GOLANGCO vs PCIB

CORONA, J.:

The facts of this case are straightforward.1

William Golangco Construction Corporation (WGCC) and the Philippine Commercial International Bank (PCIB) entered into a
contract for the construction of the extension of PCIB Tower II (denominated as PCIB Tower II, Extension Project [project])2 on
October 20, 1989. The project included, among others, the application of a granitite wash-out finish3 on the exterior walls of the
building.

PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the turnover of the completed work by WGCC in a
letter dated June 1, 1992. To answer for any defect arising within a period of one year, WGCC submitted a guarantee bond dated July
1, 1992 issued by Malayan Insurance Company, Inc. in compliance with the construction contract.4

The controversy arose when portions of the granitite wash-out finish of the exterior of the building began peeling off and falling from
the walls in 1993. WGCC made minor repairs after PCIB requested it to rectify the construction defects. In 1994, PCIB entered into
another contract with Brains and Brawn Construction and Development Corporation to re-do the entire granitite wash-out finish after
WGCC manifested that it was "not in a position to do the new finishing work," though it was willing to share part of the cost. PCIB
incurred expenses amounting to P11,665,000 for the repair work.

PCIB filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC) for the reimbursement of its
expenses for the repairs made by another contractor. It complained of WGCC’s alleged non-compliance with their contractual terms
on materials and workmanship. WGCC interposed a counterclaim for P5,777,157.84 for material cost adjustment.

The CIAC declared WGCC liable for the construction defects in the project.5 WGCC filed a petition for review with the Court of
Appeals (CA) which dismissed it for lack of merit.6 Its motion for reconsideration was similarly denied.7

In this petition for review on certiorari, WGCC raises this main question of law: whether or not petitioner WGCC is liable for defects
in the granitite wash-out finish that occurred after the lapse of the one-year defects liability period provided in Art. XI of the
construction contract.8

We rule in favor of WGCC.

The controversy pivots on a provision in the construction contract referred to as the defects liability period:

ARTICLE XI – GUARANTEE

Unless otherwise specified for specific works, and without prejudice to the rights and causes of action of the OWNER under Article
1723 of the Civil Code, the CONTRACTOR hereby guarantees the work stipulated in this Contract, and shall make good any defect in
materials and workmanship which [becomes] evident within one (1) year after the final acceptance of the work. The CONTRACTOR
shall leave the work in perfect order upon completion and present the final certificate to the ENGINEER promptly.

If in the opinion of the OWNER and ENGINEER, the CONTRACTOR has failed to act promptly in rectifying any defect in the work
which appears within the period mentioned above, the OWNER and the ENGINEER may, at their own discretion, using the Guarantee
Bond amount for corrections, have the work done by another contractor at the expense of the CONTRACTOR or his bondsmen.

However, nothing in this section shall in any way affect or relieve the CONTRACTOR’S responsibility to the OWNER. On the
completion of the [w]orks, the CONTRACTOR shall clear away and remove from the site all constructional plant, surplus materials,
rubbish and temporary works of every kind, and leave the whole of the [s]ite and [w]orks clean and in a workmanlike condition to the
satisfaction of the ENGINEER and OWNER.9 (emphasis ours)

Although both parties based their arguments on the same stipulations, they reached conflicting conclusions. A careful reading of the
stipulations, however, leads us to the conclusion that WGCC’s arguments are more tenable.

Autonomy of contracts

The autonomous nature of contracts is enunciated in Article 1306 of the Civil Code.

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy.
1
Obligations arising from contracts have the force of law between the parties and should be complied with in good faith.10 In
characterizing the contract as having the force of law between the parties, the law stresses the obligatory nature of a binding and valid
agreement.

The provision in the construction contract providing for a defects liability period was not shown as contrary to law, morals, good
customs, pubic order or public policy. By the nature of the obligation in such contract, the provision limiting liability for defects and
fixing specific guaranty periods was not only fair and equitable; it was also necessary. Without such limitation, the contractor would
be expected to make a perpetual guarantee on all materials and workmanship.

The adoption of a one-year guarantee, as done by WGCC and PCIB, is established usage in the Philippines for private and government
construction contracts.11 The contract did not specify a different period for defects in the granitite wash-out finish; hence, any defect
therein should have been brought to WGCC’s attention within the one-year defects liability period in the contract.

We cannot countenance an interpretation that undermines a contractual stipulation freely and validly agreed upon. The courts will not
relieve a party from the effects of an unwise or unfavorable contract freely entered into.12

[T]he inclusion in a written contract for a piece of work [,] such as the one in question, of a provision defining a warranty period
against defects, is not uncommon. This kind of a stipulation is of particular importance to the contractor, for as a general rule, after the
lapse of the period agreed upon therein, he may no longer be held accountable for whatever defects, deficiencies or imperfections that
may be discovered in the work executed by him.13

Interpretation of contracts

To challenge the guarantee period provided in Article XI of the contract, PCIB calls our attention to Article 62.2 which provides:

62.2 Unfulfilled Obligations

Notwithstanding the issue of the Defects Liability Certificate[,] the Contractor and the Owner shall remain liable for the fulfillment of
any obligation[,] incurred under the provisions of the Contract prior to the issue of the Defects Liability Certificate[,] which remains
unperformed at the time such Defects Liability Certificate is issued[. And] for the purpose of determining the nature and extent of any
such obligation, the Contract shall be deemed to remain in force between the parties of the Contract. (emphasis ours)

The defects in the granitite wash-out finish were not the "obligation" contemplated in Article 62.2. It was not an obligation that
remained unperformed or unfulfilled at the time the defects liability certificate was issued. The alleged defects occurred more than a
year from the final acceptance by PCIB.

An examination of Article 1719 of the Civil Code is enlightening:

Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any defect in the work, unless:

(1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; or

(2) The employer expressly reserves his rights against the contractor by reason of the defect.

The lower courts conjectured that the peeling off of the granitite wash-out finish was probably due to "defective materials and
workmanship." This they characterized as hidden or latent defects. We, however, do not agree with the conclusion that the alleged
defects were hidden.

First, PCIB’s team of experts14 (who were specifically employed to detect such defects early on) supervised WGCC’s workmanship.
Second, WGCC regularly submitted progress reports and photographs. Third, WGCC worked under fair and transparent
circumstances. PCIB had access to the site and it exercised reasonable supervision over WGCC’s work. Fourth, PCIB issued several
"punch lists" for WGCC’s compliance before the issuance of PCIB’s final certificate of acceptance. Fifth, PCIB supplied the materials
for the granitite wash-out finish. And finally, PCIB’s team of experts gave their concurrence to the turnover of the project.

The purpose of the defects liability period was precisely to give PCIB additional, albeit limited, opportunity to oblige WGCC to make
good any defect, hidden or otherwise, discovered within one year.

2
Contrary to the CA’s conclusion, the first sentence of the third paragraph of Article XI on guarantee previously quoted did not operate
as a blanket exception to the one-year guarantee period under the first paragraph. Neither did it modify, extend, nullify or supersede
the categorical terms of the defects liability period.

Under the circumstances, there were no hidden defects for which WGCC could be held liable. Neither was there any other defect for
which PCIB made any express reservation of its rights against WGCC. Indeed, the contract should not be interpreted to favor the one
who caused the confusion, if any. The contract was prepared by TCGI for PCIB.15

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 41152 is ANNULED and
SET ASIDE.

SO ORDERED.

HEIRS OF EK LIONG VS CASTILLO

PEREZ, J.:

Assailed in this Petition for Review on Certiorari filed pursuant to Rule 45 of the Rules of Court is the Decision1 dated 23 January
2007 rendered by the Fifteenth Division of the Court of Appeals in CA-G.R. CV No. 84687,2 the dispositive portion of which states:

WHEREFORE, premises considered, the assailed January 27, 2005 Decision of the Regional Trial Court of Lucena City, Branch 59,
in Civil Case No. 93-176, is hereby REVERSED and SET ASIDE and a new one entered declaring the AGREEMENT and the
KASUNDUAN void ab initio for being contrary to law and public policy, without prejudice to the attorney’s filing a proper action for
collection of reasonable attorney’s fees based on quantum meruit and without prejudice also to administrative charges being filed
against counsel for counsel’s openly entering into such an illegal AGREEMENT in violation of the Canons of Professional
Responsibility which action may be instituted with the Supreme Court which has exclusive jurisdiction to impose such penalties on
members of the bar.

No pronouncement as to costs.

SO ORDERED.3 (Italics and Underscore Ours)

The Facts

Alongside her husband, Felipe Castillo, respondent Mauricia Meer Castillo was the owner of four parcels of land with an aggregate
area of 53,307 square meters, situated in Silangan Mayao, Lucena City and registered in their names under Transfer Certificate of
Title (TCT) Nos. T-42104, T-32227, T-31752 and T-42103. With the death of Felipe, a deed of extrajudicial partition over his estate
was executed by his heirs, namely, Mauricia, Buenaflor Umali and respondents Victoria Castillo, Bertilla Rada, Marietta Cavanez,
Leovina Jalbuena and Philip Castillo. Utilized as security for the payment of a tractor purchased by Mauricia’s nephew, Santiago
Rivera, from Bormaheco, Inc., it appears, however, that the subject properties were subsequently sold at a public auction where
Insurance Corporation of the Philippines (ICP) tendered the highest bid. Having consolidated its title, ICP likewise sold said parcels in
favor of Philippine Machinery Parts Manufacturing Co., Inc. (PMPMCI) which, in turn, caused the same to be titled in its name.4

On 29 September 1976, respondents and Buenaflor instituted Civil Case No. 8085 before the then Court of First Instance (CFI) of
Quezon, for the purpose of seeking the annulment of the transactions and/or proceedings involving the subject parcels, as well as the
TCTs procured by PMPMCI.5 Encountering financial difficulties in the prosecution of Civil Case No. 8085, respondents and
Buenaflor entered into an Agreement dated 20 September 1978 whereby they procured the legal services of Atty. Edmundo Zepeda
and the assistance of Manuel Uy Ek Liong who, as financier, agreed to underwrite the litigation expenses entailed by the case. In
exchange, it was stipulated in the notarized Agreement that, in the event of a favorable decision in Civil Case No. 8085, Atty. Zepeda
and Manuel would be entitled to "a share of forty (40%) percent of all the realties and/or monetary benefits, gratuities or damages"
which may be adjudicated in favor of respondents.6

On the same date, respondents and Buenaflor entered into another notarized agreement denominated as a Kasunduan whereby they
agreed to sell their remaining sixty (60%) percent share in the subject parcels in favor of Manuel for the sum of P180,000.00. The
parties stipulated that Manuel would pay a downpayment in the sum of P1,000.00 upon the execution of the Kasunduan and that
respondents and Buenaflor would retain and remain the owners of a 1,750-square meter portion of said real properties. It was likewise
agreed that any party violating the Kasunduan would pay the aggrieved party a penalty fixed in the sum of P50,000.00, together with
the attorney’s fees and litigation expenses incurred should a case be subsequently filed in court. The parties likewise agreed to further
enter into such other stipulations as would be necessary to ensure that the sale would push through and/or in the event of illegality or
impossibility of any part of the Kasunduan.7

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With his death on 19 August 1989,8 Manuel was survived by petitioners, Heirs of Manuel Uy Ek Liong, who were later represented in
the negotiations regarding the subject parcels and in this suit by petitioner BelenLim Vda. de Uy. The record also shows that the
proceedings in Civil Case No. 8085 culminated in this Court’s rendition of a 13 September 1990 Decision in G.R. No. 895619 in favor
of respondents and Buenaflor.10 Subsequent to the finality of the Court’s Decision,11 it appears that the subject parcels were
subdivided in accordance with the Agreement, with sixty (60%) percent thereof consisting of 31,983 square meters equally
apportioned among and registered in the names of respondents and Buenaflor under TCT Nos. T-72027, T-72028, T-72029, T-72030,
T-72031, T-72032 and T-72033.12 Consisting of 21,324 square meters, the remaining forty (40%) percent was, in turn, registered in
the names of petitioners and Atty. Zepeda under TCT No. T-72026.13

Supposedly acting on the advice of Atty. Zepeda, respondents wrote petitioners a letter dated 22 March 1993, essentially informing
petitioners that respondents were willing to sell their sixty (60%) percent share in the subject parcels for the consideration of P500.00
per square meter.14 Insisting on the price agreed upon in the Kasunduan, however, petitioners sent a letter dated 19 May 1993,
requesting respondents to execute within 15 days from notice the necessary Deed of Absolute Sale over their 60% share as aforesaid,
excluding the 1,750-square meter portion specified in their agreement with Manuel. Informed that petitioners were ready to pay the
remaining P179,000.00 balance of the agreed price,15 respondents wrote a 28 May 1993 reply, reminding the former of their
purported refusal of earlier offers to sell the shares of Leovina and of Buenaflor who had, in the meantime, died.16 In a letter dated 1
June 1993, respondents also called petitioners’ attention to the fact, among others, that their right to ask for an additional consideration
for the sale was recognized under the Kasunduan.17

On 6 October 1993, petitioners commenced the instant suit with the filing of their complaint for specific performance and damages
against the respondents and respondent Heirs of Buenaflor, as then represented by Menardo Umali. Faulting respondents with
unjustified refusal to comply with their obligation under the Kasunduan, petitioners prayed that the former be ordered to execute the
necessary Deed of Absolute Sale over their shares in the subject parcels, with indemnities for moral and exemplary damages, as well
as attorney’s fees, litigation expenses and the costs of the suit.18 Served with summons, respondents filed their Answer with
Counterclaim and Motion to File Third Party Complaint on 3 December 1993. Maintaining that the Agreement and the Kasunduan
were illegal for being unconscionable and contrary to public policy, respondents averred that Atty. Zepeda was an indispensable party
to the case. Together with the dismissal of the complaint and the annulment of said contracts and TCT No. T-72026, respondents
sought the grant of their counterclaims for moral and exemplary damages, as well as attorney’s fees and litigation expenses.19

The issues thereby joined, the Regional Trial Court (RTC), Branch 54, Lucena City, proveeded to conduct the mandatory preliminary
conference in the case.20 After initially granting respondents’ motion to file a third party complaint against Atty. Zepeda,21 the RTC,
upon petitioners’ motion for reconsideration,22 went on to issue the 18 July 1997 Order disallowing the filing of said pleading on the
ground that the validity of the Agreement and the cause of action against Atty. Zepeda, whose whereabouts were then unknown,
would be better threshed out in a separate action.23 The denial24 of their motion for reconsideration of the foregoing order25
prompted respondents to file a notice of appeal26 which was, however, denied due course by the RTC on the ground that the orders
sought to be appealed were non-appealable.27 On 14 December 1997, Menardo died28 and was substituted by his daughter Nancy as
representative of respondent Heirs of Buenaflor.29

In the ensuing trial of the case on the merits, petitioners called to the witness stand Samuel Lim Uy Ek Liong30 whose testimony was
refuted by Philip31 and Leovina32 during the presentation of the defense evidence. On 27 January 2005, the RTC rendered a decision
finding the Kasunduan valid and binding between respondents and petitioners who had the right to demand its fulfillment as Manuel’s
successors-in-interest. Brushing aside Philip’s testimony that respondents were forced to sign the Kasunduan, the RTC ruled that said
contract became effective upon the finality of this Court’s 13 September 1990 Decision in G.R. No. 89561 which served as a
suspensive condition therefor. Having benefited from the legal services rendered by Atty. Zepeda and the financial assistance
extended by Manuel, respondents were also declared estopped from questioning the validity of the Agreement, Kasunduan and TCT
No. T-72026. With the Kasunduan upheld as the law between the contracting parties and their privies,33 the RTC disposed of the case
in the following wise:

WHEREFORE, premises considered, the Court finds for the petitioners and hereby:

1. Orders the respondents to execute and deliver a Deed of Conveyance in favor of the petitioners covering the 60% of the properties
formerly covered by Transfer Certificates of Title Nos. T-3175, 42104, T-42103, T-32227 and T-42104 which are now covered by
Transfer Certificates of Title Nos. T-72027, T-72028, T-72029, T-72030, T-72031, T-72032, T-72033 and T-72026, all of the
Registry of Deeds of Lucena City, for and in consideration of the amount of P180,000.00 in accordance with the provisions of the
KASUNDUAN, and

2. Orders the petitioners to pay and deliver to the respondents upon the latter’s execution of the Deed of Conveyance mentioned in the
preceding paragraph, the amount of P179,000.00 representing the balance of the purchase price as provided in the KASUNDUAN,
and

4
3. Orders the respondents to pay the petitioners the following amounts:

a). P50,000.00 as and for moral damages;

b). P50,000.00 as and for exemplary damages; and

c). P50,000.00 as and for attorney’s fees.

and to pay the costs.

SO ORDERED.34

Dissatisfied with the RTC’s decision, both petitioners35 and respondents perfected their appeals36 which were docketed before the
CA as CA-G.R. CV No. 84687. While petitioners prayed for the increase of the monetary awards adjudicated a quo, as well as the
further grant of liquidated damages in their favor,37 respondents sought the complete reversal of the appealed decision on the ground
that the Agreement and the Kasunduan were null and void.38 On 23 January 2007, the CA rendered the herein assailed decision,
setting aside the RTC’s decision, upon the following findings and conclusions, to wit: (a) the Agreement and Kasunduan are
byproducts of the partnership between Atty. Zepeda and Manuel who, as a non-lawyer, was not authorized to practice law; (b) the
Agreement is void under Article 1491 (5) of the Civil Code of the Philippines which prohibits lawyers from acquiring properties
which are the objects of the litigation in which they have taken part; (c) jointly designed to completely deprive respondents of the
subject parcels, the Agreement and the Kasunduan are invalid and unconscionable; and (d) without prejudice to his liability for
violation of the Canons of Professional Responsibility, Atty. Zepeda can file an action to collect attorney’s fees based on quantum
meruit.39

The Issue

Petitioners seek the reversal of the CA’s decision on the following issue:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS, FIFTEENTH DIVISION, COMITTED A REVERSIBLE
ERROR WHEN IT REVERSED AND SET ASIDE THE DECISION OF THE RTC BRANCH 59, LUCENA CITY, IN CIVIL CASE
NO. 93-176 DECLARING THE AGREEMENT AND KASUNDUAN VOID AB INITIO FOR BEING CONTRARY TO LAW AND
PUBLIC POLICY FOR BEING VIOLATIVE OF ART. 1491 OF THE NEW CIVIL CODE AND THE CANONS OF
PROFESSIONAL RESPONSIBILITY.40

The Court’s Ruling

We find the petition impressed with partial merit.

At the outset, it bears pointing out that the complaint for specific performance filed before the RTC sought only the enforcement of
petitioners’ rights and respondents’ obligation under the Kasunduan. Although the answer filed by respondents also assailed the
validity of the Agreement and TCT No. T-72026, the record shows that the RTC, in its order dated 18 July 1997, disallowed the filing
of a third-party complaint against Atty. Zepeda on the ground that the causes of action in respect to said contract and title would be
better threshed out in a separate action. As Atty. Zepeda’s whereabouts were then unknown, the RTC also ruled that, far from
contributing to the expeditious settlement of the case, the grant of respondents’ motion to file a third-party complaint would only delay
the proceedings in the case.41 With the 1 October 1998 denial of their motion for reconsideration of the foregoing order, respondents
subsequently filed a notice of appeal which was, however, denied due course on the ground that the orders denying their motion to file
a third-party complaint and their motion for reconsideration were interlocutory and non-appealable.42

Absent a showing that the RTC’s ruling on the foregoing issues was reversed and set aside, we find that the CA reversibly erred in
ruling on the validity of the Agreement which respondents executed not only with petitioners’ predecessor-in-interest, Manuel, but
also with Atty. Zepeda. Since it is generally accepted that no man shall be affected by any proceeding to which he is a stranger,43 the
rule is settled that a court must first acquire jurisdiction over a party – either through valid service of summons or voluntary
appearance – for the latter to be bound by a court decision.44 The fact that Atty. Zepeda was not properly impleaded in the suit and
given a chance to present his side of the controversy before the RTC should have dissuaded the CA from invalidating the Agreement
and holding that attorney’s fees should, instead, be computed on a quantum meruit basis. Admittedly, Article 1491 (5)45 of the Civil
Code prohibits lawyers from acquiring by purchase or assignment the property or rights involved which are the object of the litigation
in which they intervene by virtue of their profession. The CA lost sight of the fact, however, that the prohibition applies only during
the pendency of the suit46 and generally does not cover contracts for contingent fees where the transfer takes effect only after the
finality of a favorable judgment.47

5
Although executed on the same day, it cannot likewise be gainsaid that the Agreement and the Kasunduan are independent contracts,
with parties, objects and causes different from that of the other. Defined as a meeting of the minds between two persons whereby one
binds himself, with respect to the other to give something or to render some service,48 a contract requires the concurrence of the
following requisites: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; and, (c) cause
of the obligation which is established.49 Executed in exchange for the legal services of Atty. Zepeda and the financial assistance to be
extended by Manuel, the Agreement concerned respondents’ transfer of 40% of the avails of the suit, in the event of a favorable
judgment in Civil Case No. 8085. While concededly subject to the same suspensive condition, the Kasunduan was, in contrast,
concluded by respondents with Manuel alone, for the purpose of selling in favor of the latter 60% of their share in the subject parcels
for the agreed price of P180,000.00. Given these clear distinctions, petitioners correctly argue that the CA reversibly erred in not
determining the validity of the Kasunduan independent from that of the Agreement.

Viewed in the light of the autonomous nature of contracts enunciated under Article 130650 of the Civil Code, on the other hand, we
find that the Kasunduan was correctly found by the RTC to be a valid and binding contract between the parties. Already partially
executed with respondents’ receipt of P1,000.00 from Manuel upon the execution thereof, the Kasunduan simply concerned the sale of
the former’s 60% share in the subject parcel, less the 1,750-square meter portion to be retained, for the agreed consideration of
P180,000.00. As a notarized document that carries the evidentiary weight conferred upon it with respect to its due execution,51 the
Kasunduan was shown to have been signed by respondents with full knowledge of its contents, as may be gleaned from the
testimonies elicited from Philip52 and Leovina.53

Although Philip had repeatedly claimed that respondents had been forced to sign the Agreement and the Kasunduan, his testimony
does not show such vitiation of consent as would warrant the avoidance of the contract. He simply meant that respondents felt
constrained to accede to the stipulations insisted upon by Atty. Zepeda and Manuel who were not otherwise willing to push through
with said contracts.54

At any rate, our perusal of the record shows that respondents’ main objection to the enforcement of the Kasunduan was the perceived
inadequacy of the P180,000.00 which the parties had fixed as consideration for 60% of the subject parcels. Rather than claiming
vitiation of their consent in the answer they filed a quo, respondents, in fact, distinctly averred that the Kasunduan was tantamount to
unjust enrichment and "a clear source of speculative profit" at their expense since their remaining share in said properties had "a
current market value of P9,594,900.00, more or less."55 In their 22 March 1993 letter to petitioners, respondents also cited prices then
prevailing for the sale of properties in the area and offered to sell their 60% share for the price of P500.00 per square meter56 or a
total of P15,991,500.00. In response to petitioners’ insistence on the price originally agreed upon by the parties,57 respondents even
invoked the last paragraph58 of the Kasunduan to the effect that the parties agreed to enter into such other stipulations as would be
necessary to ensure the fruition of the sale.59

In the absence of any showing, however, that the parties were able to agree on new stipulations that would modify their agreement, we
find that petitioners and respondents are bound by the original terms embodied in the Kasunduan. Obligations arising from contracts,
after all, have the force of law between the contracting parties60 who are expected to abide in good faith with their contractual
commitments, not weasel out of them.61 Moreover, when the terms of the contract are clear and leave no doubt as to the intention of
the contracting parties, the rule is settled that the literal meaning of its stipulations should govern. In such cases, courts have no
authority to alter a contract by construction or to make a new contract for the parties. Since their duty is confined to the interpretation
of the one which the parties have made for themselves without regard to its wisdom or folly, it has been ruled that courts cannot
supply material stipulations or read into the contract words it does not contain.62 Indeed, courts will not relieve a party from the
adverse effects of an unwise or unfavorable contract freely entered into.63

Our perusal of the Kasunduan also shows that it contains a penal clause64 which provides that a party who violates any of its
provisions shall be liable to pay the aggrieved party a penalty fixed at P50,000.00, together with the attorney’s fees and litigation
expenses incurred by the latter should judicial resolution of the matter becomes necessary.65 An accessory undertaking to assume
greater liability on the part of the obligor in case of breach of an obligation, the foregoing stipulation is a penal clause which serves to
strengthen the coercive force of the obligation and provides for liquidated damages for such breach.66 "The obligor would then be
bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the
breach."67 Articles 1226 and 1227 of the Civil Code state:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in
case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this
right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the
6
penalty at the same time, unless this right has been clearly granted to him. However, if after the creditor has decided to require the
fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced."

In the absence of a showing that they expressly reserved the right to pay the penalty in lieu of the performance of their obligation
under the Kasunduan, respondents were correctly ordered by the RTC to execute and deliver a deed of conveyance over their 60%
share in the subject parcels in favor of petitiOners. Considering that the Kasunduan stipulated that respondents would retain a portion
of their share consisting of 1,750 square meters, said disposition should, however, be modified to give full effect to the intention of the
contracting parties. Since the parties also fixed liquidated damages in the sum of P50,000.00 in case of breach, we find that said
amount should suffice as petitioners' indemnity, without further need of compensation for moral and exemplary damages. In
obligations with a penal clause, the penalty generally substitutes the indemnity for damages and the payment of interests in case of
non-compliance.68 Usually incorporated to create an effective deterrent against breach of the obligation by making the consequences
of such breach as onerous as it may be possible, the rule is settled that a penal clause is not limited to actual and compensatory
damages69

The RTC's award of attorney's fees in the sum of P50,000.00 is, however, proper.1âwphi1 Aside from the fact that the penal clause
included a liability for said award in the event of litigation over a breach of the Kasunduan, petitioners were able to prove that they
incurred said sum in engaging the services of their lawyer to pursue their rights and protect their interests.70

WHEREFORE, premises considered, the Court of Appeals' assailed 23 January 2007 Decision is REVERSED and SET ASIDE. In
lieu thereof, the RTC's 27 January 2005 Decision is REINSTATED subject to the following MODIFICATIONS: (a) the exclusion of a
1,750-square meter portion from the 60% share in the subject parcel respondents were ordered to convey in favor of petitioners; and
(b) the deletion of the awards of moral and exemplary damages. The rights of the parties under the Agreement may be determined in a
separate litigation.

SO ORDERED.

PNB vs CA

PUNO, J.:

Petitioner bank seeks the review of the decision, dated October 15, 1992, of the Court of Appeals 1 in CA G.R. CV No. 27195, the
dispositive portion of which reads as follows:

WHEREFORE, the judgment appealed from is hereby SET ASIDE and a new one is entered ordering defendant-appellee PNB to re-
apply the interest rate of 12% per annum to plaintiffs-appellants' (referring to herein private respondents) indebtedness and to
accordingly take the appropriate charges from plaintiffs-appellants' (private respondents') payment of P81,000.00 made on December
26, 1985. Any balance on the indebtedness should, likewise, be charged interest at the rate of 12% per annum.

SO ORDERED.

The parties do not dispute the facts as laid down by respondent court in its impugned decision, viz.:

On April 7, 1982, (private respondents) as owners of a NACIDA-registered enterprise, obtained a loan under the Cottage Industry
Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB) in the amount of Fifty Thousand (P50,000.00) Pesos, as
evidenced by a Credit Agreement. Under the Promissory Note covering the loan, the loan was to be amortized over a period of three
(3) years to end on March 29, 1985, at twelve (12%) percent interest annually.

To secure the loan, (private respondents) executed a Real Estate Mortgage over a 1.5542-hectare parcel of unregistered agricultural
land located at Cambang-ug, Toledo City, which was appraised by the PNB at P1,062.52 and given a loan value of P531.26 by the
Bank. In addition, (private respondents) executed a Chattel Mortgage over a thermo plastic-forming machine, which had an appraisal
value of P8,800 and a loan value of P4,400.00.

The Credit Agreement provided inter alia, that —

(a) The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future; Provided, that the interest rate on this accommodation shall be correspondingly decreased in the
event that the applicable maximum interest is reduced by law or by the Monetary Board. In either case, the adjustment in the interest
rate agreed upon shall take effect on the effectivity date of the increase or decrease in the maximum interest rate.

7
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time without notice, beyond the stipulated rate of
12% but only "within the limits allowed by law."

The Real Estate Mortgage contract likewise provided that —

(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured by this mortgage as well as the
interest on the amount which may have been advanced by the MORTGAGE, in accordance with the provision hereof, shall be subject
during the life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may
prescribe for its debtors.

On February 17, 1983, (private respondents) were granted an additional NACIDA loan of Fifty Thousand (P50,000.00) Pesos by the
PNB, for which (private respondents) executed another Promissory Note, which was to mature on April 1, 1985. Other than the date of
maturity, the second promissory note contained the same terms and stipulations as the previous note. The parties likewise executed a
new Credit Agreement, changing the amount of the loan from P50,000.00 to P100,000.00, but otherwise preserving the stipulations
contained in the original agreement.

As additional security for the loan, (private respondents) constituted another real estate mortgage over 2 parcels of registered land,
with a combined area of 311 square meters, located at Guadalupe, Cebu City. The land, upon which several buildings are standing,
was appraised by the PNB to have a value of P40,000.00 and a loan value of P28,000.00.

In a letter dated August 1, 1984, the PNB informed (private respondents) "that the interest rate of your CIGLF loan account with us is
now 25% per annum plus a penalty of 6% per annum on past dues." The PNB further increased this interest rate to 30% on October
15, 1984; and to 42% on October 25, 1984.

The records show that as of December 1985, (private respondents) had an outstanding principal account of P81,000.00 of which
P18,523.14 was credited to the principal, P57,488.89 to the interest, and the rest to penalty and other charges. Thus, as of said date, the
unpaid principal obligation of (private respondent) amounted to P62,830.32.

Thereafter, (private respondents) exerted efforts to get the PNB to re-adopt the 12% interest and to condone the present interest and
penalties due; but to no avail. 2 (Citations omitted.)

On December 15, 1987, private respondents filed a suit for specific performance against petitioner PNB and the NACIDA. It was
docketed as Civil Case No. CEB-5610, and raffled to the Regional Trial Court, 7th Judicial Region, Cebu City, Br. 7. 3 Private
respondents prayed the trial court to order:

1. The PNB and NACIDA to issue in (private respondents') favor, a release of mortgage;

2. The PNB to pay pecuniary consequential damages for the destruction of (private respondents') enterprise;

3. The PNB to pay moral and exemplary damages as well as the costs of suit; and

4. Granting (private respondents') such other relief as may be found just and equitable in the premises. 4

On February 26, 1990, the trial court dismissed private respondents' complaint in Civil Case No. CEB-5610. On October 15, 1992, the
Court of Appeals reversed the dismissal with respect to petitioner bank, and disallowed the increases in interest rates.

Petitioner bank now contends that "respondent Court of Appeals committed grave error when it ruled (1) that the increase in interest
rates are unauthorized; (2) that the Credit Agreement and the Promissory Notes are not the law between the parties; (3) that CB
Circular No. 773 and CB Circular
No. 905 are not applicable; and (4) that private respondents are not estopped from questioning the increase of rate interest made by
petitioner." 5

The petition is bereft of merit.

In making the unilateral increases in interest rates, petitioner bank relied on the escalation clause contained in their credit agreement
which provides, as follows:

The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it
may adopt in the future and provided, that, the interest rate on this accommodation shall be correspondingly decreased in the event

8
that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest
rate agreed upon shall take effect on the effectivity date of the increase or decrease in maximum interest rate.

This clause is authorized by Section 2 of Presidential Decree (P.D.)

No. 1684 which further amended Act No. 2655 ("The Usury Law"), as amended, thus:

Section 2. The same Act is hereby amended by adding a new section after Section 7, to read as follows:

Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest
agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board;
Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon
shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; Provided
further, That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in
the maximum rate of interest.

Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to prescribe the maximum rates of interest for loans
and certain forbearances. Pursuant to such authority, the Monetary Board issued Central Bank (C.B.) Circular No. 905, series of 1982,
Section 5 of which provides:

Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial Intermediaries) is hereby amended to read as
follows:

Sec. 1303. Interest and Other Charges. — The rate of interest, including commissions, premiums, fees and other charges, on
any loan, or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, shall not be subject
to any ceiling prescribed under or pursuant to the Usury Law, as amended.

P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to adjust,
upward or downward, the interest previously stipulated. However, contrary to the stubborn insistence of petitioner bank, the said law
and circular did not authorize either party to unilaterally raise the interest rate without the other's consent.

It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties.
If this assent is wanting on the part of the one who contracts, his act has no more efficacy than if it had been done under duress or by a
person of unsound mind. 6

Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be
gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be
mutually agreed upon, otherwise, it is bereft of any binding effect.

We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly
adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an
important modification in their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v.
Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held —

. . . The unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of contracts
ordained in Article 1308 of the Civil Code:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between the
parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void . . . . Hence, even assuming that
the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the
principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion,
where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take
it or leave it" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and
imposition. (Citation omitted.)

9
Private respondents are not also estopped from assailing the unilateral increases in interest rate made by petitioner bank. No one
receiving a proposal to change a contract to which he is a party, is obliged to answer the proposal, and his silence per se cannot be
construed as an acceptance. 7 In the case at bench, the circumstances do not show that private respondents implicitly agreed to the
proposed increases in interest rate which by any standard were too sudden and too stiff.

IN VIEW THEREOF, the instant petition is DENIED for lack of merit, and the decision of the Court of Appeals in CA-G.R. CV No.
27195, dated October 15, 1992, is AFFIRMED. Costs against petitioner.

SO ORDERED.
ALLIED BANKING vs CA

BELLOSILLO, J .:

There are two (2) main issues in this petition for review: namely, (a) whether a stipulation in a contract of lease to the effect that the
contract "may be renewed for a like term at the option of the lessee" is void for being potestative or violative of the principle of
mutuality of contracts under Art. 1308 of the Civil Code and, corollarily, what is the meaning of the clause "may be renewed for a like
term at the option of the lessee;" and, (b) whether a lessee has the legal personality to assail the validity of a deed of donation executed
by the lessor over the leased premises.

Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-square meter lot located at No. 2 Sarmiento Street corner
Quirino Highway, Novaliches, Quezon City, covered by TCT No. 136779 in their name. On 30 June 1978 they leased the property to
petitioner Allied Banking Corporation (ALLIED) for a monthly rental of P1,000.00 for the first three (3) years, adjustable by 25%
every three (3) years thereafter.[1] The lease contract specifically states in its Provision No. 1 that "the term of this lease shall be
fourteen (14) years commencing from April 1, 1978 and may be renewed for a like term at the option of the lessee."

Pursuant to their lease agreement, ALLIED introduced an improvement on the property consisting of a concrete building with a floor
area of 340-square meters which it used as a branch office. As stipulated, the ownership of the building would be transferred to the
lessors upon the expiration of the original term of the lease.

Sometime in February 1988 the Tanqueco spouses executed a deed of donation over the subject property in favor of their four (4)
children, namely, private respondents herein Oscar D. Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and Nestor D.
Tanqueco, who accepted the donation in the same public instrument.

On 13 February 1991, a year before the expiration of the contract of lease, the Tanquecos notified petitioner ALLIED that they were
no longer interested in renewing the lease.[2] ALLIED replied that it was exercising its option to renew their lease under the same
terms with additional proposals.[3] Respondent Ruben D. Tanqueco, acting in behalf of all the donee-lessors, made a counter-
proposal.[4] ALLIED however rejected the counter-proposal and insisted on Provision No. 1 of their lease contract.

When the lease contract expired in 1992 private respondents demanded that ALLIED vacate the premises. But the latter asserted its
sole option to renew the lease and enclosed in its reply letter a cashiers check in the amount of P68,400.00 representing the advance
rental payments for six (6) months taking into account the escalation clause. Private respondents however returned the check to
ALLIED, prompting the latter to consign the amount in court.

An action for ejectment was commenced before the Metropolitan Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared
Provision No. 1 of the lease contract void for being violative of Art. 1308 of the Civil Code thus -

x x x but such provision [in the lease contract], to the mind of the Court, does not add luster to defendants cause nor constitutes as an
unbridled or unlimited license or sanctuary of the defendant to perpetuate its occupancy on the subject property. The basic intention of
the law in any contract is mutuality and equality. In other words, the validity of a contract cannot be left at (sic) the will of one of the
contracting parties. Otherwise, it infringes (upon) Article 1308 of the New Civil Code, which provides: The contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them x x x x Using the principle laid down in the case
of Garcia v. Legarda as cornerstone, it is evident that the renewal of the lease in this case cannot be left at the sole option or will of the
defendant notwithstanding provision no. 1 of their expired contract. For that would amount to a situation where the continuance and
effectivity of a contract will depend only upon the sole will or power of the lessee, which is repugnant to the very spirit envisioned
under Article 1308 of the New Civil Code x x x x the theory adopted by this Court in the case at bar finds ample affirmation from the
principle echoed by the Supreme Court in the case of Lao Lim v. CA, 191 SCRA 150, 154, 155.

On appeal to the Regional Trial Court, and later to the Court of Appeals, the assailed decision was affirmed.[5]

10
On 20 February 1993, while the case was pending in the Court of Appeals, ALLIED vacated the leased premises by reason of the
controversy.[6]

ALLIED insists before us that Provision No. 1 of the lease contract was mutually agreed upon hence valid and binding on both parties,
and the exercise by petitioner of its option to renew the contract was part of their agreement and in pursuance thereof.

We agree with petitioner. Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality of contracts. It
provides that "the contract must bind both the contracting parties; its validity or compliance cannot be left to the will of one of them."
This binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of
law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is
repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a
contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting
parties.

An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions, valid
and binding on the parties. This option, which is provided in the same lease agreement, is fundamentally part of the consideration in
the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act
conditioned on the performance by the lessee. It is a purely executory contract and at most confers a right to obtain a renewal if there
is compliance with the conditions on which the right is made to depend. The right of renewal constitutes a part of the lessees interest
in the land and forms a substantial and integral part of the agreement.

The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of
mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to
continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the
new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property
for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability
even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the
lessor and the lessee since they remain with the same faculties in respect to fulfillment.[7]

The case of Lao Lim v. Court of Appeals[8] relied upon by the trial court is not applicable here. In that case, the stipulation in the
disputed compromise agreement was to the effect that the lessee would be allowed to stay in the premises "as long as he needs it and
can pay the rents." In the present case, the questioned provision states that the lease "may be renewed for a like term at the option of
the lessee." The lessor is bound by the option he has conceded to the lessee. The lessee likewise becomes bound only when he
exercises his option and the lessor cannot thereafter be excused from performing his part of the agreement.

Likewise, reliance by the trial court on the 1967 case of Garcia v. Rita Legarda, Inc.,[9] is misplaced. In that case, what was involved
was a contract to sell involving residential lots, which gave the vendor the right to declare the contract cancelled and of no effect upon
the failure of the vendee to fulfill any of the conditions therein set forth. In the instant case, we are dealing with a contract of lease
which gives the lessee the right to renew the same.

With respect to the meaning of the clause "may be renewed for a like term at the option of the lessee," we sustain petitioner's
contention that its exercise of the option resulted in the automatic extension of the contract of lease under the same terms and
conditions. The subject contract simply provides that "the term of this lease shall be fourteen (14) years and may be renewed for a like
term at the option of the lessee." As we see it, the only term on which there has been a clear agreement is the period of the new
contract, i.e., fourteen (14) years, which is evident from the clause "may be renewed for a like term at the option of the lessee," the
phrase "for a like term" referring to the period. It is silent as to what the specific terms and conditions of the renewed lease shall be.
Shall it be the same terms and conditions as in the original contract, or shall it be under the terms and conditions as may be mutually
agreed upon by the parties after the expiration of the existing lease?

In Ledesma v. Javellana[10] this Court was confronted with a similar problem. In that case the lessee was given the sole option to
renew the lease, but the contract failed to specify the terms and conditions that would govern the new contract. When the lease
expired, the lessee demanded an extension under the same terms and conditions. The lessor expressed conformity to the renewal of the
contract but refused to accede to the claim of the lessee that the renewal should be under the same terms and conditions as the original
contract. In sustaining the lessee, this Court made the following pronouncement:

x x x in the case of Hicks v. Manila Hotel Company, a similar issue was resolved by this Court. It was held that 'such a clause relates
to the very contract in which it is placed, and does not permit the defendant upon the renewal of the contract in which the clause is
found, to insist upon different terms than those embraced in the contract to be renewed;' and that 'a stipulation to renew always relates
to the contract in which it is found and the rights granted thereunder, unless it expressly provides for variations in the terms of the
contract to be renewed.'
11
The same principle is upheld in American Law regarding the renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45, we find
the following citations: 'The rule is well-established that a general covenant to renew or extend a lease which makes no provision as to
the terms of a renewal or extension implies a renewal or extension upon the same terms as provided in the original lease.'

In the lease contract under consideration, there is no provision to indicate that the renewal will be subject to new terms and conditions
that the parties may yet agree upon. It is to renewal provisions of lease contracts of the kind presently considered that the principles
stated above squarely apply. We do not agree with the contention of the appellants that if it was intended by the parties to renew the
contract under the same terms and conditions stipulated in the contract of lease, such should have expressly so stated in the contract
itself. The same argument could easily be interposed by the appellee who could likewise contend that if the intention was to renew the
contract of lease under such new terms and conditions that the parties may agree upon, the contract should have so specified. Between
the two assertions, there is more logic in the latter.

The settled rule is that in case of uncertainty as to the meaning of a provision granting extension to a contract of lease, the tenant is the
one favored and not the landlord. 'As a general rule, in construing provisions relating to renewals or extensions, where there is any
uncertainty, the tenant is favored, and not the landlord, because the latter, having the power of stipulating in his own favor, has
neglected to do so; and also upon the principle that every man's grant is to be taken most strongly against himself (50 Am Jur. 2d, Sec.
1162, p. 48; see also 51 C.J.S. 599).'

Besides, if we were to adopt the contrary theory that the terms and conditions to be embodied in the renewed contract were still
subject to mutual agreement by and between the parties, then the option - which is an integral part of the consideration for the contract
- would be rendered worthless. For then, the lessor could easily defeat the lessee's right of renewal by simply imposing unreasonable
and onerous conditions to prevent the parties from reaching an agreement, as in the case at bar. As in a statute no word, clause,
sentence, provision or part of a contract shall be considered surplusage or superfluous, meaningless, void, insignificant or nugatory, if
that can be reasonably avoided. To this end, a construction which will render every word operative is to be preferred over that which
would make some words idle and nugatory.[11]

Fortunately for respondent lessors, ALLIED vacated the premises on 20 February 1993 indicating its abandonment of whatever rights
it had under the renewal clause. Consequently, what remains to be done is for ALLIED to pay rentals for the continued use of the
premises until it vacated the same, computed from the expiration of the original term of the contract on 31 March 1992 to the time it
actually left the premises on 20 February 1993, deducting therefrom the amount of P68,400.00 consigned in court by ALLIED and
any other amount which it may have deposited or advanced in conection with the lease. Since the old lease contract was deemed
renewed under the same terms and conditions upon the exercise by ALLIED of its option, the basis of the computation of rentals
should be the rental rate provided for in the existing contract.

Finally, ALLIED cannot assail the validity of the deed of donation, not being a party thereto. A person who is not principally or
subsidiarily bound has no legal capacity to challenge the validity of the contract.[12] He must first have an interest in it. "Interest"
within the meaning of the term means material interest, an interest to be affected by the deed, as distinguished from a mere incidental
interest. Hence, a person who is not a party to a contract and for whose benefit it was not expressly made cannot maintain an action on
it, even if the contract, if performed by the parties thereto would incidentally affect him,[13] except when he is prejudiced in his rights
with respect to one of the contracting parties and can show the detriment which could positively result to him from the contract in
which he had no intervention.[14] We find none in the instant case.

WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE. Considering that petitioner ALLIED
BANKING CORPORATION already vacated the leased premises as of 20 February 1993, the renewed lease contract is deemed
terminated as of that date. However, petitioner is required to pay rentals to respondent lessors at the rate provided in their existing
contract, subject to computation in view of the consignment in court of P68,400.00 by petitioner, and of such other amounts it may
have deposited or advanced in connection with the lease.

SO ORDERED.

JUICO vs CHINA BANKING

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the February
20, 2009 Decision1 and April 27, 2009 Resolution2 of the Court of Appeals (CA) in CA G.R. CV No. 80338. The CA affirmed the
April 14, 2003 Decision3 of the Regional Trial Court (RTC) of Makati City, Branch 147.

The factual antecedents:

12
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking Corporation (respondent) as evidenced
by two Promissory Notes both dated October 6, 1998 and numbered 507-001051-34 and 507-001052-0,5 for the sums of !!6,216,000
and P4, 139,000, respectively. The loan was secured by a Real Estate Mortgage (REM) over petitioners’ property located at 49
Greensville St., White Plains, Quezon City covered by Transfer Certificate of Title (TCT) No. RT-103568 (167394) PR-412086 of the
Register of Deeds of Quezon City.

When petitioners failed to pay the monthly amortizations due, respondent demanded the full payment of the outstanding balance with
accrued monthly interests. On September 5, 2000, petitioners received respondent’s last demand letter7 dated August 29, 2000.

As of February 23, 2001, the amount due on the two promissory notes totaled P19,201,776.63 representing the principal, interests,
penalties and attorney’s fees. On the same day, the mortgaged property was sold at public auction, with respondent as highest bidder
for the amount of P10,300,000.

On May 8, 2001, petitioners received8 a demand letter9 dated May 2, 2001 from respondent for the payment of P8,901,776.63, the
amount of deficiency after applying the proceeds of the foreclosure sale to the mortgage debt. As its demand remained unheeded,
respondent filed a collection suit in the trial court. In its Complaint,10 respondent prayed that judgment be rendered ordering the
petitioners to pay jointly and severally: (1) P8,901,776.63 representing the amount of deficiency, plus interests at the legal rate, from
February 23, 2001 until fully paid; (2) an additional amount equivalent to 1/10 of 1% per day of the total amount, until fully paid, as
penalty; (3) an amount equivalent to 10% of the foregoing amounts as attorney’s fees; and (4) expenses of litigation and costs of suit.

In their Answer,11 petitioners admitted the existence of the debt but interposed, by way of special and affirmative defense, that the
complaint states no cause of action considering that the principal of the loan was already paid when the mortgaged property was
extrajudicially foreclosed and sold for P10,300,000. Petitioners contended that should they be held liable for any deficiency, it should
be only for P55,000 representing the difference between the total outstanding obligation of P10,355,000 and the bid price of
P10,300,000. Petitioners also argued that even assuming there is a cause of action, such deficiency cannot be enforced by respondent
because it consists only of the penalty and/or compounded interest on the accrued interest which is generally not favored under the
Civil Code. By way of counterclaim, petitioners prayed that respondent be ordered to pay P100,000 in attorney’s fees and costs of suit.

At the trial, respondent presented Ms. Annabelle Cokai Yu, its Senior Loans Assistant, as witness. She testified that she handled the
account of petitioners and assisted them in processing their loan application. She called them monthly to inform them of the prevailing
rates to be used in computing interest due on their loan. As of the date of the public auction, petitioners’ outstanding balance was
P19,201,776.6312 based on the following statement of account which she prepared:

STATEMENT OF ACCOUNT
As of FEBRUARY 23, 2001
IGNACIO F. JUICO

PN# 507-0010520 due on 04-07-2004

1âwphi1
Principal balance of PN# 5070010520. . . . . . . . . . . . . . 4,139,000.00
Interest on P4,139,000.00 fr. 04-Nov-99
04-Nov-2000 366 days @ 15.00%. . . . . . . . . . . . . . . . . 622,550.96
Interest on P4,139,000.00 fr. 04-Nov-2000
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 83,346.99
Interest on P4,139,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 75,579.27
Interest on P4,139,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 68,548.64
Interest on P4,139,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 38,781.86
Penalty charge @ 1/10 of 1% of the total amount due
(P4,139,000.00 from 11-04-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 1,974,303.00
Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002,110.73
PN# 507-0010513 due on 04-07-2004
Principal balance of PN# 5070010513. . . . . . . . . . . . . . 6,216,000.00
Interest on P6,216,000.00 fr. 06-Oct-99
04-Nov-2000 395 days @ 15.00%. . . . . . . . . . . . . . . . . 1,009,035.62
13
Interest on P6,216,000.00 fr. 04-Nov-2000
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 125,171.51
Interest on P6,216,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 113,505.86
Interest on P6,216,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 102,947.18
Interest on P6,216,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 58,243.07
Penalty charge @ 1/10 of 1% of the total amount due
(P6,216,000.00 from 10-06-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,770,199.23
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,772,309.96
Less: A/P applied to balance of principal (55,000.00)
Less: Accounts payable L & D (261,149.39) 17,456,160.57
Add: 10% Attorney’s Fee 1,745,616.06
Total amount due 19,201,776.63
Less: Bid Price 10,300,000.00
TOTAL DEFICIENCY AMOUNT AS OF
FEB. 23, 2001 8,901,776.63 13
Petitioners thereafter received a demand letter14 dated May 2, 2001 from respondent’s counsel for the deficiency amount of
P8,901,776.63. Ms. Yu further testified that based on the Statement of Account15 dated March 15, 2002 which she prepared, the
outstanding balance of petitioners was P15,190,961.48.16

On cross-examination, Ms. Yu reiterated that the interest rate changes every month based on the prevailing market rate and she
notified petitioners of the prevailing rate by calling them monthly before their account becomes past due. When asked if there was any
written authority from petitioners for respondent to increase the interest rate unilaterally, she answered that petitioners signed a
promissory note indicating that they agreed to pay interest at the prevailing rate.17

Petitioner Ignacio F. Juico testified that prior to the release of the loan, he was required to sign a blank promissory note and was
informed that the interest rate on the loan will be based on prevailing market rates. Every month, respondent informs him by telephone
of the prevailing interest rate. At first, he was able to pay his monthly amortizations but when he started to incur delay in his payments
due to the financial crisis, respondent pressured him to pay in full, including charges and interests for the delay. His property was
eventually foreclosed and was sold at public auction.18

On cross-examination, petitioner testified that he is a Doctor of Medicine and also engaged in the business of distributing medical
supplies. He admitted having read the promissory notes and that he is aware of his obligation under them before he signed the same.19

In its decision, the RTC ruled in favor of respondent. The fallo of the RTC decision reads:

WHEREFORE, premises considered, the Complaint is hereby sustained, and Judgment is rendered ordering herein defendants to pay
jointly and severally to plaintiff, the following:

1. P8,901,776.63 representing the amount of the deficiency owing to the plaintiff, plus interest thereon at the legal rate after February
23, 2001;

2. An amount equivalent to 10% of the total amount due as and for attorney’s fees, there being stipulation therefor in the promissory
notes;

3. Costs of suit.

SO ORDERED.20

The trial court agreed with respondent that when the mortgaged property was sold at public auction on February 23, 2001 for
P10,300,000 there remained a balance of P8,901,776.63 since before foreclosure, the total amount due on the two promissory notes
aggregated to P19,201,776.63 inclusive of principal, interests, penalties and attorney’s fees. It ruled that the amount realized at the
auction sale was applied to the interest, conformably with Article 1253 of the Civil Code which provides that if the debt produces
interest, payment of the principal shall not be deemed to have been made until the interests have been covered. This being the case,
petitioners’ principal obligation subsists but at a reduced amount of P8,901,776.63.

14
The trial court further held that Ignacio’s claim that he signed the promissory notes in blank cannot negate or mitigate his liability
since he admitted reading the promissory notes before signing them. It also ruled that considering the substantial amount involved, it is
unbelievable that petitioners threw all caution to the wind and simply signed the documents without reading and understanding the
contents thereof. It noted that the promissory notes, including the terms and conditions, are pro forma and what appears to have been
left in blank were the promissory note number, date of the instrument, due date, amount of loan, and condition that interest will be at
the prevailing rates. All of these details, the trial court added, were within the knowledge of the petitioners.

When the case was elevated to the CA, the latter affirmed the trial court’s decision. The CA recognized respondent’s right to claim the
deficiency from the debtor where the proceeds of the sale in an extrajudicial foreclosure of mortgage are insufficient to cover the
amount of the debt. Also, it found as valid the stipulation in the promissory notes that interest will be based on the prevailing rate. It
noted that the parties agreed on the interest rate which was not unilaterally imposed by the bank but was the rate offered daily by all
commercial banks as approved by the Monetary Board. Having signed the promissory notes, the CA ruled that petitioners are bound
by the stipulations contained therein.

Petitioners are now before this Court raising the sole issue of whether the interest rates imposed upon them by respondent are valid.
Petitioners contend that the interest rates imposed by respondent are not valid as they were not by virtue of any law or Bangko Sentral
ng Pilipinas (BSP) regulation or any regulation that was passed by an appropriate government entity. They insist that the interest rates
were unilaterally imposed by the bank and thus violate the principle of mutuality of contracts. They argue that the escalation clause in
the promissory notes does not give respondent the unbridled authority to increase the interest rate unilaterally. Any change must be
mutually agreed upon.

Respondent, for its part, points out that petitioners failed to show that their case falls under any of the exceptions wherein findings of
fact of the CA may be reviewed by this Court. It contends that an inquiry as to whether the interest rates imposed on the loans of
petitioners were supported by appropriate regulations from a government agency or the Central Bank requires a reevaluation of the
evidence on records. Thus, the Court would in effect, be confronted with a factual and not a legal issue.

The appeal is partly meritorious.

The principle of mutuality of contracts is expressed in Article 1308 of the Civil Code, which provides:

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
Article 1956 of the Civil Code likewise ordains that "no interest shall be due unless it has been expressly stipulated in writing."

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising
from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential
equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is
void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is
likewise, invalid.21

Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the contracting parties. This Court has
long recognized that there is nothing inherently wrong with escalation clauses which are valid stipulations in commercial contracts to
maintain fiscal stability and to retain the value of money in long term contracts.22 Hence, such stipulations are not void per se.23

Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important modification in the agreement" is void. A stipulation of such
nature violates the principle of mutuality of contracts.24 Thus, this Court has previously nullified the unilateral determination and
imposition by creditor banks of increases in the rate of interest provided in loan contracts.25

In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the escalation clause stated: "I/We hereby authorize Banco Filipino to
correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event a law should be
enacted increasing the lawful rates of interest that may be charged on this particular kind of loan." While escalation clauses in general
are considered valid, we ruled that Banco Filipino may not increase the interest on respondent borrower’s loan, pursuant to Circular
No. 494 issued by the Monetary Board on January 2, 1976, because said circular is not a law although it has the force and effect of law
and the escalation clause has no provision for reduction of the stipulated interest "in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board" (de-escalation clause).

Subsequently, in Insular Bank of Asia and America v. Spouses Salazar27 we reiterated that escalation clauses are valid stipulations
but their enforceability are subject to certain conditions. The increase of interest rate from 19% to 21% per annum made by petitioner
bank was disallowed because it did not comply with the guidelines adopted by the Monetary Board to govern interest rate adjustments
by banks and non-banks performing quasi-banking functions.
15
In the 1991 case of Philippine National Bank v. Court of Appeals,28 the promissory notes authorized PNB to increase the stipulated
interest per annum "within the limits allowed by law at any time depending on whatever policy PNB may adopt in the future;
Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate
is reduced by law or by the Monetary Board." This Court declared the increases (from 18% to 32%, then to 41% and then to 48%)
unilaterally imposed by PNB to be in violation of the principle of mutuality essential in contracts.29

A similar ruling was made in a 1994 case30 also involving PNB where the credit agreement provided that "PNB reserves the right to
increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future:
Provided, that the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable maximum
interest is reduced by law or by the Monetary Board x x x".

Again, in 1996, the Court invalidated escalation clauses authorizing PNB to raise the stipulated interest rate at any time without notice,
within the limits allowed by law. The Court observed that there was no attempt made by PNB to secure the conformity of respondent
borrower to the successive increases in the interest rate. The borrower’s assent to the increases cannot be implied from their lack of
response to the letters sent by PNB, informing them of the increases.31

In the more recent case of Philippine Savings Bank v. Castillo,32 we sustained the CA in declaring as unreasonable the following
escalation clause: "The rate of interest and/or bank charges herein stipulated, during the terms of this promissory note, its extensions,
renewals or other modifications, may be increased, decreased or otherwise changed from time to time within the rate of interest and
charges allowed under present or future law(s) and/or government regulation(s) as the PSBank may prescribe for its debtors." Clearly,
the increase or decrease of interest rates under such clause hinges solely on the discretion of petitioner as it does not require the
conformity of the maker before a new interest rate could be enforced. We also said that respondents’ assent to the modifications in the
interest rates cannot be implied from their lack of response to the memos sent by petitioner, informing them of the amendments, nor
from the letters requesting for reduction of the rates. Thus:

… the validity of the escalation clause did not give petitioner the unbridled right to unilaterally adjust interest rates. The adjustment
should have still been subjected to the mutual agreement of the contracting parties. In light of the absence of consent on the part of
respondents to the modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the inclusion of a de-
escalation clause in the loan agreement.33

It is now settled that an escalation clause is void where the creditor unilaterally determines and imposes an increase in the stipulated
rate of interest without the express conformity of the debtor. Such unbridled right given to creditors to adjust the interest
independently and upwardly would completely take away from the debtors the right to assent to an important modification in their
agreement and would also negate the element of mutuality in their contracts.34 While a ceiling on interest rates under the Usury Law
was already lifted under Central Bank Circular No. 905, nothing therein "grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their assets."35

The two promissory notes signed by petitioners provide:

I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case may be, the interest rate/service
charge presently stipulated in this note without any advance notice to me/us in the event a law or Central Bank regulation is passed or
promulgated by the Central Bank of the Philippines or appropriate government entities, increasing or decreasing such interest rate or
service charge.36

Such escalation clause is similar to that involved in the case of Floirendo, Jr. v. Metropolitan Bank and Trust Company37 where this
Court ruled:

The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise change from time to time the rate
of interest and/or bank charges "without advance notice" to petitioner, "in the event of change in the interest rate prescribed by law or
the Monetary Board of the Central Bank of the Philippines," does not give respondent bank unrestrained freedom to charge any rate
other than that which was agreed upon. Here, the monthly upward/downward adjustment of interest rate is left to the will of
respondent bank alone. It violates the essence of mutuality of the contract.38

More recently in Solidbank Corporation v. Permanent Homes, Incorporated,39 we upheld as valid an escalation clause which required
a written notice to and conformity by the borrower to the increased interest rate. Thus:

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the
Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These circulars removed the ceiling on
interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on
16
any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are
bound to take into account. Although interest rates are no longer subject to a ceiling, the lender still does not have an unbridled license
to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in
writing.

The three promissory notes between Solidbank and Permanent all contain the following provisions:

"5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate agreed in this Note or Loan on the basis
of, among others, prevailing rates in the local or international capital markets. For this purpose, We/I authorize Solidbank to debit any
deposit or placement account with Solidbank belonging to any one of us. The adjustment of the interest rate shall be effective from the
date indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent.

6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due under this Note or Loan within thirty (30)
days from the receipt by anyone of us of the written notice. Otherwise, We/I shall be deemed to have given our consent to the interest
rate adjustment."

The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said stipulations; (2) repricing takes
effect only upon Solidbank’s written notice to Permanent of the new interest rate; and (3) Permanent has the option to prepay its loan
if Permanent and Solidbank do not agree on the new interest rate. The phrases "irrevocably authorize," "at any time" and "adjustment
of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no date is indicated, from
the time the notice was sent," emphasize that Permanent should receive a written notice from Solidbank as a condition for the
adjustment of the interest rates. (Emphasis supplied.)

In this case, the trial and appellate courts, in upholding the validity of the escalation clause, underscored the fact that there was
actually no fixed rate of interest stipulated in the promissory notes as this was made dependent on prevailing rates in the market. The
subject promissory notes contained the following condition written after the first paragraph:

With one year grace period on principal and thereafter payable in 54 equal monthly instalments to start on the second year. Interest at
the prevailing rates payable quarterly in arrears.40

In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder assailed the trial and appellate courts in ruling for the validity of the
escalation clause in the Cardholder’s Agreement. On petitioner’s contention that the interest rate was unilaterally imposed and based
on the standards and rate formulated solely by respondent credit card company, we held:

The contractual provision in question states that "if there occurs any change in the prevailing market rates, the new interest rate shall
be the guiding rate in computing the interest due on the outstanding obligation without need of serving notice to the Cardholder other
than the required posting on the monthly statement served to the Cardholder." This could not be considered an escalation clause for
the reason that it neither states an increase nor a decrease in interest rate. Said clause simply states that the interest rate should be
based on the prevailing market rate.

Interpreting it differently, while said clause does not expressly stipulate a reduction in interest rate, it nevertheless provides a leeway
for the interest rate to be reduced in case the prevailing market rates dictate its reduction.

Admittedly, the second paragraph of the questioned proviso which provides that "the Cardholder hereby authorizes Security Diners to
correspondingly increase the rate of such interest in the event of changes in prevailing market rates x x x" is an escalation clause.
However, it cannot be said to be dependent solely on the will of private respondent as it is also dependent on the prevailing market
rates.

Escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative but based on reasonable
and valid grounds. Obviously, the fluctuation in the market rates is beyond the control of private respondent.42 (Emphasis supplied.)

In interpreting a contract, its provisions should not be read in isolation but in relation to each other and in their entirety so as to render
them effective, having in mind the intention of the parties and the purpose to be achieved. The various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.43

Here, the escalation clause in the promissory notes authorizing the respondent to adjust the rate of interest on the basis of a law or
regulation issued by the Central Bank of the Philippines, should be read together with the statement after the first paragraph where no
rate of interest was fixed as it would be based on prevailing market rates. While the latter is not strictly an escalation clause, its clear
import was that interest rates would vary as determined by prevailing market rates. Evidently, the parties intended the interest on
petitioners’ loan, including any upward or downward adjustment, to be determined by the prevailing market rates and not dictated by
17
respondent’s policy. It may also be mentioned that since the deregulation of bank rates in 1983, the Central Bank has shifted to a
market-oriented interest rate policy.44

There is no indication that petitioners were coerced into agreeing with the foregoing provisions of the promissory notes. In fact,
petitioner Ignacio, a physician engaged in the medical supply business, admitted having understood his obligations before signing
them. At no time did petitioners protest the new rates imposed on their loan even when their property was foreclosed by respondent.

This notwithstanding, we hold that the escalation clause is still void because it grants respondent the power to impose an increased rate
of interest without a written notice to petitioners and their written consent. Respondent’s monthly telephone calls to petitioners
advising them of the prevailing interest rates would not suffice. A detailed billing statement based on the new imposed interest with
corresponding computation of the total debt should have been provided by the respondent to enable petitioners to make an informed
decision. An appropriate form must also be signed by the petitioners to indicate their conformity to the new rates. Compliance with
these requisites is essential to preserve the mutuality of contracts. For indeed, one-sided impositions do not have the force of law
between the parties, because such impositions are not based on the parties’ essential equality.45

Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of an agreement between the parties.
Unless such important change in the contract terms is mutually agreed upon, it has no binding effect.46 In the absence of consent on
the part of the petitioners to the modifications in the interest rates, the adjusted rates cannot bind them. Hence, we consider as invalid
the interest rates in excess of 15%, the rate charged for the first year.

Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal obligation under the two promissory notes
which they failed to settle is P10,355,000. However, due to China Bank’s unilateral increases in the interest rates from 15% to as high
as 24.50% and penalty charge of 1/10 of 1% per day or 36.5% per annum for the period November 4, 1999 to February 23, 2001,
petitioners’ balance ballooned to P19,201,776.63. Note that the original amount of principal loan almost doubled in only 16 months.
The Court also finds the penalty charges imposed excessive and arbitrary, hence the same is hereby reduced to 1% per month or 12%
per annum.1âwphi1

Petitioners’ Statement of Account, as of February 23, 2001, the date of the foreclosure proceedings, should thus be modified as
follows:

Principal P10,355,000.00
Interest at 15% per annum
P10,355,000 x .15 x 477 days/365 days 2,029,863.70
Penalty at 12% per annum 1,623 ,890. 96
P10,355,000 x .12 x 477days/365 days
Sub-Total 14,008,754.66
Less: A/P applied to balance of principal (55,000.00)
Less: Accounts payable L & D (261,149.39)
13,692,605.27
Add: Attorney's Fees 1,369,260.53
Total Amount Due 15,061,865.79
Less: Bid Price 10,300,000.00
TOTAL DEFICIENCY AMOUNT
4,761,865.79
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The February 20, 2009 · Decision and April 27, 2009
Resolution of the Court of Appeals in CA G.R. CV No. 80338 are hereby MODIFIED. Petitioners Spouses Ignacio F. Juico and Alice
P. Juico are hereby ORDERED to pay jointly and severally respondent China Banking Corporation P4, 7 61 ,865. 79 representing the
amount of deficiency inclusive of interest, penalty charge and attorney's fees. Said amount shall bear interest at 12% per annum,
reckoned from the time of the filing of the complaint until its full satisfaction.

No pronouncement as to costs.

SO ORDERED.

PNB vs MANALO

BERSAMIN, J.:

Although banks are free to determine the rate of interest they could impose on their borrowers, they can do so only reasonably, not
arbitrarily. They may not take advantage of the ordinary borrowers' lack of familiarity with banking procedures and jargon. Hence,
18
any stipulation on interest unilaterally imposed and increased by them shall be struck down as violative of the principle of mutuality of
contracts.

Antecedents

Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo) applied for an All-Purpose Credit Facility in the
amount of P1,000,000.00 with Philippine National Bank (PNB) to finance the construction of their house. After PNB granted their
application, they executed a Real Estate Mortgage on November 3, 1993 in favor of PNB over their property covered by Transfer
Certificate of Title No. S- 23191 as security for the loan.1 The credit facility was renewed and increased several times over the years.
On September 20, 1996, the credit facility was again renewed for P7,000,000.00. As a consequence, the parties executed a Supplement
to and Amendment of Existing Real Estate Mortgage whereby the property covered by TCT No. 171859 was added as security for the
loan.

The additional security was registered in the names of respondents Arnold, Arnel, Anthony, and Arma, all surnamed Manalo, who
were their children.2

It was agreed upon that the Spouses Manalo would make monthly payments on the interest. However, PNB claimed that their last
recorded payment was made on December, 1997. Thus, PNB sent a demand letter to them on their overdue account and required them
to settle the account. PNB sent another demand letter because they failed to heed the first demand.3

After the Spouses Manalo still failed to settle their unpaid account despite the two demand letters, PNB foreclose the mortgage.
During the foreclosure sale, PNB was the highest bidder for P15,127,000.00 of the mortgaged properties of the Spouses Manalo. The
sheriff issued to PNB the Certificate of Sale dated November 13, 2000.4

After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo instituted this action for the
nullification of the foreclosure proceedings and damages. They alleged that they had obtained a loan for P1,000,000.00 from a certain
Benito Tan upon arrangements made by Antoninus Yuvienco, then the General Manager of PNB’s Bangkal Branch where they had
transacted; that they had been made to understand and had been assured that the P1,000,000.00 would be used to update their account,
and that their loan would be restructured and converted into a long-term loan;5 that they had been surprised to learn, therefore, that
had been declared in default of their obligations, and that the mortgage on their property had been foreclosed and their property had
been sold; and that PNB did not comply with Section 3 of Act No. 3135, as amended.6

PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan obtained by the Spouses Manalo from Benito Tan had been
credited to their account; that they did not make any assurances on the restructuring and conversion of the Spouses Manalo’s loan into
a long-term one;7 that PNB’s right to foreclose the mortgage had been clear especially because the Spouses Manalo had not assailed
the validity of the loans and of the mortgage; and that the Spouses Manalo did not allege having fully paid their indebtedness.8

Ruling ofthe RTC

After trial, the RTC rendered its decision in favor of PNB, holding thusly:

In resolving this present case, one of the most significant matters the court has noted is that while during the pre-trial held on 8
September 2003, plaintiff-spouses Manalo with the assistance counsel had agreed to stipulate that defendants had the right to foreclose
upon the subject properties and that the plaintiffs[‘] main thrust was to prove that the foreclosure proceedings were invalid, in the
course of the presentation of their evidence, they modified their position and claimed [that] the loan document executed were contracts
of adhesion which were null and void because they were prepared entirely under the defendant bank’s supervision. They also
questioned the interest rates and penalty charges imposed arguing that these were iniquitous, unconscionable and therefore likewise
void.

Not having raised the foregoing matters as issues during the pre-trial, plaintiff-spouses are presumably estopped from allowing these
matters to serve as part of their evidence, more so because at the pre-trial they expressly recognized the defendant bank’s right to
foreclose upon the subject property (See Order, pp. 193-195).

However, considering that the defendant bank did not interpose any objection to these matters being made part of plaintiff’s evidence
so much so that their memorandum contained discussions rebutting plaintiff spouses arguments on these issues, the court must
necessarily include these matters in the resolution of the present case.9

The RTC held, however, that the Spouses Manalo’s "contract of adhesion" argument was unfounded because they had still accepted
the terms and conditions of their credit agreement with PNB and had exerted efforts to pay their obligation;10 that the Spouses
Manalo were now estopped from questioning the interest rates unilaterally imposed by PNB because they had paid at those rates for
19
three years without protest;11 and that their allegation about PNB violating the notice and publication requirements during the
foreclosure proceedings was untenable because personal notice to the mortgagee was not required under Act No. 3135.12

The Spouses Manalo appealed to the CA by assigning a singular error, as follows:

THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF-APPELLANTS’ COMPLAINT FOR BEING (sic)
LACK OF MERIT NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY SHOWN THAT THE FORECLOSURE
PROCEEDINGS WAS INVALID AND ILLEGAL.13

The Spouses Manalo reiterated their arguments, insisting that: (1) the credit agreements they entered into with PNB were contracts of
adhesion;14 (2) no interest was due from them because their credit agreements with PNB did not specify the interest rate, and PNB
could not unilaterally increase the interest rate without first informing them;15 and (3) PNB did not comply with the notice and
publication requirements under Section 3 of Act 3135.16 On the other hand, PNB and Yuvienco did not file their briefs despite
notice.17

Ruling ofthe CA

In its decision promulgated on March 28, 2006,18 the CA affirmed the decision of the RTC insofar as it upheld the validity of the
foreclosure proceedings initiated by PNB, but modified the Spouses Manalo’s liability for interest. It directed the RTC to see to the
recomputation of their indebtedness, and ordered that should the recomputed amount be less than the winning bid in the foreclosure
sale, the difference should be immediately returned to the Spouses Manalo.

The CA found it necessary to pass upon the issues of PNB’s failure to specify the applicable interest and the lack of mutuality in the
execution of the credit agreements considering the earlier cited observation made by the trial court in its decision. Applying Article
1956 of the Civil Code, the CA held that PNB’s failure to indicate the rate of interest in the credit agreements would not excuse the
Spouses Manalo from their contractual obligation to pay interest to PNB because of the express agreement to pay interest in the credit
agreements. Nevertheless, the CA ruled that PNB’s inadvertence to specify the interest rate should be construed against it because the
credit agreements were clearly contracts of adhesion due to their having been prepared solely by PNB.

The CA further held that PNB could not unilaterally increase the rate of interest considering that the credit agreements specifically
provided that prior notice was required before an increase in interest rate could be effected. It found that PNB did not adduce proof
showing that the Spouses Manalo had been notified before the increased interest rates were imposed; and that PNB’s unilateral
imposition of the increased interest rate was null and void for being violative of the principle of mutuality of contracts enshrined in
Article 1308 of the Civil Code. Reinforcing its "contract of adhesion" conclusion, it added that the Spouses Manalo’s being in dire
need of money rendered them to be not on an equal footing with PNB. Consequently, the CA, relying on Eastern Shipping Lines, v.
Court of Appeals,19 fixed the interest rate to be paid by the Spouses Manalo at 12% per annum, computed from their default.

The CA deemed to be untenable the Spouses Manalo’s allegation that PNB had failed to comply with the requirements for notice and
posting under Section 3 of Act 3135. The CA stated that Sheriff Norberto Magsajo’s testimony was sufficient proof of his posting of
the required Notice of Sheriff’s Sale in three public places; that the notarized Affidavit of Publication presented by Sheriff Magsajo
was prima facie proof of the publication of the notice; and that the Affidavit of Publication enjoyed the presumption of regularity, such
that the Spouses Manalo’s bare allegation of non-publication without other proof did not overcome the presumption.

On August 29, 2006, the CA denied the Spouses Manalo’s Motion for Reconsideration and PNB’s Partial Motion for
Reconsideration.20

Issues

In its Memorandum,21 PNB raises the following issues:

WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN NULLIFYING THE INTEREST RATES IMPOSED ON
RESPONDENT SPOUSES’ LOAN AND IN FIXING THE SAME AT TWELVE PERCENT (12%) FROM DEFAULT, DESPITE
THE FACT THAT (i) THE SAME WAS RAISED BY THE RESPONDENTS ONLY FOR THE FIRST TIME ON APPEAL (ii) IT
WAS NEVER PART OF THEIR COMPLAINT (iii) WAS EXLUDED AS AN ISSUE DURING PRE-TRIAL, AND WORSE, (iv)
THERE WAS NO FORMALLY OFFERED PERTAINING TO THE SAME DURING TRIAL.

II

20
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THERE WAS NO MUTUALITY OF CONSENT
IN THE IMPOSITION OF INTEREST RATES ON THE RESPONDENT SPOUSES’ LOAN DESPITE THE EXISTENCE OF
FACTS AND CIRCUMSTANCES CLEARLY SHOWING RESPONDENTS’ ASSENT TO THE RATES OF INTEREST SO
IMPOSED BY PNB ON THE LOAN.

Anent the first issue, PNB argues that by passing upon the issue of the validity of the interest rates, and in nullifying the rates imposed
on the Spouses Manalo, the CA decided the case in a manner not in accord with Section 15, Rule 44 of the Rules of Court, which
states that only questions of law or fact raised in the trial court could be assigned as errors on appeal; that to allow the Spouses Manalo
to raise an issue for the first time on appeal would "offend the basic rules of fair play, justice and due process;"22 that the resolution of
the CA was limited to the issues agreed upon by the parties during pre-trial;23 that the CA erred in passing upon the validity of the
interest rates inasmuch as the Spouses Manalo did not present evidence thereon; and that the Judicial Affidavit of Enrique Manalo, on
which the CA relied for its finding, was not offered to prove the invalidity of the interest rates and was, therefore, inadmissible for that
purpose.24

As to the substantive issues, PNB claims that the Spouses Manalo’s continuous payment of interest without protest indicated their
assent to the interest rates imposed, as well as to the subsequent increases of the rates; and that the CA erred in declaring that the
interest rates and subsequent increases were invalid for lack of mutuality between the contracting parties.

Ruling

The appeal lacks merit.

1.
Procedural Issue

Contrary to PNB’s argument, the validity of the interest rates and of the increases, and on the lack of mutuality between the parties
were not raised by the Spouses Manalo’s for the first time on appeal. Rather, the issues were impliedly raised during the trial itself,
and PNB’s lack of vigilance in voicing out a timely objection made that possible.

It appears that Enrique Manalo’s Judicial Affidavit introduced the issues of the validity of the interest rates and the increases, and the
lack of mutuality between the parties in the following manner, to wit:

5. True to his words, defendant Yuvienco, after several days, sent us a document through a personnel of defendant PNB, Bangkal,
Makati City Branch, who required me and my wife to affix our signature on the said document;

6. When the document was handed over me, I was able to know that it was a Promissory Note which was in ready made form and
prepared solely by the defendant PNB;

xxxx

21. As above-noted, the rates of interest imposed by the defendant bank were never the subject of any stipulation between us
mortgagors and the defendant PNB as mortgagee;

22. The truth of the matter is that defendant bank imposed rate of interest which ranges from 19% to as high as 28% and which
changes from time to time;

23. The irregularity, much less the invalidity of the imposition of iniquitous rates of interest was aggravated by the fact that we were
not informed, notified, nor the same had our prior consent and acquiescence therefor. x x x25

PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no showing that PNB raised any objection in the course of
the cross examination.26 Consequently, the RTC rightly passed upon such issues in deciding the case, and its having done so was in
total accord with Section 5, Rule 10 of the Rules of Court, which states:

Section 5. Amendment to conform to or authorize presentation of evidence. – When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice
will be subserved thereby. The court may grant a continuance to enable the amendment to be made.
21
In Bernardo Sr. v. Court of Appeals,27 we held that:

It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces
sufficient evidence to constitute the particular cause of action which it intended to allege in the original complaint, and the defendant
voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had
been previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.

The RTC did not need to direct the amendment of the complaint by the Spouses Manalo. Section 5, Rule 10 of the Rules of Court
specifically declares that the "failure to amend does not affect the result of the trial of these issues." According to Talisay-Silay
Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc.:28

The failure of a party to amend a pleading to conform to the evidence adduced during trial does not preclude an adjudication by the
court on the basis of such evidence which may embody new issues not raised in the pleadings, or serve as a basis for a higher award of
damages. Although the pleading may not have been amended to conform to the evidence submitted during trial, judgment may
nonetheless be rendered, not simply on the basis of the issues alleged but also on the basis of issues discussed and the assertions of
fact proved in the course of trial.1âwphi1 The court may treat the pleading as if it had been amended to conform to the evidence,
although it had not been actually so amended. Former Chief Justice Moran put the matter in this way:

When evidence is presented by one party, with the expressed or implied consent of the adverse party, as to issues not alleged in the
pleadings, judgment may be rendered validly as regards those issues, which shall be considered as if they have been raised in the
pleadings. There is implied, consent to the evidence thus presented when the adverse party fails to object thereto." (Emphasis
supplied)

Clearly, a court may rule and render judgment on the basis of the evidence before it even though the relevant pleading had not been
previously amended, so long as no surprise or prejudice is thereby caused to the adverse party. Put a little differently, so long as the
basic requirements of fair play had been met, as where litigants were given full opportunity to support their respective contentions and
to object to or refute each other's evidence, the court may validly treat the pleadings as if they had been amended to conform to the
evidence and proceed to adjudicate on the basis of all the evidence before it.

There is also no merit in PNB’s contention that the CA should not have considered and ruled on the issue of the validity of the interest
rates because the Judicial Affidavit of Enrique Manalo had not been offered to prove the same but only "for the purpose of identifying
his affidavit."29 As such, the affidavit was inadmissible to prove the nullity of the interest rates.

We do not agree.

Section 5, Rule 10 of the Rules of Court is applicable in two situations.1âwphi1 The first is when evidence is introduced on an issue
not alleged in the pleadings and no objection is interposed by the adverse party. The second is when evidence is offered on an issue
not alleged in the pleadings but an objection is raised against the offer.30 This case comes under the first situation. Enrique Manalo’s
Judicial Affidavit would introduce the very issues that PNB is now assailing. The question of whether the evidence on such issues was
admissible to prove the nullity of the interest rates is an entirely different matter. The RTC accorded credence to PNB’s evidence
showing that the Spouses Manalo had been paying the interest imposed upon them without protest. On the other hand, the CA’s
nullification of the interest rates was based on the credit agreements that the Spouses Manalo and PNB had themselves submitted.

Based on the foregoing, the validity of the interest rates and their increases, and the lack of mutuality between the parties were issues
validly raised in the RTC, giving the Spouses Manalo every right to raise them in their appeal to the CA. PNB’s contention was based
on its wrong appreciation of what transpired during the trial. It is also interesting to note that PNB did not itself assail the RTC’s
ruling on the issues obviously because the RTC had decided in its favor. In fact, PNB did not even submit its appellee’s brief despite
notice from the CA.

2.
Substantive Issue

The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a rate "determined by the Bank to be
its prime rate plus applicable spread, prevailing at the current month."31 This stipulation was carried over to or adopted by the
subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole prerogative to determine and increase the
interest rates imposed on the Spouses Manalo. Such a unilateral determination of the interest rates contravened the principle of
mutuality of contracts embodied in Article 1308 of the Civil Code.32

22
The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a contract of
adhesion,33 and any obscurity will be construed against the party who prepared the contract, the latter being presumed the stronger
party to the agreement, and who caused the obscurity.34 PNB should then suffer the consequences of its failure to specifically indicate
the rates of interest in the credit agreement. We spoke clearly on this in Philippine Savings Bank v. Castillo,35 to wit:

The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Article
1308 of the Civil Code, which provides that ‘[t]he contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them.’ A perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges
solely on the discretion of petitioner. It does not require the conformity of the maker before a new interest rate could be enforced. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result, thus partaking of
the nature of a contract of adhesion, is void. Any stipulation regarding the validity or compliance of the contract left solely to the will
of one of the parties is likewise invalid. (Emphasis supplied)

PNB could not also justify the increases it had effected on the interest rates by citing the fact that the Spouses Manalo had paid the
interests without protest, and had renewed the loan several times. We rule that the CA, citing Philippine National Bank v. Court of
Appeals,36 rightly concluded that "a borrower is not estopped from assailing the unilateral increase in the interest made by the lender
since no one who receives a proposal to change a contract, to which he is a party, is obliged to answer the same and said party’s
silence cannot be construed as an acceptance thereof."37

Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided that prior notice would be necessary
before PNB could increase the interest rates. In failing to notify the Spouses Manalo before imposing the increased rates of interest,
therefore, PNB violated the stipulations of the very contract that it had prepared. Hence, the varying interest rates imposed by PNB
have to be vacated and declared null and void, and in their place an interest rate of 12% per annum computed from their default is
fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.38

The CA’s directive to PNB (a) to recompute the Spouses Manalo’s indebtedness under the oversight of the RTC; and (b) to refund to
them any excess of the winning bid submitted during the foreclosure sale over their recomputed indebtedness was warranted and
equitable. Equally warranted and equitable was to make the amount to be refunded, if any, bear legal interest, to be reckoned from the
promulgation of the CA’s decision on March 28, 2006.39 Indeed, the Court said in Eastern Shipping Lines, Inc. v. Court of Appeals40
that interest should be computed from the time of the judicial or extrajudicial demand. However, this case presents a peculiar situation,
the peculiarity being that the Spouses Manalo did not demand interest either judicially or extrajudicially. In the RTC, they specifically
sought as the main reliefs the nullification of the foreclosure proceedings brought by PNB, accounting of the payments they had made
to PNB, and the conversion of their loan into a long term one.41 In its judgment, the RTC even upheld the validity of the interest rates
imposed by PNB.42 In their appellant’s brief, the Spouses Manalo again sought the nullification of the foreclosure proceedings as the
main relief.43 It is evident, therefore, that the Spouses Manalo made no judicial or extrajudicial demand from which to reckon the
interest on any amount to be refunded to them. Such demand could only be reckoned from the promulgation of the CA’s decision
because it was there that the right to the refund was first judicially recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc.
v. Court of Appeals,44 the amount to be refunded and the interest thereon should earn interest to be computed from the finality of the
judgment until the full refund has been made.

Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in Nacar v. Gallery Frames45 and
S.C. Megaworld Construction v. Parada,46 already applied Monetary Board Circular No. 799 by reducing the interest rates allowed in
judgments from 12% per annum to 6% per annum.47 According to Nacar v. Gallery Frames, MB Circular No. 799 is applied
prospectively, and judgments that became final and executory prior to its effectivity on July 1, 2013 are not to be disturbed but
continue to be implemented applying the old legal rate of 12% per annum. Hence, the old legal rate of 12% per annum applied to
judgments becoming final and executory prior to July 1, 2013, but the new rate of 6% per annum applies to judgments becoming final
and executory after said dater.

Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, therefore, the proper interest rates to be
imposed in the present case are as follows:

1. Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per annum computed from March 28, 2006, the date
of the promulgation of the CA decision, until June 30, 2013; and 6% per annum computed from July 1, 2013 until finality of this
decision; and

2. The amount to be refunded and its accrued interest shall earn interest of 6% per annum until full refund.

WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of Appeals on March 28, 2006 in CA-G.R. CV No.
84396, subject to the MODIFICATION that any amount to be refunded to the respondents shall bear interest of 12% per annum
computed from March 28, 2006 until June 30, 2013, and 6% per annum computed from July 1, 2013 until finality hereof; that the
23
amount to be refunded and its accrued interest shall earn interest at 6o/o per annum until full refund; and DIRECTS the petitioner to
pay the costs of suit.

SO ORDERED.

BALUYOT vs CA

MENDOZA, J.:

This is a petition for review of the decision of the Court of Appeals, dated November 24, 1995, setting aside an order of the Regional
Trial Court of Quezon City, Branch 89, and dismissing the complaint filed by petitioners against private respondents University of the
Philippines and the Quezon City government.

The facts are as follows:

Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio, Rolando Gonzales, and Fortunato Fulgencio are residents of Barangay
Cruz-na-Ligas,[1] Diliman, Quezon City. The Cruz-na-Ligas Homesite Association, Inc. is a non-stock corporation of which
petitioners and other residents of Barangay Cruz-na-Ligas are members. On March 13, 1992, petitioners filed a complaint for specific
performance and damages against private respondent University of the Philippines before the Regional Trial Court of Quezon City,
docketed as Civil Case No. Q-92-11663. The complaint was later on amended to include private respondent Quezon City government
as defendant. As amended, the complaint alleges:[2]

5. That plaintiffs and their ascendants have been in open, peaceful, adverse and continuous possession in the concept of an owner
since memory can no longer recall of that parcel of riceland known [as] Sitio Libis, Barrio Cruz-na-Ligas, Quezon City (now Diliman,
Quezon City), as delineated in the Plan herein attached as Annex B while the members of the plaintiff Association and their
ascendants have possessed since time immemorial openly, adversely, continuously and also in the concept of an owner, the rest of the
area embraced by and within the Barrio Cruz-na-Ligas, Diliman, Quezon City as shown in that Plan herein attached as Annex C all in
all consisting of at least forty (42) hectares;

6. That since October 1972, the claims of the plaintiffs and/or members of plaintiff Association have been the subject of quasi-judicial
proceedings and administrative investigations in the different branches of the government penultimately resulting in the issuance of
that Indorsement dated May 7, 1975 by the Bureau of Lands, a copy of which is made an integral part of Annex D, and ultimately, in
the issuance of the Indorsement of February 12, 1985, by the office of the President of the Republic of the Philippines, a copy of
which is herein attached as Annex E confirming the rights of the bonafide residents of Barrio Cruz-na-Ligas to the parcel of land they
have been possessing or occupying as originally found and recommended in that Brief dated November 2, 1972 and Recommendation
dated November 7, 1972, copies of which are made integral parts hereof as Annexes F and G;

7. That defendant UP, pursuant to the said Indorsement (Annex E) from the Office of the President of the Republic of the Philippines,
issued that Reply Indorsement dated September 19, 1984, a copy of which is herein attached as Annex H, pertinent portion of which is
quoted as follows:

2. In 1979, the U.P. Board of Regents approved the donation of about 9.2 hectares of the site, directly to the residents of Brgy. Krus
Na Ligas. After several negotiations with the residents, the area was increased to 15.8 hectares (158,379 square meters); (underscoring
supplied)

3. Notwithstanding the willingness of U.P. to proceed with the donation, Execution of the legal instrument to formalize it failed
because of the unreasonable demand of the residents for an area bigger than 15.8 hectares.

8. That upon advise of counsel and close study of the said offer of defendant UP to donate 15.8379 hectares, plaintiff Association
proposed to accept and the defendant UP manifested in writing [its] consent to the intended donation directly to the plaintiff
Association for the benefit of the bonafide residents of Barrio Cruz-na-Ligas and plaintiffs Association have agreed to comply with
the terms and conditions of the donation;

9. That, however, defendant UP backed-out from the arrangement to donate directly to the plaintiff Association for the benefit of the
qualified residents and high-handedly resumed to negotiate the donation thru the defendant Quezon City Government under the terms
disadvantageous or contrary to the rights of the bonafide residents of the Barrio as shown in the Draft of Deed of Donation herein
attached as Annex I;

10. That plaintiff Association forthwith amended [its] petition in the pending case LRC No. 3151 before Branch 100 of the Regional
Trial Court of Quezon City by adding the additional cause of action for specific performance aside from the exclusion from the
24
technical description of certificate of title of defendant UP the area embraced in the Barrio Cruz-na-Ligas, consisting of at least forty-
two (42) hectares, more or less, and praying in the said Amended Petition for a writ of preliminary injunction to restrain defendant UP
from donating the area to the defendant Quezon City Government, a copy of the said Amended Petition is herein attached as Annex J;

11. That, after due notice and hearing, the application for writ of injunction as well as the opposition of defendant UP, the Order dated
January 24, 1986 granting the writ of preliminary injunction was issued, a copy of which is herein attached as Annex K;

12. That in the hearing of the Motion for Reconsideration filed by defendant UP, a copy of the said Motion for Reconsideration is
herein attached as Annex L, plaintiff Association finally agreed to the lifting of the said Order (Annex K) granting the injunction after
defendant UP made an assurance in their said Motion for Reconsideration that the donation to the defendant Quezon City Government
will be for the benefit of the residents of Cruz-Na-Ligas as shown in the following:

6. The execution of the Deed of Donation in favor of the Quezon City government will not work any injustice to the petitioners.

As well stated in Respondents Opposition to the Prayer for Issuance of a Writ of Preliminary Injunction, it is to the best interest of the
Petitioners that such a deed be executed.

The plan to donate said property to the residents of Bgy. Krus-na-Ligas, that is, through the Quezon City government, is to their best
interests. Left alone, the present land and physical development of the area leaves much to be desired. Road and drainage networks
have to be constructed, water and electric facilities installed, and garbage collection provided for. The residents, even collectively, do
not have the means and resources to provide for themselves such basis facilities which are necessary if only to upgrade their living
condition.

Should the proposed donation push through, the residents would be the first to benefit. thus, Branch 100 of this Honorable Court
issued that Order dated April 2, 1986, lifting the injunction, a copy of which is hereby attached as Annex M;

13. That, however, defendant UP took exception to the aforesaid Order lifting the Order of Injunction and insisted [on] the dismissal
of the case; thus, it was stated that:

2. Respondent has consistently taken the position that efforts to expedite the formalization of a Deed of Donation for the benefit of the
residents of Barangay Kruz-na-Ligas should not only be pre-conditioned on the lifting of the Writ of Preliminary Injunction, but also
the dismissal of the Petition;

in defendant UPs Motion for Reconsideration of the Order dated April 2, 1986, a copy of the said Motion is herein attached as Annex
N;

14. That plaintiff Association in [its] Comment on the Motion for Reconsideration of the Order dated April 2, 1986, filed on June 2,
1986, manifested [its] willingness to the dismissal of the case, aside from [its] previous consent to the lifting of the preliminary
injunction; provided, that the area to be donated thru the defendant Quezon City government be subdivided into lots to be given to the
qualified residents together with the certificate of titles, without cost, a copy of the said Comment is hereby attached as Annex O;

15. That, that was why, in the hearing re-scheduled on June 13, 1986 of defendant UPs Motion for Reconsideration of the Order dated
April 2, 1986 (Annex N), the Order dated June 13, 1986, was issued, the full text of which is quoted as follows:

After hearing the manifestation of Atty. Angeles for the petitioners and Atty. Raval for the respondent University of the Philippines,
since the petitioners counsel was the first to make a manifestation that this case which is now filed before this court should be
dismissed first without prejudice but because of the vehement objection of the University of the Philippines, thru counsel, that a
dismissal without prejudice creates a cloud on the title of the University of the Philippines and even with or without this case filed, the
University of the Philippines has already decided to have the property subject of litigation donated to the residents of Cruz-na-Ligas
with, of course, the conditions set therein, let this case be DISMISSED without pronouncement as to cost.

As to the charging lien filed by Petitioners thru counsel, it will be a sole litigation between the petitioners and the oppositors both
represented by counsel, with the University of the Philippines being neutral in this case.

and a copy of the said Order is herein attached as Annex P;

16. That, true to [its] commitment stated in the aforesaid Order of June 13, 1986, defendant UP executed that Deed of Donation on
August 5, 1986, in favor of the defendant Quezon City Government for the benefit of the qualified residents of Cruz-na-Ligas;
however, neither the plaintiffs herein nor plaintiff Association officers had participated in any capacity in the act of execution of the
said deed of donation, a copy of the said executed Deed of Donation is herein attached as Annex Q;
25
17. That under the said deed of donation, the 15.8379 hectares were ceded, transferred and conveyed and the defendant Quezon City
Government accepted the Donation under the terms and conditions, pertinent portions of which are quoted as follows:

This donation is subject to the following conditions:

xxx

2. The DONEE shall, within eighteen (18) months from the signing hereof, undertake at its expense the following:

a. Cause the removal of structures built on the boundaries of the donated lot;

b. Relocate inside the donated lot all families who are presently outside of the donated lot;

c. Relocate all families who cannot be relocated within the boundaries of the donated lot to a site outside of the University of the
Philippines campus in Diliman, Quezon City;

d. Construct a fence on the boundaries adjoining Kruz-na-Ligas and the University.

In the construction of the fence, the DONEE shall establish a ten-meter setback in the area adjacent to Pook Amorsolo and the
Peripheral Road (C.P. Garcia Street);

e. Construct a drainage canal within the area donated along the boundary line between Kruz-na-Ligas and Pook Amorsolo.

In the construction of the fence and the drainage canal, the DONEE shall conform to the plans and specifications prescribed by the
DONOR.

xxx

5. The DONEE shall, after the lapse of three (3) years, transfer to the qualified residents by way of donation the individual lots
occupied by each of them, subject to whatever conditions the DONEE may wish to impose on said donation;

6. Transfer of the use of any lot in the property donated during the period of three (3) years referred to in Item 4 above, shall be
allowed only in these cases where transfer is to be effected to immediate members of the family in the ascending and descending line
and said Transfer shall be made known to the DONOR. Transfer shall be affected by the Donee;

7. The costs incidental to this Deed, including the registration of the property donated shall be at the expense of the DONEE.

The Donee shall also be responsible for any other legitimate obligation in favor of any third person arising out of, in connection with,
or by reason of, this donation.

18. That the defendant Quezon City Government immediately prepared the groundworks in compliance with the afore-quoted terms
and conditions; however, defendant UP under the officer-in-charge then and even under the incumbent President, Mr. Jose Abueva,
had failed to deliver the certificate of title covering the property to be donated to enable the defendant Quezon City Government to
register the said Deed of Donation so that corresponding certificate of title be issued under its name;

19. That defendant UP had continuously and unlawfully refused, despite requests and several conferences made, to comply with their
reciprocal duty to deliver the certificate of title to enable the Donee, the defendant Quezon City Government, to register the ownership
so that the defendant Quezon City Government can legally and fully comply with their obligations under the said deed of donation;

20. That upon expiration of the period of eighteen (18) [months], for alleged non-compliance of the defendant Quezon City
Government with terms and conditions quoted in par. 16 hereof, defendant UP thru its President, Mr. Jose Abueva, unilaterally,
capriciously, whimsically and unlawfully issued that Administrative Order No. 21 declaring the deed of donation revoked and the
donated property be reverted to defendant UP;

21. That the said revocation and reversion without judicial declaration is illegal and prejudicial to the rights of the plaintiffs who are
the bonafide residents or who represent the bonafide residents of the Barrio Cruz-na-Ligas because: firstly, they were not made bound
to comply with the terms and conditions of the said donation allegedly violated by the defendant Quezon City Government; secondly,
defendant UP, as averred in the preceding paragraphs 9 and 11, was the one who insisted that the donation be coursed through the

26
defendant Quezon City Government; and the said revocation or reversion are likewise pre-judicial to third parties who acquired rights
therefrom;

22. That, as it apparently turned out, the plaintiff Association, who duly represented the qualified or bonafide resident of Barrio Cruz-
na-Ligas, was deceived into consenting to the lifting of the injunction in said LRC Case No. Q-3151 and in agreeing to the dismissal
of the said LRC Case No. Q-3151 when defendant unjustifiably revoked the donation which they undertook as a condition to the
dismissal of LRC Case No. 3151;

23. That by reason of the deception, the herein plaintiffs hereby reiterate their claims and the claims of the bonafide residents and
resident/farmers of Barrio Cruz-na-Ligas [to] the ownership of forty-two (42) hectares area they and their predecessors-in-interest
have occupied and possessed; parenthetically, the said 42 hectares portion are included in the tax declaration under the name of
defendant UP who is exempted from paying real estate tax; hence, there is no assessment available;

24. That by reason of bad faith and deceit by defendant UP in the execution and in compliance with [its] obligations under the said
Deed of Donation (Annex Q hereof) plaintiffs have suffered moral damages in the amount of at least P300,000.00;

25. That because of wanton and fraudulent acts of defendant UP in refusing to comply with what is incumbent upon [it] under the
Deed of Donation (Annex Q) and in whimsically and oppressively declaring the revocation of the said deed of donation and the
reversion of the 15.8 hectares donated, [it] should be made liable to pay exemplary damages in the sum of P50,000.00 to serve as
example in the interest of public good;

26. That because of said defendant UPs unlawful acts, plaintiffs have been compelled to retain the services of their attorneys to
prosecute this case with whom they agreed to pay the sum of Fifty Thousand Pesos (P50,000.00) as attorneys fees; and by way of:

APPLICATION FOR WRIT OF PRELIMINARY INJUNCTION

(a) Plaintiffs hereby reallege and reproduce herein by reference all the material and relevant allegations in the preceding paragraphs;

(b) Having legally established and duly recognized rights on the said parcel of lands as shown in the documents marked herein as
Annexes D; E; F; G; and M, plaintiffs have the rights to be protected by an injunctive writ or at least a restraining order to restrain and
to order defendant UP from:

1) Ejecting the plaintiffs-farmers and from demolishing the improvements in the parcel of riceland or farmlands situated at Sitio Libis
of Barrio Cruz-na-Ligas, embraced in the claims of the plaintiffs as shown in these photographs herein attached as Annexes R to R-3;

2) Executing another deed of donation with different terms and conditions in favor of another and for the benefit of additional
occupants who are not bonafide residents of the Barrio or Barangay Cruz-na-Ligas;

(c) Defendant UP has already started ejecting the plaintiffs and demolishing their improvements on the said riceland and farmlands in
order to utilize the same for the residential house project to the irreparable damages and injuries to the plaintiffs-farmers, unless
restrained or enjoined to desist, plaintiffs will continue to suffer irreparable damages and injuries;

(d) Plaintiffs are ready and willing to file the injunctive bond in such amount that may be reasonably fixed;

PRAYER

WHEREFORE, it is respectfully prayed to this Honorable Court that before the conduct of the proper proceedings, a writ of
preliminary injunction or at least a temporary restraining order be issued, ordering defendant UP to observe status quo; thereafter, after
due notice and hearing, a writ of preliminary injunction be issued; (a) to restrain defendant UP or to their representative from ejecting
the plaintiffs from and demolishing their improvements on the riceland or farmland situated at Sitio Libis; (b) to order defendant UP to
refrain from executing another deed of donation in favor another person or entity and in favor of non-bonafide residents of Barrio
Cruz-na-Ligas different from the Deed of Donation (Annex Q hereof), and after trial on the merits, judgment be rendered:

1. Declaring the Deed of Donation (Annex Q) as valid and subsisting and ordering the defendant UP to abide by the terms and
conditions thereof;

2. Adjudging the defendant University of the Philippines to segregate the riceland or farmlands as additional area embraced by the
Barrio Cruz-na-Ligas, pursuant to the First Indorsement of August 10, 1984 (Annex E) and pursuant to Findings, Reports and
Recommendation (Annex G) of the Bureau of Lands with an estimated assessed value of P700,000.00;

27
3. Ordering defendant UP to pay for plaintiffs moral damages of P300,000.00, exemplary damages of P50,000.00, and costs of suit;

4. Enjoining defendant UP to pay professional fees of P50,000.00 of the undersigned attorneys for the plaintiffs; and

Plaintiffs further respectfully pray for other just and equitable reliefs.

Earlier, on May 15, 1992, the trial court denied petitioners application for preliminary injunction. Its order stated:[3]

ORDER

Acting on plaintiffs application for the issuance of a temporary restraining order/preliminary injunction and the opposition thereto of
the defendant filed on April 3, 1992, as well as plaintiffs reply therewith filed on April 23, 1992, considered in the light of the affidavit
executed on April 23, 1992 by Timoteo Baluyot, Sr. and by Jaime Benito, Benigno Eugenio, Rolando Gonzales and Fortunato
Fulgencio executed on April 21, 1929, for the plaintiffs; and, the affidavit of merit executed on April 28, 1992, by Atty. Carmelita
Yadao-Guno, for the defendant, it appearing that the principal action in this case is one for the specific performance, apparently, of the
Deed of Donation executed on August 8, 1986, by defendant University of the Philippines in favor of the Quezon City Government,
involving the land in question, in virtue of which, it is clear that the plaintiffs are not parties to the said deed of donation, by reason of
which, consequently, there has not been established by the plaintiffs a clear legal right to the enforcement of the said deed of donation,
especially as the said deed was already validly revoked by the University of the Philippines, thru its president, Jose Abueva, in his
Administrative Order No. 21, for which reason the same could no longer be enforced, plaintiffs prayer for the issuance of a temporary
restraining order/writ of preliminary injunction, is DENIED.

SO ORDERED.

Petitioners moved for a reconsideration of the above order. Without resolving petitioners motion, the trial court ordered petitioners to
amend their complaint to implead respondent Quezon City government as defendant.[4] Hence, the amended complaint was filed on
June 10, 1992, in which it is alleged:

4. That the Quezon City Government . . . which should be joined as party plaintiff is instead impleaded herein as party defendant,
because its consent can not be secured within a reasonable time;

On July 27, 1992, respondent city government filed its Answer to the Amended Complaint with Cross-Claim.[5] However, on
November 29, 1993, it moved to withdraw its cross-claim against UP[6] on the ground that, after conferring with university officials,
the city government had recognized the propriety, validity and legality of the revocation of the Deed of Donation.[7]

The motion was granted by the trial court in its order, dated December 22, 1994.[8] On the same day, a Joint Motion to Dismiss was
filed by UP and the Quezon City government on the ground that the complaint fails to state a cause of action.[9] Petitioners opposed
the motion.

On April 26, 1995, the trial court denied respondents motion to dismiss on the ground that a perusal of [petitioners] amended
complaint, specifically paragraph 5 thereof, . . . shows that it necessarily alleges facts entitling [petitioners] to acquire ownership over
the land in question, by reason of laches, which cannot be disposed of and resolved at this stage without a trial on the merits.[10] The
trial court, however, reiterated its ruling that petitioners did not have a cause of action for specific performance on the ground that the
deed of donation had already been revoked as stated in its order denying injunction.

On August 14, 1995, respondents filed a petition for certiorari with the Court of Appeals, charging the trial court with grave abuse of
discretion in refusing to dismiss the complaint filed by petitioners. Respondents contended that

1. Respondent Judge himself had declared that [petitioners] clearly are not parties to the deed of donation sought to be enforced thus
they had not shown clear legal right to the enforcement of said deed of donation which is their principal cause of action; and

2. Under the factual circumstances obtaining, the respondent judge gravely erred in denying the joint motion to dismiss and declaring
that [petitioners] are entitled to acquire ownership over the land in question by reason of laches through a trial on the merits; such
constitutes a collateral attack on [respondent UPs] title in the same suit for specific performance.

On November 24, 1995, the appellate court rendered a decision setting aside the trial courts order of April 26, 1995 and ordering the
dismissal of Civil Case No. Q-92-11663. The appellate court ruled that

1. Petitioners complaint did not allege any claim for the annulment of UPs title over the portion of land concerned or the reconveyance
thereof to petitioners;
28
2. The alleged cause of action based on ownership of the land by petitioners was tantamount to a collateral attack on the title of UP
which is not allowed under the law; and

3. There is no acquisition of ownership by laches.

Hence, this petition for review on certiorari based on the following grounds:

I. THE RESPONDENT COURT OF APPEALS WAS IN ERROR IN CONCLUDING THAT THE TRIAL COURT ACTED WITH
GRAVE ABUSE OF DISCRETION IN DENYING THE JOINT MOTION TO DISMISS.

II. IN DISMISSING THE AMENDED COMPLAINT, THE RESPONDENT APPELLATE COURT HAS ACTED IN EXCESS [OF]
JURISDICTION WHEN IT MADE [THE] FINDING AND CONCLUSION THAT THE REVOCATION OF THE DONATION IS
VALID WHEN THAT IS THE PRIMARY AND CONTROVERTED ISSUE INVOLVING VARIED QUESTIONS OF FACTS.

Petitioners argue that, on its face, their amended complaint alleges facts constituting a cause of action which must be fully explored
during trial. They cite paragraphs 18, 19, and 20 of their complaint questioning the validity of the revocation of the donation and seek
the enforcement of the donation through specific performance.[11]

On the other hand, respondents contend that by seeking specific performance of the deed of donation as their primary cause of action,
petitioners cannot at the same time claim ownership over the property subject of the donation by virtue of laches or acquisitive
prescription. Petitioners cannot base their case on inconsistent causes of action. Moreover, as the trial court already found the deed to
have been validly revoked, the primary cause of action was already thereby declared inexistent. Hence, according to respondents, the
Court of Appeals correctly dismissed the complaint.[12]

First. The question is whether the complaint states a cause of action. The trial court held that inasmuch as the donation made by UP to
the Quezon City government had already been revoked, petitioners, for whose benefit the donation had been made, had no cause of
action for specific performance. Nevertheless, it denied respondents joint motion to dismiss petitioners action on the ground that
respondent UP was barred from contesting petitioners right to remain in possession on the ground of laches.

This is error. While prescription does not run against registered lands, nonetheless a registered owners action to recover possession of
his land may be barred by laches. As held in Mejia de Lucas v. Gamponia:[13]

[W]hile no legal defense to the action lies, an equitable one lies in favor of the defendant and that is, the equitable defense of laches.
No hold that the defense of prescription or adverse possession in derogation of the title of the registered owner Domingo Mejia does
not lie, but that of the equitable defense of laches. Otherwise stated, we hold that while defendant may not be considered as having
acquired title by virtue of his and his predecessors long continued possession for 37 years, the original owners right to recover back
the possession of the property and the title thereto from the defendant has, by the long period of 37 years and by patentees inaction and
neglect, been converted into a stale demand.

Thus, laches is a defense against a registered owner suing to recover possession of the land registered in its name. But UP is not suing
in this case. It is petitioners who are, and their suit is mainly to seek enforcement of the deed of donation made by UP in favor of the
Quezon City government. The appellate court therefore correctly overruled the trial court on this point. Indeed, petitioners do not
invoke laches. What they allege in their complaint is that they have been occupying the land in question from time immemorial,
adversely, and continuously in the concept of owner, but they are not invoking laches. If at all, they are claiming ownership by
prescription which, as already stated, is untenable considering that the land in question is a registered land. Nor can petitioners
question the validity of UPs title to the land. For as the Court of Appeals correctly held, this constitutes a collateral attack on
registered title which is not permitted.

On the other hand, we think that the Court of Appeals erred in dismissing petitioners complaint for failure to state a cause of action.

A cause of action exists if the following elements are present, namely: (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the defendant to respect or not to violate such right; and (3) an act
or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the obligations of the
defendant to the plaintiff for which the latter may maintain an action for recovery of damages.[14]

We find all the elements of a cause of action contained in the amended complaint of petitioners. While, admittedly, petitioners were
not parties to the deed of donation, they anchor their right to seek its enforcement upon their allegation that they are intended
beneficiaries of the donation to the Quezon City government. Art. 1311, second paragraph, of the Civil Code provides:

29
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a third person.

Under this provision of the Civil Code, the following requisites must be present in order to have a stipulation pour autrui:[15]

(1) there must be a stipulation in favor of a third person;

(2) the stipulation must be a part, not the whole of the contract;

(3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or
interest;

(4) the third person must have communicated his acceptance to the obligor before its revocation; and

(5) neither of the contracting parties bears the legal representation or authorization of the third party.

The allegations in the following paragraphs of the amended complaint are sufficient to bring petitioners action within the purview of
the second paragraph of Art. 1311 on stipulations pour autrui:

1. Paragraph 17, that the deed of donation contains a stipulation that the Quezon City government, as donee, is required to transfer to
qualified residents of Cruz-na-Ligas, by way of donations, the lots occupied by them;

2. The same paragraph, that this stipulation is part of conditions and obligations imposed by UP, as donor, upon the Quezon City
government, as donee;

3. Paragraphs 15 and 16, that the intent of the parties to the deed of donation was to confer a favor upon petitioners by transferring to
the latter the lots occupied by them;

4. Paragraph 19, that conferences were held between the parties to convince UP to surrender the certificates of title to the city
government, implying that the donation had been accepted by petitioners by demanding fulfillment thereof[16] and that private
respondents were aware of such acceptance; and

5. All the allegations considered together from which it can be fairly inferred that neither of private respondents acted in
representation of the other; each of the private respondents had its own obligations, in view of conferring a favor upon petitioners.

The amended complaint further alleges that respondent UP has an obligation to transfer the subject parcel of land to the city
government so that the latter can in turn comply with its obligations to make improvements on the land and thereafter transfer the
same to petitioners but that, in breach of this obligation, UP failed to deliver the title to the land to the city government and then
revoked the deed of donation after the latter failed to fulfill its obligations within the time allowed in the contract.

For the purpose of determining the sufficiency of petitioners cause of action, these allegations of the amended complaint must be
deemed to be hypothetically true. So assuming the truth of the allegations, we hold that petitioners have a cause of action against UP.
Thus, in Kauffman v. National Bank,[17] where the facts were

Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and
Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York City; and the question
is whether the plaintiff can maintain an action against the bank for the non performance of said undertaking. In other words, is the lack
of privity with the contract on the part of the plaintiff fatal to the maintenance of an action by him?[18]

it was held:

In the light of the conclusions thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable
that the banks promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within
the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention
on the part of the contracting parties that the plaintiff should have that money upon demand in New York City. The recognition of this
unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and
indeed if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a case arising
under it.

30
It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify
his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment;
and although the Philippine National Bank had already directed its New York agency to withhold payment when this demand was
made, the rights of the plaintiff cannot be considered to have been prejudiced by that fact. The word revoked, as there used, must be
understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing the
exchange.[19]

It is hardly necessary to state that our conclusion that petitioners complaint states a cause of action against respondents is in no wise a
ruling on the merits. That is for the trial court to determine in light of respondent UPs defense that the donation to the Quezon City
government, upon which petitioners rely, has been validly revoked.

Respondents contend, however, that the trial court has already found that the donation (on which petitioners base their action) has
already been revoked. This contention has no merit. The trial courts ruling on this point was made in connection with petitioners
application for a writ of preliminary injunction to stop respondent UP from ejecting petitioners. The trial court denied injunction on
the ground that the donation had already been revoked and therefore petitioners had no clear legal right to be protected. It is evident
that the trial courts ruling on this question was only tentative, without prejudice to the final resolution of the question after the
presentation by the parties of their evidence.[20]

Second. It is further contended that the amended complaint alleges inconsistent causes of action for specific performance of the deed
of donation. Respondents make much of the fact that while petitioners claim to be the beneficiaries-donees of 15.8 hectares subject of
the deed,[21] they at the same time seek recovery/delivery of title to the 42 hectares of land included in UPs certificate of title.[22]

These are not inconsistent but, rather, alternative causes of action which Rule 8, 2 of the Rules of Court allows:

Alternative causes of action or defenses.- A party may set forth two or more statements of a claim or defense alternatively or
hypothetically, either in one cause of action or defense or in separate causes of action or defenses. When two or more statements are
made in the alternative and one of them if made independently would be sufficient, the pleading is not made insufficient by the
insufficiency of one or more of the alternative statements.

Thus, the parties are allowed to plead as many separate claims as they may have, regardless of consistency, provided that no rules
regarding venue and joinder of parties are violated.[23]

Moreover, the subjects of these claims are not exactly and entirely the same parcel of land; petitioners causes of action consist of two
definite and distinct claims. The rule is that a trial court judge cannot dismiss a complaint which contained two or more causes of
action where one of them clearly states a sufficient cause of action against the defendant.[24]

WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to the Regional Trial Court of
Quezon City, Branch 89, for trial on the merits.

SO ORDERED.

INTEGRATED PACKAGING vs CA

QUISUMBING, J.:

This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 reversing the judgment of the Regional
Trial Court of Caloocan City in an action for recovery of sum of money filed by private respondent against petitioner. In said decision,
the appellate court decreed:

"WHEREFORE, in view of all the foregoing, the appealed judgment is hereby REVERSED and SET ASIDE. Appellee [petitioner
herein] is hereby ordered to pay appellant [private respondent herein] the sum of P763,101.70, with legal interest thereon, from the
date of the filing of the Complaint, until fully paid.

SO ORDERED."[1]

The RTC judgment reversed by the Court of Appeals had disposed of the complaint as follows:

"WHEREFORE, judgment is hereby rendered:

31
Ordering plaintiff [herein private respondent] to pay defendant [herein petitioner] the sum of P27,222.60 as compensatory and actual
damages after deducting P763,101.70 (value of materials received by defendant) from P790,324.30 representing compensatory
damages as defendants unrealized profits;

Ordering plaintiff to pay defendant the sum of P100,000.00 as moral damages;

Ordering plaintiff to pay the sum of P30,000.00 for attorneys fees; and to pay the costs of suit.

SO ORDERED."[2]

The facts, as culled from the records, are as follows:

Petitioner and private respondent executed on May 5, 1978, an order agreement whereby private respondent bound itself to deliver to
petitioner 3,450 reams of printing paper, coated, 2 sides basis, 80 lbs., 38" x 23", short grain, worth P1,040,060.00 under the following
schedule: May and June 1978450 reams at P290.00/ream; August and September 1978700 reams at P290/ream; January 1979575
reams at P307.20/ream; March 1979575 reams at P307.20/ream; July 1979575 reams at P307.20/ream; and October 1979575 reams at
P307.20/ream. In accordance with the standard operating practice of the parties, the materials were to be paid within a minimum of
thirty days and maximum of ninety days from delivery.

Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance Corporation (Philacor) to print three volumes of
"Philacor Cultural Books" for delivery on the following dates: Book VI, on or before November 1978; Book VII, on or before
November 1979 and; Book VIII, on or before November 1980, with a minimum of 300,000 copies at a price of P10.00 per copy or a
total cost of P3,000,000.00.

As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in
the agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance because further delay would greatly
prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered again to petitioner various quantities of
printing paper amounting to P766,101.70. However, petitioner encountered difficulties paying private respondent said amount.
Accordingly, private respondent made a formal demand upon petitioner to settle the outstanding account. On July 23 and 31, 1981 and
August 27, 1981, petitioner made partial payments totalling P97,200.00 which was applied to its back accounts covered by delivery
invoices dated September 29-30, 1980 and October 1-2, 1980.[3]

Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately, petitioner failed to fully comply with
its contract with Philacor for the printing of books VIII, IX, X and XI. Thus, Philacor demanded compensation from petitioner for the
delay and damage it suffered on account of petitioners failure.

On August 14, 1981, private respondent filed with the Regional Trial Court of Caloocan City a collection suit against petitioner for the
sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on credit.

In its answer, petitioner denied the material allegations of the complaint. By way of counterclaim, petitioner alleged that private
respondent was able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total disregard of their
agreement; that private respondent failed to deliver the balance of the printing paper despite demand therefor, hence, petitioner
suffered actual damages and failed to realize expected profits; and that petitioners complaint was prematurely filed.

After filing its reply and answer to the counterclaim, private respondent moved for admission of its supplemental complaint, which
was granted. In said supplemental complaint, private respondent alleged that subsequent to the enumerated purchase invoices in the
original complaint, petitioner made additional purchases of printing paper on credit amounting to P94,200.00. Private respondent also
averred that petitioner failed and refused to pay its outstanding obligation although it made partial payments in the amount of
P97,200.00 which was applied to back accounts, thus, reducing petitioners indebtedness to P763,101.70.

On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay private respondent the sum of P763,101.70
representing the value of printing paper delivered by private respondent from June 5, 1980 to July 23, 1981. However, the lower court
also found petitioners counterclaim meritorious. It ruled that were it not for the failure or delay of private respondent to deliver
printing paper, petitioner could have sold books to Philacor and realized profit of P790,324.30 from the sale. It further ruled that
petitioner suffered a dislocation of business on account of loss of contracts and goodwill as a result of private respondents violation of
its obligation, for which the award of moral damages was justified.

On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial court. The appellate court ordered
petitioner to pay private respondent the sum of P763,101.70 representing the amount of unpaid printing paper delivered by private
respondent to petitioner, with legal interest thereon from the date of the filing of the complaint until fully paid.[4] However, the
32
appellate court deleted the award of P790,324.30 as compensatory damages as well as the award of moral damages and attorneys fees,
for lack of factual and legal basis.

Expectedly, petitioner filed this instant petition contending that the appellate courts judgment is based on erroneous conclusions of
facts and law. In this recourse, petitioner assigns the following errors:

[I]

"THE COURT OF APPEALS ERRED IN CONCLUDING THAT PRIVATE RESPONDENT DID NOT VIOLATE THE ORDER
AGREEMENT.

[II]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT IS NOT LIABLE FOR PETITIONERS BREACH
OF CONTRACT WITH PHILACOR.

[III]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT ENTITLED TO DAMAGES AGAINST
PRIVATE RESPONDENT."[5]

In our view, the crucial issues for resolution in this case are as follows:

(1)....Whether or not private respondent violated the order agreement, and;

(2)....Whether or not private respondent is liable for petitioners breach of contract with Philacor.

Petitioners contention lacks factual and legal basis, hence, bereft of merit.

Petitioner contends, firstly, that private respondent violated the order agreement when the latter failed to deliver the balance of the
printing paper on the dates agreed upon.

The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver printing paper to
petitioner (buyer) which, in turn, binds itself to pay therefor a sum of money or its equivalent (price).[6] Both parties concede that the
order agreement gives rise to a reciprocal obligations[7] such that the obligation of one is dependent upon the obligation of the other.
Reciprocal obligations are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous
fulfillment of the other.[8] Thus, private respondent undertakes to deliver printing paper of various quantities subject to petitioners
corresponding obligation to pay, on a maximum 90-day credit, for these materials. Note that in the contract, petitioner is not even
required to make any deposit, down payment or advance payment, hence, the undertaking of private respondent to deliver the
materials is conditional upon payment by petitioner within the prescribed period. Clearly, petitioner did not fulfill its side of the
contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September and October
1980.

There is no dispute that the agreement provides for the delivery of printing paper on different dates and a separate price has been
agreed upon for each delivery. It is also admitted that it is the standard practice of the parties that the materials be paid within a
minimum period of thirty (30) days and a maximum of ninety (90) days from each delivery.[9] Accordingly, the private respondents
suspension of its deliveries to petitioner whenever the latter failed to pay on time, as in this case, is legally justified under the second
paragraph of Article 1583 of the Civil Code which provides that:

"When there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the seller
makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without just cause to take delivery
of or pay for one or more installments, it depends in each case on the terms of the contract and the circumstances of the case, whether
the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of
the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole
contract as broken." (Emphasis supplied)

In this case, as found a quo petitioners evidence failed to establish that it had paid for the printing paper covered by the delivery
invoices on time. Consequently, private respondent has the right to cease making further delivery, hence the private respondent did not
violate the order agreement. On the contrary, it was petitioner which breached the agreement as it failed to pay on time the materials

33
delivered by private respondent. Respondent appellate court correctly ruled that private respondent did not violate the order
agreement.

On the second assigned error, petitioner contends that private respondent should be held liable for petitioners breach of contract with
Philacor. This claim is manifestly devoid of merit.

As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by petitioner with
Philacor. Private respondent is not a party to said agreements. It is also not a contract pour autrui. Aforesaid contracts could not affect
third persons like private respondent because of the basic civil law principle of relativity of contracts which provides that contracts can
only bind the parties who entered into it, and it cannot favor or prejudice a third person,[10] even if he is aware of such contract and
has acted with knowledge thereof.[11]

Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct bearing on the
contracts of petitioner with Philacor. As pointed out by private respondent and not refuted by petitioner, the paper specified in the
order agreement between petitioner and private respondent are markedly different from the paper involved in the contracts of
petitioner with Philacor.[12] Furthermore, the demand made by Philacor upon petitioner for the latter to comply with its printing
contract is dated February 15, 1984, which is clearly made long after private respondent had filed its complaint on August 14, 1981.
This demand relates to contracts with Philacor dated April 12, 1983 and May 13, 1983, which were entered into by petitioner after
private respondent filed the instant case.

To recapitulate, private respondent did not violate the order agreement it had with petitioner. Likewise, private respondent could not
be held liable for petitioners breach of contract with Philacor. It follows that there is no basis to hold private respondent liable for
damages. Accordingly, the appellate court did not err in deleting the damages awarded by the trial court to petitioner.

The rule on compensatory damages is well established. True, indemnification for damages comprehends not only the loss suffered,
that is to say actual damages (damnum emergens), but also profits which the obligee failed to obtain, referred to as compensatory
damages (lucrum cessans). However, to justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable
degree of certainty, premised upon competent proof and on the best evidence obtainable by the injured party, the actual amount of
loss.[13] In the case at bar, the trial court erroneously concluded that petitioner could have sold books to Philacor at the quoted selling
price of P1,850,750.55 and by deducting the production cost of P1,060,426.20, petitioner could have earned profit of P790,324.30.
Admittedly, the evidence relied upon by the trial court in arriving at the amount are mere estimates prepared by petitioner.[14] Said
evidence is highly speculative and manifestly hypothetical. It could not provide sufficient legal and factual basis for the award of
P790,324.30 as compensatory damages representing petitioners self-serving claim of unrealized profit.

Further, the deletion of the award of moral damages is proper, since private respondent could not be held liable for breach of contract.
Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or was guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligation.[15] Finally, since the award of moral damages is
eliminated, so must the award for attorneys fees be also deleted.[16]

WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

A & C MINI MART vs VILLAREAL

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision1 dated 13 October 2004,
rendered by the Court of Appeals in CA-G.R. SP No. 81875, modifying the Order2 dated 29 December 2003, of Branch 194 of the
Regional Trial Court (RTC) of Parañaque City. The appellate court ordered petitioner A & C Minimart Corporation to pay
respondents Patricia Villareal, Tricia Ann Villareal and Claire Hope Villareal, a monthly interest of 3% on the total amount of rental
and other charges not paid on time, in addition to the unpaid rental and other charges which the trial court ordered petitioner to pay.

The subject property is a one-storey commercial building constructed on a parcel of land located at Aguirre St., BF Homes, Parañaque,
Metro Manila. Petitioner leased the six stalls/units of the subject property from Joaquin Bonifacio, under a lease agreement dated 3
August 1992, and which expired on 3 August 1997.3 A Lease Contract, dated 22 January 1998, was executed between petitioner and
Teresita Bonifacio renewing the earlier contract for another five years.4

However, ownership of the subject property is under dispute. Respondents and spouses Joaquin and Teresita Bonifacio (spouses
Bonifacio) claim ownership over the subject property.
34
The respondents claim ownership based on a sale of property on execution pending appeal in a separate case. Civil Case No. 16194 is
an independent action for damages filed by respondents against spouses Eliseo and Erna Sevilla (spouses Sevilla), original owners of
the disputed property, arising from the murder of Jose Villareal, the husband of respondent Patricia Villareal and father of respondents
Tricia Ann and Claire Hope Villareal. In its Decision dated 2 April 1990, Branch 132 of the RTC of Makati awarded damages to
respondents in the amount of P10,882,040.00.5 Thereafter, the Makati RTC, Branch 132, issued a writ of execution pending appeal.
Deputy Sheriff Eulalio Juanson levied on two parcels of land registered under the name of the Sevillas covered by Transfer
Certificates of Title (TCT) No. 41338 and No. 41339, issued by the Register of Deeds of Parañaque City, and a one-storey commercial
building built thereon. On 17 September 1990, Deputy Sheriff Juanson sold the subject property at a public auction to respondent
Patricia Villareal, the sole and highest bidder therein. The Certificate of Sale, dated 17 September 1990, was registered and annotated
in TCT No. 41338 and No. 41339 as Entry 6621 on 18 September 1990.6 The spouses Sevilla filed an appeal questioning the damages
awarded and execution orders issued by the Makati RTC, Branch 132 in Civil Case No. 16194, which is now pending before the
Supreme Court and docketed as G.R. No. 150824.

On the other hand, the spouses Bonifacio claim to have purchased the property from the spouses Sevilla. Twice they challenged the
Villareals’ ownership of the property. The first was on 12 September 1990, when they filed Civil Case No. 90-2551 against
respondent Patricia Villareal before Branch 58, later unloaded to Branch 63, of the Makati RTC, for declaration of nullity of levy on
real property, damages and injunction with prayer for issuance of a temporary restraining order against the sheriff of the Makati RTC,
Branch 132. They allegedly bought the property from the spouses Sevilla on 17 June 1986, but were unable to transfer the titles to
their names when they discovered that notice of levy on execution was already annotated in the TCTs.7 On 8 November 1994, the
Makati RTC, Branch 63, declared that the Deed of Sale in favor of the Bonifacios was null and void and thus dismissed the complaint
filed by the spouses Bonifacio for lack of merit. The spouses Bonifacio filed an appeal, docketed as C.A. G.R. CV No. 48478, which
was dismissed by the Court of Appeals. The dismissal of the said case became final and executory on 27 December 1997.8

Despite the final and executory decision dismissing the claim of the Bonifacios, the latter, for the second time filed on 25 January
1999, Civil Case No. 99-037 against respondent Patricia Villareal for Declaration of Ownership, Annulment and Cancellation of
Attachment, Notice of Levy, and Execution Sale with Damages at Branch 257 of the Parañaque RTC, which was dismissed in an
Order dated 8 November 1999.9 They filed an appeal of the dismissal with the Court of Appeals, docketed as CA-G.R. SP No. 60176,
which was likewise dismissed in a Decision, dated 22 October 2004.10 An appeal was filed before the Supreme Court, docketed as
G.R. No. 175857, but the same was denied in a Resolution dated 14 March 2007.11

Meanwhile, upon learning that the spouses Bonifacio’s claim of ownership over the subject property had been seriously challenged
and denied in the Decision dated 8 November 1994 of the Makati RTC, Branch 63, in Civil Case No. 90-2551, petitioner stopped
paying its rentals on the subject property on 2 March 1999, in violation of the renewed Lease Contract dated 22 January 1998.12

On 19 July 1999, respondents filed a case for Unlawful Detainer with Damages, against the petitioner before Branch 78 of the
Metropolitan Trial Court (MTC) of Parañaque City. Respondents also filed a case against the spouses Bonifacio for the recovery of
the advanced rentals paid to the latter by the petitioner. The spouses Bonifacio also filed a separate case against the petitioner for
Unlawful Detainer. The cases were consolidated and heard by the Parañaque MTC, Branch 78, docketed as Civil Cases No. 11200,
11201, and 11262. The Parañaque MTC, Branch 78, dismissed the cases on the ground that the issue of possession in this case was
intertwined with the issue of ownership, and that it lacked the jurisdiction to determine the issue of ownership.13

Respondents appealed before Branch 194 of the Parañaque RTC, the dismissal ordered by the Parañaque MTC, Branch 78, in Civil
Cases No. 11200, 11201, and 11262. The cases were docketed as Civil Cases No. 02-0538 to 40. The Parañaque RTC, Branch 194,
affirmed the decision of the Parañaque MTC, Branch 78, as to its lack of jurisdiction, and then treated the complaint as if it were
originally filed with the RTC, in accordance with Section 8, Rule 40 of the Rules of Court.14 Thereafter, in its Decision dated 25 June
2003, the Parañaque RTC, Branch 194, found that the spouses Bonifacio did not acquire ownership over the subject property. It
further ruled that the petitioner had the obligation to pay the rentals for use of the subject property and directed the petitioner to
deposit its rental payments to a Land Bank account established by the Makati RTC, Branch 132, where the rentals accruing on the
subject property will be held in trust for the rightful owners, whether it be the respondents or the spouses Sevilla, pending the final
determination of G.R. No. 150824. The Decision of the Parañaque RTC, Branch 194, in Civil Case Nos. 02-0538 to 40 reads:

WHEREFORE foregoing considered, judgment is hereby ordered:

1. Directing and ordering defendant Spouses Bonifacios (sic) to deposit the amount of P315,000.00 paid by A & C Minimart to
Account No. 1831-0166-91, with the Land Bank of the Philippines, J.P. Rizal Branch, Makati City.

2. Ordering defendant A & C Minimart to deposit with Account No. 1831-0166-91, Land Bank of the Philippines, J.P. Rizal Branch,
Makati City, the monthly rentals due from the premises form (sic) the last rental payment consigned with the Clerk of Court,
Metropolitan Trial Court, Parañaque City.
35
3. Ordering defendant A & C Minimart to furnish the Villareals copies of the Lease Contract it entered into with the Bonifacios.

4. And for convenience, ordering the Clerk of Court, Metropolitan Trial Court, Parañaque City to transfer and deposit the rental
payments made by A & C Minimart together with the accrued interest to Account No. 1831-0166-91 with Land Bank of the
Philippines, J.P. Rizal Branch, Makati City.

No pronouncement as to costs, attorney’s fees and damages.15

On 1 October 2003, upon petitioners’ Motion for Partial Reconsideration, the Parañaque RTC, Branch 194, modified its decision. It
ruled that the rental should accrue in favor of the respondents only after the turnover of the possession of the subject property to them
sometime on 2 March 1999. Moreover, it found that petitioner did not act in bad faith when it refused to pay rentals and, thus, should
not be liable for damages. Additionally, it also ordered the petitioner to pay 12% interest per annum on the monthly rentals due from
its receipt of the respondents’ demand letter on 25 June 1999, until full payment; to pay respondents’ attorney’s fees in the amount of
P100,000.00 and the costs of suit; and to vacate the subject property, to wit:

1. [O]rdering defendant A & C Minimart to deposit with account no. 1831-0166-91 of the Land Bank of the Philippines, J.P. Rizal
Branch[,] Makati City, the monthly rentals due from March 2, 1999, in accordance with the Lease Contract until it delivers possession
thereof to the Villareals plus 12% interest per annum from the date of receipt of the demand letter in 25 June 1999 until full
satisfaction less the rental payment consigned to the Clerk of Court, Metropolitan Trial Court, Parañaque City.

2. [F]or convenience, ordering the Clerk of Court, Metropolitan Trial Court, Parañaque City to transfer and deposit the rental
payments made by A & C Minimart together with the accrued interest to Account No. 1831-0166-91 with the Land Bank of the
Philippines, J. P. Rizal Branch, Makati City.

3. [D]irecting and ordering defendant A & C Minimart to pay the Plaintiff Attorney’s fees in the amount of ONE HUNDRED
THOUSAND PESOS (P100,000.00) and the cost of suit.

4. [O]rdering defendant A & C Minimart Corp. to vacate the portion of the building located at 340 Aguirre Avenue, BF Homes,
Parañaque City where it conducts its business of a grocery store and other activities, and deliver the same peacefully and in good
condition to the Villareals.16

On 27 October 2003, upon motion of the respondents, the Parañaque RTC, Branch 194, issued a Writ of Execution requiring petitioner
to deposit in Land Bank Account No. 1831-0166-91 the amount of P3,186,154.68, plus 12% yearly interest, computed from the date
of petitioner’s receipt of the demand letter on 25 June 1999.17

On 4 November 2003, respondents filed a Motion for Recomputation of the amount of rentals as the writ of execution allegedly did
not conform to the Decision dated 1 October 2003. Respondents claimed that the computation should include a monthly interest of 3%
on the total amount of rental and other charges not paid on time, in accordance with paragraph 6(g) of the Contract of Lease, dated 22
January 1998, between petitioner and Teresita Bonifacio, to wit:

g) To pay the LESSOR three (3%) percent interest per month on the total amount of rental and other charges not paid on time under
this contract with said amount accruing automatically upon default without necessity of any demand.18

Respondents anchored their claim on the Amended Decision dated 1 October 2003, and the Writ of Execution dated 27 October 2003,
in Civil Cases No. 02-0538 to 40, which both used the phrase "in accordance with the Lease Contract," when referring to the monthly
rentals due and were to be deposited in the bank by the petitioner.

In an Order dated 29 December 2003, the Parañaque RTC, Branch 194, denied respondents’ claim for interest penalty at the rate of
3% per month on the total amount of rent in default.19

Respondents filed a Petition for Certiorari under Rule 65, before the Court of Appeals, which ruled in favor of the respondents. In the
assailed Decision, the appellate court found that petitioner consigned the rental payments after they fell due and, thus, it ruled that the
3% interest stipulated in the Contract of Lease dated 22 January 1998 should be imposed. The dispositive part of the assailed
Decision,20 dated 13 October 2004, reads:

WHEREFORE, there being merit in the petition, it is GRANTED. The assailed Order is MODIFIED in that respondent A and C
Minimart is additionally DIRECTED to pay a monthly interest of 3% on the total amount of rental and other charges not paid on time
pursuant to the contract of lease. This case is REMANDED to the court of origin for proper computation and execution.

36
Petitioner filed a Motion for Reconsideration of the foregoing Decision, which the Court of Appeals denied in a Resolution dated 27
March 2006.

Hence, the present Petition, where petitioner raises the following issues:

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING VILLAREALS’ PETITION FOR CERTIORARI
CONSIDERING THAT APPEAL IS THE PROPER AND ADEQUATE REMEDY TO QUESTION THE DECISION OF THE RTC
(BRANCH 194) OF PARAÑAQUE CITY.

II

THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE CLAIM OF THE VILLAREALS’ THAT THEY ARE
ENTITLED TO THE BENEFITS (RENTALS AND INTERESTS) OF THE CONTRACT OF LEASE ENTERED INTO BETEWEN
"A & C MINIMART CORP." AND TERESITA BONIFACIO.

III

THE HONRABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION FOR CERTIORARI (SPECIAL CIVIL
ACTION) FILED BY THE VILLAREALS CONSIDERING THAT THE LATTER HAVE NO RIGHTS AND INTEREST OVER
THE CONTRACT OF LEASE BETWEEN THE SPOUSES BONIFACIOS (sic) AND THE "A & C MINIMART CORP."

IV

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING C.A.-G.R. SP NO. 81875 CONSIDERING THAT THE
VILLAREALS’ CLAIM OF OWNERSHIP OVER THE PROPERTY IS STILL THE SUBJECT OF A PENDING CASE WHICH
PRO TANTO RENDERED THE EJECTMENT SUIT FILED BY THE VILLAREALS AGAINST THE PETITIONER
OBVIOUSLY PREMATURE.

THE HONORABLE COURT OF APPEALS ERRED IN NOT OVERRULLING THE RTC OF PARANAQUE (BR. 194) WHICH
REVERSED THE DECISION OF THE MTC OF PARANAQUE CITY DISMISSING THE CONSOLIDATED EJECTMENT
CASES (02-0538; 02-0539; 02-540) FOR LACK OF JURISDICTION CONSIDERING THAT THE FUNDAMENTAL ISSUE
INVOLVED IS OWNERSHIP OF THE SUBJECT PREMISES WHICH ISSUE REQUIRES FULL-BLOWN TRIAL IN A DIRECT
ACTION BEFORE A COURT OF GENERAL JURISDICTION FOR FULL DETERMINATION.21

The petition is partly meritorious.

Petitioner avers that the respondents should have filed with the Court of Appeals an ordinary appeal instead of a special civil action for
certiorari, when it questioned the computation made by the Parañaque RTC, Branch 194, of the rentals due the owner of the subject
property.

Such contention runs counter to Section 1, Rule 41 of the Rules of Court, which provides:

Section 1. Subject of appeal. – An appeal may be taken from a judgment or final order that completely disposes of the case, or of a
particular matter therein when declared by these Rules to be appealable.

No appeal may be taken from:

xxxx

(f) an order of execution;

xxxx

In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an appropriate special civil
action under Rule 65.

37
It is explicit from the afore-quoted provision that no appeal may be taken from an order of execution; instead, such order may be
challenged by the aggrieved party via a special civil action for certiorari under Rule 65 of the Rules of Court. Respondents filed the
petition in CA-G.R. SP No. 81875, to question the Writ of Execution dated 27 October 2003, issued by the Parañaque RTC, Branch
194, which computed the rentals to be paid by the petitioner to whoever is declared the owner of the subject property, without
including the 3% penalty interest stipulated in the Lease Contract dated 22 January 2002. Contrary to the position taken by the
petitioner, respondents’ recourse to an appeal would have been unavailing under Section 1, Rule 41, of the Rules of Court. The filing
of a special civil action for certiorari under Rule 65 of the Rules of Court was the proper remedy questioning an order of execution.

Petitioner argues that respondents are not entitled to the 3% penalty stipulated under the Lease Contract dated 22 January 1998, which
becomes payable to the lessor whenever the petitioner incurs delay in the payment of its rentals. This argument is well-taken.

It is a well-known rule that a contractual obligation or liability, or an action ex-contractu, must be founded upon a contract, oral or
written, either express or implied. If there is no contract, there is no corresponding liability and no cause of action may arise
therefrom.22 This is provided for in Article 1311 of the Civil Code:

Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.

The Lease Contract dated 22 January 1998, was executed between the spouses Bonifacio and petitioner. It is undisputed that none of
the respondents had taken part, directly or indirectly, in the contract in question. Respondents also did not enter into contract with
either the lessee or the lessor, as to an assignment of any right under the Lease Contract in question. The Lease Contract, including the
stipulation for the 3% penalty interest, was bilateral between petitioner and Teresita Bonifacio. Respondents claim ownership over the
subject property, but not as a successor-in-interest of the spouses Bonifacios. They purchased the property in an execution sale from
the spouses Sevilla. Thus, respondents cannot succeed to any contractual rights which may accrue to the spouses Bonifacio.

Contracts produce an effect as between the parties who execute them. A contract cannot be binding upon and cannot be enforced by
one who is not party to it. Although the respondents were adjudged to be entitled to rentals accruing from 2 March 1999, until the time
the petitioner vacated the premises, the obligation to pay rent was not derived from the Lease Contract dated 22 January 1998, but
from a quasi-contract. Article 2142 of the Civil Code reads:

Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the expense of another.

In the present case, the spouses Bonifacio, who were named as the lessors in the Lease Contracts, dated 3 August 1992 and 22 January
1998, are already adjudged not to be the real owners of the subject property. In Civil Case No. 90-2551, Branch 63 of the Makati RTC
declared that the Deed of Sale, executed on 17 June 1986, between the spouses Bonifacio and the spouses Sevilla was a forgery and,
hence, did not validly transfer ownership to the spouses Bonifacio. At present, there is a pending appeal before the Supreme Court
docketed as G.R. No. 150824, which would determine who between the respondents and the spouses Sevilla are the rightful owners of
the property.

Since the spouses Bonifacio are not the owners of the subject property, they cannot unjustly benefit from it by collecting rent which
should accrue to the rightful owners of the same. Hence, the Makati RTC, Branch 132, had set up a bank account where the rent due
on the subject property should be deposited and kept in trust for the real owners thereto.

The last two issues raised by the petitioner on whether the Parañaque RTC, Branch 194, should have dismissed the case for being
premature or for any other ground cannot be raised in this petition. Such issues should be, and were, in fact, raised by petitioner in
CA- G.R. No. 86157, which was an appeal of the Amended Decision dated 1 October 2003, rendered by the Parañaque RTC, Branch
194, in Civil Cases No. 02-0538 to 40. Pending the resolution of the said case by the Court of Appeals, this Court refrains from ruling
thereon. What is on appeal in the present petition is the Decision rendered by the Court of Appeals in CA-G.R. SP No. 81875, where
the sole issue raised was the correctness of the computation made during the execution of the Amended Decision dated 1 October
2003 of the Parañaque RTC, Branch 194.

IN VIEW OF THE FOREGOING, the instant Petition is partially GRANTED. The assailed Decision of the Court of Appeals in CA-
G.R. SP No. 81875, promulgated on 13 October 2004, is REVERSED and SET ASIDE. The petitioner A & C Minimart Corporation
is not obligated to pay the penalty interest of 3% per month on the total amount of rental and other charges not paid on time pursuant
to the Contract of Lease dated 22 January 1998. This Court AFFIRMS the computation of the rent and interest due from petitioner
A&C Minimart Corporation in the Writ of Execution dated 27 October 2003, issued by Branch 194 of the Parañaque Regional Trial
Court, in Civil Cases No. 02-0538 to 40.

38
SO ORDERED.

BORROMEO vs CA

FERNANDO, J.:p

The point pressed on us by private respondents, 1 in this petition for review of a decision of the Court of Appeals in the interpretation
of a stipulation which admittedly is not free from ambiguity, there being a mention of a waiver of the defense of prescription, is not
calculated to elicit undue judicial sympathy. For if accorded acceptance, a creditor, now represented by his heirs, 2 who, following the
warm and generous impulse of friendship, came to the rescue of a debtor from a serious predicament of his own making would be
barred from recovering the money loaned. Thus the promptings of charity, unfortunately not often persuasive enough, would be
discredited. It is unfortunate then that respondent Court of Appeals did not see it that way. For its decision to be upheld would be to
subject the law to such a scathing indictment. A careful study of the relevant facts in the light of applicable doctrines calls for the
reversal of its decision.

The facts as found by the Court of Appeals follow: "Before the year 1933, defendant [Jose A. Villamor] was a distributor of lumber
belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City. Defendant being a friend and former
classmate of plaintiff [Canuto O. Borromeo] used to borrow from the latter certain amounts from time to time. On one occasion with
some pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged
his land and house in Cebu City. Mr. Miller filed civil action against the defendant and attached his properties including those
mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered because not properly drawn up.
Plaintiff then pressed the defendant for settlement of his obligation, but defendant instead offered to execute a document promising to
pay his indebtedness even after the lapse of ten years. Liquidation was made and defendant was found to be indebted to plaintiff in the
sum of P7,220.00, for which defendant signed a promissory note therefor on November 29, 1933 with interest at the rate of 12% per
annum, agreeing to pay 'as soon as I have money'. The note further stipulates that defendant 'hereby relinquish, renounce, or otherwise
waive my rights to the prescriptions established by our Code of Civil Procedure for the collection or recovery of the above sum of
P7,220.00. ... at any time even after the lapse of ten years from the date of this instrument'. After the execution of the document,
plaintiff limited himself to verbally requesting defendant to settle his indebtedness from time to time. Plaintiff did not file any
complaint against the defendant within ten years from the execution of the document as there was no property registered in defendant's
name, who furthermore assured him that he could collect even after the lapse of ten years. After the last war, plaintiff made various
oral demands, but defendants failed to settle his account, — hence the present complaint for collection." 3 It was then noted in the
decision under review that the Court of First Instance of Cebu did sentence the original defendant, the deceased Jose A. Villamor, to
pay Canuto O. Borromeo, now represented by petitioners, the sum of P7,220.00 within ninety days from the date of the receipt of such
decision with interest at the rate of 12% per annum from the expiration of such ninety-day period. That was the judgment reversed by
the Court of Appeals in its decision of March 7, 1964, now the subject of this petition for review. The legal basis was the lack of
validity of the stipulation amounting to a waiver in line with the principle "that a person cannot renounce future prescription." 4

The rather summary and curt disposition of the crucial legal question of respondent Court in its five-page decision, regrettably rising
not too-far-above the superficial level of analysis hardly commends itself for approval. In the first place, there appeared to be undue
reliance on certain words employed in the written instrument executed by the parties to the total disregard of their intention. That was
to pay undue homage to verbalism. That was to ignore the warning of Frankfurter against succumbing to the vice of literalism in the
interpretation of language whether found in a constitution, a statute, or a contract. Then, too, in effect it would nullify what ought to
have been evident by a perusal that is not-too-cursory, namely, that the creditor moved by ties of friendship was more than willing to
give the debtor the utmost latitude as to when his admittedly scanty resources will allow him to pay. He was not renouncing any right;
he was just being considerate, perhaps excessively so. Under the view of respondent Court, however, what had been agreed upon was
in effect voided. That was to run counter to the well-settled maxim that between two possible interpretations, that which saves rather
than destroys is to be preferred. What vitiates most the appealed decision, however, is that it would amount not to just negating an
agreement duly entered into but would put a premium on conduct that is hardly fair and could be characterized as duplicitous.
Certainly, it would reflect on a debtor apparently bent all the while on repudiating his obligation. Thus he would be permitted to repay
an act of kindness with base ingratitude. Since as will hereafter be shown, there is, on the contrary, the appropriate construction of the
wording that found its way in the document, one which has all the earmarks of validity and at the same time is in consonance with the
demands of justice and morality, the decision on appeal, as was noted at the outset, must be reversed.

1. The facts rightly understood argue for the reversal of the decision arrived at by respondent Court of Appeals. Even before the
event that gave rise to the loan in question, the debtor, the late Jose A. Villamor, being a friend and a former classmate, used to borrow
from time to time various sums of money from the creditor, the late Canuto O. Borromeo. Then faced with the need to settle a pressing
obligation with a certain Miller, he did borrow from the latter sometime in 1933 what respondent Court called "a large sum of money
for which he mortgaged his land and house in Cebu City." 5 It was noted that this Miller did file a suit against him, attaching his
properties including those he did mortgage to the late Borromeo, there being no valid objection to such a step as the aforesaid
mortgage, not being properly drawn up, could not be registered. Mention was then made of the late Borromeo in his lifetime seeking
39
the satisfaction of the sum due with Villamor unable to pay, but executing a document promising "to pay his indebtedness even after
the lapse of ten years." 6 It is with such a background that the words employed in the instrument of November 29, 1933 should be
viewed. There is nothing implausible in the view that such language renouncing the debtor's right to the prescription established by the
Code of Civil Procedure should be given the meaning, as noted in the preceding sentence of the decision of respondent Court, that the
debtor could be trusted to pay even after the termination of the ten-year prescriptive period. For as was also made clear therein, there
had been since then verbal requests on the part of the creditor made to the debtor for the settlement of such a loan. Nor was the Court
of Appeals unaware that such indeed was within the contemplation of the parties as shown by this sentence in its decision: "Plaintiff
did not file any complaint against the defendant within ten years from the execution of the document as there was no property
registered in defendant's name who furthermore assured him that he could collect even after the lapse of ten years." 7

2. There is much to be said then for the contention of petitioners that the reference to the prescriptive period is susceptible to the
construction that only after the lapse thereof could the demand be made for the payment of the obligation. Whatever be the obscurity
occasioned by the words is illumined when the light arising from the relationship of close friendship between the parties as well as the
unsuccessful effort to execute a mortgage, taken in connection with the various oral demands made, is thrown on them. Obviously, it
did not suffice for the respondent Court of Appeals. It preferred to reach a conclusion which for it was necessitated by the strict letter
of the law untinged by any spirit of good morals and justice, which should not be alien to legal norms. Even from the standpoint of
what for some is strict legalism, the decision arrived at by the Court of Appeals calls for disapproval. It is a fundamental principle in
the interpretation of contracts that while ordinarily the literal sense of the words employed is to be followed, such is not the case where
they "appear to be contrary to the evident intention of the contracting parties," which "intention shall prevail." 8 Such a codal
provision has been given full force and effect since the leading case of Reyes v. Limjap, 9 a 1910 decision. Justice Torres, who penned
the above decision, had occasion to reiterate such a principle when he spoke for the Court in De la Vega v. Ballilos 10 thus: "The
contract entered into by the contracting parties which has produced between them rights and obligations is in fact one of antichresis,
for article 1281 of the Civil Code prescribes among other things that if the words should appear to conflict with the evident intent of
the contracting parties, the intent shall prevail." 11 In Abella v. Gonzaga, 12 this Court through the then Justice Villamor, gave force
to such a codal provision when he made clear that the inevitable conclusion arrived at was "that although in the contract Exhibit A the
usual words 'lease,' 'lessee,' and 'lessor' were employed, that is no obstacle to holding, as we do hereby hold, that said contract was a
sale on installments, for such was the evident intention of the parties in entering into said contract. 13 Only lately in Nielson and
Company v. Lepanto Consolidated Mining Company, 14 this Court, with Justice Zaldivar, as ponente, after stressing the primordial
rule that in the construction and interpretation of a document, the intention of the parties must be sought, went on to state: "This is the
basic rule in the interpretation of contracts because all other rules are but ancillary to the ascertainment of the meaning intended by the
parties. And once this intention has been ascertained it becomes an integral part of the contract as though it had been originally
expressed therein in unequivocal terms ... ." 15 While not directly in point, what was said by Justice Labrador in Tumaneng v. Abad
16 is relevant: "There is no question that the terms of the contract are not clear on the period of redemption. But the intent of the
parties thereto is the law between them, and it must be ascertained and enforced." 17 Nor is it to be forgotten, following what was first
announced in Velasquez v. Teodoro 18 that "previous, simultaneous and subsequent acts of the parties are properly cognizable indicia
of their true intention." 19

There is another fundamental rule in the interpretation of contracts specifically referred to in Kasilag v. Rodriguez, 20 as "not less
important" 21 than other principles which "is to the effect that the terms, clauses and conditions contrary to law, morals and public
order should be separated from the valid and legal contract when such separation can be made because they are independent of the
valid contract which expresses the will of the contracting parties. Manresa, commenting on article 1255 of the Civil Code and stating
the rule of separation just mentioned, gives his views as follows: 'On the supposition that the various pacts, clauses, or conditions are
valid, no difficulty is presented; but should they be void, the question is as to what extent they may produce the nullity of the principal
obligation. Under the view that such features of the obligation are added to it and do not go to its essence, a criterion based upon the
stability of juridical relations should tend to consider the nullity as confined to the clause or pact suffering therefrom, except in cases
where the latter, by an established connection or by manifest intention of the parties, is inseparable from the principal obligation, and
is a condition, juridically speaking, of that the nullity of which it would also occasion.' ... The same view prevails in the Anglo-
American law as condensed in the following words: 'Where an agreement founded on a legal consideration contains several promises,
or a promise to do several things, and a part only of the things to be done are illegal, the promises which can be separated, or the
promise, so far as it can be separated, from the illegality, may be valid. The rule is that a lawful promise made for a lawful
consideration is not invalid merely because an unlawful promise was made at the same time and for the same consideration, and this
rule applies, although the invalidity is due to violation of a statutory provision, unless the statute expressly or by necessary implication
declares the entire contract void. ..." 22

Nor is it to be forgotten that as early as Compania Agricola Ultramar v. Reyes, 23 decided in 1904, the then Chief Justice Arellano in a
concurring opinion explicitly declared: "It is true that contracts are not what the parties may see fit to call them, but what they really
are as determined by the principles of law." 24 Such a doctrine has been subsequently adhered to since then. As was rephrased by
Justice Recto in Aquino v.
Deala: 25 "The validity of these agreements, however, is one thing, while the juridical qualification of the contract resulting therefrom
is very distinctively another." 26 In a recent decision, Shell Company of the Phils., Ltd. vs. Firemen's Insurance Co. of Newark, 27
40
this court, through Justice Padilla, reaffirmed the doctrine thus: "To determine the nature of a contract courts do not have or are not
bound to rely upon the name or title given it by the contracting parties, should there be a controversy as to what they really had
intended to enter into, but the way the contracting parties do or perform their respective obligations, stipulated or agreed upon may be
shown and inquired into, and should such performance conflict with the name or title given the contract by the parties, the former must
prevail over the latter." 28 Is it not rather evident that since even the denomination of the entire contract itself is not conclusively
determined by what the parties call it but by the law, a stipulation found therein should likewise be impressed with the characterization
the law places upon it?

What emerges in the light of all the principles set forth above is that the first ten years after November 29, 1933 should not be counted
in determining when the action of creditor, now represented by petitioners, could be filed. From the joint record on appeal, it is
undoubted that the complaint was filed on January 7, 1953. If the first ten-year period was to be excluded, the creditor had until
November 29, 1953 to start judicial proceedings. After deducting the first ten-year period which expired on November 29, 1943, there
was the additional period of still another ten years. 29 Nor could there be any legal objection to the complaint by the creditor
Borromeo of January 7, 1953 embodying not merely the fixing of the period within which the debtor Villamor was to pay but likewise
the collection of the amount that until then was not paid. An action combining both features did receive the imprimatur of the approval
of this Court. As was clearly set forth in Tiglao v. The Manila Railroad Company: 30 "There is something to defendant's contention
that in previous cases this Court has held that the duration of the term should be fixed in a separate action for that express purpose. But
we think the lower court has given good reasons for not adhering to technicalities in its desire to do substantial justice." 31 The
justification became even more apparent in the latter portion of the opinion of Justice Alex Reyes for this Court: "We may add that
defendant does not claim that if a separate action were instituted to fix the duration of the term of its obligation, it could present better
proofs than those already adduced in the present case. Such separate action would, therefore, be a mere formality and would serve no
purpose other than to delay." 32 There is no legal obstacle then to the action for collection filed by the creditor. Moreover, the
judgment of the lower court, reversed by the respondent Court of Appeals, ordering the payment of the amount due is in accordance
with law.

3. There is something more to be said about the stress in the Tiglao decision on the sound reasons for not adhering to
technicalities in this Court's desire to do substantial justice. The then Justice, now Chief Justice, Concepcion expressed a similar
thought in emphasizing that in the determination of the rights of the contracting parties "the interest of justice and equity be not
ignored." 33 This is a principle that dates back to the earliest years of this Court. The then Chief Justice Bengzon in Arrieta v. Bellos,
34 invoked equity. Mention has been made of "practical and substantial justice," 35 "[no] sacrifice of the substantial rights of a litigant
in the altar of sophisticated technicalities with impairment of the sacred principles of justice," 36 "to afford substantial justice" 37 and
"what equity demands." 38 There has been disapproval when the result reached is "neither fair, nor equitable." 39 What is to be
avoided is an interpretation that "may work injustice rather than promote justice." 40 What appears to be most obvious is that the
decision of respondent Court of Appeals under review offended most grievously against the above fundamental postulate that
underlies all systems of law.

WHEREFORE, the decision of respondent Court of Appeals of March 7, 1964 is reversed, thus giving full force and effect to the
decision of the lower court of November 15, 1956. With costs against private respondents.

HEIRS OF LLENADO vs LLENADO

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the May 30, 2000 Decision[1] of the Court of Appeals in CA-G.R. CV No. 58911 which
reversed the May 5, 1997 Decision[2] of the Regional Trial Court of Valenzuela City, Branch 75 in Civil Case No. 4248-V-93, and the
October 6, 2000 Resolution[3] which denied the motion for reconsideration. The appellate court dismissed for lack of merit the
complaint for annulment of deed of conveyance, title and damages filed by petitioner against herein respondents.

The subject of this controversy is a parcel of land denominated as Lot 249-D-1 (subject lot) consisting of 1,554 square meters located
in Barrio Malinta, Valenzuela, Metro Manila and registered in the names of Eduardo Llenado (Eduardo) and Jorge Llenado (Jorge)
under Transfer of Certificate of Title (TCT) No. V-1689.[4] The subject lot once formed part of Lot 249-D owned by and registered in
the name of their father, Cornelio Llenado (Cornelio), under TCT No. T-16810.

On December 2, 1975, Cornelio leased Lot 249-D-1 to his nephew, Romeo Llenado (Romeo), for a period of five years, renewable for
another five years at the option of Cornelio. On March 31, 1978, Cornelio, Romeo and the latters cousin Orlando Llenado (Orlando)
executed an Agreement[5] whereby Romeo assigned all his rights to Orlando over the unexpired portion of the aforesaid lease
contract. The parties further agreed that Orlando shall have the option to renew the lease contract for another three years commencing
from December 3, 1980, up to December 2, 1983, renewable for another four years or up to December 2, 1987, and that during the

41
period that [this agreement] is enforced, the x x x property cannot be sold, transferred, alienated or conveyed in whatever manner to
any third party.

Shortly thereafter or on June 24, 1978, Cornelio and Orlando entered into a Supplementary Agreement[6] amending the March 31,
1978 Agreement. Under the Supplementary Agreement, Orlando was given an additional option to renew the lease contract for an
aggregate period of 10 years at five-year intervals, that is, from December 3, 1987 to December 2, 1992 and from December 3, 1992
to December 2, 1997. The said provision was inserted in order to comply with the requirements of Mobil Philippines, Inc. for the
operation of a gasoline station which was subsequently built on the subject lot.

Upon the death of Orlando on November 7, 1983, his wife, Wenifreda Llenado (Wenifreda), took over the operation of the gasoline
station. Meanwhile, on January 29, 1987, Cornelio sold Lot 249-D to his children, namely, Eduardo, Jorge, Virginia and Cornelio, Jr.,
through a deed of sale, denominated as Kasulatan sa Ganap Na Bilihan,[7] for the sum of P160,000.00. As stated earlier, the subject
lot, which forms part of Lot 249-D, was sold to Eduardo and Jorge, and titled in their names under TCT No. V-1689. Several months
thereafter or on September 7, 1987, Cornelio passed away.

Sometime in 1993, Eduardo informed Wenifreda of his desire to take over the subject lot. However, the latter refused to vacate the
premises despite repeated demands. Thus, on September 24, 1993, Eduardo filed a complaint for unlawful detainer before the
Metropolitan Trial Court of Valenzuela, Metro Manila against Wenifreda, which was docketed as Civil Civil Case No. 6074.

On July 22, 1996, the Metropolitan Trial Court rendered its Decision in favor of Eduardo and ordered Wenifreda to: (1) vacate the
leased premises; (2) pay Eduardo reasonable compensation for the use and occupation of the premises plus attorneys fees, and (3) pay
the costs of the suit.

Wenifreda appealed to the Regional Trial Court of Valenzuela, Metro Manila, which reversed the decision of the court a quo. Thus,
Eduardo appealed to the Court of Appeals which rendered a Decision[8] on March 31, 1998 reversing the decision of the Regional
Trial Court and reinstating the decision of the Metropolitan Trial Court. It also increased the amount of reasonable compensation
awarded to Eduardo for the use of the leased premises. Wenifredas appeal to this Court, docketed as G.R. No. 135001, was dismissed
in a Resolution[9] dated December 2, 1998. Accordingly, an Entry of Judgment[10] was made in due course on July 8, 1999.

Previously, after Eduardo instituted the aforesaid unlawful detainer case on September 24, 1993, herein petitioner Wenifreda, in her
capacity as administratrix of the estate of Orlando Llenado, judicial guardian of their minor children, and surviving spouse and legal
heir of Orlando, commenced the subject Complaint,[11] later amended, on November 10, 1993 for annulment of deed of conveyance,
title and damages against herein respondents Eduardo, Jorge, Feliza Llenado (mother of the Llenado brothers), and the Register of
Deeds of Valenzuela, Metro Manila. The case was docketed as Civil Case No. 4248-V-93 and raffled to Branch 75 of the Regional
Trial Court of Valenzuela, Metro Manila.

Petitioner alleged that the transfer and conveyance of the subject lot by Cornelio in favor of respondents Eduardo and Jorge, was
fraudulent and in bad faith considering that the March 31, 1978 Agreement provided that while the lease is in force, the subject lot
cannot be sold, transferred or conveyed to any third party; that the period of the lease was until December 3, 1987 with the option to
renew granted to Orlando; that the subject lot was transferred and conveyed to respondents Eduardo and Jorge on January 29, 1987
when the lease was in full force and effect making the sale null and void; that Cornelio verbally promised Orlando that in case he
(Cornelio) decides to sell the subject lot, Orlando or his heirs shall have first priority or option to buy the subject lot so as not to
prejudice Orlandos business and because Orlando is the owner of the property adjacent to the subject lot; and that this promise was
wantonly disregarded when Cornelio sold the said lot to respondents Jorge and Eduardo.

In their Answer,[12] respondents Eduardo and Jorge claimed that they bought the subject lot from their father, Cornelio, for value and
in good faith; that the lease agreement and its supplement were not annotated at the back of the mother title of the subject lot and do
not bind them; that said agreements are personal only to Cornelio and Orlando; that the lease expired upon the death of Orlando on
November 7, 1983; that they were not aware of any verbal promise to sell the subject lot granted by Cornelio to Orlando and, even if
there was, said option to buy is unenforceable under the statute of frauds.

After the parties presented their respective evidence, the Regional Trial Court rendered judgment on May 5, 1997 in favor of
petitioner, viz:

WHEREFORE, PREMISES CONSIDERED, this Court finds the [petitioners] civil action duly established by preponderance of
evidence, renders judgment (adjudicates) in favor of the [petitioner], Estate of Orlando Llenado represented by Wenifreda Llenado,
and against [respondents] e.g. Jorge, Eduardo, Felisa Gallardo, all surnamed Llenado, and the Register of Deeds of Valenzuela, Metro
Manila, as follows:

1) It hereby judicially declare as non-existence (sic) and null and void, the following:
42
a) The Kasulatan Sa Ganap na Kasunduan or Deed of Sale;

b) TCT- Transfer Certificate of Title No. V-9440, in the name of [respondent] Eduardo Llenado, TCT- Transfer Certificate of Title
No. V-1689, in the name of Jorge Llenado, and Eduardo Llenado, and all deeds, documents or proceedings leading to the issuance of
said title, and all subsequent title issued therefrom and likewise whatever deeds, documents or proceedings leading to the issuance of
said subsequent titles;

2) It hereby orders the reconveyance of the said properties embraced in the said TCTs-Transfer Certificate of Title Nos. V-9440 and
V-1689 to the [petitioner] for the same consideration, or purchase price, paid by [respondents] Eduardo Llenado and Jorge Llenado for
the same properties;

3) It hereby orders [respondent], Register of Deeds of Valenzuela, Metro Manila, to cause the issuance of new transfer certificates of
title over the said property in the name of the [petitioner];

4) And, because this Court is not only a court of law, but of equity, it hereby rendered the following damages to be paid by the
[respondents], as the [respondents] litigated under bonafide assertions that they have meritorious defense, viz:

a) P400,000.00 as moral damages;

b) 10,000.00 as nominal damages;
c) 10,000.00 as temperate damages;
d) 10,000.00 as exemplary damages;
e) 10,000.00 attorneys fees on the basis of quantum merit; and
f) costs of suit.

SO ORDERED.[13]

The Regional Trial Court found that upon the death of Orlando on November 7, 1983, his rights under the lease contract were
transmitted to his heirs; that since the lease was in full force and effect at the time the subject lot was sold by Cornelio to his sons, the
sale violated the prohibitory clause in the said lease contract. Further, Cornelios promise to sell the subject lot to Orlando may be
established by parole evidence since an option to buy is not covered by the statute of frauds. Hence, the same is binding on Cornelio
and his heirs.

Respondents appealed before the Court of Appeals which rendered the assailed May 30, 2000 Decision reversing the judgment of the
Regional Trial Court and dismissing the Complaint. The appellate court held that the death of Orlando did not extinguish the lease
agreement and had the effect of transmitting his lease rights to his heirs. However, the breach of the non-alienation clause of the said
agreement did not nullify the sale between Cornelio and his sons because the heirs of Orlando are mere lessees on the subject lot and
can never claim a superior right of ownership over said lot as against the registered owners thereof. It further ruled that petitioner
failed to establish by a preponderance of evidence that Cornelio made a verbal promise to Orlando granting the latter the right of first
refusal if and when the subject lot was sold.

Upon the denial of its motion for reconsideration, petitioner is now before this Court on the following assignment of errors:

[T]he Court of Appeals erred:

1.- In finding and concluding that there is no legal basis to annul the deed of conveyance involved in the case and in not applying R.A.
No. 3516, further amending R.A. No. 1162; and

2.- In not finding and holding as null and void the subject deed of conveyance, the same having been executed in direct violation of an
expressed covenant in said deed and in total disregard of the pre-emptive, or preferential rights of the herein petitioners to buy the
property subject of their lease contract under said R.A. No. 3516, further amending R.A. No. 1162.[14]

The petition lacks merit.

Petitioner contends that the heirs of Orlando are entitled to the rights of a tenant under Republic Act (R.A.) No. 1162,[15] as amended
by R.A. No. 3516.[16] The right of first refusal or preferential right to buy the leased premises is invoked pursuant to Section 5[17] of
said law and this Courts ruling in Mataas Na Lupa Tenants Association, Inc. v. Dimayuga.[18]

This issue is being raised for the first time on appeal. True, in Mataas Na Lupa Tenants Association, Inc., the Court explained that
Section 1 of R.A. No. 1162, as amended by R.A. No. 3516, authorizes the expropriation of any piece of land in the City of Manila,
43
Quezon City and suburbs which have been and are actually being leased to tenants for at least 10 years, provided said lands have at
least 40 families of tenants thereon.[19] Prior to and pending the expropriation, the tenant shall have a right of first refusal or
preferential right to buy the leased premises should the landowner sell the same. However, compliance with the conditions for the
application of the aforesaid law as well as the qualifications of the heirs of Orlando to be beneficiaries thereunder were never raised
before the trial court, or even the Court of Appeals, because petitioner solely anchored its claim of ownership over the subject lot on
the alleged violation of the prohibitory clause in the lease contract between Cornelio and Orlando, and the alleged non-performance of
the right of first refusal given by Cornelio to Orlando. The rule is settled, impelled by basic requirements of due process, that points of
law, theories, issues and arguments not adequately brought to the attention of the lower court will not be ordinarily considered by a
reviewing court as they cannot be raised for the first time on appeal.[20] As the issue of the applicability of R.A. No. 1162, as
amended, was neither averred in the pleadings nor raised during the trial below, the same cannot be raised for the first time on appeal.

At any rate, the allegations in the Complaint and the evidence presented during the trial below do not establish that Orlando or his
heirs are covered by R.A. No. 1162, as amended. It was not alleged nor shown that the subject lot is part of the landed estate or
haciendas in the City of Manila which were authorized to be expropriated under said law; that the Solicitor General has instituted the
requisite expropriation proceedings pursuant to Section 2[21] thereof; that the subject lot has been actually leased for a period of at
least ten (10) years; and that the subject lot has at least forty (40) families of tenants thereon. Instead, what was merely established
during the trial is that the subject lot was leased by Cornelio to Orlando for the operation of a gasoline station, thus, negating
petitioners claim that the subject lot is covered by the aforesaid law. In Mataas Na Lupa Tenants Association, Inc., the Court further
explained that R.A. No. 1162, as amended, has been superseded by Presidential Decree (P.D.) No. 1517[22] entitled Proclaiming
Urban Land Reform in the Philippines and Providing for the Implementing Machinery Thereof.[23] However, as held in Tagbilaran
Integrated Settlers Association Incorporated v. Court of Appeals,[24] P.D. No. 1517 is applicable only in specific areas declared,
through presidential proclamation,[25] to be located within the so-called urban zones.[26] Further, only legitimate tenants who have
resided on the land for ten years or more who have built their homes on the land and residents who have legally occupied the lands by
contract, continuously for the last ten years, are given the right of first refusal to purchase the land within a reasonable time.[27]
Consequently, those lease contracts entered into for commercial use are not covered by said law.[28] Thus, considering that petitioner
failed to prove that a proclamation has been issued by the President declaring the subject lot as within the urban land reform zone and
considering further that the subject lot was leased for the commercial purpose of operating a gasoline station, P.D. No. 1517 cannot be
applied to this case.

In fine, the only issue for our determination is whether the sale of the subject lot by Cornelio to his sons, respondents Eduardo and
Jorge, is invalid for (1) violating the prohibitory clause in the lease agreement between Cornelio, as lessor-owner, and Orlando, as
lessee; and (2) contravening the right of first refusal of Orlando over the subject lot.

It is not disputed that the lease agreement contained an option to renew and a prohibition on the sale of the subject lot in favor of third
persons while the lease is in force. Petitioner claims that when Cornelio sold the subject lot to respondents Eduardo and Jorge the lease
was in full force and effect, thus, the sale violated the prohibitory clause rendering it invalid. In resolving this issue, it is necessary to
determine whether the lease agreement was in force at the time of the subject sale and, if it was in force, whether the violation of the
prohibitory clause invalidated the sale.

Under Article 1311 of the Civil Code, the heirs are bound by the contracts entered into by their predecessors-in-interest except when
the rights and obligations therein are not transmissible by their nature, by stipulation or by provision of law. A contract of lease is,
therefore, generally transmissible to the heirs of the lessor or lessee. It involves a property right and, as such, the death of a party does
not excuse non-performance of the contract.[29] The rights and obligations pass to the heirs of the deceased and the heir of the
deceased lessor is bound to respect the period of the lease.[30] The same principle applies to the option to renew the lease. As a
general rule, covenants to renew a lease are not personal but will run with the land.[31] Consequently, the successors-in-interest of the
lessee are entitled to the benefits, while that of the lessor are burdened with the duties and obligations, which said covenants conferred
and imposed on the original parties.

The foregoing principles apply with greater force in this case because the parties expressly stipulated in the March 31, 1978
Agreement that Romeo, as lessee, shall transfer all his rights and interests under the lease contract with option to renew in favor of the
party of the Third Part (Orlando), the latters heirs, successors and assigns[32] indicating the clear intent to allow the transmissibility of
all the rights and interests of Orlando under the lease contract unto his heirs, successors or assigns. Accordingly, the rights and
obligations under the lease contract with option to renew were transmitted from Orlando to his heirs upon his death on November 7,
1983.

It does not follow, however, that the lease subsisted at the time of the sale of the subject lot on January 29, 1987. When Orlando died
on November 7, 1983, the lease contract was set to expire 26 days later or on December 3, 1983, unless renewed by Orlandos heirs for
another four years. While the option to renew is an enforceable right, it must necessarily be first exercised to be given effect.[33] As
the Court explained in Dioquino v. Intermediate Appellate Court:[34]

44
A clause found in an agreement relative to the renewal of the lease agreement at the option of the lessee gives the latter an enforceable
right to renew the contract in which the clause is found for such time as provided for. The agreement is understood as being in favor of
the lessee, and the latter is authorized to renew the contract and to continue to occupy the leased property after notifying the lessor to
that effect. A lessors covenant or agreement to renew gives a privilege to the tenant, but is nevertheless an executory contract, and
until the tenant has exercised the privilege by way of some affirmative act, he cannot be held for the additional term. In the absence of
a stipulation in the lease requiring notice of the exercise of an option or an election to renew to be given within a certain time before
the expiration of the lease, which of course, the lessee must comply with, the general rule is that a lessee must exercise an option or
election to renew his lease and notify the lessor thereof before, or at least at the time of the expiration of his original term, unless there
is a waiver or special circumstances warranting equitable relief.

There is no dispute that in the instant case, the lessees (private respondents) were granted the option to renew the lease for another five
(5) years after the termination of the original period of fifteen years. Yet, there was never any positive act on the part of private
respondents before or after the termination of the original period to show their exercise of such option. The silence of the lessees after
the termination of the original period cannot be taken to mean that they opted to renew the contract by virtue of the promise by the
lessor, as stated in the original contract of lease, to allow them to renew. Neither can the exercise of the option to renew be inferred
from their persistence to remain in the premises despite petitioners demand for them to vacate. x x x.[35]

Similarly, the election of the option to renew the lease in this case cannot be inferred from petitioner Wenifredas continued possession
of the subject lot and operation of the gasoline station even after the death of Orlando on November 7, 1983 and the expiration of the
lease contract on December 3, 1983. In the unlawful detainer case against petitioner Wenifreda and in the subject complaint for
annulment of conveyance, respondents consistently maintained that after the death of Orlando, the lease was terminated and that they
permitted petitioner Wenifreda and her children to remain in possession of the subject property out of tolerance and respect for the
close blood relationship between Cornelio and Orlando. It was incumbent, therefore, upon petitioner as the plaintiff with the burden of
proof during the trial below to establish by some positive act that Orlando or his heirs exercised the option to renew the lease. After
going over the records of this case, we find no evidence, testimonial or documentary, of such nature was presented before the trial
court to prove that Orlando or his heirs exercised the option to renew prior to or at the time of the expiration of the lease on December
3, 1983. In particular, the testimony of petitioner Wenifreda is wanting in detail as to the events surrounding the implementation of the
subject lease agreement after the death of Orlando and any overt acts to establish the renewal of said lease.

Given the foregoing, it becomes unnecessary to resolve the issue on whether the violation of the prohibitory clause invalidated the sale
and conferred ownership over the subject lot to Orlandos heirs, who are mere lessees, considering that at the time of said sale on
January 29, 1987 the lease agreement had long been terminated for failure of Orlando or his heirs to validly renew the same. As a
result, there was no obstacle to the sale of the subject lot by Cornelio to respondents Eduardo and Jorge as the prohibitory clause under
the lease contract was no longer in force.

Petitioner also anchors its claim over the subject lot on the alleged verbal promise of Cornelio to Orlando that should he (Cornelio)
sell the same, Orlando would be given the first opportunity to purchase said property. According to petitioner, this amounted to a right
of first refusal in favor of Orlando which may be proved by parole evidence because it is not one of the contracts covered by the
statute of frauds. Considering that Cornelio sold the subject lot to respondents Eduardo and Jorge without first offering the same to
Orlandos heirs, petitioner argues that the sale is in violation of the latters right of first refusal and is, thus, rescissible.

The question as to whether a right of first refusal may be proved by parole evidence has been answered in the affirmative by this Court
in Rosencor Development Corporation v. Inquing:[36]

We have previously held that not all agreements affecting land must be put into writing to attain enforceability. Thus, we have held
that the setting up of boundaries, the oral partition of real property, and an agreement creating a right of way are not covered by the
provisions of the statute of frauds. The reason simply is that these agreements are not among those enumerated in Article 1403 of the
New Civil Code.

A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article
1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale. A right of first
refusal, such as the one involved in the instant case, is not by any means a perfected contract of sale of real property. At best, it is a
contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to be sold.

It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal
need not be written to be enforceable and may be proven by oral evidence.[37]

In the instant case, the Regional Trial Court ruled that the right of first refusal was proved by oral evidence while the Court of Appeals
disagreed by ruling that petitioner merely relied on the allegations in its Complaint to establish said right. We have reviewed the
45
records and find that no testimonial evidence was presented to prove the existence of said right. The testimony of petitioner Wenifreda
made no mention of the alleged verbal promise given by Cornelio to Orlando. The two remaining witnesses for the plaintiff, Michael
Goco and Renato Malindog, were representatives from the Register of Deeds of Caloocan City who naturally were not privy to this
alleged promise. Neither was it established that respondents Eduardo and Jorge were aware of said promise prior to or at the time of
the sale of the subject lot. On the contrary, in their answer to the Complaint, respondents denied the existence of said promise for lack
of knowledge thereof.[38] Within these parameters, petitioners allegations in its Complaint cannot substitute for competent proof on
such a crucial factual issue. Necessarily, petitioners claims based on this alleged right of first refusal cannot be sustained for its
existence has not been duly established.

WHEREFORE, the petition is DENIED. The May 30, 2000 Decision of the Court of Appeals in CA-G.R. CV No. 58911 dismissing
the complaint for annulment of deed of conveyance, title and damages, and the October 6, 2000 Resolution denying the motion for
reconsideration, are AFFIRMED.

Costs against petitioner.

SO ORDERED.

PNB vs DEE

REYES, J.:

This is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the Decision2 dated August 13, 2007 and Resolution3
dated March 13, 2008 rendered by the Court of Appeals (CA) in CA-G.R. SP No. 86033, which affirmed the Decision4 dated August
4, 2004 of the Office of the President (OP) in O.P. Case No. 04-D-182 (HLURB Case No. REM-A-030724-0186).

Facts of the Case

Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent Prime East Properties Inc.5 (PEPI) on an
installment basis a residential lot located in Binangonan, Rizal, with an area of 204 square meters6 and covered by Transfer Certificate
of Title (TCT) No. 619608. Subsequently, PEPI assigned its rights over a 213,093-sq m property on August 1996 to respondent
Armed Forces of the Philippines-Retirement and Separation Benefits System, Inc. (AFP-RSBS), which included the property
purchased by Dee.

Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank (petitioner),
secured by a mortgage over several properties, including Dee’s property. The mortgage was cleared by the Housing and Land Use
Regulatory Board (HLURB) on September 18, 1996.7

After Dee’s full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFP-RSBS on July 1998 in
Dee’s favor. Consequently, Dee sought from the petitioner the delivery of the owner’s duplicate title over the property, to no avail.
Thus, she filed with the HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by the petitioner, PEPI
and AFP-RSBS, among others. In its Decision8 dated May 21, 2003, the HLURB ruled in favor of Dee and disposed as follows:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block 21-A, Village East Executive Homes covered by Transfer
Certificate of Title No. -619608-(TCT No. -619608-), and accordingly, surrender/release the title thereof to [Dee];

2. Immediately upon receipt by [Dee] of the owner’s duplicate of Transfer Certificate of Title No. -619608- (TCT No. -619608-),
respondents PEPI and AFP-RSBS are hereby ordered to deliver the title of the subject lot in the name of [Dee] free from all liens and
encumbrances;

3. Directing respondents PEPI and AFP-RSBS to pay [the petitioner] the redemption value of Lot 12, Block 21-A, Village East
Executive Homes covered by Transfer Certificate of Title No. -619608- (TCT No. -619608-) as agreed upon by them in their Real
Estate Mortgage within six (6) months from the time the owner’s duplicate of Transfer Certificate of Title No. -619608- (TCT No. -
619608-) is actually surrendered and released by [the petitioner] to [Dee];

4. In the alternative, in case of legal and physical impossibility on the part of [PEPI, AFP-RSBS, and the petitioner] to comply and
perform their respective obligation/s, as above-mentioned, respondents PEPI and AFP-RSBS are hereby ordered to jointly and
severally pay to [Dee] the amount of FIVE HUNDRED TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve percent (12%)
interest to be computed from the filing of complaint on April 24, 2002 until fully paid; and
46
5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly and severally [Dee] the following sums:

a) The amount of TWENTY FIVE THOUSAND PESOS ([P]25,000.00) as attorney’s fees;

b) The cost of litigation[;] and

c) An administrative fine of TEN THOUSAND PESOS ([P]10,000.00) payable to this Office fifteen (15) days upon receipt of this
decision, for violation of Section 18 in relation to Section 38 of PD 957.

SO ORDERED.9

The HLURB decision was affirmed by its Board of Commissioners per Decision dated March 15, 2004, with modification as to the
rate of interest.10
On appeal, the Board of Commissioners’ decision was affirmed by the OP in its Decision dated August 4, 2004, with modification as
to the monetary award.11

Hence, the petitioner filed a petition for review with the CA, which, in turn, issued the assailed Decision dated August 13, 2007,
affirming the OP decision. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated August 4, 2004 rendered by the Office of the
President in O. P. Case No. 04-D-182 (HLURB Case No. REM-A-030724-0186) is hereby AFFIRMED.

SO ORDERED.12

Its motion for reconsideration having been denied by the CA in the Resolution dated March 13, 2008, the petitioner filed the present
petition for review on the following grounds:

I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING OUTRIGHT RELEASE OF TCT NO. 619608 DESPITE
PNB’S DULY REGISTERED AND HLURB[-] APPROVED MORTGAGE ON TCT NO. 619608.

II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING CANCELLATION OF MORTGAGE/RELEASE OF

TITLE IN FAVOR OF RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR SETTLEMENT BY THE MORTGAGOR
(API/PEPI and AFP-RSBS) OF ITS EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR EXERCISE OF RIGHT OF
REDEMPTION BY THE MORTGAGOR AS MANDATED BY SECTION 25 OF PD 957 OR DIRECT PAYMENT MADE BY
RESPONDENT DEE TO PNB PURSUANT TO THE DEED OF UNDERTAKING WHICH WOULD WARRANT RELEASE OF
THE SAME.13

The petitioner claims that it has a valid mortgage over Dee’s property, which was part of the property mortgaged by PEPI to it to
secure its loan obligation, and that Dee and PEPI are bound by such mortgage. The petitioner also argues that it is not privy to the
transactions between the subdivision project buyers and PEPI, and has no obligation to perform any of their respective undertakings
under their contract.14

The petitioner also maintains that Presidential Decree (P.D.) No. 95715 cannot nullify the subsisting agreement between it and PEPI,
and that the petitioner’s rights over the mortgaged properties are protected by Act 313516. If at all, the petitioner can be compelled to
release or cancel the mortgage only after the provisions of P.D. No. 957 on redemption of the mortgage by the owner/developer
(Section 25) are complied with. The petitioner also objects to the denomination by the CA of the provisions in the Affidavit of
Undertaking as stipulations pour autrui,17 arguing that the release of the title was conditioned on Dee’s direct payment to it.18

Respondent AFP-RSBS, meanwhile, contends that it cannot be compelled to pay or settle the obligation under the mortgage contract
between PEPI and the petitioner as it is merely an investor in the subdivision project and is not privy to the mortgage.19

Respondent PEPI, on the other hand, claims that the title over the subject property is one of the properties due for release by the
petitioner as it has already been the subject of a Memorandum of Agreement and dacion en pago entered into between them.20 The
agreement was reached after PEPI filed a petition for rehabilitation, and contained the stipulation that the petitioner agreed to release
the mortgage lien on fully paid mortgaged properties upon the issuance of the certificates of title over the dacioned properties.21

For her part, respondent Dee adopts the arguments of the CA in support of her prayer for the denial of the petition for review.22

Ruling of the Court

47
The petition must be DENIED.

The petitioner is correct in arguing that it is not obliged to perform any of the undertaking of respondent PEPI and AFP-RSBS in its
transactions with Dee because it is not a privy thereto. The basic principle of relativity of contracts is that contracts can only bind the
parties who entered into it,23 and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof.24 "Where there is no privity of contract, there is likewise no obligation or liability to speak about."25

The petitioner, however, is not being tasked to undertake the obligations of PEPI and AFP-RSBS.1avvphi1 In this case, there are two
phases involved in the transactions between respondents PEPI and Dee – the first phase is the contract to sell, which eventually
became the second phase, the absolute sale, after Dee’s full payment of the purchase price. In a contract of sale, the parties’
obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that is the object of
sale.26 On the other hand, the principal obligation of a vendee is to pay the full purchase price at the agreed time.27 Based on the final
contract of sale between them, the obligation of PEPI, as owners and vendors of Lot 12, Block 21-A, Village East Executive Homes,
is to transfer the ownership of and to deliver Lot 12, Block 21-A to Dee, who, in turn, shall pay, and has in fact paid, the full purchase
price of the property. There is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which shows that the
petitioner is being ordered to assume the obligation of any of the respondents. There is also nothing in the HLURB decision, which
validates the petitioner’s claim that the mortgage has been nullified. The order of cancellation/release of the mortgage is simply a
consequence of Dee’s full payment of the purchase price, as mandated by Section 25 of P.D. No. 957, to wit:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or
unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance
of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or
developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title
over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith.

It must be stressed that the mortgage contract between PEPI and the petitioner is merely an accessory contract to the principal three-
year loan takeout from the petitioner by PEPI for its expansion project. It need not be belaboured that "[a] mortgage is an accessory
undertaking to secure the fulfillment of a principal obligation,"28 and it does not affect the ownership of the property as it is nothing
more than a lien thereon serving as security for a debt.29

Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was
still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well
within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not
to pass until full payment of the purchase price.30 In other words, at the time of the mortgage, PEPI was still the owner of the
property. Thus, in China Banking Corporation v. Spouses Lozada,31 the Court affirmed the right of the owner/developer to mortgage
the property subject of development, to wit: "[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the
subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the
purchase price by the installment buyer."32 Moreover, the mortgage bore the clearance of the HLURB, in compliance with Section 18
of P.D. No. 957, which provides that "[n]o mortgage on any unit or lot shall be made by the owner or developer without prior written
approval of the [HLURB]."

Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound to respect the
transactions between respondents PEPI and Dee. The petitioner was well aware that the properties mortgaged by PEPI were also the
subject of existing contracts to sell with other buyers. While it may be that the petitioner is protected by Act No. 3135, as amended, it
cannot claim any superior right as against the installment buyers. This is because the contract between the respondents is protected by
P.D. No. 957, a social justice measure enacted primarily to protect innocent lot buyers.33 Thus, in Luzon Development Bank v.
Enriquez,34 the Court reiterated the rule that a bank dealing with a property that is already subject of a contract to sell and is protected
by the provisions of P.D. No. 957, is bound by the contract to sell.35

However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the
Contract to Sell, involving a subdivision lot, is covered and protected by PD 957.

x x x.

xxxx

x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were
already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a
bank regarding a subdivision lot that was already subject of a contract to sell with a third party:
48
"[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable
person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained
from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the
property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the
Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a
thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent
mortgagee. x x x"36 (Citation omitted)

More so in this case where the contract to sell has already ripened into a contract of absolute sale.1âwphi1

Moreover, PEPI brought to the attention of the Court the subsequent execution of a Memorandum of Agreement dated November 22,
2006 by PEPI and the petitioner. Said agreement was executed pursuant to an Order dated February 23, 2004 by the Regional Trial
Court (RTC) of Makati City, Branch 142, in SP No. 02-1219, a petition for Rehabilitation under the Interim Rules of Procedure on
Corporate Rehabilitation filed by PEPI. The RTC order approved PEPI’s modified Rehabilitation Plan, which included the settlement
of the latter’s unpaid obligations to its creditors by way of dacion of real properties. In said order, the RTC also incorporated certain
measures that were not included in PEPI’s plan, one of which is that "[t]itles to the lots which have been fully paid shall be released to
the purchasers within 90 days after the dacion to the secured creditors has been completed."37 Consequently, the agreement stipulated
that as partial settlement of PEPI’s obligation with the petitioner, the former absolutely and irrevocably conveys by way of "dacion en
pago" the properties listed therein,38 which included the lot purchased by Dee. The petitioner also committed to –

[R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the certificates of title over the Dacioned Properties in
the name of the [petitioner]. The request for release of a Mortgaged Property shall be accompanied with: (i) proof of full payment by
the buyer, together with a certificate of full payment issued by the Borrower x x x. The [petitioner] hereby undertakes to cause the
transfer of the certificates of title over the Dacioned Properties and the release of the Mortgaged Properties with reasonable
dispatch.39

Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.40 It is a mode of extinguishing an existing obligation41 and partakes the
nature of sale as the creditor is really buying the thing or property of the debtor, the payment for which is to be charged against the
debtor’s debt.42 Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon
by the parties or as may be proved, unless the parties by agreement – express or implied, or by their silence – consider the thing as
equivalent to the obligation, in which case the obligation is totally extinguished.43

There is nothing on record showing that the Memorandum of Agreement has been nullified or is the subject of pending litigation;
hence, it carries with it the presumption of validity.44 Consequently, the execution of the dation in payment effectively extinguished
respondent PEPI’s loan obligation to the petitioner insofar as it covers the value of the property purchased by Dee. This negates the
petitioner’s claim that PEPI must first redeem the property before it can cancel or release the mortgage. As it now stands, the
petitioner already stepped into the shoes of PEPI and there is no more reason for the petitioner to refuse the cancellation or release of
the mortgage, for, as stated by the Court in Luzon Development Bank, in accepting the assigned properties as payment of the
obligation, "[the bank] has assumed the risk that some of the assigned properties are covered by contracts to sell which must be
honored under PD 957."45 Whatever claims the petitioner has against PEPI and AFP-RSBS, monetary or otherwise, should not
prejudice the rights and interests of Dee over the property, which she has already fully paid for.

As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the law—as
an instrument of social justice—must favor the weak.46 (Emphasis omitted)

Finally, the Court will not dwell on the arguments of AFP-RSBS given the finding of the OP that "[b]y its non-payment of the appeal
fee, AFP-RSBS is deemed to have abandoned its appeal and accepts the decision of the HLURB."47 As such, the HLURB decision
had long been final and executory as regards AFP-RSBS and can no longer be altered or modified.48

WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the Decision dated August 13, 2007 and
Resolution dated March 13, 2008 of the Court of Appeals in CA-G.R. SP No. 86033 are AFFIRMED.

Petitioner Philippine National Bank and respondents Prime East Properties Inc. and Armed Forces of the Philippines-Retirement and
Separation Benefits System, Inc. are hereby ENJOINED to strictly comply with the Housing and Land Use Regulatory Board
Decision dated May 21, 2003, as modified by its Board of Commissioners Decision dated March 15, 2004 and Office of the President
Decision dated August 4, 2004.

SO ORDERED.
49
ROJALES vs DIME

PERALTA, J.:

Challenged and sought to be set aside in this petition for review on certiorari dated December 9, 2010 of petitioner Juana Vda. de
Rojales, substituted by her heirs Celerina Rojales, Reynaldo Rojales, Pogs Rojales, Olive Rojales and Josefina Rojales is the
Decision1 dated August 16, 2010 of the Court of Appeals (CA), as reiterated in its Resolution2 dated November 15, 2010 in CA-G.R.
CV No. 92228, reversing and setting aside the Decision3 dated May 7, 2008 of the Regional Trial Court (RTC) of Nasugbu, Batangas,
Branch 14, which dismissed the petition for the consolidation of ownership and title over Lot 4-A covered by Transfer Certificate of
Title (TCT) No. T-55726 in the name of the respondent Marcelino Dime.

The antecedents are as follows:

Petitioner Juana Vda. de Rojales owned a parcel of land (Lot 4-A) located at Barrio Remanente, Municipality of Nasugbu, Batangas
consisting of 2,064 square meters covered by TCT No. T-55726.4chanroblesvirtuallawlibrary

In a petition dated May 30, 2000 filed before the RTC of Nasugbu, Batangas, Branch 14, respondent Marcelino Dime alleged that on
May 16, 1999, petitioner conveyed under a pacto de retro contract Lot 4-A in favor of respondent for and in consideration of the sum
of P2,502,932.10.5 Petitioner reserved the right to repurchase the property for the same price within a period of nine (9) months from
March 24, 1999 to December 24, 1999.6 Despite repeated verbal and formal demands to exercise her right, petitioner refused to
exercise her right to repurchase the subject property.7chanroblesvirtuallawlibrary

In her answer, petitioner denied the execution of the pacto de retro sale in favor of respondent and alleged that she had not sold the
subject property.8 She claimed that the document presented by respondent was falsified since the fingerprint appearing therein was not
hers and the signature of the Notary Public Modesto S. Alix was not his.9 She also averred that she filed falsification and use of
falsified documents charges against respondent.10chanroblesvirtuallawlibrary

In her sworn statement attached to her Answer, petitioner alleged that she mortgaged the subject property with the Batangas Savings
and Loan Bank for P100,000.00 when her daughter Violeta Rojales Rufo needed the money for application of overseas work; Antonio
Barcelon redeemed the property and paid P260,000.00 for the debt plus the unpaid interest with the bank; when Barcelon entered the
mayoralty race, he demanded payment of the debt, then mortgaged the title of the subject property with respondent; and the signatures
appearing in the documents were falsified.11chanroblesvirtuallawlibrary

During the pre-trial, the parties agreed that petitioner is the registered owner of the subject property, and that she once mortgaged the
property with the Batangas Savings & Loan Bank in order to secure a loan of P200,000.00 from the bank.12 They also submitted the
following issues for resolution: whether the pacto de retro sale was executed by petitioner; whether the consideration of the sale has
been paid to petitioner; and whether the contract of sale con pacto de retro is genuine.13chanroblesvirtuallawlibrary

Upon the joint motion of the parties, the RTC issued an Order dated November 16, 2000 directing the questioned thumbmark be
referred to the fingerprint expert of the National Bureau of Investigation (NBI) to determine whether the thumbmark appearing in the
pacto de retro contract and the specimen thumbmark of the petitioner are the same.14chanroblesvirtuallawlibrary

On April 16, 2001, the NBI submitted a copy of Dactyloscopic Report FP Case No. 2000-349 by Fingerprint Examiner Eriberto B.
Gomez, Jr. to the court. It was concluded therein that the questioned thumbmark appearing on the original-duplicate copy of the
notarized pacto de retro sale and the standard right thumbmark, taken by Police Officer Marcelo Quintin Sosing, were impressed by
and belong to the same person, the petitioner.15chanroblesvirtuallawlibrary

Respondent passed away on June 22, 2002 before the trial on the merits of the case ensued. Being his compulsory heirs, respondent's
estranged wife Bonifacia Dime and their children Cesario Antonio Dime and Marcelino Dime, Jr., substituted him in the
suit.16chanroblesvirtuallawlibrary

On July 11, 2006, the heirs of respondent filed a Manifestation and Motion to Dismiss the Complaint on the ground that it was Rufina
Villamin, respondent's common law wife, who was the source of the fund in purchasing Lot 4-A.17 They alleged that the
consolidation of ownership and title to respondent would be prejudicial to Villamin and would unjustly enrich them.18 Consequently,
the RTC, through Judge Christino E. Judit, in an Order dated July 12, 2006, dismissed the case with prejudice on the ground that the
case was not filed by an indispensable party, Villamin.19chanroblesvirtuallawlibrary

However, on August 2, 2006, Atty. Pedro N. Belmi, the counsel of respondent, filed a Motion for Reconsideration praying to set aside
the dismissal with prejudice on the ground that Villamin and the daughters of petitioner, Manilyn Rojales Sevilla and Olivia Rojales,
50
tricked and manipulated the respondent's widow and her children to affix their signatures on the motion to dismiss.20 Atty. Belmi
insisted that the RTC erred in giving credence to the motion without his verification that the motion was indeed freely and voluntarily
executed by the parties.21chanroblesvirtuallawlibrary

Feeling that the respondent's counsel already lost his trust and confidence to his impartiality and lack of bias to resolve the case, Judge
Judit inhibited himself from the case on January 25, 2007 without waiting for the petitioner to file a motion for inhibition against
him.22 This Court designated Judge Wilfredo De Joya Mayor to replace Judge Judit.23chanroblesvirtuallawlibrary

In an Order dated October 25, 2007, Judge Mayor set aside the order of dismissal of the case and set the hearing for further reception
of evidence.24chanroblesvirtuallawlibrary

Thereafter, the RTC ruled in favor of the petitioner. The court a quo ratiocinated that it is a clear mistake to rule on the merits of the
case knowing that such was not filed by the indispensable party, hence, the judgment will be void.25 The RTC considered the
unverified motion for reconsideration filed by Atty. Belmi as an unsigned pleading.26 It further held that the manifestation and motion
to dismiss deserved the presumption of validity since there was no sufficient proof that the compulsory heirs who substituted
respondent were made to sign such motion without knowing its content.27 The fallo of the decision
reads:ChanRoblesVirtualawlibrary

WHEREFORE, premises considered, the above-captioned case is hereby DISMISSED for utterly lack of merit.

SO ORDERED.28chanroblesvirtuallawlibrary
Aggrieved, respondent assailed the decision before the CA. In a Decision dated August 16, 2010, the CA reversed and set aside the
decision of the RTC. The dispositive portion of the decision reads:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the instant appeal is GRANTED and the herein assailed Decision of the trial court dated May 7,
2008 is hereby REVERSED and SET ASIDE. Accordingly, judgment is hereby rendered ordering the consolidation of ownership over
the property (Lot 4-A) covered by TCT No. T-55726 in the name of the vendee a retro Marcelino Dime.

SO ORDERED.29chanroblesvirtuallawlibrary
The CA rejected the ruling of the court a quo that Villamin was an indispensable party. It ruled that the person who provided the funds
for the purchase of the property is not considered as an indispensable party in a case of consolidation of title filed by respondent, the
vendee, in whose favor the petitioner sold the subject property under the contract of sale con pacto de
retro.30chanroblesvirtuallawlibrary

Upon the denial of her Motion for Reconsideration by the CA, petitioner filed the instant petition raising the following
issues:ChanRoblesVirtualawlibrary
THE HONORABLE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO THIS APPEAL DESPITE THE
MANIFESTATION OF THE HEIRS OF MARCELINO DIME TO DISMISS THE CASE.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE NECESSITY OF VERIFICATION OF THE
RESPONDENTS IN THE MOTION FOR RECONSIDERATION FILED BEFORE THE REGIONAL TRIAL COURT.

THE HONORABLE COURT OF APPEALS ERRED IN ALLOWING THE CONSOLIDATION OF THE TITLE DESPITE THE
MANIFESTATION AND ADMISSION OF THE RESPONDENTS THAT CONTINUING SO WOULD CONSTITUTE UNJUST
ENRICHMENT.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT THE PETITIONERS FAILED TO OVERCOME
THE PRESUMPTION OF REGULARITY OF THE SUBJECT PACTO DE RETRO SALE.
This Court finds the instant petition devoid of merit.

Bisecting the first and third issues, this Court notes that the petitioner basically argues that the CA erred in ordering the consolidation
of ownership and title in the name of respondent Dime since his heirs have filed a motion to dismiss which admitted therein that a
ruling of the trial court in respondent's favor is tantamount to unjust enrichment considering that Villamin provided the funds for the
purchase of the subject property.

Relying on the principle that the client has the exclusive control of the cause of action on the claim or demand sued upon, petitioner
insists that the filing of the manifestation reflected the intention of the heirs of respondent to enter into a settlement with the
petitioner.31chanroblesvirtuallawlibrary

51
Settled is the rule that a client has an undoubted right to settle her litigation without the intervention of the attorney, for the former is
generally conceded to have exclusive control over the subject matter of the litigation and may at anytime, if acting in good faith, settle
and adjust the cause of action out of court before judgment, even without the attorney's intervention.32chanroblesvirtuallawlibrary

While we agree with the petitioner that the heirs, as the client, has the exclusive control over the subject matter of litigation and may
settle the case without the attorney's intervention, we deny the rationale of the filing of the motion to dismiss by the heirs. It was
alleged that they would be unjustly enriched should the court order the consolidation of the title of Lot 4-A in the name of respondent
since the source of the consideration was Villamin, respondent's common-law wife.

As relevant to the case at bar, Articles 1311 and 1607 of the Civil Code provide:ChanRoblesVirtualawlibrary
Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond
the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a third person. (Emphasis supplied).

xxxx

Article 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply
with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been
duly heard.
We have consistently held that the parties to a contract are the real parties-in-interest in an action upon it.33 The basic principle of
relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even
if he is aware of such contract and has acted with knowledge thereof.34 Hence, one who is not a party to a contract, and for whose
benefit it was not expressly made, cannot maintain an action on it.35 One cannot do so, even if the contract performed by the
contracting parties would incidentally inure to one's benefit.36chanroblesvirtuallawlibrary

As evidenced by the contract of Pacto de Retro sale,37 petitioner, the vendor, bound herself to sell the subject property to respondent,
the vendee, and reserved the right to repurchase the same property for the same amount within a period of nine (9) months from March
24, 1999 to December 24, 1999.38 Therefore, in an action for the consolidation of title and ownership in the name of vendee in
accordance with Article 161639 of the Civil Code, the indispensable parties are the parties to the Pacto de Retro Sale - the vendor, the
vendee, and their assigns and heirs.

Villamin, as the alleged source of the consideration, is not privy to the contract of sale between the petitioner and the respondent.
Therefore, she could not maintain an action for consolidation of ownership and title of the subject property in her name since she was
not a party to the said contract.

Where there is no privity of contract, there is likewise no obligation or liability to speak about.40 This Court, in defining the word
"privy" in the case of Republic vs. Grijaldo41 said that the word privy denotes the idea of succession, thus, he who by succession is
placed in the position of one of those who contracted the judicial relation and executed the private document and appears to be
substituting him in the personal rights and obligation is a privy.42chanroblesvirtuallawlibrary

For not being an heir or an assignee of the respondent, Villamin did not substitute respondent in the personal rights and obligation in
the pacto de retro sale by succession. Since she is not privy to the contract, she cannot be considered as indispensable party in the
action for consolidation of title and ownership in favor of respondent. A cursory reading of the contract reveals that the parties did not
clearly and deliberately confer a favor upon Villamin, a third person.

Petitioner alleges that the consolidation of the title should not be allowed since the heirs admitted that they would be unjustly enriched,
Villamin being the source of the fund used for the purchase of the subject property.43chanroblesvirtuallawlibrary

Unjust enrichment exists when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and good conscience.44 The prevention of unjust enrichment is a
recognized public policy of the State, as embodied in Article 22 of the Civil Code which provides that "[e]very 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."45chanroblesvirtuallawlibrary

This Court notes that the RTC relied on the bare assertions of the heirs in dismissing the case with prejudice. The records are bereft of
evidence to support the allegation that Villamin has indeed provided the consideration. Not being a privy to the pacto de retro sale,
52
Villamin cannot be considered to have been prejudiced with the consolidation of title in respondent's name. Assuming arguendo that
she was indeed the source of the consideration, she has a separate cause of action against respondent. The legal obligation of
respondent to her is separate and distinct from the contract of sale cow pacto de retro, thus, the award of consolidation of title in her
name would be untenable.

Anent the issue on verification, Section 4, Rule 7 of the Rules of Court provides as follows:ChanRoblesVirtualawlibrary
Sec. 4. Verification. - Except when otherwise specifically required by law or rule, pleadings need not be under oath, verified or
accompanied by affidavit.

A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein are true and correct of his
personal knowledge or based on authentic records.
We do not agree with petitioner's assertion that the motion for reconsideration should not have been allowed since the respondent
failed to pose a reasonable explanation on the absence of verification.

Time and again, we have said that non-compliance with verification or a defect therein does not necessarily render the pleading fatally
defective.46 Verification, like in most cases required by the rules of procedure, is a formal requirement, not jurisdictional.47 It is
mainly intended to secure an assurance that matters which are alleged are done in good faith or are true and correct and not of mere
speculation.48 Thus, when circumstances so warrant, "the court may simply order the correction of unverified pleadings or act on it
and waive strict compliance with the rules in order that the ends of justice may thereby be served."49chanroblesvirtuallawlibrary

The RTC waived the strict compliance for verification when it acted on the motion for reconsideration in the interest of justice and
equity and allowed the further reception of evidence. Therefore, it is erroneous to dismiss the case based on the non-compliance of
verification. As discussed earlier, Villamin is not privy to the pacto de retro sale between the petitioner and the respondent. Hence, the
case should not have been dismissed because Villamin is not an indispensable party in an action for consolidation of ownership and
title emanating from the contract of pacto de retro sale.

Petitioner's allegation that respondent should have executed affidavits in denying what was written in the manifestation and motion to
dismiss based on Rule 8, Section 850 of the Rules of Court is unfounded. Such rule is applicable in contesting an action or defense
based on a written instrument or document copied or attached to the pleading. In the case at bar, it is the motion to dismiss that is
being contested and not a written instrument or document which an action or defense is based on.

Petitioner avers that the CA erred in relying on the NBI Fingerprint Examination. She alleges that the opinion of one claiming to be an
expert is not binding upon the court.

There is nothing on record that would compel this Court to believe that said witness, Fingerprint Examiner Gomez, has improper
motive to falsely testify against the petitioner nor was his testimony not very certain. His testimony is worthy of full faith and credit in
the absence of evidence of an improper motive. His straightforward and consistent testimonies bear the earmarks of credibility.

Gomez testified during direct and cross examination, the process of examination of the fingerprints and his
conclusion:51chanroblesvirtuallawlibrary
ATTY: BELMI:
Q:
Will you kindly tell the court what was the result of your examination?
A:
After having thorough examination, comparison and analysis, the thumbmark appearing on the [Pacto] de Retro and the right
thumbmark appearing on the original copy of PC/INP Fingerprint form taken by SPO3 Marcelo Quintin Sosing were impressed by
one and the same person.
xxxx
Q:
How do you go about this comparison to determine whether that thumbmark were impressed by the same person?
A:
We must locate the three elements of comparing, the number 1 is type of fingerprint pattern.
xxxx
A:
There are three elements, after knowing the fingerprint pattern and they are of the same fingerprint the next step is to know the flow of
the rages of the fingerprint pattern or the shape.
xxxx
Q:
Then what is next?
A:
53
After number 2, the last is the most important one because you must locate the number of ridges of characteristics and their
relationship with each other because it is the basis of identification of the fingerprint.
Q:
Meaning the description of the ridges?
A:
Yes, sir, the identification features appearing on the fingerprint.
Q:
What did you see?
A:
I found that there were 13 identical points to warrant the positive identification.
Q:
[Those] 13 points [are] more than enough to determine whether those thumbmark[s] [are] done by one and the same person?
A:
Yes, sir.
xxxx
Q:
Where did you base your conclusion that the thumbprint on the Pacto de Retro Sale over and above the name Juana Vda. de Rojales is
genuine thumbprint of the same person?
A:
Well, we only respon[d]ed to the request of the court to compare with the thumbprint appearing on the Pacto de Retro Sale to that of
the fingerprint appearing on the thumbprint form.
Q:
You mean to say you were provided with the standard fingerprint of the subject?
A:
Yes. sir.
xxxx
COURT:
Q:
Now, with this photograph blown-up, you have here 13 points, will you please explain to the court how these 13 points agree from that
standard to that questioned document?
A:
I found 2x4 bifurcation, it means that single rage splitting into two branches.
Q:
You pointed out?
A:
I found the bifurcation on the standard that corresponds exactly to the bifurcation which I marked number 1 in both photograph[s].
Q:
From the center?
A:
As to the number and location with respect to the core, I found that both questioned and standard coincide.
xxxx
Q:
Now, but the layer does not change in point 1, how many layer from the core?
A:
From the core, there are 4 intervening layers from number 1 to number 2 and it appears also the questioned 4 intervening layers
between number 1 and number 2, so, the intervening rages between ends of this characteristics are all both in agreement.
xxxx
ATTY. SALANGUIT:
Q:
Can you say that based on the questioned thumbmark, you would be able to arrive an accurate evaluation between the questioned
thumbmark and standard thumbmark?
A:
Yes, [ma'am].
Q:
Even if the questioned thumbmark is a little bit blurred as to the standard thumbmark?
A:
[Even though] the questioned thumbmark is a little bit blurred but still the ridge characteristics is still discernible.
Q:
You are telling us that among many people here in the world, nobody have the same thumbmark as another person and that include the
thumbmark of a twins?
54
A:
Yes, [ma'am].
xxx
A meticulous perusal of the records reveals that during the trial, petitioner's lawyer manifested that the petitioner, through her former
counsel, has bound herself with the result of the NBI Fingerprint Examination.52 It was further admitted in the court that there is no
more issue about the authenticity and genuineness of the thumbmark.53 Petitioner's counsel manifested:54chanroblesvirtuallawlibrary
ATTY. SALANGUIT:

Your honor, the nature of the testimony of the defendant is to prove the fact that she never really sold the property a retro to anybody.
That is the property covered by Transfer Certificate of Title. That is at presently subject of the complaint.

COURT:

How about the documents which was turned out to be tampered?

ATTY. SALANGUIT:

Your honor, I understand that based on the records of the case[,] (petitioner's] counsel has already found himself to be bound by the
result of the NBI investigation. Actually, your honor, there is no more issue about the authenticity and genuineness of the thumbmark
of the defendant, so what we only prove today is that the defendant never really intentionally sold the property to anybody.

ATTY. BELMI:

With that manifestation, we will allow the defendant, in the interest of justice.

xxx
The CA ruled that the presumption of regularity accorded to a public document must stand in the presence of the evidence showing
that the thumbmark in the contract belongs to the petitioner, and due to her failure to present clear and convincing evidence to
overcome such legal presumption.

Settled is the rule that generally, a notarized document carries the evidentiary weight conferred upon it with respect to its due
execution, and documents acknowledged before a notary public have in their favor the presumption of regularity.55 In other words,
absent any clear and convincing proof to the contrary, a notarized document enjoys the presumption of regularity and is conclusive as
to the truthfulness of its contents.56 Irregularities in the notarization of the document may be established by oral evidence of persons
present in said proceeding.57chanroblesvirtuallawlibrary

We rule that petitioner failed to present clear and convincing evidence to overcome such presumption of regularity of a public
document. Petitioner submitted the specimen signature of the notary public but the same was never presented during the trial nor was
authenticated. Records disclose that after she admitted to being bound with conclusion of the NBI regarding the issue on the
thumbmark, petitioner did not present any evidence to rebut the due execution of the notarized contract of sale con pacto de retro.
Instead, she presented her testimony and the testimony of her daughter Josefma Rojales to prove that she never intended to sell her
property.

The inconsistencies in petitioner's claims cast doubt to the credibility of her testimonies. We note that petitioner admitted, as reflected
in the pre-trial order,58 that she once mortgaged her property to the bank. However, she denied the same during the trial and further
claimed that it was the respondent who mortgaged the title with the bank.59chanroblesvirtuallawlibrary

To prove her lack of intention to sell the property, petitioner maintained that the respondent borrowed the title from her. She herself
took the witness stand and testified during the direct and cross examination that,60chanroblesvirtuallawlibrary
COURT:
Q:
Are you aware of any or were you shown a purported document wherein it was alleged that you sold that property to the plaintiff
Marcelino Dime?
A:
No, sir, I am already old and I don't know.
xxxx
Q:
You mean to say that you did not bother to go to Marcelino Dime after a complaint was filed against you considering that he was a
neighbor of yours?
A:
55
He just borrowed the title, sir, and I don't know.
Q:
You mean to say that [you have] a title over that property and that property was borrowed by Marcelino Dime, [is that] what you
mean?
A:
Yes, sir.
xxxx
ATTY. BELMI:
Q:
Mrs. Witness, when Dime took from you the title, you asked him why he was taking the title?
A:
Yes, sir, he told me that he will just borrow the title.
xxxx
Q:
This property covered by the title was mortgaged with the Batangas Savings and Loan Bank?
A:
He (respondent) was the one who mortgaged the title but he did not give the money to us, sir.
Q:
So, when he took the title from you, Dime told you that he will mortgage the property with the bank?
A:
Yes, sir, he will use the money.
Q:
So, you mean to say that you were not the one who mortgaged the property with the bank?
A:
He (respondent) was the one who mortgaged the property, sir.
xxxx
COURT:
Q:
Are you aware that Marcelino Dime could not be able to mortgage the property to the bank if you [do not] have any document, a
Special Power of Attorney authorizing Dime to mortgage the property with the bank?
A:
I did not give any authority, sir.
xxxx
Her daughter Josefina claimed otherwise. She averred that her mother has previously mortgaged the property with the bank and that it
was Barcelon who redeemed the property from the bank.61 She admitted that Barcelon borrowed the title from her mother because
there was already a buyer.62 She also alleged that Barangay Captain Esguerra and his secretary Laila Samonte, upon the instruction of
Barcelon, took the title from them.63 Thus, her testimony contradicts her mother's claim that respondent borrowed the title from her.

We have consistently decreed that the nomenclature used by the contracting parties to describe a contract does not determine its
nature.64 The decisive factor is their intention - as shown by their conduct, words, actions and deeds - prior to, during, and after
executing the agreement.65 Thus, even if a contract is denominated as apacto de retro, the owner of the property may still disprove it
by means of parole evidence,66 provided that the nature of the agreement is placed in issue by the pleadings filed with the trial
court.67chanroblesvirtuallawlibrary

Petitioner failed to specifically allege in all her pleadings that she did not intend to sell her property to respondent, instead, she
maintained that there was no pacto de retro sale because her thumbmark and the notary public's signature were falsified. She should
have raised the issue that respondent merely borrowed the title from her and promised to pay her in her pleadings and not belatedly
claimed the same after the NBI ruled that the thumbmark in the contract was hers.

In light of petitioner's inconsistent and bare allegations and the conflicting testimony of her other witness, we rule that petitioner failed
to overcome the presumption of regularity of the notarized contract of Pacto de Retro sale. Moreover, this Court is unconvinced that
petitioner has successfully proven that her agreement with respondent was not a pacto de retro sale but a contract of loan secured by a
mortgage of the subject property.

WHEREFORE, the petition for review on certiorari dated December 9, 2010 of petitioner Juana Vda. de Rojales, substituted by her
heirs Celerina Rojales, Reynaldo Rojales, Pogs Rojales, Olive Rojales and Josefina Rojales is hereby DENIED. The Decision and
Resolution, dated August 16, 2010 and November 15, 2010, respectively, of the Court of Appeals in CA-G.R. CV No. 92228 are
hereby AFFIRMED.

SO ORDERED.
56
JARDINE DAVIES VS CA

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to resort
to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more arduous
and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail
further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to
install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers were
invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit the needs
of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely,
respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid
proposals and gave bid bonds equivalent to 5% of their respective bids, as required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of
the contract to FEMSCO -

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of 1500
KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated
November 20, 1992, subject to the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and the labor for
the imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The retained amount shall be
released thirty (30) days after acceptance of the completed project and upon posting of Guarantee Bond in an amount equivalent to
twenty percent (20%) of the contract price. The Guarantee Bond shall be valid for one (1) year from completion and acceptance of
project. The contract price includes future increase/s in costs of materials and labor;

2. The project shall be undertaken pursuant to the attached specifications. It is understood that any item required to complete the
project, and those not included in the list of items shall be deemed included and covered and shall be performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of Generator
Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All Risk Insurance
equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be endorsed in favor of and
shall be delivered to Pure Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractors all-risk insurance
policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter
dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing
the necessary materials. PUREFOODS on the other hand returned FEMSCOs Bidders Bond in the amount of P1,000,000.00, as
requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga
unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the) cancellation
and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a
57
meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the
project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally
was not one of the bidders.

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and
installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE:
PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued. After
FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68,[1] granted JARDINEs Demurrer to Evidence. The trial court concluded
that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all
a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court of
law."[2] Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00
representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and
P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel PUREFOODS
to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction
had already started thereon; (c) to pay attorneys fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the costs.
The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial
court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while
PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court.[3] It also reversed the 27 June
1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latters
contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition,
PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well
as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS and
JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of
facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the
project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since
PUREFOODS never received FEMSCOs conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or
counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never
in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract between
PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latters alleged contract with FEMSCO. Moreover,
JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting arguendo that the award of moral
damages is proper, P2,000,000.00 is extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between PUREFOODS
and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE induced or
connived with PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do."[4] There can be no contract
unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the
contract; and, (c) cause of the obligation which is established.[5] A contract binds both contracting parties and has the force of law
between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the
parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.[6] To produce a contract, the acceptance must not qualify the terms of

58
the offer. However, the acceptance may be express or implied.[7] For a contract to arise, the acceptance must be made known to the
offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy lies in
the consent - whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS
started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
"[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and Conditions of the
Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner
PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCOs offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these
conditions were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first "condition"
was merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and the bid or
previous offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all items
and materials including those excluded in the list but necessary to complete the project shall be deemed included and should be brand
new. The fourth "condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the delivery of the
generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a performance
bond and an all-risk insurance, both of which should be given upon commencement of the project. The sixth "condition" related to the
standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was
to be performed and implemented. They were far from being conditions imposed on the perfection of the contract.

In Babasa v. Court of Appeals[8] we distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court -

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has already been
made. The letter only serves as a confirmation of such decision. Hence, to the Courts mind, there is already an acceptance made of the
offer received by Purefoods. Notwithstanding the terms and conditions enumerated therein, the offer has been accepted and/or
amplified the details of the terms and conditions contained in the Terms and Conditions of Bidding given out by Purefoods to
prospective bidders.[9]

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer,"
respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear
indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the
contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by
petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that
respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either be
express or implied,[10] and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's conforme would
only be a mere surplusage. The discussion of the price of the project two (2) months after the 12 December 1992 letter can be deemed
as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price even after the
contract had been perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower
price even after agreeing to the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did.
Petitioner PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that purchase orders or POs
do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods
Corporation is hereby canceling the award to your company of the project," presupposes that the contract has been perfected. For,
there can be no cancellation if the contract was not perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good faith that no such contract was
perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were affirmed by the
appellate court -

59
Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and this was
further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-defendant Jardine. It is very
evident that Purefoods thought that by the expedient means of merely writing a letter would automatically cancel or nullify the
existing contract entered into by both parties after a process of bidding. This, to the Courts mind, is a flagrant violation of the express
provisions of the law and is contrary to fair and just dealings to which every man is due.[11]

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched.[12] In the instant case,
respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its
suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of
moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich
the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be reduced to
P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem
that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to
support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The
similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender
of a lower quotation by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner
PUREFOODS to violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994
resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner PURE FOODS
CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing
the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00 representing the contractor's
mark-up on installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In
addtion, petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION moral damages in the amount of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00. Costs
against petitioner.

SO ORDERED.

SOLER VS CA

PARDO, J.:

Appeal via certiorari from a decision of the Court of Appeals,[1] declaring that there was no perfected contract between petitioner
Jazmin Soler and The Commercial Bank of Manila (COMBANK FOR BREVITY, formerly Boston Bank of the Philippines) for the
renovation of its Ermita Branch, thereby denying her claim for payment of professional fees for services rendered.

The antecedent facts are as follows:

Petitioner Jazmin Soler is a Fine Arts graduate of the University of Sto. Tomas, Manila. She is a well known licensed professional
interior designer. In November 1986, her friend Rosario Pardo asked her to talk to Nida Lopez, who was manager of the COMBANK
Ermita Branch for they were planning to renovate the branch offices.[2]

Even prior to November 1986, petitioner and Nida Lopez knew each other because of Rosario Pardo, the latters sister. During their
meeting, petitioner was hesitant to accept the job because of her many out of town commitments, and also considering that Ms. Lopez
was asking that the designs be submitted by December 1986, which was such a short notice. Ms. Lopez insisted, however, because she
really wanted petitioner to do the design for renovation. Petitioner acceded to the request. Ms. Lopez assured her that she would be
compensated for her services. Petitioner even told Ms. Lopez that her professional fee was ten thousand pesos (P10,000.00), to which
Ms. Lopez acceded.[3]

During the November 1986 meeting between petitioner and Ms. Lopez, there were discussions as to what was to be renovated, which
included a provision for a conference room, a change in the carpeting and wall paper, provisions for bookshelves, a clerical area in the
60
second floor, dressing up the kitchen, change of the ceiling and renovation of the tellers booth. Ms. Lopez again assured petitioner that
the bank would pay her fees.[4]

After a few days, petitioner requested for the blueprint of the building so that the proper design, plans and specifications could be
given to Ms. Lopez in time for the board meeting in December 1986. Petitioner then asked her draftsman Jackie Barcelon to go to the
jobsite to make the proper measurements using the blue print. Petitioner also did her research on the designs and individual drawings
of what the bank wanted. Petitioner hired Engineer Ortanez to make the electrical layout, architects Frison Cruz and De Mesa to do the
drafting. For the services rendered by these individuals, petitioner paid the engineer P4,000.00, architects Cruz and de Mesa P5,000.00
and architect Barcelon P6,000.00. Petitioner also contacted the suppliers of the wallpaper and the sash makers for their quotation. So
come December 1986, the lay out and the design were submitted to Ms. Lopez. She even told petitioner that she liked the designs.[5]

Subsequently, petitioner repeatedly demanded payment for her services but Ms. Lopez just ignored the demands. In February 1987, by
chance petitioner and Ms. Lopez saw each other in a concert at the Cultural Center of the Philippines. Petitioner inquired about the
payment for her services, Ms. Lopez curtly replied that she was not entitled to it because her designs did not conform to the banks
policy of having a standard design, and that there was no agreement between her and the bank.[6]

To settle the controversy, petitioner referred the matter to her lawyers, who wrote Ms. Lopez on May 20, 1987, demanding payment
for her professional fees in the amount of P10,000.00 which Ms. Lopez ignored. Hence, on June 18, 1987, the lawyers wrote Ms.
Lopez once again demanding the return of the blueprint copies petitioner submitted which Ms. Lopez refused to return.[7]

On October 13, 1987, petitioner filed at the Regional Trial Court of Pasig, Branch 153 a complaint against COMBANK and Ms.
Lopez for collection of professional fees and damages.[8]

In its answer, COMBANK stated that there was no contract between COMBANK and petitioner;[9] that Ms. Lopez merely invited
petitioner to participate in a bid for the renovation of the COMBANK Ermita Branch; that any proposal was still subject to the
approval of the COMBANKs head office.[10]

After due trial, on November 19, 1990, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants
jointly and severally, to pay plaintiff the following, to wit:

1. P15,000.00 representing the actual and compensatory damages or at least a reasonable compensation for the services rendered based
on a quantum meruit;

2. P5,000.00 as attorneys fees, and P2,000.00 as litigation expenses;

3. P5,000.00 as exemplary damages; and

4. The cost of suit.

SO ORDERED.[11]

On November 29, 1990, COMBANK, and Ms. Nida Lopez, filed their notice of appeal.[12] On December 5, 1990, the trial court
ordered[13] the records of the case elevated to the Court of Appeals.[14]

In the appeal, COMBANK reiterated that there was no contract between petitioner, Nida Lopez and the bank.[15] Whereas, petitioner
maintained that there was a perfected contract between her and the bank which was facilitated through Nida Lopez. According to
petitioner there was an offer and an acceptance of the service she rendered to the bank.[16]

On October 26, 1995, the Court of Appeals rendered its decision the relevant portions of which state:

After going over the record of this case, including the transcribed notes taken during the course of the trial, We are convinced that the
question here is not really whether the alleged contract purportedly entered into between the plaintiff and defendant Lopez is
enforceable, but whether a contract even exists between the parties.

Article 1318 of the Civil Code provides that there is no contract unless the following requisites concur:

(1) consent of the contracting parties;

61
(2) object certain which is the subject matter of the contract;

(3) cause of the obligation which is established.

xxx

The defendant bank never gave its imprimatur or consent to the contract considering that the bidding or the question of renovating the
ceiling of the branch office of defendant bank was deferred because the commercial bank is for sale. It is under privatization. xxx

At any rate, we find that the appellee failed to prove the allegations in her complaint. xxx

WHEREFORE, premises considered, the appealed decision (dated November 19, 1990) of the Regional Trial Court (Branch 153) in
Pasig (now 55238, is hereby REVERSED. No pronouncement as to costs.

SO ORDERED.[17]

Hence, this petition.[18]

Petitioner forwards the argument that:

1. The Court of Appeals erred in ruling that there was no contract between petitioner and respondents, in the absence of the element of
consent;

2. The Court of Appeals erred in ruling that respondents merely invited petitioner to present her proposal;

3. The Court of Appeals erred in ruling that petitioner knew that her proposal was still subject to bidding and approval of the board of
directors of the bank;

4. The Court of Appeals erred in reversing the decision of the trial court.

We find the petition meritorious.

We see that the issues raised boil down to whether or not there was a perfected contract between petitioner Jazmin Soler and
respondents COMBANK and Nida Lopez, and whether or not Nida Lopez, the manager of the bank branch, had authority to bind the
bank in the transaction.

The discussions between petitioner and Ms. Lopez was to the effect that she had authority to engage the services of petitioner. During
their meeting, she even gave petitioner specifications as to what was to be renovated in the branch premises and when petitioners
requested for the blueprints of the building, Ms. Lopez supplied the same.

Ms. Lopez was aware that petitioner hired the services of people to help her come up with the designs for the December, 1986 board
meeting of the bank. Ms. Lopez even insisted that the designs be rushed in time for presentation to the bank. With all these discussion
and transactions, it was apparent to petitioner that Ms. Lopez indeed had authority to engage the services of petitioner.

The next issue is whether there was a perfected contract between petitioner and the Bank.

A contract is a meeting of the minds between two persons whereby one binds himself to give something or to render some service to
bind himself to give something to render some service to another for consideration. There is no contract unless the following requisites
concur: 1. Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; and 3. Cause of the
obligation which is established.[19]

A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of
the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.[20]

62
In the case at bar, there was a perfected oral contract. When Ms. Lopez and petitioner met in November 1986, and discussed the
details of the work, the first stage of the contract commenced. When they agreed to the payment of the ten thousand pesos
(P10,000.00) as professional fees of petitioner and that she should give the designs before the December 1986 board meeting of the
bank, the second stage of the contract proceeded, and when finally petitioner gave the designs to Ms. Lopez, the contract was
consummated.

Petitioner believed that once she submitted the designs she would be paid her professional fees. Ms. Lopez assured petitioner that she
would be paid.

It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against
anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority.[21]

Also, petitioner may be paid on the basis of quantum meruit. It is essential for the proper operation of the principle that there is an
acceptance of the benefits by one sought to be charged for the services rendered under circumstances as reasonably to notify him that
the lawyer performing the task was expecting to be paid compensation therefor. The doctrine of quantum meruit is a device to prevent
undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it.[22]

We note that the designs petitioner submitted to Ms. Lopez were not returned. Ms. Lopez, an officer of the bank as branch manager
used such designs for presentation to the board of the bank. Thus, the designs were in fact useful to Ms. Lopez for she did not appear
to the board without any designs at the time of the deadline set by the board.

IN VIEW WHEREOF, the decision appealed from is REVERSED and SET ASIDE.

The decision of the trial court[23] is REVIVED, REINSTATED and AFFIRMED.

No costs.

SO ORDERED.

PROVINCE OF CEBU VS MORALES

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated March 29, 2005 in CA-G.R. CV No. 53632,
which affirmed in toto the Decision2 of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-11140 for specific
performance and reconveyance of property. Also assailed is the Resolution3 dated August 31, 2005 denying the motion for
reconsideration.

On September 27, 1961, petitioner Province of Cebu leased4 in favor of Rufina Morales a 210-square meter lot which formed part of
Lot No. 646-A of the Banilad Estate. Subsequently or sometime in 1964, petitioner donated several parcels of land to the City of
Cebu. Among those donated was Lot No. 646-A which the City of Cebu divided into sub-lots. The area occupied by Morales was
thereafter denominated as Lot No. 646-A-3, for which Transfer Certificate of Title (TCT) No. 308835 was issued in favor of the City
of Cebu.

On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated lots at public auction in order to raise money for
infrastructure projects. The highest bidder for Lot No. 646-A-3 was Hever Bascon but Morales was allowed to match the highest bid
since she had a preferential right to the lot as actual occupant thereof.6 Morales thus paid the required deposit and partial payment for
the lot.7

In the meantime, petitioner filed an action for reversion of donation against the City of Cebu docketed as Civil Case No. 238-BC
before Branch 7 of the then Court of First Instance of Cebu. On May 7, 1974, petitioner and the City of Cebu entered into a
compromise agreement which the court approved on July 17, 1974.8 The agreement provided for the return of the donated lots to
petitioner except those that have already been utilized by the City of Cebu. Pursuant thereto, Lot No. 646-A-3 was returned to
petitioner and registered in its name under TCT No. 104310.9

Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC.10 Apart from the deposit and down payment, she
was not able to make any other payments on the balance of the purchase price for the lot.

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On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote to then Cebu Governor Eduardo R. Gullas
asking for the formal conveyance of Lot No. 646-A-3 to Morales’ surviving heirs, in accordance with the award earlier made by the
City of Cebu.11 This was followed by another letter of the same tenor dated October 10, 1986 addressed to Governor Osmundo G.
Rama.12

The requests remained unheeded thus, Quesada, together with the other nieces of Morales namely, respondents Nenita Villanueva and
Erlinda V. Adriano, as well as Morales’ sister, Felomina V. Panopio, filed an action for specific performance and reconveyance of
property against petitioner, which was docketed as Civil Case No. CEB-11140 before Branch 6 of the Regional Trial Court of Cebu
City.13 They also consigned with the court the amount of P13,450.00 representing the balance of the purchase price which petitioner
allegedly refused to accept.14

Panopio died shortly after the complaint was filed.15

Respondents averred that the award at public auction of the lot to Morales was a valid and binding contract entered into by the City of
Cebu and that the lot was inadvertently returned to petitioner under the compromise judgment in Civil Case No. 238-BC. They alleged
that they could not pay the balance of the purchase price during the pendency of said case due to confusion as to whom and where
payment should be made. They thus prayed that judgment be rendered ordering petitioner to execute a final deed of absolute sale in
their favor, and that TCT No. 104310 in the name of petitioner be cancelled.16

Petitioner filed its answer but failed to present evidence despite several opportunities given thus, it was deemed to have waived its
right to present evidence.17

On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:

WHEREFORE, judgment is rendered in favor of the plaintiffs and against the defendant Province of Cebu, hereby directing the latter
to convey Lot 646-A-3 to the plaintiffs as heirs of Rufina Morales, and in this connection, to execute the necessary deed in favor of
said plaintiffs.

No pronouncement as to costs.

SO ORDERED.18

In ruling for the respondents, the trial court held thus:

[T]he Court is convinced that there was already a consummated sale between the City of Cebu and Rufina Morales. There was the
offer to sell in that public auction sale. It was accepted by Rufina Morales with her bid and was granted the award for which she paid
the agreed downpayment. It cannot be gainsaid that at that time the owner of the property was the City of Cebu. It has the absolute
right to dispose of it thru that public auction sale. The donation by the defendant Province of Cebu to Cebu City was not voided in that
Civil Case No. 238-BC. The compromise agreement between the parties therein on the basis of which judgment was rendered did not
provide nullification of the sales or disposition made by the City of Cebu. Being virtually successor-in-interest of City of Cebu, the
defendant is bound by the contract lawfully entered into by the former. Defendant did not initiate any move to invalidate the sale for
one reason or another. Hence, it stands as a perfectly valid contract which defendant must respect. Rufina Morales had a vested right
over the property. The plaintiffs being the heirs or successors-in-interest of Rufina Morales, have the right to ask for the conveyance
of the property to them. While it may be true that the title of the property still remained in the name of the City of Cebu until full
payment is made, and this could be the reason why the lot in question was among those reverted to the Province, the seller’s obligation
under the contract was, for all legal purposes, transferred to, and assumed by, the defendant Province of Cebu. It is then bound by such
contract.19

Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in toto. Upon denial of its motion for
reconsideration, petitioner filed the instant petition under Rule 45 of the Rules of Court, alleging that the appellate court erred in:

FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE RIGHT TO EQUAL THE BID OF
THE HIGHEST BIDDER OF THE SUBJECT PROPERTY AS LESSEES THEREOF;

FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA MORALES, THE SALE WAS IN
EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND THAT THE TRANSACTION WAS PERFECTED AND
CONSUMMATED;

FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST RESPONDENTS;

64
FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-BC, PLAINTIFFS WERE NOT ABLE TO PAY THE
AGREED INSTALLMENTS;

AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE RESPONDENTS AND AGAINST THE
PETITIONERS.20

The petition lacks merit.

The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu, is bound to respect the contract of sale
entered into by the latter pertaining to Lot No. 646-A-3. The City of Cebu was the owner of the lot when it awarded the same to
respondents’ predecessor-in-interest, Morales, who later became its owner before the same was erroneously returned to petitioner
under the compromise judgment. The award is tantamount to a perfected contract of sale between Morales and the City of Cebu, while
partial payment of the purchase price and actual occupation of the property by Morales and respondents effectively transferred
ownership of the lot to the latter. This is true notwithstanding the failure of Morales and respondents to pay the balance of the
purchase price.

Petitioner can no longer assail the award of the lot to Morales on the ground that she had no right to match the highest bid during the
public auction. Whether Morales, as actual occupant and/or lessee of the lot, was qualified and had the right to match the highest bid is
a foregone matter that could have been questioned when the award was made. When the City of Cebu awarded the lot to Morales, it is
assumed that she met all qualifications to match the highest bid. The subject lot was auctioned in 1965 or more than four decades ago
and was never questioned. Thus, it is safe to assume, as the appellate court did, that all requirements for a valid public auction sale
were complied with.

A sale by public auction is perfected "when the auctioneer announces its perfection by the fall of the hammer or in other customary
manner".21 It does not matter that Morales merely matched the bid of the highest bidder at the said auction sale. The contract of sale
was nevertheless perfected as to Morales, since she merely stepped into the shoes of the highest bidder.

Consequently, there was a meeting of minds between the City of Cebu and Morales as to the lot sold and its price, such that each party
could reciprocally demand performance of the contract from the other.22 A contract of sale is a consensual contract and 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. From that moment, the
parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. The elements of a
valid contract of sale under Article 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter;
and (3) price certain in money or its equivalent.23 All these elements were present in the transaction between the City of Cebu and
Morales.

There is no merit in petitioner’s assertion that there was no perfected contract of sale because no "Contract of Purchase and Sale" was
ever executed by the parties. As previously stated, a contract of sale is a consensual contract that is perfected upon a meeting of minds
as to the object of the contract and its price. Subject to the provisions of the Statute of Frauds, a formal document is not necessary for
the sale transaction to acquire binding effect.24 For as long as the essential elements of a contract of sale are proved to exist in a given
transaction, the contract is deemed perfected regardless of the absence of a formal deed evidencing the same.

Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of the purchase price is evidence that there
was really no contract of sale over the lot between Morales and the City of Cebu. On the contrary, the fact that there was an agreed
price for the lot proves that a contract of sale was indeed perfected between the parties. Failure to pay the balance of the purchase
price did not render the sale inexistent or invalid, but merely gave rise to a right in favor of the vendor to either demand specific
performance or rescission of the contract of sale.25 It did not abolish the contract of sale or result in its automatic invalidation.

As correctly found by the appellate court, the contract of sale between the City of Cebu and Morales was also partially consummated.
The latter had paid the deposit and downpayment for the lot in accordance with the terms of the bid award. She first occupied the
property as a lessee in 1961, built a house thereon and was continuously in possession of the lot as its owner until her death in 1969.
Respondents, on the other hand, who are all surviving heirs of Morales, likewise occupied the property during the latter’s lifetime and
continue to reside on the property to this day.26

The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and
(3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.27 In this case, respondents’ predecessor had undoubtedly commenced performing her obligation by making a
down payment on the purchase price. Unfortunately, however, she was not able to complete the payments due to legal complications
between petitioner and the city.
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Thus, the City of Cebu could no longer dispose of the lot in question when it was included as among those returned to petitioner
pursuant to the compromise agreement in Civil Case No. 238-BC. The City of Cebu had sold the property to Morales even though
there remained a balance on the purchase price and a formal contract of sale had yet to be executed. Incidentally, the failure of
respondents to pay the balance on the purchase price and the non-execution of a formal agreement was sufficiently explained by the
fact that the trial court, in Civil Case No. 238-BC, issued a writ of preliminary injunction enjoining the city from further disposing the
donated lots. According to respondents, there was confusion as to the circumstances of payment considering that both the city and
petitioner had refused to accept payment by virtue of the injunction.28 It appears that the parties simply mistook Lot 646-A-3 as
among those not yet sold by the city.

The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to petitioner under the compromise agreement in
Civil Case No. 238-BC. At that time, the city merely retained rights as an unpaid seller but had effectively transferred ownership of
the lot to Morales. As successor-in-interest of the city, petitioner could only acquire rights that its predecessor had over the lot. These
rights include the right to seek rescission or fulfillment of the terms of the contract and the right to damages in either case.29

In this regard, the records show that respondent Quesada wrote to then Cebu Governor Eduardo R. Gullas on March 11, 1983, asking
for the formal conveyance of Lot 646-A-3 pursuant to the award and sale earlier made by the City of Cebu. On October 10, 1986, she
again wrote to Governor Osmundo G. Rama reiterating her previous request. This means that petitioner had known, at least as far back
as 1983, that the city sold the lot to respondents’ predecessor and that the latter had paid the deposit and the required down payment.
Despite this knowledge, however, petitioner did not avail of any rightful recourse to resolve the matter.

Article 1592 of the Civil Code pertinently provides:

Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand, the court
may not grant him a new term. (Underscoring supplied)

Thus, respondents could still tender payment of the full purchase price as no demand for rescission had been made upon them, either
judicially or through notarial act. While it is true that it took a long time for respondents to bring suit for specific performance and
consign the balance of the purchase price, it is equally true that petitioner or its predecessor did not take any action to have the
contract of sale rescinded. Article 1592 allows the vendee to pay as long as no demand for rescission has been made.30 The
consignation of the balance of the purchase price before the trial court thus operated as full payment, which resulted in the
extinguishment of respondents’ obligation under the contract of sale.

Finally, petitioner cannot raise the issue of prescription and laches at this stage of the proceedings. Contrary to petitioner’s assignment
of errors, the appellate court made no findings on the issue because petitioner never raised the matter of prescription and laches either
before the trial court or Court of Appeals. It is basic that defenses and issues not raised below cannot be considered on appeal.31 Thus,
petitioner cannot plead the matter for the first time before this Court.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the decision and resolution of the Court of Appeals in
CA-G.R. CV No. 53632 are AFFIRMED.

SO ORDERED.

GARCIA VS THIO

CORONA, J.:

Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati
City, Branch 58.

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated
February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago.5 Thereafter, petitioner received
from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and
P76,5007 on July 26,8 August 26, September 26 and October 26, 1995.

66
In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount of P500,000, also
payable to the order of Marilou Santiago.10 Consequently, petitioner received from respondent the amount of P20,000 every month on
August 5, September 5, October 5 and November 5, 1995.11

According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due.
Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against
respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000,
with interest thereon at 4% a month from November 5, 1995, plus attorney’s fees and actual damages.12

Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the
rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of this loan was covered by the first check. On
June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which
was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was
executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated monthly interest for both
loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.161awphi1.nét

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner
lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17 She issued the checks for
P76,000 and P20,000 not as payment of interest but to accommodate petitioner’s request that respondent use her own checks instead
of Santiago’s.18

In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that respondent borrowed from petitioner the
amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%:20

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of
[petitioner], sentencing [respondent] to pay the former the amount of:

1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid;

2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid.

3. P100,000.00 as and for attorney’s fees; and

4. P50,000.00 as and for actual damages.

For lack of merit, [respondent’s] counterclaim is perforce dismissed.

With costs against [respondent].

IT IS SO ORDERED.21

On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money
from her. There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that
[respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of
Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of
Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be
encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself.

It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b)
the check may be negotiated only once—to one who has an account with the bank; (c) and the act of crossing the check serves as
warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.

Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law
since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title
thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating
the transactions between the former and [petitioner].

67
With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties.
x x x (emphasis supplied)22

Hence this petition.23

As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. However, this
case falls under one of the exceptions, i.e., when the factual findings of the CA (which held that there were no contracts of loan
between petitioner and respondent) and the RTC (which held that there were contracts of loan) are contradictory.24

The petition is impressed with merit.

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident
in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the
debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26

It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of
respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from
petitioner — respondent or Santiago?

Petitioner insists that it was upon respondent’s instruction that both checks were made payable to Santiago.27 She maintains that it
was also upon respondent’s instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same
to Santiago.28 Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such
that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to
petitioner.29

We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive
possession or control of another.30 Although respondent did not physically receive the proceeds of the checks, these instruments were
placed in her control and possession under an arrangement whereby she actually re-lent the amounts to Santiago.

Several factors support this conclusion.

First, respondent admitted that petitioner did not personally know Santiago.31 It was highly improbable that petitioner would grant
two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt
considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that
time.32

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties’ list of witnesses) testified
that respondent’s plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the
same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to
make the checks payable to Santiago. Respondent has not shown any reason why Ruiz’ testimony should not be believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of
US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of
P20,000 each for four months.34 According to respondent, she merely accommodated petitioner’s request for her to issue her own
checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that
Santiago would replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe that respondent would
put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract.
We declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only
proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve
as probable under the circumstances. We have no test of the truth of human testimony except its conformity to our knowledge,
observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37

68
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her
(Santiago’s) creditors.38

Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The presumption is that "evidence
willfully suppressed would be adverse if produced."40 Respondent was not able to overturn this presumption.

We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and
P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the
loans.

We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 and P500,000 loans
respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4%
interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in
writing."

Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is
well-settled that:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41

Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she
received petitioner’s demand letter.42 From the finality of the decision until it is fully paid, the amount due shall earn interest at 12%
per annum, the interim period being deemed equivalent to a forbearance of credit.43

The award of actual damages in the amount of P50,000 and P100,000 attorney’s fees is deleted since the RTC decision did not explain
the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution of the Court of
Appeals in CA-G.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in
Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of
US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due
as of the date of finality will earn interest of 12% per annum until fully paid. The award of actual damages and attorney’s fees is
deleted.

SO ORDERED.

PANGAN VS PERRERAS

BRION, J.:

The heirs[1] of spouses Cayetano and Consuelo Pangan (petitioners-heirs) seek the reversal of the Court of Appeals (CA) decision[2]
of June 26, 2002, as well its resolution of February 20, 2003, in CA-G.R. CV Case No. 56590 through the present petition for review
on certiorari.[3] The CA decision affirmed the Regional Trial Courts (RTC) ruling[4] which granted the complaint for specific
performance filed by spouses Rogelio and Priscilla Perreras (respondents) against the petitioners-heirs, and dismissed the complaint
for consignation instituted by Consuelo Pangan (Consuelo) against the respondents.

THE FACTUAL ANTECEDENTS

The spouses Pangan were the owners of the lot and two-door apartment (subject properties) located at 1142 Casaas St., Sampaloc,
Manila.[5] On June 2, 1989, Consuelo agreed to sell to the respondents the subject properties for the price of P540,000.00. On the

69
same day, Consuelo received P20,000.00 from the respondents as earnest money, evidenced by a receipt (June 2, 1989 receipt)[6] that
also included the terms of the parties agreement.

Three days later, or on June 5, 1989, the parties agreed to increase the purchase price from P540,000.00 to P580,000.00.

In compliance with the agreement, the respondents issued two Far East Bank and Trust Company checks payable to Consuelo in the
amounts of P200,000.00 and P250,000.00 on June 15, 1989. Consuelo, however, refused to accept the checks. She justified her refusal
by saying that her children (the petitioners-heirs) co-owners of the subject properties did not want to sell the subject properties. For the
same reason, Consuelo offered to return the P20,000.00 earnest money she received from the respondents, but the latter rejected it.
Thus, Consuelo filed a complaint for consignation against the respondents on September 5, 1989, docketed as Civil Case No. 89-
50258, before the RTC of Manila, Branch 28.

The respondents, who insisted on enforcing the agreement, in turn instituted an action for specific performance against Consuelo
before the same court on September 26, 1989. This case was docketed as Civil Case No. 89-50259. They sought to compel Consuelo
and the petitioners-heirs (who were subsequently impleaded as co-defendants) to execute a Deed of Absolute Sale over the subject
properties.

In her Answer, Consuelo claimed that she was justified in backing out from the agreement on the ground that the sale was subject to
the consent of the petitioners-heirs who became co-owners of the property upon the death of her husband, Cayetano. Since the
petitioners-heirs disapproved of the sale, Consuelo claimed that the contract became ineffective for lack of the requisite consent. She
nevertheless expressed her willingness to return the P20,000.00 earnest money she received from the respondents.

The RTC ruled in the respondents favor; it upheld the existence of a perfected contract of sale, at least insofar as the sale involved
Consuelos conjugal and hereditary shares in the subject properties. The trial court found that Consuelos receipt of the P20,000.00
earnest money was an eloquent manifestation of the perfection of the contract. Moreover, nothing in the June 2, 1989 receipt showed
that the agreement was conditioned on the consent of the petitioners-heirs. Even so, the RTC declared that the sale is valid and can be
enforced against Consuelo; as a co-owner, she had full-ownership of the part pertaining to her share which she can alienate, assign, or
mortgage. The petitioners-heirs, however, could not be compelled to transfer and deliver their shares in the subject properties, as they
were not parties to the agreement between Consuelo and the respondents. Thus, the trial court ordered Consuelo to convey one-half
(representing Consuelos conjugal share) plus one-sixth (representing Consuelos hereditary share) of the subject properties, and to pay
P10,000.00 as attorneys fees to the respondents. Corollarily, it dismissed Consuelos consignation complaint.

Consuelo and the petitioners-heirs appealed the RTC decision to the CA claiming that the trial court erred in not finding that the
agreement was subject to a suspensive condition the consent of the petitioners-heirs to the agreement. The CA, however, resolved to
dismiss the appeal and, therefore, affirmed the RTC decision. As the RTC did, the CA found that the payment and receipt of earnest
money was the operative act that gave rise to a perfected contract, and that there was nothing in the parties agreement that would
indicate that it was subject to a suspensive condition. It declared:

Nowhere in the agreement of the parties, as contained in the June 2, 1989 receipt issued by [Consuelo] xxx, indicates that [Consuelo]
reserved titled on [sic] the property, nor does it contain any provision subjecting the sale to a positive suspensive condition.

Unconvinced by the correctness of both the RTC and the CA rulings, the petitioners-heirs filed the present appeal by certiorari
alleging reversible errors committed by the appellate court.

THE PETITION

The petitioners-heirs primarily contest the finding that there was a perfected contract executed by the parties. They allege that other
than the finding that Consuelo received P20,000.00 from the respondents as earnest money, no other evidence supported the
conclusion that there was a perfected contract between the parties; they insist that Consuelo specifically informed the respondents that
the sale still required the petitioners-heirs consent as co-owners. The refusal of the petitioners-heirs to sell the subject properties
purportedly amounted to the absence of the requisite element of consent.
Even assuming that the agreement amounted to a perfected contract, the petitioners-heirs posed the question of the agreements proper
characterization whether it is a contract of sale or a contract to sell. The petitioners-heirs posit that the agreement involves a contract
to sell, and the respondents belated payment of part of the purchase price, i.e., one day after the June 14, 1989 due date, amounted to
the non-fulfillment of a positive suspensive condition that prevented the contract from acquiring obligatory force. In support of this
contention, the petitioners-heirs cite the Courts ruling in the case of Adelfa Rivera, et al. v. Fidela del Rosario, et al.: [7]

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell,
ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a

70
contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or
serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.

[Rivera], however, failed to complete payment of the second installment. The non-fulfillment of the condition rendered the contract to
sell ineffective and without force and effect. [Emphasis in the original.]

From these contentions, we simplify the basic issues for resolution to three questions:

1. Was there a perfected contract between the parties?

2. What is the nature of the contract between them? and
3. What is the effect of the respondents belated payment on their contract?

THE COURTS RULING

There was a perfected contract between the parties since all the essential requisites of a contract were present

Article 1318 of the Civil Code declares that no contract exists unless the following requisites concur: (1) consent of the contracting
parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation established. Since the object of the
parties agreement involves properties co-owned by Consuelo and her children, the petitioners-heirs insist that their approval of the sale
initiated by their mother, Consuelo, was essential to its perfection. Accordingly, their refusal amounted to the absence of the required
element of consent.

That a thing is sold without the consent of all the co-owners does not invalidate the sale or render it void. Article 493 of the Civil
Code[8] recognizes the absolute right of a co-owner to freely dispose of his pro indiviso share as well as the fruits and other benefits
arising from that share, independently of the other co-owners. Thus, when Consuelo agreed to sell to the respondents the subject
properties, what she in fact sold was her undivided interest that, as quantified by the RTC, consisted of one-half interest, representing
her conjugal share, and one-sixth interest, representing her hereditary share.

The petitioners-heirs nevertheless argue that Consuelos consent was predicated on their consent to the sale, and that their disapproval
resulted in the withdrawal of Consuelos consent. Yet, we find nothing in the parties agreement or even conduct save Consuelos self-
serving testimony that would indicate or from which we can infer that Consuelos consent depended on her childrens approval of the
sale. The explicit terms of the June 8, 1989 receipt[9] provide no occasion for any reading that the agreement is subject to the
petitioners-heirs favorable consent to the sale.

The presence of Consuelos consent and, corollarily, the existence of a perfected contract between the parties are further evidenced by
the payment and receipt of P20,000.00, an earnest money by the contracting parties common usage. The law on sales, specifically
Article 1482 of the Civil Code, provides that whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and proof of the perfection of the contract. Although the presumption is not conclusive, as the parties may treat the earnest
money differently, there is nothing alleged in the present case that would give rise to a contrary presumption. In cases where the Court
reached a conclusion contrary to the presumption declared in Article 1482, we found that the money initially paid was given to
guarantee that the buyer would not back out from the sale, considering that the parties to the sale have yet to arrive at a definite
agreement as to its terms that is, a situation where the contract has not yet been perfected.[10] These situations do not obtain in the
present case, as neither of the parties claimed that the P20,000.00 was given merely as guarantee by the respondents, as vendees, that
they would not back out from the sale. As we have pointed out, the terms of the parties agreement are clear and explicit; indeed, all the
essential elements of a perfected contract are present in this case. While the respondents required that the occupants vacate the subject
properties prior to the payment of the second installment, the stipulation does not affect the perfection of the contract, but only its
execution.

In sum, the case contains no element, factual or legal, that negates the existence of a perfected contract between the parties.

The characterization of the contract can be considered irrelevant in this case in light of Article 1592 and the Maceda Law, and the
petitioners-heirs payment

The petitioners-heirs posit that the proper characterization of the contract entered into by the parties is significant in order to determine
the effect of the respondents breach of the contract (which purportedly consisted of a one-day delay in the payment of part of the
purchase price) and the remedies to which they, as the non-defaulting party, are entitled.

71
The question of characterization of the contract involved here would necessarily call for a thorough analysis of the parties agreement
as embodied in the June 2, 1989 receipt, their contemporaneous acts, and the circumstances surrounding the contracts perfection and
execution. Unfortunately, the lower courts factual findings provide insufficient detail for the purpose. A stipulation reserving
ownership in the vendor until full payment of the price is, under case law, typical in a contract to sell.[11] In this case, the vendor
made no reservation on the ownership of the subject properties. From this perspective, the parties agreement may be considered a
contract of sale. On the other hand, jurisprudence has similarly established that the need to execute a deed of absolute sale upon
completion of payment of the price generally indicates that it is a contract to sell, as it implies the reservation of title in the vendor
until the vendee has completed the payment of the price. When the respondents instituted the action for specific performance before
the RTC, they prayed that Consuelo be ordered to execute a Deed of Absolute Sale; this act may be taken to conclude that the parties
only entered into a contract to sell.

Admittedly, the given facts, as found by the lower courts, and in the absence of additional details, can be interpreted to support two
conflicting conclusions. The failure of the lower courts to pry into these matters may understandably be explained by the issues raised
before them, which did not require the additional details. Thus, they found the question of the contracts characterization immaterial in
their discussion of the facts and the law of the case. Besides, the petitioners-heirs raised the question of the contracts characterization
and the effect of the breach for the first time through the present Rule 45 petition.

Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be,
considered by the reviewing court, as they cannot be raised for the first time at the appellate review stage. Basic considerations of
fairness and due process require this rule.[12]

At any rate, we do not find the question of characterization significant to fully pass upon the question of default due to the respondents
breach; ultimately, the breach was cured and the contract revived by the respondents payment a day after the due date.

In cases of breach due to nonpayment, the vendor may avail of the remedy of rescission in a contract of sale. Nevertheless, the
defaulting vendee may defeat the vendors right to rescind the contract of sale if he pays the amount due before he receives a demand
for rescission, either judicially or by a notarial act, from the vendor. This right is provided under Article 1592 of the Civil Code:

Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court
may not grant him a new term. [Emphasis supplied.]

Nonpayment of the purchase price in contracts to sell, however, does not constitute a breach; rather, nonpayment is a condition that
prevents the obligation from acquiring obligatory force and results in its cancellation. We stated in Ong v. CA[13] that:

In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or
serious, but a situation that prevents the obligation of the vendor to convey title from acquiring obligatory force. The non-fulfillment
of the condition of full payment rendered the contract to sell ineffective and without force and effect. [Emphasis supplied.]

As in the rescission of a contract of sale for nonpayment of the price, the defaulting vendee in a contract to sell may defeat the vendors
right to cancel by invoking the rights granted to him under Republic Act No. 6552 or the Realty Installment Buyer Protection Act
(also known as the Maceda Law); this law provides for a 60-day grace period within which the defaulting vendee (who has paid less
than two years of installments) may still pay the installments due. Only after the lapse of the grace period with continued nonpayment
of the amounts due can the actual cancellation of the contract take place. The pertinent provisions of the Maceda Law provide:
xxxx

Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions.

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at
least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding
installments:

xxxx

72
Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than 60
days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from the receipt by the buyer of the notice of cancellation or the demand for rescission
of the contract by notarial act. [Emphasis supplied.]

Significantly, the Court has consistently held that the Maceda Law covers not only sales on installments of real estate, but also
financing of such acquisition; its Section 3 is comprehensive enough to include both contracts of sale and contracts to sell, provided
that the terms on payment of the price require at least two installments. The contract entered into by the parties herein can very well
fall under the Maceda Law.

Based on the above discussion, we conclude that the respondents payment on June 15, 1989 of the installment due on June 14, 1989
effectively defeated the petitioners-heirs right to have the contract rescinded or cancelled. Whether the parties agreement is
characterized as one of sale or to sell is not relevant in light of the respondents payment within the grace period provided under Article
1592 of the Civil Code and Section 4 of the Maceda Law. The petitioners-heirs obligation to accept the payment of the price and to
convey Consuelos conjugal and hereditary shares in the subject properties subsists.

WHEREFORE, we DENY the petitioners-heirs petition for review on certiorari, and AFFIRM the decision of the Court of Appeals
dated June 24, 2002 and its resolution dated February 20, 2003 in CA-G.R. CV Case No. 56590. Costs against the petitioners-heirs.

SO ORDERED.

SMI VS POSADAS

LIMSON vs CA

BELLOSILLO, J.:

Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to review, reverse and set aside the Decision[1]
of the Court of Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated 30 June 1993. The petition likewise
assails the Resolution[2] of the appellate court of 19 October 1998 denying petitioners Motion for Reconsideration.

Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial court,[3] alleged that in July 1978 respondent
spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of
land consisting of 48,260 square meters, more or less, situated in Barrio San Dionisio, Paraaque, Metro Manila; that respondent
spouses informed her that they were the owners of the subject property; that on 31 July 1978 she agreed to buy the property at the
price of P34.00 per square meter and gave the sum of P20,000.00 to respondent spouses as "earnest money;" that respondent spouses
signed a receipt therefor and gave her a 10-day option period to purchase the property; that respondent Lorenzo de Vera then informed
her that the subject property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the
balance of the purchase price to enable him and his wife to settle their obligation with the Ramoses.

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at the Office of the Registry of
Deeds of Makati, Metro Manila, to consummate the transaction but due to the failure of respondent Asuncion Santos-de Vera and the
Ramoses to appear, no transaction was formalized. In a second meeting scheduled on 11 August 1978 she claimed that she was willing
and ready to pay the balance of the purchase price but the transaction again did not materialize as respondent spouses failed to pay the
back taxes of subject property. Subsequently, on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3)
checks in the total amount of P36,170.00 for the settlement of the back taxes of the property and for the payment of the quitclaims of
the three (3) tenants of subject land. The amount was purportedly considered part of the purchase price and respondent Lorenzo de
Vera signed the receipts therefor.

Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses that the property was the
subject of a negotiation for the sale to respondent Sunvar Realty Development Corporation (SUNVAR) represented by respondent
Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that although respondent spouses purchased the property from the
Ramoses on 20 March 1970 it was only on 15 September 1978 that TCT No. S-72946 covering the property was issued to respondent
spouses. As a consequence, she filed on the same day an Affidavit of Adverse Claim with the Office of the Registry of Deeds of
Makati, Metro Manila, which was annotated on TCT No. S-72946. She also claimed that on the same day she informed respondent
Cuenca of her "contract" to purchase the property.

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The Deed of Sale between respondent spouses and respondent SUNVAR was executed on 15 September 1978 and TCT No. S-72377
was issued in favor of the latter on 26 September 1978 with the Adverse Claim of petitioner annotated thereon. Petitioner claimed that
when respondent spouses sold the property in dispute to SUNVAR, her valid and legal right to purchase it was ignored if not violated.
Moreover, she maintained that SUNVAR was in bad faith as it knew of her "contract" to purchase the subject property from
respondent spouses.

Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her damage, prejudice and injury, petitioner
claimed that the Deed of Sale, should be annuled and TCT No. S-72377 in the name of respondent SUNVAR canceled and TCT No.
S-72946 restored. She also insisted that a Deed of Sale between her and respondent spouses be now executed upon her payment of the
balance of the purchase price agreed upon, plus damages and attorneys fees.

In their Answer[4] respondent spouses maintained that petitioner had no sufficient cause of action against them; that she was not the
real party in interest; that the option to buy the property had long expired; that there was no perfected contract to sell between them;
and, that petitioner had no legal capacity to sue. Additionally, respondent spouses claimed actual, moral and exemplary damages, and
attorneys fees against petitioner.

On the other hand, respondents SUNVAR and Cuenca, in their Answer,[5] alleged that petitioner was not the proper party in interest
and/or had no cause of action against them. But, even assuming that petitioner was the proper party in interest, they claimed that she
could only be entitled to the return of any amount received by respondent spouses. In the alternative, they argued that petitioner had
lost her option to buy the property for failure to comply with the terms and conditions of the agreement as embodied in the receipt
issued therefor. Moreover, they contended that at the time of the execution of the Deed of Sale and the payment of consideration to
respondent spouses, they "did not know nor was informed" of petitioners interest or claim over the subject property. They claimed
furthermore that it was only after the signing of the Deed of Sale and the payment of the corresponding amounts to respondent spouses
that they came to know of the claim of petitioner as it was only then that they were furnished copy of the title to the property where
the Adverse Claim of petitioner was annotated. Consequently, they also instituted a Cross-Claim against respondent spouses for bad
faith in encouraging the negotiations between them without telling them of the claim of petitioner. The same respondents maintained
that had they known of the claim of petitioner, they would not have initiated negotiations with respondent spouses for the purchase of
the property. Thus, they prayed for reimbursement of all amounts and monies received from them by respondent spouses, attorneys
fees and expenses for litigation in the event that the trial court should annul the Deed of Sale and deprive them of their ownership and
possession of the subject land.

In their Answer to the Cross-Claim[6] of respondents SUNVAR and Cuenca, respondent spouses insisted that they negotiated with the
former only after the expiration of the option period given to petitioner and her failure to comply with her commitments thereunder.
Respondent spouses contended that they acted legally and validly, in all honesty and good faith. According to them, respondent
SUNVAR made a verification of the title with the Office of the Register of Deeds of Metro Manila District IV before the execution of
the Deed of Absolute Sale. Also, they claimed that the Cross-Claim was barred by a written waiver executed by respondent SUNVAR
in their favor. Thus, respondent spouses prayed for actual damages for the unjustified filing of the Cross-Claim, moral damages for the
mental anguish and similar injuries they suffered by reason thereof, exemplary damages "to prevent others from emulating the bad
example" of respondents SUNVAR and Cuenca, plus attorneys fees.

After a protracted trial and reconstitution of the court records due to the fire that razed the Pasay City Hall on 18 January 1992, the
Regional Trial Court rendered its 30 June 1993 Decision[7] in favor of petitioner. It ordered (a) the annulment and rescission of the
Deed of Absolute Sale executed on 15 September 1978 by respondent spouses in favor of respondent SUNVAR; (b) the cancellation
and revocation of TCT No. S-75377 of the Registry of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar Realty
Development Corporation, and the restoration or reinstatement of TCT No. S-72946 of the same Registry issued in the name of
respondent spouses; (c) respondent spouses to execute a deed of sale conveying ownership of the property covered by TCT No. S-
72946 in favor of petitioner upon her payment of the balance of the purchase price agreed upon; and, (d) respondent spouses to pay
petitioner P50,000.00 as and for attorneys fees, and to pay the costs.

On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered (a) the Register of Deeds of Makati City
to lift the Adverse Claim and such other encumbrances petitioner might have filed or caused to be annotated on TCT No. S-75377;
and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal damages, P30,000.00 as exemplary damages and P20,000
as attorneys fees; (2) respondent spouses, P15,000.00 as nominal damages, P10,000.00 as exemplary damages and P10,000.00 as
attorneys fees; and, (3) the costs.

Petitioner timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19 October 1998. Hence, this
petition.

At issue for resolution by the Court is the nature of the contract entered into between petitioner Lourdes Ong Limson on one hand, and
respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.
74
The main argument of petitioner is that there was a perfected contract to sell between her and respondent spouses. On the other hand,
respondent spouses and respondents SUNVAR and Cuenca argue that what was perfected between petitioner and respondent spouses
was a mere option.

A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the agreement between the
parties was a contract of option and not a contract to sell.

An option, as used in the law of sales, is a continuing offer 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 time certain, 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. It is also sometimes called an "unaccepted offer." An
option is not of itself a purchase, but merely secures the privilege to buy.[8] It is not a sale of property but a sale of the right to
purchase.[9] It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something,
i.e., the right or privilege to buy at the election or option of the other party.[10] Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly
speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is
merely a contract by which the owner of the property gives the optionee the right or privilege of accepting the offer and buying the
property on certain terms.[11]

On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.[12] Contracts, in general, are perfected by mere consent,[13]
which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
The offer must be certain and the acceptance absolute.[14]

The Receipt[15] that contains the contract between petitioner and respondent spouses provides

Received from Lourdes Limson the sum of Twenty Thousand Pesos (P20,000.00) under Check No. 22391 dated July 31, 1978 as
earnest money with option to purchase a parcel of land owned by Lorenzo de Vera located at Barrio San Dionisio, Municipality of
Paraaque, Province of Rizal with an area of forty eight thousand two hundred sixty square meters more or less at the price of Thirty
Four Pesos (P34.00)[16] cash subject to the condition and stipulation that have been agreed upon by the buyer and me which will form
part of the receipt. Should the transaction of the property not materialize not on the fault of the buyer, I obligate myself to return the
full amount of P20,000.00 earnest money with option to buy or forfeit on the fault of the buyer. I guarantee to notify the buyer
Lourdes Limson or her representative and get her conformity should I sell or encumber this property to a third person. This option to
buy is good within ten (10) days until the absolute deed of sale is finally signed by the parties or the failure of the buyer to comply
with the terms of the option to buy as herein attached.

In the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking to the
words they used to project that intention in their contract, all the words, not just a particular word or two, and words in context, not
words standing alone.[17] The above Receipt readily shows that respondent spouses and petitioner only entered into a contract of
option; a contract by which respondent spouses agreed with petitioner that the latter shall have the right to buy the formers property at
a fixed price of P34.00 per square meter within ten (10) days from 31 July 1978. Respondent spouses did not sell their property; they
did not also agree to sell it; but they sold something, i.e., the privilege to buy at the election or option of petitioner. The agreement
imposed no binding obligation on petitioner, aside from the consideration for the offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money." However, a careful
examination of the words used indicates that the money is not earnest money but option money. "Earnest money" and "option money"
are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a
distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies
to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy,[18] but may even forfeit it depending on the terms of the option.

There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price. Moreover, it was not shown that
there was a perfected sale between the parties where earnest money was given. Finally, when petitioner gave the "earnest money," the
Receipt did not reveal that she was bound to pay the balance of the purchase price. In fact, she could even forfeit the money given if
the terms of the option were not met. Thus, the P20,000.00 could only be money given as consideration for the option contract. That
the contract between the parties is one of option is buttressed by the provision therein that should the transaction of the property not
materialize without fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to return the full amount of P20,000.00
"earnest money" with option to buy or forfeit the same on the fault of petitioner. It is further bolstered by the provision therein that
guarantees petitioner that she or her representative would be notified in case the subject property was sold or encumbered to a third
75
person. Finally, the Receipt provided for a period within which the option to buy was to be exercised, i.e., "within ten (10) days" from
31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or what is sometimes called an
"unaccepted offer." During the option period the agreement was not converted into a bilateral promise to sell and to buy where both
respondent spouses and petitioner were then reciprocally bound to comply with their respective undertakings as petitioner did not
timely, affirmatively and clearly accept the offer of respondent spouses.

The rule is that except where a formal acceptance is not required, although the acceptance must be affirmatively and clearly made and
evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be
shown by acts, conduct or words by the accepting party that clearly manifest a present intention or determination to accept the offer to
buy or sell. But there is nothing in the acts, conduct or words of petitioner that clearly manifest a present intention or determination to
accept the offer to buy the property of respondent spouses within the 10-day option period. The only occasion within the option period
when petitioner could have demonstrated her acceptance was on 5 August 1978 when, according to her, she agreed to meet respondent
spouses and the Ramoses at the Office of the Register of Deeds of Makati. Petitioners agreement to meet with respondent spouses
presupposes an invitation from the latter, which only emphasizes their persistence in offering the property to the former. But whether
that showed acceptance by petitioner of the offer is hazy and dubious.

On or before 10 August 1978, the last day of the option period, no affirmative or clear manifestation was made by petitioner to accept
the offer. Certainly, there was no concurrence of private respondent spouses offer and petitioners acceptance thereof within the option
period. Consequently, there was no perfected contract to sell between the parties.

On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the property of respondent spouses ceased.
The subsequent meetings and negotiations, specifically on 11 and 23 August 1978, between the parties only showed the desire of
respondent spouses to sell their property to petitioner. Also, on 14 September 1978 when respondent spouses sent a telegram to
petitioner demanding full payment of the purchase price on even date simply demonstrated an inclination to give her preference to buy
subject property. Collectively, these instances did not indicate that petitioner still had the exclusive right to purchase subject property.
Verily, the commencement of negotiations between respondent spouses and respondent SUNVAR clearly manifested that their offer
to sell subject property to petitioner was no longer exclusive to her.

We cannot subscribe to the argument of petitioner that respondent spouses extended the option period when they extended the
authority of their agent until 31 August 1978. The extension of the contract of agency could not operate to extend the option period
between the parties in the instant case. The extension must not be implied but categorical and must show the clear intention of the
parties.

As to whether respondent spouses were at fault for the non-consummation of their contract with petitioner, we agree with the appellate
court that they were not to be blamed. First, within the option period, or on 4 August 1978, it was respondent spouses and not
petitioner who initiated the meeting at the Office of the Register of Deeds of Makati. Second, that the Ramoses failed to appear on 4
August 1978 was beyond the control of respondent spouses. Third, the succeeding meetings that transpired to consummate the
contract were all beyond the option period and, as declared by the Court of Appeals, the question of who was at fault was already
immaterial. Fourth, even assuming that the meetings were within the option period, the presence of petitioner was not enough as she
was not even prepared to pay the purchase price in cash as agreed upon. Finally, even without the presence of the Ramoses, petitioner
could have easily made the necessary payment in cash as the price of the property was already set at P34.00 per square meter and
payment of the mortgage could very well be left to respondent spouses.

Petitioner further claims that when respondent spouses sent her a telegram demanding full payment of the purchase price on 14
September 1978 it was an acknowledgment of their contract to sell, thus denying them the right to claim otherwise.

We do not agree. As explained above, there was no contract to sell between petitioner and respondent spouses to speak of. Verily, the
telegram could not operate to estop them from claiming that there was such contract between them and petitioner. Neither could it
mean that respondent spouses extended the option period. The telegram only showed that respondent spouses were willing to give
petitioner a chance to buy subject property even if it was no longer exclusive.

The option period having expired and acceptance was not effectively made by petitioner, the purchase of subject property by
respondent SUNVAR was perfectly valid and entered into in good faith. Petitioner claims that in August 1978 Hermigildo Sanchez,
the son of respondent spouses agent, Marcosa Sanchez, informed Marixi Prieto, a member of the Board of Directors of respondent
SUNVAR, that the property was already sold to petitioner. Also, petitioner maintains that on 5 September 1978 respondent Cuenca
met with her and offered to buy the property from her at P45.00 per square meter. Petitioner contends that these incidents, including
the annotation of her Adverse Claim on the title of subject property on 15 September 1978 show that respondent SUNVAR was aware
of the perfected sale between her and respondent spouses, thus making respondent SUNVAR a buyer in bad faith.
76
Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are immaterial as they were beyond the option period
given to petitioner. On the other hand, the referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as emphasized
by petitioner in her petition is very vague. It could be within or beyond the option period. Clearly then, even assuming that the meeting
with Marixi Prieto actually transpired, it could not necessarily mean that she knew of the agreement between petitioner and respondent
spouses for the purchase of subject property as the meeting could have occurred beyond the option period. In which case, no bad faith
could be attributed to respondent SUNVAR. If, on the other hand, the meeting was within the option period, petitioner was remiss in
her duty to prove so. Necessarily, we are left with the conclusion that respondent SUNVAR bought subject property from respondent
spouses in good faith, for value and without knowledge of any flaw or defect in its title.

The appellate court awarded nominal and exemplary damages plus attorneys fees to respondent spouses and respondent SUNVAR.
But nominal damages are adjudicated to vindicate or recognize the right of the plaintiff that has been violated or invaded by the
defendant.[19] In the instant case, the Court recognizes the rights of all the parties and finds no violation or invasion of the rights of
respondents by petitioner. Petitioner, in filing her complaint, only seeks relief, in good faith, for what she believes she was entitled to
and should not be made to suffer therefor. Neither should exemplary damages be awarded to respondents as they are imposed only by
way of example or correction for the public good and only in addition to the moral, temperate, liquidated or compensatory
damages.[20] No such kinds of damages were awarded by the Court of Appeals, only nominal, which was not justified in this case.
Finally, attorneys fees could not also be recovered as the Court does not deem it just and equitable under the circumstances.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals ordering the Register of Deeds of Makati City to lift
the adverse claim and such other encumbrances petitioner Lourdes Ong Limson may have filed or caused to be annotated on TCT No.
S-75377 is AFFIRMED, with the MODIFICATION that the award of nominal and exemplary damages as well as attorneys fees is
DELETED.

SO ORDERED.

TAYAG VS LACSON

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 and the Resolution2 of respondent Court of Appeals in CA-G.R. SP
No. 44883.

The Case for the Petitioner

Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were
the registered owners of three parcels of land located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos.
35922-R, 35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were
tenanted agricultural lands,4 were administered by Renato Espinosa for the owner.

On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol,
Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton
Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino, Rica Gozun,
Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda,
Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon,
Alberto Hernandez, Orlando Flores, and Aurelio Flores,5 individually executed in favor of the petitioner separate Deeds of
Assignment6 in which the assignees assigned to the petitioner their respective rights as tenants/tillers of the landholdings possessed
and tilled by them for and in consideration of P50.00 per square meter. The said amount was made payable "when the legal
impediments to the sale of the property to the petitioner no longer existed." The petitioner was also granted the exclusive right to buy
the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim,
the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the said amounts.

On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the implementation of the terms of their
separate agreements.7 However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the petitioner stating that
they were not attending the meeting and instead gave notice of their collective decision to sell all their rights and interests, as
tenants/lessees, over the landholding to the respondents.8 Explaining their reasons for their collective decision, they wrote as follows:

Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente,
pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman
nagbenta ng lupa.
77
Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming lupang sinasaka sa landowner o sa mga
pamilyang Lacson, dahil ayaw naming magkaroon ng problema.

Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging katangahan kung ibebenta pa namin sa inyo ang aming
lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.9

On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San Fernando, Pampanga, Branch 44, against the
defendants-tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00
per square meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary
injunction against the defendants and the respondents therein.10 The case was docketed as Civil Case No. 10910.

In his complaint, the petitioner alleged, inter alia, the following:

4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita
Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana,
Felicencia de Leon, Emiliano Ramos are original farmers or direct tillers of landholdings over parcels of lands covered by Transfer
Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are registered in the names of defendants LACSONS; while
defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San
Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon,
Alberto Hernandez, and Aurelio Flores are sub-tenants over the same parcel of land.

5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment with the plaintiff by which the
defendants assigned all their rights and interests on their landholdings to the plaintiff and that on the same date (March 17, 1996), the
defendants received from the plaintiff partial payments in the amounts corresponding to their names. Subsequent payments were also
received:

1st PAYMENT 2nd PAYMENT CHECK NO. TOTAL

1.Julio Tiamson - - - - - - P 20,000 P 10,621.54 231281 P 30,621.54
2. Renato Gozun - - - - - -
[son of Felix Gozun (deceased)] P 10,000 96,000 106,000.00
3. Rosita Hernandez - - - - P 5,000 14,374.24 231274 P 19,374.24
4. Bienvenido Tongol - - -
[Son of Abundio Tongol (deceased)] P 10,000 14,465.90 231285 24,465.90
5. Alfonso Flores - - - - - - P 30,000 26,648.40 231271 56,648.40
6. Norma Quiambao - - - - P 10,000 41,501.10 231279 51,501.10
7. Rosita Tolentino - - - - - P 10,000 22,126.08 231284 32,126.08
8. Jose Sosa - - - - - - - - - P 10,000 14,861.31 231291 24,861.31
9. Francisco Tolentino, Sr. P 10,000 24,237.62 231283 34,237.62
10. Emiliano Laxamana - - P 10,000 ------ ------ ------
11. Ruben Torres - - - - - -
[Son of Mariano Torres (deceased)] P 10,000 P 33,587.31 ------ P 43,587.31
12. Meliton Allanigue P 10,000 12,944.77 231269 P 22,944.77
13. Dominga Laxamana P 5,000 22,269.02 231275 27,269.02
14. Felicencia de Leon 10,000 ------ ------ ------
15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60
16. Felino G. Tolentino 10,000 ------ ------ ------
17. Rica Gozun 5,000 ------ ------ ------
18. Perla Gozun 10,000 ------ ------ ------
19. Benigno Tolentino 10,000 ------ ------ ------
20. Rodolfo Quiambao 10,000 ------ ------ ------
21. Roman Laxamana 10,000 ------ ------ ------
22. Eddie San Luis 10,000 ------ ------ ------
23. Ricardo Hernandez 10,000 ------ ------ ------
24. Nicenciana Miranda 10,000 ------ ------ ------
25. Jose Gozun 10,000 ------ ------ ------
26. Alfredo Sosa 5,000 ------ ------ ------
27. Jose Tiamson 10,000 ------ ------ ------
28. Augusto Tolentino 5,000 ------ ------ ------
78
29. Sixto Hernandez 10,000 ------ ------ ------
30. Alex Quiambao 10,000 ------ ------ ------
31. Isidro Tolentino 10,000 ------ ------ ------
32. Ceferino de Leon ------ 11,378.70 231270 ------
33. Alberto Hernandez 10,000 ------ ------ ------
34. Orlando Florez 10,000 ------ ------ ------
35. Aurelio Flores 10,000 ------ ------ ------
6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them for a meeting regarding the
negotiations/implementations of the terms of their Deeds of Assignment;

7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied that they are no longer willing to pursue
with the negotiations, and instead they gave notice to the plaintiff that they will sell all their rights and interests to the registered
owners (defendants LACSONS).

A copy of the letter is hereto attached as Annex "A" etc.;

8. That the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON or with any third persons while their
contracts with the plaintiff are subsisting; defendants LACSONS are inducing or have induced the defendants TIAMSON, et. al., to
violate their contracts with the plaintiff;

9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages in the forms of mental anguish, mental
torture and serious anxiety which in the sum of P500,000.00 for which defendants should be held liable jointly and severally.11

In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following in his complaint:

11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from rescinding their contracts with the
plaintiff, and the defendants LACSONS should also be restrained from accepting any offer of sale or alienation with the defendants
TIAMSON, et al., in whatever form, the latter’s rights and interests in the properties mentioned in paragraph 4 hereof; further, the
LACSONS should be restrained from encumbering/alienating the subject properties covered by TCT No. 35922-R, 35923-R and TCT
No. 35925-R, Registry of Deeds of San Fernando, Pampanga;

12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff and are also bent on selling/alienating
their rights and interests over the subject properties to their co-defendants (LACSONS) or any other persons to the damage and
prejudice of the plaintiff who already invested much money, efforts and time in the said transactions;

13. That the plaintiff is entitled to the reliefs being demanded in the complaint;

14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no speedy and adequate remedy under the
ordinary course of law, it is essential that a Writ of Preliminary Injunction be issued enjoining and restraining the defendants
TIAMSON, et al., from rescinding their contracts with the plaintiff and from selling/alienating their properties to the LACSONS or
other persons;

15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages which the defendants would suffer
should the injunction prayed for and granted be found without basis.12

The petitioner prayed, that after the proceedings, judgment be rendered as follows:

1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and restraining defendants Julio Tiamson,
Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco
Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos,
Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo
Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Hernandez,
Orlando Flores, and Aurelio Flores from rescinding their contracts with the plaintiff and from alienating their rights and interest over
the aforementioned properties in favor of defendants LACSONS or any other third persons; and prohibiting the defendants LACSONS
from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of Deeds of San Fernando, Pampanga.

2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a restraining order be issued restraining
the aforementioned defendants (TIAMSON, et al.) from rescinding their contracts with the plaintiff and from alienating the subject
properties to the defendants LACSONS or any third persons; further, restraining and enjoining the defendants LACSONS from

79
encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of Deeds of San Fernando,
Pampanga.

3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the defendants TIAMSON, et al., after the
lapse of legal impediment, if any.

4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages;

6. Ordering the defendants to pay the plaintiff attorney’s fees in the sum of P100,000.00 plus litigation expenses of P50,000.00;

Plaintiff prays for such other relief as may be just and equitable under the premises.13

In their answer to the complaint, the respondents as defendants asserted that (a) the defendant Angelica Vda. de Lacson had died on
April 24, 1993; (b) twelve of the defendants were tenants/lessees of respondents, but the tenancy status of the rest of the defendants
was uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the petitioner; and, (d) being merely
tenants-tillers, the defendants-tenants had no right to enter into any transactions involving their properties without their knowledge and
consent. They also averred that the transfers or assignments of leasehold rights made by the defendants-tenants to the petitioner is
contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).14
The respondents interposed counterclaims for damages against the petitioner as plaintiff.

The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages, that the money each of them received
from the petitioner were in the form of loans, and that they were deceived into signing the deeds of assignment:

a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so far as they are material and relevant
herein;

b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed] never knew that what they did sign is a
Deed of Assignment. What they knew was that they were made to sign a document that will serve as a receipt for the loan granted [to]
them by the plaintiff;

c) That the Deeds of Assignment were signed through the employment of fraud, deceit and false pretenses of plaintiff and made the
defendants believe that what they sign[ed] was a mere receipt for amounts received by way of loans;

d) That the documents signed in blank were filled up and completed after the defendants Tiamson, et al., signed the documents and
their completion and accomplishment was done in the absence of said defendants and, worst of all, defendants were not provided a
copy thereof;

e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al., did assign all their rights and interests in
the properties or landholdings they were tilling in favor of the plaintiff. That if this is so, assuming arguendo that the documents were
voluntarily executed, the defendants Tiamson, et al., do not have any right to transfer their interest in the landholdings they are tilling
as they have no right whatsoever in the landholdings, the landholdings belong to their co-defendants, Lacson, et al., and therefore, the
contract is null and void;

f) That while it is admitted that the defendants Tiamson, et al., received sums of money from plaintiffs, the same were received as
approved loans granted by plaintiff to the defendants Tiamson, et al., and not as part consideration of the alleged Deeds of
Assignment; and by way of:…15

At the hearing of the petitioner’s plea for a writ of preliminary injunction, the respondents’ counsel failed to appear. In support of his
plea for a writ of preliminary injunction, the petitioner adduced in evidence the Deeds of Assignment,16 the receipts17 issued by the
defendants-tenants for the amounts they received from him; and the letter18 the petitioner received from the defendants-tenants. The
petitioner then rested his case.

The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioner’s plea for injunctive relief on the following
grounds: (a) the Deeds of Assignment executed by the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act
No. 6657; (b) the petitioner failed to prove that the respondents induced the defendants-tenants to renege on their obligations under the
"Deeds of Assignment;" (c) not being privy to the said deeds, the respondents are not bound by the said deeds; and, (d) the
respondents had the absolute right to sell and dispose of their property and to encumber the same and cannot be enjoined from doing
so by the trial court.
80
The petitioner opposed the motion, contending that it was premature for the trial court to resolve his plea for injunctive relief, before
the respondents and the defendants-tenants adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal
evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied that it was the burden of the petitioner
to establish the requisites of a writ of preliminary injunction without any evidence on their part, and that they were not bound to
adduce any evidence in opposition to the petitioner’s plea for a writ of preliminary injunction.

On February 13, 1997, the court issued an Order19 denying the motion of the respondents for being premature. It directed the hearing
to proceed for the respondents to adduce their evidence. The court ruled that the petitioner, on the basis of the material allegations of
the complaint, was entitled to injunctive relief. It also held that before the court could resolve the petitioner’s plea for injunctive relief,
there was need for a hearing to enable the respondents and the defendants-tenants to adduce evidence to controvert that of the
petitioner. The respondents filed a motion for reconsideration, which the court denied in its Order dated April 16, 1997. The trial court
ruled that on the face of the averments of the complaint, the pleadings of the parties and the evidence adduced by the petitioner, the
latter was entitled to injunctive relief unless the respondents and the defendants-tenants adduced controverting evidence.

The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for the nullification of the February 13,
1997 and April 16, 1997 Orders of the trial court. The case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in
their petition that:

1. An order be issued declaring the orders of respondent court dated February 13, 1997 and April 16, 1997 as null and void;

2. An order be issued directing the respondent court to issue an order denying the application of respondent Herminio Tayag for the
issuance of a Writ of Preliminary Injunction and/or restraining order.

3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court, prohibiting it from issuing its own writ of
injunction against Petitioners, and thereafter making said injunction to be issued by this Court permanent.

Such other orders as may be deemed just & equitable under the premises also prayed for.20

The respondents asserted that the Deeds of Assignment executed by the assignees in favor of the petitioner were contrary to paragraph
13 of P.D. No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner
for being null and void. The respondents also claimed that the enforcement of the deeds of assignment was subject to a supervening
condition:

3. That this exclusive and absolute right given to the assignee shall be exercised only when no legal impediments exist to the lot to
effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE.21

The respondents argued that until such condition took place, the petitioner would not acquire any right to enforce the deeds by
injunctive relief. Furthermore, the petitioner’s plea in his complaint before the trial court, to fix a period within which to pay the
balance of the amounts due to the tenants under said deeds after the "lapse" of any legal impediment, assumed that the deeds were
valid, when, in fact and in law, they were not. According to the respondents, they were not parties to the deeds of assignment; hence,
they were not bound by the said deeds. The issuance of a writ of preliminary injunction would restrict and impede the exercise of their
right to dispose of their property, as provided for in Article 428 of the New Civil Code. They asserted that the petitioner had no cause
of action against them and the defendants-tenants.

On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling and setting aside the assailed orders of
the trial court; and permanently enjoining the said trial court from proceeding with Civil Case No. 10901. The decretal portion of the
decision reads as follows:

However, even if private respondent is denied of the injunctive relief he demands in the lower court still he could avail of other course
of action in order to protect his interest such as the institution of a simple civil case of collection of money against TIAMSON, et al.

For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are hereby NULLIFIED and ordered SET
ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Accordingly, public
respondent is permanently enjoined from proceeding with the case designated as Civil Case No. 10901.22

The CA ruled that the respondents could not be enjoined from alienating or even encumbering their property, especially so since they
were not privies to the deeds of assignment executed by the defendants-tenants. The defendants-tenants were not yet owners of the
portions of the landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner. Finally, the CA ruled that
the deeds of assignment executed by the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.
81
On August 4, 1998, the CA issued a Resolution denying the petitioner’s motion for reconsideration.23

Hence, the petitioner filed his petition for review on certiorari before this Court, contending as follows:

A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY
CONCLUSION, AS THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24

II

THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION FOR PRELIMINARY INJUNCTION AT A
TIME WHEN THE LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR
NOT THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE GRANTED OR NOT.25

III

THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE
TENANTS ARE NOT YET "AWARDEES OF THE LAND REFORM.26

IV

THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW
INCLUDING THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE
PROPRIETY OF MAINTAINING THE STATUS QUO.27

THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE OTHER 35 TENANTS WHO DO NOT
QUESTION THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL
PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME TIME
THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER.28

VI

THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER
ART. 1197 OF THE NEW CIVIL CODE AND FOR "DAMAGES" AGAINST THE LACSONS UNDER ART. 1314 OF THE
SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED NUGATORY UNCEREMONIOUSLY.29

The petitioner faults the Court of Appeals for permanently enjoining the trial court from proceeding with Civil Case No. 10910. He
opines that the same was too drastic, tantamount to a dismissal of the case. He argues that at that stage, it was premature for the
appellate court to determine the merits of the case since no evidentiary hearing thereon was conducted by the trial court. This, the
Court of Appeals cannot do, since neither party moved for the dismissal of Civil Case No. 10910. The petitioner points out that the
Court of Appeals, in making its findings, went beyond the issue raised by the private respondents, namely, whether or not the trial
court committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it denied the respondent’s motion for the
denial/dismissal of the petitioner’s plea for a writ of preliminary injunction. He, likewise, points out that the appellate court
erroneously presumed that the leaseholders were not DAR awardees and that the deeds of assignment were contrary to law. He
contends that leasehold tenants are not prohibited from conveying or waiving their leasehold rights in his favor. He insists that there is
nothing illegal with his contracts with the leaseholders, since the same shall be effected only when there are no more "legal
impediments."

At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to determine the merits of his case since
no evidentiary hearing on the merits of his complaint had yet been conducted by the trial court.

The Comment/Motion of the

Respondents to Dismiss/Deny
Petitioner’s Plea for a Writ
of Preliminary Injunction
Was Not Premature.
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Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the petitioner’s plea for a writ of preliminary
injunction after the petitioner had adduced his evidence, testimonial and documentary, and had rested his case on the incident, was
proper and timely. It bears stressing that the petitioner had the burden to prove his right to a writ of preliminary injunction. He may
rely solely on the material allegations of his complaint or adduce evidence in support thereof. The petitioner adduced his evidence to
support his plea for a writ of preliminary injunction against the respondents and the defendants-tenants and rested his case on the said
incident. The respondents then had three options: (a) file a motion to deny/dismiss the motion on the ground that the petitioner failed
to discharge his burden to prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the trial court denies
his motion, for them to adduce evidence in opposition to the petitioner’s plea; (b) forgo their motion and adduce testimonial and/or
documentary evidence in opposition to the petitioner’s plea for a writ of preliminary injunction; or, (c) waive their right to adduce
evidence and submit the incident for consideration on the basis of the pleadings of the parties and the evidence of the petitioner. The
respondents opted not to adduce any evidence, and instead filed a motion to deny or dismiss the petitioner’s plea for a writ of
preliminary injunction against them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court cannot
compel the respondents to adduce evidence in opposition to the petitioner’s plea if the respondents opt to waive their right to adduce
such evidence. Thus, the trial court should have resolved the respondents’ motion even without the latter’s opposition and the
presentation of evidence thereon.

The RTC Committed a Grave

Abuse of Discretion Amounting
to Excess or Lack of Jurisdiction
in Issuing its February 13, 1997
and April 16, 1997 Orders

In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of preliminary injunction against the
respondents on the basis of the material averments of the complaint. In its April 16, 1997 Order, the trial court denied the respondents’
motion for reconsideration of the previous order, on its finding that the petitioner was entitled to a writ of preliminary injunction based
on the material allegations of his complaint, the evidence on record, the pleadings of the parties, as well as the applicable laws:

… For the record, the Court denied the LACSONS’ COMMENT/MOTION on the basis of the facts culled from the evidence
presented, the pleadings and the law applicable unswayed by the partisan or personal interests, public opinion or fear of criticism
(Canon 3, Rule 3.02, Code of Judicial Ethics).30

Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance of a writ of preliminary injunction,
thus:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or
continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or
perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work
injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some
act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render
the judgment ineffectual.

A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of things ante litem and is
generally availed of to prevent actual or threatened acts, until the merits of the case can be heard. Injunction is accepted as the strong
arm of equity or a transcendent remedy.31 While generally the grant of a writ of preliminary injunction rests on the sound discretion
of the trial court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion.32 Indeed, in
Olalia v. Hizon,33 we held:

It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation
and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that
should never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in
damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted
lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands
it.34
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The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a cause of action and in the probability of
irreparable injury, inadequacy of pecuniary compensation and the prevention of the multiplicity of suits. Where facts are not shown to
bring the case within these conditions, the relief of injunction should be refused.35

For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the following: (1) a right in esse or a
clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent
necessity for the writ to prevent serious damage.36 Thus, in the absence of a clear legal right, the issuance of the injunctive writ
constitutes a grave abuse of discretion. Where the complainant’s right is doubtful or disputed, injunction is not proper. Injunction is a
preservative remedy aimed at protecting substantial rights and interests. It is not designed to protect contingent or future rights. The
possibility of irreparable damage without proof of adequate existing rights is not a ground for injunction.37

We have reviewed the pleadings of the parties and found that, as contended by the respondents, the petitioner failed to establish the
essential requisites for the issuance of a writ of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion
amounting to excess or lack of jurisdiction in denying the respondents’ comment/motion as well as their motion for reconsideration.

First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from selling, disposing of and encumbering their
property. As the registered owners of the property, the respondents have the right to enjoy and dispose of their property without any
other limitations than those established by law, in accordance with Article 428 of the Civil Code. The right to dispose of the property
is the power of the owner to sell, encumber, transfer, and even destroy the property. Ownership also includes the right to recover the
possession of the property from any other person to whom the owner has not transmitted such property, by the appropriate action for
restitution, with the fruits, and for indemnification for damages.38 The right of ownership of the respondents is not, of course,
absolute. It is limited by those set forth by law, such as the agrarian reform laws. Under Article 1306 of the New Civil Code, the
respondents may enter into contracts covering their property with another under such terms and conditions as they may deem
beneficial provided they are not contrary to law, morals, good conduct, public order or public policy.

The respondents cannot be enjoined from selling or encumbering their property simply and merely because they had executed Deeds
of Assignment in favor of the petitioner, obliging themselves to assign and transfer their rights or interests as agricultural
farmers/laborers/sub-tenants over the landholding, and granting the petitioner the exclusive right to buy the property subject to the
occurrence of certain conditions. The respondents were not parties to the said deeds. There is no evidence that the respondents agreed,
expressly or impliedly, to the said deeds or to the terms and conditions set forth therein. Indeed, they assailed the validity of the said
deeds on their claim that the same were contrary to the letter and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even
admitted when he testified that he did not know any of the respondents, and that he had not met any of them before he filed his
complaint in the RTC. He did not even know that one of those whom he had impleaded as defendant, Angelica Vda. de Lacson, was
already dead.

Q: But you have not met any of these Lacsons?

A: Not yet, sir.

Q: Do you know that two (2) of the defendants are residents of the United States?

A: I do not know, sir.

Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead?

A: I am aware of that, sir.39

We are one with the Court of Appeals in its ruling that:

We cannot see our way clear on how or why injunction should lie against petitioners. As owners of the lands being tilled by
TIAMSON, et al., petitioners, under the law, have the right to enjoy and dispose of the same. Thus, they have the right to possess the
lands, as well as the right to encumber or alienate them. This principle of law notwithstanding, private respondent in the lower court
sought to restrain the petitioners from encumbering and/or alienating the properties covered by TCT No. 35922-R, 35923-R and TCT
No. 35925-R of the Registry of Deeds of San Fernando, Pampanga. This cannot be allowed to prosper since it would constitute a
limitation or restriction, not otherwise established by law on their right of ownership, more so considering that petitioners were not
even privy to the alleged transaction between private respondent and TIAMSON, et al.40

Second. A reading the averments of the complaint will show that the petitioner clearly has no cause of action against the respondents
for the principal relief prayed for therein, for the trial court to fix a period within which to pay to each of the defendants-tenants the
84
balance of the P50.00 per square meter, the consideration under the Deeds of Assignment executed by the defendants-tenants. The
respondents are not parties or privies to the deeds of assignment. The matter of the period for the petitioner to pay the balance of the
said amount to each of the defendants-tenants is an issue between them, the parties to the deed.

Third. On the face of the complaint, the action of the petitioner against the respondents and the defendants-tenants has no legal basis.
Under the Deeds of Assignment, the obligation of the petitioner to pay to each of the defendants-tenants the balance of the purchase
price was conditioned on the occurrence of the following events: (a) the respondents agree to sell their property to the petitioner; (b)
the legal impediments to the sale of the landholding to the petitioner no longer exist; and, (c) the petitioner decides to buy the
property. When he testified, the petitioner admitted that the legal impediments referred to in the deeds were (a) the respondents’
refusal to sell their property; and, (b) the lack of approval of the Department of Agrarian Reform:

Q : There is no specific agreement prior to the execution of those documents as when they will pay?

A : We agreed to that, that I will pay them when there are no legal impediment, sir.

Q : Many of the documents are unlattered (sic) and you want to convey to this Honorable Court that prior to the execution of these
documents you have those tentative agreement for instance that the amount or the cost of the price is to be paid when there are no
legal impediment, you are using the word "legal impediment," do you know the meaning of that?

A : When there are (sic) no more legal impediment exist, sir.

Q : Did you make how (sic) to the effect that the meaning of that phrase that you used the unlettered defendants?

A : We have agreed to that, sir.

ATTY. OCAMPO:

May I ask, Your Honor, that the witness please answer my question not to answer in the way he wanted it.

COURT:

Just answer the question, Mr. Tayag.

WITNESS:

Yes, Your Honor.

ATTY. OCAMPO:

Q : Did you explain to them?

A : Yes, sir.

Q : What did you tell them?

A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not agree to sell their shares to me or to us it
would be hard to (sic) me to pay them in full. And those covered by DAR. I explain[ed] to them and it was clearly stated in the title
that there is [a] prohibited period of time before you can sell the property. I explained every detail to them.41

It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to pay to the defendants-tenants the
balance of the P50.00 per square meter under the deeds of assignment. Thus:

2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the ASSIGNEE, who is given an
exclusive and absolute right to buy the lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as
consideration of the total area actually tilled and possessed by the ASSIGNOR, less whatever amount received by the ASSIGNOR
including commissions, taxes and all allowable deductions relative to the sale of the subject properties.

3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal impediments exist to the lot to
effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE;

85
4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the fruits/earnings and/or harvest of
the said lot until such time that full payment of the agreed purchase price had been made by the ASSIGNEE.42

There is no showing in the petitioner’s complaint that the respondents had agreed to sell their property, and that the legal impediments
to the agreement no longer existed. The petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the
Department of Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as alleged by the petitioner
in his complaint, he was yet to meet with the defendants-tenants to discuss the implementation of the deeds of assignment. Unless and
until the Department of Agrarian Reform approved the said deeds, if at all, the petitioner had no right to enforce the same in a court of
law by asking the trial court to fix a period within which to pay the balance of the purchase price and praying for injunctive relief.

We do not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected
option contracts.43 An option is a contract by which the owner of the property agrees with another person that he shall have the right
to buy his 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. It imposes no binding
obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking,
treated as a contract.44 The second party gets in praesenti, not lands, not an agreement that he shall have the lands, but the right to call
for and receive lands if he elects.45 An option contract is a separate and distinct contract from which the parties may enter into upon
the conjunction of the option.46

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the
exclusive right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered
owners of the property. Not being the registered owners of the property, the defendants-tenants could not legally grant to the petitioner
the option, much less the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON HABET."

Fourth. The petitioner impleaded the respondents as parties-defendants solely on his allegation that the latter induced or are inducing
the defendants-tenants to violate the deeds of assignment, contrary to the provisions of Article 1314 of the New Civil Code which
reads:

Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply, the pleader is burdened to prove the following: (1) the
existence of a valid contract; (2) knowledge by the third person of the existence of the contract; and (3) interference by the third
person in the contractual relation without legal justification.

Where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest
rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and
such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.48

In fine, one who is not a party to a contract and who interferes thereon is not necessarily an officious or malicious intermeddler. The
only evidence adduced by the petitioner to prove his claim is the letter from the defendants-tenants informing him that they had
decided to sell their rights and interests over the landholding to the respondents, instead of honoring their obligation under the deeds of
assignment because, according to them, the petitioner harassed those tenants who did not want to execute deeds of assignment in his
favor, and because the said defendants-tenants did not want to have any problem with the respondents who could cause their eviction
for executing with the petitioner the deeds of assignment as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.49
The defendants-tenants did not allege therein that the respondents induced them to breach their contracts with the petitioner. The
petitioner himself admitted when he testified that his claim that the respondents induced the defendants-assignees to violate contracts
with him was based merely on what "he heard," thus:

Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that the Lacsons were inducing the
defendants?

A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a matter of fact, that is the reason why they
sent me letter that they will sell it to the Lacsons.

Q: Incidentally, do you knew (sic) these Lacsons individually?

A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has the authority to sell the property.50

86
Even if the respondents received an offer from the defendants-tenants to assign and transfer their rights and interests on the
landholding, the respondents cannot be enjoined from entertaining the said offer, or even negotiating with the defendants-tenants. The
respondents could not even be expected to warn the defendants-tenants for executing the said deeds in violation of P.D. No. 27 and
Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or
abandoned their land, are disqualified from becoming beneficiaries.

From the pleadings of the petitioner, it is quite evident that his purpose in having the defendants-tenants execute the Deeds of
Assignment in his favor was to acquire the landholding without any tenants thereon, in the event that the respondents agreed to sell the
property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property, the
defendants-tenants shall have preferential right to buy the same under reasonable terms and conditions:

SECTION 11. Lessee’s Right of Pre-emption. – In case the agricultural lessor desires to sell the landholding, the agricultural lessee
shall have the preferential right to buy the same under reasonable terms and conditions: Provided, That the entire landholding offered
for sale must be pre-empted by the Land Authority if the landowner so desires, unless the majority of the lessees object to such
acquisition: Provided, further, That where there are two or more agricultural lessees, each shall be entitled to said preferential right
only to the extent of the area actually cultivated by him. …51

Under Section 12 of the law, if the property was sold to a third person without the knowledge of the tenants thereon, the latter shall
have the right to redeem the same at a reasonable price and consideration. By assigning their rights and interests on the landholding
under the deeds of assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who is not a
beneficiary under Section 22 of Rep. Act No. 6657, their rights of preemption or redemption under Rep. Act No. 3844. The
defendants-tenants would then have to vacate the property in favor of the petitioner upon full payment of the purchase price. Instead of
acquiring ownership of the portions of the landholding respectively tilled by them, the defendants-tenants would again become
landless for a measly sum of P50.00 per square meter. The petitioner’s scheme is subversive, not only of public policy, but also of the
letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to take effect in the future or ten years hence is not a
justification. The respondents may well argue that the agrarian laws had been violated by the defendants-tenants and the petitioner by
the mere execution of the deeds of assignment. In fact, the petitioner has implemented the deeds by paying the defendants-tenants
amounts of money and even sought their immediate implementation by setting a meeting with the defendants-tenants. In fine, the
petitioner would not wait for ten years to evict the defendants-tenants. For him, time is of the essence.

The Appellate Court Erred

In Permanently Enjoining
The Regional Trial Court
From Continuing with the
Proceedings in Civil Case No. 10910.

We agree with the petitioner’s contention that the appellate court erred when it permanently enjoined the RTC from continuing with
the proceedings in Civil Case No. 10910. The only issue before the appellate court was whether or not the trial court committed a
grave abuse of discretion amounting to excess or lack of jurisdiction in denying the respondents’ motion to deny or dismiss the
petitioner’s plea for a writ of preliminary injunction. Not one of the parties prayed to permanently enjoin the trial court from further
proceeding with Civil Case No. 10910 or to dismiss the complaint. It bears stressing that the petitioner may still amend his complaint,
and the respondents and the defendants-tenants may file motions to dismiss the complaint. By permanently enjoining the trial court
from proceeding with Civil Case No. 10910, the appellate court acted arbitrarily and effectively dismissed the complaint motu proprio,
including the counterclaims of the respondents and that of the defendants-tenants. The defendants-tenants were even deprived of their
right to prove their special and affirmative defenses.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals nullifying
the February 13, 1996 and April 16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued by the Court of Appeals
permanently enjoining the RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional
Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with the proceedings in Civil Case No. 10910 as provided
for by the Rules of Court, as amended.

SO ORDERED.

EULOGIO VS APELES

DECISION

CHICO-NAZARIO, J.:
87
Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court
assailing the Decision[2] dated 20 December 2004 of the Court of Appeals in CA-G.R. CV No. 76933 which reversed the Decision[3]
dated 8 October 2002 of the Regional Trial Court (RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-36834. The RTC
directed respondents, spouses Clemente and Luz Apeles (spouses Apeles) to execute a Deed of Sale over a piece of real property in
favor of Enrico after the latters payment of full consideration therefor.

The factual and procedural antecedents of the present case are as follows:

The real property in question consists of a house and lot situated at No. 87 Timog Avenue, Quezon City (subject property). The lot has
an area of 360.60 square meters, covered by Transfer Certificate of Title No. 253990 issued by the Registry of Deeds of Quezon City
in the names of the spouses Apeles.[4]
In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo), Enricos father. Upon Arturos death, his son Enrico
succeeded as lessor of the subject property. Enrico used the subject property as his residence and place of business. Enrico was
engaged in the business of buying and selling imported cars.[5]

On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract of Lease[6] with Option to Purchase involving the
subject property. According to the said lease contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of her
husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of the former on 24 January 1979. The
contract purportedly afforded Enrico, before the expiration of the three-year lease period, the option to purchase the subject property
for a price not exceeding P1.5 Million. The pertinent provisions of the Contract of Lease are reproduced below:

3. That this Contract shall be effective commencing from January 26, 1987 and shall remain valid and binding for THREE (3) YEARS
from the said date. The LESSOR hereby gives the LESSEE under this Contract of Lease the right and option to buy the subject house
and lot within the said 3-year lease period.

4. That the purchase price or total consideration of the house and lot subject of this Contract of Lease shall, should the LESSEE
exercise his option to buy it on or before the expiration of the 3-year lease period, be fixed or agreed upon by the LESSOR and the
LESSEE, Provided, that the said purchase price, as it is hereby agreed, shall not be more than ONE MILLION FIVE HUNDRED
THOUSAND PESOS (P1,500,000.00) and, provided further, that the monthly rentals paid by the LESSEE to the LESSOR during the
3-year lease period shall form part of or be deducted from the purchase price or total consideration as may hereafter be mutually fixed
or agreed upon by the LESSOR and the LESSEE.

5. That if the LESSEE shall give oral or written notice to the LESSOR on or before the expiry date of the 3-year lease period
stipulated herein of his desire to exercise his option to buy or purchase the house and lot herein leased, the LESSOR upon receipt of
the purchase price/total consideration as fixed or agreed upon less the total amount of monthly rentals paid the LESSEE during the 3-
year lease period shall execute the appropriate Deed to SELL, TRANSFER and CONVEY the house and lot subject of this Contract in
favor of the LESSEE, his heirs, successors and assigns, together with all the fixtures and accessories therein, free from all liens and
encumbrances.

Before the expiration of the three-year lease period provided in the lease contract, Enrico exercised his option to purchase the subject
property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles
supposedly ignored Enricos manifestation. This prompted Enrico to seek recourse from the barangay for the enforcement of his right
to purchase the subject property, but despite several notices, the spouses Apeles failed to appear before the barangay for settlement
proceedings. Hence, the barangay issued to Enrico a Certificate to File Action.[7]

In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded that he pay his rental arrears from January 1991 to
December 1996 and he vacate the subject property since it would be needed by the spouses Apeles themselves.

Without heeding the demand of the spouses Apeles, Enrico instituted on 23 February 1999 a Complaint for Specific Performance with
Damages against the spouses Apeles before the RTC, docketed as Civil Case No. Q-99-36834. Enricos cause of action is founded on
paragraph 5 of the Contract of Lease with Option to Purchase vesting him with the right to acquire ownership of the subject property
after paying the agreed amount of consideration.

Following the pre-trial conference, trial on the merits ensued before the RTC.

Enrico himself testified as the sole witness for his side. He narrated that he and Luz entered into the Contract of Lease with Option to
Purchase on 26 January 1987, with Luz signing the said Contract at Enricos office in Timog Avenue, Quezon City. The Contract was
88
notarized on the same day as evidenced by the Certification on the Notary Publics Report issued by the Clerk of Court of the RTC of
Manila.[8]

On the other hand, the spouses Apeles denied that Luz signed the Contract of Lease with Option to Purchase, and posited that Luzs
signature thereon was a forgery. To buttress their contention, the spouses Apeles offered as evidence Luzs Philippine Passport which
showed that on 26 January 1987, the date when Luz allegedly signed the said Contract, she was in the United States of America. The
spouses Apeles likewise presented several official documents bearing her genuine signatures to reveal their remarkable discrepancy
from the signature appearing in the disputed lease contract. The spouses Apeles maintained that they did not intend to sell the subject
property.[9]

After the spouses Apeles established by documentary evidence that Luz was not in the country at the time the Contract of Lease with
Option to Purchase was executed, Enrico, in rebuttal, retracted his prior declaration that the said Contract was signed by Luz on 26
January 1996. Instead, Enrico averred that Luz signed the Contract after she arrived in the Philippines on 30 May 1987. Enrico further
related that after Luz signed the lease contract, she took it with her for notarization, and by the time the document was returned to him,
it was already notarized.[10]

On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-36834 in favor of Enrico. Since none of the parties
presented a handwriting expert, the RTC relied on its own examination of the specimen signatures submitted to resolve the issue of
forgery. The RTC found striking similarity between Luzs genuine signatures in the documents presented by the spouses Apeles
themselves and her purportedly forged signature in the Contract of Lease with Option to Purchase. Absent any finding of forgery, the
RTC bound the parties to the clear and unequivocal stipulations they made in the lease contract. Accordingly, the RTC ordered the
spouses Apeles to execute a Deed of Sale in favor of Enrico upon the latters payment of the agreed amount of consideration. The fallo
of the RTC Decision reads:

WHEREFORE, this Court finds [Enricos] complaint to be substantiated by preponderance of evidence and accordingly orders
(1) [The spouses Apeles] to comply with the provisions of the Contract of Lease with Option to Purchase; and upon payment of
total consideration as stipulated in the said CONTRACT for [the spouses Apeles] to execute a Deed of Absolute Sale in favor of
[Enrico], over the parcel of land and the improvements existing thereon located at No. 87 Timog Avenue, Quezon City.

(2) [The spouses Apeles] to pay [Enrico] moral and exemplary damages in the respective amounts of P100,000.00 and P50,000.00.

(3) [The spouses Apeles] to pay attorneys fees of P50,000.00 and costs of the suit.[11]

The spouses Apeles challenged the adverse RTC Decision before the Court of Appeals and urged the appellate court to nullify the
assailed Contract of Lease with Option to Purchase since Luzs signature thereon was clearly a forgery. The spouses Apeles argued that
it was physically impossible for Luz to sign the said Contract on 26 January 1987 since she was not in the Philippines on that date and
returned five months thereafter. The spouses Apeles called attention to Enricos inconsistent declarations as to material details
involving the execution of the lease contract, thereby casting doubt on Enricos credibility, as well as on the presumed regularity of the
contract as a notarized document.

On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R. CV No. 76933 granting the appeal of the spouses
Apeles and overturning the judgment of the RTC. In arriving at its assailed decision, the appellate court noted that the Notary Public
did not observe utmost care in certifying the due execution of the Contract of Lease with Option to Purchase. The Court of Appeals
chose not to accord the disputed Contract full faith and credence. The Court of Appeals held, thus:

WHEREFORE, the foregoing premises considered, the appealed decision dated October 8, 2002 of the Regional Trial Court of
Quezon City, Branch 215 in Civil Case No. Q-99-36834 for specific performance with damages is hereby REVERSED and a new is
one entered dismissing [Enricos] complaint.[12]

Enricos Motion for Reconsideration was denied by the Court of Appeals in a Resolution[13] dated 25 April 2005.

Enrico is presently before this Court seeking the reversal of the unfavorable judgment of the Court of Appeals, assigning the following
errors thereto:
I.

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN IT BRUSHED ASIDE THE RULING OF THE
COURT A QUO UPHOLDING THE VALIDITY OF THE CONTRACT OF LEASE WITH OPTION TO PURCHASE AND IN
LIEU THEREOF RULED THAT THE SAID CONTRACT OF LEASE WAS A FORGERY AND THUS, NULL AND VOID.
89
II.

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN CONTRARY TO THE FINDINGS OF THE
COURT A QUO IT RULED THAT THE DEFENSE OF FORGERY WAS SUBSTANTIALLY AND CONVINCINGLY PROVEN
BY COMPETENT EVIDENCE.

Simply, Enrico faults the Court of Appeals for disturbing the factual findings of the RTC in disregard of the legal aphorism that the
factual findings of the trial court should be accorded great weight and respect on appeal.
We do not agree.

Enricos insistence on the infallibility of the findings of the RTC seriously impairs the discretion of the appellate tribunal to make
independent determination of the merits of the case appealed before it. Certainly, the Court of Appeals cannot swallow hook, line, and
sinker the factual conclusions of the trial court without crippling the very office of review. Although we have indeed held that the
factual findings of the trial courts are to be accorded great weight and respect, they are not absolutely conclusive upon the appellate
court.[14]

The reliance of appellate tribunals on the factual findings of the trial court is based on the postulate that the latter had firsthand
opportunity to hear the witnesses and to observe their conduct and demeanor during the proceedings. However, when such findings
are not anchored on their credibility and their testimonies, but on the assessment of documents that are available to appellate
magistrates and subject to their scrutiny, reliance on the trial court finds no application.[15]

Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of the Revised Rules of Court, the parties may raise both
questions of fact and/or of law. In fact, it is imperative for the Court of Appeals to review the findings of fact made by the trial court.
The Court of Appeals even has the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary
to resolve factual issues raised in cases falling within its original and appellate jurisdiction.[16]

Enrico assiduously prays before this Court to sustain the validity of the Contract of Lease with Option to Purchase. Enrico asserts that
the said Contract was voluntarily entered into and signed by Luz who had it notarized herself. The spouses Apeles should be obliged
to respect the terms of the agreement, and not be allowed to renege on their commitment thereunder and frustrate the sanctity of
contracts.

Again, we are not persuaded. We agree with the Court of Appeals that in ruling out forgery, the RTC heavily relied on the testimony
proffered by Enrico during the trial, ignoring blatant contradictions that destroy his credibility and the veracity of his claims. On direct
examination, Enrico testified that Luz signed the Contract of Lease with Option to Purchase on 26 January 1987 in his presence,[17]
but he recanted his testimony on the matter after the spouses Apeles established by clear and convincing evidence that Luz was not in
the Philippines on that date.[18] In rebuttal, Enrico made a complete turnabout and claimed that Luz signed the Contract in question
on 30 May 1987 after her arrival in the country.[19] The inconsistencies in Enricos version of events have seriously impaired the
probative value of his testimony and cast serious doubt on his credibility. His contradictory statements on important details simply
eroded the integrity of his testimony.

While it is true that a notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and has in
its favor the presumption of regularity, this presumption, however, is not absolute. It may be rebutted by clear and convincing
evidence to the contrary.[20] Enrico himself admitted that Luz took the document and had it notarized without his presence. Such fact
alone overcomes the presumption of regularity since a notary public is enjoined not to notarize a document unless the persons who
signed the same are the very same persons who executed and personally appeared before the said notary public to attest to the contents
and truth of what are stated therein.

Although there is no direct evidence to prove forgery, preponderance of evidence inarguably favors the spouses Apeles. In civil cases,
the party having the burden of proof must establish his case by a preponderance of evidence. Preponderance of evidence is the weight,
credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term greater weight of
the evidence or greater weight of the credible evidence. Preponderance of evidence is a phrase which, in the last analysis, means
probability of the truth. It is evidence which is more convincing to the court as worthier of belief than that which is offered in
opposition thereto.[21] In the case at bar, the spouses Apeles were able to overcome the burden of proof and prove by preponderant
evidence in disputing the authenticity and due execution of the Contract of Lease with Option to Purchase. In contrast, Enrico seemed
to rely only on his own self-serving declarations, without asserting any proof of corroborating testimony or circumstantial evidence to
buttress his claim.

90
Even assuming for the sake of argument that we agree with Enrico that Luz voluntarily entered into the Contract of Lease with Option
to Purchase and personally affixed her signature to the said document, the provision on the option to purchase the subject property
incorporated in said Contract still remains unenforceable.

There is no dispute that what Enrico sought to enforce in Civil Case No. Q-99-36834 was his purported right to acquire ownership of
the subject property in the exercise of his option to purchase the same under the Contract of Lease with Option to Purchase. He
ultimately wants to compel the spouses Apeles to already execute the Deed of Sale over the subject property in his favor.

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
formers 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.[22] An option is not of itself a
purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract
by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a
certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at
the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding
the option, aside from the consideration for the offer.[23]

It is also sometimes called an unaccepted offer and is sanctioned by Article 1479 of the Civil Code:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For
an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports
it.[24]

In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and Pacific Co.,[25] we declared that for an
option contract to bind the promissor, it must be supported by consideration:

There is no question that under Article 1479 of the new Civil Code an option to sell, or a promise to buy or to sell, as used in said
article, to be valid must be supported by a consideration distinct from the price. This is clearly inferred from the context of said article
that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, an accepted
unilateral promise can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn,
even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It
can therefore be withdrawn notwithstanding the acceptance made of it by appellee. (Emphasis supplied.)

The doctrine requiring the payment of consideration in an option contract enunciated in Southwestern Sugar is resonated in subsequent
cases and remains controlling to this day. Without consideration that is separate and distinct from the purchase price, an option
contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee.

The consideration is the why of the contracts, the essential reason which moves the contracting parties to enter into the contract. This
definition illustrates that the consideration contemplated to support an option contract need not be monetary. Actual cash need not be
exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous
contract for which the consideration must be something of value, although its kind may vary.[26]

We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and
their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option
contract, but we have found none. The only consideration agreed upon by the parties in the said Contract is the supposed purchase
price for the subject property in the amount not exceeding P1.5 Million, which could not be deemed to be the same consideration for
the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a
consideration separate and distinct from the price.

In Bible Baptist Church v. Court of Appeals,[27] we stressed that an option contract needs to be supported by a separate consideration.
The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not
monetary, these must be things or undertakings of value, in view of the onerous nature of the option contract. Furthermore, when a
91
consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or
clause.

In the present case, it is indubitable that no consideration was given by Enrico to the spouses Apeles for the option contract. The
absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract.

WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The Decision dated 20 December 2004 and Resolution dated
25 April 2005 of the Court of Appeals in CA-G.R. CV No. 76933 are hereby AFFIRMED. No costs.
SO ORDERED.

FONTANA RESORT VS TAN

LEONARDO-DE CASTRO, J.:

For review under Rule 45 of the Rules of Court is the Decision[1] dated May 30, 2002 and Resolution[2] dated August 12, 2002 of the
Court Appeals in CA-G.R. SP No. 67816. The appellate court affirmed with modification the Decision[3] dated July 6, 2001 of the
Securities and Exchange Commission (SEC) En Banc in SEC AC Case No. 788 which, in turn, affirmed the Decision[4] dated April
28, 2000 of Hearing Officer Marciano S. Bacalla, Jr. (Bacalla) of the SEC Securities Investigation and Clearing Department (SICD) in
SEC Case No. 04-99-6264.

Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan bought from petitioner RN Development Corporation
(RNDC) two class D shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI), worth P387,300.00, enticed by the
promises of petitioners sales agents that petitioner FRCCI would construct a park with first-class leisure facilities in Clark Field,
Pampanga, to be called Fontana Leisure Park (FLP); that FLP would be fully developed and operational by the first quarter of 1998;
and that FRCCI class D shareholders would be admitted to one membership in the country club, which entitled them to use park
facilities and stay at a two-bedroom villa for five (5) ordinary weekdays and two (2) weekends every year for free.[5]

Two years later, in March 1999, respondents filed before the SEC a Complaint[6] for refund of the P387,300.00 they spent to purchase
FRCCI shares of stock from petitioners. Respondents alleged that they had been deceived into buying FRCCI shares because of
petitioners fraudulent misrepresentations. Construction of FLP turned out to be still unfinished and the policies, rules, and regulations
of the country club were obscure.

Respondents narrated that they were able to book and avail themselves of free accommodations at an FLP villa on September 5, 1998,
a Saturday. They requested that an FLP villa again be reserved for their free use on October 17, 1998, another Saturday, for the
celebration of their daughters 18th birthday, but were refused by petitioners. Petitioners clarified that respondents were only entitled to
free accommodations at FLP for one week annually consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday[,] and
that respondents had already exhausted their free Saturday pass for the year. According to respondents, they were not informed of said
rule regarding their free accommodations at FLP, and had they known about it, they would not have availed themselves of the free
accommodations on September 5, 1998. In January 1999, respondents attempted once more to book and reserve an FLP villa for their
free use on April 1, 1999, a Thursday. Their reservation was confirmed by a certain Murphy Magtoto. However, on March 3, 1999,
another country club employee named Shaye called respondents to say that their reservation for April 1, 1999 was cancelled because
the FLP was already fully booked.

Petitioners filed their Answer[7] in which they asserted that respondents had been duly informed of the privileges given to them as
shareholders of FRCCI class D shares of stock since these were all explicitly provided in the promotional materials for the country
club, the Articles of Incorporation, and the By-Laws of FRCCI. Petitioners called attention to the following paragraph in their ads:

GUEST ROOMS

As a member of the Fontana Resort and Country Club, you are entitled to 7 days stay consisting of 5 weekdays, one Saturday and one
Sunday. A total of 544 elegantly furnished villas available in two and three bedroom units.[8]

Petitioners also cited provisions of the FRCCI Articles of Incorporation and the By-Laws on class D shares of stock, to wit:

Class D shares may be sold to any person, irrespective of nationality or Citizenship. Every registered owner of a class D share may be
admitted to one (1) Membership in the Club and subject to the Clubs rules and regulations, shall be entitled to use a Two (2) Bedroom
Multiplex Model Unit in the residential villas provided by the Club for one week annually consisting of five (5) ordinary days, one (1)
Saturday and one (1) Sunday. (Article Seventh, Articles of Incorporation)
92
Class D shares which may be sold to any person, irrespective of nationality or Citizenship. Every registered owner of a class D share
may be admitted to one (1) Membership in the Club and subject to the Clubs rules and regulations, shall be entitled to use a Two (2)
Bedroom Multiplex Model Unit in the residential villas provided by the Club for one week annually consisting of five (5) ordinary
days, one (1) Saturday and one (1) Sunday. [Section 2(a), Article II of the By-Laws.][9]

Petitioners further denied that they unjustly cancelled respondents reservation for an FLP villa on April 1, 1999, explaining that:

6. There is also no truth to the claim of [herein respondents] that they were given and had confirmed reservations for April 1, 1998.
There was no reservation to cancel since there was no confirmed reservations to speak of for the reason that April 1, 1999, being Holy
Thursday, all reservations for the Holy Week were fully booked as early as the start of the current year. The Holy Week being a peak
season for accommodations, all reservations had to be made on a priority basis; and as admitted by [respondents], they tried to make
their reservation only on January 4, 1999, a time when all reservations have been fully booked. The fact of [respondents] non-
reservation can be attested by the fact that no confirmation number was issued in their favor.

If at all, [respondents] were wait-listed as of January 4, 1999, meaning, they would be given preference in the reservation in the event
that any of the confirmed members/guests were to cancel. The diligence on the part of the [herein petitioners] to inform [respondents]
of the status of their reservation can be manifested by the act of the Clubs personnel when it advised [respondents] on March 3, 1999
that there were still no available villas for their use because of full bookings.[10]

Lastly, petitioners averred that when respondents were first accommodated at FLP, only minor or finishing construction works were
left to be done and that facilities of the country club were already operational.

SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and trial proper in the case. Respondents filed separate sworn
Question and Answer depositions.[11] Esther U. Lacuna, a witness for respondents, also filed a sworn Question and Answer
deposition.[12] When petitioners twice defaulted, without any valid excuse, to present evidence on the scheduled hearing dates,
Hearing Officer Bacalla deemed petitioners to have waived their right to present evidence and considered the case submitted for
resolution.[13]

Based on the evidence presented by respondents, Hearing Officer Bacalla made the following findings in his Decision dated April 28,
2000:

To prove the merits of their case, both [herein respondents] testified. Ms. Esther U. Lacuna likewise testified in favor of [respondents].

As established by the testimonies of [respondents] witnesses, Ms. Esther U. Lacuna, a duly accredited sales agent of [herein
petitioners] who went to see [respondents] for the purpose of inducing them to buy membership shares of Fontana Resort and Country
Club, Inc. with promises that the park will provide its shareholders with first class leisure facilities, showing them brochures (Exhibits
V, V-1 and V-2) of the future development of the park.

Indeed [respondents] bought two (2) class D shares in Fontana Resort and Country Club, Inc. paying P387,000.00 to [petitioners] as
evidenced by provisional and official receipts (Exhibits A to S), and signing two (2) documents designated as Agreement to Sell and
Purchase Shares of Stock (Exhibits T to U-2).

It is undisputed that many of the facilities promised were not completed within the specified date. Ms. Lacuna even testified that less
than 50% of what was promised were actually delivered.

What was really frustrating on the part of [respondents] was when they made reservations for the use of the Clubs facilities on the
occasion of their daughters 18th birthday on October 17, 1998 where they were deprived of the clubs premises alleging that the two
(2) weekend stay which class D shareholders are entitled should be on a Saturday and on a Sunday. Since [respondents] have already
availed of one (1) weekend stay which was a Saturday, they could no longer have the second weekend stay also on a Saturday.

Another occasion was when [respondents] were again denied the use of the clubs facilities because they did not have a confirmation
number although their reservation was confirmed.

All these rules were never communicated to [respondents] when they bought their membership shares.

It would seem that [petitioners], through their officers, would make up rules as they go along. A clever ploy for [petitioners] to hide
the lack of club facilities to accommodate the needs of their members.
93
[Petitioners] failure to finish the development works at the Fontana Leisure Park within the period they promised and their failure or
refusal to accommodate [respondents] for a reservation on October 17, 1998 and April 1, 1999, constitute gross misrepresentation
detrimental not only to the [respondents] but to the general public as well.

All these empty promises of [petitioners] may well be part of a scheme to attract, and induce [respondents] to buy shares because
surely if [petitioners] had told the truth about these matters, [respondents] would never have bought shares in their project in the first
place.[14]

Consequently, Hearing Officer Bacalla adjudged:

WHEREFORE, premises considered, judgment is hereby rendered directing [herein petitioners] to jointly and severally pay [herein
respondents]:

1) The amount of P387,000.00 plus interest at the rate of 21% per annum computed from August 28, 1998 when demand
was first made, until such time as payment is actually made.[15]

Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla before the SEC en banc. In its Decision dated July 6, 2001,
the SEC en banc held:

WHEREFORE, the instant appeal is hereby DENIED and the Decision of Hearing Officer Marciano S. Bacalla, Jr. dated April 28,
2000 is hereby AFFIRMED.[16]

In an Order[17] dated September 19, 2001, the SEC en banc denied petitioners Motion for Reconsideration for being a prohibited
pleading under the SEC Rules of Procedure.

Petitioners filed before the Court of Appeals a Petition for Review under Rule 43 of the Rules of Court. Petitioners contend that even
on the sole basis of respondents evidence, the appealed decisions of Hearing Officer Bacalla and the SEC en banc are contrary to law
and jurisprudence.

The Court of Appeals rendered a Decision on March 30, 2002, finding petitioners appeal to be partly meritorious.

The Court of Appeals brushed aside the finding of the SEC that petitioners were guilty of fraudulent misrepresentation in inducing
respondents to buy FRCCI shares of stock. Instead, the appellate court declared that:

What seems clear rather is that in inducing the respondents to buy the Fontana shares, RN Development Corporation merely repeated
to the spouses the benefits promised to all holders of Fontana Class D shares. These inducements were in fact contained in Fontanas
promotion brochures to prospective subscribers which the spouses must obviously have read.[18]

Nonetheless, the Court of Appeals agreed with the SEC that the sale of the two FRCCI class D shares of stock by petitioners to
respondents should be rescinded. Petitioners defaulted on their promises to respondents that FLP would be fully developed and
operational by the first quarter of 1998 and that as shareholders of said shares, respondents were entitled to the free use of first-class
leisure facilities at FLP and free accommodations at a two-bedroom villa for five (5) ordinary weekdays and two (2) weekends every
year.

The Court of Appeals modified the appealed SEC judgment by ordering respondents to return their certificates of shares of stock to
petitioners upon the latters refund of the price of said shares since [t]he essence of the questioned [SEC] judgment was really to
declare as rescinded or annulled the sale or transfer of the shares to the respondents.[19] The appellate court additionally clarified that
the sale of the FRCCI shares of stock by petitioners to respondents partakes the nature of a forbearance of money, since the amount
paid by respondents for the shares was used by petitioners to defray the construction of FLP; hence, the interest rate of 12% per annum
should be imposed on said amount from the date of extrajudicial demand until its return to respondents. The dispositive portion of the
Court of Appeals judgment reads:

WHEREFORE, premises considered, the appealed judgment is MODIFIED: a) petitioner Fontana Resort and Country Club is hereby
ordered to refund and pay to the respondents Spouses Roy S. Tan and Susana C. Tan the amount of P387,000.00, Philippine Currency,
representing the price of two of its Class D shares of stock, plus simple interest at the rate of 12% per annum computed from August
94
28, 1998 when demand was first made, until payment is completed; b) the respondent spouses are ordered to surrender to petitioner
Fontana Resort and Country Club their two (2) Class D shares issued by said petitioner upon receipt of the full refund with interest as
herein ordered.[20]

Petitioners filed a Motion for Reconsideration, but it was denied by the Court of Appeals in its Resolution dated August 12, 2002.

Hence, the instant Petition for Review.

Petitioners, in their Memorandum,[21] submit for our consideration the following issues:

a. Was the essence of the judgment of the SEC which ordered the return of the purchase price but not of the thing sold a
declaration of rescission or annulment of the contract of sale between RNDC and respondents?

b. Was the order of the Court of Appeals to FRCCI which was not the seller of the thing sold (the seller was RNDC) to
return the purchase price to the buyers (the respondents) in accordance with law?

c. Was the imposition of 12% interest per annum from the date of extra-judicial demand on an obligation which is not a
loan or forbearance of money in accordance with law?[22]

Petitioners averred that the ruling of the Court of Appeals that the essence of the SEC judgment is the rescission or annulment of the
contract of sale of the FRCCI shares of stock between petitioners and respondents is inconsistent with Articles 1385 and 1398 of the
Civil Code. The said SEC judgment did not contain an express declaration that it involved the rescission or annulment of contract or
an explicit order for respondents to return the thing sold. Petitioners also assert that respondents claim for refund based on fraud or
misrepresentation should have been directed only against petitioner RNDC, the registered owner and seller of the FRCCI class D
shares of stock. Petitioner FRCCI was merely the issuer of the shares sold to respondents. Petitioners lastly question the order of the
Court of Appeals for petitioners to pay 12% interest per annum, the same being devoid of legal basis since their obligation does not
constitute a loan or forbearance of money.

In their Memorandum,[23] respondents chiefly argue that petitioners have posited mere questions of fact and none of law, precluding
this Court to take cognizance of the instant Petition under Rule 45 of the Rules of Court. Even so, respondents maintain that the Court
of Appeals did not err in ordering them to return the certificates of shares of stock to petitioners upon the latters refund of the price
thereof as the essence of respondents claim for refund is to rescind the sale of said shares. Furthermore, both petitioners should be held
liable since they are the owners and developers of FLP. Petitioner FRCCI is primarily liable for respondents claim for refund, and
petitioner RNDC, at most, is only subsidiarily liable considering that petitioner RNDC is a mere agent of petitioner FRCCI.
Respondents finally insist that the imposition of the interest rate at 12% per annum, computed from the date of the extrajudicial
demand, is correct since the obligation of petitioners is in the nature of a forbearance of money.

We find merit in the Petition.

We address the preliminary matter of the nature of respondents Complaint against petitioners. Well-settled is the rule that the
allegations in the complaint determine the nature of the action instituted.[24]

Respondents alleged in their Complaint that:

16. [Herein petitioners] failure to finish the development works at the Fontana Leisure Park within the time frame that they promised,
and [petitioners] failure/refusal to accom[m]odate [herein respondents] request for reservations on 17 October 1998 and 1 April 1999,
constitute gross misrepresentation and a form of deception, not only to the [respondents], but the general public as well.

17. [Petitioners] deliberately and maliciously misrepresented that development works will be completed when they knew fully well
that it was impossible to complete the development works by the deadline. [Petitioners] also deliberately and maliciously deceived
[respondents] into believing that they have the privilege to utilize Club facilities, only for [respondents] to be later on denied such use
of Club facilities. All these acts are part of [petitioners] scheme to attract, induce and convince [respondents] to buy shares, knowing
that had they told the truth about these matters, [respondents] would never have bought shares in their project.

18. On 28 August 1998, [respondents] requested their lawyer to write [petitioner] Fontana Resort and Country Club, Inc. a letter
demanding for the return of their payment. x x x.

95
19. [Petitioner] Fontana Resort and Country Club, Inc. responded to this letter, with a letter of its own dated 10 September 1998,
denying [respondents] request for a refund. x x x.

20. [Respondents] replied to [petitioner] Fontana Resort and Country Clubs letter with a letter dated 13 October 1998, x x x. But
despite receipt of this letter, [petitioners] failed/refused and continue to fail /refuse to refund/return [respondents] payments.

xxxx

22. [Petitioners] acted in bad faith when it sold membership shares to [respondents], promising development work will be completed
by the first quarter of 1998 when [petitioners] knew fully well that they were in no position and had no intention to complete
development work within the time they promised. [Petitioners] also were maliciously motivated when they promised [respondents]
use of Club facilities only to deny [respondents] such use later on.

23. It is detrimental to the interest of [respondents] and quite unfair that they will be made to suffer from the delay in the completion
of the development work, while [petitioners] are already enjoying the purchase price paid by [respondents].

xxxx

26. Apart from the refund of the amount of P387,300.00, [respondents] are also entitled to be paid reasonable interest from their
money. Afterall, [petitioners] have already benefitted from this money, having been able to use it, if not for the Fontana Leisure Park
project, for their other projects as well. And had [respondents] been able to deposit the money in the bank, or invested it in some
worthwhile undertaking, they would have earned interest on the money at the rate of at least 21% per annum.[25]

The aforequoted allegations in respondents Complaint sufficiently state a cause of action for the annulment of a voidable contract of
sale based on fraud under Article 1390, in relation to Article 1398, of the Civil Code, and/or rescission of a reciprocal obligation under
Article 1191, in relation to Article 1385, of the same Code. Said provisions of the Civil Code are reproduced below:

Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting
parties:

1. Those where one of the parties is incapable of giving consent to a contract;

2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
Article 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the
subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385
and 1388 and the Mortgage Law.

Article 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be
obliged to return.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons
who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.
96
It does not matter that respondents, in their Complaint, simply prayed for refund of the purchase price they had paid for their FRCCI
shares,[26] without specifically mentioning the annulment or rescission of the sale of said shares. The Court of Appeals treated
respondents Complaint as one for annulment/rescission of contract and, accordingly, it did not simply order petitioners to refund to
respondents the purchase price of the FRCCI shares, but also directed respondents to comply with their correlative obligation of
surrendering their certificates of shares of stock to petitioners.

Now the only issue left for us to determine whether or not petitioners committed fraud or defaulted on their promises as would justify
the annulment or rescission of their contract of sale with respondents requires us to reexamine evidence submitted by the parties and
review the factual findings by the SEC and the Court of Appeals.

As a general rule, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions of law and not
issues of fact. This rule, however, is inapplicable in cases x x x where the factual findings complained of are absolutely devoid of
support in the records or the assailed judgment of the appellate court is based on a misapprehension of facts.[27] Another well-
recognized exception to the general rule is when the factual findings of the administrative agency and the Court of Appeals are
contradictory.[28] The said exceptions are applicable to the case at bar.

There are contradictory findings below as to the existence of fraud: while Hearing Officer Bacalla and the SEC en banc found that
there is fraud on the part of petitioners in selling the FRCCI shares to respondents, the Court of Appeals found none.

There is fraud when one party is induced by the other to enter into a contract, through and solely because of the latters insidious words
or machinations. But not all forms of fraud can vitiate consent. Under Article 1330, fraud refers to dolo causante or causal fraud, in
which, prior to or simultaneous with the execution of a contract, one party secures the consent of the other by using deception, without
which such consent would not have been given.[29] Simply stated, the fraud must be the determining cause of the contract, or must
have caused the consent to be given.[30]

[T]he general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a
person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly.[31] One who alleges
defect or lack of valid consent to a contract by reason of fraud or undue influence must establish by full, clear and convincing
evidence such specific acts that vitiated a partys consent, otherwise, the latters presumed consent to the contract prevails.[32]

In this case, respondents have miserably failed to prove how petitioners employed fraud to induce respondents to buy FRCCI shares. It
can only be expected that petitioners presented the FLP and the country club in the most positive light in order to attract investor-
members. There is no showing that in their sales talk to respondents, petitioners actually used insidious words or machinations,
without which, respondents would not have bought the FRCCI shares. Respondents appear to be literate and of above-average means,
who may not be so easily deceived into parting with a substantial amount of money. What is apparent to us is that respondents
knowingly and willingly consented to buying FRCCI shares, but were later on disappointed with the actual FLP facilities and club
membership benefits.

Similarly, we find no evidence on record that petitioners defaulted on any of their obligations that would have called for the rescission
of the sale of the FRCCI shares to respondents.

The right to rescind a contract arises once the other party defaults in the performance of his obligation.[33] Rescission of a contract
will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of
the parties in making the agreement.[34] In the same case as fraud, the burden of establishing the default of petitioners lies upon
respondents, but respondents once more failed to discharge the same.

Respondents decry the alleged arbitrary and unreasonable denial of their request for reservation at FLP and the obscure and ever-
changing rules of the country club as regards free accommodations for FRCCI class D shareholders.

Yet, petitioners were able to satisfactorily explain, based on clear policies, rules, and regulations governing FLP club memberships,
why they rejected respondents request for reservation on October 17, 1998. Respondents do not dispute that the Articles of
Incorporation and the By-Laws of FRCCI, as well as the promotional materials distributed by petitioners to the public (copies of
which respondents admitted receiving), expressly stated that the subscribers of FRCCI class D shares of stock are entitled free
accommodation at an FLP two-bedroom villa only for one week annually consisting of five (5) ordinary days, one (1) Saturday and
one (1) Sunday. Thus, respondents cannot claim that they were totally ignorant of such rule or that petitioners have been changing the
rules as they go along. Respondents had already availed themselves of free accommodations at an FLP villa on September 5, 1998, a

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Saturday, so that there was basis for petitioners to deny respondents subsequent request for reservation of an FLP villa for their free
use on October 17, 1998, another Saturday.

Neither can we rescind the contract because construction of FLP facilities were still unfinished by 1998. Indeed, respondents
allegation of unfinished FLP facilities was not disputed by petitioners, but respondents themselves were not able to present competent
proof of the extent of such incompleteness. Without any idea of how much of FLP and which particular FLP facilities remain
unfinished, there is no way for us to determine whether petitioners were actually unable to deliver on their promise of a first class
leisure park and whether there is sufficient reason for us to grant rescission or annulment of the sale of FRCCI shares. Apparently,
respondents were still able to enjoy their stay at FLP despite the still ongoing construction works, enough for them to wish to return
and again reserve accommodations at the park.

Respondents additionally alleged the unreasonable cancellation of their confirmed reservation for the free use of an FLP villa on April
1, 1999. According to respondents, their reservation was confirmed by a Mr. Murphy Magtoto, only to be cancelled later on by a
certain Shaye. Petitioners countered that April 1, 1999 was a Holy Thursday and FLP was already fully-booked. Petitioners, however,
do not deny that Murphy Magtoto and Shaye are FLP employees who dealt with respondents. The absence of any confirmation
number issued to respondents does not also discount the possibility that the latters reservation was mistakenly confirmed by Murphy
Magtoto despite FLP being fully-booked. At most, we perceive a mix-up in the reservation process of petitioners. This demonstrates a
mere negligence on the part of petitioners, but not willful intention to deprive respondents of their membership benefits. It does not
constitute default that would call for rescission of the sale of FRCCI shares by petitioners to respondents. For the negligence of
petitioners as regards respondents reservation for April 1, 1999, respondents are at least entitled to nominal damages in accordance
with Articles 2221 and 2222 of the Civil Code.[35]

In Almeda v. Cario,[36] we have expounded on the propriety of granting nominal damages as follows:

[N]ominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of
vindicating or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him. Its award is thus not for the
purpose of indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in name
only and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition of
the existence of a technical injury. A violation of the plaintiff's right, even if only technical, is sufficient to support an award of
nominal damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an award of nominal damages is
proper.[37]

It is also settled that the amount of such damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances.[38]

In this case, we deem that the respondents are entitled to an award of P5,000.00 as nominal damages in recognition of their confirmed
reservation for the free use of an FLP villa on April 1, 1999 which was inexcusably cancelled by petitioner on March 3, 1999.

In sum, the respondents Complaint sufficiently alleged a cause of action for the annulment or rescission of the contract of sale of
FRCCI class D shares by petitioners to respondents; however, respondents were unable to establish by preponderance of evidence that
they are entitled to said annulment or rescission.

WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The Decision dated May 30, 2002 and Resolution dated
August 12, 2002 of the Court Appeals in CA-G.R. SP No. 67816 are REVERSED and SET ASIDE. Petitioners are ORDERED to pay
respondents the amount of P5,000.00 as nominal damages for their negligence as regards respondents cancelled reservation for April
1, 1999, but respondents Complaint, in so far as the annulment or rescission of the contract of sale of the FRCCI class "D shares of
stock is concerned, is DISMISSED for lack of merit.

SO ORDERED.

DELA CRUZ VS DELA CRUZ

CASTRO, J.:

The plaintiff Estrella de la Cruz filed a complaint on July 22, 1958 with the Court of First Instance of Negros Occidental, alleging in
essence that her husband, the defendant Severino de la Cruz, had not only abandoned her but as well was mismanaging their conjugal
partnership properties, and praying for (1) separation of property, (2) monthly support of P2,500 during the pendency of the action,
and (3) payment of P20,000 as attorney's fees, and costs.

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The court a quo forthwith issued an order allowing the plaintiff the amount prayed for as alimony pendente lite, which however, upon
defendant's motion, was reduced to P2,000.

On June 1, 1961 the trial court rendered judgment ordering separation and division of the conjugal assets, and directing the defendant
to pay to the plaintiff the sum of P20,000 as attorney's fees, with legal interest from the date of the original complaint, that is, from
July 22, 1958, until fully paid, plus costs. From this judgment the defendant appealed to the Court of Appeals, which certified the case
to us, "it appearing that the total value of the conjugal assets is over P500,000".

The basic facts are not controverted. The plaintiff and the defendant were married in Bacolod City on February 1, 1938. Six children
were born to them, namely, Zenia (1939), Ronnie (1942), Victoria (1944), Jessie 1945), Bella (1946), and Felipe (1948). During their
coverture they acquired seven parcels of land of the Bacolod Cadastre, all assessed at P45,429, and three parcels of the Silay Cadastre,
all assessed at P43,580. All these parcels are registered in their names. The hacienda in Silay yielded for the year 1957 a net profit of
P3,390.49.

They are also engaged in varied business ventures with fixed assets valued as of December 31, 1956 at P496,006.92, from which they
obtained for that year a net profit of P75,655.78. The net gain of the Philippine Texboard Factory, the principal business of the
spouses, was P90,454.48 for the year 1957. As of December 31, 1959, the total assets of the various enterprises of the conjugal
partnership were valued at P1,021,407.68, not including those of the Top Service Inc., of which firm the defendant has been the
president since its organization in 1959 in Manila with a paid-up capital of P50,000, P10,000 of which was contributed by him. This
corporation was the Beverly Hills Subdivision in Antipolo, Rizal, the Golden Acres Subdivision and the Green Valley Subdivision in
Las Piñas, Rizal, and a lot and building located at M. H. del Pilar, Manila purchased for P285,000, an amount borrowed from the
Manufacturer's Bank and Trust Company.

The spouses are indebted to the Philippine National Bank and the Development Bank of the Philippines for loans obtained, to secure
which they mortgaged the Philippine Texboard Factory, the Silay hacienda, their conjugal house, and all their parcels of land located
in Bacolod City.

The essential issues of fact may be gleaned from the nine errors the defendant imputes to the court a quo, namely,

1. In finding that the only visit, from May 15, 1955 to the rendition of the decision, made by the defendant to the conjugal abode to see
his wife was on June 15, 1955;

2. In finding that the letter exh. 3 was written by one Nenita Hernandez and that she and the defendant are living as husband and wife;

3. In finding that since 1951 the relations between the plaintiff and the defendant were far from cordial, and that it was from 1948 that
the former has been receiving an allowance from the latter;

4. In finding that the defendant has abandoned the plaintiff;

5. In finding that the defendant since 1956 has not discussed with his wife the business activities of the partnership, and that this
silence constituted "abuse of administration of the conjugal partnerships";

6. In declaring that the defendant mortgaged the conjugal assets without the knowledge of the plaintiff and thru false pretences to
which the latter was prey;

7. In allowing the plaintiff, on the one hand, to testify on facts not actually known by her, and, on the other hand, in not allowing the
defendant to establish his special defenses;

8. In ordering separation of the conjugal partnership properties; and

9. In sentencing the defendant to pay to the plaintiff attorney's fees in the amount of P20,000, with interest at the legal
rate.1äwphï1.ñët

Two issues of law as well emerge, requiring resolution petition: (1) Did the separation of the defendant from the plaintiff constitute
abandonment in law that would justify a separation of the conjugal partnership properties? (2) Was the defendant's failure and/or
refusal to inform the plaintiff of the state of their business enterprises such an abuse of his powers of administration of the conjugal
partnership as to warrant a division of the matrimonial assets?

The plaintiff's evidence may be summarized briefly. The defendant started living in Manila in 1955, although he occasionally returned
to Bacolod City, sleeping in his office at the Philippine Texboard Factory in Mandalagan, instead of in the conjugal home at 2nd
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Street, Bacolod City. Since 1955 the defendant had not slept in the conjugal dwelling, although in the said year he paid short visits
during which they engaged in brief conversations. After 1955 up to the time of the trial, the defendant had never visited the conjugal
abode, and when he was in Bacolod, she was denied communication with him. He has abandoned her and their children, to live in
Manila with his concubine, Nenita Hernandez. In 1949 she began to suspect the existence of illicit relations between her husband and
Nenita. This suspicion was confirmed in 1951 when she found an unsigned note in a pocket of one of her husband's polo shirt which
was written by Nenita and in which she asked "Bering" to meet her near the church. She confronted her husband who forthwith tore
the note even as he admitted his amorous liaison with Nenita. He then allayed her fears by vowing to forsake his mistress.
Subsequently, in November 1951, she found in the iron safe of her husband a letter, exh. C, also written by Nenita. In this letter the
sender (who signed as "D") apologized for her conduct, and expressed the hope that the addressee ("Darling") could join her in Baguio
as she was alone in the Patria Inn and lonely in "a place for honeymooners". Immediately after her husband departed for Manila the
following morning, the plaintiff enplaned for Baguio, where she learned that Nenita had actually stayed at the Patria Inn, but had
already left for Manila before her arrival. Later she met her husband in the house of a relative in Manila from whence they proceeded
to the Avenue Hotel where she again confronted him about Nenita. He denied having further relations with this woman.

Celia Bañez, testifying for the plaintiff, declared that she was employed as a cook in the home of the spouses from May 15, 1955 to
August 15, 1958, and that during the entire period of her employment she saw the defendant in the place only once. This declaration is
contradicted, however, by the plaintiff herself who testified that in 1955 the defendant "used to have a short visit there," which
statement implies more than one visit.

The defendant, for his part, denied having abandoned his wife and children, but admitted that in 1957, or a year before the filing of the
action, he started to live separately from his wife. When he transferred his living quarters to his office in Mandalagan, Bacolod City,
his intention was not, as it never has been, to abandon his wife and children, but only to teach her a lesson as she was quarrelsome and
extremely jealous of every woman. He decided to live apart from his wife temporarily because at home he could not concentrate on
his work as she always quarreled with him, while in Mandalagan he could pass the nights in peace. Since 1953 he stayed in Manila for
some duration of time to manage their expanding business and look for market outlets for their texboard products. Even the plaintiff
admitted in both her original and amended complaints that "sometime in 1953, because of the expanding business of the herein parties,
the defendant established an office in the City of Manila, wherein some of the goods, effects and merchandise manufactured or
produced in the business enterprises of the parties were sold or disposed of". From the time he started living separately in Mandalagan
up to the filing of the complaint, the plaintiff herself furnished him food and took care of his laundry. This latter declaration was not
rebutted by the plaintiff.

The defendant, with vehemence, denied that he has abandoned his wife and family, averring that he has never failed, even for a single
month, to give them financial support, as witnessed by the plaintiff's admission in her original and amended complaints as well as in
open court that during the entire period of their estrangement, he was giving her around P500 a month for support. In point of fact, his
wife and children continued to draw allowances from his office of a total ranging from P1,200 to P1,500 a month. He financed the
education of their children, two of whom were studying in Manila at the time of the trial and were not living with the plaintiff. While
in Bacolod City, he never failed to visit his family, particularly the children. His wife was always in bad need of money because she
played mahjong, an accusation which she did not traverse, explaining that she played mahjong to entertain herself and forget the
infidelities of her husband.

Marcos V. Ganaban, the manager of the Philippine Texboard Factory, corroborated the testimony of the defendant on the matter of the
support the latter gave to his family, by declaring in court that since the start of his employment in 1950 as assistant general manager,
the plaintiff has been drawing an allowance of P1,000 to P1,500 monthly, which amount was given personally by the defendant or, in
his absence, by the witness himself.

The defendant denied that he ever maintained a mistress in Manila. He came to know Nenita Hernandez when she was barely 12 years
old, but had lost track of her thereafter. His constant presence in Manila was required by the pressing demands of an expanding
business. He denied having destroyed the alleged note which the plaintiff claimed to have come from Nenita, nor having seen,
previous to the trial, the letter exh. C. The allegation of his wife that he had a concubine is based on mere suspicion. He had always
been faithful to his wife, and not for a single instance had he been caught or surprised by her with another woman.

On the matter of the alleged abuse by the defendant of his powers of administration of the conjugal partnership, the plaintiff declared
that the defendant refused and failed to inform her of the progress of their various business concerns. Although she did not allege,
much less prove, that her husband had dissipated the conjugal properties, she averred nevertheless that her husband might squander
and dispose of the conjugal assets in favor of his concubine. Hence, the urgency of separation of property.

The defendant's answer to the charge of mismanagement is that he has applied his industry, channeled his ingenuity, and devoted his
time, to the management, maintenance and expansion of their business concerns, even as his wife threw money away at the mahjong
tables. Tangible proof of his endeavors is that from a single cargo truck which he himself drove at the time of their marriage, he had
built up one business after another, the Speedway Trucking Service, the Negros Shipping Service, the Bacolod Press, the Philippine
100
Texboard Factory, and miscellaneous other business enterprises worth over a million pesos; that all that the spouses now own have
been acquired through his diligence, intelligence and industry; that he has steadily expanded the income and assets of said business
enterprises from year to year, contrary to the allegations of the complainant, as proved by his balance sheet and profit and loss
statements for the year 1958 and 1959 (exhibits 1 and 2); and that out of the income of their enterprises he had purchased additional
equipment and machineries and has partially paid their indebtedness to the Philippine National Bank and the Development Bank of the
Philippines.

It will be noted that the plaintiff does not ask for legal separation. The evidence presented by her to prove concubinage on the part of
the defendant, while pertinent and material in the determination of the merits of a petition for legal separation, must in this case be
regarded merely as an attempt to bolster her claim that the defendant had abandoned her, which abandonment, if it constitutes
abandonment in law, would justify separation of the conjugal assets under the applicable provisions of article 178 of the new Civil
Code which read: "The separation in fact between husband and wife without judicial approval, shall not affect the conjugal
partnership, except that . . . if the husband has abandoned the wife without just cause for at least one year, she may petition the court
for a receivership, or administration by her of the conjugal partnership property, or separation of property". In addition to
abandonment as a ground, the plaintiff also invokes article 167 of the new Civil Code in support of her prayer for division of the
matrimonial assets. This article provides that "In case of abuse of powers of administration of the conjugal partnership property by the
husband, the courts, on the petition of the wife, may provide for a receivership, or administration by the wife, or separation of
property". It behooves us, therefore, to inquire, in the case at bar, whether there has been abandonment, in the legal sense, by the
defendant of the plaintiff, and/or whether the defendant has abused his powers of administration of the conjugal partnership property,
so as to justify the plaintiff's plea for separation of property.

We have made a searching scrutiny of the record, and it is our considered view that the defendant is not guilty of abandonment of his
wife, nor of such abuse of his powers of administration of the conjugal partnership, as to warrant division of the conjugal assets.

The extraordinary remedies afforded to the wife by article 178 when she has been abandoned by the husband for at least one year are
the same as those granted to her by article 167 in case of abuse of the powers of administration by the husband. To entitle her to any of
these remedies, under article 178, there must be real abandonment, and not mere separation. 1 The abandonment must not only be
physical estrangement but also amount to financial and moral desertion.

Although an all-embracing definition of the term "abandonment " is yet to be spelled out in explicit words, we nevertheless can
determine its meaning from the context of the Law as well as from its ordinary usage. The concept of abandonment in article 178 may
be established in relation to the alternative remedies granted to the wife when she has been abandoned by the husband, namely,
receivership, administration by her, or separation of property, all of which are designed to protect the conjugal assets from waste and
dissipation rendered imminent by the husband's continued absence from the conjugal abode, and to assure the wife of a ready and
steady source of support. Therefore, physical separation alone is not the full meaning of the term "abandonment", if the husband,
despite his voluntary departure from the society of his spouse, neither neglects the management of the conjugal partnership nor ceases
to give support to his wife.

The word "abandon", in its ordinary sense, means to forsake entirely; to forsake or renounce utterly. 2 The dictionaries trace this word
to the root idea of "putting under a bar". The emphasis is on the finality and the publicity with which some thing or body is thus put in
the control of another, and hence the meaning of giving up absolutely, with intent never again to resume or claim one's rights or
interests. 3 When referring to desertion of a wife by a husband, the word has been defined as "the act of a husband in voluntarily
leaving his wife with intention to forsake her entirely, never to return to her, and never to resume his marital duties towards her, or to
claim his marital rights; such neglect as either leaves the wife destitute of the common necessaries of life, or would leave her destitute
but for the charity of others." 4 The word "abandonment", when referring to the act of one consort of leaving the other, is "the act of
the husband or the wife who leaves his or her consort wilfully, and with an intention of causing per perpetual separation." 5 Giving to
the word "abandoned", as used in article 178, the meaning drawn from the definitions above reproduced, it seems rather clear that to
constitute abandonment of the wife by the husband, there must be absolute cessation of marital relations and duties and rights, with the
intention of perpetual separation.

Coming back to the case at bar, we believe that the defendant did not intend to leave his wife and children permanently. The record
conclusively shows that he continued to give support to his family despite his absence from the conjugal home. This fact is admitted
by the complainant, although she minimized the amount of support given, saying that it was only P500 monthly. There is good reason
to believe, however, that she and the children received more than this amount, as the defendant's claim that his wife and children
continued to draw from his office more than P500 monthly was substantially corroborated by Marcos Ganaban, whose declarations
were not rebutted by the plaintiff. And then there is at all no showing that the plaintiff and the children were living in want. On the
contrary, the plaintiff admitted, albeit reluctantly, that she frequently played mahjong, from which we can infer that she had money; to
spare.

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The fact that the defendant never ceased to give support to his wife and children negatives any intent on his part not to return to the
conjugal abode and resume his marital duties and rights. In People v. Schelske, 6 it was held that where a husband, after leaving his
wife, continued to make small contributions at intervals to her support and that of their minor child, he was not guilty of their
"abandonment", which is an act of separation with intent that it shall be perpetual, since contributing to their support negatived such
intent. In re Hoss' Estate, supra, it was ruled that a father did not abandon his family where the evidence disclosed that he almost
always did give his wife part of his earnings during the period of their separation and that he gradually paid some old rental and
grocery bills.

With respect to the allegation that the defendant maintained a concubine, we believe, contrary to the findings of the court a quo, that
the evidence on record fails to preponderate in favor of the plaintiff's thesis. The proof that Nenita Hernandez was the concubine of the
defendant and that they were living as husband and wife in Manila, is altogether too indefinite. Aside from the uncorroborated
statement of the plaintiff that she knew that Nenita Hernandez was her husband's concubine, without demonstrating by credible
evidence the existence of illicit relations between Nenita and the defendant, the only evidence on record offered to link the defendant
to his alleged mistress is exh. C. The plaintiff however failed to connect authorship of the said letter with Nenita, on the face whereof
the sender merely signed as "D" and the addressee was one unidentified "Darling". The plaintiff's testimony on cross-examination,
hereunder quoted, underscores such failure:

Q. You personally never received any letter from Nenita?

A. No.

Q. Neither have you received on any time until today from 1949 from Nenita?

A. No.

Q. Neither have you written to her any letter yourself until now?

A. Why should I write a letter to her.

Q. In that case, Mrs. De la Cruz, you are not familiar with the handwriting of Nenita. Is that right?

A. I can say that Nenita writes very well.

Q. I am not asking you whether she writes very well or not but, my question is this: In view of the fact that you have never received a
letter from Nenita, you have ot sent any letter to her, you are not familiar with her handwriting?

A. Yes.

Q. You have not seen her writing anybody?

A. Yes.

Anent the allegation that the defendant had mismanaged the conjugal partnership property, the record presents a different picture.
There is absolutely no evidence to show that he has squandered the conjugal assets. Upon the contrary, he proved that through his
industry and zeal, the conjugal assets at the time of the trial had increased to a value of over a million pesos.

The lower court likewise erred in holding that mere refusal or failure of the husband as administrator of the conjugal partnership to
inform the wife of the progress of the family businesses constitutes abuse of administration. For "abuse" to exist, it is not enough that
the husband perform an act or acts prejudicial to the wife. Nor is it sufficient that he commits acts injurious to the partnership, for
these may be the result of mere inefficient or negligent administration. Abuse connotes willful and utter disregard of the interests of
the partnership, evidenced by a repetition of deliberate acts and/or omissions prejudicial to the latter. 7

If there is only physical separation between the spouses (and nothing more), engendered by the husband's leaving the conjugal abode,
but the husband continues to manage the conjugal properties with the same zeal, industry, and efficiency as he did prior to the
separation, and religiously gives support to his wife and children, as in the case at bar, we are not disposed to grant the wife's petition
for separation of property. This decision may appear to condone the husband's separation from his wife; however, the remedies
granted to the wife by articles 167 and 178 are not to be construed as condonation of the husband's act but are designed to protect the
conjugal partnership from waste and shield the wife from want. Therefore, a denial of the wife's prayer does not imply a condonation
of the husband's act but merely points up the insufficiency or absence of a cause of action.1äwphï1.ñët

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Courts must need exercise judicial restraint and reasoned hesitance in ordering a separation of conjugal properties because the basic
policy of the law is homiletic, to promote healthy family life and to preserve the union of the spouses, in person, in spirit and in
property.

Consistent with its policy of discouraging a regime of separation as not in harmony with the unity of the family and the mutual
affection and help expected of the spouses, the Civil Code (both old and new) requires that separation of property shall not prevail
unless expressly stipulated in marriage settlements before the union is solemnized or by formal judicial decree during the existence of
the marriage (Article 190, new Civil Code, Article 1432, old Civil Code): and in the latter case, it may only be ordered by the court for
causes specified in Article 191 of the new Civil Code. 8

Furthermore, a judgment ordering the division of conjugal assets where there has been no real abandonment, the separation not being
wanton and absolute, may altogether slam shut the door for possible reconciliation. The estranged spouses may drift irreversibly
further apart; the already broken family solidarity may be irretrievably shattered; and any flickering hope for a new life together may
be completely and finally extinguished.

The monthly alimony in the sum of P2,000 which was allowed to the wife in 1958, long before the devaluation of the Philippine peso
in 1962, should be increased to P3,000.

On the matter of attorney's fees, it is our view that because the defendant, by leaving the conjugal abode, has given cause for the
plaintiff to seek redress in the courts, and ask for adequate support, an award of attorney's fees to the plaintiff must be made. Ample
authority for such award is found in paragraphs 6 and 11 of article 2208 of the new Civil Code which empower courts to grant
counsel's fees "in actions for legal support" and in cases "where the court deems it just and equitable that attorney's fees . . . should be
recovered." However, an award of P10,000, in our opinion, is, under the environmental circumstances, sufficient.

This Court would be remiss if it did not, firstly, remind the plaintiff and the defendant that the law enjoins husband and wife to live
together, and, secondly, exhort them to avail of — mutually, earnestly and steadfastly — all opportunities for reconciliation to the end
that their marital differences may be happily resolved, and conjugal harmony may return and, on the basis of mutual respect and
understanding, endure.

ACCORDINGLY, the judgment a quo, insofar as it decrees separation of the conjugal properties, is reversed and set aside.
Conformably to our observations, however, the defendant is ordered to pay to the plaintiff, in the concept of support, the amount of
P3,000 per month, until he shall have rejoined her in the conjugal home, which amount may, in the meantime, be reduced or increased
in the discretion of the court a quo as circumstances warrant. The award of attorney's fees to the plaintiff is reduced to P10,000,
without interest. No pronouncement as to costs.

FELICIANO VS ZALDIVAR

CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari filed by the Heirs of Remegia Y. Feliciano (as represented by Nilo Y.
Feliciano) seeking the reversal of the Decision1 dated July 31, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 66511 which
ordered the dismissal of the complaint filed by Remegia Y. Feliciano2 for declaration of nullity of title and reconveyance of property.
The assailed decision of the appellate court reversed and set aside that of the Regional Trial Court (RTC) of Cagayan de Oro City,
Branch 25 in Civil Case No. 92-423.

The factual and procedural antecedents of the present case are as follows:

Remegia Y. Feliciano filed against the spouses Aurelio and Luz Zaldivar a complaint for declaration of nullity of Transfer Certificate
of Title (TCT) No. T-17993 and reconveyance of the property covered therein consisting of 243 square meters of lot situated in
Cagayan de Oro City. The said title is registered in the name of Aurelio Zaldivar.

In her complaint, Remegia alleged that she was the registered owner of a parcel of land situated in the District of Lapasan in Cagayan
de Oro City with an area of 444 square meters, covered by TCT No. T-8502. Sometime in 1974, Aurelio, allegedly through fraud, was
able to obtain TCT No. T-17993 covering the 243-sq-m portion of Remegia’s lot as described in her TCT No. T-8502.

According to Remegia, the 243-sq-m portion (subject lot) was originally leased from her by Pio Dalman, Aurelio’s father-in-law, for
P5.00 a month, later increased to P100.00 a month in 1960. She further alleged that she was going to mortgage the subject lot to
Ignacio Gil for P100.00, which, however, did not push through because Gil took back the money without returning the receipt she had
signed as evidence of the supposed mortgage contract. Thereafter, in 1974, Aurelio filed with the then Court of First Instance of
Misamis Oriental a petition for partial cancellation of TCT No. T-8502. It was allegedly made to appear therein that Aurelio and his
103
spouse Luz acquired the subject lot from Dalman who, in turn, purchased it from Gil. The petition was granted and TCT No. T-17993
was issued in Aurelio’s name.

Remegia denied that she sold the subject lot either to Gil or Dalman. She likewise impugned as falsified the joint affidavit of
confirmation of sale that she and her uncle, Narciso Labuntog, purportedly executed before a notary public, where Remegia appears to
have confirmed the sale of the subject property to Gil. She alleged that she never parted with the certificate of title and that it was
never lost. As proof that the sale of the subject lot never transpired, Remegia pointed out that the transaction was not annotated on
TCT No. T-8502.

In their answer, the spouses Zaldivar denied the material allegations in the complaint and raised the affirmative defense that Aurelio is
the absolute owner and possessor of the subject lot as evidenced by TCT No. 17993 and Tax Declaration No. 26864 covering the
same. Aurelio claimed that he acquired the subject lot by purchase from Dalman who, in turn, bought the same from Gil on April 4,
1951. Gil allegedly purchased the subject lot from Remegia and this sale was allegedly conformed and ratified by the latter and her
uncle, Narciso Labuntog, before a notary public on December 3, 1965.

After Aurelio obtained a loan from the Government Service Insurance System (GSIS), the spouses Zaldivar constructed their house on
the subject lot. They alleged that they and their predecessors-in-interest had been occupying the said property since 1947 openly,
publicly, adversely and continuously or for over 41 years already. Aurelio filed a petition for the issuance of a new owner’s duplicate
copy of TCT No. T-8502 because when he asked Remegia about it, the latter claimed that it had been lost.

After due trial, the RTC rendered judgment in favor of Remegia. It declared that TCT No. 17993 in the name of Aurelio was null and
void for having been obtained through misrepresentation, fraud or evident bad faith by claiming in his affidavit that Remegia’s title
(TCT No. T-8502) had been lost, when in fact it still existed.

The court a quo explained that "the court that orders a title reconstituted when the original is still existing has not acquired jurisdiction
over the case. A judgment otherwise final may be annulled not only on extrinsic fraud but also for lack of jurisdiction."3 Aurelio’s use
of a false affidavit of loss, according to the court a quo, was similar to the use during trial of a forged document or perjured testimony
that prevented the adverse party, Remegia, from presenting her case fully and fairly.

The RTC likewise noted that no public instrument was presented in evidence conveyancing or transferring title to the subject lot from
Remegia to Dalman, the alleged predecessor-in-interest of the spouses Zaldivar. The only evidence presented by the said spouses was
a joint affidavit of confirmation of sale purportedly signed by Remegia and her uncle, the execution of which was denied by the
latter’s children. The certificate of title of the spouses Zaldivar over the subject property was characterized as irregular because it was
issued in a calculated move to deprive Remegia of dominical rights over her own property. Further, the spouses Zaldivar could not set
up the defense of indefeasibility of Torrens title since this defense does not extend to a transferor who takes the certificate of title with
notice of a flaw therein. Registration, thus, did not vest title in favor of the spouses; neither could they rely on their adverse or
continuous possession over the subject lot for over 41 years, as this could not prevail over the title of the registered owner pursuant to
Sections 504 and 515 of Act No. 496, otherwise known as The Land Registration Act.

The dispositive portion of the decision of the court a quo reads:

IN THE LIGHT OF THE FOREGOING, and by preponderance of evidence, judgment is hereby rendered canceling TCT T-17993 and
reconveyance of 243 square meters the title and possession of the same, by vacating and turning over possession of the 243 square
meters of the subject property to the plaintiff [referring to Remegia] which is part of the land absolutely owned by the plaintiff covered
by [TCT] T-8502 and to solidarily pay the plaintiff Fifty Thousand Pesos (P50,000.00) as moral damages; Ten Thousand Pesos
(P10,000.00) as exemplary damages; Fifty Thousand Pesos (P50,000.00) as attorney’s fees and Ten Thousand Pesos (P10,000.00)
expenses for litigation to the plaintiff.

SO ORDERED.6

On appeal, the CA reversed the decision of the RTC and ruled in favor of the spouses Zaldivar. In holding that Remegia sold to Gil a
243 sq m portion of the lot covered by TCT No. T-8502, the appellate court gave credence to Exhibit "5," the deed of sale presented
by the spouses Zaldivar to prove the transaction. The CA likewise found that Gil thereafter sold the subject property to Dalman who
took actual possession thereof. By way of a document denominated as joint affidavit of confirmation of sale executed before notary
public Francisco Velez on December 3, 1965, Remegia and her uncle, Narciso Labuntog, confirmed the sale by Remegia of the
subject lot to Gil and its subsequent conveyance to Dalman. Per Exhibit "6," the CA likewise found that Dalman had declared the
subject lot for taxation purposes in his name. In 1965, Dalman sold the same to the spouses Zaldivar who, in turn, had it registered in
their names for taxation purposes beginning 1974. Also in the same year, Aurelio filed with the then CFI of Misamis Oriental a
petition for the issuance of a new owner’s duplicate copy of TCT No. T-8502, alleging that the owner’s duplicate copy was lost; the
CFI granted the petition on March 20, 1974. Shortly, Aurelio filed with the same CFI another petition, this time for the partial
104
cancellation of TCT No. T-8502 and for the issuance of a new certificate of title in Aurelio’s name covering the subject lot. The CFI
issued an order granting the petition and, on the basis thereof, the Register of Deeds of Cagayan de Oro City issued TCT No. T-17993
covering the subject lot in Aurelio’s name.

Based on the foregoing factual findings, the appellate court upheld the spouses Zaldivar’s ownership of the subject lot. The CA stated
that Remegia’s claim that she did not sell the same to Gil was belied by Exhibit "5," a deed which showed that she transferred
ownership thereof in favor of Gil. The fact that the said transaction was not annotated on Remegia’s title was not given significance by
the CA since the lack of annotation would merely affect the rights of persons who are not parties to the said contract. The CA also
held that the joint affidavit of confirmation of sale executed by Remegia and Narciso Labuntog before a notary public was a valid
instrument, and carried the evidentiary weight conferred upon it with respect to its due execution.7 Moreover, the CA found that the
notary public (Atty. Francisco Velez) who notarized the said document testified not only to its due execution and authenticity but also
to the truthfulness of its contents. The contradiction between the testimonies of the children of Narciso Labuntog and the notary public
(Atty. Velez), according to the CA, casts doubt on the credibility of the former as it was ostensible that their version of the story was
concocted.8

The CA further accorded in favor of the judge who issued the order for the issuance of the new owner’s duplicate copy of TCT No. T-
8502 the presumption of regularity in the performance of his official duty. It noted that the same was issued by the CFI after due
notice and hearing.

Moreover, prescription and laches or estoppel had already set in against Remegia. The appellate court pointed out that TCT No. T-
17993 in the name of Aurelio was issued on September 10, 1974, while Remegia’s complaint for annulment and reconveyance of
property was filed more than 17 years thereafter or on August 10, 1992. Consequently, Remegia’s action was barred by prescription
because an action for reconveyance must be filed within 10 years from the issuance of the title since such issuance operates as a
constructive notice.9 The CA also noted that the spouses Zaldivar constructed their house on the subject lot some time in 1974-1975,
including a 12-foot firewall made of hollow blocks, and Remegia took no action to prevent the said construction.

The dispositive portion of the assailed CA decision reads:

WHEREFORE, foregoing premises considered, the December 3, 1999 Decision of the Regional Trial Court of Misamis Oriental,
Cagayan de Oro City, in Civil Case No. 92-423, is REVERSED and SET ASIDE and a new one is entered DISMISSING the said civil
case.

SO ORDERED.10

When their motion for reconsideration was denied by the CA in the assailed Resolution dated February 4, 2004, the heirs of Remegia
(the petitioners) sought recourse to the Court. In their petition for review, they allege that the appellate court gravely erred –

A.

IN NOT DISMISSING THE APPEAL OF THE RESPONDENTS (DEFENDANTS-APELLANTS) MOTU PROPIO OR

EXPUNGING THE BRIEF FOR DEFENDANTS-APPELLANTS FROM RECORD FOR FAILURE TO FILE THE REQUIRED
BRIEF FOR THE DEFENDANTS-APPELLANTS ON TIME BUT BEYOND THE LAST AND FINAL EXTENDED PERIOD
WITHIN WHICH TO FILE THE SAID BRIEF IN VIOLATION TO Section 7 and section 12, rule 44 of the revised rules of court
and in contradiction to the ruling enunciated in catalina roxas, et al. vs. court of appeals, g.r. no. L-76549, december 10, 1987.

B.

in denying the motion for reconsideration which was filed within the fifteen-day reglementary period in violation to the rules of court.

c.

in ruling that the court who ordered the issuance of new certificate of title despite existence of owner’s duplicate copy that was never
lost has jurisdiction over the case.

d.

in concluding that petitioner’s (Plaintiff-appellee) claim of ownership over the subject lot was barred by estoppel or laches.

e.

105
in concluding that the respondents (defendants-appellants) are the absolute owners of the subject lot based on tct no. 17993 issued to
them.

f.

in obviating essential and relevant facts, had it been properly appreciated, would maintain absolute ownership of petitioner (plaintiff-
appellee) over the subject lot as evidenced by existing tct no. t-8502.11

The Court finds the petition meritorious.

It should be recalled that respondent Aurelio Zaldivar filed with the then CFI of Misamis Oriental a petition for issuance of a new
owner’s duplicate copy of TCT No.T-8502, alleging that the owner’s duplicate copy was lost. In the Order dated March 20, 1974, the
said CFI granted the petition and consequently, a new owner’s duplicate copy of TCT No. T-8502 was issued.

However, as the trial court correctly held, the CFI which granted respondent Aurelio’s petition for the issuance of a new owner’s
duplicate copy of TCT No. T-8502 did not acquire jurisdiction to issue such order. It has been consistently ruled that "when the
owner’s duplicate certificate of title has not been lost, but is in fact in the possession of another person, then the reconstituted
certificate is void, because the court that rendered the decision had no jurisdiction. Reconstitution can validly be made only in case of
loss of the original certificate."12 In such a case, the decision authorizing the issuance of a new owner’s duplicate certificate of title
may be attacked any time.13

The new owner’s duplicate TCT No. T-8502 issued by the CFI upon the petition filed by respondent Aurelio is thus void. As Remegia
averred during her testimony, the owner’s duplicate copy of TCT No. T-8502 was never lost and was in her possession from the time
it was issued to her:

Q A while ago, you said that you were issued a title in 1968, can you tell the Honorable Court who was in possession of the title?

A I am the one in possession and I am the one keeping the title.

Q Even up to the present?

A Yes, Sir.

Q Was there any instance that this title was borrowed from you?

A No, Sir.

Q Was there any instance that this title was lost from your possession?

A No, Sir.

Q Was there any instance that this title was surrendered to the Register of Deeds of the City of Cagayan de Oro?

A No, Sir. There never was an instance … There never was an instance that this title was surrendered to the Register of Deeds.

Q As there any instance that you petitioned to the Honorable Court for the issuance of a new owner’s duplicate copy of this title in lieu
of the lost copy of said title?

A No, Sir. There was never an instance because this title was never lost.14

Consequently, the court a quo correctly nullified TCT No. T-17993 in Aurelio’s name, emanating as it did from the new owner’s
duplicate TCT No. T-8502, which Aurelio procured through fraud. Respondent Aurelio cannot raise the defense of indefeasibility of
title because "the principle of indefeasibility of a Torrens title does not apply where fraud attended the issuance of the title. The
Torrens title does not furnish a shield for fraud."15 As such, a title issued based on void documents may be annulled.16

The appellate court’s reliance on the joint affidavit of confirmation of sale purportedly executed by Remegia and her uncle, Narciso
Labuntog, is not proper. In the first place, respondent Aurelio cannot rely on the joint affidavit of confirmation of sale to prove that
they had validly acquired the subject lot because, by itself, an affidavit is not a mode of acquiring ownership.17 Moreover, the
affidavit is written entirely in English in this wise:

106
JOINT AFFIDAVIT OF CONFIRMATION OF SALE18

We, NARCISO LABUNTOG and REMEGIA YAPE DE FELICIANO, both of legal age, Filipino citizens and residents of Lapasan,
Cagayan de Oro City, Philippines, after being duly sworn according to law, depose and say:

1. That the late FRANCISCO LABUNTOG is our common ancestor, the undersigned NARCISO LABUNTOG being one of his sons
and the undersigned REMEGIA YAPE DE FELICIANO being the daughter of the late Emiliana Labuntog, sister of Narciso
Labuntog;

2. That after his death, the late Francisco Labuntog left behind a parcel of land known as Lot No. 2166 C-2 of the Cagayan Cadastre
situated at Lapasan, City of Cagayan de Oro, Philippines which is being administered by the undersigned Narciso Labuntog under Tax
Decl. No. 27633;

3. That the entire Cadastral Lot No. 2166 C-2 has been subdivided and apportioned among the heirs of the late Francisco Labuntog,
both of the undersigned affiants having participated and shared in the said property, Remegia Yape de Feliciano having inherited the
share of her mother Emiliana Labuntog, sister of Narciso Labuntog;

4. That on April 4, 1951, Remegia Yape de Feliciano sold a portion of her share to one Ignacio Gil and which portion is more
particularly described and bounded as follows:

"On the North for 13 ½ meters by Agustin Cabaraban;

On the South for 13 ½ meters by Antonio Babanga;

On the East for 18 meters by Clotilde Yape; and

On the West for 18meters by Agustin Cabaraban;"

5. That sometime in the year 1960, the said Ignacio Gil conveyed the same portion to Pio Dalman, who is of legal age, Filipino citizen
and likewise a resident of Lapasan, Cagayan de Oro City and that since 1960 up to the present, the said Pio Dalman has been in
continuous, open, adverse and exclusive possession of the property acquired by him in concept of owner;

6. That we hereby affirm, ratify and confirm the acquisition of the above described portion acquired by Pio Dalman inasmuch as the
same is being used by him as his residence and family home and we hereby request the Office of the City Assessor to segregate this
portion from our Tax Decl. No. 27633 and that a new tax declaration be issued in the name of PIO DALMAN embracing the area
acquired and occupied by him.

IN WITNESS WHEREOF, we have hereunto affixed our signatures on this 3rd day of December, 1965 at Cagayan de Oro City,
Philippines.

(SGD.) Narciso Labuntog (SGD.)Remegia Yape de Feliciano

NARCISO LABUNTOG REMEGIA YAPE DE FELICIANO

Affiant Affiant

SUBSCRIBED & SWORN to before me this 3rd day of December, 1965 at Cagayan de Oro City, Philippines, affiants exhibited their
Residence Certificates as follows: NARCISO LABUNTOG, A-1330509 dated Oct. 5, 1965 and REMEGIA YAPE DE FELICIANO,
A-1811104 dated Dec. 3, 1965 both issued at Cagayan de Oro City.

(SGD.) ILLEGIBLE

FRANCISCO X. VELEZ

Notary Public

However, based on Remegia’s testimony, she could not read and understand English:

COURT:

107
Can you read English?

A No, I cannot read and understand English.

ATTY. LEGASPI:

Q What is your highest educational attainment?

A Grade 3.

Q But you can read and understand Visayan?

A Yes, I can read Visayan, but I cannot understand well idiomatic visayan terms (laglom nga visayan).19

On this point, Article 1332 of the Civil Code is relevant:

ART.1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.

The principle that a party is presumed to know the import of a document to which he affixes his signature is modified by the foregoing
article. Where a party is unable to read or when the contract is in a language not understood by the party and mistake or fraud is
alleged, the obligation to show that the terms of the contract had been fully explained to said party who is unable to read or understand
the language of the contract devolves on the party seeking to enforce the contract to show that the other party fully understood the
contents of the document. If he fails to discharge this burden, the presumption of mistake, if not, fraud, stands unrebutted and
controlling.20

Applying the foregoing principles, the presumption is that Remegia, considering her limited educational attainment, did not
understand the full import of the joint affidavit of confirmation of sale and, consequently, fraud or mistake attended its execution. The
burden is on respondents, the spouses Zaldivar, to rebut this presumption. They tried to discharge this onus by presenting Atty.
Francisco Velez (later RTC Judge) who notarized the said document. Atty. Velez testified that he "read and interpreted" the document
to the affiants and he asked them whether the contents were correct before requiring them to affix their signatures thereon.21 The bare
statement of Atty. Velez that he "read and interpreted" the document to the affiants and that he asked them as to the correctness of its
contents does not necessarily establish that Remegia actually comprehended or understood the import of the joint affidavit of
confirmation of sale. Nowhere is it stated in the affidavit itself that its contents were fully explained to Remegia in the language that
she understood before she signed the same. Thus, to the mind of the Court, the presumption of fraud or mistake attending the
execution of the joint affidavit of confirmation of sale was not sufficiently overcome.

Moreover, the purported joint affidavit of confirmation of sale failed to state certain important information. For example, it did not
mention the consideration or price for the alleged sale by Remegia of the subject lot to Ignacio Gil. Also, while it stated that the
subject lot was conveyed by Ignacio Gil to Pio Dalman, it did not say whether the conveyance was by sale, donation or any other
mode of transfer. Finally, it did not also state how the ownership of the subject lot was transferred from Pio Dalman to respondent
Aurelio or respondents.

Respondents’ claim that they had been occupying the subject lot since 1947 openly, publicly, adversely and continuously or for over
41 years is unavailing. In a long line of cases,22 the Court has consistently ruled that lands covered by a title cannot be acquired by
prescription or adverse possession. A claim of acquisitive prescription is baseless when the land involved is a registered land
following Article 112623 of the Civil Code in relation to Section 46 of Act No. 496 or the Land Registration Act (now Section 4724
of P.D. No 1529):

Appellants’ claim of acquisitive prescription is likewise baseless. Under Article 1126 of the Civil Code, prescription of ownership of
lands registered under the Land Registration Act shall be governed by special laws. Correlatively, Act No. 496 provides that no title to
registered land in derogation of that of the registered owner shall be acquired by adverse possession. Consequently, proof of
possession by the defendants is both immaterial and inconsequential.25

Neither can the respondents spouses Zaldivar rely on the principle of indefeasibility of TCT No. 17793 which was issued on
September 10, 1974 in favor of respondent Aurelio. As it is, the subject lot is covered by two different titles: TCT No. T-8502 in
Remegia’s name covering an area of 444 sq m including therein the subject lot, and TCT No. 17793 in the name of respondent Aurelio
covering the subject lot. Aurelio’s title over the subject lot has not become indefeasible, by virtue of the fact that TCT No. T-8502 in
the name of Remegia has remained valid. The following disquisition is apropos:

108
The claim of indefeasibility of the petitioner’s title under the Torrens land title system would be correct if previous valid title to the
same parcel of land did not exist. The respondent had a valid title x x x It never parted with it; it never handed or delivered to anyone
its owner’s duplicate of the transfer certificate of title; it could not be charged with negligence in the keeping of its duplicate certificate
of title or with any act which could have brought about the issuance of another certificate upon which a purchaser in good faith and for
value could rely. If the petitioner’s contention as to indefeasibility of his title should be upheld, then registered owners without the
least fault on their part could be divested of their title and deprived of their property. Such disastrous results which would shake and
destroy the stability of land titles had not been foreseen by those who had endowed with indefeasibility land titles issued under the
Torrens system.26

Remegia’s TCT No. T-8502, thus, prevails over respondent Aurelio’s TCT No. 17793, especially considering that, as earlier opined,
the latter was correctly nullified by the RTC as it emanated from the new owner’s duplicate TCT No. T-8502, which in turn,
respondent Aurelio was able to procure through fraudulent means.

Contrary to the appellate court’s holding, laches has not set in against Remegia. She merely tolerated the occupation by the
respondents of the subject lot:

Q You also stated in the direct that the defendants in this case, Mr. and Mrs. Zaldivar, were issued a title over a portion of this land
which you described a while ago?

A We knew about that only recently.

Q When was that when you knew that the defendants were issued title over a portion of the land you described a while ago?

A In June, 1992.

Q In what way did you discover that a portion of the land was titled in the name of the defendants?

A I discovered that my property was titled by Mr. and Mrs. Zaldivar when I went to the Register of Deeds for the purpose of
partitioning my property among my children.

Q And you were surprised why it is titled in their names?

A Yes.

Q Is it not a fact that the defendants have constructed their house on a portion of the land you described a while ago?

A Yes. I knew that the Zaldivars built a house on the property I described a while ago, but I did not bother because I know that I can
get that property because I own that property.

Q And the defendants constructed that house in 1974-75, am I correct?

A Yes.

Q And as a matter of fact, you have also a house very near to the house that was constructed by the defendants in this case?

A Yes.

Q Can you tell us what is the distance between your house and the house constructed by the defendants in 1974?

A They are very near because they constructed their house in my lot.

Q How many meters, more or less?

A It is very near, very close.

Q When they constructed their house, meaning the defendants, did you not stop the defendants from the construction?

A I did not bother in stopping the Zaldivars in constructing the house because I am certain that I can get the land because I own the
land.

109
Q Aside from not protesting to the construction, did you not bring this matter to the attention of the barangay captain or to the police
authorities?

A No, because I did not bring this matter to the barangay captain nor to the police authorities. It is only now that we discovered that it
is already titled.

Q When you said now, it is in 1992?

A Yes.

Q Is it not a fact that after the house was finished the defendants and their family resided in that house which they constructed?

A Yes, after the house was finished, they resided in that house.

Q As a matter of fact, from that time on up to the present, the defendants are still residing in that house which they constructed in 1974
or 1975, am I correct?

A Yes.

Q As a matter of fact also the defendants fenced the lot in which their house was constructed with hollow blocks, am I correct?

A Yes, the house of the Zaldivars was fenced by them with hollow blocks and I did not stop them to avoid trouble.

Q As a matter of fact, the boundary between your house and the house of Zaldivar, there was constructed a firewall made of hollow
blocks about twelve feet in height, am I correct?

A Yes.

Q Such that you cannot see their house and also the Zaldivars cannot see your house because of that high firewall, am I correct?

A We can still see each other because the firewall serves as the wall of their house.

Q When did the Zaldivars construct that hollow blocks fence? After the house was finished?

A I cannot remember.

Q But it could be long time ago?

ATTY. VEDAD:

Q That would be repetitious. She answered she could not remember.

ATTY. LEGASPI:

Q It could be many years ago?

A I cannot remember when they constructed the fence.

Q Did you [file] any protest or complaint when the Zaldivars constructed the hollow blocks fence?

A No.

Q Neither did you bring any action in court or with the barangay captain or the police authorities when the Zaldivars constructed that
hollow blocks fence?

A No, I did not complain the fencing by the Zaldivars. Only now that we know that we bring this matter to the barangay captain.

Q And in the [office of the] barangay captain, you were able to meet the defendants, am I correct?

A No. When we went to the barangay captain, the Zaldivars did not appear there; therefore, we hired a lawyer and filed this case.27
110
Case law teaches that if the claimant’s possession of the land is merely tolerated by its lawful owner, the latter’s right to recover
possession is never barred by laches:

As registered owners of the lots in question, the private respondents have a right to eject any person illegally occupying their property.
This right is imprescriptible. Even if it be supposed that they were aware of the petitioner’s occupation of the property, and regardless
of the length of that possession, the lawful owners have a right to demand the return of their property at any time as long as the
possession was unauthorized or merely tolerated, if at all. This right is never barred by laches.28

Nonetheless, the Court is not unmindful of the fact that respondents had built their house on the subject lot and, despite knowledge
thereof, Remegia did not lift a finger to prevent it. Article 453 of the Civil Code is applicable to their case:

ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the
part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.

It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without
opposition on his part.

Under the circumstances, respondents and Remegia are in mutual bad faith and, as such, would entitle the former to the application of
Article 448 of the Civil Code governing builders in good faith:

ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate
as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 54629 and 548,30 or to oblige the
one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot
be obliged to buy the land if its value is considerably more than that of the building or trees. In such a case, he shall pay reasonable
rent, if the owner of the land does not choose to appropriate the building or trees after the proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

Following the above provision, the owner of the land on which anything has been built, sown or planted in good faith shall have the
right to appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the necessary and
useful expenses, and in the proper case, expenses for pure luxury or mere pleasure.31

The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land. If the owner chooses to
sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The
builder, planter, or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or
sowing. In such case, the builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the
conditions of the lease, the court must fix the terms thereof. 32

The right to choose between appropriating the improvement or selling the land on which the improvement of the builder, planter or
sower stands, is given to the owner of the land,33 Remegia, in this case, who is now substituted by petitioners as her heirs.

Consequently, the petitioners are obliged to exercise either of the following options: (1) to appropriate the improvements, including
the house, built by the respondents on the subject lot by paying the indemnity required by law, or (2) sell the subject lot to the
respondents. Petitioners cannot refuse to exercise either option and compel respondents to remove their house from the land.34 In case
petitioners choose to exercise the second option, respondents are not obliged to purchase the subject lot if its value is considerably
more than the improvements thereon and in which case, respondents must pay rent to petitioners. If they are unable to agree on the
terms of the lease, the court shall fix the terms thereof.

In light of the foregoing disquisition, the Court finds it unnecessary to resolve the procedural issues raised by petitioners.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2003 and Resolution dated February 4, 2004 of the Court of
Appeals in CA-G.R. CV No. 66511 are REVERSED and SET ASIDE. The Decision dated December 3, 1999 of the Regional Trial
Court of Cagayan de Oro City, Branch 25 in Civil Case No. 92-423 is REINSTATED with the MODIFICATION that petitioners are
likewise ordered to exercise the option under Article 448 of the Civil Code.

SO ORDERED.

VILLEGAS VS RURAL BANK OF TANJAY

NACHURA, J.:
111
This petition for review on certiorari under Rule 45 of the Rules of Court assails the Court of Appeals (CA) Decision[1] in CA-G.R.
CV No. 40613 which affirmed with modification the Regional Trial Court (RTC) Decision in Civil Case No. 9570.[2]

The facts, as summarized by the CA, follow.

Sometime in June, 1982, [petitioners], spouses Joaquin and Emma Villegas, obtained an agricultural loan of P350,000.00 from
[respondent] Rural Bank of Tanjay, Inc. The loan was secured by a real estate mortgage on [petitioners] residential house and 5,229
sq.m. lot situated in Barrio Bantayan, Dumaguete City and covered by TCT No. 12389.

For failure of [petitioners] to pay the loan upon maturity, the mortgage was extrajudicially foreclosed. At the foreclosure sale,
[respondent], being the highest bidder, purchased the foreclosed properties for P367,596.16. Thereafter, the Sheriff executed in favor
of [respondent] a certificate of sale, which was subsequently registered with the Registry of Deeds of Dumaguete City.

[Petitioners] failed to redeem the properties within the one-year redemption period.

In May, 1987, [respondent] and [petitioner] Joaquin Villegas, through his attorney-in-fact[,] Marilen Victoriano, entered into an
agreement denominated as Promise to Sell, whereby [respondent] promised to sell to [petitioners] the foreclosed properties for a total
price of P713,312.72, payable within a period of five (5) years. The agreement reads in part:

PROMISE TO SELL

xxxx

WITNESSETH:

xxxx

2) That for and in consideration of SEVEN HUNDRED THIRTEEN THOUSAND AND THREE HUNDRED TWELVE & 72/100
PESOS (P713,312.72), the VENDOR do hereby promise to sell, transfer, and convey unto the VENDEE, their heirs, successors and
assigns, all its rights, interests and participations over the above parcel of land with all the improvements thereon and a residential
house.

3) That upon signing of this Promise To Sell, the VENDEE shall agree to make payment of P250,000.00 (Philippine Currency) and
the balance of P463,312.72 payable in equal yearly installments plus interest based on the prevailing rate counting from the date of
signing this Promise to Sell for a period of five (5) years.

xxxx

5) Provided further, that in case of a delay in any yearly installment for a period of ninety (90) days, this sale will become null and
void and no further effect or validity; and provided further, that payments made shall be reimbursed (returned) to the VENDEE less
interest on the account plus additional 15% liquidated damages and charges.

Upon the signing of the agreement, [petitioners] gave [respondent] the sum of P250,000.00 as down payment. [Petitioners], however,
failed to pay the first yearly installment, prompting [respondent] to consolidate its ownership over the properties. Accordingly, TCT
No. 12389 was cancelled and a new one, TCT No. 19042, (Exh. 14) was issued in [respondents] name on November 8, 1989.
Thereafter, [respondent] took possession of the properties. Hence, the action by [petitioners for declaration of nullity of loan and
mortgage contracts, recovery of possession of real property, accounting and damages and, in the alternative, repurchase of real estate]
commenced on January 15, 1990.

In resisting the complaint, [respondent] averred that [petitioners] have absolutely no cause of action against it, and that the complaint
was filed only to force it to allow [petitioners] to reacquire the foreclosed properties under conditions unilaterally favorable to them.

xxxx

After trial on the merits, the [RTC] rendered a Decision dismissing the complaint, disposing as follows:
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In the light of the foregoing, it is considered opinion of this Court, that [petitioners] failed to prove by preponderance of evidence their
case and therefore the herein complaint is ordered dismissed. [Petitioners] are ordered to pay [respondent] the sum of P3,000.00 as
attorneys fees and to pay costs without pronouncement as to counterclaim.

SO ORDERED.[3]

On appeal by both parties, the CA affirmed with modification the RTCs ruling, thus:

WHEREFORE, the appealed Decision is hereby MODIFIED by (a) ORDERING [respondent] to reimburse [petitioners] their down
payment of P250,000.00 and (b) DELETING the award of attorneys fees to [respondent].

SO ORDERED.[4]

Hence, this appeal by certiorari raising the following issues:

(1) The Court of Appeals erred in not holding that the loan and mortgage contracts are null and void ab initio for being against public
policy;

(2) The Court of Appeals erred in not holding that, by reason of the fact that the loan and mortgage contracts are null and void ab
initio for being against public policy, the doctrine of estoppel does not apply in this case;

(3) The Court of Appeals erred in not finding that the addendum on the promissory notes containing an escalation clause is null and
void ab initio for not being signed by petitioner Emma M. Villegas, wife of petitioner Joaquin Villegas, there being a showing that the
companion real estate mortgage involves conjugal property. x x x.

(4) The Court of Appeals erred in not finding that the addendum on the promissory notes containing an escalation clause is null and
void ab initio for being so worded that the implementation thereof would deprive petitioners due process guaranteed by [the]
constitution, the petitioners not having been notified beforehand of said implementation.[5]

Notwithstanding petitioners formulation of the issues, the core issue for our resolution is whether petitioners may recover possession
of the mortgaged properties.

The petition deserves scant consideration and ought to have been dismissed outright. Petitioners are precluded from seeking a
declaration of nullity of the loan and mortgage contracts; they are likewise barred from recovering possession of the subject property.

Petitioners insist on the nullity of the loan and mortgage contracts. Unabashedly, petitioners admit that the loan (and mortgage)
contracts were made to appear as several sugar crop loans not exceeding P50,000.00 each even if they were not just so the respondent
rural bank could grant and approve the same pursuant to Republic Act (R.A.) No. 720, the Rural Banks Act. Petitioners boldly
enumerate the following circumstances that show that these loans were obtained in clear contravention of R.A. No. 720:

(a) The petitioners never planted sugar cane on any parcel of agricultural land;

(b) The mortgaged real estate is residential, with a house, located in the heart of Dumaguete City, with an area of only one-half (1/2)
hectare;

(c) Petitioners never planted any sugar cane on this one-half (1/2) hectare parcel of land;

(d) Petitioners were never required to execute any chattel mortgage on standing crops;

(e) To make it appear that the petitioners were entitled to avail themselves of loan benefits under Republic Act No. 720, Rural Banks
Act, respondent made them sign promissory notes for P350,000.00 in split amounts not exceeding P50,000.00 each.[6]

In short, petitioners aver that the sugar crop loans were merely simulated contracts and, therefore, without any force and effect.

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Articles 1345 and 1346 of the Civil Code are the applicable laws, and they unmistakably provide:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at
all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real
agreement.

Given the factual antecedents of this case, it is obvious that the sugar crop loans were relatively simulated contracts and that both
parties intended to be bound thereby. There are two juridical acts involved in relative simulation the ostensible act and the hidden
act.[7] The ostensible act is the contract that the parties pretend to have executed while the hidden act is the true agreement between
the parties.[8] To determine the enforceability of the actual agreement between the parties, we must discern whether the concealed or
hidden act is lawful and the essential requisites of a valid contract are present.

In this case, the juridical act which binds the parties are the loan and mortgage contracts, i.e., petitioners procurement of a loan from
respondent. Although these loan and mortgage contracts were concealed and made to appear as sugar crop loans to make them fall
within the purview of the Rural Banks Act, all the essential requisites of a contract[9] were present. However, the purpose thereof is
illicit, intended to circumvent the Rural Banks Act requirement in the procurement of loans.[10] Consequently, while the parties
intended to be bound thereby, the agreement is void and inexistent under Article 1409[11] of the Civil Code.

In arguing that the loan and mortgage contracts are null and void, petitioners would impute all fault therefor to respondent. Yet,
petitioners averments evince an obvious knowledge and voluntariness on their part to enter into the simulated contracts. We find that
fault for the nullity of the contract does not lie at respondents feet alone, but at petitioners as well. Accordingly, neither party can
maintain an action against the other, as provided in Article 1412 of the Civil Code:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall
be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or
demand the performance of the others undertaking;

(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.

Petitioners did not come to court with clean hands. They admit that they never planted sugarcane on any property, much less on the
mortgaged property. Yet, they eagerly accepted the proceeds of the simulated sugar crop loans. Petitioners readily participated in the
ploy to circumvent the Rural Banks Act and offered no objection when their original loan of P350,000.00 was divided into small
separate loans not exceeding P50,000.00 each. Clearly, both petitioners and respondent are in pari delicto, and neither should be
accorded affirmative relief as against the other.

In Tala Realty Services Corp. v. Banco Filipino Savings and Mortgage Bank,[12] we held that when the parties are in pari delicto,
neither will obtain relief from the court, thus:

The Bank should not be allowed to dispute the sale of its lands to Tala nor should Tala be allowed to further collect rent from the
Bank. The clean hands doctrine will not allow the creation or the use of a juridical relation such as a trust to subvert, directly or
indirectly, the law. Neither the bank nor Tala came to court with clean hands; neither will obtain relief from the court as one who
seeks equity and justice must come to court with clean hands. By not allowing Tala to collect from the Bank rent for the period during
which the latter was arbitrarily closed, both Tala and the Bank will be left where they are, each paying the price for its deception.[13]

Petitioners stubbornly insist that respondent cannot invoke the pari delicto doctrine, ostensibly because of our obiter in Enrique T.
Yuchengco, Inc., et al. v. Velayo.[14]
In Yuchengco, appellant sold 70% of the subscribed and outstanding capital stock of a Philippine corporation, duly licensed as a
tourist operator, to appellees without the required prior notice and approval of the Department of Tourism (DOT). Consequently, the
DOT cancelled the corporations Local Tour Operators License. In turn, appellees asked for a rescission of the sale and demanded the
return of the purchase price.
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We specifically ruled therein that the pari delicto doctrine is not applicable, because:

The obligation to secure prior Department of Tourism approval devolved upon the defendant (herein appellant) for it was he as the
owner vendor who had the duty to give clear title to the properties he was conveying. It was he alone who was charged with knowing
about rules attendant to a sale of the assets or shares of his tourist-oriented organization. He should have known that under said rules
and regulations, on pain of nullity, shares of stock in his company could not be transferred without prior approval from the
Department of Tourism. The failure to secure this approval is attributable to him alone.[15]

Thus, we declared that even assuming both parties were guilty of the violation, it does not always follow that both parties, being in
pari delicto, should be left where they are. We recognized as an exception a situation when courts must interfere and grant relief to one
of the parties because public policy requires their intervention, even if it will result in a benefit derived by a plaintiff who is in equal
guilt with defendant.[16]

In stark contrast to Yuchengco, the factual milieu of the present case does not compel us to grant relief to a party who is in pari
delicto. The public policy requiring rural banks to give preference to bona fide small farmers in the grant of loans will not be served if
a party, such as petitioners, who had equal participation and equal guilt in the circumvention of the Rural Banks Act, will be allowed
to recover the subject property.

The following circumstances reveal the utter poverty of petitioners arguments and militate against their bid to recover the subject
property:

1. As previously adverted to, petitioners readily and voluntarily accepted the proceeds of the loan, divided into small loans, without
question.

2. After failing to redeem the mortgaged subject property, thereby allowing respondent to consolidate title thereto,[17] petitioners then
entered into a Promise to Sell and made a down payment of P250,000.00.

3. Failing anew to comply with the terms of the Promise to Sell and pay the first yearly installment, only then did petitioners invoke
the nullity of the loan and mortgage contracts.

In all, petitioners explicitly recognized respondents ownership over the subject property and merely resorted to the void contract
argument after they had failed to reacquire the property and a new title thereto in respondents name was issued.

We are not unmindful of the fact that the Promise to Sell ultimately allows petitioners to recover the subject property which they were
estopped from recovering under the void loan and mortgage contracts. However, the Promise to Sell, although it involves the same
parties and subject matter, is a separate and independent contract from that of the void loan and mortgage contracts.

To reiterate, under the void loan and mortgage contracts, the parties, being in pari delicto, cannot recover what they each has given by
virtue of the contract.[18] Neither can the parties demand performance of the contract. No remedy or affirmative relief can be afforded
the parties because of their presumptive knowledge that the transaction was tainted with illegality.[19] The courts will not aid either
party to an illegal agreement and will instead leave the parties where they find them.[20]

Consequently, the parties having no cause of action against the other based on a void contract, and possession and ownership of the
subject property being ultimately vested in respondent, the latter can enter into a separate and distinct contract for its alienation.
Petitioners recognized respondents ownership of the subject property by entering into a Promise to Sell, which expressly designates
respondent as the vendor and petitioners as the vendees. At this point, petitioners, originally co-owners and mortgagors of the subject
property, unequivocally acquiesced to their new status as buyers thereof. In fact, the Promise to Sell makes no reference whatsoever to
petitioners previous ownership of the subject property and to the void loan and mortgage contracts.[21] On the whole, the Promise to
Sell, an independent contract, did not purport to ratify the void loan and mortgage contracts.

By its very terms, the Promise to Sell simply intended to alienate to petitioners the subject property according to the terms and
conditions contained therein. Article 1370 of the Civil Code reads:

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
stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

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Thus, the terms and conditions of the Promise to Sell are controlling.

Paragraph 5 of the Promise to Sell provides:

5) Provided further, that in case of a delay in any yearly installment for a period of ninety (90) days, this sale will become null and
void [without] further effect or validity; and provided further, that payments made shall be reimbursed (returned to the VENDEE less
interest on the account plus additional 15% liquidated damages and charges.[22]

As stipulated in the Promise to Sell, petitioners are entitled to reimbursement of the P250,000.00 down payment. We agree with the
CAs holding on this score:

We note, however, that there is no basis for the imposition of interest and additional 15% liquidated damages and charges on the
amount to be thus reimbursed. The Promise to Sell is separate and distinct from the loan and mortgage contracts earlier executed by
the parties. Obviously, after the foreclosure, there is no more loan or account to speak of to justify the said imposition.[23]

Finally, contrary to petitioners contention, the CA, in denying petitioners appeal, did not commit an error; it did not ratify a void
contract because void contracts cannot be ratified. The CA simply refused to grant the specific relief of recovering the subject property
prayed for by petitioners. Nonetheless, it ordered respondent to reimburse petitioners for their down payment of P250,000.00 and
disallowed respondents claim for actual, moral and exemplary damages and attorneys fees.

WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
40613 is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

VILLACERAN VS DE GUZMAN

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the November 26, 2004 Decision[1] and June 29, 2005 Resolution[2] of the
Court of Appeals (CA) in CA-G.R. CV No. 71831. The CA had affirmed with modification the Decision[3] of the Regional Trial
Court (RTC), Branch 24, of Echague, Isabela, in Civil Case No. 24-0495 entitled Josephine De Guzman vs. Spouses Jose and
Milagros Villaceran, et al.
The antecedent facts follow:
Josephine De Guzman filed a Complaint[4] with the RTC of Echague, Isabela against the spouses Jose and Milagros Villaceran and
Far East Bank & Trust Company (FEBTC), Santiago City Branch, for declaration of nullity of sale, reconveyance, redemption of
mortgage and damages with preliminary injunction. The complaint was later amended to include annulment of foreclosure and
Sheriffs Certificate of Sale.
In her Amended Complaint,[5] De Guzman alleged that she is the registered owner of a parcel of land covered by Transfer Certificate
of Title (TCT) No. T-236168,[6] located in Echague, Isabela, having an area of 971 square meters and described as Lot 8412-B of the
Subdivision Plan Psd-93948. On April 17, 1995, she mortgaged the lot to the Philippine National Bank (PNB) of Santiago City to
secure a loan of P600,000. In order to secure a bigger loan to finance a business venture, De Guzman asked Milagros Villaceran to
obtain an additional loan on her behalf. She executed a Special Power of Attorney in favor of Milagros. Considering De Guzmans
unsatisfactory loan record with the PNB, Milagros suggested that the title of the property be transferred to her and Jose Villaceran and
they would obtain a bigger loan as they have a credit line of up to P5,000,000 with the bank.
On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale[7] in favor of the spouses Villaceran. On the same day,
they went to the PNB and paid the amount of P721,891.67 using the money of the spouses Villaceran. The spouses Villaceran
registered the Deed of Sale and secured TCT No. T-257416[8] in their names. Thereafter, they mortgaged the property with FEBTC
Santiago City to secure a loan of P1,485,000. However, the spouses Villaceran concealed the loan release from De Guzman. Later,
when De Guzman learned of the loan release, she asked for the loan proceeds less the amount advanced by the spouses Villaceran to
pay the PNB loan. However, the spouses Villaceran refused to give the money stating that they are already the registered owners of
the property and that they would reconvey the property to De Guzman once she returns the P721,891.67 they paid to PNB.[9]
De Guzman offered to pay P350,000 provided that the spouses Villaceran would execute a deed of reconveyance of the property. In
view of the simulated character of their transaction, the spouses Villaceran executed a Deed of Absolute Sale[10] dated September 6,
1996 in favor of De Guzman. They also promised to pay their mortgage debt with FEBTC to avoid exposing the property to possible
foreclosure and auction sale. However, the spouses Villaceran failed to settle the loan and subsequently the property was
extrajudicially foreclosed. A Sheriffs Certificate of Sale was issued in favor of FEBTC for the amount of P3,594,000. De Guzman

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asserted that the spouses Villaceran should be compelled to redeem their mortgage so as not to prejudice her as the real owner of the
property.[11]
On the other hand, the spouses Villaceran and FEBTC, in their Amended Answer,[12] averred that in 1996 De Guzman was
introduced to Milagros by a certain Digna Maranan. Not long afterwards, De Guzman requested Milagros to help her relative who had
a loan obligation with the PNB in the amount of P300,000. As a consideration for the accommodation, De Guzman would convey her
property located at Maligaya, Echague, Isabela which was then being held in trust by her cousin, Raul Sison. Because of this
agreement, Milagros paid De Guzmans obligation with the PNB in the amount of P300,000.
When Milagros asked for the title of the lot, De Guzman explained that her cousin would not part with the property unless he is
reimbursed the amount of P200,000 representing the amount he spent tilling the land. Milagros advanced the amount of P200,000 but
De Guzmans cousin still refused to reconvey the property. In order for De Guzman to settle her obligation, she offered to sell her
house and lot in Echague, Isabela. At first, Milagros signified her non-interest in acquiring the same because she knew that it was
mortgaged with the PNB Santiago for P600,000. De Guzman proposed that they will just secure a bigger loan from another bank using
her house and lot as security. The additional amount will be used in settling De Guzmans obligation with PNB. Later, De Guzman
proposed that she borrow an additional amount from Milagros which she will use to settle her loan with PNB. To this request,
Milagros acceded. Hence, they went to the PNB and paid in full De Guzmans outstanding obligation with PNB which already reached
P880,000.[13]
Since De Guzmans total obligation already reached P1,380,000, the spouses Villaceran requested her to execute a deed of absolute
sale over the subject property in their favor. Thus, the Deed of Absolute Sale is supported by a valuable consideration, and the spouses
Villaceran became the lawful owners of the property as evidenced by TCT No. 257416 issued by the Office of the Register of Deeds
of Isabela. Later, they mortgaged the property to FEBTC for P1,485,000.
The spouses Villaceran denied having executed a deed of conveyance in favor of De Guzman relative to the subject property and
asserted that the signatures appearing on the September 6, 1996 Deed of Sale, which purported to sell the subject property back to De
Guzman, are not genuine but mere forgeries.[14]
After due proceedings, the trial court rendered its decision on September 27, 2000.
The RTC ruled that the Deed of Sale dated June 19, 1996 executed by De Guzman in favor of the spouses Villaceran covering the
property located in Echague, Isabela was valid and binding on the parties. The RTC ruled that the said contract was a relatively
simulated contract, simulated only as to the purchase price, but nonetheless binding upon the parties insofar as their true agreement is
concerned. The RTC ruled that De Guzman executed the Deed of Absolute Sale dated June 19, 1996 so that the spouses Villaceran
may use the property located in Echague, Isabela as collateral for a loan in view of De Guzmans need for additional capital to finance
her business venture. The true consideration for the sale, according to the RTC, was the P300,000 the spouses Villaceran gave to De
Guzman plus the P721,891.67 they paid to PNB in order that the title to the subject property may be released and used to secure a
bigger loan in another bank.
The RTC also found that although the spouses Villaceran had already mortgaged the subject property with FEBTC and the title was
already in the possession of FEBTC -- which facts were known to De Guzman who even knew that the loan proceeds amounting to
P1,485,000 had been released -- the spouses Villaceran were nonetheless still able to convince De Guzman that they could still
reconvey the subject property to her if she pays the amount they had paid to PNB. The RTC found that the Deed of Sale dated
September 6, 1996 was actually signed by the spouses Villaceran although De Guzman was able to pay only P350,000, which amount
was stated in said deed of sale as the purchase price. The RTC additionally said that the spouses Villaceran deceived De Guzman
when the spouses Villaceran mortgaged the subject property with the understanding that the proceeds would go to De Guzman less the
amounts the spouses had paid to PNB. Hence, according to the RTC, the spouses Villaceran should return to De Guzman (1) the
P350,000 which she paid to them in consideration of the September 6, 1996 Deed of Sale, which sale did not materialize because the
title was in the possession of FEBTC; and (2) the amount of P763,108.33 which is the net proceeds of the loan after deducting the
P721,891.67 that the spouses paid to PNB. Thus, the decretal portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered as follows:
a) declaring the Deed of Sale, dated June 1996 (Exhibit B) as valid and binding;
b) ordering defendants Villaceran to pay to plaintiff the amount of P763,108.33 and P350,000.00 or the total amount of P1,113,108.33
plus the legal rate of interest starting from the date of the filing of this case;
c) declaring the Extrajudicial Foreclosure and the Certificate of Sale as valid;
d) ordering defendants Villaceran to pay attorneys fees in the amount of P20,000.00 and to pay the costs of suit.
SO ORDERED.[15]
Aggrieved, the spouses Villaceran appealed to the CA arguing that the trial court erred in declaring the June 19, 1996 Deed of Sale as
a simulated contract and ordering them to pay De Guzman P1,113,108.33 plus legal rate of interest and attorneys fees.[16]
On November 26, 2004, the CA rendered its Decision, the dispositive portion of which reads as follows:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby AFFIRMED with MODIFICATION, to read as
follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Declaring the Deed of Sale dated June 16, 1996 (Exh. B) and September 6, 1996, as not reflective of the true intention of the
parties, as the same were merely executed for the purpose of the loan accommodation in favor of the plaintiff-appellee by the
defendants-appellants;

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2. Ordering defendants-appellants Villaceran to pay plaintiff-appellee the difference between the FEBTC loan of P1,485,000.00 less
P721,891.67 (used to redeem the PNB loan), plus legal interest thereon starting from the date of the filing of this case;
3. Declaring the extrajudicial foreclosure and certificate of sale in favor of FEBTC, as valid; and
4. For the appellants to pay the costs of the suit.
SO ORDERED.[17]
The CA ruled that the RTC was correct in declaring that there was relative simulation of contract because the deeds of sale did not
reflect the true intention of the parties. It found that the evidence established that the documents were executed for the purpose of an
agency to secure a higher loan whereby the spouses Villaceran only accommodated De Guzman. However, the CA did not find any
evidence to prove that De Guzman actually parted away with the P350,000 as consideration of the reconveyance of the property. Thus,
it held the trial court erred in ordering the spouses Villaceran to return the P350,000 to De Guzman.
Furthermore, the CA observed that the spouses Villaceran were the ones who redeemed the property from the mortgage with PNB by
paying P721,891.67 so that De Guzmans title could be released. Once registered in their name, the spouses Villaceran mortgaged the
property with FEBTC for P1,485,000. With the loan proceeds of P1,485,000, there was no need for the spouses Villaceran to demand
for the return of the P721,891.67 they paid in releasing the PNB loan before the property is reconveyed to De Guzman. All they had to
do was to deduct the amount of P721,891.67 from the P1,485,000 FEBTC loan proceeds. Hence, the CA ruled that only the balance of
the P1,485,000 loan proceeds from FEBTC minus the P721,891.67 used to redeem the PNB loan should be paid by the spouses
Villaceran to De Guzman. The CA also deleted the grant of attorneys fees for lack of factual, legal or equitable justification.
On December 22, 2004, the spouses Villaceran filed a motion for reconsideration of the foregoing decision. Said motion, however,
was denied for lack of merit by the CA in its Resolution dated June 29, 2005. Hence, this appeal.
In their petition for review on certiorari, the spouses Villaceran allege that:
1. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN
DECLARING THE DEED OF SALE DATED JUNE 19, 1996 AS SIMULATED AND THAT THE SAME WAS MERELY
EXECUTED FOR THE PURPOSE OF THE LOAN ACCOMODATION OF PETITIONERS VILLACERAN IN FAVOR OF THE
RESPONDENT DE GUZMAN INSTEAD OF DECLARING SAID DEED AS A VALID DEED OF ABSOLUTE SALE, THE
CONTENTS OF WHICH ARE CLEARLY REFLECTIVE OF THEIR TRUE INTENTION TO ENTER INTO A CONTRACT OF
SALE AND NOT OTHERWISE, IN DIRECT CONTRAVENTION OF THE RULES ON EVIDENCE AND OF THE
ADMISSIONS OF THE PARTIES AND THE HONORABLE COURTS RULINGS OR JURISPRUDENCE ON THE MATTER;
AND
2. THE RESPONDENT COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN ORDERING
PETITIONERS VILLACERAN TO PAY RESPONDENT DE GUZMAN THE DIFFERENCE BETWEEN THE FAR EAST BANK
AND TRUST COMPANY (FEBTC) LOAN OF PHP1,485,000.00 LESS P721,891.67 (USED TO PAY THE PHILIPPINE
NATIONAL BANK [PNB] LOAN) PLUS LEGAL INTEREST THEREON AND TO PAY THE COSTS OF SUIT.[18]
Essentially, the issue for our resolution is whether the CA erred in ruling that the Deed of Sale dated June 19, 1996 is a simulated
contract and not a true sale of the subject property.
Petitioners contend that the previous loans they extended to De Guzman in the amounts of P300,000, P600,000 and P200,000 should
have been considered by the CA. When added to the P721,891.67 used to settle the PNB loan, De Guzmans total loan obtained from
them would amount to P1,821,891.67. Thus, it would clearly show that the Deed of Sale dated June 19, 1996, being supported by a
valuable consideration, is not a simulated contract.
We do not agree.
Article 1345[19] of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation,
there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the
juridical situation of the parties.[20] As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from
each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real
agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely
binding and enforceable between the parties and their successors in interest.[21]
The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear
to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms
of their agreement, but also from the contemporaneous and subsequent acts of the parties.[22] In the case at bar, there is a relative
simulation of contract as the Deed of Absolute Sale dated June 19, 1996 executed by De Guzman in favor of petitioners did not reflect
the true intention of the parties.
It is worthy to note that both the RTC and the CA found that the evidence established that the aforesaid document of sale was executed
only to enable petitioners to use the property as collateral for a bigger loan, by way of accommodating De Guzman. Thus, the parties
have agreed to transfer title over the property in the name of petitioners who had a good credit line with the bank. The CA found it
inconceivable for De Guzman to sell the property for P75,000 as stated in the June 19, 1996 Deed of Sale when petitioners were able
to mortgage the property with FEBTC for P1,485,000. Another indication of the lack of intention to sell the property is when a few
months later, on September 6, 1996, the same property, this time already registered in the name of petitioners, was reconveyed to De
Guzman allegedly for P350,000.

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As regards petitioners assertion that De Guzmans previous loans should have been considered to prove that there was an actual sale,
the Court finds the same to be without merit. Petitioners failed to present any evidence to prove that they indeed extended loans to De
Guzman in the amounts of P300,000, P600,000 and P200,000. We note that petitioners tried to explain that on account of their close
friendship and trust, they did not ask for any promissory note, receipts or documents to evidence the loan. But in view of the
substantial amounts of the loans, they should have been duly covered by receipts or any document evidencing the transaction.
Consequently, no error was committed by the CA in holding that the June 19, 1996 Deed of Absolute Sale was a simulated contract.
The issue of the genuineness of a deed of sale is essentially a question of fact. It is settled that this Court is not duty-bound to analyze
and weigh again the evidence considered in the proceedings below. This is especially true where the trial courts factual findings are
adopted and affirmed by the CA as in the present case. Factual findings of the trial court, affirmed by the CA, are final and conclusive
and may not be reviewed on appeal.[23]
The Court has time and again ruled that conclusions and findings of fact of the trial court are entitled to great weight and should not be
disturbed on appeal, unless strong and cogent reasons dictate otherwise. This is because the trial court is in a better position to
examine the real evidence, as well as to observe the demeanor of the witnesses while testifying in the case.[24] In sum, the Court finds
that there exists no reason to disturb the findings of the CA.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated November 26, 2004 and Resolution dated June
29, 2005 of the Court of Appeals in CA-G.R. CV No. 71831 are AFFIRMED.
With costs against the petitioners.
SO ORDERED.

CABALA VS TABU

MENDOZA, J.:

This is a "Petition for Review on Certiorari (under Rule 45)" of the Rules of Court assailing the June 16, 2009 Decision1 of the Court
of Appeals (CA) in CA-GR. CV No. 81469 entitled "Milagros De Belen Vda de Cabalu v. Renato Tabu."

The Facts

The property subject of the controversy is a 9,000 square meter lot situated in Mariwalo, Tarlac, which was a portion of a property
registered in the name of the late Faustina Maslum (Faustina) under Transfer Certificate of Title (TCT) No. 16776 with a total area of
140,211 square meters.2

On December 8, 1941, Faustina died without any children. She left a holographic will, dated July 27, 1939, assigning and distributing
her property to her nephews and nieces. The said holographic will, however, was not probated. One of the heirs was the father of
Domingo Laxamana (Domingo), Benjamin Laxamana, who died in 1960. On March 5, 1975, Domingo allegedly executed a Deed of
Sale of Undivided Parcel of Land disposing of his 9,000 square meter share of the land to Laureano Cabalu.3

On August 1, 1994, to give effect to the holographic will, the forced and legitimate heirs of Faustina executed a Deed of Extra-Judicial
Succession with Partition. The said deed imparted 9,000 square meters of the land covered by TCT No. 16776 to Domingo.
Thereafter, on December 14, 1995, Domingo sold 4,500 square meters of the 9,000 square meters to his nephew, Eleazar Tabamo. The
document was captioned Deed of Sale of a Portion of Land. On May 7, 1996, the remaining 4,500 square meters of Domingo’s share
in the partition was registered under his name under TCT No. 281353.4

On August 4, 1996, Domingo passed away.

On October 8, 1996, two months after his death, Domingo purportedly executed a Deed of Absolute Sale of TCT No. 281353 in favor
of respondent Renato Tabu (Tabu). The resultant transfer of title was registered as TCT No. 286484. Subsequently, Tabu and his wife,
Dolores Laxamana (respondent spouses), subdivided the said lot into two which resulted into TCT Nos. 291338 and 291339.5

On January 15, 1999, respondent Dolores Laxamana-Tabu, together with Julieta Tubilan-Laxamana, Teresita Laxamana, Erlita
Laxamana, and Gretel Laxamana, the heirs of Domingo, filed an unlawful detainer action, docketed as Civil Case No. 7106, against
Meliton Cabalu, Patricio Abus, Roger Talavera, Jesus Villar, Marcos Perez, Arthur Dizon, and all persons claiming rights under them.
The heirs claimed that the defendants were merely allowed to occupy the subject lot by their late father, Domingo, but, when asked to
vacate the property, they refused to do so. The case was ruled in favor of Domingo’s heirs and a writ of execution was subsequently
issued.6

On February 4, 2002, petitioners Milagros de Belen Vda. De Cabalu, Meliton Cabalu, Spouses Angela Cabalu and Rodolfo Talavera,
and Patricio Abus (petitioners), filed a case for Declaration of Nullity of Deed of Absolute Sale, Joint Affidavit of Nullity of Transfer
Certificate of Title Nos. 291338 and 291339, Quieting of Title, Reconveyance, Application for Restraining Order, Injunction and
Damages (Civil Case No. 9290) against respondent spouses before the Regional Trial Court, Branch 63, Tarlac City (RTC).7
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In their complaint, petitioners claimed that they were the lawful owners of the subject property because it was sold to their father,
Laureano Cabalu, by Domingo, through a Deed of Absolute Sale, dated March 5, 1975. Hence, being the rightful owners by way of
succession, they could not be ejected from the subject property.8

In their Answer, respondent spouses countered that the deed of sale from which the petitioners anchored their right over the 9,000
square meter property was null and void because in 1975, Domingo was not yet the owner of the property, as the same was still
registered in the name of Faustina. Domingo became the owner of the property only on August 1, 1994, by virtue of the Deed of
Extra-Judicial Succession with Partition executed by the forced heirs of Faustina. In addition, they averred that Domingo was of
unsound mind having been confined in a mental institution for a time.9

On September 30, 2003, the RTC dismissed the complaint as it found the Deed of Absolute Sale, dated March 5, 1975, null and void
for lack of capacity to sell on the part of Domingo. Likewise, the Deed of Absolute Sale, dated October 8, 1996, covering the
remaining 4,500 square meters of the subject property was declared ineffective having been executed by Domingo two months after
his death on August 4, 1996. The fallo of the Decision10 reads:

WHEREFORE, in view of the foregoing, the complaint is hereby DISMISSED, and the decision is hereby rendered by way of:

1. declaring null and void the Deed of Absolute Sale dated March 5, 1975, executed by Domingo Laxamana in favor of Laureano
Cabalu;

2. declaring null and void the Deed of Absolute Sale dated October 8, 1996, executed by Domingo Laxamana in favor of Renato Tabu,
and that TCT Nos. 293338 and 291339, both registered in the name of Renato Tabu, married to Dolores Laxamana be cancelled;

3. restoring to its former validity, TCT No. 16770 in the name of Faustina Maslum subject to partition by her lawful heirs.

Costs de oficio.

SO ORDERED.11

Not in conformity, both parties appealed to the CA. Petitioners contended that the RTC erred in declaring void the Deed of Absolute
Sale, dated March 5, 1975. They claimed that Domingo owned the property, when it was sold to Laureano Cabalu, because he
inherited it from his father, Benjamin, who was one of the heirs of Faustina. Being a co-owner of the property left by Benjamin,
Domingo could dispose of the portion he owned, notwithstanding the will of Faustina not being probated.

Respondent spouses, on the other hand, asserted that the Deed of Sale, dated March 5, 1975, was spurious and simulated as the
signature, PTR and the document number of the Notary Public were different from the latter’s notarized documents. They added that
the deed was without consent, Domingo being of unsound mind at the time of its execution. Further, they claimed that the RTC erred
in canceling TCT No. 266583 and insisted that the same should be restored to its validity because Benjamin and Domingo were
declared heirs of Faustina.

On June 16, 2009, the CA rendered its decision and disposed as follows:

WHEREFORE, in the light of the foregoing, the instant appeal is partially GRANTED in that the decision of the trial court is
AFFIRMED WITH MODIFICATION that sub-paragraphs 2 & 3 of the disposition, which reads:

"2. declaring null and void the Deed of Absolute Sale dated October 8, 1996, executed by Domingo Laxamana in favor of Renato
Tabu, and that TCT Nos. 291338 and 291339, both registered in the name of Renato Tabu, married to Dolores Laxamana be
cancelled;

3. restoring to its former validity, TCT No. 16776 in the name of Faustina Maslum subject to partition by her lawful heirs," are
DELETED.

IT IS SO ORDERED.12

In finding Domingo as one of the heirs of Faustina, the CA explained as follows:

It appears from the records that Domingo was a son of Benjamin as apparent in his Marriage Contract and Benjamin was a nephew of
Faustina as stated in the holographic will and deed of succession with partition. By representation, when Benjamin died in 1960,
Domingo took the place of his father in succession. In the same vein, the holographic will of Faustina mentioned Benjamin as one of
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her heirs to whom Faustina imparted 9,000 square meters of her property. Likewise, the signatories to the Deed of Extra-judicial
Succession with Partition, heirs of Faustina, particularly declared Domingo as their co-heir in the succession and partition thereto.
Furthermore, the parties in this case admitted that the relationship was not an issue.13

Although the CA found Domingo to be of sound mind at the time of the sale on March 5, 1975, it sustained the RTC’s declaration of
nullity of the sale on the ground that the deed of sale was simulated.

The CA further held that the RTC erred in canceling TCT No. 266583 in the name of Domingo and in ordering the restoration of TCT
No. 16770, registered in the name of Faustina, to its former validity, Domingo being an undisputed heir of Faustina.

Hence, petitioners interpose the present petition before this Court anchored on the following:

GROUNDS

(A)

THE DEED OF SALE OF UNDIVIDED PARCEL OF LAND EXECUTED ON MARCH 5, 1975 BY DOMINGO LAXAMANA IN
FAVOR OF LAUREANO CABALU IS VALID BECAUSE IT SHOULD BE ACCORDED THE PRESUMPTION OF
REGULARITY AND DECLARED VALID FOR ALL PURPOSES AND INTENTS.

(B)

THE SUBPARAGRAPH NO. 2 OF THE DECISION OF THE REGIONAL TRIAL COURT SHOULD STAY BECAUSE THE
HONORABLE COURT OF APPEALS DID NOT DISCUSS THE ISSUE AND DID NOT STATE THE LEGAL BASIS WHY SAID
PARAGRAPH SHOULD BE DELETED FROM THE SEPTEMBER 30, 2003 DECISION OF THE REGIONAL TRIAL COURT.14

The core issues to be resolved are 1) whether the Deed of Sale of Undivided Parcel of Land covering the 9,000 square meter property
executed by Domingo in favor of Laureano Cabalu on March 5, 1975, is valid; and 2) whether the Deed of Sale, dated October 8,
1996, covering the 4,500 square meter portion of the 9,000 square meter property, executed by Domingo in favor of Renato Tabu, is
null and void.

Petitioners contend that the Deed of Absolute Sale executed by Domingo in favor of Laureano Cabalu on March 5, 1975 should have
been declared valid because it enjoyed the presumption of regularity. According to them, the subject deed, being a public document,
had in its favor the presumption of regularity, and to contradict the same, there must be clear, convincing and more than preponderant
evidence, otherwise, the document should be upheld. They insist that the sale transferred rights of ownership in favor of the heirs of
Laureano Cabalu.

They further argue that the CA, in modifying the decision of the RTC, should not have deleted the portion declaring null and void the
Deed of Absolute Sale, dated October 8, 1996, executed by Domingo in favor of Renato Tabu, because at the time of execution of the
said deed of sale, the seller, Domingo was already dead. Being a void document, the titles originating from the said instrument were
also void and should be cancelled.

Respondent spouses, in their Comment15 and Memorandum,16 counter that the issues raised are not questions of law and call for
another calibration of the whole evidence already passed upon by the RTC and the CA. Yet, they argue that petitioners’ reliance on the
validity of the March 5, 1975 Deed of Sale of Undivided Parcel of Land, based on presumption of regularity, was misplaced because
both the RTC and the CA, in the appreciation of evidence on record, had found said deed as simulated.

It is well to note that both the RTC and the CA found that the evidence established that the March 5, 1975 Deed of Sale of Undivided
Parcel of Land executed by Domingo in favor of Laureano Cabalu was a fictitious and simulated document. As expounded by the CA,
viz:

Nevertheless, since there are discrepancies in the signature of the notary public, his PTR and the document number on the lower-most
portion of the document, as well as the said deed of sale being found only after the plaintiffs-appellants were ejected by the
defendants-appellants; that they were allegedly not aware that the said property was bought by their father, and that they never
questioned the other half of the property not occupied by them, it is apparent that the sale dated March 5, 1975 had the earmarks of a
simulated deed written all over it. The lower court did not err in pronouncing that it be declared null and void.17

Petitioners, in support of their claim of validity of the said document of deed, again invoke the legal presumption of regularity. To
reiterate, the RTC and later the CA had ruled that the sale, dated March 5, 1975, had the earmarks of a simulated deed, hence, the

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presumption was already rebutted. Verily and as aptly noted by the respondent spouses, such presumption of regularity cannot prevail
over the facts proven and already established in the records of this case.

Even on the assumption that the March 5, 1975 deed was not simulated, still the sale cannot be deemed valid because, at that time,
Domingo was not yet the owner of the property. There is no dispute that the original and registered owner of the subject property
covered by TCT No. 16776, from which the subject 9,000 square meter lot came from, was Faustina, who during her lifetime had
executed a will, dated July 27, 1939. In the said will, the name of Benjamin, father of Domingo, appeared as one of the heirs. Thus,
and as correctly found by the RTC, even if Benjamin died sometime in 1960, Domingo in 1975 could not yet validly dispose of the
whole or even a portion thereof for the reason that he was not the sole heir of Benjamin, as his mother only died sometime in 1980.

Besides, under Article 1347 of the Civil Code, "No contract may be entered into upon future inheritance except in cases expressly
authorized by law." Paragraph 2 of Article 1347, characterizes a contract entered into upon future inheritance as void. The law applies
when the following requisites concur: (1) the succession has not yet been opened; (2) the object of the contract forms part of the
inheritance; and (3) the promissor has, with respect to the object, an expectancy of a right which is purely hereditary in nature.18

In this case, at the time the deed was executed, Faustina’s will was not yet probated; the object of the contract, the 9,000 square meter
property, still formed part of the inheritance of his father from the estate of Faustina; and Domingo had a mere inchoate hereditary
right therein.1âwphi1

Domingo became the owner of the said property only on August 1, 1994, the time of execution of the Deed of Extrajudicial
Succession with Partition by the heirs of Faustina, when the 9,000 square meter lot was adjudicated to him.

The CA, therefore, did not err in declaring the March 5, 1975 Deed of Sale null and void.

Domingo’s status as an heir of Faustina by right of representation being undisputed, the RTC should have maintained the validity of
TCT No. 266583 covering the 9,000 square meter subject property. As correctly concluded by the CA, this served as the inheritance of
Domingo from Faustina.

Regarding the deed of sale covering the remaining 4,500 square meters of the subject property executed in favor of Renato Tabu, it is
evidently null and void. The document itself, the Deed of Absolute Sale, dated October 8, 1996, readily shows that it was executed on
August 4, 1996 more than two months after the death of Domingo. Contracting parties must be juristic entities at the time of the
consummation of the contract. Stated otherwise, to form a valid and legal agreement it is necessary that there be a party capable of
contracting and a party capable of being contracted with. Hence, if any one party to a supposed contract was already dead at the time
of its execution, such contract is undoubtedly simulated and false and, therefore, null and void by reason of its having been made after
the death of the party who appears as one of the contracting parties therein. The death of a person terminates contractual capacity.19

The contract being null and void, the sale to Renato Tabu produced no legal effects and transmitted no rights whatsoever.
Consequently, TCT No. 286484 issued to Tabu by virtue of the October 8, 1996 Deed of Sale, as well as its derivative titles, TCT Nos.
291338 and 291339, both registered in the name of Rena to Tabu, married to Dolores Laxamana, are likewise void.

The CA erred in deleting that portion in the RTC decision declaring the Deed of Absolute Sale, dated October 8, 1996, null and void
and canceling TCT Nos. 291338 and 291339.

WHEREFORE, the petition is partially GRANTED. The decretal portion of the June 16, 2009 Decision of the Court of Appeals is
hereby MODIFIED to read as follows:

1. The Deed of Absolute Sale, dated March 5, 1975, executed by Domingo Laxamana in favor of Laureano Cabalu, is hereby declared
as null and void.

2. The Deed of Absolute Sale, dated October 8, 1996, executed by Domingo Laxamana in favor of Renato Tabu, and TCT No. 286484
as well as the derivative titles TCT Nos. 291338 and 291339, both registered in the name of Renato Tabu, married to Dolores
Laxamana, are hereby declared null and void and cancelled.

3. TCT No. 281353 in the name of Domingo Laxamana is hereby ordered restored subject to the partition by his lawful heirs.

SO ORDERED.

PHIL BANK CORP VS DY

PERLAS-BERNABE, J.:
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This Petition for Review on Certiorari assails the January 30, 2008 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
51672, which set aside the October 5, 1994 Decision2 of the Regional Trial Court of Cebu City, Branch 22 (RTC) and directed the
Register of Deeds of Cebu City to cancel Transfer Certificate of Title (TCT) Nos. 517683 and 519014 in the names of respondents
Arturo Dy and Bernardo Dy (Dys) and to issue the corresponding TCTs in the name of respondent Cipriana Delgado (Cipriana).

The Factual Antecedents

Cipriana was the registered owner of a 58,129-square meter (sq.m.) lot, denominated as Lot No. 6966, situated in Barrio Tongkil,
Minglanilla, Cebu, covered by TCT No. 18568. She and her husband, respondent Jose Delgado (Jose), entered into an agreement with
a certain Cecilia Tan (buyer) for the sale of the said property for a consideration of P10.00/sq.m. It was agreed that the buyer shall
make partial payments from time to time and pay the balance when Cipriana and Jose (Sps. Delgado) are ready to execute the deed of
sale and transfer the title to her.

At the time of sale, the buyer was already occupying a portion of the property where she operates a noodle (bihon) factory while the
rest was occupied by tenants which Sps. Delgado undertook to clear prior to full payment. After paying the total sum of P147,000.00
and being then ready to pay the balance, the buyer demanded the execution of the deed, which was refused. Eventually, the buyer
learned of the sale of the property to the Dys and its subsequent mortgage to petitioner Philippine Banking Corporation (Philbank),
prompting the filing of the Complaint5 for annulment of certificate of title, specific performance and/or reconveyance with damages
against Sps. Delgado, the Dys and Philbank.

In their Answer, Sps. Delgado, while admitting receipt of the partial payments made by the buyer, claimed that there was no perfected
sale because the latter was not willing to pay their asking price of P17.00/sq.m. They also interposed a cross-claim against the Dys
averring that the deeds of absolute sale in their favor dated June 28, 19826 and June 30, 19827 covering Lot No. 6966 and the
adjoining Lot No. 4100-A (on which Sps. Delgado's house stands), were fictitious and merely intended to enable them (the Dys) to use
the said properties as collateral for their loan application with Philbank and thereafter, pay the true consideration of P17.00/sq.m. for
Lot No. 6966. However, after receiving the loan proceeds, the Dys reneged on their agreement, prompting Sps. Delgado to cause the
annotation of an adverse claim on the Dys' titles and to inform Philbank of the simulation of the sale. Sps. Delgado, thus, prayed for
the dismissal of the complaint, with a counterclaim for damages and a cross-claim against the Dys for the payment of the balance of
the purchase price plus damages.

For their part, the Dys denied knowledge of the alleged transaction between cross-claimants Sps. Delgado and buyer. They claimed to
have validly acquired the subject property from Sps. Delgado and paid the full consideration therefor as the latter even withdrew their
adverse claim and never demanded for the payment of any unpaid balance.

On the other hand, Philbank filed its Answer8 asserting that it is an innocent mortgagee for value without notice of the defect in the
title of the Dys. It filed a cross-claim against Sps. Delgado and the Dys for all the damages that may be adjudged against it in the event
they are declared seller and purchaser in bad faith, respectively.

In answer to the cross-claim, Sps. Delgado insisted that Philbank was not a mortgagee in good faith for having granted the loan and
accepted the mortgage despite knowledge of the simulation of the sale to the Dys and for failure to verify the nature of the buyer’s
physical possession of a portion of Lot No. 6966. They thereby prayed for the cancellation of the mortgage in Philbank's favor.

Subsequently, Sps. Delgado amended their cross-claim against the Dys to include a prayer for the nullification of the deeds of absolute
sale in the latter's favor and the corresponding certificates of title, and for the consequent reinstatement of Cipriana’s title.9

The complaints against the Dys and Philbank were subsequently withdrawn. On the other hand, both the buyer and Sps. Delgado
never presented any evidence in support of their respective claims. Hence, the RTC limited itself to the resolution of the claims of Sps.
Delgado, Philbank and the Dys against one another.

The RTC Ruling

In the Decision10 dated October 5, 1994, the RTC dismissed the cross-claims of Sps. Delgado against the Dys and Philbank. It noted
that other than Sps. Delgado's bare allegation of the Dys' supposed non-payment of the full consideration for Lot Nos. 6966 and 4100-
A, they failed to adduce competent evidence to support their claim. On the other hand, the Dys presented a cash voucher11 dated April
6, 1983 duly signed by Sps. Delgado acknowledging receipt of the total consideration for the two lots.

The RTC also observed that Sps. Delgado notified Philbank of the purported simulation of the sale to the Dys only after the execution
of the loan and mortgage documents and the release of the loan proceeds to the latter, negating their claim of bad faith. Moreover, they
subsequently notified the bank of the Dys' full payment for the two lots mortgaged to it.
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The CA Ruling

However, on appeal, the CA set aside12 the RTC's decision and ordered the cancellation of the Dys' certificates of title and the
reinstatement of Cipriana's title. It ruled that there were no perfected contracts of sale between Sps. Delgado and the Dys in view of
the latter's admission that the deeds of sale were purposely executed to facilitate the latter's loan application with Philbank and that the
prices indicated therein were not the true consideration. Being merely simulated, the contracts of sale were, thus, null and void,
rendering the subsequent mortgage of the lots likewise void.

The CA also declared Philbank not to be a mortgagee in good faith for its failure to ascertain how the Dys acquired the properties and
to exercise greater care when it conducted an ocular inspection thereof. It thereby canceled the mortgage over the two lots.

The Petition

In the present petition, Philbank insists that it is a mortgagee in good faith. It further contends that Sps. Delgado are estopped from
denying the validity of the mortgage constituted over the two lots since they participated in inducing Philbank to grant a loan to the
Dys.

On the other hand, Sps. Delgado maintain that Philbank was not an innocent mortgagee for value for failure to exercise due diligence
in transacting with the Dys and may not invoke the equitable doctrine of estoppel to conceal its own lack of diligence.

For his part, Arturo Dy filed a Petition-in-Intervention13 arguing that while the deeds of absolute sale over the two properties were
admittedly simulated, the simulation was only a relative one involving a false statement of the price. Hence, the parties are still bound
by their true agreement. The same was opposed/objected to by both Philbank14 and Sps. Delgado15 as improper, considering that the
CA judgment had long become final and executory as to the Dys who neither moved for reconsideration nor appealed the CA
Decision.

The Ruling of the Court

The petition is meritorious.

At the outset, the Court takes note of the fact that the CA Decision nullifying the questioned contracts of sale between Sps. Delgado
and the Dys had become final and executory. Accordingly, the Petition-in-Intervention filed by Arturo Dy, which seeks to maintain
the subject contracts' validity, can no longer be entertained. The cancellation of the Dys' certificates of title over the disputed
properties and the issuance of new TCTs in favor of Cipriana must therefore be upheld.

However, Philbank's mortgage rights over the subject properties shall be maintained. While it is settled that a simulated deed of sale is
null and void and therefore, does not convey any right that could ripen into a valid title,16 it has been equally ruled that, for reasons of
public policy,17 the subsequent nullification of title to a property is not a ground to annul the contractual right which may have been
derived by a purchaser, mortgagee or other transferee who acted in good faith.18

The ascertainment of good faith or lack of it, and the determination of whether due diligence and prudence were exercised or not, are
questions of fact19 which are generally improper in a petition for review on certiorari under Rule 45 of the Rules of Court (Rules)
where only questions of law may be raised. A recognized exception to the rule is when there are conflicting findings of fact by the CA
and the RTC,20 as in this case.

Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property
covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. This is in deference to the
public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any
encumbrance thereon.21 In the case of banks and other financial institutions, however, greater care and due diligence are required
since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus, before approving a loan
application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for
mortgage and to verify the genuineness of the title to determine the real owner(s) thereof.22 The apparent purpose of an ocular
inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a
usurper who may have acquired a fraudulent certificate of title thereto.23

In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties offered for mortgage,24
its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her cause and abandoned her claim on
the property. On the other hand, Sps. Delgado were parties to the simulated sale in favor of the Dys which was intended to mislead
Philbank into granting the loan application. Thus, no amount of diligence in the conduct of the ocular inspection could have led to the
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discovery of the complicity between the ostensible mortgagors (the Dys) and the true owners (Sps. Delgado).1âwphi1 In fine,
Philbank can hardly be deemed negligent under the premises since the ultimate cause of the mortgagors' (the Dys') defective title was
the simulated sale to which Sps. Delgado were privies.

Indeed, a finding of negligence must always be contextualized in line with the attendant circumstances of a particular case. As aptly
held in Philippine National Bank v. Heirs of Estanislao Militar,25 "the diligence with which the law requires the individual or a
corporation at all times to govern a particular conduct varies with the nature of the situation in which one is placed, and the importance
of the act which is to be performed."26 Thus, without diminishing the time-honored principle that nothing short of extraordinary
diligence is required of banks whose business is impressed with public interest, Philbank's inconsequential oversight should not and
cannot serve as a bastion for fraud and deceit.

To be sure, fraud comprises "anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal
duty or equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious
advantage is taken of another."27 In this light, the Dys' and Sps. Delgado's deliberate simulation of the sale intended to obtain loan
proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct. As such, Sps. Delgado cannot now be allowed to deny
the validity of the mortgage executed by the Dys in favor of Philbank as to hold otherwise would effectively sanction their blatant bad
faith to Philbank's detriment.

Accordingly, in the interest of public policy, fair dealing, good faith and justice, the Court accords Philbank the rights of a mortgagee
in good faith whose lien to the securities posted must be respected and protected. In this regard, Philbank is entitled to have its
mortgage carried over or annotated on the titles of Cipriana Delgado over the said properties.

WHERFORE, the assailed January 30, 2008 Decision of the Court of Appeals in CA-G.R. CV No. 51672 is hereby AFFIRMED with
MODIFICATION upholding the mortgage rights of petitioner Philippine Banking Corporation over the subject properties.

SO ORDERED.

CLEMENTE VS CA, JALANDOON

JARDELEZA, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of Court filed by Valentina S. Clemente ("petitioner")
from the Decision2 of August 23, 2005 and the Resolution3 dated November 15, 2006 of the Court of Appeals (CA) Eighth Division
in CA-G.R. CV No. 70918.

Petitioner assails the Decision of the CA which ruled that two (2) deeds of absolute sale executed between petitioner and Adela de
Guzman Shotwell ("Adela"), her grandmother, are void and inexistent for being simulated and lacking consideration. The CA affirmed
the Decision of the Regional Trial Court (RTC) of Quezon City, Branch 89, but deleted the holding of the latter that an implied trust
existed.

The Facts

Adela owned three (3) adjoining parcels of land in Scout Ojeda Street, Diliman, Quezon City, subdivided as Lots 32, 34 and 35-B (the
"Properties"). Among the improvements on the Properties was Adela's house (also referred to as the "big house"). During her lifetime,
Adela allowed her children, namely, Annie Shotwell Jalandoon, Carlos G. Shotwell ("Carlos Sr."), Anselmo G. Shotwell and Corazon
S. Basset, and her grandchildren,4 the use and possession of the Properties and its improvements.5

Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her two grandsons from Carlos Sr., namely, Carlos
V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell.6 As a consequence, Transfer Certificate of Title (TCT) No. 338708/PR 9421
was issued over Lot 32 under the name of Carlos Jr., while TCT No. 366256/PR 9422 was issued over Lot 34 under the name of
Dennis.7 On the other hand, Lot 35-B remained with Adela and was covered by TCT No. 374531. It is undisputed that the transfers
were never intended to vest title to Carlos Jr. and Dennis who both will return the lots to Adela when requested.8

On April 18, 1989, prior to Adela and petitioner's departure for the United States, Adela requested Carlos Jr. and Dennis to execute a
deed of reconveyance9 over Lots 32 and 34. The deed of reconveyance was executed on the same day and was registered with the
Registry of Deeds on April 24, 1989.10

On April 25, 1989, Adela executed a deed of absolute sale11 over Lots 32 and 34, and their improvements, in favor of petitioner,
bearing on its face the price of P250,000.00. On the same day, Adela also executed a special power of attorney12 (SPA) in favor of
125
petitioner. Petitioner's authority under the SPA included the power to administer, take charge and manage, for Adela's benefit, the
Properties and all her other real and personal properties in the Philippines.13 The deed of absolute sale and the SPA were notarized on
the same day by Atty. Dionilo D. Marfil in Quezon City.14

On April 29, 1989, Adela and petitioner left for the United States.15 When petitioner returned to the Philippines, she registered the
sale over Lots 32 and 34 with the Registry of Deeds on September 25, 1989. TCT No. 19811 and TCT No. 19809 were then issued in
the name of petitioner over Lots 32 and 34, respectively.16

On January 14, 1990, Adela died in the United States and was succeeded by her four children.17

Soon thereafter, petitioner sought to eject Annie and Carlos Sr., who were then staying on the Properties. Only then did Annie and
Carlos Sr. learn of the transfer of titles to petitioner. Thus, on July 9, 1990, Annie, Carlos Sr. and Anselmo, represented by Annie,
("private respondents") filed a complaint for reconveyance of property18 against petitioner before Branch 89 of the RTC of Quezon
City. It was docketed as Civil Case No. Q-90-6035 and titled "Annie S. Jalandoon, et al. v. Valentino. Clemente"19

In the course of the trial, private respondents discovered that Adela and petitioner executed another deed of absolute sale20 over Lot
35-B on April 25, 1989 (collectively with the deed of absolute sale over Lots 32 and 34, "Deeds of Absolute Sale"), bearing on its face
the price of F60,000.00.21 This was notarized on the same date by one Orancio Generoso in Manila, but it was registered with the
Registry of Deeds only on October 5, 1990.22 Thus, private respondents amended their complaint to include Lot 35-B.23

In their amended complaint, private respondents sought nullification of the Deeds of Absolute Sale. They alleged that Adela only
wanted to help petitioner travel to the United States, by making it appear that petitioner has ownership of the Properties. They further
alleged that similar to the previous simulated transfers to Carlos Jr. and Dennis, petitioner also undertook and warranted to execute a
deed of reconveyance in favor of the deceased over the Properties, if and when Adela should demand the same. They finally alleged
that no consideration was given by petitioner to Adela in exchange for the simulated conveyances.24

On October 3, 1997, Carlos Sr. died and was substituted only by Dennis.25 In an order dated June 18, 1999, the case was dismissed
with respect to Annie after she manifested her intention to withdraw as a party-plaintiff.26 Anselmo Shotwell also died without any
compulsory heir on September 7, 2000.

On February 26, 2001, the trial court promulgated a Decision27 in favor of private respondents. Its decretal portion
reads:cralawlawlibrary

WHEREFORE, premises considered, judgment is hereby rendered as follows:

Declaring null and void the Deeds of Absolute Sale both dated April 25, 1989 between the late Adela De Guzman Shotwell and the
defendant;ChanRoblesVirtualawlibrary

Ordering the cancellation of Transfer Certificates of Title Nos. 19809, 19811 and 26558, all of the Registry of Deeds of Quezon City
and in the name of defendant Valentina Clemente; and

Ordering the defendant to execute a Deed of Reconveyance in favor of the estate of the late Adela de Guzman Shotwell over the three
(3) subject lots, respectively covered by Transfer Certificates of Title Nos. 19809, 19811 and 26558 of the Registry of Deeds of
Quezon City;
With costs against defendant.

SO ORDERED.28chanrobleslaw

On appeal, the CA affirmed with modification the Decision. The CA ruled that the Deeds of Absolute Sale were simulated. It also
ruled that the conveyances of the Properties to petitioner were made without consideration and with no intention to have legal
effect.29

The CA agreed with the trial court that the contemporaneous and subsequent acts of petitioner and her grandmother are enough to
render the conveyances null and void on the ground of being simulated.30 The CA found that Adela retained and continued to exercise
dominion over the Properties even after she executed the conveyances to petitioner.31 By contrast, petitioner did not exercise control
over the properties because she continued to honor the decisions of Adela. The CA also affirmed the court a quo's finding that the
conveyances were not supported by any consideration.32

Petitioner filed a Motion for Reconsideration33 dated September 12, 2005 but this was denied by the CA in its Resolution34 dated
November 15, 2006.

126
Hence, this petition. The petition raises the principal issue of whether or not the CA erred in affirming the decision of the trial court,
that the Deeds of Absolute Sale between petitioner and her late grandmother over the Properties are simulated and without
consideration, and hence, void and inexistent.35

Ruling of the Court

We deny the petition.

In a Petition for Review on Certiorari

under Rule 45, only questions of law
may be entertained.

Whether or not the CA erred in affirming the decision of the RTC that the Deeds of Absolute Sale between petitioner and her late
grandmother are simulated and without consideration, and hence, void and inexistent, is a question of fact which is not within the
province of a petition for review on certiorari under Rule 45 of the Revised Rules of Court.

Section 1, Rule 45 of the Revised Rules of Court states that the petition filed shall raise only questions of law, which must be
distinctly set forth. We have explained the difference between a question of fact and a question of law, to wit:cralawlawlibrary

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the
doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of
the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question
posed is one of fact.36chanrobleslaw

Most of the issues raised by petitioner are questions of fact that invite a review of the evidence presented by the parties below. We
have repeatedly ruled that the issue on the genuineness of a deed of sale is essentially a question of fact.37 We are not a trier of facts
and do not normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case.38
This is especially true where the trial court's factual findings are adopted and affirmed by the CA as in the present case.39 Factual
findings of the trial court affirmed by the CA are final and conclusive and may not be reviewed on appeal.40 While it is true that there
are recognized exceptions41 to the general rule that only questions of law may be entertained in a Rule 45 petition, we find that there
is none obtaining in this case.

Nevertheless, and to erase any doubt on the correctness of the assailed ruling, we examined the records below and have arrived at the
same conclusion. Petitioner has not been able to show that the lower courts committed error in appreciating the evidence of record.

The Deeds of Absolute Sale between

petitioner and the late Adela Shotwell
are null and void for lack of consent
and consideration.

While the Deeds of Absolute Sale appear to be valid on their face, the courts are not completely precluded to consider evidence
aliunde in determining the real intent of the parties. This is especially true when the validity of the contracts was put in issue by one of
the parties in his pleadings.42 Here, private respondents assail the validity of the Deeds of Absolute Sale by alleging that they were
simulated and lacked consideration.

A. Simulated contract

The Civil Code defines a contract as a meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service.43 Article 1318 provides that there is no contract unless the following requisites
concur:cralawlawlibrary

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.chanrobleslaw

All these elements must be present to constitute a valid contract; the absence of one renders the contract void. As one of the essential
elements, consent when wanting makes the contract non-existent. Consent is manifested by the meeting of the offer and the

127
acceptance of the thing and the cause, which are to constitute the contract.44 A contract of sale is perfected at the moment there is a
meeting of the minds upon the thing that is the object of the contract, and upon the price.45

Here, there was no valid contract of sale between petitioner and Adela because their consent was absent. The contract of sale was a
mere simulation.

Simulation takes place when the parties do not really want the contract they have executed to produce the legal effects expressed by its
wordings.46 Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. The former
takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. The case of
Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberate M. Ureta47 is instructive on the matter of absolute simulation of contracts,
viz:cralawlawlibrary

In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main
characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any
way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract...48 (Emphasis supplied)chanrobleslaw

In short, in absolute simulation there appears to be a valid contract but there is actually none because the element of consent is
lacking.49 This is so because the parties do not actually intend to be bound by the terms of the contract.

In determining the true nature of a contract, the primary test is the intention of the parties. If the words of a contract appear to
contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of
their agreement, but also from the contemporaneous and subsequent acts of the parties.50 This is especially true in a claim of absolute
simulation where a colorable contract is executed.

In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts considered the totality of the prior,
contemporaneous and subsequent acts of the parties. The following circumstances led the RTC and the CA to conclude that the Deeds
of Absolute Sale are simulated, and that the transfers were never intended to affect the juridical relation of the
parties:chanRoblesvirtualLawlibrary

a) There was no indication that Adela intended to alienate her properties in favor of petitioner. In fact, the letter of Adela to Dennis
dated April 18, 198951 reveals that she has reserved the ownership of the Properties in favor of Dennis.

b) Adela continued exercising acts of dominion and control over the properties, even after the execution of the Deeds of Absolute
Sale, and though she lived abroad for a time. In Adela's letter dated August 25, 198952 to a certain Candy, she advised the latter to
stay in the big house. Also, in petitioner's letter to her cousin Dennis dated July 3, 1989,53 she admitted that Adela continued to be in
charge of the Properties; that she has no "say" when it comes to the Properties; that she does not intend to claim exclusive ownership
of Lot 35-B; and that she is aware that the ownership and control of the Properties are intended to be consolidated in Dennis.

c) The SPA executed on the same day as the Deeds of Absolute Sale appointing petitioner as administratrix of Adela's properties,
including the Properties, is repugnant to petitioner's claim that the ownership of the same had been transferred to her.

d) The previous sales of the Properties to Dennis and Carlos, Jr. were simulated. This history, coupled with Adela's treatment of
petitioner, and the surrounding circumstances of the sales, strongly show that Adela only granted petitioner the same favor she had
granted to Dennis and Carlos Jr.

The April 18, 1989 letter to Dennis convincingly shows Adela's intention to give him the Properties. Part of the letter reads: "Dennis,
the two lot [sic] 32-34 at your said lower house will be at name yours [sic] plus the 35 part of Cora or Teens [sic] house are all under
your name"54 Petitioner claims this letter was not properly identified and is thus, hearsay evidence. The records, however, show that
the letter was admitted by the trial court in its Order dated February 24, 1993.55 While it is true that the letter is dated prior (or six
days before to be exact) to the execution of the Deeds of Absolute Sale and is not conclusive that Adela did not change her mind, we
find that the language of the letter is more consistent with the other pieces of evidence that show Adela never intended to relinquish
ownership of the Properties to petitioner. In this regard, we see no compelling reason to depart from the findings of the trial court as
there appears no grave abuse of discretion in its admission and consideration of the letter.

Petitioner's letter to her cousin Dennis dated July 3, 1989 also sufficiently establishes that Adela retained control over the Properties,
even after the execution of the Deeds of Absolute Sale. Petitioner herself admitted that she was only following the orders of Adela,
and that she has no claim over the Properties. We quote in verbatim the relevant part of the letter:cralawlawlibrary

128
...Now, before I left going back here in Mla. Mommy Dela ask me to read your letter about the big house and lot, and I explained it to
her. Now Mommy and Mommy Dela wants that the house is for everyone who will need to stay, well that is what they say. Alam mo
naman, I have no "say" esp. when it comes with properties & you know that. Now kung ano gusto nila that goes. Now, to be honest
Mommy was surprise [sic] bakit daw kailangan mawalan ng karapatan sa bahay eh Nanay daw nila iyon at tayo apo lang, Eh wala
akong masasabi dyan, to be truthful to you, I only get the orders... Tapos, sinisingil pa ako ng P1,000 --para sa gate napinapagawa nya
sa lot 35-B, eh hindi na lang ako kiimibo pero nagdamdam ako, imagine minsan na lang sya nakagawa ng bien sa akin at wala sa
intention ko na suluhin ang 35-B, ganyan pa sya... Now tungkol sa iyo, alam ko meron ka rin lupa tapos yung bahay na malaki ikaw
rin ang titira at magmamahala sa lahat. Anyway, itong bahay ko sa iyo rin, alam mo naman na I'm just making the kids grow a little
older then we have to home in the states...56 (Emphasis supplied)
chanrobleslaw

Moreover, Adela's letter to petitioner's cousin Candy dated August 25, 1989 shows Adela's retention of dominion over the Properties
even after the sales. In the letter, Adela even requested her granddaughter Candy to stay in the house rent and expense free.57
Petitioner claims that Candy and the house referred to in the letter were not identified. Records show, however, that petitioner has
testified she has a cousin named Candy Shotwell who stayed at the "big house" since February 1989.58

Clearly, the submission of petitioner to the orders of Adela does not only show that the latter retained dominion over the Properties,
but also that petitioner did not exercise acts of ownership over it. If at all, her actions only affirm the conclusion that she was merely
an administratrix of the Properties by virtue of the SPA.

On the SPA, petitioner claims the lower courts erred in holding that it is inconsistent with her claim of ownership. Petitioner claims
that she has sufficiently explained that the SPA is not for the administration of the Properties, but for the reconstitution of their titles.

We agree with the lower courts that the execution of an SPA for the administration of the Properties, on the same day the Deeds of
Absolute Sale were executed, is antithetical to the relinquishment of ownership. The SPA shows that it is so worded as to leave no
doubt that Adela is appointing petitioner as the administratrix of her properties in Scout Ojeda. Had the SPA been intended only to
facilitate the processing of the reconstitution of the titles, there would have been no need to confer other powers of administration,
such as the collection of debts, filing of suit, etc., to petitioner.59 In any case, the explanation given by petitioner that the SPA was
executed so as only to facilitate the reconstitution of the titles of the Properties is not inconsistent with the idea of her being the
administratrix of the Properties. On the other hand, the idea of assigning her as administratrix is not only inconsistent, but also
repugnant, to the intention of selling and relinquishing ownership of the Properties.

Petitioner next questions the lower courts' findings that the Deeds of Absolute Sale are simulated because the previous transfers to
Adela's other grandchildren were also simulated. It may be true that, taken by itself, the fact that Adela had previously feigned the
transfer of ownership of Lots 32 and 34 to her other grandchildren would not automatically mean that the subject Deeds of Absolute
Sale are likewise void. The lower courts, however, did not rely solely on this fact, but considered it with the rest of the evidence, the
totality of which reveals that Adela's intention was merely to feign the transfer to petitioner.

The fact that unlike in the case of Dennis and Carlos, Jr., she was not asked by Adela to execute a deed of reconveyance, is of no
moment. There was a considerable lapse of time from the moment of the transfer to Dennis and Carlos, Jr. of Lots 32 and 34 in 1985
and in 1987, respectively, and until the execution of the deed of reconveyance in 1989. Here, the alleged Deeds of Absolute Sale were
executed in April 1989. Adela died in January 1990 in the United States. Given the short period of time between the alleged execution
of the Deeds of Absolute Sale and the sudden demise of Adela, the fact that petitioner was not asked to execute a deed of
reconveyance is understandable. This is because there was no chance at all to do so. Thus, the fact that she did not execute a deed of
reconveyance does not help her case.

We affirm the conclusion reached by the RTC and the CA that the evidence presented below prove that Adela did not intend to
alienate the Properties in favor of petitioner, and that the transfers were merely a sham to accommodate petitioner in her travel abroad.

Petitioner claims that we should consider that there is only one heir of the late Adela who is contesting the sale, and that out of the
many transactions involving the decedent's other properties, the sale to petitioner is the only one being questioned. We are not
convinced that these are material to the resolution of the case. As aptly passed upon by the CA in its assailed
Resolution:cralawlawlibrary

In a contest for the declaration of nullity of an instrument for being simulated, the number of contestants is not determinative of the
propriety of the cause. Any person who is prejudiced by a simulated contract may set up its inexistence. In this instant case, it does not
matter if the contest is made by one, some or all of the heirs.

Neither would the existence of other contracts which remain unquestioned deter an action for the nullity of an instrument. A contract
is rendered meaningful and forceful by the intention of the parties relative thereto, and such intention can only be relevant to that
129
particular contract which is produced or, as in this case, to that which is not produced. That the deed of sale in [petitioner's] favor has
been held to be simulated is not indicative of the simulation of any other contract executed by the deceased Adela de Guzman
Shotwell during her lifetime.60chanrobleslaw

To this we add that other alleged transactions made by Adela cannot be used as evidence to prove the validity of the conveyances to
petitioner. For one, we are not aware of any of these transactions or whether there are indeed other transactions. More importantly, the
validity of these transactions does not prove directly or indirectly the validity of the conveyances in question.

B. No consideration for the sale

We also find no compelling reason to depart from the court a quo's finding that Adela never received the consideration stipulated in
the simulated Deeds of Absolute Sale.

Although on their face, the Deeds of Absolute Sale appear to be supported by valuable consideration, the RTC and the CA found that
there was no money involved in the sale. The consideration in the Deeds of Absolute Sale was superimposed on the spaces therein,
bearing a font type different from that used in the rest of the document.61 The lower courts also found that the duplicate originals of
the Deeds of Absolute Sale bear a different entry with regard to the price.62

Article 1471 of the Civil Code provides that "if the price is simulated, the sale is void." Where a deed of sale states that the purchase
price has been paid but in fact has never been paid, the deed of sale is null and void for lack of consideration.63 Thus, although the
contracts state that the purchase price of P250,000.00 and P60,000.00 were paid by petitioner to Adela for the Properties, the evidence
shows that the contrary is true, because no money changed hands. Apart from her testimony, petitioner did not present proof that she
paid for the Properties.

There is no implied trust.

We also affirm the CA's deletion of the pronouncement of the trial court as to the existence of an implied trust. The trial court found
that a resulting trust, a form of implied trust based on Article 145364 of the Civil Code, was created between Adela and petitioner.

Resulting trusts65 arise from the nature or circumstances of the consideration involved in a transaction whereby one person becomes
invested with legal title but is obligated in equity to hold his title for the benefit of another.66 It is founded on the equitable doctrine
that valuable consideration and not legal title is determinative of equitable title or interest and is always presumed to have been
contemplated by the parties.67 Since the intent is not expressed in the instrument or deed of conveyance, it is to be found in the nature
of the parties' transaction.68 Resulting trusts are thus describable as intention-enforcing trusts.69 An example of a resulting trust is
Article 1453 of the Civil Code.

We, however, agree with the CA that no implied trust can be generated by the simulated transfers because being fictitious or
simulated, the transfers were null and void ab initio — from the very beginning — and thus vested no rights whatsoever in favor of
petitioner. That which is inexistent cannot give life to anything at all.70

Article 1453 contemplates that legal titles were validly vested in petitioner. Considering, however, that the sales lack not only the
element of consent for being absolutely simulated, but also the element of consideration, these transactions are void and inexistent and
produce no effect. Being null and void from the beginning, no transfer of title, both legal and beneficial, was ever effected to
petitioner.

In any case, regardless of the presence of an implied trust, this will not affect the disposition of the case. As void contracts do not
produce any effect, the result will be the same in that the Properties will be reeonveyed to the estate of the late Adela de Guzman
Shotwell.

WHEREFORE, the petition is DENIED.,

SO ORDERED.c

REYES VS ASUNCION

PERALTA, J.:

For this Court's consideration is the Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, dated April 25, 2011 of
petitioner Milagros C. Reyes seeking the reversal of the Decision2 of the Court of Appeals (CA) dated July 9, 2010 which affirmed

130
the Decision3 of the Regional Trial Court (RTC), Branch 66, Capas, Tarlac, dated January 17, 2007 dismissing the Complaint4 of
petitioner against respondent Felix P. Asuncion for the declaration of nullity of a contract or deed.

The facts follow.

Petitioner claimed that since the early 80s, she and her late husband were the owners, with the right to occupy and possess a parcel of
land (subject land), which is also a sugarcane plantation, with an area of more or less 3.5 hectares located at Patling, Capas, Tarlac and
forms part of a U.S. Military Reservation. Sometime in 1986, petitioner hired respondent as a caretaker of the subject land. In 1997,
the Bases Conversion and Development Authority (BCDA) launched a resettlement program for the victims of the Mt. Pinatubo
eruption and began to look for possible resettlement sites in Tarlac and the subject lot was among those considered.

Thereafter, according to petitioner, in order to prevent the BCDA from converting her property into a resettlement site, she and
respondent executed a contract, antedated on June 15, 1993, transferring her rights over the subject land to the respondent. The
contract reads as follows:chanRoblesvirtualLawlibrary

PAGLILIPAT [NG] KARAPATAN SA LUPA

Para sa Kinauukulan[:]

Ako po [ay] si [G]inang Milagros C. Reyes, widow[,] [F]ilipino, a sugar [p]lanter of Central Azucarera de Tarlac, San Miguel [,]
Tarlac [and] residing at San Rafael[,] Tarlac.

Akin[g] pinatutunayan sa kasulatan[g] ito na nabili ko ang karapatan o [r]ights ni [GJinoong Reymundo Dailig, nakatira sa Patling[,]
Capas[,] Tarlac. Ang loti ay may sukat na tatlong ektarya at kalahati [sic] (3 1/2 hec). [A]t itoy [sic] ay kusang loob naming mag-
asawa, si Jesus C. Reyes[,] na ipagkaloob ang nasabing lupa kay [G]inoong Felix Asuncion [unreadable portion]. Sa loob ng sampung
taon naminfg] pagsasama[,] nakita namin na naging matapat siya sa kanyang obligations bilang taga pamahala [sic] ng aming tubuhan
at sa mga [k]ontratista at higit sa lahat ay marunong siya makisama sa aming kasama siya [ay] mapagkakatiwalaan lalo na sa pera.
Dahil sa [sic] naging matapat siya sa amin bilang Palsunero, napagkasunduan namin na kami ang bahala sa finances, sa kasunduan na
kami ang magpapakabyaw ng tubo sa pangalan ko, hanggang gusto ko. Sa ilalim nito ay nakapinna ang aking pangalan.

Sgd. Sgd.
Felix P. Asuncion Milagros C. Reyes
Tenant Planter

Sgd.
Witness
Barangay [C]aptain
Bon Vistair5
cralawlawlibrary

Petitioner claimed to have remained the absolute owner and possessor of the subject land and presently occupies the same as a
sugarcane plantation and even mills the sugarcane harvested at the Central Azucarera de Tarlac for her own benefit. She also stated
that the respondent continued working for her but the latter's employment was severed when petitioner discovered that respondent sold
the former's pigs and cows.

On January 6, 2000, respondent filed a Complaint for Estafa against petitioner before the Office of the Prosecutor in Tarlac City,
Tarlac alleging that petitioner failed and/or refused to give respondent his share of the total harvests on the subject land for the years
1993-1999, using their contract as basis. However, the said complaint was dismissed for lack of probable cause.

Thereafter, petitioner filed a Complaint dated October 21, 2001 against respondent before the RTC of Capas, Tarlac for the declaration
of nullity of the subject contract.

The RTC, on January 17, 2007, rendered a Decision in favor of the respondent. It ruled that there is no legal basis to nullify the
contract. The dispositive portion of the decision states:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, finding no legal basis to nullify the contract denominated as Paglilipat [nang] Karapatan set
Lipa, the complaint is dismissed and the Paglilipat [nang] Karapatan set Lupa is declared legal and binding.

No pronouncement as to cost. SO ORDERED.6cralawlawlibrary

131
Undeterred, petitioner appealed the case to the CA, and on July 9, 2010, the latter dismissed the appeal,
thus:chanRoblesvirtualLawlibrary

FOR THESE REASONS, We DISMISS the appeal for lack of merit, the assailed Decision dated January 17, 2007 of the Regional
Trial Court is AFFIRMED.

SO ORDERED.7

After the CA denied8 petitioner's motion for reconsideration, the latter filed the present petition.

Petitioner assigned the following errors:chanRoblesvirtualLawlibrary

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE SUBJECT CONTRACT IS VALID
EVEN IF IT DOES NOT REFLECT THE TRUE INTENT OF THE PARTIES.

II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE DONATION OF THE SUBJECT
LAND IS VALID EVEN IF NOT MADE AND ACCEPTED IN A PUBLIC DOCUMENT.

III.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE PETITIONER MAY TRANSFER
THE SUBJECT LAND TO THE RESPONDENT EVEN WITHOUT THE CONSENT OF THE HEIRS OF HER LATE
HUSBAND.9ChanRoblesVirtualawlibrary
cralawlawlibrary

Thereafter, respondent filed his Comment10 dated March 31, 2014 and petitioner filed her Reply11 dated June 7, 2014.

This Court finds no merit in the petition.

It is petitioner's contention that the subject contract is purely simulated, since it purports a transfer of rights over the subject land in
favor of the respondent. However, when petitioner executed the contract, it was never her intention to transfer her rights over the
subject land as the primordial consideration was to prevent the BCDA from taking over the property. She also asserts that she and the
respondent agreed to make the said false appearance in the contract. However, the RTC and the CA found no other evidence to
support the said allegations and the self-serving averments of the petitioner. This Court is in agreement with the RTC and the CA as to
the insufficiency of evidence to prove that there was indeed a simulation of contract.

The Civil Code provides:chanRoblesvirtualLawlibrary

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at
all; the latter, when the parties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real
agreement.cralawlawlibrary

Valerio v. Refresca12 is instructive on the matter of simulation of contracts:chanRoblesvirtualLawlibrary

x x x In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The
main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in
any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to
conceal their real agreement, the contract is relatively simulated and the parties are still bound by their real agreement. Hence, where
the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is
absolutely binding and enforceable between the parties and their successors-in-interest.cralawlawlibrary

132
Lacking, therefore, in an absolutely simulated contract is consent which is essential to a valid and enforceable contract.13 Thus, where
a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend
to divest himself of his title and control of the property; hence, the deed of transfer is but a sham.14

The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear
to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms
of their agreement, but also from the contemporaneous and subsequent acts of the parties.15

The burden of proving the alleged simulation of a contract falls on those who impugn its regularity and validity. A failure to discharge
this duty will result in the upholding of the contract. The primary consideration in determining whether a contract is simulated is the
intention of the parties as manifested by the express terms of the agreement itself, as well as the contemporaneous and subsequent
actions of the parties. The most striking index of simulation is not the filial relationship between the purported seller and buyer, but the
complete absence of any attempt in any manner on the part of the latter to assert rights of dominion over the disputed property.16

The finding of the CA is correct when it ruled that petitioner failed to present evidence to prove that respondent acted in bad faith or
fraud in procuring her signature or that he violated their real intention, if any, in executing it, thus:chanRoblesvirtualLawlibrary

So far, appellant's averments evince an obvious knowledge and voluntariness on her part to enter into the alleged simulated contract.
Without the slightest doubt, appellant, as plaintiff in the court below, utterly foiled to adduce any evidence of appellee's bad faith or
fraud in procuring her signature to the contract or that he violated their real intention, if any, in executing it. It must be stressed that the
determination of whether one acted in bad faith is evidentiary in nature. Indeed, the unbroken jurisprudence is that "[b]ad faith [or
fraud] under the law cannot be presumed; it must be established by clear and convincing evidence. The allegation of simulation of
contract as well as lack of consent and/or vitiated consent remains to be proven. As it stands, We perceive that the contract by its very
terms and conditions, on June 15, 1993, appellant simply intended to transfer the subject land to appellee. It is a cardinal rule that if
the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation
shall control.17cralawlawlibrary

Petitioner insists that the subject contract is in the nature of a simple donation, and even assuming arguendo that the same was meant
to be a remuneratory donation, it is still invalid because the donation was not notarized.

Donation is an act of liberality whereby a person gratuitously disposes of a thing or a right in favor of another who accepts it.18 Once
perfected, a donation is final; its revocation or rescission cannot be effected, absent any legal ground therefor.19 A donation may, in
fact, comprehend the entire property of the donor.20 At any rate, the law provides that donors should reserve, in full ownership or in
usufruct, sufficient means for their own support and that of all their relatives who, at the time of the acceptance of the donation, are by
law entitled to be supported by them.21

The subject contract in this case is seemingly a remuneratory donation as all the elements for such are present. The CA
explained:chanRoblesvirtualLawlibrary

A painstaking review of the contract reveals that it is a remuneratory donation. First, appellant expressed in the contract that "sa loob
ng sampling taon namin[g] pagsasama[,] nakita namin na naging matapat siya sa kanyang obligations bilang taga pamahala [sic] ng
aming tubuhan at sa mga [k]ontratista at higit sa lahat ay marunong siya makisama sa aming mga kasama at siya [ay]
mapagkakatiwalaan lalo na sa pera. Clearly, she gave the subject land to appellee to remunerate his ten (10) years of faithful service to
her. More importantly, appellant stated that "napagkasunduan namin na kami ang bahala sa finances, sa kasunduan na kami ang
magpapakabyaw ng tubo sa pangalan ko, hanggang gusto ko. This is a profit sharing agreement where appellant finances the planting,
harvesting and milling of sugarcane on the subject land donated to appellee under appellant's name. Unmistakably, it is a charge or
burden on the donation.22cralawlawlibrary

However, as pointed out by the CA, the contract, as well as the evidence presented during the trial, are silent as to the value of the
burden, hence, instead of the law on donations, the rules on contract should govern the subject contract because the donation is
onerous as the burden is imposed upon the donee of a thing with an undetermined value. Furthermore, the CA is also right in ruling
that it is not necessary that the contract be in a public instrument if it involves immovable property, properly citing Pada-Kilario v.
Court of Appeals23 which states that the requirement of Article 1358 of the Civil Code that acts which have for their object the
creation, transmission, modification or extinguishment of real rights over immovable property, must appear in a public document, is
only for convenience, non-compliance with which does not affect the validity or enforceability of the acts of the parties as among
themselves.

Finally, petitioner argues that she has raised the issue of her co-ownership of the subject land with her late husband at the very outset
of the case, thus, in view of that co-ownership, petitioner cannot alienate the subject land without the consent of the heirs of her late
husband. However, as aptly observed by the CA, the petitioner did not raise the issue of co-ownership during the trial, thus, she cannot
133
now assail the validity of the contract using such ground for the first time on appeal. It is also worth noting that petitioner has not, in
her appeal to the CA, as well as in her petition with this Court, mentioned the specific heirs affected or prejudiced by the subject
contract.

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated April 25, 2011 of petitioner Milagros
C. Reyes is DENIED for lack merit, and the Decision of the Court of Appeals, dated July 9, 2010, is AFFIRMED in toto.

SO ORDERED.

TANCHALING VS CANDELA

MARTINEZ VS CA

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated 7, 1995, and resolution, dated January 31, 1996, of the Court of
Appeals, which affirmed the decisions of the Regional Trial Court, Branches 251 and 28,2 Cabanatuan City, finding private
respondents spouses Reynaldo and Susan Veneracion owners of the land in dispute, subject to petitioner's rights as a builder in good
faith.

The facts are as follows:

Sometime in February 1981, private respondents Godofredo De la Paz and his sister Manuela De la Paz, married to Maximo Hipolito,
entered into an oral contract with petitioner Rev. Fr. Dante Martinez, then Assistant parish priest of Cabanatuan City, for the sale of
Lot No. 1337-A-3 at the Villa Fe Subdivision in Cabanatuan City for the sum of P15,000.00. The lot is located along Maharlika Road
near the Municipal Hall of Cabanatuan City. At the time of the sale, the lot was still registered in the name of Claudia De la Paz,
mother of private respondents, although the latter had already sold it to private respondent Manuela de la Paz by virtue of a Deed of
Absolute Sale dated May 26, 1976 (Exh. N/Exh. 2-Veneracion).3 Private respondent Manuela subsequently registered the sale in her
name on October 22, 1981 and was issued TCT No. T-40496 (Exh. 9).4 When the land was offered for sale to petitioner, private
respondents De la Paz were accompanied by their mother, since petitioner dealt ' with the De la Fazes as a family and not individually.
He was assured by them that the lot belonged to Manuela De la Paz. It was agreed that petitioner would give a downpayment of
P3,000.00 to private respondents De la Paz and that the balance would be payable by installment. After giving the P3,000.00
downpayment, petitioner started the construction of a house on the lot after securing a building permit from the City Engineer's Office
on April 23, 1981, with the written consent of the then registered owner, Claudia de la Paz (Exh. B/Exh, 1).5 Petitioner likewise began
paying the real estate taxes on said property (Exh. D, D-l, D-2).6 Construction on the house was completed on October 6, 1981 (Exh.
V).7 Since then, petitioner and his family have maintained their residence there.8

On January 31, 1983, petitioner completed payment of the lot for which private respondents De la Paz executed two documents. The
first document (Exh. A) read:

1-31-83

Ang halaga ng Lupa sa Villa Fe Subdivision na ipinagbili kay Fr. Dante Martinez ay P15,000.00 na pinangangako namin na ibibigay
ang Deed of Sale sa ika-25 ng Febrero 1983.

[SGD.] METRING HIPOLITO

[SGD.] JOSE GODOFREDO DE LA PAZ9

The second writing (Exh. O) read:

Cabanatuan City

March 19, 1986

TO WHOM IT MAY CONCERN:

134
This is to certify that Freddie dela Paz has agreed to sign tomorrow (March 20) the affidavit of sale of lot located at Villa Fe
Subdivision sold to Fr. Dante Martinez.

[Sgd.] Freddie dela Paz

FREDDIE DELA PAZ10

However, private respondents De la Paz never delivered the Deed of Sale they promised to petitioner.

In the meantime, in a Deed of. Absolute Sale with Right to Repurchase dated October 28, 1981 (Exh. 10),11 private respondents De la
Paz sold three lots with right to repurchase the same within one year to private respondents spouses Reynaldo and Susan Veneracion
for the sum of P150,000.00. One of the lots sold was the lot previously sold to petitioner.12

Reynaldo Veneracion had been a resident of Cabanatuan City since birth. He used to pass along Maharlika Highway in going to the
Municipal Hall or in going to and from Manila. Two of the lots subject of the sale were located along Maharlika Highway, one of
which was the lot sold earlier by the De la Pazes to petitioner. The third lot (hereinafter referred to as the Melencio lot) was occupied
by private respondents De la Paz. Private respondents Veneracion never took actual possession of any of these lots during the period
of redemption, but all titles to the lots were given to him.13

Before the expiration of the one year period, private respondent Godofredo De la Paz informed private respondent Reynaldo
Veneracion that he was selling the three lots to another person for P200,000.00. Indeed, private respondent Veneracion received a call
from a Mr. Tecson verifying if he had the titles to the properties, as private respondents De la Paz were offering to sell the two lots
along Maharlika Highway to him (Mr. Tecson) for P180,000.00 The offer included the lot purchased by petitioner in February, 1981.
Private respondent Veneracion offered to purchase the same two lots from the De la razes for the same amount, The offer was
accepted by private respondents De la Paz. Accordingly, on June 2, 1983, a Deed of Absolute Sale was executed over the two lots
(Exh. I/Exh. 5-Veneracion).14 Sometime in January, 1984, private respondent Reynaldo Veneracion asked a certain Renato Reyes,
petitioner's neighbor, who the owner of the building erected on the subject lot was. Reyes told him that it was Feliza Martinez,
petitioner's mother, who was in possession of the property. Reynaldo Veneracion told private respondent Godofredo about the matter
and was assured that Godofredo would talk to Feliza. Based on that assurance, private respondents Veneracion registered the lots with
the Register of Deeds of Cabanatuan on March 5, 1984. The lot in dispute was registered under TCT No. T-44612 (Exh. L/Exh. 4-
Veneracion).15

Petitioner discovered that the lot he was occupying with his family had been sold to the spouses Veneracion after receiving a letter,
(Exh. P/Exh. 6-Veneracion) from private respondent Reynaldo Veneracion on March 19, 1986, claiming ownership of the land and
demanding that they vacate the property and remove their improvements thereon.16 Petitioner, in turn, demanded through counsel the
execution of the deed of sale from private respondents De la Paz and informed Reynaldo Veneracion that he was the owner of the
property as he had previously purchased the same from private respondents De la Paz.17

The matter was then referred to the Katarungang Pambarangay of San Juan, Cabanatuan City for conciliation, but the parties failed to
reach an agreement (Exh. M/Exh. 13).18 As a consequence, on May 12, 1986, private respondent Reynaldo Veneracion brought an
action for ejectment in the Municipal Trial Court, Branch III, Cabanatuan City against petitioner and his mother (Exh. 14).19

On the other hand, on June 10, 1986, petitioner caused a notice of lis pendens to be recorded on TCT No. T-44612 with the Register of
Deeds of Cabanatuan City (Exh. U).20

During the pre-trial conference, the parties agreed to have the case decided under the Rules on Summary Procedure and defined the
issues as follows:

1. Whether of not defendant (now petitioner) may be judicially ejected.

2. Whether or not the main issue in this case is ownership.

3. Whether or not damages may be awarded.21

On January 29, 1987, the trial court rendered its decision, pertinent portions of which are quoted as follows:

With the foregoing findings of the Court, defendants [petitioner Rev. Fr. Dante Martinez and his mother] are the rightful possessors
and in good faith and in concept of owner, thus cannot be ejected from the land in question. Since the main issue is ownership, the
better remedy of the plaintiff [herein private respondents Veneracion] is Accion Publiciana in the Regional Trial Court, having
jurisdiction to adjudicate on ownership.
135
Defendants' counterclaim will not be acted upon it being more than P20,000.00 is beyond this Court's power to adjudge.

WHEREFORE, judgment is hereby rendered, dismissing plaintiff's complaint and ordering plaintiff to pay Attorney's fee of P5,000.00
and cost of suit.

SO ORDERED.22

On March 3, 1987, private respondents Veneracion filed a notice of appeal with the Regional Trial Court, but failed to pay the docket
fee. On June 6, 1989, or over two years after the filing of the notice of appeal, petitioner filed a Motion for Execution of the Judgment,
alleging finality of judgment for failure of private respondents Veneracion to perfect their appeal and failure to prosecute the appeal
for an unreasonable length of time.

Upon objection of private respondents Veneracion, the trial court denied on June 28, 1989 the motion for execution and ordered the
records of the case to be forwarded to the appropriate Regional Trial Court. On July 11, 1989, petitioner appealed from this order. The
appeal of private respondents Veneracion from the decision of the MTC and the appeal of petitioner from the order denying
petitioner's motion for execution were forwarded to the Regional Trial Court, Branch 28, Cabanatuan City. The cases were thereafter
consolidated under Civil Case No. 670-AF.

On February 20, 1991, the Regional Trial Court rendered its decision finding private respondents Veneracion as the true owners of the
lot in dispute by virtue of their prior registration with the Register of Deeds, subject to petitioner's rights as builder in good faith, and
ordering petitioner and his privies to Vacate the lot after receipt of the cost of the construction of the house, as well as to pay the sum
of P5,000.00 as attorney's fees and the costs of the suit. It, however, failed to rule on petitioner's appeal of the Municipal Trial Court's
order denying their Motion for Execution of Judgment.

Meanwhile, on May 30, 1986, while the ejectment case was pending before the Municipal Trial Court, petitioner Martinez filed a
complaint for annulment of sale with damages against the Veneracions and De la Pazes with the Regional Trial Court, Branch 25,
Cabanatuan City. On March 5, 1990, the trial court rendered its decision finding private respondents Veneracion owners of the land in
dispute, subject to the rights of petitioner as a builder in good faith, and ordering private respondents De la Paz to pay petitioner the
sum of P50,000.00 as moral damages and P10,000.00 as attorney's fees, and for private respondents to pay the costs of the suit.

On March 20, 1991, petitioner then filed a petition for review with the Court of Appeals of the RTC's decision in Civil Case No. 670-
AF (for ejectment). Likewise, on April 2, 1991, petitioner appealed the trial court's decision in Civil Case No. 44-[AF]-8642-R (for
annulment of sale and damages) to the Court of Appeals. The cases were designated as CA G.R. SP. No. 24477 and CA G.R. CY No.
27791, respectively, and were subsequently consolidated. The Court of Appeals affirmed the trial courts' decisions, without ruling on
petitioner's appeal from the Municipal Trial Court's order denying his Motion for Execution of Judgment. It declared the Veneracions
to be owners of the lot in dispute as they were the first registrants in good faith, in accordance with Art. 1544 of the Civil Code.
Petitioner Martinez failed to overcome the presumption of good faith for the following reasons:

1. when private respondent Veneracion discovered the construction on the lot, he immediately informed private respondent Godofredo
about it and relied on the latter's assurance that he will take care of the matter.

2. the sale between petitioner Martinez and private respondents De la Paz was not notarized, as required by Arts. 1357 and 1358 of the
Civil Code, thus it cannot be said that the private respondents Veneracion had knowledge of the first sale.23

Petitioner's motion for reconsideration was likewise denied in a resolution dated January 31, 1996.24 Hence this petition for review.
Petitioner raises the following assignment of errors:

I THE PUBLIC RESPONDENTS HONORABLE COURT OF APPEALS AND REGIONAL TRIAL COURT JUDGES JOHNSON
BALLUTAY AND ADRIANO TUAZON ERRED IN HOLDING THAT PRIVATE RESPONDENTS REYNALDO VENERACION
AND WIFE ARE BUYERS AND REGISTRANTS IN GOOD FAITH IN RESOLVING THE ISSUE OF OWNERSHIP AND
POSSESSION OF THE LAND IN DISPUTE.

II THAT PUBLIC RESPONDENTS ERRED IN NOT RESOLVING AND DECIDING THE APPLICABILITY OF THE DECISION
OF THIS HONORABLE COURT IN THE CASES OF SALVORO VS. TANEGA, ET AL., G. R. NO. L 32988 AND IN ARCENAS
VS. DEL ROSARIO, 67 PHIL 238, BY TOTALLY IGNORING THE SAID DECISIONS OF THIS HONORABLE COURT IN THE
ASSAILED DECISIONS OF THE PUBLIC RESPONDENTS.

III THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE PETITION FOR
REVIEW IN CA G. R. SP. NO. 24477.
136
IV THAT THE HONORABLE COURT OF APPEALS IN DENYING PETITIONER'S PETITION FOR REVIEW AFORECITED
INEVITABLY SANCTIONED AND/OR WOULD ALLOW A VIOLATION OF LAW AND DEPARTURE FROM THE USUAL
COURSE OF JUDICIAL PROCEEDINGS BY PUBLIC RESPONDENT HONORABLE JUDGE ADRIANO TUAZON WHEN
THE LATTER RENDERED A DECISION IN CIVIL CASE NO. 670-AF [ANNEX "D"] REVERSING THE DECISION OF THE
MUNICIPAL TRIAL COURT JUDGE SENDON DELIZO IN CIVIL CASE NO. 9523 [ANNEX "C"] AND IN NOT RESOLVING
IN THE SAME CASE THE APPEAL INTERPOSED BY DEFENDANTS ON THE ORDER OF THE SAME COURT DENYING
THE MOTION FOR EXECUTION.

V THAT THE RESOLUTION [ANNEX "B"] (OF THE COURT OF APPEALS) DENYING PETITIONER'S MOTION FOR
RECONSIDERATION [ANNEX "1"] WITHOUT STATING CLEARLY THE FACTS AND THE LAW ON WHICH SAID
RESOLUTION WAS BASED, (IS ERRONEOUS).

These assignment of errors raise the following issues:

1. Whether or not private respondents Veneracion are buyers in good faith of the lot in dispute as to make them the absolute owners
thereof in accordance with Art. 1544 of the Civil Code on double sale of immovable property.

2. Whether or not payment of the appellate docket fee within the period to appeal is not necessary for the perfection of the appeal after
a notice of appeal has been filed within such period.

3. Whether or not the resolution of the Court of Appeals denying petitioner's motion for reconsideration is contrary to the
constitutional requirement that a denial of a motion for reconsideration must state the legal reasons on which it is based.

First. It is apparent from the first and second assignment of errors that petitioner is assailing the findings of fact and the appreciation of
the evidence made by the trial courts and later affirmed by the respondent court. While, as a general rule, only questions of law may
be raised in a petition for review under Rule 45 of the Rules of Court, review may nevertheless be granted under certain exceptions,
namely: (a) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (b) when the inference made
is manifestly mistaken, absurd, or impossible; (c) where there is a grave abuse of discretion; (d) when the judgment is based on a
misapprehension of facts; (e) when the findings of fact are conflicting; (f) when the Court of Appeals, in making its findings, went
beyond the issue of the case and the same is contrary to the admissions of both appellant and appellee; (g) when the findings of the
Court of Appeals are contrary to those of the trial court; (h) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (I) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not
disputed by the respondents; (j) when the finding of fact of the Court of Appeals is premised on the supposed absence of evidence but
is contradicted by the evidence on record; and (k) when the Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would justify a different conclusion.25

In this case, the Court of Appeals based its ruling that private respondents Veneracion are the owners of the disputed lot on their
reliance on private respondent Godofredo De la Paz's assurance that he would take care of the matter concerning petitioner's
occupancy of the disputed lot as constituting good faith. This case, however, involves double sale and, on this matter, Art. 1544 of the
Civil Code provides that where immovable property is the subject of a double sale, ownership shall be transferred (1) to the person
acquiring it who in good faith first recorded it to the Registry of Property; (2) in default thereof, to the person who in good faith was
first in possession; and (3) in default thereof, to the person who presents the oldest title.26 The requirement of the law, where title to
the property is recorded in the Register of Deeds, is two-fold: acquisition in good faith and recording in good faith. To be entitled to
priority, the second purchaser must not only prove prior recording of his title but that he acted in good faith, i.e., without knowledge or
notice of a prior sale to another. The presence of good faith should be ascertained from the circumstances surrounding the purchase of
the land.27

1. With regard to the first sale to private respondents Veneracion, private respondent Reynaldo Veneracion testified that on October
10, 1981, 18 days before the execution of the first Deed of Sale with Right to Repurchase, he inspected the premises and found it
vacant.28 However, this is belied by the testimony of Engr. Felix D. Minor, then building inspector of the Department of Public
Works and Highways, that he conducted on October 6, 1981 an ocular inspection of the lot in dispute in the performance of his duties
as a building inspector to monitor the progress of the construction of the building subject of the building permit issued in favor of
petitioner on April 23, 1981, and that he found it 100 % completed (Exh. V).29 In the absence of contrary evidence, he is to be
presumed to have regularly performed his official duty.30 Thus, as early as October, 1981, private respondents Veneracion already
knew that there was construction being made on the property they purchased.

2. The Court of Appeals failed to determine the nature of the first contract of sale between the private respondents by considering their
contemporaneous and subsequent acts.31 More specifically, it overlooked the fact that the first contract of sale between the private
respondents shows that it is in fact an equitable mortgage.
137
The requisites for considering a contract of sale with a right of repurchase as an equitable mortgage are (1) that the parties entered into
a contract denominated as a contract of sale and (2) that their intention was to secure an existing debt by way of mortgage.32 A
contract of sale with right to repurchase gives rise to the presumption that it is an equitable mortgage in any of the following cases: (1)
when the price of a sale with a right to repurchase is unusually inadequate; (2) when the vendor remains in possession as lessee or
otherwise; (3) when, upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or
granting a new period is executed; (4) when the purchaser retains for himself a part of the purchase price; (5) when the vendor binds
himself to pay the taxes on the thing sold; (6) in any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other obligation.33 In case of doubt, a contract
purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.34

In this case, the following circumstances indicate that the private respondents intended the transaction to be an equitable mortgage and
not a contract of sale: (1) Private respondents Veneracion never took actual possession of the three lots; (2) Private respondents De la
Paz remained in possession of the Melencio lot which was co-owned by them and where they resided; (3) During the period between
the first sale and the second sale to private respondents Veneracion, they never made any effort to take possession of the properties;
and (4) when the period of redemption had expired and private respondents Veneracion were informed by the De la Pazes that they are
offering the lots for sale to another person for P200,000.00, they never objected. To the contrary, they offered to purchase the two lots
for P180,000.00 when they found that a certain Mr. Tecson was prepared to purchase it for the same amount. Thus, it is clear from
these circumstances that both private respondents never intended the first sale to be a contract of sale, but merely that of mortgage to
secure a debt of P150,000.00.

With regard to the second sale, which is the true contract of sale between the parties, it should be noted that this Court in several
cases,35 has ruled that a purchaser who is aware of facts which should put a reasonable man upon his guard cannot turn a blind eye
and later claim that he acted in good faith. Private respondent Reynaldo himself admitted during the pre-trial conference in the MTC
in Civil Case No. 9523 (for ejectment) that petitioner was already in possession of the property in dispute at the time the second Deed
of Sale was executed on June 1, 1983 and registered on March 4, 1984. He, therefore, knew that there were already occupants on the
property as early as 1981. The fact that there are persons, other than the vendors, in actual possession of the disputed lot should have
put private respondents on inquiry as to the nature of petitioner's right over the property. But he never talked to petitioner to verify the
nature of his right. He merely relied on the assurance of private respondent Godofredo De la Paz, who was not even the owner of the
lot in question, that he would take care of the matter. This does not meet the standard of good faith.

3. The appellate court's reliance on Arts. 1357 and 1358 of the Civil Code to determine private respondents Veneracion's lack of
knowledge of petitioner's ownership of the disputed lot is erroneous.

Art. 135736 and Art. 1358,37 in relation to Art. 1403(2)38 of the Civil Code, requires that the sale of real property must be in writing
for it to be enforceable. It need not be notarized. If the sale has not been put in writing, either of the contracting parties can compel the
other to observe such requirement.39 This is what petitioner did when he repeatedly demanded that a Deed of Absolute Sale be
executed in his favor by private respondents De la Paz. There is nothing in the above provisions which require that a contract of sale
of realty must be executed in a public document. In any event, it has been shown that private respondents Veneracion had knowledge
of facts which would put them on inquiry as to the nature of petitioner's occupancy of the disputed lot.

Second. Petitioner contends that the MTC in Civil Case No. 9523 (for ejectment) erred in denying petitioner's Motion for Execution of
the Judgment, which the latter filed on June 6, 1989, two years after private respondents Veneracion filed a notice of appeal with the
MTC on March 3, 1987 without paying the appellate docket fee. He avers that the trial court's denial of his motion is contrary to this
Court's ruling in the cases of Republic v. Director of Lands,40 and Aranas v. Endona41 in which it was held that where the appellate
docket fee is not paid in full within the reglementary period, the decision of the MTC becomes final and unappealable as the payment
of docket fee is not only a mandatory but also a jurisdictional requirement.

Petitioner's contention has no merit. The case of Republic v. Director of Lands deals with the requirement for appeals from the Courts
of First Instance, the Social Security Commission, and the Court of Agrarian Relations to the Court of Appeals. The case of Aranas v.
Endona, on the other hand, was decided under the 1964 Rules of Court and prior to the enactment of the Judiciary Reorganization Act
of 1981 (B. P. Blg. 129) and the issuance of its Interim Rules and Guidelines by this Court on January 11, 1983. Hence, these cases
are not applicable to the matter at issue.1âwphi1.nêt

On the other hand, in Santos v. Court of Appeals,42 it was held that although an appeal fee is required to be paid in case of an appeal
taken from the municipal trial court to the regional trial court, it is not a prerequisite for the perfection of an appeal under §2043 and
§2344 of the Interim Rules and Guidelines issued by this Court on January 11, 1983 implementing the Judiciary Reorganization Act of
1981 (B.P. Blg. 129). Under these sections, there are only two requirements for the perfection of an appeal, to wit: (a) the filing of a
notice of appeal within the reglementary period; and (b) the expiration of the last day to appeal by any party. Even in the procedure for
appeal to the regional trial courts,45 nothing is mentioned about the payment of appellate docket fees.
138
Indeed, this Court has ruled that, in appealed cases, the failure to pay the appellate docket fee does not automatically result in the
dismissal of the appeal, the dismissal being discretionary on the part of the appellate court.46 Thus, private respondents Veneracions'
failure to pay the appellate docket fee is not fatal to their appeal.

Third. Petitioner contends that the resolution of the Court of Appeals denying his motion for reconsideration was rendered in violation
of the Constitution because it does not state the legal basis thereof.

This contention is likewise without merit.

Art. VIII, Sec. 14 of the Constitution provides that "No petition for review or motion for reconsideration of a decision of the court
shall be refused due course or denied without stating the basis therefor." This requirement was fully complied with when the Court of
Appeals, in denying. reconsideration of its decision, stated in its resolution that it found no reason to change its ruling because
petitioner had not raised anything new.47 Thus, its resolution denying petitioner's motion for reconsideration states:

For resolution is the Motion for Reconsideration of Our Decision filed by the petitioners.

Evidently, the motion poses nothing new. The points and arguments raised by the movants have been considered and passed upon in
the Decision sought to be reconsidered. Thus, We find no reason to disturb the same.

WHEREFORE, the motion is hereby DENIED.

SO ORDERED.48

Attorney's. fees should be awarded as petitioner was compelled to litigate to protect his interest due to private respondents' act or
omission.49

WHEREFORE, the decision of the Court of Appeals is REVERSED and a new one is RENDERED:

(1) declaring as null and void the deed of sale executed by private respondents Godofredo and Manuela De la Paz in favor of private
respondents spouses Reynaldo and Susan Veneracion;

(2) ordering private respondents Godofredo and Manuela De la Paz to execute a deed of absolute sale in favor of petitioner Rev. Fr.
Dante Martinez;

(3) ordering private respondents Godofredo and Manuela De la Paz to reimburse private respondents spouses Veneracion the amount
the latter may have paid to the former;

(4) ordering the Register of Deeds of Cabanatuan City to cancel TCT No. T-44612 and issue a new one in the name of petitioner Rev.
Fr. Dante Martinez; and

(5) ordering private respondents to pay petitioner jointly and severally the sum of P20,000.00 as attorney's fees and to pay the costs of
the suit.

SO ORDERED.

TEOCO VS METRO BANK

REYES, R.T., J.:

REAL creditors are rarely unwilling to receive their debts from any hand which will pay them.[1] Ang tunay na may pautang ay
bihirang tumanggi sa kabayaran mula kaninuman.

This is a petition for review on certiorari seeking the reversal of the Decision[2] of the Court of Appeals (CA) in CA-G.R. CV No.
58891 dated February 20, 2004 which annulled and set aside the decision of the Regional Trial Court (RTC) of Catbalogan, Samar on
July 22, 1997 in Cadastral
Record No. 1378. The RTC originally dismissed the petition for writ of possession filed by respondent Metropolitan Bank and Trust
Company (Metrobank) on the ground that intervenors and present petitioners, the brothers Bienvenido Teoco and Juan Teoco, Jr. (the

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brothers Teoco), have redeemed the subject property. The CA reversed this dismissal and ordered the issuance of a writ of possession
in favor of respondent Metrobank.

Culled from the records, the facts are as follows:

Lydia T. Co, married to Ramon Co, was the registered owner of two parcels of land situated in Poblacion, Municipality of Catbalogan,
Province of Samar under Transfer Certificate of Title (TCT) Nos. T-6220 and T-6910.[3] Ramon Co mortgaged the said parcels of
land to Metrobank for a sum of P200,000.00.

On February 14, 1991, the properties were sold to Metrobank in an extrajudicial foreclosure sale under Act No. 3135. One year after
the registration of the Certificates of Sale, the titles to the properties were consolidated in the name of Metrobank for failure of Ramon
Co to redeem the same within the one year period provided for by law. TCT Nos. T-6220 and T-6910 were cancelled and TCT Nos.
T-8482 and T-8493 were issued in the name of Metrobank.

On November 29, 1993, Metrobank filed a petition for the issuance of a writ of possession against Ramon Co and Lydia Co (the
spouses Co). However, since the spouses Co were no longer residing in the Philippines at the time the petition was filed, the trial court
ordered Metrobank, on January 12, 1994 and again on January 26, 1994 to effect summons by publication against the spouses Co.

On May 17, 1994, the brothers Teoco filed an answer-in-intervention alleging that they are the successors-in-interest of the spouses
Co, and that they had duly and validly redeemed the subject properties within the reglementary period provided by law. The brothers
Teoco thus prayed for the dismissal of Metrobanks petition for a writ of possession, and for the nullification of the TCTs issued in the
name of Metrobank. The brothers Teoco further prayed for the issuance in their name of new certificates of title.

Metrobank, in its reply, alleged that the amount deposited by the brothers Teoco as redemption price was not sufficient, not being in
accordance with Section 78 of the General Banking Act. Metrobank also said the assignment of the right of redemption by the spouses
Co in favor of the brothers Teoco was not properly executed, as it lacks the necessary authentication from the Philippine Embassy.

On February 24, 1995, the trial court was informed that the brothers Teoco had deposited the amount of P356,297.57 to the clerk of
court of the RTC in Catbalogan, Samar. The trial court ordered Metrobank to disclose whether it is allowing the brothers Teoco to
redeem the subject properties. Metrobank refused to accept the amount deposited by the brothers Teoco, alleging that they are
obligated to pay the spouses Cos subsequent obligations to Metrobank as well. The brothers Teoco claimed that they are not bound to
pay all the obligations of the spouses Co, but only the value of the property sold during the public auction.

On February 26, 1997, the trial court reiterated its earlier order directing Metrobank to effect summons by publication to the spouses
Co. Metrobank complied with said order by submitting documents showing that it caused the publication of summons against the
spouses Co. The brothers Teoco challenged this summons by publication, arguing that the newspaper where the summons by
publication was published, the Samar Reporter, was not a newspaper of general circulation in the Philippines. The brothers Teoco
furthermore argued that Metrobank did not present witnesses to identify the documents to prove summons by publication.

RTC Disposition

On July 22, 1997, the RTC rendered its decision in favor of the brothers Teoco, to wit:

WHEREFORE, judgment is hereby rendered dismissing the petition for a writ of possession under Section 7 of Act 3135 it appearing
that intervenor Atty. Juan C. Teoco, Jr. and his brother Atty. Bienvenido C. Teoco have legally and effectively redeemed Lot 61 and
67 of Psd-66654, Catbalogan, Cadastre, from the petitioner Metropolitan Bank and Trust Company.

Accordingly, Metrobank may now withdraw the aforesaid redemption money of P356,297.57 deposited by Juan C. Teoco, Jr., on
February 10, 1992 with the clerk of court and it is ordered that the Transfer Certificate of Title Nos. T-8492 and T-8493 of
Metropolitan Bank and Trust Company be and are cancelled and in their place new transfer certificates of title be issued in favor of
Intervenors Attys. Bienvenido C. Teoco and Juan C. Teoco, Jr., of legal age, married, and residents of Calbiga, Samar, Philippines,
upon payment of the prescribed fees therefore. No pronouncement as to costs.[4]

According to the RTC, the case filed by Metrobank should be dismissed since intervenor Juan C. Teoco, Jr., by his tender of
P356,297.57 to Metrobank on February 10, 1992, within the reglementary period of redemption of the foreclosed property, had legally
and effectively redeemed the subject properties from Metrobank. This redemption amount is a fair and reasonable price and is in
keeping with the letter and spirit of Section 78 of the General Banking Act because Metrobank purchased the mortgaged properties
from the sheriff of the same court for only P316,916.29. In debunking the argument that the amount tendered was insufficient, the
RTC held:

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It is contended for Metrobank that the redemption money deposited by Juan C. Teoco, Jr., is insufficient and ineffective because the
spouses Ramon Co and Lydia T. Co owe it the total amount of P6,856,125 excluding interest and other charges and the mortgage
contract executed by them in favor of Metrobank in 1985 and 1986 (Exh. A and B) are not only security for payment of their
obligation in the amount of P200,000 but also for those obligations that may have been previously and later extended to the Co couple
including interest and other charges as appears in the accounts, books and records of the bank.

Metrobank cites the case of Mojica v. Court of Appeals, 201 SCRA 517 (1991) where the Supreme Court held that mortgages given to
secure future advancements are valid and legal contracts; that the amounts named as consideration in said contract do not limit the
amount for which the mortgage may stand as security; that a mortgage given to secure the advancements is a continuing security and
is not discharged by repayment of the amount named in the mortgage until the full amount of the advancements are paid. In the
opinion of this court, it is not fair and just to apply this rule to the case at bar. There is no evidence offered by Metrobank that these
other obligations of Ramon Co and his wife were not secured by real estate mortgages of other lands. If the other indebtedness of the
Co couple to Metrobank are secured by a mortgage on their other lands or properties the obligation can be enforced by foreclosure
which the court assumes Metrobank has already done. There is no proof that Metrobank asked for a deficiency judgment for these
unpaid loans.

The Supreme Court in the Mojica case was dealing with the rights of the mortgagee under a mortgage from an owner of the land. It
determined the security covered by the mortgage the intention of the parties and the equities of the case. What was held in that case
was hedged about so as to limit the decision to the particular facts. It must be apparent that the Mojica ruling cannot be construed to
give countenance or approval to the theory that in all cases without exception mortgages given to secure past and future advancements
are valid and legal contracts.

In construing a contract between the bank and a borrower such a construction as would be more favorable to the borrower should be
adopted since the alleged past and future indebtedness of Ramon Co to the bank was not described and specified therein and that the
addendum was made because the mortgage given therefore were not sufficient or that these past and future advancements were
unsecured. That being the case the mortgage contracts, Exh. A and B should be interpreted against Metrobank which drew said
contracts. A written contract should, in case of doubt, be interpreted against the party who has drawn the contract (6 R.C.L. 854; H.E.
Heackock Co. vs. Macondray & Co., 42 Phil. 205). Here, the mortgage contracts are in printed form prepared by Metrobank and
therefore ambiguities therein should be construed against the party causing it (Yatco vs. El Hogar Filipino, 67 Phil. 610; Hodges vs.
Tazaro, CA, 57 O.G. 6970).[5]

The RTC added that there is another reason for dismissing Metrobanks petition: the RTC failed to acquire jurisdiction over the
spouses Co. The RTC noted that Metrobank published its petition for writ of possession, but did not publish the writ of summons
issued by said court on February 16, 1994. According to the RTC:

A petition for a writ of possession of foreclosed property is in reality a possession suit. That Metrobank prayed for a writ of possession
in an independent special proceeding does not alter the nature of the case as a possessory suit (Cabrera v. Sinoy, L.-12648, 23
November 1959).

The defendant or owner of the property foreclosed by the petitioner should be summoned to answer the petition. Accordingly, the
publication made by the petitioner is fatally flawed and defective and on that basis alone this court acquired no jurisdiction over the
person of respondents Ramon Co and his wife (Mapa vs. Court of Appeals, G.R. No. 79394, October 2, 1992; Lopez vs. Philippine
National Bank, L-34223, December 10, 1982).[6]

Metrobank appealed to the CA. In its appeal, Metrobank claimed that the RTC erred in finding that the publication made by it is
fatally flawed, and that the brothers Teoco had effectively redeemed the properties in question.

CA Disposition

On February 20, 2004, the CA decided the appeal in favor of Metrobank, with the following disposition:

WHEREFORE, the appeal is hereby GRANTED. The assailed Decision dated July 22, 1997 rendered by the Regional Trial Court of
Catbalogan, Samar Branch 29 in Cadastral Record No. 1378 is hereby ANNULLED and SET ASIDE. Accordingly, let a writ of
possession in favor of petitioner-appellant METROPOLITAN BANK AND TRUST COMPANY be issued over the properties and
improvements covered by Transfer Certificates of Title Nos. T-8492 and T-8493 of the Registry of Deeds of Western Samar.

SO ORDERED.[7]

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As regards the question of jurisdiction, the CA ruled that since the parcels of land in question were already registered in the name of
Metrobank at the time the petition was filed, and since the certificates of title of the spouses Co were already cancelled, there is no
more need to issue summons to the spouses Co. The CA noted that the best proof of ownership of the parcel of land is a certificate of
title.[8]

The CA also held that the issue of the validity of summons to the spouses Co is unimportant considering that the properties in question
were mortgaged to Metrobank and were subsequently sold to the same bank after the spouses Co failed to satisfy the principal
obligation. Hence, the applicable law is Act No. 3135,[9] as amended by Act No. 4118. Section 7 of said Act No. 3135 states that a
petition for the issuance of a writ of possession filed by the purchaser of a property in an extrajudicial foreclosure sale may be done ex
parte. It is the ministerial duty of the trial court to grant such writ of possession. No discretion is left to the trial court. Any question
regarding the cancellation of the writ, or with respect to the validity and regularity of the public sale should be determined in a
subsequent proceeding as outlined in Section 9 of Act No. 3135.[10]

Further, the CA held that the brothers Teoco were not able to effectively redeem the subject properties, because the amount tendered
was insufficient, and the brothers Teoco have not sufficiently shown that the spouses Cos right of redemption was properly transferred
to them.

Issues

In this Rule 45 petition, the brothers Teoco impute to the CA the following errors:

I
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF JUDGMENT IN HOLDING THAT
PETITIONERS FAILED TO REDEEM THE SUBJECT PROPERTIES WITHIN THE REGLEMENTARY PERIOD OF ONE
YEAR AND THAT THE REDEMPTION PRICE TENDERED IS INSUFFICIENT.

II
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR OF JUDGMENT IN HOLDING PETITIONERS TO
PAY NOT ONLY THE P200,000 PRINCIPAL OBLIGATION BUT ALSO THAT PREVIOUSLY EXTENDED, WHETHER
DIRECT OR INDIRECT, PRINCIPAL OR SECONDARY AS APPEARS IN THE ACCOUNTS, BOOKS AND RECORDS.

III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONERS HAVE NOT SUFFICIENTLY
SHOW(N) THAT THE RIGHT OF REDEMPTION WAS PROPERLY TRANSFERRED TO THEM.

IV
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT,
BRANCH 29, AND GRANTING THE WRIT OF POSSESSION TO THE RESPONDENT.[11] (Underscoring supplied)

Our Ruling

Sufficiency of Amount Tendered

We find that neither petitioners, the brothers Teoco, nor respondent, Metrobank, were able to present sufficient evidence to prove
whether the additional loans granted to the spouses Co by Metrobank were covered by the mortgage agreement between them. The
brothers Teoco failed to present any evidence of the supposed trust receipt agreement between Metrobank and the spouses Co, or an
evidence of the supposed payment by the spouses Co of the other loans extended by Metrobank. Metrobank, on the other hand, merely
relied on the stipulation on the mortgage deed that the mortgage was intended to secure the payment of the same (P200,000.00 loan)
and those that may hereafter be obtained.[12] However, there was no mention whatsoever of the mortgage agreement in the
succeeding loans entered into by the spouses Co.

While we agree with Metrobank that mortgages intended to secure future advancements are valid and legal contracts,[13] entering into
such mortgage contracts does not necessarily put within its coverage all loan agreements that may be subsequently entered into by the
parties. If Metrobank wishes to apply the mortgage contract in order to satisfy loan obligations not stated on the face of such contract,
Metrobank should prove by a preponderance of evidence that such subsequent obligations are secured by said mortgage contract and
not by any other form of security.

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In order to prevent any injustice to, or unjust enrichment of, any of the parties, this Court holds that the fairest resolution is to allow
the brothers Teoco to redeem the foreclosed properties based on the amount for which it was foreclosed (P255,441.14 plus interest).
This is subject, however, to the right of Metrobank to foreclose the same property anew in order to satisfy the succeeding loans
entered into by the spouses Co, if they were, indeed, covered by the mortgage contract. The right of Metrobank to foreclose the
mortgage would not be hampered by the transfer of the properties to the brothers Teoco as a result of this decision, since Article 2127
of the Civil Code provides:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established
by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. (Emphasis
supplied)

Further, Article 2129 of the Civil Code provides:

Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit
secured by the property which said third person possesses, in the terms and with the formalities which the law establishes.

The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be to the
fulfillment of the obligation for whose security it was constituted. Otherwise stated, a mortgage creates a real right which is
enforceable against the whole world. Hence, even if the mortgage property is sold or its possession transferred to another, the property
remains subject to the fulfillment of the obligation for whose security it was constituted.[14]

Thus, the redemption by the brothers Teoco shall be without prejudice to the subsequent foreclosure of same properties by Metrobank
in order to satisfy other obligations covered by the Real Estate Mortgage.

Transfer of Right of Redemption

The CA held that the brothers Teoco have not sufficiently shown that the spouses Cos right of redemption was properly transferred to
them. The assignment of the right of redemption only stated that the spouses Co are transferring the right of redemption to their
parents, brothers, and sisters, but did not specifically include the brothers Teoco, who are just brothers-in-law of Ramon Co.
Furthermore, the spouses Co no longer reside in the Philippines, and the assignment of the right of redemption was not properly
executed and/or authenticated.

The alleged transfer of the right of redemption is couched in the following language:

KNOW ALL MEN BY THESE PRESENTS:

That we, RAMON CO and LYDIA CO, of legal ages, for and in consideration of preserving the continuous ownership and possession
of family owned properties, by these presents, hereby cede, transfer and convey in favor of my parents, brothers and sisters, the right
to redeem the properties under TCT Nos. T-6910 and T-6220, located in Patag district, Catbalogan, Samar, sold by public auction sale
on February 14, 1991 to the Metropolitan Bank and Trust Company.

Furthermore, we waived whatever rights we may have over the properties in favor of the successor-in-interest including that of
transferring the title to whoever may redeem the aforesaid properties.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 10th day of January, 1992 at Vancouver, Canada.[15]

The brothers Teoco may be brothers-in-law only of Ramon Co, but they are also the brothers of Lydia Teoco Co, who is actually the
registered owner of the properties covered by TCT Nos. T-6910 and T-6220. Clearly, the brothers Teoco are two of the persons
referred to in the above transfer of the right of redemption executed by the spouses Co.

Anent the CA observation that the assignment of the right of redemption was not properly executed and/or authenticated, Lopez v.
Court of Appeals[16] is instructive. In Lopez, this Court ruled that a special power of attorney executed in a foreign country is
generally not admissible in evidence as a public document in our courts. The Court there held:

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Is the special power of attorney relied upon by Mrs. Ty a public document? We find that it is. It has been notarized by a notary public
or by a competent public official with all the solemnities required by law of a public document. When executed and acknowledged in
the Philippines, such a public document or a certified true copy thereof is admissible in evidence. Its due execution and authentication
need not be proven unlike a private writing.

Section 25, Rule 132 of the Rules of Court provides

Sec. 25. Proof of public or official record. An official record or an entry therein, when admissible for any purpose, may be evidenced
by an official publication thereof or by a copy attested by the officer having the legal custody of the record, or by his deputy, and
accompanied, if the record is not kept in the Philippines, with a certificate that such officer has the custody. If the office in which the
record is kept is in a foreign country, the certificate may be made by a secretary of embassy or legation consul general, consul, vice
consul, or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign country in which the record
is kept, and authenticated by the seal of his office.

From the foregoing provision, when the special power of attorney is executed and acknowledged before a notary public or other
competent official in a foreign country, it cannot be admitted in evidence unless it is certified as such in accordance with the foregoing
provision of the rules by a secretary of embassy or legation, consul general, consul, vice consul, or consular agent or by any officer in
the foreign service of the Philippines stationed in the foreign country in which the record is kept of said public document and
authenticated by the seal of his office. A city judge-notary who notarized the document, as in this case, cannot issue such
certification.[17]

Verily, the assignment of right of redemption is not admissible in evidence as a public document in our courts. However, this does not
necessarily mean that such document has no probative value.

There are generally three reasons for the necessity of the presentation of public documents. First, public documents are prima facie
evidence of the facts stated in them, as provided for in Section 23, Rule 132 of the Rules of Court:

SEC. 23. Public documents as evidence. Documents consisting of entries in public records made in the performance of a duty by a
public officer are prima facie evidence of the facts therein stated. All other public documents are evidence, even against a third person,
of the fact which gave rise to their execution and of the date of the latter. (Underscoring supplied)

Second, the presentation of a public document dispenses with the need to prove a documents due execution and authenticity, which is
required under Section 20, Rule 132 of the Rules of Court for the admissibility of private documents offered as authentic:

SEC. 20. Proof of private document. Before any private document offered as authentic is received in evidence, its due execution and
authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be. (Underscoring supplied)

In the presentation of public documents as evidence, on the other hand, due execution and authenticity are already presumed:

SEC. 23. Public documents are evidence. Documents consisting of entries in public records made in the performance of a duty by a
public officer are prima facie evidence of the facts therein stated. All other public documents are evidence, even against a third person,
of the fact which gave rise to their execution and of the date of the latter. (Underscoring supplied)

SEC. 30. Proof of notarial documents. Every instrument duly acknowledged or proved and certified as provided by law, may be
presented in evidence without further proof, the certificate of acknowledgment being prima facie evidence of the execution of the
instrument or document involved. (Underscoring supplied)

Third, the law may require that certain transactions appear in public instruments, such as Articles 1358 and 1625 of the Civil Code,
which respectively provide:

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein governed by Articles 1403, No. 2, and 1405;
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(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public
document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of
goods, chattels or things in action are governed by Articles 1403, No. 2, and 1405.

Art. 1625. An assignment of a credit, right or action shall produce no effect as against third person, unless it appears in a public
instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (Underscoring
supplied)

Would the exercise by the brothers Teoco of the right to redeem the properties in question be precluded by the fact that the assignment
of right of redemption was not contained in a public document? We rule in the negative.

Metrobank never challenged either the content, the due execution, or the genuineness of the assignment of the right of redemption.
Consequently, Metrobank is deemed to have admitted the same. Having impliedly admitted the content of the assignment of the right
of redemption, there is no necessity for a prima facie evidence of the facts there stated. In the same manner, since Metrobank has
impliedly admitted the due execution and genuineness of the assignment of the right of redemption, a private document evidencing the
same is admissible in evidence.[18]

True it is that the Civil Code requires certain transactions to appear in public documents. However, the necessity of a public document
for contracts which transmit or extinguish real rights over immovable property, as mandated by Article 1358 of the Civil Code, is only
for convenience; it is not essential for validity or enforceability.[19] Thus, in Cenido v. Apacionado,[20] this Court ruled that the only
effect of noncompliance with the provisions of Article 1358 of the Civil Code is that a party to such a contract embodied in a private
document may be compelled to execute a public document:

Article 1358 does not require the accomplishment of the acts or contracts in a public instrument in order to validate the act or contract
but only to insure its efficacy, so that after the existence of said contract has been admitted, the party bound may be compelled to
execute the proper document. This is clear from Article 1357, viz.:

Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article (Article
1358), the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract.[21]

On the other hand, Article 1625 of the Civil Code provides that [a]n assignment of a credit, right or action shall produce no effect as
against third person, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the
assignment involves real property.

In Co v. Philippine National Bank,[22] the Court interpreted the phrase effect as against a third person to be damage or prejudice to
such third person, thus:

x x x In Lichauco vs. Olegario, et al., 43 Phil. 540, this Court held that whether or not x x x an execution debtor was legally authorized
to sell his right of redemption, is a question already decided by this Court in the affirmative in numerous decisions on the precepts of
Sections 463 and 464 and other sections related thereto, of the Code of Civil Procedure. (The mentioned provisions are carried over in
Rule 39 of the Revised Rules of Court.) That the transfers or conveyances in question were not registered is of miniscule significance,
there being no showing that PNB was damaged or could be damaged by such omission. When CITADEL made its tender on May 5,
1976, PNB did not question the personality of CITADEL at all. It is now too late and purely technical to raise such innocuous failure
to comply with Article 1625 of the Civil Code.[23]

In Ansaldo v. Court of Appeals,[24] the Court held:

In its Decision, the First Division of the Appellate Tribunal, speaking through the Presiding Justice at the time, Hon. Magno S.
Gatmaitan, held as regards Arnaldos contentions, that

xxxx

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2) there was no need that the assignment be in a public document this being required only to produce x x x effect as against third
persons (Article 1625, Civil Code), i.e., to adversely affect 3rd persons, i.e., a 3rd person with a right against original creditor, for
example, an original creditor of creditor, against whom surely such an assignment by his debtor (creditor in the credit assigned) would
be prejudicial, because he, creditor of assigning creditor, would thus be deprived of an attachable asset of his debtor x x x;

xxxx

Except for the question of the claimed lack of authority on the part of TFCs president to execute the assignment of credit in favor of
PCIB improperly raised for the first time on appeal, as observed by the Court of Appeals the issues raised by Ansaldo were set up by
him in, and after analysis and assessment rejected by, both the Trial Court and the Appellate Tribunal. This court sees no error
whatever in the appreciation of the facts by either Court or their application of the relevant law and jurisprudence to those facts,
inclusive of the question posed anew by Ansaldo relative to the alleged absence of authority on the part of TFCs president to assign
the corporations credit to PCIB.[25]

In the case at bar, Metrobank would not be prejudiced by the assignment by the spouses Co of their right of redemption in favor of the
brothers Teoco. As conceded by Metrobank, the assignees, the brothers Teoco, would merely step into the shoes of the assignors, the
spouses Co. The brothers Teoco would have to comply with all the requirements imposed by law on the spouses Co. Metrobank would
not lose any security for the satisfaction of any loan obtained from it by the spouses Co. In fact, the assignment would even prove to
be beneficial to Metrobank, as it can foreclose on the subject properties anew, provided it proves that the subsequent loans entered into
by the spouses Co are covered by the mortgage contract.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE. The decision of the Regional Trial Court in Catbalogan, Samar is
REINSTATED with the following MODIFICATION: the redemption by Bienvenido C. Teoco and Juan C. Teoco, Jr. of the properties
covered by TCT Nos. T-6910 and T-6220 shall be without prejudice to the subsequent foreclosure of same properties by Metropolitan
Bank and Trust Company to satisfy other loans covered by the Real Estate Mortgage.

SO ORDERED.

SPILLE VS NICORP

MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the March 19, 2014 Decision1 and
the August 18, 2014 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 97682, which reversed and set Regional Trial
Court, Branch aside the May 24, 2010 Decision3 of the Regional Trial Court, Branch 90, Dasmariñas, Cavite (RTC), in Civil Case No.
0321-04, declaring a contract to sell null and void.

The Facts:

Petitioner Florentina Bautista-Spille (petitioner) is the registered owner of a parcel of land covered by Transfer Certificate of Title
(TCT) No. T-197, located in Imus City, Cavite, with an area of more or less 33,052 square meters (subject property).

On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a document denominated as General Power of Attorney4 in
favor of her brother, respondent Benjamin Bautista (Benjamin), authorizing the latter to administer all her businesses and properties in
the Philippines. The said document was notarized before the Consulate General of the Philippines, New York, United States of
America.

On August 13, 2004, Benjamin and NICORP Management and Development Corporation (NICORP) entered into a contract to sell5
which pertained to the parcel of land covered by TCT No. T-197 for the agreed amount of P15,000,000.00. In the said contract,
NICORP agreed to give a down payment equivalent to 20% of the purchase price and pay the remaining balance in eight (8) months.
It was also agreed that upon receipt of the down payment, the TCT of the subject property would be deposited with the International
Exchange Bank (IE Bank) and placed in escrow. It would only be released upon full payment of the agreed amount. Furthermore,
Benjamin was required to submit a special power of attorney (SPA) covering the sale transaction, otherwise, the payment of the
balance would be suspended and a penalty of P150,000.00 every month would be imposed.

Pursuant thereto, an Escrow Agreement,6 dated October 13, 2004, was executed designating IE Bank as the Escrow Agent, obliging
the latter to hold and take custody of TCT No. T-197, and to release the said title to NICORP upon full payment of the subject
property.
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On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00, representing the down payment of the subject
property.7 Thereafter, the TCT was deposited with IE Bank and placed in escrow.

When petitioner discovered the sale, her lawyer immediately sent demand letters8 to NICORP and Benjamin, both dated October 27,
2004, and to IE pank, dated October 28, 2004, informing them that she was opposing the sale of the subject property and that
Benjamin was not clothed with authority to enter into a contract to sell and demanding the return of the owner's copy of the certificate
of title to her true and lawful attorney-in-fact, Manujel B. Flores, Jr. (Flores). NICORP, Benjamin and IE Bank, however, failed and
refused to return the title of the subject property.

Consequently, petitioner filed a complaint9 before the RTC against Benjamin, NICORP and IE Bank for declaration of nullity of the
contract to sell, pjunction, recovery of possession and damages with prayer for the issuance of a temporary restraining order and/or
preliminary injunction because NICORP was starting the development of the subject property into a residential subdivision and was
planning to sell the lots to prospective buyers. Petitioner denied receiving the down payment for the subject property.

The RTC granted the writ of preliminary injunction in its Order,10 dated January 24, 2005, enjoining NICORP and all persons acting
on its behalf from making or introducing improvements, subdividing and selling any subdivided lot of the subject property.

In its Answer,11 NICORP asked for the dismissal of the case for lack of a cause of action and averred that Benjamin was empowered
to enter into a contract to sell by virtue of the general power of attorney; that the said authority was valid and subsisting as there was
no specific instrument that specifically revoked his authority; that assuming Bautista exceeded his authority when he executed the
contract to sell, the agreement was still valid and enforceable as the agency was already "coupled with interest" because of the partial
payment in the amount of P3,000,000.00; and that the contract could not just be revoked without NICORP being reimbursed of its
down payment and the costs for the initial development it had incurred in developing the subject property into a residential
subdivision.

For its part, IE Bank denied any liability and alleged that petitioner had no cause of action against it. IE Bank asserted that, at the time
of its constitution as an escrow agent, Benjamin possessed the necessary authority from petitioner; that because the contract to sell
remained valid, it was duty-bound to observe its duties and obligations under the Escrow Agreement; and that in the absence of any
order from the court, it was proper for the bank not to comply with petitioner's demand for the surrender of the certificate of title.12

Benjamin, on the other hand, did not file any responsive pleading. Hence, he was declared in default in the RTC Order,13 dated
August 25, 2005.

On May 24, 2010, the RTC rendered its judgment, declaring the contract to sell null and void.14 It explained that the general power of
authority only pertained to acts of administration over petitioner's businesses and properties in the Philippines and did not include
authority to sell the subject property. It pointed out that NICORP was well aware of Benjamin's lack of authority to sell the subject
property as gleaned from the contract to sell which required the latter to procure the SPA from petitioner and even imposed a penalty
of P150,000.00 per month if he would be delayed in securing the SPA. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants, declaring the
Contract to Sell, dated October 13, 2004 between the defendant Bautista and NICORP to be null and void, and the writ of preliminary
injunction is now made permanent, and further ordering the defendants NICORP and International Exchange Bank as follows -

(a)
To return to the plaintiff the peaceful possession of the subject property covered by Transfer Certificate of Title No. T-197 of the
Register of Deeds of the Province of Cavite;
(b)
To return to the plaintiff the Original Owner's Duplicate of Title No. T-197 of the Register of Deeds of the Province of Cavite;
(c)
To pay to the plaintiff the amount of Php250,000.00 by way of attorney's fees; and
(d)
The Costs of suit.

SO ORDERED.15
Aggrieved, NICORP appealed before the CA.

In the assailed decision, the CA reversed the RTC decision, explaining that the general power of attorney executed by petitioner in
favor of Benjamin authorized the latter not only to perform acts of administration over her properties but also to perform acts of
dominion which included, among others, the power to dispose the subject property.
147
Petitioner filed a motion for reconsideration, but it was denied in the assailed CA Resolution, dated August 18, 2014.

Hence, this petition anchored on the following

GROUNDS
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN HOLDING THAT THE GENERAL POWER OF
ATTORNEY EXECUTED BY PETITIONER AUTHORIZED BENJAMIN BAUTISTA TO ENTER INTO THE CONTRACT TO
SELL WITH RESPONDENT IN CONTRAVENTION OF THE ESTABLISHED PRONOUNCEMENT OF THE SUPREME
COURT IN THE CASE OF LILLIAN N. MERCADO ET AL. VS. ALLIED BANKING CORPORATION (G.R. NO. 171460, 24
JULY 2007.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN APPLYING THE CASE OF ESTATE OF LINO
OLAGUER VS. ONGJOCO (G.R. NO. 173312, 26 AUGUST 2008) TO THE INSTANT CASE CONSIDERING THAT THE
ESTABLISHED FACTS HEREIN ARE NOT IN ALL FOURS WITH THE FACTS SURROUNDING THE DECISION IN THE
OLAGUER VS. ONGJOCO CASE.

THE HONORABLE COURT OF APPEALS ERRED IN DISREGARDING (I) RESPONDENT'S JUDICIAL ADMISSION AS TO
BENJAMIN BAUTISTA'S LACK OF AUTHORITY TO ENTER INTO A CONTRACT TO SELL THE SUBJECT PROPERTY,
AND (II) RESPONDENT'S KNOWLEDGE OF THE INSUFFICIENCY OF THE GENERAL POWER OF ATTORNEY,
INDICATING BAD FAITH OF THE RESPONDENT.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT ERRED IN DECLARING THE
CONTRACT TO SELL NULL AND VOID.16
Petitioner argues that the general power of attorney did not clothe Benjamin with the authority to enter into a contract to sell the
subject property. She contends that the general power of attorney pertained to the power to buy, sell, negotiate and contract over the
business and personal property but did not specifically authorize the sale of the subject property.

Petitioner asserts that the CA erred when it disregarded the stipulation made by NICORP during the pre-trial proceedings as stated in
the pre-trial order that Benjamin "acted beyond the scope of his authority when he failed to inform plaintiff personally as to his
dealing or negotiation with NICORP and when he signed the Contract to Sell xxx."17 According to petitioner, such an admission was
an indication that NICORP did not consider the general power of authority as an SPA which would have authorized Benjamin to enter
into the contract to sell.

NICORP counters that the general power of attorney sufficiently conferred authority on Benjamin to enter into the contract to sell. It
asserts that the written authority, while denominated as a general power of attorney, expressly authorized him to sell the subject
property. NICORP insists that it was a buyer in good faith and was never negligent in ascertaining the extent of his authority to sell the
property. It explains that though the general power of attorney sufficiently clothed Bautista with authority to sell the subject property,
it nonetheless required him to submit the SPA in order to comply with the requirements of the Register of Deeds and the Bureau of
Internal Revenue.

The issue for resolution is whether or not Benjamin was authorized to sell the subject property.

The Court's Ruling

The Court finds the petition meritorious.

In petitions for review on certiorari under Rule 45 of the Rules of Civil Procedure, only questions of law may be raised by the parties
and passed upon by this Court. It is not a function of this Court to analyze and weigh the evidence presented by the parties all over
again.18 This rule, however, has several well-recognized exceptions, such as when the factual findings of the CA and the trial court
are conflicting or contradictory.19

The well-established rule is when a sale of a parcel of land or any interest therein is through an agent, the authority of the latter shall
be in writing, otherwise the sale shall be void. Articles 1874 and 1878 of the Civil Code explicitly provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following cases:chanRoblesvirtualLawlibrary

(1) x xx

148
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration;

xxx. [Emphasis Supplied]

From the foregoing, it is clear that an SPA in the conveyance of real rights over immovable property is necessary.20 In Cosmic
Lumber Corporation v. Court of Appeals,21 the Court enunciated,
When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise,
the sale shall be void. Thus, the authority of an agent to execute a contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a
sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell
real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any
reasonable doubt that the language so used conveys such power, no such construction shall be given the document.22

[Emphases Supplied]
To reiterate, such authority must be conferred in writing and must express the powers of the agent in clear and unmistakable language
in order for the principal to confer the right upon an agent to sell the real property.23 It is a general rule that a power of attorney must
be strictly construed, and courts will not infer or presume broad powers from deeds which do not sufficiently include property or
subject under which the agent is to deal.24 Thus, when the authority is couched in general terms, without mentioning any specific
power to sell or mortgage or to do other specific acts of strict dominion, then only acts of administration are deemed
conferred.25cralawred

In the case at bench, the only evidence adduced by NICORP to prove Benjamin's authority to sell petitioner's property was the
document denominated as General Power of Attorney, dated June 20, 1996. The pertinent portions of the said document reads:
KNOW ALL MEN BY THESE PRESENTS:chanRoblesvirtualLawlibrary

THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD E. SPILLE and residents of x x x do hereby
appoint, name and constitute BENJAMIN G. BAUTISTA resident(s) of x x x to be my/our true and lawful attorney(s), to administer
and conduct all my/our affairs and for that purpose in my/our name(s) and on my/our behalf, to do and execute any or all of the
following acts, deeds and things to wit:
To exercise administration, general control and supervision over my/our business and property in the Philippines, and to act as my/our
general representative(s) and agent(s) with full authority to buy, sell, negotiate and contract for me/us and my/our
behalf;ChanRoblesVirtualawlibrary

To ask, demand, sue for, recover and receive all sums of money, debts, dues, goods, wares, merchandise, chattels, effects and thing of
whatsoever nature or description, which now or hereafter shall be or become due, owing, payable or belonging to me/us in or by any
right, title, ways or means howsoever, and upon receipt thereof or any part thereof, to make, sign, execute and deliver such receipts,
releases or other discharges;ChanRoblesVirtualawlibrary

xxx26
Doubtless, there was no perfected contract to sell between petitioner and NICORP. Nowhere in the General Power of Attorney was
Benjamin granted, expressly or impliedly, any power to sell the subject property or a portion thereof. The authority expressed in the
General Power of Attorney was couched in very broad terms covering petitioner's businesses and properties. Time and again, this
Court has stressed that the power of administration does not include acts of disposition, which are acts of strict ownership. As such, an
authority to dispose cannot proceed from an authority to administer, and vice versa, for the two powers may only be exercised by an
agent by following the provisions on agency of the Civil Code.27

In the same vein, NICORP cannot be considered a purchaser in good faith. The well-settled rule is that a person dealing with an
assumed agent is bound to ascertain not only the fact of agency but also the nature and extent of the agent's authority.28 The law
requires a higher degree of prudence from one who buys from a person who is not the registered owner. He is expected to examine all
factual circumstances necessary for him to determine if there are any flaws in the title of the transferor, or in his capacity to transfer
the land.29 In ascertaining good faith, or the lack of it, which is a question of intention, courts are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined. Good faith, or want of
it, is not a visible, tangible fact that can be seen or touched, but rather a state or condition of mind which can only be judged by actual
or fancied token or signs.30

Here, the Court agrees with the RTC that NICORP was fully aware that Benjamin was not properly authorized to enter into any
transaction regarding the sale of petitioner's property. In fact, in the contract to sell, NICORP required Benjamin to secure the SPA
149
from petitioner within ninety (90) days from the execution of the contract and even imposed a substantial amount of penalty in the
amount of P150,000.00 a month in case of non-compliance plus suspension of payment of the balance of the contract price.

Petitioner's explanation that it obliged Benjamin to secure the SPA in order to comply with the requirements of the Register of Deeds
and the Bureau of Internal Revenue is bereft of merit. NICORP is a real estate company which is familiar with the intricacies of the
realty business. Moreover, there was no evidence that petitioner ratified Benjamin's act of selling the subject property. On the
contrary, immediately after the execution of the contract to sell, petitioner wrote NICORP, IE Bank and Benjamin to inform them of
her opposition to the sale of the subject property and of his lack of authority to sell it and demand the return of the certificate of title.
Clearly, NICORP was negligent in its dealings with Bautista.

In sum, the Court agrees with the findings and conclusion of the RTC. The consent of petitioner in the contract to sell was not
obtained, hence, not enforceable. Furthermore, because NICORP is considered a builder in bad faith, it has no right to be refunded the
value of whatever improvements it introduced on the subject property.31chanroblesvirtuallawlibrary

WHEREFORE, the petition is GRANTED. The March 19, 2014 Decision and the August 18, 2014 Resolution of the Court of Appeals
in CA-G.R. CV No. 97682 are REVERSED and SET ASIDE. The May 24, 2010 Decision of the Regional Trial Court, Branch 90,
Dasmariñas, Cavite, is REINSTATED.

SO ORDERED.

BITTE VS JONAS

BENTIR VS LEANDA AND LEYTE GULF

KAPUNAN, J.:

Reformation of an instrument is that remedy in equity by means of which a written instrument is made or construed so as to express or
conform to the real intention of the parties when some error or mistake has been committed.[1] It is predicated on the equitable maxim
that equity treats as done that which ought to be done.[2] The rationale of the doctrine is that it would be unjust and unequitable to
allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties.[3]
However, an action for reformation must be brought within the period prescribed by law, otherwise, it will be barred by the mere lapse
of time. The issue in this case is whether or not the complaint for reformation filed by respondent Leyte Gulf Traders, Inc. has
prescribed and in the negative, whether or not it is entitled to the remedy of reformation sought. Oldmiso

On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent corporation) filed a complaint for reformation
of instrument, specific performance, annulment of conditional sale and damages with prayer for writ of injunction against petitioners
Yolanda Rosello-Bentir and the spouses Samuel and Charito Pormida. The case was docketed as Civil Case No. 92-05-88 and raffled
to Judge Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent corporation alleged that it entered into a contract of lease of a
parcel of land with petitioner Bentir for a period of twenty (20) years starting May 5, 1968. According to respondent corporation, the
lease was extended for another four (4) years or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased premises to
petitioner spouses Samuel Pormada and Charito Pormada. Respondent corporation questioned the sale alleging that it had a right of
first refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the reformation of the expired contract of lease on the ground that its
lawyer inadvertently omitted to incorporate in the contract of lease executed in 1968, the verbal agreement or understanding between
the parties that in the event petitioner Bentir leases or sells the lot after the expiration of the lease, respondent corporation has the right
to equal the highest offer. Ncm

In due time, petitioners filed their answer alleging that the inadvertence of the lawyer who prepared the lease contract is not a ground
for reformation. They further contended that respondent corporation is guilty of laches for not bringing the case for reformation of the
lease contract within the prescriptive period of ten (10) years from its execution.

Respondent corporation then filed its reply and on November 18, 1992, filed a motion to admit amended complaint. Said motion was
granted by the lower court.[4]

Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be dismissed on the ground of prescription.

On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order dismissing the complaint premised on its finding
that the action for reformation had already prescribed. The order reads: Scjuris

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ORDER

Resolved here is the defendants MOTION TO DISMISS PLAINTIFFS complaint on ground of prescription of action.

It is claimed by plaintiff that he and defendant Bentir entered into a contract of lease of a parcel of land on May 5, 1968 for a period of
20 years (and renewed for an additional 4 years thereafter) with the verbal agreement that in case the lessor decides to sell the property
after the lease, she shall give the plaintiff the right to equal the offers of other prospective buyers. It was claimed that the lessor
violated this right of first refusal of the plaintiff when she sureptitiously (sic) sold the land to co-defendant Pormida on May 5, 1989
under a Deed of Conditional Sale. Plaintiffs right was further violated when after discovery of the final sale, plaintiff ordered to equal
the price of co-defendant Pormida was refused and again defendant Bentir surreptitiously executed a final deed of sale in favor of co-
defendant Pormida in December 11, 1991.

The defendant Bentir denies that she bound herself to give the plaintiff the right of first refusal in case she sells the property. But
assuming for the sake of argument that such right of first refusal was made, it is now contended that plaintiffs cause of action to
reform the contract to reflect such right of first refusal, has already prescribed after 10 years, counted from May 5, 1988 when the
contract of lease incepted. Counsel for defendant cited Conde vs. Malaga, L-9405 July 31, 1956 and Ramos vs. Court of Appeals, 180
SCRA 635, where the Supreme Court held that the prescriptive period for reformation of a written contract is ten (10) years under
Article 1144 of the Civil Code.

This Court sustains the position of the defendants that this action for reformation of contract has prescribed and hereby orders the
dismissal of the case.

SO ORDERED.[5]

On December 29, 1995, respondent corporation filed a motion for reconsideration of the order dismissing the complaint. Juris

On January 11, 1996, respondent corporation filed an urgent ex-parte motion for issuance of an order directing the petitioners, or their
representatives or agents to refrain from taking possession of the land in question.

Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution, was assigned to the RTC, Malolos, Bulacan,
Branch 19, Judge Roberto A. Navidad was designated in his place. Manikan

On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself from hearing the case. Consequently, the case
was re-raffled and assigned to RTC, Tacloban City, Branch 8, presided by herein respondent judge Mateo M. Leanda.

On May 10, 1996, respondent judge issued an order reversing the order of dismissal on the grounds that the action for reformation had
not yet prescribed and the dismissal was "premature and precipitate", denying respondent corporation of its right to procedural due
process. The order reads: Suprema

ORDER

Stated briefly, the principal objectives of the twin motions submitted by the plaintiffs, for resolution are:

(1) for the reconsideration of the Order of 15 December 1995 of the Court (RTC, Br. 7), dismissing this case, on the sole ground of
prescription of one (1) of the five (5) causes of action of plaintiff in its complaint for "reformation" of a contract of lease; and,

(2) for issuance by this Court of an Order prohibiting the defendants and their privies-in-interest, from taking possession of the leased
premises, until a final court order issues for their exercise of dominical or possessory right thereto.

The records of this case reveal that co-defendant BENTER (Yolanda) and plaintiff Leyte Gulf Traders Incorporation, represented by
Chairman Benito Ang, entered into a contract of lease of a parcel of land, denominated as Lot No. 878-D, located at Sagkahan
District, Tacloban City, on 05 May 1968, for a period of twenty (20) years, (later renewed for an additional two (2) years). Included in
said covenant of lease is the verbal understanding and agreement between the contracting parties, that when the defendant (as lessor)
will sell the subject property, the plaintiff as (lessee) has the "right of first refusal", that is, the right to equal the offer of any other
prospective third-party buyer. This agreement (sic) is made apparent by paragraph 4 of the lease agreement stating:

"4. IMPROVEMENT. The lessee shall have the right to erect on the leased premises any building or structure that it may desire
without the consent or approval of the Lessor x x x provided that any improvements existing at the termination of the lease shall
remain as the property of the Lessor without right to reimbursement to the Lessee of the cost or value thereof."

151
That the foregoing provision has been included in the lease agreement if only to convince the defendant-lessor that plaintiff desired a
priority right to acquire the property (ibid) by purchase, upon expiration of the effectivity of the deed of lease.

In the course of the interplay of several procedural moves of the parties herein, the defendants filed their motion to admit their
amended answer to plaintiffs amended complaint. Correspondingly, the plaintiff filed its opposition to said motion. The former court
branch admitted the amended answer, to which order of admission, the plaintiff seasonably filed its motion for reconsideration. But,
before the said motion for reconsideration was acted upon by the court, the latter issued an Order on 15 December 1995,
DISMISSING this case on the lone ground of prescription of the cause of action of plaintiffs complaint on "reformation" of the lease
contract, without anymore considering the remaining cause of action, viz.: (a) on Specific Performance; (b) an Annulment of Sale and
Title; (c) on Issuance of a Writ of Injunction, and (d) on Damages.

With due respect to the judicial opinion of the Honorable Presiding Judge of Branch 7 of this Court, the undersigned, to whom this
case was raffled to after the inhibition of Judge Roberto Navidad, as acting magistrate of Branch 7, feels not necessary any more to
discuss at length that even the cause of action for "reformation" has not, as yet, prescribed.

To the mind of this Court, the dismissal order adverted to above, was obviously premature and precipitate, thus resulting denial upon
the right of plaintiff that procedural due process. The other remaining four (4) causes of action of the complaint must have been
deliberated upon before that court acted hastily in dismissing this case.

WHEREFORE, in the interest of substantial justice, the Order of the court, (Branch 7, RTC) dismissing this case, is hereby ordered
RECONSIDERED and SET ASIDE.

Let, therefore, the motion of plaintiff to reconsider the Order admitting the amended answer and the Motion to Dismiss this case
(ibid), be set for hearing on May 24, 1996, at 8:30 oclock in the morning. Service of notices must be effected upon parties and counsel
as early as possible before said scheduled date.

Concomitantly, the defendants and their privies-in-interest or agents, are hereby STERNLY WARNED not to enter, in the meantime,
the litigated premises, before a final court order issues granting them dominical as well as possessory right thereto.

To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C. Lawsin, the defendants may, if they so desire, file
their answer or rejoinder thereto, before the said petition will be set for hearing. The latter are given ten (10) days to do so, from the
date of their receipt of a copy of this Order.

SO ORDERED.[6]

On June 10, 1996, respondent judge issued an order for status quo ante, enjoining petitioners to desist from occupying the property.[7]

Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking the annulment of the order of respondent
court with prayer for issuance of a writ of preliminary injunction and temporary restraining order to restrain respondent judge from
further hearing the case and to direct respondent corporation to desist from further possessing the litigated premises and to turn over
possession to petitioners.

On January 17, 1997, the Court of Appeals, after finding no error in the questioned order nor grave abuse of discretion on the part of
the trial court that would amount to lack, or in excess of jurisdiction, denied the petition and affirmed the questioned order.[8] A
reconsideration of said decision was, likewise, denied on April 16, 1997.[9]

Thus, the instant petition for review based on the following assigned errors, viz:

6.01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION FOR REFORMATION IS PROPER AND
JUSTIFIED UNDER THE CIRCUMSTANCES OF THE PRESENT CASE;

6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FOR REFORMATION HAS NOT YET
PRESCRIBED;

6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO BUY IN A CONTRACT OF LEASE IS
REVIVED FROM THE IMPLIED RENEWAL OF SUCH LEASE; AND,

6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS QUO ANTE ORDER IS NOT AN INJUNCTIVE
RELIEF THAT SHOULD COMPLY WITH THE PROVISIONS OF RULE 58 OF THE RULES OF COURT.[10]

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The petition has merit. Scsdaad

The core issue that merits our consideration is whether the complaint for reformation of instrument has prescribed. Sdaad

The remedy of reformation of an instrument is grounded on the principle of equity where, in order to express the true intention of the
contracting parties, an instrument already executed is allowed by law to be reformed. The right of reformation is necessarily an
invasion or limitation of the parol evidence rule since, when a writing is reformed, the result is that an oral agreement is by court
decree made legally effective.[11] Consequently, the courts, as the agencies authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power sparingly and with great caution and zealous care. Moreover, the remedy, being an
extraordinary one, must be subject to limitations as may be provided by law. Our law and jurisprudence set such limitations, among
which is laches. A suit for reformation of an instrument may be barred by lapse of time. The prescriptive period for actions based upon
a written contract and for reformation of an instrument is ten (10) years under Article 1144 of the Civil Code.[12] Prescription is
intended to suppress stale and fraudulent claims arising from transactions like the one at bar which facts had become so obscure from
the lapse of time or defective memory.[13] In the case at bar, respondent corporation had ten (10) years from 1968, the time when the
contract of lease was executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after
the cause of action accrued, hence, its cause of action has become stale, hence, time-barred. Sdaamiso

In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling of the Regional Trial Court that
the 10-year prescriptive period should be reckoned not from the execution of the contract of lease in 1968, but from the date of the
alleged 4-year extension of the lease contract after it expired in 1988. Consequently, when the action for reformation of instrument
was filed in 1992 it was within ten (10) years from the extended period of the lease. Private respondent theorized, and the Court of
Appeals agreed, that the extended period of lease was an "implied new lease" within the contemplation of Article 1670 of the Civil
Code,[14] under which provision, the other terms of the original contract were deemed revived in the implied new lease.

We do not agree. First, if, according to respondent corporation, there was an agreement between the parties to extend the lease
contract for four (4) years after the original contract expired in 1988, then Art. 1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the end of the contract, the lessee continues to enjoy the thing leased "with the
acquiescence of the lessor", so that the duration of the lease is "not for the period of the original contract, but for the time established
in Article 1682 and 1687." In other words, if the extended period of lease was expressly agreed upon by the parties, then the term
should be exactly what the parties stipulated, not more, not less. Second, even if the supposed 4-year extended lease be considered as
an implied new lease under Art. 1670, "the other terms of the original contract" contemplated in said provision are only those terms
which are germane to the lessees right of continued enjoyment of the property leased.[15] The prescriptive period of ten (10) years
provided for in Art. 1144[16] applies by operation of law, not by the will of the parties. Therefore, the right of action for reformation
accrued from the date of execution of the contract of lease in 1968.

Even if we were to assume for the sake of argument that the instant action for reformation is not time-barred, respondent corporations
action will still not prosper. Under Section 1, Rule 64 of the New Rules of Court,[17] an action for the reformation of an instrument is
instituted as a special civil action for declaratory relief. Since the purpose of an action for declaratory relief is to secure an
authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or compliance
therewith, and not to settle issues arising from an alleged breach thereof, it may be entertained only before the breach or violation of
the law or contract to which it refers.[18] Here, respondent corporation brought the present action for reformation after an alleged
breach or violation of the contract was already committed by petitioner Bentir. Consequently, the remedy of reformation no longer
lies. Ncmmis

We no longer find it necessary to discuss the other issues raised considering that the same are predicated upon our affirmative
resolution on the issue of the prescription of the action for reformation.

WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals dated January 17, 1997 is REVERSED and
SET ASIDE. The Order of the Regional Trial Court of Tacloban City, Branch 7, dated December 15, 1995 dismissing the action for
reformation is REINSTATED. Scncm

SO ORDERED.

VILLEGAS VS ARJONA

YNARES-SANTIAGO, J.:

Assailed in this petition for review is the decision of the Court of Appeals in an action for the execution/enforcement of amicable
settlement between petitioners Proceso Quiros and Leonarda Villegas and respondent Marcelo Arjona. Appellate court reversed the

153
decision of the Regional Trial Court of Dagupan City-Branch 44 and reinstated the decision of the Municipal Trial Court of San
Fabian-San Jacinto, Pangasinan.

On December 19, 1996, petitioners Proceso Quiros and Leonarda Villegas filed with the office of the barangay captain of Labney, San
Jacinto, Pangasinan, a complaint for recovery of ownership and possession of a parcel of land located at Labney, San Jacinto,
Pangasinan. Petitioners sought to recover from their uncle Marcelo Arjona, one of the respondents herein, their lawful share of the
inheritance from their late grandmother Rosa Arjona Quiros alias Doza, the same to be segregated from the following parcels of land:

a) A parcel of land (Lot 1, plan Psu-189983, L.R. Case No. D-614, LRC Record No. N- 22630), situated in the Barrio of Labney,
Torud, Municipality of San Jacinto, Province of Pangasinan x x x Containing an area of Forty Four Thousand Five Hundred and
Twenty (44,520) square meters, more or less, covered by Tax Decl. No. 607;

b) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, San Jacinto, Pangasinan with an area of 6450 sq. meters, more
or less declared under Tax Decl. No. 2066 of the land records of San Jacinto, Pangasinan assessed at P2390.00 x x x;

c) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan with an area of 6450 sq. meters, more or less,
declared under Tax Declaration No. 2047 of the land records of San Jacinto, Pangasinan assessed at P1700.00 x x x

d) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan assessed at P5610.00 x x x;

e) A parcel of Cogon land situated at Brgy. Labney, San Jacinto, Pangasinan, with an area of 14133 sq. meters, more or less declared
under Tax Declaration No. 14 of the land records of San Jacinto, Pangasinan assessed at P2830.00 x x x.[1]

On January 5, 1997, an amicable settlement was reached between the parties. By reason thereof, respondent Arjona executed a
document denominated as PAKNAAN (Agreement, in Pangasinan dialect), which reads:

AGREEMENT

I, MARCELO ARJONA, of legal age, resident of Barangay Sapang, Buho, Palayan City, Nueva Ecija, have a land consisting of more
or less one (1) hectare which I gave to Proceso Quiros and Leonarda Villegas, this land was inherited by Doza that is why I am giving
the said land to them for it is in my name, I am affixing my signature on this document for this is our agreement besides there are
witnesses on the 5th day (Sunday) of January 1997.

Signed in the presence of:

(Sgd) Avelino N. De la Masa, Jr.

(Sgd) Marcelo Arjona

Witnesses:

1) (Sgd.) Teresita Balarbar

2) (Sgd.) Josephine Arjona
3) (Sgd.) Conchita Arjona

On the same date, another PAKNAAN was executed by Jose Banda, as follows:

AGREEMENT

I, JOSE BANDA, married to Cecilia L. Banda, of legal age, and resident of Sitio Torrod, Barangay Labney, San Jacinto, Pangasinan.
There is a land in which they entrusted to me and the same land is situated in Sitio Torrod, Brgy. Labney, San Jacinto, Pangasinan,
land of Arjona family.

I am cultivating/tilling this land but if ever Leonarda Villegas and Proceso Quiros would like to get this land, I will voluntarily
surrender it to them.

In order to attest to the veracity and truthfulness of this agreement, I affixed (sic) my signature voluntarily below this document this
5th day (Sunday) of January 1997.

(Sgd.) Jose Banda

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Signed in the presence of:

(Sgd) Avelino N. de la Masa, Sr.

Barangay Captain
Brgy. Labney, San Jacinto
Pangasinan

Witnesses:

1) Irene Banda
(sgd.)
2) Jose (illegible) x x x

Petitioners filed a complaint with the Municipal Circuit Trial Court with prayer for the issuance of a writ of execution of the
compromise agreement which was denied because the subject property cannot be determined with certainty.

The Regional Trial Court reversed the decision of the municipal court on appeal and ordered the issuance of the writ of execution.

Respondents appealed to the Court of Appeals, which reversed the decision of the Regional Trial Court and reinstated the decision of
the Municipal Circuit Trial Court.[2]

Hence, this petition on the following errors:

THE PAKNAAN BEING A FINAL AND EXECUTORY JUDGMENT UNDER THE LAW IS AN IMMUTABLE JUDGMENT
CAN NOT BE ALTERED, MODIFIED OR CHANGED BY THE COURT INCLUDING THE HIGHEST COURT; and

II

THE SECOND PAKNAAN ALLEGEDLY EXECUTED IN CONJUNCTION WITH THE FIRST PAKNAAN WAS NEVER
ADDUCED AS EVIDENCE BY EITHER OF THE PARTIES, SO IT IS ERROR OF JURISDICTION TO CONSIDER THE SAME
IN THE DECISION MAKING.

The pivotal issue is the validity and enforceability of the amicable settlement between the parties and corollary to this, whether a writ
of execution may issue on the basis thereof.

In support of their stance, petitioners rely on Section 416 of the Local Government Code which provides that an amicable settlement
shall have the force and effect of a final judgment upon the expiration of 10 days from the date thereof, unless repudiated or nullified
by the proper court. They argue that since no such repudiation or action to nullify has been initiated, the municipal court has no
discretion but to execute the agreement which has become final and executory.

Petitioners likewise contend that despite the failure of the Paknaan to describe with certainty the object of the contract, the evidence
will show that after the execution of the agreement, respondent Marcelo Arjona accompanied them to the actual site of the properties
at Sitio Torod, Labney, San Jacinto, Pangasinan and pointed to them the 1 hectare property referred to in the said agreement.

In their Comment, respondents insist that respondent Arjona could not have accompanied petitioners to the subject land at Torrod,
Labney because he was physically incapacitated and there was no motorized vehicle to transport him to the said place.

The Civil Code contains salutary provisions that encourage and favor compromises and do not even require judicial approval. Thus,
under Article 2029 of the Civil Code, the courts must endeavor to persuade the litigants in a civil case to agree upon some fair
compromise. Pursuant to Article 2037 of the Civil Code, a compromise has upon the parties the effect and authority of res judicata,
and this is true even if the compromise is not judicially approved. Articles 2039 and 2031 thereof also provide for the suspension of
pending actions and mitigation of damages to the losing party who has shown a sincere desire for a compromise, in keeping with the
Codes policy of encouraging amicable settlements.[3]

Cognizant of the beneficial effects of amicable settlements, the Katarungang Pambarangay Law (P.D. 1508) and later the Local
Government Code provide for a mechanism for conciliation where party-litigants can enter into an agreement in the barangay level to
reduce the deterioration of the quality of justice due to indiscriminate filing of court cases. Thus, under Section 416 of the said Code,

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an amicable settlement shall have the force and effect of a final judgment of the court upon the expiration of 10 days from the date
thereof, unless repudiation of the settlement has been made or a petition to nullify the award has been filed before the proper court

Petitioners submit that since the amicable settlement had not been repudiated or impugned before the court within the 10-day
prescriptive period in accordance with Section 416 of the Local Government Code, the enforcement of the same must be done as a
matter of course and a writ of execution must accordingly be issued by the court.

Generally, the rule is that where no repudiation was made during the 10-day period, the amicable settlement attains the status of
finality and it becomes the ministerial duty of the court to implement and enforce it. However, such rule is not inflexible for it admits
of certain exceptions. In Santos v. Judge Isidro,[4] the Court observed that special and exceptional circumstances, the imperatives of
substantial justice, or facts that may have transpired after the finality of judgment which would render its execution unjust, may
warrant the suspension of execution of a decision that has become final and executory. In the case at bar, the ends of justice would be
frustrated if a writ of execution is issued considering the uncertainty of the object of the agreement. To do so would open the
possibility of error and future litigations.

The Paknaan executed by respondent Marcelo Arjona purports to convey a parcel of land consisting of more or less 1 hectare to
petitioners Quiros and Villegas. Another Paknaan, prepared on the same date, and executed by one Jose Banda who signified his
intention to vacate the parcel of land he was tilling located at Torrod, Brgy. Labney, San Jacinto, Pangasinan, for and in behalf of the
Arjona family. On ocular inspection however, the municipal trial court found that the land referred to in the second Paknaan was
different from the land being occupied by petitioners. Hence, no writ of execution could be issued for failure to determine with
certainty what parcel of land respondent intended to convey.

In denying the issuance of the writ of execution, the appellate court ruled that the contract is null and void for its failure to describe
with certainty the object thereof. While we agree that no writ of execution may issue, we take exception to the appellate courts reason
for its denial.

Since an amicable settlement, which partakes of the nature of a contract, is subject to the same legal provisions providing for the
validity, enforcement, rescission or annulment of ordinary contracts, there is a need to ascertain whether the Paknaan in question has
sufficiently complied with the requisites of validity in accordance with Article 1318 of the Civil Code.[5]

There is no question that there was meeting of the minds between the contracting parties. In executing the Paknaan, the respondent
undertook to convey 1 hectare of land to petitioners who accepted. It appears that while the Paknaan was prepared and signed by
respondent Arjona, petitioners acceded to the terms thereof by not disputing its contents and are in fact now seeking its enforcement.
The object is a 1-hectare parcel of land representing petitioners inheritance from their deceased grandmother. The cause of the contract
is the delivery of petitioners share in the inheritance. The inability of the municipal court to identify the exact location of the inherited
property did not negate the principal object of the contract. This is an error occasioned by the failure of the parties to describe the
subject property, which is correctible by reformation and does not indicate the absence of the principal object as to render the contract
void. It cannot be disputed that the object is determinable as to its kind, i.e.1 hectare of land as inheritance, and can be determined
without need of a new contract or agreement.[6] Clearly, the Paknaan has all the earmarks of a valid contract.

Although both parties agreed to transfer one-hectare real property, they failed to include in the written document a sufficient
description of the property to convey. This error is not one for nullification of the instrument but only for reformation.

Article 1359 of the Civil Code provides:

When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument
purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.

Reformation is a remedy in equity whereby a written instrument is made or construed so as to express or conform to the real intention
of the parties where some error or mistake has been committed.[7] In granting reformation, the remedy in equity is not making a new
contract for the parties, but establishing and perpetuating the real contract between the parties which, under the technical rules of law,
could not be enforced but for such reformation.

In order that an action for reformation of instrument as provided in Article 1359 of the Civil Code may prosper, the following
requisites must concur: (1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not

156
express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to
mistake, fraud, inequitable conduct or accident.[8]

When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can
be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement,
except when it fails to express the true intent and agreement of the parties thereto, in which case, one of the parties may bring an
action for the reformation of the instrument to the end that such true intention may be expressed.[9]

Both parties acknowledge that petitioners are entitled to their inheritance, hence, the remedy of nullification, which invalidates the
Paknaan, would prejudice petitioners and deprive them of their just share of the inheritance. Respondent can not, as an afterthought, be
allowed to renege on his legal obligation to transfer the property to its rightful heirs. A refusal to reform the Paknaan under such
circumstances would have the effect of penalizing one party for negligent conduct, and at the same time permitting the other party to
escape the consequences of his negligence and profit thereby. No person shall be unjustly enriched at the expense of another.

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated March 21, 2003 of the Court of Appeals, which
reversed the decision of the Regional Trial Court and reinstated the decision of the Municipal Trial Court, is AFFIRMED. This is
without prejudice to the filing by either party of an action for reformation of the Paknaan executed on January 5, 1997.

SO ORDERED.

MARTIRES VS CHUA

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the
Amended Decision,1 as well as the Resolutions2 of the Court of Appeals (CA), dated September 30, 2005, July 5, 2006 and August
28, 2006, respectively, in CA-G.R. CV No. 76388. The assailed Decision of the CA reversed and set aside its earlier Decision, dated
April 30, 2004, in favor of petitioners. The July 5, 2006 Resolution denied petitioners' Motion for Reconsideration, while the August
28, 2006 Resolution denied petitioners' Second Motion for Reconsideration.

The factual and procedural antecedents of the case are as follows:

Subject of the instant controversy are twenty-four memorial lots located at the Holy Cross Memorial Park in Barangay Bagbag,
Novaliches, Quezon City. The property, more particularly described as "Lot: 24 lots, Block 213, Section: Plaza of Heritage-Reg.," is
covered by Transfer Certificate of Title (TCT) No. 342914. Respondent, together with her mother, Florencia R. Calagos, own the
disputed property. Their co-ownership is evidenced by a Deed of Sale and Certificate of Perpetual Care, denominated as Contract No.
31760, which was executed on June 4, 1992.3

On December 18, 1995, respondent borrowed from petitioner spouses the amount of P150,000.00. The loan was secured by a real
estate mortgage over the abovementioned property. Respondent committed to pay a monthly interest of 8% and an additional 10%
monthly interest in case of default.4

Respondent failed to fully settle her obligation.

Subsequently, without foreclosure of the mortgage, ownership of the subject lots were transferred in the name of petitioners via a
Deed of Transfer.5

On June 23, 1997, respondent filed with the Regional Trial Court (RTC) of Quezon City a Complaint against petitioners, Manila
Memorial Park Inc., the company which owns the Holy Cross Memorial Park, and the Register of Deeds of Quezon City, praying for
the annulment of the contract of mortgage between her and petitioners on the ground that the interest rates imposed are unjust and
exorbitant. Respondent also sought accounting to determine her liability under the law. She likewise prayed that the Register of Deeds
of Quezon City and Manila Memorial Park, Inc. be directed to reconvey the disputed property to her.6

On November 20, 1998, respondent moved for the amendment of her complaint to include the allegation that she later discovered that
ownership of the subject lots was transferred in the name of petitioners by virtue of a forged Deed of Transfer and Affidavit of
Warranty. Respondent prayed that the Deed of Transfer and Affidavit of Warranty be annulled.7 In their Manifestation dated January
25, 1999, petitioners did not oppose respondent's motion.8 Trial ensued.

After trial, the RTC of Quezon City rendered a Decision in favor of petitioners, the dispositive portion of which reads, thus:

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Wherefore, premises considered, judgment is hereby rendered against Menelia R. Chua and in favor of the Sps. Lehner Martires and
Ludy Martires; and Manila Memorial Park Cemetery, Inc. as follows:

1. The Complaint is denied and dismissed for lack of merit;

2. The counterclaims are granted as follows:

a. Menelia R. Chua is ordered to pay the Sps. Martires the amount of P100,000.00 as moral damages; the amount of P50,000.00 as
exemplary damages; and the amount of P30,000.00 as reasonable attorney’s fees plus costs of suit.

b. Menelia R. Chua is ordered to pay Manila Memorial Park Cemetery, Inc. the amount of P30,000.00 as reasonable attorney's fees
plus costs of suit.

SO ORDERED.9

On appeal, the CA affirmed, with modification, the judgment of the RTC, disposing as follows:

WHEREFORE, premises considered, the instant appeal is hereby DENIED for lack of merit, and the decision of the trial court dated
03 August 2002 is hereby AFFIRMED with MODIFICATION as to the amount of moral and exemplary damages, and attorney's fees.
Plaintiff-appellant Menelia R. Chua is hereby ordered to pay the defendant-appellees Spouses Martires the amount of P30,000.00 as
moral damages; P20,000.00 as exemplary damages; and attorney's fees of P10,000.00 plus costs of suit.

Insofar as defendant-appellee Manila Memorial Park Cemetery, Inc. is concerned, the attorney's fees awarded is reduced to
P10,000.00 plus costs of suit.

SO ORDERED.10

The CA ruled that respondent voluntarily entered into a contract of loan and that the execution of the Deed of Transfer is sufficient
evidence of petitioners' acquisition of ownership of the subject property.

Respondent filed a Motion for Reconsideration.11 Petitioners opposed it.12

On September 30, 2005, the CA promulgated its assailed Amended Decision with the following dispositive portion:

WHEREFORE, the Court grants the movant's Motion for Reconsideration.

Accordingly, the decision of this Court dated April 30, 2004 in CA-G.R. CV No. 76388, which had affirmed the judgment of the
Regional Trial Court of Quezon City, Branch 221, in Civil Case No. Q-97-31408, is REVERSED and SET ASIDE, and it is hereby
declared that:

(1) The assailed decision dated August 3, 2002 of the Regional Trial Court of Quezon City Branch 221 in Civil Case No. Q-97-31408
is hereby Reversed with the following MODIFICATIONS, to wit:

(1) The Deed of Transfer dated July 3, 1996, as well as the Affidavit of Warranty, are hereby declared void ab initio;

(2) The loan of P150,000.00 is hereby subject to an interest of 12% per annum.

(3) The Manila Memorial Park Cemetery, Inc. and the Register of Deeds of Quezon City [are] hereby directed to cancel the
registration or annotation of ownership of the spouses Martires on Lot: 24 lots, Block 213, Section: Plaza Heritage – Regular, Holy
Cross Memorial Park, being a portion of Transfer Certificate of Title No. 342914 issued by the Register of Deeds of Quezon City, and
revert registration of ownership over the same in the name of appellant Menelia R. Chua, and Florencia R. Calagos.

(4) The movant, Menelia R. Chua, is hereby ordered to pay the spouses Martires the amount of P150,000.00 plus interest of 12% per
annum computed from December 18, 1995 up to the time of full payment thereof and, after deducting payments made in the total
amount of P80,000.00, the same shall be paid within ninety (90) days from the finality of this decision. In case of failure to pay the
aforesaid amount and the accrued interests from the period hereinstated, the property shall be sold at public auction to satisfy the
mortgage debt and costs, and if there is an excess, the same is to be given to the owner.

No costs.

158
SO ORDERED.13

The CA reconsidered its findings and concluded that the Deed of Transfer which, on its face, transfers ownership of the subject
property to petitioners, is, in fact, an equitable mortgage. The CA held that the true intention of respondent was merely to provide
security for her loan and not to transfer ownership of the property to petitioners. The CA so ruled on the basis of its findings that: (1)
the consideration, amounting to P150,000.00, for the alleged Deed of Transfer is unusually inadequate, considering that the subject
property consists of 24 memorial lots; (2) the Deed of Transfer was executed by reason of the same loan extended by petitioners to
respondent; (3) the Deed of Transfer is incomplete and defective; and (4) the lots subject of the Deed of Transfer are one and the same
property used to secure respondent's P150,000.00 loan from petitioners.

Petitioners filed a Motion for Reconsideration,14 but the CA denied it in its Resolution dated July 5, 2006.

On July 26, 2006, petitioners filed a Second Motion for Reconsideration,15 but again, the CA denied it via its Resolution dated
August 28, 2006.

Hence, the present petition based on the following grounds:

A. THE COURT OF APPEALS PATENTLY ERRED IN NOT UPHOLDING THE DEED OF TRANSFER EXECUTED BY THE
RESPONDENT IN FAVOR OF THE PETITIONERS BY RULING THAT:

1. The Deed of Transfer executed by respondent in favor of petitioners over the subject property was not entered in the Notarial Book
of Atty. Francisco Talampas and reported in the Notarial Section of the Regional Trial Court of Makati City.

2. The Deed of Transfer was not duly notarized by Atty. Francisco Talampas inasmuch as there was no convincing proof that
respondent appeared before Notary Public Atty. Talampas.

B. THE COURT OF APPEALS PATENTLY ERRED IN RULING THAT THE DEED OF TRANSFER EXECUTED BETWEEN
THE RESPONDENT AND THE PETITIONERS CONSTITUTED AN EQUITABLE MORTGAGE CONSIDERING THAT:

1. Said issue was not raised in any pleading in the appellate and trial courts.1âwphi1

2. Respondent herself admitted that a separate mortgage was executed to secure the loan.16

The petition lacks merit.

At the outset, the instant petition should be denied for being filed out of time. Petitioners admit in the instant petition that: (1) on July
18, 2006, they received a copy of the July 5, 2006 Resolution of the CA which denied their Motion for Reconsideration of the assailed
Amended Decision; (2) on July 26, 2006, they filed a Motion to Admit Second Motion for Reconsideration attaching thereto the said
Second Motion for Reconsideration; (3) on September 5, 2006, they received a copy of the August 28, 2006 Resolution of the CA
which denied their Motion to Admit as well as their Second Motion for Reconsideration; and (4) they filed the instant petition on
October 20, 2006.

Section 2, Rule 45 of the Rules of Court provides that a petition for review on certiorari under the said Rule "shall be filed within
fifteen (15) days from notice of the judgment or final order or resolution appealed from or of the denial of the petitioner's motion for
new trial or reconsideration filed in due time after notice of the judgment." Relative thereto, Section 2, Rule 52 of the same Rules
provides that "no second motion for reconsideration of a judgment or final resolution by the same party shall be entertained." Based on
the abovementioned dates, the start f the 15-day period for the filing of this petition should have been reckoned from July 18, 2006,
the time of petitioners' receipt of the CA Resolution denying their Motion for Reconsideration, and not on September 5, 2006, the date
when they received the CA Resolution denying their Second Motion for Reconsideration. Thus, petitioners should have filed the
instant petition not later than August 2, 2006. It is wrong for petitioners to reckon the 15-day period for the filing of the instant petition
from the date when they received the copy of the CA Resolution denying their Second Motion for Reconsideration. Since a second
motion for reconsideration is not allowed, then unavoidably, its filing did not toll the running of the period to file an appeal by
certiorari.17 Petitioners made a critical mistake in waiting for the CA to resolve their second motion for reconsideration before
pursuing an appeal.

Perfection of an appeal within the reglementary period is not only mandatory but also jurisdictional.18 For this reason, petitioners'
failure to file this petition within the 15-day period rendered the assailed Amended CA Decision and Resolutions final and executory,
thus, depriving this Court of jurisdiction to entertain an appeal therefrom.19On this ground alone, the instant petition should be
dismissed.

159
In any case, even granting, arguendo, that the present petition is timely filed, the Court finds no cogent reason to depart from the
findings and conclusions of the CA in its disputed Amended Decision.

Anent the first assigned error, petitioners are correct in pointing out that notarized documents carry evidentiary weight conferred upon
them with respect to their due execution and enjoy the presumption of regularity which may only be rebutted by evidence so clear,
strong and convincing as to exclude all controversy as to falsity.20 However, the presumptions that attach to notarized documents can
be affirmed only so long as it is beyond dispute that the notarization was regular.21 A defective notarization will strip the document of
its public character and reduce it to a private instrument.22 Consequently, when there is a defect in the notarization of a document, the
clear and convincing evidentiary standard normally attached to a duly-notarized document is dispensed with, and the measure to test
the validity of such document is preponderance of evidence.23

In the present case, the CA has clearly pointed out the dubious circumstances and irregularities attendant in the alleged notarization of
the subject Deed of Transfer, to wit: (1) the Certification24 issued by the Clerk of Court of the Notarial Section of the RTC of Makati
City which supposedly attested that a copy of the subject Deed of Transfer is on file with the said court, was contradicted by the
Certification25 issued by the Administrative Officer of the Notarial Section of the same office as well as by the testimony of the court
employee who prepared the Certification issued by the Clerk of Court, to the effect that the subject Deed of Transfer cannot, in fact, be
found in their files; (2) respondent's categorical denial that she executed the subject Deed of Transfer; and (3) the subject document
did not state the date of execution and lacks the marital consent of respondent's husband.

Indeed, petitioners' heavy reliance on the Certification issued by the notary public who supposedly notarized the said deed, as well as
the Certification issued by the Clerk of Court of the Notarial Section of the RTC of Makati City, is misplaced for the following
reasons: first, the persons who issued these Certifications were not presented as witnesses and, as such, they could not be cross-
examined with respect to the truthfulness of the contents of their Certifications; second, as mentioned above, these Certifications were
contradicted by the Certification issued by the Administrative Officer of the Notarial Section of the RTC of Makati City as well as by
the admission, on cross-examination, of the clerk who prepared the Certification of the Clerk of Court, that their office cannot, in fact,
find a copy of the subject Deed of Transfer in their files;26 and third, the further admission of the said clerk that the Certification,
which was issued by the clerk of court and relied upon by petitioners, was not based on documents existing in their files, but was
simply based on the Certification issued by the notary public who allegedly notarized the said Deed of Transfer.27

Assuming further that the notarization of the disputed Deed of Transfer was regular, the Court, nonetheless, is not persuaded by
petitioners' argument that such Deed is a sufficient evidence of the validity of the agreement between petitioners and respondent.

While indeed a notarized document enjoys the presumption of regularity, the fact that a deed is notarized is not a guarantee of the
validity of its contents.28 The presumption is not absolute and may be rebutted by clear and convincing evidence to the contrary.29 In
the present case, the presumption cannot be made to apply, because aside from the regularity of its notarization, the validity of the
contents and execution of the subject Deed of Transfer was challenged in the proceedings below where its prima facie validity was
subsequently overthrown by the questionable circumstances attendant in its supposed execution. These circumstances include: (1) the
alleged agreement between the parties that the ownership of the subject property be simply assigned to petitioners instead of
foreclosure of the contract of mortgage which was earlier entered into by them; (2) the Deed of Transfer was executed by reason of the
loan extended by petitioners to respondent, the amount of the latter's outstanding obligation being the same as the amount of the
consideration for the assignment of ownership over the subject property; (3) the inadequacy of the consideration; and (4) the claim of
respondent that she had no intention of transferring ownership of the subject property to petitioners.

Based on the foregoing, the Court finds no cogent reason to depart from the findings of the CA that the agreement between petitioners
and respondent is, in fact, an equitable mortgage.

An equitable mortgage has been defined as one which, although lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no
impossibility nor anything contrary to law in this intent.30

One of the circumstances provided for under Article 1602 of the Civil Code, where a contract shall be presumed to be an equitable
mortgage, is "where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a
debt or the performance of any other obligation." In the instant case, it has been established that the intent of both petitioners and
respondent is that the subject property shall serve as security for the latter's obligation to the former. As correctly pointed out by the
CA, the circumstances surrounding the execution of the disputed Deed of Transfer would show that the said document was executed
to circumvent the terms of the original agreement and deprive respondent of her mortgaged property without the requisite foreclosure.

With respect to the foregoing discussions, it bears to point out that in Misena v. Rongavilla,31 a case which involves a factual
background similar to the present case, this Court arrived at the same ruling. In the said case, the respondent mortgaged a parcel of
land to the petitioner as security for the loan which the former obtained from the latter. Subsequently, ownership of the property was
160
conveyed to the petitioner via a Deed of Absolute Sale. Applying Article 1602 of the Civil Code, this Court ruled in favor of the
respondent holding that the supposed sale of the property was, in fact, an equitable mortgage as the real intention of the respondent
was to provide security for the loan and not to transfer ownership over the property.

Since the original transaction between the parties was a mortgage, the subsequent assignment of ownership of the subject lots to
petitioners without the benefit of foreclosure proceedings, partakes of the nature of a pactum commissorium, as provided for under
Article 2088 of the Civil Code.

Pactum commissorium is a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the
obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a
public sale.32

In the instant case, evidence points to the fact that the sale of the subject property, as proven by the disputed Deed of Transfer, was
simulated to cover up the automatic transfer of ownership in petitioners' favor. While there was no stipulation in the mortgage contract
which provides for petitioners' automatic appropriation of the subject mortgaged property in the event that respondent fails to pay her
obligation, the subsequent acts of the parties and the circumstances surrounding such acts point to no other conclusion than that
petitioners were empowered to acquire ownership of the disputed property without need of any foreclosure.

Indeed, the Court agrees with the CA in not giving credence to petitioners' contention in their Answer filed with the RTC that
respondent offered to transfer ownership of the subject property in their name as payment for her outstanding obligation. As this Court
has held, all persons in need of money are liable to enter into contractual relationships whatever the condition if only to alleviate their
financial burden albeit temporarily.33

Hence, courts are duty-bound to exercise caution in the interpretation and resolution of contracts lest the lenders devour the borrowers
like vultures do with their prey.34 Aside from this aforementioned reason, the Court cannot fathom why respondent would agree to
transfer ownership of the subject property, whose value is much higher than her outstanding obligation to petitioners. Considering that
the disputed property was mortgaged to secure the payment of her obligation, the most logical and practical thing that she could have
done, if she is unable to pay her debt, is to wait for it to be foreclosed. She stands to lose less of the value of the subject property if the
same is foreclosed, rather than if the title thereto is directly transferred to petitioners. This is so because in foreclosure, unlike in the
present case where ownership of the property was assigned to petitioners, respondent can still claim the balance from the proceeds of
the foreclosure sale, if there be any. In such a case, she could still recover a portion of the value of the subject property rather than
losing it completely by assigning its ownership to petitioners.

As to the second assigned error, the Court is not persuaded by petitioners' contention that the issue of whether or not the subject Deed
of Transfer is, in fact, an equitable mortgage was not raised by the latter either in the RTC or the CA.

It is true that, as a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration.35
Higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but
ventilated for the first time only in a motion for reconsideration or on appeal.36 However, as with most procedural rules, this maxim is
subject to exceptions.37 In this regard, the Court's ruling in Mendoza v. Bautista38 is instructive, to wit:

x x x Indeed, our rules recognize the broad discretionary power of an appellate court to waive the lack of proper assignment of errors
and to consider errors not assigned. Section 8 of Rule 51 of the Rules of Court provides:

SEC. 8 Questions that may be decided. - No error which does not affect the jurisdiction over the subject matter or the validity of the
judgment appealed from or the proceedings therein will be considered, unless stated in the assignment of errors, or closely related to
or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors.

Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the appeal in these
instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned as errors on
appeal but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as errors on appeal but
consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of justice
or to avoid dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e)
matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal but
upon which the determination of a question properly assigned, is dependent.39

In the present case, petitioners must be reminded that one of the main issues raised by respondent in her appeal with the CA is the
validity and due execution of the Deed of Transfer which she supposedly executed in petitioners' favor. The Court agrees with
respondent that, under the factual circumstances obtaining in the instant case, the determination of the validity of the subject Deed of
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Transfer would necessarily entail or involve an examination of the true nature of the said agreement. In other words, the matter of
validity of the disputed Deed of Transfer and the question of whether the agreement evidenced by such Deed was, in fact, an equitable
mortgage are issues which are closely related, which can, thus, be resolved jointly by the CA.

WHEREFORE, the instant petition is DENIED. The assailed Amended Decision and Resolutions of the Court of Appeals, dated
September 30, 2005, July 5, 2006 and August 28, 2006, respectively, in CA-G.R. CV No. 76388, are AFFIRMED.

SO ORDERED.

ROMULO VS LAYUG

TINGA, J.:

This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Court of Appeals’ Decision1 and
Resolution2 in CA-G.R. CV No. 63965. Said Decision reversed and set aside the Decision3 of the Regional Trial Court (RTC),
Branch 258, Parañaque City, which nullified the Deed of Absolute Sale and Contract of Lease executed between herein petitioners and
respondents.

The following factual antecedents are matters of record.

On April 11, 1996, petitioners Spouses Cesar and Nenita Romulo filed a verified Complaint for Cancellation of Title, Annulment of
Deed of Absolute Sale and Contract of Lease with Damages against respondents Spouses Moises and Felisarin Layug. The complaint
was docketed as Civil Case No. 96-0172 and raffled to Branch 258 of the RTC of Parañaque.4

Petitioners averred in their complaint that sometime in 1986, they obtained from respondents a loan in the amount of P50,000.00 with
a monthly interest of 10%, which subsequently ballooned to P580,292.00. To secure the payment of the loan, respondents allegedly
duped petitioners into signing a Contract of Lease and a Deed of Absolute Sale covering petitioners’ house and lot located at Phase II,
BF Homes, Sucat, Parañaque and covered by Transfer Certificate of Title (TCT) No. S-71528. The Deed of Absolute Sale purportedly
facilitated the cancellation of petitioners’ title on the house and lot and the issuance of TCT No. 20489 in the name of respondents.
Thus, petitioners prayed for the nullification of the Deed of Absolute Sale, the contract of lease and TCT No. 20489, and the award of
moral and exemplary damages.5

Respondents denied petitioners’ allegations. In their Answer,6 they vouched for the validity of the Deed of Absolute Sale, particularly
as having been voluntarily executed by the parties for the purpose of extinguishing petitioners’ indebtedness to respondents. As
consideration of the sale, respondents allegedly paid the amount of P200,000.00 in addition to the writing off of petitioners’ obligation
to them. That they allowed petitioners to occupy the house and lot as lessees thereof was founded on the trust they reposed on
petitioners, claimed respondents.7

Prior to the filing of Civil Case No. 96-0172, respondent Moises Layug, Jr. ("Moises") filed Civil Case No. 9422, an action for
ejectment, against petitioners to compel the latter to vacate the house and lot allegedly sold by petitioners to Moises and subsequently
rented out by him to petitioners. Moises alleged that petitioners violated the terms of the Contract of Lease when the latter failed to
pay any rental or exercise their option to repurchase the house and lot and refused to vacate the property despite demand. The
Metropolitan Trial Court (MeTC), Branch 77, Parañaque dismissed the complaint for lack of cause of action.8 The RTC, Branch 257,
Parañaque, likewise dismissed Moises’ appeal based on its finding that the parties did not intend to enter into a lease agreement.9 The
Court of Appeals denied Moises’ petition for review on the ground of late filing.10 Upon elevation to this Court, Moises’ petition for
review on certiorari was denied with finality by this Court.11

On June 21, 1999, the trial court rendered judgment in favor of petitioners in Civil Case No. 96-0172. The dispositive portion of the
decision reads:

WHEREFORE, the plaintiffs having been able to prove their claim by preponderance of evidence, judgment is hereby rendered in
their favor and against spouses Moises P. Layug and Felisarin Layug whereby the Contract of Lease as well as the Deed of Sale
allegedly executed by the herein parties are hereby declared NULL and VOID and of no force and effect and the Register of Deeds of
the City of Parañaque is hereby ordered to cancel Transfer Certificate of Title No. 20489 registered in the names of MOISES P.
LAYUG married to FELISARIN LAYUG and to issue a new one in the name of Spouses Cesar R. Romulo and Nenita S. Romulo,
upon the payment of the required fees by the plaintiffs.

Likewise, defendants Spouses Moises P. Layug and Felisarin Layug are hereby ordered to pay jointly and severally Spouses Cesar R.
Romulo and Nenita S. Romulo the following, to wit:

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1. The amount of P100,000.00 as and by way of moral damages;

2. The amount of P80,000.00 as exemplary damages;

3. The amount of P50,000.00 as and by way of attorney’s fees; and

4. The costs of suit.

SO ORDERED.12

Respondents elevated the matter to the Court of Appeals, questioning, among others, the trial court’s finding that the contract between
petitioners and respondents was an equitable mortgage.13 The Court of Appeals reversed and set aside the RTC Decision, mainly on
the ground that petitioners failed to present sufficient evidence to prove their allegation that their signatures to the Deed of Absolute
Sale were obtained fraudulently. Their motion for reconsideration rebuffed,14 petitioners filed the instant petition raising the lone
issue of whether or not the transaction between the parties constitutes an equitable mortgage.

On this issue, the RTC and the Court of Appeals differ in opinion. The trial court based its declaration that an equitable mortgage was
intended by the parties on the finding that petitioners remained in possession of the house and lot even after the property was
supposedly sold to respondents. The trial court also gave evidentiary weight to the decisions of the MeTC and RTC dismissing the
action for ejectment in Civil Case No. 9422, where both courts found that petitioners neither vacated the property nor paid any rental
even after the execution of the Deed of Absolute Sale. The Court of Appeals disagreed and declared that an absolute sale was
contemplated by the parties based on the express stipulations in the Deed of Absolute Sale and on the acts of ownership by
respondents subsequent to its execution.

Whether or not the parties intended an equitable mortgage is a factual issue. As a general rule, factual review is beyond the province
of this Court. One of the exceptions to the rule is exemplified by the instant case where the factual findings of the RTC and Court of
Appeals are contradictory.

That petitioners obtained loans from respondents between 1985 and 1987, which remained unpaid up to the time of the execution of
the assailed Deed of Absolute Sale, is established.15 That petitioners signed the assailed instrument is also not disputed. Indeed, they
admitted having signed said document qualifying, however, that they were forced by respondents to execute the same for the purpose
of securing their indebtedness to respondents.16 Respondents, on the other hand, insisted that the parties executed the Deed of
Absolute Sale as an honest-to-goodness sales transaction.

Respondents, however, admitted further that in addition to the amount of P200,000.00 stipulated in the Deed of Absolute Sale, the
parties agreed to write off petitioners’ loan as consideration of the sale, although this clause was not expressed in the instrument.17
From respondents’ admission, it can be gathered that the assailed Deed of Absolute Sale does not reflect the true arrangement of the
parties. Now, is petitioners’ submission that the parties actually agreed to subject the house and lot as security for their unpaid
obligation supported by the evidence? Did the parties execute the assailed Deed of Absolute Sale with the intention of subjecting
petitioners’ house and lot covered by the deed as a mere security for the payment of their debt?

The form of the instrument cannot prevail over the true intent of the parties as established by the evidence. We have also decreed that
in determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating
such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct,
words, actions and deeds prior to, during and immediately after execution of the agreement.18 In order to ascertain the intention of the
parties, their contemporaneous and subsequent acts should be considered. Once the intention of the parties has been ascertained, that
element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms.19 As such,
documentary and parol evidence may be submitted and admitted to prove such intention. And, in case of doubt, a contract purporting
to be a sale with right to repurchase shall be construed as an equitable mortgage.20

Between 1985 and 1987, petitioner Nenita Romulo ("Nenita") obtained from respondent Felisarin Layug ("Felisarin") loans in various
amounts totaling around P500,000.00. Being close friends at that time, Felisarin did not require any written instrument to secure
payment, other than the title to the house and lot, which Nenita handed to Felisarin sometime in 1988.21 When respondents demanded
payment of the loan, petitioners defaulted. Nevertheless, as admitted by Layug, despite her repeated demands, she allowed petitioners
some more time within which to pay their debts.22 Felisarin claimed that eventually petitioners offered their house and lot as payment
for their debt because petitioners no longer had any money.23 However, even after the execution of the assailed Deed of Absolute
Sale, respondents continued to grant petitioners loan accommodations as evidenced by the three promissory notes executed by
petitioner Cesar Romulo.24

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Respondents’ continuing to lend money to petitioners does not make sense if the intention of the parties was really to extinguish
petitioners’ outstanding obligation. The logical and inevitable conclusion is that respondents deemed it wise to formalize a security
instrument on petitioners’ house and lot by executing the Deed of Absolute Sale after realizing that petitioners could no longer fully
satisfy their obligation to respondents. At that time, as petitioners were hard-pressed to come up with funds to pay their loan, they
were hardly in a position to bargain. The preponderance of evidence shows that they signed knowing that said documents did not
express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. "Necessitous
men are not, truly speaking, free men; but to answer a present emergency will submit to any terms that the crafty may impose upon
them."25 The circumstances surrounding the execution of the Deed of Absolute Sale, particularly the fact that respondents continued
to extend some loans to petitioners after its execution, precludes the Court from declaring that the parties intended the transfer of the
property from one to the other by way of sale.

Consistent with the foregoing state of the evidence, Articles 1604 and 1602 of the Civil Code come into play. The articles provide that
when the parties to a contract of sale actually intended such contract to secure the payment of an obligation, it shall be presumed to be
an equitable mortgage:

Art. 1602. The contract shall be presumed to be an equitable mortgage in any of the following cases:

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessee or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a
new period is executed;

4) When the vendor binds himself to pay the taxes on the thing sold;

5) When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment
of a debt or the performance of any other obligation. (Emphasis supplied.)

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

For the presumption of equitable mortgage to arise, two requisites must be satisfied, namely: that the parties entered into a contract
denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Article 1604 of the
Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in
Article 1602 be present.26 To stress, the existence of any one of the conditions under Article 1602, not a concurrence, or an
overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage.27 It
must be emphasized too, however, that there is no conclusive test to determine whether a deed absolute on its face is really a simple
loan accommodation secured by a mortgage. In fact, it is often a question difficult to resolve and is frequently made to depend on the
surrounding circumstances of each case. When in doubt, courts are generally inclined to construe a transaction purporting to be a sale
as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in controversy.28

The Court has not hesitated to declare a purported contract of sale as an equitable mortgage even when only one of the enumerated
circumstances under Article 1602 is proved.29 In the case at bar, petitioners remained in possession of the house and lot even after the
execution of the Deed of Absolute Sale. Moreover, they remained in possession of the property for more than the reasonable time that
would suggest that petitioners were mere lessees thereof. For one, it took respondents more than five years from the time of the
execution of the Deed of Absolute Sale and the Contract of Lease to file the action for ejectment. Within this period, petitioners
neither paid any rental nor exercised the option to buy purportedly the leased property from respondents. Incidentally, in the decisions
of the MeTC and the RTC in the separate action for ejectment, both lower courts observed that when petitioners were made to sign a
blank document, which turned out to be a Contract of Lease of their house and lot, they were of the belief that the blank document
would serve only as guaranty for the payment of their obligation to respondents.

The claim that petitioners’ possession of the house and lot was by sheer tolerance of respondents is specious. Respondents could not
explain why they allowed petitioners more than five years to look for another place to transfer. These circumstances only support the
conclusion that the parties never really intended to transfer title to the property. Under paragraph 2 of Article 1602, where the
purported vendor remains in possession of the property subject of the sale and it can be inferred that the true intention of the parties
was to secure an existing debt, the transaction shall be deemed an equitable mortgage.

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Under paragraph 1 of Article 1602, where the purchase price is inadequate, a contract of sale is also presumed to be an equitable
mortgage. Based on respondents’ evidence, petitioners’ property was valued at P700,000.00 but the assailed Deed of Absolute Sale
stated a consideration of only P200,000.00. Contrary to the appellate court’s declaration that the inadequacy of the purchase price is
not sufficient to set aside the sale, the Court finds the same as clearly indicative of the parties’ intention to make the property only a
collateral security of petitioners’ debt. The Court is not convinced that petitioners would allow the sale of their residential property for
even less than half of its market value.

The appellate court ruled that petitioners failed to rebut the presumption of the genuineness and due execution of the questioned Deed
of Absolute Sale. Based on the examination of the assailed instrument and the Contract of Lease and the testimonies of the parties, the
Court cannot sustain respondents’ claim that petitioners offered to sell their house and lot in satisfaction of their indebtedness. As
observed by the trial court, the Contract of Lease appears to have been signed sometime in November 1988 or before the execution of
the Deed of Sale. Respondents were unable to explain why they had leased the property to petitioners before its supposed purchase by
respondents. Furthermore, the records disclose that it was only after the institution of the ejectment case did petitioners learn about the
cancellation of their title to the property although under the assailed Deed of Absolute Sale, petitioners were obliged to bear the
expenses of its execution and registration. These circumstances lend credence to petitioners’ claim of the surreptitious manner by
which respondents made them sign certain documents without completely disclosing the real import thereof.

The Supreme Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that
their consideration is necessary in arriving at a just decision of the case.30 Though petitioners did not raise in issue the appellate
court’s reversal of the award of damages in their favor, the Court has the discretion to pass upon this matter and determine whether or
not there is sufficient justification for the award of damages.

The trial court described respondents’ acts as "malevolent," necessitating the award for moral and exemplary damages. An award of
moral damages would require certain conditions to be met, to wit: (1) first, there must be an injury, whether physical, mental or
psychological, clearly sustained by the claimant; (2) second, there must be a culpable act or omission factually established; (3) third,
the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award
of damages is predicated on any of the cases stated in Article 2219.31

However, petitioners are not completely without fault. Had they exercised ordinary diligence in their affairs, petitioners could have
avoided executing documents in blank. Respondents’ wrongful act, although the proximate cause of the injury suffered by petitioners,
was mitigated by petitioners’ own contributory negligence. Hence, the award of moral and exemplary damages must be reduced to
one-half of the amounts awarded by the trial court.32

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV 63965 are
REVERSED and SET ASIDE and the Decision of the Regional Trial Court, Branch 258, Parañaque City in Civil Case No. 96-0172 is
REINSTATED with a MODIFICATION that the award of moral and exemplary damages is REDUCED to P50,000.00 and
P40,000.00, respectively. Costs against respondents.

SO ORDERED.

SECURITY BANK VS CA

CALANASAN VS DOLORITO

BRION, J.:

Through a petition for review on certiorari,1 filed under Rule 45 of the Rules of Court, petitioner Cerila J. Calanasan seeks the
reversal of the decision2 dated September 29, 2005, and the resolution3 dated March 8 2006 of the Court of Appeals CA) in CA-G.R.
CV No. 84031.

THE FACTS

The petitioner, Cerila J. Calanasan Cerila), took care of her orphan niece, respondent Evelyn C. Dolorita, since the latter was a child.
In 1982, when Evelyn was already married to respondent Virgilio Dolorita, the petitioner donated to Evelyn a parcel of land which
had earlier been mortgaged for Pl5,000.00. The donation was conditional: Evelyn must redeem the land and the petitioner was entitled
to possess and enjoy the property as long as she lived. Evelyn signified her acceptance of the donation and its terms in the same deed.
Soon thereafter, Evelyn redeemed the property, had the title of the land transferred to her name, and granted the petitioner
usufructuary rights over the donated land.
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On August 15, 2002, the petitioner, assisted by her sister Teodora J. Calanasan, complained with the Regional Trial Court (RTC) that
Evelyn had committed acts of ingratitude against her. She prayed that her donation in favor of her niece be revoked; in their answer,
the respondents denied the commission of any act of ingratitude.

The petitioner died while the case was pending with the RTC. Her sisters, Teodora and Dolores J. Calanasan, substituted for her.

After the petitioner had rested her case, the respondents filed a demurrer to evidence. According to them, the petitioner failed to prove
that it was Evelyn who committed acts of ingratitude against the petitioner; thus, Article 7654 of the New Civil Code found no
application in the case.

THE RTC’S RULING

In its September 3, 2004 order,5 the RTC granted the demurrer to evidence and dismissed the complaint. Article 765 of the New Civil
Code did not apply because the ungrateful acts were committed against Teodora, the donor’s sister, and not against the donor, the
petitioner. Equally important, the perpetrator of the ungrateful acts was not Evelyn, but her husband Virgilio.

THE CA’S RULING

The petitioner challenged the RTC’s ruling before the CA.

In its September 29, 2005 decision,6 the CA affirmed the RTC ruling but on a different legal ground. The CA, after legal analysis,
found that the donation was inter vivos and onerous. Therefore, the deed of donation must be treated as an ordinary contract and
Article 765 of the New Civil Code finds no relevance.

On March 8, 2006, the CA rejected the petitioner’s motion for reconsideration.

THE PARTIES’ ARGUMENTS

The petitioner filed the present petition for review on certiorari with this Court to challenge the CA rulings. The petitioner insists that
Evelyn committed acts of ingratitude against her. She argues that, if the donation was indeed onerous and was subject to the rules of
contracts, then greater reason exists to revoke it. According to the petitioner, Evelyn violated all the terms of the contract, especially
the provision enjoining the latter from acquiring ownership over the property during the lifetime of the donor.

The respondents, for their part, point out that the petitioner raises factual issues that a petition under Rule 45 of the Rules of Court
does not allow. Furthermore, the petitioner misleads the Court in claiming that the deed of donation prohibited Evelyn from acquiring
ownership of the land. In fact, the deed of donation confined the donation to only two conditions: 1) redemption of the mortgage; and
2) the petitioner’s usufruct over the land as long as she lived. The respondents complied with these conditions. The respondents
likewise remind the Court that issues not advanced before the lower courts should not be entertained – the objective that Teodora is
now trying to accomplish. Finally, the respondents applaud the CA in finding that the donation, being inter vivos and onerous, is
irrevocable under Article 765 of the New Civil Code.

THE COURT’S RULING

We resolve to deny the petition for lack of merit.

The petitioner may not raise factual issues; arguments not raised before the lower courts may not be introduced on appeal.

Teodora insists that Evelyn perpetrated ungrateful acts against the petitioner. Moreover, the donation never materialized because
Evelyn violated a suspensive condition of the donation when she had the property title transferred to her name during the petitioner’s
lifetime.

As correctly raised by the respondents, these allegations are factual issues which are not proper for the present action. The Court is not
a trier of facts.7 The Court cannot re-examine, review or re-evaluate the evidence and the factual review made by the lower courts.8 In
the absence of compelling reasons, the Court will not deviate from the rule that factual findings of the lower tribunals are final and
binding on this Court.

It has not escaped the Court’s attention that this is the only time the petitioner raised the arguments that donation never materialized
because the donee violated a condition of the donation when she had the title of the property transferred to her name. The petitioner
never raised this issue before the lower courts. It can’t be emphasized enough that the Court will not revisit the evidence presented
166
below as well as any evidence introduced for the first time on appeal.9 Aside from being a factual issue that is not proper for the
present action, the Court dismisses this new argument for being procedurally infirm and violative of due process. As we have held in
the past: "points of law, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to be
considered by a reviewing court, as these cannot be raised for the first time on appeal. Basic consideration of due process impels this
rule."10

Rules of contract govern the onerous portion of donation; rules of donation only apply to the excess, if any.

We now come to the appreciation of the legal incidents of the donation vis-à-vis the alleged ungrateful acts.

In Republic of the Phils. v. Silim,11 we classified donations according to purpose. A pure/simple donation is the truest form of
donation as it is based on pure gratuity. The remuneratory/compensatory type has for its purpose the rewarding of the donee for past
services, which services do not amount to a demandable debt. A conditional/modal donation, on the other hand, is a consideration for
future services; it also occurs where the donor imposes certain conditions, limitations or charges upon the donee, whose value is
inferior to the donation given. Lastly, an onerous donation imposes upon the donee a reciprocal obligation; this is made for a valuable
consideration whose cost is equal to or more than the thing donated.12

In De Luna v. Judge Abrigo,13 we recognized the distinct, albeit old, characterization of onerous donations when we declared: Under
the old Civil Code, it is a settled rule that donations with an onerous cause are governed not by the law on donations but by the rules
on contracts, as held in the cases of Carlos v. Ramil L-6736, September 5, 1911, 20 Phil. 183, Manalo vs. de Mesa L-9449, February
12, 1915, 29 Phil. 495."14 In the same case, we emphasized the retention of the treatment of onerous types of donation, thus: "The
same rules apply under the New Civil Code as provided in Article 733 thereof which provides:

Article 733. Donations with an onerous cause shall be governed by the rules on contracts, and remuneratory donations by the
provisions of the present Title as regards that portion which exceeds the value of the burden imposed."15

We agree with the CA that since the donation imposed on the donee the burden of redeeming the property for P15,000.00, the
donation was onerous. As an endowment for a valuable consideration, it partakes of the nature of an ordinary contract; hence, the rules
of contract will govern and Article 765 of the New Civil Code finds no application with respect to the onerous portion of the donation.

Insofar as the value of the land exceeds the redemption price paid for by the donee, a donation exists, and the legal provisions on
donation apply. Nevertheless, despite the applicability of the provisions on donation to the gratuitous portion, the petitioner may not
dissolve the donation. She has no factual and legal basis for its revocation, as aptly established by the RTC. First, the ungrateful acts
were committed not by the donee; it was her husband who committed them. Second, the ungrateful acts were perpetrated not against
the donor; it was the petitioner's sister who received the alleged ill treatments. These twin considerations place the case out of the
purview of Article 765 of the New Civil Code.

WHEREFORE, premises considered, the Court DENIES the petition for review on certiorari. The decision dated September 29, 2005,
and the resolution dated March 8, 2006, of the Court of Appeals in CA-G.R. CV No. 84031 are hereby AFFIRMED. Costs against
Cerila J. Calanasan, represented by Teodora J. Calanasan as Attorney-in-Fact.

SO ORDERED.

FORTUNE MEDICARE VS AMORIN

REYES, J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which challenges the Decision2 dated September 27,
2010 and Resolution3 dated February 24, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 87255.

The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation engaged in
providing health maintenance services to its members. The terms of Amorin's medical coverage were provided in a Corporate Health
Program Contract4 (Health Care Contract) which was executed on January 6, 2000 by Fortune Care and the House of Representatives,
where Amorin was a permanent employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin underwent an emergency surgery,
specifically appendectomy, at the St. Francis Medical Center, causing him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune Care the full amount thereof upon his return to
167
Manila, but the company merely approved a reimbursement of P12,151.36, an amount that was based on the average cost of
appendectomy, net of medicare deduction, if the procedure were performed in an accredited hospital in Metro Manila.5 Amorin
received under protest the approved amount, but asked for its adjustment to cover the total amount of professional fees which he had
paid, and eighty percent (80%) of the approved standard charges based on "American standard", considering that the emergency
procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages of the Health
Care Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, the member shall be entitled to full
coverage under the benefits provisions of the Contract at any FortuneCare accredited hospitals subject only to the pertinent provision
of Article VII (Exclusions/Limitations) hereof. For emergency care attended by non affiliated physician (MSU), the member shall be
reimbursed 80% of the professional fee which should have been paid, had the member been treated by an affiliated physician. The
availment of emergency care from an unaffiliated physician shall not invalidate or diminish any claim if it shall be shown to have been
reasonably impossible to obtain such emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee
(based on the total approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage
applies only to Emergency confinement within Philippine Territory. However, if the emergency confinement occurs in a foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved standard charges which shall cover
the hospitalization costs and professional fees. x x x6

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint7 for breach of contract with damages with the
Regional Trial Court (RTC) of Makati City.

For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and professional fees incurred in
foreign countries, as the contract’s operation was confined to Philippine territory.8 Further, it argued that its liability to Amorin was
extinguished upon the latter’s acceptance from the company of the amount of P12,151.36.

The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint. Citing Section 3, Article V of
the Health Care Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine standard as basis. Section 3 of the
Corporate Health Care Program Contract provides that:

xxxx

On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which should have been paid, had
the member been treated by an affiliated physician, the Court concludes that the basis for reimbursement shall be Philippine rates.
That provision, taken with Article V of the health program contract, which identifies affiliated hospitals as only those accredited
clinics, hospitals and medical centers located "nationwide" only point to the Philippine standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent to 80% of the approved
standard charges which shall cover hospitalization costs and professional fees, can only be reasonably construed in connection with
the preceding clause on professional fees to give meaning to a somewhat vague clause. A particular clause should not be studied as a
detached and isolated expression, but the whole and every part of the contract must be considered in fixing the meaning of its parts.10

In the absence of evidence to the contrary, the trial court considered the amount of P12,151.36 already paid by Fortune Care to
Amorin as equivalent to 80% of the hospitalization and professional fees payable to the latter had he been treated in an affiliated
hospital.11

Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling

On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive portion of its decision reads:

168
WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May 8, 2006 assailed Decision of
the Regional Trial Court (RTC) of Makati City, Branch 66 is hereby REVERSED and SET ASIDE, and a new one entered ordering
Fortune Medicare, Inc. to reimburse [Amorin] 80% of the total amount of the actual hospitalization expenses of $7,242.35 and
professional fee of $1,777.79 paid by him to St. Francis Medical Center pursuant to Section 3, Article V of the Corporate Health Care
Program Contract, or their peso equivalent at the time the amounts became due, less the [P]12,151.36 already paid by Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject Health Care Contract, being like
insurance contracts, must be liberally construed in favor of the subscriber. In case its provisions are doubtful or reasonably susceptible
of two interpretations, the construction conferring coverage is to be adopted and exclusionary clauses of doubtful import should be
strictly construed against the provider.14 Second, the CA explained that there was nothing under Article V of the Health Care Contract
which provided that the Philippine standard should be used even in the event of an emergency confinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution16 dated February 24, 2011. Hence, the filing of the present
petition for review on certiorari.

The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject to interpretation, and that it did not
automatically mean "Philippine Standard"; and

II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect affirmed its decision that the American
Standard Cost shall be applied in the payment of medical and hospitalization expenses and professional fees incurred by the
respondent.17

The Court’s Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin under the subject Health Care
Contract should be based on the expenses for hospital and professional fees which he actually incurred, and should not be limited by
the amount that he would have incurred had his emergency treatment been performed in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to its members, jurisprudence holds that a health
care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.18

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in Philamcare Health Systems v.
CA19:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract – the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.20 (Citations omitted and emphasis ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life insurance. It is an
established rule in insurance contracts that when their terms contain limitations on liability, they should be construed strictly against
the insurer. These are contracts of adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements.

169
xxxx

x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from
evading its obligations. Accordingly, they should be scrutinized by the courts with "extreme jealousy" and "care" and with a
"jaundiced eye." x x x.22 (Citations omitted and emphasis supplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was governed by Section 3(B),
Article V of the subject Health Care Contract, considering that the appendectomy which the member had to undergo qualified as an
emergency care, but the treatment was performed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited
hospital. We restate the pertinent portions of Section 3(B):

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee
(based on the total approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage
applies only to Emergency confinement within Philippine Territory. However, if the emergency confinement occurs in foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved standard charges which shall cover
the hospitalization costs and professional fees. x x x23 (Emphasis supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges", which shall be the base for the
allowable 80% benefit. The trial court ruled that the phrase should be interpreted in light of the provisions of Section 3(A), i.e., to the
extent that may be allowed for treatments performed by accredited physicians in accredited hospitals. As the appellate court however
held, this must be interpreted in its literal sense, guided by the rule that any ambiguity shall be strictly construed against Fortune Care,
and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto contemplated the possibility of
emergency care in a foreign country. As the contract recognized Fortune Care’s liability for emergency treatments even in foreign
territories, it expressly limited its liability only insofar as the percentage of hospitalization and professional fees that must be paid or
reimbursed was concerned, pegged at a mere 80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible of different meanings.
Plainly, the term "standard charges" could be read as referring to the "hospitalization costs and professional fees" which were
specifically cited as compensable even when incurred in a foreign country. Contrary to Fortune Care’s argument, from nowhere in the
Health Care Contract could it be reasonably deduced that these "standard charges" referred to the "Philippine standard", or that cost
which would have been incurred if the medical services were performed in an accredited hospital situated in the Philippines. The RTC
ruling that the use of the "Philippine standard" could be inferred from the provisions of Section 3(A), which covered emergency care
in an accredited hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear distinction between
emergency care in an accredited hospital, and that obtained from a non-accredited hospital.1âwphi1 The limitation on payment based
on "Philippine standard" for services of accredited physicians was expressly made applicable only in the case of an emergency care in
an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonably inferred from the other
provisions of Section 3(B), considering that Amorin’s case fell under the second case, i.e., emergency care in a non-accredited
hospital. Rather than a determination of Philippine or American standards, the first part of the provision speaks of the full
reimbursement of "the total hospitalization cost including the professional fee (based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital" within the Philippines. Thus, for emergency care in non-accredited hospitals,
this cited clause declared the standard in the determination of the amount to be paid, without any reference to and regardless of the
amounts that would have been payable if the treatment was done by an affiliated physician or in an affiliated hospital. For treatments
in foreign territories, the only qualification was only as to the percentage, or 80% of that payable for treatments performed in non-
accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are applicable in the
Philippines, the amount payable by Fortune Care should not be limited to the cost of treatment in the Philippines, as to do so would
result in the clear disadvantage of its member. If, as Fortune Care argued, the premium and other charges in the Health Care Contract
were merely computed on assumption and risk under Philippine cost and, that the American cost standard or any foreign country's cost
was never considered, such limitations should have been distinctly specified and clearly reflected in the extent of coverage which the
company voluntarily assumed. This was what Fortune Care found appropriate when in its new health care agreement with the House
of Representatives, particularly in their 2006 agreement, the provision on emergency care in non-accredited hospitals was modified to
read as follows:

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However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to reimburse or pay one hundred
(100%) percent under approved Philippine Standard covered charges for hospitalization costs and professional fees but not to exceed
maximum allowable coverage, payable in pesos at prevailing currency exchange rate at the time of availment in said territory where
he/she is confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity. "Any ambiguity in a
contract whose terms are susceptible of different interpretations must be read against the party who drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated February 24, 2011 of the Court
of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.

ST. RAPHAEL MONTESSORI SCHOOL VS BPI

PERALTA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1 dated April 25,
2008 and Resolution dated July 16, 2008,2 respectively, of the Court of Appeals (CA) in CA-G.R. SP No. 101507.

The facts are as follows:

Spouses Rolando and Josefina Andaya (Sps. Andaya) are the President and Vice-President, respectively, of St. Raphael Montessori,
Inc. (St. Raphael). From 1994 to 1998, the Spouses Andaya obtained a loan for themselves and on behalf of St. Raphael, from the Far
East Bank and Trust company, now Bank of Philippine Islands (BPI). As security for the loan, they executed real estate mortgages3
over a parcel of land covered by Transfer Certificate of Title (TCT) No. T-45006.4 They, however, defaulted on their obligation and
thus, BPI extrajudicially foreclosed the mortgaged property.

A Certificate of Sale5 was then issued and annotated at the back of TCT No. 45006. When the mortgagors failed to redeem the subject
property, BPI executed an Affidavit of Consolidation6 and TCT No. T-1757407 was issued in its name. On March 15, 2005, upon
petition by BPI, the court a quo issued a Writ of Possession8 ordering the sheriff to place the subject property and all its improvements
thereon, in possession of the same.

The Spouses Andaya asked for deferment of the implementation of the writ of possession and executed for themselves and on behalf
of St. Raphael an Undertaking wherein they: (i) acknowledged BPI's ownership of the property; (ii) promised to vacate the premises
and remove all movables from the same on or before September 23, 2005; (iii) promised to voluntarily and peacefully surrender the
property in favor of the rightful owner BPI without the necessity of any demand on or before September 23, 2005; and (iv) pledged
not to take advantage of the accommodation extended to them to secure any remedy from the courts.9 BPI, thus, deferred the
implementation of the writ to September 23, 2005 and upon the lapse thereof even extended for another 60 days or until November 23,
2005 the implementation of the writ.

The Spouses Andaya, however, failed to vacate the subject property. Despite BPI's reminder of their commitment to surrender
possession of the property without further need of demand, the Spouses Andaya refused to turn over its possession. They claimed that
BPI no longer had a right to possess the property because the writ of possession had already been implemented. St. Raphael further
filed a Motion to Quash Writ of Possession alleging that it was not a party to the real estate mortgages executed by Spouses Andaya.
An Affidavit of Third-Party Claim10 was also filed wherein Teresita Badiola, Attorney-in-Fact of St. Raphael claimed that the latter's
building, while standing on the subject property, was not included in the real estate mortgages. It. further claimed that the construction
of the building was made possible by virtue of a Lease to Own Agreement that was executed prior to the execution of the real estate
mortgages.

On February 6, 2007, BPI sent a letter to the sheriff of the court a quo requesting for the implementation of the writ of possession that
was earlier deferred. On April 11, 2007, the sheriff served a Notice to Vacate on all occupants of the subject property. On April 19,
2007, BPI was already able to post security guards in the premises.

St. Raphael then filed a motion to cite in contempt the sheriff and BPI on the ground that their actions would prejudice the pending
motion to quash. St. Raphael also claimed that the writ of possession could no longer be enforced since it had already been
implemented in 2005, thus, it seek to be restored in possession of the premises.

The court a quo issued an Order11 dated June 5, 2007 dismissing the motion to cite in contempt for failing to comply with Section 4,
Rule 71 of the Rules of Court. However, the court a quo also ordered BPI to withdraw its security guards from the subject property
171
and instructed the sheriff to restore to St. Raphael the physical possession thereof. The court a quo deemed it prudent to maintain the
status quo condition of the subject property prior to the April 19, 2007 incident.

On June 8, 2007, the officers of St. Raphael, with the assistance of the barangay captain and policemen, attempted to recover
possession of the subject property. However, they were driven away by BPI's security guards upon failure to present a final order from
the court a quo. St. Raphael, therefore, filed an Urgent Ex-Parte Motion for Immediate Implementation of the June 5, 2007 Order.

On June 12, 2007, BPI filed a Partial Motion for Reconsideration arguing that the court a quo is confined to resolving the issue in the
Motion to Cite in Contempt, that is, whether or not the implementation of the writ of possession constitutes a contemptuous act. It
argued that under the circumstances, the court a quo is in no position to determine the issue of who should be in possession of the
subject property.

On June 13, 2007, the court a quo granted St. Raphael's Motion for Immediate Implementation of the June 5, 2007 Order and denied
BPI's Partial Motion for Reconsideration. It ruled that a temporary restraining order or writ of preliminary injunction was not needed
to prevent the sheriff and BPI from implementing the writ of possession because the motion to quash the writ of possession was still
pending resolution. It also held that St. Raphael was a third-party claimant and that BPI cannot be placed in possession of the
mortgaged property pending proceedings that assail the issuance of the writ of possession.

On June 25, 2007, the court a quo appointed a special sheriff who implemented the status quo order. Consequently, St. Raphael was
placed in possession of the subject property. Likewise, the court a quo, in an Order12 dated July 30, 2007 granted St. Raphael's
Motion to Quash Writ of Possession. The dispositive portion reads:chanRoblesvirtualLawlibrary

WHEREFORE, the Motion to Quash Writ of Possession filed by St. Raphael Montessori School, Inc., Third-Party Claimant/Oppositor
dated June 6, 2006 is GRANTED.
2. The writ of possession dated March 15, 2005 implemented by Sheriff Franconello S. Lintao on April 19, 2007 is null and
void;cralawlawlibrary

3. The order of this court dated December 27, 2004 is modified to read as follows:chanRoblesvirtualLawlibrary
Let the writ of possession be issued directing, the Deputy Sheriff of this Court to install the petitioner in actual possession of real
properties owned by Sps. Rolando and Josefina Andaya which have been the subject of the mortgage, with the exception of the
building standing on Lot 1362-D owned by the third party claimant St. Raphael Montessori.ChanRoblesVirtualawlibrary
SO ORDERED.13ChanRoblesVirtualawlibrary
Aggrieved, BPI filed a petition for certiorari before the Court of Appeals alleging grave abuse of discretion amounting to lack or
excess of jurisdiction when it issued the assailed Order dated July 30, 2007.

On April 25, 2008, in its disputed decision, the Court of Appeals reversed the court a quo. the dispositive portion of which
reads:chanRoblesvirtualLawlibrary
WHEREFORE, the Order dated July 30, 2007 is REVERSED. The Motion to Quash Writ of Possession of St. Raphael Montessori,
Inc. is DENIED and the Writ of Possession dated March 15, 2005 is declared valid and enforceable, thus entitling the Bank of the
Philippine Islands to possession of the subject property, including the building occupied by St. Raphael Montessori, Inc.

SO ORDERED.14ChanRoblesVirtualawlibrary
Thus, the instant petition for review on certiorari under Rule 45 of the Rules of Court raising the lone issue of: Whether a writ of
possession that was issued ex-parte as a result qftheforeelosure of the mortgages executed by the Spouses Andaya on the subject
property can be enforced and utilized by BPI to oust St. Raphael from the physical possession of its school buildings built on the same
subject property.

We rule in the affirmative.

Jurisprudence is replete with cases holding that the issuance of a writ of possession to a purchaser in a public auction is a ministerial
function of the court, which cannot be enjoined or restrained, even by the filing of a civil case for the declaration of nullity of the
foreclosure and consequent auction sale.15 Once title to the property has been consolidated in the buyer's name upon failure of the
mortgagor to redeem the property within the one-year redemption period, the writ of possession becomes a matter of right belonging
to the buyer. Consequently, the buyer can demand possession of the property at anytime. Its right to possession has then ripened into
the right of a confirmed absolute owner and the issuance of the writ becomes a ministerial function that does not admit of the exercise
of the court's discretion. The court, acting on an application for its issuance, should issue the writ as a matter of course and without
any delay.16

The right to the issuance of a writ of possession is outlined in Sections 6 and 7 of Act 3135, as amended by Act 4118, to
wit:chanRoblesvirtualLawlibrary
172
Sec. 6. In all cases in which an extrajudicial sale is made x x x, the debtor, his successors-in-interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which
the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

Sec 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place
where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under
oath and filed in form of an ex parte motion x x x and the court shall, upon approval of the bond, order that a writ of possession issue,
addressed to the sheriff of the province in which the property is situated, who shall execute said order
immediately.ChanRoblesVirtualawlibrary
Upon the lapse of the redemption period, a writ of possession may be issued in favor of the purchaser in a foreclosure sale, also upon a
proper ex parte motion. No bond is necessary for its issuance; the mortgagor is now considered to have lost any interest over the
foreclosed property. The purchaser then becomes the owner of the foreclosed property, and he can demand possession at any time
following the consolidation of ownership of the property and the issuance of the corresponding TCT in his/her name. It is at this point
that the right of possession of the purchaser can be considered to have ripened into the absolute right of a confirmed owner. The
issuance of the writ, upon proper application, is a ministerial function that effectively forbids the exercise by the court of any
discretion. This scenario is governed by Section 6 of Act 3135, in relation to Section 35, Rule 39 of the Revised Rules of Court.

In China Banking Corporation v. Spouses Lozada,17 we reiterated:chanRoblesvirtualLawlibrary

It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during
the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can demand it
at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. The
buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in accordance
with Section 7 of Act No. 3135, as amended. No such bond is required after the redemption period if the property is not redeemed.
Possession of the land then becomes an absolute right of the purchaser as confirmed owner. Upon proper application and proof of title,
the issuance of the writ of possession becomes a ministerial duty of the court.18ChanRoblesVirtualawlibrary
Thus, as in the instant case, after the consolidation of ownership, and the issuance of Transfer Certificate of Title No. T-175740 in
favor of purchaser, BPI, the latter's right to possession not only finds support in Section 7 of Act 3135, but also on its right to
possession as an incident of ownership.19

If the court has the ministerial power to issue a writ of possession even during the redemption period, then with more reason should
the court issue the writ of possession after the expiration of the redemption period, as the purchaser has already acquired an absolute
right to possession on the basis of his ownership of the property. The right to possess a property follows ownership.20

It should likewise be emphasized that the purchaser's right to request for the issuance of the writ of possession of the land never
prescribes. The right to possess a property merely follows the right of ownership, and it would be illogical to hold that a person having
ownership of a parcel of land is barred from seeking possession thereof.21

As to petitioner's argument that they were not a party to the real estate mortgage nor its claim that the mortgage does not include the
building allegedly owned by St. Raphael Montessori, the same has no leg to stand on. When the principal property is mortgaged, the
mortgage shall include all natural or civil fruits and improvements found thereon when the secured obligation becomes due as
provided in Article 212722 of the Civil Code. Consequently, in case of non-payment of the secured debt, foreclosure proceedings shall
cover not only the hypothecated property but all its accessions and accessories as well.23

Thus, improvements constructed by the mortgagor on the subject lot covered by the real estate mortgage contract with the mortgagee
bank are included in the foreclosure proceedings instituted by the latter.24 While this rule is not without qualifications, the instant case
does not fall under its exceptions. For the exception to apply, the property need not only be possessed by a third party, but also held by
the third party adversely to the judgment obligor. St. Raphael could not be considered as an adverse claimant in the absence of proof
showing any adverse title or claim of ownership on the subject lot.

Indeed, the claim of St. Raphael that it is the owner of the building standing on the subject land cannot be given weight in the absence
of any evidence proving such ownership. It is also noteworthy to mention that in St. Raphael's Articles of Incorporation with S.E.C.
Registration No. ANO92-03954, the Spouses Andaya appeared to be the original incorporators and trustees of St. Raphael, the same
parties who mortgaged the subject lot to BPI. St. Raphael insists that it is the owner of the building, however, neither the Spouses
Andaya and St. Raphael failed to convince that they are separate entities and that the Spouses Andaya did not act in behalf of St.
Raphael.

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Likewise, assuming that there was indeed a valid lease agreement, the law requires that it must be noted as an encumbrance in T-
45006, which covers the property mortgaged by St. Raphael and the Spouses Andaya to BPI. The failure to comply with this requisite
annotation of the lease resulted in BPI's lack of knowledge as to the existence of the said lease contract.25cralawred

Moreover, the appellate court's ratiocination on St. Raphael's alleged lack of knowledge of the constituted real estate mortgage is
noteworthy, to wit:chanRoblesvirtualLawlibrary
The ruling of the court a quo that St. Raphael was a mere stranger to the case between the Spouses Andaya and BPI and that it entered
into possession of the property before the suit began is not supported by evidence on record. On the contrary, the record before us
reveals that St. Raphael is a party to the mortgage agreement since the real estate mortgages show that it obtained credit
accommodations from BPI through the spouses Josefina and Rolando Andaya who arc its president and vice-president, respectively.
The fact that a mortgage was executed in favor of St. Raphael is likewise annotated at the back of TCT No. T-45006. Moreover, the
undertaking executed by the Spouses Andaya reveals that they affixed their respective signatures therein in their capacity as President
and Vice-President of St. Raphael. These clearly show that St. Raphael is privy to the dealings between the Spouses Andaya and BPI
and thus belie that it is a mere stranger to the case.26ChanRoblesVirtualawlibrary
Finally, the real estate mortgage agreement entered into by BPI and the Spouses Andaya is the law between them. Suffice it to say that
in all of the real mortgage agreements27 executed by BPI and the Spouses Andaya in favor of St. Raphael, it was clearly and
commonly stipulated that the parties intend to include the improvements or buildings erected or to be erected in the subject lot, to
wit:chanRoblesvirtualLawlibrary
x x x the MORTGAGOR does hereby transfer and convey by way of mortgage unto to MORTGAGEE, its successors or assigns, the
parcel of land which are described in the list inserted on the back of this document and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR
declares that he/it is the absolute owner free from lien and encumbrances. x x x28ChanRoblesVirtualawlibrary
It is a cardinal rule in the interpretation of a contract that if its terms are clear and leave no doubt on the intention of the contracting
parties, the literal meaning of its stipulation shall control.29 In the absence of proof that the parties intended otherwise, we will not
delve to interpret the terms of the contract which are unequivocal as to the intention of the parties.

On a final note, it must be stressed that when certain actuations of judges cast doubts as to their motives, the Court deems it imperative
to remind judges of their respective duties of impartiality. The court a quo's judgment, which not only granted petitioner's Motion to
Quash and Third-Party Claim but went as far as installing petitioner in actual possession of the subject properties in sheer disregard of
established legal pronouncements and on obvious baseless grounds, raise serious suspicions on the court a quo's intentions. Let this,
therefore, serve as a stern reminder that lower court judges are, at all times, dutybound to render just, correct and impartial decisions in
a manner free of any suspicion as to his fairness, impartiality or integrity.

WHEREFORE, all premises considered, the instant petition is DENTED for lack of merit. Accordingly, the Decision dated April 25,
2008 and the Resolution dated July 16, 2008 of the Court of Appeals in CA-G.R. SP No. 101507 are AFFIRMED in toto.

SO ORDERED.

174