reconsideration did not interrupt the period for appeal, because that the amendment was presented after
ent was presented after the original
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27010 April 30, 1969
MARLENE DAUDEN-HERNAEZ, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of
First Instance of Quezon City, HOLLYWOOD FAR EAST
PRODUCTIONS, INC., and RAMON VALENZUELA,
respondents.
R. M. Coronado and Associates for petitioner.
Francisco Lavides for respondent.
REYES, J.B.L., Acting C.J.:
Petition for a writ of certiorari to set aside certain orders of the
Court of First Instance of Quezon City (Branch IV), in its Civil
Case No. Q-10288, dismissing a complaint for breach of contract
and damages, denying reconsideration, refusing to admit an
amended complaint, and declaring the dismissal final and
unappealable.
The essential facts are the following:
Petitioner Marlene Dauden-Hernaez, a motion picture actress,
had filed a complaint against herein private respondents,
Hollywood Far East Productions, Inc., and its President and
General Manager, Ramon Valenzuela, to recover P14,700.00
representing a balance allegedly due said petitioner for her
services as leading actress in two motion pictures produced by
the company, and to recover damages. Upon motion of
defendants, the respondent court (Judge Walfrido de los
Angeles presiding) ordered the complaint dismissed, mainly
because the "claim of plaintiff was not evidenced by any written
document, either public or private", and the complaint "was
defective on its face" for violating Articles 1356 and 1358 of the
Civil, Code of the Philippines, as well as for containing defective
allege, petitions. Plaintiff sought reconsideration of the dismissal
and for admission of an amended complaint, attached to the
motion. The court denied reconsideration and the leave to
amend; whereupon, a second motion for reconsideration was
filed. Nevertheless, the court also denied it for being pro forma,
as its allegations "are, more or less, the same as the first
motion", and for not being accompanied by an affidavit of merits,
and further declared the dismissal final and unappealable. In
view of the attitude of the Court of First Instance, plaintiff
resorted to this Court.
The answer sets up the defense that "the proposed amended
complaint did not vary in any material respect from the original
complaint except in minor details, and suffers from the same vital
defect of the original complaint", which is the violation of Article
1356 of the Civil Code, in that the contract sued upon was not
alleged to be in writing; that by Article 1358 the writing was
absolute and indispensable, because the amount involved
exceeds five hundred pesos; and that the second motion for
it was not served on three days' notice.
We shall take up first the procedural question. It is a well
established rule in our jurisprudence that when a court sustains
a demurrer or motion to dismiss it is error for the court to dismiss
the complaint without giving the party plaintiff an opportunity to
amend his complaint if he so chooses. 1 Insofar as the first order
of dismissal (Annex D, Petition) did not provide that the same
was without prejudice to amendment of the complaint, or reserve
to the plaintiff the right to amend his complaint, the said order
was erroneous; and this error was compounded when the motion
to accept the amended complaint was denied in the subsequent
order of 3 October 1966 (Annex F, Petition). Hence, the
petitioner-plaintiff was within her rights in filing her so-called
second motion for reconsideration, which was actually a first
motion against the refusal to admit the amended complaint.
It is contended that the second motion for reconsideration was
merely pro forma and did not suspend the period to appeal from
the first order of dismissal (Annex D) because (1) it merely
reiterated the first motion for reconsideration and (2) it was filed
without giving the counsel for defendant-appellee the 3 days'
notice provided by the rules. This argument is not tenable, for
the reason that the second motion for reconsideration was
addressed to the court' refusal to allow an amendment to the
original complaint, and this was a ground not invoked in the first
motion for reconsideration. Thus, the second motion to
reconsider was really not pro forma, as it was based on a
different ground, even if in its first part it set forth in greater detail
the arguments against the correctness of the first order to
dismiss. And as to the lack of 3 days' notice, the record shows
that appellees had filed their opposition (in detail) to the second
motion to reconsider (Answer, Annex 4); so that even if it were
true that respondents were not given the full 3 days' notice they
were not deprived of any substantial right. Therefore, the claim
that the first order of dismissal had become final and
unappealable must be overruled.
It is well to observe in this regard that since a motion to dismiss
is not a responsive pleading, the plaintiff-petitioner was entitled
as of right to amend the original dismissed complaint. In Paeste
vs. Jaurigue 94 Phil. 179, 181, this Court ruled as follows:
Appellants contend that the lower court erred in not
admitting their amended complaint and in holding that
their action had already prescribed. Appellants are
right on both counts.
Amendments to pleadings are favored and should be
liberally allowed in the furtherance of justice. (Torres
vs. Tomacruz, 49 Phil. 913). Moreover, under section
1 of Rule 17, Rules of Court, a party may amend his
pleading once as a matter of course, that is, without
leave of court, at any time before a responsive
pleading is served. A motion to dismiss is not a
"responsive pleading". (Moran on the Rules of Court,
vol. 1, 1952, ed., p. 376). As plaintiffs amended their
complaint before it was answered, the motion to admit
the amendment should not have been denied. It is true
complaint had been ordered dismissed. But that order
was not yet final for it was still under reconsideration.
The foregoing observations leave this Court free to discuss the
main issue in this petition. Did the court below abuse its
discretion in ruling that a contract for personal services involving
more than P500.00 was either invalid of unenforceable under the
last paragraph of Article 1358 of the Civil Code of the
Philippines?
We hold that there was abuse, since the ruling herein contested
betrays a basic and lamentable misunderstanding of the role of
the written form in contracts, as ordained in the present Civil
Code.
In the matter of formalities, the contractual system of our Civil
Code still follows that of the Spanish Civil Code of 1889 and of
the "Ordenamiento de Alcala" 2 of upholding the spirit and intent
of the parties over formalities: hence, in general, contracts are
valid and binding from their perfection regardless of form
whether they be oral or written. This is plain from Articles 1315
and 1356 of the present Civil Code. Thus, the first cited provision
prescribes:
ART. 1315. Contracts are perfected by mere consent,
and from that moment the parties are bound not only
to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage
and law. (Emphasis supplied)
Concordantly, the first part of Article 1356 of the Code Provides:
ART. 1356. Contracts shall be obligatory in whatever
form they may have been entered into, provided all the
essential requisites for their validity are present....
(Emphasis supplied)
These essential requisites last mentioned are normally (1)
consent (2) proper subject matter, and (3) consideration or
causa for the obligation assumed (Article 1318). 3 So that once
the three elements exist, the contract is generally valid and
obligatory, regardless of the form, oral or written, in which they
are couched.lawphi1.nêt
To this general rule, the Code admits exceptions, set forth in the
second portion of Article 1356:
However, when the law requires that a contract be in
some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that
requirement is absolute and indispensable....
It is thus seen that to the general rule that the form (oral or
written) is irrelevant to the binding effect inter partes of a contract
that possesses the three validating elements of consent, subject
matter, and causa, Article 1356 of the Code establishes only two
exceptions, to wit:
(a) Contracts for which the law itself requires that they be in
some particular form (writing) in order to make them valid and
enforceable (the so-called solemn contracts). Of these the Concepcion, C.J. and Castro, J., are on leave.
typical example is the donation of immovable property that the Capistrano, J., took no part.
law (Article 749) requires to be embodied in a public instrument
in order "that the donation may be valid", i.e., existing or binding. Footnotes
Other instances are the donation of movables worth more than 1
Macapinlac vs. Gutierrez Repide, 43 Phil. 774; Ibañez vs.
P5,000.00 which must be in writing, "otherwise the donation Fortis, 17 Phil. 82; Balderrama vs. Compania General de
shall be void" (Article 748); contracts to pay interest on loans Tabacos, 13 Phil. 609; Molina vs. La Electricista, 6 Phil. 519;
(mutuum) that must be "expressly stipulated in writing" (Article Mapua vs. Suburban Theaters, Inc., 87 Phil. 364. Unless, of
1956); and the agreements contemplated by Article 1744, 1773, course, the defect is incurable, as in lack of jurisdiction.
1874 and 2134 of the present Civil Code. 2
Law 1, Title 1, Book X, of the Novisima Recopilaicion.
3
(b) Contracts that the law requires to be proved by some writing Plus a fourth requisite of delivery in so-called real contracts,
(memorandum) of its terms, as in those covered by the old such as deposit, pledge and commodatum (Article 1316). But
Statute of Frauds, now Article 1403(2) of the Civil Code. Their the contract here involved is not of this class.
existence not being provable by mere oral testimony (unless
wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their
enforceability by action in court.
The contract sued upon by petitioner herein (compensation for
services) does not come under either exception. It is true that it
appears included in Article 1358, last clause, providing that "all
other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one." But Article
1358 nowhere provides that the absence of written form in this
case will make the agreement invalid or unenforceable. On the
contrary, Article 1357 clearly indicates that contracts covered by
Article 1358 are binding and enforceable by action or suit despite
the absence of writing.
ART. 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated
in the following article, the contracting parties may
compel each other to observe that form, once the
contract has been perfected. This right may be
exercised simultaneously with the action the contract.
(Emphasis supplied) .
It thus becomes inevitable to conclude that both the court a quo
as well as the private respondents herein were grossly mistaken
in holding that because petitioner Dauden's contract for services
was not in writing the same could not be sued upon, or that her
complaint should be dismissed for failure to state a cause of
action because it did not plead any written agreement.
The basic error in the court's decision lies in overlooking that in
our contractual system it is not enough that the law should
require that the contract be in writing, as it does in Article 1358.
The law must further prescribe that without the writing the
contract is not valid or not enforceable by action.
WHEREFORE, the order dismissing the complaint is set aside,
and the case is ordered remanded to the court of origin for
further proceedings not at variance with this decision.
Costs to be solidarity paid by private respondents Hollywood Far
East Productions, Inc., and Ramon Valenzuela.
Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and
Barredo, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 132474 November 19, 1999
RENATO CENIDO (deceased), represented by VICTORIA
CENIDOSA, petitioner,
vs.
SPOUSES AMADEO APACIONADO and HERMINIA STA.
ANA, respondents.
PUNO, J.:
In this petition for review, petitioner Renato Cenido seeks to
reverse and set aside the decision of the Court of Appeals 1 in
CA-G.R. CV No. 41011 which declared the private respondents
as the owners of a house and lot in Binangonan, Rizal. 2
The antecedent facts are as follows:
On May 22, 1989, respondent spouses Amadeo Apacionado
and Herminia Sta. Ana filed with the Regional Trial Court, Branch
70, Rizal a complaint against petitioner Renato Cenido for,
"Declaration of Ownership, Nullity, with Damages." 3 The
spouses alleged that: (1) they are the owners of a parcel of
unregistered land, 123 square meters in area and located at
Rizal Street, Barrio Layunan, Binangonan, Rizal, more
particularly described as follows:
. . . that certain parcel of land located at Rizal, St.,
Layunan, Binangonan, Rizal, with an area of 123
square meters, more or less, bounded on the North
by Gavino Aparato; on the East by Rizal St., on the
South by Tranquilino Manuzon; and on the West by
Simplicio Aparato, and the residential house
standing thereon. 4
(2) this house and lot were purchased by the spouses
from its previous owner, Bonifacio Aparato, now
deceased, who lived under the spouses' care and
protection for some twenty years prior to his death; (3)
while he was alive, Bonifacio Aparato mortgaged the
said property twice, one to the Rural Bank of
Binangonan and the other to Linda C. Ynares, as
security for loans obtained by him; (4) the loans were
paid off by the spouses thereby securing the release and
cancellation of said mortgages; (5) the spouses also
paid and continue to pay the real estate taxes on the
property; (6) from the time of sale, they have been in
open, public, continuous and uninterrupted possession
of the property in the concept of owners; (7) that on
January 7, 1987, petitioner Renato Cenido, claiming to
be the owner of the subject house and lot, filed a
complaint for ejectment against them with the Municipal
Trial Court, Branch 2, Binangonan, Rizal; (8) through
fraudulent and unauthorized means, Cenido was able to
cause the issuance in his name of Tax Declaration No.
02-0368 over the subject property, which fact the
spouses learned only upon the filing of the ejectment
case; (9) although the ejectment case was dismissed by
the Municipal Trial Court (MTC), Branch 2, the tax
declaration in Cenido's name was not cancelled and still
subsisted; (10) the spouses have referred the matter to
the barangay for conciliation but Cenido unjustifiably
refused to appear thereat. The spouses thus prayed
that:
WHEREFORE, it is respectfully prayed of the
Honorable Court that judgment issue in the case:
1. Declaring them (plaintiffs) the true and absolute
owners of the house and lot now covered by Tax
Declaration No. 02-0368;
2. Declaring Tax Declaration No. 02-0368 in the
name of defendant Renato Cenido as null and void
and directing the Provincial Assessor of Rizal and
the Municipal Assessor of Binangonan, Rizal to
register and to declare the house and lot covered by
the same in their names (plaintiffs) for purposes of
taxation;
3. Ordering defendant to pay them in the least
amount of P50,000.00 as and for moral damages
suffered;
4. Ordering defendant to pay them the amount of
P10,000.00 as and for attorney's fees;
5. Ordering payment by defendant of exemplary
damages in such amount which the Honorable Court
may deem just and equitable in the premises;
6. Ordering defendant to pay the costs of suit; and
Plaintiffs pray for such other and further relief which
the Honorable Court may deem just and equitable
considering the foregoing premises. 5
Petitioner Cenido answered claiming that: (1) he is the
illegitimate son of Bonifacio Aparato, the deceased owner of the
subject property; (2) as Aparato's sole surviving heir, he became
the owner of the property as evidenced by the cancellation of
Tax Declaration No. 02-0274 in Bonifacio's name and the
issuance of Tax Declaration No. 02-0368 in his name; (3) his
ownership over the house and lot was also confirmed in 1985 by
the Municipal Trial Court, Branch 1, Binangonan in Case No.
2264 which "adjudicated various claims involving the same
subject property wherein plaintiffs were privy to the said case;"
(4) that in said case, the Apacionado spouses participated in the
execution of the compromise agreement partitioning the
deceased's estate among his heirs, which agreement was
adopted by the Municipal Trial Court as its judgment; (5) that the
Apacionado spouses were allowed to stay in his father's house
temporarily; (6) the mortgages on the property were obtained by
his father upon request of the Apacionados who used the
proceeds of the loans exclusively for themselves; (7) the real
estate taxes or the property were paid for by his father, the
principal, and the spouses were merely his agents; (8) the
instrument attesting to the alleged sale of the house and lot by
Bonifacio Aparato to the spouses is not a public document; (8)
petitioner Cenido was never summoned to appear before the
barangay for conciliation proceedings. 6
Respondent spouses replied that: (1) Cenido is not the
illegitimate son of Bonifacio, Cenido's claim of paternity being
spurious; (2) the ownership of the property was not the proper
subject in Civil Case No. 2264 before the MTC, Branch I, nor
were the spouses parties in said case. 7
The parties went to trial. Respondent spouses presented four (4)
witnesses, namely, respondent Herminia Sta. Ana Apacionado;
Rolando Nieves, the barangay captain; Norberto Aparato the
son of Gavino Aparato, Bonifacio's brother; and Carlos
Inabayan, one of the two witnesses to the deed of sale between
Bonifacio Aparato and the spouses over the property. Petitioner
Cenido presented only himself as witness.
On March 30, 1993, the trial court rendered judgment. The court
upheld petitioner Cenido's ownership over the property by virtue
of the recognition made by Bonifacio's then surviving brother,
Gavino, in the compromise judgment of the MTC. Concomitantly,
the court also did not sustain the deed of sale between Bonifacio
and the spouses because it was neither notarized nor signed by
Bonifacio and was intrinsically defective. The court ordered thus:
WHEREFORE, in the light of the foregoing
considerations, the Court believes that
preponderance of evidence is on the side of
defendant and so the complaint could not be given
due course. Accordingly, the case is, as it should be,
dismissed. No attorney's fees or damages is being
awarded as no evidence to this effect had been
given by defendant. With costs against plaintiffs.
SO ORDERED. 8
Respondent spouses appealed to the Court of Appeals. In a
decision dated September 30, 1997, the appellate court found
the appeal meritorious and reversed the decision of the trial
court. It held that the recognition of Cenido's filiation by Gavino,
Bonifacio's brother, did not comply with the requirements of the
Civil Code and the Family Code; that the deed between
Bonifacio and respondent spouses was a valid contract of sale
over the property; and Cenido's failure to object to the
presentation of the deed before the trial court was a waiver of
the defense of the Statute of Frauds. The Court of Appeals
disposed of as follows:
WHEREFORE, the appealed Decision is hereby
REVERSED and SET ASIDE. Plaintiffs-Appellants
Spouses Amadeo Apacionado and Herminia Sta.
Ana are declared owners of the subject house and
lot now covered by Tax Declaration No. 02-6368. 9
Hence, this recourse. Petitioner Cenido alleges that:
1. The unsigned, unnotarized and highly doubtful
private document designated as "Pagpapatunay"
which is solely relied upon by the respondents in
 support of their case is not sufficient to vest
ownership of and transfer the title, rights and interest
over the subject property to the respondents.
xxx xxx xxx
2. The Court of Appeals departed from the accepted
and usual course of judicial proceedings in that it
ruled against the petitioner in view of the alleged
weakness of his defense rather than evaluate the
case based on the strength of the respondents'
evidence, thereby necessitating this Honorable
Court's exercise of its power of supervision. 10
Victoria Cenidosa, in representation of petitioner Cenido, has
manifested, through counsel, that petitioner died in September
1993; that on December 18, 1985, eight years before his death,
Cenido sold the subject house and lot to Maria D. Ojeda for the
sum of P70,000.00; that Maria D. Ojeda is now old and sickly,
and is thus being represented in the instant case by her
daughter, Victoria O. Cenidosa. 11
In the same vein, respondent Herminia Sta. Ana Apacionado
also manifested that her husband, Amadeo Apacionado, died on
August 11, 1989. Amadeo is now being represented by his
compulsory heirs. 12
Before ruling on petitioner's arguments, it is necessary to
establish certain facts essential for a proper adjudication of the
case.
The records reveal that the late Bonifacio Aparato had two
siblings — a sister named Ursula and a brother named Gavino.
13
Ursula died on March 1, 1979, 14 Bonifacio on January 3, 1982
15
and Gavino, sometime after Bonifacio's death. Both Ursula
and Bonifacio never married and died leaving no legitimate
offspring. Gavino's son, Norberto, however, testified that there
was a fourth sibling, a sister, who married but also died; as to
when she died or whether she left any heirs, Norberto did not
know. 16 What is clear and undisputed is that Bonifacio was
survived by Gavino who also left legitimate heirs.
Both Bonifacio and Ursula lived in the subject property under the
care and protection of the Apacionados. Herminia Sta. Ana
Apacionado started living with them in 1976. She took care of
Bonifacio and Ursula, who died three years later. Herminia
married Amado Apacionado, whose paternal grandmother was
a sister of Bonifacio. 17 Amadeo moved into Bonifacio's house
and assisted Herminia in taking care of the old man until his
demise.
Shortly after Bonifacio's death, Civil Case No. 2264 was
instituted by petitioner Cenido against Gavino Aparato before
the Municipal Trial Court, Branch 1, Binangonan. The records do
not reveal the nature of this action. 18 Nevertheless, three years
after filing of the case, the parties entered into a compromise
agreement. The parties listed the properties of Bonifacio
comprising two parcels of land: one parcel was the residential
house and lot in question and the other was registered
agricultural land with an area of 38,641 square meters; Gavino
Aparato expressly recognized Renato Cenido as the sole
illegitimate son of his brother, likewise, Cenido recognized
Gavino as the brother of Bonifacio; as Bonifacio's heirs, they
partitioned his estate among themselves, with the subject
property and three portions of the agricultural land as Cenido's
share, and the remaining 15,309 square meters of the
agricultural land as Gavino's; both parties agreed to share in the
documentation, registration and other expenses for the transfer
of their shares. This compromise agreement was adopted as the
decision of the MTC on January 31, 1985. 19
In the same year, petitioner Cenido obtained in his name Tax
Declaration No. 02-6368 over the subject property. Two years
later, in January 1987, he filed an ejectment case against
respondent spouses who continued occupying the property in
question. This case was dismissed.
Respondent spouses' claim of ownership over the subject
property is anchored on a one-page typewritten document
entitled "Pagpapatunay," executed by Bonifacio Aparato. The
"Pagpapatunay" reads as follows:
PAGPAPATUNAY
DAPAT MALAMAN NG LAHAT:
Akong si BONIFACIO APARATO, binata, Pilipino,
husto sa gulang, at kasalukuyang naninirahan sa
Layunan, Binangonan, Rizal, ay nagpapatunay
nitong mga sumusunod:
Una: — Na, ako ang siyang nagmamay-ari ng isang
lagay na lupang SOLAR at Bahay Tirahan na
nakatirik sa nabanggit na solar na makikita sa lugar
ng Rizal St., Layunan, Binangonan, Rizal;
Ikalawa: — Na, sapagkat ang nagalaga sa akin
hanggang sa ako'y tuluyang kunin ng Dakilang
Maykapal ay walang iba kungdi ang mag-asawang
AMADEO APACIONADO at HERMINIA STA. ANA
APACIONADO;
Ikatlo: — Na, pinatutunayan ko sa mga
maykapangyarihan at kanginumang tao na ang
nabanggit na SOLAR at bahay tirahan ay ipinagbili
ko sa nabanggit na mag-asawa sa halagang
SAMPUNG LIBONG (P10,000.00) PISO, bilang
pakunsuwelo sa kanilang pagmamalasakit sa aking
pagkatao at kalalagayan;
Na, patunay na ito ay aking nilagdaan ng maliwanag
ang aking isip at nalalaman ko ang lahat ng
nilalaman nito.
SA KATUNAYAN NG LAHAT, lumagda ako ng
aking pangalan at apelyido ngayong ika-10 ng
Disyembre 1981, dito sa Layunan, Binangonan,
Rizal.
(Thumbmarked)
BONIFACIO APARATO
Nagpatunay
NILAGDAAN SA HARAP NINA:
(SGD.) (SGD.)
Virgilio O. Cenido Carlos Inabayan
— Saksi — — Saksi — 20
On its face, the document "Pagpapatunay" attests to the
fact that Bonifacio Aparato was the owner of the house
and lot in Layunan, Rizal; that because the Apacionado
spouses took care of him until the time of his death,
Bonifacio sold said property to them for the sum of
P10,000.00; that he was signing the same document
with a clear mind and with full knowledge of its contents;
and as proof thereof, he was affixing his signature on
said document on the tenth day of December 1981 in
Layunan, Binangonan, Rizal. Bonifacio affixed his
thumbmark on the space above his name; and this was
witnessed by Virgilio O. Cenido and Carlos Inabayan.
Petitioner Cenido disputes the authenticity and validity of the
"Pagpapatunay." He claims that it is not a valid contract of sale
and its genuineness is highly doubtful because: (1) it was not
notarized and is merely a private instrument; (2) it was not
signed by the vendor, Bonifacio; (3) it was improbable for
Bonifacio to have executed the document and dictated the words
"lumagda ako ng aking pangalan at apelyido" because he was
paralyzed and could no longer sign his name at that time; and
(4) the phrase "ang nag-alaga sa akin hanggang sa ako'y
tuluyang kunin ng Dakilang Maykapal" speaks of an already
departed Bonifacio and could have been made only by persons
other than the dead man himself. 21
To determine whether the "Pagpapatunay" is a valid contract of
sale, it must contain the essential requisites of contracts, viz: (1)
consent of the contracting parties; (2) object certain which is the
subject matter of the contract; and (3) cause of the obligation
which is established. 22
The object of the "Pagpapatunay" is the house and lot. The
consideration is P10,000.00 for the services rendered to Aparato
by respondent spouses. According to respondent Herminia
Apacionado, this P10,000.00 was not actually paid to Bonifacio
because the amount merely quantified the services they
rendered to the old man. It was the care the spouses voluntarily
gave that was the cause of the sale. 23 The cause therefore was
the service remunerated. 24
Petition alleges that Bonifacio did not give his consent to the
deed because he did not affix his signature, but merely his
thumbmark, on the document. Bonifacio was a literate person
who could legibly sign his full name, and his signature is evident
in several documents such as his identification card as member
of the Anderson Fil-American Guerillas; 25 the "Kasulatan ng
Palasanglaan" dated July 25, 1974 where he and his two other
siblings mortgaged the subject property for P2,000.00 to one
Linda Y. Cenido; 26 "Padagdag sa Sanglaan" dated June 16,
1976; 27 and another "Pagdagdag sa Sanglaan" dated March 2,
1979. 28
Respondent Herminia Sta. Ana Apacionado testified that
Bonifacio Aparato affixed his thumbmark because he could no
longer write at the time of execution of the document. The old
man was already 61 years of age and could not properly see with
his eyes. He was stricken by illness a month before and was
paralyzed from the waist down. He could still speak albeit in a
garbled manner, and be understood. The contents of the
"Pagpapatunay" were actually dictated by him to one Leticia
Bandola who typed the same on a typewriter she brought to his
house. 29
That Bonifacio was alive at the time of execution of the contract
and voluntarily gave his consent to the instrument is supported
by the testimony of Carlos Inabayan, the lessee of Bonifacio's
billiard hall at the ground floor of the subject property. Inabayan
testified that on December 10, 1981, he was summoned to go
up to Bonifacio's house. There, he saw Bonifacio, respondent
Apacionados, and a woman and her husband. He was given a
sheet of paper to read. He read the paper and understood that it
was a deed of sale of the house and lot executed by Bonifacio
in favor of the Apacionados. Thereafter, Bonifacio requested him
to sign the document as witness. Reexamining the
"Pagpapatunay," Inabayan saw that Bonifacio affixed his
thumbmark on the space above his name. Inabayan thus signed
the document and returned to the billiard hall. 30
Inabayan's testimony has not been rebutted by petitioner.
Petitioner, through counsel, waived his right to do so, finding no
need to cross-examine the witness. 31 This waiver was granted
by the court in the order of September 23, 1992. 32
One who alleges any defect or the lack of a valid consent to a
contract must establish the same by full, clear and convincing
evidence, not merely by preponderance thereof. 33 Petitioner has
not alleged that the old man, by his physical or mental state, was
incapacitated to give his consent at the time of execution of the
"Pagpapatunay." Petitioner has not shown that Bonifacio was
insane or demented or a deaf-mute who did not know how to
write. 34 Neither has petitioner claimed, at the very least, that the
consent of Bonifacio to the contract was vitiated by mistake,
violence, intimidation, undue influence or fraud. 35 If by assailing
the intrinsic defects in the wordage of the "Pagpapatunay"
petitioner Cenido seeks to specifically allege the exercise of
extrinsic fraud and undue influence on the old man, these
defects are not substantial as to render the entire contract void.
There must be clear and convincing evidence of what specific
acts of undue influence 36 or fraud 37 were employed by
respondent spouses that gave rise to said defects. Absent such
proof, Bonifacio's presumed consent to the "Pagpapatunay"
remains.
The "Pagpapatunay," therefore, contains all the essential
requisites of a contract. Its authenticity and due execution have
not been disproved either. The finding of the trial court that the
document was prepared by another person and the thumbmark
of the dead Bonifacio was merely affixed to it is pure conjecture.
On the contrary, the testimonies of respondent Herminia Sta.
Ana and Carlos Inabayan prove that the document is authentic
and was duly executed by Bonifacio himself.
The "Pagpapatunay" is undisputably a private document. And
this fact does not detract from its validity. The Civil Code, in
Article 1356 provides:
Art. 1356. Contracts shall be obligatory, in whatever
form they may have been entered into, provided all
the essential requisites for their validity are present.
However, when the law requires that a contract be
in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain
way, that requirement is absolute and
indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised.
Generally, contracts are obligatory, in whatever form
such contracts may have been entered into, provided all
the essential requisites for their validity are present.
When, however, the law requires that a contract be in
some form for it to be valid or enforceable, that
requirement must be complied with.
A certain form may be prescribed by law for any of the following
purposes: for validity, enforceability, or greater efficacy of the
contract. 38 When the form required is for validity, its non-
observance renders the contract void and of no effect. 39 When
the required form is for enforceability, non-compliance therewith
will not permit, upon the objection of a party, the contract,
although otherwise valid, to be proved or enforced by action. 40
Formalities intended for greater efficacy or convenience or to
bind third persons, if not done, would not adversely affect the
validity or enforceability of the contract between the contracting
parties themselves. 41
Art. 1358 of the Civil Code requires that:
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;
(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.
Acts and contracts which create, transmit, modify or
extinguish real rights over immovable property should
be embodied in a public document. Sales of real
property are governed by the Statute of Frauds which
reads:
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
(1) . . .
(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 and 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;
xxx xxx xxx
(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;
(3) . . . .
The sale of real property should be in writing and
subscribed by the party charged for it to be enforceable.
The "Pagpapatunay" is in writing and subscribed by
Bonifacio Aparato, the vendor; hence, it is enforceable
under the Statute of Frauds. Not having been subscribed
and sworn to before a notary public, however, the
"Pagpapatunay" is not a public document, and therefore
does not comply with Article 1358, paragraph 1 of the
Civil Code.
The requirement of a public document in Article 1358 is not for
the validity of the instrument but for its efficacy. 42 Although a
conveyance of land is not made in a public document, it does not
affect the validity of such conveyance. 43 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, 44 so that after the existence of said contract
has been admitted, the party bound may be compelled to
execute the proper document. 45 This is clear from Article 1357,
viz:
Art. 1357. If the law requires a document or other
special form, as in the acts and contracts
enumerated in the following article [Article 1358], the
contracting parties may compel each other to
observe that form, once the contract has been
perfected. This right may be exercised
simultaneously with the action upon the contract.
The private conveyance of the house and lot is therefore valid
between Bonifacio Aparato and respondent spouses. The
question of whether the "Pagpapatunay" is sufficient to transfer
and convey title to the land for purposes of original registration
46
or the issuance of a real estate tax declaration in respondent
spouses' names, as prayed for by respondent spouses, 47 is
another matter altogether. 48 For greater efficacy of the contract,
convenience of the parties and to bind third persons, respondent
spouses have the right to compel the vendor or his heirs to
execute the necessary document to properly convey the
property. 49
Anent petitioner's second assigned error, the fact that the Court
of Appeals sustained the validity of the "Pagpapatunay" was not
a conclusion that necessarily resulted from the weakness of
petitioner's claim of filiation to Bonifacio Aparato. Of and by itself,
the "Pagpapatunay" is a valid contract of sale between the
parties and the Court of Appeals did not err in upholding its
validity.
The issue of petitioner's paternity, however, is essential to
determine whether Tax Declaration No. 02-6368 in the name of
petitioner Cenido should be nullified, as prayed for by
respondent spouses in their complaint.
Tax Declaration No. 02-6368 50 in petitioner Cenido's name was
issued pursuant to the compromise judgment of the MTC where
Gavino Aparato, Bonifacio's brother, expressly recognized
petitioner Cenido as Bonifacio's sole illegitimate son. The
compromise judgment was rendered in 1985, three years after
Bonifacio's demise.
Under the Civil Code, 51 natural children and illegitimate children
other than natural are entitled to support and successional rights
only when recognized or acknowledged by the putative parent.
52
Unless recognized, they have no rights whatsoever against
their alleged parent or his estate. 53
The filiation of illegitimate children may be proved by any of the
forms of recognition of natural children. 54 This recognition may
be made in three ways: 55 (1) voluntarily, which must be express
such as that in a record of birth, a will, a statement before a court
of record, or in any authentic writing; 56 (2) legally, i.e., when a
natural child is recognized, such recognition extends to his or her
brothers and sisters of the full blood; 57 and (3) judicially or
compulsorily, which may be demanded by the illegitimate child
of his parents. 58 The action for compulsory recognition of the
illegitimate child must be brought during the lifetime of the
presumed parents. This is explicitly provided in Article 285 of the
Civil Code, viz:
Art. 285. The action for the recognition of natural
children may be brought only during the lifetime of
the presumed parents, except in the following cases:
(1) If the father or mother died during the minority of
the child, in which case the latter may file the action
before the expiration of four years from the
attainment of his majority;
(2) If after the death of the father or of the mother a
document should appear of which nothing had been
heard and in which either or both parents recognize
the child.
In this case, the action must be commenced within
four years from the finding of the document.
The illegitimate child can file an action for compulsory
recognition only during the lifetime of the presumed parent. After
the parent's death, the child cannot bring such action, except,
however, in only two instances: one is when the supposed
parent died during the minority of the child, and the other is when
after the death of the parent, a document should be discovered
in which the parent recognized the child as his. The action must
be brought within four years from the attainment of majority in
the first case, and from the discovery of the document in the
second case. The requirement that the action be filed during the
parent's lifetime is to prevent illegitimate children, on account of
strong temptations to large estates left by dead persons, to claim
part of this estate without giving the alleged parent personal
opportunity to be heard. 59 It is vital that the parent be heard for
only the parent is in a position to reveal the true facts
surrounding the claimant's conception. 60
In the case at bar, petitioner Cenido did not present any record
of birth, will or any authentic writing to show he was voluntarily
recognized by Bonifacio as his illegitimate son. In fact, petitioner
admitted on the witness stand that he had no document to prove
Bonifacio's recognition, much less his filiation. 61 The voluntary
recognition of petitioner's filiation by Bonifacio's brother before
the MTC does not qualify as a "statement in a court of record."
Under the law, this statement must be made personally by the
parent himself or herself, not by any brother, sister or relative;
after all, the concept of recognition speaks of a voluntary
declaration by the parent, or if the parent refuses, by judicial
authority, to establish the paternity or maternity of children born
outside wedlock. 62
The compromise judgment of the MTC does not qualify as a
compulsory recognition of petitioner. In the first place, when he
filed this case against Gavino Aparato, petitioner was no longer
a minor. He was already pushing fifty years old. 63 Secondly,
there is no allegation that after Bonifacio's death, a document
was discovered where Bonifacio recognized petitioner Cenido
as his son. Thirdly, there is nothing in the compromise judgment
that indicates that the action before the MTC was a settlement
of Bonifacio's estate with a gross value not exceeding
P20,000.00. 64 Definitely, the action could not have been for
compulsory recognition because the MTC had no jurisdiction
over the subject matter. 65
The Real Property Tax Code provides that real property tax be
assessed in the name of the person "owning or administering"
the property on which the tax is levied. 66 Since petitioner Cenido
has not proven any successional or administrative rights to
Bonifacio's estate, Tax Declaration No. 02-6368 in Cenido's
name must be declared null and void.
IN VIEW WHEREOF, the petition is denied and the Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 41011 are
affirmed. Tax Declaration No. 02-6368 in the name of petitioner
Renato Cenido is declared null and void.
No costs.
SO ORDERED.
Davide, Jr., C.J., Kapunan, Pardo and Ynares-Santiago, JJ.,
concur.
Footnotes
1 Penned by Justice B.A. Adefuin-de la Cruz and concurred in
by Justice Fidel P. Purisima, now a member of this Court, and
Justice Ricardo P. Galvez, now Solicitor General.
2 It reversed the decision of Judge Herculano Tech in Civil Case
No. 409-B.
3 Entitled "Spouses Amadeo Apacionado and Herminia Sta.
Ana, plaintiffs v. Renato Cenido, defendant.
4 Complaint, p. 1; Records, p. 1.
5 Complaint, p. 4; Records, p. 4.
6 Answer with Counterclaim, pp. 1-5, Records, pp. 10-14.
7 Reply, pp. 1-2, Records, pp. 18-19.
8 Decision of the trial court, p. 5, Rollo, p. 64.
9 Decision of the Court of Appeals, p. 9, Rollo, p. 141.
10 Petition, pp. 12, 17; Rollo, pp. 20, 25.
11 Reply, pp. 1-3, Rollo pp. 193-195.
12 Order of the trial court approving substitution of party,
Records, p. 34.
13 Exhibit "G" — the "Kasulatan ng Palasanglaan" dated July
25, 1974 where the property was mortgaged by the 3 siblings to
Linda Y. Cenido as security for a loan of P2,000.00; Exhibit "H"
— the "Padagdag sa Sanglaan dated June 16, 1976 where the
3 siblings borrowed an additional P1,000.00 from Linda Cenido;
Records, pp. 66-68.
14 TSN of April 4, 1990, pp. 29-30.
15 Please see Exhibit "1," Records, p. 38; see also Annex "E" to
the Petition, Rollo, pp. 41-43.
16 TSN of February 26, 1992, pp. 19-20.
17 Testimony of Norberto Aparato, TSN of February 26, 1992,
pp. 12-13.
18 Exhibit "1," the compromise judgment of the MTC does not
indicate what the action was. Testimony regarding the nature of
the action was not successfully elicited by respondents' counsel
due to continuous and vigorous objection by petitioner's counsel
— Cross-examination of Renato Cenido, TSN of December 13,
1989, pp. 24-35.
19 Exhibit "1," Records, pp. 38-40; see also Annex "E" to the
Petition, Rollo, pp. 41-43.
20 Annex "Q" to the Petition, Rollo, p. 164; Exhibit "C," Records,
p. 63.
21 Petition, pp. 15-17, Rollo, pp. 23-25.
22 Art. 1318, Civil Code.
23 TSN of April 4, 1990, p. 57.
24 Art. 1350, Civil Code.
Art. 1350. In onerous contracts the cause is understood to be,
for each contracting party, the prestation or promise of a thing or
service by the other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor.
25 Exhibit "L," Records, p. 72.
26 Exhibit "G," Records, pp. 66-67.
27 Exhibit "H," Records, p. 68.
28 Exhibit "I," Records, p. 69.
29 TSN of April 4, 1990, pp. 39, 56-58, 101-102.
30 TSN of August 19, 1992, pp. 3-6.
31 Manifestation and Motion, Records, pp. 115-116.
32 Records, p. 119.
33 Centenera v. Palicio, 29 Phil. 470, 485-486, [1915]; also cited
in Tolentino, Civil Code, vol. 4, p. 475; see also Palmares v.
Court of Appeals, 288 SCRA 422, 434 [1998]; Samson v. Court
of Appeals, 238 SCRA 397; 408 [1994]; Cu v. Court of Appeals,
195 SCRA 647, 657 [1991] — on fraud.
34 Art. 1327, Civil Code
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not
know how to write.
35 Art. 1330, Civil Code.
Art. 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
36 Art. 1337, Civil Code.
Art. 1337. There is undue influence when a person takes
improper advantage of his power over the will of another,
depriving te latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the
fact that the person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant, or in financial
distress.
37 Art. 1338, Civil Code.
Art. 1338. There 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.
38 Vitug, Compendium of Civil Law and Jurisprudence, p. 550
[1993].
39 E.g., Art. 748 — donations of personal property worth more
than P5,000.00 must be in writing; Art. 749 — donations of real
property must be in a public instrument.
40 E.g., Art. 1403, No. 2 — contracts covered by the Statute of
Frauds.
41 Dauden-Hernaez v. de los Angeles, 27 SCRA 1276, 1280-
1283 [1969]; see also Vitug, supra, at 550-552.
42 Hawaiian Phil. Co. v. Hernaez, 45 Phil. 746, 749-750 [1924].
43 Craig v. Leuterio, 11 Phil. 44, 45-46 [1907].
44 Manotok Realty, Inc. v. Court of Appeals, 149 SCRA 174, 178
[1987]; Alano v. Babasa, 10 Phil. 511, 515 [1908]; see also
Tolentino, Civil Code, vol. 4, pp. 546-547 [1991].
45 Hawaiian Phil. Co. v. Hernaez, supra, at 749; Dievos v. Acuna
Co Chongco, 16 Phil. 447, 449 [1910]; Doliendo v. Depino, 12
Phil. 758, 764 [1909]; see also Padilla, Civil Law, Civil Code, vol.
4A, p. 296 [1988].
46 The subject property is unregistered.
47 Please see Prayer in Complaint, par. (b).
48 In Gallardo v. Intermediate Appellate Court, 155 SCRA 248,
258 [1987], this court cited Sec. 127, Act 496, the Land
Registration Act, (now Secs. 112 and 113, P.D. 1529, the
Property Registration Decree) which requires a public
instrument for a valid conveyance of both registered and
unregistered lands; see also Pornellosa & Angeles v. Land
Tenure Administration & Guzman, 110 Phil. 986, 992 [1961].
49 In Gallardo v. Intermediate Appellate Court, supra, at 258,
this court ruled that the only right the vendee of real property in
a private instrument has is to compel, through court processes,
the vendor to execute a deed of conveyance sufficient in law for
purposes of registration; Heirs of Amparo del Rosario v. Santos,
108 SCRA 43, 56 [1981]; see also Vitug, supra, at 550. The
action can be brought against all the heirs of the deceased
vendor — Araneta v. Montelibano, 14 Phil. 117, 124-126 [1909],
also cited in Aquino, Civil Code, vol. 2, p. 433 [1990].
50 In Exhibit "2," the Declaration of Real Property, the number
of the tax declaration is not clearly indicated (See Records, p.
41). Respondent spouses refer to this as Tax Declaration No.
02-0368. Petitioner and the Court of Appeals refer to it as No.
02-6368 (TSN of December 13, 1989, pp. 44-45).
51 The facts of the case occurred during the effectivity of the
Civil Code.
52 Art. 282 and 287, Civil Code.
53 Reyes v. Court of Appeals, 135 SCRA 439, 449 [1985];
Berciles v. GSIS, 128 SCRA 53, 79-81 [1984]; Alabat v. Alabat,
21 SCRA 1479, 1481 [1967]; Paulino v. Paulino, 113 Phil. 697,
702 [1961]; Buenaventura v. Urbano, 5 Phil. 1, 10 [1905].
54 Reyes v. Court of Appeals, supra; Clemena v. Clemena, 133
Phil. 702, 704-705 [1968]; Paulino v. Paulino, supra; see also
Aquino, Civil Code, vol. 1, p. 289 [1990].
55 Tolentino, Civil Code, vol. 1, p. 577 [1987]; Vitug,
Compendium of Civil Law and Jurisprudence, p. 88 [1993].
56 Art. 278, Civil Code.
57 Art. 271, supra.
58 Arts. 283 and 284, supra.
59 Serrano v. Aragon, 22 Phil. 10, 18 [1912]; Villalon v. Villalon,
71 Phil. 98, 100 [1940].
60 Barles v. Ponce Enrile, 109 SCRA 523, 526 [1960].
61 TSN of December 13, 1989, p. 21.
62 Tolentino, Civil Code, vol. 1, p. 577 [1987] citing Brugi.
63 When petitioner testified in 1989, he was 55 years of age —
TSN of December 13, 1989, p. 3.
64 Sec. 33, B.P. 129.
65 Sec. 19, B.P. 129; Rule 105, Section 1.
66 Umali, Reviewer in Taxation, pp. 662-663 [1985] citing 51 Am
Jur 639-640; Sections 6 and 22, P.D. 464; now Sec. 202, Title II,
Book II, Local Government Code of 1991 (R.A. 7160).
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 191431 March 13, 2013
RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners,
vs.
ATTY. DELFIN GRUSPE, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari1 filed
under Rule 45 of the Rules of Court, assailing the decision2
dated July 30, 2009 and the resolution3 dated February 19, 2010
of the Court of Appeals (CA) in CA-G.R. CV No. 86083. The CA
rulings affirmed with modification the decision dated September
27, 2004 of the Regional Trial Court (RTC) of Bacoor, Cavite,
Branch 19, in Civil Case No. BCV-99-146 which granted
respondent Atty. Delfin Grupe’s claim for payment of sum of
money against petitioners Rodolfo G. Cruz and Esperanza
Ibias.4
THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on October 24,
1999, when the mini bus owned and operated by Cruz and
driven by one Arturo Davin collided with the Toyota Corolla car
of Gruspe; Gruspe’s car was a total wreck. The next day, on
October 25, 1999, Cruz, along with Leonardo Q. Ibias went to
Gruspe’s office, apologized for the incident, and executed a Joint
Affidavit of Undertaking promising jointly and severally to replace
the Gruspe’s damaged car in 20 days, or until November 15,
1999, of the same model and of at least the same quality; or,
alternatively, they would pay the cost of Gruspe’s car amounting
to ₱350,000.00, with interest at
12% per month for any delayed payment after November 15,
1999, until fully paid.5 When Cruz and Leonardo failed to comply
with their undertaking, Gruspe filed a complaint for collection of
sum of money against them on November 19, 1999 before the
RTC.
In their answer, Cruz and Leonardo denied Gruspe’s allegation,
claiming that Gruspe, a lawyer, prepared the Joint Affidavit of
Undertaking and forced them to affix their signatures thereon,
without explaining and informing them of its contents; Cruz
affixed his signature so that his mini bus could be released as it
was his only means of income; Leonardo, a barangay official,
accompanied Cruz to Gruspe’s office for the release of the mini
bus, but was also deceived into signing the Joint Affidavit of
Undertaking.
Leonardo died during the pendency of the case and was
substituted by his widow, Esperanza. Meanwhile, Gruspe sold
the wrecked car for ₱130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor
of Gruspe and ordered Cruz and Leonardo to pay ₱220,000.00,6
plus 15% per annum from November 15, 1999 until fully paid,
and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the
interest rate to 12% per annum pursuant to the Joint Affidavit of
Undertaking.7 It declared that despite its title, the Joint Affidavit
of Undertaking is a contract, as it has all the essential elements
of consent, object certain, and consideration required under
Article 1318 of the Civil
Code. The CA further said that Cruz and Leonardo failed to
present evidence to support their contention of vitiated consent.
By signing the Joint Affidavit of Undertaking, they voluntarily
assumed the obligation for the damage they caused to Gruspe’s
car; Leonardo, who was not a party to the incident, could have
refused to sign the affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and Esperanza
assail the CA ruling, contending that the Joint Affidavit of
Undertaking is not a contract that can be the basis of an
obligation to pay a sum of money in favor of Gruspe. They
consider an affidavit as different from a contract: an affidavit’s
purpose is simply to attest to facts that are within his knowledge,
while a contract requires that there be a meeting of the minds
between the two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a
contract, Cruz and Esperanza claim that it is invalid because
Cruz and Leonardo’s consent thereto was vitiated; the contract
was prepared by Gruspe who is a lawyer, and its contents were
never explained to them. Moreover, Cruz and Leonardo were
simply forced to affix their signatures, otherwise, the mini van
would not be released.
Also, they claim that prior to the filing of the complaint for sum of
money, Gruspe did not make any demand upon them. Hence,
pursuant to Article 1169 of the Civil Code, they could not be
considered in default. Without this demand, Cruz and Esperanza
contend that Gruspe could not yet take any action.
THE COURT’S RULING
The Court finds the petition partly meritorious and accordingly
modifies the judgment of the CA.
Contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not
conclusive of the nature of its contents.8 In the construction or
interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. If the terms of the document are
clear and leave no doubt on the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the
words appear to be contrary to the parties’ evident intention, the
latter shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of Undertaking
readily discloses that it contains stipulations characteristic of a
contract. As quoted in the CA decision,10 the Joint Affidavit of
Undertaking contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20 days from
October 25, 1999 or up to November 15, 1999, of the same
model and of at least the same quality. In the event that they
cannot replace the car within the same period, they would pay
the cost of Gruspe’s car in the total amount of ₱350,000.00, with
interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid. These, as read by the CA,
are very simple terms that both Cruz and Leonardo could easily
understand.
There is also no merit to the argument of vitiated consent. An
allegation of vitiated consent must be proven by preponderance
of evidence; Cruz and Leonardo failed to support their allegation.
Although the undertaking in the affidavit appears to be onerous
and lopsided, this does not necessarily prove the alleged
vitiation of consent. They, in fact, admitted the genuineness and
due execution of the Joint Affidavit and Undertaking when they
said that they signed the same to secure possession of their
vehicle. If they truly believed that the vehicle had been illegally
impounded, they could have refused to sign the Joint Affidavit of
Undertaking and filed a complaint, but they did not. That the
release of their mini bus was conditioned on their signing the
Joint Affidavit of Undertaking does not, by itself, indicate that
their consent was forced – they may have given it grudgingly,
but it is not indicative of a vitiated consent that is a ground for
the annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint
Affidavit of Undertaking, the CA did not commit any legal error
that merits the reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand which
is material in the computation of interest on the amount due. The
RTC ordered Cruz and Leonardo to pay Gruspe "₱350,000.00
as cost of the car xxx plus fifteen percent (15%) per annum from
November 15, 1999 until fully paid."11 The 15% interest (later
modified by the CA to be 12%) was computed from November
15, 1999 – the date stipulated in the Joint Affidavit of
Undertaking for the payment of the value of Gruspe’s car. In the
absence of a finding by the lower courts that Gruspe made a
demand prior to the filing of the complaint, the interest cannot be
computed from November 15, 1999 because until a demand has
been made, Cruz and Leonardo could not be said to be in
default.12 "In order that the debtor may be in default, it is
necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the
performance judicially and extrajudicially."13 Default generally
begins from the moment the creditor demands the performance
of the obligation. In this case, demand could be considered to
have been made upon the filing of the complaint on November
19, 1999, and it is only from this date that the interest should be
computed.
 4
Although the CA upheld the Joint Affidavit of Undertaking, we Id. at 12-13.
5
note that it imposed interest rate on a per annum basis, instead Records, p. 6. Paragraph 5 of the Joint Affidavit of Undertaking
of the per month basis that was stated in the Joint Affidavit of read:
Undertaking without explaining its reason for doing so.14 Neither 5. If we cannot replace said car within the said period, we will be
party, however, questioned the change. Nonetheless, the Court liable to pay the cost of the car (Toyota Corolla 1.6 GLI 1993
affirms the change in the interest rate from 12% per month to Model) in the total amount of Three Hundred Fifty Thousand
12% per annum, as we find the interest rate agreed upon in the Pesos (₱350,000.00), Philippine currency, with interest rate of
Joint Affidavit of Undertaking excessive.15 12% per month of any delayed payment after November 15,
1999 until fully paid.
WHEREFORE, we AFFIRM the decision dated July 30, 2009 6
The total claim for ₱350,000.00 less the ₱130,000.00 that
and the resolution dated February 19, 2010 of the Court of Gruspe received for selling his car;
Appeals in CA-G.R. CV No. 86083, subject to the Modification 6
rollo, p. 14.
that the twelve percent (12%) per annum interest imposed on 7
Id. at 20. The dispositive portion of the CA decision dated July
the amount due shall accrue only from November 19, 1999, 30, 2009 read:
when judicial demand was made. WHEREFORE, premises considered, the appeal is
SO ORDERED. DISMISSED. The assailed decision dated September 27, 2004
of the Regional Trial Court of Bacoor, Cavite, Branch 19, is
ARTURO D. BRION AFFRIMED with the MODIFICATION that the interest charged
Associate Justice be changed from 15% to 12% per annum pursuant to the Joint
Affidavit of Undertaking of the defendants-appellants.
WE CONCUR: 8
In Tayco v. Heirs of Concepcion Tayco-Flores, G.R. No.
ANTONIO T. CARPIO 168692, December 13, 2010, 637 SCRA742, 751, the Court
Associate Justice declared that "the denomination given by the parties in their
contract is not conclusiveof the nature of the contents."
9
Ayala Life Assurance, Inc. v. Ray Burton Dev’t. Corp., 515 Phil.
MARIANO C. DEL MARTIN S. VILLARAMA, 431, 437 (2006).
CASTILLO JR.* 10
Supra note 2, at 19.
Associate Justice Associate Justice 11
Id. at 12.
12
Civil Code, Art. 1169. Those obliged to deliver or to do
ESTELA M PERLAS-BERNABE something incur in delay from the time the obligee judicially or
Associate Justice extrajudicially demands from them the fulfillment of their
obligation.
ATTESTATION However, the demand by the creditor shall not be necessary in
order that delay may exist:
I attest that the conclusions in the above Decision had been 1) When the obligation or the law expressly so declare; or
reached in consultation before the case was assigned to the 2) When from the nature and the circumstances of the obligation
writer of the opinion of the Court’s Division. it appears that the designation of the time when the thing is to
ANTONIO T. CARPIO be delivered or the service is to be rendered was a controlling
Associate Justice motive for the establishment of the contract; or
Chairperson 3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
CERTIFICATION In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
Pursuant to Section 13, Article VIII of the Constitution, and the with what is incumbent upon him. From the moment one of the
Division Chairperson Attest8tiort, it :s hereby certified that the parties fulfills his obligation, delay by the other begins.
conclusions in the above Decision had been re2ched in 13
Social Security System v. Moonwalk Development and
consultation before the case was ... assigned to the writer of the Housing Corporation, G.R. No. 73345, April 7, 1993, 221 SCRA
opinion of the Court's Division. 119, 128.
14
MARIA LOURDES P. A. SERENO Compare paragraph 5 of the Joint Affidavit of Undertaking
Chief Justice (supra, note 5) and the dispositive portion of the CA decision
Footnotes dated July 30, 2009 (supra, note 7).
15
* Designated as Acting Member in lieu of Associate Justice Jose See Asian Cathay Finance and Leasing Corporation v.
P. Perez per Special Order No. 1426 dated March 8, 2013. Spouses Gravador, G.R. No. 186550, July 5, 2010, 623 SCRA
1
Rollo, pp. 3-8. 517, 523.
2
Penned by Associate Justice Amelita G. Tolentino, and
concurred in by Associate Justices Pampio A. Abarintos and
Mario V. Lopez, id. at 12-21.
3
Id at 23-24.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-46715-16 July 29, 1988
LEONCIA T. ZAIDE and PRIMITIVO ZAIDE, substituted by
SIMEON TOLENTINO, Guardian ad litem of the Minors
PACITA, ALEX, MARIA ZERLINA all surnamed ZAIDE, etc.,
petitioners,
vs.
HON. COURT OF APPEALS, ROBERTO DE LEON and
EDITA T. ZAIDE respondents.
Tolentino & Associates for petitioners.
Benjamin C. Sebastian for private respondents.
NARVASA, J.:
Edita Zaide and her husband, Roberto de Leon, were the
registered owners of a parcel of land situated in Makati, Rizal,
with an area of 201 square meters, covered by TCT No. 69088
of the Register of Deeds of Rizal.
Sometime in the middle sixties, Primitivo Zaide, Edita's brother,
gave to Edita and her husband, Roberto de Leon, P2,000.00 as
a loan, which the latter used to redeem the land mortgaged by
them to the Pasay Rural Bank. At about this time, too, Primitive
Zaide and his wife, Leoncia T. Zaide, transferred ownership of a
jitney 1 owned by them, valued at P7,000.00, to Roberto de Leon.
It is the Zaide Spouses' claim that the vehicle was thus ceded as
part of the purchase price of the de Leons' above described land,
which they had agreed to buy. In any case, neither the loan nor
the transfer of the vehicle is disputed.
On January 11, 1965, Edita Zaide executed a public instrument
denominated "Deed of Sale" by which, in consideration of
P5,000.00 paid to her, she sold the parcel of land covered by
TCT No. 69088 to Leoncia T. Zaide. 2 The deed described both
the vendor, Edita Zaide, and the vendee, Leoncia T. Zaide, as
"married," but named neither of their husbands. The document
however did bear the signature of Edita's husband, Roberto de
Leon, indicating his "marital consent."
The omission of the name of the vendee's husband in the deed
of sale gave rise to a problem. Precisely because of it, the
Register of Deeds refused to accept it for registration. A second
deed of sale — couched in the same terms as the first,
acknowledge before the same Notary Public, Judge Rafael
Madrazo, and bearing exactly the same date (January 11, 1965)
and document Identification in Judge Madrazo's Notarial
Registry (i.e. "Doc. 955, Page No. 92, Book No. 4, Series of
1965"), actually differing from the first only in that it set forth the
names of the husbands of both the vendor and the vendee 3 -
was shortly thereafter presented to, and was promptly accepted
for registration, by the Register of Deeds. The latter then
cancelled TCT No. 69088, and issued a new one, TCT No.
138606, in the name of "Leoncia T. Zaide, married to Primitivo
Zaide."
With this lot as collateral, the Zaide Spouses thereafter obtained
a loan from the Government Service Insurance System in the
sum of P28,500.00. This was sometime in November, 1964. The
proceeds were used to construct a two-story apartment building
on the land. 4
On June 1, 1969, the house of the de Leons burned down. They
moved to one of the doors of the apartment built by the Zaide
Spouses. They were asked to pay rentals. They refused.
Litigation ensued.
On July 4, 1969, the de Leon Spouses filed a complaint with the
Court of First Instance of Rizal against the Zaide Spouses. 5 The
case was docketed as Civil Case No. 11977. Briefly, the de
Leons alleged that in June, 1964 they discovered that their title
to the land in question (TCT No. 69088) had been cancelled and
another (TCT No. 138606) issued to the Zaides, on the strength
of "a forged deed of sale supposedly executed in Tagaytay City
on the 11th day of January, 1965," and that they "could not
possibly have sold their lot for the measly sum of P5,000.00
appearing in the forged deed ..considering that the market price
of the land ... cannot be less than P20,000.00." They thus prayed
for the cancellation of TCT No. 138606 and the re-issuance of
another "in the name of plaintiff, EDITA ZAIDE," as well as the
payment to them of damages and attorneys' fees. Because
Primitivo Zaide and Leoncia T. Zaide "were both killed in
Tagaytay City" on January 14, 1970, the complaint was
amended to substitute in their stead their minor children: Pacita,
Alexander and Maria Zerlina, represented by their guardian ad
litem, Simeon Tolentino. 6
On October 20, 1970, said Zaide children, through their
guardian, Simeon Tolentino, in turn filed suit against the de Leon
Spouses in the same Court of First Instance of Rizal, to recover
the possession of the apartment unit occupied by the latter and
pay rentals at the rate of P300.00 pursuant to a "verbal contract
of lease. 7" The case, docketed as Civil Case No. 14044, was
later transferred to the same branch to which the earlier one (No.
11977), had been assigned. The cases were then tried jointly. 8
Judgment was rendered in favor of the Zaide Spouses on
September 25, 1972, 9 the dispositive portion of which reads: 10
WHEREFORE, the Court renders judgment dismissing
the complaint filed in Civil Case No. 11977 and declaring
the sale of the lot covered by Transfer Certificate of Title
No. 138606 issued in the names of the deceased
spouses Leoncia T. Zaide and Primitivo Zaide legal and
valid; ordering the plaintiffs as defendants in Civil Case
No. 14044 to pay Pacita, Alexander and Maricar all
surnamed Zaide, as plaintiffs in Civil Case No. 14044 the
sum of P250.00 representing the rental of the use and
occupancy of one of the doors of the apartment,
beginning January 1, 1969 and every month thereafter
until the said Edita Zaide and Roberto de Leon shall
have finally vacated the premises; and ordering Edita
Zaide and Roberto de Leon or any person claiming
rights from them to immediately vacate the apartment
they are now occupying situated on the land in question.
With costs against Edita Zaide and Roberto de Leon as
plaintiffs in Civil Case No. 11977 and defendants in Civil
Case No. 14044.
This judgment was however reversed by another Judge by Order
dated April 10, 1973, 11 upon a motion for reconsideration
seasonably presented by the Spouses de Leon. In that Order,
the Court declared that the "firm and unshakable" testimony of
an NBI handwriting expert established that the signatures of both
plaintiffs Edita Zaide and Roberto de Leon as appearing in the ..
(second deed of sale,) Exhibit "A" (Exhibit 2 of the defendants)
.. were forgeries based on the sample signatures of the two
appearing in the other documents furnished to the NBI ..." The
Court further stated that the defect in the admittedly genuine first
deed of sale — consisting of the omission of the names of the
husbands of the vendor and vendee — could not be corrected
by a forged document which is considered inexistent before the
law. It therefore ruled that TCT No. 138606 issued to the Zaide
Spouses was null and void, being "the fruit of a forged deed of
sale." The Order closed with the following dispositive paragraph:
WHEREFORE, in view of the findings of this Court the
motion for the reconsideration of the decision is hereby
granted, and the decision insofar as the Court ruled the
dismissal of the complaint in Civil Case No. 11977 and
declared the sale of the lot covered by Transfer
Certificate of Title No. 138606 issued in the names of
the deceased spouses Leoncia T. Zaide and Primitivo
Zaide legal and valid is set aside, and this Court
declares that Transfer Certificate of Title No. 138606
issued in the name of defendant Leoncia T. Zaide as
cancelled, it being found by the Court as proceeding
from a forged Deed of Sale Exhibit "A." As a result of
this, this Court orders the Register of Deeds of Rizal to
reissue the Transfer Certificate of Title over the disputed
parcel of land in the name of the plaintiff. With respect to
the other case, Civil Case No. 14044, this Court will not
disturb the findings made by the Presiding Judge who
rendered the decision sought to be reconsidered. The
decision having been thus reconsidered insofar as Civil
Case No. 11977 is concerned, costs of suit in this case
are chargeable to the defendants.
There is, it will be observed, a curious ambivalence in the
amending order: while it declares the de Leons to be the owner
of the land (and orders the re-issuance of title to them), it did "not
disturb the findings" in the original judgment "with respect to Civil
Case No. 14044," to the effect that the Zaide children are entitled
to receive rents for "the use and occupancy of one of the doors
of the apartment" by the de Leons. 12 Be this as it may, the
defendants in Civil Case No. 11977-the children of the deceased
Zaide Spouses-and the defendant in Civil Case No. 14044 —
Roberto de Leon — appealed to the Court of Appeals.13
The Court of Appeals found that, contrary to the Zaides' claim,
there had been no admission by the de Leons of the
genuineness of the first deed of sale (Exh. 1), and their counsel's
statement in the course of the trial that his clients were not
contesting" that deed, did "not amount to an outright admission
of the genuineness thereof but .. (was) rather an indication on
their part to limit themselves within the issue of forgery of Exhibit
2 or the second deed of sale;" that the signatures on the latter
deed were definitely forgeries, and since the Zaides invoked that
deed as basis of their title to the land, they could not be deemed
buyers in good faith; and the judgment in Civil Case No. 14044
decreeing the ejectment of the de Leons was incongruous to its
findings of the spurious nature of the deed of sale and the
Zaides' character as buyers in bad faith. The Court of Appeals
thus AFFIRMED the Order of April 10, 1973 — which
superseded the judgment of September 25, 1972-in so far as it
declared that the sale of the land in favor of the Zaides was null
and void and the land should therefore revert to the de Leons,
but MODIFIED it by relieving Roberto de Leon of any obligation
to pay rent for his occupancy of one door of the apartment
building on the land, "which should not be vacated by him and
his wife or any person claiming any right from them." The
dispositive paragraph of the Court's decision 14 reads as follows:
WHEREFORE, We hereby affirm the appealed Order
dated April 10, 1973, insofar as it relates to Civil Case
No. 11977 of the Court of First Instance at Pasig, Rizal,
and hereby modify that portion of the same order insofar
as it relates to Civil Case No. 14044 of the same Court
by (1) declaring the late spouses Primitivo Zaide and
Leoncia T. Zaide, parents of the minors who are the
plaintiffs-appellees in CA-G.R. No. 53880-R, as builders
in bad faith of the apartment built on the contested lot in
CA-G.R. No. 53879-R and (2) relieving appellant
Roberto de Leon in CA-G.R. No. 53880-R (who is the
defendant in Civil Case No. 14044) from paying rental in
occupying one door of said apartment which should not
be vacated by him and his wife or any person claiming
any right from them. In all other respects, the said
portion relative to Civil Case No. 14044 is AFFIRMED
with costs in both instances to be taxed on the
defendants-appellants, Simeon Tolentino, guardian ad
litem of the Minors Pacita, Alexander, Maria Zerlina, all
surnamed Zaide, who are the plaintiffs-appellees in CA-
G.R. No. 53880-R.
The case is now before this Court on an appeal by certiorari of
the Zaide children from the decision of the Appellate Court.
There are two (2) deeds of sale which, as already remarked, are
exactly the same as to date, contents, and Identification in the
notarial registry, differing only in that the second contains the
names of the spouses of the vendor and the vendee. 15 It is the
Zaides' claim that the second, Exhibit 2, is a forgery, and the first,
Exhibit 1, had not been admitted by them.
The record shows that the deed, Exhibit 1, was in fact admitted
by the de Leons. Copies of both deeds, Exhibits 1 and 2, were
pleaded by the Zaides in their amended answer as an
"actionable document" 16 or as "a written instrument or
document" on which "an action or defense is based" in
accordance with Section 7, Rule 8 of the Rules of Court. The de
Leons failed to specifically deny "the genuineness and due
execution of the annexed instrument(s) .. under oath, .. (and to
set forth what they claim) to be the facts;" hence, under Section
8 of the same Rule, "the genuineness and due execution" of the
deeds should "be deemed admitted."
The de Leons however insist that they should not be saddled
with any such admission because the amended answer (in which
the deeds had been pleaded) had never been admitted by the
Court a quo. This is not correct. At least two (2) orders of the
Trial Court made clear its admission of the amended answer. At
one of the hearings, the Court categoricaly stated that "for
purposes of record, the court admits the amended complaint as
well as the amended answer." 17 In an earlier Order, dated
January 6, 1971, lifting an order of default entered against the
Zaides, the Court cited as reason therefor the fact that
"defendants have filed not only an answer but also an amended
answer to the original complaint." 18 It is not the ceremonial
phrase of express admission of an amended pleading that
should control, but the unequivocal acts of the Court in relation
to the revised pleading.
Moreover, the de Leons' counsel, Atty. Mariano, explicitly
manifested to the Court that they were not contesting Exhibit 1.
This is made clear by the following recorded exchange 19
between the Court and counsel, following the observation of the
Zaides' attorney, Mr. San Jose, that inter alia the de Leons had
not objected to the genuineness of Exhibit 1 when formally
offered, the only objection being "that it did not contain
documentary stamps."
ATTY. MARIANO:
The trouble is we are not contesting Exhibit 1, what we
are contesting is Exhibit 2, as a forgery which Exh. 2 is
the basis of the registration.
COURT:
What has been attached to the answer?
ATTY. SAN JOSE:
Both of them. May we have it on record that what they
are contesting is Exhibit 2, and not Exhibit 1.
COURT:
Put it on record. But (that) he is not so such objecting on
the document Exhibit 1.
ATTY. MARIANO:
We are not contesting Exhibit 1. We are contesting
Exhibit 2.
COURT:
Precisely, you are not contesting Exhibit 1.
ATTY. MARIANO:
Yes, Your Honor.
It is difficult to imagine how an admission of a document could
be made any more plain. Prescinding from this, no evidence
whatever has been presented or proferred by the de Leons of
the spuriousness of Exhibit 1. Their manifestations with respect
to Exhibit 1 have been limited to an insistence in limiting the
issue to the alleged falsity of the second deed, Exhibit 2. But, to
repeat, they have made no effort whatever to prove Exhibit 1 to
be other than genuine. Under the circumstances, the
genuineness and due execution of Exhibit 1, which had been
formally offered and admitted by the Court, cannot but be
conceded, not merely on the strength of the unrebutted
presumptions of regularity of private transactions, 20 but also and
particularly, the admissions by the de Leons just detailed.
However, although the first deed of sale (Exh. 1) was genuine, it
was so far defective as to render it unregistrable in the Registry
of Property. As already pointed out, it did not set forth the name
of the vendee's husband and was for this reason refused
registration by the Register of Deeds. The defect was
unsubstantial. It did not invalidate the deed. The legal
dispositions are clear. Though defective in form, the sale was
valid; and the parties could compel each other to do what was
needful to make the document of sale registrable. The law
generally allows a contract of sale to be entered into in any form,
whether "in writing, or by word of mouth, or partly in writing and
partly by word or mouth, or (even) inferred from the conduct of
the parties;" but if the agreement concerns "the sale of land or of
an interest therein," the law requires not only that "the same, or
some note or memorandum thereof, be in writing, and
subscribed by the party charged" in order that it may be
enforceable by action,21 but also that the writing be in the form
of a "public document." 22 The law finally provides that "If the law
requires a document or other special form, as in the acts and
contracts enumerated in .. (Article 1358), the contracting parties
may compel each other to observe that form, once the contract
has been perfected .. (and such) right may be exercised
simultaneously with the action upon the contract." 23
In the case at bar, the Zaides thus had the right to compel the
de Leons to observe the special form prescribed by law; i.e.,
revised the public document by inserting the name of the
vendee's husband. Indeed, this was precisely what was done in
the second deed of sale, Exhibit 2.
The de Leons however contend that Exhibit 2 is a nullity: they
had never signed it; their purported signatures thereon had been
forged. Assuming this to be so, for the sake of argument, it does
not alter (1) the fact that the parties had voluntarily executed a
sale in writing Exhibit 1, which recites that the price of P5,000.00
had been paid, and the further fact that (a) the de Leons had
received from the Zaides the sum of P2,000.00 as well as a
vehicle valued at P7,000.00 and (b) they, the de Leons, knew
that the Zaides had exercised an act of ownership over the
property thereby acquired by mortgaging it as security for a loan;
or (2) the legal consequence flowing therefrom: that in order to
cure the defect in the first deed, in that it did not specify the name
of the vendee's husband, the Zaides could legally compel the de
Leons to execute another deed containing this omitted
circumstance. Hence, even if the second document of sale be
invalidated as a forgery, and the de Leons' title to the land
restored to them, this would be inutile, an empty ceremony, since
the de Leons could nevertheless still be compelled by the Zaides
to execute another deed, in proper form, to carry into effect the
sale originally entered into.
But it is not as indubitable as the Appellate Court and the Trial 14 Promulgated on July 26,1977, Rollo, pp. 77, 96-97; Santiago,
Court seem to believe that the second deed of sale, Exhibit 2, Jr., J., ponente; Reyes and Serrano, JJ., concurring.
was in truth a forgery. The conclusion of forgery was founded on 15 SEE footnote 3, supra.
the testimony of a handwriting expert. There is in any case no 16 The term used in the Rules of Court of 1940, which was not
satisfactory explanation why the expert did not see fit to use, for however adopted in the Rules of 1964.
purposes of comparison, the document nearest in point of time 17 TSN, May 30, 1972, p. 9; petitioners' brief, p. 14.
to the questioned deed (Exhibit 2), namely, Exhibit 1; or why 18 Rollo, pp. 49-50.
such expert's testimony should be accorded full faith and credit 19 TSN, July 11, 1972, p. 17-21; emphasis supplied.
despite its (1) not having been subjected to cross-examination, 20 "p) That private transactions have been fair and regular;" "(q)
and (2) being contradicted by the positive testimony of a That the ordinary course of business has been followed;" "(r)
subscribing witness, and of the judge who, as notary public ex That there was a sufficient consideration for a written contract;"
oficio, had notarized both deeds of sale, both of whom had and as regards the notarization of Exhibit 1 by the Municipal
affirmed that the vendors and vendees had actually signed the Judge, "(m) That official duty has been regularly performed"
documents. There was simply a naked assertion that the (Sec. 5, Rule 131, Rules of Court)
expert's evidence proved the forgery without any discussion, 21 The Statute of Frauds: ART. 1403 (2), Civil Code; emphasis
much less refutation, of the facts militating against it. Obviously, supplied.
such an unreasoned assertion cannot be sustained. It cannot be 22 ART. 1358. Civil Code, provides that among those which
accorded that conclusiveness conceded as a rule to factual "must appear in a public document" are "contracts which have
findings of the Court of Appeals. In this situation, it cannot for their object the creation, transmission, modification or
rightfully be ruled that the second deed of sale, Exhibit 2, is extinguishment of real rights over immovable property."
indeed a forgery. The most that may perhaps be said about it is Emphasis supplied.
that its genuineness has been placed in doubt by the evidence 23 ART 1357, Civil Code.
given by the handwriting expert. But this is inconsequential, in
view of the facts and legal considerations set out in the next
preceding paragraph.
WHEREFORE, the judgment of the Court of Appeals in CA-G.R.
No. 53879-R and CA-G.R. No. 53880-R dated July 26, 1977,
and the Order of the Trial Court dated April 10, 1973 thereby
affirmed with modification, are REVERSED AND SET ASIDE,
and the decision of said Trial Court rendered on September 25,
1972, SUSTAINED AND AFFIRMED in toto. Costs against
private respondents.
Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
Footnotes
1 A "Willy"s jitney" over which Roberto de Leon subsequently
obtained Registration Certificate No. GRC-271467 in his name
(par. 10, Amended Answer in Civil Case No. 11977: Rollo, p.
37).
2 Rollo, pp. 12-13.
3 Id., pp. 13-14,85-86.
4 Thenceforth Identified as No. 1388 Newton, Makati, Rizal.
5 Id., pp. 29-31. An "Affidavit of Adverse Claim" dated June 4,
1969 also appears to have been filed by the de Leon Spouses
with the Registry of Deeds.
6 Id., pp. 45-47.
7 Id., pp. 78-79.
8 Id., pp, 79-82.
9 By Hon. Benjamin H. Aquino, Rollo, pp. 62-65.
10 Rollo, pp. 65, 81-82.
11 Rendered by Hon. Nicanor S. Sison, who succeeded Judge
Aquino.
12 See footnote 10, supra.
13 The appeal of the heirs of the Spouses Zaide was docketed
as CA-G.R. No. 53879-R; that of Roberto de Leon, as CA-G.R.
No. 53880R.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-
DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO
SABESAJE, JR., respondents.
Francisco A. Puray, Sr. for petitioners.
Gabriel N. Duazo for private respondent.
MEDIALDEA, J.:
This is a petition to annul and set aside the decision of the Court
of Appeals rendered on May 26, 1987, upholding the validity of
the sale of a parcel of land by petitioner Segundo Dalion
(hereafter, "Dalion") in favor of private respondent Ruperto
Sabesaje, Jr. (hereafter, "Sabesaje"), described thus:
A parcel of land located at Panyawan, Sogod, Southern
Leyte, declared in the name of Segundo Dalion, under
Tax Declaration No. 11148, with an area of 8947
hectares, assessed at P 180.00, and bounded on the
North, by Sergio Destriza and Titon Veloso, East, by
Feliciano Destriza, by Barbara Bonesa (sic); and West,
by Catalino Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued
on January 17, 1984, the dispositive portion of which provides
as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the
Court hereby renders judgment.
(a) Ordering the defendants to deliver to the plaintiff the
parcel of land subject of this case, declared in the name
of Segundo Dalion previously under Tax Declaration No.
11148 and lately under Tax Declaration No. 2297 (1974)
and to execute the corresponding formal deed of
conveyance in a public document in favor of the plaintiff
of the said property subject of this case, otherwise,
should defendants for any reason fail to do so, the deed
shall be executed in their behalf by the Provincial Sheriff
or his Deputy;
(b) Ordering the defendants to pay plaintiff the amount
of P2,000.00 as attorney's fees and P 500.00 as
litigation expenses, and to pay the costs; and
(c) Dismissing the counter-claim. (p. 38, Rollo)
The facts of the case are as follows:
On May 28, 1973, Sabesaje sued to recover ownership of a
parcel of land, based on a private document of absolute sale,
dated July 1, 1965 (Exhibit "A"), allegedly executed by Dalion,
who, however denied the fact of sale, contending that the
document sued upon is fictitious, his signature thereon, a
forgery, and that subject land is conjugal property, which he and
his wife acquired in 1960 from Saturnina Sabesaje as evidenced
by the "Escritura de Venta Absoluta" (Exhibit "B"). The spouses
denied claims of Sabesaje that after executing a deed of sale
over the parcel of land, they had pleaded with Sabesaje, their
relative, to be allowed to administer the land because Dalion did
not have any means of livelihood. They admitted, however,
administering since 1958, five (5) parcels of land in Sogod,
Southern Leyte, which belonged to Leonardo Sabesaje,
grandfather of Sabesaje, who died in 1956. They never received
their agreed 10% and 15% commission on the sales of copra
and abaca, respectively. Sabesaje's suit, they countered, was
intended merely to harass, preempt and forestall Dalion's threat
to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed,
assigning errors some of which, however, were disregarded by
the appellate court, not having been raised in the court below.
While the Court of Appeals duly recognizes Our authority to
review matters even if not assigned as errors in the appeal, We
are not inclined to do so since a review of the case at bar reveals
that the lower court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have
no reason to dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is
the same property deeded out in Exhibit "B". The
boundaries delineating it from adjacent lots are identical.
Both documents detail out the following boundaries, to
wit:
On the North-property of Sergio Destriza and Titon
Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of
the contract of sale of a parcel of land and b) the necessity of a
public document for transfer of ownership thereto.
The appellate court upheld the validity of the sale on the basis
of Secs. 21 and 23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity,
how proved.-Before any private writing may be received
in evidence, its due execution and authenticity must be
proved either:
(a) By anyone who saw the writing executed;
(b) By evidence of the genuineness of the handwriting of
the maker; or
(c) By a subscribing witness
xxx xxx xxx
SEC. 23. Handwriting, how proved. — The handwriting
of a person may be proved by any witness who believes
it to be the handwriting of such person, and has seen the
person write, or has seen writing purporting to be his
upon which the witness has acted or been charged, and
has thus acquired knowledge of the handwriting of such
person. Evidence respecting the handwriting may also
be given by a comparison, made by the witness or the
court, with writings admitted or treated as genuine by the
party against whom the evidence is offered, or proved to
be genuine to the satisfaction of the judge. (Rule 132,
Revised Rules of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject
deed positively testified on the authenticity thereof. They
categorically stated that it had been executed and
signed by the signatories thereto. In fact, one of such
witnesses, Gerardo M. Ogsoc, declared on the witness
stand that he was the one who prepared said deed of
sale and had copied parts thereof from the "Escritura De
Venta Absoluta" (Exhibit B) by which one Saturnina
Sabesaje sold the same parcel of land to appellant
Segundo Dalion. Ogsoc copied the bounderies thereof
and the name of appellant Segundo Dalion's wife,
erroneously written as "Esmenia" in Exhibit "A" and
"Esmenia" in Exhibit "B". (p. 41, Rollo)
xxx xxx xxx
Against defendant's mere denial that he signed the
document, the positive testimonies of the instrumental
Witnesses Ogsoc and Espina, aside from the testimony
of the plaintiff, must prevail. Defendant has affirmatively
alleged forgery, but he never presented any witness or
evidence to prove his claim of forgery. Each party must
prove his own affirmative allegations (Section 1, Rule
131, Rules of Court). Furthermore, it is presumed that a
person is innocent of a crime or wrong (Section 5 (a),
Idem), and defense should have come forward with clear
and convincing evidence to show that plaintiff committed
forgery or caused said forgery to be committed, to
overcome the presumption of innocence. Mere denial of
having signed, does not suffice to show forgery.
In addition, a comparison of the questioned signatories
or specimens (Exhs. A-2 and A-3) with the admitted
signatures or specimens (Exhs. X and Y or 3-C)
convinces the court that Exhs. A-2 or Z and A-3 were
written by defendant Segundo Dalion who admitted that
Exhs. X and Y or 3-C are his signatures. The questioned
signatures and the specimens are very similar to each
other and appear to be written by one person.
Further comparison of the questioned signatures and
the specimens with the signatures Segundo D. Dalion
appeared at the back of the summons (p. 9, Record); on
the return card (p. 25, Ibid.); back of the Court Orders
 dated December 17, 1973 and July 30, 1974 and for in control and possession of the land (real) or by embodying the
October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and sale in a public instrument (constructive).
on the open court notice of April 13, 1983 (p. 235, Ibid.)
readily reveal that the questioned signatures are the As regards petitioners' contention that the proper action should
signatures of defendant Segundo Dalion. have been one for specific performance, We believe that the suit
for recovery of ownership is proper. As earlier stated, Art. 1475
It may be noted that two signatures of Segundo D. of the Civil Code gives the parties to a perfected contract of sale
Dalion appear on the face of the questioned document the right to reciprocally demand performance, and to observe a
(Exh. A), one at the right corner bottom of the document particular form, if warranted, (Art. 1357). The trial court, aptly
(Exh. A-2) and the other at the left hand margin thereof observed that Sabesaje's complaint sufficiently alleged a cause
(Exh. A-3). The second signature is already a of action to compel Dalion to execute a formal deed of sale, and
surplusage. A forger would not attempt to forge another the suit for recovery of ownership, which is premised on the
signature, an unnecessary one, for fear he may commit binding effect and validity inter partes of the contract of sale,
a revealing error or an erroneous stroke. (Decision, p. merely seeks consummation of said contract.
10) (pp. 42-43, Rollo)
... . A sale of a real property may be in a private
We see no reason for deviating from the appellate court's ruling instrument but that contract is valid and binding between
(p. 44, Rollo) as we reiterate that the parties upon its perfection. And a party may compel
the other party to execute a public instrument
Appellate courts have consistently subscribed to the embodying their contract affecting real rights once the
principle that conclusions and findings of fact by the trial contract appearing in a private instrument hag been
courts are entitled to great weight on appeal and should perfected (See Art. 1357).
not be disturbed unless for strong and cogent reasons,
since it is undeniable that the trial court is in a more ... . (p. 12, Decision, p. 272, Records)
advantageous position to examine real evidence, as well
as to observe the demeanor of the witnesses while ACCORDINGLY, the petition is DENIED and the decision of the
testifying in the case (Chase v. Buencamino, Sr., G.R. Court of Appeals upholding the ruling of the trial court is hereby
No. L-20395, May 13, 1985, 136 SCRA 365; Pring v. AFFIRMED. No costs.
Court of Appeals, G.R. No. L-41605, August 19, 1985, SO ORDERED.
138 SCRA 185)
Narvasa, Cruz, Gancayco and Grino-Aquino, JJ., concur.
Assuming authenticity of his signature and the genuineness of
the document, Dalion nonetheless still impugns the validity of the Footnotes
sale on the ground that the same is embodied in a private
document, and did not thus convey title or right to the lot in 1 Presiding Judge, Lucio F. Saavedra, RTC, Br. XXIV, Maasin,
question since "acts and contracts which have for their object the Southern Leyte.
creation, transmission, modification or extinction of real rights
over immovable property must appear in a public instrument"
(Art. 1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on the
necessity of a public document is only for convenience, not for
validity or enforceability. It is not a requirement for the validity of
a contract of sale of a parcel of land that this be embodied in a
public instrument.
A contract of sale is a consensual contract, which means that
the sale is perfected by mere consent. No particular form is
required for its validity. Upon perfection of the contract, the
parties may reciprocally demand performance (Art. 1475, NCC),
i.e., the vendee may compel transfer of ownership of the object
of the sale, and the vendor may require the vendee to pay the
thing sold (Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver
to Sabesaje the parcel of land and to execute corresponding
formal deed of conveyance in a public document. Under Art.
1498, NCC, when the sale is made through a public instrument,
the execution thereof is equivalent to the delivery of the thing.
Delivery may either be actual (real) or constructive. Thus
delivery of a parcel of land may be done by placing the vendee

THIRD DIVISION
G.R. No. 221513, December 05, 2016
SPOUSES LUISITO PONTIGON AND LEODEGARIA
SANCHEZ PONTIGON, Petitioners,
v It was further averred that post-transfer, petitioners unlawfully
HEIRS OF MELITON SANCHEZ, NAMELY: APOLONIA
SANCHEZ, ILUMINADA SANCHEZ (DECEASED), MA. LUZ
SANCHEZ, AGUSTINA SANCHEZ, AGUSTIN S.
MANALANSAN, PERLA S. MANALANSAN, ESTER S.
MANALANSAN, GODOFREDO S. MANALANSAN,
TERESITA S. MANALANSAN, ISRAELITA S.
MANALANSAN, ELOY S. MANALANSAN, GERTRUDES S.
MANALANSAN, REPRESENTED BY TERESITA SANCHEZ
MANALANSAN, Respondents.
DECISION
PEREZ, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court seeking the reversal of the March 26, 2015
Decision1 September 14, 2015 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 100188.3 The assailed rulings
affirmed the trial court judgment that declared Transfer
Certificate of Title (TCT) No. 162403-R, under the name of
petitioners, null and void because of the fraud and irregularities
that allegedly attended its issuance.
The Facts
Meliton Sanchez (Meliton) had been the owner of a 24-hectare
parcel of land situated in Gutad, Floridablanca, Pampanga. Said
property was duly registered in his name under Original
Certificate of Title (OCT) No. 207 issued on October 15, 1938. 4
On August 11, 1948, Meliton died intestate, leaving the subject
property to his surviving heirs, his three children, namely:
Apolonio, Flaviana, and Juan, all surnamed Sanchez. Petitioner
Leodegaria Sanchez Pontigon (Leodegaria) is the daughter of
Juan and petitioner Luisito Pontigon (Luisito) is the husband of
Leodegaria. The respondents herein, who are all represented by
Teresita S. Manalansan (Teresita), are Meliton's grandchildren
with Flaviana.
On September 17, 2000, the respondents filed a Complaint for
Declaration of Nullity of Title and Real Estate Mortgage with
Damages5 against petitioners, docketed as Civil Case No. G-06-
3792 before the Regional Trial Court (RTC), Branch 49 of
Guagua, Pampanga.6 Respondents posited that the property in
issue had never been partitioned among the heirs of Meliton, but
when respondents verified with the Register of Deeds of
Pampanga (RD) the status of the parcels of land sometime in
August 2000, they discovered that OCT No. 207 was nowhere
to be found — what was only with the RD's custody was the
owner's copy of OCT No. 207, free of any annotation of
cancellation or description of any document that could have
justified the transfer of the property covered. Despite this tact,
petitioners, even without any document of conveyance, were
able to transfer the title of the subject lot to their names, resulting
in the issuance of Transfer Certificate of Title (TCT) No. 162403-
R on May 21, 1980 covering the same parcel of land. Hence,
respondents, argued that the transfer of title to petitioners was
fraudulent and invalid, and that petitioners merely held title over
the subject property in trust for Meliton's heirs.7
and fraudulently obtained a loan from, and mortgaged the
subject property to, Quedan and Rural Credit Guarantee
Corporation (Quedancor) - an additional defendant in Civil Case
No. G-06-3792. Quedancor allegedly did not take the necessary
steps to verify the title over and the true ownership of the subject
property.8
Deprived of their inheritance over the subject property, to their
damage and prejudice, respondents prayed that TCT No.
162403-R be declared null and void; that the real estate
mortgage in favor of Quedancor likewise be nullified; that OCT
No. 207 registered under Meliton's name be reinstated; and that
damages be awarded in their favor.9
In their Answer, petitioners denied the material allegations in the
Complaint. They countered that the conveyance in their favor is
evidenced by an Extra-judicial Settlement of Estate of Meliton
Sanchez and Casimira Baluyut with Absolute Sale (Extrajudicial
Settlement) that was prepared and notarized by Atty. Emiliano
Malit on November 10, 1979. In fact, Apolonio, Juan, and
Flaviana filed before Branch 2 of the then Court of First Instance
(CFI) of Pampanga a Petition for Approval of the Extrajudicial
Partition (Petition for Approval). Petitioners further alleged that
on December 29, 1979, a Decision was rendered granting the
petition adverted to, which ruling became final and executory
based on a certification dated February 15, 1980 issued by the
then clerk of court.10
Petitioners also raised the following affirmative defenses: that
respondents had no cause of action against petitioners,
Quedancor, and the RD; that respondent Teresita Sanchez
Manalansan (Teresita) had no authority to represent all the
respondents in the case; and that twenty (20) years had already
passed from the issuance of TCT No. 162403-R on May 21,
1980 before respondents lodged their Complaint. Petitioners
would file on October 10, 2002 a motion to dismiss reiterating
the defense that respondents' action is already barred by
prescription.11
For its part, Quedancor explained that petitioners mortgaged to
it the parcel of land covered by TCT No. 162403-R as security
for a PhP6,617,000.00 loan extended in their favor. It claimed
that the mortgage was approved in good faith since it verified
with the RD the veracity of petitioners' title. Moreover, by way of
affirmative defense, Quedancor maintained that respondents
have no cause of action against it. It then prayed that
respondents be ordered to pay the corporation damages and
attorney's fees.12
With the issues joined, trial on the merits ensued.
During trial, respondent Teresita, attorney-in-fact of her co-
parties, testified that the subject property was merely held in trust
by her uncle Juan, Meliton's son and petitioner Leodegaria's
father, who had been paying the taxes on the property since he
is the most educated and successful of the three siblings; and,
that she was the one who verified with the RD and discovered
that only the owner's copy of OCT No. 207 was in the office's
custody sans any annotation of cancellation or encumbrance.13
Myrna Guinto, a Record Officer at the RD and witness for the
respondents, testified that the duplicate owner's copy adverted
to indeed bears no indication that it had been cancelled or
otherwise encumbered.14
On the other hand, petitioner Luisito testified that even though
he and his wife do not particularly like the location of the lots in
issue, they accepted Juan, Apolonio, and Flaviana's offer to sell
to them Meliton's erstwhile property due to sentimental reasons.
The Extrajudicial Settlement was then executed and the Petition
for Approval filed to effect the transfer in petitioners' name. The
petition for approval, according to Luisito, was favorably acted
upon by the CFI of Pampanga on November 30, 1979, which
ruling allegedly became final and executory.15
Leodegaria corroborated Luisito's testimony that they were
constrained to purchase the lot for its emotional attachment to
them. She revealed that it was her father Juan who hired a
lawyer, Atty. Malit, to effect the transfer, and that she was
present when the Extrajudicial Settlement was executed by the
three siblings, with Lucita Jalandoni and Agustin Manalansan as
instrumental witnesses. Atty. Malit deposited into Flaviana's
account the payments of the purchase price. And since then,
petitioners occupied and developed the disputed lot.16
Atty. Lorna Salangsang-Dee (Atty. Dee), the Register of Deeds
for Pampanga, likewise took the witness stand to explain that all
documents relative to titles issued prior to October 1995 were
destroyed by the lahar and flash floods that inundated their
office. She further testified, on cross-examination, that she
concluded that the owner's duplicate certificate of OCT No. 207
appears in their records because there was a transaction that
warranted its surrender to the Registry.17
In rebuttal, respondent Teresita was recalled as witness. She
claimed that the first time she saw the Extrajudicial Settlement
was when it was presented in court. She brought to the court's
attention the fact that the document was allegedly executed on
November 10, 1979, when her mother, Flaviana, was already 69
years of age. It was Teresita's contention that Flaviana, in her
advanced age was already senile during the date material and,
thus, could not have validly consented to the sale of her property.
Teresita admitted, though, that she has no document to prove
the status of her mother's then mental condition.18
The second rebuttal witness, Thiogenes Manalansan Ragos, Jr.
(Thiogenes), son of respondent Perla Manalansan and
grandson of Flaviana, claimed that on November 7, 1979,
between 2:00-3:00 p.m., Juan, Luisito, and Leodegaria arrived
at the house of Flaviana to coerce her into signing a document.
Because Flaviana refused to affix her signature, she was forcibly
taken by the three. Thereafter, Thiogenes accompanied his
mother, Perla, to the police station to report the incident. There,
he allegedly saw Perla file a complaint stating, among others,
that Juan was persuading Flaviana to sign a document of sale.19
Ruling of the Regional Trial Court
During the course of the trial, the RTC issued its Order dated
May 28, 2003 denying petitioners' motion to dismiss, ruling that
respondents' cause of action has not yet prescribed. The RTC
ratiocinated that by filing a motion to dismiss, petitioners
hypothetically admitted the allegations in the complaint that they
and respondents are co-owners of the subject property, being
the heirs of Meliton. Having fraudulently obtained title over the
subject property to the prejudice of respondents, a trust relation
was created by operation of law, whereby petitioners merely held
the subject property in trust for and in behalf of their co-owners.
As held, an action based on this trust relation could not be barred
by prescription.20
Subsequently, on June 28, 2012, the RTC promulgated a
Decision21 in favor of respondents. The dispositive portion of the
Decision states:22
WHEREFORE, premises considered, judgment is hereby
rendered:
1. Declaring null and void Transfer Certificate of Title No.
162403-R registered in the name of defendants-spouses Luisito
Pontigon and Leodegaria Sanchez and declaring herein plaintifis
represented by Teresita Sanchez Manalansan as rightful co-
owners to a one-third portion of the property embraced in said
title previously registered in the name of Meliton Sanchez per
Original Certificate of Title No. 207;
2. Ordering the Register of Deeds of Pampanga to cancel TCT
No. 162403-R and issue a new title in favor of the Heirs of
Meliton Sanchez, upon payment of the necessary taxes and
lawful fees;
3. Upholding the validity of the real estate mortgage constituted
on TCT No. 162403-R and setting aside the writ of preliminary
injunction issued against defendant Quedancor without
prejudice to the rights of herein plaintiffs as co-owners of the
mortgaged property;
4. Denying plaintiff's claim for damages and attorney's fees as
well as defendants' counterclaims for lack of merit.
SO ORDERED.
The RTC maintained that the transfer of title of the subject
property to petitioners was tainted with irregularities. While the
trial court took judicial notice of the floods and lahar that
inundated the Provincial Capitol, it found strange that the
owner's duplicate certificate, but not the original copy, of OCT
No. 207, would remain with the RD, clean of any annotation or
marking at that.23
Anent the Petition for Approval, the RTC noted that the pleading
filed before the CFI was verified by Juan alone; that the court
order setting it for hearing was not signed by the then presiding
judge; and that the certification of the CFI judgment granting the
Petition for Approval was a mere photocopy and does not satisfy
the best evidence rule. Additionally, the RTC weighed against
petitioners the fact that the Petition for Approval was prepared
earlier than the Extrajudicial Settlement sought to be approved.
The Extrajudicial Settlement was dated November 10, 1979,
while the Petition for Approval was dated November 9, 1979,
albeit filed on November 12, 1979.24
Taking substantial consideration of the "damning rebuttal
evidence" of respondents,25 the trial court deemed implausible
petitioners' postulation that they purchased the subject property
for sentimental reasons. It further held the petitioners did not
particularly dispute that respondents are heirs of Meliton. Thus,
upon Meliton 's death, co-ownership existed among the siblings,
Juan, Apolonio and Flaviana. Finally, the RTC held that the
subject property should then be divided equally among the three
(3) heirs.26
Petitioners filed a Motion for Reconsideration,27 but their
contentions were rejected by the RTC anew.28 Aggrieved, they
elevated the case to the CA via appeal.
Ruling of the Court of Appeals
Through its assailed Decision, the appellate court affirmed the
findings of the RTC and disposed of the case in the following
wise:29
WHEREFORE, the instant appeal is DENIED. The Decision
dated June 28, 2012 of Branch 49, Regional Trial Court of
Guagua, Pampanga in Civil Case No. G-06-3792 is hereby
AFFIRMED.
SO ORDERED.
At the outset, the CA ruled that petitioners' appeal was
procedurally infirm. Citing Sec. 1 (f), Rule 5030 of the Rules of
Court, the CA held that failure of petitioners to submit a subject
index is fatal to the appeal and warrants the outright denial of
their plea.31
Even if the absence of the subject index were to be excused, the
appellate court nevertheless found no cogent reason to disturb
the trial court's ruling. The CA explained that the Extrajudicial
Settlement cannot be considered a public document because it
was not properly notarized. It could not then bind third persons,
including respondents, according to the appellate court.32
Moreover, the CA ruled that the document adverted to is bereft
of any probative value for failure on the part of petitioners to
comply with the rules on the admissibility of private documents
as proof.33 It also shared the RTC's observations as regards the
Petition for Approval.34 Given the irregularities attending the
execution and approval of the Extrajudicial Settlement, the CA
concluded that it could not have conveyed title to petitioners, and
that TCT No. 162403-R, consequently, is a nullity.35
From the date of their receipt of the adverse ruling, petitioners
had until May 9, 2015 within which to move for reconsideration
therefrom. It would be on May 4, 2015 when petitioners would
interpose their Motion for Reconsideration36 and Entry of
Appearance37 of Atty. Roniel Dizon Muñoz (Atty. Muñoz). Atty.
Juvy Mell Sanchez-Malit (Atty. Malit), the counsel who previously
represented the petitioners in the earlier proceedings, never
informed the court that she is withdrawing from the case.
On October 2, 2015, petitioners received a copy of the Notice of
Resolution38 with Entry of Judgment39 dated September 14,
2015, which provides thusly:40
WHEREFORE, premises considered, the Court resolves as
follows:
1. The Entry of Appearance as Counsel for Defendants-
Appellants Spouses Pontigon filed by Atty. Roniel Dizon Muñoz
is simply NOTED WITHOUT ACTION; and
2. The Motion for Reconsideration filed by Atty. Dizon Muñoz is
hereby EXPUNGED from the rollo of this case, being a mere
scrap of paper with no remedial value for having been filed by
unauthorized counsel.
Accordingly, the Division Clerk of Court is hereby DIRECTED to
issue an Entry of Judgment in consonance with Section 3 (b),
Rule IV and Section 1, Rule VII of the IRCA, as amended.
SO ORDERED.
In fine, the CA treated the Motion for Reconsideration as a mere
scrap of paper since it was allegedly not filed by petitioners'
counsel of record. Atty. Muñoz was not vested with the authority
to file the pleading in their behalf since the manner by which
petitioners substituted their counsel is not consistent with Sec.
26, Rule 138 of the Rules of Court.41 Citing Ramos v.
Potenciano,42 the CA held that no substitution of attorneys will
be allowed unless the following requisites concur: there must be
(1) a written application for substitution; (2) written consent of the
client to the substitution; and (3) written consent of the attorney
to be substituted, if such consent can be obtained. x x x43
Unless these formalities are complied with, no substitution may
be permitted and the attorney who appeared last in the case
before such application for substitution would be regarded as the
attorney of record and would be held responsible for the conduct
of the case.44
Unfazed, petitioners again filed a Motion for Reconsideration, 45
this time from the September 14, 2015 Resolution. The said
motion remains pending with the CA to date. In the interim, the
appellate court remanded the folders of this case to the court of
origin.
Hence, the instant recourse.
The Issues
The pivotal issues of the current controversy are as follows:
I. Whether or not the CA is correct in ruling that Atty. Muñoz did
not have the authority to file the Motion for Reconsideration in
behalf of the petitioners, rendering it a mere scrap of paper;
II. Whether or not respondents' cause of action is barred by
prescription;
III. Whether or not the appellate court correctly held that the
Extrajudicial Settlement does not bind the respondents;
IV. Whether or not the Extrajudicial Settlement is admissible as
evidence;
V. Whether or not the CA erred in ruling that TCT No. 162403-R
is a nullity because of the irregularities that attended its
issuance;
VI. Whether or not a relaxation of the procedural rules is
warranted in this case.
The Court's Ruling
The Court finds merit in the petition. The resolution of the issues
raised herein shall be discussed seriatim, beginning with the
procedural aspect of the case.
The CA erred in denying the Motion
for Reconsideration for want of
authority of counsel
Oft cited, but rarely applied, is that technical rules may be
relaxed only for the furtherance of justice and to benefit the
deserving.46 This controversy before us, however, is one of the
exceptional instances wherein the proverb can properly be
invoked.
We entertain this petition notwithstanding the finality of the
judgment because fault here lies with the CA for its unjustified
denial of the first Motion for Reconsideration filed by Atty.
Muñoz, and for its refusal to resolve the still pending second
Motion for Reconsideration in CA-G.R. CV No. 100188. It was
plain error for the appellate court to have treated the first Motion
for Reconsideration as a sham pleading for allegedly not having
been filed by the counsel of record.
The September 14, 2015 Resolution of the appellate court is
premised on the alleged failed substitution of counsel. Premised
on the immediate assumption that Atty. Munoz was intended as
a replacement for Atty. Sanchez-Malit, the CA concluded that
non-observance of Sec. 26, Rule 138 of the Rules of Court
rendered Atty. Muñoz's filing of the first Motion for
Reconsideration to be wanting of authority.
The theory of the CA is flawed.
Apropos herein is the Court's teaching in Land Bank of the Phils.
v. Pamintuan Dev. Co.,47 to wit:
[A] substitution cannot be presumed from the mere filing of
a notice of appearance of a new lawyer and that the
representation of the first counsel of record continuous until a
formal notice to change counsel is filed with the court. Thus,
absent a formal notice of substitution, all lawyers who appeared
before the court or filed pleadings in behalf of the client are
considered counsels of the latter. All acts performed by them are
deemed to be with the clients' consent. (Emphasis supplied)
Applying the afore-quoted doctrine, it is imperative that the
intention of the petitioners to replace their original counsel, Atty.
Sanchez-Malit, be evidently clear before substitution of counsel
can be presumed. The records readily evince, however, that
herein petitioners did not manifest even the slightest of such
intention. No inference of an intent to replace could be drawn
from the tenor of either the first Motion for Reconsideration or in
Atty. Munoz's Entry of Appearance.
To dispel any lingering doubt as to the true purpose of Atty.
Munoz's entry, worthy of note is that he indicated in his Entry of
Appearance that his office address is "Sanchez-Malit Building"
in Dinalupihan, Bataan.48 More, both counsels signed the
present petition for review on certiorari, indicating only one
address, the very same building of Atty. Sanchez-Malit, for
where court processes shall be served. Indubitably, the Entry of
Appearance by the new lawyer, Atty. Muñoz, ought then be
construed as a collaboration of counsels, rather than a
substitution of the prior representation. Consequently, the CA
should have entertained and resolved the Motions for
Reconsideration filed by petitioners through Atty. Munoz, despite
Atty. Sanchez-Malit's non-withdrawal from the case.
Verily, it was wrong for the CA to have denied outright
petitioners' first Motion for Reconsideration, and to have directed
the post-haste issuance of the Entry of Judgment. These
haphazard actions resulted in the deprivation of petitioners of a
guaranteed remedy under the rules. But more than the need to
rectify the CA's procedural miscalculation, the liberal application
of the rules is justified under the circumstances in order to
obviate the frustration of substantive justice.
Respondents' action is already
barred by prescription
The May 28, 2003 Order of the RTC denying petitioners' motion
to dismiss on the ground of prescription cannot be sustained. To
recall, the RTC held that as co-owners of the subject property, a
trust relation was established between the parties when
petitioners fraudulently obtained title over the same.49 An action
anchored on this relation of trust is imprescriptible, or so the RTC
ruled.
We find this ruling of the RTC not in accord with law and
jurisprudence.
Under the Torrens System as enshrined in P.D. No. 1529,50 the
decree of registration and the certificate of title issued become
incontrovertible upon the expiration of one (1) year from the date
of entry of the decree of registration, without prejudice to an
action for damages against the applicant or any person
responsible for the fraud.51 However, actions for reconveyance
based on implied trusts may be allowed beyond the one-year
period. As elucidated in Walstrom v. Mapa, Jr.:52
[N]otwithstanding the irrevocability of the Torrens title already
issued in the name of another person, he can still be compelled
under the law to reconvey the subject property to the rightful
owner. The property registered is deemed to be held in trust for
the real owner by the person in whose name it is registered. After
all, the Torrens system was not designed to shield and protect
one who had committed fraud or misrepresentation and thus
holds title in bad faith.
In an action for reconveyance, the decree of registration is
respected as incontrovertible. What is sought instead is the
transfer of the property, in this case the title thereof, which has
been wrongfully or erroneously registered in another person's
name, to its rightful and legal owner, or to one with a better right.
This is what reconveyance is all about. Yet, the right to seek
reconveyance based on an implied or constructive trust is
not absolute nor is it imprescriptible. An action for
reconveyance based on an implied or constructive trust must
perforce prescribe in ten years from the issuance of the Torrens
title over the property. (Emphasis supplied)
Thus, an action for reconveyance of a parcel of land based on
implied or constructive trust prescribes in ten (10) years, the
point of reference being the date of registration of the deed or
the date of the issuance of the certificate of title over the
property.53
By way of additional exception, the Court, in a catena of cases, 54
has permitted the filing of an action for reconveyance despite the
lapse of more than ten (10) years from the issuance of title. The
common denominator of these cases is that the plaintiffs therein
were in actual possession of the disputed land, converting the
action from reconveyance of property into one for quieting of title.
Imprescriptibility is accorded to cases for quieting of title since
the plaintiff has the right to wait until his possession is disturbed
or his title is questioned before initiating an action to vindicate
his right.55
A perusal of respondents' Complaint,56 though, reveals that the
allegations contained therein do not include possession of the
contested property as an ultimate fact. As such, the present case
could only be one for reconveyance of property, not for quieting
of title. Accordingly, respondents should have commenced the
action within ten (10) years reckoned from May 21, 1980, the
date of issuance of TCT No. 162403-R, instead of on September
17, 2000 or more than twenty (20) years thereafter.
The Extrajudicial Settlement is a
private document that is binding on
the respondents
The appellate court did not err in ruling that the Extrajudicial
Settlement was not properly notarized given the absence of
Flaviana's residence certificate number. As it appears, no
identification was ever presented by Flaviana when the
document was notarized. Be that as it may, the irregularity in the
notarization is not fatal to the validity of the Extrajudicial
Settlement. For even the absence of such formality would not
necessarily invalidate the transaction embodied in the document
- the defect merely renders the written contract a private
instrument rather than a public one.
While Art. 1358 of the New Civil Code seemingly requires that
contracts transmitting or extinguishing real rights over
immovable property should be in a public document,57 hornbook
doctrine is that the embodiment of certain contracts in a public
instrument is only for convenience.58 It is established in
jurisprudence that non-observance of the prescribed formalities
does not necessarily excuse the contracting parties from
complying with their respective obligations under their covenant,
and merely grants them the right to compel each other to
execute the proper deed.59 A contract of sale has the force of
law between the contracting parties and they are expected to
abide, in good faith, by their respective contractual
commitments60 notwithstanding their failure to comply with Art.
1358.
As similarly observed by the appellate court, the Extrajudicial
Settlement is not a nullity, but a valid document, albeit a private
one. The CA never declared the document as void, but only that
it cannot be considered as binding on third parties. It added,
however, that respondents fall within the category of "third
persons" against whom the stipulations in the private document
can never be invoked.61 On this point, we digress.
The principle of relativity of contracts dictates that contractual
agreements can only bind the parties who entered into them, and
cannot favor or prejudice third persons, even if he is aware of
such contract and has acted with knowledge thereof.62 The
doctrine finds statutory basis under Art. 1311 of the New Civil
Code, which provides:
Article 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. xxx
(Emphasis supplied)
The law is categorical in declaring that as a general rule, the
heirs of the contracting parties are precluded from denying the
binding effect of the valid agreement entered into by their
predecessors-in-interest. This is so because they are not
deemed "third persons" to the contract within the contemplation
of law. Additionally, neither the provision nor the doctrine makes
a distinction on whether the contract adverted to is oral or
written, and, even more so, whether it is embodied in a public or
private instrument. It is then immaterial that the Extrajudicial
Settlement executed by Flaviana was not properly notarized for
the said document to be binding on her heirs, herein
respondents.
Reliance by the trial court on the so-called "damning rebuttal
evidence" is misplaced and cannot be countenanced. Said
evidence contradicts the very allegations in their Complaint. It
effectively modifies the respondents' theory of the case and
transforms the action so as to include a collateral attack on the
deed of conveyance. It cannot escape the attention of the court
that despite alleging in their Complaint and in their initial
presentation of evidence that there was no document of
conveyance that justifies the issuance of TCT No. 162403-R,
respondents made a complete turnabout and virtually admitted
the existence of the Extrajudicial Settlement on rebuttal, but Contrary to the CA's ruling, petitioners complied with the
nevertheless argued against its validity. foregoing authentication requirements. Pertinent hereto is
petitioner Leodegaria's testimony on January 13, 2009:67
To review, Thiogenes, son of respondent Perla Manalansan,
testified that on November 7, 1979, Juan, Luisito, and Atty. Malit: So what is the document they
Leodegaria forcibly took Flaviana and coerced the latter to executed?
execute the sale in favor of petitioners. If this version of the facts Witness: Then they executed a deed of sale, after
were to be believed, this could only mean: (a) that the that the lawyer took over the required
Extrajudicial Settlement existed, (b) that Flaviana's heirs knew documents to this effect like this
of its existence; and (c) that Flaviana's consent was vitiated extrajudicial settlement, that is one, and
through force and intimidation. Noteworthy, too, is that Agustin two, that is to pay all the taxes for more
Manalansan, one of the respondents in this case, even signed than fifty (50) years, Ma'am. After that
the deed as an instrumental witness to the execution of the deed. the deed of sale then the extra-judicial
Yet, he did not testify to disavow the signature appearing above settlement and after the [extra judicial]
his name in the Extrajudicial Settlement. settlement they signed in front of the
lawyer and after that publication in a
The above circumstances render the Extrajudicial Settlement
voidable, not void.63 Under the law, a voidable contract retains newspaper of general circulation.
the binding effect of a valid one unless otherwise annulled.64 And Atty. Malit : Now you mentioned that a document
as prescribed, the action for annulment shall be brought within entitled extrajudicial settlement, if that
four (4) years, in cases of intimidation, violence or undue copy will be shown to you, would you be
influence, from the time the defect of the consent ceases. 65 able to identify it?
Unfortunately for respondents, the prescriptive period for Witness: Yes Ma'am
annulment had long since expired before they filed their
Complaint. They cannot be permitted to circumvent the law by Atty. Malit : I am showing to you a document entitled
belatedly attacking, collaterally and as an afterthought at that, extrajudicial settlement of the estate of
the validity of the erstwhile voidable instrument in the present deceased spouses Meliton Sanchez
action for declaration of nullity of title. and Casimira Baluyot, will you please
go over this document.
The validity of the Extrajudicial Settlement cannot then be Which consists of two (2) pages and tell us if this is the
gainsaid. Ratified by their inaction, the document of conveyance, one executed by Juan, Flaviana, and
as well as the consequences of its registration, would then bind Apolonia?
the respondents. This still holds true notwithstanding the glaring
irregularities in the Petition for Approval. Obvious to the eye and Witness: Yes Ma'am
intellect as the errors may be, they are of no moment since the Atty. Malit : Above the names of Juan, Flaviana and
Extrajudicial Settlement, a private writing and unpublished as it Apolonio (sic) are signatures, do you
were, nevertheless remains to be binding upon any person who know whose signatures are these?
participated thereon or had notice thereof.66
Witness: These are the signatures of Juan,
Petitioners complied with the rules Flaviana and Apolonio, Ma'am.
on authentication of private Atty. Malit : Why do you know that these are the
documents signatures of Juan, Flaviana, and
Apolonio?
Likewise, the CA erroneously ruled that the Extrajudicial
Settlement is bereft of probative value because of petitioners' Witness: Because I was present with my
lawyer, Ma'am.
alleged failure to comply with the rules on the admissibility of
evidence set forth under Rule 132, Sec. 20 of the Rules of Court, Atty. Malit : On the second page of the document
viz: you are holding [two] (2) witnesses
whose signatures appear on said
Section 20. Proof of private document.—Before any private document can you recall whose
document offered as authentic is received in evidence, its due signatures are these?
execution and authenticity must be proved either:
Witness: The signatures of Lucita Jardinas and
(a) By anyone who saw the document executed or written; Agustin Manalansan, Ma'am.
or
Atty. Malit : Who is this Lucita Jalandoni?
(b) By evidence of the genuineness of the signature or Witness: Lucita is the witness from the office of
handwriting of the maker. Atty. Malit, Ma'am.
Atty. Malit : How about the other signature, Agustin
Any other private document need only be identified as that which
it is claimed to be Manalansan?
 Witness: Agustin Manalansan is the son of
Flaviana Sanchez, Ma'am.
Atty. Malit : Is he the same person who is one of the
plaintiffs in this case?
Witness: Yes, sir (sic). (Emphasis supplied)
As can be gleaned from the transcripts, the contents of petitioner
Leodegaria's testimony satisfy the rules pertaining to the
admissibility of documentary evidence. Her claim that she was
present at the time the Extrajudicial Settlement was executed is
competent proof of the said document's authenticity and due
execution. To be sure, neither the RTC nor the CA held that the
credibility of petitioner Leodegaria was impeached; the adverse
findings against her and her husband were predicated mainly on
the erroneous perception that her evidence-in-chief is
inadmissible.
Irregularities in the issuance of TCT
No. 162403-R would not necessarily
invalidate the same
Proceeding now to the issue on whether or not the nullification
of TCT No. 162403-R is warranted, it must be borne in mind that
the assailed document of title, as a government issuance, enjoys
the presumption of regularity.68 It was then incumbent upon the
respondents to prove, by preponderant evidence, that the
issuance of TCT No. 162403-R on May 21, 1980 was attended
by fraud as they claim.
Respondents endeavored to overcome the burden of evidence
in proving their allegation of fraud by presenting as witness
Myrna Guinto, an employee of the RD of Pampanga, who
testified that the original copy of OCT No. 207, the parent title of
TCT No. 162403-R, is not in their custody as it is missing in their
vault, and that the owner's duplicate certificate in its stead does
not bear any annotation of cancelation or encumbrance.
We are inclined, however, to give more credence to the
explanation given by the Registrar of Deeds, Lorna Salangsang-
Dee, that the presence of the owner's duplicate certificate in their
vault signifies that there was most likely a transaction registered
with the office concerning the same. Indeed, there could not be
any other plausible reason except that it was as a result of the
transaction that owner's duplicate certificate was surrendered to
the RD.
In any event, even if we were to assume for the sake of argument
that the issuance of TCT No. 162403-R was marred by
irregularities, this would not necessarily impair petitioners' right
of ownership over the subject lot. As held in Rabaja Ranch
Development Corporation v. AFP Retirement and Separation
Benefits System:69
x x x justice and equity demand that the titleholder should not
be made to bear the unfavorable effect of the mistake or
negligence of the State's agents, in the absence of proof of
his complicity in a fraud or of manifest damage to third
persons. The real purpose of the Torrens system is to quiet title
to land and put a stop forever to any question as to the legality
of the title, except claims that were noted in the certificate at the
time of the registration or that may arise subsequent thereto. 2. Dismissing the Complaint for Declaration of Nullity of
Otherwise, the integrity of the Torrens system shall forever be Title and Real Estate Mortgage for lack of merit.
sullied by the ineptitude and inefficiency of land registration
officials, who are ordinarily presumed to have regularly SO ORDERED.
performed their duties. (Emphasis supplied) Velasco, Jr., (Chairperson), Reyes and Jardeleza, JJ., concur.
Respondents, in the instant case, miserably failed to prove that Peralta, J., see dissenting opinion.
petitioners were parties to the perceived fraud. Basic are the
Endnotes:
tenets that he who alleges must prove, and that mere allegation
is not evidence and is not equivalent to proof. Here, the 1
Rollo, pp. 11-28; penned by Associate Justice Maria Elisa
allegations relating to petitioners' participation to the fraud were Sempio Diy and concurred in by Associate Justices Ramon M.
nothing more than general averments that were never fleshed
Bato, Jr. and Manuel M. Barrios.
out to more specific fraudulent acts, let alone substantiated by 2
Id. at 40-43.
the evidence on record. 3
Entitled "Heirs of Meliton Sanchez, namely: Apolonia Sanchez,
To clarify, what was only established was that there were lapses Iluminada Sanchez, Ma. Luz Sanchez, Agustin S. Manalansan,
in the observance of the standard operating procedure of the RD Perla S. Manalansan, Ester Manalansan, Godofredo S.
in its issuance of titles, based on the loss of the original title and Manalansan, Israelita S. Manalansan, Eloy S. Manalansan,
the absence of an annotation of cancellation even on the Gertrudes S. Manalansan, Represented by Teresita Sanchez-
duplicate owner's original. The performance or non-performance Manalansan, Attorney-in-fact v. Spouses Luisito Pontigon and
of these acts, however, cannot be attributed to herein petitioners, Leodegaria Sanchez Pontigon."
4
as registrants, for these are within the ambit of the duties and Rollo, p, 12.
5
ld. at 139-145.
responsibilities of the officers of the RD.70 All the registrant was 6
required to do was to surrender the duplicate owner's original,71 Id. at 13.
7
Id. at 13-14.
which petitioners accomplished in the case at bar. 8
Id. at 14.
Worth recalling, too, is that contrary to respondents' claim, there 9
Id. at 143.
was a valid document of conveyance that could justify the 10
Id. at 163
issuance of TCT No. 162403-R in petitioners' favor. In view of 11
Id. at 164.
12
the validity of the Extrajudicial Settlement, the Court hesitates to Id. at 146-150.
13
conclude that the challenged TCT was fraudulently issued. At Id. at 163-164.
14
most, there appears to be, in this case, lapses in the standard Id. at 165-166.
15
operating procedure of the RD, which do not and could not Id. at 170-171
16
automatically impair petitioners' ownership rights and title, but Id. at 171-172.
17
merely expose the negligent officers to possible liability. Id. at 172-173.
18
Id. at 175-177.
Succinctly, we conclude from the foregoing disquisitions that: 19
Id. at 177-178.
respondents' action has already prescribed; the Extrajudicial 20
Id. at 18.
Settlement, though a private instrument, is nevertheless valid 21
Id. at 160-188; penned by Presiding Judge Jesusa Mylene C.
and binding on the heirs of the contracting parties; the Suba-Isip.
Extrajudicial Settlement is admissible in evidence; and absent 22
Id. at 187-188.
proof of complicity in the alleged fraud that attended the 23
Id. at 181-182.
issuance of TCT No. 162403-R, petitioners' rights under the said 24
Id. at 180-181.
document of title cannot be impaired. These corrections in 25
Id. at 182.
judgment, to our mind, are considerations that severely outweigh 26
Id. at 182-183.
and excuse petitioners' procedural transgressions. 27
Id. at 189-200.
28
Id. at 201-202
WHEREFORE, premises considered, the instant petition is 29
hereby GRANTED. The Entry of Judgment September 14, 2015 Id. at 27-28.
30
RULE 50
in CA-G.R. CV No. 100188 is hereby LIFTED. The March 26,
2015 Decision and September 14, 2015 Resolution of the Court Dismissal of Appeal
Section l. Grounds for dismissal of appeal. - An appeal
of Appeals in CA-G.R. CV No. 100188, as well as the Decision
dated June 28, 2012 and the Order dated December 14, 2012 in may be dismissed by the Court of Appeals, on its own motion or
Civil Case No. G-06-3792 before the Regional Trial Court, on that of the appellee, on the following grounds:
Branch 49 of Guagua, Pampanga, are hereby REVERSED and xxx
SET ASIDE. Let a new judgment be issued: (f) Absence of specific assignment of errors in the
appellant's brief, or of page references to the record as required
1. Upholding the validity of Transfer Certificate of Title in section 13, paragraphs (a), (c), (d) and (f) of Rule 44;
No. 162403- R registered in the name of petitioners xxx
Luisito and Leodegaria Pontigon; and RULE 44
Ordinary Appealed Cases rights may be prejudiced. Whenever the phrase "innocent and register a deed of conveyance in a form sufficient in law.
xxx purchaser for value" or an equivalent phrase occurs in this The Register of Deeds shall thereafter make out in the
Section 13. Contents of appellant's brief. — The Decree, it shall be deemed to include an innocent lessee, registration book a new certificate of title to the grantee and shall
appellant's brief shall contain, in the order herein indicated, the mortgagee, or other encumbrancer for value. prepare and deliver to him an owner's duplicate certificate. The
following: Upon the expiration of said period of one year, the decree of Register of Deeds shall note upon the original and duplicate
(a) A subject index of the matter in the brief with a registration and the certificate of title issued shall become certificate the date of transfer, the volume and page of the
digest of the arguments and page references, and a table of incontrovertible. Any person aggrieved by such decree of registration book in which the new certificate is registered and a
cases alphabetically arranged, textbooks and statutes cited with registration in any case may pursue his remedy by action for reference by number to the last preceding certificate. The
references to the pages where they are cited; xxx damages against the applicant or any other persons responsible original and the owner's duplicate of the grantor's certificate shall
31
Rollo, p. 21. for the fraud. be stamped "cancelled." The deed of conveyance shall be filled
32 52
Id. at 23. 260 Phil. 456, 468-469 (1990). and indorsed wit the number and the place of registration of the
33 53
Id. at 24. 242 Phil. 709, 715 (1988.) certificate of title of the land conveyed.
34 54 71
Id. at 25. 376 Phil. 825 (1999), 166 Phil. 429 (1977). Id.
35 55
Id. at 26. 452 Phil. 178, 206 (2003). chanrobleslaw
36 56
Id. at 109-120. Rollo, pp. 139-145.
37 57
Id. at 121. Article 1358. The following must appear in a public document:
38
Id. at 123-126. (1) Acts and contracts which have for their object the DISSENTING OPINION
39
Id. at 127. creation, transmission, modification or extinguishment of real PERALTA, J.:
41
Section 26. Change of attorneys. -An attorney may retire at rights over immovable property; sales of real property or of an
any time from any action or special proceeding, by the written interest therein as governed by Articles 1403, No.2, and 1405; With all due respect to my esteemed colleagues, I register my
consent of his client filed in court. He may also retire at any time Article 1403. The following contracts are dissent from the majority decision on the following grounds:
from an action or special proceeding, without the consent of his unenforceable, unless they are ratified:
client, should the court, on notice to the client and attorney, and xxx First, both the RTC and the CA found that the execution and
on hearing, determine that he ought to be allowed to retire. In (2) Those that do not comply with the Statute of Frauds as set approval of the Extrajudicial Settlement with Sale and the
case of substitution, the name of the attorney newly employed forth in this number. In the following cases, an agreement subsequent transfer of title of the subject property to petitioners
shall be entered on the docket of the court in place of the former hereafter made shall be unenforceable by action, unless the were tainted with irregularities, among which are the following:
one, and written notice of the change shall be given to the same, or some note or memorandum, thereof, be in writing, and 1. Despite the loss of the original copy of the Original Certificate
adverse party. subscribed by the party charged, or by his agent; evidence, of Title (OCT) in the custody of the Registrar of Deeds (RD) for
42
G.R. No. L-19436, November 29, 1963, 9 SCRA 589, 592-593. therefore, of the agreement cannot be received without the Pampanga, the latter still issued a TCT in the name of petitioners
43
Id. at 592; rollo, p. 125. writing, or a secondary evidence of its contents: merely on the basis of the owner's duplicate copy of the OCT
44
Id.; id. xxxx which does not contain any annotation of cancellation;
45
Rollo, pp. 128-132. (e) An agreement of the leasing for a longer period than one
46 2. The TCT in petitioner's name was issued based only on the
Magsino v. De Ocampo, GR. No. 166944, August 18, 2014, year, or for the sale of real property or of an interest therein;
733 SCRA 202, 220. xxx Extrajudicial Settlement with Sale, which is a private document;
47 58
G.R. No. 167886, October 25, 2005; citing Sublay v. National 700 Phil. 191, 203 (2012).
59 3. The Petition for Approval of the Extrajudicial Settlement with
Labor Relations Commission, 381 Phil. 198. Article 1357. If the law requires a document or other special
48
Rollo, p. 121. form, as in the acts and contracts enumerated in the following Sale, dated November 9, 1979 was prepared earlier than the
49
Article 1456. If property is acquired through mistake or fraud, article, the contracting parties may compel each other to observe Extra Judicial Settlement sought to be approved, which was
the person obtaining it is, by force of law, considered a trustee that form, once the contract has been perfected. This right may dated November 10, 1979;
of an implied trust for the benefit of the person from whom the be exercised simultaneously with the action upon the contract. 4. Copies of the Petition for Approval of the Extrajudicial
60
property comes. Article 1159. Obligations arising from contracts have the force Settlement with Sale as well as the Ce1iification which attests to
50
AMENDING AND CODIFYING THE LAWS RELATIVE TO of law between the contracting parties and should be complied the existence of a CFI Decision which supposedly granted the
REGISTRATION OF PROPERTY AND FOR OTHER with in good faith. said Petition were mere photocopies;
61
PURPOSES Rollo, p. 23.
51
Section 32. Review of decree of registration; Innocent 62
727 Phil. 473, 480 (2014). 5. The alleged Order issued by the CFI which set the hearing for
purchaser for value. The decree of registration shall not be 63
Article 1330. A contract where consent is given through and publication of the Petition for Approval of the Extrajudicial
reopened or revised by reason of absence, minority, or other mistake, violence, intimidation, undue influence, or fraud is Settlement with Sale was not signed by the Presiding Judge.
disability of any person adversely affected thereby, nor by any voidable.
64 The Court has repeatedly held that it is not necessitated to
proceeding in any court for reversing judgments, subject, Art. 1390, New Civil Code.
65 examine, evaluate or weigh the evidence considered in the lower
however, to the right of any person, including the government Art. 1391, New Civil Code.
66 courts all over again.1 This is especially true where the trial
and the branches thereof, deprived of land or of any estate or RULES OF COURT, Rule 74, Sec. 1.
67 court's factual findings are adopted and affirmed by the CA as in
interest therein by such adjudication or confirmation of title Rollo, pp. 78-80; Petition for Cetiorari, pp. 17-19, citing TSN of
the present case.2 Factual findings of the trial court, affirmed by
obtained by actual fraud, to file in the proper Court of First January 13, 2009, pp. 8-12.
68 the CA, are final and conclusive and may not be reviewed on
Instance a petition for reopening and review of the decree of RULES OF COURT, Rule 131, Sec. 3(m).
69 appeal.3 Based on these irregularities, the RTC and the CA are
registration not later than one year from and after the date of the 609 Phil. 660, 676-677 (2009).
70 justified in concluding that the subject Extrajudicial Settlement
entry of such decree of registration, but in no case shall such Sec. 57. Of P.D. 1529 provides:
with Sale could not have validly conveyed title to petitioners and
petition be entertained by the court where an innocent purchaser Sec. 57. Procedure in registration of conveyances. An owner
that the TCT which was issued in their favor is null and void.
for value has acquired the land or an interest therein, whose desiring to convey his registered land in fee simple shall execute
Indeed, the irregularities attendant in the present case do not
indicate a mere lapse on the part of the RD in the issuance of
the disputed TCT.
Considering that the owner's duplicate copy of the OCT in the
custody of the RD does not contain any annotation of its
cancellation, it is a grievous error on the part of the RD to
consider such duplicate copy as basis in cancelling the OCT and
issuing a new TCT in petitioners' favor.
In the first place, there is no OCT to cancel as the original copy
which is in the custody of the RD has been destroyed. Thus, the
proper procedure that should have been followed was to
reconstitute first the lost or destroyed OCT, in accordance with
Section 1104 of PD 1529. The reconstitution of a certificate of
title denotes restoration in the original form and condition of a
lost or destroyed instrument attesting the title of a person to a
piece of land.5 The purpose of the reconstitution of title is to
have, after observing the procedures prescribed by law, the title
reproduced in exactly the same way it has been when the loss
or destruction occurred.6 The lost or destroyed document
referred to is the one that is in the custody of the Register of
Deeds. When reconstitution is ordered, this document is
replaced with a new one that basically reproduces the original. 7
After the reconstitution, the owner is issued a duplicate copy of
the reconstituted title.8 It is from this reconstituted title that a new
TCT may be derived. Thus, it is error on the part of the RD to
have issued the disputed TCT in favor of petitioners in the
absence of a duly reconstituted OCT.
The irregularity in the issuance of the contested TCT is also
highlighted by the fact that the supposed Order which set the
hearing for and publication of the Petition for Approval of the
Extrajudicial Settlement with Sale was not signed by the
Presiding Judge. In addition, copies of the Petition for Approval
of the Extrajudicial Settlement with Sale, as well as the
Certification which attests to the existence of a CFI Decision
which supposedly granted the said Petition, were mere
photocopies. In this regard, the CA was correct in ruling that
mere photocopies of documents, being secondary evidence, are
inadmissible as evidence unless it is shown that their originals
are unavailable.
The ponencia also holds that respondents' action is already
barred by prescription by restating the rule that an action for
reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten (10) years reckoned from the
date of registration or the date of the issuance of the certificate
of title over the property; that, as an added exception, this Court
has permitted the filing of an action for reconveyance even
beyond the 10- year period in cases where the plaintiffs therein
were in actual possession of the disputed land, thereby
converting the action from reconveyance of property into one for
quieting of title. Applying the above rule to the present case, the
ponencia holds that since respondents' complaint did not allege
their possession of the contested property as an ultimate fact, it
follows that the case could only be one for reconveyance of
property, not for quieting of title. Thus, respondents should have
commenced their action within ten (10) years from May 21, 1980,
the date of the issuance of the Transfer Certificate of Title (TCT)
in petitioners' favor. However, since respondents only filed their
Complaint on September 17, 2000, or more than twenty (20)
years thereafter, their action has already prescribed.
I beg to disagree.
Whether an action for reconveyance prescribes or not is
determined by the nature of the action, that is, whether it is
founded on a claim of the existence of an implied or constructive
trust, or one based on the existence of a void or inexistent
contract.9 It is true that an action for reconveyance based on an
implied trust ordinarily prescribes in ten (10) years, subject to the
exception mentioned above. However, in actions for
reconveyance of the property predicated on the fact that the
conveyance complained of was null and void ab initio, a claim of
prescription of action would be unavailing.10 The action or
defense for the declaration of the inexistence of a contract does
not prescribe.11 In the instant case, the action filed by
respondents is essentially an action for reconveyance based on
their allegation that the title over the subject property was
transferred in petitioners' name without any valid document of
conveyance. Since respondents' complaint was based on the
allegation of the inexistence of a valid contract, which would
have lawfully transferred ownership of the subject property in
petitioners' favor, such complaint is, therefore, imprescriptible.
Lastly, the ponencia rules that the Extrajudicial Settlement with
Sale was not properly notarized; thus, rendering the written
contract a private instrument which, nonetheless, binds
respondents. This notwithstanding, it is my considered opinion
that the above document, being a private instrument, is not a
sufficient basis to convey title over the disputed property in favor
of petitioners. In this regard, the case of Gallardo v. Intermediate
Appellate Court12 is instructive, to wit:
xxxx
Petitioners claim that the sale although not in a public document,
is nevertheless valid and binding citing this Court's rulings in the
cases of Cauto v. Cortes, 8 Phil. 459, 460; Guerrero v. Miguel,
10 Phil. 52, 53; Bucton v. Gabar 55 SCRA 499 wherein this Court
ruled that even a verbal contract of sale of real estate produces
legal effects between the parties.
The contention is unmeritorious.
As the respondent court aptly stated in its decision:
True, as argued by appellants, a private conveyance of
registered property is valid as between the parties. However, the
only right the vendee of registered property in a private
document is to compel through court processes the vendor to
execute a deed of conveyance sufficient in law for purposes of
registration. Plaintiffs-appellants' reliance on Article 1356 of the
Civil Code is unfortunate. The general rule enunciated in said
Art. 1356 is that contracts are obligatory, in whatever form they
may have been entered, provided all the essential requisites for
their validity are present. The next sentence provides the
exception, requiring a contract to be in some form when the law
so requires for validity or enforceability. Said law is Section 127
of Act 496 which requires, among other things, that the
conveyance be executed "before the judge of a court of record
or clerk of a court of record or a notary public or a justice of the
peace, who shall certify such acknowledgment substantially in
form next hereinafter stated."
Such law was violated in this case. The action of the Register of
Deeds of Laguna in allowing the registration of the private deed
of sale was unauthorized and did not lend a bit of validity to the
defective private document of sale.
With reference to the special law, Section 127 of the Land
Registration Act, Act 496 (now Sec. 112 of P.D. No. 1529)
provides:
Sec. 127. Deeds of Conveyance, ... affecting lands, whether
registered under this act or unregistered shall be sufficient in law
when made substantially in accordance with the following forms,
and shall be as effective to convey, encumber, ... or bind the
lands as though made in accordance with the more prolix forms
heretofore in use: Provided, That every such instrument shall be
signed by the person or persons executing the same, in the
presence of two witnesses, who shall sign the instrument as
witnesses to the execution thereof, and shall be acknowledged
to be his or their free act and deed by the person or persons
executing the same, before the judge of a court of record or clerk
of a court of record, or a notary public, or a justice of the peace,
who shall certify to such acknowledgement substantially in the
form next hereinafter stated. (Emphasis supplied).
It is therefore evident that Exhibit "E" in the case at bar is
definitely not registerable under the Land Registration Act.
Likewise noteworthy is the case of Pornellosa and Angels v.
Land Tenure Administration and Guzman, 110 Phil. 986, where
the Court ruled:
The deed of sale (Exhibit A), allegedly executed by Vicente San
Jose in favor of Pornellosa is a mere private document and does
not conclusively establish their right to the parcel of land. While
it is valid and binding upon the parties with respect to the sale of
the house erected thereon, yet it is not sufficient to convey title
or any right to the residential lot in litigation. Acts and contracts
which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable
property must appear in a public document.
xxx
Thus, Section 57 of Presidential Decree 152913 (PD 1529)
provides:
Section 57. Procedure in registration of conveyances. An
owner desiring to convey his registered land in fee simple
shall execute and register a deed of conveyance in a form
sufficient in law. The Register of Deeds shall thereafter make
out in the registration book a new certificate of title to the grantee
and shall prepare and deliver to him an owner's duplicate
certificate. The Register of Deeds shall note upon the original
and duplicate certificate the date of transfer, the volume and
page of the registration book in which the new certificate is
registered and a reference by number to the last preceding
certificate. The original and the owner's duplicate of the grantor's encumbrances affecting the lands covered by such titles shall be
certificate shall be stamped "canceled". The deed of conveyance reconstituted judicially in accordance with the procedure
shall be filled and indorsed with the number and the place of prescribed in Republic Act No. 26 insofar as not inconsistent with
registration of the certificate of title of the land conveyed. 14 this Decree. The procedure relative to administrative
reconstitution of lost or destroyed certificate prescribed in said
In relation to the above provision, Section 112 of the same Act is hereby abrogated.
Decree provides for the "Forms Used in Land Registration and Notice of all hearings of the petition for judicial reconstitution
Conveyancing," to wit: shall be given to the Register or Deeds of the place where the
Section 112. Forms in conveyancing. The Commissioner of land is situated and to the Commissioner of Land Registration.
Land Registration shall prepare convenient blank forms as may No order or judgment ordering the reconstitution of a certificate
be necessary to help facilitate the proceedings in land of title shall become final until the lapse of thirty days from receipt
registration and shall take charge of the printing of land title by the Register of Deeds and by the Commissioner of Land
forms. Registration of a notice of such order or judgment without any
appeal having been filed by any of such officials.
5
Deeds, conveyances, encumbrances, discharges, powers Republic of the Philippines v. Vergel De Dios, et al., 657 Phil.
of attorney and other voluntary instruments, whether 423, 429 (2011).
6
affecting registered or unregistered land, executed in Id.
7
accordance with law in the form of public instruments shall Id.
8
be registrable: Provided, that, every such instrument shall Id.
9
be signed by the person or persons executing the same in Aniceto Uy v. Court of Appeals, Mindanao Station, Cagayan de
the presence of at least two witnesses who shall likewise Oro City, et al., GR. No. 173186 September 16, 2015.
sign thereon, and shall acknowledged to be the free act and 10
Heirs of Dumaliang v. Serban, 545 Phil. 243, 257 (2007), citing
deed of the person or persons executing the same before a Heirs of Ingjug-Tiro v. Casals, 415 Phil. 665, 673 (2001).
11
notary public or other public officer authorized by law to Id.
take acknowledgment. Where the instrument so acknowledged 12
239 Phil. 243, 253-254 (1987).
13
consists of two or more pages including the page whereon Property Registration Decree.
14
acknowledgment is written, each page of the copy which is to be Emphasis supplied.
15
registered in the office of the Register of Deeds, or if registration Emphasis supplied.
is not contemplated, each page of the copy to be kept by the
notary public, except the page where the signatures already
appear at the foot of the instrument, shall be signed on the left
margin thereof by the person or persons executing the
instrument and their witnesses, and all the ages sealed with the
notarial seal, and this fact as well as the number of pages shall
be stated in the acknowledgment. Where the instrument
acknowledged relates to a sale, transfer, mortgage or
encumbrance of two or more parcels of land, the number thereof
shall likewise be set forth in said acknowledgment.15
Based on the above discussions and provision of law, it is clear
that the subject Extrajudicial Settlement with Sale may not be
used as a valid basis for the issuance of the questioned TCT in
the name of petitioners.
Accordingly, I vote to DENY the petition and AFFIRM the
Decision dated March 26, 2015 and Resolution dated
September 14, 2015 of the Court of Appeals in CA-G.R. CV No.
100188.
Endnotes:

1
Timoteo and Diosdada Bacalso v. Gregoria B. Aca-ac, et al.,
G.R. No. 172919, January 13, 2016.
2
Id.
3
Id.
4
Section 110. Reconstitution of lost or destroyed original of
Torrens title. Original copies of certificates of title lost or
destroyed in the offices of Register of Deeds as well as liens and

SECOND DIVISION
[G.R. No. L-8060. September 28, 1955.]
PAULINO GARCIA, Plaintiff-Appellant, v. MARIA BISAYA,
ET AL., Defendants-Appellees.
Francisco P. Madlangbayan for Appellant.
Augusto L. Valencia for Appellees.
SYLLABUS
1. CONTRACTS; REFORMATION OF INSTRUMENT;
PRESCRIPTION. — An action to correct an alleged mistake in
a deed of sale covering a piece of land, prescribes in ten years
counted from the day it could have been instituted. There being
nothing in the pleadings to show that the error was discovered
more than ten years before the present action was filed the
action should not have been dismissed as having already
prescribed before the factual basis for prescription had been
established and clarified by evidence.
2. PLEADING AND PRACTICE; REFORMATION OF
INSTRUMENT; ALLEGATION THAT INSTRUMENT DOES
NOT EXPRESS INTENTION OF PARTIES, ESSENTIAL. —
Appellant’s complaint states no cause of action, for it fails to
allege that the instrument to be reformed does not express the
real agreement or intention of the parties. Such allegation is
essential since the object sought in an action for reformation is
to make an instrument conform to be real agreement or intention
of the parties. It is not the function of the remedy to make a new
agreement, but to establish and perpetuate the true existing one.
DECISION
REYES, A., J.:
On May 20, 1952, plaintiff filed a complaint against the
defendants in the Court of First Instance of Oriental Mindoro,
alleging that on November 12, 1938, defendants executed in
favor of plaintiff a deed of sale covering a parcel of land therein
described; that the said land "was erroneously designated by the
parties in the deed of sale as an unregistered land (not
registered under Act 496, nor under the Spanish Mortgage Law)
when in truth and in fact said land is a portion of a big mass of
land registered under Original Certificate of Title No. 6579 in the
Office of the Register of Deeds of Oriental Mindoro" ; that despite
persistent demand from plaintiff to have the error corrected,
defendants have refused to do so. Plaintiff, therefore, prayed for
judgment ordering defendants to make the aforesaid correction
in the deed of sale.
Answering the complaint, defendants denied having executed But if that be the case, article 1359 of the new Civil Code
the alleged deed of sale and pleaded prescription as a defense. expressly provides that "the proper remedy is not reformation of
Traversing the plea of prescription, plaintiff alleged, among other the instrument but annulment of the contract." Appellant’s
things, that he "was without knowledge of the error sought to be complaint, however, does not ask for the annulment of the deed;
corrected at the time the deed of sale was executed and for neither does it contain allegations essential to an action for that
many years thereafter," having discovered the said error "only purpose.
recently."
In view of the foregoing, the order of dismissal must be as it is
Without trial on the merits and merely upon motion, the lower hereby affirmed, not because appellant’s action has already
court dismissed the case on the ground that plaintiff’s action had prescribed, but because his complaint states no cause of action.
already prescribed. From this order plaintiff has appealed Without pronouncement as to costs.
directly to this Court.
Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo,
Both appellant and appellees apparently regard the present Labrador, Concepcion and Reyes, J.B.L., JJ., concur.
action as one for the reformation of an instrument under Chapter
4, Title II, Book IV of the new Civil Code. Specifically, the object
sought is the correction of an alleged mistake in a deed of sale
covering a piece of land. The action being upon a written
contract, it should prescribe in ten years counted from the day it
could have been instituted. Obviously, appellant could not have
instituted his action to correct an error in a deed until that error
was discovered. There being nothing in the pleadings to show
that the error was discovered more than ten years before the
present action was filed on May 20, 1952, while, on the other
hand, there is allegation that the error was discovered "only
recently", we think the action should not have been dismissed as
having already prescribed before the factual basis for
prescription had been established and clarified by evidence.
We note, however, that appellant’s complaint states no cause of
action, for it fails to allege that the instrument to the reformed
does not express the real agreement or intention of the parties.
Such allegation is essential since the object sought in an action
for reformation is to make an instrument conform to the real
agreement or intention of the parties. (Art. 1359, new Civil Code;
23 R. C. L., par. 2.) But the complaint does not even allege what
the real agreement or intention was. How then is the court to
know that the correction sought will make the instrument
conform to what was agreed or intended by the parties? It is not
the function of the remedy of reformation to make a new
agreement, but to establish and perpetuate the true existing one.
(23 R. C. L., par. 4, p. 311.)
Moreover, courts do not reform instruments merely for the sake
of reforming them, but only to enable some party to assert right
under them as reformed. (23 R. C. L., par. 2). If the instrument
in the present case is reformed by making it state that the land
therein conveyed is already covered by a Torrens certificate of
title, what right will the appellant, as vendee, be able to assert
under the reformed instrument when according to himself — or
his counsel states in his brief — said title is in the name of
Torcuata Sandoval, obviously a person other than the vendor?
Would not the sale to him then be ineffective, considering that
he would be in the position of one who knowingly purchased
property not belonging to the vendor?
Perhaps appellant’s real grievance is that he has been led to
enter into the contract of sale through fraud or misrepresentation
on the part of the vendor or in the mistaken belief that, as stated
in the deed, the property he was buying was unregistered land.

FIRST DIVISION
G.R. No. 128991 April 12, 2000
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and
CHARITO PORMIDA, petitioners,
vs.
HONORABLE MATEO M. LEANDA, in his capacity as
Presiding Judge of RTC, Tacloban City, Branch 8, and
LEYTE GULF TRADERS, INC., respondents.
KAPUNAN, J.:
Reformation. of an instrument is that remedy in equity by means
of which a written instrument is made or construed so as to
express or conform to the real intention of the parties when some
error or mistake has been committed. 1 It is predicated on the
equitable maxim that equity treats as done that which ought to
be done. 2 The rationale of the doctrine is that it would be unjust
and unequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds
of the parties. 3 However, an action for reformation must be
brought within the period prescribed by law, otherwise, it will be
barred by the mere lapse of time. The issue in this case is
whether or not the complaint for reformation filed by respondent
Leyte Gulf Traders, Inc. has prescribed and in the negative,
whether or not it is entitled to the remedy of reformation sought.
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein
referred to as respondent corporation) filed a complaint for
reformation of instrument, specific performance, annulment of
conditional sale and damages with prayer for writ of injunction
against petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida. The case was docketed as Civil
Case No. 92-05-88 and raffled to Judge Pedro S. Espina, RTC,
Tacloban City, Branch 7. Respondent corporation alleged that it
entered into a contract of lease of a parcel of land with petitioner
Bentir for a period of twenty (20) years starting May 5, 1968.
According to respondent corporation, the lease was extended for
another four (4) years or until May 31, 1992. On May 5, 1989,
petitioner Bentir sold the leased premises to petitioner spouses
Samuel Pormada and Charito Pormada. Respondent
corporation questioned the sale alleging that it had a right of first
refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the
reformation of the expired contract of lease on the ground that
its lawyer inadvertently omitted to incorporate in the contract of
lease executed in 1968, the verbal agreement or understanding
between the parties that in the event petitioner Bentir leases or
sells the lot after the expiration of the lease, respondent
corporation has the right to equal the highest offer.
In due time, petitioners filed their answer alleging that the
inadvertence of the lawyer who prepared the lease contract is
not a ground for reformation. They further contended that
respondent corporation is guilty of laches for not bringing the
case for reformation of the lease contract within the prescriptive
period of ten (10) years from its execution.
Respondent corporation then filed its reply and on November 18,
1992, filed a motion to admit amended complaint. Said motion
was granted by the lower court. 4
Thereafter, petitioners filed a motion to dismiss reiterating that
the complaint should be dismissed on the ground of prescription.
On December 15, 1995, the trial court through Judge Pedro S.
Espina issued an order dismissing the complaint premised on its
finding that the action for reformation had already prescribed.
The order reads:
ORDER
Resolved here is the defendants' MOTION TO
DISMISS PLAINTIFF'S complaint on ground of
prescription of action.
It is claimed by plaintiff that he and defendant Bentir
entered into a contract of lease of a parcel of land on
May 5, 1968 for a period of 20 years (and renewed for
an additional 4 years thereafter) with the verbal
agreement that in case the lessor decides to sell the
property after the lease, she shall give the plaintiff the
right to equal the offers of other prospective buyers. It
was claimed that the lessor violated this tight of first
refusal of the plaintiff when she sureptitiously (sic) sold
the land to co-defendant Pormida on May 5, 1989
under a Deed of Conditional Sale. Plaintiffs right was
further violated when after discovery of the final sale,
plaintiff ordered to equal the price of co-defendant
Pormida was refused and again defendant Bentir
surreptitiously executed a final deed of sale in favor of
co-defendant Pormida in December 11, 1991.
The defendant Bentir denies that she bound herself to
give the plaintiff the right of first refusal in case she
sells the property. But assuming for the sake of
argument that such right of first refusal was made, it is
now contended that plaintiffs cause of action to reform
the contract to reflect such right of first refusal, has
already prescribed after 10 years, counted from May
5, 1988 when the contract of lease incepted. Counsel
for defendant cited Conde vs. Malaga, L-9405 July 31,
1956 and Ramos vs. Court of Appeals, 180 SCRA
635, where the Supreme Court held that the
prescriptive period for reformation of a written contract
is ten (10) years under Article 1144 of the Civil Code.
This Court sustains the position of the defendants that
this action for reformation of contract has prescribed
and hereby orders the dismissal of the case.
SO ORDERED. 5
On December 29, 1995, respondent corporation filed a motion
for reconsideration of the order dismissing the complaint.
On January 11, 1996, respondent corporation filed an urgent ex-
parte motion for issuance of an order directing the petitioners, or
their representatives or agents to refrain from taking possession
of the land in question.
Considering that Judge Pedro S. Espina, to whom the case was
raffled for resolution, was assigned to the RTC, Malolos,
Bulacan, Branch 19, Judge Roberto A. Navidad was designated
in his place.
On March 28, 1996, upon motion of herein petitioners, Judge
Navidad inhibited himself from hearing the case. Consequently,
the case was re-raffled and assigned to RTC, Tacloban City,
Branch 8, presided by herein respondent judge Mateo M.
Leanda.
On May 10, 1996, respondent judge issued an order reversing
the order of dismissal on the grounds that the action for
reformation had not yet prescribed and the dismissal was
"premature and precipitate", denying respondent corporation of
its right to procedural due process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin
motions submitted by the plaintiffs, for resolution are:
(1) for the reconsideration of the Order of 15
December 1995 of the Court (RTC, Br. 7),
dismissing this case, on the sole ground of
prescription of one (1) of the five (5) causes
of action of plaintiff in its complaint for
"reformation" of a contract of lease; and,
(2) for issuance by this Court of an Order
prohibiting the defendants and their privies-
in-interest, from taking possession of the
leased premises, until a final court order
issues for their exercise of dominical or
possessory right thereto.
The records of this case reveal that co-defendant
BENTER (Yolanda) and plaintiff Leyte Gulf Traders
Incorporation, represented by Chairman Benito Ang,
entered into a contract of lease of a parcel of land,
denominated as Lot No. 878-D, located at Sagkahan
District, Tacloban City, on 05 May 1968, for a period
of twenty (20) years, (later renewed for an additional
two (2) years). Included in said covenant of lease is
the verbal understanding and agreement between the
contracting parties, that when the defendant (as
lessor) will sell the subject property, the plaintiff as
(lessee) has the "right of first refusal", that is, the right
to equal the offer of any other prospective third-party
buyer. This agreement (sic) is made apparent by
paragraph 4 of the lease agreement stating:
4. IMPROVEMENT. The lessee shall have
the right to erect on the leased premises
any building or structure that it may desire
without the consent or approval of the
Lessor . . . provided that any improvements
existing at the termination of the lease shall
remain as the property of the Lessor without
right to reimbursement to the Lessee of the
cost or value thereof.
That the foregoing provision has been included in the
lease agreement if only to convince the defendant-
lessor that plaintiff desired a priority right to acquire
the property (ibid) by purchase, upon expiration of the
effectivity of the deed of lease.
In the course of the interplay of several procedural
moves of the parties herein, the defendants filed their
motion to admit their amended answer to plaintiff's
amended complaint. Correspondingly, the plaintiff
filed its opposition to said motion. The former court
branch admitted the amended answer, to which order
of admission, the plaintiff seasonably filed its motion
for reconsideration. But, before the said motion for
reconsideration was acted upon by the court, the latter
issued an Order on 15 December 1995, DISMISSING
this case on the lone ground of prescription of the
cause of action of plaintiff's complaint on "reformation"
of the lease contract, without anymore considering the
remaining cause of action, viz.: (a) on Specific
Performance; (b) an Annulment of Sale and Title; (c)
on Issuance of a Writ of Injunction, and (d) on
Damages.
With due respect to the judicial opinion of the
Honorable Presiding Judge of Branch 7 of this Court,
the undersigned, to whom this case was raffled to after
the inhibition of Judge Roberto Navidad, as acting
magistrate of Branch 7, feels not necessary any more
to discuss at length that even the cause of action for
"reformation" has not, as yet, prescribed.
To the mind of this Court, the dismissal order adverted
to above, was obviously premature and precipitate,
thus resulting denial upon the right of plaintiff that
procedural due process. The other remaining four (4)
causes of action of the complaint must have been
deliberated upon before that court acted hastily in
dismissing this case.
WHEREFORE, in the interest of substantial justice,
the Order of the court, (Branch 7, RTC) dismissing this
case, is hereby ordered RECONSIDERED and SET
ASIDE.
Let, therefore, the motion of plaintiff to reconsider the
Order admitting the amended answer and the Motion
to Dismiss this case (ibid), be set for hearing on May
24, 1996, at 8:30 o'clock in the morning. Service of
notices must be effected upon parties and counsel as
early as possible before said scheduled date.
Concomitantly, the defendants and their privies-in-
interest or agents, are hereby STERNLY WARNED
not to enter, in the meantime, the litigated premises,
before a final court order issues granting them
dominical as well as possessory right thereto.
To the motion or petition for contempt, filed by plaintiff,
thru Atty. Bartolome C. Lawsin, the defendants may, if
they so desire, file their answer or rejoinder thereto,
before the said petition will be set for hearing. The
latter are given ten (10) days to do so, from the date
of their receipt of a copy of this Order.
SO ORDERED. 6
On June 10, 1996, respondent judge issued an order for status
quo ante, enjoining petitioners to desist from occupying the
property. 7
Aggrieved, petitioners herein filed a petition for certiorari to the
Court of Appeals seeking the annulment of the order of
respondent court with prayer for issuance of a writ of preliminary
injunction and temporary restraining order to restrain respondent
judge from further hearing the case and to direct respondent
corporation to desist from further possessing the litigated
premises and to turn over possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no error
in the questioned order nor grave abuse of discretion on the part
of the trial court that would amount to lack, or in excess of
jurisdiction, denied the petition and affirmed the questioned
order. 8 A reconsideration of said decision was, likewise, denied
on April 16, 1997. 9
Thus, the instant petition for review based on the following
assigned errors, viz:
6:01 THE COURT OF APPEALS ERRED IN
HOLDING THAT AN ACTION FOR REFORMATION
IS PROPER AND JUSTIFIED UNDER THE
CIRCUMSTANCES OF THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN
HOLDING THAT THE ACTION FOR REFORMATION
HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN
HOLDING THAT AN OPTION TO BUY IN A
CONTRACT OF LEASE IS REVIVED FROM THE
IMPLIED RENEWAL OF SUCH LEASE; AND,
6.04 THE COURT OF APPEALS ERRED IN
HOLDING THAT A STATUS QUO ANTE ORDER IS
NOT AN INJUNCTIVE RELIEF THAT SHOULD
COMPLY WITH THE PROVISIONS OF RULE 58 OF
THE RULES OF COURT. 10
The petition has merit.
The core issue that merits our consideration is whether the
complaint for reformation of instrument has prescribed.
The remedy of reformation of an instrument is grounded on the
principle of equity where, in order to express the true intention of
the contracting parties, an instrument already executed is
allowed by law to be reformed. The right of reformation is
necessarily an invasion or limitation of the parol evidence rule
since, when a writing is reformed, the result is that an oral
agreement is by court decree made legally effective. 11
Consequently, the courts, as the agencies authorized by law to
exercise the power to reform an instrument, must necessarily
exercise that power sparingly and with great caution and zealous
care. Moreover, the remedy, being an extraordinary one, must
be subject to limitations as may be provided by law. Our law and
jurisprudence set such limitations, among which is laches. A suit
for reformation of an instrument may be barred by lapse of time.
The prescriptive period for actions based upon a written contract
and for reformation of an instrument is ten (10) years under
Article 1144 of the Civil Code. 12 Prescription is intended to
suppress stale and fraudulent claims arising from transactions
like the one at bar which facts had become so obscure from the
lapse of time or defective memory. 13 In the case at bar,
respondent corporation had ten (10) years from 1968, the time
when the contract of lease was executed, to file an action for
reformation. Sadly, it did so only on May 15, 1992 or twenty-four
(24) years after the cause of action accrued, hence, its cause of
action has become stale, hence, time-barred.
In holding that the action for reformation has not prescribed, the
Court of Appeals upheld the ruling of the Regional Trial Court
that the 10-year prescriptive period should be reckoned not from
the execution of the contract of lease in 1968, but from the date
of the alleged 4-year extension of the lease contract after it
expired in 1988. Consequently, when the action for reformation
of instrument was filed in 1992 it was within ten (10) years from
the extended period of the lease. Private respondent theorized,
and the Court of Appeals agreed, that the extended period of
lease was an "implied new lease" within the contemplation of
Article 1670 of the Civil Code, 14 under which provision, the other
terms of the original contract were deemed revived in the implied
new lease.
We do not agree. First, if, according to respondent corporation,
there was an agreement between the parties to extend the lease
contract for four (4) years after the original contract expired in
1988, then Art. 1670 would not apply as this provision speaks of
an implied new lease (tacita reconduccion) where at the end of
the contract, the lessee continues to enjoy the thing leased "with
the acquiescence of the lessor", so that the duration of the lease
is "not for the period of the original contract, but for the time
established in Article 1682 and 1687." In other words, if the
extended period of lease was expressly agreed upon by the
parties, then the term should be exactly what the parties
stipulated, not more, not less. Second, even if the supposed 4-
year extended lease be considered as an implied new lease
under Art. 1670, "the other terms of the original contract"
contemplated in said provision are only those terms which are

germane to the lessee's right of continued enjoyment of the
property leased. 15 The prescriptive period of ten (10) years
provided for in Art. 1144 16 applies by operation of law, not by the
will of the parties. Therefore, the right of action for reformation
accrued from the date of execution of the contract of lease in
1968.
Even if we were to assume for the sake of argument that the
instant action for reformation is not time-barred, respondent
corporation's action will still not prosper. Under Section 1, Rule
64 of the New Rules of Court, 17 an action for the reformation of
an instrument is instituted as a special civil action for declaratory
relief. Since the purpose of an action for declaratory relief is to
secure an authoritative statement of the rights and obligations of
the parties for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an
alleged breach thereof, it may be entertained only before the
breach or violation of the law or contract to which it refers. 18
Here, respondent corporation brought the present action for
reformation after an alleged breach or violation of the contract
was already committed by petitioner Bentir. Consequently, the
remedy of reformation no longer lies.
We no longer find it necessary to discuss the other issues raised
considering that the same are predicated upon our affirmative
resolution on the issue of the prescription of the action for
reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision
of the Court of Appeals dated January 17, 1997 is REVERSED
and SET ASIDE. The Order of the Regional Trial Court of
Tacloban City, Branch 7, dated December 15, 1995 dismissing
the action for reformation is REINSTATED.1âwphi1.nêt
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.
13
Ochagabia vs. Court of Appeals, 304 SCRA 587 (1999);
Peñaflor vs. IAC, 145 SCRA 223 (1986).
14
Art. 1670. If at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary
by either party has previously been given, it is understood that
there is an implied new lease, not for the period of the original
contract, but for the time established in articles 1682 and 1687.
The other terms of the contract shall be revived.
15
Dizon v. Magsaysay, 57 SCRA 250 [1974].
16
Art. 1144. The following actions must be brought within ten
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
17
The second paragraph of said section was deleted in the
present Section 1, Rule 63 of the 1997 Rules of Civil Procedure.
18
Reparations Commission vs. Northern Lines, Inc. 34 SCRA
203 (1970).

Footnotes
1
76 C.J.S. Reformation of Instruments § 1.
2
Id., at § 4.
3
2-a Report of the Code Commission, p. 56.
4
The order granting the motion and admitting the amended
complaint was raised in a petition for certiorari before the Court
of Appeals. Said petition, docketed as CA-G.R. SP No. 30994,
was eventually dismissed by the appellate court.
5
Rollo, pp. 23-26.
6
Id., at 27-29.
7
Id., at 36-37.
8
Id., at 31-40.
9
Id., at 42.
10
Id., at 10-11.
11
See Note 1.
12
Ramos vs. Court of Appeals, 180 SCRA 635 (1989); Spouses
Jayme and Solidarios vs. Alampay, 62 SCRA 131 (1975); Conde
vs. Cuenca, 99 Phil, 1056 (1956).

FIRST DIVISION
March 19, 2014
G.R. No. 158916
HEIRS OF CORNELIO MIGUEL, Petitioners,
vs.
HEIRS OF ANGEL MIGUEL, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This an appeal from the Decision1 dated January 31, 2003 of the
Court of Appeals in CA-G.R. CV No. 50122 dismissing the
appeal of the petitioners, the heirs of Cornelio Miguel, and
affirming the Order2 dated March 21, 1995 of the Regional Trial
Court (RTC) of Puerto Princesa City, Palawan, Branch 51 in Civil
Case No. 2735 which dismissed the petitioners' complaint for the
nullification of deeds of donation and reconveyance of property.
While blood may be thicker than water, land has caused
numerous family disputes which are oftentimes bitter and
protracted. This case is another example.
The petitioners are the surviving children of the deceased
Cornelio Miguel, while the respondents are the widow and the
children of the petitioners’ own brother, Angel Miguel.3
Cornelio Miguel was the registered owner under Original
Certificate of Title (OCT) No. S-14 of a 93,844 sq.m. parcel of
land situated at Barrio Calero, Puerto Princesa City in Palawan.
He had the property subdivided into ten smaller lots which were
designated as Lots A to J of Psd-146880. Cornelio sold nine of
the lots to his children, with Lot G going to his son Angel,
predecessor-in-interest of the respondents in this case. The
remaining lot, Lot J, Cornelio kept for himself and his wife,
Nieves.4
The spouses Cornelio and Nieves were the registered owners of
another property in Calero, Puerto Princesa City with an area of
172,485 sq.m. It was designated as Lot 2 of Psd-146879 and
covered by OCT No. G- 211. The land was subsequently
subdivided into nineteen smaller lots.5
In a deed of donation6 inter vivos dated December 28, 1973, the
spouses Cornelio and Nieves donated two lots to Angel. One of
the lots was described in the deed of donation as follows:
LOT 2-J, (LRC) 146880
A parcel of land (Lot 2-J of the subdivision plan (LRC) Psd-
146880, being a portion of a parcel of land described on plan S1-
13184, LRC Rec. No. 5, Pat. No. V-3), situated in the Barrio of
Calero, Municipality of Puerto Princesa, Province of Palawan,
Island of Palawan. Bounded on the NE., points 4 to 5 by Lot I;
on the E., SE., and SW., point[s] 5 to 7, 7 to 1 and 1 to 3 by Lot
K (proposed road widening); and on the W., points 3 to 4 by Lot
F, all of the subdivision plan. Beginning at a point marked "1" on
plan being S., 65 deg. 37°E., 285.42 m. from BLBM 1, Bo. of
Tiniguiban, Puerto Princesa.
thence N. 60 deg. 49°W., 91.32 m. to point 2;
thence N. 64 deg. 18°W., 37.61 m. to point 3;
thence N. 7 deg. 17°E., 33.74 m. to point 4;
thence S. 81 deg. 20°E., 146.06 m to point 5;
thence S. 2 deg. 24°W., 94.80 m. to point 6;
thence S. 79 deg. 55°W., 11.12 m. to point 7;
thence N. 39 deg. 34°W., 31.64 m. to point of beginning;
containing an area of NINE THOUSAND ONE HUNDRED
NINETY[-] SEVEN (9,197) SQUARE METERS, more or less.
Assessed P1,843.06 under Tax Declaration No. 4-3-1922-O of
the Office of the City Assessor of Puerto Princesa City,
Philippines.7
Angel accepted the donation in the same instrument.8
The donation of the property described above became the
subject of various suits between Cornelio, Angel, and Angel’s
siblings, and also between Angel’s siblings and Angel’s children.
I.Spl. Proc. No. 444
On March 25, 1977, Angel filed a petition for the issuance of a
new owner’s duplicate of OCT No. S-14 to replace his father
Cornelio’s copy which was allegedly eaten and destroyed by
white ants. The petition was docketed as Spl. Proc. No. 444 and
assigned to the Court of First Instance of Palawan, Branch II.9
After hearing, the trial court granted Angel’s petition. The
relevant portions of the Decision dated June 27, 1977 read as
follows:
From the evidence adduced, it appears that the Owner’s Original
Certificate of Title exists in the archives of the Registry of Deeds
of Puerto Princesa City. The notice of hearing together with the
petition was posted on the bulletin boards of the Capitol Building
of this province at Puerto Princesa, at the City Hall and on the
premises of the property in Barrio San Pedro, where the land is
located.
Petitioner Angel M. Miguel testifying for and in his behalf alleged
that a parcel of land covered by Original Certificate of Title No.
S-14 is in the name of his parents Cornelio Miguel and Nieves
Malabad; that this land has been subdivided and that Petitioner
has acquired two (2) lots, [letters] "G" and "J" from his parents;
that he could not secure the title to these lots from the City
Register of Deeds of Puerto Princesa because the latter required
him to produce the owner’s duplicate certificate of title of the
mother land; that petitioner then went to his father to borrow the
said owner’s certificate of title as required by the City Register of
Deeds of Puerto Princesa City; that forthwith, Mr. Cornelio
Miguel went to get the title from a certain [carton] where he had
his other important papers secured in a room in his house; that
to his amazement, he found only bits of [paper], once
constituting a solid piece which was his duplicate of his original
certificate of title; that the same is now completely beyond
recognition and, for all purpose, a complete destruction.
Petitioner further [alleged] that the two (2) lots involved have not
been delivered to anybody, neither have they been encumbered
to secure the performance of any obligation whatsoever.
Petitioner has declared the property for tax purposes and is up-
to-date in payment of taxes to the government.
The court is convinced that petitioner is a person in interest
within the [contemplation] of law.
The requisites of law having been complied with and the
evidence adduced satisfactory, the Court believes that for
reasons of public interest and in fairness to the petitioner, the
relief sought for should be granted.
WHEREFORE, in view of the foregoing, the Register of Deeds
of Puerto Princesa City, is hereby directed to issue a New
Owner’s Duplicate Certificate of Title No. S-14, in lieu of the one
destroyed, which is the subject of this proceeding. Such title shall
contain a memorandum stating that it is issued in lieu of the
destroyed one but shall, in all respects, be deemed to be of the
same effect as the destroyed owner’s duplicate certificate of title
for all intents and purposes under the Land Registration Act.
A copy of this order shall be furnished the Register of Deeds of
Puerto Princesa City.10
The Decision was not contested or appealed and became final
and executory.11
II.Civil Case No. 1185
Subsequently, however, on December 12, 1977, Cornelio filed a
complaint for the annulment of the deed of donation on the
alleged ground that one of the properties subject of the donation,
Lot 2-J of Psd-146879, was given the technical description of Lot
J of Psd-146880. This was attributed either to the notary public
who prepared the deed of donation or to his secretary who typed
it.12
The case, docketed as Civil Case No. 1185, was assigned to the
then Court of First Instance of Palawan, Branch I. On Angel’s
motion, it was dismissed in an Order dated January 31, 1986 for
lack of cause of action. In particular, the trial court found that,
while the complaint was supposedly denominated as for the
annulment of the donation, the allegations of the complaint were
really for reformation of instrument because it essentially sought
the correction or amendment of the deed of donation to conform
to the alleged true intention of the donors to donate Lot 2-J of
Psd-146879 and not Lot J of Psd-146880. However, the
complaint failed to allege that the donation was conditional and
the deed of donation attached as an annex of the complaint
showed that no condition was imposed for the donation.13 As
such, it was a simple donation that is not subject of reformation
under Article 1366 of the Civil Code which provides:
Art. 1366. There shall be no reformation in the following cases:
(1)Simple donations inter vivos wherein no
condition is imposed;
(2)Wills;
(3)When the real agreement is void.
(Emphasis supplied.)
According to the trial court, even if the action were to be
considered as for annulment of the deed of donation, it would
still be dismissed for lack of cause of action. There was no
allegation that the consent of the donors was vitiated when they
made the donation, nor was there an allegation of any ground
that could have vitiated the donors’ consent, such as mistake,
violence, intimidation, undue influence, or fraud.14
Finally, the trial court found that Cornelio alleged in the complaint
that his wife, Nieves, died prior to the filing of the complaint. The
trial court ruled that Cornelio lacked personality to sue in behalf
of Nieves because her right as a co-donor is purely personal to
her and her right to reform or revoke the donation is exclusively
reserved for her such that no other person can exercise such
right for her. Also, the subsequent death of Cornelio during the
pendency of the case extinguished his personal right to pursue
the case, an intransmissible right, and the petitioners herein as
his heirs could not have validly substituted him. The trial court
concluded that the lack of personality on the part of the heirs of
Cornelio constituted lack of cause of action.15 Thus, the trial
court ordered:
ACCORDINGLY, in view of the foregoing findings, the amended
complaint is hereby ordered dismissed for lack of cause of
action. No costs. Motion to Dismiss is hereby GRANTED.16
The motion for reconsideration of Cornelio’s heirs was denied in
an Order dated March 19, 1986. As no appeal was made, the
dismissal of the case attained finality.17
III. Spl. Civil Action No. 1950
Angel subsequently applied for the issuance of a certificate of
title in his name over Lot J of Psd-146880 but the Registrar of
Deeds of Puerto Princesa City denied it. Thus, Angel filed a
petition for mandamus to compel the Registrar of Deeds to issue
a certificate of title in his favor. The case was docketed as Spl.
Civil Action No. 1950 and assigned to the Regional Trial Court
of Palawan, Branch 48.18
After hearing the parties, the trial court issued an Order19 dated
February 27, 1987 directing the Registrar of Deeds of Puerto
Princesa City to issue a certificate of title in Angel’s name over
Lot J of Psd-146880. In arriving at its Order, the trial court took
note of the finality of the Order dated January 31, 1986 in Civil
Case No. 1185. The trial court also ruled that as the technical
description of one of the parcels of land subject of the donation
corresponded to Lot J of Psd-146880, what was donated was
Lot J of Psd-146880 and the mention of "Lot 2-J of Psd-146880"
was merely a typographical error.20 The trial court explained:
Considering that the determinative technical description,
describing and denoting the boundaries thereof, are the same
[as] in the Deed of Donation Inter-vivos and in Civil Case No.
1185 for annulment are the same in every aspect and detail, it is
crystal clear that one of the subject[s] of donation is Lot No. "J"
(LRC) PSD-146880 and not Lot "2- J" (LRC) PSD-146880. It is
clear beyond doubt and cavil that a clerical error has been
inadvertently committed as to the Lot Number concerned
although there was already a meeting of minds o[n] the two (2)
lots donated. x x x.
xxxx
For brevity[’s] sake, the technical description of the land donated
(2nd lot) erroneously identified as Lot 2-J (LRC) PSD-146880
doesn’t exist, a mere clerical error but what exist[s] is Lot No. J
(LRC) PSD- 146880, the technical description of which are the
same which leaves no shadow of doubt that what is donated is
Lot No. J (LRC) PSD-146880. What is controlling is the technical
description x x x.21
As the deed of donation in favor of Angel clearly refers to Lot J
of Psd-146880 in view of the technical description of the land
and considering further that a certificate of title in the name of
Angel over the other parcel of land subject of the deed of
donation was already issued, the Registrar of Deeds should
have performed its ministerial duty under the law to issue a
certificate of title in the name of Angel over Lot J of Psd-146880.
In particular, the trial court ordered:
WHEREFORE, illuminated by the light of all the foregoing facts,
laws and arguments, x x x, and since the other and/or 1st
mentioned lot donated, Lot No. 1-J (LRC) PSD-146879, has long
already been titled in the name of herein petitioner as TCT No.
4213, issued on June 18, 1976, there is no need of
consolidation. Instead the Register of Deeds of the City of Puerto
Princesa is hereby ["]mandamused["], commanded and/or
ordered to register and issue the title to now corrected,
denominated and identified as Lot No. "J" (LRC) PSD-146880 in
the name of herein petitioner, Angel Miguel, married to Ofelia
Palanca, both residents of the City of Puerto Princesa,
Philippines.22
The Registrar of Deeds of Puerto Princesa City appealed the
Order dated February 27, 1987 but subsequently withdrew the
appeal upon receipt of the resolution of the Land Registration
Authority (LRA) on the Consulta of the said Registrar of Deeds
in which the LRA allowed the registration of the disputed
property in the name of Angel provided that the Order dated
February 27, 1987 is already final and executory. With the
withdrawal of the appeal, the Order dated February 27, 1987
became final and executory.
Subsequently, on December 29, 1987, Transfer Certificate of
Title (TCT) No. 11349 was issued in the name of Angel over Lot
J of Psd-146880.23
Angel later on caused the subdivision of Lot J of Psd-146880
into four smaller lots which he correspondingly donated to each
of his four sons, Peter Albert, Omar Angelo, Leo Antonio, and
Oscar Joseph. Following the donation, TCT Nos. 20094 in the
name of Peter Albert, 20095 in the name of Omar Angelo, 20096
in the name of Leo Antonio, and 20097 in the name of Oscar
Joseph were issued.24
IV. Civil Case No. 2735
On July 7, 1994, petitioners filed a complaint for declaration of
nullity of Angel’s TCT No. 11349 and its derivative titles, TCT
Nos. 20094, 20095, 20096, and 20097, as well as of the
respective deeds of donation Angel executed in favor of his
sons. Petitioners claimed that, as the true intention of their
parents Cornelio and Nieves as donors was to donate Lot 2-J of
Psd. 146879 and not Lot J of Psd. 146880, the deed of donation
was rendered void by the typographical error relating to the
description of the property. An implied trust was therefore
created where Angel held Lot J of Psd. 146880 in trust for the
petitioners as heirs of the donors. As such trustee, Angel had no
right either to have the property registered in his name or to
transfer it to his sons through donation. Thus, petitioners argued,
the sons of Angel as his heirs should return the ownership and
possession of their respective portion of Lot J of Psd. 146880
and reconvey the same to the petitioners.25
For their part, the respondents moved for the dismissal of the
complaint. They asserted that the petitioners’ cause of action is
already barred by prior judgment in Civil Case No. 1185 as the
issue of Angel’s ownership and possession of Lot J of Psd.
146880 had already been settled in Spl. Proc. No. 444, Civil
Case No. 1185 and Spl. Civil Action No. 1950, all of which have
been decided with finality.26
The respondents also contended that, in alleging the clerical
error of the typist of the notary public who prepared the deed of
donation executed by Cornelio and Nieves in favor of Angel, the
petitioners effectively seek the correction or amendment of the
said deed of donation pursuant to Article 1364 of the Civil Code.
However, the petitioners may not avail of the remedy of
reformation because the donation made by Cornelio and Nieves
to Angel was a simple donation which, under Article 1366(1) of
the Civil Code, may not be subject of reformation.27
The respondents further claimed that the petitioners have no
legal capacity to sue. The petitioners effectively seek the
reformation or annulment of the deed of donation executed by
Cornelio and Nieves in favor of Angel. However, the right of
action for the reformation or annulment of the said deed of
donation properly and exclusively pertained to Cornelio and
Nieves as donors. Such right is personal and intransmissible and
therefore cannot be claimed by the petitioners.28
In an Order29 dated March 21, 1995, the trial court dismissed the
complaint. The Order’s dispositive portion reads:
In the light of the foregoing, the instant action is hereby ordered
dismissed for having been barred by a prior judgment.1avvphi1
As thus dismissed, the notice of lis pendens on Transfer
Certificate of Title Nos. 20094, 20095, 20096 and 20097 is
accordingly hereby ordered cancelled therefrom.30
The petitioners appealed the Order of the trial court to the Court
of Appeals. In a Decision dated January 31, 2003, however, the
appellate court ruled that Spl. Proc. No. 444, Civil Case No. 1185
and Spl. Civil Action No. 1950 all dealt with the question of
ownership over Lot J of Psd. 146880 and they have all been
adjudged with finality. The appellate court concluded that the
judgments in the said cases effectively foreclosed any further
inquiry on the matter in accordance with the doctrine of res
judicata, particularly the conclusiveness of judgment. The
petitioners were the successors-in-interest of Cornelio, the
complainant against Angel in Civil Case No. 1185, and the
respondents are being sued as successors-in-interest of Angel
in Civil Case No. 2735. The matter directly controverted in Civil
Case No. 1185 was Lot J of Psd. 146880 which is also the bone
of contention in Civil Case No. 2735. Thus, the appellate court
ruled that the judgment in Civil Case No. 1185 is conclusive in
Civil Case No. 2735. The dispositive portion of the Decision
dated January 31, 2003 reads:
WHEREFORE, premises considered, the appeal is hereby
dismissed and the appealed decision, AFFIRMED.31
The petitioners are now before this Court, assailing the Decision
dated January 31, 2003 of the Court of Appeals. They argue that
the Court of Appeals misapplied the doctrine of res judicata in
the concept of conclusiveness of judgment.32
According to the petitioners, conclusiveness of judgment
precludes only the re-litigation of a particular fact or issue in
another action between the same parties on a different cause of
action. They posit that there is no issue resolved on Civil Case
No. 1185 that is being litigated anew in Civil Case No. 2735. The
petitioners maintain that the complaint in Civil Case No. 1185
was dismissed for failure to state a cause of action and not
because the plaintiffs, Cornelio and the petitioners, had no cause
of action. In other words, the petitioners imply that they had a
cause of action in Civil Case No. 1185 but they only failed to
sufficiently allege such cause of action.33
The petitioners also point out that there is neither identity of
subject matter nor identity of cause of action between Civil Case
No. 1185 and Civil Case No. 2735. They say that the subject
matter of Civil Case No. 1185 was the deed of donation executed
by Cornelio and Nieves in favor of Angel while the subject matter
of Civil Case No. 2735 is the recovery of Lot J of Psd. 146880.
The cause of action in Civil Case No. 1185 was the reformation
of the deed of donation executed by Cornelio and Nieves in favor
of Angel while the cause of action in Civil Case No. 2735 is the
reconveyance of Lot J of Psd. 146880 based on Angel’s violation
of the implied trust created in favor of the petitioners.34
For their part, the respondents insist on the correctness of both
the Order dated March 21, 1995 of the trial court in Civil Case
No. 2735 and the Decision dated January 31, 2003 of the
appellate court affirming the said Order.35
The Court’s Ruling
The petition fails. Res judicata in the concept of conclusiveness
of judgment precludes the complaint in Civil Case No. 2735.
A better understanding of the fundamentals of res judicata and
conclusiveness of judgment will explain and clarify the Court’s
ruling.
The following are the elements of res judicata:
(1)the judgment sought to bar the new
action must be final;
(2)the decision must have been rendered
by a court having jurisdiction over the
subject matter and the parties;
(3)the disposition of the case must be a
judgment on the merits; and
(4)there must be as between the first and
second action, identity of parties, subject
matter, and causes of action.36
Under Rule 39 of the Rules of Court, res judicata embraces two
concepts: (1) bar by prior judgment as enunciated in Section
47(b) of the said Rule and (2) conclusiveness of judgment as
explained in Section 47(c) of the same Rule. Should identity of
parties, subject matter, and causes of action be shown in the two
cases, then res judicata in its aspect as a "bar by prior judgment"
would apply. If as between the two cases, only identity of parties
can be shown, but not identical causes of action, then res
judicata as "conclusiveness of judgment" applies.37
Nabus v. Court of Appeals38 clarifies the concept of
conclusiveness of judgment further:
The doctrine states that a fact or question which was in issue in
a former suit, and was there judicially passed on and determined
by a court of competent jurisdiction, is conclusively settled by the
judgment therein, as far as concerns the parties to that action
and persons in privity with them, and cannot be again litigated in
any future action between such parties or their privies, in the
same court or any other court of concurrent jurisdiction on either
the same or a different cause of action, while the judgment
remains unreversed or unvacated by proper authority. The only
identities thus required for the operation of the judgment as an
estoppel x x x are identity of parties and identity of issues.
It has been held that in order that a judgment in one action can
be conclusive as to a particular matter in another action between
the same parties or their privies, it is essential that the issues be
identical. If a particular point or question is in issue in the second
action, and the judgment will depend on the determination of that
particular point or question, a former judgment between the
same parties will be final and conclusive in the second if that
same point or question was in issue and adjudicated in the first
suit x x x. (Emphasis supplied.)
Identity of parties is a requisite in the application of
conclusiveness of judgment. So long as the parties or their
privies are identical, any right, fact, or matter in issue directly
adjudicated or necessarily involved in the determination of an
action before a competent court in which judgment is rendered
on the merits is conclusively settled by the judgment therein and
cannot again be litigated whether or not the claim, demand,
purpose, or subject matter of the two actions is the same. 39 In
this case, the Court of Appeals held the following as regards the
issue of identity of parties:
As further held, conclusiveness of judgment calls for identity of
parties, not causes of action, and "there is identity of parties not
only when the parties are the same but also those on privity with
them, as between their successors in interest by title subsequent
to the commencement of the action, litigation for the same thing
and under the same title and in the same capacity, or when there
is substantial identity of parties." In the present case, appellants
were the successors in interest of petitioner Cornelio in Civil
Case No. 1185 against respondent Angel, whereas in Civil Case
No. 2735, appellees were the successors in interest of Angel.
Undeniably, there is substantial identity of parties in the said two
cases. And since the matter directly controverted and
determined in Civil Case No. 1185 is the lot which is also the
bone of contention in Civil Case No. 2735, the judgment
rendered in the first case is conclusive in the second case. 40
The petitioners do not question the ruling of the Court of Appeals
that there is identity of parties in Civil Case No. 1185 and Civil
Case No. 2735. What the petitioners principally contend is that
the judgment in Civil Case No. 1185 cannot bar Civil Case No.
2735 as the two cases involve different causes of action and
different subject matters.
However, for res judicata in the concept of conclusiveness of
judgment to apply, identity of cause of action is not required but
merely identity of issue.41
The claim of the petitioners that Civil Case No. 1185 was
dismissed not because they have no cause of action but
because they failed to state such a cause of action is wrong. The
dispositive portion of the Order dated January 31, 1986 is clear:
the amended complaint was "ordered dismissed for lack of
cause of action."42
The Order dated January 31, 1986 in Civil Case No. 1185 ruled
that Cornelio and the petitioners had no cause of action in
connection with the reformation of the deed of donation executed
by the spouses Cornelio and Nieves in favor of Angel because
the said deed of donation is a simple donation and therefore not
a proper subject of an action for reformation. As there can be no
reformation of the deed of donation pursuant to Article 1366 of
the Civil Code, the necessary implication and consequence of
the Order dated January 31, 1986 in Civil Case No. 1185 is that
the deed of donation stands and the identity of the property
subject of the donation is that parcel of land which corresponds
to the technical description in the deed of donation. In other
words, the property donated under the deed of donation is that
which matches the property whose metes and bounds is
particularly described in the deed of donation. This is because
the technical description of the land is proof of its identity.43 Such
technical description embodies the identity of the land.44 In this
case, the technical description in the deed of donation pertains
to Lot J of Psd. 146880. That is why the trial court in Spl. Civil
Action No. 1950 ordered the issuance in Angel’s name of TCT name under TCT No. 11349 and he had validly partitioned and 24
Id. at 20.
25
No. 11349 over Lot J of Psd. 146880. Thus, in Civil Case No. donated it to his four children who acquired TCT Nos. 20094, Records, pp. 1-12.
26
1185 and Spl. Civil Action No. 1950, Lot J of Psd. 146880 is the 20095, 20096, and 20097 in their respective names. Id. at 321-379.
27
property donated to Angel and registered in his name as TCT Id. at 372-375.
No. 11349 and, subsequently, to Angel’s four children as TCT WHEREFORE, the petition is hereby DENIED. 28
Id. at 375-376.
29
Nos. 20094, 20095, 20096, and 20097. SO ORDERED. Id. at 572-577.
30
Id. at 577.
For purposes of conclusiveness of judgment, identity of issues TERESITA J. LEONARDO-DE CASTRO 31
Rollo, p. 23.
means that the right, fact, or matter in issue has previously been Associate Justice 32
Id. at 8-14, Petition for Review on Certiorari.
either "directly adjudicated or necessarily involved in the 33
Id. at 9.
determination of an action"45 by a competent court. In this case, WE CONCUR: 34
Id. at 10-13.
the issue of the transfer pursuant to the deed of donation to 35
Id. at 30-77, 46-75, Opposition to Petition for Review on
Angel of Lot J of Psd. 146880 and, corollarily, his right over the MARIA LOURDES P.A. SERENO
Chief Justice Certiorari.
said property has been necessarily involved in Civil Case No. 36
Social Security Commission v. Rizal Poultry and Livestock
1185. Chairperson
Association, Inc., G.R. No. 167050, June 1, 2011, 650 SCRA 50,
The petitioners engage in hair-splitting in arguing that none of 57-58.
MARTIN S. VILLARAA, 37
Id. at 56, 58.
the issues involved in Civil Case No. 1185 is also involved in LUCAS P. BERSAMIN
JR. 38
271 Phil. 768, 784 (1991).
Civil Case No. 2735. The primary issue in Civil Case No. 1185 Associate Justice
Associate Justice 39
P.L. Uy Realty Corporation v. ALS Management and
is whether the true intention of the spouses Cornelio and Nieves
as donors was to donate to Angel the property described in the Development Corporation, G.R. No. 166462, October 24, 2012,
deed of donation, that is, Lot J of Psd. 146880. The issue in Civil BIENVENIDO L. REYES 684 SCRA 453, 466 citing Social Security Commission v. Rizal
Case No. 1185 is therefore the identity of one of the properties Associate Justice Poultry and Livestock Association, Inc., supra note 36 at 57.
40
donated by the spouses Cornelio and Nieves for which Cornelio Rollo, pp. 22-23.
41
and the petitioners sought reformation of the deed of donation. CERTIFICATION P.L. Uy Realty Corporation v. ALS Management and
As stated above, the order of dismissal of the complaint in Civil Development Corporation, supra note 39 at 466.
Pursuant to Section 13, Article VIII of the Constitution, I certify 42
Records, p. 390.
Case No. 1185 necessarily implied that, as the deed of donation that the conclusions in the above Decision had been reached in 43
is not subject to reformation, the identity of the property subject See Republic v. Espinosa, G.R. No. 171514, July 18, 2012,
consultation before the case was assigned to the writer of the 677 SCRA 92, 110.
of the donation is the property corresponding to the technical opinion of the Court's Division. 44
description, Lot J of Psd. 146880. On the other hand, the subject See VSD Realty & Development Corporation v. Uniwide
matter of Civil Case No. 2735 is the recovery of Lot J of Psd. MARIA LOURDES P. A. SERENO Sales, Inc., G.R. No. 170677, July 31, 2013, 702 SCRA 597,
146880 on the petitioners’ claim that a clerical error prevented Chief Justice 606.
45
the deed of donation from conforming to the true intention of the P.L. Uy Realty Corporation v. ALS Management and
spouses Cornelio and Nieves as to the identity of the property Footnotes Development Corporation, supra note 39 at 466.
they intended to donate to Angel. This boils down to the issue of 1
Rollo, pp. 17-23; penned by Associate Justice Danilo 8. Pine
the true identity of the property, which has been, as earlier with Associate Justices Eugenio S. Labitoria and Renato C.
stated, necessarily adjudicated in Civil Case No. 1185. Thus, the Dacudao, concurring.
judgment in Civil Case No. 1185 on the issue of the identity of 2
Id. at 184-189.
the land donated by Cornelio and Nieves to Angel is conclusive 3
Id. at 4.
in Civil Case No. 2735, there being a similarity of parties in the 4
Id. at 18.
said cases. 5
Id.
6
The petitioners also question the validity of the deed of donation Records, pp. 18-20, Deed of Donation of Real Property.
7
executed by the spouses Cornelio and Nieves in favor of Id. at 19.
8
Angel.1âwphi1 Indeed, that is the foundation of their claim. Id.
9
However, that issue had been settled with finality in Civil Case Id. at 333.
10
No. 1185. The petitioners who were parties against Angel in Civil Id. at 392-394.
11
Case No. 1185 cannot resurrect that issue against the privies or Id. at 395.
12
successors-in-interest of Angel in Civil Case No. 2735 without Id. at 382.
13
violating the principle of res judicata. In other words, Civil Case Id. at 384-387.
14
No. 2735 is barred by the conclusiveness of the judgment in Civil Id. at 387-388.
15
Case No. 1185. Id. at 389-390.
16
Id. at 390.
17
As the issues of whether Lot J of Psd. 146880 is one of the Rollo, p. 19.
18
properties donated by the spouses Cornelio and Nieves to Angel Id.
19
and whether such donation was valid have been necessarily Id. at 40-53.
20
settled in Civil Case No. 1185, they can no longer be relitigated Id. at 45-46.
21
again in Civil Case No. 2735. The Order dated January 31, 1986 Id. at 46-47.
22
effectively held that the said property had been donated to Id. at 53.
23
Angel. It follows that he had properly sought its registration in his Id. at 19-20.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22487 May 21, 1969
ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO
ATILANO, assisted by their respective husbands, HILARIO
ROMANO, FELIPE BERNARDO, and MAXIMO
LACANDALO, ISABEL ATILANO and GREGORIO ATILANO,
plaintiffs-appellees,
vs.
LADISLAO ATILANO and GREGORIO M. ATILANO,
defendants-appellants.
Climaco and Azcarraga for plaintiff-appellee.
T. de los Santos for defendants-appellants.
MAKALINTAL, J.:
In 1916 Eulogio Atilano I acquired, by purchase from one
Gerardo Villanueva, lot No. 535 of the then municipality of
Zamboanga cadastre. The vendee thereafter obtained transfer
certificate of title No. 1134 in his name. In 1920 he had the land
subdivided into five parts, identified as lots Nos. 535-A, 535-B,
535-C, 535-D and 535-E, respectively. On May 18 of the same
year, after the subdivision had been effected, Eulogio Atilano I,
for the sum of P150.00, executed a deed of sale covering lot No.
535-E in favor of his brother Eulogio Atilano II, who thereupon
obtained transfer certificate of title No. 3129 in his name. Three
other portions, namely lots Nos. 535-B, 535-C and 535-D, were
likewise sold to other persons, the original owner, Eulogio
Atilano I, retaining for himself only the remaining portion of the
land, presumably covered by the title to lot No. 535-A. Upon his
death the title to this lot passed to Ladislao Atilano, defendant in
this case, in whose name the corresponding certificate (No. T-
5056) was issued.
On December 6, 1952, Eulogio Atilano II having become a
widower upon the death of his wife Luisa Bautista, he and his
children obtained transfer certificate of title No. 4889 over lot No.
535-E in their names as co-owners. Then, on July 16, 1959,
desiring to put an end to the co-ownership, they had the land
resurveyed so that it could properly be subdivided; and it was
then discovered that the land they were actually occupying on
the strength of the deed of sale executed in 1920 was lot No.
535-A and not lot 535-E, as referred to in the deed, while the
land which remained in the possession of the vendor, Eulogio
Atilano I, and which passed to his successor, defendant Ladislao
Atilano, was lot No. 535-E and not lot No. 535-A.
On January 25, 1960, the heirs of Eulogio Atilano II, who was by
then also deceased, filed the present action in the Court of First
Instance of Zamboanga, alleging, inter alia, that they had offered
to surrender to the defendants the possession of lot No. 535-A
and demanded in return the possession of lot No. 535-E, but that
the defendants had refused to accept the exchange. The
plaintiffs' insistence is quite understandable, since lot No. 535-E
has an area of 2,612 square meters, as compared to the 1,808 between them. The new Civil Code provides a remedy for such
square-meter area of lot No. 535-A. a situation by means of reformation of the instrument. This
remedy is available when, there having been a meeting of the
In their answer to the complaint the defendants alleged that the funds of the parties to a contract, their true intention is not
reference to lot No. 535-E in the deed of sale of May 18, 1920 expressed in the instrument purporting to embody the
was an involuntary error; that the intention of the parties to that agreement by reason of mistake, fraud, inequitable conduct on
sale was to convey the lot correctly identified as lot No. 535-A; accident (Art. 1359, et seq.) In this case, the deed of sale
that since 1916, when he acquired the entirety of lot No. 535, executed in 1920 need no longer reformed. The parties have
and up to the time of his death, Eulogio Atilano I had been retained possession of their respective properties conformably
possessing and had his house on the portion designated as lot to the real intention of the parties to that sale, and all they should
No. 535-E, after which he was succeeded in such possession by do is to execute mutual deeds of conveyance.
the defendants herein; and that as a matter of fact Eulogio
Atilano I even increased the area under his possession when on WHEREFORE, the judgment appealed from is reversed. The
June 11, 1920 he bought a portion of an adjoining lot, No. 536, plaintiffs are ordered to execute a deed of conveyance of lot No.
from its owner Fruto del Carpio. On the basis of the foregoing 535-E in favor of the defendants, and the latter in turn, are
allegations the defendants interposed a counterclaim, praying ordered to execute a similar document, covering lot No. 595-A,
that the plaintiffs be ordered to execute in their favor the in favor of the plaintiffs. Costs against the latter.
corresponding deed of transfer with respect to lot No. 535-E.
Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and
The trial court rendered judgment for the plaintiffs on the sole Capistrano, JJ., concur.
ground that since the property was registered under the Land Teehankee and Barredo, JJ., took no part.
Registration Act the defendants could not acquire it through Concepcion C.J., and Castro, J., are on leave.
prescription. There can be, of course, no dispute as to the
correctness of this legal proposition; but the defendants, aside
from alleging adverse possession in their answer and
counterclaim, also alleged error in the deed of sale of May 18,
1920, thus: "Eulogio Atilano 1.o, por equivocacion o error
involuntario, cedio y traspaso a su hermano Eulogio Atilano 2.do
el lote No. 535-E en vez del Lote No. 535-A."lawphi1.ñet
The logic and common sense of the situation lean heavily in
favor of the defendants' contention. When one sells or buys real
property — a piece of land, for example — one sells or buys the
property as he sees it, in its actual setting and by its physical
metes and bounds, and not by the mere lot number assigned to
it in the certificate of title. In the particular case before us, the
portion correctly referred to as lot No. 535-A was already in the
possession of the vendee, Eulogio Atilano II, who had
constructed his residence therein, even before the sale in his
favor even before the subdivision of the entire lot No. 535 at the
instance of its owner, Eulogio Atillano I. In like manner the latter
had his house on the portion correctly identified, after the
subdivision, as lot No. 535-E, even adding to the area thereof by
purchasing a portion of an adjoining property belonging to a
different owner. The two brothers continued in possession of the
respective portions the rest of their lives, obviously ignorant of
the initial mistake in the designation of the lot subject of the 1920
until 1959, when the mistake was discovered for the first time.
The real issue here is not adverse possession, but the real
intention of the parties to that sale. From all the facts and
circumstances we are convinced that the object thereof, as
intended and understood by the parties, was that specific portion
where the vendee was then already residing, where he
reconstructed his house at the end of the war, and where his
heirs, the plaintiffs herein, continued to reside thereafter:
namely, lot No. 535-A; and that its designation as lot No. 535-E
in the deed of sale was simple mistake in the drafting of the
document.1âwphi1.ñet The mistake did not vitiate the consent of
the parties, or affect the validity and binding effect of the contract

SECOND DIVISION
G.R. No. 133643 June 6, 2002
RITA SARMING, RUFINO SARMING, MANUEL SARMING,
LEONORA VDA. DE LOY, ERLINDA DARMING, NICANDRA
SARMING, MANSUETA SARMING, ARTURO CORSAME,
FELY CORSAME, FEDERICO CORSAME, ISABELITA
CORSAME, NORMA CORSAME, CESAR CORSAME, RUDY
CORSAME, ROBERTA CORSAME, ARTEMIO CORSAME,
ELPIDIO CORSAME, ENRIQUITA CORSAME, and
GUADALUPE CORSAME TAN, petitioners,
vs.
CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES,
LUISA FLORES, SATURNINA ORGANISTA, REMEDIOS
ORGANISTA, OFELIA ORGANISTA, LYDIA ORGANISTA,
ZOSIMO ORGANISTA, DOMISIANO FLORES, FLORITA
FLORES, EDUARDO FLORES, BENIGNA FLORES,
ANGELINA FLORES, MARCIAL FLORES, and MARIO
FLORES, respondents.
QUISUMBING, J.:
This petition for review assails the decision1 dated September
23, 1997 of the Court of Appeals in CA-G.R. CV No. 39401,
which affirmed the decision2 of the Regional Trial Court, Branch
41 in Negros Oriental, Dumaguete City and the resolution3 dated
April 21, 1998 denying petitioners' motion for reconsideration.
The facts as culled from records are as follows:
Petitioners are the successors-in-interest of original defendant
Silveria Flores, while respondents Cresencio Dy and Ludivina
Dy-Chan are the successors-in-interest of the original plaintiff
Alejandra Delfino, the buyer of one of the lots subject of this
case. They were joined in this petition by the successors-in-
interest of Isabel, Juan, Hilario, Ruperto, Tomasa, and Luisa and
Trinidad themselves, all surnamed Flores, who were also the
original plaintiffs in the lower court. They are the descendants of
Venancio4 and Jose5, the brothers of the original defendant
Silveria Flores.
In their complaint for reformation of instrument against Silveria
Flores, the original plaintiffs alleged that they, with the exception
of Alejandra Delfino, are the heirs of Valentina Unto Flores, who
owned, among others, Lot 5734, covered by OCT 4918-A; and
Lot 4163, covered by OCT 3129-A, both located at Dumaguete
City.
After the death of Valentina Unto Flores, her three children,
namely: Jose, Venancio, and Silveria, took possession of Lot
5734 with each occupying a one-third portion. Upon their death,
their children and grandchildren took possession of their
respective shares. The other parcel, Lot 4163 which is solely
registered under the name of Silveria, was sub-divided between
Silveria and Jose. Two rows of coconut trees planted in the
middle of this lot serves as boundary line.
In January 1956, Luisa, Trinidad, Ruperto and Tomasa,
grandchildren of Jose and now owners of one-half of Lot 4163,
entered into a contract with plaintiff Alejandra Delfino, for the
sale of one-half share of Lot 4163 after offering the same to their
co-owner, Silveria, who declined for lack of money. Silveria did
not object to the sale of said portion to Alejandra Delfino.
Before preparing the document of sale, the late Atty. Deogracias
Pinili, Alejandra's lawyer, called Silveria and the heirs of
Venancio to a conference where Silveria declared that she
owned half of the lot while the other half belonged to the vendors;
and that she was selling her three coconut trees found in the half
portion offered to Alejandra Delfino for P15. When Pinili asked
for the title of the land, Silveria Flores, through her daughter,
Cristita Corsame, delivered Original Certificate of Title No. 4918-
A, covering Lot No. 5734, and not the correct title covering Lot
4163. At that time, the parties knew the location of Lot 4163 but
not the OCT Number corresponding to said lot.
Believing that OCT No. 4918-A was the correct title
corresponding to Lot 4163, Pinili prepared a notarized
Settlement of Estate and Sale (hereinafter "deed") duly signed
by the parties on January 19, 1956. As a result, OCT No. 4918-
A was cancelled and in lieu thereof, TCT No. 5078 was issued
in the names of Silveria Flores and Alejandra Delfino, with one-
half share each. Silveria Flores was present during the
preparation and signing of the deed and she stated that the title
presented covered Lot No. 4163.
Alejandra Delfino immediately took possession and introduced
improvements on the purchased lot, which was actually one-half
of Lot 4163 instead of Lot 5734 as designated in the deed.
Two years later, when Alejandra Delfino purchased the adjoining
portion of the lot she had been occupying, she discovered that
what was designated in the deed, Lot 5734, was the wrong lot.
She sought the assistance of Pinili who approached Silveria and
together they inquired from the Registry of Deeds about the
status of Lot 4163. They found out that OCT No. 3129-A
covering Lot 4163 was still on file. Alejandra Delfino paid the
necessary fees so that the title to Lot 4163 could be released to
Silveria Flores, who promised to turn it over to Pinili for the
reformation of the deed of sale. However, despite repeated
demands, Silveria did not do so, prompting Alejandra and the
vendors to file a complaint against Silveria for reformation of the
deed of sale with damages before the Regional Trial Court of
Negros Oriental, Branch 41, docketed as Civil Case No. 3457.
In her answer, Silveria Flores claimed that she was the sole
owner of Lot 4163 as shown by OCT No. 3129-A and
consequently, respondents had no right to sell the lot. According
to her, the contract of sale clearly stated that the property being
sold was Lot 5734, not Lot 4163. She also claimed that
respondents illegally took possession of one-half of Lot 4163.
She thus prayed that she be declared the sole owner of Lot 4163
and be immediately placed in possession thereof. She also
asked for compensatory, moral, and exemplary damages and
attorney's fees.
The case lasted for several years in the trial court due to several
substitutions of parties. The complaint was amended several
times. Moreover, the records had to be reconstituted when the
building where they were kept was razed by fire. But, earnest
efforts for the parties to amicably settle the matters among
themselves were made by the trial court to no avail.
On September 29, 1992, the trial court found in favor of herein
respondents, who were the plaintiffs below, decreeing as
follows:
WHEREFORE, this Court finds the preponderance of
evidence in favor of the plaintiffs and veritably against
the defendants and, as such, renders judgment
accordingly, thereby ORDERING the defendants, the
heirs of the deceased-defendant SILVERIA FLORES
and her successors-in-interest the following:
1) To enter into the reformation of the subject contract
or execute a mutual conveyance of sale, by making the
one-half (1/2) eastern portion of Lot 4163, the subject of
the document of sale, in favor of plaintiff, the late
Alejandra Delfino or her heirs and/or successors-in-
interest;
2) To sign a document ceding to the heirs of the heirs of
Maxima Flores and Venancio Flores the excess of her
one-third (1/3) share; and further ordering the heirs of
the late Alejandra Delfino to correspondingly sign a
document for the return of the one-half (1/2) portion of
Lot 5734 to the original registered owners, in exchange
thereby;
3) To pay to the heirs of the late plaintiff Alejandra
Delfino, the sum of P5,000.00 as actual damages and
the sum of P10,000.00 as moral damages;
4) To pay P2,000.00 as attorney's fees plus the costs of
this suit.
SO ORDERED.6
According to the trial court, the claims of herein respondents
were anchored on valid grounds. It noted that Alejandra had
been occupying one-half portion of Lot 4163 since 1956 and it
was the one pointed to her by the vendors. Citing the case of
Atilano vs. Atilano7, it ruled that when one sells or buys real
property, he sells or buys the said property as is shown to her
and as he sees it, at its actual setting and by its physical metes
and bounds, not by the mere lot number assigned to it in the
certificate of title. Thus, it concluded that from the facts and
circumstances of the case, it is clear that the object of the sale,
as understood by the parties, was that portion "Y" of Lot 4163
and that its designation as Lot 5734 in the document of sale was
a simple mistake in the drafting of the document, which mistake,
however, did not vitiate the consent of the parties or affect the
validity and the binding effect of the contract between them.
Hence, the remedy of reformation of instrument is proper.8
Petitioners appealed the decision to the Court of Appeals, which
affirmed the ruling of the trial court as follows:
WHEREFORE, the appealed decision is hereby
AFFIRMED. Costs against defendants-appellants.
SO ORDERED.9
In affirming the decision of the trial court, the Court of Appeals
agreed that the real intention of the parties was for the sale of
Lot 4163 which Alejandra Delfino had been occupying, and the
designation of Lot 5734 in the deed was a mistake in the
preparation of the document. It noted that Silveria Flores did not
object when Alejandra Delfino took possession of one-half
portion of Lot 4163 immediately after the sale, considering that
it was Silveria's son, Michael Corsame, who developed the area
purchased by Alejandra.10
Aggrieved but undeterred, the successors-in-interest of
defendant Silveria Flores seasonably filed their petition for
review under Rule 45 of the Rules of Court. They assail the
decision of the Court of Appeals on the following grounds:
1. THE COURT OF APPEALS COMMITTED AN
ERROR IN LAW WHEN IT FAILED TO ORDER THE
DISMISSAL OF CIVIL CASE NO. 3457 FOR LACK OF
CAUSE OF ACTION.
2. THE COURT OF APPEALS AND THE TRIAL COURT
COMMITTED A REVERSIBLE ERROR IN LAW AND
JURISPRUDENCE WHEN IT FAILED TO RULE THAT,
BASED ON THE UNDISPUTED EVIDENCE ON
RECORD AND THE SETTLEMENT OF ESTATE AND
SALE ITSELF, THE PLAINTIFFS HAVE NO CAUSE OF
ACTION AGAINST SILVERIA FLORES BECAUSE SHE
DID NOT SELL HER LAND TO ALEJANDRA DELFINO.
HENCE SILVERIA FLORES CANNOT BE BOUND
NOR PREJUDICED BY THE CONTRACT OF SALE
ENTERED BY ALEJANDRA DELFINO AND HER CO-
PLAINTIFFS (CAPITOL INSURANCE & SURETY CO
INC. V. CENTRAL AZUCARERA DEL DAVAO, 221
SCRA 98; OZAETA V. CA, 228 SCRA 350).
3. THE COURT OF APPEALS AND THE TRIAL COURT
COMMITTED A REVERSIBLE ERROR WHEN IT
FAILED TO PRONOUNCE THAT SILVERIA FLORES
WHO IS NOT A PARTY TO THE CONTRACT OF SALE
INVOLVING LOT NO. 5734 COVERED BY OCT NO.
4918-A CANNOT BE LEGALLY COMPELLED BY
ALEJANDRA DELFINO THRU AN ACTION FOR
REFORMATION OF CONTRACT TO EXECUTE A
"CONVEYANCE OF SALE" INVOLVING LOT NO. 4163
COVERED BY OCT NO. 3129-A OWNED AND
REGISTERED SOLELY IN THE NAME OF SILVERIA
FLORES.
4. THE COURT OF APPEALS AND THE TRIAL COURT
GROSSLY MISAPPREHENDED THE FACTS WHEN IT
RULED THAT THE OBJECT OF THE CONTRACT OF
SALE WAS LOT NO. 4163 COVERED BY OCT NO.
3129-A, DESPITE THE UNASSAILABLE FACT THAT
THE OBJECT OF THE SETTLEMENT AND SUBJECT
OF THE CONTRACT OF SALE WAS LOT NO. 5734
COVERED BY OCT NO. 4918-A.
5. THE COURT OF APPEALS AND THE TRIAL COURT
GROSSLY MISAPPREHENDED THE FACTS IN NOT
UPHOLDING THAT THERE WAS NO MISTAKE IN THE
DRAFTING OF THE DOCUMENT AS WELL AS IN THE
OBJECT OF THE SETTLEMENT OF ESTATE AND
SALE BECAUSE THE DOCUMENT WAS PREPARED
BY ATTY. DEOGRACIAS PINILI, THE LAWYER OF
ALEJANDRA DELFINO.
6. THE COURT OF APPEALS AND THE TRIAL COURT
GROSSLY MISAPPREHENDED THE FACTS WHEN IT
RULED THAT THE GRANDCHILDREN OF JOSE
FLORES ARE OWNERS AND COULD SELL THE ONE-
HALF (1/2) PORTION OF LOT NO. 4163 TO
ALEJANDRA DELFINO DESPITE THE
INCONTROVERTIBLE EVIDENCE THAT LOT NO.
4163 COVERED BY OCT NO. 3129-A IS REGISTERED
AND SOLELY OWNED BY SILVERIA FLORES WHO IS
PAYING THE REAL PROPERTY TAXES.
7. THE COURT OF APPEALS AND THE TRIAL COURT
COMMITTED A REVERSIBLE ERROR IN LAW WHEN
IT DISREGARDED ARTICLE 1370 OF THE CIVIL
CODE OF THE PHILIPPINES AND PERTINENT
JURISPRUDENCE RELEVANT TO THIS CASE EVEN
IF THE TERMS OF THE SETTLEMENT OF ESTATE
AND SALE ARE CLEAR AND LEAVE NO DOUBT ON
THE INTENTION OF THE CONTRACTING PARTIES.
8. THE COURT OF APPEALS AND THE TRIAL COURT
GRAVELY ERRED IN DISREGARDING SETTLED
JURISPRUDENCE THAT A PUBLIC DOCUMENT
EXECUTED AND ATTESTED THROUGH THE
INTERVENTION OF A NOTARY PUBLIC IS
EVIDENCE OF THE FACTS IN CLEAR,
UNEQUIVOCAL MANNER AND TO CONTRADICT IT
THERE MUST BE CLEAR AND CONVINCING
EVIDENCE NOT MERELY PREPONDERANT
EVIDENCE (GEVERO VS. INTERMEDIATE
APPELLATE COURT, G.R. NO. 77029, AUGUST 30,
1990; ZAMBO V. COURT OF APPEALS, 224 SCRA
855; REBULDEDA V. IAC, 155 SCRA 520;
CHILIANCHIN V. COQUINCO, 84 PHIL. 714;
CENTENERA V. GARCIA PALICIO, 29 PHIL. 470).
9. THE COURT OF APPEALS AND THE TRIAL COURT
COMMITTED A REVERSIBLE ERROR WHEN IT
SUBSTITUTED, REVISED AND MODIFIED THE
AGREEMENT OF THE PARTIES DESPITE THE
ABSENCE OF FRAUD, MISTAKE, INEQUITABLE
CONDUCT OR ACCIDENT.
10. THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN LAW WHEN IT FAILED TO
RULE ON THE ISSUE OF WHETHER THE TRIAL
COURT GRAVELY ERRED IN ORDERING THE HEIRS
OF SILVERIA FLORES TO PAY ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEY'S FEES TO THE
HEIRS OF ALEJANDRA DELFINO.11
After careful consideration, we find the following relevant issues
for our resolution: (1) whether or not there is a cause of action
for reformation of instrument against Silveria Flores, and
consequently the petitioners; (2) whether or not reformation of
the subject deed is proper by reason of mistake in designating
the correct lot number; and (3) whether or not the heirs of
Alejandra Delfino are entitled to actual and moral damages
including attorney's fees.
In seeking the reversal of the appellate court's decision, the heirs
of Silveria Flores, herein petitioners, ascribe to the appellate
court several errors: first, the Court of Appeals committed error
in failing to appreciate that there is no cause of action against
Silveria as she was never a party to the contract of sale; second,
the appellate court erred in giving probative value to the biased
testimony of Trinidad Flores to the effect that Lot No. 4163 was
subdivided into two, one-half of which is occupied by her and her
siblings; and third, the appellate court erred in not considering
the fact that Silveria is the only registered owner of Lot 4163.
Petitioners submit that the evidence adduced is insufficient to
sustain a decision in respondents' favor.
Respondents, for their part, maintain that the present petition is
pro forma as it does not raise any new matter worth considering.
They also assert that the arguments and issues raised by
petitioners have been more than adequately and exhaustively
discussed by the trial court as well as the Court of Appeals.12
On the first issue, petitioners contend that there is no cause of
action against them and their predecessor-in-interest, Silveria
Flores, because she and they were not parties to the contract
sought to be reformed.
However, a close perusal of the deed would show that Silveria
Flores was a party to the contract. She is not only the seller of
the coconut trees worth P15 but she was also one of the heirs
entitled to the estate of Venancio and Maxima, one of the heirs
of Jose Flores. Her name did not appear as one of the sellers of
one-half lot to Alejandra Delfino because she never sold her
share. What was sold was the one-half share of Jose Flores, as
represented by his heirs. It is also established that it was Silveria
Flores herself who delivered the subject lot to the vendee
Alejandra Delfino. Said the lower court:
The truth of the matter, is that what the plaintiffs-vendors
really intended to sell and what Alejandra Delfino
intended to buy, of which both of the parties agreed to
be the subject of the transaction, was actually that parcel
of land, with two rows of coconut trees as the dividing
line, and which lot is known as Lot 4163. This lot, on the
western portion, was the very portion which was pointed
to and delivered to Alejandra Delfino by the original
 defendant Silveria Flores and her two children, together
with the vendors on January 19, 1956. When the title to
the said property was delivered to the notary public, for
the preparation of the document of sale, the title that was
delivered was for Lot 5734. So, the document, that was
executed, was done by reason of mistake, inequitable
conduct and accident, because the said document did
not express the true and real agreement and intention of
the contracting parties. What was made to appear in the
said document was the sale of the one-half portion of
another lot. Lot 5734, when in truth and in fact, the
subject property sold was Lot 4163.13 (Underscoring and
italics supplied.)
Through her actions, Silveria Flores had made the parties to the
deed believe that the lot intended to be the object of the contract
was the same lot described in the deed. Thus, by mistake or
accident, as well as inequitable conduct, neither she nor her
successors-in-interest could deny involvement in the transaction
that resulted in a deed that now ought to be reformed.
Worth stressing, the existence of a cause of action is not
determined by one's involvement in a contract. Participation in a
contract is not an element to determine the existence of a cause
of action. The rule is that only the allegations in the complaint
may properly be considered in ascertaining the existence of a
cause of action. Lack of cause of action must appear on the face
of the complaint and its existence may be determined only by
the allegations of the complaint. Consideration of other facts is
proscribed and any attempt to prove extraneous circumstances
is not allowed.14
The test of sufficiency of the facts found in a complaint as
constituting a cause of action is whether or not, admitting the
facts alleged, the court can render a valid judgment upon the
same in accordance with the prayer in the complaint. 15 An
examination of the complaint16 shows herein respondents, as
plaintiffs in the trial court, are entitled to the relief of reformation
of instrument if the following factual allegations of respondents
are deemed admitted, to wit: (1) that Silveria is a co-owner of
Lots No. 5734 and 4163, in different shares; (2) that the heirs of
Jose, her co-owner in Lot No. 4163, offered to sell to her their
one-half share but she declined for lack of money; (3) that said
share was later sold to Alejandra; (4) that Silveria was asked to
deliver the title of Lot No. 4163 but instead she delivered the title
of Lot No. 5734; (5) that after the sale, Alejandra occupied one-
half portion of Lot No. 4163 while Lot No. 5734 was still in the
possession of Venancio and the heirs of Maxima and Silveria;
(6) that it was only when Alejandra was about to buy the adjacent
lot that she realized that what was indicated in the Settlement of
Estate and Sale was Lot No. 5734 and not 4163. In sum, we find
that the original plaintiffs in the trial court alleged sufficient facts
in the complaint that properly constituted a cause of action
against the defendants.
On the second issue, petitioners contend respondents failed to
show, specifically, a cause of action for the reformation of the
instrument in question. Reformation is that remedy in equity by
means of which a written instrument is made or construed so as
to express or conform to the real intention of the parties. 17 As
provided in Article 1359 of the Civil Code:
Art. 1359. When, there having been a meeting of the
minds of the parties to a contract, their true intention is
not expressed in the instrument purporting to embody
the agreement by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract.
An action for reformation of instrument under this provision of
law may prosper only upon the concurrence of the following
requisites: (1) there must have been a meeting of the minds of
the parties to the contact; (2) the instrument does not express
the true intention of the parties; and (3) the failure of the
instrument to express the true intention of the parties is due to
mistake, fraud, inequitable conduct or accident.18
All of these requisites, in our view, are present in this case. There
was a meeting of the minds between the parties to the contract
but the deed did not express the true intention of the parties due
to mistake in the designation of the lot subject of the deed. There
is no dispute as to the intention of the parties to sell the land to
Alejandra Delfino but there was a mistake as to the designation
of the lot intended to be sold as stated in the Settlement of Estate
and Sale.
While intentions involve a state of mind which may sometimes
be difficult to decipher, subsequent and contemporaneous acts
of the parties as well as the evidentiary facts as proved and
admitted can be reflective of one's intention. The totality of the
evidence clearly indicates that what was intended to be sold to
Alejandra Delfino was Lot 4163 and not Lot 5734. As found by
both courts below, there are enough bases to support such
conclusion. We particularly note that one of the stipulated facts
during the pre-trial is that one-half of Lot 4163 is in the
possession of plaintiff Alejandra Delfino "since 1956 up to the
present."19 Now, why would Alejandra occupy and possess one-
half of said lot if it was not the parcel of land which was the object
of the sale to her? Besides, as found by the Court of Appeals, if
it were true that Silveria Flores was the sole owner of Lot 4163,
then she should have objected when Alejandra Delfino took
possession of one-half thereof immediately after the sale.
Additionally, we find no cogent reason to depart from the
conclusion of both the Court of Appeals and the trial court, based
on the evidence on record, that Silveria Flores owns only one-
half of Lot 4163. The other half belongs to her brother Jose,
represented now by his grandchildren successors-in-interest. As
such, the latter could rightfully sell the land to Alejandra Delfino.
Furthermore, on record, it has been shown that a spot
investigation conducted by a duly licensed surveyor revealed
that Lot 4163 is subdivided into two portions, one belonging to
Silveria Flores and the other to the heirs of Jose Flores.20 As
found by the trial court, if indeed it was Lot 5734 that was sold,
then Silveria Flores was occupying more than her share of the
inherited lot. Thus:
x x x That, with respect to Lot No. 5734 and Lot No.
4292, in an on-the-spot investigation, made by a
licensed surveyor, Mr. Rilthe Dorado, his findings
thereon show that Silveria Flores is in possession on the
western portion of Lot 5734, with an area of more than
one-half and, to be exact, with an area of 2,462, in spite
of the fact that she is the registered owner only of a one-
third (1/3) share; and admitting, for the sake of
argument, that it was the one-half portion, of Lot 5734,
that was sold, why should Silveria Flores possess more
than 2,190 square meters, which is the 1/2 of Lot 5734,
Isabel Flores, the daughter of Venancio Flores is
possessing the middle portion, with an area of only 884
square meters; and Trinidad Flores Nodado, in
representation of her aunt, Maxima Flores, is
possessing an area of 1,034 sq. m.21
As a matter of fact, the trial court also found that in spite of her
title over Lot 4163, Silveria recognized the right of Jose's
grandchildren over one-half portion of the property.22 The trial
court gave credence to the testimony of Trinidad Flores, one of
the grandchildren, who testified as follows:
Q: During the lifetime of Jose and Silveria when
they were possessing Lot 4163, did they subdivide it
because they were possessing it in common?
A: They subdivided it into two halves.
xxx
Q: And after Jose and Silveria subdivided Lot 4163,
they possessed their respective shares of Lot 4163?
A: Yes.
xxx
Q: Now you said that you are the heirs of Jose and
Roman Flores (father and son) and so when they died
this portion of Lot 4163 devolved on you, did you ever
take possession of Lot 4163?
A: Yes, we, the brothers and sisters immediately
took possession of it.23
On cross-examination, Trinidad sufficiently explained why the
title to Lot No. 4163 is in the name of Silveria Flores alone. Thus:
Q: Now, this Lot No. 4163, do you know if this lot is
also titled?
A: Yes, it was titled, only in the name of Silveria
Flores because my aunt was not able to go with her; only
my aunt was alone at that time.24
xxx
 3
Q: And as you have stated earlier, that what you CA Rollo, p. 118.
4
are intending to sell was Lot 4163 to plaintiff Alejandra Father of Isabel, Juan and Hilario.
5
Delfino, and during this time that you sold this intended Grandfather of Trinidad, Luisa, Ruperto and Tomasa. The latter
lot 4163, you were not aware this particular lot 4163 was are the children of Roman, one of the sons of Jose.
6
titled exclusively in the name of Silveria Flores, is that Id. at 55-56.
7
correct? G.R. No. L-22487, 28 SCRA 231 (1969).
8
Rollo, pp. 127-128.
A: I knew already that the said lot was already titled, 9
Id. at 17.
but it was titled only in the name of Silveria Flores 10
Id. at 101.
because she was the only one who went there to have it 11
Id. at 44-46.
titled in her name. And at the time of the sale of the lot, 12
Id. at 138.
we demanded for the title from Silveria Flores, and what 13
Id. at 129-130.
she delivered was the 5734 (sic).25 14
Viewmaster Construction Corporation vs. Roxas, et al., G.R.
Petitioners now claim that the foregoing testimony of Trinidad No. 133576, 335 SCRA 540, 546 (2000).
15
Flores was biased. But we note that the appellate court Ibid.
16
sustained the trial court's reliance on her testimony, which both Records, pp. 13-21.
17
found to be credible. As consistently held, factual findings of the The National Irrigation Administration, etc. vs. Gamit, et al.,
trial court, especially when affirmed by the appellate court, are G.R. No. 85869, 215 SCRA 436, 454 (1992), citing Conde, et al.
binding upon this Court26 and entitled to utmost respect.27 vs. Cuenca, et al., G.R. No. L-9405, 99 Phil. 1056 (1956).
18
Considering these findings, we see no reason to disturb the trial Huibonhoa vs. CA, et al., G.R. Nos. 95897 & 102604, 320
court's finding, affirmed by the Court of Appeals, that the object SCRA 625, 647 (1999), citing NIA vs. Gamit, supra, note 17 at
of the contract of sale, as intended and understood by the 451.
19
parties, was Lot 4163 covered by OCT 3129-A which Alejandra, Rollo, p. 110.
20
and now her heirs, have been occupying. The designation of the Id. at 119.
21
lot in the deed of sale as Lot 5734, covered by OCT 4918-A, was Ibid.
22
a mistake in the preparation of the document. Thus, we concur Id. at 120.
23
in the conclusion reached by the courts a quo that reformation of Id. at 100.
24
the instrument is proper. TSN, January 9, 1991, p. 9.
25
Id. at 13.
However, on the matter of damages, the award of actual 26
Lorenzana vs. People, G.R. No. 138666, March 1, 2001, pp.
damages in the amount of P5,000 lacks evidentiary support. 1 & 9.
27
Actual damages if not supported by the evidence on record Ong vs. Court of Appeals, et al., G.R. No. 95386, 272 SCRA
cannot be granted.28 Moral damages for P10,000 was also 725, 730, (1997).
28
improperly awarded, absent a specific finding and Fuentes, Jr. vs. Court of Appeals, et al., G.R. No. 111692, 253
pronouncement from the trial court that petitioners acted in bad SCRA 430, 439 (1996).
faith or with malice. However, the award of attorney's fees for 29
Art. 2208. In the absence of stipulation, attorney's fees and
P2,000 is justified under Article 2208(2) of the Civil Code, 29 in expenses of litigation, other than judicial costs, cannot be
view of the trial court's finding that the unjustified refusal of recovered, except:
petitioners to reform or to correct the document of sale xxx
compelled respondents to litigate to protect their interest. (2) When the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to
WHEREFORE, the decision of the Court of Appeals in CA-G.R. protect his interest;
CV No. 39401 is AFFIRMED with MODIFICATION. It is hereby x x x.
ordered that the document entitled Settlement of Estate and Sale
be reformed by changing the phrase "Lot 5734" to "Lot 4163"
found in the sixth paragraph of the deed, thereby ceding in favor
of respondents one-half portion of Lot 4163 instead of Lot 5734.
The award to respondents of attorney's fees in the amount of
P2,000 is affirmed. However, the award of actual damages in the
amount of P5,000 and of moral damages in the amount of
P10,000 are both SET ASIDE. No pronouncement as to costs.
SO ORDERED.
Bellosillo, Mendoza, De Leon, Jr., and Corona, JJ., concur.
Footnotes
1
CA Rollo, pp. 89-97.
2
Records, pp. 403-430.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 181855 March 30, 2010
FLORDELIZA EMILIO, Petitioner,
vs.
BILMA RAPAL, Respondent.
DECISION
CARPIO MORALES, J.:
Flordeliza Emilio (petitioner), by virtue of a grant from the
National Housing Authority (NHA), became the registered owner
of a parcel of land with an area of 196 square meters (sq. m.)
situated in Caloocan City and covered by TCT No. C-345262
whereon she built a house which occupied an area of 27 sq. m.
Since 1989, Bilma Rapal (respondent) had been leasing a
portion of the house. In 1993, she leased an adjoining room in
the house.
In early 1996, petitioner borrowed ₱10,000 from respondent. By
petitioner’s claim, she accepted respondent’s offer to extend her
an additional ₱60,000.00 loan upon the condition that
respondent would not pay the monthly rentals from February
1996 until December 1998, as the total amount of ₱70,000.00
would serve as advance rentals.
Atty. Patricio Balao-Ga (Atty. Balao-Ga) of the Public Attorney’s
Office (PAO) notarized a document entitled "Sale and Transfer
of Rights over a Portion of a Parcel of Land"1 executed by
petitioner whereby she sold to respondent 27 sq. m. of her lot,
together with the house constructed thereon, for a consideration
of ₱90,000.00.
Petitioner was later to claim that she signed the deed, without its
contents having been explained to her. She thus filed a
complaint2 on July 11, 2002 with the Regional Trial Court (RTC)
of Caloocan, for reformation of document, docketed as Civil
Case No. C-20148, alleging that the deed of sale and transfer
must be reformed, there being no intention on her part to sell the
property as she could not do so without the consent of the NHA.
Respondent moved to dismiss the complaint on the ground of
lack of cause of action and prescription, averring that while the
complaint was denominated as one for reformation of document,
it was actually one for annulment of contract which was executed
on February 2, 1996, hence, the action had prescribed when it
was filed on July 11, 2002.
Respondent’s motion was denied, and as the Answer filed by
respondent was found to have been filed way out of time, Branch
131 of the
RTC granted petitioner’s motion to declare respondent in
default, and to allow her to, as she did, present evidence ex
parte.3
By Decision4 of January 26, 2005, the trial court ruled in favor of The October 16, 2007 "Sinumpaang Salaysay" of petitioner’s
petitioner, declaring that the deed of sale is null and void as it did daughter, which was submitted only when petitioner was moving
not reflect the true intention of the parties, the intention being for reconsideration of the appellate court’s decision and,
one of loan. therefore, not procedurally in order, does not convince. In any
event, it is clearly hearsay as the affiant’s "what I know"
On respondent’s appeal, the Court of Appeals, by Decision5 of statements indicate.
September 27, 2007, reversed the decision of the trial court. The
appellate court held that while petitioner’s cause of action is one Petitioner could have presented PAO lawyer-notary public Atty.
for reformation of instrument and, as such, it had not yet Balao-Ga or the witnesses to the deed, but she failed to do so.
prescribed, she failed to discharge the burden of proving that Atty. Balao-Ga, in fact, in a Certification12 dated April 28, 2006,
fraud attended the execution of the deed to warrant its stated that the deed was one of sale, not a real estate mortgage.
reformation.
WHEREFORE, the petition is DENIED.
The appellate court brushed aside petitioner’s claim that she did
not understand the contents of the deed, absent proof that she SO ORDERED.
does not know how to read or that the deed was written in a CONCHITA CARPIO MORALES*
language not known to her.1avvphi1 Associate Justice
WE CONCUR:
Petitioner timely filed a motion for reconsideration of the
appellate court’s decision to which she attached a Motion to
Admit an October 16, 2007 "Sinumpaang Salaysay"6 executed TERESITA J. LEONARDO-DE DIOSDADO M. PERALTA**
by her daughter Armi Munsayac. In said affidavit, Armi stated CASTRO Associate Justice
that, from what she knows, her mother was not able to finish her
Associate Justice
elementary school studies and could not fully understand LUCAS P. BERSAMIN ROBERTO A. ABAD***
Associate Justice Associate Justice
English; and that, also from what she knows, her mother did not
sell the property to respondent. ATTESTATION
Petitioner’s motion was denied by Resolution7 of February 27, I attest that the conclusions in the above Decision were reached in consultation before
2008, hence, the present petition for review on certiorari. the case was assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES
Respondent disputes petitioner’s claim that petitioner did not Acting Chairperson
understand the contents of the deed, given that in her
(petitioner’s) pleadings which are in English, petitioner stated CERTIFICATION
under oath that she read and understood the same; and that Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting
petitioner testified in court in English as borne by the Transcript Chairperson’s Attestation, I certify that the conclusions in the above decision had been
of Stenographic Notes, and her request/demand letters dated
reached in consultation before the case was assigned to the writer of the opinion of
the Court’s Division.
September 6, 2004 and November 4, 2004 addressed to the
Barangay Captain were also written in English.8 ANTONIO T. CARPIO
Acting Chief Justice
The petition fails. Footnotes
For an action for reformation of instrument to prosper, the * Per Special Order No. 828 dated March 16, 2010.
** Additional member per Special Order No. 825 dated March 3, 2010.
following requisites must concur: (1) there must have been a *** Additional member per Special Order No. 829 dated March 16, 2010.
meeting of the minds of the parties to the contract; (2) the 1
Records, pp. 9-10.
2
instrument does not express the true intention of the parties; and 3
Id. at 1-7.
Id. at 63-65. Penned by Judge Antonio J. Fineza.
(3) the failure of the instrument to express the true intention of 4
CA rollo, pp. 36-39. Penned by Judge Oscar P. Barrientos.
the parties is due to mistake, fraud, inequitable conduct or 5
Rollo, pp. 165-175. Penned by Associate Justice Hakim S. Abdulwahid and
accident.9 concurred in by Associate Justices Rodrigo V. Cosico and Apolinario D. Bruselas, Jr.
6
Id. at 186.
7
Petitioner having admitted the existence and execution of the Id. at 213-220. Penned by Associate Justice Hakim S. Abdulwahid and concurred in
by Associate Justices Jose C. Reyes, Jr. and Apolinario D. Bruselas, Jr.
instrument, what remains to be resolved is whether the contract 8
Id. at 205-206.
expressed the true intention of the parties; if not, whether it was 9
Multi-Ventures Capital v. Stalwart Management Services Corporation, G.R. No.
due to mistake, fraud, inequitable conduct or accident. The onus 157439, July 4, 2007, 526 SCRA 420.
10
Huibonhua v. Court of Appeals, 378 Phil. 386, 407.
probandi is upon the party who insists that the contract should 11
Tapuroc . v Loquellano Vda. de Mende, G.R. No.152007, January 22, 2007, 512
be reformed.10 SCRA 97, 109.
12
Rollo, p. 198.
Notarized documents, like the deed in question, enjoy the
presumption of regularity which can be overturned only by clear,
convincing and more than merely preponderant evidence. This
petitioner failed to discharge.11
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22962 September 28, 1972
PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V.
BORROMEO, JOSE BORROMEO, CONSUELO B.
MORALES and CANUTO V. BORROMEO, JR., petitioners,
vs.
COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased)
Substituted by FELISA VILLAMOR, ROSARIO V. LIAO
LAMCO, MANUEL VILLAMOR, AMPARO V. COTTON,
MIGUEL VILLAMOR and CARMENCITA VILLAMOR,
respondents.
Filiberto Leonardo for petitioners.
Ramon Duterte for private respondents.
FERNANDO, J.:p
The point pressed on us by private respondents,1 in this petition
for review of a decision of the Court of Appeals in the
interpretation of a stipulation which admittedly is not free from
ambiguity, there being a mention of a waiver of the defense of
prescription, is not calculated to elicit undue judicial sympathy.
For if accorded acceptance, a creditor, now represented by his
heirs,2 who, following the warm and generous impulse of
friendship, came to the rescue of a debtor from a serious
predicament of his own making would be barred from recovering
the money loaned. Thus the promptings of charity, unfortunately
not often persuasive enough, would be discredited. It is
unfortunate then that respondent Court of Appeals did not see it
that way. For its decision to be upheld would be to subject the
law to such a scathing indictment. A careful study of the relevant
facts in the light of applicable doctrines calls for the reversal of
its decision.
The facts as found by the Court of Appeals follow: "Before the
year 1933, defendant [Jose A. Villamor] was a distributor of
lumber belonging to Mr. Miller who was the agent of the Insular
Lumber Company in Cebu City. Defendant being a friend and
former classmate of plaintiff [Canuto O. Borromeo] used to
borrow from the latter certain amounts from time to time. On one
occasion with some pressing obligation to settle with Mr. Miller,
defendant borrowed from plaintiff a large sum of money for which
he mortgaged his land and house in Cebu City. Mr. Miller filed
civil action against the defendant and attached his properties
including those mortgaged to plaintiff, inasmuch as the deed of
mortgage in favor of plaintiff could not be registered because not
properly drawn up. Plaintiff then pressed the defendant for
settlement of his obligation, but defendant instead offered to
execute a document promising to pay his indebtedness even
after the lapse of ten years. Liquidation was made and defendant
was found to be indebted to plaintiff in the sum of P7,220.00, for
which defendant signed a promissory note therefor on
November 29, 1933 with interest at the rate of 12% per annum,
agreeing to pay 'as soon as I have money'. The note further
stipulates that defendant 'hereby relinquish, renounce, or
otherwise waive my rights to the prescriptions established by our
Code of Civil Procedure for the collection or recovery of the
above sum of P7,220.00. ... at any time even after the lapse of
ten years from the date of this instrument'. After the execution of
the document, plaintiff limited himself to verbally requesting
defendant to settle his indebtedness from time to time. Plaintiff
did not file any complaint against the defendant within ten years
from the execution of the document as there was no property
registered in defendant's name, who furthermore assured him
that he could collect even after the lapse of ten years. After the
last war, plaintiff made various oral demands, but defendants
failed to settle his account, — hence the present complaint for
collection."3 It was then noted in the decision under review that
the Court of First Instance of Cebu did sentence the original
defendant, the deceased Jose A. Villamor, to pay Canuto O.
Borromeo, now represented by petitioners, the sum of
P7,220.00 within ninety days from the date of the receipt of such
decision with interest at the rate of 12% per annum from the
expiration of such ninety-day period. That was the judgment
reversed by the Court of Appeals in its decision of March 7,
1964, now the subject of this petition for review. The legal basis
was the lack of validity of the stipulation amounting to a waiver
in line with the principle "that a person cannot renounce future
prescription."4
The rather summary and curt disposition of the crucial legal
question of respondent Court in its five-page decision,
regrettably rising not too-far-above the superficial level of
analysis hardly commends itself for approval. In the first place,
there appeared to be undue reliance on certain words employed
in the written instrument executed by the parties to the total
disregard of their intention. That was to pay undue homage to
verbalism. That was to ignore the warning of Frankfurter against
succumbing to the vice of literalism in the interpretation of
language whether found in a constitution, a statute, or a contract.
Then, too, in effect it would nullify what ought to have been
evident by a perusal that is not-too-cursory, namely, that the
creditor moved by ties of friendship was more than willing to give
the debtor the utmost latitude as to when his admittedly scanty
resources will allow him to pay. He was not renouncing any right;
he was just being considerate, perhaps excessively so. Under
the view of respondent Court, however, what had been agreed
upon was in effect voided. That was to run counter to the well-
settled maxim that between two possible interpretations, that
which saves rather than destroys is to be preferred. What vitiates
most the appealed decision, however, is that it would amount not
to just negating an agreement duly entered into but would put a
premium on conduct that is hardly fair and could be
characterized as duplicitous. Certainly, it would reflect on a
debtor apparently bent all the while on repudiating his obligation.
Thus he would be permitted to repay an act of kindness with
base ingratitude. Since as will hereafter be shown, there is, on
the contrary, the appropriate construction of the wording that
found its way in the document, one which has all the earmarks
of validity and at the same time is in consonance with the
demands of justice and morality, the decision on appeal, as was
noted at the outset, must be reversed.
1. The facts rightly understood argue for the reversal of the
decision arrived at by respondent Court of Appeals. Even before
the event that gave rise to the loan in question, the debtor, the
late Jose A. Villamor, being a friend and a former classmate,
used to borrow from time to time various sums of money from
the creditor, the late Canuto O. Borromeo. Then faced with the
need to settle a pressing obligation with a certain Miller, he did
borrow from the latter sometime in 1933 what respondent Court
called "a large sum of money for which he mortgaged his land
and house in Cebu City."5 It was noted that this Miller did file a
suit against him, attaching his properties including those he did
mortgage to the late Borromeo, there being no valid objection to
such a step as the aforesaid mortgage, not being properly drawn
up, could not be registered. Mention was then made of the late
Borromeo in his lifetime seeking the satisfaction of the sum due
with Villamor unable to pay, but executing a document promising
"to pay his indebtedness even after the lapse of ten years."6 It is
with such a background that the words employed in the
instrument of November 29, 1933 should be viewed. There is
nothing implausible in the view that such language renouncing
the debtor's right to the prescription established by the Code of
Civil Procedure should be given the meaning, as noted in the
preceding sentence of the decision of respondent Court, that the
debtor could be trusted to pay even after the termination of the
ten-year prescriptive period. For as was also made clear therein,
there had been since then verbal requests on the part of the
creditor made to the debtor for the settlement of such a loan. Nor
was the Court of Appeals unaware that such indeed was within
the contemplation of the parties as shown by this sentence in its
decision: "Plaintiff did not file any complaint against the
defendant within ten years from the execution of the document
as there was no property registered in defendant's name who
furthermore assured him that he could collect even after the
lapse of ten years."7
2. There is much to be said then for the contention of petitioners
that the reference to the prescriptive period is susceptible to the
construction that only after the lapse thereof could the demand
be made for the payment of the obligation. Whatever be the
obscurity occasioned by the words is illumined when the light
arising from the relationship of close friendship between the
parties as well as the unsuccessful effort to execute a mortgage,
taken in connection with the various oral demands made, is
thrown on them. Obviously, it did not suffice for the respondent
Court of Appeals. It preferred to reach a conclusion which for it
was necessitated by the strict letter of the law untinged by any
spirit of good morals and justice, which should not be alien to
legal norms. Even from the standpoint of what for some is strict
legalism, the decision arrived at by the Court of Appeals calls for
disapproval. It is a fundamental principle in the interpretation of
contracts that while ordinarily the literal sense of the words
employed is to be followed, such is not the case where they
"appear to be contrary to the evident intention of the contracting
parties," which "intention shall prevail."8 Such a codal provision
has been given full force and effect since the leading case of
Reyes v. Limjap,9 a 1910 decision. Justice Torres, who penned
the above decision, had occasion to reiterate such a principle
when he spoke for the Court in De la Vega v. Ballilos 10 thus:
"The contract entered into by the contracting parties which has
produced between them rights and obligations is in fact one of
antichresis, for article 1281 of the Civil Code prescribes among
other things that if the words should appear to conflict with the
evident intent of the contracting parties, the intent shall prevail."
11
In Abella v. Gonzaga, 12 this Court through the then Justice
Villamor, gave force to such a codal provision when he made
clear that the inevitable conclusion arrived at was "that although
in the contract Exhibit A the usual words 'lease,' 'lessee,' and
'lessor' were employed, that is no obstacle to holding, as we do
hereby hold, that said contract was a sale on installments, for
such was the evident intention of the parties in entering into said
contract. 13 Only lately in Nielson and Company v. Lepanto
Consolidated Mining Company, 14 this Court, with Justice
Zaldivar, as ponente, after stressing the primordial rule that in
the construction and interpretation of a document, the intention
of the parties must be sought, went on to state: "This is the basic
rule in the interpretation of contracts because all other rules are
but ancillary to the ascertainment of the meaning intended by the
parties. And once this intention has been ascertained it becomes
an integral part of the contract as though it had been originally
expressed therein in unequivocal terms ... ." 15 While not directly
in point, what was said by Justice Labrador in Tumaneng v. Abad
16
is relevant: "There is no question that the terms of the contract
are not clear on the period of redemption. But the intent of the
parties thereto is the law between them, and it must be
ascertained and enforced." 17 Nor is it to be forgotten, following
what was first announced in Velasquez v. Teodoro 18 that
"previous, simultaneous and subsequent acts of the parties are
properly cognizable indicia of their true intention." 19
There is another fundamental rule in the interpretation of
contracts specifically referred to in Kasilag v. Rodriguez, 20 as
"not less important" 21 than other principles which "is to the effect
that the terms, clauses and conditions contrary to law, morals
and public order should be separated from the valid and legal
contract when such separation can be made because they are
independent of the valid contract which expresses the will of the
contracting parties. Manresa, commenting on article 1255 of the
Civil Code and stating the rule of separation just mentioned,
gives his views as follows: 'On the supposition that the various
pacts, clauses, or conditions are valid, no difficulty is presented;
but should they be void, the question is as to what extent they
may produce the nullity of the principal obligation. Under the
view that such features of the obligation are added to it and do
not go to its essence, a criterion based upon the stability of
juridical relations should tend to consider the nullity as confined
to the clause or pact suffering therefrom, except in cases where
the latter, by an established connection or by manifest intention
of the parties, is inseparable from the principal obligation, and is
a condition, juridically speaking, of that the nullity of which it
would also occasion.' ... The same view prevails in the Anglo-
American law as condensed in the following words: 'Where an
agreement founded on a legal consideration contains several
promises, or a promise to do several things, and a part only of
the things to be done are illegal, the promises which can be
separated, or the promise, so far as it can be separated, from
the illegality, may be valid. The rule is that a lawful promise made
for a lawful consideration is not invalid merely because an
unlawful promise was made at the same time and for the same
consideration, and this rule applies, although the invalidity is due
to violation of a statutory provision, unless the statute expressly
or by necessary implication declares the entire contract void. ..."
22
Nor is it to be forgotten that as early as Compania Agricola
Ultramar v. Reyes, 23 decided in 1904, the then Chief Justice
Arellano in a concurring opinion explicitly declared: "It is true that
contracts are not what the parties may see fit to call them, but
what they really are as determined by the principles of law." 24
Such a doctrine has been subsequently adhered to since then.
As was rephrased by Justice Recto in Aquino v.
Deala: 25 "The validity of these agreements, however, is one
thing, while the juridical qualification of the contract resulting
therefrom is very distinctively another." 26 In a recent decision,
Shell Company of the Phils., Ltd. vs. Firemen's Insurance Co. of
Newark, 27 this court, through Justice Padilla, reaffirmed the
doctrine thus: "To determine the nature of a contract courts do
not have or are not bound to rely upon the name or title given it
by the contracting parties, should there be a controversy as to
what they really had intended to enter into, but the way the
contracting parties do or perform their respective obligations,
stipulated or agreed upon may be shown and inquired into, and
should such performance conflict with the name or title given the
contract by the parties, the former must prevail over the latter."
28
Is it not rather evident that since even the denomination of the
entire contract itself is not conclusively determined by what the
parties call it but by the law, a stipulation found therein should
likewise be impressed with the characterization the law places
upon it?
What emerges in the light of all the principles set forth above is
that the first ten years after November 29, 1933 should not be
counted in determining when the action of creditor, now
represented by petitioners, could be filed. From the joint record
on appeal, it is undoubted that the complaint was filed on
January 7, 1953. If the first ten-year period was to be excluded,
the creditor had until November 29, 1953 to start judicial
proceedings. After deducting the first ten-year period which
expired on November 29, 1943, there was the additional period
of still another ten years. 29 Nor could there be any legal objection
to the complaint by the creditor Borromeo of January 7, 1953
embodying not merely the fixing of the period within which the
debtor Villamor was to pay but likewise the collection of the
amount that until then was not paid. An action combining both
features did receive the imprimatur of the approval of this Court.
As was clearly set forth in Tiglao v. The Manila Railroad
Company: 30 "There is something to defendant's contention that
in previous cases this Court has held that the duration of the term
should be fixed in a separate action for that express purpose.
But we think the lower court has given good reasons for not
adhering to technicalities in its desire to do substantial justice."
31
The justification became even more apparent in the latter
portion of the opinion of Justice Alex Reyes for this Court: "We
may add that defendant does not claim that if a separate action
were instituted to fix the duration of the term of its obligation, it
could present better proofs than those already adduced in the
present case. Such separate action would, therefore, be a mere
formality and would serve no purpose other than to delay." 32
There is no legal obstacle then to the action for collection filed
by the creditor. Moreover, the judgment of the lower court,
reversed by the respondent Court of Appeals, ordering the
payment of the amount due is in accordance with law.
3. There is something more to be said about the stress in the
Tiglao decision on the sound reasons for not adhering to
technicalities in this Court's desire to do substantial justice. The
then Justice, now Chief Justice, Concepcion expressed a similar
thought in emphasizing that in the determination of the rights of
the contracting parties "the interest of justice and equity be not
ignored." 33 This is a principle that dates back to the earliest
years of this Court. The then Chief Justice Bengzon in Arrieta v.
Bellos, 34 invoked equity. Mention has been made of "practical
and substantial justice," 35 "[no] sacrifice of the substantial rights
of a litigant in the altar of sophisticated technicalities with
impairment of the sacred principles of justice," 36 "to afford
substantial justice" 37 and "what equity demands." 38 There has
been disapproval when the result reached is "neither fair, nor
equitable." 39 What is to be avoided is an interpretation that "may
work injustice rather than promote justice." 40 What appears to
be most obvious is that the decision of respondent Court of
Appeals under review offended most grievously against the
above fundamental postulate that underlies all systems of law.
WHEREFORE, the decision of respondent Court of Appeals of
March 7, 1964 is reversed, thus giving full force and effect to the
decision of the lower court of November 15, 1956. With costs
against private respondents.
Concepcion, C.J., Zaldivar, Castro, Teehankee, Barredo,
Makasiar, Antonio and Esguerra, JJ., concur.
Makalintal, J., is on leave.
Footnotes
1 The private respondents are Felisa Villamor, Rosario V. Liao Lamco, Manuel Villamor, Amparo V. Cotton, Miguel Villamor and
Carmencita Villamor, who were substituted for the original defendant in the lower court, Jose A. Villamor, now deceased.
2 The petitioners are Pilar N. Borromeo, Maria B. Putong, Federico V. Borromeo, Jose Borromeo, Consuelo V. Morales and
Canuto V. Borromeo, Jr., who were substituted for the original plaintiff Canuto O. Borromeo.
3 Decision of respondent Court of Appeals, Appendix A to Brief for Petitioners, pp. I-III.
4 Ibid, p. IV.
5 Decision of respondent Court of Appeals, Appendix A to Brief for Petitioners, p. I.
6 Ibid, p. II.
7 Ibid, p. II.
8 According to Article 1281 of the Civil Code of Spain of 1899 in force at the time of the construction: "If the terms of a contract
are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its wordings shall be followed. If the
words appear to be contrary to the evident intention of the contracting parties, the intention shall prevail." Such a provision is
now embodied as Article 1370 of the present Civil Code.
9 15 Phil. 420.
10 34 Phil. 683 (1916).
11 Ibid, 689.
12 56 Phil. 132 (1931). Cf. Valdez v. Sibal, 46 Phil. 930 (1924).
13 Ibid, 139.
14 L-21601, December 17, 1966, 18 SCRA 1040.
15 Ibid, 1050.
16 92 Phil. 18 (1952).
17 Ibid, 20.
18 46 Phil. 757 (1923).
19 Bacordo v. Alcantara, L-20080, July 30, 1965, 14 SCRA 730.
20 69 Phil. 217 (1939).
21 Ibid, 226.
22 Ibid, 226-227.
23 4 Phil. 2.
24 Ibid, 23.
25 63 Phil. 583 (1936).
26 Ibid, 592.
27 100 Phil. 757 (1957).
28 Ibid, 764.
29 Cf. Calero v. Carrion, 107 Phil. 549 (1960).
30 98 Phil. 181 (1956).
31 Ibid, 184.
32 Ibid, 185.
33 Macoy v. Trinidad, 95 Phil. 192 (1954).
34 L-17162, Oct. 31, 1964, 12 SCRA 296.
35 Sarabia v. Secretary of Agriculture, 104 Phil. 151 (1958).
36 Potenciano v. Court of Appeals, 104 Phil. 156 (1958).
37 People v. Martinez, 105 Phil. 200 (1959).
38 Macaraig v. Dy Sun, 105 Phil. 332 (1959).
39 Lao Chit v. Security Bank, 105 Phil. 490 (1959).
40 Cabuang v. Bello, 105 Phil. 1135 (1959).
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 95694 October 9, 1997
VICENTE VILLAFLOR, substituted by his heirs, petitioner,
vs.
COURT OF APPEALS and NASIPIT LUMBER CO., INC.,
respondents.
PANGANIBAN, J.:
In this rather factually complicated case, the Court reiterates the
binding force and effect of findings of specialized administrative
agencies as well as those of trial courts when affirmed by the
Court of Appeals; rejects petitioner's theory of simulation of
contracts; and passes upon the qualifications of private
respondent corporation to acquire disposable public agricultural
lands prior to the effectivity of the 1973 Constitution.
The Case
Before us is a petition for review on certiorari seeking the
reversal of the Decision1 of the Court of Appeals, dated
September 27, 1990, in CA. G.R CV No. 09062, affirming the
dismissal by the trial court of Petitioner Vicente Villaflor's
complaint against Private Respondent Nasipit Lumber Co., Inc.
The disposition of both the trial and the appellate courts are
quoted in the statement of facts below.
The Facts
The facts of this case, as narrated in detail by Respondent Court
of Appeals, are as follows:2
The evidence, testimonial and documentary, presented
during the trial show that on January 16, 1940, Cirilo
Piencenaves, in a Deed of Absolute Sale (exh. A), sold
to [petitioner], a parcel of agricultural land containing an
area of 50 hectares,3 more or less, and particularly
described and bounded as follows:
A certain parcel of agricultural land planted to
abaca with visible concrete monuments marking
the boundaries and bounded on the NORTH by
Public Land now Private Deeds on the East by
Serafin Villaflor, on the SOUTH by Public Land;
and on the West by land claimed by H. Patete,
containing an area of 60 hectares more or less,
now under Tax Dec. 29451 in the (sic) of said
Vicente Villaflor, the whole parcel of which this
particular parcel is only a part, is assessed at
P22,550.00 under the above said Tax Dec.
Number.
This deed states:
That the above described land was sold to the
said VICENTE VILLAFLOR, . . . on June 22,
1937, but no formal document was then
executed, and since then until the present time,
the said Vicente Villaflor has been in possession
and occupation of (the same); (and)
That the above described property was before
the sale, of my exclusive property having
inherited from my long dead parents and my
ownership to it and that of my [sic] lasted for
more than fifty (50) years, possessing and
occupying same peacefully, publicly and
continuously without interruption for that length
of time.
Also on January 16, 1940, Claudio Otero, in a Deed of
Absolute Sale (exh. C) sold to Villaflor a parcel of
agricultural land, containing an area of 24 hectares,
more or less, and particularly described and bounded as
follows:
A certain land planted to corn with visible
concrete measurements marking the
boundaries and bounded on the North by Public
Land and Tungao Creek; on the East by Agusan
River; on the South by Serafin Villaflor and Cirilo
Piencenaves; and on the West by land of Fermin
Bacobo containing an area of 24 hectares more
or less, under Tax Declaration No. 29451 in the
name already of Vicente Villaflor, the whole
parcel of which this particular land is only a part,
is assessed at P22,550.00 under the above said
Tax Declaration No. 29451.
This deed states:
That the above described land was sold to the
said VICENTE VILLAFLOR, . . . on June 22,
1937, but no sound document was then
executed, however since then and until the
present time, the said Vicente Villaflor has been
in open and continuous possession and
occupation of said land; (and)
That the above described land was before the
sale, my own exclusive property, being inherited
from my deceased parents, and my ownership
to it and that of my predecessors lasted more
than fifty (50) years, possessing and occupying
the same, peacefully, openly and interruption for
that length of time.
Likewise on January 16, 1940, Hermogenes Patete, in a
Deed of Absolute Sale (exh. D), sold to Villaflor, a parcel
of agricultural land, containing an area of 20 hectares,
more or less, and particularly described and bounded as
follows:
A certain parcel of agricultural land planted to
abaca and corn with visible concrete
monuments marking the boundaries and
bounded on the North by Public Land area-
private Road; on the East by land claimed by
Cirilo Piencenaves; on the South by Public Land
containing an area of 20 hectares more or less,
now under Tax Declaration No. 29451 in the
name of Vicente Villaflor the whole parcel of
which this particular parcel, is assessed at
P22,550.00 for purposes of taxation under the
above said Tax Declaration No. 29451.
This deed states:
. . . (O)n June 22, 1937 but the formal document
was then executed, and since then until the
present time, the said VICENTE VILLAFLOR
has been in continuous and open possession
and occupation of the same; (and)
That the above described property was before
the sale, my own and exclusive property, being
inherited from my deceased parents and my
ownership to it and that of my predecessors
lasted more than fifty (50) years, possessing
and occupying same, peacefully, openly and
continuously without interruption for that length
of time.
On February 15, 1940, Fermin Bocobo, in a Deed of
Absolute Sale (exh. B), sold to Villaflor, a parcel of
agricultural land, containing an area of 18 hectares,
more or less, and particularly described and bounded as
follows:
A certain parcel of agricultural land planted with
abaca with visible part marking the corners and
bounded on the North by the corners and
bounded on the North by Public Land; on the
East by Cirilo Piencenaves; on the South by
Hermogenes Patete and West by Public Land,
containing an area of 18 hectares more or less
now under Tax Declaration No. 29451 in the
name of Vicente Villaflor. The whole parcel of
which this particular parcel is only a part is
assessed as P22,550.00 for purposes of
taxation under the above said Tax Declaration
Number (Deed of Absolute Sale executed by
Fermin Bocobo date Feb. 15, 1940). This
document was annotated in Registry of Deeds
on February 16, 1940).
This deed states:
That the above described property was before
the sale of my own exclusive property, being
inherited from my deceased parents, and my
ownership to it and that of my predecessors
lasted more than fifty (50) years, possessing
and occupying the same peacefully, openly and
continuously without interruption for that length
of time.
On November 8, 1946, Villaflor, in a Lease Agreement
(exh. Q),4 leased to Nasipit Lumber Co., Inc. a parcel of
land, containing an area of two (2) hectares, together
with all the improvements existing thereon, for a period
of five (5) years from June 1, 1946 at a rental of P200.00
per annum "to cover the annual rental of house and
building sites for thirty three (33) houses or buildings."
This agreement also provides:5
3. During the term of this lease, the Lessee is
authorized and empowered to build and
construct additional houses in addition to the 33
houses or buildings mentioned in the next
preceding paragraph, provided however, that for
every additional house or building constructed
the Lessee shall pay unto the Lessor an amount
of fifty centavos (¢50) per month for every house
or building. The Lessee is empowered and
authorized by the Lessor to sublot (sic) the
premises hereby leased or assign the same or
any portion of the land hereby leased to any
person, firm and corporation; (and)
4. The Lessee is hereby authorized to make any
construction and/or improvement on the
premises hereby leased as he may deem
necessary and proper thereon, provided
however, that any and all such improvements
shall become the property of the Lessor upon
the termination of this lease without obligation
on the part of the latter to reimburse the Lessee
for expenses incurred in the construction of the
same.
Villaflor claimed having discovered that after the
execution of the lease agreement, that Nasipit Lumber
"in bad faith . . . surreptitiously grabbed and occupied a
big portion of plaintiff's property . . ."; that after a
confrontation with the corporate's (sic) field manager,
the latter, in a letter dated December 3, 1973 (exh. R), 6
stated recalling having "made some sort of agreement
for the occupancy (of the property at Acacia, San
Mateo), but I no longer recall the details and I had
forgotten whether or not we did occupy your land. But if,
as you say, we did occupy it, then (he is ) sure that the
company is obligated to pay the rental."
On July 7, 1948, in an "Agreement to Sell" (exh. 2),
Villaflor conveyed to Nasipit Lumber, two (2) parcels of
land . . . described as follows:7
PARCEL ONE
Bounded on the North by Public Land and
Tungao Creek; on the East by Agusan River and
Serafin Villaflor; on the South by Public Land, on
the West by Public Land. Improvements thereon
consist of abaca, fruit trees, coconuts and thirty
houses of mixed materials belonging to the
Nasipit Lumber Company. Divided into Lot Nos.
5412, 5413, 5488, 5490, 5491, 5492, 5850,
5849, 5860, 5855, 5851, 5854, 5855, 5859,
5858, 5857, 5853, and 5852. Boundaries of this
parcel of land are marked by concrete
monuments of the Bureau of Lands. Containing
an area of 112,000 hectares. Assessed at
P17,160.00 according to Tax Declaration No. V-
315 dated April 14, 1946.
PARCEL TWO
Bounded on the North by Pagudasan Creek; on
the East by Agusan River; on the South by
Tungao Creek; on the West by Public Land.
Containing an area of 48,000 hectares more or
less. Divided into Lot Nos. 5411, 5410, 5409,
and 5399. Improvements 100 coconut trees,
productive, and 300 cacao trees. Boundaries of
said land are marked by concrete monuments of
the Bureau pf (sic) Lands. Assessed value —
P6,290.00 according to Tax No. 317, April 14,
1946.
This Agreement to Sell provides:
3. That beginning today, the Party of the Second
Part shall continue to occupy the property not
anymore in concept of lessee but as prospective
owners, it being the sense of the parties hereto
that the Party of the Second Part shall not in any
manner be under any obligation to make any
compensation to the Party of the First Part, for
the use, and occupation of the property herein
before described in such concept of prospective
owner, and it likewise being the sense of the
parties hereto to terminate as they do hereby
terminate, effective on the date of this present
instrument, the Contract of Lease, otherwise
known as Doc. No. 420, Page No. 36, Book No.
II, Series of 1946 of Notary Public Gabriel R.
Banaag, of the Province of Agusan.
4. That the Party of the Second Part has bound
as it does hereby bind itself, its executors and
administrators, to pay unto the party of the First
Part the sum of Five Thousand Pesos
(P5,000.00), Philippine Currency, upon
presentation by the latter to the former of
satisfactory evidence that:
(a) The Bureau of Lands will not have any
objection to the obtainment by the Party of
the First Part of a Certificate of Torrens Title
in his favor, either thru ordinary land
registration proceedings or thru
administrative means procedure.
(b) That there is no other private claimant to
the properties hereinbefore described.
5. That the Party of the First Part has bound as
he does hereby bind to undertake immediately
after the execution of these presents to secure
and obtain, or cause to be secured and
obtained, a Certificate of Torrens Title in his
favor over the properties described on Page
(One) hereof, and after obtainment of such
Certificate of Torrens Title, the said Party of the
First Part shall execute a (D)eed of Absolute
Sale unto and in favor of the Party of the Second
Part, its executors, administrators and assigns,
it being the sense of the parties that the Party of
the Second Part upon delivery to it of such deed
of absolute sale, shall pay unto the Party of the
First Part in cash, the sum of Twelve Thousand
(P12,000.00) Pesos in Philippine Currency,
provided, however, that the Party of the First
Part, shall be reimbursed by the Party of the
Second Part with one half of the expenses
incurred by the Party of the First Part for survey
and attorney's fees; and other incidental
expenses not exceeding P300.00.
On December 2, 1948, Villaflor filed Sales Application
No.
V-8078 (exh. 1) with the Bureau of Lands, Manila, "to
purchase under the provisions of Chapter V, XI or IX of
Commonwealth Act. No. 141 (The Public Lands Act), as
amended, the tract of public lands . . . and described as
follows: "North by Public Land; East by Agusan River
and Serafin Villaflor; South by Public Land and West by
public land (Lot Nos. 5379, 5489, 5412, 5490, 5491,
5492, 5849, 5850, 5851, 5413, 5488, 5489, 5852, 5853,
5854, 5855, 5856, 5857, 5858, 5859 and 5860 . . .
containing an area of 140 hectares . . . ." Paragraph 6 of
the Application, states: "I understand that this
application conveys no right to occupy the land prior to
its approval, and I recognized (sic) that the land covered
by the same is of public domain and any and all rights
may have with respect thereto by virtue of continuous
occupation and cultivation are hereby relinquished to the
Government."9 (exh. 1-D)
On December 7, 1948, Villaflor and Nasipit Lumber
executed an "Agreement" (exh 3).10 This contract
provides:
1. That the First Party is the possessor since
1930 of two (2) parcels of land situated in sitio
Tungao, Barrio of San Mateo, Municipality of
Butuan, Province of Agusan;
2. That the first parcel of land abovementioned
and described in Plan PLS-97 filed in the office
of the Bureau of Lands is made up of Lots Nos.
5412, 5413, 5488, 5490, 5491, 5492, 5849,
5850, 5851, 5852, 5853, 5854, 5855, 5856,
5857, 5858, 5859 and 5860 and the second
parcel of land is made of Lots Nos. 5399, 5409,
5410 and 5411;
3. That on July 7, 1948, a contract of Agreement
to Sell was executed between the contracting
parties herein, covering the said two parcels of
land, copy of said Agreement to Sell is hereto
attached marked as Annex "A" and made an
integral part of this document. The parties
hereto agree that the said Agreement to Sell be
maintained in full force and effect with all its
terms and conditions of this present agreement
and in no way be considered as modified.
4. That paragraph 4 of the Contract of
Agreement to Sell, marked as annex, "A"
stipulates as follows:
Par. 4. That the Party of the Second Part
has bound as it does hereby bind itself, its
executors and administrators, to pay unto
the Party of the First Part of the sum of FIVE
THOUSAND PESOS (P5,000.00)
Philippine Currency, upon presentation by
the latter to the former of satisfactory
evidence that:
a) The Bureau of Lands will have any
objection to the obtainment by Party of the
First Part of a favor, either thru ordinary land
registration proceedings or thru
administrative means and procedure.
b) That there is no other private claimant to
the properties hereinabove described.
5. That the First Party has on December 2,
1948, submitted to the Bureau of Lands, a Sales
Application for the twenty-two (22) lots
comprising the two abovementioned parcels of
land, the said Sales Application was registered
in the said Bureau under No. V-807;
6. That in reply to the request made by the First
Party to the Bureau of Lands, in connection with
the Sales Application No. V-807, the latter
informed the former that action on his request
will be expedited, as per letter of the Chief,
Public Land Division, dated December 2, 1948,
copy of which is hereto attached marked as
annex "B" and made an integral part of this
agreement:
7. That for and in consideration of the premises
above stated and the amount of TWENTY
FOUR THOUSAND (P24,000.00) PESOS that
the Second Party shall pay to the First Party, by
these presents, the First Party hereby sells,
transfers and conveys unto the Second Party,
its successors and assigns, his right, interest
and participation under, an(d) by virtue of the
Sales Application No. V-807, which he has or
may have in the lots mentioned in said Sales
Application No. V-807;
8. That the amount of TWENTY FOUR
THOUSAND (P24,000.00) PESOS, shall be
paid by the Second Party to the First Party, as
follows:
a) The amount of SEVEN THOUSAND
(P7,000.00) PESOS, has already been paid
by the Second Party to the First Party upon
the execution of the Agreement to Sell, on
July 7, 1948;
b) The amount of FIVE THOUSAND
(P5,000.00) PESOS shall be paid upon the
signing of this present agreement; and
c) The balance of TWELVE THOUSAND
(P12,000.00) shall be paid upon the
execution by the First Party of the Absolute
Deed of Sale of the two parcels of land in
question in favor of the Second Party, and
upon delivery to the Second Party of the
Certificate of Ownership of the said two
parcels of land.
9. It is specially understood that the mortgage
constituted by the First Party in favor of the
Second Party, as stated in the said contract of
Agreement to Sell dated July 7, 1948, shall
cover not only the amount of SEVEN
THOUSAND (P7,000.00) PESOS as specified
in said document, but shall also cover the
amount of FIVE THOUSAND (P5,000.00)
PESOS to be paid as stipulated in paragraph 8,
sub-paragraph (b) of this present agreement, if
the First Party should fail to comply with the
obligations as provided for in paragraphs 2, 4,
and 5 of the Agreement to Sell;
10. It is further agreed that the First Party
obligates himself to sign, execute and deliver to
and in favor of the Second Party, its successors
and assigns, at anytime upon demand by the
Second Party such other instruments as may be
necessary in order to give full effect to this
present agreement;
In the Report dated December 31, 1949 by the public
land inspector, District Land Office, Bureau of Lands, in
Butuan, the report contains an Indorsement of the
aforesaid District Land Officer recommending rejection
of the Sales Application of Villaflor for having leased the
property to another even before he had acquired
transmissible rights thereto.
In a letter of Villaflor dated January 23, 1950, addressed
to the Bureau of Lands, he informed the Bureau Director
that he was already occupying the property when the
Bureau's Agusan River Valley Subdivision Project was
inaugurated, that the property was formerly claimed as
private properties (sic), and that therefore, the property
was segregated or excluded from disposition because of
the claim of private ownership. In a letter of Nasipit
Lumber dated February 22, 1950 (exh. X)11 addressed
to the Director of Lands, the corporation informed the
Bureau that it recognized Villaflor as the real owner,
claimant and occupant of the land; that since June 1946,
Villaflor leased two (2) hectares inside the land to the
company; that it has no other interest on the land; and
that the Sales Application of Villaflor should be given
favorable consideration.
xxx xxx xxx
On July 24, 1950, the scheduled date of auction of the
property covered by the Sales Application, Nasipit
Lumber offered the highest bid of P41.00 per hectare,
but since an applicant under CA 141, is allowed to equal
the bid of the highest bidder, Villaflor tendered an equal
bid; deposited the equivalent of 10% of the bid price and
then paid the assessment in full.
xxx xxx xxx
On August 16, 1950, Villaflor executed a document,
denominated as a "Deed of Relinquishment of Rights"
(exh. N),12 pertinent portion of which reads:
5. That in view of my present business in Manila,
and my change in residence from Butuan,
Agusan to the City of Manila, I cannot, therefore,
develope (sic) or cultivate the land applied for as
projected before;
6. That the Nasipit Lumber Company, Inc., a
corporation duly organized . . . is very much
interested in acquiring the land covered by the
aforecited application . . . ;
7. That I believe the said company is qualified to
acquire public land, and has the means to
develop (sic) the above-mentioned land;
xxx xxx xxx
WHEREFORE, and in consideration of the
amount of FIVE THOUSAND PESOS
(P5,000.00) to be reimbursed to me by the
aforementioned Nasipit Lumber Company, Inc.,
after its receipt of the order of award, the said
amount representing part of the purchase price
of the land aforesaid, the value of the
improvements I introduced thereon, and the
expenses incurred in the publication of the
Notice of Sale, I, the applicant, Vicente J.
Villaflor, hereby voluntarily renounce and
relinquish whatever rights to, and interests I
have in the land covered by my above-
mentioned application in favor of the Nasipit
Lumber Company, Inc.
Also on August 16, 1950, Nasipit Lumber filed a Sales
Application over the two (2) parcels of land, covering an
area of 140 hectares, more or less. This application was
also numbered V-807 (exh. Y).
On August 17, 1950 the Director of Lands issued an
"Order of Award"13 in favor of Nasipit Lumber Company,
Inc., pertinent portion of which reads:
4. That at the auction sale of the land held on
July 24, 1950 the highest bid received was that
of Nasipit Lumber Company, Inc. which offered
P41.00 per hectare or P5,740.00 for the whole
tract, which bid was equaled by applicant
Vicente J. Villaflor, who deposited the amount of
P574.00 under Official Receipt No. B-1373826
dated July 24, 1950 which is equivalent to 10%
of the bid. Subsequently, the said . . . Villaflor
paid the amount of P5,160.00 in full payment of
the purchase price of the above-mentioned land
and for some reasons stated in an instrument of
relinquishment dated August 16, 1950, he
(Vicente J. Villaflor) relinquished his rights to
and interest in the said land in favor of the
Nasipit Lumber Company, Inc. who filed the
corresponding application therefore.
In view of the foregoing, and it appearing that
the proceedings had . . . were in accordance
with law and in [sic] existing regulations, the land
covered thereby is hereby awarded to Nasipit
Lumber Company, Inc. at P41.00 per hectare or
P5,740.00 for the whole tract.
This application should be entered in the record
of this Office as Sales Entry No. V-407.
It is Villaflor's claim that he only learned of the Order of
Award on January 16, 1974, or after his arrival to the
Philippines, coming from Indonesia, where he stayed for
more than ten (10) years; that he went to Butuan City in
the latter part of 1973 upon the call of his brother Serafin
Villaflor, who was then sick and learned that Nasipit
Lumber (had) failed and refused to pay the agreed
rentals, although his brother was able to collect during
the early years; and that Serafin died three days after his
(Vicente's) arrival, and so no accounting of the rentals
could be made; that on November 27, 1973, Villaflor
wrote a letter to Mr. G.E.C. Mears of Nasipit Lumber,
reminding him of their verbal agreement in 1955 . . . that
Mr. Mears in a Reply dated December 3, 1973, appears
to have referred the matter to Mr. Noriega, the corporate
general manager, but the new set of corporate officers
refused to recognize (Villaflor's) claim, for Mr. Florencio
Tamesis, the general manager of Nasipit Lumber, in a
letter dated February 19, 1974, denied Villaflor's
itemized claim dated January 5, 1974 (exh. V) to be
without valid and legal basis. In the 5th January, 1974
letter, Villaflor claimed the total amount of P427,000.00
....
In a formal protest dated January 31, 197414 which
Villaflor filed with the Bureau of Lands, he protested the
Sales Application of Nasipit Lumber, claiming that the
company has not paid him P5,000.00 as provided in the
Deed of Relinquishment of Rights dated August 16,
1950.
xxx xxx xxx
. . . (T)hat in a Decision dated August 8, 1977 (exh. 8),
the Director of Lands found that the payment of the
amount of P5,000.00 in the Deed . . . and the
consideration in the Agreement to Sell were duly proven,
and ordered the dismissal of Villaflor's protest and gave
due course to the Sales Application of Nasipit Lumber.
Pertinent portion of the Decision penned by Director of
Lands, Ramon Casanova, in the Matter of SP No. V-807
(C-V-407) . . . reads:
xxx xxx xxx
During the proceedings, Villaflor presented
another claim entirely different from his previous
claim — this time, for recovery of rentals in
arrears arising from a supposed contract of
lease by Villaflor as lessor in favor of Nasipit as
lessee, and indemnity for damages supposedly
caused improvements on his other property . . .
in the staggering amount of Seventeen Million
(P17,000,000.00) Pesos. Earlier, he had also
demanded from NASIPIT . . . (P427,000.00) . . .
also as indemnity for damages to improvements
supposedly caused by NASIPIT on his other real
property as well as for reimbursement of realty
taxes allegedly paid by him thereon.
xxx xxx xxx
It would seem that . . . Villaflor has sought to
inject so many collaterals, if not extraneous
claims, into this case. It is the considered
opinion of this Office that any claim not within
the sphere or scope of its adjudicatory authority
as an administrative as well as quasi-judicial
body or any issue which seeks to delve into the
merits of incidents clearly outside of the
administrative competence of this Office to
decide may not be entertained.
There is no merit in the contention of Villaflor
that owing to Nasipit's failure to pay the amount
of . . . (P5,000.00) . . . (assuming that Nasipit
had failed) the deed of relinquishment became
null and void for lack of consideration. . . . .
xxx xxx xxx
. . . The records clearly show, however, that
since the execution of the deed of
relinquishment . . . Villaflor has always
considered and recognized NASIPIT as having
the juridical personality to acquire public lands
for agricultural purposes. . . . .
xxx xxx xxx
Even this Office had not failed to recognize the
juridical personality of NASIPIT to apply for the
purchase of public lands . . . when it awarded to
it the land so relinquished by Villaflor (Order of
Award dated August 17, 1950) and accepted its
application therefor. At any rate, the question
whether an applicant is qualified to apply for the
acquisition of public lands is a matter between
the applicant and this Office to decide and which
a third party like Villaflor has no personality to
question beyond merely calling the attention of
this Office thereto.
xxx xxx xxx
Villaflor offered no evidence to support his claim
of non-payment beyond his own self-serving
assertions and expressions that he had not
been paid said amount. As protestant in this
case, he has the affirmative of the issue. He is
obliged to prove his allegations, otherwise his
action will fail. For, it is a well settled principle (')
that if plaintiff upon whom rests the burden of
proving his cause of action fails to show in a
satisfactory manner the facts upon which he
bases his claim, the defendant is under no
obligation to prove his exceptions or special
defenses (Belen vs. Belen, 13 Phil. 202;
Mendoza vs. Fulgencio, 8 Phil. 243).
xxx xxx xxx
Consequently, Villaflor's claim that he had not
been paid must perforce fail.
On the other hand, there are strong and
compelling reasons to presume that Villaflor had
already been paid the amount of Five Thousand
(P5,000.00) Pesos.
First, . . . What is surprising, however, is not so
much his claims consisting of gigantic amounts
as his having forgotten to adduce evidence to
prove his claim of non-payment of the Five
Thousand (P5,000.00) Pesos during the
investigation proceedings when he had all the
time and opportunity to do so. . . . The fact that
he did not adduce or even attempt to adduce
evidence in support thereof shows either that he
had no evidence to offer . . . that NASIPIT had
already paid him in fact. What is worse is that
Villaflor did not even bother to command
payment, orally or in writing, of the Five
Thousand (P5,000.00) Pesos which was
supposed to be due him since August 17, 1950,
the date when the order of award was issued to
Nasipit, and when his cause of action to recover
payment had accrued. The fact that he only
made a command (sic) for payment on January
31, 1974, when he filed his protest or twenty-
four (24) years later is immediately nugatory of
his claim for non-payment.
But Villaflor maintains that he had no knowledge
or notice that the order of award had already
been issued to NASIPIT as he had gone to
Indonesia and he had been absent from the
Philippines during all those twenty-four (24)
years. This of course taxes credulity. . . . .
Second, it should be understood that the
condition that NASIPIT should reimburse
Villaflor the amount of Five Thousand
(P5,000.00) Pesos upon its receipt of the order
of award was fulfilled as said award was issued
to NASIPIT on August 17, 1950. The said deed
of relinquishment was prepared and notarized in
Manila with Villaflor and NASIPIT signing the
instrument also in Manila on August 16, 1950 (p.
77, (sic)). The following day or barely a day after
that, or on August 17, 1950, the order of award
was issued by this Office to NASIPIT also in
Manila. Now, considering that Villaflor is
presumed to be more assiduous in following up
with the Bureau of Lands the expeditious
issuance of the order of award as the payment
of the Five Thousand (P5,000.00) Pesos
(consideration) would depend on the issuance
of said order to award NASIPIT, would it not be
reasonable to believe that Villaflor was at hand
when the award was issued to NASIPIT an
August 17, 1950, or barely a day which (sic) he
executed the deed of relinquishment on August
16, 1950, in Manila? . . . .
Third, on the other hand, NASIPIT has in his
possession a sort of "order" upon itself — (the
deed of relinquishment wherein he (sic)
obligated itself to reimburse or pay Villaflor the .
. . consideration of the relinquishment upon its
receipt of the order of award) for the payment of
the aforesaid amount the moment the order of
award is issued to it. It is reasonable to presume
that NASIPIT has paid the Five Thousand
(P5,000.00) Pesos to Villaflor.
A person in possession of an order on
himself for the payment of money, or the
delivery of anything, has paid the money or
delivered the thing accordingly. (Section
5(k) B-131 Revised Rules of Court.
It should be noted that NASIPIT did not produce
direct evidence as proof of its payment of the
Five Thousand (P5,000.00) Pesos to Villaflor.
Nasipit's explanation on this point is found
satisfactory.
. . . (I)t was virtually impossible for NASIPIT,
after the lapse of the intervening 24 years,
to be able to cope up with all the records
necessary to show that the consideration
for the deed of relinquishment had been
fully paid. To expect NASIPIT to keep intact
all records pertinent to the transaction for
the whole quarter of a century would be to
require what even the law does not. Indeed,
even the applicable law itself (Sec. 337,
National Internal Revenue Code) requires
that all records of corporations be
preserved for only a maximum of five years.
NASIPIT may well have added that at any rate
while "there are transactions where the proper
evidence is impossible or extremely difficult to
produce after the lapse of time . . . the law
creates presumptions of regularity in favor of
such transactions (20 Am. Jur. 232) so that
when the basic fact is established in an action
the existence of the presumed fact must be
assumed by force of law. (Rule 13, Uniform
Rules of Evidence; 9 Wigmore, Sec. 2491).
Anent Villaflor's claim that the 140-hectare land
relinquished and awarded to NASIPIT is his
private property, little (need) be said. . . . . The
tracks of land referred to therein are not identical
to the lands awarded to NASIPIT. Even in the
assumption that the lands mentioned in the
deeds of transfer are the same as the 140-
hectare area awarded to NASIPIT, their
purchase by Villaflor (or) the latter's occupation
of the same did not change the character of the
land from that of public land to a private
property. The provision of the law is specific that
public lands can only be acquired in the manner
provided for therein and not otherwise (Sec. 11,
C.A. No. 141, as amended). The records show
that Villaflor had applied for the purchase of the
lands in question with this Office (Sales
Application No. V-807) on December 2, 1948. .
. . . There is a condition in the sales application
signed by Villaflor to the effect that he
recognizes that the land covered by the same is
of public domain and any and all rights he may
have with respect thereto by virtue of continuous
occupation and cultivation are relinquished to
the Government (paragraph 6, Sales
Application No. V-807 . . .) of which Villaflor is
very much aware. It also appears that Villaflor
had paid for the publication fees appurtenant to
the sale of the land. He participated in the public
auction where he was declared the successful
bidder. He had fully paid the purchase prive (sic)
thereof (sic). It would be a (sic) height of
absurdity for Villaflor to be buying that which is
owned by him if his claim of private ownership
thereof is to be believed. The most that can be
said is that his possession was merely that of a
sales applicant to when it had not been awarded
because he relinquished his interest therein in
favor of NASIPIT who (sic) filed a sales
application therefor.
xxx xxx xxx
. . . During the investigation proceedings,
Villaflor presented as his Exhibit "(sic)" (which
NASIPIT adopted as its own exhibit and had it
marked in evidence as Exhibit "1") a duly
notarized "agreement to Sell" dated July 7,
1948, by virtue of which Villaflor undertook to
sell to Nasipit the tracts of land mentioned
therein, for a consideration of Twenty-Four
Thousand (P24,000.00) Pesos. Said tracts of
land have been verified to be identical to the
parcels of land formerly applied for by Villaflor
and which the latter had relinquished in favor of
NASIPIT under a deed of relinquishment
executed by him on August 16, 1950. In another
document executed on December 7, 1948 . . .
Villaflor as "FIRST PARTY" and NASIPIT as
"SECOND PARTY" confirmed the "Agreement
to Sell" of July 7, 1948, which was maintained
"in full force and effect with all its terms and
conditions . . ." (Exh. "38-A"); and that "for and
in consideration of . . . TWENTY FOUR
THOUSAND (P24,000.00) PESOS that the
Second Party shall pay to the First Party . . . the
First Party hereby sells, transfers and conveys
unto the Second Party . . . his right interest and
participation under and by virtue of the Sales
Application No. V-807" and, in its paragraph 8, it
made stipulations as to when part of the said
consideration . . . was paid and when the
balance was to be paid, to wit:
a) the amount of SEVEN THOUSAND . . .
PESOS has already been paid by the
Second Party to the First Party upon the
execution of the Agreement to Sell, on July
17, 1948;
b) the amount of FIVE THOUSAND . . .
PESOS shall be paid upon the signing of
this present agreement; and
c) the amount of TWELVE THOUSAND . . .
PESOS, shall be paid upon the execution
by the First Party of the Absolute Sale of the
Two parcels of land in question in favor of
the Second Party of the Certificate of
Ownership of the said two parcels of land.
(Exh. 38-B). (Emphasis ours)
It is thus clear from this subsequent document
marked Exhibit "38 ANALCO" that of the
consideration of the "Agreement to Sell" dated
July 7, 1948, involving the 140-hectare area
relinquished by Villaflor in favor of NASIPIT, in
the amount of Twenty-Four Thousand
(P24,000.00) Pesos:
(1) the amount of Seven Thousand (P7,000.00)
Pesos was already paid upon the execution of
the "Agreement to Sell" on July 7, 1948, receipt
of which incidentally was admitted by Villaflor in
the document of December 7, 1948;
(2) the amount of Five Thousand (P5,000.00)
Pesos was paid when said document was
signed by Vicente J. Villaflor as the First Party
and Nasipit thru its President, as the Second
Party, on December 7, 1948; and
(3) the balance of Twelve Thousand
(P12,000.00) Pesos to be paid upon the
execution by the First Party of the Absolute
Deed of Sale of the two parcels of land in favor
of the Second Party, and upon delivery to the
Second Party of the Certificate of Ownership of
the said two parcels of land.
Villaflor contends that NASIPIT could not have
paid Villaflor the balance of Twelve Thousand
(P12,000.00) Pesos . . . consideration in the
Agreement to Sell will only be paid to applicant-
assignor (referring to Villaflor) upon obtaining a
Torrens Title in his favor over the 140-hectare of
land applied for and upon execution by him of a
Deed of Absolute Sale in favor of Nasipit
Lumber Company, Inc. . . . . Inasmuch as
applicant-assignor was not able to obtain a
Torrens Title over the land in question he could
not execute an absolute Deed of (sic) Nasipit
Lumber Co., Inc. Hence, the Agreement to Sell
was not carried out and no Twelve Thousand
(P12,000.00) Pesos was overpaid either to the
applicant-assignor, much less to Howard J. Nell
Company. (See MEMORANDUM FOR THE
APPLICANT-ASSIGNOR, dated January 5,
1977). . . .
. . . Villaflor did not adduce evidence in support
of his claim that he had not been paid the . . .
(P12,000.00) . . . consideration of the
Agreement to Sell dated July 7, 1948 (Exh. "38
NALCO") beyond his mere uncorroborated
assertions. On the other hand, there is strong
evidence to show that said Twelve Thousand
(P12,000.00) Pesos had been paid by (private
respondent) to Edward J. Nell Company by
virtue of the Deed of Assignment of Credit
executed by Villaflor (Exh. "41 NALCO") for the
credit of the latter.
Atty. Gabriel Banaag, resident counsel of
NASIPIT who is in a position to know the facts,
testified for NASIPIT. He described that it was
he who notarized the "Agreement to Sell" (Exh.
"F"); that he knew about the execution of the
document of December 7, 1948 (Exh. "38")
confirming the said "Agreement to Sell" having
been previously consulted thereon by Jose
Fernandez, who signed said document on
behalf of NASIPIT . . . that subsequently, in
January 1949, Villaflor executed a Deed of
Assignment of credit in favor of Edward J. Nell
Company (Exh. "41 NALCO") whereby Villaflor
ceded to the latter his receivable for NASIPIT
corresponding to the remaining balance in the
amount of Twelve Thousand . . . Pesos of the
total consideration . . . stipulated in both the
"Agreement to Sell" (Exh. "F") and the document
dated December 7, 1948 (Exh. "39");
. . . . He further testified that the said assignment
of credit was communicated to (private
respondent) under cover letter dated January
24, 1949 (Exh. "41-A") and not long thereafter,
by virtue of the said assignment of credit,
(private respondent) paid the balance of Twelve
Thousand . . . due to Villaflor to Edward J. Nell
Company . . . . Atty. Banaag's aforesaid
testimony stand unrebutted; hence, must be
given full weight and credit. . . . Villaflor and his
counsel were present when Atty. Banaag's
foregoing testimony was Villaflor did not demur,
nor did he rebut the same, despite having been
accorded full opportunity to do so.
xxx xxx xxx
Having found that both the Five Thousand . . .
consideration of the deed of Relinquishment . . .
and that the remaining balance of
. . . (P12,000.00) to complete the Twenty-Four
Thousand (P24,000.00) Pesos consideration of
both the Agreement to Sell dated July 7, 1948,
and the document, dated December 7, 1948,
executed by the former in favor of the latter,
have been paid Villaflor the issue on prescription
and laches becomes academic and needs no
further discussion.
But more than all the questions thus far raised
and resolved is the question whether a sales
patent can be issued to NASIPIT for the 140-
hectare area awarded to it in the light of Section
11, Article XIV of the new Constitution which
provides in its pertinent portion to wit:
. . . No private corporation or association
may hold alienable land of the public
domain except by lease not to exceed one
thousand hectares in area . . . .
The Secretary of Justice had previous occasion
to rule on this point in his opinion No. 140, s.
1974. Said the Honorable Justice Secretary:
On the second question, (referring to the
questions when may a public land be
considered to have been acquired by
purchase before the effectivity of the new
Constitution posed by the Director of Lands
in his query on the effect on pending
applications for the issuance of sales patent
in the light of Section 11, Art. XIV of the New
Constitution aforecited), you refer to this
Office's Opinion No. 64 series of 1973 in
which I stated:
On the other hand, with respect to sales
applications ready for issuance of sales
patent, it is my opinion that where the
applicant had, before the Constitution took
effect, fully complied with all this obligations
under the Public Land Act in order to entitle
him to a Sales patent, there would be no
legal or equitable justification for refusing to
issue or release the sales patent.
With respect to the point as to when the Sales
applicant has complied with all the terms and
conditions which would entitle him to a sales
patent, the herein above Secretary of Justice
went on:
That as to when the applicant has complied
with all the terms and conditions which
would entitle him to a patent is a questioned
(sic) fact which your office would be in the
best position to determine. However,
relating this to the procedure for the
processing of applications mentioned
above, I think that as the applicant has
fulfilled the construction/cultivation
requirements and has fully paid the
purchase price, he should be deemed to
have acquired by purchase the particular
tract of land and (sic) the area (sic) in the
provision in question of the new constitution
would not apply.
From the decision of the Director of Lands, Villaflor filed
a Motion for Reconsideration which was considered as
an Appeal M.N.R. Case 4341, to the Ministry of Natural
Resources.
On June 6, 1979, the Minister of Natural Resources
rendered a Decision (exh. 9), 15 dismissing the appeal
and affirming the decision of the Director of Lands,
pertinent portions of which reads:
After a careful study of the records and the
arguments of the parties, we believe that the
appeal is not well taken.
Firstly, the area in dispute is not the private
property of appellant.
The evidence adduced by appellant to establish
his claim of ownership over the subject area
consists of deeds of absolute sale executed in
his favor on January 16, and February 15, 1940,
by four (4) different persons, namely, Cirilo
Piencenaves, Fermin Balobo, Claudio Otero
and Hermogenes Patete.
However, an examination of the technical
descriptions of the tracts of land subject of the
deeds of sale will disclose that said parcels are
not identical to, and do not tally with, the area in
controversy.
It is a basic assumption of our policy that
lands of whatever classification belong to
the state. Unless alienated in accordance
with law, it retains its rights over the same
as dominus, (Santiago vs. de los Santos, L-
20241, November 22, 1974, 61 SCRA 152).
For, it is well-settled that no public land can
be acquired by private persons without any
grant, express or implied from the
government. It is indispensable then that
there be showing of title from the state or
any other mode of acquisition recognized
by law. (Lee Hong Hok, et al. vs. David, et
al., L-30389, December 27, 1972, 48 SCRA
379.)
It is well-settled that all lands remain part of the
public domain unless severed therefrom by
state grant or unless alienated in accordance
with law.
We, therefore, believe that the aforesaid deeds
of sale do not constitute clear and convincing
evidence to establish that the contested area is
of private ownership. Hence, the property must
be held to be public domain.
"There being no evidence whatever that the
property in question was ever acquired by
the applicants or their ancestors either by
composition title from the Spanish
Government or by possessory information
title or by any other means for the
acquisition of public lands, the property
must be held to be public domain." (Lee
Hong Hok, et al., vs. David , et al., L-30389
December 27, 1972, 48 SCRA 378-379
citing Heirs of Datu Pendatun vs. Director of
Lands; see also Director of Lands vs.
Reyes, L-27594, November 28, 1975, 68
SCRA 177).
Be that as it may, appellant, by filing a sales
application over the controverted land,
acknowledged unequivocably [sic] that the
same is not his private property.
"As such sales applicant, appellant
manifestly acknowledged that he does not
own the land and that the same is a public
land under the administration of the Bureau
of Lands, to which the application was
submitted, . . . All of its acts prior thereof,
including its real estate tax declarations,
characterized its possessions of the land as
that of a "sales applicant" and
consequently, as one who expects to buy it,
but has not as yet done so, and is not,
therefore, its owner." (Palawan Agricultural
and Industrial Co., Inc. vs. Director of
Lands, L-25914, March 21, 1972, 44 SCRA
20, 21).
Secondly, appellant's alleged failure to pay the
consideration stipulated in the deed of
relinquishment neither converts said deed into
one without a cause or consideration nor ipso
facto rescinds the same. Appellant, though, has
the right to demand payment with legal interest
for the delay or to demand rescission.
xxx xxx xxx
However, appellant's cause of action, either for
specific performance or rescission of contract,
with damages, lies within the jurisdiction of civil
courts, not with administrative bodies.
xxx xxx xxx
Lastly, appellee has acquired a vested right to
the subject area and, therefore, is deemed not
affected by the new constitutional provision that
no private corporation may hold alienable land
of the public domain except by lease.
xxx xxx xxx
Implementing the aforesaid Opinion No. 64 of
the Secretary of Justice, the then Secretary of
Agriculture and Natural Resources issued a
memorandum, dated February 18, 1974, which
pertinently reads as follows:
In the implementation of the foregoing
opinion, sales application of private
individuals covering areas in excess of 24
hectares and those of corporations,
associations, or partnership which fall under
any of the following categories shall be
given due course and issued patents, to wit:
1. Sales application for fishponds and for
agricultural purposes (SFA, SA and IGPSA)
wherein prior to January 17, 1973;
a. the land covered thereby was awarded;
b. cultivation requirements of law were
complied with as shown by investigation
reports submitted prior to January 17, 1973;
c. land was surveyed and survey returns
already submitted to the Director of Lands
for verification and approval; and
d. purchased price was fully paid.
From the records, it is evident that the
aforestated requisites have been complied with
by appellee long before January 17, 1973, the
effectivity of the New Constitution. To restate,
the disputed area was awarded to appellee on
August 17, 1950, the purchase price was fully
paid on July 26, 1951, the cultivation
requirements were complied with as per
investigation report dated December 31, 1949,
and the land was surveyed under Pls-97.
On July 6, 1978, petitioner filed a complaint16 in the trial court for
"Declaration of Nullity of Contract (Deed of Relinquishment of
Rights), Recovery of Possession (of two parcels of land subject
of the contract), and Damages" at about the same time that he
appealed the decision of the Minister of Natural Resources to
the Office of the President.
On January 28, 1983, petitioner died. The trial court ordered his
widow, Lourdes D. Villaflor, to be substituted as petitioner. After
trial in due course, the then Court of First Instance of Agusan del
Norte and Butuan City, Branch III,17 dismissed the complaint on
the grounds that: (1) petitioner admitted the due execution and
genuineness of the contract and was estopped from proving its
nullity, (2) the verbal lease agreements were unenforceable
under Article 1403 (2) (e) of the Civil Code, and (3) his causes
of action were barred by extinctive prescription and/or laches. It
ruled that there was prescription and/or laches because the
alleged verbal lease ended in 1966, but the action was filed only
on January 6, 1978. The six-year period within which to file an
action on an oral contract per Article 1145 (1) of the Civil Code
expired in 1972. The decretal portion18 of the trial court's decision
reads:
WHEREFORE, the foregoing premises duly considered,
judgment is hereby rendered in favor of the defendant
and against the plaintiff. Consequently, this case is
hereby ordered DISMISSED. The defendant is hereby
declared the lawful actual physical possessor-occupant
and having a better right of possession over the two (2)
parcels of land in litigation described in par. 1.2 of the
complaint as Parcel I and Parcel II, containing a total
area of One Hundred Sixty (160) hectares, and was then
the subject of the Sales Application No. V-807 of the
plaintiff (Exhibits 1, 1-A, 1-B, pp. 421 to 421-A, Record),
 and now of the Sales Application No. 807, Entry No. V-
407 of the defendant Nasipit Lumber Company (Exhibit
Y, pp. 357-358, Record). The Agreements to Sell Real
Rights, Exhibits 2 to 2-C, 3 to 3-B, and the Deed of
Relinquishment of Rights, Exhibits N to N-1, over the two
parcels of land in litigation are hereby declared binding
between the plaintiff and the defendant, their successors
and assigns.
Double the costs against the plaintiff.
The heirs of petitioner appealed to Respondent Court of
Appeals19 which, however, rendered judgment against petitioner
via the assailed Decision dated September 27, 1990 finding
petitioner's prayers — (1) for the declaration of nullity of the deed
of relinquishment, (2) for the eviction of private respondent from
the property and (3) for the declaration of petitioner's heirs as
owners — to be without basis. The decretal portion20 of the
assailed 49-page, single-spaced Decision curtly reads:
WHEREFORE, the Decision appealed from, is hereby
AFFIRMED, with costs against plaintiff-appellants.
Not satisfied, petitioner's heirs filed the instant 57-page petition
for review dated December 7, 1990. In a Resolution dated June
23, 1991, the Court denied this petition "for being late." On
reconsideration — upon plea of counsel that petitioners were
"poor" and that a full decision on the merits should be rendered
— the Court reinstated the petition and required comment from
private respondent. Eventually, the petition was granted due
course and the parties thus filed their respective memoranda.
The Issues
Petitioner, through his heirs, attributes the following errors to the
Court of Appeals:
I. Are the findings of the Court of Appeals conclusive and
binding upon the Supreme Court?
II. Are the findings of the Court of Appeals fortified by the
similar findings made by the Director of Lands and the
Minister of Natural Resources (as well as by the Office
of the President)?
III. Was there "forum shopping?".
IV. Are the findings of facts of the Court of Appeals and
the trial court supported by the evidence and the law?
V. Are the findings of the Court of Appeals supported by
the very terms of the contracts which were under
consideration by the said court?
VI. Did the Court of Appeals, in construing the subject
contracts, consider the contemporaneous and
subsequent act of the parties pursuant to article 1371 of
the Civil Code?
VII. Did the Court of Appeals consider the fact and the
unrefuted claim of Villaflor that he never knew of the
award in favor of Nasipit?
VIII. Did the Court of Appeals correctly apply the rules
on evidence in its findings that Villaflor was paid the
P5,000.00 consideration because Villaflor did not
adduce any proof that he was not paid?
IX. Is the Court of Appeals' conclusion that the contract
is not simulated or fictitious simply because it is genuine
and duly executed by the parties, supported by logic or
the law?
X. May the prestations in a contract agreeing to transfer
certain rights constitute estoppel when this very contract
is the subject of an action for annulment on the ground
that it is fictitious?
XI. Is the Court of Appeals' conclusion that the lease
agreement between Villaflor is verbal and therefore,
unenforceable supported by the evidence and the law?
After a review of the various submissions of the parties,
particularly those of petitioner, this Court believes and holds that
the issues can be condensed into three as follows:
(1) Did the Court of Appeals err in adopting or relying on
the factual findings of the Bureau of Lands, especially
those affirmed by the Minister (now Secretary) of Natural
Resources and the trial court?
(2) Did the Court of Appeals err in upholding the validity
of the contracts to sell and the deed of relinquishment?
Otherwise stated, did the Court of Appeals err in finding
the deed of relinquishment of rights and the contracts to
sell valid, and not simulated or fictitious?
(3) Is the private respondent qualified to acquire title
over the disputed property?
The Court's Ruling
The petition is bereft of merit. It basically questions the
sufficiency of the evidence relied upon by the Court of Appeals,
alleging that public respondent's factual findings were based on
speculations, surmises and conjectures. Petitioner insists that a
review of those findings is in order because they were allegedly
(1) rooted, not on specific evidence, but on conclusions and
inferences of the Director of Lands which were, in turn, based on
misapprehension of the applicable law on simulated contracts;
(2) arrived at whimsically — totally ignoring the substantial and
admitted fact that petitioner was not notified of the award in favor
of private respondent; and (3) grounded on errors and
misapprehensions, particularly those relating to the identity of
the disputed area.
First Issue: Primary Jurisdiction of the Director of Lands and
Finality of Factual Findings of the Court of Appeals
Underlying the rulings of the trial and appellate courts is the
doctrine of primary jurisdiction; i.e., courts cannot and will not
resolve a controversy involving a question which is within the
jurisdiction of an administrative tribunal, especially where the
question demands the exercise of sound administrative
discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and
intricate matters of fact.21
In recent years, it has been the jurisprudential trend to apply this
doctrine to cases involving matters that demand the special
competence of administrative agencies even if the question
involved is also judicial in character. It applies "where a claim is
originally cognizable in the courts, and comes into play
whenever enforcement of the claim requires the resolution of
issues which, under a regulatory scheme, have been placed
within the special competence of an administrative body; in such
case, the judicial process is suspended pending referral of such
issues to the administrative body for its view."22
In cases where the doctrine of primary jurisdiction is clearly
applicable, the court cannot arrogate unto itself the authority to
resolve a controversy, the jurisdiction over which is initially
lodged with an administrative body of special competence. 23 In
Machete vs. Court of Appeals, the Court upheld the primary
jurisdiction of the Department of Agrarian Reform Adjudicatory
Board (DARAB) in an agrarian dispute over the payment of back
rentals under a leasehold contract.24 In Concerned Officials of
the Metropolitan Waterworks and Sewerage System vs.
Vasquez,25 the Court recognized that the MWSS was in the best
position to evaluate and to decide which bid for a waterworks
project was compatible with its development plan.
The rationale underlying the doctrine of primary jurisdiction finds
application in this case, since the questions on the identity of the
land in dispute and the factual qualification of private respondent
as an awardee of a sales application require a technical
determination by the Bureau of Lands as the administrative
agency with the expertise to determine such matters. Because
these issues preclude prior judicial determination, it behooves
the courts to stand aside even when they apparently have
statutory power to proceed, in recognition of the primary
jurisdiction of the administrative agency.26
One thrust of the multiplication of administrative
agencies is that the interpretation of contracts and the
determination of private rights thereunder is no longer a
uniquely judicial function, exercisable only by our regular
courts.27
Petitioner initiated his action with a protest before the Bureau of
Lands and followed it through in the Ministry of Natural
Resources and thereafter in the Office of the President.
Consistent with the doctrine of primary jurisdiction, the trial and
the appellate courts had reason to rely on the findings of these
specialized administrative bodies.
The primary jurisdiction of the director of lands and the minister
of natural resources over the issues regarding the identity of the
disputed land and the qualification of an awardee of a sales
patent is established by Sections 3 and 4 of Commonwealth Act
No. 141, also known as the Public Land Act:
Sec. 3. The Secretary of Agriculture and Commerce
(now Secretary of Natural Resources) shall be the
executive officer charged with carrying out the
 provisions of this Act through the Director of Lands, who
shall act under his immediate control.
Sec. 4. Subject to said control, the Director of Lands
shall have direct executive control of the survey,
classification, lease, sale or any other form of
concession or disposition and management of the lands
of the public domain, and his decision as to questions of
fact shall be conclusive when approved by the Secretary
of Agriculture and Commerce.
Thus, the Director of Lands, in his decision, said:28
. . . It is merely whether or not Villaflor has been paid the
Five Thousand (P5,000.00) Pesos stipulated
consideration of the deed of relinquishment made by him
without touching on the nature of the deed of
relinquishment. The administration and disposition of
public lands is primarily vested in the Director of Lands
and ultimately with the Secretary of Agriculture and
Natural Resources (now Secretary of Natural
Resources), and to this end —
Our Supreme Court has recognized that the
Director of Lands is a quasi-judicial officer who
passes on issues of mixed facts and law (Ortua
vs. Bingson Encarnacion, 59 Phil 440). Sections
3 and 4 of the Public Land Law thus mean that
the Secretary of Agriculture and Natural
Resources shall be the final arbiter on questions
of fact in public land conflicts (Heirs of Varela vs.
Aquino, 71 Phil 69; Julian vs. Apostol, 52 Phil
442).
The ruling of this Office in its order dated September 10,
1975, is worth reiterating, thus:
. . . it is our opinion that in the exercise of his
power of executive control, administrative
disposition and allegation of public land, the
Director of Lands should entertain the protest of
Villaflor and conduct formal investigation . . . to
determine the following points: (a) whether or
not the Nasipit Lumber Company, Inc. paid or
reimbursed to Villaflor the consideration of the
rights in the amount of P5,000.00 and what
evidence the company has to prove payment,
the relinquishment of rights being part of the
administrative process in the disposition of the
land in question . . . .
. . . . Besides, the authority of the Director of
Lands to pass upon and determine
questions considered inherent in or
essential to the efficient exercise of his
powers like the incident at issue, i.e. ,
whether Villaflor had been paid or not, is
conceded bylaw.
Reliance by the trial and the appellate courts on the factual
findings of the Director of Lands and the Minister of Natural
Resources is not misplaced. By reason of the special knowledge
and expertise of said administrative agencies over matters
falling under their jurisdiction, they are in a better position to pass
judgment thereon; thus, their findings of fact in that regard are
generally accorded great respect, if not finality,29 by the courts.30
The findings of fact of an administrative agency must be
respected as long as they are supported by substantial
evidence, even if such evidence might not be overwhelming or
even preponderant. It is not the task of an appellate court to
weigh once more the evidence submitted before the
administrative body and to substitute its own judgment for that of
the administrative agency in respect of sufficiency of evidence.31
However, the rule that factual findings of an administrative
agency are accorded respect and even finality by courts admits
of exceptions. This is true also in assessing factual findings of
lower courts.32 It is incumbent on the petitioner to show that the
resolution of the factual issues by the administrative agency
and/or by the trial court falls under any of the exceptions.
Otherwise, this Court will not disturb such findings.33
We mention and quote extensively from the rulings of the Bureau
of Lands and the Minister of Natural Resources because the
points, questions and issues raised by petitioner before the trial
court, the appellate court and now before this Court are basically
the same as those brought up before the aforesaid specialized
administrative agencies. As held by the Court of
Appeals:34
We find that the contentious points raised by appellant
in this action, are substantially the same matters he
raised in BL Claim No. 873 (N). In both actions, he
claimed private ownership over the land in question,
assailed the validity and effectiveness of the Deed of
Relinquishment of Rights he executed in August 16,
1950, that he had not been paid the P5,000.00
consideration, the value of the improvements he
introduced on the land and other expenses incurred by
him.
In this instance, both the principle of primary jurisdiction of
administrative agencies and the doctrine of finality of factual
findings of the trial courts, particularly when affirmed by the Court
of Appeals as in this case, militate against petitioner's cause.
Indeed, petitioner has not given us sufficient reason to deviate
from them.
Land in Dispute Is Public Land
Petitioner argues that even if the technical description in the
deeds of sale and those in the sales application were not
identical, the area in dispute remains his private property. He
alleges that the deeds did not contain any technical description,
as they were executed prior to the survey conducted by the
Bureau of Lands; thus, the properties sold were merely
described by reference to natural boundaries. His private
ownership thereof was also allegedly attested to by private
respondent's former field manager in the latter's February 22,
1950 letter, which contained an admission that the land leased
by private respondent was covered by the sales application.
This contention is specious. The lack of technical description did
not prove that the finding of the Director of Lands lacked
substantial evidence. Here, the issue is not so much whether the
subject land is identical with the property purchased by
petitioner. The issue, rather, is whether the land covered by the
sales application is private or public land. In his sales application,
petitioner expressly admitted that said property was public land.
This is formidable evidence as it amounts to an admission
against interest.
In the exercise of his primary jurisdiction over the issue, Director
of Lands Casanova ruled that the land was public:35
. . . Even (o)n the assumption that the lands mentioned
in the deeds of transfer are the same as the 140-hectare
area awarded to Nasipit, their purchase by Villaflor (or)
the latter's occupation of the same did not change the
character of the land from that of public land to a private
property. The provision of the law is specific that public
lands can only be acquired in the manner provided for
therein and not otherwise (Sec. 11, C.A. No. 141, as
amended). The records show that Villaflor had applied
for the purchase of lands in question with this Office
(Sales Application No. V-807) on December 2, 1948. . .
. There is a condition in the sales application . . . to the
effect that he recognizes that the land covered by the
same is of public domain and any and all rights he may
have with respect thereto by virtue of continuous
occupation and cultivation are relinquished to the
Government (paragraph 6, Sales Application No. V-807
of Vicente J. Villaflor, p. 21, carpeta) of which Villaflor is
very much aware. It also appears that Villaflor had paid
for the publication fees appurtenant to the sale of the
land. He participated in the public auction where he was
declared the successful bidder. He had fully paid the
purchase prive (sic) thereor (sic). It would be a (sic)
height of absurdity for Villaflor to be buying that which is
owned by him if his claim of private ownership thereof is
to be
believed. . . . .
This finding was affirmed by the Minister of Natural Resources:36
Firstly, the area in dispute is not the private property of
appellant (herein petitioner).
The evidence adduced by (petitioner) to establish his
claim of ownership over the subject area consists of
deeds of absolute sale executed in his favor . . . .
However, an examination of the technical descriptions
of the tracts of land subject of the deeds of sale will
disclose that said parcels are not identical to, and do not
tally with, the area in controversy.
It is a basic assumption of our policy that lands
of whatever classification belong to the state.
Unless alienated in accordance with law, it
retains its rights over the same as dominus.
(Santiago vs. de los Santos, L-20241,
November 22, 1974, 61 SCRA 152).
 For it is well-settled that no public land can be
acquired by private persons without any grant,
express or implied from the government. It is
indispensable then that there be showing of title
from the state or any other mode of acquisition
recognized by law. (Lee Hong Hok, et al. vs.
David, et al., L-30389, December 27, 1972, 48
SCRA 379).
xxx xxx xxx
We, therefore, believe that the aforesaid deeds of sale
do not constitute clear and convincing evidence to
establish that the contested area is of private ownership.
Hence, the property must be held to be public domain.
There being no evidence whatever that the
property in question was ever acquired by the
applicants or their ancestors either by
composition title from the Spanish Government
or by possessory information title or by any other
means for the acquisition of public lands, the
property must be held to be public domain.
Be that as it may, [petitioner], by filing a sales application
over the controverted land, acknowledged
unequivocably [sic] that the same is not his private
property.
As such sales applicant manifestly
acknowledged that he does not own the land
and that the same is a public land under the
administration of the Bureau of Lands, to which
the application was submitted, . . . All of its acts
prior thereof, including its real estate tax
declarations, characterized its possessions of
the land as that of a "sales applicant". And
consequently, as one who expects to buy it, has
not as yet done so, and is not, therefore, its
owner." (Palawan Agricultural and Industrial
Co., Inc. vs. Director of Lands, L-25914, March
21, 1972, 44 SCRA 15).
Clearly, this issue falls under the primary jurisdiction of the
Director of Lands because its resolution requires "survey,
classification, . . . disposition and management of the lands of
the public domain." It follows that his rulings deserve great
respect. As petitioner failed to show that this factual finding of
the Director of Lands was unsupported by substantial evidence,
it assumes finality. Thus, both the trial and the appellate courts
correctly relied on such finding.37 We can do no less.
Second Issue: No Simulation of Contracts Proven
Petitioner insists that contrary to Article 137138 of the Civil Code,
Respondent Court erroneously ignored the contemporaneous
and subsequent acts of the parties; hence, it failed to ascertain
their true intentions. However, the rule on the interpretation of
contracts that was alluded to by petitioner is used in affirming,
not negating, their validity. Thus, Article 1373,39 which is a
conjunct of Article 1371, provides that, if the instrument is
susceptible of two or more interpretations, the interpretation
which will make it valid and effectual should be adopted. In this
light, it is not difficult to understand that the legal basis urged by
petitioner does not support his allegation that the contracts to
sell and the deed of relinquishment are simulated and fictitious.
Properly understood, such rules on interpretation even negate
petitioner's thesis.
But let us indulge the petitioner awhile and determine whether
the cited contemporaneous and subsequent acts of the parties
support his allegation of simulation. Petitioner asserts that the
relinquishment of rights and the agreements to sell were
simulated because, first, the language and terms of said
contracts negated private respondent's acquisition of ownership
of the land in issue; and second, contemporaneous and
subsequent communications between him and private
respondent allegedly showed that the latter admitted that
petitioner owned and occupied the two parcels; i.e., that private
respondent was not applying for said parcels but was interested
only in the two hectares it had leased, and that private
respondent supported petitioner's application for a patent.
Petitioner explains that the Agreement to Sell dated December
7, 1948 did not and could not transfer ownership because
paragraph 8 (c) thereof stipulates that the "balance of twelve
thousand pesos (12,000.00) shall be paid upon the execution by
the First Party [petitioner] of the Absolute Deed of Sale of the
two parcels of land in question in favor of the Second Party, and
upon delivery to the Second Party [private respondent] of the
Certificate of Ownership of the said two parcels of land." The
mortgage provisions in paragraphs 6 and 7 of the agreement
state that the P7,000.00 and P5,000.00 were "earnest money or
a loan with antichresis by the free occupancy and use given to
Nasipit of the 140 hectares of land not anymore as a lessee." If
the agreement to sell transferred ownership to Nasipit, then why
was it necessary to require petitioner, in a second agreement, to
mortgage his property in the event of nonfulfillment of the
prestations in the first agreement?
True, the agreement to sell did not absolutely transfer ownership
of the land to private respondent. This fact, however, does not
show that the agreement was simulated. Petitioner's delivery of
the Certificate of Ownership and execution of the deed of
absolute sale were suspensive conditions, which gave rise to a
corresponding obligation on the part of the private respondent,
i.e., the payment of the last installment of the consideration
mentioned in the December 7, 1948 Agreement. Such
conditions did not affect the perfection of the contract or prove
simulation. Neither did the mortgage.
Simulation occurs when an apparent contract is a declaration of
a fictitious will, deliberately made by agreement of the parties, in
order to produce, for the purpose of deception, the appearance
of a juridical act which does not exist or is different from that
which was really executed.40 Such an intention is not apparent
in the agreements. The intent to sell, on the other hand, is as
clear as daylight.
Petitioner alleges further that the deed of relinquishment of right
did not give full effect to the two agreements to sell, because the
preliminary clauses of the deed allegedly served only to give
private respondent an interest in the property as a future owner
thereof and to enable respondent to follow up petitioner's sales
application.
We disagree. Such an intention is not indicated in the deed. On
the contrary, a real and factual sale is evident in paragraph 6
thereof, which states: "That the Nasipit Lumber Co., Inc., . . . is
very much interested in acquiring the land covered by the
aforecited application to be used for purposes of mechanized,
farming" and the penultimate paragraph stating: ". . . VICENTE
J. VILLAFLOR, hereby voluntarily renounce and relinquish
whatever rights to, and interests I have in the land covered by
my above-mentioned application in favor of the Nasipit Lumber
Co., Inc."
We also hold that no simulation is shown either in the letter,
dated December 3, 1973, of the former field manager of private
respondent, George Mear. A pertinent portion of the letter reads:
(a)s regards your property at Acacia, San Mateo, I recall
that we made some sort of agreement for the
occupancy, but I no longer recall the details and I had
forgotten whether or not we actually did occupy your
land. But if, as you say, we did occupy it, then I am sure
that the Company is obligated to pay a rental.
The letter did not contain any express admission that private
respondent was still leasing the land from petitioner as of that
date. According to Mear, he could no longer recall the details of
his agreement with petitioner. This cannot be read as evidence
of the simulation of either the deed of relinquishment or the
agreements to sell. It is evidence merely of an honest lack of
recollection.
Petitioner also alleges that he continued to pay realty taxes on
the land even after the execution of said contracts. This is
immaterial because payment of realty taxes does not necessarily
prove ownership, much less simulation of said contracts.41
Nonpayment of the Consideration
Did Not Prove Simulation
Petitioner insists that nonpayment of the consideration in the
contracts proves their simulation. We disagree. Nonpayment, at
most, gives him only the right to sue for collection. Generally, in
a contract of sale, payment of the price is a resolutory condition
and the remedy of the seller is to exact fulfillment or, in case of
a substantial breach, to rescind the contract under Article 1191
of the Civil Code.42 However, failure to pay is not even a breach,
but merely an event which prevents the vendor's obligation to
convey title from acquiring binding force.43
Petitioner also argues that Respondent Court violated
evidentiary rules in upholding the ruling of the Director of Lands
that petitioner did not present evidence to show private
respondent's failure to pay him. We disagree. Prior to the
amendment of the rules on evidence on March 14, 1989, Section
1, Rule 131, states that each party must prove his or her own
affirmative allegations.44 Thus, the burden of proof in any cause
rested upon the party who, as determined by the pleadings or
the nature of the case, asserts the affirmative of an issue and
remains there until the termination of the action. 45 Although
nonpayment is a negative fact which need not be proved, the
party seeking payment is still required to prove the existence of
the debt and the fact that it is already due.46
Petitioner showed the existence of the obligation with the
presentation of the contracts, but did not present any evidence
that he demanded payment from private respondent. The
demand letters dated January 2 and 5, 1974 (Exhs. "J" and "U"),
adduced in evidence by petitioner, were for the payment of back
rentals, damages to improvements and reimbursement of
acquisition costs and realty taxes, not payment arising from the
contract to sell.
Thus, we cannot fault Respondent Court for adopting the finding
of the Director of Lands that petitioner "offered no evidence to
support his claim of nonpayment beyond his own self-serving
assertions," as he did not even demand "payment, orally or in
writing, of the five thousand (P5,000.00) pesos which was
supposed to be due him since August 17, 1950, the date when
the order of award was issued to Nasipit, and when his cause of
action to recover payment had accrued." Nonpayment of the
consideration in the contracts to sell or the deed of
relinquishment was raised for the first time in the protest filed
with the Bureau of Lands on January 31, 1974. But this protest
letter was not the demand letter required by law.
Petitioner alleges that the assignment of credit and the letter of
the former field manager of private respondent are
contemporaneous and subsequent acts revealing the
nonpayment of the consideration. He maintains that the
P12,000.00 credit assigned pertains to the P5,000.00 and
P7,000.00 initial payments in the December 7, 1948 Agreement,
because the balance of P12,000.00 was not yet "due and
accruing." This is consistent, he argues, with the representation
that private respondent was not interested in filing a sales
application over the land in issue and that Nasipit was instead
supporting petitioner's application thereto in Mear's letter to the
Director of Lands dated February 22, 1950 (Exh. "X")47
This argument is too strained to be acceptable. The assignment
of credit did not establish the nondelivery of these initial
payments of the total consideration. First, the assignment of
credit happened on January 19, 1949, or a month after the
signing of the December 7, 1948 Agreement and almost six
months after the July 7, 1948 Agreement to Sell. Second, it does
not overcome the recitation in the Agreement of December 7,
1948: ". . . a) The amount of SEVEN THOUSAND (P7,000.00)
PESOS has already been paid by the Second Party to the First
Party upon the execution of the Agreement to Sell, on July 7,
1948; b) The amount of FIVE THOUSAND (P5,000.00) PESOS
shall be paid upon the signing of this present agreement; . . . . "
Aside from these facts, the Director of Lands found evidence of
greater weight showing that payment was actually made:48
. . . (T)here is strong evidence to show that said . . .
(P12,000.00) had been paid by NASIPIT to Edward J.
Nell Company by virtue of the Deed of Assignment of
Credit executed by Villaflor (Exh. "41 NALCO") for the
credit of the latter.
Atty. Gabriel Banaag, resident counsel of NASIPIT . . .
declared that it was he who notarized the "Agreement to
Sell" (Exh. "F"); . . . that subsequently, in January 1949,
Villaflor executed a Deed of Assignment of credit in favor
of Edward J. Nell Company (Exh. "41 NALCO") whereby
Villaflor ceded to the latter his receivable for NASIPIT
corresponding to the remaining balance in the amount
of . . . (P12,000.00) . . . of the total consideration . . . . ;
He further testified that the said assignment . . . was
communicated to NASIPIT under cover letter dated
January 24, 1949 (Exh. "41-A") and not long thereafter,
by virtue of the said assignment of credit, NASIPIT paid
the balance . . . to Edward J. Nell Company (p. 58, ibid).
Atty. Banaag's aforesaid testimony stand unrebutted;
hence, must be given full weight and credit.
xxx xxx xxx
The Director of Lands also found that there had been payment
of the consideration in the relinquishment of rights:49
On the other hand, there are strong and compelling
reasons to presume that Villaflor had already been paid
the amount of Five Thousand (P5,000.00) Pesos.
First, . . . What is surprising, however, is not so much his
claims consisting of gigantic amounts as his having
forgotten to adduce evidence to prove his claim of non-
payment of the Five Thousand (P5,000.00) Pesos
during the investigation proceedings when he had all the
time and opportunity to do so. . . . . The fact that he did
not adduce or even attempt to adduce evidence in
support thereof shows either that he had no evidence to
offer of that NASIPIT had already paid him in fact. What
is worse is that Villaflor did not even bother to command
payment, orally or in writing, of the Five Thousand
(P5,000.00) Pesos which was supposed to be due him
since August 17, 1950, the date when the order of award
was issued to Nasipit, and when his cause of action to
recover payment had accrued. The fact that he only
made a command for payment on January 31, 1974,
when he filed his protest or twenty-four (24) years later
is immediately nugatory of his claim for non-payment.
But Villaflor maintains that he had no knowledge or
notice that the order of award had already been issued
to NASIPIT as he had gone to Indonesia and he had
been absent from the Philippines during all those twenty-
four (24) years. This of course taxes credulity. . . .
. . . It is more in keeping with the ordinary course
of things that he should have acquired
information as to what was transpiring in his
affairs in Manila . . . .
Second, it should be understood that the condition that
NASIPIT should reimburse Villaflor the amount of Five
Thousand (P5,000.00) Pesos upon its receipt of the
order of award was fulfilled as said award was issued to
NASIPIT on August 17, 1950. The said deed of
relinquishment was prepared and notarized in Manila
with Villaflor and NASIPIT signing the instrument also in
Manila. Now, considering that Villaflor is presumed to be
more assiduous in following up with the Bureau of Lands
the expeditious issuance of the order of award as the
(consideration) would depend on the issuance of said
order to award NASIPIT, would it not be reasonable to
believe that Villaflor was at hand when the award was
issued to NASIPIT on August 17, 1950, or barely a day
which he executed the deed of relinquishment on August
16, 1950, in Manila? . . . .
Third, on the other hand, NASIPIT has in his possession
a sort of "order" upon itself — (the deed of
relinquishment wherein he(sic) obligated itself to
reimburse or pay Villaflor the . . . consideration of the
relinquishment upon its receipt of the order of award) for
the payment of the aforesaid amount the moment the
order of award is issued to it. It is reasonable to presume
that NASIPIT has paid the (consideration) to Villaflor.
xxx xxx xxx
. . . (I)t was virtually impossible for NASIPIT, after the
lapse of the intervening 24 years, to be able to cope up
with all the records necessary to show that the
consideration for the deed of relinquishment had been
fully paid. To expect NASIPIT to keep intact all records
pertinent to the transaction for the whole quarter of a
century would be to require what even the law does not.
Indeed, even the applicable law itself (Sec. 337, National
Internal Revenue Code) requires that all records of
corporations be preserved for only a maximum of five
years.
NASIPIT may well have added that at any rate while
there are transactions where the proper evidence is
impossible or extremely difficult to produce after the
lapse of time . . . the law creates presumptions of
regularity in favor of such transactions (20 Am. Jur. 232)
so that when the basic fact is established in an action
the existence of the presumed fact must be assumed by
force of law. (Rule 13, Uniform Rules of Evidence; 9
Wigmore, Sec. 2491).
The Court also notes that Mear's letter of February 22, 1950 was
sent six months prior to the execution of the deed of
relinquishment of right. At the time of its writing, private
respondent had not perfected its ownership of the land to be able
to qualify as a sales applicant. Besides, although he was a party
to the July 7, 1948 Agreement to Sell, Mear was not a signatory
to the Deed of Relinquishment or to the December 7, 1948
Agreement to Sell. Thus, he cannot be expected to know the
existence of and the amendments to the later contracts. These
circumstances explain the mistaken representations, not
misrepresentations, in said letter.
Lack of Notice of the Award
Petitioner insists that private respondent suppressed evidence,
pointing to his not having been notified of the Order of Award
dated August 17, 1950.50 At the bottom of page 2 of the order,
petitioner was not listed as one of the parties who were to be
furnished a copy by Director of Lands Jose P. Dans. Petitioner
also posits that Public Land Inspector Sulpicio A. Taeza
irregularly received the copies for both private respondent and
the city treasurer of Butuan City. The lack of notice for petitioner
can be easily explained. Plainly, petitioner was not entitled to
said notice of award from the Director of Lands, because by
then, he had already relinquished his rights to the disputed land
in favor of private respondent. In the heading of the order, he
was referred to as sales applicant-assignor. In paragraph
number 4, the order stated that, on August 16, 1950, he
relinquished his rights to the land subject of the award to private
respondent. From such date, the sales application was
considered to be a matter between the Bureau of Lands and
private respondent only. Considering these facts, the failure to
give petitioner a copy of the notice of the award cannot be
considered as suppression of evidence.51 Furthermore, this
order was in fact available to petitioner and had been referred to
by him since January 31, 1974 when he filed his protest with the
Bureau of Lands.52
Third Issue: Private Respondent Qualified
for an Award of Public Land
Petitioner asserts that private respondent was legally
disqualified from acquiring the parcels of land in question
because it was not authorized by its charter to acquire
disposable public agricultural lands under Sections 121, 122 and
123 of the Public Land Act, prior to its amendment by P.D. No.
763. We disagree. The requirements for a sales application
under the Public Land Act are: (1) the possession of the
qualifications required by said Act (under Section 29) and (2) the
lack of the disqualifications mentioned therein (under Sections
121, 122, and 123). However, the transfer of ownership via the
two agreements dated July 7 and December 7, 1948 and the
relinquishment of rights, being private contracts, were binding
only between petitioner and private respondent. The Public Land
Act finds no relevance because the disputed land was covered
by said Act only after the issuance of the order of award in favor
of private respondent. Thus, the possession of any
disqualification by private respondent under said Act is
immaterial to the private contracts between the parties thereto.
(We are not, however, suggesting a departure from the rule that
laws are deemed written in contracts.) Consideration of said
provisions of the Act will further show their inapplicability to these
contracts. Section 121 of the Act pertains to acquisitions of
public land by a corporation from a grantee, but petitioner never
became a grantee of the disputed land. On the other hand,
private respondent itself was the direct grantee. Sections 122
and 123 disqualify corporations, which are not authorized by
their charter, from acquiring public land; the records do not show
that private respondent was not so authorized under its charter.
Also, the determination by the Director of Lands and the Minister
of Natural Resources of the qualification of private respondent to
become an awardee or grantee under the Act is persuasive on
Respondent Court. In Espinosa vs. Makalintal,53 the Court ruled
that, by law, the powers of the Secretary of Agriculture and
Natural Resources regarding the disposition of public lands —
including the approval, rejection, and reinstatement of
applications — are of executive and administrative nature. (Such
powers, however, do not include the judicial power to decide
controversies arising from disagreements in civil or contractual
relations between the litigants.) Consequently, the determination
of whether private respondent is qualified to become an awardee
of public land under C.A. 141 by sales application is included
therein.
All told, the only disqualification that can be imputed to private
respondent is the prohibition in the 1973 Constitution against the
holding of alienable lands of the public domain by corporations.54
However, this Court earlier settled the matter, ruling that said
constitutional prohibition had no retroactive effect and could not
prevail over a vested right to the land. In Ayog vs. Cusi, Jr.,55 this
Court declared:
We hold that the said constitutional prohibition has no
retroactive application to the sales application of Biñan
Development Co., Inc. because it had already acquired
a vested right to the land applied for at the time the 1973
Constitution took effect.
That vested right has to be respected. It could not be
abrogated by the new Constitution. Section 2, Article XIII
of the 1935 Constitution allows private corporations to
purchase public agricultural lands not exceeding one
thousand and twenty-four hectares. Petitioner's
prohibition action is barred by the doctrine of vested
rights in constitutional law.
"A right is vested when the right to enjoyment has
become the property of some particular person or
persons as a present interest." (16 C.J.S. 1173). It is "the
privilege to enjoy property legally vested, to enforce
contracts, and enjoy the rights of property conferred by
existing law" (12 C.J. 955, Note 46, No. 6) or "some right
or interest in property which has become fixed and
established and is no longer open to doubt or
controversy" (Downs vs. Blount, 170 Fed. 15, 20, cited
in Balboa vs. Farrales, 51 Phil. 498, 502).
The due process clause prohibits the annihilation of
vested rights. "A state may not impair vested rights by
legislative enactment, by the enactment or by the
subsequent repeal of a municipal ordinance, or by a
change in the constitution of the State, except in a
legitimate exercise of the police power" (16 C.J.S. 1177-
78).
It has been observed that, generally, the term "vested
right" expresses the concept of present fixed interest,
which in right reason and natural justice should be
protected against arbitrary State action, or an innately
just an imperative right which an enlightened free
society, sensitive to inherent and irrefragable individual
rights, cannot deny (16 C.J.S. 1174, Note 71, No. 5,
citing Pennsylvania Greyhound Lines, Inc. vs.
Rosenthal, 192 Atl. 2nd 587).
Secretary of Justice Abad Santos in his 1973 opinion
ruled that where the applicant, before the Constitution
took effect, had fully complied with all his obligations
under the Public Land Act in order to entitle him to a
sales patent, there would seem to be no legal or
equitable justification for refusing to issue or release the
sales patent (p. 254, Rollo).
In Opinion No. 140, series of 1974, he held that as soon
as the applicant had fulfilled the construction or
cultivation requirements and has fully paid the purchase
price, he should be deemed to have acquired by
purchase the particular tract of land and to him the area
limitation in the new Constitution would not apply.
In Opinion No. 185, series of 1976, Secretary Abad
Santos held that where the cultivation requirements
were fulfilled before the new Constitution took effect but
the full payment of the price was completed after
January 17, 1973, the applicant was, nevertheless,
entitled to a sales patent (p. 256, Rollo).
Such a contemporaneous construction of the
constitutional prohibition by a high executive official
carries great weight and should be accorded much
respect. It is a correct interpretation of section 11 of
Article XIV.
In the instant case, it is incontestable that prior to the
effectivity of the 1973 Constitution the right of the
corporation to purchase the land in question had
become fixed and established and was no longer open
to doubt or controversy.
Its compliance with the requirements of the Public Land
Law for the issuance of a patent had the effect of
segregating the said land from the public domain. The
corporation's right to obtain a patent for that land is
protected by law. It cannot be deprived of that right
without due process (Director of Lands vs. CA, 123 Phil.
919).
The Minister of Natural Resources ruled, and we agree, that
private respondent was similarly qualified to become an
awardee of the disputed land because its rights to it vested prior
to the effectivity of the 1973 Constitution:56
Lastly, appellee has acquired a vested right to the
subject area and, therefore, is deemed not affected by
the new constitutional provision that no private
corporation may hold alienable land of the public domain
except by lease.
It may be recalled that the Secretary of Justice in his
Opinion No. 64, series of 1973, had declared, to wit:
On the other hand, with respect to sales
application ready for issuance of sales patent, it
is my opinion that where the applicant had,

before, the constitution took effect, fully
complied with all his obligations under the Public
Land act in order to entitle him to sales patent,
there would seem to be not legal or equitable
justification for refusing to issue or release the
sales patent.
Implementing the aforesaid Opinion No. 64 . . . , the then
Secretary of Agriculture and Natural Resources issued
a memorandum, dated February 18, 1974, which
pertinently reads as follows:
In the implementation of the foregoing opinion,
sales application of private individuals covering
areas in excess of 24 hectares and those of
corporations, associations, or partnership which
fall under any of the following categories shall
be given due course and issued patents, to wit:
Sales application for fishponds and for
agricultural purposes (SFA, SA and IGPSA)
wherein prior to January 17, 1973,
a. the land covered thereby was awarded;
b. cultivation requirements of law were
complied with as shown by investigation
reports submitted prior to January 17, 1973;
c. land was surveyed and survey returns
already submitted to the Director of Lands
for verification and approval; and
d. purchase price was fully paid.
From the records, it is evident that the aforestated
requisites have been complied with by appellee long
before January 17, 1973, the effectivity of the New
Constitution. To restate, the disputed area was awarded
to appellee on August 17, 1950, the purchase price was
fully paid on July 26, 1951, the cultivation requirements
were complied with as per investigation report dated
December 31, 1949, and the land was surveyed under
Pls-97.
The same finding was earlier made by the Director of Lands:57
It is further contended by Villaflor that Nasipit has no
juridical personality to apply for the purchase of public
lands for agricultural purposes. The records clearly
show, however, that since the execution of the deed of
relinquishment of August 16, 1950, in favor of Nasipit,
Villaflor has always considered and recognized Nasipit
as having the juridical personality to acquire public lands
for agricultural purposes. In the deed of relinquishment .
. . , it is stated:
6. That the Nasipit Lumber Co., Inc., a
corporation duly organized in accordance with
the laws of the Philippines, . . . .
Even this Office had not failed to recognize the juridical
personality of Nasipit to apply for the purchase of public
lands . . . when it awarded to it the land so relinquished
by Villaflor (Order of Award dated August 17, 1950) and
accepted its application therefor. At any rate, the
question whether an applicant is qualified to apply for
the acquisition of public lands is a matter between the
applicant and this Office to decide and which a third
party like Villaflor has no personality to question beyond
merely calling the attention of this Office thereto.
Needless to say, we also agree that the November 8, 1946
Lease Agreement between petitioner and private respondent
had been terminated by the agreements to sell and the
relinquishment of rights. By the time the verbal leases were
allegedly made in 1951 and 1955,58 the disputed land had
already been acquired and awarded to private respondent. In
any event, petitioner's cause of action on these alleged lease
agreements prescribed long before he filed Civil Case No. 2072-
III, as correctly found by the trial and appellate courts.59 Thus, it
is no longer important, in this case, to pass upon the issue of
whether or not amendments to a lease contract can be proven
by parol evidence. The same holds true as regards the issue of
forum-shopping.
All in all, petitioner has not provided us sufficient reason to
disturb the cogent findings of the Director of Lands, the Minister
of Natural Resources, the trial court and the Court of Appeals.
WHEREFORE, the petition is hereby DISMISSED.
SO ORDERED.
Narvasa, C.J., Romero and Francisco, JJ., concur.
Melo, J., took no part.
Footnotes
1 Rollo, pp. 69-117.
2 Rollo, pp. 71-74.
3 This should be 60 hectares, as stated in the deed of sale.
4 Folder of Exhibits, pp. 28-30.
5 Lease Agreement, Folder of Exhibits, pp. 29-30.
6 Folder of Exhibits, p. 32.
7 Ibid, p. 45.
8 Folder of Exhibits, p. 44.
9 Ibid.
10 Id., pp. 49-51.
11 Id., p. 38.
12 Id., pp. 25-26.
13 Rollo, pp. 184-185.
14 Id., pp. 111-112.
15 RTC Folder of Exhibits, pp. 77-87.
16 Docketed as Civil Case No. 2072-III.
17 Presided by Judge Miguel S. Rallos.
18 RTC rollo, p. 732.
19 The Twelfth Division composed of JJ. Artemon D. Luna, ponente; Reynato S. Puno (now a member
of this Court) and Jorge S. Imperial.
20 Rollo, p. 117.
21 Brett vs. Intermediate Appellate Court, 191 SCRA 687, 698, November 27, 1990, per Regalado, J.
22 Industrial Enterprises, Inc. vs. Court of Appeals, 184 SCRA 426, 431-432, April 18, 1990, per
Melencio-Herrera, J.
23 Machete vs. Court of Appeals, 250 SCRA 176, 182, November 20, 1995.
24 Ibid., p. 182.
25 240 SCRA 502, 528-529, January 25, 1995.
26 Ibid., p. 532.
27 Id.
28 Folder of Exhibits, pp. 68-69.
29 Factual findings should be distinguished from contemporaneous construction and interpretation of
a law by the implementing administrative agency which is accorded great respect by courts. Bagatsing
vs. Committee on Privatization, 246 SCRA 334, 354, July 14, 1995.
30 Philippine Merchant Marine School, Inc. vs. Court of Appeals, 244 SCRA 770, 785, June 2, 1995;
Casa Filipina Realty Corporation vs. Office of the President, 241 SCRA 165, 174, February 7, 1995;
and COCOFED vs. Trajano, 241 SCRA 363, 368, February 15, 1995.
31 Rubenecia vs. Civil Service Commission, 244 SCRA 640, 652, May 31, 1995.
32 Proceeding by analogy, the exceptions to the rule on conclusiveness of factual findings of the Court
of Appeals, enumerated in Fuentes vs. Court of Appeals, can also be applied to those of quasi-judicial
bodies, to wit:
1. When the conclusion is a finding grounded entirely on speculation, surmise or conjecture;
2. When the inference made is manifestly absurd, mistaken or impossible;
3. When there is grave abuse of discretion in the appreciation of facts;
4. When the judgment is premised on a misapprehension of facts;
5. When the findings of fact are conflicting;
6. When the Court of Appeals in making its findings went beyond the issues of the case and the same
is contrary to the admissions of both appellants and appellees;
7. When the findings of fact of the Court of Appeals are at variance with those of the trial court;
8. When the findings of fact 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 respondents;
10. When the findings of fact of the Court of Appeals are premised on the supposed absence of
evidence and are contradicted by the evidence on record; and
11. When certain material facts and circumstances had been overlooked by the trial court which, if
taken into account, would alter the result of the case. (Fuentes vs. Court of Appeals G.R. No. 109849,
February 26, 1997, pp. 6-8)
33 Lanzona vs. Intermediate Appellate Court, 187 SCRA 33, 38, July 2, 1990; Medina vs. Asistio, Jr.,
191 SCRA 218, 223, November 8, 1990; De los Santos vs. Reyes, 205 SCRA 437, 445, January 27,
1992, Universal Motors vs. Court of Appeals, 205 SCRA 448, 455, January 27, 1992; FNCB Finance
vs. Estavillo, 192 SCRA 514, 517, December 20, 1990.
34 Rollo, p. 111.
35 Folder of Exhibits, pp. 71-72.
36 Exhibit 9, ibid., pp. 82-84.
37 We should add that, at present, under Supreme Court Revised Circular 1-95, recourse from rulings
of administrative agencies including those of executive departments is to the Court of Appeals directly
and not to trial courts. Pertinent provisions of this circular are:
1. Scope. — These rules shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of
the President, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer,
National Electrification Administration, Energy Regulatory Board, National Telecommunication
Commission, Department of Agrarian Reform under Republic Act 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission, Philippine Atomic Energy Commission, Board of Investments, and Construction Industry
Arbitration Commission.
2. Cases not covered. — These rules shall not apply to judgments or final orders issued under the
Labor Code of the Philippines.
3. Where to appeal. — An appeal under these rules may be taken to the Court of Appeals within the
period and in the manner herein provided, whether the appeal involves questions of fact, or law, or
mixed questions of fact and law.
xxx xxx xxx
38 Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered.
39 Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood
as bearing that import which is most adequate to render it effectual.
40 Tongoy vs. Court of Appeals, 123 SCRA 99, 118, June 28, 1983, per Makasiar, J.
41 Rivera vs. Court of Appeals, 244 SCRA 218, 222, May 22, 1995.
42 Jacinto vs. Kaparaz, 209 SCRA 246, 255, May 22, 1992, per Davide, J.
43 Ibid., p. 254.
44 Sec. 1. Burden of proof in civil cases. — Each party must prove his own affirmative allegations.
Evidence need not be given in support of a negative allegation except when such negative allegation
is an essential part of the statement of the right or title on which the cause of action or defense is
founded, nor even in such case when the allegation is a denial of the existence of a document the
custody of which belongs to the opposite party. The burden of proof lies in the party who would be
defeated if no evidence were given on either side.
45 31 C.J.S., 709; Geraldez vs. Court of Appeals, 230 SCRA 320, 330, February 23, 1994.
46 Francisco, The Revised Rules of Court in the Philippines: Evidence, Vol. VII, Part II, 1973, ed., p.
12.
47 Folder of Exhibits, p. 38.
48 Id., pp. 73-74.
49 Id., pp. 69-71.
50 CA rollo, pp. 41LLL-MMM.
51 Manila Bay Club Corporation vs. Court of Appeals, 249 SCRA 303, 305-307, October 13, 1995.
52 People vs. Barlis, 231 SCRA 426, 439-440, March 24, 1994.
79 Phil 134, 137, August 29, 1947.
54 Section 11, Article XIV of the 1973 Constitution provides:
Sec. 11. The National Assembly, taking into account conservation, ecological, and developmental
requirements of the natural resources shall determine by law the size of lands of the public domain
which may be developed, held or acquired by, or leased to, any qualified individual, corporation, or
association, and the conditions therefor. No private corporation or association may hold alienable lands
of the public domain except by lease not to exceed one thousand hectares in area; . . . .
55 118 SCRA 492, 498-500, November 19, 1982, per Aquino, J.
56 Folder of Exhibits, pp. 86-87.
57 Ibid, pp. 68-69.
58 Complaint, records, p. 4.
59 Art. 1145. The following actions must be commenced within six years from the time the right of
action accrues:
(1) Upon an oral contract;
xxx xxx xxx
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 178218 December 14, 2011
RAMONA RAMOS and THE ESTATE OF LUIS T. RAMOS,
Petitioners,
vs.
PHILIPPINE NATIONAL BANK, OPAL PORTFOLIO
INVESTMENTS (SPV-AMC), INC. and GOLDEN DRAGON
STAR EQUITIES, INC., Respondents.
DECISION
LEONARDO – DE CASTRO, J.:
Assailed in this Petition for Review on Certiorari1 under Rule 45
of the Rules of Court are the Decision2 dated November 8, 2006
and the Resolution3 dated May 28, 2007 of the Court of Appeals
in CA-G.R. CV No. 64360.
From the records of the case, the following facts emerge:
The Real Estate Mortgage
In 1973, Luis Ramos obtained a credit line under an agricultural
loan account from the Philippine National Bank (PNB), Balayan
Branch, for ₱83,000.00.4 To secure the loan, the parties
executed a Real Estate Mortgage5 on October 23, 1973, the
relevant provisions of which stated:
That for and in consideration of certain loans, overdrafts and
other credit accommodations obtained from the Mortgagee,
which is hereby fixed at ₱83,000.00 Philippine Currency and to
secure the payment of the same and those others that the
Mortgagee may extend to the Mortgagor, including interest and
expenses, and other obligations owing by the Mortgagor to the
Mortgagee, whether direct or indirect principal or secondary, as
appear in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of mortgage
unto the Mortgagee, its successors or assigns, the parcels of
land which are described in the list inserted at the back of this
document, or in a supplementary list attached hereto, together
with all the buildings and improvements now existing or which
may hereafter be erected or constructed thereon and all
easements, sugar quotas, agricultural or land indemnities, aids
or subsidies, including all other rights or benefits annexed to or
inherent therein now existing or which may hereafter exist, and
also other assets acquired with the proceeds of the loan hereby
secured all of which the mortgagor declares that he is the
absolute owner free from all liens and encumbrances. In case
the Mortgagor executes subsequent promissory note or notes
either as a renewal of the former note, as an extension thereof,
or as a new loan, or is given any other kind of accommodations
such as overdrafts, letters of credit, acceptances and bills of
exchange, releases of import shipments on Trust Receipts, etc.,
this mortgage shall also stand as security for the payment of the
said promissory note or notes and/or accommodations without
the necessity of executing a new contract and this mortgage
shall have the same force and effect as if the said promissory
note or notes and/or accommodations were existing on the date
thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the Mortgagor to
the Mortgagee of whatever kind and nature whether such
obligations have been contracted before, during or after the
constitution of this mortgage. However, if the Mortgagor shall
pay to the Mortgagee, its successors or assigns the obligations
secured by this mortgage, together with interests, cost and other
expenses, on or before the date they are due, and shall keep
and perform all the covenants and agreements herein contained
for the Mortgagor to keep and perform, then this mortgage shall
be null and void, otherwise, it shall remain in full force and
effect.6
The properties included in the mortgage were the parcels of land
covered under Transfer Certificate of Title (TCT) Nos. 17217, (T-
262) RT-644, 259, (T-265) RT-646, (T-261) RT-6437 of the
Registry of Deeds of Batangas. From the year 1973, Luis Ramos
would renew the loan every year after paying the amounts falling
due therein.8
The Sugar Quedan Financing Loans
On March 31, 1989, Luis Ramos and PNB entered into a Credit
Line Agreement9 in the amount of ₱50,000,000.00 under the
bank’s sugar quedan financing program. The agreement
pertinently provided thus:
For and in consideration of the Bank agreeing to extend to the
Borrower a Revolving Credit Line (the "Line") in an amount not
to exceed PESOS: FIFTY MILLION ONLY (₱50,000,000.00),
under the Bank’s Sugar Quedan Financing Program for Crop
Year 88/89, the parties hereto hereby agree as follows:
SECTION 1. TERMS OF THE LINE
1.01 Amount and Purpose of the Line. The Line shall be
available to the Borrower in an aggregate amount not to exceed
FIFTY MILLION ONLY Pesos (₱50,000,000.00). x x x
Availments on the Line shall be used by the Borrower exclusively
for additional capital in sugar quedan financing.
1.02 Availability Period; Availments. (a) Subject to the terms and
conditions hereof, the Line shall be available to the Borrower in
several availments (individually an "Availment" and collectively
the "Availments") on any Banking Day x x x during the period
commencing on the Effectivity Date x x x and terminating on the
earliest of (i) August 31, 19__, or (ii) the date the Bank revokes
the Line, or (iii) the date the Borrower ceases to be entitled to
avail of the Line under the terms hereof.
xxxx
1.03 Promissory Notes. Availments on the Line shall be
evidenced by promissory notes (individually a "Note" and
collectively the "Notes") issued by the Borrower in favor of the
Bank in the form and substance acceptable to the Bank. Each
Note shall be (i) dated the date of Availment, (ii) in the principal
amount of such Availment, with interest thereon at the rate as
provided in Section 1.04 hereof, and (iii) payable on the date
occurring sixty (60) days from date of the availment, but in no
case later than August 31, 19__ (the "Initial Repayment Date").
xxxx
SECTION 3. SECURITY
3.01 Security Document. The full payment of any and all sums
payable by the Borrower hereunder and under the Notes, the
Renewal Notes and the other documents contemplated hereby
and the performance of all obligations of the Borrower hereunder
and under the Notes, the Renewal Notes and such other
documents shall be secured by a pledge (the "Pledge") on the
Borrower’s quedans for crop year ____, as more particularly
described in and subject to the terms and conditions of that
Contract of Pledge to be executed by the Borrower in favor of
the Bank, which Contract shall in any event be in form and
substance acceptable to the Bank (the "Security Document"). 10
(Emphases ours.)
Pursuant to the above agreement, Luis Ramos obtained an
availment of ₱7,800,000.00, which was evidenced by a
promissory note dated April 3, 1989.11 Accordingly, Luis Ramos
executed a Contract of Pledge12 in favor of PNB on April 6, 1989.
Pledged as security for the availment were two official
warehouse receipts (quedans) for refined sugar issued by
Noah’s Ark Sugar Refinery (Noah’s Ark), which bore the serial
numbers NASR RS-18080 and NASR RS-18081.13 The said
quedans were duly indorsed to PNB.
On June 6, 1989, Luis Ramos procured another availment of
₱7,800,000.00 that was likewise contained in a promissory
note14 and for which he executed another Contract of Pledge15
on the aforementioned quedans on even date.
Thereafter, Luis Ramos was granted a renewal on the
promissory notes dated April 3, 1989 and June 6, 1989. Hence,
he executed in favor of PNB the promissory notes dated October
3, 1989 and October 9, 1989.16
Luis Ramos eventually failed to settle his sugar quedan financing
loans amounting to ₱15,600,000.00. On December 28, 1989, he
issued an Authorization17 in favor of PNB, stating as follows:
AUTHORIZATION
KNOW ALL MEN BY THESE PRESENTS:
In consideration of my Sugar Quedan Financing line granted by
Philippine National Bank, Balayan Branch in the amount of
₱50.0 Million, as evidenced by Credit Agreement dated March
31, 1989, the undersigned, as borrower, authorizes the
Philippine National Bank, Balayan Branch, or any of its duly
authorized officer, to dispose and sell all the Quedan Receipts
(Warehouse Receipts) pledged to said bank, after maturity date
of the Sugar Quedan Financing line.
The Sugar Quedan Receipts are hereunder specifically
enumerated:
Official Warehouse Receipt (Quedan) Serial Nos.:
 1) NASR RS – 18081 Crop Year 1988-89
(16,129.03 – 50 kilo bags)
2) NASR RS – 18080 Crop Year 1988-89
(16,393.44 – 50 kilo bags)
Incidentally, the above-mentioned sugar quedans became the
subject of three other cases between PNB and Noah’s Ark,
which cases have since reached this Court.18
The Agricultural Crop Loan
Meanwhile, on August 7, 1989, the spouses Luis Ramos and
Ramona Ramos (spouses Ramos) also obtained an agricultural
loan of ₱160,000.00 from PNB. Said loan was evidenced by a
promissory note19 issued by the spouses on even date. The said
loan was secured by the real estate mortgage previously
executed by the parties on October 23, 1973.
On November 2, 1990, the spouses Ramos fully settled the
agricultural loan of ₱160,000.00.20 They then demanded from
PNB the release of the real estate mortgage. PNB, however,
refused to heed the spouses’ demand.21
On February 28, 1996, the spouses Ramos filed a complaint for
Specific Performance22 against the PNB, Balayan Branch, which
was docketed as Civil Case No. 3241 in the Regional Trial Court
(RTC) of Balayan, Batangas. The spouses claimed that the
actions of PNB impaired their rights in the properties included in
the real estate mortgage. They alleged that they lost business
opportunities since they could not raise enough capital, which
they could have acquired by mortgaging or disposing of the said
properties. The spouses Ramos prayed for the trial court to order
PNB to release the real estate mortgage on their properties and
to return to the spouses the TCTs of the properties subject of the
mortgage.
In its Answer,23 PNB countered that the spouses Ramos had no
cause of action against it since the latter knew that the real
estate mortgage secured not only their ₱160,000.00 agricultural
loan but also the other loans the spouses obtained from the
bank. Specifically, PNB alleged that the spouses’ sugar quedan
financing loan of ₱15,600,000.00 remained unpaid as the
quedans were dishonored by the warehouseman Noah’s Ark.
PNB averred that it filed a civil action for specific performance
against Noah’s Ark involving the quedans and the case was still
pending at that time. As PNB was still unable to collect on the
quedans, it claimed that the spouses Ramos’ loan obligations
were yet to be fully satisfied. Thus, PNB argued that it could not
release the real estate mortgage in favor of the spouses.
On March 26, 1999, the RTC rendered a Decision24 in favor of
the spouses Ramos, holding that:
A careful analysis of the evidence on record clearly shows that
there is merit to the [spouses Ramos’] complaint that their
obligation with [PNB] has long been paid and satisfied.
As the records show, PNB admitted that [Luis Ramos] has
already paid his sugar crop loan in the amount of ₱160,000.00 x
x x. The reason why it refused to release the certificates of titles
to the [spouses Ramos] was allegedly because the said titles
were also mortgaged to secure the other obligations of Luis
Ramos, particularly the sugar crop loan in the amount of ₱15.6
Million. However, even assuming that its argument is correct that
the said certificates of titles were also security for the said sugar
financing loan, the same is of no consequence since the
[spouses Ramos] have likewise fully paid the sugar loan when
they effectively transferred the sugar quedans to [PNB] by
issuing a letter authority, authorizing it to dispose and sell all the
Quedan Receipts (Warehouse Receipts) of the [spouses
Ramos] which they pledged to the bank on December 29, 1989
x x x. [Luis Ramos] executed the said letter of authority to the
PNB when he could not anymore afford to pay his loan which
became due. There is no doubt that [PNB] accepted the said
quedans with the understanding that the same shall be treated
as payment of [spouses Ramos’] obligation, considering that it
did not hesitate to proceed to demand from Noah’s Ark Sugar
Refinery, the delivery of the sugar stocks to them as new owners
thereof. It is, therefore, very clear that the authorization issued
by [Luis Ramos] in favor of [PNB], giving the latter the right to
dispose and sell the pledged warehouse receipts/quedans
totally terminated the contract of pledge between the [spouses
Ramos] and [PNB]. In effect there was a novation of their
agreement and dation in payment set in between the parties
thereby extinguishing the loan obligation of the [spouses
Ramos], as provided in Article 1245 of the Civil Code.
Article 1245 of the Civil Code provides that dation in payment is
a special form of payment whereby property is alienated by the
debtor to the creditor in satisfaction of a debt in money. As stated
differently by the noted commentator Manresa, dacion en pago
is the transfer of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of an obligation.
This was what precisely plaintiff Luis Ramos did in this case. He
alienated the ownership of the sugar quedans and the goods
covered by said quedans to [PNB] in satisfaction of his loan
obligation with [PNB].
xxxx
WHEREFORE, the defendant Philippine National Bank, Balayan
Branch is hereby ORDERED to RELEASE the real estate
mortgage on the properties of the [spouses Ramos] and to return
to them all the transfer certificates of titles which were pledged
as security for the agricultural loan which had long been paid and
satisfied and to pay the costs.25 (Emphasis ours.)
PNB filed a Notice of Appeal26 involving the above decision,
which was given due course by the RTC in an Order dated May
11, 1999. The records of the case were then forwarded to the
Court of Appeals where the case was docketed as CA-G.R. CV
No. 64360.
Before the appellate court, PNB contested the ruling of the RTC
that the spouses Ramos have already settled their sugar quedan
financing loan with PNB when they issued a letter of authority,
which authorized PNB to sell the quedan receipts of the spouses
Ramos. PNB also contended that the real estate mortgage
executed by the spouses Ramos in its favor secured not only the
spouses Ramos’ agricultural crop loan in the amount of
₱160,000.00, but also their 1989 sugar quedan financing loan.27
On the other hand, the spouses Ramos averred that the
authorization issued by Luis Ramos in favor of PNB, authorizing
the latter to dispose and sell the pledged sugar quedans
terminated the contract of pledge between the spouses Ramos
and PNB. There was in effect a novation of the contract of pledge
and, thereafter, dation in payment set in between the parties. 28
The spouses Ramos also claimed that the condition in the
parties’ real estate mortgage, which stated that the "mortgage
shall also stand as security for said obligations and any and all
other obligations of the MORTGAGOR to the MORTGAGEE of
whatever kind and nature, whether such obligations have been
contracted before, during or after the constitution of mortgage[,]"
was essentially a contract of adhesion and violated the doctrine
of mutuality of contract.29
On November 8, 2006, the Court of Appeals promulgated its
assailed decision, reversing the judgment of the RTC. The
appellate court elucidated thus:
In the instant appeal, the trial court ruled that the issuance of
[the] authorization letter by [spouses Ramos] in favor of [PNB]
terminated the contract of pledge between the parties and in
effect dation in payment sets-in.
We do not agree. First, the authorization letter did not provide
that ownership of the goods pledged would pass to [PNB] for
failure of [spouses Ramos] to pay the loan on time. This is
contrary to the concept of Dacion en pago as the "delivery and
transmission of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of the obligation."
Second, the authorization merely provided for the appointment
of [PNB] as attorney-in-fact with authority, among other things,
to sell or otherwise dispose of the said real rights, in case of
default by [spouses Ramos], and to apply the proceeds to the
payment of the loan. This provision is a standard condition in
pledge contracts and is in conformity with Article 2087 of the Civil
Code, which authorizes the pledgee to foreclose the pledge and
alienate the pledged property for the payment of the principal
obligation. Lastly, there was no meeting of the minds between
[spouses Ramos] and [PNB] that the loan would be extinguished
by dation in payment.
Article 1245 of the Civil Code provides that the law on sales shall
govern an agreement of dacion en pago. A contract of sale is
perfected at the moment there is a meeting of the minds of the
parties thereto upon the thing which is the object of the contract
and upon the price. x x x.
xxxx
In this case, there was no meeting of the mind between the
parties that would lead us to conclude that dation in payment has
set-in. The trial court based its decision that there was dation in
payment solely on the authorization letter, which we do not
agree. This is because the authorization letter merely authorizes
"the Philippine National Bank, Balayan Branch, or any of its duly
authorized officer, to dispose and sell all the Quedan Receipts
(Warehouse Receipts) pledge to said bank, after maturity date
of the Sugar Quedan Financing Loan."
Moreover, in case of doubt as to whether a transaction is a
pledge or dation in payment, the presumption is in favor of
pledge, the latter being the lesser transmission of rights and
interest.
xxxx
WHEREFORE, the appeal is hereby GRANTED.
ACCORDINGLY, the Decision dated March 26, 1999 of the
Regional Trial Court of Balayan, Batangas, Branch 9, is hereby
REVERSED and a new one is entered ordering [PNB] to hold
the release of all the transfer certificates of titles which were
pledged as security for the agricultural loan of [spouses
Ramos].30
On November 30, 2006, the spouses Ramos filed a Motion for
Reconsideration31 of the Court of Appeals decision. The spouses
then asserted that it was unclear whether the parties intended
that the real estate mortgage would also secure the sugar
quedan financing loan, which was specifically secured by the
pledge on the quedans. They alleged that the sugar quedan
financing loan, the contract of pledge and the promissory notes
did not even make any reference to the real estate mortgage.
PNB apparently violated its implied duty of good faith by
wrongfully retaining the spouses Ramos’ collateral and
improperly invoking the obscure terms of the real estate
mortgage it prepared.
Subsequently, the spouses Ramos filed a Motion for Leave to
File Supplemental Argument.32 They added that PNB could not
have acquired a security interest on the real estate mortgage for
the purpose of the sugar quedan financing loan because when
the real estate mortgage was constituted, the credit line from
whence the sugar quedan financing loan was sourced did not
yet exist. The spouses Ramos also argued that PNB was in bad
faith in retaining the collateral of their real estate mortgage as it
knew or should have known that the said security was already
void given that the agricultural crop loan secured by the
mortgage was already fully paid.
In the assailed Resolution dated May 28, 2007, the Court of
Appeals denied the spouses Ramos’ motion for reconsideration
as it found no compelling reason to reverse its Decision dated
November 8, 2006.
On June 18, 2007, the counsel for the spouses Ramos notified
the Court of Appeals that Luis Ramos had passed away and that
the latter’s wife, Ramona Ramos, acted as the legal
representative of Luis’ estate.
Thereafter, Ramona Ramos and the estate of Luis Ramos
(petitioners) filed the instant petition in a final bid to have the real
estate mortgage declared null and void as regards their sugar
quedan financing loan, as well as to compel PNB to return the
TCTs of the properties included in the said mortgage.
On September 10, 2007, PNB filed a Motion for Substitution of
Party,33 alleging that it has sold to Golden Dragon Star Equities,
Inc. all of its rights, titles and interests in and all obligations
arising out of or in connection with several cases, including the
instant case. Afterwards, Golden Dragon Star Equities, Inc.
assigned to Opal Portfolio Investments (SPV-AMC) Inc. all of its
rights and obligations as a purchaser under the contract of sale
with PNB. Thus, PNB prayed that it be substituted by Opal
Portfolio Investments (SPV-AMC) Inc. as party respondent in the
petition.
In the Resolution34 dated October 10, 2007, the Court denied the
above motion of PNB and instead ordered that Opal Portfolio
Investments (SPV-AMC) Inc. and Golden Dragon Star Equities,
Inc. be included as respondents in addition to PNB. The said
corporations were then required to file their comment on the
petition within ten days from notice.35 On January 25, 2008, Opal
Portfolio Investments (SPV-AMC) Inc. and Golden Dragon Star
Equities, Inc. manifested that they were adopting as their own
the comment filed by PNB.36
The Issues
Petitioners raise the following issues:
1.
IS THE MEANING OF THE GENERAL TERMS OF THE
REAL ESTATE MORTGAGE CLEAR AND LEAVE NO
DOUBT THAT THERE IS NO NEED TO DETERMINE
WHETHER THE PARTIES INTENDED TO CREATE
AND PROVIDE SECURITY INTEREST ON THE REAL
ESTATE COLLATERAL OF BORROWER LUIS T.
RAMOS FOR THE SUGAR QUEDAN FINANCING
LOAN GRANTED TO HIM BY LENDER PNB, IN
ADDITION TO THE AGRICULTURAL CROP LOAN
THAT WAS UNDISPUTEDLY AGREED UPON BY
THEM TO BE COVERED BY THE COLLATERAL?
2.
SHOULD THE GENERAL TERMS OF THE REAL
ESTATE MORTGAGE EXECUTED BY BORROWER
LUIS T. RAMOS IN FAVOR OF LENDER PNB BE
UNDERSTOOD TO INCLUDE IN ITS COVERAGE THE
BORROWER’S SUGAR QUEDAN FINANCING LOAN
THAT IS DIFFERENT FROM HIS AGRICULTURAL
CROP LOAN UNDISPUTEDLY AGREED UPON BY
THE PARTIES TO BE COVERED BY THE
COLLATERAL?
3.
SHOULD THE REAL ESTATE MORTGAGE
EXECUTED IN 1973 BE CONSIDERED VALID AND
EXISTING SECURITY DEVICE AGREEMENT FOR
SUGAR QUEDAN FINANCING LOAN OBTAINED
PURSUANT TO CREDIT LINE AGREEMENT
EXECUTED ONLY IN 1989?37
Petitioners principally argue that the scope and coverage of the
real estate mortgage excluded the sugar quedan financing loan.
Petitioners assert that the mortgage contained a blanket
mortgage clause or a dragnet clause, which stated that the
mortgage would secure not only the loans already obtained but
also any other amount that Luis Ramos may loan from PNB.
Petitioners posit that a dragnet clause will cover and secure a
subsequent loan only if said loan is made in reliance on the
original security containing the dragnet clause. Petitioners state
that said condition did not exist in the instant case, as the sugar
quedan financing loan was not obtained in reliance on the
previously executed real estate mortgage. Such fact was
supposedly apparent from the documents pertaining to the sugar
quedan financing loans, i.e., the credit line agreement, the
various promissory notes and the contracts of pledge.
PNB responded that the issue of whether the parties intended
for the real estate mortgage to secure the sugar quedan
financing loan was never raised in the RTC or in the Court of
Appeals. Therefore, the same cannot be raised for the first time
in the motion for reconsideration of the Court of Appeals decision
and in the instant petition. Likewise, PNB asserts that the
spouses Ramos consented to the terms of the real estate
mortgage that the real properties subject thereof should be used
to secure future and subsequent loans of the mortgagor. Since
the spouses never contested the validity and enforceability of the
real estate mortgage, the same must be respected and should
govern the relations of the parties therein.
PNB also avers that the Court of Appeals did not err in ruling that
there was no dacion en pago and/or novation under the
circumstances prevailing in the instant case. The Authorization
issued by Luis Ramos in favor of PNB did not terminate the
contract of pledge between the parties as PNB was merely
authorized to dispose and sell the sugar quedans to be applied
as payment to the obligation. Hence, no transfer of ownership
occurred. Article 2103 of the Civil Code expressly states that
"unless the thing pledged is expropriated, the debtor continues
to be the owner thereof." PNB argued that when it accepted the
Authorization, it recognized that it was merely being authorized
by Luis Ramos to dispose of the quedans. Therefore, until the
spouses Ramos fully settle their loans from PNB, the latter
believes that it has every right to retain possession of the
properties offered as collateral thereto.
After due consideration of the issues raised, we are compelled
to deny the petition.
To begin with, we note that, indeed, petitioners are presently
raising issues that were neither invoked nor discussed before
the RTC and the main proceedings before the Court of Appeals.
The very issues laid down by petitioners for our consideration
were first brought up only in their motion for reconsideration of
the Court of Appeals Decision dated November 8, 2006.
In their complaint before the RTC and in their reply to PNB’s
appeal to the Court of Appeals, petitioners relied on the theory
that they have already settled all of their loan obligations with
PNB, including their sugar quedan financing loan, such that they
were entitled to the release of the real estate mortgage that
secured the said obligations. When the Court of Appeals
rendered the assailed decision, petitioners foisted a new
argument in their motion for reconsideration that the parties did
not intend for the sugar quedan financing loan to be covered by
the real estate mortgage. Before this Court, petitioners are now
reiterating and expounding on their argument that their sugar
quedan financing loan was beyond the ambit of the previously
executed real estate mortgage. We rule that such a change in
petitioners’ theory may not be allowed at such late a stage in the
case.
The general rule is that issues raised for the first time on appeal
and not raised in the proceedings in the lower court are barred
by estoppel. Points of law, theories, issues, and arguments not
brought to the attention of the trial court ought not to be
considered by a reviewing court, as these cannot be raised for
the first time on appeal. To consider the alleged facts and
arguments raised belatedly would amount to trampling on the
basic principles of fair play, justice, and due process.38
Jurisprudence, nonetheless, provides for certain exceptions to
the above rule. First, it is a settled rule that the issue of
jurisdiction may be raised at any time, even on appeal, provided
that its application does not result in a mockery of the tenets of
fair play. Second, as held in Lianga Lumber Company v. Lianga
Timber Co., Inc.,39 in the interest of justice and within the sound
discretion of the appellate court, a party may change his legal
theory on appeal only when the factual bases thereof would not
require presentation of any further evidence by the adverse party
in order to enable it to properly meet the issue raised in the new
theory.
None of the above exceptions, however, applies to the instant
case. As regards the first exception, the issue of jurisdiction was
never raised at any point in this case. Anent the second
exception, the Court finds that the application of the same in the
case would be improper, as further evidence is needed in order
to answer and/or refute the issue raised in petitioners’ new
theory.
To recapitulate, petitioners are now claiming that the sugar
quedan financing loan it availed from PNB was not obtained in
reliance on the real estate mortgage. Petitioners even insist that
the credit line agreement, the promissory notes and the
contracts of pledge entered into by the parties were silent as to
the applicability thereto of the real estate mortgage. Otherwise
stated, petitioners are harping on the intention of the parties vis-
à-vis the security arrangement for the credit line agreement and
the availments thereof constituting the sugar quedan financing
loan. The impropriety of the petitioners’ posturing is further
confounded by the fact that the credit line agreement under
PNB’s sugar quedan financing program and the availments
thereto were entered into by Luis Ramos and PNB as far back
as the year 1989. Petitioners’ new theory, on the other hand, was
only raised much later on the spouses’ motion for
reconsideration of the Court of Appeals decision dated
November 8, 2006, or after a period of more or less seventeen
years since the execution of the credit line agreement. The
Court, therefore, finds itself unable to give credit to the new
theory proffered by petitioners since to do so would gravely
offend the rights of PNB to due process.
Even if the Court were willing to overlook petitioners’ procedural
misstep on appeal, their belatedly proffered theory still fails to
convince us that the Court of Appeals committed any reversible
error in its resolution of the present case.
According to petitioners, their case requires an application of
Article 1371 of the Civil Code, which provides that "in order to
judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered." To their mind, the mere fact that the 1989 credit line
agreement, the promissory notes and the contracts of pledge
executed in relation to the sugar quedan financing loan
contained no reference to the real estate mortgage is sufficient
proof that the parties did not intend the real estate mortgage to
secure the sugar quedan financing loan, but only the agricultural
crop loans. The Court finds that it cannot uphold this proposition.
In Prisma Construction & Development Corporation v.
Menchavez,40 we discussed the settled principles that:
Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
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. 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. 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.41
Here, it cannot be denied that the real estate mortgage executed
by the parties provided that it shall stand as security for any
"subsequent promissory note or notes either as a renewal of the
former note, as an extension thereof, or as a new loan, or is
given any other kind of accommodations such as overdrafts,
letters of credit, acceptances and bills of exchange, releases of
import shipments on Trust Receipts, etc." The same real estate
mortgage likewise expressly covered "any and all other
obligations of the Mortgagor to the Mortgagee of whatever kind
and nature whether such obligations have been contracted
before, during or after the constitution of this mortgage." Thus,
from the clear and unambiguous terms of the mortgage contract,
the same has application even to future loans and obligations of
the mortgagor of any kind, not only agricultural crop loans.
Such a "blanket clause" or "dragnet clause" in mortgage
contracts has long been recognized in our jurisprudence. Thus,
in another case, we held:
As a general rule, a mortgage liability is usually limited to the
amount mentioned in the contract. However, the amounts
named as consideration in a contract of mortgage do not limit
the amount for which the mortgage may stand as security if, from
the four corners of the instrument, the intent to secure future and
other indebtedness can be gathered. This stipulation is valid and
binding between the parties and is known as the "blanket
mortgage clause" (also known as the "dragnet clause)."
In the present case, the mortgage contract indisputably provides
that the subject properties serve as security, not only for the
payment of the subject loan, but also for "such other loans or
advances already obtained, or still to be obtained." The cross-
collateral stipulation in the mortgage contract between the
parties is thus simply a variety of a dragnet clause. After
agreeing to such stipulation, the petitioners cannot insist that the
subject properties be released from mortgage since the security
covers not only the subject loan but the two other loans as well.42
(Emphases supplied.)
Moreover, petitioners’ reliance on Prudential Bank v. Alviar43 is
sorely misplaced. In Prudential, the fact that another security
was given for subsequent loans did not remove such loans from
the ambit of the dragnet clause in a previous real estate
mortgage contract. However, it was held in Prudential that the
special security for subsequent loans must first be exhausted
before the creditor may foreclose on the real estate mortgage. In
other words, the creditor is allowed to hold on to the previous
security (the real estate mortgage) in case of deficiency after
resort to the special security given for the subsequent loans.
Verily, even under the Prudential ruling cited by petitioners, they
are not entitled to the release of the real estate mortgage and
the titles to the properties mentioned therein.
Ultimately, we likewise find no reason to overturn the assailed
ruling of the Court of Appeals that the contract of pledge between
petitioners and PNB was not terminated by the Authorization
letter issued by Luis Ramos in favor of PNB. The status of PNB
as a pledgee of the sugar quedans involved in this case had long
been confirmed by the Court in its Decision dated July 9, 1998
in Philippine National Bank v. Sayo, Jr.44 and the same is neither
disputed in the instant case. We reiterate our ruling in Sayo that:
The creditor, in a contract of real security, like pledge, cannot
appropriate without foreclosure the things given by way of
pledge. Any stipulation to the contrary, termed pactum
commissorio, is null and void. The law requires foreclosure in
order to allow a transfer of title of the good given by way of
security from its pledgor, and before any such foreclosure, the
pledgor, not the pledgee, is the owner of the goods. x x
x.451avvphi1
A close reading of the Authorization executed by Luis Ramos
reveals that it was nothing more than a letter that gave PNB the
authority to dispose of and sell the sugar quedans after the
maturity date thereof. As held by the Court of Appeals, the said
grant of authority on the part of PNB is a standard condition in a
contract of pledge, in accordance with the provisions of Article
2087 of the Civil Code that "it is also of the essence of these
contracts that when the principal obligation becomes due, the
things in which the pledge or mortgage consists may be
alienated for the payment to the creditor." More importantly,
Article 2115 of the Civil Code expressly provides that the sale of
the thing pledged shall extinguish the principal obligation,
whether or not the proceeds of the sale are equal to the amount
of the principal obligation, interest and expenses in a proper
case. As we adverted to in Sayo, it is the foreclosure of the thing
pledged that results in the satisfaction of the loan liabilities to the
pledgee of the pledgors. Thus, prior to the actual foreclosure of
the thing pleged, the sugar quedan financing loan in this case is
yet to be settled.
 18
As matters stand, with more reason that PNB cannot be On March 16, 1990, PNB filed a complaint for specific stocks. In an Order dated April 15, 1997, the RTC granted the
compelled to release the real estate mortgage and the titles performance with damages against Noah’s Ark in view of the motion for execution of Noah’s Ark. PNB moved for the
involved therein since the issue of whether the sugar quedan latter’s refusal to deliver the stock of sugar covered by the reconsideration of the said order but the same was denied. PNB,
financing loan will be fully paid through the pledged sugar quedans indorsed by Luis Ramos. The complaint was docketed thus, instituted a petition for certiorari with the Court, ascribing
receipts remains the subject of pending litigation. as Civil Case No. 90-53023 in the RTC of Manila. Subsequently, grave abuse of discretion on the part of the RTC, which petition
PNB filed a motion for summary judgment. The RTC denied the was docketed as G.R. No. 129918 (Philippine National Bank v.
WHEREFORE, the petition is DENIED. The Decision dated motion, as well as the motion for reconsideration thereon. PNB Sayo).
November 8, 2006 and the Resolution dated May 28, 2007 of elevated the case to the Court of Appeals via a special civil In the Court’s decision dated July 9, 1998, the status of PNB as
the Court of Appeals in CA-G.R. CV No. 64360 are hereby action for certiorari. a pledgee of the quedans was confirmed. Nonetheless, we
AFFIRMED. Costs against petitioners. In a Decision dated September 13, 1991, the appellate court set stated that Noah’s Ark was entitled to the warehouseman’s lien
SO ORDERED. aside the ruling of the trial court and directed that "summary and that the finality of the decision in G.R. No. 119231 sustained
judgment be rendered forthwith in favor of PNB against Noah’s the said lien. The Court then remanded the case to the RTC to
TERESITA J. LEONARDO-DE CASTRO Ark Sugar Refinery, et al., as prayed for in petitioner’s Motion for afford Noah’s Ark the opportunity to adduce evidence on the
Associate Justice Summary Judgment." The said judgment of the Court of Appeals amount due as warehouseman’s lien.
19
became final and entry of judgment was made on May 26, 1992. Records, p. 5.
WE CONCUR: The case was then remanded to the trial court. On June 18, 20
Id. at 2.
21
RENATO C. CORONA 1992, instead of following the order of the Court of Appeals, the Id. at 144.
22
Chief Justice RTC dismissed the complaint of PNB. Id. at 1-4.
23
Chairperson PNB filed an appeal to this Court, which was docketed as G.R. Id. at 13-16.
No. 107243 (Philippine National Bank v. Noah’s Ark Sugar 24
Rollo, pp. 94-115; penned by Executive Judge Elihu A.
MARIANO C. DEL CASTILLO Refinery). In our Decision dated September 1, 1993, the Court Ybanez.
Associate Justice reversed the decision of the RTC and ordered Noah’s Ark: 25
Id. at 108-115.
(a) to deliver to the petitioner Philippine National Bank, ‘the sugar 26
Records, p. 305.
ROBERTO A. ABAD* stocks covered by the Warehouse Receipts/Quedans which are 27
CA rollo, pp. 39-40.
Associate Justice now in the latter’s possession as holder for value and in due 28
Id. at 97-98.
29
JOSE CATRAL MENDOZA* course; or alternatively, to pay (said) plaintiff actual damages in Id. at 102.
Associate Justice the amount of P39.1 million,’ with legal interest thereon from the 30
Rollo, pp. 48-53.
31
filing of the complaint until full payment; and Id. at 116-128.
CERTIFICATION (b) to pay plaintiff Philippine National Bank attorney’s fees, 32
CA rollo, pp. 178-195.
33
litigation expenses and judicial costs hereby fixed at the amount Rollo, pp. 172-190.
Pursuant to Section 13, Article VIII of the Constitution, I certify
of One Hundred Fifty Thousand Pesos (₱150,000.00) as well as 34
Id. at 211-A.
that the conclusions in the above Decision had been reached in 35
the costs. Id. at 221-A.
consultation before the case was assigned to the writer of the
Noah’s Ark filed a motion for reconsideration, but we denied the 36
Id. at 237-240.
opinion of the Court’s Division. 37
same in an Order dated January 10, 1994. Id. at. 6-7.
RENATO C. CORONA Thereafter, Noah’s Ark filed with the RTC an omnibus motion 38
Imani v. Metropolitan Bank & Trust Company, G.R. No.
Chief Justice praying, inter alia, for the deferment of the proceedings until it 187023, November 17, 2010, 635 SCRA 357, 371.
can be heard on its claim for warehouseman’s lien. The RTC 39
166 Phil. 661, 687 (1977).
Footnotes granted Noah’s Ark’s motion and proceeded to receive evidence 40
G.R. No. 160545, March 9, 2010, 614 SCRA 590.
in support of the latter’s claim for warehouseman’s lien. In an 41
Id. at 597-598.
* Per Raffle dated November 14, 2011. 42
1 Order dated March 1, 1995, the RTC declared that there existed Banate v. Philippine Countryside Rural Bank (Liloan, Cebu),
Rollo, pp. 3-38.
2 in favor of Noah’s Ark a valid warehouseman’s lien and so, the Inc., G.R. No. 163825, July 13, 2010, 625 SCRA 21, 30-31.
Id. at 39-53; penned by Associate Justice Monina Arevalo- 43
execution of judgment was ordered stayed until PNB shall have 502 Phil. 595 (2005).
Zenarosa with Associate Justices Martin S. Villarama, Jr. and 44
satisfied the full amount of the lien. 354 Phil. 211 (1998).
Lucas P. Bersamin (now members of this Court), concurring. 45
3 PNB filed a petition before this Court, seeking the annulment of Id. at 244.
Id. at 54-56.
4 the resolutions of the RTC that authorized the reception of the
TSN, May 28, 1998, p. 5.
5 evidence for the claim of warehouseman’s lien and declared the
Rollo, pp. 57-62.
6 validity of the said lien in favor of PNB. The petition was
Id. at 57.
7 docketed as G.R. No. 119231 (Philippine National Bank v. Se).
Id. at 59-62.
8 In our Decision dated April 18, 1996, we denied PNB’s petition,
TSN, December 18, 1997, p. 4; TSN, May 28, 1998, pp. 14-16.
9 ruling that while PNB was entitled to the sugar stocks as
Rollo, pp. 63-76.
10 endorsee of the quedans, the delivery to it shall only be effected
Id. at 63-65.
11 upon its payment of storage fees to Noah’s Ark.
Id. at 77.
12 After the decision in G.R. No. 119231 became final and
Id. at 78-81.
13 executory, Noah’s Ark filed a motion for execution of its lien as
Id. at 82-85.
14 warehouseman. PNB opposed the motion, arguing that the lien
Id. at 86.
15 claimed in the amount of ₱734,341,595.06 was illusory and that
Records, pp. 43-46.
16 there was no legal basis for the execution of Noah’s Ark’s lien as
Rollo, pp. 87-88.
17 warehouseman until PNB compels the delivery of the sugar
Id. at 89.

SECOND DIVISION
G.R. No. 167519, January 14, 2015
THE WELLEX GROUP, INC., Petitioner, v. U-LAND
AIRLINES, CO., LTD., Respondent.
DECISION
LEONEN, J.:
This is a Petition1 for Review on Certiorari under Rule 45 of the
Rules of Court. The Wellex Group, Inc. (Wellex) prays that the
Decision2 dated July 30, 2004 of the Court of Appeals in CA-G.R.
CV No. 74850 be reversed and set aside.3
The Court of Appeals affirmed the Decision4 of the Regional Trial
Court, Branch 62 of Makati City in Civil Case No. 99-1407. The
Regional Trial Court rendered judgment in favor of U-Land
Airlines, Co., Ltd. (U-Land) and ordered the rescission of the
Memorandum of Agreement5 between Wellex and U-Land.6
Wellex is a corporation established under Philippine law and it
maintains airline operations in the Philippines.7 It owns shares of
stock in several corporations including Air Philippines
International Corporation (APIC), Philippine Estates Corporation
(PEC), and Express Savings Bank (ESB).8 Wellex alleges that it
owns all shares of stock of Air Philippines Corporation (APC).9
U-Land Airlines Co. Ltd. (U-Land) “is a corporation duly
organized and existing under the laws of Taiwan, registered to
do business . . . in the Philippines.”10 It is engaged in the
business of air transportation in Taiwan and in other Asian
countries.11
On May 16, 1998, Wellex and U-Land entered into a
Memorandum of Agreement12 (First Memorandum of
Agreement) to expand their respective airline operations in
Asia.13
Terms of the First Memorandum of Agreement
The preambular clauses of the First Memorandum of Agreement
state:
WHEREAS, U-LAND is engaged in the business of airline
transportation in Taiwan, Philippines and/or in other countries in
the Asian region, and desires to expand its operation and
increase its market share by, among others, pursuing a long-
term involvement in the growing Philippine airline industry;
WHEREAS, WELLEX, on the other hand, has current airline
operation in the Philippines through its majority-owned
subsidiary Air Philippines International Corporation and the
latter’s subsidiary, Air Philippines Corporation, and in like
manner also desires to expand its operation in the Asian regional
markets, a Memorandum of Agreement on ______, a certified
copy of which is attached hereto as Annex “A” and is hereby
made an integral part hereof, which sets forth, among others, the
basis for WELLEX’s present ownership of shares in Air
Philippines International Corporation.
WHEREAS, the parties recognize the opportunity to develop a
long-term profitable relationship by combining such of their
respective resources in an expanded airline operation as well as
in property development and in other allied business activities in
the Philippines, and desire to set forth herein the basic premises
and their understanding with respect to their joint cooperation
and undertakings.14
In the First Memorandum of Agreement, Wellex and U-Land
agreed to develop a long-term business relationship through the
creation of joint interest in airline operations and property
development projects in the Philippines.15 This long-term
business relationship would be implemented through the
following transactions, stated in Section 1 of the First
Memorandum of Agreement:
(a) U-LAND shall acquire from WELLEX, shares of stock of AIR
PHILIPPINES INTERNATIONAL CORPORATION (“APIC”)
equivalent to at least 35% of the outstanding capital stock of
APIC, but in any case, not less than 1,050,000,000 shares . . .
[;]
(b) U-LAND shall acquire from WELLEX, shares of stock of
PHILIPPINE ESTATES CORPORATION (“PEC”) equivalent to
at least 35% of the outstanding capital stock of PEC, but in any
case, not less than 490,000,000 shares . . . [;]
(c) U-LAND shall enter into a joint development agreement with
PEC . . . [; and]
(d) U-LAND shall be given the option to acquire from WELLEX
shares of stock of EXPRESS SAVINGS BANK (“ESB”) up to
40% of the outstanding capital stock of ESB . . . under terms to
be mutually agreed.16
I. Acquisition of APIC and PEC shares
The First Memorandum of Agreement stated that within 40 days
from its execution date, Wellex and U-Land would execute a
share purchase agreement covering U-Land’s acquisition of the
shares of stock of both APIC (APIC shares) and PEC (PEC
shares).17 In this share purchase agreement, U-Land would
purchase from Wellex its APIC shares and PEC shares.18
Wellex and U-Land agreed to an initial purchase price of P0.30
per share of APIC and P0.65 per share of PEC. However, they
likewise agreed that the final price of the shares of stock would
be reflected in the actual share purchase agreement.19
Both parties agreed that the purchase price of APIC shares and
PEC shares would be paid upon the execution of the share
purchase agreement and Wellex’s delivery of the stock
certificates covering the shares of stock. The transfer of APIC
shares and PEC shares to U-Land was conditioned on the full
remittance of the final purchase price as reflected in the share
purchase agreement. Further, the transfer was conditioned on
the approval of the Securities and Exchange Commission of the
issuance of the shares of stock and the approval by the
Taiwanese government of U-Land’s acquisition of these shares
of stock.20
Thus, Section 2 of the First Memorandum of Agreement reads:
2. Acquisition of APIC and PEC Shares. - Within forty (40) days
from date hereof (unless extended by mutual agreement), U-
LAND and WELLEX shall execute a Share Purchase Agreement
(“SHPA”) covering the acquisition by U-LAND of the APIC
Shares and PEC Shares (collectively, the “Subject Shares”).
Without prejudice to any subsequent agreement between the
parties, the purchase price for the APIC Shares to be reflected
in the SHPA shall be THIRTY CENTAVOS (P0.30) per share
and that for the PEC Shares at SIXTY FIVE CENTAVOS (P0.65)
per share.
The purchase price for the Subject Shares as reflected in the
SHPA shall be paid in full upon execution of the SHPA against
delivery of the Subject Shares. The parties may agree on such
other terms and conditions governing the acquisition of the
Subject Shares to be provided in a separate instrument.
The transfer of the Subject Shares shall be effected to U-LAND
provided that: (i) the purchase price reflected in the SHPA has
been fully paid; (ii) the Philippine Securities & Exchange
Commission (SEC) shall have approved the issuance of the
Subject Shares; and (iii) any required approval by the Taiwanese
government of the acquisition by U-LAND of the Subject Shares
shall likewise have been obtained.21
II. Operation and management of APIC/PEC/APC
U-Land was “entitled to a proportionate representation in the
Board of Directors of APIC and PEC in accordance with
Philippine law.”22 Operational control of APIC and APC would be
exercised jointly by Wellex and U-Land “on the basis of mutual
agreement and consultations.”23 The parties intended that U-
Land would gain primary control and responsibility for the
international operations of APC.24 Wellex manifested that APC
is a subsidiary of APIC in the second preambular clause of the
First Memorandum of Agreement.25
Section 3 of the First Memorandum of Agreement reads:
3. Operation/Management of APIC/APC. - U-LAND shall be
entitled to a proportionate representation in the Board of
Directors of APIC and PEC in accordance with Philippine law.
For this purpose, WELLEX shall cause the resignation of its
nominated Directors in APIC and PEC to accommodate U-
LAND’s pro rata number of Directors. Subject to applicable
Philippine law and regulations, operational control of APIC and
Air Philippines Corporation (“APC”) shall be lodged jointly to
WELLEX and U-LAND on the basis of mutual agreement and
consultations. Further, U-LAND may second technical and other
consultants into APIC and/or APC with the view to increasing
service, productivity and efficiency, identifying and implementing
profit-service opportunities, developing technical capability and
resources, and installing adequate safety systems and
procedures. In addition, U-LAND shall arrange for the lease by
APC of at least three (3) aircrafts owned by U-LAND under such
terms as the parties shall mutually agree upon. It is the intent of
the parties that U-LAND shall have primary control and
responsibility for APC’s international operations.26
III. Entering into and funding a joint development agreement
Wellex and U-Land also agreed to enter into a joint development
agreement simultaneous with the execution of the share
purchase agreement. The joint development agreement shall
cover housing and other real estate development projects.27
U-Land agreed to remit the sum of US$3 million not later than
May 22, 1998. This sum was to serve as initial funding for the
development projects that Wellex and U-Land were to undertake
pursuant to the joint development agreement. In exchange for
the US$3 million, Wellex would deliver stock certificates covering
57,000,000 PEC shares to U-Land.28
The execution of a joint development agreement was also
conditioned on the execution of a share purchase agreement. 29
Section 4 of the First Memorandum of Agreement reads:
4. Joint Development Agreement with PEC. – Simultaneous with
the execution of the SHPA, U-LAND and PEC shall execute a
joint development agreement (“JDA”) to pursue property
development projects in the Philippines. The JDA shall cover
specific housing and other real estate development projects as
the parties shall agree. All profits derived from the projects
covered by the JDA shall be shared equally between U-LAND
and PEC. U-LAND shall, not later than May 22, 1998, remit the
sum of US$3.0 million as initial funding for the aforesaid
development projects against delivery by WELLEX of
57,000,000 shares of PEC as security for said amount in
accordance with Section 9 below.30
In case of conflict between the provisions of the First
Memorandum of Agreement and the provisions of the share
purchase agreement or its implementing agreements, the terms
of the First Memorandum of Agreement would prevail, unless the
parties specifically stated otherwise or the context of any
agreement between the parties would reveal a different intent.31
Thus, in Section 6 of the First Memorandum of Agreement:
6. Primacy of Agreement. – It is agreed that in case of conflict
between the provisions of this Agreement and those of the SHPA
and the implementing agreements of the SHPA, the provisions
of this Agreement shall prevail, unless the parties specifically
state otherwise, or the context clearly reveal a contrary intent.32
Finally, Wellex and U-Land agreed that if they were unable to
agree on the terms of the share purchase agreement and the
joint development agreement within 40 days from signing, then
the First Memorandum of Agreement would cease to be
effective.33
In case no agreements were executed, the parties would be
released from their respective undertakings, except that Wellex
would be required to refund within three (3) days the US$3
million given as initial funding by U-Land for the development
projects. If Wellex was unable to refund the US$3 million to U-
Land, U-Land would have the right to recover on the 57,000,000
PEC shares that would be delivered to it.34 Section 9 of the First
Memorandum of Agreement reads:
9. Validity. - In the event the parties are unable to agree on the
terms of the SHPA and/or the JDA within forty (40) days from
date hereof (or such period as the parties shall mutually agree),
this Memorandum of Agreement shall cease to be effective and
the parties released from their respective undertakings herein,
except that WELLEX shall refund the US$3.0 million provided
under Section 4 within three (3) days therefrom, otherwise U-
LAND shall have the right to recover on the 57,000,000 PEC
shares delivered to U-LAND under Section 4.35
The First Memorandum of Agreement was signed by Wellex
Chairman and President William T. Gatchalian (Mr. Gatchalian)
and U-Land Chairman Ker Gee Wang (Mr. Wang) on May 16,
1998.36
Annex “A” or the Second Memorandum of Agreement
Attached and made an integral part of the First Memorandum of
Agreement was Annex “A,” as stated in the second preambular
clause. It is a document denoted as a “Memorandum of
Agreement” entered into by Wellex, APIC, and APC.37
The Second Memorandum of Agreement states:
This Memorandum of Agreement, made and executed this ___th
day of ______ at Makati City, by and between:
THE WELLEX GROUP, INC., a corporation duly organized and
existing under the laws of the Philippines, with offices at 22F
Citibank Tower, 8741 Paseo de Roxas, Makati City (hereinafter
referred to as “TWGI”),
AIR PHILIPPINES INTERNATIONAL CORPORATION
(formerly FORUM PACIFIC, INC.), likewise a corporation duly
organized and existing under the laws of the Philippines, with
offices at 8F Rufino Towers, Ayala Avenue, Makati City
(hereinafter referred to as “APIC”),
- and -
AIR PHILIPPINES CORPORATION, corporation duly organized
and existing under the laws of the Philippines, with offices at
Multinational Building, Ayala Avenue, Makati City (hereinafter
referred to as “APC”).
W I T N E S S E T H: That -
WHEREAS, TWGI is the registered and beneficial owner, or has
otherwise acquired _____ (illegible in rollo) rights to the entire
issued and outstanding capital stock (the “APC SHARES”) of
AIR PHILIPPINES CORPORATION (“APC”) and has made
stockholder advances to APC for the _____ (illegible in rollo) of
aircraft, equipment and for working capital used in the latter’s
operations (the “_____ (illegible in rollo) ADVANCES”).
WHEREAS, APIC desires to obtain full ownership and control of
APC, including all of _____ (illegible in rollo) assets, franchise,
goodwill and operations, and for this purpose has offered to
acquire the _____ (illegible in rollo) SHARES of TWGI in APC,
including the APC ADVANCES due to TWGI from APC, with
_____ (illegible in rollo) of acquiring all the assets, franchise,
goodwill and operations of APC; and TWGI has _____ (illegible
in rollo) to the same in consideration of the conveyance by APIC
to TWGI of certain investments, _____ (illegible in rollo)
issuance of TWGI of shares of stock of APIC in exchange for
said APC SHARES and the _____ (illegible in rollo)
ADVANCES, as more particularly described hereunder.
NOW, THEREFORE, the parties agree as follows:
1. TWGI agrees to transfer the APC ADVANCES in APIC in
exchange for the _____ (illegible in rollo) by APIC to TWGI of
investment shares of APIC in Express Bank, PetroChemical
_____ (illegible in rollo) of Asia Pacific, Republic Resources &
Development Corporation and Philippine _____ (illegible in rollo)
Corporation (the “APIC INVESTMENTS”).
2. TWGI likewise agrees to transfer the APC SHARES to APIC
in exchange solely _____ (illegible in rollo) the issuance by APIC
of One Billion Seven Hundred Ninety Seven Million Eight
Hundred Fifty Seven Thousand Three Hundred Sixty Four
(1,797,857,364) shares of its capital stock of a _____ (illegible
in rollo) value of P1.00 per share (the “APIC SHARES”), taken
from the currently authorized but _____ (illegible in rollo) shares
of the capital stock of APIC, as well as from the increase in the
authorized capital _____ (illegible in rollo) of APIC from P2.0
billion to P3.5 billion.
3. It is the basic understanding of the parties hereto that the
transfer of the APC _____ (illegible in rollo) as well as the APC
ADVANCES to APIC shall be intended to enable APIC to obtain
_____ (illegible in rollo) and control of APC, including all of
APC’s assets, franchise, goodwill and _____ (illegible in rollo).
4. Unless the parties agree otherwise, the effectivity of this
Agreement and transfers _____ (illegible in rollo) APC
ADVANCES in exchange for the APIC INVESTMENTS, and the
transfer of the _____ (illegible in rollo) SHARES in exchange for
the issuance of new APIC SHARES, shall be subject to _____
(illegible in rollo) due diligence as the parties shall see fit, and
the condition subsequent that the _____ (illegible in rollo) for
increase in the authorized capital stock of the APIC from P2.0
billion to P3.5 _____ (illegible in rollo) shall have been approved
by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties have caused these
presents to be signed on the date _____ (illegible in rollo) first
above written.38 (Emphasis supplied)
This Second Memorandum of Agreement was allegedly
incorporated into the First Memorandum of Agreement as a
“disclosure to [U-Land] [that] . . . [Wellex] was still in the process
of acquiring and consolidating its title to shares of stock of
APIC.”39 It “included the terms of a share swap whereby [Wellex]
agreed to transfer to APIC its shareholdings and advances to
APC in exchange for the issuance by APIC of shares of stock to
[Wellex].”40
The Second Memorandum of Agreement was signed by Mr.
Gatchalian, APIC President Salud,41 and APC President
Augustus C. Paiso.42 It was not dated, and no place was
indicated as the place of signing.43 It was not notarized either,
and no other witnesses signed the document.44
The 40-day period lapsed on June 25, 1998.45 Wellex and U-
Land were not able to enter into any share purchase agreement
although drafts were exchanged between the two.
Despite the absence of a share purchase agreement, U-Land
remitted to Wellex a total of US$7,499,945.00.46 These were
made in varying amounts and through the issuance of post-
dated checks.47 The dates of remittances were the following:
Date Amount (in US$)
June 30, 1998 990,000.00
July 2, 1998 990,000.00
20,000.00
July 30, 1998 990,000.00
490,000.00
490,000.00
August 1, 1998 990,000.00
490,000.00
490,000.00
August 3, 1998 990,000.00
70,000.00
September 25, 1998 399,972.50
99, 972.50
Total US$7,499,945.0048
Wellex acknowledged the receipt of these remittances in a
confirmation letter addressed to U-Land dated September 30,
1998.49
According to Wellex, the parties agreed to enter into a security
arrangement. If the sale of the shares of stock failed to push
through, the partial payments or remittances U-Land made were
to be secured by these shares of stock and parcels of land.50
This meant that U-Land could recover the amount it paid to
Wellex by selling these shares of stock and land titles or using
them to generate income.
Thus, after the receipt of US$7,499,945.00, Wellex delivered to
U-Land stock certificates representing 60,770,000 PEC shares
and 72,601,000 APIC shares.51 These were delivered to U-Land
on July 1, 1998, September 1, 1998, and October 1, 1998.52
In addition, Wellex delivered to U-Land Transfer Certificates of
Title (TCT) Nos. T-216769, T-216771, T-228231, T-228227, T-
211250, and T-216775 covering properties owned by Westland
Pacific Properties Corporation in Bulacan; and TCT Nos. T-
107306, T-115667, T-105910, T-120250, T-1114398, and T-
120772 covering properties owned by Rexlon Realty Group,
Inc.53 On October 1, 1998,54 U-Land received a letter from
Wellex, indicating a list of stock certificates that the latter was
giving to the former by way of “security.”55
Despite these transactions, Wellex and U-Land still failed to
enter into the share purchase agreement and the joint
development agreement.
In the letter56 dated July 22, 1999, 10 months57 after the last
formal communication between the two parties, U-Land, through
counsel, demanded the return of the US$7,499,945.00.58 This
letter was sent 14 months after the signing of the First
Memorandum of Agreement.
Counsel for U-Land claimed that “[Wellex] ha[d] unjustifiably
refused to enter into the. . . Share Purchase Agreement.”59 As
far as U-Land was concerned, the First Memorandum of
Agreement was no longer in effect, pursuant to Section 9.60 As
such, U-Land offered to return all the stock certificates covering
APIC shares and PEC shares as well as the titles to real property
given by Wellex as security for the amount remitted by U-Land.61
Wellex sent U-Land a letter62 dated August 2, 1999, which
refuted U-Land’s claims. Counsel for Wellex stated that the two
parties carried out several negotiations that included finalizing
the terms of the share purchase agreement and the terms of the
joint development agreement. Wellex asserted that under the
joint development agreement, U-Land agreed to remit the sum
of US$3 million by May 22, 1998 as initial funding for the
development projects.63
Wellex further asserted that it conducted extended discussions
with U-Land in the hope of arriving at the final terms of the
agreement despite the failure of the remittance of the US$3
million on May 22, 1998.64 That remittance pursuant to the joint
development agreement “would have demonstrated [U-Land’s]
good faith in finalizing the agreements.”65
Wellex averred that, “[s]ave for a few items, [Wellex and U-Land]
virtually agreed on the terms of both [the share purchase
agreement and the joint development agreement.]”66 Wellex
believed that the parties had already “gone beyond the ‘intent’
stage of the [First Memorandum of Agreement] and [had already]
effected partial implementation of an over-all agreement.”67 U-
Land even delivered a total of 12 post-dated checks to Wellex
as payment for the APIC shares and PEC shares.68 “[Wellex] on
the other hand, had [already] delivered to [U-Land] certificates of
stock of APEC [sic] and PEC as well as various land titles to
cover actual remittances.”69 Wellex alleged that the agreements
were not finalized because U-Land was “forced to suspend
operations because of financial problems spawned by the
regional economic turmoil.”70
Thus, Wellex maintained that “the inability of the parties to
execute the [share purchase agreement] and the [joint
development agreement] principally arose from problems at [U-
Land’s] side, and not due to [Wellex’s] ‘unjustified refusal to enter
into [the] [share purchase agreement][.]’”71
On July 30, 1999, U-Land filed a Complaint72 praying for
rescission of the First Memorandum of Agreement and damages
against Wellex and for the issuance of a Writ of Preliminary
Attachment.73 From U-Land’s point of view, its primary reason
for purchasing APIC shares from Wellex was APIC’s majority
ownership of shares of stock in APC (APC shares).74 After
verification with the Securities and Exchange Commission, U-
Land discovered that “APIC did not own a single share of stock
in APC.”75 U-Land alleged that it repeatedly requested that the
parties enter into the share purchase agreement.76 U-Land
attached the demand letter dated July 22, 1999 to the
Complaint.77 However, the 40-day period lapsed, and no share
purchase agreement was finalized.78
U-Land alleged that, as of the date of filing of the Complaint,
Wellex still refused to return the amount of US$7,499,945.00
while refusing to enter into the share purchase agreement.79 U-
Land stated that it was induced by Wellex to enter into and
execute the First Memorandum of Agreement, as well as release
the amount of US$7,499,945.00.80
In its Answer with Compulsory Counterclaim,81 Wellex countered
that U-Land had no cause of action.82 Wellex maintained that
under the First Memorandum of Agreement, the parties agreed
to enter into a share purchase agreement and a joint
development agreement.83 Wellex alleged that to bring the share
purchase agreement to fruition, it would have to acquire the
corresponding shares in APIC.84 It claimed that U-Land was fully
aware that the former “still ha[d] to consolidate its title over these
shares.”85 This was the reason for Wellex’s attachment of the
Second Memorandum of Agreement to the First Memorandum
of Agreement. Wellex attached the Second Memorandum of
Agreement as evidence to refute U-Land’s claim of
misrepresentation.86
Wellex further alleged that U-Land breached the First
Memorandum of Agreement since the payment for the shares
was to begin during the 40-day period, which began on May 16,
1998.87 In addition, U-Land failed to remit the US$3 million by
May 22, 1998 that would serve as initial funding for the
development projects.88 Wellex claimed that the remittance of
the US$3 million on May 22, 1998 was a mandatory obligation
on the part of U-Land.89
Wellex averred that it presented draft versions of the share
purchase agreement, which were never finalized.90 Thus, it
believed that there was an implied extension of the 40-day
period within which to enter into the share purchase agreement
and the joint development agreement since U-Land began
remitting sums of money in partial payment for the purchase of
the shares of stock.91
In its counterclaim against U-Land, Wellex alleged that it had
already set in motion building and development of real estate
projects on four (4) major sites in Cavite, Iloilo, and Davao. It
started initial construction on the basis of its agreement with U-
Land to pursue real estate development projects.92
Wellex claims that, had the development projects pushed
through, the parties would have shared equally in the profits of
these projects.93 These projects would have yielded an income
of P2,404,948,000.00, as per the study Wellex conducted, which
was duly recognized by U-Land.94 Half of that amount,
P1,202,474,000.00, would have redounded to Wellex.95 Wellex,
thus, prayed for the rescission of the First Memorandum of
Agreement and the payment of P1,202,474,000 in damages for
loss of profit.96 It prayed for the payment of moral damages,
exemplary damages, attorney’s fees, and costs of suit.97
In its Reply,98 U-Land denied that there was an extension of the
40-day period within which to enter into the share purchase
agreement and the joint development agreement. It also denied
requesting for an extension of the 40-day period. It further raised
that there was no provision in the First Memorandum of
Agreement that required it to remit payments for Wellex’s shares
of stock in APIC and PEC within the 40-day period. Rather, the
remittances were supposed to begin upon the execution of the
share purchase agreement.99
As for the remittance of the US$3 million, U-Land stated that the
issuance of this amount on May 22, 1998 was supposed to be
simultaneously made with Wellex’s delivery of the stock
certificates for 57,000,000 PEC shares. These stock certificates
were not delivered on that date.100
With regard to the drafting of the share purchase agreement, U-
Land denied that it was Wellex that presented versions of the
agreement. U-Land averred that it was its own counsel who
drafted versions of the share purchase agreement and the joint
development agreement, which Wellex refused to sign.101
U-Land specifically denied that it had any knowledge prior to or
during the execution of the First Memorandum of Agreement that
Wellex still had to “consolidate its title over” its shares in APIC.
U-Land averred that it relied on Wellex’s representation that it
was a majority owner of APIC shares and that APIC owned a
majority of APC shares.102
Moreover, U-Land denied any knowledge of the initial steps that
Wellex undertook to pursue the development projects and
denied any awareness of a study conducted by Wellex regarding
the potential profit of these projects.103
The case proceeded to trial.
U-Land presented Mr. David Tseng (Mr. Tseng), its President
and Chief Executive Officer, as its sole witness.104 Mr. Tseng
testified that “[s]ometime in 1997, Mr. William Gatchalian who
was in Taiwan invited [U-Land] to join in the operation of his
airline company[.]”105 U-Land did not accept the offer at that
time.106 During the first quarter of 1998, Mr. Gatchalian “went to
Taiwan and invited [U-Land] to invest in Air Philippines[.]”107 This
time, U-Land alleged that subsequent meetings were held where
Mr. Gatchalian, representing Wellex, “claimed ownership of a
majority of the shares of APIC and ownership by APIC of a
majority of the shares of [APC,] a domestic carrier in the
Philippines.”108 Wellex, through Mr. Gatchalian, offered to sell to
U-Land PEC shares as well.109
According to Mr. Tseng, the parties agreed to enter into the First
Memorandum of Agreement after their second meeting.110 Mr.
Tseng testified that under this memorandum of agreement, the
parties would enter into a share purchase agreement “within
forty (40) days from its execution which [would] put into effect
the sale of the shares [of stock] of APIC and PEC[.]”111 However,
the “[s]hare [p]urchase [a]greement was not executed within the
forty-day period despite the draft . . . given [by U-Land to
Wellex].”112
Mr. Tseng further testified that it was only after the lapse of the
40-day period that U-Land discovered that Wellex needed
money for the transfer of APC shares to APIC. This allegedly
shocked U-Land since under the First Memorandum of
Agreement, APIC was supposed to own a majority of APC
shares. Thus, U-Land remitted to Wellex a total of
US$7,499,945.00 because of its intent to become involved in the
aviation business in the Philippines. These remittances were
confirmed by Wellex through a confirmation letter. Despite the
remittance of this amount, no share purchase agreement was
entered into by the parties.113
Wellex presented its sole witness, Ms. Elvira Ting (Ms. Ting),
Vice President of Wellex. She admitted her knowledge of the
First Memorandum of Agreement as she was involved in its
drafting. She testified that the First Memorandum of Agreement
made reference, under its second preambular clause, to the
Second Memorandum of Agreement entered into by Wellex,
APIC, and APC. She testified that under the First Memorandum
of Agreement, U-Land’s purchase of APIC shares and PEC
shares from Wellex would take place within 40 days, with the
execution of a share purchase agreement.114
According to Ms. Ting, after the 40-day period lapsed, U-Land
Chairman Mr. Wang requested sometime in June of 1998 for an
extension for the execution of the share purchase agreement
and the remittance of the US$3 million. As proof that Mr. Wang
made this request, Ms. Ting testified that Mr. Wang sent several
post-dated checks to cover the payment of the APIC shares and
PEC shares and the initial funding of US$3 million for the joint
development agreement. She testified that Mr. Wang presented
a draft of the share purchase agreement, which Wellex rejected.
Wellex drafted a new version of the share purchase
agreement.115 However, the share purchase agreement was not
executed because during the period of negotiation, Wellex
learned from other sources that U-Land “encountered difficulties
starting October of 1998.”116 Ms. Ting admitted that U-Land
made the remittances to Wellex in the amount of
US$7,499,945.00.117
Ms. Ting testified that U-Land was supposed to make an initial
payment of US$19 million under the First Memorandum of
Agreement. However, U-Land only paid US$7,499,945.00. The
total payments should have amounted to US$41 million.118
Finally, Ms. Ting testified that Wellex tried to contact U-Land to
have a meeting to thresh out the problems of the First
Memorandum of Agreement, but U-Land did not reply. Instead,
Wellex only received communication from U-Land regarding
their subsequent negotiations through the latter’s demand letter
dated July 22, 1999. In response, Wellex wrote to U-Land
requesting another meeting to discuss the demands. However,
U-Land already filed the Complaint for rescission and caused the
attachment against the properties of Wellex, causing
embarrassment to Wellex.119
In the Decision dated April 10, 2001, the Regional Trial Court of
Makati City held that rescission of the First Memorandum of
Agreement was proper:
The first issue must be resolved in the negative. Preponderance
of evidence leans in favor of plaintiff that it is entitled to the
issuance of the writ of preliminary attachment. Plaintiff’s
evidence establishes the facts that it is engaged in the airline
business in Taiwan, was approached by defendant, through its
Chairman William Gatchalian, and was invited by the latter to
invest in an airline business in the Philippines, Air Philippines
Corporation (APC); that plaintiff became interested in the
invitation of defendant; that during the negotiations between
plaintiff and defendant, defendant induced plaintiff to buy shares
in Air Philippines International Corporation (APIC) since it owns
majority of the shares of APC; that defendant also induced
plaintiff to buy shares of APIC in Philippine Estates Corporation
(PEC); that the negotiations between plaintiff and defendant
culminated into the parties executing a MOA (Exhs. “C” to “C-3”,
also Exh. “1”); that in the second “Whereas” clause of the MOA,
defendant represented that it has a current airline operation
through its majority-owned subsidiary APIC, that under the MOA,
the parties were supposed to enter into a Share Purchase
Agreement (SPA) within forty (40) days from May 16, 1998, the
date the MOA in order to effect the transfer of APIC and PEC
shares of defendant to plaintiff; that plaintiff learned from
defendant that APIC does not actually own a single share in
APC; that plaintiff verified with the Securities and Exchange
Commission (SEC), by obtaining a General Information Sheet
therefrom (Exh. “C-Attachment”); that APIC does not in fact own
APC; that defendant induced plaintiff to still remit its investment
to defendant, which plaintiff did as admitted by defendant per its
Confirmation Letter (Exh. “D”) in order that APC shares could be
transferred to APIC; that plaintiff remitted a total of
US$7,499,945.00 to defendant; and that during the forty-day
period stipulated in the MOA and even after the lapse of the said
period, defendant has not entered into the SPA, nor has
defendant caused the transfer of APC shares to APIC.
In the second “Whereas” clause of the MOA (Exh. “C”),
defendant’s misrepresentation that APIC owns APC is made
clear, as follows:
“WHEREAS, WELLEX, on the other hand, has current airline
operation in the Philippines through its majority-owned
subsidiary Air Philippines International Corporation (Exh. “C”)
and the latter’s subsidiary, Air Philippines Corporation, and in
like manner also desires to expand its operation in the Asian
regional markets; x x x” (Second Whereas of Exh. “C”)
On the other hand, defendant’s evidence failed to disprove
plaintiff’s evidence. The testimony of defendant’s sole witness
Elvira Ting, that plaintiff knew at the time of the signing of the
MOA that APIC does not own a majority of the shares of APC
because another Memorandum of Agreement was attached to
the MOA (Exh “1”) pertaining to the purchase of APC shares by
APIC is unavailing. The second “Whereas” clause of the MOA
leaves no room for interpretation. . . . The second MOA
purportedly attached as Annex “A” of this MOA merely
enlightens the parties on the manner by which APIC acquired
the shares of APC. Besides, . . . the second MOA was not a
certified copy and did not contain a marking that it is an Annex
“A” when it was supposed to be an Annex “A” and a certified
copy per the MOA between plaintiff and defendant. As can be
also gathered from her testimony, Ms. Ting does not have
personal knowledge that plaintiff was not informed that APIC did
not own shares of APC during the negotiations as she was not
present during the negotiations between plaintiff and
defendant’s William Gatchalian. Her participation in the
agreement between the parties [was] merely limited to the
preparation of the documents to be signed. Ms. Ting testified, as
follows:
“Q During the negotiation, you did not know anything about
that?”
A I was not involved in the negotiation, sir.
Q And you are just making your statement that U-Land knew
about the intended transfer of shares from APC to APIC because
of this WHEREAS CLAUSE and the Annex to this Memorandum
of Agreement?
A Yes, it was part of the contract.”
(TSN, Elvira Ting, June 6, 2000, pp. 8-10)
Defendant’s fraud in the performance of its obligation under the
MOA is further revealed when Ms. Ting testified on cross-
examination that notwithstanding the remittances made by
plaintiff in the total amountn [sic] of US$7,499, 945.00 to partially
defray the cost of transferring APC shares to APIC even as of
the year 2000, as follows:
“Q Ms. Ting, can you please tell the Court if you know who owns
shares of Air Philippines Corporation at this time?
A Air Philippines Corporation right now is own [sic] by Wellex
Group and certain individual.
Q How much shares of Air Philippines Corporation is owned by
Wellex Group?
A Around twenty...at this moment around twenty five percent
(25%).
Q Can you tell us if you know who are the other owners of the
shares of Air Philippines?
A There are several individual owners, I cannot recall the
names.
Q Could [sic] you know if Air Philippines Int’l. Corporation is one
of the owners?
A As of this moment, no sir.”
(lbid, p. 16)
That defendant represented to plaintiff that it needed the
remittances of plaintiff, even if no SPA was executed yet
between the parties, to effect the transfer of APC shares to APIC
is admitted by its same witness also in this wise:
“Q You said that remittances were made to the Wellex Group,
Incorporated by plaintiff for the period from June 1998 to
September 1998[,] is that correct?
A Yes, Sir.
Q During all these times, that remittances were made in the total
amount of more than seven million dollars, did you ever know if
plaintiff asked for evidence from your company that AIR
PHILIPPINES INTERNATIONAL CORPORATION has already
acquired shares of AIR PHILIPPINES CORPORATION?
A There were queries on the matter.
Q And what was your answer to those queries, Madam
Witness?
A We informed them that the decision was still in the process.
Q Even up to the time that plaintiff U-Land stopped the
remittances sometime in September 1998 you have not effected
the transfer of shares of AIR PHILIPPINES CORPORATION to
AIR PHILIPPINES INTERNATIONCAL [sic] CORPORATION[,]
am I correct?
A APC to APIC, well at that time it’s still in the process.
Q In fact, Madam Witness, is it not correct for me to say that one
of the reasons why U-Land Incorporated was convinced to remit
the amounts of money totalling seven million dollars plus, was
that your company said that it needed funds to effect these
transfers, is that correct?
A Yes, sir.”
(lbid, pp. 25-29)
As the evidence adduced by the parties stand, plaintiff has
established the fact that it had made remittances in the total
amount of US$7,499,945.00 to defendant in order that
defendant will make good its representation that APC is a
subsidiary of APIC. The said remittances are admitted by
defendant.
Notwithstanding the said remittances, APIC does not own a
single share of APC. On the other hand, defendant could not
even satisfactorily substantiate its claim that at least it had the
intention to cause the transfer of APC shares to APIC.
[D]efendant obviously did not enter into the stipulated SPA
because it did not have the shares of APC transferred to APIC
despite its representations. Under the circumstances, it is clear
that defendant fraudulently violated the provisions of the MOA.120
(Emphasis supplied)
On appeal, the Court of Appeals affirmed the ruling of the
Regional Trial Court.121 In its July 30, 2004 Decision, the Court
of Appeals held that the Regional Trial Court did not err in
granting the rescission:
Records show that in the answer filed by defendant-appellant,
the latter itself asked for the rescission of the MOA. Thus, in
effect, it prays for the return of what has been given or paid under
the MOA, as the law creates said obligation to return the things
which were the object of the contract, and the same could be
carried out only when he who demands rescission can return
whatever he may be obliged to restore. The law says:
“Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may
be obliged to restore.”
Appellant, therefore, cannot ask for rescission of the MOA and
yet refuse to return what has been paid to it. Further, appellant’s
claim that the lower court erred in ruling for the rescission of the
MOA is absurd and ridiculous because rescission thereof is
prayed for by the former. . . .
This Court agrees with the lower court that appellee is the injured
party in this case, and therefore is entitled to rescission, because
the rescission referred to here is predicated on the breach of
faith by the appellant which breach is violative of the reciprocity
between the parties. It is noted that appellee has partly complied
with its own obligation, while the appellant has not. It is,
therefore, the right of the injured party to ask for rescission
because the guilty party cannot ask for rescission.
The lower court . . . correctly ruled that:
“. . . This Court agrees with plaintiff that defendant’s
misrepresentations regarding APIC’s not owning shares in APC
vitiates its consent to the MOA. Defendant’s continued
misrepresentation that it will cause the transfer of APC shares in
APIC inducing plaintiff to remit money despite the lapse of the
stipulated forty day period, further establishes plaintiff’s right to
have the MOA rescinded.
Section 9 of the MOA itself provides that in the event of the non-
execution of an SPA within the 40 day period, or within the
extensions thereof, the payments made by plaintiff shall be
returned to it, to wit:
“9 Validity.- In the event that the parties are unable to agree on
the terms of the SHPA and/or JDA within forty (40) days from the
date hereof (or such period as the parties shall mutually agree),
this Memorandum of Agreement shall cease to be effective and
the parties released from their respective undertakings herein,
except that WELLEX shall refund the US$3.0 million under
Section 4 within three (3) days therefrom, otherwise U-LAND
shall have the right to recover the 57,000,000 PEC shares
delivered to U-LAND under Section 4.”
Clearly, the parties were not able to agree on the terms of the
SPA within and even after the lapse of the stipulated 40 day
period. There being no SPA entered into by and between the
plaintiff and defendant, defendant’s return of the remittances [of]
plaintiff in the total amount of US$7,499,945 is only proper, in
the same vein, plaintiff should return to defendant the titles and
certificates of stock given to it by defendant.122 (Citations
omitted)
Hence, this Petition was filed.
Petitioner’s Arguments
Petitioner Wellex argues that contrary to the finding of the Court
of Appeals, respondent U-Land was not entitled to rescission
because the latter itself violated the First Memorandum of
Agreement. Petitioner Wellex states that respondent U-Land
was actually bound to pay US$17.5 million for all of APIC shares
and PEC shares under the First Memorandum of Agreement and
the US$3 million to pursue the development projects under the
joint development agreement. In sum, respondent U-Land was
liable to petitioner Wellex for the total amount of US$20.5 million.
Neither the Court of Appeals nor the Regional Trial Court made
any mention of the legal effect of respondent U-Land’s failure to
pay the full purchase price.123
On the share purchase agreement, petitioner Wellex asserts that
its obligation to deliver the totality of the shares of stock would
become demandable only upon remittance of the full purchase
price of US$17.5 million.124 The full remittance of the purchase
price of the shares of stock was a suspensive condition for the
execution of the share purchase agreement and delivery of the
shares of stock. Petitioner Wellex argues that the use of the term
“upon” in Section 2 of the First Memorandum of Agreement
clearly provides that the full payment of the purchase price must
be given “simultaneously” or “concurrent” with the execution of
the share purchase agreement.125
Petitioner Wellex raises that the Court of Appeals erred in saying
that the rescission of the First Memorandum of Agreement was
proper because petitioner Wellex itself asked for this in its
Answer before the trial court.126 It asserts that “there can be no
rescission of a non-existent obligation, such as [one] whose
suspensive condition has not yet happened[,]”127 as held in
Padilla v. Spouses Paredes.128 Citing Villaflor v. Court of
Appeals129 and Spouses Agustin v. Court of Appeals,130 it argues
that “the vendor. . . has no obligation to deliver the thing sold. . .
if the buyer. . . fails to fully pay the price as required by the
contract.”131 In this case, petitioner Wellex maintains that
respondent U-Land’s remittance of US$7,499,945.00
constituted mere partial performance of a reciprocal
obligation.132 Thus, respondent U-Land was not entitled to
rescission. The nature of this reciprocal obligation requires both
parties’ simultaneous fulfillment of the totality of their reciprocal
obligations and not only partial performance on the part of the
allegedly injured party.
As to the finding of misrepresentations, petitioner Wellex raises
that a seller may sell a thing not yet belonging to him at the time
of the transaction, provided that he will become the owner at the
time of delivery so that he can transfer ownership to the buyer.
Contrary to the finding of the lower courts, petitioner Wellex was
obliged to be the owner of the shares only when the time came
to deliver these to respondent U-Land and not during the
perfection of the contract itself.133
Finally, petitioner Wellex argues that respondent U-Land could
have recovered through the securities given to the latter.134
Petitioner Wellex invokes Suria v. Intermediate Appellate
Court,135 which held that an “action for rescission is not a
principal action that is retaliatory in character [under Article 1191
of the Civil Code, but] a subsidiary one which. . . is available only
in the absence of any other legal remedy [under Article 1384 of
the Civil Code].”136
Respondent’s Arguments
Respondent U-Land argues that it was the execution of the
share purchase agreement that would result in its purchase of
the APIC shares and PEC shares.137 It was not the full
remittance of the purchase price of the shares of stock as
indicated in the First Memorandum of Agreement, as alleged by
petitioner Wellex.138 Respondent U-Land asserts that the First
Memorandum of Agreement provides that the exact number of
APIC shares and PEC shares to be purchased under the share
purchase agreement and the final price of these shares were not
yet determined by the parties.139
Respondent U-Land reiterates that it was petitioner Wellex that
requested for the remittances amounting to US$7,499,945.00 to
facilitate APIC’s purchase of APC shares.140 Thus, it was
petitioner Wellex’s refusal to enter into the share purchase
agreement that led to respondent U-Land demanding rescission
of the First Memorandum of Agreement and the return of the
US$7,499,945.00.141 Respondent U-Land further argues before
this court that petitioner Wellex failed to present evidence as to
how the money was spent, stating that Ms. Ting admitted that
the Second Memorandum of Agreement “was not consummated
at any time.”142
Respondent U-Land raises that petitioner Wellex was guilty of
fraud by making it appear that APC was a subsidiary of APIC.143
It reiterates that, as an airline company, its primary reason for
entering into the First Memorandum of Agreement was to
acquire management of APC, another airline company.144 Under
Article 1191 of the Civil Code, respondent U-Land, as the injured
party, was entitled to rescission due to the fatal
misrepresentations committed by petitioner Wellex.145
Respondent U-Land further asserts that the “shareholdings in
APIC and APC were never in question.”146 Rather, it was
petitioner Wellex’s misrepresentation that APIC was a majority
shareholder of APC that compelled it to enter into the
agreement.147
As for Suria, respondent U-land avers that this case was
inapplicable because the pertinent provision in Suria was not
Article 1191 but rescission under Article 1383 of the Civil
Code.148 The “rescission” referred to in Article 1191 referred to
“resolution” of a contract due to a breach of a mutual obligation,
while Article 1384 spoke of “rescission” because of lesion and
damage.149 Thus, the rescission that is relevant to the present
case is that of Article 1191, which involves breach in a reciprocal
obligation. It is, in fact, resolution, and not rescission as a result
of fraud or lesion, as found in Articles 1381, 1383, and 1384 of
the Civil Code.150
The Issue
The question presented in this case is whether the Court of
Appeals erred in affirming the Decision of the Regional Trial
Court that granted the rescission of the First Memorandum of
Agreement prayed for by U-Land.
The Petition must be denied.
I
The requirement of a share purchase agreement
The Civil Code provisions on the interpretation of contracts are
controlling to this case, particularly Article 1370, which reads:
ART. 1370. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.
In Norton Resources and Development Corporation v. All Asia
Bank Corporation:151
The cardinal rule in the interpretation of contracts is embodied in
the first paragraph of Article 1370 of the Civil Code: “[i]f the terms
of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall
control.” This provision is akin to the “plain meaning rule” applied
by Pennsylvania courts, which assumes that the intent of the
parties to an instrument is “embodied in the writing itself, and
when the words are clear and unambiguous the intent is to be
discovered only from the express language of the agreement.” It
also resembles the “four corners” rule, a principle which allows
courts in some cases to search beneath the semantic surface for
clues to meaning. A court's purpose in examining a contract is
to interpret the intent of the contracting parties, as objectively
manifested by them. The process of interpreting a contract
requires the court to make a preliminary inquiry as to whether
the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative
interpretations. Where the written terms of the contract are not
ambiguous and can only be read one way, the court will interpret
the contract as a matter of law. If the contract is determined to
be ambiguous, then the interpretation of the contract is left to the
court, to resolve the ambiguity in the light of the intrinsic
evidence.152 (Emphasis supplied)
As held in Norton, this court must first determine whether a
provision or stipulation contained in a contract is ambiguous.
Absent any ambiguity, the provision on its face will be read as it
is written and treated as the binding law of the parties to the
contract.
The parties have differing interpretations of the terms of the First
Memorandum of Agreement. Petitioner Wellex even admits that
“the facts of the case are fairly undisputed [and that] [i]t is only
the parties’ respective [understanding] of these facts that are not
in harmony.”153
The second preambular clause of the First Memorandum of
Agreement reads:
WHEREAS, WELLEX, on the other hand, has current airline
operation in the Philippines through its majority-owned
subsidiary Air Philippines International Corporation and the
latter’s subsidiary, Air Philippines Corporation, and in like
manner also desires to expand its operation in the Asian regional
markets; a Memorandum of Agreement on ______, a certified
copy of which is attached hereto as Annex “A” and is hereby
made an integral part hereof, which sets forth, among others, the
basis for WELLEX’s present ownership of shares in Air
Philippines International Corporation.154 (Emphasis supplied)
Section 1 of the First Memorandum of Agreement reads:
I. Basic Agreement. - The parties agree to develop a long-term
business relationship initially through the creation of joint interest
in airline operations as well as in property development projects
in the Philippines to be implemented as follows:
(a) U-LAND shall acquire from WELLEX, shares of stock of AIR
PHILIPPINES INTERNATIONAL CORPORATION (“APIC”)
equivalent to at least 35% of the outstanding capital stock of
APIC, but in any case, not less than 1,050,000,000 shares (the
“APIC Shares”).
(b) U-LAND shall acquire from WELLEX, shares of stock of
PHILIPPINE ESTATES CORPORATION (“PEC”) equivalent to
at least 35% of the outstanding capital stock of PEC, but in any
case, not less than 490,000,000 shares (the “PEC Shares”).
(c) U-LAND shall enter into a joint development agreement with
PEC to jointly pursue property development projects in the
Philippines.
(d) U-LAND shall be given the option to acquire from WELLEX
shares of stock of EXPRESS SAVINGS BANK (“ESB”) up to
40% of the outstanding capital stock of ESB (the “ESB Shares”)
under terms to be mutually agreed.155
The First Memorandum of Agreement contained the following
stipulations regarding the share purchase agreement:
2. Acquisition of APIC and PEC Shares. - Within forty (40) days
from date hereof (unless extended by mutual agreement), U-
LAND and WELLEX shall execute a Share Purchase Agreement
(“SHPA”) covering the acquisition by U-LAND of the APIC
Shares and PEC Shares (collectively, the “Subject Shares”).
Without prejudice to any subsequent agreement between the
parties, the purchase price for the APIC Shares to be reflected
in the SHPA shall be THIRTY CENTAVOS (P0.30) per share
and that for the PEC Shares at SIXTY FIVE CENTAVOS (P0.65)
per share.
The purchase price for the Subject Shares as reflected in the
SHPA shall be paid in full upon execution of the SHPA against
delivery of the Subject Shares. The parties may agree on such
other terms and conditions governing the acquisition of the
Subject Shares to be provided in a separate instrument.
The transfer of the Subject Shares shall be effected to U-LAND
provided that: (i) the purchase price reflected in the SHPA has
been fully paid; (ii) the Philippine Securities & Exchange
Commission (SEC) shall have approved the issuance of the
Subject Shares; and (iii) any required approval by the Taiwanese
government of the acquisition by U-LAND of the Subject Shares
shall likewise have been obtained.156 (Emphasis supplied)
As for the joint development agreement, the First Memorandum
of Agreement contained the following stipulation:
4. Joint Development Agreement with PEC. – Simultaneous with
the execution of the SHPA, U-LAND and PEC shall execute a
joint development agreement (“JDA”) to pursue property
development projects in the Philippines. The JDA shall cover
specific housing and other real estate development projects as
the parties shall agree. All profits derived from the projects
covered by the JDA shall be shared equally between U-LAND
and PEC. U-LAND shall, not later than May 22, 1998, remit the
sum of US$3.0 million as initial funding for the aforesaid
development projects against delivery by WELLEX of
57,000,000 shares of PEC as security for said amount in
accordance with Section 9 below.157 (Emphasis provided)
Finally, the parties included the following stipulation in case of a
failure to agree on the terms of the share purchase agreement
or the joint development agreement:
9. Validity. - In the event the parties are unable to agree on the
terms of the SHPA and/or the JDA within forty (40) days from
date hereof (or such period as the parties shall mutually agree),
this Memorandum of Agreement shall cease to be effective and
the parties released from their respective undertakings herein,
except that WELLEX shall refund the US$3.0 million provided
under Section 4 within three (3) days therefrom, otherwise U-
LAND shall have the right to recover on the 57,000,000 PEC
shares delivered to U-LAND under Section 4.158
Section 2 of the First Memorandum of Agreement clearly
provides that the execution of a share purchase agreement
containing mutually agreeable terms and conditions must first be
accomplished by the parties before respondent U-Land
purchases any of the shares owned by petitioner Wellex. A
perusal of the stipulation on its face allows for no other
interpretation.
The need for a share purchase agreement to be entered into
before payment of the full purchase price can further be
discerned from the other stipulations of the First Memorandum
of Agreement.
In Section 1, the parties agreed to enter into a joint business
venture, through entering into two (2) agreements: a share
purchase agreement and a joint development agreement.
However, Section 1 provides that in the share purchase
agreement, “U-LAND shall acquire from WELLEX, shares of
stock of AIR PHILIPPINES INTERNATIONAL CORPORATION
(‘APIC’) equivalent to at least 35% of the outstanding capital
stock of APIC, but in any case, not less than 1,050,000,000
shares (the ‘APIC Shares’).”159
As for the PEC shares, Section 1 provides that respondent U-
Land shall purchase from petitioner Wellex “shares of stock of
PHILIPPINE ESTATES CORPORATION (‘PEC’) equivalent to
at least 35% of the outstanding capital stock of PEC, but in any
case, not less than 490,000,000 shares (the ‘PEC Shares’).”160
The use of the terms “at least 35% of the outstanding capital
stock of APIC, but in any case, not less than 1,050,000,000
shares” and “at least 35% of the outstanding capital stock of
PEC, but in any case, not less than 490,000,000 shares” means
that the parties had yet to agree on the number of shares of stock
to be purchased.
The need to execute a share purchase agreement before
payment of the purchase price of the shares is further shown by
the clause, “[w]ithout prejudice to any subsequent agreement
between the parties, the purchase price for the APIC Shares to
be reflected in the [share purchase agreement] shall be... P0.30
per share and that for the PEC Shares at... P0.65 per share.”161
This phrase clearly shows that the final price of the shares of
stock was to be reflected in the share purchase agreement.
There being no share purchase agreement executed,
respondent U-Land was under no obligation to begin payment or
remittance of the purchase price of the shares of stock.
Petitioner Wellex argues that the use of “upon” in Section 2162 of
the First Memorandum of Agreement means that respondent U-
Land must pay the purchase price of the shares of stock in its
entirety when they are transferred. This argument has no merit.
Article 1373 of the Civil Code provides:
ART. 1373. If some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual.
It is necessary for the parties to first agree on the final purchase
price and the number of shares of stock to be purchased before
respondent U-Land is obligated to pay or remit the entirety of the
purchase price. Thus, petitioner Wellex’s argument cannot be
sustained since the parties to the First Memorandum of
Agreement were clearly unable to agree on all the terms
concerning the share purchase agreement. It would be absurd
for petitioner Wellex to expect payment when respondent U-
Land did not yet agree to the final amount to be paid for the
totality of an indeterminate number of shares of stock.
The third paragraph of Section 2163 provides that the “transfer of
the Subject Shares” shall take place upon the fulfillment of
certain conditions, such as full payment of the purchase price
“as reflected in the [share purchase agreement].” The transfer of
the shares of stock is different from the execution of the share
purchase agreement. The transfer of the shares of stock
requires full payment of the final purchase price. However, that
final purchase price must be reflected in the share purchase
agreement. The execution of the share purchase agreement will
require the existence of a final agreement.
In its Answer with counterclaim before the trial court, petitioner
Wellex argued that the payment of the shares of stock was to
begin within the 40-day period. Petitioner Wellex’s claim is not in
any of the stipulations of the contract. Its subsequent claim that
respondent U-Land was actually required to remit a total of
US$20.5 million is likewise bereft of basis since there was no
final purchase price of the shares of stock that was agreed upon,
due to the failure of the parties to execute a share purchase
agreement. In addition, the parties had yet to agree on the final
number of APIC shares and PEC shares that respondent U-Land
would acquire from petitioner Wellex.
Therefore, the understanding of the parties captured in the First
Memorandum of Agreement was to continue their negotiation to
determine the price and number of the shares to be purchased.
Had it been otherwise, the specific number or percentage of
shares and its price should already have been provided clearly
and unambiguously. Thus, they agreed to a 40-day period of
negotiation.
Section 9 of the First Memorandum of Agreement explicitly
provides that:
In the event the parties are unable to agree on the terms of the
SHPA and/or the JDA within forty (40) days from date hereof (or
such period as the parties shall mutually agree), this
Memorandum of Agreement shall cease to be effective and the
parties released from their respective undertakings herein . . .164
The First Memorandum of Agreement was, thus, an agreement
to enter into a share purchase agreement. The share purchase
agreement should have been executed by the parties within 40
days from May 16, 1998, the date of the signing of the First
Memorandum of Agreement.
When the 40-day period provided for in Section 9 lapsed, the
efficacy of the First Memorandum of Agreement ceased. The
parties were “released from their respective undertakings.”
Thus, from June 25, 1998, the date when the 40-day period
lapsed, the parties were no longer obliged to negotiate with each
other in order to enter into a share purchase agreement.
However, Section 9 provides for another period within which the
parties could still be required to negotiate. The clause “or such
period as the parties shall mutually agree” means that the parties
should agree on a period within which to continue negotiations
for the execution of an agreement. This means that after the 40-
day period, the parties were still allowed to negotiate, provided
that they could mutually agree on a new period of negotiation.
Based on the records and the findings of the lower courts, the
parties were never able to arrive at a specific period within which
they would bind themselves to enter into an agreement. There
being no other period specified, the parties were no longer under
any obligation to negotiate and enter into a share purchase
agreement. Section 9 clearly freed them from this undertaking.
II
There was no express or implied
novation of the First Memorandum
of Agreement
The subsequent acts of the parties after the 40-day period were,
therefore, independent of the First Memorandum of Agreement.
In its Appellant’s Brief before the Court of Appeals, petitioner
Wellex mentioned that there was an “implied partial objective or
real novation”165 of the First Memorandum of Agreement.
Petititoner did not raise this argument of novation before this
court. In Gayos v. Gayos,166 this court held that “it is a cherished
rule of procedure that a court should always strive to settle the
entire controversy in a single proceeding leaving no root or
branch to bear the seeds of future litigation[.]”167
Articles 1291 and 1292 of the Civil Code provides how
obligations may be modified:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
Article 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
In Arco Pulp and Paper Co. v. Lim,168 this court discussed the
concept of novation:
Novation extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when there is
subrogation of the creditor. It occurs only when the new contract
declares so “in unequivocal terms” or that “the old and the new
obligations be on every point incompatible with each other.”
....
For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is express when the
new obligation declares in unequivocal terms that the old
obligation is extinguished. It is implied when the new obligation
is incompatible with the old one on every point. The test of
incompatibility is whether the two obligations can stand together,
each one with its own independent existence. (Emphasis from
the original omitted)
Because novation requires that it be clear and unequivocal, it is
never presumed, thus:
I
n the civil law setting, novatio is literally construed as to make
new. So it is deeply rooted in the Roman Law jurisprudence, the
principle — novatio non praesumitur — that novation is never
presumed. At bottom, for novation to be a jural reality, its animus
must be ever present, debitum pro debito — basically
extinguishing the old obligation for the new one.169 (Emphasis
from the original omitted, citations omitted)
Applying Arco, it is clear that there was no novation of the
original obligation.
After the 40-day period, the parties did not enter into any
subsequent written agreement that was couched in unequivocal
terms. The transaction of the First Memorandum of Agreement
involved large amounts of money from both parties. The parties
sought to participate in the air travel industry, which has always
been highly regulated and subject to the strictest commercial
scrutiny. Both parties admitted that their counsels participated in
the crafting and execution of the First Memorandum of
Agreement as well as in the efforts to enter into the share
purchase agreement. Any subsequent agreement would be
expected to be clearly agreed upon with their counsels’
assistance and in writing, as well.
Given these circumstances, there was no express novation.
There was also no implied novation of the original obligation. In
Quinto v. People:170
[N]o specific form is required for an implied novation, and all that
is prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine
what might constitute to be a sufficient change that can bring
about novation, the touchstone for contrariety, however, would
be an irreconcilable incompatibility between the old and the new
obligations.
....
. . . The test of incompatibility is whether or not the two
obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter
obligation novates the first. Corollarily, changes that breed
incompatibility must be essential in nature and not merely
accidental. The incompatibility must take place in any of the
essential elements of the obligation, such as its object, cause or
principal conditions thereof; otherwise, the change would be
merely modificatory in nature and insufficient to extinguish the
original obligation.171 (Citations omitted)
There was no incompatibility between the original terms of the
First Memorandum of Agreement and the remittances made by
respondent U-Land for the shares of stock. These remittances
were actually made with the view that both parties would
subsequently enter into a share purchase agreement. It is clear
that there was no subsequent agreement inconsistent with the
provisions of the First Memorandum of Agreement.
Thus, no implied novation took place. In previous cases, 172 this
court has consistently ruled that presumed novation or implied
novation is not deemed favorable. In United Pulp and Paper Co.,
Inc. v. Acropolis Central Guaranty Corporation:173
Neither can novation be presumed in this case. As explained in
Duñgo v. Lopena:
“Novation by presumption has never been favored. To be
sustained, it need be established that the old and new contracts
are incompatible in all points, or that the will to novate appears
by express agreement of the parties or in acts of similar
import.”174 (Emphasis supplied)
There being no novation of the First Memorandum of
Agreement, respondent U-Land is entitled to the return of the
amount it remitted to petitioner Wellex. Petitioner Wellex is
likewise entitled to the return of the certificates of shares of stock
and titles of land it delivered to respondent U-Land. This is
simply an enforcement of Section 9 of the First Memorandum of
Agreement. Pursuant to Section 9, only the execution of a final
share purchase agreement within either of the periods
contemplated by this stipulation will justify the parties’ retention
of what they received or would receive from each other.
III
Applying Article 1185 of the Civil
Code, the parties are obligated to
return to each other all they have
received
Article 1185 of the Civil Code provides that:
ART. 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the
moment the time indicated has elapsed, or if it has become
evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled
at such time as may have probably been contemplated, bearing
in mind the nature of the obligation.
Article 1185 provides that if an obligation is conditioned on the
non-occurrence of a particular event at a determinate time, that
obligation arises (a) at the lapse of the indicated time, or (b) if it
has become evident that the event cannot occur.
Petitioner Wellex and respondent U-Land bound themselves to
negotiate with each other within a 40-day period to enter into a
share purchase agreement. If no share purchase agreement
was entered into, both parties would be freed from their
respective undertakings.
It is the non-occurrence or non-execution of the share purchase
agreement that would give rise to the obligation to both parties
to free each other from their respective undertakings. This
includes returning to each other all that they received in pursuit
of entering into the share purchase agreement.
At the lapse of the 40-day period, the parties failed to enter into
a share purchase agreement. This lapse is the first circumstance
provided for in Article 1185 that gives rise to the obligation.
Applying Article 1185, the parties were then obligated to return
to each other all that they had received in order to be freed from
their respective undertakings.
However, the parties continued their negotiations after the lapse
of the 40-day period. They made subsequent transactions with
the intention to enter into the share purchase agreement.
Despite that, they still failed to enter into a share purchase
agreement. Communication between the parties ceased, and no
further transactions took place.
It became evident that, once again, the parties would not enter
into the share purchase agreement. This is the second
circumstance provided for in Article 1185. Thus, the obligation to
free each other from their respective undertakings remained.
As such, petitioner Wellex is obligated to return the remittances
made by respondent U-Land, in the same way that respondent
U-Land is obligated to return the certificates of shares of stock
and the land titles to petitioner Wellex.
IV
Respondent U-Land is praying for
rescission or resolution under Article
1191, and not rescission under Article
1381
The arguments of the parties generally rest on the propriety of
the rescission of the First Memorandum of Agreement. This
requires a clarification of rescission under Article 1191, and
rescission under Article 1381 of the Civil Code.
Article 1191 of the Civil Code provides:
ART. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
Articles 1380 and 1381, on the other hand, provide an
enumeration of rescissible contracts:
ART. 1380. Contracts validly agreed upon may be rescinded in
the cases established by law.
ART. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-
fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot
in any other manner collect the claims due them;
(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;
(5) All other contracts specially declared by law to be subject to
rescission.
Article 1383 expressly provides for the subsidiary nature of
rescission:
ART. 1383. The 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.
Rescission itself, however, is defined by Article 1385:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he
may be obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third
persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
Gotesco Properties v. Fajardo175 categorically stated that Article
1385 is applicable to Article 1191:
At this juncture, it is noteworthy to point out that rescission does
not merely terminate the contract and release the parties from
further obligations to each other, but abrogates the contract from
its inception and restores the parties to their original positions as
if no contract has been made. Consequently, mutual restitution,
which entails the return of the benefits that each party may have
received as a result of the contract, is thus required. To be sure,
it has been settled that the effects of rescission as provided for
in Article 1385 of the Code are equally applicable to cases under
Article 1191, to wit:
xxxx
Mutual restitution is required in cases involving rescission
under Article 1191. This means bringing the parties back to
their original status prior to the inception of the contract. Article
1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission
can return whatever he may be obligated to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third
persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
This Court has consistently ruled that this provision applies
to rescission under Article 1191:
[S]ince Article 1385 of the Civil Code expressly and clearly states
that “rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the
price with its interest,” the Court finds no justification to sustain
petitioners’ position that said Article 1385 does not apply to
rescission under Article 1191. x x x176 (Emphasis from the
original, citations omitted)
Rescission, as defined by Article 1385, mandates that the parties
must return to each other everything that they may have
received as a result of the contract. This pertains to rescission
or resolution under Article 1191, as well as the provisions
governing all forms of rescissible contracts.
For Article 1191 to be applicable, however, there must be
reciprocal prestations as distinguished from mutual obligations
between or among the parties. A prestation is the object of an
obligation, and it is the conduct required by the parties to do or
not to do, or to give.177 Parties may be mutually obligated to each
other, but the prestations of these obligations are not necessarily
reciprocal. The reciprocal prestations must necessarily emanate
from the same cause that gave rise to the existence of the
contract. This distinction is best illustrated by an established
authority in civil law, the late Arturo Tolentino:
This article applies only to reciprocal obligations. It has no
application to every case where two persons are mutually debtor
and creditor of each other. There must be reciprocity between
them. Both relations must arise from the same cause, such that
one obligation is correlative to the other. Thus, a person may be
the debtor of another by reason of an agency, and his creditor
by reason of a loan. They are mutually obligated, but the
obligations are not reciprocal. Reciprocity arises from identity of
cause, and necessarily the two obligations are created at the
same time.178 (Citation omitted)
Ang Yu Asuncion v. Court of Appeals179 provides a clear
necessity of the cause in perfecting the existence of an
obligation:
An obligation is a juridical necessity to give, to do or not to do
(Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz: (a) The
vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts,
quasi-contracts, delicts and quasi-delicts); (b) the object which
is the prestation or conduct, required to be observed (to give, to
do or not to do); and (c) the subject-persons who, viewed from
the demandability of the obligation, are the active (obligee) and
the passive (obligor) subjects.180
The cause is the vinculum juris or juridical tie that essentially
binds the parties to the obligation. This linkage between the
parties is a binding relation that is the result of their bilateral
actions, which gave rise to the existence of the contract.
The failure of one of the parties to comply with its reciprocal
prestation allows the wronged party to seek the remedy of Article
1191. The wronged party is entitled to rescission or resolution
under Article 1191, and even the payment of damages. It is a
principal action precisely because it is a violation of the original
reciprocal prestation.
Article 1381 and Article 1383, on the other hand, pertain to
rescission where creditors or even third persons not privy to the
contract can file an action due to lesion or damage as a result of
the contract. In Ong v. Court of Appeals,181 this court defined
rescission:
Rescission, as contemplated in Articles 1380, et seq., of the New
Civil Code, is a remedy granted by law to the contracting parties
and even to third persons, to secure the reparation of damages
caused to them by a contract, even if this should be valid, by
restoration of things to their condition at the moment prior to the
celebration of the contract. It implies a contract, which even if
initially valid, produces a lesion or a pecuniary damage to
someone.182 (Citations omitted)
Ong elaborated on the confusion between “rescission” or
resolution under Article 1191 and rescission under Article 1381:
On the other hand, Article 1191 of the New Civil Code refers to
rescission applicable to reciprocal obligations. Reciprocal
obligations are those which arise from the same cause, and in
which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous
fulfillment of the other. Rescission of reciprocal obligations under
Article 1191 of the New Civil Code should be distinguished from
rescission of contracts under Article 1383. Although both
presuppose contracts validly entered into and subsisting and
both require mutual restitution when proper, they are not entirely
identical.
While Article 1191 uses the term “rescission,” the original term
which was used in the old Civil Code, from which the article was
based, was “resolution.” Resolution is a principal action which is
based on breach of a party, while rescission under Article 1383
is a subsidiary action limited to cases of rescission for lesion
under Article 1381 of the New Civil Code, which expressly
enumerates the following rescissible contracts:
1. Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by
more than one fourth of the value of the things
which are the object thereof;
2. Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
3. Those undertaken in fraud of creditors when the latter
cannot in any manner collect the claims due them;
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; [and]
5. All other contracts specially declared by law to be
subject to rescission.183 (Citations omitted)
When a party seeks the relief of rescission as provided in Article
1381, there is no need for reciprocal prestations to exist between
or among the parties. All that is required is that the contract
should be among those enumerated in Article 1381 for the
contract to be considered rescissible. Unlike Article 1191,
rescission under Article 1381 must be a subsidiary action
because of Article 1383.
Contrary to petitioner Wellex’s argument, this is not rescission
under Article 1381 of the Civil Code. This case does not involve
prejudicial transactions affecting guardians, absentees, or fraud
of creditors. Article 1381(3) pertains in particular to a series of
fraudulent actions on the part of the debtor who is in the process
of transferring or alienating property that can be used to satisfy
the obligation of the debtor to the creditor. There is no allegation
of fraud for purposes of evading obligations to other creditors.
The actions of the parties involving the terms of the First
Memorandum of Agreement do not fall under any of the
enumerated contracts that may be subject of rescission.
Further, respondent U-Land is pursuing rescission or resolution
under Article 1191, which is a principal action. Justice J.B.L.
Reyes’ concurring opinion in the landmark case of Universal
Food Corporation v. Court of Appeals184 gave a definitive
explanation on the principal character of resolution under Article
1191 and the subsidiary nature of actions under Article 1381:
The rescission on account of breach of stipulations is not
predicated on injury to economic interests of the party plaintiff
but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing anywhere that
the action for rescission thereunder is subordinated to anything
other than the culpable breach of his obligations by the
defendant. This rescission is a principal action retaliatory in
character, it being unjust that a party be held bound to fulfill his
promises when the other violates his. As expressed in the old
Latin aphorism: “Non servanti fidem, non est fides servanda.”
Hence, the reparation of damages for the breach is purely
secondary.
On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to the
existence of that prejudice, because it is the raison detre as well
as the measure of the right to rescind. Hence, where the
defendant makes good the damages caused, the action cannot
be maintained or continued, as expressly provided in Articles
1383 and 1384. But the operation of these two articles is limited
to the cases of rescission for lesión enumerated in Article 1381
of the Civil Code of the Philippines, and does not apply to cases
under Article 1191.185
Rescission or resolution under Article 1191, therefore, is a
principal action that is immediately available to the party at the
time that the reciprocal prestation was breached. Article 1383
mandating that rescission be deemed a subsidiary action cannot
be applicable to rescission or resolution under Article 1191.
Thus, respondent U-Land correctly sought the principal relief of
rescission or resolution under Article 1191. The obligations of
the parties gave rise to reciprocal prestations, which arose from
the same cause: the desire of both parties to enter into a share
purchase agreement that would allow both parties to expand
their respective airline operations in the Philippines and other
neighboring countries.
V contract. In Villaflor:
The jurisprudence relied upon by
petitioner Wellex is not applicable
The cases that petitioner Wellex cited to advance its arguments
against respondent U-Land’s right to rescission are not in point.
Suria v. Intermediate Appellate Court is not applicable. In that
case, this court specifically stated that the parties entered into a
contract of sale, and their reciprocal obligations had already
been fulfilled:186
There is no dispute that the parties entered into a contract of sale
as distinguished from a contract to sell.
By the contract of sale, the vendor obligates himself to transfer
the ownership of and to deliver a determinate thing to the buyer,
who in turn, is obligated to pay a price certain in money or its
equivalent (Art. 1458, Civil Code). From the respondents’ own
arguments, we note that they have fully complied with their
part of the reciprocal obligation. As a matter of fact, they
have already parted with the title as evidenced by the
transfer certificate of title in the petitioners’ name as of June
27, 1975.
The buyer, in turn, fulfilled his end of the bargain when he
executed the deed of mortgage. The payments on an installment
basis secured by the execution of a mortgage took the place of
a cash payment. In other words, the relationship between the
parties is no longer one of buyer and seller because the contract
of sale has been perfected and consummated. It is already one
of a mortgagor and a mortgagee. In consideration of the
petitioners’ promise to pay on installment basis the sum they
owe the respondents, the latter have accepted the mortgage as
security for the obligation.
The situation in this case is, therefore, different from that
envisioned in the cited opinion of Justice J.B.L. Reyes. The
petitioners’ breach of obligations is not with respect to the
perfected contract of sale but in the obligations created by the
mortgage contract. The remedy of rescission is not a principal
action retaliatory in character but becomes a subsidiary one
which by law is available only in the absence of any other legal
remedy. (Art. 1384, Civil Code).
Foreclosure here is not only a remedy accorded by law but, as
earlier stated, is a specific provision found in the contract
between the parties.187 (Emphasis supplied)
In Suria, this court clearly applied rescission under Article 1384
and not rescission or resolution under Article 1191. In addition,
the First Memorandum of Agreement is not a contract to sell
shares of stock. It is an agreement to negotiate with the view of
entering into a share purchase agreement.
Villaflor v. Court of Appeals is not applicable either. In Villaflor,
this court held that non-payment of consideration of contracts
only gave rise to the right to sue for collection, but this non-
payment cannot serve as proof of a simulated contract. 188 The
case did not rule that the vendor has no obligation to deliver the
thing sold if the buyer fails to fully pay the price required by the
Petitioner insists that nonpayment of the consideration in the
contracts proves their simulation. We disagree. Nonpayment, at
most, gives him only the right to sue for collection. Generally, in
a contract of sale, payment of the price is a resolutory condition
and the remedy of the seller is to exact fulfillment or, in case of
a substantial breach, to rescind the contract under Article 1191
of the Civil Code. However, failure to pay is not even a breach,
but merely an event which prevents the vendor’s obligation to
convey title from acquiring binding force.189 (Citations omitted)
This court’s statement in Villaflor regarding rescission under
Article 1191 was a mere obiter dictum. In Land Bank of the
Philippines v. Suntay,190 this court discussed the nature of an
obiter dictum:
An obiter dictum has been defined as an opinion expressed by
a court upon some question of law that is not necessary in the
determination of the case before the court. It is a remark made,
or opinion expressed, by a judge, in his decision upon a cause
by the way, that is, incidentally or collaterally, and not directly
upon the question before him, or upon a point not necessarily
involved in the determination of the cause, or introduced by way
of illustration, or analogy or argument. It does not embody the
resolution or determination of the court, and is made without
argument, or full consideration of the point. It lacks the force of
an adjudication, being a mere expression of an opinion with no
binding force for purposes of res judicata.191 (Citations omitted)
Petitioner Wellex’s reliance on Padilla v. Spouses Paredes and
Spouses Agustin v. Court of Appeals is also misplaced. In these
cases, this court held that there can be no rescission for an
obligation that is non-existent, considering that the suspensive
condition that will give rise to the obligation has not yet
happened. This is based on an allegation that the contract
involved is a contract to sell. In a contract to sell, the failure of
the buyer to pay renders the contract without effect. A
suspensive condition is one whose non-fulfillment prevents the
existence of the obligation.192 Payment of the purchase price,
therefore, constitutes a suspensive condition in a contract to sell.
Thus, this court held that non-remittance of the full price allowed
the seller to withhold the transfer of the thing to be sold.
In this case, the First Memorandum of Agreement is not a
contract to sell. Entering into the share purchase agreement or
the joint development agreement remained a stipulation that the
parties themselves agreed to pursue in the First Memorandum
of Agreement.
Based on the First Memorandum of Agreement, the execution of
the share purchase agreement was necessary to put into effect
respondent U-Land’s purchase of the shares of stock. This is the
stipulation indicated in this memorandum of agreement. There
was no suspensive condition of full payment of the purchase
price needed to execute either the share purchase agreement or
the joint development agreement. Upon the execution of the
share purchase, the obligation of petitioner Wellex to transfer the
shares of stock and of respondent U-Land to pay the price of
these shares would have arisen.
Enforcement of Section 9 of the First Memorandum of
Agreement has the same effect as rescission or resolution under
Article 1191 of the Civil Code. The parties are obligated to return
to each other all that they may have received as a result of the
breach by petitioner Wellex of the reciprocal obligation.
Therefore, the Court of Appeals did not err in affirming the
rescission granted by the trial court.
VI
Petitioner Wellex was not guilty of
fraud but of violating Article 1159
of the Civil Code
In the issuance of the Writ of Preliminary Attachment, the lower
court found that petitioner Wellex committed fraud by inducing
respondent U-Land to purchase APIC shares and PEC shares
and by leading the latter to believe that APC was a subsidiary of
APIC.
Determining the existence of fraud is not necessary in an action
for rescission or resolution under Article 1191. The existence of
fraud must be established if the rescission prayed for is the
rescission under Article 1381.
However, the existence of fraud is a question that the parties
have raised before this court. To settle this question with finality,
this court will examine the established facts and determine
whether petitioner Wellex indeed defrauded respondent U-Land.
In Tankeh v. Development Bank of the Philippines,193 this court
enumerated the relevant provisions of the Civil Code on fraud:
Fraud is defined in Article 1338 of the Civil Code as:
x x x 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.
This is followed by the articles which provide legal examples and
illustrations of fraud.
....
Art. 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in themselves
fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has relied
on the former’s special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent
but may constitute error. (n)
The distinction between fraud as a ground for rendering a
contract voidable or as basis for an award of damages is
provided in Article 1344:
In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting
parties.
Incidental fraud only obliges the person employing it to pay
damages. (1270)194
Tankeh further discussed the degree of evidence needed to
prove the existence of fraud:
[T]he standard of proof required is clear and convincing
evidence. This standard of proof is derived from American
common law. It is less than proof beyond reasonable doubt (for
criminal cases) but greater than preponderance of evidence (for
civil cases). The degree of believability is higher than that of an
ordinary civil case. Civil cases only require a preponderance of
evidence to meet the required burden of proof. However, when
fraud is alleged in an ordinary civil case involving contractual
relations, an entirely different standard of proof needs to be
satisfied. The imputation of fraud in a civil case requires the
presentation of clear and convincing evidence. Mere allegations
will not suffice to sustain the existence of fraud. The burden of
evidence rests on the part of the plaintiff or the party alleging
fraud. The quantum of evidence is such that fraud must be
clearly and convincingly shown.195
To support its allegation of fraud, Mr. Tseng, respondent U-
Land’s witness before the trial court, testified that Mr. Gatchalian
approached respondent U-Land on two (2) separate meetings to
propose entering into an agreement for joint airline operations in
the Philippines. Thus, the parties entered into the First
Memorandum of Agreement. Respondent U-Land primarily
anchors its allegation of fraud against petitioner Wellex on the
existence of the second preambular clause of the First
Memorandum of Agreement.
In its Appellant’s Brief before the Court of Appeals, petitioner
Wellex admitted that “[t]he amount of US$7,499,945.00 was
remitted for the purchase of APIC and PEC shares.”196 In that
brief, it argued that the parties were already in the process of
partially executing the First Memorandum of Agreement.
As held in Tankeh, there must be clear and convincing evidence
of fraud. Based on the established facts, respondent U-Land was
unable to clearly convince this court of the existence of fraud.
Respondent U-Land had every reasonable opportunity to
ascertain whether APC was indeed a subsidiary of APIC. This is
a multimillion dollar transaction, and both parties admitted that
the share purchase agreement underwent several draft
creations. Both parties admitted the participation of their
respective counsels in the drafting of the First Memorandum of
Agreement. Respondent U-Land had every opportunity to
ascertain the ownership of the shares of stock.
Respondent U-Land itself admitted that it was not contesting
petitioner Wellex’s ownership of the APIC shares or APC shares;
hence, it was not contesting the existence of the Second
Memorandum of Agreement. Upon becoming aware of petitioner
Wellex’s representations concerning APIC’s ownership or
control of APC as a subsidiary, respondent U-Land continued to
make remittances totalling the amount sought to be rescinded. It
had the option to opt out of negotiations after the lapse of the 40-
day period. However, it proceeded to make the remittances to
petitioner Wellex and proceed with negotiations.
Respondent U-Land was not defrauded by petitioner Wellex to
agree to the First Memorandum of Agreement. To constitute
fraud under Article 1338, the words and machinations must have
been so insidious or deceptive that the party induced to enter
into the contract would not have agreed to be bound by its terms
if that party had an opportunity to be aware of the truth.197
Respondent U-Land was already aware that APC was not a
subsidiary of APIC after the 40-day period. Still, it agreed to be
bound by the First Memorandum of Agreement by making the
remittances from June 30 to September 25, 1998.198 Thus,
petitioner Wellex’s failure to inform respondent U-Land that APC
was not a subsidiary of APIC when the First Memorandum of
Agreement was being executed did not constitute fraud.
However, the absence of fraud does not mean that petitioner
Wellex is free of culpability. By failing to inform respondent U-
Land that APC was not yet a subsidiary of APIC at the time of
the execution of the First Memorandum of Agreement, petitioner
Wellex violated Article 1159 of the Civil Code. Article 1159 reads:
ART. 1159. Obligations arising from contracts have the force of
law between the contracting parties and should be complied with
in good faith.
In Ochoa v. Apeta,199 this court defined good faith:
Good faith is an intangible and abstract quality with no technical
meaning or statutory definition, and it encompasses, among
other things, an honest belief, the absence of malice and the
absence of design to defraud or to seek an unconscionable
advantage. It implies honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon
inquiry. The essence of good faith lies in an honest belief in the
validity of one’s right, ignorance of a superior claim and absence
of intention to overreach another.200 (Citations omitted)
It was incumbent upon petitioner Wellex to negotiate the terms
of the pending share purchase agreement in good faith. This
duty included providing a full disclosure of the nature of the
ownership of APIC in APC. Unilaterally compelling respondent
U-Land to remit money to finalize the transactions indicated in
the Second Memorandum of Agreement cannot constitute good
faith.
The absence of fraud in a transaction does not mean that
rescission under Article 1191 is not proper. This case is not an
action to declare the First Memorandum of Agreement null and
void due to fraud at the inception of the contract or dolo
causante. This case is not an action for fraud based on Article
1381 of the Civil Code. Rescission or resolution under Article
1191 is predicated on the failure of one of the parties in a
reciprocal obligation to fulfill the prestation as required by that
obligation. It is not based on vitiation of consent through
fraudulent misrepresentations.
VII
Respondent U-Land was not bound
to pay the US$3 million under the
joint development agreement
The alleged failure of respondent U-Land to pay the amount of
US$3 million to petitioner Wellex does not justify the actions of
the latter in refusing to return the US$7,499,945.00.
Article 1374 of the Civil Code provides that:
ART. 1374. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly.
The execution of the joint development agreement was
contingent on the execution of the share purchase agreement.
This is provided for in Section 4 of the First Memorandum of
Agreement, which stated that the execution of the two
agreements is “[s]imultaneous.”201 Thus, the failure of the share
purchase agreement’s execution would necessarily mean the
failure of the joint development agreement’s execution.
Section 9 of the First Memorandum of Agreement provides that
should the parties fail to execute the agreement, they would be
released from their mutual obligations. Had respondent U-Land
paid the US$3 million and petitioner Wellex delivered the
57,000,000 PEC shares for the purpose of the joint development
agreement, they would have been obligated to return these to
each other.
Section 4 and Section 9 of the First Memorandum of Agreement
must be interpreted together. Since the parties were unable to
agree on a final share purchase agreement and there was no
exchange of money or shares of stock due to the continuing
negotiations, respondent U-Land was no longer obliged to
provide the money for the real estate development projects. The
payment of the US$3 million was for pursuing the real estate
development projects under the joint development agreement.
There being no joint development agreement, the obligation to
deliver the US$3 million and the delivery of the PEC shares for
that purpose were no longer incumbent upon the parties.
VIII
Respondent U-Land was not
obligated to exhaust the “securities”
given by petitioner Wellex
Contrary to petitioner Wellex’s assertion, there is no obligation
on the part of respondent U-Land to exhaust the “securities”
given by petitioner Wellex. No such meeting of the minds to
 14 119
Id. Id.
create a guarantee or surety or any other form of security exists. 15
16
Id. 120
121
Id. at 98–100.
Id. at 59–60. Id. at 54.
The principal obligation is not a loan or an obligation subject to 17
Id. at 60. 122
Id. at 52–54.
18
Id at 59–60. In the First Memorandum of Agreement, the second preambular clause states that Wellex has a “majority-owned 123
Id. at 399–400.
the conditions of sureties or guarantors under the Civil Code. subsidiary Air Philippines International Corporation and the latter’s subsidiary, Air Philippines Corporation[.]” 124
Id. at 400. According to petitioner, the amount of US$ 17.5 million was based on this: 1,050,000,000 APIC shares were to be
Section 1 of the First Memorandum of Agreement reads: purchased at the price of P0.30/share and 490,000,000 PEC shares were to be purchased at the price of P0.65 per share, at the
Thus, there is no need to exhaust the securities given to 1. Basic Agreement. - The parties agree to develop a long-term business relationship initially through the creation of joint interest exchange rate of P36.00 to US$1.00.
125
in airline operations as well as in property development projects in the Philippines to be implemented as follows: Id. at 401–402.
respondent U-Land, and there is no need for a legal condition (a) U-LAND shall acquire from WELLEX, shares of stock of AIR PHILIPPINES INTERNATIONAL CORPORATION (“APIC”) 126
127
Id. at 403.
equivalent to at least 35% of the outstanding capital stock of APIC, but in any case, not less than 1,050,000,000 shares (the Id. at 402.
where respondent U-Land should pursue other remedies. “APIC Shares”). 128
385 Phil. 128, 140 (2000) [Per J. Quisimbing, Second Division].
(b) U-LAND shall acquire from WELLEX, shares of stock of PHILIPPINE ESTATES CORPORATION (“PEC”) equivalent to at 129
345 Phil. 524 (1997) [Per J. Panganiban, Third Division].
least 35% of the outstanding capital stock of PEC, but in any case, not less than 490,000,000 shares (the “PEC Shares”). 130
264 Phil. 744 (1990) [Per J. Regalado, Second Division].
Neither petitioner Wellex nor respondent U-Land stated that 19
20
Id. at 60.
Id.
131
132
Rollo, p. 403.
Id.
there was already a transfer of ownership of the shares of stock 21
22
Id. 133
134
Id. at 410–411.
Id. Id. at 411.
or the land titles. Respondent U-Land itself maintained that the 23
24
Id.
Id. at 61.
135
136
235 Phil. 661, 667 (1987) [Per J. Gutierrez, Jr., Second Division].
Rollo, p. 411.
delivery of the shares of stock and the land titles were not in the 25
26
Id. at 59.
Id. at 60–61. First Memorandum of Agreement, sec. 4 provides:
137
138
Id. at 332.
Id.
nature of a pledge or mortgage.202 It received the certificates of U-LAND shall, not later than May 22, 1998 remit the sum of US$3.0 million as initial funding for the aforesaid development 139
140
Id. at 333.
projects against delivery by WELLEX of 57,000,000 shares of PEC as security for said amount in accordance with Section 9 Id. at 335.
shares of stock and the land titles with an understanding that the below. (Rollo, p. 61.)
27
Id. at 61.
141
142
Id.
Id. at 337.
parties would subsequently enter a share purchase agreement. 28
29
Id.
Id.
143
144
Id. at 339.
Id. at 340.
There being no share purchase agreement, respondent U-Land 30
31
Id. 145
146
Id. at 272–273.
Id. Id. at 353.
is obligated to return the certificates of shares of stock and the 32
33
Id.
Id.
147
148
Id. at 352–353.
Id. at 355.
land titles to petitioner Wellex. 34
35
Id.
Id.
149
150
Id. at 356.
Id.
36 151
Id. at 59 and 61. 620 Phil. 381 (2009) [Per J. Nachura, Third Division].
The parties are bound by the 40-day period provided for in the 37
38
Id. at 63.
Id. at 63–64.
152
153
Id. at 388, citing Benguet Corporation, et al. v. Cabildo, 585 Phil. 23, 34–35 (2008) [Per J. Nachura, Third Division].
Rollo, p. 417.
First Memorandum of Agreement. Adherence by the parties to 39
40
Id. at 222.
Id.
154
155
Id. at 59.
Id. at 59–60.
Section 9 of the First Memorandum of Agreement has the same 41
42
First name is illegible in rollo.
Id. at 64.
156
157
Id. at 60.
Id.
effect as the rescission or resolution prayed for and granted by 43
44
Id. at 63–65.
Id. at 65.
158
159
Id. at 61.
Id. at 59–60.
the trial court. 45
46
Id. at 80.
Id. at 49.
160
161
Id. at 60.
Id.
47 162
Id. at 97. Sec. 2, par. 2 of the First Memorandum of Agreement reads:
48
Id. at 324. The purchase price for the Subject Shares as reflected in the SHPA shall be paid in full upon execution of the SHPA against
Informal acts are prone to ambiguous legal interpretation. This 49
Id. at 96 and 147. delivery of the Subject Shares. The parties may agree on such other terms and conditions governing the acquisition of the Subject
50
Id. at 412. Shares to be provided in a separate instrument. (Emphasis supplied)
will be based on the say-so of each party and is a fragile setting 51
Id. at 49. 163
Sec. 2, par. 3 of the First Memorandum of Agreement reads:
52
Id. at 90. The transfer of the Subject Shares shall be effected to U-LAND provided that: (i) the purchase price reflected in the SHPA has
for good business transactions. It will contribute to the 53
Id. at 49. been fully paid; (ii) the Philippine Securities & Exchange Commission (SEC) shall have approved the issuance of the Subject
54
Id. at 90. Shares; and (iii) any required approval by the Taiwanese government of the acquisition by U-LAND of the Subject Shares shall
unpredictability of the market as it would provide courts with 55
Id. at 90–91 and 96. likewise have been obtained. (Emphasis provided)

extraordinary expectations to determine the business actor’s

56 164
Id. at 66–67. Rollo, p. 61.
57 165
Id. at 226. Id. at 126.
58 166
Id. at 66. 160-A Phil. 285 (1975) [Per J. Aquino, Second Division].
intentions. The parties appear to be responsible businessmen 59
Id. 167
Id. at 292–293, citing Marquez v. Marquez, 73 Phil. 74, 78 (1941) [Per J. Moran, En Banc].
60 168
Id. at 66–67. G.R. No. 206806, June 25, 2014 [Per J. Leonen, Third Division].
who know that their expectations and obligations should be 61
Id. at 67. 169
Id. at 7–8.
62 170
Id. at 68–69. 365 Phil. 259 (1999) [Per J. Vitug, Third Division].
clearly articulated between them. They have the resources to 63
Id. at 68. 171
Id. at 267–268.
64 172
Id. Magdalena Estates v. Rodriguez, 125 Phil. 151, 157 (1966) [Per J. Regala, En Banc]; Vda. de Mondragon v. Intermediate
engage legal representation. Indeed, they have reduced their 65
Id. Appellate Court, 263 Phil. 261, 268 (1990) [Per J. Griño-Aquino, First Division].
66 173
Id. at 69. 664 Phil. 65 (2012) [Per J. Mendoza, Third Division].
agreement in writing. 67
Id. 174
Id. at 77, citing Duñgo v. Lopena, 116 Phil. 1305, 1313–1314 (1962) [Per J. Regala, En Banc].
68 175
Id. G.R. No. 201167, February 27, 2013, 692 SCRA 319 [Per J. Perlas-Bernabe, Second Division].
69 176
Id. Id. at 329–330.
Petitioner Wellex now wants this court to define obligations that 70
71
Id. 177
178
Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2, 1994, 238 SCRA 602, 610. [Per J. Vitug, En Banc].
Id. IV Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines 174–175 (1987).
do not appear in these instruments. We cannot do so. This court 72
73
Id. at 70–75. 179
180
G.R. No. 109125, December 2, 1994, 238 SCRA 602 [Per J. Vitug, En Banc].
Id. at 73. Id. at 610.
cannot interfere in the bargains, good or bad, entered into by the 74
75
Id. at 322. 181
182
369 Phil. 243 (1999) [Per J. Ynares-Santiago, First Division].
Id. at 72. Id. at 251–252.
parties. Our duty is to affirm legal expectations, not to guarantee 76
77
Id. 183
184
Id. at 252–253.
Id. 144 Phil. 1 (1970) [J. Castro, En Banc].
good business judgments. 78
79
Id. at 71. 185
J. J.B.L. Reyes, concurring opinion in Universal Food Corporation v. Court of Appeals, 144 Phil. 1, 21–22 (1970) [J. Castro,
Id. at 72. En Banc].
80 186
Id. at 91. Suria v. Intermediate Appellate Court, 235 Phil. 661, 668–669 (1987) [Per J. Gutierrez, Jr., Second Division].
WHEREFORE, the petition is DENIED. The Decision of the 81
82
Id. at 76–88.
Id. at 78.
187
188
Id.
345 Phil. 524, 570 (1997) [Per J. Panganiban, Third Division].
Regional Trial Court in Civil Case No. 99-1407 and the Decision 83
84
Id. at 92.
Id. at 92–93.
189
190
Id.
G.R. No. 188376, December 14, 2011, 662 SCRA 614 [Per J. Bersamin, First Division].
of the Court of Appeals in CA-G.R. CV No. 74850 are 85
86
Id. at 93.
Id. at 78.
191
192
Id. at 647–648.
Diego v. Diego, G.R. No. 179965, February 20, 2013, 691 SCRA 361, 378 [Per J. Del Castillo, Second Division], citing Luzon
AFFIRMED. Costs against petitioner The Wellex Group, Inc. 87
88
Id. at 80.
Id.
Development Bank v. Enriquez, G.R. Nos. 168646 & 168666, January 12, 2011, 639 SCRA 332, 351. [Per J. Del Castillo, First
Division].
89 193
Id. at 95. G.R. No. 171428, November 11, 2013, 709 SCRA 19 [Per J. Leonen, Third Division].
90 194
Id. at 77. Id. at 44–45.
SO ORDERED. 91
Id. at 80. 195
Id. at 52.
92 196
Id. at 83. Rollo, p. 127.
93 197
Id. at 84. Tankeh v. Development Bank of the Philippines, G.R. No. 171428, November 11, 2013, 709 SCRA 19, 50 [Per J. Leonen,
Carpio, (Chairperson), Velasco, Jr.,* Del Castillo, and Mendoza, 94
95
Id. Third Division], citing Viloria v. Continental Airlines, G.R. No. 188288, January 16, 2012, 663 SCRA 57, 81. [Per J. Reyes, Second
Id. Division].
JJ., concur. 96
97
Id. at 86. 198
199
Rollo. pp. 99–100 and 324.
Id. at 87. 559 Phil. 650 (2007) [Per. J. Sandoval-Gutierrez, First Division].
98 200
Id. at 363–367. Id. at 655–656.
Endnotes: 99
100
Id. at 363.
Id. at 363–364.
201
202
Rollo, p. 61.
Id. at 325.
101
Id. at 364–365.
102
Id. at 365.
* 103
Designated acting member per S.O. No. 1910 dated January 12, 2015. Id. at 366.
1 104
Rollo, pp. 12–43. Id. at 96.
2 105
Id. at 46–54. Id.
3 106
Id. at 40. Id.
4 107
Id. at 89–102. Id.
5 108
Id. at 59–62. Id.
6 109
Id. at 102. Id.
7 110
Id. at 59. Id.
8 111
Id. at 59-60. Id.
9 112
Id. at 63. Id.
10 113
Id. at 14. Id.
11 114
Id. at 15. Id. at 96–97.
12 115
There are two memoranda of agreement. We refer to the Memorandum of Agreement between Wellex and U-Land as the First Id.
Memorandum of Agreement. We then refer to Annex “A” or the Memorandum of Agreement among Wellex, APIC, and APC as 116
Id. at 97.
117
the Second Memorandum of Agreement. Id.
13 118
Id. at 59. Id.

FIRST DIVISION
July 5, 2016
G.R. No. 220978
CENTURY PROPERTIES, INC., Petitioner,
vs
EDWIN J. BABIANO and EMMA B. CONCEPCION,
Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1are the Decision2
dated April 8, 2015 and the Resolution3 dated October 12, 2015
of the Court of Appeals (CA) in CA-G.R. SP No. 132953, which
affirmed with modification the Decision4 dated June 25, 2013
and the Resolution5 dated October 16, 2013 of the National
Labor Relations Commission (NLRC) in NLRC LAC No. 05-
001615-12, and ordered petitioner Century Properties, Inc. (CPI)
to pay respondents Edwin J. Babiano (Babiano) and Emma B.
Concepcion (Concepcion; collectively, respondents) unpaid
commissions in the amounts of P889,932.42 and P591,953.05,
respectively.
The Facts
On October 2, 2002, Babiano was hired by CPI as Director of
Sales, and was eventually6 appointed as Vice President for
Sales effective September 1, 2007. As CPI' s Vice President for
Sales, Babiano was remunerated with, inter alia, the following
benefits: (a) monthly salary of P70,000.00; (b) allowance of
P50,000.00; and (c) 0.5% override commission for completed
sales. His employment contract7 also contained a
"Confidentiality of Documents and Non:-Compete Clause"8
which, among others, barred him from disclosing confidential
information, and from working in any business enterprise that is
in direct competition with CPI "while [he is] employed and for a
period of one year from date of resignation or termination from
[CPI]." Should Babiano breach any of the terms thereof, his
"forms of compensation, including commissions and incentives
will be forfeited."9
During the same period, Concepcion was initially hired as Sales
Agent by CPI and was eventually10 promoted as Project Director
on September 1, 2007.11 As such, she signed an employment
agreement, denominated as "Contract of Agency for Project
Director"12 which provided, among others, that she would directly
report to Babiano, and receive a monthly subsidy of P60,000.00,
0.5% commission, and cash incentives.13 On March 31, 2008,
Concepcion executed a similar contract14 anew with CPI in which
she would receive a monthly subsidy of P50,000.00, 0.5%
commission, and cash incentives as per company policy.
Notably, it was stipulated in both contracts that no employer-
employee relationship exists between Concepcion and CPI.15
After receiving reports that Babiano provided a competitor with
information regarding CPI's marketing strategies, spread false
information regarding CPI and its projects, recruited CPI's
personnel to join the competitor, and for being absent without
official leave (AWOL) for five (5) days, CPI, through its Executive
Vice President for Marketing and Development, Jose Marco R.
Antonio (Antonio), sent Babiano a Notice to Explain16 on
February 23, 2009 directing him to explain why he should not be
charged with disloyalty, conflict of interest, and breach of trust
and confidence for his actuations.17
On February 25, 2009, Babiano tendered18 his resignation and
revealed that he had been accepted as Vice President of First
Global BYO Development Corporation (First Global), a
competitor of CPI.19 On March 3, 2009, Babiano was served a
Notice of Termination20 for: (a) incurring AWOL; (b) violating the
"Confidentiality of Documents and Non-Compete Clause" when
he joined a competitor enterprise while still working for CPI and
provided such competitor enterprise information regarding CPI'
s marketing strategies; and (c) recruiting CPI personnel to join a
competitor.21
On the other hand, Concepcion resigned as CPI's Project
Director through a letter22 dated February 23, 2009, effective
immediately.
On August 8, 2011, respondents filed a complaint23 for non-
payment of commissions and damages against CPI and Antonio
before the NLRC, docketed as NLRC Case No. NCR-08-12029-
11, claiming that their repeated demands for the payment and
release of their commissions remained unheeded.24
For its part, CPI maintained25 that Babiano is merely its agent
tasked with selling its projects. Nonetheless, he was afforded
due process in the termination of his employment which was
based on just causes.26 It also claimed to have validly withheld
Babiano' s commissions, considering that they were deemed
forfeited for violating the "Confidentiality of Documents and Non-
Compete Clause."27 On Concepcion's money claims, CPI
asserted that the NLRC had no jurisdiction to hear the same
because there was no employer-employee relations between
them, and thus, she should have litigated the same in an
ordinary civil action.28
The LA Ruling
In a Decision29 dated March 19, 2012, the Labor Arbiter (LA)
ruled in CPI's favor and, accordingly, dismissed the complaint
for lack of merit.30 The LA found that: (a) Babiano's acts of
providing information on CPI’s marketing strategies to the
competitor and spreading false information about CPI and its
projects are blatant violations of the "Confidentiality of
Documents and Non-Compete Clause" of his employment
contract, thus, resulting in the forfeiture of his unpaid
commissions in accordance with the same clause; 31 and (b) it
had no jurisdiction over Concepcion's money claim as she was
not an employee but a mere agent of CPI, as clearly stipulated
in her engagement contract with the latter.32
Aggrieved, respondents appealed33 to the NLRC.1âwphi1
The NLRC Ruling
In a Decision34 dated June 25, 2013, the NLRC reversed and set
aside the LA ruling, and entered a new one ordering CPI to pay
Babiano and Concepcion the amounts of P685,211.76 and
P470,754.62, respectively, representing their commissions from
August 9, 2008 to August 8, 2011, as well as 10% attorney's fees
of the total monetary awards.35
While the NLRC initially concurred with the LA that Babiano's
acts constituted just cause which would warrant the termination
of his employment from CPI, it, however, ruled that the forfeiture
of all earned commissions ofBabiano under the "Confidentiality
of Documents and Non-Compete Clause" is confiscatory and
unreasonable and hence, contrary to law and public policy.36 In
this light, the NLRC held that CPI could not invoke such clause
to avoid the payment of Babiano's commissions since he had
already earned those monetary benefits and, thus, should have
been released to him. However, the NLRC limited the grant of
the money claims in light of Article 291 (now Article 306)37 of the
Labor Code which provides for a prescriptive period of three (3)
years. Consequently,· the NLRC awarded unpaid commissions
only from August 9, 2008 to August 8, 2011 - i.e., which was the
date when the complaint was filed.38 Meanwhile, contrary to the
LA's finding, the NLRC ruled that Concepcion was CPI's
employee, considering that CPI: (a) repeatedly hired and
promoted her since 2002; (b) paid her wages despite referring to
it as "subsidy"; and (c) exercised the power of dismissal and
control over her.39 Lastly, the NLRC granted respondents' claim
for attorney's fees since they were forced to litigate and incurred
expenses for the protection of their rights and interests. 40
Respondents did not assail the NLRC findings. In contrast, only
CPI moved for reconsideration,41 which the NLRC denied in a
Resolution42 dated October 16, 2013. Aggrieved, CPI filed a
petition for certiorari43before the CA.
The CA Ruling
In a Decision44 dated April 8, 2015, the CA affirmed the NLRC
ruling with modification increasing the award of unpaid
commissions to Babiano and Concepcion in the amounts of
P889,932.42 and P591,953.05, respectively, and imposing
interest of six percent (6%) per annum on all monetary awards
from the finality of its decision until fully paid.45
The CA held that Babiano properly instituted his claim for unpaid
commissions before the labor tribunals as it is a money claim
arising from an employer-employee relationship with CPI. In this
relation, the CA opined that CPI cannot withhold such unpaid
commissions on the ground of Babiano's alleged breach of the
"Confidentiality of Documents and Non-Compete Clause"
integrated in the latter's employment contract, considering that
such clause referred to acts done after the cessation of the
employer-employee relationship or to the "post-employment"
relations of the parties. Thus, any such supposed breach thereof
is a civil law dispute that is best resolved by the regular courts
and not by labor tribunals.46
Similarly, the CA echoed the NLRC's finding that there exists an
employer-employee relationship between Concepcion and CPI,
because the latter exercised control over the performance of her
duties as Project Director which is indicative of an employer-
employee relationship. Necessarily therefore, CPI also
exercised control over Concepcion's duties in recruiting, training,
and developing directors of sales because she was supervised
by Babiano in the performance of her functions. The CA likewise
observed the presence of critical factors which were indicative of
an employer-employee relationship with CPI, such as: (a)
Concepcion's receipt of a monthly salary from CPI; and (b) that
she performed tasks besides selling CPI properties. To add, the
title of her contract which was referred to as "Contract of Agency
for Project Director" was not binding and conclusive, considering
that the characterization of the juridical relationship is essentially
a matter of law that is for the courts to determine, and not the
parties thereof. Moreover, the totality of evidence sustains a
finding of employer-employee relationship between CPI and
Concepcion.47
Further, the CA held that despite the NLRC's proper application
of the three (3)-year prescriptive period under Article 291 of the
Labor Code, it nonetheless failed to include all of respondents'
earned commissions during that time - i.e., August 9, 2008 to
August 8, 2011 - thus, necessitating the increase in award of
unpaid commissions in respondents' favor.48
Undaunted, CPI sought for reconsideration,49 which was,
however, denied in a Resolution50 dated October 12, 2015;
hence, this petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or not the CA
erred in denying CPI's petition for certiorari, thereby holding it
liable for the unpaid commissions of respondents.
The Court's Ruling
The petition is partly meritorious.
I.
Article 1370 of the Civil Code provides that "[i]f the terms of a
contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall
control."51 In Norton Resources and Development Corporation v.
All Asia Bank Corporation,52the Court had the opportunity to
thoroughly discuss the said rule as follows:
The rule is that where the language of a contract is plain and
unambiguous, its meaning should be determined without
reference to extrinsic facts or aids. The intention of the parties
must be gathered from that language, and from that language
alone. Stated differently, where the language of a written
contract is clear and unambiguous, the contract must be
taken to mean that which, on its face, it purports to mean,
unless some good reason can be assigned to show that the
words should be understood in a different sense. Courts
cannot make for the parties better or more equitable agreements
than they themselves have been satisfied to make, or rewrite
contracts because they operate harshly or inequitably as to one
of the parties, or alter them for the benefit of one party and to the
detriment of the other, or by construction, relieve one of the
parties from the terms which he voluntarily consented to, or
impose on him those which he did not.53 (Emphases and
underscoring supplied)
Thus, in the interpretation of contracts, the Court must first
determine whether a provision or stipulation therein is
ambiguous. Absent any ambiguity, the provision on its face will
be read as it is written and treated as the binding law of the
parties to the contract.54
In the case at bar, CPI primarily invoked the "Confidentiality of
Documents and Non-Compete Clause" found in Babiano's
employment contract55 to justify the forfeiture of his
commissions, viz.:
Confidentiality of Documents and Non-Compete Clause
All records and documents of the company and all information
pertaining to its business or affairs or that of its affiliated
companies are confidential and no unauthorized disclosure or
reproduction or the same will be made by you any time during or
after your employment.
And in order to ensure strict compliance herewith, you shall
not work for whatsoever capacity, either as an employee,
agent or consultant with any person whose business is in
direct competition with the company while you are
employed and for a period of one year from date of
resignation or termination from the company.
In the event the undersigned breaches any term of this contract,
the undersigned agrees and acknowledges that damages may
not be an adequate remedy and that in addition to any other
remedies available to the Company at law or in equity, the
Company is entitled to enforce its rights hereunder by way of
injunction, restraining order or other relief to enjoin any breach
or default of this contract.
The undersigned agrees to pay all costs, expenses and
attorney's fees incurred by the Company in connection with the
enforcement of the obligations of the undersigned. The
undersigned also agrees to .pay the Company all profits,
revenues and income or benefits derived by or accruing to the
undersigned resulting from the undersigned's breach of the
obligations hereunder. This Agreement shall be binding upon the
undersigned, all employees, agents, officers, directors,
shareholders, partners and representatives of the undersigned
and all heirs, successors and assigns of the foregoing.
Finally, if undersigned breaches any terms of this contract,
forms of compensation including commissions and
incentives will be forfeited.56 (Emphases and underscoring
supplied)
Verily, the foregoing clause is not only clear and unambiguous
in stating that Babiano is barred to "work for whatsoever capacity
x x x with any person whose business is in direct competition
with [CPI] while [he is] employed and for a period of one year
from date of [his] resignation or termination from the company,"
it also expressly provided in no uncertain terms that should
Babiano "[breach] any term of [the employment contract], forms
of compensation including commissions and incentives will be
forfeited." Here, the contracting parties - namely Babiano on one
side, and CPI as represented by its COO-Vertical, John Victor
R. Antonio, and Director for Planning and Controls, Jose Carlo
R. Antonio, on the other - indisputably wanted the said clause to
be effective even during the existence of the employer-employee
relationship between Babiano and CPI, thereby indicating their
intention to be bound by such clause by affixing their respective
signatures to the employment contract. More significantly, as
CPI's Vice President for Sales, Babiano held a highly sensitive
and confidential managerial position as he "was tasked, among
others, to guarantee the achievement of agreed sales targets for
a project and to ensure that his team has a qualified and
competent manpower resources by conducting recruitment
activities, training sessions, sales rallies, motivational activities,
and evaluation programs."57 Hence, to allow Babiano to freely
move to direct competitors during and soon after his employment
with CPI would make the latter's trade secrets vulnerable to
exposure, especially in a highly competitive marketing
environment. As such, it is only reasonable that CPI and Babiano
agree on such stipulation in the latter's employment contract in
order to afford a fair and reasonable protection to CPI.58
Indubitably, obligations arising from contracts, including
employment contracts, have the force of law between the
contracting parties and should be complied with in good faith.59
Corollary thereto, parties are bound by the stipulations, clauses,
terms, and conditions they have agreed to, provided that these
stipulations, clauses, terms, and conditions are not contrary to
law, morals, public order or public policy,60 as in this case.
Therefore, the CA erred in limiting the "Confidentiality of
Documents and Non-Compete Clause" only to acts done after
the cessation of the employer-employee relationship or to the
"post-employment" relations of the parties. As clearly stipulated,
the parties wanted to apply said clause during the pendency of
Babiano' s employment, and CPI correctly invoked the same
before the labor tribunals to resist the farmer's claim for unpaid
commissions on account of his breach of the said clause while
the employer-employee relationship between them still
subsisted. Hence, there is now a need to determine whether or
not Babiano breached said clause while employed by CPI, which
would then resolve the issue of his entitlement to his unpaid
commissions.
A judicious review of the records reveals that in his resignation
letter61 dated February 25, 2009, Babiano categorically admitted
to CPI Chairman Jose Antonio that on February 12, 2009, he
sought employment from First Global, and five (5) days later,
was admitted thereto as vice president. From the foregoing, it is
evidently clear that when he sought and eventually accepted the
said position with First Global, he was still employed by CPI as
he has not formally resigned at that time. Irrefragably, this is a
glaring violation of the "Confidentiality of Documents and Non-
Compete Clause" in his employment contract with CPI, thus,
justifying the forfeiture of his unpaid commissions.
II.
Anent the nature of Concepcion' s engagement, based on case
law, the presence of the following elements evince the existence
of an employer-employee relationship: (a) the power to hire, i.e.,
the selection and engagement of the employee; (b) the payment
of wages; (c) the power of dismissal; and (d) the employer's
power to control the employee's conduct, or the so called
"control test." The control test is commonly regarded as the most
important indicator of the presence or absence of an employer-
employee relationship.62 Under this test, an employer-employee
relationship exists where the person for whom the services are
performed reserves the right to control not only the end
achieved, but also the manner and means to be used in reaching
that end.63
Guided by these parameters, the Court finds that Concepcion
was an employee of CPI considering that: (a) CPI continuously
hired and promoted Concepcion from October 2002 until her
resignation on February 23, 2009,64 thus, showing that CPI
exercised the power of selection and engagement over her
person and that she performed functions that were necessary
and desirable to the business of CPI; (b) the monthly "subsidy"
and cash incentives that Concepcion was receiving from CPI are
actually remuneration in the concept of wages as it was regularly
given to her on a monthly basis without any qualification, save
for the "complete submission of documents on what is a sale
policy";65 (c) CPI had the power to discipline or even dismiss
Concepcion as her engagement contract with CPI expressly
conferred upon the latter "the right to discontinue [her] service
anytime during the Eeriod of engagement should [she] fail to
meet the performance standards,"66 among others, and that CPI
actually exercised such power to dismiss when it accepted and
approved Concepcion' s resignation letter; and most importantly,
(d) as aptly pointed out by the CA, CPI possessed the power of
control over Concepcion because in the performance of her
duties as Project Director - particularly in the conduct of
recruitment activities, training sessions, and skills development
of Sales Directors - she did not exercise independent discretion
thereon, but was still subject to the direct supervision of CPI,
acting through BabiaNo. 67
Besides, while the employment agreement of Concepcion was
denominated as a "Contract of Agency for Project Director," it
should be stressed that the existence of employer-employee
relations could not be negated by the mere expedient of
repudiating it in a contract. In the case of Insular Life Assurance
Co., Ltd. v. NLRC,68 it was ruled that one's employment status is
defined and prescribed by law, and not by what the parties say
it should be, viz.:
It is axiomatic that the existence of an employer-employee
relationship cannot be negated by expressly repudiating it in the
management contract and providing therein that the "employee"
is an independent contractor when the terms of the agreement
clearly show otherwise. For, the employment status of a
person is defined and prescribed by law and not by what the are hereby MODIFIED in that the commissions of respondent
parties say it should be. In determining the status of the Edwin J. Babiano are deemed FORFEITED. The rest of the CA
management contract, the "four-fold test" on employment earlier Decision stands.
mentioned has to be applied.69 (Emphasis and underscoring
supplied) SO ORDERED.
Therefore, the CA correctly ruled that since there exists an ESTELA M. PERLAS-BERNABE
employer-employee relationship between Concepcion and CPI, Associate Justice
the labor tribunals correctly assumed jurisdiction over her money
WE CONCUR:
claims.
On official leave
III. MARIA LOURDES P. A. SERENO*
Chief Justice
Finally, CPI contends that Concepcion's failure to assail the
NLRC ruling awarding her the amount of P470,754.62 TERESITA J. LEONARDO-DE CASTRO**
representing unpaid commissions rendered the same final and Associate Justice
binding upon her. As Such, the CA erred in increasing her
monetary award to P591,953.05.70
Acting Chairperson
The contention lacks merit. Associate Justice
As a general rule, a party who has not appealed cannot obtain
ALFREDO BENJAMIN S. CAGUIOA
any affirmative relief other than the one granted in the appealed Associate Justice
decision.1avvphi1 However, jurisprudence admits an exception
to the said rule, such as when strict adherence thereto shall ATTESTATION
result in the impairment of the substantive rights of the parties
concerned. In Global Resource for Outsourced Workers, Inc. v. I attest that the conclusions in the above Decision had been
Velasco:71 reached in consultation before the case was assigned to the
writer of the opinion of the Court's Division.
Indeed, a party who has failed to appeal from a judgment is
deemed to have acquiesced to it and can no longer obtain from TERESITA J. LEONARDO-DE CASTRO
the appellate court any affirmative relief other than what was Associate Justice
already granted under said judgment. However, when strict Acting Chairperson, First Division
adherence to such technical rule will impair a substantive CERTIFICATION
right, such as that of an illegally dismissed employee to
monetary compensation as provided by law, then equity Pursuant to Section 13, Article VIII of the Constitution, and the
dictates that the Court set aside the rule to pave the way for Division Acting Chairperson's Attestation, I certify that the
a full and just adjudication of the case. 72 (Emphasis and conclusions in the above Decision had been reached in
underscoring supplied) consultation before the case was assigned to the writer of the
opinion of the Court's Division.
In the present case, the CA aptly pointed out that the NLRC
failed to account for all the unpaid commissions due to ANTONIO T. CARPIO
Concepcion for the period of August 9, 2008 to August 8, 201l.73 Acting Chief Justice
Indeed, Concepcion's right to her earned commissions is a
substantive right which cannot be impaired by an erroneous Footnotes
computation of what she really is entitled to. Hence, following the *
On official leave.
dictates of equity and in order to arrive at a complete and just **
Per Special Order No. 2358 dated June 28, 2016.
resolution of the case, and avoid a piecemeal dispensation of 1
Rollo, pp. 10-32.
justice over the same, the CA correctly recomputed Concepcion' 2
Id. at 37-51. Penned by Associate Justice Fiorito S. Macalino
s unpaid commissions, notwithstanding her failure to seek a with Associate Justices Mariflor P. Punzalan Castillo and
review of the NLRC's computation of the same. Zenaida T. Galapate-Laguilles concurring.
3
Id. at 53-56.
In sum, the Court thus holds that the commissions of Babiano 4
were properly forfeited for violating the "Confidentiality of Id. at 276-290. Penned by Commissioner Romeo L. Go with
Presiding Commissioner Gerardo C. Nograles and
Documents and Non-Compete Clause." On the other hand, CPI
Commissioner Perlita B. Velasco concurring.
remains liable for the unpaid commissions of Concepcion in the 5
Id.at310-311.
sum of P591,953.05. 6
Prior to his promotion as Vice President for Sales, Babiano was
WHEREFORE, the petition is PARTLY GRANTED. The first promoted as Project Director in June 2006. See id. at 3 and
Decision dated April 8, 2015 and the Resolution dated October 277.
7
12, 2015 of the Court of Appeals (CA) in CA-G.R. SP No. 132953 Dated September 1, 2007. Id. at 76-79.
8
Id. at 78. Resources Dev't. Corp. v. All Asia Bank Corp., 620 Phil. 381,
9
Id. See also id. at 38-39 and 277. 388 (2009); further citation omitted.
10 52
Prior to her promotion as Project Director, records show that Id.
53
Concepcion was first promoted as Sales Officer in June 2003, Id. at 388-389; citations omitted.
54
and as Sales Director in August 2006. See id. at 38 and 278. See The Wellex Group, Inc. v. U-Land Airlines, Co., Ltd., supra
11
See id. at 38 and 279. note 51, at 601-602.
12 55
Id. at 115. Rollo, pp. 76-79.
13 56
Id. Id. at 78.
14 57
Id. at 114. See id. at 38.
15 58
See id. at 114 and l15. See Tiu v. Platinum Plans Phil., Inc., 545 Phil. 702, 709-710
16
Id. at 83. (2007).
17 59
See id. at 83 and 226-227. Global Resource for Outsourced Workers (GROW), Inc. v.
18
See Letter dated February 25, 2009; id. at 361-362. Velasco, 693 Phil 158, 168 (2012).
19 60
See id. at 39 and 130. See Magsaysay Maritime Corporation v. Simbajon, G.R. No.
20
Id. at 84. 203472, July 9, 2014, 729 SCRA 631, 642, citing Wallem
21
Id. See also id. at 227. Maritime Services, Inc. v. Tanawan, 693 Phil. 416, 426 (2012).
22 61
Id. at 116. Rollo, pp. 361-362.
23 62
Not attached to the rollo. See South Davao Dev't. Co., Inc. v. Gama, 605 Phil 604, 613
24
See rollo, p. 39. See also Position Paper dated November 19, (2009).
63
2011 filed by respondents; id. at 148. Television and Production Exponents, Inc. v. Servana, 566
25
See CPI's Position Paper dated November 28, 2011; id. at Phil. 564, 572 (2008).
64
118-144. Prior to her promotion as Project Director, records show that
26
See id. at 124. Concepcion was first promoted as Sales Officer in June 2003,
27
See id. at 125-130. See also id. at 40. and as Sales Director in August 2006. See rollo, pp. 38 and 278.
28 65
See id. at 137-139. See also id. at 40. See id. at 114-115.
29 66
Id. at 220-237. Penned by LA Eduardo G. MagNo. Id.
30 67
Id. at 237. See id. at 47-48 at 114-115.
31 68
See id. at 230-233. 350 Phil. 918 (1998).
32 69
See id. at 233-237. Id. at 926.
33 70
See Memorandum of Appeal dated April 18, 2012; id. at 238- Rollo, p. 28-30
71
246. Supra note 59.
34 72
Id. at 276-290. Id. at 167-168.
35 73
Id. at 289. Rollo, p. 48.
36
Id. at 282;
37
See Department of Labor and Employment Department
Advisory No. 01, series of 2015, entitled "RENUMBERING THE
LABOR CODE OF THE PHILIPPINES, AS AMENDED,"
approved on July 21, 2015.
38
See id. at 282-284.
39
See id. at 284-287.
40
See id. at 288.
41
See motion for reconsideration dated July 10, 2013; id. at 292-
307.
42
Id. at 310-311.
43
See Petition [with Extremely Urgent Application for Temporary
Restraining Order and/or Preliminary Injunction dated November
27, 2013]; id. at 313-343.
44
Id. at 37-51.
45
See id. at 50.
46
See id. at 44-47.
47
See id. at 47-48.
48
See id. at 46-47 (for Babiano) and 48-49 (for Concepcion).
49
See motion for reconsideration [of the Decision dated 8 April
2015] dated May 14, 2015; id. at 58-74.
50
Id. at 53-56.
51
The Wellex Group, Inc. v. U-Land Airlines Co., Ltd., G.R. No.
167519, January 14, 2015, 745 SCRA 563, 601, citing Norton
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48194 March 15, 1990
JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners,
vs.
COURT OF APPEALS and LEONARDO TIRO, respondents.
Eddie Tamondong for petitioners.
Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.
REGALADO, J.:
Petitioners pray for the reversal of the decision of respondent
Court of Appeals in CA-G.R. No. 52296-R, dated March 6, 1978,
1
the dispositive portion whereof decrees:
WHEREFORE, the judgment appealed from is hereby
set aside and another one entered ordering the
defendants-appellees, jointly and solidarily, to pay
plaintiff-appellant the sum of P79,338.15 with legal
interest thereon from the filing of the complaint, plus
attorney's fees in the amount of P8,000.00. Costs
against defendants-appellees.2
As found by respondent court or disclosed by the records, 3 this
case was generated by the following antecedent facts.
Private respondent is a holder of an ordinary timber license
issued by the Bureau of Forestry covering 2,535 hectares in the
town of Medina, Misamis Oriental. On February 15, 1966 he
executed a "Deed of Assignment" 4 in favor of herein petitioners
the material parts of which read as follows:
xxx xxx xxx
I, LEONARDO A. TIRO, of legal age, married and a
resident of Medina, Misamis Oriental, for and in
consideration of the sum of ONE HUNDRED TWENTY
THOUSAND PESOS (P120,000.00), Philippine
Currency, do by these presents, ASSIGN, TRANSFER
AND CONVEY, absolutely and forever unto JOSE M.
JAVIER and ESTRELLA F. JAVIER, spouses, of legal
age and a resident (sic) of 2897 F.B. Harrison, Pasay
City, my shares of stocks in the TIMBERWEALTH
CORPORATION in the total amount of P120,000.00,
payment of which shall be made in the following manner:
1. Twenty thousand (P20,000.00) Pesos upon
signing of this contract;
2. The balance of P100,000.00 shall be paid
P10,000.00 every shipment of export logs actually
produced from the forest concession of
Timberwealth Corporation.
That I hereby agree to sign and endorse the stock
certificate in favor of Mr. & Mrs. Jose M. Javier, as soon
as stock certificates are issued.
xxx xxx xxx
At the time the said deed of assignment was executed, private
respondent had a pending application, dated October 21, 1965,
for an additional forest concession covering an area of 2,000
hectares southwest of and adjoining the area of the concession
subject of the deed of assignment. Hence, on February 28, 1966,
private respondent and petitioners entered into another
"Agreement" 5 with the following stipulations:
xxx xxx xxx
1. That LEONARDO TIRO hereby agrees and binds
himself to transfer, cede and convey whatever rights he
may acquire, absolutely and forever, to
TIMBERWEALTH CORPORATION, a corporation duly
organized and existing under the laws of the Philippines,
over a forest concession which is now pending
application and approval as additional area to his
existing licensed area under O.T. License No. 391-
103166, situated at Medina, Misamis Oriental;
2. That for and in consideration of the aforementioned
transfer of rights over said additional area to
TIMBERWEALTH CORPORATION, ESTRELLA F.
JAVIER and JOSE M. JAVIER, both directors and
stockholders of said corporation, do hereby undertake to
pay LEONARDO TIRO, as soon as said additional area
is approved and transferred to TIMBERWEALTH
CORPORATION the sum of THIRTY THOUSAND
PESOS (P30,000.00), which amount of money shall
form part of their paid up capital stock in
TIMBERWEALTH CORPORATION;
3. That this Agreement is subject to the approval of the
members of the Board of Directors of the
TIMBERWEALTH CORPORATION.
xxx xxx xxx
On November 18, 1966, the Acting Director of Forestry wrote
private respondent that his forest concession was renewed up to
May 12, 1967 under O.T.L. No. 391-51267, but since the
concession consisted of only 2,535 hectares, he was therein
informed that:
In pursuance of the Presidential directive of May 13,
1966, you are hereby given until May 12, 1967 to form
an organization such as a cooperative, partnership or
corporation with other adjoining licensees so as to have
a total holding area of not less than 20,000 hectares of
contiguous and compact territory and an aggregate
allowable annual cut of not less than 25,000 cubic
meters, otherwise, your license will not be further
renewed. 6
Consequently, petitioners, now acting as timber license holders
by virtue of the deed of assignment executed by private
respondent in their favor, entered into a Forest Consolidation
Agreement 7 on April 10, 1967 with other ordinary timber license
holders in Misamis Oriental, namely, Vicente L. De Lara, Jr.,
Salustiano R. Oca and Sanggaya Logging Company. Under this
consolidation agreement, they all agreed to pool together and
merge their respective forest concessions into a working unit, as
envisioned by the aforementioned directives. This consolidation
agreement was approved by the Director of Forestry on May 10,
1967. 8 The working unit was subsequently incorporated as the
North Mindanao Timber Corporation, with the petitioners and the
other signatories of the aforesaid Forest Consolidation
Agreement as incorporators. 9
On July 16, 1968, for failure of petitioners to pay the balance due
under the two deeds of assignment, private respondent filed an
action against petitioners, based on the said contracts, for the
payment of the amount of P83,138.15 with interest at 6% per
annum from April 10, 1967 until full payment, plus P12,000.00
for attorney's fees and costs.
On September 23, 1968, petitioners filed their answer admitting
the due execution of the contracts but interposing the special
defense of nullity thereof since private respondent failed to
comply with his contractual obligations and, further, that the
conditions for the enforceability of the obligations of the parties
failed to materialize. As a counterclaim, petitioners sought the
return of P55,586.00 which private respondent had received
from them pursuant to an alleged management agreement, plus
attorney's fees and costs.
On October 7, 1968, private respondent filed his reply refuting
the defense of nullity of the contracts in this wise:
What were actually transferred and assigned to the
defendants were plaintiff's rights and interest in a
logging concession described in the deed of
assignment, attached to the complaint and marked as
Annex A, and agreement Annex E; that the "shares of
stocks" referred to in paragraph II of the complaint are
terms used therein merely to designate or identify those
rights and interests in said logging concession. The
defendants actually made use of or enjoyed not the
"shares of stocks" but the logging concession itself; that
since the proposed Timberwealth Corporation was
owned solely and entirely by defendants, the
personalities of the former and the latter are one and the
same. Besides, before the logging concession of the
plaintiff or the latter's rights and interests therein were
assigned or transferred to defendants, they never
became the property or assets of the Timberwealth
Corporation which is at most only an association of
persons composed of the defendants. 10
and contending that the counterclaim of petitioners in the amount
of P55,586.39 is actually only a part of the sum of P69,661.85
paid by the latter to the former in partial satisfaction of the latter's
claim. 11
After trial, the lower court rendered judgment dismissing private
respondent's complaint and ordering him to pay petitioners the
sum of P33,161.85 with legal interest at six percent per annum
from the date of the filing of the answer until complete payment.
12
As earlier stated, an appeal was interposed by private
respondent to the Court of Appeals which reversed the decision
of the court of a quo.
On March 28, 1978, petitioners filed a motion in respondent court
for extension of time to file a motion for reconsideration, for the
reason that they needed to change counsel. 13 Respondent
court, in its resolution dated March 31, 1978, gave petitioners
fifteen (15) days from March 28, 1978 within which to file said
motion for reconsideration, provided that the subject motion for
extension was filed on time. 14 On April 11, 1978, petitioners filed
their motion for reconsideration in the Court of Appeals. 15 On
April 21, 1978, private respondent filed a consolidated
opposition to said motion for reconsideration on the ground that
the decision of respondent court had become final on March 27,
1978, hence the motion for extension filed on March 28, 1978
was filed out of time and there was no more period to extend.
However, this was not acted upon by the Court of Appeals for
the reason that on April 20, 1978, prior to its receipt of said
opposition, a resolution was issued denying petitioners' motion
for reconsideration, thus:
The motion for reconsideration filed on April 11, 1978 by
counsel for defendants-appellees is denied. They did
not file any brief in this case. As a matter of fact this case
was submitted for decision without appellees' brief. In
their said motion, they merely tried to refute the rationale
of the Court in deciding to reverse the appealed
judgment. 16
Petitioners then sought relief in this Court in the present petition
for review on certiorari. Private respondent filed his comment,
reiterating his stand that the decision of the Court of Appeals
under review is already final and executory.
Petitioners countered in their reply that their petition for review
presents substantive and fundamental questions of law that fully
merit judicial determination, instead of being suppressed on
technical and insubstantial reasons. Moreover, the aforesaid
one (1) day delay in the filing of their motion for extension is
excusable, considering that petitioners had to change their
former counsel who failed to file their brief in the appellate court,
which substitution of counsel took place at a time when there
were many successive intervening holidays.
On July 26, 1978, we resolved to give due course to the petition.
The one (1) day delay in the filing of the said motion for extension
can justifiably be excused, considering that aside from the
change of counsel, the last day for filing the said motion fell on a
holiday following another holiday, hence, under such
circumstances, an outright dismissal of the petition would be too
harsh. Litigations should, as much as possible, be decided on
their merits and not on technicalities. In a number of cases, this
Court, in the exercise of equity jurisdiction, has relaxed the
stringent application of technical rules in order to resolve the
case on its merits. 17 Rules of procedure are intended to
promote, not to defeat, substantial justice and, therefore, they
should not be applied in a very rigid and technical sense.
We now proceed to the resolution of this case on the merits.
The assignment of errors of petitioners hinges on the central
issue of whether the deed of assignment dated February 15,
1966 and the agreement of February 28, 1966 are null and void,
the former for total absence of consideration and the latter for
non-fulfillment of the conditions stated therein.
Petitioners contend that the deed of assignment conveyed to
them the shares of stocks of private respondent in Timberwealth
Corporation, as stated in the deed itself. Since said corporation
never came into existence, no share of stocks was ever
transferred to them, hence the said deed is null and void for lack
of cause or consideration.
We do not agree. As found by the Court of Appeals, the true
cause or consideration of said deed was the transfer of the forest
concession of private respondent to petitioners for P120,000.00.
This finding is supported by the following considerations, viz:
1. Both parties, at the time of the execution of the deed of
assignment knew that the Timberwealth Corporation stated
therein was non-existent. 18
2. In their subsequent agreement, private respondent conveyed
to petitioners his inchoate right over a forest concession covering
an additional area for his existing forest concession, which area
he had applied for, and his application was then pending in the
Bureau of Forestry for approval.
3. Petitioners, after the execution of the deed of assignment,
assumed the operation of the logging concessions of private
respondent. 19
4. The statement of advances to respondent prepared by
petitioners stated: "P55,186.39 advances to L.A. Tiro be applied
to succeeding shipments. Based on the agreement, we pay
P10,000.00 every after (sic) shipment. We had only 2
shipments" 20
5. Petitioners entered into a Forest Consolidation Agreement
with other holders of forest concessions on the strength of the
questioned deed of assignment. 21
The aforesaid contemporaneous and subsequent acts of
petitioners and private respondent reveal that the cause stated
in the questioned deed of assignment is false. It is settled that
the previous and simultaneous and subsequent acts of the
parties are properly cognizable indica of their true intention. 22
Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance,
such construction may be considered by the court in construing
the contract, determining its meaning and ascertaining the
mutual intention of the parties at the time of contracting. 23 The
parties' practical construction of their contract has been
characterized as a clue or index to, or as evidence of, their
intention or meaning and as an important, significant,
convincing, persuasive, or influential factor in determining the
proper construction of the agreement. 24
The deed of assignment of February 15, 1966 is a relatively
simulated contract which states a false cause or consideration,
or one where the parties conceal their true agreement. 25 A
contract with a false consideration is not null and void per se. 26
Under Article 1346 of the Civil Code, a relatively simulated
contract, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real
agreement.
The Court of Appeals, therefore, did not err in holding petitioners
liable under the said deed and in ruling that —
. . . In view of the analysis of the first and second
assignment of errors, the defendants-appellees are
liable to the plaintiff-appellant for the sale and transfer in
their favor of the latter's forest concessions. Under the
terms of the contract, the parties agreed on a
consideration of P120,000.00. P20,000.00 of which was
paid, upon the signing of the contract and the balance of
P100,000.00 to be paid at the rate of P10,000.00 for
every shipment of export logs actually produced from the
forest concessions of the appellant sold to the appellees.
Since plaintiff-appellant's forest concessions were
consolidated or merged with those of the other timber
license holders by appellees' voluntary act under the
Forest Consolidation Agreement (Exhibit D), approved
by the Bureau of Forestry (Exhibit D-3), then the unpaid
balance of P49,338.15 (the amount of P70,661.85
having been received by the plaintiff-appellant from the
defendants-appellees) became due and demandable. 27
As to the alleged nullity of the agreement dated February 28,
1966, we agree with petitioners that they cannot be held liable
thereon. The efficacy of said deed of assignment is subject to
the condition that the application of private respondent for an
additional area for forest concession be approved by the Bureau
of Forestry. Since private respondent did not obtain that
approval, said deed produces no effect. When a contract is
subject to a suspensive condition, its birth or effectivity can take
place only if and when the event which constitutes the condition
happens or is fulfilled. 28 If the suspensive condition does not
take place, the parties would stand as if the conditional obligation
had never existed. 29
The said agreement is a bilateral contract which gave rise to
reciprocal obligations, that is, the obligation of private
respondent to transfer his rights in the forest concession over
the additional area and, on the other hand, the obligation of
petitioners to pay P30,000.00. The demandability of the
obligation of one party depends upon the fulfillment of the
obligation of the other. In this case, the failure of private
respondent to comply with his obligation negates his right to
demand performance from petitioners. Delivery and payment in
a contract of sale, are so interrelated and intertwined with each
other that without delivery of the goods there is no corresponding
obligation to pay. The two complement each other. 30
Moreover, under the second paragraph of Article 1461 of the
Civil Code, the efficacy of the sale of a mere hope or expectancy
is deemed subject to the condition that the thing will come into
existence. In this case, since private respondent never acquired
any right over the additional area for failure to secure the
approval of the Bureau of Forestry, the agreement executed
therefor, which had for its object the transfer of said right to
petitioners, never became effective or enforceable.
WHEREFORE, the decision of respondent Court of Appeals is
hereby MODIFIED. The agreement of the parties dated February
28, 1966 is declared without force and effect and the amount of
P30,000.00 is hereby ordered to be deducted from the sum
awarded by respondent court to private respondent. In all other
respects, said decision of respondent court is affirmed.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento JJ., concur.
Footnotes
1 Penned by Justice Crisolito Pascual, with Justices Samuel F.
Reyes and Rafael C. Climaco concurring.
2 Rollo, 60.
3 Ibid., 49-55.
4 Ibid., 49-55.
5 Ibid., 16-17.
6 Folder of Original Exhibits for Plaintiff, Exh. A.
7 Id., Exh. D, D-1 to D-2.
8 Id., Exh. D-3.
9 Folder of Original Exhibits for Defendants, Exh. 18.
10 Rollo, 73; Record on Appeal, CA-G.R. No. 52296-R, 35-36.
11 Ibid., id., id., 36-37.
12 Ibid., id., id., 103-114.
13 Rollo, CA-G.R. No. 52296-R, 73-74.
14 Ibid., id., 75.
15 Ibid., id., 76-86.
16 Ibid., id., 87.
17 Helmuth, Jr. vs. People of the Philippines, et al., 112 SCRA
573 (1982); St. Peter Memorial Park, Inc., et al. vs. Cleofas, et
al., 121 SCRA 287 (1983); Serrano vs. Court of Appeals, et al.,
139 SCRA 179 (1985).
18 Rollo, 34.
19 Ibid., 54.
20 Folder of Original Exhibits for Defendants, Exh. 9.
21 Folder of Original Exhibits for Plaintiff, Exh. D.
22 Velasquez, et al. vs. Teodoro, et al., 16 Phil. 757 (1923);
Bacordo vs. Alcantara, et al., 14 SCRA 730 (1965).
23 17A C.J.S. 228.
24 Op. cit., 233-231.
25 Art. 1345, Civil Code.
26 Concepcion vs. Sta. Ana, 87 Phil. 787 (1950).
27 Rollo, 58-59.
28 Art. 1181, Civil Code; Araneta vs. Rural Progress
Administration, 92 Phil. 98 (1952).
29 Gaite vs. Fonacier, et al., 2 SCRA 830 (1961).
30 Pio Barretto Sons, Inc. vs. Compania Maritima, 62 SCRA 147
(1975).

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 121158 December 5, 1996
CHINA BANKING CORPORATION, ATTYS. REYNALDO M.
CABUSORA and RENATO C. TAGUIAM, petitioners,
vs.
COURT OF APPEALS, HON. PEDRO T. SANTIAGO, SPS.
SO CHING and CRISTINA SO, and NATIVE WEST
INTERNATIONAL TRADING CORP., respondents.
FRANCISCO, J.:p
China Banking Corporation (China Bank) extended several
loans to Native West International Trading Corporation (Native
West) and to So Ching, Native West's president. Native West in
turn executed promissory notes 1 in favor of China Bank. So
Ching, with the marital consent of his wife, Cristina So,
additionally executed two mortgages over their properties, viz.,
a real estate mortgage executed on July 27, 1989 covering a
parcel of land situated in Cubao, Quezon City, under TCT No.
277797 2, and another executed on August 10, 1989 covering a
parcel of land located in Mandaluyong, under TCT No. 5363. 3
The promissory notes matured and despite due demands by
China Bank neither private respondents Native West nor So
Ching paid. Pursuant to a provision embodied in the two
mortgage contracts, China Bank filed petitions for the extra-
judicial foreclosure of the mortgaged properties before Notary
Public Atty. Renato E. Taguiam for TCT No. 277797, 4 and
Notary Public Atty. Reynaldo M. Cabusora for TCT No. 5363, 5
copies of which were given to the spouses So Ching and Cristina
So. After due notice and publication, the notaries public
scheduled the foreclosure sale of the spouses' real estate
properties on April 13, 1993. Eight days before the foreclosure
sale, however, private respondents filed a complaint 6 with the
Regional Trial Court 7 for accounting with damages and with
temporary restraining order against petitioners alleging the
following causes of action:
A. Defendants failed to comply with the mandates of
Administrative Order No. 3 of the Supreme Court dated
October 19, 1984.
B. Defendants failed to comply with the mandates of
Section 2 Presidential Decree No. 1079 dated January
28, 1977.
C. MORTGAGORS liability limited to P6,500,000.00 and
P3,500,000.00 respectively in the Mortgages Annexes A
and B respectively, but the same are not included in the
notice of foreclosure.
D. Violation of Truth in Lending Act (RP Act No. 3765).
E. In all the loans granted by DEFENDANT-BANK to
plaintiffs and Borrowers, the Bank charged interests in
excess of the rate allowed by the Central Bank.
8
F. Violation of Article 1308 of the Civil Code.
On April 7, 1993, the trial court issued a temporary
restraining order to enjoin the foreclosure sale.
Thereafter counsels for the respective parties agreed to
file their pleadings and to submit the case, without
further hearing, for resolution. On April 28, 1993, the trial
court, without passing upon the material averments of
the complaint, issued an Order granting the private
respondents' prayer for the issuance of preliminary
injunction with the following proffered justification:
From the foregoing, it is quite apparent that a question
of accounting poses a thorny issue as between the
litigants. Variance in the amounts involved relating to the
loan agreements must be judiciously passed upon by
the Court and this is only possible if a trial on the merits
could be had as the matters appurtenant thereto are
evidentiary in nature.
Under the premises, the accounting issue being
evidentiary in character calls for an issuance of a writ of
preliminary injunction pending the adjudication of the
case. The issuance thereof at this particular stage of the
case is merely a preventive remedy designed to protect
from irreparable injury to property or other rights plaintiff
may suffer, which a court of equity may take cognizance
of by commanding acts to be done or prohibiting their
commission, as in the instant suit, to restrain notaries
public Cabusora and Taguiam as well as defendant
China Banking Corporation from continuing with the
auction sale of the subject properties, until further orders
from this Court.
Wherefore, premises considered, finding that the
circumstances warrant the issuance of a preliminary
injunction, plaintiff's prayer is hereby GRANTED.
Consequent thereto, plaintiffs are hereby ordered to
post a bond amounting to P1 (ONE) Million to answer for
whatever damages defendant may suffer as a
consequence of the writ. 9
Petitioners moved for reconsideration, but it was denied in an
Order dated September 23, 1993. To annul the trial court's
Orders of April 28, 1993 and September 23, 1993, petitioners
elevated the case through certiorari and prohibition 10 before
public respondent Court of Appeals. 11 In a decision dated
January 17, 1995, respondent Court of Appeals held that
Administrative Circular No. 3 is the governing rule in extra-
judicial foreclosure of mortgage, which circular petitioners
however failed to follow, and with respect to the publication of
the notice of the auction sale, the provisions of P.D. No. 1079 is
the applicable statute, 12 which decree petitioners similarly failed
to obey. Respondent Court of Appeals did not pass upon the
other issues and confined its additional lengthy discussion on
the validity of the trial court's issuance of the preliminary
injunction, finding the same neither capricious nor whimsical
exercise of judgment that could amount to grave abuse of
discretion. 13 The Court of Appeals accordingly dismissed the
petition, as well as petitioners' subsequent motion for
reconsideration. 14 Hence, the instant petition under Rule 45 of
the Rules of Court reiterating the grounds raised before
respondent court, to wit:
I. PETITIONER CBC'S PETITIONS TO
EXTRAJUDICIALLY FORECLOSE THE REAL ESTATE
MORTGAGES OF JULY 27, 1989 AND AUGUST 10,
1989 THRU PETITIONERS-NOTARIES PUBLIC, AND
THE SCHEDULED FORECLOSURE SALE ARE VALID
AND LAWFUL;
II. PRIVATE RESPONDENTS AND PETITIONER CBC
HAD EXPRESSLY AGREED TO CONSIDER THE
SAME MORTGAGES AS VALID SECURITIES FOR
PROMPT AND FULL PAYMENT OF ALL AND ANY
OBLIGATIONS OF THE FORMER FROM THE
LATTER;
III. THE SUPPOSED VARIANCE IN THE TOTAL
AMOUNT OF UNPAID LOANS IS NOT A VALID BASIS
TO ENJOIN THE FORECLOSURE OF THE
QUESTIONED MORTGAGES. THE MERE FAILURE
TO PAY THE LOAN SECURED BY SAID
MORTGAGES IS THE ONLY, SINGLE REASON FOR
THEIR LAWFUL FORECLOSURE;.
IV. PETITIONER BANK HAD FURNISHED PRIVATE
RESPONDENTS WITH COPIES OF DISCLOSURE
STATEMENTS IN COMPLIANCE WITH THE TRUTH IN
LENDING ACT, AND CHARGED THEM INTERESTS IN
ACCORDANCE WITH LAW AND PURSUANT TO ITS
EXPRESS AGREEMENT WITH THE LATTER;
V. THE P1.0 MILLION INJUNCTION BOND REQUIRED
BY THE HONORABLE COURT A QUO ON PRIVATE
RESPONDENTS IS GROSSLY AND PATENTLY
INADEQUATE. 15
At the outset, the Court's attention is drawn to the fact that since
the filing of this suit before the trial court, none of the substantial
issues have been resolved. To avoid and gloss over the issues
raised by the parties, as what the trial court and respondent
Court of Appeals did, would unduly prolong this litigation
involving a rather simple case of foreclosure of mortgage.
Undoubtedly, this will run counter to the avowed purpose of the
rules, i.e., to assist the parties in obtaining just, speedy and
inexpensive determination of every action or proceeding. 16 The
Court, therefore, feels that the central issues of the case, albeit
unresolved by the courts below, should now be settled specially
as they involved pure questions of law. Furthermore, the
pleadings of the respective parties on file have amply ventilated
their various positions and arguments on the matter
necessitating prompt adjudication.
Now to the core issues.
As the Court sees it, the crucial issues are: (1) whether or not
the loans in excess of the amounts expressly stated in the
mortgage contracts can be included as part of the loans secured
by the real estate mortgages, (2) whether or not petitioners can
extra-judicially foreclose the properties subject of the mortgages,
(3) whether or not Administrative Order No. 3 should govern the
extra-judicial foreclosure of the properties, and (4) whether or
not the writ of preliminary injunction issued by the trial court is
valid.
Petitioners aver that the additional loans extended in favor of
private respondents in excess of P6,500,000.00 and
P3,500,000.00 — amounts respectively stipulated in the July 27,
1989 and August 10, 1989 mortgage contracts — are also
secured by the same collaterals or real estate properties, citing
as bases the introductory paragraph ("whereas clause") of the
mortgage contracts, as well as the stipulations stated therein
under the first and second paragraphs. Private respondents for
their part argue that the additional loans are clean loans, relying
on some isolated parts of the same introductory paragraph and
first paragraph of the contracts, and also of the third paragraph.
As both parties offered a conflicting interpretation of the contract,
then judicial determination of the parties' intention is thus,
inevitable. 17 Hereunder are the pertinent identical introductory
paragraphs and paragraphs 1 to 3 of the July 27, 1989 and
August 10, 1989 mortgage contracts:
WHEREAS, the MORTGAGEE has granted, and may
from time to time hereafter grant to the
MORTGAGOR(S)/either of them/and/or NATIVE WEST
INTERNATIONAL TRADING CORP. — hereinafter
called the DEBTOR(S) credit facilities not exceeding SIX
MILLION FIVE HUNDRED THOUSAND PESOS ONLY
(P6,500,000.00)* Philippine currency, and the
MORTGAGEE had required the MORTGAGOR(S) to
give collateral security for the payment of any and all
obligations heretofore contracted/incurred and which
may thereafter be contracted/incurred by the
MORTGAGOR(S) and/or DEBTOR(S), or any one of
them, in favor of the MORTGAGEE;
NOW, THEREFORE, as collateral security for the
payment of the principal and interest of the
indebtedness/obligations herein referred to and the
faithful performance by the MORTGAGOR(S) of his
(her, its) obligations hereunder, the MORTGAGOR(S)
hereby execute(s) a FIRST MORTGAGE, in favor of the
MORTGAGEE, free from all liens and encumbrances of
any kind, that (those) certain parcel(s) of land, together
with all the buildings/machineries/equipment
improvements now existing thereon, and which may
hereafter be placed thereon, described in the Schedule
of mortgaged properties described hereunder and/or
which is hereto attached, marked Exhibit "A" and made
a part thereof.
1. It is agreed that this mortgage shall respond for all the
obligations contracted/incurred by the
MORTGAGOR(S) and/or DEBTOR(S) or any one of
them, in favor of the MORTGAGEE up to the said sum
of SIX MILLION FIVE HUNDRED THOUSAND PESOS
ONLY (P6,500,000.00)* regardless of the manner in
which the said obligations may have been
contracted/incurred by the MORTGAGOR(S) and/or
DEBTOR(S) — whether by advances or loans made to
him (her, it) by the MORTGAGEE, by the negotiation of
mercantile documents, including trust receipts, by the
execution by the MORTGAGOR(S) and/or DEBTOR(S)
of money market instruments/commercial papers,
undertakings of guaranty of suretyship, or by
endorsement of negotiable instruments, or otherwise,
the idea being to make this deed a comprehensive and
all embracing security that it is.
2. Payments on account of the principal and interest of
the credit granted by the MORTGAGEE to the
MORTGAGOR(S) and/or DEBTOR(S) may be made
from time to time, and as often as the MORTGAGOR(S)
may elect; provided, however, that in the event of such
payments being so made that the indebtedness to the
MORTGAGEE may from time to time be reduced the
MORTGAGEE may make further advances and all sums
whatsoever advanced by the MORTGAGEE shall be
secured by this mortgage, and partial payments of said
indebtedness from time to time shall not thereby be
taken to reduce by the amount of such payments the
credit hereby secured. The said credit shall extend to
any account which shall, within the said limit of
P6,500,000.00* exclusive of interest, be fluctuating and
subject to increase or decrease from time to time as the
MORTGAGEE may approve, and this mortgage shall
stand as security for all indebtedness of the
MORTGAGOR(S) and/or DEBTOR(S), or any one of
them, at any and all times outstanding, regardless of
partial or full payments at any time or times made by the
MORTGAGOR(S) and/or DEBTOR(S).
3. It is hereby agreed that the MORTGAGEE may from
time to time grant the MORTGAGOR(S)/DEBTOR(S)
credit facilities exceeding the amount secured by this
mortgage, without affecting the liability of the
MORTGAGOR(S) under this mortgage up to the amount
stipulated. 18
An important task in contract interpretation is the ascertainment
of the intention of the contracting parties which is accomplished
by looking at the words they used to project that intention in their
contract, i.e., all the words, not just a particular word or two, and
words in context, not words standing alone. 19 Indeed, Article
1374 of the Civil Code, states that "the various stipulations of a
contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly."
Applying the rule, we find that the parties intent is to constitute
the real estate properties as continuing securities liable for future
obligations beyond the amounts of P6.5 million and P3.5 million
respectively stipulated in the July 27, 1989 and August 10, 1989
mortgage contracts. Thus, while the "whereas" clause initially
provides that "the mortgagee has granted, and may from time to
time hereafter grant to the mortgagors . . . credit facilities not
exceeding six million five hundred thousand pesos only
(P6,500,000.00)**" yet in the same clause it provides that "the
mortgagee had required the mortgagor(s) to give collateral
security for the payment of any and all obligations heretofore
contracted/incurred and which may thereafter be
contracted/incurred by the mortgagor(s) and/or debtor(s), or any
one of them, in favor of the mortgagee" which qualifies the initial
part and shows that the collaterals or real estate properties serve
as securities for future obligations. The first paragraph which
ends with the clause, "the idea being to make this deed a
comprehensive and all embracing security that it is" supports this
qualification.
Similarly, the second paragraph provides that "the mortgagee
may take further advances and all sums whatsoever advanced
by the mortgagee shall be secured by this mortgagee . . ." And
although it was stated that "[t]he said credit shall extend to any
account which shall, within the said limit of P6,500,000.00
exclusive of interest", this part of the second sentence is again
qualified by its succeeding portion which provides that "this
mortgage shall stand as security for all indebtedness of the
mortgagor(s) and/or debtor(s), or any one of them, at any and all
times outstanding . . ." Again, under the third paragraph, it is
provided that "the mortgagee may from time to time grant the
mortgagor(s)/debtor(s) credit facilities exceeding the amount
secured by this mortgage . . ." The fourth paragraph, 20 in
addition, states that ". . . all such withdrawals, and payments,
whether evidenced by promissory notes or otherwise, shall be
secured by this mortgage" which manifestly shows that the
parties principally intended to constitute the real estate
properties as continuing securities for additional advancements
which the mortgagee may, upon application, extend. It is well
settled that mortgages given to secure future advancements or
loans are valid and legal contracts, and that the amounts named
as consideration in said contracts do not limit the amount for
which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and other
indebtedness can be gathered. 21
Anent the second issue, we find that petitioners are entitled to
foreclose the mortgages. In their complaint for accounting with
damages pending with the trial court, private respondents
averred that:
8. Up to and until February, 1993, PLAINTIFF-
CORPORATION had paid to the DEFENDANT-
BANK, the amount of THREE HUNDRED FIFTY
THOUSAND (P350,000.00) Pesos, Philippine
Currency, and was willing to pay the balance in
installments of FOUR HUNDRED THOUSAND
(P400,000.00) Pesos, Philippine Currency, every
month, in the meantime, but the DEFENDANT-
BANK refused to accept, demanding instead
SEVEN HUNDRED MILLION (P700,000,000.00)
Pesos, Philippine Currency, a month.
9. Inspite of the expressed willingness and
commitment of plaintiffs to pay their obligation in a
manner which they could afford, on March 11, 1993,
MORTGAGORS and DEFENDANT-
CORPORATION, each received a Letter of Demand
from DEFENDANT-BANK, for the payment of
P28,775,615.14 exclusive of interest and penalty
 evidenced by 11 promissory notes enclosed therein
....
10. Upon receipt of the letter, PLAINTIFF-
CORPORATION through its President pleaded with
the Chairman of the Board of the DEFENDANT-
BANK, through whom Defendant-Corporation was
transacting business with, to accept its offer of
payment of FOUR HUNDRED THOUSAND
(P400,000.00) Pesos, Philippine Currency, a month,
in the meantime, which was again refused by the
said Chairman. 22
which allegations are a clear admission that they were
unable to settle to the fullest their obligation. Foreclosure
is valid where the debtors, as in this case, are in default
in the payment of their obligation. 23 The essence of a
contract of mortgage indebtedness is that a property has
been identified or set apart from the mass of the property
of the debtor-mortgagor as security for the payment of
money or the fulfillment of an obligation to answer the
amount of indebtedness, in case of default of payment.
24
It is a settled rule that in a real estate mortgage when
the obligation is not paid when due, the mortgagee has
the right to foreclose the mortgage and to have the
property seized and sold in view of applying the
proceeds to the payment of the obligation. 25 In fact,
aside from the mortgage contracts, the promissory notes
executed to evidence the loans also authorize the
mortgagee to foreclose on the mortgages. Thus:
. . . CHINA BANKING CORPORATION is hereby
authorized to sell at public or private sales such
securities or things of value for the purpose of
applying their proceeds to such payments. 26
And while private respondents aver that they have
already paid ten million pesos, an allegation which has
still to be settled before the trial court, the same cannot
be utilized as a shield to enjoin the foreclosure sale. A
mortgage given to secure advancements, we repeat, is
a continuing security and is not discharged by
repayment of the amount named in the mortgage, until
the full amount of the advancements are paid. 27
With respect to the third issue, we find private respondents'
contention that Administrative Order No. 3 is the governing rule
in foreclosure of mortgages misplaced. The parties, we note,
have stipulated that the provisions of Act No. 3135 is the
controlling law in case of foreclosure. Thus:
17. The MORTGAGOR(S) hereby grant(s) unto the
MORTGAGEE full and irrevocable power of attorney
coupled with interest, in the event of breach of any
of the conditions of this mortgage, to sell, in its
discretion, the mortgaged properties at public
auction, for cash and to the highest bidder, in the
Province or City where the mortgaged properties are
located, before the Sheriff, or a Notary Public,
without court proceedings, after posting notices of
sale for a period of twenty days in three public
places in said place; and after publication of such
notice in a newspaper of general circulation in the
said place once a week, for three consecutive
weeks, and the MORTGAGEE is hereby authorized
to execute the deed of sale and all such other
documents as may be necessary in the premises all
in accordance with the provisions of Act No. 3135 of
the Philippine Legislature, as amended, and Section
78 of Republic Act No. 337: . . . 28 (Emphasis
supplied.)
By invoking the said Act, there is no doubt that it must
"govern the manner in which the sale and redemption
shall be effected." 29 Clearly, the fundamental principle
that contracts are respected as the law between the
contracting parties finds application in the present case,
30
specially where they are not contrary to law, morals,
good customs and public policy.
Moreover, Administrative Order No. 3 is a directive for executive
judges and clerks of courts which, under its preliminary
paragraph, is "[i]n line with the responsibility of an Executive
Judge, under Administrative Order No. 6, dated June 30, 1975,
for the management of courts within his administrative area,
included in which is the task of supervising directly the work of
the Clerk of Court, who is also the Ex-Oficio Sheriff, and his staff,
. . . ." Surely, a petition for foreclosure with the notary public is
not within the contemplation of the aforesaid directive as the
same is not filed with the court. At any rate, Administrative Order
No. 3 cannot prevail over Act No. 3135, as amended. It is an
elementary principle in statutory construction that a statute is
superior to an administrative directive and the former cannot be
repealed or amended by the latter.
On the last issue, we find that the issuance of the writ of
injunction by the trial court unjustified. A writ of preliminary
injunction, as an ancillary or preventive remedy, may only be
resorted to by a litigant to protect or preserve his rights or
interests and for no other purpose during the pendency of the
principal action. 31 But before a writ of preliminary injunction may
be issued, there must be a clear showing by the complaint that
there exists a right to be protected and that the acts against
which the writ is to be directed are violative of the said right. 32 In
the case at bench, we fail to see any reason why the foreclosure
of the mortgages should be enjoined. On the face of the clear
admission by private respondents that they were unable to settle
their obligations which were secured by the mortgages,
petitioners have a clear right to foreclose the mortgages which
is a remedy provided by law. Thus, in Caltex Philippines, Inc. v.
Intermediate Appellate Court, 33 we reiterated the rule that:
. . . where a debt is secured by a mortgage and there is
a default in payment on the part of the mortgagor, the
mortgagee has a choice of one (1) or two (2) remedies,
but he cannot have both. The mortgagee may:
1) foreclosure the mortgage; or
2) file an ordinary action to collect the debt.
When the mortgagee chooses the foreclosure of the
mortgage as a remedy, he enforces his lien by the sale
on foreclosure of the mortgaged property. The proceeds
of the sale will be applied to the satisfaction of the debt.
With this remedy, he has a prior lien on the property. In
case of a deficiency, the mortgagee has the right to
claim for the deficiency resulting from the price obtained
in the sale of the real property at public auction and the
outstanding obligation at the time of the foreclosure
proceedings (Soriano v. Enriquez, 24 Phil 584; Banco
de Islas Filipinas v. Concepcion Hijos, 53 Phil 86; Banco
Nacional v. Barreto, 53 Phil 101).
On the other hand, if the mortgagee resorts to an action
to collect the debt, he thereby waives his mortgage lien.
He will have no more priority over the mortgaged
property. If the judgment in the action to collect is
favorable to him, and it becomes final and executory, he
can enforce said judgment by execution. He can even
levy execution on the same mortgaged property, but he
will not have priority over the latter and there may be
other creditors who have better lien on the properties of
the mortgagor. 34
WHEREFORE, the instant petition is hereby GRANTED. The
assailed Decision, as well as the Resolution, of the Court of
Appeals dated January 17, 1995 and July 7, 1995, respectively,
are hereby REVERSED and SET ASIDE. The preliminary writ of
injunction issued by the trial court is hereby NULLIFIED. This
case is REMANDED to the court of origin for further proceedings
in conformity with this decision.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.
Footnotes
1 Annexes A, A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8, A-9; Rollo, pp. 34-43.
2 Annex B; Rollo, pp. 44-48.
3 Annex B-1; Rollo, pp. 49-53.
4 Rollo, pp. 54-56.
5 Rollo, pp. 58-60.
6 Docketed as Civil Case No. Q-93-15471; Rollo, pp. 66-83.
7 RTC, Branch 101, Quezon City. Hon. Pedro T. Santiago, judge.
8 Rollo, pp. 72-78.
9 Rollo, pp. 112-113.
10 Petition, docketed as CA-G.R. No. 32489, Rollo, pp. 136-167.
11 Ninth Division. Herrera, J., ponente, Sandoval-Gutierrez and Reyes, JJ., concurring.
12 See: CA Decision, pp. 5-9; Rollo, pp. 173-177.
13 Id., pp. 9-13; Rollo, pp. 177-181.
14 Resolution dated July 7, 1995; Reyes, R.T. J ., ponente; Sandoval Gutierrez, Vasquez, JJ ., concurring. This resolution held
that the "mortgage contract does not contemplate future obligations beyond the stipulated amount" . . . . citing as basis a brief
portion of the "where as" clause of the contract.
15 Rollo, p. 11.
16 Rule 1, Section 2, Rules of Court.
17 Capital Insurance & Surety Co., Inc. v. Central Azucarera del Danao, 221 SCRA 98.
* The August 10, 1989 mortgage contract meanwhile stipulates "credit facilities not exceeding three million five hundred thousand
pesos only (P3,500,000.00)."
18 Annex "B", Rollo, p. 44; Annex "B-1", Rollo, p. 49.
19 Heirs of Severo Legaspi, Sr. v. Vda. de Dayot, 188 SCRA 508, 514, citing Fernandez v. Court of Appeals, 166 SCRA 577.
** Three million five hundred thousand pesos (P3,500,000.00) for the August 10, 1989 mortgage contract.
20 "The MORTGAGEE may if it sees fit, at any and all times when withdrawal on account of said credit shall be requested or
made, require the MORTGAGOR(S)/DEBTOR(S) to evidence payments against the said credit by means of promissory notes
or other instruments of indebtedness and all such withdrawals, and payments, whether evidenced by promissory notes or
otherwise, shall be secured by this mortgage." (Rollo, pp. 44 and 49).
21 Mojica v. Court of Appeals, 201 SCRA 517, 522. See also: Ajax Marketing and Development Corporation v. Court of Appeals,
248 SCRA 222; Acme Shoe, Rubber and Plastic Corp. v. Court of Appeals, et. al., G.R. No. 103576, August 22, 1996, at p. 5.
22 Rollo, pp. 70-71.
23 Cortes v. Intermediate Appellate Court, 175 SCRA 545, 548.
24 Fiestan v. Court of Appeals, 185 SCRA 751, 757.
25 State Investment House, Inc. v. Court of Appeals, 215 SCRA 734, 744, citing Commodity Financing Co., Inc. v. Jimenez, 91
SCRA 57.
26 Rollo, pp. 34-43.
27 Mojica v. Court of Appeals, 201 SCRA 517, 522, citing Lim Julian v. Lutero, 49 Phil. 704-705.
28 Rollo, pp. 86-87 and 91-92.
29 Cortes v. Intermediate Appellate Court, 175 SCRA 545, 549; Section 1, Act 3135.
30 Henson v. Intermediate Appellate Court, 148 SCRA 11; Dihiansan, et. al. v. Court of Appeals, 153 SCRA 712; Escano v.
Court of Appeals, 100 SCRA 197.
31 Calo, et. al. v. Roldan, et. al., 76 Phil. 445; Bengzon v. Court of Appeals, 161 SCRA 745.
32 GSIS v. Florendo, 178 SCRA 76, 84, citing National Power Corp. v. Vera, et. al., G.R. No. 83558, February 27, 1989.
33 176 SCRA 741.
34 Id., pp. 751-752.

FIRST DIVISION
G.R. No. 119255 April 9, 2003
TOMAS K. CHUA, petitioner,
vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY,
respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the
decision1 of the Court of Appeals in an action for specific
performance2 filed in the Regional Trial Court3 by petitioner
Tomas K. Chua ("Chua") against respondent Encarnacion
Valdes-Choy ("Valdes-Choy"). Chua sought to compel Valdes-
Choy to consummate the sale of her paraphernal house and lot
in Makati City. The Court of Appeals reversed the decision4
rendered by the trial court in favor of Chua.
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot
("Property") with an area of 718 square meters located at No. 40
Tampingco Street corner Hidalgo Street, San Lorenzo Village,
Makati City. The Property is covered by Transfer Certificate of
Title No. 162955 ("TCT") issued by the Register of Deeds of
Makati City in the name of Valdes-Choy. Chua responded to the
advertisement. After several meetings, Chua and Valdes-Choy
agreed on a purchase price of P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for
P100,000.00. The receipt ("Receipt") evidencing the transaction,
signed by Valdes-Choy as seller, and Chua as buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check
No. 206011 in the amount of ONE HUNDRED
THOUSAND PESOS ONLY (P100,000.00) as
EARNEST MONEY for the sale of the property located
at 40 Tampingco cor. Hidalgo, San Lorenzo Village,
Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED
THOUSAND (P10,700,000.00) is payable on or before
155 July 1989. Capital Gains Tax for the account of the
seller. Failure to pay balance on or before 15 July 1989
forfeits the earnest money. This provided that all papers
are in proper order.6
CONFORME:
ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
7
x x x.
In the morning of 13 July 1989, Chua secured from Philippine
Bank of Commerce ("PBCom") a manager's check for
P480,000.00. Strangely, after securing the manager's check,
Chua immediately gave PBCom a verbal stop payment order
claiming that this manager's check for P480,000.00 "was lost
and/or misplaced."8 On the same day, after receipt of Chua's
verbal order, PBCom Assistant Vice–President Julie C. Pe
notified in writing9 the PBCom Operations Group of Chua's stop
payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met
with their respective counsels to execute the necessary
documents and arrange the payments.10 Valdes-Choy as vendor
and Chua as vendee signed two Deeds of Absolute Sale
("Deeds of Sale"). The first Deed of Sale covered the house and
lot for the purchase price of P8,000,000.00.11 The second Deed
of Sale covered the furnishings, fixtures and movable properties
contained in the house for the purchase price of
P2,800,000.00.12 The parties also computed the capital gains tax
to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-
Choy's counsel. Chua handed to Valdes-Choy the PBCom
manager's check for P485,000.00 so Valdes-Choy could pay the
capital gains tax as she did not have sufficient funds to pay the
tax. Valdes-Choy issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after deducting the
advances made by Chua. This receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check
No. 325851 in the amount of FOUR HUNDRED EIGHTY
FIVE THOUSAND PESOS ONLY (P485,000.00) as
Partial Payment for the sale of the property located at 40
Tampingco Cor. Hidalgo St., San Lorenzo Village,
Makati, Metro Manila (Area 718 sq. meters), covered by
TCT No. 162955 of the Registry of Deeds of Makati,
Metro Manila.
The total purchase price of the above-mentioned
property is TEN MILLION EIGHT HUNDRED
THOUSAND PESOS only, broken down as follows:
SELLING PRICE P10,800,000.00
EARNEST MONEY P100,000.00
PARTIAL PAYMENT 485,000.00
585,000.00
BALANCE DUE TO
ENCARNACION
VALDEZ-CHOY P10,215,000.00
PLUS P80,000.00 for
documentary stamps
paid in advance by seller 80,000.00
P10,295,000.00
x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by
Chua, deposited the P485,000.00 manager's check to her
account with Traders Royal Bank. She then purchased a Traders
Royal Bank manager's check for P480,000.00 payable to the
Commissioner of Internal Revenue for the capital gains tax.
Valdes-Choy and Chua returned to the office of Valdes-Choy's
counsel and handed the Traders Royal Bank check to the
counsel who undertook to pay the capital gains tax. It was then
also that Chua showed to Valdes-Choy a PBCom manager's
check for P10,215,000.00 representing the balance of the
purchase price. Chua, however, did not give this PBCom
manager's check to Valdes-Choy because the TCT was still
registered in the name of Valdes-Choy. Chua required that the
Property be registered first in his name before he would turn over
the check to Valdes-Choy. This angered Valdes-Choy who tore
up the Deeds of Sale, claiming that what Chua required was not
part of their agreement.14
On the same day, 14 July 1989, Chua confirmed his stop
payment order by submitting to PBCom an affidavit of loss 15 of
the PBCom Manager's Check for P480,000.00. PBCom
Assistant Vice-President Pe, however, testified that the
manager's check was nevertheless honored because Chua
subsequently verbally advised the bank that he was lifting the
stop-payment order due to his "special arrangement" with the
bank.16
On 15 July 1989, the deadline for the payment of the balance of
the purchase price, Valdes-Choy suggested to her counsel that
to break the impasse Chua should deposit in escrow the
P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy
was willing to cause the issuance of a new TCT in the name of
Chua even without receiving the balance of the purchase price.
Valdes-Choy believed this was the only way she could protect
herself if the certificate of title is transferred in the name of the
buyer before she is fully paid. Valdes-Choy's counsel promised
to relay her suggestion to Chua and his counsel, but nothing
came out of it.
On 17 July 1989, Chua filed a complaint for specific performance
against Valdes-Choy which the trial court dismissed on 22
November 1989. On 29 November 1989, Chua re-filed his
complaint for specific performance with damages. After trial in
due course, the trial court rendered judgment in favor of Chua,
the dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil
Code, since this is an action for specific performance
where the plaintiff, as vendee, wants to pursue the sale,
and in order that the fears of the defendant may be
allayed and still have the sale materialize, judgment is
hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not
later than five (5) days from finality of this decision:
a. the owner's duplicate copy of TCT No. 162955
registered in her name;
b. the covering tax declaration and the latest tax
receipt evidencing payment of real estate taxes;
c. the two deeds of sale prepared by Atty. Mark
Bocobo on July 13, 1989, duly executed by
defendant in favor of the plaintiff, whether notarized
or not; and
2. Within five (5) days from compliance by the defendant
of the above, ordering the plaintiff to deliver to the
Branch Clerk of Court of this Court the sum of
P10,295,000.00 representing the balance of the
consideration (with the sum of P80,000.00 for stamps
already included);
3. Ordering the Branch Clerk of this Court or her duly
authorized representative:
a. to make representations with the BIR for the
payment of capital gains tax for the sale of the house
and lot (not to include the fixtures) and to pay the
same from the funds deposited with her;
b. to present the deed of sale executed in favor of
the plaintiff, together with the owner's duplicate copy
of TCT No. 162955, real estate tax receipt and proof
of payment of capital gains tax, to the Makati
Register of Deeds;
c. to pay the required registration fees and stamps
(if not yet advanced by the defendant) and if needed
update the real estate taxes all to be taken from the
funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over
the property;
4. Should the defendant fail or refuse to surrender the
two deeds of sale over the property and the fixtures that
were prepared by Atty. Mark Bocobo and executed by
the parties, the Branch Clerk of Court of this Court is
hereby authorized and empowered to prepare, sign and
execute the said deeds of sale for and in behalf of the
defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and
compensatory damages for the plaintiff; and
b. the sum of P50,000.00 as reimbursement for
plaintiff's attorney's fees and cost of litigation.
6. Authorizing the Branch Clerk of Court of this Court to
release to the plaintiff, to be taken from the funds said
plaintiff has deposited with the Court, the amounts
covered at paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the
defendant after deducting therefrom the following
amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration of the
sale, updating of real estate taxes, and transfer of
title; and
c. the amounts paid under this judgment to the
plaintiff.
8. Ordering the defendant to surrender to the plaintiff or
his representatives the premises with the furnishings
intact within seventy-two (72) hours from receipt of the
proceeds of the sale;
9. No interest is imposed on the payment to be made by
the plaintiff because he had always been ready to pay
the balance and the premises had been used or
occupied by the defendant for the duration of this case.
II. In the event that specific performance cannot be done
for reasons or causes not attributable to the plaintiff,
judgment is hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum
of P100,000.00, with interest at the legal rate from June
30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with
interest at the legal rate from July 14, 1989 until fully
paid;
3. To pay to the plaintiff the sum of P700,000.00 in the
concept of moral damages and the additional sum of
P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as
reimbursement of attorney's fees and cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed
the decision of the trial court. The Court of Appeals handed down
a new judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE, and another one is
rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00,
representing earnest money as forfeited in favor of
defendant-appellant;
(3) Ordering defendant-appellant to return/refund
the amount of P485,000.00 to plaintiff-appellee
without interest;
(4) Dismissing defendant-appellant's compulsory
counter-claim; and
(5) Ordering the plaintiff-appellee to pay the costs.19
Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction reached an impasse
when Valdes-Choy wanted to be first paid the full consideration
before a new TCT covering the Property is issued in the name
of Chua. On the other hand, Chua did not want to pay the
consideration in full unless a new TCT is first issued in his name.
The trial court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell
on 30 June 1989, as evidenced by the Receipt for the
P100,000.00 earnest money. The trial court pointed out that the
contract to sell was subject to the following conditions: (1) the
balance of P10,700,000.00 was payable not later than 15 July
1989; (2) Valdes-Choy may stay in the Property until 13 August
1989; and (3) all papers must be "in proper order" before full
payment is made.
The trial court held that Chua complied with the terms of the
contract to sell. Chua showed that he was prepared to pay
Valdes-Choy the consideration in full on 13 July 1989, two days
before the deadline of 15 July 1989. Chua even added
P80,000.00 for the documentary stamp tax. He purchased from
PBCom two manager's checks both payable to Valdes-Choy.
The first check for P485,000.00 was to pay the capital gains tax.
The second check for P10,215,000.00 was to pay the balance of
the purchase price. The trial court was convinced that Chua
demonstrated his capacity and readiness to pay the balance on
13 July 1989 with the production of the PBCom manager's check
for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not
perform her correlative obligation under the contract to sell to put
all the papers in order. The trial court noted that as of 14 July
1989, the capital gains tax had not been paid because Valdes-
Choy's counsel who was suppose to pay the tax did not do so.
The trial court declared that Valdes-Choy was in a position to
deliver only the owner's duplicate copy of the TCT, the signed
Deeds of Sale, the tax declarations, and the latest realty tax
receipt. The trial court concluded that these documents were all
useless without the Bureau of Internal Revenue receipt
evidencing full payment of the capital gains tax which is a pre-
requisite to the issuance of a new certificate of title in Chua's
name.
The trial court held that Chua's non-payment of the balance of
P10,215,000.00 on the agreed date was due to Valdes-Choy's
fault.
The Court of Appeals' Ruling
In reversing the trial court, the Court of Appeals ruled that Chua's
stance to pay the full consideration only after the Property is
registered in his name was not the agreement of the parties. The
Court of Appeals noted that there is a whale of difference
between the phrases "all papers are in proper order" as written
on the Receipt, and "transfer of title" as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals
found that all the papers were in order and that Chua had no
valid reason not to pay on the agreed date. Valdes-Choy was in
a position to deliver the owner's duplicate copy of the TCT, the
signed Deeds of Sale, the tax declarations, and the latest realty
tax receipt. The Property was also free from all liens and
encumbrances.
The Court of Appeals declared that the trial court erred in
considering Chua's showing to Valdes-Choy of the PBCom
manager's check for P10,215,000.00 as compliance with Chua's
obligation to pay on or before 15 July 1989. The Court of Appeals
pointed out that Chua did not want to give up the check unless
"the property was already in his name."20 Although Chua
demonstrated his capacity to pay, this could not be equated with
actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of the
capital gains tax as failure by Valdes-Choy to put the papers "in
proper order." The Court of Appeals explained that the payment
of the capital gains tax has no bearing on the validity of the
Deeds of Sale. It is only after the deeds are signed and notarized
can the final computation and payment of the capital gains tax
be made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT
OF SALE OF IMMOVABLE PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE
CONTRACT IN CONTROVERSY WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE 1592
OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT OF
THE BALANCE OF THE PURCHASE PRICE ON THE
PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY
THE CIRCUMSTANCES OBTAINING AND MAY NOT
BE RAISED AS GROUND FOR THE AUTOMATIC
RESCISSION OF THE CONTRACT OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS
FOR THE COURT OF APPEALS TO DECLARE THE
"EARNEST MONEY" IN THE AMOUNT OF
P100,000.00 AS FORFEITED IN FAVOR OF VALDES-
CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN
ACCORD WITH LAW, REASON AND EQUITY
DESERVING OF BEING REINSTATED AND
AFFIRMED.21
The issues for our resolution are: (a) whether the transaction
between Chua and Valdes-Choy is a perfected contract of sale
or a mere contract to sell, and (b) whether Chua can compel
Valdes-Choy to cause the issuance of a new TCT in Chua's
name even before payment of the full purchase price.
The Court's Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the absolute owner of
the Property which is registered in her name under TCT
No.162955, free from all liens and encumbrances. She was
ready, able and willing to deliver to Chua the owner's duplicate
copy of the TCT, the signed Deeds of Sale, the tax declarations,
and the latest realty tax receipt. There is also no dispute that on
13 July 1989, Valdes-Choy received PBCom Check No. 206011
for P100,000.00 as earnest money from Chua. Likewise, there
is no controversy that the Receipt for the P100,000.00 earnest
money embodied the terms of the binding contract between
Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt,
Valdes-Choy and Chua agreed on the following terms: (1) the
balance of P10,215,000.00 is payable on or before 15 July 1989;
(2) the capital gains tax is for the account of Valdes-Choy; and
(3) if Chua fails to pay the balance of P10,215,000.00 on or
before 15 July 1989, Valdes-Choy has the right to forfeit the
earnest money, provided that "all papers are in proper order."
On 13 July 1989, Chua gave Valdes-Choy the PBCom
manager's check for P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of
P10,215,000.00 was not actually paid to Valdes-Choy on the
agreed date. On 13 July 1989, Chua did show to Valdes-Choy
the PBCom manager's check for P10,215,000.00, with Valdes-
Choy as payee. However, Chua refused to give this check to
Valdes-Choy until a new TCT covering the Property is registered
in Chua's name. Or, as the trial court put it, until there is proof of
payment of the capital gains tax which is a pre-requisite to the
issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-
Choy, as evidenced by the Receipt, as a contract to sell and not
a contract of sale. This has been Chua's persistent contention in
his pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected
contract of sale rather than a contract to sell. He contends that
there was no reservation in the contract of sale that Valdes-Choy
shall retain title to the Property until after the sale. There was no
agreement for an automatic rescission of the contract in case of
Chua's default. He argues for the first time that his payment of
earnest money and its acceptance by Valdes-Choy precludes
the latter from rejecting the binding effect of the contract of sale.
Thus, Chua claims that Valdes-Choy may not validly rescind the
contract of sale without following Article 159222 of the Civil Code
which requires demand, either judicially or by notarial act, before
rescission may take place.
Chua's new theory is not well taken in light of well-settled
jurisprudence. An issue not raised in the court below cannot be
raised for the first time on appeal, as this is offensive to the basic
rules of fair play, justice and due process.23 In addition, when a
party deliberately adopts a certain theory, and the case is tried
and decided on that theory in the court below, the party will not
be permitted to change his theory on appeal. To permit him to
change his theory will be unfair to the adverse party. 24
Nevertheless, in order to put to rest all doubts on the matter, we
hold that the agreement between Chua and Valdes-Choy, as
evidenced by the Receipt, is a contract to sell and not a contract
of sale. The distinction between a contract of sale and contract
to sell is well-settled:
In a contract of sale, the title to the property passes to
the vendee upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved in
the vendor and is not to pass to the vendee until full
payment of the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership over the
property and cannot recover it until and unless the
contract is resolved or rescinded; whereas, in a contract
to sell, title is retained by the vendor until full payment of
the price. In the latter contract, payment of the price is a
positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the
vendor to convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between
the parties was a contract to sell. Ownership over the Property
was retained by Valdes-Choy and was not to pass to Chua until
full payment of the purchase price.
First, the Receipt provides that the earnest money shall be
forfeited in case the buyer fails to pay the balance of the
purchase price on or before 15 July 1989. In such event, Valdes-
Choy can sell the Property to other interested parties. There is
in effect a right reserved in favor of Valdes-Choy not to push
through with the sale upon Chua's failure to remit the balance of
the purchase price before the deadline. This is in the nature of a
stipulation reserving ownership in the seller until full payment of
the purchase price. This is also similar to giving the seller the
right to rescind unilaterally the contract the moment the buyer
fails to pay within a fixed period.26
Second, the agreement between Chua and Valdes-Choy was
embodied in a receipt rather than in a deed of sale, ownership
not having passed between them. The signing of the Deeds of
Sale came later when Valdes-Choy was under the impression
that Chua was about to pay the balance of the purchase price.
The absence of a formal deed of conveyance is a strong
indication that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment of the purchase
price.27
Third, Valdes-Choy retained possession of the certificate of title
and all other documents relative to the sale. When Chua refused
to pay Valdes-Choy the balance of the purchase price, Valdes-
Choy also refused to turn-over to Chua these documents.28
These are additional proof that the agreement did not transfer to
Chua, either by actual or constructive delivery, ownership of the
Property.29
It is true that Article 1482 of the Civil Code provides that
"[W]henever earnest money is given in a contract of sale, it shall
be considered as part of the price and proof of the perfection of
the contract." However, this article speaks of earnest money
given in a contract of sale. In this case, the earnest money was
given in a contract to sell. The Receipt evidencing the contract
to sell stipulates that the earnest money is a forfeitable deposit,
to be forfeited if the sale is not consummated should Chua fail to
pay the balance of the purchase price. The earnest money forms
part of the consideration only if the sale is consummated upon
full payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the
balance of the purchase price. Chua, however, has the right to
walk away from the transaction, with no obligation to pay the
balance, although he will forfeit the earnest money. Clearly,
there is no contract of sale. The earnest money was given in a
contract to sell, and thus Article 1482, which speaks of a contract
of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere
contract to sell, the full payment of the purchase price partakes
of a suspensive condition. The non-fulfillment of the condition
prevents the obligation to sell from arising and ownership is
retained by the seller without further remedies by the buyer. 30
Article 1592 of the Civil Code permits the buyer to pay, even after
the expiration of the period, as long as no demand for rescission
of the contract has been made upon him either judicially or by
notarial act. However, Article 1592 does not apply to a contract
to sell where the seller reserves the ownership until full payment
of the price.31
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest
Money
Chua insists that he was ready to pay the balance of the
purchase price but withheld payment because Valdes-Choy did
not fulfill her contractual obligation to put all the papers in "proper
order." Specifically, Chua claims that Valdes-Choy failed to show
that the capital gains tax had been paid after he had advanced
the money for its payment. For the same reason, he contends
that Valdes-Choy may not forfeit the earnest money even if he
did not pay on time.
There is a variance of interpretation on the phrase "all papers
are in proper order" as written in the Receipt. There is no dispute
though, that as long as the papers are "in proper order," Valdes-
Choy has the right to forfeit the earnest money if Chua fails to
pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the
capital gains tax, with the Bureau of Internal Revenue receipt as
proof of payment. The Court of Appeals held otherwise. We
quote verbatim the ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the
payment of the capital gains tax, of which Section 33 of
the National Internal Revenue Code of 1977, is the
governing provision insofar as its computation is
concerned. The trial court failed to consider Section 34-
(a) of the said Code, the last sentence of which provides,
that "[t]he amount realized from the sale or other
disposition of property shall be the sum of money
received plus the fair market value of the property (other
than money) received;" and that the computation of the
capital gains tax can only be finally assessed by the
Commission on Internal Revenue upon the presentation
of the Deeds of Absolute Sale themselves, without which
any premature computation of the capital gains tax
becomes of no moment. At any rate, the computation
and payment of the capital gains tax has no bearing
insofar as the validity and effectiveness of the deeds of
sale in question are concerned, because it is only after
the contracts of sale are finally executed in due form and
have been duly notarized that the final computation of
the capital gains tax can follow as a matter of course.
Indeed, exhibit D, the PBC Check No. 325851, dated
July 13, 1989, in the amount of P485,000.00, which is
considered as part of the consideration of the sale, was
deposited in the name of appellant, from which she in
turn, purchased the corresponding check in the amount
representing the sum to be paid for capital gains tax and
drawn in the name of the Commissioner of Internal
Revenue, which then allayed any fear or doubt that that
amount would not be paid to the Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive
condition. In this case, the suspensive condition is the full
payment of the purchase price by Chua. Such full payment gives
rise to Chua's right to demand the execution of the contract of
sale.
It is only upon the existence of the contract of sale that the seller
becomes obligated to transfer the ownership of the thing sold to
the buyer. Article 1458 of the Civil Code defines a contract of
sale as follows:
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.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not
obligated to transfer ownership to the buyer, even if there is a
contract to sell between them. It is also upon the existence of the
contract of sale that the buyer is obligated to pay the purchase
price to the seller. Since the transfer of ownership is in exchange
for the purchase price, these obligations must be simultaneously
fulfilled at the time of the execution of the contract of sale, in the
absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in
Article 1495 of the Civil Code, as follows:
Art. 1495. The vendor is bound to transfer the ownership
of and deliver, as well as warrant the thing which is the
object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership
of the thing sold. In the sale of real property, the seller is not
obligated to transfer in the name of the buyer a new certificate of
title, but rather to transfer ownership of the real property. There
is a difference between transfer of the certificate of title in the
name of the buyer, and transfer of ownership to the buyer. The
buyer may become the owner of the real property even if the
certificate of title is still registered in the name of the seller. As
between the seller and buyer, ownership is transferred not by
the issuance of a new certificate of title in the name of the buyer
but by the execution of the instrument of sale in a public
document.
In a contract of sale, ownership is transferred upon delivery of
the thing sold. As the noted civil law commentator Arturo M.
Tolentino explains it, -
Delivery is not only a necessary condition for the
enjoyment of the thing, but is a mode of acquiring
dominion and determines the transmission of
ownership, the birth of the real right. The delivery,
therefore, made in any of the forms provided in articles
1497 to 1505 signifies that the transmission of
ownership from vendor to vendee has taken place. The
delivery of the thing constitutes an indispensable
requisite for the purpose of acquiring ownership. Our law
does not admit the doctrine of transfer of property by
mere consent; the ownership, the property right, is
derived only from delivery of the thing. x x x.33 (Emphasis
supplied)
In a contract of sale of real property, delivery is effected when
the instrument of sale is executed in a public document. When
the deed of absolute sale is signed by the parties and notarized,
then delivery of the real property is deemed made by the seller
to the buyer. Article 1498 of the Civil Code provides that –
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the
 contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is
ready, able and willing to sign the deed of absolute sale before
a notary public, the seller is in a position to transfer ownership of
the real property to the buyer. At this point, the seller complies
with his undertaking to sell the real property in accordance with
the contract to sell, and to assume all the obligations of a vendor
under a contract of sale pursuant to the relevant articles of the
Civil Code. In a contract to sell, the seller is not obligated to
transfer ownership to the buyer. Neither is the seller obligated to
cause the issuance of a new certificate of title in the name of the
buyer. However, the seller must put all his papers in proper order
to the point that he is in a position to transfer ownership of the
real property to the buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with
all her obligations as a seller under the contract to sell. First, she
already signed the Deeds of Sale in the office of her counsel in
the presence of the buyer. Second, she was prepared to turn-
over the owner's duplicate of the TCT to the buyer, along with
the tax declarations and latest realty tax receipt. Clearly, at this
point Valdes-Choy was ready, able and willing to transfer
ownership of the Property to the buyer as required by the
contract to sell, and by Articles 1458 and 1495 of the Civil Code
to consummate the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom
manager's check for the balance of the purchase price. Chua
imposed the condition that a new TCT should first be issued in
his name, a condition that is found neither in the law nor in the
contract to sell as evidenced by the Receipt. Thus, at this point
Chua was not ready, able and willing to pay the full purchase
price which is his obligation under the contract to sell. Chua was
also not in a position to assume the principal obligation of a
vendee in a contract of sale, which is also to pay the full
purchase price at the agreed time. Article 1582 of the Civil Code
provides that –
Art. 1582. The vendee is bound to accept delivery and
to pay the price of the thing sold at the time and place
stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay
the balance of the purchase price "on or before 15 July 1989."
The signed Deeds of Sale also stipulated that the buyer shall
pay the balance of the purchase price upon signing of the deeds.
Thus, the Deeds of Sale, both signed by Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION
PESOS (P8,000,000.00), Philippine Currency, receipt of
which in full is hereby acknowledged by the VENDOR
from the VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs, successors and
assigns, the said parcel of land, together with the
improvements existing thereon, free from all liens and
encumbrances.34 (Emphasis supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION
EIGHT HUNDRED THOUSAND PESOS
(P2,800,000.00), Philippine Currency, receipt of which in
full is hereby acknowledged by the VENDOR from the
VENDEE, the VENDOR sells, transfers and conveys
unto the VENDEE, his heirs, successors and assigns,
the said furnitures, fixtures and other movable properties
thereon, free from all liens and encumbrances.35
(Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance
of the purchase price as required by the contract to sell, the
signed Deeds of Sale, and Article 1582 of the Civil Code. Chua
was therefore in default and has only himself to blame for the
rescission by Valdes-Choy of the contract to sell.
Even if measured under existing usage or custom, Valdes-Choy
had all her papers "in proper order." Article 1376 of the Civil
Code provides that:
Art. 1376. The usage or custom of the place shall be
borne in mind in the interpretation of the ambiguities of
a contract, and shall fill the omission of stipulations
which are ordinarily established.
Customarily, in the absence of a contrary agreement, the
submission by an individual seller to the buyer of the following
papers would complete a sale of real estate: (1) owner's
duplicate copy of the Torrens title;36 (2) signed deed of absolute
sale; (3) tax declaration; and (3) latest realty tax receipt. The
buyer can retain the amount for the capital gains tax and pay it
upon authority of the seller, or the seller can pay the tax,
depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid
immediately since this is a pre-requisite to the issuance of a new
Torrens title in his name. Nevertheless, as far as the government
is concerned, the capital gains tax remains a liability of the seller
since it is a tax on the seller's gain from the sale of the real
estate. Payment of the capital gains tax, however, is not a pre-
requisite to the transfer of ownership to the buyer. The transfer
of ownership takes effect upon the signing and notarization of
the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds 37
and the transfer of the certificate of title in the name of the buyer
are necessary only to bind third parties to the transfer of
ownership.38 As between the seller and the buyer, the transfer of
ownership takes effect upon the execution of a public instrument
conveying the real estate.39 Registration of the sale with the
Registry of Deeds, or the issuance of a new certificate of title,
does not confer ownership on the buyer. Such registration or
issuance of a new certificate of title is not one of the modes of
acquiring ownership.40
In this case, Valdes-Choy was ready, able and willing to submit
to Chua all the papers that customarily would complete the sale,
and to pay as well the capital gains tax. On the other hand,
Chua's condition that a new TCT be first issued in his name
before he pays the balance of P10,215,000.00, representing
94.58% of the purchase price, is not customary in a sale of real
estate. Such a condition, not specified in the contract to sell as
evidenced by the Receipt, cannot be considered part of the
"omissions of stipulations which are ordinarily established" by
usage or custom.41 What is increasingly becoming customary is
to deposit in escrow the balance of the purchase price pending
the issuance of a new certificate of title in the name of the buyer.
Valdes-Choy suggested this solution but unfortunately, it drew
no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was
prepared to turn-over to him the owner's duplicate copy of the
TCT, the signed Deeds of Sale, the tax declarations, and the
latest realty tax receipt. There was no hindrance to paying the
capital gains tax as Chua himself had advanced the money to
pay the same and Valdes-Choy had procured a manager's
check payable to the Bureau of Internal Revenue covering the
amount. It was only a matter of time before the capital gains tax
would be paid. Chua acted precipitately in filing the action for
specific performance a mere two days after the deadline of 15
July 1989 when there was an impasse. While this case was
dismissed on 22 November 1989, he did not waste any time in
re-filing the same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full
on the agreed date, which is a suspensive condition, Chua
cannot compel Valdes-Choy to consummate the sale of the
Property. Article 1181 of the Civil Code provides that -
ART. 1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those
already acquired shall depend upon the happening of
the event which constitutes the condition.
Chua acquired no right to compel Valdes-Choy to transfer
ownership of the Property to him because the suspensive
condition - the full payment of the purchase price - did not
happen. There is no correlative obligation on the part of Valdes-
Choy to transfer ownership of the Property to Chua. There is also
no obligation on the part of Valdes-Choy to cause the issuance
of a new TCT in the name of Chua since unless expressly
stipulated, this is not one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R.
CV No. 37652 dated 23 February 1995 is AFFIRMED in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and
Azcuna, JJ., concur.
Footnotes provided for in this Decree or upon order of the court, for cause
1
shown.
In CA-G.R. CV No. 37652, dated 23 February 1995, penned by The production of the owner's duplicate certificate, whenever
Associate Justice Artemon D. Luna with Associate Justices any voluntary instrument is presented for registration, shall be
Cancio C. Garcia and Godardo A. Jacinto concurring. conclusive authority from the registered owner to the Register of
2
Civil Case No. 89-5772. Deeds to enter a new certificate or to make a memorandum of
3
Branch 142, Makati, National Capital Judicial Region, presided registration in accordance with such instrument, and the new
by Judge Salvador P. De Guzman, Jr. certificate or memorandum shall be binding upon the registered
4
Dated 29 August 1991. owner and upon all persons claiming under him, in favor of every
5
The typewritten figure "30" was corrected in ink to "15". purchaser for value and in good faith.
6
The italicized portions were also handwritten in ink and initialed x x x.
by Chua. 37
Garcia v. Court of Appeals, G.R. Nos. L-48971 and 49011, 22
7
Annex "A," Records, p. 7. January 1980, 95 SCRA 380.
8
TSN, 24 July 1990, pp. 20-28. 38
Sections 51 and 52, Property Registration Decree (PD
9
Exhibit "8," Records, p. 140. No.1529).
10
TSN, 25 January 1990, p. 87. 39
Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et al. v. De
11
Exhibit "B," Records, pp. 107-109. Suazo, 124 Phil.1138 (1966); Philippine Suburban Development
12
Exhibit "C," Records, pp. 110-112. Corp. v. Auditor General, G.R. No. L-19545, 18 April 1975, 63
13
Records, p. 73. SCRA 397.
14
TSN, 25 January 1990, p. 226. 40
Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11 November
15
Exhibit "9," Records, p. 141. 1987, 155 SCRA 506.
16
TSN, 24 July 1989, p. 37. 41
Mirasol v. Yusay, et al., 120 Phil. 407 (1964).
17
TSN, 5 February 1990, pp. 37-38.
18
Rollo, pp. 71-72.
19
Ibid., p. 62.
20
Rollo, p. 60.
21
Ibid., p. 203.
22
Art. 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After
the demand, the court may not grant him a new term.
23
Rivera v. Court of Appeals, G.R. No. 44111, 10 August 1989,
176 SCRA 169.
24
FMIC v. Court of Appeals, G.R. No. 85141, 28 November
1989, 179 SCRA 638.
25
Salazar v. Court of Appeals, G.R. No. 118203, 5 July 1996,
258 SCRA 317.
26
Philippine National Bank v. Court of Appeals, G.R. No.
119580, 26 September 1996, 262 SCRA 464.
27
Alfonso v. Court of Appeals, G.R. No. 63745, 8 June 1990,
186 SCRA 400.
28
TSN, 5 February 1990, pp. 33-34.
29
Salazar v. Court of Appeals, supra, see note 25.
30
Roque v. Lapuz, G.R. No. L-32811, 31 March 1980, 96 SCRA
741.
31
Alfonso v. Court of Appeals, supra, see note 27.
32
Rollo, pp. 60-61.
33
ARTURO M. TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, VOL. V, p. 51 (1992).
34
Exhibit "B," Records, pp. 51-53.
35
Exhibit "C," Records, pp. 54-54-(A).
36
Section 53 of PD No. 1529 provides:
Section 53. Presentation of owner's duplicate upon entry of new
certificate. — No voluntary instrument shall be registered by the
Register of Deeds, unless the owner's duplicate certificate is
presented with such instrument, except in cases expressly