G.R. No.

196251               July 9, 2014

May 16, 2000 500,000.00

OLIVAREZ REALTY CORPORATION and DR. PABLO R.

OLIVAREZ, Petitioner, June 8, 2000 1,000,000.00
vs.
BENJAMIN CASTILLO, Respondent. July 8, 2000 500,000.00

DECISION
August 8, 2000 500,000.00

LEONEN, J.:
September 8, 2000 500,000.00
Trial may be dispensed with and a summary judgment rendered if the case
can be resolved judiciously by plain resort to the pleadings, affidavits, October 8, 2000 500,000.00
depositions, and other papers filed by the parties.
November 8, 2000 500,000.00 7

This is a petition for review on certiorari 1 of the Court of Appeals'

decision2 dated July 20, 2010 and resolution3 dated March 18, 2011 in
CAG.R. CV No. 91244.
The facts as established from the pleadings of the parties are as follows:
Benjamin Castillo was the registered owner of a 346,918-squaremeter parcel
of land located in Laurel, Batangas, covered by Transfer Certificate of Title
No. T-19972.4 The Philippine Tourism Authority allegedly claimed ownership
of the sameparcel of land based on Transfer Certificate of Title No. T-
18493.5 On April 5, 2000, Castillo and Olivarez Realty Corporation,
represented by Dr. Pablo R. Olivarez, entered into a contract of conditional
sale6 over the property. Under the deed of conditional sale, Castillo agreed
to sell his property to Olivarez Realty Corporation for ₱19,080,490.00.
Olivarez Realty Corporation agreed toa down payment of ₱5,000,000.00, to
be paid according to the following schedule:
DATE AMOUNT
April 8, 2000 500,000.00
As to the balance of ₱14,080,490.00, Olivarez Realty Corporation agreed to
pay in 30 equal monthly installments every eighth day of the month
beginning in the month that the parties would receive a decision voiding the
Philippine Tourism Authority’s title to the property.8 Under the deed of
conditional sale, Olivarez RealtyCorporation shall file the action against the
Philippine Tourism Authority "with the full assistance of
[Castillo]."9 Paragraph C of the deed of conditional sale provides:
C. [Olivarez Realty Corporation] assumes the responsibility of taking
necessary legal action thru Court to have the claim/title TCT T-18493 of
Philippine Tourism Authority over the above-described property be nullified
and voided; with the full assistance of [Castillo][.]10
Should the action against the Philippine Tourism Authority be denied,
Castillo agreed to reimburse all the amounts paid by Olivarez Realty
Corporation. Paragraph D of the deed of conditional sale provides:
D. In the event that the Court denie[s] the petition against the Philippine
Tourism Authority, all sums received by [Castillo] shall be reimbursed to
[Olivarez Realty Corporation] without interest[.]11

May 8, 2000 500,000.00 As to the "legitimate tenants" occupying the property, Olivarez Realty
Corporation undertook to pay them "disturbance compensation," while
Castillo undertook to clear the land of the tenants within six months from the
signing of the deed of conditional sale. Should Castillo fail to clear the land
within six months, Olivarez Realty Corporation may suspend its monthly
down payment until the tenants vacate the property. Paragraphs E and F of
the deed of conditional sale provide: E. That [Olivarez Realty Corporation]
shall pay the disturbance compensation to legitimate agricultural tenants and
fishermen occupants which in no case shall exceed ONE MILLION FIVE
HUNDRED THOUSAND (₱1,500,000.00) PESOS. Said amountshall not
form part of the purchase price. In excess of this amount, all claims shall be
for the account of [Castillo];
F. That [Castillo] shall clear the land of [the] legitimate tenants within a
period of six (6) months upon signing of this Contract, and in case [Castillo]
fails, [Olivarez Realty Corporation] shall have the right to suspend the
monthly down payment until such time that the tenants [move] out of the
land[.]12
The parties agreed thatOlivarez Realty Corporation may immediately occupy
the property upon signing of the deed of conditional sale. Should the
contract be cancelled, Olivarez RealtyCorporation agreed to return the
property’s possession to Castillo and forfeit all the improvements it may have
introduced on the property. Paragraph I of the deed of conditional sale
states:
I. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall
be entitled to occupy, possess and develop the subject property. In case this
Contract is canceled [sic], any improvement introduced by [the corporation]
on the property shall be forfeited in favor of [Castillo][.]13
On September 2, 2004, Castillo filed a complaint 14 against Olivarez Realty
Corporation and Dr. Olivarez with the Regional Trial Court of Tanauan City,
Batangas.
Castillo alleged that Dr. Olivarez convinced him into selling his property to
Olivarez Realty Corporation on the representation that the corporation shall
be responsible in clearing the property of the tenants and in paying them
disturbance compensation. He further alleged that Dr. Olivarez solely
prepared the deed of conditional sale and that he was made to sign the
contract with its terms "not adequately explained [to him] in Tagalog."15
After the parties had signed the deed of conditional sale, Olivarez Realty
Corporation immediately took possession of the property. However, the
corporation only paid 2,500,000.00 ofthe purchase price. Contrary to the
agreement, the corporation did not file any action against the Philippine
Tourism Authority to void the latter’s title to the property. The corporation
neither cleared the land of the tenants nor paid them disturbance
compensation. Despite demand, Olivarez Realty Corporation refused to fully
pay the purchase price.16
Arguing that Olivarez Realty Corporation committed substantial breach of the
contract of conditional sale and that the deed of conditional sale was a
contract of adhesion, Castillo prayed for rescission of contract under Article
1191 of the Civil Code of the Philippines. He further prayed that Olivarez
Realty Corporation and Dr. Olivarez be made solidarily liable for moral
damages, exemplary damages, attorney’s fees, and costs of suit.17
In their answer,18 Olivarez Realty Corporation and Dr. Olivarez admitted that
the corporation only paid ₱2,500,000.00 ofthe purchase price. In their
defense, defendants alleged that Castillo failed to "fully assist"19 the
corporation in filing an action against the Philippine Tourism Authority.
Neither did Castillo clear the property of the tenants within six months from
the signing of the deed of conditional sale. Thus, according to defendants,
the corporation had "all the legal right to withhold the subsequent payments
to [fully pay] the purchase price."20
Olivarez Realty Corporation and Dr. Olivarez prayedthat Castillo’s complaint
be dismissed. By way of compulsory counterclaim, they prayed for
₱100,000.00 litigation expenses and ₱50,000.00 attorney’s fees.21
Castillo replied to the counterclaim, 22 arguing that Olivarez Realty
Corporation and Dr. Olivarez had no right to litigation expenses and
attorney’s fees. According to Castillo, the deed of conditional sale clearly
states that the corporation "assume[d] the responsibility of taking necessary
legal action"23 against the Philippine Tourism Authority, yet the corporation
did not file any case. Also, the corporation did not pay the tenants
disturbance compensation. For the corporation’s failure to fully pay the
purchase price, Castillo claimed that hehad "all the right to pray for the
rescission of the [contract],"24 and he "should not be held liable . . . for any
alleged damages by way of litigation expenses and attorney’s fees."25
On January 10, 2005, Castillo filed a request for admission, 26 requesting Dr.
Olivarez to admit under oath the genuineness of the deed of conditional sale
and Transfer Certificate of Title No. T-19972. He likewise requested Dr.
Olivarez to admit the truth of the following factual allegations:
1. That Dr. Olivarez is the president of Olivarez Realty Corporation;
 2. That Dr. Olivarez offered to purchase the parcel of land from
Castillo and that he undertook to clear the property of the tenants
and file the court action to void the Philippine Tourism Authority’s
title to the property;
3. That Dr. Olivarez caused the preparation of the deed of
conditional sale;
4. That Dr. Olivarez signed the deed of conditional sale for and on
behalf of Olivarez Realty Corporation;
5. That Dr. Olivarez and the corporation did not file any action
against the Philippine Tourism Authority;
6. That Dr. Olivarez and the corporation did not pay the tenants
disturbance compensation and failed to clear the property of the
tenants; and
7. That Dr. Olivarez and the corporation only paid ₱2,500,000.00 of
the agreed purchase price.27
On January 25, 2005, Dr. Olivarez and Olivarez Realty Corporation filed their
objections to the request for admission,28 stating that they "reiterate[d] the
allegations [and denials] in their [answer]."29
The trial court conducted pre-trial conference on December 17, 2005.
On March 8, 2006, Castillo filed a motion for summary judgment and/or
judgment on the pleadings.30 He argued that Olivarez Realty Corporation
and Dr. Olivarez "substantially admitted the material allegations of [his]
complaint,"31 specifically:
1. That the corporation failed to fully pay the purchase price for his
property;32
2. That the corporation failed to file an action to void the Philippine
Tourism Authority’s title to his property;33 and
3. That the corporation failed to clear the property of the tenants
and pay them disturbance compensation.34
Should judgment on the pleadings beimproper, Castillo argued that summary
judgment may still be rendered asthere is no genuine issue as to any
material fact.35 He cited Philippine National Bank v. Noah’s Ark Sugar
Refinery36 as authority.
Castillo attached to his motion for summary judgment and/or judgment on
the pleadings his affidavit37 and the affidavit of a Marissa Magsino 38 attesting
to the truth of the material allegations of his complaint.
Olivarez Realty Corporation and Dr. Olivarez opposed 39 the motion for
summary judgment and/or judgment on the pleadings, arguing that the
motion was "devoid of merit."40 They reiterated their claim that the
corporation withheld further payments of the purchase price because "there
ha[d] been no favorable decision voiding the title of the Philippine Tourism
Authority."41 They added that Castillo sold the property to another person
and that the sale was allegedly litigated in Quezon City.42
Considering that a title adverse to that of Castillo’s existed, Olivarez Realty
Corporation and Dr. Olivarez argued that the case should proceed to trial
and Castillo be required to prove that his title to the property is "not spurious
or fake and that he had not sold his property to another person."43
In reply to the opposition to the motion for summary judgment and/or
judgment on the pleadings,44 Castillo maintained that Olivarez Realty
Corporation was responsible for the filing of an action against the Philippine
Tourism Authority. Thus, the corporation could not fault Castillo for not suing
the PhilippineTourism Authority.45 The corporation illegally withheld
payments of the purchase price.
As to the claim that the case should proceed to trial because a title adverse
to his title existed, Castillo argued that the Philippine Tourism Authority’s title
covered another lot, not his property.46
During the hearing on August 3, 2006, Olivarez Realty Corporation and Dr.
Olivarez prayed that they be given 30 days to file a supplemental
memorandum on Castillo’s motion for summary judgment and/or judgment
on the pleadings.47
The trial court granted the motion. Itgave Castillo 20 days to reply to the
memorandum and the corporation and Dr. Olivarez 15 days to respond to
Castillo’s reply.48
In their supplemental memorandum,49 Olivarez Realty Corporation and Dr.
Olivarez argued that there was "an obvious ambiguity" 50 as to which should
occur first — the payment of disturbance compensation to the tenants or the
clearing of the property of the tenants.51 This ambiguity, according to
defendants, is a genuine issue and "oughtto be threshed out in a full blown
trial."52
Olivarez Realty Corporation and Dr. Olivarez added that Castillo prayed for
irreconcilable reliefs of reformation of instrument and rescission of
contract.53 Thus, Castillo’s complaint should be dismissed.
Castillo replied54 to the memorandum, arguing that there was no genuine
issue requiring trial of the case. According to Castillo, "common sense
dictates . . . that the legitimate tenants of the [property] shall not vacate the
premises without being paid any disturbance compensation . . ."55 Thus, the
payment of disturbance compensation should occur first before clearing the
property of the tenants.
With respect to the other issuesraised in the supplemental memorandum,
specifically, that Castillo sold the property to another person, he argued that
these issues should not be entertained for not having been presented during
pre-trial.56
In their comment on the reply memorandum, 57 Olivarez Realty Corporation
and Dr. Olivarez reiterated their arguments that certain provisions of the
deed of conditional sale were ambiguous and that the complaint prayed for
irreconcilable reliefs.58
As to the additional issues raised in the supplemental memorandum,
defendants argued that issues not raised and evidence not identified and
premarked during pre-trial may still be raised and presented during trial for
good cause shown. Olivarez Realty Corporation and Dr. Olivarez prayed that
Castillo’s complaint be dismissed for lack of merit.59
Ruling of the trial court
The trial court found that Olivarez Realty Corporation and Dr. Olivarez’s
answer "substantially [admitted the material allegations of Castillo’s]
complaint and [did] not . . . raise any genuine issue [as to any material
fact]."60
Defendants admitted that Castillo owned the parcel of land covered by
Transfer Certificate of Title No. T-19972. They likewise admitted the
genuineness of the deed of conditional sale and that the corporation only
paid ₱2,500,000.00 of the agreed purchase price.61
According to the trial court, the corporation was responsible for suing the
Philippine Tourism Authority and for paying the tenants disturbance
compensation. Since defendant corporation neither filed any case nor paid
the tenants disturbance compensation, the trial court ruled that defendant
corporation had no right to withhold payments from Castillo.62
As to the alleged ambiguity of paragraphs E and F of the deed of conditional
sale, the trial court ruled that Castillo and his witness, Marissa Magsino,
"clearly established"63 in their affidavits that the deed of conditional sale was
a contract of adhesion. The true agreement between the parties was that the
corporation would both clear the land of the tenants and pay them
disturbance compensation.
With these findings, the trial court ruled that Olivarez Realty Corporation
breached the contract ofconditional sale.1âwphi1 In its decision64 dated April
23, 2007, the trial court ordered the deed of conditional sale rescinded and
the ₱2,500,000.00 forfeited in favor of Castillo "as damages under Article
1191 of the Civil Code."65
The trial court declared Olivarez Realty Corporation and Dr. Olivarez
solidarily liable to Castillo for 500,000.00 as moral damages, ₱50,000.00 as
exemplary damages, and ₱50,000.00 as costs of suit.66
Ruling of the Court of Appeals
Olivarez Realty Corporation and Dr. Olivarez appealed to the Court of
Appeals.67
In its decision68 dated July 20, 2010, the Court of Appeals affirmed in totothe
trial court’s decision. According to the appellate court, the trial court "did not
err in its finding that there is no genuine controversy as to the facts involved
[in this case]."69 The trial court, therefore, correctly rendered summary
judgment.70
As to the trial court’s award of damages, the appellatecourt ruled that a court
may award damages through summary judgment "if the parties’ contract
categorically [stipulates] the respective obligations of the parties in case of
default."71 As found by the trial court,paragraph I of the deed of conditional
sale categorically states that "in case [the deed of conditional sale] is
cancelled, any improvementintroduced by [Olivarez Realty Corporation] on
the property shall be forfeited infavor of [Castillo]."72 Considering that
Olivarez Realty Corporation illegally retained possession of the property,
Castillo forewent rentto the property and "lost business opportunities." 73 The
₱2,500,000.00 down payment, according to the appellate court, shouldbe
forfeited in favor of Castillo. Moral and exemplary damages and costs ofsuit
were properly awarded.
On August 11, 2010, Olivarez RealtyCorporation and Dr. Olivarez filed their
motion for reconsideration,74 arguing that the trial court exceeded its
authority in forfeiting the ₱2,500,000.00 down payment and awarding
₱500,000.00 in moral damages to Castillo. They argued that Castillo only
prayed for a total of ₱500,000.00 as actual and moral damages in his
complaint.75 Appellants prayed that the Court of Appeals "take a second hard
look"76 at the case and reconsider its decision.
In the resolution  dated March 18, 2011, the Court of Appeals denied the
77
motion for reconsideration.
Proceedings before this court
Olivarez Realty Corporation and Dr. Olivarez filed their petition for review on
certiorari78 with this court. Petitionersargue that the trial court and the Court
of Appeals erred in awarding damages to Castillo. Under Section 3, Rule 35
of the 1997 Rules ofCivil Procedure, summary judgment may be rendered
except as to the amountof damages. Thus, the Court of Appeals "violated
the procedural steps in rendering summary judgment."79
Petitioners reiterate that there are genuine issues ofmaterial fact to be
resolved in this case. Thus, a full-blown trial is required, and the trial court
prematurely decided the case through summary judgment. They cite Torres
v. Olivarez Realty Corporation and Dr. Pablo Olivarez, 80 a case decided by
the Ninth Division of the Court of Appeals.
In Torres, Rosario Torres was the registeredowner of a parcel of land
covered by Transfer Certificate of Title No. T-19971. Under a deed of
conditional sale, she sold her property to OlivarezRealty Corporation for
₱17,345,900.00. When the corporation failed to fully pay the purchase price,
she sued for rescission of contractwith damages. In their answer, the
corporation and Dr. Olivarez argued thatthey discontinued payment because
Rosario Torres failed to clear the land of the tenants.
Similar to Castillo, Torres filed a motion for summary judgment, which the
trial court granted. On appeal, the Court of Appeals set aside the trial court’s
summary judgment and remanded the case to the trial court for further
proceedings.81 The Court of Appeals ruled that the material allegations of the
complaint "were directly disputed by [the corporation and Dr. Olivarez] in
their answer"82 when they argued that they refused to pay because Torres
failed to clear the land of the tenants.
With the Court of Appeals’ decision in Torres,Olivarez Realty Corporation
and Dr. Olivarez argue that this case should likewise be remanded to the
trial court for further proceedings under the equipoise rule.
Petitioners maintain that Castillo availed himself of the irreconcilable reliefs
of reformation of instrument and rescission of contract. 83 Thus, the trial court
should have dismissed the case outright.
Petitioners likewise argue that the trial court had no jurisdiction to decide the
case as Castillo failed topay the correct docket fees. 84 Petitioners argue that
Castillo should have paid docket fees based on the property’s fair market
value since Castillo’s complaint is a real action.85
In his comment,86 Castillo maintains that there are no genuine issues as to
any material fact inthis case. The trial court, therefore, correctly rendered
summary judgment.
As to petitioners’ claim that the trial court had no jurisdiction to decide the
case, Castillo argues that he prayed for rescission of contract in his
complaint. This action is incapable of pecuniary estimation, and the Clerk of
Court properly computed the docket fees based on this prayer.87 Olivarez
Realty Corporation and Dr. Olivarez replied,88 reiterating their arguments in
the petition for review on certiorari.
The issues for our resolution are the following:
I. Whether the trial court erred in rendering summary judgment;
II. Whether proper docket fees were paid in this case.
The petition lacks merit.
I A summary judgment is usually distinguished from a judgment on the
The trial court correctly rendered
summary judgment, as there were no
genuine issues of material fact in this case
Trial "is the judicial examination and determination of the issues between the
parties to the action."89 During trial, parties "present their respective evidence
of their claims and defenses."90 Parties to an action have the right "to a
plenary trial of the case"91 to ensure that they were given a right to fully
present evidence on their respective claims.
There are instances, however, whentrial may be dispensed with. Under Rule
35 of the 1997 Rules of Civil Procedure, a trial court may dispense with trial
and proceed to decide a case if from the pleadings, affidavits, depositions,
and other papers on file, there is no genuine issue as to any material fact. In
such a case, the judgment issued is called a summary judgment.
A motion for summary judgment is filed either by the claimant or the
defending party.92 The trial court then hears the motion for summary
judgment. If indeed there are no genuine issues of material fact, the trial
court shall issue summary judgment. Section 3, Rule 35 of the 1997 Rules of
Civil Procedure provides:
SEC. 3. Motion and proceedings thereon. – The motion shall be served at
least ten (10) days beforethe time specified for the hearing. The adverse
party may serve opposing affidavits, depositions, or admission at least three
(3) days before the hearing. After the hearing, the judgment sought shall be
rendered forthwith ifthe pleadings, supporting affidavits, depositions, and
admissions on file, showthat, except as to the amount of damages, there is
no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.
An issue of material fact exists if the answer or responsive pleading filed
specifically denies the material allegations of fact set forth in the complaint or
pleading. If the issue offact "requires the presentation of evidence, it is a
genuine issue of fact."93 However, if the issue "could be resolved judiciously
by plain resort"94 to the pleadings, affidavits, depositions, and other paperson
file, the issue of fact raised is sham, and the trial court may resolve the
action through summary judgment.
pleadings. Under Rule 34 of the 1997 Rules of Civil Procedure, trial may
likewise be dispensed with and a case decided through judgment on the
pleadings if the answer filed fails to tender an issue or otherwise admits the
material allegations of the claimant’s pleading.95
Judgment on the pleadings is proper when the answer filed fails to tender
any issue, or otherwise admitsthe material allegations in the complaint. 96 On
the other hand, in a summary judgment, the answer filed tenders issues as
specific denials and affirmative defenses are pleaded, but the issues raised
are sham, fictitious, or otherwise not genuine.97
In this case, Olivarez Realty Corporation admitted that it did not fully pay the
purchase price as agreed upon inthe deed of conditional sale. As to why it
withheld payments from Castillo, it set up the following affirmative defenses:
First, Castillo did not filea case to void the Philippine Tourism Authority’s title
to the property; second,Castillo did not clear the land of the tenants; third,
Castillo allegedly sold the property to a third person, and the subsequent
sale is currently being litigated beforea Quezon City court.
Considering that Olivarez RealtyCorporation and Dr. Olivarez’s answer
tendered an issue, Castillo properly availed himself of a motion for summary
judgment.
However, the issues tendered by Olivarez Realty Corporation and Dr.
Olivarez’s answer are not genuine issues of material fact. These are issues
that can be resolved judiciously by plain resort to the pleadings, affidavits,
depositions, and other papers on file; otherwise, these issues are sham,
fictitious, or patently unsubstantial.
Petitioner corporation refused to fully pay the purchase price because no
court case was filed to void the Philippine Tourism Authority’s title on the
property. However, paragraph C of the deed of conditional sale is clear that
petitioner Olivarez Realty Corporation is responsible for initiating court action
against the Philippine Tourism Authority:
C. [Olivarez Realty Corporation] assumes the responsibility of taking
necessary legal action thru Court to have the claim/title TCT T-18493 of
Philippine Tourism Authority over the above-described property be nullified
and voided; with the full assistance of [Castillo].98
Castillo’s alleged failureto "fully assist" 99 the corporation in filing the case is
not a defense. As the trial court said, "how can [Castillo] assist [the
corporation] when [the latter] did not file the action [in the first place?]"100
Neither can Olivarez Realty Corporation argue that it refused to fully pay the
purchase price due to the Philippine Tourism Authority’s adverse claim on
the property. The corporation knew of this adverse claim when it entered into
a contract of conditional sale. It even obligated itself under paragraph C of
the deed of conditional sale to sue the Philippine Tourism Authority. This
defense, therefore, is sham.
Contrary to petitioners’ claim, there is no "obvious ambiguity"101 as to which
should occur first — the payment of the disturbance compensation or the
clearing of the land within six months from the signing of the deed of
conditional sale. The obligations must be performed simultaneously. In this
case, the parties should have coordinated to ensure that tenants on the
property were paid disturbance compensation and were made to vacate the
property six months after the signingof the deed of conditional sale.
On one hand, pure obligations, or obligations whose performance do not
depend upon a future or uncertainevent, or upon a past event unknown to
the parties, are demandable at once.102 On the other hand, obligations with a
resolutory period also take effect at once but terminate upon arrival of the
day certain.103
Olivarez Realty Corporation’s obligation to pay disturbance compensation is
a pure obligation. The performance of the obligation to pay disturbance
compensation did not depend on any condition. Moreover, the deed of
conditional sale did not give the corporation a period to perform the
obligation. As such, the obligation to pay disturbance compensation was
demandable at once. Olivarez RealtyCorporation should have paid the
tenants disturbance compensation upon execution of the deed of conditional
sale.
With respect to Castillo’s obligation to clear the land of the tenants within six
months from the signing of the contract, his obligation was an obligation with
a resolutory period. The obligation to clear the land of the tenants took effect
at once, specifically, upon the parties’ signing of the deed of conditional sale.
Castillo had until October 2, 2000, six months from April 5, 2000 when the
parties signed the deed of conditional sale, to clear the land of the tenants.
Olivarez Realty Corporation, therefore, had no right to withhold payments of
the purchase price. As the trial court ruled, Olivarez Realty Corporation "can
only claim non-compliance [of the obligation to clear the land of the tenants
in] October 2000."104 It said:
. . . it is clear that defendant [Olivarez Realty Corporation] should have paid
the installments on the ₱5 million downpayment up to October 8, 2000, or a
total of ₱4,500,000.00. That is the agreement because the only time that
defendant [corporation] can claim non-compliance of the condition is after
October, 2000 and so it has the clear obligation topay up to the October
2000 the agreed installments. Since it paid only 2,500,000.00, then a
violation of the contract has already been committed. . . .105
The claim that Castillo sold the property to another is fictitious and was made
in bad faith to prevent the trial court from rendering summary judgment.
Petitioners did not elaborate on this defense and insisted on revealing the
identity of the buyer only during trial. 106 Even in their petition for review on
certiorari, petitioners never disclosed the name of this alleged buyer. Thus,
as the trial court ruled, this defense did not tender a genuine issue of fact,
with the defense "bereft of details."107
Castillo’s alleged prayer for the irreconcilable reliefs of rescission of contract
and reformation of instrument is not a ground to dismiss his complaint. A
plaintiff may allege two or more claims in the complaint alternatively or
hypothetically, either in one cause of action or in separate causes of action
per Section 2, Rule 8 of the 1997 Rules of Civil Procedure. 108 It is the filing of
two separatecases for each of the causes of action that is prohibited since
the subsequently filed case may be dismissed under Section 4, Rule 2 of the
1997 Rules of Civil Procedure109 on splitting causes of action.
As demonstrated, there are no genuineissues of material fact in this case.
These are issues that can be resolved judiciously by plain resort to the
pleadings, affidavits, depositions, and other papers on file. As the trial court
found, Olivarez Realty Corporation illegally withheld payments of the
purchase price. The trial court did not err in rendering summary judgment.
II
Castillo is entitled to cancel the contract
of conditional sale
Since Olivarez Realty Corporation illegally withheld payments of the
purchase price, Castillo is entitled to cancel his contract with petitioner
corporation. However, we properly characterize the parties’ contract as a
contract to sell, not a contract of conditional sale.
In both contracts to sell and contracts of conditional sale, title to the property
remains with the seller until the buyer fully pays the purchase price. 110 Both
contracts are subject to the positive suspensive condition of the buyer’s full
payment of the purchase price.111
In a contract of conditional sale, the buyer automatically acquires title to the
property upon full payment of the purchase price.112 This transfer of title is
"by operation of law without any further act having to be performed by the
seller."113 In a contract to sell, transfer of title to the prospective buyer is not
automatic.114 "The prospective seller [must] convey title to the property
[through] a deed of conditional sale."115
The distinction is important to determine the applicable laws and remedies in
case a party does not fulfill his or her obligations under the contract. In
contracts of conditional sale, our laws on sales under the Civil Code of the
Philippines apply. On the other hand, contracts to sell are not governed by
our law on sales116 but by the Civil Code provisions on conditional
obligations.
Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal
obligations does not apply to contracts to sell.117 As this court explained in
Ong v. Court of Appeals,118 failure to fully pay the purchase price in contracts
to sell is not the breach of contract under Article 1191. 119 Failure to fully pay
the purchase price is "merely an event which prevents the [seller’s]
obligation to convey title from acquiring binding force."120 This is because
"there can be no rescission of an obligation that is still nonexistent, the
suspensive condition not having [happened]."121
In this case, Castillo reserved his title to the property and undertook to
execute a deed of absolute sale upon Olivarez Realty Corporation’s full
payment of the purchase price.122 Since Castillo still has to execute a deed of
absolute sale to Olivarez RealtyCorporation upon full payment of the
purchase price, the transfer of title is notautomatic. The contract in this case
is a contract to sell.
As this case involves a contract tosell, Article 1191 of the Civil Code of the
Philippines does not apply. The contract to sell is instead cancelled, and the
parties shall stand as if the obligation to sell never existed.123
Olivarez Realty Corporation shall return the possession of the property to
Castillo. Any improvement that Olivarez Realty Corporation may have
introduced on the property shall be forfeited in favor of Castillo per
paragraph I of the deed of conditional sale:
I. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall
be entitled to occupy, possess and develop the subject property. In case this
Contract is cancelled, any improvement introduced by [Olivarez Realty
Corporation] on the property shall be forfeited in favor of [Castillo.]124
As for prospective sellers, thiscourt generally orders the reimbursement of
the installments paidfor the property when setting aside contracts to
sell.125 This is true especially ifthe property’s possession has not been
delivered to the prospective buyer prior to the transfer of title.
In this case, however, Castillo delivered the possession of the property to
Olivarez Realty Corporation prior to the transfer of title. We cannot order the
reimbursement of the installments paid.
In Gomez v. Court of Appeals,126 the City of Manila and Luisa Gomez
entered into a contract to sell over a parcel of land. The city delivered the
property’s possession to Gomez. She fully paid the purchase price for the
property but violated the terms of the contract to sell by renting out the
property to other persons. This court set aside the contract to sell for her
violation of the terms of the contract to sell. It ordered the installments paid
forfeited in favor of the City of Manila "as reasonable compensation for
[Gomez’s] use of the [property]"127 for eight years.
In this case, Olivarez Realty Corporation failed to fully pay the purchase
price for the property. It only paid ₱2,500,000.00 out of the ₱19,080,490.00
agreed purchase price. Worse, petitioner corporation has been in
possession of Castillo’s property for 14 years since May 5, 2000 and has not
paid for its use of the property.
Similar to the ruling in Gomez, we order the ₱2,500,000.00 forfeited in favor
of Castillo as reasonable compensation for Olivarez Realty Corporation’s
use of the property.
III
Olivarez Realty Corporation is liable for
moral and exemplary damages and
attorney’s fees
We note that the trial court erred in rendering summary judgment on the
amount of damages. Under Section 3, Rule 35 of the 1997 Rules of Civil
Procedure, summary judgment may be rendered, except as to the amount of
damages.
In this case, the trial court erred in forfeiting the ₱2,500,000.00 in favor of
Castillo as damages under Article 1191 of the Civil Code of the Philippines.
As discussed, there is nobreach of contract under Article 1191 in this case.
The trial court likewise erred inrendering summary judgment on the amount
of moral and exemplary damages and attorney’s fees.
Nonetheless, we hold that Castillois entitled to moral damages, exemplary
damages, and attorney’s fees.
Moral damages may be awarded in case the claimant experienced physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury.128
As for exemplary damages, they are awarded in addition to moral damages
by way of example or correction for the public good. 129 Specifically in
contracts, exemplary damages may be awarded if the defendant acted in a
wanton, fraudulent,reckless, oppressive, or malevolent manner.130
Under the deed of conditional sale, Olivarez Realty Corporation may only
suspend the monthly down payment in case Castillo fails to clear the land of
the tenants six months from the signing of the instrument. Yet, even before
the sixth month arrived, Olivarez Realty Corporation withheld payments for
Castillo’s property. It evenused as a defense the fact that no case was filed
against the PhilippineTourism Authority when, under the deed of conditional
sale, Olivarez Realty Corporation was clearly responsible for initiating action
against the Philippine Tourism Authority. These are oppressive and
malevolent acts, and we find Castillo entitled to ₱500,000.00 moral damages
and ₱50,000.00 exemplary damages:
Plaintiff Castillo is entitled to moral damages because of the evident bad
faith exhibited by defendants in dealing with him regarding the sale of his lot
to defendant [Olivarez Realty Corporation]. He suffered much prejudice due
to the failure of defendants to pay him the balance of purchase price which
he expected touse for his needs which caused him wounded feelings,
sorrow, mental anxiety and sleepless nights for which defendants should pay
₱500,000.00 as moral damages more than six (6) years had elapsed and
defendants illegally and unfairly failed and refused to pay their legal
obligations to plaintiff, unjustly taking advantage of a poor uneducated man
like plaintiff causing much sorrow and financial difficulties. Moral damages in
favor of plaintiff is clearly justified . . . [Castillo] is also entitled to ₱50,000.00
as exemplary damages to serve as a deterrent to other parties to a contract
to religiously comply with their prestations under the contract.131
We likewise agree that Castillo is entitled to attorney’s fees in addition to the
exemplary damages.132 Considering that Olivarez Realty Corporation refused
to satisfy Castillo’splainly valid, just, and demandable claim,133 the award of
₱50,000.00 as attorney’s fees is in order. However, we find that Dr. Pablo
R.Olivarez is not solidarily liable with Olivarez Realty Corporation for the
amount of damages.
Under Article 1207 of the Civil Code of the Philippines, there is solidary
liability only when the obligation states it or when the law or the nature of the
obligation requires solidarity.134 In case of corporations, they are solely liable
for their obligations.135 The directors or trustees and officers are not liable
with the corporation even if it is through their acts that the corporation
incurred the obligation. This is because a corporation is separate and distinct
from the persons comprising it.136
As an exception to the rule, directors or trustees and corporate officers may
be solidarily liable with the corporation for corporate obligations if they acted
"in bad faith or with gross negligence in directing the corporate affairs."137
In this case, we find that Castillo failed to prove with preponderant evidence
that it was through Dr. Olivarez’s bad faith or gross negligence that Olivarez
Realty Corporation failed to fully pay the purchase price for the property. Dr.
Olivarez’s alleged act of making Castillo sign the deed of conditional sale
without explaining to the latter the deed’s terms in Tagalog is not reason to
hold Dr. Olivarez solidarily liable with the corporation. Castillo had a choice
not to sign the deed of conditional sale. He could have asked that the deed
of conditional sale be written in Tagalog. Thus, Olivarez Realty Corporation
issolely liable for the moral and exemplary damages and attorney’s fees to
Castillo.
IV
The trial court acquired jurisdiction over
Castillo’s action as he paid the correct
docket fees
Olivarez Realty Corporation and Dr. Olivarez claimed that the trial court had
no jurisdiction to take cognizance of the case. In the reply/motion to dismiss
the complaint138 they filed with the Court of Appeals, petitioners argued that
Castillo failed to pay the correct amount of docket fees. Stating that this
action is a real action, petitioners argued that the docket fee Castillo paid
should have been based on the fair market value of the property. In this
case, Castillo only paid 4,297.00, which is insufficient "if the real nature of
the action was admitted and the fair market value of the property was
disclosed and made the basis of the amount of docket fees to be paid to the
court."139 Thus, according to petitioners, the case should be dismissed for
lack of jurisdiction.
Castillo countered that his action for rescission is an action incapable of
pecuniary estimation. Thus, the Clerk of Court of the Regional Trial Court of
Tanauan City did not err in assessing the docket fees based on his prayer.
We rule for Castillo. In De Leon v. Court of Appeals, 140 this court held that an
action for rescission of contract of sale of real property is an action incapable
of pecuniary estimation. In De Leon, the action involved a real property.
Nevertheless, this court held that "it is the nature of the action as one for
rescission of contract which is controlling."141 Consequently, the docket fees
to be paid shall be for actions incapableof pecuniary estimation, regardless if
the claimant may eventually recover the real property. This court said:
. . . the Court in Bautista v.Lim, held that an action for rescission of contract
is one which cannot be estimated and therefore the docket fee for its filing
should be the flat amount of ₱200.00 as then fixed in the former Rule 141,
§141, §5(10). Said this Court:
We hold that Judge Dalisay did not err in considering Civil Case No. V-144
as basically one for rescission or annulment of contract which is not
susceptible of pecuniary estimation (1 Moran's Comments on the Rules of
Court, 1970 Ed, p. 55; Lapitan vs. Scandia, Inc., L-24668, July 31, 1968, 24
SCRA 479, 781-483).
Consequently, the fee for docketing it is ₱200, an amount already paid by
plaintiff, now respondent Matilda Lim.1âwphi1 (She should pay also the two
pesos legal research fund fee, if she has not paid it, as required in Section 4
of Republic Act No. 3870, the charter of the U.P. Law Center).
Thus, although eventually the result may be the recovery of land, it is the
nature of the action as one for rescission of contract which is controlling. The
Court of Appeals correctly applied these cases to the present one. As it said:
We would like to add the observations that since the action of petitioners
[private respondents] against private respondents [petitioners] is solely for
annulment or rescission which is not susceptible of pecuniary estimation, the
action should not be confused and equated with the "value of the property"
subject of the transaction; that by the very nature of the case, the
allegations, and specific prayer in the complaint, sans any prayer for
recovery of money and/or value of the transaction, or for actual or
compensatory damages, the assessment and collection of the legal fees
should not be intertwined with the merits of the case and/or what may be its
end result; and that to sustain private respondents' [petitioners'] position on
what the respondent court may decide after all, then the assessment should
be deferred and finally assessed only after the court had finally decided the
case, which cannot be done because the rules require that filing fees should
be based on what is alleged and prayed for in the face of the complaint and
paid upon the filing of the complaint.142
Although we discussed that there isno rescission of contract to speak of in
contracts of conditional sale, we hold that an action to cancel a contract to
sell, similar to an action for rescission of contract of sale, is an action
incapable of pecuniary estimation. Like any action incapable of pecuniary
estimation, an action to cancel a contract to sell "demands an inquiry into
other factors"143 aside from the amount of money to be awarded to the
claimant. Specifically in this case, the trial court principally determined
whether Olivarez Realty Corporation failed to pay installments of the
property’s purchase price as the parties agreed upon in the deed of
conditional sale. The principal natureof Castillo’s action, therefore, is
incapable of pecuniary estimation.
All told, there is no issue that the parties in this case entered into a contract
to sell a parcel of land and that Olivarez Realty Corporation failed to fully pay
the installments agreed upon.Consequently, Castillo is entitled to cancel the
contract to sell.
WHEREFORE, the petition for review on certiorari is DENIED. The Court of
Appeals’ decision dated July 20, 2010 and in CA-G.R. CV No. 91244 is
AFFIRMEDwith MODIFICATION.
The deed of conditional sale dated April 5, 2000 is declared CANCELLED.
Petitioner Olivarez Realty Corporation shall RETURN to respondent
Benjamin Castillo the possession of the property covered by Transfer
Certificate of Title No. T-19972 together with all the improvements that
petitioner corporation introduced on the property. The amount of
₱2,500,000.00 is FORFEITED in favor of respondent Benjamin Castillo as
reasonable compensation for the use of petitioner Olivarez Realty
Corporation of the property.
Petitioner Olivarez Realty Corporation shall PAY respondent Benjamin
Castillo ₱500,000.00 as moral damages, ₱50,000.00 as exemplary
damages, and ₱50,000.00 as attorney's fees with interest at 6% per annum
from the time this decision becomes final and executory until petitioner
corporation fully pays the amount of damages.144
SO ORDERED.
G.R. No. 188064               June 1, 2011
MILA A. REYES, Petitioner,
vs.
VICTORIA T. TUPARAN, Respondent.
DECISION
MENDOZA, J.:
1 drugstore and cosmetics store without any rentals for the duration of the
Subject of this petition for review is the February 13, 2009 Decision  of the Court of
Appeals (CA) which affirmed with modification the February 22, 2006 Decision2 of
the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-
V-92, an action for Rescission of Contract with Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission
of Contract with Damages against Victoria T. Tuparan (respondent) before the RTC.
In her Complaint, petitioner alleged, among others, that she was the registered
owner of a 1,274 square meter residential and commercial lot located in
Karuhatan, Valenzuela City, and covered by TCT No. V-4130; that on that property,
she put up a three-storey commercial building known as RBJ Building and a
residential apartment building; that since 1990, she had been operating a drugstore
and cosmetics store on the ground floor of RBJ Building where she also had been
residing while the other areas of the buildings including the sidewalks were being
leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the ground floor
of the RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A
close friendship developed between the two which led to the respondent investing
thousands of pesos in petitioner’s financing/lending business from February 7,
1990 to May 27, 1990, with interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers
Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of ₱2,000,000.00
payable in installments. On November 15, 1990, petitioner’s outstanding account
on the mortgage reached ₱2,278,078.13. Petitioner then decided to sell her real
properties for at least ₱6,500,000.00 so she could liquidate her bank loan and
finance her businesses. As a gesture of friendship, respondent verbally offered to
conditionally buy petitioner’s real properties for ₱4,200,000.00 payable on
installment basis without interest and to assume the bank loan. To induce the
petitioner to accept her offer, respondent offered the following
conditions/concessions:
1. That the conditional sale will be cancelled if the plaintiff (petitioner)
can find a buyer of said properties for the amount of ₱6,500,000.00
within the next three (3) months provided all amounts received by the
plaintiff from the defendant (respondent) including payments actually
made by defendant to Farmers Savings and Loan Bank would be refunded
to the defendant with additional interest of six (6%) monthly;
2. That the plaintiff would continue using the space occupied by her and
installment payments;
3. That there will be a lease for fifteen (15) years in favor of the plaintiff
over the space for drugstore and cosmetics store at a monthly rental of
only ₱8,000.00 after full payment of the stipulated installment payments
are made by the defendant;
4. That the defendant will undertake the renewal and payment of the fire
insurance policies on the two (2) subject buildings following the
expiration of the then existing fire insurance policy of the plaintiff up to
the time that plaintiff is fully paid of the total purchase price of
₱4,200,000.00.3
After petitioner’s verbal acceptance of all the conditions/concessions, both parties
worked together to obtain FSL Bank’s approval for respondent to assume her
(petitioner’s) outstanding bank account. The assumption would be part of
respondent’s purchase price for petitioner’s mortgaged real properties. FSL Bank
approved their proposal on the condition that petitioner would sign or remain as
co-maker for the mortgage obligation assumed by respondent.
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed
of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their
close personal friendship and business relationship, both parties chose not to
reduce into writing the other terms of their agreement mentioned in paragraph 11
of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of
Conditional Sale of Real Properties with Assumption of Mortgage any other side
agreement between petitioner and respondent.
Under the Deed of Conditional Sale of Real Properties with Assumption of
Mortgage, respondent was bound to pay the petitioner a lump sum of ₱1.2 million
pesos without interest as part of the purchase price in three (3) fixed installments
as follows:
a) ₱200,000.00 – due January 31, 1991
b) ₱200,000.00 – due June 30, 1991
c) ₱800,000.00 – due December 31, 1991
Respondent, however, defaulted in the payment of her obligations on their due
dates. Instead of paying the amounts due in lump sum on their respective maturity
dates, respondent paid petitioner in small amounts from time to time. To
compensate for her delayed payments, respondent agreed to pay petitioner an
interest of 6% a month. As of August 31, 1992, respondent had only paid
₱395,000.00, leaving a balance of ₱805,000.00 as principal on the unpaid
installments and ₱466,893.25 as unpaid accumulated interest.
Petitioner further averred that despite her success in finding a prospective buyer
for the subject real properties within the 3-month period agreed upon, respondent
reneged on her promise to allow the cancellation of their deed of conditional sale.
Instead, respondent became interested in owning the subject real properties and
even wanted to convert the entire property into a modern commercial complex.
Nonetheless, she consented because respondent repeatedly professed friendship
and assured her that all their verbal side agreement would be honored as shown by
the fact that since December 1990, she (respondent) had not collected any rentals
from the petitioner for the space occupied by her drugstore and cosmetics store.
On March 19, 1992, the residential building was gutted by fire which caused the
petitioner to lose rental income in the amount of ₱8,000.00 a month since April
1992. Respondent neglected to renew the fire insurance policy on the subject
buildings.
Since December 1990, respondent had taken possession of the subject real
properties and had been continuously collecting and receiving monthly rental
income from the tenants of the buildings and vendors of the sidewalk fronting the
RBJ building without sharing it with petitioner.
On September 2, 1992, respondent offered the amount of ₱751,000.00 only
payable on September 7, 1992, as full payment of the purchase price of the subject
real properties and demanded the simultaneous execution of the corresponding
deed of absolute sale.
Respondent’s Answer
Respondent countered, among others, that the tripartite agreement erroneously
designated by the petitioner as a Deed of Conditional Sale of Real Property with
Assumption of Mortgage was actually a pure and absolute contract of sale with a
term period. It could not be considered a conditional sale because the acquisition
of contractual rights and the performance of the obligation therein did not depend
upon a future and uncertain event. Moreover, the capital gains and documentary
stamps and other miscellaneous expenses and real estate taxes up to 1990 were
supposed to be paid by petitioner but she failed to do so.
Respondent further averred that she successfully rescued the properties from a
definite foreclosure by paying the assumed mortgage in the amount of
₱2,278,078.13 plus interest and other finance charges. Because of her payment,
she was able to obtain a deed of cancellation of mortgage and secure a release of
mortgage on the subject real properties including petitioner’s ancestral residential
property in Sta. Maria, Bulacan.
Petitioner’s claim for the balance of the purchase price of the subject real
properties was baseless and unwarranted because the full amount of the purchase
price had already been paid, as she did pay more than ₱4,200,000.00, the agreed
purchase price of the subject real properties, and she had even introduced
improvements thereon worth more than ₱4,800,000.00. As the parties could no
longer be restored to their original positions, rescission could not be resorted to.
Respondent added that as a result of their business relationship, petitioner was
able to obtain from her a loan in the amount of ₱400,000.00 with interest and took
several pieces of jewelry worth ₱120,000.00. Petitioner also failed and refused to
pay the monthly rental of ₱20,000.00 since November 16, 1990 up to the present
for the use and occupancy of the ground floor of the building on the subject real
property, thus, accumulating arrearages in the amount of ₱470,000.00 as of
October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding that respondent
failed to pay in full the ₱4.2 million total purchase price of the subject real
properties leaving a balance of ₱805,000.00. It stated that the checks and receipts
presented by respondent refer to her payments of the mortgage obligation with
FSL Bank and not the payment of the balance of ₱1,200,000.00. The RTC also
considered the Deed of Conditional Sale of Real Property with Assumption of
Mortgage executed by and among the two parties and FSL Bank a contract to sell,
and not a contract of sale. It was of the opinion that although the petitioner was
entitled to a rescission of the contract, it could not be permitted because her non-
payment in full of the purchase price "may not be considered as substantial and
fundamental breach of the contract as to defeat the object of the parties in
entering into the contract."4 The RTC believed that the respondent’s offer stated in
her counsel’s letter dated September 2, 1992 to settle what she thought was her
unpaid balance of ₱751,000.00 showed her sincerity and willingness to settle her
obligation. Hence, it would be more equitable to give respondent a chance to pay
the balance plus interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to award damages
and attorney’s fees because there was no proof that either party acted fraudulently
or in bad faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Allowing the defendant to pay the plaintiff within thirty (30) days from
the finality hereof the amount of ₱805,000.00, representing the unpaid
purchase price of the subject property, with interest thereon at 2% a
month from January 1, 1992 until fully paid. Failure of the defendant to
pay said amount within the said period shall cause the automatic
rescission of the contract (Deed of Conditional Sale of Real Property with
Assumption of Mortgage) and the plaintiff and the defendant shall be
restored to their former positions relative to the subject property with
each returning to the other whatever benefits each derived from the
transaction;
2. Directing the defendant to allow the plaintiff to continue using the
space occupied by her for drugstore and cosmetic store without any
rental pending payment of the aforesaid balance of the purchase price.
3. Ordering the defendant, upon her full payment of the purchase price
together with interest, to execute a contract of lease for fifteen (15) years
in favor of the plaintiff over the space for the drugstore and cosmetic
store at a fixed monthly rental of ₱8,000.00; and
4. Directing the plaintiff, upon full payment to her by the defendant of
the purchase price together with interest, to execute the necessary deed
of sale, as well as to pay the Capital Gains Tax, documentary stamps and
other miscellaneous expenses necessary for securing the BIR Clearance,
and to pay the real estate taxes due on the subject property up to 1990,
all necessary to transfer ownership of the subject property to the
defendant.
No pronouncement as to damages, attorney’s fees and costs.
SO ORDERED.5
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with modification the
RTC Decision. The CA agreed with the RTC that the contract entered into by the
parties is a contract to sell but ruled that the remedy of rescission could not apply
because the respondent’s failure to pay the petitioner the balance of the purchase
price in the total amount of ₱805,000.00 was not a breach of contract, but merely
an event that prevented the seller (petitioner) from conveying title to the
purchaser (respondent). It reasoned that out of the total purchase price of the
subject property in the amount of ₱4,200,000.00, respondent’s remaining unpaid
balance was only ₱805,000.00. Since respondent had already paid a substantial
amount of the purchase price, it was but right and just to allow her to pay the
unpaid balance of the purchase price plus interest. Thus, the decretal portion of the
CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order
dated 22 December 2006 of the Regional Trial Court of Valenzuela City, Branch 172
in Civil Case No. 3945-V-92 are AFFIRMED with MODIFICATION in that defendant-
appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant
Mila A. Reyes, within 30 days from finality of this Decision, the amount of
₱805,000.00 representing the unpaid balance of the purchase price of the subject
property, plus interest thereon at the rate of 6% per annum from 11 September
1992 up to finality of this Decision and, thereafter, at the rate of 12% per annum
until full payment. The ruling of the trial court on the automatic rescission of the
Deed of Conditional Sale with Assumption of Mortgage is hereby DELETED. Subject
to the foregoing, the dispositive portion of the trial court’s decision is AFFIRMED in
all other respects.
SO ORDERED.6
After the denial of petitioner’s motion for reconsideration and respondent’s motion
for partial reconsideration, petitioner filed the subject petition for review praying
for the reversal and setting aside of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT DEED OF CONDITIONAL
SALE OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE ON THE GROUND
THAT RESPONDENT TUPARAN’S FAILURE TO PAY PETITIONER REYES THE BALANCE
OF THE PURCHASE PRICE OF ₱805,000.00 IS NOT A BREACH OF CONTRACT DESPITE
ITS OWN FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER
THE SUBJECT REAL PROPERTIES DUE TO RESPONDENT’S REFUSAL TO PAY THE
BALANCE OF THE TOTAL PURCHASE PRICE OF ₱805,000.00 WHICH IS EQUAL TO
20% OF THE TOTAL PURCHASE PRICE OF ₱4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF ₱1,200,000.00 PLUS THE INTEREST THEREON.
IN EFFECT, THE COURT OF APPEALS AFFIRMED AND ADOPTED THE TRIAL COURT’S
CONCLUSION THAT THE RESPONDENT’S NON-PAYMENT OF THE ₱805,000.00 IS
ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DISREGARDING AS GROUND FOR THE RESCISSION OF THE SUBJECT CONTRACT
THE OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THE
RESPONDENT AGAINST THE PETITIONER WHICH BY THEMSELVES SUFFICIENTLY
JUSTIFY A DENIAL OF A GRACE PERIOD OF THIRTY (30) DAYS TO THE RESPONDENT
WITHIN WHICH TO PAY TO THE PETITIONER THE ₱805,000.00 PLUS INTEREST
THEREON.
C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE
RESCISSION OF THE SUBJECT CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON THE
₱805,000.00 TO ONLY "6% PER ANNUM STARTING FROM THE DATE OF FILING OF
THE COMPLAINT ON SEPTEMBER 11, 1992" DESPITE THE PERSONAL COMMITMENT
OF THE RESPONDENT AND AGREEMENT BETWEEN THE PARTIES THAT RESPONDENT
WILL PAY INTEREST ON THE ₱805,000.00 AT THE RATE OF 6% MONTHLY STARTING
THE DATE OF DELINQUENCY ON DECEMBER 31, 1991.
D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL
OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES WHICH CORRESPOND
TO THE MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL
PROPERTIES WHICH RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE
DECEMBER 1990, EVEN WITH THE UNPAID BALANCE OF ₱805,000.00 AND DESPITE
THE FACT THAT RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE
PETITIONER AS CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF
PETITIONER REYES FOR THE ₱29,609.00 BACK RENTALS THAT WERE COLLECTED BY
RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONER’S EARLIER "URGENT MOTION FOR ISSUANCE OF A
PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION" DATED JULY 7, 2008
AND THE "SUPPLEMENT" THERETO DATED AUGUST 4, 2008 THEREBY CONDONING
THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE
WITHIN ELEVEN (11) YEARS THE PETITIONER’S THREE (3) SEPARATE "MOTIONS FOR
PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING ORDER, ACCOUNTING AND
DEPOSIT OF RENTAL INCOME" DATED MARCH 17, 1995, AUGUST 19, 1996 AND
JANUARY 7, 2006 THEREBY PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH
HERSELF BY CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE
SUBJECT REAL PROPERTIES WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF
THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS "URGENT MOTION TO
DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL
ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES" DATED
JANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT REAL PROPERTIES TO
IMMINENT AUCTION SALE BY THE CITY TREASURER OF VALENZUELA CITY.
G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONER’S CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES AGAINST THE RESPONDENT.
In sum, the crucial issue that needs to be resolved is whether or not the CA was
correct in ruling that there was no legal basis for the rescission of the Deed of
Conditional Sale with Assumption of Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the rescission of
the subject Deed of Conditional Sale of Real Properties with Assumption of
Mortgage for the following reasons:
1. The subject deed of conditional sale is a reciprocal obligation whose
outstanding characteristic is reciprocity arising from identity of cause by
virtue of which one obligation is correlative of the other.
2. The petitioner was rescinding – not enforcing – the subject Deed of
Conditional Sale pursuant to Article 1191 of the Civil Code because of the
respondent’s failure/refusal to pay the ₱805,000.00 balance of the total
purchase price of the petitioner’s properties within the stipulated period
ending December 31, 1991.
3. There was no slight or casual breach on the part of the respondent
because she (respondent) deliberately failed to comply with her
contractual obligations with the petitioner by violating the terms or
manner of payment of the ₱1,200,000.00 balance and unjustly enriched
herself at the expense of the petitioner by collecting all rental payments
for her personal benefit and enjoyment.
Furthermore, the petitioner claims that the respondent is liable to pay interest at
the rate of 6% per month on her unpaid installment of ₱805,000.00 from the date
of the delinquency, December 31, 1991, because she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost income as well as
for the back rentals in the amount of ₱29,609.00 has been fully substantiated and,
therefore, should have been granted by the CA. Her claim for moral and exemplary
damages and attorney’s fees has been likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into between the parties is a contract to sell and
not a contract of sale because the title of the subject properties still remains with
the petitioner as she failed to pay the installment payments in accordance with
their agreement.
Respondent echoes the RTC position that her inability to pay the full balance on the
purchase price may not be considered as a substantial and fundamental breach of
the subject contract and it would be more equitable if she would be allowed to pay
the balance including interest within a certain period of time. She claims that as
early as 1992, she has shown her sincerity by offering to pay a certain amount
which was, however, rejected by the petitioner.
Finally, respondent states that the subject deed of conditional sale explicitly
provides that the installment payments shall not bear any interest. Moreover,
petitioner failed to prove that she was entitled to back rentals.
The Court’s Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that the subject Deed of
Conditional Sale with Assumption of Mortgage entered into by and among the two
parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract
of sale. The subject contract was correctly classified as a contract to sell based on
the following pertinent stipulations:
8. That the title and ownership of the subject real properties shall remain with the
First Party until the full payment of the Second Party of the balance of the purchase
price and liquidation of the mortgage obligation of ₱2,000,000.00. Pending
payment of the balance of the purchase price and liquidation of the mortgage
obligation that was assumed by the Second Party, the Second Party shall not sell,
transfer and convey and otherwise encumber the subject real properties without
the written consent of the First and Third Party.
9. That upon full payment by the Second Party of the full balance of the purchase
price and the assumed mortgage obligation herein mentioned the Third Party shall
issue the corresponding Deed of Cancellation of Mortgage and the First Party shall
execute the corresponding Deed of Absolute Sale in favor of the Second Party.7
Based on the above provisions, the title and ownership of the subject properties
remains with the petitioner until the respondent fully pays the balance of the
purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall
then issue the corresponding deed of cancellation of mortgage and the petitioner
shall execute the corresponding deed of absolute sale in favor of the respondent.
Accordingly, the petitioner’s obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which is
the respondent’s full payment of the purchase price. Without respondent’s full
payment, there can be no breach of contract to speak of because petitioner has no
obligation yet to turn over the title. Respondent’s failure to pay in full the purchase
price is not the breach of contract contemplated under Article 1191 of the New
Civil Code but rather just an event that prevents the petitioner from being bound to
convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson 8 is
enlightening:
The Court holds that the contract entered into by the Spouses Nabus and
respondents was a contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
xxx
Sale, by its very nature, is a consensual contract because it is perfected by mere
consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a contract to sell, the prospective
seller explicitly reserves the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price is delivered to him. In other
words, the full payment of the purchase price partakes of a suspensive condition,
the non-fulfillment of which prevents the obligation to sell from arising and, thus,
ownership is retained by the prospective seller without further remedies by the
prospective buyer.
x x x           x x x          x x x
Stated positively, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, the prospective seller’s obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition, because
in a conditional contract of sale, the first element of consent is present, although it
is conditioned upon the happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the perfection of the contract of
sale is completely abated. However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had already been previous
delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act
having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, ownership will not automatically transfer to the
buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into
a contract of absolute sale.
Further, Chua v. Court of Appeals, cited this distinction between a contract of sale
and a contract to sell:
In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership
over the property and cannot recover it until and unless the contract is resolved or
rescinded; whereas, in a contract to sell, title is retained by the vendor until full
payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming effective.
It is not the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties. In this case, the contract
entitled "Deed of Conditional Sale" is actually a contract to sell. The contract
stipulated that "as soon as the full consideration of the sale has been paid by the
vendee, the corresponding transfer documents shall be executed by the vendor to
the vendee for the portion sold." Where the vendor promises to execute a deed of
absolute sale upon the completion by the vendee of the payment of the price, the
contract is only a contract to sell." The aforecited stipulation shows that the
vendors reserved title to the subject property until full payment of the purchase
price.
xxx
Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed
in their favor was merely a contract to sell, the obligation of the seller to sell
becomes demandable only upon the happening of the suspensive condition. The
full payment of the purchase price is the positive suspensive condition, the failure
of which is not a breach of contract, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force. Thus, for its
non-fulfilment, there is no contract to speak of, the obligor having failed to perform
the suspensive condition which enforces a juridical relation. With this
circumstance, there can be no rescission or fulfillment of an obligation that is still
non-existent, the suspensive condition not having occurred as yet. Emphasis should
be made that the breach contemplated in Article 1191 of the New Civil Code is the
obligor’s failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation. [Emphases and underscoring supplied]
Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of
Atienza v. Espidol, 9 where it was written:
Regarding the right to cancel the contract for non-payment of an installment, there
is need to initially determine if what the parties had was a contract of sale or a
contract to sell. In a contract of sale, the title to the property passes to the buyer
upon the delivery of the thing sold. In a contract to sell, on the other hand, the
ownership is, by agreement, retained by the seller and is not to pass to the vendee
until full payment of the purchase price. In the contract of sale, the buyer’s non-
payment of the price is a negative resolutory condition; in the contract to sell, the
buyer’s full payment of the price is a positive suspensive condition to the coming
into effect of the agreement. In the first case, the seller has lost and cannot recover
the ownership of the property unless he takes action to set aside the contract of
sale. In the second case, the title simply remains in the seller if the buyer does not
comply with the condition precedent of making payment at the time specified in
the contract. Here, it is quite evident that the contract involved was one of a
contract to sell since the Atienzas, as sellers, were to retain title of ownership to
the land until respondent Espidol, the buyer, has paid the agreed price. Indeed,
there seems no question that the parties understood this to be the case.
Admittedly, Espidol was unable to pay the second installment of ₱1,750,000.00 that
fell due in December 2002. That payment, said both the RTC and the CA, was a
positive suspensive condition failure of which was not regarded a breach in the
sense that there can be no rescission of an obligation (to turn over title) that did
not yet exist since the suspensive condition had not taken place . x x x. [Emphases
and underscoring supplied]
Thus, the Court fully agrees with the CA when it resolved: "Considering, however,
that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner)
and that out of the total purchase price of the subject property in the amount of
₱4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is only
₱805,000.00, a substantial amount of the purchase price has already been paid. It is
only right and just to allow Tuparan to pay the said unpaid balance of the purchase
price to Reyes."10
Granting that a rescission can be permitted under Article 1191, the Court still
cannot allow it for the reason that, considering the circumstances, there was only a
slight or casual breach in the fulfillment of the obligation.
Unless the parties stipulated it, rescission is allowed only when the breach of the
contract is substantial and fundamental to the fulfillment of the obligation.
Whether the breach is slight or substantial is largely determined by the attendant
circumstances.11 In the case at bench, the subject contract stipulated the following
important provisions:
2. That the purchase price of ₱4,200,000.00 shall be paid as follows:
a) ₱278,078.13 received in cash by the First Party but directly paid to the
Third Party as partial payment of the mortgage obligation of the First
Party in order to reduce the amount to ₱2,000,000.00 only as of
November 15, 1990;
b) ₱721,921.87 received in cash by the First Party as additional payment
of the Second Party;
c) ₱1,200,000.00 to be paid in installments as follows:
1. ₱200,000.00 payable on or before January 31, 1991;
2. ₱200,000.00 payable on or before June 30, 1991;
3. ₱800,000.00 payable on or before December 31, 1991;
Note: All the installments shall not bear any interest.
d) ₱2,000,000.00 outstanding balance of the mortgage obligation as of
November 15, 1990 which is hereby assumed by the Second Party.
xxx
3. That the Third Party hereby acknowledges receipts from the Second Party
₱278,078.13 as partial payment of the loan obligation of First Party in order to
reduce the account to only ₱2,000,000.00 as of November 15, 1990 to be assumed
by the Second Party effective November 15, 1990.12
From the records, it cannot be denied that respondent paid to FSL Bank petitioner’s
mortgage obligation in the amount of ₱2,278,078.13, which formed part of the
purchase price of the subject property. Likewise, it is not disputed that respondent
paid directly to petitioner the amount of ₱721,921.87 representing the additional
payment for the purchase of the subject property. Clearly, out of the total price of
₱4,200,000.00, respondent was able to pay the total amount of ₱3,000,000.00,
leaving a balance of ₱1,200,000.00 payable in three (3) installments.
Out of the ₱1,200,000.00 remaining balance, respondent paid on several dates the
first and second installments of ₱200,000.00 each. She, however, failed to pay the
third and last installment of ₱800,000.00 due on December 31, 1991. Nevertheless,
on August 31, 1992, respondent, through counsel, offered to pay the amount of
₱751,000.00, which was rejected by petitioner for the reason that the actual
balance was ₱805,000.00 excluding the interest charges.
Considering that out of the total purchase price of ₱4,200,000.00, respondent has
already paid the substantial amount of ₱3,400,000.00, more or less, leaving an
unpaid balance of only ₱805,000.00, it is right and just to allow her to settle, within
a reasonable period of time, the balance of the unpaid purchase price. The Court
agrees with the courts below that the respondent showed her sincerity and
willingness to comply with her obligation when she offered to pay the petitioner
the amount of ₱751,000.00.
On the issue of interest, petitioner failed to substantiate her claim that respondent
made a personal commitment to pay a 6% monthly interest on the ₱805,000.00
from the date of delinquency, December 31, 1991. As can be gleaned from the
contract, there was a stipulation stating that: "All the installments shall not bear
interest." The CA was, however, correct in imposing interest at the rate of 6% per
annum starting from the filing of the complaint on September 11, 1992.1avvphi1
Finally, the Court upholds the ruling of the courts below regarding the non-
imposition of damages and attorney’s fees. Aside from petitioner’s self-serving
statements, there is not enough evidence on record to prove that respondent
acted fraudulently and maliciously against the petitioner. In the case of Heirs of
Atienza v. Espidol,13 it was stated:
Respondents are not entitled to moral damages because contracts are not referred
to in Article 2219 of the Civil Code, which enumerates the cases when moral
damages may be recovered. Article 2220 of the Civil Code allows the recovery of
moral damages in breaches of contract where the defendant acted fraudulently or
in bad faith. However, this case involves a contract to sell, wherein full payment of
the purchase price is a positive suspensive condition, the non-fulfillment of which is
not a breach of contract, but merely an event that prevents the seller from
conveying title to the purchaser. Since there is no breach of contract in this case,
respondents are not entitled to moral damages.
In the absence of moral, temperate, liquidated or compensatory damages,
exemplary damages cannot be granted for they are allowed only in addition to any
of the four kinds of damages mentioned. WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. 233455, April 03, 2019
HIPOLITO AGUSTIN AND IMELDA AGUSTIN, PETITIONERS,
ROMANA DE VERA, RESPONDENT.
DECISION
CAGUIOA, J.:
Before the Court is a Petition for Review on Certiorari1 (Petition) under Rule
45 of the Rules of Court filed by petitioners Hipolito Agustin (Hipolito) and
Imelda Agustin (Imelda), assailing the Decision2 dated March 28, 2017
(assailed Decision) and Resolution3 dated July 14, 2017 (assailed
Resolution) of the Court of Appeals (CA) in CA-G.R. CV No. 107860.
The Facts and Antecedent Proceedings
As narrated by the CA in its assailed Decision and as culled from the records
of the instant case, the essential facts and antecedent proceedings of the
case are as follows:
During his lifetime, Gregorio B. De Vera (Gregorio) owned a parcel of
residential land with an area of one hundred eighty (180) square meters,
located at Tondaligan, Bonuan Gueset, Dagupan City [(subject property)],
and covered by Transfer Certificate of Title (TCT) No. 36897 of the Registry
of Deeds for the City of Dagupan, Province of Pangasinan.
On January 6, 1986, Gregorio and spouses Hipolito and Lolita Agustin
executed a document entitled "Contract to Purchase and Sale" whereby the
former agreed to sell to the latter the aforementioned property under the
following terms and conditions:
"a. The Contract price of the land is P30,000.00 Philippine Currency;
b. The amount of P15,000.00 will be paid to the Vendor upon the execution
of this contract and the balance to be paid upon the release of the land from
the Pangasinan Savings and Loan Association to which parcel of land is
currently mortgaged;
v.
c. That the Vendor obligates himself to have the said title of the land
released from mortgage from the bank within a period of one (1) month from
the day [of] the execution of this contract;
d. That immediately upon the payment of PI5,000.00 and after the execution
of this contract[,] the Vendee can take possession of the land and may
introduce improvements and [sic] they may desire;
e. That upon release of the title from the bank and upon payments of the
balance of P15,000.00 by the Vendee to the Vendor, the corresponding
Deed of Sale will be executed;
f. That the costs of documentation and other expenses in the transfer of said
Title to the Vendee will be borne by the Vendee."
As agreed, the Agustin spouses paid the partial payment of P15,000.00 and
immediately took possession of the land. They had since constructed
thereon their residential house and paid the real estate taxes. On May 17,
2001, Hipolito Agustin sold one-half portion of the land to his sister, Imelda
Agustin, who also introduced improvements on the property and constructed
a sari-sari store.
Considering that Gregorio had not yet delivered the title, Hipolito and Imelda
caused the annotation of an adverse claim on TCT No. 36897 on August 22,
2007.
Under [a] Deed of Absolute Sale dated September 3, 2007, Gregorio sold
the [subject property] to Romana M. [d]e Vera [(Romana)] for the price of
Php500,000.00. Said document was registered on September 6, 2010.
Gregorio died on September 17, 2007.
On November 15, 2007, Hipolito filed Civil Case No. 2007-0367-D entitled
"Hipolito S. Agustin vs. Heirs of the Late Gregorio B. De Vera" for Specific
Performance, Acknowledgement of the Contract of Purchase and Sale and
Judicial Declaration of Ownership" [sic] in the RTC of Dagupan City, Branch
42. The amended complaint alleged that despite receipt of the balance of the
purchase price, Gregorio failed to deliver the title as promised by him. Upon
verification with the Office of the Register of Deeds, Hipolito was surprised to
discover that Gregorio already redeemed the [subject] property in April 1997.
Hipolito thus prayed for judgment ordering the heirs of Gregorio to execute
the corresponding deed of sale in his favor.
A Notice of Lis Pendens was likewise duly annotated on TCT No. 36897 on
November 16, 2007.
Civil Case No. 2007-0367-D was dismissed without prejudice on October 14,
2008 for lack of jurisdiction over the person of the defendants due to invalid
service of summons.
On September 28, 2010, [petitioners Hipolito and Imelda] filed the present
case [before the Regional Trial Court of Dagupan City, Branch 40 (RTC)].
[Hipolito and Imelda] alleged that they were surprised to discover a deed of
absolute sale over the same property purportedly executed by Gregorio,
then already eighty (80) years old, fourteen (14) days prior to his death, in
favor of [respondent Romana]. Romana caused the registration of the
conveyance in her favor, resulting in the issuance of TCT No. 90114 in her
name. [Petitioners Hipolito and Imelda] argued that Romana is a buyer in
bad faith who had knowledge of Hipolito's ownership of the subject land by
virtue of sale which was annotated on the title, and of [petitioners Hipolito
and Imelda's] actual possession for more than twenty [(20)] years already.
Assuming there was a double sale, [petitioners Hipolito and Imelda] asserted
that they are to be preferred as first buyers and first in possession in good
faith and for value. They further contended that the 2007 sale is void as
Gregorio had nothing more to sell after the execution of the Contract to
Purchase and Sale in 1986.
[Petitioners Hipolito and Imelda] thus prayed that after trial, judgment be
rendered: 1) annulling the Deed of Absolute Sale executed by Gregorio in
favor of Romana; 2) ordering the Register of Deeds to cancel TCT No.
90114; 3) upholding the rights of ownership and possession of [petitioners
Hipolito and Imelda] over the subject property under the Contract to
Purchase and Sale; 4) ordering the Register of Deeds to issue a new
certificate of title in the name of the [petitioners Hipolito and Imelda]; 5)
ordering [respondent Romana] to pay [petitioners Hipolito and Imelda] the
sums of Php50,000.00 as moral damages, Php50,000.00 as exemplary
damages, Php30,000.00 [as] attorney's fees plus Php1,500.00 appearance
fee per hearing and Php20,000.00 as litigation expenses.
In her Answer, Romana denied the [petitioners Hipolito and Imelda's] claim
that they already acquired the subject property, asserting that the
construction of [petitioners Hipolito and Imelda's] house was without the
consent of Gregorio and made thru fraudulent scheme. She argued that the
alleged Contract to Purchase and Sale did not ripen into legal conveyance of
real property from Gregorio to [petitioners Hipolito and Imelda]. x x x
After trial, the RTC rendered [its Decision4 dated June 23, 2014], the
dispositive portion of which states:
"WHEREFORE, premises considered, judgment is hereby rendered in favor
of the Plaintiffs and against the Defendant as follows:
1. Annulling the Deed of Absolute Sale dated September 3, 2007 purportedly
executed by the late Gregorio de Vera in favor [of] Romana de Vera;
2. Ordering the Register of Deeds of Dagupan City to cancel Transfer
Certificate of Title No. 90114;
3. Upholding the rights and ownership and possession of the Plaintiffs over
the subject parcel of land under the Contract to Purchase and Sale;
4. Ordering the Register of Deeds to reinstate the Transfer Certificate of Title
No. 36897 under the name of Gregorio B. de Vera; and
5. Ordering the Defendant Romana de Vera to pay the Plaintiffs the sum of
Twenty-Five Thousand Pesos (Php25,000.00) as moral damages and
another Twenty-Five Thousand Pesos (Php25,000.00) as exemplary
damages.
SO ORDERED."5
The RTC found that the sale of the subject lot to Hipolito was absolute
notwithstanding the title of their agreement. It also found that the contract did
not contain an express reservation of ownership pending full payment of the
purchase price. There being a contract of sale, and not mere contract to sell,
the RTC applied the provision on double sale of real property, Article 1544 of
the Civil Code. Romana was declared a buyer in bad faith, having bought the
land from Gregorio despite being charged with the knowledge of [petitioners
Hipolito and Imelda's] ownership claim through the adverse claim and notice
of lis pendens annotated on TCT No. 36897, and having found [petitioners
Hipolito and Imelda] in actual possession of the property.
[Hence, Romana appealed before the CA6 seeking a reversal of the above
judgment x x x.7
The Ruling of the CA
In its assailed Decision, the CA granted Romana's appeal and reversed the
RTC's Decision. The dispositive portion of the assailed Decision reads:
WHEREFORE, the appeal is GRANTED. The Decision dated June 23, 2014
of the Regional Trial Court of Dagupan City, Branch 40 in Civil Case No.
2010-0258-D is REVERSED and SET ASIDE. The Complaint dated
September 27, 2010 filed by Hipolito and Imelda Agustin with said court is
hereby DISMISSED.
SO ORDERED.8
The CA held that "[s]ince the Contract to Purchase and Sale is not a contract
of sale but a mere contract to sell, there was no automatic transfer of
ownership even if Gregorio failed to deliver the title to Hipolito after securing
the release of the [subject] property from bank mortgage. Consequently, the
RTC erred in applying Article 1544 of the Civil Code, which contemplates a
double sale of the same real property."9
In finding the Contract to Purchase and Sale a contract to sell instead of a
contract of sale, the CA focused its attention on the provision of the said
Contract to Purchase and Sale which obligated Gregorio to execute a Deed
of Sale in favor of Hipolito. According to the CA, "the need to execute a deed
of absolute sale upon completion of payment of the price generally indicates
that it is a contract to sell, as it implies the reservation of title in the vendor
until the vendee has completed the payment of the price"10 and that
"[w]here the seller promises to execute a deed of absolute sale upon the
completion by the buyer of the payment of the price, the contract is only a
contract to sell."11
Hipolito and Imelda filed their Motion for Reconsideration12 on April 18,
2017, which was subsequently denied by the CA in its assailed Resolution.
Hence, the instant Petition.
Romana filed her Comment13 on December 18, 2017, to which Hipolito and
Imelda responded with a Reply to Comment14 filed on January 24, 2018.
Issue
Stripped to its core, the critical issue presented before the Court is whether
the Contract to Purchase and Sale entered into by Hipolito and Gregorio is a
contract of sale or a contract to sell.
The Court's Ruling
The instant Petition is meritorious. The CA erred in finding that the Contract
to Purchase and Sale is a mere contract to sell; it is a contract of sale.
The Essential Elements of a Contract of Sale
According to Article 1458 of the Civil Code, by a contract of sale, one of the
contracting parties obligates himself to transfer the ownership and to deliver
a determinate thing, and the other to pay therefor a price certain in money or
its equivalent.
Accordingly, the elements of a valid contract of sale under Article 1458 of the
Civil Code are: (1) consent or meeting of the minds; (2) determinate subject
matter; and (3) price certain in money or its equivalent.15
In the instant case, the Court finds that all the aforesaid elements are
present in the instant case. By entering into the agreement entitled "Contract
to Purchase and Sale," both parties had arrived at a meeting of the minds
that the seller, i.e., Gregorio, transferred the ownership and possession of
the subject property to the buyer, i.e., Hipolito, with the latter obliged to pay a
price certain in money, i.e., P30,000.00.
In appreciating the evidence on record, the RTC arrived at a similar
conclusion, holding that the parties had a clear meeting of the mind that the
ownership and possession over the subject property should be transferred to
Hipolito upon the execution of the Contract to Purchase and Sale:
On the Third Paragraph of the said Contract, it clearly provides as follows:
"WHEREFORE, for and consideration of the sum of FIFTEEN THOUSAND
PESOS (P15,000.00) and further consideration of the above premises the
Vendor hereby agrees to sell the above parcel of land to the Vendee and the
Vendee hereby obligated themselves to buy the said parcel of land under
the above terms and conditions."
From the tenor of the said Contract to Purchase and Sale (Exhibit "B") it is
understood that Gregorio and Hipolito and his (sic) wife had meetings of
mind that ownership and possession over the subject parcel of land shall be
transferred to the latter upon the execution of the said contract.16
It must be stressed that upon the execution of the Contract to Purchase and
Sale, Gregorio ceded the possession of the subject property to petitioner
Hipolito. It is not disputed that petitioner Hipolito immediately took
possession of the subject property, had constructed thereon their residential
house, and paid the real estate taxes upon the subject property.
Transfer of Ownership through Delivery
In connection with the fact that Hipolito gained possession over the subject
property upon the execution of the Contract to Purchase and Sale, Article
1477 of the Civil Code states that the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.
Further, under Article 1478, the parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has fully paid the price.
In accordance with Articles 1477 and 1478 of the Civil Code, the general rule
states that ownership of property passes on to the buyer ipso jure when its
possession is transferred in the latter's favor if no reservation to the contrary
has been made.17In the absence of stipulation to the contrary, the
ownership of the thing sold passes to the vendee upon actual or constructive
delivery thereof.18
Applying the foregoing to the instant case, striking is the fact that actual and
physical delivery of the subject property was made to Hipolito immediately
upon the execution of the Contract to Purchase and Sale without any
express or implied stipulation by Gregorio reserving ownership of the subject
property.
Gregorio did not make any express or implied reservation whatsoever
withholding ownership of the subject property from Hipolito. If Gregorio really
intended that the transfer of ownership over the subject property was
dependent on the fulfilment of other conditions, then he would have
expressed words to that effect in the Contract to Purchase and Sale. Nor
would he have willingly transferred the physical possession of the subject
property to Hipolito. With possession being the natural consequence and
effect of ownership, it would be unnatural for a property owner to just let go
and cede possession of the property, without even a whimper, under an
agreement selling the said property and, at the same time, allege the
retention of ownership over the property.
In fact, aside from the delivery of the subject property to Hipolito, the
intention of the parties to cede ownership of the subject property to Hipolito
is further buttressed by the fact that after the delivery of the subject property
to Hipolito, the obligation of paying real estate taxes was immediately
assumed by Hipolito. The fact that Hipolito had already assumed the
obligation of paying real property taxes on the subject property has not been
disputed by Romana.
Contract of Sale vis-a-vis Contract to Sell
Despite the foregoing, the CA maintained its position that the Contract to
Purchase and Sale is a contract to sell and not a contract of sale.
In the recent case of Spouses Beltran v. Spouses Cangayda,19 citing
Platinum Plans Phil. Inc. v. Cucueco,20 the Court explained that a contract
to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite its delivery
to the prospective buyer, commits to sell the property exclusively to the
prospective buyer upon full payment of the purchase price.
In a contract of sale, title passes to the vendee upon the delivery of the thing
sold; whereas in a contract to sell, by agreement, the ownership is reserved
in the vendor and is not to pass until the full payment of the price. In a
contract of sale, the vendor has lost and cannot recover ownership until and
unless the contract is resolved or rescinded; whereas in a contract to sell,
title is retained by the vendor until the full payment of the price.21
In Coronel v. CA,22 the Court held that the agreement subject of the
aforesaid case, even if it was denominated as a mere Receipt of Down
Payment, was a contract of sale. The Court held therein that it could not
have been a contract to sell "because the sellers herein made no express
reservation of ownership or title to the subject parcel of land."23 Similarly, in
Sps. Castillo v. Sps. Reyes,24 the Court held that "[t]he November 8, 1997
Agreement herein cannot be characterized as a contract to sell because the
seller made no express reservation of ownership or title to the subject house
and lot. Instead, the Agreement contains all the requisites of a contract of
sale."25
In Platinum Plans Phil. Inc. v. Cucueco, the Court explained that "a contract
to sell may not be considered as a contract of sale because the first
essential element of consent to a transfer of ownership is lacking in the
former. Since the prospective seller in a contract to sell explicitly reserves
the transfer of title to the prospective buyer, the prospective seller does not
as yet unequivocally agree or consent to a transfer ownership of the property
subject of the contract to sell."26
Jurisprudence has then established that the hallmark of a contract to sell is
the existence of a clear agreement by the parties that the transfer of
ownership is conditioned upon the full payment of the purchase price, such
that, by agreement of the parties, ownership is reserved to the seller until the
purchase price has been fully paid. The nomenclature of the subject contract
as a "Contract to Purchase and Sale" is of no moment, considering that
"[t]he Court looks beyond the title of said document, since the denomination
or title given by the parties in their contract is not conclusive of the nature of
its contents."27
According to some authorities on the law of sales, the existing school of
thought "holds that what determines whether a sale contract is a 'contract to
sell' is that there must exist an agreement, whether express or implied, at the
time of perfection of the sale contract, that the obligation of the seller to
transfer ownership to the buyer pursuant to a sale (even when physical
possession may have been effected) is conditioned upon the full payment by
the buyer of the purchase price."28 Further, "[t]he prevailing doctrine
therefore is that absent any stipulation in the deed or in the meeting of [the]
minds reserving title (meaning, ownership) over the property to the seller
until full payment of the purchase price and giving the seller the right to
unilaterally rescind the contract i[n] case of non-payment, makes the contract
one of sale rather than a contract to sell."29
To reiterate, in the instant case, it is not disputed that there is absolutely no
stipulation in the Contract to Purchase and Sale to the effect that ownership
over the subject property is reserved in favor of Gregorio pending the
complete payment of the purchase price by Hipolito. Neither is there a
provision granting Gregorio the unilateral right to rescind the Contract to
Purchase and Sale in case of non-payment. Therefore, bearing in mind the
foregoing, the Contract to Purchase and Sale is a contract of sale, and not a
contract to sell.
Citing Spouses Reyes v. Salvador, Sr.,30 the CA held that "[w]here the
seller promises to execute a deed of absolute sale upon the completion by
the buyer of the payment of the price, the contract is only a contract to
sell."31
This statement of the Court in Spouses Reyes v. Salvador, Sr. was based on
the 1996 case of PNB v. CA,32 which held that "no less revealing is the fact
that the letter-agreements are not deeds of sale, thereunder no title having
been passed from petitioner to private respondent."33
However, upon closer reading of the aforementioned case, the Court therein
held that the subject agreement therein was a contract to sell and not a
contract of sale primarily because there was a clear stipulation in the subject
contract therein "reserving title in the vendor until full payment of the
purchase price or giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period."34
Moreover, in Spouses Reyes v. Salvador, Sr., the subject contract therein
actually "provide[d] for the automatic [unilateral] cancellation of the contract
should Emma fail to pay the purchase price as required therein; and, in such
an event, it grants Nicomedes the exclusive right to thereafter sell the
subject property to a third person."35 This provision in the subject contract
therein which, as already discussed, is one of the hallmarks of a contract to
sell, is not found in the subject Contract to Purchase and Sale.
In fact, in Spouses Reyes v. Salvador, Sr., there was no evidence that the
buyer "took actual and physical possession of the subject property at any
given time."36 To the contrary, it is not disputed in the instant case that
Hipolito possessed and occupied the subject property after the execution of
the Contract to Purchase and Sale.
Furthermore, in Coronel v. CA, even if the subject contract therein similarly
indicated that the seller made a promise in the agreement "to cause the
issuance of a new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their names, to the
latter and to execute the deed of absolute sale whereupon, the latter shall in
turn, pay the entire balance of the purchase price,"37it still remained true
that the agreement was a contract of sale because of the lack of any express
or implied reservation of ownership on the part of the seller.
Similarly, in Dignos v. Court of Appeals,38 the Court held that the contract
therein was still a contract of sale and not a contract to sell despite the
existence of an express stipulation that the sellers would execute a final
deed of absolute sale only upon the payment of the balance of the purchase
price as there was "no such stipulation reserving the title of the property on
the vendors nor does it give them the right to unilaterally rescind the contract
upon non-payment of the balance thereof within a fixed period."39
Having an ironclad dependence on the existence of a deed of absolute sale
to determine the existence of a contract of sale is unwarranted, considering
that a contract of sale is a consensual contract, which means that the sale is
perfected by mere consent. No particular form is required for its validity.40
Formalities intended for greater efficacy or convenience or to bind third
persons, if not done, would not adversely affect the validity or enforceability
of the contract between the contracting parties themselves.41
Therefore, while a stipulation or promise to the effect that a seller shall
execute a deed of sale upon the completion of payment of the purchase
price by the buyer may be considered a factor or a sign that a contract might
possibly be a contract to sell, such stipulation in itself, taken in isolation, is by
no means determinative and conclusive as to the contract being a contract to
sell.
Still controlling are (1) the lack of any stipulation in the sale contract
reserving the title of the property on the vendors and (2) the lack of any
stipulation giving the sellers the right to unilaterally rescind the contract upon
non-payment of the balance thereof within a fixed period. The absence of
such stipulations in a sale contract makes the said contract a contract of
sale. Hence, the Contract to Purchase and Sale entered into by Gregorio
and Hipolito is a contract of sale.
Hence, considering that the subject Contract to Purchase and Sale is indeed
a contract of sale, and that the subject property has been actually delivered
to Hipolito and Imelda, in accordance with Article 1477, the ownership of the
subject property has been transferred to Hipolito and Imelda.
The Rule on Double Sales
Even if the rule on double sales is applied to the instant case, the result
remains the same. Hipolito and Imelda would still have a better right of
ownership over the subject property.
According to Article 1544 of the Civil Code, if the same thing should have
been sold to different vendees, in the case of immovable property, the
ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who
in good faith was first in the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.42
Applying the foregoing in the instant case, it is indisputable that Romana was
a buyer in bad faith. Hence, Hipolito and Imelda have the better right of
ownership over the subject property.
In the instant case, it is not disputed that on August 22, 2007, Hipolito and
Imelda caused the annotation on TCT No. 36897 of an adverse claim
indicating the fact that they had entered into a sale contract with Gregorio.
This annotation was made prior to the execution of the Deed of Absolute
Sale between Gregorio and Romana on September 3, 2007. Confirmed by
Romana's own witness, Rafael M. de Vera, Romana transacted with
Gregorio over the subject property even with the prior annotation of Hipolito's
adverse claim on the TCT and with full knowledge that there was a prior sale
transaction between Gregorio and Hipolito.43 In fact, Romana herself
testified that prior to purchasing the subject property from Gregorio, she
knew that Hipolito and Imelda were already in possession of the subject
property and that the latter have built their houses therein.44
Hence, with Romana indubitably being a buyer in bad faith, Hipolito and
Imelda have a better right of ownership over Romana.
WHEREFORE, the instant petition is GRANTED. The Decision dated March
28, 2017 and Resolution dated July 14, 2017 of the Court of Appeals in CA-
G.R. CV No. 107860 are hereby REVERSED AND SET ASIDE. The
Decision dated June 23, 2014 rendered by the Regional Trial Court of
Dagupan City, Branch 40 is hereby REINSTATED.
SO ORDERED.
G.R. No. 225033, August 15, 2018
SPOUSES ANTONIO BELTRAN AND FELISA BELTRAN, Petitioners, v. SPOUSES
APOLONIO CANGAYDA, JR. AND LORETA E. CANGAYDA, Respondents.
DECISION
CAGUIOA, J.:
The Case
This is a Petition for Review on Certiorari (Petition) filed under Rule 45 of the Rules
of Court against the Decision1 dated October 19, 2015 (assailed Decision) and
Resolution2 dated May 17, 2016 (assailed Resolution) in CA-G.R. CV No. 03414-MIN
rendered by the Court of Appeals-Cagayan de Oro City (CA) Twenty-First Division
and Special Former Twenty-First Division, respectively.
The assailed Decision and Resolution stem from an appeal from the Decision3
dated July 15, 2013 issued by the Regional Trial Court (RTC), 11th Judicial Region,
Davao del Norte, Branch 31 in Civil Case No. 4020, directing petitioners Antonio and
Felisa Beltran (collectively, petitioners) to vacate a 300-square-meter residential lot
situated in Barangay Magugpo, Tagum City, Davao del Norte (disputed property)
registered in the name of respondents Apolonio, Jr. and Loreta Cangayda
(collectively, respondents) under TCT No. T-74907.
The Facts
Sometime in August 1989,4 respondents verbally agreed to sell the disputed
property to petitioners for P35,000.00. After making an initial payment,5
petitioners took possession of the disputed property and built their family home
thereon.6 Petitioners subsequently made additional payments, which, together
with their initial payment, collectively amounted to P29,690.00.7
However, despite respondents' repeated demands, petitioners failed to pay their
remaining balance of P5,310.00.8 This prompted respondents to refer the matter
to the Office of the Barangay Chairman of Barangay Magugpo, Tagum City (OBC).9
Before the OBC, the parties signed an Amicable Settlement dated August 24, 1992,
bearing the following terms:
3. That herein [petitioner Antonio] have already (sic) paid the amount of x x x
P29,690.00 x x x to [respondent Apolonio, Jr.] and [there is a] remaining balance of
x x x P5,310.00 x x x;
4. That herein [petitioner Antonio] promise(s) to pay the aforesaid balance to
[respondent Apolonio, Jr.] [within a] one week period (sic) to start AUGUST 24,
1992 (Monday);
5. That herein [petitioner Antonio] is willing to pay the all (sic) expenses of the
titling of the aforesaid lot; and
6. That herein [respondent Apolonio, Jr.] is also willing to signed (sic) a deed of sale
agreement after [petitioner Antonio] were (sic) able to pay the remaining balance x
x x.
Failure to comply on (sic) the said agreement[,] the [OBC] is willing to indorse (sic)
this case to the higher court for proper legal action.10 (Emphasis supplied)
Petitioners failed to pay within the period set forth in the Amicable Settlement.11
On January 14, 2009, or nearly 17 years after the expiration of petitioners' period to
pay their remaining balance, respondents served upon petitioners a "Last and Final
Demand" to vacate the disputed property within 30 days from notice. This demand
was left unheeded.12
RTC Proceedings
Consequently, on March 12, 2009, respondents filed a complaint for recovery of
possession and damages (Complaint) before the RTC.13 Respondents alleged,
among others, that petitioners had been occupying the disputed property without
authority, and without payment of rental fees.14
In their Answer, petitioners admitted that they failed to settle their unpaid balance
of P5,310.00 within the period set in the Amicable Settlement. However,
petitioners alleged that when they later attempted to tender payment two days
after said deadline,15 respondents refused to accept their payment, demanding,
instead, for an additional payment of P50,000.00.16
On July 15, 2013, the RTC issued a Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, [petitioners], their heirs, successors-in-interest
and/or assigns are ordered to vacate the portion of Lot No. 11 presently occupied
by them within [60 days] from receipt of x x x this Decision.
However, as there was no express agreement between the parties that
[respondents] may retain the sum of P29,600.00 already paid to them by
[petitioners], [respondents] are hereby ordered to return the said sum to
[petitioners], likewise within [60] days from receipt of this Decision.17 (Emphasis
supplied)
In so ruling, the RTC characterized the oral agreement between the parties as a
contract to sell. The RTC held that the consummation of this contract to sell was
averted due to petitioners' failure to pay the purchase price in full.18 Hence the
RTC held that ownership over the disputed property never passed to petitioners.19
Petitioners filed a Motion for Reconsideration, which the RTC denied.20
CA Proceedings
Aggrieved, petitioners brought the case to the CA via ordinary appeal. Therein,
petitioners argued that the oral agreement they had entered into with respondents
was not a contract to sell but rather, a contract of sale which had the effect of
transferring ownership of the disputed property upon its delivery.21
Petitioners also raised, for the first time on appeal, that the sale of the disputed
property constitutes a sale on installment covered by Republic Act (R.A.) No.
6552,22 otherwise known as the Maceda Law. Corollarily, petitioners argued that
respondents should not be granted relief, since they failed to comply with the
specific procedure for rescission of sales of real estate on installment basis set forth
under the statute.23
On October 19, 2015, the CA rendered the assailed Decision, disposing the appeal
as follows:

WHEREFORE, the appeal is DISMISSED. The July 15, 2013 Decision of the [RTC],
Branch 31, 11th Judicial Region, Tagum City, Davao del Norte, in Civil Case No. 4020
is AFFIRMED.24
The CA affirmed the findings of the RTC anent the nature of the contract entered
into by the parties.25 In addition, it rejected petitioners' invocation of the Maceda
Law. According to the CA, to allow petitioners to seek protection under said law for
the first time on appeal would violate the tenets of due process and fair play.26
Petitioners filed a Motion for Reconsideration which was later denied through the
assailed Resolution.
The Petition calls on the Court to resolve the following issues:
Whether the CA erred when it affirmed the RTC Decision characterizing the oral
agreement between the parties as a contract to sell;
Whether the oral agreement between the parties is covered by the Maceda Law;
and
Whether respondents' action for recovery of possession should have been
dismissed on the ground of prescription and/or laches.

Thus, the present Petition now prays that the Court: (i) reverse the judgment of the
CA and RTC; and (ii) direct respondents to allow them to settle their remaining The Court's Ruling
balance of P5,310.00 and, subsequently, convey the disputed property in their
favor.

Petitioners maintain, as they did before the CA, that the oral agreement they The Petition is meritorious.
entered into with respondents is a contract of sale, and that, as a necessary
incident of such contract, ownership over the disputed property had been
transferred in their favor when they took possession and built improvements The agreement between the parties is
thereon.27
an oral contract of sale. As a
Further, petitioners argue that respondents are not entitled to recover possession
of the disputed property since they failed to cancel their oral agreement by way of consequence, ownership of the
a notarial act, in accordance with the provisions of the Maceda Law.28
disputed property passed to
Finally, petitioners aver that respondents' Complaint is an action upon a written
petitioners upon its delivery.
agreement, as it is based on the Amicable Settlement. Thus, petitioners conclude
that respondents' action already prescribed, since it was filed more than 10 years
after the lapse of petitioners' period to pay their outstanding balance. Petitioners
further argue that the Complaint is also barred by laches, considering that The CA characterized the parties' agreement as a contract to sell primarily on the
respondents allowed petitioners to continue staying in the disputed property for a basis of respondent Loreta's testimony which purportedly confirms their intent to
period of 17 years after such failure to pay.29 reserve ownership of the disputed property until full payment of the purchase
price. The CA held:

The Issues
At trial, [respondent Loreta] testified thus —

[x x x x]
Q: Now, if any, tell us who are in possession of the [disputed property] x x x?
A: [Petitioners] and their children who are also married.
Q: Now, if you know, how did [petitioners] and their children occupied (sic) the
land you have just mentioned?
A: I know because we have [an oral] agreement with [petitioners] that they will buy
[the disputed property].
Q: Tell us what happened to the [oral] agreement of (sic) [petitioners] if you can
recall?
A: Our [oral] agreement with [petitioner Antonio] that about 300 square meters lot
(sic) that they will pay P35,000.00 to us but [petitioner Antonio] told us that they
will pay the amount of P35,000.00 when [their] house will be sold, then they will
pay us.
Q: If you can recall, did [petitioners] comply with the [oral] agreement to pay you
P35,000.00?
A: At that time, [petitioners] gave me only P15,000.00.
Q: Other than the P15,000.00 (sic) if you can recall, did they pay you?
A: x x x [Petitioners] has a rattan furniture, they made us a chair and it costs about
P14,600.00.
Q: In short, Miss witness, please tell us how much amount (sic) [petitioners] paid
you?
A: According to their total, they paid me P29,690.00
[Respondent Loreta's] testimony — that at the moment the [oral] agreement was
entered into by the parties, [petitioners] "will buy that property" — suggests that
the contract of sale was expected to be entered into at some future date when a
condition has been fulfilled. In this case, that condition appears to be the full
payment of the purchase price. The Court notes that this testimony was not
controverted. In their Brief, [petitioners] merely counter with the bare insistence
that what the parties entered into verbally was a contract of sale.30 (Emphasis
supplied.)
According to the CA, the foregoing finding is further bolstered by clause 6 of the
Amicable Settlement, to which petitioner Antonio expressed his assent. Clause 6
reads:
That herein [respondent Apolonio, Jr.] is also willing to signed (sic) a deed of sale
agreement after [petitioner Antonio] were (sic) able to pay the remaining balance x
x x.31
The CA's finding is erroneous.
Article 1458 of the Civil Code defines a contract of sale:
By the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
"[A] contract to sell, [on the other hand], is defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the subject
property despite its delivery to the prospective buyer, commits to sell the property
exclusively to the prospective buyer"32 upon full payment of the purchase price.
Jurisprudence defines the distinctions between a contract of sale and a contract to
sell to be as follows:
In a contract of sale, title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved in the vendor
and is not to pass until the full payment of the price. In a contract of sale, the
vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
until the full payment of the price, x x x.33 (Emphasis supplied)
Based on the foregoing distinctions, the Court finds, and so holds, that the oral
agreement entered into by the parties constitutes a contract of sale and not a
contract to sell.
A contract of sale is consensual in nature, and is perfected upon the concurrence of
its essential requisites,34 thus:
The essential requisites of a contract under Article 1318 of the New Civil Code are:
(1) consent of the contracting parties; (2) object certain which is the subject matter
of the contract; and (3) cause of the obligation which is established. Thus,
contracts, other than real contracts are perfected by mere consent which is
manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. Once perfected, they bind other
contracting parties and the obligations arising therefrom have the force of law
between the parties and should be complied with in good faith. The parties are
bound not only to the fulfillment of what has been expressly stipulated but also to
the consequences which, according to their nature, may be in keeping with good
faith, usage and law.
Being a consensual contract, sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price. From
that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts. A perfected contract of sale
imposes reciprocal obligations on the parties whereby the vendor obligates himself
to transfer the ownership of and to deliver a determinate thing to the buyer who,
in turn, is obligated to pay a price certain in money or its equivalent. Failure of
either party to comply with his obligation entitles the other to rescission as the
power to rescind is implied in reciprocal obligations.35 (Emphasis supplied)
Contrary to the CA's findings, neither respondent Loreta's testimony nor clause 6 of
the Amicable Settlement supports the conclusion that the parties' agreement is not
a contract of sale, but only a contract to sell — the reason being that it is not
evident from said testimony and clause 6 that there was an express agreement to
reserve ownership despite delivery of the disputed property.
A plain reading of respondent Loreta's testimony shows that the parties' oral
agreement constitutes a meeting of the minds as to the sale of the disputed
property and its purchase price. Respondent Loreta's statements do not in any way
suggest that the parties intended to enter into a contract of sale at a later time.
Such statements only pertain to the time at which petitioners expected, or at least
hoped, to acquire the sufficient means to pay the purchase price agreed upon. For
emphasis, the Court reproduces the relevant statements relied upon by the CA:
Our [oral] agreement with [petitioner Antonio] that about 300 square meters lot
(sic) that they will pay P35,000.00 to us but [petitioner Antonio] told us that they
will pay the amount of P35,000.00 when [their] house will be sold, then they will
pay us.36 (Emphasis supplied)
Clause 6 of the Amicable Settlement merely states respondent Apolonio, Jr.'s
commitment to formalize and reduce the oral agreement of the parties into a
public instrument upon payment of petitioners' outstanding balance. It bears
emphasizing that a formal document is not necessary for the sale transaction to
acquire binding effect.37 Hence, the subsequent execution of a formal deed of sale
does not negate the perfection of the parties' oral contract of sale which had
already taken place upon the meeting of the parties' minds as to the subject of the
transaction and its purchase price.
In a contract of sale, ownership of a thing sold shall pass to the buyer upon actual
or constructive delivery thereof in the absence of any stipulation to the contrary.38
Reference to Articles 1477 and 1478 of the Civil Code is in order:
Article 1477. The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof.
Article 1478. The parties may stipulate that ownership in the thing shall not pass to
the purchaser until he has fully paid the price.
In accordance with the cited provisions, ownership of the disputed property passed
to petitioners when its possession was transferred in their favor, as no reservation
to the contrary had been made.
Considering that respondents' Complaint is anchored upon their alleged ownership
of the disputed property, their prayer to recover possession thereof as a
consequence of such alleged ownership cannot prosper.
Slight delay is not sufficient to justify
rescission.
Article 1191 of the Civil Code39 lays down the remedies that the injured party may
resort to in case of breach of a reciprocal obligation — fulfillment of the obligation
or rescission thereof, with damages in either case.
Thus, in a contract of sale, the vendor's failure to pay the price agreed upon
generally constitutes breach, and extends to the vendor the right to demand the
contract's fulfillment or rescission.40
It is important to stress, however, that the right of rescission granted to the injured
party under Article 1191 is predicated on a breach of faith by the other party who
violates the reciprocity between them.41 Stated otherwise, rescission may not be
resorted to in the absence of breach of faith.
In this connection, Article 1592 extends to the vendee in a sale of immovable
property the right to effect payment even after expiration of the period agreed
upon, as long as no demand for rescission has been made upon him by the vendor.
The provision states:
Article 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.
A reading of Article 1592 in conjunction with Article 1191 thus suggests that in the
absence of any stipulation to the contrary, the vendor's failure to pay within the
period agreed upon shall not constitute a breach of faith, so long as payment is
made before the vendor demands for rescission, either judicially, or by notarial act.
Hence, in Taguba v. Peralta,42 (Taguba) the Court held that slight delay in the
payment of the purchase price does not serve as a sufficient ground for the
rescission of a sale of real property:
Despite the denomination of the deed as a "Deed of Conditional Sale" a reading of
the conditions x x x therein set forth reveals the contrary. Nowhere in the said
contract in question could we find a proviso or stipulation to the effect that title to
the property sold is reserved in the vendor until full payment of the purchase price.
There is also no stipulation giving the vendor (petitioner Taguba) the right to
unilaterally rescind the contract the moment the vendee (private respondent de
Leon) fails to pay within a fixed period x x x.
Considering, therefore, the nature of the transaction between petitioner Taguba
and private respondent, which We affirm and sustain to be a contract of sale,
absolute in nature the applicable provision is Article 1592 of the New Civil Code x x
x.
xxxx
In the case at bar, it is undisputed that petitioner Taguba never notified private
respondent by notarial act that he was rescinding the contract, and neither had he
filed a suit in court to rescind the sale.
Finally, it has been ruled that "where time is not of the essence of the agreement, a
slight delay on the part of one party in the performance of his obligation is not a
sufficient ground for the rescission of the agreement". Considering that in the
instant case, private respondent had already actually paid the sum of P12,500.00 of
the total stipulated purchase price of P18,000.00 and had tendered payment of the
balance of P5,500.00 within the grace period of six months from December 31,
1972, equity and justice mandate that she be given additional period within which
to complete payment of the purchase price.43 (Emphasis supplied)
The Court applied the foregoing principles in the subsequent case of Dignos v.
Court of Appeals,44 (Dignos) where it resolved to grant respondent therein an
additional period within which to settle his outstanding balance of P4,000.00,
considering that he "was delayed in payment only for one month."45 It is worth
noting that in Dignos, the Court granted the vendee an additional period to pay the
balance, despite the fact that no grace period had been stipulated upon by the
parties therein, as in Taguba.
Here, petitioners acknowledge that they failed to settle the purchase price of the
disputed property in full within the deadline set by the Amicable Settlement.
Nevertheless, the Court does not lose sight of the fact that petitioners have already
paid more than three-fourths of the purchase price agreed upon. Further,
petitioners have constituted their family home on the disputed property in good
faith, and have lived thereon for 17 years without protest.
In addition, respondents do not dispute that petitioners offered to settle their
outstanding balance of P5,310.00 "two (2) days after the deadline [set by the
Amicable Settlement] and a few times thereafter,"46 which offers respondents
refused to accept.47 Respondents also do not claim to have made a demand for
rescission at any time before petitioners made such offers to pay, either through
judicial or extra-judicial means, such as through a notarial act.
Thus, pursuant to Article 1592, and consistent with the Court's rulings in Taguba
and Dignos, the Court deems it proper to grant petitioners a period of 30 days from
notice of this Decision to settle their outstanding balance.
Assuming that petitioners' failure to
pay constitutes breach, respondents'
cause of action is already barred by
prescription.
Respondents hinge their cause of action on petitioners' failure to pay within the
period set by the Amicable Settlement. Hence, this would mean that respondents'
action is one that proceeds from a breach of a written agreement, which, under
Article 1144 of the Civil Code, prescribes in 10 years.48
Respondents' Complaint was filed 17 years after the expiration of the payment
period stipulated in the Amicable Settlement. Assuming that petitioners' failure to
pay within said period constitutes sufficient breach which gives rise to a cause of
action, such action has clearly prescribed.
Considering the foregoing, the Court deems it unnecessary to delve into the other
issues raised in the Petition.
WHEREFORE, the Petition is GRANTED. The Decision and Resolution respectively
dated October 19, 2015 and May 17, 2016 rendered by the Court of Appeals-
Cagayan de Oro City in CA-G.R. CV No. 03414-MIN, and the Decision dated July 15,
2013 issued by the Regional Trial Court, Branch 31, 11th Judicial Region, Davao del
Norte (RTC) in Civil Case No. 4020 are REVERSED and SET ASIDE.
Petitioners Antonio and Felisa Beltran are ORDERED to pay respondents Apolonio
Cangayda, Jr. and Loreta E. Cangayda the sum of P5,310.00, representing their
outstanding balance, within 30 days from notice of this Decision. In case of refusal
or inability on the part of respondents to receive said amount, petitioners are
DIRECTED to deposit the same with the RTC for the account of respondents. The
sum due shall earn interest at the rate of six percent (6%) per annum from the date
of finality of this Decision until full payment, in accordance with the Court's ruling
in Nacar v. Gallery Frames49.
Upon receipt of the foregoing sum, or the deposit of such sum with the RTC,
respondents are DIRECTED to EXECUTE a Deed of Absolute Sale in favor of
petitioners for the purpose of formalizing the oral contract of sale concerning the
300-square-meter residential lot situated in Barangay Magugpo, Tagum City, Davao
del Norte, covered by TCT No. T-74907, and DELIVER to petitioners the original
owner's duplicate copy of TCT No. T-74907. In case of refusal or inability on the
part of respondents to execute a Deed of Absolute Sale and/or deliver said owner's
duplicate copy, this Decision shall be sufficient to grant the proper Registrar of
Deeds the necessary authority to cancel TCT No. T-74907 and issue a new title in
the name of petitioners.
SO ORDERED.
G.R. No. 195999, June 20, 2018

LILY S. VILLAMIL, SUBSTITUTED BY HER HEIRS RUDY E. VILLAMIL, SOLOMON E.

VILLAMIL, TEDDY E. VILLAMIL, JR., DEBORAH E. VILLAMIL, FLORENCE E. VILLAMIL,
GENEVIEVE E. VILLAMIL, AND MARC ANTHONY E. VILLAMIL, Petitioner, v. SPOUSES
JUANITO ERGUIZA AND MILA ERGUIZA, Respondents.

DECISION

MARTIRES, J.:

This is a petition for review on certiorari seeking to reverse and set aside the
Decision,1 dated 29 June 2010, and Resolution,2 dated 2 February 2011, of the
Court of Appeals (CA) in CA-G.R. SP No. 109813 which nullified the Decision,3 dated
2 October 2008, of the Regional Trial Court, Dagupan City, Branch 44 (RTC), in Civil
Case No. 2007-0014-D, an action for recovery of possession.

THE FACTS

On 6 February 2003, petitioner Lily Villamil (petitioner) filed a Complaint4 for

recovery of possession and damages against respondent-spouses Juanito and Mila
Erguiza (respondent-spouses) before the Municipal Trial Court in Cities (MTCC) of
Dagupan City. The complaint alleges, among others, the following:

xxxx
2. Plaintiff is the absolute and exclusive owner of that certain parcel ofland more
particularly described as follows:
''A parcel of land (Lot 3371-C) of the subdivision plan (LRC) Psd-111002, being a
portion of Lot 3371 Dagupan Cadastre, LRC Cad. Record No. 925, situated in the
District of Pantal, City of Dagupan, Island of Luzon, x x x containing an area or one
hundred ninety-one (191) square meters, more or less. Covered by Transfer
Certificate Title No. 31225 with assessed value of P2,290.00 under Tax Declaration
No. 221092."
A copy of Transfer Certificate of Title No. 31225 and Tax Declaration No. 221092
are hereto attached and marked as Annexes "A" and "B," respectively;
3. Previously, said parcel of land was covered by Transfer Certificate of Title No.
23988 registered under the names of plaintiff Corazon Villamil, Efren Villamil,
Teddy Villamil, Florencio Villamil, Rodrigo Villamil, Nicasio Villamil, John Villamil,
Marcelina Villamil and Feliciano Villamil, all related. Copy of Transfer Certificate of
title No. 23988 is hereto attached as Annex "C";
4. On 20 September 1972, plaintiff together with her deceased sister, Corazon
Villamil, and deceased brother, Teddy Villamil, entered into an agreement with
Juanito Erguiza for the purpose of selling the above-described property to the latter
subject to the condition that plaintiff and her siblings would file a petition to secure
authorization for minor children from the proper courts. Likewise, that in case of
failure of the plaintiff and her siblings to obtain said authority, the partial payment
made by the defendant Juanito Erguiza shall be applied as rent for twenty (20)
years of the premises. A copy of the agreement is hereto attached as Annex "D";
5. During the course of time, TCT No. 23988 was cancelled and TCT No. 30049 was
issued by virtue of a quitclaim executed by Corazon Villamil and her children in
favor of the plaintiff. Likewise, TCT No. 30049 was cancelled and TCT No. 31125
(Annex "A") was issued by virtue of a Deed of Sale executed by Efren Villamil and
Teddy Villamil in favor of the plaintiff. Copies of TCT No. 30049 are hereto attached
and marked as Annex "E";
6. Plaintiff has been paying religiously the real estate taxes due on said property;
7. Sometime in 1992 or after the lapse of twenty (20) years and the expiration of
the twenty (20) years lease, plaintiff demanded from the defendants to return
possession of the property but the latter failed and refused, and still fails (sic) and
refuses (sic) to return possession of the property to the damage and prejudice of
the plaintiff;
8. The continued occupation by the defendants of the property is by mere
tolerance of the plaintiff and has been staying thereon without paying any rent to
the plaintiff;
9. On 7 January 2002, plaintiff again demanded from the defendant[s] to return the
possession of the property by way of a formal letter dated December 18, 2001
which was received by the defendant[s] on January 11, 2002. Notwithstanding
receipt of said letter, defendants just ignored the valid pleas of the plaintiff; Annex
"F";
10. A period of thirty (30) [days] had lapsed without the said agreement having
been enforced, hence, the defendants have lost whatever rights they have under
said agreement;
11. The matter was brought to the Office of the Barangay of Pantal District but no
conciliation or settlement was reached between the parties hence, a certification to
file action was issued by said office. A copy of the certification is hereto attached as
Annex "G";
x x x x5
The Agreement, which petitioner and respondent-spouses entered into in the sale
and purchase of the subject property, states:
KNOW ALL MEN BY THESE PRESENTS:
That we, CORAZON G. VILLAMIL, widow, LILY VILLAMIL, married and TEDDY S.
VILLAMIL, married, all of legal ages, Filipinos and residents of Dagupan City,
Philippines, for and in consideration of the sum two thousand six hundred fifty
seven pesos (P2,657.00), Philippine currency, to us in hand paid and a receipt of
which is hereby acknowledged of JUANITO ERGUIZA, married, of legal age, Filipino
and a resident of Dagupan City, Philippines, BY THESE PRESENTS do hereby promise
to sell absolutely unto the said Juanito Erguiza, his heirs or assigns, a parcel of land
covered [by] Transfer Certificate of Title No. 23988 of the land records of Dagupan
City, identified as Lot No. 2371, under the following terms and conditions:
That the total purchase price of the said land is FIVE THOUSAND ONE HUNDRED
FIFTY SEVEN PESOS P5,157.00. Because of us receiving today the sum of two
thousand six hundred and fifty seven pesos (P2,657.00), there is still a balance of
two thousand five hundred pesos (P2,500.00);
That because there is still lacking document or that court approval of the sale of the
shares of the minor-owners of parts of this land, the final deed of absolute sale be
made and executed upon issuance by the competent court; that the balance of
P2,500.00 will also be given in this stage of execution of this document;
In the event however that the petition for the sale of the shares of the minor-
owners of the parts of this land is [disapproved] by the court, the amount of
P2,657.00 be considered as lease of the land subject matwr of this contract for a
duration of twenty (20) years.
WITNESS OUR HANDS THIS 29th of September 1972 at Dagupan City, Philippines.6
On 26 May 2003, respondent-spouses filed their Answer,7 which effectively denied
the material allegations in petitioner's complaint and by way of special and
affirmative defenses, aver that:
xxxx
5. That plaintiff has no cause of action.
6. The agreement between the co-heirs of plaintiff and defendants is for the sale on
condition of the subject property. A sale even if conditional transfers ownership to
the vendees. And before plaintiff could claim any right, there are certain
proceedings which must first be complied [with]. Defendants did not violate any of
the terms and conditions contained in the agreement to which plaintiff is trying to
base her cause of action. It was plaintiff who made sure that the condition
contained under the contract to sell will not be complied with. She caused the
execution of documents to violate such rights and it was only now that defendants
learned of the same;
7. That defendants never received a letter coming from the plaintiff regarding the
subject property. As a matter of fact, defendants are trying to enforce the
agreement although the conditions contained therein will be left to the sole will of
the vendors:
8. That granting arguendo that the plaintiff has the right to damages, such could
only be in the form of accrued rentals. x x x8
On 14 October 2004, the MTCC dismissed the complaint on the ground that the
cause of action thereof was one for the interpretation of the agreement and the
determination of the parties' respective rights. It reasoned that such action was
incapable of pecuniary estimation and, therefore, jurisdiction lies with the RTC.9
On appeal, the RTC reversed the decision of the MTCC on the ground that the cause
of action was one for recovery of possession of real property. Considering that the
assessed value of the subject property is P2,290.00, the MTCC has original and
exclusive jurisdiction over the case. Thus, the case was remanded to the MTCC.10
The MTCC Ruling
In its decision,11 dated 15 November 2006, the MTCC ruled in favor of petitioner. It
gave credence to petitioner's claim that she communicated to respondent-spouses
the fact of consolidation of ownership in her name. The MTCC held that being an
interested party in the collection of the remaining balance, petitioner would
naturally have made respondent-spouses aware of the consolidation of ownership
over the subject property. It declared that it was unbelievable that respondent-
spouses did not exert any effort to inquire from petitioner about the status of their
agreement. The MTCC concluded that respondent-spouses had no intention to pay
the balance of the purchase price and that they had become lessees of the subject
property for twenty (20) years with their down payment being treated as rentals. It
ruled that after the lapse of the said period, respondent-spouses were bound to
leave the premises. The fallo reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff as follows:
Ordering the defendants, their assigns, agents or other persons acting for
themselves, to vacate the premises in question and to restore possession thereof
to the plaintiff;
Ordering the defendants to pay the plaintiff jointly and severally, the amount of
P500.00 a month from date of demand which was on December 18, 2001, until
they finally vacate the premises, as reasonable compensation for the use and
occupation of the same;
Ordering the defendants to pay the plaintiff, jointly and severally, the amount of
P5,000.00 as attorney's fees and to pay the costs of suit.
SO ORDERED.12
Aggrieved, respondent-spouses elevated an appeal to the RTC.
The RTC Ruling
In its decision, the RTC affirmed the ruling of the MTCC. It opined that the condition
with respect to judicial approval of the sale had become irrelevant when ownership
over the subject property was consolidated in favor of petitioner in 1973; thus, at
that time, respondent-spouses were bound to comply with their undertaking to pay
the balance of the purchase price which they failed to do. The dispositive portion
states:
WHEREFORE, judgment is hereby rendered AFFIRMING the appealed decision with
modification deleting the award of attorney's fees.
SO ORDERED.13
Unconvinced, respondent-spouses moved for reconsideration. However, in a
Resolution,14 dated 18 May 2009, the RTC denied the motion for lack of notice of
hearing.

The CA Ruling
In its decision, the CA reversed and set aside the decision of the RTC. As to the
procedural aspect, it observed that despite omission of the name of petitioner's
counsel in the notice of hearing, petitioner appeared at the scheduled hearing and
even filed her opposition to respondent-spouses' motion for reconsideration. The
CA declared that the right of respondent-spouses to appeal should not be curtailed
by the mere expediency of holding that there was lack of notice of hearing since
the objective of Sections 4, 5, and 7 under Rule 15 of the Rules of Court to allow the
adverse party the opportunity to oppose the motion has been clearly met in this
case.
With respect to the substantive issue, the appellate court declared that the
agreement between the parties was a contract to sell involving the subject
property because the vendors reserved ownership and it was subject to a
suspensive condition, i.e., submission of the sellers of lacking documents or court
approval of the sale of the shares of the minor owners.
necessary as the ownership and title in the subject property were already
consolidated to petitioner, it ruled that the same would not operate like a magic
wand to automatically make respondent-spouses perform what was required of
them in the subject agreement. On the contrary, the sellers had the positive duty to
make known to the buyers that they were ready to comply with what was
mandated upon them, which act petitioner failed to prove by any evidence. Thus,
the CA concluded that respondent-spouses had more right to possess the subject
property pending consummation of the agreement or any outcome thereof. The CA
disposed of the case in this wise:
WHEREFORE, in consideration of the foregoing premises, the instant petition is
perforce GRANTED. Accordingly, the Decision dated October 02, 2008 and
Resolution dated May 18, 2009 are perforce reversed and set aside. Thus,
petitioners Erguiza shall remain in actual and peaceful possession of the subject
property.
No pronouncement as to costs.

SO ORDERED.15

The CA did not acquiesce with the trial court's reasoning that respondent-spouses
were already notified of the transfer of title in petitioner's name because such
alleged notice was not supported by any evidence on record. It lends credence to Petitioner moved for reconsideration but the CA denied the same in its 2 February
respondent-spouses' evidence that they came to know of the fact that petitioner 2011 resolution. Hence, this petition.
"was already the registered owner of the subject property when a written demand
letter was sent to them by the former on 18 December 2001. The CA opined that
respondent-spouses' passive and complacent position in not asserting from the ISSUES
sellers what was incumbent under the subject agreement should not be taken
against the former. It stressed that the obligation to secure the necessary
documents or approval of the court for the minor children to be represented in the Petitioner submits the following assignment of errors:
Deed of Absolute Sale, was incumbent upon the sellers.

I.
While the appellate court agreed with the lower courts' disquisition that the court's
approval for the minor children to be represented in the sale would no longer be
WHETHER OR NOT THE 2 OCTOBER 2008 DECISION OF RTC, BRANCH 44,
AFFIRMING THE DECISION OF MTCC, BRANCH 3, DATED 15 NOVEMBER 2006 HAS
BECOME FINAL AND EXECUTORY AFTER RESPONDENTS FILED A DEFECTIVE MOTION
FOR RECONSIDERATION WHICH DID NOT TOLL THE RUNNING OF THE
REGLEMENTARY PERIOD TO FILE A PETITION FOR REVIEW; AND WHETHER THE
COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR IN EXCESS OF JURISDICTION WHEN IT GAVE DUE COURSE TO THE
PETITION.
II.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION WHEN IT
REVERSED THE DECISION OF RTC, BRANCH 44, AFFIRMING THE DECISION OF MTCC,
BRANCH 3, WHICH RULED THAT PETITIONER HAD A BETTER RIGHT TO POSSESS THE
PROPERTY AFTER PETITIONERS FAILED TO PAY THE BALANCE OF THE PURCHASE
PRICE AND THE SECOND CONDITION HAD SET IN, THAT IS, THE DOWN PAYMENT
WAS APPLIED AS RENTALS FOR TWENTY (20) YEARS FROM 1972 TO 1992.16
Petitioner argues: that the RTC decision has actually become final and executory
after respondent-spouses filed a defective motion for reconsideration which did
not toll the running of the reglementary period to appeal the decision before the
CA; that the motion for reconsideration was a mere scrap of paper as it did not
contain notice of the time and place of hearing; that respondent-spouses knew that
petitioner was the owner of the subject property because they sought her
permission to build their house thereon; and that it is contrary to human
experience that, being interested persons, respondent-spouses would not inquire
about the status of the subject property.17
In their Comment,18 respondent-spouses contend that they complied with the
provision of the Rules of Court as regards notice of hearing such that on the day the
motion for reconsideration was to be heard, petitioner was present and she even
filed her opposition to the motion; that while the notice of hearing was only
addressed to the Branch Clerk of Court, petitioner was furnished with a copy of the
motion for reconsideration; that petitioner and her siblings did not take steps to
fulfil the suspensive condition; that they made an illegal act of transferring the
share of the minors in the name of petitioner; that petitioner only informed them
of the consolidation of ownership when they received a demand letter on 18
December 2001 and when they were summoned to appear before the office of the
Barangay Captain sometime in April 2002; and that if petitioner had the slightest
intention of informing them of her ownership of the subject property and for them
to pay the remaining balance, she should have done so immediately upon the
transfer of the title in her name.
In her Reply,19 petitioner avers that upon seeing the minor owners reach the age
of majority, it would be logical for respondent-spouses to follow up with her and
her co-owners since court approval was no longer necessary; that notwithstanding
this information, respondent-spouses did not pay the balance of the consideration;
and that being an interested party in the collection of the remaining balance, it is
more in accord with human experience that she would have informed respondent-
spouses about the consolidation of ownership in her name.
THE COURT'S RULING
Petitioner had the opportunity to be heard despite the lack of notice of hearing.
Sections 4 and 5, Rule 15 of the Rules of Court provide that:
Sec. 4. Hearing of motion. - Except for motions which the court may act upon
without prejudicing the rights of the adverse party, every written motion shall be
set for hearing by the applicant.
Every written motion required to be heard and the notice of the hearing thereof
shall be served in such a manner as to ensure its receipt by the other party at least
three (3) days before the date of hearing, unless the court for good cause sets the
hearing on shorter notice.

Sec. 5. Notice of hearing. The notice of hearing shall be addressed to all parties
concerned, and shall specify the time and date of the hearing which must not be
later than ten (10) days after the filing of the motion.
The general rule is that the three-day notice requirement in motions under Sections
4 and 5 of the Rules of Court is mandatory. It is an integral component of
procedural due process.20 "The purpose of the three-day notice requirement,
which was established not for the benefit of the movant but rather for the adverse
party, is to avoid surprises upon the latter and to grant it sufficient time to study
the motion and to enable it to meet the arguments interposed therein."21
"A motion that does not comply with the requirements of Sections 4 and 5 of Rule
15 of the Rules of Court is a worthless piece of paper which the clerk of court has
no right to receive and which the court has no authority to act upon."22 "Being a
fatal defect, in cases of motions to reconsider a decision, the running of the period
to appeal is not tolled by their filing or pendency."23
Nevertheless, the three-day notice requirement is not a hard and fast rule. When
the adverse party had been afforded the opportunity to be heard, and has been
indeed heard through the pleadings filed in opposition to the motion, the purpose
behind the three-day notice requirement is deemed served. In such case, the
requirements of procedural due process are substantially complied with. Thus, in
Preysler, Jr. v. Manila Southcoast Development Corporation,24 the Court ruled
that:
The three-day notice rule is not absolute. A liberal construction of the procedural
rules is proper where the lapse in the literal observance of a rule of procedure has
not prejudiced the adverse party and has not deprived the court of its authority.
Indeed, Section 6, Rule I of the Rules of Court provides that the Rules should be
liberally construed in order to promote their objective of securing a just, speedy
and inexpensive disposition of every action and proceeding. Rules of procedure are
tools designed to facilitate the attainment of justice, and courts must avoid their
strict and rigid application which would result in technicalities that tend to frustrate
rather than promote substantial justice.25
Likewise, in Jehan Shipping Corporation v. National Food Authority,26 the Court
held that despite the lack of notice of hearing in a motion for reconsideration,
there was substantial compliance with the requirements of due process where the
adverse party actually had the opportunity to be heard and had filed pleadings in
opposition to the motion. The Court declared:
This Court has indeed held time and again, that under Sections 4 and 5 of Rule 15 of
the Rules of Court, mandatory is the notice requirement in a motion, which is
rendered defective by failure to comply with the requirement. As a rule, a motion
without a notice of hearing is considered pro forma and does not affect the
reglementary period for the appeal or the filing of the requisite pleading.
As an integral component of procedural due process, the three-day notice required
by the Rules is not intended for the benefit of the movant. Rather, the requirement
is for the purpose of avoiding surprises that may be sprung upon the adverse party,
who must be given time to study and meet the arguments in the motion before a
resolution by the court. Principles of natural justice demand that the right of a
party should not be affected without giving it an opportunity to be heard.
The test is the presence of opportunity to be heard, as well as to have time to study
the motion and meaningfully oppose or controvert the grounds upon which it is
based. x x x27
A perusal of the records reveals that the trial court gave petitioner ten days within
which to comment on private respondents' motion for reconsideration.28
Petitioner filed its Opposition the Motion on 7 January 2009, and in fact, filed a
Motion for Entry of Judgment.29 Thus, it cannot be gainsaid that petitioner was not
given her day in court as she in fact contested private respondents' motion for
reconsideration. While it is true that the name of petitioner's counsel was not
indicated in the notice of hearing, nonetheless, she was furnished a copy thereof
which she received before the date of the scheduled hearing. The requirement of
notice of time and hearing in the pleading filed by a party is necessary only to
apprise the other party of the actions of the former.30 Under the circumstances of
the present case, the purpose of a notice of hearing was served. Hence, the Court
finds no reversible error committed by the CA in ruling that the motion for
reconsideration was not pro forma.
Parties entered into a contract to sell
A contract to sell is defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively
to the latter upon his fulfillment of the conditions agreed upon, i.e., the full
payment of the purchase price and/or compliance with the other obligations stated
in the contract to sell. Given its contingent nature, the failure of the prospective
buyer to make full payment and/or abide by his commitments stated in the
contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale to effect the transfer of ownership to the buyer from
arising.31 A contract to sell is akin to a conditional sale where the efficacy or
obligatory force of the vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event, so that if the suspensive condition does
not take place, the parties would stand as if the conditional obligation had never
existed.32 In a contract to sell, the fulfillment of the suspensive condition will not
automatically transfer ownership to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to
the prospective buyer by entering into a contract of absolute sale.33 On the other
hand, in a conditional contract of sale, the fulfillment of the suspensive condition
renders the sale absolute and the previous delivery of the property has the effect
of automatically transferring the seller's ownership or title to the property to the
buyer.34
In Coronel v. Court of Appeals,35 the Court declared:
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere
consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a contract to sell, the prospective
seller explicity reserves the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price is delivered to him. In other
words the full payment of the purchase price partakes of a suspensive condition,
the non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the
prospective buyer. In Roque vs. Lapuz, this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to
pass until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach, casual or serious, but simply an
event that prevented the obligation of the vendor to convey title from acquiring
binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, the prospective seller's obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promisor if the promise is supported by a consideration
distinct from the price.36
In this case, the parties entered into an agreement with the following terms and
conditions:
KNOW ALL MEN BY THESE PRESENTS:
That we, CORAZON G. VILLAMIL, widow, LILY VILLAMIL, married and TEDDY S.
VILLAMIL, married, all of legal ages, Filipinos and residents of Dagupan City,
Philippines, for and in consideration of the sum two thousand six hundred fifty
seven pesos (P2,657.00), Philippine currency, to us in hand paid and a receipt of
which is hereby acknowledged of JUANITO ERGUIZA, married, of legal age, Filipino
and a resident of Dagupan City, Philippines, BY THESE PRESENTS do hereby promise
to sell absolutely unto the said Juanito Erguiza, his heirs or assigns, a parcel of land
covered [by] Transfer Certificate of Title No. 23988 of the land records of Dagupan
City, identified as Lot No. 2371, under the following terms and conditions:
6.
That the total purchase price of the said land is FIVE THOUSAND ONE HUNDRED
FIFTY SEVEN PESOS P5,157.00. Because of us receiving today the sum of two
thousand six hundred and fifty seven pesos (P2,657.00), there is still a balance of
two thousand five hundred pesos (P2,500.00);
7.
That because there is still lacking document or that court approval of the sale of the
shares of the minor-owners of parts of this land, the final deed of absolute sale he
made and executed upon issuance by the competent court; that the balance of
P2,500.00 will also be given in this stage of execution of this document;
8.
In the event however that the petition for the sale of the shares of the minor-
owners of the parts of this land is [disapproved] by the court, the amount of
P2,657.00 be considered as lease of the land subject matter of this contract for a
duration of twenty (20) years.
WITNESS OUR HANDS THIS 29th of September 1972 at Dagupan City, Philippines.37
(emphases supplied)
An examination of the agreement would reveal that the parties entered into a
contract to sell the subject property. First, petitioner and her siblings who were
then co-owners merely promised to sell the subject property, thus, signifying their
intention to reserve ownership. Second, the execution of a deed of absolute sale
was made dependent upon the proper court's approval of the sale of the shares of
the minor owners. Third, the agreement between the parties was not embodied in
a deed of sale. The absence of a formal deed of conveyance is a strong indication
that the parties did not intend immediate transfer of ownership.38Fourth,
petitioner retained possession of the certificate of title of the lot. This is an
additional indication that the agreement did not transfer to private respondents,
either by actual or constructive delivery, ownership of the property.39Finally,
respondent Juanito admitted during trial that they have not finalized the sale in
1972 because there were minor owners40 such that when they constructed their
house thereon, they sought the permission of petitioner.41
Now, the next question to be resolved is whether the suspensive condition, i.e.,
judicial approval of the sale of the minor owners' shares, upon which the obligation
of the sellers to execute a deed of sale depends, is fulfilled.
Principle of constructive fulfillment applies
Article 1186 of the Civil Code reads:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
This provision refers to the constructive fulfillment of a suspensive condition,
whose application calls for two requisites, namely: (a) the intent of the obligor to
prevent the fulfillment of the condition, and (b) the actual prevention of the
fulfillment. Mere intention of the debtor to prevent the happening of the condition,
or to place ineffective obstacles to its compliance, without actually preventing the
fulfillment, is insufficient.42
Petitioner and her then co-owners undertook, upon receipt of the down payment
from respondent-spouses, the filing of a petition in court, after which they
promised the latter to execute the deed of absolute sale whereupon the latter
shall, in turn, pay the entire balance of the purchase price. The balance of the
consideration shall be paid only upon grant of the court's approval and upon
execution of the deed of absolute sale.
Here, there is no doubt that petitioner prevented the fulfillment of the suspensive
condition. She herself admitted that they did not file any petition to seek approval
of the court as regards the sale of the shares of the minor owners.43 In addition,
the other co-owners sold their shares to petitioner such that she was able to
consolidate the title in her name.44 Thus, the condition is deemed constructively
fulfilled, as the intent to prevent fulfillment of the condition and actual prevention
thereof were definitely present. Consequently, it was incumbent upon the sellers to
enter into a contract with respondent-spouses for the purchase of the subject
property.
Respondent-spouses' obligation to pay the balance of the purchase price arises
only when the court's approval of the sale of the minor owners' shares shall have
been successfully secured, in accordance with Article 1181 of the New Civil Code.45
Judicial approval is a condition the operative act of which sets into motion the
period of compliance by respondent-spouses of their own obligation, i.e., to pay
the balance of the purchase price. Accordingly, an obligation dependent upon a
suspensive condition cannot be demanded until after the condition takes place
because it is only after the fulfillment of the condition that the obligation arises.46
Petitioner cannot invoke the non-fulfillment of the condition in the contract to sell
when she and her then co-owners themselves are guilty of preventing the
fulfillment of such condition. When it has become evident that the condition would
no longer be fulfilled, it was incumbent upon petitioner to inform respondent-
spouses of such circumstance because the choice whether to waive the condition
or continue with the agreement clearly belongs to the latter. Petitioner's claim that
respondent-spouses should have known that the condition would no longer be
necessary because the latter knew that the minor owners had already reached the
age of majority and that they should have been more proactive in following up the
status of the contract to sell, deserves scant consideration. While petitioner may
have been right in the aforementioned instances, the same will not negate her
obligation to inform respondent-spouses of the non-fulfillment of the condition
especially in view of the fact that it was her fault that the condition became
irrelevant and unnecessary.
Who has better right of possession?
Inasmuch as petitioner has not yet complied with her obligation to execute a deed
of sale after the condition has been deemed fulfilled, respondent-spouses are still
entitled to possess the subject property. Petitioner cannot anchor her claim on the
supposed conversion of their agreement from a contract to sell into a contract of
lease as provided in the third paragraph of the agreement which provides that
should the court disapprove the sale of the shares of the minor owners, the down
payment would be treated as rentals for twenty (20) years. The agreement,
however, could not have been converted into a contract of lease for the simple
reason that there was no petition filed before any court seeking the approval of the
sale as regards the shares of the minor owners. Hence, the court did not have any
occasion to approve much less disapprove the sale of such shares. As a result, there
was no reason for the contract to sell to be converted into a contract of lease.

[G.R. NO. 158227 October 19, 2005]

Respondent-spouses did not become lessees. They remained to be prospective
buyers of the subject property who, up to now, are awaiting fulfillment of the
obligation of the prospective sellers to execute a deed of sale. Hence, inasmuch as
the sellers allowed them to have the subject property in their possession pending KEPPEL BANK PHILIPPINES, INC., Petitioner, v. PHILIP ADAO, Respondent.
the execution of a deed of sale, respondent-spouses are entitled to possession
pending the outcome of the contract to sell.
DECISION

WHEREFORE, the petition is DENIED. The Decision, dated 29 June 2010, and
Resolution, dated 2 February 2011, of the Court of Appeals in CA-G.R. SP No.
109813 are AFFIRMED. The Entry of Judgment in Civil Case No. 2007-0014-D is
hereby LIFTED.
SO ORDERED.
QUISUMBING, J.:
On appeal is the Decision1 dated April 30, 2003 of the Court of Appeals in CA G.R.
SP No. 71477. The Court of Appeals affirmed the Decision of the Regional Trial
Court which had earlier sustained the Decision of the Metropolitan Trial Court,
dismissing the ejectment case against respondent Philip Adao.

The case stemmed from the court-approved Compromise Agreement between

petitioner Keppel Bank and Project Movers Realty and Development Corporation
(PMRDC).2 By virtue of the agreement, PMRDC through its President Mario P.
Villamor assigned, transferred and conveyed to petitioner, by way of dacion en
pago,3 twenty-five properties consisting of townhouses, condominium units and
vacant lots, as partial settlement of their two hundred million pesos (P200,000,000)
outstanding obligation. Pursuant thereto, petitioner secured Condominium
Certificates of Title over the units.

Upon inspection, petitioner found respondent Philip Adao occupying Unit 4 of the
Luxor Villas Townhouse, one of the 25 properties above-mentioned. On February
18, 2000, petitioner sent a written demand to respondent to vacate the unit within
30 days from receipt of the notice. Respondent refused and, instead, offered to
purchase the unit. However, the parties failed to reach an agreement on the
matter.
On October 19, 2000, petitioner sent respondent a final demand to vacate. Since
the demand was not heeded, petitioner filed a civil case for ejectment docketed as
Civil Case No. 8911 against respondent.
In his defense, respondent alleged that he has long been occupying the contested
unit by virtue of a Contract to Sell4 dated February 7, 1995 between him and
PMRDC. He stated that to avoid litigation, he offered to purchase the unit for 2.5
million pesos, in addition to the 3 million pesos he already paid to PMRDC. He
added that had his pre-agreed marketing services with PMRDC been duly audited
to his credit, the unit would have already been fully paid. Respondent contended
that petitioner's remedy is to demand from PMRDC the immediate replacement of
the property as provided in their Compromise Agreement and Dacion en Pago.5
On August 6, 2001, the MeTC dismissed the complaint and held Adao as the lawful
possessor of the property. Petitioner appealed to the Regional Trial Court, which,
on March 4, 2002, affirmed in toto the MeTC decision.6 The RTC held that, by virtue
of the dacion en pago, petitioner merely stepped into the shoes of PMRDC. Hence,
petitioner must respect the contract to sell between PMRDC and respondent. It
also held that petitioner failed to show non-payment by respondent, and that in
case of non-payment, the remedy of the vendor is either rescission with recovery
of possession or specific performance based on breach of contract, but not
ejectment.7 Petitioner moved for reconsideration but it was denied on June 5,
2002.
Petitioner elevated the case to the Court of Appeals. The appellate court held that
petitioner must respect the contract to sell though such is not annotated in the
certificate of title because petitioner was not a purchaser in good faith, having
failed to exercise due diligence required of banks. As an unpaid seller, petitioner
can only rescind the contract under Article 15268 of the Civil Code which does not
sanction the filing of an action for ejectment. The Court of Appeals affirmed the
RTC decision and, subsequently, denied reconsideration. It decreed as follows:
WHEREFORE, premises considered, the instant petition is DENIED. The assailed
March 4, 2002 decision of the RTC is hereby AFFIRMED.
SO ORDERED.9
Petitioner now comes before us and alleges that the Court of Appeals seriously
erred when:
i. 'it ruled that the petitioner Bank must respect the terms and conditions of the
Contract to Sell allegedly executed on 07 February 1995 despite the fact that
petitioner had no knowledge thereof and that said Contract to Sell was not
annotated on CCT No. 9522-R prior to the execution of the court-approved
Compromise Agreement and Dacion en Pago between the petitioner and PMRDC.
ii. 'it affirmed the finding of the RTC that respondent had fully paid the purchase
price under the Contract to Sell on the basis of respondent's unsubstantiated and
general allegation in his Answer with Compulsory Counterclaim and when it shifted
the burden of proof upon petitioner to prove that respondent had not fully paid
the alleged purchase price. Such ruling contravenes the well-settled legal rule that
"he who alleges must prove the same."
iii. 'it affirmed the ruling of the RTC that the complaint for ejectment filed by
petitioner is not the proper remedy.

iii.a The RTC's suggested remedy, as affirmed by the Court of Appeals, of filing an
action for "rescission with recovery of possession based on breach of contract"
wrongfully presumes that the alleged Contract to Sell is binding on the petitioner.
iii.b The RTC's suggested remedy, as affirmed by the Court of Appeals, is contrary to
law and jurisprudence because in a contract to sell, ownership is retained by the
seller until the buyer has fully paid the purchase price;
iv. 'it affirmed the ruling of the RTC that petitioner's recourse must be against
PMRDC and/or its President, Mario P. Villamor.
v. 'it affirmed the RTC's position that it was not duty-bound to rule on the issue of
ownership to settle the issue of possession and relied heavily on the alleged
Contract to Sell as the basis of respondent's right to possess the Subject
Property.10
In sum, the issues for our resolution are: (1) Is petitioner bound by the contract to
sell? (2) Is the remedy of ejectment legally available to the petitioner? and (3) Who
is entitled to physical possession of the property?cralawlibrary
Petitioner contends he is not bound by the contract to sell as it was not annotated
in the certificate of title. It maintains that the contract to sell specifically provides
that title shall be transferred to the respondent only after full payment of the
purchase price. Not having fully paid the price, respondent is not the owner.
Petitioner adds that respondent has the burden of proving payment since under
the rules on evidence, a party must prove his own affirmative allegation. Petitioner
also maintains that PMRDC merely tolerated the possession by the respondent but
such possession became illegal when, as the new owner, it demanded that
respondent immediately vacate the property.
Respondent counters that an ejectment suit is merely concerned with possession
de facto and the issue of ownership need not be resolved. He claims to have a
better right of possession having fully paid the purchase price. Further, respondent
asserts that petitioner, being a successor-in-interest of PMRDC, is bound by the
Contract to Sell. Finally, respondent avers that ejectment cases are governed by the
Rules on Summary Procedure which relies merely on affidavits and position papers
submitted. Hence, his Affidavit11 dated June 25, 2001 was sufficient to prove full
payment.
Prefatorily, this case started with a complaint for ejectment filed with the MeTC. In
previous cases, this Court consistently held that the only issue for resolution in an
ejectment case is physical or material possession of the property involved,
independent of any claim of ownership by any of the party litigants.12 Ejectment
cases are designed to summarily restore physical possession to one who has been
illegally deprived of such possession, without prejudice to the settlement of the
parties' opposing claims of juridical possession in appropriate proceedings.13 We
also said that the question of ownership may be provisionally ruled upon for the
sole purpose of determining who is entitled to possession de facto.14
Respondent bases his right of possession on the Contract to Sell. On the other
hand, petitioner argues it is not bound by the said contract since the same is not
annotated in the Certificate of Title.
It is true that persons dealing with registered property can rely solely on the
certificate of title and need not go beyond it.15 However, as correctly held by the
Court of Appeals, this rule does not apply to banks. Banks are required to exercise
more care and prudence than private individuals in dealing even with registered
properties for their business is affected with public interest.16 As master of its
business, petitioner should have sent its representatives to check the assigned
properties before signing the compromise agreement and it would have discovered
that respondent was already occupying one of the condominium units and that a
contract to sell existed between respondent and PMRDC. In our view, petitioner
was not a purchaser in good faith and we are constrained to rule that petitioner is
bound by the contract to sell.
 WHEREFORE, the petition is GRANTED. The Decision dated April 30, 2003 of the
Court of Appeals in CA G.R. SP No. 71477 is REVERSED and SET ASIDE. Respondent
Nonetheless, in this case, the contract to sell does not by itself give respondent the is hereby ordered to vacate the property.
right to possess the property. Unlike in a contract of sale, here in a contract to sell,
there is yet no actual sale nor any transfer of title, until and unless, full payment is
made. The payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the Costs against respondent.
obligation of the vendor to convey title from acquiring an obligatory force.17
Respondent must have fully paid the price to acquire title over the property and
the right to retain possession thereof. In cases of non-payment, the unpaid seller SO ORDERED.
can avail of the remedy of ejectment since he retains ownership of the property.

Respondent avers that since ejectment cases are decided merely on the basis of
affidavits and position papers, his affidavit before the MeTC sufficiently proves his
full payment of the purchase price. Nothing could be more erroneous because even G.R. No. 125172 June 26, 1998
though ejectment cases are governed by the Rules on Summary Procedure, there is
still need to present substantial evidence to support respondent's claim of full
payment. Section 918 of the Rules on Summary Procedure provides that parties
shall submit, together with their position papers, the affidavits of their witnesses Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners,
and other evidence on the factual issues defined. His lone affidavit is self-serving,
vs.
and cannot be considered as substantial evidence. As a general rule, one who
pleads payment has the burden of proving it. Even where the petitioner alleged COURT OF APPEALS and GILDA COPUZ, respondents.
non-payment, the general rule is that the burden rests on the respondent to prove
payment, rather than on the petitioner to prove non-payment.19

Considering that respondent failed to discharge the burden of proving payment, he
cannot claim ownership of the property and his possession thereof was by mere
tolerance. His continued possession became unlawful upon the owner's demand to
vacate the property.20 We stress, however, that this adjudication, is only a
provisional determination of ownership for the purpose of settling the issue of
possession,21 and does not bar or prejudice an action between the same parties
involving title to the property.22
PANGANIBAN, J.:
The sale of a conjugal property requires the consent of both the husband and the
wife. The absence of the consent of one renders the sale null and void, while the
vitiation thereof makes it merely voidable. Only in the latter case can ratification
cure the defect.

The Case
These were the principles that guided the Court in deciding this petition for review
of the Decision 1 dated January 30, 1996 and the Resolution 2 dated May 28, 1996,
promulgated by the Court of Appeals in CA-GR CV No. 41758, affirming the Decision
of the lower court and denying reconsideration, respectively.
On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complainant
3 against her husband Judie Corpuz and Petitioner-Spouses Antonio and Luzviminda
Guiang. The said Complaint sought the declaration of a certain deed of sale, which
involved the conjugal property of private respondent and her husband, null and
void. The case was raffled to the Regional Trial Court of Koronadal, South Cotabato,
Branch 25. In due course, the trial court rendered a Decision 4 dated September 9,
1992, disposing as follow: 5
ACCORDINGLY, judgment is rendered for the plaintiff and against the defendants,
1. Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. "A") and
the "amicable settlement" dated March 16, 1990 (Exh. "B") as null void and of no
effect;
2. Recognizing as lawful and valid the ownership and possession of plaintiff Gilda
Corpuz over the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409
which has been the subject of the Deed of Transfer of Rights (Exh. "A");
3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda Guiang the
amount of NINE THOUSAND (P9,000.00) PESOS corresponding to the payment
made by defendants Guiangs to Manuel Callejo for the unpaid balance of the
account of plaintiff in favor of Manuel Callejo, and another sum of P379.62
representing one-half of the amount of realty taxes paid by defendants Guiangs on
Lot 9, Block 8, (LRC) Psd-165409, both with legal interests thereon computed from
the finality of the decision.
No pronouncement as to costs in view of the factual circumstances of the case.
Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals.
Respondent Court, in its challenged Decision, ruled as follow: 6
WHEREFORE, the appealed of the lower court in Civil Case No. 204 is hereby
AFFIRMED by this Court. No costs considering plaintiff-appellee's failure to file her
brief despite notice.
Reconsideration was similarly denied by the same court in its assailed Resolution: 7
Finding that the issues raised in defendants-appellants motion for reconsideration
of Our decision in this case of January 30, 1996, to be a mere rehash of the same
issues which we have already passed upon in the said decision, and there [being]
no cogent reason to disturb the same, this Court RESOLVED to DENY the instant
motion for reconsideration for lack of merit.
The Facts
The facts of this case are simple. Over the objection of private respondent and
while she was in Manila seeking employment, her husband sold to the petitioners-
spouses one half of their conjugal peoperty, consisting of their residence and the
lot on which it stood. The circumstances of this sale are set forth in the Decision of
Respondent Court, which quoted from the Decision of the trial court as follows: 8
1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses.
They were married on December 24, 1968 in Bacolod City, before a judge. This is
admitted by defendants-spouses Antonio and Luzviminda Guiang in their answer,
and also admitted by defendant Judie Corpuz when he testified in court (tsn. p. 3,
June 9, 1992), although the latter says that they were married in 1967. The couple
have three children, namely: Junie — 18 years old, Harriet — 17 years of age, and
Jodie or Joji, the youngest, who was 15 years of age in August, 1990 when her
mother testified in court.
Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with plaintiff-
wife Gilda Corpuz as vendee, bought a 421 sq. meter lot located in Barangay Gen.
Paulino Santos (Bo. 1), Koronadal, South Cotabato, and particularly known as Lot 9,
Block 8, (LRC) Psd-165409 from Manuel Callejo who signed as vendor through a
conditional deed of sale for a total consideration of P14,735.00. The consideration
was payable in installment, with right of cancellation in favor of vendor should
vendee fail to pay three successive installments (Exh. "2", tsn p. 6, February 14,
1990).
2. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half
portion of their Lot No. 9, Block 8, (LRC) Psd-165409 to the defendants-spouses
Antonio and Luzviminda Guiang. The latter have since then occupied the one-half
portion [and] built their house thereon (tsn. p. 4, May 22, 1992). They are thus
adjoining neighbors of the Corpuzes.
3. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to
look for work abroad, in [the] Middle East. Unfortunately, she became a victim of
an unscrupulous illegal recruiter. She was not able to go abroad. She stayed for
sometime in Manila however, coming back to Koronadal, South Cotabato, . . . on
March 11, 1990. Plaintiff's departure for Manila to look for work in the Middle East
was with the consent of her husband Judie Corpuz (tsn. p. 16, Aug. 12, 1990; p. 10
Sept. 6, 1991).
After his wife's departure for Manila, defendant Judie Corpuz seldom went home to
the conjugal dwelling. He stayed most of the time at his place of work at Samahang
Nayon Building, a hotel, restaurant, and a cooperative. Daughter Herriet Corpuz
went to school at King's College, Bo. 1, Koronadal, South Cotabato, but she was at
the same time working as household help of, and staying at, the house of Mr.
Panes. Her brother Junie was not working. Her younger sister Jodie (Jojie) was
going to school. Her mother sometimes sent them money (tsn. p. 14, Sept. 6,
1991.)
Sometime in January 1990, Harriet Corpuz learned that her father intended to sell
the remaining one-half portion including their house, of their homelot to
defendants Guiangs. She wrote a letter to her mother informing her. She [Gilda
Corpuz] replied that she was objecting to the sale. Harriet, however, did not inform
her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that
she [Guiang] would advise her father (tsn. pp. 16-17, Sept. 6, 1991).
4. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz
pushed through the sale of the remaining one-half portion of Lot 9, Block 8, (LRC)
Psd-165409. On March 1, 1990, he sold to defendant Luzviminda Guiang thru a
document known as "Deed of Transfer of Rights" (Exh. "A") the remaining one-half
portion of their lot and the house standing thereon for a total consideration of
P30,000.00 of which P5,000.00 was to be paid in June, 1990. Transferor Judie
Corpuz's children Junie and Harriet signed the document as witness.
Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure whatever
defect in defendant Judie Corpuz's title over the lot transferred, defendant
Luzviminda Guiang as vendee executed another agreement over Lot 9, Block 8,
(LRC) Psd-165408 (Exh. "3"), this time with Manuela Jimenez Callejo, a widow of
the original registered owner from whom the couple Judie and Gilda Corpuz
originally bought the lot (Exh. "2"), who signed as vendor for a consideration of
P9,000.00. Defendant Judie Corpuz signed as a witness to the sale (Exh. "3-A"). The
new sale (Exh. "3") describes the lot sold as Lot 8, Block 9, (LRC) Psd-165408 but it is
obvious from the mass of evidence that the correct lot is Lot 8, Block 9, (LRC) Psd-
165409, the very lot earlier sold to the couple Gilda and Judie Corpuz.
5. Sometimes on March 11, 1990, plaintiff returned home. She found her children
staying with other households. Only Junie was staying in their house. Harriet and
Joji were with Mr. Panes. Gilda gathered her children together and stayed at their
house. Her husband was nowhere to be found. She was informed by her children
that their father had a wife already.
6. For staying in their house sold by her husband, plaintiff was complained against
by defendant Luzviminda Guiang and her husband Antonio Guiang before the
Barangay authorities of Barangay General Paulino Santos (Bo. 1), Koronadal, South
Cotabato, for trespassing (tsn. p. 34, Aug. 17, 1990). The case was docketed by the
barangay authorities as Barangay Case No. 38 for "trespassing". On March 16,
1990, the parties thereat signed a document known as "amicable settlement". In
full, the settlement provides for, to wit:
That respondent, Mrs. Gilda Corpuz and her three children, namely: Junie, Hariet
and Judie to leave voluntarily the house of Mr. and Mrs. Antonio Guiang, where
they are presently boarding without any charge, on or before April 7, 1990.
FAIL NOT UNDER THE PENALTY OF THE LAW.
Believing that she had received the shorter end of the bargain, plaintiff to the
Barangay Captain of Barangay Paulino Santos to question her signature on the
amicable settlement. She was referred however to the Office-In-Charge at the time,
a certain Mr. de la Cruz. The latter in turn told her that he could not do anything on
the matter (tsn. p. 31, Aug. 17, 1990).
This particular point not rebutted. The Barangay Captain who testified did not deny
that Mrs. Gilda Corpuz approached him for the annulment of the settlement. He
merely said he forgot whether Mrs. Corpuz had approached him (tsn. p. 13, Sept.
26, 1990). We thus conclude that Mrs. Corpuz really approached the Barangay
Captain for the annulment of the settlement. Annulment not having been made,
plaintiff stayed put in her house and lot.
7. Defendant-spouses Guiang followed thru the amicable settlement with a motion
for the execution of the amicable settlement, filing the same with the Municipal
Trial Court of Koronadal, South Cotabato. The proceedings [are] still pending before
the said court, with the filing of the instant suit.
8. As a consequence of the sale, the spouses Guiang spent P600.00 for the
preparation of the Deed of Transfer of Rights, Exh. "A", P9,000.00 as the amount
they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of the
Corpuzes to Mrs. Callejo (Exh. "3"); P100.00 for the preparation of Exhibit "3"; a
total of P759.62 basic tax and special education fund on the lot; P127.50 as the
total documentary stamp tax on the various documents; P535.72 for the capital
gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification fee of P5.00.
These expenses particularly the taxes and other expenses towards the transfer of
the title to the spouses Guiangs were incurred for the whole Lot 9, Block 8, (LRC)
Psd-165409.
Ruling of Respondent Court
Respondent Court found no reversible error in the trial court's ruling that any
alienation or encumbrance by the husband of the conjugal propety without the
consent of his wife is null and void as provided under Article 124 of the Family
Code. It also rejected petitioners' contention that the "amicable sttlement" ratified
said sale, citing Article 1409 of the Code which expressly bars ratification of the
contracts specified therein, particularly those "prohibited or declared void by law."
Hence, this petition. 9
The Issues
In their Memorandum, petitioners assign to public respondent the following errors:
10
I
Whether or not the assailed Deed of Transfer of Rights was validly executed.
II
Whether or not the Cour of Appeals erred in not declairing as voidable contract
under Art. 1390 of the Civil Code the impugned Deed of Transfer of Rights which
was validly ratified thru the execution of the "amicable settlement" by the
contending parties.
III
Whether or not the Court of Appeals erred in not setting aside the findings of the
Court a quo which recognized as lawful and valid the ownership and possession of
private respondent over the remaining one half (1/2) portion of the properly.
In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of
Transfer of Rights) was merely voidable, and (2) such contract was ratified by
private respondent when she entered into an amicable sttlement with them.
This Court's Ruling
The petition is bereft of merit.
First Issue: Void or Voidable Contract?
Petitioners insist that the questioned Deed of Transfer of Rights was validly
executed by the parties-litigants in good faith and for valuable consideration. The
absence of private respondent's consent merely rendered the Deed voidable under
Article 1390 of the Civil Code, which provides:
Art. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
xxx xxx xxx
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification.(n)
The error in petitioners' contention is evident. Article 1390, par. 2, refers to
contracts visited by vices of consent, i.e., contracts which were entered into by a
person whose consent was obtained and vitiated through mistake, violence,
intimidation, undue influence or fraud. In this instance, private respondent's
consent to the contract of sale of their conjugal property was totally inexistent or
absent. Gilda Corpuz, on direct examination, testified thus: 11
Q Now, on March 1, 1990, could you still recall where you were?
A I was still in Manila during that time.
xxx xxx xxx
ATTY. FUENTES:
Q When did you come back to Koronadal, South Cotabato?
A That was on March 11, 1990, Ma'am.
Q Now, when you arrived at Koronadal, was there any problem which arose
concerning the ownership of your residential house at Callejo Subdivision?
A When I arrived here in Koronadal, there was a problem which arose regarding my
residential house and lot because it was sold by my husband without my
knowledge.
This being the case, said contract properly falls within the ambit of Article 124 of
the Family Code, which was correctly applied by the teo lower court:
Art. 124. The administration and enjoyment of the conjugal partnerhip properly
shall belong to both spouses jointly. In case of disgreement, the husband's decision
shall prevail, subject recourse to the court by the wife for proper remedy, which
must be availed of within five years from the date of the contract implementing
such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in
the administration of the conjugal properties, the other spouse may assume sole
powers of administration. These powers do not include the powers of disposition
or encumbrance which must have the authority of the court or the written consent
of the other spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse and the third person, and
may be perfected as a binding contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either or both offerors.
(165a) (Emphasis supplied)
Comparing said law with its equivalent provision in the Civil Code, the trial court
adroitly explained the amendatory effect of the above provision in this wise: 12
The legal provision is clear. The disposition or encumbrance is void. It becomes still
clearer if we compare the same with the equivalent provision of the Civil Code of
the Philippines. Under Article 166 of the Civil Code, the husband cannot generally
alienate or encumber any real property of the conjugal partnershit without the
wife's consent. The alienation or encumbrance if so made however is not null and
void. It is merely voidable. The offended wife may bring an action to annul the said
alienation or encumbrance. Thus the provision of Article 173 of the Civil Code of
the Philippines, to wit:
Art. 173. The wife may, during the marriage and within ten years from the
transaction questioned, ask the courts for the annulment of any contract of the
husband entered into without her consent, when such consent is required, or any
act or contract of the husband which tends to defraud her or impair her interest in
the conjugal partnership property. Should the wife fail to exercise this right, she or
her heirs after the dissolution of the marriage, may demand the value of property
fraudulently alienated by the husband.(n)
This particular provision giving the wife ten (10) years . . . during [the] marriage to
annul the alienation or encumbrance was not carried over to the Family Code. It is
thus clear that any alienation or encumbrance made after August 3, 1988 when the
Family Code took effect by the husband of the conjugal partnership property
without the consent of the wife is null and void.
Furthermore, it must be noted that the fraud and the intimidation referred to by
petitioners were perpetrated in the execution of the document embodying the
amicable settlement. Gilda Corpuz alleged during trial that barangay authorities
made her sign said document through misrepresentation and
coercion. 13 In any event, its execution does not alter the void character of the
deed of sale between the husband and the petitioners-spouses, as will be discussed
later. The fact remains that such contract was entered into without the wife's
consent.
In sum, the nullity of the contract of sale is premised on the absence of private
respondent's consent. To constitute a valid contract, the Civil Code requires the
concurrence of the following elements: (1) cause, (2) object, and (3) consent, 14
the last element being indubitably absent in the case at bar.
Second Issue: Amicable Settlement
Insisting that the contract of sale was merely voidable, petitioners aver that it was
duly ratified by the contending parties through the "amicable settlement" they
executed on March 16, 1990 in Barangay Case No. 38.
The position is not well taken. The trial and the appellate courts have resolved this
issue in favor of the private respondent. The trial court correctly held: 15
By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed to
Transfer of Rights (Exh. "A") cannot be ratified, even by an "amicable settlement".
The participation by some barangay authorities in the "amicable settlement"
cannot otherwise validate an invalid act. Moreover, it cannot be denied that the
"amicable settlement (Exh. "B") entered into by plaintiff Gilda Corpuz and
defendent spouses Guiang is a contract. It is a direct offshoot of the Deed of
Transfer of Rights (Exh. "A"). By express provision of law, such a contract is also
void. Thus, the legal provision, to wit:
Art. 1422. Acontract which is the direct result of a previous illegal contract, is also
void and inexistent. (Civil Code of the Philippines).
In summation therefore, both the Deed of transfer of Rights (Exh. "A") and the
"amicable settlement" (Exh. "3") are null and void.
Doctrinally and clearly, a void contract cannot be ratified. 16
Neither can the "amicable settlement" be considered a continuing offer that was
accepted and perfected by the parties, following the last sentence of Article 124.
The order of the pertinent events is clear: after the sale, petitioners filed a
complaint for trespassing against private respondent, after which the barangay
authorities secured an "amicable settlement" and petitioners filed before the MTC
a motion for its execution. The settlement, however, does not mention a continuing
offer to sell the property or an acceptance of such a continuing offer. Its tenor was
to the effect that private respondent would vacate the property. By no stretch of
the imagination, can the Court interpret this document as the acceptance
mentioned in Article 124.
WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged
Decision and Resolution. Costs against petitioners.
SO ORDERED.
G.R. No. 165803 September 1, 2010

SPOUSES REX AND CONCEPCION AGGABAO, Petitioners,

vs.

DIONISIO Z. PARULAN, JR. and MA. ELENA PARULAN, Respondents.

DECISION

BERSAMIN, J.:

On July 26, 2000, the Regional Trial Court (RTC), Branch 136, in Makati City annulled
the deed of absolute sale executed in favor of the petitioners covering two parcels
of registered land the respondents owned for want of the written consent of
respondent husband Dionisio Parulan, Jr. On July 2, 2004, in C.A.-G.R. CV No.
69044,1 the Court of Appeals (CA) affirmed the RTC decision.
Hence, the petitioners appeal by petition for review on certiorari, seeking to
reverse the decision of the CA. They present as the main issue whether the sale of
conjugal property made by respondent wife by presenting a special power of
attorney to sell (SPA) purportedly executed by respondent husband in her favor
was validly made to the vendees, who allegedly acted in good faith and paid the full
purchase price, despite the showing by the husband that his signature on the SPA
had been forged and that the SPA had been executed during his absence from the
country.
We resolve the main issue against the vendees and sustain the CA’s finding that the
vendees were not buyers in good faith, because they did not exercise the necessary
prudence to inquire into the wife’s authority to sell. We hold that the sale of
conjugal property without the consent of the husband was not merely voidable but
void; hence, it could not be ratified.
Antecedents
Involved in this action are two parcels of land and their improvements (property)
located at No. 49 Miguel Cuaderno Street, Executive Village, BF Homes, Parañaque
City and registered under Transfer Certificate of Title (TCT) No. 633762 and TCT No.
633773 in the name of respondents Spouses Maria Elena A. Parulan (Ma. Elena)
and Dionisio Z. Parulan, Jr. (Dionisio), who have been estranged from one another.
In January 1991, real estate broker Marta K. Atanacio (Atanacio) offered the
property to the petitioners, who initially did not show interest due to the rundown
condition of the improvements. But Atanacio’s persistence prevailed upon them, so
that on February 2, 1991, they and Atanacio met with Ma. Elena at the site of the
property. During their meeting, Ma. Elena showed to them the following
documents, namely: (a) the owner’s original copy of TCT No. 63376; (b) a certified
true copy of TCT No. 63377; (c) three tax declarations; and (d) a copy of the special
power of attorney (SPA) dated January 7, 1991 executed by Dionisio authorizing
Ma. Elena to sell the property.4 Before the meeting ended, they paid ₱20,000.00 as
earnest money, for which Ma. Elena executed a handwritten Receipt of Earnest
Money, whereby the parties stipulated that: (a) they would pay an additional
payment of ₱130,000.00 on February 4, 1991; (b) they would pay the balance of
the bank loan of the respondents amounting to ₱650,000.00 on or before February
15, 1991; and (c) they would make the final payment of ₱700,000.00 once Ma.
Elena turned over the property on March 31, 1991.5
On February 4, 1991, the petitioners went to the Office of the Register of Deeds
and the Assessor’s Office of Parañaque City to verify the TCTs shown by Ma. Elena
in the company of Atanacio and her husband (also a licensed broker).6 There, they
discovered that the lot under TCT No. 63376 had been encumbered to Banco
Filipino in 1983 or 1984, but that the encumbrance had already been cancelled due
to the full payment of the obligation.7 They noticed that the Banco Filipino loan
had been effected through an SPA executed by Dionisio in favor of Ma. Elena.8
They found on TCT No. 63377 the annotation of an existing mortgage in favor of
the Los Baños Rural Bank, also effected through an SPA executed by Dionisio in
favor of Ma. Elena, coupled with a copy of a court order authorizing Ma. Elena to
mortgage the lot to secure a loan of ₱500,000.00.9
The petitioners and Atanacio next inquired about the mortgage and the court order
annotated on TCT No. 63377 at the Los Baños Rural Bank. There, they met with
Atty. Noel Zarate, the bank’s legal counsel, who related that the bank had asked for
the court order because the lot involved was conjugal property.10
Following their verification, the petitioners delivered ₱130,000.00 as additional
down payment on February 4, 1991; and ₱650,000.00 to the Los Baños Rural Bank
on February 12, 1991, which then released the owner’s duplicate copy of TCT No.
63377 to them.11
On March 18, 1991, the petitioners delivered the final amount of ₱700,000.00 to
Ma. Elena, who executed a deed of absolute sale in their favor. However, Ma. Elena
did not turn over the owner’s duplicate copy of TCT No. 63376, claiming that said
copy was in the possession of a relative who was then in Hongkong.12 She assured
them that the owner’s duplicate copy of TCT No. 63376 would be turned over after
a week.
On March 19, 1991, TCT No. 63377 was cancelled and a new one was issued in the
name of the petitioners.
Ma. Elena did not turn over the duplicate owner’s copy of TCT No. 63376 as
promised. In due time, the petitioners learned that the duplicate owner’s copy of
TCT No. 63376 had been all along in the custody of Atty. Jeremy Z. Parulan, who
appeared to hold an SPA executed by his brother Dionisio authorizing him to sell
both lots.13
At Atanacio’s instance, the petitioners met on March 25, 1991 with Atty. Parulan at
the Manila Peninsula.14 For that meeting, they were accompanied by one Atty.
Olandesca.15 They recalled that Atty. Parulan "smugly demanded ₱800,000.00" in
exchange for the duplicate owner’s copy of TCT No. 63376, because Atty. Parulan
represented the current value of the property to be ₱1.5 million. As a counter-
offer, however, they tendered ₱250,000.00, which Atty. Parulan declined,16 giving
them only until April 5, 1991 to decide.
Hearing nothing more from the petitioners, Atty. Parulan decided to call them on
April 5, 1991, but they informed him that they had already fully paid to Ma.
Elena.17
Thus, on April 15, 1991, Dionisio, through Atty. Parulan, commenced an action (Civil
Case No. 91-1005 entitled Dionisio Z. Parulan, Jr., represented by Jeremy Z. Parulan,
as attorney in fact, v. Ma. Elena Parulan, Sps. Rex and Coney Aggabao), praying for
the declaration of the nullity of the deed of absolute sale executed by Ma. Elena,
and the cancellation of the title issued to the petitioners by virtue thereof.
In turn, the petitioners filed on July 12, 1991 their own action for specific
performance with damages against the respondents.
Both cases were consolidated for trial and judgment in the RTC.18
Ruling of the RTC
After trial, the RTC rendered judgment, as follows:
WHEREFORE, and in consideration of the foregoing, judgment is hereby rendered in
favor of plaintiff Dionisio A. Parulan, Jr. and against defendants Ma. Elena Parulan
and the Sps. Rex and Concepcion Aggabao, without prejudice to any action that
may be filed by the Sps. Aggabao against co-defendant Ma. Elena Parulan for the
amounts they paid her for the purchase of the subject lots, as follows:
1. The Deed of Absolute Sale dated March 18, 1991 covering the sale of the lot
located at No. 49 M. Cuaderno St., Executive Village, BF Homes, Parañaque, Metro
Manila, and covered by TCT Nos. 63376 and 63377 is declared null and void.
2. Defendant Mrs. Elena Parulan is directed to pay litigation expenses amounting to
₱50,000.00 and the costs of the suit.
SO ORDERED.19
The RTC declared that the SPA in the hands of Ma. Elena was a forgery, based on its
finding that Dionisio had been out of the country at the time of the execution of
the SPA;20 that NBI Sr. Document Examiner Rhoda B. Flores had certified that the
signature appearing on the SPA purporting to be that of Dionisio and the set of
standard sample signatures of Dionisio had not been written by one and the same
person;21 and that Record Officer III Eliseo O. Terenco and Clerk of Court Jesus P.
Maningas of the Manila RTC had issued a certification to the effect that Atty. Alfred
Datingaling, the Notary Public who had notarized the SPA, had not been included in
the list of Notaries Public in Manila for the year 1990-1991.22
The RTC rejected the petitioners’ defense of being buyers in good faith because of
their failure to exercise ordinary prudence, including demanding from Ma. Elena a
court order authorizing her to sell the properties similar to the order that the Los
Baños Rural Bank had required before accepting the mortgage of the property.23 It
observed that they had appeared to be in a hurry to consummate the transaction
despite Atanacio’s advice that they first consult a lawyer before buying the
property; that with ordinary prudence, they should first have obtained the owner’s
duplicate copies of the TCTs before paying the full amount of the consideration;
and that the sale was void pursuant to Article 124 of the Family Code.24
Ruling of the CA
As stated, the CA affirmed the RTC, opining that Article 124 of the Family Code
applied because Dionisio had not consented to the sale of the conjugal property by
Ma. Elena; and that the RTC correctly found the SPA to be a forgery.
The CA denied the petitioners’ motion for reconsideration.25
Issues
The petitioners now make two arguments: (1) they were buyers in good faith; and
(2) the CA erred in affirming the RTC’s finding that the sale between Mrs. Elena and
the petitioners had been a nullity under Article 124 of the Family Code.
The petitioners impute error to the CA for not applying the "ordinary prudent
man’s standard" in determining their status as buyers in good faith. They contend
that the more appropriate law to apply was Article 173 of the Civil Code, not Article
124 of the Family Code; and that even if the SPA held by Ma. Elena was a forgery,
the ruling in Veloso v. Court of Appeals26 warranted a judgment in their favor.
Restated, the issues for consideration and resolution are as follows:
1) Which between Article 173 of the Civil Code and Article 124 of the Family Code
should apply to the sale of the conjugal property executed without the consent of
Dionisio?
2) Might the petitioners be considered in good faith at the time of their purchase of
the property?
3) Might the ruling in Veloso v. Court of Appeals be applied in favor of the
petitioners despite the finding of forgery of the SPA?
Ruling
The petition has no merit. We sustain the CA.
1.
Article 124, Family Code, applies to sale of conjugal
properties made after the effectivity of the Family Code
The petitioners submit that Article 173 of the Civil Code, not Article 124 of the
Family Code, governed the property relations of the respondents because they had
been married prior to the effectivity of the Family Code; and that the second
paragraph of Article 124 of the Family Code should not apply because the other
spouse held the administration over the conjugal property. They argue that
notwithstanding his absence from the country Dionisio still held the administration
of the conjugal property by virtue of his execution of the SPA in favor of his
brother; and that even assuming that Article 124 of the Family Code properly
applied, Dionisio ratified the sale through Atty. Parulan’s counter-offer during the
March 25, 1991 meeting.
We do not subscribe to the petitioners’ submissions.
To start with, Article 25427 the Family Code has expressly repealed several titles
under the Civil Code, among them the entire Title VI in which the provisions on the
property relations between husband and wife, Article 173 included, are found.
Secondly, the sale was made on March 18, 1991, or after August 3, 1988, the
effectivity of the Family Code. The proper law to apply is, therefore, Article 124 of
the Family Code, for it is settled that any alienation or encumbrance of conjugal
property made during the effectivity of the Family Code is governed by Article 124
of the Family Code.28
Article 124 of the Family Code provides:
Article 124. The administration and enjoyment of the conjugal partnership property
shall belong to both spouses jointly. In case of disagreement, the husband’s
decision shall prevail, subject to recourse to the court by the wife for proper
remedy, which must be availed of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in
the administration of the conjugal properties, the other spouse may assume sole
powers of administration. These powers do not include disposition or encumbrance
without authority of the court or the written consent of the other spouse. In the
absence of such authority or consent, the disposition or encumbrance shall be void.
However, the transaction shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors.
Thirdly, according to Article 25629 of the Family Code, the provisions of the Family
Code may apply retroactively provided no vested rights are impaired. In Tumlos v.
Fernandez,30 the Court rejected the petitioner’s argument that the Family Code
did not apply because the acquisition of the contested property had occurred prior
to the effectivity of the Family Code, and pointed out that Article 256 provided that
the Family Code could apply retroactively if the application would not prejudice
vested or acquired rights existing before the effectivity of the Family Code. Herein,
however, the petitioners did not show any vested right in the property acquired
prior to August 3, 1988 that exempted their situation from the retroactive
application of the Family Code.
Fourthly, the petitioners failed to substantiate their contention that Dionisio, while
holding the administration over the property, had delegated to his brother, Atty.
Parulan, the administration of the property, considering that they did not present
in court the SPA granting to Atty. Parulan the authority for the administration.
Nonetheless, we stress that the power of administration does not include acts of
disposition or encumbrance, which are acts of strict ownership. As such, an
authority to dispose cannot proceed from an authority to administer, and vice
versa, for the two powers may only be exercised by an agent by following the
provisions on agency of the Civil Code (from Article 1876 to Article 1878).
Specifically, the apparent authority of Atty. Parulan, being a special agency, was
limited to the sale of the property in question, and did not include or extend to the
power to administer the property.31

Lastly, the petitioners’ insistence that Atty. Parulan’s making of a counter-offer
during the March 25, 1991 meeting ratified the sale merits no consideration. Under
Article 124 of the Family Code, the transaction executed sans the written consent
of Dionisio or the proper court order was void; hence, ratification did not occur, for
a void contract could not be ratified.32
On the other hand, we agree with Dionisio that the void sale was a continuing offer
from the petitioners and Ma. Elena that Dionisio had the option of accepting or
rejecting before the offer was withdrawn by either or both Ma. Elena and the
petitioners. The last sentence of the second paragraph of Article 124 of the Family
Code makes this clear, stating that in the absence of the other spouse’s consent,
the transaction should be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or upon authorization by the
court before the offer is withdrawn by either or both offerors.
2.
Due diligence required in verifying not only vendor’s title,
but also agent’s authority to sell the property
A purchaser in good faith is one who buys the property of another, without notice
that some other person has a right to, or interest in, such property, and pays the
full and fair price for it at the time of such purchase or before he has notice of the
claim or interest of some other persons in the property. He buys the property with
the belief that the person from whom he receives the thing was the owner and
could convey title to the property. He cannot close his eyes to facts that should put
a reasonable man on his guard and still claim he acted in good faith.33 The status
of a buyer in good faith is never presumed but must be proven by the person
invoking it.34
Here, the petitioners disagree with the CA for not applying the "ordinary prudent
man’s standard" in determining their status as buyers in good faith. They insist that
they exercised due diligence by verifying the status of the TCTs, as well as by
inquiring about the details surrounding the mortgage extended by the Los Baños
Rural Bank. They lament the holding of the CA that they should have been put on
their guard when they learned that the Los Baños Rural Bank had first required a
court order before granting the loan to the respondents secured by their mortgage
of the property.
The petitioners miss the whole point.
Article 124 of the Family Code categorically requires the consent of both spouses
before the conjugal property may be disposed of by sale, mortgage, or other modes
of disposition. In Bautista v. Silva,35 the Court erected a standard to determine the
good faith of the buyers dealing with
a seller who had title to and possession of the land but whose capacity to sell was
restricted, in that the consent of the other spouse was required before the
conveyance, declaring that in order to prove good faith in such a situation, the
buyers must show that they inquired not only into the title of the seller but also
into the seller’s capacity to sell.36 Thus, the buyers of conjugal property must
observe two kinds of requisite diligence, namely: (a) the diligence in verifying the
validity of the title covering the property; and (b) the diligence in inquiring into the
authority of the transacting spouse to sell conjugal property in behalf of the other
spouse.
It is true that a buyer of registered land needs only to show that he has relied on
the face of the certificate of title to the property, for he is not required to explore
beyond what the certificate indicates on its face.37 In this respect, the petitioners
sufficiently proved that they had checked on the authenticity of TCT No. 63376 and
TCT No. 63377 with the Office of the Register of Deeds in Pasay City as the
custodian of the land records; and that they had also gone to the Los Baños Rural
Bank to inquire about the mortgage annotated on TCT No. 63377. Thereby, the
petitioners observed the requisite diligence in examining the validity of the TCTs
concerned.
Yet, it ought to be plain enough to the petitioners that the issue was whether or
not they had diligently inquired into the authority of Ma. Elena to convey the
property, not whether or not the TCT had been valid and authentic, as to which
there was no doubt. Thus, we cannot side with them.
Firstly, the petitioners knew fully well that the law demanded the written consent
of Dionisio to the sale, but yet they did not present evidence to show that they had
made inquiries into the circumstances behind the execution of the SPA purportedly
executed by Dionisio in favor of Ma. Elena. Had they made the appropriate
inquiries, and not simply accepted the SPA for what it represented on its face, they
would have uncovered soon enough that the respondents had been estranged
from each other and were under de facto separation, and that they probably held
conflicting interests that would negate the existence of an agency between them.
To lift this doubt, they must, of necessity, further inquire into the SPA of Ma. Elena.
The omission to inquire indicated their not being buyers in good faith, for, as
fittingly observed in Domingo v. Reed:381avvphi1
What was required of them by the appellate court, which we affirm, was merely to
investigate – as any prudent vendee should – the authority of Lolita to sell the
property and to bind the partnership. They had knowledge of facts that should
have led them to inquire and to investigate, in order to acquaint themselves with
possible defects in her title. The law requires them to act with the diligence of a
prudent person; in this case, their only prudent course of action was to investigate
whether respondent had indeed given his consent to the sale and authorized his
wife to sell the property.39
Indeed, an unquestioning reliance by the petitioners on Ma. Elena’s SPA without
first taking precautions to verify its authenticity was not a prudent buyer’s move.40
They should have done everything within their means and power to ascertain
whether the SPA had been genuine and authentic. If they did not investigate on the
relations of the respondents vis-à-vis each other, they could have done other things
towards the same end, like attempting to locate the notary public who had
notarized the SPA, or checked with the RTC in Manila to confirm the authority of
Notary Public Atty. Datingaling. It turned out that Atty. Datingaling was not
authorized to act as a Notary Public for Manila during the period 1990-1991, which
was a fact that they could easily discover with a modicum of zeal.
Secondly, the final payment of ₱700,000.00 even without the owner’s duplicate
copy of the TCT No. 63376 being handed to them by Ma. Elena indicated a
revealing lack of precaution on the part of the petitioners. It is true that she
promised to produce and deliver the owner’s copy within a week because her
relative having custody of it had gone to Hongkong, but their passivity in such an
essential matter was puzzling light of their earlier alacrity in immediately and
diligently validating the TCTs to the extent of inquiring at the Los Baños Rural Bank
about the annotated mortgage. Yet, they could have rightly withheld the final
payment of the balance. That they did not do so reflected their lack of due care in
dealing with Ma. Elena.
Lastly, another reason rendered the petitioners’ good faith incredible. They did not
take immediate action against Ma. Elena upon discovering that the owner’s original
copy of TCT No. 63376 was in the possession of Atty. Parulan, contrary to Elena’s
representation. Human experience would have impelled them to exert every effort
to proceed against Ma. Elena, including demanding the return of the substantial
amounts paid to her. But they seemed not to mind her inability to produce the TCT,
and, instead, they contented themselves with meeting with Atty. Parulan to
negotiate for the possible turnover of the TCT to them.
3.
Veloso v. Court of Appeals cannot help petitioners
The petitioners contend that the forgery of the SPA notwithstanding, the CA could
still have decided in their favor conformably with Veloso v. Court of Appeals,41 a
case where the petitioner husband claimed that his signature and that of the
notary public who had notarized the SPA the petitioner supposedly executed to
authorize his wife to sell the property had been forged. In denying relief, the Court
upheld the right of the vendee as an innocent purchaser for value.
Aggabao" and "Sps. Rex and Concepcion Aggabao vs. Dionisio Z. Parulan, Jr. and
Ma. Elena Parulan."
Costs of suit to be paid by the petitioners.

Veloso is inapplicable, however, because the contested property therein was

exclusively owned by the petitioner and did not belong to the conjugal regime. SO ORDERED.
Veloso being upon conjugal property, Article 124 of the Family Code did not apply.

In contrast, the property involved herein pertained to the conjugal regime, and,
consequently, the lack of the written consent of the husband rendered the sale
void pursuant to Article 124 of the Family Code. Moreover, even assuming that the
property involved in Veloso was conjugal, its sale was made on November 2, 1987,
or prior to the effectivity of the Family Code; hence, the sale was still properly
covered by Article 173 of the Civil Code, which provides that a sale effected without
the consent of one of the spouses is only voidable, not void. However, the sale
herein was made already during the effectivity of the Family Code, rendering the
application of Article 124 of the Family Code clear and indubitable.

The fault of the petitioner in Veloso was that he did not adduce sufficient evidence
to prove that his signature and that of the notary public on the SPA had been
G.R. No. 165879 November 10, 2006
forged. The Court pointed out that his mere allegation that the signatures had been
forged could not be sustained without clear and convincing proof to substantiate
the allegation. Herein, however, both the RTC and the CA found from the
testimonies and evidence presented by Dionisio that his signature had been MARIA B. CHING, Petitioner,
definitely forged, as borne out by the entries in his passport showing that he was
vs.
out of the country at the time of the execution of the questioned SPA; and that the
alleged notary public, Atty. Datingaling, had no authority to act as a Notary Public JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA GOYANKO,
for Manila during the period of 1990-1991. JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS GOYANKO, Respondents.

WHEREFORE, we deny the petition for review on certiorari, and affirm the decision DECISION
dated July 2, 2004 rendered by the Court of Appeals in C.A.-G.R. CV No. 69044
entitled "Dionisio Z. Parulan, Jr. vs. Ma. Elena Parulan and Sps. Rex and Concepcion
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 sale2 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:
. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR
CASE DURING APPEAL.10

I.

The pertinent provisions of the Civil Code which apply to the present case read:

. . . 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 ART. 1352. Contracts without cause, or with unlawful cause, produce no effect
THE EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE SAME WAS NEVER PART whatever. The cause is unlawful if it is contrary to law, morals, good customs,
OF THE CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN RESPONDENTS’ public order or public policy.
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. ART. 1409. The following contracts are inexistent and void from the beginning:

II. (1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;

. . . 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 (2) Those which are absolutely simulated or fictitious;
COMMON LAW SPOUSES.

(3) Those whose cause or object did not exist at the time of the transaction;
III.

(4) Those whose object is outside the commerce of men;

. . . 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 (5) Those which contemplate an impossible service;
POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES
BETWEEN LEGITIMATE AND COMMON LAW SPOUSES.

(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
IV.
(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:
ARTICLE 1448. There is an implied trust when property is sold, and the legal estate
is 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 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.

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.

Costs against petitioner. G.R. No. L-31271 April 29, 1974

SO ORDERED ROMEO MARTINEZ and LEONOR SUAREZ, spouses, petitioners-appellants,

vs.
HON. COURT OF APPEALS, SECRETARY and UNDERSECRETARY OF PUBLIC WORKS &
COMMUNICATIONS, respondents-appellees.
Flores Macapagal, Ocampo and Balbastro for petitioners-appellants.
Office of the Solicitor General Felix Q. Antonio, Acting Assistant Solicitor General
Dominador L. Quiroz and Solicitor Concepcion T. Agapinan for respondents-
appellees.
ESGUERRA, J.:p
Petition for review by certiorari of the judgment of the Court of Appeals dated
November 17, 1969 in its CA-G.R. 27655-R which reverses the judgment of the
Court of First Instance of Pampanga in favor of petitioners-appellants against the
Secretary and Undersecretary of Public Works & Communications in the case
instituted to annul the order of November 25, 1958 of respondent Secretary of
Public Works & Communications directing the removal by the petitioners of the
dikes they had constructed on Lot No. 15856 of the Register of Deeds of Pampanga,
which order was issued pursuant to the provisions of Republic Act No. 2056. The
dispositive portion of the judgment of reversal of the Court of Appeals reads as
follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is
hereby reversed, and another entered: [1] upholding the validity of the decision
reached by the respondent officials in the administrative case; [2] dissolving the
injunction issued by the Court below; and [3] cancelling the registration of Lot No.
2, the disputed area, and ordering its reconveyance to the public domain. No costs
in this instance.
The background facts are stated by the Court of Appeals as follows:
The spouses Romeo Martinez and Leonor Suarez, now petitioners-appellees, are
the registered owners of two (2) parcels of land located in Lubao, Pampanga,
covered by transfer certificate of title No. 15856 of the Register of Deeds of the
said province. Both parcels of land are fishponds. The property involved in the
instant case is the second parcel mentioned in the above-named transfer certificate
of title.
The disputed property was originally owned by one Paulino Montemayor, who
secured a "titulo real" over it way back in 1883. After the death of Paulino
Montemayor the said property passed to his successors-in-interest, Maria
Montemayor and Donata Montemayor, who in turn, sold it, as well as the first
parcel, to a certain Potenciano Garcia.
Because Potenciano Garcia was prevented by the then municipal president of
Lubao, Pedro Beltran, from restoring the dikes constructed on the contested
property, the former, on June 22, 1914, filed Civil Case No. 1407 with the Court of
First Instance against the said Pedro Beltran to restrain the latter in his official
capacity from molesting him in the possession of said second parcel, and on even
date, applied for a writ of preliminary injunction, which was issued against said
municipal president. The Court, by decision promulgated June 12, 1916, declared
permanent the preliminary injunction, which, decision, on appeal, was affirmed by
the Supreme Court on August 21, 1918. From June 22, 1914, the dikes around the
property in question remained closed until a portion thereof was again opened just
before the outbreak of the Pacific War.
On April 17, 1925. Potenciano Garcia applied for the registration of both parcels of
land in his name, and the Court of First Instance of Pampanga, sitting as land
registration court, granted the registration over and against the opposition of the
Attorney-General and the Director of Forestry. Pursuant to the Court's decision,
original certificate of title No. 14318, covering said parcels 1 and 2 was issued to
the spouses Potenciano Garcia and Lorenza Sioson.

These parcels of land were subsequently bought by Emilio Cruz de Dios in whose
name transfer certificate of title No. 1421 was first issued on November 9, 1925.
Thereafter, the ownership of these properties changed hands until eventually they
were acquired by the herein appellee spouses who hold them by virtue of transfer
certificate of title No. 15856.
To avoid any untoward incident, the disputants agreed to refer the matter to the
Committee on Rivers and Streams, by then composed of the Honorable Pedro
Tuason, at that time Secretary of Justice, as chairman, and the Honorable Salvador
Araneta and Vicente Orosa, Secretary of Agriculture and National Resources and
Secretary of Public Works and Communications, respectively, as members. This
committee thereafter appointed a Sub-Committee to investigate the case and to
conduct an ocular inspection of the contested property, and on March 11, 1954,
said Sub-Committee submitted its report to the Committee on Rivers and Streams
to the effect that Parcel No. 2 of transfer certificate of title No. 15856 was not a
public river but a private fishpond owned by the herein spouses.
On July 7, 1954, the Committee on Rivers and Streams rendered its decision the
dispositive part of which reads:
"In view of the foregoing considerations, the spouses Romeo Martinez and Leonor
Suarez should be restored to the exclusive possession, use and enjoyment of the
creek in question which forms part of their registered property and the decision of
the courts on the matter be given full force and effect."
The municipal officials of Lubao, led by Acting Mayor Mariano Zagad, apparently
refused to recognize the above decision, because on September 1, 1954, the
spouses Romeo Martinez and Leonor Suarez instituted Civil Case No. 751 before
the Court of First Instance of Pampanga against said Mayor Zagad, praying that the
latter be enjoined from molesting them in their possession of their property and in
the construction of the dikes therein. The writ of preliminary injunction applied for
was issued against the respondent municipal Mayor, who immediately elevated the
injunction suit for review to the Supreme Court, which dismissed Mayor Zagad's
petition on September 7, 1953. With this dismissal order herein appellee spouses
proceeded to construct the dikes in the disputed parcel of land.
Some four (4) years later, and while Civil Case No. 751 was still pending the
Honorable Florencio Moreno, then Secretary of Public Works and Communications,
ordered another investigation of the said parcel of land, directing the appellees
herein to remove the dikes they had constructed, on the strength of the authority
vested in him by Republic Act No. 2056, approved on June 13, 1958, entitled "An
Act To Prohibit, Remove and/or Demolish the Construction of Dams. Dikes, Or Any
Other Walls In Public Navigable Waters, Or Waterways and In Communal Fishing
Grounds, To Regulate Works in Such Waters or Waterways And In Communal
Fishing Grounds, And To Provide Penalties For Its Violation, And For Other
Purposes. 1 The said order which gave rise to the instant proceedings, embodied a
threat that the dikes would be demolished should the herein appellees fail to
comply therewith within thirty (30) days.
The spouses Martinez replied to the order by commencing on January 2, 1959 the
present case, which was decided in their favor by the lower Court in a decision
dated August 10, 1959, the dispositive part of which reads:
"WHEREFORE, in view of the foregoing considerations, the Court hereby declares
the decision, Exhibit S, rendered by the Undersecretary of Public Works and
Communications null and void; declares the preliminary injunction, hereto for
issued, permanent, and forever enjoining both respondents from molesting the
spouses Romeo Martinez and Leonor Suarez in their possession, use and
enjoyment of their property described in Plan Psu-9992 and referred to in their
petition."
"Without pronouncement as to costs."
"SO ORDERED."
As against this judgment respondent officials of the Department of Public Works
and Communications took the instant appeal, contending that the lower Court
erred:
1. In holding that then Senator Rogelio de la Rosa, complainant in the
administrative case, is not an interested party and his letter-complaint dated
August 15, 1958 did not confer jurisdiction upon the respondent Undersecretary of
Public Works and Communications to investigate the said administrative case;
2. In holding that the duty to investigate encroachments upon public rivers
conferred upon the respondent Secretary under Republic Act No. 7056 cannot be
lawfully delegated by him to his subordinates;
3. In holding that the investigation ordered by the respondent Secretary in this case
is illegal on the ground that the said respondent Secretary has arrogated unto
himself the power, which he does not possess, of reversing, making nugatory, and
setting aside the two lawful decisions of the Court Exhibits K and I, and even
annulling thereby, the one rendered by the highest Tribunal of the land;
4. In not sustaining respondent's claim that petitioners have no cause of action
because the property in dispute is a public river and in holding that the said claim
has no basis in fact and in law;
5. In not passing upon and disposing of respondent's counterclaim;
6. In not sustaining respondent's claim that the petition should not have been
entertained on the ground that the petitioners have not exhausted administrative
remedies; and
7. In holding that the decision of the respondents is illegal on the ground that it
violates the principles that laws shall have no retroactive effect unless the contrary
is provided and in holding that the said Republic Act No. 2056 is unconstitutional on
the ground that respondents' threat of prosecuting petitioners under Section 3
thereof for acts done four years before its enactment renders the said law ex post
facto.
The Court of Appeals sustained the above-mentioned assignment of errors
committed by the Court of First Instance of Pampanga and, as previously stated,
reversed the judgment of the latter court. From this reversal this appeal by
certiorari was taken, and before this Court, petitioners-appellants assigned the
following errors allegedly committed by the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN DECLARING IN THE INSTANT CASE THAT
PARCEL NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO. 15856 IS A PUBLIC RIVER
AND ORDERING THE CANCELLATION OF ITS REGISTRATION BECAUSE THIS
CONSTITUTES A COLLATERAL ATTACK ON A TORRENS TITLE IN VIOLATION OF THE
LAW AND THE WELL-SETTLED JURISPRUDENCE ON THE MATTER.
2. THE COURT OF APPEALS ERRED IN REOPENING AND RE-LITIGATING THE ISSUE AS
TO WHETHER OR NOT LOT NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO. 15856
REGISTER OF DEEDS OF PAMPANGA, IS A PUBLIC RIVER NOTWITHSTANDING THE
FACT THAT THIS ISSUE HAS BEEN LONG RESOLVED AND SETTLED BY THE LAND
REGISTRATION COURT OF PAMPANGA IN LAND REGISTRATION PROCEEDING NO.
692 AND IS NOW RES JUDICATA.
3. THE COURT OF APPEALS ERRED IN ORDERING THE CANCELLATION OF THE
REGISTRATION OF LOT NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO. 15856
NOTWITHSTANDING THE FACT THAT THE TORRENS TITLE COVERING IT HAS BEEN
VESTED IN THE PETITIONERS WHO ARE THE SEVENTH OF THE SUCCESSIVE
INNOCENT PURCHASERS THEREOF AND WHO IN PURCHASING THE SAME RELIED
ON THE PRINCIPLE THAT THE PERSONS DEALING WITH REGISTERED LAND NEED 1. That destined to the public use, such as roads, canals, rivers, torrents, ports, and
NOT GO BEHIND THE REGISTER TO DETERMINE THE CONDITION OF THE PROPERTY. bridges constructed by the State, and banks shores, roadsteads, and that of a
similar character. (Par. 1)

The 1st and 2nd assignment of errors, being closely related, will be taken up
together. The above-mentioned properties are parts of the public domain intended for public
use, are outside the commerce of men and, therefore, not subject to private
appropriation. ( 3 Manresa, 6th ed. 101-104.)
The ruling of the Court of Appeals that Lot No. 2 covered by Transfer Certificate of
Title No. 15856 of the petitioners-appellants is a public stream and that said title
should be cancelled and the river covered reverted to public domain, is assailed by In Ledesma v. Municipality of Iloilo, 49 Phil. 769, this Court held:
the petitioners-appellants as being a collateral attack on the indefeasibility of the
torrens title originally issued in 1925 in favor of the petitioners-appellants'
predecessor-in-interest, Potenciano Garcia, which is violative of the rule of res A simple possession of a certificate of title under the Torrens system does not
judicata. It is argued that as the decree of registration issued by the Land necessarily make the possessor a true owner of all the property described therein.
Registration Court was not re-opened through a petition for review filed within one If a person obtains title under the Torrens system which includes by mistake or
(1) year from the entry of the decree of title, the certificate of title issued pursuant oversight, lands which cannot be registered under the Torrens system, he does not
thereto in favor of the appellants for the land covered thereby is no longer open to by virtue of said certificate alone become the owner of the land illegally included.
attack under Section 38 of the Land Registration Act (Act 496) and the
jurisprudence on the matter established by this Tribunal. Section 38 of the Land
Registration Act cited by appellants expressly makes a decree of registration, which
ordinarily makes the title absolute and indefeasible, subject to the exemption In Mercado v. Municipal President of Macabebe, 59 Phil. 592, it was also said:
stated in Section 39 of the said Act among which are: "liens, claims or rights arising
or existing under the laws or Constitution of the United States or of the Philippine
Islands which the statute of the Philippine Islands cannot require to appear of It is useless for the appellant now to allege that she has obtained certificate of title
record in the registry." No. 329 in her favor because the said certificate does not confer upon her any right
to the creek in question, inasmuch as the said creek, being of the public domain, is
included among the various exceptions enumerated in Section 39 of Act 496 to
At the time of the enactment of Section 496, one right recognized or existing under which the said certificate is subject by express provision of the law.
the law is that provided for in Article 339 of the old Civil Code which reads as
follows:
The same ruling was laid down in Director of Lands v. Roman Catholic Bishop of
Zamboanga, 61 Phil. 644, as regards public plaza.
Property of public ownership is:

In Dizon, et al. v. Rodriguez, et al., G.R. No. L-20300-01 and G.R. No. L-20355-56,
April 30, 1965, 20 SCRA 704, it was held that the incontestable and indefeasible
character of a Torrens certificate of title does not operate when the land covered
thereby is not capable of registration.
It is, therefore, clear that the authorities cited by the appellants as to the
conclusiveness and incontestability of a Torrens certificate of title do not apply
here. The Land Registration Court has no jurisdiction over non-registerable
properties, such as public navigable rivers which are parts of the public domain,
and cannot validly adjudge the registration of title in favor of a private applicant.
Hence, the judgment of the Court of First Instance of Pampanga as regards the Lot
No. 2 of Certificate of Title No. 15856 in the name of petitioners-appellants may be
attacked at any time, either directly or collaterally, by the State which is not bound
by any prescriptive period provided for by the Statute of Limitations (Article 1108,
par. 4, new Civil Code). The right of reversion or reconveyance to the State of the
public properties fraudulently registered and which are not capable of private
appropriation or private acquisition does not prescribe. (Republic v. Ramona Ruiz,
et al., G.R. No. L-23712, April 29, 1968, 23 SCRA 348; Republic v. Ramos, G.R. No.
L-15484, January 31, 1963, 7 SCRA 47.)
When it comes to registered properties, the jurisdiction of the Secretary of Public
Works & Communications under Republic Act 2056 to order the removal or
obstruction to navigation along a public and navigable creek or river included
therein, has been definitely settled and is no longer open to question (Lovina v.
Moreno, G.R. No L-17821, November 29, 1963, 9 SCRA 557; Taleon v. Secretary of
Public Works & Communications G.R. No. L-24281, May 16, 1961, 20 SCRA 69, 74).
The evidence submitted before the trial court which was passed upon by the
respondent Court of Appeals shows that Lot No. 2 (Plan Psu 992) of Transfer
Certificate of Title No. 15856, is a river of the public domain. The technical
description of both Lots Nos. 1 and 2 appearing in Original Certificate of Title No.
14318 of the Register of Deeds of Pampanga, from which the present Transfer
Certificate of Title No. 15856 was derived, confirms the fact that Lot No. 2
embraced in said title is bounded practically on all sides by rivers. As held by the
Court of First Instance of Pampanga in Civil Case No. 1247 for injunction filed by the
petitioners' predecessors-in-interest against the Municipal Mayor of Lubao and
decided in 1916 (Exh. "L"), Lot No. 2 is a branch of the main river that has been
covered with water since time immemorial and, therefore, part of the public
domain. This finding having been affirmed by the Supreme Court, there is no longer
any doubt that Lot No. 2 of Transfer Certificate of Title No. 15856 of petitioners is a
river which is not capable of private appropriation or acquisition by prescription.
(Palanca v. Com. of the Philippines, 69 Phil. 449; Meneses v. Com. of the
Philippines, 69 Phil. 647). Consequently, appellants' title does not include said river.
II
As regards the 3rd assignment of error, there is no weight in the appellants'
argument that, being a purchaser for value and in good faith of Lot No. 2, the
nullification of its registration would be contrary to the law and to the applicable
decisions of the Supreme Court as it would destroy the stability of the title which is
the core of the system of registration. Appellants cannot be deemed purchasers for
value and in good faith as in the deed of absolute conveyance executed in their
favor, the following appears:
6. Que la segunda parcela arriba descrita y mencionada esta actualmente abierta,
sin malecones y excluida de la primera parcela en virtud de la Orden Administrative
No. 103, tal como fue enmendada, del pasado regimen o Gobierno.
7. Que los citados compradores Romeo Martinez y Leonor Suarez se encargan de
gestionar de las autoridades correspondientes para que la citada segunda parcela
pueda ser convertida de nuevo en pesqueria, corriendo a cuenta y cargo de los
mismos todos los gastos.
8. Que en el caso de que dichos compradores no pudiesen conseguir sus propositos
de convertir de nuevo en pesquera la citada segunda parcela, los aqui vendedores
no devolveran ninguna cantidad de dinero a los referidos compradores; este es, no
se disminuiriat el precio de esta venta. (Exh. 13-a, p. 52, respondents record of
exhibits)
 Makasiar, J., is on leave.

These stipulations were accepted by the petitioners-appellants in the same

conveyance in the following terms:

Romeo Martinez y Leonor Suarez, mayores de edad, filipinos y residentes en al

Barrio de Julo Municipio de Malabon, Provincia de Rizal, por la presente, declaran
que estan enterados del contenido de este documento y lo aceptan en los precisos
terminos en que arriba uedan consignados. (Exh. 13-a, ibid)

Before purchasing a parcel of land, it cannot be contended that the appellants who
were the vendees did not know exactly the condition of the land that they were
buying and the obstacles or restrictions thereon that may be put up by the
government in connection with their project of converting Lot No. 2 in question
into a fishpond. Nevertheless, they willfully and voluntarily assumed the risks
attendant to the sale of said lot. One who buys something with knowledge of
defect or lack of title in his vendor cannot claim that he acquired it in good faith
(Leung Lee v. Strong Machinery Co., et al., 37 Phil. 664).

The ruling that a purchaser of a registered property cannot go beyond the record to
make inquiries as to the legality of the title of the registered owner, but may rely
on the registry to determine if there is no lien or encumbrances over the same,
cannot be availed of as against the law and the accepted principle that rivers are
parts of the public domain for public use and not capable of private appropriation
or acquisition by prescription.

FOR ALL THE FOREGOING, the judgment of the Court of Appeals appealed from is in
accordance with law, and the same is hereby affirmed with costs against the
petitioners-appellants.

Makalintal, C.J., Castro, Teehankee and Muñoz Palma, JJ., concur.