46

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 111027 February 3, 1999

BERNARDINO RAMOS and ROSALIA OLI, petitioners,

vs.
COURT OF APPEALS, RODOLFO BAUTISTA and FELISA LOPEZ, respondents.

ROMERO, J.:

May the heir of the original registrant of parcels of land under the Torrens System, be deprived of
ownership by alleged claimants thereof through acquisitive prescription?

Impugned in this petition for review on certiorari  is the Decision1 of the Court of Appeals which
affirmed in toto that of the Regional Trial Court of Aparri, Cagayan, Branch VIII, 2 disposing of Civil
Case No. VIII-7, an action for reconveyance with damages, as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:

1. Ordering the dismissal of the instant case;

2. The defendants are hereby declared absolute owners of the land described in
paragraph 2 of the complaint, Lot No. 572 and Lot No. 579 Gattaran Cadastre, Gattaran,
Cagayan;

3. The affidavit of Self-Adjudication (Exhibit "6") and Transfer Certificate of Titles Nos. T-
31699 and T-31698 (Exhibit "7" & "8") are hereby declared valid; and

4. Ordering the heirs of the late Bernardino Ramos and other persons acting in their
behalf, to refrain from molesting or disturbing the possession and ownership of the
defendants of the land described in paragraph 2 of the complaint, designated as Lot 572
and Lot 579 Gattaran Cadastre, Gattaran, Cagayan, covered by Original Certificate of
Titles Nos. 17811 and 17812 which was (sic) cancelled by Transfer Certificate of Titles
Nos. T-31699 and T-31698.

1
 No pronouncement as to costs and damages.

SO ORDERED.

as well as the resolution of July 1, 1993, denying reconsideration thereof.

The records disclose the following antecedent facts:

On March 14, 1939, Pedro Tolentino, claiming absolute ownership over Lot Nos. 572 and 579 of the
Gattaran  cadastre  in Lapogan, Gattaran, Cagayan, separately sold said lots to petitioners, the spouses
Bernardino Ramos and Rosalia Oli, in consideration of the amount of eighty pesos (P80.00) for each
sale. The aforesaid conveyances were allegedly evidenced by two documents both entitled "Escritura
de Compra Venta" 3 and acknowledged before a notary public.

Subsequently, however, petitioners instituted on January 8, 1976 an action for reconveyance with
damages4 alleging that while they were "in open public, adverse, peaceful and continuous possession"
of the subject lots "in good faith and with just title, for not less than fifty (50) years, personally and
through their predecessors-in-interest," they were surprised to discover in November 1975, that
decrees of registration 5 covering Lot Nos. 572 and 579 were already issued on January 7, 1940. They
complained further the subsequent issuance by the Register of Deeds of Cagayan on March 11, 1941,
Original Certificates of Title Nos. 17811 and 17812 covering Lot Nos. 572 and 579, respectively, in
favor of Lucia Bautista since the latter allegedly neither laid claim of ownership nor took possession of
them, either personally or through another. Petitioners claimed instead that they were the ones who
acquired prior ownership and possession over the lots to the exclusion of the whole world. Thus, they
concluded that the original certificates of title as well as Transfer Certificates of Title Nos. T-31698 and
T-31699 obtained by private respondent Rodolfo Bautista who adjudicated unto himself said lots on
September 20, 1975, as sole heir of Lucia Bautista 6 were null and void. On the theory that they
already acquired the subject lots by acquisitive prescription, petitioners demanded their return but
private respondents refused to do so, hence, compelling them to file a complaint for reconveyance
with damages.

On the other hand, herein private respondents, the spouses Rodolfo Bautista and Felisa Lopez,
likewise claimed absolute ownership of the lots covered by TCT Nos. T-31698 and T-31699. They
alleged that while the records of the Bureau of Lands showed that during the cadastral survey in
Gattaran in 1932, Pedro Tolentino was a claimant over lands in the cadastre, the same was only with
respect to Lot No. 1399 which was eventually titled under his name as OCT No. 16110. It just
happened that Lot No. 1399 was adjacent to Lot No. 572, a portion of which was occupied by
petitioners upon the tolerance of the original registrant Lucia Bautista.

By way of affirmative defense, private respondents maintained that the action for reconveyance filed
by petitioners was tantamount to a reopening of the cadastral proceedings or a collateral attack on
the decrees of registration which cannot be done without violating the rule on conclusiveness of the
decree of registration. Moreover, they argued that since the lots were already under the operation of
the Torrens System, acquisitive prescription would no longer be possible.
2
After due proceedings, the trial court dismissed petitioners' complaint underscoring the fact that
during the cadastral proceedings in 1940, Bernardino Ramos did not file an answer for the two lots
although he was allegedly the claimant and possessor thereof under the deeds of sale executed by
Pedro Tolentino in his favor on March 14, 1939. Since it was only Lucia Bautista who filed an answer
and who appeared to be the lawful claimant in the proceedings, she was therefore issued original
certificates of title for the subject lots. The trial court presumed that everyone was notified about the
proceedings inasmuch as cadastral proceedings are  in rem. More notably, within one year from the
issuance of the decree of registration on January 9, 1940, Bernardino Ramos likewise failed to avail of
a petition to reopen the proceedings on the ground of fraud as he subsequently alleged in his belated
action for reconveyance. Consequently, when the action for reconveyance was finally filed, more than
thirty-six (36) years had already elapsed and laches had set in. The trial court ruled in this wise:

The settled rule on the indefeasibility and incontrovertibility of the title after the
expiration of one year from the entry of the final decree of registration, now bars the
plaintiffs from availing this action for reconveyance; the property in question not having
been satisfactorily shown that same was wrongfully titled to in the name of Lucia
Bautista. Accordingly, her titles thereto, Exhibit "4" and Exhibit "5", are therefore valid.
By operation of law Transfer Certificate of Title Nos. 31699 and 31698 in the name of
Rodolfo Bautista (Exhibit "7" & "8") are also valid. The defendant Rodolfo Bautista is a
possessor with a Torrens title who is not aware of any flaw of his title which invalidates
it, is considered possessor in good faith and his possession does not lose this character
except in the case and from the moment by final judgment of the Court (sic). Diaz vs.
Rodriguez, L-20300-01 and Republic vs. Court of Appeals, L-20355-56, April 30, 1965, 13
SCRA 704.

In the same vein, it is a settled rule that a party seeking the reconveyance to him of his
land that he claims had been wrongfully registered in the name of another person, must
recognize the  validity of the certificate of title of the latter. It is also a settled rule that a
reconveyance may only take place if the land that is claimed to be wrongfully registered
is still registered in the  name of the person who procured the wrongful registration. No
action for reconveyance can take place as against a third party who acquired title over
the registered property in good faith and for value. Defendant Rodolfo Bautista fittingly
steps into the shoes of an innocent third person. [Emphasis supplied].

Dissatisfied with the trial court's disposition of the case, petitioners seasonably appealed the same to
the Court of Appeals. The appellate court, however, found the conclusions reached by the trial court
in accord with law and the evidence presented, hence, it affirmed the same  in toto on October 23,
1992. Having been denied reconsideration, petitioners interposed the instant petition for review
on  certiorari alleging the following as grounds therefor:

1. RESPONDENT COURT OF APPEALS ERRED AND ACTED WITH GRAVE ABUSE OF

DISCRETION IN AFFIRMING  IN TOTO  THE DECISION OF THE TRIAL COURT WHICH FOUND
BY MERE PRESUMPTION THAT PRIVATE RESPONDENTS ARE IN POSSESSION OF THE

3
 LAND IN SUIT WHEN THE FACTS ADDUCED DURING THE TRIAL CLEARLY PROVED THAT
PETITIONERS HAVE BEEN IN POSSESSION THEREOF FOR MORE THAN 30 YEARS.

2. RESPONDENT COURT OF APPEALS ERRED AND ACTED WITH GRAVE ABUSE OF

DISCRETION IN FINDING THAT THE INSTANT ACTION FOR RECONVEYANCE INSTITUTED
BY PETITIONERS HAD ALREADY PRESCRIBED.

3. RESPONDENT COURT OF APPEALS ERRED IN CONFORMING WITH THE TRIAL COURT'S

DECISION THAT RECONVEYANCE WILL NO LONGER PROSPER IF THE LANDS IN SUIT HAD
ALREADY BEEN TRANSFERRED TO A THIRD PERSON IN GOOD FAITH AND FOR VALUE
WHEN THE FACTS SHOW THAT PRIVATE RESPONDENTS HAD ADMITTED THEY
ALLEGEDLY INHERITED THE LANDS IN SUIT AND THEREFORE THEY ARE NOT THIRD
PARTIES.

We sustain the appellate court's decision.

Inasmuch as petitioners anchor their claim of ownership over the parcels of land on the alleged deeds
of sale executed by Pedro Tolentino in their favor, we believe that the issue of the authenticity and
binding effect of those documents should be addressed at the outset.

The two documents denominated as Escritura de Compra Venta  which were executed in 1939 would
have well qualified as ancient documents 7 since they were already in existence for more than thirty
years in 1976 when the case for reconveyance was initially filed. The original documents, however,
were not presented in evidence as these had been apparently lost in the fire that gutted the office of
petitioners' counsel. Under the circumstances, it should have been the duty of petitioners therefore
to prove the existence of the documents in accordance with Rule 130 of the Revised Rules of Court
which states:

Sec. 5. When original document is unavailable. — When the original document has been
lost or destroyed, or can not be produced in court, the offerror, upon proof of its
execution or existence and the cause of its unavailability without bad faith on his part,
may prove its contents by a copy, or by a recital of its contents in some authentic
document, or by the testimony of witnesses in the order stated.

It appears that the loss of the two documents of sale was shown by testimonial evidence of
petitioners' counsel, Atty. MacPaul B. Soriano, whose law office was burned. Upon realizing that the
documents involved here had been irretrievably lost because of the fire, Atty. Soriano suggested to
petitioners that they should see their other lawyer, Atty. Laggui, who could provide them with
certified true copies thereof.8 Thus, the copies of the documents that petitioners presented in court
each contained the following certification:

CERTIFICATION

4
 I, ANTONIO N. LAGGUI, Notary Public for and in the Province of Cagayan, hereby certify
that the foregoing is a true, correct and literal copy of the original copy of Dec. No. 1,
Page No. 44, Book No. 1, Series of 1939 of the Notarial Register Luis Rosacia, shown to
me by, and in possession of Bernardino Ramos.

This certification, however, does not imply that the documents certified to were authentic writings
although it proves the existence of the documents purportedly evidencing the sale. Rule 132 provides
the manner by which the due execution and authenticity of private writings like the deeds involved
here, should be established. Thus:

Sec. 20. Proof of private document. — Before any private document offered as authentic
is received in evidence, its due execution and authenticity must be proved either:

1. By anyone who saw the document executed or written; or;

2. By evidence of the genuineness of the signature or handwritng of the maker;

Any other private document need only be identified as that which it is claimed to be.

Unfortunately for petitioners, the documents upon which they relied in establishing their claim of
ownership, had not been duly presented in evidence in accordance with the aforecited Rule. They
failed to present any person who could have witnessed the execution of the documents, like the
instrumental witnesses thereof. Understandably, they could not even demonstrate the genuineness
of the signatures of the parties to the sale because the copies they offered in evidence did not bear
those signatures. Consequently, under the Rules of Court, the documents' authenticity and due
execution are suspect and may not be given that much weight.

Furthermore, assuming arguendo that the existence of the documents was properly established, still,
the supposed agreement embodied in the two documents bound only the parties thereto, namely
Pedro Tolentino and the petitioners, because the latter failed to prove that these were later
registered as to operate against the whole world. They could not have bound third persons like Lucia
Bautista because of the basic civil law principle of relativity of contracts which provides that contracts
can only bind the parties who had entered into it, and it cannot favor or prejudice a third person. 9 This
basic principle applies even if the sales were supposedly concluded at a time prior to the operation of
the Torrens system of land registration over the properties involved. When the properties were
eventually titled in favor of Lucia Bautista, the sale between Pedro Tolentino and petitioners could not
have affected Lucia Bautista and her successor-in-interest because the pertinent law in point, Act No.
496, as amended by P.D. No. 1529 unequivocably provides:

Sec. 50. . . .. But no deed, mortgage, lease, or other voluntary instrument except a will,
purporting to convey or affect registered land, shall take effect as a conveyance or bind
the land, but shall operate only as a contract between the parties and as evidence of
authority to the clerk or register of deeds to make registration. The act of registration
shall be the operative act to convey and affect the land, and in all cases under this Act
5
 the registration shall be made in the office of the register of deeds for the province or
provinces or city, where the land lies. [Emphasis supplied].

Sec. 51. Every conveyance, mortgage, lease, lien, attachment, order, decree, instrument,
or entry affecting registered land which would under existing laws, if recorded, filed, or
entered in the office of the register of deeds, affect the real estate to which it relates
shall, if registered, filed, or entered in the office of the register of deeds in the province
or city where the real estate to which such instrument relates lies, be notice to all
person from the time of such registering, filing, or entering.

Hence, petitioners' failure to register the  Escritura de Compra Venta resulted in the sale being
binding only between them and the vendor, Pedro Tolentino. Lucia Bautista and her
successors-in-interest, being third parties to the sale, could not have been bound thereby.

To give a semblance of ownership over the properties, petitioners introduced in evidence documents
showing that their successors-in-interest mortgaged the properties. While only owners of properties
have the right to mortgage the same, the papers evidencing the alleged mortgages do not, however,
conform to the formal and substantive requirements therefor. One such document 10 dated May 24,
1987 and handwritten in the English language described the property allegedly mortgaged to a certain
Santos Tolentino as "a certain parcel of land estimated at one hectare." The other alleged mortgage
instrument dated August 12, 1985, 11 likewise handwritten but in the Ilocano dialect, did not
sufficiently describe the subject property of the mortgage. There is indeed no way that we can ever
determine if the lands referred to in the mortgage were the lots now in controversy. At any rate,
while petitioners' daughter, Erlinda Ramos, testified that the properties in controversy were the ones
she and her sisters mortgaged, that claim is now self-serving since they are presently the claimants of
the lands. 12 Interestingly, Erlinda herself admitted that her father never declared the lots for taxation
purposes and neither did they ever pay real property taxes thereon. In short, the alleged mortgage
papers could very well refer to properties other than Lot Nos. 572 and 579 and that the trial court
correctly ruled that what petitioners proved can not ripen into ownership "in derogation to that of
the registered owner." 13

Petitioners' supposed possession of the lots for more than forty (40) years, therefore, stands as a bare
claim with nothing whatsoever to prop it up. Under the circumstances of the case, they would only
succeed upon sufficient evidence to support their allegation that fraud attended the registration of
the property in Lucia Bautista's name. As it is, however, petitioners failed to present evidence on the
matter thereby leaving their claim barren.

In contrast, private respondent Rodolfo Bautista's claim to the properties registered under the
Torrens system which he traces to his aunt, Lucia Bautista, appears incontrovertible. Under the
Cadastral Act, the original certificates of title issued to the original registrant, shall have the same
effect as certificates of title granted on application for registration of land under the Land Registration
Act, because "no title to registered land in derogation to that of the registered owner shall be
acquired by prescription or adverse possession." 14 Pedro Tolentino and petitioners, as the former's
alleged successors-in-interest, have therefore no valid claim of ownership over the property,
6
particularly since petitioners simply failed to substantiate the nature and extent of Tolentino's rights
and interests over the lots. Such being the case, the conveyances in their favor were void as the
subject properties were lawfully owned by another person. 15

Neither may petitioners' argument that private respondent Rodolfo Bautista, being the son-in-law of
Pedro Tolentino, was bound by the sale and therefore he and his present wife hold the properties in
trust for petitioners' successors-in-interest hold. On that basis, they aver that their right to claim the
property in trust is imprescriptible.

But petitioners' argument would only be tenable upon proof that the property was acquired through
mistake or fraud. As earlier observed, however, petitioners' claim of fraud was never substantiated
and, hence, it has remained a groundless charge. Consequently, petitioners' claim of imprescriptibility
of the action for reconveyance is baseless.

Sec. 38 of the Land Registration Act provides that a decree of registration duly issued is subject "to
the right of any person deprived of land or of any estate or interest therein by decree of registration
obtained by fraud to file in the competent Court of First Instance (now the Regional Trial Court) a
petition for review within one year after entry of the decree, provided no innocent purchaser for
value has acquired an interest." The same law provides that upon the expiration of the term of one
year, "every decree or certificate of title . . . shall be imprescriptible."

Under the law, an action for reconveyance of real property resulting from fraud prescribes in four (4)
years from the discovery of the fraud. 16 Discovery of the fraud must be deemed to have taken place
when Lucia Bautista was issued OCT Nos. 178111 and 17812 because registration of real property is
considered a "constructive notice to all persons" and it shall be counted "from the time of such
registering, filing or entering." 17 An action based on implied or constructive trust prescribes in ten
(10) years. This means that petitioners should have enforced the trust within ten (10) years from the
time of its
18
creation   or upon the alleged fraudulent registration of the property. But as it is, petitioners failed to
avail of any of the aforementioned remedies within the prescribed periods. With no remedy in view,
their claims should forever be foreclosed.

The Court, however, subscribes to petitioners' argument that the courts  a quo incorrectly held that
private respondents are third persons to whom ownership of the properties had been transmitted.
But this error alone may not save the day for petitioners. They have, in a sense, slept on whatever
rights they claimed to have over the properties and by the time they were roused, the law had
stepped in to bar their claims. On the other hand, private respondents' inattention to the property
from the time of Lucia Bautista's death until private respondent Rodolfo Bautista's retirement from
the military should not be construed as an abandonment thereof. Private respondents have in their
favor the law that protects holders of title under the Torrens System of land registration. As this Court
so eloquently pronounced in 1915:

7
 Once a title is registered, the owner may rest secure, without the necessity of waiting in
the portals of the court or sitting in the "mirador de su casa," to avoid the possibility of
losing his land. 19

WHEREFORE, the instant petition for review on certiorari  is hereby DENIED for lack of merit. The
decision and the resolution appealed from in CA-G.R. CV No. 30033 dated October 23, 1992 and July
1, 1993, respectively, are AFFIRMED.

Costs against petitioners.

SO ORDERED.

47.

FIRST DIVISION

G.R. Nos. 105416-17               June 25, 2003

PHILIPP BROTHERS OCEANIC, INC., Petitioner,

vs.
HONORABLE COURT OF APPEALS, BANK OF THE PHILIPPINES ISLANDS and SAN GRACE MINING
CORPORATION, Respondents.

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

G.R. No. 111863               June 25, 2003

PHILIPP BROTHERS OCEANIC, INC., Petitioner,

vs.
HONORABLE COURT OF APPEALS and SAN GRACE MINING CORPORATION, Respondents.

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

G.R. No. 143715               June 25, 2003

SPOUSES PELAGIO DE GRACIA, JR. and ADELINA DE GRACIA, Petitioners,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

8
AZCUNA, J.:

Before this Court are four consolidated petitions for review on certiorari  all filed under Rule 45 of the
Rules of Court. The first two petitions, G.R. Nos. 105416 and 105417, were filed by Phillip Brothers
Oceanic, Inc. (Philbro Oceanic) to assail the decision of the Court of Appeals in CA-G.R. CV Nos. 19682
and 19683,1 while the third petition, G.R. No. 111863, also filed by Philbro Oceanic, seeks to assail the
decision of the Court of Appeals in CA-G.R. CV No. 16380. 2 The fourth petition, G.R. No. 143715, was
filed by the Spouses Pelagio de Gracia and Adelina de Gracia (Spouses de Gracia), against the decision
of the Court of Appeals in CA-G.R. CV No. 46341.3

Facts Common to All Petitions

On March 25, 1980, a contract was entered into between Phillip Brothers Hong Kong, Ltd. (Philbro
H.K.) and San Grace Mining Corporation (Sagramco). In the contract, referred to by the parties as
Contract No. 930562-P, Sagramco agreed to sell and ship to Philbro H.K. at least 9,000 metric tons of
chrome ore not later than December 31, 1980. In consideration for the delivery of the chrome ore,
Philbro H.K. agreed to open a letter of credit in the sum of US$195,000, under which Sagramco would
be allowed to withdraw advances to be charged against Sagramco's future deliveries of chrome ore. 4

On April 29, 1980, Philbro H.K. opened the aforestated letter of credit with the Bank of the Philippine
Islands (BPI) and the full amount of US$195,000 was drawn by Sagramco. On August 4, 1980, to
secure the advances, Sagramco executed a chattel mortgage in favor of Philbro H.K. over the
following personal properties:5

a) One Kawasaki Shovel Loader;

b) One Kimko Payloader;

c) One Ford Bronco Ranger; and

d) Two Komatsu Crawler Tractors.

Aside from the dollar advance obtained from Philbro H.K., Sagramco separately received peso
advances from Philbro Oceanic, Philbro H.K.'s principal corporation. As of December 31, 1983,
Sagramco's indebtedness under the peso advance amounted to ₱1,946,356.60. 6

Sagramco was able to produce the following chrome ore: 1) 1,180 metric tons of chrome ore valued
at US$108,426.36; 2) 834.01 metric tons of chrome ore valued at US$65,223.86; and 3) 1,800 metric
tons of chrome ore valued at US$162,000.7

On July 28, 1980, Sagramco and its corporate officers, the Spouses de Gracia, obtained from BPI a
₱300,000 loan. On October 28, 1980, Sagramco and the Spouses de Gracia were granted by BPI
another loan in the amount of ₱700,000.8 The two loans were secured by real estate
mortgages9 executed by the Spouses de Gracia in favor of BPI. 10 As further security, Sagramco
executed a Deed of Assignment in favor of BPI, assigning the proceeds of the letter of credit which
9
Philbro H.K. opened with BPI, and trust receipts and quedans over the 1,800 metric tons of chrome
ore already produced and stockpiled in the warehouse of Philbro Oceanic in Kauswagan, Cagayan de
Oro City.11

On January 5, 1982, Philbro H.K. assigned to Philbro Oceanic all its rights, interests and collectibles
from Sagramco arising from Contract No. 930562-P and from the deed of chattel mortgage securing
the same.12

Of the US$195,000 advanced to Sagramco, US$108,426.36 were liquidated through the first delivery
of 1,180 metric tons of chrome ore shipped to Philbro H.K. Thereafter, Sagramco was able partially to
liquidate the account through the local sale of the 834.01 metric tons of chrome ore. 13 The 1,800
metric tons of chrome ore, however, remained stockpiled inside the warehouse of Philbro Oceanic
and is the subject of the present controversy.

Beginning of the Controversy

On January 5, 1982, BPI sought to take possession of the 1,800 metric tons of chrome ore by filing
with the Regional Trial Court of Misamis Oriental, Branch 22, a complaint against Sagramco for
delivery of personal property with a prayer a for a writ of replevin. It was docketed as Civil Case No.
8288. BPI alleged in its complaint that, by virtue of the trust receipts, it is the owner of the 1,800
metric tons of chrome ore held in trust by Sagramco and is, therefore, entitled to take possession of
the said chrome ore.14

A writ of replevin was issued by the RTC of Misamis Oriental. When the branch sheriff attempted to
enforce the writ, Philbro Oceanic filed a third party-claim alleging that it is the rightful owner of the
1,800 metric tons of chrome ore.15 On January 20, 1982, Philbro Oceanic filed Civil Case No. 8322 for
injunction against Sagramco, with the same branch of the RTC of Misamis Oriental that issued the writ
of replevin, in order to prevent the removal of the chrome ore from its warehouse. By agreement of
the parties, Civil Cases Nos. 8288 and 8322 were consolidated and jointly tried. The RTC of Misamis
Oriental also ordered the chrome ore to be sold at public auction to prevent its further
deterioration.16

In addition to filing Civil Case No. 8322 for injunction, Philbro Oceanic also filed a complaint-in-
intervention in Civil Case No. 8288, to claim ownership over the chrome ore. The complaint-in-
intervention was admitted on January 4, 1983.17

Notwithstanding the filing of the two complaints in Civil Cases Nos. 8288 and 8322, Philbro Oceanic
also filed a third complaint against Sagramco, for judicial foreclosure of chattel mortgage, with the
RTC of Makati City. It was docketed as Civil Case No. 240. 18

On February 21, 1984, BPI also instituted a separate action for judicial foreclosure of real estate
mortgage against the Spouses de Gracia. BPI alleged that the two promissory notes, totaling
₱1,000,000, remained unpaid, thus giving BPI the right to foreclose on the security. The foreclosure
case was filed with the RTC of Misamis Oriental, Branch 17, and docketed as Civil Case No. 9488. 19
10
The Assailed Decisions and the Issues Raised

G.R. Nos. 105416-17

On June 17, 1988, the RTC of Misamis Oriental rendered a decision, the dispositive portion of which
reads as follows:20

WHEREFORE, judgment is hereby rendered as follows:

On BPI's complaint:

1. The replevin case for possession of the 1,800 metric tons of chrome ore is hereby dismissed;

2. Defendant SAGRAMCO is ordered to pay BPI the amount of ₱300,000.00 with interest of 1%
per month or 12% per annum and additional 2% service charge from the time the obligation
became due until fully paid;

3. Defendant SAGRAMCO is likewise ordered to pay the amount of ₱700,000.00 to BPI with 9%
interest per annum from the time the obligation became due until fully paid;

4. Attorney's fees is hereby fixed at 10% per annum as provided in the promissory notes, on
the liquidated balance;

Intervenor Philbro's complaint for injunction in Civil Case No. 8322 as well as its complaint in
intervention in Civil Case No. 8288 are dismissed.

On the counterclaim, the intervenor is condemned to pay to defendant SAGRAMCO the following:

1. The amount of $148,360.52 representing excess payment to the red clause or dollar
advance;

2. ₱500,000.00 representing damages of credit standing of defendant SAGRAMCO;

3. ₱50,000.00 representing attorney's fees and as reimbursement of the expenses of litigation.

The amount of ₱1,131,497.35 representing the proceeds of the auction sale of the chrome ore in
question which is now deposited with the Office of the Provincial Treasurer upon orders of the Court
shall constitute as first payment of intervenor Philbro to Sagramco.

SO ORDERED.

Attorney's fees in favor of BPI were later amended to specify that the 10% shall be based on the
unliquidated balance of the promissory notes.21

11
BPI and Philbro Oceanic appealed the decision of the RTC of Misamis Oriental. On April 30, 1982, the
Court of Appeals rendered a decision affirming in toto the appealed decision except for the following
modifications:22

1. On the complaint of BPI, the interest payable on the ₱300,000.00 loan is increased to 16%
per annum and SAGRAMCO is ordered further to pay a penalty of 1% per month on the
amount due in addition to the interest and service charge.

2. On the counterclaim of SAGRAMCO, the award for damages for the credit standing of
SAGRAMCO is reduced to ₱300,000.00 and the awards of ₱50,000.00 as attorney's fees and
₱10,000.00 as litigation expenses are deleted.

Only Philbro Oceanic elevated the decision of the Court of Appeals to this Court for review. The
petition, which was docketed as G.R. Nos. 105416-17, presents the following assignment of errors: 23

1. The Court of Appeals erred in ruling that the proceeds of all the chrome ore delivered by
Sagramco should be applied in settlement of the dollar advance of US$195,000, thereby
entitling Sagramco to a refund of US$148,360.52.

2. The Court of Appeals erred in ruling that if the decision in the foreclosure case in Civil Case
No. 240 filed before the Regional Trial Court of Makati is affirmed on appeal, Philbro Oceanic
would have been paid twice for the supposed dollar account balance of Sagramco of US$86,
573.64.

3. The Court of Appeals erred in ruling that the issue of the demandability of the peso advance
from Sagramco by Philbro Oceanic is not material to the issues raised on appeal.

4. The Court of Appeals erred in ruling that Philbro Oceanic is liable to Sagramco in the amount
of ₱300,000 for the latter's ruined business standing.

5. The Court of Appeals erred in not finding Sagramco and BPI liable to Philbro Oceanic for
litigation expenses and attorney's fees.

G.R. No. 111863

On March 31, 1987, after due hearing, the RTC of Makati rendered a decision in Civil Case No. 240 in
favor of Philbro Oceanic and ordered the foreclosure of the chattel mortgage: 24

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant, as follows:

(1) Ordering the defendant to pay plaintiff the following:

a) US$86,573.64 or its equivalent in Philippine Pesos, computed at the rate of exchange

prevailing as of December 31, 1980, plus interest thereon at the rate of 12% per annum
from January 1, 1981 until fully paid.
12
 b) ₱1,285,732.85, plus interest thereon at the rate of 12% per annum from April 1, 1981
until fully paid.

c) ₱123,021.90 plus interest thereon from August 11, 1980 until fully paid.

d) ₱238,820.00 as litigation expenses, plus legal interest thereon from the date hereof
until fully paid.

e) ₱132,901.00 as and for attorney's fees.

(2) Foreclosing the chattel mortgage dated August 4, 1980 and ordering the sale of the
mortgaged properties in a sheriff's sale, with the proceeds thereof to be applied as and in
payment of the amounts awarded in paragraphs 1 (a), 1 (b), 1 (c), (d) and 1 (e) above.

(3) Dismissing defendant's counterclaim.

(4) Ordering the defendant to pay the costs of this suit.

SO ORDERED.

Sagramco appealed the decision of the RTC of Makati to the Court of Appeals. On September 8, 1993,
the Court of Appeals set aside the decision of the trial court and issued a new one, as follows: 25

WHEREFORE, in view of the foregoing considerations, the decision appealed from is hereby REVERSED
AND SET ASIDE and another one is entered ordering the appellee PHILBRO Oceanic, Inc. to pay
appellant SAGRAMCO the amount of One Hundred Ninety-Nine Thousand Two Hundred Seventy-Nine
Pesos and Five Centavos (₱199,279.05) as actual damages and Five Hundred Thousand Pesos
(₱500,000.00) as moral damages.

The case is hereby remanded to the court a quo for the purpose of determining and awarding the
amount of the insurance premiums to be reimbursed by SAGRAMCO to PHILBRO Oceanic, Inc. in
accordance with this decision, the 12% interest thereon, per annum, and the 5% of the sum of said
amounts (but in no case less than ₱15,000.00, exclusive of all costs and fees allowed by law) as
attorney's fees.

SO ORDERED.

Aggrieved by the decision of the Court of Appeals, Philbro Oceanic instituted G.R. No. 111863 seeking
to reinstate the RTC of Makati's decision based on the following assigned errors: 26

1. The Court of Appeals erred in disregarding the admissions made during trial of respondent's
own witness regarding the meaning and import of the documents executed between the
parties.

13
 2. The Court of Appeals erred in finding that Philbro Oceanic can only foreclose the Chattel
Mortgage to cover the insurance premiums paid by Philbro Oceanic despite the admitted and
undisputed violations of the terms of the same by mortgagor Sagramco.

3. The Court of Appeals erred in not requiring Sagramco to pay costs of suit.

4. The Court of Appeals erred in awarding ₱500,000 to Sagramco in moral damages.

G.R. No. 143715

On August 13, 1993, the RTC of Misamis Oriental, rendered a decision in Civil Case No. 46341 in favor
of BPI:27

WHEREFORE, premises considered, the Court finds, by preponderance of evidence, a case in favor of
the plaintiff and against the defendant spouses, and hereby orders pursuant to law, the foreclosure of
mortgages executed by the defendants in favor of plaintiff, as evidenced by Exhibits "A" to "J" and the
sale of the real estate properties covered by the said mortgages at public auction and to apply the
proceeds thereof, to the payment of the amount on the two (2) promissory notes (Exhibits "K" and
"K-I") which have long become due and payable, plus whatever interest, penalties, charges and
attorney's fees maybe recoverable by the plaintiff from the defendants, as embodied and provided for
in the said promissory notes with costs against the defendants.

SO ORDERED.

The decision was later amended to allow the Spouses de Gracia ninety days within which to make
good on the promissory notes.28

Spouses de Gracia appealed the decision of the trial court to the Court of Appeals, where it was
affirmed in its entirety.29 Hence, Spouses de Gracia instituted G.R. No 143715, raising the following
issues:30

1. Whether or not the two trust receipts and the real estate mortgage to secure the loan
consisting of two promissory notes for ₱300,000 and ₱700,000, respectively, in favor of BPI
could be separately pursued through suits for replevin and foreclosure.

2. Whether or not BPI, in filing two separate complaints to collect the loan amounting to
₱1,000,000, is guilty of splitting its cause of action or forum-shopping.

3. Whether or not favorable judgment in the replevin suit, finding Sagramco liable to BPI for
the amount of ₱1,000,000, constitutes res judicata to the foreclosure suit.

The Court's Rulings

G.R. Nos. 105416-17

14
The first assigned error argues that not all the chrome ore delivered by Sagramco should be used to
pay for the dollar advances obtained from Philbro H.K. It is asserted by Philbro Oceanic that any
chrome ore produced after 1980 was intended to be applied instead to the payment of the peso
advances obtained from Philbro Oceanic, i.e., the 834 and 1,800 metric tons of chrome ore.

The Court does not sustain this view.

Philbro Oceanic and Philbro H.K. are two separate and distinct juridical entities from which Sagramco
is obligated separately under two different agreements. Philbro H.K. agreed to provide Sagramco with
dollar advances under Contract No. 930562-P, while Philbro Oceanic granted peso advances to
Sagramco by virtue of their letter agreement dated March 28, 1980.

While Contract No. 930562-P contains a stipulation to liquidate the dollar advance, drawn on the
letter of credit, with Sagramco's future deliveries of chrome ore, no such stipulation was made in the
March 28, 1980 letter agreement. In fact, a reading of the letter agreement reveals that the peso
advance was simply an unsecured and interest bearing loan: 31

San Grace Mining Corporation

Carmen Road, Barrio Carmen
Cagayan de Oro City

Attention: Mr. Pelagio de Gracia Jr.

Gentlemen:

Re: Contract No. 930562-P

We refer to our several discussions wherein you advised that from time to time you may require
financing for your working capital requirements. At our sole discretion, we may agree to provide you
with such financing. Our agreement to advance you any amount of money is to be studied by us on a
case to case basis, and the granting of an advance for one particular requirement will not prejudice or
have any bearing whatsoever to any further request for advances.

It is our mutual understanding that such advances shall carry an effective interest rate of 17% per
annum (inclusive of commitment fee, serving fee, etc.). Advances shall be due and demandable by
December 1980.

If the above is in accordance with your understanding, please sign and return to us the duplicate copy
of this letter thereby signifying your agreement thereto.

Very truly yours,

Philipp Brothers Oceanic Inc.

(Sgd.)Jaime B. Briones
15
CONFORME:

SAN GRACE MINING CORPORATION

(Sgd.)

The rule is that contracts take effect only between the parties, their assigns and heirs. 32 This is the
principle of relativity of contracts. In the case at bar, in the absence of any stipulation on the manner
of payment for the peso advance in the March 28, 1980 letter agreement, Philbro Oceanic cannot
apply the stipulations contained in Contract No. 930562-P. The provisions in Contract No. 930562-P
refer only to the obligations of Sagramco to Philbro H.K. and consequently, should only apply to the
dollar advance owed to Philbro H.K. Contract No. 930562-P cannot be used to govern the payment of
another obligation owed by Sagramco to another entity.

Philbro Oceanic however claims that, subsequently, it was agreed to credit to the peso advance any
chrome ore delivered after 1980. Allegedly in support of this contention is a letter sent by Philbro
Oceanic to Sagramco, conformed to by the latter, dated December 2, 1980: 33

San Grace Mining Corporation

Carmen Road, Barrio Carmen
Cagayan de Oro City

Attention: Mr. Pelagio de Gracia Jr.

Gentlemen:

Re: Contract No. 930562-P

Since you are unable to fully deliver the total tonnage of 9,000 metric tons under the subject contract
within 1980 and consequently you are unable to pay us all your outstanding advances payable by
December 1980 which now totals about ₱615,000 it is hereby agreed between us that any chromite
delivered to our plant after MV IWATE sails shall be credited against this advance until the advance
plus interest shall have been fully liquidated.

For purposes of such accreditation, the chromite which is to assay 48% Cr203 shall be priced at
P575.00 per metric ton delivered to Cagayan de Oro City. Should the advance be not yet fully
liquidated by March 1981 under the foregoing scheme, you agree that at our option we can call on
the Chattel Mortgage dated 4th August 1990 to satisfy our advances.

For the sake of good order, please signify your agreement to the above by signing and returning to us
one copy of this letter.

Very truly yours,

Philipp Brothers Oceanic Inc.

16
(Sgd.) Jaime B. Briones
Asst. Vice President

CONFORME:

SAN GRACE MINING CORPORATION

(Sgd.)

Philbro Oceanic argues that the aforementioned letter was executed in relation to the peso advance
and clearly signifies the parties' intention to apply to the peso advance any chromite delivered to the
plant after MV IWATE sails. Hence, the 834 and 1,800 metric tons of chrome ore, which were
delivered to Philbro Oceanic's warehouse after the MV IWATE had sailed, should be credited, not to
the dollar advance, but to the peso advance.34

The December 2, 1980 letter agreement cannot be considered a modification to Contract No. 930562-
P. Philbro Oceanic did not participate in the execution of Contract No. 930562-P in its own right and
Philbro Oceanic was yet an assignee of Contract No. 930562-P at the time the letter agreement was
made. Hence, for all intents and purposes, Philbro Oceanic was a merely a third party and could not
amend a contract it was not an original party to by inserting its own interest and having the chrome
ore answer for its own peso advance instead of Philbro H.K.'s dollar advance.

But the most obvious reason for rejecting Philbro Oceanic's claim comes from Philbro Oceanic's very
own allegations. Contract No. 930562-P provides that the chrome ore should be credited to the dollar
advance. If there is truth to Philbro Oceanic's claim that Contract No. 930562-P only refers to the
purchase from Sagramco and the sale to Philbro H.K. of Sagramco's entire production of chrome ore
up to the end of 1980, and that it was the intention to credit any chrome ore delivered after 1980
entirely to the peso advance, then Philbro Oceanic's claim over the 834 and 1,800 metric tons of
chrome ore, all delivered after 1980, should not be based on the inherited Contract No. 930562-P but
solely on the December 2, 1980 letter agreement executed in its own right.

However, it is openly reflected in the records that Philbro Oceanic's third party claim, complaint for
intervention and complaint for injunction, all alleged that Philbro Oceanic is the rightful owner of the
chrome ore on the strength of the contract of sale, Contract No. 930562-P. 35 To claim ownership over
the subject chrome ore under Contract No. 930562-P is a clear acknowledgment that all the chrome
ore delivered by Sagramco thereunder is intended to pay off the dollar advance.

The Court refrains from ruling on the second assignment of error at this point. The issue of double
recovery is hereafter discussed under G.R. No. 111863, which concerns the foreclosure case filed by
Philbro Oceanic.

With this Court's ruling on the first assignment of error, the third assignment of error must also fail.
Philbro Oceanic presented evidence on the liability of Sagramco on both the dollar and peso advance
in order to prove its ownership over the chrome ore. The holding by this Court, that the proceeds of

17
the chrome ore should be charged solely to the dollar advance, renders Sagramco's liability for the
peso advance immaterial to the issue of ownership.

The Court also finds no merit in the fourth and fifth assignments of errors, i.e., the finding that Philbro
Oceanic is liable for Sagramco's ruined business standing and the denial of Philbro Oceanic's prayer to
hold Sagramco and BPI liable for litigation expenses and attorney's fees.

The errors assigned pertain to factual findings of the appellate court. 36 As a general rule, the findings
of the Court of Appeals upon factual matters are conclusive and ought not to be disturbed. The
jurisdiction in cases brought to the Court from the Court of Appeals is limited to review and revisions
of errors of law, and this Court is not called upon to analyze and weigh all over again the evidence
already considered below.37

The basis of the Court of Appeals' finding on the liability of the Philbro Oceanic to Sagramco for the
latter's ruined business standing has been clearly set out in both decisions of the RTC of Misamis and
Court of Appeals. There is no compelling reason to disturb such findings.

Neither has it been sufficiently demonstrated by Philbro Oceanic that both lower courts erred in
denying its claim for litigation expenses and attorney's fees against Sagramco and BPI. Philbro
Oceanic's mere allegation that it was compelled to litigate and incur expenses to protect and enforce
its claim, does not justify the award of attorney's fees and litigation expenses. The general rule is that
attorney's fees cannot be recovered as damages because of the policy that no premium should be
placed on the right to litigate.38

G.R. No. 111863

Civil Case No. 240, for judicial foreclosure of chattel mortgage, was filed by Philbro Oceanic to answer
for both the dollar and peso advances made by Sagramco.

There is no disputing the fact that the chattel mortgage was a security arrangement between Philbro
H.K. and Sagramco. It was constituted to guarantee Sagramco's payment of the dollar advance
obtained from Philbro H.K. Philbro Oceanic, however, maintains that the same chattel mortgage also
secured its own peso advance by virtue of the December 2, 1980 letter agreement.

In the same manner that the principle of relativity of contracts bars Philbro Oceanic from applying the
provisions of Contract No. 930562-P, Philbro Oceanic is likewise prevented from making use of the
chattel mortgage, entered into exclusively by Philbro H.K. and Sagramco, to secure its peso advance.
Philbro Oceanic did not participate in the execution of the chattel mortgage in its own right and was
not an assignee of the chattel mortgage at the time the December 2, 1980 letter agreement was
made. Being a third party to the security arrangement, Philbro Oceanic cannot avail of the chattel
mortgage to remedy the absence of any security for the peso advance. Hence, the chattel mortgage
can only secure dollar advance obtained from Philbro H.K. and cannot be extended to guarantee the
payment of peso advance owed to another entity.

18
Since the chattel mortgage can only be called upon to satisfy the dollar advance obtained from
Philbro H.K., it is proper forthwith to dismiss the foreclosure case.

The chattel mortgage is a mere accessory contract. 39 Hence, it should be deemed automatically
extinguished upon the satisfaction of the principal obligation. In the case at bar, the delivery of the
chrome ore to Philbro Oceanic has fully satisfied the principal obligation, and even resulted in an
excess payment.40 Since there is no more balance due on the dollar advance, there can no longer exist
a mortgage to foreclose upon. To allow a foreclosure upon the chattels, even after Philbro Oceanic
has been declared the owner of the chrome ore, would result in double indemnity and an unjust
enrichment for Philbro Oceanic.

While Sagramco pleaded a counterclaim in the foreclosure case for damages due to the loss of its
credit standing, this has been similarly pleaded and damages were already awarded in G.R. Nos.
105416-17. For this reason, Sagramco's counterclaim should be dismissed, and the Court of Appeals'
decision granting the same should be modified by deleting it.

G.R. No. 143715

All three assignments of errors in this petition are interrelated and can be reduced to one basic issue:
whether or not BPI's filing of the replevin suit for the chrome ore bars the subsequent filing of the
foreclosure suit over the parcels of land.

Sagramco claims that the replevin and foreclosure suits were both filed to enforce the collection of
the two promissory notes amounting to ₱1,000,000. Consequently, BPI had effectively split its cause
of action and is guilty of forum shopping because the two cases were evidently filed to collect on the
same debt. Sagramco also contends that since BPI had already secured a judgment in the replevin
case, where Sagramco was ordered to pay ₱1,000,000 to BPI, such favorable judgment constitutes res
judicata to the foreclosure case.

After a careful analysis of BPI's complaint in the two cases, the Court finds that one is not a bar to the
other. The trust receipts and the real estate mortgage issued in favor of BPI are two separate
agreements. When BPI sued separately upon these two agreements, it pleaded different causes of
action and prayed for entirely different reliefs.

The replevin suit was filed by BPI on the ground that, under the trust receipts, it is the owner of the
chrome ore and is entitled to possession thereof. The replevin suit was therefore filed to recover
possession of its alleged property. In contrast, BPI filed the foreclosure case to enforce its rights as an
unpaid creditor. BPI alleged that the two promissory notes remained unpaid and that it is seeking to
foreclose on the constituted security. This latter suit was filed to enforce the payment of a debt.

However, precisely because the replevin suit is simply an action for the delivery of personal property,
the RTC of Misamis Oriental, in Civil Case No. 8288 and Civil Case No. 8322, erred in ordering
Sagramco to pay BPI ₱1,000,000. BPI, as aforestated, was simply enforcing its rights as an owner and

19
sought to possess the chrome ore it allegedly owned. It did not sue as a creditor and was not seeking
to enforce a debt.

While it is true that a court may grant relief to a party, even if the party awarded did not pray for it in
his pleadings,41 the filing by BPI of the foreclosure suit in Branch 17 of the RTC of Misamis Oriental
divested Branch 22 of the RTC of Misamis Oriental, hearing the replevin suit, of jurisdiction to order
the payment of the debt.

The Regional Trial Courts of a province or city, having the same or equal authority and exercising
concurrent and coordinate jurisdiction, should not, cannot, and are not permitted to interfere with
their respective cases, much less with their orders or judgments by means of injunction. 42 This rule
applies to the different co-equal branches of the same court as well. 43

In the case at bar, when BPI filed the foreclosure suit with Branch 17, jurisdiction over the subject
matter of the debt vested with that branch to the exclusion of all other courts. Branch 22 was
therefore without jurisdiction to order Sagramco to pay ₱1,000,000 to BPI and should have left it up
to Branch 17 to decide on the issue of indebtedness. Therefore, the portion of the decision of the RTC
of Misamis Oriental, Branch 22, in Civil Cases Nos. 8288 and 8322 declaring Sagramco indebted to BPI
for ₱1,000,000 is not valid.

WHEREFORE, premises considered, the Court rules that:

a) In G.R. Nos. 105416 and 105417, the petitions are DENIED. The assailed decision of the Court
of Appeals is AFFIRMED, with the MODIFICATION that the portion of the decision of the RTC of
Misamis Oriental, Branch 22, in Civil Cases Nos. 8288 and 8322, that declares Sagramco
indebted to BPI for ₱1,000,000, is DELETED.

b) In G.R. No. 111863, the decision of the Court of Appeals is hereby MODIFIED to the extent
that Sagramco's counterclaim is DISMISSED.

c) In G.R. No. 143715, the petition is DENIED. The assailed decision of the Court of Appeals
is AFFIRMED in toto.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Carpio, JJ., concur.

48.

20
 SECOND DIVISION

G.R. No. 133632               February 15, 2002

BPI INVESTMENT CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION, respondents.

DECISION

QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment
of the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of
mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua, 1 consolidated with (b) Civil Case
No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.

The trial court had held that private respondents were not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad
faith. It awarded private respondents the amount of ₱300,000 for moral damages, ₱50,000 for
exemplary damages, and ₱50,000 for attorney’s fees and expenses for litigation. It likewise dismissed
the foreclosure suit for being premature.

The facts are as follows:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house
on his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure
the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio
Litonjua for ₱850,000. They paid ₱350,000 in cash and assumed the ₱500,000 balance of Roa’s
indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private
respondents and proposed to grant them a new loan of ₱500,000 to be applied to Roa’s debt and
secured by the same property, at an interest rate of 20% per annum and service fee of 1% per annum
on the outstanding principal balance payable within ten years in equal monthly amortization of
₱9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization
became due and payable.

Consequently, in March 1981, private respondents executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall commence on May 1,
1981.

21
On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by paying BPIIC the sum of
₱190,601.35. This reduced Roa’s principal balance to ₱457,204.90 which, in turn, was liquidated when
BPIIC applied thereto the proceeds of private respondents’ loan of ₱500,000.

On September 13, 1982, BPIIC released to private respondents ₱7,146.87, purporting to be what was
left of their loan after full payment of Roa’s loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that
they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to
Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (₱475,585.31). A
notice of sheriff’s sale was published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among
others, that they were not in arrears in their payment, but in fact made an overpayment as of June
30, 1984. They maintained that they should not be made to pay amortization before the actual
release of the ₱500,000 loan in August and September 1982. Further, out of the ₱500,000 loan, only
the total amount of ₱464,351.77 was released to private respondents. Hence, applying the effects of
legal compensation, the balance of ₱35,648.23 should be applied to the initial monthly amortization
for the loan.

On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development

Corporation and Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount
of loan granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77, with interest
at 20% plus service charge of 1% per annum, payable on equal monthly and successive amortizations
at P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule
attached as Annex "A" to the "Deed of Mortgage" is correspondingly reformed as aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their
publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI to
pay ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

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

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.

Costs against BPI.

SO ORDERED.2

22
Both parties appealed to the Court of Appeals. However, private respondents’ appeal was dismissed
for non-payment of docket fees.

On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.

SO ORDERED.3

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of
the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only
on September 13, 1982, the date when BPIIC released the purported balance of the ₱500,000 loan
after deducting therefrom the value of Roa’s indebtedness. Thus, payment of the monthly
amortization should commence only a month after the said date, as can be inferred from the
stipulations in the contract. This, despite the express agreement of the parties that payment shall
commence on May 1, 1981. From October 1982 to June 1984, the total amortization due was only
₱194,960.43. Evidence showed that private respondents had an overpayment, because as of June
1984, they already paid a total amount of ₱201,791.96. Therefore, there was no basis for BPIIC to
extrajudicially foreclose the mortgage and cause the publication in newspapers concerning private
respondents’ delinquency in the payment of their loan. This fact constituted sufficient ground for
moral damages in favor of private respondents.

The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition,
where BPIIC submits for resolution the following issues:

I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE

RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.

II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES
AND ATTORNEY’S FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO
THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple
loan is perfected upon the delivery of the object of the contract, the loan contract in this case was
perfected only on September 13, 1982. Petitioner claims that a contract of loan is a consensual
contract, and a loan contract is perfected at the time the contract of mortgage is executed
conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the
loan contract was perfected on March 31, 1981, the date when the mortgage deed was executed,
hence, the amortization and interests on the loan should be computed from said date.

Petitioner also argues that while the documents showed that the loan was released only on August
1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage
of Frank Roa’s loan. This finds support in the registration on March 31, 1981 of the Deed of Absolute
Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing

23
the Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan
should be attributed to private respondents. As BPIIC only agreed to extend a ₱500,000 loan, private
respondents were required to reduce Frank Roa’s loan below said amount. According to petitioner,
private respondents were only able to do so in August 1982.

In their comment, private respondents assert that based on Article 1934 of the Civil Code, 4 a simple
loan is perfected upon the delivery of the object of the contract, hence a real contract. In this case,
even though the loan contract was signed on March 31, 1981, it was perfected only on September 13,
1982, when the full loan was released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private respondents, Bonnevie  must
be construed to mean that the contract to extend the loan was perfected on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full loan to private respondents on
September 13, 1982.

Private respondents further maintain that even granting, arguendo,  that the loan contract was
perfected on March 31, 1981, and their payment did not start a month thereafter, still no default took
place. According to private respondents, a perfected loan agreement imposes reciprocal obligations,
where the obligation or promise of each party is the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did
not incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as
it was only on September 13, 1982 when petitioner fully complied with its obligation under the loan
contract.

We agree with private respondents. A loan contract is not a consensual contract but a real contract. It
is perfected only upon the delivery of the object of the contract. 5 Petitioner misapplied Bonnevie. The
contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first
clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple
loan.

In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner
applied for a loan of ₱500,000 with respondent bank. The latter approved the application through a
board resolution. Thereafter, the corresponding mortgage was executed and registered. However,
because of acts attributable to petitioner, the loan was not released. Later, petitioner instituted an
action for damages. We recognized in this case, a perfected consensual contract which under normal
circumstances could have made the bank liable for not releasing the loan. However, since the fault
was attributable to petitioner therein, the court did not award it damages.

A perfected consensual contract, as shown above, can give rise to an action for damages. However,
said contract does not constitute the real contract of loan which requires the delivery of the object of
the contract for its perfection and which gives rise to obligations only on the part of the borrower. 6

24
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the
other, was perfected only on September 13, 1982, the date of the second release of the loan.
Following the intentions of the parties on the commencement of the monthly amortization, as found
by the Court of Appeals, private respondents’ obligation to pay commenced only on October 13,
1982, a month after the perfection of the contract.7

We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other. 8 As averred
by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration
that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month
after the supposed release of the loan. It is a basic principle in reciprocal obligations that neither party
incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.9 Only when a party has performed his part of the contract can he demand that
the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization after September 13, 1982
for it was only then when it complied with its obligation under the loan contract. Therefore, in
computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the
mortgage, the starting date is October 13, 1982 and not May 1, 1981.

Other points raised by petitioner in connection with the first issue, such as the date of actual release
of the loan and whether private respondents were the cause of the delay in the release of the loan,
are factual. Since petitioner has not shown that the instant case is one of the exceptions to the basic
rule that only questions of law can be raised in a petition for review under Rule 45 of the Rules of
Court,10 factual matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.

On the second issue, petitioner claims that it should not be held liable for moral and exemplary
damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely
exercised its right under the mortgage contract because private respondents were irregular in their
monthly amortization.1âwphi1 It invoked our ruling in Social Security System vs. Court of Appeals, 120
SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of
Appeals "the negligence of the appellant is not so gross as to warrant moral and temperate damages,"
except that, said Court reduced those damages by only P5,000.00 instead of eliminating them.
Neither can we agree with the findings of both the Trial Court and respondent Court that the SSS had
acted maliciously or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise
of its right under the mortgage contract in the face of irregular payments made by private
respondents and placed reliance on the automatic acceleration clause in the contract. The filing alone
of the foreclosure application should not be a ground for an award of moral damages in the same way
that a clearly unfounded civil action is not among the grounds for moral damages.

Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages
because it insisted on the payment of amortization on the loan even before it was released. Further, it
25
did not make the corresponding deduction in the monthly amortization to conform to the actual
amount of loan released, and it immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.

But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling in SSS, we can not properly declare BPIIC in bad faith.
Consequently, we should rule out the award of moral and exemplary damages. 11

However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the amount actually
released to private respondents and the date when it was released. Such negligence resulted in
damage to private respondents, for which an award of nominal damages should be given in
recognition of their rights which were violated by BPIIC. 12 For this purpose, the amount of ₱25,000 is
sufficient.

Lastly, as in SSS  where we awarded attorney’s fees because private respondents were compelled to
litigate, we sustain the award of ₱50,000 in favor of private respondents as attorney’s fees.

WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated
April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral
and exemplary damages in favor of private respondents is DELETED, but the award to them of
attorney’s fees in the amount of ₱50,000 is UPHELD. Additionally, petitioner is ORDERED to pay
private respondents ₱25,000 as nominal damages. Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

Footnotes
1 
While Antonio K. Litonjua was not included in the caption of the petition before this court,
apparently, the intention of petitioner was to include Litonjua as private respondent for he was
a party in all stages of the case both before the Regional Trial Court and the Court of Appeals
and it was clearly indicated in the petition that "ALS" collectively referred to as ALS
Management and Development Corporation and Antonio K. Litonjua.
2 
RTC Records, p. 278.

26
49.

FIRST DIVISION

G.R. No. 102313*      July 12, 2001

R. F. NAVARRO & CO., INC., HEIRS OF LAURA ADEA NAVARRO, and HEIRS OF R.F. NAVARRO,
SR., petitioners,
vs.
HON. FORTUNATO A. VAILOCES, HON. NATHANAEL P. DE PANO, JR., HON. BONIFACIO A. CACDAC,
JR., HEIRS OF EULOGIO RODRIGUEZ, SR., THRU CONSTANCIO S. RODRIGUEZ and LUZON SURETY CO.,
INC., respondents.

KAPUNAN, J.:

In this petition for review on certiorari, petitioners seek a reversal of the decision dated July 24, 1991
of the Court of Appeals in C.A.-G.R. CV No. 16068, the dispositive portion of which reads:

WHEREFORE, the judgment appealed from is hereby REVERSED, and plaintiffs' complaint, as a
consequence, is hereby DISMISSED.

SO ORDERED.1

The antecedents of this case are as follows:

On June 17, 1975, petitioners R.F. Navarro and Co., Inc., Laura Adea Navarro and the heirs of R.F.
Navarro, Sr. instituted an action for annulment of documents, titles and/or reconveyance with
damages against the heirs of Eulogio Rodriquez, Sr. and Luzon Surety Co., Inc. 2 The subject properties
of the case are two (2) adjacent lots and the building and improvements thereon, situated at David
Street, Binondo, Manila, covered by Transfer Certificate of Title No. T-63345 in the Registry of Deeds
of the City of Manila, in the name of private respondent Luzon Surety Co., Inc.

In their complaint, petitioners alleged that they are the owners of said lots by virtue of TCT No. 61619
registered in the name of Raymundo F. Navarro, married to Laura Adea Navarro and R.F. Navarro &
Company. They further alleged that Raymundo Navarro entrusted subject property to Eulogio
Rodriguez, Sr. In 1970, some time after the death of Raymundo Navarro, petitioners discovered that
Rodriguez was able to transfer the property in his name and thereafter to his family corporation the
Luzon Surety Co., Inc. Petitioners claimed that the transfer of the property in the name of Rodriguez
was fraudulent as the same was done without any consideration and without the knowledge of the
petitioners. Upon learning of the fraudulent transfers, petitioners demanded from the private
respondents the return of the property, which demands the latter have refused. 3

27
In their answer, private respondents alleged that the transfer of the property was done by virtue of a
Deed of Sale with Assumption of Mortgage executed on August 12, 1941 by Raymundo F. Navarro, Sr.
in his personal capacity and as president of R.F. Navarro & Co. in favor of Eulogio Rodriguez, Sr. As a
consequence of said sale, TCT No. 61619 was cancelled and TCT No. 62411 of the Register of Deeds of
Manila was issued in the name of Eulogio Rodriguez, Sr. on August 15, 1941. On December 16, 1941,
Rodriguez executed a Deed of Assignment with Transfer of Mortgage in favor of Luzon Surety Co., Inc.
and TCT No. T-63345 was issued in the name of the latter. Private respondents, likewise, raised as
defense the fact that during his lifetime, Raymundo F. Navarro never questioned the validity of the
transfer and that the petitioners' cause of action had already prescribed and is barred by laches.

In its decision dated January 20, 1987, the trial court ruled in favor of petitioners. The trial court found
that no deed of sale with assumption of mortgage was executed by and between Navarro and
Rodriguez and that the document presented to be said Deed did not merit recognition as the same
was not corroborated by any other evidence. 4 The dispositive portion of the trial court's decision
reads:

WHEREFORE, judgment is hereby rendered declaring as null and void TCT No. 63345 of the
Register of Deeds for the City of Manila, signed by Mariano Villanueva as the same was proven
by plaintiffs' evidence as fictitious and tainted with doubt in the acquisition of said Transfer
Certificate. It is hereby ordered further that defendants convey and transfer the ownership
thereof to R.F. Navarro and Co. Inc., or the plaintiffs themselves and the latter to receive said
parcels of land including the building thereon.

On appeal, the Court of Appeals reversed the trial court's decision and ruled in favor of the private
respondents. It held:

The Supreme Court decisions that we will have to take judicial notice of, quieted the title of
Luzon Surety Co., Inc. to the property in question.

Plaintiffs-appellees contend that the Supreme Court decisions did not affect them as they did
not intervene in said cases. Luzon Surety's title, according to them is derived from the sale to it
by the late Eulogio Rodriguez, Sr., whose acquisition of the property from Raymundo F.
Navarro and R.F. Navarro & Co. Inc, under a deed of sale notarized by Notary Public Rodolfo
Medina they impugn as fraudulent and fictitious, as, according to their Exh. "C-2" (a
certification dated June 1983 by the Chief of the Archives Division of the Bureau of Records
Management), there is no record on file in the Bureau of Records Management of a notary
public by the name of Rodolfo Medina, practicing his profession in Manila in 1941.

Oddly enough, the original sale of the Gibbs property (the property in question) to Raymundo
F. Navarro and R.F. Navarro & Co., Inc. on April 18, 1941 was notarized by Notary Public
Rodolfo M. Medina, and entered by said notary as Document No. 377 in Book II, page 79 of his
notarial registry, series of 1941 (Exh. 13-A).

28
Section 49 of Rule 39 of the Revised Rules of Court, on the effect of a judgment by a court or
judge of the Philippines having jurisdiction to pronounce the judgment, states in no uncertain
terms that in case of a judgment against a specific thing, the judgment is conclusive upon the
title to the thing.

A decision by the Supreme Court, by the very nature thereof is a public document. Under our
rules on evidence, public documents are evidence, even against a third person, of the fact
which gave rise to their execution. One fact, among others, that gave rise to the decision in
G.R. No. L-1494 and G.R. No. L-2003 of the Supreme Court in 1949 was the fact that it had been
proved that the property in question (the very property involved in this case), covered by TCT
No. 63345 in the name of Luzon Surety Co., Inc. (defendant-appellant herein) had been cleared
in 1943 by said defendant and Eulogio Rodriguez, Sr. of the subsisting mortgage indebtedness
to Gibbs, consisting of the balance of the purchase price that said defendants had assumed
after the sale by Raymundo F. Navarro and R.F. Navarro and Co., Inc. to Eulogio Rodriguez in
the month of August 1941.

There is merit, therefore, in appellant's thesis that the title of Luzon Surety Co., Inc. over the
property is now indefeasible.

Plaintiffs anchor their claim upon TCT No. 61619 dated April 30, 41941. Said certificate of title
appears to have been cancelled by TCT No. 62411 issued to Eulogio Rodriguez, Sr. on August
15, 1941 (Exh. L), and which is the root of TCT No. 63345 of Luzon Surety Co., Inc. dated
December 17, 1941.

Plaintiffs' claim that these transfers were done behind the back of Raymundo F. Navarro is
incredible.

If Raymundo F. Navarro had not sold the property in question to Eulogio Rodriguez, Sr., and did
not know of the subsequent transfer to Luzon Surety Co., Inc., why is it that after liberation
from Japanese occupation, the suit for collection of the balance of the purchase price was filed
by Allison J. Gibbs and Finley Gibbs against Eulogio Rodriguez, Sr. and Luzon Surety Co., Inc.,
and not against Navarro.

And why should they demand reconveyance when by their own evidence they have shown that
they have not paid for the property in full?

It even appears also from appellants' Exhibits 14 and 14-A that as far back as May 26, 1943
Raymundo F. Navarro and R.F. Navarro & Company, in a notarial instrument conceded and
recognized the ownership of the appellant Luzon Surety Co., Inc. of the property in question
under TCT No. 63345 and relinquished all claims on the building standing thereon.

That Raymundo F. Navarro had indeed transferred the property in question to Eulogio
Rodriguez is borne out by the narration of facts by the Supreme Court in the two cases above-
mentioned. It is even stated in the decision in G.R. No. L-2003, George Litton and Rosa Tulod de
29
 Litton vs. Luzon Surety Co., Inc. and Eulogio Rodriguez, Sr. that Raymundo F. Navarro was the
one who squealed to the Japanese Military Administration the fact of 80% of the purchase
price of the sale of the property in question was still owned by the Americans: Allison D. Gibbs
and his sons, and was due from Eulogio Rodriguez, Sr. who was then the President of the Board
of Directors of Luzon Surety Co., Inc. He (Raymundo F. Navarro) precipitated thereby the
sequestration by the Japanese invaders of the credit due to Gibbs, as enemy property.

Even if the Navarro cause of action, if any they still had, may be considered to have accrued
only in 1952 when the Litton case was decided by the Supreme Court, the commencement by
the plaintiffs of this suit only 23 years later (1975) was much too late. Not only has prescription
set in; plaintiffs are also already barred by laches. The law serves those who are vigilant, not
those who sleep on their rights.

The registered owner of property, according to the Supreme Court, whose property has been
wrongfully registered in another's name may bring an action for reconveyance but he must do
so within ten (10) years reckoned from the date of the issuance of the certificate of title
(Melquiades vs. IAC, G.R. 68291, March 6, 1991).

"A period of twenty-three years is definitely a long time to wait for one to finally claim his due.
Considerable delay in asserting one's right before a court of justice is strongly persuasive of the
lack of merit of his claim, since it is human nature for a person to enforce his right when the
same is threatened or invaded. Thus, he is estopped by laches from questioning the ownership
of the questioned land.5 (Quinsay, et. al. vs. IAC, G.R. 67935, March 18, 1991)

The motion for reconsideration of the foregoing decision having been denied for lack of merit in the
October 14, 1991 Resolution6 of the Court of Appeals, petitioners now seek recourse to this Court and
raise the following issues:

WHETHER OR NOT THE MANIFESTATION AND MOTION FILED BY THE PRIVATE RESPONDENTS
AS DEFENDANTS BELOW DURING THE PENDENCY OF APPEAL WHICH PRAYED THAT THE TRIAL
COURT'S DECISION BE SET ASIDE AND A NEW ONE BE RENDERED IN THEIR FAVOR IS
CONSIDERED A WITHDRAWAL OR AN ABANDONMENT OF THE APPEAL, SUCH THAT THERE IS
NOTHING FOR THE COURT OF APPEALS TO CONSIDER AND DECIDE IN THE APPEALED CASE
BEFORE IT.

II

WHETHER OR NOT THE SALE, TRANSFER OR CONVEYANCE OF THE PROPERTY IN QUESTION BY

RAYMUNDO F. BAVARRO IN FAVOR OF EULOGIO RODRIGUEZ SR. AND SUBSEQUENTLY TO THE
SALE, TRANSFER OR CONVEYANCE OF SAID PROPERTY BY EULOGIO RODRIGUEZ SR. IN FAVOR
OF HIS COMPANY, THE LUZON SURETY CO., INC. ARE SPURIOUS, FRAUDULENT, FICTITIOUS,
FALSE, INEXISTENT AND NULL AND VOID.
30
 III

WHETHER OR NOT THE PRIVATE RESPONDENTS SHOULD BE ASSESSED ACTUAL DAMAGES AND
SUCH OTHER DAMAGES FOR HAVING BEEN RECEIVING AND HAVING BEEN ILLEGALLY AND
UNLAWFULLY APPROPRIATING TO THEMSELVES THE RENTALS ON THE PROPERTY IN QUESTION
DESPITE THE FACT THAT THEY ARE NOT THE REAL OWNERS OF THE PROPERTY IN QUESTION. 7

The petition is without merit.

As regards the first issue, petitioners allege that the filing before the Regional Trial Court of their
Manifestation and Motion on June 27, 1987 after they had filed their Notice of Appeal on June 9,
1987, private respondents are deemed to have withdrawn or abandoned their appeal. Petitioners
argue that the filing of the Manifestation and Motion is an act inconsistent with their appeal, hence,
may constitute an abandonment thereof.

We are not persuaded.

A reading of the manifestation and motion will reveal that the private respondents sought to have the
decision of the Regional Trial Court set aside on the ground that the trial court failed to appreciate
relevant evidence submitted as the same was nowhere to be found. It turned out that said evidence
was with the Clerk of Court of Branch 54. Based on the contents of said pleading, the same may very
well be treated as a motion for new trial.

As such, the appellate court correctly ruled in their resolution of May 16, 1988 that private
respondent's filing of said pleading did not have the effect of withdrawing their appeal. The court a
quo relied on our ruling in the case of St. Peter Memorial Park, Inc. vs. Hon. Jose Campos, Jr., et.
al.8 where we held that:

Under American Law, a motion for new trial does not work as a waiver of the appeal, unless
there is a rule to the contrary (U.S. v. Hodge, 12 L ed 437). Thus, both the motion for new trial
and the appeal may be pursued at the same time (McCandless v. Kramer, 76 Idaho 516, 286
P2d 334; Labbe v. Cyr 111 A2d 330). This ruling is of persuasive effect on Us considering the
source of our rules on appeal and new trial.

The appellate court concluded that:

A perusal of the defendants' "Manifestation and Motion" shows that it can easily be treated as
a motion for new trial or motion for reconsideration considering that the deed of sale
mentioned in the decision as missing was later on found in the custody of the clerk of court of
Branch 54 where the case was formerly assigned. For the sake of substantial justice and
applying the aforecited authority by analogy, We cannot say there was abandonment of the
appeal.9

31
Hence, the Court of Appeals had jurisdiction to entertain the appeal of the private respondents as
there was no abandonment thereof.

Anent the second and third issues raised, this Court shall not, at great lengths, deal with them as we
find that the conclusion of the appellate court that the land in question rightfully belongs to
respondent Luzon Surety Company to be ably supported by both fact and law.

A careful examination of the records reveals no irregularity in the transfer of the property subject of
this case from Raymundo F. Navarro, Sr. to Eulogio Rodriguez, Sr.

The annotation at the back of TCT No. 61619, by which deed petitioners claim title over the lots state:

This certificate of Title is TOTALLY CANCELLED by virtue of a deed of sale (E-75807 T-62411)
dated August 12, 1941; executed by Raymundo F. Navarro in favor of Eulogio Rodriguez Sr. for
the sum of P242,500.00 and in lieu thereof Transfer Certificate of Title No. T-62411 has been
entered on Page 151 of the Reg. Book T-208 (Doc. No. 203, Page No. 45, Book III of the Notary
Public, Rodolfo Medina.

Manila, August 15, 1941.

Petitioners, however, posit that the alleged sale was null and void because of the absence of
consideration. Petitioners argue that private respondents failed to produce any receipts for the
payments issued by the seller. Considering that such transaction involved a substantial amount, it
would be highly improbable that Eulogio Rodriguez would part with such money without asking for an
official receipt. Petitioners further buttress their claim with the statement of Laura Navarro and the
other heirs of Navarro that they did not receive any consideration for the sale of said lot.

Such arguments are specious. The Deed of Sale with Assumption of Mortgage is the evidence itself of
the receipt by Raymundo F. Navarro of the consideration of said sale. The pertinent portion of the
deed states:

That I, Raymundo F. Navarro, of legal age, Filipino, married to Laura A. Navarro, and a resident
of 2836 Taft Avenue, Pasay, Rizal, Philippines, for myself and in my capacity as President of the
R.F. Navarro & Company, for and in consideration of the sum of FORTY THOUSAND PESOS
(P40,000) Philippine currency, in hand to me paid by Eulogio Rodriguez, Sr., of legal age,
Filipino, married to Juana Santiago, and a resident of 533 Legarda, Sampaloc, Manila,
Philippines, receipt whereof is hereby acknowledged, do hereby forever sell, cede and convey
unto the said Eulogio Rodriguez, Sr., his heirs, executors, administrators and assigns, all our
rights, title, interest and participation in the following parcels of land including the concrete
building and other improvements thereon existing, situated in Calle Dasmarinas, District of
Binondo, City of Manila xxx

Petitioners, however, claim that the above deed of sale is spurious as the same was not signed by
Raymundo F. Navarro. Petitioners' attempts to show that the Deeds of Sale with Assumption of

32
Mortgage executed by Navarro and Rodriguez are false do not impress us. The bare assertions on the
part of Laura Adea Navarro that the signature appearing on the Deeds of Sale is not that of her
husband is not enough. Forgery is not presumed; it must be proven by clear, positive and convincing
evidence. Those who make the allegation of forgery have the burden of proving it since a mere
allegation is not evidence.10 In the case at bar, where the alleged forged signature was that of a
President of a Corporation, petitioners could have easily presented other documents bearing the true
signature of R.F. Navarro Sr., to substantiate their claim. Not having done so, Laura Navarro's
uncorroborated claim cannot be given much weight. This is so especially in light of the fact that Laura
Navarro was one of the plaintiffs and stood to gain by having the deeds of sale and the transfer
certificate of title in the name of Luzon Surety Company declared void.

Petitioners' assertion that Rodolfo Medina, whose name appears on the questioned Deeds of Sale as
the Notary Public was not a Notary Public in the City of Manila in 1941 deserves scant consideration.
As pointed out by the Court of Appeals, if the same were true, then, petitioners cannot even claim
ownership over said lots as the deed of sale of the property by Alisson Gibbs to Raymundo F. Navarro
was, likewise, notarized by Rodolfo M. Medina in 1941.

Even if it were true that the Deeds of Sale were notarized by one who was not a real notary public,
the same does not affect the validity thereof. Said documents were merely converted into private
documents, which remained to be valid contracts of sale between the parties, since sale is a
consensual contract and is perfected by mere consent. 11

Moreover, the records reveal (Exhibit 14) that on May 26, 1943 Raymundo F. Navarro and R.F.
Navarro & Company, executed a notarial instrument whereby they conceded and recognized the
ownership of the Luzon Surety Co., Inc. of the property in question under TCT No. 63345 and
relinquished all claims on the building standing thereon. Petitioners have not questioned nor even
cast a doubt as to the authenticity of said document.1âwphi1.nêt

In any case, assuming, ex gratia argumenti, that the Deeds of Sale with Assumption of Mortgage were
spurious, we agree with the appellate court that petitioners are already barred by laches. Laches has
been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier, it is negligence or omission
to assert a right within a reasonable time, warranting a presumption that the party entitled to assert
it has either abandoned it or declined to assert it.12

We cannot subscribe to the claim of petitioners that they are not guilty of laches as they immediately
filed their complaint in court after having discovered the alleged fraudulent transfer and after
demands for said properties were refused by the private respondents. It must be remembered that
the Luzon Surety Company's transfer certificate of title was issued way back in 1941. Registration of
said real property in the name of private respondent is considered as constructive notice to all
persons including herein petitioners.13 Moreover, private respondent had been in continuous
possession and receiving all the fruits of said property since 1941. Yet, petitioners never questioned
such exercise of the rights of ownership by private respondent Luzon Surety until 1970. Petitioners
cannot use as an excuse their inaction by claiming that the property was held in trust by Eulogio
33
Rodriguez, Sr. for Raymundo F. Navarro. Petitioners have failed to present an iota of evidence that
indeed, such trust existed. Petitioner's unexplained inaction for a period of 29 years cannot be
countenanced and undoubtedly amounts to laches.14

Private respondents, having waited for 36 long years before filing an action to annul the sale to
Felipa in the trial court we hold that this constitutes laches. 15

Having slept on whatever rights they may have had, petitioners must now suffer the consequences of
their inaction. Vigilentibus non dormientibus equitas.16

WHEREFORE, the petition is DENIED. The assailed decision of the respondent Court of Appeals
is AFFIRMED.

SO ORDERED.

50.

SECOND DIVISION

G.R. No. 128066               June 19, 2000

JARDINE DAVIES INC., petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

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

G.R. No. 128069

PURE FOODS CORPORATION, petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

BELLOSILLO, J.:

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

The controversy started in 1992 at the height of the power crisis which the country was then
experiencing. To remedy and curtail further losses due to the series of power failures, petitioner PURE
34
FOODS CORPORATION (hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its
food processing plant in San Roque, Marikina City.

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

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

Gentlemen:

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

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

2. The projects shall be undertaken pursuant to the attached specifications. It is understood

that any item required to complete the project, and those not included in the list of items shall
be deemed included and covered and shall be performed;

3. All materials shall be brand new;

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

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

35
 6. Warranty of one (1) year against defective material and/or workmanship.

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

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

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President
Teodoro L. Dimayuga unilaterally canceled the award as "significant factors were uncovered and
brought to (their) attention which dictate (the) cancellation and warrant a total review and re-bid of
(the) project." Consequently, FEMSCO protested the cancellation of the award and sought a meeting
with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS
already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine
Davies, Inc. (hereafter JARDINE), which incidentally was not one of the bidders.1âwphi1.nêt

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

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

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

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994
Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the

36
dismissal of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the
same court which ordered it to pay FEMSCO.

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

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

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

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

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

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

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by
the offeror. From that moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in
37
keeping with good faith, usage and law. 6 To produce a contract, the acceptance must not qualify the
terms of the offer. However, the acceptance may be express or implied. 7 For a contract to arise, the
acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or
revoked before it is made known to the offeror.

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

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

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

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

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

As can be inferred from the actual phrase used in the first portion of the letter, the decision to
award the contract has already been made. The letter only serves as a confirmation of such
38
 decision. Hence, to the Court's mind, there is already an acceptance made of the offer received
by Purefoods. Notwithstanding the terms and conditions enumerated therein, the offer has
been accepted and/or amplified the details of the terms and conditions contained in the Terms
and Conditions of Bidding given out by Purefoods to prospective bidders. 9

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

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

Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed
in good faith that no such contract was perfected. We are not convinced. We subscribe to the factual
findings and conclusions of the trial court which were affirmed by the appellate court —

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

This Court has awarded in the past moral damages to a corporation whose reputation has been
besmirched. 12 In the instant case, respondent FEMSCO has sufficiently shown that its reputation was
tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the
39
project, only to be canceled later. We thus sustain respondent appellate court's award of moral
damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are
never intended to enrich the recipient. Likewise, the award of exemplary damages by way of example
for the public good is excessive and should be reduced to P100,000.00.

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

WHEREFORE, judgment is hereby rendered as follows:

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

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

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

51.

SECOND DIVISION

G.R. No. 125761             April 30, 2003

40
SALVADOR P. MALBAROSA, petitioner,
vs.
HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP., respondents.

CALLEJO, SR., J.:

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of
companies wholly-owned and controlled by respondent S.E.A. Development Corporation (SEADC).
The petitioner Salvador P. Malbarosa was the president and general manager of Philtectic
Corporation, and an officer of other corporations belonging to the SEADC group of companies. The
respondent assigned to the petitioner one of its vehicles covered by Certificate of Registration No.
042758651 described as a 1982 model Mitsubishi Gallant Super Saloon, with plate number PCA 180
for his use. He was also issued membership certificates in the Architectural Center, Inc. Louis Da Costa
was the president of the respondent and Commonwealth Insurance Co., Inc., while Senen Valero was
the Vice-Chairman of the Board of Directors of the respondent and Vice-Chairman of the Board of
Directors of Philtectic Corporation.

Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his desire to
retire from the SEADC group of companies and requested that his 1989 incentive compensation as
president of Philtectic Corporation be paid to him. On January 8, 1990, the petitioner sent a letter to
Senen Valero tendering his resignation, effective February 28, 1990 from all his positions in the SEADC
group of companies, and reiterating therein his request for the payment of his incentive
compensation for 1989.2

Louis Da Costa met with the petitioner on two occasions, one of which was on February 5, 1990 to
discuss the amount of the 1989 incentive compensation petitioner was entitled to, and the mode of
payment thereof. Da Costa ventured that the petitioner would be entitled to an incentive
compensation in the amount of P395,000.

On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed to the
petitioner3 stating therein that petitioner's resignation from all the positions in the SEADC group of
companies had been accepted by the respondent, and that he was entitled to an incentive
compensation in the amount of P251,057.67, and proposing that the amount be satisfied, thus:

- The 1982 Mitsubishi Super saloon car assigned to you by the company shall be transferred to
you at a value of P220,000.00. (Although you have indicated a value of P180,000.00, our survey
in the market indicates that P220,000.00 is a reasonable reflection of the value of the car.)

- The membership share of our subsidiary, Tradestar International, Inc. in the Architectural
Center, Inc. will be transferred to you. (Although we do not as yet have full information as to
the value of these shares, we have been informed that the shares have traded recently in the
vicinity of P60,000.00.)4

41
The respondent required that if the petitioner agreed to the offer, he had to affix his conformity on
the space provided therefor and the date thereof on the right bottom portion of the letter, thus:

Agreed:

SALVADOR P. MALBAROSA

Date: _____________________5

On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the
March 14, 1990 Letter-offer for his consideration and conformity. The petitioner was dismayed when
he read the letter and learned that he was being offered an incentive compensation of only
P251,057.67. He told Da Costa that he was entitled to no less than P395,000 as incentive
compensation. The petitioner refused to sign the letter-offer on the space provided therefor. He
received the original of the letter and wrote on the duplicate copy of the letter-offer retained by Da
Costa, the words: "Rec'd original for review purposes." 6 Despite the lapse of more than two weeks,
the respondent had not received the original of the March 14, 1990 Letter-offer of the respondent
with the conformity of the petitioner on the space provided therefor. The respondent decided to
withdraw its March 14, 1990 Offer. On April 3, 1996, the Board of Directors of the respondent
approved a resolution authorizing the Philtectic Corporation and/or Senen Valero to demand from the
petitioner for the return of the car and to take such action against the petitioner, including the
institution of an action in court against the petitioner for the recovery of the motor vehicle. 7

On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing the
March 14, 1990 Letter-offer of the respondent and demanding that the petitioner return the car and
his membership certificate in the Architectural Center, Inc. within 24 hours from his receipt
thereof.8 The petitioner received the original copy of the letter on the same day.

On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the latter that
he cannot comply with said demand as he already accepted the March 14, 1990 Letter-offer of the
respondent when he affixed on March 28, 1990 his signature on the original copy of the letter-
offer.9 The petitioner enclosed a xerox copy of the original copy of the March 14, 1990 Letter-offer of
the respondent, bearing his signature on the space provided therefore dated March 28, 1990. 10

With the refusal of the petitioner to return the vehicle, the respondent, as plaintiff, filed a complaint
against the petitioner, as defendant, for recovery of personal property with replevin with damages
and attorney's fees, thus:

WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed before this Honorable Court

that:

1. Before hearing and upon approval of plaintiff's bond, a writ be issued immediately for the
seizure of the vehicle described in paragraph 3 hereof, wherever it may be found, and for its
delivery to plaintiff;

42
 2. After trial of the issues, judgment be rendered adjudging that plaintiff has the right to the
possession of the said motor vehicle, and, in the alternative, that defendant must deliver such
motor vehicle to plaintiff or pay to plaintiff the value thereof in case delivery cannot be made;

3. After trial, hold the defendant liable to plaintiff for the use of the motor vehicle in the
amount of P1,000.00 per day from date of demand until the motor vehicle is returned to
plaintiff.

4. After trial, hold the defendant liable to plaintiff for attorney's fees and costs of litigation in
the amount of P100,000.00.

Plaintiffs likewise prays for such other reliefs as are just and equitable under the
circumstances.11

On April 30, 1990, the trial court issued an order for the issuance of a writ of
replevin.12 Correspondingly, the writ of replevin was issued on May 8, 1990. 13

On May 11, 1990, the Sheriff served the writ on the petitioner and was able to take possession of the
vehicle in question. On May 15, 1990, the petitioner was able to recover the possession of the vehicle
upon his filing of the counter-bond.14

In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already
agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein,
and had notified the said plaintiff of his acceptance; hence, he had the right to the possession of the
car. Philtectic Corporation had no right to withdraw the offer of the respondent SEADC. The petitioner
testified that after conferring with his counsel, he had decided to accept the offer of the respondent,
and had affixed his signature on the space below the word "Agree" in the March 14, 1990 Letter-offer,
thus:

Agreed:

(Sgd.)

SALVADOR P. MALBAROSA

Date:      3-28-90   15

The petitioner adduced evidence that on March 9, 1990, he had written Senen Valero that he was
agreeable to an incentive compensation of P218,000 to be settled by the respondent by transferring
the car to the petitioner valued at P180,000 and P38,000 worth of shares of the Architectural Center,
Inc. on the claim of Da Costa that respondent was almost bankrupt. However, the petitioner learned
that the respondent was financially sound; hence, he had decided to receive his incentive
compensation of P395,000 in cash.16 On March 29, 1990, the petitioner called up the office of Louis Da
Costa to inform the latter of his acceptance of the letter-offer of the respondent. However, the
petitioner was told by Liwayway Dinglasan, the telephone receptionist of Commonwealth Insurance
43
Co., that Da Costa was out of the office. The petitioner asked Liwayway to inform Da Costa that he
had called him up and that he had already accepted the letter-offer. Liwayway promised to relay the
message to Da Costa. Liwayway testified that she had relayed the petitioner's message to Da Costa
and that the latter merely nodded his head.

After trial, the court a quo rendered its Decision17 on July 28, 1992, the dispositive portion of which
reads as follows:

WHEREFORE, in view of all the foregoing, judgment is rendered ordering the defendant:

1. To deliver the motor vehicle prescribed [sic] in the complaint to plaintiff SEADC, or pay its
value of P220,000 in case delivery cannot be made;

2. pay plaintiff SEADC P50,000 as and for attorney's fees; and

3. Cost of litigation.

SO ORDERED.18

The trial court stated that there existed no perfected contract between the petitioner and the
respondent on the latter's March 14, 1990 Letter-offer for failure of the petitioner to effectively notify
the respondent of his acceptance of said letter-offer before the respondent withdrew the same. The
respondent filed a motion for the amendment of the decision of the trial court, praying that the
petitioner should be ordered to pay to the respondent reasonable rentals for the car. On October 10,
1992, the court a quo issued an order, granting plaintiff's motion and amending the dispositive
portion of its July 28, 1992 Decision:

1. Ordering defendant to pay to plaintiff lease rentals for the use of the motor vehicle at the
rate of P1,000.00 per Day from May 8, 1990 up to the date of actual delivery to the plaintiff of
the motor vehicle; and

2. Ordering First Integrated Bonding & Insurance Co. to make good on its obligations to plaintiff
under the Counterbond issued pursuant to this case.

SO ORDERED.19

The petitioner appealed from the decision and the order of the court a quo to the Court of Appeals.

On February 8, 1996, the Court of Appeals rendered its Decision, 20 affirming the decision of the trial
court. The dispositive portion of the decision reads:

WHEREFORE, the Decision dated July 28, 1992 and the Order dated October 10, 1992 of the
Regional Trial Court of Pasig (Branch 158) are hereby AFFIRMED with the MODIFICATION that
the period of payment of rentals at the rate of P1,000.00 per day shall be from the time this
decision becomes final until actual delivery of the motor vehicle to plaintiff-appellee is made.
44
 Costs against the defendant-appellant.

SO ORDERED.21

The Court of Appeals stated that the petitioner had not accepted the respondent's March 14, 1990
Letter-offer before the respondent withdrew said offer on April 4, 1990.

The petitioner filed a petition for review on certiorari of the decision of the Court of Appeals.

The petitioner raises two issues, namely: (a) whether or not there was a valid acceptance on his part
of the March 14, 1990 Letter-offer of the respondent; 22 and (b) whether or not there was an effective
withdrawal by the respondent of said letter-offer.

The petition is dismissed.

Anent the first issue, the petitioner posits that the respondent had given him a reasonable time from
March 14, 1990 within which to accept or reject its March 14, 1990 Letter-offer. He had already
accepted the offer of the respondent when he affixed his conformity thereto on the space provided
therefor on March 28, 199023 and had sent to the respondent corporation on April 7, 1990 a copy of
said March 14, 1990 Letter-offer bearing his conformity to the offer of the respondent; hence, the
respondent can no longer demand the return of the vehicle in question. He further avers that he had
already impliedly accepted the offer when after said respondent's offer, he retained possession of the
car.

For its part, the respondent contends that the issues raised by the petitioner are factual. The
jurisdiction of the Court under Rule 45 of the Rules of Court, as amended, is limited to revising and
correcting errors of law of the CA. As concluded by the Court of Appeals, there had been no
acceptance by the petitioner of its March 14, 1990 Letter-offer. The receipt by the petitioner of the
original of the March 14, 1990 Letter-offer for review purposes amounted merely to a counter-offer of
the petitioner. The findings of the Court of Appeals are binding on the petitioner. The petitioner
adduced no proof that the respondent had granted him a period within which to accept its offer. The
latter deemed its offer as not accepted by the petitioner in light of petitioner's ambivalence and
indecision on March 16, 1990 when he received the letter-offer of respondent.

We do not agree with the petitioner.

Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

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

(3) Cause of the obligation which is established.

45
Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the contract. An offer
may be reached at any time until it is accepted. An offer that is not accepted does not give rise to a
consent. The contract does not come into existence. 24 To produce a contract, there must be
acceptance of the offer which may be express or implied 25 but must not qualify the terms of the offer.
The acceptance must be absolute, unconditional and without variance of any sort from the offer. 26

The acceptance of an offer must be made known to the offeror. 27 Unless the offeror knows of the
acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and
acceptance.28 The offeror may withdraw its offer and revoke the same before acceptance thereof by
the offeree. The contract is perfected only from the time an acceptance of an offer is made known to
the offeror. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be
indicated by the offeree, an acceptance of the offer in the manner prescribed will bind the offeror. On
the other hand, an attempt on the part of the offeree to accept the offer in a different manner does
not bind the offeror as the absence of the meeting of the minds on the altered type of
acceptance.29 An offer made inter praesentes must be accepted immediately. If the parties intended
that there should be an express acceptance, the contract will be perfected only upon knowledge by
the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in
the manner prescribed by the offeror is not effective but constitutes a counter-offer which the offeror
may accept or reject.30 The contract is not perfected if the offeror revokes or withdraws its offer and
the revocation or withdrawal of the offeror is the first to reach the offeree. 31 The acceptance by the
offeree of the offer after knowledge of the revocation or withdrawal of the offer is inefficacious. The
termination of the contract when the negotiations of the parties terminate and the offer and
acceptance concur, is largely a question of fact to be determined by the trial court. 32

In this case, the respondent made its offer through its Vice-Chairman of the Board of Directors, Senen
Valero. On March 16, 1990, Da Costa handed over the original of the March 14, 1990 Letter-offer of
the respondent to the petitioner. The respondent required the petitioner to accept the offer by
affixing his signature on the space provided in said letter-offer and writing the date of said
acceptance, thus foreclosing an implied acceptance or any other mode of acceptance by the
petitioner. However, when the letter-offer of the respondent was delivered to the petitioner on
March 16, 1990, he did not accept or reject the same for the reason that he needed time to decide
whether to reject or accept the same. 33 There was no contract perfected between the petitioner and
the respondent corporation.34 Although the petitioner claims that he had affixed his conformity to the
letter-offer on March 28, 1990, the petitioner failed to transmit the said copy to the respondent. It
was only on April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the
said March 14, 1990 Letter-offer bearing his conformity that he notified the respondent of his
acceptance to said offer. But then, the respondent, through Philtectic Corporation, had already
withdrawn its offer and had already notified the petitioner of said withdrawal via respondent's letter
dated April 4, 1990 which was delivered to the petitioner on the same day. Indubitably, there was no
contract perfected by the parties on the March 14, 1990 Letter-offer of the respondent.

The petitioner's plaint that he was not accorded by the respondent reasonable time to accept or
reject its offer does not persuade. It must be underscored that there was no time frame fixed by the
46
respondent for the petitioner to accept or reject its offer. When the offeror has not fixed a period for
the offeree to accept the offer, and the offer is made to a person present, the acceptance must be
made immediately.35 In this case, the respondent made its offer to the petitioner when Da Costa
handed over on March 16, 1990 to the petitioner its March 14, 1990 Letter-offer but that the
petitioner did not accept the offer. The respondent, thus, had the option to withdraw or revoke the
offer, which the respondent did on April 4, 1990.

Even if it is assumed that the petitioner was given a reasonable period to accept or reject the offer of
the respondent, the evidence on record shows that from March 16, 1990 to April 3, 1990, the
petitioner had more than two weeks which was more than sufficient for the petitioner to accept the
offer of the respondent. Although the petitioner avers that he had accepted the offer of the
respondent on March 28, 1990, however, he failed to transmit to the respondent the copy of the
March 14, 1990 Letter-offer bearing his conformity thereto. Unless and until the respondent received
said copy of the letter-offer, it cannot be argued that a contract had already been perfected between
the petitioner and the respondent.

On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned and
controlled subsidiary of the respondent, had no authority to withdraw the offer of the respondent.
The resolution of the respondent authorizing Philtectic Corporation to take such action against the
petitioner including the institution of an action against him for the recovery of the subject car does
not authorize Philtectic Corporation to withdraw the March 14, 1990 Letter-offer of the respondent.
The withdrawal by Philtectic Corporation on April 4, 1990 of the offer of the respondent was
ineffective insofar as the petitioner was concerned. The respondent, for its part, asserts that the
petitioner had failed to put in issue the matter of lack of authority of Philtectic Corporation to
withdraw for and in behalf of the respondent its March 14, 1990 Letter-offer. It contends that the
authority of Philtectic Corporation to take such action including the institution of an action against the
petitioner for the recovery of the car necessarily included the authority to withdraw the respondent's
offer. Even then, there was no need for the respondent to withdraw its offer because the petitioner
had already rejected the respondent's offer on March 16, 1990 when the petitioner received the
original of the March 14, 1990 Letter-offer of the respondent without the petitioner affixing his
signature on the space therefor.

We do not agree with the petitioner. Implicit in the authority given to Philtectic Corporation to
demand for and recover from the petitioner the subject car and to institute the appropriate action
against him to recover possession of the car is the authority to withdraw the respondent's March 14,
1990 Letter-offer. It cannot be argued that respondent authorized Philtectic Corporation to demand
and sue for the recovery of the car and yet did not authorize it to withdraw its March 14, 1990 Letter-
offer to the petitioner. Besides, when he testified, Senen Valero stated that the April 4, 1990 letter of
Philtectic Corporation to the petitioner was upon his instruction and conformably with the aforesaid
resolution of the Board of Directors of the respondent:

Q         Mr. Valero, after the Board passed this resolution. (sic) What action did you take, if any?

47
A         After that resolution was passed. (sic) I instructed our lawyers to proceed with the
demand letter for the recovery of the vehicle.

Q         Do you know if that demand letter was every (sic) made by your lawyer?

A         Yes. I know that because I was the one who gave the instruction and before it was finally
served on Malbarosa, I was shown about the demand letter.

C/Pltf.   Your honor, or rather . . .

Mr. Valero, if I show you a copy of that letter, will you be able to identify the same?

A         Yes, sir.

Q         I am now showing to you a copy of the letter dated April 4, 1990, addressed to Mr.
Salvador P. Malbarosa and signed by Romulo, Mabanta, Buenaventura, Sayoc and Delos
Angeles by ________. What relation, if any, does that demand letter have with the demand
letter that you are talking about?

A         It's the same one I am referring to.

C/Pltf.   Your honor, we manifest that the letter has been previously marked as our exh. "D".

Q         Mr. Valero, on the first paragraph of this demand letter, you stated that the letter is
written in behalf of Philtectic Corporation. Do you have any knowledge why it was written this
way?

A         Yes. Because Philtectic, being the agent used here by S.E.A. Development Corporation
for the one using the car, it was only deemed proper that Philtectic will be the one to send the
demand letter.

Q         In the second paragraph of that letter, Mr. Valero, you stated that there was an allusion
made to the offer made on March 14, 1990. That the 1982 Mitsubishi Galant Super Saloon car
with plate# M-PCA-189 assigned to you by the company, and the membership share in the
Architectural Center Inc., be transferred to you in settlement. You previously stated about this
March 14 letter. What relation, if any, does this second paragraph with the letter-offer that you
previously stated.

C/Def.   Objection, your honor. This witness is incompetent . . .

C/Pltf.   But he was the one who instructed, your honor.

Court   LET the witness answer.

48
 Witness   (Stenographer reads back the previous question asked by counsel for him to answer,
and . . ..)

A         It is the same.36

IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The Decision of the Court of Appeals is
AFFIRMED.

SO ORDERED.

Bellosillo, Quisumbing and Austria-Martinez, JJ ., concur.

52.

FIRST DIVISION

G.R. No. 114870 May 26, 1995

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-

TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and PHILIPPINE
VETERANS BANK, respondents.

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the
Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No. 210-
D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters,
respectively? This is the principal legal issue raised in this petition.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals held for Ong, while
the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners in its
joint decision of 31 October 1991 in Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311.3

The operative antecedent facts are set forth in the challenged decision as follows:

49
The disputed lots were originally owned by the spouses Celestino Villanueva and
Miguela Villanueva, acquired by the latter during her husband's sojourn in the United
States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose
Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan
from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as
collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres
Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two (2)
disputed lots, which she did but without the signature of her husband Celestino.
Miguela Villanueva, however, never got the loan she was expecting. Subsequent
attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found
out that new titles over the two (2) lots were already issued in the name of the PVB. It
appeared upon inquiry from the Registry of Deeds that the original titles of these lots
were canceled and new ones were issued to Jose Viudez, which in turn were again
canceled and new titles issued in favor of Andres Sebastian, until finally new titles were
issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to
pay the loan granted in the name of Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being informed
that the lots were about to be sold at auction. The PVB told her that she can redeem the
lots for the price of P110,416.00. Negotiations for the repurchase of the lots
nevertheless were stalled by the filing of liquidation proceedings against the PVB on
August of 1985.

Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots
in this manner:

In October 1984, plaintiff-appellant offered to purchase two pieces of Land

that had been acquired by PVB through foreclosure. To back-up plaintiff-
appellant's offer he deposited the sum of P10,000.00.

In 23 November 1984, while appellant was still abroad, PVB approved his
subject offer under Board Resolution No. 10901-84. Among the conditions
imposed by PVB is that: "The purchase price shall be P110,000.00 (Less
deposit of P10,000.00) payable in cash within fifteen (15) days from
receipt of approval of the offer."

In mid-April 1985, appellant returned to the country. He immediately

verified the status of his offer with the PVB, now under the control of CB,
where he was informed that the same had already been approved. On 16
April 1985, appellant formally informed CB of his desire to pay the subject
balance provided the bank should execute in his favor the corresponding
deed of conveyance. The letter was not answered.

50
 Plaintiff-appellant sent follow-up Letters that went unheeded, the last of
which was on 21 May 1987. On 26 May 1987, appellant's payment for the
balance of the subject properties were accepted by CB under Official
Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel, sent a

letter to CB demanding for the latter to execute the corresponding deed of
conveyance in favor of appellant. CB did not bother to answer the same.
Hence, the instant case.

While appellant's action for specific performance against CB was pending,

Miguela Villanueva and her children filed their claims with the Liquidation
court. (Appellant's Brief, pp. 3-4).4

From the pleadings, the following additional or amplificatory facts are established:

The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to
purchase the lots for P60,000.00 with a 20%
5
downpayment and the balance payable in five years on a quarterly amortization basis.

Her offer not having been accepted, 6 Miguela Villanueva increased her bid to P70,000.00. It was only
at this time that she disclosed to the bank her private transactions with Jose Viudez. 7

After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of P110,417.00
pursuant to the written advice of the vice president of the PVB. 9

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3
April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985.
Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed as Sp.
Proc. No. 85-32311 and assigned to Branch 39 of the said court.

On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase
price of the litigated lots. 10 An employee of the PVB received the amount conditioned upon approval
by the Central Bank
11
liquidator.   Ong's demand for a deed of conveyance having gone unheeded, he filed on 23 October
1987 with the RTC of Manila an action for specific performance against the Central Bank. 12 It was
raffled to Branch 47 thereof. Upon learning that the PVB had been placed under liquidation, the
presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the liquidation court. 13

On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of the
two lots at the price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for the
reconsideration of the order asserting that it is contrary to law as the disposal of the lots should be
made through public auction. 15

51
On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among
others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor
of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch, in
collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to
purchase the property from the bank; and that she reported the matter to the PC/INP Criminal
Investigation Service Command, Camp Crame, and after investigation, the CIS officer recommended
the filing of a complaint for estafa through falsification of public documents against Jose Viudez and
Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be
conveyed back to her. 16 Later, in view of the death of her husband, she amended her claim to include
her children, herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva. 17

On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution
approving Ong's offer may have created in his favor a vested right which may be enforced against the
PVB at the time or against the liquidator after the bank was placed under liquidation proceedings, the
said right was no longer enforceable, as he failed to exercise it within the prescribed 15-day period. As
to Miguela's claim, the court ruled that the principle of estoppel bars her from questioning the
transaction with Viudez and the subsequent transactions because she was a co-participant thereto,
though only with respect to her undivided one-half (1/2) conjugal share in the disputed lots and her
one-third (1/3) hereditary share in the estate of her husband.

Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal
properties. It further held that by reason of estoppel, the transactions having been perpetrated by a
responsible officer of the PVB, and for reasons of equity, the PVB should not be allowed to charge
interest on the price of the lots; hence, the purchase price should be the PVB's claim as of 29 August
1984 when it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela
Villanueva alone.

The dispositive portion of the decision of the trial court reads as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Setting aside the order of this court issued on June 15,

1989 under the caption Civil Case No. 87-42550 entitled
"Ildefonso Ong vs. Central Bank of the Phils., et al.;

2. Dismissing the claim of Ildefonso Ong over the two parcels

of land originally covered by TCT No. 438073 and 366364 in
the names of Miguela Villanueva and Celestino Villanueva,
respectively which are now covered by TCT No. 115631 and
115632 in the name of the PVB;

3. Declaring the Deed of Absolute Sale bearing the signature

of Miguela Villanueva and the falsified signature of Celestino
[sic] Viudez under date May 6, 1975 and all transactions and
52
 related documents executed thereafter referring to the two
lots covered by the above stated titles as null and void;

4. Ordering the Register of Deeds of Makati which has

jurisdiction over the two parcels of land in question to re-
instate in his land records, TCT No. 438073 in the name of
Miguela Villanueva and TCT No. 366364 in the name of
Celestino Villanueva who were the registered owners
thereof, and to cancel all subsequent titles emanating
therefrom; and

5. Ordering the Liquidator to reconvey the two lots described

in TCT No. 115631 and 115632 and executing the
corresponding deed of conveyance of the said lots upon the
payment of One Hundred Ten Thousand Four Hundred
Sixteen and 20/100 (P110,416.20) Pesos without interest and
less the amount deposited by the claimant, Miguela
Villanueva in connection with the bidding where she had
participated and conducted by the PVB on August 29, 1984.

Cost against Ildefonso Ong and the PVB.

SO ORDERED. 19

Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV No.
35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the trial court
and ruled as follows:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET
ASIDE, and a new one entered ordering the disputed-lots be awarded in favor of
plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's execution of
the corresponding deed of sale in his favor. 20

In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the
prescribed period was excusable because the PVB neither notified him of the approval of his bid nor
answered his letters manifesting his readiness to pay the balance, for which reason he could not have
known when to reckon the 15-day period prescribed under its resolution. It went further to suggest
that the Central Bank was in estoppel because it accepted Ong's late-payment of the balance. As to
the petitioners' claim, the Court of Appeals stated:

The conclusion reached by the lower court favorable to Miguela Villanueva is, as aptly
pointed out by plaintiff-appellant, indeed confusing. While the lower court's decision
declared Miguela Villanueva as estopped from recovering her proportionate share and
interest in the two (2) disputed lots for being a "co-participant" in the fraudulent
53
 scheme perpetrated by Jose Viudez and Andres Sebastian — a factual finding which We
conform to and which Miguela Villanueva does not controvert in this appeal by not filing
her appellee's brief, yet it ordered the reconveyance of the disputed lots to Miguela
Villanueva as the victorious party upon her payment of P110,416.20. Would not
estoppel defeat the claim of the party estopped? If so, which in fact must be so, would it
not then be absurd or even defiant for the lower court to finally entitle Miguela
Villanueva to the disputed lots after having been precluded from assailing their
subsequent conveyance in favor of Jose Viudez by reason of her own negligence and/or
complicity therein? The intended punitive effect of estoppel would merely be a dud if
this Court leaves the lower court's conclusion unrectified. 21

Their motion for reconsideration 22 having been denied, 23 the petitioners filed this petition for review
on certiorari. 24

Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under
receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It then
prayed that it be dropped from this case or at least be substituted by the PVB, which is the real party
in interest. 25

In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of
this Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the
Central Bank. 26 The petitioners did not object to the substitution. 27

Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by
whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be
awarded without any touch of preference in favor of one or the other party litigant in the instant
case." 28

In support of their contention that the Court of Appeals gravely erred in holding that Ong is better
entitled to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his
bid of P110,000.00 being lower than the starting price of P110,417.00 and his deposit of P10,000.00
being less than the required 10% of the bid price; that Ong failed to pay the balance of the price
within the 15-day period from notice of the approval of his bid; and that his offer of payment is
ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor.

On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by
P417.00, is much better, as the same is payable in cash, while Villanueva's bid is payable in
installment; that his payment could not be said to have been made after the expiration of the 15-day
period because this period has not even started to run, there being no notice yet of the approval of
his offer; and that he has a legal right to compel the PVB or its liquidator to execute the corresponding
deed of conveyance.

There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to
perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case,
54
however, pose a legal obstacle to his claim of a better right and deny support to the conclusion of the
Court of Appeals.

Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985
when he returned from the United States and inquired about the status of his bid that he came to
know of the approval.

It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3
April 1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and that its
continuance in business would involve probable loss to its depositors and creditors. The PVB was then
prohibited from doing business in the Philippines, and the receiver appointed was directed to
"immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all
the assets and administer the same for the benefit of its creditors, exercising all the powers necessary
for these purposes."

Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that:

[T]he contract is not perfected except by the concurrence of two wills which exist and
continue until the moment that they occur. The contract is not yet perfected at any time
before acceptance is conveyed; hence, the disappearance of either party or his loss of
capacity before perfection prevents the contractual tie from being formed. 30

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets
of the bank pass beyond its control into the possession and control of the receiver whose duty it is to
administer the assets for the benefit of the creditors of the bank. 31 Thus, the appointment of a
receiver operates to suspend the authority of the bank and of its directors and officers over its
property and effects, such authority being reposed in the receiver, and in this respect, the
receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way. 32

Section 29 of the Central Bank Act, as amended, provides thus:

Sec. 29. Proceedings upon insolvency. — Whenever, upon examination by the head of

the appropriate supervising or examining department or his examiners or agents into
the condition of any bank or non-bank financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the same is one of insolvency, or
that its continuance in business would involve probable loss to its depositors or
creditors, shall be the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts. The Board may, upon finding the statements of
the department head to be true, forbid the institution to do business in the Philippines
and designate an official of the Central Bank or a person of recognized competence in
banking or finance as receiver to immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and administer the same for
55
 the benefit of its creditors . . . exercising all the powers necessary for these
purposes. . . .

xxx xxx xxx

The assets of an institution under receivership or liquidation shall be deemed

in custodia legis  in the hands of the receiver or liquidator and shall, from the moment of
such receivership or liquidation, be exemp from any order of garnishment, levy,
attachment, or execution.

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the
bank's capacity to act, especially in relation to its property, Applying Article 1323 of the Civil Code,
Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before
the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale
between them did not reach the stage of perfection. Corollarily, he cannot invoke the resolution of
the bank approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit him
since the receipt of the payment was made subject to the approval by the Central Bank liquidator of
the PVB thus:

Payment for the purchase price of the former property of Andres Sebastian per
approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB liquidator. 33

This payment was disapproved on the ground that the subject property was already
in custodia legis, and hence, disposable only by public auction and subject to the approval of
the liquidation court. 34

The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to
the purchase of the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the Central Bank,
as well as the petitioners, are deemed to have fully and unqualifiedly accepted the judgment, which
thus became final as to them for their failure to appeal.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals of
27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the
Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No. 85-
32311 is hereby REINSTATED.

Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C.
Ong the amount of P100,000.00.

No pronouncement as to costs.

56
SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.

53.

G.R. No. 126000 October 7, 1998

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS), petitioner,

vs.
COURT OF APPEALS, HON. PERCIVAL LOPEZ, AYALA CORPORATION and AYALA LAND,
INC., respondents.

G.R. No. 128520 october 7, 1998

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,

vs.
HON. PERCIVAL MANDAP LOPEZ, CAPITOL HILLS GOLF AND COUNTRY CLUB INC., SILHOUETTE
TRADING CORPORATION, and PABLO ROMAN JR., respondents.

MARTINEZ, J.:

These are consolidated petitions for review emanating from Civil Case No. Q-93-15266 of the Regional
Trial Court of Quezon City, Branch 78, entitled "Metropolitan Waterworks and Sewerage System
(hereafter MWSS) vs. Capitol Hills Golf & Country Club Inc. (hereafter, CHGCCI), STC (hereafter,
SILHOUETTE), Ayala Corporation, Ayala Land, Inc. (hereafter AYALA) Pablo Roman, Jr., Josefina A.
Roxas, Jesus Hipolito, Alfredo Juinito, National Treasurer of the Philippines and the Register of Deeds
of Quezon City."

From the voluminous pleadings and other documents submitted by the parties and their divergent
styles in the presentation of the facts, the basic antecedents attendant herein are as follows:

Sometime in 1965, petitioner MWSS (then known as NAWASA) leased around one hundred twenty
eight (128) hectares of its land (hereafter, subject property) to respondent CHGCCI (formerly the
International Sports Development Corporation) for twenty five (25) years and renewable for another
fifteen (15) years or until the year 2005, with the stipulation allowing the latter to exercise a right of

57
first refusal should the subject property be made open for sale. The terms and conditions of
respondent CHGCCI's purchase thereof shall nonetheless be subject to presidential approval.

Pursuant to Letter of instruction (LOI) No. 440 issued on July 29,1976 by then President Ferdinand E.
Marcos directing petitioner MWSS to negotiate the cancellation of the MWSS-CHGCCI lease
agreement for the disposition of the subject property, Oscar Ilustre, then General Manager of
petitioner MWSS, sometime in November of 1980 informed respondent CHGCCI, through its
president herein respondent Pablo Roman, Jr., of its preferential right to buy the subject property
which was up for sale. Valuation thereof was to be made by an appraisal company of petitioner
MWSS' choice, the Asian Appraisal Co., Inc. which, on January 30, 1981, pegged a fair market value of
P40.00 per square meter or a total of P53,800,000.00 for the subject property.

Upon being informed that petitioner MWSS and respondent CHGCCI had already agreed in principle
on the purchase of the subject property, President Marcos expressed his approval of the sale as
shown in his marginal note on the letter sent by respondents Jose Roxas and Pablo Roman, Jr. dated
December 20, 1982.

The Board of Trustees of petitioner MWSS thereafter passed Resolution 36-83, approving the sale of
the subject property in favor of respondent SILHOUETTE, as assignee of respondent CHGCCI, at the
appraised value given by Asian Appraisal Co., Inc. Said Board Resolution reads:

NOW, THEREFORE, BE IT RESOLVED, as it is hereby resolved, that in accordance with

Section 3, Par. (g) of the MWSS Charter and subject to the approval of the President of
the Philippines, the sale of a parcel of land located in Balara, Quezon City, covered by
TCT No. 36069 of the Registry of Deeds of Quezon City, containing an area of ONE
HUNDRED TWENTY SEVEN (127.313) hectares more or less, which is the remaining
portion of the area under lease after segregating a BUFFER ZONE already surveyed along
the undeveloped area near the treatment plant and the developed portion of the
CHGCCI golf course, to SILHOUETTE TRADING CORPORATION as Assignee of Capitol Hills
Golf & Country Club, Inc., at FORTY (P40.00) PESOS per square meter, be and is hereby
approved.

BE IT RESOLVED FURTHER, that the General Manager be authorized, as he is hereby

authorized to sign for and in behalf of the MWSS the contract papers and other
pertinent documents relative thereto.

The MWSS-SILHOUETTE sales agreement eventually pushed through. Per the Agreement dated May
11, 1983 covering said purchase, the total price for the subject property is P50,925,200, P25 Million of
which was to be paid upon President Marcos' approval of the contract and the balance to be paid
within one (1) year from the transfer of the title to respondent SILHOUETTE as vendee with interest at
12% per annum. The balance was also secured by an irrevocable letter of credit. A Supplemental
Agreement was forged between petitioner MWSS and respondent SILHOUETTE on August 11, 1983 to
accurately identify the subject property.

58
Subsequently, respondent SILHOUETTE, under a deed of sale dated July 26, 1984, sold to respondent
AYALA about sixty-seven (67) hectares of the subject property at P110.00 per square meter. Of the
total price of around P74 Million, P25 Million was to be paid by respondent AYALA directly to
petitioner MWSS for respondent SILHOUETTE's account and P2 Million directly to respondent
SILHOUETTE. P11,600,000 was to be paid upon the issuance of title in favor of respondent AYALA, and
the remaining balance to be payable within one (1) year with 12% per annum interest.

Respondent AYALA developed the land it purchased into a prime residential area now known as the
Ayala Heights Subdivision.

Almost a decade later, petitioner MWSS on March 26, 1993 filed an action against all herein named
respondents before the Regional Trial Court of Quezon City seeking for the declaration of nullity of
the MWSS-SILHOUETTE sales agreement and all subsequent conveyances involving the subject
property, and for the recovery thereof with damages.

Respondent AYALA filed its answer pleading the affirmative defenses of (1) prescription, (2) laches, (3)
waiver/estoppel/ratification, (4) no cause of action, (5) non-joinder of indispensable parties, and (6)
non-jurisdiction of the court for non-specification of amount of damages sought.

On June 10, 1993; the trial court issued an Order dismissing the complaint of petitioner MWSS on
grounds of prescription, laches, estoppel and non-joinder of indispensable parties.

Petitioner MWSS's motion for reconsideration of such Order was denied, forcing it to seek relief from
the respondent Court where its appeal was docketed as CA-G.R. CV No. 50654. It assigned as errors
the following:

I. The court a quo committed manifest serious error and gravely abused its
discretion when it ruled that plaintiffs cause of action is for annulment of
contract which has already prescribed in the face of the clear and
unequivocal recitation of six causes of action in the complaint, none of
which is for annulment.

II. The lower court erred and exceeded its jurisdiction when, contrary to
the rules of court and jurisprudence, it treated and considered the
affirmative defenses of Ayalas — defenses not categorized by the rules as
grounds for a motion to dismiss — as grounds of a motion to dismiss
which justify the dismissal of the complaint.

III. The lower court abused its discretion and exceeded its jurisdiction
when it favorably acted on Ayala's motion for preliminary hearing of
affirmative defenses (motion to dismiss) by dismissing the complaint
without conducting a hearing or otherwise requiring the Ayalas to present
evidence on the factual moorings of their motion.

59
 IV. The lower court acted without jurisdiction and committed manifest
error when it resolved factual issues and made findings and conclusions of
facts all in favor of the Ayalas in the absence of any evidence presented by
the parties.

V. The court  a quo  erred when, contrary to the rules and jurisprudence, it
prematurely ruled that laches and estoppel bar the complaint as against
Ayalas or that otherwise the alleged failure to implead indispensable
parties dictates the dismissal of the complaint.

In the meantime, respondents CHGCCI and Roman filed their own motions to hear their affirmative
defenses which were identical to those adduced by respondent AYALA. For its part, respondent
SILHOUETTE filed a similarly grounded motion to dismiss.

Ruling upon these motions, the trial court issued an order dated December 13, 1993 denying all of
them. The motions for reconsideration of the respondents concerned met a similar fate in the May 9,
1994 Order of the trial court. They thus filed special civil actions for  certiorari before the respondent
Court which were docketed as CA-G.R. SP Nos. 34605, 34718 and 35065 and thereafter consolidated
with CA-G.R. CV No. 50694 for disposition.

Respondent court, on August 19, 1996, rendered the assailed decision, the dispositive portion of
which reads:

WHEREFORE, judgment is rendered:

1.) DENYING the petitions for writ of  certiorari for lack of merit; and

2.) AFFIRMING the order of the lower court dismissing the complaint against the
appellees Ayalas.

SO ORDERED.

Petitioner MWSS appealed to this Court that portion of the respondent Court's decision affirming the
trial court's dismissal of its complaint against respondent AYALA, docketed as G.R. No. 126000. The
portion dismissing the petition for certiorari  (CA-GR Nos. 34605, 347718 and 35065) of respondents
Roman, CHGCCI and SILHOUETTE, however, became final and executory for their failure to appeal
therefrom. Nonetheless, these respondents were able to thereafter file before the trial court another
motion to dismiss grounded, again, on prescription which the trial court in an Order of October 1996
granted.

This prompted petitioner MWSS to file another petition for review of said trial court Order before this
Court and docketed as G.R. No. 128520. On motion of petitioner MWSS, this Court in a Resolution
dated December 3, 1997 directed the consolidation of G.R. Nos. 126000 and 128520.

The errors assigned by petitioner MWSS in CA-GR No. 126000 are:

60
 I.

In holding, per the questioned Decision dated 19 August 1996, that plaintiffs cause of
action is for annulment of contract which has already prescribed in the face of the clear
and unequivocal recitation of six causes of action in the complaint, none of which is for
annulment, and in effect affirming the dismissal by the respondent judge of the
complaint against respondent Ayalas. This conclusion of respondent CH is, with due
respect, manifestly mistaken and legally absurd.

II.

In failing to consider that the complaint recited six alternative causes of action, such
that the insufficiency of one cause — assuming there is such insufficiency — does not
render insufficient the other causes and the complaint itself. The contrary ruling in this
regard by respondent CA is founded entirely on speculation and conjecture and is
constitutive of grave abuse of discretion.

In G.R. No. 128520, petitioner MWSS avers that:

I.

The court of origin erred in belatedly granting respondent's motions to dismiss which
are but a rehash, a disqualification, of their earlier motion for preliminary hearing of
affirmative defense / motion to dismiss. These previous motions were denied by the
lower court, which denial the respondents raised to the Court of Appeals by way of
perfection for certiorari, which petitions in turn were dismissed for lack of merit by the
latter court. The correctness and validity of the lower court's previous orders denying
movant's motion for preliminary hearing of affirmative defense / motion to dismiss has
accordingly been settled already with finality and cannot be disturbed or challenged
anew at this instance of defendant's new but similarly anchored motions to dismiss,
without committing procedural heresy causative of miscarriage of justice.

II.

The lower court erred in not implementing correctly the decision of the Court of Appeal.
After all, respondents' own petitions for certiorari questioning the earlier denial of their
motion for preliminary hearing of affirmative defense / motion to dismiss were
dismissed by the Court of Appeal, in the process of affirming the validity and legality of
such denial by the court  a quo. The dismissal of the respondents' petitions are
embodied in the dispositive portion of the said decision of the Court of Appeals dated
19 August 1996. The lower court cannot choose to disregard such decretal aspect of the
decision and instead implement an obiter dictum.

III.

61
 That part of the decision of the decision of the Court of Appeals resolving the issue of
prescription attendant to the appeal of plaintiff against the Ayalas, has been appealed
by plaintiff to the Supreme Court by way of a petition for review on  certiorari. Not yet
being final and executory, the lower court erred in making capital out of the same to
dismiss the case against the other defendants, who are the respondents herein.

IV.

The lower court erred in holding, per the questioned orders, that plaintiff's cause of
action is for annulment of contract which has already prescribed in the face of the clear
and unequivocal recitation of six causes of action in the complaint, none of which is for
annulment. This conclusion of public respondent is manifestly mistaken and legally
absurd.

V.

The court  a quo erred in failing to consider the complaint recites six alternative causes
of action, such that the insufficiency of one cause — assuming there is such insufficiency
— does not render insufficient the other cause and the complaint itself. The contrary
ruling in this regard by public respondent is founded entirely on speculation and
conjecture and is constitutive of grave abuse of discretion.

In disposing of the instant petition, this Court shall dwell on the more crucial grounds upon which the
trial court and respondent based their respective rulings unfavorable to petitioner MWSS; i.e.,
prescription, laches, estoppel/ratification and non-joinder of indispensable parties.

RE: Prescription

Petitioner MWSS claims as erroneous both the lower courts' uniform finding that the action has
prescribed, arguing that its complaint is one to declare the MWSS-SILHOUETTE sale, and all
subsequent conveyances of the subject property, void which is imprescriptible.

We disagree.

The very allegations in petitioner MWSS' complaint show that the subject property was sold through
contracts which, at most, can be considered only as voidable, and not void. Paragraph 12 of the
complaint reads in part:

12. . . . .

The plaintiff has been in continuous, peaceful and public possession and ownership of
the afore-described properties, the title (TCT No. [36069] 199170) thereto, including its
derivative titles TCT Nos. 213872 and 307655, having been duly issued in its name.
However, as a result of fraudulent and illegal acts of herein defendants, as described in
the paragraphs hereinafter following, the original of said title/s were cancelled and in
62
 lieu thereof new titles were issued to corporate defendant/s covering subject 127.9271
hectares. . . . .

Paragraph 34 alleges:

34. Sometime thereafter, clearly influenced by the premature if not questionable

approval by Mr. Marcos of a non-existent agreement, and despite full knowledge that
both the assessed and market value of subject property were much higher, the MWSS
Board of Trusties illegally passed an undated resolution ("Resolution No. 36-83"),
approving the "sale" of the property to CHGCCI at P40/sq.m. and illegally authorizing
General Manager Ilustre to sign the covering contract.

This "resolution" was signed by Messrs. Jesus Hipolito as Chairman; Oscar Ilustre, as Vice
Chairman; Aflredo Junio, as Member; and Silvestre Payoyo, as Member; . . . .

Paragraph 53 states:

53. Defendants Pablo Roman, Jr., Josefino Cenizal, and Jose Roxas as well as defendant
corporations (CHGCCI, STC and Ayala) who acted through the former and their other
principal officers, knowingly induced and caused then President Marcos and the former
officers of plaintiff MWSS to enter into the aforesaid undated "Agreement" which are
manifestly and grossly disadvantageous to the government and which gave the same
defendants unwarranted benefits, i.e., the ownership and dominion of the afore-
described property of plaintiff.

Paragraph 54 avers:

54. Defendants Jesus Hipolito and Alfredo Junio, then public officers, together with the
other public officers who are now deceased (Ferdinand Marcos, Oscar Ilustre, and
Sivestre Payoyo) knowingly allowed themselves to be persuaded, induced and
influenced to approve and/or enter into the aforementioned "Agreements" which are
grossly and manifestly disadvantageous to the MWSS/government and which bestowed
upon the other defendants the unwarranted benefit/ownership of subject property.

The three elements of a contract — consent, the object, and the cause of obligation 1 are all present.
It cannot be otherwise argued that the contract had for its object the sale of the property and the
cause or consideration thereof was the price to be paid (on the part of respondents
CHGCCI/SILHOUETTE) and the land to be sold (on the part of petitioner MWSS). Likewise, petitioner
MWSS' consent to the May 11, 1983 and August 11, 1983 Agreements is patent on the face of these
documents and on its own resolution No. 36-83.

As noted by both lower courts, petitioner MWSS admits that it consented to the sale of the
property, with the qualification that such consent was allegedly unduly influenced by the President
Marcos. Taking such allegation to be hypothetically true, such would have resulted in only voidable

63
contracts because all three elements of a contract, still obtained nonetheless. The alleged vitiation
of MWSS' consent did not make the sale null and void  ab initio. Thus, "a contract where consent is
given through mistake, violence, intimidation, undue influence or fraud, is voidable" 2. Contracts
"where consent is vitiated by mistake, violence, intimidation, undue influence or fraud" are
voidable or annullable 3. These are not void as —

Concepts of Voidable Contracts. — Voidable or anullable contracts are existent, valid,

and binding, although they can be annulled because of want of capacity or vitiated
consent of the one of the parties, but before annulment, they are effective and
obligatory between parties. Hence, it is valid until it is set aside and its validity may be
assailed only in an action for that purpose. They can be confirmed or ratified. 4

As the contracts were voidable at the most, the four year prescriptive period under Art. 1391 of the
New Civil Code will apply. This article provides that the prescriptive period shall begin in the cases
of intimidation, violence or undue influence, from the time the defect of the consent ceases", and
"in case of mistake or fraud, from the time of the discovery of the same time".

Hypothetically admitting that President Marcos unduly influenced the sale, the prescriptive period
to annul the same would have begun on February 26, 1986 which this Court takes judicial notice of
as the date President Marcos was deposed. Prescription would have set in by February 26, 1990 or
more than three years before petitioner MWSS' complaint was failed.

However, if petitioner MWSS' consent was vitiated by fraud, then the prescriptive period
commenced upon discovery. Discovery commenced from the date of the execution of the sale
documents as petitioner was party thereto. At the least, discovery is deemed to have taken place
on the date of registration of the deeds with the register of Deeds as registration is constructive
notice to the world.5 Given these two principles on discovery, the prescriptive period commenced in
1983 as petitioner MWSS actually knew of the sale, or, in 1984 when the agreements were
registered and titles thereafter were issued to respondent SILHOUTTE. At the latest, the action
would have prescribed by 1988, or about five years before the complaint was instituted. Thus,
in Aznar vs. Bernard  6, this Court held that:

Lastly, even assuming that the petitioners had indeed failed to raise the affirmative
defense of prescription in a motion to dismiss or in an appropriate pleading (answer,
or amended or supplemental answer) and an amendment would no longer be
feasible, still prescription, if apparent on the face of the complaint, may be favorably
considered. In the case at bar, the private respondents admit in their complaint that
the contract or real estate mortgage which they alleged to be fraudulent and which
had been foreclosed, giving rise to this controversy with the petitioners, was executed
on July 17, 1978, or more than eight long years before the commencement of the suit
in the court a quo, on September 15, 1986. And an action declare a contract null and
void on the ground of fraud must be instituted within four years. Extinctive
prescription is thus apparent on the face of the complaint itself as resolved by the
Court.
64
Petitioner MWSS further contends that prescription does not apply as its complaint prayed not for
the nullification of voidable contracts but for the declaration of nullity of void ab initio contracts
which are imprescriptible. This is incorrect, as the prayers in a complaint are not determinative of
what legal principles will operate based on the factual allegations of the complaint. And these
factual allegations, assuming their truth, show that MWSS consented to the sale, only that such
consent was purportedly vitiated by undue influence or fraud. Therefore, the rules on prescription
will operate. Even if petitioner MWSS asked for the declaration of nullity of these contracts, the
prayers will not be controlling as only the factual allegations in the complaint determine relief. "(I)t
is the material allegations of fact in the complaint, not the legal conclusion made therein or the
prayer that determines the relief to which the plaintiff is entitled" 7. Respondent court is thus
correct in holding that:

x x x           x x x          x x x

The totality then of those allegations in the complaint makes up a case of a voidable
contract of sale — not a void one. The determinative allegations are those that point
out that the consent of MWSS in the Agreement of Sale was vitiated either by fraud or
undue for the declaration of nullity of the said contract because the Complaint says
no. Basic is the rule however that it is the body and not the caption nor the prayer of
the Complaint that determines the nature of the action. True, the caption and prayer
of the Complaint state that the action is for a judicial declaration of nullity of a
contract, but alas, as already pointed out, its body unmistakably alleges only a
voidable contract. One cannot change the real nature of an action adopting a different
nomenclature any more than one can change gin into whisky by just replacing the
label on the bottle with that of the latter's and calling it whisky. No matter what, the
liquid inside remains gin.

x x x           x x x          x x x

Petitioner MWSS also theorizes that the May 11, 1983 MWSS-SILHOUTTE Agreement and the
August 11, 1983 Supplemental Agreement were void  ab initio because the "initial agreement" from
which these agreements emanated was executed "without the knowledge, much less the approval"
of petitioner MWSS through its Board of Trustees. The "initial agreement" referred to in petitioner
MWSS' argument is the December 20, 1982 letter of respondents Roxas and Roman, Jr. to President
Marcos where the authors mentioned that they had reached an agreement with petitioner's then
general manager, Mr. Oscar Ilustre. Petitioner MWSS maintains that Mr. Ilustre was not authorized
to enter into such "initial agreement", contrary to Art. 1874 of the New Civil Code which provides
that "when a sale of a parcel of land or any interest therein is through an agent, the authority of the
latter shall be in writing otherwise the sale shall be void." It then concludes that since its Res. No.
36-83 and the May 11, 1983 and August 11, 1983 Agreements are "fruits" of the "initial agreement"
(for which Mr. Ilustre was allegedly not authorized in writing), all of these would have been also
void under Art. 1422 of NCC, which provides that a contract which is the direct result of a
pronounced illegal contract, is also void and inexistent."

65
The argument does not impress. The "initial agreement" reflected in the December 20, 1982 letter
of respondent Roman to Pres. Marcos, is not a sale under Art. 1874. Since the nature of the "initial
agreement" is crucial, we
8
quotes   the letter in full:

We respectfully approach Your Excellency in all humility and in the spirit of the
Yuletide Season. We have explained to Your Excellency when you allowed us the
honor to see you, that the negotiations with MWSS which the late Pablo R. Roman
initiated way back in 1975, with your kind approval, will finally be concluded.

We have agreed in principle with Mr. Oscar Ilustre on the terms of the sale as
evidenced by the following:

1. Our written agreement to hire Asian Appraisal Company

to appraise the entire leased area which then be the basis
for the negotiations of the purchase price of the property;
and

2. Our exchange of communications wherein made a

counter-offer and our acceptance counter-offer.

However, we were informed by Mr. Ilustre that only written instruction from Your
Excellency will allow us to finally sign the Agreement.

In sum, our Agreement is for the purchase price of FIFTY-SEVEN MILLION TWO-
HUNDRED-FORTY THOUSAND PESOS (P57,240,000) for the entire leased area of 135
hectares; TWENTY-SEVEN MILLION PESOS (P27,000,000) payable upon approval of the
contract by Your Excellency and the balance of THIRTY MILLION TWO HUNDRED
FORTY THOUSAND PESOS (P30,240,000) after one (1) year inclusive of a 12% interest.

We believe that this arrangement is fair and equitable to both parties considering that
the value of the land was appraised by a reputable company and independent
appraisal company jointly commissioned by both parties and considering further that
Capitol Hills has still a 23-year lien on the property by virtue of its existing lease
contract with MWSS.

We humbly seek your instruction, Your Excellency and please accept our families'
sincere wish for a Merry Christmas and a Happy New Year to you and the First Family.

The foregoing does not document a sale, but at most, only the conditions proposed by respondent
Roman to enter into one. By the terms thereof, it refers only to an "agreement in principle".
Reflecting a future consummation, the letter mentions "negotiations with MWSS (which) with your
(Marcos) kind approval, will finally be concluded". It must likewise be noted that presidential
approval had yet to be obtained. Thus, the "initial agreement" was not a sale as it did not in any

66
way transfer ownership over the property. The proposed terms had yet to be approval by the
President and the agreement in principle still had to be formalized in a deed of sale. Written
authority as is required under Art. 1834 of the New Civil Code, was not needed at the point of the
"initial agreement".

Verily, the principle on prescription of actions is designed to cover situations such as the case at bar,
where there have been a series of transfers to innocent purchasers for value. To set aside these
transactions only to accommodate a party who has slept on his rights is anathema to good order. 9

RE: Laches

Even assuming, for argument's sake, that the allegations in the complaint establish the absolute
nullity of the assailed contracts and hence imprescriptible, the complaint can still be dismissed on
the ground of laches which is different from prescription. This Court, as early as 1966, has
distinguished these two concepts in this wise:

. . . (T)he defense of laches applies independently of prescription. Laches is different

from the statute of limitations. Prescription is concerned with the fact of delay,
whereas laches, is concerned with the effect of delay. Prescription is a matter of time;
laches is principally a question of inequity of permitting a claim to be enforced, this
inequity being founded on some change in the condition of the property or the
relation of the parties. Prescription is statutory; laches is not. Laches applies in
inequity, whereas prescription applies at law. Prescription is based on fixed-time;
laches is not. 10

Thus, the prevailing doctrine is that the right to have a contract declared void  ab initio  may
be barred by laches although not barred by prescription. 11

It has, for all its elements are present, viz:

(1) conduct on the part of the defendant, or one under

whom he claims, giving rise to the situation that led to the
complaint and for which the complaint seeks a remedy;

(2) delay in asserting the complainant's rights, having had

knowledge or notice of the defendant's conduct and having
been afforded an opportunity to institute a suit;

(3) lack of knowledge or notice on the part of the defendant

that the complainant would assert the right on which he
bases his suit; and

67
 (4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held
barred. 12

There is no question on the presence of the first element. the main thrust of petitioner MWSS's
complaint is to bring to the fore what it claims as fraudulent and/or illegal acts of the respondents
in the acquisition of the subject property.

The second element of delay is evident from the fact that petitioner tarried for almost ten (10)
years from the conclusion of the sale sometime in 1983 before formally laying claim to the subject
property in 1993.

The third element is present as can be deduced from the allegations in the complaint that
petitioner MWSS (a) demanded for a downpayment for no less than three times; (b) accepted
downpayment for P25 Million; and (c) accepted a letter of credit for the balance. The pertinent
paragraphs in the complaint thus read:

38. In a letter dated September 19, 1983, for failure of CHGCCI to pay on time, Mr.
Ilustre demanded payment of the downpayment of P25 Million which was due as of
18 April 1983. A copy of this letter is hereto attached as Annex "X";

39. Again, in a letter dated February 7, 1984, then MWSS Acting General Manager
Aber Canlas demanded payment from CHGCCI of the purchase price long overdue. A
copy of this letter is hereto attached as Annex "Y";

40. Likewise, in a letter dated March 14, 1984, Mr. Canlas again demanded from
CHGCCI payment of the price. A copy of this demand letter is hereto attached as
Annex "Z";

41. Thereafter, in a letter dated July 27, 1984, another entity, defendant Ayala
Corporation, through SVP Renato de la Fuente, paid with a check the long overdue
downpayment of P25,000,000.00 of STC/CHGCCI. Likewise a domestic stand-by letter
of credit for the balance was issued in favor of MWSS; Copies of the said letter, check
and letter of credit are hereto attached as Annexes "AA", "BB", and "CC", respectively.

Under these facts supplied by petitioner MWSS itself, respondents have every good reason
to believe that petitioner was honoring the validity of the conveyances of the subject
property, and that the sudden institution of the complaint in 1993 alleging the nullity of such
conveyances was surely an unexpected turn of events for respondents. Hence, petitioner
MWSS cannot escape the effect of laches.

RE: Ratification

68
Pertinent to this issue is the claim of petitioner MWSS that Mr. Ilustre was never given the
authority by its Board of Trustees to enter into the "initial agreement" of December 20, 1982 and
therefore, the sale of the subject property is invalid.

Petitioner MWSS misses the paint. The perceived infirmity in the "initial agreement" can be cured
by ratification. So settled is the precept that ratification can be made by the corporate board either
expressly or impliedly. Implied ratification may take various forms — like silence or acquiescence;
by acts showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom. 13 Both modes of ratification have been made in this case.

There was express ratification made by the Board of petitioner MWSS when it passed Resolution
No. 36-83 approving the sale of the subject property to respondent SILHOUETTE and authorizing
Mr. Ilustre, as General Manager, "to sign for and in behalf of the MWSS the contract papers and
other pertinent documents relative thereto." Implied ratification by "silence or acquiescence" is
revealed from the acts of petitioner MWSS in (a) sending three (3) demand letters for the payment
of the purchase price, (b) accepting P25 Million as downpayment, and (c) accepting a letter of credit
for the balance, as hereinbefore mentioned. It may well be pointed out also that nowhere in
petitioner MWSS' complaint is it alleged that it returned the amounts, or any part thereof, covering
the purchase price to any of the respondents-vendees at any point in time. This is only indicative of
petitioner MWSS' acceptance and retention of benefits flowing from the sales transactions which is
another form of implied ratification.

RE: Non-joinder of indispensable parties

There is no denying that petitioner MWSS' action against herein respondents for the recovery of the
subject property now converted into a prime residential subdivision would ultimately affect the
proprietary rights of the many lot owners to whom the land has already been parceled out. They
should have been included in the suit as parties-defendants, for "it is well established that owners
of property over which reconveyance is asserted are indispensable parties without whom no relief
is available and without whom the court can render no valid judgment." 14 Being indispensable
parties, the absence of these lot-owners in the suit renders all subsequent actions of the trial court
null and void for want of authority to act, not only as to the absent parties but even as to those
present. 15 Thus, when indispensable parties are not before the court, the action should be
dismissed. 16

WHEREFORE, in view of the foregoing, the consolidated petitions are hereby DENIED.

SO ORDERED.

Regalado and Mendoza, JJ., concur.

Melo and Puno, JJ., took no part.

Footnotes

69
 1 Art. 1318, New Civil Code.

2 Art. 1330, NCC, emphasis supplied.

3 Art. 1390(2), NCC.

4 IV Tolentino, 1991 ed., p. 596.

5 Pascua vs. Florentino, 136 SCRA 208; Balbin vs. Medalla, 108 SCRA 666; Guerrero vs.
CA, 126 SCRA 109; Marcopper vs. Garcia, 143 SCRA 178; Ramos vs. CA, 112 SCRA 542.

6 161 SCRA 283.

54.

SECOND DIVISION

G.R. No. 139982             November 21, 2002

JULIAN FRANCISCO (Substituted by his Heirs, namely: CARLOS ALTEA FRANCISCO;

the heirs of late ARCADIO FRANCISCO, namely: CONCHITA SALANGSANG-FRANCISCO (surviving
spouse),
and his children namely: TEODULO S. FRANCISCO, EMILIANO S. FRANCISCO, MARIA THERESA S.
FRANCISCO,
PAULINA S. FRANCISCO, THOMAS S. FRANCISCO;
PEDRO ALTEA FRANCISCO; CARINA FRANCISCO-ALCANTARA; EFREN ALTEA FRANCISCO; DOMINGA
LEA FRANCISCO-REGONDON;
BENEDICTO ALTEA FRANCISCO and ANTONIO ALTEA FRANCISCO), petitioner,
vs.
PASTOR HERRERA, respondent.

DECISION

QUISUMBING, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals, dated August 30,
1999, in CA-G.R. CV No. 47869, which affirmed in toto the judgment 2 of the Regional Trial Court (RTC)
of Antipolo City, Branch 73, in Civil Case No. 92-2267. The appellate court sustained the trial court’s
ruling which: (a) declared null and void the deeds of sale of the properties covered by Tax Declaration
Nos. 01-00495 and 01-00497; and (b) directed petitioner to return the subject properties to
respondent who, in turn, must refund to petitioner the purchase price of P1,750,000.
70
The facts, as found by the trial court and affirmed by the Court of Appeals, are as follows:

Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of
500 sq. m. and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and
01-00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal. 3

On January 3, 1991, petitioner bought from said landowner the first parcel, covered by TD No. 01-
00495, for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991.

On March 12, 1991, petitioner bought the second parcel covered by TD No. 01-00497, for P750,000.

Contending that the contract price for the two parcels of land was grossly inadequate, the children of
Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried to
negotiate with petitioner to increase the purchase price. When petitioner refused, herein respondent
then filed a complaint for annulment of sale, with the RTC of Antipolo City, docketed as Civil Case No.
92-2267. In his complaint, respondent claimed ownership over the second parcel, which is the lot
covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since 1973. He likewise claimed
that the first parcel, the lot covered by TD No. 01-00495, was subject to the co-ownership of the
surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died intestate on
April 2, 1990, before the alleged sale to petitioner. Finally, respondent also alleged that the sale of the
two lots was null and void on the ground that at the time of sale, Eligio, Sr. was already incapacitated
to give consent to a contract because he was already afflicted with senile dementia, characterized by
deteriorating mental and physical condition including loss of memory.

In his answer, petitioner as defendant below alleged that respondent was estopped from assailing the
sale of the lots. Petitioner contended that respondent had effectively ratified both contracts of sales,
by receiving the consideration offered in each transaction.

On November 14, 1994, the Regional Trial Court handed down its decision, the dispositive portion of
which reads:

WHEREFORE, in view of all the foregoing, this court hereby orders that:

1. The deeds of sale of the properties covered by Tax Dec. Nos. 01-00495 and 01-00497 are
declared null and void;

2. The defendant is to return the lots in question including all improvements thereon to the
plaintiff and the plaintiff is ordered to simultaneously return to the defendant the purchase
price of the lots sold totalling to P750,000.00 for lot covered by TD 01-00497
and P1,000,000.00 covered by TD 01-00495;

3. The court also orders the defendant to pay the cost of the suit.

<>4. The counter-claim of the defendant is denied for lack of merit.

71
SO ORDERED.4

Petitioner then elevated the matter to the Court of Appeals in CA-G.R. CV No. 47869. On August 30,
1999, however, the appellate court affirmed the decision of the Regional Trial Court, thus:

WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED in toto. Costs
against defendant-appellant.

SO ORDERED.5

Hence, this petition for review anchored on the following grounds:

I. THE COURT OF APPEALS COMPLETELY IGNORED THE BASIC DIFFERENCE BETWEEN A VOID
AND A MERELY VOIDABLE CONTRACT THUS MISSING THE ESSENTIAL SIGNIFICANCE OF THE
ESTABLISHED FACT OF RATIFICATION BY THE RESPONDENT WHICH EXTINGUISHED WHATEVER
BASIS RESPONDENT MAY HAVE HAD IN HAVING THE CONTRACT AT BENCH ANNULLED.

II. THE DECISION OF THE COURT OF APPEALS ON "SENILE DEMENTIA":

A. DISREGARDED THE FACTUAL BACKGROUND OF THE CASE;

B. WAS CONTRARY TO ESTABLISHED JURISPRUDENCE; AND

C. WAS PURELY CONJECTURAL, THE CONJECTURE BEING ERRONEOUS.

III. THE COURT OF APPEALS WAS IN GROSS ERROR AND IN FACT VIOLATED PETITIONERS’ RIGHT
TO DUE PROCESS WHEN IT RULED THAT THE CONSIDERATION FOR THE QUESTIONED
CONTRACTS WAS GROSSLY INADEQUATE.6

The resolution of this case hinges on one pivotal issue: Are the assailed contracts of sale void or
merely voidable and hence capable of being ratified?

Petitioner contends that the Court of Appeals erred when it ignored the basic distinction between
void and voidable contracts. He argues that the contracts of sale in the instant case, following Article
13907 of the Civil Code are merely voidable and not void ab initio. Hence, said contracts can be
ratified. Petitioner argues that while it is true that a demented person cannot give consent to a
contract pursuant to Article 1327,8 nonetheless the dementia affecting one of the parties will not
make the contract void per se but merely voidable. Hence, when respondent accepted the purchase
price on behalf of his father who was allegedly suffering from senile dementia, respondent effectively
ratified the contracts. The ratified contracts then become valid and enforceable as between the
parties.

Respondent counters that his act of receiving the purchase price does not imply ratification on his
part. He only received the installment payments on his senile father’s behalf, since the latter could no
longer account for the previous payments. His act was thus meant merely as a safety measure to
72
prevent the money from going into the wrong hands. Respondent also maintains that the sales of the
two properties were null and void. First, with respect to the lot covered by TD No. 01-00497, Eligio, Sr.
could no longer sell the same because it had been previously sold to respondent in 1973. As to lot
covered by TD No. 01-00495, respondent contends that it is co-owned by Eligio, Sr. and his children,
as heirs of Eligio’s wife. As such, Eligio, Sr. could not sell said lot without the consent of his co-owners.

We note that both the trial court and the Court of Appeals found that Eligio, Sr. was already suffering
from senile dementia at the time he sold the lots in question. In other words, he was already mentally
incapacitated when he entered into the contracts of sale. Settled is the rule that findings of fact of the
trial court, when affirmed by the appellate court, are binding and conclusive upon the Supreme
Court.9

Coming now to the pivotal issue in this controversy. A void or inexistent contract is one which has no
force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot
be validated either by the passage of time or by ratification. There are two types of void contracts: (1)
those where one of the essential requisites of a valid contract as provided for by Article 1318 10 of the
Civil Code is totally wanting; and (2) those declared to be so under Article 1409 11 of the Civil Code. By
contrast, a voidable or annullable contract is one in which the essential requisites for validity under
Article 1318 are present, but vitiated by want of capacity, error, violence, intimidation, undue
influence, or deceit.

Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of consent of
the parties, object certain as subject matter, and cause of the obligation established. Article 1327
provides that insane or demented persons cannot give consent to a contract. But, if an insane or
demented person does enter into a contract, the legal effect is that the contract is voidable or
annullable as specifically provided in Article 1390.12

In the present case, it was established that the vendor Eligio, Sr. entered into an agreement with
petitioner, but that the former’s capacity to consent was vitiated by senile dementia. Hence, we must
rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are
valid and binding unless annulled through a proper action filed in court seasonably.

An annullable contract may be rendered perfectly valid by ratification, which can be express or
implied. Implied ratification may take the form of accepting and retaining the benefits of a
contract.13 This is what happened in this case. Respondent’s contention that he merely received
payments on behalf of his father merely to avoid their misuse and that he did not intend to concur
with the contracts is unconvincing. If he was not agreeable with the contracts, he could have
prevented petitioner from delivering the payments, or if this was impossible, he could have
immediately instituted the action for reconveyance and have the payments consigned with the court.
None of these happened. As found by the trial court and the Court of Appeals, upon learning of the
sale, respondent negotiated for the increase of the purchase price while receiving the installment
payments. It was only when respondent failed to convince petitioner to increase the price that the
former instituted the complaint for reconveyance of the properties. Clearly, respondent was
agreeable to the contracts, only he wanted to get more. Further, there is no showing that respondent
73
returned the payments or made an offer to do so. This bolsters the view that indeed there was
ratification. One cannot negotiate for an increase in the price in one breath and in the same breath
contend that the contract of sale is void.

Nor can we find for respondent’s argument that the contracts were void as Eligio, Sr., could not sell
the lots in question as one of the properties had already been sold to him, while the other was the
subject of a co-ownership among the heirs of the deceased wife of Eligio, Sr. Note that it was found
by both the trial court and the Court of Appeals that Eligio, Sr., was the "declared owner" of said lots.
This finding is conclusive on us. As declared owner of said parcels of land, it follows that Eligio, Sr.,
had the right to transfer the ownership thereof under the principle of jus disponendi.

In sum, the appellate court erred in sustaining the judgment of the trial court that the deeds of sale of
the two lots in question were null and void.

WHEREFORE, the instant petition is GRANTED. The decision dated August 30, 1999 of the Court of
Appeals in CA-G.R. CV No. 47869, affirming the decision of the Regional Trial Court in Civil Case No.
92-2267 is REVERSED. The two contracts of sale covering lots under TD No. 01-00495 and No. 01-
00497 are hereby declared VALID. Costs against respondent.

SO ORDERED.

55.

FIRST DIVISION

G.R. No. 150179             April 30, 2003

HEIRS OF WILLIAM SEVILLA, NAMELY: WILFREDO SEVILLA, WILSON SEVILLA, WILMA SEVILLA,
WILLINGTON SEVILLA, AND WILLIAM SEVILLA, JR., HEIRS OF MARIA SEVILLA, NAMELY: AMADOR
SEVILLA, JENO CORTES, VICTOR CORTES, MARICEL CORTES, ALELEI* CORTES AND
ANJEI** CORTES, petitioners,
vs.
LEOPOLDO SEVILLA, PETER SEVILLA, AND LUZVILLA SEVILLA, respondents.
74
YNARES-SANTIAGO, J.:

One who alleges defect or lack of valid consent to a contract by reason of fraud or undue influence
must establish by full, clear and convincing evidence such specific acts that vitiated a party's consent,
otherwise, the latter's presumed consent to the contract prevails. 1

The instant petition for review seeks to set aside the September 26, 2000 Decision 2 of the Court of
Appeals in CA-G.R. CV No. 48956, affirming in toto the Decision3 of the Regional Trial Court of Dipolog
City, Branch 6, in Civil Case No. 4240 which declared, inter alia, the questioned Deed of
Donation Inter Vivos valid and binding on the parties.

The undisputed facts reveal that on December 10, 1973, Filomena Almirol de Sevilla died intestate
leaving 8 children, namely: William, Peter, Leopoldo, Felipe, Rosa, Maria, Luzvilla, and Jimmy, all
surnamed Sevilla. William, Jimmy and Maria are now deceased and are survived by their respective
spouses and children.4 Filomena Almirol de Sevilla left the following properties:

PARCEL I:

A parcel of land known as Lot No. 653 situated at General Luna St., Dipolog City, with an area
of about 804 square meters, more or less, duly covered by Transfer Certificate of Title No. (T-
6671)-1448 [in the name of Filomena Almirol de Sevilla, Honorata Almirol and Felisa Almirol]
and assessed at P31,360.00 according to Tax Dec. No. 018-947;

PARCEL II:

A parcel of land known as Lot No. 3805-B situated at Olingan, Dipolog City, with an area of
about 18,934 square meters, more or less, duly covered by Transfer Certificate of Title No. T-
6672 and assessed at P5,890 according to Tax Dec. No. 009-761;

PARCEL III:

A parcel of land known as Lot No. 837-1/4 situated at Magsaysay Street, Dipolog City, with an
area of about 880 square meters more or less, duly covered by Original Certificate of Title No.
0-6064 and assessed at P12,870.00 according to Tax Dec. No. 020-1078;

PARCEL IV:

A parcel of residential land known as Lot No. 1106-B-3 situated at Sta. Filomena, Dipolog City,
with an area of 300 square meters, more or less, assessed at P3,150.00 according to Tax Dec.
No. 006-317;

Commercial building erected on Parcel I above-described; and residential building erected just
at the back of the commercial building above-described and erected on Parcel I above-
described;5

75
Parcel I, Lot No. 653, is the paraphernal property of Filomena Almirol de Sevilla which she co-owned
with her sisters, Honorata Almirol and Felisa Almirol, 6 who were both single and without issue. Parcels
II, III and IV are conjugal properties of Filomena Almirol de Sevilla and her late husband Andres
Sevilla.7 When Honorata died in 1982, her 1/3 undivided share in Lot No. 653 was transmitted to her
heirs, Felisa Almirol and the heirs of Filomena Almirol de Sevilla, who thereby acquired the property in
the proportion of one-half share each.

During the lifetime of Felisa and Honorata Almirol, they lived in the house of Filomena Almirol de
Sevilla, together with their nephew, respondent Leopoldo Sevilla and his family. Leopoldo attended to
the needs of his mother, Filomena, and his two aunts, Honorata and Felisa. 8

Felisa died on July 6, 1988.9 Previous thereto, on November 25, 1985, she executed a last will and
testament devising her 1/2 share in Lot No. 653 to the spouses Leopoldo Sevilla and Belen
Leyson.10 On August 8, 1986, Felisa executed another document denominated as "Donation Inter
Vivos" ceding to Leopoldo Sevilla her 1/2 undivided share in Lot No. 653, which was accepted by
Leopoldo in the same document.11

On September 3, 1986, Felisa Almirol and Peter Sevilla, in his own behalf and in behalf of the heirs of
Filomena Almirol de Sevilla, executed a Deed of Extra-judicial Partition, identifying and adjudicating
the 1/3 share of Honorata Almirol to the heirs of Filomena Almirol de Sevilla and to Felisa Almirol. 12

Thereafter, respondents Leopoldo, Peter and Luzvilla Sevilla obtained the cancellation of Transfer
Certificate of Title No. (T-6671)-1448, over Lot No. 653, and the issuance of the corresponding titles to
Felisa Almirol and the heirs of Filomena Almirol de Sevilla. However, the requested titles for Lot Nos.
653-A and 653-B, were left unsigned by the Register of Deeds of Dipolog City, pending submission by
Peter Sevilla of a Special Power of Attorney authorizing him to represent the other heirs of Filomena
Almirol de Sevilla.13

On June 21, 1990, Felipe Sevilla, Rosa Sevilla, and the heirs of William, Jimmy and Maria, all surnamed
Sevilla, filed the instant case against respondents Leopoldo Sevilla, Peter Sevilla and Luzvilla Sevilla,
for annulment of the Deed of Donation and the Deed of Extrajudicial Partition, Accounting, Damages,
with prayer for Receivership and for Partition of the properties of the late Filomena Almirol de
Sevilla.14 They alleged that the Deed of Donation is tainted with fraud because Felisa Almirol, who was
then 81 years of age, was seriously ill and of unsound mind at the time of the execution thereof; and
that the Deed of Extra-judicial Partition is void because it was executed without their knowledge and
consent.15

In their answer,16 respondents denied that there was fraud or undue pressure in the execution of the
questioned documents. They alleged that Felisa was of sound mind at the time of the execution of the
assailed deeds and that she freely and voluntarily ceded her undivided share in Lot No. 653 in
consideration of Leopoldo's and his family's love, affection, and services rendered in the past.
Respondents further prayed that Parcels II, III, and IV be partitioned among the heirs of Filomena
Almirol de Sevilla in accordance with the law on intestate succession.

76
On December 16, 1994, a decision was rendered by the Regional Trial Court of Dipolog City,
Zamboanga del Norte, Branch 6, upholding the validity of the Deed of Donation and declaring the
Deed of Extra-judicial Partition unenforceable. The dispositive portion thereof, reads:

WHEREFORE, IN VIEW OF THE FOREGOING, summing up the evidence for both the plaintiffs
and the defendants, the Court hereby renders judgment:

1) Declaring the questioned Deed of Donation Inter Vivos valid and binding, and, therefore, has
the full force and effect of law;

2) Declaring the questioned Deed of Extra-Judicial Partition as unenforceable as yet as against

the other heirs, as it lacks the legal requisites of Special Power of Attorney or any other
appropriate instrument to be executed by the other heirs who were not made parties thereto;

3) Finding the parties herein entitled to the partition of Parcel II, III, IV as designated in the
Complaint, in equal shares, and, as to Lot No. 653 designated as Parcel I, it shall be divided
equally into two, between defendant Leopoldo Sevilla on one hand, and, collectively, the Heirs
of William Sevilla, Heirs of Jimmy Sevilla, Heirs of Maria Sevilla, Felipe Sevilla, Leopoldo Sevilla,
Peter Sevilla, Luzvilla Sevilla-Tan, on the other hand, as well as the two buildings thereon in
proportionate values;

4) Directing the parties, if they can agree, to submit herewith a project of partition, which shall
designate the share which pertains to the heirs entitled thereto, that is, the particular and
specific portions of the properties subject of the partition;

5) Directing defendant Peter Sevilla to pay and/or collect from the parties the amounts
corresponding to each one entitled or liable thereto, as recorded in the Statement of Accounts,
except for defendant Leopoldo Sevilla who is found by the Court to have incurred only an
overdraft of P5,742.98 and not P33,204.33 as earlier computed therein.

6) Dismissing the plaintiffs' claim for damages, which is not proved with sufficient evidence,
and defendants' counterclaim, on the same ground.

7) With costs de officio.

IT IS SO ORDERED.17

Both parties appealed to the Court of Appeals. Petitioners contended that the Deed of Donation
should be declared void and that Lot No. 653 should be divided equally among them. Respondents, on
the other hand, posited that the trial court erred in declaring the Deed of Extra-judicial Partition
unenforceable against the other heirs of Filomena Almirol de Sevilla who were not parties to said
Deed.

On September 26, 2000, the Court of Appeals affirmed in toto the assailed decision of the trial
court.18 Petitioners filed a motion for reconsideration but the same was denied on August 30, 2001. 19
77
Hence, the instant petition based on the following assignment of errors:

THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING AS VOID AB INITIO THE DEED OF
DONATION EXECUTED BY FELISA ALMIROL IN FAVOR OF RESPONDENT LEOPOLDO SEVILLA CEDING TO
HIM ONE HALF PORTION OF LOT 653, DIPOLOG CADASTRE, IT HAVING BEEN EXECUTED WITH FRAUD,
UNDUE PRESSURE AND INFLUENCE;

THAT THE APPELLATE COURT GREATLY ERRED IN NOT ORDERING THE PARTITION OF LOT 653,
DIPOLOG CADASTRE EQUALLY AMONG THE EIGHT (8) HEIRS OF FILOMENA, HONORATA AND FELISA,
ALL SURNAMED ALMIROL.20

To resolve the issue raised in the instant petition for review, the validity of the donation inter
vivos executed by Felisa Almirol in favor of Leopoldo Sevilla must first be determined.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another who accepts it.21 Under Article 737 of the Civil Code, the donor's capacity shall be determined
as of the time of the making of the donation. Like any other contract, an agreement of the parties is
essential,22 and the attendance of a vice of consent renders the donation voidable. 23

In the case at bar, there is no question that at the time Felisa Almirol executed the deed of donation
she was already the owner of 1/2 undivided portion of Lot No. 653. Her 1/3 undivided share therein
was increased by 1/2 when she and Filomena inherited the 1/3 share of their sister Honorata after the
latter's death. Hence, the 1/2 undivided share of Felisa in Lot No. 653 is considered a present property
which she can validly dispose of at the time of the execution of the deed of donation. 24

Petitioners, however, insist that respondent Leopoldo Sevilla employed fraud and undue influence on
the person of the donor. This argument involves appreciation of the evidence. 25 The settled rule is
that factual findings of the trial court, if affirmed by the Court of Appeals, are entitled to great
respect.26 There are exceptional circumstances when findings of fact of lower courts may be set
aside27 but none is present in the case at bar. Indeed, neither fraud nor undue influence can be
inferred from the following circumstance alleged by the petitioners, to wit —

A. That Felisa Almirol lived with respondent Leopoldo Sevilla in the residential house owned by
petitioners and respondents;

B. That the old woman Felisa Almirol was being supported out of the rentals derived from the
building constructed on the land which was a common fund. . . .

C. That when Felisa Almirol was already 82 years old, he [Leopoldo Sevilla] accompanied her in
the Office of Atty. Vic T. Lacaya, Sr., for the purpose of executing her last will and testament . . .

D. That in the last will and testament executed by Felisa Almirol, she had devised in favor of
respondent Leopoldo Sevilla one-half of the land in question;

78
 E. That respondent Leopoldo Sevilla not contented with the execution by Felisa Almirol of her
last will and testament, had consulted a lawyer as to how he will be able to own the land
immediately;

F. That upon the advice of Atty. Helen Angeles, Clerk of Court of the Regional Trial Court of
Zamboanga del Norte, Dipolog City, Felisa Almirol executed a Deed of Donation, hence, the
questioned Deed of Donation executed in his favor;

G. That the subject matter of the Deed of Donation was the one-half portion of Lot 653,
Dipolog Cadastre, which was willed by Felisa Almirol, in favor of respondent Leopoldo Sevilla in
her last will and testament;

H. That at the time of the execution of the Deed of Donation, Lot No. 653, Dipolog Cadastre,
was not yet partitioned between petitioners and respondents they being heirs of the late
Filomena and Honorata, all surnamed Almirol;

I. That after the execution of the Deed of Donation, respondent Peter Sevilla and the late Felisa
Almirol were the only ones who executed the Deed of Extra-judicial Partition over Lot 653,
Dipolog Cadastre, the petitioners were not made parties in the said Deed of Extrajudicial
Partition;

J. That on the basis of the Deed of Extrajudicial Partition and Deed of Donation, respondent
Leopoldo Sevilla caused the subdivision survey of Lot 653, Dipolog Cadastre, dividing the same
into two (2) lots, adjudicating one-half of the lot in his favor and the other half in favor of
respondents Peter Sevilla and Luzvilla Sevilla, and to respondent Leopoldo Sevilla himself;

K. That only two persons knew the actual survey of the land, petitioner Felipe Sevilla and
respondent Leopoldo Sevilla himself, the rest of the co-owners were not even notified;

L. That on the basis of the Extrajudicial Partition, Deed of Donation, the approved subdivision
plan, respondent Leopoldo Sevilla filed a petition for issuance of the corresponding titles for
the two lots, but the Register of Deeds of Dipolog City refused to issue the corresponding titles
for the two lots to respondent Leopoldo Sevilla so that up to this moment . . . the two titles
were left unsigned by the Register of Deeds.28

There is fraud when, through the insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he would not have agreed
to.29 There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between the parties, or the fact that
the person alleged to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress.30

79
Ei incumbit probatio qui dicit, non qui negat. He who asserts, not he who denies, must prove. We have
consistently applied the ancient rule that if the plaintiff, upon whom rests the burden of proving his
cause of action, fails to show in a satisfactory manner facts on which he bases his claim, the
defendant is under no obligation to prove his exception or defense. 31 In the instant case, the self-
serving testimony of the petitioners are vague on what acts of Leopoldo Sevilla constituted fraud and
undue influence and on how these acts vitiated the consent of Felisa Almirol. Fraud and undue
influence that vitiated a party's consent must be established by full, clear and convincing evidence,
otherwise, the latter's presumed consent to the contract prevails. 32 Neither does the fact that the
donation preceded the partition constitute fraud. It is not necessary that partition should first be had
because what was donated to Leopoldo was the 1/2 undivided share of Felisa in Lot No. 653.

Moreover, petitioners failed to show proof why Felisa should be held incapable of exercising sufficient
judgment in ceding her share to respondent Leopoldo. 33 As testified by the notary public who
notarized the Deed of Donation, Felisa confirmed to him her intention to donate her share in Lot No.
653 to Leopoldo. He stressed that though the donor was old, she was of sound mind and could talk
sensibly. Significantly, there is nothing in the record that discloses even an attempt by petitioners to
rebut said declaration of the notary public.

Clearly, therefore, the courts below did not err in sustaining the validity of the deed of donation.

Anent the Deed of Extra-judicial Partition, we find that the same is void ab initio and not merely
unenforceable. In Delos Reyes v. Court of Appeals,34 which is a case involving the sale of a lot by a
person who is neither the owner nor the legal representative, we declared the contract void ab initio.
It was held that one of the requisites of a valid contract under Article 1318 of the Civil Code is the
consent and the capacity to give consent of the parties to the contract. The legal capacity of the
parties is an essential element for the existence of the contract because it is an indispensable
condition for the existence of consent. There is no effective consent in law without the capacity to
give such consent. In other words, legal consent presupposes capacity. Thus, there is said to be no
consent, and consequently, no contract when the agreement is entered into by one in behalf of
another who has never given him authorization therefor unless he has by law a right to represent the
latter.35

In the case at bar, at the time Felisa executed the deed of extra-judicial partition dividing the share of
her deceased sister Honorata between her and the heirs of Filomena Almirol de Sevilla, she was no
longer the owner of the 1/2 undivided portion of Lot No. 653, having previously donated the same to
respondent Leopoldo Sevilla who accepted the donation in the same deed. A donation inter vivos, as
in the instant case, is immediately operative and final. 36 As a mode of acquiring ownership, it results in
an effective transfer of title over the property from the donor to the donee and the donation is
perfected from the moment the donor knows of the acceptance by the donee. And once a donation is
accepted, the donee becomes the absolute owner of the property donated.

Evidently, Felisa did not possess the capacity to give consent to or execute the deed of partition
inasmuch as she was neither the owner nor the authorized representative of respondent Leopoldo to
whom she previously transmitted ownership of her undivided share in Lot No. 653. Considering that
80
she had no legal capacity to give consent to the deed of partition, it follows that there is no consent
given to the execution of the deed, and therefore, there is no contract to speak of. As such, the deed
of partition is void ab initio, hence, not susceptible of ratification.

Nevertheless, the nullity of the deed of extra-judicial partition will not affect the validity of the
donation inter vivos ceding to respondent Leopoldo Sevilla the 1/2 undivided share of Felisa Almirol in
Lot No. 653. Said lot should therefore be divided as follows: 1/2 shall go to respondent Leopoldo
Sevilla by virtue of the deed of donation, while the other half shall be divided equally among the heirs
of Filomena Almirol de Sevilla including Leopoldo Sevilla, following the rules on intestate succession.

Finally, we note that the name of Rosa Sevilla, daughter of Filomena Almirol de Sevilla, and one of the
plaintiffs herein, was omitted in the dispositive portion of the trial court's decision. 37 Her name should
therefore be included in the dispositive portion as one of the heirs entitled to share in the properties
of the late Filomena Almirol de Sevilla.

WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals in CA-G.R. CV No.
48956, affirming in toto the Decision of the Regional Trial Court of Dipolog City, Branch 6, in Civil Case
No. 4240, is AFFIRMED with MODIFICATION. The Deed of Extra-judicial Partition dated September 3,
1986 is declared void, and the name of Rosa Sevilla is ordered included in the dispositive portion of
the trial court's judgment.

SO ORDERED.

56.

SECOND DIVISION

G.R. No. 133345             March 9, 2000

JOSEFA CH. MAESTRADO, as substituted by her daughter LOURDES MAESTRADO-LAVIÑA and

CARMEN CH. ABAYA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, Ninth Division and JESUS C. ROA, JR., RAMON P. CHAVES and
NATIVIDAD S. SANTOS, respondents.

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

G.R. No. 133324             March 9, 2000

JOSEFA CHAVES MAESTRADO and CARMEN CHAVES ABAYA, petitioners,

vs.
JESUS C. ROA, JR., RAMON P. CHAVES and NATIVIDAD S. SANTOS, respondents.

81
DE LEON, JR. J.:

Before us are two (2) consolidated petitions for review on certiorari of the Decision 1 of the Court of
Appeals 2 dated November 28, 1997 declaring Lot No. 5872, located in Kauswagan, Cagayan de Oro
City, as common property of the heirs of the deceased spouses, Ramon and Rosario Chaves, and
ordering its equal division among all the co-owners. The Court of Appeals affirmed the Decision of the
Regional Trial Court, Branch 23 of Cagayan de Oro City, which dismissed petitioners' action against the
private respondents for Quieting of Title over the said lot.

The pertinent facts are the following:

These consolidated cases involve the status of Lot No. 5872 and the rights of the contending parties
thereto. The said lot which has an area of 57.601 square meters, however, is still registered in the
name of the deceased spouses Ramon and Rosario Chaves. The spouses Ramon and Rosario died
intestate in 1943 and 1944, respectively. They were survived by the following heirs, namely: Carmen
Chaves-Abaya, Josefa Chaves-Maestrado, Angel Chaves, Amparo Chaves-Roa, Concepcion Chaves-
Sanvictores and Salvador Chaves.

To settle the estate of the said deceased spouses, Angel Chaves initiated intestate proceedings  3 in the
Court of First Instance of Manila and was appointed administrator of said estates in the process. An
inventory of the estates was made and thereafter, the heirs agreed on a project of partition. Thus,
they filed an action for partition 4 before the Court of First Instance of Misamis Oriental. The court
appointed Hernando Roa, husband of Amparo Chaves-Roa, as receiver. On June 6, 1956, the court
rendered a decision approving the project of partition. However, the records of said case are missing
and although respondents claimed otherwise, they failed to present a copy of said decision.

This notwithstanding, the estate was actually divided in this wise: (1) Lot No. 3046 situated in
Bulalong, Cagayan de Oro City, consisting of 44 hectares of coconut land was distributed equally
among four (4) heirs, namely: (a) Concepcion Chaves-Sanvictores; (b) Angel Chaves; (c) Amparo
Chaves-Roa; and (d) Ramon Chaves, while (2) Lot Nos. 5925, 5934, 1327 and 5872, all located in
Kauswagan, Cagayan de Oro City and consisting of an aggregate area of 14 hectares was distributed
equally between petitioners (a) Josefa Chaves-Maestrado; and (b) Carmen Chaves-Abaya.

At the time of the actual partition, Salvador Chaves had already died. His share was given to his only
son, Ramon, who is the namesake of Salvador's father. In 1956, the year the partition case was
decided and effected, receiver Hernando Roa delivered the respective shares of said heirs in
accordance with the above scheme. Subsequently, Concepcion sold her share to Angel, while Ramon
sold his share to Amparo. Hence, one-half (1/2) of Lot No. 3046 went to Angel and the other half to
Amparo.1âwphi1.nêt

Significantly, Lot No. 5872 was not included in any of the following documents: (1) the inventory of
properties of the estate submitted to the court in the proceedings for the settlement of said estate;
(2) the project of partition submitted to the court for approval; (3) the properties receiver Hernando
Roa had taken possession of, which he listed in the "Constancia" submitted to the court; and (4) the
82
court order approving the partition. Decedent Ramon Chaves acquired Lot No. 5872 from Felomino
Bautista, Sr. but he subsequently delivered it to the spouses Hernando Roa and Amparo Chaves-
Roa. 5 It was thereafter delivered to petitioners during the actual partition in 1956, and petitioners
have been in possession of the same since then.

As to the omission of Lot No. 5872 in the inventory and project of partition, the parties offer different
explanations. Respondents claim that due to the series of involving the said lot, the heirs were unsure
if it belonged to the decedents' estate at all. As a result they deferred its inclusion in the inventory of
the properties of the estate as well as its distribution pending the investigation of its status. In fact,
administrator Angel Chaves filed a motion in the proceedings for the settlement of the estate to
include the said lot in the inventory but the court did not act on it. Petitioners, on the other hand,
insist that the omission was inadvertent and the inaction of the court on the motion was due to the
compromise agreement entered into by the heirs. 6

Petitioners' thesis consists of the existence of an oral partition agreement entered into by all heirs
soon after the death of their parents. The proposed project of partition was allegedly based on it but
the court's order of partition failed to embody such oral agreement due to the omission of Lot No.
5872. For some reason, however, the actual partition of the estate conformed to the alleged oral
agreement.

Petitioners claim that they failed to notice the non-inclusion of Lot No. 5872 in the court's order. They
only realized such fact after the death in 1976 of Silvino Maestrado, the husband of petitioner Josefa.
They discovered among Silvino's belongings, the partition order and found out that Lot No 5872 was
not included therein. 7

In an effort to set things right, petitioners prepared a quitclaim to confirm the alleged or a agreement.
On August 16, 1977, Angel, Concepcion and Ramon signed a notarized quitclaim in favor of
petitioners. Amparo was unable to sign because she had an accident and had passed away on the
following day. It was her heirs who signed a similarly worded and notarized quitclaim on September 8,
1977. 8

Respondents dispute the voluntariness of their consent or the consent of their predecessors-in-
interest to the quitclaims. Ramon claims to have been betrayed by his lawyer, Francisco Velez, who is
the son-in-law of petitioner Josefa Maestrado. He allegedly signed the quitclaim without reading it
because his lawyer had already read it. He believed that since his lawyer was protecting his interest, it
was all right to sign it after hearing no objections from said lawyer. On the other hand, Angel signed
the quitclaim "out of respect" for petitioners. On the other hand, Concepcion signed because she was
misled by alleged misrepresentations in the "Whereas Clauses" of the quitclaim to the effect that the
lot was inadvertently omitted and not deliberately omitted due to doubts on its status. 9

Six (6) years after the execution of the quitclaims, respondents discovered that Lot No. 5872 is still in
the name of the deceased spouses Ramon and Rosario Chaves. Thus, on October 14, 1983,
respondent Ramon Chaves, sole heir of Salvador Chaves, and respondent Jesus Roa, son of Amparo
Chaves-Roa, wrote a letter to their uncle Angel Chaves to inform him of that said property which they
83
claim to belong to the estate of their deceased grandparents, has not yet been distributed to the
concerned heirs. Hence, they requested Angel Chaves to distribute and deliver it to the heirs. 10 On
October 24, 1983, respondent Natividad Santos, daughter and attorney-in-fact of Concepcion Chaves-
Sanvictores, also wrote a similar letter to Angel Chaves. On December 1, 1983, Angel Chaves
transmitted the said letters to petitioner Carmen Abaya and requested her to respond.

In response, petitioners filed, on December 22, 1983, an action for Quieting of Title 11 against
respondents in the Regional Trial Court of Cagayan de Oro. On April 10, 1995, the trial court rendered
its Decision in favor of respondents, the dispositive portion of which reads as follows:

In view of these facts, the court therefore considers the property, Lot 5872 still common
property. Consequently, the property must be divided in six (6) parts, there being six heirs. But
since the group of Jesus Roa already quitclaimed in favor of plaintiffs and the same is true with
Angel Chaves, the defendants Natividad Santos and Ramon Chaves shall receive one-sixth (1/6)
each out of Lot 5872 and the balance will be divided equally by the plaintiffs Josefa-Chaves-
Maestrado represented by her daughters and the other half to Carmen Chaves-Abaya.

With no other pronouncements.

SO ORDERED.

The petitioners appealed to the Court of Appeals which in a Decision, promulgated on November 28,
1997, sustained the said Decision of the trial court, in this wise:

WHEREFORE, in view of the foregoing premises, the Decision dated April 10, 1995 subject of
the appeal, is hereby AFFIRMED in toto.

Costs against the plaintiffs-appellants.

SO ORDERED.

On May 29, 1998, petitioner Lourdes Maestrado-Lavina, in substitution of her deceased mother Josefa
Chaves-Maestrado, fled a petition for review on certiorari with this Court. 12 Petitioner Carmen
Chaves-abaya also filed her own petition for review on certiorari on June 1, 1998. 13 Since the two
petitions involve the same facts and issues, we decided in a Resolution 14 to consolidate the said cases.

Petitioner Maestrado-Lavina assigns the following errors:

I. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S DECISION DECLARING LOT
5872 AS STILL COMMON PROPERTY, THEREBY EFFECTIVELY NULLIFYING THE VERBAL
PARTITION AGREEMENT REACHED AND IMPLEMENTED BY THE CHILDREN/HEIRS OF
DECEDENTS RAMON AND ROSARIO CHAVES WAY BACK IN 1956;

84
 II. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S DECISION DECLARING LOT
5872 AS STILL COMMON PROPERTY UPON ITS CONCLUSION THAT THE SIGNATURES OF
RESPONDENTS ON THE DULY NOTARIZED QUITCLAIMS WERE OBTAINED THROUGH FRAUD;

III. THE COURT OF APPEALS ERRED IN ITS LEGAL CONCLUSION THAT, ON THE BASIS ALONE OF
THE CLAIMS THAT (A) RAMON CHAVES SIGNED THE QUITCLAIM WITHOUT READING IT; AND
THAT (B) ANGEL CHAVES SIGNED THE QUITCLAIM OUT OF RESPECT, THERE WAS FRAUD AS
WOULD VITIATE RESPONDENTS CONSENT TO THE QUITCLAIMS;

IV. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S CONCLUSION THAT
PETITIONERS HAVE NO CAPACITY TO SUE FOR QUIETING OF TITLE OR REMOVAL OF CLOUD
THEREON ON THE BASIS ALONE THAT PETITIONERS ARE NOT THE REGISTERED OWNERS OF LOT
5872;

V. IT BEING UNDISPUTED THAT THE FACTS GIVING RISE TO CLOUD ON JOSEFA'S AND
CARMEN'S OWNERSHIP OVER LOT 5872 SURFACED ONLY IN 1983 AND PETITIONERS FILED THE
CORRESPONDING ACTION TO QUIET TITLE OR REMOVE CLOUD THEREON ALSO IN 1983, THE
COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S CONCLUSION THAT PETITIONERS
ARE GUILTY OF LACHES. 15

Petitioner Carmen Chaves-Abaya, on the other hand, assigns the following errors:

I. THE HONORABLE COURT OF APPEALS COMMITTED A CLEAR ERROR IN THE INTERPRETATION

OF LAW IN HOLDING THAT THERE WAS FRAUD IN OBTAINING THE CONSENT OF PRIVATE
RESPONDENT RAMON P. CHAVES AND CONCEPCION CHAVES SANVICTORES, THE MOTHER OF
PRIVATE RESPONDENT NATIVIDAD SANTOS, TO THE DEEDS OF QUITCLAIM;

II. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE ACTION FOR QUIETING OF
TITLE WAS NOT BROUGHT BY THE PERSON IN WHOSE NAME THE TITLE IS ISSUED;

III. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PETITIONERS WERE GUILTY
OF LACHES FOR HAVING SLEPT ON THEIR RIGHTS FOR MORE THAN 25 YEARS. 16

We grant the consolidated petitions, the same being impressed with merit.

First. Petitioners are proper parties to bring an action for quieting of title. Persons having legal as well
as equitable title to or interest in a real property may bring such action and "title" here does not
necessarily denote a certificate of title issued in favor of the person filing the suit. 17 Moreover, if the
plaintiff in an action for quieting of title is in possession of the property being litigated, such action is
imprescriptible. 18 One who is in actual possession of a land, claiming to be the owner thereof may
wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right
because his undisturbed possession gives him a continuing right to seek the aid of the courts to
ascertain the nature of the adverse claim and its effects on his title. 19

85
Although prescription and laches are distinct concepts, we have held, nonetheless, that in some
instances, the doctrine of laches is inapplicable where the action was filed within the prescriptive
period provided by law. 20 Thus, laches does not apply in this case because petitioners' possession of
the subject lot has rendered their right to bring an action for quieting of title imprescriptible and,
hence, not barred by laches. Moreover, since laches is a creation of equity, acts or conduct alleged to
constitute the same must be intentional and unequivocal so as to avoid injustice.  21 Laches operates
not really to penalize neglect or sleeping on one's rights, but rather to avoid recognizing a right when
to do so would result in a clearly inequitable situation. 22

In the case at bench, the cloud on petitioners' title to the subject property came about only on
December 1, 1983 when Angel Chaves transmitted respondents' letters to petitioners, while
petitioners' action was filed on December 22, 1983. Clearly, no laches could set in under the
circumstances since petitioners were prompt and vigilant in protecting their rights.

Second. Lot No. 5872 is no longer common property of the heirs of the deceased spouses Ramon and
Rosario Chaves. Petitioners' ownership over said lot was acquired by reason of the oral partition
agreed upon by the deceased spouses' heirs sometime before 1956. That oral agreement was
confirmed by the notarized quitclaims executed by the said heirs on August 16, 1977 and September
8, 1977, supra.

It appeared that the decision in Civil Case No. 867, which ordered the partition of the decedents'
estate, was not presented by either party thereto. The existence of the oral partition together with
the said quitclaims is the bone of contention in this case. It appeared, however, that the actual
partition of the estate conformed to the alleged oral partition despite a contrary court order. Despite
claims of private respondents that Lot No. 5872 was mistakenly delivered to the petitioners, nothing
was done to rectify it for a period of twenty-seven (27) years from 1983.

We are convinced, however, that there was indeed an oral agreement of partition entered into by the
heirs/parties. This is the only way we can make sense out of the actual partition of the properties of
the estate despite claims that a court order provided otherwise. Prior to the actual partition,
petitioners were not in possession of Lot. No. 5872 but for some reason or another, it was delivered
to them. From 1956, the year of the actual partition of the estate of the deceased Chaves spouses,
until 1983, no one among the heirs questioned petitioners' possession of or ownership over said Lot
No. 5872. Hence, we are convinced that there was indeed an oral agreement of partition among the
said heirs and the distribution of the properties was consistent with such oral agreement. In any
event, the parties had plenty of time to rectify the situation but no such move was done until 1983.

A possessor or real estate property is presumed to have title thereto unless the adverse claimant
establishes a better right. 23 In the instant case it is the petitioners, being the possessors of Lot No.
5872, who have established a superior right thereto by virtue of the oral partition which was also
confirmed by the notarized quitclaims of the heirs.

86
Partition is the separation, division and assignment of a thing held in common among those to whom
it may belong. 24 If may be effected extra-judicially by the heirs themselves through a public
instrument filed before the register of deeds. 25

However, as between the parties, a public instrument is neither constitutive nor an inherent element
of a contract of partition. 26 Since registration serves as constructive notice to third persons, an oral
partition by the heirs is valid if no creditors are affected. 27 Moreover, even the requirement of a
written memorandum under the statute of frauds does not apply to partitions effected by the heirs
where no creditors are involved considering that such transaction is not a conveyance of property
resulting in change of ownership but merely a designation and segregation of that part which belongs
to each heir. 28

Nevertheless, respondent court was convinced that Lot No. 5872 is still common property of the heirs
of the deceased spouses Ramon and Rosario Chaves because the TCT covering the said property is still
registered in the name of the said deceased spouses. unfortunately, respondent court was oblivious
to the doctrine that the act of registration of a voluntary instrument is the operative act which
conveys or affects registered land insofar as third persons are concerned. Hence, even without
registration, the contract is still valid as between the parties. 29 In fact, it has been recently held and
reiterated by this Court that neither a Transfer Certificate of Title nor a subdivision plan is essential to
the validity of an oral partition. 30

In sum, the most persuasive circumstance pointing to the existence of the oral partition is the fact
that the terms of the actual partition and distribution of the estate are identical to the sharing scheme
in the oral partition.. No one among the heirs disturbed this status quo for a period of twenty-seven
(27) years.

Final. The said notarized quitclaims signed by the heirs in favor of petitioners are not vitiated by
fraud.1âwphi1 Hence, they are valid.

Since the oral partition has been duly established, the notarized quitclaims confirmed such prior oral
agreement as well as the petitioners' title of ownership over the subject Lot No. 5872. More
importantly, independent of such oral partition, the quitclaims in the instant case are valid contracts
of waiver of property rights.

The freedom to enter into contracts, such as the quitclaims in the instant case, is protected by
law 31 and the courts are not quick to interfere with such freedom unless the contract is contrary to
law, morals, good customs, public policy or public order. 32 Quitclaims, being contracts of waiver,
involve the relinquishment of rights, with knowledge of their existence and intent to relinquish
them. 33 The intent to waive rights must be clearly and convincingly shown. Moreover, when the only
proof of intent is the act of a party, such act should be manifestly consistent and indicative of an
intent to voluntarily relinquish a particular right such that no other reasonable explanation of his
conduct is possible. 34

87
In the instant case, the terms of the subject quitclaims dated August 16, 1977 and September 8, 1977
are clear; and the heirs signatures thereon have no other significance but their conformity thereto
resulting in a valid waiver of property rights. 35 Herein respondents quite belatedly and vainly
attempted to invoke alleged fraud in the execution of the said quitclaims but we are not convinced. In
other words, the said quitclaims being duly notarized and acknowledged before a notary public,
deserve full credence and are valid and enforceable in the absence of overwhelming evidence to the
contrary. 36 In the case at bench, it is our view and we hold that the execution of the said quitclaims
was not fraudulent.

Fraud refers to all kinds of deception, whether through insidious machination, manipulation,
concealment or misrepresentation to lead another party into error. 37 The deceit employed must be
serious. It must be sufficient to impress or lead an ordinarily prudent person into error, taking into
account the circumstances of each case. 38 Silence or concealment, by itself, does not constitute fraud,
unless there is a special duty to disclose certain facts. 39 Moreover, the bare existence of confidential
relation between the parties, standing alone, does not raise the presumption of fraud. 40

Dolo causante or fraud which attends the execution of a contract is an essential cause that vitiates
consent and hence, it is a ground for the annulment of a contract. 41 Fraud is never presumed,
otherwise, courts would be indulging in speculations and surmises. 42 It must be established by clear
and convincing evidence but it was not so in the case at bench. A mere preponderance of evidence is
not even adequate to prove fraud. 43

The instances of fraud allegedly committed in the case at bench are not the kind of fraud
contemplated by law. On the contrary, they constitute mere carelessness in the conduct of the affairs
of the heirs concerned. We have consistently denied relief to a party who seeks to avoid the
performance of an obligation voluntarily assumed because they turned out to be disastrous or unwise
contracts, even if there was a mistake of law or fact. 44 Moreover, we do not set aside contracts
merely because solicitation, importunity, argument, persuasion or appeal to affection were used to
obtain the consent of the other party. 45

In a nutshell, the quitclaims dated August 16, 1977 and September 8, 1977 in the case at bench are
valid, duly confirmed and undeniably established the title of ownership of the petitioners over the
subject Lot No. 5872.

WHEREFORE, the instant consolidated petitions are GRANTED. The Decision of the Court of Appeals,
dated November 28, 1997, is hereby REVERSED and SET ASIDE. The petitioners' action praying for the
quieting of their title of ownership over Lot No. 5872, located in Kauswagan, Cagayan de Oro, is
granted. Costs against respondents.1âwphi1.nêt

SO ORDERED.

57.
88
 Republic of the Philippines
SUPREME COURT

THIRD DIVISION

G.R. No. 153535. July 28, 2005

SOLIDBANK CORPORATION, Petitioners,
vs.
MINDANAO FERROALLOY CORPORATION, Spouses JONG-WON HONG and SOO-OK KIM
HONG,* TERESITA CU, and RICARDO P. GUEVARA and Spouse,** respondents.

DECISION

PANGANIBAN, J.:

To justify an award for moral and exemplary damages under Articles 19 to 21 of the Civil Code (on
human relations), the claimants must establish the other party’s malice or bad faith by clear and
convincing evidence.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the December 21,
2001 Decision2 and the May 15, 2002 Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 67482.
The CA disposed as follows:

"IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The Decision appealed from
is AFFIRMED."4

The assailed Resolution, on the other hand, denied petitioner’s Motion for Reconsideration.

The Facts

The CA narrated the antecedents as follows:

"The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations, namely, the
Ssangyong Corporation, the Pohang Iron and Steel Company and the Dongil Industries Company, Ltd.,
decided to forge a joint venture and establish a corporation, under the name of the Mindanao
Ferroalloy Corporation (Corporation for brevity) with principal offices in Iligan City. Ricardo P. Guevara
was the President and Chairman of the Board of Directors of the Corporation. Jong-Won Hong, the
General Manager of Ssangyong Corporation, was the Vice-President of the Corporation for Finance,
Marketing and Administration. So was Teresita R. Cu. On November 26, 1990, the Board of Directors
of the Corporation approved a ‘Resolution’ authorizing its President and Chairman of the Board of
89
Directors or Teresita R. Cu, acting together with Jong-Won Hong, to secure an omnibus line in the
aggregate amount of ₱30,000,000.00 from the Solidbank x x x.

xxxxxxxxx

"In the meantime, the Corporation started its operations sometime in April, 1991. Its indebtedness
ballooned to ₱200,453,686.69 compared to its assets of only ₱65,476,000.00. On May 21, 1991, the
Corporation secured an ordinary time loan from the Solidbank in the amount of ₱3,200,000.00.
Another ordinary time loan was granted by the Bank to the Corporation on May 28, 1991, in the
amount of ₱1,800,000.00 or in the total amount of ₱5,000,000.00, due on July 15 and 26, 1991,
respectively.

"However, the Corporation and the Bank agreed to consolidate and, at the same time, restructure the
two (2) loan availments, the same payable on September 20, 1991. The Corporation executed
‘Promissory Note No. 96-91-00865-6’ in favor of the Bank evidencing its loan in the amount of
₱5,160,000.00, payable on September 20, 1991. Teresita Cu and Jong-Won Hong affixed their
signatures on the note. To secure the payment of the said loan, the Corporation, through Jong-Won
Hong and Teresita Cu, executed a ‘Deed of Assignment’ in favor of the Bank covering its rights, title
and interest to the following:

‘The entire proceeds of drafts drawn under Irrevocable Letter of Credit No. M-S-041-2002080 opened
with The Mitsubishi Bank Ltd. – Tokyo dated June 13, 1991 for the account of Ssangyong Japan
Corporation, 7F. Matsuoka-Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi, Minato-Ku, Tokyo, Japan
up to the extent of US$197,679.00’

"The Corporation likewise executed a ‘Quedan’, by way of additional security, under which the
Corporation bound and obliged to keep and hold, in trust for the Bank or its Order, ‘Ferrosilicon for
US$197,679.00’. Jong-Won Hong and Teresita Cu affixed their signatures thereon for the Corporation.
The Corporation, also, through Jong-Won Hong and Teresita Cu, executed a ‘Trust Receipt
Agreement’, by way of additional security for said loan, the Corporation undertaking to hold in trust,
for the Bank, as its property, the following:

‘1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of Ssangyong Japan
Corporation, Tokyo, Japan for US$197,679.00 Ferrosilicon to expire September 20, 1991.

‘2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following:

Ferrosilicon for US$197,679.00’

"However, shortly after the execution of the said deeds, the Corporation stopped its operations. The
Corporation failed to pay its loan availments from the Bank inclusive of accrued interest. On February
11, 1992, the Bank sent a letter to the Corporation demanding payment of its loan availments
inclusive of interests due. The Corporation failed to comply with the demand of the Bank. On
November 23, 1992, the Bank sent another letter to the [Corporation] demanding payment of its

90
account which, by November 23, 1992, had amounted to ₱7,283,913.33. The Corporation again failed
to comply with the demand of the Bank.

"On January 6, 1993, the Bank filed a complaint against the Corporation with the Regional Trial Court
of Makati City, entitled and docketed as ‘Solidbank Corporation vs. Mindanao Ferroalloy Corporation,
Sps. Jong-Won Hong and the Sps. Teresita R. Cu, Civil Case No. 93-038’ for ‘Sum of Money’ with a plea
for the issuance of a writ of preliminary attachment. x x x

xxxxxxxxx

"Under its ‘Amended Complaint’, the Plaintiff alleged that it impleaded Ricardo Guevara and his wife
as Defendants because, [among others]:

‘Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant corporation,
and also members of the company’s Board of Directors. They are impleaded as joint and solidary
debtors of [petitioner] bank having signed the Promissory Note, Quedan, and Trust Receipt
agreements with [petitioner], in this case.

x x x x x x x x x’

"[Petitioner] likewise filed a criminal complaint x x x entitled and docketed as ‘Solidbank Corporation
vs. Ricardo Guevara, Teresita R. Cu and Jong Won Hong x x x for ‘Violation of P.D. 115’. On April 14,
1993, the investigating Prosecutor issued a ‘Resolution’ finding no probable cause for violation of P.D.
115 against the Respondents as the goods covered by the quedan ‘were nonexistent’:

xxxxxxxxx

"In their Answer to the complaint [in the civil case], the Spouses Jong-Won Hong and Soo-ok Kim
Hong alleged, inter alia, that [petitioner] had no cause of action against them as:

‘x x x the clean loan of ₱5.1 M obtained was a corporate undertaking of defendant

MINFACO executed through its duly authorized representatives, Ms. Teresita R. Cu and Mr. Jong-Won
Hong, both Vice Presidents then of MINFACO. x x x.’

xxxxxxxxx

"[On their part, respondents] Teresita Cu and Ricardo Guevara alleged that [petitioner] had no cause
of action against them because: (a) Ricardo Guevara did not sign any of the documents in favor of
[petitioner]; (b) Teresita Cu signed the ‘Promissory Note’, ‘Deed of Assignment’, ‘Trust Receipt’ and
‘Quedan’ in blank and merely as representative and, hence, for and in behalf of the Defendant
Corporation and, hence, was not personally liable to [petitioner].

"In the interim, the Corporation filed, on June 20, 1994, a ‘Petition’, with the Regional Trial Court of
Iligan City, for ‘Voluntary Insolvency’ x x x.

91
xxxxxxxxx

"Appended to the Petition was a list of its creditors, including [petitioner], for the amount of
₱8,144,916.05. The Court issued an Order, on July 12, 1994, finding the Petition sufficient in form and
substance x x x.

xxxxxxxxx

"In view of said development, the Court issued an Order, in Civil Case No. 93-038, suspending the
proceedings as against the Defendant Corporation but ordering the proceedings to proceed as against
the individual defendants x x x.

xxxxxxxxx

"On December 10, 1999, the Court rendered a Decision dismissing the complaint for lack of cause of
action of [petitioner] against the Spouses Jong-Won Hong, Teresita Cu and the Spouses Ricardo
Guevara, x x x.

xxxxxxxxx

"In dismissing the complaint against the individual [respondents], the Court a quo found and declared
that [petitioner] failed to adduce a morsel of evidence to prove the personal liability of the said
[respondents] for the claims of [petitioner] and that the latter impleaded the [respondents], in its
complaint and amended complaint, solely to put more pressure on the Defendant Corporation to pay
its obligations to [petitioner].

"[Petitioner] x x x interposed an appeal, from the Decision of the Court a quo and posed, for x x x
resolution, the issue of whether or not the individual [respondents], are jointly and severally liable to
[petitioner] for the loan availments of the [respondent] Corporation, inclusive of accrued interests
and penalties.

"In the meantime, on motion of [petitioner], the Court set aside its Order, dated February 2, 1995,
suspending the proceedings as against the [respondent] Corporation. [Petitioner] filed a ‘Motion for
Summary Judgment’ against the [respondent] Corporation. On February 28, 2000, the Court rendered
a ‘Summary Judgment’ against the [respondent] Corporation, the decretal portion of which reads as
follows:

‘WHEREFORE, premises considered, this Court hereby resolves to give due course to the motion for
summary judgment filed by herein [petitioner]. Consequently, judgment is hereby rendered in favor
of [Petitioner] SOLIDBANK CORPORATION and against [Respondent] MINDANAO FERROALLOY
CORPORATION, ordering the latter to pay the former the amount of ₱7,086,686.70, representing the
outstanding balance of the subject loan as of 24 September 1994, plus stipulated interest at the rate
of 16% per annum to be computed from the aforesaid date until fully paid together with an amount
equivalent to 12% of the total amount due each year from 24 September 1994 until fully paid. Lastly,

92
said [respondent] is hereby ordered to pay [petitioner] the amount of ₱25,000.00 to [petitioner] as
reasonable attorney’s fees as well as cost of litigation." 5

In its appeal, petitioner argued that (1) it had adduced the requisite evidence to prove the solidary
liability of the individual respondents, and (2) it was not liable for their counterclaims for damages
and attorney’s fees.

Ruling of the Court of Appeals

Affirming the RTC, the appellate court ruled that the individual respondents were not solidarily liable
with the Mindanao Ferroalloy Corporation, because they had acted merely as officers of the
corporation, which was the real party in interest. Respondent Guevara was not even a signatory to
the Promissory Note, the Trust Receipt Agreement, the Deed of Assignment or the Quedan; he was
merely authorized to represent Minfaco to negotiate with and secure the loans from the bank. On the
other hand, the CA noted that Respondents Cu and Hong had not signed the above documents as
comakers, but as signatories in their representative capacities as officers of Minfaco.

Likewise, the CA held that the individual respondents were not liable to petitioner for damages,
simply because (1) they had not received the proceeds of the irrevocable Letter of Credit, which was
the subject of the Deed of Assignment; and (2) the goods subject of the Trust Receipt Agreement had
been found to be nonexistent. The appellate court took judicial notice of the practice of banks and
financing institutions to investigate, examine and assess all properties offered by borrowers as
collaterals, in order to determine the feasibility and advisability of granting loans. Before agreeing to
the consolidation of Minfaco’s loans, it presumed that petitioner had done its homework.

As to the award of damages to the individual respondents, the CA upheld the trial court’s findings that
it was clearly unfair on petitioner’s part to have impleaded the wives of Guevara and Hong, because
the women were not privy to any of the transactions between petitioner and Minfaco. Under Articles
19, 20 and 2229 of the Civil Code, such reckless and wanton act of pressuring individual respondents
to settle the corporation’s obligations is a ground to award moral and exemplary damages, as well as
attorney’s fees.

Hence this Petition.6

Issues

In its Memorandum, petitioner raises the following issues:

"A. Whether or not there is ample evidence on record to support the joint and solidary liability of
individual respondents with Mindanao Ferroalloy Corporation.

"B. In the absence of joint and solidary liability[,] will the provision of Article 1208 in relation to Article
1207 of the New Civil Code providing for joint liability be applicable to the case at bar.

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"C. May bank practices be the proper subject of judicial notice under Sec. 1 [of] Rule 129 of the Rules
of Court.

"D. Whether or not there is evidence to sustain the claim that respondents were impleaded to apply
pressure upon them to pay the obligations in lieu of MINFACO that is declared insolvent.

"E. Whether or not there are sufficient bases for the award of various kinds of and substantial
amounts in damages including payment for attorney’s fees.

"F. Whether or not respondents committed fraud and misrepresentations and acted in bad faith.

"G. Whether or not the inclusion of respondents spouses is proper under certain circumstances and
supported by prevailing jurisprudence."7

In sum, there are two main questions: (1) whether the individual respondents are liable, either jointly
or solidarily, with the Mindanao Ferroalloy Corporation; and (2) whether the award of damages to the
individual respondents is valid and legal.

The Court’s Ruling

The Petition is partly meritorious.

First Issue:

Liability of Individual Respondents

Petitioner argues that the individual respondents were jointly or solidarily liable with Minfaco, either
because their participation in the loan contract and the loan documents made them comakers; or
because they committed fraud and deception, which justifies the piercing of the corporate veil.

The first contention hinges on certain factual determinations made by the trial and the appellate
courts. These tribunals found that, although he had not signed any document in connection with the
subject transaction, Respondent Guevara was authorized to represent Minfaco in negotiating for a
₱30 million loan from petitioner. As to Cu and Hong, it was determined, among others, that their
signatures on the loan documents other than the Deed of Assignment were not prefaced with the
word "by," and that there were no other signatures to indicate who had signed for and on behalf of
Minfaco, the principal borrower. In the Promissory Note, they signed above the printed name of the
corporation -- on the space provided for "Maker/Borrower," not on that provided for "Co-maker."

Petitioner has not shown any exceptional circumstance that sanctions the disregard of these findings
of fact, which are thus deemed final and conclusive upon this Court and may not be reviewed on
appeal.8

No Personal Liability

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for Corporate Deeds

Basic is the principle that a corporation is vested by law with a personality separate and distinct from
that of each person composing 9 or representing it.10 Equally fundamental is the general rule that
corporate officers cannot be held personally liable for the consequences of their acts, for as long as
these are for and on behalf of the corporation, within the scope of their authority and in good
faith.11 The separate corporate personality is a shield against the personal liability of corporate
officers, whose acts are properly attributed to the corporation. 12

Tramat Mercantile v. Court of Appeals13 held thus:

"Personal liability of a corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when —

‘1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence
in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;

‘2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;

‘3. He agrees to hold himself personally and solidarily liable with the corporation; or

‘4. He is made, by a specific provision of law, to personally answer for his corporate action.’"

Consistent with the foregoing principles, we sustain the CA’s ruling that Respondent Guevara was not
personally liable for the contracts. First, it is beyond cavil that he was duly authorized to act on behalf
of the corporation; and that in negotiating the loans with petitioner, he did so in his official
capacity. Second, no sufficient and specific evidence was presented to show that he had acted in bad
faith or gross negligence in that negotiation. Third, he did not hold himself personally and solidarily
liable with the corporation. Neither is there any specific provision of law making him personally
answerable for the subject corporate acts.

On the other hand, Respondents Cu and Hong signed the Promissory Note without the word "by"
preceding their signatures, atop the designation "Maker/Borrower" and the printed name of the
corporation, as follows:

__(Sgd) Cu/Hong__

(Maker/Borrower)

MINDANAO FERROALLOY

While their signatures appear without qualification, the inference that they signed in their individual
capacities is negated by the following facts: 1) the name and the address of the corporation appeared
95
on the space provided for "Maker/Borrower"; 2) Respondents Cu and Hong had only one set of
signatures on the instrument, when there should have been two, if indeed they had intended to be
bound solidarily -- the first as representatives of the corporation, and the second as themselves in
their individual capacities; 3) they did not sign under the spaces provided for "Co-maker," and neither
were their addresses reflected there; and 4) at the back of the Promissory Note, they signed above
the words "Authorized Representative."

Solidary Liability

Not Lightly Inferred

Moreover, it is axiomatic that solidary liability cannot be lightly inferred. 14 Under Article 1207 of the
Civil Code, "there is a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity." Since solidary liability is not clearly expressed in the
Promissory Note and is not required by law or the nature of the obligation in this case, no conclusion
of solidary liability can be made.

Furthermore, nothing supports the alleged joint liability of the individual petitioners because, as
correctly pointed out by the two lower courts, the evidence shows that there is only one debtor: the
corporation. In a joint obligation, there must be at least two debtors, each of whom is liable only for a
proportionate part of the debt; and the creditor is entitled only to a proportionate part of the credit. 15

Moreover, it is rather late in the day to raise the alleged joint liability, as this matter has not been
pleaded before the trial and the appellate courts. Before the lower courts, petitioner anchored its
claim solely on the alleged joint and several (or solidary) liability of the individual respondents.
Petitioner must be reminded that an issue cannot be raised for the first time on appeal, but
seasonably in the proceedings before the trial court.16

So too, the Promissory Note in question is a negotiable instrument. Under Section 19 of the
Negotiable Instruments Law, agents or representatives may sign for the principal. Their authority may
be established, as in other cases of agency. Section 20 of the law provides that a person signing "for
and on behalf of a [disclosed] principal or in a representative capacity x x x is not liable on the
instrument if he was duly authorized."

The authority of Respondents Cu and Hong to sign for and on behalf of the corporation has been
amply established by the Resolution of Minfaco’s Board of Directors, stating that "Atty. Ricardo P.
Guevara (President and Chairman), or Ms. Teresita R. Cu (Vice President), acting together with Mr.
Jong Won Hong (Vice President), be as they are hereby authorized for and in behalf of the
Corporation to: 1. Negotiate with and obtain from (petitioner) the extension of an omnibus line in the
aggregate of ₱30 million x x x; and 2. Execute and deliver all documentation necessary to implement
all of the foregoing."17

Further, the agreement involved here is a "contract of adhesion," which was prepared entirely by one
party and offered to the other on a "take it or leave it" basis. Following the general rule, the contract
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must be read against petitioner, because it was the party that prepared it, 18 more so because a bank is
held to high standards of care in the conduct of its business. 19

In the totality of the circumstances, we hold that Respondents Cu and Hong clearly signed the Note
merely as representatives of Minfaco.

No Reason to Pierce

the Corporate Veil

Under certain circumstances, courts may treat a corporation as a mere aggroupment of persons, to
whom liability will directly attach. The distinct and separate corporate personality may be
disregarded, inter alia, when the corporate identity is used to defeat public convenience, justify a
wrong, protect a fraud, or defend a crime. Likewise, the corporate veil may be pierced when the
corporation acts as a mere alter ego or business conduit of a person, or when it is so organized and
controlled and its affairs so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation. 20 But to disregard the separate juridical personality of a corporation,
the wrongdoing must be clearly and convincingly established; it cannot be presumed. 21

Petitioner contends that the corporation was used to protect the fraud foisted upon it by the
individual respondents. It argues that the CA failed to consider the following badges of fraud and
evident bad faith: 1) the individual respondents misrepresented the corporation as solvent and
financially capable of paying its loan; 2) they knew that prices of ferrosilicon were declining in the
world market when they secured the loan in June 1991; 3) not a single centavo was paid for the loan;
and 4) the corporation suspended its operations shortly after the loan was granted. 22

Fraud refers to all kinds of deception -- whether through insidious machination, manipulation,
concealment or misrepresentation -- that would lead an ordinarily prudent person into error after
taking the circumstances into account. 23 In contracts, a fraud known as dolo causante or causal
fraud24 is basically a deception used by one party prior to or simultaneous with the contract, in order
to secure the consent of the other. 25 Needless to say, the deceit employed must be serious. In
contradistinction, only some particular or accident of the obligation is referred to by incidental fraud
or dolo incidente,26 or that which is not serious in character and without which the other party would
have entered into the contract anyway.27

Fraud must be established by clear and convincing evidence; mere preponderance of evidence is not
adequate.28 Bad faith, on the other hand, imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, not simply bad judgment or negligence. 29 It is synonymous with fraud, in
that it involves a design to mislead or deceive another. 30

Unfortunately, petitioner was unable to establish clearly and precisely how the alleged fraud was
committed. It failed to establish that it was deceived into granting the loans because of respondents’
misrepresentations and/or insidious actions. Quite the contrary, circumstances indicate the weakness
of its submission.
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First, petitioner does not deny that the ₱5 million loan represented the consolidation of two
loans,31 granted long before the bank required the individual respondents to execute the Promissory
Note, Trust Receipt Agreement, Quedan or Deed of Assignment. Hence, no words, acts or
machinations arising from any of those instruments could have been used by them prior to or
simultaneous with the execution of the contract, or even as some accident or particular of the
obligation.

Second, petitioner bank was in a position to verify for itself the solvency and trustworthiness of
respondent corporation. In fact, ordinary business prudence required it to do so before granting the
multimillion loans. It is of common knowledge that, as a matter of practice, banks conduct exhaustive
investigations of the financial standing of an applicant debtor, as well as appraisals of collaterals
offered as securities for loans to ensure their prompt and satisfactory payment. To uphold petitioner’s
cry of fraud when it failed to verify the existence of the goods covered by the Trust Receipt
Agreement and the Quedan is to condone its negligence.

Judicial Notice

of Bank Practices

This point brings us to the alleged error of the appellate court in taking judicial notice of the practice
of banks in conducting background checks on borrowers and sureties. While a court is not mandated
to take judicial notice of this practice under Section 1 of Rule 129 of the Rules of Court, it nevertheless
may do so under Section 2 of the same Rule. The latter Rule provides that a court, in its discretion,
may take judicial notice of "matters which are of public knowledge, or ought to be known to judges
because of their judicial functions."

Thus, the Court has taken judicial notice of the practices of banks and other financial institutions.
Precisely, it has noted that it is their uniform practice, before approving a loan, to investigate,
examine and assess would-be borrowers’ credit standing or real estate 32 offered as security for the
loan applied for.

Second Issue:

Award of Damages

The individual respondents were awarded moral and exemplary damages as well as attorney’s fees
under Articles 19 to 21 of the Civil Code, on the basic premise that the suit was clearly malicious and
intended merely to harass.

Article 19 of the Civil Code expresses the fundamental principle of law on human conduct that a
person "must, in the exercise of his rights and in the performance of his duties, act with justice, give
every one his due, and observe honesty and good faith." Under this basic postulate, the exercise of a
right, though legal by itself, must nonetheless be done in accordance with the proper norm. When the

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right is exercised arbitrarily, unjustly or excessively and results in damage to another, a legal wrong is
committed for which the wrongdoer must be held responsible. 33

To be liable under the abuse-of-rights principle, three elements must concur: a) a legal right or duty,
b) its exercise in bad faith, and c) the sole intent of prejudicing or injuring another. 34 Needless to say,
absence of good faith35 must be sufficiently established.

Article 20 makes "[e]very person who, contrary to law, willfully or negligently causes damage to
another" liable for damages. Upon the other hand, held liable for damages under Article 21 is one
who "willfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy."

For damages to be properly awarded under the above provisions, it is necessary to demonstrate by
clear and convincing evidence36 that the action instituted by petitioner was clearly so unfounded and
untenable as to amount to gross and evident bad faith. 37 To justify an award of damages for malicious
prosecution, one must prove two elements: malice or sinister design to vex or humiliate and want of
probable cause.38

Petitioner was proven wrong in impleading Spouses Guevara and Hong. Beyond that fact, however,
respondents have not established that the suit was so patently malicious as to warrant the award of
damages under the Civil Code’s Articles 19 to 21, which are grounded on malice or bad faith. 39 With
the presumption of law on the side of good faith, and in the absence of adequate proof of malice, we
find that petitioner impleaded the spouses because it honestly believed that the conjugal
partnerships had benefited from the proceeds of the loan, as stated in their Complaint and
subsequent pleadings. Its act does not amount to evident bad faith or malice; hence, an award for
damages is not proper. The adverse result of an act per se neither makes the act wrongful nor
subjects the actor to the payment of damages, because the law could not have meant to impose a
penalty on the right to litigate.40

For the same reason, attorney’s fees cannot be granted. Article 2208 of the Civil Code states that in
the absence of a stipulation, attorney’s fees cannot be recovered, except in any of the following
circumstances:

"(1) When exemplary damages are awarded;

"(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest;

"(3) In criminal cases of malicious prosecution against the plaintiff;

"(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

"(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s
plainly valid, just and demandable claim;

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"(6) In actions for legal support;

"(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

"(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

"(9) In a separate civil action to recover civil liability arising from a crime;

"(10) When at least double judicial costs are awarded;

"(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses
of litigation should be recovered."

In the instant case, none of the enumerated grounds for recovery of attorney’s fees are present.

WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed Decision is AFFIRMED, but the award
of moral and exemplary damages as well as attorney’s fees is DELETED. No costs.

58.

THIRD DIVISION

G.R. No. 136857               November 22, 2000

SPOUSES BARTIMEO and CARIDAD VELASQUEZ and SPOUSES JOHN and GRACE VELASQUEZ-
BALINGIT, petitioners-appellants,
vs.
COURT OF APPEALS and FILOMENA TEJERO, respondents-appellees.

DECISION

GONZAGA-REYES, J.:

This is a petition for review of the decision of the Court of Appeals dated July 15, 1998 in CA-G.R. No.
136857 affirming in toto the decision of the Regional Trial Court of Quezon City, Branch 94 in Civil
Case no. RTC-Q-38613, an action for annulment of document and damages.

The antecedents are as follows:

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On June 24, 1983, herein private respondent Tejero filed this action for annulment of document and
damages alleging that she has been residing in a 185 sq. meter lot located at Project 4, Quezon City
since 1953 and that she applied with the People’s Homesite and Housing Corporation (PHHC) to
purchase the same. To be able to make final payment to the PHHC and to secure registration of the
lot in her name, she obtained a loan from petitioner spouses Atty. Caridad and Bartimeo Velasquez
sometime in May 1967 in the amount of P5,000.00. From this amount, the spouses Velasquez
allegedly deducted the amount of P900.00 as advance interest for six months at the rate of 3% a
month. The loan is covered by a deed of mortgage dated May 26, 1967. 1 After full payment was made
to PHHC Tejero was issued Transfer Certificate of Title No. 120513 2 , which she delivered to the
Velasquez spouses as agreed upon. On August 18, 1967 Tejero obtained another loan from the
Velasquez spouses in the amount of P2,000.00 and from this amount P1,260 was deducted as
advance interest for six months at the rate of 3% per month, P429.76 for taxes and P250.00 for
attorney’s fees. On this date, Tejero was asked by the Velasquez spouses to sign another deed of
mortgage3 for the total amount of her indebtedness of P7,000.00, wherein the mortgagor, Tejero, was
given three months from date within which to pay the total loan.

Tejero admitted before the trial court that although she made small payments in cash and in kind to
the spouses Velasquez she failed to pay the loan in full. 4 She alleged that upon the suggestion of the
Velasquez spouses who told her that they are very influential and can easily secure a loan from a bank
using the subject lot as collateral, she signed a deed of sale over the subject lot in their favor. Tejero
claimed that she did not receive any consideration for the sale because they agreed that after the
spouses had obtained a bank loan they will reconvey the lot to her and she will then assume the
obligation with the bank, and that from the proceeds of the bank loan Tejero’s previous loan of
P7,000.00 plus interest will be deducted. 5 Thus, on January 17, 1970 three documents were executed
by the parties: 1) a deed of cancellation of the August 18, 1967 mortgage stating that Tejero has fully
paid the loan obligation of P7,000.00;6 2) a deed of absolute sale over the subject lot in favor of the
Velasquez spouses for P19,000.00;7 and 3) a document captioned "Agreement"8 wherein the
Velasquez spouses agreed to re-sell the lot to Tejero upon payment of the purchase price of
P19,000.00 within one year from date or until January 17, 1971; otherwise, Tejero shall immediately
vacate the premises.

The projected bank loan did not materialize. The Velasquez spouses registered the lot in their names
and was issued Transfer Certificate of Title No. 155273 dated July 14, 1970 9 and in 1973 sold it to their
daughter, Grace Velasquez-Balingit, who likewise registered the lot in her and her husband’s name
under Transfer Certificate of Title No. 19442. 10 Hence this action for annulment of (1) the January 17,
1970 deed of sale in favor of the Velasquez spouses, (2) the deed of sale executed by the Velasquez
spouses in favor of their daughter Grace Velasquez-Balingit and (3) the Transfer Certificate of Title No.
19442 issued in favor of the latter. Plaintiff also prayed for the award of actual and moral damages.

Defendants spouses Velasquez filed Answer with counterclaim 11 stating that Tejero sold the lot to
them as she could not pay the mortgage loan. The spouses claim that they agreed to sell the lot to
Tejero upon full payment of the purchase price within one year from January 17, 1970, otherwise
Tejero will pay rent for the use and occupation of the premises at the rate of P150.00 per month.
Defendants allege that Tejero failed to repurchase the lot within the period agreed upon, and hence
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they sold it to their daughter and her husband, co-defendants Grace Velasquez-Balingit and her
husband.

After almost six years of protracted proceedings which was successively presided over by four trial
court judges the trial court rendered judgment on April 4, 1989 in favor of the plaintiff as follows:

"Wherefore, the Court renders judgment in favor of the plaintiff and against the defendants by:

1. Declaring the Deed of Sale executed by the plaintiff in favor of the defendant-spouses
Bartemio Velasquez and Caridad Velasquez, together with that of Transfer Certificate of Title
No. 155273 of the Registered of Deeds of Quezon City, in the name of Caridad Velasquez as
null and void;

2. Declaring further Transfer Certificate of Title No. 19442 in the name of Grace Velasquez-
Balingit of the Register of Deeds of Quezon City as null and void;

3. Ordering the Register of Deeds of Quezon City to issue a new certificate of title on the
subject property, after payment of the required fees, in favor of Filomena C. Tejero, the
plaintiff herein;

4. The court further orders the defendants to pay attorney’s fees in the amount of P10,000.00,
plus cost of the suit.

SO ORDERED.

The spouses Velasquez as defendants-appellants before the Court of Appeals raised mainly
procedural issues i.e., that they were erroneously declared in default by the first trial judge who heard
the case which amounted to a denial of due process; that the trial court erred in reinstating the case
after the order of dismissal dated January 15, 1985 for Tejero’s failure to appear at the pre-trial had
attained finality; that the trial court erred in deciding the case despite Tejero’s non-compliance with
the order of the court requiring her to submit the records of the proceedings before Judge Arturo
Tayag, and finally that the trial court erred in rendering judgment without competent evidence on
record as basis thereof. The appellants prayed for the remand of the case for further proceedings.

The plaintiff-appellee Tejero refuted the appellants’ contentions and argued that the decision of the
trial court is based on competent evidence duly presented in court and that the trial court
exhaustively considered the facts of the case in reaching the assailed conclusions. Tejero added that
the notice of appeal filed by the appellant before the trial court was filed beyond the 15-day
reglementary period.

The appellate court affirmed the decision of the trial court in toto. The appellate court held that the
procedural issues raised by the appellants were mooted when they filed Answer with counterclaims
before the trial court and that the order of dismissal was subsequently reinstated by the trial court in
the higher interest of justice. The appellants’ contention that the case should have been dismissed for

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the appellee’s failure to comply with the trial court’s order dated September 27, 1988 requiring the
appellee to present the records of the proceedings or evidence presented before Judge Tayag is
without merit. The trial court found that the appellee had complied with the said order. Finally, the
appellate court held that only the testimony of appellee Tejero taken on August 11, 1987 was ordered
stricken off the record and not her entire testimony; the trial court had sufficient evidence upon
which its judgment was founded and the findings of facts of the trial court when so founded is
entitled to great respect upon review of the case on appeal.

Hence this petition for review.

The petitioners reiterate the procedural issues raised before the appellate court and pray for this
Court to review the entire records of the case. They contend in their memorandum that the order of
dismissal dated May 3, 1985 became final and so all proceedings subsequent thereto, including the
decision of the trial court dated April 4, 1989, are void. Secondly, the alleged compliance made by
herein private respondent Tejero with the September 27, 1988 order is belied by the records of the
case which states that the said compliance was made on May 4, 1989 or a month after the decision of
the trial court was rendered. Moreover, the complete records of the proceedings before Judge Arturo
Tayag could not have been presented by the respondent in view of the certification of the Branch
Clerk of the said sala that the entire records of the case were burned in the fire that razed the Quezon
City Hall on June 11, 1988.

Private respondent Tejero prays for the affirmance of the findings of the trial court that the deed of
sale in favor of the Velasquez spouses is void and accordingly the certificate of title of petitioner
Velasquez-Balingit derived from her mother’s title is likewise void. Private respondent reiterates the
finding of the appellate court that only the testimony of respondent Tejero on August 11, 1987 was
expunged from the record and not her entire testimony. It is argued that the trial court’s decision is
based on competent and substantial evidence on record.

The appeal has no merit.

It is not disputed by the parties that on January 17, 1970 they executed three documents bearing the
same date. The parties do not contest the existence of the said documents but proffered
contradictory explanations for their execution. The private respondent argued that the deed of sale is
a fictitious contract and that she received no valid consideration therefor and accordingly, the
petitioners’ title derived from such void contract is likewise void; on the other, the petitioners claim
that the contract between them is that of sale and lease.

The real nature of a contract may be determined from the express terms of the agreement and from
the contemporaneous and subsequent acts of the parties thereto. 12 When the parties do not intend to
be bound at all by the purported contract, it is called an absolutely simulated contract which under
the law is void and the parties may recover what they gave under the simulated contract. If, on the
other hand, the parties state a false cause in the contract to conceal their real agreement, the
contract is relatively simulated and the parties’ real agreement may be held binding between them. 13

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We uphold the findings of the trial court which was affirmed by the Court of Appeals that the
evidence is in accord with the contentions of the plaintiff-private respondent. The trial court held:

"First, the Deed of Sale was executed without consideration. No amount representing the purchase
price was ever received by the plaintiff. A contract without a cause, produces no effect whatsoever
and is contrary to law, morals, good customs, public order and public policy and has no binding effect.

Second, it is evident that the deed of sale was a sham agreement.1ªvvph!1 It was a fictitious sale since
when it was executed, plaintiff had no intention to divest herself of the possession of the title and
control of the said property. The intention was merely to facilitate the loan by utilizing the property as
collateral to the said loan, where upon perfection of the loan, title shall be reconveyed to the plaintiff
after deducting the balance of the plaintiff" previous loan plus expenses. However, although no loan
was ever obtained, title to the property was not reconveyed to the plaintiff. Instead, it was further
transferred to a third party, Grace Velasquez-Balingit, who is the defendants’ daughter. This is clearly
an act done to bring title to the property further away from the plaintiff. This subsequent transfer of
title indicates fraudulent machination and bad faith to defraud the plaintiff, hence the transfer of said
title to Grace Velasquez-Balingit conveys no title or right whatsoever. Moreover, defendant-spouses
Bartemio Velasquez and Caridad Velasquez not having acquired a valid title to the property, their
transferee spouses John and Grace Velasquez-Balingit , acquired no better title to it." 14

We are convinced that the execution of the three documents bearing the same date validates Tejero’s
claim that she did not sell her land to the Velasquez spouses but that to be able to pay her loan from
them she agreed to transfer title over the lot on the condition that the spouses will secure a bank loan
in the amount of thirty-five thousand pesos (P35,000.00), using the subject lot as a collateral, and for
the latter to subsequently reconvey the lot to Tejero who will then assume the loan obligation with
the bank. The arrangement was intended to benefit both parties by enabling Tejero to pay the
spouses her P7,000.00 loan plus interest from the proceeds of the bank loan and for her to gain
additional funds from the balance thereof, payable to the bank within a longer term. 15

It would appear to us that the January 17, 1970 deed of cancellation of the August 18, 1967 mortgage
is a superfluity which the parties would not have executed if their real intention was simply to enter
into a contract of sale. The petitioners, spouses Velasquez, who are both lawyers, 16 must have known
that as the mortgagee under the 1967 deed it was unnecessary for them to execute a cancellation of
mortgage. They could have simply foreclosed the mortgage when Tejero failed to pay the loan within
the three month period agreed upon, but they did not. The petitioners allege that under the deed of
absolute sale they purchased the subject lot and paid Tejero the sum of P19,000.00 for it. We do not
find the petitioners’ assertion credible considering that the deed of sale was executed more than two
years after the expiration of the term of the loan, secured by a mortgage, which at that time
remained outstanding. On the assumption that the lot was sold to them, still there was no need for
them to execute a cancellation of mortgage on the same day the deed of sale in their favor was
executed as they themselves are the mortgagees. The execution of the third document, the
"Agreement", separately from the deed of absolute sale appears to have been done also pursuant to
their private arrangement. Only the deed of absolute sale was to be presented to the bank to make it
appear that the petitioners’ title over the lot is clean and absolute while the "Agreement" wherein the
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Velasquez spouses agreed to re-sell the lot to respondent Tejero upon payment of the purchase price
of P19,000.00 on or before January 17, 1971 was intended for the Velasquez spouses to reconvey the
lot to Tejero and to enable the latter to subsequently assume the loan obligation with the bank There
was no need for the parties to execute the two documents separately on the same day just to
segregate Tejero’s right to repurchase the lot, which could have been included in the deed of sale.

The execution of the three documents on the same day sustains Tejero’s allegation that the contract
of sale was simulated and that she received no consideration for it. The said documents were
executed by the parties for the sole purpose of obtaining a bank loan and to present the subject lot as
a collateral, free from any prior lien.

Furthermore, the inaction of the petitioners subsequent to the expiration of the purported period to
repurchase belies the petitioners claim that the subject lot was sold to them. The pertinent portion of
the "Agreement" states "That the party of the Second Part (Tejero) shall automatically vacate the
premises subject matter of this agreement, upon failure to make payment on or before January 17,
1971." Contrary to the terms thereof, respondent Tejero remained in possession of the house and lot
long after the lapse of the period to repurchase until in 1980 when petitioner Grace Velasquez-
Balingit, represented by her mother and co-petitioner, Atty. Caridad Velasquez, filed an action for
unlawful detainer to gain possession of the subject realty. In the action for unlawful detainer, herein
petitioner Velasquez-Balingit, alleged that they entered into an oral contract of lease on a month-to-
month basis with Tejero who occupied the premises without paying rent from April 1971 to July
1980.17 The petitioners’ inaction for nine years either to gain possession of the premises or to demand
payment of rentals or both further confirms Tejero’s assertion that the parties did not enter into a
contract of sale and that the deed of sale dated January 17, 1970 is a simulated contract which under
Art 1346 of the Civil Code is void.

From the foregoing observations, it is clear that the parties have had no intention to be bound by the
contract of sale and its accompanying documents and that the said documents were executed
pursuant to a scheme conceived by the spouses Velasques who now wish to renege therefrom.
Although the planned bank loan did not materialize, the parties were still bound as mortgagor and
mortgagee under the August 18, 1967 deed of mortgage. But instead of foreclosing the mortgage, the
spouses Velasquez registered the land in their names and held on to the title derived from the void
deed of sale. Such void title under the simulated deed of sale cannot ripen into a valid title by reason
of the unpaid loan under the 1967 deed of mortgage as the two contracts are independent of each
other. The deed of sale was intended by the parties to enable respondent Tejero to pay the 1967 loan
and not to supersede the latter. Without a valid foreclosure of the 1967 mortgage the spouses
Velasquez cannot claim any color of title over the property. 18

Grace Velasquez Balingit and her husband cannot feign ignorance of the irregularities surrounding her
parents’ title over the property. Petitioner Velasquez-Balingit supposedly acquired the property in
1973 and yet it took her until 1980 to file action for ejectment to gain possession of the land. As it
was, the case was filed not by petitioner Balingit but by petitioner Caridad Velasquez, in behalf of her
daughter. It would appear that the Velasquez spouses sold the lot to their daughter to place it beyond
the reach of respondent Tejero who in the meantime, maintained possession of the subject property.
105
There is nothing in the record that would disclose who has actual possession of the property now.
Suffice it to say that on the basis of the evidence before us, petitioners Velasquez-Balingit cannot
invoke the doctrine favoring an innocent purchase for value.

Accordingly, we sustain the finding of the trial court that the three documents all executed on January
17, 1970 produced no legal effect whatsoever and the purported successive titles derived by the
Velasquez spouses then by the spouses Velasquez-Balingit over the subject lots are likewise void.

The procedural issues raised by the petitioners were correctly dismissed by the appellate
court.1âwphi1 The argued failure of the respondent to present in court the records of the
proceedings before Judge Arturo Tayag has no bearing in this case. From our own extensive
examination of the records of this case, Judge Tayag is not one of the four judges who heard this
action for declaration of nullity of title but was the one who heard the ejectment case between the
parties herein.19 Whether or not the records of the proceedings before Judge Tayag was timely
presented in court is of no consequence to the resolution of the main issues of the case.

WHEREFORE, the petition is denied for lack of merit.

Melo, (Chairman), Vitug, and Panganiban, JJ., concur.

59.

SECOND DIVISION

G.R. No. 132887. August 11, 2005

THE MANILA BANKING CORPORATION, Petitioners,

vs.
EDMUNDO S. SILVERIO and THE COURT OF APPEALS, Respondent.

DECISION

CHICO-NAZARIO, J.:

Before the Court is a petition for review on certiorari  of the Decision1 and Resolution2 of the Court of
Appeals reversing the dismissal by the Regional Trial Court (RTC) of Makati City of the petition of
private respondent for cancellation of notice of levy on attachment and writ of attachment on two (2)
parcels of land located in Parañaque City.

The facts that gave rise to the present controversy are as follows:

106
Purificacion Ver was the registered owner of two parcels of land located at La Huerta, Parañaque City,
covered by Transfer Certificates of Title (TCTs) No. 31444 (452448) and No. 45926 (452452) of the
Registry of Deeds of Parañaque City.3

On 16 April 1979, Purificacion Ver sold the properties to Ricardo C. Silverio, Sr. (Ricardo, Sr.) for
₱1,036,475.00.4 The absolute deed of sale evidencing the transaction was not registered; hence, title
remained with the seller, Purificacion Ver.

On 22 February 1990, herein petitioner, The Manila Banking Corporation (TMBC), filed a complaint
with the RTC of Makati City for the collection of a sum of money with application for the issuance of a
writ of preliminary attachment against Ricardo, Sr. and the Delta Motors Corporation docketed as
Civil Case No. 90-513.5 On 02 July 1990, by virtue of an Order of Branch 62 of the RTC of Makati City,
notice of levy on attachment of real property and writ of attachment were inscribed on TCTs No.
31444 (452448) and No. 45926 (452452).6 On 29 March 1993, the trial court rendered its Decision in
favor of TMBC and against Ricardo, Sr. and the Delta Motors Corporation. 7 The Decision was brought
up to the Court of Appeals for review.8

In the meantime, on 22 July 1993, herein private respondent, Edmundo S. Silverio (Edmundo), the
nephew9 of judgment debtor Ricardo, Sr., requested TMBC to have the annotations on the subject
properties cancelled as the properties were no longer owned by Ricardo, Sr. 10 This letter was referred
to the Bangko Sentral Ng Pilipinas, TMBC’s statutory receiver. 11 No steps were taken to have the
annotations cancelled.12 Thus, on 17 December 1993, Edmundo filed in the RTC of Makati City a case
for "Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer Certificates of
Title Nos. 452448 and 452452 of the Office of the Registrar of Land Titles and Deeds of Parañaque,
Metro Manila." In his petition, Edmundo alleged that as early as 11 September 1989, the properties,
subject matter of the case, were already sold to him by Ricardo, Sr. As such, these properties could
not be levied upon on 02 July 1990 to answer for the debt of Ricardo, Sr. who was no longer the
owner thereof. In its Answer with Compulsory Counterclaim, TMBC alleged, among other things, that
the sale in favor of Edmundo was void, therefore, the properties levied upon were still owned by
Ricardo, Sr., the debtor in Civil Case No. 90-513.

On 02 May 1995, after trial on the merits, the lower court rendered its Decision dismissing Edmundo’s
petition. TMBC’s counterclaim was likewise dismissed for lack of sufficient merit. The trial court held:

After a careful study of the facts proven in the instant case, the Court is compelled to rule that the
petitioner is not entitled to a cancellation of the annotations/inscriptions of the notice of levy on
attachment and writ of attachment appearing on Transfer Certificates of Title Nos. 45228 31444 and
(452452) 45926 of the Registry of Deeds of Parañaque, Metro Manila. The Court is inclined to agree
with the contention of oppositor that the supposed deed of sale in favor of herein petitioner is
fictitious and simulated and thus void ab initio. The all-important factor that what appears in the
notarial register of the notary public, albeit in loose form, is not a deed of sale but a mere affidavit of
a different person – Maria J. Segismundo --, as shown in Exhibit 10-A, is sufficient to prove that no
effective, valid and legal sale of the properties in question was executed between the Silverio uncle

107
and nephew. There being no valid sale to him, petitioner has no right at all to ask for the cancellation
of the aforementioned annotations.

WHEREFORE, the instant petition is hereby dismissed, with costs against petitioner. Oppositor’s
counterclaim is ordered dismissed for lack of sufficient merit. 13

The Court of Appeals, upon reviewing the case at the instance of Edmundo, reversed and set aside the
trial court’s ruling. The dispositive portion of its Decision reads:

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET-ASIDE. A new
one is rendered ORDERING the Register of Deeds of Parañaque City to cancel the Notice of Levy on
Attachment and the Writ of Attachment made on TCT Nos. 452448 and 452452.

Costs against oppositor-appellee.14

The motion for reconsideration filed by TMBC was denied for lack of merit in a Resolution dated 25
February 1998.15

Hence, the present petition, TMBC imputing upon the Court of Appeals grave error in:

I.

. . . HOLDING THAT PETITIONER TMBC CANNOT QUESTION THE VALIDITY OF THE SALE OF THE
PROPERTIES COVERED BY TCT NO. 31444 (452448) AND 45926 (452452); UNDER ARTICLE 1421 OF
THE CIVIL CODE, THE DEFENSE OF NULLITY OF A CONTRACT IS AVAILABLE TO THIRD PERSONS WHOSE
INTERESTS ARE DIRECTLY AFFECTED.

II.

… ORDERING THE CANCELLATION OF THE NOTICE OF LEVY ON ATTACHMENT AND THE WRIT OF
ATTACHMENT MADE ON TCT NO. 452448 AND 452452 SINCE AS AGAINST TWO (2) TRANSACTIONS
CONCERNING THE SAME LAND, THE REGISTERED TRANSACTION PREVAILS OVER THE ALLEGED
EARLIER UNREGISTERED RIGHT.

III.

… FINDING THAT PETITIONER TMBC IS GUILTY OF BAD FAITH IN FAILING TO MAKE INQUIRIES ON THE
RIGHTS OF RICARDO SILVERIO, SR. OVER THE SUBJECT PROPERTIES.

Basic is the rule that only properties belonging to the debtor can be attached, and an attachment and
sale of properties belonging to a third party are void. 16 At the pith of the controversy, therefore, is the
issue of ownership of the subject properties at the time of the levy thereof as the right of petitioner
TMBC, as creditor, depends on whether such properties were still owned by its debtor, Ricardo, Sr.,
and not by Edmundo, who is concededly not a debtor of TMBC. If the properties were validly
transferred to Edmundo before the levy thereof then cancellation of the annotation is in order. If,
108
however, the sale was absolutely simulated and was entered into between uncle and nephew for the
lone reason of removing the properties from the reach of TMBC, then the annotation should stay.

The issue of whether the contract is simulated or real is factual in nature, and the Court eschews
factual examination in a petition for review under Rule 45 of the Rules of Court. 17 This rule, however,
is not without exceptions, one of which is when there exists a conflict between the factual findings of
the trial court and of the appellate court,18 as in the case at bar.

The trial court, in ruling that TMBC was well within its rights to cause the levy of the properties
through a writ of preliminary attachment, held that the sale between Ricardo, Sr. and his nephew,
Edmundo, ostensibly effected before the levy of the subject properties, was void for being absolutely
simulated. The fictitious nature of the sale between the uncle and nephew, according to the trial
court, is made evident by the "all-important factor that what appears in the notarial register of the
notary public, albeit in loose form, is not a deed of sale but a mere affidavit of a different person –
Maria J. Segismundo -- as shown in Exhibit 10-A." The trial court thus concluded that as the sale was
void, the properties were still owned by Ricardo, Sr. at the time the levy thereon was effected.

In reversing the trial court, the Court of Appeals reasoned, among other things, that the sale between
Ricardo, Sr. and Edmundo was not void and that assuming it to be void, only the parties to the sale
and/or their assigns can impugn or assail its validity. Moreover, assailing the validity of a sale for being
in fraud of creditors is a remedy of last resort, i.e., accion pauliana  can be availed of only after the
creditor has had exhausted all the properties of the debtor not exempt from execution. 19 In herein
case, it does not appear that TMBC sought other properties of Ricardo, Sr. other than the subject
properties alleged to have been transferred in fraud of creditors. Thus, as the sale of the subject
properties was not void, it rightfully transferred ownership to Edmundo who is not a debtor of TMBC.
Consequently, TMBC could not legally attach the same under Section 5, Rule 57 of the Rules of Civil
Procedure.

The validity of the contract of sale being the focal point in the two court’s decision, we begin our
analysis into the matter with two veritable presumptions: first, that there was sufficient consideration
of the contract20 and, second, that it was the result of a fair and regular private transaction. 21 As we
held in Suntay v. Court of Appeals,22 if shown to hold, these presumptions infer prima facie the
transaction’s validity, except that it must yield to the evidence adduced.

Between the disparate positions of the trial court and the Court of Appeals, we find those of the trial
court to be more in accord with the evidence on hand and the laws applicable thereto.

It will be noted that the Court of Appeals never justified its ruling that the lower court erred in finding
the subject sale was void. On the other hand, the evidence is overwhelming that the sale dated 11
September 1989 between Ricardo Sr. and Edmundo was absolutely simulated and that it was non-
existent prior to its initial appearance on 22 July 1993 when the latter wrote TMBC to cause the
cancellation of its lien.

109
An absolutely simulated contract, under Article 1346 of the Civil Code, is void. 23 It takes place when
the parties do not intend to be bound at all. 24 The characteristic of simulation is the fact that the
apparent contract is not really desired or intended to produce legal effects or in any way alter the
juridical situation of the parties.25 Thus, where a person, in order to place his property beyond the
reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself
of his title and control of the property; hence, the deed of transfer is but a sham. 26 Lacking, therefore,
in a fictitious and simulated contract is consent which is essential to a valid and enforceable
contract.27

In herein case, badges of fraud and simulation permeate the whole transaction, thus, we cannot but
refuse to give the sale validity and legitimacy. Consider the following circumstances:

1) There is no proof that the said sale took place prior to the date of the attachment. The notarized
deed of sale, which would have served as the best evidence of the transaction, did not materialize
until 22 July 1993, or three (3) years after TMBC caused the annotation of its lien on the titles subject
matter of the alleged sale. Mr. Jerry Tanchuan, Archivist 1 of the Records Management of the
Archives Office (RMAO), testified that the procedure being followed with respect to notarized
documents is that the Records Section of the RTC will transmit to the RMAO copies in its possession of
the original documents notarized by a notary public together with the Notarial Registry Book. 28 In
herein case, the RTC did not transmit any book of Atty. Anacleto T. Lacanilao, Jr., the notary public
who allegedly notarized the deed of sale between Ricardo, Sr. and Edmundo for the year
1989.29 Instead, what the RMAO was in possession of was only a loose leaf entry form for "Document
No. 444, Page 90, Book No. 17, Series of 1989" which is an affidavit of one Maria J. Segismundo dated
11 September 1989.30 The RMAO did not have available in its file the particular deed of sale
acknowledged by Atty. Lacanilao as Document No. 444, Page 90, Book No. 17, Series of 1989. 31 In Tala
Realty Services Corporation v. Banco Filipino Savings and Mortgage Bank,32 as reiterated in two
other Tala  cases,33 the Court rejected a notarized deed that was not reported to the Clerk of Court of
the RTC by the notary public who notarized it. The Court held that this fact militates against the use of
the document as basis to uphold the petitioner’s claim. The same is true in this case. The fact that the
assailed deed of sale is not one of those submitted by Atty. Lacanilao to the Clerk of Court of the RTC
of Makati City34 renders it virtually worthless in the absence of corroboration as to its due execution
other than petitioner (now private respondent) Edmundo’s self-serving statements. This being the
case, Edmundo could simply have presented the witnesses to the transaction (his wife and his
lawyer), Atty. Lacanilao or the seller himself, Ricardo Sr., to testify as to the execution of the contract
of sale on 11 September 1989. This he did not do, thus lending more credence to the theory of TMBC
that the sale was entered into only as an afterthought, hatched to prevent the transfer of the
properties to TMBC after the latter had already annotated its lien thereon.

2) Edmundo, to say the least, was very evasive when questioned regarding details of the alleged sale.
The deed of sale mentioned Three Million One Hundred Nine Thousand and Four Hundred Twenty-
Five pesos (₱3,109,425.00) as the contract price paid by hand during the execution of the contract,
yet, when asked on cross-examination, Edmundo could not remember if he paid directly to Ricardo,
Sr.35 Worse, he could not remember where Ricardo, Sr. was at the time of the sale. 36 Thus:

110
Q: Now, Mr. Silverio, there is on page 2 marked as Exhibit "D-1" a signature over the typewritten
name Edmundo S. Silverio, will you please tell us whose signature is that?

A. My signature.

Q. And again, there is a signature over the typewritten name Ricardo Silverio, vendor, will you please
tell us whose signature is that?

A: That is the signature of the seller.

Q: And why do you say or how did you know that this is the signature of Ricardo Silverio?

A: Because the Deed of Absolute Sale was executed and signed infront of me. 37

...

Q: And Mr. Witness, at the time of the Deed of Sale on September 11, 1989, was Ricardo Silverio in
the country at that time?

A: I cannot give the exact presence of him. I cannot remember now.

Q: But at the time of the Deed of Sale on September 11, 1989, you know if he was in the country or
not?

A: I cannot remember.

Q: With respect to the consideration for the purchase of subject parcels of land, what was the manner
of payment for said consideration?

A: It is already mentioned in the Deed of Absolute Sale.

Q: In the deed of Absolute Sale there is mentioned made by hand, can you explain that?

A: The Deed of Absolute Sale clearly specified already the payment on which the payment was made.

Q: The Deed of Absolute Sale mentioned by hand, what does that mean – that you personally handed
the payment to Mr. Silverio?

A: Payment was made to him.

Q: By hand you mean he was present?

A: When you said date, there was an exemption of payments made.

Q: But you gave the payment personally to Mr. Silverio?

111
A: I have to recall.

Q: So you cannot recall?

A: I cannot recall.38

If it were true that money indeed changed hands on 11 September 1989 as evidenced by the assailed
deed of sale, then, at the very least, Edmundo, as buyer, would definitely not have forgotten
personally handing ₱3,109,425.00 to the seller, Ricardo, Sr. It goes against ordinary human experience
for a person to simply forget the details of the day when he became poorer by ₱3,109,425.00 cash.
The only logical conclusion is that there was actually no consideration for the said sale. Verily, a deed
of sale in which the stated consideration has not in fact been paid is a false contract that is  void ab
initio.39 Likewise, "a contract of purchase and sale is null and void and produces no effect whatsoever
where it appears that [the] same is without cause or consideration which should have been the
motive thereof, or the purchase price appears thereon as paid but which in fact has never been paid
by the purchaser to the vendor." 40

3) As correctly pointed out by TMBC, an indication of simulation of contract is the complete absence
of an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the
subject properties. In herein case, Edmundo did not attempt to have the 1989 deed of sale registered
until 1993.41 He was not in possession of the properties. 42 He did not have a contract of lease with the
actual occupant of the properties.43 As late as 1991, it was Ricardo, Sr. who was claiming to be the
rightful owner of the properties in connection with an ejectment case he filed against third
persons.44 When asked to explain why it was Ricardo, Sr. who was asserting ownership over the
properties, Edmundo lamely replied "because I am asking him so."45

Taken together with the other circumstances surrounding the sale, Edmundo’s failure to exercise acts
of dominium over the subject properties buttresses TMBC’s position that the former did not at all
intend to be bound by the contract of sale. In Suntay,46 as reiterated in such cases as Santiago v. Court
of Appeals,47 Cruz v. Bancom Finance Corporation48 and Ramos v. Heirs of Ramos, Sr.,49 we held that
"the most proturberant index of simulation is the complete absence of an attempt in any manner on
the part of the [ostensible buyer] to assert his rights of ownership over the [properties] in question."
The supposed buyer’s failure to take exclusive possession of the property allegedly sold or, in the
alternative, to collect rentals, is contrary to the principle of ownership. 50 Such failure is a clear badge
of simulation that renders the whole transaction void pursuant to Article 1409 of the Civil Code. 51

When a contract is void, the right to set-up its nullity or non-existence is available to third persons
whose interests are directly affected thereby. 52 The material interest of TMBC need not be belabored.
Suffice it to say that as judgment creditor of Ricardo, Sr., it has the right to protect its lien acquired
through a writ of preliminary attachment as security for the satisfaction of any judgment in its favor.

The Court of Appeals, however, erroneously ruled that TMBC should first go after the properties of its
debtor, Ricardo, Sr., and, failing therein would be the only time it will acquire a material interest over
the subject properties, thus:
112
Article 117 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the
acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of
in the absence of any other legal remedy to obtain reparation for the injury. Otherwise stated, the
right of accion pauliana can be availed of only AFTER the creditor have exhausted all the properties of
the debtor not exempt from executions.

This fact is not present in this case. Not a single proof was offered to show that oppositor-appellee
had exhausted all the properties of Ricardo Silverio before it tried to question the validity of the
contract of sale. In fact, oppositor-appellee never alleged in its pleadings that it had exhausted all the
properties of Ricardo Silverio before it impugned the validity of the sale made by Ricardo Silverio to
petitioner-appellant.

This being the case, oppositor-appellee cannot and is not in the proper position to question the
validity of the sale of the subject properties by Ricardo Silverio to petitioner-appellant. Oppositor-
appellee has not shown that it has the material interest to question the sale. 53

Contrary to the position taken by the Court of Appeals, TMBC need not look farther than the subject
properties to protect its rights. The remedy of accion pauliana is available when the subject matter is
a conveyance, otherwise valid¸ undertaken in fraud of creditors. 54 Such a contract is governed by the
rules on rescission which prescribe, under Art. 1383 of the Civil Code, that such action can be
instituted only when the party suffering damage has no other legal means to obtain reparation for the
same. The contract of sale before us, albeit undertaken as well in fraud of creditors, is not merely
rescissible but is void ab initio  for lack of consent of the parties to be bound thereby. A void or
inexistent contract is one which has no force and effect from the very beginning, as if it had never
been entered into; it produces no effect whatsoever either against or in favor of anyone. 55 Rescissible
contracts, on the other hand, are not void ab initio,  and the principle, "quod nullum est nullum
producit effectum," in void and inexistent contracts is inapplicable. 56 Until set aside in an appropriate
action, rescissible contracts are respected as being legally valid, binding and in force. 57 Tolentino, a
noted civilist, distinguished between these two types of contracts entered into in fraud of creditors,
thus:

Absolute simulation implies that there is no existing contract, no real act executed; while fraudulent
alienation means that there is a true and existing transfer or contract. The former can be attacked by
any creditor, including one subsequent to the contract; while the latter can be assailed only by the
creditors before the alienation. In absolute simulation, the insolvency of the debtor making the
simulated transfer is not a prerequisite to the nullity of the contract; while in fraudulent alienation,
the action to rescind, or accion pauliana, requires that the creditor cannot recover in any other
manner what is due him. Finally, the action to declare a contract absolutely simulated does not
prescribe (articles 1409 and 1410); while the accion pauliana to rescind a fraudulent alienation
prescribes in four years (article 1389).58

IN SUM, considering that an absolutely simulated contract is not a recognized mode of acquiring
ownership,59 the levy of the subject properties on 02 July 1990 pursuant to a writ of preliminary
attachment duly issued by the RTC in favor of TMBC and against its debtor, Ricardo, Sr., was validly
113
made as the properties were invariably his. Consequently, Edmundo, who has no legal interest in
these properties, cannot cause the cancellation of the annotation of such lien for the reasons stated
in his petition.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 17 October 1997 and
its Resolution dated 25 February 1998 are hereby REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Makati City, Branch 145, dated 02 May 1995, is REINSTATED, dismissing the
petition for Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer
Certificates of Title No. 31444 (452448) and No. 45926 (452452) of the Registry of Deeds of
Parañaque City. With costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

60.

FIRST DIVISION

G.R. No. 125497               November 20, 2000

UNICANE FOOD PRODUCTS MANUFACTURING, INC. petitioner,

vs.
HON. COURT OF APPEALS, SPOUSES PABLO & FELISA MANESE, SPOUSES NICANOR & LUTGARDA
VELASQUEZ and CICERON MANESE, respondents.

DECISION

PARDO, J.:

The case before us is a petition for review on certiorari of the decision of the Court of Appeals
reversing the appealed decision and dismissing petitioner’s complaint. 1

The facts taken from the decision of the Court of Appeals are as follows:

On June 6, 1975, Felisa Feliciano Manese and Roberto Regala Keh Yung entered into a contract of
lease2 with option to buy a parcel of land covered by Transfer Certificate of Title No. 121058-R 3 in the
name of Felisa Feliciano Manese as her paraphernal property, consisting of thirty-eight thousand
twenty seven (38,027) square meters, more or less, located at Bo. San Isidro, San Fernando,
114
Pampanga. The lease was for a period of fifteen (15) years, from June 6, 1975 to June 7, 1990, at a
yearly rental of ten thousand (P10,000.00) pesos.

Three days after the execution of the lease, the parties agreed to an amendment 4 in the contract of
lease. The parties mutually agreed that the real and actual LESSEE of the premises is the UNICANE
FOOD PRODUCTS MANUFACTURING, INC., (hereinafter UNICANE for brevity) but all the other terms
of the original contract of lease remain the same. Both contracts of lease were registered in the
memorandum of encumbrance on TCT No. 121058-R, as entries 1340 and 2191, respectively.

Subsequently, UNICANE faithfully complied with the terms and conditions of the lease agreement,
paying in advance its yearly rentals. In the course of the lease agreement, UNICANE and Felisa
Manese verbally agreed to extend the term of the lease up to December 7, 1997, and UNICANE paid
advance rental in the amount of twenty thousand pesos (20,000.00) on July 3, 1987, for the extended
term. Felisa promised that she would execute an extended lease contract.

However, on September 6, 1978, upon the persuasion of her two daughters Lutgarda and Ciceron
Manese, Felisa sold her three (3) parcels of land for fifteen thousand pesos (P15,000.00), without the
consent of her husband Pablo, to her daughters who were in financial difficulties. The sale was with
the undertaking that the parcels of land would be returned to Felisa after the two daughters had
overcome their financial problems.

Due to the sale, a new certificate of title 5 was issued in the name of Lutgarda and Ciceron Manese,
and, on January 25, 1989, Lutgarda and Ciceron mortgaged the property with the Planters
Development Bank in consideration of a loan. Not a single centavo of the mortgage proceeds ever
went to Felisa.

Petitioner after realizing that Felisa was not keen on issuing an amended lease contract decided to
have the receipts for its advance payments of the rentals registered as an encumbrance on the
property.

It was at this time that petitioner learned about the Deed of Absolute Sale of the property covered by
the lease to Lutgarda Manese-Velasquez, married to Nicanor Velasquez and Ciceron Manese for the
sum of fifteen thousand (P15,000.00) pesos, and that Lutgarda and Ciceron Manese had obtained a
Transfer Certificate of Title in their names on August 1988, under TCT No. 265688-R, over ten years
after the deed of absolute sale was executed.

UNICANE then demanded that the deed of absolute sale between Felisa Manese and Lutgarda and
Cicero Manese be disregarded as he was deprived of his preferential option to buy as stated in
paragraph 7 of the contract of lease. However, Lutgarda and Ciceron Manese even warned petitioner
UNICANE that they would no longer extend the lease agreement beyond 1990, which is contrary to
UNICANE’s agreement with Felisa that the lease would be extended up to December 7, 1997.
Petitioner also wanted to exercise its option to buy the premises at the same price it was sold to
Lutgarda and Ciceron Manese.

115
However, respondents Manese refused to sell. Hence, on July 10, 1989, UNICANE filed with the
Regional Trial Court, San Fernando, Pampanga, Branch 46, a complaint 6 for annulment of the deed of
absolute sale against respondents.7

On September 8, 1992 the trial court rendered a decision in favor of petitioner, the dispositive portion
of which states:

"WHEREFORE, this Court hereby holds and so orders that:

"1. The period of the contract of lease between defendant Felisa Feliciano Manese and the
plaintiff was effectively extended up to December 7, 1997;

"2. The Deed of Absolute Sale (Exhibit "G") between defendant Felisa Feliciano Manese on the
one hand, and defendants Lutgarda Manese Velasquez (married to Nicanor Velasquez) and
Ciceron Manese, executed on September 6,1978 is hereby rescinded or nullified;

"3. Defendant Felisa Feliciano Manese execute a deed of absolute sale over the leased
premises in favor of the plaintiff at a purchase price of Fifteen Thousand Pesos (P15,000.00)
and under the same terms and conditions as the Deed of Absolute Sale she executed in favor
of defendants Lutgarda Manese Velasquez Manese and Ciceron Manese;

"4. Defendants pay, jointly and severally, plaintiff the sum of P50,000.00, for and as attorney’s
fees; and

"5. Defendants pay, jointly and severally, plaintiff the costs of suit and litigation.

"SO ORDERED."8

On September 15, 1992, respondents filed with the trial court their notice of appeal. 9 After due
proceedings, on February 29, 1996, the Court of Appeals promulgated its decision, the relevant
portions of which read:

"We note that the supposed sale was between a parent, Felisa Feliciano Manese and the children
Lutgarda Manese Velasquez and Ciceron Manese. It is common knowledge and practice that between
relatives especially between parent and children, ways are performed in order to transfer property
without incurring monetary burden on the part of both the transferor and transferee. x x x

"Thus , in 1978, when the deed of absolute sale was executed by Felisa, the latter had no intention to
transfer ownership thereof. More so, there was likewise no intention to buy the property on the part
of the supposed vendee as they had not paid the price of the property. x x x The fact that the actual
negotiation with the bank was held ten years later is of no moment as the intention of the supposed
vendor and vendees in 1978 was not to transfer ownership which is an incident of the sale. Hence the
preferential option of Unicane while the contract of lease was subsisting was not violated. We hold
therefore that since the intent to be bound is not present, the supposed sale is an absolutely
simulated one, which the law regards as null and void. x x x
116
"It is, thus clear from the foregoing that no valid extension of the lease up to 1997 was entered
between appellee Unicane and appellant Felisa Feliciano Manese; that the sale between Felisa
Feliciano Manese and Lutgarda Manese Velasquez and Ciceron Manese is a simulated one; and that
Unicane has no legal right to compel Felisa Feliciano Manese to execute a deed of absolute sale over
the subject property as its preferential option was lost with the expiration of the lease contract.

"Consequently, plaintiff-appellee is not entitled to attorneys fees.

"WHEREFORE, premises considered, the complaint is DISMISSED and the appealed decision is hereby
REVERSED."10

On March 26, 1996, petitioner Unicane filed a motion for reconsideration of the decision; 11 however,
on June 28, 1996, the Court of Appeals denied the motion.

Hence, this petition.12

Petitioner raised the following issues:

1. Whether the advance rentals covered by receipts were to be construed as evidence of and
extension of the contract of lease.

2. Whether the deed of absolute sale by Felisa Feliciano Manese in favor of Lutgarda Manese
Velasquez and Ciceron Manese was simulated and not enforceable.

3. Whether petitioner has the right to invoke its option to buy the leased premises since the
lease had expired.13

The petition has no merit.

As to the first issue, we rule that the advance rentals covered by receipts can not be considered as
evidence of an extension of the lease agreement. It must be emphasized that Felisa Manese was an
elderly illiterate woman, who at the time of the payment of the "advance rentals" was not aware of
what was written in the receipts that she signed. Unicane prepared the receipts and did not explain
the contents to Felisa.

We fully agree with the appellate court when it held that:

"Such want of explanation is inconsistent with Article 1332 of the Civil Code, which provides:

"When one of the parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former.’

"Under the foregoing provisions, where a party to a contract is illiterate, or can not read or
understand the language in which the contract is written, the burden is on the party interested in
117
enforcing the contract to prove that the terms thereof are fully explained to the former in a language
understood by her (Sales v. Court of Appeals, 120 SCRA 897; Bunyi v. Reyes, 39 SCRA 504). In all
contractual, property or other relations, when one of the parties is at a disadvantage on account of
his physical, mental or other handicap, the courts must be careful and vigilant for his protection (Civil
Code of the Philippines, Art. 24; Rural Bank of Caloocan, Inc. vs. Court of Appeals, 104 SCRA 151)." 14

It is obvious that what the corporation wanted was to extend the lease agreement without fully
apprising Felisa Manese of the implications of the receipt of the "advance rentals". Unicane simply
wanted to get the lease extended at all cost.

As to the second issue, it is not uncommon among Filipino families to extend a helping hand to a
family member in financial need. Here is a mother’s sincere desire to help alleviate the financial woes
of her daughters. During the trial, respondents proved that the sale was simulated because there was
no consideration paid to Felisa Manese.

The sale was arranged without any pecuniary benefit for Felisa. It was done so that the property may
be used as collateral for a P500,000.00 loan from Planters Development Bank. Not a single centavo
was given to Felisa Manese, how then can this be considered a sale when there was no consideration
received by the seller?

We agree with the appellate court that this was a simulated sale, where the parties agreed that the
title would revert back to Felisa Manese once her daughters Lutgarda and Ciceron Manese were
financially capable.1âwphi1

In Roman Catholic Archbishop of Manila v. Court of Appeals, we held that "from the language of
Article 1670 of the Civil Code, an implied new lease may be created only where (1) the continued
enjoyment of the thing by the lessee is with acquiescence of the lessor, and (2) no notice to the
contrary has been given by the lessor." 15 In the case at bar, both requisites are wanting. As early as
1989, the sisters Lutgarda and Ciceron Manese told Unicane that they were no longer extending the
lease after 1990.

Also during the hearing of the Unicane complaint on July 10, 1989, at the Regional Trial Court, San
Fernando, Pampanga, respondent Felisa Manese declared that she was not aware of the contents of
the receipts that Unicane asked her to sign. Clearly then, the lessee Uicane was put on notice that the
lessor Felisa Manese was not going to extend the lease agreement beyond 1990.

With the expiration of the lease contract in 1990, and its non-renewal, petitioner’s option to acquire
the premises no longer exists.

IN VIEW WHEREOF, the decision of the Court of Appeals is AFFIRMED in toto.

No costs.

SO ORDERED.

118
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

61.

FIRST DIVISION

G.R. No. 134992               November 20, 2000

PEPITO S. PUA, and his spouse LOURDES UY (deceased) represented by her legal heirs, namely
PEPITO S. PUA, as surviving husband, and the minors PHILIP PUA, ESMERALDA PUA, PETER PUA,
ISRAEL PUA, TEOLANO PUA, OLIVIA PUA and JOVITA PUA, all represented by their father and
natural guardian PEPITO PUA; JOHNNY P. UY and his aunt and guardian LEONCIA COLOMA;
SPOUSES PEDRO DOMINGO UY and PRECIOSA PUA UY or SPOUSES LINO UY and JOLLY GAN UY; and
the REGISTER OF DEEDS OF ISABELA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, MYRNA S. PUA, ARSENIO UY and ROSITA UY, respondents.

DECISION

KAPUNAN, J.:

The instant petition for review on certiorari seeks the reversal of the decision, dated July 31, 1997;
and resolution, dated June 19, 1998, of the Court of Appeals, which affirmed in toto the decision of
the Regional Trial Court of Cauayan, Isabela, Second Judicial Region, Branch 19.

The antecedent facts, as found by the trial court, are as follows:

The plaintiff Myrna S. Pua and the defendant Pepito S. Pua are sister and brother, respectively, their
mother being Jovita S. Pua. The latter was the former owner of the land in controversy (Exhibit M-1)
together with a commercial building erected thereon (Exh. M). Pepito S. Pua being her eldest son, she
placed the land in question in his name (Exh. A) but she continued to exercise rights of dominion over
said property together with the building thereon by renting the same to a certain Cesar Calitis (Exh. G-
1). On November 11, 1980, as representative of Pepito S. Pua, Jovita S. Pua entered into an amicable
settlement in an ejection case commenced by the latter against the intervenor Arsenio Uy wherein
she agreed to convey to Arsenio Uy twelve (12) square meters of the land in question (Exh. C-Int.). On
April 27, 1981, the sale of the twelve square meters was registered (Entry 543 in Exh. A), hence, the
remaining unencumbered portion of the land covered by said title is only 620 square meters.

As she intended this lot for her daughter Myrna S. Pua, she required Pepito S. Pua to convey the same
to his sister. In obedience thereto, Pepito and his wife, Lourdes Uy, executed a Deed of Donation in
favor of Myrna S. Pua on December 2, 1989 (Exh. B) and the owner’s duplicate copy of TCT No. T-
76755 (Exh. A) was delivered to her. As owner of the lot and building erected thereon, Myrna S. Pua
leased the same to one Cesar Calitis on April 3, 1992 (Exh. G). On June 22, 1992 Myrna, however,
119
executed a document promising to sell the same property to the intervenors Arsenio Uy and Rosita
Uy for a consideration of P1,200,000.00 (Exh. D-Int.) out of which P400,000.00 was already paid (Exhs.
D-1, D-2 and D-3-Int.).

On June 12, 1991, a certified true copy of an order in LRC Petition No. 75 of the RTC, Branch 16
directing the reconstitution of the original and owner’s duplicate of TCT No. T-76755, was registered
(Exh. L). On July 12, 1991, the original and owner’s duplicate copy of said title was issued by the
Register of Deeds (Exh. D, see entry No. 6653 at the back of Exh. D). When subpoenaed by this Court
to produce the record of LRC Petition No. 75, Atty. Benito Sales, Jr., the Clerk of Court of Branch 16 of
the RTC at (sic) Ilagan, Isabela, failed to present the same. On the witness stand, he declared that
there was no such petition docketed in said Court on May 8, 1991; and that the LRC Case No. 75
appears in the record of said Court to have been filed on January 10, 1984 by one Jaime Guzman for
the reconstitution of TCT No. T-455633. He, however, admitted that his signature in Exhibits S (copy of
the petition) and L (certifying that the order of June 11, 1991 is a true copy) are genuine.

On March 5, 1992, a Deed of Absolute Sale of the remaining 620 square meters, executed by Pepito S.
Pua and Lourdes Uy on January 4, 1979 in favor of Johnny P. Uy, a minor represented by Leoncia
Coloma Uy (Exh. 4-Uy) and ratified by Valentin G. Remigio, was registered in the Office of the Register
of Deeds (see Entry No. 1724 in Exh. D) and as a consequence of said registration TCT No. T-206151 in
the name of ‘Johnny Uy, minor, represented by his auntie and natural guardian Leoncia Coloma Uy’
was issued (Exh. 1-Uy). On January 10, 1990 another deed of absolute sale of the same property was
executed by Pepito S. Pua and Lourdes Uy in favor of the same Johnny P. Uy, also represented by
Leoncia Coloma, which was ratified by notary public Constante B. Albano (Exh. 3-Uy). This document
was not registered in the Office of the Register of Deeds.

During the trial Jovencio Tattao y Nuñez, OIC Clerk of Court of Branch 22 of the RTC at (sic) Cabagan,
Isabela testified that the late Atty. Valentin G. Remigio was the Clerk of Court of the CFI Branch III at
(sic) Cabagan now RTC Branch 22, from 1977 up to 1980 when he was appointed Municipal Judge of
the MTC of Alicia, Isabela; and that among the documents on file in the said Court and ratified by said
Atty. Remigio in his capacity as a notary public are Exhibits N, N-1, to N-12. Upon motion of the
plaintiff, these documents, containing the genuine signatures of notary public Valentin Remigio
ratified by him in the month of January, 1979, together with the deed in favor of Johnny P. Uy dated
January 4, 1979 (Exh. 4- Uy) were submitted for handwriting examination to the PNP Crime
Laboratory at Camp Crame, Quezon City. Rosario Perez y Cain, a handwriting expert from said office
declared during the trial that after a thorough examination of the genuine signatures of notary public
Valentin G. Remigio in Exhs. N, N-1 to N-12, and his alleged signature in Exh. 4-Uy, she arrived at a
conclusion that his signature in exhibit 4-Uy was not written by him (Exh. R-Int.). Her testimony and
findings were never refuted by the defendants.

The evidence further shows that Johnny P. Uy was delivered by Preciosa Uy at the Chinese General
Hospital in Manila on March 1, 1980 (Exhs. 6, 6-A-1, 6-B-Uy). Her husband, Pedro Domingo Uy is a
Chinese national but was naturalized as a Filipino on January 16, 1976 (Exh. 7-Uy). In his income tax
return for the year 1990 (Exh. 8-Uy) Johnny P. Uy appears to be Pedro Domingo Uy’s lone dependent.
Lino Uy and Mario Uy, the spouses of Jolly Gan Uy and Leoncia Coloma, respectively, are the brothers
120
of Pedro Domingo Uy and both are Chinese citizens. In their Joint Affidavit (Exh. 9-Uy), Pedro Domingo
Uy and Preciosa Uy alleged among others that they gave their son Johnny P. Uy to the spouses Lino
Uy and Jolly Gan Uy upon his birth and Leoncia Coloma purchased the land in question for Johnny P.
Uy on January 4, 1979. (Rec., pp. 452-455).1

On January 31, 1995, the trial court rendered a decision, the dispositive portion of which reads as
follows:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered:

1. Declaring the Deed of Donation (Exh. B) executed by the defendant Pepito S. Pua and his late
wife Lourdes Uy in favor of plaintiff valid and binding against the donors and theirs heirs and/or
successors-in-interest;

2. Declaring the deeds of sale (Exhs. 4-Uy and 3-Uy) in favor of Johnny P. Uy null and void;

3. Declaring the reconstituted copy of the original and owner’s duplicate copy of TCT No. T-
76755 (Exh. D) issued pursuant to the spurious and/or falsified order (Exh. L) in LRC Case No. 75
of the RTC, Branch 16 null and void;

4. Declaring TCT No. T-206161 (Exh. 1-Uy) issued to Johnny P. Uy null and void and ordering the
Register of Deeds to reinstate TCT No. T-76755;

5. Declaring Johnny P. Uy the legitimate child of the spouses Pedro Domingo Uy and Preciosa
Uy and not that of the spouses Lino Uy and Jolly Gan Uy;

6. Declaring Johnny P. Uy as the dummy of Leoncia Uy in acquiring the land in question;

7. Recommending to the Anti-Dummy Board the prosecution of Pepito S. Pua, Leoncia Uy,
Johnny P. Uy and the spouses Pedro Domingo Uy and Preciosa Uy for violation of the Anti-
Dummy Law;

8. Recommending to the Ombudsman the prosecution of Atty. Benito Sales, Jr., Clerk of Court
of the RTC, Branch 16, Ilagan, Isabela, for falsifying the order of reconstitution in LRC Case No.
75 (Exh. L);

9. Recommending to the Supreme Court that disciplinary action be taken against Atty. Benito
Sales, Jr., Clerk of Court, RTC, Branch 16, Ilagan, Isabela for falsifying the order of reconstitution
of TCT T- 76755 dated June 11, 1991 in LRC Case No. 75 of said court, and for this purpose
directing the Clerk of Court to furnish the Supreme Court, through the Court Administrator, a
copy of this decision; and

10. Ordering the defendants to pay the costs.

SO ORDERED. (Rec., pp. 473-475)2

121
Dissatisfied with the trial court’s decision, petitioners brought the case on appeal to the Court of
Appeals. On July 31, 1997, the appellate court rendered a decision, affirming in toto the trial court’s
ruling. Hence, this petition wherein the petitioners raise the following issues, to wit:

The respondent Court of Appeals ERRED when it upheld the ruling of the Regional Trial Court that the
Deeds of Sale in favor of petitioner Johnny Uy and TCT No. T-206151 issued in his name was null and
void.

A. The respondent Court of Appeals erred in relying on the questionable testimony of the
purported PNP handwriting expert.

B. The respondent Court of Appeals wrongly applied the law on agency and representation in
the case at bar.

C. Granting arguendo that the 1979 Deed of Sale was invalid, the respondent Court of Appeals
still erred when it did not consider the established fact that there was actually a sale of the
property in question in favor of petitioner Leoncia Coloma in the said year.

D. The respondent Court of Appeals erred when it upheld the lower court’s erroneous finding
that 1979 Deed of Sale was void because petitioner Johnny Uy lacked legal capacity.

E. The respondent Court of Appeals further ERRED in not recognizing petitioner Leoncia
Coloma as an innocent purchaser for value, having relied on the title presented to her by the
registered owner, which upon verification with the Register of Deeds was clean and free from
any lien and/or encumbrance.

F. In not finding that the alleged reconstitution of TCT No. T-76755 by the Regional Trial Court,
Branch 16 of Ilagan, Isabela in LRC Case No. 75 does not invalidate the transfer to and title of
petitioner Leoncia Coloma over the subject property, respondent Court of Appeals committed
another error.

G. The respondent Court of Appeals erred in not finding petitioner Leonica Coloma’s right
superior to that of private respondent Myrna Pua based on the principle of double sale.

II

The respondent Court of Appeals ERRED when it upheld the ruling of the lower court that the Deed of
Donation in favor of private respondent Myrna Pua was valid and binding for the following reasons:

A. The alleged Deed of Donation cannot be given effect and validity considering the fact that
the signature of the alleged donor therein was not genuine.

122
 B. As admitted by private respondent Myrna Pua AGAINST HER OWN INTEREST the property
belonged to Jovita Pua, her mother, and thus, the donation thereof to her by a person other
than the real owner is not valid.

C. Private respondent Myrna Pua’s admission that her mother Jovita Pua was leasing the
subject property subsequent to the execution of the alleged Deed of Donation, if believed to
be true, shows that her mother never intended to actually part therewith during her lifetime,
and as such, the alleged donation in her favor being mortis causa is void for failure to comply
with the formalities of a will.

III

The respondent Court of Appeals ERRED when it upheld the ruling of the lower court that petitioner
Johnny Uy was the dummy of petitioner Leoncia Coloma and its recommendation for the prosecution
of petitioners Pepito Pua, Leoncia Coloma and Johnny Uy as well as spouses Pedro Domingo Uy and
Preciosa Uy for violation of the Anti-Dummy Law.

A. The basis of the alleged violation of the Anti-Dummy Law that petitioner Leoncia Coloma’s
husband is an alien, and hence, disqualified to acquire the land in question is immaterial
because as found by the lower court and upheld by respondent Court of Appeals, it was
petitioner Leoncia Coloma who was the ACTUAL BUYER.

B. Petitioners Leoncia Coloma and Johnny Uy, being Filipino citizens, are undeniably qualified
to own real property.

C. Spouses Pedro Domingo Uy and Preciosa Uy had nothing to do with the purchase of the
subject property since, as found by the lower court and affirmed by respondent Court of
Appeals, inasmuch as petitioner Leoncia Coloma was the one who bought the said property.

D. Besides, assuming the Deeds of Sale in question to be void in themselves, a prosecution

under the Anti-Dummy Law could not prosper because being invalid such Deeds are of no
consequence.

E. Moreover, assuming the admission of private respondent Myrna Pua that Jovita Pua owned
the property to be true, Jovita Pua could not even be prosecuted for violation of the Anti-
Dummy Law for allegedly registering the property in his (sic) son’s name. 3

Petitioners’ arguments are summarized as follows:

1. Petitioner Pepito S. Pua and his now deceased wife Lourdes Uy offered to sell the land in
dispute to petitioner Leoncia Coloma sometime in 1978. True to their offer, they sold the said
property to Leoncia Coloma on January 4, 1979, as evidenced by a Deed of Sale notarized by
notary public, Atty. Valentin Remigio. Delivery of the original owner’s duplicate copy of the

123
Transfer Certificate of Title No. T-76755 was, however, withheld by the spouses Pepito S. Pua
and Lourdes Uy until full payment of the total consideration was made. 4

2. While the actual vendee of the subject property was petitioner Leoncia Coloma, the latter
opted to put the name of her yet unborn nephew, Johnny P. Uy, in the Deed of Sale. 5

3. On January 10, 1990, upon agreement of the spouses Pepito S. Pua and Lourdes Uy as
vendors, and Leoncia Coloma as vendee, another Deed of Sale was executed by them and
notarized by Atty. Constante B. Albano. Petitioners allege that the said second Deed of Sale
was executed simply to confirm the previous sale of January 4, 1979. 6

4. From the time of sale in 1979, petitioner Leoncia Coloma and the other legal heirs of Lourdes
Uy have been in peaceful possession of the land in question. 7

5. The aforesaid Deeds of Sale executed by the spouses Pepito S. Pua and Lourdes Uy in favor
of Leoncia Coloma are valid and binding in all respects. The findings of the trial court, as
affirmed by respondent Court of Appeals, that the 1979 Deed of Sale is null and void because
the purported signature of notary public Atty. Valentin Remigio therein was forged are
erroneous. Granting that the notary public did not sign the acknowledgment portion of the
1979 Deed of Sale, such defect is not fatal to the validity of the sale as it simply transformed
the said deed from a public document into a private document. Petitioners asseverate that it is
not a requirement for the validity of a contract of sale of a parcel of land that it be embodied in
a public instrument.8 The defect should be considered rectified with the execution of the 1990
Deed of Sale which should be made to retroact to the date when the sale was perfected in
1979.

6. The appellate court’s invocation of the law of agency in the instant case is faulty. It does not
find application in the controversy at hand. Petitioner Leoncia Coloma did not act in a
representative capacity in buying the subject property, as it was she who was the actual buyer
of the said land. The naming of the property in favor of petitioner Johnny Uy was done in
accordance with the Chinese tradition of naming property in favor of an unborn male child. The
fact that Leoncia Coloma wanted to give the property to her nephew should not affect the
validity of the sale.9 Additionally, since it was Leoncia Coloma who was the actual buyer and not
Johnny Uy, respondent Court of Appeals allegedly erred in finding that the contract of sale was
invalid because of lack of legal capacity of said Johnny Uy.

7. Leoncia Coloma should be considered an innocent purchaser for value inasmuch as she was
not aware of any lien or encumbrance over the property, for none had been registered with
the Register of Deeds. Moreover, the invalidity of the alleged reconstitution of TCT No. T-76755
by the RTC, Branch 16 of Ilagan, Isabela in LRC Case No. 75 does not affect the rights of
petitioner Leoncia Coloma to the property in dispute. As stated earlier, Leoncia Coloma simply
relied on what appeared on the title of her vendors, and on its face, there was nothing wrong
or irregular with it. In fact, petitioners allege that the Register of Deeds duly registered the said
order of reconstitution. Citing a decided case, 10 petitioners asseverate that "the rights of an
124
 innocent purchaser for value must be respected and protected notwithstanding the fraud
employed by the seller in securing his title."

8. The appellate court erred in not finding that Leoncia Coloma’s right was superior to private
respondent Myrna Pua’s based on the principle of double sale. Leoncia Coloma is the preferred
transferee of the land in question, inasmuch as she registered the 1979 Deed of Sale in good
faith before she became aware of private respondent Myrna Pua’s supposed claim. On the
other hand, the alleged 1989 Deed of Donation in favor of private respondent Myrna Pua was
never registered. Even assuming that the registration in favor of Leoncia Coloma was void, she
still had a superior right over the property, having been in possession thereof since 1979. 11

9. The Deed of Donation in favor of private respondent Myrna Pua alleging that the signature
of the donor, Pepito Pua is not valid as the signature of the donor, Pepito Pua, therein was not
geniune. Moreover, Myrna Pua admitted against her own interests that the subject property
was actually owned by her mother Jovita Pua; hence, Pepito Pua could not have validly
donated the same to her as he was not the real owner thereof. 12

10. The admission of private respondent Myrna Pua that her mother Jovita Pua continued to
lease out the subject property subsequent to the execution of the Deed of Donation, if true,
shows that said Jovita Pua never intended to actually part therewith during her lifetime;
consequently, the alleged donation in Myrna Pua’s favor, being mortis causa, is void for failure
to comply with the formalities of a will.13

11. Finally, the Court of Appeals erred in upholding the ruling of the trial court that petitioner
Johnny Uy was the dummy of Leoncia Coloma; and in recommending that petitioners Pepito
Pua, Leoncia Coloma and Johnny Uy as well as spouses Pedro Domingo Uy and Preciosa Uy be
prosecuted for violation of the Anti-Dummy Law. There is no basis for said ruling as the parties
involved in the 1979 and 1990 Deeds of Sale are Filipino citizens and not aliens. It was clearly
established at the trial that petitioner Leoncia Coloma is a Filipino citizen, while her husband
was a Chinese national who was later naturalized as a Filipino. Petitioner Johnny Uy was found
to be the son of Preciosa Uy who is also a Filipino and Pedro Domingo Uy who was a Chinese
national but was naturalized as a Filipino on January 16, 1976.14

We find the petitioners’ contentions bereft of merit.

It is axiomatic that the findings of fact of the trial court, especially when affirmed by the Court of
Appeals, are binding and conclusive on the Supreme Court. 15 The issue of whether a contract is
simulated or real is factual in nature.16 In the case at bar, the Court finds no cogent reason to disturb
the findings of both courts below where the facts found by the Court of Appeals sustaining the trial
court readily converge towards one conclusion 17 - that the alleged sales by Pepito Pua in favor Johnny
P. Uy in 1979 and 1990 were absolutely simulated. The evidence shows that Johnny P. Uy who was
named in the deed of sale as the buyer, was actually born on March 1, 1980. The said deed of sale in
his favor was executed on January 4, 1979. Thus, the appellate court correctly found that since said
Johnny P. Uy was not even conceived yet at the time of the alleged sale, he therefore had no legal
125
personality to be named as a buyer in the said deed of sale. Neither could he have given his consent
thereto.18

Article 1318 of the New Civil Code provides:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

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

(3) Cause of the obligation which is established.

The contract of sale is perfected at the moment there is a meeting of the minds upon the thing which
is the object of the contract and upon the price. 19 Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract.20 Unemancipated minors, insane or demented persons, and deaf-mutes who do not know
how to write can not validly give consent to contracts. 21 In the instant case, Johnny P. Uy could not
have validly given his consent to the contract of sale, as he was not even conceived yet at the time of
its alleged perfection. The appellate court, therefore, correctly ruled that for lack of consent of one of
the contracting parties, the deed of sale is null and void.

The appellate court likewise correctly found that Leoncia Coloma could not have acted as
representative of Johnny P. Uy. In the first place, she did not have the right to represent Johnny P. Uy
for lack of legal authority to act for and in behalf of said minor. 22 It is well-settled that without
authority from the Court, no person can make a valid contract for or on behalf of a minor. 23 Besides,
petitioners themselves insist that Leoncia Coloma was not acting in a representative capacity when
she purchased the subject, but rather, that she was acting in her own behalf as the actual buyer of
said land.

In light of the above findings regarding the nullity of the deeds of sale, the issue of whether or not the
defect in the 1979 Deed of Sale has been rectified by the subsequent Deed of Sale, dated January 10,
1990, has become moot and academic. As found by the appellate court, an absolutely simulated
contract is not susceptible of ratification.

The Court of Appeals further found that, on the other hand, private respondent Myrna S. Pua was
able to show and prove during the trial that petitioners Pepito S. Pua and his wife Lourdes Uy, now
deceased, signed and executed a notarial instrument of Donation Inter Vivos on December 2, 1989
(Exh. "B") and entered as Doc. No. 394; Page No. 80; Book No. 63; Series of 1989 in the Notarial
Register of Notary Public Godofredo P. Melegrito of San Mateo, Isabela, conveying by way of
donation inter vivos, the parcel of land subject of this case and which was duly accepted by private
respondent as donee.24

126
Anent petitioners’ allegation that the donation, if there was any, was one mortis causa; hence, void
for failure to comply with the formalities of a will, such contention is likewise without merit. The trial
court has found as a fact that as owner of the lot and building erected thereon, Myrna S. Pua leased
the same to one Cesar Calitis on April 3, 1992 (Exh. G). On June 22, 1992, Myrna however, executed a
document promising to sell the same property to the intervenors Arsenio Uy and Rosita Uy for a
consideration of P1,200,000.00 (Exh. D-Int.) out of which P400,000.00 was already paid (Exhs. D-1, D-
2 and D-3-Int.).25

Petitioners’ allegations that the deed of donation was obtained through fraud and undue influence
and that the signatures of Pepito S. Pua and Lourdes Uy were forged, has not been fully substantiated.
They did not present any strong and conclusive evidence during the trial to override the evidentiary
value of the duly notarized deed of donation. 26 Their belated attempt to introduce a National Bureau
of Investigation Report containing the conclusion that the signature of Pepito S. Pua in the December
2, 1989 Deed of Donation was not genuine cannot be entertained by the Court, as said document is
being introduced for the first time on appeal. It is well-settled that issues not raised in the court a
quo cannot be raised for the first time on appeal in the Supreme Court without violating the basic
rules of fair play, justice and due process.27

Anent petitioners’ contention that petitioner Leoncia Coloma has a superior right to the property,
having registered in good faith the Deed of Sale in favor of her nephew Johnny Uy in the Register of
Deeds, while the Deed of Donation in favor of private respondent Myrna Pua was never registered,
this may very well be true, for indeed, the rule is that a deed of sale which has been duly registered
prevails over that which has not. However, as correctly found by the Court of Appeals, the above
doctrine finds no application in the instant case because the Deed of Sale which was executed on
January 4, 1979 was absolutely simulated, hence, null and void.

Finally, on petitioners’ allegation that there is no basis for the trial court’s recommendation that they
be prosecuted for violation of the Anti-Dummy Law, we are inclined to agree with petitioners on this
point.

The acts sought to be punished by the Anti-Dummy Law are allowing the use of the name of a citizen
of the Philippines for the purpose of evading any constitutional or legal provision requiring Philippine
citizenship as a requisite for the exercise or enjoyment of a right, franchise or privilege, and the
profiting of any alien thereby.28 It punishes the evasion of nationalization laws (by the use of
dummies) and prohibits aliens from intervening in the management, operation, administration or
control of any nationalized activity, wholly or partially but to an extent of not less than sixty percent
(60%), whether as an officer, employee or laborer, as well as imposing criminal sanctions on the
president, managers, board members or persons in charge of the violating entity and causing the
latter to forfeit its privileges, rights and franchises. 29

In the instant case, the trial court based its recommendation on its finding that the alleged buyer,
Leoncia Coloma, was married to a Chinese citizen. The trial court thus concluded that "as her husband
is an alien disqualified under the Constitution of the Philippines to acquire the land in question, to

127
circumvent this law, she placed the title of the property in the name of Johnny P. Uy who, because of
the latter’s close affinity with her husband could be her trustee." 30

However, no evidence was presented by the private respondents to show that it was Leoncia
Coloma’s husband who was the actual buyer of the subject property. Nor was evidence adduced to
support the conclusion that the spouses Pedro Domingo Uy and Preciosa Uy had any participation in
the sale. As for Johnny Uy, he was merely a child at the time of the alleged transaction, and private
respondents failed to prove that he was aware of its significance. Hence, there is no sufficient basis
for the prosecution of petitioners for violation of the Anti-Dummy Law.

WHEREFORE, in view of the foregoing, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the portion of the appellate court’s decision recommending the prosecution of
petitioners Pepito Pua, Leoncia Coloma and Johnny Uy as well as spouses Pedro Domingo Uy and
Preciosa Uy for violation of the Anti-Dummy Law, be deleted.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

62.

SECOND DIVISION

G.R. No. 115734           February 23, 2000

RUBEN LOYOLA, CANDELARIA LOYOLA, LORENZO LOYOLA, FLORA LOYOLA, NICANDRO LOYOLA,
ROSARIO LOYOLA, TERESITA LOYOLA and VICENTE LOYOLA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, NIEVES, ROMANA, ROMUALDO, GUILLERMO, LUCIA,
PURIFICACION, ANGELES, ROBERTO, ESTRELLA, all surnamed ZARRAGA and THE HEIRS OF JOSE
ZARRAGA, namely AURORA, MARITA, JOSE, RONALDO, VICTOR, LAURIANO, and ARIEL, all
surnamed ZARRAGA, respondent.

QUISUMBING, J.:

For review on certiorari is the decision of the Court of Appeals in CA-G.R. No. CV 36090, promulgated
on August 31, 1993, reversing the judgment of the Regional Trial Court of Biñan, Laguna, Branch 24, in
Civil Case No. B-2194. In said decision, the appellate court decreed:

PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and a new judgment
rendered as follows:
128
 1. Dismissing the plaintiff's Complaint;

2. Declaring the "Bilihang Tuluyan ng Kalahati (1/2) ng Isang (1) Lagay na Lupa" dated August
24, 1980 (Exhibit 1) as well as Transfer Certificate of Title No. T-116067 of the Registry of Deeds
for the Calamba Branch to be lawful, valid, and effective.

SO ORDERED.1

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

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows:

1. Declaring the simulated deed of absolute sale purportedly executed by the late
Gaudencia Zarraga on August 24, 1980 as well as the issuance of the corresponding
certificate of title in favor of the defendants null and void from the beginning;

2. Ordering the Register of Deeds of Laguna, Calamba Branch to cancel Transfer

Certificate of Title No. T-116087 issued in favor of the defendants and to issue another
one, if feasible, in favor of the plaintiffs and the defendants as co-owners and legal heirs
of the late Gaudencia Zarraga;

3. Order(ing) the defendants to reconvey and deliver the possession of the shares of the
plaintiff on (sic) the subject property;

4. Ordering the defendants to pay the amount of P20,000 as and for attorney's fees and
the costs of this suit.

5. As there is no preponderance of evidence showing that the plaintiffs suffered moral

and exemplary damages, their claim for such damages is hereby dismissed.

The plaintiffs' claim under the second cause of action is hereby dismissed on the ground of
prescription.

Likewise, the defendants' counterclaim is hereby dismissed for lack of merit.

SO ORDERED.2

We shall now examine the factual antecedents of this petition.

In dispute here is a parcel of land in Biñan, Laguna, particularly described as follows:

A PARCEL OF LAND (Lot 115-A-1) of the subdivision plan (LRC) Psd-32117), being a portion of
Lot 115-A, described on Plan Psd-55228, LRC (GLRO) Record No. 8374), situated in the
Poblacion, Municipality of Biñan, Province of Laguna, Island of Luzon. Bounded on the NE.,
129
 points 3 to 4 by the Biñan River; on the SE., points 4 to 1 by Lot 115-A-2 of the subd. Plan; on
the SW., points 1 to 2 by the Road and on points 2 to 3 by Lot 115-B, Psd-55228 . . . containing
an area of SEVEN HUNDRED FIFTY THREE (753) SQ. METERS, more or less . . . . 3

Originally owned in common by the siblings Mariano and Gaudencia Zarraga, who inherited it from
their father, the parcel is covered by Transfer Certificate of Title (TCT) No. T-32007. Mariano
predeceased his sister who died single, without offspring on August 5, 1983, at the age of 97.

Victorina Zarraga vda. de Loyola and Cecilia Zarraga, are sisters of Gaudencia and Mariano. Victorina
died on October 18, 1989, while Civil Case No. B-2194 was pending with the trial court. Cecilia died on
August 4, 1990, unmarried and childless. Victorina and Cecilia were substituted by petitioners as
plaintiffs.

Private respondents, children of Mariano excepting those denominated as the "Heirs of Jose Zarraga,"
are first cousins of petitioners. Respondents designated as the "Heirs of Jose Zarraga" are first cousins
once removed of the petitioners.

Private respondents allege that they are the lawful owners of Lot 115-A-1, the one-half share
inherited by their father, Mariano and the other half purchased from their deceased aunt, Gaudencia.
Transfer Certificate of Title No. 116067 was issued in their names covering Lot 115-A-1.

The records show that the property was earlier the subject of Civil Case No. B-1094 before the then
Court of First Instance of Laguna, Branch 1, entitled "Spouses Romualdo Zarraga, et al. v. Gaudencia
Zarraga, et al." Romualdo Zarraga, one of the private respondents now, was the plaintiff in Civil Case
No. B-1094. The defendants were his siblings: Nieves, Romana, Guillermo, Purificacion, Angeles,
Roberto, Estrella, and Jose, all surnamed Zarraga, as well as his aunt, the late Gaudencia. The trial
court decided Civil Case No. B-1094 in favor of the defendants. Gaudencia was adjudged owner of the
one-half portion of Lot 115-A-1. Romualdo elevated the decision to the Court of Appeals and later the
Supreme Court. The petition, docketed as G.R. No. 59529, was denied by this Court on March 17,
1982.

The present controversy began on August 24, 1980, nearly three years before the death of Gaudencia
while G.R. No. 59529 was still pending before this Court. On said date, Gaudencia allegedly sold to
private respondents her share in Lot 115-A-1 for P34,000.00. The sale was evidenced by a notarized
document denominated as "Bilihang Tuluyan ng Kalahati (1/2) ng Isang Lagay na Lupa." 4 Romualdo,
the petitioner in G.R. No. 59529, was among the vendees.

Meanwhile, the decision in Civil Case No. B-1094 became final. Private respondents filed a motion for
execution. On February 16, 1984, the sheriff executed the corresponding deed of reconveyance to
Gaudencia. On July 23, 1984, however, the Register of Deeds of Laguna, Calamba Branch, issued in
favor of private respondents, TCT No. T-116067, on the basis of the sale on August 24, 1980 by
Gaudencia to them.

130
On January 31, 1985, Victorina and Cecilia filed a complaint, docketed as Civil Case No. B-2194, with
the RTC of Biñan, Laguna, for the purpose of annulling the sale and the TCT. The trial court rendered
judgment in favor of complainants.

On appeal, the appellate court REVERSED the trial court. On September 15, 1993, herein petitioners
(as substitute parties for Victorina and Cecilia, the original plaintiffs) filed a motion for
reconsideration, which was denied on June 6, 1994.

Hence, the instant petition.

Petitioners submit the following issues for resolution by this Court:

1. WHETHER OR NOT THERE ARE STRONG AND COGENT REASON(S) TO DISTURB THE FINDINGS
AND CONCLUSIONS OF THE TRIAL COURT THAT THE CONTRACT DENOMINATED AS DEED OF
ABSOLUTE SALE IS SIMULATED AND THEREFORE NULL AND VOID.

2. WHETHER THE ACTS OF PRIVATE RESPONDENTS IS (SIC) CONSISTENT WITH THE ACTS OF
VENDEES WHEN THEY DEFIED LOGIC AS FOUND BY THE TRIAL COURT. . .

3. WHETHER THE ALLEGED VENDORS (SIC) GAUDENCIA ZARRAGA WHO WAS THEN 94 YEARS
OLD, ALREADY WEAK AND WHO WAS UNDER THE CARE OF ONE OF THE VENDEES PRIVATE
RESPONDENT ROMANA ZARRAGA, SINGLE AND WITHOUT ANY CHILD BUT HAS SISTERS AND
OTHER NEPHEWS AND NIECES WILL SELL HER PROPERTY THEN WORTH P188,250.00 IN 1980
FOR ONLY P34,000, AND WHETHER A CONTRACT OF SALE OF REALTY IS PERFECTED, VALID AND
GENUINE WHEN ONE OF THE VENDEES ROMUALDO ZARRAGA DOES NOT KNOW OF THE
TRANSACTION, THE OTHER VENDEE JOSE ZARRAGA WAS ALREADY LONG DEAD BEFORE THE
EXECUTION OF THE BILIHAN IN QUESTION AND YET WAS INCLUDED AS ONE OF THE VENDEES,
LIKEWISE, OTHER SUPPOSED VENDEES NIEVES ZARRAGA AND GUILLERMO ZARRAGA ASIDE
FROM ROMUALDO WERE NOT PRESENT WHEN THE TRANSACTION TOOK PLACE.

4. THE LEGAL MEANING AND IMPORT OF SIMULATED CONTRACT OF SALE WHICH INVALIDATES
A TRANSACTION IS ALSO A LEGAL ISSUE TO BE THRESHED OUT IN THIS CASE AT BAR.

5. WHETHER PETITIONERS HAVE THE LEGAL PERSONALITY TO SUE.5

Notwithstanding petitioners' formulation of the issues, we find the only issue for resolution in this
case is whether or not the deed of absolute sale is valid.

Petitioners vigorously assail the validity of the execution of the deed of absolute sale suggesting that
since the notary public who prepared and acknowledged the questioned Bilihan did not personally
know Gaudencia, the execution of the deed was suspect. However, the notary public testified that he
interviewed Gaudencia prior to preparing the deed of sale. 6 Petitioners failed to rebut this testimony.
The rule is that a notarized document carries the evidentiary weight conferred upon it with respect to
its due execution,7 and documents acknowledged before a notary public have in their favor the

131
presumption of regularity.8 By their failure to overcome this presumption, with clear and convincing
evidence, petitioners are estopped from questioning the regularity of the execution of the deed. 9

Petitioners also charge that one of the vendees, Jose Zarraga, was already dead at the time of the
sale. However, the records reveal that Jose died on July 29, 1981. 10 He was still alive on August 24,
1980, when the sale took place.

Petitioners then contend that three of the vendees included in the deed, namely, Romualdo,
Guillermo, and Nieves, were not aware of the transaction, which casts doubt on the validity of the
execution of the deed. Curiously, Romualdo who questioned Gaudencia's ownership in Civil Case No.
B-1094, was one of those included as buyer in the deed of sale. Romana, however, testified that
Romualdo really had no knowledge of the transaction and he was included as a buyer of the land only
because he was a brother.

Petitioners suggest that all the aforecited circumstances lead to the conclusion that the deed of sale
was simulated.

Simulation is "the declaration of a fictitious will, deliberately made by agreement of the parties, in
order to produce, for the purposes of deception, the appearances of a juridical act which does not
exist or is different what that which was really executed." 11 Characteristic of simulation is that the
apparent contract is not really desired or intended to produce legal effect or in any way alter the
juridical situation of the parties. Perusal of the questioned deed will show that the sale of the
property would convert the co-owners to vendors and vendees, a clear alteration of the juridical
relationships. This is contrary to the requisite of simulation that the apparent contract was not really
meant to produce any legal effect. Also in a simulated contract, the parties have no intention to be
bound by the contract. But in this case, the parties clearly intended to be bound by the contract of
sale, an intention they did not deny.

The requisites for simulation are: (a) an outward declaration of will different from the will of the
parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose
is to deceive third persons.12 None of these are present in the assailed transaction.

Anent Romualdo's lack of knowledge and participation in the sale, the rule is that contracts are
binding only upon the parties who execute them. 13 Romualdo had no knowledge of the sale. He was a
stranger and not a party to it. Article 1311 of the Civil Code 14 clearly covers this situation.

Petitioners fault the Court of Appeals for not considering that at the time of the sale in 1980,
Gaudencia was already 94 years old; that she was already weak; that she was living with private
respondent Romana; and was dependent upon the latter for her daily needs, such that under these
circumstances, fraud or undue influence was exercised by Romana to obtain Gaudencia's consent to
the sale.

The rule on fraud is that it is never presumed, but must be both alleged and proved. 15 For a contract
to be annulled on the ground of fraud, it must be shown that the vendor never gave consent to its
132
execution. If a competent person has assented to a contract freely and fairly, said person is bound.
There also is a disputable presumption, that private transactions have been fair and regular. 16 Applied
to contracts, the presumption is in favor of validity and regularity. In this case, the allegations of fraud
was unsupported, and the presumption stands that the contract Gaudencia entered into was fair and
regular.

Petitioners also claim that since Gaudencia was old and senile, she was incapable of independent and
clear judgment. However, a person is not incapacitated to contract merely because of advanced years
or by reason of physical infirmities.17 Only when such age or infirmities impair his mental faculties to
such extent as to prevent him from properly, intelligently, and fairly protecting his property rights, 18 is
he considered incapacitated. Petitioners show no proof that Gaudencia had lost control of her mental
faculties at the time of the sale. The notary public who interviewed her, testified that when he talked
to Gaudencia before preparing the deed of sale, she answered correctly and he was convinced that
Gaudencia was mentally fit and knew what she was doing.

On whether or not Gaudencia was under the undue influence of the private respondents, Article 1337
of the Civil Code states:

There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances
shall be considered: confidential, family, spiritual, and other relations between the parties, or
the fact that the person alleged to have been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress.

Undue influence depends upon the circumstances of each case 19 and not on bare academic
rules.20 For undue influence to be established to justify the cancellation of an instrument, three
elements must be present: (a) a person who can be influenced; (b) the fact that improper influence
was exerted; (c) submission to the overwhelming effect of such unlawful conduct. 21 In the absence of
a confidential or fiduciary relationship between the parties, the law does not presume that one
person exercised undue influence upon the other.22 A confidential or fiduciary relationship may
include any relation between persons, which allows one to dominate the other, with the opportunity
to use that superiority to the other's disadvantage. 23 Included are those of attorney and
client,24 physician and patient,25 nurse and invalid,26 parent and child,27 guardian and ward,28 member
of a church or sect and spiritual adviser, 29 a person and his confidential adviser, 30 or whenever a
confidential relationship exists as a fact. 31 That Gaudencia looked after Romana in her old age is not
sufficient to show that the relationship was confidential. To prove a confidential relationship from
which undue influence may arise, the relationship must reflect a dominant, overmastering influence
which controls over the dependent person. 32 In the present case, petitioners failed to show that
Romana used her aunt's reliance upon her to take advantage or dominate her and dictate that she sell
her land. Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient
intelligence remains.33 Petitioners never rebutted the testimony of the notary public that he observed
Gaudencia still alert and sharp.

133
In Bañez v.  Court of Appeals, 59 SCRA 15 (1974), we had occasion to say that solicitation, importunity,
argument, and persuasion are not undue influence. A contract is not to be set aside merely because
one party used these means to obtain the consent of the other. We have likewise held in Martinez
v. Hongkong and Shanghai Bank, 15 Phil. 252 (1910), that influence obtained by persuasion,
argument, or by appeal to the affections is not prohibited either in law or morals, and is not
obnoxious even in courts of equity. Absent any proof that Romana exerted undue influence, the
presumption is that she did not.

Petitioners also seek the annulment of the sale due to gross inadequacy of price. They contend that
Gaudencia, in her right senses, would never have sold her property worth P188,250.00 in 1980 for
only P34,000.00. The records show that much of petitioners' evidence was meant to prove the market
value of the lot at the time of the sale. 34 A review of the records will show that lesion was not an issue
raised before the lower courts. An issue which was neither averred in the complaint nor raised in the
court below, cannot be raised for the first time on appeal. To do so would be offensive to the basic
rules of fair play.

Petitioners seem to be unsure whether they are assailing the sale of Lot 115-A-1 for being absolutely
simulated or for inadequacy of the price. These two grounds are irreconcilable. If there exists an
actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be,
the transaction could not be a "simulated sale." 35 No reversible error was thus committed by the
Court of Appeals in refusing to annul the questioned sale for alleged inadequacy of the
price.1âwphi1.nêt

WHEREFORE, the petition is DENIED, and the assailed decision of the Court of Appeals AFFIRMED.
Costs against petitioners.

SO ORDERED.

Bellosillo, Mendoza and De Leon, Jr., JJ., concur.

63.

SECOND DIVISION

G.R. No. 124574 February 2, 1998

SIMON LACORTE, ROSARIO LACORTE, SEVERINO LACORTE, JEROSALINA LACORTE-FERNANDEZ and

CIRILA LACORTE-ANGELES, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, SPOUSES PEREGRINO and ADELA LACORTE, and JOSE
ICACA, respondents.
134
REGALADO, J.:

In this appeal by certiorari, petitioners seek the reversal of the judgment promulgated by public
respondent Court of Appeals on August 9, 1995 1 which dismissed the basic complaint for rescission
and/or annulment of document filed by the former against herein private respondents. What is
noteworthy and distressing is the fact that the parties are siblings, the subject matter is a
comparatively small parcel of land, the case had to be instituted by and eventually brought to this
Court with the assistance of agencies of the Department of Justice, 2 and it is now on its tenth year of
litigation.

Petitioners and private respondent Peregrino Lacorte are the heirs of Maria Inocencio Lacorte who
was the original owner of a parcel of land located at Sta. Cruz, Lezo, Aklan with an area of 14,556
square meters, more or less. The subject property was foreclosed by the Rural Bank of Malinao,
Aklan, Inc. which, after consolidating its ownership thereover, subsequently sold the same to herein
private respondent Jose Icaca.

On October 17, 1983, respondent Jose Icaca and petitioner Simon Lacorte, in behalf of the heirs of
Maria Lacorte, entered into an Agreement whereby the former was authorized to purchase the
subject property from the bank provided that the heirs of Maria Lacorte shall be given the right to
repurchase the same in the amount of P33,090.00 within a period of one year from that date. The
one-year redemption period was later extended to March, 1987 pursuant to another Agreement
dated October 16, 1984. Both agreements were signed by petitioner Simon Lacorte for himself and in
representation of the heirs of Maria Lacorte. On November 4, 1984, respondent Peregrino Lacorte's
wife, Adela, paid to respondent Icaca the amount of P26,000.00 as deposit for the repurchase of the
property.

It appears, however, that without the knowledge and consent of herein petitioners, and before the
expiration of the grace period, private respondents Peregrino Lacorte and his wife were able to
purchase the land in their names by virtue of a Deed of Reconveyance executed by respondent Icaca
dated February 3, 1987.

That prompted herein petitioners to commence this action on December 9, 1988 for annulment of
the contract on the ground that the same was entered into in evident bad faith and in violation of the
previous agreements between the parties, thereby resulting in prejudice to the property rights of
herein petitioners. In their Answer, respondents Peregrino and Adela Lacorte denied that there was
an agreement to sell the property collectively to the heirs of Maria Lacorte, and argued that since the
land was legally sold by the bank to respondent Icaca, then the sale thereof by the latter to the
former is likewise valid.

Respondent Jose Icaca filed a separate Answer wherein he alleged, inter alia, that:

135
 2. . . . (W)hile it is true that he sold the property to the spouses Peregrino Lacorte and
Adela Lacorte, he did so (i)n the honest belief and understanding that the spouses
bought the same for the common good of all pursuant to the understanding/agreement
he had with the said spouses and the plaintiffs and that he will allow them to buy back
the property collectively from him . . . . (T)he said 'spouses assured him that they were
buying the property not for themselves alone but for the benefit as well of the plaintiffs
and this was also the understanding of the herein answering defendant when he signed
the Deed of Reconveyance . . . . (H)ad he known it otherwise and were it not for the
assurance of the spouses Peregrino and Adela Lacorte to the effect that the purchase of
the property is for the collective use of all of them . . . the herein defendant would not
have sold the property to them . . . . (T)he undersigned hav(e) no objection to the
rescission and/or annulment of the Deed of Reconveyance . . . because in truth and in
fact his intention was really to reconvey the questioned property to the plaintiffs and his
co-defendants . . . .3

In a decision dated November 29, 1991, the trial court ordered (a) the rescission of the deed of
reconveyance executed in favor of respondent spouses Peregrino and Adela Lacorte, as well as the tax
declarations issued in their names, and (b) Jose Icaca to sell the land in question to all the petitioners
herein and private respondent spouses. 4 In so ruling, it declared that by reason of the aforesaid
agreements, marked as Exhibits B and C, respectively, executed between respondent Jose Icaca and
petitioner Simon Lacorte who acted in representation of the heirs of Maria Lacorte, which actually
constitute a promise to buy and sell, there was bad faith on the part of respondent spouses in
purchasing the land solely in their favor.

It also noted that the deed of reconveyance was executed within the period granted under Exhibits B
and C for the heirs to collectively repurchase the land from Icaca. Moreover, it observed that if
respondent spouses were truly buying the land in good faith for themselves and not for the other
heirs, it was not necessary for respondent Adela Lacorte to ask petitioners to look for P7,090.00 which
represents the balance and was apparently to be used as part of the purchase price. Finally, it
concluded that petitioners had a cause of action against respondents by reason of the promise to buy
and sell executed between the Lacortes and Icaca, which is reciprocally demandable pursuant to
Article 1479 of the Civil Code.

In reversing the court a quo and ordering the dismissal of the complaint, respondent Court of Appeals
ruled that petitioners have no cause of action against private respondents since the former were not
parties either to the Deed of Reconveyance sought to be annulled or to the Deed of Absolute Sale
executed between the bank and Jose Icaca. It applied the general rule under Article 1397 of the Civil
Code to the effect that an action for annulment of contract may be instituted only by those who are
principally or subsidiarily obliged thereby.

While it recognized the exception that one who is not principally or subsidiarily bound may ask for
annulment if his rights are prejudiced by one of the contracting parties, respondent court nonetheless
merely held that "prejudice on the part of the plaintiffs has not been established. If at all they are now
asking for the annulment of the Deed of Reconveyance, it is probably because they are supposedly
136
heirs of Maria. It has not been proven either to what extent the Deed of Reconveyance should be
nullified, even on the assumption that plaintiffs' rights have been prejudiced." 5

Hence this petition, wherein the primary issue posed for resolution is whether or not herein
petitioners are entitled to bring an action for annulment and/or rescission of the Deed of
Reconveyance entered into by respondent spouses Peregrino and Adela Lacorte with Jose Icaca.

On this score, it becomes inevitable to initially determine the nature of the agreements entered into
by petitioners with Icaca which are the bases of petitioners' claim to the property. Because of its
importance, the Agreement dated October 17, 1983 is hereunder quoted verbatim and in full:

AGREEMENT

17
Octob
er
1983

TO WHOM IT MAY CONCERN:

This is to certify that I, JOSE I. ICACA, of legal age, married, a resident of Ramos Street,
Lezo, Aklan, after an agreement has been made to the heirs of Maria Lacorte,
represented by her son Simon Lacorte, also of legal age, likewise a resident of Lezo,
Aklan, do hereby agreed the following conditions:

That with the consent of the said Simon Lacorte and his co-heirs, I have been authorized
directly to purchase their foreclosed land which was mortgaged to the Rural Bank of
Malinao, Aklan;

That we further agreed that within the period of one year beginning this date October
17, 1983, I am giving them the chance and privilege to recover and repurchase the said
land in the purchase (illegible) of TWENTY ONE THOUSAND FIVE HUNDRED PESOS
(P21,500.00) plus TWELVE THOUSAND NINETY (P12,090.00) PESOS of their recent
mortgage debt amounting in total of THIRTY THREE THOUSAND (P33,090.00) PESOS.

IN WITNESS HEREOF I have hereunto set my signature this 17th day of October 1983 at
Lezo, Aklan, Philippines.

(Sgd.)
JOSE I.
ICACA

(Sgd.)
SIMO
N
137
 LACOR
TE

IN THE PRESENCE OF:

(Sgd.) ROSARIO I. LACORTE

(Sgd.) CIRILA L. ANGELES6

A contract is presumed to be an equitable mortgage when the vendor remains in possession as lessee
or otherwise, or when upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed. 7 In the case at bar, it is not
disputed that petitioners' mother, Maria Lacorte, and two of her children, herein petitioners
Rosario and Jerosalina, remained in possession of the property despite the existence of the
Agreement hereinbefore quoted, and they continue to do so up to the present time. 8 No less than
respondent Adela Lacorte admitted these facts in her testimony.

Further, prior to the expiration of that Agreement of October 17, 1983, another one was entered
into between the same parties extending the period of redemption up to and until March, 1987.
Thus, in the second Agreement dated October 16, 1984, it was stipulated that:

Although the period granted to the heirs of Maria Lacorte to buy back the land from
me is due to expire tomorrow in accordance with the agreement dated October 17,
1983, I, Jose I. Icaca, do hereby give extra period to recover and repurchase the
property from me until March 1987.9

That the contract is an equitable mortgage is likewise evident from the words used in the
Agreement itself, that is, that the heirs of Maria Lacorte shall pay as part of the purchase price the
amount of "TWELVE THOUSAND NINETY (P12,090.00) PESOS of their recent mortgage debt."
Apparently, the parties decided to put in writing an earlier mortgage made by Maria Lacorte in
favor of Jose Icaca. 10 The existence of such mortgage even provides a logical explanation for the
course of action taken by Simon Lacorte in making special arrangements with Icaca so that the
latter could buy the foreclosed property from the bank

More importantly, the document executed between Adela Lacorte and Jose Icaca is entitled "Deed
of Reconveyance" wherein the latter bound himself to "transfer, deliver and reconvey" the parcel
of land described therein. The term "reconvey" means to convey back or to former place; to
transfer back to former owner, as an estate, and "reconveyance" being a transfer of realty back to
the original or former grantor. 11 A contract of reconveyance, therefore, presupposes the existence
of a prior agreement wherein a party to whom property was conveyed undertakes to reconvey the
same to the other party under certain terms and conditions.

Such agreements may be in the nature of a contract of sale with a right of repurchase or an
equitable mortgage. In fine, a contract of reconveyance is but a necessary consequence of the

138
exercise of a party's right to repurchase the property subject of a contract of sale with a right of
repurchase or of an equitable mortgage. This particular attribute of the Deed of Reconveyance
executed by respondent Icaca gives further weight to our finding that the Agreement of October 17,
1983 is indeed a contract of equitable mortgage.

Considering that Simon Lacorte executed the Agreement with Jose Icaca for and in behalf of all the
heirs of Maria Lacorte, it stands to reason that any payment made by one or some of the heirs will
logically and definitely have to likewise inure to the benefit of all the heirs. This notwithstanding,
respondent spouses insist that they are the exclusive owners of the subject property because they
were the ones who paid for it and that it was never intended that they will buy it for and in behalf
of the other heirs. They further deny any knowledge of and participation in the Agreement dated
October 17, 1983.

The argument is, unfortunately, specious. The records abound with facts and circumstances which
reveal otherwise, as we shall demonstrate seriatim.

1. The initial payment of P26,000.00 was made on November 4, 1984, immediately after the
Agreement of October 16, 1984 extending the redemption period was executed. The balance of
P7,090.00 was paid only in February, 1987 when the Deed of Reconveyance was executed, which
was well within the extended period granted to herein petitioners. If respondent spouses really
knew nothing, about the previous agreements with Icaca, it is an incredible accident that the dates
of payment of the purchase price coincided quite closely with the periods stipulated by the parties.
And, if ever there was any other agreement entered into exclusively between respondent spouses
and Jose Icaca, the records are completely bereft thereof and respondent spouses conveniently
failed to give any explanation therefor. Indeed, it is highly improbable that,  sine stipulatio, Icaca
would still have accepted payment of the balance despite the lapse of a long period of time,
contrary to the ordinary and normal course of things.

2. Respondent Adela Lacorte claimed that she informed herein petitioners about the sum of
P26,000.00 she had paid to Jose Icaca. According to her, she did that on purpose because she
wanted petitioners to help her raise the amount necessary to pay the balance of the purchase
price. 12 If what she alleges is true, then it is perplexing why she would still ask for money from
petitioners and thereby involve them in the contract with Icaca although that was supposed to be
for respondent spouses exclusively.

3. Adela Lacorte likewise admitted that her mother-in-law and two of herein petitioners remain and
continue to be in possession of the property even after the sale thereof to Icaca. The only plausible
and explicative reason for this is that petitioners were merely enforcing the rights vested in them
under those aforementioned agreements with Icaca.

4. Also, by her own admission, Adela Lacorte knew that petitioners were very interested in
redeeming the property from Icaca. On the witness stand, she stated that when she met with Icaca
to negotiate for the repurchase of the property, she was accompanied by both her husband and
petitioner Rosario Lacorte. 13 It will be recalled that Rosario Lacorte is one of the petitioners who
139
has been continuously occupying the subject land from the time it was still owned by Maria Lacorte
up to the present. Logically, it is Rosario Lacorte who, among the heirs, is most interested in
regaining ownership of the property. Thus, Adela Lacorte cannot make it appear that Rosario's
presence in that meeting was inconsequential; on the contrary, Adela's close contact with
petitioners during the negotiations is clear proof that she was privy to the agreements between
petitioners and Icaca.

5. Petitioner Simon Lacorte testified that they were the ones who negotiated with the bank for the
reduction of the redemption price from P45,000.00 to P21,000.00. After the bank had agreed to
their proposal, Simon Lacorte immediately consulted with Icaca, to whom the land had also been
mortgaged for P12,500.00, on the possibility of the latter paying the redemption price while
petitioners still did not have the money to buy back their property. Icaca acceded and,
consequently, an agreement was executed between the parties. 14

Simon Lacorte further explained that his brothers and sisters agreed to make arrangements with
the bank, except respondent Peregrino who merely said that it was up to them. 15 Apparently,
respondent spouses were inceptually not interested in redeeming the property 16 and refused to
cooperate with petitioners for that purpose. 17 They took interest and cooperated only after the
redemption price was considerably reduced by the bank through the joint efforts of herein
petitioners. These facts sufficiently prove that respondent spouses were fully aware of the dealings
and arrangements made by petitioners with the bank and Icaca for the redemption of the property,
otherwise they could not have known about the particulars thereof.

All told, we are not persuaded by respondent spouses' pretension that they were oblivious of the
existing agreements between petitioners and Icaca when they paid for the land in question.
Besides, it would be downright unfair for petitioners not to gain anything after all their efforts and
the trouble that they had gone through precisely to preserve and retain ownership of the property
within the family.

One more thing. The case records irresistibly reveal that the real intention of Icaca was to reconvey
the land to all the heirs of Maria Lacorte. This fact is supported by both the documentary evidence
on record and the uncontroverted testimony of Icaca himself, to wit:

Q: You said, you sold the property in question to the defendant herein
Peregrino and Adela Lacorte before the document was executed, did
they approach you telling or (sic) intend to acquire the property?

A: Only Simon.

Q: How about Peregrino and Adela, did they not go to you?

A: No, they did not.

140
 Q: Can you please tell the Honorable Court, how come did you sold (sic)
the property to Peregrino and Adela Lacorte?

A: Actually, I don't intend to sell the property because I pity them and
because what we agreed with Simon and because they are brothers, I
was thinking that they have an agreement already that whoever of them
can afford to buy the property, I will sell it to them.

x x x           x x x          x x x

Q: When you said that you have no intention of selling the property to
the defendants Peregrino and Adela Lacorte, could you please tell this
Honorable Court to whom do you intend to sell the property?

A: My agreement with Simon is, whoever of the brothers and sisters can
afford to buy the property, I will sell it to them. That is our agreement.

x x x           x x x          x x x

Q: When you said them, to whom do you refer?

A: To any brothers and sisters of the children of Maria Lacorte. 18

On cross-examination, Icaca clarified and emphasized that he sold the property not to just one
person but to the whole family. 19 Thus:

Q: The Court is asking you, if you understood selling it to spouses Adela

and Peregrino Lacorte not the children of Maria Lacorte who are Simon,
Rosario, Severino, Jerosalina and Cirila.

A: I did not know that that is their intention your Honor. Only I
understood that I was selling the property to the brothers and sisters.

Q: Why when Adela Lacorte made you sign this document, what did she
tell you?

A: That Adela Lacorte told me your Honor that she will tell them that
they had already acquired the property.

Q: You did not find it strange after reading this document that you are
selling it, the property to Adela and Peregrino Lacorte, instead of
Peregrino Lacorte and his brothers and sisters who are the children of his
mother?

141
 A: I did not understand that that document is only for the spouses
because I thought that it's for the brothers and sisters as per agreed (sic)
that whoever is capable of buying back the property, would buy it for
everybody. 20

Such intention of Icaca is more in accord with the basic characteristic of a contract of reconveyance
which, as earlier stated, involves a transfer of realty back to its original owner. Petitioners' mother,
Maria Lacorte, is admittedly the original owner of the subject lot; Adela Lacorte does not claim
otherwise. This only goes to show that the reconveyance was really intended for all the heirs of
Maria Lacorte. Besides, it was Adela Lacorte who prepared the Deed of Reconveyance, hence any
ambiguity therein must be resolved against her and in favor of Jose Icaca who merely signed it.

In the mind of this Court, what probably motivated respondent spouses to appropriate the property
for themselves is because petitioners could not raise the money needed to pay Jose Icaca. This
hypothesis finds substance in the testimony of Adela Lacorte which is very revealing:

Q: It did not occur to your mind (sic) to again tell the plaintiffs to
accompany you because you are already paying Mr. Icaca the amount of
P26,000.00?

A: It enter(ed) my mind but because they have no money to add to that

P26,000.00, I got mad and I decided to go alone. 21

In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered. 22 In light of the foregoing disquisition, the inevitable conclusion
is that it was really the intention of the parties that the subject parcel of land shall be reconveyed
to all the heirs of Maria Lacorte, hence the payment made by Adela Lacorte should be deemed to
inure to the benefit of all the aforementioned heirs. Consequently, herein petitioners necessarily
stand to be prejudiced by the Deed of Reconveyance executed solely in favor of Adela Lacorte since
they should have been included as parties thereto.

Article 1359 of the Civil Code provides that when, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the instrument purporting to embody
the agreement by reason of mistake, fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that such true intention may be expressed. If
such mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.

There is no doubt that petitioners are entitled to bring an action to annul the contract because they
stand to be prejudiced by the enforcement of the Deed of Reconveyance. As to whether or not they
also have the right to ask for reformation of the instrument, we hold in the affirmative. This is
because petitioner should really have been made parties to the Deed of Reconveyance were it not
for the fact that Adela Lacorte had fraudulently excluded their names there from. From the start of
the negotiations with the bank and, later, with Jose Icaca, petitioners have actively participated.
142
They remained in possession of the land, gathered fruits therefrom, and never for a moment
relinquished their rights thereover.

Adela Lacorte explicitly recognized such right when she sought the help of petitioners in raising
money to pay for the land. It was clear that, from the very start, petitioners were already
recognized as actual parties to the prospective reconveyance. What deluded Jose Icaca, and
prevented him from doubting the veracity of the Deed of Reconveyance brought to him by Adela
Lacorte for signature, was the latter's misrepresentation that she was purportedly acting for and in
behalf of all the heirs of Maria Lacorte.

Since petitioners should in truth and in fact be parties to the Deed of Reconveyance, they are
entitled to the reformation of the contract in order to reflect the true intention of the parties. In
fact, Jose Icaca, who is the real injured party in this case because of the fraud committed on him,
has acquiesced to the cancellation of the contract. There is nothing to prevent the reformation of
the instrument23 as has in effect been granted by the court a quo by way of an additional or
alternative relief.

We accordingly declare that what is necessary is only a reformation of the Deed of Reconveyance
by reflecting therein the names of herein petitioners as additional parties thereto, since there has
been a meeting of the minds on the object and the consideration. Herein petitioners need merely
contribute pro rata to the payments and expenses as may have heretofore been made or shall
hereafter be involved in implementing the relief sought by and granted to them, the details of
which shall be determined by the trial court.

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and the judgment of
the Regional Trial Court, Branch 1, of Kalibo, Aklan, is hereby REINSTATED, subject to the
modifications regarding the implementation thereof by the court a quo on the basis of the
rationale therefor as herein discussed.

SO ORDERED.

Melo, Puno, Mendoza and Martinez, JJ., concur.

64.

SECOND DIVISION

G.R. No. 133643            June 6, 2002

143
RITA SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE LOY, ERLINDA
DARMING, NICANDRA SARMING, MANSUETA SARMING, ARTURO CORSAME, FELY CORSAME,
FEDERICO CORSAME, ISABELITA CORSAME, NORMA CORSAME, CESAR CORSAME, RUDY CORSAME,
ROBERTA CORSAME, ARTEMIO CORSAME, ELPIDIO CORSAME, ENRIQUITA CORSAME, and
GUADALUPE CORSAME TAN, petitioners,
vs.
CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES, LUISA FLORES, SATURNINA ORGANISTA,
REMEDIOS ORGANISTA, OFELIA ORGANISTA, LYDIA ORGANISTA, ZOSIMO ORGANISTA, DOMISIANO
FLORES, FLORITA FLORES, EDUARDO FLORES, BENIGNA FLORES, ANGELINA FLORES, MARCIAL
FLORES, and MARIO FLORES, respondents.

QUISUMBING, J.:

This petition for review assails the decision 1 dated September 23, 1997 of the Court of Appeals in CA-
G.R. CV No. 39401, which affirmed the decision 2 of the Regional Trial Court, Branch 41 in Negros
Oriental, Dumaguete City and the resolution 3 dated April 21, 1998 denying petitioners' motion for
reconsideration.

The facts as culled from records are as follows:

Petitioners are the successors-in-interest of original defendant Silveria Flores, while respondents
Cresencio Dy and Ludivina Dy-Chan are the successors-in-interest of the original plaintiff Alejandra
Delfino, the buyer of one of the lots subject of this case. They were joined in this petition by the
successors-in-interest of Isabel, Juan, Hilario, Ruperto, Tomasa, and Luisa and Trinidad themselves, all
surnamed Flores, who were also the original plaintiffs in the lower court. They are the descendants of
Venancio4 and Jose5, the brothers of the original defendant Silveria Flores.

In their complaint for reformation of instrument against Silveria Flores, the original plaintiffs alleged
that they, with the exception of Alejandra Delfino, are the heirs of Valentina Unto Flores, who owned,
among others, Lot 5734, covered by OCT 4918-A; and Lot 4163, covered by OCT 3129-A, both located
at Dumaguete City.

After the death of Valentina Unto Flores, her three children, namely: Jose, Venancio, and Silveria, took
possession of Lot 5734 with each occupying a one-third portion. Upon their death, their children and
grandchildren took possession of their respective shares. The other parcel, Lot 4163 which is solely
registered under the name of Silveria, was sub-divided between Silveria and Jose. Two rows of
coconut trees planted in the middle of this lot serves as boundary line.

In January 1956, Luisa, Trinidad, Ruperto and Tomasa, grandchildren of Jose and now owners of one-
half of Lot 4163, entered into a contract with plaintiff Alejandra Delfino, for the sale of one-half share
of Lot 4163 after offering the same to their co-owner, Silveria, who declined for lack of money. Silveria
did not object to the sale of said portion to Alejandra Delfino.

144
Before preparing the document of sale, the late Atty. Deogracias Pinili, Alejandra's lawyer, called
Silveria and the heirs of Venancio to a conference where Silveria declared that she owned half of the
lot while the other half belonged to the vendors; and that she was selling her three coconut trees
found in the half portion offered to Alejandra Delfino for P15. When Pinili asked for the title of the
land, Silveria Flores, through her daughter, Cristita Corsame, delivered Original Certificate of Title No.
4918-A, covering Lot No. 5734, and not the correct title covering Lot 4163. At that time, the parties
knew the location of Lot 4163 but not the OCT Number corresponding to said lot.

Believing that OCT No. 4918-A was the correct title corresponding to Lot 4163, Pinili prepared a
notarized Settlement of Estate and Sale (hereinafter "deed") duly signed by the parties on January 19,
1956. As a result, OCT No. 4918-A was cancelled and in lieu thereof, TCT No. 5078 was issued in the
names of Silveria Flores and Alejandra Delfino, with one-half share each. Silveria Flores was present
during the preparation and signing of the deed and she stated that the title presented covered Lot
No. 4163.

Alejandra Delfino immediately took possession and introduced improvements on the purchased lot,
which was actually one-half of Lot 4163 instead of Lot 5734 as designated in the deed.

Two years later, when Alejandra Delfino purchased the adjoining portion of the lot she had been
occupying, she discovered that what was designated in the deed, Lot 5734, was the wrong lot. She
sought the assistance of Pinili who approached Silveria and together they inquired from the Registry
of Deeds about the status of Lot 4163. They found out that OCT No. 3129-A covering Lot 4163 was still
on file. Alejandra Delfino paid the necessary fees so that the title to Lot 4163 could be released to
Silveria Flores, who promised to turn it over to Pinili for the reformation of the deed of sale. However,
despite repeated demands, Silveria did not do so, prompting Alejandra and the vendors to file a
complaint against Silveria for reformation of the deed of sale with damages before the Regional Trial
Court of Negros Oriental, Branch 41, docketed as Civil Case No. 3457.

In her answer, Silveria Flores claimed that she was the sole owner of Lot 4163 as shown by OCT No.
3129-A and consequently, respondents had no right to sell the lot. According to her, the contract of
sale clearly stated that the property being sold was Lot 5734, not Lot 4163. She also claimed that
respondents illegally took possession of one-half of Lot 4163. She thus prayed that she be declared
the sole owner of Lot 4163 and be immediately placed in possession thereof. She also asked for
compensatory, moral, and exemplary damages and attorney's fees.

The case lasted for several years in the trial court due to several substitutions of parties. The
complaint was amended several times. Moreover, the records had to be reconstituted when the
building where they were kept was razed by fire. But, earnest efforts for the parties to amicably settle
the matters among themselves were made by the trial court to no avail.

On September 29, 1992, the trial court found in favor of herein respondents, who were the plaintiffs
below, decreeing as follows:

145
 WHEREFORE, this Court finds the preponderance of evidence in favor of the plaintiffs and
veritably against the defendants and, as such, renders judgment accordingly, thereby
ORDERING the defendants, the heirs of the deceased-defendant SILVERIA FLORES and her
successors-in-interest the following:

1) To enter into the reformation of the subject contract or execute a mutual conveyance of
sale, by making the one-half (1/2) eastern portion of Lot 4163, the subject of the document of
sale, in favor of plaintiff, the late Alejandra Delfino or her heirs and/or successors-in-interest;

2) To sign a document ceding to the heirs of the heirs of Maxima Flores and Venancio Flores
the excess of her one-third (1/3) share; and further ordering the heirs of the late Alejandra
Delfino to correspondingly sign a document for the return of the one-half (1/2) portion of Lot
5734 to the original registered owners, in exchange thereby;

3) To pay to the heirs of the late plaintiff Alejandra Delfino, the sum of P5,000.00 as actual
damages and the sum of P10,000.00 as moral damages;

4) To pay P2,000.00 as attorney's fees plus the costs of this suit.

SO ORDERED.6

According to the trial court, the claims of herein respondents were anchored on valid grounds. It
noted that Alejandra had been occupying one-half portion of Lot 4163 since 1956 and it was the one
pointed to her by the vendors. Citing the case of Atilano vs. Atilano7, it ruled that when one sells or
buys real property, he sells or buys the said property as is shown to her and as he sees it, at its actual
setting and by its physical metes and bounds, not by the mere lot number assigned to it in the
certificate of title. Thus, it concluded that from the facts and circumstances of the case, it is clear that
the object of the sale, as understood by the parties, was that portion "Y" of Lot 4163 and that its
designation as Lot 5734 in the document of sale was a simple mistake in the drafting of the document,
which mistake, however, did not vitiate the consent of the parties or affect the validity and the
binding effect of the contract between them. Hence, the remedy of reformation of instrument is
proper.8

Petitioners appealed the decision to the Court of Appeals, which affirmed the ruling of the trial court
as follows:

WHEREFORE, the appealed decision is hereby AFFIRMED. Costs against defendants-appellants.

SO ORDERED.9

In affirming the decision of the trial court, the Court of Appeals agreed that the real intention of the
parties was for the sale of Lot 4163 which Alejandra Delfino had been occupying, and the designation
of Lot 5734 in the deed was a mistake in the preparation of the document. It noted that Silveria Flores
did not object when Alejandra Delfino took possession of one-half portion of Lot 4163 immediately

146
after the sale, considering that it was Silveria's son, Michael Corsame, who developed the area
purchased by Alejandra.10

Aggrieved but undeterred, the successors-in-interest of defendant Silveria Flores seasonably filed
their petition for review under Rule 45 of the Rules of Court. They assail the decision of the Court of
Appeals on the following grounds:

1. THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT FAILED TO ORDER THE
DISMISSAL OF CIVIL CASE NO. 3457 FOR LACK OF CAUSE OF ACTION.

2. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN LAW
AND JURISPRUDENCE WHEN IT FAILED TO RULE THAT, BASED ON THE UNDISPUTED EVIDENCE
ON RECORD AND THE SETTLEMENT OF ESTATE AND SALE ITSELF, THE PLAINTIFFS HAVE NO
CAUSE OF ACTION AGAINST SILVERIA FLORES BECAUSE SHE DID NOT SELL HER LAND TO
ALEJANDRA DELFINO. HENCE SILVERIA FLORES CANNOT BE BOUND NOR PREJUDICED BY THE
CONTRACT OF SALE ENTERED BY ALEJANDRA DELFINO AND HER CO-PLAINTIFFS (CAPITOL
INSURANCE & SURETY CO INC. V. CENTRAL AZUCARERA DEL DAVAO, 221 SCRA 98; OZAETA V.
CA, 228 SCRA 350).

3. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR WHEN IT
FAILED TO PRONOUNCE THAT SILVERIA FLORES WHO IS NOT A PARTY TO THE CONTRACT OF
SALE INVOLVING LOT NO. 5734 COVERED BY OCT NO. 4918-A CANNOT BE LEGALLY
COMPELLED BY ALEJANDRA DELFINO THRU AN ACTION FOR REFORMATION OF CONTRACT TO
EXECUTE A "CONVEYANCE OF SALE" INVOLVING LOT NO. 4163 COVERED BY OCT NO. 3129-A
OWNED AND REGISTERED SOLELY IN THE NAME OF SILVERIA FLORES.

4. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS
WHEN IT RULED THAT THE OBJECT OF THE CONTRACT OF SALE WAS LOT NO. 4163 COVERED
BY OCT NO. 3129-A, DESPITE THE UNASSAILABLE FACT THAT THE OBJECT OF THE SETTLEMENT
AND SUBJECT OF THE CONTRACT OF SALE WAS LOT NO. 5734 COVERED BY OCT NO. 4918-A.

5. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS IN
NOT UPHOLDING THAT THERE WAS NO MISTAKE IN THE DRAFTING OF THE DOCUMENT AS
WELL AS IN THE OBJECT OF THE SETTLEMENT OF ESTATE AND SALE BECAUSE THE DOCUMENT
WAS PREPARED BY ATTY. DEOGRACIAS PINILI, THE LAWYER OF ALEJANDRA DELFINO.

6. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS
WHEN IT RULED THAT THE GRANDCHILDREN OF JOSE FLORES ARE OWNERS AND COULD SELL
THE ONE-HALF (1/2) PORTION OF LOT NO. 4163 TO ALEJANDRA DELFINO DESPITE THE
INCONTROVERTIBLE EVIDENCE THAT LOT NO. 4163 COVERED BY OCT NO. 3129-A IS
REGISTERED AND SOLELY OWNED BY SILVERIA FLORES WHO IS PAYING THE REAL PROPERTY
TAXES.

147
 7. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN LAW
WHEN IT DISREGARDED ARTICLE 1370 OF THE CIVIL CODE OF THE PHILIPPINES AND PERTINENT
JURISPRUDENCE RELEVANT TO THIS CASE EVEN IF THE TERMS OF THE SETTLEMENT OF ESTATE
AND SALE ARE CLEAR AND LEAVE NO DOUBT ON THE INTENTION OF THE CONTRACTING
PARTIES.

8. THE COURT OF APPEALS AND THE TRIAL COURT GRAVELY ERRED IN DISREGARDING SETTLED
JURISPRUDENCE THAT A PUBLIC DOCUMENT EXECUTED AND ATTESTED THROUGH THE
INTERVENTION OF A NOTARY PUBLIC IS EVIDENCE OF THE FACTS IN CLEAR, UNEQUIVOCAL
MANNER AND TO CONTRADICT IT THERE MUST BE CLEAR AND CONVINCING EVIDENCE NOT
MERELY PREPONDERANT EVIDENCE (GEVERO VS. INTERMEDIATE APPELLATE COURT, G.R. NO.
77029, AUGUST 30, 1990; ZAMBO V. COURT OF APPEALS, 224 SCRA 855; REBULDEDA V. IAC,
155 SCRA 520; CHILIANCHIN V. COQUINCO, 84 PHIL. 714; CENTENERA V. GARCIA PALICIO, 29
PHIL. 470).

9. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR WHEN IT
SUBSTITUTED, REVISED AND MODIFIED THE AGREEMENT OF THE PARTIES DESPITE THE
ABSENCE OF FRAUD, MISTAKE, INEQUITABLE CONDUCT OR ACCIDENT.

10. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED TO
RULE ON THE ISSUE OF WHETHER THE TRIAL COURT GRAVELY ERRED IN ORDERING THE HEIRS
OF SILVERIA FLORES TO PAY ACTUAL AND MORAL DAMAGES AS WELL AS ATTORNEY'S FEES TO
THE HEIRS OF ALEJANDRA DELFINO.11

After careful consideration, we find the following relevant issues for our resolution: (1) whether or
not there is a cause of action for reformation of instrument against Silveria Flores, and consequently
the petitioners; (2) whether or not reformation of the subject deed is proper by reason of mistake in
designating the correct lot number; and (3) whether or not the heirs of Alejandra Delfino are entitled
to actual and moral damages including attorney's fees.

In seeking the reversal of the appellate court's decision, the heirs of Silveria Flores, herein petitioners,
ascribe to the appellate court several errors: first, the Court of Appeals committed error in failing to
appreciate that there is no cause of action against Silveria as she was never a party to the contract of
sale; second, the appellate court erred in giving probative value to the biased testimony of Trinidad
Flores to the effect that Lot No. 4163 was subdivided into two, one-half of which is occupied by her
and her siblings; and third, the appellate court erred in not considering the fact that Silveria is the
only registered owner of Lot 4163. Petitioners submit that the evidence adduced is insufficient to
sustain a decision in respondents' favor.

Respondents, for their part, maintain that the present petition is pro forma as it does not raise any
new matter worth considering. They also assert that the arguments and issues raised by petitioners
have been more than adequately and exhaustively discussed by the trial court as well as the Court of
Appeals.12

148
On the first issue, petitioners contend that there is no cause of action against them and their
predecessor-in-interest, Silveria Flores, because she and they were not parties to the contract sought
to be reformed.

However, a close perusal of the deed would show that Silveria Flores was a party to the contract. She
is not only the seller of the coconut trees worth P15 but she was also one of the heirs entitled to the
estate of Venancio and Maxima, one of the heirs of Jose Flores. Her name did not appear as one of
the sellers of one-half lot to Alejandra Delfino because she never sold her share. What was sold was
the one-half share of Jose Flores, as represented by his heirs. It is also established that it was Silveria
Flores herself who delivered the subject lot to the vendee Alejandra Delfino. Said the lower court:

The truth of the matter, is that what the plaintiffs-vendors really intended to sell and what
Alejandra Delfino intended to buy, of which both of the parties agreed to be the subject of the
transaction, was actually that parcel of land, with two rows of coconut trees as the dividing
line, and which lot is known as Lot 4163. This lot, on the western portion, was the very portion
which was pointed to and delivered to Alejandra Delfino by the original defendant Silveria
Flores and her two children, together with the vendors on January 19, 1956. When the title to
the said property was delivered to the notary public, for the preparation of the document of
sale, the title that was delivered was for Lot 5734. So, the document, that was executed, was
done by reason of mistake, inequitable conduct and accident, because the said document did
not express the true and real agreement and intention of the contracting parties. What was
made to appear in the said document was the sale of the one-half portion of another lot. Lot
5734, when in truth and in fact, the subject property sold was Lot 4163. 13 (Underscoring and
italics supplied.)

Through her actions, Silveria Flores had made the parties to the deed believe that the lot intended to
be the object of the contract was the same lot described in the deed. Thus, by mistake or accident, as
well as inequitable conduct, neither she nor her successors-in-interest could deny involvement in the
transaction that resulted in a deed that now ought to be reformed.

Worth stressing, the existence of a cause of action is not determined by one's involvement in a
contract. Participation in a contract is not an element to determine the existence of a cause of action.
The rule is that only the allegations in the complaint may properly be considered in ascertaining the
existence of a cause of action. Lack of cause of action must appear on the face of the complaint and
its existence may be determined only by the allegations of the complaint. Consideration of other facts
is proscribed and any attempt to prove extraneous circumstances is not allowed.14

The test of sufficiency of the facts found in a complaint as constituting a cause of action is whether or
not, admitting the facts alleged, the court can render a valid judgment upon the same in accordance
with the prayer in the complaint. 15 An examination of the complaint 16 shows herein respondents, as
plaintiffs in the trial court, are entitled to the relief of reformation of instrument if the following
factual allegations of respondents are deemed admitted, to wit: (1) that Silveria is a co-owner of Lots
No. 5734 and 4163, in different shares; (2) that the heirs of Jose, her co-owner in Lot No. 4163,
offered to sell to her their one-half share but she declined for lack of money; (3) that said share was
149
later sold to Alejandra; (4) that Silveria was asked to deliver the title of Lot No. 4163 but instead she
delivered the title of Lot No. 5734; (5) that after the sale, Alejandra occupied one-half portion of Lot
No. 4163 while Lot No. 5734 was still in the possession of Venancio and the heirs of Maxima and
Silveria; (6) that it was only when Alejandra was about to buy the adjacent lot that she realized that
what was indicated in the Settlement of Estate and Sale was Lot No. 5734 and not 4163. In sum, we
find that the original plaintiffs in the trial court alleged sufficient facts in the complaint that properly
constituted a cause of action against the defendants.

On the second issue, petitioners contend respondents failed to show, specifically, a cause of action for
the reformation of the instrument in question. Reformation is that remedy in equity by means of
which a written instrument is made or construed so as to express or conform to the real intention of
the parties.17 As provided in Article 1359 of the Civil Code:

Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their
true intention is not expressed in the instrument purporting to embody the agreement by
reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.

An action for reformation of instrument under this provision of law may prosper only upon the
concurrence of the following requisites: (1) there must have been a meeting of the minds of the
parties to the contact; (2) the instrument does not express the true intention of the parties; and (3)
the failure of the instrument to express the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.18

All of these requisites, in our view, are present in this case. There was a meeting of the minds
between the parties to the contract but the deed did not express the true intention of the parties due
to mistake in the designation of the lot subject of the deed. There is no dispute as to the intention of
the parties to sell the land to Alejandra Delfino but there was a mistake as to the designation of the
lot intended to be sold as stated in the Settlement of Estate and Sale.

While intentions involve a state of mind which may sometimes be difficult to decipher, subsequent
and contemporaneous acts of the parties as well as the evidentiary facts as proved and admitted can
be reflective of one's intention. The totality of the evidence clearly indicates that what was intended
to be sold to Alejandra Delfino was Lot 4163 and not Lot 5734. As found by both courts below, there
are enough bases to support such conclusion. We particularly note that one of the stipulated facts
during the pre-trial is that one-half of Lot 4163 is in the possession of plaintiff Alejandra Delfino "since
1956 up to the present."19 Now, why would Alejandra occupy and possess one-half of said lot if it was
not the parcel of land which was the object of the sale to her? Besides, as found by the Court of
Appeals, if it were true that Silveria Flores was the sole owner of Lot 4163, then she should have
objected when Alejandra Delfino took possession of one-half thereof immediately after the sale.
Additionally, we find no cogent reason to depart from the conclusion of both the Court of Appeals
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and the trial court, based on the evidence on record, that Silveria Flores owns only one-half of Lot
4163. The other half belongs to her brother Jose, represented now by his grandchildren successors-in-
interest. As such, the latter could rightfully sell the land to Alejandra Delfino.

Furthermore, on record, it has been shown that a spot investigation conducted by a duly licensed
surveyor revealed that Lot 4163 is subdivided into two portions, one belonging to Silveria Flores and
the other to the heirs of Jose Flores. 20 As found by the trial court, if indeed it was Lot 5734 that was
sold, then Silveria Flores was occupying more than her share of the inherited lot. Thus:

x x x That, with respect to Lot No. 5734 and Lot No. 4292, in an on-the-spot investigation, made
by a licensed surveyor, Mr. Rilthe Dorado, his findings thereon show that Silveria Flores is in
possession on the western portion of Lot 5734, with an area of more than one-half and, to be
exact, with an area of 2,462, in spite of the fact that she is the registered owner only of a one-
third (1/3) share; and admitting, for the sake of argument, that it was the one-half portion, of
Lot 5734, that was sold, why should Silveria Flores possess more than 2,190 square meters,
which is the 1/2 of Lot 5734, Isabel Flores, the daughter of Venancio Flores is possessing the
middle portion, with an area of only 884 square meters; and Trinidad Flores Nodado, in
representation of her aunt, Maxima Flores, is possessing an area of 1,034 sq. m. 21

As a matter of fact, the trial court also found that in spite of her title over Lot 4163, Silveria recognized
the right of Jose's grandchildren over one-half portion of the property. 22 The trial court gave credence
to the testimony of Trinidad Flores, one of the grandchildren, who testified as follows:

Q:         During the lifetime of Jose and Silveria when they were possessing Lot 4163, did they
subdivide it because they were possessing it in common?

A:         They subdivided it into two halves.

xxx

Q:         And after Jose and Silveria subdivided Lot 4163, they possessed their respective shares
of Lot 4163?

A:         Yes.

xxx

Q:         Now you said that you are the heirs of Jose and Roman Flores (father and son) and so
when they died this portion of Lot 4163 devolved on you, did you ever take possession of Lot
4163?

A:         Yes, we, the brothers and sisters immediately took possession of it. 23

On cross-examination, Trinidad sufficiently explained why the title to Lot No. 4163 is in the name of
Silveria Flores alone. Thus:
151
 Q:         Now, this Lot No. 4163, do you know if this lot is also titled?

A:         Yes, it was titled, only in the name of Silveria Flores because my aunt was not able to go
with her; only my aunt was alone at that time.24

xxx

Q:         And as you have stated earlier, that what you are intending to sell was Lot 4163 to
plaintiff Alejandra Delfino, and during this time that you sold this intended lot 4163, you were
not aware this particular lot 4163 was titled exclusively in the name of Silveria Flores, is that
correct?

A:         I knew already that the said lot was already titled, but it was titled only in the name of
Silveria Flores because she was the only one who went there to have it titled in her name. And
at the time of the sale of the lot, we demanded for the title from Silveria Flores, and what she
delivered was the 5734 (sic).25

Petitioners now claim that the foregoing testimony of Trinidad Flores was biased. But we note that
the appellate court sustained the trial court's reliance on her testimony, which both found to be
credible. As consistently held, factual findings of the trial court, especially when affirmed by the
appellate court, are binding upon this Court 26 and entitled to utmost respect. 27 Considering these
findings, we see no reason to disturb the trial court's finding, affirmed by the Court of Appeals, that
the object of the contract of sale, as intended and understood by the parties, was Lot 4163 covered
by OCT 3129-A which Alejandra, and now her heirs, have been occupying. The designation of the lot in
the deed of sale as Lot 5734, covered by OCT 4918-A, was a mistake in the preparation of the
document. Thus, we concur in the conclusion reached by the courts a quo  that reformation of the
instrument is proper.

However, on the matter of damages, the award of actual damages in the amount of P5,000 lacks
evidentiary support. Actual damages if not supported by the evidence on record cannot be
granted.28 Moral damages for P10,000 was also improperly awarded, absent a specific finding and
pronouncement from the trial court that petitioners acted in bad faith or with malice. However, the
award of attorney's fees for P2,000 is justified under Article 2208(2) of the Civil Code, 29 in view of the
trial court's finding that the unjustified refusal of petitioners to reform or to correct the document of
sale compelled respondents to litigate to protect their interest.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39401

is AFFIRMED with MODIFICATION. It is hereby ordered that the document entitled Settlement of
Estate and Sale be reformed by changing the phrase "Lot 5734" to "Lot 4163" found in the sixth
paragraph of the deed, thereby ceding in favor of respondents one-half portion of Lot 4163 instead of
Lot 5734. The award to respondents of attorney's fees in the amount of P2,000 is affirmed. However,
the award of actual damages in the amount of P5,000 and of moral damages in the amount
of P10,000 are both SET ASIDE. No pronouncement as to costs.

152
SO ORDERED.

65.

THIRD DIVISION

G.R. No. 95897 December 14, 1999

FLORENCIA T. HUIBONHOA, petitioner,
vs.
COURT OF APPEALS, Spouses Rufina G. Lim and ANTHONY LIM, LORETA GOJOCCO CHUA and
Spouses SEVERINO and PRISCILLA GOJOCCO, respondents.

G.R. No. 102604 December 14, 1999

SEVERINO GOJOCCO and LORETA GOJOCCO CHUA, petitioners,

vs.
COURT OF APPEALS, HON. HERMOGENES R. LIWAG, as Judge of the RTC of Manila Branch 55 and
FLORENCIA HUIBONHOA, respondents.

PURISIMA J.:

These two petitions for review on certiorari under Rule 45 of the Rules of Court seek the reversal of
the Decisions of the Court of Appeals in CA-G.R. CV No. 16575 and CA-G.R. SP No. 24654 which
affirmed, respectively, the decision of Branch 148 of the Regional Trial Court of Makati City, dismissing
the complaint for reformation of contract, and the decision of Branch 55 of the Regional Trial Court of
Manila, reversing that of Branch 13 of the Metropolitan Trial Court of Manila, which favorably acted
in the ejectment case. Both petitions involve the same parties.

Culled from the records on hand, the facts giving rise to the two cases are as follows:

On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with siblings
Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that Florencia T.
Huibonhoa would lease from them (Gojoccos) three (3) adjacent commercial lots at Ilaya Street,
Binondo, Manila, described as lot nos. 26-A, 26-B and 26-C, covered by Transfer Certificates of Title
Nos. 76098, 80728 and 155450, all in their (Gojoccos') names.

On June 30, 1983, pursuant to the said memorandum of agreement, the parties inked a contract of
lease of the same three lots for a period of fifteen (15) years commencing on July 1, 1983 and

153
renewable upon agreement of the parties. Subject contract was to enable the lessee, Florencia T.
Huibonhoa, to construct a "four-storey reinforced concrete building with concrete roof deck,
according to plans and specifications approved by the City Engineer's Office." The parties agreed that
the lessee could let/sublease the building and/or its spaces to interested parties under such terms
and conditions as the lessee would determine and that all amounts collected as rents or income from
the property would belong exclusively to the lessee. The lessee undertook to complete construction
of the building "within eight (8) months from the date of the execution of the contract of lease." The
contract further provided as follows:

5. Good will Money and Rate of Monthly Rental: Upon the signing of this Contract of
Lease, LESSEE shall pay to each of the LESSOR the sum of P300,000.00 each or a total
sum of P900,000.00, as goodwill money.

LESSEE shall pay to each of the LESSOR the sum of P15,000.00 each or a total amount of
P45,000.00 as monthly rental for the leased premises, within the first five (5) days of
each calendar month, at the office of the LESSOR or their authorized agent; Provided,
however, that LESSEE's obligation to pay the rental shall start only upon completion of
the building, but if it is not completed within eight (8) months from date hereof as
provided for in par. 4 above, the monthly rental shall already accrue and shall be paid by
LESSEE to LESSOR. In other words, during the period of construction, no monthly rental
shall be collected from LESSEE; Provided, Finally, that the monthly rental shall be
adjusted/increased upon the corresponding increase in the rental of sub-leasees (sic)
using the percentage increase in the totality of rentals of the sub-leasees (sic) as basis
for the percentage increase of monthly rental that LESSEE will pay to LESSOR.

The parties also agreed that upon the termination of the lease, the ownership and title to the
building thus constructed on the said lots would automatically transfer to the lessor, even
without any implementing document therefor. Real estate taxes on the land would be borne
by the lessor while that on the building, by the lessee, but the latter was authorized to advance
the money needed to meet the lessors' obligations such as the payment of real estate taxes on
their lots. The lessors would deduct from the monthly rental due all such advances made by
the lessee.

After the execution of the contract, the Gojoccos executed a power of attorney granting Huibonhoa
the authority to obtain "credit facilities" in order that the three lots could be mortgaged for a limited
one-year period from July 1983. 1 Hence, on September 12, 1983, Huibonhoa obtained from China
Banking Corporation "credit facilities" not exceeding One Million (P1,000.000.00) Pesos.
Simultaneously, she mortgaged the three lots to the creditor bank. 2 Fifteen days later or on
September 27, 1983, to be precise, Huibonhoa signed a contract amending the real estate mortgage
in favor of China Banking Corporation whereby the "credit facilities" were increased to the principal
sum of Three Million (P3,000,000.00) Pesos. 3

During the construction of the building which later became known as Poulex Merchandise
Center, 4 former Senator Benigno Aquino, Jr. was assassinated. The incident must have affected the
154
country's political and economic stability. The consequent hoarding of construction materials and
increase in interest rates allegedly affected adversely the construction of the building such that
Huibonhoa failed to complete the same within the stipulated eight-month period from July 1, 1983.
Projected to be finished on February 29, 1984, the construction was completed only in September
1984 or seven (7) months later.

Under the contract, Huibonhoa was supposed to start paying rental in March 1984 but she failed to
do so. Consequently, the Gojoccos made several verbal demands upon Huibonhoa for the payment of
rental arrearages and, for her to vacate the leased premises. On December 19, 1984, lessors sent
lessee a final letter of demand to pay the rental arrearages and to vacate the leased premises. The
former also notified the latter of their intention to terminate the contract of lease. 5

However, on January 3, 1985, Huibonhoa brought an action for reformation of contract before Branch
148 of the Regional Trial Court in Makati. Docketed as Civil Case No. 9402, the Complaint alleged that
although there was a meeting of the minds between the parties on the lease contract, their true
intention as to when the monthly rental would accrue was not therein expressed due to mistake or
accident. She (lessee) alleged that the Gojoccos had erroneously considered the first accrual date of
the rents to be March 1984 when their true intention was that during the entire period of actual
construction of the building, no rents would accrue. Thus, according to Huibonhoa, the first rent
would have been due only in October 1984. Moreover the assassination of former Senator Benigno
Aquino, Jr., an unforeseen event, caused the country's economy to turn from bad to worse and as a
result, the prices of commodities like construction materials so increased that the building worth Six
Million pesos escalated to "something like 11 to 12 million pesos." However, she averred that by
reason of mistake or accident, the lease contract failed to provide that should an unforeseen event
dramatically increase the cost of construction, the monthly rental would be reduced and the term of
the lease would be extended for such fair duration as may be fair and equitable to both the lessors
and the lessee.

Huibonhoa then prayed that the contract of lease be reformed so as to reflect the true intention of
the parties; that its terms be novated so that the accrual of rents should be computed from October
1984; that the monthly rent of P45,000.00 be equitably reduced to P30,000.00, and the term of the
lease be extended by five (5) years. 6

Eleven days later or on January 14, 1985, to be exact, the Gojoccos filed Civil Case No. 106097 against
Huibonhoa for "cancellation of lease, ejectment and collection" with the Metropolitan Trial Court of
Manila. They theorized that despite the expiration of the 8-month construction period, Huibonhoa
failed to pay the rents that had accrued since March 1, 1984, their verbal demands therefor
notwithstanding; that, in their letter of December 19, 1984, they had notified Huibonhoa of their
intention to "terminate and cancel the lease for violation of its terms" and that they demanded from
her the "restitution of the land in question" and the payment of all rentals due thereunder; that
Huibonhoa refused to pay the rentals in bad faith because she had "sublet the stalls, bodegas and
offices to numerous tenants and/or stallholders" from whom she had collected "goodwill money and
exorbitant rentals even prior to the completion of the building or as of March 1984;" that she was
about to sublease the vacant spaces in the building; that she was able to finish construction of the
155
building "without utilizing her own capital or investment" on account of the mortgages of their land in
the amount of P3,700,000 (sic); that because the mortgage indebtedness with China Banking
Corporation had remained outstanding and unpaid, they had revoked the power of attorney in
Huibonhoa's favor on December 21, 1984, and that, because Huibonhoa was about to depart from
the Philippines, the rentals due and owing from the leased premises should be held to answer for
their claim by virtue of a writ of attachment.

The Gojoccos prayed that Huibonhoa and all persons claiming rights under her be ordered to vacate
the leased premises, to surrender to them actual and physical possession thereof and to pay the rents
due and unpaid at the agreed rate of P45,000.00 a month from March 1984 to January 1985, with
legal interest thereon. They also prayed that Huibonhua be ordered to pay the fair rental value of
P60,000.00 a month "beginning February 5, 1985 and every 5th of the month until the premises shall
be actually vacated and restored" to them and that, "considering the nature of the action," the Rules
on Summary Procedure be applied to prevent further losses, damages and expenses on their part. 7

Meanwhile, in Civil Case No. 9402, the Gojoccos submitted an answer to the complaint for
reformation of contract; asserting that the true intention of the parties was to obligate Huibonhoa to
pay rents immediately upon the expiration of the maximum period of eight (8) months from the
execution of the lease contract, which intention was meant to avoid a situation wherein Huibonhoa
would deliberately delay the completion of the building within the 8-month period to elude payment
of rental starting March 1984. They also claimed that Huibonhoa instituted the case in anticipation of
the ejectment suit they would file against her; that she was estopped from questioning the
enforceability of the lease contract after having received monetary benefits as a result of her
utilization of the premises to her sole profit and advantage; that the financial reverses she suffered
after the assassination of Senator Benigno Aquino, Jr. could not be considered a fortuitous event that
would justify the reduction of the monthly rental and extension of the contract of lease for five years;
and that the "principle of contract of adhesion" in interpreting the lease contract should be strictly
applied to Huibonhoa because it was her counsel who prepared it. 8

The Gojoccos prayed that Huibonhoa be ordered to pay them the sum of P495,000.00 representing
unpaid rents from March 1, 1984 to January 31, 1985 and the monthly rent of P60,000.00 from
February 1, 1985 until Huibonhoa shall have surrendered the premises to them, and that she be
ordered to pay attorney's fees, moral and exemplary damages and the costs of suit.

On January 31, 1985, Rufina Gojocco Lim entered into an agreement 9 with Huibonhoa whereby, to
put an end to Civil Case No. 9402, the former agreed to extend the term of the lease by three (3)
more years or for eighteen (18) years from July 1, 1983. The agreement expressly provided that no
rents would be collected unless and until the construction work was already completed or that during
the construction, no monthly rental should be collected. It also provided that "in case some
unforeseen event should dramatically increase the cost of the building, then the amount of monthly
rent shall be reduced to such sum and the term of the lease extended for such duration as may be fair
and equitable, bearing in mind the actual construction cost of the building." The agreement
recognized the fact that the Aquino assassination that resulted in the "hoarding of construction

156
materials and the skyrocketing of the interest rates" on Huibonhoa's loans, resulted in the increase in
actual cost of the construction from P6,000,000.00 to between P11,000,000.00 and P12,000,000.00.

There is no record that Rufina Gojocco Lim was dropped as a defendant in Civil Case No. 9402 but
only Loretta Gojocco Chua and the Spouses Severino and Priscilla Gojocco filed the memorandum for
the defendants in that case. 10

On March 9, 1987, the Makati RTC 11 rendered a decision holding that Huibonhoa had not presented
clear and convincing evidence to justify the reformation of the lease contract. It considered as
"misplaced" her contention that the Aquino assassination was an "accident" within the purview of
Art. 1359 of the Civil Code. It held that the act of Rufina G. Lim in entering into an agreement with
Huibonhoa that, in effect, "reformed" the lease contract, was not binding upon Severino and Loretta
Gojocco considering that they were separate and independent owners of the lots subject of the lease.
On this point, the trial court cited Sec, 25, Rule 130 of the Rules of Court which provides that the
rights of a party cannot be prejudiced by the act, declaration or omission of another. It thus decided
Civil Case No. 9402 as follows:

WHEREFORE, judgment is hereby rendered:

a) Dismissing the plaintiff's complaint and defendant Rufina Lim's

counterclaim, with costs against them;

b) Ordering the plaintiff to pay to defendant Loretta Gojocco Chua the

amount of P360,000.00, representing rentals due from March 1, 1984 to
February 28, 1987, with interests thereon at the legal rate from date of
the filing of the complaint until full payment thereof, plus the sum of
P15,000.00 per month beginning March, 1987 and for as long as the
plaintiff is in possession of the leased premises;

c) Ordering the plaintiff to pay to defendant Severino Gojocco Chua the

amount of P360,000.00, representing rentals due from March 1, 1984 to
February 28, 1987, with interests thereon at the legal rate from date of
the filing of the complaint until full payment thereof, plus the sum of
P15,000.00 per month beginning March, 1987 and for as long as the
plaintiff is in possession of the leased premises;

d) Ordering the plaintiff to pay attorney's fees in favor of the above-named

defendants in the sum of P36,000.00, aside from costs of suit.

SO ORDERED.

Upon motion of the Gojocco, the trial court amended the dispositive portion of its aforesaid decision
in that Huibonhua was ordered to pay each of Loretta Gojocco Chua and Severino Gojocco the

157
amount of P540,000.00 instead of P360,000.00 and that attorney's fees of P54,000.00, instead of
P36,000.00, be paid by Huibonhoa.

On the other hand, in Civil Case No. 102604, the Metropolitan Trial Court of Manila granted
Huibonhoa's prayer that the case be excluded from the operation of the Rule on Summary Procedure
for the reason that the unpaid rents sued upon amounted to P495,000.00. 12 Thereafter, Huibonhoa
presented a motion to dismiss or, in the alternative, to suspend proceedings in the case, contending
that the pendency of the action for reformation of contract constituted a ground of lis pendens or at
the very least, posed a prejudicial question to the ejectment case. The Gojoccos opposed such
motion, pointing out that while there was identity of parties between the two cases, the causes of
action, subject matter and reliefs sought for therein were different.

On May 10, 1985, after Huibonhoa had sent in her reply to the said opposition, Rufina G. Lim, through
counsel, prayed that she be dropped as plaintiff, in the case, and counsel begged leave to withdraw as
the lawyer of the latter in the case. Subsequently, Severino Gojocco and Loretta Gojocco Chua filed a
motion praying for an order requiring Huibonhoa to deposit the rents. On March 25, 1986, the court
below issued an Omnibus Order denying Huibonhoa's motion to dismiss, requiring her to pay monthly
rental of P30,000.00 starting March 1984 and every month thereafter, and denying Rufina G. Lim's
motion that she be dropped as plaintiff in the case. 13 Huibonhoa moved for reconsideration of said
order but the plaintiffs, apparently including Rufina, opposed the motion.

On July 21, 1986, Severino Gojocco and Huibonhoa entered into an agreement that altered certain
terms of the lease contract in the same way that the agreement between Huibonhoa and Rufina G.
Lim "novated" the contract. 14

On March 24, 1987, the Metropolitan Trial Court of Manila issued an Order denying Huibonhoa's
motion for reconsideration and the Gojoccos' motion for issuance of a writ of preliminary attachment,
and allowing Huibonhoa a period of fifteen (15) days within which to deposit P30,000.00 a month
starting March 1984 and every month thereafter. 15 Huibonhoa interposed a second motion for
reconsideration of the March 25, 1986 order on the ground that she had amicably settled the case
with Severino Gojocco and Rufina G. Lim. She therein alleged that only P15,000.00 was due Loretta G.
Chua. She informed the court of the decision of the Makati Regional Trial Court in Civil Case No. 9402
and argued that since that court had awarded the Gojoccos rental arrearages, it would be unjust
should she be made to pay rental arrearages, once again.

On June 30, 1987, the Metropolitan Trial Court of Manila issued an Order reiterating its decision to
assume jurisdiction over Civil Case No. 106097 and modified its March 24, 1987 Order by deleting the
portion thereof which required Huibonhua to deposit monthly rents. It also required Huibonhoa to
file her answer within fifteen (15) days from receipt of the copy of the court's order. Accordingly, on
July 21, 1987, Huibonhoa sent in her answer alleging that the lease contract had been novated by the
agreements she had signed on January 31, 1985 and July 21, 1986, with Rufina G. Lim and Severino
Gojocco, respectively. Huibonhoa added that she had paid Severino Gojocco the amount of
P228,000.00 through an Allied Bank manager's check. 16

158
On August 27, 1987, the Metropolitan Trial Court of Manila issued a Pre-trial Order limiting the issues
in Civil Case No. 106097 to: (a) whether or not plaintiffs had the right to eject the defendant on the
ground of violation of the conditions of the lease contract and (b) whether or not Severino Gojocco
had the right to pursue the ejectment case in view of the agreement he had entered into with
Huibonhoa on July 21, 1986.

On July 30, 1990, the Metropolitan Trial Court of Manila 17 came out with a decision "in favor of
plaintiffs Severino Gojocco and Loreta Gojocco Chua and against Florencia T. Huibonhoa." It ordered
Huibonhoa to vacate the lots owned by Severino Gojocco and Loreta Gojocco Chua and to pay each of
them the amounts P5,000.00 as attorney's fees and P1,000.00 as appearance fee. All three (3) party-
litigants appealed to the Regional Trial Court of Manila.

On February 14, 1991, the Regional Trial Court of Manila, Branch 55, 18 reversed the decision of the
Metropolitan Trial Court and ordered the dismissal of the complaint in Civil Case No. 106097. The
reversal of the inferior court's decision was based primarily on its finding that:

1. The suit below is intrinsically and inherently an action for cancellation of lease or
rescission of contract. In fact, the plaintiffs themselves recognized this intrinsic nature of
the action by categorizing the same action as one for cancellation of lease, ejectment
and collection. The suit cannot properly be reduced to one of simple ejectment as rights
of the parties to the still existing contracts have yet to be determined and resolved.
Necessarily, to put an end to the parties' relation, the contract between them has got to
be abrogated, rescinded or resolved. The action for the purpose is however cognizable
by the Regional Trial Court as its subject-matter is incapable of pecuniary estimation
(See Sec. 19 (1), B.P. 129).

Hence, Civil Case Nos. 9402 and 106097 (that was docketed before the RTC of Manila as Civil Case No.
90-54557) were both elevated to the Court of Appeals.

In CA-G.R. CV No. 16575, the Court of Appeals rendered a Decision 19 on May 31, 1990, affirming the
decision of the Makati Regional Trial Court in Civil Case No. 9402. Huibonhoa filed a motion for the
reconsideration of such Decision and on October 18, 1990, the Court of Appeals modified the same
accordingly, by ordering that the amount of P270,825.00 paid by Huibonhoa to Severino and Priscilla
Gojocco be deducted from the total amount of unpaid rentals due the said spouses.

In CA-G.R. SP No. 24654, the Court of Appeals also affirmed the decision of the Regional Trial Court of
Manila in Civil Case No. 106097 by its Decision 20 promulgated on October 29, 1991. Considering the
allegations of the complaint for cancellation of lease, ejectment and collection, the Court of Appeals
ratiocinated and concluded:

These allegations, which are denied by private respondent, raised issues which go
beyond the simple issue of unlawful possession in ejectment cases. While the complaint
does not seek the rescission of the lease contract, ejecting the lessee would, in effect,
deprive the lessee of the income and other beneficial fruits of the building of which she
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 is the owner until the end of the term of the lease. Certainly this cannot be decreed in a
summary action for ejectment. The decision of the MTC, it is true, only ordered the
ejectment of the private respondent from the leased premises. But what about the
building which, according to petitioners themselves, cost the private respondent
P3,700,000.00 to construct? Will it be demolished or will its ownership vest, even before
the end of the 15-year term, in the petitioners as owners of the land? Indeed,
inextricably linked to the question of physical possession is the ownership of the
building which the lessee was permitted to put up on the land. To evict the lessee from
the land would be to bar her not only from entering the building which she owns but
also from collecting the rents from its tenants.

With respect to the contention of the Gojoccos that since Huibonhoa had submitted to the
jurisdiction of the Metropolitan Trial Court, the jurisdictional issue had been foreclosed, the Court of
Appeals opined:

Petitioners point out that private respondent can no longer raise the question of
jurisdiction because she filed a motion to dismiss in the MTC but she did not raise this
question (Rule 15, sec. 8). But the Omnibus motion rule does not cover two grounds
which, although not raised in a motion to dismiss, are not waived. These are (1) failure
to state a cause of action and (2) lack of jurisdiction over the subject matter. (Rule 9,
sec. 2). These grounds can be invoked any time. Moreover, in this case it was not really
private respondent who questioned the jurisdiction over the Metropolitan Trial Court. It
was the Regional Trial Court which did so motu propio.

On February 19, 1992, 21 the Court resolved that these two petitions for review on certiorari be
consolidated. Although they sprang from the same factual milieu, the petitions are to be discussed
separately, however, because the issues raised are cognate yet independent from each other.

In G.R. No. 95897

Petitioner Huibonhoa contends that:

1 THE RESPONDENT COURT OF APPEALS COMMITTED A GRAVE AND

SERIOUS ERROR, CONSTITUTING ABUSE OF DISCRETION, IN FINDING THE
AGREEMENT BETWEEN PETITIONER AND PRIVATE RESPONDENT SEVERINO
GOJOCCO (ANNEX "E") WORTHLESS AND USELESS ALTHOUGH IT HAS
RECOGNIZED THE PAYMENTS WHICH RESPONDENT SEVERINO GOJOCCO
HAS RECEIVED FROM THE PETITIONER WHICH ACTUALLY CONSTITUTED AN
ACT OF RATIFICATION;

2. THE RESPONDENT COURT FAILED TO CONSIDER THE TRAGIC

ASSASSINATION OF FORMER SENATOR BENIGNO AQUINO AS A
FORTUITOUS EVENT OR FORCE MAJEURE WHICH JUSTIFIES THE
ADJUSTMENT OF THE TERMS OF THE CONTRACT OF LEASE. 22
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Art. 1305 of the Civil Code defines a contract as "a meeting of the minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some service."
Once the minds of the contacting parties meet, a valid contract exists, whether it is reduced to writing
or not. When the terms of an agreement have been reduced to writing, it is considered as containing
all the terms agreed upon. As such, there can be, between the parties and their successors in interest,
no evidence of such terms other than the contents of the written agreement, except when it fails to
express the true intent and agreement of the parties. 23 In such an exception, one of the parties may
bring an action for the reformation of the instrument to the end that their true intention may be
expressed. 24

Reformation is that remedy in equity by means of which a written instrument is made or construed so
as to express or conform to the real intention of the parties. 25 As to its nature, in Toyota Motor
Philippines Corporation v. Court of Appeals, 26 the Court said:

An action for reformation is in personam, not in rem, . . . even when real estate is
involved. . . . It is merely an equitable relief granted to the parties where through
mistake or fraud, the instrument failed to express the real agreement or intention of the
parties. While it is a recognized remedy afforded by courts of equity it may not be
applied if it is contrary to well-settled principles or rules. It is a long-standing principle
that equity follows the law. It is applied in the absence of and never against statutory
law. . . . Courts are bound by rules of law and have no arbitrary discretion to disregard
them. . . . Courts of equity must proceed with outmost caution especially when rights of
third parties may intervene. . . . .

Art. 1359 of the Civil Code provides that "(w)hen, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask
for the reformation of the instrument to the end that such intention may be expressed. . . . "An action
for reformation of instrument under this provision of law may prosper only upon the concurrence of
the following requisites: (1) there must have been a meeting of the minds of the parties to the
contact; (2) the instrument does not express the true intention of the parties; and (3) the failure of
the instrument to express the true intention of the parties is due to mistake, fraud, inequitable
conduct or accident. 27

The meeting of the minds between Huibonhoa, on the one hand, and the Gojoccos, on the other, is
manifest in the written lease contract duly executed by them. The success of the action for
reformation of the contract of lease at bar should therefore, depend on the presence of the two other
requisites aforementioned.

To prove that the lease contract does not evince the true intention of the parties, specifically as
regards the time when Huibonhoa should start paying rents, she presented as a witness one of the
lessors, Rufina G. Lim, who testified that prior to the execution of the lease contract on June 30, 1983,
the parties had entered into a Memorandum of Agreement on June 8, 1983; that on December 21,
1984, the lessors revoked the special power of attorney in favor of Huibonhoa; that on January 31,
161
1985, she entered into an agreement with Huibonhoa whereby the amount of the rent was reduced
to P10,000 a month and the term of the lease was extended by three (3) years, and that Huibonhoa
started paying rental in September 1984. 28

There is no statement in such testimony that categorically points to the fact that the contract of lease
has failed to express the true intention of the parties. While it is true that paragraph 4 of the
Memorandum of Agreement 29 states that the P15,000 monthly rental due each of the three lessors
shall be collected in advance within the first five (5) days of each month "upon completion of the
building," the same memorandum of agreement also provides as follows:

8. This Memorandum of Agreement shall bind the SECOND PARTY only after the signing
of the Contact of Lease by both parties which shall not be later than June 30,
1983,  provided, however, that should the SECOND PARTY decide not to proceed with
the signing on the deadline aforestated, the FIRST PARTY shall not hold her liable
therefor.

In view thereof, reliance on the provisions of the Memorandum of Agreement is misplaced

considering that its provisions would bind the parties only upon the signing of the lease
contract. However, the lease contract that was later entered into by the parties qualified the
time when the lessee should start paying the monthly rentals. Paragraph 5 of the lease
contract states that the "LESSEE's" obligation to pay the rental shall start only upon the
completion of the building, but if it is not completed within eight (8) months from date hereof
as provided for in par. 5 (sic) above, the monthly rental shall already accrue and shall be paid
by LESSEE to LESSOR." That qualification applies even though the next sentence states that
"(I)n other words, during the period of construction, no monthly rentals shall be collected from
LESSEE." Otherwise, there was no reason for the insertion of that qualification on the period of
construction of the building the termination of which would signal the accrual of the monthly
rentals. Non-inclusion of that qualification would also give the lessee the unbridled discretion
as to the period of construction of the building to the detriment of the lessor's right to exercise
ownership thereover upon the expiration of the 15-year lease period.

In actions for reformation of contact, the onus probandi is upon the party who insists that the
contract should be reformed. 30 Huibonhoa having failed to discharge that burden of proving that the
true intention of the parties has not been accurately expressed in the lease contract sought to be
reformed, the trial court correctly held that no clear and convincing proof warrants the reformation
thereof.

In the complaint, Huibonhoa alleged:

5.9 By reason of mistake or accident, the contract (Annex "A") fails to state the true
intention and real agreement of the parties to the effect that in case some unforeseen
event should dramatically increase the cost of the building, then the amount of monthly
rent shall be reduced to such sum and the term of the lease extended for such duration

162
 as may be fair and equitable to both parties, bearing in mind the actual construction
cost of the building.

5.10. As a direct result of the tragic Aquino assassination on 21 August 1983, which the
parties did not foresee and coming as it did barely two (2) months after the contract
(Annex "A") had been signed, the country's economy dramatically turned from bad to
worse, and the resulting ill effects thereof specifically the hoarding of construction
materials adversely affected the plaintiff resulting, among others, in delaying the
construction work and the skyrocketing of the interest rates on plaintiff's loans, such
that instead of roughly P6 Million as originally budgeted the building in question now
actually cost the plaintiff something like 11 to 12 million pesos, more or less.

In the present petition, Huibonhoa asserts that by reason of oversight or mistake, the true intention
of the parties that should some unforeseen event dramatically increase the cost of the building, then
the amount of monthly rent shall be reduced to such sum and the term of the lease extended to such
period as would be fair and equitable to both sides, bearing in mind always that petitioner was
ordinary LESSEE but was an investor-developer. She insists that "(i)n truth, the contract, while that of
lease, really amounted to a common business venture of the parties." 31

On account of her failure to prove what costly mistake allegedly suppressed the true intention of the
parties, Huibonhoa honestly admitted that there was an oversight in the drafting of the contract by
her own counsel. By such admission, oversight may not be attributed to all the parties to the contract
and therefore, it cannot be considered a valid reason for the reformation of the same contract. In
fact, because it was Huibonhoa's counsel himself who drafted the contract, any obscurity therein
should be construed against her. 32 Unable to substantiate her stance that the true intention of the
parties is not expressed in the lease contract in question, Huibonhoa nonetheless contends that
paragraph 5 thereof should be interpreted in such a way that she should only begin paying monthly
rent in October 1984 and not in March 1984. 33

Such contention betrays Huibonhoa's confusion on the distinction between interpretation and
reformation of contracts. In National Irrigation Administration v. Gamit, 34 the Court distinguished the
two concepts as follows:

"Interpretation" is the act of making intelligible what was before not understood,
ambiguous, or not obvious. It is a method by which the meaning of language is
ascertained. The "interpretation" of a contract is the determination of the meaning
attached to the words written or spoken which make the contract. On the other hand,
"reformation" is that remedy in equity by means of which a written instrument is made
or construed so as to express or conform to the real intention of the parties. In granting
reformation, therefore, equity is not really making a new contract for the parties, but is
confirming and perpetuating the real contract between the parties which, under the
technical rules of law, could not be enforced but for such reformation. As aptly observed
by the Code Commission, the rationale of the doctrine is that it would be unjust and

163
 inequitable to allow the enforcement of a written instrument which does not reflect or
disclose the real meeting of the minds of the parties.

By bringing an action for the reformation of subject lease contract, Huibonhoa chose to reform
the instrument and not the contract itself. 35 She is thus precluded from inserting stipulations
that are not extant in the lease contract itself lest the very agreement embodied in the
instrument is altered.

Neither does the Court find merit in her submission that the assassination of the late Senator Benigno
Aquino, Jr., was a fortuitous event that justified a modification of the terms of the lease contract.

A fortuitous event is that which could not be foreseen, or which even if foreseen, was inevitable. To
exempt the obligor from liability for a breach of an obligation due to an "act of God", the following
requisites must concur: (a) the cause of the breach of the obligation must be independent of the will
of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such
as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor
must be free from any participation in, or aggravation of the injury to the creditor. 36

In the case under scrutiny, the assassination of Senator Aquino may indeed be considered a fortuitous
event. However, the said incident per se could not have caused the delay in the construction of the
building. What might have caused the delay was the resulting escalation of prices of commodities
including construction materials. Be that as it may, there is no merit in Huibonhoa's argument that
the inflation borne by the Filipinos in 1983 justified the delayed accrual of monthly rental, the
reduction of its amount and the extension of the lease by three (3) years.

Inflation is the sharp increase of money or credit or both without a corresponding increase in business
transaction. 37 There is inflation when there is an increase in the volume of money and credit relative
to available goods resulting in a substantial and continuing rise in the general price level.  38 While it is
of judicial notice that there has been a decline in the purchasing power of the Philippine peso, this
downward fall of the currency cannot be considered unforeseeable considering that since the 1970's
we have been experiencing inflation. It is simply a universal trend that has not spared our
country. 39 Conformably, this Court upheld the petitioner's view in Occeña v. Jabson 40 that even a
worldwide increase in prices does not constitute a sufficient cause of action for modification of an
instrument.

It is only when an extraordinary inflation supervenes that the law affords the parties a relief in
contractual obligations. 41 In Filipino Pipe and Foundry Corporation v. NAWASA, 42 the Court explained
extraordinary inflation thus:

Extraordinary inflation exists when "there is a decrease or increase in the purchasing

power of the Philippine currency which is unusual or beyond the common fluctuation in
the value of said currency, and such decrease or increase could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the

164
 time of the establishment of the obligation. (Tolentino, Commentaries and
Jurisprudence on the Civil Code, Vol. IV, p. 284.)

An example of extraordinary inflation is the following description of what happened to

the Deutschmark in 1920.

More recently, in the 1920's Germany experienced a case of hyperinflation. In early

1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same year,
it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by
October 1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M. Villegas &
Victor R. Abola, Economics, An Introduction [Third Edition]).

As reported, "prices were going up every week, then every day, then every hour.
Women were paid several times a days so that they could rush out and exchange their
money for something of value before what little purchasing power was left dissolved in
their hands. Some workers tried to beat the constantly rising prices by throwing their
money out of the windows to their waiting wives, who would rush to unload the nearly
worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions."
(Sidney Rutberg, "The Money Balloon" New York: Simon and Schuster, 1975, p. 19, cited
in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)"

No decrease in the peso value of such magnitude having occurred, Huibonhoa has no valid ground to
ask this Court to intervene and modify the lease agreement to suit her purpose. As it is, Huibonhoa
even failed to prove by evidence, documentary or testimonial, that there was an extraordinary
inflation from July 1983 to February 1984. Although she repeatedly alleged that the cost of
constructing the building doubled from P6 million to P12 million, she failed to show by how much, for
instance, the price index of goods and services had risen during that intervening period. An
extraordinary inflation cannot be assumed. 43 Hence, for Huibonhoa to claim exemption from liability
by reason of fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation was the
sole and proximate cause of the loss or destruction of the contract 44 or, in this case, of the delay in
the construction of the building. Having failed to do so, Huibonhoa's contention is untenable.

Pathetically, if indeed a fortuitous event deterred the timely fulfillment of Huibonhoa's obligation
under the lease contract, she chose the wrong remedy in filing the case for reformation of the
contract. Instead, she should have availed of the remedy of recission of contract in order that the
court could release her from performing her obligation under Arts. 1266 45 and 1267 46 of the Civil
Code, so that the parties could be restored to their status prior to the execution of the lease contract.

As regards Huibonhoa's assertion that the lease contract was novated by Rufina G. Lim and Severino
Gojocco who entered into an agreement with her on January 31, 1985 and July 21, 1986, respectively,
it bears stressing that the lease contract they had entered into is not a simple one. It is unique in that
while there is only one lessee, Huibonhoa, and the contract refers to a "LESSOR," there are actually
three lessors with separate certificates of title over the three lots on which Huibonhoa constructed
the 4-storey building. As Huibonhoa herself ironically asserts, the lease contract is an "indivisible" one
165
because the lessors' interests "cannot be separated even if they owned the lands separately under
different certificates of title." 47 Hence, the acts of Rufina G. Lim and Severino Gojocco in entering into
the new agreement with Huibonhoa could have affected only their individual rights as lessors because
no new agreement was forged between Huibonhoa and all the lessors, including Loreta Gojocco.

Consequently, because the three lot owners simultaneously entered into the lease contract with
Huibonhoa, novation of the contract could only be effected by their simultaneous act of abrogating
the original contract and at the same time forging a new one in writing. Although as a rule no form of
words or writing is necessary to give effect to a novation, 48 a written agreement signed by all the
parties to the lease contract is required in this case. Ordinary diligence on the part of the parties
demanded that they execute a written agreement if indeed they wanted to enter into a new one
because of the 15-year life span of the lease affecting real property and the fact that third persons
would be affected thereby on account of the express agreement allowing the lessee to lease the
building to third parties. 49

Under the law, novation is never presumed. The parties to a contract must expressly agree that they
are abrogating their old contract in favor of a new one. 50 Accordingly, it was held that no novation of
a contract had occurred when the new agreement entered into between the parties was intended "to
give life" to the old one. 51 "Giving life" to the contract was the very purpose for which Rufina G. Lim
signed the agreement on January 31, 1986 with Huibonhoa. It was intended to graft into the lease
contract provisions that would facilitate fulfillment of Huibonhoa's obligation therein. 52 That the new
agreement was meant to strengthen the enforceability of the lease is further evidenced by the fact,
although its stipulations as to the period of the lease and as to the amount of rental were altered, the
agreement with Rufina G. Lim does not even hint that the lease itself would be abrogated. As such,
even Huibonhoa's agreement with Rufina G. Lim cannot be considered a novation of the original lease
contract. Where the parties to the new obligation expressly recognize the continuing existence and
validity of the old one, where, in other words, the parties expressly negated the lapsing of the old
obligation, there can be no novation. 53

As regards the new agreement with Severino Gojocco, it should be noted that he only disclaimed its
existence when the check issued by Huibonhoa to him, allegedly in accordance with the new
agreement, was dishonored. That unfortunate fact might have led Severino Gojocco to refuse
acceptance of rents paid by Huibonhoa subsequent to the dishonor of the check. However, the non-
existence of the new agreement with Severino Gojocco is a question of fact that the courts below had
properly determined. The Court of Appeals has affirmed the trial court's finding that "not only was
Gojocco's consent vitiated by fraud and false representation there likewise was failure of
consideration in the execution of Exhibit C, (and therefore) the said agreement is legally
inefficacious." 54 In the Resolution of October 18, 1990, the Court of Appeals considered the amount
of P270,825.00 represented by the check handed by Huibonhoa to Severino Gojocco as "partial
settlement" or "partial payment 55 clearly under the terms of the original lease contract. There is no
reason to depart from the findings and conclusions of the appellate court on this matter.

Nevertheless, because Severino Gojocco repudiates the new agreement even before this Court as his
consent thereto had allegedly been "vitiated by fraud and false representation," 56 Huibonhoa may
166
not escape complete fulfillment of her obligation under the original lease contract as far as Severino
Gojocco is concerned. She is thus contractually bound to pay him the unpaid rents.

Aside from the monthly rental that should be paid by Huibonhoa starting March 1984, Loreto Gojocco
Chua is also entitled to interest at the rate of 6% per annum from the accrual of the rent in
accordance with Article 2209 57 of the Civil Code until it is fully paid because the monetary award does
not partake of a loan or forbearance in money. However, the interim period from the finality of this
judgment until the monetary award is fully satisfied, is equivalent to a forbearance of credit and
therefore, during that interim period, the applicable rate of legal interest shall be 12%. 58 As regards
Severino Gojocco, he shall be entitled to such interests only from the time that Huibonhoa defaulted
paying her monthly rentals to him considering that he had already received from her the amount of
P270,825.00 as rentals.

The amount of monthly rentals upon which interest shall be charged shall be that stipulated in
paragraph 5 of the lease contract or P15,000.00 to each lessor. That amount, however, shall be
subject to the provision therein that the amount of rentals shall be "adjusted/increased upon the
corresponding increase in the rental of subleases using the percentage increase in the totality of
rentals of the sub-lessees as basis for the percentage increase of monthly rental that LESSEE will pay
to LESSOR." Upon remand of this case therefore, the trial court shall determine the total monetary
award in favor of Loreta Gojocco Chua and of Severino Gojocco.

From the facts of the case, it is clear that what Huibonhoa aimed for in filing the action for
reformation of the lease contract, is to absolve herself from her delay in the payment of monthly
rentals and to extend the term of the lease, which under the original lease contract, expired in 1988.
The ostensible reasons behind the institution of the case she alleged were the unfavorable
repercussions resulting from the economic and political upheaval on the heels of the Aquino
assassination. However, a contract duly executed is the law between the parties who are obliged to
comply with its terms. Events occurring subsequent to the signing of an agreement may suffice to
alter its terms only if, upon failure of the parties to arrive at a valid compromise, the court deems the
same to be sufficient reasons in law for altering the terms of the contract. This court once said:

It is a long established doctrine that the law does not relieve a party from the effects of
an unwise, foolish, or disastrous contract, entered into with all the required formalities
and with full awareness of what he was doing. Courts have no power to relieve parties
from obligations voluntarily assumed, simply because their contracts turned out to be
disastrous deals or unwise investments. 59

In G.R. No. 102604

Petitioners Severino Gojocco and Loreta G. Chua assail the Decision of the Court of Appeals on the
following grounds;

a) RESPONDENT COURT HAS DECIDED QUESTIONS OF SUBSTANCE NOT

HERETOFORE DETERMINED BY THIS HONORABLE COURT OR HAS DECIDED
167
 THEM IN A WAY CLEARLY CONTRARY TO LAW OR THE APPLICABLE
DECISIONS OF THIS HONORABLE COURT;

b) RESPONDENT COURT HAS SO FAR DEPARTED FROM THE ACCEPTED AND

USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE
OF THE POWERS OF SUPERVISION BY THE HONORABLE COURT. 60

The contentions of petitioners relate to the basic issue raised in the petition — whether or not the
Court of Appeals erred in affirming the decision of the Regional Trial Court that dismissed for lack of
jurisdiction the complaint for ejectment brought by petitioners before the Metropolitan Trial Court of
Manila. In other words, the issue for determination here is: whether or not the Metropolitan Trial
Court had jurisdiction over the complaint for "cancellation of lease, ejectment and collection" in Civil
Case No. 90-54557.

The governing law on jurisdiction when the complaint was filed on January 14, 1985 was Sec. 33 (2) of
Batas Pambansa Blg. 129 vesting municipal courts with:

Exclusive original jurisdiction over cases of forcible entry and unlawful

detainer. Provided, That when, in such cases, the defendant raises the question of
ownership in his pleadings and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership should be resolved only to
determine the issue of possession.

Thereunder, when the issue of ownership is indispensable to the resolution of the issue of possession,
the Metropolitan Trial Court is empowered to decide it as well. 61 Explaining this jurisdictional matter,
in Dizon v. Court of Appeals, 62 the Court said:

. . . . Well-settled is the rule that in an ejectment suit, the only issue is possession de
facto or physical or material possession and not possession de jure. So that, even if the
question of ownership is raised in the pleadings, as in this case, the court may pass upon
such, issue but only to determine the question of possession especially if the former is
inseparably linked with the latter. It cannot dispose with finality the issue of ownership-
such issue being inutile in an ejectment suit except to throw light on the question of
possession. This is why the issue of ownership or title is generally immaterial and foreign
to an ejectment suit.

Detainer, being a mere quieting process, questions raised on real property are
incidentally discussed. In fact, any evidence of ownership is expressly banned by Sec. 4,
Rule 70 except to resolve the question of possession. Thus, all that the court may do, is
to make an initial determination of who is the owner of the property so that it can
resolve who is entitled to its possession absent other evidence to resolve the latter. But
such determination of ownership is not clothed with finality. Neither will it affect
ownership of the property nor constitute a binding and conclusive adjudication on the
merits with respect to the issue of ownership. . . . .
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The Court has consistently held that in forcible entry and unlawful detainer cases, jurisdiction is
determined by the nature of the action as pleaded in the complaint. 63 The test of the sufficiency of
the facts alleged in the complaint is whether or not admitting the facts alleged therein, the court
could render a valid judgment upon the same in accordance with the prayer of the plaintiff. 64

In an ejectment case, or specifically in an action for unlawful detainer like the present case, it suffices
to allege that the defendant is unlawfully withholding possession of the property in question. 65 A
complaint for unlawful detainer is therefore sufficient if it alleges that the withholding of possession
or the refusal to vacate is unlawful without necessarily employing the terminology of the law. 66 It is
therefore in order to make an inquiry into the averments of the complaint in Civil Case No. 90-
54557. 67 The complaint, that was called one for "cancellation of lease, ejectment and collection,"
alleged the following facts:

1. The parties are residents of different barangyas and therefore the

provisions of P.D. No. 1508 (the law on the katarungang pambarangay) are
inapplicable;

2. The plaintiffs, Rufina G. Lim, Severino Gojocco and Loreta Gojocco Chua
are the registered owners of three parcels of commercial land in Ilaya
Street, Binondo, Manila.

3. On June 30, 1983, they entered into a lease contract with defendant
Huibonhoa whereby the latter would construct a 4-storey building on the
three lots that, after the expiration of the 15-year period of the lease,
would be owned by the lessors, and that, upon completion of construction
of the building within eight (8) months from signing of the lease contract,
the lessee would start paying monthly rentals;

4. After the expiration of the 8-months period or in March 1984, the

rentals of P45,000.00 a month accrued.

5. Despite "verbal demands, meetings and conferences" by which the

plaintiffs demanded from demanded from defendant payment of the total
amount due on account of the lease contract, defendant failed to pay;

6. On December 19, 1984, the plaintiffs, through counsel, wrote defendant

letter informing her of their intention to "terminate and cancel the lease
for violation of its terms by the defendant" at the same time demanding
restitution of the lots in question and payment of all rentals due;

7. Despite such verbal and written demands, the defendant refused to

comply therewith to the damage and prejudice of the plaintiffs considering
that defendant was subleasing the stalls, bodegas and offices to tenants
who had paid her goodwill money and "exorbitant rentals" since March
169
 1984 or prior to the completion of the building until the filing of the
complaint in amounts totaling millions of pesos;

8. Defendant continued to sublease vacant spaces while depriving

plaintiffs of reasonable compensation for the use and occupation of the
premises;

9. Defendant did not utilize her own capital in the construction of the
building as she was able to mortgage the lots to the China Banking
Corporation in the total amount of P3,700,000.00 as well as collect
goodwill money from tenants;

10 Plaintiffs revoked the authority given to defendant to encumber the

property because of her failure of pay and liquidate the real estate loan
within the one-year period which expired on September 30, 1984;

11. That plaintiffs were forced to file the action by reason of defendant's
bad faith and unwarranted refusal to satisfy their claims; and

12 The rentals should be made to answer for plaintiffs' monetary claims on

account of defendant's impending departure from the Philippines.

After praying for the issuance of a preliminary writ of attachment, the plaintiffs prayed as follows:

WHEREFORE, premises considered, it is most respectfully prayed that judgment be

rendered in favor of plaintiffs and against the defendant as follows:

1. Ordering defendant and all persons claiming rights under her to

forthwith vacate the leased premises described in this Complaint and to
surrender actual and physical possession to herein plaintiffs and/or their
duly authorized representatives;

2. Ordering defendant to pay plaintiff all rentals due and unpaid at the
agreed rate of P45,000.00 per month from March, 1984 to January, 1985
or for a period of 11 months with legal interests thereon until fully paid;

3. Ordering the defendant to deposit past and future rentals with this
Honorable Court, or in a bank acceptable to both parties, the Passbook to
be turned over and submitted to this Honorable Court for further
disposition;

4. Sentencing defendant to pay the fair rental value of, and/or reasonable
compensation for, the use and occupancy of the leased premises at the
rate of P60,000 per month beginning February 5, 1985 and every 5th of

170
 the succeeding month thereafter until the premises is actually vacated and
restored to herein plaintiffs;

5. To pay plaintiffs a sum equivalent to 20% of the total amount claimed in

this action for and as attorney's fees exclusive of appearance fees and
costs of this action;

6. That pending hearing of this case, a writ of preliminary attachment be

issued against the credits due defendant from the tenants or sublessees of
the premises in question to serve as security for the satisfaction of any
judgment that may be recovered in this case;

7. For such other and further relief as this Honorable Court may deem
proper, just and equitable;

8. Plaintiffs further respectfully pray that for expediency, considering the

nature of this action and to protect plaintiffs from incurring further losses,
damages and expenses concomittant to the deprivation or loss of their
possession, that notwithstanding the amount of claim involved, they
hereby respectfully invoke the applicability of the rules on Summary
Procedure in the interest of justice.

Undoubtedly, the complaint avers ultimate facts required for a cause of action in an unlawful detainer
case. It alleges possession of the properties by the lessee, verbal and written demands to pay rental
arrearages and to vacate the leased premises, continued refusal of the lessees to surrender
possession of the premises, and the fact that the action was filed within one year from demand to
vacate.

A reading of the allegations of the complaint and the reliefs prayed for indeed reveals facts that
appear to be extraneous to the primary aim of recovering possession of property in an action for
unlawful detainer although these facts do not involve issue of ownership of the premises. Thus,
consonant with the allegation that defendant was leasing the spaces in the building to the tune of
millions of peso, plaintiffs pray for an increase in monthly rentals to P60,000.00 a month starting
February 5, 1985 or after construction of the building had been completed. The prayer likewise speaks
of "past and future rentals" that should be deposited with the court or in an acceptable bank. In other
words, the complaint seeks relief that are not limited to payment of the rent arrearages and the
eviction of defendant from the leased premises.

Although the reasons of their own the Gojoccos opted not to express in the complaint their intention
to terminate the lease, such intention could be gleaned from their prayer that the court should
"sentenced" Huibonhoa to pay the higher rent of P60,000.00 a month. That explains why the
complaint is captioned as one for "cancellation of the lease" aside from its being one for ejectment
and "collection." In praying that the court directs the defendant to pay the increased rental of

171
P60,000.00 a month, plaintiffs, in effect, would want the existing contract terminated in order that
the court could substitute it with another providing for an increased monthly rental.

However, forging contracts for parties in a case is beyond the jurisdiction of courts. Otherwise, it
would result in the court's substitution of its own volition in a contract that should express only the
parties' will. Necessarily, the Metropolitan Trial Court could not favorably act on the prayer for
cancellation of the contract with another containing terms suggested by the plaintiffs as the
allegations and prayer therefor are no more than superfluities that do not affect the main cause of
action averred in the complaint. The court therefore granted only the main relief sought by the
plaintiffs-the eviction of the defendant.

The Regional Trial Court incorrectly held that the complaint was also for rescission of contract, a case
that is certainly not within the jurisdiction of the Metropolitan Trial Court. By the allegations of the
complaint, the Gojoccos' aim was to cancel or terminate the contract because they sought its partial
enforcement in praying for rental arrearages. There is a distinction in law between cancellation of a
contract and its rescission. To rescind is to declare a contract void in its inception and to put an end to
it as though it never were. It is not merely to terminate it and release parties from further obligations
to each other but to abrogate it from the beginning and restore the parties to relative positions which
they would have occupied had no contract ever been made. 68

Termination of a contract is congruent with an action for unlawful detainer. The termination or
cancellation of a contract would necessarily entail enforcement of its terms prior to the declaration of
its cancellation in the same way that before a lessee is ejected under a lease contract, he has to fulfill
his obligations thereunder that had accrued prior to his ejectment. However, termination of a
contract need not undergo judicial intervention. The parties themselves may exercise such option.
Only upon disagreement between the parties as to how it should be undertaken may the parties
resort to courts. Hence, notwithstanding the allegations in the complaint that are extraneous or not
essential in an action for unlawful detainer, the Metropolitan Trial Court correctly assumed
jurisdiction over Civil Case No. 90-54557.

The Court finds sustainable basis for the observation of the Court of Appeals that execution of the
judgment ejecting Huibonhoa would cause complications that are anathema to a peaceful resolution
of the controversy between the parties. Thus, while Huibonhoa would be ejected from the lots owned
by Severino Gojocco and Loreta Gojocco Chua, she would be bound by her agreement with Rufina G.
Lim to continue with the lease. The result would be disadvantageous to both Huibonhoa and Severino
Gojocco and Loreta G. Chua. The said owners would be unable to exercise rights of ownership over
their lots upon which the building was constructed unless they remove or buy two-thirds of the
building.

However, an action for unlawful detainer does not preclude the lessee or ejected party from availing
of other remedies provided by law. The prevailing doctrine is that suits or actions for the annulment
of sale, title or document do not abate any ejectment action respecting the same, property.  69 In fact,
in this case, the lessee, as it was, "jumped the gun" over the lessors in filing the action for reformation
of the lease contract. That it proved unfavorable to her does not detract from the fact that the
172
controversy between her and the lessors has been resolved in accordance with law albeit not in
consonance with the wishes of all the parties.

Be that as it may, the problem of ejecting Huibonhoa has been rendered moot and academic by the
expiration of the lease contract litigated upon in June 1998. The parties might have availed of the
provision of paragraph 1 of the lease contract whereby the parties agreed to renew it "for a similar or
shorter period upon terms and conditions mutually agreeable" to them. If they opted to brush aside
that provision, with more reason, Huibonhoa's eviction should ensue as a matter of enforcement of
the lease contract.

WHEREFORE, judgment is hereby rendered as follows:

a) In G.R. No. 95897, the decision of the Court of Appeals in CA-G.R. CV No. 16575,
dismissing petitioner's complaint for reformation of contract, is AFFIRMED with the
modifications that:

1] Private respondent Loreta Gojocco Chua is adjudged entitled to legal

interest of 6%  per annum  from March, 1984, the time the rents became
due;

2] Private respondent Severino Gojocco shall receive 6% legal interest only

from the time Florencia T. Huibonhoa defaulted in the payment of her
monthly rents; and

3] Legal interest of 12% per annum shall accrue from the finality of this

decision until the amount due is fully paid.

b) In G.R. No. 102604, the decision of the Court of Appeals in CA-G.R. SP No. 24654,
affirming the decision of the Regional Trial Court of origin which dismissed the
ejectment case instituted by the petitioners against the private respondent is SET ASIDE;
the order of ejectment issued by the Metropolitan Trial Court a quo on July 30, 1980 is
UPHELD; and the private respondent and all persons claiming authority under her are
ordered to vacate the land and portion of the building corresponding to Lot No. 26-B
covered by TCT No. 80728 of petitioner Severino Gojocco, and the portion
corresponding to Lot No. 26-C covered by TCT No. 155450 of petitioner Loreta Chua. No
pronouncement as to costs.

SO ORDERED.

Melo, Panganiban and Gonzaga-Reyes, JJ., concur.

66.

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 THIRD DIVISION

G.R. No. 159821 August 19, 2005

PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, Petitioners,

vs.
COURT OF APPEALS and QVEGG MARINE TRANSPORT and BUILDERS CORPORATION, Respondents.

DECISION

CARPIO MORALES, J.:

Assailed via petition for review on certiorari are the November 8, 2002 Decision and August 25, 2003
Resolution of the Court of Appeals in CA-G.R. CV No. 46297, "QVEGG Marine Transport and Builders
Corporation v. Philippine Fisheries Development Authority."

On August 1, 1989, petitioner Philippine Fisheries Development Authority as lessor, and respondent
QVEGG Marine Transport and Builders Corporation as lessee, entered into a 10-year lease contract 1
covering the Iloilo Fishing Port Complex slipways and other auxiliary facilities for a monthly rental of
₱85,000.00. The pertinent provision of the contract reads:

3. For and in consideration of the use of the leased premises and above-mentioned equipment, the
LESSEE hereby agrees to pay the LESSOR a monthly rental of EIGHTY FIVE THOUSAND PESOS
(₱85,000.00) for the first year of this Contract reckoned from the date of signing. The monthly rental
shall be payable within the first five days of each month  without need of demand at the office of the
LESSOR. In case of delay in the payment of the said monthly rental, it shall earn interest at the rate of
3% per month on any or all delayed payments, provided that failure on the part of the LESSEE to pay
rentals for two (2) successive months shall be a ground for the termination of this Contract without
need of judicial action. The LESSEE likewise agrees to a yearly escalation rate of 10% on the monthly
lease rental effective on the second year. (Emphasis and underscoring supplied).

It appears that respondent was delinquent in the performance of its contractual obligations,
prompting petitioner to terminate the contract by letter 2 dated November 16, 1992.

Responding to the letter of termination, respondent requested the restructuring of its overdue
account. By letter3 dated February 1, 1993, petitioner granted respondent’s request subject to the
following "instructions":

a. Initial payment of ₱200,000.00 plus all interest charges up to December 31, 1992 payable on or
before February 15, 1993.

b. Balance of the arrears up to December 31, 1992 shall be payable by post dated checks in six (6)
equal monthly installments starting March 15, 1993 and every 15th day of the month thereafter. This
requirement shall likewise be submitted on or before February 15, 1993.

174
c. Regular payment of 1993 current monthly rentals in addition to monthly power and water
bills. (Emphasis supplied)

Petitioner’s letter of February 1, 1993 contained a caveat that should respondent fail to comply with
the "instructions," it would terminate the contract and file the necessary legal action.

It appears, however, that it was only on February 22, 1993 that respondent paid its January 1993
space rental and electric and water bills. 4 For "failure to comply strictly with the terms and conditions
imposed" in its letter of February 1, 1993, petitioner, by letter 5 dated March 1, 1993, terminated the
lease contract.

Respondent sought reconsideration of petitioner’s March 1, 1993 letter, by letter 6 dated March 2,
1993, explaining that it interpreted paragraph c of petitioner’s February 1, 1993 letter, in relation to
paragraph 3 of the contract which provides that its failure to pay rentals for two successive months
shall be a ground for the termination of the contract.

Petitioner, by letter7 dated March 8, 1993, denied respondent’s request for reconsideration of its
March 1, 1993 letter.

Respondent thereupon filed on March 12, 1993 a complaint8 for Enforcement of Contract and

Damages with prayer for restraining order and writ of preliminary injunction against petitioner before
the Regional Trial Court (RTC) of Iloilo City seeking the following reliefs:

1. To declare the Contract of Lease as illegally terminated by [petitioner] and that the same be
considered valid and binding in accordance with the full terms thereof[;]

2. To declare the continued bindingness (sic) of paragraph 3 of the Contract of Lease, including
[respondent’s] right to enjoy the 2-month rental payment grace period;

3. To forever enjoin the defendant from interfering with [respondent’s] operation, use and occupancy
of the leased shipyard and shiprepair facilities throughout the duration of the Contract of Lease as
long as [petitioner] pays the stipulated rentals in accordance to the full terms of paragraph 3 thereof;

4. To order defendant to pay plaintiff the following amounts:

4.1. Nominal damages in the amount of ₱300,000.00

4.2. Exemplary damages in the amount of ₱100,000.00

4.3. Attorney’s fees in the amount of ₱75,000.00

4.4. Litigation expenses in the amount of ₱20,000.00

175
Branch 24 of the Iloilo RTC, by Order of March 16, 1993, 9 temporarily restrained petitioner "from
interfering with [respondent’s] exercise of its rights and prerogatives as lessee under the Contract of
Lease . . ."

Petitioner subsequently filed a Motion to Dismiss 10 the complaint on the following grounds: 1) venue
was improperly laid; 2) the complaint states no cause of action; and 3) respondent has no valid cause
of action for failure to exhaust administrative remedies. The motion was, however, denied by
Order11 of April 7, 1993.

Petitioner thus filed its Answer12 dated May 10, 1993. Arguing for the dismissal of the complaint,
petitioner contended that paragraph 3 of the lease contract was rendered ineffective by the new
terms and conditions set forth in its February 1, 1993 letter; and that respondent failed to exhaust
available administrative remedies by not appealing to the Department of Agriculture.

The trial court, by Decision13 of March 14, 1994, found for respondent and declared illegal the
termination of the contract by petitioner, it holding that paragraph c of the February 1, 1993 letter did
not modify paragraph 3 of the lease contract. It, however, dismissed respondent’s prayer for damages
on the ground that petitioner acted in good faith when it terminated the lease. The dispositive
portion of the trial court’s decision reads:

WHEREFORE, premises considered, the Court renders judgment as follows:

(1) The termination by the [petitioner] of the Contract of Lease on March 8, 1993 (Exh. G) is hereby
declared illegal and is thus nullified.

(2) [Petitioner] is enjoined from terminating the lease contract in derogation of the Court’s
interpretation of paragraph C of Exh. 24, should there be cause henceforth to terminate the lease.

The claim for damages by either is dismissed.

Petitioner appealed the trial court’s decision to the Court of Appeals before which it assigned to the
trial court the following errors:14

1. THE LOWER COURT SERIOUSLY ERRED IN ITS DECISION WHEN IT DECLARED ILLEGAL AND NULLIFIED
THE TERMINATION BY [PETITIONER] PFDS OF THE CONTRACT OF LEASE ON MARCH 8, 1993[; and]

2. THE LOWER COURT SERIOUSLY ERRED IN ITS DECISION WHEN IT ENJOINED [PETITIONER] PFDA
FROM TERMINATING THE LEASE CONTRACT IN DEROGATION OF THE LOWER COURT’S
INTERPRETATION OF PARAGRAPH C OF EXHIBIT "24" SHOULD THERE BE CAUSE HENCEFORTH TO
TERMINATE THE LEASE.

Respondent too appealed the trial court’s decision, questioning the dismissal of its claim for damages,
attorney’s fees and litigation expenses.15

176
The Court of Appeals, by the assailed Decision 16 of November 8, 2002, dismissed the respective
appeals of petitioner and respondent for want of merit. In sustaining the trial court’s finding that
petitioner’s termination of the lease contract was illegal, the Court of Appeals ratiocinated:

Due reading of paragraph C of [petitioner’s] letter dated February 1, 1993, and of the entire letter
itself, shows that it is not the intention the parties to do away with the prescription embodied in the
original lease agreement, particularly Section 3 thereof, which provided for the amount, manner and
period for payment of regular lease rentals.

Indeed, the provisions of paragraph C of the letter dated February 1, 1993, cannot stand alone, and
are inutile without the prescription stipulated under Section 3 of the parties’ original lease , inasmuch
as paragraph C makes no provision as to the amount, period and manner of payment, other than
providing that such payments must be regularly paid. Thus, the lower court was correct in
interpreting the parties’ agreement to be embodied in both instruments, in the manner that it did, as
such interpretation gives life to the expressed intention of the parties and renders their lease
agreement effectual. As expressed under substantive law, an interpretation gives sense to all the
stipulations of a contract, and renders the same effectual and binding between the parties is favored,
rather than one which is absurd and ineffectual.

x x x (Underscoring supplied)

Petitioner’s Motion for Reconsideration having been denied by the Court of Appeals by Resolution 17 of
August 25, 2003, it filed the present petition raising the following issues:

1. WHETHER OR NOT THE IMPOSSIBILITY OF PRIVATE RESPONDENT TO RENDER ITS OBLIGATION

WHICH IS THE PAYMENT OF RENTALS, ARISING FROM THE LEASE AGREEMENT GIVES RIGHT TO THE
PETITIONER TO HAVE THE LEASE AGREEMENT RESCINDED.

2. WHETHER ARTICLE 1191 OF THE NEW CIVIL CODE PROVIDES FOR A RESCISSION BY AGREEMENT
THAT DOES NOT REQUIRE THE AGGRIEVED PARTY TO THE CONTRACT TO RESORT TO COURT ACTION
BEFORE THE SAID CONTRACT CAN BE RESCINDED.

3. WHETHER OR NOT AN ACTION FOR RESCISSION OF CONTRACT IS AVAILABLE ON A CONTRACT

WHICH HAD ALREADY EXPIRED.18

Petitioner submits that Article 1191 of the Civil Code provides for rescission by mutual agreement
and, therefore, does not require the aggrieved party to resort to court action. It thus faults the Court
of Appeals to have gravely erred in "requiring [it] to file a distinct action for rescission on Contracted
Lease which already expired." Petitioner thus prays that:

1. Judgment be rendered declaring the act of petitioner in rescinding the Contract of Lease as valid
under Article 1191 of the New Civil Code.

2. Judgment be rendered dismissing the case for lack of any factual or legal basis. 19

177
Respondent counters that the petition raises purely moot and academic matters, pointing out that the
lease contract, the unilateral rescission of which was being challenged in the court  a quo, had already
expired in 1999; and even if the Court of Appeals decision is reversed, it would not in anyway change
the position and circumstances of the parties on account of the expiration of the contract.

The petition must be denied.

Nowhere in the challenged Court of Appeals decision is petitioner required to first file a separate
action for rescission. All that the Court of Appeals held is that, as found by the trial court, the
termination by petitioner of the contract by letter of March 1, 1993 is illegal since paragraph 3 of the
contract calls for its termination only after respondent fails for two successive months to comply with
its obligations thereunder.

Moreover, as correctly pointed out by respondent, the issues raised by petitioner in the instant
petition are already moot and academic due to the expiration in 1999 of the lease contract. To still
discuss them would be of no practical significance. Besides, the issues raised herein are premised on
petitioner’s erroneous submission that the Court of Appeals was requiring it to file an action for
rescission of the lease contract.

At all events, on the merits, this Court finds no reversible error on the part of the Court of Appeals in
upholding the decision of the trial court.

The New Civil Code provides that "various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken jointly." 20

Indeed, paragraph c of the February 1, 1993 letter cannot stand alone independently of paragraph 3
of the lease contract for paragraph c does not provide for the amount, period or manner of payment.
Said paragraph c did not thus amend paragraph 3 of the lease contract, hence, it is only after
respondent fails to pay rentals for two (2) successive months that petitioner may terminate the
contract.

This Court quotes with approval the following observation of the Court of Appeals refuting
petitioner’s claim that paragraph 3 of the lease contract was rendered ineffective by the new terms
and conditions set forth in its February 1, 1993 letter to respondent:

. . . [I]t appears that [petitioner] PFDA’s proposals for the reinstatement of the lease was made on
February 1, 1993; at a time when it should be aware that the rentals for January 1993 have not
been paid within the first five days of said month. It strikes us as absurd, therefore, that [petitioner]
would be accusing the [respondent] of an infraction, when at the time the said infraction is
allegedly being made, [petitioner] was already performing acts showing its tolerance, if not
acquiescence to such acts. As aptly observed by the lower court in its decision:

The letter of February 1, 1993 was signed and issued by the [petitioner] knowing fully well that as of
said date [respondent] had not yet paid its rental for the current month of January 1993 (which it

178
paid later only on February 22, 1993). If [petitioner] seriously believed that [respondent] could no
longer avail of the two-month grace period then it should not have issued at all the same amicable
letter at the time when [petitioner] had already a one-month unpaid rental for January 1993.

This bolsters our conclusion that the parties had agreed to be bound by the prescriptions in both
contracts, particularly that the lessee is allowed a two-month grace period for payment of rentals,
before rescission of the contract could be made. In order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered.

x x x21 (Emphasis and underscoring supplied).

In fine, by the parties’ contemporaneous and subsequent acts, they did not intend to do away with
the two-month grace period for the payment of rentals under the contract of lease before said
contract could be terminated.

. . . [T]he Court finds relevant and significant the cardinal rule in the interpretation of contracts that
the intention of the parties shall be accorded primordial consideration and in case of doubt, their
contemporaneous and subsequent acts shall be principally considered. Where the parties to a
contract have

given it a practical construction by their conduct as by acts in partial performance, such construction
may be considered by the court in construing the contract, determining its meaning and ascertaining
the mutual intention of the parties at the time of contracting. The parties’ practical construction of
their contract has been characterized as a clue or index to, or as evidence of, their intention or
meaning and as an important, significant, convincing, persuasive, or influential factor in determining
the proper construction of the contract.22 (Emphasis supplied).

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.

CONCHITA CARPIO MORALES

67.

179
 THIRD DIVISION

G.R. No. 148411 November 29, 2005

MARTHA R. HORRIGAN, Petitioner,
vs.
TROIKA COMMERCIAL, INC., Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari seeking to reverse the Decision1 of the Court of Appeals
dated May 31, 2001 in CA-G.R. CV No. 50330.

The facts of this case are not in dispute.

Troika Commercial, Inc., (Troika), herein respondent, is the lessee of the entire ground floor of a two-
story building located at 53-A Annapolis St., San Juan, Metro Manila. Respondent then sub-let a
portion of the ground floor to Martha Horrigan, petitioner, to be used for her restaurant Tia Maria.
The contract of sub-lease dated April 20, 1983 between the parties was prepared by Martha’s
husband. It provides, among others, the following stipulations:

"2. In consideration thereof, Martha R. Horrigan undertakes, promises and guarantees payment to
Troika of the following:

2.1. ₱12,500 monthly starting March 15, 1983 and every month thereafter until December 31, 1989
payable every ___day of the month.

2.2. In addition to the above (sub-par 2.1), ₱4,500 monthly starting August 1, 1983 and every month
thereafter for seven (7) years until December 31, 1989 plus a guaranteed yearly increase equivalent
to 10% thereof."

The instant case stemmed from the parties’ different interpretations of the phrase "a guaranteed
yearly increase equivalent to 10% thereof" in relation to sub-paragraphs 2.1 and 2.2 of their
agreement.

Respondent construed the 10% guaranteed yearly increase to apply to both the original monthly
rental of ₱12,500.00 under sub-paragraph 2.1 and the ₱4,500.00 additional rental under sub-
paragraph 2.2. For her part, petitioner claimed that the 10% "guaranteed yearly increase" is
applicable only to the additional ₱4,500.00 rental contained in sub-paragraph 2.2 of the sub-lease
contract.

Respondent sent petitioner letters, together with its billing statements, explaining the application of
the 10% yearly increase of rental rates. But petitioner ignored them. On May 3, 1991, respondent
180
sent petitioner a final demand letter asking her to pay ₱318,489.00 corresponding to the unpaid
rental adjustments.

When petitioner refused to pay, respondent filed with the Regional Trial Court, Branch 148, Makati
City, a complaint for sum of money, docketed as Civil Case No. 91-2410.

In her answer, petitioner averred that the 10% yearly guaranteed increase applies only to her
additional rental of ₱4,500.00 starting August 1, 1983 and that she has been paying the corresponding
amounts since 1984. She admitted that from June 1984, she has been giving respondent "₱1,200.00
monthly ex-gratis" in appreciation of its efforts to improve her business. She denied, however, that
these sums are rental adjustments. She also claimed that even assuming that she still owed
respondent, under sub-paragraph 2.2, the amount due is only ₱58,485.50. She stopped paying the
yearly increase since August 1986 because of respondent’s demand that she should also pay the
yearly increase equivalent to 10% of the original ₱12,500.00 monthly rental.

On May 18, 1995, the trial court rendered its Decision in favor of respondent. It ordered petitioner to
pay respondent her unpaid rental adjustments in the sum of ₱318,489.00 with interest at 12% per
annum from September 2, 1991 until the obligation is fully paid.

On appeal, the Court of Appeals, in its assailed Decision, affirmed the trial court’s judgment in toto.

Hence, the instant petition for review on certiorari.

The sole issue for our resolution is whether the Court of Appeals erred in ruling that the 10%
guaranteed yearly increase of rental rates applies to both the original monthly rental of ₱12,500.00
and the additional monthly rental of ₱4,500.00.

Article 1377 of the Civil Code provides:

"ART. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity."

In a long line of cases, 2 we have consistently held that the party who draws up the contract, in which
obscure words or phrases appear, bears the responsibility for causing the ambiguity or obscurity, and
hence, these must be construed against him. In this case, it was petitioner’s spouse who prepared the
sub-lease contract in question. Consequently, the ambiguity must be construed against herein
petitioner as she is presumed to have confirmed the same.

There is also no question that the 10% guaranteed yearly increase of rents provided for in sub-
paragraph 2.2 of the sub-lease agreement is for the benefit of respondent herein, being the sub-
lessor of the premises. As such, any doubt in its interpretation must be interpreted in its favor. This is
in line with Section 17, Rule 130 of the Revised Rules of Court which states:

"SEC. 17. Of two constructions, which preferred. – When the terms of an agreement have been
intended in a different sense by the different parties to it, that sense is to prevail against either party
181
in which he supposed the other understood it, and when different constructions of a provision are
otherwise equally proper, that is to be taken which is the most favorable to the party in whose
favor the provision was made (stress supplied)."

WHEREFORE, the petition is DENIED. The challenged Decision of the Court of Appeals in CA-G.R. CV
No. 50330 is AFFIRMED IN TOTO. Costs against the petitioner.

SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

68.

THIRD DIVISION

G.R. No. 104234 June 30, 1995

AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, IOLANI DIONISIO, MULTINATIONAL TRAVEL CORPORATION OF
THE PHIL., FIORELLO and VICKY PANOPIO, respondents.

ROMERO, J.:

This is a petition for review on certiorari  of the decision of the Court of Appeals 1 which annulled and
set aside the orders of the Regional Trial Court of Manila, Branch 27.

The facts, as found by respondent Court of Appeals, are as follows:

Petitioner Air France filed a complaint for sum of money and damages against private respondents
Multinational Travel Corporation of the Philippines, Fiorello Panopio and Vicky Panopio before the
Regional Trial Court of Manila, Branch 27, then presided over by the Hon. Ricardo Diaz.

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After trial, the court rendered judgment on August 31, 1987 in favor of petitioner, ordering private
respondents to pay petitioner, jointly and severally, the amount of P2,518,698.66, with legal rate of
interest per annum from September 22, 1986, until fully paid and P50,000.00 as and for attorney's
fees.

On December 29, 1989, petitioner moved for the issuance of an alias writ of execution on the ground
of unsatisfied judgment. It likewise moved to declare the sale to Iolani Dionisio of a parcel of land
with a house erected thereon in the name of the Multinational Food Corporation and covered by
Transfer Certificate of Title No. 353935 as one in fraud of creditors.

Petitioner, in said motion, stated that private respondent spouses jointly owned 91% of Multinational
Food and Catering Corporation (Multinational Food), other stockholders being: Aldo Glen Panopio
(brother of Fiorello) — 3%; Jaime Dionisio (husband of private respondent Iolani Dionisio) — 3%; and
Marie Rose Ricasa — 3%. Petitioner stated that although Multinational Food was registered with the
Securities and Exchange Corporation, it neither engaged in operations nor held meetings because of
adverse business conditions. The Corporation, through its President Iolani Dionisio, filed a sworn
statement to this effect with the SEC dated July 28, 1986. However, petitioner alleged that despite its
being non-operational, Multinational Food acquired from Ayala Investment and Development
Corporation (Ayala Corporation) the subject property on February 1, 1985.

Petitioner further alleged that private respondent spouses subsequently sold the property to Iolani
Dionisio on April 11, 1985. However, the sale was not registered until one year and nine months later
or at the time petitioner was pursuing the issuance of a writ of attachment.

Petitioner's motion was set for hearing on January 4, 1990, on which date the respondent court
ordered the issuance of an alias writ of execution and on January 8, 1990, the same was issued.

Private respondent spouses filed their opposition thereto on the following grounds:

. . . (a) the respondent court has no jurisdiction because the alleged buyer in the person
of Iolani Dionisio is not a party in the case; (b) that Iolani Dionisio was not served with
summons and therefore to declare the sale to her in fraud of creditors without even
jurisdiction would amount to deprivation of property without due process of law; and
(c) that the proper remedy is an independent civil action where indispensable parties
are to be impleaded to afford them to answer and/or refute charges.

On January 19, 1990, the trial court issued an order requiring Iolani Dionisio and Multinational Food
to answer the allegations contained in petitioner's motion. However, both parties failed to file their
respective answers thereto.

On November 19, 1990, the court issued an order finding the sale in favor of Iolani Dionisio of the
subject property covered by TCT No. 353935 registered with the Registry of Deeds of Quezon City in
the name of Multinational Food as having been made in fraud of creditors.

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Private respondents filed a motion for reconsideration which was denied in the order of February 15,
1991; whereupon, they then filed a petition for certiorari with the Court of Appeals, alleging that the
lower court acted with grave abuse of discretion amounting to lack of jurisdiction.

On February 24, 1992, the appellate court rendered a decision annulling and setting aside the
questioned orders. It further enjoined petitioner from proceeding against the property in question.

Hence, this petition.

The sole issue to be resolved in the instant case is whether or not the Court of Appeals erred in
annulling and setting aside the orders of the trial court.

Petitioner claims that a separate civil action, as proposed by private respondents, will only perpetrate
fraud.

We find petitioner's contention to be devoid of merit.

First, the subject property is registered with the Register of Deeds of Quezon City in the name of the
Multinational Food and Catering Corporation and not in the name of either the Multinational Travel
Corporation of the Philippines or of the spouses Fiorello and Vicky Panopio who are the judgment
debtors.

It is well-settled that the power of the court in the execution of judgments extends only over
properties unquestionably belonging to the judgment debtor. 2 Here, the property in question was
sold to private respondent Iolani Dionisio, who was not a party to the case subject of execution.

In Bayer Philippines, Inc. v. Agana, 3 the Court said:

. . . Once a court renders a final judgment, all the issues between or among the parties
before it are deemed resolved and its judicial function as regards any matter related to
the controversy litigated comes to an end. The execution of its judgment is purely a
ministerial phase of adjudication. Indeed, the nature of its duty to see to it that the
claim of the prevailing party is fully satisfied from the properties of the loser is generally
ministerial. . . .

xxx xxx xxx

In other words, construing Section 17 of Rule 39 of the Revised Rules of Court, the rights
of third-party claimants over certain properties levied upon by the sheriff to satisfy the
judgment should not be decided in the action where the third-party claims have been
presented, but in the separate action instituted by the claimants.

This is evident from the very nature of the proceedings. In Herald Publishing, supra, We
intimated that the levy by the sheriff  of a property by virtue of a writ of attachment may
be considered as made under authority of the court only when the property levied upon
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 unquestionably belongs to the defendant. If he attach properties (sic) other than those
of defendant, he acts beyond the limits of his authority. Otherwise stated, the court
issuing a writ of execution is supposed to enforce its authority only over properties of
the judgment debtor, and should a third party appear to claim the property levied upon
by the sheriff, the procedure laid down by the Rules is that such claim should be the
subject of a separate and independent action. (Emphasis supplied)

Multinational Food and Iolani Dionisio, not being parties to the case, the property covered by TCT No.
353935 may not be levied upon to satisfy the obligations of private respondent spouses and the
Multinational Travel Corporation.

Petitioner's contrary claim that the property belongs to private respondent spouses, if true, requires a
rescissory action which cannot be done in the same case, but through the filing of a separate action.

Rescission is a relief which the law grants on the premise that the contract is valid for the protection
of one of the contracting parties and third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferential right created by the contract. 4

Under Art. 1381 of the Civil Code, the following contracts are rescissible:

xxx xxx xxx

(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one fourth of the value of the things which are the
object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceeding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;

(5) All other contracts specially declared by law to be subject to rescission.

Rescissible contracts, not being void, they remain legally effective until set aside in a rescissory action
and may convey title. Nor can they be attacked collaterally upon the grounds for rescission in a land
registration proceeding. 5

An action for rescission may not be raised or set up in a summary proceeding through a motion, but in
an independent civil action and only after a full-blown trial. As Article 1383 of the Civil Code provides:

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 Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.

Regarding contracts undertaken in fraud of creditors, the existence of the intention to prejudice the
same should be determined either by the presumption established by Article 1387 6 or by the proofs
presented in the trial of the case. 7 In any case, the presumption of fraud established by this article is
not conclusive, and may be rebutted by satisfactory and convincing evidence. 8 To repeat, an
independent action is necessary to prove that the contract is rescissible.

Under Article 1389 of the Civil Code, an "accion pauliana," 9 the action to rescind contracts made in
favor of creditors, must be commenced within four years.

Clearly, the rights and defenses which the parties in a rescissible contract may raise or set up cannot
be properly ventilated in a motion but only in a full trial.

The appellate court did not err in holding that the trial court acted with grave abuse of discretion in
resolving these matters through mere motion of petitioner.

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED in toto.

SO ORDERED.

Feliciano, Melo, Vitug and Francisco, JJ., concur.

69.

EN BANC

G.R. No. 133879            November 21, 2001

EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,

vs.
MAYFAIR THEATER, INC., respondent.

PANGANIBAN, J.:

General propositions do not decide specific cases. Rather, laws are interpreted in the context of the
peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be
ruled upon on the basis of isolated clinical classroom principles.

186
While we agree with the general proposition that a contract of sale is valid until rescinded, it is
equally true that ownership of the thing sold is not acquired by mere agreement, but by tradition or
delivery. The peculiar facts of the present controversy as found by this Court in an earlier relevant
Decision show that delivery was not actually effected; in fact, it was prevented by a legally effective
impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of ownership
like rentals of the thing sold. Furthermore, petitioner's bad faith, as again demonstrated by the
specific factual milieu of said Decision, bars the grant of such benefits. Otherwise, bad faith would be
rewarded instead of punished.

The Case

Filed before this Court is a Petition for Review 1 under Rule 45 of the Rules of Court, challenging the
March 11, 1998 Order2 of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-
85141. The dispositive portion of the assailed Order reads as follows:

"WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the
complaint filed by plaintiff Equatorial is hereby DISMISSED."3

Also questioned is the May 29, 1998 RTC Order4 denying petitioner's Motion for Reconsideration.

The Facts

The main factual antecedents of the present Petition are matters of record, because it arose out of an
earlier case decided by this Court on November 21, 1996, entitled Equatorial Realty Development, Inc.
v. Mayfair Theater, Inc.5 (henceforth referred to as the "mother case"), docketed as G.R No. 106063.

Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land, together with two 2-storey
buildings constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No.
18529 issued in its name by the Register of Deeds of Manila.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. ("Mayfair") for a
period of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey
building with about 1,610 square meters of floor area, which respondent used as a movie house
known as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for
the lease of another portion of the latter's property — namely, a part of the second floor of the two-
storey building, with a floor area of about 1,064 square meters; and two store spaces on the ground
floor and the mezzanine, with a combined floor area of about 300 square meters. In that space,
Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise
for a period of 20 years.

Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject
properties. However, on July 30, 1978 — within the 20-year-lease term — the subject properties were

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sold by Carmelo to Equatorial Realty Development, Inc. ("Equatorial") for the total sum of
P11,300,000, without their first being offered to Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the
Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between
Carmelo and Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower
court rendered a Decision in favor of Carmelo and Equatorial. This case, entitled "Mayfair" Theater,
Inc. v. Carmelo and Bauermann, Inc., et al.," was docketed as Civil Case No. 118019.

On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set
aside the judgment of the lower court.

The controversy reached this Court via G.R No. 106063. In this mother case, it denied the Petition for
Review in this wise:

"WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23,
1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between
petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
deemed rescinded; Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty
Development the purchase price. The latter is directed to execute the deeds and documents
necessary to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo &
Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00."6

The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25,
1997, Mayfair filed a Motion for Execution, which the trial court granted.

However, Carmelo could no longer be located. Thus, following the order of execution of the trial
court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of
P11,300,000 less; P847,000 as withholding tax. The lower court issued a Deed of Reconveyance in
favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these documents, the Registry
of Deeds of Manila canceled Equatorial's titles and issued new Certificates of Title 7 in the name of
Mayfair.

Ruling on Equatorial's Petition for Certiorari and Petition contesting the foregoing manner of
execution, the CA in its Resolution of November 20, 1998, explained that Mayfair had no right to
deduct the P847,000 as withholding tax. Since Carmelo could no longer be located, the appellate
court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court, Manila, to
complete the full amount of P11,300,000 to be turned over to Equatorial.

Equatorial questioned the legality of the above CA ruling before this Court in G.R No. 136221 entitled
"Equatorial Realty Development, Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May 12,
2000,8 this Court directed the trial court to follow strictly the Decision in GR. No. 106063, the mother
case. It explained its ruling in these words:
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 "We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven
million three hundred thousand pesos (P11,300,000.00) to Equatorial. On the other hand,
Mayfair may not deduct from the purchase price the amount of eight hundred forty-seven
thousand pesos (P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is
imposed on the seller Carmelo and Bauermann, Inc." 9

Meanwhile, on September 18, 1997 — barely five months after Mayfair had submitted its Motion for
Execution before the RTC of Manila, Branch 7 — Equatorial filed with the Regional Trial Court of
Manila, Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of
rentals or reasonable compensation for the defendant's use of the subject premises after its lease
contracts had expired. This action was the progenitor of the present case.

In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises
occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises
occupied by Miramar Theater lapsed on March 31, 1989. 10 Representing itself as the owner of the
subject premises by reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from
Mayfair's occupation thereof.

Ruling of the RTC Manila, Branch 8

As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the
Motion for Reconsideration filed by Equatorial.11

The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission
of the Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual
proprietary rights, even in expectancy.

In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial
was the owner of the subject property and could thus enjoy the fruits or rentals therefrom. It
declared the rescinded Deed of Absolute Sale as avoid at its inception as though it did not happen."

The trial court ratiocinated as follows:

"The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v.
Court of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held that, 'to rescind is to
declare a contract void in its inception and to put an end as though it never were. It is not
merely to terminate it and release parties from further obligations to each other but to
abrogate it from the beginning and restore parties to relative positions which they would have
occupied had no contract ever been made.'

"Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and
Carmelo dated July 31, 1978 is void at its inception as though it did not happen.

189
 "The argument of Equatorial that this complaint for back rentals as 'reasonable compensation
for use of the subject property after expiration of the lease contracts presumes that the Deed
of Absolute Sale dated July 30, 1978 from whence the fountain of Equatorial's all rights flows is
still valid and existing.

xxx           xxx           xxx

"The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is
not the owner and does not have any right to demand backrentals from the subject
property. . .12

The trial court added: "The Supreme Court in the Equatorial case, G.R No. 106063, has categorically
stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."13

Hence, the present recourse.14

Issues

Petitioner submits, for the consideration of this Court, the following issues: 15

"A

The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic
concepts and principles in the law on contracts and in civil law, especially those on rescission
and its corresponding legal effects, but also ignores the dispositive portion of the Decision of
the Supreme Court in G.R. No. 106063 entitled 'Equatorial Realty Development, Inc. & Carmelo
& Bauermann, Inc. vs. Mayfair Theater, Inc.'

"B.

The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner
by Carmelo & Bauermann, Inc., dated July 31, 1978, over the premises used and occupied by
respondent, having been 'deemed rescinded' by the Supreme Court in G.R. No. 106063, is 'void
at its inception as though it did not happen.'

"C.

The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale,
dated July 31, 1978, having been 'deemed rescinded' by the Supreme Court in G.R. No. 106063,
petitioner 'is not the owner and does not have any right to demand backrentals from the
subject property,' and that the rescission of the Deed of Absolute Sale by the Supreme Court
does not confer to petitioner 'any vested right nor any residual proprietary rights even in
expectancy.'

190
"D.

The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of
March 11, 1998, was not raised by respondent in its Motion to Dismiss.

"E.

The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not
one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil
Procedure."

Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is
entitled to back rentals; and (2) the procedural issue of whether the court a quo's dismissal of Civil
Case No. 97-85141 was based on one of the grounds raised by respondent in its Motion to Dismiss
and covered by Rule 16 of the Rules of Court.

This Court's Ruling

The Petition is not meritorious.

First Issue:
Ownership of Subject Properties

We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en
banc in its Decision promulgated in 1996 in the mother case, no right of ownership was transferred
from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer.

Rental — a Civil
Fruit of Ownership

To better understand the peculiarity of the instant case, let us begin with some basic parameters.
Rent is a civil fruit 16 that belongs to the owner of the property producing it 17 by right of
accession.18 Consequently and ordinarily, the rentals that fell due from the time of the perfection of
the sale to petitioner until its rescission by final judgment should belong to the owner of the property
during that period.

By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of and to
deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent." 19

Ownership of the thing sold is a real right, 20 which the buyer acquires only upon delivery of the
thing  to him "in any of the ways specified in articles 1497 to 1501, or in any other manner signifying
an agreement that the possession is transferred from the vendor to the vendee." 21 This right is
transferred, not merely by contract, but also by tradition or delivery. 22 Non nudis pactis sed traditione
dominia rerum transferantur. And there is said to be delivery if and when the thing sold "is placed in
the control and possession of the vendee." 23 Thus, it has been held that while the execution of a
191
public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, 24 such
constructive or symbolic delivery, being merely presumptive, is deemed negated by the failure of the
vendee to take actual possession of the land sold.25

Delivery has been described as a composite act, a thing in which both parties must join and the minds
of both parties concur. It is an act by which one party parts with the title to and the possession of the
property, and the other acquires the right to and the possession of the same. In its natural sense,
delivery means something in addition to the delivery of property or title; it means transfer of
possession.26 In the Law on Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate "the absolute giving up of the control and custody of the property on the part of
the vendor, and the assumption of the same by the vendee." 27

Possession Never
Acquired by Petitioner

Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it
is clear that petitioner never took actual control and possession of the property sold, in view of
respondent's timely objection to the sale and the continued actual possession of the property. The
objection took the form of a court action impugning the sale which, as we know, was rescinded by a
judgment rendered by this Court in the mother case. It has been held that the execution of a contract
of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the hands of the vendor into those of
the vendee.28 When there is such impediment, "fiction yields to reality — the delivery has not been
effected."29

Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a
legally sufficient impediment that effectively prevented the passing of the property into the latter's
hands.

This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,30 in which the Court
held as follows:

"The question that now arises is: Is there any stipulation in the sale in question from which we
can infer that the vendor did not intend to deliver outright the possession of the lands to the
vendee? We find none. On the contrary, it can be clearly seen therein that the vendor intended
to place the vendee in actual possession of the lands immediately as can be inferred from the
stipulation that the vendee 'takes actual possession thereof . . . with full rights to dispose,
enjoy and make use thereof in such manner and form as would be most advantageous to
herself.' The possession referred to in the contract evidently refers to actual possession and
not merely symbolical inferable from the mere execution of the document.

"Has the vendor complied with this express commitment? she did not. As provided in Article
1462, the thing sold shall be deemed delivered when the vendee is placed in
the control and possession thereof, which situation does not here obtain because from the
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 execution of the sale up to the present the vendee was never able to take possession of the
lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership
thereof. And although it is postulated in the same article that the execution of a public
document is equivalent to delivery, this legal fiction only holds true when there is no
impediment that may prevent the passing of the property from the hands of the vendor into
those of the vendee. x x x."31

The execution of a public instrument gives rise, therefore, only to a prima facie presumption of
delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery
was not intended; or when by other means it is shown that such delivery was not effected, because a
third person was actually in possession of the thing. In the latter case, the sale cannot be considered
consummated.

However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer
acquired a right to the fruits of the thing sold from the time the obligation to deliver the property to
petitioner arose.32 That time arose upon the perfection of the Contract of Sale on July 30, 1978, from
which moment the laws provide that the parties to a sale may reciprocally demand
performance.33 Does this mean that despite the judgment rescinding the sale, the right to the
fruits34 belonged to, and remained enforceable by, Equatorial?

Article 1385 of the Civil Code answers this question in the negative, because "[r]escission creates the
obligation to return the things which were the object of the contract, together with their fruits, and
the price with its interest; x x x" Not only the land and building sold, but also the rental payments
paid, if any, had to be returned by the buyer.

Another point. The Decision in the mother case stated that "Equatorial x x x has received rents" from
Mayfair "during all the years that this controversy has been litigated." The Separate Opinion of Justice
Teodoro Padilla in the mother case also said that Equatorial was "deriving rental income" from the
disputed property. Even herein ponente's Separate Concurring Opinion in the mother case recognized
these rentals. The question now is: Do all these statements concede actual delivery?

The answer is "No." The fact that Mayfair paid rentals to Equatorial during the litigation should not be
interpreted to mean either actual delivery or ipso facto recognition of Equatorial's title.

The CA Records of the mother case 35 show that Equatorial — as alleged buyer of the disputed
properties and as alleged successor-in-interest of Carmelo's rights as lessor — submitted two
ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of Manila, the  first was docketed
as Civil Case No. 121570 on July 9, 1987; and the second, as Civil Case No. 131944 on May 28, 1990.
Mayfair eventually won them both. However, to be able to maintain physical possession of the
premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals.

The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the
new owner. They were made merely to avoid imminent eviction. It is in this context that one should

193
understand the aforequoted factual statements in the ponencia in the mother case, as well as the
Separate Opinion of Mr. Justice Padilla and the Separate Concurring Opinion of the herein ponente.

At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded.
However, this general principle is not decisive to the issue of whether Equatorial ever acquired the
right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere
agreement, but by tradition or delivery. Under the factual environment of this controversy as found
by this Court in the mother case, Equatorial was never put in actual and effective control or
possession of the property because of Mayfair's timely objection.

As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, "laws are
interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh
and blood and cannot be decided on the basis of isolated clinical classroom principles." 36

In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded
before it could be consummated. Petitioner never acquired ownership, not because the sale was void,
as erroneously claimed by the trial court, but because the sale was not consummated by a  legally
effective delivery of the property sold.

Benefits Precluded by
Petitioner's Bad Faith

Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not
entitled to any benefits from the "rescinded" Deed of Absolute Sale because of its bad faith. This
being the law of the mother case decided in 1996, it may no longer be changed because it has long
become final and executory. Petitioner's bad faith is set forth in the following pertinent portions of
the mother case:

"First and foremost is that the petitioners acted in bad faith to render Paragraph 8 'inutile.'

xxx           xxx           xxx

"Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in
question rescissible. We agree with respondent Appellate Court that the records bear out the
fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good
faith, and, therefore, rescission lies.

xxx           xxx           xxx

"As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of and
to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial's

194
 knowledge of the stipulations therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that would prejudice its own interests.

xxx           xxx           xxx

"On the part of Equatorial, it cannot be a buyer in good faith because it bought the property
with notice and full knowledge that Mayfair had a right to or interest in the property superior
to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair." 37 (Italics
supplied)

Thus, petitioner was and still is entitled solely to he return of the purchase price it paid to Carmelo; no
more, no less. This Court has firmly ruled in the mother case that neither of them is entitled to any
consideration of equity, as both "took unconscientious advantage of Mayfair." 38

In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By
the same token, rentals, another fruit of ownership, cannot be granted without mocking this Court's
en banc Decision, which has long become final.

Petitioner's claim of reasonable compensation for respondent's use and occupation of the subject
property from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner
must bear it in silence, since it had wrought that loss upon itself.  Otherwise, bad faith would be
rewarded instead of punished.@lawphil.net

We uphold the trial court's disposition, not for the reason it gave, but for (a) the patent failure to
deliver the property and (b) petitioner's bad faith, as above discussed.

Second Issue:itc-alf
Ground in Motion to Dismiss

Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of
judicial proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in respondent's
Motion to Dismiss. Worse, it allegedly based its dismissal on a ground not provided for in a motion to
dismiss as enunciated in the Rules of Court.@lawphil.net

We are not convinced A review of respondent's Motion to Dismiss Civil Case No. 97-85141 shows that
there were two grounds invoked, as follows:

"(A)

Plaintiff is guilty of forum-shopping.itc-alf

"(B)

Plaintiff's cause of action, if any, is barred by prior judgment." 39

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The court a quo ruled, inter alia, that the cause of action of petitioner plaintiff in the case below) had
been barred by a prior judgment of this Court in G.R No. 106063, the mother case.

Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of
Absolute Sale was avoid," we hold, nonetheless, that petitioner's cause of action is indeed barred by a
prior judgment of this Court. As already discussed, our Decision in G.R No. 106063 shows that
petitioner is not entitled to back rentals, because it never became the owner of the disputed
properties due to a failure of delivery. And even assuming arguendo that there was a valid delivery,
petitioner's bad faith negates its entitlement to the civil fruits of ownership, like interest and rentals.

Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a
court of competent jurisdiction must be deemed to have been finally and conclusively settled if it
arises in any subsequent litigation between the same parties and for the same cause. 40 Thus, "[a] final
judgment on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of
the parties and their privies and constitutes an absolute bar to subsequent actions involving the same
claim, demand, or cause of action." 41 Res judicata is based on the ground that the "party to be
affected, or some other with whom he is in privity, has litigated the same matter in a former action in
a court of competent jurisdiction, and should not be permitted to litigate it again. 42

It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials.
At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and
promotes the rule of law.@lawphil.net

We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the
elements of res judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner
from claiming back rentals from respondent. Although the court a quo erred when it declared "void
from inception" the Deed of Absolute Sale between Carmelo and petitioner, our foregoing discussion
supports the grant of the Motion to Dismiss on the ground that our prior judgment in G.R No. 106063
has already resolved the issue of back rentals.

On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss, the trial
court found that the issue of ownership of the subject property has been decided by this Court in
favor of Mayfair. We quote the RTC:

"The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the
Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint
to res judicata."43 (Emphasis in the original)

Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in
interpreting the meaning of "rescinded" as equivalent to "void" In short, it ruled on the ground raised;
namely, bar by prior judgment. By granting the Motion, it disposed correctly, even if its legal reason
for nullifying the sale was wrong. The correct reasons are given in this Decision.

WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.itc-alf

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SO ORDERED.

70.

FIRST DIVISION

G.R. No. 134241            August 11, 2003

DAVID REYES (Substituted by Victoria R. Fabella), petitioner,

vs.
JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC., respondents.

CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision1 dated 12 May 1998 of the Court of Appeals
in CA-G.R. SP No. 46224. The Court of Appeals dismissed the petition for certiorari assailing the Orders
dated 6 March 1997, 3 July 1997 and 3 October 1997 of the Regional Trial Court of Paranaque, Branch
2602 ("trial court") in Civil Case No. 95-032.

The Facts

On 23 March 1995, petitioner David Reyes ("Reyes") filed before the trial court a complaint for
annulment of contract and damages against respondents Jose Lim ("Lim"), Chuy Cheng Keng ("Keng")
and Harrison Lumber, Inc. ("Harrison Lumber").

The complaint3 alleged that on 7 November 1994, Reyes as seller and Lim as buyer entered into a
contract to sell ("Contract to Sell") a parcel of land ("Property") located along F.B. Harrison Street,
Pasay City. Harrison Lumber occupied the Property as lessee with a monthly rental of P35,000. The
Contract to Sell provided for the following terms and conditions:

1. The total consideration for the purchase of the aforedescribed parcel of land together with
the perimeter walls found therein is TWENTY EIGHT MILLION (P28,000,000.00) PESOS payable
as follows:

(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to Sell;
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 (b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be paid on or before
March 8, 1995 at 9:30 A.M. at a bank to be designated by the Buyer but upon the complete
vacation of all the tenants or occupants of the property and execution of the Deed of Absolute
Sale. However, if the tenants or occupants have vacated the premises earlier than March 8,
1995, the VENDOR shall give the VENDEE at least one week advance notice for the payment of
the balance and execution of the Deed of Absolute Sale.

2. That in the event, the tenants or occupants of the premises subject of this sale shall not
vacate the premises on March 8, 1995 as stated above, the VENDEE shall withhold the
payment of the balance of P18,000,000.00 and the VENDOR agrees to pay a penalty of Four
percent (4%) per month to the herein VENDEE based on the amount of the downpayment of
TEN MILLION (P10,000,000.00) PESOS until the complete vacation of the premises by the
tenants therein.4

The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before the
end of January 1995. Reyes also informed Keng 5 and Harrison Lumber that if they failed to vacate by 8
March 1995, he would hold them liable for the penalty of P400,000 a month as provided in the
Contract to Sell. The complaint further alleged that Lim connived with Harrison Lumber not to vacate
the Property until the P400,000 monthly penalty would have accumulated and equaled the unpaid
purchase price of P18,000,000.

On 3 May 1995, Keng and Harrison Lumber filed their Answer 6 denying they connived with Lim to
defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for an extension
of time to vacate the Property due to their difficulty in finding a new location for their business.
Harrison Lumber claimed that as of March 1995, it had already started transferring some of its
merchandise to its new business location in Malabon. 7

On 31 May 1995, Lim filed his Answer 8 stating that he was ready and willing to pay the balance of the
purchase price on or before 8 March 1995. Lim requested a meeting with Reyes through the latter’s
daughter on the signing of the Deed of Absolute Sale and the payment of the balance but Reyes kept
postponing their meeting. On 9 March 1995, Reyes offered to return the P10 million down payment
to Lim because Reyes was having problems in removing the lessee from the Property. Lim rejected
Reyes’ offer and proceeded to verify the status of Reyes’ title to the Property. Lim learned that Reyes
had already sold the Property to Line One Foods Corporation ("Line One") on 1 March 1995 for
P16,782,840. After the registration of the Deed of Absolute Sale, the Register of Deeds issued to Line
One TCT No. 134767 covering the Property. Lim denied conniving with Keng and Harrison Lumber to
defraud Reyes.

On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to supervening
facts. These included the filing by Lim of a complaint for estafa against Reyes as well as an action for
specific performance and nullification of sale and title plus damages before another trial court. 9 The
trial court granted the motion in an Order dated 23 November 1995.

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In his Amended Answer dated 18 January 1996, 10 Lim prayed for the cancellation of the Contract to
Sell and for the issuance of a writ of preliminary attachment against Reyes. The trial court denied the
prayer for a writ of preliminary attachment in an Order dated 7 October 1996.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10 million down
payment with the cashier of the Regional Trial Court of Parañaque. The trial court granted this
motion.

On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on the ground
the Order practically granted the reliefs Lim prayed for in his Amended Answer. 11 The trial court
denied Reyes’ motion in an Order12 dated 3 July 1997. Citing Article 1385 of the Civil Code, the trial
court ruled that an action for rescission could prosper only if the party demanding rescission can
return whatever he may be obliged to restore should the court grant the rescission.

The trial court denied Reyes’ Motion for Reconsideration in its Order 13 dated 3 October 1997. In the
same order, the trial court directed Reyes to deposit the P10 million down payment with the Clerk of
Court on or before 30 October 1997.

On 8 December 1997, Reyes 14 filed a Petition for Certiorari 15 with the Court of Appeals. Reyes prayed
that the Orders of the trial court dated 6 March 1997, 3 July 1997 and 3 October 1997 be set aside for
having been issued with grave abuse of discretion amounting to lack of jurisdiction. On 12 May 1998,
the Court of Appeals dismissed the petition for lack of merit.

Hence, this petition for review.

The Ruling of the Court of Appeals

The Court of Appeals ruled the trial court could validly issue the assailed orders in the exercise of its
equity jurisdiction. The court may grant equitable reliefs to breathe life and force to substantive law
such as Article 138516 of the Civil Code since the provisional remedies under the Rules of Court do not
apply to this case.

The Court of Appeals held the assailed orders merely directed Reyes to deposit the P10 million to the
custody of the trial court to protect the interest of Lim who paid the amount to Reyes as down
payment. This did not mean the money would be returned automatically to Lim.

The Issues

Reyes raises the following issues:

1. Whether the Court of Appeals erred in holding the trial court could issue the questioned
Orders dated March 6, 1997, July 3, 1997 and October 3, 1997, requiring petitioner David
Reyes to deposit the amount of Ten Million Pesos (P10,000,000.00) during the pendency of the
action, when deposit is not among the provisional remedies enumerated in Rule 57 to 61 of the
1997 Rules on Civil Procedure.
199
 2. Whether the Court of Appeals erred in finding the trial court could issue the questioned
Orders on grounds of equity when there is an applicable law on the matter, that is, Rules 57 to
61 of the 1997 Rules on Civil Procedure. 17

The Court’s Ruling

Reyes’ contentions are without merit.

Reyes points out that deposit is not among the provisional remedies enumerated in the 1997 Rules of
Civil Procedure. Reyes stresses the enumeration in the Rules is exclusive. Not one of the provisional
remedies in Rules 57 to 61 18 applies to this case. Reyes argues that a court cannot apply equity and
require deposit if the law already prescribes the specific provisional remedies which do not include
deposit. Reyes invokes the principle that equity is "applied only in the absence of, and never against,
statutory law or x x x judicial rules of procedure." 19 Reyes adds the fact that the provisional remedies
do not include deposit is a matter of dura lex sed lex.20

The instant case, however, is precisely one where there is a hiatus in the law and in the Rules of
Court. If left alone, the hiatus will result in unjust enrichment to Reyes at the expense of Lim. The
hiatus may also imperil restitution, which is a precondition to the rescission of the Contract to Sell
that Reyes himself seeks. This is not a case of equity overruling a positive provision of law or judicial
rule for there is none that governs this particular case. This is a case of silence or insufficiency of the
law and the Rules of Court. In this case, Article 9 of the Civil Code expressly mandates the courts to
make a ruling despite the "silence, obscurity or insufficiency of the laws." 21 This calls for the
application of equity,22 which "fills the open spaces in the law."23

Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit of the P10
million down payment in court. The purpose of the exercise of equity jurisdiction in this case is to
prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in
cases where a court of law is unable to adapt its judgments to the special circumstances of a case
because of the inflexibility of its statutory or legal jurisdiction. 24 Equity is the principle by which
substantial justice may be attained in cases where the prescribed or customary forms of ordinary law
are inadequate.25

Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is also seeking
cancellation of the Contract to Sell. The trial court then ordered Reyes to deposit in court the P10
million down payment that Lim made under the Contract to Sell. Reyes admits receipt of the P10
million down payment but opposes the order to deposit the amount in court. Reyes contends that
prior to a judgment annulling the Contract to Sell, he has the "right to use, possess and enjoy" 26 the
P10 million as its "owner"27 unless the court orders its preliminary attachment. 28

To subscribe to Reyes’ contention will unjustly enrich Reyes at the expense of Lim. Reyes sold to Line
One the Property even before the balance of P18 million under the Contract to Sell with Lim became
due on 8 March 1995. On 1 March 1995, Reyes signed a Deed of Absolute Sale 29 in favor of Line One.
On 3 March 1995, the Register of Deeds issued TCT No. 134767 30 in the name of Line One.31 Reyes
200
cannot claim ownership of the P10 million down payment because Reyes had already sold to another
buyer the Property for which Lim made the down payment. In fact, in his Comment 32 dated 20 March
1996, Reyes reiterated his offer to return to Lim the P10 million down payment.

On balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10 million down
payment. The application of equity always involves a balancing of the equities in a particular case, a
matter addressed to the sound discretion of the court. Here, we find the equities weigh heavily in
favor of Lim, who paid the P10 million down payment in good faith only to discover later that Reyes
had subsequently sold the Property to another buyer.

In Eternal Gardens Memorial Parks Corp. v. IAC,33 this Court held the plaintiff could not continue to
benefit from the property or funds in litigation during the pendency of the suit at the expense of
whomever the court might ultimately adjudge as the lawful owner. The Court declared:

In the case at bar, a careful analysis of the records will show that petitioner admitted among others in
its complaint in Interpleader that it is still obligated to pay certain amounts to private respondent;
that it claims no interest in such amounts due and is willing to pay whoever is declared entitled to said
amounts. x x x

Under the circumstances, there appears to be no plausible reason for petitioner’s objections to the
deposit of the amounts in litigation after having asked for the assistance of the lower court by filing a
complaint for interpleader where the deposit of aforesaid amounts is not only required by the nature
of the action but is a contractual obligation of the petitioner under the Land Development Program
(Rollo, p. 252).

There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10 million
down payment in court. The Contract to Sell can no longer be enforced because Reyes himself
subsequently sold the Property to Line One. Both Reyes and Lim are now seeking rescission of the
Contract to Sell. Under Article 1385 of the Civil Code, rescission creates the obligation to return the
things that are the object of the contract. Rescission is possible only when the person demanding
rescission can return whatever he may be obliged to restore. A court of equity will not rescind a
contract unless there is restitution, that is, the parties are restored to the status quo ante. 34

Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the P10
million down payment in court.35 Such deposit will ensure restitution of the P10 million to its rightful
owner. Lim, on the other hand, has nothing to refund, as he has not received anything under the
Contract to Sell.36

In Government of the Philippine Islands v. Wagner and Cleland Wagner,37 the Court ruled the refund
of amounts received under a contract is a precondition to the rescission of the contract. The Court
declared:

The Government, having asked for rescission, must restore to the defendants whatever it has
received under the contract. It will only be just if, as a condition to rescission, the Government
201
 be required to refund to the defendants an amount equal to the purchase price, plus the sums
expended by them in improving the land. (Civil Code, art. 1295.)

The principle that no person may unjustly enrich himself at the expense of another is embodied in
Article 2238 of the Civil Code. This principle applies not only to substantive rights but also to
procedural remedies. One condition for invoking this principle is that the aggrieved party has no other
action based on contract, quasi-contract, crime, quasi-delict or any other provision of law. 39 Courts
can extend this condition to the hiatus in the Rules of Court where the aggrieved party, during the
pendency of the case, has no other recourse based on the provisional remedies of the Rules of Court.

Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller
himself seeks rescission of the sale because he has subsequently sold the same property to another
buyer.40 By seeking rescission, a seller necessarily offers to return what he has received from the
buyer. Such a seller may not take back his offer if the court deems it equitable, to prevent unjust
enrichment and ensure restitution, to put the money in judicial deposit.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity and
good conscience.41 In this case, it was just, equitable and proper for the trial court to order the
deposit of the P10 million down payment to prevent unjust enrichment by Reyes at the expense of
Lim.42

WHEREFORE, we AFFIRM the Decision of the Court of Appeals.

SO ORDERED.

202