G.R. No.
134685 November 19, 1999
MARIA ANTONIA SIGUAN, petitioner,
vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL
LIM, respondents.
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa
Lim (hereafter LIM) in favor of her children be rescinded for
being in fraud of her alleged creditor, petitioner Maria
Antonia Siguan? This is the pivotal issue to be resolved in
this petition for review on certiorari under Rule 45 of the
Revised Rules of Court.
The relevant facts, as borne out of the records, are as
follows:
On 25 and 26 August 1990, LIM issued two Metrobank
checks in the sums of P300,000 and P241,668, respectively,
payable to "cash." Upon presentment by petitioner with the
drawee bank, the checks were dishonored for the reason
"account closed." Demands to make good the checks proved
futile. As a consequence, a criminal case for violation of
Batas Pambansa Blg. 22, docketed as Criminal Cases Nos.
22127-28, were filed by petitioner against LIM with Branch
23 of the Regional Trial Court (RTC) of Cebu City. In its
decision 1 dated 29 December 1992, the court a
quo convicted LIM as charged. The case is pending before
this Court for review and docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of
estafa by the RTC of Quezon City in Criminal Case No. Q-
89-2216 2 filed by a certain Victoria Suarez. This decision
was affirmed by the Court of Appeals. On appeal, however,
this Court, in a decision 3 promulgated on 7 April 1997,
acquitted LIM but held her civilly liable in the amount of
P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying
the following parcels of land and purportedly executed by
LIM on 10 August 1989 in favor of her children, Linde, Ingrid
and Neil, was registered with the Office of the Register of
Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug,
Cebu City, containing an area of 563 sq. m.
and covered by TCT No. 93433;
(2) a parcel of land situated at Barrio Lahug, namely, (1) there must be a credit existing prior to the
Cebu City, containing an area of 600 sq. m.
and covered by TCT No. 93434;
(3) a parcel of land situated at Cebu City
containing an area of 368 sq. m. and
covered by TCT No. 87019; and
(4) a parcel of land situated at Cebu City,
Cebu containing an area of 511 sq. m. and
covered by TCT No. 87020.
New transfer certificates of title were thereafter
issued in the names of the donees. 5
On 23 June 1993, petitioner filed an accion pauliana against
LIM and her children before Branch 18 of the RTC of Cebu
City to rescind the questioned Deed of Donation and to
declare as null and void the new transfer certificates of title
issued for the lots covered by the questioned Deed. The
complaint was docketed as Civil Case No. CEB-14181.
Petitioner claimed therein that sometime in July 1991, LIM,
through a Deed of Donation, fraudulently transferred all her
real property to her children in bad faith and in fraud of
creditors, including her; that LIM conspired and confederated
with her children in antedating the questioned Deed of
Donation, to petitioner's and other creditors' prejudice; and
that LIM, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She
claimed that her convictions in Criminal Cases Nos. 22127-
28 were erroneous, which was the reason why she appealed
said decision to the Court of Appeals. As regards the
questioned Deed of Donation, she maintained that it was not
antedated but was made in good faith at a time when she
had sufficient property. Finally, she alleged that the Deed of
Donation was registered only on 2 July 1991 because she
was seriously ill.
In its decision of 31 December 1994, 6 the trial court ordered
the rescission of the questioned deed of donation; (2)
declared null and void the transfer certificates of title issued
in the names of private respondents Linde, Ingrid and Neil
Lim; (3) ordered the Register of Deeds of Cebu City to
cancel said titles and to reinstate the previous titles in the
name of Rosa Lim; and (4) directed the LIMs to pay the
petitioner, jointly and severally, the sum of P10,000 as moral
damages; P10,000 as attorney's fees; and P5,000 as
expenses of litigation.
On appeal, the Court of Appeals, in a decision 7 promulgated
on 20 February 1998, reversed the decision of the trial court
and dismissed petitioner's accion pauliana. It held that two of
the requisites for filing an accion pauliana were absent,
celebration of the contract; and (2) there must be a fraud, or
at least the intent to commit fraud, to the prejudice of the
creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation,
which was executed and acknowledged before a notary
public, appears on its face to have been executed on 10
August 1989. Under Section 23 of Rule 132 of the Rules of
Court, the questioned Deed, being a public document, is
evidence of the fact which gave rise to its execution and of
the date thereof. No antedating of the Deed of Donation was
made, there being no convincing evidence on record to
indicate that the notary public and the parties did antedate it.
Since LIM's indebtedness to petitioner was incurred in
August 1990, or a year after the execution of the Deed of
Donation, the first requirement for accion pauliana was not
met.
Anent petitioner's contention that assuming that the Deed of
Donation was not antedated it was nevertheless in fraud of
creditors because Victoria Suarez became LIM's creditor on
8 October 1987, the Court of Appeals found the same
untenable, for the rule is basic that the fraud must prejudice
the creditor seeking the rescission.
Her motion for reconsideration having been denied,
petitioner came to this Court and submits the following issue:
WHETHER OR NOT THE DEED OF
DONATION, EXH. 1, WAS ENTERED
INTO IN FRAUD OF [THE]
CREDITORS OF RESPONDENT ROSA
[LIM].
Petitioner argues that the finding of the Court of Appeals that
the Deed of Donation was not in fraud of creditors is contrary
to well-settled jurisprudence laid down by this Court as early
as 1912 in the case of Oria v. McMicking, 8 which
enumerated the various circumstances indicating the
existence of fraud in a transaction. She reiterates her
arguments below, and adds that another fact found by the
trial court and admitted by the parties but untouched by the
Court of Appeals is the existence of a prior final judgment
against LIM in Criminal Case No. Q-89-2216 declaring
Victoria Suarez as LIM's judgment creditor before the
execution of the Deed of Donation.
Petitioner further argues that the Court of Appeals incorrectly
applied or interpreted Section 23, 9 Rule 132 of the Rules of
Court, in holding that "being a public document, the said
deed of donation is evidence of the fact which gave rise to its
execution and of the date of the latter." Said provision should
be read with Section 30 10 of the same Rule which provides
that notarial documents are prima facie evidence of their
execution, not "of the facts which gave rise to their execution
and of the date of the latter."
Finally, petitioner avers that the Court of Appeals overlooked
Article 759 of the New Civil Code, which provides: "The
donation is always presumed to be in fraud of creditors when
at the time of the execution thereof the donor did not reserve
sufficient property to pay his debts prior to the donation." In
this case, LIM made no reservation of sufficient property to
pay her creditors prior to the execution of the Deed of
Donation.
On the other hand, respondents argue that (a) having agreed
on the law and requisites of accion pauliana, petitioner
cannot take shelter under a different law; (b) petitioner
cannot invoke the credit of Victoria Suarez, who is not a
party to this case, to support her accion pauliana; (c) the
Court of Appeals correctly applied or interpreted Section 23
of Rule 132 of the Rules of Court; (d) petitioner failed to
present convincing evidence that the Deed of Donation was
antedated and executed in fraud of petitioner; and (e) the
Court of Appeals correctly struck down the awards of
damages, attorney's fees and expenses of litigation because
there is no factual basis therefor in the body of the trial
court's decision.
The primordial issue for resolution is whether the questioned
Deed of Donation was made in fraud of petitioner and,
therefore, rescissible. A corollary issue is whether the
awards of damages, attorney's fees and expenses of
litigation are proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in
cases brought before it from the Court of Appeals via Rule
45 of the Rules of Court is limited to reviewing errors of law.
Findings of fact of the latter court are conclusive, except in a
number of instances. 11 In the case at bar, one of the
recognized exceptions warranting a review by this Court of
the factual findings of the Court of Appeals exists, to wit, the
factual findings and conclusions of the lower court and Court
of Appeals are conflicting, especially on the issue of whether
the Deed of Donation in question was in fraud of creditors.
Art. 1381 of the Civil Code enumerates the contracts which
are rescissible, and among them are "those contracts
undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them."
The action to rescind contracts in fraud of creditors is known
as accion pauliana. For this action to prosper, the following
requisites must be present: (1) the plaintiff asking for
rescission has a credit prior to the alienation, 12 although
demandable later; (2) the debtor has made a subsequent
contract conveying a patrimonial benefit to a third person; (3) evidence, documents are either public or
the creditor has no other legal remedy to satisfy his private.
claim; 13 (4) the act being impugned is fraudulent; 14 (5) the
third person who received the property conveyed, if it is by
Public documents are:
onerous title, has been an accomplice in the fraud. 15
(a) . . .
The general rule is that rescission requires the existence of
creditors at the time of the alleged fraudulent alienation, and
this must be proved as one of the bases of the judicial (b) Documents acknowledged before a
pronouncement setting aside the contract. 16 Without any notary public except last wills and
prior existing debt, there can neither be injury nor fraud. testaments. . . .
While it is necessary that the credit of the plaintiff in
the accion pauliana must exist prior to the fraudulent
It bears repeating that notarial documents, except last wills
alienation, the date of the judgment enforcing it is immaterial.
and testaments, are public documents and are evidence of
Even if the judgment be subsequent to the alienation, it is
the facts that gave rise to their execution and of their date.
merely declaratory, with retroactive effect to the date when
the credit was constituted. 17
In the present case, the fact that the questioned Deed was
registered only on 2 July 1991 is not enough to overcome
In the instant case, the alleged debt of LIM in favor of
the presumption as to the truthfulness of the statement of the
petitioner was incurred in August 1990, while the deed of
date in the questioned deed, which is 10 August 1989.
donation was purportedly executed on 10 August 1989.
Petitioner's claim against LIM was constituted only in August
1990, or a year after the questioned alienation. Thus, the first
We are not convinced with the allegation of the petitioner two requisites for the rescission of contracts are absent.
that the questioned deed was antedated to make it appear
that it was made prior to petitioner's credit. Notably, that
Even assuming arguendo that petitioner became a creditor
deed is a public document, it having been acknowledged
of LIM prior to the celebration of the contract of donation, still
before a notary public. 18 As such, it is evidence of the fact
her action for rescission would not fare well because the
which gave rise to its execution and of its date, pursuant to
third requisite was not met. Under Article 1381 of the Civil
Section 23, Rule 132 of the Rules of Court.
Code, contracts entered into in fraud of creditors may be
rescinded only when the creditors cannot in any manner
Petitioner's contention that the public documents referred to collect the claims due them. Also, Article 1383 of the same
in said Section 23 are only those entries in public records Code provides that the action for rescission is but a
made in the performance of a duty by a public officer does subsidiary remedy which cannot be instituted except when
not hold water. Section 23 reads: the party suffering damage has no other legal means to
obtain reparation for the same. The term "subsidiary remedy"
has been defined as "the exhaustion of all remedies by the
Sec. 23. Public documents as evidence.
prejudiced creditor to collect claims due him before
— Documents consisting of entries in
rescission is resorted to." 19 It is, therefore, "essential that the
public records made in the performance
party asking for rescission prove that he has exhausted all
of a duty by a public officer are prima
other legal means to obtain satisfaction of his
facie evidence of the facts therein
claim. 20 Petitioner neither alleged nor proved that she did so.
stated. All other public documents are
On this score, her action for the rescission of the questioned
evidence, even against a third person,
deed is not maintainable even if the fraud charged actually
of the fact which gave rise to their
did exist." 21
execution and of the date of the latter.
(Emphasis supplied).
The fourth requisite for an accion pauliana to prosper is not
present either.
The phrase "all other public documents" in the second
sentence of Section 23 means those public documents other
than the entries in public records made in the performance of Art. 1387, first paragraph, of the Civil Code provides: "All
a duty by a public officer. And these include notarial contracts by virtue of which the debtor alienates property by
documents, like the subject deed of donation. Section 19, gratuitous title are presumed to have been entered into in
Rule 132 of the Rules of Court provides: fraud of creditors when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Likewise, Article 759 of the same Code, second paragraph,
Sec. 19. Classes of docum/ents. — For
states that the donation is always presumed to be in fraud of
the purpose of their presentation in
creditors when at the time thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established
that the donor did not leave adequate properties which
creditors might have recourse for the collection of their
credits existing before the execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a
year after the deed of donation was executed. She cannot,
therefore, be said to have been prejudiced or defrauded by
such alienation. Besides, the evidence disclose that as of 10
August 1989, when the deed of donation was executed, LIM
had the following properties:
(1) A parcel of land containing an area of 220
square meters, together with the house
constructed thereon, situated in Sto. Niño
Village, Mandaue City, Cebu, registered in the
name of Rosa Lim and covered by TCT No.
19706; 22
(2) A parcel of land located in Benros
Subdivision, Lawa-an, Talisay, Cebu; 23
(3) A parcel of land containing an area of 2.152
hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and
covered by Tax Declaration No. 13572. 24
(4) A parcel of land containing an area of 3.6
hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and
covered by Tax Declaration No. 13571. 25
During her cross-examination, LIM declared that the house
and lot mentioned in no. 1 was bought by her in the amount
of about P800,000 to P900,000. 26 Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Niño Village, how
much did you acquire this property?
A Including the residential house P800,000.00 to
P900,000.00.
Q How about the lot which includes the house.
How much was the price in the Deed of Sale of
the house and lot at Sto. Niño Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the
price of said property was lower. Anent the
property in no. 2, LIM testified that she sold it in
1990. 27 As to the properties in nos. 3 and 4, the
total market value stated in the tax declarations
dated 23 November 1993 was P56,871.60. Aside
from these tax declarations, petitioner did not
present evidence that would indicate the actual
market value of said properties. It was not,
therefore, sufficiently established that the
properties left behind by LIM were not sufficient to
cover her debts existing before the donation was
made. Hence, the presumption of fraud will not
come into play.
Nevertheless, a creditor need not depend solely upon the
presumption laid down in Articles 759 and 1387 of the Civil
Code. Under the third paragraph of Article 1387, the design
to defraud may be proved in any other manner recognized
by the law of evidence. Thus in the consideration of whether
certain transfers are fraudulent, the Court has laid down
specific rules by which the character of the transaction may
be determined. The following have been denominated by the
Court as badges of fraud:
(1) The fact that the consideration of the
conveyance is fictitious or is inadequate;
(2) A transfer made by a debtor after suit has
begun and while it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete
insolvency;
(5) The transfer of all or nearly all of his property
by a debtor, especially when he is insolvent or
greatly embarrassed financially;
(6) The fact that the transfer is made between
father and son, when there are present other of the
above circumstances; and
(7) The failure of the vendee to take exclusive
possession of all the property. 28
The above enumeration, however, is not an exclusive list.
The circumstances evidencing fraud are as varied as the
men who perpetrate the fraud in each case. This Court has
therefore declined to define it, reserving the liberty to deal
with it under whatever form it may present itself. 29
Petitioner failed to discharge the burden of proving any of the
circumstances enumerated above or any other circumstance
from which fraud can be inferred. Accordingly, since the four
requirements for the rescission of a gratuitous contract are
not present in this case, petitioner's action must fail.
In her further attempt to support her action for rescission,
petitioner brings to our attention the 31 July 1990
Decision 30 of the RTC of Quezon City, Branch 92, in
Criminal Case No. Q-89-2216. LIM was therein held guilty of
estafa and was ordered to pay complainant Victoria Suarez
the sum of P169,000 for the obligation LIM incurred on 8
October 1987. This decision was affirmed by the Court of
Appeals. Upon appeal, however, this Court acquitted LIM of
estafa but held her civilly liable for P169,000 as actual
damages.
It should be noted that the complainant in that case, Victoria
Suarez, albeit a creditor prior to the questioned alienation, is
not a party to this accion pauliana. Article 1384 of the Civil
Code provides that rescission shall only be to the extent
necessary to cover the damages caused. Under this Article,
only the creditor who brought the action for rescission can
benefit from the rescission; those who are strangers to the
action cannot benefit from its effects. 31 And the revocation is
only to the extent of the plaintiff creditor's unsatisfied credit;
as to the excess, the alienation is maintained. 32 Thus,
petitioner cannot invoke the credit of Suarez to justify
rescission of the subject deed of donation.
Now on the propriety of the trial court's awards of moral
damages, attorney's fees and expenses of litigation in favor
of the petitioner. We have pored over the records and found
no factual or legal basis therefor. The trial court made these
awards in the dispositive portion of its decision without
stating, however, any justification for the same in the ratio
decidendi. Hence, the Court of Appeals correctly deleted
these awards for want of basis in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the
challenged decision of the Court of Appeals in CA-G.R. CV.
No. 50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 144169 March 28, 200
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY
KHE and RAY STEVEN KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147,
MAKATI CITY and PHILAM INSURANCE CO.,
INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under
Rule 45, seeking to set aside the decision of the Court of
Appeals dated April 10, 2000 and its resolution dated July
11, 2000 denying the motion for reconsideration of the
aforesaid decision. The original complaint that is the subject
matter of this case is an accion pauliana -- an action filed by
Philam Insurance Company, Inc. (respondent Philam) to
rescind or annul the donations made by petitioner Khe Hong
Cheng allegedly in fraud of creditors. The main issue for
resolution is whether or not the action to rescind the
donations has already prescribed. While the first paragraph
of Article 1389 of the Civil Code states: "The action to claim
rescission must be commenced within four years..." the
question is, from which point or event does this prescriptive
period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of
Butuan Shipping Lines. It appears that on or about October
4, 1985, the Philippine Agricultural Trading Corporation
shipped on board the vessel M/V PRINCE ERIC, owned by
petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate,
Masbate, for delivery to Dipolog City, Zamboanga del Norte.
The said shipment of copra was covered by a marine
insurance policy issued by American Home Insurance
Company (respondent Philam's assured). M/V PRINCE
ERlC, however, sank somewhere between Negros Island
and Northeastern Mindanao, resulting in the total loss of the
shipment. Because of the loss, the insurer, American Home,
paid the amount of P354,000.00 (the value of the copra) to
the consignee.1âwphi1.nêt
Having been subrogated into the rights of the consignee,
American Home instituted Civil Case No. 13357 in the
Regional Trial Court (RTC) of Makati , Branch 147 to recover
the money paid to the consignee, based on breach of
contract of carriage. While the case was still pending, or on
December 20, 1989, petitioner Khe Hong Cheng executed
deeds of donations of parcels of land in favor of his children,
herein co-petitioners Sandra Joy and Ray Steven. The
parcel of land with an area of 1,000 square meters covered
by Transfer Certificate of Title (TCT) No. T-3816 was
donated to Ray Steven. Petitioner Khe Hong Cheng likewise
donated in favor of Sandra Joy two (2) parcels of land
located in Butuan City, covered by TCT No. RT-12838. On
the basis of said deeds, TCT No. T-3816 was cancelled and
in lieu thereof, TCT No. T-5072 was issued in favor of Ray
Steven and TCT No. RT-12838 was cancelled and in lieu
thereof, TCT No. RT-21054 was issued in the name of
Sandra Joy.
The trial court rendered judgment against petitioner Khe
Hong Cheng in Civil Case No.13357 on December 29, 1993,
four years after the donations were made and the TCTs were
registered in the donees' names. The decretal portion of the
aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court
hereby renders judgment in favor of the plaintiff
and against the defendant, ordering the latter to
pay the former:
1) the sum of P354,000.00 representing the
amount paid by the plaintiff to the Philippine
Agricultural Trading Corporation with legal interest
at 12% from the time of the filing of the complaint
in this case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1
After the said decision became final and executory, a writ of
execution was forthwith' issued on September 14, 1995. Said
writ of execution however, was not served. An alias writ of
execution was, thereafter, applied for and granted in October
1996. Despite earnest efforts, the sheriff found no property
under the name of Butuan Shipping Lines and/or petitioner
Khe Hong Cheng to levy or garnish for the satisfaction of the
trial court's decision. When the sheriff, accompanied by
counsel of respondent Philam, went to Butuan City on
January 17, 1997, to enforce the alias writ of execution, they
discovered that petitioner Khe Hong Cheng no longer had
any property and that he had conveyed the subject
properties to his children.
On February 25, 1997, respondent Philam filed a complaint
with the Regional Trial Court of Makati City, Branch 147, for
the rescission of the deeds of donation executed by
petitioner Khe Hong Cheng in favor of his children and for
the nullification of their titles (Civil Case No.97-415).
Respondent Philam alleged, inter alia, that petitioner Khe
Hong Cheng executed the aforesaid deeds in fraud of his
creditors, including respondent Philam.2
Petitioners subsequently filed their answer to the complaint a
quo. They moved for its dismissal on the ground that the
action had already prescribed. They posited that the
registration of the deeds of donation on December 27, 1989
constituted constructive notice and since the complaint a
quo was filed only on February 25, 1997, or more than four
(4) years after said registration, the action was already
barred by prescription.3
Acting thereon, the trial court denied the motion to dismiss. It
held that respondent Philam's complaint had not yet
prescribed. According to the trial court, the prescriptive
period began to run only from December 29, 1993, the date
of the decision of the trial court in Civil Case No. 13357. 4
On appeal by petitioners, the CA affirmed the trial court's
decision in favor of respondent Philam. The CA declared that
the action to rescind the donations had not yet prescribed.
Citing Articles 1381 and 1383 of the Civil Code, the CA
basically ruled that the four year period to institute the action
for rescission began to run only in January 1997, and not
when the decision in the civil case became final and
executory on December 29, 1993. The CA reckoned the
accrual of respondent Philam's cause of action on January
1997, the time when it first learned that the judgment award
could not be satisfied because the judgment creditor,
petitioner Khe Hong Cheng, had no more properties in his
name. Prior thereto, respondent Philam had not yet
exhausted all legal means for the satisfaction of the decision
in its favor, as prescribed under Article 1383 of the Civil
Code.5
The Court of Appeals thus denied the petition for certiorari
filed before it, and held that the trial court did not commit any
error in denying petitioners' motion to dismiss. Their motion
for reconsideration was likewise dismissed in the appellate
court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution
of the CA alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND
ACTED IN GRAVE ABUSE OF DISCRETION
WHEN IT DENIED THE PETITION TO DISMISS
 THE CASE BASED ON THE GROUND OF
PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN HOLDING THAT
PRESCRIPTION BEGINS TO RUN WHEN IN
JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF
PETITIONER FELIX KHE CHENG TO SATISFY
THE JUDGMENT IN CIVIL CASE NO.13357 AND
FOUND OUT THAT AS EARLY AS DEC. 20,
1989, PETITIONERS KHE CHENG EXECUTED
THE DEEDS OF DONATIONS IN FAVOR OF HIS
CO-PETITIONERS THAT THE ACTION FOR
RESCISSION ACCRUED BECAUSE
PRESCRIPTION BEGAN TO RUN WHEN THESE
DONATIONS WERE REGISTERED WITH THE
REGISTER OF DEEDS IN DECEMBER 1989,
AND WHEN THE COMPLAINT WAS FILED ONLY
IN FEBRUARY 1997, MORE THAN FOUR
YEARS HAVE ALREADY LAPSED AND
THEREFORE, IT HAS ALREADY PRESCRIBED. 6
Essentially, the issue for resolution posed by petitioners is
this: When did the four (4) year prescriptive period as
provided for in Article 1389 of the Civil Code for respondent
Philam to file its action for rescission of the subject deeds of
donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The
action to claim rescission must be commenced within four
years." Since this provision of law is silent as to when the
prescriptive period would commence, the general rule, i.e.,
from the moment the cause of action accrues, therefore,
applies. Article 1150 of the Civil Code is particularly
instructive:
Art. 1150. The time for prescription for all kinds of
actions, when there is no special provision which
ordains otherwise, shall be counted from the day
they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the
starting point for the computation of the prescriptive period
for the action.7 Article 1383 of the Civil Code provides as
follows:
Art. 1383. An action for rescission is subsidiary; it
cannot be instituted except when the party
suffering damage has no other legal means to execution of said deeds under Section 52 of Presidential
obtain reparation for the same. Decree No. 1529, quoted infra, as follows:
It is thus apparent that an action to rescind or an accion Section 52. Constructive knowledge upon
pauliana must be of last resort, availed of only after all other registration. - Every conveyance, mortgage, lease,
legal remedies have been exhausted and have been proven lien, attachment, order, judgment, instrument or
futile. For an accion pauliana to accrue, the following entry affecting registered land shall, if registered,
requisites must concur: filed or entered in the Office of the Register of
Deeds for the province or city where the land to
which it relates lies, be constructive notice to all
1) That the plaintiff asking for rescission has a
persons from the time of such registering, filing, or
credit prior to, the alienation, although demandable
entering.
later; 2) That the debtor has made a subsequent
contract conveying a patrimonial benefit to a third
person; 3) That the creditor has no other legal Petitioners argument that the Civil Code must yield to the
remedy to satisfy his claim, but would benefit by Mortgage and Registration Laws is misplaced, for in no way
rescission of the conveyance to the third person; does this imply that the specific provisions of the former may
4) That the act being impugned is fraudulent; 5) be all together ignored. To count the four year prescriptive
That the third person who received the property period to rescind an allegedly fraudulent contract from the
conveyed, if by onerous title, has been an date of registration of the conveyance with the Register of
accomplice in the fraud.8 (Emphasis ours) Deeds, as alleged by the petitioners, would run counter to
Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to
We quote with approval the following disquisition of the CA
file an action for rescission of an allegedly fraudulent
on the matter:
conveyance of property, i.e., the creditor has no other legal
remedy to satisfy his claim.
An accion pauliana accrues only when the creditor
discovers that he has no other legal remedy for the
An accion pauliana thus presupposes the following: 1) A
satisfaction of his claim against the debtor other
judgment; 2) the issuance by the trial court of a writ of
than an accion pauliana. The accion pauliana is
execution for the satisfaction of the judgment, and 3) the
an action of a last resort. For as long as the
failure of the sheriff to enforce and satisfy the judgment of
creditor still has a remedy at law for the
the court. It requires that the creditor has exhausted the
enforcement of his claim against the debtor, the
property of the debtor: The date of the decision of the trial
creditor will not have any cause of action against
court is immaterial. What is important is that the credit of the
the creditor for rescission of the contracts entered
plaintiff antedates that of the fraudulent alienation by the
into by and between the debtor and another
debtor of his property. After all, the decision of the trial court
person or persons. Indeed, an accion
against the debtor will retroact to the time when the debtor
pauliana presupposes a judgment and the
became indebted to the creditor.
issuance by the trial court of a writ of execution for
the satisfaction of the judgment and the failure of
the Sheriff to enforce and satisfy the judgment of Tolentino, a noted civilist, explained:
the court. It presupposes that the creditor has
exhausted the property of the debtor. The date of
"xxx[T]herefore, credits with suspensive term or
the decision of the trial court against the debtor is
condition are excluded, because the accion
immaterial. What is important is that the credit of
pauliana presupposes a judgment and unsatisfied
the plaintiff antedates that of the fraudulent
execution, which cannot exist when the debt is not
alienation by the debtor of his property. After all,
yet demandable at the time the rescissory action is
the decision of the trial court against the debtor will
brought. Rescission is a subsidiary action, which
retroact to the time when the debtor became
presupposes that the creditor has exhausted the
indebted to the creditor.9
property of the debtor which is impossible in
credits which cannot be enforced because of a
Petitioners, however, maintain that the cause of action of suspensive term or condition.
respondent Philam against them for the rescission of the
deeds of donation accrued as early as December 27, 1989,
While it is necessary that the credit of the plaintiff
when petitioner Khe Hong Cheng registered the subject
in the accion pauliana must be prior to the
conveyances with the Register of Deeds. Respondent
fraudulent alienation, the date of the judgment
Philam allegedly had constructive knowledge of the
enforcing it is immaterial. Even if the judgment be
 subsequent to the alienation, it is merely
declaratory with retroactive effect to the date when
the credit was constituted."10
These principles were reiterated by the Court when it
explained the requisites of an accion pauliana in greater
detail, to wit:
"The following successive measures must be
taken by a creditor before he may bring an action
for rescission of an allegedly fraudulent sale: (1)
exhaust the properties of the debtor through
levying by attachment and execution upon all the
property of the debtor, except such as are exempt
from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him
(accion subrogatoria); and (3) seek rescission of
the contracts executed by the debtor in fraud of
their rights (accion pauliana). Without availing of
the first and second remedies, i.e.. exhausting the
properties of the debtor or subrogating themselves
in Francisco Bareg's transmissible rights and
actions. petitioners simply: undertook the third
measure and filed an action for annulment of sale.
This cannot be done."11 (Emphasis ours)
In the same case, the Court also quoted the rationale of the
CA when it upheld the dismissal of the accion pauliana on
the basis of lack of cause of action:
"In this case, plaintiffs appellants had not even
commenced an action against defendants-
appellees Bareng for the collection of the alleged
indebtedness, Plaintiffs-appellants had not even
tried to exhaust the property of defendants-
appellees Bareng, Plaintiffs-appellants, in seeking
the rescission of the contracts of sale entered into
between defendants-appellees, failed to show and
prove that defendants-appellees Bareng had no
other property, either at the time of the sale or at
the time this action was filed, out of which they
could have collected this (sic) debts." (Emphasis
ours)
Even if respondent Philam was aware, as of December 27,
1989, that petitioner Khe Hong Cheng had executed the
deeds of donation in favor of his children, the complaint
against Butuan Shipping Lines and/or petitioner Khe Hong
Cheng was still pending before the trial court. Respondent
Philam had no inkling, at the time, that the trial court’s
judgment would be in its favor and further, that such
judgment would not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during the
pendency of the case. Had respondent Philam filed his
complaint on December 27, 1989, such complaint would
have been dismissed for being premature. Not only were all
other legal remedies for the enforcement of respondent SO ORDERED.
Philam's claims not yet exhausted at the time the needs of
donation were executed and registered. Respondent Philam
would also not have been able to prove then that petitioner
Khe Hong Cheng had no more property other than those
covered by the subject deeds to satisfy a favorable judgment
by the trial court.
It bears stressing that petitioner Khe Hong Cheng even
expressly declared and represented that he had reserved to
himself property sufficient to answer for his debts contracted
prior to this date:
"That the DONOR further states, for the same
purpose as expressed in the next preceding
paragraph, that this donation is not made with the
object of defrauding his creditors having reserved
to himself property sufficient to answer his debts
contracted prior to this date".12
As mentioned earlier, respondent Philam only learned about
the unlawful conveyances made by petitioner Khe Hong
Cheng in January 1997 when its counsel accompanied the
sheriff to Butuan City to attach the properties of petitioner
Khe Hong Cheng. There they found that he no longer had
any properties in his name. It was only then that respondent
Philam's action for rescission of the deeds of donation
accrued because then it could be said that respondent
Philam had exhausted all legal means to satisfy the trial
court's judgment in its favor. Since respondent Philam filed
its complaint for accion pauliana against petitioners on
February 25, 1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other property to satisfy
the judgment award against him, its action for rescission of
the subject deeds clearly had not yet prescribed.1âwphi1.nêt
A final point. Petitioners now belatedly raise on appeal the
defense of improper venue claiming that respondent
Philam's complaint is a real action and should have been
filed with the RTC of Butuan City since the property subject
matter or the donations are located therein. Suffice it to say
that petitioners are already deemed to have waived their
right to question the venue of the instant case. Improper
venue should be objected to as follows 1) in a motion to
dismiss filed within the time but before the filing of the
answer;13 or 2) in the answer as an affirmative defense over
which, in the discretion of the court, a preliminary hearing
may be held as if a motion to dismiss had been
filed.14 Having failed to either file a motion to dismiss on the
ground of improper of venue or include the same as an
affirmative defense in their answer, petitioners are deemed
to have their right to object to improper venue.
WHEREFORE, premises considered, the petition is
hereby DENIED for lack of merit.

G.R. No. 152347             June 21, 2006
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
SPS. ALFREDO ONG AND SUSANA ONG and JACKSON
LEE, Respondents.
DECISION
GARCIA, J.:
By this petition for review under Rule 45 of the Rules of
Court, petitioner Union Bank of the Philippines (Union Bank)
seeks to set aside the decision 1 dated December 5, 2001 of
the Court of Appeals (CA) in CA-G.R. No. 66030 reversing
an earlier decision of the Regional Trial Court (RTC) of Pasig
City in Civil Case No. 61601, a suit thereat commenced by
the petitioner against the herein respondents for annulment
or rescission of sale in fraud of creditors.
The facts:
Herein respondents, the spouses Alfredo Ong and Susana
Ong, own the majority capital stock of Baliwag Mahogany
Corporation (BMC). On October 10, 1990, the spouses
executed a Continuing Surety Agreement in favor of Union
Bank to secure a P40,000,000.00-credit line facility made
available to BMC. The agreement expressly stipulated a
solidary liability undertaking.
On October 22, 1991, or about a year after the execution of
the surety agreement, the spouses Ong, for P12,500,000.00,
sold their 974-square meter lot located in Greenhills, San
Juan, Metro Manila, together with the house and other
improvements standing thereon, to their co-respondent,
Jackson Lee (Lee, for short). The following day, Lee
registered the sale and was then issued Transfer Certificate
of Title (TCT) No. 4746-R. At about this time, BMC had
already availed itself of the credit facilities, and had in fact
executed a total of twenty-two (22) promissory notes in favor
of Union Bank.
On November 22, 1991, BMC filed a Petition for
Rehabilitation and for Declaration of Suspension of
Payments with the Securities and Exchange Commission
(SEC). To protect its interest, Union Bank lost no time in
filing with the RTC of Pasig City an action for rescission of
the sale between the spouses Ong and Jackson Lee for
purportedly being in fraud of creditors.
In its complaint, docketed as Civil Case No. 61601 and
eventually raffled to Branch 157 of the court, Union Bank
assailed the validity of the sale, alleging that the spouses
Ong and Lee entered into the transaction in question for the
lone purpose of fraudulently removing the property from the
reach of Union Bank and other creditors. The fraudulent
design, according to Union Bank, is evidenced by the
following circumstances: (1) insufficiency of consideration,
the purchase price of P12,500,000.00 being below the fair
market value of the subject property at that time; (2) lack of
financial capacity on the part of Lee to buy the property at
that time since his gross income for the year 1990, per the
credit investigation conducted by the bank, amounted to
only P346,571.73; and (3) Lee did not assert absolute
ownership over the property as he allowed the spouses Ong
to retain possession thereof under a purported Contract of
Lease dated October 29, 1991.
Answering, herein respondents, as defendants a quo,
maintained, in the main, that both contracts of sale and lease
over the Greenhills property were founded on good and valid
consideration and executed in good faith. They also scored
Union Bank for forum shopping, alleging that the latter is one
of the participating creditors in BMC’s petition for
rehabilitation.
Issues having been joined, trial followed. On September 27,
1999, the trial court, applying Article 1381 of the Civil Code
and noting that the evidence on record "present[s] a holistic
combination of circumstances distinctly characterized by
badges of fraud," rendered judgment for Union Bank, the
Deed of Sale executed on October 22, 1991 by the spouses
Ong in favor of Lee being declared null and void.
Foremost of the circumstances adverted to relates to the
execution of the sale against the backdrop of the spouses
Ong, as owners of 70% of BMC's stocks, knowing of the
company’s insolvency. This knowledge was the reason why,
according to the court, the spouses Ong disposed of the
subject property leaving the bank without recourse to recover
BMC's indebtedness. The trial court also made reference to
the circumstances which Union Bank mentioned in its
complaint as indicia of conveyance in fraud of creditors.
Therefrom, herein respondents interposed an appeal to the
CA which docketed their recourse as CA-G.R. No. 66030.
In its Decision dated December 5, 2001, the CA reversed
and set aside the trial court's ruling, observing that the
contract of sale executed by the spouses Ong and Lee,
being complete and regular on its face, is clothed with the
prima facie presumption of regularity and legality. Plodding
on, the appellate court said:
In order that rescission of a contract made in fraud of
creditors may be decreed, it is necessary that the
complaining creditors must prove that they cannot recover in
any other manner what is due them. xxx.
There is no gainsaying that the basis of liability of the
appellant spouses in their personal capacity to Union Bank is
the Continuing Surety Agreement they have signed … on
October 10, 1990. However, the real debtor of Union Bank is
BMC, which has a separate juridical personality from
appellants Ong. Granting that BMC was already insolvent at
the time of the sale, still, there was no showing that at the
time BMC filed a petition for suspension of payment that
appellants Ong were themselves bankrupt. In the case at
bench, no attempt was made by Union Bank, not even a
feeble or half-hearted one, to establish that appellants
spouses have no other property from which Union Bank, as
creditor of BMC, could obtain payment. While appellants
Ong may be independently liable directly to Union Bank
under the Continuing Surety Agreement, all that Union Bank
tried to prove was that BMC was insolvent at the time of the
questioned sale. No competent evidence was adduced
showing that appellants Ong had no leviable assets other
than the subject property that would justify challenge to the
transaction.2
Petitioner moved for a reconsideration of the above decision
but its motion was denied by the appellate court in its
resolution of February 21, 2002. 3
Hence, petitioner’s present recourse on its submission that
the appellate court erred:
I. xxx WHEN IT CONSIDERED THAT THE SALE
TRANSACTION BETWEEN [ RESPONDENTS SPOUSES
ONG AND LEE] ENJOYS THE PRESUMPTION OF
REGULARITY AND LEGALITY AS THERE EXISTS ALSO A
PRESUMPTION THAT THE SAID SALE WAS ENTERED IN
FRAUD OF CREDITORS. PETITIONER THEREFORE
NEED NOT PROVE THAT RESPONDENTS SPOUSES
ONG DID NOT LEAVE SUFFICIENT ASSETS TO PAY
THEIR CREDITORS. BUT EVEN THEN, PETITIONER HAS
PROVEN THAT THE SPOUSES HAVE NO OTHER
ASSETS.
II. IN CONCLUDING, ASSUMING EX-GRATIA ARGUMENTI
THAT THE SALE BETWEEN DEFENDANT-APPELLANTS
ENJOY THE PRESUMPTION OF REGULARITY AND
LEGALITY, THAT THE EVIDENCE ADDUCED BY THE
PETITIONER … WAS NOT SUFFICIENT TO OVERCOME
THE PRESUMPTION.
III. xxx IN FINDING THAT IT WAS [RESPONDENT] LEE
WHO HAS SUFFICIENTLY PROVEN THAT THERE WAS A
VALID AND SUFFICIENT CONSIDERATION FOR THE
SALE.
IV. xxx IN NOT FINDING THAT JACKSON LEE WAS IN
BAD FAITH WHEN HE PURCHASED THE PROPERTY. 4
Petitioner maintains, citing China Banking Corporation vs.
Court of Appeals,5 that the sale in question, having been
entered in fraud of creditor, is rescissible. In the same
breath, however, petitioner would fault the CA for failing to
consider that the sale between the Ongs and Lee is
presumed fraudulent under Section 70 of Act No. 1956, as
amended, or the Insolvency Law. Elaborating on this point,
petitioner states that the subject sale occurred thirty (30)
days prior to the filing by BMC of a petition for suspension of
payment before the SEC, thus rendering the sale not merely
rescissible but absolutely void.
We resolve to deny the petition.
In effect, the determinative issue tendered in this case
resolves itself into the question of whether or not the Ong-
Lee contract of sale partakes of a conveyance to defraud
Union Bank. Obviously, this necessitates an inquiry into the
facts and this Court eschews factual examination in a
petition for review under Rule 45 of the Rules of Court, save
when, as in the instant case, a clash between the factual
findings of the trial court and that of the appellate court
exists,6 among other exceptions.
As between the contrasting positions of the trial court and
the CA, that of the latter commends itself for adoption, being
more in accord with the evidence on hand and the laws
applicable thereto.
Essentially, petitioner anchors its case on Article 1381 of the
Civil Code which lists as among the rescissible contracts
"[T]hose undertaken in fraud of creditors when the latter
cannot in any other manner collect the claim due them."
Contracts in fraud of creditors are those executed with the
intention to prejudice the rights of creditors. They should not
be confused with those entered into without such mal-intent,
even if, as a direct consequence thereof, the creditor may
suffer some damage. In determining whether or not a certain
conveying contract is fraudulent, what comes to mind first is
the question of whether the conveyance was a bona
fide transaction or a trick and contrivance to defeat
creditors.7 To creditors seeking contract rescission on the
ground of fraudulent conveyance rest the onus of proving by
competent evidence the existence of such fraudulent intent
on the part of the debtor, albeit they may fall back on the
disputable presumptions, if proper, established under Article
1387 of the Code.8
In the present case, respondent spouses Ong, as the CA
had determined, had sufficiently established the validity and
legitimacy of the sale in question. The conveying deed, a
duly notarized document, carries with it the presumption of
validity and regularity. Too, the sale was duly recorded and
annotated on the title of the property owners, the spouses
Ong. As the transferee of said property, respondent Lee
caused the transfer of title to his name.
There can be no quibbling about the transaction being
supported by a valid and sufficient consideration.
Respondent Lee’s account, while on the witness box, about
this angle of the sale was categorical and straightforward. An
excerpt of his testimony:
Atty. De Jesus :
Before you prepared the consideration of this formal offer, as
standard operating procedure of buy and sell, what
documents were prepared?
xxx xxx xxx
Jackson Lee:
A. There is a downpayment.
Q. And how much was the downpayment?
A. P2,500,000.00.
Q. Was that downpayment covered by a receipt signed by
the seller?
A. Yes, Sir, P500,000.00 and P2,000,000.00
xxx xxx xxx
Q. Are you referring to the receipt dated October 19, 1991,
how about the other receipt dated October 21, 1991?
A. Yes, Sir, this is the same receipt.
xxx xxx xxx
Q. Considering that the consideration of this document is
for P12,000,000.00 and you made mention only
of P2,500,000.00, covered by the receipts, do you have
evidence to show that, finally, Susana Ong received the
balance of P10,000,000.00?
A. Yes, Sir.
Q. Showing to you a receipt denominated as
Acknowledgement Receipt, dated October 25, 1991, are you
referring to this receipt to cover the balance
of P10,000,000.00?
A. Yes, sir.9
The foregoing testimony readily proves that money indeed
changed hands in connection with the sale of the subject
property. Respondent Lee, as purchaser, paid the stipulated
contract price to the spouses Ong, as vendors. Receipts
presented in evidence covered and proved such payment.
Accordingly, any suggestion negating payment and receipt of
valuable consideration for the subject conveyance, or worse,
that the sale was fictitious must simply be rejected.
In a bid to attach a badge of fraud on the transaction,
petitioner raises the issue of inadequate consideration,
alleging in this regard that only P12,500,000.00 was paid for
property having, during the period material, a fair market
value of P14,500,000.00.
We do not agree.
The existence of fraud or the intent to defraud creditors
cannot plausibly be presumed from the fact that the price
paid for a piece of real estate is perceived to be slightly
lower, if that really be the case, than its market value. To be
sure, it is logical, even expected, for contracting minds, each
having an interest to protect, to negotiate on the price and
other conditions before closing a sale of a valuable piece of
land. The negotiating areas could cover various items. The
purchase price, while undeniably an important consideration,
is doubtless only one of them. Thus, a scenario where the
price actually stipulated may, as a matter of fact, be lower
than the original asking price of the vendor or the fair market
value of the property, as what perhaps happened in the
instant case, is not out of the ordinary, let alone indicative of
fraudulent intention. That the spouses Ong acquiesced to the
price of P12,500,000.00, which may be lower than the
market value of the house and lot at the time of alienation, is
certainly not an unusual business phenomenon.
Lest it be overlooked, the disparity between the price
appearing in the conveying deed and what the petitioner
regarded as the real value of the property is not as gross to
support a conclusion of fraud. What is more, one Oliver
Morales, a licensed real estate appraiser and broker, virtually
made short shrift of petitioner’s claim of gross inadequacy of
the purchase price. Mr. Morales declared that there exists no
gross disparity between the market value of the subject
property and the price mentioned in the deed as
consideration. He explained why:
ATTY. EUFEMIO:
Q. I am showing to you the said two (2) exhibits Mr. Morales
and I would like you to go over the terms and conditions
stated therein and as an expert in real estate appraiser (sic)
and also as a real estate broker, can you give this Honorable
Court your considered opinion whether the consideration
stated therein P12,500,000.00 in the light of all terms and
conditions of the said Deed of Absolute Sale and Offer to
Purchase could be deemed fair and reasonable?
xxx xxx xxx
MR. MORALES:
A. My opinion generally a Deed of Absolute Sale indicated
prescribed not only the amount of the consideration. There
are also other expenses involved in the sales. I do not see
here other payment of who takes care of capital gains stocks
(sic) in this Deed of Sale neither who shouldered the
documentary stamps or even transfer tax. That is my
comment regarding this.
Q. Precisely Mr. Witness we have also shown to you the
Offer to Purchase which has been marked as Exhibit "9" as
to the terms which we are asking?
xxx xxx xxx
A. Well, it says here in item C of the conditions the Capital
Gains Stocks (sic), documentary stamps, transfer tax
registration and broker’s fee for the buyer’s account. I do not
know how much is this worth. If at all in condition (sic) to the
12.5 million which is the selling price, may I, therefore aside
(sic) how much is the total cost pertaining to this. The capital
gains tax on (sic), documentary stamps, transfer tax are all
computed on the basis of the consideration which is P12.5
M, the capital gain stocks (sic) is 5%, 5% of 12.5 M.
xxx xxx xxx
Yes sir if the 5% capital gains tax and documentary stamps
respectively shall be added to the 12.5 Million before the
inclusion of the transfer tax, the amount will be already in the
vicinity of P13,250.000.
Q. With such consideration Mr. Witness and in the light of
the terms and conditions in the said Offer to Purchase and
Deed of Absolute Sale could you give your opinion as to
whether the consideration is fair and reasonable.
xxx xxx xxx
A. With our proposal of P14.5 M as compared now
to P13,250,000.00 may I give my opinion that generally there
will be two appraisers. In fairness to the situation, they
should not vary by as much as 7% down so we are playing
at a variance actually of about 15%. In my experience in this
profession for the last 27 years as I have said in fairness if
there is another appraisal done by another person, that kind
of difference is very marginal should at least indicate the
fairness of the property and so therefore the only way to find
out is to determine the difference between the P14.5 M and
the P13,250,000.00. My computation indicates that it is close
to 10% something like that difference. What is the question
again?
Q. Whether it is fair and reasonable under the
circumstances.
A. I have answered already the question and I said
maximum of 15%.
Q. So based on your computation this is about 10% which is
fair and reasonable.
A That is right sir.10
Withal, the consideration of the sale is fair and reasonable as
would justify the conclusion that the sale is undoubtedly a
true and genuine conveyance to which the parties thereto
are irrevocably and undeniably bound.
It may be stressed that, when the validity of sales contract is
in issue, two veritable presumptions are relevant: first, that
there was sufficient consideration of the contract 11 ;
and, second, that it was the result of a fair and regular
private transaction.12 If shown to hold, these presumptions
infer prima facie the transaction's validity, except that it must
yield to the evidence adduced13 which the party disputing
such presumptive validity has the burden of overcoming.
Unfortunately for the petitioner, it failed to discharge this
burden. Its bare allegation respecting the sale having been
executed in fraud of creditors and without adequate
consideration cannot, without more, prevail over the
respondents' evidence which more than sufficiently supports
a conclusion as to the legitimacy of the transaction and
the bona fides of the parties.
Parenthetically, the rescissory action to set aside contracts in
fraud of creditors is accion pauliana, essentially a subsidiary
remedy accorded under Article 1383 of the Civil Code which
the party suffering damage can avail of only when he has no
other legal means to obtain reparation for the same. 14 In net
effect, the provision applies only when the creditor cannot
recover in any other manner what is due him.
It is true that respondent spouses, as surety for BMC, bound
themselves to answer for the latter’s debt. Nonetheless, for
purposes of recovering what the eventually insolvent BMC
owed the bank, it behooved the petitioner to show that it had
exhausted all the properties of the spouses Ong. It does not
appear in this case that the petitioner sought other properties
of the spouses other than the subject Greenhills property.
The CA categorically said so. Absent proof, therefore, that
the spouses Ong had no other property except their
Greenhills home, the sale thereof to respondent Lee cannot
simplistically be considered as one in fraud of creditors.
Neither was evidence adduced to show that the sale in
question peremptorily deprived the petitioner of means to
collect its claim against the Ongs. Where a creditor fails to
show that he has no other legal recourse to obtain
satisfaction for his claim, then he is not entitled to the
rescission asked.15
For a contract to be rescinded for being in fraud of creditors,
both contracting parties must be shown to have acted
maliciously so as to prejudice the creditors who were
prevented from collecting their claims. 16 Again, in this case,
there is no evidence tending to prove that the spouses Ong
and Lee were conniving cheats. In fact, the petitioner did not
even attempt to prove the existence of personal closeness or
business and professional interdependence between the
spouses Ong and Lee as to cast doubt on their true intent in
executing the contract of sale. With the view we take of the
evidence on record, their relationship vis-à-vis the subject
Greenhills property was no more than one between vendor
and vendee dealing with each other for the first time. Any
insinuation that the two colluded to gyp petitioner bank is to
read in a relationship something which, from all indications,
appears to be purely business.
It cannot be overemphasized that rescission is generally
unavailing should a third person, acting in good faith, is in
lawful possession of the property, 17 that is to say, he is
protected by law against a suit for rescission by the
registration of the transfer to him in the registry.
As recited earlier, Lee was - and may still be - in lawful
possession of the subject property as the transfer to him was
by virtue of a presumptively valid onerous contract of sale.
His possession is evidenced by no less than a certificate of
title issued him by the Registry of Deeds of San Juan, Metro
Manila, after the usual registration of the corresponding
conveying deed of sale. On the other hand, the bona fides of
his acquisition can be deduced from his conduct and
outward acts previous to the sale. As testified to by him and
duly noted by the CA, respondent Lee undertook what
amounts to due diligence on the possible defects in the title
of the Ongs before proceeding with the sale. As it were, Lee
decided to buy the property only after being satisfied of the
absence of such defects.18
Time and again, the Court has held that one dealing with a
registered parcel of land need not go beyond the certificate
of title as he is charged with notice only of burdens which are
noted on the face of the register or on the certificate of
title.19 The Continuing Surety Agreement, it ought to be
particularly pointed out, was never recorded nor annotated
on the title of spouses Ong. There is no evidence extant in
the records to show that Lee had knowledge, prior to the
subject sale, of the surety agreement adverted to. In fine,
there is nothing to remotely suggest that the purchase of the
subject property was characterized by anything other than
good faith.
Petitioner has made much of respondent Lee not taking
immediate possession of the property after the sale, stating
that such failure is an indication of his participation in the
fraudulent scheme to prejudice petitioner bank.
We are not persuaded.
Lee, it is true, allowed the respondent spouses to continue
occupying the premises even after the sale. This
development, however, is not without basis or practical
reason. The spouses' continuous possession of the property
was by virtue of a one-year lease 20 they executed with
respondent Lee six days after the sale. As explained by the
respondent spouses, they insisted on the lease arrangement
as a condition for the sale in question. And pursuant to the
lease contract aforementioned, the respondent Ongs paid
and Lee collected rentals at the rate of P25,000.00 a month.
Contrary thus to the petitioner’s asseveration, respondent
Lee, after the sale, exercised acts of dominion over the said
property and asserted his rights as the new owner. So, when
the respondent spouses continued to occupy the property
after its sale, they did so as mere tenants. While the failure
of the vendee to take exclusive possession of the property is
generally recognized as a badge of fraud, the same cannot
be said here in the light of the existence of what appears to
be a genuine lessor-lessee relationship between the
spouses Ong and Lee. To borrow from Reyes vs. Court of
Appeals,21 possession may be exercised in one’s own name
or in the name of another; an owner of a piece of land has
possession, either when he himself physically occupies the
same or when another person who recognizes his right as
owner is in such occupancy.
Petitioner’s assertion regarding respondent Lee’s lack of
financial capacity to acquire the property in question since
his income in 1990 was only P346,571.73 is clearly
untenable. Assuming for argument that petitioner got its
figure right, it is clearly incorrect to measure one’s
purchasing capacity with one’s income at a given period. But
the more important consideration in this regard is the
uncontroverted fact that respondent Lee paid the purchase
price of said property. Where he sourced the needed cash is,
for the nonce, really of no moment.
The cited case of China Banking 22 cannot plausibly provide
petitioner with a winning card. In that case, the Court,
applying Article 1381 (3) of the Civil Code, rescinded an
Assignment of Rights to Redeem owing to the failure of the
assignee to overthrow the presumption that the said
conveyance/assignment is fraudulent. In turn, the
presumption was culled from Article 1387, par. 2, of the
Code pertinently providing that "[A]lienation by onerous title
are also presumed fraudulent when made by persons
against whom some judgment has been rendered in any
instance or some writ of attachment has been issued."
Indeed, when the deed of assignment was executed in China
Banking, the assignor therein already faced at that time an
adverse judgment. In the same case, moreover, the Court
took stock of other signs of fraud which tainted the
transaction therein and which are, significantly, not obtaining
in the instant case. We refer, firstly, to the element of kinship,
the assignor, Alfonso Roxas Chua, being the father of the
assignee, Paulino. Secondly, Paulino admitted knowing his
father to be insolvent. Hence, the Court, rationalizing the
rescission of the assignment of rights, made the following
remarks:
The mere fact that the conveyance was founded on valuable
consideration does not necessarily negate the presumption
of fraud under Article 1387 of the Civil Code. There has to be
valuable consideration and the transaction must have been
made bona fide.23
There lies the glaring difference with the instant case.
Here, the existence of fraud cannot be presumed, or, at the
very least, what were perceived to be badges of fraud have
been proven to be otherwise. And, unlike Alfonso Roxas
Chua in China Banking, a judgment has not been rendered
against respondent spouses Ong or that a writ of attachment
has been issued against them at the time of the disputed
sale.
In a last-ditch attempt to resuscitate a feeble cause,
petitioner cites Section 70 of the Insolvency Law which,
unlike the invoked Article 1381 of the Civil Code that deals
with a valid but rescissible contract, treats of a contractual
infirmity resulting in nullity no less of the transaction in
question. Insofar as pertinent, Section 70 of the Insolvency
Law provides:
Sec. 70. If any debtor, being insolvent, or in contemplation of
insolvency, within thirty days before the filing of a petition by
or against him, with a view to giving a preference to any
creditor or person having a claim against him xxx makes any
xxx sale or conveyance of any part of his property, xxx such
xxx sale, assignment or conveyance is void, and the
assignee, or the receiver, may recover the property or the
value thereof, as assets of such insolvent debtor. xxx. Any
payment, pledge, mortgage, conveyance, sale, assignment,
or transfer of property of whatever character made by the
insolvent within one (1) month before the filing of a petition in
insolvency by or against him, except for a valuable
pecuniary consideration made in good faith shall be void.
xxx. (Emphasis added)
Petitioner avers that the Ong-Lee sales contract partakes of
a fraudulent transfer and is null and void in contemplation of
the aforequoted provision, the sale having occurred on
October 22, 1991 or within thirty (30) days before BMC filed
a petition for suspension of payments on November 22,
1991.
Petitioner's reliance on the afore-quoted provision is
misplaced for the following reasons:
First, Section 70, supra, of the Insolvency Law
specifically makes reference to conveyance of
properties made by a "debtor" or by an "insolvent"
who filed a petition, or against whom a petition for
insolvency has been filed. Respondent spouses
Ong have doubtlessly not filed a petition for a
declaration of their own insolvency. Neither has
one been filed against them. And as the CA aptly
observed, it was never proven that respondent
spouses are likewise insolvent, petitioner having
failed to show that they were down to their
Greenhills property as their only asset.
It may be that BMC had filed a petition for
rehabilitation and suspension of payments with the
SEC. The nagging fact, however is that BMC is a
different juridical person from the respondent
spouses. Their seventy percent (70%) ownership
of BMC’s capital stock does not change the legal
situation. Accordingly, the alleged insolvency of
BMC cannot, as petitioner postulates, extend to
the respondent spouses such that transaction of
 the latter comes within the purview of Section 70
of the Insolvency Law.

Second, the real debtor of petitioner bank in this

case is BMC. The fact that the respondent
spouses bound themselves to answer for BMC’s
indebtedness under the surety agreement referred
to at the outset is not reason enough to conclude
that the spouses are themselves debtors of
petitioner bank. We have already passed upon the
simple reason for this proposition. We refer to the
basic precept in this jurisdiction that a corporation,
upon coming into existence, is invested by law
with a personality separate and distinct from those
of the persons composing it.24 Mere ownership by
a single or small group of stockholders of nearly all
of the capital stock of the corporation is not,
without more, sufficient to disregard the fiction of
separate corporate personality.25

Third, Section 70 of the Insolvency Law considers

transfers made within a month after the date of
cleavage void, except those made in good faith
and for valuable pecuniary consideration. The twin
elements of good faith and valuable and sufficient
consideration have been duly established. Given
the validity and the basic legitimacy of the sale in
question, there is simply no occasion to apply
Section 70 of the Insolvency Law to nullify the
transaction subject of the instant case.

All told, we are far from convinced by petitioner’s

argumentation that the circumstances surrounding the sale
of the subject property may be considered badges of fraud.
Consequently, its failure to show actual fraudulent intent on
the part of the spouses Ong defeats its own cause.

WHEREFORE, the instant petition is DENIED and the

assailed decision of the Court of Appeals is AFFIRMED.

Costs against petitioner.

SO ORDERED.

G.R. No. 191178               March 13, 2013
ANCHOR SAVINGS BANK (FORMERLY ANCHOR
FINANCE AND INVESTMENT CORPORATION), Petitioner,
vs.
HENRY H. FURIGAY, GELINDA C. FURIGAY, HERRIETTE
C. FURIGAY and HEGEM C. FURIGAY, Respondents.
DECISION
MENDOZA, J.:
This concerns a petition for review_ on certiorari filed by
petitioner Anchor Savings Bank (ASB) under Rule 45 of the
1997 Rules of Civil Procedure, assailing the May 28, 2009
Decision1 and the January 22, 2010 Resolution2 of the Court
of Appeals (CA), in CA-G.R. CV No. 90123, dismissing the
appeal.3
The assailed resolution denied the separate motions for
reconsideration of both parties.
The Facts
On April 21, 1999, ASB filed a verified complaint for sum of
money and damages with application for replevin against
Ciudad Transport Services, Inc. (CTS), its president,
respondent Henry H. Furigay; his wife, respondent Gelinda
C. Furigay; and a "John Doe." The case was docketed as
Civil Case No. 99-865 and raffled to Branch 143 of the
Regional Trial Court of Makati City (RTC).4
On November 7, 2003, the RTC rendered its Decision 5 in
favor of ASB, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff Anchor Savings Bank ordering defendants Ciudad
Transport Services, Inc., Henry H. Furigay and Genilda C.
Furigay to pay the following:
1) The amount of Eight Million Six Hundred Ninety
Five Thousand Two Hundred Two pesos and Fifty
Nine centavos (Php8,695,202.59) as PRINCIPAL
OBLIGATION as of 12 April 1999;
2) An INTEREST of Twelve per cent (12%) per
annum until fully paid;
3) PENALTY CHARGE of Twelve per cent (12%)
per annum until fully paid;
4) LIQUIDATED DAMAGES of Ten (10%) per cent
of the total amount due;
5) One Hundred Thousand pesos as reasonable
ATTORNEY’S FEES;
6) Costs of suit.
SO ORDERED.6
While Civil Case No. 99-865 was pending, respondent
spouses donated their registered properties in Alaminos,
Pangasinan, to their minor children, respondents Hegem G.
Furigay and Herriette C. Furigay. As a result, Transfer
Certificate of Title (TCT) Nos. 21743, 7 21742,8 21741,9 and
2174010 were issued in the names of Hegem and Herriette
Furigay.
Claiming that the donation of these properties was made in
fraud of creditors, ASB filed a Complaint for Rescission of
Deed of Donation, Title and Damages11 against the
respondent spouses and their children. The case was
docketed as Civil Case No. A-3040 and raffled to Branch 55
of the RTC of Alaminos, Pangasinan. In its Complaint, ASB
made the following allegations:
xxxx
4. That Ciudad Transport Services, Inc., Henry H. Furigay
and Gelinda C. Furigay obtained a loan from Anchor Savings
Bank and subsequently the former defaulted from their loan
obligation which prompted Anchor Savings Bank to file the
case entitled "Anchor Savings Bank vs. Ciudad Transport
Services, Inc., Henry H. Furigay and Gelinda C. Furigay"
lodged before Makati City Regional Trial Court Branch 143
and docketed as Civil Case No. 99-865. On 7 November
2003 the Honorable Court in the aforesaid case issued a
Decision the dispositive portion of which reads as follows:
xxxx
5. That defendants Sps. Henry H. Furigay and Gelinda C.
Furigay are the registered owners of various real properties
located at the Province of Pangasinan covered by Transfer
Certificate of Title Nos. 19721, 21678, 21679, and 21682. x x
x
6. That on 8 March 2001 defendants Sps. Henry H. Furigay
and Gelinda C. Furigay executed a Deed of Donation in
favor of their children herein defendants Hegem C. Furigay
and Herriette C. Furigay donating to them all of the above-
mentioned properties. Hence, the following titles were issued
under their names to wit: Transfer Certificate of Title Nos.
21743, 21742, 21741, and 21740. x x x
7. That the donation made by defendants Sps. Henry H.
Furigay and Gelinda C. Furigay were done with the intention
to defraud its creditors particularly Anchor Savings Bank.
Said transfer or conveyance is the one contemplated by
Article 1387 of the New Civil Code, which reads:
xxxx
8. x x x In the instant case, Sps. Furigay donated the
properties at the time there was a pending case against
them. x x x. In the instant case, the Sps. Furigay donated the
properties to their son and daughter. Moreover, the transfer
or donation was executed in 2001 when both donees Hegem
C. Furigay and Herriette C. Furigay are minors.
9. Clearly, the Donation made by defendants Sps. Furigay
was intended to deprive plaintiff Anchor Savings Bank from
going after the subject properties to answer for their due and
demandable obligation with the Bank. The donation being
undertaken in fraud of creditors then the same may be
rescinded pursuant to Article 1381 of the New Civil Code.
The said provision provides that: x x x x
Consequently, Transfer Certificate of Title Nos. 21743,
21742, 21741, and 21740 issued under the names of
defendants Herriette C. Furigay and Hegem C. Furigay
should likewise be cancelled and reverted to the names of
co-defendants Henry and Gelinda Furigay.
10. That because of the fraud perpetrated by defendants,
plaintiff suffered the following damages.
11. Plaintiff suffered actual and compensatory damages as a
result of the filing of the case the bank has spent a lot of
man-hours of its employees and officers re-evaluating the
account of defendant Sps. Furigay. Such man-hour when
converted into monetary consideration represents the
salaries and per diems of its employees particularly the
CI/Appraiser, Head Office Lawyer and Bank Auditor;
12. Said claim likewise represents administrative expenses
such as transportation expenses, reproduction of
documents, and courier expenses among others;
13. Defendants should be made to pay plaintiff Anchor
Savings Bank the amount of PESOS: ONE MILLION
(₱1,000,000.00) as moral damages for the damage it caused
to the latter’s business goodwill and reputation;
14. By way of example for the public and to deter others from
the malicious filing of baseless (sic) suit, defendants should
be ordered to pay [plaintiff] the amount of PESOS: TWO
HUNDRED THOUSAND (₱200,000.00) as exemplary
damages.
15. Attorneys fees equivalent to twenty-five percent (25%) of
the total amount that can be collected from defendant;
16. Defendants should also be held liable to pay for the cost
of suit.12
Instead of filing an answer, respondents sought the dismissal
of the complaint, principally arguing that the RTC failed to
acquire jurisdiction over their persons as well as over the
subject matter in view of the failure of the ASB to serve the
summons properly and to pay the necessary legal fees.
RTC Resolutions
On September 29, 2006, the RTC issued an Order 13 denying
the motion to dismiss. Respondents sought reconsideration
of the Order adding that the ASB’s action for rescission had
already prescribed.
Upon filing of ASB’s opposition to the motion for
reconsideration, on February 27, 2007, the RTC
reconsidered its earlier pronouncement and dismissed the
complaint for failure of ASB to pay the correct docket fees
and for prescription.14
RTC explained that the service of summons by publication
made by ASB was valid because respondents’ whereabouts
could not have been ascertained with exactitude and
because Section 14, Rule 14 of the Rules of Court did not
distinguish what kind of action it would apply.
On the issue of lack of jurisdiction over the subject matter of
the case, the RTC ruled that the complaint was actually a
real action as it affected title to or possession of real
property. Accordingly, the basis for determining the correct
docket fees was the fair market value of the real property
under litigation as stated in its current tax declaration or its
current zonal valuation, whichever was higher. Considering
that ASB did not state the current tax declaration or current
zonal valuation of the real properties involved, as well as the
amount of actual damages and attorney’s fees it prayed for,
the trial court was of the view that ASB purposely evaded the
payment of the correct filing fees.
On the issue of prescription, the RTC ruled that the action for
rescission had already prescribed. It stated that an action for
rescission grounded on fraud should be filed within four (4)
years from the discovery of fraud. ASB filed the action for
rescission only on October 14, 2005 or after four (4) years
from the time the Deed of Donation was registered in the
Register of Deeds of Alaminos, Pangasinan, on April 4,
2001. The four-year prescriptive period should be reckoned
from the date of registration of the deed of donation and not
from the date of the actual discovery of the registration of the
deeds of donation because registration is considered notice
to the whole world. Thus, the RTC disposed:
WHEREFORE, premises considered, the Order dated
September 29, 2006 is hereby reconsidered and set aside, in
lieu thereof, the instant complaint is hereby ordered
dismissed on the account of lack of jurisdiction over the
subject matter of the case for failure of the plaintiff to pay the
correct docket fees upon its institution attended by bad faith
and on the ground of prescription.
SO ORDERED.15
ASB sought reconsideration, but to no avail.16
Ruling of the CA
On appeal, the CA agreed with ASB that its complaint should
not have been dismissed on the ground that it failed to pay
the correct docket fees. It stated that the lack of specific
amount of actual damages and attorney’s fees in ASB’s
complaint did not, by itself, amount to evident bad faith. The
CA noted that ASB had previously manifested before the trial
court that it was willing to pay additional docket fees should
the same be found insufficient.
On the issue of prescription, however, the CA saw things
differently. Considering the subsidiary nature of an action for
rescission, the CA found that the action of ASB had not yet
prescribed, but was premature. The CA noted that ASB
failed to allege in its complaint that it had resorted to all legal
remedies to obtain satisfaction of its claim. The CA wrote:
After a thorough examination of the foregoing precepts and
the facts engirding this case, this court opines that plaintiff-
appellant’s action for rescission has not yet prescribed for it
must be emphasized that it has not even accrued in the first
place. To stress, an action for rescission or accion pauliana
accrues only if all five requisites are present, to wit:
1) That the plaintiff asking for rescission, has a
credit prior to the alienation, although demandable
later;
2) That the debtor has made a subsequent
contract conveying a patrimonial benefit to a third
person;
3) That the creditor has no other legal remedy to
satisfy his claim, but would benefit by rescission of
the conveyance to the third person;
4) That the act being impugned is fraudulent; and
5) That the third person who received the property
conveyed, if by onerous title, has been an
accomplice in the fraud.
In the instant case, the plaintiff-appellant failed to satisfy the
third requirement considering that it did not allege in its
complaint that it has resorted to all legal remedies to obtain
satisfaction of his claim. It did not even point out in its
complaint if the decision in Civil Case No. 99-865 has
already become final and executory and whether the
execution thereof yielded negative result in satisfying its
claims. Even the skip tracing allegedly done by the plaintiff-
appellant to locate the properties of the defendant-appellees
was not mentioned. And although the skip tracing reports
were subsequently presented by the plaintiff-appellant, such
reports are not sufficient to satisfy the third requirement.
First, they are not prepared and executed by the sheriff, and
second, they do not demonstrate that the sheriff failed to
enforce and satisfy the judgment of the court and that the
plaintiff-appellant has exhausted the property of the
defendant-appellees. Perforce, the action for rescission filed
by the plaintiff-appellant is dismissible.17
As stated at the outset, both parties sought reconsideration
but were rebuffed.
Issue
Hence, this recourse of ASB to the Court, presenting the
lone issue of:
WHETHER OR NOT THE COURT OF APPEALS, IN CA
G.R. CV NO 90123, HAS DECIDED A QUESTION OF
SUBSTANCE, NOT HERETOFORE DETERMINED BY THE
SUPREME COURT, OR HAS DECIDED IT IN A WAY
PROBABLY NOT IN ACCORDANCE WITH LAW OR THE
APPLICABLE DECISIONS OF THE SUPREME COURT,
WHEN IT RENDERED THE DECISION DATED 28 MAY
2009, AND RESOLUTION DATED 22 JANUARY 2010, IN
FINDING THAT PETITIONER FAILED TO PROVE THAT IT
HAS RESORTED TO ALL LEGAL REMEDIES TO OBTAIN
SATISFACTION OF ITS CLAIM, WITHOUT GIVING
PETITIONER THE OPPORTUNITY TO BE HEARD OR THE
CHANCE TO PRESENT EVIDENCE TO SUPPORT ITS
ACTION, THEREBY DEPRIVING THE LATTER OF THE
RIGHT TO DUE PROCESS.18
ASB argues that, considering that its action was still in its
preliminary stages, the CA erred in dismissing its action on
the ground that it failed to allege in its complaint the fact that
it had resorted to all other legal remedies to satisfy its claim,
because it is a matter that need not be alleged in its
complaint, but, rather, to be proved during trial. It asserts that
its action is not yet barred by prescription, insisting that the
reckoning point of the four
(4)-year prescriptive period should be counted from
September 2005, when it discovered the fraudulent donation
made by respondent spouses.
The basic issue in this case is whether the CA was correct in
dismissing ASB’s complaint on the ground that the action
against respondents was premature.
Ruling of the Court
The Court finds the petition bereft of merit.
Section 1 of Rule 2 of the Revised Rules of Court requires
that every ordinary civil action must be based on a cause of
action. Section 2 of the same rule defines a cause of action
as an act or omission by which a party violates the right of
another. In order that one may claim to have a cause of
action, the following elements must concur: (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
named 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 obligation of the defendant to the plaintiff for which the
latter may maintain an action for recovery of damages or
other appropriate relief.19 In other words, "a cause of action
arises when that should have been done is not done, or that
which should not have been done is done."20
In Philippine American General Insurance Co., Inc. v. Sweet
Lines, Inc.,21 it was held that "before an action can properly
be commenced, all the essential elements of the cause of
action must be in existence, that is, the cause of action must
be complete. All valid conditions precedent to the institution
of the particular action, whether prescribed by statute, fixed
by agreement of the parties or implied by law must be
performed or complied with before commencing the action,
unless the conduct of the adverse party has been such as to
prevent or waive performance or excuse non-performance of
the condition."
Moreover, it is not enough that a party has, in effect, a cause
of action.
The rules of procedure require that the complaint must
contain a concise statement of the ultimate or essential facts
constituting the plaintiff's cause of action. "The test of the
sufficiency of the facts alleged in the complaint is whether or
not, admitting the facts alleged, the court can render a valid
judgment upon the same in accordance with the prayer of
plaintiff."22 The focus is on the sufficiency, not the veracity, of
the material allegations. Failure to make a sufficient
allegation of a cause of action in the complaint warrants its
dismissal.23
In relation to an action for rescission, it should be noted that
the remedy of rescission is subsidiary in nature; it cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same. 24 Article
1177 of the New Civil Code provides:
The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise
all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person;
they may also impugn the actions which the debtor may
have done to defraud them. (Emphasis added)
Consequently, following the subsidiary nature of the remedy
of rescission, a creditor would have a cause of action to
bring an action for rescission, if it is alleged that the following
successive measures have already been taken: (1) exhaust
the properties of the debtor through levying by attachment
and execution upon all the property of the debtor, except
such as are exempt by law from execution; (2) exercise all
the rights and actions of the debtor, save those personal to
him (accion subrogatoria); and (3) seek rescission of the
contracts executed by the debtor in fraud of their rights
(accion pauliana).25
With respect to an accion pauliana, it is required that the
ultimate facts constituting the following requisites must all be
alleged in the complaint, viz.:
1) That the plaintiff asking for rescission, has credit
prior to the alienation, although demandable later;
2) That the debtor has made a subsequent
contract conveying a patrimonial benefit to a third
person;
3) That the creditor has no other legal remedy to
satisfy his claim, but would benefit by rescission of
the conveyance to the third person;
4) That act being impugned is fraudulent; and
5) That the third person who received the property
conveyed, if by onerous title, has been an
accomplice in the fraud.26
A cursory reading of the allegations of ASB’s complaint
would show that it failed to allege the ultimate facts
constituting its cause of action and the prerequisites that
must be complied before the same may be instituted. ASB,
without availing of the first and second remedies, that is,
exhausting the properties of CTS, Henry H. Furigay and
Genilda C. Furigay or their transmissible rights and actions,
simply undertook the third measure and filed an action for
annulment of the donation. This cannot be done. The Court
hereby quotes with approval the thorough discourse of the
CA on this score:27
To answer the issue of prescription, the case of Khe Hong
Cheng vs. Court of Appeals (G.R. No. 144169, March 28,
2001) is pertinent. In said case, Philam filed an action for
collection against Khe Hong Cheng. While the case was still
pending, or on December 20, 1989, Khe Hong Cheng,
executed deeds of donations over parcels of land in favor of
his children, and on December 27, 1989, said deeds were
registered. Thereafter, new titles were issued in the names
of Khe Hong Cheng’s children. Then, the decision became
final and executory. But upon enforcement of writ of
execution, Philam found out that Khe Hong Cheng no longer
had any property in his name. Thus, on February 25, 1997,
Philam filed an action for rescission of the deeds of donation
against Khe Hong Cheng alleging that such was made in
fraud of creditors. However, Khe Hong Cheng moved for the
dismissal of the action averring that it has already prescribed
since the four-year prescriptive period for filing an action for
rescission pursuant to Article 1389 of the Civil Code
commenced to run from the time the deeds of donation were
registered on December 27, 1989. Khe Hong Cheng averred
that registration amounts to constructive notice and since the
complaint was filed only on February 25, 1997, or more than
four (4) years after said registration, the action was already
barred by prescription. The trial court ruled that the complaint
had not yet prescribed since the prescriptive period began to
run only from December 29, 1993, the date of the decision of
the trial court. Such decision was affirmed by this court but
reckoned the accrual of Philam's cause of action in January
1997, the time when it first learned that the judgment award
could not be satisfied because the judgment creditor, Khe
Hong Cheng, had no more properties in his name. Hence,
the case reached the Supreme Court which ruled that the
action for rescission has not yet prescribed, ratiocinating as
follows:
"Essentially, the issue for resolution posed by petitioners is
this: When did the four (4) year prescriptive period as
provided for in Article 1389 of the Civil Code for respondent
Philam to file its action for rescission of the subject deeds of
donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, ‘The
action to claim rescission must be commenced within four
years.’ Since this provision of law is silent as to when the
prescriptive period would commence, the general rule, i.e,
from the moment the cause of action accrues, therefore,
applies. Article 1150 of the Civil Code is particularly
instructive:
ARTICLE 1150. The time for prescription for all kinds of
actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be
brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the
starting point for the computation of the prescriptive period
for the action. Article 1383 of the Civil Code provides as
follows:
ARTICLE 1383. An action for rescission is subsidiary; it
cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion
pauliana must be of last resort, availed of only after all other
legal remedies have been exhausted and have been proven
futile.1âwphi1 For an accion pauliana to accrue, the following
requisites must concur:
1) That the plaintiff asking for rescission, has a credit prior to
the alienation, although demandable later; 2) That the debtor
has made a subsequent contract conveying a patrimonial
benefit to a third person; 3) That the creditor has no other
legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person; 4) That the
act being impugned is fraudulent; 5) That the third person
who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.
We quote with approval the following disquisition of the CA
on the matter:
An accion pauliana accrues only when the creditor discovers
that he has no other legal remedy for the satisfaction of his
claim against the debtor other than an accion pauliana. The
accion pauliana is an action of a last resort. For as long as
the creditor still has a remedy at law for the enforcement of
his claim against the debtor, the creditor will not have any
cause of action against the creditor for rescission of the
contracts entered into by and between the debtor and
another person or persons. Indeed, an accion pauliana
presupposes a judgment and the issuance by the trial court
of a writ of execution for the satisfaction of the judgment and
the failure of the Sheriff to enforce and satisfy the judgment
of the court. It presupposes that the creditor has exhausted
the property of the debtor. The date of the decision of the
trial court against the debtor is immaterial. What is important
is that the credit of the plaintiff antedates that of the
fraudulent alienation by the debtor of his property. After all,
the decision of the trial court against the debtor will retroact
to the time when the debtor became indebted to the creditor.
Petitioners, however, maintain that the cause of action of
respondent Philam against them for the rescission of the
deeds of donation accrued as early as December 27, 1989,
when petitioner Khe Hong Cheng registered the subject
conveyances with the Register of Deeds. Respondent
Philam allegedly had constructive knowledge of the
execution of said deeds under Section 52 of Presidential
Decree No. 1529, quoted infra, as follows:
SECTION 52. Constructive knowledge upon registration. —
Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall,
if registered, filed or entered in the Office of the Register of
Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the
time of such registering, filing, or entering.
Petitioners argument that the Civil Code must yield to the
Mortgage and Registration Laws is misplaced, for in no way
does this imply that the specific provisions of the former may
be all together ignored. To count the four year prescriptive
period to rescind an allegedly fraudulent contract from the
date of registration of the conveyance with the Register of
Deeds, as alleged by the petitioners, would run counter to
Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to
file an action for rescission of an allegedly fraudulent
conveyance of property, i.e., the creditor has no other legal
remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A
judgment; 2) the issuance by the trial court of a writ of
execution for the satisfaction of the judgment, and 3) the
failure of the sheriff to enforce and satisfy the judgment of
the court. It requires that the creditor has exhausted the
property of the debtor. The date of the decision of the trial
court is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the
debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor
became indebted to the creditor.
xxxx
Even if respondent Philam was aware, as of December 27,
1989, that petitioner Khe Hong Cheng had executed the
deeds of donation in favor of his children, the complaint
against Butuan Shipping Lines and/or petitioner Khe Hong
Cheng was still pending before the trial court. Respondent
Philam had no inkling, at the time, that the trial court's
judgment would be in its favor and further, that such
judgment would not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during the
pendency of the case. Had respondent Philam filed his
complaint on December 27, 1989, such complaint would
have been dismissed for being premature. Not only were all
other legal remedies for the enforcement of respondent
Philam's claims not yet exhausted at the time the deeds of
donation were executed and registered. Respondent Philam
would also not have been able to prove then that petitioner
Khe Hong Cheng had no more property other than those
covered by the subject deeds to satisfy a favorable judgment
by the trial court.
xxxx
As mentioned earlier, respondent Philam only learned about
the unlawful conveyances made by petitioner Khe Hong
Cheng in January 1997 when its counsel accompanied the
sheriff to Butuan City to attach the properties of petitioner
Khe Hong Cheng. There they found that he no longer had
any properties in his name. It was only then that respondent
Philam's action for rescission of the deeds of donation
accrued because then it could be said that respondent
Philam had exhausted all legal means to satisfy the trial
court's judgment in its favor. Since respondent Philam filed
its complaint for accion pauliana against petitioners on
February 25, 1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other property to satisfy
the judgment award against him, its action for rescission of
the subject deeds clearly had not yet prescribed."
From the foregoing, it is clear that the four-year prescriptive
period commences to run neither from the date of the
registration of the deed sought to be rescinded nor from the
date the trial court rendered its decision but from the day it
has become clear that there are no other legal remedies by
which the creditor can satisfy his claims. [Emphases in the
original]
In all, it is incorrect for ASB to argue that a complaint need
not allege all the elements constituting its cause of action
since it would simply adduce proof of the same during trial.
"Nothing is more settled than the rule that in a motion to
dismiss for failure to state a cause of action, the inquiry is
"into the sufficiency, not the veracity, of the material
allegations."28 The inquiry is confined to the four comers of
the complaint, and no other. 29 Unfortunately for ASB, the
Court finds the allegations of its complaint insufficient in
establishing its cause of action and in apprising the
respondents of the same so that they could defend
themselves intelligently and effectively pursuant to their right
to due process. It is a rule of universal application that courts
of justice are constituted to adjudicate substantive rights.
While courts should consider public policy and necessity in
putting an end to litigations speedily they must nevertheless
harmonize such necessity with the fundamental right of
litigants to due process.
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. 182435               August 13, 2012
LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON,
REMO BA YLON, JOSE BA YLON, ERIC BA YLON,
FLORENTINO BA YLON, and MA. RUBY BA
YLON, Petitioners,
vs.
FLORANTE BA YLON, Respondent.
VILLARAMA, JR.,*
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari under
Rule 45 of the Rules of Court seeking to annul and set aside
the Decision1 dated October 26, 2007 rendered by the Court
of Appeals (CA) in CA-G.R. CV No. 01746. The assailed
decision partially reversed and set aside the Decision2 dated
October 20, 2005 issued ~y the Regional Trial Court (RTC),
Tan jay City, Negros Oriental, Branch 43 in Civil Case No.
11657.
The Antecedent Facts
This case involves the estate of spouses Florentino Baylon
and Maximina Elnas Baylon (Spouses Baylon) who died on
November 7, 1961 and May 5, 1974, respectively. 3 At the
time of their death, Spouses Baylon were survived by their
legitimate children, namely, Rita Baylon (Rita), Victoria
Baylon (Victoria), Dolores Baylon (Dolores), Panfila Gomez
(Panfila), Ramon Baylon (Ramon) and herein petitioner Lilia
B. Ada (Lilia).
Dolores died intestate and without issue on August 4, 1976.
Victoria died on November 11, 1981 and was survived by her
daughter, herein petitioner Luz B. Adanza. Ramon died
intestate on July 8, 1989 and was survived by herein
respondent Florante Baylon (Florante), his child from his first
marriage, as well as by petitioner Flora Baylon, his second
wife, and their legitimate children, namely, Ramon, Jr. and
herein petitioners Remo, Jose, Eric, Florentino and Ma.
Ruby, all surnamed Baylon.
On July 3, 1996, the petitioners filed with the RTC a
Complaint4 for partition, accounting and damages against
Florante, Rita and Panfila. They alleged therein that Spouses
Baylon, during their lifetime, owned 43 parcels of land 5 all
situated in Negros Oriental. After the death of Spouses
Baylon, they claimed that Rita took possession of the said
parcels of land and appropriated for herself the income from
the same. Using the income produced by the said parcels of
land, Rita allegedly purchased two parcels of land, Lot No.
47096 and half of Lot No. 4706, 7 situated in Canda-uay,
Dumaguete City. The petitioners averred that Rita refused to
effect a partition of the said parcels of land.
In their Answer,8 Florante, Rita and Panfila asserted that they
and the petitioners co-owned 22 9 out of the 43 parcels of
land mentioned in the latter’s complaint, whereas Rita
actually owned 10 parcels of land 10 out of the 43 parcels
which the petitioners sought to partition, while the remaining
11 parcels of land are separately owned by Petra Cafino
Adanza,11 Florante,12 Meliton Adalia,13 Consorcia
Adanza,14 Lilia15 and Santiago Mendez.16 Further, they
claimed that Lot No. 4709 and half of Lot No. 4706 were
acquired by Rita using her own money. They denied that
Rita appropriated solely for herself the income of the estate
of Spouses Baylon, and expressed no objection to the
partition of the estate of Spouses Baylon, but only with
respect to the co-owned parcels of land.
During the pendency of the case, Rita, through a Deed of
Donation dated July 6, 1997, conveyed Lot No. 4709 and
half of Lot No. 4706 to Florante. On July 16, 2000, Rita died
intestate and without any issue. Thereafter, learning of the
said donation inter vivos in favor of Florante, the petitioners
filed a Supplemental Pleading 17 dated February 6, 2002,
praying that the said donation in favor of the respondent be
rescinded in accordance with Article 1381(4) of the Civil
Code. They further alleged that Rita was already sick and
very weak when the said Deed of Donation was supposedly
executed and, thus, could not have validly given her consent
thereto.
Florante and Panfila opposed the rescission of the said
donation, asserting that Article 1381(4) of the Civil Code
applies only when there is already a prior judicial decree on
who between the contending parties actually owned the
properties under litigation.18
The RTC Decision
On October 20, 2005, the RTC rendered a Decision, 19 the
decretal portion of which reads:
Wherefore judgment is hereby rendered:
(1) declaring the existence of co-ownership over
parcels nos. 1, 2, 3, 5, 7, 10, 13, 14, 16, 17, 18,
26, 29, 30, 33, 34, 35, 36, 40 and 41 described in
the complaint;
(2) directing that the above mentioned parcels of
land be partitioned among the heirs of Florentino
Baylon and Maximina Baylon;
(3) declaring a co-ownership on the properties of
Rita Baylon namely parcels no[s]. 6, 11, 12, 20,
24, 27, 31, 32, 39 and 42 and directing that it shall
be partitioned among her heirs who are the
plaintiffs and defendant in this case;
(4) declaring the donation inter vivos rescinded
without prejudice to the share of Florante Baylon
to the estate of Rita Baylon and directing that
parcels nos. 1 and 2 paragraph V of the complaint
be included in the division of the property as of
Rita Baylon among her heirs, the parties in this
case;
(5) excluding from the co-ownership parcels nos.
20, 21, 22, 9, 43, 4, 8, 19 and 37.
Considering that the parties failed to settle this case
amicably and could not agree on the partition, the parties are
directed to nominate a representative to act as commissioner
to make the partition. He shall immediately take [his] oath of
office upon [his] appointment. The commissioner shall make
a report of all the proceedings as to the partition within fifteen
(15) days from the completion of this partition. The parties
are given ten (10) days within which to object to the report
after which the Court shall act on the commissioner report.
SO ORDERED.20 (Emphasis ours)
The RTC held that the death of Rita during the pendency of
the case, having died intestate and without any issue, had
rendered the issue of ownership insofar as parcels of land
which she claims as her own moot since the parties below
are the heirs to her estate. Thus, the RTC regarded Rita as
the owner of the said 10 parcels of land and, accordingly,
directed that the same be partitioned among her heirs.
Nevertheless, the RTC rescinded the donation inter vivos of
Lot No. 4709 and half of Lot No. 4706 in favor of Florante. In
rescinding the said donation inter vivos, the RTC explained
that:
However, with respect to lot nos. 4709 and 4706 which [Rita]
had conveyed to Florante Baylon by way of donation inter
vivos, the plaintiffs in their supplemental pleadings (sic)
assailed the same to be rescissible on the ground that it was
entered into by the defendant Rita Baylon without the
knowledge and approval of the litigants [or] of competent
judicial authority. The subject parcels of lands are involved in
the case for which plaintiffs have asked the Court to partition
the same among the heirs of Florentino Baylon and
Maximina Elnas.
Clearly, the donation inter vivos in favor of Florante Baylon
was executed to prejudice the plaintiffs’ right to succeed to
the estate of Rita Baylon in case of death considering that as
testified by Florante Baylon, Rita Baylon was very weak and
he tried to give her vitamins x x x. The donation inter vivos
executed by Rita Baylon in favor of Florante Baylon is
rescissible for the reason that it refers to the parcels of land
in litigation x x x without the knowledge and approval of the
plaintiffs or of this Court. However, the rescission shall not
affect the share of Florante Baylon to the estate of Rita
Baylon.21
Florante sought reconsideration of the Decision dated
October 20, 2005 of the RTC insofar as it rescinded the
donation of Lot No. 4709 and half of Lot No. 4706 in his
favor.22 He asserted that, at the time of Rita’s death on July
16, 2000, Lot No. 4709 and half of Lot No. 4706 were no
longer part of her estate as the same had already been
conveyed to him through a donation inter vivos three years
earlier. Thus, Florante maintained that Lot No. 4709 and half
of Lot No. 4706 should not be included in the properties that
should be partitioned among the heirs of Rita.
23  the parties concerned independent of the proceedings
On July 28, 2006, the RTC issued an Order which denied
the motion for reconsideration filed by Florante.
The CA Decision
On appeal, the CA rendered a Decision 24 dated October 26, The petitioners sought reconsideration27 of the Decision
2007, the dispositive portion of which reads: dated October 26, 2007 but it was denied by the CA in its
Resolution28 dated March 6, 2008.
WHEREFORE, the Decision dated October 20, 2005 and
Order dated July 28, 2006 are REVERSED and SET Hence, this petition.
ASIDE insofar as they decreed the rescission of the Deed of
Donation dated July 6, 1997 and the inclusion of lot no. 4709
Issue
and half of lot no. 4706 in the estate of Rita Baylon. The
case is REMANDED to the trial court for the determination of
ownership of lot no. 4709 and half of lot no. 4706. The lone issue to be resolved by this Court is whether the
CA erred in ruling that the donation inter vivos of Lot No.
4709 and half of Lot No. 4706 in favor of Florante may only
SO ORDERED.25
be rescinded if there is already a judicial determination that
the same actually belonged to the estate of Spouses Baylon.
The CA held that before the petitioners may file an action for
rescission, they must first obtain a favorable judicial ruling
The Court’s Ruling
that Lot No. 4709 and half of Lot No. 4706 actually belonged
to the estate of Spouses Baylon and not to Rita. Until then,
the CA asserted, an action for rescission is premature. The petition is partly meritorious.
Further, the CA ruled that the petitioners’ action for
rescission cannot be joined with their action for partition,
Procedural Matters
accounting and damages through a mere supplemental
pleading. Thus:
Before resolving the lone substantive issue in the instant
case, this Court deems it proper to address certain
If Lot No. 4709 and half of Lot No. 4706 belonged to the
procedural matters that need to be threshed out which, by
Spouses’ estate, then Rita Baylon’s donation thereof in favor
laxity or otherwise, were not raised by the parties herein.
of Florante Baylon, in excess of her undivided share therein
as co-heir, is void. Surely, she could not have validly
disposed of something she did not own. In such a case, an Misjoinder of Causes of Action
action for rescission of the donation may, therefore, prosper.
The complaint filed by the petitioners with the RTC involves
If the lots, however, are found to have belonged exclusively two separate, distinct and independent actions – partition
to Rita Baylon, during her lifetime, her donation thereof in and rescission. First, the petitioners raised the refusal of their
favor of Florante Baylon is valid. For then, she merely co-heirs, Florante, Rita and Panfila, to partition the properties
exercised her ownership right to dispose of what legally which they inherited from Spouses Baylon. Second, in their
belonged to her. Upon her death, the lots no longer form part supplemental pleading, the petitioners assailed the donation
of her estate as their ownership now pertains to Florante inter vivos of Lot No. 4709 and half of Lot No. 4706 made by
Baylon. On this score, an action for rescission against such Rita in favor of Florante pendente lite.
donation will not prosper. x x x.
The actions of partition and
Verily, before plaintiffs-appellees may file an action for rescission cannot be joined in a
rescission, they must first obtain a favorable judicial ruling single action.
that lot no. 4709 and half of lot no. 4706 actually belonged to
the estate of Spouses Florentino and Maximina Baylon, and
By a joinder of actions, or more properly, a joinder of causes
not to Rita Baylon during her lifetime. Until then, an action for
of action is meant the uniting of two or more demands or
rescission is premature. For this matter, the applicability of
rights of action in one action, the statement of more than one
Article 1381, paragraph 4, of the New Civil Code must
cause of action in a declaration. It is the union of two or more
likewise await the trial court’s resolution of the issue of
civil causes of action, each of which could be made the basis
ownership.
of a separate suit, in the same complaint, declaration or
petition. A plaintiff may under certain circumstances join
Be that as it may, an action for rescission should be filed by several distinct demands, controversies or rights of action in
one declaration, complaint or petition.29
below. The first cannot simply be lumped up with the second
through a mere supplemental pleading.26 (Citation omitted)
The objectives of the rule or provision are to avoid a
multiplicity of suits where the same parties and subject
matter are to be dealt with by effecting in one action a
complete determination of all matters in controversy and
litigation between the parties involving one subject matter,
and to expedite the disposition of litigation at minimum cost.
The provision should be construed so as to avoid such
multiplicity, where possible, without prejudice to the rights of
the litigants.30
Nevertheless, while parties to an action may assert in one
pleading, in the alternative or otherwise, as many causes of
action as they may have against an opposing party, such
joinder of causes of action is subject to the condition, inter
alia, that the joinder shall not include special civil actions
governed by special rules.31
Here, there was a misjoinder of causes of action. The action
for partition filed by the petitioners could not be joined with
the action for the rescission of the said donation inter vivos in
favor of Florante. Lest it be overlooked, an action for partition
is a special civil action governed by Rule 69 of the Rules of
Court while an action for rescission is an ordinary civil action
governed by the ordinary rules of civil procedure. The
variance in the procedure in the special civil action of
partition and in the ordinary civil action of rescission
precludes their joinder in one complaint or their being tried in
a single proceeding to avoid confusion in determining what
rules shall govern the conduct of the proceedings as well as
in the determination of the presence of requisite elements of
each particular cause of action.32
A misjoined cause of action, if not
severed upon motion of a party or
by the court sua sponte, may be
adjudicated by the court together
with the other causes of action.
Nevertheless, misjoinder of causes of action is not a ground
for dismissal. Indeed, the courts have the power, acting upon
the motion of a party to the case or sua sponte, to order the
severance of the misjoined cause of action to be proceeded
with separately.33 However, if there is no objection to the
improper joinder or the court did not motu proprio direct a
severance, then there exists no bar in the simultaneous
adjudication of all the erroneously joined causes of action.
On this score, our disquisition in Republic of the Philippines
v. Herbieto34 is instructive, viz:
This Court, however, disagrees with petitioner Republic in
this regard. This procedural lapse committed by the
respondents should not affect the jurisdiction of the MTC to
proceed with and hear their application for registration of the
Subject Lots.
xxxx
Considering every application for land registration filed in
strict accordance with the Property Registration Decree as a
single cause of action, then the defect in the joint application
for registration filed by the respondents with the MTC
constitutes a misjoinder of causes of action and parties.
Instead of a single or joint application for registration,
respondents Jeremias and David, more appropriately, should
have filed separate applications for registration of Lots No.
8422 and 8423, respectively.
Misjoinder of causes of action and parties do not involve a
question of jurisdiction of the court to hear and proceed with
the case. They are not even accepted grounds for dismissal
thereof. Instead, under the Rules of Court, the misjoinder of
causes of action and parties involve an implied admission of
the court’s jurisdiction. It acknowledges the power of the
court, acting upon the motion of a party to the case or on its
own initiative, to order the severance of the misjoined cause
of action, to be proceeded with separately (in case of
misjoinder of causes of action); and/or the dropping of a
party and the severance of any claim against said misjoined
party, also to be proceeded with separately (in case of
misjoinder of parties).35 (Citations omitted)
It should be emphasized that the foregoing rule only applies
if the court trying the case has jurisdiction over all of the
causes of action therein notwithstanding the misjoinder of
the same. If the court trying the case has no jurisdiction over
a misjoined cause of action, then such misjoined cause of
action has to be severed from the other causes of action,
and if not so severed, any adjudication rendered by the court
with respect to the same would be a nullity.
Here, Florante posed no objection, and neither did the RTC
direct the severance of the petitioners’ action for rescission
from their action for partition. While this may be a patent
omission on the part of the RTC, this does not constitute a
ground to assail the validity and correctness of its decision.
The RTC validly adjudicated the issues raised in the actions
for partition and rescission filed by the petitioners.
Asserting a New Cause of Action in a Supplemental
Pleading
In its Decision dated October 26, 2007, the CA pointed out
that the said action for rescission should have been filed by
the petitioners independently of the proceedings in the action
for partition. It opined that the action for rescission could not
be lumped up with the action for partition through a mere
supplemental pleading.
We do not agree.
A supplemental pleading may raise
a new cause of action as long as it
has some relation to the original
cause of action set forth in the
original complaint.
Section 6, Rule 10 of the Rules of Court reads:
Sec. 6. Supplemental Pleadings. – Upon motion of a party
the court may, upon reasonable notice and upon such terms
as are just, permit him to serve a supplemental pleading
setting forth transactions, occurrences or events which have
happened since the date of the pleading sought to be
supplemented. The adverse party may plead thereto within
ten (10) days from notice of the order admitting the
supplemental pleading.
In Young v. Spouses Sy,36 this Court had the opportunity to
elucidate on the purpose of a supplemental pleading. Thus:
As its very name denotes, a supplemental pleading only
serves to bolster or add something to the primary pleading. A
supplement exists side by side with the original. It does not
replace that which it supplements. Moreover, a supplemental
pleading assumes that the original pleading is to stand and
that the issues joined with the original pleading remained an
issue to be tried in the action. It is but a continuation of the
complaint. Its usual office is to set up new facts which justify,
enlarge or change the kind of relief with respect to the same
subject matter as the controversy referred to in the original
complaint.
The purpose of the supplemental pleading is to bring into the
records new facts which will enlarge or change the kind of
relief to which the plaintiff is entitled; hence, any
supplemental facts which further develop the original right of
action, or extend to vary the relief, are available by way of
supplemental complaint even though they themselves
constitute a right of action. 37 (Citations omitted and emphasis
ours)
Thus, a supplemental pleading may properly allege
transactions, occurrences or events which had transpired
after the filing of the pleading sought to be supplemented,
even if the said supplemental facts constitute another cause
of action.
Admittedly, in Leobrera v. Court of Appeals,38 we held that a
supplemental pleading must be based on matters arising
subsequent to the original pleading related to the claim or
defense presented therein, and founded on the same cause
of action. We further stressed therein that a supplemental
pleading may not be used to try a new cause of action.
However, in Planters Development Bank v. LZK Holdings
and Development Corp.,39 we clarified that, while a matter
stated in a supplemental complaint should have some
relation to the cause of action set forth in the original
pleading, the fact that the supplemental pleading technically
states a new cause of action should not be a bar to its
allowance but only a matter that may be considered by the
court in the exercise of its discretion. In such cases, we
stressed that a broad definition of "cause of action" should
be applied.
Here, the issue as to the validity of the donation inter vivos of
Lot No. 4709 and half of Lot No. 4706 made by Rita in favor
of Florante is a new cause of action that occurred after the
filing of the original complaint. However, the petitioners’
prayer for the rescission of the said donation inter vivos in
their supplemental pleading is germane to, and is in fact,
intertwined with the cause of action in the partition case. Lot
No. 4709 and half of Lot No. 4706 are included among the
properties that were sought to be partitioned.
The petitioners’ supplemental pleading merely amplified the
original cause of action, on account of the gratuitous
conveyance of Lot No. 4709 and half of Lot No. 4706 after
the filing of the original complaint and prayed for additional
reliefs, i.e., rescission. Indeed, the petitioners claim that the
said lots form part of the estate of Spouses Baylon, but
cannot be partitioned unless the gratuitous conveyance of
the same is rescinded. Thus, the principal issue raised by
the petitioners in their original complaint remained the same.
Main Issue: Propriety of Rescission
After having threshed out the procedural matters, we now
proceed to adjudicate the substantial issue presented by the
instant petition.
The petitioners assert that the CA erred in remanding the
case to the RTC for the determination of ownership of Lot
No. 4709 and half of Lot No. 4706. They maintain that the
RTC aptly rescinded the said donation inter vivos of Lot No.
4709 and half of Lot No. 4706 pursuant to Article 1381(4) of
the Civil Code.
In his Comment,40 Florante asserts that before the petitioners
may file an action for rescission, they must first obtain a
favorable judicial ruling that Lot No. 4709 and half of Lot No.
4706 actually belonged to the estate of Spouses Baylon.
Until then, Florante avers that an action for rescission would
be premature.
of Florante may be rescinded pursuant to Article 1381(4) of The rescission of a contract under Article 1381(4) of the Civil
the Civil Code on the ground that the same was made during Code only requires the concurrence of the following: first, the
the pendency of the action for partition with the RTC. defendant, during the pendency of the case, enters into a
contract which refers to the thing subject of litigation; and
second, the said contract was entered into without the
Rescission is a remedy to address
knowledge and approval of the litigants or of a competent
the damage or injury caused to the
judicial authority. As long as the foregoing requisites concur,
contracting parties or third
it becomes the duty of the court to order the rescission of the
persons.
said contract.
Rescission is a remedy granted by law to the contracting
The reason for this is simple. Article 1381(4) seeks to
parties and even to third persons, to secure the reparation of
remedy the presence of bad faith among the parties to a
damages caused to them by a contract, even if it should be
case and/or any fraudulent act which they may commit with
valid, by means of the restoration of things to their condition
respect to the thing subject of litigation.
at the moment prior to the celebration of said contract. 41 It is
a remedy to make ineffective a contract, validly entered into
and therefore obligatory under normal conditions, by reason When a thing is the subject of a judicial controversy, it should
of external causes resulting in a pecuniary prejudice to one ultimately be bound by whatever disposition the court shall
of the contracting parties or their creditors.42 render. The parties to the case are therefore expected, in
deference to the court’s exercise of jurisdiction over the
case, to refrain from doing acts which would dissipate or
Contracts which are rescissible are valid contracts having all
debase the thing subject of the litigation or otherwise render
the essential requisites of a contract, but by reason of injury
the impending decision therein ineffectual.
or damage caused to either of the parties therein or to third
persons are considered defective and, thus, may be
rescinded. There is, then, a restriction on the disposition by the parties
of the thing that is the subject of the litigation. Article 1381(4)
of the Civil Code requires that any contract entered into by a
The kinds of rescissible contracts, according to the reason
defendant in a case which refers to things under litigation
for their susceptibility to rescission, are the following: first,
should be with the knowledge and approval of the litigants or
those which are rescissible because of lesion or
of a competent judicial authority.
prejudice;43 second, those which are rescissible on account
of fraud or bad faith; 44 and third, those which, by special
provisions of law,45 are susceptible to rescission.46 Further, any disposition of the thing subject of litigation or
any act which tends to render inutile the court’s impending
disposition in such case, sans the knowledge and approval
Contracts which refer to things
of the litigants or of the court, is unmistakably and irrefutably
subject of litigation is rescissible
indicative of bad faith. Such acts undermine the authority of
pursuant to Article 1381(4) of the
the court to lay down the respective rights of the parties in a
Civil Code.
case relative to the thing subject of litigation and bind them
to such determination.
Contracts which are rescissible due to fraud or bad faith
include those which involve things under litigation, if they
It should be stressed, though, that the defendant in such a
have been entered into by the defendant without the
case is not absolutely proscribed from entering into a
knowledge and approval of the litigants or of competent
contract which refer to things under litigation. If, for instance,
judicial authority. Thus, Article 1381(4) of the Civil Code
a defendant enters into a contract which conveys the thing
provides:
under litigation during the pendency of the case, the
conveyance would be valid, there being no definite
Art. 1381. The following contracts are rescissible: disposition yet coming from the court with respect to the
thing subject of litigation. After all, notwithstanding that the
subject thereof is a thing under litigation, such conveyance is
xxxx but merely an exercise of ownership.

The petitioners’ contentions are well-taken.
The resolution of the instant dispute is fundamentally
contingent upon a determination of whether the donation
inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial
authority.
This is true even if the defendant effected the conveyance
without the knowledge and approval of the litigants or of a
competent judicial authority. The absence of such knowledge
or approval would not precipitate the invalidity of an
otherwise valid contract. Nevertheless, such contract, though
considered valid, may be rescinded at the instance of the
other litigants pursuant to Article 1381(4) of the Civil Code.
Here, contrary to the CA’s disposition, the RTC aptly ordered
the rescission of the donation inter vivos of Lot No. 4709 and
half of Lot No. 4706 in favor of Florante. The petitioners had
sufficiently established the presence of the requisites for the
rescission of a contract pursuant to Article 1381(4) of the
Civil Code. It is undisputed that, at the time they were
gratuitously conveyed by Rita, Lot No. 4709 and half of Lot
No. 4706 are among the properties that were the subject of
the partition case then pending with the RTC. It is also
undisputed that Rita, then one of the defendants in the
partition case with the RTC, did not inform nor sought the
approval from the petitioners or of the RTC with regard to the
donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of
land in favor of Florante was valid, the donation inter vivos of
the same being merely an exercise of ownership, Rita’s
failure to inform and seek the approval of the petitioners or
the RTC regarding the conveyance gave the petitioners the
right to have the said donation rescinded pursuant to Article
1381(4) of the Civil Code.
Rescission under Article 1381(4) of
the Civil Code is not preconditioned
upon the judicial determination as
to the ownership of the thing
subject of litigation.
In this regard, we also find the assertion that rescission may
only be had after the RTC had finally determined that the
parcels of land belonged to the estate of Spouses Baylon
intrinsically amiss. The petitioners’ right to institute the action
for rescission pursuant to Article 1381(4) of the Civil Code is
not preconditioned upon the RTC’s determination as to the
ownership of the said parcels of land.
It bears stressing that the right to ask for the rescission of a
contract under Article 1381(4) of the Civil Code is not
contingent upon the final determination of the ownership of
the thing subject of litigation. The primordial purpose of
Article 1381(4) of the Civil Code is to secure the possible
effectivity of the impending judgment by a court with respect
to the thing subject of litigation. It seeks to protect the
binding effect of a court’s impending adjudication vis-à-vis
the thing subject of litigation regardless of which among the
contending claims therein would subsequently be upheld.
Accordingly, a definitive judicial determination with respect to
the thing subject of litigation is not a condition sine qua non
before the rescissory action contemplated under Article
1381(4) of the Civil Code may be instituted.
Moreover, conceding that the right to bring the rescissory It should be stressed that the partition proceedings before
action pursuant to Article 1381(4) of the Civil Code is the RTC only covers the properties co-owned by the parties
preconditioned upon a judicial determination with regard to therein in their respective capacity as the surviving heirs of
the thing subject litigation, this would only bring about the Spouses Baylon. Hence, the authority of the RTC to issue an
very predicament that the said provision of law seeks to order of partition in the proceedings before it only affects
obviate. Assuming arguendo that a rescissory action under those properties which actually belonged to the estate of
Article 1381(4) of the Civil Code could only be instituted after Spouses Baylon.
the dispute with respect to the thing subject of litigation is
judicially determined, there is the possibility that the same
In this regard, if Lot No. 4709 and half of Lot No. 4706, as
may had already been conveyed to third persons acting in
unwaveringly claimed by Florante, are indeed exclusively
good faith, rendering any judicial determination with regard
owned by Rita, then the said parcels of land may not be
to the thing subject of litigation illusory. Surely, this
partitioned simultaneously with the other properties subject
paradoxical eventuality is not what the law had envisioned.
of the partition case before the RTC. In such case, although
the parties in the case before the RTC are still co-owners of
Even if the donation inter vivos is the said parcels of land, the RTC would not have the
validly rescinded, a determination authority to direct the partition of the said parcels of land as
as to the ownership of the subject the proceedings before it is only concerned with the estate of
parcels of land is still necessary. Spouses Baylon.
Having established that the RTC had aptly ordered the WHEREFORE, in consideration of the foregoing
rescission of the said donation inter vivos in favor of disquisitions, the petition is PARTIALLY GRANTED. The
Florante, the issue that has to be resolved by this Court is Decision dated October 26, 2007 issued by the Court of
whether there is still a need to determine the ownership of Appeals in CA-G.R. CV No. 01746 is MODIFIED in that the
Lot No. 4709 and half of Lot No. 4706. Decision dated October 20, 2005 issued by the Regional
Trial Court, Tanjay City, Negros Oriental, Branch 43 in Civil
Case No. 11657, insofar as it decreed the rescission of the
In opting not to make a determination as to the ownership of
Deed of Donation dated July 6, 1997 is
Lot No. 4709 and half of Lot No. 4706, the RTC reasoned
hereby REINSTATED. The case is REMANDED to the trial
that the parties in the proceedings before it constitute not
court for the determination of the ownership of Lot No. 4709
only the surviving heirs of Spouses Baylon but the surviving
and half of Lot No. 4706 in accordance with this Decision.
heirs of Rita as well. As intimated earlier, Rita died intestate
during the pendency of the proceedings with the RTC
without any issue, leaving the parties in the proceedings SO ORDERED.
before the RTC as her surviving heirs. Thus, the RTC
insinuated, a definitive determination as to the ownership of
the said parcels of land is unnecessary since, in any case,
the said parcels of land would ultimately be adjudicated to
the parties in the proceedings before it.
We do not agree.
Admittedly, whoever may be adjudicated as the owner of Lot
No. 4709 and half of Lot No. 4706, be it Rita or Spouses
Baylon, the same would ultimately be transmitted to the
parties in the proceedings before the RTC as they are the
only surviving heirs of both Spouses Baylon and Rita.
However, the RTC failed to realize that a definitive
adjudication as to the ownership of Lot No. 4709 and half of
Lot No. 4706 is essential in this case as it affects the
authority of the RTC to direct the partition of the said parcels
of land. Simply put, the RTC cannot properly direct the
partition of Lot No. 4709 and half of Lot No. 4706 until and
unless it determines that the said parcels of land indeed form
part of the estate of Spouses Baylon.

G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. &
CARMELO & BAUERMANN,
vs.
MAYFAIR THEATER, INC., respondent.
 
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision 1 of
the Court of
Appeals2 involving questions in the resolution of
which the respondent appellate court analyzed
and interpreted particular provisions of our laws on
contracts and sales. In its assailed decision, the
respondent court reversed the trial court 3 which, in
dismissing the complaint for specific performance
with damages and annulment of contract,4 found
the option clause in the lease contracts entered
into by private respondent Mayfair Theater, Inc.
(hereafter, Mayfair) and petitioner Carmelo &
Bauermann, Inc. (hereafter, Carmelo) to be
impossible of performance and unsupported by a
consideration and the subsequent sale of the
subject property to petitioner Equatorial Realty
Development, Inc. (hereafter, Equatorial) to have
been made without any breach of or prejudice to,
the said lease contracts.5
We reproduce below the facts as narrated by the
respondent court, which narration, we note, is
almost verbatim the basis of the statement of facts
as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land,
together with two 2-storey buildings
constructed thereon located at Claro M
Recto Avenue, Manila, and covered by
TCT No. 18529 issued in its name by
the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a
contract of lease with Mayfair for the
latter's lease of a portion of Carmelo's
property particularly described, to wit:
A PORTION OF THE SECOND
FLOOR of the two-storey building,
situated at C.M. Recto Avenue,
Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND
MEZZANINE of the two-storey
building, situated at C.M. Recto
INC., petitioners, Avenue, Manila, with a floor area
of 150 square meters.
for use by Mayfair as a motion picture
theater and for a term of twenty (20)
years. Mayfair thereafter constructed on
the leased property a movie house
known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair
entered into a second contract of lease with
Carmelo for the lease of another portion of
Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of
the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of
1,064 square meters.
THE TWO (2) STORE SPACES AT THE
GROUND FLOOR and MEZZANINE of the
two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300
square meters and bearing street numbers
1871 and 1875,
for similar use as a movie theater and
for a similar term of twenty (20) years.
Mayfair put up another movie house
known as "Miramar Theatre" on this
leased property.
Both contracts of lease provides (sic)
identically worded paragraph 8, which
reads:
That if the LESSOR should desire to
sell the leased premises, the LESSEE
shall be given 30-days exclusive
option to purchase the same.
In the event, however, that the leased
premises is sold to someone other
than the LESSEE, the LESSOR is
bound and obligated, as it hereby
binds and obligates itself, to stipulate
in the Deed of Sale hereof that the
purchaser shall recognize this lease
and be bound by all the terms and
conditions thereof.
Sometime in August 1974, Mr. Henry
Pascal of Carmelo informed Mr. Henry
Yang, President of Mayfair, through a
telephone conversation that Carmelo
was desirous of selling the entire Claro
M. Recto property. Mr. Pascal told Mr.
Yang that a certain Jose Araneta was
offering to buy the whole property for
US Dollars 1,200,000, and Mr. Pascal
asked Mr. Yang if the latter was willing
to buy the property for Six to Seven
Million Pesos.
 Mr. Yang replied that he would let Mr.
Pascal know of his decision. On
August 23, 1974, Mayfair replied
through a letter stating as follows:
It appears that on August 19, 1974
your Mr. Henry Pascal informed our
client's Mr. Henry Yang through the
telephone that your company desires
to sell your above-mentioned C.M.
Recto Avenue property.
Under your company's two lease
contracts with our client, it is uniformly
provided:
8. That if the LESSOR should desire to
sell the leased premises the LESSEE
shall be given 30-days exclusive
option to purchase the same. In the
event, however, that the leased
premises is sold to someone other
than the LESSEE, the LESSOR is
bound and obligated, as it is (sic)
herebinds (sic) and obligates itself, to
stipulate in the Deed of Sale thereof
that the purchaser shall recognize this
lease and be bound by all the terms
and conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent
another letter to Carmelo purporting to
express interest in acquiring not only the
leased premises but "the entire building
and other improvements if the price is
reasonable. However, both Carmelo and
Equatorial questioned the authenticity of
the second letter.
Four years later, on July 30, 1978,
Carmelo sold its entire C.M. Recto
Avenue land and building, which
included the leased premises housing
the "Maxim" and "Miramar" theatres, to
Equatorial by virtue of a Deed of
Absolute Sale, for the total sum of
P11,300,000.00.
In September 1978, Mayfair instituted
the action a quo for specific
performance and annulment of the sale
of the leased premises to Equatorial. In
its Answer, Carmelo alleged as special
and affirmative defense (a) that it had
informed Mayfair of its desire to sell the
entire C.M. Recto Avenue property and
offered the same to Mayfair, but the
latter answered that it was interested
only in buying the areas under lease,
which was impossible since the property
was not a condominium; and (b) that the
option to purchase invoked by Mayfair is
null and void for lack of consideration.
Equatorial, in its Answer, pleaded as
special and affirmative defense that the
option is void for lack of consideration
(sic) and is unenforceable by reason of
its impossibility of performance because
the leased premises could not be sold
separately from the other portions of the
land and building. It counterclaimed for
cancellation of the contracts of lease,
and for increase of rentals in view of
alleged supervening extraordinary
devaluation of the currency. Equatorial
likewise cross-claimed against co-
defendant Carmelo for indemnification in
respect of Mayfair's claims.
During the pre-trial conference held on
January 23, 1979, the parties stipulated
on the following:
1. That there was a deed of sale of the
contested premises by the defendant
Carmelo . . . in favor of defendant
Equatorial . . .;
2. That in both contracts of lease there
appear (sic) the stipulation granting the
plaintiff exclusive option to purchase
the leased premises should the lessor
desire to sell the same (admitted
subject to the contention that the
stipulation is null and void);
3. That the two buildings erected on
this land are not of the condominium
plan;
4. That the amounts stipulated and
mentioned in paragraphs 3 (a) and (b)
of the contracts of lease constitute the
consideration for the plaintiff's
occupancy of the leased premises,
subject of the same contracts of lease,
Exhibits A and B;
xxx xxx xxx
6. That there was no consideration
specified in the option to buy
embodied in the contract;
7. That Carmelo & Bauermann owned
the land and the two buildings erected
thereon;
8. That the leased premises constitute
only the portions actually occupied by
the theaters; and
9. That what was sold by Carmelo &
Bauermann to defendant Equatorial
Realty is the land and the two
buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the
court a quo rendered the appealed
decision, the decretal portion of which
reads as follows:
WHEREFORE, judgment is hereby
rendered:
(1) Dismissing the complaint with costs
against the plaintiff;
(2) Ordering plaintiff to pay defendant
Carmelo & Bauermann P40,000.00 by
way of attorney's fees on its
counterclaim;
(3) Ordering plaintiff to pay defendant
Equatorial Realty P35,000.00 per
month as reasonable compensation for
the use of areas not covered by the
contract (sic) of lease from July 31,
1979 until plaintiff vacates said area
(sic) plus legal interest from July 31,
1978; P70,000 00 per month as
reasonable compensation for the use
of the premises covered by the
contracts (sic) of lease dated (June 1,
1967 from June 1, 1987 until plaintiff
vacates the premises plus legal
interest from June 1, 1987; P55,000.00
per month as reasonable
compensation for the use of the
 premises covered by the contract of
lease dated March 31, 1969 from
March 30, 1989 until plaintiff vacates
the premises plus legal interest from
March 30, 1989; and P40,000.00 as
attorney's fees;
(4) Dismissing defendant Equatorial's
crossclaim against defendant Carmelo
& Bauermann.
The contracts of lease dated June 1,
1967 and March 31, 1969 are declared
expired and all persons claiming rights
under these contracts are directed to
vacate the premises.6
The trial court adjudged the identically worded
paragraph 8 found in both aforecited lease
contracts to be an option clause which however
cannot be deemed to be binding on Carmelo
because of lack of distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was
admitted by the parties that the option in
the contract of lease is not supported by
a separate consideration. Without a
consideration, the option is therefore not
binding on defendant Carmelo &
Bauermann to sell the C.M. Recto
property to the former. The option
invoked by the plaintiff appears in the
contracts of lease . . . in effect there is
no option, on the ground that there is no
consideration. Article 1352 of the Civil
Code, provides:
Contracts without cause or with
unlawful cause, produce no effect
whatever. The cause is unlawful if it
is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without
consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the
offeree a certain period to accept,
the offer may be withdrawn at any
time before acceptance by
communicating such withdrawal,
except when the option is founded
upon consideration, as something
paid or promised.
in relation with Article 1479 of the
same Code:
A promise to buy and sell a
determine thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to
buy or to sell a determine thing for a
price certain is binding upon the
promissor if the promise is supported
by a consideration distinct from the
price.
The plaintiff cannot compel defendant
Carmelo to comply with the promise
Mayfair taking exception to the decision of the trial
unless the former establishes the
court, the battleground shifted to the respondent
existence of a distinct consideration. In
Court of Appeals. Respondent appellate court
other words, the promisee has the
reversed the court a quo and rendered judgment:
burden of proving the consideration. The
consideration cannot be presumed as in
Article 1354:
Although the cause is not stated in
the contract, it is presumed that it
exists and is lawful unless the debtor
proves the contrary.
where consideration is legally presumed
to exists. Article 1354 applies to
contracts in general, whereas when it
comes to an option it is governed
particularly and more specifically by
Article 1479 whereby the promisee has
the burden of proving the existence of
consideration distinct from the price.
Thus, in the case of Sanchez vs. Rigor,
45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts
in general, whereas the second
paragraph of Article 1479 refers to
sales in particular, and, more
specifically, to an accepted unilateral
promise to buy or to sell. In other
words, Article 1479 is controlling in
the case at bar.
(2) In order that said unilateral
promise may be binding upon the
promissor, Article 1479 requires the
concurrence of a condition, namely,
that the promise be supported by a
consideration distinct from the price.
Accordingly, the promisee cannot
compel the promissor to comply with
the promise, unless the former
establishes the existence of said
distinct consideration. In other
words, the promisee has the burden
of proving such consideration.
Plaintiff herein has not even alleged
the existence thereof in his
complaint. 7
It follows that plaintiff cannot compel
defendant Carmelo & Bauermann to sell
the C.M. Recto property to the former.
1. Reversing and setting aside the
appealed Decision;
2. Directing the plaintiff-appellant
Mayfair Theater Inc. to pay and return to
Equatorial the amount of
P11,300,000.00 within fifteen (15) days
from notice of this Decision, and
ordering Equatorial Realty Development,
Inc. to accept such payment;
3. Upon payment of the sum of
P11,300,000, directing Equatorial Realty
Development, Inc. to execute the deeds
and documents necessary for the
issuance and transfer of ownership to
Mayfair of the lot registered under TCT
Nos. 17350, 118612, 60936, and 52571;
and
4. Should plaintiff-appellant Mayfair
Theater, Inc. be unable to pay the
amount as adjudged, declaring the Deed
of Absolute Sale between the
defendants-appellants Carmelo &
Bauermann, Inc. and Equatorial Realty
Development, Inc. as valid and binding
upon all the parties.8
Rereading the law on the matter of sales and
option contracts, respondent Court of Appeals
differentiated between Article 1324 and Article
1479 of the Civil Code, analyzed their application
to the facts of this case, and concluded that since
paragraph 8 of the two lease contracts does not
state a fixed price for the purchase of the leased
premises, which is an essential element for a
contract of sale to be perfected, what paragraph 8
is, must be a right of first refusal and not an option
contract. It explicated:
Firstly, the court a quo misapplied the
provisions of Articles 1324 and 1479,
second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made
by an offeror which the offeree may or
may not accept within a certain period.
Under this article, the offer may be
withdrawn by the offeror before the
expiration of the period and while the
offeree has not yet accepted the offer.
However, the offer cannot be withdrawn
by the offeror within the period if a
consideration has been promised or
given by the offeree in exchange for the
privilege of being given that period
within which to accept the offer. The
consideration is distinct from the price
which is part of the offer. The contract
that arises is known as option. In the
case of Beaumont vs. Prieto, 41 Phil.
670, the Supreme court, citing Bouvier,
defined an option as follows: "A contract
by virtue of which A, in consideration of
the payment of a certain sum to B,
acquires the privilege of buying from or
selling to B, certain securities or
properties within a limited time at a
specified price," (pp. 686-7).
Article 1479, second paragraph, on the
other hand, contemplates of an
"accepted unilateral promise to buy or to
sell a determinate thing for a price within
(which) is binding upon the promisee if
the promise is supported by a
consideration distinct from the price."
That "unilateral promise to buy or to sell
a determinate thing for a price certain" is
called an offer. An "offer", in laws, is a
proposal to enter into a contract
(Rosenstock vs. Burke, 46 Phil. 217). To
constitute a legal offer, the proposal
must be certain as to the object, the
price and other essential terms of the premises)," was meant to provide
contract (Art. 1319, Civil Code). Mayfair the opportunity to purchase and
acquire the leased property in the event
that Carmelo should decide to dispose
Based on the foregoing discussion, it is
of the property. In order to realize this
evident that the provision granting
intention, the implicit obligation of
Mayfair "30-days exclusive option to
Carmelo once it had decided to sell the
purchase" the leased premises is NOT
leased property, was not only to notify
AN OPTION in the context of Arts. 1324
Mayfair of such decision to sell the
and 1479, second paragraph, of the Civil
property, but, more importantly, to make
Code. Although the provision is certain
an offer to sell the leased premises to
as to the object (the sale of the leased
Mayfair, giving the latter a fair and
premises) the price for which the object
reasonable opportunity to accept or
is to be sold is not stated in the provision
reject the offer, before offering to sell or
Otherwise stated, the questioned
selling the leased property to third
stipulation is not by itself, an "option" or
parties. The right vested in Mayfair is
the "offer to sell" because the clause
analogous to the right of first refusal,
does not specify the price for the subject
which means that Carmelo should have
property.
offered the sale of the leased premises
to Mayfair before offering it to other
Although the provision giving Mayfair parties, or, if Carmelo should receive
"30-days exclusive option to purchase" any offer from third parties to purchase
cannot be legally categorized as an the leased premises, then Carmelo must
option, it is, nevertheless, a valid and first give Mayfair the opportunity to
binding stipulation. What the trial court match that offer.
failed to appreciate was the intention of
the parties behind the questioned
In fact, Mr. Pascal understood the
proviso.
provision as giving Mayfair a right of first
refusal when he made the telephone call
xxx xxx xxx to Mr. Yang in 1974. Mr. Pascal thus
testified:
The provision in question is not of the
pro-forma type customarily found in a Q Can you tell this Honorable Court how
contract of lease. Even appellees have you made the offer to Mr. Henry Yang by
recognized that the stipulation was telephone?
incorporated in the two Contracts of
Lease at the initiative and behest of
A I have an offer from another party to buy
Mayfair. Evidently, the stipulation was
the property and having the offer we
intended to benefit and protect Mayfair
decided to make an offer to Henry Yang on
in its rights as lessee in case Carmelo
a first-refusal basis. (TSN November 8,
should decide, during the term of the
1983, p. 12.).
lease, to sell the leased property. This
intention of the parties is achieved in two
ways in accordance with the stipulation. and on cross-examination:
The first is by giving Mayfair "30-days
exclusive option to purchase" the leased
Q When you called Mr. Yang on August
property. The second is, in case Mayfair
1974 can you remember exactly what you
would opt not to purchase the leased
have told him in connection with that
property, "that the purchaser (the new
matter, Mr. Pascal?
owner of the leased property) shall
recognize the lease and be bound by all
the terms and conditions thereof." A More or less, I told him that I received an
offer from another party to buy the property
and I was offering him first choice of the
In other words, paragraph 8 of the two
enter property. (TSN, November 29, 1983,
Contracts of lease, particularly the
p. 18).
stipulation giving Mayfair "30-days
exclusive option to purchase the (leased
 We rule, therefore, that the foregoing
interpretation best renders effectual the
intention of the parties.9
Besides the ruling that paragraph 8 vests in
Mayfair the right of first refusal as to which the
requirement of distinct consideration indispensable
in an option contract, has no application,
respondent appellate court also addressed the
claim of Carmelo and Equatorial that assuming
arguendo that the option is valid and effective, it is
impossible of performance because it covered only
the leased premises and not the entire Claro M.
Recto property, while Carmelo's offer to sell
pertained to the entire property in question. The
Court of Appeals ruled as to this issue in this wise:
We are not persuaded by the
contentions of the defendants-appellees.
It is to be noted that the Deed of
Absolute Sale between Carmelo and
Equatorial covering the whole Claro M.
Recto property, made reference to four
titles: TCT Nos. 17350, 118612, 60936
and 52571. Based on the information
submitted by Mayfair in its appellant's
Brief (pp. 5 and 46) which has not been
controverted by the appellees, and
which We, therefore, take judicial notice
of the two theaters stand on the parcels
of land covered by TCT No. 17350 with
an area of 622.10 sq. m and TCT No.
118612 with an area of 2,100.10 sq. m.
The existence of four separate parcels
of land covering the whole Recto
property demonstrates the legal and
physical possibility that each parcel of
land, together with the buildings and
improvements thereof, could have been
sold independently of the other parcels.
At the time both parties executed the
contracts, they were aware of the
physical and structural conditions of the
buildings on which the theaters were to
be constructed in relation to the
remainder of the whole Recto property.
The peculiar language of the stipulation
would tend to limit Mayfair's right under
paragraph 8 of the Contract of Lease to
the acquisition of the leased areas only.
Indeed, what is being contemplated by
the questioned stipulation is a departure
from the customary situation wherein the
buildings and improvements are
included in and form part of the sale of
the subjacent land. Although this
situation is not common, especially DIRECTED IMPLEMENTATION OF ITS
considering the non-condominium DECISION EVEN BEFORE ITS
nature of the buildings, the sale would FINALITY, AND WHEN IT GRANTED
be valid and capable of being MAYFAIR A RELIEF THAT WAS NOT
performed. A sale limited to the leased EVEN PRAYED FOR IN THE
premises only, if hypothetically COMPLAINT.
assumed, would have brought into
operation the provisions of co-ownership
IV
under which Mayfair would have
become the exclusive owner of the
leased premises and at the same time a THE COURT OF APPEALS VIOLATED
co-owner with Carmelo of the subjacent ITS OWN INTERNAL RULES IN THE
land in proportion to Mayfair's interest ASSIGNMENT OF APPEALED CASES
over the premises sold to it.10 WHEN IT ALLOWED THE SAME
DIVISION XII, PARTICULARLY
JUSTICE MANUEL HERRERA, TO
Carmelo and Equatorial now comes before us
RESOLVE ALL THE MOTIONS IN THE
questioning the correctness and legal basis for the
"COMPLETION PROCESS" AND TO
decision of respondent Court of Appeals on the
STILL RESOLVE THE MERITS OF THE
basis of the following assigned errors:
CASE IN THE "DECISION STAGE". 11
I
THE COURT OF APPEALS GRAVELY
We shall first dispose of the fourth assigned error
ERRED IN CONCLUDING THAT THE
respecting alleged irregularities in the raffle of this
OPTION CLAUSE IN THE
case in the Court of Appeals. Suffice it to say that
CONTRACTS OF LEASE IS
in our Resolution, 12 dated December 9, 1992, we
ACTUALLY A RIGHT OF FIRST
already took note of this matter and set out the
REFUSAL PROVISO. IN DOING SO
proper applicable procedure to be the following:
THE COURT OF APPEALS
DISREGARDED THE CONTRACTS OF
LEASE WHICH CLEARLY AND On September 20, 1992, counsel for
UNEQUIVOCALLY PROVIDE FOR AN petitioner Equatorial Realty
OPTION, AND THE ADMISSION OF Development, Inc. wrote a letter-
THE PARTIES OF SUCH OPTION IN complaint to this Court alleging certain
THEIR STIPULATION OF FACTS. irregularities and infractions committed
by certain lawyers, and Justices of the
Court of Appeals and of this Court in
II
connection with case CA-G.R. CV No.
32918 (now G.R. No. 106063). This
WHETHER AN OPTION OR RIGHT OF partakes of the nature of an
FIRST REFUSAL, THE COURT OF administrative complaint for misconduct
APPEALS ERRED IN DIRECTING against members of the judiciary. While
EQUATORIAL TO EXECUTE A DEED the letter-complaint arose as an incident
OF SALE EIGHTEEN (18) YEARS in case CA-G.R. CV No. 32918 (now
AFTER MAYFAIR FAILED TO G.R. No. 106063), the disposition
EXERCISE ITS OPTION (OR, EVEN thereof should be separate and
ITS RIGHT OF FIRST REFUSAL independent from Case G.R. No.
ASSUMING IT WAS ONE) WHEN THE 106063. However, for purposes of
CONTRACTS LIMITED THE receiving the requisite pleadings
EXERCISE OF SUCH OPTION TO 30 necessary in disposing of the
DAYS FROM NOTICE. administrative complaint, this Division
shall continue to have control of the
case. Upon completion thereof, the
III
same shall be referred to the Court En
Banc for proper disposition.13
THE COURT OF APPEALS
GRIEVOUSLY ERRED WHEN IT
This court having ruled the procedural irregularities
raised in the fourth assigned error of Carmelo and
Equatorial, to be an independent and separate
subject for an administrative complaint based on
misconduct by the lawyers and justices implicated
therein, it is the correct, prudent and consistent
course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by
us in this case would entail a finding on the merits
as to the real nature of the questioned procedures
and the true intentions and motives of the players
therein.
In essence, our task is two-fold: (1) to define the
true nature, scope and efficacy of paragraph 8
stipulated in the two contracts of lease between
Carmelo and Mayfair in the face of conflicting
findings by the trial court and the Court of Appeals;
and (2) to determine the rights and obligations of
Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire
Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the
identically worded paragraph 8, which reads:
That if the LESSOR should desire to sell
the leased premises, the LESSEE shall
be given 30-days exclusive option to
purchase the same.
In the event, however, that the leased
premises is sold to someone other than
the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and
obligates itself, to stipulate in the Deed
of Sale thereof that the purchaser shall
recognize this lease and be bound by all
the terms and conditions thereof.14
We agree with the respondent Court of Appeals
that the aforecited contractual stipulation provides
for a right of first refusal in favor of Mayfair. It is
not an option clause or an option contract. It is a
contract of a right of first refusal.
As early as 1916, in the case of Beaumont
vs. Prieto,15 unequivocal was our characterization
of an option contract as one necessarily involving
the choice granted to another for a distinct and
separate consideration as to whether or not to
purchase a determinate thing at a predetermined
fixed price.
It is unquestionable that, by means of
the document Exhibit E, to wit, the letter
of December 4, 1911, quoted at the
beginning of this decision, the defendant
Valdes granted to the plaintiff Borck the
right to purchase the Nagtajan Hacienda
belonging to Benito Legarda, during the
period of three months and for its
assessed valuation, a grant which
necessarily implied the offer or
obligation on the part of the defendant
Valdes to sell to Borck the said hacienda
during the period and for the price
mentioned . . . There was, therefore, a
meeting of minds on the part of the one
and the other, with regard to the
stipulations made in the said document.
But it is not shown that there was any
cause or consideration for that
agreement, and this omission is a bar
which precludes our holding that the
stipulations contained in Exhibit E is a
contract of option, for, . . . there can be
no contract without the requisite, among
others, of the cause for the obligation to
be established.
In his Law Dictionary, edition of 1897,
Bouvier defines an option as a contract,
in the following language:
A contract by virtue of which A,
in consideration of the payment
of a certain sum to B, acquires
the privilege of buying from, or
selling to B, certain securities or
properties within a limited time at
a specified price. (Story vs.
Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work
"Words and Phrases," citing the case
of Ide vs. Leiser (24 Pac., 695; 10 Mont.,
5; 24 Am. St. Rep., 17) the following
quotation has been taken:
An agreement in writing to give a
person the option to purchase
lands within a given time at a
named price is neither a sale nor
an agreement to sell. 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; that is,
the right or privilege to buy at the
election or option of the other
party. The second party gets in
praesenti, not lands, nor an
agreement that he shall have
lands, but he does get
something of value; that is, the
right to call for and receive lands
if he elects. The owner parts with
his right to sell his lands, except
to the second party, for a limited
period. The second party
receives this right, or, rather,
from his point of view, he
receives the right to elect to buy.
But the two definitions above cited refer
to the contract of option, or, what
amounts to the same thing, to the case
where there was cause or consideration
for the obligation, the subject of the
agreement made by the parties; while in
the case at bar there was no such cause
or consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is
that the deed of option or the option clause in a
contract, in order to be valid and enforceable,
must, among other things, indicate the definite
price at which the person granting the option, is
willing to sell.
Notably, in one case we held that the lessee loses his right
to buy the leased property for a named price per square
meter upon failure to make the purchase within the time
specified;17 in one other case we freed the landowner from
her promise to sell her land if the prospective buyer could
raise P4,500.00 in three weeks because such option was not
supported by a distinct consideration; 18 in the same vein in
yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration; 19 and as an
exception to the doctrine enumerated in the two preceding
cases, in another case, we ruled that the option to buy the
leased premises for P12,000.00 as stipulated in the lease
contract, is not without consideration for in reciprocal
contracts, like lease, the obligation or promise of each party
is the consideration for that of the other. 20 In all these cases,
the selling price of the object thereof is always
predetermined and specified in the option clause in the
contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court
of Appeals21 that:
. . . In sales, particularly, to which the
topic for discussion about the case at
bench belongs, the contract is perfected
when a person, called the seller,
obligates himself, for a price certain, to
deliver and to transfer ownership of a
thing or right to another, called the
buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale
one of the contracting parties
obligates himself to transfer the
ownership of and to deliver a
determinate thing, and the other to
pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute
or conditional.
When the sale is not absolute but
conditional, such as in a "Contract to
Sell" where invariably the ownership of
the thing sold in retained until the
fulfillment of a positive suspensive
condition (normally, the full payment of
the purchase price), the breach of the
condition will prevent the obligation to
convey title from acquiring an obligatory
force. . . .
An unconditional mutual promise to buy
and sell, as long as the object is made
determinate and the price is fixed, can
be obligatory on the parties, and
compliance therewith may accordingly
be exacted.
An accepted unilateral promise which
specifies the thing to be sold and the
price to be paid, when coupled with a
valuable consideration distinct and
separate from the price, is what may
properly be termed a perfected contract
of option. This contract is legally binding,
and in sales, it conforms with the second
paragraph of Article 1479 of the Civil
Code, viz:
Art. 1479. . . .
An accepted unilateral promise
to buy or to sell a determinate
thing for a price certain is
binding upon the promisor if the
promise is supported by a
consideration distinct from the
price. (1451a).
Observe, however, that the option is not
the contract of sale itself. The optionee
has the right, but not the obligation, to
buy. Once the option is exercised
timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise
to sell and to buy ensues and both
parties are then reciprocally bound to
comply with their respective
undertakings.
Let us elucidate a little. A negotiation is
formally initiated by an offer. An
imperfect promise (policitacion) is
merely an offer. Public advertisements
or solicitations and the like are ordinarily
construed as mere invitations to make
offers or only as proposals. These
relations, until a contract is perfected,
are not considered binding
commitments. Thus, at any time prior to
the perfection of the contract, either
negotiating party may stop the
negotiation. The offer, at this stage, may
be withdrawn; the withdrawal is effective
immediately after its manifestation, such
as by its mailing and not necessarily
when the offeree learns of the
withdrawal (Laudico vs. Arias, 43 Phil.
270). Where a period is given to the
offeree within which to accept the offer,
the following rules generally govern:
(1) If the period is not itself founded
upon or supported by a consideration,
the offeror is still free and has the right
to withdraw the offer before its
acceptance, or if an acceptance has
been made, before the offeror's coming
to know of such fact, by communicating
that withdrawal to the offeree (see Art.
1324, Civil Code; see also Atkins, Kroll
& Co. vs. Cua, 102 Phil. 948, holding
that this rule is applicable to a unilateral
promise to sell under Art. 1479,
modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil.
249; see also Art. 1319, Civil Code;
Rural Bank of Parañaque, Inc. vs.
Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to
withdraw, however, must not be
exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage
claim under Article 19 of the Civil Code
which ordains that "every person must,
in the exercise of his rights and in the
performance of his duties, act with
justice, give everyone his due, and
observe honesty and good faith."
(2) If the period has a separate
consideration, a contract of "option"
deemed perfected, and it would be a
breach of that contract to withdraw the
offer during the agreed period. The
option, however, is an independent
contract by itself; and it is to be
distinguished from the projected main
agreement (subject matter of the option)
which is obviously yet to be concluded.
If, in fact, the optioner-offeror withdraws
the offer before its acceptance (exercise
of the option) by the optionee-offeree,
the latter may not sue for specific
performance on the proposed contract
("object" of the option) since it has failed
to reach its own stage of perfection. The
optioner-offeror, however, renders
himself liable for damages for breach of
the opinion. . .
In the light of the foregoing disquisition and in view
of the wording of the questioned provision in the
two lease contracts involved in the instant case,
we so hold that no option to purchase in
contemplation of the second paragraph of Article
1479 of the Civil Code, has been granted to
Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that
the said paragraph 8 grants the right of first refusal
to Mayfair and is not an option contract. It also
correctly reasoned that as such, the requirement
of a separate consideration for the option, has no
applicability in the instant case.
There is nothing in the identical Paragraphs "8" of
the June 1, 1967 and March 31, 1969 contracts
which would bring them into the ambit of the usual
offer or option requiring an independent
consideration.
An option is a contract granting a privilege to buy
or sell within an agreed time and at a determined
price. It is a separate and distinct contract from
that which the parties may enter into upon the
consummation of the option. It must be supported
by consideration.22 In the instant case, the right of
first refusal is an integral part of the contracts of
lease. The consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as that
found in paragraph 8 of the contracts is governed
by Article 1324 on withdrawal of the offer or Article
1479 on promise to buy and sell would render in
effectual or "inutile" the provisions on right of first
refusal so commonly inserted in leases of real
estate nowadays. The Court of Appeals is correct
in stating that Paragraph 8 was incorporated into
the contracts of lease for the benefit of Mayfair
which wanted to be assured that it shall be given
the first crack or the first option to buy the property
at the price which Carmelo is willing to accept. It is
not also correct to say that there is no
consideration in an agreement of right of first
refusal. The stipulation is part and parcel of the
entire contract of lease. The consideration for the
lease includes the consideration for the right of
first refusal. Thus, Mayfair is in effect stating that it
consents to lease the premises and to pay the
price agreed upon provided the lessor also
consents that, should it sell the leased property,
then, Mayfair shall be given the right to match the
offered purchase price and to buy the property at
that price. As stated in Vda. De Quirino
vs. Palarca,23 in reciprocal contract, the obligation
or promise of each party is the consideration for
that of the other.
The respondent Court of Appeals was correct in
ascertaining the true nature of the aforecited
paragraph 8 to be that of a contractual grant of the
right of first refusal to Mayfair.
We shall now determine the consequential rights,
obligations and liabilities of Carmelo, Mayfair and
Equatorial.
The different facts and circumstances in this case
call for an amplification of the precedent in Ang Yu
Asuncion vs. Court of Appeals.24
First and foremost is that the petitioners acted in
bad faith to render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by
executing the two lease contracts, was that
Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is
undisputed that Carmelo did recognize this right of
Mayfair, for it informed the latter of its intention to
sell the said property in 1974. There was an
exchange of letters evidencing the offer and
counter-offers made by both parties. Carmelo,
however, did not pursue the exercise to its logical
end. While it initially recognized Mayfair's right of
first refusal, Carmelo violated such right when
without affording its negotiations with Mayfair the
full process to ripen to at least an interface of a
definite offer and a possible corresponding
acceptance within the "30-day exclusive option"
time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and
then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding
renders the sale to it of the property in question
rescissible. We agree with respondent Appellate
Court that the records bear out the fact that
Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied
the said contracts. As such, Equatorial cannot
tenably claim to be a purchaser in good faith, and,
therefore, rescission lies.
. . . Contract of Sale was not voidable
but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract
otherwise valid may nonetheless be
subsequently rescinded by reason of
injury to third persons, like creditors. The
status of creditors could be validly
accorded the Bonnevies for they had
substantial interests that were
prejudiced by the sale of the subject
property to the petitioner without
recognizing their right of first priority
under the Contract of Lease.
According to Tolentino, rescission is a
remedy granted by law to the
contracting parties and even to third
persons, to secure reparation for
damages caused to them by a contract,
even if this should be valid, by means of
the restoration of things to their
condition at the moment prior to the
celebration of said contract. It is a relief
allowed for the protection of one of the
contracting parties and even third
persons from all injury and damage the
contract may cause, or to protect some
incompatible and preferent right created
by the contract. Rescission implies a
contract which, even if initially valid,
produces a lesion or pecuniary damage
to someone that justifies its invalidation
for reasons of equity.
It is true that the acquisition by a third
person of the property subject of the
contract is an obstacle to the action for
its rescission where it is shown that such
third person is in lawful possession of
the subject of the contract and that he
did not act in bad faith. However, this
rule is not applicable in the case before
us because the petitioner is not
considered a third party in relation to the
Contract of Sale nor may its possession
of the subject property be regarded as
acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was
the vendee in the Contract of Sale.
Moreover, the petitioner cannot be
deemed a purchaser in good faith for the
record shows that it categorically
admitted it was aware of the lease in
favor of the Bonnevies, who were
actually occupying the subject property
at the time it was sold to it. Although the
Contract of Lease was not annotated on
the transfer certificate of title in the
name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease
which was equivalent to and indeed
more binding than presumed notice by
registration.
A purchaser in good faith and for value
is one who buys the property of another
without notice that some other person
has a right to or interest in such property
and pays a full and fair price for the
same at the time of such purchase or
before he has notice of the claim or
interest of some other person in the
property. Good faith connotes an honest
intention to abstain from taking
unconscientious advantage of another.
Tested by these principles, the petitioner
cannot tenably claim to be a buyer in
good faith as it had notice of the lease of
the property by the Bonnevies and such
knowledge should have cautioned it to
look deeper into the agreement to
determine if it involved stipulations that
would prejudice its own interests.
 The petitioner insists that it was not
aware of the right of first priority granted
by the Contract of Lease. Assuming this
to be true, we nevertheless agree with
the observation of the respondent court
that:
If Guzman-Bocaling
failed to inquire
about the terms of
the Lease Contract,
which includes Par.
20 on priority right
given to the
Bonnevies, it had
only itself to blame.
Having known that
the property it was
buying was under
lease, it behooved it
as a prudent person
to have required
Reynoso or the
broker to show to it
the Contract of
Lease in which Par.
20 is contained.25
Petitioners assert the alleged impossibility of
performance because the entire property is
indivisible property. It was petitioner Carmelo
which fixed the limits of the property it was leasing
out. Common sense and fairness dictate that
instead of nullifying the agreement on that basis,
the stipulation should be given effect by including
the indivisible appurtenances in the sale of the
dominant portion under the right of first refusal. A
valid and legal contract where the ascendant or
the more important of the two parties is the
landowner should be given effect, if possible,
instead of being nullified on a selfish pretext
posited by the owner. Following the arguments of
petitioners and the participation of the owner in the
attempt to strip Mayfair of its rights, the right of first
refusal should include not only the property
specified in the contracts of lease but also the
appurtenant portions sold to Equatorial which are
claimed by petitioners to be indivisible. Carmelo
acted in bad faith when it sold the entire property
to Equatorial without informing Mayfair, a clear
violation of Mayfair's rights. While there was a
series of exchanges of letters evidencing the offer
and counter-offers between the parties, Carmelo
abandoned the negotiations without giving Mayfair
full opportunity to negotiate within the 30-day
period.
Accordingly, even as it recognizes the right of first
refusal, this Court should also order that Mayfair
be authorized to exercise its right of first refusal
under the contract to include the entirety of the
indivisible property. The boundaries of the
property sold should be the boundaries of the offer
under the right of first refusal. As to the remedy to
enforce Mayfair's right, the Court disagrees to a
certain extent with the concluding part of the
dissenting opinion of Justice Vitug. The doctrine
enunciated in Ang Yu Asuncion vs. Court of
Appeals should be modified, if not amplified under
the peculiar facts of this case.
As also earlier emphasized, the contract of sale
between Equatorial and Carmelo is characterized
by bad faith, since it was knowingly entered into in
violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court
of Appeals, Equatorial admitted that its lawyers
had studied the contract of lease prior to the sale.
Equatorial's knowledge of the stipulations therein
should have cautioned it to look further into the
agreement to determine if it involved stipulations
that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can
exercise the right only if the fraudulent sale is first
set aside or rescinded. All of these matters are
now before us and so there should be no
piecemeal determination of this case and leave
festering sores to deteriorate into endless
litigation. The facts of the case and considerations
of justice and equity require that we order
rescission here and now. Rescission is a relief
allowed for the protection of one of the contracting
parties and even third persons from all injury and
damage the contract may cause or to protect
some incompatible and preferred right by the
contract.26 The sale of the subject real property by
Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial
interest over the subject property, was prejudiced
by the sale of the subject property to Equatorial
without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day
stipulated period.27
This Court has always been against multiplicity of
suits where all remedies according to the facts and
the law can be included. Since Carmelo sold the
property for P11,300,000.00 to Equatorial, the
price at which Mayfair could have purchased the
property is, therefore, fixed. It can neither be more
nor less. There is no dispute over it. The damages
which Mayfair suffered are in terms of actual injury
and lost opportunities. The fairest solution would
be to allow Mayfair to exercise its right of first
refusal at the price which it was entitled to accept
or reject which is P11,300,000.00. This is clear
from the records.
To follow an alternative solution that Carmelo and
Mayfair may resume negotiations for the sale to
the latter of the disputed property would be unjust
and unkind to Mayfair because it is once more
compelled to litigate to enforce its right. It is not
proper to give it an empty or vacuous victory in this
case. From the viewpoint of Carmelo, it is like
asking a fish if it would accept the choice of being
thrown back into the river. Why should Carmelo be
rewarded for and allowed to profit from, its
wrongdoing? Prices of real estate have
skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another
chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of
Appeals decision, the Court stated that there was
nothing to execute because a contract over the
right of first refusal belongs to a class of
preparatory juridical relations governed not by the
law on contracts but by the codal provisions
on human relations. This may apply here if the
contract is limited to the buying and selling of the
real property. However, the obligation of Carmelo
to first offer the property to Mayfair is embodied in
a contract. It is Paragraph 8 on the right of first
refusal which created the obligation. It should be
enforced according to the law on contracts instead
of the panoramic and indefinite rule on human
relations. The latter remedy encourages
multiplicity of suits. There is something to execute
and that is for Carmelo to comply with its
obligation to the property under the right of the first
refusal according to the terms at which they should
have been offered then to Mayfair, at the price
when that offer should have been made. Also,
Mayfair has to accept the offer. This juridical
relation is not amorphous nor is it merely
preparatory. Paragraphs 8 of the two leases can
be executed according to their terms.
On the question of interest payments on the
principal amount of P11,300,000.00, it must be
borne in mind that both Carmelo and Equatorial
acted in bad faith. Carmelo knowingly and
deliberately broke a contract entered into with
Mayfair. It sold the property to Equatorial with
purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of
Mayfair. All the circumstances point to a calculated
and contrived plan of non-compliance with the
agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in
good faith because it bought the property with
notice and full knowledge that Mayfair had a right
to or interest in the property superior to its own.
Carmelo and Equatorial took unconscientious
advantage of Mayfair.
Neither may Carmelo and Equatorial avail of
considerations based on equity which might
warrant the grant of interests. The vendor received
as payment from the vendee what, at the time,
was a full and fair price for the property. It has
used the P11,300,000.00 all these years earning
income or interest from the amount. Equatorial, on
the other hand, has received rents and otherwise
profited from the use of the property turned over to
it by Carmelo. In fact, during all the years that this
controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior
right to purchase the property. Mayfair is under no
obligation to pay any interests arising from this
judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the
decision of the Court of Appeals, dated June 23,
1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between
petitioners Equatorial Realty Development, Inc.
and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; petitioner Carmelo & Bauermann is
ordered to return to petitioner Equatorial Realty
Development the purchase price. The latter is
directed to execute the deeds and documents
necessary to return ownership to Carmelo and
Bauermann of the disputed lots. Carmelo &
Bauermann is ordered to allow Mayfair Theater,
Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.
G.R. No. 140479 March 8, 2001
ROSENCOR DEVELOPMENT CORPORATION and RENE
JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO
BANTUGAN, FERNANDO MAGBANUA and LIZZA
TIANGCO, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking reversal of the Decision 1 of the Court
of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963.
The Court of Appeals decision reversed and set aside the
Decision2 dated May 13, 1996 of Branch 217 of the Regional
Trial Court of Quezon City in Civil Case No. Q-93-
18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by
Paterno Inquing, Irene Guillermo and Federico Bantugan,
herein respondents, against Rosencor Development
Corporation (hereinafter "Rosencor"), Rene Joaquin, and
Eufrocina de Leon. Originally, the complaint was one for
annulment of absolute deed of sale but was later amended
to one for rescission of absolute deed of sale. A complaint-
for intervention was thereafter filed by respondents Fernando
Magbanua and Danna Lizza Tiangco. The complaint-in-
intervention was admitted by the trial court in an Order dated
May 4, 1994.3
The facts of the case, as stated by the trial court and
adopted by the appellate court, are as follows:
"This action was originally for the annulment of the
Deed of Absolute Sale dated September 4, 1990
between defendants Rosencor and Eufrocina de
Leon but later amended (sic) praying for the
rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that
they are the lessees since 1971 of a two-story
residential apartment located at No. 150 Tomas
Morato Ave., Quezon City covered by TCT No.
96161 and owned by spouses Faustino and
Cresencia Tiangco. The lease was not covered by
any contract. The lessees were renting the
premises then for P150.00 a month and were
allegedly verbally granted by the lessors the pre-
emptive right to purchase the property if ever they
decide to sell the same.
Upon the death of the spouses Tiangcos in 1975,
the management of the property was adjudicated
to their heirs who were represented by Eufrocina
de Leon. The lessees were allegedly promised the
same pre-emptive right by the heirs of Tiangcos
since the latter had knowledge that this right was
extended to the former by the late spouses
Tiangcos. The lessees continued to stay in the
premises and allegedly spent their own money
amounting from P50,000.00 to P100,000.00 for its
upkeep. These expenses were never deducted
from the rentals which already increased to
P1,000.00.
In June 1990, the lessees received a letter from
Atty. Erlinda Aguila demanding that they vacate
the premises so that the demolition of the building
be undertaken. They refused to leave the
premises. In that same month, de Leon refused to
accept the lessees’ rental payment claiming that
they have run out of receipts and that a new
collector has been assigned to receive the
payments. Thereafter, they received a letter from
Eufrocina de Leon offering to sell to them the
property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de
Leon for the amount of P1,000,000.00. De Leon
told them that she will be submitting the offer to
the other heirs. Since then, no answer was given
by de Leon as to their offer to buy the property.
However, in November 1990, Rene Joaquin came
to the leased premises introducing himself as its
new owner.
In January 1991, the lessees again received
another letter from Atty. Aguila demanding that
they vacate the premises. A month thereafter, the
lessees received a letter from de Leon advising
them that the heirs of the late spouses Tiangcos
have already sold the property to Rosencor. The
following month Atty. Aguila wrote them another
letter demanding the rental payment and
 introducing herself as counsel for Rosencor/Rene
Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had
disregarded the pre-emptive right she and the late
Tiangcos have promised them. They also asked
for a copy of the deed of sale between her and the
new owners thereof but she refused to heed their
request. In the same manner, when they asked
Rene Joaquin a copy of the deed of sale, the latter
turned down their request and instead Atty. Aguila
wrote them several letters demanding that they
vacate the premises. The lessees offered to tender
their rental payment to de Leon but she refused to
accept the same.
In April 1992 before the demolition can be
undertaken by the Building Official, the barangay
interceded between the parties herein after which
Rosencor raised the issue as to the rental
payment of the premises. It was also at this
instance that the lessees were furnished with a
copy of the Deed of Sale and discovered that they
were deceived by de Leon since the sale between
her and Rene Joaquin/Rosencor took place in
September 4, 1990 while de Leon made the offer
to them only in October 1990 or after the sale with
Rosencor had been consummated. The lessees
also noted that the property was sold only for
P726,000.00.
The lessees offered to reimburse de Leon the
selling price of P726,000.00 plus an additional
P274,000.00 to complete their P1,000.000.00
earlier offer. When their offer was refused, they
filed the present action praying for the following: a)
rescission of the Deed of Absolute Sale between
de Leon and Rosencor dated September 4, 1990;
b) the defendants Rosencor/Rene Joaquin be
ordered to reconvey the property to de Leon; and
c) de Leon be ordered to reimburse the plaintiffs
for the repairs of the property, or apply the said
amount as part of the price for the purchase of the
property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a
Decision5 dated May 13, 1996 dismissing the complaint. The
trial court held that the right of redemption on which the
complaint. The trial court held that the right of redemption on
which the complaint was based was merely an oral one and
as such, is unenforceable under the law. The dispositive
portion of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court
DISMISSES the instant action. Plaintiffs and
plaintiffs-intervenors are hereby ordered to pay
their respective monthly rental of P1,000.00 per
month reckoned from May 1990 up to the time
they leave the premises. No costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents
herein filed a Notice of Appeal dated June 3, 1996. On the
same date, the trial court issued an Order for the elevation of
the records of the case to the Court of Appeals. On August
8, 1997, respondents filed their appellate brief before the
Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its
decision7 reversing the decision of the trial court. The
dispositive portion of the June 25, 1999 decision is as
follows:
"WHEREFORE, premises considered, the
appealed decision (dated May 13, 1996) of the
Regional Trial Court (Branch 217) in Quezon City
in Case No. Q-93-18582 is hereby REVERSED
and SET ASIDE. In its stead, a new one is
rendered ordering:
(1) The rescission of the Deed of
Absolute Sale executed between the
appellees on September 4, 1990;
(2) The reconveyance of the subject
premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and
Crescencia Tiangco, thru appellee
Eufrocina de Leon, to afford the
appellants thirty days within which to
exercise their right of first refusal by
paying the amount of ONE MILLION
PESOS (P1,000,000.00) for the subject
property; and
(4) The appellants to, in turn, pay the
appellees back rentals from May 1990
up to the time this decision is
promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the
decision of the Court of Appeals but the same was denied in
a Resolution dated October 15, 1999.9
Hence, this petition for review on certiorari where petitioners
Rosencor Development Corporation and Rene Joaquin raise
the following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED
WHEN IT ORDERED THE RESCISSION OF THE
ABSOLUTE DEED OF SALE BETWEEN
EUFROCINA DE LEON AND PETITIONER
ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED
MANIFEST ERROR IN MANDATING THAT
EUFROCINA DE LEON AFFORD
RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY
ERRED IN CONCLUDING THAT
RESPONDENTS HAVE ESTABLISHED THEIR
RIGHT OF FIRST REFUSAL DESPITE
PETITIONERS’ RELIANCE ON THEIR DEFENSE
BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the
spouses Faustino and Crescencia Tiangco, did not appeal
the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and the
Regional Trial Court relied on Article 1403 of the New Civil
Code, more specifically the provisions on the statute of
frauds, in coming out with their respective decisions. The trial
court, in denying the petition for reconveyance, held that
right of first refusal relied upon by petitioners was not
reduced to writing and as such, is unenforceable by virtue of
the said article. The Court of Appeals, on the other hand,
also held that the statute of frauds governs the "right of first
refusal" claimed by respondents. However, the appellate
court ruled that respondents had duly proven the same by
reason of petitioners’ waiver of the protection of the statute
by reason of their failure to object to the presentation of oral
evidence of the said right.
Both the appellate court and the trial court failed to discuss,
however, the threshold issue of whether or not a right of first
refusal is indeed covered by the provisions of the New Civil
Code on the statute of frauds. The resolution of the issue on
the applicability of the statute of frauds is important as it will
determine the type of evidence which may be considered by
the trial court as proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which
require certain classes of contracts to be in writing. This
statute does not deprive the parties of the right to contract
with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render
it enforceable. Thus, they are included in the provisions of
the New Civil Code regarding unenforceable contracts, more
particularly Art. 1403, paragraph 2. Said article provides, as
follows:
"Art. 1403. The following contracts are
unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement
cannot be received without the writing, or a
secondary evidence of its contents:
a) An agreement that by its terms is not
to be performed within a year from the
making thereof;
b) A special promise to answer for the
debt, default, or miscarriage of another;
c) An agreement made in consideration
of marriage, other than a mutual
promise to marry;
d) An agreement for the sale of goods,
chattels or things in action, at a price not
less than five hundred pesos, unless the
buyer accept and receive part of such
goods and chattels, or the evidences, or
some of them, of such things in action,
or pay at the time some part of the
purchase money; but when a sale is
made by auction and entry is made by
the auctioneer in his sales book, at the
time of the sale, of the amount and kind
of property sold, terms of sale, price,
names of purchasers and person on
whose account the sale is made, it is a
sufficient memorandum;
e) An agreement for the leasing of a
longer period than one year, or for the
sale of real property or of an interest
therein;
f) A representation to the credit of a third
person."
The purpose of the statute is to prevent fraud and perjury in
the enforcement of obligations depending for their evidence
on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged. 11 Moreover, the
statute of frauds refers to specific kinds of transactions and
cannot apply to any other transaction that is not enumerated
therein.12 The application of such statute presupposes the
existence of a perfected contract.13
The question now is whether a "right of first refusal" is
among those enumerated in the list of contracts covered by
the Statute of Frauds. More specifically, is a right of first
refusal akin to "an agreement for the leasing of a longer
period than one year, or for the sale of real property or of an
interest therein" as contemplated by Article 1403, par. 2(e) of
the New Civil Code.
We have previously held that not all agreements "affecting
land" must be put into writing to attain enforceability. 14 Thus,
we have held that the setting up of boundaries, 15 the oral
partition of real property16, and an agreement creating a right
of way17 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.18 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 sold19.
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.
The next question to be ascertained is whether or not
respondents have satisfactorily proven their right of first
refusal over the property subject of the Deed of Absolute
Sale dated September 4, 1990 between petitioner Rosencor
and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court
of Appeals that respondents have adequately proven the
existence of their right of first refusal. Federico Bantugan,
Irene Guillermo, and Paterno Inquing uniformly testified that
they were promised by the late spouses Faustino and
Crescencia Tiangco and, later on, by their heirs a right of first
refusal over the property they were currently leasing should
they decide to sell the same. Moreover, respondents
presented a letter20 dated October 9, 1990 where Eufrocina
de Leon, the representative of the heirs of the spouses
Tiangco, informed them that they had received an offer to
buy the disputed property for P2,000,000.00 and offered to
sell the same to the respondents at the same price if they
were interested. Verily, if Eufrocina de Leon did not
recognize respondents’ right of first refusal over the property
they were leasing, then she would not have bothered to offer
the property for sale to the respondents.
It must be noted that petitioners did not present evidence
before the trial court contradicting the existence of the right
of first refusal of respondents over the disputed property.
They only presented petitioner Rene Joaquin, the vice-
president of petitioner Rosencor, who admitted having no
personal knowledge of the details of the sales transaction
between Rosencor and the heirs of the spouses Tiangco 21.
They also dispensed with the testimony of Eufrocina de
Leon22 who could have denied the existence or knowledge of
the right of first refusal. As such, there being no evidence to
the contrary, the right of first refusal claimed by respondents
was substantially proven by respondents before the lower
court.
Having ruled upon the question as to the existence of
respondents’ right of first refusal, the next issue to be
answered is whether or not the Court of Appeals erred in
ordering the rescission of the Deed of Absolute Sale dated
September 4, 1990 between Rosencor and Eufrocina de
Leon and in decreeing that the heirs of the spouses Tiangco
should afford respondents the exercise of their right of first
refusal. In other words, may a contract of sale entered into in
violation of a third party’s right of first refusal be rescinded in
order that such third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie 23, the Court
upheld the decision of a lower court ordering the rescission
of a deed of sale which violated a right of first refusal granted
to one of the parties therein. The Court held:
"xxx Contract of Sale was not voidable but
rescissible. Under Article 1380 to 1381 (3) of the
Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason
of injury to third persons, like creditors. The status
of creditors could be validly accorded the
Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property
to the petitioner without recognizing their right of
first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy
granted by law to the contracting parties and even
to third persons, to secure reparations for
damages caused to them by a contract, even if
this should be valid, by means of the restoration of
things to their condition at the moment prior to the
celebration of said contract. It is a relief allowed for
the protection of one of the contracting parties and
even third persons from all injury and damage the
contract may cause, or to protect some
incompatible and preferent right created by the
contract. Rescission implies a contract which,
even if initially valid, produces a lesion or
pecuniary damage to someone that justifies its
invalidation for reasons of equity.
It is true that the acquisition by a third person of
the property subject of the contract is an obstacle
to the action for its rescission where it is shown
that such third person is in lawful possession of
the subject of the contract and that he did not act
in bad faith. However, this rule is not applicable in
the case before us because the petitioner is not
considered a third party in relation to the Contract
of Sale nor may its possession of the subject
property be regarded as acquired lawfully and in
good faith.
Indeed, Guzman, Bocaling and Co. was the
vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good
faith for the record shows that it categorically
admitted that it was aware of the lease in favor of
the Bonnevies, who were actually occupying the
subject property at the time it was sold to it.
Although the occupying the subject property at the
time it was sold to it. Although the Contract of
Lease was not annotated on the transfer certificate
of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual
knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who XXX
buys the property of another without notice that
some other person has a right to or interest in
As also earlier emphasized, the contract of sale
such property without and pays a full and fair price
between Equatorial and Carmelo is characterized
for the same at the time of such purchase or
by bad faith, since it was knowingly entered into in
before he has notice of the claim or interest of
violation of the rights of and to the prejudice of
some other person in the property. Good faith
Mayfair. In fact, as correctly observed by the Court
connotes an honest intention to abstain from
of Appeals, Equatorial admitted that its lawyers
taking unconscientious advantage of another.
had studied the contract or lease prior to the sale.
Tested by these principles, the petitioner cannot
Equatorial’s knowledge of the stipulations therein
tenably claim to be a buyer in good faith as it had
should have cautioned it to look further into the
notice of the lease of the property by the
agreement to determine if it involved stipulations
Bonnevies and such knowledge should have
that would prejudice its own interests.
cautioned it to look deeper into the agreement to
determine if it involved stipulations that would
prejudice its own interests." Since Mayfair had a right of first refusal, it can
exercise the right only if the fraudulent sale is first
set aside or rescinded. All of these matters are
Subsequently24 in Equatorial Realty and Development, Inc.
now before us and so there should be no
vs. Mayfair Theater, Inc.25, the Court, en banc, with three
piecemeal determination of this case and leave
justices dissenting,26 ordered the rescission of a contract
festering sores to deteriorate into endless
entered into in violation of a right of first refusal. Using the
litigation. The facts of the case and considerations
ruling in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis,
of justice and equity require that we order
the Court decreed that since respondent therein had a right
rescission here and now. Rescission is a relief
of first refusal over the said property, it could only exercise
allowed for the protection of one of the contracting
the said right if the fraudulent sale is first set aside or
parties and even third persons from all injury and
rescinded. Thus:
damage the contract may cause or to protect
some incompatible and preferred right by the
"What Carmelo and Mayfair agreed to, by contract. The sale of the subject real property
executing the two lease contracts, was that should now be rescinded considering that Mayfair,
Mayfair will have the right of first refusal in the which had substantial interest over the subject
event Carmelo sells the leased premises. It is property, was prejudiced by the sale of the subject
undisputed that Carmelo did recognize this right of property to Equatorial without Carmelo conferring
Mayfair, for it informed the latter of its intention to to Mayfair every opportunity to negotiate within the
sell the said property in 1974. There was an 30-day stipulate periond.27
exchange of letters evidencing the offer and
counter-offers made by both parties. Carmelo,
In Paranaque Kings Enterprises, Inc. vs. Court of
however, did not pursue the exercise to its logical
Appeals,28 the Court held that the allegations in a complaint
end. While it initially recognized Mayfair’s right of
showing violation of a contractual right of "first option or
first refusal, Carmelo violated such right when
priority to buy the properties subject of the lease" constitute a
without affording its negotiations with Mayfair the
valid cause of action enforceable by an action for specific
full process to ripen to at least an interface of a
performance. Summarizing the rulings in the two previously
definite offer and a possible corresponding
cited cases, the Court affirmed the nature of and
acceptance within the "30-day exclusive option"
concomitant rights and obligations of parties under a right of
time granted Mayfair, Carmelo abandoned
first refusal. Thus:
negotiations, kept a low profile for some time, and
then sold, without prior notice to Mayfair, the entire
Claro M. Recto property to Equatorial. "We hold however, that in order to have full
compliance with the contractual right granting
petitioner the first option to purchase, the sale of
Since Equatorial is a buyer in bad faith, this finding
the properties for the amount of P9,000,000.00,
renders the sale to it of the property in question,
the price for which they were finally sold to
rescissible. We agree with respondent Appellate
respondent Raymundo, should have likewise been
Court that the records bear out the fact that
offered to petitioner.
Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied
the said contracts. As such, Equatorial cannot The Court has made an extensive and lengthy
tenably claim that to be a purchaser in good faith, discourse on the concept of, and obligations
and, therefore, rescission lies. under, a right of first refusal in the case
of Guzman, Bocaling & Co. vs. Bonnevie. In that
case, under a contract of lease, the lessees (Raul
and Christopher Bonnevie) were given a "right of
first priority" to purchase the leased property in
In the recent case of Litonjua vs L&R Corporation,29 the
case the lessor (Reynoso) decided to sell. The
Court, also citing the case of Guzman, Bocaling & Co. vs.
selling price quoted to the Bonnevies was
Bonnevie, held that the sale made therein in violation of a
600,000.00 to be fully paid in cash, less a
right of first refusal embodied in a mortgage contract, was
mortgage lien of P100,000.00. On the other hand,
rescissible. Thus:
the selling price offered by Reynoso to and
accepted by Guzman was only P400,000.00 of
which P137,500.00 was to be paid in cash while
the balance was to be paid only when the property
was cleared of occupants. We held that even if the
Bonnevies could not buy it at the price quoted
(P600,000.00), nonetheless, Reynoso could not
sell it to another for a lower price and under more
favorable terms and conditions without first
offering said favorable terms and price to the
Bonnevies as well. Only if the Bonnevies failed to
exercise their right of first priority could Reynoso
thereafter lawfully sell the subject property to
others, and only under the same terms and
conditions previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent
case of Equatorial Realty vs. Mayfair Theater,
Inc. which was decided en banc. This Court
upheld the right of first refusal of the lessee
Mayfair, and rescinded the sale of the property by
the lessor Carmelo to Equatorial Realty
"considering that Mayfair, which had substantial
interest over the subject property, was prejudiced
by its sale to Equatorial without Carmelo
conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period"
In that case, two contracts of lease between
Carmelo and Mayfair provided "that if the LESSOR
should desire to sell the leased premises, the
LESSEE shall be given 30 days exclusive option
to purchase the same." Carmelo initially offered to
sell the leased property to Mayfair for six to seven
million pesos. Mayfair indicated interest in
purchasing the property though it invoked the 30-
day period. Nothing was heard thereafter from
Carmelo. Four years later, the latter sold its entire
Recto Avenue property, including the leased
premises, to Equatorial for P11,300,000.00 without
priorly informing Mayfair. The Court held that both
Carmelo and Equatorial acted in bad faith:
Carmelo or knowingly violating the right of first
option of Mayfair, and Equatorial for purchasing
the property despite being aware of the contract
stipulation. In addition to rescission of the contract
of sale, the Court ordered Carmelo to allow
Mayfair to buy the subject property at the same
price of P11,300,000.00.
"While petitioners question the validity of
paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof
is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the
mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in
this provision. The right of first refusal has long
been recognized as valid in our jurisdiction. The
consideration for the loan mortgage includes the
consideration for the right of first refusal. L&R
Corporation is in effect stating that it consents to
lend out money to the spouses Litonjua provided
that in case they decide to sell the property
mortgaged to it, then L&R Corporation shall be
given the right to match the offered purchase price
and to buy the property at that price. Thus, while
the spouses Litonjua had every right to sell their
mortgaged property to PWHAS without securing
the prior written consent of L&R Corporation, they
had the obligation under paragraph 9, which is a
perfectly valid provision, to notify the latter of their
intention to sell the property and give it priority
over other buyers. It is only upon the failure of L&R
Corporation to exercise its right of first refusal
could the spouses Litonjua validly sell the subject
properties to the others, under the same terms and
conditions offered to L&R Corporation.
What then is the status of the sale made to
PWHAS in violation of L & R Corporation’s
contractual right of first refusal? On this score, we
agree with the Amended Decision of the Court of
Appeals that the sale made to PWHAS is
rescissible. The case of Guzman, Bocaling & Co.
v. Bonnevie is instructive on this point.
XXX
It was then held that the Contract of Sale there,
which violated the right of first refusal, was
rescissible.
In the case at bar, PWHAS cannot claim ignorance
of the right of first refusal granted to L & R
Corporation over the subject properties since the
Deed of Real Estate Mortgage containing such a
provision was duly registered with the Register of
Deeds. As such, PWHAS is presumed to have
been notified thereof by registration, which
equates to notice to the whole world.
XXX
All things considered, what then are the relative
rights and obligations of the parties? To
recapitulate: the sale between the spouses
Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation’s prior written
consent thereto. Inasmuch as the sale to PWHAS
was valid, its offer to redeem and its tender of the
redemption price, as successor-in-interest of the
spouses Litonjua, within the one-year period
should have been accepted as valid by the L & R
Corporation. However, while the sale is, indeed,
valid, the same is rescissible because it ignored L
& R Corporation’s right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited
cases, is that a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is
rescissible.
There is, however, a circumstance which prevents the
application of this doctrine in the case at bench. In the cases
cited above, the Court ordered the rescission of sales made
in violation of a right of first refusal precisely because the
vendees therein could not have acted in good faith as they
were aware or should have been aware of the right of first
refusal granted to another person by the vendors therein.
The rationale for this is found in the provisions of the New
Civil Code on rescissible contracts. Under Article 1381 of the
New Civil Code, paragraph 3, a contract validly agreed upon
may be rescinded if it is "undertaken in fraud of creditors
when the latter cannot in any manner collect the claim due
them." Moreover, under Article 1385, rescission shall not
take place "when the things which are the object of the
contract are legally in the possession of third persons who
did not act in bad faith."30
It must be borne in mind that, unlike the cases cited above,
the right of first refusal involved in the instant case was an
oral one given to respondents by the deceased spouses
Tiangco and subsequently recognized by their heirs. As
such, in order to hold that petitioners were in bad faith, there
must be clear and convincing proof that petitioners were
made aware of the said right of first refusal either by the
respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless
contrary evidence is adduced. 31 A purchaser in good faith is
one who buys the property of another without notice that
some other person has a right or interest in such a property
and pays a full and fair price at the time of the purchase or
before he has notice of the claim or interest of some other
person in the property.32 In this regard, the rule on
constructive notice would be inapplicable as it is undisputed
that the right of first refusal was an oral one and that the
same was never reduced to writing, much less registered
with the Registry of Deeds. In fact, even the lease contract
by which respondents derive their right to possess the
property involved was an oral one.
On this point, we hold that the evidence on record fails to
show that petitioners acted in bad faith in entering into the
deed of sale over the disputed property with the heirs of the
spouses Tiangco. Respondents failed to present any
evidence that prior to the sale of the property on September
4, 1990, petitioners were aware or had notice of the oral right
of first refusal.
Respondents point to the letter dated June 1, 1990 33 as
indicative of petitioners’ knowledge of the said right. In this
letter, a certain Atty. Erlinda Aguila demanded that
respondent Irene Guillermo vacate the structure they were
occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on
the part of the petitioner. No mention is made of the right of
first refusal granted to respondents. The name of petitioner
Rosencor or any of it officers did not appear on the letter and
the letter did not state that Atty. Aguila was writing in behalf
of petitioner. In fact, Atty. Aguila stated during trial that she
wrote the letter in behalf of the heirs of the spouses Tiangco.
Moreover, even assuming that Atty. Aguila was indeed
writing in behalf of petitioner Rosencor, there is no showing
that Rosencor was aware at that time that such a right of first
refusal existed.
Neither was there any showing that after receipt of this June
1, 1990 letter, respondents notified Rosencor or Atty. Aguila
of their right of first refusal over the property. Respondents
did not try to communicate with Atty. Aguila and inform her
about their preferential right over the disputed property.
There is even no showing that they contacted the heirs of the
spouses Tiangco after they received this letter to remind
them of their right over the property.
Respondents likewise point to the letter dated October 9,
1990 of Eufrocina de Leon, where she recognized the right
of first refusal of respondents, as indicative of the bad faith of
petitioners. We do not agree. Eufrocina de Leon wrote the
letter on her own behalf and not on behalf of petitioners and,
as such, it only shows that Eufrocina de Leon was aware of
the existence of the oral right of first refusal. It does not show
that petitioners were likewise aware of the existence of the
said right. Moreover, the letter was made a month after the
execution of the Deed of Absolute Sale on September 4,
1990 between petitioner Rosencor and the heirs of the
spouses Tiangco. There is no showing that prior to the date
of the execution of the said Deed, petitioners were put on
notice of the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents’ evidence, it would only be on the part of
Eufrocina de Leon as she was aware of the right of first
refusal of respondents yet she still sold the disputed property
to Rosencor. However, bad faith on the part of Eufrocina de
Leon does not mean that petitioner Rosencor likewise acted
in bad faith. There is no showing that prior to the execution
of the Deed of Absolute Sale, petitioners were made aware
or put on notice of the existence of the oral right of first
refusal. Thus, absent clear and convincing evidence to the
contrary, petitioner Rosencor will be presumed to have acted
in good faith in entering into the Deed of Absolute Sale over
the disputed property.
Considering that there is no showing of bad faith on the part
of the petitioners, the Court of Appeals thus erred in ordering
the rescission of the Deed of Absolute Sale dated
September 4, 1990 between petitioner Rosencor and the
heirs of the spouses Tiangco. The acquisition by Rosencor
of the property subject of the right of first refusal is an
obstacle to the action for its rescission where, as in this
case, it was shown that Rosencor is in lawful possession of
the subject of the contract and that it did not act in bad
faith.34
This does not mean however that respondents are left
without any remedy for the unjustified violation of their right
of first refusal. Their remedy however is not an action for the
rescission of the Deed of Absolute Sale but an action for
damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal35.
WHEREFORE, premises considered, the decision of the
Court of Appeals dated June 25, 1999 is REVERSED and
SET ASIDE. The Decision dated May 13, 1996 of the
Quezon City Regional Trial Court, Branch 217 is hereby
REINSTATED insofar as it dismisses the action for
rescission of the Deed of Absolute Sale dated September 4,
1990 and orders the payment of monthly rentals of
P1,000.00 per month reckoned from May 1990 up to the time
respondents leave the premises.
SO ORDERED.
 The facts are not disputed. When the late Emilio Dalope
died, he left a 589-square meter untitled lot 1 in Sta. Barbara,
Pangasinan, to his wife, Felisa Dalope (Felisa) and their nine
children, one of whom was Rosa Dalope-Funcion. 2 To
enable Rosa and her husband Antonio Funcion (the
Funcions) get a loan from respondent Development Bank of
the Philippines (DBP), Felisa sold the whole lot to the
Funcions. With the deed of sale in their favor and the tax
declaration transferred in their names, the Funcions
mortgaged the lot with the DBP.

On February 12, 1979, after the Funcions failed to pay their

loan, the DBP foreclosed the mortgage on the lot and
consolidated ownership in its name on June 17, 1981. 3

Four years later or on September 20, 1983 the DBP

conditionally sold the lot to Sofia Quirong 4 for the price of
P78,000.00. In their contract of sale, Sofia Quirong waived
any warranty against eviction. The contract provided that the
DBP did not guarantee possession of the property and that it
would not be liable for any lien or encumbrance on the same.
Quirong gave a down payment of P14,000.00.

Two months after that sale or on November 28, 1983 Felisa

and her eight children (collectively, the Dalopes) 5 filed an
action for partition and declaration of nullity of documents
with damages against the DBP and the Funcions before the
Regional Trial Court (RTC) of Dagupan City, Branch 42, in
Civil Case D-7159.

On December 27, 1984, notwithstanding the suit, the DBP

executed a deed of absolute sale of the subject lot in Sofia
Quirong’s favor. The deed of sale carried substantially the
same waiver of warranty against eviction and of any adverse
lien or encumbrance.

G.R. No. 173441               December 3, 2009

On May 11, 1985, Sofia Quirong having since died, her heirs
(petitioner Quirong heirs) filed an answer in intervention 6 in
HEIRS OF SOFIA QUIRONG, Represented by ROMEO P. Civil Case D-7159 in which they asked the RTC to award the
QUIRONG, Petitioners, lot to them and, should it instead be given to the Dalopes, to
vs. allow the Quirong heirs to recover the lot’s value from the
DEVELOPMENT BANK OF THE DBP. But, because the heirs failed to file a formal offer of
PHILIPPINES, Respondent. evidence, the trial court did not rule on the merits of their
claim to the lot and, alternatively, to relief from the DBP.7
DECISION
On December 16, 1992 the RTC rendered a decision,
ABAD, J.: declaring the DBP’s sale to Sofia Quirong valid only with
respect to the shares of Felisa and Rosa Funcion in the
property. It declared Felisa’s sale to the Funcions, the latter’s
This case is about the prescriptive period of an action for mortgage to the DBP, and the latter’s sale to Sofia Quirong
rescission of a contract of sale where the buyer is evicted void insofar as they prejudiced the shares of the eight other
from the thing sold by a subsequent judicial order in favor of children of Emilio and Felisa who were each entitled to a
a third party. tenth share in the subject lot.

The Facts and the Case

The DBP received a copy of the decision on January 13,
1993 and, therefore, it had until January 28, 1993 within
which to file a motion for its reconsideration or a notice of
appeal from it. But the DBP failed to appeal supposedly
because of excusable negligence and the withdrawal of its
previous counsel of record.8
When the RTC judgment became final and the court issued
a writ of execution, the DBP resisted the writ by motion to
quash, claiming that the decision could not be enforced
because it failed to state by metes and bounds the particular
portions of the lot that would be assigned to the different
parties in the case. The RTC denied the DBP’s motion,
prompting the latter to seek recourse by special civil action of
certiorari directly with this Court in G.R. 116575,
Development Bank of the Philippines v. Fontanilla. On
September 7, 1994 the Court issued a resolution, denying
the petition for failure of the DBP to pay the prescribed fees.
This resolution became final and executory on January 17,
1995.9
On June 10, 1998 the Quirong heirs filed the present
action10 against the DBP before the RTC of Dagupan City,
Branch 44, in Civil Case CV-98-02399-D for rescission of the
contract of sale between Sofia Quirong, their predecessor,
and the DBP and praying for the reimbursement of the price
of P78,000.00 that she paid the bank plus damages. The
heirs alleged that they were entitled to the rescission of the
sale because the decision in Civil Case D-7159 stripped
them of nearly the whole of the lot that Sofia Quirong, their
predecessor, bought from the DBP. The DBP filed a motion
to dismiss the action on ground of prescription and res
judicata but the RTC denied their motion.
On June 14, 2004, after hearing the case, the RTC rendered
a decision,11 rescinding the sale between Sofia Quirong and
the DBP and ordering the latter to return to the Quirong heirs
the P78,000.00 Sofia Quirong paid the bank. 12 On appeal by
the DBP, the Court of Appeals (CA) reversed the RTC
decision and dismissed the heirs’ action on the ground of
prescription. The CA concluded that, reckoned from the
finality of the December 16, 1992 decision in Civil Case D-
7159, the complaint filed on June 10, 1998 was already
barred by the four-year prescriptive period under Article 1389
of the Civil Code. 13 The Quirong heirs filed a motion for
reconsideration of the decision but the appellate court denied
it,14 thus, this petition.
The Issues Presented
The issues presented in this case are:
1. Whether or not the Quirong heirs’ action for rescission of
respondent DBP’s sale of the subject property to Sofia
Quirong was already barred by prescription; and
2. In the negative, whether or not the heirs of Quirong were
entitled to the rescission of the DBP’s sale of the subject lot
to the late Sofia Quirong as a consequence of her heirs
having been evicted from it.
The Court’s Rulings
The CA held that the Quirong heirs’ action for rescission of
the sale between DBP and their predecessor, Sofia Quirong,
is barred by prescription reckoned from the date of finality of
the December 16, 1992 RTC decision in Civil Case D-7159
and applying the prescriptive period of four years set by
Article 1389 of the Civil Code.
Unfortunately, the CA did not state in its decision the date
when the RTC decision in Civil Case D-7159 became final
and executory, which decision resulted in the Quirong heirs’
loss of 80% of the lot that the DBP sold to Sofia Quirong.
Petitioner heirs claim that the prescriptive period should be
reckoned from January 17, 1995, the date this Court’s
resolution in G.R. 116575 became final and executory. 15
But the incident before this Court in G.R. 116575 did not deal
with the merit of the RTC decision in Civil Case D-7159. That
decision became final and executory on January 28, 1993
when the DBP failed to appeal from it within the time set for
such appeal. The incident before this Court in G.R. 116575
involved the issuance of the writ of execution in that case.
The DBP contested such issuance supposedly because the
dispositive portion of the decision failed to specify details that
were needed for its implementation. Since this incident did
not affect the finality of the decision in Civil Case D-7159, the
prescriptive period remained to be reckoned from January
28, 1993, the date of such finality.
The next question that needs to be resolved is the applicable
period of prescription. The DBP claims that it should be four
years as provided under Article 1389 of the Civil
Code.16 Article 1389 provides that "the action to claim
rescission must be commenced within four years." The
Quirong heirs, on the other hand, claim that it should be 10
years as provided under Article 1144 which states that
actions "upon a written contract" must be brought "within 10
years from the date the right of action accrues."
Now, was the action of the Quirong heirs "for rescission" or
"upon a written contract"? There is no question that their
action was for rescission, since their complaint in Civil Case
CV-98-02399-D asked for the rescission of the contract of
sale between Sofia Quirong, their predecessor, and the DBP
and the reimbursement of the price of P78,000.00 that Sofia
Quirong paid the bank plus damages. The prescriptive
period for rescission is four years.
But it is not that simple. The remedy of "rescission" is not
confined to the rescissible contracts enumerated under
Article 1381.17 Article 1191 of the Civil Code gives the injured
party in reciprocal obligations, such as what contracts are
about, the option to choose between fulfillment and
"rescission." Arturo M. Tolentino, a well-known authority in
civil law, is quick to note, however, that the equivalent of
Article 1191 in the old code actually uses the term
"resolution" rather than the present "rescission."18 The
calibrated meanings of these terms are distinct.
"Rescission" is a subsidiary action based on injury to the
plaintiff’s economic interests as described in Articles 1380
and 1381. "Resolution," the action referred to in Article 1191,
on the other hand, is based on the defendant’s breach of
faith, a violation of the reciprocity between the parties. As an
action based on the binding force of a written contract,
therefore, rescission (resolution) under Article 1191
prescribes in 10 years. Ten years is the period of
prescription of actions based on a written contract under
Article 1144.
The distinction makes sense. Article 1191 gives the injured
party an option to choose between, first, fulfillment of the
contract and, second, its rescission. An action to enforce a
written contract (fulfillment) is definitely an "action upon a
written contract," which prescribes in 10 years (Article 1144).
It will not be logical to make the remedy of fulfillment
prescribe in 10 years while the alternative remedy of
rescission (or resolution) is made to prescribe after only four
years as provided in Article 1389 when the injury from which
the two kinds of actions derive is the same.
Here, the Quirong heirs alleged in their complaint that they
were entitled to the rescission of the contract of sale of the
lot between the DBP and Sofia Quirong because the
decision in Civil Case D-7159 deprived her heirs of nearly
the whole of that lot. But what was the status of that contract
at the time of the filing of the action for rescission?
Apparently, that contract of sale had already been fully
performed when Sofia Quirong paid the full price for the lot
and when, in exchange, the DBP executed the deed of
absolute sale in her favor. There was a turnover of control of
the property from DBP to Sofia Quirong since she assumed
under their contract, "the ejectment of squatters and/or
occupants" on the lot, at her own expense.19
Actually, the cause of action of the Quirong heirs stems from
their having been ousted by final judgment from the
ownership of the lot that the DBP sold to Sofia Quirong, their
predecessor, in violation of the warranty against eviction that
comes with every sale of property or thing. Article 1548 of
the Civil Code provides:
Article 1548. Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the whole WHEREFORE, the Court DENIES the petition CA-G.R CV No. 16645. He likewise seeks the reversal of CA
or of a part of thing purchased. and AFFIRMS the November 30, 2005 decision of the Court Resolution, dated February 21, 1992, which denied his
of Appeals in CA-G.R. CV 83897. motion for reconsideration.
xxxx
SO ORDERED. The parcel of land (Lot No.216) subject of this dispute is
situated in Nasipit, Agusan del Norte, and originally covered
With the loss of 80% of the subject lot to the Dalopes by
by Original Certificate of Title No. RO-238(555) issue in the
reason of the judgment of the RTC in Civil Case D-7159, the
names Apolonia Abao and her daughter Irenea Tolero, pro
Quirong heirs had the right to file an action for rescission
indiviso. It contained an area of 12,753 square meters. Two
against the DBP pursuant to the provision of Article 1556 of
cases were separately filed in the Regional Trial Court,
the Civil Code which provides:
Branch II of Nasipit, Agusan del Norte involving the entire lot.
Both cases were filed by the surviving heirs of Apolonia
Article 1556. Should the vendee lose, by reason of the Abao and Irenea Tolero.1 These heirs, children of Irenea
eviction, a part of the thing sold of such importance, in Tolero and grand children of Apolonia Abao, are the
relation to the whole, that he would not have bought it respondents in this case.1âwphi1.nêt
without said part, he may demand the rescission of the
contract; but with the obligation to return the thing without
The first case, Civil Case No.1672, was an action for quieting
other encumbrances than those which it had when he
of title and recovery of possession of a parcel of land which
acquired it. x x x
originally formed part of the entire property. Said parcel of
land was denominated as Lot 216-B-2-G and covered by
And that action for rescission, which is based on a Transfer Certificate of Title (TCT) No. RT-899 in the name of
subsequent economic loss suffered by the buyer, was Irenea Tolero. The defendants named therein were spouses
precisely the action that the Quirong heirs took against the Andres and Amanda Lacho.
DBP. Consequently, it prescribed as Article 1389 provides in
four years from the time the action accrued. Since it accrued
The second case, Civil Case No.1816, is similarly an action
on January 28, 1993 when the decision in Civil Case D-7159
for quieting of title and recovery of possession. Unlike the
became final and executory and ousted the heirs from a
first case, however, Civil Case No.1816 involve the entire Lot
substantial portion of the lot, the latter had only until January
216. The complaint therein sought the annulment of several
28, 1997 within which to file their action for rescission. Given
certificates of title covering portions of Lot 216 and the
that they filed their action on June 10, 1998, they did so
reinstatement of OCT No. RO-238 (555). The defendants in
beyond the four-year period.
the second wase were Nicolas Jadol, Beatriz Jadol, Jacobo
Tagorda, Henry Jadol, Aurelio Rotor and herein petitioner.
With the conclusion that the Court has reached respecting
the first issue presented in this case, it would serve no useful
The present case stems only from the latter case (Civil Case
purpose for it to further consider the issue of whether or not
No. 1816) and, as culled from the CA decision, the facts
the heirs of Quirong would have been entitled to the
relevant herein are as follows:
rescission of the DBP’s sale of the subject lot to Sofia
Quirong as a consequence of her heirs having been evicted
from it. As the Court has ruled above, their action was barred Civil Case No.1816
by prescription. The CA acted correctly in reversing the RTC
decision and dismissing their action.
G.R. No. 104223       July 12, 2001 (CA-G.R CV No. 16645)

Parenthetically, the Quirong heirs were allowed by the RTC

TIBURCIO SAMONTE, petitioner, From the pleadings and the evidence adduced by
to intervene in the original action for annulment of sale in
vs. the parties the following are not disputed or
Civil Case D-7159 that the Dalopes filed against the DBP
COURT OF APPEALS, EUGENIA DANGO GADIANO, deemed admitted: that Lot 216 of the Cadastral
and the Funcions. Not only did the heirs intervene in defense
TEOFILO GADIANO, PETRONILO DANGO FELICIANA survey of Nasipit, containing an area of 12,753
of the sale, they likewise filed a cross claim against the DBP.
DANGO, NONILO MARAVE and GERONIMO square meters, more or less, situated at
And they were apparently heard on their defense and cross
DANGO, respondents. Anislagan, Nasipit, Agusan (now del Norte) is
claim but the RTC did not adjudicate their claim for the
covered by Original Certificate of Title (OCT) No.
reason that they failed to make a formal offer of their
R0-238 issue in 1927 in the name of Apolonia
documentary exhibits. Yet, they did not appeal from this KAPUNAN, J.: Abao and Irenea Tolero in equal undivided shares
omission or from the judgment of the RTC, annulling the
(Exhibit E); that OCT No. RO-238 was
DBP’s sale of the subject lot to Sofia Quirong. This point is of
Tiburcio Samonte (petitioner) filed this petition for review administratively reconstituted on August 8, 1957
course entirely academic but it shows that the Quirong heirs
on certiorari seeking to reverse and set aside the Decision, and the assigned number of the reconstituted title
have themselves to blame for the loss of whatever right they
dated November 29, 1991, of the Court of Appeals (CA) in is OCT No. RO-238 (555) (Exhibit D identical to
may have in the case.
Exhibit-Samonte); that on August 8, 1957, based
on an affidavit of Extra-judicial Settlement and
Confirmation of Sale (Exhibit D-1), OCT No. RO-
238 (555) was cancelled and lieu thereof Transfer
Certificate of Title (TCT) No. RT-476 was issued in
the name of Irenea Tolero, 1/2 share and Nicolas
Jadol, 1/2 share (Exhibit C identical to Exhibit 3-
Samonte); that on February 13, 1959, based on
subdivision plan, subdividing Lot 216 into Lot 216-
A and Lot 216-B, the Register of Deeds of Agusan
(now del Norte) cancelled TCT No. RT-476 and
issued in its place TCT No. RT-553 in the name of
Tiburcio Samonte for Lot 216-A (Exhibit 2-
Samonte) and TCT No. RT-554, Irenea Tolero and
Nicolas Jadol for Lot 216-B (Exhibit B); that on
February 13, 1959 based on a subdivision plan
subdividing Lot 216-B to 216-B-1 and 216-B-2,
TCT No. RT-554 was cancelled and in its place
TCT No. RT-555 was issued in the name of Jacob
B. Tagorda for Lot 216-B-1 and TCT No. 556 in
the name of Irenea Tolero and Nicolas Jadol for
Lot 216- B-2.
Initially, the two cases were heard independently of each
other. It was discovered, however, that they were intimately
related. Accordingly, the court a quo jointly tried the two
Plaintiffs in their evidence claim ownership over
cases. After due trial, the trial court rendered separate
the entire lot, Lot 216, as one-half(1/2) of the area
decisions, both in favor of the plaintiffs therein. The
of 12, 753 square meters was registered in the
dispositive portion particularly of the decision in Civil Case
name of their mother Irenea Tolero (Exhibit E) the
No. 1816 reads:
other half was registered in the name of their and
grandmother, Apolonia Abao. After Apolonia Abao
died during the Japanese occupation and Irenea
Civil Case No. 1816
Tolero died in 1945, they inherited and became
owners of Lot 216. Plaintiffs questioned the series
of cancellation of the certificate of title starting from
OCT No. RO-238 (555) and the Deed of
Extrajudicial Settlement and Confirmation of Sale
executed by Ignacio Atupan on August 7, 1957
(Exhibit D-1) adjudicating one-half(1/2) of the area
of Lot 216. Plaintiffs maintain that Ignacio Atupan
is not a son of Apolonia Abao but he only grew up
while living with Apolonia Abao. That when Lot 216
was subdivided into two (2) lots, Lot 216-A and Lot
216-A (sic) which was made as one of the basis in
the cancellation of TCT No. 476 and issuance of
TCT No. 553 and TCT No. 554 on February 13,
1959, the plaintiffs or their predecessors-in-interest
have not signed any document agreeing as to the
manner how Lot 216 was to be divided, nor have
they consented to the partition of the same.
Defendant Samonte in his evidence claim that he
bought portions of the Lot 216 in good faith as he
was made to believe that all the papers in
possession of his vendors were all in order. One of
the documents presented by him is a Deed of
Absolute Sale executed in 1939 (Exhibit 8-
Samonte ). He has been in open, continuous,
adverse and exclusive possession of the portions
of Lot 216 he bought for more than 20 years and
have declared the land for taxation purposes
(Exhibits 5 and 7-Samonte) and have paid the real
estate taxes thereon (Exhibit 6 to 6-K, inclusive
Samonte). The portions he bought is now covered
by TCT No. RT-553 (Exhibit 2-Samonte) and TCT
No. RT-1658 (Exhibit 4-Samonte).
Defendant Jadols claim that they became owners
of one-half(1/2) portion of Lot 216 by purchase
from Ignacio Atupan and Apolonia Abao on
September 15, 1939 as shown by a document
notarized by Jacobo Bello (Exhibit 1-Jadol) and
signed by lrenea Tolero (Exhibit 1-D Jadol) as a
witness. They were in possession since they
bought the land. The land is covered by Tax
Declaration No. 1630 (Exhibit 2-Jadol) and Tax
Declaration No. 1676 (Exhibit 3-Jadol) in their
name (Decision, pp. 36-39).2
IN VIEW OF THE FOREGOING, judgment is
hereby rendered in favor of the plaintiffs and
against the defendants:
a) declaring plaintiffs co-owners of the entire of
(sic ) Lot 216 being the surviving heirs of Apolonia
Abao and Irenea Tolero;
b) directing the reinstatement of Original
Certificate of Title No. RO-238(555);
c) directing the cancellation of Transfer Certificate
of Title No. RT - 476 and all subsequent
certificates of title derived therefrom which are all
declared null and void;
d) declaring the subdivision survey of Lot 216 null
and void and ineffectual;
e) directing the defendants to vacate the premises
of Lot 216 and to remove all their improvements
therefrom as they are builders in bad faith;
f) directing defendants Jadol and Samonte to pay
jointly and severally the plaintiffs the sum of
P20,000.00 for the use and occupation of the land;
g) directing defendants Jadol and Samonte to pay
P5,000.00 as attorney's fees;
h) ordering the dismissal of the counterclaims of
defendants; and
i) directing the defendants Jadol and Samonte to
pay the costs.
SO ORDERED.3
Plaintiffs were likewise declared the lawful owners of Lot
216-B-2-G in Civil Case No. 1672. Defendants therein were
ordered to, among others, vacate the premises and remove
the improvements made thereon.4
The defendants in the two cases respectively appealed the
aforesaid decisions to the CA. The CA ordered the
consolidation of the two appeals. Thereafter, the CA
rendered the decision of November 29, 1991 affirming the
decisions of the trial court and dismissing the appeals.
Petitioner then filed the instant petition assailing particularly
the decision in CA-G.R. CV No. 16645. He alleges that:
I
THE HONORABLE COURT OF APPEALS
ERRED AS A MATTER OF LAW IN DEPARTING
FROM THE PREVAILING DOCTRINE
SUPPORTED BY THE WEIGHT OF
AUTHORITIES THAT "THE DISCOVERY OF THE
FRAUD IS DEEMED TO HAVE TAKEN PLACE
AT THE TIME OF THE REGISTRATION"
(CARANTES VS. COURT OF APPEALS, 76
SCRA 514);5
II
THE COURT OF APPEALS ERRED AS A
MATTER OF LAW AND JURISPRUDENCE IN
NOT HOLDING THAT HEREIN PETITIONER
WAS A BUYER IN GOOD FAITH FOR VALUE,
HENCE HE IS PROTECTED BY LAW.6
The petition is bereft of merit.
It is not disputed that Ignacio Atupan caused the fraudulent
cancellation of OCT No. RO-238 (555). The trial court found
that Atupan, on the basis of his Affidavit of Extrajudicial
Settlement and Confirmation Sale," adjudicated unto himself
one-half of Lot 216 by misrepresenting himself as the sole,
heir of Apolonia Abao. Atupan, in said affidavit, likewise
confirmed the two deeds of sale allegedly executed by him
and Abao on September 15 and 16, 1939, covering the
latter's one-half lot in favor of Nicolas Jadol. The trial court
found Atupan's affidavit, dated August 7, 1957, to be tainted
with fraud because he falsely claimed therein that he was the
sole heir of Abao when in fact, he merely lived and grew up
with her. Jadol and his wife, Beatriz, knew about this fact.
Despite this knowledge, however, the Jadol spouses still
presented the affidavit of Atupan before the Register of
Deeds of the Province of Agusan when they caused the
cancellation of OCT No. RO-238 (555) and issuance of TCT
No. RT-476 in their names covering that portion owned by
Abao.
The trial court concluded that the incorporation of the
statement in Atupan's affidavit confirming the alleged
execution of the aforesaid deeds of sale was intended solely
to facilitate the issuance of the certificate of title in favor of
the Jadol spouses. It was noted that the documents
evidencing the alleged transactions were not presented in
the Register of Deeds. It was further pointed out that the
Jadol spouses only sought the registration of these
transactions in 1957, eighteen (18) years supposedly took
place or twelve (12) years after Abao died.
Based on the foregoing facts, the CA, on appeal, ruled that
the cancellation of OCT No. RO-238(555) and the
consequent issuance of TCT No. RT-476 in its place in the
name of the Jadol spouses were effected through fraudulent
means and that they (spouses Jadol) not only had actual
knowledge of the fraud but were also guilty of bad faith. 7
Nonetheless, petitioner contends that respondent's action in
the court a quo had already prescribed. Generally, an action
for reconveyance of real property based on the fraud may be
barred by the statute of limitations which require that the
action must be commenced within four (4) years from the
discovery of fraud, and in case of registered land, such
discovery is deemed to have taken place from the date of the
registration of title.8
Article 1456 of the Civil Code, however, provides:
Art. 1456. If property is acquired through mistake
or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the
benefit of the person from whom the property
comes.
As it had been indubitably established that fraud attended
the registration of a portion of the subject property, it can be
said that the Jadol spouses were trustees thereof on behalf
of the surviving heirs of Abao. An action based on implied or
constructive trust prescribes in ten (10) years from the time
of its creation or upon the alleged fraudulent registration of
the property.9
Petitioner, as successor-in-interest of the Jadol Spouses,
now argues that the respondents' action for reconveyance,
filed only in 1975, had long prescribed considering that the
Jadol spouses caused the registration of a portion of the
subject lot in their names way back in August 8, 1957. It is
petitioner's contention that since eighteen years had already
lapsed from the issuance of TCT No. RT-476 until the time
when respondents filed the action in the court a quo in 1975,
the same was time-barred.
Petitioner's defense of prescription is untenable. The general
rule that the discovery of fraud is deemed to have taken
place upon the registration of real property because it is
considered a constructive notice to all persons" 10 does not
apply in this case. Instead, the CA correctly applied the
ruling in Adille vs. Court of Appeals11 which is substantially
on all fours with the present case.
In Adille, petitioner therein executed a deed of extrajudicial
partition misrepresenting himself to be the sole heir of his
mother when in fact she had other children. As a
consequence, petitioner therein was able to secure title to
the land in his name alone. His siblings then filed a case for
partition on the ground that said petitioner was only a trustee
on an implied trust of the property. Among the issues
resolved by the Court in that case was prescription. Said
petitioner registered the property in 1955 and the claim of
private respondents therein was presented in 1974.
The Court's resolution of whether prescription had set in
therein is quite apropos to the instant case:
It is true that registration under the Torrens system
is constructive notice of title, but it has likewise
been our holding that the Torrens title does not
furnish a shield for fraud. It is therefore no
argument to say that the act of registration is
equivalent to notice of repudiation, assuming there
was one, notwithstanding the long-standing rule
that registration operates as a universal notice of
title.
For the same reason, we cannot dismiss private
respondents' claims commenced in 1974 over the
estate registered in 1955. While actions to enforce
a constructive trust prescribes in ten years,
reckoned from the date of the registration of the
property, we, as we said, are not prepared to
count the period from such a date in this case. We
note the petitioner's sub rosa efforts to get hold of
the property exclusively for himself beginning with
his fraudulent misrepresentation in his unilateral
affidavit of extrajudicial settlement that he is "the
only heir and child of his mother Feliza with the
consequence that he was able to secure title in his
name [alone]." Accordingly, we hold that the right
of the private respondents commenced from the
time they actually discovered the petitioner's act of
defraudation. According to the respondent Court of
Appeals, they "came to know [of it] apparently only
during the progress of the litigation." Hence,
prescription is not a bar. 12
In this case, the CA reckoned the prescriptive period from
the time respondents had actually discovered the fraudulent
act of Atupan which was, as borne out by the records, only
during the trial of Civil Case No. 1672. 13 Citing Adille, the CA
rightfully ruled that respondents' action for reconveyance had
not yet prescribed.
On the issue of whether petitioner is a buyer in bad faith as
he claims, the Court likewise holds in the negative: It was
established during the trial by the court a quo that he knew
that respondents were the only surviving heirs of Irenea
Tolero. Despite this knowledge, petitioner still bought a
portion of the subject lot from the Jadol spouses on July 20,
1957, when the same was still registered under OCT No.
RO-238(555) in the name of Abao and Tolero.
With respect to this particular lot therefore, petitioner cannot
pretend to be a purchaser in good faith. It is axiomatic that
one who buys from a person who is not a registered owner is
not a purchaser in good faith. 14
Moreover, With respect to the other portion which petitioner
bought from Jacobo Tagorda, the trial court held that he was,
as in the first case, a buyer in bad faith. The general rule is
that a person dealing with registered land has a right to rely
on the Torrens certificate of title and to dispense with the
need of making further inquiries.15
This rule, however, admits of exceptions; when the party has
actual knowledge of facts and circumstances that would
impel a reasonably cautious man to make such inquiry or
when the purchaser has knowledge of a defect or the lack of
title in his vendor or of sufficient facts to induce a reasonably
prudent man to inquire into the status of the title of the
property in litigation. 16 One who falls within the exception
can neither be denominated an innocent purchaser for value
nor a purchaser in good faith; and hence does not merit the
protection of the law. 17
The CA established that petitioner is not a purchaser in good
faith with respect to this portion of the subject property, thus:
 xxx While it may be true that the second portion NACHURA, J.:
was purchased by Samonte from Tagorda in
whose name the same was then registered under
For review on certiorari under Rule 45 of the Rules of Court
TCT No. RT -555, Samonte was previously
are the Decision1 dated May 31, 2000 and the
charged with the fact that Jadol lacked the
Resolution2 dated December 12, 2000 of the Court of
capacity to transmit title over any part of the
Appeals in CA-G.R. CV No. 59645.
subject property including that portion which the
latter sold to Tagorda. Thus, Samonte was clearly
in bad faith when he sought the registration of the The subject of this controversy is the one-fourth (1/4) portion
deed of sale of July 10, 1972 which effected the of, corresponding to the share of respondent Maxima
cancellation of TCT No. RT-555 and the issuance Paragas in, the real property located at Caranglaan District,
of TCT No. 1658 in his favor. xxx 18 Dagupan City, originally covered by Transfer Certificate of
Title No. 7316 of the Register of Deeds of Dagupan City.
Petitioner cannot now claim that he already acquired valid
title to the property. The inscription in the registry, to be The controversy commenced with the filing of an ejectment
effective, must be made in good faith. The defense of complaint3 on April 12, 1993 before Branch 1 of the
indefeasibility of a Torrens Title does not extend to a Municipal Trial Court in Cities (MTCC) of Dagupan City by
transferee who takes the certificate of title with notice of a herein petitioner Amado Z. Ayson, as represented by his
flaw. A holder in bad faith of a certificate of title is not entitled natural father Zosimo S. Zareno 4 (Zareno), against
to the protection of the law, for the law cannot be used as a respondent-spouses Felix and Maxima Paragas. The
shield for, frauds. 19 complaint, docketed as Civil Case No. 9161, alleged, among
others, that: (1) petitioner is the registered owner of the
property being occupied by the respondent-spouses as
In fine, there is no compelling reason to deviate from the
shown by Transfer Certificate of Title No. 59036 of the
salutary rule that findings and conclusions of the trial court,
Registry of Deeds of Dagupan City in his name; (2)
especially if affirmed by the appellate court, are accorded
respondent-spouses are occupying the said land through his
utmost respect by this Court.1âwphi1.nêt
tolerance without rent; (3) on April 8, 1992, respondent-
spouses executed an Affidavit5 which declared:
WHEREFORE, the instant petition is DENIED for lack of
merit. The Decision, dated November 29, 1991 of the Court
1. That we are occupants of a parcel of land (Lot
of Appeals and its Resolution, dated February 21, 1992, in
6595-A-2) covered by Transfer Certificate of Title
CA-G.R. CV No. 16645 are AFFIRMED in toto.
No. 57684 located at Caranglaan District,
Dagupan City owned by Amado Ll. Ayson;
SO ORDERED.
2. That we occupy the said land by tolerance
without paying any rental whatsoever;

3. That we further agree to vacate the aforesaid

land within three (3) months from the date hereof
and to remove and transfer our house therefrom to
another place;

4. That in consideration of vacating the said parcel

of land the amount of Twenty Thousand Pesos
(P20,000.00) shall be paid to us; and, that the
amount of Ten Thousand Pesos (P10,000.00)
shall be paid upon signing of this affidavit and the
balance of Ten Thousand Pesos (P10,000.00)
G.R. No. 146730             July 4, 2008 shall be paid upon removal of our house on the
third month from date hereof.
AMADO Z. AYSON, JR., petitioner,
vs. (4) despite the receipt of the P10,000.00 upon the execution
SPOUSES FELIX and MAXIMA PARAGAS, respondents. of the Affidavit, respondent-spouses refused to vacate the
land as agreed upon; and (5) despite demands, respondent-
DECISION spouses still refused to vacate, thus constraining him to file
the complaint. Aside from respondents’ vacating the land,
petitioner prayed for the return of the P10,000.00 he paid
them; and the payment of P10,000.00 actual
damages, P10,000.00 exemplary damages, P20,000.00
attorney’s fees, and the costs.
In their Answer,6 respondent-spouses alleged that Zareno
had no personality and authority to file the case and the filing
of the complaint was made in bad faith.
During the preliminary conference, the following admissions
were made –
By petitioner:
(1) That the defendants (respondent
spouses) had been in possession of the
land in question since 1930; and
(2) That the semi-concrete house of the
defendants (respondent spouses)
stands on the land in question.
By respondent spouses:
(1) That the defendant (respondent)
Felix Paragas had executed an affidavit
Respondent-spouses appealed the said Decision to the
on April 8, 1992 wherein he admitted
Regional Trial Court (RTC) of Dagupan City. In the
that he is occupying the land by
Decision9 dated August 16, 1996, the RTC affirmed the
tolerance of the plaintiff (petitioner)
MTCC Decision, the dispositive portion of which reads –
without paying any rental whatsoever
and had agreed to vacate the premises
within three (3) months but refused to
vacate later;
(2) That the plaintiff (petitioner) is the
registered owner of the land in question;
(3) That there was a demand to vacate
the premises; and
(4) That there is a Certification to File
Action in Court.7
On August 31, 1993, the MTCC, Branch 1, Dagupan City
decided in favor of petitioner, based mainly on the above
admissions, rendering judgment as follows:
WHEREFORE, the preponderance of evidence
being in favor of the plaintiff (petitioner), judgment
is hereby rendered:
1) Ordering the defendants (respondent spouses)
to vacate the land in question located at
Caranglaan District, Dagupan City and covered by
Transfer Certificate of Title No. 59036 of the
Registry of Deeds for the City of Dagupan, and to
deliver the physical and peaceful possession to
the plaintiff (petitioner);
2) Ordering the defendants (respondent spouses)
jointly and severally to pay the plaintiff (petitioner)
the sum of P300.00 as monthly rental of the land
from the date of the filing of the complaint until the
defendants (respondent spouses) vacate the
premises;
3) Ordering defendant (respondent) Felix Paragas
to return or indemnify the plaintiff (petitioner) the
amount of P10,000.00 representing the sum
received by him from the plaintiff (petitioner) on
April 8, 1992;
4) Other claims are denied for lack of merit.
With costs against the defendants.
SO ORDERED.8
WHEREFORE, the appeal interposed by the
appellants is hereby DISMISSED. Judgment is
rendered in favor of the plaintiff (petitioner) and
against the defendants (respondent spouses), to
wit:
1. ORDERING defendants (respondent spouses),
their agents, representatives and assigns to
vacate the land subject matter of this case;
2. ORDERING defendants (respondent spouses)
to return to the plaintiff (petitioner) the amount
of P10,000.00 received by them in consideration of
their promise to vacate the land subject matter of
this case;
3. ORDERING defendants (respondent spouses)
to pay to the plaintiff (petitioner) P10,000.00 in
actual damages; P10,000.00 in exemplary
damages; and P20,000.00 in attorney’s fees; and
4. ORDERING defendants to pay the costs.
SO ORDERED.10
Respondent-spouses went to the Court of Appeals via a
petition for review. In its Decision 11 dated October 13, 1997,
the appellate court dismissed the petition. The Decision was
appealed to this Court. We denied the appeal in a Resolution
dated December 3, 1997, on the basis of the failure of
respondent-spouses to show any reversible error in the
decisions of the three courts below. Our Resolution became
final and executory on January 29, 1998 and was entered in
the Book of Entries of Judgments.12
Meanwhile, on October 11, 1993, during the pendency of the
appeal with the RTC, respondent-spouses filed against
petitioner, as represented by his attorney-in-fact Zosimo S.
Zareno, the heirs of Blas F. Rayos, the spouses Delfin and
Gloria Alog, and Hon. Judge George M. Mejia, as Presiding
Judge of the Metropolitan Trial Court, Branch 1 of Dagupan
City, also before the RTC of Dagupan City, a complaint 13 for
declaration of nullity of deed of sale, transactions,
documents and titles with a prayer for preliminary injunction
and damages. The complaint was docketed as Civil Case
No. D-10772 and was raffled to Branch 42.
The complaint alleged, inter alia, that respondent Maxima is
a co-owner of a parcel of land originally covered by TCT No.
7316 of the Registry of Deeds of Dagupan City, her ¼ share
having an area of 435.75 square meters. Sometime prior to
April 13, 1955, respondent Felix, then an employee of the
defunct Dagupan Colleges (now University of Pangasinan)
failed to account for the amount of P3,000.00. It was agreed
that respondent Felix would pay the said amount by
installment to the Dagupan Colleges. Pursuant to that
agreement, Blas F. Rayos and Amado Ll. Ayson, then both
occupying high positions in the said institution, required
respondent-spouses to sign, without explaining to them, a
Deed of Absolute Sale on April 13, 1955 over respondent
Maxima’s real property under threat that respondent Felix
would be incarcerated for misappropriation if they refused to
do so.
The complaint further alleged that later, respondent-spouses,
true to their promise to reimburse the defalcated amount,
took pains to pay their obligation in installments regularly
deducted from the salaries received by respondent Felix
from Dagupan Colleges; that the payments
totaled P5,791.69; that notwithstanding the full payment of
the obligation, Amado Ll. Ayson and Blas F. Rayos did
nothing to cancel the purported Deed of Absolute Sale; and
that they were shocked when they received a copy of the
complaint for ejectment filed by petitioner.
During the pre-trial, the following was established –
 [T] he land in question was a portion of a larger lot
covered by TCT No. 41021 with an area of 1,743
square meters in the name of Buenaventura
Mariñas, father of the plaintiff (respondent)
Maxima Mariñas-Paragas. Transfer Certificate of
Title No. 41021 was later on cancelled and
replaced by TCT No. 7316 in the names of
Maxima Mariñas, Rufino Mariñas, Rizalina
Mariñas and Buenaventura Mariñas, specifying
that each would receive one-fourth (1/4) thereof.
The portion pertaining to Maxima Mariñas-Paragas
was later on allegedly conveyed to Blas F. Rayos
and Amado Ll. Ayson by virtue of a Deed of Sale
allegedly executed on April 13, 1955 by Maxima
Mariñas-Paragas with the conformity of her
husband Felix Paragas, after which TCT 7354 was
issued canceling TCT No. 7316. Under TCT No.
7354, the new owners were Blas F. Rayos and
Amado Ll. Ayson, Rufino Mariñas, Rizalina
Mariñas and Angela Mariñas. The land was
subdivided later on into four (4) lots, distributed as
follows: Lot A went to Blas F. Rayos and Amado
Ll. Ayson, Lot B to Rufino Mariñas, Lot C to
Rizalina Mariñas, and Lot D to Angela Mariñas.
Each lot has an area of 435.75 square meters. For
Lot A, TCT No. 22697 was issued in the name of
both Blas F. Rayos and Amado Ll. Ayson.
On November 15, 1991, Lot A was the subject of a
subdivision between Amado Ll. Ayson and Blas F.
Rayos. Said subdivision was approved on
December 10, 1991, dividing the property into
equal halves, each half with an area of 217.88
square meters. Thereafter, the one-half (1/2)
pertaining to Blas F. Rayos was sold by his
successors-in-interest to spouses Delfin and
Gloria Alog by virtue of an Extra-Judicial
Settlement With Sale dated January 10, 1992, to
which the said spouses were issued TCT 57683
on January 14, 1992. On the same day, Amado Ll.
Ayson for his portion of the property was also
issued TCT 57684. Amado Ll. Ayson later passed
on ownership of his share to Amado Z. Ayson and
issued to the latter was TCT 59036 after the latter
executed an Affidavit of Self Adjudication dated
August 3, 1992 upon the death of Amado Ll.
Ayson.14
After trial on the merits, the RTC, Branch 42, Dagupan City
rendered its Decision15 dated March 6, 1998 in favor of
respondent-spouses declaring the Deed of Absolute Sale as
an equitable mortgage, the decretal portion of which reads –
WHEREFORE, judgment is hereby rendered in
favor of the plaintiffs and against the defendants,
except the spouses Delfin and Gloria Alog:
1. Annulling the Deed of Sale executed by Felix
Paragas and Maxima Paragas on April 13, 1955
(Exh. 3) in favor of defendants Blas F. Rayos and
Amado Ll. Ayson except as it affects the interest of
Spouses Delfin and Gloria Alog over the property
in question;
2. Annulling likewise TCT No. 57684 issued to
Amado Ll. Ayson and TCT No. 59036 issued to
Amado Z. Ayson, including the respective tax
declarations thereof;
3. Ordering Amado Z. Ayson to reconvey
ownership of the property covered by TCT No.
59036 to the herein plaintiffs, the true owners
thereof;
4. Ordering defendant Amado Z. Ayson and the
estate of Blas F. Rayos to pay jointly and severally
to the herein plaintiffs the amount paid by Spouses
Delfin and Gloria Alog to the late Blas F. Rayos,
there being no proof adduced by the plaintiffs as to
the actual current market value of the said
property;
5. Ordering the said defendants Amado Z. Ayson
and the estate of Blas F. Rayos to pay jointly and
severally to the plaintiffs other amounts
of P50,000.00 as moral damages and P10,000.00
as attorney’s fees, including appearance fee;
6. Further ordering the aforementioned
defendants, except defendant-spouses Delfin and
Gloria Alog, to pay costs.
SO ORDERED.16
Petitioner appealed the said Decision to the Court of
Appeals, which affirmed the same in its Decision dated May
31, 2000. The motion for reconsideration filed by petitioner
was likewise denied by the Court of Appeals in its Resolution
dated December 12, 2000. Hence, this petition raising the
sole issue that –
The Honorable Court of Appeals has acted in
excess of or with grave abuse of discretion
amounting to lack of jurisdiction in dismissing the
appeal of the herein petitioner Amado Z. Ayson,
Jr. and in affirming the decision of the Regional
Trial Court, Branch 42, Dagupan City in Civil Case
No. D-10772, in violation of the laws on sale,
equitable mortgage, prescription, laches and
estoppel as well as the laws on property
registration.17
Petitioner contends that respondent-spouses are bound by
the judicial admissions they made both in the ejectment case
and in the case for declaration of nullity of the Deed of
Absolute Sale.
With respect to the ejectment case, he posits that
respondent-spouses cannot renege on the effects of their
admissions that petitioner is the registered owner of the
disputed property; that they were occupying the same by
mere tolerance of the latter without rent; and that they
undertook to vacate the premises in accordance with the
Affidavit dated April 8, 1992, especially when the findings of
the MTCC had already become final upon the Entry of
Judgment of our Resolution affirming the MTCC, the RTC,
and the Court of Appeals.
As regards the action for declaration of nullity of the deed of
absolute sale, petitioner claims that respondent-spouses are
likewise bound by their admission during the pre-trial that the
series of certificates of title from the time the Deed of
Absolute Sale was registered with the Register of Deeds of
Dagupan City eventually led to the issuance of TCT No.
59036 in his name.
Petitioner further argues that the action instituted before the
RTC, Branch 42, Dagupan City has already prescribed.
According to him, the complaint alleged that the Deed of
Absolute Sale was executed through fraud, making the said
contract merely voidable, and the action to annul voidable
contracts based on fraud prescribed in four (4) years from
the discovery of fraud. He insists that the registration of the
Deed of Absolute Sale occurred on May 4, 1955, which
operated as constructive notice of the fraud to the whole
world, including respondent-spouses. Thus, petitioner
concludes that the action had long prescribed when they
filed the same on October 11, 1993, since its cause had
accrued 38 years ago.
Petitioner adds that respondent-spouses are bound by
estoppel and guilty of laches in light of the judicial
admissions they have already made and the unreasonable
length of time that had lapsed before they questioned the
validity of the Deed of Absolute Sale and the Affidavit they
executed on April 8, 1992.
He also asseverates that the Deed of Absolute Sale is a true
sale and not an equitable mortgage, arguing that the alleged
payments made by respondent Felix were made from
December 29, 1965 to December 17, 1980, long after the
execution of the contract on April 13, 1955; that respondent-
spouses only paid realty taxes over their house and not on
the disputed land; that their possession of the property was
by his mere tolerance; that there was no evidence proffered
that the amount of P3,000.00 as consideration for the sale
was unusually inadequate in 1955; and that the other co-
owners of the land did not question or protest the subdivision
thereof leading to the issuance of TCT No. 59036 in his
name.
Lastly, petitioner claims that he is a transferee in good faith,
having had no notice of the infirmity affecting the title of his
predecessor Amado Ll. Ayson over the property. He says
that he was only exercising his right as an heir when he
adjudicated unto himself the parcel of land pertaining to his
adoptive father,18 resulting in the issuance of TCT No. 59036
in his name, and, thus, should not be penalized for his
exercise of a legal right.
The arguments do not persuade.
First. With respect to the admissions made by respondent-
spouses, through their counsel during the preliminary
conference of the ejectment case, it is worthy to note that, as
early as the submission of position papers before the MTCC,
they already questioned the sale of the subject property to
Amado Ll. Ayson and Blas F. Rayos for being fictitious and
asserted their ownership over the land, pointing to the fact
that respondent Maxima had been living on the land since
her birth in 1913 and that they had been in continuous
possession thereof since her marriage to respondent Felix in
1944. However, unfortunately for them, the MTCC held them
bound by the admissions made by their counsel and decided
that petitioner had a better right to possess the property.
Nevertheless, it must be remembered that in ejectment suits
the issue to be resolved is merely the physical possession
over the property, i.e., possession de facto and not
possession de jure, independent of any claim of ownership
set forth by the party-litigants.19 Should the defendant in an
ejectment case raise the defense of ownership in his
pleadings and the question of possession cannot be
resolved without deciding the issue of ownership, the issue
of ownership shall be resolved only to determine the issue of
possession.20 The judgment rendered in such an action shall
be conclusive only with respect to physical possession and
shall in no wise bind the title to the realty or constitute a
binding and conclusive adjudication of the merits on the
issue of ownership. Therefore, such judgment shall not bar
an action between the same parties respecting the title or
ownership over the property, 21 which action was precisely
resorted to by respondent-spouses in this case.
Anent the claim that respondent-spouses admitted the series
of TCTs issued by reason of the registration of the
questioned Deed of Absolute Sale, suffice it to state that
records show that they admitted only the existence thereof,
not necessarily the validity of their issuance.
Second. The Deed of Absolute Sale is, in reality, an
equitable mortgage or a contract of loan secured by a
mortgage. The Civil Code enumerates the cases in which a
contract, purporting to be a sale, is considered only as a
contract of loan secured by a mortgage, viz.:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of the 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 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.
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent
or otherwise shall be considered as interest which
shall be subject to the usury laws.22
Art. 1604. The provisions of article 1602 shall also
apply to a contract purporting to be an absolute
sale.
In such cases, parol evidence then becomes competent and
admissible to prove that the instrument was in truth and in
fact given merely as a security for the repayment of a loan;
and upon adequate proof of the truth of such allegations, the
courts will enforce the agreement or understanding in this
regard, in accord with the true intent of the parties at the time
the contract was executed, even if the conveyance was
accompanied by registration in the name of the transferee
and the issuance of a new certificate of title in his name.23
In this case, the evidence before the RTC, Branch 42,
Dagupan City had established that the possession of the
subject property remained with respondent-spouses despite
the execution of the Deed of Absolute Sale on April 13,
1955. In fact, testimonies during the trial showed that
petitioner and his predecessors never disturbed the
possession of respondent-spouses until the filing of the
ejectment case on April 12, 1992. 24
Moreover, the evidence presented by respondent-spouses
indubitably reveals that they signed the contract under threat
of prosecution, with the view to secure the payment of
the P3,000.00 defalcated by respondent Felix. Amado Ll.
Ayson and Blas F. Rayos obviously exerted undue influence
on Felix taking advantage of the latter’s lack of education
and understanding of the legal effects of his signing the
deed.
Respondent-spouses have clearly proven that they have
already paid the aforesaid amount. That the obligation was
paid in installments through salary deduction over a period of
10 years from the signing of the Deed of Absolute Sale is of
no moment. It is safe to assume that this repayment scheme
was in the nature of an easy payment plan based on the
respondent-spouses’ capacity to pay. Also noteworthy is that
the deductions from respondent Felix’s salary amounted to a
total of P5,791.69,25 or almost double the obligation
of P3,000.00. Furthermore, it cannot be denied that
petitioner failed to adduce countervailing proof that the
payments, as evidenced by the volume of receipts, were for
some other obligation.1avvphi1
That the realty taxes paid by respondent-spouses was only
for their house can be explained by the fact that, until the
filing of the ejectment case, respondent Maxima was not
aware that the land she co-owned was already partitioned,
such that the payments of real estate taxes in her name
were limited to the improvement on the land.
An equitable mortgage is a voidable contract. As such, it
may be annulled within four (4) years from the time the
cause of action accrues. This case, however, not only
involves a contract resulting from fraud, but covers a
transaction ridden with threat, intimidation, and continuing
undue influence which started when petitioner’s adoptive
father Amado Ll. Ayson and Blas F. Rayos, Felix’s superiors
at Dagupan Colleges, practically bullied respondent-spouses
into signing the Deed of Absolute Sale under threat of
incarceration. Thus, the four-year period should start from
the time the defect in the consent ceases. 26 While at first
glance, it would seem that the defect in the consent of
respondent-spouses ceased either from the payment of the
obligation through salary deduction or from the death of vs.
Amado Ll. Ayson and Blas F. Rayos, it is apparent that such JULIO H. OZAMIZ, ROBERTO J. MONTALVAN, JOSE MA.
defect of consent never ceased up to the time of the signing OZAMIZ, CARMEN H. OZAMIZ, PAZ O. MONTALVAN,
of the Affidavit on April 8, 1992 when Zareno, acting on MA. TERESA O.F. ZARRAGA, CARLOS O. FORTICH,
behalf of petitioner, caused respondent Felix to be brought to JOSE LUIS O. ROS, PAULITA O. RODRIGUEZ, and
him, and taking advantage of the latter being unlettered, LOURDES O. LON, respondents.
unduly influenced Felix into executing the said Affidavit for a
fee of P10,000.00.27 The complaint praying for the nullity of
DECISION
the Deed of Absolute Sale was filed on October 11, 1993,
well within the four-year prescriptive period.
DE LEON, JR., J.:
Regarding the finality of the adjudication of physical
possession in favor of petitioner, it may be reiterated that the Before us is a petition for review on certiorari of the
right of possession is a necessary incident of ownership. Decision1 and the Resolution2 of the Court of Appeals dated
This adjudication of ownership of the property to respondent- July 27, 1998 and May 19, 2000, respectively, in CA-G.R.
spouses must include the delivery of possession to them CV No. 39752 which reversed and set aside the
since petitioner has not shown a superior right to retain Decision3 dated September 23, 1992 rendered in favor of the
possession of the land independently of his claim of petitioners by the Regional Trial Court (RTC) of Cebu City,
ownership which is herein rejected. Verily, to grant execution Branch 6 in Civil Case No. CEB-10766.
of the judgment in the ejectment case would work an
injustice on respondent-spouses who had been conclusively
Civil Case No. CEB-10766 is a suit for quieting of title. It was
declared the owners and thus, rightful possessors of the
instituted on September 25, 1991 by petitioner spouses
disputed land.28
Mario J. Mendezona and Teresita M. Mendezona as initial
plaintiffs,4 and in the amended complaint filed on October 7,
WHEREFORE, the petition is DENIED and the Decision of 1991, herein co-petitioner spouses Luis J. Mendezona and
the Court of Appeals in CA-G.R. CV No. 59645 dated May Maricar L. Mendezona and Teresita Adad Vda. de
31, 2000 is AFFIRMED. Mendezona joined as co-plaintiffs.5

SO ORDERED. In their complaint, the petitioners, as plaintiffs therein,

alleged that petitioner spouses Mario J. Mendezona and
Teresita M. Mendezona, petitioner spouses Luis J.
Mendezona and Maricar L. Mendezona, and petitioner
Teresita Adad Vda. de Mendezona own a parcel of land
each in the Banilad Estate, Lahug, Cebu City with almost
similar areas of 3,462 square meters, 3,466 square meters
and 3,468 square meters, covered and described in Transfer
Certificate of Title (TCT) Nos. 116834, 116835, and 116836
respectively, of the Registry of Deeds of Cebu City.6

The petitioners ultimately traced their titles of ownership over

their respective properties from a notarized Deed of Absolute
Sale7 dated April 28, 1989 executed in their favor by Carmen
Ozamiz for and in consideration of the sum of One Million
Forty Thousand Pesos (₱1,040,000.00).

The petitioners initiated the suit to remove a cloud on their

G.R. No. 143370               February 6, 2002
MARIO J. MENDEZONA and TERESITA M. MENDEZONA,
LUIS J. MENDEZONA and MARICAR L. MENDEZONA
and TERESITA ADAD VDA. DE MENDEZONA, petitioners,
said respective titles caused by the inscription thereon of a
notice of lis pendens, which came about as a result of an
incident in Special Proceeding No. 1250 of the RTC of
Oroquieta City. Special Proceeding No. 1250 is a proceeding
for guardianship over the person and properties of Carmen
Ozamiz initiated by the respondents Julio H. Ozamiz, Jose
Ma. Ozamiz, Carmen H. Ozamiz,8 Paz O. Montalvan, Ma.
Teresa O.F. Zarraga, Carlos O. Fortich, Jose Luis O. Ros,
Paulita O. Rodriguez and Lourdes O. Lon.9
It appears that on January 15, 1991, the respondents
instituted the petition for guardianship with the Regional Trial
Court of Oroquieta City, alleging therein that Carmen
Ozamiz, then 86 years old, after an illness in July 1987, had
become disoriented and could not recognize most of her
friends; that she could no longer take care of herself nor
manage her properties by reason of her failing health, weak
mind and absent-mindedness. Mario Mendezona and Luis
Mendezona, herein petitioners who are nephews of Carmen
Ozamiz, and Pilar Mendezona, a sister of Carmen Ozamiz,
filed an opposition to the guardianship petition.
In the course of the guardianship proceeding, the petitioners
and the oppositors thereto agreed that Carmen Ozamiz
needed a guardian over her person and her properties, and
thus respondent Paz O. Montalvan was designated as
guardian over the person of Carmen Ozamiz while petitioner
Mario J. Mendezona, respondents Roberto J. Montalvan and
Julio H. Ozamiz were designated as joint guardians over the
properties of the said ward.
As guardians, respondents Roberto J. Montalvan and Julio
H. Ozamiz filed on August 6, 1991 with the guardianship
court their "inventories and Accounts",10 listing therein
Carmen Ozamiz’s properties, cash, shares of stock, vehicles
and fixed assets, including a 10,396 square meter property
known as the Lahug property. Said Lahug property is the
same property covered by the Deed of Absolute Sale dated
April 28, 1989 executed by Carmen Ozamiz in favor of the
petitioners. Respondents Roberto J. Montalvan and Julio H.
Ozamiz caused the inscription on the titles of petitioners a
notice of lis pendens,11 regarding Special Proceeding No.
1250, thus giving rise to the suit for quieting of title, Civil
Case No. CEB-10766, filed by herein petitioners.
In their Answer12 in Civil Case No. CEB-10766 the
respondents opposed the petitioners’ claim of ownership of
the Lahug property and alleged that the titles issued in the
petitioners names are defective and illegal, and the
ownership of the said property was acquired in bad faith and
without value inasmuch as the consideration for the sale is
grossly inadequate and unconscionable. Respondents
further alleged that at the time of the sale on April 28, 1989
Carmen Ozamiz was already ailing and not in full possession
of her mental faculties; and that her properties having been
placed in administration, she was in effect incapacitated to
contract with petitioners.
The issues for resolution were delimited in the pre-trial to: (a)
the propriety of recourse to quieting of title; (b) the validity or
nullity of the Deed of Absolute Sale dated April 28, 1989
executed by Carmen Ozamiz in favor of herein petitioners;
(c) whether the titles over the subject parcel of land in
plaintiffs’ names be maintained or should they be cancelled
and the subject parcels of land reconveyed; and (d)
damages and attorney’s fees.13
Trial on the merits ensued with the parties presenting
evidence to prove their respective allegations. Petitioners
Mario Mendezona, Teresita Adad Vda. de Mendezona and
Luis Mendezona, as plaintiffs therein, testified on the
circumstances surrounding the sale. Carmencita Cedeno
and Martin Yungco, instrumental witnesses to the Deed of
Absolute Sale dated April 28, 1989, and, Atty. Asuncion
Bernades, the notary public who notarized the said
document, testified that on the day of execution of the said
contract that Carmen Ozamiz was of sound mind and that
she voluntarily and knowingly executed the said deed of
sale.
For the defendants, the testimonies of respondent Paz O.
Montalvan, a sister of Carmen Ozamiz; Concepcion Agac-
ac, an assistant of Carmen Ozamiz; respondent Julio
Ozamiz; Carolina Lagura, a househelper of Carmen Ozamiz;
Joselito Gunio, an appraiser of land; Nelfa Perdido, a part-
time bookkeeper of Carmen Ozamiz, and the deposition of
Dr. Faith Go, physician of Carmen Ozamiz, were offered in
evidence.
The petitioners presented as rebuttal witnesses petitioners
Mario Mendezona and Luis Mendezona, to rebut the
testimony of respondent Julio H. Ozamiz; and, Dr. William
Buot, a doctor of neurology to rebut aspects of the deposition
of Dr. Faith Go on the mental capacity of Carmen Ozamiz at
the time of the sale.
During the trial, the trial court found that the following facts
have been duly established:14
(1) On April 28, 1989, Carmen Ozamiz sold to her
nephews, Mario, Antonio and Luis, all surnamed
Mendezona, three (3) parcels of residential land in
Cebu City, per a Deed of Absolute Sale (Exh. D)
for a consideration of P1,040,000.00, in which
deed the usufructuary rights were reserved during
her lifetime.
(2) The three parcels of land were subsequently
transferred to the names of the three vendees per
TCTs Nos. 108729, 108730 and 108731 (Exhs. J,
K & L, respectively). A partition agreement was
entered into by the three vendees (Exh. 3) and the
parcels of land are now titled in the names of the
plaintiffs.
Mario Mendezona — TCT No. 116834
(Exh. A);
Luis Mendezona — TCT No. 116835
(Exh. B);
Antonio Mendezona — TCT No. 116836
(Exh. C);
(3) The reservation of the usufructuary rights to the
vendor Carmen Ozamiz during her lifetime was
confirmed by the plaintiffs-spouses Mario
Mendezona and Teresita Moraza and plaintiffs
spouses Luis Mendezona and Maricar Longa in a
sworn statement (Exh. I) executed on October
15, 1990, which was duly annotated on the titles of
the property;
(4) The capital gains tax was paid (Exh. H) on May
5, 1989 and a certificate (Exh. H-1) was issued by
the Bureau of Internal Revenue authorizing the
Register of Deeds to transfer the property to the
vendees;
(5) A petition for guardianship over the person and
properties of Carmen Ozamiz (Exh. E) was filed by
all the defendants, (except the defendant Roberto
Montalvan) on January 15, 1991 with the Regional
Trial Court of Oroquieta City, denominated as
Spec. Proc. No. 1250 and subsequently, an
"Inventories and Accounts" (Exh. F) was filed by
court-appointed guardians Roberto Montalvan and
Julio Ozamiz, in which the property was listed
(Exh. F-1) and a Notice of Lis Pendens was filed
with the Register of Deeds of Cebu City on August
13, 1991 by said joint guardians. Plaintiff Mario
Mendezona, as another joint guardian over
Carmen Ozamiz, filed his opposition (Exh. R) to
the "Inventories and Accounts", with the Oroquieta
Court as to the inclusion of the property (Exh.R-1).
(6) Prior to his death, the deceased husband of
plaintiff Teresita Adad Mendezona was granted a
General Power of Attorney (Exh. 1) by Carmen
Ozamiz on March 23, 1988 and after his demise,
Carmen Ozamiz granted Mario Mendezona a
General Power of Attorney (Exh. 2.) on August 11,
1990. Both powers of attorney relate to the
administration of the property, subject of this
action, in Cebu City.
On September 23, 1992 the trial court rendered its decision
in favor of the petitioners, the dispositive portion of which
reads, to wit:
Wherefore, premises considered, the Court is of the opinion
and so declares that:
1. The property described in the complaint was
sold, with reservation of usufructuary rights by
Carmen Ozamiz to the plaintiffs under a valid
 contract, voluntarily and deliberately entered into The appellate court denied both motions in its Resolution A.
while she was of sound mind, for sufficient and dated May 19, 2000. Hence, the instant petition anchored on
good consideration, and without fraud, force, the following grounds:15
THE COURT OF APPEALS GRAVELY ERRED IN
undue influence or intimidation having been
IGNORING THE STATUTORY PRESUMPTION
exercised upon her, and consequently, the Court
I. THAT CARMEN OZAMIZ WAS OF SOUND MIND
orders the defendants herein to acknowledge and
AND HAD THE REQUISITE CAPACITY TO
recognize the plaintiffs’ title to the aforecited
CONTRACT WHEN SHE EXECUTED THE DEED
property and to refrain from further clouding the THE COURT OF APPEALS GRAVELY ERRED IN RULING
OF ABSOLUTE SALE, AND IN REFUSING TO
same; THAT THE APRIL 28, 1989 DEED OF ABSOLUTE SALE
RULE THAT IT WAS THE RESPONDENTS - AS
WAS A SIMULATED CONTRACT.
THE PARTIES ALLEGING MENTAL
2. That the one-third (1/3) share erroneously titled INCAPACITY- WHO HAD FAILED TO
to Antonio Mendezona should be titled in the name A. DISCHARGE THEIR BURDEN OF REBUTTING
of Teresita Adad vda. de Mendezona as her THAT PRESUMPTION.
paraphernal property and the Register of Deeds of
THE COURT OF APPEALS GRAVELY ERRED IN
Cebu City is hereby ordered to do so;
IGNORING THE STATUTORY PRESUMPTIONS B.
OF ACTUAL AND SUFFICIENT
3. The Notice of Lis Pendens affecting the property CONSIDERATION FOR, AND OF THE
THE COURT OF APPEALS GRAVELY ERRED IN
should be eliminated from the record and the REGULARITY AND TRUTHFULNESS OF, THE
REFUSING TO ACCEPT AND GIVE DUE AND
Register of Deeds of Cebu City is ordered to NOTARIZED DEED OF ABSOLUTE SALE.
PREPONDERANT WEIGHT TO UNREFUTED
expunge the same.
EVIDENCE, INCLUDING THE UNREFUTED
B. TESTIMONIES OF THE INSTRUMENTAL
No pronouncement as to costs. WITNESSES AND OF THE NOTARY PUBLIC,
THAT CARMEN OZAMIZ EXECUTED THE DEED
THE COURT OF APPEALS GRAVELY ERRED IN OF ABSOLUTE SALE FREELY, VOLUNTARILY,
SO ORDERED. IMPOSING ON THE PETITIONERS THE KNOWINGLY, AND INTELLIGENTLY.
BURDEN OF PROVING PAYMENT, AND IN
REFUSING TO RECOGNIZE AND RULE THAT IT
On appeal to the Court of Appeals, the appellate court
WAS THE RESPONDENTS - AS THE PARTIES C.
reversed the factual findings of the trial court and ruled that
ASSAILING THE DEED OF ABSOLUTE SALE -
the Deed of Absolute Sale dated April 28, 1989 was a
WHO HAD FAILED TO DISCHARGE THEIR
simulated contract since the petitioners failed to prove that THE COURT OF APPEALS GRAVELY ERRED IN
BURDEN OF PROVING THAT THERE WAS NO
the consideration was actually paid, and, furthermore, that at GIVING WEIGHT TO THE HEARSAY
CONSIDERATION FOR THE TRANSACTION.
the time of the execution of the contract the mental faculties TESTIMONY OF DR. FAITH GO ON THE
of Carmen Ozamiz were already seriously impaired. Thus, MENTAL CONDITION OF CARMEN OZAMIZ ON
the appellate court declared that the Deed of Absolute Sale C. THE DATE SHE EXECUTED THE DEED OF
of April 28, 1989 is null and void. It ordered the cancellation ABSOLUTE SALE.
of the certificates of title issued in the petitioners’ names and
THE COURT OF APPEALS GRAVELY ERRED IN
directed the issuance of new certificates of title in favor of
REFUSING TO RECEIVE IN EVIDENCE THE D.
Carmen Ozamiz or her estate.
THREE (3) CHECKS, WHICH PROVED BEYOND
ANY DOUBT THAT THE PURCHASE PRICE
THE COURT OF APPEALS GRAVELY ERRED IN
Petitioners filed a motion for reconsideration of the decision FOR THE LAHUG PROPERTY HAD BEEN PAID
IGNORING, AND IN REFUSING TO RECEIVE IN
of the appellate court. Subsequent thereto, the petitioners TO CARMEN OZAMIZ, AFTER ASKING FOR
EVIDENCE, JUDGE TEODORICO DURIAS’S
filed a motion for a new trial and/or for reception of evidence. THEM AND HAVING THEM PRESENTED TO IT
TESTIMONY (THAT CARMEN OZAMIZ WAS OF
They contended, among other things, that the appellate court IN OPEN COURT, THUS COOPERATING WITH
SOUND MIND WHEN SHE EXECUTED
totally ignored the testimony of Judge Teodorico Durias RESPONDENTS’ EFFORTS TO SUPPRESS THE
ANOTHER CONTRACT BARELY A MONTH
regarding the mental condition of Carmen Ozamiz a month CHECKS (WHICH THE COURT ITSELF AND
BEFORE SHE EXECUTED THE DEED OF
before the execution of the Deed of Absolute Sale in RESPONDENTS CHALLENGED PETITIONERS
ABSOLUTE SALE) ON THE GROUND THAT
question. The said testimony was taken in the Special TO PRODUCE).
THAT TESTIMONY WAS FORGOTTEN
Proceeding No. 1250 in the Regional Trial Court of
EVIDENCE.
Oroquieta City. However, Judge Durias was not presented
II.
as a witness in Civil Case No. CEB-10766 in the Regional
Trial Court of Cebu City. Petitioners alleged that Judge We shall first rule on the issue of whether to consider the
Durias’s testimony is a newly-discovered evidence which THE COURT OF APPEALS GRAVELY ERRED IN RULING testimony of Judge Durias as newly discovered evidence. A
could not have been discovered prior to the trial in the court THAT CARMEN OZAMIZ’S MENTAL FACULTIES WERE motion for new trial upon the ground of newly discovered
below by the exercise of due diligence. SERIOUSLY IMPAIRED WHEN SHE EXECUTED THE evidence is properly granted only where there is concurrence
DEED OF ABSOLUTE SALE ON APRIL 28, 1989. of the following requisites, namely: (a) the evidence had
been discovered after trial; (b) the evidence could not have
been discovered and produced during trial even with the
exercise of reasonable diligence; and (c) the evidence is
material and not merely corroborative, cumulative or
impeaching and is of such weight that if admitted, would
probably alter the result. All three (3) requisites must
characterize the evidence sought to be introduced at the new
trial.
We find that the requirement of reasonable diligence has not
been met by the petitioners. As early as the pre-trial of the
case at bar, the name of Judge Durias has already cropped
up as a possible witness for the defendants, herein
respondents. That the respondents chose not to present him
is not an indicia per se of suppression of evidence, since a
party in a civil case is free to choose who to present as his
witness. Neither can Judge Durias’ testimony in another
case be considered as newly discovered evidence since the
facts to be testified to by Judge Durias which were existing
before and during the trial, could have been presented by the
petitioners at the trial below. 16 The testimony of Judge Durias
has been in existence waiting only to be elicited from him by
questioning.17
It has been held that a lack of diligence is exhibited where
the newly discovered evidence was necessary or proper
under the pleadings, and its existence must have occurred to
the party in the course of the preparation of the case, but no
effort was made to secure it; there is a failure to make inquiry
of persons who were likely to know the facts in question,
especially where information was not sought from co-parties;
there is a failure to seek evidence available through public
records; there is a failure to discover evidence that is within
the control of the complaining party; there is a failure to
follow leads contained in other evidence; and, there is a
failure to utilize available discovery procedures. 18 Thus, the
testimony of Judge Durias cannot be considered as newly
discovered evidence to warrant a new trial.
In this petition at bench, herein petitioners essentially take
exception to two (2) main factual findings of the appellate
court, namely, (a) that the notarized Deed of Absolute Sale
dated April 28, 1989 was a simulated contract, and (b) that
Carmen Ozamiz’s mental faculties were seriously impaired
when she executed the said contract on April 28, 1989. The
petitioners allege that both conclusions are contrary or
opposed to well-recognized statutory presumptions of
regularity enjoyed by a notarized document and that a
contracting party to a notarized contract is of sound and
disposing mind when she executes the contract.
The respondents posit a different view. They contend that
clear and convincing evidence refuted the presumptions on
regularity of execution of the Deed of Absolute Sale and
existence of consideration thereof. Relying upon the
testimonies of Paz O. Montalvan, Concepcion Agac-ac,
Carolina Lagura and Dr. Faith Go, they aver that they were
able to show that Carmen Ozamiz was already physically
and mentally incapacitated since the latter part of 1987 and
could not have executed the said Deed of Absolute Sale on
April 28, 1989 covering the disputed Lahug property. They
also alleged that no error is ascribable to the appellate court
for not considering the allegedly rehearsed testimonies of the
instrumental witnesses and the notary public.
Factual findings of the appellate court are generally
conclusive on this Court which is not a trier of facts. It is not
the function of the Supreme Court to analyze or weigh
evidence all over again. However, this rule is not without
exception. If there is a showing that the appellate court’s
findings of facts complained of are totally devoid of support
in the record or that they are so glaringly erroneous as to
constitute grave abuse of discretion, this Court must discard
such erroneous findings of facts. 19 We find that the exception
applies in the case at bench.
Simulation is defined as "the declaration of a fictitious will,
deliberately made by agreement of the parties, in order to
produce, for the purposes of deception, the appearances of
a juridical act which does not exist or is different from what
that which was really executed." 20 The requisites of
simulation are: (a) an outward declaration of will different
from the will of the parties; (b) the false appearance must
have been intended by mutual agreement; and (c) the
purpose is to deceive third persons. 21 None of these were
clearly shown to exist in the case at bar.
Contrary to the erroneous conclusions of the appellate court,
a simulated contract cannot be inferred from the mere non-
production of the checks. It was not the burden of the
petitioners to prove so. It is significant to note that the Deed
of Absolute Sale dated April 28, 1989 is a notarized
document duly acknowledged before a notary public. As
such, it has in its favor the presumption of regularity, and it
carries the evidentiary weight conferred upon it with respect
to its due execution. It is admissible in evidence without
further proof of its authenticity and is entitled to full faith and
credit upon its face.22
Payment is not merely presumed from the fact that the
notarized Deed of Absolute Sale dated April 28, 1989 has
gone through the regular procedure as evidenced by the
transfer certificates of title issued in petitioners’ names by the
Register of Deeds. In other words, whosoever alleges the
fraud or invalidity of a notarized document has the burden of
proving the same by evidence that is clear, convincing, and
more than merely preponderant. 23 Therefore, with this well-
recognized statutory presumption, the burden fell upon the
respondents to prove their allegations attacking the validity
and due execution of the said Deed of Absolute Sale.
Respondents failed to discharge that burden; hence, the
presumption in favor of the said deed stands. But more
importantly, that notarized deed shows on its face that the
consideration of One Million Forty Thousand Pesos
(₱1,040,000.00) was acknowledged to have been received
by Carmen Ozamiz.
Simulation cannot be inferred from the alleged absence of
payment based on the testimonies of Concepcion Agac-ac,
assistant of Carmen Ozamiz, and Nelfa Perdido, part-time
bookkeeper of Carmen Ozamiz. The testimonies of these
two (2) witnesses are unreliable and inconsistent.
While Concepcion Agac-ac testified that she was aware of all
the transactions of Carmen Ozamiz, she also admitted that
not all income of Carmen Ozamiz passed through her since
Antonio Mendezona, as appointed administrator, directly
reported to Carmen Ozamiz.24 With respect to Nelfa Perdido,
she testified that most of the transactions that she recorded
refer only to rental income and expenses, and the amounts
thereof were reported to her by Concepcion Agac-ac only,
not by Carmen Ozamiz. She does not record deposits or
withdrawals in the bank accounts of Carmen Ozamiz.25 Their
testimonies hardly deserve any credit and, hence, the
appellate court misplaced reliance thereon.
Considering that Carmen Ozamiz acknowledged, on the face
of the notarized deed, that she received the consideration at
One Million Forty Thousand Pesos (₱1,040,000.00), the
appellate court should not have placed too much emphasis
on the checks, the presentation of which is not really
necessary. Besides, the burden to prove alleged non-
payment of the consideration of the sale was on the
respondents, not on the petitioners. Also, between its
conclusion based on inconsistent oral testimonies and a duly
notarized document that enjoys presumption of regularity,
the appellate court should have given more weight to the
latter. Spoken words could be notoriously unreliable as
against a written document that speaks a uniform
language.26
Furthermore, the appellate court erred in ruling that at the
time of the execution of the Deed of Absolute Sale on April
28, 1989 the mental faculties of Carmen Ozamiz were
already seriously impaired. 27 It placed too much reliance
upon the testimonies of the respondents’ witnesses.
However, after a thorough scrutiny of the transcripts of the
testimonies of the witnesses, we find that the respondents’
core witnesses all made sweeping statements which failed to
show the true state of mind of Carmen Ozamiz at the time of
the execution of the disputed document. The testimonies of
the respondents’ witnesses on the mental capacity of
Carmen Ozamiz are far from being clear and convincing, to
say the least.
Carolina Lagura, a househelper of Carmen Ozamiz, testified
that when Carmen Ozamiz was confronted by Paz O.
Montalvan in January 1989 with the sale of the Lahug
property, Carmen Ozamiz denied the same. She testified
that Carmen Ozamiz understood the question
then.28 However, this declaration is inconsistent with her
(Carolina’s) statement that since 1988 Carmen Ozamiz could
not fully understand the things around her, that she was
physically fit but mentally could not carry a conversation or
recognize persons who visited her.29 Furthermore, the
disputed sale occurred on April 28, 1989 or three (3) months
after this alleged confrontation in January 1989. This
inconsistency was not explained by the respondents.
The revelation of Dr. Faith Go did not also shed light on the
mental capacity of Carmen Ozamiz on the relevant day -
April 28, 1989 when the Deed of Absolute Sale was
executed and notarized. At best, she merely revealed that
Carmen Ozamiz was suffering from certain infirmities in her
body and at times, she was forgetful, but there was no
categorical statement that Carmen Ozamiz succumbed to
what the respondents suggest as her alleged "second
childhood" as early as 1987.1âwphi1 The petitioners’ rebuttal
witness, Dr. William Buot, a doctor of neurology, testified that
no conclusion of mental incapacity at the time the said deed
was executed can be inferred from Dr. Faith Go’s clinical
notes nor can such fact be deduced from the mere
prescription of a medication for episodic memory loss.
It has been held that a person is not incapacitated to contract
merely because of advanced years or by reason of physical
infirmities. Only when such age or infirmities impair her
mental faculties to such extent as to prevent her from
properly, intelligently, and fairly protecting her property
rights, is she considered incapacitated. 30 The respondents
utterly failed to show adequate proof that at the time of the
sale on April 28, 1989 Carmen Ozamiz had allegedly lost
control of her mental faculties.
We note that the respondents sought to impugn only one
document, namely, the Deed of Absolute Sale dated April
28, 1989, executed by Carmen Ozamiz. However, there are
nine (9) other important documents that were, signed by
Carmen Ozamiz either before or after April 28, 1989 which
were not assailed by the respondents. 31 Such is contrary to
their assertion of complete incapacity of Carmen Ozamiz to
handle her affairs since 1987. We agree with the trial court’s
assessment that "it is unfair for the [respondents] to claim
soundness of mind of Carmen Ozamiz when it benefits them
and otherwise when it disadvantages them." 32 A person is
presumed to be of sound mind at any particular time and the
condition is presumed to continue to exist, in the absence of
proof to the contrary.33 Competency and freedom from undue
influence, shown to have existed in the other acts done or
contracts executed, are presumed to continue until the
contrary is shown.34
All the foregoing considered, we find the instant petition to be
meritorious and the same should be granted.
WHEREFORE, the instant petition is hereby GRANTED and G.R. No. 150429 August 29, 2006
the assailed Decision and Resolution of the Court of Appeals
are hereby REVERSED and SET ASIDE. The Decision
ROBERTO G. FAMANILA, Petitioner,
dated September 23, 1992 of the Regional Trial Court of
vs.
Cebu City, Branch 6, in Civil Case No. CEB-10766 is
THE COURT OF APPEALS (Spc. Fmr. Seventh Division)
REINSTATED. No pronouncement as to costs.
and BARBERSHIP MANAGEMENT LIMITED and NFD
INTERNATIONAL MANNING AGENTS, INC. Respondents.
SO ORDERED.
DECISION
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari assailing the
Decision 1 of the Court of Appeals in CA-G.R. SP No. 50615
dated March 30, 2001 which affirmed the Decision 2 of the
National Labor Relations Commission (NLRC) dated March
31, 1998 dismissing petitioner’s complaint for payment of
disability and other benefits for lack of merit and the
Resolution 3 dated October 5, 2001 of the Court of Appeals
denying petitioner’s motion for reconsideration.
The antecedent facts are as follows:
In 1989, respondent NFD International Manning Agents, Inc.
hired the services of petitioner Roberto G. Famanila as
Messman 4 for Hansa Riga, a vessel registered and owned
by its principal and co-respondent, Barbership Management
Limited.
On June 21, 1990, while Hansa Riga was docked at the port
of Eureka, California, U.S.A. and while petitioner was
assisting in the loading operations, the latter complained of a
headache. Petitioner experienced dizziness and he
subsequently collapsed. Upon examination, it was
determined that he had a sudden attack of left cerebral
hemorrhage from a ruptured cerebral aneurysm. 5 Petitioner
underwent a brain operation and he was confined at the
Emmanuel Hospital in Portland, Oregon, U.S.A. On July 19,
1990, he underwent a second brain operation.
Owing to petitioner’s physical and mental condition, he was
repatriated to the Philippines. On August 21, 1990, he was
examined at the American Hospital in Intramuros, Manila
where the examining physician, Dr. Patricia Abesamis
declared that he "cannot go back to sea duty and has been
observed for 120 days, he is being declared permanently,
totally disabled." 6
Thereafter, authorized representatives of the respondents
convinced him to settle his claim amicably by accepting the
amount of US$13,200. 7 Petitioner accepted the offer as
evidenced by his signature in the Receipt and Release dated
February 28, 1991. 8 His wife, Gloria Famanila and one
Richard Famanila, acted as witnesses in the signing of the
release.
On June 11, 1997, petitioner filed a complaint 9 with the
NLRC which was docketed as NLRC OCW Case No. 6-838-
97-L praying for an award of disability benefits, share in the
insurance proceeds, moral damages and attorney’s fees. On
September 29, 1997, Acting Executive Labor Arbiter Voltaire
A. Balitaan dismissed the complaint on the ground of
prescription. Petitioner appealed the decision with the NLRC.
On March 31, 1998, the NLRC promulgated its
decision 10 finding the appeal to be without merit and ordered
its dismissal. When the motion for reconsideration 11 was
denied by the NLRC in its resolution dated June 29,
1998, 12 petitioner filed a petition for certiorari with this Court.
On December 2, 1998, we resolved to refer the case to the
Court of Appeals pursuant to our ruling in St. Martin Funeral
Home v. National Labor Relations Commission. 13
On March 30, 2001, the Court of Appeals promulgated the
assailed decision which dismissed the petition for lack of
merit. Petitioner’s motion for reconsideration was denied,
hence, the present petition for review raising the following
issues:
I. THE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN UPHOLDING THE VALIDITY OF THE
RECEIPT AND RELEASE SINCE PETITIONER’S
CONSENT THERETO WAS VITIATED THEREBY MAKING
THE SAME VOID AND UNENFORCEABLE.
II. THE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN HOLDING THAT THE
PRESCRIPTION PERIOD APPLICABLE TO THE CLAIM OF
THE PETITIONER IS THE 3-YEAR PERIOD PROVIDED
FOR UNDER THE LABOR CODE OF THE PHILIPPINES
AND NOT THE 10-YEAR PERIOD PROVIDED FOR
UNDER THE CIVIL CODE.
Petitioner claims that he did not sign the Receipt and
Release voluntarily or freely because he was permanently
disabled and in financial constraints. These factors allegedly
vitiated his consent which makes the Receipt and Release
void and unenforceable.
The petition lacks merit.
It is fundamental that the scope of the Supreme Court’s
judicial review under Rule 45 of the Rules of Court is
confined only to errors of law. It does not extend to questions
of fact. More so in labor cases where the doctrine applies
with greater force. 14 The Labor Arbiter and the NLRC have
already determined the factual issues, and these were
affirmed by the Court of Appeals. Thus, they are accorded
not only great respect but also finality and are deemed
binding upon this Court so long as they are supported by
substantial evidence. 15 We reviewed the records of the case
and we find no reason to deviate from the findings of the
labor arbiter, NLRC and the Court of Appeals.
A vitiated consent does not make a contract void and
unenforceable. A vitiated consent only gives rise to a
voidable agreement. Under the Civil Code, the vices of
consent are mistake, violence, intimidation, undue influence
or fraud. 16 If consent is given through any of the
aforementioned vices of consent, the contract is
voidable. 17 A voidable contract is binding unless annulled by
a proper action in court. 18
Petitioner contends that his permanent and total disability
vitiated his consent to the Receipt and Release thereby
rendering it void and unenforceable. However, disability is
not among the factors that may vitiate consent. Besides,
save for petitioner’s self-serving allegations, there is no proof
on record that his consent was vitiated on account of his
disability. In the absence of such proof of vitiated consent,
the validity of the Receipt and Release must be upheld. We
agree with the findings of the Court of Appeals that:
In the case at bar, there is nothing in the records to show
that petitioner’s consent was vitiated when he signed the
agreement. Granting that petitioner has not fully recovered
his health at the time he signed the subject document, the
same cannot still lead to the conclusion that he did not
voluntar[il]y accept the agreement, for his wife and another
relative witnessed his signing.
Moreover, the document entitled receipt and release which
was attached by petitioner in his appeal does not show on its
face any violation of law or public policy. In fact, petitioner
did not present any proof to show that the consideration for
the same is not reasonable and acceptable. Absent any
evidence to support the same, the Court cannot, on its own
accord, decide against the unreasonableness of the
consideration. 19
It is true that quitclaims and waivers are oftentimes frowned
upon and are considered as ineffective in barring recovery
for the full measure of the worker’s right and that acceptance
of the benefits therefrom does not amount to estoppel. 20 The
reason is plain. Employer and employee, obviously do not
stand on the same footing. 21 However, not all waivers and
quitclaims are invalid as against public policy. If the
agreement was voluntarily entered into and represents a
reasonable settlement, it is binding on the parties and may
not later be disowned simply because of change of mind. It is
only where there is clear proof that the waiver was wangled
from an unsuspecting or gullible person, or the terms of the
settlement are unconscionable on its face, that the law will
step in to annul the questionable transaction. But where it is
shown that the person making the waiver did so voluntarily,
with full understanding of what he was doing, and the
consideration for the quitclaim is credible and reasonable,
the transaction must be recognized as a valid and binding
undertaking, 22 as in this case.
To be valid and effective, waivers must be couched in clear
and unequivocal terms, leaving no doubt as to the intention
of those giving up a right or a benefit that legally pertains to
them. 23 We have reviewed the terms and conditions
contained in the Receipt and Release and we find the same
to be clear and unambiguous. The signing was even
witnessed by petitioner’s wife, Gloria T. Famanila and one
Richard T. Famanila. The Receipt and Release provides in
part:
That for and in consideration of the sum of THIRTEEN
THOUSAND TWO HUNDRED DOLLARS (US$13,200.00) or
its equivalent in Philippine currency THREE HUNDRED
SIXTY FIVE THOUSAND NINE HUNDRED FOUR PESOS
(365,904.00), the receipt of which is hereby acknowledged to
my full and complete satisfaction x x x I, ROBERTO G.
FAMANILA, x x x hereby remise, release and forever
discharge said vessel "HANSA RIGA", her Owners,
operators, managers, charterers, agents, underwriters, P
and I Club, master, officers, and crew and all parties at
interest therein or thereon, whether named or not named,
including but not limited to BARBER SHIP MANAGEMENT
LIMITED, NFD INTERNATIONAL MANNING AGENTS, INC.
and ASSURANCEFORENIGEN GARD from any and all
claims, demands, debts, dues, liens, actions or causes of
action, at law or in equity, in common law or in admiralty,
statutory or contractual, arising from and under the laws of
the United States of America, Norway, Hongkong or the
Republic of the Philippines and/or any other foreign country
now held, owned or possessed by me or by any person or
persons, arising from or related to or concerning whether
directly or indirectly, proximately or remotely, without being
limited to but including the said illness suffered by me on
board the vessel "HANSA RIGA" on or about 21st June 1990
at Portland, Oregon and disability compensation in
connection therewith.
This instrument is a GENERAL RELEASE intended to
release all liabilities of any character and/or claims or
damages and/or losses and/or any other liabilities
whatsoever, whether contractual or statutory, at common law
or in equity, tortious or in admiralty, now or henceforth in any
way related to or occurring as a consequence of the illness
suffered by me as Messman of the vessel "HANSA RIGA",
including but not limited to all damages and/or losses
consisting of loss of support, loss of earning capacity, loss of
all benefits of whatsoever nature and extent incurred,
physical pain and suffering and/or all damages and/or
indemnities claimable in law, tort, contract, common law,
equity and/or admiralty by me or by any person or persons
pursuant to the laws of the United States of America,
Norway, Hongkong or the Republic of the Philippines and of
all other countries whatsoever.
I hereby certify that I am of legal age and that I fully
understand this instrument which was read to me in the local
dialect and I agree that this is a FULL AND FINAL RELEASE
AND DISCHARGE of all parties and things referred to
herein, and I further agree that this release may be pleaded
as an absolute and final bar to any suit or suits or legal
proceedings that may hereafter be prosecuted by me or by
any one claiming by, through, or under me, against any of
the persons or things
referred to or related herein, for any matter or thing referred
to or related herein. 24
Relations Commission dismissing petitioner’s complaint for
disability and other benefits for lack of merit, and
the Resolution dated October 5, 2001 denying the motion for
reconsideration, are AFFIRMED.
G.R. No. 159567               July 31, 2007
SO ORDERED.
CORAZON CATALAN, LIBRADA CATALAN-LIM,
EULOGIO CATALAN, MILA CATALAN-MILAN, ZENAIDA
CATALAN, ALEX CATALAN, DAISY CATALAN, FLORIDA
CATALAN and GEMMA CATALAN, Heirs of the late
FELICIANO CATALAN, Petitioners,
vs.
JOSE BASA, MANUEL BASA, LAURETA BASA, DELIA
BASA, JESUS BASA and ROSALINDA BASA, Heirs of
the late MERCEDES CATALAN, Respondents.
DECISION

It is elementary that a contract is perfected by mere consent PUNO, C.J.:

and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to
This is a petition for review on certiorari under Rule 45 of the
all the consequences which, according to their nature, may
Revised Rules of Court of the Court of Appeals decision in
be in keeping with good faith, usage and law. 25 Further, dire
CA-G.R. CV No. 66073, which affirmed the judgment of the
necessity is not an acceptable ground for annulling the
Regional Trial Court, Branch 69, Lingayen, Pangasinan, in
Receipt and Release since it has not been shown that
Civil Case No. 17666, dismissing the Complaint for
petitioner was forced to sign it. 26
Declaration of Nullity of Documents, Recovery of Possession
and Ownership, and damages.
Regarding prescription, the applicable prescriptive period for
the money claims against the respondents is the three year
The facts, which are undisputed by the parties, follow:
period pursuant to Article 291 of the Labor Code which
provides that:
On October 20, 1948, FELICIANO CATALAN (Feliciano)
was discharged from active military service. The Board of
ART. 291. Money Claims. – All money claims arising from
Medical Officers of the Department of Veteran Affairs found
employer-employee relations accruing during the effectivity
that he was unfit to render military service due to his
of this Code shall be filed within three (3) years from the time
"schizophrenic reaction, catatonic type, which incapacitates
the cause of action accrued; otherwise they shall be forever
him because of flattening of mood and affect, preoccupation
barred.
with worries, withdrawal, and sparce (sic) and pointless
speech."1
xxxx
On September 28, 1949, Feliciano married Corazon
Since petitioner’s demand for an award of disability benefits Cerezo.2
is a money claim arising from his employment, Article 291 of
the Labor Code applies. From the time petitioner was
On June 16, 1951, a document was executed, titled
declared permanently and totally disabled on August 21,
"Absolute Deed of Donation," 3 wherein Feliciano allegedly
1990 which gave rise to his entitlement to disability benefits
donated to his sister MERCEDES CATALAN(Mercedes)
up to the time that he filed the complaint on June 11, 1997,
one-half of the real property described, viz:
more than three years have elapsed thereby effectively
barring his claim.
A parcel of land located at Barangay Basing, Binmaley,
Pangasinan. Bounded on the North by heirs of Felipe Basa;
WHEREFORE, the petition is DENIED. The Decision of the
on the South by Barrio Road; On the East by heirs of
Court of Appeals dated March 30, 2001 in CA-G.R. SP No.
Segundo Catalan; and on the West by Roman Basa.
50615 which affirmed the Decision of the National Labor
Containing an area of Eight Hundred One (801) square
meters, more or less.
The donation was registered with the Register of Deeds. The
Bureau of Internal Revenue then cancelled Tax Declaration
No. 2876, and, in lieu thereof, issued Tax Declaration No.
180804 to Mercedes for the 400.50 square meters donated to
her. The remaining half of the property remained in
Feliciano’s name under Tax Declaration No. 18081. 5
On December 11, 1953, People’s Bank and Trust Company
filed Special Proceedings No. 4563 6 before the Court of First
Instance of Pangasinan to declare Feliciano incompetent. On
December 22, 1953, the trial court issued its Order for
Adjudication of Incompetency for Appointing Guardian for the
Estate and Fixing Allowance 7 of Feliciano. The following day,
the trial court appointed People’s Bank and Trust Company
as Feliciano’s guardian. 8 People’s Bank and Trust Company
has been subsequently renamed, and is presently known as
the Bank of the Philippine Islands (BPI).
On November 22, 1978, Feliciano and Corazon Cerezo
donated Lots 1 and 3 of their property, registered under
Original Certificate of Title (OCT) No. 18920, to their son
Eulogio Catalan.9
On March 26, 1979, Mercedes sold the property in issue in
favor of her children Delia and Jesus Basa. 10 The Deed of
Absolute Sale was registered with the Register of Deeds of
Pangasinan on February 20, 1992, and Tax Declaration No.
12911 was issued in the name of respondents.11
On June 24, 1983, Feliciano and Corazon Cerezo donated
Lot 2 of the aforementioned property registered under OCT
No. 18920 to their children Alex Catalan, Librada Catalan
and Zenaida Catalan. On February 14, 1983, Feliciano and
Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the
same OCT No. 18920 to Eulogio and Florida Catalan.12
On April 1, 1997, BPI, acting as Feliciano’s guardian, filed a
case for Declaration of Nullity of Documents, Recovery of
Possession and Ownership, 13 as well as damages against
the herein respondents. BPI alleged that the Deed of
Absolute Donation to Mercedes was void ab initio, as
Feliciano never donated the property to Mercedes. In
addition, BPI averred that even if Feliciano had truly intended
to give the property to her, the donation would still be void,
as he was not of sound mind and was therefore incapable of
giving valid consent. Thus, it claimed that if the Deed of
Absolute Donation was void ab initio, the subsequent Deed
of Absolute Sale to Delia and Jesus Basa should likewise be
nullified, for Mercedes Catalan had no right to sell the
property to anyone. BPI raised doubts about the authenticity
of the deed of sale, saying that its registration long after the
death of Mercedes Catalan indicated fraud. Thus, BPI
sought remuneration for incurred damages and litigation
expenses.
On August 14, 1997, Feliciano passed away. The original
complaint was amended to substitute his heirs in lieu of BPI
as complainants in Civil Case No. 17666.
On December 7, 1999, the trial court found that the evidence
presented by the complainants was insufficient to overcome
the presumption that Feliciano was sane and competent at
the time he executed the deed of donation in favor of
Mercedes Catalan. Thus, the court declared, the
presumption of sanity or competency not having been duly
impugned, the presumption of due execution of the donation
in question must be upheld.14 It rendered judgment, viz:
WHEREFORE, in view of the foregoing considerations,
judgment is hereby rendered:
1. Dismissing plaintiff’s complaint;
2. Declaring the defendants Jesus Basa and Delia
Basa the lawful owners of the land in question
which is now declared in their names under Tax
Declaration No. 12911 (Exhibit 4);
3. Ordering the plaintiff to pay the defendants
Attorney’s fees of ₱10,000.00, and to pay the
Costs.(sic)
SO ORDERED.15
Petitioners challenged the trial court’s decision before the
Court of Appeals via a Notice of Appeal pursuant to Rule 41
of the Revised Rules of Court. 16 The appellate court affirmed
the decision of the trial court and held, viz:
In sum, the Regional Trial Court did not commit a reversible
error in disposing that plaintiff-appellants failed to prove the
insanity or mental incapacity of late (sic) Feliciano Catalan at
the precise moment when the property in dispute was
donated.
Thus, all the elements for validity of contracts having been
present in the 1951 donation coupled with compliance with
certain solemnities required by the Civil Code in donation
inter vivos of real property under Article 749, which provides:
xxx
Mercedes Catalan acquired valid title of ownership over the
property in dispute. By virtue of her ownership, the property
is completely subjected to her will in everything not
prohibited by law of the concurrence with the rights of others
(Art. 428, NCC).
The validity of the subsequent sale dated 26 March 1979
(Exhibit 3, appellees’ Folder of Exhibits) of the property by
Mercedes Catalan to defendant-appellees Jesus Basa and
Delia Basa must be upheld. Nothing of the infirmities which
allegedly flawed its authenticity is evident much less
apparent in the deed itself or from the evidence adduced. As
correctly stated by the RTC, the fact that the Deed of
Absolute Sale was registered only in 1992, after the death of
Mercedes Catalan does not make the sale void ab initio.
Moreover, as a notarized document, the deed of absolute
sale carries the evidentiary weight conferred upon such
public document with respect to its due execution (Garrido
vs. CA 236 SCRA 450). In a similar vein, jurisprudence has it
that documents acknowledged before a notary public have in
their favor the presumption of regularity, and to contradict the
same, there must be evidence that is clear, convincing and
more than preponderant (Salame vs. CA, 239 SCRA 256).
WHEREFORE, foregoing premises considered, the Decision
dated December 7, 1999 of the Regional Trial Court, Branch
69, is hereby affirmed.
SO ORDERED.17
Thus, petitioners filed the present appeal and raised the
following issues:
1. WHETHER OR NOT THE HONORABLE
COURT OF APPEALS HAS DECIDED CA-G.R.
CV NO. 66073 IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE
COURT IN HOLDING THAT "THE REGIONAL
TRIAL COURT DID NOT COMMIT A
REVERSIBLE ERROR IN DISPOSING THAT
PLAINTIFF-APPELLANTS (PETITIONERS)
FAILED TO PROVE THE INSANITY OR MENTAL
INCAPACITY OF THE LATE FELICIANO
CATALAN AT THE PRECISE MOMENT WHEN
THE PROPERTY IN DISPUTE WAS DONATED";
2. WHETHER OR NOT THE CERTIFICATE OF
DISABILITY FOR DISCHARGE (EXHIBIT "S")
AND THE REPORT OF A BOARD OF OFFICERS
CONVENED UNDER THE PROVISIONS OF
ARMY REGULATIONS (EXHIBITS "S-1" AND "S-
2") ARE ADMISSIBLE IN EVIDENCE;
3. WHETHER OR NOT THE HONORABLE
COURT OF APPEALS HAS DECIDED CA-G.R.
CV NO. 66073 IN A WAY PROBABLY NOT IN
 ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE
COURT IN UPHOLDING THE SUBSEQUENT
SALE OF THE PROPERTY IN DISPUTE BY THE
DONEE MERCEDES CATALAN TO HER
CHILDREN RESPONDENTS JESUS AND DELIA
BASA; AND-
4. WHETHER OR NOT CIVIL CASE NO. 17666 IS
BARRED BY PRESCRIPTION AND LACHES.18
Petitioners aver that the presumption of Feliciano’s
competence to donate property to Mercedes had been
rebutted because they presented more than the requisite
preponderance of evidence. First, they presented the
Certificate of Disability for the Discharge of Feliciano Catalan
issued on October 20, 1948 by the Board of Medical Officers
of the Department of Veteran Affairs. Second, they proved
that on December 22, 1953, Feliciano was judged an
incompetent by the Court of First Instance of Pangasinan,
and put under the guardianship of BPI. Based on these two
pieces of evidence, petitioners conclude that Feliciano had
been suffering from a mental condition since 1948 which
incapacitated him from entering into any contract thereafter,
until his death on August 14, 1997. Petitioners contend that
Feliciano’s marriage to Corazon Cerezo on September 28,
1948 does not prove that he was not insane at the time he
made the questioned donation. They further argue that the
donations Feliciano executed in favor of his successors
(Decision, CA-G.R. CV No. 66073) also cannot prove his
competency because these donations were approved and
confirmed in the guardianship proceedings. 19 In addition,
petitioners claim that the Deed of Absolute Sale executed on
March 26, 1979 by Mercedes Catalan and her children Jesus
and Delia Basa is simulated and fictitious. This is allegedly
borne out by the fact that the document was registered only
on February 20, 1992, more that 10 years after Mercedes
Catalan had already died. Since Delia Basa and Jesus Basa
both knew that Feliciano was incompetent to enter into any
contract, they cannot claim to be innocent purchasers of the
property in question.20 Lastly, petitioners assert that their
case is not barred by prescription or laches under Article
1391 of the New Civil Code because they had filed their case
on April 1, 1997, even before the four year period after
Feliciano’s death on August 14, 1997 had begun. 21
The petition is bereft of merit, and we affirm the findings of
the Court of Appeals and the trial court.
A donation is an act of liberality whereby a person disposes
gratuitously a thing or right in favor of another, who accepts
it.22 Like any other contract, an agreement of the parties is
essential. Consent in contracts presupposes the following
requisites: (1) it should be intelligent or with an exact notion
of the matter to which it refers; (2) it should be free; and (3) it
should be spontaneous.23 The parties' intention must be
clear and the attendance of a vice of consent, like any show substantial proof that at the date of the donation, June
contract, renders the donation voidable.24 16, 1951, Feliciano Catalan had lost total control of his
mental faculties. Thus, the lower courts correctly held that
Feliciano was of sound mind at that time and that this
In order for donation of property to be valid, what is crucial is
condition continued to exist until proof to the contrary was
the donor’s capacity to give consent at the time of the
adduced.30 Sufficient proof of his infirmity to give consent to
donation. Certainly, there lies no doubt in the fact that
contracts was only established when the Court of First
insanity impinges on consent freely given.25 However, the
Instance of Pangasinan declared him an incompetent on
burden of proving such incapacity rests upon the person who
December 22, 1953.31
alleges it; if no sufficient proof to this effect is presented,
capacity will be presumed. 26
It is interesting to note that the petitioners questioned
Feliciano’s capacity at the time he donated the property, yet
A thorough perusal of the records of the case at bar
did not see fit to question his mental competence when he
indubitably shows that the evidence presented by the
entered into a contract of marriage with Corazon Cerezo or
petitioners was insufficient to overcome the presumption that
when he executed deeds of donation of his other properties
Feliciano was competent when he donated the property in
in their favor. The presumption that Feliciano remained
question to Mercedes. Petitioners make much ado of the fact
competent to execute contracts, despite his illness, is
that, as early as 1948, Feliciano had been found to be
bolstered by the existence of these other contracts.
suffering from schizophrenia by the Board of Medical
Competency and freedom from undue influence, shown to
Officers of the Department of Veteran Affairs. By itself,
have existed in the other acts done or contracts executed,
however, the allegation cannot prove the incompetence of
are presumed to continue until the contrary is shown.32
Feliciano.
Needless to state, since the donation was valid, Mercedes
A study of the nature of schizophrenia will show that
had the right to sell the property to whomever she
Feliciano could still be presumed capable of attending to his
chose.33 Not a shred of evidence has been presented to
property rights. Schizophrenia was brought to the attention of
prove the claim that Mercedes’ sale of the property to her
the public when, in the late 1800s, Emil Kraepelin, a German
children was tainted with fraud or falsehood. It is of little
psychiatrist, combined "hebrephrenia" and "catatonia" with
bearing that the Deed of Sale was registered only after the
certain paranoid states and called the condition "dementia
death of Mercedes. What is material is that the sale of the
praecox." Eugene Bleuler, a Swiss psychiatrist, modified
property to Delia and Jesus Basa was legal and binding at
Kraepelin’s conception in the early 1900s to include cases
the time of its execution. Thus, the property in question
with a better outlook and in 1911 renamed the condition
belongs to Delia and Jesus Basa.
"schizophrenia." According to medical references, in persons
with schizophrenia, there is a gradual onset of symptoms,
with symptoms becoming increasingly bizarre as the disease Finally, we note that the petitioners raised the issue of
progresses.1avvphi1 The condition improves (remission or prescription and laches for the first time on appeal before
residual stage) and worsens (relapses) in cycles. this Court. It is sufficient for this Court to note that even if the
Sometimes, sufferers may appear relatively normal, while present appeal had prospered, the Deed of Donation was
other patients in remission may appear strange because still a voidable, not a void, contract. As such, it remained
they speak in a monotone, have odd speech habits, appear binding as it was not annulled in a proper action in court
to have no emotional feelings and are prone to have "ideas within four years.34
of reference." The latter refers to the idea that random social
behaviors are directed against the sufferers. 27 It has been
IN VIEW WHEREOF, there being no merit in the arguments
proven that the administration of the correct medicine helps
of the petitioners, the petition is DENIED. The decision of the
the patient. Antipsychotic medications help bring biochemical
Court of Appeals in CA-G.R. CV No. 66073 is affirmed in
imbalances closer to normal in a schizophrenic. Medications
toto.
reduce delusions, hallucinations and incoherent thoughts
and reduce or eliminate chances of relapse. 28 Schizophrenia
can result in a dementing illness similar in many aspects to SO ORDERED.
Alzheimer’s disease. However, the illness will wax and wane
over many years, with only very slow deterioration of
intellect.29
From these scientific studies it can be deduced that a person
suffering from schizophrenia does not necessarily lose his
competence to intelligently dispose his property. By merely
alleging the existence of schizophrenia, petitioners failed to
March 29, 2017

G.R. No. 206103

LYDIA LAVAREZ, MARGARITA LAVAREZ, WILFREDO

LAV AREZ, GREGORIO LAV AREZ, LOURDES LAV
AREZSAL V ACION, NORLIE LAVAREz,* G.J. LAVAREZ,
GIL LAV AREZ, and GAY NATALIE LA VAREZ,
GODOFREDO LAV AREZ, LETICIA LAV AREZ, LUIS LAV
AREZ, REMEDIOS V. ZABALLERO, JOSEPHINE V.
ZABALLERO FERNANDO V. ZABALLERO, VALENTA V.
ZABALLERO, MILAGROS Z. VERGARA, VALETA Z.
REYES, AMADO R. ZABALLERO, EMMANUEL R.
ZABALLERO, and FLORENTINO R.
ZABALLERO, Petitioners
vs
ANGELES S. GUEVARRA, AUGUSTO SEVILLA, JR.,
ASTERIA S. YRA, ANTONIO SEVILLA, ALBERTO
SEVILLA, ADELINA S. ALVAREZ, ARISTEO SEVILLA and
the REGISTER OF DEEDS OF LUCENA CITY,
Respondents

DECISION

PERALTA, J.:

This is a Petition for Review on Certiorari assailing the

Decision1 of the Court of Appeals (CA) dated August 15,
2012 and its Resolution2 dated February 25, 2013 in CA-
G.R. CV No. 95543 which partly granted the appeal from the
Decision3 of the Regional Trial Court (RTC) of Lucena City,
Branch 53, dated May 26, 2010 in Civil Case No. 1996-159.

The facts of the case at bar, as shown in the records, are as

follows:
Rebecca Zaballero, Romulo Zaballero, Amando Zaballero,
Raquel Zaballero-Sevilla, and Ramon Lavarez are siblings,
the latter being a son from a former marriage. On June 7,
1996, Rebecca died intestate and without any issue, leaving
several properties to be settled among her nearest kins - the
sons and daughters of her siblings - who later became the
parties in this case.
On October 16, 1996, Lydia Lavarez, Godofredo Lavarez,
Lourdes Lavarez, Guido Lavarez, Norlie Bibiera, Gregorio
Lavarez, Leticia Lavarez, Margarita Lavarez, Wilfredo
Lavarez, Luis Lavarez, Remedios V. Zaballero, Josephine V.
Zaballero, Fernando V. Zaballero, Valenta V. Zaballero,
Milagros Z. Vergara, Valeta Z. Reyes, Amado R. Zaballero,
Emmanuel R. Zaballero, and Florentino Zaballero filed an
action for reconveyance, partition, accounting, and
nullification of documents, with damages, against
respondents Angeles S. Guevarra, Augusto Sevilla, Jr.,
Asteria S. Yra, Antonio Sevilla, Alberto Sevilla, Adelina S.
Alvarez, and Aristeo Sevilla.
For their defense, respondents alleged that there was
nothing to pa11ition since they were not aware of any real or
personal properties which their aunt Rebecca had left
behind. Said properties which were included in the complaint
had already been validly donated to them by Rebecca,
resulting to new Certificates of Title being issued in their
names. Also, Guevarra claimed that she never took over the
management and administration of Rebecca's properties so
she could not be compelled to render an accounting of the
income of said properties.
On May 26, 2010, the Lucena RTC granted the complaint,
thus:
WHEREFORE, of the foregoing, the Court orders:
1. Defendant Angeles S. Guevarra, as the administratrix of
the late Rebecca Zaballero's property, to render an
accounting how she managed the said properties of her
principal, including but not limited, to income and expenses
therefrom, bank deposits, from the time it came to her
possession up to the filing of this case in Court on October
16, 1996.
2. Declaring the deeds of donation enumerated under page 3
of this decision, executed by Rebecca Zaballero, in favor of
the defendants, a nullity for being tainted with vices of
consent and reverting the same to the estate of the late
Rebecca Zaballero.
3. Defendant Register of Deeds of Lucena City to cancel the
said titles thereon under the names of the defendants to be
partitioned by and between the parties in this case in
accordance with law.
SO ORDERED.4 unsoundness of the disposing mind impinges on consent
freely given. However, the burden of proving such incapacity
rests upon the person who alleges it. If no sufficient proof to
Therefore, respondents elevated the case to the CA. On
this effect is presented, capacity will be presumed. 8 Here,
August 15, 2012, the appellate court partly granted the
however, petitioners succeeded in discharging said heavy
appeal and sustained the validity of the subject Deeds of
burden.
Donation, to wit:
It is the contention of respondents that Rebecca still had full
WHEREFORE, premises considered, the instant appeal
control of her mind during the execution of the deeds. The
is PARTLY GRANTED. The assailed Deeds of Donation
fact that she was already of advanced age at that time or
executed in May 1993 by deceased Rebecca Zaballero in
that she had to rely on respondents' care did not necessarily
favor of defendants-appellants are declared valid.
prove that she could no longer give consent to a
contract.1âwphi1
Defendant-appellant Angeles S. Guevarra is ordered to
render an accounting on how she managed the real and
To determine the intrinsic validity of the deed of donation
personal properties of Rebecca Zaballero, from the time she
subject of the action for annulment, Rebecca's mental
took possession of the same up to the filing of the case on
state/condition at the time of its execution must be taken into
October 16, 1996.
account. Factors such as age, health, and environment, and
the intricacy of the document in question, among others,
SO ORDERED.5 should be considered. Rebecca's doctor during her lifetime,
Dr. Bernardo Jorge Conde, who was presented as an expert
witness, testified that Rebecca had been suffering from
Petitioners filed a motion for partial reconsideration, but the
dementia, which was more or less permanent, and had been
same was denied.6 Of the original plaintiffs, only Lydia
taking medications for years. The records would show that
Lavarez, Margarita Lavarez, Wilfredo Lavarez, Gregorio
Rebecca lived in the family's ancestral house with
Lavarez, Lourdes Lavarez-Salvacion, Norlie Lavarez, G.J.
respondents, and the old lady was dependent on their care,
Lavarez, Gil Lavarez, and Gay Natalie Lavarez filed the
specifically that of Guevarra. During the execution of the
instant petition.
deeds in question on May 12, 1993, Rebecca was already
75 years old, and was confined at the Philippine Heart
The sole question in the instant case is whether or not Center in Quezon City. On June 7, 1996, she finally passed
Rebecca, on May 12, 1993, possessed sufficient mentality to away.
make the subject deeds of donation which would meet the
legal test regarding the required capacity to dispose.
The Deeds of Donation in favor of respondents likewise
cover several properties of varying sizes, to wit:
Basic is the rule of actori incumbit onus probandi, or the
burden of proof lies with the plaintiff. In other words, upon
1. a land (483 square meters) at Barangay (Brgy.) Gulang
the plaintiff in a civil case, the burden of proof never parts. Gulang, Lucena under Transfer Certificate of Title (TCT) No.
Therefore, petitioners must establish their case by a T-79056;
preponderance of evidence, that is, evidence that has
greater weight, or is more convincing than that which
respondents offered in opposition to it. In civil cases, the one 2. a property (33,424 square meters) at Brgy. Dumacaa,
who alleges a fact has the burden of proving it and a mere Lucena under TCT No. T-80090;
allegation is not evidence.7
3. a land (4,611 square meters) in Lucena under TCT No. T-
A donation is an act of liberality whereby a person disposes 80091;
a thing or right gratuitously in favor of another, who, in turn,
accepts it. Like any other contract, agreement between the
4. a land (9,456 square meters) in Lucena under TCT No. T-
paiiies must exist. Consent in contracts presupposes the
80092;
following requisites: (1) it should be intelligent or with an
exact notion of the matter to which it refers; (2) it should be
free; and (3) it should be spontaneous. The parties' intention 5. a property (34,376 square meters) in Lucena under TCT
must be clear and the attendance of a vice of consent, like No. T- 80086;
any contract, renders the donation voidable. In order for a
donation of property to be valid, what is crucial is the donor's
6. a property (17,448 square meters) under TCT No. T-
capacity to give consent at the time of the donation.
80087;
Certainly, there lies no doubt in the fact that insanity or
7. a land (2,672 square meters) in Lucena under TCT No. T-
80088;
8. a land (25,469 square meters) in Lucena under TCT No.
T- 80089;
9. a property (36,677 square meters) in Lucena under TCT
No. T- 80093; and
10. a land (13,488 square meters) in Lucena under TCT No.
T- 82430.
Putting together the abovementioned circumstances, that at
the time of the execution of the Deeds of Donation covering
numerous properties, Rebecca was already at an advanced
age of 75, afflicted with dementia, not necessarily in the
pinkest of health since she was then, in fact, admitted to the
hospital, it can be reasonably assumed that the same had
the effects of impairing her brain or mental faculties so as to
considerably affect her consent, and that fraud or undue
influence would have been employed in order to procure her
signature on the questioned deeds. The correctness of the
trial court's findings therefore stands untouched, since
respondents never provided any plausible argument to have
it reversed, the issue of the validity of donation being fully
litigated and passed upon by the trial court.9
Petitioners claim, as confirmed by Dr. Conde, that the
unsoundness of the mind of the donor was the result of
senile dementia. This is the form of mental decay of the aged
upon which wills or donations are most often contested.
Senile dementia, usually called childishness, has various
forms and stages. To constitute complete senile dementia,
there must be such failure of the mind as to deprive the
donor of intelligent action. In the first stages of the disease, a
person may still possess reason and have will power. 10 It is a
form of mental disorder in which cognitive and intellectual
functions of the mind are prominently affected; impairment of
memory is early sign. Total recovery is not possible since
organic cerebral disease is involved. 11 It is likewise the loss,
usually progressive, of cognitive and intellectual functions,
without impairment of perception or consciousness, caused
by a variety of disorders including severe infections and
toxins, but most commonly associated with structural brain
disease. It is characterized by disorientation, impaired
memory, judgment and intellect, and a shallow labile effect.12
As to Dr. Conde's expert opinion, it is settled that the
testimony of expert witnesses must be construed to have
been presented not to sway the court in favor of any of the
parties, but to assist the court in the determination of the
issue before it.13 Although. courts are not ordinarily bound by
expert testimonies, they may place whatever weight they
may choose upon such testimonies in accordance with the
facts of the case. The relative weight and sufficiency of
expert testimony is peculiarly within the province of the trial faculties so as to render her completely capable of executing
court to decide, considering the ability and character of the a valid Deed of Donation.
witness, his actions upon the witness stand, the weight and
process of the reasoning by which he has supported his
WHEREFORE, IN VIEW OF THE FOREGOING, the
opinion, his possible bias in favor of the side for whom he
Court GRANTS the petition and REINSTATES the Decision
testifies, the fact that he might be a paid witness, the relative
of the Regional Trial Court of Lucena City, Branch 53, dated
opportunities for study and observation of the matters about
May 26, 2010 in Civil Case No. 1996-159.
which he testifies, and any other matters which deserve to
illuminate his statements. The opinion of the expert may not
be arbitrarily rejected; it is to be considered by the court in SO ORDERED.
view of all the facts and circumstances in the case and when
common knowledge utterly fails, the expert opinion may be
given controlling effect. The problem of the credibility of the
expert witness and the evaluation of his testimony is left to
the discretion of the trial court whose ruling on such is not
reviewable in the absence of abuse of discretion. 14
To support its ruling in favor of the validity of the deeds of
donation, the CA cited the cases of Catalan v.
Basa15 and Carrillo v. Jaojoco.16 In Catalan, the Court
upheld the validity of the donation although the donor had
been suffering from schizophrenia. In Carrillo, the contract of
sale was upheld despite the seller having been declared
mentally incapacitated after only nine (9) days from the
November 29, 2017
execution of said contract. It is important to note, however,
that in both cases, the Court merely sustained the rulings of
the trial courts, which had been in a better position to G.R. No. 205838
appreciate the weight and value of the evidence and
testimonies of the witnesses who had personally appeared
before them.17 JOSEPH HARRY WALTER POOLE-BLUNDEN, Petitioner
vs.
UNION BANK OF THE PHILIPPINES, Respondent
Findings of fact made by a trial court are accorded the
highest degree of respect by an appellate tribunal and,
DECISION
without a clear disregard of the evidence before it that can
otherwise affect the results of the case, those findings should
not be ignored. Absent any clear showing of abuse, LEONEN, J.:
arbitrariness, or capriciousness committed by the lower
court, its findings of facts are binding and conclusive upon
Banks are required to observe a high degree of diligence in
the Court.18 Settled is the rule that in assessing the credibility
their affairs. This encompasses their dealings concerning
of witnesses, the Court gives great respect to the evaluation
properties offered as security for loans. A bank that wrongly
of the trial court for it had the unique, opportunity to observe
advertises the area of a property acquired through
the demeanor of witnesses and their deportment Ion the
foreclosure because it failed to dutifully ascertain the
witness stand, an opportunity that is unavailable to the
property's specifications is grossly negligent as to practically
appellate courts, which simply rely on the cold records of the
be in bad faith in offering that property to prospective buyers.
case. The assessment by the trial court is even conclusive
Any sale made on this account is voidable for causal fraud.
and binding if not tainted with arbitrariness or oversight of
In actions to void such sales, banks cannot hide under the
some fact or circumstance of weight and influence.19 Here,
defense that a sale was made on an as-is-where-is basis.
the CA failed to show any presence of abuse, arbitrariness,
or any clear disregard of evidence on the part of the trial As-is-where-is stipulations can only encompass physical
court when it gave full credence to Dr. Conde's expert features that are readily perceptible by an ordinary person
opinion. possessing no specialized skills.
This resolves a Petition for Review on Certiorari1 under Rule
Thus, after an extensive examination of the records of the
45 of the 1997 Rules of Civil Procedure praying that the
instant case, the Court finds no cogent reason to depart from
assailed November 15, 2012 Decision2 and February 12,
the lower court's conclusion that Rebecca Zaballero, on May
2013 Resolution3 of the Court of Appeals in CA-G.R. CV No.
12, 1993, could not have had full control over her mental
95369 be reversed and set aside and that judgment be
rendered annulling or rescinding the Contract to Sell
between petitioner Joseph Harry Walter Poole-Blunden
(Poole-Blunden) and respondent Union Bank of the
Philippines (UnionBank).
The assailed Court of Appeals Decision affirmed the April 20,
2010 Decision of the Regional Trial Court, Branch 65, Makati
City which dismissed the Complaint for Rescission of
Contract and Damages filed by Poole-Blunden against
respondent UnionBank.4 The assailed Court of Appeals
Resolution denied Poole-Blunden's Motion for
Reconsideration.5
Sometime in March 2001, Poole-Blunden came across an
advertisement placed by Union Bank in the Manila Bulletin.
The ad was for the public auction of certain properties. One
of these properties was a condominium unit, identified as
Unit 2-C of T-Tower Condominium (the "Unit"), located at
5040 P. Burgos corner Calderon Streets, Makati
City.6 UnionBank had acquired the property through
foreclosure proceedings "after the developer defaulted in the
payment of its loan from [UnionBank]."7
The Unit was advertised to have an area of 95 square
meters. Thinking that it was sufficient and spacious enough
for his residential needs, Poole-Blunden decided to register
for the sale and bid on the unit.8
About a week prior to the auction, Poole-Blunden visited the
unit for inspection. He was accompanied by a representative
of UnionBank. The unit had an irregular shape; it was neither
a square nor a rectangle and included a circular terrace.
Poole-Blunden did not doubt the unit's area as advertised.
However, he found that the ceiling was in bad condition, that
the parquet floor was damaged, and that the unit was in
need of other substantial repairs to be habitable.9
On the day of the auction, Poole-Blunden inspected the
Master Title of the project owner to the condominium in the
name of Integrated Network (TCT No. 171433) and the
Condominium Certificate of Title of UnionBank (CCT No.
36151) to verify once again the details as advertised and the
ownership of the unit. Both documents were on display at the
auction venue.10
Poole-Blunden placed his bid and won the unit for
₱2,650,000.00.11 On May 7, 2001, Poole-Blunden entered
into a Contract to Sell with UnionBank. This Contract
stipulated that Poole-Blunden would pay 10% of the
purchase price as down payment 12 and that the balance shall
be paid over a period of 15 years in equal monthly
instalments, with interest of 15% per annum starting July 7,
2001.13
Poole-Blunden started occupying the unit in June 2001. By
July 20, 2003, he was able to fully pay for the Unit, paying a
total amount of ₱3,257,142.49.14
In late 2003, Poole-Blunden decided to construct two (2)
additional bedrooms in the Unit. Upon examining it, he
noticed apparent problems in its dimensions. He took rough
measurements of the Unit, which indicated that its floor area
was just about 70 square meters, not 95 square meters, as
advertised by UnionBank.15
Poole-Blunden got in touch with an officer of UnionBank to
raise the matter, but no action was taken. 16 On July 12,
2004, Poole-Blunden wrote to UnionBank, informing it of the
discrepancy. He asked for a rescission of the Contract to
Sell, along with a refund of the amounts he had paid, in the
event that it was conclusively established that the area of the
unit was less than 95 square meters.17
In a letter dated December 6, 2004, 18 UnionBank informed
Poole-Blunden that after inquiring with the Housing and Land
Use Regulatory Board (HLURB), the Homeowners'
Association of T-Tower Condominium, and its appraisers,
the Unit was confirmed to be 95 square meters, inclusive of
the terrace and the common areas surrounding it.19
Poole-Blunden was not satisfied with UnionBank's response
as the condominium's Master Title expressly stated that the
"boundary of each unit are the interior surfaces of the
perimeter walls, floors, ceilings, windows and doors
thereof."20 Thus, he hired an independent geodetic engineer,
Engr. Gayril P. Tagal (Engr. Tagal) of the Filipinas Dravo
Corporation, to survey the Unit and measure its actual floor
area. Engr. Tagal issued a certification stating that the total
floor area of the Unit was only 74.4 square meters. 21 Poole-
Blunden gave UnionBank a copy of Engr. Tagal's
certification on July 12, 2005. 22
In a letter dated February 1, 2006, UnionBank explained:
[T]he total area of the subject unit based on the ratio
allocation maintenance cost submitted by the developer to
HLURB is 98 square meters (60 square meters as unit area
and 38 square meters as share on open space). On the
other hand, the actual area thereof based on the
measurements made by its surveyor is 74.18 square meters
which was much higher than the unit area of 60 square
meters that was approved by HLURB.23
Poole-Blunden's dissatisfaction with UnionBank's answer
prompted him to file his Complaint for Rescission of Contract
and Damages with the Regional Trial Court, Makati City.24
On April 20, 2010, the Regional Trial Court dismissed Poole-
Blunden's complaint for lack of merit. The dispositive portion
of its Decision read:
WHEREFORE, premises considered, the instant complaint
for rescission of contract and damages is hereby
DISMISSED for lack of merit. The counterclaim is likewise
DENIED.
SO ORDERED.25
On appeal, the Court of Appeals affirmed the ruling of the
Regional Trial Court.26 It noted that the sale was made on an
"as-is-where-is" basis as indicated in Section 12 of the
Contract to Sell.27 Thus, Poole-Blunden supposedly waived
any errors in the bounds or description of the unit. 28 The
Court of Appeals added that Poole-Blunden failed to show,
by clear and convincing evidence that causal fraud can be
attributed to UnionBank. 29 It added that the sale was made
for a lump-sum amount and that, in accordance with Article
1542, paragraph 1 of the Civil Code, 30 Poole-Blunden could
not demand a reduction in the purchase price.31
Following the denial of his Motion for Reconsideration,
Poole-Blunden filed the present Petition before this Court.32
Poole-Blunden charges UnionBank with fraud in failing to
disclose to him that the advertised 95 square meters was
inclusive of common areas. 33 With the vitiation of his consent
as to the object of the sale, he asserts that the Contract to
Sell may be voided. He insists that UnionBank is liable for
breach of warranty despite the "as-is-where-is" clause in the
Contract to Sell.34 Finally, he assails the Court of Appeals'
application of Article 1542 of the Civil Code.35
For resolution is the sole issue of whether or not respondent
Union Bank of the Philippines committed such a degree of
fraud as would entitle petitioner Joseph Harry Walter Poole-
Blunden to the voiding of the Contract to Sell the
condominium unit identified as Unit 2C, T-Tower
Condominium, 5040 P. Burgos corner Calderon Streets,
Makati City.
I
No longer in dispute at this juncture is how the Unit's interior
area is only 74.4 square meters. While respondent has
maintained that the Unit's total area is in keeping with the
advertised 95 square meters, it has conceded that these 95
square meters is inclusive of outside spaces and common
areas.
Even before litigation commenced, in a December 6, 2004
letter,36 respondent informed petitioner that, following
inquiries with the HLURB, the Homeowners' Association of
T-Tower Condominium, and its appraisers, it had confirmed
that the Unit's 95 square meters was inclusive of "the terrace
and the common areas surrounding it."37
During trial, respondent's former Assistant Vice President of
the Asset and Recovery Group, Atty. Elna N. Cruz (Atty.
Cruz), testified on how there would have been documents
(such as an appraisal report) relating to inspections made by
respondent's personnel at the time the unit was being offered
as a collateral to a loan. These would have concerned the
unit's area.38 She affirmed respondent's statements in its
December 6, 2004 letter and indicated that, based on an
appraisal report, the declared 95 square meters was not
exclusive to the Unit's interiors but included common areas:
Q: So my impression, Madam Witness, is that before you
accepted the property as a collateral, Union Bank already
knew what was the actual area of the unit?
A: Yes, sir.
Q: But you do not know what was the actual area as found
by your inspector?
A: It would be 95 square meters as per the record, sir.
Q: That was the actual findings of your inspector, Madam
Witness?
A: Yes, sir.
Q: What's your basis for saying that?
A: The appraisal report, sir.
Q: Do you have now with you that appraisal report showing
that the actual area of the unit is indeed 95 square meters?
A: We gathered the appraisal report and in the December
06, 2004 letter that we gave Mr. Blunden, we consulted the
appraiser of the Bank and we were informed that the area
was indeed 95 square meters. But that area was brought
about by measuring not just the inside of the unit, sir, but
including also the terrace, and the common
area.39 (Emphasis supplied)
Respondent has not disavowed Atty. Cruz's testimony. In its
Comment, it merely asserted that the "[e]xtensive reference
to the [transcript of stenographic notes] is unmistakable proof
that the litigated issue is one of fact, not of law" and insisted
that this Court should not take cognizance of the present
Petition.40
Respondent's insistence on how common spaces should be
included in reckoning the Unit's total area runs afoul of how
Republic Act No. 4726, otherwise known as the
Condominium Act, reckons what forms part of a
condominium unit.
Section 3(b) of the Condominium Act defines a condominium
unit, as follows:
Section 3. As used in this Act, unless the context otherwise
requires:
....
(b) "Unit" means a part of the condominium project intended
for any type of independent use or ownership, including one
or more rooms or spaces located .in one or more floors (or
part or parts of floors) in a building or buildings and such
accessories as may be appended thereto.
Section 6(a) of the Condominium Act specifies the reckoning
of a condominium unit's bounds. It also specifies that areas
of common use "are not part of the unit":
Section 6. Unless otherwise expressly provided in the
enabling or master deed or the declaration of restrictions, the
incidents of a condominium grant are as follows:
(a) The boundary of the unit granted are the interior surfaces
of the perimeter walls, floors, ceilings, windows and doors
thereof. The following are not part of the unit bearing walls,
columns, floors, roofs, foundations and other common
structural elements of the building; lobbies, stairways,
hallways, and other areas of common use, elevator
equipment and shafts, central heating, central refrigeration
and central air-conditioning equipment, reservoirs, tanks,
pumps and other central services and facilities, pipes, ducts,
flues, chutes, conduits, wires and other utility installations,
wherever located, except the outlets thereof when located
within the unit. (Emphasis supplied.)
Thus, the unit sold to petitioner was deficient in relation to its
advertised area. This advertisement having been made by
respondent, it is equally settled there was a falsity in the
declarations made by respondent prior to, and with the
intention of enticing buyers to the sale. What remains in
issue is whether or not this falsity amounts to fraud
warranting the voiding of the Contract to Sell.
II
For there to be a valid contract, all the three (3) elements of
consent, subject matter, and price must be
present.41 Consent wrongfully obtained is defective. The
party to a contract whose consent was vitiated is entitled to
have the contract rescinded. Accordingly, Article 1390 of the
Civil Code42 stipulates that a contract is voidable or
annullable even if there is no damage to the contracting
parties where "consent is vitiated by mistake, violence,
intimidation, undue influence or fraud."
Under Article 1338 of the Civil Code "[t]here is fraud when,
through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to."
However, not all instances of fraud enable the voiding of
contracts. Article 1344 clarifies that in order to make a
contract voidable, the fraud "should be serious and should
not have been employed by both contracting parties."43
Thus, Tankeh v. Development Bank of the
Philippines44 explained, "There are two types of fraud
contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud
serious enough to render a contract voidable." 45 The fraud
required to annul or avoid a contract "must be so material
that had it not been present, the defrauded party would not
have entered into the contract." 46 The fraud must be "the
determining cause of the contract, or must have caused the
consent to be given."47
Petitioner's contention on how crucial the dimensions and
area of the Unit are to his decision to proceed with the
purchase is well-taken. The significance of space and
dimensions to any buyer of real property is plain to see. This
is particularly significant to buyers of condominium units in
urban areas, and even more so in central business districts,
where the scarcity of space drives vertical construction and
propels property values. It would be immensely guileless of
this Court to fail to appreciate how the advertised area of the
Unit was material or even indispensable to petitioner's
consent. As petitioner emphasized, he opted to register for
and participate in the auction for the Unit only after
determining that its advertised area was spacious enough for
his residential needs.48
III
The significance of the Unit's area as a determining cause of
the Contract to Sell is readily discernible. Falsity on its area
is attributable to none but to respondent, which, however,
pleads that it should not be considered as having acted
fraudulently given that petitioner conceded to a sale on an
as-is-where-is basis, thereby waiving "warranties regarding
possible errors in boundaries or description of property." 49
Section 12 of the Contract to Sell spells out the "as-is-where-
is" terms of the purchase:
Section 12. The BUYER recognizes that he is buying the
property on an "as-is-where-is" basis including errors in
boundaries or description of property, if any etc. and among
others, he shall be responsible for the eviction of the
occupants on the property, if any, or for the repair of the
property, if needed. It shall be understood that the SELLER
makes no warranty whatsoever on the authenticity,
accuracy, or title over property.50 (Emphasis supplied.)
Reliance on Section 12's as-is-where-is stipulation is
misplaced for two (2) reasons. First, a stipulation absolving a
seller of liability for hidden defects can only be invoked by a
seller who has no knowledge of hidden defects. Respondent
here knew that the Unit's area, as reckoned in accordance
with the Condominium Act, was not 95 square meters.
Second, an as-is-where-is stipulation can only pertain to the
readily perceptible physical state of the object of a sale. It
cannot encompass matters that require specialized scrutiny,
as well as features and traits that are immediately
appreciable only by someone with technical competence.
A seller is generally responsible for warranty against hidden
defects of the thing sold. As stated in Article 1561 of the New
Civil Code:
Article 1561. The vendor shall be responsible for warranty
against the hidden defects which the thing sold may have,
should they render it unfit for the use for which it is intended,
or should they diminish its fitness for such use to such an
extent that, had the vendee been aware thereof, he would
not have acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent defects or
those which may be visible, or for those which are not visible
if the vendee is an expert who, by reason of his trade or
profession, should have known.
Article 1566, paragraph 2 states the seller's liability for
hidden defects shall be inapplicable if there is a stipulation
made to the contrary. However, a mere stipulation does not
suffice. To be fully absolved of liability, Article 1566,
paragraph 2 also requires a seller to be unaware of the
hidden defects in the thing sold.
Article 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he
was not aware thereof.
This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold. (Emphasis supplied.)
It is clear from the records that respondent fully knew that
the Unit's area, reckoned strictly in accordance with the
Condominium Act, did not total 95 square meters.
Respondent admits that the only way the Unit's area could
have amounted to 95 square meters was if some areas for
common use were added to its interior space. It
acknowledged knowing this fact through the efforts of its
appraisers and even conceded that their findings were
documented in their reports.
In Hian v. Court of Tax Appeals,51 this Court construed an
as-is-where-is stipulation as pertaining to the "physical
condition" of the thing sold and "not to [its] legal
situation."52 As further explained in National Development
Company v. Madrigal Wan Hai Lines Corporation:53
In Hian vs. Court of Tax Appeals, we had the occasion to
construe the phrase "as is, where is" basis, thus:
"We cannot accept the contention in the Government's
Memorandum of March 31, 1976 that Condition No. 5 in the
Notice of Sale to the effect that 'The above-mentioned
articles (the tobacco) are offered for sale 'AS IS' and the
Bureau of Customs gives no warranty as to their condition'
relieves the Bureau of Customs of liability for the storage
fees in dispute. As we understand said Condition No. 5, it
refers to the physical condition of the tobacco and not to the
legal situation in which it was at the time of the sale, as could
be implied from the right of inspection to prospective bidders
under Condition No. 1 [.]" (Emphasis ours)
The phrase "as is, where is" basis pertains solely to the
physical condition of the thing sold, not to its legal situation.
In the case at bar, the US tax liabilities constitute a potential
lien which applies to NSCP's legal situation, not to its
physical aspect. Thus, respondent as a buyer, has no
obligation to shoulder the same.54
A condominium unit's area is a physical attribute. In Hian's
contemplation, it appeared that the total area of a
condominium unit is a valid object of an as-is-where-is
clause. However, while as-is-where-is clauses exclusively
apply to the physical attributes of a thing sold, they apply
only to physical features that are readily observable. The
significance of this Court's pronouncements
in Hian and National Development Company are in clarifying
that legal status, which is a technical matter perceptible only
by lawyers and regulators, cannot be encompassed by an
as-is-where-is stipulation. Hian and National Development
Company are not a sweeping approbation of such
stipulations' coverage of every corporeal attribute or tangible
trait of objects being sold. Thus, in Asset Privatization v. T.J.
Enterprises,55 the as-is-where-is stipulation was understood
as one which "merely describes the actual state and location
of the machinery and equipment sold," 56 and nothing else.
Features that may be physical but which can only be
revealed after examination by persons with technical
competence cannot be covered by as-is-where-is
stipulations. A buyer cannot be considered to have agreed
"to take possession of the things sold 'in the condition where
they are found and from the place where they are
located'"57 if the critical defect is one which he or she cannot
even readily sense.
In inspecting the Unit prior to the auction sale, petitioner took
note of its actual state: "he noticed that the ceilings were
down, [that] there was water damage from the leaks coming
from the unit above, and [that] the parquet floor was
damaged."58 He also took note of its irregular shape and the
circular terrace outside it. These observations represent the
full extent of what was readily perceptible to petitioner. The
precise measurement of the Unit's area, in contrast, could
only be determined by someone with specialized or technical
capabilities. While ordinary persons, such as petitioner, may
hold such opinions that the Unit looks small, their perception
could not be ascertained until after an examination by
someone equipped with peculiar skills and training to
measure real property. Indeed, petitioner's suspicions were
not roused until years after he had occupied the Unit and
confirmed until after a certification was issued by a surveyor.
Any waiver of warranties under Section 12 of the Contract to
Sell could have only been concerned with the readily
apparent subpar condition of the Unit. A person not equipped
with technical knowledge and expertise to survey real
property could not reasonably be expected to recognize
deficiencies in measurement at the first instance especially if
that property was of "irregular shape," "neither square nor
rectangle," and having a "circular terrace."59
IV
Contrary to the Court of Appeals' assertion, Article 1542 of
the Civil Code does not bar the voiding of the Contract to
Sell.
Article 1542 of the Civil Code states:
Article 1542. In the sale of real estate, made for a lump sum
and not at the rate of a certain sum for a unit of measure or
number, there shall be no increase or decrease of the price,
although there be a greater or less area or number than that
stated in the contract.
The same rule shall be applied when two or more
immovables are sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in every
conveyance of real estate, its area or number should be
designated in the contract, the vendor shall be bound to
deliver all that is included within said boundaries, even when
it exceeds the area or number specified in the contract; and,
should he not be able to do so, he shall suffer a reduction in
the price, in proportion to what is lacking in the area or
number, unless the contract is rescinded because the
vendee does not accede to the failure to deliver what has
been stipulated. (Emphasis supplied.)
Article 1542 has nothing to do with annulling fraudulently
made sales. What it is concerned with is the proportionate
reduction of the purchase price in relation to the measurable
units of the thing sold. Petitioner does not seek a reduction
of the purchase price. He seeks judicial relief to have the
entirety of his purchase annulled, his consent having been
fraudulently obtained. By filing an action under Article 1390
of the Civil Code, petitioner declared that his consent to the
entire subject matter of the contract was vitiated. What
suffices as relief is the complete annulment of the sale, not
the partial reimbursement upon which Article 1542 is
premised.
Likewise, Article 1542 does not contemplate the seller's
delivery to the buyer of things other than the agreed object of
the sale. While it is true that petitioner did not buy the unit on
a per-square-meter basis, it remains that what he bought
was a condominium unit. A condominium unit's bounds are
reckoned by "the interior surfaces of [its] perimeter walls,
floors, ceilings, windows and doors." 60 It excludes common
areas. Thus, when petitioner agreed to purchase the Unit at
a lump-sum price, he never consented to including common
areas as part of his purchase. Article 1542's concern with a
ratable reduction of the price delivered by the buyer
assumes that the seller correctly delivered, albeit deficiently,
the object of the sale.
In any case, for Article 1542 to operate, "the discrepancy
must not be substantial."61 Article 1542 remains anchored on
a sense of what is reasonable. An estimate given as a
premise for a sale should be "more or less" the actual area
of the thing sold.62 Here, the area advertised and stipulated
in the Contract to Sell was 95 square meters but the actual
area of the unit was only 74.4 square meters. 63 By no stretch
of the imagination can a 21.68% deficiency be discounted as
a mere minor discrepancy.
V
By definition, fraud presupposes bad faith or malicious intent.
It transpires when insidious words or machinations are
deliberately employed to induce agreement to a contract.
Thus, one could conceivably claim that respondent could not
be guilty of fraud as it does not appear to have crafted a
deceptive strategy directed specifically at petitioner.
However, while petitioner was not a specific target,
respondent was so callously remiss of its duties as a bank. It
was so grossly negligent that its recklessness amounts to a
wrongful willingness to engender a situation where any buyer
in petitioner's shoes would have been insidiously induced
into buying a unit with an actual area so grossly short of its
advertised space.
In Spouses Carbonell v. Metropolitan Bank and Trust
Company,64 this Court considered gross negligence, in
relation to the fiduciary nature of banks:
Gross negligence connotes want of care in the performance
of one's duties; it is a negligence characterized by the want
of even slight care, acting or omitting to act in a situation
where there is duty to act, not inadvertently but wilfully and
intentionally, with a conscious indifference to consequences
insofar as other persons may be affected. It evinces a
thoughtless disregard of consequences without exerting any
effort to avoid them.
In order for gross negligence to exist as to warrant holding
the respondent liable therefor, the petitioners must establish
that the latter did not exert any effort at all to avoid
unpleasant consequences, or that it wilfully and intentionally
disregarded the proper protocols or procedure . . . and in
selecting and supervising its employees. 65 (Emphasis
supplied)
Banks assume a degree of prudence and diligence higher
than that of a good father of a family, because their business
is imbued with public interest 66 and is inherently
fiduciary.67 Thus, banks have the obligation to treat the
accounts of its clients "meticulously and with the highest
degree of care."68 With respect to its fiduciary duties, this
Court explained:
The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of Republic Act No.
8791 ("RA 8791"), which took effect on 13 June 2000,
declares that the State recognizes the "fiduciary nature of
banking that requires high standards of integrity and
performance." This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme
Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals, holding that "the bank is
under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature
of their relationship.
This fiduciary relationship means that the bank's obligation to
observe "high standards of integrity and performance" is
deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than
that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a family.
Section 2 of RA 8791 prescribes the statutory diligence
required from banks — that banks must observe "high
standards of integrity and performance" in servicing their
depositors.69 (Citations omitted)
The high degree of diligence required of banks equally holds
true in their dealing with mortgaged real properties, and
subsequently acquired through foreclosure, such as the Unit
purchased by petitioner. In the same way that banks are
"presumed to be familiar with the rules on land registration,"
given that they are in the business of extending loans
secured by real estate mortgage, 70 banks are also expected
to exercise the highest degree of diligence. This is especially
true when investigating real properties offered as security,
since they are aware that such property may be passed on
to an innocent purchaser in the event of foreclosure. Indeed,
"the ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and
indispensable part of a bank's operations":71
When the purchaser or the mortgagee is a bank, the rule on
innocent purchasers or mortgagees for value is applied more
strictly.1âwphi1 Being in the business of extending loans
secured by real estate mortgage, banks are presumed to be
familiar with the rules on land registration. Since the banking
business is impressed with public interest, they are expected
to be more cautious, to exercise a higher degree of
diligence, care and prudence, than private individuals in their
dealings, even those involving registered lands. Banks may
not simply rely on the face of the certificate of title. Hence,
they cannot assume that, simply because the title offered as
security is on its face free of any encumbrances or lien, they
are relieved of the responsibility of taking further steps to
verify the title and inspect the properties to be mortgaged. As
expected, the ascertainment of the status or condition of a
property offered to it as security for a loan must be a
standard and indispensable part of a bank's operations. It is
of judicial notice that the standard practice for banks before
approving a loan is to send its representatives to the
property offered as collateral to assess its actual condition,
verify the genuineness of the title, and investigate who is/are
its real owner/s and actual possessors.72 (Citations omitted)
Credit investigations are standard practice for banks before
approving loans and admitting properties offered as security.
It entails the assessment of such properties: an appraisal of
their value, an examination of their condition, a verification of
the authenticity of their title, and an investigation into their
real owners and actual possessors. 73 Whether it was
unaware of the unit's actual interior area; or, knew of it, but
wrongly thought that its area should include common
spaces, respondent's predicament demonstrates how it
failed to exercise utmost diligence in investigating the Unit
offered as security before accepting it. This negligence is so
inexcusable; it is tantamount to bad faith.
Even the least effort on respondent's part could have very SO ORDERED.
easily confirmed the Unit's true area. Similarly, the most
cursory review of the Condominium Act would have revealed
the proper reckoning of a condominium unit's area.
Respondent could have exerted these most elementary
efforts to protect not only clients and innocent purchasers
but, most basically, itself. Respondent's failure to do so
indicates how it created a situation that could have led to no
other outcome than petitioner being defrauded.

VI

The Regional Trial Court and the Court of Appeals gravely

erred in finding that causal fraud is not attendant in this case.
Quite the contrary, it is evident that respondent orchestrated
a situation rife for defrauding buyers of the advertised unit.
Therefore, the assailed Decision and Resolution must be
reversed, the Contract to Sell between petitioner and
respondent be annulled, and petitioner be refunded all the
amounts he paid to respondent in respect of the purchase of
the Unit.

Under Article 2232, in relation to Article 2229 of the Civil

Code, "[i]n contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent
manner," "by way of example or correction for the public
good." By awarding exemplary damages to petitioner, this
case shall serve as an example and warning to banks to
observe the requisite care and diligence in all of their affairs.

Consistent with Article 2208 of the Civil Code, 74 respondent

is equally liable to petitioner for attorney's fees and the costs
of litigation.

WHEREFORE, the Petition is GRANTED. The assailed

November 15, 2012 Decision and February 12, 2013
Resolution of the Court of Appeals in CA-G.R. CV No. 95369
are REVERSEDand SET ASIDE.

The Contract to Sell entered into by petitioner Joseph Harry G.R. No. 139532       August 9, 2001
Walter Poole-Blunden and respondent Union Bank of the
Philippines is declared null and void. Respondent is ordered REGAL FILMS, INC., petitioner,
to pay petitioner the amount of ₱3,257,142.49 to refund the vs.
amounts petitioner has paid to purchase Unit 2C of T-Tower GABRIEL CONCEPCION, respondent.
Condominium located at 5040 P. Burgos corner Calderon
Streets, Makati City. This refund shall earn legal interest at
twelve percent (12%) per annum from the date of the filing of VITUG, J.:
petitioner's Complaint for Rescission of Contract and
Damages up to June 30, 2013; and six percent (6%) per The case involves a compromise judgment issued by the
annum, reckoned from July 1, 2013 until fully paid. Regional Trial Court of Quezon City, later affirmed by the
Court of Appeals, and now being assailed in the instant
Respondent is ordered to pay petitioner ₱100,000.00 as petition for review.
exemplary damages, ₱100,000.00 as attorney's fees, and
the costs of litigation.
Culled from the records, the facts that led to the controversy
would not appear to be in serious dispute.
In 1991, respondent Gabriel "Gabby" Conception, a
television artist and movie actor, through his manager Lolita
Solis, entered into a contract with petitioner Regal Films,
Inc., for services to be rendered by respondent in petitioner's
motion pictures. Petitioner, in turn, undertook to give two
parcels of land to respondent, one located in Marikina and
the other in Cavite, on top of the "talent fees" it had agreed
to pay.
In 1993, the parties renewed the contract, incorporating the
same undertaking on the part of petitioner to give respondent
on the part of petitioner to give respondent the two parcels of
land mentioned in the first agreement. Despite the
appearance of respondent in several films produced by
petitioner, the latter failed to comply with its promise to
convey to respondent the two aforementioned
lots.1âwphi1.nêt
On 30 May 1994, respondent and his manager filed an
action against petitioner before the Regional Trial Court of
Quezon City, docketed Civil Case No. Q-94-20714 and
raffled to Branch 76, for rescission of contract with damages.
In his complaint, respondent contended that he was entitled
to rescind the contract, plus damages, and to be released
from further commitment to work exclusively for petitioner
owing to the latter's failure to honor the agreement.
Instead of filing an answer to the complaint, petitioner moved
for its dismissal on the allegation that the parties had settled
their differences amicably. Petitioner averred that both
parties had executed an agreement, dated 17 June 1994,
which was to so operate as an addendum to the 1991 and
1993 contracts between them. The agreement was signed
by a representative of petitioner and by Solis purportedly
acting for and in behalf of respondent Concepcion.
The preliminary conference held by the trial court failed to
produce a settlement between the parties; thereupon, the
trial court ordered Solis and respondent to comment on
petitioner's motion to dismiss.
On 30 September 1994, Solis filed a motion to dismiss the
complaint reiterating that she, acting for herself and for
respondent Concepcion, had already settled the case
amicably with petitioner. On 17 October 1994, respondent
Concepcion himself opposed the motion to dismiss
contending that the addendum, containing provisions grossly
disadvantageous to him, was executed without his
knowledge and consent. Respondent stated that Solis had
since ceased to be his manager and had to authority to sign
the addendum for him.
During the preliminary conference held on 23 June 1995,
petitioner intimated to respondent and his counsel its
willingness to allow respondent to be released from his 1991
and 1993 contracts with petitioner rather than to further
pursue the addendum which respondent had challenged.
On 03 July 1995, respondent filed a manifestation with the
trial court to the effect that he was now willing to honor
the addendum to the 1991 and 1993 contracts and to have it
considered as compromise agreement as to warrant a
judgment in accordance therewith. The manifestation elicited
a comment from both petitioner and Solis to the effect that
the relationship between the parties had by then become
strained, following the notorious Manila Film Festival scam
involving respondent, but that it was still willing to release
respondent from his contract.
On 24 October 1995, the trial court issued an order
rendering judgment on compromise based on the
subject addendum which respondent had previously
challenged but later agreed to honor pursuant to his
manifestation of 03 July 1995.
Petitioner moved for reconsideration; having been denied, it
then elevated the case to the Court of Appeals arguing that
the trial court erred in treating the addendum of 17 June
1994 as being a compromise agreement and in depriving it
of its right to procedural due process.
On 30 July 1999, the appellate court rendered judgment
affirming the order of the trial court of 24 October 1995; it
ruled:
"In the instant case, there was an Addendum to
the contract signed by Lolita and Regal Films'
representative to which addendum Concepcion
through his Manifestation expressed his
conformity. There was, therefore, consent of all the
parties.
"The addendum/compromise agreement was
perfected and is binding on the parties and may
not later be disowned simply because of a change
of mind of Regal Films and/or Lolita by claiming, in
their Opposition/Reply to Conception's
Manifestion, that after the 1995 Metro Manila Films
Festival scam/fiasco in which Concepcion was
involved, the relationship between the parties had
become bitter to render compliance with the terms
and conditions of the Addendum no longer
possible and consequently release Concepcion
from the 1991 and 1993 contracts."1
Dissatisfied, petitioner appealed to this Court claiming in its
petition for review that –
"I.
THE COURT OF APPEALS ERRED IN
AFFIRMING THE TRIAL COURT'S ACTION IN
RENDERING JUDGMENT ON A COMPROMISE
BASED ON THE ADDENDUM WHEN
PETITIONER REGAL FILMS SUBMITTED THIS
DOCUMENT TO THE TRIAL COURT MERELY
TO SERVE AS BASIS FOR ITS MOTION TO
DISMISS;
"II.
THE COURT OF APPEALS ERRED IN
RENDERING JUDGMENT ON A COMPROMISE
WHEN THE PARTIES DID NOT AGREE TO
SUCH A COMPROMISE;
"III.
THE COURT OF APPEALS ERRED IN HOLDING
THAT THE MINDS OF THE PARTIES HAD MET
TO ELEVATE THE PREVIOUSLY REJECTED
ADDENDUM TO THE LEVEL OF A JUDGMENT
ON A COMPROMISE."2
The petition is meritorious.
Petitioner argues that the subject addendum could not be the
basis of the compromise judgment. The Court agrees.
A compromise is an agreement between two or more
persons who, for preventing or putting an end to a lawsuit,
adjust their respective positions by mutual consent in the
way they feel they can live with. Reciprocal concessions are
the very heart and life of every compromise
agreement,3 where each party approximates and concedes
in the hope of gaining balanced by the danger of losing. 4 It is,
in essence, a contract. Law and jurisprudence recite three
minimum elements for any valid contract – (a) consent; (b)
object certain which is the subject matter of the contract; and
(c) cause of the obligation which is established. 5 Consent is
manifested by the meeting of the offer and cause which are
to constitute the agreement. The offer, however, must be
certain and the acceptance seasonable and absolute; if
qualified, the acceptance would merely constitute a counter-
offer.6
In this instance, the addendum was flatly rejected by
respondent on the theses (a) that he did not give his consent
thereto nor authorized anyone to enter into the agreement,
and (b) that it contained provisions grossly disadvantageous
to him. The outright rejection of the addendum made known
to the other ended the offer. When respondent later filed his
Manifestation, stating that he was, after all, willing to honor
the addendum, there was nothing to still accept.

Verily, consent could be given not only by the part himself

but by anyone duly authorized and acting for and in his
behalf. But by respondent's own admission,
the addendum was entered into without his knowledge and
consent. A contract entered into in the name of another by
one who ostensibly might have but who, in reality, had no
real authority or legal representation, or who, having such
authority, acted beyond his powers, would be
unenforceable.7 The addendum, let us then assume, resulted
in an unenforceable contract, might it not then be susceptible
to ratification by the person on whose behalf it was
executed? The answer would obviously be in the affirmative;
however, that ratification should be made before its
revocation by the other contracting party.8 The adamant
refusal of respondent to accept the terms of
the addendum constrained petitioner, during the preliminary
conference held on 23 June 1995, to instead express its
willingness to release respondent from his contracts prayed
for in his complaint and to thereby forego the
rejected addendum. Respondent's subsequent attempt to
ratify the addendum came much too late for, by then,
the addendum had already been deemed revoked by
petitioner.

WHEREFORE, the petition is GRANTED, and the appealed

judgment of the Court of the appealed judgment of the Court
of Appeals affirming that of the trial court is SET ASIDE, and
the case is remanded to the trial court for further
proceedings. No costs.

SO ORDERED.1âwphi1.nêt

G.R. No. 122134             October 3, 2003

ROMANA LOCQUIAO VALENCIA and CONSTANCIA L.

VALENCIA, petitioners,
vs.
BENITO A. LOCQUIAO, now deceased and substituted
by JIMMY LOCQUIAO, TOMASA MARA and the
REGISTRAR OF DEEDS OF PANGASINAN, respondents.
x----------------------------x
CONSTANCIA L. VALENCIA, petitioner,
vs.
BENITO A. LOCQUIAO, now deceased and substituted
by JIMMY LOCQUIAO, respondent.
DECISION
TINGA, J.:
The Old Civil Code1 and the Old Code of Civil
Procedure,2 repealed laws that they both are
notwithstanding, have not abruptly become mere quiescent
items of legal history since their relevance do not wear off for
a long time. Verily, the old statutes proved to be decisive in
the adjudication of the case at bar.
Before us is a petition for review seeking to annul and set
aside the joint Decision3 dated November 24, 1994, as well
as the Resolution4 dated September 8, 1995, of the former
Tenth Division5 of the Court of Appeals in two consolidated
cases involving an action for annulment of title 6 and an action
for ejectment.7
Both cases involve a parcel of land consisting of 4,876
square meters situated in Urdaneta, Pangasinan. This land
was originally owned by the spouses Herminigildo and
Raymunda Locquiao, as evidenced by Original Certificate of
Title No. 183838 issued on October 3, 1917 by the Register
of Deeds of Pangasinan.
On May 22, 1944, Herminigildo and Raymunda Locquiao
executed a deed of donation propter nuptias which was
written in the Ilocano dialect, denominated as Inventario Ti
Sagut9 in favor of their son, respondent Benito Locquiao
(hereafter, respondent Benito) and his prospective bride,
respondent Tomasa Mara (hereafter, respondent Tomasa).
By the terms of the deed, the donees were gifted with four
(4) parcels of land, including the land in question, as well as
a male cow and one-third (1/3) portion of the conjugal house
of the donor parents, in consideration of the impending
marriage of the donees.
The donees took their marriage vows on June 4, 1944 and
the fact of their marriage was inscribed at the back of O.C.T.
No. 18383.10
Herminigildo and Raymunda died on December 15, 1962
and January 9, 1968, respectively, leaving as heirs their six
(6) children, namely: respondent Benito, Marciano, Lucio,
Emeteria, Anastacia, and petitioner Romana, all surnamed
Locquiao11 . With the permission of respondents Benito and
Tomasa, petitioner Romana Valencia (hereinafter, Romana)
took possession and cultivated the subject land. 12 When
respondent Romana’s husband got sick sometime in 1977,
her daughter petitioner Constancia Valencia (hereafter,
petitioner Constancia) took over, and since then, has been in
possession of the land.13
Meanwhile, respondents Benito and Tomasa registered
the Inventario Ti Sagut with the Office of the Register of
Deeds of Pangasinan on May 15, 1970.14 In due course, the
original title was cancelled and in lieu thereof Transfer
Certificate of Title No. 8489715 was issued in the name of the
respondents Benito and Tomasa.
On March 18, 1973, the heirs of the Locquiao spouses,
including respondent Benito and petitioner Romana,
executed a Deed of Partition with Recognition of
Rights,16 wherein they distributed among only three (3) of
them, the twelve (12) parcels of land left by their common
progenitors, excluding the land in question and other lots
disposed of by the Locquiao spouses earlier. Contained in
the deed is a statement that respondent Benito and
Marciano Locquiao, along with the heirs of Lucio Locquiao,
"have already received our shares in the estates of our
parents, by virtue of previous donations and conveyances,"
and that for that reason the heirs of Lucio Locquaio were not
made parties to the deed. All the living children of the
Locquaio spouses at the time, including petitioner Romana,
confirmed the previous dispositions and waived their rights to
whomsoever the properties covered by the deed of partition
were adjudicated.17
Later on, disagreements among five (5) heirs or groups of
heirs, including petitioner Romana, concerning the
distribution of two (2) of the lots covered by the deed of
partition which are Lots No. 2467 and 5567 of the Urdaneta
Cadastral Survey surfaced. As their differences were settled,
the heirs concerned executed a Deed of Compromise
Agreement18 on June 12, 1976, which provided for the re-
distribution of the two (2) lots. Although not directly involved
in the discord, Benito signed the compromise agreement
together with his feuding siblings, nephews and nieces.
Significantly, all the signatories to the compromise
agreement, including petitioner Romana, confirmed all the
other stipulations and provisions of the deed of partition.19
Sometime in 1983, the apparent calm pervading among the
heirs was disturbed when petitioner Constancia filed an
action for annulment of title against the respondents before
the Regional Trial Court of Pangasinan.20 The record shows
that the case was dismissed by the trial court but it does not
indicate the reason for the dismissal.21
On December 13, 1983, respondent Benito filed with the
Municipal Trial Court of Urdaneta, Pangasinan
a Complaint22 seeking the ejectment of petitioner Constancia
from the subject property.
On November 25, 1985, the Municipal Trial Court rendered
a Decision,23 ordering the defendant in the case, petitioner
Constancia, to vacate the land in question.
Petitioners Romana and Constancia countered with
a Complaint24 for the annulment of Transfer Certificate of
Title No. 84897 against respondents Benito and
Tomasa 25 which they filed with the Regional Trial Court of
Pangasinan on December 23, 1985. Petitioners alleged that
the issuance of the transfer certificate of title was fraudulent;
that the Inventario Ti Sagut is spurious; that the notary public
who notarized the document had no authority to do so, and;
that the donation did not observe the form required by law as
there was no written acceptance on the document itself or in
a separate public instrument.1a\^/phi1.net
Meanwhile, the decision in the ejectment case was appealed
to the same RTC where the case for annulment of title was
also pending. Finding that the question of ownership was the
central issue in both cases, the court issued
an Order26 suspending the proceedings in the ejectment case
until it shall have decided the ownership issue in the title
annulment case.
After trial, the RTC rendered a Decision27 dated January 30,
1989 dismissing the complaint for annulment of title on the
grounds of prescription and laches. It likewise ruled that
the Inventario Ti Sagut is a valid public document which
transmitted ownership over the subject land to the
respondents. With the dismissal of the complaint and the
confirmation of the respondents’ title over the subject
property, the RTC affirmed in toto the decision of the MTC in
the ejectment case28 .
Dissatisfied, petitioners elevated the two (2) decisions to the
respondent Court of Appeals. Since they involve the same
parties and the same property, the appealed cases were
consolidated by the appellate court.
On November 24, 1994, the Court of Appeals rendered the
assailed Decision affirming the appealed RTC decisions.
The appellate court upheld the RTC’s conclusion that the
petitioners’ cause of action had already prescribed,
considering that the complaint for annulment of title was filed
more than fifteen (15) years after the issuance of the title, or
beyond the ten (10) - year prescriptive period for actions for
reconveyance. It likewise rejected the petitioners’ assertion
that the donation propter nuptias is null and void for want of
acceptance by the donee, positing that the implied
acceptance flowing from the very fact of marriage between
the respondents, coupled with the registration of the fact of
marriage at the back of OCT No. 18383, constitutes
substantial compliance with the requirements of the law.
The petitioners filed a Motion for Reconsideration29 but it was
denied by the appellate court in its Resolution30 dated
September 8, 1995. Hence, this petition.
We find the petition entirely devoid of merit.
Concerning the annulment case, the issues to be threshed
out are: (1) whether the donation propter nuptias is
authentic; (2) whether acceptance of the donation by the
donees is required; (3) if so, in what form should the
acceptance appear, and; (4) whether the action is barred by
prescription and laches.
The Inventario Ti Sagut which contains the donation propter
nuptias was executed and notarized on May 22, 1944. It was
presented to the Register of Deeds of Pangasinan for
registration on May 15, 1970. The photocopy of the
document presented in evidence as Exhibit "8" was
reproduced from the original kept in the Registry of Deeds of
Pangasinan.31
The petitioners have launched a two-pronged attack against
the validity of the donation propter nuptias, to wit: first,
the Inventario Ti Sagut is not authentic; and second, even
assuming that it is authentic, it is void for the donee’s failure
to accept the donation in a public instrument.
To buttress their claim that the document was falsified, the
petitioners rely mainly on the Certification32 dated July 9,
1984 of the Records Management and Archives Office that
there was no notarial record for the year 1944 of Cipriano V.
Abenojar who notarized the document on May 22, 1944 and
that therefore a copy of the document was not available.
The certification is not sufficient to prove the alleged
inexistence or spuriousness of the challenged document.
The appellate court is correct in pointing out that the mere
absence of the notarial record does not prove that the notary
public does not have a valid notarial commission and neither
does the absence of a file copy of the document with the
archives effect evidence of the falsification of the
document.33 This Court ruled that the failure of the notary
public to furnish a copy of the deed to the appropriate
office is a ground for disciplining him, but certainly not
for invalidating the document or for setting aside the
transaction therein involved.34
Moreover, the heirs of the Locquaio spouses, including
petitioner Romana, made reference in the deed of partition
and the compromise agreement to the previous donations
made by the spouses in favor of some of the heirs. As
pointed out by the RTC, 35 respondent Benito was not allotted
any share in the deed of partition precisely because he
received his share by virtue of previous donations. His name
was mentioned in the deed of partition only with respect to
the middle portion of Lot No. 2638 which is the eleventh
(11th) parcel in the deed but that is the same one-third (1/3)
portion of Lot No. 2638 covered by O.C.T. No. 18259
included in the donation propter
nuptias.1awphi1.nét Similarly, Marciano Locquiao and the
heirs of Lucio Locquiao were not allocated any more share in
the deed of partition since they received theirs by virtue of
prior donations or conveyances.
The pertinent provisions of the deed of partition read:
… the contrary.41 A public document executed and attested
That the heirs of Lucio Locquiao are not included in this
Partition by reason of the fact that in the same manner as
we, BENITO and MARCIANO LOCQUIAO are
concerned, we have already received our shares in the
estate of our parents by virtue of previous donations
and conveyances, and that we hereby confirm said
dispositions, waiving our rights to whomsoever will
these properties will now be adjudicated;
…
That we, the Parties herein, do hereby waive and
renounce as against each other any claim or claims that we
may have against one or some of us, and that we recognize
the rights of ownership of our co-heirs with respect to
those parcels already distributed and adjudicated and
that in the event that one of us is cultivating or in possession
of any one of the parcels of land already adjudicated in favor
of another heir or has been conveyed, donated or disposed
of previously, in favor of another heir, we do hereby
renounce and waive our right of possession in favor of
the heir in whose favor the donation or conveyance was
made previously.36 (Emphasis supplied)
The exclusion of the subject property in the deed of partition
dispels any doubt as to the authenticity of the
earlier Inventario Ti Sagut.
This brings us to the admissibility of the Deed of Partition
with Recognition of Rights, marked as Exhibit "2", and
the Deed of Compromise Agreement, marked as Exhibit "3".
The petitioners fault the RTC for admitting in evidence the
deed of partition and the compromise agreement on the
pretext that the documents "were not properly submitted in
evidence", pointing out that "when presented to respondent
Tomasa Mara for identification, she simply stated that she
knew about the documents but she did not actually identify
them."37
The argument is not tenable. Firstly, objection to the
documentary evidence must be made at the time it is
formally offered.38 Since the petitioners did not even bother to
object to the documents at the time they were offered in
evidence,39 it is now too late in the day for them to question
their admissibility. Secondly, the documents were identified
during the Pre-Trial, marked as Exhibits "2" and "3" and
testified on by respondent Tomasa. 40 Thirdly, the questioned
deeds, being public documents as they were duly notarized,
are admissible in evidence without further proof of their due
execution and are conclusive as to the truthfulness of their
contents, in the absence of clear and convincing evidence to
through the intervention of the notary public is evidence of
the facts therein expressed in clear, unequivocal manner. 42
Concerning the issue of form, petitioners insist that based on
a provision43 of the Civil Code of Spain (Old Civil Code), the
acceptance by the donees should be made in a public
instrument. This argument was rejected by the RTC and the
appellate court on the theory that the implied acceptance of
the donation had flowed from the celebration of the marriage
between the respondents, followed by the registration of the
fact of marriage at the back of OCT No. 18383.
The petitioners, the appellate court and the trial court all
erred in applying the requirements on ordinary donations to
the present case instead of the rules on donation propter
nuptias. Underlying the blunder is their failure to take into
account the fundamental dichotomy between the two kinds
of donations.
Unlike ordinary donations, donations propter nuptias or
donations by reason of marriage are those "made before its
celebration, in consideration of the same and in favor of one
or both of the future spouses." 44 The distinction is crucial
because the two classes of donations are not governed by
exactly the same rules, especially as regards the formal
essential requisites.
Under the Old Civil Code, donations propter nuptias must be
made in a public instrument in which the property donated
must be specifically described. 45 However, Article 1330 of the
same Code provides that "acceptance is not necessary to
the validity of such gifts". In other words, the celebration
of the marriage between the beneficiary couple, in tandem
with compliance with the prescribed form, was enough to
effectuate the donation propter nuptias under the Old Civil
Code.
Under the New Civil Code, the rules are different. Article 127
thereof provides that the form of donations propter nuptias
are regulated by the Statute of Frauds. Article 1403,
paragraph 2, which contains the Statute of Frauds requires
that the contracts mentioned thereunder need be in writing
only to be enforceable. However, as provided in Article
129, express acceptance "is not necessary for the
validity of these donations." Thus, implied acceptance is
sufficient.
The pivotal question, therefore, is which formal requirements
should be applied with respect to the donation propter
nuptias at hand. Those under the Old Civil Code or the New
Civil Code?
It is settled that only laws existing at the time of the
execution of a contract are applicable thereto and not later
statutes, unless the latter are specifically intended to have
retroactive effect.46 Consequently, it is the Old Civil Code
which applies in this case since the donation propter
nuptias was executed in 1944 and the New Civil Code took
effect only on August 30, 1950. 47 The fact that in 1944 the
Philippines was still under Japanese occupation is of no
consequence. It is a well-known rule of the Law of Nations
that municipal laws, as contra-distinguished from laws of
political nature, are not abrogated by a change of
sovereignty.48 This Court specifically held that during the
Japanese occupation period, the Old Civil Code was in
force.49 As a consequence, applying Article 1330 of the Old
Civil Code in the determination of the validity of the
questioned donation, it does not matter whether or not the
donees had accepted the donation. The validity of the
donation is unaffected in either case.
execution of the deed of donation on May 22, 1944, was deed of partition until she, together with petitioner
clearly time-barred. Constancia, filed the annulment case in 1985.
Even following petitioners’ theory that the prescriptive period Anent the ejectment case, we find the issues raised by the
should commence from the time of discovery of the alleged petitioners to be factual and, therefore, beyond this Court’s
fraud, the conclusion would still be the same. As early as power of review. Not being a trier of facts, the Court is not
May 15, 1970, when the deed of donation was registered tasked to go over the proofs presented by the parties and
and the transfer certificate of title was issued, petitioners analyze, assess, and weigh them to ascertain if the trial court
were considered to have constructive knowledge of the and the appellate court were correct in according them
alleged fraud, following the jurisprudential rule that superior credit in this or that piece of evidence of one party
registration of a deed in the public real estate registry is or the other.57 In any event, implicit in the affirmance of the
constructive notice to the whole world of its contents, as well Court of Appeals is the existence of substantial evidence
as all interests, legal and equitable, included therein. 54 As it is supporting the decisions of the courts below.
now settled that the prescriptive period for the reconveyance
of property allegedly registered through fraud is ten (10)
WHEREFORE, finding no reversible error in the assailed
years, reckoned from the date of the issuance of the
decision, the same is hereby AFFIRMED.
certificate of title,55 the action filed on December 23, 1985
has clearly prescribed.
Costs against petitioners.
In any event, independent of prescription, petitioners’ action
is dismissible on the ground of laches. The elements of SO ORDERED.
laches are present in this case, viz:
(1) conduct on the part of the defendant, or one
under whom he claims, giving rise to the situation
that led to the complaint and for which the
complainant seeks a remedy;

Even the petitioners agree that the Old Civil Code should be
(2) delay in asserting the complainant’s rights,
applied. However, they invoked the wrong
having had knowledge or notice of defendant’s
provisions50 thereof.
conduct and having been afforded an opportunity
to institute a suit;
Even if the provisions of the New Civil Code were to be
applied, the case of the petitioners would collapse just the
(3) lack of knowledge or notice on the part of the
same. As earlier shown, even implied acceptance of a
defendant that the complainant would assert the
donation propter nuptias suffices under the New Civil Code.51
right on which he bases his suit, and

With the genuineness of the donation propter nuptias and

(4) injury or prejudice to the defendant in the event
compliance with the applicable mandatory form requirements
relief is accorded to the complainant, or the suit is
fully established, petitioners’ hypothesis that their action is
not held barred.56
imprescriptible cannot take off.

Of the facts which support the finding of laches, stress

Viewing petitioners’ action for reconveyance from whatever
should be made of the following: (a) the petitioners Romana
feasible legal angle, it is definitely barred by prescription.
unquestionably gained actual knowledge of the
Petitioners’ right to file an action for the reconveyance of the
donation propter nuptias when the deed of partition was
land accrued in 1944, when the Inventario Ti Sagut was
executed in 1973 and the information must have surfaced
executed. It must be remembered that before the effectivity
again when the compromise agreement was forged in 1976,
of the New Civil Code in 1950, the Old Code of Civil
and; (b) as petitioner Romana was a party-signatory to the
Procedure (Act No. 190) governed prescription.52 Under the
two documents, she definitely had the opportunity to
Old Code of Civil Procedure, an action for recovery of the
question the donation propter nuptias on both occasions,
title to, or possession of, real property, or an interest therein,
and she should have done so if she were of the mindset,
can only be brought within ten years after the cause of such
given the fact that she was still in possession of the land in
action accrues.53 Thus, petitioners’ action, which was filed on
dispute at the time. But she did not make any move. She
December 23, 1985, or more than forty (40) years from the
tarried for eleven (11) more years from the execution of the
G.R. No. 148116             April 14, 2004
ANTONIO K. LITONJUA and AURELIO K. LITONJUA,
JR., petitioners,
vs.
MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ
TICZON ELEOSIDA, represented by GREGORIO T.
ELEOSIDA, HEIRS OF DOMINGO B. TICZON,
represented by MARY MEDIATRIX T. FERNANDEZ,
CRISTETA TICZON, EVANGELINE JILL R. TICZON,
ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA
LUISA PIAMONTE, JOHN DOES and JANE
DOES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of
the Court of Appeals in CA-G.R. CV No. 64940, which
reversed and set aside the June 23, 1999 Decision 2 of the
Regional Trial Court of Pasig City, Branch 68, in Civil Case
No. 65629, as well as its Resolution dated April 30, 2001
denying the petitioners’ motion for reconsideration of the
aforesaid decision.
The heirs of Domingo B. Ticzon3 are the owners of a parcel
of land located in San Pablo City, covered by Transfer
Certificate of Title (TCT) No. T-36766 of the Register of
Deeds of San Pablo City.4 On the other hand, the heirs of
Paz Ticzon Eleosida, represented by Gregorio T. Eleosida,
are the owners of a parcel of land located in San Pablo City,
covered by TCT No. 36754, also of the Register of Deeds of
San Pablo City.5
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and
Agapito Fisico who worked as brokers, offered to sell to the
petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr.,
the parcels of land covered by TCT Nos. 36754 and 36766.
The petitioners were shown a locator plan and copies of the
titles showing that the owners of the properties were
represented by Mary Mediatrix Fernandez and Gregorio T.
Eleosida, respectively. The brokers told the petitioners that
they were authorized by respondent Fernandez to offer the
property for sale. The petitioners, thereafter, made two
ocular inspections of the property, in the course of which
they saw some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met
with respondent Fernandez and the two brokers at the
petitioners’ office in Mandaluyong City.6 The petitioners and
respondent Fernandez agreed that the petitioners would buy
the property consisting of 36,742 square meters, for the price
of P150 per square meter, or the total sum of P5,098,500.
They also agreed that the owners would shoulder the capital
gains tax, transfer tax and the expenses for the
documentation of the sale. The petitioners and respondent
Fernandez also agreed to meet on December 8, 1995 to
finalize the sale. It was also agreed upon that on the said
date, respondent Fernandez would present a special power
of attorney executed by the owners of the property,
authorizing her to sell the property for and in their behalf, and
to execute a deed of absolute sale thereon. The petitioners
would also remit the purchase price to the owners, through
respondent Fernandez. However, only Agapito Fisico
attended the meeting. He informed the petitioners that
respondent Fernandez was encountering some problems
with the tenants and was trying to work out a settlement with
them.7 After a few weeks of waiting, the petitioners wrote
respondent Fernandez on January 5, 1995, demanding that
their transaction be finalized by January 30, 1996.8
When the petitioners received no response from respondent
Fernandez, the petitioners sent her another Letter 9 dated
February 1, 1996, asking that the Deed of Absolute Sale
covering the property be executed in accordance with their
verbal agreement dated November 27, 1995. The petitioners
also demanded the turnover of the subject properties to them
within fifteen days from receipt of the said letter; otherwise,
they would have no option but to protect their interest
through legal means.
Upon receipt of the above letter, respondent Fernandez
wrote the petitioners on February 14, 1996 10 and clarified her
stand on the matter in this wise:
1) It is not true I agreed to shoulder registration
fees and other miscellaneous expenses, etc. I do
not recall we ever discussed about them.
Nonetheless, I made an assurance at that time
that there was no liens/encumbrances and tenants
on my property (TCT – 36755).
2) It is not true that we agreed to meet on
December 8, 1995 in order to sign the Deed of
Absolute Sale. The truth of the matter is that you
were the one who emphatically stated that you
would prepare a Contract to Sell and requested us
to come back first week of December as you
would be leaving the country then. In fact, what
you were demanding from us was to apprise you
of the status of the property, whether we would be
able to ascertain that there are really no tenants.
Ms. Alimario and I left your office, but we did not
assure you that we would be back on the first
week of December.
Unfortunately, some people suddenly appeared
and claiming to be "tenants" for the entire
properties (including those belonging to my other
relatives.) Another thing, the Barangay Captain
now refuses to give a certification that our
properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu
Alimario, to relay to Mr. Agapito that due to the
appearance of "alleged tenants" who are
demanding for a one-hectare share, my cousin
and I have thereby changed our mind and that the
sale will no longer push through. I specifically
instructed her to inform you thru your broker that
we will not be attending the meeting to be held
sometime first week of December.
In view thereof, I regret to formally inform you now
that we are no longer selling the property until all
problems are fully settled. We have not demanded
and received from you any earnest money,
thereby, no obligations exist. In the meantime, we
hope that in the future we will eventually be able to
transact business since we still have other
properties in San Pablo City.11
Appended thereto was a copy of respondent Fernandez’
letter to the petitioners dated January 16, 1996, in response
to the latter’s January 5, 1996 letter.12
On April 12, 1996, the petitioners filed the instant Complaint
for specific performance with damages13 against respondent
Fernandez and the registered owners of the property. In their
complaint, the petitioners alleged, inter alia, the following:
4. On 27 November 1995, defendants offered to
sell to plaintiffs two (2) parcels of land covered by
Transfer Certificates of Title Nos. 36766 and
36754 measuring a total of 36,742 square meters
in Barrio Concepcion, San Pablo City. … After a
brief negotiation, defendants committed and
specifically agreed to sell to plaintiffs 33,990
square meters of the two (2) aforementioned
parcels of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the
following:
(a) The transfer tax and all the other fees and
expenses for the titling of the subject property in
plaintiffs’ names would be for defendants’ account.
(b) The plaintiffs would pay the entire purchase
price of P5,098,500.00 for the aforementioned
33,990 square meters of land in plaintiffs’ office on
8 December 1995.
6. Defendants repeatedly assured plaintiffs that
the two (2) subject parcels of land were free from
all liens and encumbrances and that no squatters
or tenants occupied them.
7. Plaintiffs, true to their word, and relying in good
faith on the commitment of defendants, pursued
the purchase of the subject parcels of lands. On 5
January 1996, plaintiffs sent a letter of even date
to defendants, … setting the date of sale and
payment on 30 January 1996.
7.1 Defendants received the letter on 12
January 1996 but did not reply to it.
8. On 1 February 1996, plaintiffs again sent a letter
of even date to defendants demanding execution
of the Deed of Sale.
8.1 Defendants received the same on 6
February 1996. Again, there was no
reply. Defendants thus reneged on their
commitment a second time.
9. On 14 February 1996, defendant Fernandez
sent a written communication of the same date to
plaintiffs enclosing therein a copy of her 16
January 1996 letter to plaintiffs which plaintiffs
never received before. Defendant Fernandez
stated in her 16 January 1996 letter that despite
the meeting of minds among the parties over the
33,990 square meters of land for P150.00 per
square meter on 27 November 1995, defendants
suddenly had a change of heart and no longer
wished to sell the same. Paragraph 6 thereof
unquestionably shows defendants’ previous
agreement as above-mentioned and their
unjustified breach of their obligations under it. …
10. Defendants cannot unilaterally, whimsically
and capriciously cancel a perfected contract to
sell. …
11. Plaintiffs intended to use the subject property
for their subdivision project to support plaintiffs’
quarry operations, processing of aggregate
products and manufacture of construction
materials. Consequently, by reason of defendants’
failure to honor their just obligations, plaintiffs
suffered, and continue to suffer, actual damages,
consisting in unrealized profits and cost of money,
in the amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and
mental anxiety on account of defendants’
fraudulent actuations for which reason defendants
are liable to plaintiffs for moral damages in the
amount of at least P1.5 Million.
13. By reason of defendants’ above-described
fraudulent actuations, plaintiffs, despite their
willingness and ability to pay the agreed purchase
price, have to date been unable to take delivery of
the title to the subject property. Defendants acted
in a wanton, fraudulent and malevolent manner in
violating the contract to sell. By way of example or
correction for the public good, defendants are
liable to plaintiff for exemplary damages in the
amount of P500,000.00.
14. Defendants’ bad faith and refusal to honor their
just obligations to plaintiffs constrained the latter to
litigate and to engage the services of undersigned
counsel for a fee in the amount of at least
P250,000.00.14
The petitioners prayed that, after due hearing, judgment be
rendered in their favor ordering the respondents to –
(a) Secure at defendants’ expense all clearances
from the appropriate government agencies that will
enable defendants to comply with their obligations
under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed
upon by the parties;
(c) Solidarily pay the plaintiffs the following
amounts:
1. P5,000,000.00 in actual damages;
2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorney’s fees. 15
On July 5, 1996, respondent Fernandez filed her Answer to
the complaint.16 She claimed that while the petitioners offered
to buy the property during the meeting of November 27,
1995, she did not accept the offer; thus, no verbal contract to
sell was ever perfected. She specifically alleged that the said
contract to sell was unenforceable for failure to comply with
the statute of frauds. She also maintained that even
assuming arguendo that she had, indeed, made a
commitment or promise to sell the property to the petitioners,
the same was not binding upon her in the absence of any
consideration distinct and separate from the price. She, thus,
prayed that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the
plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to
pay defendant moral damages in the amount of
not less than P2,000,000.00 and exemplary
damages in the amount of not less than
P500,000.00 and attorney’s fees and
reimbursement expenses of litigation in the
amount of P300,000.00.17
On September 24, 1997, the trial court, upon motion of the
petitioners, declared the other respondents in default for
failure to file their responsive pleading within the
reglementary period.18 At the pre-trial conference held on
March 2, 1998, the parties agreed that the following issues
were to be resolved by the trial court: (1) whether or not
there was a perfected contract to sell; (2) in the event that
there was, indeed, a perfected contract to sell, whether or
not the respondents breached the said contract to sell; and
(3) the corollary issue of damages. 19
Respondent Fernandez testified that she requested Lourdes
Alimario to look for a buyer of the properties in San Pablo
City "on a best offer basis." She was later informed by
Alimario that the petitioners were interested to buy the
properties. On November 27, 1995, along with Alimario and
another person, she met with the petitioners in the latter’s
office and told them that she was at the conference merely to
hear their offer, that she could not bind the owners of the
properties as she had no written authority to sell the same.
The petitioners offered to buy the property at P150 per
square meter. After the meeting, respondent Fernandez
requested Joy Marquez to secure a barangay clearance
stating that the property was free of any tenants. She was
surprised to learn that the clearance could not be secured.
She contacted a cousin of hers, also one of the owners of
the property, and informed him that there was a prospective
buyer of the property but that there were tenants thereon.
Her cousin told her that he was not selling his share of the
property and that he was not agreeable to the price of P150
per square meter. She no longer informed the other owners
of the petitioners’ offer. Respondent Fernandez then asked
Alimario to apprise the petitioners of the foregoing
developments, through their agent, Agapito Fisico. She was
surprised to receive a letter from the petitioners dated
January 5, 1996. Nonetheless, she informed the petitioners
that she had changed her mind in pursuing the negotiations
in a Letter dated January 18, 1996. When she received
petitioners’ February 1, 1996 Letter, she sent a Reply-Letter
dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in
favor of the petitioners on June 23, 1999, 20 the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, the Court
hereby renders judgment in favor of plaintiffs
ANTONIO K. LITONJUA and AURELIO K.
LITONJUA and against defendants MARY
MEDIATRIX T. FERNANDEZ, HEIRS OF PAZ
TICZON ELEOSIDA, represented by GREGORIO
T. ELEOSIDA, JOHN DOES and JANE DOES;
HEIRS OF DOMINGO B. TICZON, represented by
MARY MEDIATRIX T. FERNANDEZ, CRISTETA
TICZON, EVANGELINE JILL R. TICZON,
ERLINDA T. BENITEZ, DOMINIC TICZON,
JOSEFINA LUISA PIAMONTE, JOHN DOES and
JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or
Absolute Deed of Sale with the terms
agreed upon by the parties and to
secure all clearances from the
concerned government agencies and
removal of any tenants from the subject
property at their expense to enable
defendants to comply with their
obligations under the perfected
agreement to sell; and
2. pay to plaintiffs the sum of Two
Hundred Thousand (P200,000.00)
Pesos as and by way of attorney’s
fees.21
On appeal to the Court of Appeals, the respondents ascribed
the following errors to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING
THAT THERE WAS A PERFECTED CONTRACT
OF SALE OF THE TWO LOTS ON NOVEMBER
27, 1995.
II. THE LOWER COURT ERRED IN NOT
HOLDING THAT THE VERBAL CONTRACT OF
SALE AS CLAIMED BY PLAINTIFFS-
APPELLEES ANTONIO LITONJUA AND
AURELIO LITONJUA WAS UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING
THAT THE LETTER OF DEFENDANT-
APPELLANT FERNANDEZ DATED JANUARY 16,
1996 WAS A CONFIRMATION OF THE
PERFECTED SALE AND CONSTITUTED AS
WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT
HOLDING THAT A SPECIAL POWER OF
ATTORNEY WAS REQUIRED IN ORDER THAT
DEFENDANT-APPELLANT FERNANDEZ COULD
NEGOTIATE THE SALE ON BEHALF OF THE
OTHER REGISTERED CO-OWNERS OF THE
TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING
ATTORNEY’S FEES IN THE DISPOSITIVE
PORTION OF THE DECISION WITHOUT
STATING THE BASIS IN THE TEXT OF SAID
DECISION.22
On February 28, 2001, the appellate court promulgated its
decision reversing and setting aside the judgment of the trial
court and dismissing the petitioners’ complaint, as well as
the respondents’ counterclaim.23 The appellate court ruled
that the petitioners failed to prove that a sale or a contract to
sell over the property between the petitioners and the private
respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule
45 of the Revised Rules of Court.
The petitioners submit the following issues for the Court’s
resolution:
A. WHETHER OR NOT THERE WAS A
PERFECTED CONTRACT OF SALE BETWEEN
THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS
UNDER THE COVERAGE OF THE STATUTE OF
FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS
DECLARED IN DEFAULT ARE BENEFITED BY
THE ASSAILED DECISION OF THE COURT OF
APPEALS.24
The petition has no merit.
The general rule is that the Court’s jurisdiction under Rule 45
of the Rules of Court is limited to the review of errors of law
committed by the appellate court. As the findings of fact of
the appellate court are deemed continued, this Court is not
duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a quo.25 This
rule, however, is not without exceptions, such as where the
factual findings of the Court of Appeals and the trial court are
conflicting or contradictory.26 Indeed, in this case, the findings
of the trial court and its conclusion based on the said findings
contradict those of the appellate court. However, upon
careful review of the records of this case, we find no
justification to grant the petition. We, thus, affirm the decision
of the appellate court.
On the first and second assignment of errors, the petitioners
assert that there was a perfected contract of sale between
the petitioners as buyers and the respondents-owners,
through respondent Fernandez, as sellers. The petitioners
contend that the perfection of the said contract is evidenced
by the January 16, 1996 Letter of respondent
Fernandez.27 The pertinent portions of the said letter are as
follows:
… [M]y cousin and I have thereby changed our
mind and that the sale will no longer push
through. I specifically instructed her to inform you
thru your broker that we will not be attending the
meeting to be held sometime first week of
December.
In view thereof, I regret to formally inform you now
that we are no longer selling the property until all
problems are fully settled. We have not demanded
and received from you any earnest money,
thereby, no obligations exist…28
The petitioners argue that the letter is a sufficient note or
memorandum of the perfected contract, thus, removing it
from the coverage of the statute of frauds. The letter
specifically makes reference to a sale which respondent
Fernandez agreed to initially, but which the latter withdrew
because of the emergence of some people who claimed to
be tenants on both parcels of land. According to the
petitioners, the respondents-owners, in their answer to the
complaint, as well as respondent Fernandez when she
testified, admitted the authenticity and due execution of the
said letter. Besides, when the petitioner Antonio Litonjua
testified on the contract of sale entered into between
themselves and the respondents-owners, the latter did not
object thereto. Consequently, the respondents-owners
thereby ratified the said contract of sale. The petitioners thus
contend that the appellate court’s declaration that there was
no perfected contract of sale between the petitioners and the
respondents-owners is belied by the evidence, the pleadings
of the parties, and the law.
The petitioners’ contention is bereft of merit. In its decision,
the appellate court ruled that the Letter of respondent
Fernandez dated January 16, 1996 is hardly the note or
memorandum contemplated under Article 1403(2)(e) of the
New Civil Code, which reads:
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
… the property in favor of plaintiffs-appellees into the
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement
cannot be received without the writing, or
secondary evidence of its contents:
… only evidence adduced by the petitioners to prove that
(e) An agreement for the leasing for a
longer period than one year, or for the
sale of real property or of an interest
therein.29
The appellate court based its ruling on the following
disquisitions:
In the case at bar, the letter dated January 16,
1996 of defendant-appellant can hardly be said to
constitute the note or memorandum evidencing the
agreement of the parties to enter into a contract of
sale as it is very clear that defendant-appellant as
seller did not accept the condition that she will be
the one to pay the registration fees and
miscellaneous expenses and therein also
categorically denied she had already committed to
execute the deed of sale as claimed by the
plaintiffs-appellees. The letter, in fact, stated the
reasons beyond the control of the defendant-
appellant, why the sale could no longer push
through – because of the problem with tenants.
The trial court zeroed in on the statement of the
defendant-appellant that she and her cousin
changed their minds, thereby concluding that
defendant-appellant had unilaterally cancelled the
sale or backed out of her previous commitment.
However, the tenor of the letter actually reveals a
consistent denial that there was any such
commitment on the part of defendant-appellant to
sell the subject lands to plaintiffs-appellees. When
defendant-appellant used the words "changed our
mind," she was clearly referring to the decision to constitute sufficient writing to evidence the agreement for
sell the property at all (not necessarily to plaintiffs- purposes of complying with the statute of frauds.
appellees) and not in selling the property to herein
plaintiffs-appellees as defendant-appellant had not
In this case, we agree with the findings of the appellate court
yet made the final decision to sell the property to
that there was no perfected contract of sale between the
said plaintiffs-appellees. This conclusion is
respondents-owners, as sellers, and the petitioners, as
buttressed by the last paragraph of the subject
buyers.
letter stating that "we are no longer selling the
property until all problems are fully settled." To
read a definite previous agreement for the sale of There is no documentary evidence on record that the
respondents-owners specifically authorized respondent
contents of this letter is to unduly restrict the Fernandez to sell their properties to another, including the
freedom of the contracting parties to negotiate and petitioners. Article 1878 of the New Civil Code provides that
prejudice the right of every property owner to a special power of attorney is necessary to enter into any
secure the best possible offer and terms in such contract by which the ownership of an immovable is
sale transactions. We believe, therefore, that the transmitted or acquired either gratuitously or for a valuable
trial court committed a reversible error in finding consideration,37 or to create or convey real rights over
that there was a perfected contract of sale or immovable property,38 or for any other act of strict
contract to sell under the foregoing circumstances. dominion.39 Any sale of real property by one purporting to be
Hence, the defendant-appellant may not be held the agent of the registered owner without any authority
liable in this action for specific performance with therefor in writing from the said owner is null and void. 40 The
damages.30 declarations of the agent alone are generally insufficient to
establish the fact or extent of her authority. 41 In this case, the
In Rosencor Development Corporation vs. Court of
respondent Fernandez was authorized by the respondents-
Appeals,31 the term "statute of frauds" is descriptive of
owners is the testimony of petitioner Antonio Litonjua that
statutes which require certain classes of contracts to be in
respondent Fernandez openly represented herself to be the
writing. The statute does not deprive the parties of the right
representative of the respondents-owners, 42 and that she
to contract with respect to the matters therein involved, but
promised to present to the petitioners on December 8, 1996
merely regulates the formalities of the contract necessary to
a written authority to sell the properties. 43 However, the
render it enforceable. The purpose of the statute is to
petitioners’ claim was belied by respondent Fernandez when
prevent fraud and perjury in the enforcement of obligations,
she testified, thus:
depending for their existence on the unassisted memory of
witnesses, by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party Q Madam Witness, what else did you tell to the
to be charged. The statute is satisfied or, as it is often stated, plaintiffs?
a contract or bargain is taken within the statute by making
and executing a note or memorandum of the contract which
A I told them that I was there representing myself
is sufficient to state the requirements of the statute. 32 The
as one of the owners of the properties, and I was
application of such statute presupposes the existence of a
just there to listen to his proposal because that
perfected contract. However, for a note or memorandum to
time, we were just looking for the best offer and I
satisfy the statute, it must be complete in itself and cannot
did not have yet any written authorities from my
rest partly in writing and partly in parol. The note or
brother and sisters and relatives. I cannot agree
memorandum must contain the names of the parties, the
on anything yet since it is just a preliminary
terms and conditions of the contract and a description of the
meeting, and so, I have to secure authorities and
property sufficient to render it capable of identification. 33 Such
relate the matters to my relatives, brother and
note or memorandum must contain the essential elements of
sisters, sir.
the contract expressed with certainty that may be
ascertained from the note or memorandum itself, or some
other writing to which it refers or within which it is connected, Q And what else was taken up?
without resorting to parol evidence. 34 To be binding on the
persons to be charged, such note or memorandum must be
signed by the said party or by his agent duly authorized in A Mr. Antonio Litonjua told me that they will be
writing.35 leaving for another country and he requested me
to come back on the first week of December and in
the meantime, I should make an assurance that
In City of Cebu v. Heirs of Rubi,36 we held that the exchange there are no tenants in our properties, sir.44
of written correspondence between the parties may
The petitioners cannot feign ignorance of respondent IN LIGHT OF ALL THE FOREGOING, the petition is
Fernandez’ lack of authority to sell the properties for the DENIED. The decision of the appellate court is
respondents-owners. It must be stressed that the petitioners AFFIRMED IN TOTO. Costs against the petitioners.
are noted businessmen who ought to be very familiar with
the intricacies of business transactions, such as the sale of
SO ORDERED.
real property.

The settled rule is that persons dealing with an assumed

agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove
it.45 In this case, respondent Fernandez specifically denied
that she was authorized by the respondents-owners to sell
the properties, both in her answer to the complaint and when
she testified. The Letter dated January 16, 1996 relied upon
by the petitioners was signed by respondent Fernandez
alone, without any authority from the respondents-owners.
There is no evidence on record that the respondents-owners
ratified all the actuations of respondent Fernandez in
connection with her dealings with the petitioners. As such,
said letter is not binding on the respondents as owners of the
subject properties.

Contrary to the petitioners’ contention, the letter of January

16, 199646 is not a note or memorandum within the context of
Article 1403(2) because it does not contain the following: (a)
all the essential terms and conditions of the sale of the
properties; (b) an accurate description of the property subject
of the sale; and, (c) the names of the respondents-owners of
the properties. Furthermore, the letter made reference to
only one property, that covered by TCT No. T-36755.

We note that the petitioners themselves were uncertain as to

the specific area of the properties they were seeking to buy.
In their complaint, they alleged to have agreed to buy from
the respondents-owners 33,990 square meters of the total
acreage of the two lots consisting of 36,742 square meters.
In their Letter to respondent Fernandez dated January 5,
1996, the petitioners stated that they agreed to buy the two
lots, with a total area of 36,742 square meters.47 However, in
their Letter dated February 1, 1996, the petitioners declared
that they agreed to buy a portion of the properties consisting
of 33,990 square meters. 48 When he testified, petitioner
Antonio Litonjua declared that the petitioners agreed to buy
from the respondents-owners 36,742 square meters at P150
per square meter or for the total price of P5,098,500.49

The failure of respondent Fernandez to object to parol

evidence to prove (a) the essential terms and conditions of
the contract asserted by the petitioners and, (b) her authority
to sell the properties for the respondents-registered owners
did not and should not prejudice the respondents-owners
who had been declared in default.50

G.R. No. 167812             December 19, 2006
JESUS M. GOZUN, petitioner,
vs.
JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO
MERCADO, respondent.
DECISION
CARPIO MORALES, J.:
On challenge via petition for review on certiorari is the Court
of Appeals’ Decision of December 8, 2004 and Resolution of
April 14, 2005 in CA-G.R. CV No. 76309 1 reversing the trial
court’s decision2 against Jose Teofilo T. Mercado a.k.a. Don
Pepito Mercado (respondent) and accordingly dismissing the
complaint of Jesus M. Gozun (petitioner).
In the local elections of 1995, respondent vied for the
gubernatorial post in Pampanga. Upon respondent’s request,
petitioner, owner of JMG Publishing House, a printing shop
located in San Fernando, Pampanga, submitted to
respondent draft samples and price quotation of campaign
materials.
By petitioner’s claim, respondent’s wife had told him that
respondent already approved his price quotation and that he
could start printing the campaign materials, hence, he did
print campaign materials like posters bearing respondent’s
photograph,3 leaflets containing the slate of party
candidates,4 sample ballots,5 poll watcher identification
cards,6 and stickers.
Given the urgency and limited time to do the job order,
petitioner availed of the services and facilities of Metro
Angeles Printing and of St. Joseph Printing Press, owned by
his daughter Jennifer Gozun and mother Epifania Macalino
Gozun, respectively.7
Petitioner delivered the campaign materials to respondent’s
headquarters along Gapan-Olongapo Road in San
Fernando, Pampanga.8
Meanwhile, on March 31, 1995, respondent’s sister-in-law,
Lilian Soriano (Lilian) obtained from petitioner "cash
advance" of P253,000 allegedly for the allowances of poll
watchers who were attending a seminar and for other related
expenses. Lilian acknowledged on petitioner’s 1995
diary9 receipt of the amount.10
Petitioner later sent respondent a Statement of Account 11 in
the total amount of P2,177,906 itemized as
follows: P640,310 for JMG Publishing House; P837,696 for
Metro Angeles Printing; P446,900 for St. Joseph Printing
Press; and P253,000, the "cash advance" obtained by Lilian.
On August 11, 1995, respondent’s wife partially
paid P1,000,000 to petitioner who issued a receipt12 therefor.
Despite repeated demands and respondent’s promise to
pay, respondent failed to settle the balance of his account to
petitioner.
Petitioner and respondent being compadres, they having
been principal sponsors at the weddings of their respective
daughters, waited for more than three (3) years for
respondent to honor his promise but to no avail, compelling
petitioner to endorse the matter to his counsel who sent
respondent a demand letter. 13 Respondent, however, failed
to heed the demand.14
Petitioner thus filed with the Regional Trial Court of Angeles
City on November 25, 1998 a complaint 15 against respondent
to collect the remaining amount of P1,177,906 plus
"inflationary adjustment" and attorney’s fees.
In his Answer with Compulsory Counterclaim, 16 respondent
denied having transacted with petitioner or entering into any
contract for the printing of campaign materials. He alleged
that the various campaign materials delivered to him were
represented as donations from his family, friends and
political supporters. He added that all contracts involving his
personal expenses were coursed through and signed by him
to ensure compliance with pertinent election laws.
On petitioner’s claim that Lilian, on his (respondent’s) behalf,
had obtained from him a cash advance of P253,000,
respondent denied having given her authority to do so and
having received the same.
At the witness stand, respondent, reiterating his allegations
in his Answer, claimed that petitioner was his over-all
coordinator in charge of the conduct of seminars for
volunteers and the monitoring of other matters bearing on his
candidacy; and that while his campaign manager, Juanito
"Johnny" Cabalu (Cabalu), who was authorized to approve
details with regard to printing materials, presented him some
campaign materials, those were partly donated. 17
When confronted with the official receipt issued to his wife
acknowledging her payment to JMG Publishing House of the
amount of P1,000,000, respondent claimed that it was his
first time to see the receipt, albeit he belatedly came to know
from his wife and Cabalu that the P1,000,000 represented
"compensation [to petitioner] who helped a lot in the
campaign as a gesture of goodwill."18
Acknowledging that petitioner is engaged in the printing
business, respondent explained that he sometimes
discussed with petitioner strategies relating to his candidacy,
he (petitioner) having actively volunteered to help in his
campaign; that his wife was not authorized to enter into a
contract with petitioner regarding campaign materials as she
knew her limitations; that he no longer questioned
the P1,000,000 his wife gave petitioner as he thought that it
was just proper to compensate him for a job well done; and
that he came to know about petitioner’s claim against him
only after receiving a copy of the complaint, which surprised
him because he knew fully well that the campaign materials
were donations.19
Upon questioning by the trial court, respondent could not,
however, confirm if it was his understanding that the
campaign materials delivered by petitioner were donations
from third parties.20
Finally, respondent, disclaiming knowledge of the Comelec
rule that if a campaign material is donated, it must be so
stated on its face, acknowledged that nothing of that sort
was written on all the materials made by petitioner.21
As adverted to earlier, the trial court rendered judgment in
favor of petitioner, the dispositive portion of which reads:
WHEREFORE, the plaintiff having proven its (sic)
cause of action by preponderance of evidence, the
Court hereby renders a decision in favor of the
plaintiff ordering the defendant as follows:
 1. To pay the plaintiff the sum of P1,177,906.00
plus 12% interest per annum from the filing of this
complaint until fully paid;
2. To pay the sum of P50,000.00 as attorney’s
fees and the costs of suit.
SO ORDERED.22
Also as earlier adverted to, the Court of Appeals reversed
the trial court’s decision and dismissed the complaint for lack
of cause of action.
In reversing the trial court’s decision, the Court of Appeals
held that other than petitioner’s testimony, there was no
evidence to support his claim that Lilian was authorized by
respondent to borrow money on his behalf. It noted that the
acknowledgment receipt23 signed by Lilian did not specify in
what capacity she received the money. Thus, applying
Article 131724 of the Civil Code, it held that petitioner’s claim
for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House
– P640,310, Metro Angeles Printing – P837,696, and St.
Joseph Printing Press – P446,900, the appellate court,
noting that since the owners of the last two printing presses
were not impleaded as parties to the case and it was not
shown that petitioner was authorized to prosecute the same
in their behalf, held that petitioner could not collect the
amounts due them.
Finally, the appellate court, noting that respondent’s wife had
paid P1,000,000 to petitioner, the latter’s claim of P640,310
(after excluding the P253,000) had already been settled.
Hence, the present petition, faulting the appellate court to
have erred:
1. . . . when it dismissed the complaint on the
ground that there is no evidence, other than
petitioner’s own testimony, to prove that Lilian R.
Soriano was authorized by the respondent to
receive the cash advance from the petitioner in the
amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with
respect to the amounts due to the Metro Angeles
Press and St. Joseph Printing Press on the ground
that the complaint was not brought by the real
party in interest.
x x x x25 A : It is the amount representing the
money borrowed from me by the defendant
when one morning they came very early and
By the contract of agency a person binds himself to render
talked to me and told me that they were not able
some service or to do something in representation or on
to go to the bank to get money for the allowances
behalf of another, with the consent or authority of the
of Poll Watchers who were having a seminar at the
latter.26 Contracts entered into in the name of another person
headquarters plus other election related expenses
by one who has been given no authority or legal
during that day, sir.
representation or who has acted beyond his powers are
classified as unauthorized contracts and are declared
unenforceable, unless they are ratified.27 Q : Considering that this is a substantial amount
which according to you was taken by Lilian
Soriano, did you happen to make her acknowledge
Generally, the agency may be oral, unless the law requires a
the amount at that time?
specific form.28 However, a special power of attorney is
necessary for an agent to, as in this case, borrow money,
unless it be urgent and indispensable for the preservation of A : Yes, sir.32 (Emphasis supplied)
the things which are under administration. 29 Since nothing in
this case involves the preservation of things under
Petitioner’s testimony failed to categorically state, however,
administration, a determination of whether Soriano had the
whether the loan was made on behalf of respondent or of his
special authority to borrow money on behalf of respondent is
wife. While petitioner claims that Lilian was authorized by
in order.
respondent, the statement of account marked as Exhibit "A"
states that the amount was received by Lilian "in behalf of
Lim Pin v. Liao Tian, et al. 30 held that the requirement of a Mrs. Annie Mercado."
special power of attorney refers to the nature of the
authorization and not to its form.
Invoking Article 187333 of the Civil Code, petitioner submits
that respondent informed him that he had authorized Lilian to
. . . The requirements are met if there is a clear obtain the loan, hence, following Macke v. Camps34 which
mandate from the principal specifically authorizing holds that one who clothes another with apparent
the performance of the act. As early as 1906, this authority as his agent, and holds him out to the public
Court in Strong v. Gutierrez-Repide (6 Phil. 680) as such, respondent cannot be permitted to deny the
stated that such a mandate may be either oral or authority.
written. The one thing vital being that it shall be
express. And more recently, We stated that, if the
Petitioner’s submission does not persuade. As the appellate
special authority is not written, then it must be duly
court observed:
established by evidence:
. . . Exhibit "B" [the receipt issued by petitioner]
"…the Rules require, for attorneys to compromise
presented by plaintiff-appellee to support his claim
the litigation of their clients, a special authority.
unfortunately only indicates the Two Hundred Fifty
And while the same does not state that the special
Three Thousand Pesos (P253,0000.00)
authority be in writing the Court has every reason
was received by one Lilian R. Soriano on 31
to expect that, if not in writing, the same be duly
March 1995, but without specifying for what
established by evidence other than the self-serving
reason the said amount was delivered and in what
assertion of counsel himself that such authority
capacity did Lilian R. Soriano received [sic] the
was verbally given him."31 (Emphasis and
money. The note reads:
underscoring supplied)
"3-31-95
Petitioner submits that his following testimony suffices to
establish that respondent had authorized Lilian to obtain a
loan from him, viz: 261,120 ADVANCE MONEY FOR
TRAINEE –
Q : Another caption appearing on Exhibit "A" is
cash advance, it states given on 3-31-95 received RECEIVED BY
by Mrs. Lilian Soriano in behalf of Mrs. Annie
Mercado, amount P253,000.00, will you kindly tell
the Court and explain what does that caption
means?
 RECEIVED FROM JMG THE AMOUNT parties would incidentally inure to one's
OF 253,000 TWO HUNDRED FIFTY benefit.38 (Underscoring supplied)
THREE THOUSAND PESOS
In light thereof, petitioner is the real party in interest in this
(SIGNED) case. The trial court’s findings on the matter were affirmed
by the appellate court.39 It erred, however, in not declaring
petitioner as a real party in interest insofar as recovery of the
LILIAN R. SORIANO
cost of campaign materials made by petitioner’s mother and
sister are concerned, upon the wrong notion that they should
3-31-95" have been, but were not, impleaded as plaintiffs.

Nowhere in the note can it be inferred that In sum, respondent has the obligation to pay the total cost of
defendant-appellant was connected with the said printing his campaign materials delivered by petitioner in the
transaction. Under Article 1317 of the New Civil total of P1,924,906, less the partial payment of P1,000,000,
Code, a person cannot be bound by contracts he or P924,906.
did not authorize to be entered into his
behalf.35 (Underscoring supplied)
WHEREFORE, the petition is GRANTED. The Decision
dated December 8, 2004 and the Resolution dated April 14,
It bears noting that Lilian signed in the receipt in her name 2005 of the Court of Appeals are
alone, without indicating therein that she was acting for and hereby REVERSED and SET ASIDE.
in behalf of respondent. She thus bound herself in her
personal capacity and not as an agent of respondent or
The April 10, 2002 Decision of the Regional Trial Court of
anyone for that matter.
Angeles City, Branch 57, is REINSTATED mutatis
mutandis, in light of the foregoing discussions. The trial
It is a general rule in the law of agency that, in order to bind court’s decision is modified in that the amount payable by
the principal by a mortgage on real property executed by an respondent to petitioner is reduced to P924,906.
agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind the
SO ORDERED.
agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the
name of the principal. x x x36 (Emphasis and underscoring
supplied)

On the amount due him and the other two printing presses,
petitioner explains that he was the one who personally and
directly contracted with respondent and he merely sub-
contracted the two printing establishments in order to deliver
on time the campaign materials ordered by respondent.

Respondent counters that the claim of sub-contracting is a

change in petitioner’s theory of the case which is not allowed
on appeal.

In Oco v. Limbaring,37 this Court ruled:

The parties to a contract are the real parties in

interest in an action upon it, as consistently held
by the Court. Only the contracting parties are
bound by the stipulations in the contract; they are
the ones who would benefit from and could violate
it. Thus, one who is not a party to a contract, and
for whose benefit it was not expressly made,
cannot maintain an action on it. One cannot do so,
even if the contract performed by the contracting

G.R. No. 162421               August 31, 2007
NELSON CABALES and RITO CABALES, Petitioners,
vs.
COURT OF APPEALS, JESUS FELIANO and
ANUNCIACION FELIANO, Respondents.
DECISION
PUNO, C.J.:
This is a petition for review on certiorari seeking the reversal
of the decision1 of the Court of Appeals dated October 27,
2003, in CA-G.R. CV No. 68319 entitled "Nelson Cabales
and Rito Cabales v. Jesus Feliano and Anunciacion Feliano,"
which affirmed with modification the decision 2 of the
Regional Trial Court of Maasin, Southern Leyte, Branch 25,
dated August 11, 2000, in Civil Case No. R-2878. The
resolution of the Court of Appeals dated February 23, 2004,
which denied petitioners’ motion for reconsideration, is
likewise herein assailed.
The facts as found by the trial court and the appellate court
are well established.
Rufino Cabales died on July 4, 1966 and left a 5,714-square
meter parcel of land located in Brgy. Rizal, Sogod, Southern
Leyte, covered by Tax Declaration No. 17270 to his surviving
wife Saturnina and children Bonifacio, Albino, Francisco,
Leonora, Alberto and petitioner Rito.
On July 26, 1971, brothers and co-owners Bonifacio, Albino
and Alberto sold the subject property to Dr. Cayetano
Corrompido for ₱2,000.00, with right to repurchase within
eight (8) years. The three (3) siblings divided the proceeds of
the sale among themselves, each getting a share of
₱666.66.
The following month or on August 18, 1971, Alberto secured
a note ("vale") from Dr. Corrompido in the amount of
₱300.00.
In 1972, Alberto died leaving his wife and son, petitioner
Nelson.
On December 18, 1975, within the eight-year redemption
period, Bonifacio and Albino tendered their payment of
₱666.66 each to Dr. Corrompido. But Dr. Corrompido only
released the document of sale with pacto de retro after
Saturnina paid for the share of her deceased son, Alberto,
including his "vale" of ₱300.00.
On even date, Saturnina and her four (4) children Bonifacio,
Albino, Francisco and Leonora sold the subject parcel of
land to respondents-spouses Jesus and Anunciacion Feliano
for ₱8,000.00. The Deed of Sale provided in its last
paragraph, thus:
It is hereby declared and understood that the amount of
TWO THOUSAND TWO HUNDRED EIGHTY SIX PESOS
(P2,286.00) corresponding and belonging to the Heirs of
Alberto Cabales and to Rito Cabales who are still minors
upon the execution of this instrument are held
in trust by the VENDEE and to be paid and delivered only to
them upon reaching the age of 21.
On December 17, 1985, the Register of Deeds of Southern
Leyte issued Original Certificate of Title No. 17035 over the
purchased land in the names of respondents-spouses.
On December 30, 1985, Saturnina and her four (4) children
executed an affidavit to the effect that petitioner Nelson
would only receive the amount of ₱176.34 from respondents-
spouses when he reaches the age of 21 considering that
Saturnina paid Dr. Corrompido ₱966.66 for the obligation of
petitioner Nelson’s late father Alberto, i.e., ₱666.66 for his
share in the redemption of the sale with pacto de retro as
well as his "vale" of ₱300.00.
On July 24, 1986, 24-year old petitioner Rito Cabales
acknowledged receipt of the sum of ₱1,143.00 from
respondent Jesus Feliano, representing the former’s share in
the proceeds of the sale of subject property.
In 1988, Saturnina died. Petitioner Nelson, then residing in
Manila, went back to his father’s hometown in Southern
Leyte. That same year, he learned from his uncle, petitioner
Rito, of the sale of subject property. In 1993, he signified his
intention to redeem the subject land during a barangay
conciliation process that he initiated.
On January 12, 1995, contending that they could not have
sold their respective shares in subject property when they
were minors, petitioners filed before the Regional Trial Court
of Maasin, Southern Leyte, a complaint for redemption of the
subject land plus damages.
In their answer, respondents-spouses maintained that
petitioners were estopped from claiming any right over
subject property considering that (1) petitioner Rito had
already received the amount corresponding to his share of
the proceeds of the sale of subject property, and (2) that
petitioner Nelson failed to consign to the court the total
amount of the redemption price necessary for legal
redemption. They prayed for the dismissal of the case on the
grounds of laches and prescription.
No amicable settlement was reached at pre-trial. Trial
ensued and on August 11, 2000, the trial court ruled against
petitioners. It held that (1) Alberto or, by his death, any of his
heirs including petitioner Nelson lost their right to subject
land when not one of them repurchased it from Dr.
Corrompido; (2) Saturnina was effectively subrogated to the
rights and interests of Alberto when she paid for Alberto’s
share as well as his obligation to Dr. Corrompido; and (3)
petitioner Rito had no more right to redeem his share to
subject property as the sale by Saturnina, his legal guardian
pursuant to Section 7, Rule 93 of the Rules of Court, was
perfectly valid; and it was shown that he received his share
of the proceeds of the sale on July 24, 1986, when he was
24 years old.
On appeal, the Court of Appeals modified the decision of the
trial court. It held that the sale by Saturnina of petitioner
Rito’s undivided share to the property was unenforceable for
lack of authority or legal representation but that the contract
was effectively ratified by petitioner Rito’s receipt of the
proceeds on July 24, 1986. The appellate court also ruled
that petitioner Nelson is co-owner to the extent of one-
seventh (1/7) of subject property as Saturnina was not
subrogated to Alberto’s rights when she repurchased his
share to the property. It further directed petitioner Nelson to
pay the estate of the late Saturnina Cabales the amount of
₱966.66, representing the amount which the latter paid for
the obligation of petitioner Nelson’s late father Alberto.
Finally, however, it denied petitioner Nelson’s claim for
redemption for his failure to tender or consign in court the
redemption money within the period prescribed by law.
In this petition for review on certiorari, petitioners contend
that the Court of Appeals erred in (1) recognizing petitioner
Nelson Cabales as co-owner of subject land but denied him
the right of legal redemption, and (2) not recognizing
petitioner Rito Cabales as co-owner of subject land with
similar right of legal redemption.
First, we shall delineate the rights of petitioners to subject
land.
When Rufino Cabales died intestate, his wife Saturnina and
his six (6) children, Bonifacio, Albino, Francisco, Leonora,
Alberto and petitioner Rito, survived and succeeded him.
Article 996 of the New Civil Code provides that "[i]f a widow
or widower and legitimate children or descendants are left,
the surviving spouse has in the succession the same share
as that of each of the children." Verily, the seven (7) heirs
inherited equally on subject property. Petitioner Rito and
Alberto, petitioner Nelson’s father, inherited in their own
rights and with equal shares as the others.
But before partition of subject land was effected, Alberto
died. By operation of law, his rights and obligations to one-
seventh of subject land were transferred to his legal heirs –
his wife and his son petitioner Nelson.
We shall now discuss the effects of the two (2) sales of
subject land to the rights of the parties.
The first sale with pacto de retro to Dr. Corrompido by the
brothers and co-owners Bonifacio, Albino and Alberto was
valid but only as to their pro-indiviso shares to the land.
When Alberto died prior to repurchasing his share, his rights
and obligations were transferred to and assumed by his
heirs, namely his wife and his son, petitioner Nelson. But the
records show that it was Saturnina, Alberto’s mother, and not
his heirs, who repurchased for him. As correctly ruled by the
Court of Appeals, Saturnina was not subrogated to Alberto’s
or his heirs’ rights to the property when she repurchased the
share.
In Paulmitan v. Court of Appeals, 3 we held that a co-owner
who redeemed the property in its entirety did not make her
the owner of all of it. The property remained in a condition of
co-ownership as the redemption did not provide for a mode
of terminating a co-ownership. 4 But the one who redeemed
had the right to be reimbursed for the redemption price and
until reimbursed, holds a lien upon the subject property for
the amount due.5 Necessarily, when Saturnina redeemed for
Alberto’s heirs who had then acquired his pro-indiviso share
in subject property, it did not vest in her ownership over the
pro-indiviso share she redeemed. But she had the right to be
reimbursed for the redemption price and held a lien upon the
property for the amount due until reimbursement. The result
is that the heirs of Alberto, i.e., his wife and his son petitioner
Nelson, retained ownership over their pro-indiviso share.
Upon redemption from Dr. Corrompido, the subject property
was resold to respondents-spouses by the co-owners.
Petitioners Rito and Nelson were then minors and as
indicated in the Deed of Sale, their shares in the proceeds
were held in trust by respondents-spouses to be paid and latter’s pro-indiviso share in subject land, she did not have
delivered to them upon reaching the age of majority. the legal authority to do so.
As to petitioner Rito, the contract of sale was unenforceable Article 1403 of the New Civil Code provides, thus:
as correctly held by the Court of Appeals. Articles 320 and
326 of the New Civil Code6 state that:
Art. 1403. The following contracts are unenforceable, unless
they are ratified:
Art. 320. The father, or in his absence the mother, is the
legal administrator of the property pertaining to the child
(1) Those entered into in the name of another person by one
under parental authority. If the property is worth more than
who has been given no authority or legal representation, or
two thousand pesos, the father or mother shall give a bond
who has acted beyond his powers;
subject to the approval of the Court of First Instance.
xxxx
Art. 326. When the property of the child is worth more than
two thousand pesos, the father or mother shall be
considered a guardian of the child’s property, subject to the Accordingly, the contract of sale as to the pro-indiviso share
duties and obligations of guardians under the Rules of Court. of petitioner Rito was unenforceable. However, when he
acknowledged receipt of the proceeds of the sale on July 24,
1986, petitioner Rito effectively ratified it. This act of
In other words, the father, or, in his absence, the mother, is
ratification rendered the sale valid and binding as to him.
considered legal administrator of the property pertaining to
the child under his or her parental authority without need of
giving a bond in case the amount of the property of the child With respect to petitioner Nelson, on the other hand, the
does not exceed two thousand pesos. 7 Corollary to this, Rule contract of sale was void. He was a minor at the time of the
93, Section 7 of the Revised Rules of Court of 1964, sale. Saturnina or any and all the other co-owners were not
applicable to this case, automatically designates the parent his legal guardians with judicial authority to alienate or
as legal guardian of the child without need of any judicial encumber his property. It was his mother who was his legal
appointment in case the latter’s property does not exceed guardian and, if duly authorized by the courts, could validly
two thousand pesos,8 thus: sell his undivided share to the property. She did not.
Necessarily, when Saturnina and the others sold the subject
property in its entirety to respondents-spouses, they only
Sec. 7. Parents as guardians. – When the property of the
sold and transferred title to their pro-indiviso shares and not
child under parental authority is worth two thousand pesos or
that part which pertained to petitioner Nelson and his mother.
less, the father or the mother, without the necessity of court
Consequently, petitioner Nelson and his mother retained
appointment, shall be his legal guardian x x x x9
ownership over their undivided share of subject property. 12
Saturnina was clearly petitioner Rito’s legal guardian without
But may petitioners redeem the subject land from
necessity of court appointment considering that the amount
respondents-spouses? Articles 1088 and 1623 of the New
of his property or one-seventh of subject property was
Civil Code are pertinent:
₱1,143.00, which is less than two thousand pesos. However,
Rule 96, Sec. 110 provides that:
Art. 1088. Should any of the heirs sell his hereditary rights to
a stranger before the partition, any or all of the co-heirs may
Section 1. To what guardianship shall extend. – A guardian
be subrogated to the rights of the purchaser by reimbursing
appointed shall have the care and custody of the person of
him for the price of the sale, provided they do so within the
his ward, and the management of his estate, or the
period of one month from the time they were notified in
management of the estate only, as the case may be. The
writing of the sale by the vendor.
guardian of the estate of a nonresident shall have the
management of all the estate of the ward within the
Philippines, and no court other than that in which such Art. 1623. The right of legal pre-emption or redemption shall
guardian was appointed shall have jurisdiction over the not be exercised except within thirty days from the notice in
guardianship. writing by the prospective vendor, or by the vendor, as the
case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of
Indeed, the legal guardian only has the plenary power of
the vendor that he has given written notice thereof to all
administration of the minor’s property. It does not include the
possible redemptioners.
power of alienation which needs judicial authority. 11 Thus,
when Saturnina, as legal guardian of petitioner Rito, sold the
The right of redemption of co-owners excludes that of was informed of the sale of subject property. Moreover, it
adjoining owners. was noted by the appellate court that petitioner Nelson was
likewise informed thereof in 1993 and he signified his
intention to redeem subject property during a barangay
Clearly, legal redemption may only be exercised by the co-
conciliation process. But he only filed the complaint for legal
owner or co-owners who did not part with his or their pro-
redemption and damages on January 12, 1995, certainly
indiviso share in the property held in common. As
more than thirty days from learning about the sale.
demonstrated, the sale as to the undivided share of
petitioner Rito became valid and binding upon his ratification
on July 24, 1986. As a result, he lost his right to redeem In the face of the established facts, petitioner Nelson cannot
subject property. feign ignorance of the sale of subject property in 1978. To
require strict proof of written notice of the sale would be to
countenance an obvious false claim of lack of knowledge
However, as likewise established, the sale as to the
thereof, thus commending the letter of the law over its
undivided share of petitioner Nelson and his mother was not
purpose, i.e., the notification of redemptioners.
valid such that they were not divested of their ownership
thereto. Necessarily, they may redeem the subject property
from respondents-spouses. But they must do so within thirty The Court is satisfied that there was sufficient notice of the
days from notice in writing of the sale by their co-owners sale to petitioner Nelson. The thirty-day redemption period
vendors. In reckoning this period, we held in Alonzo v. commenced in 1993, after petitioner Nelson sought the
Intermediate Appellate Court,13 thus: barangay conciliation process to redeem his property. By
January 12, 1995, when petitioner Nelson filed a complaint
for legal redemption and damages, it is clear that the thirty-
x x x we test a law by its results; and likewise, we may add,
day period had already expired.
by its purposes. It is a cardinal rule that, in seeking the
meaning of the law, the first concern of the judge should be
to discover in its provisions the intent of the lawmaker. As in Alonzo, the Court, after due consideration of the facts
Unquestionably, the law should never be interpreted in such of the instant case, hereby interprets the law in a way that
a way as to cause injustice as this is never within the will render justice.15
legislative intent. An indispensable part of that intent, in fact,
for we presume the good motives of the legislature, is to
Petitioner Nelson, as correctly held by the Court of Appeals,
render justice.
can no longer redeem subject property. But he and his
mother remain co-owners thereof with respondents-spouses.
Thus, we interpret and apply the law not independently of but Accordingly, title to subject property must include them.
in consonance with justice. Law and justice are inseparable,
and we must keep them so. x x x x
IN VIEW WHEREOF, the petition is DENIED. The assailed
decision and resolution of the Court of Appeals of October
x x x x While we may not read into the law a purpose that is 27, 2003 and February 23, 2004 are AFFIRMED WITH
not there, we nevertheless have the right to read out of it the MODIFICATION. The Register of Deeds of Southern Leyte is
reason for its enactment. In doing so, we defer not to "the ORDERED to cancel Original Certificate of Title No. 17035
letter that killeth" but to "the spirit that vivifieth," to give effect and to issue in lieu thereof a new certificate of title in the
to the lawmaker’s will. name of respondents-spouses Jesus and Anunciacion
Feliano for the 6/7 portion, and petitioner Nelson Cabales
and his mother for the remaining 1/7 portion, pro indiviso.
In requiring written notice, Article 1088 (and Article 1623 for
that matter)14 seeks to ensure that the redemptioner is
properly notified of the sale and to indicate the date of such SO ORDERED.
notice as the starting time of the 30-day period of
redemption. Considering the shortness of the period, it is
really necessary, as a general rule, to pinpoint the precise
date it is supposed to begin, to obviate the problem of
alleged delays, sometimes consisting of only a day or
two.1awph!1

In the instant case, the right of redemption was invoked not

days but years after the sale was made in 1978. We are not
unmindful of the fact that petitioner Nelson was a minor
when the sale was perfected. Nevertheless, the records
show that in 1988, petitioner Nelson, then of majority age,

G.R. No. 178645               January 30, 2009
LINA PEÑALBER, Petitioner,
vs.
QUIRINO RAMOS, LETICIA PEÑALBER, and BARTEX
INC., Respondents.
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari under Rule
45 of the Rules of Court is the Decision1 dated 15 December
2006 of the Court of Appeals in CA-G.R. CV No. 69731. Said
Decision reversed and set aside the Decision 2 dated 19
January 2000 of the Regional Trial Court (RTC) of
Tuguegarao City, Branch 2, in Civil Case No. 3672, which
declared petitioner Lina Peñalber the owner of the Bonifacio
property subject of this case and ordered respondent
spouses Quirino Ramos and Leticia Peñalber to reconvey
the same to petitioner.
The factual and procedural antecedents of the case are set
forth hereunder.
Petitioner is the mother of respondent Leticia and the
mother-in-law of respondent Quirino, husband of Leticia.
Respondent Bartex, Inc., on the other hand, is a domestic
corporation which bought from respondent spouses Ramos
one of the two properties involved in this case.
On 18 February 1987, petitioner filed before the RTC a
Complaint for Declaration of Nullity of Deeds and Titles,
Reconveyance, Damages, [with] Application for a Writ of
Preliminary Prohibitory Injunction against the respondents. 3 It
was docketed as Civil Case No. 3672.
First Cause of Action
Firstly, petitioner alleged in her Complaint that she was the
owner of a parcel of land situated in Ugac Norte,
Tuguegarao, Cagayan, with an area of 1,457 sq.m. and
covered by Transfer Certificate of Title (TCT) No. T-
433734 of the Register of Deeds for the Province of
Cagayan, registered in petitioner’s name. A residential house
and a warehouse were constructed on the said parcel of land
which petitioner also claimed to own (the land and the
improvements thereon shall be hereinafter referred to as
the Ugac properties). Petitioner averred that in the middle
part of 1986, she discovered that TCT No. T-43373 was
cancelled on 13 May 1983 and TCT No. T-58043 5 was
issued in its stead in the name of respondent spouses
Ramos. Upon verification, petitioner learned that the basis
for the cancellation of her title was a Deed of Donation of a
Registered Land, Residential House and Camarin,6 which
petitioner purportedly executed in favor of respondent
spouses Ramos on 27 April 1983. Petitioner insisted that her
signature on the said Deed of Donation was a forgery as she
did not donate any property to respondent spouses Ramos.
When petitioner confronted the respondent spouses Ramos
about the false donation, the latter pleaded that they would
just pay for the Ugac properties in the amount of ₱1 Million.
Petitioner agreed to the proposition of the respondent
spouses Ramos.
Subsequently, around 10 January 1987,7 petitioner found out
that the respondent spouses Ramos were selling the Ugac
properties to respondent Bartex, Inc. Petitioner then sent her
son, Johnson Paredes (Johnson),8 to caution respondent
Bartex, Inc. that respondent spouses Ramos were not the
lawful owners of the said properties. Johnson was allegedly
able to convey petitioner’s caveat to a representative of
respondent Bartex, Inc. Petitioner also warned respondent
spouses Ramos not to sell the Ugac properties anymore,
otherwise, she would file the necessary action against them.
The respondent spouses Ramos then assured her that they
would do no such thing. As a precaution, petitioner executed
an Affidavit of Adverse Claim over the Ugac Properties on 19
January 1987 and caused the same to be annotated on TCT
No. T-58043 on the same day. Despite petitioner’s warnings,
respondent spouses Ramos still executed in favor of
respondent Bartex, Inc. a Deed of Absolute Sale 9 over the
Ugac properties on 12 January 1987 for a total price of
₱150,000.00. As a result, TCT No. T-58043 in the name of
respondent spouses Ramos was cancelled and TCT No. T-
6882510 in the name of respondent Bartex, Inc. was issued
on 20 January 1987.
Petitioner contended that the Deed of Absolute Sale
executed by respondent spouses Ramos in favor of
respondent Bartex, Inc. did not convey any valid title, not
only because respondent Bartex, Inc. was a buyer in bad
faith, but also because respondent spouses Ramos did not
own the Ugac properties. Thus, petitioner prayed for the
declaration of nullity of (1) the Deed of Donation of a
Registered Land, Residential House and Camarin
purportedly executed by petitioner in favor respondent
spouses Ramos; (2) TCT No. T-58043, issued in the name
of respondent spouses Ramos; (3) the Deed of Absolute
Sale executed by the respondent spouses Ramos in favor of
respondent Bartex, Inc.; and (4) TCT No. T-68825, issued in
the name of respondent Bartex, Inc. Should petitioner’s
prayer not be granted, petitioner sought in the alternative
that respondent spouses Ramos be ordered to pay the
assessed value of the Ugac properties, which was about
₱1.5 Million. Petitioner further prayed that TCT No. T-43373,
in her name, be declared valid and active.
Second Cause of Action
Secondly, petitioner claimed that for many years prior to
1984, she operated a hardware store in a building she
owned along Bonifacio St., Tuguegarao, Cagayan. However,
the commercial lot (Bonifacio property) upon which the
building stood is owned by and registered in the name of
Maria Mendoza (Mendoza), from whom petitioner rented the
same.
On 22 March 1982, petitioner allowed respondent spouses
Ramos to manage the hardware store. Thereafter, in 1984,
Mendoza put the Bonifacio property up for sale. As petitioner
did not have available cash to buy the property, she
allegedly entered into a verbal agreement with respondent
spouses Ramos with the following terms:
[1.] The lot would be bought [by herein respondent
spouses Ramos] for and in behalf of [herein
petitioner];
[2.] The consideration of ₱80,000.00 for said lot
would be paid by [respondent spouses Ramos]
from the accumulated earnings of the store;
[3.] Since [respondent spouses Ramos] have the
better credit standing, they would be made to
appear in the Deed of Sale as the vendees so that
the title to be issued in their names could be used
by [them] to secure a loan with which to build a
bigger building and expand the business of
[petitioner].
In accordance with the above agreement, respondent
spouses Ramos allegedly entered into a contract of
sale11 with Mendoza over the Bonifacio property, 12 and on 24
October 1984, TCT No. T-6276913 covering said property
was issued in the names of respondent spouses Ramos.
On 20 September 1984, respondent spouses Ramos
returned the management of the hardware store to petitioner.
On the bases of receipts and disbursements, petitioner
asserted that the Bonifacio property was fully paid out of the
funds of the store and if respondent spouses Ramos had
given any amount for the purchase price of the said property,
they had already sufficiently reimbursed themselves from the
funds of the store. Consequently, petitioner demanded from
respondent spouses Ramos the reconveyance of the title to
the Bonifacio property to her but the latter unjustifiably
refused.
Petitioner insisted that respondent spouses Ramos were, in
reality, mere trustees of the Bonifacio property, thus, they
were under a moral and legal obligation to reconvey title over
the said property to her. Petitioner, therefore, prayed that
she be declared the owner of the Bonifacio property; TCT
No. T-62769, in the name of respondent spouses, be
declared null and void; and the Register of Deeds for the
Province of Cagayan be directed to issue another title in her
name.
On 2 March 1987, respondent spouses Ramos accordingly
filed before the RTC their Answer 14 to petitioner’s Complaint.
As regards the first cause of action, respondent spouses
Ramos alleged that petitioner, together with her son,
Johnson, and the latter’s wife, Maria Teresa Paredes,
mortgaged the Ugac properties to the Development Bank of
the Philippines (DBP) on 19 August 1990 for the amount of
₱150,000.00. When the mortgage was about to be
foreclosed because of the failure of petitioner to pay the
mortgage debt, petitioner asked respondent spouses Ramos
to redeem the mortgaged property or pay her mortgage debt
to DBP. In return, petitioner promised to cede, convey and
transfer full ownership of the Ugac properties to them.
Respondent spouses Ramos paid the mortgage debt and, in
compliance with her promise, petitioner voluntarily
transferred the Ugac properties to the former by way of a
Deed of Donation dated 27 April 1983. After accepting the
donation and having the Deed of Donation registered, TCT
No. T- 58043 was issued to respondent spouses Ramos and
they then took actual and physical possession of the Ugac
properties. Respondent spouses Ramos asserted that
petitioner had always been aware of their intention to sell the
Ugac properties as they posted placards thereon stating that
the said properties were for sale. Respondent spouses
Ramos further averred that petitioner also knew that they
finally sold the Ugac properties to respondent Bartex, Inc. for
₱150,000.00. Thus, respondent spouses Ramos maintained
that petitioner was not entitled to any reimbursement for the
Ugac properties.
With regard to petitioner’s second cause of action involving
the Bonifacio property, respondent spouses Ramos
contended that they were given not only the management,
but also the full ownership of the hardware store by the
petitioner, on the condition that the stocks and merchandise
of the store will be inventoried, and out of the proceeds of
the sales thereof, respondent spouses Ramos shall pay
petitioner’s outstanding obligations and liabilities. After
settling and paying the obligations and liabilities of petitioner,
respondent spouses Ramos bought the Bonifacio property
from Mendoza out of their own funds.
Lastly, even if petitioner and respondent spouses Ramos
belonged to the same family, the spouses Ramos faulted
petitioner for failing to exert efforts to arrive at an amicable
settlement of their dispute. Hence, respondent spouses
Ramos sought, by way of a counterclaim against petitioner,
moral and exemplary damages and attorney’s fees, for
allegedly filing a false, flimsy and frivolous complaint.
On 27 April 1987, respondent Bartex, Inc. filed before the
RTC its own Answer to petitioner’s Complaint, alleging, inter
alia, that when a representative of the corporation inquired
about the Ugac properties for sale, respondent spouses
Ramos presented their owner’s duplicate copy of TCT No. T-
58043, together with the tax declarations covering the parcel
of land and the buildings thereon. Respondent Bartex, Inc.
even verified the title and tax declarations covering the Ugac
properties with the Register of Deeds and the Office of the
Municipal Assessor as to any cloud, encumbrance or lien on
the properties, but none were found. Respondent spouses
Ramos were then actually occupying the Ugac properties
and they only vacated the same after the consummation of
the sale to respondent Bartex, Inc. Respondent Bartex, Inc.
claimed that the sale of the Ugac properties by respondent
spouses Ramos to the corporation was already
consummated on 12 January 1987, and the documents
conveying the said properties were by then being processed
for registration, when petitioner caused the annotation of an
adverse claim at the back of TCT No. T-58043 on 19
January 1987. As respondent Bartex, Inc. was never aware
of any imperfection in the title of respondent spouses Ramos
over the Ugac properties, it claimed that it was an innocent
purchaser in good faith.
Trial of the case thereafter ensued.
On 19 January 2000, the RTC promulgated its decision,
ruling on petitioner’s first cause of action in this wise:
On the first cause of action, the Court finds the testimony of
[herein petitioner] Lina Penalber (sic) denying her execution
of the deed of donation over the Ugac property in favor of
[herein respondent spouses] Quirino Ramos and Leticia
Penalber-Ramos (sic) insufficient to support the said cause
of action. A notarial document is, by law, entitled to full faith
and credit upon its face (Arrieta v. Llosa, 282 SCRA 248)
and a high degree of proof is needed to overthrow the
presumption of truth in the recitals contained in a public
document executed with all legal formalities (People vs.
Fabro, 277 SCRA 19). Hence, in order to contradict the facts
contained in a notarial document and the presumption of
regularity in its favor, these (sic) must be evidence that is
clear, convincing and more than merely preponderant
(Calahat vs. Intermediate Appellate Court, 241 SCRA 356).
In the case at bench, [petitioner] claims that she did not
execute the deed of donation over the Ugac property in favor
of [respondent spouses Ramos]. Such denial, by itself, is not
sufficient to overcome the presumption of regularity of the
notarial deed of donation and its entitlement to full faith and
credit. While it is true that, generally, the party who asserts
the affirmative side of a proposition has the burden of proof,
which in this instance is (sic) the [respondent spouses
Ramos] who are asserting the validity of the deed of
donation, [respondent spouses Ramos] can merely rely on
the above-stated presumption given to notarial documents
and need not present any evidence to support their claim of
validity and due execution of the notarized deed of donation.
On the other hand, [petitioner], in addition to her allegation
that she did not execute any such deed of donation in favor
of [respondent spouses Ramos] should have had her
allegedly falsified signature on the deed of donation
examined by qualified handwriting experts to prove that,
indeed, she did not execute the same. Her failure to do so
results in the failure of her cause.15 (Emphasis ours.)
With respect to petitioner’s second cause of action, the RTC
adjudged that:
On the second cause of action, the Court finds the evidence
preponderantly in favor of the [herein petitioner]. The
evidence on record shows that when [petitioner] allowed
[herein respondent spouses Ramos] full management of the
hardware store located on the Bonifacio property in March,
1982 (sic) an inventory of the stocks in trade in the said store
was made showing stocks worth ₱226,951.05* and when
she got back the store from [respondent spouses Ramos] on
September 1984, another inventory was made [on] the
stocks in trade in the said store showing, stocks worth
₱110,005.88* or a difference of ₱116,946.17. * The only
reason for an inventory having been made when the
hardware store was turned over to [respondent spouses
Ramos] was, to the mind of the Court, for the latter to
account for the sales of such stocks. And to arrive at the net
amount due to [petitioner], all that is needed to be done is to
deduct the value of the stocks present at the store when
management was returned to [petitioner] in September 1984
from the value of the stocks found in the hardware store
when said management was given to [respondent spouses
Ramos] in 1982. [Petitioner] claims that the purchase price
for the Bonifacio property was to be taken from the proceeds
of sales from the hardware store which, as the evidence on
record stands[,] shows a balance in her favor of more than
₱116,000.00. [Respondent spouses Ramos] contend that
said amount was expended to pay off [petitioner’s]
obligations to her suppliers. The record, however, is totally
silent on how much and when [respondent spouses Ramos]
paid said alleged obligations of [petitioner] or even who were
the said suppliers thus paid. That [petitioner] and
[respondent spouses Ramos] agreed that the amount due
[petitioner] from the proceeds of the sales of her stocks in
the hardware store would be applied to the purchase price of
the Bonifacio property is supported by the fact that
[petitioner] did not ever ask for an accounting of said
proceeds, despite the fact that as early as September, 1984
(sic) she already knew that her stocks left by her in March,
1982 (sic) was already sold by [respondent spouses Ramos]
and that there was a difference of ₱116,000.00 plus which
was due to her.16 (Emphasis ours.)
Thus, the RTC decreed:
WHEREFORE, in view of all the foregoing, judgment is
hereby rendered:
1. Finding the evidence on record insufficient to
prove the [herein petitioner’s] first cause of action,
and, hence, dismissing the same;
2. On the second cause of action, in favor of the
[petitioner] and against the [herein respondent
spouses Ramos];
2.1 Declaring the [petitioner] the owner
of Lot 2-B of subdivision plan PST-2-01-
019316 (sic) with an area of 195 square
meters situated along Bonifacio Street,
Tuguegarao, Cagayan; and
2.2 Ordering the [respondent spouses
Ramos] to reconvey to the [petitioner]
the said property (Bonifacio property).
With costs de oficio.17 (Emphasis ours.)
On 22 February 2000, respondent spouses Ramos filed with
the RTC a Motion for Reconsideration 18 of the afore-
mentioned decision, assailing the ruling of the RTC on
petitioner’s second cause of action on the ground that the
alleged express trust created between them and petitioner
involving the Bonifacio property could not be proven by parol
evidence. In an Order19 dated 17 July 2000, the RTC denied
respondent spouses Ramos’ Motion for Reconsideration for
lack of merit, ratiocinating that respondent spouses Ramos
failed to interpose timely objections when petitioner testified
on their alleged verbal agreement regarding the purchase of
the Bonifacio property. As such, respondent spouses Ramos
were deemed to have waived such objections, which cannot
be raised anymore in their Motion for Reconsideration. The
RTC then reiterated its finding that petitioner’s evidence
clearly established her second cause of action. Additionally,
the RTC held that the requirement that the parties exert
earnest efforts towards an amicable settlement of the dispute
had likewise been waived by the respondents as they filed
no motion regarding the same before the trial.
On 24 July 2000, respondent spouses Ramos elevated their
case to the Court of Appeals, insofar as the ruling of the RTC
on petitioner’s second cause of action was concerned.20 The
appeal was docketed as CA-G.R. CV No. 69731.
On 15 December 2006, the Court of Appeals rendered the
assailed Decision in favor of respondent spouses Ramos.
Finding merit in the appeal, the appellate court observed that
the second cause of action involved not only the petitioner
and her daughter, but also her son-in-law, who was not
covered by the term "family relations" under Article 150 21 of
the Family Code. Therefore, Article 151 22 of the Family Code,
requiring the exertion of earnest efforts toward a
compromise, did not apply as the impediment arising from
the said provision was limited only to suits between
members of the same family or those encompassed in the
term "family relations" under Article 150.
The Court of Appeals also declared that petitioner failed to
prove her claim with the required quantum of evidence.
According to the Court of Appeals:
It appears that before management of the store was
transferred to [herein respondent spouses Ramos], a
beginning inventory of the stocks of the hardware store was
made by [herein petitioner’s] other children showing stocks
amounting to Php226,951.05. After management of the
hardware store was returned to [petitioner], a second
inventory was made with stocks amounting to
Php110,004.88 showing a difference of Php116,946.15.
Contrary, however, to the finding of the trial court, We find
that said inventory showing such difference is not conclusive
proof to show that the said amount was used to pay the
purchase price of the subject lot. In fact, as testified by
Johnson Paredes, son of [petitioner] who made the
computation on the alleged inventories, it is not known if the
goods, representing the amount of Php116,946.17, were
actually sold or not. It may have been taken without actually
being sold.
It is a basic rule of evidence that bare allegations,
unsubstantiated by evidence, are not equivalent to proof. As
between [petitioner’s] bare allegation of a verbal trust
agreement, and the deed of absolute sale between Maria
Mendoza and [respondent spouses Ramos], the latter should
prevail.
Although oral testimony is allowed to prove that a trust
exists, contrary to the contention of [respondent spouses
Ramos], and the court may rely on parol evidence to arrive
at a conclusion that an express trust exists, what is crucial is
the intention to create a trust. While oftentimes the intention
is manifested by the trustor in express or explicit language,
such intention may be manifested by inference from what the
trustor has said or done, from the nature of the transaction,
or from the circumstances surrounding the creation of the
purported trust.
However, an inference of the intention to create a trust,
made from language, conduct or circumstances, must be
made with reasonable certainty. It cannot rest on vague,
uncertain or indefinite declarations. An inference of intention
to create a trust, predicated only on circumstances, can be
made only where they admit of no other interpretation. Here,
[petitioner] failed to establish with reasonable certainty her
claim that the purchase of the subject lot was pursuant to a
verbal trust agreement with [respondent spouses
Ramos].23 (Emphasis ours.)
Thus, the Court of Appeals disposed of the case as follows:
WHEREFORE, in view of the foregoing, the instant appeal is
hereby GRANTED and the Decision dated 19 January 2000
of the Regional Trial Court (RTC) of Tuguegarao City,
Branch 2, with respect to the second cause of action or the
Bonifacio Property in Civil Case No. 3672 is hereby
REVERSED and SET ASIDE and a new one entered
DISMISSING the second cause of action of [herein
petitioner’s] complaint.24
On 12 January 2007, petitioner sought reconsideration 25 of
the foregoing Decision, but it was denied by the appellate
court in a Resolution26 dated 31 May 2007.
To have the ruling of the Court of Appeals overturned,
petitioner brought her case before us through the instant
Petition, raising the following issues: (1) whether the
existence of a trust agreement between her and respondent
spouses Ramos was clearly established, and (2) whether
such trust agreement was valid and enforceable.
At the outset, it is apparent that petitioner is raising questions
of fact in the instant Petition. Be it noted that in a petition for
review under Rule 45 of the Rules of Court, only questions of
law must be entertained. 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. 27 When the doubt or
difference arises as to the truth or falsehood of alleged facts
or when the query necessarily solicits calibration of the
whole evidence considering mostly the credibility of
witnesses, existence and relevancy of specific surrounding
circumstances, their relation to each other and to the whole
and probabilities of the situation, questions or errors of fact
are raised.28 The rule that only questions of law may be
raised in a petition for review under Rule 45, however,
admits of certain exceptions, 29 among which is when the
findings of the trial court are grounded entirely on
speculation, surmise and conjecture. As will be discussed
further, we find the afore-mentioned exception to be
applicable in the present Petition, thus, warranting a
departure from the general rule.
In its technical legal sense, a trust is defined as the right,
enforceable solely in equity, to the beneficial enjoyment of
property, the legal title to which is vested in another, but the
word "trust" is frequently employed to indicate duties,
relations, and responsibilities which are not strictly technical
trusts.30 A person who establishes a trust is called the trustor;
one in whom confidence is reposed is known as the trustee;
and the person for whose benefit the trust has been created
is referred to as the beneficiary.31 There is a fiduciary relation
between the trustee and the beneficiary (cestui que trust) as
regards certain property, real, personal, money or choses in
action.32
Trusts are either express or implied. Express trusts are
created by the intention of the trustor or of the parties.
Implied trusts come into being by operation of law. 33 Express
trusts are those which are created by the direct and positive
acts of the parties, by some writing or deed, or will, or by
words either expressly or impliedly evincing an intention to
create a trust.34 No particular words are required for the
creation of an express trust, it being sufficient that a trust is
clearly intended.35 However, in accordance with Article 1443
of the Civil Code, when an express trust concerns an
immovable property or any interest therein, the same may
not be proved by parol or oral evidence.36
In the instant case, petitioner maintains that she was able to
prove the existence of a trust agreement between her and
respondent spouses Ramos. She calls attention to the fact
that respondent spouses Ramos could not account for the
₱116,946.15 difference in the beginning inventory and the
second inventory of the stocks of the hardware store, and
they failed to present proof to support their allegation that the
amount was used to pay the other obligations of petitioner.
As respondent spouses Ramos never denied the existence
of the ₱116,946.15 difference, petitioner contends that they
have the burden of proving where this amount had gone, if
indeed they did not use the same to buy the Bonifacio
property. Petitioner asserts that given the respondent
spouses Ramos’ failure to discharge such burden, the only
conclusion would be that they did use the amount to
purchase the Bonifacio property.
Petitioner further alleges that based on the verbal agreement
between her and respondent spouses Ramos, a trust
agreement was created and that the same is valid and
enforceable. Petitioner claims that she is the trustor for it was
she who entrusted the Bonifacio property to respondent
spouses Ramos as the trustees, with the condition that the
same be used to secure a loan, the proceeds of which would
be used to build a bigger building to expand petitioner’s
business. Petitioner maintains that a trust agreement was
clearly intended by the parties when petitioner left the
management of the hardware store to respondent spouses
Ramos, with the agreement that the proceeds from the sales
from said store be used to buy the lot upon which the store
stands. The respondent spouses Ramos’ assumption of the
management of the hardware store and their eventual
purchase of the Bonifacio property indubitably shows that
respondent spouses Ramos honored their obligation under
the verbal agreement. Such being the case, it behooved for
the respondent spouses Ramos to hold the Bonifacio
property for petitioner’s benefit.
Petitioner’s arguments fail to persuade.
It bears stressing that petitioner has the burden of proving
her cause of action in the instant case and she may not rely
on the weakness of the defense of respondent spouses
Ramos. Burden of proof is the duty of any party to present
evidence to establish his claim or defense by the amount of
evidence required by law, which is preponderance of
evidence in civil cases. Preponderance of evidence 37 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. It is evidence which is more
convincing to the court as worthy of belief than that which is
offered in opposition thereto. 38 Therefore, the party, whether
plaintiff or defendant, who asserts the affirmative of the issue
has the burden of proof to obtain a favorable judgment. For
the plaintiff, the burden of proof never parts. 39 For the
defendant, an affirmative defense is one which is not a
denial of an essential ingredient in the plaintiff’s cause of
action, but one which, if established, will be a good
defense i.e., an avoidance of the claim.40
From the allegations of the petitioner’s Complaint in Civil
Case No. 3672, the alleged verbal trust agreement between
petitioner and respondent spouses Ramos is in the nature of
an express trust as petitioner explicitly agreed therein to
allow the respondent spouses Ramos to acquire title to the
Bonifacio property in their names, but to hold the same
property for petitioner’s benefit. Given that the alleged trust
concerns an immovable property, however, respondent
spouses Ramos counter that the same is unenforceable
since the agreement was made verbally and no parol
evidence may be admitted to prove the existence of an
express trust concerning an immovable property or any
interest therein.
On this score, we subscribe to the ruling of the RTC in its
Order dated 17 July 2000 that said spouses were deemed to
have waived their objection to the parol evidence as they
failed to timely object when petitioner testified on the said
verbal agreement. The requirement in Article 1443 that the
express trust concerning an immovable or an interest therein
be in writing is merely for purposes of proof, not for the
validity of the trust agreement. Therefore, the said article is
in the nature of a statute of frauds. The term statute of frauds
is descriptive of statutes which require certain classes of
contracts to be in writing. The statute does not deprive the
parties of the right to contract with respect to the matters
therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. 41 The effect of
non-compliance is simply that no action can be proved
unless the requirement is complied with. Oral evidence of the
contract will be excluded upon timely objection. But if the
parties to the action, during the trial, make no objection to
the admissibility of the oral evidence to support the contract
covered by the statute, and thereby permit such contract to
be proved orally, it will be just as binding upon the parties as
if it had been reduced to writing. 42
Per petitioner’s testimony, 43 the Bonifacio property was
offered for sale by its owner Mendoza. Petitioner told
respondent spouses Ramos that she was going to buy the
lot, but the title to the same will be in the latter’s names. The
money from the hardware store managed by respondent
spouses Ramos shall be used to buy the Bonifacio property,
which shall then be mortgaged by the respondent spouses
Ramos so that they could obtain a loan for building a bigger
store. The purchase price of ₱80,000.00 was paid for the
Bonifacio property. On 20 September 1984, the respondent
spouses Ramos returned the management of the store to
petitioner. Thereafter, petitioner allowed her son Johnson to
inventory the stocks of the store. Johnson found out that the
purchase price of ₱80,000.00 for the Bonifacio property was
already fully paid. When petitioner told the respondent
spouses Ramos to transfer the title to the Bonifacio property
in her name, the respondent spouses Ramos refused, thus,
prompting petitioner to file a complaint against them.
Similarly, Johnson testified44 that on 22 March 1982,
petitioner turned over the management of the hardware store
to respondent spouses Ramos. During that time, an
inventory45 of the stocks of the store was made and the total
value of the said stocks were determined to be ₱226,951.05.
When respondent spouses Ramos returned the
management of the store to petitioner on 20 September
1984, another inventory46 of the stocks was made, with the
total value of the stocks falling to ₱110,004.88. The
difference of ₱116,946.16 was attributed to the purchase of
the Bonifacio property by the respondent spouses Ramos
using the profits from the sales of the store.
A careful perusal of the records of the case reveals that
respondent spouses Ramos did indeed fail to interpose their
objections regarding the admissibility of the afore-mentioned
testimonies when the same were offered to prove the alleged
verbal trust agreement between them and petitioner.
Consequently, these testimonies were rendered admissible
in evidence. Nevertheless, while admissibility of evidence
is an affair of logic and law, determined as it is by its
relevance and competence, the weight to be given to
such evidence, once admitted, still depends on judicial
evaluation.47 Thus, despite the admissibility of the said
testimonies, the Court holds that the same carried little
weight in proving the alleged verbal trust agreement between
petitioner and respondent spouses.

Petitioner’s allegations as to the existence of an express

trust agreement with respondent spouses Ramos, supported
only by her own and her son Johnson’s testimonies, do not
hold water. As correctly ruled by the Court of Appeals, a
resulting difference of ₱116,946.15 in the beginning
inventory of the stocks of the hardware store (before
management was transferred to respondent spouses
Ramos) and the second inventory thereof (after
management was returned to petitioner), by itself, is not
conclusive proof that the said amount was used to pay the
purchase price of the Bonifacio property, such as would
make it the property of petitioner held merely in trust by
respondent spouses Ramos. Such a conclusion adopted by
the RTC is purely speculative and non sequitur. The
resulting difference in the two inventories might have been
caused by other factors and the same is capable of other
interpretations (e. g., that the amount thereof may have been
written off as business losses due to a bad economic
condition, or that the stocks of the store might have been
damaged or otherwise their purchase prices have increased
dramatically, etc.), the exclusion of which rested upon the
shoulders of petitioner alone who has the burden of proof in
the instant case. This petitioner miserably failed to do. The
fact that respondent spouses Ramos never denied the
₱116,946.15 difference, or that they failed to present proof
that they indeed used the said amount to pay the other
obligations and liabilities of petitioner is not sufficient to
discharge petitioner’s burden to prove the existence of the
alleged express trust agreement.

WHEREFORE, premises considered, the instant Petition for

Review on Certiorari under Rule 45 of the Rules of Court is
hereby DENIED. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 69731 dated 15 December 2006
is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.
 in Civil Case No. 94-57-MK while its assailed Resolution
denied petitioners' motion for reconsideration.
The antecedent facts are as follows:
The former Municipality of Marikina in the Province of Rizal
(now City of Marikina, Metro Manila) used to own a parcel of
land located in Barrio Concepcion of the said municipality
covered by Original Certificate of Title (OCT) No. 629 3 of the
Register of Deeds of Rizal. The said property was
subdivided into three (3) lots, namely, lots A, B and C, per
subdivision plan (LRC) Psd-4571.4
On January 14, 1966, the Municipal Council of Marikina
passed Resolution No. 9, series of 1966 which authorized
the sale through public bidding of Municipal Lots A and C.
On October 1, 1992, herein respondents sent a demand
letter to one of herein petitioners asking for the
reconveyance of the subject property. 11 However, petitioners
refused to reconvey the said lot. As a consequence,
respondents filed an action for "Annulment and/or Rescission
of Deed of Absolute Transfer of Real Property x x x and for
Reconveyance with Damages."12
On February 2, 1998, the RTC rendered its Decision with the
following dispositive portion:
WHEREFORE, foregoing premises, judgment is hereby
rendered as follows:
1. DISMISSING the complaint subject of the case
in caption for lack of merit;

On April 25, 1966, a public bidding was conducted wherein 2. DECLARING VALID both Transfer Certificates
Pedro Gonzales was the highest bidder. Two days of Title Nos. 244447 and 244448 issued by the
thereafter, or on April 27, 1966, the Municipal Council of Register of Deeds of Marikina;
Marikina issued Resolution No. 75 accepting the bid of
Pedro. Thereafter, a deed of sale was executed in favor of
3. DISMISSING the defendants' counterclaim.
the latter which was later forwarded to the Provincial
Governor of Rizal for his approval. The Governor, however,
did not act upon the said deed. No pronouncement as to costs.

Sometime in September 1966, Pedro sold to Marcos Perez a SO ORDERED.13

portion of Lot C, denominated as Lot C-3, which contains an
area of 375 square meters. The contract of sale was
The RTC ruled that since the Deed of Sale executed
embodied in a Deed of Sale5 which, however, was not
between Pedro and Marcos was not notarized, the same is
notarized. To segregate the subject property from the
considered void and of no effect. In addition, the trial court
remaining portions of Lot C, Marcos had the same surveyed
also held that Pedro became the owner of the subject lot
wherein a technical description of the subject lot was
only on February 7, 1992; as such, he could not have
prepared by a surveyor.6
lawfully transferred ownership thereof to Marcos in 1966.
G.R. No. 169681               November 5, 2009 Subsequently, Pedro and Marcos died.
Herein respondents appealed the RTC Decision to the CA
contending that the RTC erred in relying only on Articles
THE ESTATE OF PEDRO C. GONZALES and HEIRS OF On February 7, 1992, the Municipality of Marikina, through 1356 and 1358 of the Civil Code. Instead, respondents
PEDRO C. GONZALES, Petitioners, its then Mayor Rodolfo Valentino, executed a Deed of assert that the RTC should also have applied the provisions
vs. Absolute Transfer of Real Property over Lots A and C in of Articles 1357, 1403 (2), 1405 and 1406 of the same Code.
THE HEIRS OF MARCOS PEREZ, Respondents. favor of the Estate of Pedro C. Gonzales. 7 On June 25,
1992, Transfer Certificate of Title (TCT) No. 223361,
On April 25, 2005, the CA rendered its presently assailed
DECISION covering Lot C, was issued in the name of the said estate. 8
Decision disposing as follows:

PERALTA, J.: Subsequently, herein petitioners executed an extra-judicial

This resolves the instant Petition for Review
on Certiorari under Rule 45 of the Rules of Court praying for
the nullification of the Decision 1 of the Court of Appeals (CA)
dated April 25, 2005 in CA-G.R. CV No. 60998 and its
Resolution2 dated September 14, 2005. The challenged
Decision of the CA reversed and set aside the judgment of
the Regional Trial Court (RTC) of Marikina City, Branch 272
WHEREFORE, premises considered, the instant Appeal is
partition wherein Lot C was subdivided into three lots. As a
hereby GRANTED and the assailed Decision dated February
result of the subdivision, new titles were issued wherein the
370-square-meter portion of Lot C-3 is now denominated as 2, 1998 is REVERSED and SET ASIDE. TCT No. 244447
and partially, TCT No. 244448, with respect to five (5) square
Lot C-1 and is covered by TCT No. 244447 9 and the
meters, are declared NULL and VOID and defendants-
remaining 5 square meters of the subject lot (Lot C-3) now
appellees are ordered to reconvey in favor of the plaintiffs-
forms a portion of another lot denominated as Lot C-2 and is
appellants the subject property covered by said Transfer
now covered by TCT No. 244448.10
Certificates of Title (five square meters only with respect to
TCT No. 244448). The trial court's dismissal of defendants-
appellees' counterclaim is, however, AFFIRMED.
SO ORDERED.14
The CA held that a sale of real property, though not
consigned in a public instrument, is nevertheless valid and
binding among the parties and that the form required in
Article 1358 of the Civil Code is not essential to the validity
or enforceability of the transactions but only for convenience.
Petitioners filed a motion for reconsideration, but the same
was denied by the CA in its Resolution of September 14,
2005 on the ground that the said motion was filed out of
time.
Hence, the present petition with the following assignment of
errors:
WITH DUE RESPECT TO THE HONORABLE COURT OF
APPEALS, ITS FINDINGS OF FACT RUN COUNTER TO
THOSE OF THE TRIAL COURT, THUS, IT HAS DECIDED
THE CASE IN A WAY NOT IN ACCORD WITH LAW AND
JURISPRUDENCE.
WITH DUE RESPECT, THE ALLEGED DEED OF SALE IS
SUSPECT AND RIDDEN WITH INCONSISTENCIES. IN
FACT, THE LOWER COURT HELD THAT THE DEED OF
SALE FAILED TO MEET THE SOLEMNITY
REQUIREMENTS PROVIDED UNDER THE LAW FOR ITS
VALIDITY.
WITH DUE RESPECT, THE COURT OF APPEALS ERRED
IN DISREGARDING THE FINDINGS OF FACT AND THE
APPLICATION OF LAW BY THE REGIONAL TRIAL COURT
THAT UNDER THE PURPORTED DEED OF SALE THE
VENDOR COULD NOT HAVE TRANSFERRED
OWNERSHIP.15
In their first and last assigned errors, petitioners contend that
Marcos, who is respondents' predecessor-in-interest, could
not have legally bought the disputed parcel of land from
petitioners' predecessor-in-interest, Pedro, in September
1966 because, during that time, Pedro had not yet acquired
ownership of the subject lot. Petitioners' assertion is based
on the premise that as of February 29, 1968, the Deed of
Sale between Pedro and the Municipality of Marikina was
still subject to approval by the Provincial Governor of Rizal,
as required under Section 2196 of the Revised
Administrative Code. Considering that on the supposed date
of sale in favor of Marcos, the requisite approval of the
Provincial Governor was not yet secured, petitioners
conclude that Pedro could not be considered as the owner of
the subject property and, as such, he did not yet possess the
right to transfer ownership thereof and, thus, could not have
lawfully sold the same to Marcos.
The Court does not agree.
Section 2196 of the Revised Administrative Code provides:
SECTION 2196. Execution of deeds. – When the
government of a municipality is a party to a deed or an
instrument which conveys real property or any interest
therein or which creates a lien upon the same, such deed or
instrument shall be executed on behalf of the municipal
government by the mayor, upon resolution of the council,
with the approval of the governor.
In Municipality of Camiling v. Lopez,16 the Court found
occasion to expound on the nature and effect of the
provincial governor's power to approve contracts entered into
by a municipal government as provided for under Section
2196 of the Revised Administrative Code. The Court held,
thus:
x x x The approval by the provincial governor of contracts
entered into and executed by a municipal council, as
required in [S]ection 2196 of the Revised Administrative
Code, is part of the system of supervision that the provincial
government exercises over the municipal governments. It is
not a prohibition against municipal councils entering into
contracts regarding municipal properties subject of municipal
administration or control. It does not deny the power, right or
capacity of municipal councils to enter into such contracts;
such power or capacity is recognized. Only the exercise
thereof is subject to supervision by approval or disapproval,
i.e., contracts entered in pursuance of the power would
ordinarily be approved if entered into in good faith and for the
best interests of the municipality; they would be denied
approval if found illegal or unfavorable to public or municipal
interest. The absence of the approval, therefore, does
not per se make the contracts null and void.17
This pronouncement was later reiterated in Pechueco Sons
Company v. Provincial Board of Antique,18 where the Court
ruled more emphatically that:
In other words, as regards the municipal transactions
specified in Section 2196 of the Revised Administrative
Code, the Provincial Governor has two courses of action to
take – either to approve or disapprove the same. And since
absence of such approval does not necessarily render
the contract entered into by the municipality null and
void, the transaction remains voidable until such time
when by subsequent unfavorable action of the governor,
for reasons of public interest, the contract is thereby
invalidated.19
It is clear from the above-quoted pronouncements of the
Court that, pending approval or disapproval by the Provincial
Governor of a contract entered into by a municipality which
falls under the provisions of Section 2196 of the Revised
Administrative Code, such contract is considered voidable. In
the instant case, there is no showing that the contract of sale
entered into between Pedro and the Municipality of Marikina
was ever acted upon by the Provincial Governor. Hence,
consistent with the rulings enunciated above, the subject
contract should be considered voidable. Voidable or
annullable contracts, before they are set aside, are existent,
valid, and binding, and are effective and obligatory between
the parties.20
In the present case, since the contract was never annulled or
set aside, it had the effect of transferring ownership of the
subject property to Pedro. Having lawfully acquired
ownership of Lots A and C, Pedro, in turn, had the full
capacity to transfer ownership of these parcels of land or
parts thereof, including the subject property which comprises
a portion of Lot C.
It is wrong for petitioners to argue that it was only on June
25, 1992, when TCT No. 223361 covering Lot C was issued
in the name of the estate of Pedro, that he became the
owner thereof.
Article 1496 of the Civil Code provides:
The ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred
from the vendor to the vendee.
In conjunction with the above-stated provision, Article 1497
of the Civil Code states that:
The thing sold shall be understood as delivered when it is
placed in the control and possession of the vendee.
In the present case, there is no dispute that Pedro took
control and possession of the said lot immediately after his
bid was accepted by the Municipal Government of Marikina.
In fact, herein petitioners, in their Answer with Compulsory
Counterclaim admit that both Pedro and Marcos, together
with their respective heirs, were already occupying the
subject property even before the same was sold to Pedro
and that, after buying the same, Pedro allowed Marcos and
his family to stay thereon. 21 This only shows that upon
perfection of the contract of sale between the Municipality of
Marikina and Pedro, the latter acquired ownership of the
subject property by means of delivery of the same to him.
Hence, the issuance of TCT No. 223361, as well as the
execution of the Deed of Absolute Transfer of Real Property
on February 7, 1992 by the Municipal Mayor of Marikina,
could not be considered as the operative acts which
transferred ownership of Lot C to Pedro. Pedro already
acquired ownership of the subject property as early as 1966
when the same was delivered to him by the Municipality of
Marikina, and the execution of the Deed of Absolute Transfer
of Real Property as well as the consequent issuance of TCT
No. 223316 are simply a confirmation of such
ownership.1avvphi1
It may not be amiss to point out at this juncture that the Deed
of Absolute Transfer of Real Property executed by the Mayor
of Marikina was no longer subject to approval by the
Provincial Governor of Rizal because Marikina already
became part of Metro Manila on November 7, 1975. 22 On
December 8, 1996, Marikina became a chartered city.23
In their second assignment of error, petitioners question the
authenticity and due execution of the Deed of Sale executed
by Pedro in favor of Marcos. Petitioners also argue that even
assuming that Pedro actually executed the subject Deed of
Sale, the same is not valid because it was not notarized as
required under the provisions of Articles 1403 and 1358 of
the Civil Code.
The Court is not persuaded.
The RTC, in its abbreviated discussion of the questions
raised before it, did not touch on the issue of whether the
Deed of Sale between Pedro and Marcos is authentic and
duly executed. However, the CA, in its presently assailed
Decision, adequately discussed this issue and ruled as
follows:
x x x In the present case, We are convinced that plaintiffs-
appellants [herein respondents] have substantially proven
that Pedro, indeed, sold the subject property to Marcos for
₱9,378.75. The fact that no receipt was presented to prove
actual payment of consideration, in itself, the absence of
receipts, or any proof of consideration, would not be
conclusive since consideration is always presumed.
Likewise, the categorical statement in the trial court of
Manuel P. Bernardo, one of the witnesses in the Deed of
Sale, that he himself saw Pedro sign such Deed lends
credence. This was corroborated by another witness,
Guillermo Flores. Although the defendants-appellees [herein
petitioners] are assailing the genuineness of the signatures
of their parents on the said Deed, they presented no
evidence of the genuine signatures of their parents as would
give this Court a chance to scrutinize and compare it with the
assailed signatures. Bare allegations, unsubstantiated by
evidence, are not equivalent to proof under our Rules.24
In the instant petition, petitioners would have us review the
factual determinations of the CA. However, settled is the rule
that the Court is not a trier of facts and only questions of law
are the proper subject of a petition for review on certiorari in
this Court.25 While there are exceptions to this rule, 26 the
Court finds that the instant case does not fall under any of
them. Hence, the Court sees no reason to disturb the
findings of the CA, which are supported by evidence on
record.
On the question of whether the subject Deed of Sale is
invalid on the ground that it does not appear in a public
document, Article 1358 of the same Code enumerates the
acts and contracts that should be embodied in a public
document, to wit:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their
object the creation, transmission, modification
or extinguishment of real rights over
immovable property; sales of real property or
of an interest therein are governed by Articles
1403, No. 2 and 1405;
(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; and
(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.
On the other hand, pertinent portions of Article 1403 of the
Civil Code provide as follows:
Art. 1403. The following contracts are unenforceable, unless
they are ratified:
xxxx
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
xxxx
(e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest
therein; x x x27
Under Article 1403(2), the sale of real property should be in
writing and subscribed by the party charged for it to be
enforceable.28 In the case before the Court, the Deed of Sale
between Pedro and Marcos is in writing and subscribed by
Pedro and his wife Francisca; hence, it is enforceable under
the Statute of Frauds.
However, not having been subscribed and sworn to before a
notary public, the Deed of Sale is not a public document and,
therefore, does not comply with Article 1358 of the Civil
Code.
Nonetheless, it is a settled rule that the failure to observe the
proper form prescribed by Article 1358 does not render the
acts or contracts enumerated therein invalid. It has been
uniformly held that the form required under the said Article is
not essential to the validity or enforceability of the
transaction, but merely for convenience. 29 The Court agrees
with the CA in holding that a sale of real property, though not
consigned in a public instrument or formal writing, is,
nevertheless, valid and binding among the parties, for the
time-honored rule is that even a verbal contract of sale of
real estate produces legal effects between the
parties.30 Stated differently, although a conveyance of land is
not made in a public document, it does not affect the validity
of such conveyance. Article 1358 does not require the
accomplishment of the acts or contracts in a public
instrument in order to validate the act or contract but only to
insure its efficacy.31 Thus, based on the foregoing, the Court
finds that the CA did not err in ruling that the contract of sale
between Pedro and Marcos is valid and binding.
WHEREFORE, the instant petition is DENIED. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 60998 are AFFIRMED.
SO ORDERED.

G.R. No. 194366               October 10, 2012
NAPOLEON D. NERI, ALICIA D. NERI-MONDEJAR,
VISMINDA D. NERI-CHAMBERS, ROSA D. NERI-MILLAN,
DOUGLAS D. NERI, EUTROPIA D. ILLUT-COCKINOS
AND VICTORIA D. ILLUT-PIALA, Petitioners,
vs.
HEIRS OF HADJI YUSOP UY AND JULPHA* IBRAHIM
UY, Respondents.
DECISION
PERLAS-BERNABE, J.:
In this Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Court, petitioners Napoleon D. Neri (Napoleon),
Alicia D. Neri-Mondejar (Alicia), Visminda D. Neri-Chambers
(Visminda), Rosa D. Neri-Millan (Rosa), Douglas D. Neri
(Douglas), Eutropia D. Illut-Cockinos (Eutropia), and Victoria
D. Illut-Piala (Victoria) seek to reverse and set aside the April
27, 2010 Decision2 and October 18, 2010 Resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 01031-MIN which
annulled the October 25, 2004 Decision4 of the Regional Trial
Court (RTC) of Panabo City, Davao del Norte and instead,
entered a new one dismissing petitioners’ complaint for
annulment of sale, damages and attorney’s feesagainst
herein respondents heirs of spouses Hadji Yusop Uy and
Julpha Ibrahim Uy (heirs of Uy).
The Facts
During her lifetime, Anunciacion Neri (Anunciacion) had
seven children, two (2) from her first marriage with Gonzalo
Illut (Gonzalo), namely: Eutropia and Victoria, and five (5)
from her second marriage with Enrique Neri (Enrique),
namely: Napoleon, Alicia, Visminda, Douglas and Rosa.
Throughout the marriage of spouses Enrique and
Anunciacion, they acquired several homestead properties
with a total area of 296,555 square meters located in Samal,
Davao del Norte, embraced by Original Certificate of Title
(OCT) Nos. (P-7998) P-21285 , (P-14608) P-51536 and P-
20551 (P-8348)7 issued on February 15, 1957, August 27,
1962 and July 7, 1967, respectively.
On September 21, 1977, Anunciacion died intestate. Her
husband, Enrique, in his personal capacity and as natural
guardian of his minor children Rosa and Douglas, together
with Napoleon, Alicia, and Vismindaexecuted an Extra-
Judicial Settlement of the Estate with Absolute Deed of
Sale8 on July 7, 1979, adjudicating among themselves the
said homestead properties, and thereafter, conveying themto
the late spouses Hadji Yusop Uy and Julpha Ibrahim Uy
(spouses Uy)for a consideration of ₱ 80,000.00.
On June 11, 1996, the children of Enrique filed a complaint
for annulment of saleof the said homestead properties
against spouses Uy (later substituted by their heirs)before
the RTC, docketed as Civil Case No.96-28, assailing the
validity of the sale for having been sold within the prohibited
period. Thecomplaint was later amended to include Eutropia
and Victoriaas additional plaintiffs for having been excluded
and deprived of their legitimes as childrenof Anunciacion
from her first marriage.
In their amended answer with counterclaim, the heirs of Uy
countered that the sale took place beyond the 5-year
prohibitory period from the issuance of the homestead
patents. They also denied knowledge of Eutropia and
Victoria’s exclusionfrom the extrajudicial settlement and sale
of the subject properties, and interposed further the defenses
of prescription and laches.
The RTC Ruling
On October 25, 2004, the RTC rendered a decision ordering,
among others, the annulment of the Extra-Judicial
Settlement of the Estate with Absolute Deed of Sale. It ruled
that while the sale occurred beyond the 5-year prohibitory
period, the sale is still void because Eutropia and Victoria
were deprived of their hereditary rights and that Enrique had
no judicial authority to sell the shares of his minor children,
Rosa and Douglas.
Consequently, it rejected the defenses of laches and
prescription raised by spouses Uy, who claimed possession
of the subject properties for 17 years, holding that co-
ownership rights are imprescriptible.
The CA Ruling
On appeal, the CAreversed and set aside the ruling of the
RTC in its April 27, 2010 Decision and dismissed the
complaint of the petitioners. It held that, while Eutropia and
Victoria had no knowledge of the extrajudicial settlement and
sale of the subject properties and as such, were not bound
by it, the CA found it unconscionable to permit the annulment
of the sale considering spouses Uy’s possession thereof for
17 years, and thatEutropia and Victoriabelatedlyfiled their
actionin 1997, ormore than two years fromknowledge of their
exclusion as heirs in 1994 when their stepfather died. It,
however, did not preclude the excluded heirs from
recovering their legitimes from their co-heirs.
Similarly, the CA declared the extrajudicial settlement and
the subsequent saleas valid and binding with respect to
Enrique and hischildren, holding that as co-owners, they
have the right to dispose of their respective shares as they
consider necessary or fit.While recognizing Rosa and
Douglas to be minors at that time, they were deemed to have
ratified the sale whenthey failed to question it upon reaching
the age of majority.Italso found laches to have set in
because of their inaction for a long period of time.
The Issues
In this petition, petitioners imputeto the CA the following
errors:
I. WHEN IT UPHELDTHE VALIDITY OF THE "EXTRA
JUDICIAL SETTLEMENT OF THE ESTATE WITH
ABSOLUTE DEED OF SALE" AS FAR AS THE SHARES
OF EUTROPIA AND VICTORIA WERE CONCERNED,
THEREBY DEPRIVING THEM OF THEIR INHERITANCE;
II. WHEN IT DID NOT NULLIFY OR ANNUL THE "EXTRA
JUDICIAL SETTLEMENT OF THE ESTATE WITH
ABSOLUTE DEED OF SALE" WITH RESPECT TO THE
SHARESOF ROSA AND DOUGLAS, THEREBY
DEPRIVING THEM OF THEIR INHERITANCE; and
III. WHEN IT FOUND THAT LACHES OR PRESCRIPTION
HAS SET IN.
The Ruling of the Court
The petitionis meritorious.
It bears to stress that all the petitioners herein are
indisputably legitimate children of Anunciacion from her first
and second marriages with Gonzalo and Enrique,
respectively, and consequently, are entitled to inherit from
her in equal shares, pursuant to Articles 979 and 980 of the
Civil Code which read:
ART. 979. Legitimate children and their descendants
succeed the parents and other ascendants, without
distinction as to sex or age, and even if they should come
from different marriages.
xxx
ART. 980. The children of the deceased shall always inherit
from him in their own right, dividing the inheritance in equal
shares.
As such, upon the death of Anunciacion on September 21,
1977, her children and Enrique acquired their respective
inheritances,9 entitling them to their pro indiviso shares in her
whole estate, as follows:
Enrique 9/16 (1/2 of the conjugal assets + 1/16)
Eutropia 1/16
Victoria 1/16
Napoleon 1/16
Alicia 1/16
Visminda 1/16
Rosa 1/16
Douglas 1/16
Hence, in the execution of the Extra-Judicial Settlement of
the Estate with Absolute Deed of Sale in favor of spouses
Uy, all the heirs of Anunciacionshould have participated.
Considering that Eutropia and Victoria were admittedly
excluded and that then minors Rosa and Douglas were not
properly represented therein, the settlement was not valid
and binding uponthem and consequently, a total nullity.
Section 1, Rule 74 of the Rules of Court provides:
SECTION 1. Extrajudicial settlement by agreement between
heirs. – x x x
The fact of the extrajudicial settlement or administration shall
be published in a newspaper of general circulation in the
manner provided in the next succeeding section; but no
extrajudicial settlement shall be binding upon any person
who has not participated therein or had no notice thereof.
(Underscoring added)
The effect of excluding the heirs in the settlement of estate
was further elucidated in Segura v. Segura,10 thus:
It is clear that Section 1 of Rule 74 does not apply to the
partition in question which was null and void as far as the
plaintiffs were concerned. The rule covers only valid
partitions. The partition in the present case was invalid
because it excluded six of the nine heirs who were entitled to
equal shares in the partitioned property. Under the rule "no
extrajudicial settlement shall be binding upon any person
who has not participated therein or had no notice thereof."
As the partition was a total nullity and did not affect the
excluded heirs, it was not correct for the trial court to hold
that their right to challenge the partition had prescribed after
two years from its execution…
However, while the settlement of the estate is null and void,
the subsequent sale of the subject propertiesmade by
Enrique and his children, Napoleon, Alicia and Visminda, in
favor of the respondents isvalid but only with respect to their
proportionate shares therein.It cannot be denied that these
heirs have acquired their respective shares in the properties
of Anunciacion from the moment of her death 11 and that, as
owners thereof, they can very well sell their undivided share
in the estate.12
With respect to Rosa and Douglas who were minors at the
time of the execution of the settlement and sale, their natural
guardian and father, Enrique, represented them in the
transaction. However, on the basis of the laws prevailing at
that time, Enrique was merely clothed with powers of
administration and bereft of any authority to dispose of their
2/16 shares in the estate of their mother, Anunciacion.
Articles 320 and 326 of the Civil Code, the laws in force at
the time of the execution of the settlement and sale, provide:
ART. 320. The father, or in his absence the mother, is the
legal administrator of the property pertaining to the child
under parental authority. If the property is worth more than
two thousand pesos, the father or mother shall give a bond
subject to the approval of the Court of First Instance.
ART. 326. When the property of the child is worth more than
two thousand pesos, the father or mother shall be
considered a guardian of the child’s property, subject to the
duties and obligations of guardians under the Rules of Court.
Corollarily, Section 7, Rule 93 of the Rules of Court also
provides:
SEC. 7. Parents as Guardians. – When the property of the
child under parental authority is worth two thousand pesos or
less, the father or the mother, without the necessity of court
appointment, shall be his legal guardian. When the property
of the child is worth more than two thousand pesos, the
father or the mother shall be considered guardian of the
child’s property, with the duties and obligations of guardians
under these Rules, and shall file the petition required by
Section 2 hereof. For good reasons, the court may, however,
appoint another suitable persons.
Administration includes all acts for the preservation of the
property and the receipt of fruits according to the natural
purpose of the thing. Any act of disposition or alienation, or
any reduction in the substance of the patrimony of child,
exceeds the limits of administration. 13 Thus, a father or
mother, as the natural guardian of the minor under parental
authority, does not have the power to dispose or encumber
the property of the latter. Such power is granted by law only
to a judicial guardian of the ward’s property and even then
only with courts’ prior approval secured in accordance with
the proceedings set forth by the Rules of Court.14
Consequently, the disputed sale entered into by Enrique in
behalf of his minor children without the proper judicial
authority, unless ratified by them upon reaching the age of
majority,15 is unenforceable in accordance with Articles 1317
and 1403(1) of the Civil Code which provide:
ART. 1317. No one may contract in the name of another
without being authorized by the latter or unless he has by
law a right to represent him.
A contract entered into in the name of another by one who
has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other
contracting party.
ART. 1403. The following contracts are unenforceable,
unless they are ratified:
(1) Those entered into the name of another person by one
who has been given no authority or legal representation, or
who has acted beyond his powers;
xxx
Ratification means that one under no disability voluntarily
adopts and gives sanction to some unauthorized act or
defective proceeding, which without his sanction would not
be binding on him. It is this voluntary choice, knowingly
made, which amounts to a ratification of what was
theretofore unauthorized, and becomes the authorized act of
the party so making the ratification. 16 Once ratified, expressly
or impliedly such as when the person knowingly received
benefits from it, the contract is cleansed from all its defects
from the moment it was constituted, 17 as it has a retroactive
effect.
Records, however, show that Rosa had ratified the
extrajudicial settlement of the estate with absolute deed of
sale. In Napoleon and Rosa’s Manifestation 18 before the RTC
dated July 11, 1997,they stated:
"Concerning the sale of our parcel of land executed by our
father, Enrique Neri concurred in and conformed to by us
and our other two sisters and brother (the other plaintiffs), in
favor of Hadji Yusop Uy and his spouse Hadja Julpa Uy on
July 7, 1979, we both confirmed that the same was voluntary
and freely made by all of us and therefore the sale was
absolutely valid and enforceable as far as we all plaintiffs in
this case are concerned;" (Underscoring supplied)
In their June 30, 1997 Joint-Affidavit, 19 Napoleon and Rosa
also alleged:
"That we are surprised that our names are included in this
case since we do not have any intention to file a case
against Hadji Yusop Uy and Julpha Ibrahim Uy and their
family and we respect and acknowledge the validity of the
Extra-Judicial Settlement of the Estate with Absolute Deed of defense for the declaration of the inexistence of a contract
Sale dated July 7, 1979;" (Underscoring supplied) does not prescribe" in accordance with Article 1410 of the
Civil Code.
Clearly, the foregoing statements constitutedratification of
the settlement of the estate and the subsequent sale, thus, However, the action to recover property held in trust
purging all the defects existing at the time of its execution prescribes after 10 years from the time the cause of action
and legitimizing the conveyance of Rosa’s 1/16 share in the accrues,22 which is from the time of actual notice in case of
estate of Anunciacion to spouses Uy. The same, however, is unregistered deed.23 In this case, Eutropia, Victoria and
not true with respect to Douglas for lack of evidence showing Douglas claimed to have knowledge of the extrajudicial
ratification. settlement with sale after the death of their father, Enrique, in
1994 which spouses Uy failed to refute. Hence, the
complaint filed in 1997 was well within the prescriptive period
Considering, thus, that the extrajudicial settlement with sale
of 10 years.
is invalid and therefore, not binding on Eutropia, Victoria and
Douglas, only the shares ofEnrique, Napoleon, Alicia,
Visminda and Rosa in the homestead properties have WHEREFORE, the instant petition is GRANTED. The April
effectivelybeen disposed in favor of spouses Uy. "A person 27, 2010 Decision and October 18, 2010 Resolution of the
can only sell what he owns, or is authorized to sell and the Court of Appeals are REVERSED and SET ASIDE and a
buyer can as a consequence acquire no more than what the new judgment is entered:
sellercan legally transfer."20 On this score, Article 493 of the
Civil Codeis relevant, which provides:
1. Declaring the Extra-Judicial Settlement of the
Estate of Anunciacion Neri NULL and VOID;
Each co-owner shall have the full ownership of his part and
of the fruits and benefits pertaining thereto, and he may
2. Declaring the Absolute Deed of Sale in favor of
therefore alienate, assign or mortgage it, and even substitute
the late spouses Hadji Yusop Uy and Julpha
another person in its enjoyment, except when personal rights
Ibrahim Uy as regards the 13/16 total shares of the
are involved. But the effect of the alienation or the mortgage,
late Enrique Neri, Napoleon Neri, Alicia D. Neri-
with respect to the co-owners, shall be limited to the portion
Mondejar, Visminda D. Neri-Chambers and Rosa
which may be allotted to him in the division upon the
D. Neri-Millan VALID;
termination of the co-ownership.
3. Declaring Eutropia D. Illut-Cockinos, Victoria D.
Consequently, spouses Uy or their substituted heirs became
Illut-Piala and Douglas D. Neri as the LAWFUL
pro indiviso co-owners of the homestead properties with
OWNERS of the 3/16 portions of the subject
Eutropia, Victoria and Douglas, who retained title to their
homestead properties, covered by Original
respective 1/16 shares. They were deemed to be holding the
Certificate of Title Nos. (P-7998) P-2128, (P-
3/16 shares of Eutropia, Victoria and Douglas under an
14608) P-5153 and P-20551 (P-8348); and
implied constructive trust for the latter’s benefit, conformably
with Article 1456 of the Civil Code which states:"if property is
acquired through mistake or fraud, the person obtaining it is, 4. Ordering the estate of the late Enrique Neri, as
by force of law, considered a trustee of an implied trust for well as Napoleon Neri, Alicia D. Neri-Mondejar,
the benefit of the person from whom the property comes." As Visminda D. Neri-Chambers and Rosa D. Neri-
such, it is only fair, just and equitable that the amount paid Millan to return to the respondents jointly and
for their shares equivalent to ₱ 5,000.00 21 each or a total of ₱ solidarily the amount paid corresponding to the
15,000.00 be returned to spouses Uy with legal interest. 3/16 shares of Eutropia, Victoria and Douglas in
the total amount of ₱ 15,000.00, with legal interest
at 6% per annum computed from the time of
On the issue of prescription, the Court agrees with
payment until finality of this decision and 12% per
petitioners that the present action has not prescribed in so
annum thereafter until fully paid.
far as it seeks to annul the extrajudicial settlement of the
estate. Contrary to the ruling of the CA, the prescriptive
period of 2 years provided in Section 1 Rule 74 of the Rules No pronouncement as to costs.
of
SO ORDERED.
Court reckoned from the execution of the extrajudicial
settlement finds no application to petitioners Eutropia,
Victoria and Douglas, who were deprived of their lawful
participation in the subject estate. Besides, an "action or

G.R. No. 179625               February 24, 2014
NICANORA G. BUCTON (deceased), substituted by
REQUILDA B. YRAY, Petitioner,
vs.
RURAL BANK OF EL SALVADOR, INC., MISAMIS
ORIENTAL, and REYNALDO CUYONG, Respondents,
vs.
ERLINDA CONCEPCION AND HER HUSBAND AND
AGNES BUCTON LUGOD, Third Party Defendants.
DECISION
DEL CASTILLO, J.:
A mortgage executed by an authorized agent who signed in
his own name without indicating that he acted for and on
behalf of his principal binds only the agent and not the
principal.
This Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Court assails the August 17, 2005 Decision 2 and the
June 7, 2007 Resolution3 of the Court of Appeals (CA) in CA-
G.R. CV No. 60841.
Factual Antecedents
On April 29, 1988, petitioner Nicanora G. Bucton filed with
the Regional Trial Court (RTC) of Cagayan de Oro a
case4 for Annulment of Mortgage, Foreclosure, and Special
Power of Attorney (SPA) against Erlinda Concepcion
(Concepcion) and respondents Rural Bank of El Salvador,
Misamis Oriental, and Sheriff Reynaldo Cuyong.5
Petitioner alleged that she is the owner of a parcel of land,
covered by Transfer Certificate of Title (TCT) No. T-3838,
located in Cagayan de Oro City;6 that on June 6, 1982,
Concepcion borrowed the title on the pretext that she was
going to show it to an interested buyer; 7 that Concepcion
obtained a loan in the amount of ₱30,000.00 from
respondent bank;8 that as security for the loan, Concepcion
mortgaged petitioner’s house and lot to respondent bank
using a SPA9 allegedly executed by petitioner in favor of
Concepcion;10 that Concepcion failed to pay the loan; 11 that
petitioner’s house and lot were foreclosed by respondent
sheriff without a Notice of Extra-Judicial Foreclosure or
Notice of Auction Sale; 12 and that petitioner’s house and lot
were sold in an auction sale in favor of respondent bank.13
Respondent bank filed an Answer14 interposing lack of cause
of action as a defense. 15 It denied the allegation of petitioner
that the SPA was forged16 and averred that on June 22,
1987, petitioner went to the bank and promised to settle the
loan of Concepcion before September 30, 1987. 17 As to the
alleged irregularities in the foreclosure proceedings,
respondent bank asserted that it complied with the
requirements of the law in foreclosing the house and lot. 18 By
way of cross-claim, respondent bank prayed that in the event
of an adverse judgment against it, Concepcion, its co-
defendant, be ordered to indemnify it for all damages.19
However, since summons could not be served upon
Concepcion, petitioner moved to drop her as a
defendant,20 which the RTC granted in its Order dated
October 19, 1990.21
This prompted respondent bank to file a Third-Party
Complaint22 against spouses Concepcion and Agnes Bucton
Lugod (Lugod), the daughter of petitioner. Respondent bank
claimed that it would not have granted the loan and accepted
the mortgage were it not for the assurance of Concepcion
and Lugod that the SPA was valid.23 Thus, respondent bank
prayed that in case it be adjudged liable, it should be
reimbursed by third-party defendants.24
On January 30, 1992, spouses Concepcion were declared in
default for failing to file a responsive pleading. 25
During the trial, petitioner testified that a representative of
respondent bank went to her house to inform her that the
loan secured by her house and lot was long overdue.26 Since
she did not mortgage any of her properties nor did she
obtain a loan from respondent bank, she decided to go to
respondent bank on June 22, 1987 to inquire about the
matter.27 It was only then that she discovered that her house
and lot was mortgaged by virtue of a forged SPA. 28 She
insisted that her signature and her husband’s signature on
the SPA were forged 29 and that ever since she got married,
she no longer used her maiden name, Nicanora Gabar, in
signing documents.30 Petitioner also denied appearing before
the notary public, who notarized the SPA. 31 She also testified
that the property referred to in the SPA, TCT No. 3838, is a
vacant lot and that the house, which was mortgaged and
foreclosed, is covered by a different title, TCT No. 3839.32
To support her claim of forgery, petitioner presented Emma
Nagac who testified that when she was at Concepcion’s
boutique, she was asked by the latter to sign as a witness to
the SPA;33 that when she signed the SPA, the signatures of
petitioner and her husband had already been affixed;34 and
that Lugod instructed her not to tell petitioner about the
SPA.35
Respondent bank, on the other hand, presented the
testimonies of its employees36 and respondent sheriff. Based
on their testimonies, it appears that on June 8, 1982,
Concepcion applied for a loan for her coconut production
business37 in the amount of ₱40,000.00 but only the amount
of ₱30,000.00 was approved; 38 that she offered as collateral
petitioner’s house and lot using the SPA; 39 and that the
proceeds of the loan were released to Concepcion and
Lugod on June 11, 1982.40
Edwin Igloria, the bank appraiser, further testified that
Concepcion executed a Real Estate Mortgage 41 over two
properties, one registered in the name of petitioner and the
other under the name of a certain Milagros Flores. 42 He said
that he inspected petitioner’s property; 43 that there were
several houses in the compound; 44 and although he was
certain that the house offered as collateral was located on
the property covered by TCT No. 3838, he could not explain
why the house that was foreclosed is located on a lot
covered by another title, not included in the Real Estate
Mortgage.45
Ruling of the Regional Trial Court
On February 23, 1998, the RTC issued a
Decision46 sustaining the claim of petitioner that the SPA was
forged as the signatures appearing on the SPA are different
from the genuine signatures presented by petitioner. 47 The
RTC opined that the respondent bank should have
conducted a thorough inquiry on the authenticity of the SPA
considering that petitioner’s residence certificate was not
indicated in the acknowledgement of the SPA. 48 Thus, the
RTC decreed:
WHEREFORE, the court hereby declares null and void or
annuls the following:
1. The special power of attorney which was
purportedly executed by [petitioner] x x x;
2. The real estate mortgage x x x
3. The sheriff’s sale of Lot No. 2078-B-1-E, and
the certificate of title issued in favor of the Rural
Bank of El Salavador [by] virtue thereof, as well as
the sheriff’s sale of the two[-]story house described
in the real estate mortgage.
4. The certificate of title in the name of the Rural
Bank of El Salvador if any, issued [by] virtue of the
sheriff’s sale.
The court hereby also orders [respondent] bank to pay
[petitioner] attorney’s fees of ₱20,000 and moral damages of
₱20,000 as well as the costs of the case.
SO ORDERED.49
On reconsideration,50 the RTC in its May 8, 1998
Resolution51 rendered judgment on the Third-Party
Complaint filed by respondent bank, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered under the third-
party complaint and against third-party defendants Erlinda
Concepcion and her husband:
To indemnify or reimburse [respondent bank] all sums of
money plus interests thereon or damages that [respondent
bank] has in this case been forced to pay, disburse or deliver
to [petitioner] including the costs.
52
SO ORDERED.
Ruling of the Court of Appeals
Dissatisfied, respondent bank elevated the case to the CA
arguing that the SPA was not forged 53 and that being a
notarized document, it enjoys the presumption of
regularity.54 Petitioner, on the other hand, maintained that the
signatures were forged55 and that she cannot be made liable
as both the Promissory Note56 and the Real Estate
Mortgage, which were dated June 11, 1982, were signed by
Concepcion in her own personal capacity.57
On August 17, 2005, the CA reversed the findings of the
RTC. The CA found no cogent reason to invalidate the SPA,
the Real Estate Mortgage, and Foreclosure Sale as it was
not convinced that the SPA was forged. The CA declared
that although the Promissory Note and the Real Estate
Mortgage did not indicate that Concepcion was signing for
and on behalf of her principal, petitioner is estopped from
denying liability since it was her negligence in handing over
her title to Concepcion that caused the loss. 58 The CA
emphasized that under the Principle of Equitable Estoppel,
where one or two innocent persons must suffer a loss, he
who by his conduct made the loss possible must bear
it.59 Thus:
WHEREFORE, the above premises considered, the Decision
and the Resolution of the Regional Trial Court (RTC), 10th
Judicial Region, Br. 19 of Cagayan de Oro City in Civil Case
No. 88-113 is hereby REVERSED and SET ASIDE. The
Second Amended Complaint of Nicanora Bucton is
DISMISSED. Accordingly, the following are declared VALID:
1. The Special Power of Attorney of Nicanora
Gabar in favor of Erlinda Concepcion, dated June
7, 1982;
2. The Real Estate Mortgage, the foreclosure of
the same, and the foreclosure sale to the Rural
Bank of El Salvador, Misamis Oriental; and
3. The certificate of title issued to the Rural Bank
of El Salavador, Misamis Oriental as a
consequence of the foreclosure sale.
Costs against [petitioner].
SO ORDERED.60
Petitioner moved for reconsideration 61 but the same was
denied by the CA in its June 7, 2007 Resolution.62
Issues
Hence, this recourse by petitioner raising the following
issues:
FIRST
X X X WHETHER X X X THE [CA] WAS RIGHT IN
DECLARING THE PETITIONER LIABLE ON THE
LITIGATED LOAN/MORTGAGE WHEN (i) SHE DID NOT
EXECUTE EITHER IN PERSON OR BY ATTORNEY-IN-
FACT SUBJECT MORTGAGE; (ii) IT WAS EXECUTED BY
CONCEPCION IN HER PERSONAL CAPACITY AS
MORTGAGOR, AND (iii) THE LOAN SECURED BY THE
MORTGAGE WAS CONCEPCION’S EXCLUSIVE LOAN
FOR HER OWN COCONUT PRODUCTION
SECOND
X X X WHETHER X X X UNDER ARTICLE 1878 (NEW
CIVIL CODE) THE [CA] WAS RIGHT IN MAKING
PETITIONER A SURETY PRIMARILY ANSWERABLE FOR
CONCEPCION’S PERSONAL LOAN, IN THE ABSENCE OF
THE REQUIRED [SPA]
THIRD
WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED
THAT PETITIONER’S DECLARATIONS ARE SELF-
SERVING TO JUSTIFY ITS REVERSAL OF THE TRIAL
COURT’S JUDGMENT, IN THE FACE OF THE
RESPONDENTS’ DOCUMENTARY EVIDENCES X X X,
WHICH INCONTROVERTIBLY PROVED THAT
PETITIONER HAS ABSOLUTELY NO PARTICIPATION OR
LIABILITY ON THE LITIGATED LOAN/MORTGAGE
FOURTH Respondent bank, on the other hand, relies on the the daughter was executing the mortgage for and on behalf
presumption of regularity of the notarized SPA. 70 It insists of her mother.
that it was not negligent as it inspected the property before it
WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND
approved the loan,71 unlike petitioner who was negligent in
THAT IT WAS PETITIONER’S NEGLIGENCE WHICH Similarly, in this case, the authorized agent failed to indicate
entrusting her title to Concepcion.72 As to the foreclosure
MADE THE LOSS POSSIBLE, DESPITE [THE FACT] THAT in the mortgage that she was acting for and on behalf of her
proceedings, respondent bank contends that under the Rural
SHE HAS NO PART IN [THE] SUBJECT principal. The Real Estate Mortgage, explicitly shows on its
Bank Act, all loans whose principal is below ₱100,000.00 are
LOAN/MORTGAGE, THE BANK’S [FAILURE] TO face, that it was signed by Concepcion in her own name and
exempt from publication. 73 Hence, the posting of the Notice
CONDUCT CAREFUL EXAMINATION OF APPLICANT’S in her own personal capacity. In fact, there is nothing in the
of Foreclosure in the places defined by the rules was
TITLE AS WELL AS PHYSICAL INVESTIGATION OF THE document to show that she was acting or signing as an
sufficient.74 Besides, respondent sheriff is presumed to have
LAND OFFERED AS SECURITY, AND TO INQUIRE AND agent of petitioner. Thus, consistent with the law on agency
regularly performed his work.75
DISCOVER UPON ITS OWN PERIL THE AGENT’S and established jurisprudence, petitioner cannot be bound by
AUTHORITY, ALSO ITS INORDINATE HASTE IN THE the acts of Concepcion.
PROCESSING, EVALUATION AND APPROVAL OF THE Our Ruling
LOAN.
In light of the foregoing, there is no need to delve on the
The Petition is meritorious. issues of forgery of the SPA and the nullity of the foreclosure
FIFTH The Real Estate Mortgage was entered sale. For even if the SPA was valid, the Real Estate
into by Concepcion in her own personal Mortgage would still not bind petitioner as it was signed by
capacity. Concepcion in her personal capacity and not as an agent of
WHETHER X X X THE [CA] WAS RIGHT WHEN IT
petitioner. Simply put, the Real Estate Mortgage is void and
DISREGARDED THE FALSE TESTIMONY OF THE
unenforceable against petitioner.
[RESPONDENT] BANK’S EMPLOYEE, [WHEN HE As early as the case of Philippine Sugar Estates
DECLARED] THAT HE CONDUCTED ACTUAL Development Co. v. Poizat, 76 we already ruled that "in order
INSPECTION OF THE MORTGAGED PROPERTY AND to bind the principal by a deed executed by an agent, the Respondent bank was negligent.
INVESTIGATION WHERE HE ALLEGEDLY VERIFIED THE deed must upon its face purport to be made, signed and
QUESTIONED SPA. sealed in the name of the principal." 77 In other words, the
At this point, we find it significant to mention that respondent
mere fact that the agent was authorized to mortgage the
bank has no one to blame but itself.1âwphi1 Not only did it
property is not sufficient to bind the principal, unless the
SIXTH act with undue haste when it granted and released the loan
deed was executed and signed by the agent for and on
in less than three days, it also acted negligently in preparing
behalf of his principal. This ruling was adhered to and
the Real Estate Mortgage as it failed to indicate that
WHETHER THE [CA] WAS RIGHT WHEN IT reiterated with consistency in the cases of Rural Bank of
Concepcion was signing it for and on behalf of petitioner. We
DISREGARDED ESTABLISHED FACTS AND Bombon (Camarines Sur), Inc. v. Court of Appeals, 78 Gozun
need not belabor that the words "as attorney-in-fact of," "as
CIRCUMSTANCES PROVING THAT THE [SPA] IS A v. Mercado,79 and Far East Bank and Trust Company (Now
agent of," or "for and on behalf of," are vital in order for the
FORGED DOCUMENT AND/OR INFECTED BY Bank of the Philippine Island) v. Cayetano.80
principal to be bound by the acts of his agent. Without these
INFIRMITIES DIVESTING IT OF THE PRESUMPTION OF
words, any mortgage, although signed by the agent, cannot
REGULARITY CONFERRED BY LAW ON NOTARIZED
In Philippine Sugar Estates Development Co., the wife bind the principal as it is considered to have been signed by
DEEDS, AND EVEN IF VALID, THE POWER WAS NOT
authorized her husband to obtain a loan and to secure it with the agent in his personal capacity.
EXERCISED BY CONCEPCION.63
mortgage on her property. Unfortunately, although the real
estate mortgage stated that it was executed by the husband
Respondent bank is liable to pay
Petitioner’s Arguments in his capacity as attorney-in-fact of his wife, the husband
petitioner attorney’s fees, and the costs
signed the contract in his own name without indicating that
of the suit.
he also signed it as the attorney-in-fact of his wife.
Petitioner maintains that the signatures in the SPA were
forged64 and that she could not be held liable for the loan as
Considering that petitioner was compelled to litigate or to
it was obtained by Concepcion in her own personal capacity, In Rural Bank of Bombon, the agent contracted a loan from
incur expenses to protect her interest, 81 the RTC was right
not as an attorney-in-fact of petitioner. 65 She likewise denies the bank and executed a real estate mortgage. However, he
when it ruled that respondent bank is liable to pay petitioner
that she was negligent and that her negligence caused the did not indicate that he was acting on behalf of his principal.
attorney’s fees in the amount of ₱20,000.00. However, we
damage.66 Instead, she puts the blame on respondent bank
are not convinced that petitioner is entitled to an award of
as it failed to carefully examine the title and thoroughly
In Gozun, the agent obtained a cash advance but signed the moral damages as it was not satisfactorily shown that
inspect the property.67 Had it done so, it would have
receipt in her name alone, without any indication that she respondent bank acted in bad faith or with malice. Neither
discovered that the house and lot mortgaged by Concepcion
was acting for and on behalf of her principal. was it proven that respondent bank’s acts were the
are covered by two separate titles.68 Petitioner further claims
proximate cause of petitioner’s wounded feelings. On the
that respondent sheriff failed to show that he complied with
contrary, we note that petitioner is not entirely free of blame
the requirements of notice and publication in foreclosing her In Far East Bank and Trust Company, the mother executed
considering her negligence in entrusting her title to
house and lot.69 an SPA authorizing her daughter to contract a loan from the
Concepcion. In any case, the RTC did not fully explain why
bank and to mortgage her properties. The mortgage,
petitioner is entitled to such award.
however, was signed by the daughter and her husband as
Respondent bank’s Arguments
mortgagors in their individual capacities, without stating that
Concepcion is liable to pay respondent
bank her unpaid obligation and
reimburse it for all damages, attorney’s
fees and costs of suit.
Concepcion, on the other hand, is liable to pay respondent
bank her unpaid obligation under the Promissory Note dated
June 11, 1982, with interest. As we have said, Concepcion
signed the Promissory Note in her own personal capacity;
thus, she cannot escape liability. She is also liable to
reimburse respondent bank for all damages, attorneys' fees,
and costs the latter is adjudged to pay petitioner in this case.
WHEREFORE, the Petition is hereby GRANTED. The
assailed August 17, 2005 Decision and the June 7, 2007
Resolution of the Court of Appeals in CA-G.R. CV No. 60841
are hereby REVERSED and SET ASIDE.
The February 23, 1998 Decision of the Regional Trial Court
of Cagayan de Oro, Branch 19, in Civil Case No. 88-113 is
hereby REINSTATED, insofar as it (a) annuls the Real
Estate Mortgage dated June 11, 1982, the Sheriffs Sale of
petitioner Nicanora Bucton's house and lot and the Transfer
Certificate of Title issued in the name of respondent Rural
Bank of El Salvador, Misamis Oriental; and (b) orders
respondent bank to pay petitioner attorney's fees in the
amount of ₱20,000.00 and costs of suit with MODIFICATION
that the award of moral damages in the amount of
₱20,000.00 is deleted for lack of basis.
Likewise, the May 8, 1998 Resolution of the Regional Trial
Court of Cagayan de Oro, Branch 19, in Civil Case No. 88-
113 ordering the Third-Party Defendants, Erlinda
Concepcion and her husband, to indemnify or reimburse
respondent bank damages, attorneys' fees, and costs the
latter is adjudged to pay petitioner, is hereby REINSTATED.
Finally, Third-Party Defendants, Erlinda Concepcion and her
husbahd, are hereby ordered to pay respondent bank the
unpaid obligation under the Promissory Note dated June 11,
1982 with interest.
SO ORDERED.
January 11, 2016
G.R. No. 194964-65
UNIVERSITY OF MINDANAO, INC., Petitioner,
vs.
BANGKO SENTRAL NG PILIPINAS, ET AL., Respondents.
DECISION
LEONEN, J.:
Acts of an officer that are not authorized by the board of
directors/trustees do not bind the corporation unless the
corporation ratifies the acts or holds the officer out as a
person with authority to transact on its behalf.
This is a Petition for Review on Certiorari1 of the Court of
Appeals' December 17, 2009 Decision2 and December 20,
2010 Resolution.3 The Court of Appeals reversed the
Cagayan De Oro City trial court’s and the Iligan City trial
court’s Decisions to nullify mortgage contracts involving
University of Mindanao’s properties.4
University of Mindanao is an educational institution. For the
year 1982, its Board of Trustees was chaired by Guillermo B.
Torres. His wife, Dolores P. Torres, sat as University of
Mindanao’s Assistant Treasurer. 5
Before 1982, Guillermo B. Torres and Dolores P. Torres
incorporated and operated two (2) thrift banks: (1) First Iligan
Savings & Loan Association, Inc. (FISLAI); and (2) Davao
Savings and Loan Association, Inc. (DSLAI). Guillermo B.
Torres chaired both thrift banks. He acted as FISLAI’s
President, while his wife, Dolores P. Torres, acted as
DSLAI’s President and FISLAI’s Treasurer.6
Upon Guillermo B. Torres’ request, Bangko Sentral ng
Pilipinas issued a P1.9 million standby emergency credit to
FISLAI. The release of standby emergency credit was
evidenced by three (3) promissory notes dated February 8,
1982, April 7, 1982, and May 4, 1982 in the amounts of
P500,000.00, P600,000.00, and P800,000.00, respectively.
All these promissory notes were signed by Guillermo B.
Torres, and were co-signed by either his wife, Dolores P.
Torres, or FISLAI’s Special Assistant to the President,
Edmundo G. Ramos, Jr.7
On May 25, 1982, University of Mindanao’s Vice President
for Finance, Saturnino Petalcorin, executed a deed of real
estate mortgage over University of Mindanao’s property in
Cagayan de Oro City (covered by Transfer Certificate of Title
No. T-14345) in favor of Bangko Sentral ng Pilipinas. 8 "The
mortgage served as security for FISLAI’s P1.9 Million
loan[.]"9 It was allegedly executed on University of
Mindanao’s behalf.10
As proof of his authority to execute a real estate mortgage
for University of Mindanao, Saturnino Petalcorin showed a
Secretary’s Certificate signed on April 13, 1982 by University
of Mindanao’s Corporate Secretary, Aurora de Leon. 11 The
Secretary’s Certificate stated:
That at the regular meeting of the Board of Trustees of the
aforesaid corporation [University of Mindanao] duly
convened on March 30, 1982, at which a quorum was
present, the following resolution was unanimously adopted:
"Resolved that the University of
Mindanao, Inc. be and is hereby
authorized, to mortgage real estate
properties with the Central Bank of the
Philippines to serve as security for the
credit facility of First Iligan Savings and
Loan Association, hereby authorizing
the President and/or Vice-president for
Finance, Saturnino R. Petalcorin of the
University of Mindanao, Inc. to sign,
execute and deliver the covering
mortgage document or any other
documents which may be proper[l]y
required."12
The Secretary’s Certificate was supported by an excerpt
from the minutes of the January 19, 1982 alleged meeting of
University of Mindanao’s Board of Trustees. The excerpt was
certified by Aurora de Leon on March 13, 1982 to be a true
copy of University of Mindanao’s records on file. 13 The
excerpt reads:
3 – Other Matters:
(a) Cagayan de Oro and Iligan properties: Resolution No. 82-
1-8
Authorizing the Chairman to appoint Saturnino R. Petalcorin,
Vice-President for Finance, to represent the University of
Mindanao to transact, transfer, convey, lease, mortgage, or
otherwise hypothecate any or all of the following properties
situated at Cagayan de Oro and Iligan City and authorizing
further Mr. Petalcorin to sign any or all documents relative
thereto:
1. A parcel of land situated at Cagayan
de Oro City, covered and technically
described in TRANSFER CERTIFICATE
OF TITLE No. T-14345 of the Registry
of Deeds of Cagayan de Oro City;
2. A parcel of land situated at Iligan City,
covered and technically described in
TRANSFER CERTIFICATE OF TITLE
NO. T-15696 (a.t.) of the Registry of
Deeds of Iligan City; and
3. A parcel of land situated at Iligan City,
covered and technically described in
TRANSFER CERTIFICATE OF TITLE
NO. T-15697 (a.f.) of the Registry of
Deeds of Iligan City.14
The mortgage deed executed by Saturnino Petalcorin in
favor of Bangko Sentral ng Pilipinas was annotated on the
certificate of title of the Cagayan de Oro City property
(Transfer Certificate of Title No. 14345) on June 25, 1982.
Aurora de Leon’s certification was also annotated on the
Cagayan de Oro City property’s certificate of title (Transfer
Certificate of Title No. 14345).15
On October 21, 1982, Bangko Sentral ng Pilipinas granted
FISLAI an additional loan of P620,700.00. Guillermo B.
Torres and Edmundo Ramos executed a promissory note on
October 21, 1982 to cover that amount.16
On November 5, 1982, Saturnino Petalcorin executed
another deed of real estate mortgage, allegedly on behalf of
University of Mindanao, over its two properties in Iligan
City.1âwphi1 This mortgage served as additional security for
FISLAI’s loans. The two Iligan City properties were covered
by Transfer Certificates of Title Nos. T-15696 and T-15697. 17
On January 17, 1983, Bangko Sentral ng Pilipinas’ mortgage
lien over the Iligan City properties and Aurora de Leon’s
certification were annotated on Transfer Certificates of Title
Nos. T-15696 and T-15697. 18 On January 18, 1983, Bangko
Sentral ng Pilipinas’ mortgage lien over the Iligan City
properties was also annotated on the tax declarations
covering the Iligan City properties.19
Bangko Sentral ng Pilipinas also granted emergency
advances to DSLAI on May 27, 1983 and on August 20,
1984 in the amounts of P1,633,900.00 and P6,489,000.00,
respectively.20
On January 11, 1985, FISLAI, DSLAI, and Land Bank of the
Philippines entered into a Memorandum of Agreement
intended to rehabilitate the thrift banks, which had been
suffering from their depositors’ heavy withdrawals. Among
the terms of the agreement was the merger of FISLAI and
DSLAI, with DSLAI as the surviving corporation. DSLAI later
became known as Mindanao Savings and Loan Association,
Inc. (MSLAI).21
Guillermo B. Torres died on March 2, 1989. 22
MSLAI failed to recover from its losses and was liquidated on
May 24, 1991.23
On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter
to University of Mindanao, informing it that the bank would
foreclose its properties if MSLAI’s total outstanding obligation
of P12,534,907.73 remained unpaid. 24
In its reply to Bangko Sentral ng Pilipinas’ June 18, 1999
letter, University of Mindanao, through its Vice President for
Accounting, Gloria E. Detoya, denied that University of
Mindanao’s properties were mortgaged. It also denied
having received any loan proceeds from Bangko Sentral ng
Pilipinas.25
On July 16, 1999, University of Mindanao filed two
Complaints for nullification and cancellation of mortgage.
One Complaint was filed before the Regional Trial Court of
Cagayan de Oro City, and the other Complaint was filed
before the Regional Trial Court of Iligan City.26
University of Mindanao alleged in its Complaints that it did
not obtain any loan from Bangko Sentral ng Pilipinas. It also
did not receive any loan proceeds from the bank. 27
University of Mindanao also alleged that Aurora de Leon’s
certification was anomalous. It never authorized Saturnino
Petalcorin to execute real estate mortgage contracts
involving its properties to secure FISLAI’s debts. It never
ratified the execution of the mortgage contracts. Moreover,
as an educational institution, it cannot mortgage its
properties to secure another person’s debts.28
On November 23, 2001, the Regional Trial Court of Cagayan
de Oro City rendered a Decision in favor of University of
Mindanao,29 thus:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiff and against defendants:
1. DECLARING the real estate
mortgage Saturnino R. Petalcorin
executed in favor of BANGKO
SENTRAL NG PILIPINAS involving Lot
421-A located in Cagayan de Oro City
with an area of 482 square meters
covered by TCT No. T-14345 as
annuled [sic];
2. ORDERING the Register of Deeds of
Cagayan de Oro City to cancel Entry
No. 9951 and Entry No. 9952 annotated
at the back of said TCT No. T-14345,
Registry of Deeds of Cagayan de Oro
City;
Prayer for attorney’s fee [sic] is hereby denied there being no
proof that in demanding payment of the emergency loan,
defendant BANGKO SENTRAL NG PILIPINAS was
motivated by evident bad faith,
SO ORDERED.30 (Citation omitted)
The Regional Trial Court of Cagayan de Oro City found that
there was no board resolution giving Saturnino Petalcorin
authority to execute mortgage contracts on behalf of
University of Mindanao. The Cagayan de Oro City trial court
gave weight to Aurora de Leon’s testimony that University of
Mindanao’s Board of Trustees did not issue a board
resolution that would support the Secretary’s Certificate she
issued. She testified that she signed the Secretary’s
Certificate only upon Guillermo B. Torres’ orders.31
Saturnino Petalcorin testified that he had no authority to
execute a mortgage contract on University of Mindanao’s
behalf. He merely executed the contract because of
Guillermo B. Torres’ request.32
Bangko Sentral ng Pilipinas’ witness Daciano Pagui, Jr. also
admitted that there was no board resolution giving Saturnino
Petalcorin authority to execute mortgage contracts on behalf
of University of Mindanao.33
The Regional Trial Court of Cagayan de Oro City ruled that
Saturnino Petalcorin was not authorized to execute
mortgage contracts for University of Mindanao. Hence, the
mortgage of University of Mindanao’s Cagayan de Oro City
property was unenforceable. Saturnino Petalcorin’s
unauthorized acts should be annulled.34
Similarly, the Regional Trial Court of Iligan City rendered a
Decision on December 7, 2001 in favor of University of
Mindanao.35 The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants,
as follows:
1. Nullifying and canceling [sic] the subject Deed
of Real Estate Mortgage dated November 5, 1982
for being unenforceable or void contract;
2. Ordering the Office of the Register of Deeds of
Iligan City to cancel the entries on TCT No. T-
15696 and TCT No. T-15697 with respect to the
aforesaid Deed of Real Estate Mortgage dated
November 5, 1982 and all other entries related
thereto;
3. Ordering the defendant Bangko Sentral ng
Pilipinas to return the owner’s duplicate copies of
TCT No. T-15696 and TCT No. 15697 to the
plaintiff;
4. Nullifying the subject [f]oreclosure [p]roceedings
and the [a]uction [s]ale conducted by defendant
Atty. Gerardo Paguio, Jr. on October 8, 1999
including all the acts subsequent thereto and
ordering the Register of Deeds of Iligan City not to
register any Certificate of Sale pursuant to the said
auction sale nor make any transfer of the
corresponding titles, and if already registered and
transferred, to cancel all the said entries in TCT
No. T-15696 and TCT No. T-15697 and/or cancel
the corresponding new TCTs in the name of
defendant Bangko Sentral ng Pilipinas;
5. Making the Preliminary Injunction per Order of
this Court dated October 13, 2000 permanent.
No pronouncement as to costs.36 (Citation omitted)
The Iligan City trial court found that the Secretary’s
Certificate issued by Aurora de Leon was fictitious 37 and
irregular for being unnumbered.38 It also did not specify the
identity, description, or location of the mortgaged
properties.39
The Iligan City trial court gave credence to Aurora de Leon’s
testimony that the University of Mindanao’s Board of
Trustees did not take up the documents in its meetings.
Saturnino Petalcorin corroborated her testimony. 40
The Iligan City trial court ruled that the lack of a board
resolution authorizing Saturnino Petalcorin to execute
documents of mortgage on behalf of University of Mindanao
made the real estate mortgage contract unenforceable under
Article 140341 of the Civil Code. 42 The mortgage contract and
the subsequent acts of foreclosure and auction sale were
void because the mortgage contract was executed without
University of Mindanao’s authority.43
The Iligan City trial court also ruled that the annotations on
the titles of University of Mindanao’s properties do not
operate as notice to the University because annotations only
bind third parties and not owners. 44 Further, Bangko Sentral
ng Pilipinas’ right to foreclose the University of Mindanao’s
properties had already prescribed. 45
Bangko Sentral ng Pilipinas separately appealed the
Decisions of both the Cagayan de Oro City and the Iligan
City trial courts.46
After consolidating both cases, the Court of Appeals issued a
Decision on December 17, 2009 in favor of Bangko Sentral
ng Pilipinas, thus:
FOR THE REASONS STATED, the Decision dated 23
November 2001 of the Regional Trial Court of Cagayan de
Oro City, Branch 24 in Civil Case No. 99-414 and the
Decision dated 7 December 2001 of the Regional Trial Court
of Iligan City, Branch 1 in Civil Case No. 4790
are REVERSED and SET ASIDE. The Complaints in both
cases before the trial courts are DISMISSED. The Writ of
Preliminary Injunction issued by the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790
is LIFTED and SET ASIDE.
SO ORDERED.47
The Court of Appeals ruled that "[a]lthough BSP failed to
prove that the UM Board of Trustees actually passed a
Board Resolution authorizing Petalcorin to mortgage the
subject real properties,"48 Aurora de Leon’s Secretary’s
Certificate "clothed Petalcorin with apparent and ostensible
authority to execute the mortgage deed on its
behalf[.]"49 Bangko Sentral ng Pilipinas merely relied in good
faith on the Secretary’s Certificate.50 University of Mindanao
is estopped from denying Saturnino Petalcorin’s authority.51
Moreover, the Secretary’s Certificate was notarized. This
meant that it enjoyed the presumption of regularity as to the
truth of its statements and authenticity of the
signatures.52 Thus, "BSP cannot be faulted for relying on the
[Secretary’s Certificate.]"53
The Court of Appeals also ruled that since University of
Mindanao’s officers, Guillermo B. Torres and his wife,
Dolores P. Torres, signed the promissory notes, University of
Mindanao was presumed to have knowledge of the
transaction.54 Knowledge of an officer in relation to matters
within the scope of his or her authority is notice to the
corporation.55
The annotations on University of Mindanao’s certificates of
title also operate as constructive notice to it that its
properties were mortgaged. 56 Its failure to disown the
mortgages for more than a decade was implied ratification.57
The Court of Appeals also ruled that Bangko Sentral ng
Pilipinas’ action for foreclosure had not yet prescribed
because the due date extensions that Bangko Sentral ng
Pilipinas granted to FISLAI extended the due date of
payment to five (5) years from February 8, 1985.58 The
bank’s demand letter to Dolores P. Torres on June 18, 1999
also interrupted the prescriptive period. 59
University of Mindanao and Bangko Sentral ng Pilipinas filed
a Motion for Reconsideration60 and Motion for Partial
Reconsideration respectively of the Court of Appeals’
Decision. On December 20, 2010, the Court of Appeals
issued a Resolution, thus:
Acting on the foregoing incidents, the Court RESOLVES to:
1. GRANT the appellant’s twin motions
for extension of time to file
comment/opposition and NOTE the
Comment on the appellee’s Motion for
Reconsideration it subsequently filed on
June 23, 2010;
2. GRANT the appellee’s three (3)
motions for extension of time to file
comment/opposition and NOTE the
Comment on the appellant’s Motion for
Partial Reconsideration it filed on July
26, 2010;
3. NOTE the appellant’s "Motion for
Leave to File Attached Reply Dated
August 11, 2010" filed on August 13,
2010 and DENY the attached "Reply to
Comment Dated July 26, 2010";
4. DENY the appellee’s Motion for
Reconsideration as it does not offer any
arguments sufficiently meritorious to
warrant modification or reversal of the
Court’s 17 December 2009 Decision.
 The Court finds that there is no
compelling reason to reconsider its
ruling; and
5. GRANT the appellant’s Motion for
Partial Reconsideration, as the Court
finds it meritorious, considering that it
ruled in its Decision that "BSP can still
foreclose on the UM’s real property in
Cagayan de Oro City covered by TCT
No. T-14345." It then follows that the
injunctive writ issued by the RTC of
Cagayan de Oro City, Branch 24 must
be lifted. The Court’s 17 December 2009
Decision is
accordingly MODIFIED and AMENDED  The prescriptive period for actions on mortgages is ten (10)
to read as follows:
"FOR THE REASONS
STATED, the Decision dated
23 November 2001 of the
Regional Trial Court of
Cagayan de Oro City, Branch
24 in Civil Case No. 99-414
and the Decision dated 7
December 2001 of the
Regional Trial Court of Iligan
City, Branch 1 in Civil Case
No. 4790
are REVERSED and SET
ASIDE. The Complaints in
both cases before the trial
courts are DISMISSED. The
Writs of Preliminary Injunction
issued by the Regional Trial
Court of Iligan City, Branch 1
in Civil Case No. 4790 and in
the Regional Trial Court of
Cagayan de Oro City, Branch
24 in Civil Case No. 99-414
are LIFTED and SET ASIDE."
SO ORDERED.61 (Citation omitted)
Hence, University of Mindanao filed this Petition for Review.
The issues for resolution are:
First, whether respondent Bangko Sentral ng Pilipinas’ action
to foreclose the mortgaged properties had already
prescribed; and
Second, whether petitioner University of Mindanao is bound
by the real estate mortgage contracts executed by Saturnino
Petalcorin.
We grant the Petition.
I
Petitioner argues that respondent’s action to foreclose its
mortgaged properties had already prescribed.
Petitioner is mistaken.
Prescription is the mode of acquiring or losing rights through
the lapse of time.62 Its purpose is "to protect the diligent and
vigilant, not those who sleep on their rights."63
years from the day they may be brought.64 Actions on
mortgages may be brought not upon the execution of the
mortgage contract but upon default in payment of the
obligation secured by the mortgage. 65
A debtor is considered in default when he or she fails to pay
the obligation on due date and, subject to exceptions, after
demands for payment were made by the creditor. Article
1169 of the Civil Code provides:
ART. 1169. Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary
in order that delay may exist:
(1) When the obligation or the law
expressly so declare; or
(2) When from the nature and the
circumstances of the obligation it
appears that the designation of the time
when the thing is to be delivered or the
service is to be rendered was a
controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as
when the obligor has rendered it beyond
his power to perform.
Article 1193 of the Civil Code provides that an obligation is
demandable only upon due date. It provides:
ART. 1193. Obligations for whose fulfillment a day certain
has been fixed, shall be demandable only when that day
comes.
Obligations with a resolutory period take effect at once, but
terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated by
the rules of the preceding Section.
In other words, as a general rule, a person defaults and
prescriptive period for action runs when (1) the obligation
becomes due and demandable; and (2) demand for payment
has been made.
The prescriptive period neither runs from the date of the
execution of a contract nor does the prescriptive period
necessarily run on the date when the loan becomes due and
demandable.66 Prescriptive period runs from the date of
demand,67 subject to certain exceptions.
In other words, ten (10) years may lapse from the date of the
execution of contract, without barring a cause of action on
the mortgage when there is a gap between the period of
execution of the contract and the due date or between the
due date and the demand date in cases when demand is
necessary.68
The mortgage contracts in this case were executed by
Saturnino Petalcorin in 1982. The maturity dates of FISLAI’s
loans were repeatedly extended until the loans became due
and demandable only in 1990. 69 Respondent informed
petitioner of its decision to foreclose its properties and
demanded payment in 1999.
The running of the prescriptive period of respondent’s action
on the mortgages did not start when it executed the
mortgage contracts with Saturnino Petalcorin in 1982.
The prescriptive period for filing an action may run either (1)
from 1990 when the loan became due, if the obligation was
covered by the exceptions under Article 1169 of the Civil
Code; (2) or from 1999 when respondent demanded
payment, if the obligation was not covered by the exceptions
under Article 1169 of the Civil Code.
In either case, respondent’s Complaint with cause of action
based on the mortgage contract was filed well within the
prescriptive period.
Given the termination of all traces of FISLAI’s
existence,70 demand may have been rendered unnecessary
under Article 1169(3) 71 of the Civil Code. Granting that this is
the case, respondent would have had ten (10) years from
due date in 1990 or until 2000 to institute an action on the
mortgage contract.
However, under Article 115572 of the Civil Code, prescription
of actions may be interrupted by (1) the filing of a court
action; (2) a written extrajudicial demand; and (3) the written
acknowledgment of the debt by the debtor.
Therefore, the running of the prescriptive period was
interrupted when respondent sent its demand letter to
petitioner on June 18, 1999. This eventually led to
petitioner’s filing of its annulment of mortgage complaints
before the Regional Trial Courts of Iligan City and Cagayan
De Oro City on July 16, 1999.
Assuming that demand was necessary, respondent’s action
was within the ten (10)-year prescriptive period. Respondent
demanded payment of the loans in 1999 and filed an action
in the same year.
II
Petitioner argues that the execution of the mortgage contract
was ultra vires. As an educational institution, it may not
secure the loans of third persons. 73 Securing loans of third
persons is not among the purposes for which petitioner was
established.74
Petitioner is correct.
Corporations are artificial entities granted legal personalities
upon their creation by their incorporators in accordance with
law. Unlike natural persons, they have no inherent powers.
Third persons dealing with corporations cannot assume that
corporations have powers. It is up to those persons dealing
with corporations to determine their competence as
expressly defined by the law and their articles of
incorporation.75
A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those
"committed outside the object for which a corporation is
created"76 are ultra vires.
The only exception to this rule is when acts are necessary
and incidental to carry out a corporation’s purposes, and to
the exercise of powers conferred by the Corporation Code
and under a corporation’s articles of incorporation. 77 This
exception is specifically included in the general powers of a
corporation under Section 36 of the Corporation Code:
SEC. 36. Corporate powers and capacity.—Every
corporation incorporated under this Code has the power and
capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the
period of time stated in the articles of incorporation
and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or
public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell
stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and
to admit members to the corporation if it be a non-
stock corporation;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
property, including securities and bonds of other
corporations, as the transaction of the lawful
business of the corporation may reasonably and
necessarily require, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those
for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic
or foreign, shall give donations in aid of any
political party or candidate or for purposes of
partisan political activity;
10. To establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees; and
11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation.
(Emphasis supplied)
Montelibano, et al. v. Bacolod-Murcia Milling Co.,
Inc.78 stated the test to determine if a corporate act is in
accordance with its purposes:
It is a question, therefore, in each case, of the logical relation
of the act to the corporate purpose expressed in the charter.
If that act is one which is lawful in itself, and not otherwise
prohibited, is done for the purpose of serving corporate ends,
and is reasonably tributary to the promotion of those ends, in
a substantial, and not in a remote and fanciful, sense, it may
fairly be considered within charter powers. The test to be
applied is whether the act in question is in direct and
immediate furtherance of the corporation’s business, fairly
incident to the express powers and reasonably necessary to
their exercise. If so, the corporation has the power to do it;
otherwise, not.79 (Emphasis supplied)
As an educational institution, petitioner serves:
a. To establish, conduct and operate a college or
colleges, and/or university;
b. To acquire properties, real and/or personal, in
connection with the establishment and operation of
such college or colleges;
c. To do and perform the various and sundry acts
and things permitted by the laws of the Philippines
unto corporations like classes and kinds;
d. To engage in agricultural, industrial, and/or
commercial pursuits in line with educational
program of the corporation and to acquire all
properties, real and personal[,] necessary for the
purposes[;]
e. To establish, operate, and/or acquire
broadcasting and television stations also in line
with the educational program of the corporation
and for such other purposes as the Board of
Trustees may determine from time to time;
f. To undertake housing projects of faculty
members and employees, and to acquire real
estates for this purpose;
 g. To establish, conduct and operate and/or invest
in educational foundations; [As amended on
December 15, 1965][;]
h. To establish, conduct and operate housing and
dental schools, medical facilities and other related
undertakings;
i. To invest in other corporations. [As amended on
December 9, 1998]. [Amended Articles of
Incorporation of the University of Mindanao, Inc. –
the Petitioner].80
Petitioner does not have the power to mortgage its
properties in order to secure loans of other persons. As an
educational institution, it is limited to developing human
capital through formal instruction. It is not a corporation
engaged in the business of securing loans of others.
Hiring professors, instructors, and personnel; acquiring
equipment and real estate; establishing housing facilities for
personnel and students; hiring a concessionaire; and other
activities that can be directly connected to the operations
and conduct of the education business may constitute the
necessary and incidental acts of an educational institution.
Securing FISLAI’s loans by mortgaging petitioner’s
properties does not appear to have even the remotest
connection to the operations of petitioner as an educational
institution. Securing loans is not an adjunct of the
educational institution’s conduct of business.81 It does not
appear that securing third-party loans was necessary to
maintain petitioner’s business of providing instruction to
individuals.
This court upheld the validity of corporate acts when those
acts were shown to be clearly within the corporation’s
powers or were connected to the corporation’s purposes.
In Pirovano, et al. v. De la Rama Steamship Co.,82 this court
declared valid the donation given to the children of a
deceased person who contributed to the growth of the
corporation.83 This court found that this donation was within
the broad scope of powers and purposes of the corporation
to "aid in any other manner any person . . . in which any
interest is held by this corporation or in the affairs or
prosperity of which this corporation has a lawful interest." 84
In Twin Towers Condominium Corporation v. Court of
Appeals, et al.,85 this court declared valid a rule by Twin
Towers Condominium denying delinquent members the right
to use condominium facilities.86 This court ruled that the
condominium’s power to promulgate rules on the use of
facilities and to enforce provisions of the Master Deed was
clear in the Condominium Act, Master Deed, and By-laws of
the condominium.87 Moreover, the promulgation of such rule
was "reasonably necessary" to attain the purposes of the
condominium project.88
This court has, in effect, created a presumption that
corporate acts are valid if, on their face, the acts were within
the corporation’s powers or purposes. This presumption was
explained as early as in 1915 in Coleman v. Hotel De
France89 where this court ruled that contracts entered into by
corporations in the exercise of their incidental powers are not
ultra vires.90
Coleman involved a hotel’s cancellation of an employment
contract it executed with a gymnast. One of the hotel’s
contentions was the supposed ultra vires nature of the
contract. It was executed outside its express and implied
powers under the articles of incorporation.91
In ruling in favor of the contract’s validity, this court
considered the incidental powers of the hotel to include the
execution of employment contracts with entertainers for the
purpose of providing its guests entertainment and increasing
patronage.92
This court ruled that a contract executed by a corporation
shall be presumed valid if on its face its execution was not
beyond the powers of the corporation to do.93 Thus:
When a contract is not on its face necessarily beyond the
scope of the power of the corporation by which it was made,
it will, in the absence of proof to the contrary, be presumed
to be valid. Corporations are presumed to contract within
their powers. The doctrine of ultra vires, when invoked for or
against a corporation, should not be allowed to prevail where
it would defeat the ends of justice or work a legal wrong. 94
However, this should not be interpreted to mean that such
presumption applies to all cases, even when the act in
question is on its face beyond the corporation’s power to do
or when the evidence contradicts the presumption.
Presumptions are "inference[s] as to the existence of a fact
not actually known, arising from its usual connection with
another which is known, or a conjecture based on past
experience as to what course human affairs ordinarily
take."95 Presumptions embody values and revealed
behavioral expectations under a given set of circumstances.
Presumptions may be conclusive96 or disputable.97
Conclusive presumptions are presumptions that may not be
overturned by evidence, however strong the evidence
is.98 They are made conclusive not because there is an
established uniformity in behavior whenever identified
circumstances arise. They are conclusive because they are
declared as such under the law or the rules. Rule 131,
Section 2 of the Rules of Court identifies two (2) conclusive
presumptions:
SEC. 2. Conclusive presumptions.— The following are
instances of conclusive presumptions:
(a) Whenever a party has, by his own declaration,
act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to
act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be
permitted to falsify it;
(b) The tenant is not permitted to deny the title of
his landlord at the time of the commencement of
the relation of landlord and tenant between them.
On the other hand, disputable presumptions are
presumptions that may be overcome by contrary
evidence.99 They are disputable in recognition of the
variability of human behavior. Presumptions are not always
true. They may be wrong under certain circumstances, and
courts are expected to apply them, keeping in mind the
nuances of every experience that may render the
expectations wrong.
Thus, the application of disputable presumptions on a given
circumstance must be based on the existence of certain
facts on which they are meant to operate. "[P]resumptions
are not allegations, nor do they supply their
absence[.]"100 Presumptions are conclusions. They do not
apply when there are no facts or allegations to support them.
If the facts exist to set in motion the operation of a disputable
presumption, courts may accept the presumption. However,
contrary evidence may be presented to rebut the
presumption.
Courts cannot disregard contrary evidence offered to rebut
disputable presumptions. Disputable presumptions apply
only in the absence of contrary evidence or explanations.
This court explained in Philippine Agila Satellite Inc. v. Usec.
Trinidad-Lichauco:101
We do not doubt the existence of the presumptions of "good
faith" or "regular performance of official duty," yet these
presumptions are disputable and may be contradicted and
overcome by other evidence. Many civil actions are oriented
towards overcoming any number of these presumptions, and
a cause of action can certainly be geared towards such
effect. The very purpose of trial is to allow a party to present
evidence to overcome the disputable presumptions involved.
Otherwise, if trial is deemed irrelevant or unnecessary,
owing to the perceived indisputability of the presumptions,
the judicial exercise would be relegated to a mere
ascertainment of what presumptions apply in a given case,
nothing more. Consequently, the entire Rules of Court is
rendered as excess verbiage, save perhaps for the
provisions laying down the legal presumptions.
If this reasoning of the Court of Appeals were ever adopted
as a jurisprudential rule, no public officer could ever be sued
for acts executed beyond their official functions or authority,
or for tortious conduct or behavior, since such acts would
"enjoy the presumption of good faith and in the regular
performance of official duty." Indeed, few civil actions of any
nature would ever reach the trial stage, if a case can be
adjudicated by a mere determination from the complaint or
answer as to which legal presumptions are applicable. For
example, the presumption that a person is innocent of a
wrong is a disputable presumption on the same level as that
of the regular performance of official duty. A civil complaint
for damages necessarily alleges that the defendant
committed a wrongful act or omission that would serve as
basis for the award of damages. With the rationale of the
Court of Appeals, such complaint can be dismissed upon a
motion to dismiss solely on the ground that the presumption
is that a person is innocent of a wrong. 102 (Emphasis
supplied, citations omitted)
In this case, the presumption that the execution of mortgage
contracts was within petitioner’s corporate powers does not
apply. Securing third-party loans is not connected to
petitioner’s purposes as an educational institution.
III
Respondent argues that petitioner’s act of mortgaging its
properties to guarantee FISLAI’s loans was consistent with
petitioner’s business interests, since petitioner was
presumably a FISLAI shareholder whose officers and
shareholders interlock with FISLAI. Respondent points out
that petitioner and its key officers held substantial shares in
MSLAI when DSLAI and FISLAI merged. Therefore, it was
safe to assume that when the mortgages were executed in
1982, petitioner held substantial shares in FISLAI.103
Parties dealing with corporations cannot simply assume that
their transaction is within the corporate powers. The acts of a
corporation are still limited by its powers and purposes as
provided in the law and its articles of incorporation.
Acquiring shares in another corporation is not a means to
create new powers for the acquiring corporation. Being a
shareholder of another corporation does not automatically
change the nature and purpose of a corporation’s business.
Appropriate amendments must be made either to the law or
the articles of incorporation before a corporation can validly
exercise powers outside those provided in law or the articles
of incorporation. In other words, without an amendment,
what is ultra vires before a corporation acquires shares in
other corporations is still ultra vires after such acquisition.
Thus, regardless of the number of shares that petitioner had
with FISLAI, DSLAI, or MSLAI, securing loans of third
persons is still beyond petitioner’s power to do. It is still
inconsistent with its purposes under the law 104 and its articles
of incorporation.105
In attempting to show petitioner’s interest in securing
FISLAI’s loans by adverting to their interlocking directors and
shareholders, respondent disregards petitioner’s separate
personality from its officers, shareholders, and other juridical
persons.
The separate personality of corporations means that they are
"vest[ed] [with] rights, powers, and attributes [of their own] as
if they were natural persons[.]" 106 Their assets and liabilities
are their own and not their officers’, shareholders’, or another
corporation’s. In the same vein, the assets and liabilities of
their officers and shareholders are not the corporations’.
Obligations incurred by corporations are not obligations of
their officers and shareholders. Obligations of officers and
shareholders are not obligations of corporations.107 In other
words, corporate interests are separate from the personal
interests of the natural persons that comprise corporations.
Corporations are given separate personalities to allow
natural persons to balance the risks of business as they
accumulate capital. They are, however, given limited
competence as a means to protect the public from fraudulent
acts that may be committed using the separate juridical
personality given to corporations.
Petitioner’s key officers, as shareholders of FISLAI, may
have an interest in ensuring the viability of FISLAI by
obtaining a loan from respondent and securing it by
whatever means. However, having interlocking officers and
stockholders with FISLAI does not mean that petitioner, as
an educational institution, is or must necessarily be
interested in the affairs of FISLAI.
Since petitioner is an entity distinct and separate not only
from its own officers and shareholders but also from FISLAI,
its interests as an educational institution may not be
consistent with FISLAI’s.
Petitioner and FISLAI have different constituencies.
Petitioner’s constituents comprise persons who have
committed to developing skills and acquiring knowledge in
their chosen fields by availing the formal instruction provided
by petitioner. On the other hand, FISLAI is a thrift bank,
which constituencies comprise investors.
While petitioner and FISLAI exist ultimately to benefit their
stockholders, their constituencies affect the means by which
they can maintain their existence. Their interests are
congruent with sustaining their constituents’ needs because
their existence depends on that. Petitioner can exist only if it
continues to provide for the kind and quality of instruction
that is needed by its constituents. Its operations and
existence are placed at risk when resources are used on
activities that are not geared toward the attainment of its
purpose. Petitioner has no business in securing FISLAI,
DSLAI, or MSLAI’s loans. This activity is not compatible with
its business of providing quality instruction to its constituents.
Indeed, there are instances when we disregard the separate
corporate personalities of the corporation and its
stockholders, directors, or officers. This is called piercing of
the corporate veil.
Corporate veil is pierced when the separate personality of
the corporation is being used to perpetrate fraud, illegalities,
and injustices.108 In Lanuza, Jr. v. BF Corporation:109
Piercing the corporate veil is warranted when "[the separate
personality of a corporation] is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the
evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues." It is also warranted
in alter ego cases "where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation."110
These instances have not been shown in this case. There is
no evidence pointing to the possibility that petitioner used its
separate personality to defraud third persons or commit
illegal acts. Neither is there evidence to show that petitioner
was merely a farce of a corporation. What has been shown
instead was that petitioner, too, had been victimized by
fraudulent and unauthorized acts of its own officers and
directors.
In this case, instead of guarding against fraud, we
perpetuate fraud if we accept respondent’s contentions.
IV
Petitioner argues that it did not authorize Saturnino
Petalcorin to mortgage its properties on its behalf. There was
no board resolution to that effect. Thus, the mortgages
executed by Saturnino Petalcorin were unenforceable. 111
The mortgage contracts executed in favor of respondent do
not bind petitioner. They were executed without authority
from petitioner.
Petitioner must exercise its powers and conduct its business
through its Board of Trustees. Section 23 of the Corporation
Code provides:
SEC. 23. The board of directors or trustees.—Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors
are elected and qualified.
Being a juridical person, petitioner cannot conduct its
business, make decisions, or act in any manner without
action from its Board of Trustees. The Board of Trustees
must act as a body in order to exercise corporate powers.
Individual trustees are not clothed with corporate powers just
by being a trustee. Hence, the individual trustee cannot bind
the corporation by himself or herself.
The corporation may, however, delegate through a board
resolution its corporate powers or functions to a
representative, subject to limitations under the law and the
corporation’s articles of incorporation.112
The relationship between a corporation and its
representatives is governed by the general principles of
agency.113 Article 1317 of the Civil Code provides that there
must be authority from the principal before anyone can act in
his or her name:
ART. 1317. No one may contract in the name of another
without being authorized by the latter, or unless he has by
law a right to represent him.
Hence, without delegation by the board of directors or
trustees, acts of a person—including those of the
corporation’s directors, trustees, shareholders, or officers—
executed on behalf of the corporation are generally not
binding on the corporation.114
Contracts entered into in another’s name without authority or
valid legal representation are generally unenforceable. The
Civil Code provides:
ART. 1317. . . . resolution to authorize Saturnino Petalcorin to execute the
mortgage contracts for petitioner, the contracts he executed
are unenforceable against petitioner. They cannot bind
A contract entered into in the name of another by one who
petitioner.
has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose However, personal liabilities may be incurred by directors
behalf it has been executed, before it is revoked by the other who assented to such unauthorized act121 and by the person
contracting party. who contracted in excess of the limits of his or her authority
without the corporation’s knowledge. 122
....
V
ART. 1403. The following contracts are unenforceable,
unless they are ratified: Unauthorized acts that are merely beyond the powers of the
corporation under its articles of incorporation are not void ab
initio.
(1) Those entered into in the name of another person by one
who has been given no authority or legal representation, or
who has acted beyond his powers[.] In Pirovano, et al., this court explained that corporate acts
may be ultra vires but not void. 123 Corporate acts may be
capable of ratification:124
The unenforceable status of contracts entered into by an
unauthorized person on behalf of another is based on the
basic principle that contracts must be consented to by both [A] distinction should be made between corporate acts or
parties.115 There is no contract without meeting of the minds contracts which are illegal and those which are merely ultra
as to the subject matter and cause of the obligations created vires. The former contemplates the doing of an act which is
under the contract.116 contrary to law, morals, or public order, or contravene some
rules of public policy or public duty, and are, like similar
transactions between individuals, void. They cannot serve as
Consent of a person cannot be presumed from
basis of a court action, nor acquire validity by performance,
representations of another, especially if obligations will be
ratification, or estoppel. Mere ultra vires acts, on the other
incurred as a result. Thus, authority is required to make
hand, or those which are not illegal and void ab initio, but are
actions made on his or her behalf binding on a person.
not merely within the scope of the articles of incorporation,
Contracts entered into by persons without authority from the
are merely voidable and may become binding and
corporation shall generally be considered ultra vires and
enforceable when ratified by the stockholders.125
unenforceable117 against the corporation.
Thus, even though a person did not give another person
Two trial courts118 found that the Secretary’s Certificate and
authority to act on his or her behalf, the action may be
the board resolution were either non-existent or fictitious.
enforced against him or her if it is shown that he or she
The trial courts based their findings on the testimony of the
ratified it or allowed the other person to act as if he or she
Corporate Secretary, Aurora de Leon herself. She signed the
had full authority to do so. The Civil Code provides:
Secretary’s Certificate and the excerpt of the minutes of the
alleged board meeting purporting to authorize Saturnino
Petalcorin to mortgage petitioner’s properties. There was no ART. 1910. The principal must comply with all the obligations
board meeting to that effect. Guillermo B. Torres ordered the which the agent may have contracted within the scope of his
issuance of the Secretary’s Certificate. Aurora de Leon’s authority.
testimony was corroborated by Saturnino Petalcorin.
As for any obligation wherein the agent has exceeded his
Even the Court of Appeals, which reversed the trial courts’ power, the principal is not bound except when he ratifies it
decisions, recognized that "BSP failed to prove that the UM expressly or tacitly.
Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real
ART. 1911. Even when the agent has exceeded his
properties[.]"119
authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers.
Well-entrenched is the rule that this court, not being a trier of (Emphasis supplied)
facts, is bound by the findings of fact of the trial courts and
the Court of Appeals when such findings are supported by
evidence on record.120 Hence, not having the proper board
Ratification is a voluntary and deliberate confirmation or
adoption of a previous unauthorized act. 126 It converts the
unauthorized act of an agent into an act of the principal. 127 It
cures the lack of consent at the time of the execution of the
contract entered into by the representative, making the
contract valid and enforceable.128 It is, in essence, consent
belatedly given through express or implied acts that are
deemed a confirmation or waiver of the right to impugn the
unauthorized act.129 Ratification has the effect of placing the
principal in a position as if he or she signed the original
contract. In Board of Liquidators v. Heirs of M. Kalaw, et
al.:130
Authorities, great in number, are one in the idea that
"ratification by a corporation of an unauthorized act or
contract by its officers or others relates back to the time of
the act or contract ratified, and is equivalent to original
authority;" and that "[t]he corporation and the other party to
the transaction are in precisely the same position as if the
act or contract had been authorized at the time." The
language of one case is expressive: "The adoption or
ratification of a contract by a corporation is nothing more nor
less than the making of an original contract. The theory of
corporate ratification is predicated on the right of a
corporation to contract, and any ratification or adoption is
equivalent to a grant of prior authority." 131 (Citations omitted)
Implied ratification may take the form of silence,
acquiescence, acts consistent with approval of the act, or
acceptance or retention of benefits. 132 However, silence,
acquiescence, retention of benefits, and acts that may be
interpreted as approval of the act do not by themselves
constitute implied ratification. For an act to constitute an
implied ratification, there must be no acceptable explanation
for the act other than that there is an intention to adopt the
act as his or her own.133 "[It] cannot be inferred from acts that
a principal has a right to do independently of the
unauthorized act of the agent."134
No act by petitioner can be interpreted as anything close to
ratification. It was not shown that it issued a resolution
ratifying the execution of the mortgage contracts. It was not
shown that it received proceeds of the loans secured by the
mortgage contracts. There was also no showing that it
received any consideration for the execution of the mortgage
contracts. It even appears that petitioner was unaware of the
mortgage contracts until respondent notified it of its desire to
foreclose the mortgaged properties.
Ratification must be knowingly and voluntarily
done.135 Petitioner’s lack of knowledge about the mortgage
executed in its name precludes an interpretation that there
was any ratification on its part.
Respondent further argues that petitioner is presumed to
have knowledge of its transactions with respondent because
its officers, the Spouses Guillermo and Dolores Torres,
participated in obtaining the loan. 136
Indeed, a corporation, being a person created by mere fiction
of law, can act only through natural persons such as its
directors, officers, agents, and representatives. Hence, the
general rule is that knowledge of an officer is considered
knowledge of the corporation.
However, even though the Spouses Guillermo and Dolores
Torres were officers of both the thrift banks and petitioner,
their knowledge of the mortgage contracts cannot be
considered as knowledge of the corporation.
The rule that knowledge of an officer is considered
knowledge of the corporation applies only when the officer is
acting within the authority given to him or her by the
corporation. In Francisco v. Government Service Insurance
System:137
Knowledge of facts acquired or possessed by an officer or
agent of a corporation in the course of his employment, and
in relation to matters within the scope of his authority, is
notice to the corporation, whether he communicates such
knowledge or not.138
The public should be able to rely on and be protected from
the representations of a corporate representative acting
within the scope of his or her authority. This is why an
authorized officer’s knowledge is considered knowledge of
corporation. However, just as the public should be able to
rely on and be protected from corporate representations,
corporations should also be able to expect that they will not
be bound by unauthorized actions made on their account.
Thus, knowledge should be actually communicated to the
corporation through its authorized representatives. A
corporation cannot be expected to act or not act on a
knowledge that had not been communicated to it through an
authorized representative. There can be no implied
ratification without actual communication. Knowledge of the
existence of contract must be brought to the corporation’s
representative who has authority to ratify it. Further, "the
circumstances must be shown from which such knowledge
may be presumed."139
The Spouses Guillermo and Dolores Torres’ knowledge
cannot be interpreted as knowledge of petitioner. Their
knowledge was not obtained as petitioner’s representatives.
It was not shown that they were acting for and within the
authority given by petitioner when they acquired knowledge
of the loan transactions and the mortgages. The knowledge
was obtained in the interest of and as representatives of the
thrift banks.
VI
Respondent argues that Saturnino Petalcorin was clothed
with the authority to transact on behalf of petitioner, based
on the board resolution dated March 30, 1982 and Aurora de
Leon’s notarized Secretary’s Certificate. 140 According to
respondent, petitioner is bound by the mortgage contracts
executed by Saturnino Petalcorin. 141
This court has recognized presumed or apparent authority or
capacity to bind corporate representatives in instances when
the corporation, through its silence or other acts of
recognition, allowed others to believe that persons, through
their usual exercise of corporate powers, were conferred with
authority to deal on the corporation’s behalf.142
The doctrine of apparent authority does not go into the
question of the corporation’s competence or power to do a
particular act. It involves the question of whether the officer
has the power or is clothed with the appearance of having
the power to act for the corporation. A finding that there is
apparent authority is not the same as a finding that the
corporate act in question is within the corporation’s limited
powers.
The rule on apparent authority is based on the principle of
estoppel. The Civil Code provides:
ART. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon.
....
ART. 1869. Agency may be express, or implied from the acts
of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person
is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
A corporation is estopped by its silence and acts of
recognition because we recognize that there is information
asymmetry between third persons who have little to no
information as to what happens during corporate meetings,
and the corporate officers, directors, and representatives
who are insiders to corporate affairs. 143
In People’s Aircargo and Warehousing Co. Inc. v. Court of
Appeals,144 this court held that the contract entered into by
the corporation’s officer without a board resolution was
binding upon the corporation because it previously allowed
the officer to contract on its behalf despite the lack of board
resolution.145
In Francisco, this court ruled that Francisco’s proposal for
redemption of property was accepted by and binding upon
the Government Service Insurance System. This court did
not appreciate the Government Service Insurance System’s
defense that since it was the Board Secretary and not the
General Manager who sent Francisco the acceptance
telegram, it could not be made binding upon the Government
Service Insurance System. It did not authorize the Board
Secretary to sign for the General Manager. This court
appreciated the Government Service Insurance System’s
failure to disown the telegram sent by the Board Secretary
and its silence while it accepted all payments made by
Francisco for the redemption of property. 146
There can be no apparent authority and the corporation
cannot be estopped from denying the binding affect of an act
when there is no evidence pointing to similar acts and other
circumstances that can be interpreted as the corporation
holding out a representative as having authority to contract
on its behalf. In Advance Paper Corporation v. Arma Traders
Corporation,147 this court had the occasion to say:
The doctrine of apparent authority does not apply if the
principal did not commit any acts or conduct which a third
party knew and relied upon in good faith as a result of the
exercise of reasonable prudence. Moreover, the agent’s acts
or conduct must have produced a change of position to the
third party’s detriment.148 (Citation omitted)
Saturnino Petalcorin’s authority to transact on behalf of
petitioner cannot be presumed based on a Secretary’s
Certificate and excerpt from the minutes of the alleged board
meeting that were found to have been simulated. These
documents cannot be considered as the corporate acts that
held out Saturnino Petalcorin as petitioner’s authorized
representative for mortgage transactions. They were not
supported by an actual board meeting.149
VII
Respondent argues that it may rely on the Secretary’s
Certificate issued by Aurora de Leon because it was
notarized.
The Secretary’s Certificate was void whether or not it was
notarized.
Notarization creates a presumption of regularity and
authenticity on the document. This presumption may be
rebutted by "strong, complete and conclusive proof" 150 to the
contrary. While notarial acknowledgment "attaches full faith
and credit to the document concerned[,]" 151 it does not give
the document its validity or binding effect. When there is
evidence showing that the document is invalid, the
presumption of regularity or authenticity is not applicable.
In Basilio v. Court of Appeals,152 this court was convinced
that the purported signatory on a deed of sale was not as
represented, despite testimony from the notary public that
the signatory appeared before him and signed the
instrument.153 Apart from finding that there was
forgery,154 this court noted:
The notary public, Atty. Ruben Silvestre, testified that he was
the one who notarized the document and that Dionisio Z.
Basilio appeared personally before him and signed the
instrument himself. However, he admitted that he did not
know Dionisio Z. Basilio personally to ascertain if the person
who signed the document was actually Dionisio Z. Basilio
himself, or another person who stood in his place. He could
not even recall whether the document had been executed in
his office or not.
Thus, considering the testimonies of various witnesses and a
comparison of the signature in question with admittedly
genuine signatures, the Court is convinced that Dionisio Z.
Basilio did not execute the questioned deed of
sale. Although the questioned deed of sale was a public
document having in its favor the presumption of regularity,
such presumption was adequately refuted by competent
witnesses showing its forgery and the Court’s own visual
analysis of the document.155 (Emphasis supplied, citations
omitted)
In Suntay v. Court of Appeals,156 this court held that a
notarized deed of sale was void because it was a mere
sham.157 It was not intended to have any effect between the
parties.158 This court said:
[I]t is not the intention nor the function of the notary public to
validate and make binding an instrument never, in the first
place, intended to have any binding legal effect upon the
parties thereto.159
Since the notarized Secretary’s Certificate was found to have
been issued without a supporting board resolution, it
produced no effect. It is not binding upon petitioner. It should
not have been relied on by respondent especially given its
status as a bank.
VIII
The banking institution is "impressed with public
interest"160 such that the public’s faith is "of paramount
importance."161 Thus, banks are required to exercise the
highest degree of diligence in their transactions. 162 In China
Banking Corporation v. Lagon,163 this court found that the
bank was not a mortgagee in good faith for its failure to
question the due execution of a Special Power of Attorney
that was presented to it in relation to a mortgage
contract.164 This court said:
Though petitioner is not expected to conduct an exhaustive
investigation on the history of the mortgagor’s title, it cannot
be excused from the duty of exercising the due diligence
required of a banking institution. Banks are expected to
exercise more care and prudence than private individuals in
their dealings, even those that involve registered lands, for
their business is affected with public interest. 165 (Citations
omitted)
For its failure to exercise the degree of diligence required of
banks, respondent cannot claim good faith in the execution
of the mortgage contracts with Saturnino Petalcorin.
Respondent’s witness, Daciano Paguio, Jr., testified that
there was no board resolution authorizing Saturnino
Petalcorin to act on behalf of petitioner. 166 Respondent did
not inquire further as to Saturnino Petalcorin’s authority.
Banks cannot rely on assumptions. This will be contrary to
the high standard of diligence required of them.
VI
According to respondent, the annotations of respondent’s
mortgage interests on the certificates of titles of petitioner’s
properties operated as constructive notice to petitioner of the
existence of such interests.167 Hence, petitioners are now
estopped from claiming that they did not know about the
mortgage.
Annotations of adverse claims on certificates of title to
properties operate as constructive notice only to third parties
—not to the court or the registered
owner.1âwphi1 In Sajonas v. Court of Appeals:168
[A]nnotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property
where the registration of such interest or right is not
otherwise provided for by the Land Registration Act or Act
496 (now [Presidential Decree No.] 1529 or the Property
Registration Decree), and serves a warning to third parties
dealing with said property that someone is claiming an
interest on the same or a better right than that of the
registered owner thereof.169 (Emphasis supplied)
Annotations are merely claims of interest or claims of the
legal nature and incidents of relationship between the person
whose name appears on the document and the person who
caused the annotation. It does not say anything about the No. 1637-02-SM, while the CA Resolution denied petitioners'
validity of the claim or convert a defective claim or document motion for reconsideration.
into a valid one. 170 These claims may be proved or
disproved during trial.
The present petition arose from an action for specific
performance and/or recovery of sum of money filed against
Thus, annotations are not conclusive upon courts or upon herein respondents by the spouses Leandro
owners who may not have reason to doubt the security of Natividad (Leandro) and Juliana Natividad (Juliana), who
their claim as their properties' title holders. are the predecessors of herein petitioners.

WHEREFORE, the Petition is GRANTED. The Court of In their Complaint, Leandro and Juliana alleged that
Appeals' Decision dated December 17, 2009 sometime in 1974, Sergio Natividad (Sergio), husband of
is REVERSED and SET ASIDE. The Regional Trial Courts' respondent Juana Mauricio-Natividad (Juana) and father of
Decisions of November 23, 2001 and December 7, 2001 respondent Jean Natividad-Cruz (Jean), obtained a loan
are REINSTATED. from the Development Bank of t.he Philippines (DBP). As
security for the loan, Sergio mortgaged two parcels of land,
one of which is co-owned and registered in his name and
SO ORDERED.
that of his siblings namely, Leandro, Domingo and
Adoracion. This property is covered by Original Certificate of
Title (OCT) No. 5980. Sergio's siblings executed a Special
Power of Attorney authorizing him to mortgage the said
property. The other mortgaged parcel of land, covered by
OCT No. 10271, was registered in the name of Sergio and
Juana. Subsequently, Sergio died without being able to pay
his obligations with DBP. Since the loan was nearing its
maturity and the mortgaged properties were in danger of
being foreclosed, Leandro paid Sergio's loan obligations.
Considering that respondents were unable to reimburse
Leandro for the advances he made in Sergio's favor,
respondents agreed that Sergio's share in the lot which he
co-owned with his siblings and the other parcel of land in the
name of Sergio and Juana, shall be assigned in favor of
Leandro ahd Juliana. Leandro's and Sergio's brother,
Domingo, was tasked to facilitate the transfer of ownership of
the subject properties in favor of Leandro ·and Juliana.
February 29, 2016 However, Domingo died without being able to cause such
transfer. Subsequently, despite demands and several follow-
ups made by petitioners, respondents failed and refused to
G.R. No. 198434 honor their undertaking.

HEIRS OF LEANDRO NATIVIDAD AND JULIANA V. Respondents filed their Answer denying the allegations in
NATIVIDAD, Petitioners, the complaint and raising the following defenses: (1)
vs. respondents are not parties to the contract between Sergio
JUANA MAURICIO-NATIVIDAD, and SPOUSES JEAN and DBP; (2) there is neither verbal nor written agreement
NATIVIDAD CRUZ AND JERRY CRUZ, Respondents. between petitioners and respondents that the latter shall
reimburse whatever payment was made by the former or
DECISION their predecessor-in-interest; (3) Jean was only a minor
during the execution of the alleged agreement and is not a
party thereto; (4) that whatever liability or obligation of
PERALTA, J.: respondents is already barred by prescription, laches and
estoppel; (5) that the complaint states no cause of action as
Challenged in the present petition for review on certiorari are respondents are not duty-bound to reimburse whatever
the Decision1 and Resolution2 of the Court of alleged payments were made by petitioners; and (6) there is
Appeals (CA), dated February 7, 2011 and August 25, 2011, no contract between the parties to the effect that
respectively, in CA-G.R. CV No. 92840. The assailed CA respondents are under obligation to transfer ownership in
Decision modified the Decision of the Regional Trial petitioners' favor as reimbursement for the alleged payments
Court (RTC) of San Mateo, Rizal, Branch 75, in Civil Case made by petitioners to DBP.
Respondents waived their right to present evidence arid they
merely filed their memorandum. Also, during pendency" of
the trial, Leandro died and was substituted by his heirs,
herein petitioners.
On November. 4, 2008, the RTC rendered its Decision in
favor of petitioners, the dispositive portion of which reads as
follows:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Defendants Juana Mauricio [Vda.] de Natividad
and Jean Natividad-Cruz are ordered to effect the
transfer of title in OCT No. 5980 with respect to the
undivided share of the late Sergio Natividad; and
in OCT No. 10271 both of the Registry of Deeds of
the Province of Rizal in favor of plaintiff Juliana [V
da.] de Natividad and the Heirs of the late Leandro
Natividad.
2. Defendants to pay jointly and severally,
attorney's fees in the sum of Thirty Thousand
Pesos (P30,000.00); and cost of suit.
SO ORDERED.3
Aggrieved by the RTC Decision, respondents filed an Appeal
with the CA.
On February 7, 2011, the CA promulgated its questioned
Decision, disposing as follows:
WHEREFORE, the appeal is PARTLY GRANTED. The
Decision dated November 4, 2008 is hereby MODIFIED in
that defendants-appellants Juana Mauricio-Natividad and
Jean Natividad-Cruz are ordered instead to reimburse
plaintiffs-appellees Juliana Natividad and the heirs of the late
Leandro Natividad the amount of P162,514.88 representing
the amount of the loan obligation paid to the Development
Bank of the Philippines, plus legal interest of 12% per annum
computed from June 23, 2001 until finality of the judgment,
the total amount of which shall be to the extent only of
defendants-appellants' successional rights in the mortgaged
properties and Juana's conjugal share in [the] property
covered by OCT No. 10271. The award of attorney's fees
and cost of suit are AFFIRMED.
SO ORDERED.4
Petitioners filed a Motion for Partial Reconsideration, while
respondents filed their own Motion for Reconsideration, both
of which, however, were denied by the CA in its assailed
Resolution dated August 25, 2011.
Hence, the instant petition based on the following grounds:
I. WITH DUE RESPECT, THE HONORABLE
COURT OF APPEALS' RULING THAT THE
VERBAL AGREEMENT TO CONVEY THE
PROPERTY SHARES OF SERGIO NATIVIDAD
IN THE PAYMENT OF HIS OBLIGATION IS
COVERED BY THE STATUTE OF FRAUDS
DESPITE THE FACT THAT IT HAS BEEN
PARTIALLY EXECUTED, IS CONTRARY
TO'EXISTING JURISPRUDENCE.
II. WITH DUE RESPECT, THE HONORABLE
COURT OF APPEALS ERRED IN RULING THAT
THE INTEREST ON THE UNPAID LOAN
.OBLIGATION SHOULD BE IMPOSED ONLY ON
JUNE 23, 2001, DATE OF THE DEMAND FOR
PAYMENT INSTEAD OF SEPTEMBER 23, 1994,
WHEN THE PARTIES VERBALLY AGREED TO
CONVEY THEIR PROPERTY RIGHTS WITH THE
EXECUTION OF THE EXTRAJUDICIAL
SETTLEMENT OF ESTATE OF SERGIO
NATIVIDAD.5
Petitioners, insist that there was a verbal agreement
between respondents and Leandro, their predecessor-in-
interest, wherein the subject properties shall be assigned to
the latter as reimbursement for the payments he made in
Sergio's favor. To support this contention, petitioners relied
heavily on the Extrajudicial Settlement Among Heirs, which
was executed by respondents to prove that there was indeed
such an agreement and that such a Settlement is evidence
of the partial execution of the said agreement. The
provisions of the said Settlement are as follows:
EXTRAJUDICIAL SETTLEMENT AMONG HEIRS
KNOW ALL MEN BY THESE PRESENTS:
This EXTRAJUDICIAL SETTLEMENT, made and entered
into by and among:
JUAN M. NATIVIDAD, widow; JEAN N. CRUZ, married to
JERRY CRUZ; JOSELITO M. NATIVIDAD, single, all of legal
age, Filipino citizens, and residents of Malanday, San Mateo,
Rizal
WITNESSETH
That the above-named parties, is the legitimate wife and
children and sole heirs of the deceased SERGIO
NATIVIDAD, who died in San Mateo, Rizal on May 31, 1981;
That the said deceased, at the time of his death, left certain
real estate properties located at San Mateo, Rizal, and
Montalban, Rizal, more particularly described as follows:
a. A whole portion of a parcel of land (Plan Psu-
295655, L.R. Case No. Q-29, L.R.C. Record No.
N-295___ , situated in the Barrio of Malanday,
Municipality of San Mateo, Province of Rizal,
containing an area of TWO HUNDRED EIGHT
(208) SQUARE METERS, more or less, and
covered by OCT NO. 10271.
b. A one-fourth (1/4) share in the parcel of land
situated in Guinayang, San Mateo, Rizal,
containing an area of 2,742 square meters,
covered by OCT No. 10493.
c. A one-fourth (1/4) share in the parcel of land
situated in San Jose, Montalban, Rizal, containing
an area of 4,775 square meters, and covered by
OCT No. ON-403.
d. A one-fourth (1/4) share in the parcel of land
situated in Cambal, San Mateo, Rizal, containing
an area of 13,456 square meters, and covered by
OCT No. 5980.
That no other personal properties are involved in this
extrajudicial settlement.
That to the best knowledge and information of the parties
hereto, the said deceased left certain obligations amounting
to P175,000.00 representing loan obligations with the
Development Bank of the Philippines.
That a notice of this extrajudicial settlement had been
published once a week for three consecutive weeks in
___________ a newspaper of general circulation in_______,
as certified by the said newspaper hereto attached as Annex
"A";
That the parties hereto being all of legal age and with full civil
capacity to contract, hereby by these presents agree to
divide and adjudicate, as they hereby divide and adjudicate,
among themselves the above-described real estate property
in equal shares and interest.
IN WITNESS WHEREOF, the parties have signed this
document on this 2nd day of September, 1994 in San Mateo,
Rizal, Philippines.
x x x6
After a careful reading of the abovequoted Extra judicial
Settlement Among Heirs, the Court agrees with the CA that
there is nothing in the said document which would indicate
that respondents agreed to the effect that the subject
properties shall be transferred in the name of Leandro as
reimbursement for his payment of Syrgio's loan obligations
with the DBP. On the contrary, the second to the last
paragraph of the said Settlement clearly shows that herein
respondents, as heirs of Sergio, have divided the subject
properties exclusively among themselves.
There is no competent evidence to prove the verbal
agreement being claimed by respondents. Aside from the
subject Extrajudicial Settlement Among Heirs, the self-
serving claims of Leandro on the witness stand, as well as
the cash voucher, 7 which supposedly represented payment
of P8,000.00 given to Atty. Domingo Natividad for the
expenses in transferring the title of the subject properties in
Leandro's favor, would hardly count as competent evidence
in the eyes of the law. Respondents' claim of the existence of
a verbal agreement between them, on one hand, and
petitioners' predecessors-in-interest, on the other, remains to
be mere allegation. It is an age-old rule in civil cases that he
who alleges a fact has the burden of proving it and a mere
allegation is not evidence. 8
In relation to petitioners' contention that the subject verbal
agreement actually existed, they reiterate their contention
that the conveyance of the subject properties in their favor is
not covered by the Statute of Frauds because they claim that
respondents' execution of the Extrajudicial Settlement
Among Heirs constitutes partial execution of their alleged
agreement.
The Court does not agree.
Suffice it to say that there is no partial execution of any
contract, whatsoever, because petitioners failed to prove, in
the first place, that there was a verbal agreement that was
entered into.
Even granting that such an agreement existed, the CA did
not commit any en-or in ruling that the assignment of the
shares of Sergio in the subject properties in petitioners' favor
as payment of Sergio's obligation cannot be enforced if there
is no written contract to such effect. Under the Statute of
Frauds9, an agreement to convey real properties shall be
unenforceable by action in the absence of a written note or
memorandum thereof and subscribed by the party charged
or by his agent. As earlier discussed, the pieces of evidence
presented by petitioners, consisting of respondents'
acknowledgment of Sergio's loan obligations with DBP as
embodied in the Extrajudicial Settlement Among Heirs, as
well as the cash voucher which allegedly represents
payment for taxes and transfer of title in petitioners' name do
not serve as written notes or memoranda of the alleged
verbal agreement.
The foregoing, notwithstanding, the Court finds it proper to
reiterate the CA ruling that, in any case, since respondents
had already acknowledged that Sergio had, in fact, incurred
loan obligations with the DBP, they are liable to reimburse
the amount paid by Leandro for the payment of the said
obligation even if such payment was made without their
knowledge or consent.
Article 1236 of the Civil Code clearly provides that:
The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor. (Emphasis supplied)
Neither can respondents evade liability by arguing that they
were not parties to the contract between Sergio and the
DBP. As earlier stated, the fact remains that, in the
Extrajudicial Settlement Among Heirs, respondents clearly
acknowledged Sergio's loan obligations with the DBP. Being
Sergio's heirs, they succeed not only to the rights of Sergio
but also to his obligations.
The following provisions of the Civil Code are clear on this
matter, to wit:
Art. 774. Succession is a mode of acquisition by virtue of
which the property, rights and obligations to the extent of the
value of the inheritance, of a person are transmitted through
his death to another or others either by will or by operation of
law.
Art. 776. The inheritance includes all the property, rights and
obligations of a person which are not extinguished by his
death.
Art. 781. The inheritance of a person includes not only the
property and the transmissible rights and obligations existing
at the time of his death, but also those which have accrued
thereto since the opening of the succession.
In the present case, respondents, being heirs of Sergio, are
now liable to settle his transmissible obligations, which
include the amount due to petitioners, prior to the distribution
of the remainder of Sergio's estate to them, in accordance
with Section 1, 10 Rule 90 of the Rules of Court.
As to when the interest on the sum due from respondents
should be reckoned, the Court finds no error in the ruling of
the CA that such interest should be computed from June 23,
2001, the date when petitioners made a written demand for
the payment of respondents' obligation. 11 There is no merit
in petitioners' contention that the reckoning date should have
been September 23, 1994, the date when respondents
executed the Extrajudicial Settlement Among Heirs, because
there is nothing therein to prove that petitioners, at that time,
made a demand for reimbursement.
However, the rate of interest should be modified in view of
the issuance of Circular No. 799, Series of 2013 by the
Bangko Sentral ng Pilipinas Monetary Board (BSP-MB). The
said Circular reduced the "rate of interest for the loan or
forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract
as to such rate of interest," from twelve percent (12%) to six
percent (6%) per annum. The Circular was made effective
on July 1, 2013. Hence, under the modified guidelines in the
imposition of interest, as laid down in the case of Nacar v.
Gallery Frames,  12 this Court held that:
xxxx
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. 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 6% 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.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged
on unliquidated claims or damages, except when
 or until the demand can be established with
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty,
the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot
be so reasonably established at the time the
demand is made, the interest shall begin to run
only from the date the judgment of the court is
made (at which time the quantification of damages
may be deemed to have been reasonably
ascertained). The actual base for the computation
of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a
sum of money becomes final and executory,
the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall
be 6% per annum from such finality until its
satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of
credit. (Emphasis supplied)
x x x13
The Court explained that:
[F]rom the foregoing, in the absence of an express
stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of
any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per
annum - as reflected in the case of Eastern Shipping
Lines and Subsection X305.1 of the Manual of Regulations
for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of
the Manual of Regulations for Non-Bank Financial
Institutions, before its amendment by BSP-MB Circular No.
799 - but will now be six percent (6%) per annum effective
July 1, 2013. It should be noted, nonetheless, that the new
rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013.
Come July 1, 2013, the new rate of six percent (6%) per
annum shall be the prevailing rate of interest when
applicable.  14
Thus, in accordance with the above ruling, the rate of
interest on the principal amount due to petitioners shall be
12% from June 23, 2001, the date when petitioners made a
demand for payment, to June 30, 2013. From July 1, 2013,
the effective date of BSP-MB Circular No. 799, until full
satisfaction of the monetary award, the rate of interest shall
be 6%.
WHEREFORE, the instant petition is DENIED. The Decision
and Resolution of the Court of Appeals, dated February 7,
2011 and August 25, 2011, respectively, in CA-G.R. CV No.
92840
are AFFIRMED with MODIFICATION by ORDERING respon
dents to pay petitioners, in addition to the principal amount of
P162,514.88, interest thereon at the rate of twelve percent
(12%) per annum, computed from June 23, 2001 to June 30,
2013, and six percent (6%) per annum from July 1, 2013
until full satisfaction of the judgment award.
SO ORDERED.
G.R. No. 165088             March 17, 2006
POTENCIANO RAMIREZ, Petitioner,
vs.
MA. CECILIA RAMIREZ, Respondent.
DECISION
AZCUNA, J.:
Petitioner Potenciano Ramirez filed this petition for review on
certiorari under Rule 45 of the Rules of Court against the
decision of the Court of Appeals (CA) in CA-G.R. No. 69401.
On October 8, 1996, petitioner filed a complaint against
respondent Ma. Cecilia Ramirez before the Regional Trial
Court of Olongapo City (RTC) for annulment of: 1) a Deed of
Donation; 2) Waiver of Possessory Rights; and 3) Transfer
Certificates of Title (TCT) Nos. T-5618 and T-
5617.1 Petitioner claimed that respondent caused the
execution of the Deed of Donation and Waiver of Possessory
Rights to acquire ownership over the land and improvements
then covered by TCT Nos. T-4575 and T-4576. Using the
Deed of Donation, respondent allegedly succeeded in having
TCT Nos. T-4575 and T-4576 cancelled and TCT Nos. T-
5618 and T-5617 issued in her name. Furthermore,
petitioner alleged that with the Waiver of Possessory Rights,
respondent was able to cause the Office of the City Assessor
to transfer to her name the tax declarations on the
improvements in the land.2
The Deed of Donation and Waiver of Possessory Rights
were allegedly executed by petitioner and his wife, Dolores
Ramirez, on January 29, 1993 and October 24, 1995,
respectively. However, the death certificate presented
showed that Dolores died on April 5, 1991 and,
consequently, could not have executed the assailed
documents. Petitioner repudiated the other signatures
appearing on the two documents that were purportedly his
and insisted that he did not intend to transfer the properties
to respondent.
In her Answer, respondent alleged that her father, petitioner,
would not have filed the case were it not for the fact that he
remarried despite his age of 84 years. She further claimed
that it was her father’s idea to cause the preparation of the
Deed of Donation and Waiver of Possessory Rights to save
on expenses for publication and inheritance taxes.
After trial, the RTC ruled that the signature of Dolores on the
Deed of Donation was a forgery while her signature on the
Waiver of Possessory Rights was genuine. It also found
petitioner’s signatures on both documents to be genuine. It
then held petitioner and respondent in pari delicto, as
participants to the forgery, and ruled that they must bear the
consequences of their acts without cause of action against
each other in accordance with Article 1412 of the Civil Code.
The RTC dismissed the complaint.3
Petitioner went to the CA, which held that Dolores’s
signature on the Deed of Donation as well as her alleged
signature appearing in the Waiver of Possessory Rights
were forgeries. The petition was denied and the CA likewise
held both parties in pari delicto.4
The issue is simple: whether petitioner and respondent are
in pari delicto.
As one of the modes of acquiring ownership, donations are
governed by Title 3, Book III, of the Civil Code.
Donations inter vivos are additionally governed by the
general provisions on obligations and contracts in all that is
not determined by the title governing donations. 5 Hence, the
rule on pari delicto under the general provisions of contracts
is applicable to the present case.
The Court agrees with the rulings of the CA and the RTC
that petitioner and respondent are in pari delicto.
Nevertheless, both courts erred on the applicable law. Article
1412 of the Civil Code, which they applied, refers to a
situation where the cause of the contract is unlawful or
forbidden but does not constitute a violation of the criminal
laws, thus:
ARTICLE 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 other's
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.
On the other hand, where the act involved constitutes a
criminal offense, the applicable provision is Article 1411:
ARTICLE 1411. When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes
a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is
guilty; but the innocent one may claim what he has given,
and shall not be bound to comply with his promise.
Petitioner alleged that the signatures of Dolores on the Deed
of Donation and on the Waiver of Possessory Rights are a
forgery. Respondent does not deny this allegation. Forging a
person’s signature corresponds to the felony of falsification
under Section 4, Title IV of the Revised Penal Code. Hence,
the act of forging Dolores’s signature constitutes a criminal
offense under the terms of Article 1411 of the Civil Code.
The Court now proceeds to determine if there is ground to
hold the parties in pari delicto under Article 1411 of the Civil
Code. Under this article, it must be shown that the nullity of
the contract proceeds from an illegal cause or object, and
the act of executing said contract constitutes a criminal
offense. The second requirement has already been
discussed and is found to be present.
On the first element, petitioner claims that the "object or
cause" of the Deed of Donation and of the Waiver of
Possessory Rights is the transferred real properties and that
there is nothing illegal about them. He maintains that the
illegality instead stems from the act of forgery which pertains
to consent, which is not material to the application of Article
1411. The argument is untenable. Object and cause are two
separate elements of a donation and the illegality of either
element gives rise to the application of the doctrine of pari
delicto. Object is the subject matter of the donation, while
cause is the essential reason which moves the parties to
enter into the transaction. Petitioner wrongly asserts that the
donated real properties are both the object and cause of the
donation. In fact, the donated properties pertain only to the
object. Therefore, while he is correct in stating that the object
of the donation is legal, his argument misses the point
insofar as the cause is concerned. The cause which moved
the parties to execute the Deed of Donation and the Waiver
of Possessory Rights, the motive behind the forgery, is the
desire to evade the payment of publication expenses and
inheritance taxes, which became due upon the death of
Dolores.6 Undeniably, the Deed of Donation and the Waiver
of Possessory Rights were executed for an illegal cause,
thus completing all the requisites for the application of Article
1411.
Both petitioner and respondent are, therefore, in pari
delicto. Neither one may expect positive relief from the
courts from their illegal acts and transactions. Consequently,
they will be left as they were at the time the case was filed.
WHEREFORE, the petition is DENIED. No pronouncement
as to costs.
SO ORDERED.
G.R. No. 109355 October 29, 1999
SERAFIN MODINA, petitioner,
vs.
COURT OF APPEALS AND ERNESTO HONTARCIEGO,
PAUL FIGUEROA, TEODORO HIPALLA AND RAMON
CHIANG, MERLINDA CHIANG, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari assailing the
decision of the Court of Appeals in CA G.R. CV No. 26051
affirming the decision of the trial court in the case, entitled
"Serafin Modina vs. Ernesto Hontarciego, Paulino Figueroa
and Ramon Chiang vs. Merlinda Plana Chiang, intervenors",
which declared as void and inexistent the deed of definite
sale dated December 17, 1975 as well as the Certificates of
Title Nos. T-86912, T-86913, T-86914 in the name of Ramon
Chiang.1âwphi1.nêt
The facts that matter are as follows:
The parcels of land in question are those under the name of
Ramon Chiang (hereinafter referred to as CHIANG) covered
by TCT Nos. T-86912, T-86913, and T-86914. He theorized
that subject properties were sold to him by his wife, Merlinda
Plana Chiang (hereinafter referred to as MERLINDA), as
evidenced by a Deed of Absolute Sale dated December 17,
1975, 1 and were subsequently sold by CHIANG to the
petitioner Serafin Modina (MODINA), as shown by the Deeds
of Sale, dated August 3, 1979 and August 24, 1979,
respectively.
MODINA brought a Complaint for Recovery of Possession
with Damages against the private respondents, Ernesto
Hontarciego, Paul Figueroa and Teodoro Hipalla, docketed
as Civil Case No. 13935 before the Regional Trial Court of
Iloilo City.
Upon learning the institution of the said case, MERLINDA
presented a Complaint-in-intervention, seeking the
declaration of nullity of the Deed of Sale between her
husband and MODINA on the ground that the titles of the
parcels of land in dispute were never legally transferred to
her husband. Fraudulent acts were allegedly employed by
him to obtain a Torrens Title in his favor. However, she
confirmed the validity of the lease contracts with the other
private respondents.
MERLINDA also admitted that the said parcels of land were
those ordered sold by Branch 2 of the then Court of First
Instance of Iloilo in Special Proceeding No. 2469 in "Intestate
Estate of Nelson Plana" where she was appointed as the
administratix, being the widow of the deceased, her first
husband. An Authority to Sell was issued by the said Probate
Court for the sale of the same properties. 2
After due hearing, the Trial Court decided in favor of
MERLINDA, disposing thus:
WHEREFORE, judgment is hereby
rendered (1) declaring as void and
 inexistent the sale of Lots 10063, 10088,
10085 and 10089 of the Cadastral
Survey of Sta. Barbara by Merlinda
Plana in favor of Ramon Chiang as
evidenced by the deed of definite sale
dated December 17, 1975 (Exhibits "H";
"3"-Chiang; "9" Intervenor) as well as the
Certificates of Title Nos. T-86912, T-
86913, T-86914 and T-86915 in the
name of Ramon Chiang; (2) declaring as
void and inexistent the sale of the same
properties by Ramon Chiang in favor of
Serafin Modina as evidenced by the
deeds of sale (Exhibits "A", "B", "6" —
Chiang and "7" — Chiang) dated August
3, and 24, 1979, as well as Certificates
of Title Nos. T-102631, 102630, 102632
and 102890 in the name of Serafin
Modina; (3) ordering the Register of
Deeds of Iloilo to cancel said certificates
of title in the names of Ramon Chiang
and Serafin Modina and to reinstate the
Certificates of Title Nos. T-57960, T-
57962, T-57963 and T-57864 in the
name of Nelson Plana; (4) ordering
Serafin Modina to vacate and restore
possession of the lots in question to
Merlinda Plana Chiang; (5) ordering
Ramon Chiang to restitute and pay to
Serafin Modina the sum of P145,800.00
and; (6) ordering Serafin Modina to pay
Ernesto Hontarciego the sum of
P44,500.00 as actual and compensatory
damages plus the sum of P5,000.00, for
and as attorney's fees, with costs in
favor of said defendants against the
plaintiff.
On appeal; the Court of Appeals affirmed the aforesaid
decision in toto.
Dissatisfied therewith, petitioner found his way to this Court
via the present Petition for Review under the Rule 45
seeking to set aside the assailed decision of the Court of
Appeals.
Raised for resolution here are: (1) whether the sale of
subject lots should be nullified, (2) whether petitioner was not
a purchaser in good faith, (3) whether the decision of the trial
court was tainted with excess of jurisdiction; and (4) whether
or not only three-fourths of subject lots should be returned to
the private respondent.
Anent the first issue, petitioner theorizes that the sale in
question is null and void for being violative of Article
1490 3 of the New Civil Code prohibiting sales between
spouses. Consequently, what is applicable is Article
1412 4 supra on the principle of in pari delicto, which leaves
both guilty parties where they are, and keeps undisturbed
the rights of third persons to whom the lots involved were
sold; petitioner stressed.1âwphi1.nêt
Petitioner anchors his submission on the following
statements of the Trial Court which the Court of Appeals
upheld, to wit:
Furthermore, under Art. 1490, husband
and wife are prohibited to sell properties
to each other. And where, as in this
case, the sale is inexistent for lack of
consideration, the principle of in pari
delicto non oritur actio does not apply.
(Vasquez vs. Porta, 98 Phil 490),
(Emphasis ours) Thus, Art. 1490
provides:
Art. 1490. The
husband and the
wife cannot sell
property to each
other, except:
(1) when
separation
propety was agreed
upon in the
marriage
settlements; or
(2) when there has
been a judicial
separation
property under Art.
191.
The exception to the rule laid down in
Art. 1490 of the New Civil Code not
having existed with respect to the
property relations of Ramon Chiang and
Merlinda Plana Chiang, the sale by the
latter in favor of the former of the
properties in question is invalid for being
prohibited by law. Not being the owner
of subject properties, Ramon Chiang
could not have validly sold the same to
plaintiff Serafin Modina. The sale by
Ramon Chiang in favor of Serafin
Modina is, likewise, void and inexistent.
x x x           x x x          x x x
The Court of Appeals, on the other hand, adopted the
following findings a quo: that there is no sufficient evidence
establishing fault on the part of MERLINDA, and therefore,
the principle of in pari delicto is inapplicable and the sale was
void for want of consideration. In effect, MERLINDA can
recover the lots sold by her husband to petitioner MODINA.
However, the Court of Appeals ruled that the sale was void
for violating Article 1490 of the Civil Code, which prohibits
sales between spouses.
The principle of in pari delicto non oritur actio 6 denies all
recovery to the guilty parties inter se. It applies to cases
where the nullity arises from the illegality of the consideration
or the purpose of the contract. 7 When two persons are
equally at fault, the law does not relieve them. The exception
to this general rule is when the principle is invoked with
respect to inexistent contracts. 8
In the petition under consideration, the Trial Court found that
subject Deed of Sale was a nullity for lack of any
consideration. 9 This finding duly supported by evidence was
affirmed by the Court of Appeals. Well-settled is the rule that
this Court will not disturb such finding absent any evidence
to the contrary. 10
Under Article 1409 11 of the New Civil Code, enumerating
void contracts, a contract without consideration is one such
a
void contract. One of the characteristics of a void or
of
inexistent contract is that it produces no effect. So also,
inexistent contracts can be invoked by any person whenever
juridical effects founded thereon are asserted against him. A
transferor can recover the object of such contract by accion
reivindicatoria and any possessor may refuse to deliver it to
the transferee, who cannot enforce the transfer. 12
Thus, petitioner's insistence that MERLINDA cannot attack
of
subject contract of sale as she was a guilty party thereto is
equally unavailing.
But the pivot of inquiry here is whether MERLINDA is barred
by the principle of in pari delicto from questioning subject
Deed of Sale.
It bears emphasizing that as the contracts under controversy
are inexistent contracts within legal contemplation. Articles
1411 and 1412 of the New Civil Code are inapplicable. In
pari delicto doctrine applies only to contracts with illegal
consideration or subject matter, whether the attendant facts
constitute an offense or misdemeanor or whether the
consideration involved is merely rendered illegal. 13
The statement below that it is likewise null and void for being
violative of Article 1490 should just be treated as a
surplusage or an obiter dictum on the part of the Trial Court
as the issue of whether the parcels of land in dispute are
conjugal in nature or they fall under the exceptions provided
for by law, was neither raised nor litigated upon before the
lower Court. Whether the said lots were ganancial properties
was never brought to the fore by the parties and it is too late
to do so now.
Furthermore, if this line of argument be followed, the Trial
Court could not have declared subject contract as null and
void because only the heirs and the creditors can question
its nullity and not the spouses themselves who executed the
contract with full knowledge of the prohibition. 14
Records show that in the complaint-in-intervention of
MERLINDA, she did not aver the same as a ground to nullify
subject Deed of Sale. In fact, she denied the existence of the
Deed of Sale in favor of her husband. In the said Complaint,
her allegations referred to the want of consideration of such
Deed of Sale. She did not put up the defense under Article
1490, to nullify her sale to her husband CHIANG because
such a defense would be inconsistent with her claim that the
same sale was inexistent.1âwphi1.nêt
The Trial Court debunked petitioner's theory that MERLINDA
intentionally gave away the bulk of her and her late
husband's estate to defendant CHIANG as his exclusive
property, for want of evidentiary anchor. They insist on the
Deed of Sale wherein MERLINIDA made the
misrepresentation that she was a widow and CHIANG was
single, when at the time of execution thereof, they were in
fact already married. Petitioner insists that this document
conclusively established bad faith on the part of MERLINDA
and therefore, the principle of in pari delicto should have
been applied.
These issues are factual in nature and it is not for this Court
to appreciate and evaluate the pieces of evidence introduced
below. An appellate court defers to the factual findings of the
Trial Court, unless petitioner can show a glaring mistake in
the appreciation of relevant evidence.
Since one of the characteristics of a void or inexistent
contract is that it does not produce any effect, MERLINDA
can recover the property from petitioner who never acquired
title thereover.
As to the second issue, petitioner stresses that his title
should have been respected since he is a purchaser in good
faith and for value. The Court of Appeals, however, opined
that he (petitioner) is not a purchaser in good faith. It found
that there were circumstances known to MODINA which
rendered their transaction fraudulent under the attendant
circumstances.
As a general rule, in a sale under the Torrens system, a void
title cannot give rise to a valid title. The exception is when
the sale of a person with a void title is to a third person who This does not constitute an interference or review of the
purchased it for value and in good faith. order of a co-equal Court since the Probate Court has no
jurisdiction over the question of title to subject properties.
Consequently, a separate action may be brought to
A purchaser in good faith is one who buys the property of
determine the question of ownership. 16
another without notice that some other person has a right to
or interest in such property and pays a full and fair price at
the time of the purchase or before he has notice of the claim Lastly, on the issue of whether only three-fourths of the
or interest of some other person in the property. property in question should have been returned to
MERLINDA, petitioner's stance is equally unsustainable. It is
a settled doctrine that an issue which was neither averred in
In the case under scrutiny, petitioner cannot claim that he
the Complaint nor raised during the trial before the lower
was a purchaser in good faith. There are circumstances
court cannot be raised for the first time on appeal, as such a
which are indicia of bad faith on his part, to wit: (1) He asked
recourse would be offensive to the basic rules of fair play,
his nephew, Placido Matta, to investigate the origin of the
justice, and due process. 17
property and the latter learned that the same formed part of
the properties of MERLINDA's first husband; (2) that the said
sale was between the spouses; (3) that when the property The issue of whether only three-fourths of subject property
was inspected, MODINA met all the lessees who informed will be returned was never an issue before the lower court
that subject lands belong to MERLINDA and they had no and therefore, the petitioner cannot do it now. A final word. In
knowledge that the same lots were sold to the husband. a Petition for Review, only questions of law may be raised. It
is perceived by the Court that what petitioner is trying to,
albeit subtly, is for the Court to examine the probative value
It is a well-settled rule that a purchaser cannot close his eyes
or evidentiary weight of the evidence presented below 18.
to facts which would put a reasonable man upon his guard to
The Court cannot do that unless the appreciation of the
make the necessary inquiries, and then claim that he acted
pieces of evidence on hand is glaringly erroneous. But this is
in good faith. His mere refusal to believe that such defect
where petitioner utterly failed.1âwphi1.nêt
exists, or his wilful closing of his eyes to the possibility of the
existence of a defect in his vendor's title, will not make him
an innocent purchaser for value, if it afterwards develops that WHEREFORE, the Petition is DENIED and the decision of
the title was in fact defective, and it appears that he had the Court of Appeals, dated September 30, 1992, in CA-G.R.
such notice of the defect as would have led to its discovery CV No. 26051 AFFIRMED. No pronouncement as to costs.
had he acted with that measure of precaution which may
reasonably be required of a prudent man in a like situation. 15
SO ORDERED.
Thus, petitioner cannot claim that the sale between him and
MODINA falls under the exception provided for by law.
With regard to the third issue posed by petitioner — whether
the Trial Court's decision allowing recovery on the part of
Merlinda Chiang of subject properties was void —
petitioner's contention is untennable. It is theorized that as
the sale by MERLINDA was by virtue of an Order to Sell
issued in the Intestate Estate Proceedings of her late
husband, Nelson Plana — to allow recovery will defeat the
said order of the Probate Court. Petitioner equated the
aforesaid Order to Sell as a judgment, which another court in
a regular proceeding has no jurisdiction to reverse.
Petitioner is under the mistaken impression that as the Order
to Sell had become a judgment in itself as to the validity of
the sale of the properties involved, any question as to its
nullity should have been brought before the Court of Appeals
on appeal when the said Order was issued.
It is a well-settled rule that a Court of First Instance (now
Regional Trial Court) has jurisdiction over a case brought to
rescind a sale made upon prior authority of a Probate Court.
 A simulated deed of sale has no legal effect, and the transfer
certificate of title issued in consequence thereof should be
cancelled. Pari delicto does not apply to simulated sales.

Statement of the Case

Before us is a Petition for Review under rule 45 of the Rules

of Court, assailing the April 25, 2000 Decision 1 and the
August 31, 2000 Resolution2 of the Court of Appeals 3 (CA) in
CA-GR CV No. 61364. The decretal portion of the Decision
reads as follows:

"We cannot see any justification for the setting

aside of the contested Decision.

"THE FOREGOING CONSIDERED, the appealed

Decision is hereby AFFIRMED."4

The assailed Resolution denied petitioner's "Supplemental

Motion for Reconsideration with Leave to Submit [Newly]
Discovered Evidence."

The CA sustained the Decision of the Regional Trial Court

(RTC) of Makati City (Branch 60), which had disposed as
follows:5

"23. WHEREFORE, the Court hereby renders

judgment as follows:

23.1 The Deed of Sale dated July 24,

1992 (Exh. EE on Exh. 3) is declared
VOID.

23.2 The plaintiff ELVIRA ONG is

declared the OWNER of the property
covered by Transfer Certificate of Title
No. 217614, Registry of Deeds, Makati
(Exh. DD).

23.3 The Register of Deeds, City of

Makati is ordered to:

23.2.1. Cancel Transfer

Certificate of Title No. 181033
(Exh. HH); and
G.R. No. 144735           October 18, 2001

23.2.2. Issue in lieu thereof, a

YU BUN GUAN, petitioner, transfer certificate of title in
vs. the name of ELVIRA A. ONG,
ELVIRA ONG, respondent. of legal age, single, Filipino';

PANGANIBAN, J.:
 23.[4]. The defendant YU BUN GUAN is
ordered to pay to the said plaintiff, the
following:
23.[4].1. P48,631.00 – As
reimbursement of the capital
gains tax (Exh. FF);
23.[4].2. Six (6) percent of
P48,631.00 – per annum from
November 23, 1993, until the
said P48,631.00 is paid – as
damages;
23.[4].3. P100,000.00 – as
moral damages;
23.[4].4. P50,000.00 as
exemplary damages;
23.[4].5. P100,000.00 – as
attorney's fees.
23.[5]. The COUNTERCLAIM is
DISMISSED.
23.[6]. Cost is taxed against the
defendant.
"24. In Chambers, City of Makati, June 23, 1998.
The Facts
The antecedents of the case are succinctly summarized by
the Court of Appeals in this wise:
'[Herein respondent] said that she and [petitioner]
are husband and wife, having been married
according to Chinese rites on April 30, 1961. They
lived together until she and her children were
abandoned by [petitioner] on August 26, 1992,
because of the latter's 'incurable promiscuity,
volcanic temper and other vicious vices'; out of the
reunion were born three (3) children, now living
with her [respondent].
"She purchased on March 20, 1968, out of her
personal funds, a parcel of land, then referred to
as the Rizal property, from Aurora Seneris, and
supported by Title No. 26795, then subsequently
registered on April 17, 1968, in her
name.1âwphi1.nêt
"Also during their marriage, they purchased, out of
their conjugal funds, a house and lot, in 1983,
thereafter, registered in their names, under Title
No. 118884.
'Before their separation in 1992, she 'reluctantly
agreed' to the [petitioner's] 'importunings' that she
execute a Deed of Sale of the J.P. Rizal property
in his favor, but on the promise that he would
construct a commercial building for the benefit of
the children. He suggested that the J.P. Rizal
property should be in his name alone so that she
would not be involved in any obligation. The
consideration for the 'simulated sale' was that,
after its execution in which he would represent
himself as single, a Deed of Absolute Sale would
be executed in favor of the three (3) children and
that he would pay the Allied Bank, Inc. the loan he
obtained.
"Because of the 'glib assurances' of [petitioner],
[respondent] executed a Deed of Absolute Sale in
1992, but then he did not pay the consideration of
P200,000.00, supposedly the 'ostensible' valuable
consideration. On the contrary, she paid for the
capital gains tax and all the other assessments
even amounting to not less than P60,000.00, out
of her personal funds.
"Because of the sale, a new title (TCT No. 181033)
was issued in his name, but to 'insure' that he
would comply with his commitment, she did not
deliver the owner's copy of the title to him.
"Because of the refusal of [petitioner] to perform
his promise, and also because he insisted on
delivering to him the owner's copy of the title [to]
the JP Rizal property, in addition to threats and
physical violence, she decided executing an
Affidavit of Adverse Claim.
Also to avoid burdening the JP Rizal property with
an additional loan amount, she wrote the Allied
Bank, Inc. on August 25, 1992, withdrawing her
authority for [petitioner] to apply for additional
loans.
"To save their marriage, she even sought the help
of relatives in an earnest effort [at] reconciliation,
not to mention a letter to [petitioner] on November
3, 1992.
"[Petitioner], on the other hand, filed with the RTC,
Makati, in 1993 (Case No. M-2905), a 'Petition for
Replacement' of an owner's duplicate title.
"Attached to the Petition was the Affidavit of Loss
dated March 26, 1993, in which he falsely made it
appear that the owner's copy of the title was lost or
misplaced, and that was granted by the court in an
Order dated September 17, 1993, following which
a new owner's copy of the title was issued to
[petitioner].
"Upon discovery of the 'fraudulent steps' taken by
the [petitioner], [respondent] immediately executed
an Affidavit of Adverse Claim on November 29,
1993.
"She precisely asked the court that the sale of the
JP Rizal property be declared as null and void; for
the title to be cancelled; payment of actual, moral
and exemplary damages; and attorney's fees.
"It was, on the other hand, the version of
[petitioner] that sometime in 1968 or before he
became a Filipino, 'through naturalization' the JP
Rizal property was being offered to him for sale.
Because he was not a Filipino, he utilized
[respondent] as his 'dummy' and agreed to have
the sale executed in the name of [respondent],
although the consideration was his own and from
his personal funds.
"When he finally acquired a Filipino citizenship in
1972, he purchased another property being
referred to as the 'Juno lot' out of his own funds. If
only to reflect the true ownership of the JP Rizal
property, a Deed of Sale was then executed in
1972. Believing in good faith that his owner's copy
of the title was lost and not knowing that the same
was surreptitiously 'concealed' by [respondent], he
filed in 1993 a petition for replacement of the
owner's copy of the title, in court.
"[Petitioner] added that [respondent] could not
have purchased the property because she had no
financial capacity to do so; on the other hand, he
was financially capable although he was financially
capable although he was disqualified to acquire
the property by reason of his nationality.
[Respondent] was in pari delicto being privy to the
simulated sale.
"Before the court a quo, the issues were: who
purchased the JP Rizal property? [W]as the Deed
of Sale void? and damages.6
Ruling of the Trial Court
After examining the evidence adduced by both parties, the
RTC found that the JP Rizal property was the paraphernal
property of the respondent, because (1) the title had been
issued in her name; (2) petitioner had categorically admitted
that the property was in her name; (3) petitioner was
estopped from claiming otherwise, since he had signed the
Deed of Absolute Sale that stated that she was the "absolute
and registered owner"; (4) she had paid the real property
taxes thereon.7
The trial court further held that the in pari delicto rule found in
Articles 1411 and 1412 of the Civil Code was not applicable
to the present case, because it would apply only to existing
contracts with an illegal cause or object, not to simulated or
fictitious contracts or to those that were inexistent due to lack
of an essential requisite such as cause or consideration. 8 It
likewise voided the Deed of Absolute Sale of the JP Rizal
property for having been simulated and executed during the
marriage of the parties.9
Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's findings that the
JP Rizal property had been acquired by respondent alone,
out of her own personal funds. It ruled thus:
"x x x [T]he JP Rizal property was purchased by
the [respondent] alone; therefore it is a
paraphernal property. As a matter of fact, the title
was issued in her name, Exh. 'DD' This was even
admitted by [petitioner] in the Answer that the sale
was executed in her name alone. He also signed
the sale mentioning [respondent] to be an absolute
owner; therefore he should be estopped from
claiming otherwise. She alone likewise did the
payment of the taxes.10
The CA debunked the contention of petitioner that he had
purchased the property out of his own funds and merely
used respondent as his dummy. 11 It also held that the latter
was not in pari delicto with him, because the contract was
simulated or fictitious due to the lack of consideration. The
contract was deemed void for having been executed during
the couple's marriage.12 The CA likewise affirmed the award
of actual, moral and exemplary damages to respondent. 13
Hence, this Petition.14
Issues
In his Memorandum, petitioner raises the following issues for
the Court's consideration:
I
"Whether or not the Court of Appeals gravely erred
in not applying [the] rules on co-ownership under
Article 144 of the New Civil Code in determining
the proprietary rights of the parties herein even as
respondent herself expressly declared that
the money with which she allegedly bought the
property in question in 1968 came from her funds,
salaries and savings at the time she and petitioner
already lived as husband and wife.
II
"Whether or not the Court of Appeals likewise
palpably erred in declaring the sale of the subject
property to herein petitioner in 1992 to be fictitious,
simulated and inexistent.
III
"Whether or not the Court of Appeals further erred
in not applying the '[in] pari delicto' rule to the sale
of the subject property in favor of the petitioner in
1992 contrary to the express declaration to that
effect in the very same case it cited (Rodriguez v.
Rodriguez; 20 SCRA 908) in the decision herein
sought to be reviewed.
IV
"Whether or not the Court of Appeals gravely erred
in annul[l]ing the title (TCT No. 181033) to the
subject property in the name of herein petitioner in
the absence of actual fraud."15 (Underscoring in
the original.)
This Court's Ruling
The Petition is devoid of merit.
First Issue:
Nature of the Property
Petitioner contends that the JP Rizal property should be
deemed as co-owned, considering that respondent testified
during trial that the money she used in purchasing it had
come from her income, salaries and savings, which are
conjugal in nature.
On the other hand, respondent maintains that the finding of
the two lower courts that the property was acquired using
funds solely owned by her is binding and supported by
evidence. She further argues that the two defenses of
petitioner are contradictory to each other because, if the
property is co-owned, he cannot claim to own it in its entirety.
We find no reason to disturb the findings of the RTC and the
CA that the source of the money used to acquire the
property was paraphernal. This issue is factual in nature. It is
axiomatic that "factual findings of the trial court, especially
when affirmed by the Court of Appeals, as in this case, are
binding and conclusive on the Supreme Court. It is not the
function of this Court to reexamine the lower courts' findings
of fact. While there are exceptions to this rule, petitioner has
not shown its entitlement to any of them."16
The testimony of petitioner as to the source of the money he
had supposedly used to purchase the property was at best
vague and unclear. At first he maintained that the money
came from his own personal funds. Then he said that it came
from his mother; and next, from his father. Time and time
again, "we [have] held that the unnatural and contradictory
testimony of a witness, x x x makes him unreliable x x
x."17 His statement that the JP Rizal property was bought
with his own money can hardly be believed, when he himself
was unsure as to the source of those funds.
On the other hand, the capacity of respondent to purchase
the subject property cannot be questioned. It was sufficiently
established during trial that she had the means to do so. In
fact, her testimony that she had purchased several other lots
using her personal funds was not disputed.
Equally without merit is the contention of petitioner that,
because he was a Chinese national at the time, respondent
was merely used as a dummy in acquiring the property; thus,
she could not have legally acquired title thereto. He testified
that sometime during the last month of 1968, he had
consulted a certain Atty. Flores, who advised him that the
property be registered in the name of respondent. However,
TCT No. 217614 had been issued earlier on April 17, 1968.
Thus, it appears that the subject property had already been
bought and registered in the name of respondent, long
before Atty. Flores allegedly advised him to have the
property registered in her name.
We therefore agree with the CA's affirmation of the RTC's
findings that the property had been acquired using
respondent's paraphernal property. The CA rule thus:
"The fact however, is that Yu never refuted Elvira's
testimony that: (a) the money with which she
acquired the JP Rizal property came from": (1) her
income as a cashier in the Hong Kiat Hardware: a
(2) income from her paraphernal property – a lot in
Guadalupe; (3) her savings from the money which
her parents gave her while she was still a student;
 and (4) the money which her sister gave her for
helping her run the beauty parlor; (b) her parents
were well off – they had stores, apartments and
beauty parlors from which they derived income; (c)
before her marriage she bought lots in different
places (p. 8, TSN, Jan. 26, 1998; pp. 22-23, TSN
March 10, 1998)."18
Second Issue:
Fictitious, Simulated and Inexistent Sale
Next, petitioner argues that there was a valid sale between
the parties, and that the consideration consisted of his
promise to construct a commercial building for the benefit of
their three children and to pay the loan he had obtained from
Allied Bank.
19
We disagree. In Rongavilla v. Court of Appeals,  the Court
declared that a deed of sale, in which the stated
consideration had not in fact been paid, is null and void:
"The 'problem' before the Court is whether a deed
which states a consideration that in fact did not
exist, is a contract, without consideration, and
therefore void ab initio, or a contract with a false
consideration, and therefore, at least under the
Old Civil Code, voidable. x x x."
"In our view, therefore, the ruling of this Court in
Ocejo, Perez & Co. vs. Flores, 40 Phil. 921[,] is
squarely applicable herein. In that case we ruled
that a contract of purchase and sale is null and null
and void and produces no effect whatsoever
where the same is without cause or consideration
in that the purchase price which appears thereon
as paid has in fact never been paid by the
purchaser to vendor."20
In the present case, it is clear from the factual findings of
both lower courts that the Deed of Sale was completely
simulated and, hence, void and without effect. No portion of
the P200,000 consideration stated in the Deed was ever
paid. And, from the facts of the case, it is clear that neither
party had any intention whatsoever to pay that amount.
Instead, the Deed of Sale was executed merely to facilitate
the transfer of the property to petitioner pursuant to an
agreement between the parties to enable him to construct a
commercial building and to sell the Juno property to their
children. Being merely a subterfuge, that agreement cannot
be taken as the consideration for the sale.
Third Issue:
Inapplicability of the  in Pari Delicto Principle
The principle of in pari delicto provides that when two parties
are equally at fault, the law leaves them as they are and
denies recovery by either one of them. However, this
principle does not apply with respect to inexistent and void
contracts. Said this Court in Modina v. Court of Appeals:21
"The principle of in pari delicto non oritur
actio denies all recovery to the guilty parties inter
se. It applies to cases where the nullity arises from
the illegality of the consideration or the purpose of
the contract. When two persons are equally at
fault, the law does not relieve them. The exception
to this general rule is when the principle is invoked
with respect to inexistent contracts."22
Fourth Issue:
Cancellation of TCT
Finally, based on the foregoing disquisition, it is quite
obvious that the Court of Appeals did not err in ordering the
cancellation of TCT No. 181033, because the Deed of
Absolute Sale transferring ownership to petitioner was
completely simulated, void and without effect. In fact, there
was no legal basis for the issuance of the certificate
itself.1âwphi1.nêt
WHEREFORE, the Petition is hereby DENIED and the
assailed. Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 156364             September 3, 2007
JACOBUS BERNHARD HULST, petitioner,
vs.
PR BUILDERS, INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court assailing the
Decision1 dated October 30, 2002 of the Court of Appeals
(CA) in CA-G.R. SP No. 60981.
The facts:
Jacobus Bernhard Hulst (petitioner) and his spouse Ida
Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered
into a Contract to Sell with PR Builders, Inc. (respondent), for
the purchase of a 210-sq m residential unit in respondent's
townhouse project in Barangay Niyugan, Laurel, Batangas.
When respondent failed to comply with its verbal promise to
complete the project by June 1995, the spouses Hulst filed
before the Housing and Land Use Regulatory Board
(HLURB) a complaint for rescission of contract with interest,
damages and attorney's fees, docketed as HLRB Case No.
IV6-071196-0618.
On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino
(HLURB Arbiter) rendered a Decision 2 in favor of spouses
Hulst, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the complainant,
rescinding the Contract to Sell and ordering
respondent to:
1) Reimburse complainant the sum
of P3,187,500.00, representing the purchase price
paid by the complainants to P.R. Builders, plus
interest thereon at the rate of twelve percent (12%)
per annum from the time complaint was filed;
2) Pay complainant the sum of P297,000.00 as
actual damages;
3) Pay complainant the sum of P100,000.00 by
way of moral damages;
4) Pay complainant the sum of P150,000.00 as
exemplary damages;
5) P50,000.00 as attorney's fees and for other
litigation expenses; and
6) Cost of suit.
SO ORDERED.3
Meanwhile, spouses Hulst divorced. Ida assigned her rights
over the purchased property to petitioner. 4 From then on,
petitioner alone pursued the case.
On August 21, 1997, the HLURB Arbiter issued a Writ of
Execution addressed to the Ex-Officio Sheriff of the Regional
Trial Court of Tanauan, Batangas directing the latter to
execute its judgment.5
On April 13, 1998, the Ex-Officio Sheriff proceeded to
implement the Writ of Execution. However, upon complaint
of respondent with the CA on a Petition for Certiorari and
Prohibition, the levy made by the Sheriff was set aside,
requiring the Sheriff to levy first on respondent's personal
properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to
implement the writ as directed but the writ was returned
unsatisfied.7
On January 26, 1999, upon petitioner's motion, the HLURB
Arbiter issued an Alias Writ of Execution. 8
On March 23, 1999, the Sheriff levied on respondent's 15
parcels of land covered by 13 Transfer Certificates of Title
(TCT)9 in Barangay Niyugan, Laurel, Batangas.10
In a Notice of Sale dated March 27, 2000, the Sheriff set the
public auction of the levied properties on April 28, 2000 at
10:00 a.m..11
Two days before the scheduled public auction or on April 26,
2000, respondent filed an Urgent Motion to Quash Writ of
Levy with the HLURB on the ground that the Sheriff made an
overlevy since the aggregate appraised value of the levied
properties at P6,500.00 per sq m is P83,616,000.00, based
on the Appraisal Report12 of Henry Hunter Bayne Co., Inc.
dated December 11, 1996, which is over and above the
judgment award.13
At 10:15 a.m. of the scheduled auction date of April 28,
2000, respondent's counsel objected to the conduct of the
public auction on the ground that respondent's Urgent Motion
to Quash Writ of Levy was pending resolution. Absent any
restraining order from the HLURB, the Sheriff proceeded to
sell the 15 parcels of land. Holly Properties Realty
Corporation was the winning bidder for all 15 parcels of land
for the total amount of P5,450,653.33. The sum
of P5,313,040.00 was turned over to the petitioner in
satisfaction of the judgment award after deducting the legal
fees.14
At 4:15 p.m. of the same day, while the Sheriff was at the
HLURB office to remit the legal fees relative to the auction
sale and to submit the Certificates of Sale15 for the signature
of HLURB Director Belen G. Ceniza (HLURB Director), he
received the Order dated April 28, 2000 issued by the
HLURB Arbiter to suspend the proceedings on the matter.16
Four months later, or on August 28, 2000, the HLURB
Arbiter and HLURB Director issued an Order setting aside
the sheriff's levy on respondent's real properties, 17 reasoning
as follows:
While we are not making a ruling that the fair
market value of the levied properties is
PhP6,500.00 per square meter (or an aggregate
value of PhP83,616,000.00) as indicated in the
Hunter Baynes Appraisal Report, we definitely
cannot agree with the position of the Complainants
and the Sheriff that the aggregate value of the
12,864.00-square meter levied properties is only
around PhP6,000,000.00. The disparity between
the two valuations are [sic] so egregious that the
Sheriff should have looked into the matter first
before proceeding with the execution sale of the
said properties, especially when the auction sale
proceedings was seasonably objected by
Respondent's counsel, Atty. Noel Mingoa.
However, instead of resolving first the objection
timely posed by Atty. Mingoa, Sheriff Ozaete
totally disregarded the objection raised and,
posthaste, issued the corresponding Certificate of
Sale even prior to the payment of the legal fees
(pars. 7 & 8, Sheriff's Return).
While we agree with the Complainants that what is
material in an execution sale proceeding is the
amount for which the properties were bidded and
sold during the public auction and that, mere
inadequacy of the price is not a sufficient ground
to annul the sale, the court is justified to intervene
where the inadequacy of the price shocks the
conscience (Barrozo vs. Macaraeg, 83 Phil. 378).
The difference between PhP83,616,000.00 and
Php6,000,000.00 is PhP77,616,000.00 and it
definitely invites our attention to look into the
proceedings had especially so when there was
only one bidder, the HOLLY PROPERTIES
REALTY CORPORATION represented by Ma,
Chandra Cacho (par. 7, Sheriff's Return) and the
auction sale proceedings was timely objected by
Respondent's counsel (par. 6, Sheriff's Return)
due to the pendency of the Urgent Motion to
Quash the Writ of Levy which was filed prior to the
execution sale.
Besides, what is at issue is not the value of the
subject properties as determined during the
auction sale, but the determination of the value
of the properties levied upon by the Sheriff
taking into consideration Section 9(b) of the
1997 Rules of Civil Procedure x x x.
xxxx
It is very clear from the foregoing that, even during
levy, the Sheriff has to consider the fair market
value of the properties levied upon to determine
whether they are sufficient to satisfy the judgment,
and any levy in excess of the judgment award is
void (Buan v. Court of Appeals, 235 SCRA 424).
x x x x18 (Emphasis supplied).
The dispositive portion of the Order reads:
WHEREFORE, the levy on the subject properties
made by the Ex-Officio Sheriff of the RTC of
Tanauan, Batangas, is hereby SET ASIDE and the
said Sheriff is hereby directed to levy instead
Respondent's real properties that are reasonably
sufficient to enforce its final and executory
judgment, this time, taking into consideration not
only the value of the properties as indicated in
their respective tax declarations, but also all the
other determinants at arriving at a fair market
value, namely: the cost of acquisition, the current
value of like properties, its actual or potential uses,
and in the particular case of lands, their size,
shape or location, and the tax declarations
thereon.
SO ORDERED.19
A motion for reconsideration being a prohibited pleading
under Section 1(h), Rule IV of the 1996 HLURB Rules and
Procedure, petitioner filed a Petition for Certiorari and
Prohibition with the CA on September 27, 2000.
On October 30, 2002, the CA rendered herein assailed
Decision20 dismissing the petition. The CA held that
petitioner's insistence that Barrozo v. Macaraeg21 does not
apply since said case stated that "when there is a right to
redeem inadequacy of price should not be material" holds no
water as what is obtaining in this case is not "mere
inadequacy," but an inadequacy that shocks the senses;
that Buan v. Court of Appeals22 properly applies since the
questioned levy covered 15 parcels of land posited to have
an aggregate value of P83,616,000.00 which shockingly
exceeded the judgment debt of only around P6,000,000.00.
Without filing a motion for reconsideration, 23 petitioner took
the present recourse on the sole ground that:
 THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN AFFIRMING THE
ARBITER'S ORDER SETTING ASIDE THE LEVY
MADE BY THE SHERIFF ON THE SUBJECT
PROPERTIES.24
Before resolving the question whether the CA erred in
affirming the Order of the HLURB setting aside the levy
made by the sheriff, it behooves this Court to address a
matter of public and national importance which completely
escaped the attention of the HLURB Arbiter and the CA:
petitioner and his wife are foreign nationals who are
disqualified under the Constitution from owning real property
in their names.
Section 7 of Article XII of the 1987 Constitution provides:
Sec. 7. Save in cases of hereditary succession, no
private lands shall be transferred or conveyed
except to individuals, corporations, or
associations qualified to acquire or hold lands
of the public domain. (Emphasis supplied).
The capacity to acquire private land is made dependent
upon the capacity to acquire or hold lands of the public
domain. Private land may be transferred or conveyed only to
individuals or entities "qualified to acquire lands of the public
domain." The 1987 Constitution reserved the right to
participate in the disposition, exploitation, development and
utilization of lands of the public domain for Filipino
citizens25 or corporations at least 60 percent of the capital of
which is owned by Filipinos. 26 Aliens, whether individuals or
corporations, have been disqualified from acquiring public
lands; hence, they have also been disqualified from
acquiring private lands.27
Since petitioner and his wife, being Dutch nationals, are
proscribed under the Constitution from acquiring and owning
real property, it is unequivocal that the Contract to Sell
entered into by petitioner together with his wife and
respondent is void. Under Article 1409 (1) and (7) of the Civil
Code, all contracts whose cause, object or purpose is
contrary to law or public policy and those expressly
prohibited or declared void by law are inexistent and void
from the beginning. Article 1410 of the same Code provides
that the action or defense for the declaration of the
inexistence of a contract does not prescribe. A void contract
is equivalent to nothing; it produces no civil effect. 28 It does
not create, modify or extinguish a juridical relation.29
Generally, parties to a void agreement cannot expect the aid
of the law; the courts leave them as they are, because they
are deemed in pari delicto or "in equal fault."30 In pari delicto
is "a universal doctrine which holds that no action arises, in
equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed
to be paid, or damages for its violation; and where the
parties are in pari delicto, no affirmative relief of any kind will
be given to one against the other."31
This rule, however, is subject to exceptions 32 that permit the
return of that which may have been given under a void
contract to: (a) the innocent party (Arts. 1411-1412, Civil
Code);33 (b) the debtor who pays usurious interest (Art. 1413,
Civil Code);34 (c) the party repudiating the void contract
before the illegal purpose is accomplished or before
damage is caused to a third person and if public interest
is subserved by allowing recovery (Art. 1414, Civil
Code);35 (d) the incapacitated party if the interest of justice
so demands (Art. 1415, Civil Code);36 (e) the party for whose
protection the prohibition by law is intended if the agreement
is not illegal per se but merely prohibited and if public policy
would be enhanced by permitting recovery (Art. 1416, Civil
Code);37 and (f) the party for whose benefit the law has been
intended such as in price ceiling laws (Art. 1417, Civil
Code)38 and labor laws (Arts. 1418-1419, Civil Code).39
It is significant to note that the agreement executed by the
parties in this case is a Contract to Sell and not a contract of
sale. A distinction between the two is material in the
determination of when ownership is deemed to have been
transferred to the buyer or vendee and, ultimately, the
resolution of the question on whether the constitutional
proscription has been breached.
In a contract of sale, the title passes to the buyer upon the
delivery of the thing sold. The vendor has lost and cannot
recover the ownership of the property until and unless the
contract of sale is itself resolved and set aside. 40 On the
other hand, a contract to sell is akin to a conditional sale
where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of
a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if
the conditional obligation had never existed. 41 In other words,
in a contract to sell, the prospective seller agrees to transfer
ownership of the property to the buyer upon the happening
of an event, which normally is the full payment of the
purchase price. But even upon the fulfillment of the
suspensive condition, ownership does not automatically
transfer to the buyer. The prospective seller still has to
convey title to the prospective buyer by executing a contract
of absolute sale.42
Since the contract involved here is a Contract to Sell,
ownership has not yet transferred to the petitioner when he
filed the suit for rescission. While the intent to circumvent the
constitutional proscription on aliens owning real property was
evident by virtue of the execution of the Contract to Sell,
such violation of the law did not materialize because
petitioner caused the rescission of the contract before the
execution of the final deed transferring ownership.
Thus, exception (c) finds application in this case. Under
Article 1414, one who repudiates the agreement and
demands his money before the illegal act has taken place is
entitled to recover. Petitioner is therefore entitled to recover
what he has paid, although the basis of his claim for
rescission, which was granted by the HLURB, was not the
fact that he is not allowed to acquire private land under the
Philippine Constitution. But petitioner is entitled to the
recovery only of the amount of P3,187,500.00, representing
the purchase price paid to respondent. No damages may be
recovered on the basis of a void contract; being nonexistent,
the agreement produces no juridical tie between the parties
involved.43 Further, petitioner is not entitled to actual as well
as interests thereon,44 moral and exemplary damages and
attorney's fees.
The Court takes into consideration the fact that the HLURB
Decision dated April 22, 1997 has long been final and
executory. Nothing is more settled in the law than that a
decision that has acquired finality becomes immutable and
unalterable and may no longer be modified in any respect
even if the modification is meant to correct erroneous
conclusions of fact or law and whether it was made by the
court that rendered it or by the highest court of the
land.45 The only recognized exceptions to the general rule
are the correction of clerical errors, the so-called nunc pro
tunc entries which cause no prejudice to any party, void
judgments, and whenever circumstances transpire after the
finality of the decision rendering its execution unjust and
inequitable.46 None of the exceptions is present in this case.
The HLURB decision cannot be considered a void judgment,
as it was rendered by a tribunal with jurisdiction over the
subject matter of the complaint.47
Ineluctably, the HLURB Decision resulted in the unjust
enrichment of petitioner at the expense of respondent.
Petitioner received more than what he is entitled to recover
under the circumstances.
Article 22 of the Civil Code which embodies the
maxim, nemo ex alterius incommode debet lecupletari (no
man ought to be made rich out of another's injury), states:
Art. 22. Every person who through an act of
performance by another, or any other means,
acquires or comes into possession of something at
the expense of the latter without just or legal
ground, shall return the same to him.
The above-quoted article is part of the chapter of the Civil
Code on Human Relations, the provisions of which were
formulated as basic principles to be observed for the rightful
relationship between human beings and for the stability of
the social order; designed to indicate certain norms that
spring from the fountain of good conscience; guides for
human conduct that should run as golden threads through
society to the end that law may approach its supreme ideal
which is the sway and dominance of justice.48 There is unjust
enrichment 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.49
A sense of justice and fairness demands that petitioner
should not be allowed to benefit from his act of entering into
a contract to sell that violates the constitutional proscription.
This is not a case of equity overruling or supplanting a
positive provision of law or judicial rule. Rather, equity is
exercised in this case "as the complement of legal
jurisdiction [that] seeks to reach and to complete justice
where courts of law, through the inflexibility of their rules and
want of power to adapt their judgments to the special
circumstances of cases, are incompetent to do so."50
The purpose of the exercise of equity jurisdiction in this case
is to prevent unjust enrichment and to ensure restitution.
Equity jurisdiction aims to do complete justice in cases
where a court of law is unable to adapt its judgments to the
special circumstances of a case because of the inflexibility of
its statutory or legal jurisdiction. 51
The sheriff delivered to petitioner the amount
of P5,313,040.00 representing the net proceeds (bidded
amount is P5,450,653.33) of the auction sale after deducting
the legal fees in the amount of P137,613.33.52 Petitioner is
only entitled to P3,187,500.00, the amount of the purchase
price of the real property paid by petitioner to respondent
under the Contract to Sell. Thus, the Court in the exercise of
its equity jurisdiction may validly order petitioner to return the
excess amount of P2,125,540.00.
The Court shall now proceed to resolve the single issue
raised in the present petition: whether the CA seriously erred
in affirming the HLURB Order setting aside the levy made by
the Sheriff on the subject properties.
Petitioner avers that the HLURB Arbiter and Director had no
factual basis for pegging the fair market value of the levied
properties at P6,500.00 per sq m or P83,616,000.00; that
reliance on the appraisal report was misplaced since the
appraisal was based on the value of land in neighboring
developed subdivisions and on the assumption that the
residential unit appraised had already been built; that the
Sheriff need not determine the fair market value of the
subject properties before levying on the same since what is
material is the amount for which the properties were bidded
and sold during the public auction; that the pendency of any
motion is not a valid ground for the Sheriff to suspend the
execution proceedings and, by itself, does not have the
effect of restraining the Sheriff from proceeding with the
execution.
Respondent, on the other hand, contends that while it is true
that the HLURB Arbiter and Director did not categorically
state the exact value of the levied properties, said properties
cannot just amount to P6,000,000.00; that the HLURB
Arbiter and Director correctly held that the value indicated in
the tax declaration is not the sole determinant of the value of
the property.
The petition is impressed with merit.
If the judgment is for money, the sheriff or other authorized
officer must execute the same pursuant to the provisions of
Section 9, Rule 39 of the Revised Rules of Court, viz:
Sec. 9. Execution of judgments for money, how
enforced. –
(a) Immediate payment on demand. - The officer
shall enforce an execution of a judgment for
money by demanding from the judgment obligor
the immediate payment of the full amount stated in
the writ of execution and all lawful fees. x x x
(b) Satisfaction by levy. - If the judgment obligor
cannot pay all or part of the obligation in cash,
certified bank check or other mode of payment
acceptable to the judgment obligee, the officer
shall levy upon the properties of the judgment
obligor of every kind and nature whatsoever
which may be disposed of for value and not
otherwise exempt from execution, giving the
latter the option to immediately choose which
property or part thereof may be levied upon,
sufficient to satisfy the judgment. If the judgment
obligor does not exercise the option, the officer
shall first levy on the personal properties, if any,
and then on the real properties if the personal
properties are insufficient to answer for the
judgment.
The sheriff shall sell only a sufficient portion of
the personal or real property of the judgment
obligor which has been levied upon.
When there is more property of the judgment
obligor than is sufficient to satisfy the
judgment and lawful fees, he must sell only so
much of the personal or real property as is
sufficient to satisfy the judgment and lawful
fees.
Real property, stocks, shares, debts, credits, and
other personal property, or any interest in either
real or personal property, may be levied upon in
like manner and with like effect as under a writ
of attachment (Emphasis supplied).53
Thus, under Rule 39, in executing a money judgment against
the property of the judgment debtor, the sheriff shall levy on
all property belonging to the judgment debtor as is amply
sufficient to satisfy the judgment and costs, and sell the
same paying to the judgment creditor so much of the
proceeds as will satisfy the amount of the judgment debt and
costs. Any excess in the proceeds shall be delivered to the
judgment debtor unless otherwise directed by the judgment
or order of the court.54
Clearly, there are two stages in the execution of money
judgments. First, the levy and then the execution sale.
Levy has been defined as the act or acts by which an officer
sets apart or appropriates a part or the whole of a judgment
debtor's property for the purpose of satisfying the command
of the writ of execution.55 The object of a levy is to take
property into the custody of the law, and thereby render it
liable to the lien of the execution, and put it out of the power
of the judgment debtor to divert it to any other use or
purpose.56
On the other hand, an execution sale is a sale by a sheriff or
other ministerial officer under the authority of a writ of
execution of the levied property of the debtor.57
In the present case, the HLURB Arbiter and Director gravely
abused their discretion in setting aside the levy conducted by
the Sheriff for the reason that the auction sale conducted by
the sheriff rendered moot and academic the motion to quash
the levy. The HLURB Arbiter lost jurisdiction to act on the
motion to quash the levy by virtue of the consummation of
the auction sale. Absent any order from the HLURB
suspending the auction sale, the sheriff rightfully proceeded
with the auction sale. The winning bidder had already paid
the winning bid. The legal fees had already been remitted to
the HLURB. The judgment award had already been turned
over to the judgment creditor. What was left to be done was
only the issuance of the corresponding certificates of sale to
the winning bidder. In fact, only the signature of the HLURB
Director for that purpose was needed 58 – a purely ministerial
act.
A purely ministerial act or duty is one which an officer or
tribunal performs in a given state of facts, in a prescribed
manner, in obedience to the mandate of a legal authority,
without regard for or the exercise of his own judgment upon
the propriety or impropriety of the act done. If the law
imposes a duty upon a public officer and gives him the right
to decide how or when the duty shall be performed, such
duty is discretionary and not ministerial. The duty is
ministerial only when the discharge of the same requires
neither the exercise of official discretion nor judgment. 59 In
the present case, all the requirements of auction sale under
the Rules have been fully complied with to warrant the
issuance of the corresponding certificates of sale.
And even if the Court should go into the merits of the
assailed Order, the petition is meritorious on the following
grounds:
Firstly, the reliance of the HLURB Arbiter and Director, as
well as the CA, on Barrozo v. Macaraeg60 and Buan v. Court
of Appeals61 is misplaced.
The HLURB and the CA misconstrued the Court's
pronouncements in Barrozo. Barrozo involved a judgment
debtor who wanted to repurchase properties sold at
execution beyond the one-year redemption period. The
statement of the Court in Barrozo, that "only where such
inadequacy shocks the conscience the courts will intervene,"
is at best a mere obiter dictum. This declaration should be
taken in the context of the other declarations of the Court
in Barrozo, to wit:
Another point raised by appellant is that the price
paid at the auction sale was so inadequate as to
shock the conscience of the court. Supposing that
this issue is open even after the one-year period
has expired and after the properties have passed
into the hands of third persons who may have paid
a price higher than the auction sale money, the
first thing to consider is that the stipulation
contains no statement of the reasonable value of
the properties; and although defendant' answer
avers that the assessed value was P3,960 it also
avers that their real market value was P2,000
only. Anyway, mere inadequacy of price –
which was the complaint' allegation – is not
sufficient ground to annul the sale. It is only
where such inadequacy shocks the conscience
that the courts will intervene. x x x Another
consideration is that the assessed value
being P3,960 and the purchase price being in
effect P1,864 (P464 sale price plus P1,400
mortgage lien which had to be discharged) the
conscience is not shocked upon examining the
prices paid in the sales in National Bank v.
Gonzales, 45 Phil., 693 and Guerrero v. Guerrero,
57 Phil., 445, sales which were left undisturbed by
this Court.
Furthermore, where there is the right to
redeem – as in this case – inadequacy of price
should not be material because the judgment
debtor may re-acquire the property or else sell
his right to redeem and thus recover any loss
he claims to have suffered by reason of the
price obtained at the execution sale.
x x x x (Emphasis supplied).62
In other words, gross inadequacy of price does not nullify an
execution sale. In an ordinary sale, for reason of equity, a
transaction may be invalidated on the ground of inadequacy
of price, or when such inadequacy shocks one's conscience
as to justify the courts to interfere; such does not follow when
the law gives the owner the right to redeem as when a sale
is made at public auction, 63 upon the theory that the lesser
the price, the easier it is for the owner to effect
redemption.64 When there is a right to redeem, inadequacy of
price should not be material because the judgment debtor
may re-acquire the property or else sell his right to redeem
and thus recover any loss he claims to have suffered by
reason of the price obtained at the execution sale.65 Thus,
respondent stood to gain rather than be harmed by the low
sale value of the auctioned properties because it possesses
the right of redemption. More importantly, the subject matter
in Barrozo is the auction sale, not the levy made by the
Sheriff.
The Court does not sanction the piecemeal interpretation of
a decision. To get the true intent and meaning of a decision,
no specific portion thereof should be isolated and resorted
to, but the decision must be considered in its entirety.66
As regards Buan, it is cast under an entirely different factual
milieu. It involved the levy on two parcels of land owned by
the judgment debtor; and the sale at public auction of one
was sufficient to fully satisfy the judgment, such that the levy
and attempted execution of the second parcel of land was
declared void for being in excess of and beyond the original
judgment award granted in favor of the judgment creditor.
In the present case, the Sheriff complied with the mandate of
Section 9, Rule 39 of the Revised Rules of Court, to "sell
only a sufficient portion" of the levied properties "as is
sufficient to satisfy the judgment and the lawful fees." Each
of the 15 levied properties was successively bidded upon
and sold, one after the other until the judgment debt and the
lawful fees were fully satisfied. Holly Properties Realty
Corporation successively bidded upon and bought each of
the levied properties for the total amount of P5,450,653.33 in
full satisfaction of the judgment award and legal fees. 67
Secondly, the Rules of Court do not require that the value of
the property levied be exactly the same as the judgment
debt; it can be less or more than the amount of debt. This is
the contingency addressed by Section 9, Rule 39 of the
Rules of Court. In the levy of property, the Sheriff does not
determine the exact valuation of the levied property. Under
Section 9, Rule 39, in conjunction with Section 7, Rule 57 of
the Rules of Court, the sheriff is required to do only two
specific things to effect a levy upon a realty: (a) file with the
register of deeds a copy of the order of execution, together
with the description of the levied property and notice of
execution; and (b) leave with the occupant of the property
copy of the same order, description and notice. 68 Records do
not show that respondent alleged non-compliance by the
Sheriff of said requisites.
Thirdly, in determining what amount of property is sufficient
out of which to secure satisfaction of the execution, the
Sheriff is left to his own judgment. He may exercise a
reasonable discretion, and must exercise the care which a
reasonably prudent person would exercise under like
conditions and circumstances, endeavoring on the one hand
to obtain sufficient property to satisfy the purposes of the
writ, and on the other hand not to make an unreasonable
and unnecessary levy.69 Because it is impossible to know the
precise quantity of land or other property necessary to satisfy
an execution, the Sheriff should be allowed a reasonable
margin between the value of the property levied upon and
the amount of the execution; the fact that the Sheriff levies
upon a little more than is necessary to satisfy the execution
does not render his actions improper. 70 Section 9, Rule 39,
provides adequate safeguards against excessive levying.
The Sheriff is mandated to sell so much only of such real
property as is sufficient to satisfy the judgment and lawful
fees.
In the absence of a restraining order, no error, much less
abuse of discretion, can be imputed to the Sheriff in
proceeding with the auction sale despite the pending motion
to quash the levy filed by the respondents with the HLURB. It
is elementary that sheriffs, as officers charged with the
delicate task of the enforcement and/or implementation of
judgments, must, in the absence of a restraining order, act
with considerable dispatch so as not to unduly delay the
administration of justice; otherwise, the decisions, orders, or
other processes of the courts of justice and the like would be
futile.71 It is not within the jurisdiction of the Sheriff to
consider, much less resolve, respondent's objection to the
continuation of the conduct of the auction sale. The Sheriff
has no authority, on his own, to suspend the auction sale.
His duty being ministerial, he has no discretion to postpone
the conduct of the auction sale.
Finally, one who attacks a levy on the ground of
excessiveness carries the burden of sustaining that
contention.72 In the determination of whether a levy of
execution is excessive, it is proper to take into consideration
encumbrances upon the property, as well as the fact that a
forced sale usually results in a sacrifice; that is, the price
demanded for the property upon a private sale is not the
standard for determining the excessiveness of the levy.73
Here, the HLURB Arbiter and Director had no sufficient
factual basis to determine the value of the levied property.
Respondent only submitted an Appraisal Report, based
merely on surmises. The Report was based on the projected
value of the townhouse project after it shall have been fully
developed, that is, on the assumption that the residential
units appraised had already been built. The Appraiser in fact
made this qualification in its Appraisal Report: "[t]he property
subject of this appraisal has not been constructed. The basis
of the appraiser is on the existing model units." 74 Since it is
undisputed that the townhouse project did not push through,
the projected value did not become a reality. Thus, the
appraisal value cannot be equated with the fair market value.
The Appraisal Report is not the best proof to accurately
show the value of the levied properties as it is clearly self-
serving.
Therefore, the Order dated August 28, 2000 of HLURB
Arbiter Aquino and Director Ceniza in HLRB Case No. IV6-
071196-0618 which set aside the sheriff's levy on
respondent's real properties, was clearly issued with grave
abuse of discretion. The CA erred in affirming said Order.
WHEREFORE, the instant petition is GRANTED. The
Decision dated October 30, 2002 of the Court of Appeals in
CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The
Order dated August 28, 2000 of HLURB Arbiter Ma.
Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB
Case No. IV6-071196-0618 is
declared NULL and VOID. HLURB Arbiter Aquino and
Director Ceniza are directed to issue the corresponding
certificates of sale in favor of the winning bidder, Holly
Properties Realty Corporation. Petitioner is ordered to return
to respondent the amount of P2,125,540.00, without interest,
in excess of the proceeds of the auction sale delivered to
petitioner. After the finality of herein judgment, the amount
of P2,125,540.00 shall earn 6% interest until fully paid.
SO ORDERED.
G.R. No. 127540            October 17, 2001
EUGENIO DOMINGO, CRISPIN MANGABAT and
SAMUEL CAPALUNGAN, petitioners,
vs.
HON. COURT OF APPEALS, FELIPE C. RIGONAN and
CONCEPCION R. RIGONAN, respondents.
EUGENIO DOMINGO, CRISPIN MANGABAT and
SAMUEL CAPALUNGAN, petitioners,
vs.
HON. COURT OF APPEALS, THE DIRECTOR OF LANDS,
and FELIPE C. RIGONAN and CONCEPCION R.
RIGONAN, respondents.
QUISUMBNG, J.:
This petition1 seeks to annul the decision of the Court of
Appeals dated August 29, 1996, which set aside the decision
of the Regional Trial Court of Batac, Ilocos Norte, Branch 17,
in Civil Case No. 582-17 for reinvindicacion consolidated
with Cadastral Case No. 1.2 The petition likewise seeks to
annul the resolution dated December 11, 1996, denying
petitioners' motion for reconsideration.
The facts of this case, culled from the records, are as
follows:
Paulina Rigonan owned three (3) parcels of land, located at
Batac and Espiritu, Ilocos Norte, including the house and
warehouse on one parcel. She allegedly sold them to private
respondents, the spouses Felipe and Concepcion Rigonan,
who claim to be her relatives. In 1966, herein petitioners
Eugenio Domingo, Crispin Mangabat and Samuel
Capalungan, who claim to be her closest surviving relatives,
allegedly took possession of the properties by means of
stealth, force and intimidation, and refused to vacate the
same. Consequently, on February 2, 1976, herein
respondent Felipe Rigonan filed a complaint for
reinvindicacion against petitioners in the Regional Trial Court
of Batac, Ilocos Norte. On July 3, 1977, he amended the
complaint and included his wife as co-plaintiff. They alleged
that they were the owners of the three parcels of land
through the deed of sale executed by Paulina Rigonan on
January 28, 1965; that since then, they had been in
continuous possession of the subject properties and had
introduced permanent improvements thereon; and that
defendants (now petitioners) entered the properties illegally,
and they refused to leave them when asked to do so.
Herein petitioners, as defendants below, contested plaintiffs'
claims. According to defendants, the alleged deed of
absolute sale was void for being spurious as well as lacking
consideration. They said that Paulina Rigonan did not sell
her properties to anyone. As her nearest surviving kin within
the fifth degree of consanguinity, they inherited the three lots
and the permanent improvements thereon when Paulina
died in 1966. They said they had been in possession of the
contested properties for more than 10 years. Defendants
asked for damages against plaintiffs.
During trial, Juan Franco, Notary Public Evaristo P.
Tagatag3 and plaintiff Felipe Rigonan testified for plaintiffs
(private respondents now).
Franco testified that he was a witness to the execution of the
questioned deed of absolute sale. However, when cross-
examined and shown the deed he stated that the deed was
not the document he signed as a witness, but rather it was
the will and testament made by Paulina Rigonan.
Atty. Tagatag testified that he personally prepared the deed,
he saw Paulina Rigonan affix her thumbprint on it and he
signed it both as witness and notary public. He further
testified that he also notarized Paulina's last will and
testament dated February 19, 1965. The will mentioned the
same lots sold to private respondents. When asked why the
subject lots were still included in the last will and testament,
he could not explain. Atty. Tagatag also mentioned that he
registered the original deed of absolute sale with the
Register of Deeds.
Plaintiff Felipe Rigonan claimed that he was Paulina's close
relative. Their fathers were first cousins. However, he could
not recall the name of Paulina's grandfather. His claim was
disputed by defendants, who lived with Paulina as their close
kin. He admitted the discrepancies between the Register of
Deeds' copy of the deed and the copy in his possession. But
he attributed them to the representative from the Office of
the Register of Deeds who went to plaintiffs house after that
Office received a subpoena duces tecum. According to him,
the representative showed him blanks in the deed and then
the representative filled in the blanks by copying from his
(plaintiffs) copy.
Counsel for defendants (petitioners herein) presented as
witnesses Jose Flores, the owner of the adjacent lot; Ruben
Blanco, then acting Registrar of Deeds in Ilocos Norte; and
Zosima Domingo, wife of defendant Eugenio Domingo.
Jose Flores testified that he knew defendants, herein
petitioners, who had lived on the land with Paulina Rigonan
since he could remember and continued to live there even
after Paulina's death. He said he did not receive any notice
nor any offer to sell the lots from Paulina, contrary to what
was indicated in the deed of sale that the vendor had notified
all the adjacent owners of the sale. He averred he had no
knowledge of any sale between Paulina and private
respondents.
Ruben Blanco, the acting Registrar of Deeds, testified that
only the carbon copy, also called a duplicate original, of the
deed of sale was filed in his office, but he could not explain
why this was so.
Zosima Domingo testified that her husband, Eugenio
Domingo, was Paulina's nephew. Paulina was a first cousin
of Eugenio's father. She also said that they lived with Paulina
and her husband, Jose Guerson, since 1956. They took care
of her, spent for her daily needs and medical expenses,
especially when she was hospitalized prior to her death. She
stated that Paulina was never badly in need of money during
her lifetime.
On March 23, 1994, the trial court rendered judgment in
favor of defendants (now the petitioners). It disposed:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of defendants and
against the plaintiffs, and as prayed for, the
Amended Complaint is hereby DISMISSED.
Defendants are hereby declared, by virtue of
intestate succession, the lawful owners and
possessors of the house including the bodega and
the three (3) parcels of land in suit and a Decree of
Registration adjudicating the ownership of the said
properties to defendants is hereby issued.
The alleged deed of sale ( Exhs. "A", "A-1", "1"
and "1-a") is hereby declared null and void and
fake and the prayer for the issuance of a writ of
preliminary injunction is hereby denied.
Plaintiffs are hereby ordered to pay defendants:
a) P20,000.00 as moral damages;
b) P10,000.00 as exemplary damages;
c) P10,000.00 attorney's fees and other
litigation expenses.
No pronouncement as to costs.4
Private respondents herein appealed to the Court of
Appeals.
On August 29, 1996, the CA reversed the trial court's
decision, thus:
WHEREFORE, the decision dated March 23, 1994
is hereby SET ASIDE. The plaintiffs-appellants
Felipe Rigonan and Concepcion Rigonan are
declared the owners of the properties under
litigation and the defendants-appellees are hereby
ordered to VACATE the subject properties and
SURRENDER the possession thereof to the heirs
of the plaintiffs-appellants.
Costs against the defendants-appellees.5
Hence, this petition assigning the following as errors:
I
THE RESPONDENT COURT OF APPEALS HAS DECIDED
QUESTIONS OF LEGAL SUBSTANCE AND
SIGNIFICANCE NOT IN ACCORDANCE WITH THE
EVIDENCE, LAW AND WITH THE APPLICABLE
DECISIONS OF THIS HONORABLE COURT.
II
THAT THE FINDINGS OF RESPONDENT COURT OF
APPEALS ARE CONTRARY TO THOSE OF THE TRIAL
COURT AND CLEARLY VIOLATES THE RULE THAT THE
FACTUAL FINDINGS OF TRIAL COURTS ARE ENTITLED
TO GREAT WEIGHT AND RESPECT ON APPEAL,
ESPECIALLY WHEN SAID FINDINGS ARE ESTABLISHED
BY UNREBUTTED TESTIMONIAL AND DOCUMENTARY
EVIDENCE.
III
THAT THE FINDINGS AND CONCLUSIONS OF
RESPONDENT COURT OF APPEALS ARE GROUNDED
ENTIRELY ON SPECULATIONS, SURMISES,
CONJECTURES, OR ON INFERENCES MANIFESTLY
MISTAKEN.
IV
THAT THE RESPONDENT COURT OF APPEALS
MANIFESTLY OVERLOOKED CERTAIN RELEVANT
FACTS NOT DISPUTED BY THE PARTIES AND WHICH, IF
PROPERLY CONSIDERED, WOULD JUSTIFY A
DIFFERENT CONCLUSION.
V
THAT THE FINDINGS OF FACT OF RESPONDENT
COURT OF APPEALS ARE PREMISED ON SUPPOSED
ABSENCE OF EVIDENCE BUT IS CONTRADICTED BY
THE EVIDENCE ON RECORD THUS CONSTITUTES
GRAVE ABUSE OF DISCRETION.6
The basic issue for our consideration is, did private
respondents sufficiently establish the existence and due
execution of the Deed of Absolute and Irrevocable Sale of
Real Property? Marked as Exhibits "A," "A-1," "1" and "1-a,"
this deed purportedly involved nine (9) parcels of land,
inclusive of the three (3) parcels in dispute, sold at the price
of P850 by Paulina Rigonan to private respondents on
January 28, 1965, at Batac, Ilocos Norte. 7 The trial court
found the deed "fake," being a carbon copy with no
typewritten original presented; and the court concluded that
the document's execution "was tainted with alterations,
defects, tamperings, and irregularities which render it null
and void ab initio".8
Petitioners argue that the Court of Appeals erred in not
applying the doctrine that factual findings of trial courts are
entitled to great weight and respect on appeal, especially
when said findings are established by unrebutted testimonial
and documentary evidence. They add that the Court of
Appeals, in reaching a different conclusion, had decided the
case contrary to the evidence presented and the law
applicable to the case. Petitioners maintain that the due
execution of the deed of sale was not sufficiently established
by private respondents, who as plaintiffs had the burden of
proving it. First, the testimonies of the two alleged
instrumental witnesses of the sale, namely, Juan Franco and
Efren Sibucao, were dispensed with and discarded when
Franco retracted his oral and written testimony that he was a
witness to the execution of the subject deed. As a
consequence, the appellate court merely relied on Atty.
Tagatag's (the notary public) testimony, which was incredible
because aside from taking the double role of a witness and
notary public, he was a paid witness. Further his testimony,
that the subject deed was executed in the house of Paulina
Rigonan, was rebutted by Zosima Domingo, Paulina's
housekeeper, who said that she did not see Atty. Tagatag,
Juan Franco and Efren Sibucao in Paulina's house on the
alleged date of the deed's execution.
Secondly, petitioners said that private respondents failed to
account for the typewritten original of the deed of sale and
that the carbon copy filed with the Register of Deeds was
only a duplicate which contained insertions and erasures.
Further, the carbon copy was without an affidavit of
explanation, in violation of the Administrative Code as
amended, which requires that if the original deed of sale is
not presented or available upon registration of the deed, the
carbon copy or so-called "duplicate original" must be
accompanied by an affidavit of explanation, otherwise,
registration must be denied.9
Thirdly, petitioners aver that the consideration of only P850
for the parcels of land sold, together with a house and a
warehouse, was another indication that the sale was
fictitious because no person who was financially stable
would sell said property at such a grossly inadequate
consideration.
Lastly, petitioners assert that there was abundant evidence
that at the time of the execution of the deed of sale, Paulina
Rigonan was already senile. She could not have consented
to the sale by merely imprinting her thumbmark on the deed.
In their comment, private respondents counter that at the
outset the petition must be dismissed for it lacks a
certification against forum shopping. Nonetheless, even
disregarding this requirement, the petition must still be
denied in due course for it does not present any substantial
legal issue, but factual or evidentiary ones which were
already firmly resolved by the Court of Appeals based on
records and the evidence presented by the parties. Private
respondents' claim that the factual determination by the trial
court lacks credibility for it was made by the trial judge who
presided only in one hearing of the case. The trial judge
could not validly say that the deed of absolute sale was
"fake" because no signature was forged, according to private
respondents; and indeed a thumbmark, said to be the seller's
own, appears thereon.
In their reply, petitioners said that the copy of the petition
filed with this Court was accompanied with a certification
against forum shopping. If private respondents' copy did not
contain same certification, this was only due to inadvertence.
Petitioners ask for the Court's indulgence for anyway there
was substantial compliance with Revised Circular No. 28-91.
On the contention that here only factual issues had been
raised, hence not the proper subject for review by this Court,
petitioners reply that this general rule admits of exceptions,
as when the factual findings of the Court of Appeals and the
trial court are contradictory; when the findings are grounded
entirely on speculations, surmises or conjectures; and when
the Court of Appeals overlooked certain relevant facts not
disputed by the parties which if properly considered would
justify a different conclusion. All these, according to
petitioners, are present in this case.
Before proceeding to the main issue, we shall first settle
procedural issues raised by private respondents.
While the trial judge deciding the case presided over the
hearings of the case only once, this circumstance could not
have an adverse effect on his decision. The continuity of a
court and the efficacy of its proceedings are not affected by
the death, resignation or cessation from the service of the
presiding judge. A Judge may validly render a decision
although he has only partly heard the testimony of the
witnesses.10 After all, he could utilize and rely on the records
of the case, including the transcripts of testimonies heard by
the former presiding judge.
On the matter of the certification against forum-shopping,
petitioners aver that they attached one in the copy intended
for this Court. This is substantial compliance. A deviation
from a rigid enforcement of the rules may be allowed to
attain their prime objective for, after all, the dispensation of
justice is the core reason for the court's existence.11
While the issues raised in this petition might appear to be
mainly factual, this petition is properly given due course
because of the contradictory findings of the trial court and
the Court of Appeals. Further, the later court apparently
overlooked certain relevant facts which justify a different
conclusion.12 Moreover, a compelling sense to make sure
that justice is done, and done rightly in the light of the issues
raised herein, constrains us from relying on technicalities
alone to resolve this petition.
Now, on the main issue. Did private respondents establish
the existence and due execution of the deed of sale? Our
finding is in the negative. First, note that private respondents
as plaintiffs below presented only a carbon copy of this deed.
When the Register of Deeds was subpoenaed to produce
the deed, no original typewritten deed but only a carbon copy
was presented to the trial court. Although the Court of
Appeals calls it a "duplicate original," the deed contained
filled in blanks and alterations. None of the witnesses directly
testified to prove positively and convincingly Paulina's
execution of the original deed of sale. The carbon copy did
not bear her signature, but only her alleged thumbprint. Juan
Franco testified during the direct examination that he was an
instrumental witness to the deed. However, when cross-
examined and shown a copy of the subject deed, he
retracted and said that said deed of sale was not the
document he signed as witness. 13 He declared categorically
he knew nothing about it.14
We note that another witness, Efren Sibucao, whose
testimony should have corroborated Atty. Tagatag's, was not
presented and his affidavit was withdrawn from the
court,15 leaving only Atty. Tagatag's testimony, which aside
from being uncorroborated, was self-serving.
Secondly, we agree with the trial court that irregularities
abound regarding the execution and registration of the
alleged deed of sale. On record, Atty. Tagatag testified that
he himself registered the original deed with the Register of
Deeds.16 Yet, the original was nowhere to be found and none
could be presented at the trial. Also, the carbon copy on file,
which is allegedly a duplicate original, shows intercalations
and discrepancies when compared to purported copies in
existence. The intercalations were allegedly due to blanks
left unfilled by Atty. Tagatag at the time of the deed's
registration. The blanks were allegedly filled in much later by
a representative of the Register of Deeds. In addition, the
alleged other copies of the document bore different dates of
entry: May 16, 1966, 10:20 A.M. 17 and June 10, 1966, 3:16
P.M.,18 and different entry numbers: 66246, 74389 19 and
64369. 20 The deed was apparently registered long after its
alleged date of execution and after Paulina's death on March
20, 1966.21 Admittedly, the alleged vendor Paulina Rigonan
was not given a copy.22
Furthermore, it appears that the alleged vendor was never
asked to vacate the premises she had purportedly sold.
Felipe testified that he had agreed to let Paulina stay in the
house until her death.23 In Alcos v. IAC, 162 SCRA 823
(1988), the buyer's immediate possession and occupation of
the property was deemed corroborative of the truthfulness
and authenticity of the deed of sale. The alleged vendor's
continued possession of the property in this case throws an
inverse implication, a serious doubt on the due execution of
the deed of sale. Noteworthy, the same parcels of land
involved in the alleged sale were still included in the will
subsequently executed by Paulina and notarized by the
same notary public, Atty. Tagatag. 24 These circumstances,
taken together, militate against unguarded acceptance of the
due execution and genuineness of the alleged deed of sale.
Thirdly, we have to take into account the element of
consideration for the sale. The price allegedly paid by private
respondents for nine (9) parcels, including the three parcels
in dispute, a house and a warehouse, raises further
questions. Consideration is the why of a contract, the
essential reason which moves the contracting parties to
enter into the contract. 25 On record, there is unrebutted
testimony that Paulina as landowner was financially well off.
She loaned money to several people. 26 We see no apparent
and compelling reason for her to sell the subject parcels of
land with a house and warehouse at a meager price of P850
only.
In Rongavilla vs. CA, 294 SCRA 289 (1998), private
respondents were in their advanced years, and were not in
dire need of money, except for a small amount of P2,000
which they said were loaned by petitioners for the repair of
their house's roof. We ruled against petitioners, and declared
that there was no valid sale because of lack of consideration.
In the present case, at the time of the execution of the
alleged contract, Paulina Rigonan was already of advanced
age and senile. She died an octogenarian on March 20,
1966, barely over a year when the deed was allegedly
executed on January 28, 1965, but before copies of the deed
were entered in the registry allegedly on May 16 and June
10, 1966. The general rule is that a person is not
incompetent to contract merely because of advanced years
or by reason of physical infirmities. 27 However, when such
age or infirmities have impaired the mental faculties so as to
prevent the person from properly, intelligently, and firmly
protecting her property rights then she is undeniably
incapacitated. The unrebutted testimony of Zosima Domingo
shows that at the time of the alleged execution of the deed,
Paulina was already incapacitated physically and mentally.
She narrated that Paulina played with her waste and
urinated in bed. Given these circumstances, there is in our
view sufficient reason to seriously doubt that she consented
to the sale of and the price for her parcels of land. Moreover,
there is no receipt to show that said price was paid to and
received by her. Thus, we are in agreement with the trial
court's finding and conclusion on the matter:
The whole evidence on record does not show
clearly that the fictitious P850.00 consideration
was ever delivered to the vendor. Undisputably,
the P850.00 consideration for the nine (9) parcels
of land including the house and bodega is grossly
and shockingly inadequate, and the sale is null
and void ab initio.28
WHEREFORE, the petition is GRANTED. The decision and
resolution of the Court of Appeals dated August 29, 1996
and December 11, 1996, respectively, are REVERSED and
SET ASIDE. The decision of the Regional Trial Court of
Batac, Ilocos Norte, Branch 17, dated March 23, 1994, is
REINSTATED.
Costs against private respondents.
SO ORDERED.
G.R. No. 160556               August 3, 2007
TEOFILO BAUTISTA, represented by FRANCISCO
MUÑOZ, Attorney-in-Fact, Petitioner,
vs.
ALEGRIA BAUTISTA, ANGELICA BAUTISTA, PRISCILLA
BAUTISTA, GILBERT BAUTISTA, JIM BAUTISTA,
GLENDA BAUTISTA, GUEN BAUTISTA, GELACIO
BAUTISTA, GRACIA BAUTISTA, PEDRO S. TANDOC and
CESAR TAMONDONG, Respondents.
DECISION
CARPIO MORALES, J.:
During her lifetime, Teodora Rosario was the owner of a
211.80-square meter parcel of land (the property) in
Poblacion, San Carlos City, Pangasinan, covered by
Transfer Certificate of Title (TCT) No. 12951. She died
intestate on January 19, 1970, leaving behind her spouse
Isidro Bautista (Isidro) and five children, namely: Teofilo
Bautista (Teofilo), Alegria Bautista (Alegria), Angelica
Bautista (Angelica), Pacita Bautista (Pacita) and Gil Bautista
(Gil).
On April 21, 1981, Isidro and four of his five children –
Pacita, Gil, Alegria, and Angelica – executed a Deed of
Extra-Judicial Partition1 of the property in which Isidro waived
his share in favor of his said four children. Teofilo was
excluded from the partition.
Alegria and Angelica, who, under the Deed of Extra-Judicial
Partition, acquired ½ of the property, sold the same, by Deed
of Absolute Sale dated May 14, 1981, to their sibling Pacita
and her common-law husband Pedro Tandoc (Pedro).2
Pacita and Pedro soon obtained tax declarations 3 and TCT
No. 187774 in their names over 209.85 square meters of the
property including the shares they purchased from Angelica
and Alegria.
Pacita, with Pedro’s conformity, later conveyed via Deed of
Absolute Sale5 dated April 13, 1993 ½ of the property in
favor of Cesar Tamondong, Pedro’s nephew.
On January 24, 1994, herein petitioner Teofilo, represented
by his attorney-in-fact Francisco Muñoz, filed a
Complaint6 against his siblings Alegria and Angelica, along
with Pedro (the common-law husband of his already
deceased sister Pacita), Priscilla Bautista (wife of his already
deceased brother Gil), Pricilla’s children Gilbert, Jim, Glenda,
Guen, and Gelacio and Cesar Tamondong before the
Regional Trial Court (RTC) of San Carlos City, for annulment
of documents, partition, recovery of ownership, possession
and damages.
In his complaint, petitioner claimed that his co-heirs
defrauded him of his rightful share of the property and that
the deed of sale executed by Pacita in favor of Cesar
Tamondong was fictitious as it was impossible for her to
have executed the same in Manila, she being already
seriously ill at the time.7
In their Answer,8 the defendants-herein respondents sisters
Alegria and Angelica, who were joined therein by their co-
defendants-respondents Priscilla, Gilbert, Jim, Glenda,
Guen, Gelacio, and Gracia, claimed that it was Pacita who
caused the execution of the Deed of Extra-Judicial Partition
and because they trusted Pacita, they signed the document
without scrutinizing it; and that they learned about the
contents of the partition only upon Teofilo’s filing of the
Complaint.
By way of cross-claim9 against Pedro and Cesar
Tamondong, the answering defendants-respondents claimed
that a few weeks after the partition, Pacita approached
Angelica and Alegria to borrow their share in the property on
her representation that it would be used as security for a
business loan; and that agreeing to accommodate Pacita,
Angelica and Alegria signed a document which Pacita
prepared which turned out to be the deed of absolute sale in
Pacita’s favor.
In their Answer with Counterclaim, 10 Pedro and Cesar
Tamondong claimed that they were buyers in good faith. 11 In
any event, they contended that prescription had set in, and
that the complaint was a mere rehash of a previous
complaint for falsification of public document which had been
dismissed by the prosecutor’s office.12
By Decision13 of June 24, 1999, Branch 57 of the RTC of
San Carlos City rendered judgment in favor of Teofilo,
disposing as follows:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
1) Declaring as null and void and of no force and
effect the following documents:
a) Deed of Extra-Judicial Partition dated
April 21, 1981;
b) Deed of Absolute Sale [d]ated May
14, 1981;
c) Transfer Certificate of Title No.
18777;
d) Tax Declaration Nos. 59941, 45999,
and 46006;
e) Deed of Absolute Sale dated April 13,
1993;
2) Ordering the partition of the land in question
among the compulsory heirs of the late Spouses
Isidro Bautista and Teodora Rosario
3) Ordering defendants Cesar Tamondong and
Pedro Tandoc to vacate the premises.
No pronouncement[s] as to cost.14 (Underscoring supplied)
On appeal by Pedro and Cesar Tamondong, the Court of
Appeals, by Decision15 of February 21, 2003, reversed and
set aside the trial court’s decision and dismissed Teofilo’s
complaint on the ground of prescription. 16 His Motion for
Reconsideration17 having been denied,18 Teofilo filed the
present Petition for Review on Certiorari.19
The petition is impressed with merit.
The Court of Appeals, in holding that prescription had set in,
reasoned:
Unquestionably, the Deed of Extra-judicial Partition is invalid
insofar as it affects the legitimate share pertaining to the
defendant-appellee in the property in
question.1avvphi1 There can be no question that the Deed
of Extra-judicial Partition was fraudulently obtained. Hence,
an action to set it aside on the ground of fraud could be
instituted. Such action for the annulment of the said partition,
however, must be brought within four years from the
discovery of the fraud. Significantly, it cannot be denied,
either, that by its registration in the manner provided by law,
a transaction may be known actually or constructively.
In the present case, defendant-appellee is deemed to have
been constructively notified of the extra-judicial settlement by
reason of its registration and annotation in the certificate of
title over the subject lot on December 21, 1981. From the
time of its registration, defendant-appellee had four (4) years
or until 21 December 1985, within which to file his objections
or to demand the appropriate settlement of the estate.
Unfortunately, defendant-appellee failed to institute the
present civil action within said period, having filed the same
only on 17 January 1994 or more than twelve (12) years
from the registration of the deed of extra-judicial partition.
Hence, defendant-appellee’s right to question the deed of
extra-judicial partition has prescribed.
Even on the extreme assumption that defendant-appellee’s
complaint in Civil Case No. SC-1797 is an action for
reconveyance of a portion of the property which rightfully
belongs to him based upon an implied trust resulting from
fraud, said remedy is already barred by prescription.
An action of reconveyance of land based upon an implied or
constructive trust prescribes after ten years from the
registration of the deed or from the issuance of the title.
xxxx
The complaint of defendant-appellee was filed only on 17
January 1994, while the deed of extra-judicial partition was
registered and inscribed on Transfer Certificate of Title
12951, on 21 December 1981. Clearly, the complaint was
filed twelve (12) years and twenty-seven (27) days after the
inscription of the deed of extra-judicial partition on TCT
12951. Hence, even if We consider defendant-appellee’s
complaint as an action for reconveyance against plaintiff-
appellants on the basis of implied trust, we find and so hold
that his remedy for reconveyance has also
prescribed.20 (Underscoring supplied)
As gathered from the above-quoted portion of its decision,
the Court of Appeals applied the prescriptive periods for
annulment on the ground of fraud and for reconveyance of
property under a constructive trust.
The extra-judicial partition executed by Teofilo’s co-heirs was
invalid, however. So Segura v. Segura21 instructs:
x x x The partition in the present case was invalid because it
excluded six of the nine heirs who were entitled to equal
shares in the partitioned property. Under the rule, "no extra-
judicial settlement shall be binding upon any person who has
not participated therein or had no notice thereof." As the
partition was a total nullity and did not affect the excluded
heirs, it was not correct for the trial court to hold that their
right to challenge the partition had prescribed after two
years x x x22 (Underscoring supplied)
The deed of extra-judicial partition in the case at bar being
invalid, the action to have it annulled does not prescribe.23
Since the deed of extra-judicial partition is invalid, it
transmitted no rights to Teofilo’s co-heirs. 24 Consequently,
the subsequent transfer by Angelica and Alegria of ½ of the
property to Pacita and her husband Pedro, as well as the
transfer of ½ of the property to Cesar Tamondong is invalid,
hence, conferring no rights upon the transferees under the
principle of nemo dat quod non habet.25

WHEREFORE, the petition is GRANTED. The decision of

the court a quo is SET ASIDE and the Decision of the
Regional Trial Court of San Carlos City, Pangasinan, Branch
57 is REINSTATED.

SO ORDERED.
G.R. No. 160956             February 13, 2008

JOAQUIN QUIMPO, SR., substituted by Heirs of Joaquin

Quimpo, Sr., petitioners,
vs.
CONSUELO ABAD VDA. DE BELTRAN, IRENEO ABAD,
DANILO ABAD, MARITES ABAD, ANITA AND HELEN
ABAD, respondents.

RESOLUTION

NACHURA, J.:

This Petition for Review on Certiorari assails the July 22,

2003 Decision1 of the Court of Appeals in CA-G.R. CV No.
56187, and the October 16, 2003 Resolution denying the
motion for its reconsideration.

Eustaquia Perfecto-Abad (Eustaquia) was the owner of

several parcels of land in Goa, Camarines Sur, described as
follows:

Parcel I - Residential land situated at Abucayan,

Goa, Camarines Sur covering an area of 684
square-meters;

Parcel II – Coconut land situated at Abucayan,

Goa, Camarines Sur covering an area of 4.3731
hectares;

Parcel III – Residential land situated at San Jose

Street, Goa, Camarines Sur covering an area of
1,395 square meters; and

Parcel IV – Abaca and coconut land situated at

Abucayan, Goa, Camarines Sur covering an area
42.6127 hectares.2
Eustaquia died intestate in 1948 leaving these parcels of
land to her grandchild and great grandchildren, namely,
Joaquin Quimpo and respondents Consuelo, Ireneo, Danilo,
Marites, Anita and Helen, all surnamed Abad.
In 1966, Joaquin and respondents undertook an oral partition
of parcel III (San Jose property) and parcel IV. Half of the
properties was given to Joaquin and the other half to the
respondents. However, no document of partition was
executed, because Joaquin refused to execute a deed.
Consuelo and Ireneo occupied their respective shares in the
San Jose property, and installed several tenants over their
share in parcel IV. Joaquin, on the other hand, became the
administrator of the remaining undivided properties and of
the shares of respondents Danilo, Marites, Anita and Helen,
who were still minors at that time.
In 1989, Danilo, Marites, Anita and Helen wanted to take
possession of the portions allotted to them, but Joaquin
prevented them from occupying the same. Joaquin also
refused to heed respondents’ demand for partition of parcels
I and II, prompting respondents to file a complaint for judicial
partition and/or recovery of possession with accounting and
damages with the Regional Trial Court (RTC) of Camarines
Sur.3
Joaquin denied the material allegations in the complaint, and
averred, as his special and affirmative defenses, lack of
cause of action and prescription. He asserted absolute
ownership over parcels III and IV, claiming that he
purchased these lands from Eustaquia in 1946, evidenced
by deeds of sale executed on August 23, 1946 and
December 2, 1946. He, likewise, claimed continuous,
peaceful and adverse possession of these lots since 1946,
and alleged that Consuelo’s occupation of the portion of the
San Jose property was by mere tolerance.4
During the pendency of the case, Joaquin died. Accordingly,
he was substituted by his wife, Estela Tena-Quimpo and his
children, namely, Jose, Adelia, Joaquin, Anita, Angelita,
Amelia, Arlene, Joy and Aleli, all surnamed Quimpo (the
Quimpos).
On December 12, 1996, the RTC rendered a Decision 5 in
favor of respondents, declaring them as co-owners of all the
properties left by Eustaquia. It rejected Joaquin’s claim of
absolute ownership over parcels III and IV, and declared
void the purported deeds of sale executed by Eustaquia for
lack of consideration and consent. The court found that at
the time of the execution of these deeds, Joaquin was not
gainfully employed and had no known source of income,
which shows that the deeds of sale state a false and fictitious
consideration. Likewise, Eustaquia could not have possibly
given her consent to the sale because she was already 91
years old at that time. The RTC also sustained the oral
partition among the heirs in 1966. According to the trial court,
the possession and occupation of land by respondents
Consuelo and Ireneo, and Joaquin’s acquiescence for 23
years, furnish sufficient evidence that there was actual
partition of the properties. It held that Joaquin and his heirs
are now estopped from claiming ownership over the entire
San Jose property as well as over parcel IV.
The RTC disposed, thus:
WHEREFORE, decision is hereby rendered in
favor of the plaintiffs Consuelo Vda. de Beltran,
Ireneo Abad, Marites Abad, Danilo Abad, Anita
Abad and Helen Abad and against defendant
Joaquin Quimpo, substituted by the latter’s wife
Estela Tena and their children, Amparo, Jose,
Amelia, Joaquin Jr., Adelia, Arlene, Anita, Joy,
Angelita and Aleli, all surnamed Quimpo, as
follows:
1. Ordering the above-named
substituted defendants, and the plaintiffs
to execute their written agreement of
partition with respect to parcel Nos. III
and IV more particularly described in
paragraph 7 of the complaint, and for
them to execute an agreement of
partition with respect to parcel Nos. I
and II, both parcels are more particularly
described in paragraph 7 of the
complaint;
2. Declaring the plaintiffs Danilo Abad,
Marites Abad, Anita Abad and Helen
Abad the owner of six (6) hectares a
portion included in parcel No. IV also
described in paragraph 7 of the
complaint, and therefore, entitled to its
possession and ordering the said
substituted defendants to deliver that
portion to them as their share thereto;
3. Ordering the above-named
substituted defendants to pay plaintiffs
the sum of Six Thousand Pesos
(P6,000.00), Philippine Currency, as
reasonable attorney’s fees and the sum
of One Thousand Pesos (P1,000.00)
also of Philippine Currency, as litigation
expenses and for the said defendants to
pay the costs.
The counterclaim, not being proved, the
same is hereby ordered dismissed.
SO ORDERED.6
On appeal, the CA affirmed the RTC ruling. Sustaining the
RTC, the CA declared that it was plausible that Eustaquia’s
consent was vitiated because she was then 91 years old and
sickly. It was bolstered by the fact that the deeds of sale only
surfaced 43 years after its alleged execution and 23 years
from the time of the oral partition. The CA also rejected
petitioners’ argument that the action was barred by
prescription and laches, explaining that prescription does not
run against the heirs so long as the heirs, for whose benefit
prescription is invoked, have not expressly or impliedly
repudiated the co-ownership. The CA found no repudiation
on Joaquin’s part. It, therefore, concluded that respondents’
action could not be barred by prescription or laches.
The Quimpos, thus, filed the instant petition for review
on certiorari imputing the following errors to the CA:
1) THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT PETITIONERS DID
NOT ACQUIRE OWNERSHIP OVER [THE]
SUBJECT PARCELS OF LAND BY WAY OF
DEEDS OF ABSOLUTE SALE EXECUTED IN
THEIR FAVOR;
2) THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT CO-OWNERSHIP
EXISTS AMONG PETITIONERS AND
RESPONDENTS OVER THE SUBJECT
PARCELS OF LAND;
3) THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT RESPONDENTS
HAVE PROVEN THEIR FILIATION TO THE
ORIGINAL OWNER OF THE SUBJECT
PARCELS OF LAND BY MERE SCANT
EVIDENCE;
4) THE HONORABLE COURT OF APPEALS
ERRED IN NOT RULING THAT LACHES HAS
TIME–BARRED THE RESPONDENTS FROM
ASSAILING THE ABSOLUTE OWNERSHIP OF
PETITIONERS OVER THE SUBJECT PARCELS
OF LAND; AND
5) THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT RESPONDENTS ARE
ENTITLED TO ATTORNEY’S FEES.7
The Quimpos insist on the validity of the deeds of sale
between Joaquin and Eustaquia. They assail the probative
value and weight given by the RTC and the CA in favor of
the respondents’ pieces of evidence while refusing to give
credence or value to the documents they presented.
Specifically, they contend that the notarized deeds of sale
and the tax declarations should have adequately established
Joaquin’s ownership of parcels III and IV.
The contention has no merit. Well-entrenched is the rule that
the Supreme Court’s role in a petition under Rule 45 is
limited to reviewing or reversing errors of law allegedly
committed by the appellate court. Factual findings of the trial
court, especially when affirmed by the Court of Appeals, are
conclusive on the parties. Since such findings are generally
not reviewable, this Court is not duty-bound to analyze and
weigh all over again the evidence already considered in the
proceedings below, unless the factual findings complained of
are devoid of support from the evidence on record or the
assailed judgment is based on a misapprehension of facts. 8
Petitioners fail to convince us that the CA committed
reversible error in affirming the trial court and in giving no
weight to the pieces of evidence they presented.
The stated consideration for the sale are P5,000.00
and P6,000.00, respectively, an amount which was so
difficult to raise in the year 1946. Respondents established
that at the time of the purported sale Joaquin Quimpo was
not gainfully employed. He was studying in Manila and
Eustaquia was the one supporting him; that when Eustaquia
died two (2) years later, Joaquin was not able to continue his
studies. The Quimpos failed to override this. Except for the
incredible and unpersuasive testimony of Joaquin’s
daughter, Adelia Magsino, no other testimonial or
documentary evidence was offered to prove that Joaquin
was duly employed and had the financial capacity to buy the
subject properties in 1946.
In Rongavilla v. Court of Appeals,9 reiterated in Cruz v.
Bancom Finance Corp,10 we held that a deed of sale, in
which the stated consideration has not been, in fact, paid is a
false contract; that it is void ab initio. Furthermore, Ocejo v.
Flores,11 ruled that a contract of purchase and sale is null
and void and produces no effect whatsoever where it
appears that the same is without cause or consideration
which should have been the motive thereof, or the purchase
price which appears thereon as paid but which in fact has
never been paid by the purchaser to the vendor.
Likewise, both the trial court and the CA found that
Eustaquia was 91 years old, weak and senile, at the time the
deeds of sale were executed. In other words, she was
already mentally incapacitated by then, and could no longer
be expected to give her consent to the sale. The RTC and
CA cannot, therefore, be faulted for not giving credence to
the deeds of sale in favor of Joaquin.
Petitioners also presented Tax Declaration Nos.
3650,12 3708,13 and 365914 to substantiate Joaquin’s claim of
absolute dominion over parcels III and IV. But we note that
these tax declarations are all in the name of Eustaquia
Perfecto-Abad. These documents, therefore, do not support
their claim of absolute dominion since 1946, but enervate it
instead. Besides, the fact that the disputed property may
have been declared for taxation purposes in the name of
Joaquin Quimpo does not necessarily prove ownership for it
is well settled that a tax declaration or tax receipts are not
conclusive evidence of ownership. 15 The CA, therefore,
correctly found this proof inadequate to establish Joaquin’s
claim of absolute dominion.
For forty-three (43) years, Consuelo and Ireneo occupied
their portions of the San Jose property and significantly,
Joaquin never disturbed their possession. They also installed
tenants in parcel IV, and Joaquin did not prevent them from
doing so, nor did he assert his ownership over the same.
These unerringly point to the fact that there was indeed an
oral partition of parcels III and IV.
In Maglucot-aw v. Maglucot,16 we held, viz.:
[P]artition may be inferred from circumstances
sufficiently strong to support the presumption.
Thus, after a long possession in severalty, a deed
of partition may be presumed. It has been held
that recitals in deeds, possession and occupation
of land, improvements made thereon for a long
series of years, and acquiescence for 60 years,
furnish sufficient evidence that there was an actual
partition of land either by deed or by proceedings
in the probate court, which had been lost and were
not recorded.
Furthermore, in Hernandez v. Andal,17 we explained that:
On general principle, independent and in spite of
the statute of frauds, courts of equity have
enforced oral partition when it has been
completely or partly performed.
Regardless of whether a parol partition
or agreement to partition is valid and
enforceable at law, equity will in proper
cases, where the parol partition has
actually been consummated by the
taking of possession in severalty and the
exercise of ownership by the parties of
the respective portions set off to each,
recognize and enforce such parol
partition and the rights of the parties
thereunder. Thus, it has been held or
stated in a number of cases involving an
oral partition under which the parties
went into possession, exercised acts of
ownership, or otherwise partly
performed the partition agreement, that
equity will confirm such partition and in a
proper case decree title in accordance
with the possession in severalty.
In numerous cases it has been held or
stated that parol partitions may be
sustained on the ground of estoppel of
the parties to assert the rights of a
tenant in common as to parts of land
divided by parol partition as to which
possession in severalty was taken and
acts of individual ownership were
exercised. And a court of equity will
recognize the agreement and decree it
to be valid and effectual for the purpose
of concluding the right of the parties as
between each other to hold their
respective parts in severalty.
A parol partition may also be sustained
on the ground that the parties thereto
have acquiesced in and ratified the
partition by taking possession in
severalty, exercising acts of ownership
with respect thereto, or otherwise
recognizing the existence of the
partition.
A number of cases have specifically
applied the doctrine of part performance,
or have stated that a part performance is
necessary, to take a parol partition out
of the operation of the statute of frauds.
It has been held that where there was a
partition in fact between tenants in
common, and a part performance, a
court of equity would have regard to and
enforce such partition agreed to by the
parties.
The CA, therefore, committed no reversible error in
sustaining the oral partition over parcels III and IV and in
invalidating the deeds of sale between Eustaquia and
Joaquin.
Similarly, we affirm the CA ruling that respondents are co-
owners of the subject four (4) parcels of land, having
inherited the same from a common ancestor – Eustaquia
Perfecto-Abad. Petitioners’ assertion that respondents failed
to prove their relationship to the late Eustaquia deserves
scant consideration.
During the pre-trial, Joaquin Quimpo admitted that:
 Eustaquia Perfecto Abad and Diego Abad had two
(2) children by the names of Leon Abad and
Joaquin Abad; that Leon Abad has three (3)
children namely: Anastacia, Wilfredo and
Consuelo, all surnamed Abad; that Joaquin Abad
has only one (1) child, a daughter by the name of
Amparo; that Wilfredo has four (4) children,
namely, Danilo, Helen, Marites and Anita; Amparo
has one child, son Joaquin Quimpo, x x x 18

Consuelo was the grandchild of Eustaquia, while

respondents Danilo, Helen, Marites, Anita and also Joaquin
Quimpo were Eustaquia’s great grandchildren. As such,
respondents can rightfully ask for the confirmation of the oral
partition over parcels III and IV, and the partition of parcels I
and II. Jurisprudence is replete with rulings that any co-
owner may demand at any time the partition of the common
property unless a co-owner has repudiated the co-
ownership. This action for partition does not prescribe and is
not subject to laches.19
G.R. No. 158040             April 14, 2008

Finally, petitioners challenge the attorney’s fees in favor of

respondents. SPOUSES ONESIFORO and ROSARIO
ALINAS, petitioner,
vs.
The grant of attorney’s fees depends on the circumstances SPOUSES VICTOR and ELENA ALINAS, respondents.
of each case and lies within the discretion of the court. It may
be awarded when a party is compelled to litigate or to incur
expenses to protect its interest by reason of an unjustified DECISION
act by the other,20 as in this case.
AUSTRIA-MARTINEZ, J.:
In fine, we find no reversible error in the assailed rulings of
the Court of Appeals. This resolves the Petition for Review on Certiorari under
Rule 45 of the Rules of Court, praying that the Decision 1 of
WHEREFORE, the petition is DENIED. The Decision and the Court of Appeals (CA) dated September 25, 2002, and
Resolution of the Court of Appeals in CA-G.R. CV No. the CA Resolution2 dated March 31, 2003, denying
56187, are AFFIRMED. petitioners' motion for reconsideration, be reversed and set
aside.

SO ORDERED.
The factual antecedents of the case are as follows.

Spouses Onesiforo and Rosario Alinas (petitioners)

separated sometime in 1982, with Rosario moving to
Pagadian City and Onesiforo moving to Manila. They left
behind two lots identified as Lot 896-B-9-A with a bodega
standing on it and Lot 896-B-9-B with petitioners' house.
These two lots are the subject of the present petition.

Petitioner Onesiforo Alinas (Onesiforo) and respondent

Victor Alinas (Victor) are brothers. Petitioners allege that
they entrusted their properties to Victor and Elena Alinas
(respondent spouses) with the agreement that any income
from rentals of the properties should be remitted to the
Social Security System (SSS) and to the Rural Bank of
Oroquieta City (RBO), as such rentals were believed
sufficient to pay off petitioners' loans with said institutions.
Lot 896-B-9-A with the bodega was mortgaged as security
for the loan obtained from the RBO, while Lot 896-B-9-B with
the house was mortgaged to the SSS. Onesiforo alleges that
he left blank papers with his signature on them to facilitate
the administration of said properties.
Sometime in 1993, petitioners discovered that their two lots
were already titled in the name of respondent spouses.
Records show that after Lot 896-B-9-A was extra-judicially
foreclosed, Transfer Certificate of Title (TCT) No. T-
118533 covering said property was issued in the name of
mortgagee RBO on November 13, 1987. On May 2, 1988,
the duly authorized representative of RBO executed a Deed
of Installment Sale of Bank's Acquired Assets4 conveying Lot
896-B-9-A to respondent spouses. RBO's TCT over Lot 896-
B-9-A was then cancelled and on February 22, 1989, TCT
No. T-126645 covering said lot was issued in the name of
respondent spouses.
Lot 896-B-9-B was also foreclosed by the SSS and on
November 17, 1986, the Ex-Oficio City Sheriff of Ozamis City
issued a Certificate of Sale 6 over said property in favor of the
SSS. However, pursuant to a Special Power of
Attorney7 signed by Onesiforo in favor of Victor, dated March
10, 1989, the latter was able to redeem, on the same date,
Lot 896-B-9-B from the SSS for the sum of P111,110.09. On
June 19, 1989, a Certificate of Redemption 8 was issued by
the SSS.
Onesiforo's signature also appears in an Absolute Deed of
Sale9 likewise dated March 10, 1989, selling Lot 896-B-9-B
to respondent spouses. The records also show a notarized
document dated March 10, 1989 and captioned
Agreement10 whereby petitioner Onesiforo acknowledged
that his brother Victor used his own money to redeem Lot
896-B-9-B from the SSS and, thus, Victor became the owner
of said lot. In the same Agreeement, petitioner Onesiforo
waived whatever rights, claims, and interests he or his heirs,
successors and assigns have or may have over the subject
property. On March 15, 1993, by virtue of said documents,
TCT No. 1739411 covering Lot 896-B-9-B was issued in the
name of respondent spouses.
On June 25, 1993, petitioners filed with the Regional Trial
Court (RTC) of Ozamis City a complaint for recovery of
possession and ownership of their conjugal properties with
damages against respondent spouses.
After trial, the RTC rendered its Decision dated November
13, 1995, finding that:
1. Plaintiffs have not proven that they entrusted
defendant spouses with the care and
administration of their properties. It was Valeria 3. ordering [petitioners] to reimburse
Alinas, their mother, whom plaintiff Onesiforo [respondents] Victor Jr. and Elena
requested/directed to "take care of everything and Alinas the redemption sum
sell everything" and Teresita Nuñez, his elder of P111,100.09, paid by them to the
sister, to whom he left a "verbal" authority to SSS (without interest as it shall be
administer his properties. compensated with the rental value of the
house they occupy) within sixty days
from the finality of this judgment;
2. Plaintiffs have not proven their allegation that
defendant spouses agreed to pay rent
of P1,500.00 a month for the occupancy of 4. ordering [respondents] to vacate the
plaintiffs' house, which rent was to be remitted to subject house within thirty days from
the SSS and Rural Bank of Oroquieta to pay off receiving the reimbursement mentioned
plaintiffs' loan and to keep for plaintiffs the rest of in No. 3 above; and
the rent after the loans would have been paid in
full.
5. reinstating TCT No. T-7248 in the
name of [petitioners] and cancelling TCT
3. Plaintiff Onesiforo's allegation that defendants No. T-17394 in the name of
concocted deeds of conveyances (Exh. "M", "N" & [respondents].
"O") with the use of his signatures in blank is not
worthy of credence. Why his family would conspire
No costs.
to rob him at a time when life had struck him with a
cruel blow in the form of a failed marriage that sent
him plummeting to the depths of despair is not SO ORDERED.13
explained and likewise defies comprehension.
That his signatures appear exactly on the spot
Only respondent spouses appealed to the CA assailing the
where they ought to be in Exhs. "M", "N" & "O"
RTC's ruling that they acquired Lot 896-B-9-B from the SSS
belies his pretension that he affixed them on blank
by mere redemption and not by purchase. They likewise
paper only for the purpose of facilitating his sister
question the reimbursement by petitioners of the redemption
Terry's acts of administration.
price without interest.
This Court, therefore, does not find that defendant
On September 25, 2002, the CA promulgated herein
spouses had schemed to obtain title to plaintiffs'
assailed Decision, the dispositive portion of which reads:
properties or enriched themselves at the expense
of plaintiffs.12
WHEREFORE, in view of the foregoing
disquisitions, the first paragraph of the dispositive
with the following dispositive portion:
portion of the assailed decision is AFFIRMED and
the rest MODIFIED as follows:
WHEREFORE, this Court renders judgment:
1. declaring [respondents] Victor Jr. and
1. declaring [respondents] Victor Jr. and Elena Alinas owners of Lot 896-B-9-A
Elena Alinas owners of Lot 896-B-9-A with the building (bodega) standing
with the building (bodega) standing thereon and affirming the validity of their
thereon and affirming the validity of their acquisition thereof from the Rural Bank
acquisition thereof from the Rural Bank of Oroquieta, Inc.;
of Oroquieta, Inc.;
2. declaring Onesiforo's sale of Lot 896-
2. declaring [petitioners] Onesiforo and B-9-B together with the house standing
Rosario Alinas owners of Lot 896-B-9-B thereon to [respondents] in so far as
with the house standing thereon, plaintiff Rosario Alinas, his wife's share of one
Onesiforo's sale thereof to defendants half thereof is concerned, of no force
spouses without the consent of his wife and effect;
being null and void and defendant
spouses' redemption thereof from the
3. ordering [petitioners] Rosario Alinas
SSS not having conferred its ownership
to reimburse [respondents] the
to them;
 redemption amount of P55,550.00 with
interest of 12% per annum from the time
of redemption until fully paid.
4. ordering the [respondents] to convey
and transfer one half portion of Lot 896-
B-9-B unto Rosario Alinas, which
comprises her share on the property
simultaneous to the tender of the above
redemption price, both to be
accomplished within sixty (60) days from
finality of this judgment.
5. in the event of failure of [respondents]
to execute the acts as specified above,
[petitioner] Rosario Alinas may proceed
against them under Section 10, Rule 39
of the 1997 Rules of Civil Procedure.
6. on the other hand, failure of
[petitioner] Rosario Alinas to reimburse
the redemption price within sixty (60)
days from the finality of this decision will
render the conveyance and sale of her
share by her husband to [respondents],
of full force and effect.
No costs.
SO ORDERED.14
Petitioners moved for reconsideration but the CA denied said
motion per herein assailed Resolution dated March 31, 2003.
Hence, the present petition on the following grounds:
The Honorable Court of Appeals abuse [sic] its
discretion in disregarding the testimony of the
Register of Deeds, Atty. Nerio Nuñez, who swore
that the signatures appearing on various TCTs
were not his own;
The Honorable Court of Appeals manifestly abuse
[sic] its discretion in declaring the respondents to
be the owners of Lot 896-B-9-A with the building
(bodega) standing thereon when they merely
redeemed the property and are therefore mere
trustees of the real owners of the property;
It was pure speculation and conjecture and
surmise for the Honorable Court of Appeals to
impose an obligation to reimburse upon petitioners
without ordering respondents to account for the
rentals of the properties from the time they
occupied the same up to the present time and
thereafter credit one against the other whichever is
higher.15
The first issue raised by petitioners deserves scant
consideration. By assailing the authenticity of the Registrar
of Deeds' signature on the certificates of title, they are, in
effect, questioning the validity of the certificates.
Section 48 of Presidential Decree No. 1529 provides, thus:
Sec. 48. Certificate not subject to collateral
attack. - A certificate of title shall not be subject to
collateral attack. It cannot be altered, modified, or
cancelled except in a direct proceeding in
accordance with law.
Pursuant to said provision, the Court ruled in De Pedro v.
Romasan Development Corporation16 that:
It has been held that a certificate of title, once
registered, should not thereafter be impugned,
altered, changed, modified, enlarged or diminished
except in a direct proceeding permitted by law. x x
x RBO and definitely not from petitioners.
The action of the petitioners against the
respondents, based on the material allegations of
the complaint, is one for recovery of possession
of the subject property and damages.
However, such action is not a direct, but a
collateral attack of TCT No. 236044. 17 (Emphasis
supplied)
As in De Pedro, the complaint filed by herein petitioners with
the RTC is also one for recovery of possession and
ownership. Verily, the present case is merely a collateral
attack on TCT No. T-17394, which is not allowed by law and
jurisprudence.
With regard to the second issue, petitioners’ claim that it was
the CA which declared respondent spouses owners of Lot
896-B-9-A (with bodega) is misleading. It was the RTC which
ruled that respondent spouses are the owners of Lot 896-B-
9-A and, therefore, since only the respondent spouses
appealed to the CA, the issue of ownership over Lot 896-B-
9-A is not raised before the appellate court. Necessarily, the
CA merely reiterated in the dispositive portion of its decision
the RTC's ruling on respondent spouses' ownership of Lot
896-B-9-A.
It is a basic principle that no modification of judgment or
affirmative relief can be granted to a party who did not
appeal.18 Hence, not having appealed from the RTC
Decision, petitioners can no longer seek the reversal or
modification of the trial court's ruling that respondent
spouses had acquired ownership of Lot 896-B-9-A by virtue
of the sale of the lot to them by RBO.
Furthermore, the CA did not commit any reversible error in
affirming the trial court's factual findings as the records are
indeed bereft of proof to support the petitioners’ allegations
that they left the care and administration of their properties to
respondent spouses; and that there is an agreement
between petitioners and respondent spouses regarding
remittance to the SSS and the RBO of rental income from
their properties. Thus, respondent spouses may not be held
responsible for the non-payment of the loan with RBO and
the eventual foreclosure of petitioners' Lot 896-B-9-A.
Petitioners do not assail the validity of the foreclosure of said
lot but argues that respondent spouses merely redeemed the
property from RBO. This is, however, belied by evidence on
record which shows that ownership over the lot had duly
passed on to the RBO, as shown by TCT No. T-11853
registered in its name; and subsequently, RBO sold the lot
with its improvements to respondent spouses. Needless to
stress, the sale was made after the redemption period had
lapsed. The trial court, therefore, correctly held that
respondent spouses acquired their title over the lot from
However, with regard to Lot 896-B-9-B (with house), the
Court finds it patently erroneous for the CA to have applied
the principle of equity in sustaining the validity of the sale of
Onesiforo’s one-half share in the subject property to
respondent spouses.
Although petitioners were married before the enactment of
the Family Code on August 3, 1988, the sale in question
occurred in 1989. Thus, their property relations are governed
by Chapter IV on Conjugal Partnership of Gains of the
Family Code.
The CA ruling completely deviated from the clear dictate of
Article 124 of the Family Code which provides:
Art. 124. The administration and enjoyment of the
conjugal partnership property shall belong to both
spouses jointly. x x x
In the event that one spouse is incapacitated or
otherwise unable to participate in the
administration of the conjugal properties, the other
spouse may assume sole powers of
administration. These powers do not include the
powers of disposition or encumbrance which must
have the authority of the court or the written
 consent of the other spouse.  In the absence of
such authority or consent the disposition or
encumbrance shall be void. x x x (Underscoring
and emphasis supplied)
In Homeowners Savings & Loan Bank v. Dailo,19 the Court
categorically stated thus:
In Guiang v. Court of Appeals, it was held that the
sale of a conjugal property requires the consent of
both the husband and wife. In applying Article 124
of the Family Code, this Court declared that the
absence of the consent of one renders the
entire sale null and void, including the portion
of the conjugal property pertaining to the
husband who contracted the sale. x x x
xxxx
x x x By express provision of Article 124 of the
Family Code, in the absence of (court) authority or
written consent of the other spouse, any
disposition or encumbrance of the conjugal
property shall be void. 20
Thus, pursuant to Article 124 of the Family Code and
jurisprudence, the sale of petitioners' conjugal property made
by petitioner Onesiforo alone is void in its entirety.
It is true that in a number of cases, this Court abstained from
applying the literal import of a particular provision of law if
doing so would lead to unjust, unfair and absurd results.21
In the present case, the Court does not see how applying
Article 124 of the Family Code would lead to injustice or
absurdity. It should be noted that respondent spouses were
well aware that Lot 896-B-9-B is a conjugal property of
petitioners. They also knew that the disposition being made
by Onesiforo is without the consent of his wife, as they knew
that petitioners had separated, and, the sale documents do
not bear the signature of petitioner Rosario. The fact that
Onesiforo had to execute two documents, namely: the
Absolute Deed of Sale dated March 10, 1989 and a
notarized Agreement likewise dated March 10, 1989, reveals
that they had full knowledge of the severe infirmities of the
sale. As held in Heirs of Aguilar-Reyes v. Spouses
Mijares,22 "a purchaser cannot close his eyes to facts which
should put a reasonable man on his guard and still claim he
acted in good faith."23 Such being the case, no injustice is
being foisted on respondent spouses as they risked
transacting with Onesiforo alone despite their knowledge that
the subject property is a conjugal property.
Verily, the sale of Lot 896-B-9-B to respondent spouses is
entirely null and void.
However, in consonance with the salutary principle of non-
enrichment at another’s expense, the Court agrees with the
CA that petitioners should reimburse respondent spouses
the redemption price paid for Lot 896-B-9-B in the amount
of P111,110.09 with legal interest from the time of filing of
the complaint.
In Heirs of Aguilar-Reyes, the husband's sale of conjugal
property without the consent of the wife was annulled but the
spouses were ordered to refund the purchase price to the
buyers, it was ruled that an interest of 12% per annum on the
purchase price to be refunded is not proper. The Court
elucidated as follows:
The trial court, however, erred in imposing 12%
interest per annum on the amount due the
respondents. In Eastern Shipping Lines, Inc. v.
Court of Appeals, it was held that interest on
obligations not constituting a loan or forbearance
of money is six percent (6%) annually. If the
purchase price could be established with certainty
at the time of the filing of the complaint, the six
percent (6%) interest should be computed from the
date the complaint was filed until finality of the
decision. In Lui vs. Loy, involving a suit for
reconveyance and annulment of title filed by the
first buyer against the seller and the second buyer,
the Court, ruling in favor of the first buyer and
annulling the second sale, ordered the seller to
refund to the second buyer (who was not a
purchaser in good faith) the purchase price of the
lots. It was held therein that the 6% interest should
be computed from the date of the filing of the
complaint by the first buyer. After the judgment
becomes final and executory until the obligation is
satisfied, the amount due shall earn interest at
12% per year, the interim period being deemed
equivalent to a forbearance of credit.
Accordingly, the amount of P110,000.00 due
the respondent spouses which could be
determined with certainty at the time of the
filing of the complaint shall earn 6% interest
per annum from June 4, 1986 until the finality
of this decision. If the adjudged principal and
the interest (or any part thereof) remain unpaid
thereafter, the interest rate shall be twelve
percent (12%) per annum computed from the
time the judgment becomes final and
executory until it is fully satisfied.24
Thus, herein petitioners should reimburse respondent
spouses the redemption price plus interest at the rate of
6% per annum from the date of filing of the complaint, and
after the judgment becomes final and executory, the amount
due shall earn 12% interest per annum until the obligation is
satisfied.
Petitioners pray that said redemption price and interest be
offset or compensated against the rentals for the house and
bodega.
The records show that the testimonial evidence for rentals
was only with regard to the bodega. 25 However, the Court
has affirmed the ruling of the RTC that Lot 896-B-9-A with
the bodega had been validly purchased by respondent
spouses from the RBO and a TCT over said property was
issued in the name of respondent spouses on February 22,
1989. Testimonial evidence shows that the bodega was
leased out by respondent spouses only beginning January of
1990 when ownership had been transferred to
them.26 Hence, any rentals earned from the lease of said
bodega rightfully belongs to respondent spouses and cannot
be offset against petitioners' obligation to respondent
spouses.
As to rentals for Lot 896-B-9-B and the house thereon,
respondent Victor testified that they never agreed to rent the
house and when they finally took over the same, it was
practically inhabitable and so they even incurred expenses to
repair the house.27 There is absolutely no proof of the rental
value for the house, considering the condition it was in; as
well as for the lot respondent spouses are occupying.
Respondent spouses, having knowledge of the flaw in their
mode of acquisition, are deemed to be possessors in bad
faith under Article 52628 of the Civil Code. However, they
have a right to be refunded for necessary expenses on the
property as provided under Article 546 29 of the same Code.
Unfortunately, there is no credible proof to support
respondent spouses' allegation that they spent more
than P400,000.00 to repair and make the house habitable.
Set-off or compensation is governed by Article 1279 of the
Civil Code which provides, thus:
Article 1279. In order that compensation may be
proper, it is necessary:
1. That each one of the obligors be bound
principally, and that he be at the time a principal
creditor of the other;
2. That both debts consist in a sum of money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the latter
has been stated;
 3. That the two debts be due; them under Section 10, Rule 39 of the 1997 Rules of Civil
Procedure.
4. That they be liquidated and demandable;
No costs.
5. That over neither of them there be any retention
or controversy, commenced by third persons and SO ORDERED.
communicated in due time to the debtor.

Therefore, under paragraph 4 of the foregoing provision,

compensation or set-off is allowed only if the debts of both
parties against each other is already liquidated and
demandable. To liquidate means "to make the amount of
indebtedness or an obligation clear and settled in the form of
money."30 In the present case, no definite amounts for
rentals nor for expenses for repairs on subject house has
been determined. Thus, in the absence of evidence upon
which to base the amount of rentals, no compensation or
set-off can take place between petitioners and respondent
spouses.

While the courts are empowered to set an amount as

reasonable compensation to the owners for the use of their
property, this Court cannot set such amount based on mere
surmises and conjecture

WHEREFORE, the petition is PARTLY GRANTED. The G.R. No. 196577               February 25, 2013
Decision of the Court of Appeals dated September 25, 2002
is MODIFIED to read as follows:
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
1. declaring respondent spouses Victor Jr. and Elena Alinas BARBARA SAMPAGA POBLETE, Respondent.
owners of Lot 896-B-9-A with the building (bodega) standing
thereon and affirming the validity of their acquisition thereof
from the Rural Bank of Oroquieta, Inc.; DECISION

2. declaring Onesiforo's sale of Lot 896-B-9-B together CARPIO, J.:

with the house standing thereon to respondent spouses
null and void ab initio; The Case

3. ordering petitioners to jointly and severally reimburse This Petition for Review on Certiorari1 seeks to reverse the
respondent spouses the redemption amount of P111,110.09 Court of Appeals' Decision2 dated 28 September 20 I 0 and
with interest at 6% per annum from the date of filing of its Resolution3 dated 19 April 2011 in C A-G.R. CV No.
the complaint, until finality of this decision. After this 91666. The Court of Appeals (C A) affirmed in toto the
decision becomes final, interest at the rate of 12% per Decision4 of the Regional Trial Court (RTC) of San Jose,
annum on the principal and interest (or any part thereof) Occidental Mindoro, Branch 46, in Civil Case No. R-1331.
shall be imposed until full payment;
The Facts
4. ordering the respondent spouses to convey and transfer
Lot 896-B-9-B to petitioners and vacate said premises within
fifteen (15) days from finality of this Decision; and The facts, as culled from the records, are as follows:

5. in the event of failure of respondent spouses to execute Petitioner Land Bank of the Philippines (Land Bank) is a
the acts as specified above, petitioners may proceed against banking institution organized and existing under Philippine
laws. Respondent Barbara Sampaga Poblete (Poblete) is the
registered owner of a parcel of land, known as Lot No. 29,
with an area of 455 square meters, located in Buenavista,
Sablayan, Occidental Mindoro, under Original Certificate of
Title (OCT) No. P-12026. In October 1997, Poblete obtained
a ₱300,000.00 loan from Kabalikat ng Pamayanan ng
Nagnanais Tumulong at Yumaman Multi-Purpose
Cooperative (Kapantay). Poblete mortgaged Lot No. 29 to
Kapantay to guarantee payment of the loan. Kapantay, in
turn, used OCT No. P-12026 as collateral under its Loan
Account No. 97-CC-013 with Land Bank-Sablayan Branch.
In November 1998, Poblete decided to sell Lot No. 29 to pay
her loan. She instructed her son-in-law Domingo Balen
(Balen) to look for a buyer. Balen referred Angelito Joseph
Maniego (Maniego) to Poblete. According to Poblete,
Maniego agreed to buy Lot No. 29 for ₱900,000.00, but
Maniego suggested that a deed of absolute sale for
₱300,000.00 be executed instead to reduce the taxes. Thus,
Poblete executed the Deed of Absolute Sale dated 9
November 1998 (Deed dated 9 November 1998) with
₱300,000.00 as consideration. 5 In the Deed dated 9
November 1998, Poblete described herself as a "widow."
Poblete, then, asked Balen to deliver the Deed dated 9
November 1998 to Maniego and to receive the payment in
her behalf. Balen testified that he delivered the Deed dated 9
November 1998 to Maniego. However, Balen stated that he
did not receive from Maniego the agreed purchase price.
Maniego told Balen that he would pay the amount upon his
return from the United States. In an Affidavit dated 19
November 1998, Poblete stated that she agreed to have the
payment deposited in her Land Bank Savings Account.6
Based on a Certification issued by Land Bank-Sablayan
Branch Department Manager Marcelino Pulayan on 20
August 1999,7 Maniego paid Kapantay’s Loan Account No.
97-CC-013 for ₱448,202.08. On 8 June 2000, Maniego
applied for a loan of ₱1,000,000.00 with Land Bank, using
OCT No. P 12026 as collateral. Land Bank alleged that as a
condition for the approval of the loan, the title of the collateral
should first be transferred to Maniego.
On 14 August 2000, pursuant to a Deed of Absolute Sale
dated 11 August 2000 (Deed dated 11 August 2000), 8 the
Register of Deeds of Occidental Mindoro issued Transfer
Certificate of Title (TCT) No. T-20151 in Maniego’s name.
On 15 August 2000, Maniego and Land Bank executed a
Credit Line Agreement and a Real Estate Mortgage over
TCT No. T- 20151. On the same day, Land Bank released
the ₱1,000,000.00 loan proceeds to Maniego. Subsequently,
Maniego failed to pay the loan with Land Bank. On 4
November 2002, Land Bank filed an Application for Extra-
judicial Foreclosure of Real Estate Mortgage stating that
Maniego’s total indebtedness amounted to ₱1,154,388.88.
On 2 December 2002, Poblete filed a Complaint for
Nullification of the Deed dated 11 August 2000 and TCT No.
T-20151, Reconveyance of Title and Damages with Prayer
for Temporary Restraining Order and/or Issuance of Writ of
Preliminary Injunction. Named defendants were Maniego,
Land Bank, the Register of Deeds of Occidental Mindoro and
Elsa Z. Aguirre in her capacity as Acting Clerk of Court of
RTC San Jose, Occidental Mindoro. In her Complaint,
Poblete alleged that despite her demands on Maniego, she
did not receive the consideration of ₱900,000.00 for Lot No.
29. She claimed that without her knowledge, Maniego used
the Deed dated 9 November 1998 to acquire OCT No. P-
12026 from Kapantay. Upon her verification with the Register
of Deeds, the Deed dated 11 August 2000 was used to
obtain TCT No. T-20151. Poblete claimed that the Deed
dated 11 August 2000 bearing her and her deceased
husband’s, Primo Poblete, supposed signatures was a
forgery as their signatures were forged. As proof of the
forgery, Poblete presented the Death Certificate dated 27
April 1996 of her husband and Report No. 294-502 of the
Technical Services Department of the National Bureau of
Investigation showing that the signatures in the Deed dated
11 August 2000 were forgeries. Accordingly, Poblete also
filed a case for estafa through falsification of public
document against Maniego and sought injunction of the
impending foreclosure proceeding.
On 7 January 2003, Land Bank filed its Answer with
Compulsory Counterclaim and Cross-claim. Land Bank
claimed that it is a mortgagee in good faith and it observed
due diligence prior to approving the loan by verifying
Maniego’s title with the Office of the Register of Deeds. Land
Bank likewise interposed a cross-claim against Maniego for
the payment of the loan, with interest, penalties and other
charges. Maniego, on the other hand, separately filed his
Answer. Maniego denied the allegations of Poblete and
claimed that it was Poblete who forged the Deed dated 11
August 2000. He also alleged that he paid the consideration
of the sale to Poblete and even her loans from Kapantay and
Land Bank.
The Ruling of the Regional Trial Court
On 28 December 2007, the RTC of San Jose, Occidental
Mindoro, Branch 46, rendered a Decision in favor of Poblete,
the dispositive portion of which reads:
WHEREFORE, by preponderance of evidence, judgment is
hereby rendered in favor of the plaintiff and against the
defendants, as follows:
1. Declaring the Deed of Sale dated August 11,
2000 over O.C.T. No. P-12026, as null and void;
2. Declaring Transfer of Certificate of Title No. T-
20151 as null and void, it having been issued on
the basis of a spurious and forged document;
3. The preliminary [i]njunction issued directing the
defendants to refrain from proceedings [sic] with
the auction sale of the plaintiff’s properties, dated
February 10, 2002, is hereby made permanent;
4. Ordering defendant Angelito Joseph Maniego to
return to the plaintiff O.C.T. No. P-12026; and
5. Ordering defendant Angelito Joseph Maniego to
pay plaintiff the amount of ₱50,000.00, as and for
reasonable attorney’s fees.
Judgment is furthermore rendered on the cross-claim of
defendant Land Bank of the Philippines against defendant
Angelito Joseph Maniego, as follows:
A. Ordering defendant Angelito Joseph Maniego to
pay his co-defendant [L]and Bank of the
Philippines his loan with a principal of
₱1,000,000.00, plus interests, penalties and other
charges thereon; and
B. Ordering defendant Angelito Joseph Maniego to
pay the costs of this suit.
SO ORDERED.9
The RTC ruled that the sale between Poblete and Maniego
was a nullity. The RTC found that the agreed consideration
was ₱900,000.00 and Maniego failed to pay the
consideration. Furthermore, the signatures of Poblete and
her deceased husband were proven to be forgeries. The
RTC also ruled that Land Bank was not a mortgagee in good
faith because it failed to exercise the diligence required of
banking institutions. The RTC explained that had Land Bank
exercised due diligence, it would have known before
approving the loan that the sale between Poblete and
Maniego had not been consummated. Nevertheless, the
RTC granted Land Bank’s cross-claim against Maniego.
In an Order dated 17 March 2008, the RTC denied the
Motion for Reconsideration filed by Land Bank for want of
merit. Thereafter, Land Bank and Maniego separately
challenged the RTC’s Decision before the CA.
The Ruling of the Court of Appeals
On 28 September 2010, the CA promulgated its Decision
affirming in toto the Decision of the RTC.10 Both Land Bank
and Maniego filed their Motions for Reconsideration but the
CA denied both motions on 19 April 2011. 11
In a Resolution dated 13 July 2011, 12 the Second Division of
this Court denied the Petition for Review on Certiorari filed
by Maniego. This Resolution became final and executory on
19 January 2012.
On the other hand, Land Bank filed this petition.
The Issues
Land Bank seeks a reversal and raises the following issues
for resolution:
1. THE COURT OF APPEALS (FORMER
SPECIAL ELEVENTH DIVISION) ERRED IN
UPHOLDING THE FINDING OF THE TRIAL
COURT DECLARING TCT NO. T-20151 AS NULL
AND VOID. THE COURT OF APPEALS
MISCONSTRUED AND MISAPPRECIATED THE
EVIDENCE AND THE LAW IN NOT FINDING TCT
NO. T-20151 REGISTERED IN THE NAME OF
ANGELITO JOSEPH MANIEGO AS VALID.
2. THE COURT OF APPEALS (FORMER
SPECIAL ELEVENTH DIVISION)
MISCONSTRUED THE EVIDENCE AND THE
LAW IN NOT FINDING LAND BANK A
MORTGAGEE IN GOOD FAITH.
3. THE COURT OF APPEALS (FORMER
SPECIAL ELEVENTH DIVISION)
MISCONSTRUED THE EVIDENCE AND THE
LAW IN NOT FINDING THE RESPONDENT AND
ANGELITO JOSEPH MANIEGO AS IN PARI
DELICTO.
4. THE COURT OF APPEALS (FORMER
SPECIAL ELEVENTH DIVISION) ERRED IN NOT
APPLYING THE PRINCIPLE OF ESTOPPEL OR
LACHES ON RESPONDENT IN THAT THE
PROXIMATE CAUSE OF HER LOSS WAS HER
NEGLIGENCE TO SAFEGUARD HER RIGHTS
OVER THE SUBJECT PROPERTY, THEREBY
ENABLING ANGELITO JOSEPH MANIEGO TO
MORTGAGE THE SAME WITH LAND BANK.13
The Ruling of the Court
We do not find merit in the petition.
A petition for review under Rule 45 of the Rules of Court
specifically provides that only questions of law may be
raised, subject to exceptional circumstances 14 which are not
present in this case. Hence, factual findings of the trial court,
especially if affirmed by the CA, are binding on us. 15 In this
case, both the RTC and the CA found that the signatures of
Poblete and her deceased husband in the Deed dated 11
August 2000 were forged by Maniego. In addition, the
evidence is preponderant that Maniego did not pay the
consideration for the sale. Since the issue on the
genuineness of the Deed dated 11 August 2000 is
essentially a question of fact, we are not dutybound to
analyze and weigh the evidence again.16
It is a well-entrenched rule, as aptly applied by the CA, that a
forged or fraudulent deed is a nullity and conveys no
title.17 Moreover, where the deed of sale states that the
purchase price has been paid but in fact has never been
paid, the deed of sale is void ab initio for lack of
consideration.18 Since the Deed dated 11 August 2000 is
void, the corresponding TCT No. T-20151 issued pursuant to
the same deed is likewise void. In Yu Bun Guan v. Ong,19 the
Court ruled that there was no legal basis for the issuance of
the certificate of title and the CA correctly cancelled the
same when the deed of absolute sale was completely
simulated, void and without effect. In Ereña v. Querrer-
Kauffman,20 the Court held that when the instrument
presented for registration is forged, even if accompanied by
the owner’s duplicate certificate of title, the registered owner
does not thereby lose his title, and neither does the
mortgagee acquire any right or title to the property. In such a
case, the mortgagee under the forged instrument is not a
mortgagee protected by law.21
The issue on the nullity of Maniego’s title had already been
foreclosed when this Court denied Maniego’s petition for
review in the Resolution dated 13 July 2011, which became
final and executory on 19 January 2012. 22 It is settled that a
decision that has acquired finality becomes immutable and
unalterable and may no longer be modified in any respect,
even if the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made by the
court that rendered it or by the highest court of the
land.23 This is without prejudice, however, to the right of
Maniego to recover from Poblete what he paid to Kapantay
for the account of Poblete, otherwise there will be unjust
enrichment by Poblete.
Since TCT No. T-20151 has been declared void by final
judgment, the Real Estate Mortgage constituted over it is
also void. In a real estate mortgage contract, it is essential
that the mortgagor be the absolute owner of the property to
be mortgaged; otherwise, the mortgage is void.24
Land Bank insists that it is a mortgagee in good faith since it
verified Maniego’s title, did a credit investigation, and
inspected Lot No. 29. The issue of being a mortgagee in
good faith is a factual matter, which cannot be raised in this
petition.25 However, to settle the issue, we carefully
examined the records to determine whether or not Land
Bank is a mortgagee in good faith.1âwphi1
There is indeed a situation where, despite the fact that the
mortgagor is not the owner of the mortgaged property, his
title being fraudulent, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason
of public policy.26 This is the doctrine of "the mortgagee in
good faith" based on the rule that buyers or mortgagees
dealing with property covered by a Torrens Certificate of Title
are not required to go beyond what appears on the face of
the title.27 However, it has been consistently held that this
rule does not apply to banks, which are required to observe
a higher standard of diligence. 28 A bank whose business is
impressed with public interest is expected to exercise more
care and prudence in its dealings than a private individual,
even in cases involving registered lands. 29 A bank cannot
assume that, simply because the title offered as security is
on its face free of any encumbrances or lien, it is relieved of
the responsibility of taking further steps to verify the title and
inspect the properties to be mortgaged. 30
Applying the same principles, we do not find Land Bank to
be a mortgagee in good faith.
Good faith, or the lack of it, is a question of intention. 31 In
ascertaining 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. 32
Based on the evidence, Land Bank processed Maniego’s
loan application upon his presentation of OCT No. P-12026,
which was still under the name of Poblete. Land Bank even
ignored the fact that Kapantay previously used Poblete’s title
as collateral in its loan account with Land Bank. 33 In Bank of
Commerce v. San Pablo, Jr.,34 we held that when "the
person applying for the loan is other than the registered
owner of the real property being mortgaged, [such fact]
should have already raised a red flag and which should have
induced the Bank x x x to make inquiries into and confirm x x
x [the] authority to mortgage x x x. A person who deliberately
ignores a significant fact that could create suspicion in an
otherwise reasonable person is not an innocent purchaser
for value."
The records do not even show that Land Bank investigated
and inspected the property to ascertain its actual occupants.
Land Bank merely mentioned that it inspected Lot No. 29 to
appraise the value of the property. We take judicial notice of
the standard practice of banks, before approving a loan, to
send representatives to the premises of the land offered as
collateral to investigate its real owners. 35 In Prudential Bank
v. Kim Hyeun Soon,36 the Court held that the bank failed to
exercise due diligence although its representative conducted
an ocular inspection, because the representative
concentrated only on the appraisal of the property and failed
to inquire as to who were the then occupants of the property.

Land Bank claims that it conditioned the approval of the loan

upon the transfer of title to Maniego, but admits processing
the loan based on Maniego’s assurances that title would
soon be his.37 Thus, only one day after Maniego obtained
TCT No. T-20151 under his name, Land Bank and Maniego
executed a Credit Line Agreement and a Real Estate
Mortgage. Because of Land Bank’s haste in granting the
loan, it appears that Maniego’s loan was already completely
processed while the collateral was still in the name of
Poblete. This is also supported by the testimony of Land
Bank Customer Assistant Andresito Osano.38

Where the mortgagee acted with haste in granting the

mortgage loan and did not ascertain the ownership of the
land being mortgaged, as well as the authority of the
supposed agent executing the mortgage, it cannot be
considered an innocent mortgagee. 39

Since Land Bank is not a mortgagee in good faith, it is not

entitled to protection. The injunction against the foreclosure
proceeding in the present case should be made permanent.
Since Lot No. 29 has not been transferred to a third person
who is an innocent purchaser for value, ownership of the lot
remains with Poblete. This is without prejudice to the right of
either party to proceed against Maniego.

On the allegation that Poblete is in pari delicto with Maniego,

we find the principle inapplicable. The pari delicto rule
provides that "when two parties are equally at fault, the law
leaves them as they are and denies recovery by either one
of them."40 We adopt the factual finding of the RTC and G.R. No. 160600               January 15, 2014
the CA that only Maniego is at fault.

DOMINGO GONZALO, Petitioner,
Finally, on the issues of estoppel and laches, such were not vs.
raised before the trial court.1âwphi1 I fence, we cannot rule JOHN TARNATE, JR., Respondent.
upon the same. It is settled that an issue which was neither
alleged in the complaint nor raised during the trial cannot be
raised for the tirst time on appeal, as such a recourse would DECISION
be offensive to the basic rules of t}1ir play, justice and due
process, since the opposing party would be deprived of the BERSAMIN, J.:
opp01iunity to introduce evidence rebutting such new
issue.41
The doctrine of in pari delicto which stipulates that the guilty
parties to an illegal contract are not entitled to any relief,
WHEREFORE, we DENY the petition. We AFFIRM the 28 cannot prevent a recovery if doing so violates the public
September 2010 Decision and the 19 April 2011 Resolution policy against unjust enrichment.
of the Court of Appeals in CA-Ci.R. CV No. 91666. The
injunction against the foreclosure proceeding, issued by the
Regional Trial Court of San Jose, Occidental Mindoro, Antecedents
Branch 46, is made permanent. Costs against Land Bank.
After the Department of Public Works and Highways
SO ORDERED. (DPWH) had awarded on July 22, 1997 the contract for the
improvement of the Sadsadan-Maba-ay Section of the
Mountain Province-Benguet Road in the total amount of 7
014 963 33 to his company, Gonzalo
Construction,1 petitioner Domingo Gonzalo (Gonzalo)
subcontracted to respondent John Tarnate, Jr. (Tarnate) on
October 15, 1997, the supply of materials and labor for the
project under the latter s business known as JNT
Aggregates. Their agreement stipulated, among others, that
Tarnate would pay to Gonzalo eight percent and four percent
of the contract price, respectively, upon Tarnate s first and
second billing in the project. 2
In furtherance of their agreement, Gonzalo executed on April
6, 1999 a deed of assignment whereby he, as the contractor,
was assigning to Tarnate an amount equivalent to 10% of
the total collection from the DPWH for the project. This 10%
retention fee (equivalent to ₱233,526.13) was the rent for
Tarnate’s equipment that had been utilized in the project. In
the deed of assignment, Gonzalo further authorized Tarnate
to use the official receipt of Gonzalo Construction in the
processing of the documents relative to the collection of the
10% retention fee and in encashing the check to be issued
by the DPWH for that purpose. 3 The deed of assignment was
submitted to the DPWH on April 15, 1999. During the
processing of the documents for the retention fee, however,
Tarnate learned that Gonzalo had unilaterally rescinded the
deed of assignment by means of an affidavit of cancellation
of deed of assignment dated April 19, 1999 filed in the
DPWH on April 22, 1999; 4 and that the disbursement
voucher for the 10% retention fee had then been issued in
the name of Gonzalo, and the retention fee released to him.5
Tarnate demanded the payment of the retention fee from
Gonzalo, but to no avail. Thus, he brought this suit against
Gonzalo on September 13, 1999 in the Regional Trial Court
(RTC) in Mountain Province to recover the retention fee of
₱233,526.13, moral and exemplary damages for breach of
contract, and attorney’s fees.6
In his answer, Gonzalo admitted the deed of assignment and
the authority given therein to Tarnate, but averred that the
project had not been fully implemented because of its
cancellation by the DPWH, and that he had then revoked the
deed of assignment. He insisted that the assignment could
not stand independently due to its being a mere product of
the subcontract that had been based on his contract with the
DPWH; and that Tarnate, having been fully aware of the
illegality and ineffectuality of the deed of assignment from
the time of its execution, could not go to court with unclean
hands to invoke any right based on the invalid deed of
assignment or on the product of such deed of assignment. 7
Ruling of the RTC
On January 26, 2001, the RTC, opining that the deed of
assignment was a valid and binding contract, and that
Gonzalo must comply with his obligations under the deed of
assignment, rendered judgment in favor of Tarnate as
follows:
WHEREFORE, premises considered and as prayed for by
the plaintiff, John Tarnate, Jr. in his Complaint for Sum of
Money, Breach of Contract With Damages is hereby
RENDERED in his favor and against the above-named
defendant Domingo Gonzalo, the Court now hereby orders
as follows:
1. Defendant Domingo Gonzalo to pay the Plaintiff,
John Tarnate, Jr., the amount of TWO HUNDRED
THIRTY THREE THOUSAND FIVE HUNDRED
TWENTY SIX and 13/100 PESOS (₱233,526.13)
representing the rental of equipment;
2. Defendant to pay Plaintiff the sum of THIRTY
THOUSAND (₱30,000.00) PESOS by way of
reasonable Attorney’s Fees for having
forced/compelled the plaintiff to litigate and
engage the services of a lawyer in order to protect
his interest and to enforce his right. The claim of
the plaintiff for attorney’s fees in the amount of
FIFTY THOUSAND PESOS (₱50,000.00) plus
THREE THOUSAND PESOS (₱3,000.00) clearly
appears to be unconscionable and therefore
reduced to Thirty Thousand Pesos (₱30,000.00)
as aforestated making the same to be reasonable;
3. Defendant to pay Plaintiff the sum of FIFTEEN
THOUSAND PESOS (₱15,000.00) by way of
litigation expenses;
4. Defendant to pay Plaintiff the sum of TWENTY
THOUSAND PESOS (₱20,000.00) for moral
damages and for the breach of contract; and
5. To pay the cost of this suit.
Award of exemplary damages in the instant case is not
warranted for there is no showing that the defendant acted in
a wanton, fraudulent, reckless, oppressive or malevolent
manner analogous to the case of Xentrex Automotive, Inc.
vs. Court of Appeals, 291 SCRA 66. 8
Gonzalo appealed to the Court of Appeals (CA).
Decision of the CA
On February 18, 2003, the CA affirmed the RTC.9
Although holding that the subcontract was an illegal
agreement due to its object being specifically prohibited by
Section 6 of Presidential Decree No. 1594; that Gonzalo and
Tarnate were guilty of entering into the illegal contract in
violation of Section 6 of Presidential Decree No. 1594; and
that the deed of assignment, being a product of and
dependent on the subcontract, was also illegal and
unenforceable, the CA did not apply the doctrine of in pari
delicto, explaining that the doctrine applied only if the fault of
one party was more or less equivalent to the fault of the
other party. It found Gonzalo to be more guilty than Tarnate,
whose guilt had been limited to the execution of the two
illegal contracts while Gonzalo had gone to the extent of
violating the deed of assignment. It declared that the
crediting of the 10% retention fee equivalent to ₱233,256.13
to his account had unjustly enriched Gonzalo; and ruled,
accordingly, that Gonzalo should reimburse Tarnate in that
amount because the latter’s equipment had been utilized in
the project.
Upon denial of his motion for reconsideration,10 Gonzalo has
now come to the Court to seek the review and reversal of the
decision of the CA.
Issues
Gonzalo contends that the CA erred in affirming the RTC
because: (1) both parties were in pari delicto; (2) the deed of
assignment was void; and (3) there was no compliance with
the arbitration clause in the subcontract.
Gonzalo submits in support of his contentions that the
subcontract and the deed of assignment, being specifically
prohibited by law, had no force and effect; that upon finding
both him and Tarnate guilty of violating the law for executing
the subcontract, the RTC and the CA should have applied
the rule of in pari delicto, to the effect that the law should not
aid either party to enforce the illegal contract but should
leave them where it found them; and that it was erroneous to
accord to the parties relief from their predicament.11
Ruling
We deny the petition for review, but we delete the grant of
moral damages, attorney’s fees and litigation expenses.
There is no question that every contractor is prohibited from
subcontracting with or assigning to another person any
contract or project that he has with the DPWH unless the
DPWH Secretary has approved the subcontracting or
assignment. This is pursuant to Section 6 of Presidential
Decree No. 1594, which provides:
Section 6. Assignment and Subcontract. – The contractor
shall not assign, transfer, pledge, subcontract or make any
other disposition of the contract or any part or interest therein
except with the approval of the Minister of Public Works,
Transportation and Communications, the Minister of Public
Highways, or the Minister of Energy, as the case may be.
Approval of the subcontract shall not relieve the main
contractor from any liability or obligation under his contract
with the Government nor shall it create any contractual
relation between the subcontractor and the Government.
Gonzalo, who was the sole contractor of the project in
question, subcontracted the implementation of the project to
Tarnate in violation of the statutory prohibition. Their
subcontract was illegal, therefore, because it did not bear the
approval of the DPWH Secretary. Necessarily, the deed of
assignment was also illegal, because it sprung from the
subcontract. As aptly observed by the CA:
x x x. The intention of the parties in executing the Deed of
Assignment was merely to cover up the illegality of the sub-
contract agreement. They knew for a fact that the DPWH will
not allow plaintiff-appellee to claim in his own name under
the Sub-Contract Agreement.
Obviously, without the Sub-Contract Agreement there will be
no Deed of Assignment to speak of. The illegality of the Sub-
Contract Agreement necessarily affects the Deed of
Assignment because the rule is that an illegal agreement
cannot give birth to a valid contract. To rule otherwise is to
sanction the act of entering into transaction the object of
which is expressly prohibited by law and thereafter execute
an apparently valid contract to subterfuge the illegality. The
legal proscription in such an instance will be easily rendered
nugatory and meaningless to the prejudice of the general
public.12
Under Article 1409 (1) of the Civil Code, a contract whose
cause, object or purpose is contrary to law is a void or
inexistent contract. As such, a void contract cannot produce
a valid one.13 To the same effect is Article 1422 of the Civil
Code, which declares that "a contract, which is the direct
result of a previous illegal contract, is also void and
inexistent."
We do not concur with the CA’s finding that the guilt of
Tarnate for violation of Section 6 of Presidential Decree No.
1594 was lesser than that of Gonzalo, for, as the CA itself
observed, Tarnate had voluntarily entered into the
agreements with Gonzalo. 14 Tarnate also admitted that he
did not participate in the bidding for the project because he
knew that he was not authorized to contract with the
DPWH.15 Given that Tarnate was a businessman who had
represented himself in the subcontract as "being financially
and organizationally sound and established, with the
necessary personnel and equipment for the performance of
the project,"16 he justifiably presumed to be aware of the
illegality of his agreements with Gonzalo. For these reasons,
Tarnate was not less guilty than Gonzalo.
According to Article 1412 (1) of the Civil Code, the guilty
parties to an illegal contract cannot recover from one another
and are not entitled to an affirmative relief because they are
in pari delicto or in equal fault. The doctrine of in pari delicto
is a universal doctrine that holds that no action arises, in
equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed
to be paid, or damages for its violation; and where the
parties are in pari delicto, no affirmative relief of any kind will
be given to one against the other.17
Nonetheless, the application of the doctrine of in pari delicto
is not always rigid.1âwphi1 An accepted exception arises
when its application contravenes well-established public
policy.18 In this jurisdiction, public policy has been defined as
"that principle of the law which holds that no subject or
citizen can lawfully do that which has a tendency to be
injurious to the public or against the public good."19
Unjust enrichment exists, according to Hulst v. PR Builders,
Inc.,20 "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." The prevention of unjust enrichment
is a recognized public policy of the State, for Article 22 of the
Civil Code explicitly 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." It is well to note that Article 22 "is
part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as basic principles to be
observed for the rightful relationship between human beings
and for the stability of the social order; designed to indicate
certain norms that spring from the fountain of good
conscience; guides for human conduct that should run as
golden threads through society to the end that law may
approach its supreme ideal which is the sway and
dominance of justice."21
There is no question that Tarnate provided the equipment,
labor and materials for the project in compliance with his
obligations under the subcontract and the deed of
assignment; and that it was Gonzalo as the contractor who
received the payment for his contract with the DPWH as well
as the 10% retention fee that should have been paid to
Tarnate pursuant to the deed of assignment. 22 Considering
that Gonzalo refused despite demands to deliver to Tarnate
the stipulated 10% retention fee that would have
compensated the latter for the use of his equipment in the
project, Gonzalo would be unjustly enriched at the expense
of Tarnate if the latter was to be barred from recovering
because of the rigid application of the doctrine of in pari
delicto. The prevention of unjust enrichment called for the
exception to apply in Tarnate’s favor. Consequently, the RTC
and the CA properly adjudged Gonzalo liable to pay Tarnate
the equivalent amount of the 10% retention fee (i.e.,
₱233,526.13).
Gonzalo sought to justify his refusal to turn over the
₱233,526.13 to Tarnate by insisting that he (Gonzalo) had a
debt of ₱200,000.00 to Congressman Victor Dominguez; that
his payment of the 10% retention fee to Tarnate was
conditioned on Tarnate paying that debt to Congressman
Dominguez; and that he refused to give the 10% retention
fee to Tarnate because Tarnate did not pay to Congressman
Dominguez.23 His justification was unpersuasive, however,
because, firstly, Gonzalo presented no proof of the debt to
Congressman Dominguez; secondly, he did not competently
establish the agreement on the condition that supposedly
bound Tarnate to pay to Congressman Dominguez; 24 and,
thirdly, burdening Tarnate with Gonzalo’s personal debt to
Congressman Dominguez to be paid first by Tarnate would
constitute another case of unjust enrichment.
The Court regards the grant of moral damages, attorney’s
fees and litigation expenses to Tarnate to be inappropriate.
We have ruled that no damages may be recovered under a
void contract, which, being nonexistent, produces no juridical
tie between the parties involved. 25 It is notable, too, that the
RTC and the CA did not spell out the sufficient factual and
legal justifications for such damages to be granted.
Lastly, the letter and spirit of Article 22 of the Civil Code
command Gonzalo to make a full reparation or
compensation to Tarnate. The illegality of their contract
should not be allowed to deprive Tarnate from being fully
compensated through the imposition of legal interest.
Towards that end, interest of 6% per annum reckoned from
September 13, 1999, the time of the judicial demand by
Tarnate, is imposed on the amount of ₱233,526.13. Not to
afford this relief will make a travesty of the justice to which
Tarnate was entitled for having suffered too long from
Gonzalo’s unjust enrichment.
WHEREFORE, we AFFIRM the decision promulgated on
February 18, 2003, but DELETE the awards of moral
damages, attorney’s fees and litigation expenses; IMPOSE
legal interest of 6% per annum on the principal
oL₱233,526.13 reckoned from September 13, 1999; and
DIRECT the petitioner to pay the costs of suit.
SO ORDERED.
G.R. No. 166790               November 19, 2014

JUAN P. CABRERA, Petitioner,
vs.
HENRY YSAAC, Respondent.

DECISION

LEONEN, J.:

Unless all the co-owners have agreed to partition their

property, none of them may sell a definite portion of the land.
The co-owner may only sell his or her proportionate interest
in the co-ownership. A contract of sale which purports to sell
a specific or definite portion of unpartitioned land is null and
void ab initio.
In this petition for review on certiorari,1 Juan P. Cabrera
assails the Court of Appeals' decision dated June 19,
20032 and resolution dated January 3, 2005. 3 These
decisions ruled that a specific performance to execute a
deed of sale over a parcel of land is not available as a relief
for Juan Cabrera.
It appears that the heirs of Luis and Matilde Ysaac co-owned
a 5,517-square-meter parcel of land located in Sabang,
Naga City, covered by Original Certificate of Title (OCT) No.
506.4 One of the co-owners is respondent, Henry Ysaac.
Henry Ysaac leased out portions of the property to several
lessees. Juan Cabrera, one of the lessees, leased a 95-
square-meter portion of the land beginning in 1986.5
On May 6, 1990, Henry Ysaac needed money and offered to
sell the 95-square-meter piece of land to Juan Cabrera. 6 He
told Henry Ysaac that the land was too small for his needs
because there was no parking space for his vehicle.7
In order to address Juan Cabrera’s concerns, Henry Ysaac
expanded his offer to include the two adjoining lands that
Henry Ysaac was then leasing to the Borbe family and the
Espiritu family. Those three parcels of land have a combined
area of 439-square-meters. However, Henry Ysaac warned
Juan Cabrera that the sale for those two parcels could only
proceed if the two families agree to it.
Juan Cabrera accepted the new offer. Henry Ysaac and
Juan Cabrera settled on the price of ₱250.00 per square
meter, but Juan Cabrera stated that he could only pay in full
after his retirement on June 15, 1992. 8 Henry Ysaac agreed
but demanded for an initial payment of ₱1,500.00, which
Juan Cabrera paid.9
According to Juan Cabrera, Henry Ysaac informed him that
the Borbe family and the Espiritu family were no longer
interested in purchasing the properties they were leasing.
Since Mamerta Espiritu of the Espiritu family initially
considered purchasing the property and had made an initial
deposit for it, Juan Cabrera agreed to reimbursethis earlier
payment. On June 9, 1990, Juan Cabrera paid the amount of
₱6,100.00.10 Henry Ysaac issued a receipt for this amount.
₱3,100.00 of the amount paid was reimbursed to Mamerta
Espiritu and, in turn, she gaveJuan Cabrera the receipts
issued to her by Henry Ysaac.11
On June 15, 1992, Juan Cabrera tried to pay the balance of
the purchase price to Henry Ysaac. However,at that time,
Henry Ysaac was in the United States. The only person in Before the Regional Trial Court decided the case, the heirs
Henry Ysaac’s residence was his wife. The wife refused to of Luis and Matilde Ysaac, under the administration of
accept Juan Cabrera’s payment.12 Franklin Ysaac, sold their property to the local government
ofNaga City on February 12, 1997. 28 The property was
turned into a projectfor the urban poor of the city. 29 During
Sometime in September 1993, JuanCabrera alleged that
the trial, Corazon Borbe Combe of the Borbe family testified
Henry Ysaac approached him, requesting to reduce the area
that contrary to what Juan Cabrera claimed, her family never
of the land subject of their transaction. Part of the 439-
agreed to sell the land they were formerly leasing from Henry
square-meter land was going to be made into a barangay
Ysaac in favor of Juan Cabrera. 30 The Borbe family bought
walkway, and another part was being occupied by a family
the property from NagaCity’s urban poor program after the
that was difficult to eject.13 Juan Cabrera agreed to the
salebetween the Ysaacs and the local government of Naga
proposal. The land was surveyed again. According to Juan
City.31
Cabrera, Henry Ysaac agreed to shoulder the costs of the
resurvey, which Juan Cabrera advanced in the amount of
₱3,000.00. On September 22, 1999, the Regional Trial Court of Naga
City ruled that the contract of sale between Juan Cabrera
and Henry Ysaac was duly rescinded when the former failed
The resurvey shows that the area now covered by the
to pay the balance of the purchase price in the period agreed
transaction was 321 square meters.14 Juan Cabrera intended
upon.32 The Regional Trial Court found that there was an
to show the sketch plan and pay the amount due for the
agreement between Juan Cabrera and Henry Ysaac as to
payment of the lot. However, on that day, Henry Ysaac was
the sale of land and the corresponding unit price. 33 However,
in Manila. Once more, Henry Ysaac’s wife refused to receive
aside from the receipts turned over by Mamerta Espiritu of
the payment because of lack of authority from her husband. 15
the Espiritu family to Juan Cabrera, there was no "evidence
that the other adjoining lot occupants agreed to sell their
On September 21, 1994, Henry Ysaac’s counsel, Atty. Luis respective landholdings" to Juan Cabrera. 34 The Regional
Ruben General, wrote a letter addressed to Atty. Leoncio Trial Court also doubted that Juan Cabrera was willing and
Clemente, Juan Cabrera’s counsel.16 Atty. General informed able to pay Henry Ysaac on June 15, 1992. According to the
Atty. Clemente that his client is formally rescinding the trial court:
contract of sale because Juan Cabrera failed to pay the
balance of the purchase price of the land between May 1990
[A]fter the said refusal of Henry Ysaac’s wife, plaintiff [Juan
and May 1992. The letter also stated that Juan Cabrera’s
Cabrera] did not bother to write tothe defendant [Henry
initial payment of ₱1,500.00 and the subsequent payment of
Ysaac] or to any of the co-owners his intention to pay for the
₱6,100.00 were going to be applied as payment for overdue
land or he could have consigned the amount in court at the
rent of the parcel of land Juan Cabrera was leasing from
same time notifying [Henry Ysaac] of the consignation in
Henry Ysaac.17 The letter also denied the allegation of Juan
accordance with Article 1256 of the Civil Code. Furthermore,
Cabrera that Henry Ysaac agreed to shoulder the costs of
in September, 1993 [Juan Cabrera] was able to meet [Henry
the resurveying of the property. 18 Juan Cabrera, together
Ysaac] whenthe latter allegedly talked to him about the
with his uncle, Delfin Cabrera, went to Henry Ysaac’s house
reduction of the areahe was going to buy. There is no
on September 16, 1995 to settle the matter. 19 Henry Ysaac
showing that [Juan Cabrera] again tendered his payment to
told Juan Cabrera that he could no longer sell the property
Henry Ysaac. Instead, he allegedly made his offer after he
because the new administrator of the property was his
had the land resurveyed but defendant was then in Manila.
brother, Franklin Ysaac.20
There is no evidence as to what date this offer was
made. . . . . .
Due to Juan Cabrera’s inability to enforce the contract of
sale between him and Henry Ysaac, he decided to file a civil
[T]he court does not see any serious demand made for
case for specific performance on September 20,
performance of the contract on the part of [Juan Cabrera] in
1995.21 Juan Cabrera prayed for the execution of a formal
1992 when he allegedly promised to pay the balance of the
deed of sale and for the transfer of the title of the property in
purchase price. Neither could he demand for the sale of the
his name.22 He tendered the sum of ₱69,650.00 to the clerk
adjoining lots because the occupants thereof did not
of court as payment of the remaining balance of the original
manifest their consent thereto. At the most, he could have
sale price.23 On September 22, 1995, a notice of lis
demanded the sale of the lot which he was occupying. If his
pendenswas annotated on OCT No. 560. 24
payment was refused in 1995, he cannot demand for
damages because the rescission of the contract was relayed
In his answer with counterclaim, 25 Henry Ysaac prayed for to him in writing in Exhibit "4". 35
the dismissal of Juan Cabrera’s complaint. 26 He also prayed
for compensation in the form of moral damages, attorney’s
fees, and incidental litigation expenses. 27
The Regional Trial Court dismissed Juan Cabrera’s
complaint and Henry Ysaac’s counterclaim. 36 Juan Cabrera
appealed the Regional Trial Court’s decision.37
The Court of Appeals agreed with the Regional Trial Court
that there was a perfected contract of sale between Juan
Cabrera and Henry Ysaac. 38 According to the Court of
Appeals, even if the subject of the sale is part of Henry
Ysaac’s undivided property, a co-owner may sell a definite
portion of the property.39
The Court of Appeals also ruled that the contract of sale
between Juan Cabrera and Henry Ysaac was not validly
rescinded.40 For the rescission to be valid under Article 1592
of the Civil Code, it should have been done through a judicial
or notarial act and not merely through a letter. 41
However, due to the sale of the entire property of the Ysaac
family in favor of the local government of Naga City, the
Court of Appeals ruled that the verbal contract between Juan
Cabrera and Henry Ysaac cannot be subject to the remedy
of specific performance.42 The local government of Naga City
was an innocent purchaser for value, and following the rules
on double sales, it had a preferential right since the sale it
entered into was in a public instrument, while the one with
Juan Cabrera was only made orally.43 The only recourse the
Court of Appeals could do is to order Henry Ysaac to return
the initial payment of the purchase price of ₱10,600.00
(₱1,500.00 and ₱6,100.00 as evidenced by the receipts
issued by Henry Ysaac to Juan Cabrera, and ₱3,000.00 for
the surveying expenses) as payment of actual damages. The
Court of Appeals likewise awarded attorney’s fees and
litigation costs. To wit:
WHEREFORE, premises considered, the assailed decision
of the lower court is hereby SET ASIDE and a new one is
entered as follows:
1. Declaring that there is no valid rescission of the
contract of sale of the subject lot between plaintiff-
appellant [Juan P. Cabrera] and defendant-
appellee [Henry Ysaac]; however, specific
performance is not an available relief to plaintiff
because of the supervening sale of the property to
the City of Naga, an innocent purchaser and for
value;
2. Ordering [Henry Ysaac] to pay [Juan P.
Cabrera] actual damages in the amount of
₱10,600.00, with legal interest of 12% per annum
from September 20, 1995 until paid;
3. Ordering [Henry Ysaac] to pay [Juan P.
Cabrera], the amount of thirty thousand pesos
(₱30,000.00) by way of attorney’s fees and
litigation expenses.
Henry Ysaac filed his motion for reconsideration dated July
14, 2003 of the decision of the Court of Appeals. 44 On the
other hand, Juan Cabrera immediately filed a petition for
reviewon certiorari with this court. 45 In the resolution dated
October 15, 2003, this court denied the petition "for being
premature since respondent’s motion for reconsideration of
the questioned decision of the Court of Appeals is still
pending resolution."46
In the resolution dated January 3,2005, the Court of Appeals
denied Henry Ysaac’s motion for reconsideration. On
February24, 2005, Juan Cabrera filed another petition with
this court, questioning the propriety of the Court of Appeals’
decision and resolution.
This court initially noted that the petition was filed out of time.
The stamp on the petition states that it was received by this
court on March 24, 2005, 47 while the reglementary period to
file the petition expired on February 28, 2005. Thus, the
petition was dismissed in this court’s resolution dated April
27, 2005.48 Petitioner filed a motion for
reconsideration.49 However, the same was denied with
finality in this court’s resolution dated August 17, 2005.50
In a letter addressed to the Chief Justice, petitioner argued
that it would be unfair to him if a clerical error would deprive
his petition from being judged on the merits. Petitioner
emphasized that the registry receipts show that he filed the
petition on February 24, 2005, not March 24, 2005, as noted
by this court in his pleading. 51 This court treated the letter as
a second motion for reconsideration. In the resolution dated
March 31, 2006, this court found merit in petitioner’s
letter.52 The petition was reinstated, and respondent was
ordered to file his comment. 53 Respondent filed his comment
on September 18, 2006.54 This court required petitioner to file
a reply,55 which petitioner complied with on January 15,
2007.56
The issues raised by petitioner and respondent are
summarized as follows:
1. Whether this court could take cognizance of
issues not raised by petitioner but by respondent
in his comment to the petition for review;
2. Whether there was a valid contractof sale
between petitioner and respondent;
3. Whether the contract ofsale still subsisted;
a. Whether the contract was terminated
through rescission;
b. Whether the contract was no longer
enforceable due to the supervening sale
of the property to the local government
of Naga City;
4. Whether petitioner is entitled to the execution of
a deed of sale in his favor; and
5. Whether petitioner is entitled to actual damages,
attorney’s fees, and costs of litigation.
The petition should be denied.
I
This court can resolve issues raised by both parties
Petitioner stated that the errors inthis case are: (1) "the
[Court of Appeals] erred in holding that the relief of specific
performance is not available to [petitioner] supposedly
because of the supervening sale of [the] property to the City
Government of Naga";57 and (2) "consequently, the [Court of
Appeals] erred in not ordering the execution of the necessary
deed of sale in favor of [petitioner]." 58 Petitioner argues that
this court should limit its adjudication to these two errors.59
On the other hand, respondent raised issues on the validity
of the contract of sale in favor of petitioner, and the propriety
of the award of actual damages with interest, attorney’s fees,
and litigation expenses.60
For petitioner, if respondent wanted to raise issues regarding
the Court of Appeals’ decision, respondent should have
interposed a separate appeal.61
Petitioner’s position is erroneous. This court can resolve
issues and assignments of error argued by petitioner and
respondent.
This court "is clothed with ample authority to review matters,
even if they are not assigned as errors in their appeal,if it
finds that their consideration is necessary to arriveat a just
decision of the case."62 We can consider errors not raised by
the parties,more so if these errors were raised by
respondent.
Respondent raised different issues compared with those
raised by petitioner. However, the assignment of error of
respondent was still responsive to the main argument of
petitioner. Petitioner’s argument works on the premise that
there was a valid contract. By attacking the validity of the
contract, respondent was merely responding to the premise
of petitioner’s main argument. The issue is relevant to the
final disposition of this case; hence, it should be considered
by this court in arriving at a decision.
II
There was no valid contract of sale between petitioner and
respondent
Petitioner agrees with the decision of the Court of Appeals
that there was a perfected contract of sale between him and
respondent.63
Respondent, however, argues that there was no contract
between him and petitioner because under Article 1475 of
the Civil Code, there has to be a meeting of the minds as to
the price and the object of the contract. 64 Respondent argues
that there was no meeting of the minds as to the final
price65 and size66 of the property subject of the sale.
In addition, while respondent admits that he was willing to
sell the property being leased from him by the Borbe family
and the Espiritu family, petitioner presented no evidence to
show that these families agreed to the sale in favor of
petitioner. During trial, Corazon Borbe Combe of the Borbe
family testified that her family never agreed to allow the sale
of the property in favor of petitioner. 67 Respondent likewise
alleged that Mamerta Espiritu of the Espiritu family
eventually bought the property occupied by her family, which
is contrary to the claim that petitioner obtained the consent of
Mamerta Espiritu to have the land sold in his
favor.68 Petitioner replied that respondent sold 113 square
meters of the 321-square-meter property to the Espiritu
family on January 17, 1996.69 Petitioner argued that Mamerta
Espiritu was not a buyer in good faith because in 1990, she
voluntarily agreed to surrender the lot for sale in favor of
petitioner because she did not have the money to pay for the
lot. Hence, the sale in favor of Mamerta Espiritu should not
supersede the sale in favor of petitioner. 70
The Regional Trial Court ruled that there was a valid contract
of sale, although it found that there was no evidence to
support petitioner’s claim that he was able to secure the
consent of the Espiritu family and the Borbe family to the
sale of the land. 71 There was a valid contract of sale subject
to a suspensive condition, but the suspensive condition was
not complied with.
For the Court of Appeals, there was a valid contract of
sale.72 The Court of Appeals’ ruling was based on the idea
that a co-owner could sell a definite portion of the land
owned in common, and not because the suspensive
conditions of the contract were complied with. In ruling this
way, the Court of Appeals relied on Pamplona v.
Morato,73 which stated that:
. . . [A] "co-owner may validly sell his undivided share of the
property owned in common. (If the part sold happens to be
his allotted share after partition, the transaction is entirely
valid). Now then if there has been no express partition as
yet, but the co-owner who sells points out to his buyers the
boundaries of the parthe was selling, and the other coowners
make no objection, there is in effect already a partial
partition, and the sale of the definite portioncan no longer be
assailed."74
We find that there was no contract of sale. It was null ab
initio.
As defined by the Civil Code, "[a] contract is a meeting of
minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some
service."75 For there to be a valid contract, there must be
consent of the contracting parties, an object certain which is
the subject matter of the contract, and cause of the
obligation which is established. 76 Sale is a special contract.
The seller obligates himself to deliver a determinate thing
and to transfer its ownership to the buyer. In turn, the buyer
pays for a price certain in money or its equivalent. 77 A
"contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the
contract and upon the price."78 The seller and buyer must
agree as to the certain thing that will be subject of the sale
as well as the price in which the thing will be sold. The thing
to be sold is the object of the contract, while the price is the
cause or consideration.
The object of a valid sales contract must be owned by the
seller. If the seller is not the owner, the seller must be
authorized by the owner to sell the object.79
Specific rules attach when the seller co-ownsthe object of
the contract. Sale of a portion of the property is considered
an alteration of the thing owned in common. Under the Civil
Code, such disposition requires the unanimous consent of
the other co-owners.80 However, the rules also allow a co-
owner to alienate his or her part in the co-ownership.81
These two rules are reconciled through jurisprudence.
If the alienation precedes the partition, the co-owner cannot
sell a definite portion of the land without consent from his or
her co-owners. He or she could only sell the undivided
interest of the co-owned property. 82 As summarized in Lopez
v. Ilustre,83 "[i]f he is the owner of an undivided half of a tract
of land, he has a right to sell and convey an undivided half,
but he has no right to divide the lot into two parts, and
convey the whole of one part by metes and bounds." 84
The undivided interestof a co-owner is also referred to as the
"ideal or abstract quota" or "proportionate share." On the
other hand, the definite portion of the land refers to specific
metes and bounds of a co-owned property.
To illustrate, if a ten-hectare property is owned equally by ten
coowners, the undivided interest of a co-owner is one
hectare. The definite portion of that interest is usually
determined during judicial or extrajudicial partition. After
partition, a definite portion of the property held in common is
allocated to a specific co-owner. The co-ownership is
dissolved and, in effect, each of the former co-owners is free
to exercise autonomously the rights attached to his or her
ownership over the definite portion of the land. It is crucial
that the co-owners agree to which portion of the land goes to
whom.
Hence, prior to partition, a sale of a definite portion of
common property requires the consent of all co-owners
because it operates to partition the land with respect to the
co-owner selling his or her share. The co-owner or seller is
already marking which portion should redound to his or her
autonomous ownership upon future partition.
The object of the sales contract between petitioner and
respondent was a definite portion of a co-owned parcel of
land. At the time of the alleged sale between petitioner and
respondent, the entire property was still held in common.
This is evidenced by the original certificate of title, which was
under the names of Matilde Ysaac, Priscilla Ysaac, Walter
Ysaac, respondent Henry Ysaac, Elizabeth Ysaac, Norma
Ysaac, Luis Ysaac, Jr., George Ysaac, Franklin Ysaac,
Marison Ysaac, Helen Ysaac, Erlinda Ysaac, and Maridel
Ysaac.85
The rules allow respondent to sell his undivided interestin the
coownership. However, this was not the object of the sale
between him and petitioner. The object of the sale was a
definite portion. Even if it was respondent who was
benefiting from the fruits of the lease contract to petitioner,
respondent has "no right to sell or alienate a concrete,
specific or determinate part of the thing owned in common,
because his right over the thing is represented by quota or
ideal portion without any physical adjudication."86
There was no showing that respondent was authorized by
his coowners to sell the portion of land occupied by Juan
Cabrera, the Espiritu family, or the Borbe family. Without the
consent of his co-owners, respondent could not sell a
definite portion of the co-owned property.
Respondent had no right to define a 95-square-meter parcel
of land, a 439-square-meter parcel of land, or a 321-square-
meter parcel of land for purposes of selling to petitioner. The
determination of those metes and bounds are not binding to
the co-ownership and, hence, cannot be subject to sale,
unless consented to by all the co-owners.
In finding that there was a valid contract of sale between
petitioner and respondent, the Court of Appeals erred in the
application of Pamplona v. Moreto. 87 The ruling in Pamplona
should be read and applied only in situations similar to the
context of that case.
Pamplona involved the Spouses Moreto who owned three
(3) parcels of land with a total area of 2,346 square meters.
The spouses had six (6) children. After the wife had died, the
husband sold one of the parcels to the Pamplona family,
even if the conjugal partnership had not yet been liquidated.
The parcel sold measured 781 square meters, which was
less than the ideal share of the husband in the estate. This
court allowed the sale to prosper because of the tolerance
from the husband’s co-heirs. This court ruled:
The title may be pro-indiviso or inchoate but the moment the
coowner as vendor pointed out its location and even
indicated the boundaries over which the fences were to be
erected without objection, protest or complaint bythe other
co-owners, on the contrary they acquiesced and tolerated
such alienation, occupation and possession, We rule that a
factual partition or termination of the co-ownership, although
partial, was created, and barred not only the vendor,
Flaviano Moreto, butalso his heirs, the private respondents
herein from asserting as against the vendees petitioners any
right or title in derogation of the deed of sale executed by
said vendor Flaviano Moreto.88 (Emphasis supplied)
In Pamplona, the co-heirs of Flaviano Moreto only
questioned the sale to the Pamplona family nine (9) years
after the sale. By then, the Pamplona family had exercised
several acts of ownership over the land. That is why this
court considered it acquiescence or tolerance on the part of
the co-heirs when they allowed the Pamplonas to take
possession and build upon the land sold, and only
questioned these acts several years later.
The ruling in Pamplonadoes not apply to petitioner. There
was no evidence adduced during the trial that respondent’s
co-owners acquiesced or tolerated the sale to petitioner. The
co-owners tolerated petitioner’s possession of a portion of
their land because petitioner was a lessee over a 95-square-
meter portion of the property, not the buyer of the 321-
squaremeter portion.
There was also no evidence of consent to sell from the co-
owners. When petitioner approached respondent in 1995 to
enforce the contract of sale, respondent referred him to
Franklin Ysaac, the administrator over the entire property.
Respondent’s act suggests the absence of consent from the
co-owners. Petitioner did not show that he sought Franklin
Ysaac’s consent as administrator and the consent of the
other co-owners. Without the consent of the co-owners, no
partial partition operated in favor of the sale to petitioner.
At best, the agreement between petitioner and respondent is
a contract to sell, not a contract of sale. A contract to sell is a
promise to sell an object, subject to suspensive
conditions.89 Without the fulfillment of these suspensive
conditions, the sale does not operate to determine the
obligation of the seller to deliver the object.
A co-owner could enter into a contract to sell a definite
portion of the property. However, such contract is still subject
to the suspensive condition of the partition of the property,
and that the other co-owners agree that the part subject of
the contract to sell vests in favor of the co-owner’s buyer.
Hence, the co-owners’ consent is an important factor for the
sale to ripen.
A non-existent contract cannot be
source of obligations, and it cannot
be enforced by the courts
Since petitioner believes that there was a perfected contract
of sale between him and respondent, he argues that a deed
of sale should be formally executed. Petitioner agrees with
the Court of Appeals’ finding that there was no valid
rescission of the contract in accordance with Article 1592 of
the Civil Code. 90 However, petitioner disagrees with the
Court of Appeals when it ruled that the contract was no
longer enforceable due to the supervening sale with the local
government of Naga City. Petitioner argues that the sale in
favor of the local government of Naga City was not made in
good faith. Before the sale was finalized between the local
government and the heirs of Luis and Matilde Ysaac,
petitioner had a notice of lis pendens annotated to OCT No.
506.91 It was presumed that the local government had due
notice of petitioner’s adverse claim, thus, it cannot be
considered an innocent purchaser.
For respondent, due to the inexistence of a valid contract of
sale, petitioner cannot demand specific performance from
respondent.92 Respondent disagrees with the Court of
Appeals when it stated that Article 1592 of the rescission of
contract of sale applies. There is no need to apply Article
1592 because there was no contract to begin with. 93 The
contract between respondent and petitioner was terminated
by virtue of the letter dated September 21, 1994. 94
We rule in favor of respondent.
The absence of a contract of sale means that there is no
source of obligations for respondent, as seller, orpetitioner,
as buyer. Rescission is impossible because there is no
contract to rescind. The rule in Article 1592 that requires a
judicial or notarial act to formalize rescission of a contract of
sale of an immovable property does not apply. This court
does not need to rule whether a letter is a valid method of
rescinding a sales contract over an immovable property
because the question is moot and academic.
Even if we assume that respondent had full ownership of the
property and that he agreed to sell a portion of the property
to petitioner, the letter was enough to cancel the contract to
sell. Generally, "[t]he power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not
comply with what is incumbent on him."95
For the sale of immovable property, the following provision
governs its rescission:
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
a right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for
rescissionof 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.
This provision contemplates (1) a contract of sale of an
immovable property and (2) a stipulation in the contract that
failure to pay the price at the time agreed upon will cause the
rescission of the contract. The vendee or the buyer can still
pay even after the time agreed upon, if the agreement
between the parties has these requisites. This right of the
vendee to pay ceases when the vendor or the seller
demands the rescission of the contract judicially or extra
judicially. In case of an extra judicial demand to rescind the
contract, it should be notarized.
Hence, this provision does not apply if it is not a contract of
sale of an immovable property and merely a contract to
sellan immovable property. A contract to sell is "where the
ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a
breach, casual or serious, but simply an event that prevented
the obligation of the vendor to convey title from acquiring
binding force."96
In a similar case entitled Manuel v. Rodriguez, 97 Eusebio
Manuel offered to buy the land owned by Payatas
Subdivision, Inc. The Secretary Treasurer of Payatas
Subdivision, Eulogio Rodriguez, Sr., agreed to sell the land
to Eusebio Manuel after negotiations. Similar to this case,
the agreement was only made orally and not in writing. An
initial payment was made, and a final payment was to be
madenine (9) to ten (10) months later. Manuel never paid for
the latter installment; hence, Eulogio Rodriguez cancelled
their agreement and sold the land to someone else.
In Manuel, this court categorically stated that Article 1592
"does not apply to a contract to sell or promise to sell, where
title remains with the vendor until fulfillment to a positive
suspensive condition, such as full payment of the
price."98 This court upheld that the contract to sell was validly
cancelled through the non-payment of Eusebio Manuel. The
same conclusion applies in this case.
The law does not prescribe a form to rescind a contract to
sell immovable property. In Manuel, the non-payment
operated to cancel the contract. If mere non-payment is
enough to cancel a contract to sell, the letter given to
petitioner’s lawyer is also an acceptable form of rescinding
the contract. The law does not require notarization for a letter
to rescind a contract to sell immovable property. Notarization
is only required if a contract of sale is being rescinded.
Petitioner argued that he was willing to comply with the
suspensive condition on the contract to sell because he was
ready to pay the balance of the purchase price on June 15,
1992.99 However, his argument is unmeritorious. As ruled by
the Regional Trial Court, petitioner should have resorted to
the various modes of consignment when respondent’s wife
refused to accept the payment on respondent’s behalf.100
Therefore, even if we assumed that the contract between
petitioner and respondents were perfected, the strict
requisites in Article 1592 did not apply because the only
perfected contract was a contract to sell, not a contract of
sale. The courts cannot enforce the right of petitioner to buy
respondent’s property. We cannot order the execution of a
deed of sale between petitioner and respondent.
The question of double sale also becomes moot and
academic. There was no valid sale between petitioner and
respondent, while there was a valid sale between the local
government of Naga City and respondent and his coowners.
Since there is only one valid sale, the ruleon double sales
under Article 1544 of the Civil Code does not apply. 101
Compensatory damages, attorney’s
fees, and costs of litigation
Respondent argued that petitioner is not entitled to the
compensatory damages that the Court of Appeals awarded.
According to respondent, petitioner continues to occupy the
95-square-meter property that he has been leasing since
1986 because the parcel was not included in the sale to the
local government of Naga City.102 Since April 30, 1990,
petitioner has not been paying rent to respondent despite his award of attorney's fees and litigation expenses is
continued occupation of the property.103 Therefore, there was DELETED.
no unjust enrichment on the part of respondent when he
applied petitioner’s initial payment over the sale of the
SO ORDERED.
property as payment for rent.
Respondent argued further that the award of attorney’s fees
and litigation expenses in favor of petitioner was also
erroneous because prior to this litigation, respondent already
informed petitioner that his claim has no basis in law and
fact.104 Yet, petitioner persisted on filing this case.105
We rule that petitioner is entitled to the return of the amount
of money because he paid it as consideration for ownership
of the land. Since the ownership of the land could not be
transferred to him, the money he paid for that purpose must
be returned to him. Otherwise, respondent will be unjustly
enriched.
Respondent’s claim for rent in arrears is a separate cause of
action from this case.1âwphi1 For petitioner’s earnestmoney
payment to be considered payment for his rent liabilities, the
rules of compensation under Article 1279 of the Civil Code
must be followed.106
It was not proven during trial if petitioner's rental liability to
respondent is due, or if it is already liquidated and
demandable. Hence, this court is limited to uphold the ruling
of the Court of Appeals, but such payment could be subject
to the rule on compensation.
However, petitioner is not entitled to attorney's fees and the
costs of litigation. The Court of Appeals awarded attorney's
fees to petitioner "just to protect his right [because petitioner]
reached this court to seek justice for himself." 107
Contrary to the Court of Appeals' ruling, we find that
petitioner did not have a clear right over the property in
question. The Court of Appeals awarded attorney's fees and
litigation costs on the premise that the contract between
petitioner and respondent was perfected. Without a valid
contract that stipulates his rights, petitioner risked litigation in
order to determine if he has rights, and not to protect rights
that he currently has. Hence, the award of attorney's fees
and litigation costs was not properly justified.
WHEREFORE, the petition is DENIED. The Court of
Appeals' decision dated June 19, 2003 in CA-G.R. CV No.
65869 is SET ASIDE. The contract between petitioner and
respondent is DECLARED invalid and, therefore, cannot be
subject to specific performance. Respondent is ORDERED
to return ₱10,600.00 to petitioner, with legal interest of 12%
per annum from September 20, 1995 until June 30, 2013
and 6% per annum from July 1, 2013 ·until fully paid. The

G.R. No. 193551               November 19, 2014
HEIRS OF GREGORIO LOPEZ, represented by Rogelia
Lopez, et al., Petitioners,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES [Now
substituted by Philippine Investment Two (SPVAMC),
Inc.], Respondents.
DECISION
LEONEN, J.:
This case involves the application of the doctrine on innocent
purchaser or mortgagee for value. It also involves the
application of the doctrines on sales by persons who are not
owners of the property.
This is a Rule 45 petition 1 filed on October 15, 2010,
assailing the Court of Appeals May 8, 2009 decision 2 and
August 16, 2010 resolution.3 The Court of Appeals reversed
and set aside the Regional Trial Court's December 27, 2005
decision,4 which ordered the nullification of the affidavit of
self-adjudication executed by Enrique Lopez, and the
documents relating
to the sale and mortgage of the property to respondent
Development Bank of the Philippines.
Gregoria Lopez owned a 2,734-square-meter property in
Bustos, Bulacan.5 She died on March 19, 19226 and was
survived by her three sons: Teodoro Lopez, Francisco
Lopez, and Carlos Lopez. 7 Tax Declaration No. 613 was
issued under the names of Teodoro, Francisco, and Carlos.8
Teodoro, Francisco, and Carlos died. 9 Only Teodoro was
survived by children: Gregorio, Enrique, Simplicio, and
Severino.10
Petitioners in this case are Simplicio substituted by his
daughter Eliza Lopez, and the heirs of Gregorio and
Severino.11 Enrique is deceased.12
Petitioners discovered that on November 29, 1990, Enrique
executed an affidavit of self-adjudication declaring himself to
be Gregoria Lopez’s only surviving heir, thereby adjudicating
upon himself the land in Bulacan. 13 He sold the property to
Marietta Yabut.14
Petitioners demanded from Marietta the nullification of
Enrique’s affidavit of self-adjudication and the deed of
absolute sale.15 They also sought to redeem Enrique’s one-
fourth share.16 Marietta, who was already in possession of
the property, refused.17
Sometime in 1993, Marietta obtained a loan from
Development Bank of the Philippines (DBP) and mortgaged
the property to DBP as security. 18 At the time of the loan, the
property was covered by Tax Declaration No. 18727, with
the agreement that the land shall be brought under the
Torrens system.19 On July 26, 1993, an original certificate of
title was issued in Marietta’s name. 20 Marietta and DBP
"executed a supplemental document dated 28 February
1995 placing the subject [property]within the coverage of the
mortgage."21 The mortgage was annotated to the title.22
Sometime between 1993 and 1994, petitioners filed a
complaint23 and an amended complaint 24 with the Regional
Trial Court for the annulment of document, recovery of
possession, and reconveyance of the property. They prayed
that judgment be rendered, ordering the annulment of
Enrique’s affidavit of self-adjudication, the deed of sale
executed by Enrique and Marietta, and the deed of real
estate mortgage executed by Marietta in favor of
DBP.25 Petitioners also prayed for the reconveyance of their
three-fourth share in the property, their exercise of their right
of redemption of Enrique’s one-fourth share, as well as
attorney’s fees and costs of suit.26
Petitioners caused the annotation of a notice of lis pendens
at the back of the original certificate of title. 27 The annotation
was inscribed on June 27, 1994. 28
Marietta failed to pay her loan to DBP. 29 "DBP instituted
foreclosure proceedings on the . . . land."30 It was "awarded
the sale of the [property] as the highest bidder." 31 "The
Certificate of Sale was registered with the Register of
Deeds . . . on 11 September 1996." 32 Marietta failed to
redeem the property.33 The title to the property was
"consolidated in favor of DBP."34
On December 27, 2005, the Regional Trial Court ruled in
favor of petitioners.35 The Regional Trial Court found that the
affidavit of self-adjudication and the deed of absolute sale
did not validly transfer to Marietta the title to the
property.36 Enrique could not transfer three-fourths of the
property since this portion belonged to his co-heirs. 37 The
Regional Trial Court also found that Marietta was not an
innocent purchaser for value because when the deed of
absolute sale was executed, the property was only covered
by a tax declaration in the name of the heirs of Gregoria
Lopez,38 thus:
[Marietta] should have looked further into the veracity of
vendor Enrique Lopez’ claim of ownership over the subject
property considering that he has not presented her any other
proof of his ownership when the said Deed of Absolute Sale
was executed other than his mere allegation of ownership
thereof.39
Hence, the issuance of the original certificate of title would
not protect Marietta. Title is not vested through a
certificate.40 At best, Marietta’s ownership over the subject
property would cover only Enrique’s share.41
The Regional Trial Court also found that DBP was not a
mortgagee in good faith because at the time of the execution
of the mortgage contract, a certificate of title was yet to be
issued in favor of Marietta. 42 Marietta’s title at that time was
still based on a tax declaration. 43 Based on jurisprudence, a
tax declaration is not a conclusive proof of ownership. 44 The
DBP should have exerted due diligence in ascertaining
Marietta’s title to the property.45
The Regional Trial Court ordered the nullification of
Enrique’s affidavit of self-adjudication, the sale of the three-
fourth portion of the subject property in favor of Marietta, the
reconveyance of the three-fourth share of the property in
favor of petitioners, the nullification of the real estate
mortgage executed in favor of DBP, and the surrender of
possession of the property to petitioners. 46 The trial court
also ordered DBP to pay attorney’s fees.
DBP, substituted by Philippine Investment Two (PI Two),
appealed to the Court of Appeals. 47 The Court of Appeals
reversed the decision of the Regional Trial Court in the
decision48 promulgated on May 8, 2009. It held that DBP was
a mortgagee in good faith:
[W]ith the absence of any evidence to show that the DBP
was ever privy to the fraudulent execution of the late Enrique
Lopez’ [sic] affidavit of Adjudication over the subject land, the
right of the former over the same must be protected and
respected by reason of public policy.49
The dispositive portion of the Court of Appeals’ decision
reads:
WHEREFORE, the appeal is GRANTED. The 27 December
2005 Decision of the Regional Trial Court is hereby
REVERSED and SET ASIDE as to defendant-appellant
Development Bank of the Philippines and dismissing the
complaint against the latter [now substituted by Philippine
Investment Two (SPV-AMC), Inc.]50
The Court of Appeals denied petitioners’ motion for
reconsideration on August 16, 2010. 51 Petitioners filed a Rule
45 petition52 before this court on October 15, 2010.
The issue in this case is whether the property was validly
transferred to Marietta and, eventually, to DBP.
Petitioners argued that the Court of Appeals erred in its
application of the doctrine on "innocent purchaser for
value."53 DBP should have exercised diligence in
ascertaining Marietta’s claim of ownership since at the time
of the mortgage, the property was only covered by a tax
declaration under Marietta’s name. 54 As a financial institution
of which "greater care and prudence" 55 is required, DBP
should not have relied on the face of a certificate of title to
the property.56
On the other hand, DBP’s position, citing Blanco v.
Esquierdo,57 was that since its participation in Enrique’s
execution of the affidavit of self-adjudication was not shown
on record, it could not have been aware that there was any
irregularity in the sale in favor of Marietta and in her title to
the property.58 Moreover, Marietta was in possession of the
property at the time of the contract with DBP. 59 Therefore,
DBP should enjoy the protection accorded to innocent
purchasers for value.60
We find merit in the petition.
I to inquire or take steps to ensure that there is no cloud on
Validity of Enrique’s affidavit and the sale to Marietta
We have consistently upheld the principle that "no one can
give what one does not have." 61 A seller can only sell what
he or she owns, or that which he or she does not own but
has authority to transfer, and a buyer can only acquire what
the seller can legally transfer.62
This principle is incorporated in our Civil Code. It provides
that in a contract of sale, the seller binds himself to transfer
the ownership of the thing sold, thus:
Art. 1458. By the contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
The seller cannot perform this obligation if he or she does
not have a right to convey ownership of the thing. Hence,
Article 1459 of the Civil Code provides:
Art. 1459. The thing must be licit and the vendor must have a
right to transfer the ownership thereof at the time it is
delivered.
Title or rights to a deceased person’s property are
immediately passed to his or her heirs upon death. 63 The
heirs’ rights become vested without need for them to be
declared "heirs."64 Before the property is partitioned, the
heirs are co-owners of the property. 65
In this case, the rights to Gregoria Lopez’s property were
automatically passed to her sons — Teodoro, Francisco, and
Carlos — when she died in 1922. 66 Since only Teodoro was
survived by children, the rights to the property ultimately
passed to them when Gregoria Lopez’s sons died. 67 The
children entitled to the property were Gregorio, Simplicio,
Severino, and Enrique.
Gregorio, Simplicio, Severino, and Enrique became co-
owners of the property, with each of them entitled toan
undivided portion of only a quarter of the property. Upon their
deaths, their children became the co-owners of the property,
who were entitled to their respective shares, such that the
heirs of Gregorio became entitled to Gregorio’s one-fourth
share, and Simplicio’s and Severino’s respective heirs
became entitled to their corresponding onefourth shares in
the property.68 The heirs cannot alienate the shares that do
not belong to them. Article 493 of the Civil Code provides:
Art. 493. Each co-owner shall have the full ownership of his
part and of the fruits and benefits pertaining thereto, and he
may therefore alienate, assign or mortgage it, and even
substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation
or the mortgage, with respect to the co-owners, shall be
limited to the portion which may be allotted to him in the
division upon the termination of the co-ownership.
Since Enrique’s right to the property was limited to his one-
fourth share, he had no right to sell the undivided portions
that belonged to his siblings or their respective heirs. Any
sale by one heir of the rest of the property will not affect the
rights of the other heirs who did not consent to the sale.
Such sale is void with respect to the shares of the other
heirs.
Regardless of their agreement, Enrique could only convey to
Marietta his undivided one-fourth share of the property, and
Marietta could only acquire that share. This is because
Marietta obtained her rights from Enrique who, in the first
place, had no title or interest over the rest of the property
that he could convey.
This is despite Enrique’s execution of the affidavit of self-
adjudication wherein he declared himself to be the only
surviving heir of Gregoria Lopez. The affidavit of self-
adjudication is invalid for the simple reason that it was false.
At the time of its execution, Enrique’s siblings were still alive
and entitled to the three-fourth undivided share of the
property. The affidavit of self-adjudication did not have the
effect of vesting upon Enrique ownership or rights to the
property.
The issuance of the original certificate of title in favor of
Marietta does not cure Enrique’s lack of title or authority to
convey his co-owners’ portions of the property. Issuance of a
certificate of title is not a grant of title over petitioners’
undivided portions of the property. 69 The physical certificate
of title does not vest in a person ownership or right over a
property.70 It is merely an evidence of such ownership or
right.71
Marietta could acquire valid title over the whole property if
she were an innocent purchaser for value. An innocent
purchaser for value purchases a property without any notice
of defect or irregularity as to the right or interest of the
seller.72 He or she is without notice that another person holds
claim to the property being purchased.73
As a rule, an ordinary buyer may rely on the certificate of title
issued in the name of the seller.74 He or she need not look
"beyond what appears on the face [of the certificate of
title]."75 However, the ordinary buyer will not be considered
an innocent purchaser for value if there is anything on the
certificate of title that arouses suspicion, and the buyer failed
the title, right, or ownership of the property being sold.
Marietta cannot claim the protection accorded by law to
innocent purchasers for value because the circumstances do
not make this available to her.
In this case, there was no certificate of title to rely on when
she purchased the property from Enrique. At the time of the
sale, the property was still unregistered. What was available
was only a tax declaration issued under the name of "Heirs
of Lopez."
"The defense of having purchased the property in good faith
may be availed of only where registered land is involved and
the buyer had relied in good faith on the clear title of the
registered owner."76 It does not apply when the land is not
yet registered with the Registry of Deeds.
At the very least, the unregistered status of the property
should have prompted Marietta to inquire further as to
Enrique’s right over the property. She did not. Hence, she
was not an innocent purchaser for value. She acquired no
title over petitioners’ portions of the property.
II
Validity of the mortgage
One of the requisites of a valid mortgage contract is
ownership of the property being mortgaged. 77 Article 2085 of
the Civil Code enumerates the requisites of a mortgage
contract: Art. 2085. The following requisites are essential to
the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfilment
of a principal obligation;
(2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or
mortgage have the free disposal of their property,
and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation
may secure the latter by pledging or mortgaging their own
property.
Applying this provision and having established that Marietta
acquired no valid title or ownership from Enrique over the
undivided portions of the property, this court finds that no
valid mortgage was executed over the same property in
favor of DBP. Without a valid mortgage, there was also no
valid foreclosure sale and no transfer of ownership of
petitioners’ undivided portions to DBP. In other words, DBP
acquired no right over the undivided portions since its
predecessor-in-interest was not the owner and held no
authority to convey the property.
As in sales, an exception to this rule is if the mortgagee is a
"mortgagee in good faith." 78 This exception was explained in
Torbela v. Rosario:
Under this doctrine, even if the mortgagor is not the owner of
the mortgaged property, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason
of public policy. This principle is based on the rule that all
persons dealing with property covered by a Torrens
Certificate of Title, as buyers or mortgagees, are not required
to go beyond what appears on the face of the title. This is the
same rule that underlies the principle of "innocent
purchasers for value." The prevailing jurisprudence is that a
mortgagee has a right to rely in good faith on the certificate
of title of the mortgagor to the property given as security and
in the absence of any sign that might arouse suspicion, has
no obligation to undertake further investigation. Hence, even
if the mortgagor is not the rightful owner of, or does not have
a valid title to, the mortgaged property, the mortgagee in
good faith is, nonetheless, entitled to protection.79
DBP claims that it is covered by this exception. DBP is
mistaken. The exception applies when, at the time of the
mortgage, the mortgagor has already obtained a certificate
of title under his or her name. 80 It does not apply when, as in
this case, the mortgagor had yet to register the property
under her name.81
The facts show that DBP disregarded circumstances that
should have aroused suspicion. For instance, at the time of
the mortgage with DBP, Marietta only had a tax declaration
under her name to show that she was the owner of the
property. A tax declaration, by itself, neither proves
ownership of property nor grants title. Yet, DBP agreed to
accept the property as security even though Marietta’s claim
was supported only by the tax declaration, and a certificate
of title was yet to be issued under her name.
Granting that Marietta was in possession of the property,
DBP should have inquired further as to Marietta’s rights over
the property since no certificate of title was issued to her.
DBP took the risks attendant to the absence of a certificate
of title. It should bear the burden of checking the ownership
as well as the validity of the deed of sale. This is despite the
eventual issuance of a certificate of title in favor of Marietta.
The rule on "innocent purchasers or [mortgagees] for value"
is applied more strictly when the purchaser or the mortgagee
is a bank.1âwphi1 Banks are expected to exercise higher
degree of diligence in their dealings, including those
involving lands. Banks may not rely simply on the face of the
certificate of title.
Thus, in Cruz v. Bancom Finance Corporation, 82 this court
ruled that:
Respondent . . . is not an ordinary mortgagee; it is a
mortgagee-bank. As such, unlike private individuals, it is
expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A
banking institution is expected to exercise due diligence
before entering into a mortgage contract. The ascertainment
of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable
part of its operations.83 (Citations omitted)
DBP failed to exercise the degree of diligence required of
banks when it accepted the unregistered property as security
for Marietta’s loan despite circumstances that should have
aroused its suspicion.
Citing Blanco v. Esquierdo, DBP argued that since it did not
participate in the dealings between Enrique and Marietta, it
should be considered as an innocent mortgagee for value.
Blanco involves an alleged widow of the deceased who
adjudicated to herself the deceased’s property and thereafter
mortgaged the property to DBP. 84 The brothers and sisters of
the deceased filed an action for the annulment of the affidavit
executed by the alleged widow and the cancellation of the
certificate of title under her name.85 The trial court ordered
the cancellation of the certificate of title issued to the alleged
widow, including the registration of the mortgage deed. 86
In Blanco, this court declared that DBP was a mortgagee in
good faith, thus:
The trial court, in the decision complained of, made no
finding that the defendant mortgagee bank was a party to the
fraudulent transfer of the land to Fructuosa Esquierdo.
Indeed, there is nothing alleged in the complaint which may
implicate said defendant mortgagee in the fraud, or justify a
finding that it acted in bad faith. On the other hand, the
certificate of title was in the name of the mortgagor
Fructuosa Esquierdo when the land was mortgaged by her to
the defendant bank. Such being the case, the said defendant
bank, as mortgagee, had the right to rely on what appeared
in the certificate and, in the absence of anything to excite
suspicion, was under no obligation to look beyond the
certificate and investigate the title of the mortgagor
appearing on the face of said certificate. (De Lara, et al. vs.
Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838; Joaquin vs.
Madrid, et al., 106 Phil., 1060). Being thus an innocent
mortgagee for value, its right or lien upon the land
mortgaged must be respected and protected, even if the
mortgagor obtained her title thereto thru fraud.87
DBP's reliance on Blanco is misplaced. In Blanco, the
certificate of title had already been issued under the name of
the mortgagor when the property was mortgaged to DBP.
This is not the situation in this case.
To reiterate, the protection accorded to mortgagees in good
faith cannot be extended to mortgagees of properties that
are not yet registered or registered but not under the
mortgagor's name.
Therefore, the Regional Trial Court did not err in ordering the
nullification of the documents of sale and mortgage.
Contracts involving the sale or mortgage of unregistered
property by a person who was not the owner or by an
unauthorized person are void.
WHEREFORE, the petition is GRANTED. The decision of
the Court of Appeals dated May 8, 2009 and its resolution
dated August 16, 2010 are reversed and SET ASIDE. The
December 27, 2005 decision of the Regional Trial Court is
REINSTATED.
SO ORDERED.
G.R. No. 195247               June 29, 2015
ANASTACIO TINGALAN, substituted by his heirs,
namely: ROMEO L. TINGALAN, ELPEDIO L. TINGALAN,
JOHNNY L. TINGALAN and LAURETA T. DELA
CERNA, Petitioners,
vs.
SPOUSES RONALDO and WINONA
MELLIZA, Respondents.
DECISION
VILLARAMA, JR., J.:
At bar is a petition for review on certiorari of the
Decision1 and Resolution2 of the Court of Appeals (CA) in
CA-G.R. CV No. 01874-MIN dated June 23, 2010 and
January 12, 2011, respectively, which affirmed in toto the
Decision3 of the Regional Trial Court (RTC), Branch 10,
Malaybalay City, in Civil Case No. 3120-01 dated December
8, 2008. The trial court ordered the cancellation of Original
Certificate of Title (OCT) No. P-8757 of petitioner Anastacio
Tingalan (Anastacio), its corresponding tax declaration and
the transfer of title of the tax declaration under the name of
respondent-spouses Ronaldo and Winona Melliza.
The original owner in fee simple of the subject property was
petitioner Anastacio4 - a member of the Bukidnon Tribe. His
ownership is evidenced by OCT No. P-8757 Free Patent No.
(X-4) 2195 and Tax Declaration No. 13-021-5522 over a five-
hectare5 property located in Dalwangan, Malaybalay City,
Bukidnon. The free patent was issued under his name on
October 4, 1976.
In a Deed of Absolute Sale (Deed) dated March 28, 1977,
petitioner Anastacio sold the subject property to respondent-
spouses. Since then, respondent-spouses have been in
actual, exclusive, peaceful, uninterrupted and adverse
possession of the subject property. The Owner's Duplicate
Certificate of Title and Tax Declaration were also issued
under the names of respondent-spouses who paid for the
transfer and real property taxes pertaining to the property in
question.
Around 23 years later, or on June 7, 2000, one Elena
Tunanan (Elena) filed an adverse claim over the subject
property. Petitioner Anastacio countered and demanded that
respondent-spouses vacate the property, but the latter
refused claiming ownership over the same as supported by
the Deed executed between them and petitioner Anastacio
on March 28, 1977. Petitioner Anastacio then filed a
complaint before the Office of the Barangay Captain but the
summons were unheeded by respondent-spouses.
On October 22, 2001, Anastacio filed Civil Case No. 3120-01
with the court a quo for Quieting of Title and Recovery of
Possession against respondent-spouses and Elena. In the
complaint, petitioner Anastacio claimed that he remains to be
the owner of the subject property as his title under OCT No.
P-8757 has never been cancelled and that the sale was null
and void since the Deed was executed within the five-year
prohibitory period under the Public Land Act, as amended.
The Deed was also written in the English language which,
allegedly, he could neither speak nor understand. He further
averred that being a member of a cultural minority, the Deed
should have been approved by the Chairman of the
Commission on National Integration under Sections 120 and
124 of Republic Act No. 3872,6 as amended.
Respondent-spouses countered that in view of the Deed
dated March 28, 1977, the Owner's Duplicate Certificate of
Title and Tax Declaration were issued under their names and
they have been in actual, exclusive and uninterrupted
possession of the subject property since the execution of the
Deed. They further posited the following allegations: that the
Certificate to File Action was legally flawed because
petitioner Anastacio did not pay the docket fees; that the
petition was defective because it did not indicate the
assessed value of the subject property which is important in
the determination of the jurisdiction of the trial court; and,
that the action was barred by prescription. To counter
respondent-spouses' assertion, petitioners maintained that
notwithstanding the delivery of the title to and transfer of
possession over the subject property to respondent-spouses,
these circumstances could not have validated the sale
because the Deed was executed within the five-year
prohibitory period under the Public Land Act, as amended,
making it void ab initio.
On December 8, 2008, the trial court dismissed the case for
lack of cause of action and ordered the Register of Deeds to
cancel OCT No. P-8757 and the corresponding tax
declaration over the subject property, viz.:
WHEREFORE, premises considered and finding
preponderance of evidence in favor of the respondents, the
court orders dismissal of this Complaint for lack of cause of
action. To order the Register of Deeds for the cancellation of
OCT P-8757 and its Tax Declaration transferring its name to
respondents Renaldo Melliza, to pay ₱30,000 for attorney's
fees and (P]10,000 as litigation expenses. To pay the cost.
SO ORDERED.7
The trial court upheld the validity of the sale despite the
Deed being executed within the five-year prohibitory period
because "the sale executed by petitioner to the respondent is
not the kind of violation as contemplated in accordance of
(sic) Sec[tion] 18 of [the] Public Land Act" as the transfer
was not yet completed by the issuance of a new certificate of
title under the name of respondent-spouses. 8 On the issue
on the validity of the Deed due to petitioner Anastacio's
alleged inability to understand its stipulations which are
written in English, the trial court held that being a notarized
document, the Deed enjoys the presumption of regularity.
The trial court also observed that Anastacio voluntarily sold
the subject property as evidenced by the Affidavit of Non-
Tenancy and the Certification/Receipt for the amount of Six
Thousand Pesos (₱6,000.00). It likewise did not give
credence to petitioner Anastacio's claim that his membership
to a cultural minority required the approval of the Deed from
the Chairman of the Commission on National Integration
since he failed to present any proof or certification relative to
his tribal identity from the National Commission on
Indigenous Peoples. Finally, the trial court held that the
failure of Anastacio to act within a considerable length of
time barred his action on the ground of estoppel by laches.
On appeal, the CA affirmed the decision of the trial court in
toto in its assailed Decision dated June 23, 2010, viz.:
FOR THESE REASONS, the assailed Decision of the trial
court is AFFIRMED in toto. No costs. SO ORDERED.9
The appellate court held that the case was barred by laches
due to the 24-year delay of petitioner Anastacio in filing the
petition. The CA considered such delay as unconscionable
and prejudicial to the rights of third persons who relied on his
inaction as the original patentee of the subject property, viz.:
After a careful analysis of the facts and circumstances of the
case, as borne out by the evidence, this Court finds the four
elements mentioned to be present in the case at bar. First,
Anastacio sold the land which was covered by a free patent
title dated March 28, 1977 and the sale was made knowingly
in violation of the Public Land Act. Second, from the date of
the sale on March 28, 1977, Anastacio, the patentee could
have instituted the action to annul the sale and regain the
possession and ownership of the land. But notwithstanding
the invalidity of the sale, patentee Anastacio, who knew of
the invalidity and has had all the opportunity to institute an
action for the annulment of the sale as a matter of law, did
not bother at all to file a suit to annul the sale or to recover
the land. Not until 24 years later. Third, the Spouses Melliza
who are the vendees never expected or believed that
Anastacio would bring an action to annul the sale and
recover the land. The fact that the vendees told Anastacio
that he could repurchase his property within the five (5)
[-]year period from the execution of the deed of sale but
instead of repurchasing it, Anastacio gave the title to the
Spouses seven years after the execution of the deed of sale
in 1977 and did not bother them since then and fourth, it
would be unjust and inequitable to still permit appellant to
recover his property after that long, unexplained inaction.
The long period of time more or less 24 years from the
execution of the sale, had allowed the Spouses to invest
considerable amount of money, time, and effort in
developing and transforming the questioned property into a
beautiful orchard, aside from the residential house, poultry,
barn and other plantations made by the Spouses. 10
The heirs of Anastacio, as substitutes, moved for
reconsideration of the CA Decision on July 19, 2010. The
appellate court denied the motion in its Resolution dated
January 12, 2011, viz.:
After due deliberation of the petitioners' motion for
reconsideration, this Court finds that the motion is without
merit, as all issues and arguments interposed by the
petitioners' (sic) have been amply passed upon in the
Decision sought to be reconsidered. In the Court's
considered view, nothing more is left to be discussed,
clarified or done in the case. We perceive no just ground to
warrant a review of Our resolution. No overriding or special
reason has been given as to why petitioners' motion for
reconsideration should be granted. 11
public policy. As a void contract - it is imprescriptible and not encumber any homestead within the prohibitory period is
susceptible of ratification. void from its execution. 14 The Court has held in a number of
cases that such provision of law is Mandatory15 with the
purpose of promoting a specific public policy to preserve and
The law is clear under Section 118 of the Public Land Act, as
keep in the family of the patentee that portion of the public
amended, that unless made in favor of the government or
land which the State has gratuitously given to them.16
any of its branches, units or institutions, lands acquired
under free patent or homestead provisions shall not be
subject to any form of encumbrance for a term of five years The trial court, as affirmed by the appellate court, ruled that
from and after the date of issuance of the patent or grant, the subject sale entered into between petitioner Anastacio
viz.: and respondent-spouses "is not the kind of violation as
contemplated in accordance of (sic) Sec. 118 of [the] Public
Land Act"17 due to the following clause contained in the
SEC. 118. Except in favor of the Government or any of its
Deed, viz. :
branches, units, or institutions, or legally constituted banking
corporations, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation "That this deed of sale is subject to the condition that vendee
from the date of the approval of the application and for a will ask permission from [the] Sec. of Agriculture and Natural
term of five years from and after the date of issuance of the Resources for its transfer x x x failure to do so, this contract
patent or grant, nor shall they become liable to the will be binding Oct. 4, 1981 x x x."18
satisfaction of any debt contracted prior to the expiration of
said period; but the improvements or crops on the land may
In view of this clause in the Deed, both courts a quo
be mortgaged or pledged to qualified persons, associations,
construed the contract as a conditional sale with the
or corporations.
following legal effects, viz.:
No alienation, transfer, or conveyance of any homestead
As the Deed of Sale was considered conditional and there
after five years and before twenty-five years after issuance of
was no complete conveyance or transfer that occurred, the
title shall be valid without the approval of the Secretary of
five (5)-year prohibitory period is not applicable in this instant
Agriculture and Natural Resources, which approval shall not
case. The Deed of Sale is but a preliminary step for the
be denied except on constitutional and legal grounds.
issuance of a new certificate of title which is the final step to
accomplish registration.
Following Section 118, the subject land could not have been
validly alienated or encumbered on March 28, 1977 which
To effect the land sold, the presentation of the Deed of Sale
was way within five years from the date of the issuance of
and its entry in the day book must be done with the
the free patent under the name of petitioner Anastacio on
surrender of the owner's certificate of title. It is the Deed of
October 4, 1976. The legal consequences of such sale -
Sale that is registered in respondent's favor and the Transfer
clearly made within the prohibitory period - are stated under
Certificate of Title subsequently obtained over the property
Section 124 of the Public Land Act, as amended, viz.:
which has superior right thereon. x x x

Hence, this petition raising a lone assignment of error, viz.:
THE COURT OF APPEALS, WITH DUE RESPECT, MAY
HAVE ERRED IN HOLDING THAT EVEN IF THE DEED OF
SALE WAS NOT VALID, APPELLANT ANASTACIO
TINGALAN AND HIS SUCCESSORS IN INTEREST, ARE
NOW BARRED BY LACHES FROM ASSERTING THEIR
RIGHTS OVER THE SUBJECT PROPERTY, AFTER
FAILING TO EXERCISE THEIR RIGHTS FOR AN
UNREASONABLE LENGTH OF TIME.12
We grant the petition.
The contract of sale entered into between petitioner
Anastacio and respondent-spouses on March 28, 1977 is
null and void from inception for being contrary to law and
SEC. 124. Any acquisition, conveyance, alienation, transfer,
or other contract made or executed in violation of any of the
provisions of sections one hundred and eighteen, one
hundred and twenty, one hundred and twenty-one, one
hundred and twenty-two, and one hundred and twenty-three
of this Act shall be unlawful and null and void from its
execution and shall produce the effect of annulling and
cancelling the grant, title, patent, or permit originally issued,
recognized or confirmed, actually or presumptively, and
cause the reversion of the property and its improvements to
the State.13
The foregoing provision of law unambiguously classifies the
subject contract of sale executed on March 28, 1977 as
unlawful and null and void ab initio for being in violation of
Section 118, i.e., entered into within the five-year prohibitory
period. This provision of law is clear and explicit and a
contract which purports to alienate, transfer, convey or
In the instant case, such did not happen, with the name still
intact of the petitioner there was no complete transfer yet of
the ownership or conveyance hence the sale executed by
petitioner to the respondent is not the kind of violation as
contemplated in accordance of (sic) Sec. 118 of [the] Public
Land Act.19
We do not agree.
The subject property was clearly encumbered within the
mandatory five-year prohibitory period in flagrant violation of
the Public Land Act, as amended. The inclusion of the afore-
quoted clause in the Deed did not operate to effectively
exclude the subject sale from the mandatory prohibition.
Petitioner Anastacio and respondent-spouses knew that the
sale of the subject land was prohibited by law in 1977, and
the conditional clause in the Deed was included in order to
circumvent the legal prohibition of the sale. Both parties
knew that the "permission" of the Secretary of Agriculture
and Natural Resources could not have been legally procured
within the prohibitory period, and the expected failure of
herein respondent-spouses to get such permission would
make the contract binding on October 4, 1981 -or after the
five-year prohibition. Despite this condition, however,
respondent-spouses occupied the subject property
immediately after the contract of sale was executed on
March 28, 1977 - exercising acts of ownership even during
the prohibitory period. This was admitted by one of the
spouses in following testimony as quoted in the assailed
decision of the trial court, viz.:
Q - When this Deed of Sale was executed in 1977[,] you
occupied the property?
A - Immediately after I gave the money, I occupied the
property.
Q - When did you give the money?
Our ruling in the case of Manzano, et al. v. Ocampo, et that Anastacio Tingalan had already given up his right to
al.21 is both pertinent and informative, viz.: recover back the property within five (5) years from the
conveyance and being the owner, they cultivated and made
improvements to the subject property. Appellant Anastacio
The law prohibiting any transfer or alienation of homestead
who was not in possession of the property, asserted his
land within five years from the issuance of the patent does
claim 24 years after the appellees were already in
not distinguish between executory and consummated sales;
possession and acquired the subject property; such delay is
and it would hardly be in keeping with the primordial aim of
unconscionable and would prejudice the rights of third
this prohibition to preserve and keep in the family of the
parties who placed reliance on the inaction of Anastacio, the
homesteader the piece of land that the state had gratuitously
original patentee.26
given to them, to hold valid a homestead sale actually
perfected during the period of prohibition but with the
execution of the formal deed of conveyance and the delivery We disagree.
of possession of the land sold to the buyer deferred until
after the expiration of the prohibitory period, purposely to
The subject contract of sale, being null and void from
circumvent the very law that prohibits and declares invalid
inception, did not pass any rights over the property from
such transaction to protect the homesteader and his family.
petitioner Anastacio to respondent-spouses.1âwphi1 Since
To hold valid such arrangements would be to throw the door
petitioner Anastacio never lost ownership over the land in
wide open to all possible fraudulent subterfuges and
question, there was no need for him or his heirs to
schemes that persons interested in land given to
repurchase the same from respondent-spouses. With
homesteaders may devise to circumvent and defeat the legal
nothing to repurchase, laches could operate to bar petitioner
provision prohibiting their alienation within five years from the
and his heirs from asserting their rights to the property.
issuance of the homesteader's patent.

Following the declaration that the contract of sale over the

A- 1977[.]
Q- When was the title given?
A - 6 or 7 years later because we did not live there. I live in
Butuan.
Q - But you cultivated the property in 1977?
A- Yes[,] your [H]onor[.]
Q- And there was no disturbance from them?
A- No disturbance, nothing[.]
xxxx
(TSN pp. 24-26 4/3/08, Facturan)20
It is clear as day that during the period of the five-year
prohibition, the scheme devised by petitioner Anastacio and
respondent-spouses had resulted in practically depriving the
grantees - herein petitioner Anastacio and his heirs - that
piece of land that the government had gratuitously given to
them, giving rise to a situation which is the exact antithesis of
the primordial aim of our free patent and homestead
provisions under the Public Land Act, as amended.
We, therefore, hold that the sale in question is illegal and
void for having been made within five years from the date of
Manzano's patent, in violation of section 118 of the Public
Land Law. x x x22
A void contract produces no legal effect whatsoever in
accordance with the principle "quad nullum est nullum
producit effectum."23 It could not transfer title to the subject
property and there could be no basis for the issuance of a
title from petitioner Anastacio's name to the names of
respondent-spouses. It is not susceptible of ratification and
the action for the declaration of its absolute nullity is
imprescriptible.24 It was therefore error for both courts a quo
to rule that "[p]etitioner's failure to act on such considerable
time has already barred him by estoppel and laches." 25 We
quote the pertinent portion of the appellate court's assailed
decision where it discussed its basis for ruling that !aches
exists in the case at bar:
x x x Appellees in their brief admitted that deceased
appellant can repurchase the property at the same price
within the five (5)[-]year period from the execution of the
deed of sale.
x x x In the case at bar, Anastacio Tingalan, the original
patentee could have repurchased back (sic) his property or if
not an action to recover back his property but it did not.
Instead, appellant Anastacio waited for more than 24 years
to institute this case. It was only on October 22, 2001 or 24
years after that petitioner-appellant initiated an action to
recover his property wherein the Spouses Melliza assumed
subject property is void for being in violation of Section 118
of the Public Land Act, as amended, jurisprudence dictates
that the subject land be returned to the heirs of petitioner
Anastacio. In the 1986 case of Arsenal v. Intermediate
Appellate Court,27 we ruled, viz.:
x x x in cases where the homestead has been the subject of
void conveyances, the law still regards the original owner as
the rightful owner subject to escheat proceedings by the
State. In the Menil and M[ajnzano cases earlier cited, this
Court awarded the land back to the original owner
notwithstanding the fact that he was equally guilty with the
vendee in circumventing the law. This is so because this
Court has consistently held that ''the pari delicto doctrine
may not be invoked in a case of this kind since it would run
counter to an avowed fundamental policy of the State, that
the forfeiture of a homestead is a matter between the State
and the grantee or his heirs, and that until the State had
taken steps to annul the grant and asserts title to the
homestead the purchaser is, as against the vendor or his
heirs, no more entitled to keep the land than any intruder." x
xx
The Court made the same ruling on the issue of ownership in
the earlier cited case of Manzano in 1961, including a
disposition that the buyer therein is entitled to a
reimbursement of the purchase price plus interest, viz.:
x x x Being void from its inception, the approval thereof by
the Undersecretary of Agriculture and Natural Resources
after the lapse of five years from Manzano 's patent did not
legalize the sale x x x. The result is that the homestead in
question must be returned to Manzano's heirs, petitioners and if the fruits realized by respondent-spouses
herein, who are, in turn, bound to restore to appellee from their long possession of the subject land
Ocampo the sum of ₱3,000.00 received by Manzano as the since 1977 would equitably compensate the
price thereof x x x. The fruits of the land should equitably interest on the price.
compensate the interest on the price.28
This new judgment is without prejudice to any appropriate
Prior to Manzano, we made a similar ruling in the case of De action the Government may take against petitioners as heirs
las Santos v. Roman Catholic Church of Midsayap 29 that of Anastacio Tingalan pursuant to Section 124 of the Public
"[ u ]pon annulment of the sale, the purchaser's claim is Land Act, as amended.
reduced to the purchase price and its interest."
No costs.
We shall apply the same rule in the case at bar. However,
since the trial court ruled that petitioners were barred by
SO ORDERED.
laches in asserting any claim to the subject property, it did
not make a factual determination of the total purchase price
paid by respondent-spouses to petitioner Anastacio which
must be returned to the heirs of respondents, including
interest on such amount. The trial court also did not make a
ruling on the amount of interest to be paid by petitioners to
respondent-spouses, and if the fruits realized by respondent-
spouses from their long possession of the subject land since
1977 would "equitably compensate the interest on the
price."30 This Court is not a trier of facts and we remand the
instant case for the trial court to make a factual
determination of the aforesaid amounts.

WHEREFORE, IN VIEW OF THE FOREGOING, the

Decision and Resolution of the Court of Appeals dated June
23, 2010 and January 12, 2011, respectively, in CA-G.R. CV
No. 01874-MIN are REVERSED and SET ASIDE. A new
judgment is hereby entered:

1. Declaring NULL AND VOID the sale of the

subject parcel of land situated at Dalwangan,
Malaybalay City covered by OCT No. P-8757 Free
Patent No. (X-4) 2195 with an area of five (5)
hectares covered by Tax Declaration No. 13-021-
5522;

2. Ordering respondent-spouses, their heirs,

assigns, or representatives, to RESTORE the
heirs of petitioner Anastacio actual and physical
possession of the subject property;

3. Ordering respondent-spouses, their heirs,

assigns, or representatives, to RETURN AND
DELIVER to the heirs of petitioner Anastacio two
documents: Original Certificate of Title No. P-8757
and Tax Declaration No. 13-021-5522; and,

4. REMANDING the instant case to the Regional

Trial Court, Branch 10, Malaybalay City, for a
determination of the total amount to be returned by
petitioners to respondent-spouses consisting of
the purchase price and the interest due thereon,

G.R. No. 192629, November 25, 2015
FILINVEST LAND, INC., Petitioner, v. EDUARDO R. ADIA,
LITO M. ADIGUE, CANDIDO M. AMPARO, MARINO S.
AMPARO, RODOLFO S. AMPARO, FLORDELIZA L.
ARIAS, BALBINO M. ATIENZA, PEDRO M. ATIENZA,
DALMACIO C. AVANILLA, PASTOR M. AVANILLA,
VENACIO P. BAUTISTA, RODOLFO S. BERGADO,
ENRIQUE R. BRABANTE, EMMA D. BUBAN, JUANITO A.
CANDARE, ROMEO O. CANDARE, ANTONIO M.
CATAPANG, EDUARDO A. CATAPANG, GRACIANO C.
CATAPANG, HERMINIO V. CATAPANG, JUANA P.
CATAPANG, REYNALDO P. CATAPANG, ROMEO A.
CATAPANG, RODOLFO A. CATAPANG, VICTORIANO A.
CATAPANG, JUAN D. CENTOS, FERNANDO B.
CERNETCHEZ, EDUARDO C. CREENCIA, ARNEL N. M.
CREMA, REYNALDO B. CRISTAL, MOISES CUBCUBIN,
DELSO POBLETO, SALVADOR M. DE LEON,
MELQUIADES P. DESCALSO, GREGORIO P. DINO,
ROBERTO L. DOMINO, CELSO R. ESCALLAR, ARMAND
P. ESCUADRO, ELISA C. FELICIANO, PASTOR C.
FERRER, ERLINDO M. FORMARAN, LEONARDO D.
GARINO, RAFAEL R. GRANADO, ALMARIO IBANEZ,
CASIMIRO P. IBANEZ, CEFERINO P. IBANEZ, MIGUEL V.
IBANEZ, MONTANO V. IBANEZ, CESAR N. JECIEL,
ALFREDO B. LAURENTE, EFIGENIA B. LAURENTE,
CELSO C. MEDINA, EDUARDO A. PANGANIBAN,
ROMEO C. PASCUA, DANILO L. PAULMINO, LAURO A.
PEGA, LEONARDO M. PEREZ, FELIPE V. PETATE,
LEONARDO V. PETATE, ESTANISLAO PORTO, MAXIMO
D. PORTO, GREGORIO L. REYES, JOSE L. REYES,
LEONARDO M. SALINGYAGA, DEMETRIO A. SALONGA,
MANOLITO G. SORILLA, HERMOGENES L. TORRES,
JUANITO M. TORRES, MARIANO B. TAGLE, MARIO D.
TAGLE, AND SANCHO V. VILLA, Respondents.
DECISION
BRION, J.:**
We resolve the petition for review on certiorari challenging
the April 15, 2010 decision1 and June 17, 2010 resolution of
the Court of Appeals (CA) in CA G.R. CV No. 87424. The CA
decision affirmed the Regional Trial Court's (RTC)
decision2 directing the petitioner to vacate the properties and
to return the transfer certificates of title (TCTs) to the
respondents.
FACTUAL BACKGROUND
The respondents were the registered owners of various
parcels of land located in Barangay Hugo Perez, Trece
Martires, Cavite. These properties were awarded to them
pursuant to the Comprehensive Land Reform Law
(CARL),3 and had a total land area of about 709,910 square
meters under seventy-five (75) TCTs.
In 1995, Filinvest Land, Inc. (Filinvest) acquired possession
of these properties. Each of the respondents executed
a Sinumpaang Salaysay entitled Pagbibitaw ng
Karapatan (affidavits). Based on these affidavits, the
respondents relinquished all their rights over the properties
for valuable consideration.
The respondents alleged that they surrendered possession
of their properties with the understanding that Filinvest would
develop these into a residential subdivision, pursuant to a
joint venture agreement (JVA). They also entrusted their
respective owner's duplicate original copies of the TCTs to
Filinvest because they were told that these would be used in
preparing the development plans. The respondents added
that they were even given money to find their own place
while the development was taking place.
The respondents repeatedly requested Filinvest to return
their owner's TCT copies and to give them a copy of the
JVA. Since development had not yet begun, they also sent a
letter to Filinvest to allow them to temporarily return to their
lands. They received no response. Instead, Filinvest began
to fence the area and prohibited entry. To protect their rights,
the respondents filed notices of adverse claim.
In 2010, the respondents filed a complaint for recovery of
possession with damages against Filinvest.
In its answer, Filinvest argued that (a) the respondents had
relinquished their rights over the property, (b) no JVA was
signed, and (c) all of the respondents signed the affidavits
under which possession was validly transferred to Filinvest.
At trial, the respondents' witnesses initially denied that they
executed the affidavits but changed their answers when they
saw their signatures on them.
Filinvest presented two witnesses. Leilanie Faforga
(Faforga), the custodian of Filinvest's acquisition documents,
testified that she did not possess any documents on the
properties other than the respondents' affidavits. To her
knowledge, no JVA had been signed.
Lina Ferrer-De Guzman (De Guzman) testified that she was
the Head of the Land Acquisition Department at the time of
the transactions. She stated that the sale with Filinvest did
not push through because the properties were covered by
the CARL. Under its Section 27, the properties cannot be
sold, transferred, or conveyed within a period of ten (10)
years. Thus, instead of a sale, she negotiated a transfer of
possession to Filinvest through the affidavits until such time
that a sale could be made.
In its decision, the RTC found the respondents to be the
lawful possessors. It then ordered Filinvest to: (a) vacate the
properties; (b) return all the TCTs to the respondents; and (c)
pay two hundred thousand pesos as attorney's fees.
The respondents challenged this ruling through a petition for
review before the CA.
THE CA RULING
The CA affirmed the RTC's decision. It ruled that the
respondents undoubtedly own the properties and are entitled
to possession.
First, the CA ruled that the respondents failed to prove the
JVA's existence and due execution. They failed to produce
the original copy and any secondary evidence to prove that it
exists. Thus, the CA had no basis to conclude that Filinvest
did not perform its obligations under the alleged JVA.
Second, the CA ruled that the affidavits could not be valid
sources of Fil invest's right because their terms were
contrary to law, specifically Section 27 of the CARL. A plain
reading of these affidavits showed that all rights, not just
possession, over the properties were transferred. Without
expressly mentioning transfer of ownership, the affidavits
effectively gave Filinvest indefinite control over the
properties; thus, the affidavits were void.
Third, the CA ruled that, although both parties knew that the
transfers were prohibited, the respondents may still recover
the properties based on Article 1416 of the Civil Code. This
provision is an exception to the pari delicto doctrine. This
provision states that when an agreement is not illegal per
se but is merely prohibited, and the prohibition is designed to
protect the plaintiff, he may recover what he has delivered.
Section 27 of the CARL was designed to protect the landless
farmers; thus, the respondents may still recover their
properties.
Lastly, the CA removed the award of attorney's fees because
the RTC did not give any reason for granting it.
The CA denied Filinvest's motion for reconsideration; hence,
this petition.
THE PETITION
In its petition and supplemental petition, Filinvest insists
that:chanRoblesvirtualLawlibrary
First, the affidavits are valid. Section 27 of the CARL only
prohibits the sale, transfer, or conveyance of the properties.
It does not prohibit the assignment of possessory rights.
When the respondents executed the affidavits, they
voluntarily assigned their possessory rights over the
properties in Filinvest's favor. Filinvest is, therefore, the
lawful possessor of the properties.
Second, assuming arguendo that the affidavits are void, the
respondents must return the consideration they received.
Otherwise, they will unjustly enrich themselves at Filinvest's
expense.
Third, both parties are in pari delicto for entering into the void
transaction. Thus, the Court should leave them as they are.
Furthermore, the pari delicto exception in Article 1416 of the
Civil Code does not apply to void contracts.
THE RESPONDENTS' CASE
On their part, the respondents argue
that:chanRoblesvirtualLawlibrary
First, the affidavits are void because they effectively
transferred ownership, not just possession, over the
properties. The affidavits' provisions require a perpetual
surrender of the respondents' ownership rights. This transfer
violates Section 27 of the CARL.
4 landholdings awarded under agrarian laws had been
In Maylem v. Ellano,  this Court ruled that the waiver or
surrender of possession of properties awarded under CARL
is a prohibited transfer. Thus, Filinvest's contention that they
validly acquired possession through the affidavits is
baseless. Since the transfer to Filinvest is prohibited, the
respondents are the properties' lawful possessors.
Second, all the requisites of Article 1416 of the Civil Code
are present. Thus, the courts may return the properties to the
respondents' possession. Moreover, the respondents will not
be unjustly enriched if the properties are returned to them
because Filinvest has possessed their properties for more
than fifteen years.
In sum, the CA did not commit any error in affirming the
RTC's decision.
In a manifestation in 2006, the respondents informed this
Court that while this case is pending, Filinvest was able to
cancel the TCTs in respondents' names and to obtain new
ones in its name.
THE ISSUE
The core issue in an accion publiciana case is who between
Filinvest and the respondents are the properties' lawful
possessors.
OUR RULING
The petition is unmeritorious.
An accion publiciana or a case for recovery of possession
determines who between the parties has the better and legal
right to possess the properties, independently of title.5
Filinvest's claim of rightful possession relies on the affidavits.
Hence, we must ascertain whether these affidavits validly
transferred possession.
The affidavits are void for violating Section 27 of the
CARL.
Since the properties involved were awarded pursuant to
CARL, its provisions apply here. Section 27 of the CARL
states:
"Section 27. Transferability of Awarded Lands. - Lands
acquired by the beneficiaries under this Act may not be
sold, transferred or conveyed except through hereditary
succession, or to the government, or the LBP, or to other
qualified beneficiaries for a period of ten (10) years. x x x."
(Emphasis supplied)
This provision prohibits the sale, transfer, or conveyance of
the properties within ten years, subject to four
exceptions6 which do not apply to this case.
As early as 1990, the transfers of possessory rights over
declared void in Torres v. Ventura.7
In that case, Torres tilled the subject land when Presidential
Decree No. 27 (PD 27) was promulgated in 1972. In 1978,
he transferred his rights of possession and enjoyment over
the land to Ventura for P5,000.00. Through an Affidavit of
Waiver, Torres relinquished all his rights over the property in
Ventura's favor. In 1985, he offered to redeem the property
but Ventura refused. Thus, he filed a complaint for recovery
of possession.
This Court resolved the question of who has better right of
possession between the tiller and the transferee of the land,
ruling in Torres' favor based on the facts and on the
constitutional mandate to promote agrarian reform. We noted
that the fundamental policy of the law is to transfer
ownership over the land to the farmers who till them. To give
effect to this policy, PD 27 prohibits the transfer of the land to
third parties, subject to certain exceptions. In a 1979
memorandum circular,8 the Minister of Agrarian Reform
acknowledged the prevalence of transactions transferring
ownership, rights, or possession over awarded lands. The
Minister emphasized that these transactions violate PD 27
and are, thus, void.
The ruling in Torres was reiterated in Corpuz v. Grospe9 and
in Lapanday v. Estita.10 In Lapanday, the Court stated that
waivers of rights and interests over landholdings awarded by
the government are invalid for violating agrarian reform laws.
Thus, these waivers are void.
The proscription in PD 27 against transferring land awards to
third persons was carried over to Section 27 of RA 6657.11
The pronouncements in Torres were ruled to be applicable to
land awards under RA 6657 in Maylem v.
Ellano,12 in Lebrudo v. Loyola,13 and in Gua-an v.
Quirino.14 In these cases, the Court emphasized that any
waiver and transfer of rights and interests within the 10-year
prohibitory period under RA 6657 is void for violating
agrarian reform law15 whose main purpose is to ensure that
the farmer-beneficiary shall continuously possess, cultivate,
and enjoy the land he tills.16 The affidavits and quitclaims
signed by the farmers to surrender possession were
accordingly declared void.
In the present case, the parties do not dispute that the
transfers occurred within the ten-year period. Filinvest
contends, however, that only transfer of ownership is
prohibited, not of possession.
We now examine the affidavits' contents. The affidavits
signed by the respondents read, in part, thus:
"SINUMPAANG SALAYSAY
(PAGBIBITAW NG KARAPATAN)
xxx
1. Na pinapatunayan ko/naming (sic) na tinanggap
ko/naming nang lubos na kasiyahan ang halagang
____________ (P________) Salaping Pilipino, mula sa
FILINVEST LAND, INC. bilang kabuuang bayad pinsala
(disturbance fee) sa mga pananim ko/naming at ng
aking/aming buong pamilya at sa lahat ng iba pa ko/naming
mga pag-aari sa lupaing nabanggit at bilang karapatang
bayad sa lahat kong/naming interes, karapatan at
paghahabol sa nasabing lupain.
2. Na alang-alang sa nabanggit na tinanggap kong/naming
kabayaran, kusang-loob ko/naming pinawawalang bisa at
kabuluhan ang anumang interes, karapatan at
paghahabol bilang magsasaka at kaagad kong isasauli sa
mga nasabing may-ari, sa paglagda ko/naming nito, ang
aking/aming pamumusisyon at lahat ng kaparatan sa
nasabing lupain.
3. Na ako/kami at ang aking/aming pamilya ay nangangako
na mula sa paglagda ko/naming nito ay hindi na ako/kami
magtatanim ng ano pa mang halaman sa lahat ng mga
nasabing lupain o di kaya'y makikialam pa sa anumang
paraan sa nasabing lupain.
4. Na aking/aming kinikilala ang karapatan ng mga may-
aring nabanggit at ng kanilang mga kahalili na bakuran ang
lahat ng lupaing nabanggit matapos kong/aming lagdaan
ang salaysay na ito at, ako/kami ay wala nang ano pa
mang karapatan na pumasok o kaya'y makialam sa
kahi't (sic) anong paraan maging sa nasabing parselang
nasasakop ng Titulong nabanggit, maging may maani
man kami o wala sa mga bunga, kung mayroon man, o ang
ano pa mang mga nalalabing pananim na matatagpuan doon
pagdating ng nasabing takdang araw na iyon.
5. Na alang-alang sa mga nakasaad sa itaas, ako/kami at
ang aming buong pamilya ay wala nang paghahabol na
ano pa man ukol sa nasabing lupain laban sa nabanggit
na may-ari at sa kanilang maaaring maging kahalili pa
sa pagmamay-ari nito, at aming pinagtitibay na ang
nasabing may-ari at mga kahalili ay wala nang magiging ano
pa mang pananagutan sa akin/amin sa ilalim ng anumang
nakaraang kasunduan namin sa kanila o sa kanilang mga
magulang, o sa ilalim ng batas.
x x x"17 (emphases supplied)
The affidavits, as worded, totally waive or transfer the
respondents' rights and interests over the properties. The CA
correctly observed that the affidavits do not only assign
possessory rights, but perpetually surrender the
respondents' ownership rights. Furthermore, De Guzman
admitted that the affidavits were deliberately designed to
circumvent the proscription under RA6657.
Clearly, the transfers of the properties, through the affidavits,
violate Section 27 of the CARL. Under our established
rulings, these affidavits or waivers are void.
Because the transfers made to Filinvest in 1995 are void,
Filinvest cannot claim rightful possession over the properties.
The respondents are the awardees based on the CARL and
should be recognized as the lawful possessors.
The pari delicto exception does not apply here.
We now go to the issue of whether the principle of pari
delicto applies to this case. We answer in the negative.
Filinvest claims that if the affidavits are void, this Court
should consider the parties to be in pari delicto. Both parties
came to court with unclean hands because they voluntarily
entered into the void transactions. Thus, the court should
leave them where they are Filinvest possessing the In 2006, the respondents filed a manifestation that new TCTs
properties and the respondents keeping the money they had already been issued in Filinvest's name. An accion
received. publiciana, however, resolves only possessory rights. The
revocation of TCTs, on the other hand, requires a conclusive
We see no merit in Filinvest's position. determination of ownership. Thus, the respondents must file
the appropriate action to annul the TCTs issued in Filinvest's
In Torres, we ruled that the pari delicto doctrine does not name.
apply in an agrarian reform case. 18 To hold otherwise would
defeat the spirit and intent of the agrarian reform to free the So as not to frustrate our pronouncement in this case, we
tillers from the bondage of the soil. 19 The policy of the law order the registration of this Decision with the Register of
must be upheld. Deeds of the place where the disputed properties are
situated, in accordance with Section 78 of Presidential
To elaborate, Article 1416 of the Civil Code provides an Decree (PD) No. 1529,24 which provides:
exception to the pari delicto doctrine. Under this article, the "SEC. 78 Judgment for Plaintiff. - Whenever in an action to
plaintiff may recover what he paid or delivered pursuant to a recover possession or ownership of real estate or any
void contract if the following requisites are met: (a) the interest therein affecting registered land judgment is entered
contract is not illegal per se but merely prohibited; (b) the for the plaintiff, such judgment shall be entitled to
prohibition is for the plaintiffs protection; and (c) public policy registration on presentation of a certificate of the entry
will be enhanced by his recovery. 20 These requisites are thereof from the clerk of court where the action is
present in this case. pending to the Register of Deeds for the province or city
where the land lies, who shall enter a memorandum upon
On the first requisite, the affidavits here are merely the certificate of title of the land to which such judgment
prohibited. A contract is illegal per se if, by universally relates. If the judgment does not apply to all the land
recognized standards, it is inherently bad, improper, described in the certificate of title, the certificate of the clerk
immoral, or contrary to good conscience. 21 of court where the action is pending and the memorandum
entered by the Register of Deeds shall contain a description
Ordinarily, affidavits or contracts of sale are lawful. Only of the land affected by the judgment." (Emphasis supplied)
Section 27 of the CARL made them unlawful.
WHEREFORE, we hereby DENY the petition for lack of
merit. The April 15, 2010 decision and June 17, 2010
On the second requisite, the prohibition under Section 27 of
resolution of the Court of Appeals in CA G.R. SP No. 100262
the CARL is meant to protect the farmer-beneficiaries.
are hereby AFFIRMED.
Section 2 of the CARL explains that the agrarian reform
program is founded on the landless farmers' right to own
Upon finality of this Decision, the Office of the 2nd Division
land.22 Thus, their protection must be given utmost
Clerk of Court is directed to furnish certified copies of this
importance.
Decision and its Entry of Judgment to the appropriate
Register of Deeds pursuant to Section 78 of PD No. 1529.
On the third requisite, public policy will be promoted by
allowing the respondents to recover their land. The CARL
Costs against petitioner.
distributes agricultural land to landless farmers to improve
their quality of life.23 Returning the land to them will enhance
SO ORDERED.chanroblesvirtuallawlibrary
this public policy of agrarian reform.
Thus, the respondents may recover the subject properties.
No unjust enrichment
We find merit in the respondents' argument that no unjust
enrichment took place. We note that Filinvest had possessed
the properties since 1995 or for about twenty years. During
this period, the respondents were deprived of the productive
use of their land. The amount they paid to the respondents
may serve as compensation for Filinvest's use of the
properties for this long period.
In sum, we hold that the respondents are the lawful
possessors of the disputed properties. Their affidavits are
void and did not transfer possessory rights.
 marriage, Jose and Milagros bought a house and lot located
at Tinago, Naga City, which lot was covered by Transfer
Certificate of Title (TCT) No. 21229.5
On January 13, 1998, Milagros sold to the petitioner Tomas
P. Tan, Jr. (Tomas) the subject property, as evidenced by a
deed of sale executed by Milagros herself and as attorney-
in-fact of Jose, by virtue of a Special Power of Attorney
(SPA) executed by Jose in her favor. 6 The Deed of Sale
stated that the purchase price for the lot was
P200,000.00.7 After the sale, TCT No. 21229 was cancelled
and TCT No. 32568 was issued in the name of Tomas.8
On October 19, 2001, Jose filed a Complaint for Annulment
of Sale/Cancellation of Title/Reconveyance and
Damages against Milagros, Tomas, and the Register of
Deeds of Naga City.9 The complaint was filed before the
Regional Trial Court (RTC), Branch 62, Naga City. In the
complaint, Jose averred that while he was working in Japan,
Milagros, without his consent and knowledge, conspired with
Tomas to execute the SPA by forging Jose’s signature
making it appear that Jose had authorized Milagros to sell
the subject property to Tomas.10
In his Answer, Tomas maintained that he was a buyer in
good faith and for value. 11 Before he paid the full
consideration of the sale, Tomas claimed he sought advice
from his lawyer-friend who told him that the title of the
subject lot was authentic and in order. 12 Furthermore, he
alleged that the SPA authorizing Milagros to sell the property
was annotated at the back of the title.13
February 3, 2016
Tomas filed a cross-claim against Milagros and claimed
compensatory and moral damages, attorney’s fees, and
G.R. No. 190846 expenses for litigation, in the event that judgment be
rendered in favor of Jose.14
TOMAS P. TAN, JR., Petitioner,
vs. The RTC declared Milagros in default for her failure to file
JOSE G. HOSANA, Respondent. her answer to Jose’s complaint and Tomas’ cross-
claim.15 On the other hand, it dismissed Tomas’ complaint
against the Register of Deeds since it was only a nominal
DECISION party.16
BRION, J.: After the pre-trial conference, trial on the merits ensued. 17
Before us is a petition for review on certiorari1 challenging Jose presented his brother, Bonifacio Hosana (Bonifacio), as
the August 28, 2009 decision2 and November 17, 2009 sole witness. Bonifacio testified that he learned of the sale of
resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. the subject property from Milagros’ son.18 When Bonifacio
88645. confronted Milagros that Jose would get angry because of
the sale, Milagros retorted that she sold the property
The Facts because she needed the money. Bonifacio immediately
informed Jose, who was then in Japan, of the sale.19
The respondent Jose G. Hosana (Jose) married Milagros C.
Hosana (Milagros) on January 14, 1979.4 During their
Jose was furious when he learned of the sale and went back
to the Philippines. Jose and Bonifacio verified with the
Register of Deeds and discovered that the title covering the
disputed property had been transferred to Tomas.20
Bonifacio further testified that Jose’s signature in the SPA
was forged.21 Bonifacio presented documents containing the
signature of Jose for comparison: Philippine passport,
complaint-affidavit, duplicate original of SPA dated 16
February 2002, notice of lis pendens, community tax
certificate, voter’s affidavit, specimen signatures, and a
handwritten letter.22
On the other hand, Tomas submitted his own account of
events as corroborated by Rosana Robles (Rosana), his
goddaughter. Sometime in December 1997, Tomas directed
Rosana to go to the house of Milagros to confirm if Jose
knew about the sale transaction. Through a phone call by
Milagros to Jose, Rosana was able to talk to Jose who
confirmed that he was aware of the sale and had given his
wife authority to proceed with the sale. Rosana informed
Tomas of Jose’s confirmation.23
With the assurance that all the documents were in order,
Tomas made a partial payment of P350,000.00 and another
P350,000.00 upon the execution of the Deed of Absolute
Sale (Deed of Sale). Tomas noticed that the consideration
written by Milagros on the Deed of Sale was only
P200,000.00; he inquired why the written consideration was
lower than the actual consideration paid. Milagros explained
that it was done to save on taxes. Tomas also learned from
Milagros that she needed money badly and had to sell the
house because Jose had stopped sending her money.24
The RTC Ruling
In its decision dated December 27, 2006, 25 the RTC decided
in favor of Jose and nullified the sale of the subject property
to Tomas. The RTC held that the SPA dated June 10, 1996,
wherein Jose supposedly appointed Milagros as his
attorney-in-fact, was actually null and void.
Tomas and Milagros were ordered to jointly and severally
indemnify Jose the amount of P20,000.00 as temperate
damages.26
The CA Ruling
Tomas appealed the RTC’s ruling to the CA.
In a decision dated August 28, 2009, 27 the CA affirmed the
RTC ruling that the deed of sale and the SPA were void.
However, the CA modified the judgment of the RTC: first, by
deleting the award of temperate damages; and second, by
directing Jose and Milagros to reimburse Tomas the
purchase price of P200,000.00, with interest, under the
principle of unjust enrichment. Despite Tomas’ allegation that
he paid P700,000.00 for the subject lot, the CA found that
there was no convincing evidence that established this
claim.28
Tomas filed a motion for the reconsideration of the CA
decision on the ground that the amount of P200,000.00 as
reimbursement for the purchase price of the house and lot
was insufficient and not supported by the evidence formally
offered before and admitted by the RTC. Tomas contended
that the actual amount he paid as consideration for the sale
was P700,000.00, as supported by his testimony before the
RTC.29
The CA denied the motion for reconsideration for lack of
merit" in a resolution dated November 17, 2009. 30
The Petition
Tomas filed the present petition for review on certiorari to
challenge the CA ruling which ordered the reimbursement of
P200,000.00 only, instead of the actual purchase price he
paid in the amount of P700,000.00.31
Tomas argues that, first, all matters contained in the deed of
sale, including the consideration stated, cannot be used as
evidence since it was declared null and void; second, the
deed of sale was not specifically offered to prove the actual
consideration of the sale;32 third, his testimony establishing
the actual purchase price of P700,000.00 paid was
uncontroverted;33 and, fourth, Jose must return the full
amount actually paid under the principle of solutio indebiti.34
Jose, on the other hand, argues that first, Jose is estopped
from questioning the purchase price indicated in the deed of
dale for failing to immediately raise this question;
and second, the terms of an agreement reduced into writing
are deemed to include all the terms agreed upon and no
other evidence can be admitted other than the terms of the
agreement itself.35
The Issues
The core issues are (1) whether the deed of sale can be
used as the basis for the amount of consideration paid; and
(2) whether the testimony of Tomas is sufficient to establish
the actual purchase price of the sale.
OUR RULING
We affirm the CA ruling and deny the petition.
Whether Tomas paid the purchase price of P700,000.00 is a
question of fact not proper in a petition for review
on certiorari. Appreciation of evidence and inquiry on the
correctness of the appellate court's factual findings are not
the functions of this Court, as we are not a trier of facts.36
This Court does not address questions of fact which require
us to rule on "the truth or falsehood of alleged
facts,"37 except in the following cases:
(1) when the findings are grounded entirely on speculations,
surmises, or conjectures; (2) when the inference made is
manifestly mistaken, absurd, or impossible; (3) when there is
a grave abuse of discretion; (4) when the judgment is based
on misappreciation of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings, the same are
contrary to the admissions of both appellant and appellee;
(7) when the findings are contrary to those of the trial court;
(8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner’s
main and reply briefs are not disputed by the respondent;
and (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the
evidence on record.38
The present case does not fall under any of these
exceptions.
Whether Tomas sufficiently proved that he paid P700,000.00
for the subject property is a factual question that the CA had
already resolved in the negative.39 The CA found Tomas’
claim of paying P700,000.00 for the subject property to be
unsubstantiated as he failed to tender any convincing
evidence to establish his claim.
We uphold the CA’s finding.
In civil cases, the basic rule is that the party making
allegations has the burden of proving them by a
preponderance of evidence.40 Moreover, the parties must
rely on the strength of their own evidence, not upon the
weakness of the defense offered by their opponent. 41
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."42 Preponderance of evidence is a phrase that, in
the last analysis, means probability of the truth. It is evidence
that is more convincing to the court as it is worthier of belief
than that which is offered in opposition thereto.43
We agree with the CA that Tomas’ bare allegation that he
paid Milagros the sum of P700,000.00 cannot be considered
as proof of payment, without any other convincing evidence
to establish this claim. Tomas’ bare allegation, while
uncontroverted, does not automatically entitle it to be given
weight and credence.
It is settled in jurisprudence that one who pleads payment
has the burden of proving it;44 the burden rests on the
defendant to prove payment, rather than on the plaintiff to
prove non-payment.45 A mere allegation is not
evidence,46 and the person who alleges has the burden of
proving his or her allegation with the requisite quantum of
evidence, which in civil cases is preponderance of evidence.
The force and effect of a void contract is distinguished
from its admissibility as evidence.
The next question to be resolved is whether the CA correctly
ordered the reimbursement of P200,000.00, which is the
consideration stated in the Deed of Sale, based on the
principle of unjust enrichment.
The petitioner argues that the CA erred in relying on the
consideration stated in the deed of sale as basis for the
reimbursable amount because a null and void document
cannot be used as evidence.
We find no merit in the petitioner’s argument.
A void or inexistent contract has no force and effect from the
very beginning.47 This rule applies to contracts that are
declared void by positive provision of law, as in the case of a
sale of conjugal property without the other spouse’s written
consent.48 A void contract is equivalent to nothing and is
absolutely wanting in civil effects. 49 It cannot be validated
either by ratification or prescription. 50 When, however, any of
the terms of a void contract have been performed, an action
to declare its inexistence is necessary to allow restitution of
what has been given under it.51
It is basic that if a void contract has already "been
performed, the restoration of what has been given is in
order."52 This principle springs from Article 22 of the New
Civil Code which states that "every person who through an
act of performance by another, or any other means, acquires
or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same."
Hence, the restitution of what each party has given is a
consequence of a void and inexistent contract.
While the terms and provisions of a void contract cannot be
enforced since it is deemed inexistent, it does not preclude
the admissibility of the contract as evidence to prove matters
that occurred in the course of executing the
contract, i.e., what each party has given in the execution of
the contract.
Evidence is the means of ascertaining in a judicial
proceeding the truth respecting a matter of fact, sanctioned
by the Rules of Court. 53 The purpose of introducing
documentary evidence is to ascertain the truthfulness of a
matter at issue, which can be the entire content or a specific
provision/term in the document.
The deed of sale as documentary evidence may be used as
a means to ascertain the truthfulness of the consideration
stated and its actual payment. The purpose of introducing
the deed of sale as evidence is not to enforce the terms
written in the contract, which is an obligatory force and effect
of a valid contract. The deed of sale, rather, is used as a
means to determine matters that occurred in the execution of
such contract, i.e., the determination of what each party has
given under the void contract to allow restitution and prevent
unjust enrichment.
Evidence is admissible when it is relevant to the issue and
is not excluded by the law of these rules.54 There is no
provision in the Rules of Evidence which excludes the
admissibility of a void document. The Rules only require that
the evidence is relevant and not excluded by the Rules for its
admissibility.55
Hence, a void document is admissible as evidence because
the purpose of introducing it as evidence is to ascertain the
truth respecting a matter of fact, not to enforce the terms of
the document itself.
It is also settled in jurisprudence that with respect to
evidence which appears to be of doubtful relevancy,
incompetency, or admissibility, the safer policy is to be liberal
and not reject them on doubtful or technical grounds, but
admit them unless plainly irrelevant, immaterial, or
incompetent; for the reason that their rejection places them
beyond the consideration of the court, if they are thereafter
found relevant or competent. On the other hand, their
admission, if they turn out later to be irrelevant or
incompetent, can easily be remedied by completely
discarding them or ignoring them.56
In the present case, the deed of sale was declared null and
void by positive provision of the law prohibiting the sale of
conjugal property without the spouse’s consent.1âwphi1 It
does not, however, preclude the possibility that Tomas paid
the consideration stated therein. The admission of the deed
of sale as evidence is consistent with the liberal policy of the
court to admit the evidence which appears to be relevant in
resolving an issue before the courts.
An offer to prove the regular execution of the deed of the presence of the consideration of the sale, except with
sale is basis for the court to determine the presence of respect to the actual amount paid. While the deed of sale
the essential elements of the sale, including the has no force and effect as a contract, it remains prima
consideration paid. facie evidence of the actual consideration paid.
Tomas argues that the Deed of Sale was not specifically As earlier discussed, Tomas failed to substantiate his claim
offered to prove the actual consideration of the sale and, that he paid to Milagros the amount of P700,000.00, instead
hence, cannot be considered by the court. Tomas is of the amount of P200,000.00 stated in the deed of sale. No
incorrect. documentary or testimonial evidence to prove payment of
the higher amount was presented, apart from Tomas’ sole
testimony. Tomas’ sole testimony of payment is self-serving
The deed of sale in the present case was formally offered by
and insufficient to unequivocally prove that Milagros received
both parties as evidence. 57 Tomas, in fact, formally offered it
P700,000.00 for the subject property.
for the purpose of proving its execution and the regularity of
the sale.58
Hence, the consideration stated in the deed of sale remains
sufficient evidence of the actual amount the petitioner paid
The offer of the deed of sale to prove its regularity
and the same amount which should be returned under the
necessarily allowed the lower courts to consider the terms
principle of unjust enrichment.
written therein to determine whether all the essential
elements59 for a valid contract of sale are present, including
the consideration of the sale. The fact that the sale was Unjust enrichment exists "when a person unjustly retains a
declared null and void does not prevent the court from benefit at the loss of another, or when a person retains
relying on consideration stated in the deed of sale to money or property of another against the fundamental
determine the actual amount paid by the petitioner for the principles of justice, equity, and good conscience." 62 The
purpose of preventing unjust enrichment. prevention of unjust enrichment is a recognized public policy
of the State and is based on Article 22 of the Civil Code. 63
Hence, the specific offer of the Deed of Sale to prove the
actual consideration of the sale is not necessary since it is The principle of unjust enrichment requires Jose to return
necessarily included in determining the regular execution of what he or Milagros received under the void contract which
the sale. presumably benefitted their conjugal partnership.
The consideration stated in the notarized Deed of Sale Accordingly, the CA correctly ordered Jose to return the
is prima facie evidence of the amount paid by the amount of P,200,000.00 since this the consideration stated
petitioner. in the Deed of Sale and given credence by the lower court.
Indeed, even Jose expressly stated in his comment that
Tomas is entitled to recover the money paid by him in the
The notarized deed of sale is a public document and
amount of P200,000.00 as appearing in the contract.
is prima facie evidence of the truth of the facts stated
therein.60
WHEREFORE, we hereby DENY the petition for review
on certiorari. The decision dated August 28, 2009 and the
Prima facie evidence is defined as evidence good and
resolution dated November 17, 2009, of the Court of Appeals
sufficient on its face. Such evidence as, in the judgment of
in CA-G.R. CV No. 88645 is AFFIRMED. Costs against the
the law, is sufficient to establish a given fact, or the group or
petitioner.
chain of facts constituting the party’s claim or defense and
which if not rebutted or contradicted, will remain sufficient. 61
SO ORDERED.
In the present case, the consideration stated in the deed of
sale constitutes prima facie evidence of the amount paid by
Tomas for the transfer of the property to his name. Tomas
failed to adduce satisfactory evidence to rebut or contradict
the consideration stated as the actual consideration and
amount paid to Milagros and Jose.
The deed of sale was declared null and void by a positive
provision of law requiring the consent of both spouses for the
sale of conjugal property. There is, however, no question on

G.R. No. 202223, March 02, 2016
JOEY R. PEÑA, Petitioner, v. JESUS DELOS SANTOS
AND THE HEIRS OF ROSITA DELOS SANTOS
FLORES., Respondents.
RESOLUTION
REYES, J.:
This resolves the Motion for Reconsideration 1 of petitioner The losing parties in the case, Vicente Delos Santos, et al.
Joey R. Perm (Peña) of the Court's Resolution2 dated (plaintiffs) and Spouses Fred and Joan Elizalde (appellants),
September 9, 2013 which denied his Petition for Review3 on appealed the foregoing judgment to the CA thru petitions
the ground of lack of reversible error in the assailed separately docketed as CA-G.R. CV No. 54136 and CA-G.R.
Decision4 dated February 20, 2012 of the Court of Appeals SP No. 48475, respectively. Both appeals were dismissed
(CA) in CA-G.R. CEB SP No. 03886. and considered withdrawn in the CA Resolution dated May
11, 1999 upon the appellants' motion to withdraw appeal. In
The Facts the subsequent CA Resolution dated January 31, 2000, the
motion for reconsideration and motion to reinstate appeal
Jesus Delos Santos (Jesus) and Rosita Delos Santos Flores filed by the plaintiffs were denied for being time-barred as it
(Rosita) were the judgment awardees of the two-thirds was filed nine days late. 7
portion or 9,915 square meters of four adjoining lots
designated as Lots 393-A, 393-B, 394-D and 394-E, The plaintiffs sought recourse with the Court via a petition for
measuring 14,771 sq m, located in Boracay Island, Malay, review on certiorari docketed as G.R. Nos. 141810 and
Aldan.5 The award was embodied in the Decision dated April 141812.8 In a Decision dated February 2, 2007, the Court
29, 1996 of the Regional Trial Court (RTC) of Kalibo, Aklan denied the petition on the ground that the plaintiffs already
in the herein Civil Case No. 3683, the fallo of which reads: lost their right of appeal to the CA when they failed to file an
chanRoblesvirtualLawlibrary appellant's brief during the more than 180-day
WHEREFORE, in view of the foregoing considerations, extension.9 The Court reiterated its ruling in a Resolution
judgment is hereby rendered as follows: dated April 23, 2007, which denied reconsideration. An Entry
of Judgment in the case was forthwith issued. 10
(1.) Dismissing the complaint filed by the plaintiffs [Vicente
Delos Santos, et al.] as well [as] the complaint in intervention The case was then remanded to the RTC of Kalibo, Aklan for
filed by the second set of intervenors Casimeros, et al. for the execution proceedings during which a Motion for
lack of merit; Substitution with a Motion for a Writ of Execution and
Demolition11 dated March 14, 2008 was filed by Peña.
(2.) Declaring the two deeds of sale (Exhibits 29 and 30) as
null and void insofar as they affect the two-thirds (2/3) share Peña averred that he is the transferee of Jesus and Rosita's
of intervenors Jesus and [Rosita]; adjudged allotments over the subject lots. He claimed that he
bought the same from Atty. Romeo Robiso (Atty. Robiso)
(3.) Declaring intervenors Jesus and [Rosita] as the who in turn, acquired the properties from Jesus and Rosita
lawful owners of the two-thirds portion of the land in through assignment and sale as evidenced by the following
question or 9,915 square meters on the northwest documents, viz:
portion, representing as their shares in the intestate chanRoblesvirtualLawlibrary
estate of Leonardo delos Santos; a. Deed of Transfer or Conveyance dated May 4, 2005
transferring 2,000 sq m of Lots No. 394-PT and 393-A to
(4.) Declaring defendant Fred Elizalde as the rightful owner Atty. Robiso;12
of one-third of the land in question or 4,957 square meters
on the southeast portion, segregated by a boundary line b. Deed of Absolute Sale dated May 4, 2005 over the 2,000
running from the seashore to the inland or from the sq m of Lots No. 394-PT and 393-A in favor of Atty. Robiso; 13
southwest to northeast;
c. Confirmation of Sale and Transfer dated December 5,
(5.) Ordering the cancellation or revision of Tax Declaration 2006 affirming the two foregoing instruments executed by
No. 4422 in the name of Fred Elizalde (Exhibit 26) and all tax Jesus and Rosita in favor of Atty.
declarations issued subsequent thereto to conform to Robiso.14ChanRoblesVirtualawlibrary
paragraphs 3 and 4 hereof as well as the issuance of a new Atty. Robiso later on sold Lots No. 393-A and 394-D to Peña
tax declaration to intervenors Jesus and [Rosita] covering on December 15, 2006 thru a Deed of Absolute Sale. 15 The
their two-thirds (2/3) share; tax declarations over the said portions were subsequently
registered in Peña's name. 16
(6.) Ordering the plaintiffs or any persons claiming interest
therein to deliver complete possession of the land to [Fred The plaintiffs opposed Peña's motion claiming that the
and Joan Elizalde] and Jesus and [Rosita]. conveyance made by Jesus and Rosita in favor of Atty.
Robiso was null and void for being a prohibited transaction
No pronouncement as to costs. because the latter was their counsel in the case.
SO ORDERED.6 (Citation omitted and emphasis ours) Apparently, Atty. Robiso was engaged by Jesus and Rosita
to be their counsel in Civil Case No. 3683 by virtue of
an Attorney's Agreement and Undertaking dated July 11,
1998.17 Under the agreement, Atty. Robiso bound himself to
render his legal services in connection with Jesus and
Rosita's involvement as party-litigants in Civil Case No. 3683
and to any proceedings that may arise in connection
therewith before the CA and this Court. Atty. Robiso
undertook to advance his own funds for all expenses and
costs he may incur in relation to the case. In consideration
thereof, Jesus and Rosita obliged themselves to give or pay
to him as contingent professional fees, 2,000 sq m of any
and all lands that the courts will award to them in the case.
Ruling of the RTC
In an Order18 dated June 11, 2008, the RTC partially granted
Peña's motion and ruled that Jesus and Rosita lost their
standing in the case upon the conveyance of their adjudged
2,000 sq m portion in favor of Atty. Robiso whose ownership
rights were afterwards acquired by Peña.
The RTC upheld that the conveyance made by Jesus and
Rosita in favor of Atty. Robiso is valid since it was not made
during the pendency of litigation but after judgment has been
rendered. The RTC disposed as follows:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Motion for
Substitution and the Motion for a Writ of Execution and
Demolition is partially granted. Accordingly, it is hereby
directed that:
1. Movant Joey Peña is joined with the original party in the
First Set of Intervenors (Jesus and Rosita) in accordance
with Section 19, Rule 3 of the Rules of Court; and
2. A Writ of Execution be issued to implement the Decision
dated April 29, 1996.
SO ORDERED.19 (Emphasis in the original)
The writ of execution was issued on July 10, 2008. 20 The
RTC denied reconsideration in an Order dated September 8,
2008.21
Ruling of the CA
Jesus, together with the heirs of Rosita, elevated the matter
to the CA thru a special civil action for certiorari docketed as
CA-G.R. CEB SP No. 03886.
In its Decision22 dated February 20, 2012, the CA reversed
the RTC and ruled that the conveyance made by Jesus and
Rosita in favor of Atty. Robiso was null and void because it is
a prohibited transaction under Article 1491(5) of the Civil
Code. When the two Deeds of Sale in favor of Atty. Robiso
were executed on May 4, 2005 and December 5, 2005 and
the Confirmation of Sale on December 15, 2006, the case
was still pending with the Supreme Court, before which
Jesus and Rosita were still represented by Atty. Robiso.
Accordingly, the CA decision disposed as follows:
chanRoblesvirtualLawlibrary
WHEREFORE, the Order dated June 11, 2008, Order dated
September 8, 2008, and the Alias Writ of Execution dated
July 10, 2008 in Civil Case No. 3683 are hereby ANNULLED
and SET ASIDE. The trial court is directed to cause the
execution of the final judgment in favor of [Jesus and the
heirs of Rosita] in this case with dispatch.
SO ORDERED.23ChanRoblesVirtualawlibrary
The CA reiterated the foregoing ruling when it denied Peña's
motion for reconsideration in a Resolution 24 dated May 24,
2012. Aggrieved, Peña filed a petition for review
on certiorari before the Court. In a Minute Resolution 25 dated
September 9, 2013, the Court denied the petition for lack of
reversible error in the assailed CA judgment.
On December 23, 2013, Peña filed a Motion for
Reconsideration26 insisting that the deeds of conveyance
between Atty. Robiso and Jesus and Rosita were executed
long after the decision in Civil Case No. 3683 became final
and executory. Even assuming arguendo that the deeds
were void, a separate action for declaration of their
inexistence is necessary because their terms have already
been fulfilled.
Ruling of the Court
The Court denies reconsideration.
The basis of Peña's motion for substitution is infirm because
the lots were transferred to his predecessor-in-interest, Atty.
Robiso, through a prohibited sale transaction. Article 1491(5)
of the Civil Code expressly prohibits lawyers from acquiring
property or rights that may be the object of any litigation in
which they may take part by virtue of their profession, thus:
chanRoblesvirtualLawlibrary
Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in
person or through the mediation of another:
x x x x
(5) Justices, judges, prosecuting attorneys, clerks of superior
and inferior courts, and other officers and employees
connected with the administration of justice, the property and
rights in litigation or levied upon an execution before the
court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession.
xxxx
A complementary prohibition is also provided in Rule 10 of
the Canons of Professional Ethics which states:
chanRoblesvirtualLawlibrary
10. Acquiring interest in litigation.
The lawyer should not purchase any interest in the subject
matter of the litigation which he is conducting.
A property is in litigation if there is a contest or litigation over
it in court or when it is subject of a judicial action. 27 Records
show that the judicial action over the subject lots was still in
the appellate proceedings stage when they were conveyed
to Jesus and Rosita's counsel, Atty. Robiso. The Deed of
Transfer or Conveyance and the Deed of Absolute Sale both
dated May 4, 2005 as well as the Confirmation of Sale and
Transfer dated December 5, 2006 were all executed long
before the termination of the appellate proceedings before
this Court in G.R. Nos. 141810 and 141812 on February 2,
2007.
Clearly then, since the property conveyed to Atty. Robiso by
Jesus and Rosita was still the object of litigation, the deeds
of conveyance executed by the latter are deemed inexistent.
Under Article 1409 of the Code, contracts which are
expressly prohibited or declared void by law are considered
inexistent and void from the beginning.28 This being so, Atty.
Robiso could not have transferred a valid title in favor of
Peña over the lots awarded to Jesus and Rosita in Civil
Case No. 3683. Consequently, Peña has no legal standing
to be substituted in the stead of or joined with Jesus and
Rosita as the first set of intervenors and to move for
issuance of a writ of execution in Civil Case No. 3683.
There is no need to bring a separate action for the
declaration of the subject deeds of conveyance as void. A
void or inexistent contract is one which has no force and
effect from the very beginning. Hence, it is as if it has never
been entered into and cannot be validated either by the
passage of time or by ratification. 29
The need to bring a separate action for declaration of nullity
applies only if the void contract is no longer fully executory.
Contrary to Peña's stance, the deeds of conveyance made in
favor of Atty. Robiso in 2005 cannot be considered as
executory because at that time the judgment award ceding
the subject lots to Jesus and Rosita was not yet
implemented. A writ of execution 30 was issued only on July
10, 2008. "If the void contract is still fully executory, no party
need bring an action to declare its nullity; but if any party
should bring an action to enforce it, the other party can
simply set up the nullity as a defense." 31
This is notwithstanding the fact that the sale to Atty. Robiso
was made pursuant to a contingency fee contract. It is true
that contingent fee agreements are recognized in this
jurisdiction as a valid exception to the prohibitions under
Article 1491(5) of the Civil Code. 32 The Court cannot extend
a similar recognition to the present case, however, since the
payment to Atty. Robiso of his contingency fees was made
during the pendency of litigation. "A contingent fee contract
is an agreement in writing where the fee, often a fixed
percentage of what may be recovered in the action, is made
to depend upon the success of the litigation. The payment of
the contingent fee is not made during the pendency of the
litigation involving the client's property but only after the
judgment has been rendered in the case handled by the
lawyer."33
34
Peña cannot rely on Article 1437  by claiming that Jesus
and Rosita are already estopped from questioning the
validity of their deeds of conveyance with Atty. Robiso.
Estoppel is a principle in equity and pursuant to Article 1432
it is adopted insofar as it is not in conflict with the provisions
of the Civil Code and other laws. Otherwise speaking,
estoppel cannot supplant and contravene the provision of
law clearly applicable to a case. 35 Conversely, it cannot give
validity to an act that is prohibited by law or one that is
against public policy.36
The rationale advanced for the prohibition in Article 1491(5)
is that public policy disallows the transactions in view of the
fiduciary relationship involved, i.e., the relation of trust and
confidence and the peculiar control exercised by these
persons. It is founded on public policy because, by virtue of
his office, an attorney may easily take advantage of the
credulity and ignorance of his client and unduly enrich
himself at the expense of his client. 37 The principle of
estoppel runs counter to this policy and to apply it in this
case will be tantamount to sanctioning a prohibited and void
transaction.
The other issues raised by Peña are merely procedural in
nature and are too inconsequential to override the
fundamental considerations of public policy underlying the
prohibition set forth in Article 1491(5) of the Civil
Code.chanrobleslaw
WHEREFORE, foregoing considered, the Motion for
Reconsideration is hereby DENIED for lack of merit.
SO ORDERED.cralawlawlibrary
February 29, 2016
G.R. No. 215014
REBECCA FULLIDO, Petitioner,
vs.
GINO GRILLI, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse
and set aside the May 31, 2013 Decision1 and the
September 24, 20142 Resolution of the Court of
Appeals (CA) in CA-G.R. CEB-SP No. 06946, which
affirmed the April 26, 2012 Decision 3 of the Regional Trial
Court, Branch 47, Tagbilaran City (RTC) in Civil Case No.
7895, reversing the March 31, 2011 Decision 4 of the
Municipal Circuit Trial Court, Dauis, Bohol (MCTC) in Civil
Case No. 244, a case for unlawful detainer filed by Gino
Grilli (Grilli) against Rebecca Fullido (Fullido).
The Facts
Sometime in 1994, Grilli, an Italian national, met Fullido in
Bohol and courted her. In 1995, Grilli decided to build a
residential house where he and Fullido would to stay
whenever he would be vacationing in the country. Grilli
financially assisted Fullido in procuring a lot located in Biking
I, Dauis, Bohol, from her parents which was registered in her
name under Transfer Certificate of Title (TCT) No.
30626.5 On the said property, they constructed a house,
which was funded by Grilli. Upon completion, they
maintained a common-law relationship and lived there
whenever Grilli was on vacation in the Philippines twice a
year.
In 1998, Grilli and Fullido executed a contract of lease, 6 a
memorandum of agreement7 (MOA) and a special power of
attorney8 (SPA), to define their respective rights over the
house and lot.
The lease contract stipulated, among others, that Grilli as the
lessee, would rent the lot, registered in the name of Fullido,
for a period of fifty (50) years, to be automatically renewed
for another fifty (50) years upon its expiration in the amount
of P10,000.00 for the whole term of the lease contract; and
that Fullido as the lessor, was prohibited from selling,
donating, or encumbering the said lot without the written
consent of Grilli. The pertinent provisions of the lease
contract over the house and lot are as follows:
That for and in consideration of the total amount of rental in
the amount of TEN THOUSAND (P10,000.00) PESOS,
Philippine Currency, paid by the LESSEE to the LESSOR,
receipt of which is hereby acknowledged, the latter hereby
leases to the LESSEE a house and lot, and all the
furnishings found therein, land situated at Biking I, Dauis,
Bohol, Philippines, absolutely owned and belonging to the
LESSOR and particularly described as follows, to wit:
xxxx
That the LESSOR and the LESSEE hereby agree as they
have agreed to be bound by the following terms and
conditions, to wit:
1. That the term of the lease shall be FIFTY (50) YEARS
from August 16, 1998 to August 15, 2048, automatically
renewed for the same term upon the expiration thereof;
xxx
7. That the LESSOR is strictly prohibited to sell, donate,
encumber, or in any manner convey the property subject of
this lease to any third person, without the written consent of
the LESSEE.9
The said lease contract was duly registered in the Register
of Deeds of Bohol.
The MOA, on the other hand, stated, among others, that
Grilli paid for the purchase price of the house and lot; that
ownership of the house and lot was to reside with him; and
that should the common-law relationship be terminated,
Fullido could only sell the house and lot to whomever Grilli
so desired. Specifically, the pertinent terms of the MOA read:
NOW WHEREFORE, FOR AND IN CONSIDERATION of the
foregoing premises, the parties hereto agree as they hereby
covenant to agree that the FIRST PARTY (Grilli) shall
permanently reside on the property as above-mentioned,
subject to the following terms and conditions:
1. That ownership over the above-mentioned
properties shall reside absolutely with herein
FIRST PARTY, and the SECOND
PARTY (Fullido) hereby acknowledges the same;
2. That the SECOND PARTY is expressly
prohibited to sell the above-stated property, except
if said sale is with the conformity of the FIRST
PARTY;
3. That the SECOND PARTY hereby grants the
FIRST PARTY, the absolute and irrevocable right,
to reside in the residential building so constructed
during his lifetime, or any time said FIRST PARTY
may so desire;
 4. That in the event the common-law relationship
terminates, or when the SECOND PARTY marries
another, or enters into another common-law
relationship with another, said SECOND PARTY
shall be obliged to execute a DEED OF
ABSOLUTE SALE over the above-stated parcel of
land and residential building, in favor of
whomsoever the FIRST PARTY may so desire,
and be further obliged to turn over the entire
consideration of the said sale to the FIRST PARTY
, or if the law shall allow, the FIRST PARTY shall
retain ownership of the said land, as provided for
in paragraph 7 below;
xxx
7. That if the cases referred to in paragraph 4 shall
occur and in the event that a future law shall be
passed allowing foreigners to own real properties
in the Philippines, the ownership of the above-
described real properties shall pertain to the
FIRST PARTY, and the herein undersigned
SECOND PARTY undertakes to execute all the
necessary deeds, documents, and contracts to
effect the transfer of title in favor of the FIRST
PARTY;
x x x .10
Lastly, the SPA allowed Grilli to administer, manage, and
transfer the house and lot on behalf of Fullido. Initially, their
relationship was harmonious, but it turned sour after 16
years of living together. Both charged each other with
infidelity. They could not agree who should leave the
common property, and Grilli sent formal letters to Fullido
demanding that she vacate the property, but these were
unheeded. On September 8, 2010, Grilli filed a complaint for
unlawful detainer with prayer for issuance of preliminary
injunction against Fullido before the MCTC, docketed as Civil
Case No. 244.
Grilli’s Position
The complaint stated that the common-law relationship
between Grilli and Fullido began smoothly, until Grilli
discovered that Fullido was pregnant when he arrived in the
Philippines in 2002. At first, she told him that the child she
was carrying was his. After the delivery of the child, however,
it became apparent that the child was not his because of the
discrepancy between the child’s date of birth and his
physical presence in the Philippines and the difference
between the baby’s physical features and those of Grilli.
Later on, she admitted that the child was indeed sired by
another man.
Grilli further claimed that he was so devastated that he In its decision, dated March 31, 2011, the MCTC dismissed
decided to end their common-law relationship. Nevertheless, the case after finding that Fullido could not be ejected from
he allowed Fullido to live in his house out of liberality and their house and lot. The MCTC opined that she was a co-
generosity, but this time, using another room. He did not owner of the house as she contributed to it by supervising its
demand any rent from Fullido over the use of his property. construction. Moreover, the MCTC respected the TPO
issued by RTC-Branch 3 which directed that Grilli be
removed from Fullido’s residence. The dispositive portion of
After a year, Fullido became more hostile and difficult to
the MCTC decision reads:
handle. Grilli had to make repairs with his house every time
he arrived in the Philippines because she was not
maintaining it in good condition. Fullido also let her two WHEREFORE, judgment is hereby rendered:
children, siblings and parents stay in his house, which
caused damage to the property. He even lost his personal
1. Dismissing the instant case;
belongings inside his house on several occasions. Grilli
verbally asked Fullido to move out of his house because they
were not getting along anymore, but she refused. He could 2. Ordering the Plaintiff to pay to
no longer tolerate the hostile attitude shown to him by Fullido Defendant the amount of Fifty Thousand
and her family, thus, he filed the instant complaint. Pesos (P50,000.00) as moral damages,
and Twenty Thousand Pesos
(P20,000.00) as exemplary damages,
Fullido’s Position
and Twenty Thousand Pesos
(P20,000.00) as Attorney’s Fees; and
Fullido countered that she met Grilli sometime in 1993 when
she was still 17 years old working as a cashier in Alturas
3. Denying the prayer for the issuance of
Supermarket. Grilli was then a tourist in Bohol who
Preliminary Mandatory Injunction.
persistently courted her.
SO ORDERED.12
At first, Fullido was hesitant to the advances of Grilli because
she could not yet enter into a valid marriage. When he
assured her and her parents that they would eventually be Not in conformity, Grilli elevated the matter before the RTC.
married in three years, she eventually agreed to have a
relationship with him and to live as common-law spouses.
The RTC Ruling
Sometime in 1995, Grilli offered to build a house for her on a
parcel of land she exclusively owned which would become
their conjugal abode. Fullido claimed that their relationship In its decision, dated April 26, 2012, the RTC reversed and
as common-law spouses lasted for more than 18 years until set aside the MCTC decision. The RTC was of the view that
she discovered that Grilli had found a new and younger Grilli had the exclusive right to use and possess the house
woman in his life. Grilli began to threaten and physically hurt and lot by virtue of the contract of lease executed by the
her by knocking her head and choking her. parties. Since the period of lease had not yet expired,
Fullido, as lessor, had the obligation to respect the peaceful
and adequate enjoyment of the leased premises by Grilli as
When Fullido refused to leave their house even after the
lessee. The RTC opined that absent a judicial declaration of
unlawful detainer case was filed, Grilli again harassed,
nullity of the contract of lease, its terms and conditions were
intimidated and threatened to hurt her and her children.
valid and binding. As to the TPO, the RTC held that the
Thus, she filed a petition for Temporary Protection Order
same had no bearing in the present case which merely
(TPO) and Permanent Protection Order (PPO) against Grilli
involved the possession of the leased property.
under Republic Act (R.A.) No. 9262 before the Regional Trial
Court, Branch 3, Bohol (RTC-Branch 3). In an Order,11 dated
February 23, 2011, the RTC-Branch 3 granted the TPO in Aggrieved, Fullido instituted an appeal before the CA
favor of Fullido and directed that Grilli must be excluded from alleging that her land was unlawfully transferred by Grilli to a
their home. certain Jacqueline Guibone (Guibone), his new girlfriend, by
virtue of the SPA earlier executed by Fullido.
Fullido finally asserted that, although it was Grilli who funded
the construction of the house, she exclusively owned the lot The CA Ruling
and she contributed to the value of the house by supervising
its construction and maintaining their household.
In its assailed decision, dated May 31, 2013, the CA upheld
the decision of the RTC emphasizing that in an ejectment
The MCTC Ruling
case, the only issue to be resolved would be the physical
possession of the property. The CA was also of the view that
as Fullido executed both the MOA and the contract of lease,
which gave Grilli the possession and use of the house and
lot, the same constituted as a judicial admission that it was
Grilli who had the better right of physical possession. The CA
stressed that, if Fullido would insist that the said documents
were voidable as her consent was vitiated, then she must
institute a separate action for annulment of contracts. Lastly,
the CA stated that the TPO issued by the RTC-Branch 3
under Section 21 of R.A. No. 9262 was without prejudice to
any other action that might be filed by the parties.
Fullido filed a motion for reconsideration, 13 but she failed to
attach the proofs of service of her motion. For said reason, it
was denied by the CA in its assailed resolution, dated
September 24, 2014.
Hence, this present petition raising the following:
ISSUES
I first filed a separate action for annulment of the said
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED AND DEPARTED FROM ESTABLISHED LAW
AND JURISPRUDENCE IN DENYING THE PETITION FOR
REVIEW AND IN AFFIRMING THE DECISION OF RTC
BOHOL BRANCH 47 EJECTING PETITIONER FROM THE
SUBJECT PROPERTIES, WHICH EJECTMENT ORDER IS
ANCHORED ON PATENTLY NULL AND VOID
CONTRACTS.
II
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED AND DEPARTED FROM ESTABLISHED LAW IN
AFFIRMING THE DECISION OF THE RTC BOHOL
BRANCH 47 EJECTING PETITIONER FROM THEIR
CONJUGAL ABODE WHERE RESPONDENT HAS BEEN
EARLIER ORDERED TO VACATE BY VIRTUE OF A
PERMANENT PROTECTION ORDER THUS
EFFECTIVELY SETTING ASIDE, NEGATING AND/OR
VIOLATING AN ORDER ISSUED BY A COURT OF CO-
EQUAL JURISDICTION.
III
THE HONORABLE COURT OF APPEALS LIKEWISE
ERRED AND DEPARTED FROM ESTABLISHED LAW
AND JURISPRUDENCE IN DENYING THE PETITIONER’S
MOTION FOR RECONSIDERATION, AMONG OTHERS,
FOR NONCOMPLIANCE WITH SECTION 1 RULE 52 VIS-
À-VIS SECTION 13, RULE 13 OF THE 1997 RULES OF same were completely void.19 Grilli, on the other hand,
CIVIL PROCEDURE.14 contends that Fullido could not question the validity of the
said contracts in the present ejectment suit unless she
instituted a separate action for annulment of contracts. Thus,
Fullido argues that she could not be ejected from her own lot
the Court is confronted with the issue of whether a contract
based on the contract of lease and the MOA because those
could be declared void in a summary action of unlawful
documents were null and void for being contrary to the
detainer.
Constitution, the law, public policy, morals and customs; that
the MOA prevented her from disposing or selling her own
land, while the contract of lease favoring Grilli, a foreigner, Under the circumstances of the case, the Court answers in
was contrary to the Constitution as it was a for a period of the affirmative.
fifty (50) years, and, upon termination, was automatically
renewable for another fifty (50) years; that the TPO, which
A void contract cannot be the
became a PPO by virtue of the July 5, 2011 Decision 15 of
source of any right; it cannot
RTC-Branch 3, should not be defeated by the ejectment suit;
be utilized in an ejectment suit
and that the CA should have liberally applied its procedural
rules and allowed her motion for reconsideration.
A void or inexistent contract may be defined as one which
16 lacks, absolutely either in fact or in law, one or some of the
In his Comment,  Grilli countered that he was the rightful
elements which are essential for its validity.20 It is one which
owner of the house because a foreigner was not prohibited
has no force and effect from the very beginning, as if it had
from owning residential buildings; that the lot was no longer
never been entered into; it produces no effect whatsoever
registered in the name of Fullido as it was transferred to
either against or in favor of anyone. 21 Quod nullum est
Guibone, covered by TCT No. 101-2011000335; that if
nullum producit effectum. Article 1409 of the New Civil Code
Fullido wanted to assail the lease contract, she should have
explicitly states that void contracts also cannot be ratified;
neither can the right to set up the defense of illegality be
contract, which she did in Civil Case No. 8094, pending
waived.22 Accordingly, there is no need for an action to set
before the Regional Trial Court of Bohol; and that by signing
aside a void or inexistent contract.23
the contracts, Fullido fully agreed with their terms and must
abide by the same.
A review of the relevant jurisprudence reveals that the Court
17 did not hesitate to set aside a void contract even in an action
In her Reply,  Fullido insisted that the contract of lease and
for unlawful detainer. In Spouses Alcantara v. Nido,24 which
the MOA were null and void, thus, these could not be the
involves an action for unlawful detainer, the petitioners
source of Grilli’s de facto possession.
therein raised a defense that the subject land was already
sold to them by the agent of the owner. The Court rejected
The Court’s Ruling their defense and held that the contract of sale was void
because the agent did not have the written authority of the
owner to sell the subject land.
The Court finds the petition meritorious.
Similarly, in Roberts v. Papio,25 a case of unlawful detainer,
Unlawful detainer is an action to recover possession of real
the Court declared that the defense of ownership by the
property from one who unlawfully withholds possession
respondent therein was untenable. The contract of sale
thereof after the expiration or termination of his right to hold
invoked by the latter was void because the agent did not
possession under any contract, express or implied. The
have the written authority of the owner. A void contract
possession of the defendant in unlawful detainer is originally
produces no effect either against or in favor of anyone.
legal but became illegal due to the expiration or termination
of the right to possess. The only issue to be resolved in an
unlawful detainer case is the physical or material possession In Ballesteros v. Abion,26 which also involves an action for
of the property involved, independent of any claim of unlawful detainer, the Court disallowed the defense of
ownership by any of the parties.18 ownership of the respondent therein because the seller in
their contract of sale was not the owner of the subject
property. For lacking an object, the said contract of sale was
In this case, Fullido chiefly asserts that Grilli had no right to
void ab initio.
institute the action for unlawful detainer because the lease
contract and the MOA, which allegedly gave him the right of
possession over the lot, were null and void for violating the Clearly, contracts may be declared void even in a summary
Constitution. Contrary to the findings of the CA, Fullido was action for unlawful detainer because, precisely, void
not only asserting that the said contracts were merely contracts do not produce legal effect and cannot be the
voidable, but she was consistently invoking that the source of any rights. To emphasize, void contracts may not
be invoked as a valid action or defense in any court
proceeding, including an ejectment suit. The next issue that
must be resolved by the Court is whether the assailed lease
contract and MOA are null and void.
<>The lease contract and the
MOA circumvent the
constitutional restraint against
foreign ownership of lands.
Under Section 1 of Article XIII of the 1935 Constitution,
natural resources shall not be alienated, except with respect
to public agricultural lands and in such cases, the alienation
is limited to Filipino citizens. Concomitantly, Section 5
thereof states that, save in cases of hereditary succession,
no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified
to acquire or hold lands of the public domain in the
Philippines. The prohibition on the transfer of lands to aliens
was adopted in the present 1987 Constitution, under
Sections 2, 3 and 7 of Article XII thereof. Agricultural lands,
whether public or private, include residential, commercial
and industrial lands. The purpose of prohibiting the transfer
of lands to foreigners is to uphold the conservation of our
national patrimony and ensure that agricultural resources
remain in the hands of Filipino citizens.27
The prohibition, however, is not limited to the sale of lands to
foreigners. It also covers leases of lands amounting to the
transfer of all or substantially all the rights of dominion. In the
landmark case of Philippine Banking Corporation v. Lui
She,28 the Court struck down a lease contract of a parcel of
land in favor of a foreigner for a period of ninety-nine (99)
years with an option to buy the land for fifty (50) years.
Where a scheme to circumvent the Constitutional prohibition
against the transfer of lands to aliens is readily revealed as
the purpose for the contracts, then the illicit purpose
becomes the illegal cause rendering the contracts void.
Thus, if an alien is given not only a lease of, but also an
option to buy, a piece of land by virtue of which the
Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear
that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not
only of the right to enjoy the land but also of the right to
dispose of it — rights which constitute ownership. If this can
be done, then the Constitutional ban against alien
landholding in the Philippines, is indeed in grave peril.29
In Llantino v. Co Liong Chong,30 however, the Court clarified
that a lease contract in favor of aliens for a reasonable
period was valid as long as it did not have any scheme to
circumvent the constitutional prohibition, such as depriving
the lessors of their right to dispose of the land. The Court
explained that "[a]liens are not completely excluded by the
Constitution from use of lands for residential purposes. Since
their residence in the Philippines is temporary, they may be Grilli admitted that "this is a case of an otherwise valid
granted temporary rights such as a lease contract which is contract of lease that went beyond the period of what is
not forbidden by the Constitution. Should they desire to legally permissible."34 Grilli had been empowered to deprive
remain here forever and share our fortune and misfortune, Fullido of her land’s possession, control, disposition and
Filipino citizenship is not impossible to acquire." 31 The even its ownership. The jus possidendi, jus utendi, jus
lessee-foreigner therein eventually acquired Filipino fruendi, jus abutendi and, more importantly, the jus
citizenship. disponendi – the sum of rights which composes ownership –
of the property were effectively transferred to Grilli who
would safely enjoy the same for over a century. The title of
Consequently, Presidential Decree (P.D.) No. 471 was
Fullido over the land became an empty and useless vessel,
enacted to regulate the lease of lands to aliens.1avvphi1 It
visible only in paper, and was only meant as a dummy to
provides that the maximum period allowable for the duration
fulfill a foreigner’s desire to own land within our soils. It is
of leases of private lands to aliens or alien-owned
disturbing how these documents were methodically
corporations, associations, or entities not qualified to acquire
formulated to circumvent the constitutional prohibition
private lands in the Philippines shall be twenty-five (25)
against land ownership by foreigners. The said contracts
years, renewable for another period of twenty-five (25) years
attempted to guise themselves as a lease, but a closer
upon mutual agreement of both lessor and lessee. 32 It also
scrutiny of the same revealed that they were intended to
provides that any contract or agreement made or
transfer the dominion of a land to a foreigner in violation of
executed in violation thereof shall be null and void ab
Section 7, Article XII of the 1987 Constitution. Even if Fullido
initio.33
voluntary executed the same, no amount of consent from the
parties could legalize an unconstitutional agreement. The
Based on the above-cited constitutional, legal and lease contract and the MOA do not deserve an iota of validity
jurisprudential limitations, the Court finds that the lease and must be rightfully struck down as null and void for being
contract and the MOA in the present case are null and void repugnant to the fundamental law. These void documents
for virtually transferring the reigns of the land to a foreigner. cannot be the source of rights and must be treated as mere
scraps of paper.
As can be gleaned from the contract, the lease in favor of
Grilli was for a period of fifty (50) years, automatically Grilli does not have a
extended for another fifty (50) years upon the expiration of cause of action for
the original period. Moreover, it strictly prohibited Fullido unlawful detainer
from selling, donating, or encumbering her land to anyone
without the written consent of Grilli. For a measly
Ultimately, the complaint filed by Grilli was an action for
consideration of P10,000.00, Grilli would be able to
unlawful detainer. Section 1 of Rule 70 of the Rules of Court
absolutely occupy the land of Fullido for 100 years, and she
lays down the requirements for filing a complaint for unlawful
is powerless to dispose the same. The terms of lease
detainer, to wit:
practically deprived Fullido of her property rights and
effectively transferred the same to Grilli.
Who may institute proceedings, and when. – Subject to the
provision of the next succeeding section, a person deprived
Worse, the dominion of Grilli over the land had been firmly
of the possession of any land or building by force,
cemented by the terms of the MOA as it reinforced Grilli’s
intimidation, threat, strategy, or stealth, or a lessor, vendor,
property rights over the land because, first, it brazenly
vendee, or other person against whom the possession
dictated that ownership of the land and the residential
of any land or building is unlawfully withheld after the
building resided with him. Second, Fullido was expressly
expiration or termination of the right to hold possession, by
prohibited from transferring the same without Grilli’s
virtue of any contract, express or implied, or the legal
conformity. Third, Grilli would permanently reside in the
representatives or assigns of any such lessor, vendor,
residential building. Fourth, Grilli may capriciously dispose
vendee, or other person, may, at any time within one (1) year
Fullido’s property once their common-law relationship is
after such unlawful deprivation or withholding of possession,
terminated. This right was recently exercised when the land
bring an action in the proper Municipal Trial Court against
was transferred to Guibone. Lastly, Fullido shall be
the person or persons unlawfully withholding or depriving of
compelled to transfer the land to Grilli if a law would be
possession, or any person or persons claiming under them,
passed allowing foreigners to own real properties in the
for the restitution of such possession, together with damages
Philippines.
and costs.
Evidently, the lease contract and the MOA operated hand-in-
[Emphasis Supplied]
hand to strip Fullido of any dignified right over her own
property. The term of lease for 100 years was obviously in
excess of the allowable periods under P.D. No. 471. Even
A complaint sufficiently alleges a cause of action for unlawful from filing the present petition before the Court because the
detainer if it recites the following: (1) initially, possession of matters at hand involved an issue of public policy,
property by the defendant was by contract with or by specifically the Constitutional prohibition against land
tolerance of the plaintiff; (2) eventually, such possession ownership by aliens. As pronounced in Philippine Banking
became illegal upon notice by plaintiff to defendant of the Corporation v. Lui She, the said constitutional provision
termination of the latter’s right of possession; (3) thereafter, would be defeated and its continued violation sanctioned if
the defendant remained in possession of the property and the lands continue to remain in the hands of a
deprived the plaintiff of the enjoyment thereof; and (4) within foreigner.40 Thus, the doctrine of in pari delicto shall not be
one year from the last demand on defendant to vacate the applicable in this case.
property, the plaintiff instituted the complaint for ejectment.35
WHEREFORE, the petition is GRANTED. The May 31, 2013
The Court rules that Grilli has no cause of action for unlawful Decision of the Court of Appeals and its September 24, 2014
detainer against Fullido. As can be gleaned from the Resolution in CA-G.R. CEB-SP No. 06946 are
discussion above, the complainant must either be a lessor, hereby REVERSED and SET ASIDE. The complaint filed by
vendor, vendee, or other person against whom the Gino Grilli before the Municipal Circuit Trial Court, Dauis-
possession of any land or building is unlawfully withheld. In Panglao, Dauis, Bohol, docketed as Civil Case No. 244,
other words, the complainant in an unlawful detainer case is DISMISSED for lack of cause of action.
must have some right of possession over the property.
SO ORDERED.
In the case at bench, the lease contract and the MOA, from
which Grilli purportedly drew his right of possession, were
found to be null and void for being unconstitutional. A
contract that violates the Constitution and the law is null and
void ab initio and vests no rights and creates no obligations.
It produces no legal effect at all. 36 Hence, as void contracts
could not be the source of rights, Grilli had no possessory
right over the subject land. A person who does not have any
right over a property from the beginning cannot eject another
person possessing the same. Consequently, Grilli’s
complaint for unlawful detainer must be dismissed for failure
to prove his cause of action.

In Pari Delicto Doctrine

is not applicable

On a final note, the Court deems it proper to discuss the

doctrine of in pari delicto. Latin for "in equal fault," in pari
delicto connotes that two or more people are at fault or are
guilty of a crime. Neither courts of law nor equity will
interpose to grant relief to the parties, when an illegal
agreement has been made, and both parties stand in pari
delicto.37

The application of the doctrine of in pari delicto is not always

rigid. An accepted exception arises when its application
contravenes well-established public policy. In this
jurisdiction, public policy has been defined as that principle
of the law which holds that no subject or citizen can lawfully
do that which has a tendency to be injurious to the public or
against the public good. 38 Thus, whenever public policy is
advanced by either party, they may be allowed to sue for
relief against the transaction.39

In the present case, both Grilli and Fullido were undoubtedly

parties to a void contract. Fullido, however, was not barred
 TO GUARANTEE A PRINCIPAL X X X (illegible) IN THE
SUM OF ₱36,036.10 PAYABLE WITHIN TWENTY FIVE (25)
YEARS WITH ANNUAL INTEREST OF TWELVE (12%)
PERCENT UNTIL FULLY PAID IN THREE HUNDRED (300)
EQUAL MONTHLY INSTALLMENTS.x x x

DATE OF INSTRUMENT – Feb. 12, 1981

August 1, 2016
DATE OF INSCRIPTION – May 8, 1981
G.R. No. 201070
and further subject to a proviso, proscribing any transfer or
LUZ S. NICOLAS, Petitioner encumbrance of said parcel of land, viz[.]:
vs.
LEONORA C. MARIANO, Respondent
"EXCEPT BY HEREDITARY SUCCESSION, THE HEREIN
LOT OR ANY PART THEREOF CANNOT BE x x x
DECISION (illegible), TRANSFERRED, OR ENCUMBERED WITHIN
FIVE (5) YEARS FROM THE DATE OF RELEASE OF THE
MORTGAGE INSCRIBED AT THE BACK HEREOF
DEL CASTILLO, J.: WITHOUT PRIOR WRITTEN CONSENT AND AUTHORITY
FROM THE NATIONAL HOUSING AUTHORITY."
When both parties are in pari delicto or in equal fault, none of
them may expect positive relief from the courts in the Accordingly, the NHA withheld conveyance of the
interpretation of their agreement; instead, they shall be left original TCT No. C-44249 to Leonora Mariano, furnishing her
as they were at the time the case was filed. This Petition for instead a photocopy thereof as the issuance of the original
Review on Certiorari1 assails the Court of Appeals' (CA) TCT in her name is conditioned upon her full payment of the
June 21, 2011 Decision2 and March 1, 2012 mortgage loan. Leonora Mariano’s last payment was in
Resolution3 denying herein petitioner's Motion for Partial February 1999. The NHA’s Statement of Account indicates
Reconsideration4 in CA-G.R. CV No. 93532. that as of September 30, 2004, Leonora Mariano’s
outstanding obligation amounted to ₱37,679.70. Said
Factual Antecedents obligation remained unpaid.

The CA's summation of the facts is hereby adopted, thus:
The subject of the instant controversy is the one-half portion
of a 155-square meter parcel of land known as Lot 13-A,
Block 40 located at 109 Kapayapaan Street, Bagong Barrio,
Caloocan City and covered by Transfer Certificate of Title
No. (TCT) No. C-44249. The parcel of land is part of the
National Housing Authority’s (NHA) Bagong Barrio Project
and built thereon is plaintiff-appellee Leonora
Mariano’s5 five-unit apartment which she leases out to
tenants.
In 1972, Leonora Mariano filed with the NHA Application No.
99-02-0323 for a land grant under the Bagong Barrio Project.
In 1978, the NHA approved the Application, thus, her
institution as grantee of the foregoing parcel of land. The
grant, however, is subject to a mortgage inscribed as Entry
No. 98464/C-39393 on the dorsal side of TCT No. C-44249,
viz[.]:
On January 28, 1998, Leonora Mariano obtained a
₱100,000.00 loan from defendant-appellant Luz
Nicolas6 with a payment term of ten (10) months at the
monthly interest rate of 7%. To secure the loan, she
executed a Mortgage Contract over the subject property,
comprising the one-half portion of the parcel of land.
On February 22, 1999, Leonora Mariano, having defaulted in
the payment of her obligation, executed in favor of Luz
Nicolas a second mortgage deed denominated as Sanglaan
ng Lupa at Bahay, this time mortgaging the subject property
and the improvements thereon for a consideration of
P552,000.00 inclusive of the original loan of P100,000.00.
The Sanglaan ng Lupa at Bahay provides for a payment
term of one (1) year and contains the following stipulations:
x x x           x x x          x x x

--- NATIONAL HOUSING AUTHORITY –

1. Na kung sakali at mabayaran ng UNANG PANIG ang
IKALAWANG PANIG o ang kahalili nito ang nabanggit na
pagkakautang na halagang Limang Daan Limamput
Dalawang Libong Piso (P552,000.00), salaping Pilipino,
kasama ang interes o tubo, sa loob ng taning na panahon,
ay mawalan ng bisa at saysay ang SANGLAANG ito;
2. Na kapag hindi nabayaran ng UNANG PANIG sa
IKALAWANG PANIG ang buong halagang pagkakautang
na nabanggit sa itaas, ay ituturing ng ma[g]kabilang
panig na ang lupa at bahay na nakasangla ay nabili at
pagmamayari na ng IKALAWANG PANIG at sumasang-
ayon ang UNANG PANIG na magsagawa ng kaukulang
Kasulatan ng Bilihan na wala nang karagdagang bayad o
halagang ibinibigay sa nagsangla.
x x x           x x x          x x x
On June 7, 2000, Leonora Mariano, similarly defaulting on
the second obligation, executed a deed of Absolute Sale of
Real Property, conveying to Luz Nicolas the ownership of the
subject property and the improvements thereon for a
purchase price of ₱600,000.00. A document denominated
Pagtanggap ng Kabuang Halaga, executed before Punong
Barangay Crispin C. Peña, Sr. attested to the full payment of
the ₱600,000.00 to Leonora Mariano. It appears that from
June 1999, the tenants of Leonora Mariano’s five-unit
apartment have been remitting monthly rentals to Luz
Nicolas in the amount of ₱2,000.00, or ₱10,000.00 in the
aggregate. From said period until June 2004, Luz Nicolas’
rental collection amounted to ₱600,000.00. 7 (Emphasis in
the original)
Ruling of the Regional Trial Court
On July 8, 2004, Leonora C. Mariano (Mariano) sued Luz S.
Nicolas (Nicolas) before the Regional Trial Court of
Caloocan City (RTC). In her Amended Complaint 8 for
"Specific Performance with Damages and with Prayer for the
Issuance of a Temporary Restraining Order and thereafter a
Permanent Mandatory Injunction" before RTC Branch 121,
Mariano sought to be released from the second mortgage
agreement and stop Nicolas from further collecting upon her
credit through the rentals from her apartments, claiming that
she has fully paid her debt. In addition, she prayed for other
actual damages, moral damages, attorney’s fees, and
injunctive relief.
In her Answer,9 Nicolas denied that she collected rentals
from Mariano’s apartments; that Mariano’s debt remained
unpaid; that the subject property and the improvements
thereon were later sold to her via a deed of absolute sale
executed by Mariano which, however, did not bear the
written consent of the latter’s husband; and that as a result of
the sale, she obtained the right to collect the rentals from the
apartment tenants. Nicolas thus prayed that Mariano be
ordered to surrender the title to the subject property to her,
and to pay her moral and exemplary damages and costs.
After trial, the trial court issued its Decision 10 in Civil Case
No. C-20937 dated August 26, 2009, decreeing as follows:
The Court is inclined to believe that what had been entered
into by and between the parties was a mere contract of
mortgage of real property and not a sale of real property.
The Court could not uphold the validity of the Deed of
Absolute Sale of Real Property dated June 7, 2000 because
it is tainted with flaws and defects. There is no evidence that
the parties have given their consent thereto. A careful
scrutiny of the document will readily show that at the time of
the execution thereof there was no consideration for the sale
of the property. The alleged vendor, plaintiff herein, made it
appear that she received the sum of Php600,000.00 in full
and in her complete satisfaction from the alleged vendee,
herein defendant. The lack of consideration was likewise
bolstered by the defendant’s production of the handwritten
memorandum or note of the various amounts allegedly
received by the aforesaid defendant from the plaintiff on
different occasions. It is important to stress, however, that
even admitting arguendo that several amounts were
received by the plaintiff from the defendant, there has not
been any indication that the same were intended as
consideration for the sale of the property in question. x x x It
has been observed also that the alleged payments occurred
long after the execution of the Deed of Sale, or a span of
four (4) months to be more exact. No less than the barangay
captain had categorically declared that he did not see that
the defendant even handed over the amount of
Php600,000.00 to the plaintiff. Moreover, a scrutiny of the
aforesaid fictitious Deed of Absolute Sale of Real Property
will readily show that it did not even specifically described
[sic] the subject-matter of the alleged sale.
There are two sets of mortgage contracts executed by the
parties herein. One in the amount of Php100,000.00 with an
interest of 7% payable in ten (10) month period and the other
one in a jacked up price of Php552,000.00 payable within a
period of one (1) year from its execution. The plaintiff’s
contention that the unpaid obligation in the amount of
Php100,000.00 has already been consolidated to the jacked
up amount of Php552,000.00 is tenable. Anent the claim of
the defendant that the plaintiff never paid her, such alleged
failure however could not be attributed to the fault of the
plaintiff considering that the latter had been tendering her
payments not only once but for several times and it was the
defendant who refused to accept the payments for various
reasons. It is crystal clear that the defendant’s refusal to
accept the payments which were tendered by the plaintiff
was nothing but a malicious scheme devised by the
defendant to make the plaintiff’s obligation ballooned [sic] to
Php552,000.00, which would make it more difficult for the
plaintiff to pay the increased amount of Php552,000.00 in
lump sum. The actuations displayed by the defendant is
indeed a downright manifestation of bad faith on her part in
her desire to own the property belonging to herein plaintiff,
which is in brazen violation of Article 19 of the Civil Code,
which provides among others that ‘Every person must in the
exercise of his right and in the performance of his duties act
with justice, give everyone his due and observe honesty and
good faith.’ Be that as it may, the plaintiff, despite her
vigorous protestation to the jacked up amount of
Php552,000.00 had agreed to sign the second mortgage
denominated as ‘Sanglaan Ng Bahay At Lupa’ payable
within a period of one (1) year. Apparently, the defendant’s
consuming aspiration to push the plaintiff against the wall,
had even accentuated when she demanded payment of the
aforestated sum from the herein plaintiff even before its
maturity.
It is important to stress however, that in plaintiff’s sincere
desire to settle her obligation, upon request of the defendant,
had even executed a Special Power of Attorney in favor of
the latter, authorizing the aforesaid defendant to collect the
rentals from the five-door apartment belonging to the plaintiff,
which commenced from June 1999 up to June 2004.
Although the defendant assured the plaintiff that the
payments by way of rentals would be applied to the
indebtedness of the plaintiff, such verbal agreement was
never reduced in writing in view of the trust and confidence
reposed by the plaintiff upon the defendant.
In sum, the defendant was able to collect the total amount of
Php612,000.00 from the tenants of the plaintiff, which
evidently tremendously exceeded the amount of the alleged
indebtedness of the plaintiff to the defendant in the increased
amount of Php552,000.00.
x x x           x x x          x x x
There is no doubt that the plaintiff has suffered mental
anguish and injury due to the wrongful act done by the
defendant against the plaintiff. Hence, the latter is entitled to
an award of moral damages inasmuch as the sufferings and
injuries suffered by the plaintiff are the proximate result of
the defendant’s wrongful act or omission (Art. 2217, Civil
Code of the Philippines). However, the amount of moral
damages suffered by the plaintiff in the amount of
Php400,000.00 is unconscionable which must have to be
reduced by the court.
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendant
by:
 1. Ordering the cancellation of the two (2)
mortgages denominated as Mortgage Contract
and the Sanglaan Ng Lupa At Bahay, thus
releasing the plaintiff from her obligation relative
thereto;
2. Ordering the defendant, to stop collecting
further monthly rentals on the five-door apartment
belonging to the plaintiff from the tenants of the
latter; and,
3. To pay moral damages in the amount of
Php100,000.00, and,
4. To pay the costs of suit.
SO ORDERED. 11
 
Ruling of the Court of Appeals
Nicolas filed an appeal before the CA, docketed as CA-G.R.
CV No. 93532. In its assailed June 21, 2011 Decision,
however, the CA ruled against Nicolas, stating thus:
Aggrieved, Luz Nicolas interposed this appeal, raising the
following assignment of errors:
I compliance with Sections 5 and 6, Rule 41 of the Rules of
THE TRIAL COURT ERRED IN DECLARING THE DEED
OF SALE AS NULL AND VOID FOR LACK OF
CONSIDERATION;
II
THE TRIAL COURT ERRED IN RELEASING THE
APPELLEE FROM HER OBLIGATION TO THE
APPELLANT AND CANCELING THE TWO MORTGAGES;
[and]
III
THE TRIAL COURT ERRED IN AWARDING THE
APPELLEE MORAL DAMAGES AND COST OF SUIT.
The pivotal issue in this appeal is whether x x x the RTC
committed reversible error in (1) declaring the Absolute Sale
of Real Property invalid, (2) cancelling the Mortgage
Contract and Sanglaan ng Lupa at Bahay, and (3) awarding
moral damages to Leonora Mariano.
xxxx
Luz Nicolas maintains that the Absolute Sale of Real
Property is valid on the grounds: (1) that the same is
Leonora Mariano’s free and voluntary act in settlement of her
mortgage liability of ₱552,000.00; (2) it pertains to the
subject property for the valid consideration of ₱600,000.00,
₱552,000.00 of which Leonora Mariano had already received
by way of the mortgage debt; and (3) that the Pagtanggap ng
Kabuuang Halaga is conclusive evidence of Leonora
Mariano’s full receipt of the ₱600,000.00. She further avers
that the RTC erred in declaring Leonora Mariano’s release
from liability on the basis of the purported special power of
attorney, contending that the special power was never
formally offered in evidence and that assuming arguendo it
exists, the Absolute Sale of Real Property superseded the
same, making her rental collection one in the concept of an
owner. She finally theorizes that the Absolute Sale of Real
Property novated the mortgage contracts because it
converted Leonora Mariano’s mortgage obligation of
₱552,000.00 into partial consideration for the subject
property and that it is Leonora Mariano who is instead liable
for moral damages, having maliciously filed the fraudulent
complaint against her who entered into the foregoing
contracts in good faith.
For her part, Leonora Mariano, reiterates the grounds raised
in her Motion to Dismiss Notice to Appeal by Expunging and
further avers the appeal is procedurally infirm for non-
Court. She maintains the propriety of the RTC’s Decision,
stressing that being the trial court’s factual conclusion, the
same must be accorded great respect
x x x.
The appeal is partly meritorious.
xxxx
As regards the merits of this appeal, we are one with the
RTC in declaring the Absolute Sale of Real Property invalid,
but we cannot uphold that the invalidity thereof due to lack of
the essential requisites of consent, object, and consideration.
Indeed, the Absolute Sale of Real Property contains all the
foregoing requisites and nothing in the records proves, or at
least suggests, that the same was executed through fraud or
under duress. Hence, by no stretch of the imagination can
we sustain the RTC’s declaration of invalidity on said ground.
We declare the Absolute Sale of Real Property is invalid on
the ground that Leonora Mariano, the supposed vendor of
the subject property, is not the owner thereof. For a sale to
be valid, it is imperative that the vendor is the owner of the
property sold. The records show that Leonora Mariano, to
debunk Luz Nicolas’ claim of ownership of the subject
property, openly admitted that she has not fully paid the
grant thereof to the NHA. Leonora Mariano, as mere grantee
of the subject property who failed to fulfil the conditions of
the grant, never acquired ownership thereof, hence, was
without any right to dispose or alienate the same. "Nemo dat
quod non habet." One cannot give what he does not own.
Hence, not being the owner of the subject property, Leonora
Mariano could have not transferred the ownership thereof to
Luz Nicolas.12
Furthermore, the Absolute Sale of Real Property is a clear
violation of the express proviso, prohibiting "any transfer or
encumbrance of subject property within five (5)-years from
the release of the mortgage." Said violation rendered the
Absolute Sale void ab initio, thus, the Republic’s retention of
ownership over the subject property. 13 A buyer acquires no
better title to the property sold than the seller had.
Necessarily, Luz Nicolas cannot invoke the Absolute Sale as
basis of her right to collect rentals.
Leonora Mariano, being not the owner of the subject
property, we declare that both the Mortgage Contract and
the Sanglaan ng Lupa at Bahay she executed are void ab
initio. For a person to validly constitute a mortgage on real
estate, he must be the absolute owner of the property
mortgaged as required by Article 2085 of the New Civil
Code. Otherwise stated, the mortgagor must be the owner of
the property subject of the mortgage; otherwise, the
mortgage is void.
Thus, having declared the Absolute Sale of Real Property
and the two mortgages, i.e. the Mortgage Contract and the
Sanglaan ng Lupa at Bahay, void, all rights and obligations
created thereunder are effectively obliterated and rendered
ineffective. Luz Nicolas’ supposed ownership of the subject
property and her right to collect rentals on Leonora Mariano’s
five-unit apartment, on the one hand, and the latter’s
mortgage debt of ₱552,000.00, on the other hand, are
necessarily void, hence, without force and effect. A void
contract is equivalent to nothing; it produces no civil effect. It
does not create, modify, or extinguish a juridical relation.
Parties to a void agreement cannot expect the aid of the law.
The courts leave them as they are, because they are
deemed in pari delicto or in equal fault. It follows, therefore,
that the award of moral damages must also be vacated. The
rule is no damages may be recovered on the basis of a void
contract since being inexistent, it produces no juridical tie
between the parties involved.
WHEREFORE, the appeal is PARTLY GRANTED. The
assailed Decision dated August 26, 2009 of the RTC, Branch
121, Caloocan City, in Civil Case No. C-20937 is AFFIRMED
with MODIFICATION, deleting the award of moral damages
of P100,000.00 to Leonora Mariano.
SO ORDERED.14
Nicolas moved to reconsider, but in its assailed March 1,
2012 Resolution, the CA held its ground. Hence, the present
Petition.
On May 8, 2012, Mariano filed a Motion for Execution
Pending Appeal.15 In a November 13, 2013 Resolution, 16 this
Court resolved to give due course to the instant Petition.
On November 5, 2014, Mariano filed a Motion for Urgent
Execution Pendente Lite, 17 which the Court noted in a
February 2, 2015 Resolution.18
Issues
Nicolas submits that –
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN APPLYING THE RULINGS IN HEIRS OF
SALVADOR HERMOSILLA VS. REMOQUILLO (513 SCRA
409-410) AND MAGOYAG VS. MARUHOM (626 SCRA 247,
257 [2010]) WHICH ARE INAPPLICABLE TO THE CASE AT
BAR SINCE RESPONDENT LEONORA C. MARIANO
ALIENATED THE SAID PROPERTY WHEN SHE WAS THE
ABSOLUTE OWNER OF THE PROPERTY.
a) THE TRANSFER CERTIFICATE OF TITLE
ISSUED IN FAVOR OF RESPONDENT
MARIANO IS AN EVIDENCE OF HER
OWNERSHIP OVER THE SUBJECT PROPERTY.
b) ARTICLE 1477 OF THE NEW CIVIL CODE
BOLSTERS RESPONDENT’S OWNERSHIP
OVER THE SUBJECT PROPERTY WHICH
NECESSARILY CAPACITATES HER TO
ALIENATE THE SAID PROPERTY IN FAVOR OF
PETITIONER.
II.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN HOLDING THAT RESPONDENT WAS NOT THE
ABSOLUTE OWNER AT THE TIME THE DEED OF
ABSOLUTE SALE WAS EXECUTED.
III.
THE PROVISO IN THE TRANSFER CERTIFICATE OF
TITLE THAT PROHIBITS APPELLEE LEONORA C.
MARIANO TO TRANSFER OR ENCUMBER THE SUBJECT
PROPERTY IS A STIPULATION CONTRARY TO LAW
SINCE THE SAID PROVISO YIELDS TO R.A. 6552 (AN
ACT TO PROVIDE PROTECTION TO BUYERS OF REAL
ESTATE ON INSTALLMENT PAYMENTS [MACEDA LAW]).
IV.
THE DEED OF SALE OVER THE SUBJECT PROPERTY
BETWEEN THE PARTIES IS VALID AND BINDING.19
Arguments of Nicolas
Praying that the assailed CA dispositions be reversed and
set aside, Nicolas argues in her Petition that the CA
seriously erred in affirming the cancellation of the mortgage
contracts and invalidating the parties’ deed of sale, since, as
the registered owner of the subject property under Transfer
Certificate of Title (TCT) No. C-44249, Mariano had every
right to mortgage and sell the same to her; that while the
National Housing Authority (NHA) withheld the original copy
of TCT No. C-44249 and merely gave a photocopy thereof to
Mariano pending full payment of the installments, this does
not detract from the fact that Mariano is the owner of the
subject property; that while there is a proviso in TCT No. C-
44249 to the effect that Mariano may not transfer or
encumber the subject property within five years from the
date of release of the mortgage without the NHA’s prior
written consent and authority, this condition is null and void
as it unduly restricts Mariano’s rights as owner of the subject
property; that Republic Act No. 6552 should instead apply in
Mariano’s case, which involves an installment sale of real
property; and that consequently, the mortgages and deed of
sale executed by and between the parties should be upheld
for being in accordance with law, supported by adequate
consideration, and in furtherance of the intentions of the
parties thereto.
Arguments of Mariano
In her Comments and Opposition to the Petition for
Review,20 Mariano fully agrees with the pronouncements of
the CA, except that she believes that she must be awarded
moral damages as prayed for and proved during trial. She
admits that even if TCT No. C-44249 was issued in her
name, she is not the owner of the subject property since she
has not fully paid the installments to the NHA; this being so,
she concedes that she had no right to mortgage and sell the
same to Nicolas. She adds that TCT No. C-44249
constitutes mere evidence of title, and does not vest title
itself, to the subject property. Thus, she prays for affirmance
with modification, in that she be awarded the amounts of
₱960,000.00 as reimbursement for Nicolas’s excess rental
collections; ₱500,000.00 additional actual damages;
₱1,000,000.00 moral damages; ₱400,000.00 attorney’s fees;
and costs of suit.
Our Ruling
The Petition must be denied.
While title to TCT No. C-44249 is in the name of Mariano,
she has not completed her installment payments to NHA;
this fact is not disputed, and as a matter of fact, Mariano
admits it. Indeed, Mariano even goes so far as to concede, in
her Comments and Opposition to the Petition, that she is not
the owner of the subject property. 21 Thus, if she never
became the owner of the subject property, then she could
not validly mortgage and sell the same to Nicolas. The
principle nemo dat quod non habet certainly applies.
x x x By title, the law refers to ownership which is
represented by that document. Petitioner apparently
confuses certificate with title. Placing a parcel of land under
the mantle of the Torrens system does not mean that
ownership thereof can no longer be disputed. Ownership is
different from a certificate of title. The TCT is only the
best proof of ownership of a piece of land. Besides, the
certificate cannot always be considered as conclusive
evidence of ownership. x x x22 (Emphasis supplied)
Indeed, the Torrens system of land registration "merely
confirms ownership and does not create it. It cannot be used
to divest lawful owners of their title for the purpose of
transferring it to another one who has not acquired it by any
of the modes allowed or recognized by law."23
Nicolas is charged with knowledge of the circumstances
surrounding the subject property. The original owner’s copy
of TCT No. C-44249 is not in Mariano’s possession, and the
latter could only present a photocopy thereof to her. Before
one could part with his money as mortgagee or buyer of real
property, it is only natural to demand to be presented with
the original owner’s copy of the certificate of title covering the
same. Secondly, Entry No. 98464/C-39393 on the dorsal
side of TCT No. C-44249 constitutes sufficient warning as to
the subject property’s condition at the time. In other words,
TCT No. C-44249 was not a clean title, and if Nicolas
exercised diligence, she would have discovered that Mariano
was delinquent in her installment payments to the NHA,
which in turn would have generated the necessary
conclusion that the property belonged to the
government agency.
For her part, Mariano cannot recover damages on account of
her claimed losses arising from her entering into contract
with Nicolas.1âwphi1 Realizing that she is not the owner of
the subject property and knowing that she has not fully paid
the price therefor, she is as guilty as Nicolas for knowingly
mortgaging and thereafter selling what is not hers. As
correctly held by the CA, both parties herein are not in good
faith; they are deemed in pari delicto or in equal fault, and for
this, "[n]either one may expect positive relief from courts of
justice in the interpretation of their contract. The courts will
leave them as they were at the time the case was
filed."24 Besides, if Mariano’s prayer for damages were to be
considered at all, she should have directly assailed the CA’s
pronouncement by filing her own petition before this Court,
which she failed to do
With the foregoing pronouncement, the Court finds no need
to tackle the other issues raised by the parties. They have
become irrelevant in light of the view taken of the case.
Consequently, Mariano’s Motion for Execution Pending
Appeal and Motion for Urgent Execution Pendente Lite
require no further resolution.
WHEREFORE, the Petition is DENIED. The June 21, 2011
Decision and March 1, 2012 Resolution of the Court of
Appeals in CA-G.R. CV No. 93532 are AFFIRMED.
SO ORDERED.
said
G.R. No. 195975, September 05, 2016
TAINA MANIGQUE-STONE, Petitioner, v. CATTLEYA
LAND, INC., AND SPOUSES TROADIO B. TECSON AND
ASUNCION ORTALIZ-TECSON, Respondents.
DECISION
Sometime in July 1992, Cattleya Land, Inc. (Cattleya) sent
its legal counsel, Atty. Federico C. Cabilao, Jr. (Atty. Cabilao,
Jr.), to Tagbilaran City to investigate at the Office of the
Register of Deeds in that city the status of the properties of
spouses Col. Troadio B. Tecson (Col. Tecson) and Asuncion
Tecson (collectively, Tecson spouses), which Cattleya
wanted to purchase. One of these properties, an 8,805-
square meter parcel of land located at Doljo, Panglao, Bohol,
is registered in the name of the Tecson spouses, and
covered by Transfer Certificate of Title (TCT) No. 17655
(henceforth, the subject property). Atty. Cabilao, Jr. found
that no encumbrances or liens on the subject property had
been annotated on the TCT thereof, except for an
attachment issued in connection with Civil Case No. 3399
entitled "Tantrade Corporation vs. Bohol Resort Hotel, Inc.,
et al."5
On November 6, 1992, Cattleya entered into a Contract of
Conditional Sale with the Tecson spouses covering nine
parcels of land, including the subject property. In this
transaction the Tecson spouses were represented by Atty.
Salvador S. Pizarras (Atty. Pizarras). The Contract of
Conditional Sale was entered in the Primary Book of the
Office of the Register of Deeds of Bohol that same day, per
Entry No. 83422. On August 30, 1993, the parties executed
a Deed of Absolute Sale covering the subject property. This
Deed of Absolute Sale was also entered in the Primary Book
on October 4, 1993, per Entry No. 87549. However, neither
the Contract of Conditional Sale nor the Deed of Absolute
Sale could be annotated on the certificate of title covering
the subject property because the then Register of Deeds of
Bohol, Atty. Narciso S. De la Serna (Atty. De la Serna)
refused to annotate both deeds. According to Atty. De la
Serna it was improper to do so because of the writ of
attachment that was annotated on the certificate of title of the
subject property, in connection with the said Civil Case No.
3399.6

On December 1, 1993, Atty. Cabilao, Jr. and Atty. Pizarras,

DEL CASTILLO, J.: in representation of their respective clients, again requested
Atty. De la Serna to annotate the Deed of Absolute Sale and
The sale of Philippine land to an alien or foreigner, even if all other pertinent documents on the original certificate of title
titled in the name of his Filipino spouse, violates the covering the subject property. But Atty. De la Serna refused
Constitution and is thus, void. anew – this time saying that he would accede to the request
only if he was presented with a court order to that effect.
Atty. De la Serna still refused the request to annotate, even
Assailed in this Petition for Review on Certiorari1 are the after Atty. Cabilao, Jr. had told him that all that he (Atty.
August 16, 2010 Decision2 of the Court of Appeals (CA) Cabilao, Jr.) was asking was for the Deed of Absolute Sale
which dismissed the appeal by Taina Manigque-Stone to be annotated on the original certificate of title, and not for
(Taina) in CA-G.R. CV No. 02352, and its February 22, 2011 Atty. De la Serna to issue a new transfer of title to the
Resolution,3 which denied Taina's motion for subject property.7
reconsideration4 thereon.
The writ of attachment on the certificate of title to the subject
Factual Antecedents property was, however, lifted, after the parties in Civil Case
No. 3399 reached an amicable settlement or compromise
agreement. Even then, however, Cattleya did not still
succeed in having the aforementioned Deed of Absolute
Sale registered, and in having title to the subject property
transferred to its name, because it could not surrender the
owner's copy of TCT No. 17655, which was in possession of
the Tecson spouses. According to Cattleya, the Tecson
spouses could not deliver TCT No. 17655 to it, because
according to the Tecson spouses this certificate of title had
been destroyed in a fire which broke out in Sierra Bullones,
Bohol.8
This claim by the Tecson spouses turned out to be false,
however, because Atty. Cabilao, Jr. came to know, while
following up the registration of the August 30, 1993 Deed of
Absolute Sale at the Office of the Register of Deeds of
Bohol, that the owner's copy of TCT No. 17655 had in fact
been presented by Taina at the Office of the Register of
Deeds of Bohol, along with the Deed of Sale that was
executed by the Tecson spouses, in favor of Taina covering
the subject property.9
It appears that when Taina's then common-law husband,
Michael (Mike) Stone, visited Bohol sometime in December
1985, he fell in love with the place and decided to buy a
portion of the beach lot in Doljo, Panglao, Bohol. They met
with Col. Tecson, and the latter agreed to sell them a portion
of the beach lot for US$8,805.00. Mike and Taina made an
initial downpayment of US$1,750.00 (or equivalent
P35,000.00 at that time) for a portion of a beach lot, but did
not ask for a receipt for this initial downpayment. On June 1,
1987, a Deed of Absolute Sale covering the subject portion
was executed by Col. Tecson in Taina's favor. Subsequent
payments were made by Mike totalling P40,000.00, as of
August 29, 1986, although another payment of P5,000.00
was made sometime in August 1987. The last payment in
the amount of P32,000.00, was made in September
1987.10 In 1990, Troadio Tecson, Jr., the son of Col. Tecson
and Taina's brother-in-law, delivered to Taina the owner's
copy of TCT No. 17655.11
In the meantime, in October 1986, Taina and Mike got
married.
On April 25, 1994, Taina filed a Notice of Adverse Claim
covering the subject portion, after she learned that Col.
Tecson and his lawyer had filed a petition for the issuance of
a second owner's copy over TCT No. 17655.12
On February 8, 1995, Taina sought to have her Deed of
Absolute Sale registered with the Office of the Register of
Deeds of Bohol, and on that occasion presented the owner's
copy of TCT No. 17655. Taina also caused a Memorandum
of Encumbrance to be annotated on this certificate of title.
The result was that on February 10, 1995, a new certificate
of title, TCT No. 21771, was issued in the name of Taina, in
lieu of TCT No. 17655, in the name of the Tecson
spouses.13 The subject property is described in TCT No.
21771 as follows:
A parcel of Land (Lot 5 of the consolidation-subdivision plan
Pcs-07-000907, being a portion of lots I-A and I-B, Psd-07-
02-12550, LRC. Rec. No. ___), situated in the Barrio of
Doljo, Municipality of Panglao, Province of Bohol, Island of
Bohol. Bounded on the North, along lines 15-16-1 by Bohol
Strait; on the East and Southeast, along line 1-2 by Lot 4 of
the consolidation-subdividion plan; along line 3-4 by Primitivo
Hora; and along line 4-5 by Lot 6 of the consolidation-
subdivision plan; on the South and Southwest, along line 5-
6-7-8 by Andres Guimalan; along line 8-9 by [Bienvenido]
Biosino; along lines 9-10-11-12-13-14 by Angel Hora; and on
the West, along lines 14-15 by Lot 7 of the consolidation-
subdivision plan. Beginning at a point marked "1" on plan,
being S. 83 deg. 08'E., 1045.79 m. from triangulation point
TIP, USCGS, 1908, Doljo, Panglao, Bohol; containing an
area of EIGHT THOUSAND EIGHT HUNDRED AND FIVE
(8,805) SQUARE METERS, more or less.14
Whereupon, Cattleya instituted against Taina a civil action
for quieting of title and/or recovery of ownership and
cancellation of title with damages. 15 Docketed as Civil Case
No. 5782 of the Regional Trial Court (RTC) of Bohol at
Tagbilaran City, Cattleya therein initially impleaded Atty. De
la Serna as party defendant; but as the latter had already
retired as Register of Deeds of Bohol, both parties agreed to
drop his name from the case.16
Taina likewise filed a motion for leave to admit a third-party
complaint against the Tecson spouses; this motion was
granted by the RTC.17
After due proceedings, the RTC of Bohol gave judgment 18 for
Cattleya, thus:
WHEREFORE, in view of all the foregoing, judgment is
hereby rendered in favor of the plaintiff and against the
defendant in the main case as follows:
1. Quieting the title or ownership of the plaintiff in Lot 5 by
declaring the sale in its favor as valid and enforceable by
virtue of a prior registration of the sale in accordance with the
provisions of Presidential Decree No. 1529 otherwise known
as the Property Registration Decree;
2. Ordering the cancellation of Transfer Certificate of Title
No. 21771 in the name of defendant TAINA MANIGQUE-
STONE and the issuance of a new title in favor of the plaintiff
after payment of the required fees; and
3. Ordering the defendant to desist from claiming ownership
and possession thereof. Without pronouncement as to costs.
As to defendant's third[-]party complaint against spouses x x
x Tecson[,] x x x judgment is hereby rendered as follows:
1. Ordering the return of the total amount of Seventy-seven
Thousand (P77,000.00) Pesos to the third[-]party plaintiff
with legal rate of interest from the time of the filing of the
third[-]party complaint on June 28, 2004 until the time the
same shall have been fully satisfied; and
2. Ordering the payment of P50,000.00 by way of moral and
exemplary damages and x x x of attorney's fees in the
amount of P30,000.00 and to pay the costs.
SO ORDERED.19
In finding for Cattleya, the RTC held that the sale entered by
the Tecson spouses with Cattleya and with Taina involving
one and the same property was a double sale, and that
Cattleya had a superior right to the lot covered thereby,
because Cattleya was the first to register the sale in its favor
in good faith; that although at the time of the sale the TCT
covering the subject property could not yet be issued, and
the deed of sale could not be annotated thereon due to a
pending case between the vendors-spouses (Tecson
spouses) and Tantrade, Inc., the evidence convincingly
showed nonetheless that it was Cattleya that was the first to
register the sale in its favor with the Office of the Provincial
Registry of Deeds of Bohol on October 4, [1993] as shown in
Entry No. 87549.20 Furthermore, the RTC found that Cattleya
had no notice, nor was it aware, of Taina's claim to the
subject property, and that the only impediment it (Cattleya)
was aware of was the pending case (Civil Case No. 3399)
between Tantrade Corporation and Bohol Resort Hotel, Inc.21
On the other hand, the RTC found Taina's position untenable
because: First, the June 1, 1987 sale between Col. Tecson
and Mike, Taina's then common-law husband, was a patent
nullity, an absolutely null and void sale, because under the
Philippine Constitution a foreigner or alien cannot acquire
real property in the Philippines. Second, at the time of the
sale, Taina was only Mike's dummy, and their subsequent
marriage did not validate or legitimize the constitutionally
proscribed sale earlier made in Mike's favor. And third, no
less than Taina herself admitted that at the time she caused
the sale to be registered and title thereto issued to her, she
knew or was otherwise aware that the very same lot had
already been sold to Cattleya, or at least claimed by the
latter – and this is a state of affairs constitutive of bad faith
on her part.22
The RTC likewise held that neither parties in the main case
was entitled to damages, because they failed to substantiate
their respective claims thereto.23
As regards Taina's third-party complaint against the Tecson
spouses, the RTC ordered the return or restitution to her of
the sum of P77,000.00, plus legal interest. Likewise awarded
by the RTC in Taina's favor were moral and exemplary
damages in the amount of P50,000.00 and attorney's fees in
the amount of P30,000.00 plus costs.24
Dissatisfied with this judgment, Taina appealed to the CA.
Ruling of the Court of Appeals
On August 16, 2010, the CA handed down the assailed
Decision,25cralawred which contained the following decretal
portion:
WHEREFORE, the challenged Decision of the Regional Trial
Court dated [August 10, 2007] is hereby AFFIRMED with
MODIFICATIONS; to wit:
1. Quieting the title of ownership of the plaintiff-appellee,
CATTLEYA LAND, INC. in the above-described property by
declaring the sale in its favor as valid and enforceable;
2. Ordering the cancellation of Transfer Certificate of Title
No. 21771 in the name of defendant-appellant TAINA
MANIGQUE-STONE;
3. Ordering the registration of the Deed of Absolute Sale
involving the subject property executed in favor of
CATTLEYA LAND, INC. and the issuance x x x of a new title
in favor of the plaintiff-appellee CATTLEYA LAND, INC. ate
payment of the required fees; and
4. Ordering the defendant-appellant, TAINA MANIGQUE-
STONE to desist from claiming ownership and possession
thereof. Without pronouncement as to cost.
As to the third-party defendants-appellees, the spouses
Troadio B. Tecson and Asuncion Ortaliz Tecson, judgment is
hereby rendered as follows:
1. Ordering third-party defendants-appellees, spouses
TROADIO B. TECSON and ASUNCION ORTALIZ TECSON,
[to] return x x x the total amount of Seventy-seven Thousand
(P77,000.00) Pesos to the defendant-appellant, TAINA
MANIGQUE-STONE, with legal rate of interest from the time
of filing of the third[-]party complaint on June 28, 2004 until
the time the same shall have been fully satisfied; and
2. Ordering third-party defendants-appellees, spouses
TROADIO B. TECSON and ASUNCION ORTALIZ TECSON
[to pay] P50,000.00 to the defendant-appellant, TAINA
MANIGQUE-STONE by way of moral and exemplary
damages and [to pay] attorney's fees in the amount of
P30,000.00 x x x.
No pronouncement as to cost.
SO ORDERED.26
In support of its Decision, the CA ratiocinated —
Article 1498 of the Civil Code provides that, as a rule, the
execution of a notarized deed of sale is equivalent to the
delivery of a thing sold. In this case, the notarization of the
deed of sale of TAINA is defective. TAINA testified that the
deed of sale was executed and signed by Col. Troadio
Tecson in Bohol but was notarized in Manila without the
vendors appearing personally before the notary public.
Additionally, Article 1477 of the Civil Code provides that the
ownership of the thing sold is transferred upon the actual or
constructive delivery thereof; however, the delivery of the
owner's copy of TCT 17655 to TAINA is dubious. It was not
the owner, Col. Troadio Tecson, himself who delivered the
same but his son who also happens to be TAINA's brother-
in-law. Hence, the foregoing circumstances negate the fact
that there was indeed an absolute delivery or transfer of
ownership.
Anent the issue on validity of the sale to Taina Manigque-
Stone, the fundamental law is perspicuous in its prohibition
against aliens from holding title or acquiring private lands,
except only by way of legal succession or if the acquisition
was made by a former natural-born citizen.
A scrutiny of the records would show that the trial court aptly
held that the defendant-appellant was only a dummy for Mike
Stone who is a foreigner. Even if the Deed of Absolute Sale
is in the name of Taina Manigque-Stone that does not
change the fact that the real buyer was Mike Stone, a
foreigner. The appellant herself had admitted in court that
the buyer was Mike Stone and at the time of the negotiation
she was not yet legally married to Mike Stone. They cannot
do indirectly what is prohibited directly by the law.
To further militate against her stand, the appellant herself
testified during the cross examination:
Now, the Deed of Sale states that the buyer is Taina
Q:
Manigque-Stone?
A: Yes.
   
Q: And not Mike Stone who according to you was the
one who paid the entire consideration and was the
one who negotiated with Colonel Tecson. Will you
kindly tell the Court how come it was your name who
placed [sic] in the Deed of Sale?
Because an American, foreign national cannot buy
A:
land here.
Yes because an American national, foreigner cannot
Q:
own land here.
A: Yes.
   
And so the Deed of Sale was placed in your name,
Q:
correct?
A: Yes.
The above testimony is a clear admission against interest.
An admission against interest is the best evidence which
affords the greatest certainty of the facts in dispute. The
rationale for the rule is based on the presumption that no
man would declare anything against himself unless such
declaration is true. Accordingly, it is rational to presume that
the testimony corresponds with the truth, and she bears the
burden if it does not.
Moreover, TAINA asserts in the brief that 'ownership of the
lot covered by TCT 21771 is held by her, a Filipino. As long
as the lot is registered in the name of a Filipino, the trial court
is barred from inquiring [into] its legality.' Such assertion is
bereft of merit.
The Honorable Supreme Court, in identifying the true
ownership of a property registered in the name of a Filipina
who was married to a foreign national, pronounced
in Borromeo vs. Descallar that:
'It is settled that registration is not a mode of acquiring
ownership. It is only a means of confirming the fact of its
existence with notice to the world at large. Certificates of title
are not a source of right. The mere possession of a title does
not make one the true owner of the property. Thus, the mere
fact that respondent has the titles of the disputed properties
in her name does not necessarily, conclusively and
absolutely make her the owner [thereof]. The rule on
indefeasibility of title likewise does not apply to respondent.
A certificate of title implies that the title is quiet, and that it is
perfect, absolute and indefeasible. However, there are well-
defined exceptions to this rule, as when the transferee is not
a holder in good faith and did not acquire the subject
properties for a valuable consideration. This is the situation
in the instant case. Respondent did not contribute a single
centavo in the acquisition of the properties. She had no
income of her own at that time, nor did she have any
savings. x x x'27
Taina moved for reconsideration28 of the CA's Decision, but
the CA thumbed down this motion in its February 22, 2011
Resolution.29 Hence, the present Petition.
Issues
Before this Court, petitioner puts forward the following
questions of law for resolution:
1. Whether the assailed Decision is legally correct in holding
that petitioner is a mere dummy of Mike.
2. Whether the assailed Decision is legally correct in
considering that the verbal contract of sale between spouses
Tecson and Mike transferred ownership to a foreigner, which
falls within the constitutional ban on sales of land to
foreigners.
3. Whether the assailed Decision is legally correct in not
considering that, assuming that the sale of land to Mike
violated the Constitution, the same has been cured by the
subsequent marriage of petitioner to Mike and by the
registration of the land in the name of petitioner, a Filipino
citizen.
4. Whether the assailed Decision is legally correct in not
applying the rules on double sale, which clearly favor
petitioner Taina.30
In amplification thereof, petitioner advances these
arguments:
I husband Col. Tecson within the period which expired on
The trial court and the Court of Appeals departed from the
clear provisions of the law and established jurisprudence
when it failed to consider that the Filipino wife of Mike Stone,
petitioner Taina Manigque-Stone[,] has the legal capacity
and the conjugal partnership interests to enter into a contract
of deed of absolute sale with respondent Sps. Troadio B.
Tecson and Asuncion Ortaliz Tecson.
II
The trial court and the Court of Appeals departed from the
provisions of the law and established jurisprudence when it
failed to consider that the verbal contract of sale of land to
Mike Stone was unenforceable and did not transfer
ownership to him, to fall within the constitutional ban on
foreigners owning lands in the Philippines.
III
The trial court and the Court of Appeals departed from
established jurisprudence, when it failed to consider that,
assuming arguendo that the sale of land to Mike Stone
violated the Constitutional ban on foreign ownership of lands,
the same has been cured by the subsequent marriage of
petitioner and Mike Stone, and [the subsequent issuance of
title] in the name of petitioner.
IV
The Court of Appeals gravely erred and departed from
established rules of evidence when it ruled that the delivery
of the owner's copy of TCT 17655 to petitioner Taina is
dubious.
V Court's Resolution
The trial court and the Court of Appeals gravely erred when it
departed from provisions of the law and established
jurisprudence when it did not apply the rules on double sale
which clearly favor petitioner Taina.31
The fundamental issue for resolution in the case at bench is
whether the sale of land by the Tecson spouses to Michael
Stone a.k.a. Mike, a foreigner or alien, although ostensibly
made in Taina's name, was valid, despite the constitutional
prohibition against the sale of lands in the Philippines to
foreigners or aliens. A collateral or secondary issue is
whether Article 1544 of the Civil Code, the article which
governs double sales, controls this case.
Petitioner's Arguments
In praying that the CA Decision be overturned Taina posits
that while Mike's legal capacity (to own or acquire real
property in the Philippines) was not entirely unassailable,
there was nevertheless no actual violation of the
constitutional prohibition against the acquisition or purchase
by aliens or foreigners of lands in the Philippines, because in
this case no real transfer of ownership had been effected in
favor of Mike, from Col. Tecson; 32 that all payments made by
Mike to Col. Tecson must be presumed to have come from
the community property he had with Taina, because Mike
had been her (Taina's) common-law-husband from 1982 up
to the day they were married, in 1986; hence, in this context,
she (Taina) was not exactly Mike's dummy at all, but his
active partner;33 that it is of no consequence that she (Taina)
had knowledge that Cattleya had likewise purchased or
acquired the subject lot because the deed of sale in favor of
Cattleya was executed subsequent to the deed of sale that
she and Mike had entered into with the Tecson spouses,
thus, she was the first to acquire ownership of the subject lot
in good faith;34 that assuming for argument's sake that
neither she nor Cattleya was a purchaser in good faith, still
she was the first one to acquire constructive possession of
the subject lot pursuant to Article 1544 3rd paragraph of the
Civil Code, and for this reason she had acquired lawful title
thereto.35
Respondent Cattleya Land's arguments
Cattleya counters that there could not have been a double
sale in the instant case because the earlier sale between
Col. Tecson and Mike was absolutely null and void, as this
was a flagrant violation of the constitutional provision barring
or prohibiting aliens or foreigners from acquiring or
purchasing land in the Philippines; hence, there was only
one valid sale in this case, and that was the sale between
Col. Tecson and Cattleya.36
with respect to Respondents-
Spouses Tecson
This Court's Resolution dated June 20, 2012 noted, amongst
others, the Manifestation filed by Cattleya, which inter
alia stated: (1) that Col. Tecson died on December 7, 2004;
(2) that Taina instituted a third-party complaint against the
Tecson spouses; (3) that in this third-party complaint the
Tecson spouses were declared in default by the trial court;
(4) that this default order was not appealed by the Tecson
spouses; (5) that the present appeal by Taina from the CA
Decision will in no way affect or prejudice the Tecson
spouses, given the fact that these spouses did not appeal
from the default order, and (6) that the instant Petition be
submitted for resolution without the Comment of the Tecson
spouses.37 In the Resolution of February 26, 2014, this Court
noted that since Asuncion Tecson had failed to submit to this
Court the name of the legal representative of her deceased
October 3, 2013, this Court was dispensing with the
Comment of the Tecson spouses in the instant Petition. 38
Our Ruling
This Petition is bereft of merit.
Section 7, Article XII of the 1987 Constitution states that:
Save in cases of hereditary succession, no private lands
shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold
lands of the public domain.
Given the plain and explicit language of this constitutional
mandate, it has been held that "[a]liens, whether individuals
or corporations, are disqualified from acquiring lands of the
public domain. Hence, they are also disqualified from
acquiring private lands. The primary purpose of the
constitutional provision is the conservation of the
national patrimony."39
In the case at bench, Taina herself admitted that it was really
Mike who paid with his own funds the subject lot; hence,
Mike was its real purchaser or buyer. More than that, it bears
stressing that if the deed of sale at all proclaimed that she
(Taina) was the purchaser or buyer of the subject property
and this subject property was placed under her name, it was
simply because she and Mike wanted to skirt or circumvent
the constitutional prohibition barring or outlawing foreigners
or aliens from acquiring or purchasing lands in the
Philippines. Indeed, both the CA and the RTC exposed and
laid bare Taina's posturing and pretense for what these really
are: that in the transaction in question, she was a mere
dummy, a spurious stand-in, for her erstwhile common-law
husband, who was not a Filipino then, and never attempted
to become a naturalized Filipino citizen thereafter. The CA
put things in correct perspective, thus —
A scrutiny of the records would show that the trial court aptly
held that the defendant-appellant was only a dummy for Mike
Stone who is a foreigner. Even if the Deed of Absolute Sale
is in the name of Taina Manigque-Stone that
does not change the fact that the real buyer was Mike
Stone, a foreigner. The appellant herself had admitted in
court that the buyer was Mike Stone and at the time of the
negotiation she was not yet legally married to Mike
Stone. They cannot do indirectly what is prohibited
directly by the law.40 (Emphasis supplied)
Citing the RTC's proceedings of December 7, 2004, the CA
adverted to the following testimony by the petitioner during
her cross-examination thus –
(Atty. Monteclar)
Now, the Deed of Sale states that the buyer is Taina
Q:
Manigque-Stone?
A: Yes.
   
Q: And not Mike Stone who according to you was the
one who paid the entire consideration and was the
one who negotiated with Colonel Tecson. Will you
kindly tell the Court how come it was your name who
placed [sic] in the Deed of Sale?
A: Because an American, foreign national cannot buy
land here.
Yes because an American national, foreigner cannot
Q:
own land here.
A: Yes.
   
And so the Deed of Sale was placed in your
Q:
name, correct?
A: Yes.41 (Emphasis supplied)
It is axiomatic, of course, that this Court is not a trier of facts.
Subject to well-known exceptions, none of which obtains in
the instant case, this Court is bound by the factual findings of
the CA, especially where such factual findings, as in this
case, accorded in the main with the RTC's own findings. 42
Given the fact that the sale by the Tecson spouses to Taina
as Mike's dummy was totally abhorrent and repugnant to the
Philippine Constitution, and is thus, void ab initio, it stands to
reason that there can be no double sale to speak of here. In
the case of Fudot v. Cattleya Land, Inc.,43 which fortuitously
also involved the Tecson spouses and Cattleya, we held
thus —
The petition is bereft of merit.
Petitioner's arguments, which rest on the assumption that
there was a double sale, must fail.
In the first place, there is no double sale to speak of. Art.
1544 of the Civil Code, which provides the rule on double
sale, applies only to a situation where the same property
is validly sold to different vendees. In this case, there is only
one sale to advert to, that between the spouses Tecson and
respondent.
In Remalante v. Tibe, this Court ruled that the Civil Law
provision on double sale is not applicable where there is only
one valid sale, the previous sale having been found to
be fraudulent. Likewise, in Espiritu and Apostol v. Valerio,
where the same parcel of land was purportedly sold to two
different parties, the Court held that despite the fact that one
deed of sale was registered ahead of the other, Art. 1544 of
the Civil Code will not apply where said deed is found to be
a forgery, the result of this being that the right of the other
vendee should prevail.
The trial court declared that the sale between the spouses
Tecson and petitioner is invalid, as it bears the forged
signature of Asuncion. x x x44 (Citations omitted; Emphasis
supplied)
In view of the fact that the sale in the case at bench is worse
off (because it is constitutionally infirm) than the sale in
the Fudot case, which merely involves a violation of the
pertinent provisions of the Civil Code, this Court must affirm,
as it hereby affirms the CA's ruling that, "there is only one
sale to reckon with, that is, the sale to Cattleya. 45
Again, our holding in Muller v. Muller,46 which is almost on all
fours with the case at bench, can only strengthen and
reinforce our present stance. In Muller, it appears that
German national Helmut Muller (Helmut), alien or foreigner
husband of the Filipina Elena Buenaventura Muller (Elena),
bought with his capital funds a parcel of land in Antipolo City
and also paid for the construction of a house thereon. This
Antipolo property was registered under the name of Elena
under TCT No. 219438. Subsequently, Helmut instituted a
petition for separation of properties with the RTC of Quezon
City. After due proceedings, the RTC of Quezon City
rendered judgment terminating the regime of absolute
community of property between Helmut and Elena. The RTC
also decreed the separation of properties between the
spouses. With respect to the Antipolo property, the RTC held
that although it was acquired with the use of Helmut's capital
funds, nevertheless the latter could not recover his
investment because the property was purchased in violation
of Section 7, Article XII of the Constitution. Dissatisfied with
the RTC's judgment, Helmut appealed to the CA which
upheld his appeal. The CA ruled that: (1) Helmut merely
prayed for reimbursement of the purchase price of the
Antipolo property, and not that he be declared the owner
thereof; (2) Elena's ownership over this property was
considered as ownership-in-trust for Helmut; (3) there is
nothing in the Constitution which prohibits Helmut from
acquiring ownership of the house.
However, on a Petition for Review on Certiorari, this Court
reversed the CA and reinstated the RTC's ruling. In
sustaining the RTC, this Court once again stressed
the absolute character of the constitutional prohibition
against ownership of lands in this country by foreigners or
aliens:
The Court of Appeals erred in holding that an implied trust
was created and resulted by operation of law in view of
petitioner's marriage to respondent. Save for the exception
provided in cases of hereditary succession, respondent's
disqualification from owning lands in the Philippines
is absolute. Not even an ownership in trust is allowed.
Besides, where the purchase is made in violation of an
existing statute and in evasion of its express provision, no
trust can result in favor of the party who is guilty of the
fraud. To hold otherwise would allow circumvention of
the constitutional prohibition.47 (Citation
omitted; Emphasis supplied)
The same absolute constitutional proscription was reiterated
anew in the comparatively recent case of Matthews v.
Taylor,48 erroneously invoked by Taina. Taina claims that this
case supports her position in the case at bench allegedly
because, like her case, the alien or foreigner husband in
the Matthews case (Benjamin A. Taylor, a British subject)
likewise provided the funds for the purchase of real property
by his Filipino wife (Joselyn C. Taylor) and this Court
allegedly sustained said wife's ownership over the
property.49 That Taina's claim is a clear misapprehension of
the thrust and purport of the ruling enunciated in
the Matthews case is put to rest by what this Court said there
— foreign exchange was really lucrative. They conducted mock
In light of the foregoing jurisprudence, we find and so hold
that Benjamin has no right to nullify the Agreement of Lease
between Joselyn and petitioner. Benjamin, being an alien,
is absolutely prohibited from acquiring private and
public lands in the Philippines. Considering that Joselyn
appeared to be the designated 'vendee' in the Deed of Sale
of said property, she acquired sole ownership there[of]. This
is true even if we sustain Benjamin's claim that he
provided the funds for such acquisition. By entering into
such contract knowing that it was illegal, no implied
trust was created in his favor; no reimbursement for his
expenses can be allowed; and no declaration can be
made that the subject property was part of the
conjugal/community property of the spouses. In any
event, he had and has no capacity or personality to question
the subsequent lease of the Boracay property by his wife on
the theory that in so doing, he was merely exercising the
prerogative of a husband in respect [to] conjugal
property. To sustain such a theory would countenance
indirect controversion of the constitutional prohibition.
If the property were to be declared conjugal, this would
accord the alien husband a substantial interest and right
over the land, as he would then have a decisive vote as
to its transfer or disposition. This is a right that the
Constitution does not permit him to have. (Citation
omitted; emphasis and underscoring supplied)50
The other points raised by petitioner in the present Petition
for Review are collateral or side issues and need not detain
this Court any further. Suffice it to say that the chief or main
constitutional issue that has been addressed and resolved in
the present Petition has effectively subsumed or relegated to
inconsequence the other collateral or side issues raised
herein.
WHEREFORE, the Petition is DENIED. The Decision of the
Court of Appeals dated August 16, 2010 and its Resolution
dated February 22, 2011 in CA-G.R. CV No. 02352 being in
conformity with the law and with this Court's jurisprudential
teachings, are hereby AFFIRMED in toto.
SO ORDERED.
G.R. No. 136031            January 4, 2002
JEFFERSON LIM, petitioner,
vs.
QUEENSLAND TOKYO COMMODITIES, INC., respondent.
QUISUMBING, J.:
Before us is a petition for review assailing the June 25, 1998,
decision1 of the Court of Appeals in CA-G.R. CV No. 46495
which reversed and set aside the decision of the Regional
Trial Court of Cebu, Branch 24, dismissing the complaint by
respondent for a sum of money as well as petitioner’s
counterclaim.
Private respondent Queensland Tokyo Commodities,
Incorporated (Queensland, for brevity) is a duly licensed
broker engaged in the trading of commodities futures with full
membership and with a floor trading right at the Manila
Futures Exchange, Inc..2
Sometime in 1992, Benjamin Shia, a market analyst and
trader of Queensland, was introduced to petitioner Jefferson
Lim by Marissa Bontia, 3 one of his employees. Marissa’s
father was a former employee of Lim’s father.4
Shia suggested that Lim invest in the Foreign Exchange
Market, trading U.S. dollar against the Japanese yen, British
pound, Deutsche Mark and Swiss Franc.
Before investing, Lim requested Shia for proof that the
tradings without money involved. As the mock trading
showed profitability, Lim decided to invest with a marginal
deposit of US$5,000 in manager’s check. The marginal
deposit represented the advance capital for his future
tradings. It was made to apply to any authorized future
transactions, and answered for any trading account against
which the deposit was made, for any loss of whatever
nature, and for all obligations, which the investor would incur
with the broker.5
Because respondent Queensland dealt in pesos only, it had
to convert US$5,000 in manager’s check to pesos,
amounting to ₱125,000 since the exchange rate at that time
was ₱25 to US$1.00. To accommodate petitioner’s request
to trade right away, it advanced the ₱125,000 from its own
funds while waiting for the manager’s check to clear.
Thereafter, a deposit notice in the amount of ₱125,000 was
issued to Queensland, marked as Exhibit "E". This was sent
to Lim who received it as indicated by his signature marked
as Exhibit "E-1". Then, Lim signed the Customer’s
Agreement, marked as Exhibit "F," which provides as
follows:
25. Upon signing of this Agreement, I shall deposit
an initial margin either by personal check,
manager’s check or cash. In the case of the first, I
shall not be permitted to trade until the check has
been cleared by my bank and credited to your
account. In respect of margin calls or additional
deposits required, I shall likewise pay them either
by personal check, manager’s check or cash. In
the event my personal check is dishonored, the
company has the right without call or notice to
settle/close my trading account against which the
deposit was made. In such event, any loss of
whatever nature shall be borne by me and I shall
settle such loss upon demand together with
interest and reasonable cost of collection.
However, in the event such liquidation gives rise to
a profit then such amount shall be credited to the
Company. The above notwithstanding, I am not
 relieved of any legal responsibility as a result of
my check being dishonored by my bank.6
Petitioner Lim was then allowed to trade with respondent
company which was coursed through Shia by virtue of the
blank order forms, marked as Exhibits "G", "G-1" to "G-
13",7 all signed by Lim. Respondent furnished Lim with the
daily market report and statements of transactions as
evidenced by the receiving forms, marked as Exhibits "J", "J-
1" to "J-4",8 some of which were received by Lim.
During the first day of trading or on October 22, 1992, Lim
made a net profit of ₱6,845.57.9 Shia went to the office of
Lim and informed him about it. He was elated. He agreed to
continue trading. During the second day of trading or on
October 23, 1992, they lost P44,465.10
Meanwhile, on October 22, 1992, respondent learned that it
would take seventeen (17) days to clear the manager’s
check given by petitioner. Hence, on October 23, 1992, at
about 11:00 A.M., upon management’s request, Shia
returned the check to petitioner who informed Shia that
petitioner would rather replace the manager’s check with a
traveler’s check.11 Considering that it was 12:00 noon
already, petitioner requested Shia to come back at 2:00
P.M.. Shia went with petitioner to the bank to purchase a
traveler’s check at the PCI Bank, Juan Luna Branch at 2:00
P.M.. Shia noticed that the traveler’s check was not indorsed
but Lim told Shia that Queensland could sign the indorsee
portion.12 Because Shia trusted the latter’s good credit rating,
and out of ignorance, he brought the check back to the office
unsigned.13 Inasmuch as that was a busy Friday, the check
was kept in the drawer of respondent’s consultant. Later, the
traveler’s check was deposited with Citibank. 14
On October 26, 1992, Shia informed petitioner that they
incurred a floating loss of ₱44,695 15 on October 23, 1992. He
told petitioner that they could still recover their losses. He
could unlock the floating loss on Friday. By unlocking the
floating loss, the loss on a particular day is minimized.
On October 27, 1992, Citibank informed respondent that the
traveler’s check could not be cleared unless it was duly
signed by Lim, the original purchaser of the traveler’s check.
A Miss Arajo, from the accounting staff of Queensland,
returned the check to Lim for his signature, but the latter,
aware of his ₱44,465 loss, demanded for a liquidation of his
account and said he would get back what was left of his
investment.16 Meanwhile, Lim signed only one portion of the
traveler’s check, leaving the other half blank. He then kept
it.17 Arajo went back to the office without it. 1âwphi1.nêt
Respondent asked Shia to talk to petitioner for a settlement
of his account but petitioner refused to talk with Shia. Shia
made follow-ups for more than a week beginning October
27, 1992. Because petitioner disregarded this request,
respondent was compelled to engage the services of a
lawyer, who sent a demand letter 18 to petitioner. This letter
went unheeded. Thus, respondent filed a complaint19 against
petitioner, docketed as Civil Case No. CEB-13737, for
collection of a sum of money.
On April 22, 1994, the trial court rendered its decision, thus:
WHEREFORE, in view of all the foregoing, the
complaint is dismissed without pronouncement as
to costs. The defendant’s counterclaim is likewise
dismissed.
SO ORDERED.20
On appeal by Queensland, the Court of Appeals reversed
and set aside the trial court’s decision, with the
following fallo:
WHEREFORE, the decision appealed from is
hereby REVERSED AND SET ASIDE, and
another one is entered ordering appellee
[Jefferson Lim] to pay appellant the sum of
P125,000.00, with interest at the legal rate until the
whole amount is fully paid, P10,000.00 as
attorney’s fees, and costs.21
Petitioner herein filed a motion for reconsideration before the
Court of Appeals, which was denied in a resolution dated
October 6, 1998.22
Dissatisfied, petitioner filed the instant recourse alleging that
the appellate court committed errors:
I - … IN REVERSING THE DECISION OF THE
RTC WHICH DISMISSED RESPONDENT’S
COMPLAINT;
II -… IN HOLDING THAT THE PETITIONER IS
ESTOPPED IN QUESTIONING THE VALIDITY
OF THE CUSTOMER’S AGREEMENT AND
FROM DENYING THE EFFECTS OF HIS
CONDUCT;
III -… IN NOT TAKING JUDICIAL NOTICE OF
THE LETTER OF RESPONDENT THAT THE SEC
HAS ISSUED A CEASE AND DESIST ORDER
AGAINST THE MANILA INTERNATIONAL
FUTURES EXCHANGE COMMISSION AND ALL
COMMODITY TRADERS INCLUDING THE
RESPONDENT.
Despite the petitioner’s formulation of alleged errors, we find
that the main issue is whether or not the appellate court
erred in holding that petitioner is estopped from questioning
the validity of the Customer’s Agreement that he signed.
The essential elements of estoppel are: (1) conduct of a
party amounting to false representation or concealment of
material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; (2)
intent, or at least expectation, that this conduct shall be
acted upon by, or at least influence, the other party; and (3)
knowledge, actual or constructive, of the real facts.23
Here, it is uncontested that petitioner had in fact signed the
Customer’s Agreement in the morning of October 22,
1992,24 knowing fully well the nature of the contract he was
entering into. The Customer’s Agreement was duly notarized
and as a public document it is evidence of the fact, which
gave rise to its execution and of the date of the latter. 25 Next,
petitioner paid his investment deposit to respondent in the
form of a manager’s check in the amount of US$5,000 as
evidenced by PCI Bank Manager’s Check No. 69007, dated
October 22, 1992.26 All these are indicia that petitioner
treated the Customer’s Agreement as a valid and binding
contract.
Moreover, we agree that, on petitioner’s part, there was
misrepresentation of facts. He replaced the manager’s check
with an unendorsed traveler’s check, instead of cash, while
assuring Shia that respondent Queensland could sign the
indorsee portion thereof. 27 As it turned out, Citibank informed
respondent that only the original purchaser (i.e. the
petitioner) could sign said check. When the check was
returned to petitioner for his signature, he refused to sign.
Then, as petitioner himself admitted in his
Memorandum,28 he used the traveler’s check for his travel
expenses.29
More significantly, petitioner already availed himself of the
benefits of the Customer’s Agreement whose validity he now
impugns. As found by the CA, even before petitioner’s initial
marginal deposit (in the form of the PCI manager’s check
dated October 22, 1992) 30 was converted into cash, he
already started trading on October 22, 1992, thereby making
a net profit of ₱6,845.57. On October 23, he continued
availing of said agreement, although this time he incurred a
"floating loss" of ₱44,645. 31 While he claimed he had not
authorized respondent to trade on those dates, this claim is
belied by his signature affixed in the order forms, marked as
Exhibits "G", "G-1" to "G-13".32
Clearly, by his own acts, petitioner is estopped from
impugning the validity of the Customer’s Agreement. For a
party to a contract cannot deny the validity thereof after
enjoying its benefits without outrage to one’s sense of justice
and fairness.
It appears that petitioner’s reason to back out of the
agreement is that he began sustaining losses from the trade.
However, this alone is insufficient to nullify the contract or
disregard its legal effects. By its very nature it is already a
perfected, if not a consummated, contract. Courts have no
power to relieve parties from obligations voluntarily
assumed, simply because their contracts turned out to be
disastrous or unwise investments. 33 Notably, in the
Customer’s Agreement, petitioner has been forewarned of
the high risk involved in the foreign currency investment as
stated in the "Risk Disclosure Statement," 34 located in the
same box where petitioner signed.
Further, petitioner contends that the Customer’s Agreement
was rendered nugatory because: (1) the marginal deposit he
gave was in dollars and (2) respondent allowed him to trade
even before the US$5,000 manager’s check was cleared.
This contention is disingenuous to say the least, but hardly
meritorious.
Petitioner himself was responsible for the issuance of the
US$5,000 manager’s check. It was he who failed to replace
the manager’s check with cash. He authorized Shia to start
trading even before the US$5,000 check had cleared. He
could not, in fairness to the other party concerned, now
invoke his own misdeeds to exculpate himself, conformably
with the basic principle in law that he who comes to court
must come with clean hands.
Contrary to petitioner’s contention, we also find that
respondent did not violate paragraph 14 of the Guidelines for
Spot/Futures Currency Trading, which provides:
14. DEPOSITS & PAYMENTS
All deposits, payments and repayments, etc. will
be in Philippine Currency. When a deposit with the
Company is not in cash or bank draft, such deposit
will not take effect in the account concerned until it
has been confirmed NEGOTIABLE for payment by
authorized management personnel.35
Respondent claims it informed petitioner of its policy not to
accept dollar investment. For this reason, it converted the
petitioner’s US$5,000 manager’s check to pesos (₱125,000)
out of respondent’s own funds to accommodate petitioner’s
request to trade right away. 36 On record, it appears that
petitioner agreed to the conversion of his dollar deposit to
pesos.37
Neither is there merit in petitioner’s contention that LOLITA H. DE LA VEGA, ERLINDA H. INOVIO, CELIA H.
respondent violated the Customer’s Agreement by allowing VIVIT, ZENAIDA H. ACHOY, PRECILLA H. LIMPIAHOY,
him to trade even if his manager’s check was not yet and EDGARDO HERMOSILLA, Petitioners,
cleared, as he had no margin deposit as required by the vs.
Customer’s Agreement, viz: Spouses JAIME REMOQUILLO and LUZ
REMOQUILLO, Respondents.
5. Margin Receipt
DECISION
A Margin Receipt issued by the Company shall
only be for the purpose of acknowledging receipt CARPIO MORALES, J.:
of an amount as margin deposit for Spot/Futures
Currency Trading. All checks received for the
Petitioners Heirs of Salvador Hermosilla, namely: Adelaida
purpose of margin deposits have to be cleared
H. Dolleton, Ruben Hermosilla, Lolita H. de la Vega, Erlinda
through such bank account as may be opened by
H. Inovio,1 Celia2 H. Vivit, Zenaida H. Achoy, Precilla 3 H.
the Company before any order can be accepted.38
Limpiahoy, and Edgardo Hermosilla, assail the Court of
Appeals’ Decision4 dated September 29, 2004 which
But as stated earlier, respondent advanced petitioner’s reversed the trial court’s decision in their favor and
marginal deposit of ₱125,000 out of its own funds while accordingly dismissed their complaint.
waiting for the US$5,000 manager’s check to clear, relying
on the good credit standing of petitioner. Contrary to
Subject of the controversy is a 65-square meter portion of a
petitioner’s averment now, respondent had advanced his
lot located in Poblacion, San Pedro, Laguna.
margin deposit with his approval. Nowhere in the
"Guidelines" adverted to by petitioner was such an
arrangement prohibited. Note that the advance was made On August 31, 1931, the Republic of the Philippines acquired
with petitioner’s consent, as indicated by his signature, through purchase the San Pedro Tunasan Homesite.
Exhibit "E-1",39 affixed in the deposit notice, Exhibit "E", 40 sent
to him by respondent. By his failure to seasonably object to
Apolinario Hermosilla (Apolinario), who was occupying a lot
this arrangement and by affixing his signature to the notice of
in San Pedro Tunasan Homesite until his death in 1964,
deposit, petitioner is barred from questioning said
caused the subdivision of the lot into two, Lot 12 with an area
arrangement now. 1âwphi1.nêt
of 341 square meters, and Lot 19 with an area of 341 square
meters of which the 65 square meters subject of this
Anent the last assigned error, petitioner faults the appellate controversy form part.
court for not taking judicial notice of the cease and desist
order against the Manila International Futures Exchange
On April 30, 1962, Apolinario executed a Deed of
Commission and all commodity traders including respondent.
Assignment transferring possession of Lot 19 in favor of his
However, we find that this issue was first raised only in
grandson, herein respondent Jaime Remoquillo (Jaime). As
petitioner’s motion for reconsideration of the Court of
the Land Tenure Administration (LTA) later found that Lot 19
Appeals’ decision. It was never raised in the
was still available for disposition to qualified applicants,
Memorandum41 filed by petitioner before the trial court.
Jaime, being its actual occupant, applied for its acquisition
Hence, this Court cannot now, for the first time on appeal,
before the LTA on May 10, 1963.
pass upon this issue. For an issue cannot be raised for the
first time on appeal. It must be raised seasonably in the
proceedings before the lower court. Questions raised on On July 8, 1963, Apolinario conveyed Lot 12 to his son
appeal must be within the issues framed by the parties and, Salvador Hermosilla (Salvador), Jaime’s uncle.
consequently, issues not raised in the trial court cannot be
raised for the first time on appeal. 42 WHEREFORE, the
instant petition is DENIED for lack of merit. The decision of Salvador later filed an application to purchase Lot 12 which
was awarded to him by the defunct Land Authority on
the Court of Appeals dated June 25, 1998, in CA-G.R. CV
December 16, 1971.
No. 46495 is AFFIRMED. Costs against petitioner. SO
ORDERED.
On February 10, 1972, Jaime and his uncle Salvador forged
G.R. No. 167320             January 30, 2007 a "Kasunduan ng Paglipat Ng Karapatan sa Isang Lagay na
Lupang Solar" (Kasunduan) whereby Jaime
transferred ownership of the 65 square meters (the
HEIRS OF SALVADOR HERMOSILLA, namely: questioned property) in favor of Salvador.
ADELAIDA H. DOLLETON, RUBEN HERMOSILLA,
After Apolinario died, his daughter Angela Hermosilla filed a
protest before the Land Authority, which became the
National Housing Authority (NHA),5 contending that as an
heir of the deceased, she is also entitled to Lots 12 and 19.
By Resolution of June 10, 1981, the NHA dismissed the
protest.
The NHA later awarded on March 16, 1986 Lot 19 to Jaime
for which he and his wife were issued a title, Transfer
Certificate of Title No. T-156296, on September 15, 1987.6
On May 25, 1992, petitioners filed an action for Annulment of
Title on the ground of fraud with damages against Jaime and
his spouse, together with the Register of Deeds, before the
Regional Trial Court (RTC) of Biñan, Laguna, alleging that by
virtue of the Kasunduan executed in 1972, Jaime had
conveyed to his uncle Salvador the questioned property–part
of Lot 19 covered by TCT No. T-156296 which was issued in
1987.
By Decision7 of May 11, 1999, the RTC of Biñan, Laguna,
Branch 25, found the Kasunduan a perfected contract of
sale, there being a meeting of the minds upon an identified
object and upon a specific price, and that ownership over the
questioned property had already been transferred and
delivered to Salvador.
On the alleged failure of consideration of the Kasunduan, the
trial court held that the same did not render the contract void,
but merely allowed an action for specific performance. The
dispositive portion of the trial court’s Decision reads:
WHEREFORE, judgment is hereby rendered declaring
plaintiffs as co-owners of the 65 square meters of the
341 square meters covered by TCT T-156296, registered in
the name of defendants. The Court hereby directs the
Register of Deeds of Laguna, Calamba Branch, to cancel
said Transfer Certificate of Title, and in lieu thereof, to issue
another [to] plaintiffs [as] co-owners of the above portion.
No pronouncement as to costs.
SO ORDERED.8 (Underscoring supplied)
The Court of Appeals, reversing the decision of the trial
court, held that the Kasunduan was void because at the time
of its execution in 1972, the Republic of the Philippines was
still the owner of Lot 19, hence, no right thereover was
transmitted by Jaime who was awarded the Lot in 1986, and
consequently no right was transmitted by Salvador through
succession to petitioners. And it found no evidence of fraud
in Jaime’s act of having Lot 19, including the questioned
property, registered in his and his wife’s name in 1987.
At all events, the appellate court held that the action had
prescribed, it having been filed in 1992, more than four years
from the issuance to Jaime and his wife of the Transfer
Certificate of Title.
Hence, the present petition for review on certiorari.
Petitioners argue that the application of the law on
prescription would perpetrate fraud and spawn injustice, they
citing Cometa v. Court of Appeals; 9 and that at any rate,
prescription does not lie against a co-owner. Cometa
involves a different factual milieu concerning the right of
redemption, however. And petitioners’ contention that
prescription does not lie against a co-owner fails because
only the title covering the questioned property, which
petitioners claim to solely own, is being assailed.
While this Court finds that the action is, contrary to the
appellate court’s ruling, not barred by the statute of
limitations, it is still dismissible as discussed below.
Albeit captioned as one for Annulment of Title, the Complaint
ultimately seeks the reconveyance of the property.
From the allegations of the Complaint, petitioners seek the
reconveyance of the property based on implied trust. The
prescriptive period for the reconveyance of fraudulently
registered real property is 10 years, reckoned from the date
of the issuance of the certificate of title,10 if the plaintiff is not
in possession, but imprescriptible if he is in possession of the
property.
An action for reconveyance based on an implied trust
prescribes in ten years. The ten-year prescriptive
period applies only if there is an actual need to reconvey
the property as when the plaintiff is not in possession of
the property. However, if the plaintiff, as the real owner of
the property also remains in possession of the property, the
prescriptive period to recover the title and possession of the
property does not run against him. In such a case, an action
for reconveyance, if nonetheless filed, would be in the nature
of a suit for quieting of title, an action that
is imprescriptible.11 (Emphasis and underscoring supplied)
It is undisputed that petitioners’ houses occupy the
questioned property and that respondents have not been in
possession thereof.12 Since there was no actual need to
reconvey the property as petitioners remained in possession
thereof, the action took the nature of a suit for quieting of
title, it having been filed to enforce an alleged implied trust
after Jaime refused to segregate title over Lot 19. One who
is in actual possession of a piece of land claiming to be
the owner thereof may wait until his possession is disturbed
or his title is attacked before taking steps to vindicate his
right.13 From the body of the complaint, this type of action
denotes imprescriptibility.
As priorly stated, however, when the Kasunduan was
executed in 1972 by Jaime in favor of Salvador – petitioners’
predecessor-in-interest – Lot 19, of which the questioned
property forms part, was still owned by the Republic. Nemo
dat quod non habet.14 Nobody can give what he does not
possess. Jaime could not thus have transferred anything to
Salvador via the Kasunduan.
Claiming exception to the rule, petitioners posit that at the
time the Kasunduan was executed by Jaime in 1972, his
application which was filed in 1963 for the award to him of
Lot 19 was still pending, hence, the Kasunduan transferred
to Salvador Jaime’s vested right to purchase the same, in
support of which they cite a law on estoppel, Art. 1434 of the
Civil Code, which provides that "[w]hen a person who is not
the owner of a thing sells or alienates and delivers it and
later, the seller or grantor acquires title thereto, such title
passes by operation of law to the buyer or grantee."15
Petitioners’ reliance on Article 1434 of the Civil Code does
not lie. The principles of estoppel apply insofar as they are
not in conflict with the provisions of the Civil Code, the Code
of Commerce, the Rules of Court
and special laws.161avvphi1.net
Land Authority Administrative Order No. 4 (1967), "Rules
and Regulations governing Disposition of the Laguna
Settlement Project in San Pedro, Laguna," proscribes the
conveyance of the privilege or preference to purchase a land
from the San Pedro Tunasan project before it is awarded to
a tenant or bona fide occupant, thus:
SEC. 6. Privilege of Preference to Purchase Intransferable;
Waiver or Forfeiture Thereof. – From the date of acquisition
of the estate by the Government and before issuance of the
Order of Award, no tenant or bona fide occupant in whose
favor the land may be sold shall transfer or encumber the
privilege or preference to purchase the land, and any
transfer or encumbrance made in violation hereof shall
be null and void: Provided, however, That such privilege or
preference may be waived or forfeited only in favor of the
Land Authority . . .17 (Italics in the original, emphasis and
underscoring supplied)
Petitioners’ insistence on any right to the property under
the Kasunduan thus fails.
[T]he transfer "became one in violation of law (the rules of
the PHHC being promulgated in pursuance of law have the
force of law) and therefore void ab initio." Hence, appellant
acquired no right over the lot from a contract void ab initio,
no rights are created. Estoppel, as postulated by petitioner,
will not apply for it cannot be predicated on an illegal act. It is ACCESSORIES SPECIALIST INC., a.k.a. ARTS 21
generally considered that as between the parties to a CORPORATION, and TADAHIKO
contract, validity cannot be given to it by estoppel if it is HASHIMOTO, Petitioners,
prohibited by law or is against public policy.18 (Emphasis and vs.
underscoring supplied) ERLINDA B. ALABANZA, for and in behalf of her
deceased husband, JONES B. ALABANZA, Respondent.
Petitioners go on to postulate that if the Kasunduan is void, it
follows that the 1962 Deed of Assignment executed by DECISION
Apolinario in favor of Jaime is likewise void to thus deprive
the latter of any legal basis for his occupation and acquisition
NACHURA, J.:
of Lot 19.

Before the Court is a petition for review on certiorari under

Petitioners’ position fails. Petitioners lose sight of the fact
Rule 45 of the Rules of Court assailing the Decision 1 dated
that, as reflected above, Jaime acquired Lot 19 in his own
April 15, 2005 and the Resolution 2 dated July 12, 2005 of the
right, independently of the Deed of Assignment.
Court of Appeals (CA) in CA-G.R. SP No. 84206.

In another vein, since the property was previously a public

The Facts
land, petitioners have no personality to impute fraud or
misrepresentation against the State or violation of the
law.19 If the title was in fact fraudulently obtained, it is the The facts of the case, as narrated in the Decision of the CA:
State which should file the suit to recover the property
through the Office of the Solicitor General. The title
On September 27, 2002, private respondent Erlinda B.
originated from a grant by the government, hence, its
Alabanza (Erlinda, for brevity), for and in behalf of her
cancellation is a matter between the grantor and the
husband Jones B. Alabanza (Jones, for brevity) filed a
grantee.20
complaint against petitioners Accessories Specialists, Inc.
(ASI, for brevity) also known as ARTS 21 Corporation, and
At all events, for an action for reconveyance based on fraud Tadahiko Hashimoto for non-payment of salaries, separation
to prosper, the plaintiff must prove by clear and convincing pay, and 13th month pay.
evidence not only his title to the property but also the fact of
fraud. Fraud is never presumed. Intentional acts to deceive
In her position paper, respondent Erlinda alleged, among
and deprive another of his right, or in some manner injure
others, that her husband Jones was the Vice-President,
him must be specifically alleged and proved by the plaintiff
Manager and Director of ASI. Jones rendered outstanding
by clear and convincing evidence. 21 Petitioners failed to
services for the petitioners from 1975 to October 1997. On
discharge this burden, however.
October 17, 1997, Jones was compelled by the owner of
ASI, herein petitioner Tadahiko Hashimoto, to file his
WHEREFORE, the petition is, in light of the foregoing involuntary resignation on the ground that ASI allegedly
ratiocination, DENIED. suffered losses due to lack of market and incurred several
debts caused by a slam in the market. At the time of his
resignation, Jones had unpaid salaries for eighteen (18)
SO ORDERED.
months from May 1995 to October 1997 equivalent to
₱396,000.00 and US$38,880.00. He was likewise not paid
his separation pay commensurate to his 21 years of service
in the amount of ₱462,000.00 and US$45,360.00 and 13th
month pay amounting to ₱33,000.00. Jones demanded
payment of his money claims upon resignation but ASI
informed him that it would just settle first the money claims of
the rank- and-file employees, and his claims will be paid
thereafter. Knowing the predicament of the company, Jones
patiently waited for his turn to be paid. Several demands
were made by Jones but ASI just kept on assuring him that
he will be paid his monetary claims. Jones died on August 5,
2002 and failed to receive the same.

G.R. No. 168985               July 23, 2008

On the other hand, the petitioners contend that Jones
voluntarily resigned on October 31, 1997. Thus, Erlinda’s
cause of action has already prescribed and is forever barred
on the ground that under Article 291 of the Labor Code, all
money claims arising from an employer-employee
relationship shall be filed within three (3) years from the time
the cause of action accrues. Since the complaint was filed
only on September 27, 2002, or almost five (5) years from
the date of the alleged illegal dismissal of her husband
Jones, Erlinda’s complaint is now barred.
On September 14, 2003, Labor Arbiter Reynaldo V. Abdon
rendered a decision ordering the petitioners to pay Erlinda
the amount of ₱693,000.00 and US$74,040.00 or its
equivalent in peso or amounting to a total of ₱4,765,200.00
representing her husband’s unpaid salaries, 13th month pay,
and separation pay, and five [percent] (5%) on the said total
award as attorney’s fees.
On October 10, 2003, the petitioners filed a notice of appeal
with motion to reduce bond and attached thereto
photocopies of the receipts for the cash bond in the amount
of ₱290,000.00, and appeal fee in the amount of ₱170.00.
On January 15, 2004, public respondent NLRC issued an
order denying the petitioner’s motion to reduce bond and
directing the latter to post an additional bond, and in case the
petitioners opted to post a surety bond, the latter were
required to submit a joint declaration, indemnity agreement
and collateral security within ten (10) days from receipt of the
said order, otherwise their appeal shall be dismissed. The
pertinent portion of such order reads:
After a review however of respondents-appellants['] instant
motion, We find that the same does not proffer any valid or
justifiable reason that would warrant a reduction of the
appeal bond. Hence, the same must be denied.
WHEREFORE, respondents-appellants are hereby ordered
to post a cash or surety bond in the amount equivalent to the
monetary award of Four Million Seven Hundred Sixty-Five
Thousand and Two Hundred Pesos (₱4,765,200.00) granted
in the appealed Decision (less the Two Hundred and Ninety
Thousand Pesos [₱290,000.00] cash bond already posted),
and joint declaration, indemnity agreement and collateral
security in case respondents-appellants opted to post a
surety bond, as required by Art. 223 of the Labor Code as
amended and Section 6, Rule VI of the NLRC New Rules of
Procedure as amended within an unextendible period of ten
(10) calendar days from receipt of this Order; otherwise, the
appeal shall be dismissed for non-perfection thereof.
SO ORDERED.
On February 19, 2004, the petitioners moved for a
reconsideration of the said order. However, the public
respondent in its resolution dated March 18, 2004 denied the
same and dismissed the appeal of the petitioners, thus:
The reduction of appeal bond is not a matter of right but
rests upon our sound discretion. Thus, after We denied
respondents-appellants['] Motion to Reduce [B]ond, they
should have immediately complied with our 15 January 2004
Order directing them to post an additional cash or surety
bond in the amount equivalent to the judgment award less
the cash bond already posted within the extended period of
ten (10) days. In all, respondents had twenty (20) days,
including the ten (10)-day period, prescribed under Article
223 of the Labor Code and under Section 6, Rule VI of the
NLRC New Rules of Procedure, within which to post a cash
or surety bond. To seek a reconsideration of our 15 January
2004 order is tantamount to seeking another extension of the
period within which to perfect an appeal, which is however,
not allowed under Section 7, Rule VI of the NLRC Rule. x x x
xxxx
WHEREFORE, premises considered, the Motion for
Reconsideration filed by respondents-appellants is hereby
DENIED and the instant appeal DISMISSED for non-
perfection thereof.
SO ORDERED.
On April 22, 2004, the aforesaid resolution became final and
executory. Thus, herein private respondent Erlinda filed a
motion for execution.
On May 31, 2004, the petitioners filed an opposition to the
said motion for execution. On June 11, 2004, Labor Arbiter
Reynaldo Abdon issued an order directing the issuance of a
writ of execution.3
On May 28, 2004, petitioners filed a petition for certiorari
under Rule 65 of the Rules of Court before the CA and
prayed for the issuance of a temporary restraining order
(TRO) and a writ of preliminary injunction. On June 30, 2004,
the CA issued a TRO directing the respondents, their agents,
assigns, and all persons acting on their behalf to refrain
and/or cease and desist from executing the Decision dated
September 14, 2003 and Resolution dated March 18, 2004
of the Labor Arbiter (LA).
On April 15, 2005, the CA issued the assailed Decision
dismissing the petition. Petitioner filed a motion for
reconsideration. On July 12, 2005, the CA issued the
assailed Resolution denying the motion for reconsideration
for lack of merit.
On September 8, 2005, petitioners posted the instant petition
presenting the following grounds in support of their
arguments: 1) the cause of action of respondent has already
prescribed; 2) the National Labor Relations Commission
(NLRC) gravely abused its discretion when it dismissed the
appeal of petitioners for failure to post the complete amount
of the appeal bond; and 3) the monetary claim was resolved
by the LA with uncertainty.
The Issues
The following are the issues that should be resolved in order
to come up with a just determination of the case:
I. Whether the cause of action of respondents has
already prescribed;
II. Whether the posting of the complete amount of
the bond in an appeal from the decision of the LA
to the NLRC is an indispensable requirement for
the perfection of the appeal despite the filing of a
motion to reduce the amount of the appeal bond;
and
III. Whether there were sufficient bases for the
grant of the monetary award of the LA to the
respondent.
The Ruling of the Court
We resolve to deny the petition.
I
Petitioners aver that the action of the respondents for the
recovery of unpaid wages, separation pay and 13th month
pay has already prescribed since the action was filed almost
five years from the time Jones severed his employment from
ASI. Jones filed his resignation on October 31, 1997, while
the complaint before the LA was instituted on September 29,
2002. Petitioners contend that the three-year prescriptive
period under Article 2914 of the Labor Code had already set-
in, thereby barring all of respondent’s money claims arising
from their employer-employee relations.
Based on the findings of facts of the LA, it was ASI which
was responsible for the delay in the institution of the
complaint. When Jones filed his resignation, he immediately
asked for the payment of his money claims. However, the
management of ASI promised him that he would be paid
immediately after the claims of the rank-and-file employees
had been paid. Jones relied on this representation.
Unfortunately, the promise was never fulfilled even until the
time of Jones’ death.
In light of these circumstances, we can apply the principle of
promissory estoppel, which is a recognized exception to the
three-year prescriptive period enunciated in Article 291 of the
Labor Code.
Promissory estoppel may arise from the making of a
promise, even though without consideration, if it was
intended that the promise should be relied upon, as in fact it
was relied upon, and if a refusal to enforce it would virtually
sanction the perpetration of fraud or would result in other
injustice.5 Promissory estoppel presupposes the existence of
a promise on the part of one against whom estoppel is
claimed.1avvphi1 The promise must be plain and
unambiguous and sufficiently specific so that the court can
understand the obligation assumed and enforce the promise
according to its terms.6
In order to make out a claim of promissory estoppel, a party
bears the burden of establishing the following elements: (1) a
promise was reasonably expected to induce action or
forbearance; (2) such promise did, in fact, induce such action
or forbearance; and (3) the party suffered detriment as a
result.7
All the requisites of promissory estoppel are present in this
case. Jones relied on the promise of ASI that he would be
paid as soon as the claims of all the rank-and-file employees
had been paid. If not for this promise that he had held on to
until the time of his death, we see no reason why he would
delay filing the complaint before the LA. Thus, we find ample
justification not to follow the prescriptive period imposed
under Article 291 of the Labor Code. Great injustice will be
committed if we will brush aside the employee’s claims on a
mere technicality, especially when it was petitioner’s own
action that prevented respondent from interposing the claims
within the required period.8
II
Petitioners argue that the NLRC committed grave abuse of
discretion in dismissing their appeal for failure to post the
complete amount of the bond. They assert that they cannot
post an appeal bond equivalent to the monetary award
rendered by the LA due to financial incapacity. They say that
strict enforcement of the NLRC Rules of Procedure9 that the
appeal bond shall be equivalent to the monetary award is
oppressive and would have the effect of depriving petitioners
of their right to appeal.10
Article 223 of the Labor Code mandates that in case of a
judgment of the LA involving a monetary award, an appeal
by the employer to the NLRC may be perfected only upon
the posting of a cash or surety bond issued by a reputable considered indispensable interdictions against needless
bonding company duly accredited by the Commission, in the delays and are necessary for the orderly discharge of the
amount equivalent to the monetary award in the judgment judicial business. Failure to perfect the appeal renders the
appealed from. judgment of the court final and executory. Just as a losing
party has the privilege to file an appeal within the prescribed
period, so does the winner also have the correlative right to
The posting of a bond is indispensable to the perfection of an
enjoy the finality of the decision. 16
appeal in cases involving monetary awards from the decision
of the LA.11 The intention of the lawmakers to make the bond
a mandatory requisite for the perfection of an appeal by the III
employer is clearly limned in the provision that an appeal by
the employer may be perfected "only upon the posting of a
The propriety of the monetary award of the LA is already
cash or surety bond." The word "only" makes it perfectly
binding upon this Court. As we have repeatedly pointed out,
plain that the lawmakers intended the posting of a cash or
petitioners’ failure to perfect their appeal in the manner and
surety bond by the employer to be the essential and
period required by the rules makes the award final and
exclusive means by which an employer's appeal may be
executory. Petitioners’ stance that there was no sufficient
perfected. The word "may" refers to the perfection of an
basis for the award of the payment of withheld wages,
appeal as optional on the part of the defeated party, but not
separation pay and 13th month pay must fail. Such matters
to the compulsory posting of an appeal bond, if he desires to
are questions of facts requiring the presentation of evidence.
appeal. The meaning and the intention of the legislature in
Findings of facts of administrative and quasi-judicial bodies,
enacting a statute must be determined from the language
which have acquired expertise on specific matters, are
employed; and where there is no ambiguity in the words
accorded weight and respect by the Court. They are deemed
used, then there is no room for construction.12
final and conclusive, unless compelling reasons are
presented for us to digress therefrom.
The filing of the bond is not only mandatory but also a
jurisdictional requirement that must be complied with in order
WHEREFORE, in view of the foregoing, the petition is
to confer jurisdiction upon the NLRC.13 Non-compliance
DENIED for lack of merit. The Decision dated April 15, 2005
therewith renders the decision of the LA final and
and the Resolution dated July 12, 2005 of the Court of
executory.14 This requirement is intended to assure the
Appeals in CA-G.R. SP No. 84206 are hereby AFFIRMED.
workers that if they prevail in the case, they will receive the
money judgment in their favor upon the dismissal of the
employer's appeal. It is intended to discourage SO ORDERED.
employers from using an appeal to delay or evade their
obligation to satisfy their employees' just and lawful claims. 15
In the instant case, the failure of petitioners to comply with
the requirement of posting a bond equivalent in amount to
the monetary award is fatal to their appeal. Section 6 of the
New Rules of Procedure of the NLRC mandates, among
others, that no motion to reduce bond shall be entertained
except on meritorious grounds and upon the posting of a
bond in a reasonable amount in relation to the monetary
award. The NLRC has the full discretion to grant or deny
their motion to reduce the amount of the appeal bond. The
finding of the NLRC that petitioners did not present sufficient
justification for the reduction thereof is generally conclusive
upon this Court absent a showing that the denial was tainted
with bad faith.
Furthermore, we would like to reiterate that appeal is not a
constitutional right, but a mere statutory privilege. Thus,
parties who seek to avail themselves of it must comply with
the statutes or rules allowing it. Perfection of an appeal in the
manner and within the period permitted by law is mandatory
and jurisdictional. The requirements for perfecting an appeal
must, as a rule, be strictly followed. Such requirements are
G.R. Nos. 159017-18               March 9, 2011

PAULINO S. ASILO, JR., Petitioner,

vs.
THE PEOPLE OF THE PHILIPPINES and Spouses
VISITACION AND CESAR C. BOMBASI, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 159059

VICTORIA BUETA VDA. DE COMENDADOR, IN

REPRESENTATION OF DEMETRIO T.
COMENDADOR, Petitioner,
vs.
VISITACION C. BOMBASI AND CESAR C.
BOMBASI, Respondents.

DECISION

PEREZ, J.:

At bench are appeals by certiorari1 from the Decision2 of the

Fourth Division of the Sandiganbayan; (1) finding Demetrio
T. Comendador3 (Mayor Comendador) and Paulino S. Asilo,
Jr.4 guilty beyond reasonable doubt of violation of Sec. 3(e)
of Republic Act No. 3019; (2) dismissing the cases against
accused Alberto S. Angeles; 5 (3) ordering the defendants
Municipality of Nagcarlan, Laguna, Demetrio T. Comendador
and Paulino S. Asilo, Jr. to pay the plaintiffs now
respondents Visitacion C. Bombasi (Visitacion) and Cesar C.
Bombasi damages; and (4) dismissing the cases against the
spouses Alida and Teddy Coroza6 and Benita and Isagani
Coronado.7

The factual antecedents of the case are:

On 15 March 1978, Private Respondent Visitacion’s late

mother Marciana Vda. De Coronado (Vda. De Coronado)
and the Municipality of Nagcarlan, Laguna (represented by
the then Municipal Mayor Crisostomo P. Manalang) entered
into a lease contract whereby the Municipality allowed the
use and enjoyment of property comprising of a lot and a
store located at the corner of Coronado and E. Fernandez
Sts. at Poblacion, Nagcarlan, Laguna, in favor of the
respondent’s mother for a period of twenty (20) years
beginning on 15 March 1978 until 15 March 1998, extendible
for another 20 years.8
The lease contract provided that the late Vda. De Coronado
could build a firewall on her rented property which must be at
least as high as the store; and in case of modification of the
public market, she or her heir/s would be given preferential
rights.
Visitacion took over the store when her mother died
sometime in 1984.9 From then on up to January 1993,
Visitacion secured the yearly Mayor’s permits.10
Sometime in 1986, a fire razed the public market of
Nagcarlan. Upon Visitacion’s request for inspection on 15
May 1986, District Engineer Marcelino B. Gorospe (Engineer
Gorospe) of the then Ministry of Public Works and
Highways,11 Regional Office No. IV-A, found that the store of
Visitacion remained intact and stood strong. This finding of
Engineer Gorospe was contested by the Municipality of
Nagcarlan.
The store of Visitacion continued to operate after the fire until
15 October 1993.
On 1 September 1993, Visitacion received a letter  from 12
Mayor Comendador directing her to demolish her store
within five (5) days from notice. Attached to the letter were
copies of Sangguniang Bayan Resolution No. 156 13 dated 30
August 1993 and a Memorandum issued by Asst. Provincial
Prosecutor Marianito Sasondoncillo of Laguna.
The relevant provisos of the Resolution No. 156 states that:
NOW THEREFORE, be it RESOLVED, as it hereby resolved
to authorize Hon. Demetrio T. Comendador to enforce and
order the Coronado’s to demolish the building constructed on
the space previously rented to them in order to give way for
the construction of a new municipal market building.
RESOLVED FURTHER, to authorize Demetrio T.
Comendador, Honorable Mayor of Nagcarlan to file an
Unlawful Detainer Case with damages for the expenses
incurred due to the delay in the completion of the project if
the Coronado’s continuously resists the order.
On 3 September 1993, Visitacion wrote a reply letter to
Mayor Comendador saying that: (1) the lease contract was
still existing and legally binding; (2) she was willing to vacate
the store as long as same place and area would be given to
her in the new public market; and (3) in case her proposals
are not acceptable to Mayor Comendador, for the latter to
just file an unlawful detainer case against her pursuant to
Sangguniang Bayan Resolution No. 156. Pertinent portions
of the letter read:
x x x With all due respect to the resolution of the Municipal On 19 August 1994, Visitacion, together with her husband
Council and the opinion rendered by the Laguna Asst. Cesar Bombasi (Spouses Bombasi) filed with the Regional
Provincial Prosecutor, it is my considered view, however, Trial Court of San Pablo City, Laguna a Civil Case 19 for
arrived at after consultation with my legal counsel, that our damages with preliminary injunction against the Municipality
existing lease contract is still legally binding and in full force of Nagcarlan, Laguna, Mayor Demetrio T. Comendador,
and effect. Lest I appear to be defiant, let me reiterate to you Paulino S. Asilo, Jr., and Alberto S. Angeles. The complaint
and the council that we are willing to vacate the said building was soon after amended to include the Spouses Benita and
provided that a new contract is executed granting to us the Isagani Coronado and Spouses Alida and Teddy Coroza as
same space or lot and the same area. I believe that our formal defendants because they were then the occupants of
proposal is most reasonable and fair under the the contested area.
circumstance. If you are not amenable to the said proposal, I
concur with the position taken by the Council for you to file
The spouses prayed for the following disposition:
the appropriate action in court for unlawful detainer to enable
our court to finally thresh out our differences. 141avvphi1
1. RESTRAINING or ENJOINING defendant
Municipality and defendant Municipal Mayor from
On 15 September 1993, Asst. Provincial Prosecutor
leasing the premises subject of lease Annex "A"
Florencio Buyser sent a letter to Visitacion ordering her to
hereof, part of which is now occupied by PNP
vacate the portion of the public market she was occupying
Outpost and by the Municipal Collectors’ Office,
within 15 days from her receipt of the letter; else, a court
and the equivalent adjacent area thereof, and to
action will be filed against her.
cause the removal of said stalls;
On 11 October 1993, the Sangguniang Bayan of Nagcarlan,
2. UPHOLDING the right of plaintiffs to occupy the
Laguna issued Resolution No. 183 authorizing Mayor
equivalent corner area of the leased areas being
Comendador to demolish the store being occupied by
now assigned to other persons by defendants
Visitacion using legal means. The significant portion of the
Municipality and/or by defendant Municipal Mayor,
Resolution reads:
and to allow plaintiffs to construct their stalls
thereon;
Kung kaya ang Sangguniang Bayan ay buong pagkakaisang
IPINASIYA: Ang pagbibigay kapangyarihan kay Kgg.
3. MAKING the injunction permanent, after trial;
Demetrio T. Comendador na ipagiba ang anumang
istrakturang nagiging sagabal sa mabilis at maayos na
pagbabangon ng pamilihang bayan. 15 4. ORDERING defendants to pay plaintiffs, jointly
and severally, the following –
On 14 October 1993, Municipal Administrator Paulino S.
Asilo, Jr. (Asilo) also sent a letter 16 to Visitacion informing her (a) ₱437,900.00 for loss of building/store
of the impending demolition of her store the next day. Within and other items therein;
the same day, Visitacion wrote a reply letter 17 to Asilo,
alleging that there is no legal right to demolish the store in
(b) ₱200,000.00 for exemplary
the absence of a court order and that the Resolutions did not
damages;
sanction the demolition of her store but only the filing of an
appropriate unlawful detainer case against her. She further
replied that if the demolition will take place, appropriate (c) ₱200,000.00 for moral damages;
administrative, criminal and civil actions will be filed against
Mayor Comendador, Asilo and all persons who will take part
in the demolition. (d) ₱30,.00 for attorney’s fees and
₱700.00 for every attendance of counsel
in court.
On 15 October 1993, Mayor Comendador relying on the
strength of Sangguniang Bayan Resolution Nos. 183 and
5. GRANTING further reliefs upon plaintiffs as
156 authorized the demolition of the store with Asilo and
justice and equity may warrant in the premises.20
Angeles supervising the work.
Engineer Winston Cabrega (Engineer Cabrega), a licensed Spouses Bombasi, thereafter, filed a criminal
civil engineer, estimated the cost of the demolished property complaint21 against Mayor Comendador, Asilo and Angeles
as amounting to ₱437,900.0018 for violation of Sec. 3(e) of Republic Act No. 3019 otherwise
known as the "Anti-Graft and Corrupt Practices Act" before
the Office of the Ombudsman. On 22 February 1996, an
Information22 against Mayor Comendador, Asilo and Angeles
was filed, which reads:
That on or about October 15, 1993, at Nagcarlan, Laguna,
Philippines, and within the jurisdiction of this Honorable
Court, the above-named accused, all public officers, accused
Demetrio T. Comendador, being then the Municipal Mayor,
accused Paulino S. Asilo, Jr. being then the Municipal
Administrator and accused Alberto S. Angeles being then the
Municipal Planning and Development Coordinator, all of the
Municipality of Nagcarlan, Laguna, committing the crime
herein charged in relation to, while in the performance and
taking advantage of their official functions, conspiring and
confederating with each other, and with evident bad faith,
manifest partiality or through gross inexcusable negligence,
did then and there willfully, unlawfully, criminally cause the
demolition of a public market stall leased by the municipal
government in favor of one Visitacion Coronado-Bombasi
without legal or justifiable ground therefor, thus, causing
undue injury to the latter in the amount of PESOS: FOUR
HUNDRED THIRTY SEVEN THOUSAND AND NINE
HUNDRED ONLY (₱437,900.00).
Upon their arraignments, all the accused entered their
separate pleas of "Not Guilty."
On 4 March 1997, the Sandiganbayan promulgated a
Resolution ordering the consolidation of Civil Case No. SP-
4064 (94)23 with Criminal Case No. 23267 pending before the
Third Division pursuant to Section 4, Presidential Decree No.
1606, which pertinently reads:
Any provision of law or Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding
civil action for the recovery of civil liability arising from the
offense charged shall at all times be simultaneously
instituted with, and jointly determined in the same
proceeding by the Sandiganbayan or the appropriate courts,
the filing of the criminal action being deemed to necessarily
carry with it the filing of the civil action, and no right to
reserve the filing of such civil action separately from the
criminal action shall be recognized; Provided, however, that
where the civil action had heretofore been filed separately
but judgment therein has not yet been rendered, and the
criminal case is hereafter filed with the Sandiganbayan or the
appropriate court, said civil action shall be transferred to the
Sandiganbayan or the appropriate court as the case may be,
for consolidation and joint determination with the criminal
action, otherwise the separate civil action shall be deemed
abandoned.24
During the pendency of the case, Alberto S. Angeles died on
16 November 1997. Accordingly, the counsel of Angeles filed
a motion to drop accused Angeles. On 22 September 1999,
the Third Division of Sandiganbayan issued an
Order25 DISMISSING the case against Angeles. The
germane portion of the Order reads:
In view of the submission of the death certificate of
accused/defendant Alberto S. Angeles, and there being no
objection on the part of the Public Prosecutor, cases against
deceased accused/defendant Angeles only, are hereby
DISMISSED.
The death of Mayor Comendador followed on 17 September
2002. As a result, the counsel of the late Mayor filed on 3
March 2003 a Manifestation before the Sandiganbayan
informing the court of the fact of Mayor Comendador’s death.
On 28 April 2003, the Sandiganbayan rendered a decision,
the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
In Criminal Case No. 23267, the court finds accused
Demetrio T. Comendador and Paulino S. Asilo, Jr. guilty
beyond reasonable doubt of violation of Sec. 3(e) of
Republic Act. No. 3019 as amended, and in the absence of
aggravating and mitigating circumstances, applying the
Indeterminate Sentence Law, said accused are sentenced to
suffer the indeterminate penalty of 6 years and 2 months
imprisonment as minimum to 10 years and 1 day as
maximum.
The order of the court dated September 22, 1999 dismissing
the cases against the accused Alberto S. Angeles, who died
on November 16, 1997 is hereby reiterated.
In Civil Case No. 4064, defendants Municipality of
Nagcarlan, Laguna, Demetrio T. Comendador and Paulino
S. Asilo, Jr. are hereby ordered jointly and severally to pay
plaintiff P437,900.00 as actual damages for the destruction
of the store; P100,000.00 as moral damages; P30,000.00 as
attorney’s fees, and to pay the cost of the suit. The prayer for
exemplary damages is denied as the court found no
aggravating circumstances in the commission of the crime.
In view of this court’s finding that the defendant spouses
Alida and Teddy Coroza are lawful occupants of the subject
market stalls from which they cannot be validly ejected
without just cause, the complaint against them is dismissed.
The complaint against defendant spouses Benita and
Isagani Coronado is likewise dismissed, it appearing that
they are similarly situated as the spouses Coroza.
Meanwhile, plaintiff Visitacion Bombasi is given the option to
accept market space being given to her by the municipality,
subject to her payment of the appropriate rental and permit
fees.
The prayer for injunctive relief is denied, the same having
become moot and academic.
The compulsory counterclaim of defendant Comendador is
likewise denied for lack of merit.26
Within the same day, Asilo, through his counsel, filed a
Motion for Reconsideration27 of the Decision alleging that
there was only an error of judgment when he complied with
and implemented the order of his superior, Mayor
Comendador. He likewise alleged that there is no liability
when a public officer commits in good faith an error of
judgment. The Sandiganbayan, on its Resolution 28 dated 21
July 2003 denied the Motion for Reconsideration on the
ground that good faith cannot be argued to support his cause
in the face of the court’s finding that bad faith attended the
commission of the offense charged. The Court further
explained that the invocation of compliance with an order of
a superior is of no moment for the "demolition [order] cannot
be described as having the semblance of legality inasmuch
as it was issued without the authority and therefore the same
was patently illegal."29
The counsel for the late Mayor also filed its Motion for
Reconsideration30 on 12 May 2003 alleging that the death of
the late Mayor had totally extinguished both his criminal and
civil liability. The Sandiganbayan on its Resolution 31 granted
the Motion insofar as the extinction of the criminal liability is
concerned and denied the extinction of the civil liability
holding that the civil action is an independent civil action.
Hence, these Petitions for Review on Certiorari.32
Petitioner Asilo argues that in order to sustain conviction
under Sec. 3(e) of Republic Act No. 3019 or "The Anti-Graft
and Corrupt Practices Act," the public officer must have
acted with manifest partiality, evident bad faith or gross
negligence. He also contended that he and his co-accused
acted in good faith in the demolition of the market and,
thereby, no liability was incurred.
On the other hand, Petitioner Victoria argues that the death
of Mayor Comendador prior to the promulgation of the
decision extinguished NOT ONLY Mayor Comendador’s
criminal liability but also his civil liability. She also asserted
good faith on the part of the accused public officials when
they performed the demolition of the market stall. Lastly, she
contended that assuming arguendo that there was indeed
liability on the part of the accused public officials, the actual
amount of damages being claimed by the Spouses Bombasi
has no basis and was not duly substantiated.
Liability of the accused public officials
under Republic Act No. 3019
Section 3(e) of Republic Act No. 3019 provides:
In addition to acts or omissions of public officers already
penalized by existing law, the following shall constitute
corrupt practices of any public officer and are hereby
declared to be unlawful:
xxxx
(e) Causing any undue injury to any party, including the
Government, or giving any private party any unwarranted
benefits, advantage or preference in the discharge of his
official, administrative or judicial functions through manifest
partiality, evident bad faith or gross inexcusable negligence.
This provision shall apply to officers and employees of
offices or government corporations charged with the grant of
licenses or permits or other concessions.
The elements of the offense are as follows: (1) that the
accused are public officers or private persons charged in
conspiracy with them; (2) that said public officers commit the
prohibited acts during the performance of their official duties
or in relation to their public positions; (3) that they caused
undue injury to any party, whether the Government or a
private party; (4) OR that such injury is caused by giving
unwarranted benefits, advantage or preference to the other
party; and (5) that the public officers have acted with
manifest partiality, evident bad faith or gross inexcusable
negligence.33
We sustain the Sandiganbayan in its finding of criminal and
civil liabilities against petitioner Asilo and petitioner Mayor
Comendador as here represented by his widow Victoria
Bueta.
We agree with the Sandiganbayan that it is undisputable that
the first two requisites of the criminal offense were present at
the time of the commission of the complained acts and that,
as to the remaining elements, there is sufficient amount of
evidence to establish that there was an undue injury suffered
on the part of the Spouses Bombasi and that the public
officials concerned acted with evident bad faith when they
performed the demolition of the market stall.
Causing undue injury to any party, including the government,
could only mean actual injury or damage which must be
established by evidence.34
In jurisprudence, "undue injury" is consistently interpreted as
"actual." Undue has been defined as "more than necessary,
not proper, [or] illegal;" and injury as "any wrong or damage
done to another, either in his person, rights, reputation or
property [that is, the] invasion of any legally protected
interest of another." Actual damage, in the context of these
definitions, is akin to that in civil law.35
It is evident from the records, as correctly observed by the
Sandiganbayan, that Asilo and Mayor Comendador as
accused below did not deny that there was indeed damage
caused the Spouses Bombasi on account of the demolition.
We affirm the finding that:
xxx. Clearly, the demolition of plaintiff’s store was carried out
without a court order, and notwithstanding a restraining order
which the plaintiff was able to obtain. The demolition was
done in the exercise of official duties which apparently was
attended by evident bad faith, manifest partiality or gross
inexcusable negligence as there is nothing in the two (2)
resolutions which gave the herein accused the authority to
demolish plaintiff’s store.
"Evident bad faith" connotes not only bad judgment but also
palpably and patently fraudulent and dishonest purpose to
do moral obliquity or conscious wrongdoing for some
perverse motive or ill will.36 [It] contemplates a state of mind
affirmatively operating with furtive design or with some
motive or self-interest or ill will or for ulterior purposes. 37
It is quite evident in the case at bar that the accused public
officials committed bad faith in performing the demolition.
First, there can be no merit in the contention that
respondents’ structure is a public nuisance. The abatement
of a nuisance without judicial proceedings is possible if it is
nuisance per se.38 Nuisance per se is that which is nuisance
at all times and under any circumstance, regardless of
location and surroundings. 39 In this case, the market stall
cannot be considered as a nuisance per se because as
found out by the Court, the buildings had not been affected
by the 1986 fire. This finding was certified to by Supervising
Civil Engineer Wilfredo A. Sambrano of the Laguna District
Engineer Office.40 To quote:
An inspection has been made on the building (a commercial
establishment) cited above and found out the following:
1. It is a two-storey building, sketch of which is
attached.
2. It is located within the market site.
3. The building has not been affected by the recent
fire.
4. The concrete wall[s] does not even show signs
of being exposed to fire.41
Second, the Sangguniang Bayan resolutions are not enough
to justify demolition. Unlike its predecessor law,42 the present
Local Government Code43 does not expressly provide for the
abatement of nuisance.44 And even assuming that the power
to abate nuisance is provided for by the present code, the
accused public officials were under the facts of this case, still
devoid of any power to demolish the store. A closer look at
the contested resolutions reveals that Mayor Comendador
was only authorized to file an unlawful detainer case in case
of resistance to obey the order or to demolish the building
using legal means. Clearly, the act of demolition without
legal order in this case was not among those provided by the
resolutions, as indeed, it is a legally impossible provision.
Furthermore, the Municipality of Nagcarlan, Laguna, as
represented by the then Mayor Comendador, was placed in
estoppel after it granted yearly business permits45 in favor of
the Spouses Bombasi. Art. 1431 of the New Civil Code
provides that, through estoppel, an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon. The representation made by the
municipality that the Spouses Bombasi had the right to
continuously operate its store binds the municipality. It is
utterly unjust for the Municipality to receive the benefits of
the store operation and later on claim the illegality of the
business.
The bad faith of the petitioners completes the elements of
the criminal offense of violation of Sec. 3(e) of Republic Act
No. 3019. The same bad faith serves as the source of the
civil liability of Asilo, Angeles, and Mayor Comendador.
It must be noted that when Angeles died on 16 November
1997, a motion to drop him as an accused was filed by his
counsel with no objection on the part of the prosecution. The
Sandiganbayan acted favorably on the motion and issued an
Order dismissing all the cases filed against Angeles. On the
other hand, when Mayor Comendador died and an adverse
decision was rendered against him which resulted in the
filing of a motion for reconsideration by Mayor Comendador’s
counsel, the prosecution opposed the Motion specifying the
ground that the civil liability did not arise from delict, hence,
survived the death of the accused. The Sandiganbayan
upheld the opposition of the prosecution which disposition
was not appealed.
We note, first off, that the death of Angeles and of Mayor
Comendador during the pendency of the case extinguished
their criminal liabilities.
We now hold, as did the Sandiganbayan that the civil liability
of Mayor Comendador survived his death; and that of
Angeles could have likewise survived had it not been for the
fact that the resolution of the Sandiganbayan that his death
extinguished the civil liability was not questioned and lapsed
into finality.
We laid down the following guidelines in People v. Bayotas: 46
Death of the accused pending appeal of his conviction
extinguishes his criminal liability as well as the civil liability
based solely thereon. As opined by Justice Regalado, in this
regard, "the death of the accused prior to final judgment
terminates his criminal liability and only the civil liability
directly arising from and based solely on the offense
committed, i.e., civil liability ex delicto in senso strictiore."
Corollarily, the claim for civil liability survives notwithstanding
the death of (the) accused, if the same may also be
predicated on a source of obligation other than delict. Article
1157 of the Civil Code enumerates these other sources of
obligation from which the civil liability may arise as a result of
the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) Acts or omissions punished by law; and
e) Quasi-delicts. (Emphasis ours)
Where the civil liability survives, as explained [above], an
action for recovery therefore may be pursued but only by
way of filing a separate civil action 47 and subject to Section 1,
Rule 111 of the 1985 Rules on Criminal Procedure as
amended. This separate civil action may be enforced either
against the executor/administrator or the estate of the
accused, depending on the source of obligation upon which
the same is based as explained above.
Finally, the private offended party need not fear a forfeiture
of his right to file this separate civil action by prescription, in
cases where during the prosecution of the criminal action
and prior to its extinction, the private-offended party
instituted together therewith the civil action. In such case, the
statute of limitations on the civil liability is deemed
interrupted during the pendency of the criminal case,
conformably with provisions of Article 1155 of the New Civil
Code, which should thereby avoid any apprehension on a
possible privation of right by prescription.
Upon death of the accused pending appeal of his conviction,
the criminal action is extinguished inasmuch as there is no
longer a defendant to stand as the accused; the civil action xxxx
instituted therein for recovery of civil liability ex delicto is ipso
facto extinguished, grounded as it is on the criminal.48
In any of the cases referred to in this article, whether or not
the defendant's act or omission constitutes a criminal
The New Civil Code provisions under the Chapter, Human offense, the aggrieved party has a right to commence an
Relations, were cited by the prosecution to substantiate its entirely separate and distinct civil action for damages, and
argument that the civil action based therein is an for other relief. Such civil action shall proceed independently
independent one, thus, will stand despite the death of the of any criminal prosecution (if the latter be instituted), and
accused during the pendency of the case. may be proved by a preponderance of evidence.
On the other hand, the defense invoked Section 4 of As held in Aberca v. Ver:
Presidential Decree No. 1606, as amended by Republic Act
No. 8249, in support of its argument that the civil action was
It is obvious that the purpose of the above codal provision
dependent upon the criminal action, thus, was extinguished
[Art. 32 of the New Civil Code] is to provide a sanction to the
upon the death of the accused. The law provides that:
deeply cherished rights and freedoms enshrined in the
Constitution. Its message is clear; no man may seek to
Any provision of law or the Rules of Court to the contrary violate those sacred rights with impunity. x x x.50
notwithstanding, the criminal action and the corresponding
civil action for the recovery of civil liability arising from the
Indeed, the basic facts of this case point squarely to the
offense charged shall at all times be simultaneously
applicability of the law on human relations. First, the
instituted with, and jointly determined in the same
complaint for civil liability was filed way AHEAD of the
proceeding by, the Sandiganbayan, the filing of the criminal
information on the Anti-Graft Law. And, the complaint for
action being deemed to necessarily carry with it the filing of
damages specifically invoked defendant Mayor
the civil action, and no right to reserve the filing of such
Comendador’s violation of plaintiff’s right to due process.
action shall be recognized. (Emphasis ours)
Thus:
We agree with the prosecution.
xxxx
Death of Mayor Comendador during the pendency of the
In causing or doing the forcible demolition of the store in
case could have extinguished the civil liability if the same
question, the individual natural defendants did not only act
arose directly from the crime committed. However, in this
with grave abuse of authority but usurped a power which
case, the civil liability is based on another source of
belongs to our courts of justice; such actuations were done
obligation, the law on human relations. 49 The pertinent
with malice or in bad faith and constitute an invasion of the
articles follow:
property rights of plaintiff(s) without due process of law.
Art. 31 of the Civil Code states:
xxxx
When the civil action is based on an obligation not arising
The Court is in one with the prosecution that there was a
from the act or omission complained of as a felony, such civil
violation of the right to private property of the Spouses
action may proceed independently of the criminal
Bombasi. The accused public officials should have accorded
proceedings and regardless of the result of the latter.
the spouses the due process of law guaranteed by the
Constitution and New Civil Code. The Sangguniang Bayan
And, Art. 32(6) states: Resolutions as asserted by the defense will not, as already
shown, justify demolition of the store without court order.
This Court in a number of decisions 51 held that even if there
Any public officer or employee, or any private individual, who
is already a writ of execution, there must still be a need for a
directly or indirectly obstructs, defeats, violates or in any
special order for the purpose of demolition issued by the
manner impedes or impairs any of the following rights and
court before the officer in charge can destroy, demolish or
liberties of another person shall be liable to the latter for
remove improvements over the contested property.52 The
damages:
pertinent provisions are the following:
(6) The right against deprivation of property without due
Before the removal of an improvement must take place,
process of law;
there must be a special order, hearing and reasonable notice
to remove. Section 10(d), Rule 39 of the Rules of Court
provides:
(d) Removal of improvements on property subject of
execution. – When the property subject of execution contains
improvements constructed or planted by the judgment
obligor or his agent, the officer shall not destroy, demolish or
remove said improvements except upon special order of the
court, issued upon motion of the judgment obligee after due
hearing and after the former has failed to remove the same
within a reasonable time fixed by the court.
The above-stated rule is clear and needs no interpretation. If
demolition is necessary, there must be a hearing on the
motion filed and with due notices to the parties for the
issuance of a special order of demolition.53
This special need for a court order even if an ejectment case
has successfully been litigated, underscores the independent
basis for civil liability, in this case, where no case was even
filed by the municipality.
The requirement of a special order of demolition is based on
the rudiments of justice and fair play. It frowns upon
arbitrariness and oppressive conduct in the execution of an
otherwise legitimate act. It is an amplification of the provision
of the Civil Code that every person must, in the exercise of
his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and
good faith.54
Notably, the fact that a separate civil action precisely based
on due process violations was filed even ahead of the
criminal case, is complemented by the fact that the
deceased plaintiff Comendador was substituted by his
widow, herein petitioner Victoria who specified in her petition
that she has "substituted him as petitioner in the above
captioned case." Section 1, Rule III of the 1985 Rules in
Criminal Procedure mentioned in Bayotas is, therefore, not
applicable. Truly, the Sandiganbayan was correct when it
maintained the separate docketing of the civil and criminal
cases before it although their consolidation was erroneously
based on Section 4 of Presidential Decree No. 1606 which
deals with civil liability "arising from the offense charged."
We must, however, correct the amount of damages awarded
to the Spouses Bombasi.
To seek recovery of actual damages, it is necessary to prove
the actual amount of loss with a reasonable degree of
certainty, premised upon competent proof and on the best
evidence obtainable.55 In this case, the Court finds that the
only evidence presented to prove the actual damages
incurred was the itemized list of damaged and lost
items56 prepared by Engineer Cabrega, an engineer
commissioned by the Spouses Bombasi to estimate the probative value unless the proponent can show that the
costs. evidence falls within the exceptions to the hearsay evidence
rule.62 Further, exhibits do not fall under any of the
exceptions provided under Sections 37 to 47 of Rule 130 of
As held by this Court in Marikina Auto Line Transport
the Rules of Court.
Corporation v. People of the Philippines,57
Though there is no sufficient evidence to award the actual
x x x [W]e agree with the contention of petitioners that
damages claimed, this Court grants temperate damages for
respondents failed to prove that the damages to the terrace
₱200,000.00 in view of the loss suffered by the Spouses
caused by the incident amounted to ₱100,000.00. The only
Bombasi. Temperate damages are awarded in accordance
evidence adduced by respondents to prove actual damages
with Art. 2224 of the New Civil Code when the court finds
claimed by private respondent were the summary
that some pecuniary loss has been suffered but its amount
computation of damage made by Engr. Jesus R. Regal, Jr.
cannot, from the nature of the case, be proven with certainty.
amounting to ₱171,088.46 and the receipt issued by the BB
The amount of temperate or moderated damages is usually
Construction and Steel Fabricator to private respondent for
left to the discretion of the courts but the same should be
₱35,000.00 representing cost for carpentry works, masonry,
reasonable, bearing in mind that the temperate damages
welding, and electrical works. Respondents failed to present
should be more than nominal but less than
Regal to testify on his estimation. In its five-page decision,
compensatory.63 Without a doubt, the Spouses Bombasi
the trial court awarded ₱150,000.00 as actual damages to
suffered some form of pecuniary loss in the impairment of
private respondent but failed to state the factual basis for
their store. Based on the record of the case, 64 the
such award. Indeed, the trial court merely declared in the
demolished store was housed on a two-story building located
decretal portion of its decision that the "sum of ₱150,000.00
at the market’s commercial area and its concrete walls
as reasonable compensation sustained by plaintiff for her
remained strong and not affected by the fire. However, due
damaged apartment." The appellate court, for its part, failed
to the failure of the Spouses Bombasi to prove the exact
to explain how it arrived at the amount of ₱100,000.00 in its
amount of damage in accordance with the Rules of
three-page decision. Thus, the appellate court merely
Evidence,65 this court finds that ₱200,000.00 is the amount
declared:
just and reasonable under the circumstances.
With respect to the civil liability of the appellants, they
WHEREFORE, the instant appeal is DENIED. Accordingly,
contend that there was no urgent necessity to completely
the Decision of the Sandiganbayan dated 28 April 2003 is
demolish the apartment in question considering the nature of
hereby AFFIRMED WITH MODIFICATION. The Court
the damages sustained as a result of the accident.
affirms the decision finding the accused Paulino S. Asilo, Jr.
Consequently, appellants continue, the award of
and Demetrio T. Comendador guilty of violating Section 3(e)
₱150,000.00 as compensation sustained by the plaintiff-
of Republic Act No. 3019. We declare the finality of the
appellee for her damaged apartment is an unconscionable
dismissal of both the criminal and civil cases against Alberto
amount.
S. Angeles as the same was not appealed. In view of the
death of Demetrio T. Comendador pending trial, his criminal
Further, in one case, 58 this Court held that the amount liability is extinguished; but his civil liability survives. The
claimed by the respondent-claimant’s witness as to the Municipality of Nagcarlan, Paulino Asilo and Demetrio T.
actual amount of damages "should be admitted with extreme Comendador, as substituted by Victoria Bueta Vda. De
caution considering that, because it was a bare assertion, it Comendador, are hereby declared solidarily liable to the
should be supported by independent evidence." The Court Spouses Bombasi for temperate damages in the amount of
further said that whatever claim the respondent witness ₱200,000.00 and moral damages in the amount of
would allege must be appreciated in consideration of his ₱100,000.00.
particular self-interest. 59 There must still be a need for the
examination of the documentary evidence presented by the
Costs against the petitioners-appellants.
claimants to support its claim with regard to the actual
amount of damages.
SO ORDERED.
The price quotation made by Engineer Cabrega presented
as an exhibit60 partakes of the nature of hearsay evidence
considering that the person who issued them was not
presented as a witness. 61 Any evidence, whether oral or
documentary, is hearsay if its probative value is not based
on the personal knowledge of the witness but on the
knowledge of another person who is not on the witness
stand. Hearsay evidence, whether objected to or not, has no
G.R. No. 160545               March 9, 2010

PRISMA CONSTRUCTION & DEVELOPMENT

CORPORATION and ROGELIO S.
PANTALEON, Petitioners,
vs.
ARTHUR F. MENCHAVEZ, Respondent.

DECISION

BRION, J.:

We resolve in this Decision the petition for review on

certiorari1 filed by petitioners Prisma Construction &
Development Corporation (PRISMA) and Rogelio S.
Pantaleon (Pantaleon) (collectively, petitioners) who seek to
reverse and set aside the Decision 2 dated May 5, 2003 and
the Resolution3 dated October 22, 2003 of the Former Ninth
Division of the Court of Appeals (CA) in CA-G.R. CV No.
69627. The assailed CA Decision affirmed the Decision of
the Regional Trial Court (RTC), Branch 73, Antipolo City in
Civil Case No. 97-4552 that held the petitioners liable for
payment of ₱3,526,117.00 to respondent Arthur F.
Menchavez (respondent), but modified the interest rate from
4% per month to 12% per annum, computed from the filing of
the complaint to full payment. The assailed CA Resolution
denied the petitioners’ Motion for Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly
summarized below.
On December 8, 1993, Pantaleon, the President and and six (6) postdated checks corresponding to the schedule The petitioners elevated the case to the CA via an ordinary
Chairman of the Board of PRISMA, obtained a of payments. Pantaleon signed the promissory note in his appeal under Rule 41 of the Rules of Court, insisting that
₱1,000,000.004 loan from the respondent, with a monthly personal capacity,9 and as duly authorized by the Board of there was no express stipulation on the 4% monthly interest.
interest of ₱40,000.00 payable for six months, or a total Directors of PRISMA.10 The petitioners failed to completely
obligation of ₱1,240,000.00 to be paid within six (6) pay the loan within the stipulated six (6)-month period.
THE CA RULING
months,5 under the following schedule of payments:
From September 8, 1994 to January 4, 1997, the petitioners
The CA decided the appeal on May 5, 2003. The CA found
January 8, 1994 paid the following amounts to the respondent:
₱40,000.00 that the parties agreed to a 4% monthly interest principally
…………………. based on the board resolution that authorized Pantaleon to
September 8, 1994 transact a loan with an approved interest of not more than
February 8, 1994 ₱320,000.00 4% per month. The appellate court, however, noted that the
₱40,000.00 ………………
………………... interest of 4% per month, or 48% per annum, was
October 8, 1995…………………. ₱600,000.00 unreasonable and should be reduced to 12% per annum.
March 8, 1994
₱40,000.00 The CA affirmed the RTC’s finding that PRISMA was a mere
…………………...
November 8, 1995……………. ₱158,772.00 instrumentality of Pantaleon that justified the piercing of the
April 8, 1994 veil of corporate fiction. Thus, the CA modified the RTC
₱40,000.00 January 4, 1997 Decision by imposing a 12% per annum interest, computed
……………………. ₱30,000.0011
…………………. from the filing of the complaint until finality of judgment, and
May 8, 1994 thereafter, 12% from finality until fully paid.17
₱40,000.00
……………………..
As of January 4, 1997, the petitioners had already paid a
total of ₱1,108,772.00. However, the respondent found that After the CA's denial 18 of their motion for
June 8, 1994 ………………… ₱1,040,000.006
the petitioners still had an outstanding balance of reconsideration,19 the petitioners filed the present petition for
Total ₱1,240,000.00 ₱1,364,151.00 as of January 4, 1997, to which it applied a review on certiorari under Rule 45 of the Rules of Court.
4% monthly interest.12 Thus, on August 28, 1997, the
respondent filed a complaint for sum of money with the RTC THE PETITION
To secure the payment of the loan, Pantaleon issued a to enforce the unpaid balance, plus 4% monthly interest,
promissory note7 that states: ₱30,000.00 in attorney’s fees, ₱1,000.00 per court
appearance and costs of suit.13 The petitioners submit that the CA mistakenly relied on their
board resolution to conclude that the parties agreed to a 4%
I, Rogelio S. Pantaleon, hereby acknowledge the receipt of monthly interest because the board resolution was not an
ONE MILLION TWO HUNDRED FORTY THOUSAND In their Answer dated October 6, 1998, the petitioners evidence of a loan or forbearance of money, but merely an
PESOS (P1,240,000), Philippine Currency, from Mr. Arthur admitted the loan of ₱1,240,000.00, but denied the authorization for Pantaleon to perform certain acts, including
F. Menchavez, representing a six-month loan payable stipulation on the 4% monthly interest, arguing that the the power to enter into a contract of loan. The expressed
according to the following schedule: interest was not provided in the promissory note. Pantaleon mandate of Article 1956 of the Civil Code is that interest due
also denied that he made himself personally liable and that should be stipulated in writing, and no such stipulation exists.
he made representations that the loan would be repaid within Even assuming that the loan is subject to 4% monthly
January 8, 1994 six (6) months.14 interest, the interest covers the six (6)-month period only and
₱40,000.00
…………………. cannot be interpreted to apply beyond it. The petitioners also
February 8, 1994 THE RTC RULING point out the glaring inconsistency in the CA Decision, which
₱40,000.00 reduced the interest from 4% per month or 48% per annum
………………...
to 12% per annum, but failed to consider that the amount of
The RTC rendered a Decision on October 27, 2000 finding ₱3,526,117.00 that the RTC ordered them to pay includes
March 8, 1994
₱40,000.00 that the respondent issued a check for ₱1,000,000.00 in the compounded 4% monthly interest.
…………………...
favor of the petitioners for a loan that would earn an interest
April 8, 1994 of 4% or ₱40,000.00 per month, or a total of ₱240,000.00 for
₱40,000.00 a 6-month period. It noted that the petitioners made several THE CASE FOR THE RESPONDENT
…………………….
payments amounting to ₱1,228,772.00, but they were still
May 8, 1994 indebted to the respondent for ₱3,526,117.00 as of The respondent counters that the CA correctly ruled that the
₱40,000.00 February 11,15 1999 after considering the 4% monthly
…………………….. loan is subject to a 4% monthly interest because the board
interest. The RTC observed that PRISMA was a one-man resolution is attached to, and an integral part of, the
June 8, 1994 ………………… ₱1,040,000.00 corporation of Pantaleon and used this circumstance to promissory note based on which the petitioners obtained the
justify the piercing of the veil of corporate fiction. Thus, the loan. The respondent further contends that the petitioners
RTC ordered the petitioners to jointly and severally pay the are estopped from assailing the 4% monthly interest, since
The checks corresponding to the above amounts are hereby respondent the amount of ₱3,526,117.00 plus 4% per month they agreed to pay the 4% monthly interest on the principal
acknowledged.8 interest from February 11, 1999 until fully paid.16 amount under the promissory note and the board resolution.
THE ISSUE
The core issue boils down to whether the parties agreed to
the 4% monthly interest on the loan. If so, does the rate of
interest apply to the 6-month payment period only or until full
payment of the loan?
OUR RULING
We find the petition meritorious.
Interest due should be stipulated in writing; otherwise, 12%
per annum
Obligations arising from contracts have the force of law
between the contracting parties and should be complied with
in good faith.20 When the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties,
the literal meaning of its stipulations governs. 21 In such
cases, courts have no authority to alter the contract by
construction or to make a new contract for the parties; a
court's duty is confined to the interpretation of the contract
the parties made for themselves without regard to its wisdom
or folly, as the court cannot supply material stipulations or
read into the contract words the contract does not
contain.22 It is only when the contract is vague and
ambiguous that courts are permitted to resort to the
interpretation of its terms to determine the parties’ intent.
In the present case, the respondent issued a check for
₱1,000,000.00.23 In turn, Pantaleon, in his personal capacity
and as authorized by the Board, executed the promissory
note quoted above. Thus, the ₱1,000,000.00 loan shall be
payable within six (6) months, or from January 8, 1994 up to
June 8, 1994. During this period, the loan shall earn an
interest of ₱40,000.00 per month, for a total obligation of
₱1,240,000.00 for the six-month period. We note that this
agreed sum can be computed at 4% interest per month,
but no such rate of interest was stipulated in the
promissory note; rather a fixed sum equivalent to this
rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that "no
interest shall be due unless it has been expressly stipulated
in writing." Under this provision, the payment of interest in
loans or forbearance of money is allowed only if: (1) there
was an express stipulation for the payment of interest; and
(2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required for
the payment of interest at a stipulated rate. Thus, we held
in Tan v. Valdehueza24 and Ching v. Nicdao25 that collection
of interest without any stipulation in writing is prohibited by
law.1avvphi1
Applying this provision, we find that the interest of
₱40,000.00 per month corresponds only to the six (6)-month
period of the loan, or from January 8, 1994 to June 8, 1994,
as agreed upon by the parties in the promissory note.
Thereafter, the interest on the loan should be at the legal
interest rate of 12% per annum, consistent with our ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals:26
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." (Emphasis
supplied)
We reiterated this ruling in Security Bank and Trust Co. v.
RTC-Makati, Br. 61,27 Sulit v. Court of Appeals,28 Crismina
Garments, Inc. v. Court of Appeals, 29 Eastern Assurance
and Surety Corporation v. Court of
Appeals, 30 Sps. Catungal v. Hao, 31 Yong v. Tiu,32 and Sps.
Barrera v. Sps. Lorenzo.33 Thus, the RTC and the CA
misappreciated the facts of the case; they erred in finding
that the parties agreed to a 4% interest, compounded by the
application of this interest beyond the promissory note’s six
(6)-month period. The facts show that the parties agreed to
the payment of a specific sum of money of ₱40,000.00 per
month for six months, not to a 4% rate of interest payable
within a six (6)-month period.
Medel v. Court of Appeals not applicable
The CA misapplied Medel v. Court of Appeals 34 in finding
that a 4% interest per month was unconscionable.
In Medel, the debtors in a ₱500,000.00 loan were required to
pay an interest of 5.5% per month, a service charge of 2%
per annum, and a penalty charge of 1% per month, plus
attorney’s fee equivalent to 25% of the amount due, until the
loan is fully paid. Taken in conjunction with the stipulated
service charge and penalty, we found the interest rate of
5.5% to be excessive, iniquitous, unconscionable, exorbitant
and hence, contrary to morals, thereby rendering the
stipulation null and void.
Applying Medel, we invalidated and reduced the stipulated
interest in Spouses Solangon v. Salazar 35 of 6% per month
or 72% per annum interest on a ₱60,000.00 loan; in Ruiz v.
Court of Appeals, 36 of 3% per month or 36% per annum
interest on a ₱3,000,000.00 loan; in Imperial v. Jaucian, 37 of
16% per month or 192% per annum interest on a
₱320,000.00 loan; in Arrofo v. Quiño,38 of 7% interest per
month or 84% per annum interest on a ₱15,000.00 loan;
in Bulos, Jr. v. Yasuma,39 of 4% per month or 48% per
annum interest on a ₱2,500,000.00 loan; and in Chua v.
Timan,40 of 7% and 5% per month for loans totalling
₱964,000.00. We note that in all these cases, the terms of
the loans were open-ended; the stipulated interest rates
were applied for an indefinite period.
Medel finds no application in the present case where no
other stipulation exists for the payment of any extra amount
except a specific sum of ₱40,000.00 per month on the
principal of a loan payable within six months. Additionally, no
issue on the excessiveness of the stipulated amount of
₱40,000.00 per month was ever put in issue by the
petitioners;41 they only assailed the application of a 4%
interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the
parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, which is the law between
them, the only limitation being that these stipulations,
clauses, terms and conditions are not contrary to law,
morals, public order or public policy. 42 The payment of the
specific sum of money of ₱40,000.00 per month was
voluntarily agreed upon by the petitioners and the
respondent. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims of
fraud when they entered into the agreement with the
respondent.
Therefore, as agreed by the parties, the loan of
₱1,000,000.00 shall earn ₱40,000.00 per month for a period
of six (6) months, or from December 8, 1993 to June 8,
1994, for a total principal and interest amount of
₱1,240,000.00. Thereafter, interest at the rate of 12% per
annum shall apply. The amounts already paid by the
petitioners during the pendency of the suit, amounting to
₱1,228,772.00 as of February 12, 1999,43 should be
deducted from the total amount due, computed as indicated
above. We remand the case to the trial court for the actual
computation of the total amount due.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped
from disputing the 4% monthly interest beyond the six-month
stipulated period, since they agreed to pay this interest on
the principal amount under the promissory note and the
board resolution.
We disagree with the respondent’s contention.
We cannot apply the doctrine of estoppel in the present case
since the facts and circumstances, as established by the
record, negate its application. Under the promissory
note,44 what the petitioners agreed to was the payment of shall thereafter bear interest at 12% per annum. The total
a specific sum of ₱40,000.00 per month for six months – amount due and unpaid, including accrued interests, shall
not a 4% rate of interest per month for six (6) months – bear interest at 12% per annum from the finality of this
on a loan whose principal is ₱1,000,000.00, for the total Decision. Let this case be REMANDED to the Regional Trial
amount of ₱1,240,000.00. Thus, no reason exists to place Court, Branch 73, Antipolo City for the proper computation of
the petitioners in estoppel, barring them from raising their the amount due as herein directed, with due regard to the
present defenses against a 4% per month interest after the payments the petitioners have already remitted. Costs
six-month period of the agreement. The board against the respondent.
resolution,45 on the other hand, simply authorizes Pantaleon
to contract for a loan with a monthly interest of not more than
SO ORDERED.
4%. This resolution merely embodies the extent of
Pantaleon’s authority to contract and does not create any
right or obligation except as between Pantaleon and the
board. Again, no cause exists to place the petitioners in
estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to

pierce the corporate veil of PRISMA. G.R. No. 165938               November 25, 2009

The doctrine of piercing the corporate veil applies only in ROGELIO DIZON, Petitioner,
three (3) basic instances, namely: a) when the separate and vs.
distinct corporate personality defeats public convenience, as PHILIPPINE VETERANS BANK, Respondent.
when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; b) in fraud cases, or when
the corporate entity is used to justify a wrong, protect a DECISION
fraud, or defend a crime; or c) is used in alter ego cases, i.e.,
where a corporation is essentially a farce, since it is a mere PERALTA, J.:
alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency, Assailed in the present petition for review on certiorari under
conduit or adjunct of another corporation. 46 In the absence of Rule 45 of the Rules of Court is the Resolution 1 of the Court
malice, bad faith, or a specific provision of law making a of Appeals (CA) in CA-G.R. CV No. 72856, dated August 25,
corporate officer liable, such corporate officer cannot be 2003, which dismissed herein petitioner's appeal, and its
made personally liable for corporate liabilities.47 Resolution2 dated November 2, 2004 denying petitioner's
motion for reconsideration.

In the present case, we see no competent and convincing

evidence of any wrongful, fraudulent or unlawful act on the The undisputed facts are as follows:
part of PRISMA to justify piercing its corporate veil. While
Pantaleon denied personal liability in his Answer, he made Herein petitioner Rogelio Dizon and his wife Corazon were
himself accountable in the promissory note "in his personal the owners of three parcels of land located in Angeles City,
capacity and as authorized by the Board Resolution" of Pampanga covered by Transfer Certificate of Title (TCT)
PRISMA.48 With this statement of personal liability and in the Nos. T-12567, T-35788 and T-29117-R (3793). On
absence of any representation on the part of PRISMA that September 26, 1979, the Spouses Dizon mortgaged these
the obligation is all its own because of its separate corporate lots to herein respondent Philippine Veterans Bank (PVB) as
identity, we see no occasion to consider piercing the security for a credit accommodation which they obtained
corporate veil as material to the case. from PVB. The Spouses Dizon failed to pay their obligation.
As a consequence, PVB extrajudicially foreclosed the
WHEREFORE, in light of all the foregoing, we mortgage and was able to acquire the subject properties at
hereby REVERSE and SET ASIDE the Decision dated May public auction conducted on December 8, 1983.
5, 2003 of the Court of Appeals in CA-G.R. CV No. 69627. Subsequently, a Certificate of Sale was issued in favor of
The petitioners’ loan of ₱1,000,000.00 shall bear interest of PVB which was registered with the Register of Deeds of
₱40,000.00 per month for six (6) months from December 8, Angeles City on November 22, 1984.
1993 as indicated in the promissory note. Any portion of this
loan, unpaid as of the end of the six-month payment period,
Sometime in June 1986, PVB filed with the Regional Trial
Court (RTC) of Angeles City a Petition for the Issuance of
Owner's Duplicate Certificate of Title covering the subject
lots. The case was docketed as L.R.C. CAD. CASE NO. A-
124-91. Apparently, for failure of PVB to prosecute the case
for an unreasonable length of time, the petition was
dismissed without prejudice.
On July 26, 1999, PVB filed anew with the RTC of Angeles
City a Petition for Issuance of Owner's Duplicate Copy of
Transfer Certificate of Title over the same parcels of land.
The case was docketed as L.R.C. Case No. A-124-1024.
Herein petitioner opposed the petition.
On November 16, 1999, PVB filed with the RTC of Angeles
City an ex-parte petition for the issuance of a writ of
possession. The case was docketed as Cad. Case No. A-
124-1057. On February 19, 2002, the RTC rendered
judgment in favor of PVB. On appeal, however, the CA
reversed the decision of the RTC and dismissed PVB's
petition for the issuance of a writ of possession. The CA
Decision became final and executory on January 14, 2004.
Meanwhile, after due proceedings in L.R.C. Case No. A-124-
1024, the RTC rendered judgment granting the petition of
PVB. The dispositive portion of the RTC Decision, dated
August 6, 2001, reads as follows:
WHEREFORE, the Register of Deeds of Angeles City is
directed to issue another owner's duplicate copies of T.C.T.
Nos. T-12567, 29117 (3793) and 35788 in favor of petitioner
Philippine Veterans Bank, which shall contain a
memorandum of the fact that they be issued in place of the
lost ones but shall, in all respect, be entitled to like faith and
credit as the original duplicates and shall thereafter be
regarded as such for all purposes of Pres. Decree No. 1529,
after the petitioner shall have complied with all the
mandatory requirements of the law on the matter.
SO ORDERED.3
Feeling aggrieved, Rogelio filed an appeal with the CA. On
August 25, 2003, the CA issued the presently assailed
Resolution dismissing Rogelio's appeal for his failure to file
his appellant's brief.
Rogelio filed a motion for reconsideration, but the same was
denied by the CA in a subsequent Resolution dated
November 2, 2004.
Hence, the present petition based on the following grounds:
I. Whether or not the questioned second Petition
for Issuance of Owner's Duplicate copy of Transfer
Certificate of Title Nos. T-12567, 2917 (3793),
5788 in lieu of lost owner's copy filed by the
Petitioner-Appellee on July 26, 1999, after more
than sixteen (16) years after the Foreclosure Sale
sometime in December 8, 1983 is barred
by prescription;
II. Whether or not the three (3) defective, fictitious
and/or fake Owner's duplicate certificates of title
attached in the dismissed original petition filed on
June 1986 when it was the Respondent Bank
(petitioner therein) itself which placed the remarks
on the upper right corner of the titles the
phrase: ALLEGEDLY FAKE in our possession
presented as collaterals are similar to the three
(3) certified true copies of the original certificates
of title on file at the Register of Deeds of Angeles
City attached in the second Petition and marked
as Annexes "A", "B" and "C" thereof respectively;
III. Whether or not Atty. Ma. Rosario A. Sabalburo,
Head of Assets Recovery Department of the PVB,
has committed the crime of perjury in her Sworn
Affidavit of Loss that she executed on July 23,
1999, by presenting as pieces of evidence the
copies of the original certificates of title secured
from the Register of Deeds of Angeles City and
not the machine copies of the owner's duplicate
certificates of title that were found in their file as
claimed or true xerox copies from RTC BR. 62;
IV. Whether or not the documentary bases (the
three certified copies of title issued by the Register
of Deeds of Angeles City only last November 16,
1999 which were duly verified by Mr. Ronnie
Vergara and Mr. Herminio Manalang, the records
officer and Vault Keeper, respectively of the said
Office, used in the Respondent Bank's second
Petition are the very same copies of the said
collaterals having the same annotations and
encumbrances making them as the true and
faithful reproductions of the titles used in the
Bank's first Petition filed by the Petitioner on June
19, 1986. (Emphasis supplied.)4
The petition lacks merit.
With respect to the first issue, petitioner contends that the
petition filed by respondent bank has prescribed, citing
Article 1142 of the Civil Code which states that "[a] mortgage
action prescribes in ten years."
It is true that, under Article 1142 of the Civil Code, an action
to enforce a right arising from a mortgage should be
enforced within ten (10) years from the time the right of
action accrues; otherwise, it will be barred by prescription
and the mortgage creditor will lose his rights under the
mortgage.5 It is clear that the actions referred to under Article
1142 of the Civil Code are those that necessarily arise from
a mortgage. In the present case, however, PVB's petition for
the issuance of an owner's duplicate certificate of title
already arises from its right as the owner of the subject
properties and no longer as a mortgagee. The mortgage
contract respondent entered into with petitioner had already
been foreclosed, the properties sold and the sale in favor of
PVB registered with the Register of Deeds of the Province of
Cagayan. Hence, since the petition filed by PVB is not a
mortgage action, the provisions of Article 1142 of the Civil
Code do not apply.
In any case, Presidential Decree (PD) No. 1529, otherwise
known as the Property Registration Decree, the law that
specifically governs petitions for the replacement of lost
duplicate certificates of title, does not provide for any
limitation or period for filing the said petition. The silence of
the law on this matter can only be interpreted to mean that
there is no intention to provide a prescriptive period for filing
this petition.
As to the second issue, petitioner anchors his opposition to
the petition filed by PVB on the contention that the titles,
which he presented to the bank as evidence that the subject
properties were used as security for the loan he and his wife
incurred with the said bank, were genuine but were later on
altered by the bank's officials and employees with whom he
allegedly entered a deal in order to have his loan approved.
Petitioner claims that this altered and spurious titles were the
ones presented by PVB in its first petition filed with the RTC
in June 1986. However, these allegations remain
unsubstantiated. They are self-serving statements which are
not supported by any evidence whatsoever. It is settled that
one who alleges a fact has the burden of proving it and mere
allegation is not evidence. 6 The established fact remains that
petitioner and his wife were the ones who submitted to PVB
the authentic owner's copy of the titles over the subject
properties and that these copies were lost.1avvphi1
The Court cannot follow the logic in petitioner's arguments
considering that, in the first place, he and his wife were the
ones who submitted the titles to PVB. Now that PVB seeks
to obtain a duplicate copy of the titles covering the subject
properties which it legally acquired, petitioner has made a
complete turnaround and now assails the authenticity of
these titles which he and his wife used to obtain their loan.
Nonetheless, petitioner is estopped from doing so.
Settled is the rule that a person, who by his deed or conduct
has induced another to act in a particular manner, is barred
from adopting an inconsistent position, attitude or course of
conduct that thereby causes loss or injury to the latter. 7 The
doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is
to forbid one to speak against his own act, representations,
or commitments to the injury of one to whom they were
directed and who reasonably relied thereon.8
Article 1431 of the Civil Code states that "[t]hrough estoppel
an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as
against the person relying thereon."
The essential elements of estoppel are: (1) conduct of a
party amounting to false representation or concealment of
material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; (2)
intent, or at least expectation, that this conduct shall be
acted upon by, or at least influence, the other party; and (3)
knowledge, actual or constructive, of the real facts.9
In the present case, petitioner may not renege on his own
acts and representations to the prejudice of respondent
bank, which has relied on them. Since petitioner entered into
a binding contract on his own volition using the titles which
he now assails, he is therefore estopped from questioning
the authenticity of these documents which paved the way for
the consummation of the contract from which he derived
benefit.
Other than to harass the respondent, the Court is at a loss
as to what petitioner really desires to achieve in opposing the
respondent bank's petition. The Court agrees with
respondent's observation that petitioner's actuations are
demonstrative of his desperate attempt to cling on to the
subject properties despite the fact that he has lost them by
reason of foreclosure due to his failure to pay his obligations
and his subsequent inability to redeem them during the
period allowed by law.
Coming to the third and fourth issues, petitioner calls on the
Court to resolve issues of fact. Settled is the rule that a
petition for review on certiorari filed with this Court under
Rule 45 of the Revised Rules of Court shall raise only
questions of law.10 This Court is not a trier of facts. It is not its
function to analyze or weigh evidence. The jurisdiction of this
Court over cases brought to it is limited to the review and
rectification of errors allegedly committed by the lower
courts.11 While there are exceptions to this rule,12 the Court
finds that the present case does not fall under any of them.
In any case, what petitioner is trying to impress upon the
Court in the third and fourth issues is that PVB is concealing
the fact that the alleged spurious copies of the subject TCTs
were not actually lost. However, the Court gives full faith and
credence to the finding of the RTC that the owner's duplicate
copies in the possession of PVB were, in fact, lost. This is
consistent with the settled rule that appellate courts should of the Court of Appeals in CA-G.R. CV No. 72856,
not, unless for strong and cogent reasons, reverse the are AFFIRMED.
findings of fact of trial courts.13 This is so because trial judges
are in a better position to examine real evidence and at a
SO ORDERED.
vantage point to observe the actuation and the demeanor of
the witnesses.14 In the instant case, the Court finds no
sufficient reason to depart from the above findings of the
RTC.
Petitioner further questions PVB's submission of the certified
true copies of the TCTs covering the subject properties,
which were taken from the files of the Register of Deeds of
Angeles City. However, PVB has sufficiently explained that it
is only submitting evidence to prove that it complied with the
jurisdictional requirement under Section 10915 of PD No.
1529, which directs a person applying for the issuance of
another duplicate certificate of title to file a sworn statement
with the concerned Register of Deeds of the fact of loss or
destruction of the original owner's duplicate copy of the
subject TCT.
It bears to emphasize that in a petition for the issuance of a
second owner's duplicate copy of a certificate of title in
replacement of a lost one, the only questions to be resolved
are: whether or not the original owner's duplicate copy has
indeed been lost and whether the petitioner seeking the
issuance of a new owner’s duplicate title is the registered
owner or other person in interest. 16
The first question is factual and, in the present case, the
G.R. No. 193453               June 5, 2013
RTC had already made a finding that the original owner's
duplicate copy of the subject TCTs had indeed been lost. In
this respect, the Court finds no cogent reason to depart from SPOUSES RUBIN AND PORTIA HOJAS, Petitioners,
the findings of the RTC as discussed earlier. vs.
PHILIPPINE AMANAH BANK AND RAMON
As to the second question, there is no dispute that PVB has KUE, Respondents.
an interest over the subject properties having acquired the
same at public auction. DECISION
In sum, there is no doubt as to the identity of the subject MENDOZA, J.:
properties. There is neither any dispute with respect to the
fact that petitioner and his wife mortgaged these properties
to PVB and that they subsequently failed to pay their This is a petition for review on certiorari assailing the July 28,
obligations to the latter. Nor is there any issue as to the 2010 Decision1 of the Court of Appeals (CA), in CA-G.R. CV
validity of the foreclosure proceedings as well as the auction No. 55722, which affirmed the May 27, 1996 Decision of the
sale conducted and PVB's subsequent acquisition of the Regional Trial Court, Branch 13, Zamboanga City (RTC),
subject properties. dismissing Civil Case No. 1028 (3952), an action for
"Determination of True Balance of Mortgage, Debt,
Annulment/Setting
Hence, on the basis of the foregoing, the Court finds that the
RTC committed no error in granting PVB's petition for the
issuance of an owner's duplicate copy of certificates of title Aside of Extrajudicial Foreclosure of Mortgage and
covering the subject properties. Damages, with Prayer for Preliminary Injunction."
The petitioners, Spouses Rubin and Portia Hojas
WHEREFORE, the petition is DENIED. The Resolutions
(petitioners), alleged that on April 11, 1980, they secured a
dated August 25, 2003 and November 2, 2004, respectively,
loan from respondent Philippine Amanah Bank (PAB) in the
amount of ₱450,000.00; that this loan was secured by a
mortgage, covering both personal and real properties; that
from May 14, 1981 to June 27, 1986, they made various
payments amounting to ₱486,162.13; that PAB, however,
did not properly credit their payments; that based on the
summary of payments furnished by PAB to them on
February 24, 1989, only 13 payments were credited,
erroneously amounting to ₱317,048.83; that PAB did not
credit the payment they made totaling ₱165,623.24; and
that, in the statement of their account as of October 17,
1984, PAB listed their total payment as ₱412,211.54 on the
principal, and ₱138,472.09 as 30% interest, all amounting to
₱550,683.63, despite the fact that at that time, petitioners
had already paid the total sum of ₱486,162.13. 2
Petitioners further averred that for failure to pay the loan,
PAB applied for the extrajudicial foreclosure of the
mortgaged real properties of petitioners with the Ex-Officio
Sheriff; that consequently, a Notice of Extrajudicial
Foreclosure was issued on January 12, 1987 setting the
foreclosure sale on April 21, 1987 and, stating therein the
mortgage debt in the sum of ₱450,000.00; and that, in the
public auction conducted, PAB acquired said real property.3
It was further alleged that on March 9, 1988, through the
intervention of then Senator Aquilino Pimentel, Farouk A.
Carpizo (Carpizo), the OICPresident of PAB, wrote Roberto
Hojas (Roberto), petitioners’ son, informing him that although
the one-year redemption period would expire on April 21,
1988, by virtue of the bank’s incentive scheme, the
redemption period was extended until December 31, 1988;
that despite said letter from the OIC-President, the OIC of
the Project Development Department of PAB wrote Rubin
Hojas that the real properties acquired by PAB would be sold
in a public bidding before the end of August, 1988; that on
November 4, 1988, a public bidding was conducted; that in
the said bidding, the mortgaged properties were awarded to
respondent Ramon Kue (Kue); that subsequently, they
received a letter from the OIC of the Project Development
Department, dated January 3, 1989, informing them that they
had fifteen (15) days from receipt within which to vacate the
premises; that Kue then sent another letter, dated January
31, 1989, informing them that he had already acquired the
said property and that they were requested to vacate the
premises within fifteen (15) days from receipt thereof; 4 and
that because of this development, on May 7, 1991,
petitioners filed an action for "Determination of True Balance
of Mortgage Debt, Annulment/Setting Aside of Extrajudicial
Foreclosure of Mortgage and Damages, with Prayer for
Preliminary Injunction" against PAB.5
On May 27, 1996, the RTC dismissed petitioners’ complaint.
It ruled, among others, that: 1) PAB was not guilty of bad
faith in conducting the extrajudicial foreclosure as it, at one
time, even suspended the conduct of the foreclosure upon
the request of petitioners, who, nevertheless, failed to exert
effort to settle their accounts; 2) because petitioners failed to
redeem their properties within the period allowed, PAB
became its absolute owner and, as such, it had the right to
sell the same to Kue, who acquired the property for value
and in good faith; and 3) the subsequent foreclosure and
auction sale having been conducted above board and in
accordance with the requisite legal procedure, collusion
between PAB and Kue was certainly alien to the issue.6
Aggrieved, petitioners filed an appeal assailing the May 27,
1996 RTC Decision. They asserted that the March 9, 1988
Letter of Carpizo to Roberto Hojas extended the redemption
period from April 21 to December 31, 1988. Considering that
they had relied on Carpizo’s representation, PAB violated the
principle of estoppel when it conducted the public sale on
November 4, 1988.7 Their basis was the portion of said letter
which stated:
xxxx
As the Bank has adopted an incentive scheme whereby
payments are liberalized to give chances to former owners to
repossess their properties, we suggest that you advise your
parents to drop by at our Zamboanga Office so they can
avail of this rare privilege which shall be good only up to
December 31, 1988. (Emphasis supplied)8
The CA was not sympathetic with petitioners’ position. It held
that the period of redemption was never extended. The date
"December 31, 1988" was not an extension of the
redemption period. It was merely the last day for the
availment of the liberalized payment for the repossession of
foreclosed assets under PAB’s incentive scheme. PAB,
through said letter, did not make an unqualified
representation to petitioners that it had extended the
redemption period. As such, PAB could not be said to have
violated the principle of estoppel when it conducted a public
sale on November 4, 1988. 9 Thus, the dispositive portion of
the CA decision reads:
ACCORDINGLY, the instant appeal is DENIED. The
Decision dated May 27, 1996, of the Regional Trial Court,
9th Judicial Region, Branch No. 13 of Zamboanga City, in
Civil Case No. 1028 (3952), is AFFIRMED.
SO ORDERED.10
Undaunted, petitioners filed the present petition for review. It
postulated the sole issue:
WHETHER OR NOT THE CA ERRED IN NOT HOLDING
PAB TO HAVE VIOLATED THE PRINCIPLE OF ESTOPPEL
WHEN THE LATTER CONDUCTED THE NOVEMBER 4,
1988 PUBLIC SALE.
Petitioners reiterated their argument that the November 4,
1988 public sale by PAB was violative of the principle of
estoppel because said bank made it appear that the one-
year redemption period was extended. As such, when PAB
sold the property before said date, they suffered damages
and were greatly prejudiced.11 They also argued that since
they manifested their interest in availing of the said "incentive
scheme," PAB should have, at the very least, waited until
December 31, 1988, before it sold the subject foreclosed
property in a public auction. 12
On the other hand, PAB explains that the purpose of the
"incentive scheme" was to give previous owners the chance
to redeem their properties on easy payment term basis,
through condonation of some charges and penalties and
allowing payment by installment based on their proposals
which may be acceptable to PAB. Therefore, the March 9,
1988 Letter of Carpizo was an invitation for petitioners to
submit a proposal to PAB. 13 It was not meant to extend the
one-year redemption period.
As early as August 11, 1988, PAB wrote petitioners
informing them of the scheduled public bidding. After receipt
of the letter, petitioners went to PAB to signify their
willingness to avail of the said incentive scheme. They,
however, failed to submit a proposal. In fact, PAB did not
hear from petitioners again. As such, the respondent sold the
subject property in a public sale on November 4, 1988 14 PAB
cited the RTC’s finding that although the petitioners
manifested their intention to avail of the incentive scheme
desire alone was not sufficient. Redemption is not a matter
of intent but involved making the proper payment or tender of
the price of the land within the specified period.15
The petition is bereft of merit.
Through estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying on
it.16 This doctrine is based on the grounds of public policy,
fair dealing, good faith, and justice and its purpose is to
forbid one to speak against his own act, representations or
commitments to the injury of one to whom they were directed
and who reasonably relied on it. 17 Thus, in order for this
doctrine to operate, a representation must have been made
to the detriment of another who relied on it. In other words,
estoppel would not lie against one who, in the first place, did
not make any representation.
In this case, a perusal of the letter, on which petitioners
based their position that the redemption period had been
extended, shows otherwise. Pertinent portions of the said
letter read:
xxxx
Our records show that the above account has already been
foreclosed by the bank. However, the borrowers concerned
can still exercise the one (1) year right of redemption over
the foreclosed properties until April 21, 1988.
As the Bank has adopted an incentive scheme whereby
payments are liberalized to give chances to former owners to
repossess their properties, we suggest that you advise your
parents to drop by at our Zamboanga Office so they can
avail of this rare privilege which shall be good only up to
December 31, 1988. [Emphases and Underscoring
Supplied]18
As correctly held by the RTC and upheld by the CA, the date
"December 31, 1988" refers to the last day when owners of
foreclosed properties, like petitioners, could submit their
payment proposals to the bank. The letter was very clear. It
was about the availment of the liberalized payment scheme
of the bank. On the last day for redemption, the letter was
also clear. It was April 21, 1988. It was never extended.
The opportunity given to the petitioners was to avail of the
liberalized payment scheme which program would expire on
December 31, 1988. As explained by Abraham Iribani
(Iribani), the OIC of the Project Development Department of
PAB, it was to give a chance to previous owners to
repossess their properties on easy term basis, possibly by
condonation of charges and penalties and payment on
instalment. The letter of Carpizo was an invitation to the
petitioners to come to the bank with their proposal. It
appears that the petitioners could not come up with a
proposal acceptable to the bank.
For said reason, the mortgaged property was included in the
list of mortgaged properties that would be sold through a
scheduled public bidding. Thus, on August 11, 1988, Iribani
wrote the petitioners about the scheduled bidding. In
response, the petitioners told Iribani that they would go
Manila to explain their case. They did not, however, return
even after the public bidding. In this regard, the CA was
correct when it wrote:
Here, there is no estoppel to speak of. The letter does not
show that the Bank had unqualifiedly represented to the
Hojases that it had extended the redemption period to
December 31, 1988. Thus, the Hojases have no basis in
positing that the public sale conducted on November 4, 1988
was null and void for having been prematurely conducted.19
Moreover, petitioners’ allegation that they had signified their
intention to avail of the incentive scheme (which they have
equated to their intention to redeem the property), did not
amount to an exercise of redemption precluding the bank
from making the public sale. 20 In the case of China Banking
Corporation v. Martir,21 this Court expounded on what
constitutes a proper exercise of the right of redemption, to Respondents' repeated requests for information as regards
wit: the amount of loan availed from the credit line and the
amount of redemption, and petitioner's failure to accede to
said requests do not invalidate the foreclosure. Respondents
The general rule in redemption is that it is not sufficient that a
can find other ways to know the redemption price. For one,
person offering to redeem manifests his desire to do so. The
they can examine the Certificate of Sale registered with the
statement of intention must be accompanied by an actual
Register of Deeds to verify the purchase price, or upon the
and simultaneous tender of payment. This constitutes the
filing of their complaint, they could have moved for a
exercise of the right to repurchase.
computation of the redemption price and consigned the
same to the court. At any rate, whether or not respondents
In several cases decided by the Court where the right to '"were diligent in asserting their willingness to pay is
repurchase was held to have been properly exercised, there irrelevant. Redemption within the period allowed by law is
was an unequivocal tender of payment for the full amount of not a matter of intent but a question of payment or valid
the repurchase price. Otherwise, the offer to redeem is tender of the full redemption price within said period.
ineffectual. Bona fide redemption necessarily implies a
reasonable and valid tender of the entire repurchase price,
Even the complaint instituted by respondents cannot aid their
otherwise the rule on the redemption period fixed by law can
plight because the institution of an action to annul a
easily be circumvented.
foreclosure sale does not suspend the running of the
redemption period. (Underscoring supplied)22
Moreover, jurisprudence also characterizes a valid tender of
payment as one where the full redemption price is tendered.
In the case at bench, the record is bereft of concrete
Consequently, in this case, the offer by respondents on July
evidence that would show that, aside from the fact that
24, 1986 to redeem the foreclosed properties for ₱1,872,935
petitioners manifested their intention to avail of the scheme,
and the subsequent consignation in court of ₱1,500,000 on
they were also ready to pay the redemption price. Hence, as
August 27, 1986, while made within the period of
they failed to exercise their right of redemption and failed to
redemption, was ineffective since the amount offered and
take advantage of the liberalized incentive scheme, PAB was
actually consigned not only did not include the interest but
well within its right to sell its property in a public sale.
was in fact also way below the ₱2,782,554.66 paid by the
highest bidder/purchaser of the properties during the auction
sale. WHEREFORE, the petition is DENIED.
In Bodiongan vs. Court of Appeals, we held: SO ORDERED.
In order to effect a redemption, the judgment debtor must
pay the purchaser the redemption price composed of the
following: (1) the price which the purchaser paid for the
July 8, 2015
property; (2) interest of 1% per month on the purchase price;
(3) the amount of any assessments or taxes which the
purchaser may have paid on the property after the purchase; G.R. No. 202262
and (4) interest of 1% per month on such assessments and
taxes x x x.
JOSE C. GO, GOTESCO PROPERTIES, INC., GO TONG
ELECTRICAL SUPPLY, INC., EVER EMPORIUM, INC.,
Furthermore, Article 1616 of the Civil Code of the Philippines EVER GOTESCO RESOURCES AND HOLDINGS, INC.,
provides: GOTESCO TY AN MING DEVELOPMENT, INC.,
EVERCREST CEBU GOLF CLUB, NASUGBU RESORTS,
INC., GMCC UNITED DEVELOPMENT CORPORATION,
The vendor cannot avail himself of the right to repurchase
AND GULOD RESORT, INC., Petitioners,
without returning to the vendee the price of the sale x x x.
vs.
BANGKO SENTRAL NG PILIPINAS, and REGISTER OF
It is not difficult to understand why the redemption price DEEDS OF NASUGBU, BATANGAS, Respondent.
should either be fully offered in legal tender or else validly
consigned in court. Only by such means can the auction
DECISION
winner be assured that the offer to redeem is being made in
good faith.1âwphi1
BERSAMIN, J.:
By this appeal, the petitioners - businessman Jose C. Go
and eight corporations connected with him, namely: Gotesco
Properties, Inc., Go Tong Electrical Supply, Inc., Ever
Emporium, Inc., Ever Gotesco Resources and Holdings, Inc.,
Gotesco Tyan Ming Development, Inc., Evercrest Cebu Golf
Club, Nasugbu Resorts, Inc., GMCC United Development
Corporation and Gulod Resort, Inc. - challenge the decision
promulgated on December 20, 2011, 1 whereby the Court of
Appeals (CA) dismissed their petition for certiorari for being
moot and academic, and upheld the orders issued on June
4, 20092 and August 6, 20093 by the Regional Trial Court,
Branch 39, in Manila (RTC) allowing respondent Bangko
Sentral ng Pilipinas (Bangko Sentral) to levy on execution
the properties indicated in the parties’ court approved
compromise agreement.
Antecedents
The genesis of this case is traced to the decision of the
Court promulgated on June 29, 2011 in G.R. No. 148483
entitled Bangko Sentral ng Pilipinas v. Orient Commercial
Banking Corporation, et. al.4 The facts relevant to our
adjudication are reported therein, as follows:
On February 13, 1998, herein respondent Orient Commercial
Banking Corporation (OCBC) declared a bank holiday on
account of its inability to pay all its obligations to depositors,
creditors and petitioner Bangko Sentral ng Pilipinas (BSP).
On March 17, 1998, OCBC filed a petition for rehabilitation
with the Monetary Board. The bank was placed under
receivership and the Philippine Deposit Insurance
Corporation (PDIC) was designated as Receiver. Pursuant to
the Monetary Board’s Resolution No. 1427, PDIC took over
all the assets, properties, obligations and operations of
OCBC. Respondent Jose C. Go, the principal and biggest
stockholder of OCBC, with his affiliates companies
(respondent corporations), challenged the said action of the
PDIC before the RTC of Manila, Branch 44 (Civil Case No.
98-91265). Said case was dismissed and the dismissal was
appealed to the CA.
During the pendency of Civil Case No. 98-91265, the
Monetary Board adopted Resolution No. 602 dated May 7,
1999 directing the Receiver to proceed with the liquidation of
OCBC. In June, 1999, the PDIC instituted Special
Proceeding No. 99-94328 before the RTC of Manila, Branch
51 entitled "In Re: Petition for Assistance ion of Orient
Commercial Banking Corporation, Philippine Deposit
Insurance Corporation, Petitioner."
On December 17, 1999, petitioner filed in the RTC of Manila
(Branch 12) a complaint for sum of money with preliminary
attachment (Civil Case No. 99-95993) against the
respondents seeking to recover deficiency obligation owed
by OCBC which then stood at P1,273,959,042.97 with b i) The foregoing outstanding balance shall be
interest at 8.894% per annum, overdraft obligation at charged interest at 91-day T-Bill rate upon
P1,028,000,000.00, attorney’s fees and cost of suit. execution of this Compromise Agreement repriced
every three (3) months for a period of 10 years
and payable monthly in arrears.
On January 14, 2000, the RTC of Manila, Branch 12 issued
an Order in Civil Case No. 99-95993 granting petitioner’s
motion for preliminary attachment. On January 19, 2000, C. Additional Properties for Execution
following the posting of P50 million attachment bond issued
by the Government Service Insurance System (GSIS), the
c i) To ensure payment of the monthly
corresponding writ was issued ordering the Deputy Sheriffs
amortizations due under this Compromise
to attach the real and personal properties of respondents to
Agreement, defendants Ever Crest Golf Clob
the value of petitioner’s demand in the amount of
Resort, Inc., and Mega Heights, Inc., have
P2,301,951,042.97, exclusive of interest and costs, as
agreed to have its real properties with
security for the said claim.5 (citations omitted)
improvements covered by TCT Nos. T-68963,
T-6890, T-68966 and TD ARPN-AA- 1702 00582
Eventually, the controversy reached the Court and during the and AA-17023-005 shall be subject of existing
pendency of the appeal, the parties entered into a writ of attachment to secure the faithful
compromise agreement, the pertinent provisions of which payment of the outstanding obligation herein
were as follows: mentioned, until such obligation shall have
been fully paid by defendants to plaintiff.
I. AMOUNT TO BE SETTLED
c ii) That all the corporate approvals for the
execution of this Compromise agreement by
In consideration of this Compromise Agreement and subject
Ever Crest Golf Club Resort, Inc., and Mega
to faithful compliance by the defendants of the terms hereof,
Heights, Inc., consisting of stockholders
the parties herein have agreed that the total amount of
resolution and Board of Directors approval
Deficiency Claim and Overdraft payable by defendants to
have already been obtained at the time of the
plaintiff shall be equivalent to PESOS: TWO BILLION NINE
execution of this Agreement.
HUNDRED SEVENTY-FOUR MILLION NINE HUNDRED
THREE THOUSAND (PhP2,974,903.00) (sic) which amount
shall be paid by the defendants in the following manner: c iii) Failure on the part of the defendants to fully
settle their outstanding obligations and to comply
with any of the terms of this Compromise
A. A down payment shall be made by the defendants
Agreement shall entitle the plaintiff to
through the DACION of certain real estate properties more
immediately ask for a Writ of Execution against
particularly described in Annex "B" hereof.
all assets of the Ever Crest Golf Club Resort,
Inc., and Mega Heights, Inc., now or hereafter
a ii) The parties shall execute separate DEEDS arising upon the signing of this Compromise
OF DACION over the real estate properties Agreement.
described in Annex "B" upon the execution of the
Agreement;
I. DISMISSAL OF ALL PENDING CASES
a ii) All Capital Gains Tax on the properties for
xxxx
DACION shall be payable by the defendants but
Documentary Stamp Tax, Transfer Tax and all
registration fees on the DACION shall for the II. FUNDS UNDER GARNISHMENT
account of plaintiff.
xxxx
B. The balance remaining after the DACION of the real
estate properties shall be paid by the defendants within a
III. REPRESENTATION AND WARRANTIES
period of ten (10) years but extendible for another five (5)
years provided that the defendants shall religiously comply
with the amortization schedule (Annex "C" hereof) for a The signatories to this Compromise Agreement represent
continuous period of two (2) years from date of first and pursuant to Bangko Sentral as follows:
amortization.
 a. x x x
b. It has obtained the respective Board of Directors
approval and other corporate authorizations for its
execution, signing and delivery of this
Compromise Agreement and its attachments.
c. The execution and delivery of this Compromise
agreement and all other documents and deeds
related thereto and the performance and
observance by the parties of the resp and
conditions thereof, shall not contravene or violate
any provision of term of any contract or agreement
entered into by the parties with any third party, nor
contravene any provision or term of its Articles of
Incorporation and By-Laws.
d. It shall defend the title and peaceful possession
by Bangko Sentral of the Properties against all
claims of third persons, and shall indemnify and
hold Bangko Sentral any and all losses, claims,
damages, liabilities and expenses which it might
suffer or incur as a result of this Compromise
Agreement or any document or agreement entered
into in connection therewith.
e. It shall not execute or enter into any agreement
or contract with any third party involving the
properties which in any way, diminish, impair,
prejudice or affect the rights, title and interest of
Bangko Sentral over the properties acquired by or
vested in Bangko Sentral pursuant to Compromise
Agreement and all other documents executed
between the parties in connection therewith.
f. x x x6(Emphasis Supplied)
The RTC eventually approved the compromise agreement
on December 29, 2003, 7 and the approval resulted in the
denial of the petition in G.R. No. 148483.
But the controversy was not laid to rest by the execution of
the compromise agreement because Go did not comply with
its provisions. This prompted Bangko Sentral to move for the
execution of the compromise agreement 8 against the
properties of Ever Crest Golf Club Resort, Inc. (Ever Crest)
and Mega Heights, Inc. (Mega Heights) which were levied
upon by the sheriff. Initially, the RTC denied Bangko
Sentral’s motion to execute on December 12, 2008, 9 but on
Bangko Sentral’s motion for reconsideration, the RTC
relented and granted the motion. The writ of execution was
issued on July 6, 2009.
The petitioners and Ever Crest then brought a petition for
certiorari in the CA, imputing grave abuse of discretion
amounting to lack or excess of jurisdiction to the RTC for
issuing the writ of execution against Ever Crest despite its
not having been a party to the compromise agreement, and
for ruling that Go had violated the terms of the compromise
agreement (C.A.- G.R. No. SP 109927). 10 They further
challenged the following issuances of the sheriff, namely: (a)
the notice of levy upon realty pursuant to the writ of
execution dated July 6, 2009; and (b) the notice of sale on
execution of real property dated July 15, 2009.
The CA issued a 60-day temporary restraining order (TRO)
in C.A.- G.R. No. SP 109927, but did not ultimately issue a
writ of preliminary injunction. Upon the lapse of the period of
60 days, however, the publicauction pushed through, and the
properties of Ever Crest were sold to Bangko Sentral as the
highest bidder. The transfer certificates of title (TCTs) in the
name of Ever Crest were cancelled, and new TCTs were
then issued to Bangko Sentral as the new owner.
Eventually, the CA dismissed C.A.-G.R. No. SP 109927
through the assailed judgment promulgated on December
20, 2011,11 disposing thusly:
WHEREFORE, premises considered, the instant petition is
DISMISSED for being moot and academic.
No pronouncement as to costs.
SO ORDERED.12
The CA later denied the petitioners’ motion for
reconsideration filed on January 6, 2012 13 through the
resolution promulgated on June 14, 2012.14
Issue
Hence, this appeal by the petitioners,15 in which they pose
the sole issue of whether or not the CA correctly dismissed
the petition for certiorari for being moot and academic.
Ruling of the Court
The appeal lacks merit.
The petitioners argue that the issuance of the order of
execution was tainted with grave abuse of discretion
because the execution was directed against the properties of
Ever Crest despite Ever Crest being neither a defendant in
the cases between Bangko Sentral and Go, nor a signatory
to the compromise agreement.
The argument is bereft of substance.
First of all, the petitioners and Ever Crest themselves firmly
committed in the compromise agreement, supra, to have
their properties with their improvements be made subject to
the writ of attachment in order "to secure the faithful payment
of the outstanding obligation herein mentioned, until such
obligation shall have been fully paid by defendants to
plaintiff," and expressly assured Bangko Sentral in the same
compromise agreement that "all the corporate approvals for
the execution of this Compromise agreement by Ever Crest
Golf Club Resort, Inc., and Mega Heights, Inc., consisting of
stockholders resolution and Board of Directors approval
have already been obtained at the time of the execution of
this Agreement." They warranted in the compromise
agreement that: "Failure on the part of the defendants to fully
settle their outstanding obligations and to comply with any of
the terms of this Compromise Agreement shall entitle the
plaintiff to immediately ask for a Writ of Execution against all
assets of the Ever Crest Golf Club Resort, Inc., and Mega
Heights, Inc., now or hereafter arising upon the signing of
this Compromise Agreement." 16 By such express
commitments, the petitioners and Ever Crest were estopped
from claiming that the properties of Ever Crest and Mega
Heights could not be the subject of levy pursuant to the writ
of execution issued by the RTC. In other words, they could
not anymore assail the RTC for authorizing the enforcement
of the judgment on the compromise agreement against the
assets of Ever Crest.
There are three kinds of estoppels, to wit: (1) estoppel in
pais; (2) estoppel by deed; and (3) estoppel by
laches.1âwphi1 Under the first kind, a person is considered
in estoppel if by his conduct, representations, admissions or
silence when he ought to speak out, whether intentionally or
through culpable negligence, "causes another to believe
certain facts to exist and such other rightfully relies and acts
on such belief, as a consequence of which he would be
prejudiced if the former is permitted to deny the existence of
such facts." Under estoppel by deed, a party to a deed and
his privies are precluded from denying any material fact
stated in the deed as against the other party and his privies.
Under estoppel by laches, an equitable estoppel, a person
who has failed or neglected to assert a right for an
unreasonable and unexplained length of time is presumed to
have abandoned or otherwise declined to assert such right
and cannot later on seek to enforce the same, to the
prejudice of the other party, who has no notice or knowledge
that the former would assert such rights and whose condition
has so changed that the latter cannot, without injury or
prejudice, be restored to his former state.17
Here, the petitioners are estopped by deed by virtue of the
execution of the compromise agreement. They were the
ones who had offered the properties of Ever Crest to Bangko
Sentral, and who had also assured that all the legalities and
formalities for that purpose had been obtained. They should
not now be allowed to escape or to evade their
responsibilities under the compromise agreement just to
prevent the levy on execution of Ever Crest’s properties.

And, secondly, the petitioners as well as Ever Crest and

Mega Heights were contractually prohibited from challenging
the levy on the assets of Ever Crest. Through the
compromise agreement, the petitioners warranted that they
would defend Bangko Sentral's title and peaceful possession
of such levied properties against all claims of third persons.
Their warranty was expressly made applicable to the
properties subject of the dacion as well as to the properties
of Ever Crest and Mega Heights subject of the preliminary
attachment. Considering that the petitioners asserted that
Ever Crest was a third party or stranger to the compromise
agreement, they were contractually mandated to resist the
adverse claim of Ever Crest and to defend the validity and
efficacy of the levy on execution. As such, they could not
validly raise any issue that would defeat the rights of Bangko
Sentral in such properties.

The term grave abuse of discretion connoted whimsical and

capricious exercise of judgment as was equivalent to excess,
or lack of jurisdiction. 18 The abuse must be so patent and
gross as to amount to an evasion of a positive duty or to a
virtual refusal to perform a duty enjoined by law, or to act at
all in contemplation of law, as where the power was
exercised in an arbitrary and despotic manner by reason of
passion or hostility.19 In light of this understanding of the term
grave abuse of discretion, the CA did not err in dismissing
the petition for certiorari because the petitioners did not show
how the RTC could have been guilty of gravely abusing its
discretion amounting to lack or excess of jurisdiction for
allowing the execution of the properties designated as
security for an obligation contracted since 1998.

WHEREFORE, the Court DENIES the petition for review on

certiorari; AFFIRMS the decision promulgated on December
20, 2011 in CA-G.R. No. SP I 09927 by the Court of
Appeals; and DIRECTS the petitioners to pay the costs of
suit.

SO ORDERED.
G.R. No. 215640, November 28, 2016

NESTOR CABRERA, Petitioner, v. ARNEL CLARIN AND

WIFE; MILAGROS BARRIOS AND HUSBAND; AURORA
SERAFIN AND HUSBAND; AND BONIFACIO MORENO
AND WIFE, Respondents.

DECISION

PERALTA, J.:
For resolution of this Court is a petition for review
on certiorari under Rule 45 of the Rules of Court filed by
petitioner Nestor Cabrera (Cabrera) assailing the
Decision1 dated July 25, 2014 and Resolution 2 dated
November 21, 2014 of the Court of Appeals (CA) in CA-G.R.
CV No. 100950, which reversed and set aside the
Decision3 of the Regional Trial Court (RTC) of Malolos,
Bulacan, Branch 10, in Civil Case No. 752-M-2006.
The facts are as follows:cralawlawlibrary
The instant petition originated from a Complaint 4 for accion
publiciana with damages filed before the RTC by
Cabrera5 against respondents Arnel Clarin (Clarin) and wife,
Milagros Barrios (Barrios) and husband, Aurora Serafin
(Serafin) and husband, and Bonifacio Moreno (Moreno) and
wife.6 Cabrera alleged that he is the lawful and registered
owner of a parcel of agricultural land located at Barangay
Maysulao, Calumpit, Bulacan, with a total area of 60,000
square meters (sq. m.) covered by Transfer Certificate of
Title (TCT) No. T-4439. He was in actual and physical
possession of the land until he discovered the encroachment
of respondents sometime in December 2005. By means of
fraud, strategy and stealth, respondents usurped and
occupied portions of the said property, viz.: Clarin with 63 sq.
m. thereof, Barrios with 41 sq. m. thereof, Serafin with 30 sq.
m. thereof, and Moreno with 11 sq. m. thereof. He made
numerous oral and written demands to vacate the premises
but the respondents refused to heed. They also tailed to
settle amicably when the case was brought before the
barangay for conciliation.
In their Motion to Dismiss,7 respondents claimed that the
complaint failed to state the assessed value of the property
which is needed in determining the correct amount of docket
fees to be paid. Also, Cabrera did not fulfill an essential
condition prior to the filing of the complaint which was
submission of a government approved technical survey plan
to prove the alleged encroachment. Cabrera anchors his
claim of ownership in the certificate of title registered in his
and his father Ciriaco Cabrera's name. Cabrera did not aver
that it was his portion of property that respondents have
intruded as there was no proof of partition of the property
since his father who was an American citizen died in the
United States of America.8
In an Order dated June 19, 2007, the RTC denied
respondents' motion, and directed them to file their
Answer.9 The RTC cited the case of Aguilon v. Bohol10 in
ruling that based on the allegations in the complaint, the
case is the plenary action of accion publiciana which clearly
falls within its jurisdiction. The trial court, in an Order 11 dated
October 19, 2007, declared respondents in default upon
tailing to file their Answer, and allowed Cabrera to present
his evidence ex parte. On February 5, 2009, respondents
filed an Omnibus Motion12 to set aside the order of default, to
admit Answer, and to set the hearing for the presentation of
their evidence.
In a Decision dated May 30, 2012, the RTC ruled in favor of
Cabrera. The dispositive portion
reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of all the foregoing, judgment is
hereby rendered in favor of the [petitioner]:cralawlawlibrary
1. ORDERING the [respondents] and all other persons
claiming rights under them to vacate the subject portions of
[the] land and surrender possession thereof to the
plaintiff;ChanRoblesVirtualawlibrary
2. ORDERING the [respondents] to pay attorney's fees in the
amount of Fifty Thousand Pesos ([P]50,000.00) and Ten
Thousand Pesos ([P]10,000.00) litigation expenses.
SO ORDERED.13
Aggrieved, respondents elevated the case before the CA
which then reversed and set aside the decision of the RTC in
a Decision dated July 25, 2014. The fallo of the decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, the appeal is hereby GRANTED. The
Decision dated May 30, 2012 of the Regional Trial Court,
Branch 10, Malolos, Bulacan is REVERSED and SET
ASIDE. In lieu thereof, the complaint for accion
publiciana with damages filed by [petitioner] Nestor Cabrera
is DISMISSED without prejudice for lack of jurisdiction.
SO ORDERED.14
Finding no cogent reason to deviate from its previous ruling,
the CA denied the Motion for Reconsideration filed by
Cabrera.
Hence, the instant petition raising the following
issues:chanRoblesvirtualLawlibrary
A. The Honorable Court of Appeals
committed a reversible error when it
held that "since [petitioner] failed to
allege the assessed value of the subject
property, the court a quo has not
acquired jurisdiction over the action and
all proceedings thereat are null and
void," as such conclusion is
contradictory to the doctrine of estoppel.
B. The Honorable Court of Appeals
committed a reversible error when it
failed to take into consideration the tax
declaration annexed to the Appellee's
Brief which provided the assessed value
of the property subject matter of the
case.
The instant petition lacks merit.
In essence, the issue presented before this Court is whether
or not estoppel bars respondents from raising the issue of
lack of jurisdiction.
Batas Pambansa Bilang 129, (the Judiciary Reorganization
Act of 1980), as amended by Republic Act (R.A.) No. 7691
provides:chanRoblesvirtualLawlibrary
x x x x
Section 19. Jurisdiction in civil cases. - Regional Trial Courts
shall exercise exclusive original jurisdiction.
(2) In all civil actions which involve the title to, or
possession of, real property, or any interest therein,
where the assessed value of the property involved
exceeds Twenty thousand pesos (P20,000,00) or, for
civil actions in Metro Manila, where such value exceeds
Fifty thousand pesos (P50,000.00) except actions for
forcible entry into and unlawful detainer of lands or buildings,
original jurisdiction over which is conferred upon the
Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts;ChanRoblesVirtualawlibrary
x x x x
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial Courts in Civil
Cases. - Metropolitan Trial Courts, Municipal Trial Courts,
and Municipal Circuit Trial Courts shall
exercise:cralawlawlibrary
(3) Exclusive original jurisdiction in all civil actions
which involve title to, or possession of, real property, or
any interest therein where the assessed value of the
property or interest therein docs not exceed Twenty
thousand pesos (P20,000.00) or, in civil actions in Metro
Manila, where such assessed value does not exceed Fifty
thousand pesos (P50,000.00) exclusive of interest, damages
of whatever kind, attorney's fees, litigation expenses and
costs: Provided, That in cases of land not declared for
taxation purposes, the value of such property shall be
determined by the assessed value of the adjacent lots.
x x x15
Before the amendments, the plenary action of accion
publiciana was to be brought before the RTC regardless of
the value of the property. With the modifications introduced
by R.A. No. 7691 in 1994, the jurisdiction of the first level
courts has been expanded to include jurisdiction over other
real actions where the assessed value does not exceed
P20,000.00, P50,000.00 where the action is filed in Metro
Manila. Accordingly, the jurisdictional element is the
assessed value of the property.16
A perusal of the complaint readily shows that Cabrera failed
to state the assessed value of the disputed land,
thus:chanRoblesvirtualLawlibrary
x x x x
[T]he plaintiffs are the lawful and the registered owner of a
parcel of agricultural land and more particularly described
under Transfer Certificate of Title No. T-4439, a copy of
which is hereto attached and marked as Annex "A" and
made an integral part hereof;ChanRoblesVirtualawlibrary
[T]he defendants had illegally encroached the property of the
plaintiff by means of fraud and stealth and with force and
intimidation. Defendant Arnel Clarin had encroached an
approximate area of SIXTY THREE (63) SQUARE METERS,
while defendant Milagros Barrios had encroached an
approximate area of FORTY-ONE (41) SQUARE METERS,
defendant Aurora Serafin had encroached an approximate
area of THIRTY (30) SQUARE METERS while defendant
Bonifacio Moreno had encroached an approximate area of
ELEVEN (11) SQUARE METERS, copy of the relocation
plan is hereto attached and marked as Annex "B" and made
an integral part of this complaint;ChanRoblesVirtualawlibrary
The plaintiffs had already informed the defendants of the
illegal encroachment but the defendants refused to heed the
call of the plaintiffs to vacate the land in question and
threaten plaintiff with bodily
harm;ChanRoblesVirtualawlibrary
That prior to the discovery of the encroachment on or about
December 2005, plaintiff was in actual and physical
possession of the premises.
That this matter was referred to the attention of the Office of
the Barangay Chairman of Barangay Maysulao, Calumpit,
Bulacan and a Lupong Tagapamayapa was constituted but
no conciliation was reached and the Lupon issued a
Certificate to File Action, copy of the Certificate to File Action
is hereto attached and marked as Annex "C" and made an
integral part hereof;ChanRoblesVirtualawlibrary
That notwithstanding numerous and persistent demands,
both oral and written, extended upon the defendants to
vacate the subject parcel of land, they failed and refused and
still fail and refuse to vacate and surrender possession of the
subject parcel of land to the lawful owner who is plaintiff in
this case. Copy of the last formal demand dated January 18,
2006 is hereto attached and marked as Annex " " and the
registry receipt as well as the registry return card as "D"
Annexes "D-1," and "D-2,"
respectively;ChanRoblesVirtualawlibrary
That because of this unjustifiable refusal of the defendants to
vacate the premises in question which they now unlawfully
occupy, plaintiffs [were] constrained to engage the services
of counsel in an agreed amount of FIFTY THOUSAND
PESOS ([P]50,000.00) Philippine Currency, as acceptance
fee and THREE THOUSAND PESOS ([P]3,000.00)
Philippine Currency, per day of Court appearance, which
amount the defendants should jointly and solidarity pay the
plaintiffs, copy of the retaining contract is hereto attached
and marked as Annex "E" and made an integral part of this
complaint;ChanRoblesVirtualawlibrary
That in order to protect the rights and interest of the plaintiffs,
litigation expenses will be incurred in an amount no less than
TEN THOUSAND PESOS ([P]10,000.00), which amount the
defendants should jointly and solidarily pay the
plaintiffs;ChanRoblesVirtualawlibrary
That the amount of THREE THOUSAND PESOS
([P]3,000.00) per month should be adjudicated in favor of the
plaintiff as against the defendants by way of beneficial use,
to be counted from the day the last formal demand until they
fully vacate and surrender possession of the premises in
question to the plaintiffs. x x x.17
In dismissing the case, the CA noted such fact, to
wit:chanRoblesvirtualLawlibrary
In the case at bench, the complaint for accion publiciana filed
by [Cabrera] failed to allege the assessed value of the real
property subject of the complaint or the interest therein. Not
even a tax declaration was presented before the court a
quo that would show the valuation of the subject property. As
such, there is no way to determine which court has
jurisdiction over the action or whether the court a quo has
exclusive jurisdiction over the same. Verily, the court a
quo erred in denying the motion to dismiss filed by
[respondents] and in taking cognizance of the instant case.18
Indeed, nowhere in the complaint was the assessed value of
the subject property ever mentioned. On its face, there is no
showing that the RTC has jurisdiction exclusive of the MTC.
Absent any allegation in the complaint of the assessed value
of the property, it cannot readily be determined which court
had original and exclusive jurisdiction over the case at bar.
The courts cannot take judicial notice of the assessed or
market value of the land. 19
We note that Cabrera, in his Comment/Opposition to the
Motion to Dismiss,20 maintained that the accion publiciana is
an action incapable of pecuniary interest under the exclusive
jurisdiction of the RTC.21 Thereafter, he admitted in his Brief
before the CA that the assessed value of the subject
property now determines which court has jurisdiction
over accion publiciana cases. In asse1iing the trial court's
jurisdiction, petitioner averred that his failure to allege the
assessed value of the property in his Complaint was merely
innocuous and did not affect the jurisdiction of the RTC to
decide the case.
Cabrera alleges that the CA erred in concluding that the RTC
has not acquired jurisdiction over the action in the instant
case being contrary to the doctrine of estoppel as elucidated
in Honorio Bernardo v. Heirs of Villegas.22 Estoppel sets in
when respondents participated in all stages of the case and
voluntarily submitting to its jurisdiction seeking affirmative
reliefs in addition to their motion to dismiss due to lack of
jurisdiction.
We are not persuaded. It is axiomatic that the nature of an
action and the jurisdiction of a tribunal are determined by the
material allegations of the complaint and the law at the time
the action was commenced.23 A court's jurisdiction may be
raised at any stage of the proceedings, even on appeal for
the same is conferred by law, and lack of it affects the very
authority of the court to take cognizance of and to render
judgment on the action. 24 It applies even if the issue on
jurisdiction was raised for the first time on appeal or even
after final judgment.
The exception to the basic rule mentioned operates on the
principle of estoppel by laches whereby a party may be
barred by laches from invoking the lack of jurisdiction at a
late hour for the purpose of annulling everything done in the
case with the active participation of said party invoking the
plea. In the oft-cited case of Tijam v. Sibonghanoy,25 the
party-surety invoked the jurisdictions of both the trial and
appellate courts in order to obtain affirmative relief, and even
submitted the case for final adjudication on the merits. It was
only after the CA had rendered an adverse decision that the
party-surety raised the question of jurisdiction for the first
time in a motion to dismiss almost fifteen (15) years later.
Hence, the Court adjudicated a party estopped from
assailing the court's jurisdiction, to
wit:chanRoblesvirtualLawlibrary
x x x x
[a] party cannot invoke the jurisdiction of a court to
secure affirmative relief against his opponent and, after
obtaining or failing to obtain such relief, repudiate or
question that same jurisdiction. . . ., it was further said
that the question whether the court had jurisdiction either of
the subject matter of the action or of the parties was not
important in such cases because the party is barred from
such conduct not because the judgment or order of the court
is valid and conclusive as an adjudication, but for the reason
that such practice cannot be tolerated - obviously for reasons
of public policy.
x x x26
However, it was explicated in Calimlim v.
Ramirez27 that Tijam is an exceptional case because of the
presence of laches. Thus:chanRoblesvirtualLawlibrary
The lack of jurisdiction of a court may be raised at any stage
of the proceedings, even on appeal. This doctrine has been
qualified by recent pronouncements which stemmed
principally from the ruling in the cited case of Sibonghanoy. It
is to be regretted, however, that the holding in said case had
been applied to situations which were obviously not
contemplated therein. The exceptional circumstance
involved in Sibonghanoy which justified the departure from
the accepted concept of non-waivability of objection to
jurisdiction has been ignored and, instead a blanket doctrine
had been repeatedly upheld that rendered the supposed
ruling in Sibonghanoy not as the exception, but rather the
general rule, virtually overthrowing altogether the time-
honored principle that the issue of jurisdiction is not lost by
waiver or by estoppel.
In Sibonghanoy, the defense of lack of jurisdiction of the
court that rendered the questioned ruling was held to
be barred by estoppel by laches. It was ruled that the lack
of judsdictiou having been raised for the first time in a
motion to dismiss filed almost fifteen (15) years after the
questioned ruling had been rendered, such a plea may no
longer be raised for being barred by laches. As defined in
said case, laches is failure or neglect, for an
unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should
have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert has
abandoned it or declined to assert it.28
In the case of La Naval Drug Corporation v. Court of
Appeals,29 We illustrated the rule as to when jurisdiction by
estoppel applies and when it does not, as
follows:chanRoblesvirtualLawlibrary
x x x x
Lack of jurisdiction over the subject matter of the suit is yet
another matter. Whenever it appears that the court has no
jurisdiction over the subject matter, the action shall be
dismissed (Section 2, Rule 9, Rules of Court). This defense
may be interposed at any time, during appeal (Roxas vs.
Rafferty, 37 Phil. 957) or even after final
judgment (Cruzcosa vs. Judge Concepcion, et al., 101 Phil.
146). Such is understandable, as this kind of jurisdiction is
conferred by law and not within the courts, let alone the
parties, to themselves determine or conveniently set aside.
In People vs. Casiano (111 Phil. 73, 93-94), this Court, on
the issue or estoppel, held:chanRoblesvirtualLawlibrary
The operation of the principle of estoppel on the question of
jurisdiction seemingly depends upon whether the lower court
actually had jurisdiction or not. If it had no jurisdiction, but
the case was tried and decided upon the theory that it
had jurisdiction, the parties are not barred, on appeal,
from assailing such jurisdiction, for the same 'must exist
as a matter of law, and may not be conferred by consent
of the parties or by estoppel' (5 C.J.S., 861-863).
However, if the lower court had jurisdiction, and the case
was heard and decided upon a given theory, such, for
instance, as that the court had no jurisdiction, the party
who induced it to adopt such theory will not be
permitted, on appeal, to assume an inconsistent
position - that the lower court had jurisdiction. Here, the
principle of estoppel applies. The rule that jurisdiction is
conferred by law, and does not depend upon the will of the
parties, has no bearing thereon. x x x.30
Guided by the abovementioned jurisprudence, this Court
rules that respondents are not estopped from assailing the
jurisdiction of the RTC over the subject civil case. Records
reveal that even before filing their Answer, respondents
assailed the jurisdiction of the RTC through a motion to
dismiss as there was no mention of the assessed value of
the property in the complaint. We note that the RTC
anchored its denial of respondents' motion to dismiss on the
doctrine enunciated in a 1977 case - that all cases of
recovery of possession or accion publiciana lie with the RTC
regardless of the value - which no longer holds true.
Thereafter, the respondents filed their Answer through an
omnibus motion to set aside order of default and to admit
Answer.
The circumstances of the present case are different from
the Heirs of Villegas31 case. First, petitioner Bernardo in
the Heirs of Villegas case actively participated during the trial
by adducing evidence and filing numerous pleadings, none
of which mentioned any defect in the jurisdiction of the RTC,
while in this case, respondents already raised the issue of
lack of jurisdiction in their Motion to Dismiss filed before their
Answer. Second, it was only on appeal before the CA, after
he obtained an adverse judgment in the trial court, that
Bernardo, for the first time, came up with the argument that
the decision is void because there was no allegation in the
complaint about the value of the property; on the other hand,
herein respondents raised the issue before there was
judgment on the merits in the trial court. Respondents never
assumed inconsistent position in their appeal before the CA.
Furthermore, the unfairness and inequity that the application
of estoppel seeks to avoid espoused in the Tijam case,
which the Heirs of Villegas adheres to, are not present. The
instant case does not involve a situation where a party
who, after obtaining affirmative relief from the court,
later on turned around to assail the jurisdiction of the
same court that granted such relief by reason of an
unfavorable judgment. Respondents did not obtain
affirmative relief from the trial court whose jurisdiction they
are assailing, as their motion to dismiss was denied and they
eventually lost their case in the proceedings below.
Anent the issue of the CA's failure to consider the tax
declaration annexed in the Appellee's Brief, Cabrera insists
that its attachment in his Brief without objection from the
other party sealed the issue of the RTC's jurisdiction, and
cured the defect of failure to allege the assessed value of the
property in the complaint as provided in Section 5, 32 Rule 10
of the Rules of Court.
Such averments lack merit. The Rules of Court provides that
the court shall consider no evidence which has not been
formally offered.33 A formal offer is necessary because
judges are mandated to rest their findings of facts and their
judgment only and strictly upon the evidence offered by the
parties at the trial. Its function is to enable the trial judge to
know the purpose or purposes for which the proponent is
presenting the evidence. Conversely, this allows opposing
parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the
appellate court will not be required to review documents
not previously scrutinized by the trial court.34 We relaxed
the foregoing rule and allowed evidence not formally offered
to be admitted and considered by the trial court provided the
following requirements are present, viz.: first, the same must
have been duly identified by testimony duly recorded
and, second, the same must have been incorporated in the
records of the case.35
Based on the petitioner's admission, he presented the Tax
Declaration 2006-07016-0039436 dated November 13, 2006
purporting to prove the assessed value of the property for
the first time on appeal before the CA in his Brief. 37 There
was no proof or allegation that he presented the same during
the trial or that the court examined such document. 38 Since
the tax declaration was never duly identified by testimony
during the trial albeit incorporated in the Appellee's Brief, the
CA will not be required to review such document that was
not previously scrutinized by the RTC. As the assessed
value is a jurisdictional requirement, the belated presentation
of document proving such value before the appellate court
will not cure the glaring defect in the complaint. Thus,
jurisdiction was not acquired.
We find Cabrera's application of Section 5, Rule 10 of the
Rules of Court to support his claim that failure of the
respondents to object to his presentation of the tax
declaration before the CA constitutes an implied consent
which then treated the issue of assessed value as if it had
been raised in the pleadings specious. Such rule
contemplates an amendment to conform to or authorize
presentation of evidence before the trial court during the trial
on the merits of the case. As held in Bernardo, Sr. v. Court
of Appeals,39 this Court
expounded:chanRoblesvirtualLawlibrary
It is settled that even if the complaint he 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.40 (Emphases supplied)
It bears emphasis that the ruling in Tijam establishes an
exception which is to be applied only under extraordinary
circumstances or to those cases similar to its factual
situation.41 The general rule is that the lack of a court's
jurisdiction is a non-waivable defense that a party can raise
at any stage of the proceedings in a case, even on appeal;
the doctrine of estoppel, being the exception to such non-
waivable defense, must be applied with great care and the
equity must be strong in its favor. 42
All told, We find no error on the part of the CA in dismissing
the Complaint for lack of jurisdiction and for not reviewing the
document belatedly filed. Consequently, all proceedings in
the RTC are null and void. Indeed, a void judgment for want
of jurisdiction is no judgment at all, and cannot be the source
of any right nor the creator of any obligation. All acts
performed pursuant to it and all claims emanating from it
have no legal effect.43

WHEREFORE, petition for review on certiorari filed by

petitioner Nestor Cabrera is hereby DENIED. The assailed
Decision dated July 25, 2014 and Resolution dated
November 21, 2014 of the Court of Appeals in CA-G.R. CV
No. 100950 are hereby AFFIRMED.

SO ORDERED.ChanRoblesVirtualawlibrary