless and inoperative if the first contract were to
be detached from the other, as similarly held in the afore-mentioned case of Polytechnic University of the
Philippines v. Court of Appeals.
Petitioner PUP argues that respondent’s right to exercise the option to purchase had expired with the termination
of the original contract of lease and was not carried over to the subsequent implied new lease between
respondent and petitioner NDC. As testified to by their witnesses Leticia Cabantog and Atty. Rhoel Mabazza,
there was no agreement or document to the effect that respondent’s request for extension or renewal of the
subject contracts of lease for another ten (10) years was approved by NDC. Hence, respondent can no longer
exercise the option to purchase the leased premises when the same were conveyed to PUP pursuant to
Memorandum Order No. 214 dated January 6, 1989, long after the expiration of C-33-77 and C-12-78 in
September 1988.21
Petitioner PUP further contends that while it is conceded that there was an implied new lease between
respondent and petitioner NDC after the expiration of the lease contracts, the same did not include the right of
first refusal originally granted to respondent. The CA should have applied the ruling in Dizon v. Magsaysay22 that
the lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year period of the lease
contract. With the implicit renewal of the lease on a monthly basis, the other terms of the original contract of
lease which are revived in the implied new lease under Article 1670 of the Civil Code are only those terms which
are germane to the lessee’s right of continued enjoyment of the property leased. The provision entitling the
lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract
because it is alien to the possession of the lessee. Consequently, as in this case, respondent’s right of option to
purchase the leased premises was not violated despite the impliedly renewed contract of lease with NDC.
Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590 (Polytechnic University of
the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said cases, the contracts
of lease of respondent with NDC were not mutually extended or renewed for another ten (10) years. Thus, when
the leased premises were conveyed to PUP, respondent did not any more have any right of first refusal, which
incidentally appears only in the second lease contract and not in the first lease contract. 23
On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for
another ten (10)-year period. The provisions of C-33-77 and C-12-78 clearly state that the lessee is granted the
option "to renew for another ten (10) years with the mutual consent of both parties." As regards the continued
receipt of rentals by NDC and possession by the respondent of the leased premises, the impliedly renewed
lease was only month-to-month and not ten (10) years since the rentals are being paid on a monthly basis, as
held in Dizon v. Magsaysay.24
29
Petitioner NDC further faults the CA in sustaining the RTC’s decision which erroneously granted respondent the
option to purchase the leased premises at the rate of ₱554.74 per square meter, the same rate for which NDC
sold the property to petitioner PUP and/or the National Government, which is the mere acquisition cost thereof. It
must be noted that such consideration or rate was imposed by Memorandum Order No. 214 under the premise
that it shall, in effect, be a sale and/or purchase from one (1) government agency to another. It was intended
merely as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this
case, merely returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its accounting
books. It does not in any way reflect the true and fair market value of the property, nor was it a price a "willing
seller" would demand and accept for parting with his real property. Such benefit, therefore, cannot be extended
to respondent as a private entity, as the latter does not share the same pocket, so to speak, with the National
Government.25
The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of
Appealsapplies in this case involving another lessee of NDC who claimed that the option to purchase the portion
leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to Memorandum
Order No. 214.
We rule in the affirmative.
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of
ten (10) years counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of
Article I, with option to renew for another ten (10) years with the mutual consent of both parties. In no case
should the rentals be increased by more than 100% of the original amount fixed.
Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined
at the time the option to purchase is exercised. [emphasis supplied]
An option is a contract by which the owner of the property agrees with another person that the latter shall have
the right to buy the former’s property at a fixed price within a certain time. It is a condition offered or contract by
which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of
the property the right to sell or demand a sale.26 It binds the party, who has given the option, not to enter into the
principal contract with any other person during the period designated, and, within that period, to enter into such
contract with the one to whom the option was granted, if the latter should decide to use the option. 27 1avvphi1
Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first
priority to buy the property in the event the owner sells the same. 28 As distinguished from an option contract, in a
right of first refusal, while the object might be made determinate, the exercise of the right of first refusal would be
dependent not only on the owner’s eventual intention to enter into a binding juridical relation with another but
also on terms, including the price, that are yet to be firmed up.29
As the option to purchase clause in the second lease contract has no definite period within which the leased
premises will be offered for sale to respondent lessee and the price is made subject to negotiation and
determined only at the time the option to buy is exercised, it is obviously a mere right of refusal, usually inserted
in lease contracts to give the lessee the first crack to buy the property in case the lessor decides to sell the
same. That respondent was granted a right of first refusal under the second lease contract appears not to have
been disputed by petitioners. What petitioners assail is the CA’s erroneous conclusion that such right of refusal
subsisted even after the expiration of the original lease period, when respondent was allowed to continue staying
in the leased premises under an implied renewal of the lease and without the right of refusal carried over to such
month-to-month lease. Petitioners thus maintain that no right of refusal was violated by the sale of the property
in favor of PUP pursuant to Memorandum Order No. 214.
Petitioners’ position is untenable.
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the
leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee
and the lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could
the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under
terms and conditions more favorable to the lessor.30
30
Records showed that during the hearing on the application for a writ of preliminary injunction, respondent
adduced in evidence a letter of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera,
Director and Special Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum
order submitted to President Corazon C. Aquino transferring the whole NDC Compound, including the premises
leased by respondent, in favor of petitioner PUP. This letter was offered in evidence by respondent to prove the
existence of documents as of that date and even prior to the expiration of the second lease contract or the lapse
of the ten (10)-year period counted from the effectivity of the rental payment -- that is, one hundred and fifty
(150) days from the signing of the contract (May 4, 1978), as provided in Art. I, paragraph (b) of C-12-78, or
on October 1, 1988.
Respondent thus timely exercised its option to purchase on August 12, 1988. However, considering that NDC
had been negotiating through the National Government for the sale of the property in favor of PUP as early as
July 15, 1988 without first offering to sell it to respondent and even when respondent communicated its desire to
exercise the option to purchase granted to it under the lease contract, it is clear that NDC violated respondent’s
right of first refusal. Under the premises, the matter of the right of refusal not having been carried over to the
impliedly renewed month-to-month lease after the expiration of the second lease contract on October 21, 1988
becomes irrelevant since at the time of the negotiations of the sale to a third party, petitioner PUP, respondent’s
right of first refusal was still subsisting.
Petitioner NDC in its memorandum contended that the CA erred in applying the ruling in Polytechnic University
of the Philippines v. Court of Appeals pointing out that the case of lessee Firestone Ceramics, Inc. is different
because the lease contract therein had not yet expired while in this case respondent’s lease contracts have
already expired and never renewed. The date of the expiration of the lease contract in said case is December
31, 1989 which is prior to the issuance of Memorandum Order No. 214 on January 6, 1989. In contrast,
respondent’s lease contracts had already expired (September 1988) at the time said memorandum order was
issued.31
Such contention does not hold water. As already mentioned, the reckoning point of the offer of sale to a third
party was not the issuance of Memorandum Order No. 214 on January 6, 1989 but the commencement of such
negotiations as early as July 1988 when respondent’s right of first refusal was still subsisting and the lease
contracts still in force. Petitioner NDC did not bother to respond to respondent’s letter of June 13, 1988 informing
it of respondent’s exercise of the option to renew and requesting to discuss further the matter with NDC, nor to
the subsequent letter of August 12, 1988 reiterating the request for renewing the lease for another ten (10) years
and also the exercise of the option to purchase under the lease contract. Petitioner NDC had dismissed these
letters as "mere informative in nature, and a request at its best." 32
Perusal of the letter dated August 12, 1988, however, belies such claim of petitioner NDC that it was merely
informative, thus:
August 12, 1988
HON. ANTONIO HENSON

General Manager
NATIONAL DEVELOPMENT COMPANY

377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila
REF: Contract of Lease

Nos. C-33-77 & C-12-78
Dear Sir:
This is further to our earlier letter dated June 13, 1988 formally advising your goodselves of our
intention to exercise our option for another ten (10) years. Should the National Development Company
opt to sell the property covered by said leases, we also request for priority to negotiate for its purchase
at terms and/or conditions mutually acceptable.
As a backgrounder, we wish to inform you that since the start of our lease, we have improved on the property by
constructing bodega-type buildings which presently house all legitimate trading and manufacturing concerns.
31
These business are substantial taxpayers, employ not less than 300 employees and contribute even foreign
earnings.
It is in this context that we are requesting for the extension of the lease contract to prevent serious
economic disruption and dislocation of the business concerns, as well as provide ourselves, the lessee,
an opportunity to recoup our investments and obtain a fair return thereof.
Your favorable consideration on our request will be very much appreciated.
very truly yours,
TIU HAN TENG

President33
As to petitioners’ argument that respondent’s right of first refusal can be invoked only with respect to the second
lease contract which expressly provided for the option to purchase by the lessee, and not in the first lease
contract which contained no such clause, we sustain the RTC and CA in finding that the second contract,
covering an area of 3,222.80 square meters, is interrelated to and inseparable from the first contract over 2,407
square meters. The structures built on the leased premises, which are adjacent to each other, form part of an
integrated system of a commercial complex leased out to manufacturers, fabricators and other businesses.
Petitioners submitted a sketch plan and pictures taken of the driveways, in an effort to show that the leased
premises can be used separately by respondent, and that the two (2) lease contracts are distinct from each
other.34 Such was a desperate attempt to downplay the commercial purpose of respondent’s substantial
improvements which greatly contributed to the increased value of the leased premises. To prove that petitioner
NDC had considered the leased premises as a single unit, respondent submitted evidence showing that NDC
issued only one (1) receipt for the rental payments for the two portions. 35 Respondent further presented the
blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who supervised the construction of the structures
on the leased premises, to show the building concept as a one-stop industrial site and integrated commercial
complex.36
In fine, the CA was correct in declaring that there exists no justifiable reason not to apply the same rationale
in Polytechnic University of the Philippines v. Court of Appeals in the case of respondent who was similarly
prejudiced by petitioner NDC’s sale of the property to PUP, as to entitle the respondent to exercise its option to
purchase until October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the lease for
another ten (10) years upon mutual consent and giving respondent the option to purchase the leased premises
for a price to be negotiated and determined at the time such option was exercised by respondent. It is to be
noted that Memorandum Order No. 214 itself declared that the transfer is "subject to such liens/leases existing
[on the subject property]." Thus:
...we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal
over the property. Such right was expressly stated by NDC and FIRESTONE in par. XV of their third
contract denominated as A-10-78 executed on 22 December 1978 which, as found by the courts a quo, was
interrelated to and inseparable from their first contract denominated as C-30-65 executed on 24 August
1965 and their second contract denominated as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension
thereof, the LESSOR shall first give to the LESSEE, which shall have the right of first option to purchase the
leased premises subject to mutual agreement of both parties.
In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is
inseparable from the whole contract. The consideration for the right is built into the reciprocal obligations of the
parties. Thus, it is not correct for petitioners to insist that there was no consideration paid by FIRESTONE to
entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease making
the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a
legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a
certain price and the lessee has failed to accept it. The lessee has a right that the lessor’s first offer shall be in
his favor.
32
The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE
which, in view of the total amount of its investments in the property, wanted to be assured that it would
be given the first opportunity to buy the property at a price for which it would be offered. Consistent with
their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60 hectares to
FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first
priority could NDC lawfully sell the property to petitioner PUP.37 [emphasis supplied]
As we further ruled in the afore-cited case, the contractual grant of a right of first refusal is enforceable, and
following an earlier ruling in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,38 the execution of such
right consists in directing the grantor to comply with his obligation according to the terms at which he should
have offered the property in favor of the grantee and at that price when the offer should have been made. We
then determined the proper rate at which the leased portion should be reconveyed to respondent by PUP, to
whom the lessor NDC sold it in violation of respondent lessee’s right of first refusal, as follows:
It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the
sale at ₱1,500.00 per square meter. In contracts of sale, the basis of the right of first refusal must be the current
offer of the seller to sell or the offer to purchase of the prospective buyer. Only after the lessee-grantee fails to
exercise its right under the same terms and within the period contemplated can the owner validly offer to sell the
property to a third person, again, under the same terms as offered to the grantee. It appearing that the whole
NDC compound was sold to PUP for ₱554.74 per square meter, it would have been more proper for the courts
below to have ordered the sale of the property also at the same price. However, since FIRESTONE never
raised this as an issue, while on the other hand it admitted that the value of the property stood at
₱1,500.00 per square meter, then we see no compelling reason to modify the holdings of the courts a
quo that the leased premises be sold at that price.39 [emphasis supplied]
In the light of the foregoing, we hold that respondent, which did not offer any amount to petitioner NDC,
and neither disputed the ₱1,500.00 per square meter actual value of NDC’s property at that time it was sold to
PUP at ₱554.74 per square meter, as duly considered by this Court in the Firestone case, should be bound by
such determination. Accordingly, the price at which the leased premises should be sold to respondent in the
exercise of its right of first refusal under the lease contract with petitioner NDC, which was pegged by the RTC at
₱554.74 per square meter, should be adjusted to ₱1,500.00 per square meter, which more accurately reflects its
true value at that time of the sale in favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that stands
upon valuable consideration.40 We have categorically ruled that it is not correct to say that there is no
consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease.
Since the stipulation forms part of the entire lease contract, the consideration for the lease includes the
consideration for the grant of the right of first refusal. In entering into the contract, the lessee 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, the lessee shall be given the right to match the offered purchase price
and to buy the property at that price.41
We have further stressed that not even the avowed public welfare or the constitutional priority accorded to
education, invoked by petitioner PUP in the Firestone case, would serve as license for us, and any party for that
matter, to destroy the sanctity of binding obligations. While education may be prioritized for legislative and
budgetary purposes, it is doubtful if such importance can be used to confiscate private property such as the right
of first refusal granted to a lessee of petitioner NDC.42 Clearly, no reversible error was committed by the CA in
sustaining respondent’s contractual right of first refusal and ordering the reconveyance of the leased portion of
petitioner NDC’s property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of the Regional Trial Court of
Makati City, Branch 144 in Civil Case No. 88-2238, as affirmed by the Court of Appeals in its Decision dated
June 25, 2008 in CA-G.R. CV No. 84399, is hereby AFFIRMED with MODIFICATION in that the price to be paid
by respondent Golden Horizon Realty Corporation for the leased portion of the NDC Compound under Lease
Contract Nos. C-33-77 and C-12-78 is hereby increased to ₱1,500.00 per square meter.
No pronouncement as to costs.
SO ORDERED.
33
CIR VS CA
271 SCRA 617
G.R. No. 115712 February 25, 1999
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and CARNATION PHILIPPINES, INC. (now merged with
Nestle Phils, Inc.), respondent.
PURISIMA, J.:
Before the Court is an appeal from the decision of the Court of Appeals dated May 31, 1994, which affirmed in
1
toto the decision of the Court of Tax Appeals dated January 26, 1993, the dispositive portion of which reads:
2
WHEREFORE, the Court, finds the assessments for allegedly deficient income and sales taxes
for petitioner's fiscal year ending September 30, 1981 covered by Demand Letter NO. FAS-1B-
81-87 and Assessment Notices Nos. FAS-1-81-87-005824, FAS-4-81-87-005825 and FAS-4-81-
87-005826 (all dated July 29, 1987) in the total amount of P19,535,183.44 to be NULL AND
VOID for having been issued beyond the five-year prescriptive period provided by law. 3
The undisputed facts of the case as recited in the Decision (Annex "A") of the Court of Appeals, are: 4
On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax
Return for taxable year ending September 30, 1981; and its Manufacturers/Producers
Percentage Tax Return for the quarter ending September 30, 1981. 5
On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice
President Jaime O. Lardizabal, signed three separate "waivers of the Statute of Limitations
Under the National Internal Revenue Code" wherein it:
. . . waives the running of the prescriptive period provided for in

sections 318 and 319 and other related provisions of the National
Internal Revenue Code and consents to the assessment and
collection of the taxes which may be found due after
reinvestigation and reconsideration at anytime before or after the
lapse of the period of limitations fixed by said sections 318 and
319 and other relevant provisions of the National Internal
Revenue Code, but not after (13 April 1987 for the earlier-
executed waiver, or June 14, 1987 for the later waiver, or July 30,
1987 for the subsequent waiver, as the case may be). However,
the taxpayer (petitioner herein) does not waive any prescription
already accrued in its favor.
The waivers were not signed by the BIR Commissioner or any of his agents.
On August 5, 1987, Carnation received BIR's letter of demand dated July 29, 1987 asking the
said corporation to pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency
sales tax and P3,939,913.03 as deficiency sales tax on undeclared sales, all for the year 1981.
This demand letter was accompanied by assessment Notices Nos. FAS-4-81-87-005824, FAS-4-
81-87-005825 and FAS-4-81-87-005826.
In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a
reconsideration and reinvestigation thereof.
On September 30, 1987, Carnation filed a supplemental protest.
34
These protests were denied by the BIR Commissioner in a letter dated March 15, 1988.
Whereupon, Carnation appealed to the CTA.
On January 26, 1993, the CTA issued the questioned order, the dispositive portion of which
reads:
WHEREFORE, the Court finds the assessments for allegedly

deficient income and sales taxes for petitioner's fiscal year ending
September 30, 1981 covered by Demand Letter No. FAS-1B-81-
87 and assessment Notices No. FAS-1-81-87-005824, FAS-4-81-
87-005825, and FAS-4-81-87-005826 (all dated July 29, 1987) in
the total amount of P19,535,183.44 to be NULL AND VOID for
having been issued beyond the five-year prescriptive period
provided by law.
The pivot of inquiry here is whether or not the three (3) waivers signed by the private respondent are valid and
binding as to toll the running of the prescriptive period for assessment and not bar the Government from issuing
6
subject deficiency tax assessments.
Sec. 318 (now Section 203) of the National Internal Revenue Code, the law then applicable reads:
Sec 318. Period of Limitations upon assessment and collection. — Except as provided in the
succeeding section, internal revenue taxes shall be assessed within five years after the return
was filed, and no proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period. For the purpose of this section, a return filed before the
last day prescribed by law for the filing thereof shall be considered as filed on such last day:
Provided, That this limitation shall not apply to cases already investigated prior to the approval of
this Code. (emphasis ours)
7
The decision of the Court of Appeals affirming what the Court of Tax Appeals decided, established that subject
assessments of July 29, 1987 were issued outside the statutory prescriptive period. Carnation filed its annual
income tax and percentage tax returns for the fiscal year ending September 30, 1981 on January 15, 1982 and 8
November 20, 1981, respectively. In accordance with the above-quoted provision of law, private respondent's
9
1981 income and sales taxes could have been validly assessed only until January 14, 1987 and November 19,
1986, respectively. However, Carnation's income and sales taxes were assessed only on July 29, 1987,
10
beyond the five-year prescriptive period.11
Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid although not signed by
the BIR Commissioner because (a) when the BIR agents/examiners extended the period to audit and investigate
Carnation's tax returns, the BIR gave its implied consent to such waivers; (b) the signature of the Commissioner
is a mere formality and the lack of it does not vitiate binding effect of the waivers; and (c) that a waiver is not a
contract but a unilateral act of renouncing ones right to avail of the defense of prescription and remains binding
in accordance with the terms and conditions set forth in the waiver. 12
Petitioner's submission is inaccurate. The same tax code is clear on the matter, to wit:
Sec. 319. Exceptions as to period of limitation of assessment and collection of taxes. —(a) . . .
(b) Where before the expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have
consented in writing to its assessment after such time, the tax may be assessed at anytime prior
to the expiration of the period agreed upon. The period so agreed upon may be extended by
subsequent agreement in writing made before the expiration of the period previously agreed
upon.
The Court of Appeals itself also passed upon the validity of the waivers executed by Carnation, observing thus:
We cannot go along with the petitioner's theory. Section 319 of the Tax code earlier quoted is
clear and explicit that the waiver of the five-year prescriptive period must be in writing and signed
by both the BIR Commissioner and the taxpayer.
35
Here, the three waivers signed by Carnation do not bear the written consent of the BIR
Commissioner as required by law.
We agree with the CTA in holding "these "waivers" to be invalid and without any binding effect on
petitioner (Carnation) for the reason that there was no consent by the respondent (Commissioner
of Internal Revenue)."
The ruling of the Supreme Court in Collector of Internal Revenue vs. Solano 13
is in point, thus:
. . . The only agreement that could have suspended the running of

the prescriptive period the collection of the tax in question is, as
correctly pointed out by the Court of Tax Appeals, a written
agreement between Solano and the Collector, entered into before
the expiration of the of the five-year prescriptive period, extending
the limitation prescribed by law.
For sure, no such written agreement concerning the said three waivers exists between the
petitioner and private respondent Carnation. 14
Verily, we discern no basis for overruling the aforesaid conclusions arrived at by the Court of Appeals. In fact,
there is every reason to leave undisturbed the said conclusions, having in mind the precept that all doubts as to
the correctness of such conclusions will be resolved in favor of the Court of Appeals. Besides being a
15
reiteration of the holding of the Court of Tax Appeals, such decision should be accorded respect. Thus, the Court
held in Philippine Refining Co. vs. Court of Appeals, that the Court of Tax Appeals is a highly specialized body
16
specifically created for the purpose of reviewing tax cases. As a matter of principle, this Court will not set aside
the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its
function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of authority. This point
17
becomes more evident in the case under consideration where the findings and conclusions of bath the Court of
Tax Appeals and the Court of Appeals appear untainted by any abuse of authority, much less grave abuse of
discretion. Indeed, we find the decision of the latter affirming that of the former free from any palpable error. 18
What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for
its binding effect the concurrence of the Commissioner of Internal Revenue. In fact, in his reply dated April 18,
1995, the Solicitor General, representing the Commissioner of Internal Revenue, admitted that subject waivers
executed by Carnation were "for end in consideration of the approval by the Commissioner of Internal Revenue
of its request for reinvestigation and/or reconsideration of its internal revenue case involving tax assessments for
the fiscal year ended September 30, 1981 which were all pending at the time". On this basis neither implied
consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is
one which is unilateral nor can it be said that concurrence to such an agreements a mere formality because it is
the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a
valid agreement.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
LICIT OR ILICIT THINGS
QUIJADA VS CA
299 SCRA 695
G.R. No. 126444 December 4, 1998
36
ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA, DEMETRIO QUIJADA, ELIUTERIA
QUIJADA, EULALIO QUIJADA, and WARLITO QUIJADA, petitioners,
vs.
COURT OF APPEALS, REGALADO MONDEJAR, RODULFO GOLORAN, ALBERTO ASIS, SEGUNDINO
RAS, ERNESTO GOLORAN, CELSO ABISO, FERNANDO BAUTISTA, ANTONIO MACASERO, and NESTOR
MAGUINSAY, respondents.
MARTINEZ, J.:
Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private respondents for quieting of title,
recovery of possession and ownership of parcels of land with claim for attorney's fees and damages. The suit
was premised on the following facts found by the court of Appeals which is materially the same as that found by
the trial court:
Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda, de Quijada.
Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the two-
hectare parcel of land subject of the case, situated in the barrio of San Agustin, Talacogon,
Agusan del Sur. On April 5, 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda.
de Sequeña and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional
deed of donation (Exh. C) of the two-hectare parcel of land subject of the case in favor of the
Municipality of Talacogon, the condition being that the parcel of land shall be used solely and
exclusively as part of the campus of the proposed provincial high school in Talacogon.
Apparently, Trinidad remained in possession of the parcel of land despite the donation. On July
29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to defendant-appellant
Regalado Mondejar (Exh. 1). Subsequently, Trinidad verbally sold the remaining one (1) hectare
to defendant-appellant (respondent) Regalado Mondejar without the benefit of a written deed of
sale and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that time
was already dead, filed a complaint for forcible entry (Exh. E) against defendant-appellant
(respondent) Regalado Mondejar, which complaint was, however, dismissed for failure to
prosecute (Exh. F). In 1987, the proposed provincial high school having failed to materialize, the
Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the two (2)
hectares of land donated back to the donors (Exh. D). In the meantime, defendant-appellant
(respondent) Regalado Mondejar sold portions of the land to defendants-appellants
(respondents) Fernando Bautista (Exh. 5), Rodolfo Goloran (Exh. 6), Efren Guden (Exh. 7) and
Ernesto Goloran (Exh. 8).
On July 5, 1988, plaintiffs-appellees (petitioners) filed this action against defendants-appellants

(respondents). In the complaint, plaintiffs-appellees (petitioners) alleged that their deceased
mother never sold, conveyed, transferred or disposed of the property in question to any person
or entity much less to Regalado Mondejar save the donation made to the Municipality of
Talacogon in 1956; that at the time of the alleged sale to Regalado Mondejar by Trinidad
Quijada, the land still belongs to the Municipality of Talacogon, hence, the supposed sale is null
and void.
Defendants-appellants (respondents), on the other hand, in their answer claimed that the land in
dispute was sold to Regalado Mondejar, the one (1) hectare on July 29, 1962, and the remaining
one (1) hectare on installment basis until fully paid. As affirmative and/or special defense,
defendants-appellants (respondents) alleged that plaintiffs action is barred by laches or has
prescribed.
The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners): firstly because
"Trinidad Quijada had no legal title or right to sell the land to defendant Mondejar in 1962, 1966,
1967 and 1968, the same not being hers to dispose of because ownership belongs to the
Municipality of Talacogon (Decision, p. 4; Rollo, p. 39) and, secondly, that the deed of sale
executed by Trinidad Quijada in favor of Mondejar did not carry with it the conformity and
acquiescence of her children, more so that she was already 63 years old at the time, and a
widow (Decision, p. 6; Rollo, p. 41)." 1
The dispositive portion of the trial court's decision reads:
37
WHEREFORE, viewed from the above perceptions, the scale of justice having tilted in favor of
the plaintiffs, judgment is, as it is hereby rendered:
1) ordering the Defendants to return and vacate the two (2)

hectares of land to Plaintiffs as described in Tax Declaration No.
1209 in the name of Trinidad Quijada;
2) ordering any person acting in Defendants' behalf to vacate and

restore the peaceful possession of the land in question to
Plaintiffs;
3) ordering the cancellation of the Deed of Sale executed by the

late Trinidad Quijada in favor of Defendant Regalado Mondejar as
well as the Deeds of Sale/Relinquishments executed by Mondejar
in favor of the other Defendants;
4) ordering Defendants to remove their improvements constructed

on the questioned lot;
5) ordering the Defendants to pay Plaintiffs, jointly and severally,

the amount of P10,000.00 representing attorney's fees;
6) ordering Defendants to pays the amount of P8,000.00 as

expenses of litigation; and
7) ordering Defendants to pay the sum of P30,000.00

representing moral damages.
SO ORDERED. 2
On appeal, the Court of Appeals reversed and set aside the judgment a quo ruling that the sale made by
3
Trinidad Quijada to respondent Mondejar was valid as the former retained an inchoate interest on the
lots by virtue of the automatic reversion clause in the deed of donation. Thereafter, petitioners filed a
4
motion for reconsideration. When the CA denied their motion, petitioners instituted a petition for review
5
to this Court arguing principally that the sale of the subject property made by Trinidad Quijada to
respondent Mondejar is void, considering that at that time, ownership was already transferred to the
Municipality of Talacogon. On the contrary, private respondents contend that the sale was valid, that
they are buyers in good faith, and that petitioners' case is barred by laches. 6
We affirm the decision of the respondent court.
The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters was subject to the
7
condition that the donated property shall be "used solely and exclusively as a part of the campus of the
proposed Provincial High School in Talacogon." The donation further provides that should "the
8
proposed Provincial High School be discontinued or if the same shall be opened but for some reason or
another, the same may in the future be closed" the donated property shall automatically revert to the
donor. Such condition, not being contrary to law, morals, good customs, public order or public policy
9
was validly imposed in the donation. 10
When the Municipality's acceptance of the donation was made known to the donor, the former became
the new owner of the donated property — donation being a mode of acquiring and transmitting
ownership — notwithstanding the condition imposed by the donee. The donation is perfected once the
11
acceptance by the donee is made known to the donor. According, ownership is immediately transferred
12
to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled.
In this case, that resolutory condition is the construction of the school. It has been ruled that when a
person donates land to another on the condition that the latter would build upon the land a school, the
condition imposed is not a condition precedent or a suspensive condition but a resolutory one. Thus, 13
at the time of the sales made in 1962 towards 1968, the alleged seller (Trinidad) could not have sold the
lots since she had earlier transferred ownership thereof by virtue of the deed of donation. So long as the
resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee
38
continues to be the owner subject only to the rights of the donor or his successors-in-interest under the
deed of donation. Since no period was imposed by the donor on when must the donee comply with the
condition, the latter remains the owner so long as he has tried to comply with the condition within a
reasonable period. Such period, however, became irrelevant herein when the donee-Municipality
manifested through a resolution that it cannot comply with the condition of building a school and the
same was made known to the donor. Only then — when the non-fulfillment of the resolutory condition
was brought to the donor's knowledge — that ownership of the donated property reverted to the donor
as provided in the automatic reversion clause of the deed of donation.
The donor may have an inchoate interest in the donated property during the time that ownership of the
land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract
of sale. In this case, however, what the donor sold was the land itself which she no longer owns. It would
have been different if the donor-seller sold her interests over the property under the deed of donation
which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the
resolutory condition.
As to laches, petitioners' action is not yet barred thereby. Laches presupposes 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,
14
thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to
assert it." Its essential elements of:
15
a) Conduct on the part of the defendant, or of one under

whom he claims, giving rise to the situation complained of;
b) Delay in asserting complainant's right after he had

knowledge of the defendant's conduct and after he has an
opportunity to sue;
c) Lack of knowledge or notice on the part of the defendant

that the complainant would assert the right on which he
bases his suit; and,
d) Injury or prejudice to the defendant in the event relief is

accorded to the complainant. 16
are absent in this case. Petioners' cause of action to quiet title commenced only when the
property reverted to the donor and/or his successors-in-interest in 1987. Certainly, when the suit
was initiated the following year, it cannot be said that petioners had slept on their rights for a
long time. The 1960's sales made by Trinidad Quijada cannot be the reckoning point as to when
petitioners' cause of action arose. They had no interest over the property at that time except
under the deed of donation to which private respondents were not privy. Moreover, petitioners
had previously filed an ejectment suit against private respondents only that it did not prosper on
a technicality.
Be that at it may, there is one thing which militates against the claim of petitioners. Sale, being a
consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting
of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and
17
terms of payment of the price. Ownership by the seller on the thing sold at the time of the perfection of
18
the contract of sale is not an element for its perfection. What the law requires is that the seller has the
right to transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer
19
ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected
20
contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the
time of its perfection; hence, the sale is still valid.
The consummation, however, of the perfected contract is another matter. It occurs upon the constructive
or actual delivery of the subject matter to the buyer when the seller or her successors-in-interest
subsequently acquires ownership thereof. Such circumstance happened in this case when petitioners —
who are Trinidad Quijada's heirs and successors-in-interest — became the owners of the subject
property upon the reversion of the ownership of the land to them. Consequently, ownership is
transferred to respondent Mondejar and those who claim their right from him. Article 1434 of the New
Civil Code supports the ruling that the seller's "title passes by operation of law to the buyer." This rule
21
39
applies not only when the subject matter of the contract of sale is goods, but also to other kinds of
22
property, including real property. 23
There is also no merit in petitioners' contention that since the lots were owned by the municipality at the
time of the sale, they were outside the commerce of men under Article 1409 (4) of the NCC; thus, the 24
contract involving the same is inexistent and void from the beginning. However, nowhere in Article 1409
(4) is it provided that the properties of a municipality, whether it be those for public use or its patrimonial
property are outside the commerce of men. Besides, the lots in this case were conditionally owned by
25
the municipality. To rule that the donated properties are outside the commerce of men would render
nugatory the unchallenged reasonableness and justness of the condition which the donor has the right
to impose as owner thereof. Moreover, the objects referred to as outsides the commerce of man are
those which cannot be appropriated, such as the open seas and the heavenly bodies.
With respect to the trial court's award of attorney's fees, litigation expenses and moral damages, there is
neither factual nor legal basis thereof. Attorney's fees and expenses of litigation cannot, following the
general rule in Article 2208 of the New Civil Code, be recovered in this case, there being no stipulation to
that effect and the case does not fall under any of the
exceptions. It cannot be said that private respondents had compelled petitioners to litigate with third
26
persons. Neither can it be ruled that the former acted in "gross and evident bad faith" in refusing to
satisfy the latter's claims considering that private respondents were under an honest belief that they
have a legal right over the property by virtue of the deed of sale. Moral damages cannot likewise be
justified as none of the circumstances enumerated under Articles 2219. and 2220 of the New Civil
27 28
Code concur in this case
WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
FRENZEL VS CATITO
406 SCRA 55
G.R. No. 143958 July 11, 2003
ALFRED FRITZ FRENZEL, petitioner,

vs.
EDERLINA P. CATITO, respondent.
CALLEJO, SR., J.:
Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 53485 which
affirmed the Decision2 of the Regional Trial Court of Davao City, Branch 14, in Civil Case No. 17,817 dismissing
the petitioner's complaint, and the resolution of the Court of Appeals denying his motion for reconsideration of
the said decision.
The Antecedents3
As gleaned from the evidence of the petitioner, the case at bar stemmed from the following factual backdrop:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He is an electrical engineer by
profession, but worked as a pilot with the New Guinea Airlines. He arrived in the Philippines in 1974, started
engaging in business in the country two years thereafter, and married Teresita Santos, a Filipino citizen. In 1981,
Alfred and Teresita separated from bed and board without obtaining a divorce.
Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He went to King's Cross, a night
spot in Sydney, for a massage where he met Ederlina Catito, a Filipina and a native of Bajada, Davao City.
Unknown to Alfred, she resided for a time in Germany and was married to Klaus Muller, a German national. She
40
left Germany and tried her luck in Sydney, Australia, where she found employment as a masseuse in the King's
Cross nightclub. She was fluent in German, and Alfred enjoyed talking with her. The two saw each other again;
this time Ederlina ended up staying in Alfred's hotel for three days. Alfred gave Ederlina sums of money for her
services.4
Alfred was so enamored with Ederlina that he persuaded her to stop working at King's Cross, return to the
Philippines, and engage in a wholesome business of her own. He also proposed that they meet in Manila, to
which she assented. Alfred gave her money for her plane fare to the Philippines. Within two weeks of Ederlina's
arrival in Manila, Alfred joined her. Alfred reiterated his proposal for Ederlina to stay in the Philippines and
engage in business, even offering to finance her business venture. Ederlina was delighted at the idea and
proposed to put up a beauty parlor. Alfred happily agreed.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in Australia. Alfred proposed
marriage to Ederlina, but she replied that they should wait a little bit longer.
Ederlina found a building at No. 444 M.H. del Pilar corner Arquiza Street, Ermita, Manila, owned by one Atty.
Jose Hidalgo who offered to convey his rights over the property for P18,000.00. Alfred and Ederlina accepted the
offer. Ederlina put up a beauty parlor on the property under the business name Edorial Beauty Salon, and had it
registered with the Department of Trade and Industry under her name. Alfred paid Atty. Hidalgo P20,000.00 for
his right over the property and gave P300,000.00 to Ederlina for the purchase of equipment and furniture for the
parlor. As Ederlina was going to Germany, she executed a special power of attorney on December 13,
19835 appointing her brother, Aser Catito, as her attorney-in-fact in managing the beauty parlor business. She
stated in the said deed that she was married to Klaus Muller. Alfred went back to Papua New Guinea to resume
his work as a pilot.
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence and found it unsuitable for
her. He decided to purchase a house and lot owned by Victoria Binuya Steckel in San Francisco del Monte,
Quezon City, covered by Transfer Certificate of Title No. 218429 for US$20,000.00. Since Alfred knew that as an
alien he was disqualified from owning lands in the Philippines, he agreed that only Ederlina's name would
appear in the deed of sale as the buyer of the property, as well as in the title covering the same. After all, he was
planning to marry Ederlina and he believed that after their marriage, the two of them would jointly own the
property. On January 23, 1984, a Contract to Sell was entered into between Victoria Binuya Steckel as the
vendor and Ederlina as the sole vendee. Alfred signed therein as a witness. 6 Victoria received from Alfred, for
and in behalf of Ederlina, the amount of US$10,000.00 as partial payment, for which Victoria issued a
receipt.7 When Victoria executed the deed of absolute sale over the property on March 6, 1984, 8 she received
from Alfred, for and in behalf of Ederlina, the amount of US$10,000.00 as final and full payment. Victoria likewise
issued a receipt for the said amount.9 After Victoria had vacated the property, Ederlina moved into her new
house. When she left for Germany to visit Klaus, she had her father Narciso Catito and her two sisters occupy
the property.
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to Australia and sold his
fiber glass pleasure boat to John Reid for $7,500.00 on May 4, 1984. 10 He also sold his television and video
business in Papua New Guinea for K135,000.00 to Tekeraoi Pty. Ltd. 11 He had his personal properties shipped to
the Philippines and stored at No. 14 Fernandez Street, San Francisco del Monte, Quezon City. The proceeds of
the sale were deposited in Alfred's account with the Hong Kong Shanghai Banking Corporation (HSBC),
Kowloon Branch under Bank Account No. 018-2-807016.12 When Alfred was in Papua New Guinea selling his
other properties, the bank sent telegraphic letters updating him of his account. 13 Several checks were credited to
his HSBC bank account from Papua New Guinea Banking Corporation, Westpac Bank of Australia and New
Zealand Banking Group Limited and Westpac Bank-PNG-Limited. Alfred also had a peso savings account with
HSBC, Manila, under Savings Account No. 01-725-183-01.14
Once, when Alfred and Ederlina were in Hong Kong, they opened another account with HSBC, Kowloon, this
time in the name of Ederlina, under Savings Account No. 018-0-807950. 15 Alfred transferred his deposits in
Savings Account No. 018-2-807016 with the said bank to this new account. Ederlina also opened a savings
account with the Bank of America Kowloon Main Office under Account No. 30069016. 16
On July 28, 1984, while Alfred was in Papua New Guinea, he received a Letter dated December 7, 1983 from
Klaus Muller who was then residing in Berlin, Germany. Klaus informed Alfred that he and Ederlina had been
married on October 16, 1978 and had a blissful married life until Alfred intruded therein. Klaus stated that he
knew of Alfred and Ederlina's amorous relationship, and discovered the same sometime in November 1983
when he arrived in Manila. He also begged Alfred to leave Ederlina alone and to return her to him, saying that
Alfred could not possibly build his future on his (Klaus') misfortune. 17
41
Alfred had occasion to talk to Sally MacCarron, a close friend of Ederlina. He inquired if there was any truth to
Klaus' statements and Sally confirmed that Klaus was married to Ederlina. When Alfred confronted Ederlina, she
admitted that she and Klaus were, indeed, married. But she assured Alfred that she would divorce Klaus. Alfred
was appeased. He agreed to continue the amorous relationship and wait for the outcome of Ederlina's petition
for divorce. After all, he intended to marry her. He retained the services of Rechtsanwaltin Banzhaf with offices in
Berlin, as her counsel who informed her of the progress of the proceedings. 18 Alfred paid for the services of the
lawyer.
In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo Morelos covered by TCT
No. 92456 located in Peña Street, Bajada, Davao City.19 Alfred again agreed to have the deed of sale made out
in the name of Ederlina. On September 7, 1984, Rodolfo Morelos executed a deed of absolute sale over the said
property in favor of Ederlina as the sole vendee for the amount of P80,000.00. 20 Alfred paid US$12,500.00 for
the property.
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo, located in Moncado, Babak,
Davao, covered by TCT No. 35251. Alfred once more agreed for the name of Ederlina to appear as the sole
vendee in the deed of sale. On December 31, 1984, Atty. Camporedondo executed a deed of sale over the
property for P65,000.00 in favor of Ederlina as the sole vendee. 21 Alfred, through Ederlina, paid the lot at the cost
of P33,682.00 and US$7,000.00, respectively, for which the vendor signed receipts. 22 On August 14, 1985, TCT
No. 47246 was issued to Ederlina as the sole owner of the said property. 23
Meanwhile, Ederlina deposited on December 27, 1985, the total amount of US$250,000 with the HSBC Kowloon
under Joint Deposit Account No. 018-462341-145. 24
The couple decided to put up a beach resort on a four-hectare land in Camudmud, Babak, Davao, owned by
spouses Enrique and Rosela Serrano. Alfred purchased the property from the spouses for P90,000.00, and the
latter issued a receipt therefor.25 A draftsman commissioned by the couple submitted a sketch of the beach
resort.26 Beach houses were forthwith constructed on a portion of the property and were eventually rented out by
Ederlina's father, Narciso Catito. The rentals were collected by Narciso, while Ederlina kept the proceeds of the
sale of copra from the coconut trees in the property. By this time, Alfred had already spent P200,000.00 for the
purchase, construction and upkeep of the property.
Ederlina often wrote letters to her family informing them of her life with Alfred. In a Letter dated January 21,
1985, she wrote about how Alfred had financed the purchases of some real properties, the establishment of her
beauty parlor business, and her petition to divorce Klaus.27
Because Ederlina was preoccupied with her business in Manila, she executed on July 8, 1985, two special
powers of attorney28 appointing Alfred as attorney-in-fact to receive in her behalf the title and the deed of sale
over the property sold by the spouses Enrique Serrano.
In the meantime, Ederlina's petition for divorce was denied because Klaus opposed the same. A second petition
filed by her met the same fate. Klaus wanted half of all the properties owned by Ederlina in the Philippines
before he would agree to a divorce. Worse, Klaus threatened to file a bigamy case against Ederlina. 29
Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the establishment of a corporation,
with Ederlina owning 30% of the equity thereof. She initially agreed to put up a corporation and contacted Atty.
Armando Dominguez to prepare the necessary documents. Ederlina changed her mind at the last minute when
she was advised to insist on claiming ownership over the properties acquired by them during their coverture.
Alfred and Ederlina's relationship started deteriorating. Ederlina had not been able to secure a divorce from
Klaus. The latter could charge her for bigamy and could even involve Alfred, who himself was still married. To
avoid complications, Alfred decided to live separately from Ederlina and cut off all contacts with her. In one of her
letters to Alfred, Ederlina complained that he had ruined her life. She admitted that the money used for the
purchase of the properties in Davao were his. She offered to convey the properties deeded to her by Atty.
Mardoecheo Camporedondo and Rodolfo Morelos, asking Alfred to prepare her affidavit for the said purpose
and send it to her for her signature.30 The last straw for Alfred came on September 2, 1985, when someone
smashed the front and rear windshields of Alfred's car and damaged the windows. Alfred thereafter executed an
affidavit-complaint charging Ederlina and Sally MacCarron with malicious mischief. 31
On October 15, 1985, Alfred wrote to Ederlina's father, complaining that Ederlina had taken all his life savings
and because of this, he was virtually penniless. He further accused the Catito family of acquiring for themselves
42
the properties he had purchased with his own money. He demanded the return of all the amounts that Ederlina
and her family had "stolen" and turn over all the properties acquired by him and Ederlina during their coverture. 32
Shortly thereafter, Alfred filed a Complaint33 dated October 28, 1985, against Ederlina, with the Regional Trial
Court of Quezon City, for recovery of real and personal properties located in Quezon City and Manila. In his
complaint, Alfred alleged, inter alia, that Ederlina, without his knowledge and consent, managed to transfer funds
from their joint account in HSBC Hong Kong, to her own account with the same bank. Using the said funds,
Ederlina was able to purchase the properties subject of the complaints. He also alleged that the beauty parlor in
Ermita was established with his own funds, and that the Quezon City property was likewise acquired by him with
his personal funds.34
Ederlina failed to file her answer and was declared in default. Alfred adduced his evidence ex parte.
In the meantime, on November 7, 1985, Alfred also filed a complaint 35 against Ederlina with the Regional Trial
Court, Davao City, for specific performance, declaration of ownership of real and personal properties, sum of
money, and damages. He alleged, inter alia, in his complaint:
4. That during the period of their common-law relationship, plaintiff solely through his own efforts and
resources acquired in the Philippines real and personal properties valued more or less at P724,000.00;
The defendant's common-law wife or live-in partner did not contribute anything financially to the
acquisition of the said real and personal properties. These properties are as follows:
I. Real Properties
a. TCT No. T-92456 located at Bajada, Davao City, consisting of 286 square meters, (with
residential house) registered in the name of the original title owner Rodolfo M. Morelos but
already fully paid by plaintiff. Valued at P342,000.00;
b. TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600
square meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum,
Davao del Norte valued at P144,000.00;
c. A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte, consisting
of 4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano. Already paid in full
by plaintiff. Valued at P228,608.32;
II. Personal Properties:
a. Furniture valued at P10,000.00.
...
5. That defendant made no contribution at all to the acquisition, of the above-mentioned properties as all
the monies (sic) used in acquiring said properties belonged solely to plaintiff;36
Alfred prayed that after hearing, judgment be rendered in his favor:
WHEREFORE, in view of the foregoing premises, it is respectfully prayed that judgment be rendered in
favor of plaintiff and against defendant:
a) Ordering the defendant to execute the corresponding deeds of transfer and/or conveyances in favor of
plaintiff over those real and personal properties enumerated in Paragraph 4 of this complaint;
b) Ordering the defendant to deliver to the plaintiff all the above real and personal properties or their
money value, which are in defendant's name and custody because these were acquired solely with
plaintiffs money and resources during the duration of the common-law relationship between plaintiff and
defendant, the description of which are as follows:
43
(1) TCT No. T-92456 (with residential house) located at Bajada, Davao City, consisting of 286
square meters, registered in the name of the original title owner Rodolfo Morelos but already fully
paid by plaintiff. Valued at P342,000.00;
(2) TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600
square meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum,
Davao del Norte, valued at P144,000.00;
(3) A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte,
consisting of 4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano. Already
fully paid by plaintiff. Valued at P228,608.32;
c) Declaring the plaintiff to be the sole and absolute owner of the above-mentioned real and personal
properties;
d) Awarding moral damages to plaintiff in an amount deemed reasonable by the trial court;
e) To reimburse plaintiff the sum of P12,000.00 as attorney's fees for having compelled the plaintiff to
litigate;
f) To reimburse plaintiff the sum of P5,000.00 incurred as litigation expenses also for having compelled
the plaintiff to litigate; and
g) To pay the costs of this suit;
Plaintiff prays other reliefs just and equitable in the premises. 37
In her answer, Ederlina denied all the material allegations in the complaint, insisting that she acquired the said
properties with her personal funds, and as such, Alfred had no right to the same. She alleged that the deeds of
sale, the receipts, and certificates of titles of the subject properties were all made out in her name. 38 By way of
special and affirmative defense, she alleged that Alfred had no cause of action against her. She interposed
counterclaims against the petitioner.39
In the meantime, the petitioner filed a Complaint dated August 25, 1987, against the HSBC in the Regional Trial
Court of Davao City40 for recovery of bank deposits and damages.41 He prayed that after due proceedings,
judgment be rendered in his favor, thus:
WHEREFORE, plaintiff respectfully prays that the Honorable Court adjudge defendant bank, upon
hearing the evidence that the parties might present, to pay plaintiff:
1. ONE HUNDRED TWENTY SIX THOUSAND TWO HUNDRED AND THIRTY U.S. DOLLARS AND
NINETY EIGHT CENTS (US$126,230.98) plus legal interests, either of Hong Kong or of the Philippines,
from 20 December 1984 up to the date of execution or satisfaction of judgment, as actual damages or in
restoration of plaintiffs lost dollar savings;
2. The same amount in (1) above as moral damages;
3. Attorney's fees in the amount equivalent to TWENTY FIVE PER CENT (25%) of (1) and (2) above;
4. Litigation expenses in the amount equivalent to TEN PER CENT (10%) of the amount in (1) above;
and
5. For such other reliefs as are just and equitable under the circumstances. 42
On April 28, 1986, the RTC of Quezon City rendered its decision in Civil Case No. Q-46350, in favor of Alfred,
the decretal portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering the defendant to perform
the following:
44
(1) To execute a document waiving her claim to the house and lot in No. 14 Fernandez St., San
Francisco Del Monte, Quezon City in favor of plaintiff or to return to the plaintiff the acquisition cost of the
same in the amount of $20,000.00, or to sell the said property and turn over the proceeds thereof to the
plaintiff;
(2) To deliver to the plaintiff the rights of ownership and management of the beauty parlor located at 444
Arquiza St., Ermita, Manila, including the equipment and fixtures therein;
(3) To account for the earnings of rental of the house and lot in No. 14 Fernandez St., San Francisco Del
Monte, Quezon City, as well as the earnings in the beauty parlor at 444 Arquiza St., Ermita, Manila and
turn over one-half of the net earnings of both properties to the plaintiff;
(4) To surrender or return to the plaintiff the personal properties of the latter left in the house at San
Francisco Del Monte, to wit:
"(1) Mamya automatic camera
(1) 12 inch "Sonny" T.V. set, colored with remote control.
(1) Micro oven
(1) Electric fan (tall, adjustable stand)
(1) Office safe with (2) drawers and safe
(1) Electric Washing Machine
(1) Office desk and chair
(1) Double bed suits
(1) Mirror/dresser
(1) Heavy duty voice/working mechanic
(1) "Sony" Beta-Movie camera
(1) Suitcase with personal belongings
(1) Cardboard box with belongings
(1) Guitar Amplifier
(1) Hanger with men's suit (white)."
To return to the plaintiff, (1) Hi-Fi Stereo equipment left at 444 Arquiza Street, Ermita, Manila, as well as
the Fronte Suzuki car.
(4) To account for the monies (sic) deposited with the joint account of the plaintiff and defendant
(Account No. 018-0-807950); and to restore to the plaintiff all the monies (sic) spent by the defendant
without proper authority;
(5) To pay the amount of P5,000.00 by way of attorney's fees, and the costs of suit.
SO ORDERED.43
However, after due proceedings in the RTC of Davao City, in Civil Case No. 17,817, the trial court rendered
judgment on September 28, 1995 in favor of Ederlina, the dispositive portion of which reads:
45
WHEREFORE, the Court cannot give due course to the complaint and hereby orders its dismissal. The
counterclaims of the defendant are likewise dismissed.
SO ORDERED.44
The trial court ruled that based on documentary evidence, the purchaser of the three parcels of land subject of
the complaint was Ederlina. The court further stated that even if Alfred was the buyer of the properties; he had
no cause of action against Ederlina for the recovery of the same because as an alien, he was disqualified from
acquiring and owning lands in the Philippines. The sale of the three parcels of land to the petitioner was null and
void ab initio. Applying the pari delicto doctrine, the petitioner was precluded from recovering the properties from
the respondent.
Alfred appealed the decision to the Court of Appeals45 in which the petitioner posited the view that although he
prayed in his complaint in the court a quo that he be declared the owner of the three parcels of land, he had no
intention of owning the same permanently. His principal intention therein was to be declared the transient owner
for the purpose of selling the properties at public auction, ultimately enabling him to recover the money he had
spent for the purchase thereof.
On March 8, 2000, the CA rendered a decision affirming in toto the decision of the RTC. The appellate court
ruled that the petitioner knowingly violated the Constitution; hence, was barred from recovering the money used
in the purchase of the three parcels of land. It held that to allow the petitioner to recover the money used for the
purchase of the properties would embolden aliens to violate the Constitution, and defeat, rather than enhance,
the public policy.46
Hence, the petition at bar.
The petitioner assails the decision of the court contending that:
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULE OF IN PARI DELICTO IN
THE INSTANT CASE BECAUSE BY THE FACTS AS NARRATED IN THE DECISION IT IS APPARENT
THAT THE PARTIES ARE NOT EQUALLY GUILTY BUT RATHER IT WAS THE RESPONDENT WHO
EMPLOYED FRAUD AS WHEN SHE DID NOT INFORM PETITIONER THAT SHE WAS ALREADY
MARRIED TO ANOTHER GERMAN NATIONAL AND WITHOUT SUCH FRAUDULENT DESIGN
PETITIONER COULD NOT HAVE PARTED WITH HIS MONEY FOR THE PURCHASE OF THE
PROPERTIES.47
and
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INTENTION OF THE
PETITIONER IS NOT TO OWN REAL PROPERTIES IN THE PHILIPPINES BUT TO SELL THEM AT
PUBLIC AUCTION TO BE ABLE TO RECOVER HIS MONEY USED IN PURCHASING THEM. 48
Since the assignment of errors are intertwined with each other, the Court shall resolve the same simultaneously.
The petitioner contends that he purchased the three parcels of land subject of his complaint because of his
desire to marry the respondent, and not to violate the Philippine Constitution. He was, however, deceived by the
respondent when the latter failed to disclose her previous marriage to Klaus Muller. It cannot, thus, be said that
he and the respondent are "equally guilty;" as such, the pari delicto doctrine is not applicable to him. He acted in
good faith, on the advice of the respondent's uncle, Atty. Mardoecheo Camporedondo. There is no evidence on
record that he was aware of the constitutional prohibition against aliens acquiring real property in the Philippines
when he purchased the real properties subject of his complaint with his own funds. The transactions were not
illegal per se but merely prohibited, and under Article 1416 of the New Civil Code, he is entitled to recover the
money used for the purchase of the properties. At any rate, the petitioner avers, he filed his complaint in the
court a quo merely for the purpose of having him declared as the owner of the properties, to enable him to sell
the same at public auction. Applying by analogy Republic Act No. 133 49 as amended by Rep. Act No. 4381 and
Rep. Act No. 4882, the proceeds of the sale would be remitted to him, by way of refund for the money he used to
purchase the said properties. To bar the petitioner from recovering the subject properties, or at the very least, the
money used for the purchase thereof, is to allow the respondent to enrich herself at the expense of the petitioner
in violation of Article 22 of the New Civil Code.
The petition is bereft of merit.
46
Section 14, Article XIV of the 1973 Constitution provides, as follows:
Save in cases of hereditary succession, no private land shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands in the public domain. 50
Lands of the public domain, which include private lands, may be transferred or conveyed only to individuals or
entities qualified to acquire or hold private lands or lands of the public domain. Aliens, whether individuals or
corporations, have been disqualified from acquiring lands of the public domain. Hence, they have also been
disqualified from acquiring private lands.51
Even if, as claimed by the petitioner, the sales in question were entered into by him as the real vendee, the said
transactions are in violation of the Constitution; hence, are null and void ab initio.52 A contract that violates the
Constitution and the law, is null and void and vests no rights and creates no obligations. It produces no legal
effect at all.53 The petitioner, being a party to an illegal contract, cannot come into a court of law and ask to have
his illegal objective carried out. One who loses his money or property by knowingly engaging in a contract or
transaction which involves his own moral turpitude may not maintain an action for his losses. To him who moves
in deliberation and premeditation, the law is unyielding. 54 The law will not aid either party to an illegal contract or
agreement; it leaves the parties where it finds them.55 Under Article 1412 of the New Civil Code, the petitioner
cannot have the subject properties deeded to him or allow him to recover the money he had spent for the
purchase thereof.56 Equity as a rule will follow the law and will not permit that to be done indirectly which,
because of public policy, cannot be done directly.57 Where the wrong of one party equals that of the other, the
defendant is in the stronger position . . . it signifies that in such a situation, neither a court of equity nor a court of
law will administer a remedy.58 The rule is expressed. in the maxims: EX DOLO ORITUR ACTIO and IN PARI
DELICTO POTIOR EST CONDITIO DEFENDENTIS.59
The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he acted in good faith, let
alone assert that he is less guilty than the respondent. The petitioner is charged with knowledge of the
constitutional prohibition.60 As can be gleaned from the decision of the trial court, the petitioner was fully aware
that he was disqualified from acquiring and owning lands under Philippine law even before he purchased the
properties in question; and, to skirt the constitutional prohibition, the petitioner had the deed of sale placed under
the respondent's name as the sole vendee thereof:
Such being the case, the plaintiff is subject to the constitutional restrictions governing the acquisition of
real properties in the Philippines by aliens.
From the plaintiff's complaint before the Regional Trial Court, National Capital Judicial Region, Branch
84, Quezon City in Civil Case No. Q-46350 he alleged:
x x x "That on account that foreigners are not allowed by the Philippine laws to acquire real
properties in their name as in the case of my vendor Miss Victoria Vinuya (sic) although married
to a foreigner, we agreed and I consented in having the title to subject property placed in
defendant's name alone although I paid for the whole price out of my own exclusive funds."
(paragraph IV, Exhibit "W.")
and his testimony before this Court which is hereby quoted:
ATTY. ABARQUEZ:
Q. In whose name the said house and lot placed, by the way, where is his house and lot located?
A. In 14 Fernandez St., San Francisco, del Monte, Manila.
Q. In whose name was the house placed?
A. Ederlina Catito because I was informed being not a Filipino, I cannot own the property. (tsn, p.
11, August 27, 1986).
xxx xxx xxx
COURT:
47
Q. So you understand that you are a foreigner that you cannot buy land in the Philippines?
A. That is correct but as she would eventually be my wife that would be owned by us later on. (tsn,
p. 5, September 3, 1986)
xxx xxx xxx
Q. What happened after that?
A. She said you foreigner you are using Filipinos to buy property.
Q. And what did you answer?
A: I said thank you very much for the property I bought because I gave you a lot of money (tsn., p.
14, ibid).
It is evident that the plaintiff was fully aware that as a non-citizen of the Philippines, he was disqualified from
validly purchasing any land within the country.61
The petitioner's claim that he acquired the subject properties because of his desire to marry the respondent,
believing that both of them would thereafter jointly own the said properties, is belied by his own evidence. It is
merely an afterthought to salvage a lost cause. The petitioner admitted on cross-examination that he was all
along legally married to Teresita Santos Frenzel, while he was having an amorous relationship with the
respondent:
ATTY. YAP:
Q When you were asked to identify yourself on direct examination you claimed before this
Honorable Court that your status is that of being married, do you confirm that?
A Yes, sir.
Q To whom are you married?
A To a Filipina, since 1976.
Q Would you tell us who is that particular person you are married since 1976?
A Teresita Santos Frenzel.
Q Where is she now?
A In Australia.
Q Is this not the person of Teresita Frenzel who became an Australian citizen?
A I am not sure, since 1981 we were separated.
Q You were only separated, in fact, but not legally separated?
A Thru my counsel in Australia I filed a separation case.
Q As of the present you are not legally divorce[d]?
A I am still legally married.62
The respondent was herself married to Klaus Muller, a German citizen. Thus, the petitioner and the respondent
could not lawfully join in wedlock. The evidence on record shows that the petitioner in fact knew of the
respondent's marriage to another man, but nonetheless purchased the subject properties under the name of the
48
respondent and paid the purchase prices therefor. Even if it is assumed gratia arguendi that the respondent and
the petitioner were capacitated to marry, the petitioner is still disqualified to own the properties in tandem with
the respondent.63
The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the
law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover
what he has paid or delivered.64
The provision applies only to those contracts which are merely prohibited, in order to benefit private interests. It
does not apply to contracts void ab initio. The sales of three parcels of land in favor of the petitioner who is a
foreigner is illegal per se. The transactions are void ab initio because they were entered into in violation of the
Constitution. Thus, to allow the petitioner to recover the properties or the money used in the purchase of the
parcels of land would be subversive of public policy.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No. 4882, which reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real property may be mortgaged in
favor of any individual, corporation, or association, but the mortgagee or his successor-in-interest, if
disqualified to acquire or hold lands of the public domain in the Philippines, shall not take possession of
the mortgaged property during the existence of the mortgage and shall not take possession of
mortgaged property except after default and for the sole purpose of foreclosure, receivership,
enforcement or other proceedings and in no case for a period of more than five years from actual
possession and shall not bid or take part in any sale of such real property in case of
foreclosure: Provided, That said mortgagee or successor-in-interest may take possession of said
property after default in accordance with the prescribed judicial procedures for foreclosure and
receivership and in no case exceeding five years from actual possession. 65
From the evidence on record, the three parcels of land subject of the complaint were not mortgaged to the
petitioner by the owners thereof but were sold to the respondent as the vendee, albeit with the use of the
petitioner's personal funds.
Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
Art. 22. Every person who through an act of performance by another, or any other means, acquires or
comes into possession of something at the expense of the latter without just or legal ground, shall return
the same to him.66
The provision is expressed in the maxim: "MEMO CUM ALTERIUS DETER DETREMENTO PROTEST" (No
person should unjustly enrich himself at the expense of another). An action for recovery of what has been paid
without just cause has been designated as an accion in rem verso.67 This provision does not apply if, as in this
case, the action is proscribed by the Constitution or by the application of the pari delicto doctrine. 68 It may be
unfair and unjust to bar the petitioner from filing an accion in rem verso over the subject properties, or from
recovering the money he paid for the said properties, but, as Lord Mansfield stated in the early case of Holman
vs. Johnson:69 "The objection that a contract is immoral or illegal as between the plaintiff and the defendant,
sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever
allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to
the real justice, as between him and the plaintiff."
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The decision of the Court of Appeals is
AFFIRMED in toto.
Costs against the petitioner.
SO ORDERED.
BEUMER, VS. AMORES

G.R. NO. 195670
49
DECEMBER 3, 2012
G.R. No. 195670 December 3, 2012
WILLEM BEUMER, Petitioner,

vs.
AVELINA AMORES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of CoLlli assailing the October
1
8, 2009 Decision and January 24, 2011 Resolution of the court of Appeals (CA) in CA-G.R. CV No. 01940, which
2 3
affirmed the February 28, 2007 Decision of the Regional Trial Court (RTC) of Negros Oriental, Branch 34 in Civil
4
Case No. I 2884. The foregoing rulings dissolved the conjugal partnership of gains of Willem Beumer (petitioner)
and Avelina Amores (respondent) and distributed the properties forming part of the said property regime.
The Factual Antecedents
Petitioner, a Dutch National, and respondent, a Filipina, married in March 29, 1980. After several years, the RTC
of Negros Oriental, Branch 32, declared the nullity of their marriage in the Decision dated November 10, 2000 on
5
the basis of the former’s psychological incapacity as contemplated in Article 36 of the Family Code.
Consequently, petitioner filed a Petition for Dissolution of Conjugal Partnership dated December 14, 2000
6
praying for the distribution of the following described properties claimed to have been acquired during the
subsistence of their marriage, to wit:
By Purchase:
a. Lot 1, Block 3 of the consolidated survey of Lots 2144 & 2147 of the Dumaguete Cadastre, covered by
Transfer Certificate of Title (TCT) No. 22846, containing an area of 252 square meters (sq.m.), including
a residential house constructed thereon.
b. Lot 2142 of the Dumaguete Cadastre, covered by TCT No. 21974, containing an area of 806 sq.m.,
including a residential house constructed thereon.
c. Lot 5845 of the Dumaguete Cadastre, covered by TCT No. 21306, containing an area of 756 sq.m.
d. Lot 4, Block 4 of the consolidated survey of Lots 2144 & 2147 of the Dumaguete Cadastre, covered by
TCT No. 21307, containing an area of 45 sq.m.
By way of inheritance:
e. 1/7 of Lot 2055-A of the Dumaguete Cadastre, covered by TCT No. 23567, containing an area of
2,635 sq.m. (the area that appertains to the conjugal partnership is 376.45 sq.m.).
f. 1/15 of Lot 2055-I of the Dumaguete Cadastre, covered by TCT No. 23575, containing an area of 360
sq.m. (the area that appertains to the conjugal partnership is 24 sq.m.). 7
In defense, respondent averred that, with the exception of their two (2) residential houses on Lots 1 and 2142,
8
she and petitioner did not acquire any conjugal properties during their marriage, the truth being that she used
her own personal money to purchase Lots 1, 2142, 5845 and 4 out of her personal funds and Lots 2055-A and
2055-I by way of inheritance. She submitted a joint affidavit executed by her and petitioner attesting to the fact
9
that she purchased Lot 2142 and the improvements thereon using her own money. Accordingly, respondent
10
sought the dismissal of the petition for dissolution as well as payment for attorney’s fees and litigation
expenses. 11
50
During trial, petitioner testified that while Lots 1, 2142, 5845 and 4 were registered in the name of respondent,
these properties were acquired with the money he received from the Dutch government as his disability
benefit since respondent did not have sufficient income to pay for their acquisition. He also claimed that the joint
12
affidavit they submitted before the Register of Deeds of Dumaguete City was contrary to Article 89 of the Family
Code, hence, invalid. 13
For her part, respondent maintained that the money used for the purchase of the lots came exclusively from her
personal funds, in particular, her earnings from selling jewelry as well as products from Avon, Triumph and
Tupperware. She further asserted that after she filed for annulment of their marriage in 1996, petitioner
14
transferred to their second house and brought along with him certain personal properties, consisting of drills, a
welding machine, grinders, clamps, etc. She alleged that these tools and equipment have a total cost of
P500,000.00. 15
The RTC Ruling
On February 28, 2007, the RTC of Negros Oriental, Branch 34 rendered its Decision, dissolving the parties’
conjugal partnership, awarding all the parcels of land to respondent as her paraphernal properties; the tools and
equipment in favor of petitioner as his exclusive properties; the two (2) houses standing on Lots 1 and 2142 as
co-owned by the parties, the dispositive of which reads:
WHEREFORE, judgment is hereby rendered granting the dissolution of the conjugal partnership of gains
between petitioner Willem Beumer and respondent Avelina Amores considering the fact that their marriage was
previously annulled by Branch 32 of this Court. The parcels of land covered by Transfer Certificate of Titles Nos.
22846, 21974, 21306, 21307, 23567 and 23575 are hereby declared paraphernal properties of respondent
Avelina Amores due to the fact that while these real properties were acquired by onerous title during their marital
union, Willem Beumer, being a foreigner, is not allowed by law to acquire any private land in the Philippines,
except through inheritance.
The personal properties, i.e., tools and equipment mentioned in the complaint which were brought out by Willem
from the conjugal dwelling are hereby declared to be exclusively owned by the petitioner.
The two houses standing on the lots covered by Transfer Certificate of Title Nos. 21974 and 22846 are hereby
declared to be co-owned by the petitioner and the respondent since these were acquired during their marital
union and since there is no prohibition on foreigners from owning buildings and residential units. Petitioner and
respondent are, thereby, directed to subject this court for approval their project of partition on the two houses
aforementioned.
The Court finds no sufficient justification to award the counterclaim of respondent for attorney’s fees considering
the well settled doctrine that there should be no premium on the right to litigate. The prayer for moral damages
are likewise denied for lack of merit.
No pronouncement as to costs.
SO ORDERED. 16
It ruled that, regardless of the source of funds for the acquisition of Lots 1, 2142, 5845 and 4, petitioner could not
have acquired any right whatsoever over these properties as petitioner still attempted to acquire them
notwithstanding his knowledge of the constitutional prohibition against foreign ownership of private lands. This
17
was made evident by the sworn statements petitioner executed purporting to show that the subject parcels of
land were purchased from the exclusive funds of his wife, the herein respondent. Petitioner’s plea for
18
reimbursement for the amount he had paid to purchase the foregoing properties on the basis of equity was
likewise denied for not having come to court with clean hands.
The CA Ruling
Petitioner elevated the matter to the CA, contesting only the RTC’s award of Lots 1, 2142, 5845 and 4 in favor of
respondent. He insisted that the money used to purchase the foregoing properties came from his own capital
funds and that they were registered in the name of his former wife only because of the constitutional prohibition
against foreign ownership. Thus, he prayed for reimbursement of one-half (1/2) of the value of what he had paid
in the purchase of the said properties, waiving the other half in favor of his estranged ex-wife. 19
51
On October 8, 2009, the CA promulgated a Decision affirming in toto the judgment rendered by the RTC of
20
Negros Oriental, Branch 34. The CA stressed the fact that petitioner was "well-aware of the constitutional
prohibition for aliens to acquire lands in the Philippines." Hence, he cannot invoke equity to support his claim for
21
reimbursement.
Consequently, petitioner filed the instant Petition for Review on Certiorari assailing the CA Decision due to the
following error:
UNDER THE FACTS ESTABLISHED, THE COURT ERRED IN NOT SUSTAINING THE PETITIONER’S
ATTEMPT AT SUBSEQUENTLY ASSERTING OR CLAIMING A RIGHT OF HALF OR WHOLE OF THE
PURCHASE PRICE USED IN THE PURCHASE OF THE REAL PROPERTIES SUBJECT OF THIS
CASE. (Emphasis supplied)
22
The Ruling of the Court
The petition lacks merit.
The issue to be resolved is not of first impression. In In Re: Petition For Separation of Property-Elena
Buenaventura Muller v. Helmut Muller the Court had already denied a claim for reimbursement of the value of
23
purchased parcels of Philippine land instituted by a foreigner Helmut Muller, against his former Filipina spouse,
Elena Buenaventura Muller. It held that Helmut Muller cannot seek reimbursement on the ground of equity where
it is clear that he willingly and knowingly bought the property despite the prohibition against foreign ownership of
Philippine land enshrined under Section 7, Article XII of the 1987 Philippine Constitution which reads:
24
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain.
Undeniably, petitioner openly admitted that he "is well aware of the above-cited constitutional prohibition" and 25
even asseverated that, because of such prohibition, he and respondent registered the subject properties in the
latter’s name. Clearly, petitioner’s actuations showed his palpable intent to skirt the constitutional prohibition. On
26
the basis of such admission, the Court finds no reason why it should not apply the Muller ruling and accordingly,
deny petitioner’s claim for reimbursement.
As also explained in Muller, the time-honored principle is that he who seeks equity must do equity, and he who
comes into equity must come with clean hands. Conversely stated, he who has done inequity shall not be
accorded equity. Thus, a litigant may be denied relief by a court of equity on the ground that his conduct has
been inequitable, unfair and dishonest, or fraudulent, or deceitful. 27
In this case, petitioner’s statements regarding the real source of the funds used to purchase the subject parcels
of land dilute the veracity of his claims: While admitting to have previously executed a joint affidavit that
respondent’s personal funds were used to purchase Lot 1, he likewise claimed that his personal disability funds
28
were used to acquire the same. Evidently, these inconsistencies show his untruthfulness. Thus, as petitioner has
come before the Court with unclean hands, he is now precluded from seeking any equitable refuge.
In any event, the Court cannot, even on the grounds of equity, grant reimbursement to petitioner given that he
acquired no right whatsoever over the subject properties by virtue of its unconstitutional purchase. It is well-
established that equity as a rule will follow the law and will not permit that to be done indirectly which, because of
public policy, cannot be done directly. Surely, a contract that violates the Constitution and the law is null and
29
void, vests no rights, creates no obligations and produces no legal effect at all. Corollary thereto, under Article
30
1412 of the Civil Code, petitioner cannot have the subject properties deeded to him or allow him to recover the
31
money he had spent for the purchase thereof. The law will not aid either party to an illegal contract or
agreement; it leaves the parties where it finds them. Indeed, one cannot salvage any rights from an
32
unconstitutional transaction knowingly entered into.
Neither can the Court grant petitioner’s claim for reimbursement on the basis of unjust enrichment. As held in
33
Frenzel v. Catito, a case also involving a foreigner seeking monetary reimbursement for money spent on
purchase of Philippine land, the provision on unjust enrichment does not apply if the action is proscribed by the
Constitution, to wit:
Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
52
Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground, shall return the same to
him.1âwphi1
The provision is expressed in the maxim: "MEMO CUM ALTERIUS DETER DETREMENTO PROTEST" (No
person should unjustly enrich himself at the expense of another). An action for recovery of what has been paid
without just cause has been designated as an accion in rem verso. This provision does not apply if, as in this
case, the action is proscribed by the Constitution or by the application of the pari delicto doctrine. It may be
unfair and unjust to bar the petitioner from filing an accion in rem verso over the subject properties, or from
recovering the money he paid for the said properties, but, as Lord Mansfield stated in the early case of Holman
v. Johnson: "The objection that a contract is immoral or illegal as between the plaintiff and the defendant, sounds
at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever
allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to
the real justice, as between him and the plaintiff." (Citations omitted)
34
Nor would the denial of his claim amount to an injustice based on his foreign citizenship. Precisely, it is the
35
Constitution itself which demarcates the rights of citizens and non-citizens in owning Philippine land. To be sure,
the constitutional ban against foreigners applies only to ownership of Philippine land and not to the
improvements built thereon, such as the two (2) houses standing on Lots 1 and 2142 which were properly
declared to be co-owned by the parties subject to partition. Needless to state, the purpose of the prohibition is to
conserve the national patrimony and it is this policy which the Court is duty-bound to protect.
36
WHEREFORE, the petition is DENIED. Accordingly, the assailed October 8, 2009 Decision and January 24,
2011 Resolution of the Court of Appeals in CA-G.R. CV No. 01940 are AFFIRMED.
SO ORDERED.
DETERMINATE SUBJECT MATTER
MELLIZA VS CITY OF ILOILO

23 SCRA 477
SAN ANDRES VS RODRIGUEZ

332 SCRA 769
DAVID VS TIONGSON
313 SCRA 63
CARABEO VS DINGCO
647 SCRA 205
TEST OF DETERMINABILITY
ATILANO VS ATILANO
25 SCRA 231
CONDRES VS CA
94 SCRA 133
QUANTITY OF SUBJECT MATTER NOT ESSENTIAL FOR PERFECTION
NATIONAL GRAINS AUTHORITY VS IAC

171 SCRA 131
53
JOHANNES SCHUBACK & SONS PHIL. TRADING CORP VS CA
227 SCRA 719
YU TEK & CO VS GONZALES

29 PHIL 384
UNDIVIDED SHARE IN MASS
GAITE VS FONACIER
2 SCRA 831
SALE OF MORTGAGED PROPERTY
PINEDA VS CA
409 SCRA 438
SELLER’S ABILITY TO TRANSFER OWNERSHIP
ALCANTARA-DAUS VS DE LEON
404 SCRA 74
HEIRS OF SEVERINA SAN MIGUEL VS CA

364 SCRA 523
CAVITE DEVELOPMENT BANK VS SPOUSES LIM

324 SCRA 346
NOOL VS CA
286 SCRA 722
NOEL VS CA
240 SCRA 78
54

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SIBAL V VALDEZ

PONENTE: JOHNSON, J.:

RESPONDENTS: EMILIANO J. VALDEZ

RTC: April 10, 1995 (in favor of petitioners)

WHO FILED THE CASE: MILAGROS and CARLITO MANONGSONG

WHEN DID THEY FILE THE CASE: June 19, 1992

HOW DID THE CONTROVERSY BEGIN:

PICHEL V ALONZO III

G.R. No. L-36902 January 30, 1982

LUIS PICHEL, petitioner,

The following facts are admitted by the parties:

xxx xxx xxx

The dispositive portion of the lower Court's decision states:

Costs against the defendant. 6

2. In declaring — granting without admitting that an interpretation is necessary — the deed of

A contract of sale may be absolute or conditional.

(1) When exemplary damages are awarded;

(3) In criminal cases of malicious prosecution against the plaintiff;

(6) In actions for legal support;

(10) When at least double judicial costs are awarded;

G.R. No. 115101. March 2, 1998

FIDELA MANANZALA, Petitioner, v. COURT OF APPEALS, and

This is a petition for review on certiorari of the decision1 of the Court of

The background of this case is as follows.

Petitioner Fidela Mananzala is the registered owner of a parcel of land

On January 31, 1985, private respondent Corazon Aranez brought this

The trial court dismissed the complaint. Although finding petitioners

Petitioner alleges two grounds for her petition, to wit:

THE RESPONDENT COURT OF APPEALS ERRED IN VALIDATING A CONTRACT

THE CHALLENGED NOTARIAL DOCUMENT, APART FROM BEING CONTRARY

We shall deal with these questions in inverse order.

Anyway, that the signature of petitioner in the deed in question is genuine is

The above argument, as well as petitioners contention that the sale to

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

G. R. No. 131679 - February 1, 2000

The following facts are not in dispute.

(1) 10% Option Money;

(2) Balance payable in cash;

FERNANDO A. GAITE, plaintiff-appellee,

Alejo Mabanag for plaintiff-appellee.

REYES, J.B.L., J.:

The main issues presented by appellants in this appeal are:

G.R. No. 183612 March 15, 2010

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner,

NATIONAL DEVELOPMENT COMPANY, Petitioner,

VILLARAMA, JR., J.:

The undisputed facts are as follows:

With costs against defendants NDC and PUP.

We rule in the affirmative.

The second lease contract contained the following provision:

Petitioners’ position is untenable.

August 12, 1988

HON. ANTONIO HENSON

NATIONAL DEVELOPMENT COMPANY

REF: Contract of Lease

Your favorable consideration on our request will be very much appreciated.

very truly yours,

TIU HAN TENG

G.R. No. 115712 February 25, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner,

. . . waives the running of the prescriptive period provided for in

On September 30, 1987, Carnation filed a supplemental protest.