FIRST DIVISION letter.

4 The parties failed to arrive at an amicable settlement. Thus, Mendoza filed a

G.R. No. 147575             October 22, 2004
TERESITA B. MENDOZA, petitioner,
vs.
BETH DAVID, respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the Decision2 dated 10 October 2000 and the Resolution
dated 20 March 2001 of the Court of Appeals in CA-G.R. SP No. 58087. The Court of
Appeals dismissed Teresita B. Mendoza’s ("Mendoza") petition for review for being
insufficient in form and substance and denied her motion to reconsider the Decision.
The Facts
3 held that David is not liable to return the deposit Mendoza paid. The MTC found there
This case  arose from an action for collection of money with damages that Mendoza
filed against Beth David ("David") before the Metropolitan Trial Court of Quezon City
("MTC"), Branch 35.
In her complaint, Mendoza alleged that on 17 February 1997, she ordered three sets of
furniture from David worth ₱185,650 and paid an initial deposit of ₱40,650. Mendoza
and David agreed on the specifications of the dining set, sofa set and tea set including
the material and quality. On 18 February 1997, Mendoza cancelled some of the
furniture she ordered and David agreed to the cancellation. On 12 April 1997, Mendoza
paid an additional deposit of ₱40,000.
When David delivered the dining set to Mendoza on 17 April 1997, Mendoza rejected
the set because of inferior material and poor quality. Mendoza likewise rejected the
sala set and the tea set for the same reason. When Mendoza requested a refund of her
total deposit of ₱80,650, David refused. Mendoza then sent David a letter dated 27
May 1997 demanding the refund of her deposit but David ignored the demand
complaint for collection of money with damages.5
In her Answer, David admitted that she and Mendoza agreed on the material and
quality of the furniture Mendoza ordered since that was the normal practice for "made
to order" furniture. David stated that on 17 April 1997, she delivered some of the
furniture which was received by Mendoza’s father. However, Mendoza could not pay
the balance of the price and requested payment on installment which David rejected.
As a result of Mendoza’s non-payment, David reclaimed the furniture already delivered
and informed Mendoza she could get the furniture upon payment of the balance of
₱105,000. In the meantime, David stored the furniture in her warehouse. When David
received Mendoza’s demand letter, she refused to comply with Mendoza’s request for
a refund of the deposit since all the three sets of furniture Mendoza ordered were
already finished and delivered on the agreed date. David only retrieved the furniture
due to non-payment of the balance. 6
On 2 August 1999, the MTC dismissed Mendoza’s complaint for lack of merit. The MTC
was already a perfected contract of sale which imposes reciprocal obligations on the
parties. Mendoza is obligated to pay the balance of the purchase price while David is
obligated to deliver the three sets of furniture to Mendoza upon payment of the
purchase price.
The MTC found no proof of breach of contract on David’s part. Mendoza failed to
present any evidence that the furniture David delivered to her on 17 April 1997 was not
in accordance with the agreed specifications. Besides, the order receipt for the sofa set,
tea set and dining set contained no specifications on the required material or the
quality of workmanship.
Mendoza appealed to the Regional Trial Court of Quezon City ("RTC"), Branch 105,
which modified the decision of the MTC. The dispositive portion of the RTC’s decision
reads:
WHEREFORE, in the light of the foregoing, the decision appealed from is affirmed with
MODIFICATION in that the plaintiff-appellant is ordered to pay to the defendant within
sixty (60) days from receipt of this decision the amount of ₱55,850.00, with legal
interest from 17 April 1997 until fully paid; otherwise, the deposit of ₱80,650.00 will be
deemed forfeited and the defendant-appellee shall, thereafter, be authorized to
dispose of the subject furniture. Upon timely payment of said obligation by the
plaintiff-appellant to the defendant-appellee, the latter is ordered to deliver the subject
furniture to the former.7
The RTC agreed with the MTC that there was a perfected contract of sale. The RTC
found that Mendoza failed to present any proof to show that the furniture delivered
was not in accordance with the agreed specifications. Applying the doctrine of caveat
emptor, the RTC held that Mendoza should have specified in writing the details of her
order. However, the RTC held that the remaining balance for the furniture ordered was
only ₱55,850 since the total purchase price was reduced to ₱136,500 8 because of the
cancelled orders.
Mendoza filed a petition for review with the Court of Appeals. On 10 October 2000, the
Court of Appeals dismissed the petition for being insufficient in form and substance.
The Court of Appeals held that failure to append the complaint, answer, position
papers, memoranda and other evidence is sufficient ground to dismiss the petition,
citing Sections 2 and 3, Rule 42 of the 1997 Rules of Civil Procedure. Nevertheless,
despite the absence of pleadings and other pertinent documents, the Court of Appeals
ruled that there is no basis for Mendoza’s claim that the furniture sets did not meet the
agreed specifications. Relying merely on the decisions of the MTC and the RTC, the
Court of Appeals held that factual findings of the lower courts are entitled to great
weight and should not be disturbed except for cogent reasons. 9
On 6 November 2000, Mendoza filed a motion for reconsideration which the Court of
Appeals denied. Hence, the instant petition.
The Issues
Mendoza raises the following issues:
1. Whether the Court of Appeals erred in dismissing the petition for review on the
ground that Mendoza failed to attach the required documents to the petition despite
subsequent compliance by Mendoza in her motion for reconsideration.
2. Whether the Court of Appeals erred in dismissing the petition despite the fact that
the transaction between the parties was one of sale by description or sample.
The Ruling of the Court
We find the petition partly meritorious. Mendoza substantially complied with the
formal requirements when she filed her motion for reconsideration with the Court of
Appeals. However, to avoid further delay, the Court will resolve the petition on the
merits instead of remanding the case to the Court of Appeals.
Compliance with the Formal Requirements
The Court of Appeals dismissed the case based on Sections 2 and 3, Rule 42 of the 1997
Rules of Civil Procedure which read:
SEC. 2. Form and contents. – The petition shall be filed in seven (7) legible copies, with
the original copy intended for the court being indicated as such by the petitioner, and
shall (a) state the full names of the parties to the case, without impleading the lower
courts or judges thereof either as petitioners or respondents; (b) indicate the specific
material dates showing that it was filed on time; (c) set forth concisely a statement of
the matters involved, the issues raised, the specification of errors of fact or law, or
both, allegedly committed by the Regional Trial Court, and the reasons or arguments
relied upon for the allowance of the appeal; (d) be accompanied by clearly legible
duplicate originals or true copies of the judgments or final orders of both lower courts,
certified correct by the clerk of court of the Regional Trial Court, the requisite number
of plain copies thereof and of the pleadings and other material portions of the record
as would support the allegations of the petition.
xxx
SEC. 3. Effect of failure to comply with requirements. – The failure of the petitioner to
comply with any of the foregoing requirements regarding the payment of the docket
and other lawful fees, the deposit for costs, proof of service of the petition, and the
contents of and the documents which should accompany the petition shall be sufficient
ground for the dismissal thereof. (Emphasis supplied)
However, Section 6, Rule 1 of the 1997 Rules of Civil Procedure also provides that rules
shall be liberally construed in order to promote their objective of securing a just,
speedy and inexpensive disposition of every action and proceeding. Indeed, rules of
procedure should be used to promote, not frustrate justice. 10 This Court has ruled
against the dismissal of appeals based solely on technicalities in several cases,
especially when the appellant had substantially complied with the formal
requirements.11
In Donato v. Court of Appeals, 12 the Court of Appeals dismissed the petition on two
grounds: (a) the certificate of non-forum shopping was signed by petitioner’s counsel
and not by petitioner himself; 13 and (b) only a certified copy of the questioned decision
was annexed to the petition leaving out copies of the pleadings and other material
portions of the record to support the allegations of the petition. This Court reversed
the Court of Appeals’ dismissal of the case since in petitioner’s motion for
reconsideration, he submitted a certificate of non-forum shopping signed by him and
attached copies of the pleadings and material portions of the records. This Court
considered the subsequent filing of the certification of non-forum shopping duly signed
by petitioner himself as substantial compliance which justifies relaxation of the rule. As
regards the failure to attach the necessary pleadings and material portions of the
records, this Court held:
In like manner, the failure of the petitioner to comply with Section 3, paragraph b, Rule
6 of the RIRCA, that is, to append to his petition copies of the pleadings and other
material portions of the records as would support the petition, does not justify the
outright dismissal of the petition. It must be emphasized that the RIRCA gives the
appellate court a certain leeway to require parties to submit additional documents as
may be necessary in the interest of substantial justice. Under Section 3, paragraph d of
Rule 3 of the RIRCA, the CA may require the parties to complete the annexes as the
court deems necessary, and if the petition is given due course, the CA may require the
elevation of a complete record of the case as provided for under Section 3(d)(5) of Rule
6 of the RIRCA. At any rate, petitioner attached copies of the pleadings and other
material portions of the records below with his motion for reconsideration. In Jaro vs.
Court of Appeals, the Court reiterated the doctrine laid down in Cusi-Hernandez vs.
Diaz and Piglas-Kamao vs. National Labor Relations Commission that subsequent
submission of the missing documents with the motion for reconsideration amounts to
substantial compliance which calls for the relaxation of the rules of procedure. xxx
(Emphasis supplied)
Similarly, in this case, although Mendoza failed to append the pleadings and pertinent
documents in her petition to the Court of Appeals, Mendoza rectified her error by filing
a motion for reconsideration and appending the pleadings and documents required by
the Court of Appeals. Mendoza appended copies of the following pleadings and
documents in her motion for reconsideration:
1. Complaint filed in the MTC (Annex A)
2. David’s Answer (Annex B)
3. Pre-Trial Order of the MTC (Annex C)
4. Mendoza’s Memorandum filed in the MTC (Annex D)
5. David’s Memorandum filed in the MTC (Annex E)
6. Mendoza’s Memorandum filed in the RTC (Annex F)
7. David’s Comment to the Motion for Reconsideration of Mendoza (Annex G)
The Complaint that Mendoza appended also contained the following annexes: (a) the
sales invoice dated 17 February 1997 which indicated the total deposit for the furniture
ordered; (b) the letter of Mendoza to David dated 27 May 1997 demanding the return
of the ₱80,650 deposit; and (c) the certification to file action from the Office of the
Barangay Captain of Barangay Pasong Tamo, Quezon City.
Instead of denying the Motion for Reconsideration, the Court of Appeals should have
ruled on the merits of the case considering that Mendoza already submitted the
pleadings and documents required by the Court of Appeals. The rules of procedure are
designed to ensure a fair, orderly and expeditious disposition of cases. 14 As much as
possible, appeals should not be dismissed on a mere technicality in order to afford the
litigants the maximum opportunity for the adjudication of their cases on the merits. 15
Reliance on the Factual Findings of the Lower Courts
Likewise, the Court of Appeals should have refrained from hastily dismissing the
petition through the expediency of applying the doctrine that factual findings of the
lower courts are entitled to great weight. The doctrine is applicable where there is
substantial evidence to support the findings of fact by the lower court as borne by the
records of the case. 16 In this case, the Court of Appeals admitted that without the
pertinent documents and pleadings, it is deprived of a full opportunity to know all the
facts and issues involved in the case. 17 The doctrine therefore is not applicable
considering the absence of the records of the case to determine whether substantial
evidence supports the factual findings of the lower court. Instead of relying on the
doctrine, the Court of Appeals could have required Mendoza to submit additional
documents in accordance with Section 3 (d), Rule 3 of the Revised Internal Rules of the
Court of Appeals18 so that it would have a basis for its ruling. Furthermore, the Court of
Appeals could order the Clerk of the RTC to elevate the original records of the case for
a complete adjudication of the case.19
Made to Order or Sale by Description or Sample?
David alleges that the three sets of furniture were "made to order" in accordance with
the usual practice of furniture stores. On the other hand, Mendoza insists that the
transaction was a sale by sample or description which can be rescinded as provided
under Article 148120 of the Civil Code.
There is a sale by sample when a small quantity is exhibited by the seller as a fair
specimen of the bulk, which is not present and there is no opportunity to inspect or
examine the same.21 To constitute a sale by sample, it must appear that the parties
treated the sample as the standard of quality and that they contracted with reference
to the sample with the understanding that the product to be delivered would
correspond with the sample.22 In a contract of sale by sample, there is an implied
warranty that the goods shall be free from any defect which is not apparent on
reasonable examination of the sample and which would render the goods
unmerchantable.23
There is a sale of goods by description where "a seller sells things as being of a
particular kind, the buyer not knowing whether the seller’s representations are true or
false, but relying on them as true; or as otherwise stated, where the buyer has not seen
the article sold and relies on the description given to him by the seller, or has seen the
goods, but the want of identity is not apparent on inspection." 24 A seller’s description
of the goods which is made part of the basis of the transaction creates a warranty that
the goods will conform to that description. 25 Where the goods are bought by
description from a seller who deals in the goods of that description, there is an implied
warranty that the goods are of merchantable quality. 26
Whether a transaction is a sale by sample, a sale by description or "made to order" is a
question of fact for the trial court to decide from the evidence presented. In this case,
the MTC found that there was a consummated "made to order" agreement between
Mendoza and David.
The Court agrees with the MTC that the transaction in this case was a "made to order"
agreement. There is nothing in the records which would show that the intent of the
parties was for a sale by sample or description. Whether a sale is by sample or
description depends upon the facts disclosing the intention of the parties. Other than
Mendoza’s bare allegations that the transaction was a sale by sample or description,
Mendoza failed to produce evidence to substantiate her claim.
The sale of furniture in this case is not a sale by sample. The term sale by sample does
not include an agreement to manufacture goods to correspond with the pattern. 27 In
this case, the three sets of furniture were manufactured according to the specifications
provided by the buyer. Mendoza did not order the exact replica of the furniture
displayed in David’s shop but made her own specifications on the measurement,
material and quality of the furniture she ordered.
Neither is the transaction a sale by description. Mendoza did not rely on any
description made by David when she ordered the furniture. Mendoza inspected the
furniture displayed in David’s furniture shop and made her own specifications on the sets of furniture Mendoza ordered upon her payment of the balance of the purchase
three sets of furniture she ordered. price with interest.

Breach of Contract Not Proven SO ORDERED.

It is undisputed that there was a perfected contract of sale of furniture between

Mendoza and David. The three sets of furniture were delivered or ready for delivery
within the agreed period. The issue for resolution is whether there was breach of
contract on David’s part. The Court finds none.

Part of the exhibits David submitted to the MTC were pictures of the sets of furniture
Mendoza ordered. The MTC found the furniture to be strictly in accordance with the
tenor of the contract between Mendoza and David. The MTC and the RTC, noting the
lack of written specifications on the material and quality of the furniture ordered, held
that Mendoza failed to present any proof to show that the furniture was not in
accordance with the agreed specifications. The records show that the parties agreed
that the furniture should be made of narra. Mendoza admitted that the furniture
delivered was made of narra but was of inferior quality. She also complained of deep
nail marks and rough surface at the back of the table and chairs. However, Mendoza
failed to prove these allegations.

In civil cases, the burden of proof 28 rests on the party who asserts the affirmative of an
issue based on the pleadings or the nature of the case. 29 In this case, the burden lies on
Mendoza who must prove her allegation that there was breach of contract. After
reviewing the records of the case, the Court finds that Mendoza failed to substantiate
her claim of breach of contract. Mendoza failed to present any evidence to overcome
the presumption that the transaction was fair and regular. 30

WHEREFORE, the Decision of the Court of Appeals dated 10 October 2000 and the
Resolution dated 20 March 2001 are MODIFIED. Petitioner Teresita B. Mendoza is
ordered to pay respondent Beth David the amount of ₱55,850 with interest at 6% per
annum from 17 April 1997 until finality of this Decision and 12% per annum thereafter
until full payment. Beth David is ordered to deliver to Teresita B. Mendoza the three
 THIRD DIVISION
G.R. No. 189609, January 29, 2018
VICTORIA N. RACELIS, IN HER CAPACITY AS ADMINISTRATOR, Petitioner, v. SPOUSES
GERMIL JAVIER AND REBECCA JAVIER, Respondents.
D E C I S I O N LEONEN, J.:
Lessees are entitled to suspend the payment of rent under Article 1658 of the Civil
Code if their legal possession is disturbed. Acts of physical disturbance that do not
affect legal possession is beyond the scope of this rule.
In a contract to sell, the payment of earnest money represents the seller's opportunity
cost of holding in abeyance the search for other buyers or better deals. Absent proof of
a clear agreement to the contrary, it should be forfeited if the sale does not happen
without the seller's fault. The potential buyer bears the burden of proving that the
earnest money was intended other than as part of the purchase price and to be
forfeited if the sale does not occur without the seller's fault.
Through this Petition for Review,1 petitioner Victoria N. Racelis (Racelis) challenges the
Court of Appeals January 13, 2009 Decision 2 and September 17, 2009
Resolution,3 which ordered her to reimburse the sum of P24,000.00 to respondents
Spouses Germil Javier and Rebecca Javier (the Spouses Javier).
Before his death, the late Pedro Nacu, Sr. (Nacu) appointed his daughter, Racelis, 4 to
administer his properties, 5 among which was a residential house and lot located in
Marikina City.6 Nacu requested his heirs to sell this property first. 7 Acting on this
request, Racelis immediately advertised it for sale.8
In August 2001, the Spouses Javier offered to purchase the Marikina property.
However, they could not afford to pay the price of P3,500,000.00. 9 They offered instead
to lease the property while they raise enough money. Racelis hesitated at first but she
eventually agreed.10 The parties agreed on a month-to-month lease and rent of
P10,000.00 per month.11 This was later increased to P11,000.00. 12 The Spouses Javier
used the property as their residence and as the site of their tutorial school, the Niño
Good Shepherd Tutorial Center.13
Sometime in July 2002, Racelis inquired whether the Spouses Javier were still
interested to purchase the property. The Spouses Javier reassured her of their
commitment and even promised to pay P100,000.00 to buy them more time within
which to pay the purchase price.14
On July 26, 2002, the Spouses Javier tendered the sum of P65,000.00 representing
"initial payment or goodwill money." 15 On several occasions, they tendered small sums
of money to complete the promised P100,000.00, 16 but by the end of 2003, they only
delivered a total of P78,000.00. 17 Meanwhile, they continued to lease the property.
They consistently paid rent but started to fall behind by February 2004. 18
Realizing that the Spouses Javier had no genuine intention of purchasing the property,
Racelis wrote to inform them that her family had decided to terminate the lease
agreement and to offer the property to other interested buyers. 19 In the same letter,
Racelis demanded that they vacate the property by May 30, 2004. 20 Racelis also stated
that:
It is a common practice that earnest money will be forfeited in favor
of the seller if the buyer fails to consummate [the] sale after the
lapse of a specified period for any reason so that we have the legal
right to forfeit your P78,000 on account of your failure to pursue the
purchase of the property you are leasing. However, as a
consideration to you, we undertake to return to you the said
amount after we have sold the property and received the purchase
price from [the] prospective buyer.21
The Spouses Javier refused to vacate due to the ongoing operation of their tutorial
business. They wrote Racelis on March 16, 2004, informing her of their inability to
purchase the property at P3,500,000.00 because "Mrs. Rebecca Javier's plan for
overseas employment did not materialize." 22 They also informed her that they had
"purchased a more affordable lot."23 They insisted that the sum of P78,000.00 was
advanced rent and proposed that this amount be applied to their outstanding liability
until they vacate the premises.24
Disagreeing on the application of the P78,000.00, Racelis and the Spouses Javier
brought the matter to the barangay for conciliation. Unfortunately, the parties failed to
reach a settlement.25 During the proceedings, Racelis demanded the Spouses Javier to
vacate the premises by the end of April 30, 2004. 26 However, the Spouses Javier
refused to give up possession of the property and even refused to pay rent for the
succeeding months.27
On May 12, 2004, Racelis caused the disconnection of the electrical service over the
property forcing the Spouses Javier to purchase a generator. 28 This matter became the
subject of a complaint for damages filed by the Spouses Javier against Racelis. 29 Racelis
was absolved from liability.30 The Spouses Javier no longer interposed an appeal.31
Meanwhile, Racelis filed a complaint for ejectment against the Spouses Javier before
the Metropolitan Trial Court in Marikina City. The case was docketed as Civil Case No.
04-7710.32
In her Complaint,33 Racelis alleged that she agreed to lease the property to the Spouses
Javier based on the understanding that they would eventually purchase it. 34 Racelis also
claimed that they failed to pay rent from March 2004 to September 2004 35 and the
balance of P7,000.00 for the month of February, or a total of P84,000.00. 36 Racelis
prayed that the Spouses Javier be ordered to: (1) vacate the leased premises; (2) pay
accrued rent; and (3) pay moral and exemplary damages, and attorney's fees. 37
In their Answer,38 the Spouses Javier averred that they never agreed to purchase the
property from Racelis because they found a more affordable property at Greenheights
Subdivision in Marikina City. They claimed that the amount of P78,000.00 was actually
advanced rent.39
During trial, the Spouses Javier vacated the property and moved to their new residence
at Greenheights Subdivision40 on September 26, 2004. 41 The Metropolitan Trial Court
then determined that the only issue left to be resolved was the amount of damages in
the form of unpaid rentals to which Racelis was entitled. 42
On August 19, 2005, the Metropolitan Trial Court rendered a Decision 43 dismissing the
complaint. It ruled that the Spouses Javier were entitled to suspend the payment of
rent under Article 1658 of the Civil Code due to Racelis' act of disconnecting electric
service over the property.44 The Metropolitan Trial Court declared that the Spouses
Javier's obligation had been extinguished. Their advanced rent and deposit were
sufficient to cover their unpaid rent. 45
The Metropolitan Trial Court, however, did not characterize the P78,000.00 as
advanced rent but as earnest money. Accordingly, Racelis was ordered to return the
P78,000.00 due to her waiver in the Letter dated March 4, 2004.46
On appeal, the Regional Trial Court rendered a Decision 47 reversing the Metropolitan
Trial Court August 19, 2005 Decision. The Regional Trial Court held that the Spouses
Javier were not justified in suspending rental payments. 48 However, their liability could
not be offset by the P78,000.00. The Regional Trial Court explained that the parties
entered into two (2) separate and distinct contracts—a lease contract and a contract of
sale. Based on the evidence presented, the P78,000.00 was not intended as advanced
rent, but as part of the purchase price of the property. 49 The Regional Trial Court
ordered the Spouses Javier to pay accrued rent and declared that they may recover the
P78,000.00 in a separate proceeding.50
The Spouses Javier moved for reconsideration. In its April 24, 2007 Order, 51 the
Regional Trial Court reduced the Spouses Javier's unpaid rentals by their advanced
rental deposit. They were ordered to pay P54,000.00 instead.52
The Spouses Javier appealed the Regional Trial Court January 15, 2007 Decision and
April 24, 2007 Order.
On January 13, 2009, the Court of Appeals rendered a Decision 53 declaring the Spouses
Javier justified in withholding rental payments due to the disconnection of electrical
service over the property.54 Nevertheless, the Court of Appeals stated that they were
not exonerated from their obligation to pay accrued rent. On the other hand, Racelis
was bound to return the sum of P78,000.00 in view of her waiver. The Court of
Appeals, by way of compensation, reduced the liability of the Spouses Javier by their
advanced rent and the sum of P78,000.00. Accordingly, Racelis was ordered to
reimburse the amount of P24,000.00 to the Spouses Javier. 55 The dispositive portion of
this Decision stated:
WHEREFORE, in view of the foregoing, the petition is GRANTED. The
assailed decision is REVERSED and SET ASIDE. Herein respondent
RACELIS is ordered to reimburse herein petitioners in the amount of
P24,000.00 on the counterclaim. SO ORDERED.56
Racelis moved for reconsideration but her motion was denied in the Court of Appeals
September 17, 2009 Resolution.57
On November 25, 2009, Racelis filed a Petition for Review 58 before this Court to which
the Spouses Javier filed a Comment.59 On July 1, 2010, Racelis filed a Reply.60
Petitioner asserts that the Court of Appeals erred in applying Article 1658 of the Civil
Code in favor of respondents. Respondents cannot invoke the right given to lessees
under Article 1658 of the Civil Code. Petitioner claims that she was justified in causing
the temporary disconnection of electrical service over the property because
respondents were remiss in paying rent. However, assuming that respondents were
entitled to suspend the payment of rent pursuant to Article 1658 of the Civil Code,
petitioner argues that the suspension should only be temporary or for an intervening
period.61
Petitioner likewise claims that she did not expressly waive her right over the initial
payment of P78,000.00 but merely extended an offer to reimburse this amount, which
respondents rejected. Hence, she is entitled to retain it and it cannot be used to offset
respondents' accrued rent.62
Respondents do not dispute their liability to pay accrued rent. However, they insist that
their liability should be offset by the initial payment of P78,000.00. Respondents argue
that petitioner waived her right over this, amount. Hence, it can be applied to pay their
obligation.63
The issues for this Court's resolution are:
First, whether or not respondents Spouses Germil and Rebecca Javier can invoke their
right to suspend the payment of rent under Article 1658 of the Civil Code; and
Second, whether or not the P78,000.00 initial payment can be used to offset Spouses
Germil and Rebecca Javier's accrued rent.
I
A contract of lease is a "consensual, bilateral, onerous and commutative contract by
which the owner temporarily grants the use of his property to another who undertakes
to pay rent therefor."64
Article 1658 of the Civil Code allows a lessee to postpone the payment of rent if the
lessor fails to either (1) "make the necessary repairs" on the property or (2) "maintain
the lessee in peaceful and adequate enjoyment of the property leased." This provision
implements the obligation imposed on lessors under Article 1654(3) of the Civil Code. 65
The failure to maintain the lessee in the peaceful and adequate enjoyment of the
property leased does not contemplate all acts of disturbance. 66 Lessees may suspend
the payment of rent under Article 1658 of the Civil Code only if their legal possession is
disrupted.67 In Goldstein v. Roces:68
Nobody has in any manner disputed, objected to, or placed any
difficulties in the way of plaintiff's peaceful enjoyment, or his quiet
and peaceable possession of the floor he occupies. The lessors,
therefore, have not failed to maintain him in the peaceful enjoyment
of the floor leased to him and he continues to enjoy this status
without the slightest change, without the least opposition on the
part of any one.  That there was a disturbance of the peace or order
in which he maintained his things in the leased story does not mean
that he lost the peaceful enjoyment of the thing rented.  The peace
would likewise have been disturbed or lost had some tenant of the
Hotel de Francia, living above the floor leased by plaintiff, The principle in Goldstein was reiterated in Chua Tee Dee v. Court of Appeals.70
continually poured water on the latter's bar and sprinkled his bar-
tender and his customers and tarnished his furniture; or had some In  Chua Tee Dee, the lease contract stated that the lessor was obliged to "maintain the
gay patrons of the hotel gone down into his saloon and broken his [lessee] in the quiet peaceful possession and enjoyment of the leased premises during
crockery or glassware, or stunned him with deafening the effectivity of the lease."71 The lessees were harassed by claimants of the leased
noises.  Numerous examples could be given to show how the lessee property. Hence, the lessee withheld rental payments for the lessor's failure to comply
might fail peacefully to enjoy the floor leased by him, in all of which with his contractual obligation.72
cases he wo[u]ld, of course, have a right of action for the recovery of
damages from those who disturbed his peace, but he would have no
Citing Goldstein, this Court in Chua Tee Dee struck down the lessee's argument and
action against the lessor to compel the latter to maintain him in his
held that "[t]he duty 'to maintain the lessee in the peaceful and adequate enjoyment of
peaceful enjoyment of the thing rented. The lessor can do nothing,
the lease for the duration of the contract' mentioned in [N]o. 3 of [Article 1654] is
nor is it incumbent upon him to do anything, in the examples or
merely a warranty that the lessee shall not be disturbed in his legal, and not physical,
cases mentioned, to restore his lessees peace.
possession." Furthermore, this Court found that there was no disturbance in the
lessee's legal possession because her right to possess the property was neither
.... questioned nor raised as an issue in any legal proceeding. Hence, she was not entitled
to suspend the payment of rent.73
True it is that, pursuant to paragraph 3, of article
1554, the lessor must maintain the lessee in the In this case, the disconnection of electrical service over the leased premises on May 14,
peaceful enjoyment of the lease during all of the 200474 was not just an act of physical disturbance but one that is meant to remove
time covered by the contract, and that, in respondents from the leased premises and disturb their legal possession as lessees.
consequence thereof, he is obliged to remove Ordinarily, this would have entitled respondents to invoke the right accorded by Article
such obstacles as impede said enjoyment; but, as 1658 of the Civil Code.
in warranty in a case of eviction (to which
doctrine the one we are now examining is very
However, this rule will not apply in the present case because the lease had already
similar, since it is necessary, as we have
expired when petitioner requested for the temporary disconnection of electrical
explained, that the cause of eviction be in a
service. Petitioner demanded respondents to vacate the premises by May 30,
certain manner imputable to the vendor, which
2004.75 Instead of surrendering the premises to petitioner, respondents unlawfully
must be understood as saying that it must be
withheld possession of the property. Respondents continued to stay in the premises
prior to the sale), the obstacles to enjoyment
until they moved to their new residence on September 26, 2004. 76 At that point,
which the lessor must remove are those that in
petitioner was no longer obligated to maintain respondents in the "peaceful and
some manner or other cast doubt upon the right
adequate enjoyment of the lease for the entire duration of the contract." 77 Therefore,
by virtue of which the lessor himself executed the
respondents cannot use the disconnection of electrical service as justification to
lease and, strictly speaking, it is this right that the
suspend the payment of rent.
lessor should guarantee to the lessee.69 (Citations
omitted, emphasis supplied)
Assuming that respondents were entitled to invoke their right under Article 1658 of the
Civil Code, this does exonerate them from their obligation under Article 1657 of the
civil Code "to pay the price of the lease according to the terms stipulated." 78 Lessees
who exercise their right under Article 1658 of the Civil Code are not freed from the
obligations imposed by law or contract.
Moreover, respondents' obligation to pay rent was not extinguished when they
transferred to their new residence. Respondents are liable for a reasonable amount of
rent for the use and continued occupation of the property upon the expiration of the
lease. To hold otherwise would unjustly enrich respondents at petitioner's expense.
II
Respondents admit their liability to pay accrued rent for the continued use and
possession of the property. However, they take exception to the proper treatment of
the P78,000.00 initial payment. Throughout the proceedings, respondents insist that
this amount was intended as advanced rent. Hence, it can be used to offset their
obligation.79
Respondents' argument is unmeritorious.
The P78,000.00 initial payment cannot be characterized as advanced rent. First, records
show that respondents continued to pay monthly rent until February 2004 despite
having delivered the P78,000.00 to petitioner on separate dates in 2003. 80 Second, as
observed by the Metropolitan Trial Court, respondents indicated in the receipt that the
P78,000.00 was initial payment or goodwill money. They could have easily stated in the
receipt that the P78,000.00 was advanced rent instead of denominating it as "initial
payment or goodwill money." Respondents even proposed that the initial payment be
used to offset their accrued rent.81
Both the Metropolitan Trial Court and the Regional Trial Court rejected respondents'
assertion that the P78,000.00 was advanced rent and characterized it as earnest
money.82
Under Article 1482 of the Civil Code, whenever earnest money is given in a contract of
sale,83 it shall be considered as "proof of the perfection of the contract." 84 However,
this is a disputable presumption, which prevails in the absence of contrary evidence.
The delivery of earnest money is not conclusive proof that a contract of sale exists. 85
The existence of a contract of sale depends upon the concurrence of the following
elements: (1) consent or meeting of the minds; (2) a determinate subject matter; and
(3) price certain in money or its equivalent.86 The defining characteristic of a contract of
sale is the seller's obligation to transfer ownership of and deliver the subject matter of
the contract. Without this essential feature, a contract cannot be regarded as a sale
although it may have been denominated as such.87
In a contract of sale, title to the property passes to the buyer upon delivery of the thing
sold. In contrast, in a contract to sell, ownership does not pass to the prospective buyer
until full payment of the purchase price. The title of the property remains with the
prospective seller.88
In a contract of sale, the non-payment of the purchase price is a resolutory condition
that entitles the seller to rescind the sale. 89 In a contract to sell, the payment of the
purchase price is a positive suspensive condition that gives rise to the prospective
seller's obligation to convey title. 90 However, non-payment is not a breach of contract
but "an event that prevents the obligation of the vendor to convey title from becoming
effective."91 The contract would be deemed terminated or cancelled, and 92 the parties
stand "as if the conditional obligation had never existed." 93
Based on the evidence on record, petitioner and respondents executed a contract to
sell, not a contract of sale. Petitioner reserved ownership of the property and deferred
the execution of a deed of sale until receipt of the full purchase price. In her Letter
dated March 4, 2004, petitioner stated:
It was our understanding that pending your purchase of the property
you will rent the same for the sum of P10,000.00 monthly. With our
expectation that you will be able to purchase the property during
2002, we did not offer the property for sale to third parties. We even
 gave you an extension verbally for another twelve months or the
entire year of 2003 within which we could finalize the sale
agreement and for you to deliver to us the amount of P3.5 Million,
the agreed selling price of the property. However, to this date, we
are not certain whether or not you have the capacity to purchase
the property. The earnest money of P100,000 that we initially
agreed upon only reached P78,000 as of date accumulated through
several installments during 2003. It is not our intention to wait for a
long time to dispose the property since you are very much aware of
the situation of my mother.94 (Emphasis supplied)
In this case, since respondents failed to deliver the purchase price at the end of 2003,
the contract to sell was deemed cancelled. The contract's cancellation entitles
petitioner to retain the earnest money given by respondents.
Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a perfected
contract of sale.95 However, earnest money may also be given in a contract to sell.
In a contract to sell, earnest money is generally intended to compensate the seller for
the opportunity cost of not looking for any other buyers. It is a show of commitment on
the part of the party who intimates his or her willingness to go through with the sale
after a specified period or upon compliance with the conditions stated in the contract
to sell.
Opportunity cost is defined as "the cost of the foregone alternative." 96 In a potential
sale, the seller reserves the property for a potential buyer and foregoes the alternative
of searching for other offers. This Court in Philippine National Bank v. Court of
Appeals97 construed earnest money given in a contract to sell as "consideration for
[seller's] promise to reserve the subject property for [the buyer]." 98 The seller, "in
excluding all other prospective buyers from bidding for the subject property ... [has
given] up what may have been more lucrative offers or better deals." 99
Earnest money, therefore, is paid for the seller's benefit. It is part of the purchase price
while at the same time proof of commitment by the potential buyer. Absent proof of a
clear agreement to the contrary, it is intended to be forfeited if the sale does not
happen without the seller's fault. The potential buyer bears the burden of proving that
the earnest money was intended other than as part of the purchase price and to be
forfeited if the sale does not occur without the fault of the seller. Respondents were
unable to discharge this burden.
There is no unjust enrichment on the part of the seller should the initial payment be
deemed forfeited. After all, the owner could have found other offers or a better deal.
The earnest money given by respondents is the cost of holding this search in abeyance.
This Court notes that respondents were even unable to meet their own promise to pay
the full amount of the earnest money. Of the P100,000.00 that respondents committed
to pay, only P78,000.00 was received in irregular tranches. To rule that the partial
earnest money should even be returned is both inequitable and would have dire
repercussions as a precedent.
Although petitioner offered to return the earnest money to respondents, it was
conditioned upon the sale of the property to another buyer. 100 Petitioner cannot be
said to have expressly waived her right to retain the earnest money. Petitioner's offer
was even rejected by respondents, who proposed that the earnest money be applied
instead to their unpaid rent.101
Therefore, respondents' unpaid rent amounting to P84,000.00 102 cannot be offset by
the earnest money. However, it should be reduced by respondents' advanced deposit
of P30,000.00. As found by the Regional Trial Court, petitioner failed to establish that
respondents' advanced deposit had already been consumed or deducted from
respondents' unpaid rent.103
WHEREFORE, the Petition for Review is GRANTED. The January 13, 2009 Decision and
September 17, 2009 Resolution of the Court of Appeals in CA-G.R. SP No. 98928
are REVERSED and SET ASIDE. Respondents Spouses Germil and Rebecca Javier are
ordered to pay petitioner Vanessa N. Racelis the sum of P54,000.00, representing
accrued rentals, with interest at the rate of six percent (6%) per annum from the date
of the finality of this judgment until fully paid. SO ORDERED.
 SECOND DIVISION
G.R. No. 199648, January 28, 2015
FIRST OPTIMA REALTY CORPORATION, Petitioner, v. SECURITRON SECURITY
SERVICES, INC., Respondents.
D E C I S I O N DEL CASTILLO, J.:
In a potential sale transaction, the prior payment of earnest money even before the
property owner can agree to sell his property is irregular, and cannot be used to bind
the owner to the obligations of a seller under an otherwise perfected contract of sale;
to cite a well-worn cliché, the carriage cannot be placed before the horse.   The
property owner-prospective seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter’s employment of questionable practices which
prevent the owner from freely giving his consent to the transaction; this constitutes a
palpable transgression of the prospective seller’s rights of ownership over his property,
an anomaly which the Court will certainly not condone.
This Petition for Review on Certiorari1 seeks to set aside: 1) the September 30, 2011
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 93715 affirming the February
16, 2009 Decision3 of the Regional Trial Court (RTC) of Pasay City, Branch 115 in Civil
Case No. 06-0492 CFM; and 2) the CA’s December 9, 2011 Resolution 4 denying the
herein petitioner’s Motion for Reconsideration5 of the assailed judgment.
Factual Antecedents
Petitioner First Optima Realty Corporation is a domestic corporation engaged in the
real estate business.  It is the registered owner of a 256-square meter parcel of land
with improvements located in Pasay City, covered by Transfer Certificate of Title No.
125318 (the subject property). 6  Respondent Securitron Security Services, Inc., on the
other hand, is a domestic corporation with offices located beside the subject property.
Looking to expand its business and add to its existing offices, respondent – through its
General Manager, Antonio Eleazar (Eleazar) – sent a December 9, 2004
Letter7 addressed to petitioner – through its Executive Vice-President, Carolina T.
Young (Young) – offering to purchase the subject property at P6,000.00 per square
meter.  A series of telephone calls ensued, but only between Eleazar and Young’s
secretary;8  Eleazar likewise personally negotiated with a certain Maria Remoso
(Remoso), who was an employee of petitioner.9  At this point, Eleazar was unable to
personally negotiate with Young or the petitioner’s board of directors.
Sometime thereafter, Eleazar personally went to petitioner’s office offering to pay for
the subject property in cash, which he already brought with him.  However, Young
declined to accept payment, saying that she still needed to secure her sister’s advice on
the matter.10  She likewise informed Eleazar that prior approval of petitioner’s Board of
Directors was required for the transaction, to which remark Eleazar replied that
respondent shall instead await such approval.11chanroblesvirtuallawlibrary
On February 4, 2005, respondent sent a Letter 12 of even date to petitioner.  It was
accompanied by Philippine National Bank Check No. 24677 (the subject check), issued
for P100,000.00 and made payable to petitioner.  The letter states
thus:chanRoblesvirtualLawlibrary
Gentlemen:chanRoblesvirtualLawlibrary
As agreed upon, we are making a deposit of ONE HUNDRED
THOUSAND PESOS (Php 100,000.00) as earnest money for your
property at the corner of Layug St., & Lim-An St., Pasay City as per
TCT No. 125318 with an area of 256 sq. m. at 6,000.00/ sq. m. for a
total of ONE MILLION FIVE HUNDRED THIRTY SIX THOUSAND PESOS
(Php 1,536,000.00).
Full payment upon clearing of the tenants at said property and
signing of the Deed of Sale.
(signed)
ANTONIO S. ELEAZAR13
Despite the delicate nature of the matter and large amount involved, respondent did
not deliver the letter and check directly to Young or her office; instead, they were
coursed through an ordinary receiving clerk/receptionist of the petitioner, who thus
received the same and therefor issued and signed Provisional Receipt No. 33430. 14  The
said receipt reads:chanRoblesvirtualLawlibrary
Received from x x x Antonio Eleazar x x x the sum of Pesos One
Hundred Thousand x x x
IN PAYMENT OF THE FOLLOWING x x x
Earnest money or Partial payment of Pasay Property Layug & Lim-an
St. x x x.
Note: This is issued to transactions not yet cleared but
subsequently an Official Receipt will be issued. x x x15
The check was eventually deposited with and credited to petitioner’s bank account.
Thereafter, respondent through counsel demanded in writing that petitioner proceed
with the sale of the property.16  In a March 3, 2006 Letter17 addressed to respondent’s
counsel, petitioner wrote back:chanRoblesvirtualLawlibrary
Dear Atty. De Jesus:chanRoblesvirtualLawlibrary
Anent your letter dated January 16, 2006 received on February 20,
2006, please be informed of the
following:chanRoblesvirtualLawlibrary
1. It was your client SECURITRON SECURITY SERVICES, INC.
represented by Mr. Antonio Eleazar who offered to buy our
property located at corner Layug and Lim-An St., Pasay
City;chanrobleslaw
2. It tendered an earnest money despite the fact that we are
still undecided to sell the said property;chanrobleslaw
3. Our Board of Directors failed to pass a resolution to date
whether it agrees to sell the property;chanrobleslaw
4. We have no Contract for the earnest money nor Contract
to Sell the said property with your client;
Considering therefore the above as well as due to haste and
demands which we feel [are forms] of intimidation and harassment,
we regret to inform you that we are now incline (sic) not to accept
your offer to buy our property.  Please inform your client to
coordinate with us for the refund of this (sic) money.
Very truly yours,
(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18
Ruling of the Regional Trial Court of Pasay City
On April 18, 2006, respondent filed with the Pasay RTC a civil case against petitioner for
specific performance with damages to compel the latter to consummate the supposed
sale of the subject property.  Docketed as Civil Case No. 06-0492 CFM and assigned to
Branch 115 of the Pasay RTC, the Complaint19 is predicated on the claim that since a
perfected contract of sale arose between the parties after negotiations were
conducted and respondent paid the P100,000.00 supposed earnest money – which
petitioner accepted, the latter should be compelled to sell the subject property to the
former.  Thus, respondent prayed that petitioner be ordered to comply with its
obligation as seller, accept the balance of the purchase price, and execute the
corresponding deed of sale in respondent’s favor; and that petitioner be made to pay
P200,000.00 damages for its breach and delay in the performance of its obligations,
P200,000.00 by way of attorney's fees, and costs of suit.
In its Answer with Compulsory Counterclaim, 20 petitioner argued that it never agreed to
sell the subject property; that its board of directors did not authorize the sale thereof
to respondent, as no corresponding board resolution to such effect was issued; that the
respondent’s P100,000.00 check payment cannot be considered as earnest money for
the subject property, since said payment was merely coursed through petitioner’s
receiving clerk, who was forced to accept the same; and that respondent was simply
motivated by a desire to acquire the subject property at any cost.  Thus, petitioner
prayed for the dismissal of the case and, by way of counterclaim, it sought the payment
of moral damages in the amount of P200,000.00; exemplary damages in the amount of
P100,000.00; and attorney’s fees and costs of suit.
In a Reply,21 respondent countered that authorization by petitioner’s Board of Directors
was not necessary since it is a real estate corporation principally engaged in the buying
and selling of real property; that respondent did not force nor intimidate petitioner’s
receiving clerk into accepting the February 4, 2005 letter and check for P100,000.00;
that petitioner’s acceptance of the check and its failure – for more than a year – to
return respondent’s payment amounts to estoppel and a ratification of the sale; and
that petitioner is not entitled to its counterclaim.
After due proceedings were taken, the Pasay RTC issued its Decision dated February 16,
2009, decreeing as follows:chanRoblesvirtualLawlibrary
WHEREFORE, defendant First Optima Realty Corporation is directed
to comply with its obligation by accepting the remaining balance of
One Million Five Hundred Thirty-Six Thousand Pesos and Ninety-
Nine Centavos (P1,536,000.99), and executing the corresponding
deed of sale in favor of the plaintiff Securitron Security Services, Inc.
over the subject parcel of land.
No costs.
SO ORDERED.22
In ruling for the respondent, the trial court held that petitioner’s acceptance of
P100,000.00 earnest money indicated the existence of a perfected contract of sale
between the parties; that there is no showing that when respondent gave the February
4, 2005 letter and check to petitioner’s receiving clerk, the latter was harassed or
forced to accept the same; and that for the sale of the subject property, no resolution
of petitioner’s board of directors was required since Young was “free to represent” the
corporation in negotiating with respondent for the sale thereof.
Ruling of the Court of Appeals
Petitioner filed an appeal with the CA.  Docketed as CA-G.R. CV No. 93715, the appeal
made out a case that no earnest money can be considered to have been paid to
petitioner as the supposed payment was received by a mere receiving clerk, who was
not authorized to accept the same; that the required board of directors resolution
authorizing the sale of corporate assets cannot be dispensed with in the case of
petitioner; that whatever negotiations were held between the parties only concerned
the possible sale, not the sale itself, of the subject property; that without the written
authority of petitioner’s board of directors, Young cannot enter into a sale of its
corporate property; and finally, that there was no meeting of the minds between the
parties in the first place.
On September 30, 2011, the CA issued the assailed Decision affirming the trial court’s
February 16, 2009 Decision, pronouncing thus:chanRoblesvirtualLawlibrary
Article 1318 of the Civil Code declares that no contract exists unless
the following requisites concur: (1) consent of the contracting
parties; (2) object certain which is the subject matter of the contract;
and (3) cause of the obligation established.
A careful perusal of the records of the case show[s] that there was
indeed a negotiation between the parties as regards the sale of the
subject property, their disagreement lies on whether they have
arrived on an agreement regarding said sale.  Plaintiff-appellee avers
that the parties have already agreed on the sale and the price for it
and the payment of earnest money and the remaining balance upon
clearing of the property of unwanted tenants.  Defendant-appellant
on the other hand disputes the same and insists that there was no
concrete agreement between the parties.
Upon a careful consideration of the arguments of the parties and the
records of the case, we are more inclined to sustain the arguments
of the plaintiff-appellee and affirm the findings of the trial court that
there was indeed a perfected contract of sale between the parties.
The following instances militate against the claim of the defendant-
appellant: First. The letter of the plaintiff-appellee dated February 4,
2005 reiterating their agreement as to the sale of the realty for the
consideration of Php 1,536,000.00 was not disputed nor replied to
by the defendant-appellant, the said letter also provides for the
payment of the earnest money of Php 100,000.00 and the full
payment upon the clearing of the property of unwanted tenants, if
the defendant-appellant did not really agree on the sale of the
property it could have easily replied to the said letter informing the
plaintiff-appellee that it is not selling the property or that the matter
will be decided first by the board of directors, defendant-appellant’s
silence or inaction on said letter shows its conformity or consent
thereto; Second.  In addition to the aforementioned letter,
defendant-appellant’s acceptance of the earnest money and the
issuance of a provisional receipt clearly shows that there was indeed
an agreement between the parties and we do not subscribe to the
argument of the defendant-appellant that the check was merely
forced upon its employee and the contents of the receipt was just
dictated by the plaintiff-appellee’s employee because common
sense dictates that a person would not issue a receipt for a check
with a huge amount if she does not know what that is for and
similarly would not issue [a] receipt which would bind her employer
if she does not have prior instructions to do [so] from her superiors;  
Third. The said check for earnest money was deposited in the bank
by defendant-appellant and not until after one year did it offer to
return the same.  Defendant-appellant cannot claim lack of
knowledge of the payment of the check since there was a letter for
it, and it is just incredible that a big amount of money was deposited
in [its] account [without knowing] about it [or] investigat[ing] what
[it was] for.  We are more inclined to believe that their inaction for
more than one year on the earnest money paid was due to the fact
that after the payment of earnest money the place should be
cleared of unwanted tenants before the full amount of the purchase
price will be paid as agreed upon as shown in the letter sent by the
plaintiff-appellee.
As stated above the presence of defendant-appellant’s consent and,
corollarily, the existence of a perfected contract between the parties
are evidenced by the payment and receipt of Php 100,000.00 as
earnest money by the contracting parties’ x x x.  Under the law on
sales, specifically Article 1482 of the Civil Code, it provides that
whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and proof of the perfection of the
contract.  Although the presumption is not conclusive, as the parties
may treat the earnest money differently, there is nothing alleged in
the present case that would give rise to a contrary presumption.
We also do not find merit in the contention of the defendant-
appellant that there is a need for a board resolution for them to sell
the subject property since it is a corporation, a juridical entity which
acts only thru the board of directors.  While we agree that said rule
is correct, we must also point out that said rule is the general rule
for all corporations [but] a corporation [whose main business is
buying and selling real estate] like herein defendant-appellant, is not
required to have a board resolution for the sale of the realty in the
ordinary course of business, thus defendant-appellant’s claim
deserves scant consideration.
Furthermore, the High Court has held that “a corporate officer or
agent may represent and bind the corporation in transactions with
third persons to the extent that the authority to do so has been
conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course
of the particular business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by custom and
usage, as usually pertaining to the particular officer or agent, and
such apparent powers as the corporation has caused persons
dealing with the officer or agent to believe that it was conferred.”
In the case at bench, it is not disputed and in fact was admitted by
the defendant-appellant that Ms. Young, the Executive Vice- SO ORDERED.23
President was authorized to negotiate for the possible sale of the
subject parcel of land.  Therefore, Ms. Young can represent and bind
defendant-appellant in the transaction.

Moreover, plaintiff-appellee can assume that Ms. Young, by virtue of

her position, was authorized to sell the property of the corporation. 
Selling of realty is not foreign to [an] executive vice[-]president’s
function, and the real estate sale was shown to be a normal business
activity of defendant-appellant since its primary business is the buy
and sell of real estate.  Unmistakably, its Executive Vice-President is
cloaked with actual or apparent authority to buy or sell real
property, an activity which falls within the scope of her general
authority.

Furthermore, assuming arguendo that a board resolution was

indeed needed for the sale of the subject property, the defendant-
appellant is estopped from raising it now since, [it] did not inform
the plaintiff-appellee of the same, and the latter deal (sic) with them
in good faith.  Also it must be stressed that the plaintiff-appellee
negotiated with one of the top officer (sic) of the company thus, any
requirement on the said sale must have been known to Ms. Young
and she should have informed the plaintiff-appellee of the same.

In view of the foregoing we do not find any reason to deviate from

the findings of the trial court, the parties entered into the contract
freely, thus they must perform their obligation faithfully. Defendant-
appellant’s unjustified refusal to perform its part of the agreement
constitutes bad faith and the court will not tolerate the same.
FIRST DIVISION
WHEREFORE, premises considered, the Decision of the Regional Trial G.R. No. 214752, March 09, 2016
Court of Pasay City Branch 115, in Civil Case No. 06-0492 CFM is EQUITABLE SAVINGS BANK, (NOW KNOWN AS THE MERGED ENTITY "BDO UNIBANK,
hereby AFFIRMED. INC.") Petitioner, v. ROSALINDA C. PALCES, Respondent.
D E C I S I O N PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated February 13,
2014 and the Resolution3 dated October 8, 2014 of the Court of Appeals (CA) in CA-G.R.
CV No. 96008, which partially affirmed the Decision 4 dated May 20, 2010 of the
Regional Trial Court of Pasay City, Branch 114 (RTC) in Civil Case No. 07-03 86-CFM and
ordered petitioner Equitable Savings Bank, now BDO Unibank, Inc. (petitioner), to
reimburse respondent Rosalinda C. Palces (respondent) the installments she made in
March 2007 amounting to P103,000.00.
The Facts
On August 15, 2005, respondent purchased a Hyundai Starex GRX Jumbo (subject
vehicle) through a loan granted by petitioner in the amount of P1,196,100.00. In
connection therewith, respondent executed a Promissory' Note with Chattel
Mortgage5 in favor of petitioner, stating, inter alia, that: (a) respondent shall pay
petitioner the aforesaid amount in 36-monthly installments of P33,225.00 per month,
beginning September 18, 2005 and every 18th of the month thereafter until full
payment of the loan; (b) respondent's default in paying any installment renders the
remaining balance due and payable; and (c) respondent's failure to pay any
installments shall give petitioner the right to declare the entire obligation due and
payable and may likewise, at its option, x x x foreclose this mortgage; or file an ordinary
civil action for collection and/or such other action or proceedings as may be allowed
under the law.6
From September 18, 2005 to December 21, 2006, respondent paid the monthly
installment of P33,225.00 per month. However, she failed to pay the monthly
installments in January and February 2007, thereby triggering the acceleration clause
contained in the Promissory Note with Chattel Mortgage 7 and prompting petitioner to
send a demand letter8 dated February 22, 2007 to compel respondent to pay the
remaining balance of the loan in the amount of P664,500.00. 9 As the demand went
unheeded, petitioner filed on March 7, 2007 the instant Complaint for Recovery of
Possession with Replevin with Alternative Prayer for Sum of Money and
Damages10 against respondent before the RTC, praying that the court a quo: (a) issue a
writ of replevin ordering the seizure of the subject vehicle and its delivery to petitioner;
or (b) in the alternative as when the recovery of the subject vehicle cannot be effected,
to render judgment ordering respondent to pay the remaining balance of the loan,
including penalties, charges, and other costs appurtenant thereto. 11
Pending respondent's answer, summons 12 and a writ of replevin13 were issued and
served to her personally on April 26, 2007, and later on, a Sheriffs Return 14 dated May
8, 2007 was submitted as proof of the implementation of such writ. 15
In her defense,16 while admitting that she indeed defaulted on her installments for
January and February 2007, respondent nevertheless insisted that she called petitioner
regarding such delay in payment and spoke to a bank officer, a certain Rodrigo
Dumagpi, who gave his consent thereto. Respondent then maintained that in order to
update her installment payments, she paid petitioner the amounts of P70,000.00 on
March 8, 2007 and P33,000.00 on March 20, 2007, or a total of P103,000.00. Despite
the aforesaid payments, respondent was surprised when petitioner filed the instant
complaint, resulting in the sheriff taking possession of the subject vehicle. 17
The RTC Ruling
In a Decision18 dated May 20, 2010, the RTC ruled in petitioner's favor and, accordingly,
confirmed petitioner's right and possession over the subject vehicle and ordered
respondent to pay the former the amount of P15,000.00 as attorney's fees as well as
the costs of suit.19
The RTC found that respondent indeed defaulted on her installment payments in
January and February 2007, thus, rendering the entire balance of the loan amounting
to P664,500.00 due and demandable. In this relation, the RTC observed that although
respondent made actual payments of the installments due, such payments were all late
and irregular, and the same were not enough to fully pay her outstanding obligation,
considering that petitioner had already declared the entire balance of the loan due and
demandable. However, since the writ of replevin over the subject vehicle had already
been implemented, the RTC merely confirmed petitioner's right to possess the same
and ruled that it is no longer entitled to its alternative prayer, i.e., the payment of the
remaining balance of the loan, including penalties, charges, and other costs
appurtenant thereto.20
Respondent moved for reconsideration,21 but was denied in an Order22 dated August
31, 2010. Dissatisfied, respondent appealed 23 to the CA, contending that petitioner
acted in bad faith in seeking to recover more than what is due by attempting to collect
the balance of the loan and, at the same time, recover the subject vehicle. 24
The CA Ruling
In a Decision25 dated February 13, 2014, the CA affirmed the RTC ruling with
modification: (a) ordering petitioner to return the amount of P103,000.00 to
respondent; and (b) deleting the award of attorney's fees in favor of petitioner for lack
of sufficient basis. It held that while respondent was indeed liable to petitioner under
the Promissory Note with Chattel Mortgage, petitioner should not have accepted
respondent's late partial payments in the aggregate amount of P103,000.00. In this
regard, the CA opined that by choosing to recover the subject vehicle via a writ of
replevin, petitioner already waived its right to recover any unpaid installments,
pursuant to Article 1484 of the Civil Code. As such, the CA concluded that respondent is
entitled to the recovery of the aforesaid amount.26
Aggrieved, petitioner moved for partial reconsideration27 - specifically praying for the
setting aside of the order to return the amount of P103,000.00 to respondent - which
was, however, denied in a Resolution28 dated October 8, 2014; hence, this petition.
The Issues Before The Court
The issues raised for the Court's resolution are whether or not the CA correctly: (a)
ordered petitioner to return to respondent the amount of P103,000.00 representing
the latter's late installment payments; and (b) deleted the award of attorney's fees in
favor of petitioner.
The Court's Ruling
The petition is partly meritorious.
Citing Article 1484 of the Civil Code, specifically paragraph 3 thereof, the CA ruled that
petitioner had already waived its right to recover any unpaid installments when it
sought - and was granted - a writ of replevin in order to regain possession of the
subject vehicle. As such, petitioner is no longer entitled to receive respondent's late
partial payments in the aggregate amount of P103,000.00.
The CA is mistaken on this point.
Article 1484 of the Civil Code, which governs the sale of personal properties in
installments, states in full:
chanRoblesvirtualLawlibrary
Article 1484. In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of
the following remedies:
(1) Exact fulfilment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (Emphases and
underscoring supplied)
In this case, there was no vendor-vendee relationship between respondent and
petitioner. A judicious perusal of the records would reveal that respondent never
bought the subject vehicle from petitioner but from a third party, and merely sought
financing from petitioner for its full purchase price. In order to document the loan
transaction between petitioner and respondent, a Promissory Note with Chattel
Mortgage29 dated August 18, 2005 was executed wherein, inter alia, respondent
acknowledged her indebtedness to petitioner in the amount of P1,196,100.00 and
placed the subject vehicle as a security for the loan.30 Indubitably, a loan contract with
the accessory chattel mortgage contract - and not a contract of sale of personal
property in installments - was entered into by the parties with respondent standing as
the debtor-mortgagor and petitioner as the creditor-mortgagee. Therefore, the
conclusion of the CA that Article 1484 finds application in this case is misplaced, and
thus, must be set aside.
The Promissory Note with Chattel Mortgage subject of this case expressly stipulated,
among others, that: (a) monthly installments shall be paid on due date without prior
notice or demand;31 (b) in case of default, the total unpaid principal sum plus the
agreed charges shall become immediately due and payable; 32 and (c) the mortgagor's
default will allow the mortgagee to exercise the remedies available to it under the law.
In light of the foregoing provisions, petitioner is justified in filing his Complaint 33 before
the RTC seeking for either the recovery of possession of the subject vehicle so that it
can exercise its rights as a mortgagee, i.e., to conduct foreclosure proceedings over
said vehicle;34 or in the event that the subject vehicle cannot be recovered, to compel
respondent to pay the outstanding balance of her loan. 35 Since it is undisputed that
petitioner had regained possession of the subject vehicle, it is only appropriate that
foreclosure proceedings, if none yet has been conducted/concluded, be commenced in
accordance with the provisions of Act No. 1508,36 otherwise known as "The Chattel
Mortgage Law," as intended. Otherwise, respondent will be placed in an unjust position
where she is deprived of possession of the subject vehicle while her outstanding debt
remains unpaid, either in full or in part, all to the undue advantage of petitioner - a
situation which law and equity will never permit.37
Further, there is nothing in the Promissory Note with Chattel Mortgage that bars
petitioner from receiving any late partial payments from respondent. If at all,
petitioner's acceptance of respondent's late partial payments in the aggregate amount
of P103,000.00 will only operate to reduce her outstanding obligation to petitioner
from P664,500.00 to P561,500.00. Such a reduction in respondent's outstanding
obligation should be accounted for when petitioner conducts the impending
foreclosure sale of the subject vehicle. Once such foreclosure sale has been made, the
proceeds thereof should be applied to the reduced amount of respondent's
outstanding obligation, and the excess of said proceeds, if any, should be returned to
her.38
In sum, the CA erred in ordering petitioner to return the amount of P103,000.00 to
respondent. In view of petitioner's prayer for and subsequent possession of the subject
vehicle in preparation for its foreclosure, it is only proper that petitioner be ordered to
commence foreclosure proceedings, if none yet has been conducted/concluded, over
the vehicle in accordance with the provisions of the Chattel Mortgage Law, i.e., within
thirty (30) days from the finality of this Decision. 39
Finally, anent the issue of attorney's fees, it is settled that attorney's fees "cannot be
recovered as part of damages because of the policy that no premium should be placed
on the right to litigate. They are not to be awarded every time a party wins a suit. The
power of the court to award attorney's fees under Article 2208 40 of the Civil Code
demands factual, legal, and equitable justification. Even when a claimant is compelled
to litigate with third persons or to incur expenses to protect his rights, still, attorney's
fees may not be awarded where no sufficient showing of bad faith could be reflected in
a party's persistence in a case other than an erroneous conviction of the righteousness
of his cause."41 In this case, suffice it to say that the CA correctly ruled that the award of
attorney's fees and costs of suit should be deleted for lack of sufficient
basis.chanrobleslaw
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated February 13, 2014
and the Resolution dated October 8, 2014 of the Court of Appeals in CA-G.R. CV No.
96008 are hereby SET ASIDE. In case foreclosure proceedings on the subject chattel
mortgage has not yet been conducted/concluded, petitioner Equitable Savings Bank,
now BDO Unibank, Inc., is ORDERED to commence foreclosure proceedings on the
subject vehicle in accordance with the Chattel Mortgage Law, i.e., within thirty (30)
days from the finality of this Decision. The proceeds therefrom should be applied to the
reduced outstanding balance of respondent Rosalinda C. Palces in the amount of
P561,500.00, and the excess, if any, should be returned to her.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142618               July 12, 2007
 PCI LEASING AND FINANCE, INC., Petitioner, P116,878.21 @ month (for the Silicon High
vs. Impact Graphics) x 36 months = P 4,207,615.56
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.
D E C I S I O N GARCIA, J.: -- PLUS--

P181,362.00 @ month (for the Oxberry

On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as Cinescan) x 36 months = P 6,529,032.00
amended by R.A. No. 8556¸ in relation to Articles 1484 and 1485 of the Civil Code,
petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short) has directly come to
this Court via this petition for review under Rule 45 of the Rules of Court to nullify and Total Amount to be paid by GIRAFFE
set aside the Decision and Resolution dated December 28, 1998 and February 15, 2000, (or the NET CONTRACT AMOUNT) P 10,736,647.56
respectively, of the Regional Trial Court (RTC) of Quezon City, Branch 227, in its Civil
Case No. Q-98-34266, a suit for a sum of money and/or personal property with prayer
for a writ of replevin, thereat instituted by the petitioner against the herein
respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE, for brevity). By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount of
₱3,120,000.00 by way of "guaranty deposit," a sort of performance and compliance
bond for the two equipment. Furthermore, the same agreement embodied a standard
The facts:
acceleration clause, operative in the event GIRAFFE fails to pay any rental and/or other
accounts due.
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a
Lease Agreement,1 whereby the former leased out to the latter one (1) set of Silicon
A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-
High Impact Graphics and accessories worth ₱3,900,00.00 and one (1) unit of Oxberry
payment obligations. And following a three-month default, PCI LEASING, through one
Cinescan 6400-10 worth ₱6,500,000.00. In connection with this agreement, the parties
Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-equipment type of
subsequently signed two (2) separate documents, each denominated as Lease
demand letter4 dated February 24, 1998 to GIRAFFE.
Schedule.2 Likewise forming parts of the basic lease agreement were two (2) separate
documents denominated Disclosure Statements of Loan/Credit Transaction (Single
Payment or Installment Plan) 3 that GIRAFFE also executed for each of the leased The demand went unheeded.
equipment. These disclosure statements inter alia described GIRAFFE, vis-à-vis the two
aforementioned equipment, as the "borrower" who acknowledged the "net proceeds Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant
of the loan," the "net amount to be financed," the "financial charges," the "total case against GIRAFFE. In its complaint, 5 docketed in said court as Civil Case No. 98-
installment payments" that it must pay monthly for thirty-six (36) months, exclusive of 34266 and raffled to Branch 2276 thereof, PCI LEASING prayed for the issuance of a writ
the 36% per annum "late payment charges." Thus, for the Silicon High Impact Graphics, of replevin for the recovery of the leased property, in addition to the following relief:
GIRAFFE agreed to pay ₱116,878.21 monthly, and for Oxberry Cinescan, ₱181.362.00
monthly. Hence, the total amount GIRAFFE has to pay PCI LEASING for 36 months of 2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the
the lease, exclusive of monetary penalties imposable, if proper, is as indicated below: defendant [GIRAFFE], as follows:
a. Declaring the plaintiff entitled to the possession of the subject properties;
b. Ordering the defendant to pay the balance of rental/obligation in the total amount
of ₱8,248,657.47 inclusive of interest and charges thereon;
c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit….
(Words in bracket added.)
Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of replevin,
paving the way for PCI LEASING to secure the seizure and delivery of the equipment
covered by the basic lease agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein
arguing that the seizure of the two (2) leased equipment stripped PCI LEASING of its
cause of action. Expounding on the point, GIRAFFE argues that, pursuant to Article
1484 of the Civil Code on installment sales of personal property, PCI LEASING is barred
from further pursuing any claim arising from the lease agreement and the companion
contract documents, adding that the agreement between the parties is in reality a
lease of movables with option to buy. The given situation, GIRAFFE continues, squarely
brings into applicable play Articles 1484 and 1485 of the Civil Code, commonly referred
to as the Recto Law. The cited articles respectively provide:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the
price. Any agreement to the contrary shall be void. (Emphasis added.)
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.
It is thus GIRAFFE’s posture that the aforequoted Article 1484 of the Civil Code applies
to its contractual relation with PCI LEASING because the lease agreement in question,
as supplemented by the schedules documents, is really a lease with option to buy
under the companion article, Article 1485. Consequently, so GIRAFFE argues, upon the
seizure of the leased equipment pursuant to the writ of replevin, which seizure is
equivalent to foreclosure, PCI LEASING has no further recourse against it. In brief,
GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI LEASING is
proscribed by the application to the case of Articles 1484 and 1485, supra, of the Civil
Code.
In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with
GIRAFFE is a straight lease without an option to buy. Prescinding therefrom, PCI
LEASING rejects the applicability to the suit of Article 1484 in relation to Article 1485 of
the Civil Code, claiming that, under the terms and conditions of the basic agreement,
the relationship between the parties is one between an ordinary lessor and an ordinary
lessee.
In a decision7 dated December 28, 1998, the trial court granted GIRAFFE’s motion to
dismiss mainly on the interplay of the following premises: 1) the lease agreement
package, as memorialized in the contract documents, is akin to the contract
contemplated in Article 1485 of the Civil Code, and 2) GIRAFFE’s loss of possession of
the leased equipment consequent to the enforcement of the writ of replevin is "akin to
foreclosure, … the condition precedent for application of Articles 1484 and 1485 [of the
Civil Code]." Accordingly, the trial court dismissed Civil Case No. Q-98-34266, disposing
as follows:
WHEREFORE, premises considered, the defendant [GIRAFFE] having relinquished any
claim to the personal properties subject of replevin which are now in the possession of
the plaintiff [PCI LEASING], plaintiff is DEEMED fully satisfied pursuant to the provisions
of Articles 1484 and 1485 of the New Civil Code. By virtue of said provisions, plaintiff is
DEEMED estopped from further action against the defendant, the plaintiff having
recovered thru (replevin) the personal property sought to be payable/leased on
installments, defendants being under protection of said RECTO LAW. In view thereof,
this case is hereby DISMISSED.
With its motion for reconsideration having been denied by the trial court in its
resolution of February 15, 2000, 8 petitioner has directly come to this Court via this
petition for review raising the sole legal issue of whether or not the underlying Lease
Agreement, Lease Schedules and the Disclosure Statements that embody the financial
leasing arrangement between the parties are covered by and subject to the
consequences of Articles 1484 and 1485 of the New Civil Code.
As in the court below, petitioner contends that the financial leasing arrangement it
concluded with the respondent represents a straight lease covered by R.A. No. 5980,
the Financing Company Act, as last amended by R.A. No. 8556, otherwise known as
Financing Company Act of 1998, and is outside the application and coverage of the
Recto Law. To the petitioner, R.A. No. 5980 defines and authorizes its existence and
business.
The recourse is without merit. R.A. No. 5980, in its original shape and as amended,
partakes of a supervisory or regulatory legislation, merely providing a regulatory
framework for the organization, registration, and regulation of the operations of
financing companies. As couched, it does not specifically define the rights and
obligations of parties to a financial leasing arrangement. In fact, it does not go beyond
defining commercial or transactional financial leasing and other financial leasing
concepts. Thus, the relevancy of Article 18 of the Civil Code which reads:
Article 18. - In matters which are governed by … special laws, their deficiency shall be
supplied by the provisions of this [Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on
installment sales of movable property, does not apply to a financial leasing agreement
because such agreement, by definition, does not confer on the lessee the option to buy
the property subject of the financial lease. To the petitioner, the absence of an option-
to-buy stipulation in a financial leasing agreement, as understood under R.A. No. 8556,
prevents the application thereto of Articles 1484 and 1485 of the Civil Code.
We are not persuaded. The Court can allow that the underlying lease agreement has
the earmarks or made to appear as a financial leasing, 9 a term defined in Section 3(d) of
R.A. No. 8556 as -
a mode of extending credit through a non-cancelable lease contract under which the
lessor purchases or acquires, at the instance of the lessee, machinery, equipment, …
office machines, and other movable or immovable property in consideration of the
periodic payment by the lessee of a fixed amount of money sufficient to amortize at
least seventy (70%) of the purchase price or acquisition cost, including any incidental
expenses and a margin of profit over an obligatory period of not less than two (2) years
during which the lessee has the right to hold and use the leased property … but with no
obligation or option on his part to purchase the leased property from the owner-lessor
at the end of the lease contract.
In its previous holdings, however, the Court, taking into account the following mix: the
imperatives of equity, the contractual stipulations in question and the actuations of
parties vis-à-vis their contract, treated disguised transactions technically tagged as
financing lease, like here, as creating a different contractual relationship. Notable
among the Court’s decisions because of its parallelism with this case is BA Finance
Corporation v. Court of Appeals 10 which involved a motor vehicle. Thereat, the Court
has treated a purported financial lease as actually a sale of a movable property on
installments and prevented recovery beyond the buyer’s arrearages. Wrote the Court
in BA Finance:
The transaction involved … is one of a "financial lease" or "financial leasing," where a
financing company would, in effect, initially purchase a mobile equipment and turn
around to lease it to a client who gets, in addition, an option to purchase the property
at the expiry of the lease period. xxx.
x x x           x x x          x x x
The pertinent provisions of [RA] 5980, thus implemented, read:
"'Financing companies,' … are primarily organized for the purpose of extending credit
facilities to consumers … either by … leasing of motor vehicles, … and office machines
and equipment, … and other movable property."
"'Credit' shall mean any loan, … any contract to sell, or sale or contract of sale of
property or service, … under which part or all of the price is payable subsequent to the
making of such sale or contract; any rental-purchase contract; ….;"
The foregoing provisions indicate no less than a mere financing scheme extended by a
financing company to a client in acquiring a motor vehicle and allowing the latter to
obtain the immediate possession and use thereof pending full payment of the financial
accommodation that is given.
In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was for
thirty six (36) months at a "monthly rental" … (P1,689.40), or for a total amount of
P60,821.28. The contract also contained [a] clause [requiring the Lessee to give a
guaranty deposit in the amount of P20,800.00] xxx
After the private respondent had paid the sum of P41,670.59, excluding the guaranty
deposit of P20,800.00, he stopped further payments. Putting the two sums together,
the financing company had in its hands the amount of P62,470.59 as against the total
agreed "rentals" of P60,821.28 or an excess of P1,649.31.
The respondent appellate court considered it only just and equitable for the guaranty
deposit made by the private respondent to be applied to his arrearages and thereafter
to hold the contract terminated. Adopting the ratiocination of the court a quo, the
appellate court said:
xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should
and must be credited in his favor, in the interest of fairness, justice and equity. The
plaintiff should not be allowed to unduly enrich itself at the expense of the defendant.
xxx This is even more compelling in this case where although the transaction, on its
face, appear ostensibly, to be a contract of lease, it is actually a financing agreement,
with the plaintiff financing the purchase of defendant's automobile …. The Court is
constrained, in the interest of truth and justice, to go into this aspect of the transaction
between the plaintiff and the defendant … with all the facts and circumstances existing
in this case, and which the court must consider in deciding the case, if it is to decide the
case according to all the facts. xxx.
x x x           x x x          x x x
Considering the factual findings of both the court a quo and the appellate court, the
only logical conclusion is that the private respondent did opt, as he has claimed, to
acquire the motor vehicle, justifying then the application of the guarantee deposit to
the balance still due and obligating the petitioner to recognize it as an exercise of the
option by the private respondent. The result would thereby entitle said respondent to
the ownership and possession of the vehicle as the buyer thereof. We, therefore, see
no reversible error in the ultimate judgment of the appellate court. 11 (Italics in the
original; underscoring supplied and words in bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals, 12 the Court viewed and thus
declared a financial lease agreement as having been simulated to disguise a simple loan
with security, it appearing that the financing company purchased equipment already
owned by a capital-strapped client, with the intention of leasing it back to the latter.
In the present case, petitioner acquired the office equipment in question for their
subsequent lease to the respondent, with the latter undertaking to pay a monthly fixed
rental therefor in the total amount of ₱292,531.00, or a total of ₱10,531,116.00 for the
whole 36 months. As a measure of good faith, respondent made an up-front guarantee
deposit in the amount of ₱3,120,000.00. The basic agreement provides that in the
event the respondent fails to pay any rental due or is in a default situation, then the
petitioner shall have cumulative remedies, such as, but not limited to, the following: 13
1. Obtain possession of the property/equipment;
2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied
towards the payment of "liquidated damages";
3. Recover all accrued and unpaid rentals;
4. Recover all rentals for the remaining term of the lease had it not been cancelled, as
additional penalty;
5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFE’s account
xxx;
6. Recover all expenses incurred in repossessing, removing, repairing and storing the
property; and,
7. Recover all damages suffered by PCI LEASING by reason of the default.
In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be
forfeited in the event the respondent, for any reason, returns the equipment before
the expiration of the lease.
At bottom, respondent had paid the equivalent of about a year’s lease rentals, or a
total of ₱3,510,372.00, more or less. Throw in the guaranty deposit (₱3,120,000.00)
and the respondent had made a total cash outlay of ₱6,630,372.00 in favor of the
petitioner. The replevin-seized leased equipment had, as alleged in the complaint, an
estimated residual value of ₱6,900.000.00 at the time Civil Case No. Q-98-34266 was
instituted on May 4, 1998. Adding all cash advances thus made to the residual value of
the equipment, the total value which the petitioner had actually obtained by virtue of
its lease agreement with the respondent amounts to ₱13,530,372.00 (₱3,510,372.00 +
₱3,120,000.00 + ₱6,900.000.00 = ₱13,530,372.00).
The acquisition cost for both the Silicon High Impact Graphics equipment and the
Oxberry Cinescan was, as stated in no less than the petitioner’s letter to the
respondent dated November 11, 199614 approving in the latter’s favor a lease facility,
was ₱8,100,000.00. Subtracting the acquisition cost of ₱8,100,000.00 from the total
amount, i.e., ₱13,530,372.00, creditable to the respondent, it would clearly appear that
petitioner realized a gross income of ₱5,430,372.00 from its lease transaction with the
respondent. The amount of ₱5,430,372.00 is not yet a final figure as it does not include
the rentals in arrears, penalties thereon, and interest earned by the guaranty deposit.
As may be noted, petitioner’s demand letter 15 fixed the amount of ₱8,248,657.47 as
representing the respondent’s "rental" balance which became due and demandable
consequent to the application of the acceleration and other clauses of the lease
agreement. Assuming, then, that the respondent may be compelled to pay
₱8,248,657.47, then it would end up paying a total of ₱21,779,029.47 (₱13,530,372.00
+ ₱8,248,657.47 = ₱21,779,029.47) for its use - for a year and two months at the most -
of the equipment. All in all, for an investment of ₱8,100,000.00, the petitioner stands
to make in a year’s time, out of the transaction, a total of ₱21,779,029.47, or a net of
₱13,679,029.47, if we are to believe its outlandish legal submission that the PCI
LEASING-GIRAFFE Lease Agreement was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and salutary. R.A. No.
8556 was, in fact, precisely enacted to regulate financing companies’ operations with
the end in view of strengthening their critical role in providing credit and services to
small and medium enterprises and to curtail acts and practices prejudicial to the public
interest, in general, and to their clienteles, in particular. 16 As a regulated activity,
financing arrangements are not meant to quench only the thirst for profit. They serve a
higher purpose, and R.A. No. 8556 has made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and
obligations, as between each other, of the financial lessor and the lessee. In
determining the respective responsibilities of the parties to the agreement, courts,
therefore, must train a keen eye on the attendant facts and circumstances of the case
in order to ascertain the intention of the parties, in relation to the law and the written
agreement. Likewise, the public interest and policy involved should be considered. It
may not be amiss to state that, normally, financing contracts come in a standard
prepared form, unilaterally thought up and written by the financing companies
requiring only the personal circumstances and signature of the borrower or lessee; the
rates and other important covenants in these agreements are still largely imposed
unilaterally by the financing companies. In other words, these agreements are usually
one-sided in favor of such companies. A perusal of the lease agreement in question
exposes the many remedies available to the petitioner, while there are only the
standard contractual prohibitions against the respondent. This is characteristic of
standard printed form contracts.
There is more. In the adverted February 24, 1998 demand letter 17 sent to the
respondent, petitioner fashioned its claim in the alternative: payment of the full
amount of ₱8,248,657.47, representing the unpaid balance for the entire 36-month
lease period or the surrender of the financed asset under pain of legal action. To quote
the letter:
Demand is hereby made upon you to pay in full your outstanding balance in the
amount of P8,248,657.47 on or before March 04, 1998 OR to surrender to us the one
(1) set Silicon High Impact Graphics and one (1) unit Oxberry Cinescan 6400-10…
We trust you will give this matter your serious and preferential attention. (Emphasis
added).
Evidently, the letter did not make a demand for the payment of the ₱8,248,657.47 AND
the return of the equipment; only either one of the two was required. The demand
letter was prepared and signed by Atty. Florecita R. Gonzales, presumably petitioner’s
counsel. As such, the use of "or" instead of "and" in the letter could hardly be treated
as a simple typographical error, bearing in mind the nature of the demand, the amount
involved, and the fact that it was made by a lawyer. Certainly Atty. Gonzales would
have known that a world of difference exists between "and" and "or" in the manner
that the word was employed in the letter.
A rule in statutory construction is that the word "or" is a disjunctive term signifying
dissociation and independence of one thing from other things enumerated unless the
context requires a different interpretation.18
In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an
alternative. It often connects a series of words or propositions indicating a choice of
either. When "or" is used, the various members of the enumeration are to be taken
separately. The word "or" is a disjunctive term signifying disassociation and
independence of one thing from each of the other things enumerated. 20
The demand could only be that the respondent need not return the equipment if it
paid the ₱8,248,657.47 outstanding balance, ineluctably suggesting that the
respondent can keep possession of the equipment if it exercises its option to acquire
the same by paying the unpaid balance of the purchase price. Stated otherwise, if the
respondent was not minded to exercise its option of acquiring the equipment by
returning them, then it need not pay the outstanding balance. This is the logical import
of the letter: that the transaction in this case is a lease in name only. The so-called
monthly rentals are in truth monthly amortizations of the price of the leased office
equipment.
On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease
agreement is in reality a lease with an option to purchase the equipment. This has been
made manifest by the actions of the petitioner itself, foremost of which is the
declarations made in its demand letter to the respondent. There could be no other
explanation than that if the respondent paid the balance, then it could keep the
equipment for its own; if not, then it should return them. This is clearly an option to
purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply.
The present case reflects a situation where the financing company can withhold and
conceal - up to the last moment - its intention to sell the property subject of the
finance lease, in order that the provisions of the Recto Law may be circumvented. It
may be, as petitioner pointed out, that the basic "lease agreement" does not contain a
"purchase option" clause. The absence, however, does not necessarily argue against
the idea that what the parties are into is not a straight lease, but a lease with option to
purchase. This Court has, to be sure, long been aware of the practice of vendors of
personal property of denominating a contract of sale on installment as one of lease to
prevent the ownership of the object of the sale from passing to the vendee until and
unless the price is fully paid. As this Court noted in Vda. de Jose v. Barrueco: 21
Sellers desirous of making conditional sales of their goods, but who do not wish openly
to make a bargain in that form, for one reason or another, have frequently resorted to
the device of making contracts in the form of leases either with options to the buyer to
purchase for a small consideration at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent throughout the term is paid, title
shall thereupon vest in the lessee. It is obvious that such transactions are leases only in
name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of the
bargain, in the transfer of title to the lessee.
In another old but still relevant case of U.S. Commercial v. Halili, 22 a lease agreement
was declared to be in fact a sale of personal property by installments. Said the Court:
. . . There can hardly be any question that the so-called contracts of lease on which the
present action is based were veritable leases of personal property with option to
purchase, and as such come within the purview of the above article [Art. 1454-A of the
old Civil Code on sale of personal property by installment]. xxx
Being leases of personal property with option to purchase as contemplated in the
above article, the contracts in question are subject to the provision that when the
lessor in such case "has chosen to deprive the lessee of the enjoyment of such personal
property," "he shall have no further action" against the lessee "for the recovery of any
unpaid balance" owing by the latter, "agreement to the contrary being null and void."
In choosing, through replevin, to deprive the respondent of possession of the leased
equipment, the petitioner waived its right to bring an action to recover unpaid rentals
on the said leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the
Civil Code, which we are hereunder re-reproducing, cannot be any clearer.
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
x x x           x x x          x x x
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the
price. Any agreement to the contrary shall be void.
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.
As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals, 23 the remedies
provided for in Article 1484 of the Civil Code are alternative, not cumulative. The
exercise of one bars the exercise of the others. This limitation applies to contracts
purporting to be leases of personal property with option to buy by virtue of the same
Article 1485. The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Article 1485 was fulfilled in this case
by the filing by petitioner of the complaint for a sum of money with prayer for replevin
to recover possession of the office equipment. 24 By virtue of the writ of seizure issued
by the trial court, the petitioner has effectively deprived respondent of their use, a
situation which, by force of the Recto Law, in turn precludes the former from
maintaining an action for recovery of "accrued rentals" or the recovery of the balance
of the purchase price plus interest. 25
The imperatives of honest dealings given prominence in the Civil Code under the
heading: Human Relations, provide another reason why we must hold the petitioner to
its word as embodied in its demand letter. Else, we would witness a situation where
even if the respondent surrendered the equipment voluntarily, the petitioner can still
sue upon its claim. This would be most unfair for the respondent. We cannot allow the
petitioner to renege on its word. Yet more than that, the very word "or" as used in the
letter conveys distinctly its intention not to claim both the unpaid balance and the
equipment. It is not difficult to discern why: if we add up the amounts paid by the
respondent, the residual value of the property recovered, and the amount claimed by
the petitioner as sued upon herein (for a total of ₱21,779,029.47), then it would end up
making an instant killing out of the transaction at the expense of its client, the
respondent. The Recto Law was precisely enacted to prevent this kind of aberration.
Moreover, due to considerations of equity, public policy and justice, we cannot allow
this to happen.1avvphil.zw+ Not only to the respondent, but those similarly situated
who may fall prey to a similar scheme.
WHEREFORE, the instant petition is DENIED and the trial court’s decision is AFFIRMED.
Costs against petitioner. SO ORDERED.
THIRD DIVISION
G.R. No. 165879             November 10, 2006
 MARIA B. CHING, Petitioner,
vs.
JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA GOYANKO,
JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS GOYANKO, Respondents.
D E C I S I O N CARPIO MORALES, J.:
On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania)
were married.1 Out of the union were born respondents Joseph, Jr., Evelyn, Jerry,
Imelda, Julius, Mary Ellen and Jess, all surnamed Goyanko.
Respondents claim that in 1961, their parents acquired a 661 square meter property
located at 29 F. Cabahug St., Cebu City but that as they (the parents) were Chinese
citizens at the time, the property was registered in the name of their aunt, Sulpicia
Ventura (Sulpicia).
On May 1, 1993, Sulpicia executed a deed of sale 2 over the property in favor of
respondents’ father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed
of sale3 over the property in favor of his common-law-wife-herein petitioner Maria B.
Ching. Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioner’s
name.
After Goyanko’s death on March 11, 1996, respondents discovered that ownership of
the property had already been transferred in the name of petitioner. Respondents
thereupon had the purported signature of their father in the deed of sale verified by
the Philippine National Police Crime Laboratory which found the same to be a forgery. 4
Respondents thus filed with the Regional Trial Court of Cebu City a complaint for
recovery of property and damages against petitioner, praying for the nullification of the
deed of sale and of TCT No. 138405 and the issuance of a new one in favor of their
father Goyanko.
In defense, petitioner claimed that she is the actual owner of the property as it was she
who provided its purchase price. To disprove that Goyanko’s signature in the
questioned deed of sale is a forgery, she presented as witness the notary public who
testified that Goyanko appeared and signed the document in his presence.
By Decision of October 16, 1998,5 the trial court dismissed the complaint against
petitioner, the pertinent portions of which decision read:
There is no valid and sufficient ground to declare the sale as null and void, fictitious and
simulated. The signature on the questioned Deed of Sale is genuine. The testimony of
Atty. Salvador Barrameda who declared in court that Joseph Goyanko, Sr. and Maria
Ching together with their witnesses appeared before him for notarization of Deed of
Sale in question is more reliable than the conflicting testimonies of the two document
examiners. Defendant Maria Ching asserted that the Deed of Sale executed by Joseph
Goyanko, Sr. in her favor is valid and genuine. The signature of Joseph Goyanko, Sr. in
the questioned Deed of Absolute Sale is genuine as it was duly executed and signed by
Joseph Goyanko, Sr. himself.
The parcel of lands known as Lot No. 6 which is sought to be recovered in this case
could never be considered as the conjugal property  of the original Spouses Joseph C.
Goyanko and Epifania dela Cruz or the exclusive capital property of the husband. The
acquisition of the said property by defendant Maria Ching is well-elicited from the
aforementioned testimonial and documentary evidence presented by the defendant.
Although for a time being the property passed through Joseph Goyanko, Sr. as a buyer
yet his ownership was only temporary and transitory for the reason that it was
subsequently sold to herein defendant Maria Ching. Maria Ching claimed that it was
even her money which was used by Joseph Goyanko, Sr. in the purchase of the land
and so it was eventually sold to her. In her testimony, defendant Ching justified her
financial capability to buy the land for herself. The transaction undertaken was from
the original owner Sulpicia Ventura to Joseph Goyanko, Sr. and then from Joesph
Goyanko, Sr. to herein defendant Maria Ching.
The land subject of the litigation is already registered in the name of defendant Maria
Ching under TCT No. 138405. By virtue of the Deed of Sale executed in favor of Maria
Ching, Transfer Certificate of Title No. 138405 was issued in her favor. In recognition of
the proverbial virtuality of a Torrens title, it has been repeatedly held that, unless bad
faith can be established on the part of the person appearing as owner on the certificate
of title, there is no other owner than that in whose favor it has been issued. A Torrens
title is not subject to collateral attack. It is a well-known doctrine that a Torrens title, as
a rule, is irrevocable and indefeasible, and the duty of the court is to see to it that this
title is maintained and respected unless challenged in a direct proceedings
[sic].6 (Citations omitted; underscoring supplied)
Before the Court of Appeals where respondents appealed, they argued that the trial
court erred:
1. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the
subject property between Joseph, Sr. and the defendant-appellee, despite the
proliferation in the records and admissions by both parties that defendant-appellee
was the "mistress" or "common-law wife" of Joseph, Sr..
2. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the
subject property between Joseph, Sr. and the defendant-appellee, despite the fact that
the marriage of Joseph, Sr. and Epifania was then still subsisting thereby rendering the
subject property as conjugal property of Joseph, Sr. and Epifania.
3. . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale
of the subject property between Joseph, Sr. and the defendant-appellee, despite the
clear findings of forgery and the non-credible testimony of notary public. 7
By Decision dated October 21, 2003, 8 the appellate court reversed that of the trial
court and declared null and void the questioned deed of sale and TCT No. 138405. Held
the appellate court:
. . . The subject property having been acquired during the existence of a valid marriage
between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the
conjugal partnership. Moreover, while this presumption in favor of conjugality is
rebuttable with clear and convincing proof to the contrary, we find no evidence on
record to conclude otherwise. The record shows that while Joseph Sr. and his wife
Epifania have been estranged for years and that he and defendant-appellant Maria
Ching, have in fact been living together as common-law husband and wife, there has
never been a judicial decree declaring the dissolution of his marriage to Epifania nor
their conjugal partnership. It is therefore undeniable that the 661-square meter
property located at No. 29 F. Cabahug Street, Cebu City belongs to the conjugal
partnership.
Even if we were to assume that the subject property was not conjugal, still we cannot
sustain the validity of the sale of the property by Joseph, Sr. to defendant-appellant
Maria Ching, there being overwhelming evidence on records that they have been living
together as common-law husband and wife. On this score, Art. 1352 of the Civil Code
provides:
"Art. 1352. Contracts without cause, or with unlawful cause, produce no effect
whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public
order or public policy."
We therefore find that the contract of sale in favor of the defendant-appellant Maria
Ching was null and void  for being contrary to morals and public policy. The purported
sale, having been made by Joseph Sr. in favor of his concubine, undermines the stability
of the family, a basic social institution which public policy vigilantly protects.
Furthermore, the law emphatically prohibits spouses from selling property to each
other, subject to certain exceptions. And this is so because transfers or conveyances
between spouses, if allowed during the marriage would destroy the system of conjugal
partnership, a basic policy in civil law. The prohibition was designed to prevent the
exercise of undue influence by one spouse over the other and is likewise applicable
even to common-law relationships otherwise, "the condition of those who incurred
guilt would turn out to be better than those in legal union. 9 (Underscoring supplied)
Hence, the present petition, petitioners arguing that the appellate court gravely erred
in:
I.
. . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND
TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES ON
THE SUBJECT PROPERTY, THE SAME BEING FOUND BY THE COURT A QUO, AS THE
EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE SAME WAS NEVER PART OF THE
CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN RESPONDENTS’ MOTHER EPIFANIA
GOYANKO AND PETITIONER’S COMMON LAW HUSBAND, JOSEPH GOYANKO, SR., NOR
THE EXCLUSIVE OR CAPITAL PROPERTY OF THE LATTER AT ANYTIME BEFORE THE SAME
WAS VALIDLY ACQUIRED BY PETITIONER.
II.
. . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR UNDER
ARTICLES 1448 AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST BETWEEN
COMMON LAW SPOUSES.
III.
. . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A TRUSTEE, WHO
BECAME AS SUCH IN CONTEMPLATION OF LAW, AND WHO HAPPENS TO BE A
COMMON LAW HUSBAND OF THE BENEFICIARY, IS NOT A VIOLATION OF A STATE
POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES
BETWEEN LEGITIMATE AND COMMON LAW SPOUSES.
IV.
. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR CASE
DURING APPEAL.10
The pertinent provisions of the Civil Code which apply to the present case read:
ART. 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs, public
order or public policy.
ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
ARTICLE 1490. The husband and wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under Article 191.
(Underscoring supplied)
The proscription against sale of property between spouses applies even to common
law relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.:11
Anent the second issue, we find that the contract of sale was null and void for
being contrary to morals and public policy. The sale was made by a husband in favor
of a concubine after he had abandoned his family and left the conjugal home where
his wife and children lived and from whence they derived their support. The sale was
subversive of the stability of the family, a basic social institution which public policy
cherishes and protects.
Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or
purposes is contrary to law, morals, good customs, public order, or public policy
are void  and inexistent  from the very beginning.
Article 1352 also provides that: "Contracts without cause, or with unlawful cause,
produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals,
good customs, public order, or public policy."
Additionally, the law emphatically prohibits the spouses from selling property to each
other subject to certain exceptions.1âwphi1 Similarly, donations between spouses
during marriage are prohibited. And this is so because if transfers or conveyances
between spouses were allowed during marriage, that would destroy the system of
conjugal partnership, a basic policy in civil law. It was also designed to prevent the
exercise of undue influence by one spouse over the other, as well as to protect the
institution of marriage, which is the cornerstone of family law. The prohibitions apply
to a couple living as husband and wife without benefit of marriage, otherwise, "the
condition of those who incurred guilt would turn out to be better than those in legal
union." Those provisions are dictated by public interest and their criterion must be
imposed upon the will of the parties. . . . 12 (Italics in the original; emphasis and
underscoring supplied)
As the conveyance in question was made by Goyangko in favor of his common- law-
wife-herein petitioner, it was null and void.
Petitioner’s argument that a trust relationship was created between Goyanko as
trustee and her as beneficiary as provided in Articles 1448 and 1450 of the Civil Code
which read:
For petitioner’s testimony that it was she who provided the purchase price is
uncorroborated. That she may have been considered the breadwinner of the family
and that there was proof that she earned a living do not conclusively clinch her claim.
As to the change of theory by respondents from forgery of their father’s signature in
the deed of sale to sale contrary to public policy, it too does not persuade. Generally, a
party in a litigation is not permitted to freely and substantially change the theory of his
case so as not to put the other party to undue disadvantage by not accurately and
timely apprising him of what he is up against, 13 and to ensure that the latter is given the
opportunity during trial to refute all allegations against him by presenting evidence to
the contrary. In the present case, petitioner cannot be said to have been put to undue
disadvantage and to have been denied the chance to refute all the allegations against
her. For the nullification of the sale is anchored on its illegality per se, it being violative
of the above-cited Articles 1352, 1409 and 1490 of the Civil Code.
WHEREFORE, the petition is DENIED for lack of merit.

ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is Costs against petitioner.
granted to one party but the price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trustee, while the latter is the SO ORDERED
beneficiary. However, if the person to whom the title is conveyed is a child, legitimate
or illegitimate, of the one paying the price of the sale, no trust is implied by law, it
being disputably presumed that there is a gift in favor of the child.

ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the
benefit of another and the conveyance is made to the lender or payor to secure the
payment of the debt, a trust arises by operation of law in favor of the person to whom
the money is loaned or for whom it is paid. The latter may redeem the property and
compel a conveyance thereof to him.

does not persuade.

 THIRD DIVISION
A.C. No. 11494, July 24, 2017
HEIRS OF JUAN DE DIOS E. CARLOS, NAMELY, JENNIFER N. CARLOS, JOCELYN N.
CARLOS, JACQUELINE CARLOS-DOMINGUEZ, JO-ANN CARLOS-TABUTON, JIMMY N.
CARLOS, LORNA A. CARLOS, JERUSHA ANN A. CARLOS AND JAN JOSHUA A.
CARLOS, Complainants, v. ATTY. JAIME S. LINSANGAN, Respondent.
D E C I S I O N TIJAM, J.:
Complainants are children of the late Juan De Dios E. Carlos (Juan) who presently seek
to disbar respondent Atty. Jaime S. Linsangan (Atty. Linsangan). Atty. Linsangan acted
as counsel for their late father in several cases, one of which involving the recovery of a
parcel of land located in Alabang, Muntinlupa City. Complainants alleged that Atty.
Linsangan forced them to sign pleadings and documents, sold the parcel of land in
Alabang, Muntinlupa City in cahoots with complainants' estranged mother, and evaded
payment of income taxes when he divided his share in the subject property as his
supposed attorney's fees to his wife and children, all in violation of his oath as lawyer.
The Facts and Antecedent Proceedings
The parcel of land located in Alabang, Muntilupa City and covered by Transfer
Certificate of Title (TCT) No. 139061 with an area of 12,331 square meters was
previously owned by the Spouses Felix and Felipa Carlos. Their son, Teofilo Carlos
(Teofilo), convinced them to transfer said title to his name with a promise to distribute
the same to his brothers and sisters. Teofilo delivered the owner's duplicate copy of
the title to his brother, Juan. However, Teofilo sold the entire property to Pedro
Balbanero (Pedro). Pedro, however, failed to pay the agreed installment payments.
For purposes of recovering the subject property from Teofilo (and Teofilo's supposed
wife, Felicidad), and from Pedro, Juan engaged the services of Atty. Linsangan. It
appears that Atty. Linsangan, for Juan, filed the following cases: (a) a case 1 against
Felicidad which was settled with the latter acknowledging Juan's one-half interest and
ownership over the property; (b) a case against Pedro which was concluded on
September 12, 1997; and (c) another case2 against Felicidad, albeit filed by another
lawyer who acted under the direct control and supervision of Atty. Linsangan. In this
case against Felicidad, it appears that the other half of the property was adjudicated to
Juan, as Teofilo's sole heir. Said adjudication was appealed to the CA. 3
It further appears that Atty. Linsangan represented Juan in the following cases, likewise
all involving the subject property: (a) an action for partition 4 filed by Bernard Rillo
against Pedro; (b) an ejectment case 5 filed by Juan against Pedro; and (c) Juan's
intervention in the case6 between Pedro and Teofilo.
It finally appears that Atty. Linsangan also represented Juan in the certiorari cases and
petitions for review filed before the CA7 and this Court,8 likewise involving the same
property.
During the pendency of the above cases, or on September 22, 1997, Atty. Linsangan
and Juan executed a Contract for Professional Services 9 enumerating the above cases
being handled by Atty. Linsangan for Juan. In said Contract, Atty. Linsangan and Juan
agreed, as follows:chanRoblesvirtualLawlibrary
xxxx
WHEREAS, the Parties have decided to consolidate their agreements
in connection with ATTORNEY's engagement as CLIENT's attorney to
recover the subject property;
NOW, THEREFORE, for and in consideration of the foregoing
premises, the parties hereto have mutually agreed and bound
themselves as follows:
1. That ATTORNEY shall continue to take all legal steps to recover
the 10,000 square meters covered by TCT No. 139061, or any
portion thereof acceptable to CLIENT, through any or all of the Court
cases mentioned above, or such other Court cases as may be
necessary;
2. That ATTORNEY shall not enter into any compromise agreement
without the written consent of CLIENT. CLIENT may enter into any
compromise agreement only upon consultation with ATTORNEY;
3. That ATTORNEY shall avail of all legal remedies in order to recover
the property and shall continue the prosecution of such remedies to
the best of his knowledge, ability, and experience, all within legal
and ethical bounds;
4. That CLIENT shall shoulder all necessary and incidental expenses
in connection with the said cases;
5. That considering, among others, the extent of services rendered
by ATTORNEY; the value of the property sought to be recovered; the
importance of the case to CLIENT; the difficulty of recovery
(considering that the Balbanero spouses have a favorable Court of
Appeals['] Decision in C.V. No. 29379, while Felicidad Sandoval's
name appears in the TCT No. 139061 as wife of the registered
owner, Teofilo Carlos), the professional ability and experience of
ATTORNEY; as well as other considerations, CLIENT hereby confirms
and ratifies that he has agreed and bound himself to pay
ATTORNEY a contingent fee in an amount equivalent to FIFTY
PERCENT (50%) of the market value of the property, or portion
thereof, which may be recovered, or the zonal value thereof,
whichever is higher.
The said attorney's fees shall become due and payable upon
recovery of the property, or any portion thereof, (a) upon finality of
a favorable Court decision, or (b) compromise settlement, whether
judicially or extrajudicially, through the execution of any document
acknowledging or transferring CLIENT's rights over the property, or
any portion thereof, whether or not through ATTORNEY's, CLIENT's,
or other person's efforts or mediation, or (c) or by any other mode
by which CLIENT's interest on the subject property, or a portion
thereof, is recognized, or registered, or transferred to him; or (d)
should CLIENT violate this contract; or (e) should CLIENT terminate
ATTORNEY's services without legal or just cause.
6. That CLIENT undertakes and binds himself to pay the said
attorney's fees to the following:chanRoblesvirtualLawlibrary
(a) To ATTORNEY himself;
(b) In case of ATTORNEY'S death or disability, to
LORNA OBSUNA LINSANGAN;
(c) In case of death or disability of ATTORNEY and
LORNA OBSUNA LINSANGAN, jointly and
severally, to LAUREN KYRA LINSANGAN,
LORRAINE FREYJA LINSANGAN, and JAMES
LORENZ LINSANGAN;
(d) In default of all the [foregoing], to the estate
of ATTORNEY.
7. That this Contract shall be binding and enforceable upon CLIENT's
heirs, successors-in-interest, administrators, and assigns, if any.
8. That finally, CLIENT hereby authorizes, at ATTORNEY's option, the
annotation of this contract on TCT No. 139061 or any subsequent
title which may be issued. (Emphasis supplied)
x x x x10
However, it was not only Juan who went after the property, but also Bernard Rillo and
Alicia Carlos, a sister-in-law. The latter also filed an action 11 for recovery of their share
and by Compromise Agreement, an area of 2,331 square meters was awarded in their
favor, leaving a 10,000 square meter portion of the property. 12
This remaining 10,000 square meter portion was eventually divided in the case filed by
Juan against Felicidad (which Atty. Linsangan admits 13 to have filed albeit through
another lawyer who acted under his control and supervision), through a Compromise
Agreement wherein 7,500 square meters of the subject property was given to the heirs
of Juan while the remaining 2,500 square meters thereof was given to Felicidad. 14 In
said Compromise Agreement, the parties likewise agreed to waive as against each
other any and all other claims which each may have against the other, including those
pending in the CA15 and this Court. This Compromise Agreement was approved by the
trial court on December 11, 2009.16
Subsequently, a Supplemental Compromise Agreement 17 dated December 16, 2009
was submitted by the heirs of Juan and Atty. Linsangan, dividing among them the 7,500
square meter-portion of the property as follows: 3,750 square meters to the heirs of
Juan and 3,750 square meters to Atty. Linsangan pursuant to the Contract for
Professional Services. In said Supplemental Compromise Agreement, Atty. Linsangan
waived in favor of his wife and children his 3,750 square meter share, except as to the
250 square meters thereof, as follows:chanRoblesvirtualLawlibrary
(a) To Mrs. Lorna O. Linsangan - 2,000 square meters;
(b) To Lauren Kyra O. Linsangan - 500 square meters;
(c) To Lorraine Freyja O. Linsangan - 500 square meters;
(d) To James Lorenz O. Linsangan - 500 square meters;
(e) To Atty. Jaime S. Linsangan - 250 square meters.18
Said Supplemental Compromise Agreement was likewise approved by the trial court in
its Decision19 dated December 18, 2009. There was no mention in the record, however,
that the Compromise Agreement and the Supplemental Compromise Agreement were
likewise presented for approval before the several courts where the other cases were
pending.
On December 10, 2015, Atty. Linsangan executed a Deed of Absolute Sale20 with a
certain Helen S. Perez (Helen) covering the entire 12,331 square meters of the subject
property for a purchase price of One Hundred Fifty Million Pesos (PhP150,000,000).
Atty. Linsangan sold the entire property using the
following:chanRoblesvirtualLawlibrary
1. a Special Power of Attorney21 dated August 26, 2010, executed by
his wife Lorna Linsangan, and children, Lauren Kyra O. Linsangan,
Lorraine Freyja O. Linsangan and James Lorenz O. Linsangan to sell
their shares in the subject property;
2. a Special Power of Attorney22 dated September 2009, executed by
Juan's wife, Bella N. Vda. de Carlos, and their children, Jo-Ann
Carlos Tabuton, Jacqueline Carlos-Dominguez and Jimmy N. Carlos to
represent them in all cases involving their interests and shares in the
properties of Juan;
3. a Special Power of Attorney 23 dated September 30, 2009 executed
by Lorna A. Carlos, Jerusha Ann A. Carlos and Jan Joshua A. Carlos to
represent them in all cases involving their interests and shares in the
properties of Juan;
4. a Special Power of Attorney 24 dated May 2013 executed by
Porfirio C. Rillo and Jose Rillo to sell their shares consisting of 200
square meter portion and 199 square meter portion, respectively, of
the subject property;
5. a Special Power of Attorney 25 dated October 15, 2009 executed by
Jocelyn N. Carlos and Jennifer N. Carlos to represent them in all
cases involving their interests and shares in the properties of Juan;
6. a Special Power of Attorney 26 dated May 28, 2010 executed by
Bernard Rillo in favor of Alicia D. Carlos to sell his share in the
subject property by virtue of a Compromise Agreement dated
September 3, 1987 in the case of Bernard Rillo, et al. vs. Teofilo
Carlos, et al., Civil Case No. 11975, Regional Trial Court of Makati
City, Branch CXLIV.
On November 28, 2015, Helen issued several checks 27 in varying amounts either made
payable to Cash or to Jaime S. Linsangan or Lorna O. Linsangan and simultaneous
thereto, Atty. Linsangan released the owner's duplicate original of TCT No. 139061 to
Helen.28 It further appears that in lieu of one check in the amount of PhP2,500,000,
Atty. Linsangan received, in cash, the amounts of PhP2,000,000 on December 4,
2015,29  and PhP500,000 on December 10, 2015,30 from Helen.
Upon learning of the sale, complainants allegedly requested from Atty. Linsangan for
their shares in the proceeds and for the copies of the Special Power of Attorney as well
as the case records, but that Atty. Linsangan refused. 31 Complainants also requested
from Atty. Linsangan, this time through another lawyer, Atty. Victor D. Aguinaldo, that
their shares in the subject property be at least segregated from the portion sold. 32
On August 20, 2016, complainants wrote a letter33 to Atty. Linsangan revoking the
Special Power of Attorney which they executed in the latter's favor. In said letter,
complainants accused Atty. Linsangan of conniving with their mother, Bella N. Vda. De
Carlos, in submitting the Compromise Agreement and in selling the subject property.
Complainants, however, recognized Atty. Lisangan's services for which they proposed
that the latter be paid on the basis of quantum meruit instead of fifty percent (50%) of
the subject property.34
Subsequently, or in September 2016, complainants filed the instant administrative
complaint35 against Atty. Linsangan accusing the latter of forcing them to sign pleadings
filed in court, copies of which were not furnished them; of selling the subject property
in cahoots with their mother; of evading the payment of income taxes when he
apportioned his share in the subject property to his wife and children. 36
By way of Comment,37 Atty. Linsangan avers that the Supplemental Compromise
Agreement was never questioned by the complainants until now 38 and that they had
never requested for a copy thereof from him. Atty. Linsangan admits that the subject of
the sale with Helen is the property in Alabang, Muntinlupa City and that complainants
were not given a share from the payments because such were specifically made
applicable to his and his family's share in the subject property only. 39 Atty. Linsangan
also contends that the proposal that he be paid on the basis of quantum meruit is only
for the purpose of reducing his 50% share as stated in the Contract for Professional
Services he executed with Juan, so that the balance thereof may accrue to
complainants.40
The Issue
The threshold issue to be resolved is whether respondent is guilty of violating his
lawyer's oath.
The Ruling of this Court
After a careful review of the record of the case, the Court finds that respondent
committed acts in violation of his oath as an attorney thereby warranting the Court's
exercise of its disciplinary power.
We begin by emphasizing that the practice of law is not a right but a privilege bestowed
by the State upon those who show that they possess, and continue to possess, the
qualifications required by law for the conferment of such privilege. 41 Whether or not a
lawyer is still entitled to practice law may be resolved by a proceeding to suspend or
disbar him, based on conduct rendering him unfit to hold a license or to exercise the
duties and responsibilities of an attorney. The avowed purpose of suspending or
disbarring an attorney is not to punish the lawyer, but to remove from the profession a
person whose misconduct has proved him unfit to be entrusted with the duties and
responsibilities belonging to an office of an attorney, and thus to protect the public and
those charged with the administration of justice. 42 The lawyer's oath is a source of
obligations and its violation is a ground for suspension, disbarment or other disciplinary
action.43
The record shows and Atty. Linsangan does not deny, that while the cases involving the
subject property were still pending resolution and final determination, Atty. Linsangan
entered into a Contract for Professional Services with Juan wherein his attorney's fees
shall be that equivalent to 50% of the value of the property, or a portion thereof, that
may be recovered. It is likewise not denied by Atty. Linsangan that he apportioned
upon himself, and to his wife and children, half of the property awarded to
complainants as heirs of Juan, through a Supplemental Compromise Agreement.
Similarly, such Supplemental Compromise Agreement was entered into by Atty.
Linsangan and the heirs of Juan concurrently with the pendency of several cases before
the CA and this Court 44 involving the very same property. What is more, Atty.
Linsangan, probably anticipating that he may be charged of having undue interest over
his client's property in litigation, caused another lawyer to appear but all the while
making it absolutely clear to Juan that the latter's appearance was nevertheless under
Atty. Linsangan's "direct control and supervision."
Plainly, these acts are in direct contravention of Article 1491(5) 45 of the Civil Code
which forbids lawyers from acquiring, by purchase or assignment, the property that has
been the subject of litigation in which they have taken part by virtue of their
profession. While Canon 10 of the old Canons of Professional Ethics, which states that
"[t]he lawyer should not purchase any interests in the subject matter of the litigation
which he is conducting," is no longer reproduced in the new Code of Professional
Responsibility (CPR), such proscription still applies considering that Canon I of the CPR
is clear in requiring that "a lawyer shall uphold the Constitution, obey the laws of the
land and promote respect for law and legal process" and Rule 138, Sec. 3 which
requires every lawyer to take an oath to "obey the laws as well as the legal orders of
the duly constituted authorities therein." 46 Here, the law transgressed by Atty.
Linsangan is Article 1491(5) of the Civil Code, in violation of his lawyer's oath.
While jurisprudence provides an exception to the above proscription, i.e., if the
payment of contingent fee is not made during the pendency of the litigation involving
the client's property but only after the judgment has been rendered in the case
handled by the lawyer, 47 such is not applicable to the instant case. To reiterate, the
transfer to Atty. Linsangan was made while the subject property was still under
litigation, or at least concurrently with the pendency of the certiorari proceedings in
the CA and the petitions for review in this Court. 48 As mentioned, there was nothing in
the record which would show that these cases were likewise dismissed with finality
either before the execution of, or by virtue of, the Compromise Agreement and the
Supplemental Compromise Agreement between complainants and Atty. Linsangan.
What is more, Atty. Linsangan, at the guise of merely waiving portions of the subject
property in favor of his wife and children, actually divided his attorney's fee with
persons who are not licensed to practice law in contravention of Rule 9.02, 49 Canon
950 of the CPR.
Another misconduct committed by Atty. Linsangan was his act of selling the entire
12,331 square meters property and making it appear that he was specifically
authorized to do so by complainants as well as by the other persons 51 to whom
portions of the property had been previously adjudicated. However, a perusal of the
supposed Special Power of Attorney attached to the Deed of Absolute Sale, save for
that executed by his wife and children, only authorizes Atty. Linsangan to represent
complainants in the litigation of cases involving Juan's properties. Nothing in said
Special Power of Attorney authorizes Atty. Linsangan to sell the entire property
including complainants' undivided share therein.
Atty. Linsangan's reasoning that he only took it upon himself to sell the property
because complainants were unfamiliar with real estate transactions does not exculpate
him from liability. If indeed that were the case, then it is incumbent upon Atty.
Linsangan to make it clear to the complainants that he was acting in such capacity and
not as their lawyer.52 But even this, Atty. Linsangan failed to do.
Worse, Atty. Linsangan does not deny having received the downpayment for the
property from Helen. Atty. Linsangan does not also deny failing to give complainants'
share for the reason that he applied said payment as his share in the property. In so
doing, Atty. Linsangan determined all by himself that the downpayment accrues to him
and immediately appropriated the same, without the knowledge and consent of the
complainants. Such act constitutes a breach of his client's trust and a violation of Canon
1653 of the CPR. Indeed, a lawyer is not entitled to unilaterally appropriate his client's
money for himself by the mere fact that the client owes him attorneys fees. 54 The
failure of an attorney to return the client's money upon demand gives rise to the
presumption that he has misappropriated it for his own use to the prejudice and
violation of the general morality, as well as of professional ethics; it also impairs public
confidence in the legal profession and deserves punishment. In short, a lawyer's
unjustified withholding of money belonging to his client, as in this case, warrants the
imposition of disciplinary action.55
Pointedly, the relationship of attorney and client has consistently been treated as one
of special trust and confidence. An attorney must therefore exercise utmost good faith
and fairness in all his relationship with his client. Measured against this standard,
respondent's act clearly fell short and had, in fact, placed his personal interest above
that of his clients. Considering the foregoing violations of his lawyer's oath, Article
1491(5) of the Civil Code, Rule 9.02, Canon 9, and Canon 16 of the CPR, the Court
deems it appropriate to impose upon respondent the penalty of six (6) months
suspension from the practice of law.56
WHEREFORE, We find Atty. Jaime S. Linsangan LIABLE for violations of his lawyer's
oath, Article 1491(5) of the Civil Code, Rule 9.02, Canon 9, and Canon 16 of the Code of
Professional Responsibility and he is hereby SUSPENDED from the practice of law
for SIX (6) months effective from the date of his receipt of this Decision. Let copies of
this Decision be circulated to all courts of the country for their information and
guidance, and spread in the personal record of Atty. Linsangan.
SO ORDERED.

FIRST DIVISION
June 27, 2018
A.C. No. 8502
CHRISTOPHER R. SANTOS, Complainant
vs.
ATTY. JOSEPH A. ARROJADO, Respondent
D E C I S I O N DEL CASTILLO, J.:
Where a lawyer's integrity is questioned through a disbarment complaint, this Court, as
the ultimate arbiter of such disbarment proceedings, is duty-bound to ascertain the
veracity of the charges involved therein. But, when the charges lack merit, the Court
will not hesitate to dismiss the case.
1
In an Affidavit  dated December 7, 2009, complainant Christopher R. Santos
(Complainant Santos) sought the disbarment of respondent Atty. Joseph A. Arrojado
(Atty. Arrojado) for violation of Article 1491 of the Civil Code, by acquiring an interest in
the land involved in a litigation in which he had taken part by reason of the exercise of
his profession
Complainant Santos alleged that he was the defendant in the unlawful detainer case
filed by Lilia Rodriguez (Lilia) wherein the respondent lawyer, Atty. Arrojado, was the
counsel for Lilia. The case eventually reached the Supreme Court which resolved 2 the
same in favor of Atty. Arrojado's client.
Complainant, however, claimed that on August 7, 2009, while the case was pending
before the Supreme Court, Lilia sold one of the properties in litis pendentia to Atty.
Arrojado's son, Julius P. Arrojado (Julius) and that Atty. Arrojado even signed as a
witness of that sale. Believing that Atty. Arrojado committed malpractice when he
acquired, through his son Julius, an interest in the property subject of the unlawful
detainer case in violation of Article 1491 of the Civil Code, complainant instituted the
instant complaint.
In his Verified Comment,3 Atty. Arrojado admitted: (1) that Lilia was a client of the law
firm wherein he was a senior partner; (2) that Julius was his son; and (3) that one of the
subject properties in the ejectment suit was purchased by his son from Lilia. Atty.
Arrojado maintained that he did not violate Article 1491 as he had absolutely no
interest in the property purchased by his son; and that the proscription in the said
article did not extend to the relatives of the judicial officers mentioned therein. He
postulated that, when the sale took place, Julius was already of legal age and
discretion, as well as a registered nurse and an established businessman; and that
while it was through him (respondent lawyer) that Lilia and Julius met, he did not at all
facilitate the transaction. Respondent lawyer also pointed out that complainant failed
to cite a specific provision or canon in the Code of Professional Responsibility which he
had allegedly transgressed or violated.
Report and Recommendation of the Integrated Bar of the Philippines
In his Report and Recommendation, 4 Investigating Commissioner Winston A. Abuyuan
of the Integrated Bar of the Philippines - Commission on Bar Discipline, (IBP-CBD),
recommended the exoneration of Atty. Arrojado.
In recommending the dismissal of the administrative case against respondent lawyer,
the Investigating Commissioner opined that:
Undeniably, [Julius] is the son of [Atty. Arrojado], counsel of the
owners of the parcel of land which was leased by [Santos]. The
subject property was acquired by (Julius] while the unlawful detainer
case was still pending before the Supreme Court.
In an unlawful detainer case, the issue to be resolved is possession
and not ownership of the property in question. This is very clear.
There is no showing that [Santos] is even claiming ownership of the
property in question. In fact, it appears that the issues that remain
to be resolved are [Santos'] obligation to pay the rentals due (as
lessee) to the owner of the property.
Did [Atty. Arrojado] take advantage of his fiduciary relationship with Considering that there is no proof presented by [santos] to
his clients when his son bought the property in question? We rule in substantiate any of his allegations, we have no other option but to
the negative. dismiss the charges.5

There is no evidence to show that [Atty. Arrojado] had used his son The Board of Governors (BOG) of the IBP, in Resolution No. XX- 2012-359 dated July 21,
as a conduit to gain the property in question considering that (Julius] 2012, adopted the findings of the Investigating Commissioner and his recommendation
is a personality separate and distinct from his father, herein to dismiss the complaint for lack of merit. 6 Similarly, in Resolution7 No. XX-2013-306
respondent. He is quite capable of acquiring property on his own. x x dated March 21, 2013, the IBP-BOG denied complainant's motion for reconsideration.
x. Moreover, a scrutiny of complainant's arguments would reveal Hence, the case in now before us for final action pursuant to Section 12(c), Rule 139-B
that he himself is even unsure if respondent had indeed taken of the Rules of Court.
advantage of his fiduciary relationship with his client, as he safely
uses the words 'it looks like' or 'we believe'. There is no established Issue
jurisprudence to the effect that the prohibition applies to immediate
family members. In fact, Article 1491(5) is quite clear and explicit,
Whether or not the prohibition in Article 1491(5) of the Civil Code against justices,
stating in unequivocal terms that the prohibition solely applies to
judges, prosecuting attorneys, clerks of court, and other officers and employees
lawyers, with respect to the property and rights to the object in
connected with the administration of justice, as well as lawyers, from purchasing
litigation. There is not even the slightest inkling that the prohibition
property and rights which may be the object of any litigation in which they may take
was qualified to extend to any family member.
part by virtue of their profession, extends to their respective immediate families or
relatives.
xxxx
Our Ruling
There is even no proof presented to show that [Atty. Arrojado] had
used his fiduciary relationship with his client in order to obtain the
It is complainant's contention that respondent lawyer, as counsel of record in the
property in question. What merely changed was the ownership of
ejectment case in question, cannot acquire the property subject of litigation, either
the property, and the lease of [Santos] was not in any [manner]
personally or through his son, without violating the Civil Code and his ethical duties.
affected. In fact, records would reveal that [Julius] was even thinking
of allowing [Santos] to continue leasing the property in question but
the same was rejected by the latter. As can be seen, no rights of The Court does not agree. For reference, Article 1491(5) of the Civil Code is reproduced
(Santos] were prejudiced by this sale. below:

xxxx Article 1491. The following persons cannot acquire by purchase,

even at a public or judicial auction, either in person or through the
mediation of another.

xxxx
 (5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or
levied upon on execution before the court within whose jurisdiction
or territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the
object of any litigation in which they may take part by virtue of their
profession.
In Pena v. Delos Santos, 8 we held that:
The rationale advanced for the prohibition in Article 1491(5) is that
public policy disallows the transactions in view of the fiduciary
relationship involved, i.e., the relation of trust and confidence and
the peculiar control exercised by these persons. It is founded on
public policy because, by virtue of his office, an attorney may easily
take advantage of the credulity and ignorance of his client and
unduly enrich himself at the expense of his client. x x x
Undeniably, Article 1491(5) of the Civil Code prohibits the purchase by lawyers of any
interest in the subject matter of the litigation in which they participated by reason of
their profession. Here, however, respondent lawyer was not the purchaser or buyer of
the property or rights in litigation. For, in point of fact, it was his son Julius, and not
respondent lawyer, who purchased the subject property.
Were we to include within the purview of the law the members of the immediate
family or relatives of the lawyer laboring under disqualification, we would in effect be
amending the law. We apply to this case the old and familiar Latin maxim  expressio
unius est exclusio alterius, which means that the express mention of one person, thing,
act, or consequence excludes all others. Stated otherwise, "where the terms are
expressly limited to certain matters, it may not, by interpretation or construction, be
stretched or extended to other matters."9
As worded, Article 1491(5) of the Civil Code covers only (1) justices;
(2) judges; (3) prosecuting attorneys; (4) clerks of court; (5) other officers and
employees connected with the administration of justice; and (6) lawyers.1âwphi1 The
enumeration cannot be stretched or extended to include relatives of the lawyer - in this
case, Julius, son of respondent lawyer.
Concededly, Article 1491 provides that "[t]he following persons cannot acquire by
purchase, even at a public or judicial auction, either in person or through the mediation
of another xx x." However, perusal of the records would show that complainant failed
to adduce any shred of evidence that Julius acted or mediated on behalf of respondent
lawyer, or that respondent lawyer was the ultimate beneficiary of the sale transaction.
The mere fact that it was Julius, son of respondent lawyer, who purchased the
property, will not support the allegation that respondent lawyer violated Article
1491(5) of the Civil Code. As aptly noted by the Investigating Commissioner, "[t]here is
no evidence to show that respondent had used his son as a conduit to gain the
property in question xx x." 10
In addition, it must be stressed that the "prohibition which rests on considerations of
public policy and interests is intended to curtail any undue influence of the lawyer
upon his client on account of his fiduciary and confidential relationship with
him." 11 Again, we adopt the findings of the Investigating Commissioner that "a scrutiny
of complainant's arguments would reveal that he himself [was] even unsure if
respondent had indeed taken advantage of his fiduciary relationship with his client, as
he safely uses the words "it looks like" or "we believe". 12 Moreover, the Investigating
Commissioner aptly observed that there was no "slightest proof showing that [Julius]
was used by respondent to acquire the property of his clients. Affidavits executed by
the owners, as well as [Julius] himself showed that respondent did not even actively
participate in the negotiations concerning the property." 13 At most, although
respondent lawyer's role or participation in the sale in question, if any, might ruffle
very sensitive scruples, it is not, however, per se prohibited or forbidden by said Article
1491. WHEREFORE, the present administrative case is DISMISSED for lack of me. SO
ORDERED.
 EN BANC
B.M. No. 793             July 30, 2004
IN RE: SUSPENSION FROM THE PRACTICE OF LAW IN THE TERRITORY OF GUAM OF
ATTY. LEON G. MAQUERA.
R E S O L U T I O N TINGA, J.:
May a member of the Philippine Bar who was disbarred or suspended from the practice
of law in a foreign jurisdiction where he has also been admitted as an attorney be
meted the same sanction as a member of the Philippine Bar for the same infraction
committed in the foreign jurisdiction? There is a Rule of Court provision covering this
case's central issue. Up to this juncture, its reach and breadth have not undergone the
test of an unsettled case.
In a Letter dated August 20, 1996, 1 the District Court of Guam informed this Court of
the suspension of Atty. Leon G. Maquera (Maquera) from the practice of law in Guam
for two (2) years pursuant to the Decision  rendered by the Superior Court of Guam on
May 7, 1996 in Special Proceedings Case No. SP0075-94, 2 a disciplinary case filed by the
Guam Bar Ethics Committee against Maquera.
The Court referred the matter of Maquera's suspension in Guam to the Bar Confidant
for comment in its Resolution dated November 19, 1996.3 Under Section 27, Rule 138
of the Revised Rules of Court, the disbarment or suspension of a member of the
Philippine Bar in a foreign jurisdiction, where he has also been admitted as an attorney,
is also a ground for his disbarment or suspension in this realm, provided the foreign
court's action is by reason of an act or omission constituting deceit, malpractice or
other gross misconduct, grossly immoral conduct, or a violation of the lawyer's oath.
In a Memorandum dated February 20, 1997, then Bar Confidant Atty. Erlinda C. Verzosa
recommended that the Court obtain copies of the record of Maquera's case since the
documents transmitted by the Guam District Court do not contain the factual and legal
bases for Maquera's suspension and are thus insufficient to enable her to determine
whether Maquera's acts or omissions which resulted in his suspension in Guam are
likewise violative of his oath as a member of the Philippine Bar. 4
Pursuant to this Court's directive in its Resolution dated March 18, 1997,5 the Bar
Confidant sent a letter dated November 13, 1997 to the District Court of Guam
requesting for certified copies of the record of the disciplinary case against Maquera
and of the rules violated by him.6
The Court received certified copies of the record of Maquera's case from the District
Court of Guam on December 8, 1997.7
Thereafter, Maquera's case was referred by the Court to the Integrated Bar of the
Philippines (IBP) for investigation report and recommendation within sixty (60) days
from the IBP's receipt of the case records.8
The IBP sent Maquera a Notice of Hearing  requiring him to appear before the IBP's
Commission on Bar Discipline on July 28, 1998. 9 However, the notice was returned
unserved because Maquera had already moved from his last known address in Agana,
Guam and did not leave any forwarding address. 10
On October 9, 2003, the IBP submitted to the Court its Report and
Recommendation and its Resolution No. XVI-2003-110,  indefinitely suspending
Maquera from the practice of law within the Philippines until and unless he updates
and pays his IBP membership dues in full.11
The IBP found that Maquera was admitted to the Philippine Bar on February 28, 1958.
On October 18, 1974, he was admitted to the practice of law in the territory of Guam.
He was suspended from the practice of law in Guam for misconduct, as he acquired his
client's property as payment for his legal services, then sold it and as a consequence
obtained an unreasonably high fee for handling his client's case. 12
In its Decision,  the Superior Court of Guam stated that on August 6, 1987, Edward
Benavente, the creditor of a certain Castro, obtained a judgment against Castro in a
civil case. Maquera served as Castro's counsel in said case. Castro's property subject of
the case, a parcel of land, was to be sold at a public auction in satisfaction of his
obligation to Benavente. Castro, however, retained the right of redemption over the
property for one year. The right of redemption could be exercised by paying the
amount of the judgment debt within the aforesaid period. 13
At the auction sale, Benavente purchased Castro's property for Five Hundred U.S.
Dollars (US$500.00), the amount which Castro was adjudged to pay him. 14
On December 21, 1987, Castro, in consideration of Maquera's legal services in the civil
case involving Benavente, entered into an oral agreement with Maquera and assigned
his right of redemption in favor of the latter.15
On January 8, 1988, Maquera exercised Castro's right of redemption by paying
Benavente US$525.00 in satisfaction of the judgment debt. Thereafter, Maquera had
the title to the property transferred in his name. 16
On December 31, 1988, Maquera sold the property to C.S. Chang and C.C. Chang for
Three Hundred Twenty Thousand U.S. Dollars (US$320,000.00). 17
On January 15, 1994, the Guam Bar Ethics Committee (Committee) conducted hearings
regarding Maquera's alleged misconduct.18
Subsequently, the Committee filed a Petition in the Superior Court of Guam praying
that Maquera be sanctioned for violations of Rules 1.5 19 and 1.8(a)20 of the Model
Rules of Professional Conduct (Model Rules) in force in Guam. In its Petition, the
Committee claimed that Maquera obtained an unreasonably high fee for his services.
The Committee further alleged that Maquera himself admitted his failure to comply
with the requirement in Rule 1.8 (a) of the Model Rules that a lawyer shall not enter
into a business transaction with a client or knowingly acquire a pecuniary interest
adverse to a client unless the transaction and the terms governing the lawyer's
acquisition of such interest are fair and reasonable to the client, and are fully disclosed
to, and understood by the client and reduced in writing. 21
The Committee recommended that Maquera be: (1) suspended from the practice of
law in Guam for a period of two 2 years, however, with all but thirty (30) days of the
period of suspension deferred; (2) ordered to return to Castro the difference between
the sale price of the property to the Changs and the amount due him for legal services
rendered to Castro; (3) required to pay the costs of the disciplinary proceedings; and
(4) publicly reprimanded. It also recommended that other jurisdictions be informed
that Maquera has been subject to disciplinary action by the Superior Court of Guam. 22
Maquera did not deny that Castro executed a quitclaim deed to the property in his
favor as compensation for past legal services and that the transaction, except for the
deed itself, was oral and was not made pursuant to a prior written agreement.
However, he contended that the transaction was made three days following the
alleged termination of the attorney-client relationship between them, and that the
property did not constitute an exorbitant fee for his legal services to Castro. 23
On May 7, 1996, the Superior Court of Guam rendered its Decision24 suspending
Maquera from the practice of law in Guam for a period of two (2) years and ordering
him to take the Multi-State Professional Responsibility Examination (MPRE) within that
period. The court found that the attorney-client relationship between Maquera and
Castro was not yet completely terminated when they entered into the oral agreement
to transfer Castro's right of redemption to Maquera on December 21, 1987. It also held
that Maquera profited too much from the eventual transfer of Castro's property to him
since he was able to sell the same to the Changs with more than US$200,000.00 in
profit, whereas his legal fees for services rendered to Castro amounted only to
US$45,000.00. The court also ordered him to take the MPRE upon his admission during
the hearings of his case that he was aware of the requirements of the Model Rules
regarding business transactions between an attorney and his client "in a very general
sort of way."25
On the basis of the Decision  of the Superior Court of Guam, the IBP concluded that
although the said court found Maquera liable for misconduct, "there is no evidence to
establish that [Maquera] committed a breach of ethics in the Philippines." 26 However,
the IBP still resolved to suspend him indefinitely for his failure to pay his annual dues as
a member of the IBP since 1977, which failure is, in turn, a ground for removal of the
name of the delinquent member from the Roll of Attorneys under Section 10, Rule 139-
A of the Revised Rules of Court.27
The power of the Court to disbar or suspend a lawyer for acts or omissions committed
in a foreign jurisdiction is found in Section 27, Rule 138 of the Revised Rules of Court, as
amended by Supreme Court Resolution dated February 13, 1992, which states:
Section 27. Disbarment or suspension of attorneys by Supreme Court, grounds therefor.
—A member of the bar may be disbarred or suspended from his office as attorney by
the Supreme Court for any deceit, malpractice, or other gross misconduct in such
office, grossly immoral conduct, or by reason of his conviction of a crime involving
moral turpitude, or for any violation of the oath which he is required to take before
admission to practice, or for a willful disobedience appearing as attorney for a party to
a case without authority to do so. The practice of soliciting cases at law for the purpose
of gain, either personally or through paid agents or brokers, constitutes malpractice.
The disbarment or suspension of a member of the Philippine Bar by a competent
court or other disciplinatory agency in a foreign jurisdiction where he has also been
admitted as an attorney is a ground for his disbarment or suspension if the basis of
such action includes any of the acts hereinabove enumerated.
The judgment, resolution or order of the foreign court or disciplinary agency shall be
prima facie evidence of the ground for disbarment or suspension (Emphasis supplied).
The Court must therefore determine whether Maquera's acts, namely: acquiring by
assignment Castro's right of redemption over the property subject of the civil case
where Maquera appeared as counsel for him; exercising the right of redemption; and,
subsequently selling the property for a huge profit, violate Philippine law or the
standards of ethical behavior for members of the Philippine Bar and thus constitute
grounds for his suspension or disbarment in this jurisdiction.
The Superior Court of Guam found that Maquera acquired his client's property by
exercising the right of redemption previously assigned to him by the client in payment
of his legal services. Such transaction falls squarely under Article 1492 in relation to
Article 1491, paragraph 5 of the Civil Code of the Philippines. Paragraph 5 of Article
149128 prohibits the lawyer's acquisition by assignment of the client's property which is
the subject of the litigation handled by the lawyer. Under Article 1492, 29 the prohibition
extends to sales in legal redemption.
The prohibition ordained in paragraph 5 of Article 1491 and Article 1492 is founded on
public policy because, by virtue of his office, an attorney may easily take advantage of
the credulity and ignorance of his client 30 and unduly enrich himself at the expense of
his client.
The case of In re: Ruste31 illustrates the significance of the aforementioned prohibition.
In that case, the attorney acquired his clients' property subject of a case where he was
acting as counsel pursuant to a deed of sale executed by his clients in his favor. He
contended that the sale was made at the instance of his clients because they had no
money to pay him for his services. The Court ruled that the lawyer's acquisition of the
property of his clients under the circumstances obtaining therein rendered him liable
for malpractice. The Court held:
…Whether the deed of sale in question was executed at the instance of the spouses
driven by financial necessity, as contended by the respondent, or at the latter's behest,
as contended by the complainant, is of no moment. In either case an attorney occupies
a vantage position to press upon or dictate his terms to a harassed client, in breach of
the "rule so amply protective of the confidential relations, which must necessarily exist
between attorney and client, and of the rights of both".32
The Superior Court of Guam also hinted that Maquera's acquisition of Castro's right of
redemption, his subsequent exercise of said right, and his act of selling the redeemed
property for huge profits were tainted with deceit and bad faith when it concluded that
Maquera charged Castro an exorbitant fee for his legal services. The court held that
since the assignment of the right of redemption to Maquera was in payment for his
legal services, and since the property redeemed by him had a market value of
US$248,220.00 as of December 21, 1987 (the date when the right of redemption was
assigned to him), he is liable for misconduct for accepting payment for his legal services
way beyond his actual fees which amounted only to US$45,000.00.
Maquera's acts in Guam which resulted in his two (2)-year suspension from the
practice of law in that jurisdiction are also valid grounds for his suspension from the
practice of law in the Philippines. Such acts are violative of a lawyer's sworn duty to act
with fidelity toward his clients. They are also violative of the Code of Professional
Responsibility, specifically, Canon 17 which states that "[a] lawyer owes fidelity to the
cause of his client and shall be mindful the trust and confidence reposed in him;" and
Rule 1.01 which prohibits lawyers from engaging in unlawful, dishonest, immoral or
deceitful conduct. The requirement of good moral character is not only a condition
precedent to admission to the Philippine Bar but is also a continuing requirement to
maintain one's good's standing in the legal profession. 33
It bears stressing that the Guam Superior Court's judgment ordering Maquera's
suspension from the practice of law in Guam does not automatically result in his
suspension or disbarment in the Philippines. Under Section 27, 34 Rule 138 of the
Revised Rules of Court, the acts which led to his suspension in Guam are mere grounds
for disbarment or suspension in this jurisdiction, at that only if the basis of the foreign
court's action includes any of the grounds for disbarment or suspension in this
jurisdiction.35 Likewise, the judgment of the Superior Court of Guam only
constitutes prima facie evidence of Maquera's unethical acts as a lawyer. 36 More
fundamentally, due process demands that he be given the opportunity to defend
himself and to present testimonial and documentary evidence on the matter in an
investigation to be conducted in accordance with Rule 139-B of the Revised Rules of
Court. Said rule mandates that a respondent lawyer must in all cases be notified of the
charges against him. It is only after reasonable notice and failure on the part of the
respondent lawyer to appear during the scheduled investigation that an investigation
may be conducted ex parte.37
Nevertheless, the Court agrees with the IBP that Maquera should be suspended from
the practice of law for non-payment of his IBP membership dues from 1977 up to the
present.38 Under Section 10, Rule 139-A of the Revised Rules of Court, non-payment of
membership dues for six (6) months shall warrant suspension of membership in the
IBP, and default in such payment for one year shall be ground for removal of the name
of the delinquent member from the Roll of Attorneys. 39
WHEREFORE, Atty. Leon G. Maquera is required to SHOW CAUSE, within fifteen (15)
days from receipt of this Resolution, why he should not be suspended or disbarred for
his acts which gave rise to the disciplinary proceedings against him in the Superior
Court of Guam and his subsequent suspension in said jurisdiction.
The Bar Confidant is directed to locate the current and correct address of Atty.
Maquera in Guam and to serve upon him a copy of this Resolution.
In the meantime, Atty. Maquera is SUSPENDED from the practice of law for ONE (1)
YEAR or until he shall have paid his membership dues, whichever comes later.
Let a copy of this Resolution be attached to Atty. Maquera's personal record in the
Office of the Bar Confidant and copies be furnished to all chapters of the Integrated Bar
of the Philippines and to all courts in the land.
SO ORDERED.

The Court notes that Maquera has not yet been able to adduce evidence on his behalf
regarding the charges of unethical behavior in Guam against him, as it is not certain
that he did receive the Notice of Hearing earlier sent by the IBP's Commission on Bar
Discipline. Thus, there is a need to ascertain Maquera's current and correct address in
Guam in order that another notice, this time specifically informing him of the charges
against him and requiring him to explain why he should not be suspended or disbarred
on those grounds (through this Resolution), may be sent to him.