1

G.R. No. 103577 October 7, 1996

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.

GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

MELO, J.:p

The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina
Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered
into by the parties sometime in January 1985 for the price of P1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this wise:

On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter

referred to as Coronels) executed a document entitled "Receipt of Down Payment"
(Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 — Total amount

50,000 — Down payment

———————————
P1,190,000.00 — Balance

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.

We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute the
deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon
execution of the document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona and the latter will pay the former the
whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz

(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").

On February 6, 1985, the property originally registered in the name of the Coronels'
father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for
One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter
has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")

For this reason, Coronels canceled and rescinded the contract (Exh. "A") with
Ramona by depositing the down payment paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, et al., filed a complaint for specific performance
against the Coronels and caused the annotation of a notice of lis pendens at the
back of TCT No. 327403 (Exh. "E"; Exh. "5").

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim

covering the same property with the Registry of Deeds of Quezon City (Exh. "F";
Exh. "6").

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh. "7").

On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties
agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs
therein (now private respondents) proffered their documentary evidence accordingly marked as
Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits
as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1"
through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the
trial court gave them thirty (30) days within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit their corresponding comment or reply
thereof, after which, the case would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was
then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989,
judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for
the Quezon City branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering

defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel
of land embraced in and covered by Transfer Certificate of Title No. 327403 (now
TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the
plaintiffs are ordered to pay defendants the whole balance of the purchase price
amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject property and
deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's
fees, as well as the counterclaims of defendants and intervenors are hereby
dismissed.

No pronouncement as to costs.

So Ordered.

Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon
City RTC but the same was denied by Judge Estrella T. Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the
following reasons: (1) The instant case became submitted for decision as of April 14,
1988 when the parties terminated the presentation of their respective documentary
evidence and when the Presiding Judge at that time was Judge Reynaldo Roura.
The fact that they were allowed to file memoranda at some future date did not
change the fact that the hearing of the case was terminated before Judge Roura and
therefore the same should be submitted to him for decision; (2) When the defendants
and intervenor did not object to the authority of Judge Reynaldo Roura to decide the
case prior to the rendition of the decision, when they met for the first time before the
 undersigned Presiding Judge at the hearing of a pending incident in Civil Case No.
Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and
they are now estopped from questioning said authority of Judge Roura after they
received the decision in question which happens to be adverse to them; (3) While it
is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the
Court, he was in all respects the Presiding Judge with full authority to act on any
pending incident submitted before this Court during his incumbency. When he
returned to his Official Station at Macabebe, Pampanga, he did not lose his authority
to decide or resolve such cases submitted to him for decision or resolution because
he continued as Judge of the Regional Trial Court and is of co-equal rank with the
undersigned Presiding Judge. The standing rule and supported by jurisprudence is
that a Judge to whom a case is submitted for decision has the authority to decide the
case notwithstanding his transfer to another branch or region of the same court (Sec.
9, Rule 135, Rule of Court).

Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the
undersigned Presiding Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul

Decision and Render Anew Decision by the Incumbent Presiding Judge" dated
March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals
(Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial
court.

Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents'
Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom
the case was last assigned.

While we deem it necessary to introduce certain refinements in the disquisition of respondent court
in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case
at bar is the precise determination of the legal significance of the document entitled "Receipt of
Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact
that said document embodied the binding contract between Ramona Patricia Alcaraz on the one
hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which
reads as follows:
 Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.

While, it is the position of private respondents that the "Receipt of Down Payment" embodied a
perfected contract of sale, which perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract could not possibly ripen into a
contract absolute sale.

Plainly, such variance in the contending parties' contentions is brought about by the way each
interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever
relevant and admissible evidence may be available on record, this, Court, as were the courts below,
is now called upon to adjudge what the real intent of the parties was at the time the said document
was executed.

The Civil Code defines a contract of sale, thus:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in

exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the
first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the
transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach, casual or serious, but simply an event
that prevented the obligation of the vendor to convey title from acquiring binding
force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct
from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of
the condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment
of a suspensive condition, because in a conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely
abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if
the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act having to be
performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may
have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with, but
to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the suspensive condition such
as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and
the prospective buyer cannot seek the relief of reconveyance of the property. There is no double
sale in such case. Title to the property will transfer to the buyer after registration because there is no
defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the
intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer to
any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such defect in the seller's title, or at least was
charged with the obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering the real nature
of the contract entered into by petitioners and private respondents.

It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of
Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down
Payment" that they —

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and
ordinary idea conveyed is that they sold their property.

When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that
there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioner's father, they could not fully effect such transfer
although the buyer was then willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P.
Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their names, to the latter and to execute the
deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase
price.

The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full payment of the purchase
price. Under the established facts and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-sellers at that time, there would have
been no reason why an absolute contract of sale could not have been executed and consummated
right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the
properly to private respondent upon the fulfillment of the suspensive condition. On the contrary,
having already agreed to sell the subject property, they undertook to have the certificate of title
changed to their names and immediately thereafter, to execute the written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by
the buyer with certain terms and conditions, promised to sell the property to the latter. What may be
perceived from the respective undertakings of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited from their father, completely willing to transfer
full ownership of the subject house and lot to the buyer if the documents were then in order. It just
happened, however, that the transfer certificate of title was then still in the name of their father. It
was more expedient to first effect the change in the certificate of title so as to bear their names. That
is why they undertook to cause the issuance of a new transfer of the certificate of title in their names
upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of
title is issued in their names, petitioners were committed to immediately execute the deed of
absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price
arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to
protect the seller against a buyer who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment therefor, in the contract entered into
in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale
by reason of the fact that the certificate of title to the property was still in the name of their father. It
was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the
execution of an contract of absolute sale.

What is clearly established by the plain language of the subject document is that when the said
"Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners' father, Constancio P.
Coronel, to their names.

The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985
(Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the execution of the deed of
absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as
evidenced by the "Receipt of Down Payment."

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at
bench. Thus,

Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.

From the moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under
the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to private respondent Ramona P.
Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her
part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners
conclusively admitted that:

3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our
names from our deceased father Constancio P. Coronel, the transfer certificate of
title immediately upon receipt of the downpayment above-stated". The sale was still
subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same paragraph, that:

. . . Had petitioners-sellers not complied with this condition of first transferring the title
to the property under their names, there could be no perfected contract of sale.
(Emphasis supplied.)

(Ibid.)

not aware that they set their own trap for themselves, for Article 1186 of the Civil Code
expressly provides that:

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.

Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced
by TCT No. 327403 (Exh. "D"; Exh. "4").

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated
as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject
only to the suspensive condition that the sellers shall effect the issuance of new certificate title from
that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled
(Exh. "D"; Exh. "4").

We, therefore, hold that, in accordance with Article 1187 which pertinently provides —

Art. 1187. The effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation . . .

In obligation to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became
mutually due and demandable as of the time of fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller
and buyer arose.

Petitioners also argue there could been no perfected contract on January 19, 1985 because they
were then not yet the absolute owners of the inherited property.

We cannot sustain this argument.

Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to be extent and value of the inheritance of a person are transmitted
through his death to another or others by his will or by operation of law.
 Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by operation of
law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes
insofar as the subject property is concerned, such that any rights or obligations pertaining
thereto became binding and enforceable upon them. It is expressly provided that rights to the
succession are transmitted from the moment of death of the decedent (Article 777, Civil
Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

Be it also noted that petitioners' claim that succession may not be declared unless the creditors have
been paid is rendered moot by the fact that they were able to effect the transfer of the title to the
property from the decedent's name to their names on February 6, 1985.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into
an agreement at that time and they cannot be allowed to now take a posture contrary to that which
they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:

Art. 1431. Through estoppel an admission or representation is rendered conclusive

upon the person making it, and cannot be denied or disproved as against the person
relying thereon.

Having represented themselves as the true owners of the subject property at the time of
sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that
time.

Petitioners also contend that although there was in fact a perfected contract of sale between them
and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible
the consummation thereof by going to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the
instant case. We note that these supposed grounds for petitioners' rescission, are mere allegations
found only in their responsive pleadings, which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The
records are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We
have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs.
Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an
evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).

Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February
6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the
contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind
the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA
722 [1984])

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the
buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted
for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made
by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of
Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they
raise any objection as regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to
pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense
of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to
show that they actually presented the new transfer certificate of title in their names and signified their
willingness and readiness to execute the deed of absolute sale in accordance with their agreement.
Ramona's corresponding obligation to pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be
deemed to have been in default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may
be considered in default, to wit:

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.

xxx xxx xxx

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. From
the moment one of the parties fulfill his obligation, delay by the other begins.
(Emphasis supplied.)

There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and
respondents.

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a
case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.

Should if be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof to the person who
presents the oldest title, provided there is good faith.

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the
second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the
issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the
exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first
buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in
good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first
buyer.

In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished
member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right).
Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights
except when the second buyer first registers in good faith the second sale (Olivares
vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of
the first sale defeats his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA
656), it has held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed
of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R.
No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).

Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the
subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels
and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a
clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in
good faith.

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer
was a buyer in good faith but whether or not said second buyer registers such second sale in good
faith, that is, without knowledge of any defect in the title of the property sold.

As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a
notice of lis pendens had been annotated on the transfer certificate of title in the names of
petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time
of registration, therefore, petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged with knowledge that a previous
buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect
in petitioners' title to the property at the time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has acquired knowledge that
there was a previous sale of the same property to a third party or that another person
claims said property in a pervious sale, the registration will constitute a registration in
bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349
 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43
Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected
on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18,
1985, was correctly upheld by both the courts below.

Although there may be ample indications that there was in fact an agency between Ramona as
principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned,
the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not
squarely raised in the instant petition, nor in such assumption disputed between mother and
daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this
point.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed
judgment AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Panganiban, J., took no part.

2
G.R. No. L-116650 May 23, 1995

TOYOTA SHAW, INC., petitioner,

vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private
respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong
Bernardo. The document reads as follows:
 AGREEMENTS BETWEEN MR. SOSA
& POPONG BERNARDO OF TOYOTA
SHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG

BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque)
where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by
TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

(Sgd.)
POPO
NG
BERN
ARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected
contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to
damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The
petitioner disagrees. Hence, this petition for review on certiorari.

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as
well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L.
Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to
purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer
with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an
available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw
Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he,
his family, and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his home
province, where he would celebrate his birthday on the 19th of June. He added that if he does not
arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured
Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the
aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also
agreed upon by the parties that the balance of the purchase price would be paid by credit financing
through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota
and B.A. Finance pertaining to the application for financing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of
P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP)
No. 928,2 on which Gilbert signed under the subheading CONFORME. This document shows that
the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United
Parañaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus";
that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00
broken down as follows:

a) downpayment — P 53,148.00
b) insurance — P 13,970.00
c) BLT registration fee — P 1,067.00
CHMO fee — P 2,715.00
service fee — P 500.00
accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery
Terms" were not filled-up. It also contains the following pertinent provisions:

CONDITIONS OF SALES

1. This sale is subject to availability of unit.

2. Stated Price is subject to change without prior notice, Price prevailing and in effect
at time of selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would
not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At
2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo
informed them that the Lite Ace was being readied for delivery. After waiting for about an hour,
Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval
by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had
already been reserved and earmarked for Sosa but could not be released due to the uncertainty of
payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the
unit by paying the full purchase price in cash but Sosa refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his
downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check
for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of
Toyota,5 which Sosa signed with the reservation, "without prejudice to our future claims for
damages."

Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him,
he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus
interest from the time he paid it and the payment of damages with a warning that in case of Toyota's
failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989
and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest
and damages, again, with a warning that legal action would be taken if payment was not made within
three days.7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to
accede to the demands of Sosa. But even before this answer was made and received by Sosa, the
latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a
complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount
of P1,230,000.00.9 He alleges, inter alia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff,

plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless
nights because: (i) he and his family were constrained to take the public
transportation from Manila to Lucena City on their way to Marinduque; (ii) his
balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid
the inconvenience of taking public transportation; and (iii) his relatives, friends,
neighbors and other provincemates, continuously irked him about "his Brand-New
Toyota Lite Ace — that never was." Under the circumstances, defendant should be
made liable to the plaintiff for moral damages in the amount of One Million Pesos
(P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa,
that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed
Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did
not state date of delivery; Sosa had not completed the documents required by the financing
company, and as a matter of policy, the vehicle could not and would not be released prior to full
compliance with financing requirements, submission of all documents, and execution of the sales
agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was
improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed
compulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18
February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN
MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and
Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota
acted in bad faith in selling to another the unit already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court
held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by
Quirante, "they do not volunteer any information as to the company's sales policy and guidelines
because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its
consummation when the downpayment was made by the plaintiff, the defendants had made known
to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted
the latter to do acts within the scope of an apparent authority holding him out to the public as
possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw,
Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing in the community and suffered
besmirched reputation, wounded feelings and sleepless nights for which he ought to be
compensated." 16 Accordingly, it disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor
of the plaintiff and against the defendant:

1. ordering the defendant to pay to the plaintiff the sum of P75,000.00

for moral damages;

2. ordering the defendant to pay the plaintiff the sum of P10,000.00

for exemplary damages;

3. ordering the defendant to pay the sum of P30,000.00 attorney's

fees plus P2,000.00 lawyer's transportation fare per trip in attending
to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00

transportation fare per trip of the plaintiff in attending the hearing of
this case; and

5. ordering the defendant to pay the cost of suit.

SO ORDERED.

Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994,17 the Court of
Appeals affirmed in toto the appealed decision.

Toyota now comes before this Court via this petition and raises the core issue stated at the
beginning of the ponencia and also the following related issues: (a) whether or not the standard VSP
was the true and documented understanding of the parties which would have led to the ultimate
contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the
vehicle despite the non-payment of the consideration and the non-approval of his credit application
by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to
Sosa, and (d) whether or not Toyota may be held liable for damages.

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is
a perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is
not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate
thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain
appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a
sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment
basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full
purchase price and the manner the installments were to be paid.

This Court had already ruled that a definite agreement on the manner of payment of the price is an
essential element in the formation of a binding and enforceable contract of sale. 18 This is so because
the agreement as to the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an
essential element of a binding agreement to sell personal property. 19

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one
thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold
letters, viz.,

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF

TOYOTA SHAW, INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter did not
misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only
a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa
to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as
an
agent20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent.21

At the most, Exhibit "A" may be considered as part of the initial phase of the generation or
negotiation stage of a contract of sale. There are three stages in the contract of sale, namely:

(a) preparation, conception, or generation, which is the period of negotiation and

bargaining, ending at the moment of agreement of the parties;
 (b) perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms

agreed upon in the contract.22

The second phase of the generation or negotiation stage in this case was the execution of the VSP.
It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00
while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of
course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not
have mentioned B.A. Finance in the VSP.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454
and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of
the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are
primarily organized for the purpose of extending credit facilities to consumers and to industrial,
commercial, or agricultural enterprises, either by discounting or factoring commercial papers or
accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other
evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial
machinery, business and office machines and equipment, appliances and other movable property." 23

Accordingly, in a sale on installment basis which is financed by a financing company, three parties
are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the
thing purchased on installment, the seller who assigns the notes or discounts them with a financing
company, and the financing company which is subrogated in the place of the seller, as the creditor of
the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no
meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for
which reason it suggested to Sosa that he pay the full purchase price. When the latter refused,
Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was
cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas
malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that
Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already
been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in
paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales
representative, Mr. Popong Bernardo, called plaintiff's house and informed the
plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17,
1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's
office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant
for reasons known only to its representatives, refused and/or failed to release the
vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; .
. . (Emphasis supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the
VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-
delivery did not cause any legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is without
legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was
known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they
expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van
was not delivered. The van became the subject matter of talks during his celebration that he may not
have paid for it, and this created an impression against his business standing and reputation. At the
bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan
to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he
who brought embarrassment upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or
compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the
Civil Code, exemplary or corrective damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated, or compensatory damages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of
the decision, and not only in the dispositive portion thereof, the legal reason for the award of
attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the
trial court. No reason thus exists for such an award.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in
CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in
Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is
DISMISSED. The counterclaim therein is likewise DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.

3
G.R. No. 166714 February 9, 2007

AMELIA S. ROBERTS, Petitioner,

vs.
MARTIN B. PAPIO, Respondent.

DECISION

CALLEJO, SR., J.:

Assailed in this petition for review on certiorari is the Decision1 of the Court of Appeals (CA), in CA-
G.R. CV No. 69034 which reversed and set aside the Decision2 of the Regional Trial Court (RTC),
Branch 150, Makati City, in Civil Case No. 01-431. The RTC ruling had affirmed with modification the
Decision3 of the Metropolitan Trial Court (MeTC), Branch 64, Makati City in Civil Case No. 66847.
The petition likewise assails the Resolution of the CA denying the motion for reconsideration of its
decision.

The Antecedents

The spouses Martin and Lucina Papio were the owners of a 274-square-meter residential lot located
in Makati (now Makati City) and covered by Transfer Certificate of Title (TCT) No. S-44980.4 In order
to secure a ₱59,000.00 loan from the Amparo Investments Corporation, they executed a real estate
mortgage on the property. Upon Papio’s failure to pay the loan, the corporation filed a petition for the
extrajudicial foreclosure of the mortgage.

Since the couple needed money to redeem the property and to prevent the foreclosure of the real
estate mortgage, they executed a Deed of Absolute Sale over the property on April 13, 1982 in favor
of Martin Papio’s cousin, Amelia Roberts. Of the ₱85,000.00 purchase price, ₱59,000.00 was paid to
the Amparo Investments Corporation, while the ₱26,000.00 difference was retained by the
spouses.5 As soon as the spouses had settled their obligation, the corporation returned the owner’s
duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts.

Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee) executed a two-year
contract of lease dated April 15, 1982, effective May 1, 1982. The contract was subject to renewal or
extension for a like period at the option of the lessor, the lessee waiving thereby the benefits of an
implied new lease. The lessee was obliged to pay monthly rentals of ₱800.00 to be deposited in the
lessor’s account at the Bank of America, Makati City branch.6

On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in the name of
Amelia Roberts as owner.7
Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for another year.8 He
then failed to pay rentals, but he and his family nevertheless remained in possession of the property
for a period of almost thirteen (13) years.

In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that he failed to
pay the monthly rental of ₱2,500.00 from January 1, 1986 to December 31, 1997, and ₱10,000.00
from January 1, 1998 to May 31, 1998; thus, his total liability was ₱410,000.00. She demanded that
Papio vacate the property within 15 days from receipt of the letter in case he failed to settle the
amount.9 Because he refused to pay, Papio received another letter from Roberts on April 22, 1999,
demanding, for the last time, that he and his family vacate the property.10 Again, Papio refused to
leave the premises.

On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed a
Complaint11 for unlawful detainer and damages against Martin Papio before the MeTC, Branch 64,
Makati City. She alleged the following in her complaint:

Sometime in 1982 she purchased from defendant a 274-sq-m residential house and lot situated at
No. 1046 Teresa St., Brgy. Valenzuela, Makati City.12 Upon Papio’s pleas to continue staying in the
property, they executed a two-year lease contract13 which commenced on May 1, 1982. The monthly
rental was ₱800.00. Thereafter, TCT No. 11447814 was issued in her favor and she paid all the realty
taxes due on the property. When the term of the lease expired, she still allowed Papio and his family
to continue leasing the property. However, he took advantage of her absence and stopped payment
beginning January 1986, and refused to pay despite repeated demands. In June 1998, she sent a
demand letter15 through counsel requiring Papio to pay rentals from January 1986 up to May 1998
and to vacate the leased property. The accumulated arrears in rental are as follows: (a) ₱360,000.00
from January 1, 1986 to December 31, 1997 at ₱2,500.00 per month; and (b) ₱50,000.00, from
January 1, 1998 to May 31, 1998 at ₱10,000.00 per month.16 She came to the Philippines but all
efforts at an amicable settlement proved futile. Thus, in April 1999, she sent the final demand letter
to defendant directing him and his family to pay and immediately vacate the leased premises.17

Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute Sale, the April 15,
1982 Contract of Lease, and TCT No. 114478.

In his Answer with counterclaim, Papio alleged the following:

He executed the April 13, 1982 deed of absolute sale and the contract of lease. Roberts, his cousin
who is a resident of California, United States of America (USA), arrived in the Philippines and offered
to redeem the property. Believing that she had made the offer for the purpose of retaining his
ownership over the property, he accepted. She then remitted ₱59,000.00 to the mortgagor for his
account, after which the mortgagee cancelled the real estate mortgage. However, he was alarmed
when the plaintiff had a deed of absolute sale over the property prepared (for ₱83,000.00 as
consideration) and asked him to sign the same. She also demanded that the defendant turn over the
owner’s duplicate of TCT No. S-44980. The defendant was in a quandary. He then believed that if he
signed the deed of absolute sale, Roberts would acquire ownership over the property. He asked her
to allow him to redeem or reacquire the property at any time for a reasonable amount.18 When
Roberts agreed, Papio signed the deed of absolute sale.

Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased the property for
₱250,000.00. In July 1985, since Roberts was by then already in the USA, he remitted to her
authorized representative, Perlita Ventura, the amount of ₱150,000.00 as partial payment for the
property.19 On June 16, 1986, she again remitted ₱100,000.00, through Ventura. Both payments
were evidenced by receipts signed by Ventura.20 Roberts then declared that she would execute a
deed of absolute sale and surrender the title to the property. However, Ventura had apparently
misappropriated ₱39,000.00 out of the ₱250,000.00 that she had received; Roberts then demanded
that she pay the amount misappropriated before executing the deed of absolute sale. Thus, the sole
reason why Roberts refused to abide by her promise was the failure of her authorized representative
to remit the full amount of ₱250,000.00. Despite Papio’s demands, Roberts refused to execute a
deed of absolute sale. Accordingly, defendant posited that plaintiff had no cause of action to demand
payment of rental and eject him from the property.

Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of Perlita Ventura to
the plaintiff wherein the former admitted having used the money of the plaintiff to defray the plane
fares of Perlita’s parents to the USA, and pleaded that she be allowed to repay the amount within
one year; (b) the letter of Eugene Roberts (plaintiff’s husband) to Perlita Ventura dated July 25, 1986
where he accused Ventura of stealing the money of plaintiff Amelia (thus preventing the latter from
paying her loan on her house and effect the cancellation of the mortgage), and demanded that she
deposit the balance;21 and (c) plaintiff’s letter to defendant Papio dated July 25, 1986 requesting the
latter to convince Ventura to remit the balance of ₱39,000.00 so that the plaintiff could transfer the
title of the property to the defendant.22

Papio asserted that the letters of Roberts and her husband are in themselves admissions or
declarations against interest, hence, admissible to prove that he had reacquired the property
although the title was still in her possession.

In her Affidavit and Position Paper,23 Roberts averred that she had paid the real estate taxes on the
property after she had purchased it; Papio’s initial right to occupy the property was terminated when
the original lease period expired; and his continued possession was only by mere tolerance. She
further alleged that the Deed of Sale states on its face that the conveyance of the property was
absolute and unconditional. She also claimed that any right to repurchase the property must appear
in a public document pursuant to Article 1358, Paragraph 1, of the Civil Code of the
Phililppines.24 Since no such document exists, defendant’s supposed real interest over the property
could not be enforced without violating the Statute of Frauds.25 She stressed that her Torrens title to
the property was an "absolute and indefeasible evidence of her ownership of the property which is
binding and conclusive upon the whole world."

Roberts admitted that she demanded ₱39,000.00 from the defendant in her letter dated July 25,
1986. However, she averred that the amount represented his back rentals on the property.26 She
declared that she neither authorized Ventura to sell the property nor to receive the purchase price
therefor. She merely authorized her to receive the rentals from defendant and to deposit them in her
account. She did not know that Ventura had received ₱250,000.00 from Papio in July 1985 and on
June 16, 1986, and had signed receipts therefor. It was only on February 11, 1998 that she became
aware of the receipts when she received defendant Papio’s letter to which were appended the said
receipts. She and her husband offered to sell the property to the defendant in 1984 for
US$15,000.00 on a "take it or leave it" basis when they arrived in the Philippines in May
1984.27 However, defendant refused to accept the offer. The spouses then offered to sell the
property anew on December 20, 1997, for ₱670,000.00 inclusive of back rentals.28 However,
defendant offered to settle his account with the spouses.29 Again, the offer came on January 11,
1998, but it was rejected. The defendant insisted that he had already purchased the property in July
1985 for ₱250,000.00.

Roberts insisted that Papio’s claim of the right to repurchase the property, as well as his claim of
payment therefor, is belied by his own letter in which he offered to settle plaintiff’s claim for back
rentals. Even assuming that the purchase price of the property had been paid through Ventura,
Papio did not adduce any proof to show that Ventura had been authorized to sell the property or to
accept any payment thereon. Any payment to Ventura could have no binding effect on her since she
was not privy to the transaction; if at all, such agreement would be binding only on Papio and
Ventura.

She further alleged that defendant’s own inaction belies his claim of ownership over the property:
first, he failed to cause any notice or annotation to be made on the Register of Deed’s copy of TCT
No. 114478 in order to protect his supposed adverse claim; second, he did not institute any action
against Roberts to compel the execution of the necessary deed of transfer of title in his favor; and
third, the defense of ownership over the property was raised only after Roberts demanded him to
vacate the property.

Based solely on the parties’ pleadings, the MeTC rendered its January 18, 2001 Decision30 in favor
of Roberts. The fallo of the decision reads:

WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is hereby
ordered to:

1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City;

2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to December
13, 1997 at the rate equivalent to Php2,500.00 per month and thereafter, Php10,000.00 from
January 1998 until he actually vacates the premises;

3. Pay the plaintiff attorney’s fees as Php20,000.00; and

4. Pay the costs

SO ORDERED.31

The MeTC held that Roberts merely tolerated the stay of Papio in the property after the expiration of
the contract of lease on May 1, 1984; hence, she had a cause of action against him since the only
elements in an unlawful detainer action are the fact of lease and the expiration of its term. The
defendant as tenant cannot controvert the title of the plaintiff or assert any right adverse thereto or
set up any inconsistent right to change the existing relation between them. The plaintiff need not
prove her ownership over the property inasmuch as evidence of ownership can be admitted only for
the purpose of determining the character and extent of possession, and the amount of damages
arising from the detention.

The court further ruled that Papio made no denials as to the existence and authenticity of Roberts’
title to the property. It declared that "the certificate of title is indefeasible in favor of the person whose
name appears therein and incontrovertible upon the expiration of the one-year period from the date
of issue," and that a Torrens title, "which enjoys a strong presumption of regularity and validity, is
generally a conclusive evidence of ownership of the land referred to therein."

As to Papio’s claim that the transfer of the property was one with right of repurchase, the MeTC held
it to be bereft of merit since the Deed of Sale is termed as "absolute and unconditional." The court
ruled that the right to repurchase is not a right granted to the seller by the buyer in a subsequent
instrument but rather, a right reserved in the same contract of sale. Once the deed of absolute sale
is executed, the seller can no longer reserve the right to repurchase; any right thereafter granted in a
separate document cannot be a right of repurchase but some other right.
As to the receipts of payment signed by Ventura, the court gave credence to Roberts’s declaration in
her Affidavit that she authorized Ventura only to collect rentals from Papio, and not to receive the
repurchase price. Papio’s letter of January 31, 1998, which called her attention to the fact that she
had been sending people without written authority to collect money since 1985, bolstered the court’s
finding that the payment, if at all intended for the supposed repurchase, never redounded to the
benefit of the spouses Roberts.

Papio appealed the decision to the RTC, alleging the following:

I.

THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT
OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.

II.

THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE DOCUMENTARY

EVIDENCE ADDUCED BY DEFENDANT-APPELLANT WHICH ESTABLISHED THAT A
REPURCHASE TRANSACTION EXISTED BETWEEN THE PARTIES ONLY THAT PLAINTIFF-
APPELLEE WITHHELD THE EXECUTION OF THE ABSOLUTE DEED OF SALE AND THE
TRANSFER OF TITLE OF THE SAME IN DEFENDANT-APPELLANT’S NAME.

III.

THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE LETTERS OF
PLAINTIFF-[APPELLEE] AND OF HER HUSBAND ADDRESSED TO DEFENDANT-APPELLANT
AND HIS WIFE ARE IN THEMSELVES ADMISSION AND/OR DECLARATION OF THE FACT
THAT DEFENDANT-APPELLANT HAD DULY PAID PLAINTIFF-APPELLEE OF THE PURCHASE
AMOUNT COVERING THE SUBJECT PROPERTY.

IV.

THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT
OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS [AN] AMERICAN CITIZEN AND
RESIDENT THEREIN HAD NOT APPEARED IN COURT ONCE, NEITHER WAS HER ALLEGED
ATTORNEY-IN-FACT, MATILDE AGUILAR NOR [DID] THE LATTER EVER [FURNISH] THE
LOWER COURT A SPECIAL POWER OF ATTORNEY AUTHORIZING HER TO APPEAR IN
COURT IN BEHALF OF HER PRINCIPAL.32

Papio maintained that Roberts had no cause of action for eviction because she had already ceded
her right thereto when she allowed him to redeem and reacquire the property upon payment of
₱250,000.00 to Ventura, her duly authorized representative. He also contended that Roberts’s claim
that the authority of Ventura is limited only to the collection of the rentals and not of the purchase
price was a mere afterthought, since her appended Affidavit was executed sometime in October
1999 when the proceedings in the MeTC had already started.

On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution.33 The court granted the
motion in an Order34 dated June 19, 2001. Subsequently, a Writ of Execution35 pending appeal was
issued on September 28, 2001. On October 29, 2001, Sheriff Melvin M. Alidon enforced the writ and
placed Roberts in possession of the property.
Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific performance with
damages against Roberts. Papio, as plaintiff, claimed that he entered into a contract of sale with
pacto de retro with Roberts, and prayed that the latter be ordered to execute a Deed of Sale over
`the property in his favor and transfer the title over the property to and in his name. The case was
docketed as Civil Case No. 01-851.

On October 24, 2001, the RTC rendered judgment affirming the appealed decision of the MeTC. The
fallo of the decision reads:36

Being in accordance with law and the circumstances attendant to the instant case, the court finds
merit in plaintiff-appellee’s claim. Wherefore, the challenged decision dated January 18, 2001 is
hereby affirmed in toto.

SO ORDERED.37

Both parties filed their respective motions for reconsideration.38 In an Order39 dated February 26,
2002, the court denied the motion of Papio but modified its decision declaring that the computation
of the accrued rentals should commence from January 1986, not January 1996. The decretal portion
of the decision reads:

Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with modification that
defendant pay plaintiff the reasonable rentals accrued for the period January 1, 1986 to December
[31, 1997] per month and thereafter and ₱10,000.00 [per month] from January 1998 to October 28,
2001 when defendant-appellant actually vacated the subject leased premises.

SO ORDERED.40

On February 28, 2002, Papio filed a petition for review41 in the CA, alleging that the RTC erred in not
finding that he had reacquired the property from Roberts for ₱250,000.00, but the latter refused to
execute a deed of absolute sale and transfer the title in his favor. He insisted that the MeTC and the
RTC erred in giving credence to petitioner’s claim that she did not authorize Ventura to receive his
payments for the purchase price of the property, citing Roberts’ letter dated July 25, 1986 and the
letter of Eugene Roberts to Ventura of even date. He also averred that the MeTC and the RTC erred
in not considering his documentary evidence in deciding the case.

On August 31, 2004, the CA rendered judgment granting the petition. The appellate court set aside
the decision of the RTC and ordered the RTC to dismiss the complaint. The decretal portion of the
Decision42 reads:

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and a new one
entered: (1) rendering an initial determination that the "Deed of Absolute Sale" dated April 13, 1982
is in fact an equitable mortgage under Article 1603 of the New Civil Code; and (2) resolving therefore
that petitioner Martin B. Papio is entitled to possession of the property subject of this action; (3) But
such determination of ownership and equitable mortgage are not clothed with finality and will not
constitute a binding and conclusive adjudication on the merits with respect to the issue of ownership
and such judgment shall not bar an action between the same parties respecting title to the land, nor
shall it be held conclusive of the facts therein found in the case between the same parties upon a
different cause of action not involving possession. All other counterclaims for damages are hereby
dismissed. Cost against the respondent.

SO ORDERED.43
According to the appellate court, although the MeTC and RTC were correct in holding that the MeTC
had jurisdiction over the complaint for unlawful detainer, they erred in ignoring Papio’s defense of
equitable mortgage, and in not finding that the transaction covered by the deed of absolute sale by
and between the parties was one of equitable mortgage under Article 1602 of the New Civil Code.
The appellate court ruled that Papio retained the ownership of the property and its peaceful
possession; hence, the MeTC should have dismissed the complaint without prejudice to the outcome
of Civil Case No. 01-851 relative to his claim of ownership over the property.

Roberts filed a motion for reconsideration of the decision on the following grounds:

I. Petitioner did not allege in his Answer the defense of equitable mortgage; hence, the lower
courts [should] not have discussed the same;

II. Even assuming that Petitioner alleged the defense of equitable mortgage, the MeTC could
not have ruled upon the said defense,

III. The M[e]TC and the RTC were not remiss in the exercise of their jurisdiction.44

The CA denied the motion.

In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:

I. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN DECLARING

THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE EXERCISE OF THAT
JURISDICTION ACQUIRED BECAUSE IT DID NOT CONSIDER ALL PETITIONER’S
DEFENSE OF EQUITABLE MORTGAGE.

II. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN REQUIRING

THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS NEVER AVAILED OF BY
RESPONDENT.45

Petitioner argues that respondent is barred from raising the issue of equitable mortgage because his
defense in the MeTC and RTC was that he had repurchased the property from the petitioner; by
such representation, he had impliedly admitted the existence and validity of the deed of absolute
sale whereby ownership of the property was transferred to petitioner but reverted to him upon the
exercise of said right. The respondent even filed a complaint for specific performance with damages,
which is now pending in the RTC of Makati City, docketed as Civil Case No. 01-851 entitled "Martin
B. Papio vs. Amelia Salvador-Roberts." In that case, respondent claimed that his transaction with the
petitioner was a sale with pacto de retro. Petitioner posits that Article 1602 of the Civil Code applies
only when the defendant specifically alleges this defense. Consequently, the appellate court was
proscribed from finding that petitioner and respondent had entered into an equitable mortgage under
the deed of absolute sale.

Petitioner further avers that respondent was ably represented by counsel and was aware of the
difference between a pacto de retro sale and an equitable mortgage; thus, he could not have been
mistaken in declaring that he repurchased the property from her.

As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue should be
properly addressed and resolved by the RTC in an action to enforce ownership, not in an ejectment
case before the MeTC where the main issue involved is possession de facto. According to her, the
obvious import of the CA Decision is that, in resolving an ejectment case, the lower court must pass
upon the issue of ownership (in this case, by applying the presumptions under Art. 1602) which, in
effect, would use the same yardstick as though it is the main action. The procedure will not only
promote multiplicity of suits but also place the new owner in the absurd position of having to first
seek the declaration of ownership before filing an ejectment suit.

Respondent counters that the defense of equitable mortgage need not be particularly stated to
apprise petitioner of the nature and character of the repurchase agreement. He contends that he had
amply discussed in his pleadings before the trial and appellate courts all the surrounding
circumstances of the case, such as the relative situation of the parties at the time; their attitude, acts,
conduct, and declarations; and the negotiations between them that led to the repurchase agreement.
Thus, he argues that the CA correctly ruled that the contract was one of equitable mortgage. He
insists that petitioner allowed him to redeem and reacquire the property, and accepted his full
payment of the property through Ventura, the authorized representative, as shown by the signed
receipts.

The threshold issues are the following: (1) whether the MeTC had jurisdiction in an action for
unlawful detainer to resolve the issue of who between petitioner and respondent is the owner of the
property and entitled to the de facto possession thereof; (2) whether the transaction entered into
between the parties under the Deed of Absolute Sale and the Contract of Lease is an equitable
mortgage over the property; and (3) whether the petitioner is entitled to the material or de facto
possession of the property.

The Ruling of the Court

On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to resolve the issue of
who between petitioner or respondent is the lawful owner of the property, and is thus entitled to the
material or de facto possession thereof) is correct. Section 18, Rule 70 of the Rules of Court
provides that when the defendant raises the defense of ownership in his pleadings and the question
of possession cannot be resolved without deciding the issue of ownership, the issue of ownership
shall be resolved only to determine the issue of possession. The judgment rendered in an action for
unlawful detainer shall be conclusive with respect to the possession only and shall in no wise bind
the title or affect the ownership of the land or building. Such judgment would not bar an action
between the same parties respecting title to the land or building.46

The summary nature of the action is not changed by the claim of ownership of the property of the
defendant.47 The MeTC is not divested of its jurisdiction over the unlawful detainer action simply
because the defendant asserts ownership over the property.

The sole issue for resolution in an action for unlawful detainer is material or de facto possession of
the property. Even if the defendant claims juridical possession or ownership over the property based
on a claim that his transaction with the plaintiff relative to the property is merely an equitable
mortgage, or that he had repurchased the property from the plaintiff, the MeTC may still delve into
and take cognizance of the case and make an initial or provisional determination of who between the
plaintiff and the defendant is the owner and, in the process, resolve the issue of who is entitled to the
possession. The MeTC, in unlawful detainer case, decides the question of ownership only if it is
intertwined with and necessary to resolve the issue of possession.48 The resolution of the MeTC on
the ownership of the property is merely provisional or interlocutory. Any question involving the issue
of ownership should be raised and resolved in a separate action brought specifically to settle the
question with finality, in this case, Civil Case No. 01-851 which respondent filed before the RTC.

The ruling of the CA, that the contract between petitioner and respondent was an equitable
mortgage, is incorrect. The fact of the matter is that the respondent intransigently alleged in his
answer, and even in his affidavit and position paper, that petitioner had granted him the right to
redeem or repurchase the property at any time and for a reasonable amount; and that, he had, in
fact, repurchased the property in July 1985 for ₱250,000.00 which he remitted to petitioner through
an authorized representative who signed receipts therefor; he had reacquired ownership and
juridical possession of the property after his repurchase thereof in 1985; and consequently, petitioner
was obliged to execute a deed of absolute sale over the property in his favor.

Notably, respondent alleged that, as stated in his letter to petitioner, he was given the right to
reacquire the property in 1982 within two years upon the payment of ₱53,000.00, plus petitioner’s
airfare for her trip to the Philippines from the USA and back; petitioner promised to sign the deed
of absolute sale. He even filed a complaint against the petitioner in the RTC, docketed as Civil Case
No. 01-851, for specific performance with damages to compel petitioner to execute the said deed of
absolute sale over the property presumably on the strength of Articles 1357 and 1358 of the New
Civil Code. Certainly then, his claim that petitioner had given him the right to repurchase the property
is antithetical to an equitable mortgage.

An equitable mortgage is one that, although lacking in some formality, form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to change a real
property as security for a debt and contain nothing impossible or contrary to law.49 A contract
between the parties is an equitable mortgage if the following requisites are present: (a) the parties
entered into a contract denominated as a contract of sale; and (b) the intention was to secure an
existing debt by way of mortgage.50 The decisive factor is the intention of the parties.

In an equitable mortgage, the mortgagor retains ownership over the property but subject to
foreclosure and sale at public auction upon failure of the mortgagor to pay his obligation.51 In
contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the
vendee a retro subject only to the right of the vendor a retro to repurchase the property upon
compliance with legal requirements for the repurchase. The failure of the vendor a retro to exercise
the right to repurchase within the agreed time vests upon the vendee a retro, by operation of law,
absolute title over the property.52

One repurchases only what one has previously sold. The right to repurchase presupposes a valid
contract of sale between the same parties.53 By insisting that he had repurchased the property,
respondent thereby admitted that the deed of absolute sale executed by him and petitioner on April
13, 1982 was, in fact and in law, a deed of absolute sale and not an equitable mortgage; hence, he
had acquired ownership over the property based on said deed. Respondent is, thus, estopped from
asserting that the contract under the deed of absolute sale is an equitable mortgage unless there is
allegation and evidence of palpable mistake on the part of respondent;54 or a fraud on the part of
petitioner. Respondent made no such allegation in his pleadings and affidavit. On the contrary, he
maintained that petitioner had sold the property to him in July 1985 and acknowledged receipt of the
purchase price thereof except the amount of ₱39,000.00 retained by Perlita Ventura. Respondent is
thus bound by his admission of petitioner’s ownership of the property and is barred from claiming
otherwise.55

Respondent’s admission that petitioner acquired ownership over the property under the April 13,
1982 deed of absolute sale is buttressed by his admission in the Contract of Lease dated April 15,
1982 that petitioner was the owner of the property, and that he had paid the rentals for the duration
of the contract of lease and even until 1985 upon its extension. Respondent was obliged to prove his
defense that petitioner had given him the right to repurchase, and that petitioner obliged herself to
resell the property for ₱250,000.00 when they executed the April 13, 1982 deed of absolute sale.
We have carefully reviewed the case and find that respondent failed to adduce competent and
credible evidence to prove his claim.

As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the property is not
incorporated therein. The contract is one of absolute sale and not one with right to repurchase. The
law states that if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.56 When the language of the
contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it
any other intention that would contradict its plain import.57 The clear terms of the contract should
never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal
interpretation justifies the creation of a contract for the parties which they did not make themselves,
or the imposition upon one party to a contract or obligation to assume simply or merely to avoid
seeming hardships.58 Their true meaning must be enforced, as it is to be presumed that the
contracting parties know their scope and effects.59 As the Court held in Villarica, et al. v. Court of
Appeals:60

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument,
but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the
contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the
right to repurchase, and any right thereafter granted the vendor by the vendee in a separate
instrument cannot be a right of repurchase but some other right like the option to buy in the instant
case.61

In Ramos v. Icasiano,62 we also held that an agreement to repurchase becomes a promise to sell
when made after the sale because when the sale is made without such agreement the purchaser
acquires the thing sold absolutely; and, if he afterwards grants the vendor the right to repurchase, it
is a new contract entered into by the purchaser as absolute owner. An option to buy or a promise to
sell is different and distinct from the right of repurchase that must be reserved by means of
stipulations to that effect in the contract of sale.63

There is no evidence on record that, on or before July 1985, petitioner agreed to sell her property to
the respondent for ₱250,000.00. Neither is there any documentary evidence showing that Ventura
was authorized to offer for sale or sell the property for and in behalf of petitioner for ₱250,000.00, or
to receive the said amount from respondent as purchase price of the property. The rule is that when
a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void64 and cannot produce any legal effect as to transfer the
property from its lawful owner.65 Being inexistent and void from the very beginning, said contract
cannot be ratified.66 Any contract entered into by Ventura for and in behalf of petitioner relative to the
sale of the property is void and cannot be ratified by the latter. A void contract produces no effect
either against or in favor of anyone.67

Respondent also failed to prove that the negotiations between him and petitioner has culminated in
his offer to buy the property for ₱250,000.00, and that they later on agreed to the sale of the property
for the same amount. He likewise failed to prove that he purchased and reacquired the property in
July 1985. The evidence on record shows that petitioner had offered to sell the property for
US$15,000 on a "take it or leave it" basis in May 1984 upon the expiration of the Contract of
Lease68 —an offer that was rejected by respondent—which is why on December 30, 1997, petitioner
and her husband offered again to sell the property to respondent for ₱670,000.00 inclusive of back
rentals and the purchase price of the property under the April 13, 1982 Deed of absolute Sale.69 The
offer was again rejected by respondent. The final offer appears to have been made on January 11,
199870 but again, like the previous negotiations, no contract was perfected between the parties.
A contract is a meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service.71 Under Article 1318 of the New Civil Code,
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.

Contracts are perfected by mere consent manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.72 Once perfected, they bind the
contracting parties and the obligations arising therefrom have the form of law between the parties
which must be complied with in good faith. The parties are bound not only to the fulfillment of what
has been expressly stipulated but also to the consequences which, according to their nature, may be
in keeping with good faith, usage and law.73

There was no contract of sale entered into by the parties based on the Receipts dated July 1985 and
June 16, 1986, signed by Perlita Ventura and the letter of petitioner to respondent dated July 25,
1986.

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of
and deliver a determinate thing and the other, to pay therefor a price certain in money or its
equivalent.74 The absence of any of the essential elements will negate the existence of a perfected
contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:75

A definite agreement as to the price is an essential element of a binding agreement to sell personal
or real property because it seriously affects the rights and obligations of the parties. Price is an
essential element in the formation of a binding and enforceable contract of sale. The fixing of the
price can never be left to the decision of one of the contracting parties. But a price fixed by one of
the contracting parties, if accepted by the other, gives rise to a perfected sale.76

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When
there is merely an offer by one party without acceptance of the other, there is no contract.77 When
the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.78

Respondent’s reliance on petitioner’s letter to him dated July 25, 1986 is misplaced. The letter reads
in full:

7-25-86

Dear Martin & Ising,

Enclosed for your information is the letter written by my husband to Perlita. I hope that you will be
able to convince your cousin that it’s to her best interest to deposit the balance of your payment to
me of ₱39,000.00 in my bank acct. per our agreement and send me my bank book right away so
that we can transfer the title of the property.

Regards,
Amie 79

We have carefully considered the letter of Perlita Ventura, dated July 18, 1986, and the letter of
Eugene Roberts, dated July 25, 1986, where Ventura admitted having used the money of petitioner
amounting to ₱39,000.00 without the latter’s knowledge for the plane fare of Ventura’s parents.
Ventura promised to refund the amount of ₱39,000.00, inclusive of interests, within one
year.80 Eugene Roberts berated Ventura and called her a thief for stealing his and petitioner’s money
and that of respondent’s wife, Ising, who allegedly told petitioner that she, Ising, loaned the money to
her parents for their plane fare to the USA. Neither Ventura nor Eugene Roberts declared in their
letters that Ventura had used the ₱250,000.00 which respondent gave to her.

Petitioner in her letter to respondent did not admit, either expressly or impliedly, having received
₱211,000.00 from Ventura. Moreover, in her letter to petitioner, only a week earlier, or on July 18,
1986, Ventura admitted having spent the ₱39,000.00 and pleaded that she be allowed to refund the
amount within one (1) year, including interests.

Naririto ang total ng pera mo sa bankbook mo, ₱55,000.00 pati na yong deposit na sarili mo at bale
ang nagalaw ko diyan ay ₱39,000.00. Huwag kang mag-alala ibabalik ko rin sa iyo sa loob ng isang
taon pati interest.

Ate Per81 1aw phi 1.net

It is incredible that Ventura was able to remit to petitioner ₱211,000.00 before July 25, 1986 when
only a week earlier, she was pleading to petitioner for a period of one year within which to refund the
₱39,000.00 to petitioner.

It would have bolstered his cause if respondent had submitted an affidavit of Ventura stating that she
had remitted ₱211,000.00 out of the ₱250,000.00 she received from respondent in July 1985 and
June 20, 1986.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court
of Appeals in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE. The Decision of the
Metropolitan Trial Court, affirmed with modification by the Regional Trial Court, is AFFIRMED.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Asscociate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

4
G.R. No. 148516 December 27, 2007

MANUEL LUIS SANCHEZ Petitioner,

vs.
MAPALAD REALTY CORPORATION, Respondent.

DECISION

REYES, J.:

KAPAG ang isang kasunduan ng bilihan ay may kaakibat na pandaraya at napatunayang

huwad, ang bumili ay walang nakamit na titulo ng pag-aari. Ang bentahan ng apat na parsela
ng mamahaling lupa sa Roxas Boulevard na isinuko ng dating kasamahan ng Pangulong
Marcos sa pamahalaang Aquino ay nagtataglay ng mga palatandaan ng isang malakihang
pandaraya na isinagawa mismo ng mga taong hinirang ng Presidential Commission on Good
Government (PCGG) upang pangalagaan ang pag-aari ng isang na-sequester na kumpanya.

Ang mga ito ay dapat ibalik sa pamahalaan hanggang di pa tiyak ang tunay na may-ari. Hindi
kanais-nais na nagpakahirap ang PCGG sa pagbawi ng nasabing pag-aari para lamang
mawala ito dahil sa manipulasyon ng isang di mapagkakatiwalaang opisyal.

Where a deed of sale was attended by fraud and proved to be fictitious, the buyer acquired no title to
the subject property. The sale of four parcels of prime land along Roxas Boulevard surrendered by a
former associate of President Marcos to the Aquino government bears the earmarks of a grand
scam perpetrated by the very same persons appointed by the Presidential Commission on Good
Government (PCGG) to safeguard the assets of the sequestered companies.1
They must be restored to the custody of the government until their true owner is finally determined. It
would be odious to have the PCGG work so hard to recover them only to have them lost due to
manipulation of an unscrupulous official.

This petition for review on certiorari seeks a reversal of the Decision2 of the Court of Appeals (CA)
which reversed and set aside that3 of the Regional Trial Court (RTC), Branch 135, Makati City in an
action for annulment of deed of sale and reconveyance4 filed by respondent Mapalad Realty
Corporation (Mapalad, for brevity).

Petitioner Manuel Luis Sanchez, who bought the properties during the pendency of the case at the
trial court, intervened in the appeal before the CA.

The Facts

The facts, as gleaned from the records, are as follows:

Respondent Mapalad was the registered owner of four (4) parcels of land located along Roxas
Boulevard, Baclaran, Parañaque. The properties, covered by Transfer Certificates of Title (TCT)
Nos. S-81403, S-81404, S-81405 and S-81406 have a total land area of 4,038 square meters.5

On March 21, 1986, shortly after the February 1986 EDSA Revolution, Jose Y. Campos executed an
affidavit6 admitting, among others, that Mapalad was one of the companies he held in trust for former
President Ferdinand E. Marcos. Campos turned over all assets, properties, records and documents
pertaining to Mapalad to the new administration led by then President Corazon C. Aquino.

On March 23, 1986, the PCGG issued writs of sequestration for Mapalad and all its properties.7

On August 2, 1992, the PCGG appointed Rolando E. Josef as Vice President/Treasurer and General
Manager of Mapalad. He immediately conducted an inventory of the assets of the corporation. This
was when it was discovered that four (4) TCTs were missing, namely, TCT Nos. S-81403, S-81404,
S-81405, and S-81406.

Josef inquired on the whereabouts of these missing TCTs from Luis R. Narciso, an employee of Port
Center Development Corporation, a sister company of Mapalad. Josef was informed that Mapalad’s
former director and general manager, Felicito L. Manalili (GM Manalili) took the said missing TCTs
sometime in July 1992.

On September 8, 1992, Narciso executed an affidavit8 stating that the missing TCTs were taken from
him by GM Manalili.

Josef personally talked to GM Manalili to inquire about what happened to the titles he took from
Narciso. GM Manalili promised to return the titles as soon as he found them. He never did, despite
repeated demands on him.

On November 16, 1992, Felimon Oliquiano, Jr., president of Nordelak Development Corporation
(Nordelak, for brevity), filed a notice of adverse claim9 over the subject properties based on a deed of
sale purportedly executed on November 2, 1989 by Miguel Magsaysay in his capacity as president
and board chairman of Mapalad, selling the four lots to Nordelak for the total purchase price of
₱20,190,000.00. This deed of sale was notarized by Elpidio T. Clemente as Document No. 121,
Page 26, Book No. 82 Series of 1989.10
Josef notified the Register of Deeds (RD) of Parañaque by three successive letters dated November
18, December 7 and 8, 1992 that the owner’s duplicate copies of four (4) TCTs in the name of
Mapalad were missing, and requested the RD not to entertain any transaction, particularly any
attempt to transfer ownership thereof, or annotate any encumbrance or lien of any kind on these four
TCTs.

Since Josef’s letters to the RD were not verified, the RD instructed him to submit a verified petition or
cancellation of adverse claim; Josef complied.

On December 22, 1992, Mapalad filed with the RD a verified petition for cancellation of adverse
claim annotated on its titles by Nordelak.11 The petition also included a notice of loss of the owners’
duplicate copies of the TCTs concerned. This was annotated on the titles as Entry No. 154431 on
the next day.

On January 14, 1993, Mapalad discovered, after verification with the records of the RD, that its titles
to the four (4) properties were cancelled as early as December 22, 1992. In lieu of them, TCT Nos.
68493, 68494, 68495, and 68496 in the name of Nordelak were issued12 by virtue of another deed of
sale also dated November 2, 1989 and purportedly signed by the same Miguel Magsaysay in his
capacity as president and chairman of the board of Mapalad.

Although this document was also notarized by the same Elpidio T. Clemente, bearing the same
Document No. 121, Page 26, Book No. 82, Series of 1989, the amount indicated in this deed of sale
as total purchase price was ₱7,268,400.00 instead of ₱20,190,000.00 as earlier annotated in the title
per the adverse claim on November 16, 1992. In other words, there were two deeds of absolute
sale, bearing the same dates, involving the same parties, the same parcel of land, and notarized by
the same Notary Public under identical notarial entries, with different considerations or purchase
price.

Way back October 13, 1978, A. Magsaysay, Inc., a corporation controlled by Miguel Magsaysay,
acquired ownership of all shares of stock of Mapalad.13

On December 3, 1982, however, A. Magsaysay, Inc. sold all its shares to Novo Properties,
Inc.14 Miguel Magsaysay also sold his one and only share to Novo Properties, Inc., thus completely
terminating any and all rights or interest he used to have over the properties of Mapalad.

Immediately upon learning of the cancellation of Mapalad’s four TCTs, Josef conferred with Miguel
Magsaysay to find out whether the latter indeed signed the purported deeds of absolute sale both
dated November 2, 1989.

Magsaysay denied having signed those deeds.

On January 19, 1993, the PCGG asked the Parañaque RD to immediately recall, revoke and cancel
the four (4) titles that were issued in favor of Nordelak.15

On January 22, 1993, the PCGG issued a writ of injunction, enjoining and restraining the Parañaque
RD from entertaining and processing any document or transaction relative to the titles in the name of
Nordelak. This PCGG injunction was annotated on the titles as Entry No. 93-14786.

On January 25, 1993, the RD in turn requested Nordelak to surrender the titles issued in its name,
but Nordelak refused to comply.
On February 3, 1993, Mapalad commenced, before the RTC, Makati City, the present action for
annulment of deed of sale and reconveyance of title with damages against Nordelak, that is now the
subject of this petition.

Mapalad’s complaint alleged that: (a) the deed of sale is falsified and a forgery; (b) defendant Felicito
L. Manalili16 conspired and confederated with the other defendants to defraud Mapalad by fabricating
a fictitious, spurious and falsified deed of sale; and (c) there is another deed of absolute sale with the
same date of November 2, 1989 and also bearing the purported signature of Miguel Magsaysay, but
the two deeds of sale differ in the amounts of consideration, one for ₱20,190,000.00 and the other
for ₱7,268,400.00, which was used in the transfer of Mapalad’s titles in favor of Nordelak.

Mapalad prayed for judgment: (a) declaring the two (2) deeds of absolute sale null and void; (b)
ordering Nordelak to reconvey the four (4) parcels of land in favor of Mapalad; (c) ordering the
Register of Deeds to cancel TCT Nos. 68493, 68494, 68495, and 68496, and in lieu thereof, to issue
replacement titles in the name of Mapalad; and (d) ordering Nordelak to pay exemplary damages,
attorney’s fees and costs of suit.

On February 22, 1993, a notice of lis pendens was annotated as Entry No. 93-91718 on the TCTs in
Nordelak’s name.17

On March 4, 1993, the RD, through the Office of the Solicitor General, filed its answer alleging that
when the requirements of registration are complied with, the duty of the register of deeds becomes
simply ministerial.

On April 26, 1993, Nordelak and its president, Oliquiano filed their answer with special and
affirmative defenses, alleging that Nordelak is a buyer in good faith, and that it never dealt with
defendant Manalili in the purchase of the subject properties.

Defendant Manalili, however, failed to file any answer within the reglementary period. The RTC
declared him in default despite Section 14, Rule 18 of the Rules of Court stating that "when a
complaint states a common cause of action against several defendants, some of whom answer, and
the others fail to do so, the court shall try the case against all upon the answers thus filed and render
judgment upon the evidence presented x x x."

On October 24, 1994, while the case was still pending before the RTC, Nordelak sold the subject
properties for ₱50,000,000.00 to a certain Manuel Luis S. Sanchez, now petitioner before Us.

RTC Judgment

On December 6, 1994, ruling that Mapalad failed to adduce positive proof of forgery, the RTC upheld
the validity of the deed of absolute sale as a notarial document and rendered judgment18 with the
following fallo:

WHEREFORE, premises considered, for failure of plaintiff to establish preponderance of evidence to

support its herein Complaint, the above-entitled case is ordered DISMISSED for lack of cause of
action and for being without merit.

On the other hand, judgment is hereby rendered in favor of defendants against the plaintiff by way of
counterclaim, for the latter to pay actual and compensatory damages in favor of private defendants
(excluding public defendant Register of deeds of Parañaque herein represented by the Office of the
Solicitor General) the sum of ₱50,000.00; attorney’s fees in the sum of ₱30,000.00; and the costs of
the proceedings.

Furthermore, Entry No. 15431 re a Verified Petition for cancellation of the adverse claim annotated
at the back of TCT Nos. S-81403, S-81404, S-81405, and S-81406, (Exhs. "O," "P," "Q," and "R")
filed by Rolando E. Josef, V/P-General Manager of Mapalad Realty Corporation inscribed on
December 17, 1992 is ordered CANCELLED.

SO ORDERED.19

On December 19, 1994, upon Nordelak’s manifestation, the RTC issued a Supplemental Decision
cancelling the notice of lis pendens annotated as Entry No. 93-91718 at the back of Nordelak’s TCTs
Nos. 68493, 68494, 68495, and 68496, and also lifting the restraining order issued by the PCGG
annotated on the said titles as Entry No. 93-14786.

On December 29, 1994 and January 2, 1995, Mapalad filed a motion for reconsideration and
supplemental motion for reconsideration, respectively, to which an opposition was filed by Nordelak
on January 13, 1995.

On January 2, 1995, the RTC issued an order denying the twin motions for reconsideration. Mapalad
then seasonably appealed to the CA.

Having previously bought the properties from Nordelak during the pendency of the case with the
RTC, petitioner Sanchez moved to be joined with Nordelak as party defendant-appellee before the
CA. The CA granted the motion to intervene.

CA Disposition

Finding merit in the appeal, the CA disposed of it, as follows:

WHEREFORE, premises considered, the assailed decision is REVERSED and SET ASIDE and a
new one entered ̶

1. DECLARING as null and void the deed of absolute sale dated 02 November 1989
executed by and between Mapalad Realty Corporation and Nordelak Development
Corporation;

2. DECLARING as null and void the deed of absolute sale dated 24 October 1994 executed
by and between Nordelak Development Corporation and Manuel Luis S. Sanchez;

3. ORDERING the Register of Deeds of Parañaque to cancel TCT Nos. 68493, 68494,
68495, and 68496 and in lieu thereof, to issue new certificates of title covering the subject
properties in the name of Mapalad Realty Corporation.

Further, appellee Nordelak is ordered to pay appellant ₱100,000.00 as attorney’s fees.

SO ORDERED.20

This ruling was arrived at after the CA’s re-evaluation of the entire records, finding clear evidence of
fraud in obtaining the certificates of title over the disputed properties, to wit:
First. Miguel A. Magsaysay was no longer appellant Mapalad’s President and Chairman of the Board
when the subject deed of absolute sale was executed on 02 November 1989. The evidence shows
that by virtue of a Deed of Sale of Shares of Stock dated 03 December 1982, Miguel Magsaysay
ceded and sold his one and only share of stock in Mapalad Realty Corporation in favor of Novo
Properties, Inc. x x x. And in his testimony, Miguel Magsaysay denied having affixed his signature on
the questioned deed of sale and categorically stated that he ceased to be connected with appellant
Mapalad after the sale of his share in 1982.

xxxx

Second. The Deed of Absolute Sale indicating a consideration of ₱7,268,400.00, which was the
basis for the issuance of Transfer Certificates of Title Nos. 68493, 68494, 68495, and 68496 in the
name of appellee Nordelak is dated 02 November 1989 but was only registered more than three (3)
years later. This bolsters the testimony of Luis R. Narciso that the owner’s duplicate original of
appellant Mapalad’s titles were taken from him by defendant Felicito Manalili in July 1992 and were
never returned. Obviously, Manalili got the titles for the purpose of registering the fictitious deed of
absolute sale because under the Property Registration Decree (P.D. 1529), no voluntary instrument
shall be registered by the Register of Deeds unless the owner’s duplicate is presented with the
instrument of transfer.

Third. Atty. Elpidio T. Clemente, the Notary Public who notarized the questioned Deed of Absolute
Sale, did not submit a copy of said deed in the Notarial Section of the Regional Trial Court of Manila.

xxxx

x x x. As pointed out by appellant Mapalad in its brief, the notary public notarized two separate
deeds of sale "referring to the same parcels of land on the very same day, and made only one and
the same entry for the two documents in his notarial registry. In fact, NOT ONE witness was ever
presented by defendants-appellees to explain these highly anomalous documentations.

Fourth. There was no consideration for the deed of sale. On this point, Rolando Josef testified that
appellant Mapalad did not receive any amount with respect to the alleged transaction involving the
sale of its properties. This was not disputed by the appellees. Since the alleged consideration is in
the millions of pesos, it can be assumed that payment was made by check. It was easy enough for
appellee Nordelak to have presented the cancelled check. Its failure to do so speaks volumes of
truth of Josef’s testimony. x x x.

Fifth. In the questioned deed of sale, Nordelak was represented by one Felimon R. Oliquiano, Jr., in
his capacity as President of the corporation. Thus, he was in the best position to testify on the
validity of the questioned deed of sale and categorically state that it was Magsaysay who signed the
deed of sale and refute Magsaysay’s testimony. But he was never presented and the failure to
present him was never explained. In fact, no one was presented to testify having negotiated with and
concluded the transaction with Magsaysay or that he personally saw Magsaysay sign the deed of
sale. Defendant-appellee Nordelak presented only two witnesses both of whom were not connected
Nordelak and, in fact, did not know Mapalad.

xxxx

We therefore find that the execution of the deed of absolute sale was attended by fraud, hence, a
nullity. Thus, appellee Nordelak never acquired title over the subject properties. And given the
evidence on record, We are left to wonder in no small measure how the court a quo could have
upheld the validity of the questioned deed of sale. The transaction has all the earmarks of a grand
scam perpetrated by the very same persons appointed by PCGG to safeguard the assets of
sequestered companies.21

The CA further ruled that petitioner Sanchez, who was a transferee pendente lite, was not a buyer in
good faith, having purchased the property with an annotation of a notice of lis pendens.

Without prior motion for reconsideration of the CA decision, intervenor-appellee Sanchez elevated
the case to Us, raising the following assignment of errors:

CONTRARY TO THE EXPRESS FINDINGS OF THE TRIAL COURT THAT THE

QUESTIONED DEED OF SALE IS GENUINE, VALID AND SUBSISTING, THE COURT OF
APPEALS RULED THAT THERE WAS FRAUD ON THE PART OF NORDELAK IN
OBTAINING THE CERTIFICATES OF TITLES OVER THE DISPUTED PROPERTY, AND
CONSEQUENTLY THE QUESTIONED DEED IS FICTITIOUS.

II

COROLLARILY, CONTRARY TO THE EXPRESS FINDINGS OF THE TRIAL COURT THAT

NORDELAK IS A BUYER IN GOOD FAITH AND FOR VALUE, THE COURT OF APPEALS
RULED OTHERWISE. (Underscoring supplied)

Issues

Two critical issues are plainly posed for our determination. First, on whether or not there was a valid
sale between Mapalad and Nordelak. Second, whether or not petitioner Sanchez acquired valid title
over the properties as innocent purchaser for value despite a defect in Nordelak’s title.

A procedural issue was raised by the Solicitor General in his Comment, too: whether or not petitioner
may raise questions of fact in the present petition.

We shall resolve them in the reverse order, dealing with the procedural ahead of the substantive
question.

Our Ruling

I. The case falls within the exception to the rule that factual issues may not be entertained by
this Court.

In petitions for review on certiorari such as in the present case, the findings of fact of the CA are
generally conclusive on this Court, save for the following admitted exceptions:

(1) the factual findings of the Court of Appeals and the trial court are contradictory;

(2) the findings are grounded entirely on speculation, surmises or conjectures;

(3) the inference made by the Court of Appeals from its findings of fact is mainly mistaken,
absurd or impossible;
 (4) there is grave abuse of discretion in the appreciation of facts;

(5) the appellate court, in making its findings, goes beyond the issues of the case and such
findings are contrary to the admissions of both appellant and appellee;

(6) the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) the Court of Appeals fails to notice certain relevant facts which, if properly considered, will
justify a different conclusion; and

(8) the findings of fact of the Court of Appeals are contrary to those of the trial court or are
mere conclusions without citation of specific evidence, or where the facts set forth by the
petitioner are not disputed by respondent, or where the findings of fact of the Court of
Appeals are premised on the absence of evidence but are contradicted by the evidence on
record.22

We note that the basis for the trial court’s disposition in favor of Nordelak is Mapalad’s apparent
failure to adduce sufficient evidence to prove that Miguel Magsaysay’s signatures on the two deeds
of sale by Mapalad in favor of Nordelak were forged.

The CA, however, went beyond the mere determination of whether the signatures of Miguel
Magsaysay were forged or not. It looked into the validity of the deed of absolute sale as a whole,
based on the testimonies of Miguel Magsaysay himself, quoted in its decision, as follows:

Atty Calabio: x x x I am showing to you this Deed of Absolute Sale marked as Exhibit "D," there is
here appearing on page 3 above the typewritten name Miguel A. Magsaysay, is this your signature?

A: No, definitely not, so far away from my signature, not even in forgery; and besides I am not the
president when it was sold already.

Q: So on the date herein November 2, 1989, you were no longer president, Sir?

A: No, I have nothing to do with them, of the corporation, after the sale in 1982.

Atty. Calabio: Likewise, showing to you the Deed of Absolute Sale, also dated November 2, 1989,
previously marked as Exhibit "F," specifically on page 3, Sir, there is a signature also above the
typewritten name, Miguel Magsaysay?

A: Definitely, this is not my signature, and besides I am not the president anymore. It looks exactly
like the other one.

Atty. Calabio: Which for purposes of identification, Your Honor, may I respectfully request that his
also be encircled and marked as Exhibit "F-1"?23

Aside from categorically denying under oath that the signatures appearing on the deeds of absolute
sale were his, witness Miguel Magsaysay gave another reason why it was impossible for those
signatures to be his. According to him, he was no longer connected in any way whatsoever with
Mapalad, when it supposedly sold the properties. He divested himself of all his interests in Mapalad
way back in 1982. There was no reason for him to sign the subject deeds of absolute sale as
president and chairman of the board of Mapalad in 1989. This was another basis for Mapalad to
convince the appellate court that the signatures purporting to be those of Magsaysay on the
questioned deeds of sale were not written by him.

We sustain the CA finding and conclusion.

While there have been guidelines cited in the petition24 used by this Court in determining what
constitutes sufficient proof to establish whether a signature was forged, it does not preclude a party
from adducing other possible proofs to establish whether a particular signature is genuine or not.

In the case at bench, not only did Magsaysay disown the signatures appearing on the deed of sale,
he cited a valid legal reason for him not to have signed such document at all. He had no more power
and authority to sign for and in behalf of Mapalad because as early as 1982, he had already divested
himself of all his interests in said corporation. His testimonies in this case constitute sufficient basis
for the Court to conclude that the signatures appearing on the two deeds of sale (Exhibits "D" and
"F") were not his signatures.

This factual determination on the genuineness or forgery of the signatures purporting to be those of
Miguel Magsaysay on the subject deeds of sale is most crucial. When compared with this one, all
other factual issues raised in the petition become immaterial, such as: whether the owner’s duplicate
copies of the TCT were voluntarily delivered to, or surreptitiously taken from Mapalad’s custodian of
such documents; whether the deeds of sale were in fact notarized by Atty. Elpidio Clemente
considering that these documents do not exist in the archives or files in the notarial registry; or even
whether there were two or only one document purporting to be the deed of absolute sale dated
November 2, 1989.

There is, therefore, no cogent reason for this Court to delve further into these other factual matters.

II. There can be no valid contract of sale between Mapalad and Nordelak.

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. There can be no contract unless the following concur: (a)
consent of the contracting parties; (b) object certain which is the subject matter of the contract; (c)
cause of the obligation which is established.25

Specifically, by the contract of sale, one of the contracting parties obligates himself to transfer
ownership of and to deliver a determinate thing and the other party to pay therefor a price certain in
money or its equivalent.26

The essential requisites of a valid contract of sale are:

(1) Consent of the contracting parties by virtue of which the vendor obligates himself to
transfer ownership of and to deliver a determinate thing, and the vendee obligates himself to
pay therefor a price certain in money or its equivalent.

(2) Object certain which is the subject matter of the contract. The object must be licit and at
the same time determinate or, at least, capable of being made determinate without the
necessity of a new or further agreement between the parties.

(3) Cause of the obligation which is established. The cause as far as the vendor is
concerned is the acquisition of the price certain in money or its equivalent, which the cause
 as far as the vendee is concerned is the acquisition of the thing which is the object of the
contract.27

Contracts of sale are perfected by mere consent, which is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract.28

Consent may be given only by a person with the legal capacity to give consent. In the case of
juridical persons such as corporations like Mapalad, consent may only be granted through its officers
who have been duly authorized by its board of directors.29

In the present case, consent was purportedly given by Miguel Magsaysay, the person who signed for
and in behalf of Mapalad in the deed of absolute sale dated November 2, 1989. However, as he
categorically stated on the witness stand during trial, he was no longer connected with Mapalad on
the said date because he already divested all his interests in said corporation as early as 1982. Even
assuming, for the sake of argument, that the signatures purporting to be his were genuine, it would
still be voidable for lack of authority resulting in his incapacity to give consent for and in behalf of the
corporation.

On this score, the contract of sale may be annulled for lack of consent on the part of Mapalad.

The CA also noted that the alleged contract of sale on November 2, 1989 had no consideration.
There was no payment effected by Nordelak for this transaction. Josef testified that no funds were
infused into Mapalad’s coffers on account of this transaction. This testimony remained
uncontroverted. In fact, the CA further noted that Nordelak could have easily produced the cancelled
check before the trial court, if there was any. Again, Nordelak did not.

The third element for a valid contract of sale is likewise lacking.

Lack of consideration makes a contract of sale fictitious. A fictitious sale is void ab initio.30

The alleged deed of absolute sale dated November 2, 1989 notwithstanding, the contract of sale
between Mapalad and Nordelak is not only voidable on account of lack of valid consent on the part
of the purported seller, but also void ab initio for being fictitious on account of lack of consideration.

Despite a void sale between Mapalad and Nordelak, may petitioner still claim valid title to the subject
properties?

III. Petitioner as transferee pendente lite merely steps into the shoes of his predecessor-in-
interest who had no valid title.

As We have said, Nordelak did not acquire ownership or title over the four properties subject of this
case because the contract of sale between Mapalad and Nordelak was not only voidable but also
void ab inito. Not having any title to the property, Nordelak had nothing to transfer to petitioner
Sanchez.

Nemo dat non quod habet. Hindi maibibigay ng isang tao ang hindi kanya. No one can give what
he does not have.

Petitioner acquired the property subject of litigation during the pendency of the case in the trial court.
It is undisputed that notices of lis pendens were annotated on the TCTs in Nordelak’s name covering
the subject properties as Entry No. 93-91718.
In Lim v. Vera Cruz,31 this Court explained:

Lis pendens is a Latin term which literally means a pending suit. Notice of lis pendens is filed for the
purpose of warning all persons that the title to certain property is in litigation and that if they
purchase the same, they are in danger of being bound by an adverse judgment. The notice is,
therefore, intended to be a warning to the whole world that one who buys the property does so at his
own risk. This is necessary in order to save innocent third persons from any involvement in any
future litigation concerning the property.

By virtue of the notice of lis pendens annotated on the four TCTs in this case, petitioner had notice
that the property he was intending to buy is under litigation. He is, therefore, a transferee pendente
lite who, as held by this Court in Voluntad v. Dizon,32 stands exactly in the shoes of the transferor
and is bound by any judgment or decree which may be rendered for or against the transferor.

Under the circumstances petitioner cannot acquire any better right than his predecessor,
Nordelak. No river or stream can rise higher than its source. Walang ilog o batis na ang taas ay
1âwphi 1

higit sa kanyang pinagmulan. There is thus no question that a judgment of reconveyance can be
legally enforced by Mapalad against petitioner as transferee pendente lite of Nordelak.

The four parcels of land surrendered by former Marcos associate Jose Y. Campos and sequestered
by the PCGG must eventually be returned to their rightful owners. If forfeiture proceedings in the
Marcos ill-gotten wealth cases prosper, and these properties are finally shown to form part of such
ill-gotten wealth, these properties should go to the Filipino people. If they are not ill-gotten, they
should be turned over to the Marcoses. But definitely, these properties cannot be transferred to
Nordelak nor to petitioner Manuel Luis Sanchez.

WHEREFORE, the petition is hereby DENIED and the appealed Court of Appeals decision
AFFIRMED in toto.

SO ORDERED.

5
G.R. No. 193551 November 19, 2014

HEIRS OF GREGORIO LOPEZ, represented by Rogelia Lopez, et al., Petitioners,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES [Now substituted by Philippine Investment Two
(SPVAMC), Inc.], Respondents.

DECISION

LEONEN, J.:
This case involves the application of the doctrine on innocent purchaser or mortgagee for value. It
also involves the application of the doctrines on sales by persons who are not owners of the
property.

This is a Rule 45 petition1 filed on October 15, 2010, assailing the Court of Appeals May 8, 2009
decision2 and August 16, 2010 resolution.3 The Court of Appeals reversed and set aside the Regional
Trial Court's December 27, 2005 decision,4 which ordered the nullification of the affidavit of self-
adjudication executed by Enrique Lopez, and the documents relating

to the sale and mortgage of the property to respondent Development Bank of the Philippines.

Gregoria Lopez owned a 2,734-square-meter property in Bustos, Bulacan.5 She died on March 19,
19226 and was survived by her three sons: Teodoro Lopez, Francisco Lopez, and Carlos Lopez.7 Tax
Declaration No. 613 was issued under the names of Teodoro, Francisco, and Carlos.8

Teodoro, Francisco, and Carlos died.9 Only Teodoro was survived by children: Gregorio, Enrique,
Simplicio, and Severino.10

Petitioners in this case are Simplicio substituted by his daughter Eliza Lopez, and the heirs of
Gregorio and Severino.11 Enrique is deceased.12

Petitioners discovered that on November 29, 1990, Enrique executed an affidavit of self-adjudication
declaring himself to be Gregoria Lopez’s only surviving heir, thereby adjudicating upon himself the
land in Bulacan.13 He sold the property to Marietta Yabut.14

Petitioners demanded from Marietta the nullification of Enrique’s affidavit of self-adjudication and the
deed of absolute sale.15 They also sought to redeem Enrique’s one-fourth share.16 Marietta, who was
already in possession of the property, refused.17

Sometime in 1993, Marietta obtained a loan from Development Bank of the Philippines (DBP) and
mortgaged the property to DBP as security.18 At the time of the loan, the property was covered by
Tax Declaration No. 18727, with the agreement that the land shall be brought under the Torrens
system.19 On July 26, 1993, an original certificate of title was issued in Marietta’s name.20 Marietta
and DBP "executed a supplemental document dated 28 February 1995 placing the subject
[property]within the coverage of the mortgage."21 The mortgage was annotated to the title.22

Sometime between 1993 and 1994, petitioners filed a complaint23 and an amended complaint24 with
the Regional Trial Court for the annulment of document, recovery of possession, and reconveyance
of the property. They prayed that judgment be rendered, ordering the annulment of Enrique’s
affidavit of self-adjudication, the deed of sale executed by Enrique and Marietta, and the deed of real
estate mortgage executed by Marietta in favor of DBP.25 Petitioners also prayed for the
reconveyance of their three-fourth share in the property, their exercise of their right of redemption of
Enrique’s one-fourth share, as well as attorney’s fees and costs of suit.26

Petitioners caused the annotation of a notice of lis pendens at the back of the original certificate of
title.27 The annotation was inscribed on June 27, 1994.28

Marietta failed to pay her loan to DBP.29 "DBP instituted foreclosure proceedings on the . . . land."30 It
was "awarded the sale of the [property] as the highest bidder."31 "The Certificate of Sale was
registered with the Register of Deeds . . . on 11 September 1996."32 Marietta failed to redeem the
property.33 The title to the property was "consolidated in favor of DBP."34
On December 27, 2005, the Regional Trial Court ruled in favor of petitioners.35 The Regional Trial
Court found that the affidavit of self-adjudication and the deed of absolute sale did not validly
transfer to Marietta the title to the property.36 Enrique could not transfer three-fourths of the property
since this portion belonged to his co-heirs.37 The Regional Trial Court also found that Marietta was
not an innocent purchaser for value because when the deed of absolute sale was executed, the
property was only covered by a tax declaration in the name of the heirs of Gregoria Lopez,38 thus:

[Marietta] should have looked further into the veracity of vendor Enrique Lopez’ claim of ownership
over the subject property considering that he has not presented her any other proof of his ownership
when the said Deed of Absolute Sale was executed other than his mere allegation of ownership
thereof.39

Hence, the issuance of the original certificate of title would not protect Marietta. Title is not vested
through a certificate.40 At best, Marietta’s ownership over the subject property would cover only
Enrique’s share.41

The Regional Trial Court also found that DBP was not a mortgagee in good faith because at the time
of the execution of the mortgage contract, a certificate of title was yet to be issued in favor of
Marietta.42 Marietta’s title at that time was still based on a tax declaration.43 Based on jurisprudence, a
tax declaration is not a conclusive proof of ownership.44 The DBP should have exerted due diligence
in ascertaining Marietta’s title to the property.45

The Regional Trial Court ordered the nullification of Enrique’s affidavit of self-adjudication, the sale
of the three-fourth portion of the subject property in favor of Marietta, the reconveyance of the three-
fourth share of the property in favor of petitioners, the nullification of the real estate mortgage
executed in favor of DBP, and the surrender of possession of the property to petitioners.46 The trial
court also ordered DBP to pay attorney’s fees.

DBP, substituted by Philippine Investment Two (PI Two), appealed to the Court of Appeals.47 The
Court of Appeals reversed the decision of the Regional Trial Court in the decision48 promulgated on
May 8, 2009. It held that DBP was a mortgagee in good faith:

[W]ith the absence of any evidence to show that the DBP was ever privy to the fraudulent execution
of the late Enrique Lopez’ [sic] affidavit of Adjudication over the subject land, the right of the former
over the same must be protected and respected by reason of public policy.49

The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the appeal is GRANTED. The 27 December 2005 Decision of the Regional Trial
Court is hereby REVERSED and SET ASIDE as to defendant-appellant Development Bank of the
Philippines and dismissing the complaint against the latter [now substituted by Philippine Investment
Two (SPV-AMC), Inc.]50

The Court of Appeals denied petitioners’ motion for reconsideration on August 16, 2010.51 Petitioners
filed a Rule 45 petition52 before this court on October 15, 2010.

The issue in this case is whether the property was validly transferred to Marietta and, eventually, to
DBP.

Petitioners argued that the Court of Appeals erred in its application of the doctrine on "innocent
purchaser for value."53 DBP should have exercised diligence in ascertaining Marietta’s claim of
ownership since at the time of the mortgage, the property was only covered by a tax declaration
under Marietta’s name.54 As a financial institution of which "greater care and prudence"55 is required,
DBP should not have relied on the face of a certificate of title to the property.56

On the other hand, DBP’s position, citing Blanco v. Esquierdo,57 was that since its participation in
Enrique’s execution of the affidavit of self-adjudication was not shown on record, it could not have
been aware that there was any irregularity in the sale in favor of Marietta and in her title to the
property.58 Moreover, Marietta was in possession of the property at the time of the contract with
DBP.59 Therefore, DBP should enjoy the protection accorded to innocent purchasers for value.60

We find merit in the petition.

I
Validity of Enrique’s affidavit and the sale to Marietta

We have consistently upheld the principle that "no one can give what one does not have."61 A seller
can only sell what he or she owns, or that which he or she does not own but has authority to
transfer, and a buyer can only acquire what the seller can legally transfer.62

This principle is incorporated in our Civil Code. It provides that in a contract of sale, the seller binds
himself to transfer the ownership of the thing sold, thus:

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

The seller cannot perform this obligation if he or she does not have a right to convey ownership of
the thing. Hence, Article 1459 of the Civil Code provides:

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof
at the time it is delivered.

Title or rights to a deceased person’s property are immediately passed to his or her heirs upon
death.63 The heirs’ rights become vested without need for them to be declared "heirs."64 Before the
property is partitioned, the heirs are co-owners of the property.65

In this case, the rights to Gregoria Lopez’s property were automatically passed to her sons —
Teodoro, Francisco, and Carlos — when she died in 1922.66 Since only Teodoro was survived by
children, the rights to the property ultimately passed to them when Gregoria Lopez’s sons died.67 The
children entitled to the property were Gregorio, Simplicio, Severino, and Enrique.

Gregorio, Simplicio, Severino, and Enrique became co-owners of the property, with each of them
entitled toan undivided portion of only a quarter of the property. Upon their deaths, their children
became the co-owners of the property, who were entitled to their respective shares, such that the
heirs of Gregorio became entitled to Gregorio’s one-fourth share, and Simplicio’s and Severino’s
respective heirs became entitled to their corresponding onefourth shares in the property.68 The heirs
cannot alienate the shares that do not belong to them. Article 493 of the Civil Code provides:

Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another
person in its enjoyment, except when personal rights are involved. But the effect of the alienation or
the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership.

Since Enrique’s right to the property was limited to his one-fourth share, he had no right to sell the
undivided portions that belonged to his siblings or their respective heirs. Any sale by one heir of the
rest of the property will not affect the rights of the other heirs who did not consent to the sale. Such
sale is void with respect to the shares of the other heirs.

Regardless of their agreement, Enrique could only convey to Marietta his undivided one-fourth share
of the property, and Marietta could only acquire that share. This is because Marietta obtained her
rights from Enrique who, in the first place, had no title or interest over the rest of the property that he
could convey.

This is despite Enrique’s execution of the affidavit of self-adjudication wherein he declared himself to
be the only surviving heir of Gregoria Lopez. The affidavit of self-adjudication is invalid for the simple
reason that it was false. At the time of its execution, Enrique’s siblings were still alive and entitled to
the three-fourth undivided share of the property. The affidavit of self-adjudication did not have the
effect of vesting upon Enrique ownership or rights to the property.

The issuance of the original certificate of title in favor of Marietta does not cure Enrique’s lack of title
or authority to convey his co-owners’ portions of the property. Issuance of a certificate of title is not a
grant of title over petitioners’ undivided portions of the property.69 The physical certificate of title does
not vest in a person ownership or right over a property.70 It is merely an evidence of such ownership
or right.71

Marietta could acquire valid title over the whole property if she were an innocent purchaser for value.
An innocent purchaser for value purchases a property without any notice of defect or irregularity as
to the right or interest of the seller.72 He or she is without notice that another person holds claim to
the property being purchased.73

As a rule, an ordinary buyer may rely on the certificate of title issued in the name of the seller.74 He or
she need not look "beyond what appears on the face [of the certificate of title]."75 However, the
ordinary buyer will not be considered an innocent purchaser for value if there is anything on the
certificate of title that arouses suspicion, and the buyer failed to inquire or take steps to ensure that
there is no cloud on the title, right, or ownership of the property being sold.

Marietta cannot claim the protection accorded by law to innocent purchasers for value because the
circumstances do not make this available to her.

In this case, there was no certificate of title to rely on when she purchased the property from
Enrique. At the time of the sale, the property was still unregistered. What was available was only a
tax declaration issued under the name of "Heirs of Lopez."

"The defense of having purchased the property in good faith may be availed of only where registered
land is involved and the buyer had relied in good faith on the clear title of the registered owner."76 It
does not apply when the land is not yet registered with the Registry of Deeds.

At the very least, the unregistered status of the property should have prompted Marietta to inquire
further as to Enrique’s right over the property. She did not. Hence, she was not an innocent
purchaser for value. She acquired no title over petitioners’ portions of the property.
 II
Validity of the mortgage

One of the requisites of a valid mortgage contract is ownership of the property being
mortgaged.77 Article 2085 of the Civil Code enumerates the requisites of a mortgage contract: Art.
2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfilment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.

Applying this provision and having established that Marietta acquired no valid title or ownership from
Enrique over the undivided portions of the property, this court finds that no valid mortgage was
executed over the same property in favor of DBP. Without a valid mortgage, there was also no valid
foreclosure sale and no transfer of ownership of petitioners’ undivided portions to DBP. In other
words, DBP acquired no right over the undivided portions since its predecessor-in-interest was not
the owner and held no authority to convey the property.

As in sales, an exception to this rule is if the mortgagee is a "mortgagee in good faith."78 This
exception was explained in Torbela v. Rosario:

Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage
contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This
principle is based on the rule that all persons dealing with property covered by a Torrens Certificate
of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the
title. This is the same rule that underlies the principle of "innocent purchasers for value." The
prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title
of the mortgagor to the property given as security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not
the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good
faith is, nonetheless, entitled to protection.79

DBP claims that it is covered by this exception. DBP is mistaken. The exception applies when, at the
time of the mortgage, the mortgagor has already obtained a certificate of title under his or her
name.80 It does not apply when, as in this case, the mortgagor had yet to register the property under
her name.81

The facts show that DBP disregarded circumstances that should have aroused suspicion. For
instance, at the time of the mortgage with DBP, Marietta only had a tax declaration under her name
to show that she was the owner of the property. A tax declaration, by itself, neither proves ownership
of property nor grants title. Yet, DBP agreed to accept the property as security even though
Marietta’s claim was supported only by the tax declaration, and a certificate of title was yet to be
issued under her name.
Granting that Marietta was in possession of the property, DBP should have inquired further as to
Marietta’s rights over the property since no certificate of title was issued to her. DBP took the risks
attendant to the absence of a certificate of title. It should bear the burden of checking the ownership
as well as the validity of the deed of sale. This is despite the eventual issuance of a certificate of title
in favor of Marietta.

The rule on "innocent purchasers or [mortgagees] for value" is applied more strictly when the
purchaser or the mortgagee is a bank. Banks are expected to exercise higher degree of diligence in
1âwphi1

their dealings, including those involving lands. Banks may not rely simply on the face of the
certificate of title.

Thus, in Cruz v. Bancom Finance Corporation,82 this court ruled that:

Respondent . . . is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private

individuals, it is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before entering
into a mortgage contract. The ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its operations.83 (Citations omitted)

DBP failed to exercise the degree of diligence required of banks when it accepted the unregistered
property as security for Marietta’s loan despite circumstances that should have aroused its
suspicion.

Citing Blanco v. Esquierdo, DBP argued that since it did not participate in the dealings between
Enrique and Marietta, it should be considered as an innocent mortgagee for value.

Blanco involves an alleged widow of the deceased who adjudicated to herself the deceased’s
property and thereafter mortgaged the property to DBP.84 The brothers and sisters of the deceased
filed an action for the annulment of the affidavit executed by the alleged widow and the cancellation
of the certificate of title under her name.85 The trial court ordered the cancellation of the certificate of
title issued to the alleged widow, including the registration of the mortgage deed.86

In Blanco, this court declared that DBP was a mortgagee in good faith, thus:

The trial court, in the decision complained of, made no finding that the defendant mortgagee bank
was a party to the fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, there is nothing
alleged in the complaint which may implicate said defendant mortgagee in the fraud, or justify a
finding that it acted in bad faith. On the other hand, the certificate of title was in the name of the
mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank. Such
being the case, the said defendant bank, as mortgagee, had the right to rely on what appeared in the
certificate and, in the absence of anything to excite suspicion, was under no obligation to look
beyond the certificate and investigate the title of the mortgagor appearing on the face of said
certificate. (De Lara, et al. vs. Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838; Joaquin vs. Madrid, et
al., 106 Phil., 1060). Being thus an innocent mortgagee for value, its right or lien upon the land
mortgaged must be respected and protected, even if the mortgagor obtained her title thereto thru
fraud.87

DBP's reliance on Blanco is misplaced. In Blanco, the certificate of title had already been issued
under the name of the mortgagor when the property was mortgaged to DBP. This is not the situation
in this case.
To reiterate, the protection accorded to mortgagees in good faith cannot be extended to mortgagees
of properties that are not yet registered or registered but not under the mortgagor's name.

Therefore, the Regional Trial Court did not err in ordering the nullification of the documents of sale
and mortgage. Contracts involving the sale or mortgage of unregistered property by a person who
was not the owner or by an unauthorized person are void.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated May 8, 2009
and its resolution dated August 16, 2010 are reversed and SET ASIDE. The December 27, 2005
decision of the Regional Trial Court is REINSTATED.

SO ORDERED.

6
G.R. No. 166790 November 19, 2014

JUAN P. CABRERA, Petitioner,

vs.
HENRY YSAAC, Respondent.

DECISION

LEONEN, J.:

Unless all the co-owners have agreed to partition their property, none of them may sell a definite
portion of the land. The co-owner may only sell his or her proportionate interest in the co-ownership.
A contract of sale which purports to sell a specific or definite portion of unpartitioned land is null and
void ab initio.

In this petition for review on certiorari,1 Juan P. Cabrera assails the Court of Appeals' decision dated
June 19, 20032 and resolution dated January 3, 2005.3 These decisions ruled that a specific
performance to execute a deed of sale over a parcel of land is not available as a relief for Juan
Cabrera.

It appears that the heirs of Luis and Matilde Ysaac co-owned a 5,517-square-meter parcel of land
located in Sabang, Naga City, covered by Original Certificate of Title (OCT) No. 506.4 One of the co-
owners is respondent, Henry Ysaac.

Henry Ysaac leased out portions of the property to several lessees. Juan Cabrera, one of the
lessees, leased a 95-square-meter portion of the land beginning in 1986.5
On May 6, 1990, Henry Ysaac needed money and offered to sell the 95-square-meter piece of land
to Juan Cabrera.6 He told Henry Ysaac that the land was too small for his needs because there was
no parking space for his vehicle.7

In order to address Juan Cabrera’s concerns, Henry Ysaac expanded his offer to include the two
adjoining lands that Henry Ysaac was then leasing to the Borbe family and the Espiritu family. Those
three parcels of land have a combined area of 439-square-meters. However, Henry Ysaac warned
Juan Cabrera that the sale for those two parcels could only proceed if the two families agree to it.

Juan Cabrera accepted the new offer. Henry Ysaac and Juan Cabrera settled on the price of
₱250.00 per square meter, but Juan Cabrera stated that he could only pay in full after his retirement
on June 15, 1992.8 Henry Ysaac agreed but demanded for an initial payment of ₱1,500.00, which
Juan Cabrera paid.9

According to Juan Cabrera, Henry Ysaac informed him that the Borbe family and the Espiritu family
were no longer interested in purchasing the properties they were leasing. Since Mamerta Espiritu of
the Espiritu family initially considered purchasing the property and had made an initial deposit for it,
Juan Cabrera agreed to reimbursethis earlier payment. On June 9, 1990, Juan Cabrera paid the
amount of ₱6,100.00.10 Henry Ysaac issued a receipt for this amount. ₱3,100.00 of the amount paid
was reimbursed to Mamerta Espiritu and, in turn, she gaveJuan Cabrera the receipts issued to her
by Henry Ysaac.11

On June 15, 1992, Juan Cabrera tried to pay the balance of the purchase price to Henry Ysaac.
However,at that time, Henry Ysaac was in the United States. The only person in Henry Ysaac’s
residence was his wife. The wife refused to accept Juan Cabrera’s payment.12

Sometime in September 1993, JuanCabrera alleged that Henry Ysaac approached him, requesting
to reduce the area of the land subject of their transaction. Part of the 439-square-meter land was
going to be made into a barangay walkway, and another part was being occupied by a family that
was difficult to eject.13 Juan Cabrera agreed to the proposal. The land was surveyed again.
According to Juan Cabrera, Henry Ysaac agreed to shoulder the costs of the resurvey, which Juan
Cabrera advanced in the amount of ₱3,000.00.

The resurvey shows that the area now covered by the transaction was 321 square meters.14 Juan
Cabrera intended to show the sketch plan and pay the amount due for the payment of the lot.
However, on that day, Henry Ysaac was in Manila. Once more, Henry Ysaac’s wife refused to
receive the payment because of lack of authority from her husband.15

On September 21, 1994, Henry Ysaac’s counsel, Atty. Luis Ruben General, wrote a letter addressed
to Atty. Leoncio Clemente, Juan Cabrera’s counsel.16 Atty. General informed Atty. Clemente that his
client is formally rescinding the contract of sale because Juan Cabrera failed to pay the balance of
the purchase price of the land between May 1990 and May 1992. The letter also stated that Juan
Cabrera’s initial payment of ₱1,500.00 and the subsequent payment of ₱6,100.00 were going to be
applied as payment for overdue rent of the parcel of land Juan Cabrera was leasing from Henry
Ysaac.17 The letter also denied the allegation of Juan Cabrera that Henry Ysaac agreed to shoulder
the costs of the resurveying of the property.18 Juan Cabrera, together with his uncle, Delfin Cabrera,
went to Henry Ysaac’s house on September 16, 1995 to settle the matter.19 Henry Ysaac told Juan
Cabrera that he could no longer sell the property because the new administrator of the property was
his brother, Franklin Ysaac.20

Due to Juan Cabrera’s inability to enforce the contract of sale between him and Henry Ysaac, he
decided to file a civil case for specific performance on September 20, 1995.21 Juan Cabrera prayed
for the execution of a formal deed of sale and for the transfer of the title of the property in his
name.22 He tendered the sum of ₱69,650.00 to the clerk of court as payment of the remaining
balance of the original sale price.23 On September 22, 1995, a notice of lis pendenswas annotated on
OCT No. 560.24

In his answer with counterclaim,25 Henry Ysaac prayed for the dismissal of Juan Cabrera’s
complaint.26 He also prayed for compensation in the form of moral damages, attorney’s fees, and
incidental litigation expenses.27

Before the Regional Trial Court decided the case, the heirs of Luis and Matilde Ysaac, under the
administration of Franklin Ysaac, sold their property to the local government ofNaga City on
February 12, 1997.28 The property was turned into a projectfor the urban poor of the city.29 During the
trial, Corazon Borbe Combe of the Borbe family testified that contrary to what Juan Cabrera claimed,
her family never agreed to sell the land they were formerly leasing from Henry Ysaac in favor of
Juan Cabrera.30 The Borbe family bought the property from NagaCity’s urban poor program after the
salebetween the Ysaacs and the local government of Naga City.31

On September 22, 1999, the Regional Trial Court of Naga City ruled that the contract of sale
between Juan Cabrera and Henry Ysaac was duly rescinded when the former failed to pay the
balance of the purchase price in the period agreed upon.32 The Regional Trial Court found that there
was an agreement between Juan Cabrera and Henry Ysaac as to the sale of land and the
corresponding unit price.33 However, aside from the receipts turned over by Mamerta Espiritu of the
Espiritu family to Juan Cabrera, there was no "evidence that the other adjoining lot occupants
agreed to sell their respective landholdings" to Juan Cabrera.34 The Regional Trial Court also
doubted that Juan Cabrera was willing and able to pay Henry Ysaac on June 15, 1992. According to
the trial court:

[A]fter the said refusal of Henry Ysaac’s wife, plaintiff [Juan Cabrera] did not bother to write tothe
defendant [Henry Ysaac] or to any of the co-owners his intention to pay for the land or he could have
consigned the amount in court at the same time notifying [Henry Ysaac] of the consignation in
accordance with Article 1256 of the Civil Code. Furthermore, in September, 1993 [Juan Cabrera]
was able to meet [Henry Ysaac] whenthe latter allegedly talked to him about the reduction of the
areahe was going to buy. There is no showing that [Juan Cabrera] again tendered his payment to
Henry Ysaac. Instead, he allegedly made his offer after he had the land resurveyed but defendant
was then in Manila. There is no evidence as to what date this offer was made. . . . . .

[T]he court does not see any serious demand made for performance of the contract on the part of
[Juan Cabrera] in 1992 when he allegedly promised to pay the balance of the purchase price.
Neither could he demand for the sale of the adjoining lots because the occupants thereof did not
manifest their consent thereto. At the most, he could have demanded the sale of the lot which he
was occupying. If his payment was refused in 1995, he cannot demand for damages because the
rescission of the contract was relayed to him in writing in Exhibit "4".35

The Regional Trial Court dismissed Juan Cabrera’s complaint and Henry Ysaac’s
counterclaim.36 Juan Cabrera appealed the Regional Trial Court’s decision.37

The Court of Appeals agreed with the Regional Trial Court that there was a perfected contract of
sale between Juan Cabrera and Henry Ysaac.38 According to the Court of Appeals, even if the
subject of the sale is part of Henry Ysaac’s undivided property, a co-owner may sell a definite portion
of the property.39
The Court of Appeals also ruled that the contract of sale between Juan Cabrera and Henry Ysaac
was not validly rescinded.40 For the rescission to be valid under Article 1592 of the Civil Code, it
should have been done through a judicial or notarial act and not merely through a letter.41

However, due to the sale of the entire property of the Ysaac family in favor of the local government
of Naga City, the Court of Appeals ruled that the verbal contract between Juan Cabrera and Henry
Ysaac cannot be subject to the remedy of specific performance.42 The local government of Naga City
was an innocent purchaser for value, and following the rules on double sales, it had a preferential
right since the sale it entered into was in a public instrument, while the one with Juan Cabrera was
only made orally.43 The only recourse the Court of Appeals could do is to order Henry Ysaac to return
the initial payment of the purchase price of ₱10,600.00 (₱1,500.00 and ₱6,100.00 as evidenced by
the receipts issued by Henry Ysaac to Juan Cabrera, and ₱3,000.00 for the surveying expenses) as
payment of actual damages. The Court of Appeals likewise awarded attorney’s fees and litigation
costs. To wit:

WHEREFORE, premises considered, the assailed decision of the lower court is hereby SET ASIDE
and a new one is entered as follows:

1. Declaring that there is no valid rescission of the contract of sale of the subject lot between
plaintiff-appellant [Juan P. Cabrera] and defendant-appellee [Henry Ysaac]; however,
specific performance is not an available relief to plaintiff because of the supervening sale of
the property to the City of Naga, an innocent purchaser and for value;

2. Ordering [Henry Ysaac] to pay [Juan P. Cabrera] actual damages in the amount of
₱10,600.00, with legal interest of 12% per annum from September 20, 1995 until paid;

3. Ordering [Henry Ysaac] to pay [Juan P. Cabrera], the amount of thirty thousand pesos
(₱30,000.00) by way of attorney’s fees and litigation expenses.

Henry Ysaac filed his motion for reconsideration dated July 14, 2003 of the decision of the Court of
Appeals.44 On the other hand, Juan Cabrera immediately filed a petition for reviewon certiorari with
this court.45 In the resolution dated October 15, 2003, this court denied the petition "for being
premature since respondent’s motion for reconsideration of the questioned decision of the Court of
Appeals is still pending resolution."46

In the resolution dated January 3,2005, the Court of Appeals denied Henry Ysaac’s motion for
reconsideration. On February24, 2005, Juan Cabrera filed another petition with this court,
questioning the propriety of the Court of Appeals’ decision and resolution.

This court initially noted that the petition was filed out of time. The stamp on the petition states that it
was received by this court on March 24, 2005,47 while the reglementary period to file the petition
expired on February 28, 2005. Thus, the petition was dismissed in this court’s resolution dated April
27, 2005.48 Petitioner filed a motion for reconsideration.49 However, the same was denied with finality
in this court’s resolution dated August 17, 2005.50

In a letter addressed to the Chief Justice, petitioner argued that it would be unfair to him if a clerical
error would deprive his petition from being judged on the merits. Petitioner emphasized that the
registry receipts show that he filed the petition on February 24, 2005, not March 24, 2005, as noted
by this court in his pleading.51 This court treated the letter as a second motion for reconsideration. In
the resolution dated March 31, 2006, this court found merit in petitioner’s letter.52 The petition was
reinstated, and respondent was ordered to file his comment.53 Respondent filed his comment on
September 18, 2006.54 This court required petitioner to file a reply,55 which petitioner complied with on
January 15, 2007.56

The issues raised by petitioner and respondent are summarized as follows:

1. Whether this court could take cognizance of issues not raised by petitioner but by
respondent in his comment to the petition for review;

2. Whether there was a valid contractof sale between petitioner and respondent;

3. Whether the contract ofsale still subsisted;

a. Whether the contract was terminated through rescission;

b. Whether the contract was no longer enforceable due to the supervening sale of
the property to the local government of Naga City;

4. Whether petitioner is entitled to the execution of a deed of sale in his favor; and

5. Whether petitioner is entitled to actual damages, attorney’s fees, and costs of litigation.

The petition should be denied.

This court can resolve issues raised by both parties

Petitioner stated that the errors inthis case are: (1) "the [Court of Appeals] erred in holding that the
relief of specific performance is not available to [petitioner] supposedly because of the supervening
sale of [the] property to the City Government of Naga";57 and (2) "consequently, the [Court of
Appeals] erred in not ordering the execution of the necessary deed of sale in favor of
[petitioner]."58 Petitioner argues that this court should limit its adjudication to these two errors.59

On the other hand, respondent raised issues on the validity of the contract of sale in favor of
petitioner, and the propriety of the award of actual damages with interest, attorney’s fees, and
litigation expenses.60

For petitioner, if respondent wanted to raise issues regarding the Court of Appeals’ decision,
respondent should have interposed a separate appeal.61

Petitioner’s position is erroneous. This court can resolve issues and assignments of error argued by
petitioner and respondent.

This court "is clothed with ample authority to review matters, even if they are not assigned as errors
in their appeal,if it finds that their consideration is necessary to arriveat a just decision of the
case."62 We can consider errors not raised by the parties,more so if these errors were raised by
respondent.

Respondent raised different issues compared with those raised by petitioner. However, the
assignment of error of respondent was still responsive to the main argument of petitioner.
Petitioner’s argument works on the premise that there was a valid contract. By attacking the validity
of the contract, respondent was merely responding to the premise of petitioner’s main argument. The
issue is relevant to the final disposition of this case; hence, it should be considered by this court in
arriving at a decision.

II

There was no valid contract of sale between petitioner and respondent

Petitioner agrees with the decision of the Court of Appeals that there was a perfected contract of
sale between him and respondent.63

Respondent, however, argues that there was no contract between him and petitioner because under
Article 1475 of the Civil Code, there has to be a meeting of the minds as to the price and the object
of the contract.64 Respondent argues that there was no meeting of the minds as to the final
price65 and size66 of the property subject of the sale.

In addition, while respondent admits that he was willing to sell the property being leased from him by
the Borbe family and the Espiritu family, petitioner presented no evidence to show that these families
agreed to the sale in favor of petitioner. During trial, Corazon Borbe Combe of the Borbe family
testified that her family never agreed to allow the sale of the property in favor of
petitioner.67 Respondent likewise alleged that Mamerta Espiritu of the Espiritu family eventually
bought the property occupied by her family, which is contrary to the claim that petitioner obtained the
consent of Mamerta Espiritu to have the land sold in his favor.68 Petitioner replied that respondent
sold 113 square meters of the 321-square-meter property to the Espiritu family on January 17,
1996.69 Petitioner argued that Mamerta Espiritu was not a buyer in good faith because in 1990, she
voluntarily agreed to surrender the lot for sale in favor of petitioner because she did not have the
money to pay for the lot. Hence, the sale in favor of Mamerta Espiritu should not supersede the sale
in favor of petitioner.70

The Regional Trial Court ruled that there was a valid contract of sale, although it found that there
was no evidence to support petitioner’s claim that he was able to secure the consent of the Espiritu
family and the Borbe family to the sale of the land.71 There was a valid contract of sale subject to a
suspensive condition, but the suspensive condition was not complied with.

For the Court of Appeals, there was a valid contract of sale.72 The Court of Appeals’ ruling was based
on the idea that a co-owner could sell a definite portion of the land owned in common, and not
because the suspensive conditions of the contract were complied with. In ruling this way, the Court
of Appeals relied on Pamplona v. Morato,73 which stated that:

. . . [A] "co-owner may validly sell his undivided share of the property owned in common. (If the part
sold happens to be his allotted share after partition, the transaction is entirely valid). Now then if
there has been no express partition as yet, but the co-owner who sells points out to his buyers the
boundaries of the parthe was selling, and the other coowners make no objection, there is in effect
already a partial partition, and the sale of the definite portioncan no longer be assailed."74

We find that there was no contract of sale. It was null ab initio.

As defined by the Civil Code, "[a] contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service."75 For there to
be a valid contract, there must be consent of the contracting parties, an object certain which is the
subject matter of the contract, and cause of the obligation which is established.76 Sale is a special
contract. The seller obligates himself to deliver a determinate thing and to transfer its ownership to
the buyer. In turn, the buyer pays for a price certain in money or its equivalent.77 A "contract of sale is
perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price."78 The seller and buyer must agree as to the certain thing that will be
subject of the sale as well as the price in which the thing will be sold. The thing to be sold is the
object of the contract, while the price is the cause or consideration.

The object of a valid sales contract must be owned by the seller. If the seller is not the owner, the
seller must be authorized by the owner to sell the object.79

Specific rules attach when the seller co-ownsthe object of the contract. Sale of a portion of the
property is considered an alteration of the thing owned in common. Under the Civil Code, such
disposition requires the unanimous consent of the other co-owners.80 However, the rules also allow a
co-owner to alienate his or her part in the co-ownership.81

These two rules are reconciled through jurisprudence.

If the alienation precedes the partition, the co-owner cannot sell a definite portion of the land without
consent from his or her co-owners. He or she could only sell the undivided interest of the co-owned
property.82 As summarized in Lopez v. Ilustre,83 "[i]f he is the owner of an undivided half of a tract of
land, he has a right to sell and convey an undivided half, but he has no right to divide the lot into two
parts, and convey the whole of one part by metes and bounds."84

The undivided interestof a co-owner is also referred to as the "ideal or abstract quota" or
"proportionate share." On the other hand, the definite portion of the land refers to specific metes and
bounds of a co-owned property.

To illustrate, if a ten-hectare property is owned equally by ten coowners, the undivided interest of a
co-owner is one hectare. The definite portion of that interest is usually determined during judicial or
extrajudicial partition. After partition, a definite portion of the property held in common is allocated to
a specific co-owner. The co-ownership is dissolved and, in effect, each of the former co-owners is
free to exercise autonomously the rights attached to his or her ownership over the definite portion of
the land. It is crucial that the co-owners agree to which portion of the land goes to whom.

Hence, prior to partition, a sale of a definite portion of common property requires the consent of all
co-owners because it operates to partition the land with respect to the co-owner selling his or her
share. The co-owner or seller is already marking which portion should redound to his or her
autonomous ownership upon future partition.

The object of the sales contract between petitioner and respondent was a definite portion of a co-
owned parcel of land. At the time of the alleged sale between petitioner and respondent, the entire
property was still held in common. This is evidenced by the original certificate of title, which was
under the names of Matilde Ysaac, Priscilla Ysaac, Walter Ysaac, respondent Henry Ysaac,
Elizabeth Ysaac, Norma Ysaac, Luis Ysaac, Jr., George Ysaac, Franklin Ysaac, Marison Ysaac,
Helen Ysaac, Erlinda Ysaac, and Maridel Ysaac.85

The rules allow respondent to sell his undivided interestin the coownership. However, this was not
the object of the sale between him and petitioner. The object of the sale was a definite portion. Even
if it was respondent who was benefiting from the fruits of the lease contract to petitioner, respondent
has "no right to sell or alienate a concrete, specific or determinate part of the thing owned in
common, because his right over the thing is represented by quota or ideal portion without any
physical adjudication."86
There was no showing that respondent was authorized by his coowners to sell the portion of land
occupied by Juan Cabrera, the Espiritu family, or the Borbe family. Without the consent of his co-
owners, respondent could not sell a definite portion of the co-owned property.

Respondent had no right to define a 95-square-meter parcel of land, a 439-square-meter parcel of

land, or a 321-square-meter parcel of land for purposes of selling to petitioner. The determination of
those metes and bounds are not binding to the co-ownership and, hence, cannot be subject to sale,
unless consented to by all the co-owners.

In finding that there was a valid contract of sale between petitioner and respondent, the Court of
Appeals erred in the application of Pamplona v. Moreto.87 The ruling in Pamplona should be read and
applied only in situations similar to the context of that case.

Pamplona involved the Spouses Moreto who owned three (3) parcels of land with a total area of
2,346 square meters. The spouses had six (6) children. After the wife had died, the husband sold
one of the parcels to the Pamplona family, even if the conjugal partnership had not yet been
liquidated. The parcel sold measured 781 square meters, which was less than the ideal share of the
husband in the estate. This court allowed the sale to prosper because of the tolerance from the
husband’s co-heirs. This court ruled:

The title may be pro-indiviso or inchoate but the moment the coowner as vendor pointed out its
location and even indicated the boundaries over which the fences were to be erected without
objection, protest or complaint bythe other co-owners, on the contrary they acquiesced and tolerated
such alienation, occupation and possession, We rule that a factual partition or termination of the co-
ownership, although partial, was created, and barred not only the vendor, Flaviano Moreto, butalso
his heirs, the private respondents herein from asserting as against the vendees petitioners any right
or title in derogation of the deed of sale executed by said vendor Flaviano Moreto.88 (Emphasis
supplied)

In Pamplona, the co-heirs of Flaviano Moreto only questioned the sale to the Pamplona family nine
(9) years after the sale. By then, the Pamplona family had exercised several acts of ownership over
the land. That is why this court considered it acquiescence or tolerance on the part of the co-heirs
when they allowed the Pamplonas to take possession and build upon the land sold, and only
questioned these acts several years later.

The ruling in Pamplonadoes not apply to petitioner. There was no evidence adduced during the trial
that respondent’s co-owners acquiesced or tolerated the sale to petitioner. The co-owners tolerated
petitioner’s possession of a portion of their land because petitioner was a lessee over a 95-square-
meter portion of the property, not the buyer of the 321-squaremeter portion.

There was also no evidence of consent to sell from the co-owners. When petitioner approached
respondent in 1995 to enforce the contract of sale, respondent referred him to Franklin Ysaac, the
administrator over the entire property. Respondent’s act suggests the absence of consent from the
co-owners. Petitioner did not show that he sought Franklin Ysaac’s consent as administrator and the
consent of the other co-owners. Without the consent of the co-owners, no partial partition operated
in favor of the sale to petitioner.

At best, the agreement between petitioner and respondent is a contract to sell, not a contract of sale.
A contract to sell is a promise to sell an object, subject to suspensive conditions.89 Without the
fulfillment of these suspensive conditions, the sale does not operate to determine the obligation of
the seller to deliver the object.
A co-owner could enter into a contract to sell a definite portion of the property. However, such
contract is still subject to the suspensive condition of the partition of the property, and that the other
co-owners agree that the part subject of the contract to sell vests in favor of the co-owner’s buyer.
Hence, the co-owners’ consent is an important factor for the sale to ripen.

A non-existent contract cannot be a

source of obligations, and it cannot
be enforced by the courts

Since petitioner believes that there was a perfected contract of sale between him and respondent,
he argues that a deed of sale should be formally executed. Petitioner agrees with the Court of
Appeals’ finding that there was no valid rescission of the contract in accordance with Article 1592 of
the Civil Code.90 However, petitioner disagrees with the Court of Appeals when it ruled that the
contract was no longer enforceable due to the supervening sale with the local government of Naga
City. Petitioner argues that the sale in favor of the local government of Naga City was not made in
good faith. Before the sale was finalized between the local government and the heirs of Luis and
Matilde Ysaac, petitioner had a notice of lis pendens annotated to OCT No. 506.91 It was presumed
that the local government had due notice of petitioner’s adverse claim, thus, it cannot be considered
an innocent purchaser.

For respondent, due to the inexistence of a valid contract of sale, petitioner cannot demand specific
performance from respondent.92 Respondent disagrees with the Court of Appeals when it stated that
Article 1592 of the rescission of contract of sale applies. There is no need to apply Article 1592
because there was no contract to begin with.93 The contract between respondent and petitioner was
terminated by virtue of the letter dated September 21, 1994.94

We rule in favor of respondent.

The absence of a contract of sale means that there is no source of obligations for respondent, as
seller, orpetitioner, as buyer. Rescission is impossible because there is no contract to rescind. The
rule in Article 1592 that requires a judicial or notarial act to formalize rescission of a contract of sale
of an immovable property does not apply. This court does not need to rule whether a letter is a valid
method of rescinding a sales contract over an immovable property because the question is moot and
academic.

Even if we assume that respondent had full ownership of the property and that he agreed to sell a
portion of the property to petitioner, the letter was enough to cancel the contract to sell. Generally,
"[t]he power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent on him."95

For the sale of immovable property, the following provision governs its rescission:

Article 1592. In the sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long as no demand for rescissionof
the contract has been made upon him either judicially or by notarial act. After the demand, the court
may not grant him a new term.

This provision contemplates (1) a contract of sale of an immovable property and (2) a stipulation in
the contract that failure to pay the price at the time agreed upon will cause the rescission of the
contract. The vendee or the buyer can still pay even after the time agreed upon, if the agreement
between the parties has these requisites. This right of the vendee to pay ceases when the vendor or
the seller demands the rescission of the contract judicially or extra judicially. In case of an extra
judicial demand to rescind the contract, it should be notarized.

Hence, this provision does not apply if it is not a contract of sale of an immovable property and
merely a contract to sellan immovable property. A contract to sell is "where the ownership or title is
retained by the seller and is not to pass until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach, casual or serious, but simply an
event that prevented the obligation of the vendor to convey title from acquiring binding force."96

In a similar case entitled Manuel v. Rodriguez,97 Eusebio Manuel offered to buy the land owned by
Payatas Subdivision, Inc. The Secretary Treasurer of Payatas Subdivision, Eulogio Rodriguez, Sr.,
agreed to sell the land to Eusebio Manuel after negotiations. Similar to this case, the agreement was
only made orally and not in writing. An initial payment was made, and a final payment was to be
madenine (9) to ten (10) months later. Manuel never paid for the latter installment; hence, Eulogio
Rodriguez cancelled their agreement and sold the land to someone else.

In Manuel, this court categorically stated that Article 1592 "does not apply to a contract to sell or
promise to sell, where title remains with the vendor until fulfillment to a positive suspensive condition,
such as full payment of the price."98 This court upheld that the contract to sell was validly cancelled
through the non-payment of Eusebio Manuel. The same conclusion applies in this case.

The law does not prescribe a form to rescind a contract to sell immovable property. In Manuel, the
non-payment operated to cancel the contract. If mere non-payment is enough to cancel a contract to
sell, the letter given to petitioner’s lawyer is also an acceptable form of rescinding the contract. The
law does not require notarization for a letter to rescind a contract to sell immovable property.
Notarization is only required if a contract of sale is being rescinded.

Petitioner argued that he was willing to comply with the suspensive condition on the contract to sell
because he was ready to pay the balance of the purchase price on June 15, 1992.99 However, his
argument is unmeritorious. As ruled by the Regional Trial Court, petitioner should have resorted to
the various modes of consignment when respondent’s wife refused to accept the payment on
respondent’s behalf.100

Therefore, even if we assumed that the contract between petitioner and respondents were perfected,
the strict requisites in Article 1592 did not apply because the only perfected contract was a contract
to sell, not a contract of sale. The courts cannot enforce the right of petitioner to buy respondent’s
property. We cannot order the execution of a deed of sale between petitioner and respondent.

The question of double sale also becomes moot and academic. There was no valid sale between
petitioner and respondent, while there was a valid sale between the local government of Naga City
and respondent and his coowners. Since there is only one valid sale, the ruleon double sales under
Article 1544 of the Civil Code does not apply.101

Compensatory damages, attorney’s

fees, and costs of litigation

Respondent argued that petitioner is not entitled to the compensatory damages that the Court of
Appeals awarded. According to respondent, petitioner continues to occupy the 95-square-meter
property that he has been leasing since 1986 because the parcel was not included in the sale to the
local government of Naga City.102 Since April 30, 1990, petitioner has not been paying rent to
respondent despite his continued occupation of the property.103 Therefore, there was no unjust
enrichment on the part of respondent when he applied petitioner’s initial payment over the sale of the
property as payment for rent.

Respondent argued further that the award of attorney’s fees and litigation expenses in favor of
petitioner was also erroneous because prior to this litigation, respondent already informed petitioner
that his claim has no basis in law and fact.104 Yet, petitioner persisted on filing this case.105

We rule that petitioner is entitled to the return of the amount of money because he paid it as
consideration for ownership of the land. Since the ownership of the land could not be transferred to
him, the money he paid for that purpose must be returned to him. Otherwise, respondent will be
unjustly enriched.

Respondent’s claim for rent in arrears is a separate cause of action from this case. For petitioner’s
1âwphi1

earnestmoney payment to be considered payment for his rent liabilities, the rules of compensation
under Article 1279 of the Civil Code must be followed.106

It was not proven during trial if petitioner's rental liability to respondent is due, or if it is already
liquidated and demandable. Hence, this court is limited to uphold the ruling of the Court of Appeals,
but such payment could be subject to the rule on compensation.

However, petitioner is not entitled to attorney's fees and the costs of litigation. The Court of Appeals
awarded attorney's fees to petitioner "just to protect his right [because petitioner] reached this court
to seek justice for himself."107

Contrary to the Court of Appeals' ruling, we find that petitioner did not have a clear right over the
property in question. The Court of Appeals awarded attorney's fees and litigation costs on the
premise that the contract between petitioner and respondent was perfected. Without a valid contract
that stipulates his rights, petitioner risked litigation in order to determine if he has rights, and not to
protect rights that he currently has. Hence, the award of attorney's fees and litigation costs was not
properly justified.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision dated June 19, 2003 in CA-
G.R. CV No. 65869 is SET ASIDE. The contract between petitioner and respondent is DECLARED
invalid and, therefore, cannot be subject to specific performance. Respondent is ORDERED to
return ₱10,600.00 to petitioner, with legal interest of 12% per annum from September 20, 1995 until
June 30, 2013 and 6% per annum from July 1, 2013 ·until fully paid. The award of attorney's fees
and litigation expenses is DELETED.

SO ORDERED.
7
G.R. No. 200602 December 11, 2013

ACE FOODS, INC., Petitioner,

vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD.1, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari2are the Decision3 dated October 21, 2011 and
Resolution4 dated February 8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426 which
reversed and set aside the Decision5 dated February 28, 2007 of the Regional Trial Court of Makati,
Branch 148 (RTC) in Civil Case No. 02-1248, holding petitioner ACE Foods, Inc. (ACE Foods) liable
to respondent Micro Pacific Technologies Co., Ltd. (MTCL) for the payment of Cisco Routers and
Frame Relay Products (subject products) amounting to ₱646,464.00 pursuant to a perfected
contract of sale.

The Facts

ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in
wholesale and retail bases,6 while MTCL is one engaged in the supply of computer hardware and
equipment.7

On September 26, 2001, MTCL sent a letter-proposal8 for the delivery and sale of the subject
products to be installed at various offices of ACE Foods. Aside from the itemization of the products
offered for sale, the said proposal further provides for the following terms, viz.:9

TERMS : Thirty (30) days upon delivery

VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.

DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon
receipt of [Purchase Order]

WARRANTY : One (1) year on parts and services. Accessories not included in warranty.

On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued Purchase
Order No. 10002310 (Purchase Order) for the subject products amounting to ₱646,464.00 (purchase
price). Thereafter, or on March 4, 2002, MTCL delivered the said products to ACE Foods as
reflected in Invoice No. 7733 11 (Invoice Receipt). The fine print of the invoice states, inter alia, that
"[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full
compliance of the terms and conditions of above and payment of the price"12 (title reservation
stipulation). After delivery, the subject products were then installed and configured in ACE Foods’s
premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained
unheeded.13 Instead of paying the purchase price, ACE Foods sent MTCL a Letter14 dated September
19, 2002, stating that it "ha[s] been returning the [subject products] to [MTCL] thru [its] sales
representative Mr. Mark Anteola who has agreed to pull out the said [products] but had failed to do
so up to now."

Eventually, or on October 16, 2002, ACE Foods lodged a Complaint15 against MTCL before the RTC,
praying that the latter pull out from its premises the subject products since MTCL breached its "after
delivery services" obligations to it, particularly, to: (a) install and configure the subject products; (b)
submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE Foods’s
technicians on how to use and maintain the subject products. 16 ACE Foods likewise claimed that the
subject products MTCL delivered are defective and not working.17

For its part, MTCL, in its Answer with Counterclaim,18 maintained that it had duly complied with its
obligations to ACE Foods and that the subject products were in good working condition when they
were delivered, installed and configured in ACE Foods’s premises. Thereafter, MTCL even
conducted a training course for ACE Foods’s representatives/employees; MTCL, however, alleged
that there was actually no agreement as to the purported "after delivery services." Further, MTCL
posited that ACE Foods refused and failed to pay the purchase price for the subject products despite
the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that ACE Foods
be compelled to pay the purchase price, as well as damages related to the transaction.19

The RTC Ruling

On February 28, 2007, the RTC rendered a Decision, 20 directing MTCL to remove the subject
products from ACE Foods’s premises and pay actual damages and attorney fees in the amounts of
₱200,000.00 and ₱100,000.00, respectively.21

At the outset, it observed that the agreement between ACE Foods and MTCL is in the nature of a
contract to sell. Its conclusion was based on the fine print of the Invoice Receipt which expressly
indicated that "title to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until
full compliance of the terms and conditions of above and payment of the price," noting further that in
a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective
buyer, and said transfer is conditioned upon the full payment of the purchase price.22 Thus,
notwithstanding the execution of the Purchase Order and the delivery and installation of the subject
products at the offices of ACE Foods, by express stipulation stated in the Invoice Receipt issued by
MTCL and signed by ACE Foods, i.e., the title reservation stipulation, it is still the former who holds
title to the products until full payment of the purchase price therefor. In this relation, it noted that the
full payment of the price is a positive suspensive condition, the non-payment of which prevents the
obligation to sell on the part of the seller/vendor from materializing at all.23 Since title remained with
MTCL, the RTC therefore directed it to withdraw the subject products from ACE Foods’s premises.
Also, in view of the foregoing, the RTC found it unnecessary to delve into the allegations of breach
since the non-happening of the aforesaid suspensive condition ipso jure prevented the obligation to
sell from arising.24

Dissatisfied, MTCL elevated the matter on appeal.25

The CA Ruling
In a Decision26 dated October 21, 2011, the CA reversed and set aside the RTC’s ruling, ordering
ACE Foods to pay MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum
to be computed from April 4, 2002, and attorney’s fees amounting to ₱50,000.00.27

It found that the agreement between the parties is in the nature of a contract of sale, observing that
the said contract had been perfected from the time ACE Foods sent the Purchase Order to MTCL
which, in turn, delivered the subject products covered by the Invoice Receipt and subsequently
installed and configured them in ACE Foods’s premises.28 Thus, considering that MTCL had already
complied with its obligation, ACE Foods’s corresponding obligation arose and was then duty bound
to pay the agreed purchase price within thirty (30) days from March 5, 2002.29 In this light, the CA
concluded that it was erroneous for ACE Foods not to pay the purchase price therefor, despite its
receipt of the subject products, because its refusal to pay disregards the very essence of reciprocity
in a contract of sale.30 The CA also dismissed ACE Foods’s claim regarding MTCL’s failure to
perform its "after delivery services" obligations since the letter-proposal, Purchase Order and Invoice
Receipt do not reflect any agreement to that effect.31

Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a
Resolution 32 dated February 8, 2012, hence, this petition.

The Issue Before the Court

The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for the
subject products.

The Court’s Ruling

The petition lacks merit.

A contract is what the law defines it to be, taking into consideration its essential elements, and not
what the contracting parties call it.33 The real nature of a contract may be determined from the
express terms of the written agreement and from the contemporaneous and subsequent acts of the
contracting parties. However, in the construction or interpretation of an instrument, the intention of
the parties is primordial and is to be pursued. The denomination or title given by the parties in
their contract is not conclusive of the nature of its contents.34

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid
or promised. 35 This may be gleaned from Article 1458 of the Civil Code which defines a contract of
sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional. (Emphasis supplied)

Corollary thereto, a contract of sale is classified as a consensual contract, which means that the
sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of
the contract, the parties may reciprocally demand performance, i.e., the vendee may compel transfer
of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold.36
In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the property despite delivery thereof to the prospective buyer,
binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, i.e., the full payment of the purchase price. A contract to sell may not even be
considered as a conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur.37

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not
to a contract to sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of
sale had been perfected at the precise moment ACE Foods, as evinced by its act of sending MTCL
the Purchase Order, accepted the latter’s proposal to sell the subject products in consideration of the
purchase price of ₱646,464.00. From that point in time, the reciprocal obligations of the parties – i.e.,
on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other hand, of
ACE Foods to pay the purchase price therefor within thirty (30) days from delivery – already arose
and consequently may be demanded. Article 1475 of the Civil Code makes this clear:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contracts.

At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of
ownership of the subject products as reflected in the Invoice Receipt, i.e., the title reservation
stipulation, changed the complexion of the transaction from a contract of sale into a contract to sell.
Records are bereft of any showing that the said stipulation novated the contract of sale between the
parties which, to repeat, already existed at the precise moment ACE Foods accepted MTCL’s
proposal. To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. In either case, however, novation is never presumed,
and the animus novandi, whether totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken.38

In the present case, it has not been shown that the title reservation stipulation appearing in the
Invoice Receipt had been included or had subsequently modified or superseded the original
agreement of the parties. The fact that the Invoice Receipt was signed by a representative of ACE
Foods does not, by and of itself, prove animus novandi since: (a) it was not shown that the signatory
was authorized by ACE Foods (the actual party to the transaction) to novate the original agreement;
(b) the signature only proves that the Invoice Receipt was received by a representative of ACE
Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued
at the consummation stage of the contract and not its perfection, and have been even treated as
documents which are not actionable per se, although they may prove sufficient delivery. 39 Thus,
absent any clear indication that the title reservation stipulation was actually agreed upon, the Court
must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on
the nature of the parties’ original agreement as a contract of sale. Perforce, the obligations arising
thereto, among others, ACE Foods’s obligation to pay the purchase price as well as to accept the
delivery of the goods,40 remain enforceable and subsisting. 1âwphi1
As a final point, it may not be amiss to state that the return of the subject products pursuant to a
rescissory action41 is neither warranted by ACE Foods’s claims of breach – either with respect to
MTCL’s breach of its purported "after delivery services" obligations or the defective condition of the
products - since such claims were not adequately proven in this case. The rule is clear: each party
must prove his own affirmative allegation; one who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence required by law to obtain a favorable
judgment, which in civil cases, is by preponderance of evidence. 42 This, however, ACE Foods failed
to observe as regards its allegations of breach. Hence, the same cannot be sustained.

WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and
Resolution dated February 8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are
hereby AFFIRMED.

SO ORDERED.

8
G.R. No. 189145 December 4, 2013

OPTIMUM DEVELOPMENT BANK, Petitioner,

vs.
SPOUSES BENIGNO V. JOVELLANOS and LOURDES R. JOVELLANOS, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated May 29, 2009 and
Resolution 3 dated August 10, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 104487 which
reversed the Decision4 dated December 27, 2007 of the Regional Trial Court of Caloocan City,
Branch 128 (RTC) in Civil Case No. C-21867 that, in turn, affirmed the Decision5 dated June 8, 2007
of the Metropolitan Trial Court, Branch 53 of that same city (MeTC) in Civil Case No. 06-28830
ordering respondents-spouses Benigno and Lourdes Jovellanos (Sps. Jovellanos) to, inter
alia, vacate the premises of the property subject of this case.

The Facts

On April 26, 2005, Sps. Jovellanos entered into a Contract to Sell6 with Palmera Homes, Inc.
(Palmera Homes) for the purchase of a residential house and lot situated in Block 3, Lot 14, Villa
Alegria Subdivision, Caloocan City (subject property) for a total consideration of ₱1,015,000.00.
Pursuant to the contract, Sps. Jovellanos took possession of the subject property upon a down
payment of ₱91,500.00, undertaking to pay the remaining balance of the contract price in equal
monthly installments of ₱13,107.00 for a period of 10 years starting June 12, 2005.7
On August 22, 2006, Palmera Homes assigned all its rights, title and interest in the Contract to Sell
in favor of petitioner Optimum Development Bank (Optimum) through a Deed of Assignment of even
date.8

On April 10, 2006, Optimum issued a Notice of Delinquency and Cancellation of Contract to Sell9 for
Sps. Jovellanos’s failure to pay their monthly installments despite several written and verbal
notices.10

In a final Demand Letter dated May 25, 2006,11 Optimum required Sps. Jovellanos to vacate and
deliver possession of the subject property within seven (7) days which, however, remained
unheeded. Hence, Optimum filed, on November 3, 2006, a complaint for unlawful detainer12 before
the MeTC, docketed as Civil Case No. 06-28830. Despite having been served with summons,
together with a copy of the complaint,13 Sps. Jovellanos failed to file their answer within the
prescribed reglementary period, thus prompting Optimum to move for the rendition of judgment.14

Thereafter, Sps. Jovellanos filed their opposition with motion to admit answer, questioning the
jurisdiction of the court, among others. Further, they filed a Motion to Reopen and Set the Case for
Preliminary Conference, which the MeTC denied.

The MeTC Ruling

In a Decision15 dated June 8, 2007, the MeTC ordered Sps. Jovellanos to vacate the subject property
and pay Optimum reasonable compensation in the amount of ₱5,000.00 for its use and occupation
until possession has been surrendered. It held that Sps. Jovellanos’s possession of the said property
was by virtue of a Contract to Sell which had already been cancelled for non-payment of the
stipulated monthly installment payments. As such, their "rights of possession over the subject
property necessarily terminated or expired and hence, their continued possession thereof
constitute[d] unlawful detainer."16

Dissatisfied, Sps. Jovellanos appealed to the RTC, claiming that Optimum counsel made them
believe that a compromise agreement was being prepared, thus their decision not to engage the
services of counsel and their concomitant failure to file an answer.17

They also assailed the jurisdiction of the MeTC, claiming that the case did not merely involve the
issue of physical possession but rather, questions arising from their rights under a contract to sell
which is a matter that is incapable of pecuniary estimation and, therefore, within the jurisdiction of
the RTC.18

The RTC Ruling

In a Decision19 dated December 27, 2007, the RTC affirmed the MeTC’s judgment, holding that the
latter did not err in refusing to admit Sps. Jovellanos’ s belatedly filed answer considering the
mandatory period for its filing. It also affirmed the MeTC’s finding that the action does not involve the
rights of the respective parties under the contract but merely the recovery of possession by Optimum
of the subject property after the spouses’ default.20

Aggrieved, Sps. Jovellanos moved for reconsideration which was, however, denied in a
Resolution21 dated June 27, 2008. Hence, the petition before the CA reiterating that the RTC erred in
affirming the decision of the MeTC with respect to:

(a) the non-admission of their answer to the complaint; and

 (b) the jurisdiction of the MeTC over the complaint for unlawful detainer.22

The CA Ruling

In an Amended Decision23 dated May 29, 2009, the CA reversed and set aside the RTC’s decision,
ruling to dismiss the complaint for lack of jurisdiction. It found that the controversy does not only
involve the issue of possession but also the validity of the cancellation of the Contract to Sell and the
determination of the rights of the parties thereunder as well as the governing law, among others,
Republic Act No. (RA) 6552.24

Accordingly, it concluded that the subject matter is one which is incapable of pecuniary estimation
and thus, within the jurisdiction of the RTC.25

Undaunted, Optimum moved for reconsideration which was denied in a Resolution26 dated August
10, 2009. Hence, the instant petition, submitting that the case is one for unlawful detainer, which falls
within the exclusive original jurisdiction of the municipal trial courts, and not a case incapable of
pecuniary estimation cognizable solely by the regional trial courts.

The Court’s Ruling

The petition is meritorious. What is determinative of the nature of the action and the court with
jurisdiction over it are the allegations in the complaint and the character of the relief sought, not the
defenses set up in an answer.27

A complaint sufficiently alleges a cause of action for unlawful detainer if it recites that:

(a) initially, possession of the property by the defendant was by contract with or by tolerance
of the plaintiff;

(b) eventually, such possession became illegal upon notice by plaintiff to defendant of the
termination of the latter's right of possession;

(c) thereafter, defendant remained in possession of the property and deprived plaintiff of the
enjoyment thereof; and

(d) within one year from the last demand on defendant to vacate the property, plaintiff
instituted the complaint for ejectment.28

Corollarily, the only issue to be resolved in an unlawful detainer case is physical or material
possession of the property involved, independent of any claim of ownership by any of the parties
involved.29

In its complaint, Optimum alleged that it was by virtue of the April 26, 2005 Contract to Sell that Sps.
Jovellanos were allowed to take possession of the subject property. However, since the latter failed
to pay the stipulated monthly installments, notwithstanding several written and verbal notices made
upon them, it cancelled the said contract as per the Notice of Delinquency and Cancellation dated
April 10, 2006. When Sps. Jovellanos refused to vacate the subject property despite repeated
demands, Optimum instituted the present action for unlawful detainer on November 3, 2006, or
within one year from the final demand made on May 25, 2006.
While the RTC upheld the MeTC’s ruling in favor of Optimum, the CA, on the other hand, declared
that the MeTC had no jurisdiction over the complaint for unlawful detainer, reasoning that the case
involves a matter which is incapable of pecuniary estimation – i.e., the validity of the cancellation of
the Contract to Sell and the determination of the rights of the parties under the contract and law –
and hence, within the jurisdiction of the RTC. The Court disagrees. Metropolitan Trial Courts are
conditionally vested with authority to resolve the question of ownership raised as an incident in an
ejectment case where the determination is essential to a complete adjudication of the issue of
possession.30 Concomitant to the ejectment court’s authority to look into the claim of ownership for
purposes of resolving the issue of possession is its authority to interpret the contract or agreement
upon which the claim is premised. Thus, in the case of Oronce v. CA,31 wherein the litigants’
opposing claims for possession was hinged on whether their written agreement reflected the
intention to enter into a sale or merely an equitable mortgage, the Court affirmed the propriety of the
ejectment court’s examination of the terms of the agreement in question by holding that, "because
metropolitan trial courts are authorized to look into the ownership of the property in controversy in
ejectment cases, it behooved MTC Branch 41 to examine the bases for petitioners’ claim of
ownership that entailed interpretation of the Deed of Sale with Assumption of Mortgage."32 Also, in
Union Bank of the Philippines v. Maunlad Homes, Inc.33 (Union Bank), citing Sps. Refugia v. CA,34 the
Court declared that MeTCs have authority to interpret contracts in unlawful detainer cases, viz.:35

The authority granted to the MeTC to preliminarily resolve the issue of ownership to determine the
issue of possession ultimately allows it to interpret and enforce the contract or agreement between
the plaintiff and the defendant. To deny the MeTC jurisdiction over a complaint merely because the
issue of possession requires the interpretation of a contract will effectively rule out unlawful detainer
as a remedy. As stated, in an action for unlawful detainer, the defendant’s right to possess the
property may be by virtue of a contract, express or implied;

corollarily, the termination of the defendant’s right to possess would be governed by the terms of the
same contract.

Interpretation of the contract between the plaintiff and the defendant is inevitable because it is the
contract that initially granted the defendant the right to possess the property; it is this same contract
that the plaintiff subsequently claims was violated or extinguished, terminating the defendant’s right
to possess. We ruled in Sps. Refugia v. CA that – where the resolution of the issue of possession
hinges on a determination of the validity and interpretation of the document of title or any other
contract on which the claim of possession is premised, the inferior court may likewise pass upon
these issues.

The MeTC’s ruling on the rights of the parties based on its interpretation of their contract is, of
course, not conclusive, but is merely provisional and is binding only with respect to the issue of
possession. (Emphases supplied; citations omitted)

In the case at bar, the unlawful detainer suit filed by Optimum against Sps. Jovellanos for illegally
withholding possession of the subject property is similarly premised upon the cancellation or
termination of the Contract to Sell between them. Indeed, it was well within the jurisdiction of the
MeTC to consider the terms of the parties’ agreement in order to ultimately determine the factual
bases of Optimum’s possessory claims over the subject property. Proceeding accordingly, the MeTC
held that Sps. Jovellanos’s non-payment of the installments due had rendered the Contract to Sell
without force and effect, thus depriving the latter of their right to possess the property subject of said
contract.36 The foregoing disposition aptly squares with existing jurisprudence. As the Court similarly
held in the Union Bank case, the seller’s cancellation of the contract to sell necessarily extinguished
the buyer’s right of possession over the property that was the subject of the terminated agreement.37
Verily, in a contract to sell, the prospective seller binds himself to sell the property subject of the
agreement exclusively to the prospective buyer upon fulfillment of the condition agreed upon which
is the full payment of the purchase price but reserving to himself the ownership of the subject
property despite delivery thereof to the prospective buyer.38

The full payment of the purchase price in a contract to sell is a suspensive condition, the non-
fulfillment of which prevents the prospective seller’s obligation to convey title from becoming
effective,39 as in this case. Further, it is significant to note that given that the Contract to Sell in this
case is one which has for its object real property to be sold on an installment basis, the said contract
is especially governed by – and thus, must be examined under the provisions of – RA 6552, or the
"Realty Installment Buyer Protection Act", which provides for the rights of the buyer in case of his
default in the payment of succeeding installments. Breaking down the provisions of the law, the
Court, in the case of Rillo v. CA,40 explained the mechanics of cancellation under RA 6552 which are
based mainly on the amount of installments already paid by the buyer under the subject contract, to
wit:41

Given the nature of the contract of the parties, the respondent court correctly applied Republic Act
No. 6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of
real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-
payment of an installment by the buyer, which is simply an event that prevents the obligation of the
vendor to convey title from acquiring binding force. It also provides the right of the buyer on
installments in case he defaults in the payment of succeeding installments, viz.:

(1) Where he has paid at least two years of installments,

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him, which is hereby fixed at the rate of one month grace period for every
one year of installment payments made:

Provided, That this right shall be exercised by the buyer only once in every five years of the life of
the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the
total payments made and, after five years of installments, an additional five per cent every year but
not to exceed ninety per cent of the total payments made:

Provided, That the actual cancellation of the contract shall take place after cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash surrender
value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total
number of installments made.

(2) Where he has paid less than two years in installments, Sec. 4. x x x the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due. If the
buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act. (Emphasis and underscoring supplied)

Pertinently, since Sps. Jovellanos failed to pay their stipulated monthly installments as found by the
MeTC, the Court examines Optimum’s compliance with Section 4 of RA 6552, as above-quoted and
highlighted, which is the provision applicable to buyers who have paid less than two (2) years-worth
of installments. Essentially, the said provision provides for three (3) requisites before the seller may
actually cancel the subject contract: first, the seller shall give the buyer a 60-day grace period to be
reckoned from the date the installment became due; second, the seller must give the buyer a notice
of cancellation/demand for rescission by notarial act if the buyer fails to pay the installments due
at the expiration of the said grace period; and third, the seller may actually cancel the contract only
after thirty (30) days from the buyer’s receipt of the said notice of cancellation/demand for rescission
by notarial act. In the present case, the 60-day grace period automatically operated42 in favor of the
buyers, Sps. Jovellanos, and took effect from the time that the maturity dates of the installment
payments lapsed. With the said grace period having expired bereft of any installment payment on
the part of Sps. Jovellanos,43 Optimum then issued a notarized Notice of Delinquency and
Cancellation of Contract on April 10, 2006. Finally, in proceeding with the actual cancellation of the
contract to sell, Optimum gave Sps. Jovellanos an additional thirty (30) days within which to settle
their arrears and reinstate the contract, or sell or assign their rights to another.44

It was only after the expiration of the thirty day (30) period did Optimum treat the contract to sell as
effectively cancelled – making as it did a final demand upon Sps. Jovellanos to vacate the subject
property only on May 25, 2006. Thus, based on the foregoing, the Court finds that there was a valid
and effective cancellation of the Contract to Sell in accordance with Section 4 of RA 6552 and since
Sps. Jovellanos had already lost their right to retain possession of the subject property as a
consequence of such cancellation, their refusal to vacate and turn over possession to Optimum
makes out a valid case for unlawful detainer as properly adjudged by the MeTC.

WHEREFORE, the petition is GRANTED. The Decision dated May 29, 2009 and Resolution dated
August 10, 2009 of the Court of Appeals in CA-G.R. SP No. 104487 are SET ASIDE. The Decision
dated June 8, 2007 of Metropolitan Trial Court, Branch 53, Caloocan City in Civil Case No. 06-28830
is hereby REINSTATED.

SO ORDERED.

9
G.R. No. 193787 April 7, 2014

SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE, with deceased Jose C.
Roque represented by his substitute heir JOVETTE ROQUE-LIBREA, Petitioners,
vs.
MA. PAMELA P. AGUADO, FRUCTUOSO C. SABUG, JR., NATIONAL COUNCIL OF
CHURCHES IN THE PHILIPPINES (NCCP), represented by its Secretary General SHARON
ROSE JOY RUIZ-DUREMDES, LAND BANK OF THE PHILIPPINES (LBP), represented by
Branch Manager EVELYN M. MONTERO, ATTY. MARIO S.P. DIAZ, in his Official Capacity as
Register of Deeds for Rizal, Morong Branch, and CECILIO U. PULAN, in his Official Capacity
as Sheriff, Office of the Clerk of Court, Regional Trial Court, Binangonan, Rizal, Respondents.

DECISION
PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated May 12, 2010 and the
Resolution3 dated September 15, 2010 of the Court of Appeals (CA) in CA G.R. CV No. 92113 which
affirmed the Decision4 dated July 8, 2008 of the Regional Trial Court of Binangonan, Rizal, Branch
69 (RTC) that dismissed Civil Case Nos. 03-022 and 05-003 for reconveyance, annulment of sale,
deed of real estate mortgage, foreclosure and certificate of sale, and damages.

The Facts

The property subject of this case is a parcel of land with an area of 20,862 square meters (sq. m.),
located in Sitio Tagpos, Barangay Tayuman, Binangonan, Rizal, known as Lot 18089.5

On July 21, 1977, petitioners-spouses Jose C. Roque and Beatriz dela Cruz Roque (Sps. Roque)
and the original owners of the then unregistered Lot 18089 – namely, Velia R. Rivero (Rivero),
Magdalena Aguilar, Angela Gonzales, Herminia R. Bernardo, Antonio Rivero, Araceli R. Victa,
Leonor R. Topacio, and Augusto Rivero (Rivero, et al.) – executed a Deed of Conditional Sale of
Real Property6 (1977 Deed of Conditional Sale) over a 1,231-sq. m. portion of Lot 18089 (subject
portion) for a consideration of ₱30,775.00. The parties agreed that Sps. Roque shall make an initial
payment of ₱15,387.50 upon signing, while the remaining balance of the purchase price shall be
payable upon the registration of Lot 18089, as well as the segregation and the concomitant issuance
of a separate title over the subject portion in their names. After the deed’s execution, Sps. Roque
took possession and introduced improvements on the subject portion which they utilized as a balut
factory.7

On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.), former Treasurer of the National Council of
Churches in the Philippines (NCCP), applied for a free patent over the entire Lot 18089 and was
eventually issued Original Certificate of Title (OCT) No. M-59558 in his name on October 21, 1991.
On June 24, 1993, Sabug, Jr. and Rivero, in her personal capacity and in representation of Rivero,
et al., executed a Joint Affidavit9 (1993 Joint Affidavit), acknowledging that the subject portion
belongs to Sps. Roque and expressed their willingness to segregate the same from the entire area
of Lot 18089.

On December 8, 1999, however, Sabug, Jr., through a Deed of Absolute Sale10 (1999 Deed of
Absolute Sale), sold Lot 18089 to one Ma. Pamela P. Aguado (Aguado) for ₱2,500,000.00, who, in
turn, caused the cancellation of OCT No. M-5955 and the issuance of Transfer Certificate of Title
(TCT) No. M-96692 dated December 17, 199911 in her name.

Thereafter, Aguado obtained an ₱8,000,000.00 loan from the Land Bank of the Philippines (Land
Bank) secured by a mortgage over Lot 18089.12 When she failed to pay her loan obligation, Land
Bank commenced extra-judicial foreclosure proceedings and eventually tendered the highest bid in
the auction sale. Upon Aguado’s failure to redeem the subject property, Land Bank consolidated its
ownership, and TCT No. M-11589513 was issued in its name on July 21, 2003.14

On June 16, 2003, Sps. Roque filed a complaint15 for reconveyance, annulment of sale, deed of real
estate mortgage, foreclosure, and certificate of sale, and damages before the RTC, docketed as
Civil Case No. 03-022, against Aguado, Sabug, Jr., NCCP, Land Bank, the Register of Deeds of
Morong, Rizal, and Sheriff Cecilio U. Pulan, seeking to be declared as the true owners of the subject
portion which had been erroneously included in the sale between Aguado and Sabug, Jr., and,
subsequently, the mortgage to Land Bank, both covering Lot 18089 in its entirety.
In defense, NCCP and Sabug, Jr. denied any knowledge of the 1977 Deed of Conditional Sale
through which the subject portion had been purportedly conveyed to Sps. Roque.16

For her part, Aguado raised the defense of an innocent purchaser for value as she allegedly derived
her title (through the 1999 Deed of Absolute Sale) from Sabug, Jr., the registered owner in OCT No.
M-5955, covering Lot 18089, which certificate of title at the time of sale was free from any lien and/or
encumbrances. She also claimed that Sps. Roque’s cause of action had already prescribed because
their adverse claim was made only on April 21, 2003, or four (4) years from the date OCT No. M-
5955 was issued in Sabug, Jr.’s name on December 17, 1999.17

On the other hand, Land Bank averred that it had no knowledge of Sps. Roque’s claim relative to the
subject portion, considering that at the time the loan was taken out, Lot 18089 in its entirety was
registered in Aguado’s name and no lien and/or encumbrance was annotated on her certificate of
title.18

Meanwhile, on January 18, 2005, NCCP filed a separate complaint19 also for declaration of nullity of
documents and certificates of title and damages, docketed as Civil Case No. 05-003. It claimed to be
the real owner of Lot 18089 which it supposedly acquired from Sabug, Jr. through an oral contract of
sale20 in the early part of 1998, followed by the execution of a Deed of Absolute Sale on December 2,
1998 (1998 Deed of Absolute Sale).21 NCCP also alleged that in October of the same year, it entered
into a Joint Venture Agreement (JVA) with Pilipinas Norin Construction Development Corporation
(PNCDC), a company owned by Aguado’s parents, for the development of its real properties,
including Lot 18089, into a subdivision project, and as such, turned over its copy of OCT No. M-5955
to PNCDC.22 Upon knowledge of the purported sale of Lot 18089 to Aguado, Sabug, Jr. denied the
transaction and alleged forgery. Claiming that the Aguados23 and PNCDC conspired to defraud
NCCP, it prayed that PNCDC’s corporate veil be pierced and that the Aguados be ordered to pay the
amount of ₱38,092,002.00 representing the unrealized profit from the JVA.24 Moreover, NCCP
averred that Land Bank failed to exercise the diligence required to ascertain the true owners of Lot
18089. Hence, it further prayed that: (a) all acts of ownership and dominion over Lot 18089 that the
bank might have done or caused to be done be declared null and void; (b) it be declared the true
and real owners of Lot 18089; and (c) the Register of Deeds of Morong, Rizal be ordered to cancel
any and all certificates of title covering the lot, and a new one be issued in its name.25 In its answer,
Land Bank reiterated its stance that Lot 18089 was used as collateral for the ₱8,000,000.00 loan
obtained by the Countryside Rural Bank, Aguado, and one Bella Palasaga. There being no lien and/
or encumbrance annotated on its certificate of title, i.e., TCT No. M-115895, it cannot be held liable
for NCCP’s claims. Thus, it prayed for the dismissal of NCCP’s complaint.26

On September 7, 2005, Civil Case Nos. 02-022 and 05-003 were ordered consolidated.27

The RTC Ruling

After due proceedings, the RTC rendered a Decision28 dated July 8, 2008, dismissing the complaints
of Sps. Roque and NCCP.

With respect to Sps. Roque’s complaint, the RTC found that the latter failed to establish their
ownership over the subject portion, considering the following: (a) the supposed owners-vendors, i.e.,
Rivero, et al., who executed the 1977 Deed of Conditional Sale, had no proof of their title over Lot
18089; (b) the 1977 Deed of Conditional Sale was not registered with the Office of the Register of
Deeds;29 (c) the 1977 Deed of Conditional Sale is neither a deed of conveyance nor a transfer
document, as it only gives the holder the right to compel the supposed vendors to execute a deed of
absolute sale upon full payment of the consideration; (d) neither Sps. Roque nor the alleged owners-
vendors, i.e., Rivero, et al., have paid real property taxes in relation to Lot 18089; and (e) Sps.
Roque’s occupation of the subject portion did not ripen into ownership that can be considered
superior to the ownership of Land Bank.30 Moreover, the RTC ruled that Sps. Roque’s action for
reconveyance had already prescribed, having been filed ten (10) years after the issuance of OCT
No. M-5955.31

On the other hand, regarding NCCP’s complaint, the RTC observed that while it anchored its claim
of ownership over Lot 18089 on the 1998 Deed of Absolute Sale, the said deed was not annotated
on OCT No. M-5955. Neither was any certificate of title issued in its name nor did it take possession
of Lot 18089 or paid the real property taxes therefor. Hence, NCCP’s claim cannot prevail against
Land Bank’s title, which was adjudged by the RTC as an innocent purchaser for value. Also, the
RTC disregarded NCCP’s allegation that the signature of Sabug, Jr. on the 1999 Deed of Absolute
Sale in favor of Aguado was forged because his signatures on both instruments bear semblances of
similarity and appear genuine. Besides, the examiner from the National Bureau of Investigation, who
purportedly found that Sabug, Jr.’s signature thereon was spurious leading to the dismissal of a
criminal case against him, was not presented as a witness in the civil action.32

Finally, the RTC denied the parties’ respective claims for damages.33

The CA Ruling

On appeal, the Court of Appeals (CA) affirmed the foregoing RTC findings in a Decision34 dated May
12, 2010. While Land Bank was not regarded as a mortgagee/purchaser in good faith with respect to
the subject portion considering Sps. Roque’s possession thereof,35 the CA did not order its
reconveyance or segregation in the latter’s favor because of Sps. Roque’s failure to pay the
remaining balance of the purchase price. Hence, it only directed Land Bank to respect Sps. Roque’s
possession with the option to appropriate the improvements introduced thereon upon payment of
compensation.36

As regards NCCP, the CA found that it failed to establish its right over Lot 18089 for the following
reasons: (a) the sale to it of the lot by Sabug, Jr. was never registered; and (b) there is no showing
that it was in possession of Lot 18089 or any portion thereof from 1998. Thus, as far as NCCP is
concerned, Land Bank is a mortgagee/purchaser in good faith.37

Aggrieved, both Sps. Roque38 and NCCP39 moved for reconsideration but were denied by the CA in a
Resolution40 dated September 15, 2010, prompting them to seek further recourse before the Court.

The Issue Before the Court

The central issue in this case is whether or not the CA erred in not ordering the reconveyance of the
subject portion in Sps. Roque’s favor.

Sps. Roque maintain that the CA erred in not declaring them as the lawful owners of the subject
portion despite having possessed the same since the execution of the 1977 Deed of Conditional
Sale, sufficient for acquisitive prescription to set in in their favor.41 To bolster their claim, they also
point to the 1993 Joint Affidavit whereby Sabug, Jr. and Rivero acknowledged their ownership
thereof.42 Being the first purchasers and in actual possession of the disputed portion, they assert that
they have a better right over the 1,231- sq. m. portion of Lot 18089 and, hence, cannot be ousted
therefrom by Land Bank, which was adjudged as a ortgagee/purchaser in bad faith, pursuant to
Article 1544 of the Civil Code.43

In opposition, Land Bank espouses that the instant petition should be dismissed for raising questions
of fact, in violation of the proscription under Rule 45 of the Rules of Court which allows only pure
questions of law to be raised.44 Moreover, it denied that ownership over the subject portion had been
acquired by Sps. Roque who admittedly failed to pay the remaining balance of the purchase
price.45 Besides, Land Bank points out that Sps. Roque’s action for reconveyance had already
prescribed.46

Instead of traversing the arguments of Sps. Roque, NCCP, in its Comment47 dated December 19,
2011, advanced its own case, arguing that the CA erred in holding that it failed to establish its
claimed ownership over Lot 18089 in its entirety. Incidentally, NCCP’s appeal from the CA Decision
dated May 12, 2010 was already denied by the Court,48 and hence, will no longer be dealt with in this
case.

The Court’s Ruling

The petition lacks merit.

The essence of an action for reconveyance is to seek the transfer of the property which was
wrongfully or erroneously registered in another person’s name to its rightful owner or to one with a
better right.49 Thus, it is incumbent upon the aggrieved party to show that he has a legal claim on the
property superior to that of the registered owner and that the property has not yet passed to the
hands of an innocent purchaser for value.50

Sps. Roque claim that the subject portion covered by the 1977 Deed of Conditional Sale between
them and Rivero, et al. was wrongfully included in the certificates of title covering Lot 18089, and,
hence, must be segregated therefrom and their ownership thereof be confirmed. The salient portions
of the said deed state:

DEED OF CONDITIONAL SALE OF REAL PROPERTY

KNOW ALL MEN BY THESE PRESENTS:

xxxx

That for and in consideration of the sum of THIRTY THOUSAND SEVEN HUNDRED SEVENTY
FIVE PESOS (₱30,775.00), Philippine Currency, payable in the manner hereinbelow specified, the
VENDORS do hereby sell, transfer and convey unto the VENDEE, or their heirs, executors,
administrators, or assignors, that unsegregated portion of the above lot, x x x.

That the aforesaid amount shall be paid in two installments, the first installment which is in the
amount of __________ (₱15,387.50) and the balance in the amount of __________ (₱15,387.50),
shall be paid as soon as the described portion of the property shall have been registered under the
Land Registration Act and a Certificate of Title issued accordingly;

That as soon as the total amount of the property has been paid and the Certificate of Title has been
issued, an absolute deed of sale shall be executed accordingly;

x x x x51

Examining its provisions, the Court finds that the stipulation above-highlighted shows that the 1977
Deed of Conditional Sale is actually in the nature of a contract to sell and not one of sale contrary to
Sps. Roque’s belief.52 In this relation, it has been consistently ruled that where the seller promises to
execute a deed of absolute sale upon the completion by the buyer of the payment of the purchase
price, the contract is only a contract to sell even if their agreement is denominated as a Deed of
Conditional Sale,53 as in this case. This treatment stems from the legal characterization of a contract
to sell, that is, a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to
sell the subject property exclusively to the prospective buyer upon fulfillment of the condition agreed
upon, such as, the full payment of the purchase price.54 Elsewise stated, in a contract to sell,
ownership is retained by the vendor and is not to pass to the vendee until full payment of the
purchase price.55 Explaining the subject matter further, the Court, in Ursal v. CA,56 held that:

[I]n contracts to sell the obligation of the seller to sell becomes demandable only upon the happening
of the suspensive condition, that is, the full payment of the purchase price by the buyer. It is only
upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership
of the thing sold to the buyer. Prior to the existence of the contract of sale, the seller is not obligated
to transfer the ownership to the buyer, even if there is a contract to sell between them.

Here, it is undisputed that Sps. Roque have not paid the final installment of the purchase price.57 As
such, the condition which would have triggered the parties’ obligation to enter into and thereby
perfect a contract of sale in order to effectively transfer the ownership of the subject portion from the
sellers (i.e., Rivero et al.) to the buyers (Sps. Roque) cannot be deemed to have been fulfilled.
Consequently, the latter cannot validly claim ownership over the subject portion even if they had
made an initial payment and even took possession of the same.58

The Court further notes that Sps. Roque did not even take any active steps to protect their claim
over the disputed portion. This remains evident from the following circumstances appearing on
record: (a) the 1977 Deed of Conditional Sale was never registered; (b) they did not seek the
actual/physical segregation of the disputed portion despite their knowledge of the fact that, as early
as 1993, the entire Lot 18089 was registered in Sabug, Jr.’s name under OCT No. M-5955; and (c)
while they signified their willingness to pay the balance of the purchase price,59 Sps. Roque neither
compelled Rivero et al., and/or Sabug, Jr. to accept the same nor did they consign any amount to
the court, the proper application of which would have effectively fulfilled their obligation to pay the
purchase price.60 Instead, Sps. Roque waited 26 years, reckoned from the execution of the 1977
Deed of Conditional Sale, to institute an action for reconveyance (in 2003), and only after Lot 18089
was sold to Land Bank in the foreclosure sale and title thereto was consolidated in its name. Thus, in
view of the foregoing, Sabug, Jr. – as the registered owner of Lot 18089 borne by the grant of his
free patent application – could validly convey said property in its entirety to Aguado who, in turn,
mortgaged the same to Land Bank. Besides, as aptly observed by the RTC, Sps. Roque failed to
establish that the parties who sold the property to them, i.e., Rivero, et al., were indeed its true and
lawful owners.61 In fine, Sps. Roque failed to establish any superior right over the subject portion as
against the registered owner of Lot 18089, i.e., Land Bank, thereby warranting the dismissal of their
reconveyance action, without prejudice to their right to seek damages against the vendors, i.e.,
Rivero et al.62 As applied in the case of Coronel v. CA:63

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with, but
to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfilment of the suspensive condition such
as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and
the prospective buyer cannot seek the relief of reconveyance of the property.

There is no double sale in such case. Title to the property will transfer to the buyer after registration
1âw phi 1

because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for
damages by the intending buyer. (Emphasis supplied)
On the matter of double sales, suffice it to state that Sps. Roque’s reliance64 on Article 154465 of the
Civil Code has been misplaced since the contract they base their claim of ownership on is, as earlier
stated, a contract to sell, and not one of sale. In Cheng v. Genato,66 the Court stated the
circumstances which must concur in order to determine the applicability of Article 1544, none of
which are obtaining in this case, viz.:

(a) The two (or more) sales transactions in issue must pertain to exactly the same subject
matter, and must be valid sales transactions;

(b) The two (or more) buyers at odds over the rightful ownership of the subject matter must
each represent conflicting interests; and

(c) The two (or more) buyers at odds over the rightful ownership of the subject matter must
each have bought from the same seller.

Finally, regarding Sps. Roque’s claims of acquisitive prescription and reimbursement for the value of
the improvements they have introduced on the subject property,67 it is keenly observed that none of
the arguments therefor were raised before the trial court or the CA.68 Accordingly, the Court applies
the well-settled rule that litigants cannot raise an issue for the first time on appeal as this would
contravene the basic rules of fair play and justice. In any event, such claims appear to involve
questions of fact which are generally prohibited under a Rule 45 petition.69

With the conclusions herein reached, the Court need not belabor on the other points raised by the
parties, and ultimately finds it proper to proceed with the denial of the petition.

WHEREFORE, the petition is DENIED. The Decision dated May 12, 2010 and the Resolution dated
September 15, 2010 of the Court of Appeals in CAG.R. CV No. 92113 are hereby AFFIRMED.

SO ORDERED.

10
G.R. No. 188288 January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009
Decision1 of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586
entitled "Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion
of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding
US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July
1997 until fully paid, [₱]100,000.00 as moral damages, [₱]50,000.00 as exemplary damages,
[₱]40,000.00 as attorney’s fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision,
giving due course to the complaint for sum of money and damages filed by petitioners Fernando
Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses Viloria, against
respondent Continental Airlines, Inc. (CAI). As culled from the records, below are the facts giving
rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his
wife, Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on
board Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency
called "Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to
Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were
no available seats at Amtrak, an intercity passenger train service provider in the United States. Per
the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to
San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or
August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully
booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando
opted to request for a refund. Mager, however, denied his request as the subject tickets are non-
refundable and the only option that Continental Airlines can offer is the re-issuance of new tickets
within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two
(2) seats with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound
Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there
are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then
purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling
her that she had misled them into buying the Continental Airlines tickets by misrepresenting that
Amtrak was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in
her position that the subject tickets are non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a
refund and alleging that Mager had deluded them into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint
had been referred to the Customer Refund Services of Continental Airlines at Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and
advised him that he may take the subject tickets to any Continental ticketing location for the re-
issuance of new tickets within two (2) years from the date they were issued. Continental Micronesia
informed Fernando that the subject tickets may be used as a form of payment for the purchase of
another Continental ticket, albeit with a re-issuance fee.5

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to
have the subject tickets replaced by a single round trip ticket to Los Angeles, California under his
name. Therein, Fernando was informed that Lourdes’ ticket was non-transferable, thus, cannot be
used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los
Angeles was US$1,867.40 so he would have to pay what will not be covered by the value of his San
Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no
longer wished to have them replaced. In addition to the dubious circumstances under which the
subject tickets were issued, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a
round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to
use Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets with legal interest from July 21,
1997 and to pay ₱1,000,000.00 as moral damages, ₱500,000.00 as exemplary damages and
₱250,000.00 as attorney’s fees.7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the
subject tickets are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes’ name
for the purchase of a round trip ticket to Los Angeles since the same is non-transferable; (c) as
Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents
did not act in bad faith as to entitle Spouses Viloria to moral and exemplary damages and attorney’s
fees. CAI also invoked the following clause printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s
conditions of carriage and related regulations which are made part hereof (and are available on
application at the offices of carrier), except in transportation between a place in the United States or
Canada and any place outside thereof to which tariffs in force in those countries apply.8

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability
and non-refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria
are entitled to a refund in view of Mager’s misrepresentation in obtaining their consent in the
purchase of the subject tickets.9 The relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in
presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via
AMTRAK, but defendant’s agent misled him into purchasing Continental Airlines tickets instead on
the fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not
specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline
tickets on Ms. Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further
relied on and exploited plaintiff Fernando’s need and told him that they must book a flight
immediately or risk not being able to travel at all on the couple’s preferred date. Unfortunately,
plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for baiting trusting
customers."10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence,
bound by her bad faith and misrepresentation. As far as the RTC is concerned, there is no issue as
to whether Mager was CAI’s agent in view of CAI’s implied recognition of her status as such in its
March 24, 1998 letter.

The act of a travel agent or agency being involved here, the following are the pertinent New Civil
Code provisions on agency:

Art. 1868. By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter.

Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.

Agency may be oral, unless the law requires a specific form.

As its very name implies, a travel agency binds itself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. This court takes
judicial notice of the common services rendered by travel agencies that represent themselves as
such, specifically the reservation and booking of local and foreign tours as well as the issuance of
airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21,
1997 were no different from those offered in any other travel agency. Defendant airline impliedly if
not expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter
dated March 24, 1998 – an obvious attempt to assuage plaintiffs spouses’ hurt feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the
subject tickets within two (2) years from their date of issue when it charged Fernando with the
amount of US$1,867.40 for a round trip ticket to Los Angeles and when it refused to allow Fernando
to use Lourdes’ ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue. When defendant airline
still charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00
for the unused tickets when the same were presented within two (2) years from date of issue,
defendant airline exhibited callous treatment of passengers.12

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable
for Mager’s act in the absence of any proof that a principal-agent relationship existed between CAI
and Holiday Travel. According to the CA, Spouses Viloria, who have the burden of proof to establish
the fact of agency, failed to present evidence demonstrating that Holiday Travel is CAI’s agent.
Furthermore, contrary to Spouses Viloria’s claim, the contractual relationship between Holiday
Travel and CAI is not an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing
agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from
this premise, they contend that Continental Airlines should be held liable for the acts of Mager. The
trial court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to
do something in representation or on behalf of another, with the consent or authority of the latter.
The elements of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for him/herself; and (4) the agent acts within the scope of his/her
authority. As the basis of agency is representation, there must be, on the part of the principal, an
actual intention to appoint, an intention naturally inferable from the principal’s words or actions. In
the same manner, there must be an intention on the part of the agent to accept the appointment and
act upon it. Absent such mutual intent, there is generally no agency. It is likewise a settled rule that
persons dealing with an assumed agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it. Agency is never presumed,
neither is it created by the mere use of the word in a trade or business name. We have perused the
evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-
appellees that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of
legal prism, the transaction in issue was simply a contract of sale, wherein Holiday Travel buys
airline tickets from Continental Airlines and then, through its employees, Mager included, sells it at a
premium to clients.13

The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was
clearly printed on the face of the subject tickets, which constitute their contract with CAI. Therefore,
the grant of their prayer for a refund would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the
higher amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is
no compulsion for CAI to charge the lower amount of US$856.00, which Spouses Viloria claim to be
the fee charged by other airlines. The matter of fixing the prices for its services is CAI’s prerogative,
which Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business entities to peg the
premium of the services and items which they provide at a price which they deem fit, no matter how
expensive or exhorbitant said price may seem vis-à-vis those of the competing companies. The
Spouses Viloria may not intervene with the business judgment of Continental Airlines.14

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the
latter’s reversal of the RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses
Viloria claim that CAI acted in bad faith when it required them to pay a higher amount for a round trip
ticket to Los Angeles considering CAI’s undertaking to re-issue new tickets to them within the period
stated in their March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to
use Lourdes’ ticket to purchase a round trip to Los Angeles given that there is nothing in Lourdes’
ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform its
passengers of the terms and conditions of their contract and passengers cannot be bound by such
terms and conditions which they are not made aware of. Also, the subject contract of carriage is a
contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably, the
petitioners are no longer questioning the validity of the subject contracts and limited its claim for a
refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its
willingness to issue new tickets to them and to credit the value of the subject tickets against the
value of the new ticket Fernando requested. CAI argued that Spouses Viloria’s sole basis to claim
that the price at which CAI was willing to issue the new tickets is unconscionable is a piece of
hearsay evidence – an advertisement appearing on a newspaper stating that airfares from Manila to
Los Angeles or San Francisco cost US$818.00.15 Also, the advertisement pertains to airfares in
September 2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to
apply the value of the subject tickets for the purchase of a new one.16 CAI likewise argued that it did
not undertake to protect Spouses Viloria from any changes or fluctuations in the prices of airline
tickets and its only obligation was to apply the value of the subject tickets to the purchase of the
newly issued tickets.

With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject
tickets and that the terms and conditions that are printed on them are ambiguous, CAI denies any
ambiguity and alleged that its representative informed Fernando that the subject tickets are non-
transferable when he applied for the issuance of a new ticket. On the other hand, the word "non-
refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-
agency relationship exists between them. As an independent contractor, Holiday Travel was without
capacity to bind CAI.

Issues

To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses
Viloria have the right to the reliefs they prayed for, this Court deems it necessary to resolve the
following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI
bound by the acts of Holiday Travel’s agents and employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can
the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent
as to vitiate the consent of Spouse Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and non-
refundable?
 e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles
requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the
value of the subject tickets in the purchase of new ones when it refused to allow Fernando to
use Lourdes’ ticket and in charging a higher price for a round trip ticket to Los Angeles?

This Court’s Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court to review and
re-examine the evidence presented by the parties below, this Court takes exception to the general
rule that the CA’s findings of fact are conclusive upon Us and our jurisdiction is limited to the review
of questions of law. It is well-settled to the point of being axiomatic that this Court is authorized to
resolve questions of fact if confronted with contrasting factual findings of the trial court and appellate
court and if the findings of the CA are contradicted by the evidence on record.17

According to the CA, agency is never presumed and that he who alleges that it exists has the burden
of proof. Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short
of indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday
Travel is one of its agents. Furthermore, in erroneously characterizing the contractual relationship
between CAI and Holiday Travel as a contract of sale, the CA failed to apply the fundamental civil
law principles governing agency and differentiating it from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency
and spelled out the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts within the scope of his authority. 1avvphi1

Agency is basically personal, representative, and derivative in nature. The authority of the agent to
act emanates from the powers granted to him by his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts
himself."19

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and
second elements are present as CAI does not deny that it concluded an agreement with Holiday
Travel, whereby Holiday Travel would enter into contracts of carriage with third persons on CAI’s
behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a
representative capacity and it is CAI and not Holiday Travel who is bound by the contracts of
carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering
that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to
it. In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel
executed with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation.
That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its behalf is
easily discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly
recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When
Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not
deny that Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel
the power and authority to conclude contracts of carriage on its behalf. As clearly extant from the
records, CAI recognized the validity of the contracts of carriage that Holiday Travel entered into with
Spouses Viloria and considered itself bound with Spouses Viloria by the terms and conditions
thereof; and this constitutes an unequivocal testament to Holiday Travel’s authority to act as its
agent. This Court cannot therefore allow CAI to take an altogether different position and deny that
Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice
that may result from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s
acts in recognition of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good
faith and the avoidance of harm that will befall an innocent party due to its injurious reliance, the
failure to apply it in this case would result in gross travesty of justice.20 Estoppel bars CAI from
making such denial.

As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied
from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority."

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather
peculiar that the CA had branded the contractual relationship between CAI and Holiday Travel as
one of sale. The distinctions between a sale and an agency are not difficult to discern and this Court,
as early as 1970, had already formulated the guidelines that would aid in differentiating the two (2)
contracts. In Commissioner of Internal Revenue v. Constantino,21 this Court extrapolated that the
primordial differentiating consideration between the two (2) contracts is the transfer of ownership or
title over the property subject of the contract. In an agency, the principal retains ownership and
control over the property and the agent merely acts on the principal’s behalf and under his
instructions in furtherance of the objectives for which the agency was established. On the other
hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient may do with the
property as he pleases.

Since the company retained ownership of the goods, even as it delivered possession unto the dealer
for resale to customers, the price and terms of which were subject to the company's control, the
relationship between the company and the dealer is one of agency, tested under the following
criterion:

"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has
led to the establishment of rules by the application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who
must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency
to sell is the delivery to an agent, not as his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the price, and terms, demand and receive
the proceeds less the agent's commission upon sales made. 1 Mechem on Sales, Sec. 43; 1
Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1." (Salisbury v. Brooks, 94
SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is
a sale is certainly confounding, considering that CAI is the one bound by the contracts of carriage
embodied by the tickets being sold by Holiday Travel on its behalf. It is undisputed that CAI and not
Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third
persons who desire to travel via Continental Airlines, and this conclusively indicates the existence of
a principal-agent relationship. That the principal is bound by all the obligations contracted by the
agent within the scope of the authority granted to him is clearly provided under Article 1910 of the
Civil Code and this constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for the tort committed
by its agent’s employees if it has been established by preponderance of evidence that the
principal was also at fault or negligent or that the principal exercise control and supervision
over them.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the
fault or negligence of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals,
et al.,23 CAI argues that it cannot be held liable for the actions of the employee of its ticketing agent in
the absence of an employer-employee relationship.

An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company
is not completely exonerated from any liability for the tort committed by its agent’s employees. A
prior determination of the nature of the passenger’s cause of action is necessary. If the passenger’s
cause of action against the airline company is premised on culpa aquiliana or quasi-delict for a tort
committed by the employee of the airline company’s agent, there must be an independent showing
that the airline company was at fault or negligent or has contributed to the negligence or tortuous
conduct committed by the employee of its agent. The mere fact that the employee of the airline
company’s agent has committed a tort is not sufficient to hold the airline company liable. There is
no vinculum juris between the airline company and its agent’s employees and the contractual
relationship between the airline company and its agent does not operate to create a juridical tie
between the airline company and its agent’s employees. Article 2180 of the Civil Code does not
make the principal vicariously liable for the tort committed by its agent’s employees and the
principal-agency relationship per se does not make the principal a party to such tort; hence, the need
to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s cause of action for damages against the airline company is
based on contractual breach or culpa contractual, it is not necessary that there be evidence of the
airline company’s fault or negligence. As this Court previously stated in China Air Lines and
reiterated in Air France vs. Gillego,24 "in an action based on a breach of contract of carriage, the
aggrieved party does not have to prove that the common carrier was at fault or was negligent. All
that he has to prove is the existence of the contract and the fact of its non-performance by the
carrier."

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is
clearly one of tort or quasi-delict, there being no pre-existing contractual relationship between them.
Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability can be
substantiated. Apart from their claim that CAI must be held liable for Mager’s supposed fraud
because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that CAI was a
party or had contributed to Mager’s complained act either by instructing or authorizing Holiday Travel
and Mager to issue the said misrepresentation.
It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and
conditions of the subject contracts, which Mager entered into with them on CAI’s behalf, in order to
deny Spouses Viloria’s request for a refund or Fernando’s use of Lourdes’ ticket for the re-issuance
of a new one, and simultaneously claim that they are not bound by Mager’s supposed
misrepresentation for purposes of avoiding Spouses Viloria’s claim for damages and maintaining the
validity of the subject contracts. It may likewise be argued that CAI cannot deny liability as it
benefited from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations
as CAI’s agent.

However, a person’s vicarious liability is anchored on his possession of control, whether absolute or
limited, on the tortfeasor. Without such control, there is nothing which could justify extending the
liability to a person other than the one who committed the tort. As this Court explained in Cangco v.
Manila Railroad Co.:25

With respect to extra-contractual obligation arising from negligence, whether of act or

omission, it is competent for the legislature to elect — and our Legislature has so elected — to limit
such liability to cases in which the person upon whom such an obligation is imposed is morally
culpable or, on the contrary, for reasons of public policy, to extend that liability, without regard
to the lack of moral culpability, so as to include responsibility for the negligence of those
persons whose acts or omissions are imputable, by a legal fiction, to others who are in a
position to exercise an absolute or limited control over them. The legislature which adopted our
Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to
cases in which moral culpability can be directly imputed to the persons to be charged. This moral
responsibility may consist in having failed to exercise due care in one's own acts, or in having failed
to exercise due care in the selection and control of one's agent or servants, or in the control of
persons who, by reasons of their status, occupy a position of dependency with respect to the person
made liable for their conduct.26 (emphasis supplied)

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager
by preponderant evidence. The existence of control or supervision cannot be presumed and CAI is
under no obligation to prove its denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled
in Jayme v. Apostol,28 that:

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment
relationship. The defendant is under no obligation to prove the negative averment. This Court said:

"It is an old and well-settled rule of the courts that the burden of proving the action is upon the
plaintiff, and that if he fails satisfactorily to show the facts upon which he bases his claim, the
defendant is under no obligation to prove his exceptions. This [rule] is in harmony with the provisions
of Section 297 of the Code of Civil Procedure holding that each party must prove his own affirmative
allegations, etc."29 (citations omitted)

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s
employees or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s supposed
misrepresentation.

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses
Viloria are not entitled to a refund. Mager’s statement cannot be considered a causal fraud
that would justify the annulment of the subject contracts that would oblige CAI to indemnify
Spouses Viloria and return the money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered voidable and may be
annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled,
the parties are obliged under Article 1398 of the same Code to restore to each other the things
subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to
the subject contracts was supposedly secured by Mager through fraudulent means, it is plainly
apparent that their demand for a refund is tantamount to seeking for an annulment of the subject
contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Mager’s
alleged misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an
agency, whether fraud attended the execution of a contract is factual in nature and this Court, as
discussed above, may scrutinize the records if the findings of the CA are contrary to those of the
RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the making of the
contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as "a deception employed by
one party prior to or simultaneous to the contract in order to secure the consent of the other."32

Also, fraud must be serious and its existence must be established by clear and convincing evidence.
As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is
not adequate:

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which without them, he would not have agreed
to.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full,
clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be
serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person
into error; that which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the personal conditions of the
victim."34

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria
has not been satisfactorily established as causal in nature to warrant the annulment of the subject
contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence that Mager’s
statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed
available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with
Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them
otherwise.
This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an
Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI
correctly pointed out and as Fernando admitted, it was possible that during the intervening period of
three (3) weeks from the time Fernando purchased the subject tickets to the time he talked to said
Amtrak employee, other passengers may have cancelled their bookings and reservations with
Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud cannot
be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that
is. Under the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that
"private transactions have been fair and regular."35 Spouses Viloria failed to overcome this
presumption.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the
subject contracts.

Even assuming that Mager’s representation is causal fraud, the subject contracts have been
impliedly ratified when Spouses Viloria decided to exercise their right to use the subject tickets for
the purchase of new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action
to annul a voidable contract."

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should execute an act which necessarily
implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing
approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses
Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking
to replace the subject tickets with a round trip ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on
contractual breach. Resolution, the action referred to in Article 1191, is based on the defendant’s
breach of faith, a violation of the reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao
Corrugated Carton Corporation,38 this Court ruled that a claim for a reimbursement in view of the
other party’s failure to comply with his obligations under the contract is one for rescission or
resolution.

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two
(2) inconsistent remedies. In resolution, all the elements to make the contract valid are present; in
annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In
resolution, the defect is in the consummation stage of the contract when the parties are in the
process of performing their respective obligations; in annulment, the defect is already present at the
time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of
rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts,
forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights
or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are
enjoined from taking inconsistent positions.39

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated consent, the next
question is: "Do Spouses Viloria have the right to rescind the contract on the ground of CAI’s
supposed breach of its undertaking to issue new tickets upon surrender of the subject tickets?"

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it
refused to apply the value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los
Angeles and in requiring him to pay an amount higher than the price fixed by other airline
companies.

In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of
payment toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee
($50.00, per ticket, for tickets purchased prior to October 30, 1997)."

Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the
non-transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter
supports the position of Spouses Viloria, that each of them can use the ticket under their name for
the purchase of new tickets whether for themselves or for some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject
tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed
that he cannot use the ticket in Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain
reading of the provision printed on the subject tickets stating that "[t]o the extent not in conflict with
the foregoing carriage and other services performed by each carrier are subject to: (a) provisions
contained in this ticket, x x x (iii) carrier’s conditions of carriage and related regulations which are
made part hereof (and are available on application at the offices of carrier) x x x." As a common
carrier whose business is imbued with public interest, the exercise of extraordinary diligence
requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and
conditions governing their contract of carriage. CAI is proscribed from taking advantage of any
ambiguity in the contract of carriage to impute knowledge on its passengers of and demand
compliance with a certain condition or undertaking that is not clearly stipulated. Since the prohibition
on transferability is not written on the face of the subject tickets and CAI failed to inform Spouses
Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment for Fernando’s
purchase of a new ticket.

CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a
casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute.
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but
only for such substantial and fundamental violations as would defeat the very object of the parties in
making the agreement.40 Whether a breach is substantial is largely determined by the attendant
circumstances.41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the
purchase of a new ticket is unjustified as the non-transferability of the subject tickets was not clearly
stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is
not an essential part of the underlying contracts and CAI’s failure to comply is not essential to its
fulfillment of its undertaking to issue new tickets upon Spouses Viloria’s surrender of the subject
tickets. This Court takes note of CAI’s willingness to perform its principal obligation and this is to
apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila
and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial
payment as the case may be for the purchase of any ticket, albeit under her name and for her
exclusive use. In other words, CAI’s willingness to comply with its undertaking under its March 24,
1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-
transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted
for the fact that their agreement failed to consummate and no new ticket was issued to Fernando.
Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles
should be priced at around $856.00 and refuse to pay the difference between the price of the subject
tickets and the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had
obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender of the
subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be
used as a form of payment toward the purchase of another Continental ticket"42 and there is nothing
in it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the
prices of tickets or that the surrender of the subject tickets will be considered as full payment for any
ticket that the petitioners intend to buy regardless of actual price and destination. The CA was
correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its services and it
may not be compelled to observe and maintain the prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does
not preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an
amount it deems proper and which does not provide Spouses Viloria an excuse not to pay such
price, albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied
that Spouses Viloria had the concomitant obligation to pay whatever is not covered by the value of
the subject tickets whether or not the subject tickets are transferable or not. 1avv phi 1

There is also no showing that Spouses Viloria were discriminated against in bad faith by being
charged with a higher rate. The only evidence the petitioners presented to prove that the price of a
round trip ticket between Manila and Los Angeles at that time was only $856.00 is a newspaper
advertisement for another airline company, which is inadmissible for being "hearsay evidence, twice
removed." Newspaper clippings are hearsay if they were offered for the purpose of proving the truth
of the matter alleged. As ruled in Feria v. Court of Appeals,:44
[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only
inadmissible but without any probative value at all whether objected to or not, unless offered for a
purpose other than proving the truth of the matter asserted. In this case, the news article is
admissible only as evidence that such publication does exist with the tenor of the news therein
stated.45 (citations omitted)

The records of this case demonstrate that both parties were equally in default; hence, none of them
can seek judicial redress for the cancellation or resolution of the subject contracts and they are
therefore bound to their respective obligations thereunder. As the 1st sentence of Article 1192
provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the
first infractor shall be equitably tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each shall bear his
own damages. (emphasis supplied)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of
Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount,
which is not covered by the subject tickets. Moreover, the contract between them remains, hence,
CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their
surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not
covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that
is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his ₱17,000.00 debt within 3 years as stipulated,
they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue ₱17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral damages is
the absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil
Code requires evidence of bad faith and fraud and moral damages are generally not recoverable
in culpa contractual except when bad faith had been proven.48 The award of exemplary damages is
likewise not warranted. Apart from the requirement that the defendant acted in a wanton, oppressive
and malevolent manner, the claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.
11
G.R. No. L-24732 April 30, 1968

PIO SIAN MELLIZA, petitioner,

vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.

Cornelio P. Ravena for petitioner.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in
Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land
were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters.

On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot
1214, to serve as site for the municipal hall. 1 The donation was however revoked by the parties for
the reason that the area donated was found inadequate to meet the requirements of the
development plan of the municipality, the so-called "Arellano Plan". 2

Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-
B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3.
As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot
1214-B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13,
with 4,135 square meters, became Lot 1214-D.

On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the
following:

Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS
(P6,422.00), moneda filipina que por la presente declaro haber recibido a mi entera
satisfaccion del Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a
dicho Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a continuacion se
especifican a saber: el lote No. 5 en toda su extension; una porcion de 7669 metros
cuadrados del lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del
piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una
porcion de 10,788 metros cuadrados del lote No. 1214 — cuya porcion esta designada como
sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.

Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta
difinitiva, y que para la mejor identificacion de los lotes y porciones de los mismos que son
objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el
 Gobierno Municipal de Iloilo para la construccion de avenidas, parques y City Hall site del
Municipal Government Center de iloilo, segun el plano Arellano.

On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian
Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate of Title
No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion of land to
Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his name.
Annotated at the back of Pio Sian Melliza's title certificate was the following:

... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-
B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per
instrument dated November 15, 1932....

On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city
hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site
donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square
meters, more or less.

Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio
Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of
the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City
did not have funds (p. 9, Appellant's Brief.)

The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering
the three lots, Nos. 1214-B, 1214-C and 1214-D.

On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against
Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value.

The defendants answered, contending that Lot 1214-B was included in the public instrument
executed by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial,
the Court of First Instance rendered its decision on August 15, 1957, dismissing the complaint. Said
court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in
the conveyance Lot 1214-B. In support of this conclusion, it referred to the portion of the instrument
stating:

Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta
difinitiva, y que para la major identificacion de los lotes y porciones de los mismos que son
objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el
Gobierno municipal de Iloilo para la construccion de avenidas, parques y City Hall site del
Municipal Government Center de Iloilo, segun el plano Arellano.

and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such
other portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it
held that Iloilo City had the right to donate Lot 1214-B to the U.P.

Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of
Appeals affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by
Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included
whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it
ordered the remand of the case for reception of evidence to determine the area actually taken by
Iloilo City for the construction of avenues, parks and for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the
public instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square
meters were the portions of Lot 1214 included in the sale; that the purpose of the second paragraph,
relied upon for a contrary interpretation, was only to better identify the lots sold and none other; and
that to follow the interpretation accorded the deed of sale by the Court of Appeals and the Court of
First Instance would render the contract invalid because the law requires as an essential element of
sale, a "determinate" object (Art. 1445, now 1448, Civil Code).

Appellees, on the other hand, contend that the present appeal improperly raises only questions of
fact. And, further, they argue that the parties to the document in question really intended to include
Lot 1214-B therein, as shown by the silence of the vendor after Iloilo City exercised ownership
thereover; that not to include it would have been absurd, because said lot is contiguous to the others
admittedly included in the conveyance, lying directly in front of the city hall, separating that building
from Lots 1214-C and 1214-D, which were included therein. And, finally, appellees argue that the
sale's object was determinate, because it could be ascertained, at the time of the execution of the
contract, what lots were needed by Iloilo municipality for avenues, parks and city hall site "according
to the Arellano Plan", since the Arellano plan was then already in existence.

The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932.
And interpretation of such contract involves a question of law, since the contract is in the nature of
law as between the parties and their successors-in-interest.

At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to
Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was
included, in the instrument subsequently executed by Juliana Melliza of her remaining interest in Lot
1214 to Remedios Sian Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian
Melliza. It should be stressed, also, that the sale to Remedios Sian Villanueva — from which Pio
Sian Melliza derived title — did not specifically designate Lot 1214-B, but only such portions of Lot
1214 as were not included in the previous sale to Iloilo municipality (Stipulation of Facts, par. 5,
Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to
Iloilo municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio
Sian Melliza.

The point at issue here is then the true intention of the parties as to the object of the public
instrument Exhibit "D". Said issue revolves on the paragraph of the public instrument aforequoted
and its purpose, i.e., whether it was intended merely to further describe the lots already specifically
mentioned, or whether it was intended to cover other lots not yet specifically mentioned.

First of all, there is no question that the paramount intention of the parties was to provide Iloilo
municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with
its avenues and parks. For this matter, a previous donation for this purpose between the same
parties was revoked by them, because of inadequacy of the area of the lot donated.

Secondly, reading the public instrument in toto, with special reference to the paragraphs describing
the lots included in the sale, shows that said instrument describes four parcels of land by their lot
numbers and area; and then it goes on to further describe, not only those lots already mentioned,
but the lots object of the sale, by stating that said lots are the ones needed for the construction of the
city hall site, avenues and parks according to the Arellano plan. If the parties intended merely to
cover the specified lots — Lots 2, 5, 1214-C and 1214-D, there would scarcely have been any need
for the next paragraph, since these lots are already plainly and very clearly described by their
respective lot number and area. Said next paragraph does not really add to the clear description that
was already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions of land
contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed
for the purpose at hand, the construction of the city hall site.

Appellant however challenges this view on the ground that the description of said other lots in the
aforequoted second paragraph of the public instrument would thereby be legally insufficient,
because the object would allegedly not be determinate as required by law.

Such contention fails on several counts. The requirement of the law that a sale must have for its
object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of
the sale is capable of being made determinate without the necessity of a new or further agreement
between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of
some of the lots plus the statement that the lots object of the sale are the ones needed for city hall
site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time
of the execution of the contract, for rendering determinate said lots without the need of a new and
further agreement of the parties.

The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city
hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under
said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not
fixed until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932.
Appellant however fails to consider that the area needed under that plan for city hall site was then
already known; that the specific mention of some of the lots covered by the sale in effect fixed the
corresponding location of the city hall site under the plan; that, therefore, considering the said lots
specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its
area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of
the portions of land contiguous to those specifically named, were needed for the construction of the
city hall site.

And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D,
admittedly covered by the public instrument. It is stipulated that, after execution of the contract
Exhibit "D", the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in
the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the
notary public of the public instrument. As such, he was aware of its terms. Said instrument was also
registered with the Register of Deeds and such registration was annotated at the back of the
corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that
Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of
them; that knowing so, he should have examined the Arellano plan in relation to the public
instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the
Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot
1214-B as part of the city hall site conveyed under that public instrument, and raised proper
objections thereto if it was his position that the same was not included in the same. The fact remains
that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object
to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore,
principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed
included in the conveyance in favor of Iloilo municipality, now Iloilo City.

WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First
Instance, and the complaint in this case is dismissed. No costs. So ordered.
12
G.R. No. L-24732 April 30, 1968

PIO SIAN MELLIZA, petitioner,

vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.

Cornelio P. Ravena for petitioner.

Office of the Solicitor General for respondents.

BENGZON, J.P., J.:

Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in
Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land
were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters.

On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot
1214, to serve as site for the municipal hall. 1 The donation was however revoked by the parties for
the reason that the area donated was found inadequate to meet the requirements of the
development plan of the municipality, the so-called "Arellano Plan". 2

Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-
B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3.
As approved by the Bureau of Lands, Lot 1214-B-1 with 4,562 square meters, became known as Lot
1214-B; Lot 1214-B-2, with 6,653 square meters, was designated as Lot 1214-C; and Lot 1214-B-13,
with 4,135 square meters, became Lot 1214-D.

On November 15, 1932 Juliana Melliza executed an instrument without any caption containing the
following:

Que en consideracion a la suma total de SEIS MIL CUATRO CIENTOS VEINTIDOS PESOS
(P6,422.00), moneda filipina que por la presente declaro haber recibido a mi entera
satisfaccion del Gobierno Municipal de Iloilo, cedo y traspaso en venta real y difinitiva a
dicho Gobierno Municipal de Iloilo los lotes y porciones de los mismos que a continuacion se
especifican a saber: el lote No. 5 en toda su extension; una porcion de 7669 metros
cuadrados del lote No. 2, cuya porcion esta designada como sub-lotes Nos. 2-B y 2-C del
piano de subdivision de dichos lotes preparado por la Certeza Surveying Co., Inc., y una
porcion de 10,788 metros cuadrados del lote No. 1214 — cuya porcion esta designada como
sub-lotes Nos. 1214-B-2 y 1214-B-3 del mismo plano de subdivision.

Asimismo nago constar que la cesion y traspaso que ariba se mencionan es de venta
difinitiva, y que para la mejor identificacion de los lotes y porciones de los mismos que son
objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el
 Gobierno Municipal de Iloilo para la construccion de avenidas, parques y City Hall site del
Municipal Government Center de iloilo, segun el plano Arellano.

On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian
Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate of Title
No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion of land to
Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his name.
Annotated at the back of Pio Sian Melliza's title certificate was the following:

... (a) that a portion of 10,788 square meters of Lot 1214 now designated as Lots Nos. 1214-
B-2 and 1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per
instrument dated November 15, 1932....

On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city
hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site
donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square
meters, more or less.

Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio
Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of
the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City
did not have funds (p. 9, Appellant's Brief.)

The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering
the three lots, Nos. 1214-B, 1214-C and 1214-D.

On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against
Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value.

The defendants answered, contending that Lot 1214-B was included in the public instrument
executed by Juliana Melliza in favor of Iloilo municipality in 1932. After stipulation of facts and trial,
the Court of First Instance rendered its decision on August 15, 1957, dismissing the complaint. Said
court ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipality included in
the conveyance Lot 1214-B. In support of this conclusion, it referred to the portion of the instrument
stating:

Asimismo hago constar que la cesion y traspaso que arriba se mencionan es de venta
difinitiva, y que para la major identificacion de los lotes y porciones de los mismos que son
objeto de la presente, hago constar que dichos lotes y porciones son los que necesita el
Gobierno municipal de Iloilo para la construccion de avenidas, parques y City Hall site del
Municipal Government Center de Iloilo, segun el plano Arellano.

and ruled that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-D but also such
other portions of lots as were necessary for the municipal hall site, such as Lot 1214-B. And thus it
held that Iloilo City had the right to donate Lot 1214-B to the U.P.

Pio Sian Melliza appealed to the Court of Appeals. In its decision on May 19, 1965, the Court of
Appeals affirmed the interpretation of the Court of First Instance, that the portion of Lot 1214 sold by
Juliana Melliza was not limited to the 10,788 square meters specifically mentioned but included
whatever was needed for the construction of avenues, parks and the city hall site. Nonetheless, it
ordered the remand of the case for reception of evidence to determine the area actually taken by
Iloilo City for the construction of avenues, parks and for city hall site.
The present appeal therefrom was then taken to Us by Pio Sian Melliza. Appellant maintains that the
public instrument is clear that only Lots Nos. 1214-C and 1214-D with a total area of 10,788 square
meters were the portions of Lot 1214 included in the sale; that the purpose of the second paragraph,
relied upon for a contrary interpretation, was only to better identify the lots sold and none other; and
that to follow the interpretation accorded the deed of sale by the Court of Appeals and the Court of
First Instance would render the contract invalid because the law requires as an essential element of
sale, a "determinate" object (Art. 1445, now 1448, Civil Code).

Appellees, on the other hand, contend that the present appeal improperly raises only questions of
fact. And, further, they argue that the parties to the document in question really intended to include
Lot 1214-B therein, as shown by the silence of the vendor after Iloilo City exercised ownership
thereover; that not to include it would have been absurd, because said lot is contiguous to the others
admittedly included in the conveyance, lying directly in front of the city hall, separating that building
from Lots 1214-C and 1214-D, which were included therein. And, finally, appellees argue that the
sale's object was determinate, because it could be ascertained, at the time of the execution of the
contract, what lots were needed by Iloilo municipality for avenues, parks and city hall site "according
to the Arellano Plan", since the Arellano plan was then already in existence.

The appeal before Us calls for the interpretation of the public instrument dated November 15, 1932.
And interpretation of such contract involves a question of law, since the contract is in the nature of
law as between the parties and their successors-in-interest.

At the outset, it is well to mark that the issue is whether or not the conveyance by Juliana Melliza to
Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B. If not, then the same was
included, in the instrument subsequently executed by Juliana Melliza of her remaining interest in Lot
1214 to Remedios Sian Villanueva, who in turn sold what she thereunder had acquired, to Pio Sian
Melliza. It should be stressed, also, that the sale to Remedios Sian Villanueva — from which Pio
Sian Melliza derived title — did not specifically designate Lot 1214-B, but only such portions of Lot
1214 as were not included in the previous sale to Iloilo municipality (Stipulation of Facts, par. 5,
Record on Appeal, p. 23). And thus, if said Lot 1214-B had been included in the prior conveyance to
Iloilo municipality, then it was excluded from the sale to Remedios Sian Villanueva and, later, to Pio
Sian Melliza.

The point at issue here is then the true intention of the parties as to the object of the public
instrument Exhibit "D". Said issue revolves on the paragraph of the public instrument aforequoted
and its purpose, i.e., whether it was intended merely to further describe the lots already specifically
mentioned, or whether it was intended to cover other lots not yet specifically mentioned.

First of all, there is no question that the paramount intention of the parties was to provide Iloilo
municipality with lots sufficient or adequate in area for the construction of the Iloilo City hall site, with
its avenues and parks. For this matter, a previous donation for this purpose between the same
parties was revoked by them, because of inadequacy of the area of the lot donated.

Secondly, reading the public instrument in toto, with special reference to the paragraphs describing
the lots included in the sale, shows that said instrument describes four parcels of land by their lot
numbers and area; and then it goes on to further describe, not only those lots already mentioned,
but the lots object of the sale, by stating that said lots are the ones needed for the construction of the
city hall site, avenues and parks according to the Arellano plan. If the parties intended merely to
cover the specified lots — Lots 2, 5, 1214-C and 1214-D, there would scarcely have been any need
for the next paragraph, since these lots are already plainly and very clearly described by their
respective lot number and area. Said next paragraph does not really add to the clear description that
was already given to them in the previous one.
It is therefore the more reasonable interpretation, to view it as describing those other portions of land
contiguous to the lots aforementioned that, by reference to the Arellano plan, will be found needed
for the purpose at hand, the construction of the city hall site.

Appellant however challenges this view on the ground that the description of said other lots in the
aforequoted second paragraph of the public instrument would thereby be legally insufficient,
because the object would allegedly not be determinate as required by law.

Such contention fails on several counts. The requirement of the law that a sale must have for its
object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of
the sale is capable of being made determinate without the necessity of a new or further agreement
between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific mention of
some of the lots plus the statement that the lots object of the sale are the ones needed for city hall
site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time
of the execution of the contract, for rendering determinate said lots without the need of a new and
further agreement of the parties.

The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city
hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under
said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not
fixed until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932.
Appellant however fails to consider that the area needed under that plan for city hall site was then
already known; that the specific mention of some of the lots covered by the sale in effect fixed the
corresponding location of the city hall site under the plan; that, therefore, considering the said lots
specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its
area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of
the portions of land contiguous to those specifically named, were needed for the construction of the
city hall site.

And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D,
admittedly covered by the public instrument. It is stipulated that, after execution of the contract
Exhibit "D", the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in
the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the
notary public of the public instrument. As such, he was aware of its terms. Said instrument was also
registered with the Register of Deeds and such registration was annotated at the back of the
corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that
Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of
them; that knowing so, he should have examined the Arellano plan in relation to the public
instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the
Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot
1214-B as part of the city hall site conveyed under that public instrument, and raised proper
objections thereto if it was his position that the same was not included in the same. The fact remains
that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object
to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore,
principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed
included in the conveyance in favor of Iloilo municipality, now Iloilo City.

WHEREFORE, the decision appealed from is affirmed insofar as it affirms that of the Court of First
Instance, and the complaint in this case is dismissed. No costs. So ordered.
13
G.R. No. L-6584 October 16, 1911

INCHAUSTI AND CO., plaintiff-appellant,

vs.
ELLIS CROMWELL, Collector of Internal Revenue, defendant-appellee.

Haussermann, Cohn & Fisher, for appellant.

Acting Attorney-General Harvey, for appellee.

MORELAND, J.:

This is an appeal by the plaintiff from a judgment of the Court of First Instance of the city of Manila,
the Hon. Simplicio del Rosario presiding, dismissing the complaint upon the merits after trial, without
costs.

The facts presented to this court are agreed upon by both parties, consisting, in so far as they are
material to a decision of the case, in the following:

III. That the plaintiff firm for many years past has been and now is engaged in the business
of buying and selling at wholesale hemp, both for its own account and on commission.

IV. That it is customary to sell hemp in bales which are made by compressing the loose fiber
by means of presses, covering two sides of the bale with matting, and fastening it by means
of strips of rattan; that the operation of bailing hemp is designated among merchants by the
word "prensaje."

V. That in all sales of hemp by the plaintiff firm, whether for its own account or on
commission for others, the price is quoted to the buyer at so much per picul, no mention
being made of bailing; but with the tacit understanding, unless otherwise expressly agreed,
that the hemp will be delivered in bales and that, according to the custom prevailing among
hemp merchants and dealers in the Philippine Islands, a charge, the amount of which
depends upon the then prevailing rate, is to be made against the buyer under the
denomination of "prensaje." That this charge is made in the same manner in all cases, even
when the operation of bailing was performed by the plaintiff or by its principal long before the
contract of sale was made. Two specimens of the ordinary form of account used in these
operations are hereunto appended, marked Exhibits A and B, respectively, and made a part
hereof.
VI. That the amount of the charge made against hemp buyers by the plaintiff firm and other
sellers of hemp under the denomination of "prensaje" during the period involved in this
litigation was P1.75 per bale; that the average cost of the rattan and matting used on each
bale of hemp is fifteen (15) centavos and that the average total cost of bailing hemp is one
(1) peso per bale.

VII. That insurance companies in the Philippine Islands, in estimating the insurable value of
hemp always add to the quoted price of same the charge made by the seller under the
denomination of "prensaje."

VII. That the average weight of a bale of hemp is two (2) piculs (126.5 kilograms).

IX. That between the first day of January, 1905, and the 31st day of March, 1910, the plaintiff
firm, in accordance with the custom mentioned in paragraph V hereof, collected and
received, under the denomination of "prensaje," from purchasers of hemp sold by the said
firm for its own account, in addition to the price expressly agreed upon for the said hemp,
sums aggregating P380,124.35; and between the 1st day of October, 1908, and the 1st day
of March, 1910, collected for the account of the owners of hemp sold by the plaintiff firm in
Manila on commission, and under the said denomination of "prensaje," in addition to the
price expressly agreed upon the said hemp, sums aggregating P31,080.

X. That the plaintiff firm in estimating the amount due it as commissions on sales of hemp
made by it for its principals has always based the said amount on the total sum collected
from the purchasers of the hemp, including the charge made in each case under the
denomination of "prensaje."

XI. That the plaintiff has always paid to the defendant or to his predecessor in the office of
the Collector of Internal Revenue the tax collectible under the provisions of section 139 of
Act No. 1189 upon the selling price expressly agreed upon for all hemp sold by the plaintiff
firm both for its own account and on commission, but has not, until compelled to do so as
hereinafter stated, paid the said tax upon sums received from the purchaser of such hemp
under the denomination of "prensaje."

XII. That of the 29th day of April, 1910, the defendant, acting in his official capacity as
Collector of Internal Revenue of the Philippine Islands, made demand in writing upon the
plaintiff firm for the payment within the period of five (5) days of the sum of P1,370.68 as a
tax of one third of one per cent on the sums of money mentioned in Paragraph IX hereof,
and which the said defendant claimed to be entitled to receive, under the provisions of the
said section 139 of Act No. 1189, upon the said sums of money so collected from purchasers
of hemp under the denomination of "prensaje."

XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the defendant under protest
the said sum of P1,370.69, and on the same date appealed to the defendant as Collector of
Internal Revenue, against the ruling by which the plaintiff firm was required to make said
payment, but defendant overruled said protest and adversely decided said appeal, and
refused and still refuses to return to plaintiff the said sum of P1,370.68 or any part thereof.
1aw phil.net

XIV. Upon the facts above set forth t is contended by the plaintiff that the tax of P1,370.68
assessed by the defendant upon the aggregate sum of said charges made against said
purchasers of hemp by the plaintiff during the period in question, under the denomination of
"prensaje" as aforesaid, namely, P411,204.35, is illegal upon the ground that the said charge
does not constitute a part of the selling price of the hemp, but is a charge made for the
 service of baling the hemp, and that the plaintiff firm is therefore entitled to recover of the
defendant the said sum of P1,370.68 paid to him under protest, together with all interest
thereon at the legal rate since payment, and the costs of this action.

Upon the facts above stated it is the contention of the defendant that the said charge made
under the denomination of "prensaje" is in truth and in fact a part of the gross value of the
hemp sold and of its actual selling price, and that therefore the tax imposed by section 139 of
Act No. 1189 lawfully accrued on said sums, that the collection thereof was lawfully and
properly made and that therefore the plaintiff is not entitled to recover back said sum or any
part thereof; and that the defendant should have judgment against plaintiff for his costs.

Under these facts we are of the opinion that the judgment of the court below was right. It is one of
the stipulations in the statement of facts that it is customary to sell hemp in bales, and that the price
quoted in the market for hemp per picul is the price for the hemp baled. The fact is that among large
dealers like the plaintiff in this case it is practically impossible to handle hemp without its being
baled, and it is admitted by the statement of facts, as well as demonstrated by the documentary
proof introduced in the case, that if the plaintiff sold a quality of hemp it would be the under standing,
without words, that such hemp would be delivered in bales, and that the purchase price would
include the cost and expense of baling. In other words, it is the fact as stipulated, as well as it would
be the fact of necessity, that in all dealings in hemp in the general market the selling price consists of
the value of the hemp loose plus the cost and expense of putting it into marketable form. In the sales
made by the plaintiff, which are the basis of the controversy here, there were n services performed
by him for his vendee. There was agreement that services should be performed. Indeed, at the time
of such sales it was not known by the vendee whether the hemp was then actually baled or not. All
that he knew and all that concerned him was that the hemp should be delivered to him baled. He did
not ask the plaintiff to perform services for him, nor did the plaintiff agree to do so. The contract was
single and consisted solely in the sale and purchase of hemp. The purchaser contracted for nothing
else and the vendor agreed to deliver nothing else.

The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every
incident taken into consideration for the fixing of the price, put to the debit of the vendee and agreed
to by him. It is quite possible that the plaintiff, in this case in connection with the hemp which he sold,
had himself already paid the additional expense of baling as a part of the purchase price which he
paid and that he himself had received the hemp baled from his vendor. It is quite possible also that
such vendor of the plaintiff may have received the same hemp from his vendor in baled form, that he
paid the additions cost of baling as a part of the purchase price which he paid. In such case the
plaintiff performed no service whatever for his vendee, nor did the plaintiff's vendor perform any
service for him.

The distinction between a contract of sale and one for work, labor, and materials is tested by the
inquiry whether the thing transferred is one no in existence and which never would have existed but
for the order of the party desiring to acquire it, or a thing which would have existed and been the
subject of sale to some other person, even if the order had not been given. (Groves vs. Buck, 3
Maule & S., 178; Towers vs. Osborne, 1 Strange, 506; Benjamin on Sales, 90.) It is clear that in the
case at bar the hemp was in existence in baled form before the agreements of sale were made, or,
at least, would have been in existence even if none of the individual sales here in question had been
consummated. It would have been baled, nevertheless, for sale to someone else, since, according to
the agreed statement of facts, it is customary to sell hemp in bales. When a person stipulates for the
future sale of articles which he is habitually making, and which at the time are not made or finished,
it is essentially a contract of sale and not a contract for labor. It is otherwise when the article is made
pursuant to agreement. (Lamb vs. Crafts, 12 Met., 353; Smith vs. N.Y.C. Ry. Co., 4 Keyes, 180;
Benjamin on Sales, 98.) Where labor is employed on the materials of the seller he can not maintain
an action for work and labor. (Atkinson vs. Bell, 8 Barn. & C., 277; Lee vs. Griffin, 30 L.J.N. S.Q.B.,
252; Prescott vs. Locke, 51 N.H., 94.) If the article ordered by the purchaser is exactly such as the
plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at
the defendant's request, it is a contract of sale, even though it may be entirely made after, and in
consequence of, the defendant's order for it. (Garbutt s. Watson, 5 Barn. & Ald., 613;
Gardner vs. Joy, 9 Met., 177; Lamb vs. Crafts, 12 Met., 353; Waterman vs. Meigs, 4 Cush., 497.,
Clark vs. Nichols, 107 Mass., 547; May vs. Ward, 134 Mass., 127; Abbott vs. Gilchrist, 38 Me., 260;
Crocket vs. Scribner, 64 Me., 105; Pitkin vs. Noyes, 48 N. H., 294; Prescott vs. Locke, 51 N. H., 94;
Ellison vs. Brigham, 38 Vt., 64.) It has been held in Massachusetts that a contract to make is a
contract of sale if the article ordered is already substantially in existence at the time of the order and
merely requires some alteration, modification, or adoption to the buyer's wishes or purposes.
(Mixer vs. Howarth, 21 Pick., 205.) It is also held in that state that a contract for the sale of an article
which the vendor in the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not, is a contract for the sale of goods to which
the statute of frauds applies. But if the goods are to be manufactured especially for the purchaser
and upon his special order, and not for the general market, the case is not within the statute.
(Goddard vs. Binney, 115 Mass., 450.)

It is clear to our minds that in the case at bar the baling was performed for the general market and
was not something done by plaintiff which was a result of any peculiar wording of the particular
contract between him and his vendee. It is undoubted that the plaintiff prepared his hemp for the
general market. This would be necessary. One whose exposes goods for sale in the market must
have them in marketable form. The hemp in question would not have been in that condition if it had
not been baled. the baling, therefore, was nothing peculiar to the contract between the plaintiff and
his vendee. It was precisely the same contract that was made by every other seller of hemp,
engaged as was the plaintiff, and resulted simply in the transfer of title to goods already prepared for
the general market. The method of bookkeeping and form of the account rendered is not controlling
as to the nature of the contract made. It is conceded in the case tat a separate entry and charge
would have been made for the baling even if the plaintiff had not been the one who baled the hemp
but, instead, had received it already baled from his vendor. This indicates of necessity tat the mere
fact of entering a separate item for the baling of the hemp is formal rather than essential and in no
sense indicates in this case the real transaction between the parties. It is undisputable that, if the
plaintiff had brought the hemp in question already baled, and that was the hemp the sale which
formed the subject of this controversy, then the plaintiff would have performed no service for his
vendee and could not, therefore, lawfully charge for the rendition of such service. It is, nevertheless,
admitted that in spite of that fact he would still have made the double entry in his invoice of sale to
such vendee. This demonstrates the nature of the transaction and discloses, as we have already
said, that the entry of a separate charge for baling does not accurately describe the transaction
between the parties.

Section 139 [Act No. 1189] of the Internal Revenue Law provides that:

There shall be paid by each merchant and manufacturer a tax at the rate of one-third of one
per centum on the gross value in money of all goods, wares and merchandise sold, bartered
or exchanged in the Philippine Islands, and that this tax shall be assessed on the actual
selling price at which every such merchant or manufacturer disposes of his commodities.

The operation of baling undoubtedly augments the value of the goods. We agree that there can be
no question that, if the value of the hemp were not augmented to the amount of P1.75 per bale by
said operation, the purchaser would not pay that sum. If one buys a bale of hemp at a stipulated
price of P20, well knowing that there is an agreement on his part, express or implied, to pay an
additional amount of P1.75 for that bale, he considers the bale of hemp worth P21. 75. It is agreed,
as we have before stated, that hemp is sold in bales. Therefore, baling is performed before the sale.
The purchaser of hemp owes to the seller nothing whatever by reason of their contract except the
value of the hemp delivered. That value, that sum which the purchaser pays to the vendee, is the
true selling price of the hemp, and every item which enters into such price is a part of such selling
price. By force of the custom prevailing among hemp dealers in the Philippine Islands, a purchaser
of hemp in the market, unless he expressly stipulates that it shall be delivered to him in loose form,
obligates himself to purchase and pay for baled hemp. Wheher or not such agreement is express or
implied, whether it is actual or tacit, it has the same force. After such an agreement has once been
made by the purchaser, he has no right to insists thereafter that the seller shall furnish him with
unbaled hemp. It is undoubted that the vendees, in the sales referred to in the case at bar, would
have no right, after having made their contracts, to insists on the delivery of loose hemp with the
purpose in view themselves to perform the baling and thus save 75 centavos per bale. It is
unquestioned that the seller, the plaintiff, would have stood upon his original contract of sale, that is,
the obligation to deliver baled hemp, and would have forced his vendees to accept baled hemp, he
himself retaining among his own profits those which accrued from the proceed of baling.

We are of the opinion that the judgment appealed from must be affirmed, without special finding as
to costs, and it is so ordered.

14
G.R. No. 126376 November 20, 2003

SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES JUANITO

EDRA and NORA JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and
NATIVIDAD JOAQUIN, petitioners,
vs.
COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO,
SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOUSES TOMAS JOAQUIN and
SOLEDAD ALCORAN, SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES, SPOUSES
ALEXANDER MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFORO CARREON and
FELICITAS JOAQUIN, SPOUSES DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO
JOAQUIN and LEA ASIS, respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 to annul the Decision2 dated 26 June 1996 of the Court of
Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed the Decision3 dated 18 February
1993 rendered by Branch 65 of the Regional Trial Court of Makati ("trial court") in Civil Case No. 89-
5174. The trial court dismissed the case after it found that the parties executed the Deeds of Sale for
valid consideration and that the plaintiffs did not have a cause of action against the defendants.
 The Facts

The Court of Appeals summarized the facts of the case as follows:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita,
Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children are joined in this
action by their respective spouses.

Sought to be declared null and void ab initio are certain deeds of sale of real property executed by
defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children
and the corresponding certificates of title issued in their names, to wit:

1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395
executed on 11 July 1978, in favor of defendant Felicitas Joaquin, for a consideration of
₱6,000.00 (Exh. "C"), pursuant to which TCT No. [36113/T-172] was issued in her name
(Exh. "C-1");

2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394
executed on 7 June 1979, in favor of defendant Clarita Joaquin, for a consideration of
₱1[2],000.00 (Exh. "D"), pursuant to which TCT No. S-109772 was issued in her name (Exh.
"D-1");

3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394
executed on 12 May 1988, in favor of defendant spouses Fidel Joaquin and Conchita
Bernardo, for a consideration of ₱54,[3]00.00 (Exh. "E"), pursuant to which TCT No. 155329
was issued to them (Exh. "E-1");

4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394
executed on 12 May 1988, in favor of defendant spouses Artemio Joaquin and Socorro
Angeles, for a consideration of ₱[54,3]00.00 (Exh. "F"), pursuant to which TCT No. 155330
was issued to them (Exh. "F-1"); and

5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-
256395 executed on 9 September 1988, in favor of Tomas Joaquin, for a consideration of
₱20,000.00 (Exh. "G"), pursuant to which TCT No. 157203 was issued in her name (Exh. "G-
1").

6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395
executed on 7 October 1988, in favor of Gavino Joaquin, for a consideration of ₱25,000.00
(Exh. "K"), pursuant to which TCT No. 157779 was issued in his name (Exh. "K-1").]

In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in
their complaint, aver:

- XX-

The deeds of sale, Annexes "C," "D," "E," "F," and "G," [and "K"] are simulated as they are, are
NULL AND VOID AB INITIO because –
 a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the
properties in litis;

b) Secondly, assuming that there was consideration in the sums reflected in the questioned
deeds, the properties are more than three-fold times more valuable than the measly sums
appearing therein;

c) Thirdly, the deeds of sale do not reflect and express the true intent of the parties (vendors
and vendees); and

d) Fourthly, the purported sale of the properties in litis was the result of a deliberate
conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of
their legitime.

- XXI -

Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-

109772, 155329, 155330, 157203 [and 157779] issued by the Registrar of Deeds over the properties
in litis xxx are NULL AND VOID AB INITIO.

Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as
well as the requisite standing and interest to assail their titles over the properties in litis; (2) that the
sales were with sufficient considerations and made by defendants parents voluntarily, in good faith,
and with full knowledge of the consequences of their deeds of sale; and (3) that the certificates of
title were issued with sufficient factual and legal basis.4 (Emphasis in the original)

The Ruling of the Trial Court

Before the trial, the trial court ordered the dismissal of the case against defendant spouses Gavino
Joaquin and Lea Asis.5 Instead of filing an Answer with their co-defendants, Gavino Joaquin and Lea
Asis filed a Motion to Dismiss.6 In granting the dismissal to Gavino Joaquin and Lea Asis, the trial
court noted that "compulsory heirs have the right to a legitime but such right is contingent since said
right commences only from the moment of death of the decedent pursuant to Article 777 of the Civil
Code of the Philippines."7

After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial court
stated:

In the first place, the testimony of the defendants, particularly that of the xxx father will show that the
Deeds of Sale were all executed for valuable consideration. This assertion must prevail over the
negative allegation of plaintiffs.

And then there is the argument that plaintiffs do not have a valid cause of action against defendants
since there can be no legitime to speak of prior to the death of their parents. The court finds this
contention tenable. In determining the legitime, the value of the property left at the death of the
testator shall be considered (Art. 908 of the New Civil Code). Hence, the legitime of a compulsory
heir is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an
impairment of their legitime while their parents live.

All the foregoing considered, this case is DISMISSED.

In order to preserve whatever is left of the ties that should bind families together, the counterclaim is
likewise DISMISSED.

No costs.

SO ORDERED.8

The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:
1âwphi1

To the mind of the Court, appellants are skirting the real and decisive issue in this case, which is,
whether xxx they have a cause of action against appellees.

Upon this point, there is no question that plaintiffs-appellants, like their defendant brothers and
sisters, are compulsory heirs of defendant spouses, Leonardo Joaquin and Feliciana Landrito, who
are their parents. However, their right to the properties of their defendant parents, as compulsory
heirs, is merely inchoate and vests only upon the latter’s death. While still alive, defendant parents
are free to dispose of their properties, provided that such dispositions are not made in fraud of
creditors.

Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do they claim
to be creditors of their defendant parents. Consequently, they cannot be considered as real parties
in interest to assail the validity of said deeds either for gross inadequacy or lack of consideration or
for failure to express the true intent of the parties. In point is the ruling of the Supreme Court in
Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:

The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily bound
thereby; hence, they have no legal capacity to challenge their validity.

Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the
dispositions made by their defendant parents in favor of their defendant brothers and sisters. But, as
correctly held by the court a quo, "the legitime of a compulsory heir is computed as of the time of the
death of the decedent. Plaintiffs therefore cannot claim an impairment of their legitime while their
parents live."

With this posture taken by the Court, consideration of the errors assigned by plaintiffs-appellants is
inconsequential.

WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-
appellants.

SO ORDERED.9

Hence, the instant petition.

Issues

Petitioners assign the following as errors of the Court of Appeals:

 1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN
QUESTION HAD NO VALID CONSIDERATION.

2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT
THERE WAS A CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.

3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO
NOT EXPRESS THE TRUE INTENT OF THE PARTIES.

4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS
PART AND PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST
OF THE CHILDREN OF THE SPOUSES LEONARDO JOAQUIN AND FELICIANA
LANDRITO OF THEIR INTEREST OVER THE SUBJECT PROPERTIES.

5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A

GOOD, SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE
RESPONDENTS.10

The Ruling of the Court

We find the petition without merit.

We will discuss petitioners’ legal interest over the properties subject of the Deeds of Sale before
discussing the issues on the purported lack of consideration and gross inadequacy of the prices of
the Deeds of Sale.

Whether Petitioners have a legal interest over the properties subject of the Deeds of Sale

Petitioners’ Complaint betrays their motive for filing this case. In their Complaint, petitioners asserted
that the "purported sale of the properties in litis was the result of a deliberate conspiracy designed to
unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime." Petitioners’
strategy was to have the Deeds of Sale declared void so that ownership of the lots would eventually
revert to their respondent parents. If their parents die still owning the lots, petitioners and their
respondent siblings will then co-own their parents’ estate by hereditary succession.11

It is evident from the records that petitioners are interested in the properties subject of the Deeds of
Sale, but they have failed to show any legal right to the properties. The trial and appellate courts
should have dismissed the action for this reason alone. An action must be prosecuted in the name of
the real party-in-interest.12

[T]he question as to "real party-in-interest" is whether he is "the party who would be benefitted or
injured by the judgment, or the ‘party entitled to the avails of the suit.’"

xxx

In actions for the annulment of contracts, such as this action, the real parties are those who are
parties to the agreement or are bound either principally or subsidiarily or are prejudiced in their rights
with respect to one of the contracting parties and can show the detriment which would positively
result to them from the contract even though they did not intervene in it (Ibañez v. Hongkong &
Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with "a present substantial interest, as distinguished from a mere expectancy or
future, contingent, subordinate, or consequential interest…. The phrase ‘present substantial interest’
more concretely is meant such interest of a party in the subject matter of the action as will entitle
him, under the substantive law, to recover if the evidence is sufficient, or that he has the legal title to
demand and the defendant will be protected in a payment to or recovery by him."13

Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the
appellate court stated, petitioners’ right to their parents’ properties is merely inchoate and vests only
upon their parents’ death. While still living, the parents of petitioners are free to dispose of their
properties. In their overzealousness to safeguard their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings does not affect the value of their parents’ estate.
While the sale of the lots reduced the estate, cash of equivalent value replaced the lots taken from
the estate.

Whether the Deeds of Sale are void for lack of consideration

Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of
Sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void.

A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a
contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If
there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the
manner of payment, or even the breach of that manner of payment. If the real price is not stated in
the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price stipulated in the contract is simulated, then
the contract is void.14 Article 1471 of the Civil Code states that if the price in a contract of sale is
simulated, the sale is void.

It is not the act of payment of price that determines the validity of a contract of sale. Payment of the
price has nothing to do with the perfection of the contract. Payment of the price goes into the
performance of the contract. Failure to pay the consideration is different from lack of consideration.
The former results in a right to demand the fulfillment or cancellation of the obligation under an
existing valid contract while the latter prevents the existence of a valid contract.15

Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove
simulation, petitioners presented Emma Joaquin Valdoz’s testimony stating that their father,
respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale
without need for her payment of the purchase price.16 The trial court did not find the allegation of
absolute simulation of price credible. Petitioners’ failure to prove absolute simulation of price is
magnified by their lack of knowledge of their respondent siblings’ financial capacity to buy the
questioned lots.17 On the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondents’ minds meet as to the purchase
price, but the real price was also stated in the Deeds of Sale. As of the filing of the complaint,
respondent siblings have also fully paid the price to their respondent father.18

Whether the Deeds of Sale are void for gross inadequacy of price

Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to
invalidate the Deeds of Sale.

Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a
defect in the consent, or that the parties really intended a donation or some other act or contract.
(Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil
Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that
the price be equal to the exact value of the subject matter of sale. All the respondents believed that
they received the commutative value of what they gave. As we stated in Vales v. Villa:19

Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from
unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts
cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate
not because one person has been defeated or overcome by another, but because he has been
defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable
judgment, and lose money by them – indeed, all they have in the world; but not for that alone can the
law intervene and restore. There must be, in addition, a violation of the law, the commission of what
the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation
and remedy it. (Emphasis in the original)

Moreover, the factual findings of the appellate court are conclusive on the parties and carry greater
weight when they coincide with the factual findings of the trial court. This Court will not weigh the
evidence all over again unless there has been a showing that the findings of the lower court are
totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion.20 In
the instant case, the trial court found that the lots were sold for a valid consideration, and that the
defendant children actually paid the purchase price stipulated in their respective Deeds of Sale.
Actual payment of the purchase price by the buyer to the seller is a factual finding that is now
conclusive upon us.

WHEREFORE, we AFFIRM the decision of the Court of Appeals in toto.

SO ORDERED.

15
G.R. No. 80298 April 26, 1990

EDCA PUBLISHING & DISTRIBUTING CORP., petitioner,

vs.
THE SPOUSES LEONOR and GERARDO SANTOS, doing business under the name and style
of "SANTOS BOOKSTORE," and THE COURT OF APPEALS, respondents.

Emiliano S. Samson, R. Balderrama-Samson, Mary Anne B. Samson for petitioner.

Cendana Santos, Delmundo & Cendana for private respondents.

CRUZ, J.:

The case before us calls for the interpretation of Article 559 of the Civil Code and raises the
particular question of when a person may be deemed to have been "unlawfully deprived" of movable
property in the hands of another. The article runs in full as follows:

Art. 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may
recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived has
acquired it in good faith at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.

The movable property in this case consists of books, which were bought from the petitioner by an
impostor who sold it to the private respondents. Ownership of the books was recognized in the
private respondents by the Municipal Trial Court, 1 which was sustained by the Regional Trial
Court, 2 which was in turn sustained by the Court of Appeals. 3 The petitioner asks us to declare that
all these courts have erred and should be reversed.

This case arose when on October 5, 1981, a person identifying himself as Professor Jose Cruz
placed an order by telephone with the petitioner company for 406 books, payable on
delivery. 4 EDCA prepared the corresponding invoice and delivered the books as ordered, for which
Cruz issued a personal check covering the purchase price of P8,995.65. 5 On October 7, 1981, Cruz
sold 120 of the books to private respondent Leonor Santos who, after verifying the seller's ownership
from the invoice he showed her, paid him P1,700.00. 6

Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before
clearing of his first check, made inquiries with the De la Salle College where he had claimed to be a
dean and was informed that there was no such person in its employ. Further verification revealed
that Cruz had no more account or deposit with the Philippine Amanah Bank, against which he had
drawn the payment check. 7 EDCA then went to the police, which set a trap and arrested Cruz on
October 7, 1981. Investigation disclosed his real name as Tomas de la Peña and his sale of 120 of
the books he had ordered from EDCA to the private respondents. 8

On the night of the same date, EDCA sought the assistance of the police in Precinct 5 at the UN
Avenue, which forced their way into the store of the private respondents and threatened Leonor
Santos with prosecution for buying stolen property. They seized the 120 books without warrant,
loading them in a van belonging to EDCA, and thereafter turned them over to the petitioner. 9

Protesting this high-handed action, the private respondents sued for recovery of the books after
demand for their return was rejected by EDCA. A writ of preliminary attachment was issued and the
petitioner, after initial refusal, finally surrendered the books to the private respondents. 10 As
previously stated, the petitioner was successively rebuffed in the three courts below and now hopes
to secure relief from us.

To begin with, the Court expresses its disapproval of the arbitrary action of the petitioner in taking
the law into its own hands and forcibly recovering the disputed books from the private respondents.
The circumstance that it did so with the assistance of the police, which should have been the first to
uphold legal and peaceful processes, has compounded the wrong even more deplorably. Questions
like the one at bar are decided not by policemen but by judges and with the use not of brute force
but of lawful writs.

Now to the merits

It is the contention of the petitioner that the private respondents have not established their ownership
of the disputed books because they have not even produced a receipt to prove they had bought the
stock. This is unacceptable. Precisely, the first sentence of Article 559 provides that "the possession
of movable property acquired in good faith is equivalent to a title," thus dispensing with further proof.

The argument that the private respondents did not acquire the books in good faith has been
dismissed by the lower courts, and we agree. Leonor Santos first ascertained the ownership of the
books from the EDCA invoice showing that they had been sold to Cruz, who said he was selling
them for a discount because he was in financial need. Private respondents are in the business of
buying and selling books and often deal with hard-up sellers who urgently have to part with their
books at reduced prices. To Leonor Santos, Cruz must have been only one of the many such sellers
she was accustomed to dealing with. It is hardly bad faith for any one in the business of buying and
selling books to buy them at a discount and resell them for a profit.

But the real issue here is whether the petitioner has been unlawfully deprived of the books because
the check issued by the impostor in payment therefor was dishonored.

In its extended memorandum, EDCA cites numerous cases holding that the owner who has been
unlawfully deprived of personal property is entitled to its recovery except only where the property
was purchased at a public sale, in which event its return is subject to reimbursement of the purchase
price. The petitioner is begging the question. It is putting the cart before the horse. Unlike in the
cases invoked, it has yet to be established in the case at bar that EDCA has been unlawfully
deprived of the books.

The petitioner argues that it was, because the impostor acquired no title to the books that he could
have validly transferred to the private respondents. Its reason is that as the payment check bounced
for lack of funds, there was a failure of consideration that nullified the contract of sale between it and
Cruz.

The contract of sale is consensual and is perfected once agreement is reached between the parties
on the subject matter and the consideration. According to the Civil Code:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
 xxx xxx xxx

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price.

It is clear from the above provisions, particularly the last one quoted, that ownership in the thing sold
shall not pass to the buyer until full payment of the purchase only if there is a stipulation to that
effect. Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the
actual or constructive delivery of the thing sold even if the purchase price has not yet been paid.

Non-payment only creates a right to demand payment or to rescind the contract, or to criminal
prosecution in the case of bouncing checks. But absent the stipulation above noted, delivery of the
thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another.

In Asiatic Commercial Corporation v. Ang,11 the plaintiff sold some cosmetics to Francisco Ang, who
in turn sold them to Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the
articles from Tan, who claimed he had validly bought them from Ang, paying for the same in cash.
Finding that there was no conspiracy between Tan and Ang to deceive Asiatic the Court of Appeals
declared:

Yet the defendant invoked Article 464 12 of the Civil Code providing, among other things that
"one who has been unlawfully deprived of personal property may recover it from any person
possessing it." We do not believe that the plaintiff has been unlawfully deprived of the
cartons of Gloco Tonic within the scope of this legal provision. It has voluntarily parted with
them pursuant to a contract of purchase and sale. The circumstance that the price was not
subsequently paid did not render illegal a transaction which was valid and legal at the
beginning.

In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist, who sold it to Sanchez, who sold it to
Jimenez. When the payment check issued to Tagatac by Feist was dishonored, the plaintiff sued to
recover the vehicle from Jimenez on the ground that she had been unlawfully deprived of it by
reason of Feist's deception. In ruling for Jimenez, the Court of Appeals held:

The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been

unlawfully deprived of her car. At first blush, it would seem that she was unlawfully deprived
thereof, considering that she was induced to part with it by reason of the chicanery practiced
on her by Warner L. Feist. Certainly, swindling, like robbery, is an illegal method of
deprivation of property. In a manner of speaking, plaintiff-appellant was "illegally deprived" of
her car, for the way by which Warner L. Feist induced her to part with it is illegal and is
punished by law. But does this "unlawful deprivation" come within the scope of Article 559 of
the New Civil Code?

xxx xxx xxx

. . . The fraud and deceit practiced by Warner L. Feist earmarks this sale as a voidable
contract (Article 1390 N.C.C.). Being a voidable contract, it is susceptible of either ratification
or annulment. If the contract is ratified, the action to annul it is extinguished (Article 1392,
N.C.C.) and the contract is cleansed from all its defects (Article 1396, N.C.C.); if the contract
 is annulled, the contracting parties are restored to their respective situations before the
contract and mutual restitution follows as a consequence (Article 1398, N.C.C.).

However, as long as no action is taken by the party entitled, either that of annulment or of
ratification, the contract of sale remains valid and binding. When plaintiff-appellant Trinidad
C. Tagatac delivered the car to Feist by virtue of said voidable contract of sale, the title to the
car passed to Feist. Of course, the title that Feist acquired was defective and voidable.
Nevertheless, at the time he sold the car to Felix Sanchez, his title thereto had not been
avoided and he therefore conferred a good title on the latter, provided he bought the car in
good faith, for value and without notice of the defect in Feist's title (Article 1506, N.C.C.).
There being no proof on record that Felix Sanchez acted in bad faith, it is safe to assume
that he acted in good faith.

The above rulings are sound doctrine and reflect our own interpretation of Article 559 as applied to
the case before us.

Actual delivery of the books having been made, Cruz acquired ownership over the books which he
could then validly transfer to the private respondents. The fact that he had not yet paid for them to
EDCA was a matter between him and EDCA and did not impair the title acquired by the private
respondents to the books.

One may well imagine the adverse consequences if the phrase "unlawfully deprived" were to be
interpreted in the manner suggested by the petitioner. A person relying on the seller's title who buys
a movable property from him would have to surrender it to another person claiming to be the original
owner who had not yet been paid the purchase price therefor. The buyer in the second sale would
be left holding the bag, so to speak, and would be compelled to return the thing bought by him in
good faith without even the right to reimbursement of the amount he had paid for it.

It bears repeating that in the case before us, Leonor Santos took care to ascertain first that the
books belonged to Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her
assured her that the books had been paid for on delivery. By contrast, EDCA was less than cautious
— in fact, too trusting in dealing with the impostor. Although it had never transacted with him before,
it readily delivered the books he had ordered (by telephone) and as readily accepted his personal
check in payment. It did not verify his identity although it was easy enough to do this. It did not wait
to clear the check of this unknown drawer. Worse, it indicated in the sales invoice issued to him, by
the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in
the buyer.

Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books
being offered for sale by Cruz belonged to him; yet she did. Although the title of Cruz was presumed
under Article 559 by his mere possession of the books, these being movable property, Leonor
Santos nevertheless demanded more proof before deciding to buy them.

It would certainly be unfair now to make the private respondents bear the prejudice sustained by
EDCA as a result of its own negligence. We cannot see the justice in transferring EDCA's loss to
1âw phi 1

the Santoses who had acted in good faith, and with proper care, when they bought the books from
Cruz.

While we sympathize with the petitioner for its plight, it is clear that its remedy is not against the
private respondents but against Tomas de la Peña, who has apparently caused all this trouble. The
private respondents have themselves been unduly inconvenienced, and for merely transacting a
customary deal not really unusual in their kind of business. It is they and not EDCA who have a right
to complain.

WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs against
the petitioner.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

16
G.R. No. 137552 June 16, 2000

ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z.

LAFORTEZA, and LEA Z. LAFORTEZA, petitioners,
vs.
ALONZO MACHUCA, respondent.

GONZAGA-REYES, J.:

This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals 1 in
CA G.R. CV No. 147457 entitled "ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA,
GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS
Z. LAFORTEZA".

The following facts as found by the Court of Appeals are undisputed:

The property involved consists of a house and lot located at No. 7757 Sherwood Street,
Marcelo Green Village, Parañaque, Metro Manila, covered by Transfer Certificate of Title
(TCT) No. (220656) 8941 of the Registered of Deeds of Parañaque (Exhibit "D", Plaintiff,
record, pp. 331-332). The subject property is registered in the name of the late Francisco Q.
Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record pp. 331-386).

On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney

in favor of defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as
her Attorney-in-fact authorizing them jointly to sell the subject property and sign any
document for the settlement of the estate of the late Francisco Q. Laforteza (Exh. "A",
Plaintiff, record, pp. 323-325).

Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of
Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise,
granting the same authority (Exh. "B", record, pp. 326-328) Both agency instruments
contained a provision that in any document or paper to exercise authority granted, the
signature of both attorneys- in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney
in favor of defendant Roberto Z. Laforteza for the purpose of selling the subject property
(Exh. "C", Plaintiff, record, pp. 329-330). A year later, on October 30, 1989, Dennis Z.
Laforteza executed another Special Power of Attorney in favor of defendants Roberto Z.
Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of selling
the subject property and signing any document for the settlement of the estate of the late
Francisco Q. Laforteza. The subsequent agency instrument (Exh, "2", record, pp. 371-373)
contained similar provisions that both attorneys-in-fact should sign any document or paper
executed in the exercise of their authority. 1âwphi1.nêt

In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q.
Laforteza represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a
Memorandum of Agreement (Contract to Sell) with the plaintiff 2 over the subject property for
the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:

(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale
is not effected due to the fault of the plaintiff;

(b) P600,000.00 upon issuance of the new certificate of title in the name of the late
Francisco Q. Laforteza and upon execution of an extra-judicial settlement of the
decedent's estate with sale in favor of the plaintiff (Par. 2, Exh. "E", record, pp. 335-
336).

Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated
January 20, 1989 (Exh. "E", supra.) contained a provision as follows:

. . . . Upon issuance by the proper Court of the new title, the BUYER-LESSEE shall
be notified in writing and said BUYER-LESSEE shall have thirty (30) days to produce
the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the
execution of the Extrajudicial Settlement with sale.

On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS
(P30,000.00), plus rentals for the subject property (Exh. "F", Plaintiff, record, p. 339).

On September 18, 1998 3 , defendant heirs, through their counsel wrote a letter (Exh. 1,
Defendants, record, p. 370) to the plaintiff furnishing the latter a copy of the reconstituted title
to the subject property, advising him that he had thirty (3) days to produce the balance of SIX
HUNDRED PESOS (sic) (P600,000.00) under the Memorandum of Agreement which plaintiff
received on the same date.

On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of
the THIRTY (30) DAYS deadline up to November 15, 1989 within which to produce the
balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff, record,
pp. 341-342). Defendant Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L.
Gutierrez, signed his conformity to the plaintiff's letter request (Exh. "G-1 and "G-2", Plaintiff,
record, p. 342). The extension, however, does not appear to have been approved by
Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity does not appear to have
been secured.

On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z.
Laforteza, that he already had the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00) covered by United Coconut Planters Bank Manager's Check No. 000814
dated November 15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344;
"M", records p. 350; and "N", record, p. 351). However, the defendants, refused to accept the
balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1",
Plaintiff, record, p. 351). Defendant Roberto Z. Laforteza had told him that the subject
property was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, p. 347).

On November 20, 1998 4 , defendants informed plaintiff that they were canceling the
Memorandum of Agreement (Contract to Sell) in view of the plaintiff's failure to comply with
his contractual obligations (Exh. "3").

Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00). Defendants, however, insisted on the
rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for
specific performance. The lower court rendered judgment on July 6, 1994 in favor of the
plaintiff, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo Machuca and

against the defendant heirs of the late Francisco Q. Laforteza, ordering the said
defendants.

(a) To accept the balance of P600,000.00 as full payment of the

consideration for the purchase of the house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Parañaque, Metro Manila, covered
by Transfer Certificate of Title No. (220656) 8941 of the Registry of Deeds of
Rizal Parañaque, Branch;

(b) To execute a registrable deed of absolute sale over the subject property
in favor of the plaintiff;

(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as
attorney's fees plus cost of suit.

SO ORDERED. (Rollo, pp. 74-75). 5

Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of
the lower court; the dispositive portion of the Decision reads:

WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with
the MODIFICATION that defendant heirs Lea Zulueta-Laforteza, Michael Z.
Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza including Gonzalo Z.
Laforteza, Jr. are hereby ordered to pay jointly and severally the sum of FIFTY
THOUSAND PESOS (P50,000.00) as moral damages.

SO ORDERED. 6

Motion for Reconsideration was denied but the Decision was modified so as to absolve
Gonzalo Z. Laforteza, Jr. from liability for the payment of moral damages. 7 Hence this
petition wherein the petitioners raise the following issues:
 I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED
THE MEMORANDUM OF AGREEMENT AS IMPOSING RECIPROCAL
OBLIGATIONS.

II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION

WILL NOT LIE IN THE INSTANT CASE.

III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE

ALLEGED DEFECT IN THE SPECIAL POWER OF ATTORNEY DATED 30
OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA.

IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT

IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE PETITIONERS MAY BE
COMPELLED TO SELL THE SUBJECT PROPERTY WHEN THE RESPONDENT
FAILED TO MAKE A JUDICIAL CONSIGNATION OF THE PURCHASE PRICE?

V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM

LIABLE FOR MORAL DAMAGES? 8

The petitioners contend that the Memorandum of Agreement is merely a lease agreement
with "option to purchase". As it was merely an option, it only gave the respondent a right to
purchase the subject property within a limited period without imposing upon them any
obligation to purchase it. Since the respondent's tender of payment was made after the lapse
of the option agreement, his tender did not give rise to the perfection of a contract of sale.

It is further maintained by the petitioners that the Court of Appeals erred in ruling that
rescission of the contract was already out of the question. Rescission implies that a contract
of sale was perfected unlike the Memorandum of Agreement in question which as previously
stated is allegedly only an option contract.

Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere
contract to sell, as indicated in its title. The obligation of the petitioners to sell the property to
the respondent was conditioned upon the issuance of a new certificate of title and the
execution of the extrajudicial partition with sale and payment of the P600,000.00. This is why
possession of the subject property was not delivered to the respondent as the owner of the
property but only as the lessee thereof. And the failure of the respondent to pay the purchase
price in full prevented the petitioners' obligation to convey title from acquiring obligatory
force.

Petitioners also allege that assuming for the sake of argument that a contract of sale was
indeed perfected, the Court of Appeals still erred in holding that respondent's failure to pay
the purchase price of P600,000.00 was only a "slight or casual breach".

The petitioners also claim that the Court of Appeals erred in ruling that they were not ready
to comply with their obligation to execute the extrajudicial settlement. The Power of Attorney
to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and necessarily
included the power to execute an extrajudicial settlement. At any rate, the respondent is
estopped from claiming that the petitioners were not ready to comply with their obligation for
he acknowledged the petitioners' ability to do so when he requested for an extension of time
within which to pay the purchase price. Had he truly believed that the petitioners were not
ready, he would not have needed to ask for said extension.
Finally, the petitioners allege that the respondent's uncorroborated testimony that third
persons offered a higher price for the property is hearsay and should not be given any
evidentiary weight. Thus, the order of the lower court awarding moral damages was without
any legal basis.

The appeal is bereft of merit.

A perusal of the Memorandum Agreement shows that the transaction between the petitioners
and the respondent was one of sale and lease. The terms of the agreement read:

1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY

THOUSAND (P630,000.00) payable in a manner herein below indicated, SELLER-
LESSOR hereby agree to sell unto BUYER-LESSEE the property described in the
first WHEREAS of this Agreement within six (6) months from the execution date
hereof, or upon issuance by the Court of a new owner's certificate of title and the
execution of extrajudicial partition with sale of the estate of Francisco Laforteza,
whichever is earlier;

2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND

(P630,000.00) shall be paid in the following manner:

P30,000.00 — as earnest money and as consideration for this Agreement,

which amount shall be forfeited in favor of SELLER-LESSORS if the sale is
not effected because of the fault or option of BUYER-LESSEE;

P600,000.00 — upon the issuance of the new certificate of title in the name
of the late Francisco Laforteza and upon the execution of an Extrajudicial
Settlement of his estate with sale in favor of BUYER-LESSEE free from lien
or any encumbrances.

3. Parties reasonably estimate that the issuance of a new title in place of the lost
one, as well as the execution of extrajudicial settlement of estate with sale to herein
BUYER-LESSEE will be completed within six (6) months from the execution of this
Agreement. It is therefore agreed that during the six months period, BUYER-LESSEE
will be leasing the subject property for six months period at the monthly rate of
PESOS: THREE THOUSAND FIVE HUNDRED (P3,500.00). Provided however, that
if the issuance of new title and the execution of Extrajudicial Partition is completed
prior to the expiration of the six months period, BUYER-LESSEE shall only be liable
for rentals for the corresponding period commencing from his occupancy of the
premises to the execution and completion of the Extrajudicial Settlement of the
estate, provided further that if after the expiration of six (6) months, the lost title is not
yet replaced and the extra judicial partition is not executed, BUYER-LESSEE shall no
longer be required to pay rentals and shall continue to occupy, and use the premises
until subject condition is complied by SELLER-LESSOR;

4. It is hereby agreed that within reasonable time from the execution of this
Agreement and the payment by BUYER-LESSEE of the amount of P30,000.00 as
herein above provided, SELLER-LESSORS shall immediately file the corresponding
petition for the issuance of a new title in lieu of the lost one in the proper Courts.
Upon issuance by the proper Courts of the new title, the BUYER-LESSEE shall have
thirty (30) days to produce the balance of P600,000.00 which shall be paid to the
SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale. 9
A contract of sale is a consensual contract and 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. 10 From that
moment the parties may reciprocally demand performance subject to the provisions of the
law governing the form of contracts. 11 The elements of a valid contract of sale under Article
1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject
matter and (3) price certain money or its equivalent. 12

In the case at bench, there was a perfected agreement between the petitioners and the
respondent whereby the petitioners obligated themselves to transfer the ownership of and
deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village, Parañaque
and the respondent to pay the price amounting to six hundred thousand pesos
(P600,000.00). All the elements of a contract of sale were thus present. However, the
balance of the purchase price was to be paid only upon the issuance of the new certificate of
title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of
an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title, the
respondent was already placed in possession of the house and lot as lessee thereof for six
months at a monthly rate of three thousand five hundred pesos (P3,500.00). It was stipulated
that should the issuance of the new title and the execution of the extrajudicial settlement be
completed prior to expiration of the six-month period, the respondent would be liable only for
the rentals pertaining to the period commencing from the date of the execution of the
agreement up to the execution of the extrajudicial settlement. It was also expressly stipulated
that if after the expiration of the six month period, the lost title was not yet replaced and the
extrajudicial partition was not yet executed, the respondent would no longer be required to
pay rentals and would continue to occupy and use the premises until the subject condition
was complied with the petitioners.

The six-month period during which the respondent would be in possession of the property as
lessee, was clearly not a period within which to exercise an option. An option is a contract
granting a privilege to buy or sell within an agreed time and at a determined price. An option
contract is a separate and distinct contract from that which the parties may enter into upon
the consummation of the option. 13 An option must be supported by consideration.14 An option
contract is governed by the second paragraph of Article 1479 of the Civil Code 15 , which
reads:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct
from the price.

In the present case, the six-month period merely delayed the demandability of the contract of
sale and did not determine its perfection for after the expiration of the six-month period, there
was an absolute obligation on the part of the petitioners and the respondent to comply with
the terms of the sale. The parties made a "reasonable estimate" that the reconstitution the
lost title of the house and lot would take approximately six months and thus presumed that
after six months, both parties would be able to comply with what was reciprocally incumbent
upon them. The fact that after the expiration of the six-month period, the respondent would
retain possession of the house and lot without need of paying rentals for the use therefor,
clearly indicated that the parties contemplated that ownership over the property would
already be transferred by that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza and the
execution of an extrajudicial settlement of his estate was not a condition which determined the
perfection of the contract of sale. Petitioners' contention that since the condition was not met, they
no longer had an obligation to proceed with the sale of the house and lot is unconvincing. The
petitioners fail to distinguish between a condition imposed upon the perfection of the contract and a
condition imposed on the performance of an obligation. Failure to comply with the first condition
results in the failure of a contract, while the failure to comply with the second condition only gives the
other party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art.
1545 of the Civil Code states:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition
which is not performed, such party may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised that the condition should
happen or be performed, such first mentioned party may also treat the nonperformance of
the condition as a breach of warranty.

Where the ownership in the things has not passed, the buyer may treat the fulfillment by the
seller of his obligation to deliver the same as described and as warranted expressly or by
implication in the contract of sale as a condition of the obligation of the buyer to perform his
promise to accept and pay for the thing. 16

In the case at bar, there was already a perfected contract. The condition was imposed only on the
performance of the obligations contained therein. Considering however that the title was eventually
"reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of
their father's estate, the respondent had a right to demand fulfillment of the petitioners' obligation to
deliver and transfer ownership of the house and lot.

What further militates against petitioners' argument that they did not enter into a contract or sale is
the fact that the respondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest
money is something of value to show that the buyer was really in earnest, and given to the seller to
bind the bargain.17 Whenever earnest money is given in a contract of sale, it is considered as part of
the purchase price and proof of the perfection of the contract. 18

We do not subscribe to the petitioners' view that the Memorandum Agreement was a contract to sell.
There is nothing contained in the Memorandum Agreement from which it can reasonably be
deduced that the parties intended to enter into a contract to sell, i.e. one whereby the prospective
seller would explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the property subject of the contract
to sell until the full payment of the price, such payment being a positive suspensive condition, the
failure of which is not considered a breach, casual or serious, but simply an event which prevented
the obligation from acquiring any obligatory force. 19 There is clearly no express reservation of title
made by the petitioners over the property, or any provision which would impose non-payment of the
price as a condition for the contract's entering into force. Although the memorandum agreement was
also denominated as a "Contract to Sell", we hold that the parties contemplated a contract of sale. A
deed of sale is absolute in nature although denominated a conditional sale in the absence of a
stipulation reserving title in the petitioners until full payment of the purchase price. 20 In such cases,
ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. 21 The
mere fact that the obligation of the respondent to pay the balance of the purchase price was made
subject to the condition that the petitioners first deliver the reconstituted title of the house and lot
does not make the contract a contract to sell for such condition is not inconsistent with a contract of
sale. 22
The next issue to be addressed is whether the failure of the respondent to pay the balance of the
purchase price within the period allowed is fatal to his right to enforce the agreement.

We rule in the negative.

Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of
the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly
granted to the respondent by Roberto Z. Laforteza (assisted by his counsel Attorney Romeo
Gutierrez) was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of
Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers of
Attorney. 23 However, the evidence reveals that after the expiration of the six-month period provided
for in the contract, the petitioners were not ready to comply with what was incumbent upon them, i.e.
the delivery of the reconstituted title of the house and lot. It was only on September 18, 1989 or
nearly eight months after the execution of the Memorandum of Agreement when the petitioners
informed the respondent that they already had a copy of the reconstituted title and demanded the
payment of the balance of the purchase price. The respondent could not therefore be considered in
delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or
is not ready to comply in a proper manner with what was incumbent upon him. 24

Even assuming for the sake of argument that the petitioners were ready to comply with their
obligation, we find that rescission of the contract will still not prosper. The rescission of a sale of an
immovable property is specifically governed by Article 1592 of the New Civil Code, which reads:

In the sale of immovable property, even though it may have been stipulated that upon failure
to pay the price at the time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by a notarial act. After
the demand, the court may not grant him a new term. 25

It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The
1avv phi1

November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of
the agreement did not amount to a demand for rescission, as it was not notarized. 26 It was also made
five days after the respondent's attempt to make the payment of the purchase price. This offer to pay
prior to the demand for rescission is sufficient to defeat the petitioners' right under article 1592 of the
Civil Code. 27 Besides, the Memorandum Agreement between the parties did not contain a clause
expressly authorizing the automatic cancellation of the contract without court intervention in the
event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a
contract or sale where there is no express stipulation authorizing him to extrajudicially
rescind. 28 Neither was there a judicial demand for the rescission thereof. Thus, when the respondent
filed his complaint for specific performance, the agreement was still in force inasmuch as the
contract was not yet rescinded. At any rate, considering that the six-month period was merely an
approximation of the time if would take to reconstitute the lost title and was not a condition imposed
on the perfection of the contract and considering further that the delay in payment was only thirty
days which was caused by the respondents justified but mistaken belief that an extension to pay was
granted to him, we agree with the Court of Appeals that the delay of one month in payment was a
mere casual breach that would not entitle the respondents to rescind the contract. Rescission of a
contract will not be permitted for a slight or casual breach, but only such substantial and fundamental
breach as would defeat the very object of the parties in making the agreemant. 29

Petitioners' insistence that the respondent should have consignated the amount is not determinative
of whether respondent's action for specific performance will lie. Petitioners themselves point out that
the effect of cansignation is to extinguish the obligation. It releases the debtor from responsibility
therefor. 30 The failure of the respondent to consignate the P600,000.00 is not tantamount to a breach
of the contract for by the fact of tendering payment, he was willing and able to comply with his
obligation.

The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral
damages to the respondent. As found by the said Court, the petitioners refused to comply
with, their obligation for the reason that they were offered a higher price therefor and the
respondent was even offered P100,000.00 by the petitioners' lawyer, Attorney Gutierrez, to
relinquish his rights over the property. The award of moral damages is in accordance with
Article 1191 31 of the Civil Code pursuant to Article 2220 which provides that moral damages
may be awarded in case of breach of contract where the defendant acted in bad faith. The
amount awarded depends on the discretion of the court based on the circumstances of each
case. 32 Under the circumstances, the award given by the Court of Appeals amounting to
P50,000.00 appears to us to be fair and reasonable.

ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is AFFIRMED and
the instant petition is hereby DENIED.

No pronouncement as to costs.

SO ORDERED.

17
G.R. No. 131679 February 1, 2000

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners,
vs.
SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No.
42315 and the order dated December 9, 1997 denying petitioners' motion for reconsideration.

The following facts are not in dispute.

Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are
banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a
certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which
he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered
by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB
foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property
was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB
consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was
cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB. 1âw phi 1.nêt

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios
Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by
Lim and Gatpandan, states in part:

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon
City for P300,000.00 under the following terms and conditions:

(1) 10% Option Money;

(2) Balance payable in cash;

(3) Provided that the property shall be cleared of illegal occupants or tenants.

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option
Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However,
after some time following up the sale, Lim discovered that the subject property was originally
registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No.
91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the
same title he mortgaged to CDB and from which the latter's title (TCT No. 355588) was derived. It
appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial
Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial
court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT
No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has
since become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company,
FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29,
1989 an action for specific performance and damages against petitioners in the Regional Trial Court,
Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the
complaint was amended by impleading the Register of Deeds of Quezon City as an additional
defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1)
there was a perfected contract of sale between Lim and CDB, contrary to the latter's contention that
the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale
and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the
perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No.
Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were
not exempt from liability despite the impossibility of performance, because they could not credibly
disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting their failure
to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are
liable for damages for the prejudice caused against the Lims.3 Based on the foregoing findings, the
trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of
P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also
ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as
moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's fees, and the costs of
the suit.4
Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in
toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion
was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend
that —

1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were
aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in
Civil Case No. Q-39732.

2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit
of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil
Code.

3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages,
exemplary damages, attorney's fees and costs of suit.

I.

At the outset, it is necessary to determine the legal relation, if any, of the parties.

Petitioners deny that a contract of sale was ever perfected between them and private respondent
Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was
given as option money, not as earnest money.5 They thus conclude that the contract between CDB
and Lim was merely an option contract, not a contract of sale.

The contention has no merit. Contracts are not defined by the parries thereto but by principles of
law.6 In determining the nature of a contract, the courts are not bound by the name or title given to it
by the contracting parties.7 In the case at bar, the sum of P30,000.00, although denominated in the
offer to purchase as "option money," is actually in the nature of earnest money or down payment
when considered with the other terms of the offer. In Carceler v. Court of Appeals,8 we explained the
nature of an option contract, viz. —

An option contract is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to enter into a
principal contract, it binds the party who has given the option not to enter into the principal
contract with any other person during the period; designated, and within that period, to enter
into such contract with the one to whom the option was granted, if the latter should decide to
use the option. It is a separate agreement distinct from the contract to which the parties may
enter upon the consummation of the option.

An option contract is therefore a contract separate from and preparatory to a contract of sale which,
if perfected, does not result in the perfection or consummation of the sale. Only when the option is
exercised may a sale be perfected.

In this case, however, after the payment of the 10% option money, the Offer to Purchase provides
for the payment only of the balance of the purchase price, implying that the "option money" forms
part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of
the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale,
partially consummated as to the payment of the price. Moreover, the following findings of the trial
court based on the testimony of the witnesses establish that CDB accepted Lim's offer to purchase:
 It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and
no longer subject to a final approval. In his testimony for the defendants on February 13,
1992, FEBTC's Leomar Guzman stated that he was then in the Acquired Assets Department
of FEBTC wherein plaintiffs' offer to purchase was endorsed thereto by Myoresco Abadilla,
CDB's senior vice-president, with a recommendation that the necessary petition for writ of
possession be filed in the proper court; that the recommendation was in accord with one of
the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants
(tsn, p. 12); that, in compliance with the request, a petition for writ of possession was
thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the
banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which
was not a normal procedure, and neither did the banks return the amount of P30,000.00 to
the plaintiffs.9

Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected
and, indeed, partially executed because of the partial payment of the purchase price. There is,
however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its
obligation as seller to deliver and transfer ownership of the property.

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not
have. In applying this precept to a contract of sale, a distinction must be kept in mind between the
"perfection" and "consummation" stages of the contract.

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.10 It is, therefore, not required that, at the perfection stage,
the seller be the owner of the thing sold or even that such subject matter of the sale exists at that
point in time.11 Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing
which, at that time, was not his, but later acquires title thereto, such title passes by operation of law
to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462
of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the
sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to
comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where
the principle of nemo dat quod non habet applies.

In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the
subject land were no longer the owners of the same because of a prior sale.13 Again, in Nool v. Court
of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have any title to the
property sold, is invalid:

We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid
and enforceable contracts. The Regional Trial Court and the Court of Appeals rules that the
principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in
Exhibit D are both void. This conclusion of the two lower courts appears to find support
in Dignos v. Court of Appeals, where the Court held:

Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.

In the present case, it is clear that the sellers no longer had any title to the parcels of land at
the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the
validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily,
Article 1422 of the Civil Code provides that (a) contract which is the direct result of a
previous illegal contract, is also void and inexistent.
 We should however add that Dignos did not cite its basis for ruling that a "sale is null and
void" where the sellers "were no longer the owners" of the property. Such a situation (where
the sellers were no longer owners) does not appear to be one of the void contracts
enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a
sale where the goods are to be acquired . . . by the seller after the perfection of the contract
of sale, clearly implying that a sale is possible even if the seller was not the owner at the time
of sale, provided he acquires title to the property later on.

In the present case, however, it is likewise clear that the sellers can no longer deliver the
object of the sale to the buyers, as the buyers themselves have already acquired title and
delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code:
Those which contemplate an impossible service. Article 1459 of the Civil Code provides that
"the vendor must have a right to transfer the ownership thereof [subject of the sale] at the
time it is delivered." Here, delivery of ownership is no longer possible. It has become
impossible.15

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must,
therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure,
CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which, the
property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not
the owner of the property foreclosed.

A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of
the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer
the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid
price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing
sold also applies in a foreclosure sale. This is the reason Art. 208516 of the Civil Code, in providing
for the essential requisites of the contract of mortgage and pledge, requires, among other things,
that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in
anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising
therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good
faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of
Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the
title.17 The public interest in upholding the indefeasibility of a certificate of title, as evidence of the
lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in
good faith, relied upon what appears on the face of the certificate of title.

This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make
a detailed investigation of the history of the title of the property given as security before accepting a
mortgage.

We are not convinced, however, that under the circumstances of this case, CDB can be considered
a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation
on the history of the mortgagor's title, they cannot be excused from the duty of exercising the due
diligence required of banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice
for banks, before approving a loan, to send representatives to the premises of the land offered as
collateral and to investigate who are real owners thereof, noting that banks are expected to exercise
more care and prudence than private individuals in their dealings, even those involving registered
lands, for their business is affected with public interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the
innocent original registered owner who obtained his certificate of title through perfectly legal
and regular proceedings, than one who obtains his certificate from a totally void one, as to
prevail over judicial pronouncements to the effect that one dealing with a registered land,
such as a purchaser, is under no obligation to look beyond the certificate of title of the
vendor, for in the latter case, good faith has yet to be established by the vendee or
transferee, being the most essential condition, coupled with valuable consideration, to entitle
him to respect for his newly acquired title even as against the holder of an earlier and
perfectly valid title. There might be circumstances apparent on the face of the certificate of
title which could excite suspicion as to prompt inquiry, such as when the transfer is not by
virtue of a voluntary act of the original registered owner, as in the instant case, where it was
by means of a self-executed deed of extra-judicial settlement, a fact which should be noted
on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be
consistent with any pretense of good faith, which the appellant bank invokes to claim the
right to be protected as a mortgagee, and for the reversal of the judgment rendered against it
by the lower court.19

In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity
of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by
executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he
and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had
waived all his rights thereto. This self-executed deed should have placed CDB on guard against any
possible defect in or question as to the mortgagor's title. Moreover, the alleged ocular inspection
report20 by CDB's representative was never formally offered in evidence. Indeed, petitioners admit
that they are aware that the subject land was being occupied by persons other than Rodolfo
Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of
Rodolfo.21

II.

The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties
was at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners
guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option
money, CDB already knew that it was no longer the owner of the said property, its title having been
cancelled.22 Petitioners contend that: (1) such finding of the appellate court is founded entirely on
speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the
mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4)
the final decision cancelling the mortgagor's title was not annotated in the latter's title.

As a rule, only questions of law may be raised in a petition for review, except in circumstances
where questions of fact may be properly raised.23 Here, while petitioners raise these factual issues,
they have not sufficiently shown that the instant case falls under any of the exceptions to the above
rule. We are thus bound by the findings of fact of the appellate court. In any case, we are convinced
of petitioners' negligence in approving the mortgage application of Rodolfo Guansing.

III.

We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of
the Civil Code provides:
 If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

xxx xxx xxx

(2) When only one of the contracting parties is at fault, he cannot recover what he has given
by reason of the contract, or ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he has given without any obligation
to comply with his promise.

Private respondents are thus entitled to recover the P30,000,00 option money paid by them.
Moreover, since the filing of the action for damages against petitioners amounted to a demand by
respondents for the return of their money, interest thereon at the legal rate should be computed from
August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners
accepted the payment. This is in accord with our ruling in Castillo v. Abalayan24 that in case of avoid
sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund
it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid.
Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has
given" clearly implies that without such prior demand, the obligation to return what was given does
not become legally demandable.

Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and
2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be
recovered even if a bank's negligence is not attended with malice and bad faith. We find, however,
that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only
intended to alleviate the moral suffering undergone by private respondent, not to enrich them at the
expenses of the petitioners.26 Accordingly, the award of moral damages must be reduced to
P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the
Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's
fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to
P20,000.00.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to
the award of damages as above stated. 1âwphi1.nêt

SO ORDERED.

18
G.R. No. 131679 February 1, 2000
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners,
vs.
SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals in C.A. GR CV No.
42315 and the order dated December 9, 1997 denying petitioners' motion for reconsideration.

The following facts are not in dispute.

Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are
banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a
certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which
he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered
by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB
foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property
was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB
consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was
cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB. 1âw phi 1.nêt

On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios
Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by
Lim and Gatpandan, states in part:

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon
City for P300,000.00 under the following terms and conditions:

(1) 10% Option Money;

(2) Balance payable in cash;

(3) Provided that the property shall be cleared of illegal occupants or tenants.

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option
Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However,
after some time following up the sale, Lim discovered that the subject property was originally
registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No.
91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the
same title he mortgaged to CDB and from which the latter's title (TCT No. 355588) was derived. It
appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial
Court, Branch 83, Quezon City, for the cancellation of his son's title. On March 23, 1984, the trial
court rendered a decision2 restoring Perfecto's previous title (TCT No. 91148) and cancelling TCT
No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has
since become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company,
FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29,
1989 an action for specific performance and damages against petitioners in the Regional Trial Court,
Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the
complaint was amended by impleading the Register of Deeds of Quezon City as an additional
defendant.

On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1)
there was a perfected contract of sale between Lim and CDB, contrary to the latter's contention that
the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale
and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the
perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No.
Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were
not exempt from liability despite the impossibility of performance, because they could not credibly
disclaim knowledge of the cancellation of Rodolfo Guansing's title without the admitting their failure
to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are
liable for damages for the prejudice caused against the Lims.3 Based on the foregoing findings, the
trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of
P30,000.00 plus interest at the legal rate computed from June 17, 1988 until full payment. It also
ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as
moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorney's fees, and the costs of
the suit.4

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in
toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion
was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend
that —

1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were
aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in
Civil Case No. Q-39732.

2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit
of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil
Code.

3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages,
exemplary damages, attorney's fees and costs of suit.

I.

At the outset, it is necessary to determine the legal relation, if any, of the parties.

Petitioners deny that a contract of sale was ever perfected between them and private respondent
Lolita Chan Lim. They contend that Lim's letter-offer clearly states that the sum of P30,000,00 was
given as option money, not as earnest money.5 They thus conclude that the contract between CDB
and Lim was merely an option contract, not a contract of sale.

The contention has no merit. Contracts are not defined by the parries thereto but by principles of
law.6 In determining the nature of a contract, the courts are not bound by the name or title given to it
by the contracting parties.7 In the case at bar, the sum of P30,000.00, although denominated in the
offer to purchase as "option money," is actually in the nature of earnest money or down payment
when considered with the other terms of the offer. In Carceler v. Court of Appeals,8 we explained the
nature of an option contract, viz. —
 An option contract is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to enter into a
principal contract, it binds the party who has given the option not to enter into the principal
contract with any other person during the period; designated, and within that period, to enter
into such contract with the one to whom the option was granted, if the latter should decide to
use the option. It is a separate agreement distinct from the contract to which the parties may
enter upon the consummation of the option.

An option contract is therefore a contract separate from and preparatory to a contract of sale which,
if perfected, does not result in the perfection or consummation of the sale. Only when the option is
exercised may a sale be perfected.

In this case, however, after the payment of the 10% option money, the Offer to Purchase provides
for the payment only of the balance of the purchase price, implying that the "option money" forms
part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of
the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale,
partially consummated as to the payment of the price. Moreover, the following findings of the trial
court based on the testimony of the witnesses establish that CDB accepted Lim's offer to purchase:

It is further to be noted that CDB and FEBTC already considered plaintiffs' offer as good and
no longer subject to a final approval. In his testimony for the defendants on February 13,
1992, FEBTC's Leomar Guzman stated that he was then in the Acquired Assets Department
of FEBTC wherein plaintiffs' offer to purchase was endorsed thereto by Myoresco Abadilla,
CDB's senior vice-president, with a recommendation that the necessary petition for writ of
possession be filed in the proper court; that the recommendation was in accord with one of
the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants
(tsn, p. 12); that, in compliance with the request, a petition for writ of possession was
thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the
banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which
was not a normal procedure, and neither did the banks return the amount of P30,000.00 to
the plaintiffs.9

Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was perfected
and, indeed, partially executed because of the partial payment of the purchase price. There is,
however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its
obligation as seller to deliver and transfer ownership of the property.

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not
have. In applying this precept to a contract of sale, a distinction must be kept in mind between the
"perfection" and "consummation" stages of the contract.

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.10 It is, therefore, not required that, at the perfection stage,
the seller be the owner of the thing sold or even that such subject matter of the sale exists at that
point in time.11 Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing
which, at that time, was not his, but later acquires title thereto, such title passes by operation of law
to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462
of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the
sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to
comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where
the principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals,12 the subject contract of sale was held void as the sellers of the
subject land were no longer the owners of the same because of a prior sale.13 Again, in Nool v. Court
of Appeals,14 we ruled that a contract of repurchase, in which the seller does not have any title to the
property sold, is invalid:

We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid
and enforceable contracts. The Regional Trial Court and the Court of Appeals rules that the
principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in
Exhibit D are both void. This conclusion of the two lower courts appears to find support
in Dignos v. Court of Appeals, where the Court held:

Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.

In the present case, it is clear that the sellers no longer had any title to the parcels of land at
the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the
validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily,
Article 1422 of the Civil Code provides that (a) contract which is the direct result of a
previous illegal contract, is also void and inexistent.

We should however add that Dignos did not cite its basis for ruling that a "sale is null and
void" where the sellers "were no longer the owners" of the property. Such a situation (where
the sellers were no longer owners) does not appear to be one of the void contracts
enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a
sale where the goods are to be acquired . . . by the seller after the perfection of the contract
of sale, clearly implying that a sale is possible even if the seller was not the owner at the time
of sale, provided he acquires title to the property later on.

In the present case, however, it is likewise clear that the sellers can no longer deliver the
object of the sale to the buyers, as the buyers themselves have already acquired title and
delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code:
Those which contemplate an impossible service. Article 1459 of the Civil Code provides that
"the vendor must have a right to transfer the ownership thereof [subject of the sale] at the
time it is delivered." Here, delivery of ownership is no longer possible. It has become
impossible.15

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must,
therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure,
CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which, the
property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not
the owner of the property foreclosed.

A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of
the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer
the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid
price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing
sold also applies in a foreclosure sale. This is the reason Art. 208516 of the Civil Code, in providing
for the essential requisites of the contract of mortgage and pledge, requires, among other things,
that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in
anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising
therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good
faith" based on the rule that all persons dealing with property covered by a Torrens Certificate of
Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the
title.17 The public interest in upholding the indefeasibility of a certificate of title, as evidence of the
lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in
good faith, relied upon what appears on the face of the certificate of title.

This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make
a detailed investigation of the history of the title of the property given as security before accepting a
mortgage.

We are not convinced, however, that under the circumstances of this case, CDB can be considered
a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation
on the history of the mortgagor's title, they cannot be excused from the duty of exercising the due
diligence required of banking institutions. In Tomas v. Tomas,18 we noted that it is standard practice
for banks, before approving a loan, to send representatives to the premises of the land offered as
collateral and to investigate who are real owners thereof, noting that banks are expected to exercise
more care and prudence than private individuals in their dealings, even those involving registered
lands, for their business is affected with public interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the
innocent original registered owner who obtained his certificate of title through perfectly legal
and regular proceedings, than one who obtains his certificate from a totally void one, as to
prevail over judicial pronouncements to the effect that one dealing with a registered land,
such as a purchaser, is under no obligation to look beyond the certificate of title of the
vendor, for in the latter case, good faith has yet to be established by the vendee or
transferee, being the most essential condition, coupled with valuable consideration, to entitle
him to respect for his newly acquired title even as against the holder of an earlier and
perfectly valid title. There might be circumstances apparent on the face of the certificate of
title which could excite suspicion as to prompt inquiry, such as when the transfer is not by
virtue of a voluntary act of the original registered owner, as in the instant case, where it was
by means of a self-executed deed of extra-judicial settlement, a fact which should be noted
on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be
consistent with any pretense of good faith, which the appellant bank invokes to claim the
right to be protected as a mortgagee, and for the reversal of the judgment rendered against it
by the lower court.19

In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity
of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent title by
executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he
and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had
waived all his rights thereto. This self-executed deed should have placed CDB on guard against any
possible defect in or question as to the mortgagor's title. Moreover, the alleged ocular inspection
report20 by CDB's representative was never formally offered in evidence. Indeed, petitioners admit
that they are aware that the subject land was being occupied by persons other than Rodolfo
Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of
Rodolfo.21

II.
The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties
was at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners
guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option
money, CDB already knew that it was no longer the owner of the said property, its title having been
cancelled.22 Petitioners contend that: (1) such finding of the appellate court is founded entirely on
speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the
mortgagor's title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4)
the final decision cancelling the mortgagor's title was not annotated in the latter's title.

As a rule, only questions of law may be raised in a petition for review, except in circumstances
where questions of fact may be properly raised.23 Here, while petitioners raise these factual issues,
they have not sufficiently shown that the instant case falls under any of the exceptions to the above
rule. We are thus bound by the findings of fact of the appellate court. In any case, we are convinced
of petitioners' negligence in approving the mortgage application of Rodolfo Guansing.

III.

We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of
the Civil Code provides:

If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:

xxx xxx xxx

(2) When only one of the contracting parties is at fault, he cannot recover what he has given
by reason of the contract, or ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he has given without any obligation
to comply with his promise.

Private respondents are thus entitled to recover the P30,000,00 option money paid by them.
Moreover, since the filing of the action for damages against petitioners amounted to a demand by
respondents for the return of their money, interest thereon at the legal rate should be computed from
August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners
accepted the payment. This is in accord with our ruling in Castillo v. Abalayan24 that in case of avoid
sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund
it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid.
Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has
given" clearly implies that without such prior demand, the obligation to return what was given does
not become legally demandable.

Considering CDB's negligence, we sustain the award of moral damages on the basis of Arts. 21 and
2219 of the Civil Code and our ruling in Tan v. Court of Appeals25 that moral damages may be
recovered even if a bank's negligence is not attended with malice and bad faith. We find, however,
that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only
intended to alleviate the moral suffering undergone by private respondent, not to enrich them at the
expenses of the petitioners.26 Accordingly, the award of moral damages must be reduced to
P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the
Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorney's
fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to
P20,000.00.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to
the award of damages as above stated. 1âwphi1.nêt

SO ORDERED.

19
G.R. No. 172036 April 23, 2010

SPOUSES FAUSTINO AND JOSEFINA GARCIA, SPOUSES MELITON GALVEZ AND HELEN
GALVEZ, and CONSTANCIA ARCAIRA represented by their Attorney-in-Fact JULIANA O.
MOTAS, Petitioners,
vs.
COURT OF APPEALS, EMERLITA DE LA CRUZ, and DIOGENES G.
BARTOLOME, Respondents.

DECISION

CARPIO, J.:

G.R. No. 172036 is a petition for review1 assailing the Decision2 promulgated on 25 January 2006 as
well as the Resolution3 promulgated on 16 March 2006 of the Court of Appeals (appellate court) in
CA-G.R. CV No. 63651. The appellate court reversed and set aside the decision of Branch 23 of the
Regional Trial Court of Trece Martires City, Cavite (trial court) in Civil Case No. TM-622. The
appellate court ordered Emerlita Dela Cruz (Dela Cruz) to return to spouses Faustino and Josefina
Garcia, spouses Meliton and Helen Galvez, and Constancia Arcaira (collectively, petitioners) the
amount in excess of one-half percent of ₱1,500,000. Dela Cruz’s co-defendant, Diogenes Bartolome
(Bartolome), did not incur any liability.

The appellate court narrated the facts as follows:

On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and spouses Meliton and Helen
Galvez (herein appellees) and defendant Emerlita dela Cruz (herein appellant) entered into a
Contract to Sell wherein the latter agreed to sell to the former, for Three Million One Hundred
Seventy Thousand Two Hundred Twenty (₱3,170,220.00) Pesos, five (5) parcels of land situated at
Tanza, Cavite particularly known as Lot Nos. 47, 2768, 2776, 2767, 2769 and covered by Transfer
Certificate of Title Nos. T-340674, T-340673, T-29028, T-29026, T-29027, respectively. At the time
of the execution of the said contract, three of the subject lots, namely, Lot Nos. 2776, 2767, and
2769 were registered in the name of one Angel Abelida from whom defendant allegedly acquired
said properties by virtue of a Deed of Absolute Sale dated March 31, 1989.
As agreed upon, plaintiffs shall make a down payment of Five Hundred Thousand (₱500,000.00)
Pesos upon signing of the contract. The balance of Two Million Six Hundred Seventy Thousand Two
Hundred Twenty (₱2,670,220.00) Pesos shall be paid in three installments, viz: Five Hundred
Thousand (₱500,000.00) Pesos on June 30, 1993; Five Hundred Thousand (₱500,000.00) Pesos on
August 30, 1993; One Million Six Hundred Seventy Thousand Two Hundred Twenty (₱1,670,220.00)
Pesos on December 31, 1993.

On its due date, December 31, 1993, plaintiffs failed to pay the last installment in the amount of One
Million Six Hundred Seventy Thousand Two Hundred Twenty (₱1,670,220.00) Pesos. Sometime in
July 1995, plaintiffs offered to pay the unpaid balance, which had already been delayed by one and
[a] half year, which defendant refused to accept. On September 23, 1995, defendant sold the same
parcels of land to intervenor Diogenes G. Bartolome for Seven Million Seven Hundred Ninety Three
Thousand (₱7,793,000.00) Pesos.

In order to compel defendant to accept plaintiffs’ payment in full satisfaction of the purchase price
and, thereafter, execute the necessary document of transfer in their favor, plaintiffs filed before the
RTC a complaint for specific performance.

In their complaint, plaintiffs alleged that they discovered the infirmity of the Deed of Absolute Sale
covering Lot Nos. 2776, 2767 and 2769, between their former owner Angel Abelida and defendant,
the same being spurious because the signature of Angel Abelida and his wife were falsified; that at
the time of the execution of the said deed, said spouses were in the United States; that due to their
apprehension regarding the authenticity of the document, they withheld payment of the last
installment which was supposedly due on December 31, 1993; that they tendered payment of the
unpaid balance sometime in July 1995, after Angel Abelida ratified the sale made in favor [of]
defendant, but defendant refused to accept their payment for no jusitifiable reason.

In her answer, defendant denied the allegation that the Deed of Absolute Sale was spurious and
argued that plaintiffs failed to pay in full the agreed purchase price on its due date despite repeated
demands; that the Contract to Sell contains a proviso that failure of plaintiffs to pay the purchase
price in full shall cause the rescission of the contract and forfeiture of one-half (1/2%) percent of the
total amount paid to defendant; that a notarized letter stating the indended rescission of the contract
to sell and forfeiture of payments was sent to plaintiffs at their last known address but it was returned
with a notation "insufficient address."

Intervenor Diogenes G. Bartolome filed a complaint in intervention alleging that the Contract to Sell
dated May 31, 1993 between plaintiffs and defendant was rescinded and became ineffective due to
unwarranted failure of the plaintiffs to pay the unpaid balance of the purchase price on or before the
stipulated date; that he became interested in the subject parcels of land because of their clean titles;
that he purchased the same from defendant by virtue of an Absolute Deed of Sale executed on
September 23, 1995 in consideration of the sum of Seven Million Seven Hundred Ninety Three
Thousand (₱7,793,000.00) Pesos.4

The Decision of the Trial Court

In its Decision dated 15 April 1999, the trial court ruled that Dela Cruz’s rescission of the contract
was not valid. The trial court applied Republic Act No. 6552 (Maceda Law) and stated that Dela Cruz
is not allowed to unilaterally cancel the Contract to Sell. The trial court found that petitioners are
justified in withholding the payment of the balance of the consideration because of the alleged
spurious sale between Angel Abelida and Emerlita Dela Cruz. Moreover, intervenor Diogenes
Bartolome (Bartolome) is not a purchaser in good faith because he was aware of petitioners’ interest
in the subject parcels of land.
The dispositive portion of the trial court’s decision reads:

ACCORDINGLY, defendant Emerlita dela Cruz is ordered to accept the balance of the purchase
price in the amount of ₱1,670,220.00 within ten (10) days after the judgment of this Court in the
above-entitled case has become final and executory and to execute immediately the final deed of
sale in favor of plaintiffs.

Defendant is further directed to pay plaintiffs the amount of ₱400,000.00 as moral damages and
₱100,000.00 as exemplary damages.

The deed of sale executed by defendant Emerlita dela Cruz in favor of Atty. Diogenes Bartolome is
declared null and void and the amount of ₱7,793,000.00 which was paid by intervenor Bartolome to
Emerlita dela Cruz as the consideration of the sale of the five (5) parcels of land is hereby directed to
be returned by Emerlita dela Cruz to Atty. Diogenes Bartolome within ten (10) days from the finality
of judgment.

Further, defendant is directed to pay plaintiff the sum of ₱100,000.00 as attorney’s fees.

SO ORDERED.5

Dela Cruz and Bartolome appealed from the judgment of the trial court.

The Decision of the Appellate Court

The appellate court reversed the trial court’s decision and dismissed Civil Case No. TM-622. Dela
Cruz’s obligation under the Contract to Sell did not arise because of petitioners’ undue failure to pay
in full the agreed purchase price on the stipulated date. Moreover, judicial action for the rescission of
a contract is not necessary where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions. The dispositive portion of the appellate court’s decision
reads:

WHEREFORE, in view of all the foregoing, the appealed decision of the Regional Trial Court is
hereby REVERSED and SET ASIDE and Civil Case No. TM-622 is, consequently, DISMISSED.
Defendant is however ordered to return to plaintiffs the amount in excess of one-half (1/2%) percent
of One Million Five Hundred Thousand (₱1,500,000.00) Pesos which was earlier paid by plaintiffs.

SO ORDERED.6

The appellate court likewise resolved to deny petitioners’ Motion for Reconsideration for lack of
merit.7

Hence, this petition.

Issues

Petitioners raised the following grounds for the grant of their petition:

I. The Honorable Court of Appeals erred when it failed to consider the provisions of Republic
Act 6552, otherwise known as the Maceda Law.
 II. The Honorable Court of Appeals erred when it failed to consider that Respondent Dela
Cruz could not pass title over the three (3) properties at the time she entered to a Contract to
Sell as her purported ownership was tainted with fraud, thereby justifying Petitioners
Spouses Garcia, Spouses Galvez and Arcaira’s suspension of payment.

III. The Honorable Court of Appeals gravely erred when it failed to consider that Respondent
Dela Cruz’s "rescission" was done in evident bad faith and malice on account of a second
sale she entered with Respondent Bartolome for a much bigger amount.

IV. The Honorable Court of Appeals erred when it failed to declare Respondent Bartolome is
not an innocent purchaser for value despite the presence of evidence as to his bad faith.8

The Court’s Ruling

The petition has no merit.

Both parties admit the following: (1) the contract between petitioners and Dela Cruz was a contract
to sell; (2) petitioners failed to pay in full the agreed purchase price of the subject property on the
stipulated date; and (3) Dela Cruz did not want to accept petitioners’ offer of payment and did not
want to execute a document of transfer in petitioners’ favor.

The pertinent provisions of the contract, denominated Contract to Sell, between the parties read:

Failure on the part of the vendees to comply with the herein stipulation as to the terms of payment
shall cause the rescission of this contract and the payments made shall be returned to the vendees
subject however, to forfeiture in favor of the Vendor equivalent to 1/2% of the total amount paid.

xxx

It is hereby agreed and covenanted that possession shall be retained by the VENDOR until a Deed
of Absolute Sale shall be executed by her in favor of the Vendees. Violation of this provision shall
authorize/empower the VENDOR [to] demolish any construction/improvement without need of
judicial action or court order.

That upon and after the full payment of the balance, a Deed of Absolute Sale shall be executed by
the Vendor in favor of the Vendees.

That the duplicate original of the owner’s copy of the Transfer Certificate of Title of the above subject
parcels of land shall remain in the possession of the Vendor until the execution of the Deed of
Absolute Sale.9

Contracts are law between the parties, and they are bound by its stipulations. It is clear from the
above-quoted provisions that the parties intended their agreement to be a Contract to Sell: Dela
Cruz retains ownership of the subject lands and does not have the obligation to execute a Deed of
Absolute Sale until petitioners’ payment of the full purchase price. Payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. Strictly speaking, there can be no rescission or
resolution of an obligation that is still non-existent due to the non-happening of the suspensive
condition.10 Dela Cruz is thus not obliged to execute a Deed of Absolute Sale in petitioners’ favor
because of petitioners’ failure to make full payment on the stipulated date.
We ruled thus in Pangilinan v. Court of Appeals:11

Article 1592 of the New Civil Code, requiring demand by suit or by notarial act in case the vendor of
realty wants to rescind does not apply to a contract to sell but only to contract of sale. In contracts to
sell, where ownership is retained by the seller and is not to pass until the full payment, such
payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force. To argue that there was only a casual breach is to proceed from the
assumption that the contract is one of absolute sale, where non-payment is a resolutory condition,
which is not the case.

The applicable provision of law in instant case is Article 1191 of the New Civil Code which provides
as follows:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

Pursuant to the above, the law makes it available to the injured party alternative remedies such as
the power to rescind or enforce fulfillment of the contract, with damages in either case if the obligor
does not comply with what is incumbent upon him. There is nothing in this law which prohibits the
parties from entering into an agreement that a violation of the terms of the contract would cause its
cancellation even without court intervention. The rationale for the foregoing is that in contracts
providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a
judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement
providing for rescission even without judicial intervention, but in order to determine whether or not
the rescission was proper. Where such propriety is sustained, the decision of the court will be merely
declaratory of the revocation, but it is not in itself the revocatory act. Moreover, the vendor’s right in
contracts to sell with reserved title to extrajudicially cancel the sale upon failure of the vendee to pay
the stipulated installments and retain the sums and installments already received has long been
recognized by the well-established doctrine of 39 years standing. The validity of the stipulation in the
contract providing for automatic rescission upon non-payment cannot be doubted. It is in the nature
of an agreement granting a party the right to rescind a contract unilaterally in case of breach without
need of going to court. Thus, rescission under Article 1191 was inevitable due to petitioners’ failure
to pay the stipulated price within the original period fixed in the agreement.

Petitioners justify the delay in payment by stating that they had notice that Dela Cruz is not the
owner of the subject land, and that they took pains to rectify the alleged defect in Dela Cruz’s title.
Be that as it may, Angel Abelida’s (Abelida) affidavit12 confirming the sale to Dela Cruz only serves to
strengthen Dela Cruz’s claim that she is the absolute owner of the subject lands at the time the
Contract to Sell between herself and petitioners was executed. Dela Cruz did not conceal from
petitioners that the title to Lot Nos. 2776, 2767 and 2769 still remained under Abelida’s name,
and the Contract to Sell13 even provided that petitioners should shoulder the attendant
expenses for the transfer of ownership from Abelida to Dela Cruz.

The trial court erred in applying R.A. 6552,14 or the Maceda Law, to the present case. The Maceda
Law applies to contracts of sale of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to tenants.
The subject lands, comprising five (5) parcels and aggregating 69,028 square meters, do not
comprise residential real estate within the contemplation of the Maceda Law.15 Moreover, even if we
apply the Maceda Law to the present case, petitioners’ offer of payment to Dela Cruz was made a
year and a half after the stipulated date. This is beyond the sixty-day grace period under Section 4 of
the Maceda Law.16 Petitioners still cannot use the second sentence of Section 4 of the Maceda Law
against Dela Cruz for Dela Cruz’s alleged failure to give an effective notice of cancellation or
demand for rescission because Dela Cruz merely sent the notice to the address supplied by
petitioners in the Contract to Sell.

It is undeniable that petitioners failed to pay the balance of the purchase price on the stipulated date
of the Contract to Sell. Thus, Dela Cruz is within her rights to sell the subject lands to Bartolome.
Neither Dela Cruz nor Bartolome can be said to be in bad faith.

WHEREFORE, we DENY the petition. We AFFIRM in toto the Court of Appeals’ Decision
promulgated on 25 January 2006 as well as the Resolution promulgated on 16 March 2006 in CA-
G.R. CV No. 63651.

Costs against petitioners.

SO ORDERED.

20
G.R. No. 139173 February 28, 2007

SPOUSES ONNIE SERRANO AND AMPARO HERRERA, Petitioners

vs.
GODOFREDO CAGUIAT, Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the Decision1 of the Court of Appeals dated January 29, 1999 and its Resolution
dated July 14, 1999 in CA-G.R. CV No. 48824.
Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in Las
Piñas, Metro Manila covered by Transfer Certificate of Title No. T-9905.

Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot. Petitioners
agreed to sell it at ₱1,500.00 per square meter. Respondent then gave petitioners ₱100,000.00 as
partial payment. In turn, petitioners gave respondent the corresponding receipt stating that
respondent promised to pay the balance of the purchase price on or before March 23, 1990, thus:

Las Piñas, Metro Manila

March 19, 1990

RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS PIÑAS,
METRO MANILA

RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND
PESOS (₱100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS, M.M.
COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.

MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE
MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON
THIS DATE.

SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIÑAS, M.M.

(SGD) AMPARO HERRERA (SGD) ONNIE SERRANO"2

On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners
informing them of his readiness to pay the balance of the contract price and requesting them to
prepare the final deed of sale.3

On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter4 to respondent stating that
petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they are
canceling the transaction. Petitioners also informed respondent that he can recover the earnest
money of ₱100,000.00 anytime.

Again, on April 6, 1990,5 petitioners wrote respondent stating that they delivered to his counsel
Philippine National Bank Manager’s Check No. 790537 dated April 6, 1990 in the amount of
₱100,000.00 payable to him.

In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial
Court, Branch 63, Makati City a complaint against them for specific performance and damages,
docketed as Civil Case No. 90-1067.6

On June 27, 1994, after hearing, the trial court rendered its Decision7 finding there was a perfected
contract of sale between the parties and ordering petitioners to execute a final deed of sale in favor
of respondent. The trial court held:

xxx
In the evaluation of the evidence presented by the parties as to the issue as to who was ready to
comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that plaintiff’s
position deserves more weight and credibility. First, the ₱100,000.00 that plaintiff paid whether as
downpayment or earnest money showed that there was already a perfected contract. Art. 1482 of
the Civil Code of the Philippines, reads as follows, to wit:

‘Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract.’

Second, plaintiff was the first to react to show his eagerness to push through with the sale by
sending defendants the letter dated March 25, 1990. (Exh. ‘D’) and reiterated the same intent to
pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase price
ready for payment (Exh. ‘C’). Defendants’ mere allegation that it was plaintiff who did not appear on
March 23, 1990 is unavailing. Defendants’ letters (Exhs. ‘2’ and ‘5’) appear to be mere afterthought.

On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial
court’s judgment.

Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate court in
its Resolution8 dated July 14, 1999.

Hence, the present recourse.

The basic issue to be resolved is whether the document entitled "Receipt for Partial Payment" signed
by both parties earlier mentioned is a contract to sell or a contract of sale.

Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article
14589 in relation to Article 147510 of the Civil Code. The delivery to them of ₱100,000.00 as down
payment cannot be considered as proof of the perfection of a contract of sale under Article 148211 of
the same Code since there was no clear agreement between the parties as to the amount of
consideration.

Generally, the findings of fact of the lower courts are entitled to great weight and should not be
disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal in the
absence of a clear showing that the trial court overlooked, disregarded, or misinterpreted
some facts of weight and significance, which if considered would have altered the result of
the case. 12 In the present case, we find that both the trial court and the Court of Appeals interpreted
1awphi 1.net

some significant facts resulting in an erroneous resolution of the issue involved.

In holding that there is a perfected contract of sale, both courts mainly relied on the earnest money
given by respondent to petitioners. They invoked Article 1482 of the Civil Code which provides that
"Whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract."

We are not convinced.

In San Miguel Properties Philippines, Inc. v. Spouses Huang,13 we held that the stages of a contract
of sale are: (1) negotiation, covering the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place
upon the concurrence of the essential elements of the sale, which is the meeting of the minds of the
parties as to the object of the contract and upon the price; and (3) consummation, which begins
when the parties perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.

With the above postulates as guidelines, we now proceed to determine the real nature of the
contract entered into by the parties.

It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended.14 Thus, when petitioners
declared in the said "Receipt for Partial Payment" that they –

RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND
PESOS (₱100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS, M.M.
COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.

MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE
MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON
THIS DATE.

there can be no other interpretation than that they agreed to a conditional contract of sale,
consummation of which is subject only to the full payment of the purchase price.

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if
the suspensive condition does not take place, the parties would stand as if the conditional obligation
had never existed. The suspensive condition is commonly full payment of the purchase
price.15

The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As
early as 1951, in Sing Yee v. Santos,16 we held that:

x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon
delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved
in the seller and is not to pass until the full payment, of the purchase price is made. In the first case,
non-payment of the price is a negative resolutory condition; in the second case, full payment is a
positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first
case, the vendor has lost and cannot recover the ownership of the land sold until and unless the
contract of sale is itself resolved and set aside. In the second case, however, the title remains in the
vendor if the vendee does not comply with the condition precedent of making payment at the time
specified in the contract.

In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the
buyer until full payment of the price.17

In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties is
a contract to sell.

First, ownership over the property was retained by petitioners and was not to pass to
respondent until full payment of the purchase price. Thus, petitioners need not push through
with the sale should respondent fail to remit the balance of the purchase price before the
deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the
contract the moment respondent fails to pay within the fixed period.18
 Second, the agreement between the parties was not embodied in a deed of sale. The
absence of a formal deed of conveyance is a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after full payment of the purchase
price.19

Third, petitioners retained possession of the certificate of title of the lot. This is an additional
indication that the agreement did not transfer to respondent, either by actual or constructive
delivery, ownership of the property.20

It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the contract."
However, this article speaks of earnest money given in a contract of sale. In this case, the earnest
money was given in a contract to sell. The earnest money forms part of the consideration only if
the sale is consummated upon full payment of the purchase price.21 Now, since the earnest money
was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply.

As previously discussed, the suspensive condition (payment of the balance by respondent) did not
take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to
him.

WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the Court of
Appeals is REVERSED and respondent’s complaint is DISMISSED.

SO ORDERED.

21
G.R. No. 85240 July 12, 1991

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely, MODESTA CLAUDEL,

LORETA HERRERA, JOSE CLAUDEL, BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA
CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL, LEONARDO CLAUDEL, ARSENIA
VILLALON, PERPETUA CLAUDEL and FELISA CLAUDEL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and
CELESTINA, all surnamed CLAUDEL, respondents.

Ricardo L. Moldez for petitioners.

Juan T. Aquino for private respondents

SARMIENTO, J.:
This petition for review on certiorari seeks the reversal of the decision rendered by the Court of
Appeals in CA-G.R. CV No. 044291 and the reinstatement of the decision of the then Court of First
Instance (CFI) of Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of Macario Claudel,
et al. v. Heirs of Cecilio Claudel, et al.," which dismissed the complaint of the private respondents
against the petitioners for cancellation of titles and reconveyance with damages.2

As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau
of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471
issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his
name, the latest Tax Declaration being No. 5795. He dutifully paid the real estate taxes thereon until
his death in 1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein
petitioners, paid the taxes.

The same piece of land purchased by Cecilio would, however, become the subject of protracted
litigation thirty-nine years after his death.

Two branches of Cecilio's family contested the ownership over the land-on one hand the children of
Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo,
Nenita, Arsenia Villalon, and Felisa Claudel, and their children and descendants, now the herein
petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother and sisters
of Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and their children and
descendants, now the herein private respondents (hereinafter referred to as SIBLINGS OF
CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among themselves and obtained the
corresponding Transfer Certificates of Title on their shares, as follows:

TCT No. 395391 1,997 sq. m. –– Jose Claudel

TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children

TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon

TCT No. 395394 1,997 sq. m. –– Felisa Claudel4

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case
No. 5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a
"Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that 46 years
earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel several
portions of Lot No. 1230 for the sum of P30.00. They admitted that the transaction was verbal.
However, as proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of the said
land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.

As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the
complaint, disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF
CECILIO, thus:

Examining the pleadings as well as the evidence presented in this case by the parties, the
Court can not but notice that the present complaint was filed in the name of the Heirs of
Macario, Espiridiona, Raymunda and Celestina, all surnamed Claudel, without naming the
different heirs particularly involved, and who wish to recover the lots from the defendants.
The Court tried to find this out from the evidence presented by the plaintiffs but to no avail.
On this point alone, the Court would not be able to apportion the property to the real party in
 interest if ever they are entitled to it as the persons indicated therein is in generic term
(Section 2, Rule 3). The Court has noticed also that with the exception of plaintiff Lampitoc
and (sic) the heirs of Raymunda Claudel are no longer residing in the property as they have
(sic) left the same in 1967. But most important of all the plaintiffs failed to present any
document evidencing the alleged sale of the property to their predecessors in interest by the
father of the defendants. Considering that the subject matter of the supposed sale is a real
property the absence of any document evidencing the sale would preclude the admission of
oral testimony (Statute of Frauds). Moreover, considering also that the alleged sale took
place in 1930, the action filed by the plaintiffs herein for the recovery of the same more than
thirty years after the cause of action has accrued has already prescribed.

WHEREFORE, the Court renders judgment dismissing the complaint, without

pronouncement as to costs.

SO ORDERED.5

On appeal, the following errors6 were assigned by the SIBLINGS OF CECILIO:

1. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS' COMPLAINT DESPITE

CONCLUSIVE EVIDENCE SHOWING THE PORTION SOLD TO EACH OF PLAINTIFFS'
PREDECESSORS.

2. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS FAILED TO PROVE ANY
DOCUMENT EVIDENCING THE ALLEGED SALE.

3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO THE PLAN, EXHIBIT A,
SHOWING THE PORTIONS SOLD TO EACH OF THE PLAINTIFFS' PREDECESSORS-IN-
INTEREST.

4. THE TRIAL COURT ERRED IN NOT DECLARING PLAINTIFFS AS OWNERS OF THE

PORTION COVERED BY THE PLAN, EXHIBIT A.

5. THE TRIAL COURT ERRED IN NOT DECLARING TRANSFER CERTIFICATES OF

TITLE NOS. 395391, 395392, 395393 AND 395394 OF THE REGISTER OF DEEDS OF
RIZAL AS NULL AND VOID.

The Court of Appeals reversed the decision of the trial court on the following grounds:

1. The failure to bring and prosecute the action in the name of the real party in interest, namely the
parties themselves, was not a fatal omission since the court a quo could have adjudicated the lots to
the SIBLINGS OF CECILIO, the parents of the herein respondents, leaving it to them to adjudicate
the property among themselves.

2. The fact of residence in the disputed properties by the herein respondents had been made
possible by the toleration of the deceased Cecilio.

3. The Statute of Frauds applies only to executory contracts and not to consummated sales as in the
case at bar where oral evidence may be admitted as cited in Iñigo v. Estate of Magtoto7 and Diana,
et al. v. Macalibo.8

In addition,
 . . . Given the nature of their relationship with one another it is not unusual that no document
to evidence the sale was executed, . . ., in their blind faith in friends and relatives, in their
lack of experience and foresight, and in their ignorance, men, in spite of laws, will make and
continue to make verbal contracts. . . .9

4. The defense of prescription cannot be set up against the herein petitioners despite the lapse of
over forty years from the time of the alleged sale in 1930 up to the filing of the "Complaint for
Cancellation of Titles and Reconveyance . . ." in 1976.

According to the Court of Appeals, the action was not for the recovery of possession of real property
but for the cancellation of titles issued to the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF
CECILIO commenced their complaint for cancellation of titles and reconveyance with damages on
December 7, 1976, only four years after the HEIRS OF CECILIO partitioned this lot among
themselves and obtained the corresponding Transfer Certificates of Titles, then there is no
prescription of action yet.

Thus the respondent court ordered the cancellation of the Transfer Certificates of Title Nos. 395391,
395392, 395393, and 395394 of the Register of Deeds of Rizal issued in the names of the HEIRS
OF CECILIO and corollarily ordered the execution of the following deeds of reconveyance:

To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.

To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.

To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.

To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10

The respondent court also enjoined that this disposition is without prejudice to the private
respondents, as heirs of their deceased parents, the SIBLINGS OF CECILIO, partitioning among
themselves in accordance with law the respective portions sold to and herein adjudicated to their
parents.

The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927 square meters,
respectively would go to Cecilio or his heirs, the herein petitioners. Beyond these apportionments,
the HEIRS OF CECILIO would not receive anything else.

The crux of the entire litigation is whether or not the Court of Appeals committed a reversible error in
disposing the question of the true ownership of the lots.

And the real issues are:

1. Whether or not a contract of sale of land may be proven orally:

2. Whether or not the prescriptive period for filing an action for cancellation of titles and
reconveyance with damages (the action filed by the SIBLINGS OF CECILIO) should be
counted from the alleged sale upon which they claim their ownership (1930) or from the date
of the issuance of the titles sought to be cancelled in favor of the HEIRS OF CECILIO
(1976).
The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may
have been entered into.11 For nowhere does law or jurisprudence prescribe that the contract of sale
be put in writing before such contract can validly cede or transmit rights over a certain real property
between the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the property, the
person against whom that claim is brought can not present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of Frauds was precisely devised to protect the
parties in a contract of sale of real property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.

The provisions of the Statute of Frauds pertinent to the present controversy, state:

Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:

xxx xxx xxx

2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases, an agreement hereafter made shall be unenforceable by action unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:

xxx xxx xxx

e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

xxx xxx xxx

(Emphasis supplied.)

The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced in Writing.12

The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence.
However when the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of the
Statute of Frauds were taken out of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show
that the Statute of Frauds is also a substantive law.

Therefore, except under the conditions provided by the Statute of Frauds, the existence of the
contract of sale made by Cecilio with his siblings13 can not be proved.

On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court
only in 1976 to enforce a light acquired allegedly as early as 1930, is difficult to comprehend.

The Civil Code states:

Art. 1145. The following actions must be commenced within six years:
 (1) Upon an oral contract . . . (Emphasis supplied).

If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral
purchase made by their parents in 1930, then the action filed in 1976 would have clearly prescribed.
More than six years had lapsed.

We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in
favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO
executed a contract of partition over the said properties.

But as we had pointed out, the law recognizes the superiority of the torrens title.

Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof
of ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.

The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person
of any portion of the land could defeat the title of the registered owners thereof.14

A torrens title, once registered, cannot be defeated, even by adverse, open and notorious
possession. A registered title under the torrens system cannot be defeated by
prescription. The title, once registered, is notice to the world. All persons must take notice.
1âw phi 1

No one can plead ignorance of the registration.15

xxx xxx xxx

Furthermore, a private individual may not bring an action for reversion or any action which
would have the effect of cancelling a free patent and the corresponding certificate of title
issued on the basis thereof, with the result that the land covered thereby will again form part
of the public domain, as only the Solicitor General or the officer acting in his stead may do
so.16

It is true that in some instances, the Court did away with the irrevocability of the torrens title, but the
circumstances in the case at bar varied significantly from these cases.

In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title was disregarded when the
transferee who took it had notice of the flaws in the transferor's title. No right passed to a transferee
from a vendor who did not have any in the first place. The transferees bought the land registered
under the torrens system from vendors who procured title thereto by means of fraud. With this
knowledge, they can not invoke the indefeasibility of a certificate of title against the private
respondent to the extent of her interest. This is because the torrens system of land registration,
though indefeasible, should not be used as a means to perpetrate fraud against the rightful owner of
real property.

Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise
registration becomes an exercise in futility.18

In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In this case, the title was
wrongfully registered in another person's name. An implied trust was therefore created. This trustee
was compelled by law to reconvey property fraudulently acquired notwithstanding the irrevocability of
the torrens title.20
In the present case, however, the facts belie the claim of ownership.

For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and
Celestina were living on the contested premises, they regularly paid a sum of money, designated as
"taxes" at first, to the widow of Cecilio, and later, to his heirs.21 Why their payments were never
directly made to the Municipal Government of Muntinlupa when they were intended as payments for
"taxes" is difficult to square with their claim of ownership. We are rather inclined to consider this fact
as an admission of non-ownership. And when we consider also that the petitioners HEIRS OF
CECILIO had individually paid to the municipal treasury the taxes corresponding to the particular
portions they were occupying,22 we can readily see the superiority of the petitioners' position.

Renato Solema and Decimina Calvez, two of the respondents who derive their right from the
SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF
CLAUDEL.23 The Calvezes should not be paying for a lot that they already owned and if they did not
acknowledge Felisa as its owner.

In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the
property, they had to ask first the permission of Jose Claudel again, one of the HEIRS OF
CECILIO.24 In fact the only reason why any of the heirs of SIBLINGS OF CECILIO could stay on the
lot was because they were allowed to do so by the HEIRS OF CECILIO.25

In view of the foregoing, we find that the appellate court committed a reversible error in denigrating
the transfer certificates of title of the petitioners to the survey or subdivision plan proffered by the
private respondents. The Court generally recognizes the profundity of conclusions and findings of
facts reached by the trial court and hence sustains them on appeal except for strong and cogent
reasons inasmuch as the trial court is in a better position to examine real evidence and observe the
demeanor of witnesses in a case.

No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal
of the lower court's findings. Thus, in this case, between the factual findings of the trial court and the
appellate court, those of the trial court must prevail over that of the latter.26

WHEREFORE, the petition is GRANTED We REVERSE and SET ASIDE the decision rendered in
CA-G.R. CV No. 04429, and we hereby REINSTATE the decision of the then Court of First Instance
of Rizal (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the dismissal of the
Complaint for Cancellation of Titles and Reconveyance with Damages filed by the Heirs of Macario,
Esperidiona Raymunda, and Celestina, all surnamed CLAUDEL. Costs against the private
respondents.

SO ORDERED.

22
G.R. No. 78903 February 28, 1990
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND RUPERTO SABESAJE, JR., respondents.

Francisco A. Puray, Sr. for petitioners.

Gabriel N. Duazo for private respondent.

MEDIALDEA, J.:

This is a petition to annul and set aside the decision of the Court of Appeals rendered on May 26,
1987, upholding the validity of the sale of a parcel of land by petitioner Segundo Dalion (hereafter,
"Dalion") in favor of private respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described
thus:

A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the name
of Segundo Dalion, under Tax Declaration No. 11148, with an area of 8947 hectares,
assessed at P 180.00, and bounded on the North, by Sergio Destriza and Titon
Veloso, East, by Feliciano Destriza, by Barbara Bonesa (sic); and West, by Catalino
Espina. (pp. 36-37, Rollo)

The decision affirms in toto the ruling of the trial court 1 issued on January 17, 1984, the dispositive
portion of which provides as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders judgment.

(a) Ordering the defendants to deliver to the plaintiff the parcel of land subject of this
case, declared in the name of Segundo Dalion previously under Tax Declaration No.
11148 and lately under Tax Declaration No. 2297 (1974) and to execute the
corresponding formal deed of conveyance in a public document in favor of the
plaintiff of the said property subject of this case, otherwise, should defendants for any
reason fail to do so, the deed shall be executed in their behalf by the Provincial
Sheriff or his Deputy;

(b) Ordering the defendants to pay plaintiff the amount of P2,000.00 as attorney's
fees and P 500.00 as litigation expenses, and to pay the costs; and

(c) Dismissing the counter-claim. (p. 38, Rollo)

The facts of the case are as follows:

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a private
document of absolute sale, dated July 1, 1965 (Exhibit "A"), allegedly executed by Dalion, who,
however denied the fact of sale, contending that the document sued upon is fictitious, his signature
thereon, a forgery, and that subject land is conjugal property, which he and his wife acquired in 1960
from Saturnina Sabesaje as evidenced by the "Escritura de Venta Absoluta" (Exhibit "B"). The
spouses denied claims of Sabesaje that after executing a deed of sale over the parcel of land, they
had pleaded with Sabesaje, their relative, to be allowed to administer the land because Dalion did
not have any means of livelihood. They admitted, however, administering since 1958, five (5) parcels
of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,
who died in 1956. They never received their agreed 10% and 15% commission on the sales of copra
and abaca, respectively. Sabesaje's suit, they countered, was intended merely to harass, preempt
and forestall Dalion's threat to sue for these unpaid commissions.

From the adverse decision of the trial court, Dalion appealed, assigning errors some of which,
however, were disregarded by the appellate court, not having been raised in the court below. While
the Court of Appeals duly recognizes Our authority to review matters even if not assigned as errors
in the appeal, We are not inclined to do so since a review of the case at bar reveals that the lower
court has judicially decided the case on its merits.

As to the controversy regarding the identity of the land, We have no reason to dispute the Court of
Appeals' findings as follows:

To be sure, the parcel of land described in Exhibit "A" is the same property deeded
out in Exhibit "B". The boundaries delineating it from adjacent lots are identical. Both
documents detail out the following boundaries, to wit:

On the North-property of Sergio Destriza and Titon Veloso;

On the East-property of Feliciano Destriza;

On the South-property of Barbara Boniza and

On the West-Catalino Espina.

(pp. 41-42, Rollo)

The issues in this case may thus be limited to: a) the validity of the contract of sale of a parcel of
land and b) the necessity of a public document for transfer of ownership thereto.

The appellate court upheld the validity of the sale on the basis of Secs. 21 and 23 of Rule 132 of the
Revised Rules of Court.

SEC. 21. Private writing, its execution and authenticity, how proved.-Before any
private writing may be received in evidence, its due execution and authenticity must
be proved either:

(a) By anyone who saw the writing executed;

(b) By evidence of the genuineness of the handwriting of the maker; or

(c) By a subscribing witness

xxx xxx xxx

SEC. 23. Handwriting, how proved. — The handwriting of a person may be proved
by any witness who believes it to be the handwriting of such person, and has seen
the person write, or has seen writing purporting to be his upon which the witness has
acted or been charged, and has thus acquired knowledge of the handwriting of such
person. Evidence respecting the handwriting may also be given by a comparison,
 made by the witness or the court, with writings admitted or treated as genuine by the
party against whom the evidence is offered, or proved to be genuine to the
satisfaction of the judge. (Rule 132, Revised Rules of Court)

And on the basis of the findings of fact of the trial court as follows:

Here, people who witnessed the execution of subject deed positively testified on the
authenticity thereof. They categorically stated that it had been executed and signed
by the signatories thereto. In fact, one of such witnesses, Gerardo M. Ogsoc,
declared on the witness stand that he was the one who prepared said deed of sale
and had copied parts thereof from the "Escritura De Venta Absoluta" (Exhibit B) by
which one Saturnina Sabesaje sold the same parcel of land to appellant Segundo
Dalion. Ogsoc copied the bounderies thereof and the name of appellant Segundo
Dalion's wife, erroneously written as "Esmenia" in Exhibit "A" and "Esmenia" in
Exhibit "B". (p. 41, Rollo)

xxx xxx xxx

Against defendant's mere denial that he signed the document, the positive
testimonies of the instrumental Witnesses Ogsoc and Espina, aside from the
testimony of the plaintiff, must prevail. Defendant has affirmatively alleged forgery,
but he never presented any witness or evidence to prove his claim of forgery. Each
party must prove his own affirmative allegations (Section 1, Rule 131, Rules of
Court). Furthermore, it is presumed that a person is innocent of a crime or wrong
(Section 5 (a), Idem), and defense should have come forward with clear and
convincing evidence to show that plaintiff committed forgery or caused said forgery to
be committed, to overcome the presumption of innocence. Mere denial of having
signed, does not suffice to show forgery.

In addition, a comparison of the questioned signatories or specimens (Exhs. A-2 and

A-3) with the admitted signatures or specimens (Exhs. X and Y or 3-C) convinces the
court that Exhs. A-2 or Z and A-3 were written by defendant Segundo Dalion who
admitted that Exhs. X and Y or 3-C are his signatures. The questioned signatures
and the specimens are very similar to each other and appear to be written by one
person.

Further comparison of the questioned signatures and the specimens with the
signatures Segundo D. Dalion appeared at the back of the summons (p. 9, Record);
on the return card (p. 25, Ibid.); back of the Court Orders dated December 17, 1973
and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56, respectively, Ibid.), and on
the open court notice of April 13, 1983 (p. 235, Ibid.) readily reveal that the
questioned signatures are the signatures of defendant Segundo Dalion.

It may be noted that two signatures of Segundo D. Dalion appear on the face of the
questioned document (Exh. A), one at the right corner bottom of the document (Exh.
A-2) and the other at the left hand margin thereof (Exh. A-3). The second signature is
already a surplusage. A forger would not attempt to forge another signature, an
unnecessary one, for fear he may commit a revealing error or an erroneous stroke.
(Decision, p. 10) (pp. 42-43, Rollo)

We see no reason for deviating from the appellate court's ruling (p. 44, Rollo) as we reiterate that
 Appellate courts have consistently subscribed to the principle that conclusions and
findings of fact by the trial courts are entitled to great weight on appeal and should
not be disturbed unless for strong and cogent reasons, since it is undeniable that the
trial court is in a more advantageous position to examine real evidence, as well as to
observe the demeanor of the witnesses while testifying in the case (Chase v.
Buencamino, Sr., G.R. No. L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of
Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)

Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless
still impugns the validity of the sale on the ground that the same is embodied in a private document,
and did not thus convey title or right to the lot in question since "acts and contracts which have for
their object the creation, transmission, modification or extinction of real rights over immovable
property must appear in a public instrument" (Art. 1358, par 1, NCC).

This argument is misplaced. The provision of Art. 1358 on the necessity of a public document is only
for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract
of sale of a parcel of land that this be embodied in a public instrument.

A contract of sale is a consensual contract, which means that the sale is perfected by mere consent.
No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of
ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold
(Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to
execute corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC,
when the sale is made through a public instrument, the execution thereof is equivalent to the delivery
of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land
may be done by placing the vendee in control and possession of the land (real) or by embodying the
sale in a public instrument (constructive).

As regards petitioners' contention that the proper action should have been one for specific
performance, We believe that the suit for recovery of ownership is proper. As earlier stated, Art.
1475 of the Civil Code gives the parties to a perfected contract of sale the right to reciprocally
demand performance, and to observe a particular form, if warranted, (Art. 1357). The trial court,
aptly observed that Sabesaje's complaint sufficiently alleged a cause of action to compel Dalion to
execute a formal deed of sale, and the suit for recovery of ownership, which is premised on the
binding effect and validity inter partes of the contract of sale, merely seeks consummation of said
contract.

... . A sale of a real property may be in a private instrument but that contract is valid
and binding between the parties upon its perfection. And a party may compel the
other party to execute a public instrument embodying their contract affecting real
rights once the contract appearing in a private instrument hag been perfected (See
Art. 1357).

... . (p. 12, Decision, p. 272, Records)

ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals upholding the
ruling of the trial court is hereby AFFIRMED. No costs.

SO ORDERED.
23
G.R. No. L-11311 May 28, 1958

MARTA C. ORTEGA, plaintiff-appellant,

vs.
DANIEL LEONARDO, defendant-appellee.

Jose Ma. Reyes for appellant.

Tomas A. Leonardo for appellee.

BENGZON, J.:

Well known is the general rule in the Statute of Frauds precluding enforcement of oral contracts for
the sale of land. Not so well known is exception concerning the partially executed contracts1 — least
our jurisprudence offers few, if any, apposite illustrations. This appeal exemplifies such exception.

Alleging partial performance, plaintiff sought to compel defendant to comply with their oral contract of
sale of a parcel of land. Upon a motion to dismiss, the Manila court of first instance ordered
dismissal following the above general rule.

Hence this appeal. It should be sustained if the allegations of the complaint — which the motion to
dismiss admitted — set out an instance of partial performance.

Stripped of non-essentials, the complaint averred that long before and until her house had been
completely destroyed during the liberation of the City of Manila, plaintiff occupied a parcel of land,
designated as Lot 1, Block 3 etc. (hereinafter called Lot I) located at San Andres Street, Malate,
Manila; that after liberation she re-occupied it; that when the administration and disposition of the
said Lot I (together with other lots in the Ana Sarmiento Estate) were assigned by the Government to
the Rural Progress Administration2 plaintiff asserted her right thereto (as occupant) for purposes of
purchase; that defendant also asserted a similar right, alleging occupancy of a portion of the land
subsequent to plaintiff's; that during the investigation of such conflicting interests, defendant asked
plaintiff to desist from pressing her claim and definitely promised that if and when he succeeded in
getting title to Lot I3 , he would sell to her a portion thereof with an area of 55.60 square meters
(particularly described) at the rate of P25.00 per square meter, provided she paid for the surveying
and subdivision of the Lot and provided further that after he acquired title, she could continue holding
the lot as tenant by paying a monthly rental of P10.00 until said portion shall have been segregated
and the purchase price fully paid; that plaintiff accepted defendant's offer, and desisted from further
claiming Lot I; that defendant finally acquired title thereto; that relying upon their agreement, plaintiff
caused the survey and segregation of the portion which defendant had promised to sell incurring
expenses therefor, said portion being now designated as Lot I-B in a duly prepared and approved
subdivision plan; that in remodelling her son's house constructed on a lot adjoining Lot I she
extended it over said Lot I-B; that after defendant had acquired Lot I plaintiff regularly paid him the
monthly rental of P10.00; that in July 1954, after the plans of subdivision and segregation of the lot
had been approved by the Bureau of Lands, plaintiff tendered to defendant the purchase price which
the latter refused to accept, without cause or reason.

The court below explained in its order of dismissal:

It is admitted by both parties that an oral agreement to sell a piece of land is not enforceable.
(Art. 1403, Civil Code, Section 21, Rule 123, Rules of Court.) Plaintiff, however, argues that
the contract in question, although verbal, was partially performed because plaintiff desisted
from claiming the portion of lot I in question due to the promise of defendant to transfer said
portion to her after the issuance of title to defendant. The court thinks that even granting that
plaintiff really desisted to claim not on oral promise to sell made by defendant, the oral
promise to sell cannot be enforced. The desistance to claim is not a part of the contract of
sale of the land. Only in essential part of the executory contract will, if it has already been
performed, make the verbal contract enforceable, payment of price being an essential part of
the contract of sale.

If the above means that partial performance of a sale contract occurs only when part of the purchase
price is paid, it surely constitutes a defective statement of the law. American Jurisprudence in its title
"Statute of Frauds" lists other acts of partial performance, such as possession, the making of
improvements, rendition of services, payment of taxes, relinquishment of rights, etc.

Thus, it is stated that "The continuance in possession may, in a proper case, be sufficiently referable
to the parol contract of sale to constitute a part performance thereof. There may be additional acts or
peculiar circumstances which sufficiently refer the possession to the contract. . . . Continued
possession under an oral contract of sale, by one already in possession as a tenant, has been held
a sufficient part performance, where accompanied by other acts which characterize the continued
possession and refer it to the contract of purchase. Especially is this true where the circumstances of
the case include the making of substantial, permanent, and valuable improvements." (49 American
Jurisprudence — 44)

It is also stated that "The making of valuable permanent improvements on the land by the purchaser,
in pursuance of the agreement and with the knowledge of the vendor, has been said to be the
strongest and the most unequivocal act of part performance by which a verbal contract to sell land is
taken out of the statute of frauds, and is ordinarily an important element in such part performance. . .
. Possession by the purchaser under a parol contract for the purchase of real property, together with
his making valuable and permanent improvements on the property which are referable exclusively to
the contract, in reliance on the contract, in the honest belief that he has a right to make them, and
with the knowledge and consent or acquiescence of the vendor, is deemed a part performance of
the contract. The entry into possession and the making of the improvements are held on amount to
such an alteration in the purchaser's position as will warrant the court's entering a degree of specific
performance." (49 American Jurisprudence p.755, 756.)

Again, it is stated that "A tender or offer of payment, declined by the vendor, has been said to be
equivalent to actual payment, for the purposes of determining whether or not there has been a part
performance of the contract. This is apparently true where the tender is by a purchaser who has
made improvements. But the doctrine now generally accepted, that not even the payment of the
purchase price, without something more, . . . is a sufficient part performance. (49 American
Jurisprudence p. 772.)

And the relinquishment of rights or the compromise thereof has likewise been held to constitute part
performance. (See same title secs. 473, 474, 475.)
In the light of the above four paragraphs, it would appear that the complaint in this case described
several circumstance indicating partial performance: relinquishment of rights4 continued possession,
building of improvements, tender of payment plus the surveying of the lot at plaintiff's expense and
the payment of rentals.

We shall not take, time to discuss whether one or the other or any two or three of them constituted
sufficient performance to take the matter away from the operation of the Statute of Frauds. Enough
to hold that the combination of all of them amounted to partial performance; and we do so line with
the accepted basis of the doctrine, that it would be a fraud upon the plaintiff if the defendant were
permitted to oppose performance of his part after he has allowed or induced the former to perform in
reliance upon the agreement. (See 49 American Jurisprudence p. 725.)

The paragraph immediately preceding will serve as our comment on the appellee's quotations from
American Jurisprudence itself to the effect that "relinquishment" is not part performance, and that
neither "surveying the land"5 nor tender of payment is sufficient. The precedents hereinabove
transcribed oppose or explain away or qualify the appellee's citations. And at the risk of being
repetitious we say: granting that none of the three circumstances indicated by him, (relinquishment,
survey, tender) would separately suffice, still the combination of the three with the others already
mentioned, amounts to more than enough.

Hence, as there was partial performance, the principle excluding parol contracts for the sale of
realty, does not apply.

The judgment will accordingly be reversed and the record remanded for further proceedings. With
costs against appellee.

Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Endencia and Felix, JJ., concur.

24
G.R. No. L-17061 December 30, 1961

LUNETA MOTOR COMPANY, petitioner,

vs.
ANGEL DIMAGIBA, ET AL., respondents.

Jose Agbulos for petitioner.

M. Concepcion for respondents.

BAUTISTA ANGELO, J.:

Sometime prior to May 7, 1956, the Luneta Motor Company filed several cases in the Courts of First
Instance of Manila and Cavite against Angel Dimagiba and Natividad Noriel concerning the purchase
from said company by Dimagiba of a truck the price of which he was not able to pay according to
their agreement. These cases eventually were settled amicably by virtue of a compromise
agreement entered into between the company and the two defendants as a result of which Dimagiba
signed a promissory note on the aforesaid date in favor of the company for the sum of P16,126.12
which he promised to pay in 18 monthly installments. To guarantee the payment of said
indebtedness two chattel mortgages were executed separately by Dimagiba and Noriel wherein they
placed as security two trucks belonging to each of them. Subsequently, because of some tires and
spare parts bought on credit by Dimagiba from the same company, he executed two more
promissory notes, one on June 11, 1956 in the sum of P1,108.00 payable in 4 equal installments,
and the other on July 20, 1956 for P700.00 payable in 5 equal installments. Because the aforesaid
equipment was used by Dimagiba in the truck bought by him, the chattel mortgage he had executed
was made extensive to the value of said two promissory notes.

On November 27, 1956, due to the failure of Dimagiba to pay several installments that became due
on the three promissory notes executed by him to cover the value of the truck and the equipment he
had purchased, the Luneta Motor Company filed a complaint before the Court of First Instance of
Manila against Dimagiba and Noriel for replevin and for recovery of the balance of the latter's
obligation praying at the same time that a warrant of seizure be issued directing the sheriff to seize
the mortgaged trucks and turn them over to plaintiff, and, finding this prayer meritorious, the two
trucks were ordered seized and delivered to plaintiff after filing on its part the bond fixed by the court.
Later, a supplemental complaint was filed by the same company against the same defendants to
recover the sum of P1,455.61 being the value of certain parts found to be missing in the truck of
Dimagiba.

In the meantime, a writ of injunction was prayed for by Noriel in an attempt to forestall the seizure of
her truck by the plaintiff which was granted upon her filing a bond of P7,500.00 which later was
reduced to P1,600.00, but having failed to put up said bond the replevin continued and on May 10,
1957, Noriel's truck was sold at public auction upon petition of plaintiff and was adjudicated to the
same plaintiff as the highest bidder for the sum of P5,000.00. lawphil.net

After trial, the court a quo rendered decision holding that since plaintiff has seized the two trucks and
chose to foreclose the mortgages executed thereon pursuant Article to 1484 of the new Civil Code it
can no longer recover the balance of the purchase price against either defendants and,
consequently, it affirmed the writ of manual delivery of the truck belonging to Dimagiba but
dismissed the complaint against Noriel, ordering Dimagiba to pay plaintiff the sum of P1,455.61
representing the value of the parts found missing in his truck, with legal interest thereon from the
filing of the complaint, and the costs of action. However, when defendants called the attention of the
court a quo that while it ordered the dismissal of the complaint against Noriel and set aside the writ
of manual delivery issued in relation thereto it overlooked the latter's counterclaim relative to the
return of her truck or the payment of its value in default thereof, the court a quo modified its decision
by ordering plaintiff to pay Noriel the sum of P10,000.00 with legal interest thereon from the date of
the filing of the counterclaim, it having found that the return of the truck has become legally
impossible.

Within the period prescribed to perfect an appeal, plaintiff caused the truck of Dimagiba to be sold at
public auction at which it bought the same for P9,000.00 as the highest bidder. And when the case
was elevated to the Court of Appeals, the latter affirmed in toto the decision of court a quo. The case
is now before us on a petition for review filed by the plaintiff.
It appears that Angel Dimagiba bought from the Luneta Motor Company a truck for a price which
was compromised at P16,126.12 payable in 18 monthly installments to guarantee which he
executed a chattel mortgage on the same truck on May 7, 1956, and as a further security thereto on
Natividad Noriel also executed on the same date a chattel mortgage on another truck which
belonged to the latter. It also appears that when Dimagiba failed to pay several installments as he
agreed in the promissory note he executed to cover the price of the truck he purchased, the
company instituted an action not only to recover the balance of his obligation but to secure the
seizure of the two trucks mortgaged with a prayer that the proceeds that may be realized after the
sale of said trucks be applied to the payment of the judgment that may be rendered in the case.
Because of the vague nature of the allegations contained in the complaint, as well as in its prayer,
the court a quo, as well as the Court of Appeals, considered the action taken as one of both replevin
and foreclosure of mortgage.

In effect, after the filing of the complaint, the first step taken by plaintiff was to ask for the seizure of
the two trucks subject of replevin, which was granted, the sheriff having taken possession thereof
and having turned them over to the plaintiff. Thereafter, while the main case was still pending trial on
the merits, plaintiff secured from the sheriff the sale of the truck of Noriel at public auction which
plaintiff itself bought as the highest bidder for the sum of P5,000.00. And considering that plaintiff
could not foreclose the mortgage of Noriel's truck out of court and at the same ask for judgment on
the balance of the obligation against the principal debtor Angel Dimagiba, the court a quo declared
that such sale which was carried out at the request of the plaintiff has no legal validity considering
that plaintiff chose at the same time to foreclose the chattel mortgage executed by Dimagiba to
secure the payment of the same obligation, and so it dismissed the case insofar as Noriel is
concerned, while it ordered the payment to her of its value which was fixed at P10,000.00. Thus, in
reaching the conclusion that the scheme of the creditor cannot be sustained because it would be a
flagrant violation of Article 1484 of the Civil Code, the court a quo said:

While it is true that Exhibit "4" on its face appears to be a compromise, there is no question
that by virtue of said compromise, the truck of Angel Dimagiba was once more sold to him on
the installment plan by Luneta Motor Co. and Angel was made to assume the balance of the
account including parts and tires all on credit; the Court does not see that this being the
case, the case can be taken out of the operation of Article 1484 of the New Civil Code; the
law is quite emphatic when it declares that any agreement to the contrary would be null and
void; and the evidence having established the fact that the consideration of the two
promissory notes, Exhibits "G" to "I" were casings and inner tubes also as the Court
understands incorporated into the truck and covered as plaintiff itself alleges in paragraph 3
of its complaint, in the chattel mortgage, Exhibit "C", the only effect should be as the Court
understands Art. 1484 that when plaintiff chose to foreclose the chattel mortgage, it
submitted itself to the consequences of the law with the result that having seized the truck of
Angel Dimagiba, it could no longer secure any judgment for the balance of the account of
Angel and for the reason that Natividad was only a mortgagor in the chattel mortgage to
guarantee the fulfillment of the first promissory note, and her liability being only secondary,
neither should she be required anymore to pay the balance due unto plaintiff from Angel
Dimagiba, so that the result would be that with respect to the money liability prayed for in the
complaint, the same will have to be a dismissal....

To the above ruling the Court of Appeals has fully agreed.

We do not find any error in this ruling of the court a quo which was concurred in by the Court of
Appeals for the same is in line with the letter and spirit of Article 1484 of the new Civil Code. Indeed,
said article prescribes three remedies which a vendor may pursue in a contract of sale of personal
property the price of which is payable in installments, to wit: (1) exact fulfillment of the obligation; (2)
cancel the sale; and (3) foreclose the mortgage on the thing sold. If he chooses the third remedy, the
article provides that he shall have no further action against the purchaser to recover any unpaid
balance of the purchase price. It even adds that any agreement to the contrary shall be void.

But in the instant case the vendor was not content in choosing any of the three remedies, but chose
to avail itself of the first and third remedies. More than that, plaintiff even went to the extent of suing
for replevin, in other words, it filed an action containing three remedies: to collect the purchase price,
to seize the property purchased, and to foreclose the mortgage executed thereon. Plaintiff even went
to the extent of selling first the property of Noriel, who is not the vendee, out of court, and after doing
so, it asked the court for judgment in the balance. Such a scheme is not only irregular but is a
flagrant circumvention of the prohibition of the law.

The issues posed before us by petitioner cannot now be passed upon not only because we consider
them unnecessary but because they were not raised either before the Court of Appeals or before the
court a quo.

WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.

Bengzon, C.J., Padilla, Concepcion, Barrera, Paredes and De Leon, JJ., concur.
Labrador, J., reserves his vote.
Reyes, J.B.L., J., concurs in the result.
Dizon, J., took no part.

25
G.R. No. 106435 July 14, 1999

PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and
HIRAM DIDAY R. PULIDO, petitioners,
vs.
HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES, respondents.

GONZAGA-REYES, J.:

Before Us for review on certiorari is the decision of the respondent Court of Appeals in C.A. G.R.
C.V. No. 27861, promulgated on April 23, 1992, 1 affirming in toto the decision of the Regional Trial
Court of Makati 2 to a award respondent bank's deficiency claim, arising from a loan secured by
chattel mortgage.

The antecedents of the case are as follows:

On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of
US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan,
petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed a promissory note
for the said amount, promising to pay the loan by installment. As security for the said loan, a chattel
mortgage was also executed over PAMECA's properties in Dumaguete City, consisting of
inventories, furniture and equipment, to cover the whole value of the loan.

On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank extrajudicially
foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed
properties for a sum of P322,350.00. On June 29, 1984, respondent bank filed a complaint for the
collection of the balance of P4,366,332.46 3 with Branch 132 of the Regional Trial Court of Makati
City against petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA
under the promissory note.

On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of
which we reproduce as follows:

WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly

and severally plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim
of the latter as of March 31, 1984, plus 21% interest per annum and other charges
from April 1, 1984 until the whole amount is fully paid and (2) the costs of the suit.
SO ORDERED." 4

The Court of Appeals affirmed the RTC decision. Hence, this Petition.

The petition raises the following grounds:

1. Respondent appellate court gravely erred in not reversing the decision of the trial
court, and in not holding that the public auction sale of petitioner PAMECA's chattels
were tainted with fraud, as the chattels of the said petitioner were bought by private
respondent as sole bidder in only 1/6 of the market value of the property, hence
unconscionable and inequitable, and therefore null and void.

2. Respondent appellate court gravely erred in not applying by analogy Article 1484
and Article 2115 of the Civil Code by reading the spirit of the law, and taking into
consideration the fact that the contract of loan was a contract of adhesion.

3. The appellate court gravely erred in holding the petitioners Herminio Teves,
Victoria Teves and Hiram Diday R. Pulido solidarily liable with PAMECA Wood
Treatment Plant, Inc. when the intention of the parties was that the loan is only for
the corporation's benefit.

Relative to the first ground, petitioners contend that the amount of P322,350.00 at which respondent
bank bid for and purchased the mortgaged properties was unconscionable and inequitable
considering that, at the time of the public sale, the mortgaged properties had a total value of more
than P2,000,000.00. According to petitioners, this is evident from an inventory dated March 31,
1980 5, which valued the properties at P2,518,621.00, in accordance with the terms of the chattel
mortgage contract 6 between the parties that required that the inventories "be maintained at a level
no less than P2 million". Petitioners argue that respondent bank's act of bidding and purchasing the
mortgaged properties for P322,350.00 or only about 1/6 of their actual value in a public sale in which
it was the sole bidder was fraudulent, unconscionable and inequitable, and constitutes sufficient
ground for the annulment of the auction sale.
To this, respondent bank contends that the above-cited inventory and chattel mortgage contract
were not in fact submitted as evidence before the RTC of Makati, and that these documents were
first produced by petitioners only when the case was brought to the Court of Appeals. 7 The Court of
Appeals, in turn, disregarded these documents for petitioners' failure to present them in evidence, or
to even allude to them in their testimonies before the lower courtr. 8 Instead, respondent court
declared that it is not at all unlikely for the chattels to have sufficiently deteriorated as to have
fetched such a low price at the time of the auction sale. 9 Neither did respondent court find anything
irregular or fraudulent in the circumstance that respondent bank was the sole bidder in the sale, as
all the legal procedures for the conduct of a foreclosure sale have been complied with, thus giving
rise to the presumption of regularity in the performance of public duties. 10

Petitioners also question the ruling of respondent court, affirming the RTC, to hold private
petitioners, officers and stockholders of petitioner PAMECA, liable with PAMECA for the obligation
under the loan obtained from respondent bank, contrary to the doctrine of separate and distinct
corporate personality. 11 Private petitioners contend that they became signatories to the promissory
note "only as a matter of practice by the respondent bank", that the promissory note was in the
nature of a contract of adhesion, and that the loan was for the benefit of the corporation, PAMECA,
alone. 12

Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles
1484 13 and 2115 14 of the Civil Code be applied in analogy to the instant case to preclude the
recovery of a deficiency claim. 15

Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of
chattel mortgage. In the leading case of Ablaza vs. Ignacio 16, the lower court dismissed the
complaint for collection of deficiency judgment in view of Article 2141 of the Civil Code, which
provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar
as they are not in conflict with the Chattel Mortgage Law. It was the lower court's opinion that, by
virtue of Article 2141, the provisions of Article 2115 which deny the creditor-pledgee the right to
recover deficiency in case the proceeds of the foreclosire sale are less than the amount of the
principal obligation, will apply.

This Court reversed the ruling of the lower court and held that the provisions of the Chattel Mortgage
Law regarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of
Article 2115, Article 2115, in relation to Article 2141, may not be applied to the case.

Sec. 14 of Act No. 1508, as amended, or the chattel Mortgage Law, states:

xxx xxx xxx

The officer making the sale shall, within thirty days thereafter, make in writing a
return of his doings and file the same in the office of the Registry of Deeds where the
mortgage is recorded, and the Register of Deeds shall record the same. The fees of
the officer for selling the property shall be the same as the case of sale on execution
as provided in Act Numbered One Hundred and Ninety, and the amendments
thereto, and the fees of the Register of Deeds for registering the officer's return shall
be taxed as a part of the costs of sale, which the officer shall pay to the Register of
Deeds. The return shall particularly describe the articles sold, and state the amount
received for each article, and shall operate as a discharge of the lien thereon created
by the mortgage. The proceeds of such sale shall be applied to the payment, first, of
the costs and expenses of keeping and sale, and then to the payment of the demand
or obligation secured by such mortgage, and the residue shall be paid to persons
 holding subsequent mortgages in their order, and the balance, after paying the
mortgage, shall be paid to the mortgagor or persons holding under him on demand.
(Emphasis supplied).

It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law
run inconsistent with those of pledge under Article 2115. Whereas, in pledge, the sale of the thing
pledged extinguishes the entire principal obligation, such that the pledgor may no longer recover
proceeds of the sale in excess of the amount of the principal obligation, Section 14 of the Chattel
Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of
the principal obligation and costs.

Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale
proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in
case of a reduction in the price at public auction. As explained in Manila Trading and Supply Co. vs.
Tamaraw Plantation Co. 17, cited in Ablaza vs. Ignacio, supra:

While it is true that section 3 of Act No. 1508 provides that "a chattel mortgage is a
conditional sale", it further provides that it "is a conditional sale of personal property
as security for the payment of a debt, or for the performance of some other obligation
specified therein." The lower court overlooked the fact that the chattels included in
the chattel mortgage are only given as security and not as a payment of the debt, in
case of a failure of payment.

The theory of the lower court would lead to the absurd conclusion that if the chattels
mentioned in the mortgage, given as security, should sell for more than the amount
of the indebtedness secured, that the creditor would be entitled to the full amount for
which it might be sold, even though that amount was greatly in excess of the
indebtedness. Such a result certainly was not contemplated by the legislature when it
adopted Act No. 1508. There seems to be no reason supporting that theory under
the provision of the law. The value of the chattels changes greatly from time to time,
and sometimes very rapidly. If for example, the chattels should greatly increase in
value and a sale under that condition should result in largely overpaying the
indebtedness, and if the creditor is not permitted to retain the excess, then the same
token would require the debtor to pay the deficiency in case of a reduction in the
price of the chattels between the date of the contract and a breach of the condition.

Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on
the question of chattel mortgages, have said, that "in case of a sale under a
foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor
may maintain an action for the deficiency, if any should occur." And the. fact that Act
No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of the debt, to
any greater extent than the value of the property at the time of the sale. The amount
received at the time of the sale, of course, always requiring good faith and honesty in
the sale, is only a payment, pro tanto, and an action may be maintained for a
deficiency in the debt.

We find no reason to disturb the ruling in Ablaza vs Ignacio, and the cases reiterating it. 18

Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant
case. As correctly pointed out by the trial court, the said article applies clearly and solely to the sale
of personal property the price of which is payable in installments. Although Article 1484, paragraph
(3) expressly bars any further action against the purchaser to recover an unpaid balance of the price,
where the vendor opts to foreclose the chattel mortgage on the thing sold, should the vendee's
failure to pay cover two or more installments, this provision is specifically applicable to a sale on
installments.

To accommodate petitioners' prayer even on the basis of equity would be to expand the application
of the provisions of Article 1484 to situations beyond its specific purview, and ignore the language
and intent of the Chattel Mortgage Law. Equity, which has been aptly described as "justice outside
legality", is applied only in the absence of, and never against, statutory law or judicial rules of
procedure. 19

We are also unable to find merit in petitioners' submission that the public auction sale is void on
grounds of fraud and inadequacy of price. Petitioners never assailed the validity of the sale in the
RTC, and only in the Court of Appeals did they attempt to prove inadequacy of price through the
documents, i.e., the "Open-End Mortgage on Inventory" and inventory dated March 31, 1980,
likewise attached to their Petition before this Court. Basic is the rule that parties may not bring on
appeal issues that were not raised on trial.

Having nonetheless examined the inventory and chattel mortgage document as part of the records,
We are not convinced that they effectively prove that the mortgaged properties had a market value
of at least P2,000,000.00 on January 18, 1984, the date of the foreclosure sale. At best, the chattel
mortgage contract only indicates the obligation of the mortgagor to maintain the inventory at a value
of at least P2,000,000.00, but does not evidence compliance therewith. The inventory, in turn, was
as of March 31, 1980, or even prior to April 17, 1980, the date when the parties entered into the
contracts of loan and chattel mortgage, and is far from being an accurate estimate of the market
value of the properties at the time of the foreclosure sale four years thereafter. Thus, even assuming
that the inventory and chattel mortgage contract were duly submitted as evidence before the trial
court, it is clear that they cannot suffice to substantiate petitioners' allegation of inadequacy of price.1âwphi 1.nêt

Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged properties in
the public sale does not warrant the conclusion that the transaction was attended with fraud. Fraud
is a serious allegation that requires full and convincing evidence, 20 and may not be inferred from the
lone circumstance that it was only respondent bank that bid in the sale of the foreclosed properties.
The sparseness of petitioners' evidence in this regard leaves Us no discretion but to uphold the
presumption of regularity in the conduct of the public sale.

We likewise affirm private petitioners' joint and several liability with petitioner corporation in the loan.
As found by the trial court and the Court of Appeals, the terms of the promissory note unmistakably
set forth the solidary nature of private petitioners' commitment. Thus:

On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT
PLANT, INC., a corporation organized and existing under the laws of the Philippines,
with principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to
pay to the order of DEVELOPMENT BANK OF THE PHILIPPINES at its office
located at corner Buendia and Makati Avenues, Makati, Metro Manila, the principal
sum of TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND
EIGHTY ONE & 67/100 US DOLLARS (US$ 267,881.67) with interest at the rate of
three per cent (3%) per annum over DBP's borrowing rate for these funds. Before the
date of maturity, we hereby bind ourselves, jointly and severally, to make partial
payments as follows:

xxx xxx xxx

 In case of default in the payment of any installment above, we bind ourselves to pay
DBP for advances . . .

xxx xxx xxx

We further bind ourselves to pay additional interest and penalty charges on loan
amortizations or portion thereof in arrears as follows:

xxx xxx xxx

In addition to the above, we also bind ourselves to pay for bank advances for
insurance premiums, taxes . . .

xxx xxx xxx

We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred
by DBP on the foreign currency borrowings from where the loan shall be drawn . . .

xxx xxx xxx

In case of non-payment of the amount of this note or any portion of it on demand,

when due, or any other amount or amounts due on account of this note, the entire
obligation shall become due and demandable, and if, for the enforcement of the
payment thereof, the DEVELOPMENT BANK OF THE PHILIPPINES is constrained
to entrust the case to its attorneys, we jointly and severally bind ourselves to pay for
attorney's fees as provided for in the mortgage contract, in addition to the legal fees
and other incidental expenses. In the event of foreclosure of the mortgage securing
this note, we further bind ourselves jointly and severally to pay the deficiency, if any.
(Emphasis supplied) 21

The promissory note was signed by private petitioners in the following manner:

PAMECA WOOD TREATMENT PLANT, INC.

By:

(Sgd) HERMINIO G. TEVES

(For himself & as President of above-named corporation)

(Sgd) HIRAM DIDAY PULIDO

(Sgd) VICTORIA V. TEVES 22

From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with
petitioner PAMECA in the loan. As correctly submitted by respondent bank, private petitioners are
not made to answer for the corporate act of petitioner PAMECA, but are made liable because they
made themselves co-makers with PAMECA under the promissory note.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals
dated April 23, 1992 in CA G.R. CV No. 27861 is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

26
G.R. No. 171165 February 14, 2011

CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR., and MARGARITA H.

MALVAR, Petitioners,
vs.
WILFREDO HERNANDEZ, HOME INSURANCE AND GUARANTY CORPORATION, PROJECT
MOVERS REALTY AND DEVELOPMENT CORPORATION, MARIO P. VILLAMOR and LAND
BANK OF THE PHILIPPINES, Respondents.

DECISION

PERALTA, J.:

This Rule 45 petition for review assails the October 19, 2005 Decision1 of the Court of Appeals in
CA-G.R. CV No. 83852,2 as well as the January 11, 2006 Resolution3 in the same case which denied
reconsideration. The said decision had reversed and set aside the August 30, 2004
judgment4 rendered by the Regional Trial Court (RTC) of San Pablo City, Laguna, Branch 32 in Civil
Case No. SP-5742(2000) – one for rescission of a memorandum of agreement and declaration of
nullity of a deed of assignment and conveyance, with prayer for preliminary injunction and damages.

The facts follow.

Project Movers Realty & Development Corporation (PMRDC), one of the respondents herein, is a
duly organized domestic corporation engaged in real estate development. Sometime in 1995, it
entered through its president, respondent Mario Villamor (Villamor), into various agreements with co-
respondents Home Insurance & Guaranty Corporation (HIGC)5 and Land Bank of the Philippines
(LBP), in connection with the construction of the Isabel Homes housing project in Batangas and of
the Monumento Plaza commercial and recreation complex in Caloocan City. In its Asset Pool
Formation Agreement, PMRDC conveyed to HIGC the constituent assets of the two
projects,6 whereas LBP agreed to act as trustee of the resulting Asset Pool7 for a consideration.8 The
execution of the projects would be funded largely through securitization, a method of sourcing
development funds by the issuance of participation certificates against the direct backing assets of
the projects,9 whereby LBP would act as the nominal issuer of such certificates with the Asset Pool
itself acting as the real issuer.10 HIGC, in turn, would provide guaranty coverage to these
participation certificates in accordance with its Contract of Guaranty with PMRDC and LBP. 11
On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) whereby it was
given the option to buy pieces of land owned by petitioners Carolina Hernandez-Nievera (Carolina),
Margarita H. Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio). Demetrio, under
authority of a Special Power of Attorney to Sell or Mortgage,12 signed the MOA also in behalf of
Carolina and Margarita. In the aggregate, the realty measured 4,580,451 square meters and was
segregated by agreement into Area I and Area II, respectively pertaining to the parcels covered by
Transfer Certificate of Title (TCT) Nos. T-3137, T-3138, T-3139 and T-3140 on the one hand, and on
the other by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-3136, all issued by the Register of
Deeds of Laguna. The MOA materially provides:

1. THAT, the consideration for the sale of the parcels of land (Areas I and II) shall be
TWENTY-FIVE PESOS (Php 25.00) per square meter or a total of PESOS: ONE HUNDRED
FOURTEEN MILLION FIVE HUNDRED ELEVEN TWO HUNDRED SEVENTY
(Php114,511,270.00);

1. THAT, the VENDEE shall have the option to purchase the above-described
parcels of land within a period of twelve (12) months from the date of this instrument
and that the VENDEE shall pay the vendor option money in the following amounts
and on the dates herein specified:

Area I

PESOS: SIX MILLION (Php6,000,000.00) payable in two (2) equal installments of

PESOS: THREE MILLION (Php3,000,000.00), the first installment due on or before
November 20, 1997; the second installment due on or before December 15, 1997,
both installments to be covered by postdated checks upon signing of this Agreement.

Area II

Option money of PESOS: EIGHT MILLION FIVE HUNDRED THOUSAND

(Php8,500,000.00) payable within thirty (30) days after conveyance to the Isabel
Homes Asset Pool.

2. THAT, should the VENDEE exercise the option to purchase the parcels of land
within the stipulated period, the VENDEE shall complete the TWENTY-FIVE (25%)
PERCENT downpayment inclusive of the option money within the said stipulated
period. Balance of the TWENTY FIVE (25%) PERCENT downpayment exclusive of
the option money for Area I is PESOS: TEN MILLION FOUR HUNDRED EIGHTY-
TWO THOUSAND TWO HUNDRED SIXTY-TWO (Php10,482,262.00) and for Area II
is PESOS: THREE MILLION SIX HUNDRED FORTY-FIVE THOUSAND FIVE
HUNDRED FIFTY- SIX (Php3,645,556.00).

The balance of the purchase price in the amount of PESOS: EIGHTY-FIVE MILLION
EIGHT HUNDRED EIGHTY-THREE FOUR HUNDRED FIFTY-SIX
(Php85,883,456.00) shall be payable within two (2) years in eight (8) quarterly
installments covered by postdated checks. Schedule of payments shall be as follows:

January 31, 1999 Php 10,735,432.00

April 30, 1999 10,735,432.00
 July 31, 1999 10,735,432.00

October 31, 1999 10,735,432.00

January 31, 2000 10,735,432.00

April 30, 2000 10,735,432.00

July 30, 2000 10,735,432.00

October 31, 2000 10,735,432.00

3. THAT, should the VENDEE fail to exercise its option to purchase the said
described parcels of land within the stipulated period, the option money shall be
forfeited in favor of the VENDOR and that the VENDEE shall return to the VENDOR
all the Transfer Certificates of Title covering the said described parcels of land within
a period of THIRTY (30) DAYS from the stipulated period, FREE FROM ALL LIENS
AND ENCUMBRANCES;

4. THAT, the VENDOR, at the request of the VENDEE, shall agree to convey the
parcels of land to any bank or financial institution by way of mortgage or to a Trustee
by way of a Trust Agreement at any time from the date of this instrument,
PROVIDED, HOWEVER, that the VENDOR is not liable for any mortgage or loans or
obligations that will be incurred by way of mortgage of Trust Agreement that the
VENDEE might enter into;

5. It is agreed that the VENDOR shall have the sole responsibility in the settlement of
the tenants and eviction of the tenants and eviction of the occupants of the described
parcels of land after all consideration have been fully paid by the VENDEE to the
VENDOR;

6. THAT, all taxes including capital gains tax, transfer tax and documentary stamps
tax shall be for the account of the VENDOR;

7. THAT, the VENDOR hereby warrants valid title to, and peaceful possession of the
said described parcels of land after all considerations have been fully paid.13

As an implementation of the MOA, the lands within Area I were then mortgaged to Solid Bank for
which petitioners received consideration from PMRDC.14

Later on, PMRDC saw the need to convey additional properties to and augment the value of its
Asset Pool to support the collateralization of additional participation certificates to be issued.15 Thus,
on March 23, 1998, it entered with LBP and Demetrio – the latter purportedly acting under authority
of the same special power of attorney as in the MOA – into a Deed of Assignment and Conveyance
(DAC)16 whereby the lands within Area II covered by TCT Nos. T-3132, T-3133, T-3134, T-3135 and
T-3136 were transferred and assigned to the Asset Pool in exchange for a number of shares of stock
which supposedly had already been issued in the name and in favor of Demetrio. These pieces of
land are the subject of the present controversy as far as they are affected by the explicit provision in
the DAC which dispensed with the stipulated obligation of PMRDC in the MOA to pay option money
should it opt to buy the properties.17
PMRDC admittedly did not avail of its option to purchase the lands in Area II in the twelve months
that passed after the execution of the MOA. Although PMRDC delivered to petitioners certain checks
representing the money, the same however allegedly bounced.18 Hence, on January 8, 1999,
petitioners demanded the return of the corresponding TCTs.19 In its January 21, 1999 letter to
Demetrio, however, PMRDC, through Villamor, stated that the TCTs could no longer be delivered
back to petitioners as the covered properties had already been conveyed and assigned to the Asset
Pool pursuant to the March 23, 1998 DAC. In the correspondence that ensued, petitioners disowned
Demetrio’s signature in the DAC and labeled it a mere forgery. They explained that Demetrio could
not have entered into the said agreement as his power of attorney was limited only to selling or
mortgaging the properties and not conveying the same to the Asset Pool. Boldly, they asserted that
the fraudulent execution of the DAC was made possible through the connivance of all the
respondents.20

With that final word, petitioners instituted an action before the RTC of San Pablo City, Laguna,
Branch 32 for the rescission of the MOA, as well as for the declaration of nullity of the DAC. They
prayed for the issuance of a writ of preliminary injunction and for the payment of damages.21

Ruling for petitioners, the trial court, on August 30, 2004, declared the MOA to be an option contract
and ordered its rescission. It, likewise, declared the DAC null and void as it made a definite finding of
forgery of Demetrio’s signature as well as fraud in its execution, and accordingly, adjudged
respondents PMRDC and Villamor liable to petitioner for damages.22 The dispositive portion of the
decision reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in the favor of the plaintiffs
and against the defendants as follows:

1. Rescinding the Memorandum of Agreement (MOA) executed between the plaintiffs and
Project Movers Realty [&] Development Corporation (PMRDC);

2. Declaring null and void the Deed of Assignment and Conveyance (DAC) executed
between Project Movers Realty [&] Development Corporation, Land Bank of the Philippines
and Demetrio Hernandez whose signature is forged;

3. Ordering Transfer Certificate of Title Nos. T-3132, T-3133, T-3134 and T-3135, all in the
names of the plaintiffs, which are in the custody of the Court, to be delivered to plaintiffs
immediately and the plaintiffs are ordered to issue a corresponding receipt of said certificates
of title signed by all the plaintiffs to be submitted to the OIC-Branch Clerk of Court of this
Court within five (5) days from receipt of said titles;

4. Ordering defendants Mario Villamor and Wilfredo Hernandez to pay plaintiffs, jointly and
severally, the following:

a. Actual damages of ₱500,000.00;

b. Moral damages of ₱200,000.00;

c. Exemplary damages of ₱200,000.00;

d. Attorney’s fees in the amount of ₱300,000.00;

e. And the costs of the suit.

SO ORDERED.23

Aggrieved, respondents filed a notice of appeal and elevated the matter to the Court of Appeals. On
October 19, 2005, the Court of Appeals issued the assailed Decision reversing and setting aside the
trial court’s decision as follows:

WHEREFORE, based on the foregoing, the appeal is GRANTED. The decision dated August 30,
2004 of the Regional Trial Court, Branch 32, San Pablo City in Civil Case No. SP-5742 (2000) is
REVERSED and SET ASIDE and a new one is entered declaring the Deed of Conveyance valid and
thus, the Transfer Certificates of Title subject of this case are ordered returned to HIGC. No costs.

SO ORDERED.24

Central to the ruling of the Court of Appeals is its contrary finding that the allegation of forgery of
Demetrio’s signature in the DAC was not established by the evidence and, hence, following the legal
presumption of regularity in the execution of notarized deeds, it upheld the validity of the DAC.25 The
Court of Appeals noted that the incompatibility in the terms of the MOA and the DAC clearly signified
the intention of the parties to have the MOA novated by subsequent agreement and have the
properties conveyed to the Asset Pool in exchange for PMRDC shares to be issued to Demetrio.
This, according to the appellate court, completely changed the original obligations of PMRDC as
provided in the MOA. It noted further that it was premature to order the release of the subject TCTs
to petitioners at this stage of the proceedings, because that would amount to an execution of the
decision.26

With the denial of their motion for reconsideration,27 petitioners filed the instant petition for review
attributing error to the Court of Appeals in declining to rescind the MOA and declare the DAC null
and void.

Petitioners insist that the obligation of PMRDC to deliver back the TCTs arises on its failure to
exercise the option to purchase the lands according to the terms of the MOA, and that the deliberate
refusal of PMRDC to perform such obligation gives ground for the rescission of the MOA. This thesis
is perched on petitioners’ argument that the MOA could not have possibly been novated by the DAC
because first, Demetrio’s signature therein has been forged, and second, Demetrio could not have
validly assented to the DAC in behalf of Carolina and Margarita because his special power was
limited only to selling or mortgaging the properties and excludes conveying and assigning the said
properties to the Asset Pool for consideration.28 They also point out that the DAC itself is infirm
insofar as it stipulated to convey the lands to the Asset Pool as the latter supposedly is neither a
registered corporation nor a partnership and does not possess a legal personality.29

Commenting on the petition, PMRDC and Villamor advance that petitioners’ allegation of fraud and
forgery are all factual matters that are inappropriate in a Rule 45 petition.30 More importantly, they
aver that the novation of the MOA by the DAC is unmistakable as the DAC itself has made an
express reference to the MOA provisions on the payment of option money and, hence, has
expressly modified the pertinent terms thereof.31

HIGC and its president, Wilfredo Hernandez, both represented by the Office of the Government
Corporate Counsel (OGCC),32 and LBP33 are of the same view.34 In addition, HIGC explains that
contrary to petitioners’ belief, the transfer of the properties under the DAC is valid as the conveyance
has been made to the Asset Pool with LBP, an entity with juridical entity, acting as trustee
thereof.35 Addressing the issue of forgery and fraud in the execution of the DAC, HIGC maintains
that these factual matters remain to be mere allegations which nothing in the records of the case
could conclusively prove, except the self-serving testimony of petitioners themselves.36
The Court denies the petition.

Petitioners’ cause stems from the failure of PMRDC to restore to petitioners the possession of the
TCTs of the lands within Area II upon its failure to exercise the option to purchase within the 12-
month period stipulated in the MOA. Respondents maintain, however, that said obligation,
dependent as it is on the exercise of the option to purchase, has altogether been expressly
obliterated by the terms of the DAC whereby petitioners, through Demetrio as attorney-in-fact, have
agreed to novate the terms of the MOA by extinguishing the core obligations of PMRDC on the
payment of option money. This seems to suggest that with the execution of the DAC, PMRDC has
already entered into the exercise of its option except that its obligation to deliver the option money
has, by subsequent agreement embodied in the DAC, been substituted instead by the obligation to
issue participation certificates in Demetrio’s name but which, likewise, has not yet been performed
by PMRDC. But petitioners stand against the validity of the DAC on the ground that the signature of
Demetrio therein was spurious.

Firmly settled is the jurisprudential rule that forgery cannot be presumed from a mere allegation but
rather must be proved by clear, positive and convincing evidence by the party alleging the
same.37 The burden to prove the allegation of forgery in this case has not been conclusively
discharged by petitioners because first, nothing in the records supports the allegation except only
perhaps Demetrio’s explicit self-serving disavowal of his signature in open court.38 Second, while in
fact Demetrio at the trial of the case had committed to have the subject signature examined by an
expert,39 nevertheless, the trial had terminated without the results of the examination being submitted
in evidence. Third, the claim of forgery, unsubstantiated as it is, becomes even more unremarkable
in light of the fact that the DAC involved in this case is a notarized deed guaranteed by public
attestation in accordance with law, such that the execution thereof enjoys the legal presumption of
regularity in the absence of compelling proof to the contrary.40

Yet the inquiry on the validity of the DAC does not terminate with the finding alone of the
genuineness of Demetrio’s signature therein, because petitioners also stand against its validity on
the ground of Demetrio’s non-authority to execute the same. They claim that the execution of the
DAC would be beyond the power of Demetrio to perform as his authority is limited only to selling or
mortgaging the properties and does not include assigning and conveying said properties to the Asset
Pool in consideration of shares of stocks for his lone benefit. For their part, respondents, who believe
Demetrio’s power of attorney was broad enough to effectuate a novation of PMRDC’s core
obligations in the MOA or, at the least, implement the provisions thereof through the DAC, invoke the
4th and 5th whereas-clauses in the DAC which, in relation to each other, supposedly pertain to that
certain provision in the MOA which authorizes the conveyance of the properties to the Asset Pool in
exchange for corporate shares.41

The 4th and 5th whereas-clauses in the DAC read as follows:

WHEREAS, on November 3, 1997, PMRDC and LANDOWNER have entered into a Memorandum
of Agreement whereby the former agreed to convey to the Isabel Homes Asset Pool certain real
properties located at Sta. Maria, Laguna;

[WHEREAS], the LANDOWNER and PMRDC have agreed to revise and modify the said
Memorandum of Agreement, whereby the LANDOWNER shall dispense with the option money as a
requisite to the sale and purchase of the properties by PMRDC, and agreed to convey absolutely
and unqualifiedly the same properties directly to the Isabel Homes Asset Pool for and in exchange of
shares of stock or equity in PMRDC.42
While indeed we find no provision in the MOA such as that alluded to in the aforequoted 4th
whereas-clause in the DAC which purportedly embodies an agreement by the parties to assign and
convey the subject properties to the Asset Pool, we surmise that the clause could be referring to
paragraph 5 of the MOA which stipulates a commitment on the part of petitioners to give their
consent to an assignment and conveyance of the properties to the Asset Pool but only once a
request therefor is made by PMRDC. Paragraph 5 reads:

5. THAT, the VENDOR at the request of the VENDEE shall agree to convey the parcels of land to
any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at
any time from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for
any mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement
that the VENDEE might enter into;43

Petitioners profess, however, that no such request was ever intimated to them at any time during the
subsistence of the PMRDC’s right to exercise the option to buy. But respondents are quick to reason
that a request is unnecessary because Demetrio has been legally enabled by his special power to
give such consent and accordingly execute the DAC, effect a novation of the MOA, and extinguish
the stipulated obligations of PMRDC therein, or at least that he could assent to the implementation of
the MOA provisions in the way that transpired. We agree.

Demetrio’s special power of attorney granting the powers to sell and/or mortgage reads in part:

1. To sell and/or mortgage in favor of any person, corporation, partnership, private banking
or financial institution, government or semi-government banking or financial institution for
such price or amount and under such terms and conditions as our aforesaid attorney-in-fact
may deem just and proper, parcels of land more particularly described as follows:

xxx

2. To carry out the authority aforestated, to sign, execute and deliver such deeds,
instruments and other papers that may be required or necessary;

3. To further attain the authority herein given, to do and perform such acts and things that
may be necessary or incidental to fully carry out the authority herein granted.44

It is in the context of this vesture of power that Demetrio, representing his shared interest with
Carolina and Margarita, entered into the MOA with PMRDC. It is likewise within this same context
that Demetrio later on entered into the DAC and accordingly extinguished the previously subsisting
obligation of PMRDC to deliver the stipulated option money and replaced said obligation with the
delivery instead of participation certificates in favor of Demetrio.

The powers conferred on Demetrio were exclusive only to selling and mortgaging the properties.
Between these two specific powers, the power to sell is quite controversial because it is the sale
transaction which bears close resemblance to the deal contemplated in the DAC. In fact, part of the
testimony of Atty. Danilo Javier, counsel for respondent HIGC and head of its legal department at
the time, is that in the execution of the DAC, respondents had relied on Demetrio’s special power of
attorney and also on his supposed agreement to be paid in kind, i.e., in shares of stock, as
consideration for the assignment and conveyance of the subject properties to the Asset Pool.45 What
petitioners miss, however, is that the power conferred on Demetrio to sell "for such price or
amount"46 is broad enough to cover the exchange contemplated in the DAC between the properties
and the corresponding corporate shares in PMRDC, with the latter replacing the cash equivalent of
the option money initially agreed to be paid by PMRDC under the MOA. Suffice it to say that "price"
is understood to mean "the cost at which something is obtained, or something which one ordinarily
accepts voluntarily in exchange for something else, or the consideration given for the purchase of a
thing."47

Thus, it becomes clear that Demetrio’s special power of attorney to sell is sufficient to enable him to
make a binding commitment under the DAC in behalf of Carolina and Margarita. In particular, it does
include the authority to extinguish PMRDC’s obligation under the MOA to deliver option money and
agree to a more flexible term by agreeing instead to receive shares of stock in lieu thereof and in
consideration of the assignment and conveyance of the properties to the Asset Pool. Indeed, the
terms of his special power of attorney allow much leeway to accommodate not only the terms of the
MOA but also those of the subsequent agreement in the DAC which, in this case, necessarily and
consequently has resulted in a novation of PMRDC’s integral obligations. On this score, we quote
with approval the decision of the Court of Appeals, aptly citing the case of California Bus Lines, Inc.
v. State Investment House, Inc.48 thus –

There are two ways which could indicate, in fine, the presence of novation and thereby produce the
effect of extinguishing an obligation by another which substitutes the same. The first is when
novation has been explicitly stated and declared in unequivocal terms. The second is when the old
and the new obligations are incompatible on every point. The test of incompatibility is whether the
two obligations can stand together, each one having its independent existence. If they cannot, they
are incompatible, and the latter obligation novates the first. Corollarily, changes that breed
incompatibility must be essential in nature and not merely accidental. The incompatibility must take
place in any of the essential elements of the obligation such as its object, cause or principal
conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to
extinguish the original obligation.49

In view of the foregoing, the Court finds no useful purpose in addressing all the other issues raised in
this petition.

A final note. Section 10, Book IV, Title III, Chapter 350 of the Revised Administrative Code of 1987
has designated the OGCC to act as the principal law office of government-owned or controlled
corporations (GOCCs) in connection with any judicial or quasi-judicial proceeding. Yet between the
two respondents GOCCs in this case – LBP and HIGC – it is only the latter for which the OGCC has
entered its appearance. Nowhere in the records is it shown that the OGCC has ever entered its
appearance in this case as principal legal counsel of respondent LBP, or that at the very least it has
given express conformity to the LBP legal department’s representation.51

In Land Bank of the Philippines v. Martinez,52 citing Land Bank of the Philippines v. Panlilio-
Luciano,53 we explained that the legal department of LBP is not expressly authorized by its charter to
appear in behalf of the corporation in any proceeding as the mandate of the law is explicit enough to
place the said department under the OGCC’s power of control and supervision. We held in that
1avv phi 1

case:

[Section 10] mandates the OGCC, and not the LBP Legal Department, as the principal law
office of the LBP. Moreover, it establishes the proper hierarchical order in that the LBP Legal
Department remains under the control and supervision of the OGCC. x x x

At the same time, the existence of the OGCC does not render the LBP Legal Department a
superfluity. We do not doubt that the LBP Legal Department carries out vital legal services to LBP.
However, the performance of such functions cannot deprive the OGCC’s role as overseer of the LBP
Legal Department and its mandate of exercising control and supervision over all GOCC legal
departments. For the purpose of filing petitions and making submissions before this Court,
such control and supervision imply express participation by the OGCC as principal legal
counsel of LBP. x x x

It should also be noted that the aforementioned Section 10, Book IV, Title III, Chapter 3 of the
Administrative Code of 1987 authorizes the OGCC to receive the attorney's fees adjudged in favor of
their client GOCCs, such fees accruing to a special fund of the OGCC. Evidently, the non-
participation of the OGCC in litigations pursued by GOCCs would deprive the former of its due
funding as authorized by law. Hence, this is another reason why we cannot sustain Attys. Beramo
and Berbaño's position that the OGCC need not participate in litigations pursued by LBP.

It may strike as disruptive to the flow of a GOCC’s daily grind to require the participation of the
OGCC as its principal law office, or the exercise of control and supervision by the OGCC over the
acts of the GOCC’s legal departments. For reasons such as proximity and comfort, the GOCC may
find it convenient to rely instead on its in-house legal departments, or more irregularly, on private
practitioners. Yet the statutory role of the OGCC as principal law office of GOCCs is one of
long-standing, and we have to recognize such function as part of public policy. Since the
jurisdiction of the OGCC includes all GOCCs, its perspective is less myopic than that
maintained by a particular legal department of a GOCC. It is not inconceivable that left to its
own devices, the legal department of a given GOCC may adopt a legal position inconsistent
with or detrimental to other GOCCs. Since GOCCs fall within the same governmental
framework, it would be detrimental to have GOCCs foisted into adversarial positions by their
respective legal departments. Hence, there is indubitable wisdom in having one overseer
over all these legal departments which would ensure that the legal positions adopted by the
GOCCs would not conflict with each other or the government.

x x x Certainly, Section 10, Book IV, Title III, Chapter 3 of the Administrative Code of 1987 can be
invoked by adverse parties or by the courts in citing as deficient the exclusive representation of LBP
by its Legal Department. Then again, if neither the adverse parties nor the courts of jurisdiction
choose to contest this point, there would be no impediment to the litigation to maintain. x x x54

WHEREFORE, the Petition is DENIED. The October 19, 2005 Decision and January 11, 2006
Resolution of the Court of Appeals, in CA- G.R. CV No. 83852, are hereby AFFIRMED.

SO ORDERED.

27
G.R. No. 193517 January 15, 2014

THE HEIRS OF VICTORINO SARILI, NAMELY: ISABEL A. SARILI,* MELENCIA** S. MAXIMO,

ALBERTO A. SARILI, IMELDA S. HIDALGO, all herein represented by CELSO A.
SARILI, Petitioners,
vs.
PEDRO F. LAGROSA, represented in this act by his Attorney-in-Fact LOURDES LABIOS
MOJICA, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on Certiorari1 are the Decision2 dated May 20, 2010 and
Resolution3 dated August 26, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 76258 which: (a)
set aside the Decision4 dated May 27, 2002 of the Regional Trial Court of Caloocan City, Branch 131
(RTC) in Civil Case No. C-19152; (b) cancelled Transfer Certificate of Title (TCT) No. 2622185 in the
name of Victorino Sarili (Victorino) married to Isabel Amparo (Sps. Sarili); (c) reinstated TCT No.
559796 in the name of respondent Pedro F. Lagrosa (respondent); and (d) awarded respondent
moral damages, attorney’s fees and litigation expenses.

The Facts

On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios Mojica
(Lourdes) via a special power of attorney dated November 25, 19997 (November 25, 1999 SPA), filed
a complaint8 against Sps. Sarili and the Register of Deeds of Caloocan City (RD) before the RTC,
alleging, among others, that he is the owner of a certain parcel of land situated in Caloocan City
covered by TCT No. 55979 (subject property) and has been religiously paying the real estate taxes
therefor since its acquisition on November 29, 1974. Respondent claimed that he is a resident of
California, USA, and that during his vacation in the Philippines, he discovered that a new certificate
of title to the subject property was issued by the RD in the name of Victorino married to Isabel
Amparo (Isabel), i.e., TCT No. 262218, by virtue of a falsified Deed of Absolute Sale9 dated February
16, 1978 (February 16, 1978 deed of sale) purportedly executed by him and his wife, Amelia U.
Lagrosa (Amelia). He averred that the falsification of the said deed of sale was a result of the
fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD in order to acquire the
subject property and, as such, prayed for the annulment of TCT No. 262218, and that Sps. Sarili
deliver to him the possession of the subject property, or, in the alternative, that Sps. Sarili and the
RD jointly and severally pay him the amount of ₱1,000,000.00, including moral damages as well as
attorney’s fees.10

In their answer,11 Sps. Sarili maintained that they are innocent purchasers for value, having
purchased the subject property from Ramon B. Rodriguez (Ramon), who possessed and presented
a Special Power of Attorney12 (subject SPA) to sell/dispose of the same, and, in such capacity,
executed a Deed of Absolute Sale13 dated November 20, 1992 (November 20, 1992 deed of sale)
conveying the said property in their favor. In this relation, they denied any participation in the
preparation of the February 16, 1978 deed of sale, which may have been merely devised by the
"fixer" they hired to facilitate the issuance of the title in their names.14 Further, they interposed a
counterclaim for moral and exemplary damages, as well as attorney’s fees, for the filing of the
baseless suit.15

During the pendency of the proceedings, Victorino passed away16 and was substituted by his heirs,
herein petitioners.17

The RTC Ruling

On May 27, 2002, the RTC rendered a Decision18 finding respondent’s signature on the subject SPA
as "the same and exact replica"19 of his signature in the November 25, 1999 SPA in favor of
Lourdes.20 Thus, with Ramon’s authority having been established, it declared the November 20, 1992
deed of sale21 executed by the latter as "valid, genuine, lawful and binding"22 and, as such, had validly
conveyed the subject property in favor of Sps. Sarili. It further found that respondent "acted with
evident bad faith and malice" and was, therefore, held liable for moral and exemplary
damages.23 Aggrieved, respondent appealed to the CA.

The CA Ruling

In a Decision24 dated May 20, 2010, the CA granted respondent’s appeal and held that the RTC
erred in its ruling since the November 20, 1992 deed of sale, which the RTC found "as valid and
genuine," was not the source document for the transfer of the subject property and the issuance of
TCT No. 262218 in the name of Sps. Sarili25 but rather the February 16, 1978 deed of sale, the fact
of which may be gleaned from the Affidavit of Late Registration26 executed by Isabel (affidavit of
Isabel). Further, it found that respondent w as "not only able to preponderate his claim over the
subject property, but [has] likewise proved that his and his wife’s signatures in the [February 16,
1978 deed of sale] x x x were forged."27 "[A] comparison by the naked eye of the genuine signature of
[respondent] found in his [November 25, 1999 SPA] in favor of [Lourdes], and those of his falsified
signatures in [the February 16, 1978 deed of sale] and [the subject SPA] shows that they are not
similar."28 It also observed that "[t]he testimony of [respondent] denying the authenticity of his
purported signature with respect to the [February 16, 1978 deed of sale] was not rebutted x x x."29 In
fine, the CA declared the deeds of sale dated February 16, 1978 and November 20, 1992, as well as
the subject SPA as void, and consequently ordered the RD to cancel TCT No. 262218 in the name
of Victorino married to Isabel, and consequently reinstate TCT No. 55979 in respondent’s name.
Respondent’s claims for moral damages and attorney’s fees/litigation expenses were also granted
by the CA.30

Dissatisfied, petitioners moved for reconsideration which was, however, denied in a

Resolution31 dated August 26, 2010, hence, the instant petition.

The Issues Before the Court

The main issue in this case is whether or not there was a valid conveyance of the subject property to
Sps. Sarili. The resolution of said issue would then determine, among others, whether or not: (a)
TCT No. 262218 in the name of Victorino married to Isabel should be annulled; and (b) TCT No.
55979 in respondent’s name should be reinstated.

The Court’s Ruling

The petition lacks merit.

Petitioners essentially argue that regardless of the fictitious February 16, 1978 deed of sale, there
was still a valid conveyance of the subject property to Sps. Sarili who relied on the authority of
Ramos (as per the subject SPA) to sell the same. They posit that the due execution of the subject
SPA between respondent and Ramon and, subsequently, the November 20, 1992 deed of sale
between Victorino and Ramon were duly established facts and that from the authenticity and
genuineness of these documents, a valid conveyance of the subject land from respondent to
Victorino had leaned upon.32

The Court is not persuaded.

It is well-settled that even if the procurement of a certificate of title was tainted with fraud and
misrepresentation, such defective title may be the source of a completely legal and valid title in the
hands of an innocent purchaser for value. Where innocent third persons, relying on the correctness
of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such
rights and order the total cancellation of the certificate. The effect of such an outright cancellation
would be to impair public confidence in the certificate of title, for everyone dealing with property
registered under the Torrens system would have to inquire in every instance whether the title has
been regularly or irregularly issued. This is contrary to the evident purpose of the law.33

The general rule is that every person dealing with registered land may safely rely on the correctness
of the certificate of title issued therefor and the law will in no way oblige him to go beyond the
certificate to determine the condition of the property. Where there is nothing in the certificate of title
to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the
purchaser is not required to explore further than what the Torrens Title upon its face indicates in
quest for any hidden defects or inchoate right that may subsequently defeat his right thereto.34

However, a higher degree of prudence is required from one who buys from a person who is not the
registered owner, although the land object of the transaction is registered. In such a case, the buyer
is expected to examine not only the certificate of title but all factual circumstances necessary for him
to determine if there are any flaws in the title of the transferor.35 The buyer also has the duty to
ascertain the identity of the person with whom he is dealing with and the latter’s legal authority to
convey the property.36

The strength of the buyer’s inquiry on the seller’s capacity or legal authority to sell depends on the
proof of capacity of the seller. If the proof of capacity consists of a special power of attorney duly
notarized, mere inspection of the face of such public document already constitutes sufficient inquiry.
If no such special power of attorney is provided or there is one but there appears to be flaws in its
notarial acknowledgment, mere inspection of the document will not do; the buyer must show that his
investigation went beyond the document and into the circumstances of its execution.37

In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on
the strength of the latter’s ostensible authority to sell under the subject SPA. The said document,
however, readily indicates flaws in its notarial acknowledgment since the respondent’s community
tax certificate (CTC) number was not indicated thereon. Under the governing rule on notarial
acknowledgments at that time,38 i.e., Section 163(a) of Republic Act No. 7160, otherwise known as
the "Local Government Code of 1991," when an individual subject to the community tax
acknowledges any document before a notary public, it shall be the duty of the administering officer to
require such individual to exhibit the community tax certificate.39 Despite this irregularity, however,
Sps. Sarili failed to show that they conducted an investigation beyond the subject SPA and into the
circumstances of its execution as required by prevailing jurisprudence. Hence, Sps. Sarili cannot be
considered as innocent purchasers for value.

The defective notarization of the subject SPA also means that the said document should be treated
as a private document and thus examined under the parameters of Section 20, Rule 132 of the
Rules of Court which provides that "before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either: (a) by anyone who saw the
document executed or written; or (b) by evidence of the genuineness of the signature or handwriting
of the maker x x x." Settled is the rule that a defective notarization will strip the document of its public
character and reduce it to a private instrument, and the evidentiary standard of its validity shall be
based on preponderance of evidence.40

The due execution and authenticity of the subject SPA are of great significance in determining the
validity of the sale entered into by Victorino and Ramon since the latter only claims to be the agent of
the purported seller (i.e., respondent). Article 1874 of the Civil Code provides that "[w]hen a sale of a
piece 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." In other words, if the subject SPA was not proven to be duly
executed and authentic, then it cannot be said that the foregoing requirement had been complied
with; hence, the sale would be void.

After a judicious review of the case, taking into consideration the divergent findings of the RTC and
the CA on the matter,41 the Court holds that the due execution and authenticity of the subject SPA
were not sufficiently established under Section 20, Rule 132 of the Rules of Court as above-cited.

While Ramon identified the signature of respondent on the subject SPA based on his alleged
familiarity with the latter’s signature,42 he, however, stated no basis for his identification of the
signatures of respondent’s wife Amelia and the witness, Evangeline F. Murral,43 and even failed to
identify the other witness,44 who were also signatories to the said document. In other words, no
evidence was presented to authenticate the signatures of the other signatories of the subject SPA
outside from respondent.45

Besides, as the CA correctly observed, respondent’s signature appearing on the subject SPA is not
similar46 to his genuine signature appearing in the November 25, 1999 SPA in favor of
Lourdes,47 especially the signature appearing on the left margin of the first page.48

Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he and his
wife, Amelia, had immigrated to the USA since 1968 and therefore could not have signed the subject
SPA due to their absence.49

Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he did not
require the presentation of respondent’s CTC or any other competent proof of the identity of the
person who appeared before him to acknowledge the subject SPA as respondent’s free and
voluntary act and deed despite the fact that he did not personally know the latter and that he met him
for the first time during the notarization.50 He merely relied on the representations of the person
before him51 and the bank officer who accompanied the latter to his office,52 and further explained that
the reason for the omission of the CTC was "because in [a] prior document, [respondent] has
probably given us already his residence certificate."53 This "prior document," was not, however,
presented during the proceedings below, nor the CTC number ever identified.

Thus, in light of the totality of evidence at hand, the Court agrees with the CA’s conclusion that
respondent was able to preponderate his claims of forgery against the subject SPA.54 In view of its
invalidity, the November 20, 1992 sale relied on by Sps. Sarili to prove their title to the subject
property is therefore void.1âwphi1

At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which – as
the CA found – was actually the source of the issuance of TCT No. 262218. Nonetheless, this
document was admitted to be also a forgery.55 Since Sps. Sarili’s claim over the subject property is
based on forged documents, no valid title had been transferred to them (and, in turn, to petitioners).
Verily, when the instrument presented is forged, even if accompanied by the owner’s duplicate
certificate of title, the registered owner does not thereby lose his title, and neither does the assignee
in the forged deed acquire any right or title to the property.56 Accordingly, TCT No. 262218 in the
name of Victorino married to Isabel should be annulled, while TCT No. 55979 in the name of
respondent should be reinstated.

Anent the award of moral damages, suffice it to say that the dispute over the subject property had
caused respondent serious anxiety, mental anguish and sleepless nights, thereby justifying the
aforesaid award.57 Likewise, since respondent was constrained to engage the services of counsel to
file this suit and defend his interests, the awards of attorney’s fees and litigation expenses are also
sustained.58

The Court, however, finds a need to remand the case to the court a quo in order to determine the
rights and obligations of the parties with respect to the house Sps. Sarili had built59 on the subject
property in bad faith in accordance with Article 449 in relation to Articles 450, 451, 452, and the first
paragraph of Article 546 of the Civil Code which respectively read as follows:

ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right to indemnity.

ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may
demand the demolition of the work, or that the planting or sowing be removed, in order to replace
things in their former condition at the expense of the person who built, planted or sowed; or he may
compel the builder or planter to pay the price of the land, and the sower the proper rent.

ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the
builder, planter or sower.

ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary
expenses of preservation of the land.

xxxx

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor. (Emphases and underscoring
supplied)

xxxx

To be deemed a builder in good faith, it is essential that a person asserts title to the land on which
he builds, i.e. , that he be a possessor in concept of owner, and that he be unaware that there exists
in his title or mode of acquisition any flaw which invalidates it.60 Good faith is an intangible and
abstract quality with no technical meaning or statutory definition, and it encompasses, among other
things, an honest belief, the absence of malice and the absence of design to defraud or to seek an
unconscionable advantage. It implies honesty of intention, and freedom from knowledge of
circumstances which ought to put the holder upon inquiry.61 As for Sps. Sarili, they knew – or at the
very least, should have known – from the very beginning that they were dealing with a person who
possibly had no authority to sell the subject property considering the palpable irregularity in the
subject SPA’s acknowledgment. Yet, relying solely on said document and without any further
investigation on Ramos’s capacity to sell Sps. Sarili still chose to proceed with its purchase and even
built a house thereon. Based on the foregoing it cannot be seriously doubted that Sps. Sarili were
actually aware of a flaw or defect in their title or mode of acquisition and have consequently built the
house on the subject property in bad faith under legal contemplation. The case is therefore
remanded to the court a quo for the proper application of the above-cited Civil Code provisions.

WHEREFORE, the petition is DENIED. The Decision dated May 20, 2010 and Resolution dated
August 26, 2010 of the Court of Appeals in CA-G.R. CV No. 76258 are AFFIRMED. However the
case is REMANDED to the court a quo for the proper application of Article 449 in relation to Articles
450 451 452 and the first paragraph of Article 546 of the Civil Code with respect to the house
Spouses Victorino Sarili and Isabel Amparo had built on the subject property as herein discussed.
SO ORDERED.

28
G.R. No. L-60174 February 16, 1983

EDUARDO FELIPE, HERMOGENA V. FELIPE AND VICENTE V. FELIPE, petitioners,

vs.
HEIRS OF MAXIMO ALDON, NAMELY: GIMENA ALMOSARA, SOFIA ALDON, SALVADOR
ALDON, AND THE HONORABLE COURT OF APPEALS, respondents.

Romulo D. San Juan for petitioner.

Gerundino Castillejo for private respondent.

ABAD SANTOS, J.:

Maximo Aldon married Gimena Almosara in 1936. The spouses bought several pieces of land
sometime between 1948 and 1950. In 1960-62, the lands were divided into three lots, 1370, 1371
and 1415 of the San Jacinto Public Land Subdivision, San Jacinto, Masbate.

In 1951, Gimena Almosara sold the lots to the spouses Eduardo Felipe and Hermogena V. Felipe.
The sale was made without the consent of her husband, Maximo.

On April 26, 1976, the heirs of Maximo Aldon, namely his widow Gimena and their children Sofia and
Salvador Aldon, filed a complaint in the Court of First Instance of Masbate against the Felipes. The
complaint which was docketed as Civil Case No. 2372 alleged that the plaintiffs were the owners of
Lots 1370, 1371 and 1415; that they had orally mortgaged the same to the defendants; and an offer
to redeem the mortgage had been refused so they filed the complaint in order to recover the three
parcels of land.

The defendants asserted that they had acquired the lots from the plaintiffs by purchase and
subsequent delivery to them. The trial court sustained the claim of the defendants and rendered the
following judgment:

a. declaring the defendants to be the lawful owners of the property subject of the
present litigation;

b. declaring the complaint in the present action to be without merit and is therefore
hereby ordered dismissed;
 c. ordering the plaintiffs to pay to the defendants the amount of P2,000.00 as
reasonable attorney's fees and to pay the costs of the suit.

The plaintiffs appealed the decision to the Court of Appeals which rendered the following judgment:

PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and

SET ASIDE, and a new one is hereby RENDERED, ordering the defendants-
appellees to surrender the lots in question as well as the plaintiffs'-appellants'
muniments of title thereof to said plaintiffs-appellants, to make an accounting of the
produce derived from the lands including expenses incurred since 1951, and to
solidarity turn over to the plaintiffs-appellants the NET monetary value of the profits,
after deducting the sum of P1,800.00. No attorney's fees nor moral damages are
awarded for lack of any legal justification therefor. No. costs.

The ratio of the judgment is stated in the following paragraphs of the decision penned by Justice
Edgardo L. Paras with the concurrence of Justices Venicio Escolin and Mariano A. Zosa:

One of the principal issues in the case involves the nature of the aforementioned
conveyance or transaction, with appellants claiming the same to be an oral contract
of mortgage or antichresis, the redemption of which could be done anytime upon
repayment of the P1,800.00 involved (incidentally the only thing written about the
transaction is the aforementioned receipt re the P1,800). Upon the other hand,
appellees claim that the transaction was one of sale, accordingly, redemption was
improper. The appellees claim that plaintiffs never conveyed the property because of
a loan or mortgage or antichresis and that what really transpired was the execution of
a contract of sale thru a private document designated as a 'Deed of Purchase and
Sale' (Exhibit 1), the execution having been made by Gimena Almosara in favor of
appellee Hermogena V. Felipe.

After a study of this case, we have come to the conclusion that the appellants are
entitled to recover the ownership of the lots in question. We so hold because
although Exh. 1 concerning the sale made in 1951 of the disputed lots is, in Our
opinion, not a forgery the fact is that the sale made by Gimena Almosara is invalid,
having been executed without the needed consent of her husband, the lots being
conjugal. Appellees' argument that this was an issue not raised in the pleadings is
baseless, considering the fact that the complaint alleges that the parcels 'were
purchased by plaintiff Gimena Almosara and her late husband Maximo Aldon' (the
lots having been purchased during the existence of the marriage, the same are
presumed conjugal) and inferentially, by force of law, could not, be disposed of by a
wife without her husband's consent.

The defendants are now the appellants in this petition for review. They invoke several grounds in
seeking the reversal of the decision of the Court of Appeals. One of the grounds is factual in nature;
petitioners claim that "respondent Court of Appeals has found as a fact that the 'Deed of Purchase
and Sale' executed by respondent Gimena Almosara is not a forgery and therefore its authenticity
and due execution is already beyond question." We cannot consider this ground because as a rule
only questions of law are reviewed in proceedings under Rule 45 of the Rules of Court subject to
well-defined exceptions not present in the instant case.

The legal ground which deserves attention is the legal effect of a sale of lands belonging to the
conjugal partnership made by the wife without the consent of the husband.
It is useful at this point to re-state some elementary rules: The husband is the administrator of the
conjugal partnership. (Art. 165, Civil Code.) Subject to certain exceptions, the husband cannot
alienate or encumber any real property of the conjugal partnership without the wife's consent. (Art.
166, Idem.) And the wife cannot bind the conjugal partnership without the husband's consent, except
in cases provided by law. (Art. 172, Idem.)

In the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership without the
consent of the husband and the sale is not covered by the phrase "except in cases provided by law."
The Court of Appeals described the sale as "invalid" - a term which is imprecise when used in
relation to contracts because the Civil Code uses specific names in designating defective contracts,
namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390 et seq.), unenforceable (Arts. 1403, et
seq.), and void or inexistent (Arts. 1409 et seq.)

The sale made by Gimena is certainly a defective contract but of what category? The answer: it is a
voidable contract.

According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose where one of the
parties is incapable of giving consent to the contract." (Par. 1.) In the instant case-Gimena had no
capacity to give consent to the contract of sale. The capacity to give consent belonged not even to
the husband alone but to both spouses.

The view that the contract made by Gimena is a voidable contract is supported by the legal provision
that contracts entered by the husband without the consent of the wife when such consent is
required, are annullable at her instance during the marriage and within ten years from the
transaction questioned. (Art. 173, Civil Code.)

Gimena's contract is not rescissible for in such contract all the essential elements are untainted but
Gimena's consent was tainted. Neither can the contract be classified as unenforceable because it
does not fit any of those described in Art. 1403 of the Civil Code. And finally, the contract cannot be
void or inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By process
of elimination, it must perforce be a voidable contract.

The voidable contract of Gimena was subject to annulment by her husband only during the marriage
because he was the victim who had an interest in the contract. Gimena, who was the party
responsible for the defect, could not ask for its annulment. Their children could not likewise seek the
annulment of the contract while the marriage subsisted because they merely had an inchoate right to
the lands sold.

The termination of the marriage and the dissolution of the conjugal partnership by the death of
Maximo Aldon did not improve the situation of Gimena. What she could not do during the marriage,
she could not do thereafter.

The case of Sofia and Salvador Aldon is different. After the death of Maximo they acquired the right
to question the defective contract insofar as it deprived them of their hereditary rights in their father's
share in the lands. The father's share is one-half (1/2) of the lands and their share is two-thirds (2/3)
thereof, one-third (1/3) pertaining to the widow.

The petitioners have been in possession of the lands since 1951. It was only in 1976 when the
respondents filed action to recover the lands. In the meantime, Maximo Aldon died.
Two questions come to mind, namely: (1) Have the petitioners acquired the lands by acquisitive
prescription? (2) Is the right of action of Sofia and Salvador Aldon barred by the statute of
limitations?

Anent the first question, We quote with approval the following statement of the Court of Appeals:

We would like to state further that appellees [petitioners herein] could not have
acquired ownership of the lots by prescription in view of what we regard as their bad
faith. This bad faith is revealed by testimony to the effect that defendant-appellee
Vicente V. Felipe (son of appellees Eduardo Felipe and Hermogena V. Felipe)
attempted in December 1970 to have Gimena Almosara sign a ready-made
document purporting to self the disputed lots to the appellees. This actuation clearly
indicated that the appellees knew the lots did not still belong to them, otherwise, why
were they interested in a document of sale in their favor? Again why did Vicente V.
Felipe tell Gimena that the purpose of the document was to obtain Gimena's consent
to the construction of an irrigation pump on the lots in question? The only possible
reason for purporting to obtain such consent is that the appellees knew the lots were
not theirs. Why was there an attempted improvement (the irrigation tank) only in
1970? Why was the declaration of property made only in 1974? Why were no
attempts made to obtain the husband's signature, despite the fact that Gimena and
Hermogena were close relatives? An these indicate the bad faith of the appellees.
Now then, even if we were to consider appellees' possession in bad faith as a
possession in the concept of owners, this possession at the earliest started in 1951,
hence the period for extraordinary prescription (30 years) had not yet lapsed when
the present action was instituted on April 26, 1976.

As to the second question, the children's cause of action accrued from the death of their father in
1959 and they had thirty (30) years to institute it (Art. 1141, Civil Code.) They filed action in 1976
which is well within the period.

WHEREFORE, the decision of the Court of Appeals is hereby modified. Judgment is entered
awarding to Sofia and Salvador Aldon their shares of the lands as stated in the body of this decision;
and the petitioners as possessors in bad faith shall make an accounting of the fruits corresponding
to the share aforementioned from 1959 and solidarity pay their value to Sofia and Salvador Aldon;
costs against the petitioners.

SO ORDERED.

29 EN BANC

G.R. No. L-8913 March 3, 1914

NELLIE LOUISE COOK, plaintiff-appellee,
vs.
J. MCMICKING, sheriff of Manila, defendant-appellant.
GUS JOHNSON and AMPARO ESCALANTE DE JOHNSON, interveners-appellants.

Gibbs, McDonough & Blanco for appellants.

Rohde & Wright for appellee.

MORELAND, J.:

This is an appeal from a judgment of the Court of First Instance of the city of Manila in favor of the
plaintiff and against the appellants, continuing an injunction against the appellants restraining them
from selling the property described in the complaint under an execution issued against Edward
Cook.

On August 8, 1912, an injunction was granted by a judge of the Court of First Instance of the city of
Manila restraining the sale of certain property levied upon under an execution issued upon a
judgment rendered on April 30 by the Court of First Instance of the Province of Rizal in the case of
Johnson et al. vs. Edward Cook.

The complaint alleges that the plaintiff is the wife of Edward Cook; that she is the absolute owner of
a piece of square meters in area, and that the same is registered in her name under the Torrens Law
by certificate No. 130; that on the 15th of June 1912, a judgment was entered against Edward Cook,
plaintiff's husband, for the sum of P10,000 in the Court of First Instance of the Province of Rizal; that
by virtue of said judgment an execution was issued on the 10th of July of that year and levied upon
the land described in the complaint as belonging to the plaintiff and that the same was advertised for
sale on the 8th of August at 9 o' clock in the morning. After other allegations appropriate to an action
of this kind, plaintiff prays from an junction permanently prohibiting the defendants from selling the
said land.

The Torrens title introduced in evidence by the plaintiff was obtained in June 1904 in the name of
plaintiff's husband, Edward Cook. Later, and sometime in August of the same year, the husband, by
an intrusment in writing in the form and manner required by Act No. 496, transferred to the plaintiff
the land in question. In 1911 the plaintiff's husband Edward Cook, became indebted to Johnson, the
plaintiff in the action referred to, in the sum of P10,000, the purchase price of certain lands.
Judgement upon said indebtedness was procured in the year 1912 as aforesaid and a levy made
upon the lands described in the complaint.

It is claimed by the appellants that the so-called transfer from plaintiff's husband to her was
completely void under article 1458 of the Civil Code and that, therefore, the property still remains the
property of Edward Cook and subject to levy under execution against him.

In our opinion the position taken by appellants is untenable. They are not in the position the
challenge the validity of the transfer, if it may be called such. They bore absolutely no relation to the
parties to the transfer at the time it occurred and had no rights or interest inchoate, present, remote,
or otherwise, in the property in question at the time the transfer occurred. Although certain transfers
from husband to wife or from wife to husband are prohibited in the article referred to, such prohibition
can be taken advantage of only two person who bear such a relation to the parties making the
transfer with their rights or interest. Unless such a relationship appears the transfer cannot be
attacked.
So far as the record of this case demonstrates the property in question is owned by the plaintiff and
is not subject to levy and sale under the execution in this case.

The judgment appealed from affirmed, with costs against the appellants.

Arellano, C.J., Carson and Araullo, JJ., concur.

30
G.R. No. L-15113 January 28, 1961

ANTONIO MEDINA, petitioner,

vs.
COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS respondents.

Eusebio D. Morales for petitioner.

Office of the Solicitor General for respondents.

REYES, J.B.L. J.:

Petition to review a decision of the Court of Tax Appeals upholding a tax assessment of the Collector
of Internal Revenue except with respect to the imposition of so-called compromise penalties, which
were set aside.

The records show that on or about May 20, 1944, petitioning taxpayer Antonio Medina married
Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later,
however, petitioner acquired forest, concessions in the municipalities of San Mariano and Palanan in
the Province of Isabela. From 1946 to 1948, the logs cut and removed by the petitioner from his
concessions were sold to different persons in Manila through his agent, Mariano Osorio.

Some time in 1949, Antonia R. Medina, petitioner's wife, started to engage in business as a lumber
dealer, and up to around 1952, petitioner sold to her almost all the logs produced in his San
Mariano, concession. Mrs. Medina, In turn, sold in Manila the logs bought from her husband through
the same agent, Mariano Osorio. The proceeds were, upon instructions from petitioner, either
received by Osorio for petitioner or deposited by said agent in petitioner's current account with the
Philippine National Bank.

On the thesis that the sales made by petitioner to his wife were null and void pursuant to the
provisions of Article 1490 of the Civil Code of the Philippines (formerly, Art. 1458, Civil Code of
1889), the Collector considered the sales made by Mrs. Medina as the petitioner's original sales
taxable under Section 186 of the National Internal Revenue Code and, therefore, imposed a tax
assessment on petitioner, calling for the payment of P4,553.54 as deficiency sales taxes and
surcharges from 1949 to 1952. This same assessment of September 26, 1953 sought also the
collection of another sum of P643.94 as deficiency sales tax and surcharge based on petitioner's
quarterly returns from 1946 to 1952.

On November 30, 1953, petitioner protested the assessment; however, respondent Collector
insisted on his demand. On July 9, 1954, petitioner filed a petition for reconsideration revealing for
the first time the existence of an alleged premarital agreement of complete separation of properties
between him and his wife, and contending that the assessment for the years 1946 to 1952 had
already prescribed. After one hearing, the Conference Staff of the Bureau of Internal Revenue
eliminated the 50% fraud penalty and held that the taxes assessed against him before 1948 had
already prescribed. Based on these findings, the Collector issued a modified assessment,
demanding the payment of only P3,325.68, computed as follows:

5% tax due on P7,209.83 -1949 P 360.49

5% tax due on 16,945.55 - 1950 847.28
5% tax due on 16,874.52 - 1951 843.75
5% tax due on 11,009.94 - 1952 550.50
TOTAL sales tax due P2,602.0
25% Surcharge thereon 650.51
Short taxes per quarterly returns, 3rd 58.52
quarter, 1950
25% Surcharge thereon 14.63
TOTAL AMOUNT due & collectible P3,325.68

Petitioner again requested for reconsideration, but respondent Collector, in his letter of April 4, 1955,
denied the same.

Petitioner appealed to the Court of Tax Appeals, which rendered judgment as aforesaid. The Court's
decision was based on two main findings, namely, (a) that there was no premarital agreement of
absolute separation of property between the Medina spouse; and (b) assuming that there was such
an agreement, the sales in question made by petitioner to his wife were fictitious, simulated, and
not bona fide.

In his petition for review to this Court, petitioner raises several assignments of error revolving around
the central issue of whether or not the sales made by the petitioner to his wife could be considered
as his original taxable sales under the provisions of Section 186 of the National Internal Revenue
Code.

Relying mainly on testimonial evidence that before their marriage, he and his wife executed and
recorded a prenuptial agreement for a regime of complete separation of property, and that all trace
of the document was lost on account of the war, petitioner imputes lack of basis for the tax court's
factual finding that no agreement of complete separation of property was ever executed by and
between the spouses before their marriage. We do not think so. Aside from the material
inconsistencies in the testimony of petitioner's witnesses pointed out by the trial court, the
circumstantial evidence is against petitioner's claim. Thus, it appears that at the time of the marriage
between petitioner and his wife, they neither had any property nor business of their own, as to have
really urged them to enter into the supposed property agreement. Secondly, the testimony that the
separation of property agreement was recorded in the Registry of Property three months before the
marriage, is patently absurd, since such a prenuptial agreement could not be effective before
marriage is celebrated, and would automatically be cancelled if the union was called off. How then
could it be accepted for recording prior to the marriage? In the third place, despite their insistence on
the existence of the ante nuptial contract, the couple, strangely enough, did not act in accordance
with its alleged covenants. Quite the contrary, it was proved that even during their taxable years, the
ownership, usufruct, and administration of their properties and business were in the husband. And
even when the wife was engaged in lumber dealing, and she and her husband contracted sales with
each other as aforestated, the proceeds she derived from her alleged subsequent disposition of the
logs — incidentally, by and through the same agent of her husband, Mariano Osorio — were either
received by Osorio for the petitioner or deposited by said agent in petitioner's current account with
the Philippine National Bank. Fourth, although petitioner, a lawyer by profession, already knew, after
he was informed by the Collector on or about September of 1953, that the primary reason why the
sales of logs to his wife could not be considered as the original taxable sales was because of the
express prohibition found in Article 1490 of the Civil Code of sales between spouses married under a
community system; yet it was not until July of 1954 that he alleged, for the first time, the existence of
the supposed property separation agreement. Finally, the Day Book of the Register of Deeds on
which the agreement would have been entered, had it really been registered as petitioner insists,
and which book was among those saved from the ravages of the war, did not show that the
document in question was among those recorded therein.

We have already ruled that when the credibility of witnesses is the one at issue, the trial court's
judgment as to their degree of credence deserves serious consideration by this Court (Collector vs.
Bautista, et al., G.R. Nos. L-12250 & L-12259, May 27, 1959). This is all the more true in this case
because not every copy of the supposed agreement, particularly the one that was said to have been
filed with the Clerk of Court of Isabela, was accounted for as lost; so that, applying the "best
evidence rule", the court did right in giving little or no credence to the secondary evidence to prove
the due execution and contents of the alleged document (see Comments on the Rules of Court,
Moran, 1957 Ed., Vol. 3, pp. 10.12).

The foregoing findings notwithstanding, the petitioner argues that the prohibition to sell expressed
under Article 1490 of the Civil Code has no application to the sales made by said petitioner to his
wife, because said transactions are contemplated and allowed by the provisions of Articles 7 and 10
of the Code of Commerce. But said provisions merely state, under certain conditions, a presumption
that the wife is authorized to engage in business and for the incidents that flow therefrom when she
so engages therein. But the transactions permitted are those entered into with strangers, and do not
constitute exceptions to the prohibitory provisions of Article 1490 against sales between spouses.

Petitioner's contention that the respondent Collector can not assail the questioned sales, he being a
stranger to said transactions, is likewise untenable. The government, as correctly pointed out by the
Tax Court, is always an interested party to all matters involving taxable transactions and, needless to
say, qualified to question their validity or legitimacy whenever necessary to block tax evasion.

Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs.
Cantollas, 70 Phil. 55; Uy Coque vs. Sioca 45 Phil. 43). Being void transactions, the sales made by
the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that
considered as the taxable sales those made by the wife through the spouses' common agent,
Mariano Osorio. In upholding that stand, the Court below committed no error.

It is also the petitioner's contention that the lower court erred in using illegally seized documentary
evidence against him. But even assuming arguendo the truth of petitioner's charge regarding the
seizure, it is now settled in this jurisdiction that illegally obtained documents and papers are
admissible in evidence, if they are found to be competent and relevant to the case (see Wong & Lee
vs. Collector of Internal Revenue, G.R. No. L-10155, August 30, 1958). In fairness to the Collector,
however, it should be stated that petitioner's imputation is vehemently denied by him, and relying on
Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions of Revenue Regulations No.
V-1 and citing this Court's ruling in U.S. vs. Aviado, 38 Phil. 10, the Collector maintains that he and
other internal revenue officers and agents could require the production of books of accounts and
other records from a taxpayer. Having arrived at the foregoing conclusion, it becomes unnecessary
to discuss the other issues raised, which are but premised on the assumption that a premarital
agreement of total separation of property existed between the petitioner and his wife.

WHEREFORE, the decision appealed from is affirmed, with costs against the petitioner.

Padilla, Bautista Angelo, Labrador, Barrera, Gutierrez David and Dizon, JJ., concur.

Separate Opinions

CONCEPCION, J., concurring:

I concur in the result. I do not share the view that documents and papers illegally obtained are
admissible in evidence, if competent and relevant to the case. In this connection, I believe in the
soundness of the following observations of the Supreme Court of the United States in Weeks v.
United States (232 US 383, 58 L. ed. 652, 34 S. Ct. 341):1

The effect of the Fourth Amendment is to put the courts of the United States and Federal
officials, in the exercise of their power and authority, under limitations and restraints as to the
exercise of such power and authority, an to forever secure the people, their persons, houses,
papers, and effects against all unreasonable searches and seizures under the guise of law.
This protection reaches all alike, whether accused of crime or not, and the duty of giving to it
force and effect is obligatory upon all entrusted under our Federal system with the
enforcement of the laws. The tendency of those who execute the criminal laws of the country
to obtain conviction by means of unlawful seizures and enforced confessions, the latter often
obtained after subjecting accused persons to unwarranted practices destructive of rights
secured by the Federal Constitution, should find no sanction in the judgments of the courts
which are charged at all times with the support of the Constitution and to which people of all
conditions have a right to appeal for the maintenance of such fundamental rights.

xxx xxx xxx

If letters and private documents can thus be seized and held and used in evidence, against a
citizen accused of an offense, the protection of the Fourth. Amendment declaring his right to
be secured against such searches and seizures is of no value, and, so far as those thus
placed are concerned well be stricken from the Constitution. The efforts of the courts and
their officials to bring the guilty to punishment, praiseworthy as they are, are not to be aided
by the sacrifice of those great principles established by years of endeavor and suffering
which have resulted in their embodiment in the fundamental law of the land." as applied and
amplified in Elkins v. United States (June 27, 1960), 4 L. ed. 1669.
31
G.R. No. L-36731 January 27, 1983

VICENTE GODINEZ, ET AL., plaintiffs-appellants,

vs.
FONG PAK LUEN ET AL., defendants, TRINIDAD S. NAVATA, defendant-appellee.

Dominador Sobrevinas for plaintiffs-appellants.

Muss S. Inquerto for defendant-appellee

GUTIERREZ, JR., J.:

The plaintiffs filed this case to recover a parcel of land sold by their father, now deceased, to Fong
Pak Luen, an alien, on the ground that the sale was null and void ab initio since it violates applicable
provisions of the Constitution and the Civil Code.

The order of the Court of First Instance of Sulu dismissing the complaint was appealed to the Court
of Appeals but the latter court certified the appeal to us since only pure questions of law were raised
by the appellants.

The facts of the case were summarized by the Court of Appeals as follows:

On September 30, 1966, the plaintiffs filed a complaint in the Court of First Instance
of Sulu alleging among others that they are the heirs of Jose Godinez who was
married to Martina Alvarez Godinez sometime in 1910; that during the marriage of
their parents the said parents acquired a parcel of land lot No. 94 of Jolo townsite
with an area of 3,665 square meters as evidenced by Original Certificate of Title No.
179 (D -155) in the name of Jose Godinez; that their mother died sometime in 1938
leaving the plaintiffs as their sole surviving heirs; that on November 27, 1941, without
the knowledge of the plaintiffs, the said Jose Godinez, for valuable consideration,
sold the aforesaid parcel of land to the defendant Fong Pak Luen, a Chinese citizen,
which transaction is contrary to law and in violation of the Civil Code because the
latter being an alien who is inhibited by law to purchase real property; that Transfer
Certificate Title No. 884 was then issued by the Register of Deeds to the said
defendant, which is null and void ab initio since the transaction constituted a non-
existent contract; that on January 11, 1963, said defendant Fong Pak Luen executed
a power of attorney in favor of his co-defendant Kwan Pun Ming, also an alien, who
conveyed and sold the above described parcel of land to co-defendant Trinidad S.
Navata, who is aware of and with full knowledge that Fong Pak Luen is a Chinese
citizen as well as Kwan Pun Ming, who under the law are prohibited and disqualified
to acquire real property in this jurisdiction; that defendant Fong Pak Luen has not
acquired any title or interest in said parcel of land as the purported contract of sale
executed by Jose Godinez alone was contrary to law and considered non- existent,
so much so that the alleged attorney-in-fact, defendant Kwan Pun Ming had not
conveyed any title or interest over said property and defendant Navata had not
acquired anything from said grantor and as a consequence Transfer Certificate of
Title No. 1322, which was issued by the Register of Deeds in favor of the latter is null
and void ab initio,- that since one-half of the said property is conjugal property
inherited by the plaintiffs from their mother, Jose Godinez could -not have legally
conveyed the entire property; that notwithstanding repeated demands on said
defendant to surrender to plaintiffs the said property she refused and still refuses to
do so to the great damage and prejudice of the plaintiffs; and that they were
constrained to engage the services of counsel in the sum of P2,000.00. The plaintiffs
1äwphï1.ñët

thus pray that they be adjudged as the owners of the parcel of land in question and
that Transfer Certificate of Title RT-90 (T-884) issued in the name of defendant Fong
Pak Luen be declared null and void ab initio; and that the power of attorney issued in
the name of Kwan Pun Ming, as well as Transfer Certificate of Title No. 'L322 issued
in the name of defendant Navata be likewise declared null and void, with costs
against defendants.

On August 18, 1966, the defendant Register of Deeds filed an answer claiming that
he was not yet the register of deeds then; that it was only the ministerial duty of his
office to issue the title in favor of the defendant Navata once he was determined the
registerability of the documents presented to his office.

On October 20, 1966, the defendant Navata filed her answer with the affirmative
defenses and counterclaim alleging among others that the complaint does not state a
cause of action since it appears from the allegation that the property is registered in
the name of Jose Godinez so that as his sole property he may dispose of the same;
that the cause of action has been barred by the statute of limitations as the alleged
document of sale executed by Jose Godinez on November 27, 1941, conveyed the
property to defendant Fong Pak Luen as a result of which a title was issued to said
defendant; that under Article 1144 (1) of the Civil Code, an action based upon a
written contract must be brought within 10 years from the time the right of action
accrues; that the right of action accrued on November 27, 1941 but the complaint
was filed only on September 30, 1966, beyond the 10 year period provided for by
law; that the torrens title in the name of defendant Navata is indefeasible who
acquired the property from defendant Fong Pak Luen who had been in possession of
the property since 1941 and thereafter defendant Navata had possessed the same
for the last 25 years including the possession of Fong Pak Luen; that the complaint is
intended to harass the defendant as a civic leader and respectable member of the
community as a result of which she suffered moral damages of P100,000.00,
P2,500.00 for attorney's fees and P500.00 expenses of litigation, hence, said
defendant prays that the complaint be dismissed and that her counterclaim be
granted, with costs against the plaintiffs. On November 24, 1967, the plaintiffs filed
an answer to the affirmative defenses and counter-claim. As the defendants Fong
Pak Luen and Kwan Pun Ming are residing outside the Philippines, the trial court
upon motion issued an order of April 17, 1967, for the service of summons on said
defendants by publication. No answer has been filed by said defendants.

On December 2, 196 7, the court issued an order as follows:

 Both parties having agreed to the suggestion of the Court that they
submit their supplemental pleadings to support both motion and
opposition and after submittal of the same the said motion to dismiss
which is an affirmative defense alleged in the complaint is deemed
submitted. Failure of both parties or either party to submit their
supplemental pleadings on or about December 9, the Court will
resolve the case.

On November 29, 1968, the trial court issued an order missing the complaint without
pronouncement as to costs. (Record on Appeal, pp. 31- 37). A motion for
reconsideration of this order was filed by the plaintiffs on December 12, 196F, which
was denied by the trial court in an order of July 11, 1969, (Rec. on Appeal, pp. 38,
43, 45, 47). The plaintiffs now interpose this appeal with the following assignments of
errors:

I. The trial court erred in dismissing plaintiffs-appellants' complaint on

the ground of prescription of action, applying Art. 1144 (1) New Civil
Code on the basis of defendant Trinidad S. Navata's affirmative
defense of prescription in her answer treated as a motion to dismiss.

II. The trial court erred in denying plaintiffs-appellants' motion for

reconsideration of the order of dismissal.

III. The trial court erred in not ordering this case to be tried on the
merits."

The appellants contend that the lower court erred in dismissing the complaint on the ground that
their cause of action has prescribed. While the issue raised appears to be only the applicability of the
law governing prescription, the real question before us is whether or not the heirs of a person who
sold a parcel of land to an alien in violation of a constitutional prohibition may recover the property if
it had, in the meantime, been conveyed to a Filipino citizen qualified to own and possess it.

The question is not a novel one. Judicial precedents indicate fairly clearly how the question should
be resolved.

There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot acquired from
the Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a Chinese citizen residing in
Hongkong, was violative of Section 5, Article XIII of the 1935 Constitution which provided:

Sec. 5. Save in cases of hereditary succession, no private agricultural land will be

transferred or assigned except to individuals, corporations, or associations qualified
to acquire or hold lands of the public domain in the Philippines.

The meaning of the above provision was fully discussed in Krivenko v. Register of Deeds of
Manila (79 Phil. 461) which also detailed the evolution of the provision in the public land laws, Act
No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that "under the Constitution aliens
may not acquire private or agricultural lands, including residential lands" is a declaration of an
imperative constitutional policy. Consequently, prescription may never be invoked to defend that
which the Constitution prohibits. However, we see no necessity from the facts of this case to pass
upon the nature of the contract of sale executed by Jose Godinez and Fong Pak Luen whether
void ab initio, illegal per se or merely pro-exhibited.** It is enough to stress that insofar as the vendee is
concerned, prescription is unavailing. But neither can the vendor or his heirs rely on an argument based on imprescriptibility because the
land sold in 1941 is now in the hands of a Filipino citizen against whom the constitutional prescription was never intended to apply. The lower
court erred in treating the case as one involving simply the application of the statute of limitations.

From the fact that prescription may not be used to defend a contract which the Constitution prohibits,
it does not necessarily follow that the appellants may be allowed to recover the property sold to an
alien. As earlier mentioned, Fong Pak Luen, the disqualified alien vendee later sold the same
property to Trinidad S. Navata, a Filipino citizen qualified to acquire real property.

In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien vendee later
sold the property to a Filipino corporation, this Court, in affirming a judgment dismissing the
complaint to rescind the sale of real property to the defendant Li Seng Giap on January 22, 1940, on
the ground that the vendee was an alien and under the Constitution incapable to own and hold title
to lands, held:

In Caoile vs. Yu Chiao 49 Qff Gaz., 4321; Talento vs. Makiki 49 Off. Gaz.,
4331; Bautista vs. Uy 49 Off. Gaz., 4336; Rellosa vs. Gaw Chee 49 Off. Gaz., 4345
and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority of this Court has ruled that
in sales of real estate to aliens incapable of holding title thereto by virtue of the
provisions of the Constitution (Section 5, Article XIII Krivenko vs. Register of
Deeds, 44 Off. Gaz., 471) both the vendor and the vendee are deemed to have
committed the constitutional violation and being thus in pari delicto the courts will not
afford protection to either party. (Article 1305, old Civil Code; Article 1411, new Civil
Code) From this ruling three Justices dissented. (Mr. Justice Pablo, Mr. Justice Alex.
Reyes and the writer. See Caoile vs. Yu Chiao Talento vs. Makiki Bautista us. Uy,
Rellosa vs. Gaw Chee and Mercado vs. Go Bio). supra.

The action is not of rescission because it is not postulated upon any of the grounds
provided for in Article 1291 of the old Civil Code and because the action of rescission
involves lesion or damage and seeks to repair it. It is an action for annulment under
Chapter VI, Title II, Book 11, on nullity of contracts, based on a defect in the contract
which invalidates it independently of such lesion or damages. (Manresa,
Commentarios al Codigo Civil Espanol Vol. VIII, p. 698, 4th ed.) It is very likely that
the majority of this Court proceeded upon that theory when it applied the in pari
delicto rule referred to above.

In the United States the rule is that in a sale of real estate to an alien disqualified to
hold title thereto the vendor divests himself of the title to such real estate and has no
recourse against the vendee despite the latter's disability on account of alienage to
hold title to such real estate and the vendee may hold it against the whole world
except as against the State. It is only the State that is entitled by proceedings in the
nature of office found to have a forfeiture or escheat declared against the vendee
who is incapable of holding title to the real estate sold and conveyed to him. Abrams
vs. State, 88 Pac. 327; Craig vs. Leslie et al., 4 Law, Ed. 460; 3 Wheat, 563,
589590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17 Law. Ed., 515; Governeur vs.
Robertson, 11 Wheat, 332, 6 Law. Ed., 488.)

However, if the State does not commence such proceedings and in the meantime the
alien becomes naturalized citizen, the State is deemed to have waived its right to
escheat the real property and the title of the alien thereto becomes lawful and valid
as of the date of its conveyance or transfer to him. (Osterman vs. Baldwin, 6 Wall,
116, 18 Law. ed. 730; Manuel vs. Wulff, 152 U.S. 505, 38 Law. ed. 532; Pembroke
vs. Houston, 79, SW 470; Fioerella vs. Jones, 259 SW 782. The rule in the United
States that in a sale of real estate to an alien disqualified to hold title thereto, the
 vendor divests himself of the title to such real estate and is not permitted to sue for
the annulment Of his Contract, is also the rule under the Civil Code. ... Article 1302 of
the old Civil Code provides: ... Persons sui juris cannot, however, avail themselves of
the incapacity of those with whom they contracted; ...

xxx xxx xxx

. . . (I)f the ban on aliens from acquiring not only agricultural but, also urban lands, as
construed by this Court in the Krivenko case, is to preserve the nation's land for
future generations of Filipinos, that aim or purpose would not be thwarted but
achieved by making lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization. The title to the parcel of land of the vendee, a
naturalized Filipino citizen, being valid that of the domestic corporation to which the
parcel of land has been transferred, must also be valid, 96.67 per cent of its capital
stock being owned by Filipinos.

Herrera v. Luy Kim Guan (SCRA 406) reiterated the above ruling by declaring that where land is sold
to a Chinese citizen, who later sold it to a Filipino, the sale to the latter cannot be impugned.

The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21 SCRA 52)
which relaxed the pari delicto doctrine to allow the heirs or successors-in-interest, in appropriate
cases, to recover that which their predecessors sold to aliens.

Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547) we had occasion to pass
upon a factual situation substantially similar to the one in the instant case. We ruled:

But the factual set-up has changed. The litigated property is now in the hands of a
naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a
naturalized citizen, was constitutionally qualified to own the subject property. There
would be no more public policy to be served in allowing petitioner Epifania to recover
the land as it is already in the hands of a qualified person. Applying by analogy the
ruling of this Court in Vasquez vs. Giap & Sons: (.96 Phil. 447 [1955])

... if the ban on aliens from acquiring not only agricultural but also urban lands, as
construed by this Court in the Krivenko case, is to preserve the nation's lands for
future generations of Filipinos, that aim or purpose would not be thwarted but
achieved by making lawful the acquisition of real estate by aliens who became
Filipino citizens by naturalization.

While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of
ownership to transmit, it is likewise in escapable that petitioner Epifania had slept on
her rights for 26 years from 1936 to 1962. By her long inaction or inexcusable
neglect, she should be held barred from asserting her claim to the litigated property
(Sotto vs. Teves, 86 SCRA 157 [1978])

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 ommission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either
has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-
21450, April 15, 1968, 23 SCRA 29, 35).' (Cited in Sotto vs. Teves, 86 SCRA 154
[1978]).
 Respondent, therefore, must be declared to be the rightful owner of the property.

In the light of the above considerations, we find the second and third assignments of errors without
merit. Respondent Navata, the titled owner of the property is declared the rightful owner.

WHEREFORE, the instant appeal is hereby denied. The orders dismissing the complaint and
denying the motion for reconsideration are affirmed.

SO ORDERED.

32
G.R. No. 112954 August 25, 2000

RICARDO DISTAJO, ERNESTO DISTAJO, RAUL DISTAJO, FEDERICO DISTAJO, ZACARIAS A.

DISTAJO, EDUARDO DISTAJO, and PILAR DISTAJO TAPAR, petitioners,
vs.
COURT OF APPEALS and LAGRIMAS SORIANO DISTAJO, respondents.

DECISION

PARDO, J.:

The case under consideration is a petition for review on certiorari of a decision of the Court of
Appeals1 , which modified the ruling of the Regional Trial Court, Roxas City regarding seven parcels
of land located in Barangay Hipona, Pontevedra, Capiz.2

During the lifetime of Iluminada Abiertas, she designated one of her sons, Rufo Distajo, to be the
administrator of her parcels of land denoted as Lot Nos. 1018, 1046, 1047, and 1057 situated in
Barangay Hipona, Pontevedra, Capiz.

On May 21, 1954, Iluminada Abiertas sold a portion of Lot No. 1018 (1018-A) to her other children,
namely, Raul Distajo, Ricardo Distajo, Ernesto Distajo, Federico Distajo, and Eduardo Distajo.3

On May 29, 1963, Iluminada Abiertas certified to the sale of Lot Nos. 1046 and 1047 in favor of Rufo
Distajo.4

On June 4, 1969, Iluminada Abiertas sold Lot No. 1057 to Rhodora Distajo, the daughter of Rufo
Distajo.5

On July 12, 1969, Iluminada Abiertas sold Lot No. 1018 to Rufo Distajo.6
Meanwhile, Justo Abiertas, Jr., the brother of Iluminada Abiertas, died leaving behind his children,
Teresita, Alicia, Josefa and Luis Abiertas. Teresita paid for the real estate taxes of the following
properties, which she inherited from her father: Lot Nos. 1001, 1048, 1049, and a portion of Lot No.
1047, all located in Capiz. On May 26, 1954, Teresita Abiertas sold Lot No. 1001 in favor of Rufo
Distajo.7 On June 2, 1965, Teresita Abiertas, for herself and representing her sisters and brother,
sold Lot Nos. 1048, 1049, and a portion of Lot No. 1047 to Rufo Distajo.8

After purchasing the above-mentioned parcels of land, Rufo Distajo took possession of the property
and paid the corresponding real estate taxes thereon. Rhodora Distajo likewise paid for the real
estate taxes of Lot No. 1057.

When Iluminada Abiertas died in 1971, Zacarias Distajo, Pilar Distajo-Tapar, and Rizaldo
Distajo,9 demanded possession of the seven parcels of land from Lagrimas S. Distajo, and her
husband, Rufo Distajo. The latter refused.

Consequently, on June 5, 1986, Ricardo Distajo, with the other heirs of Iluminada Abiertas, namely,
Ernesto Distajo, Raul Distajo, Federico Distajo, Zacarias Distajo, Eduardo Distajo, and Pilar Distajo,
filed with the Regional Trial Court, Roxas City a complaint for recovery of possession and ownership
of Lot No. 1018, partition of Lot Nos. 1001, 1018-B, 1046, 1047, 1048, 1049, 1057, and damages.

On September 4, 1986, private respondent Lagrimas Distajo10 filed an answer with counterclaim.

On April 9, 1990, the trial court dismissed the complaint for lack of cause of action, laches and
prescription. The counterclaim was likewise dismissed. The parties appealed to the Court of
Appeals.11

On August 21, 1992, the Court of Appeals rendered its decision,12 the dispositive portion of which
states as follows:

"PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE and a new judgment
rendered, as follows:

WHEREFORE, the Court decides the case in favor of the defendant and dismisses the plaintiffs’
complaint for lack of cause of action except with regard to the plaintiffs’ claim over a 238 sq. m.
portion of Lot No. 1018 (the portion adjoining the market site and measuring seventeen meters and
that adjoining the property of E. Rodriguez measuring 14 meters). The Court hereby Orders the
partition of Lot No. 1018 to conform to the following: 238 sq. m. as above specified to belong to the
plaintiffs as prayed for by them while the rest is declared property of the defendant.

Upon partition of Lot No. 1018 in accordance with this Court’s Order, the City Assessor of Roxas
City is hereby Ordered to cancel Tax Declaration 2813 in the name of Rufo Distajo (or any
subsequent tax declaration/s issued relative to the above-cited Tax Declaration No. 2813) and
forthwith to issue the corresponding tax declarations in the names of the respective parties herein.

SO ORDERED."

On September 10, 1992, Ricardo Distajo filed a motion for reconsideration.13 On December 9, 1993,
the Court of Appeals denied the motion.14

Hence, this petition.15

Petitioner alleges that Iluminada Abiertas exclusively owns the seven parcels of land delineated as
Lot Nos. 1001, 1018, 1046, 1047, 1048, 1049, and 1057, all of which should be partitioned among all
her heirs. Furthermore, Rufo Distajo cannot acquire the subject parcels of land owned by Iluminada
Abiertas because the Civil Code prohibits the administrator from acquiring properties under his
administration.16 Rufo Distajo merely employed fraudulent machinations in order to obtain the consent
of his mother to the sale, and may have even forged her signature on the deeds of sale of the
parcels of land.

In her comment dated May 13, 1994, private respondent Lagrimas S. Distajo contends that Rufo
Distajo rightfully owns the subject parcels of land because of various deeds of sale executed by
Iluminada Abiertas selling Lot Nos. 1018-B, 1047 and 1046 in favor of Rufo Distajo and Lot No. 1057
in favor of Rhodora Distajo. Private respondent also avers that petitioner cannot claim any right over
Lot Nos. 1001, 1048 and 1049, considering that such lands belong to the brother of Iluminada
Abiertas, namely, Justo Abiertas, Jr., whose heirs sold said parcels of land to Rufo Distajo.

The petition lacks merit.

Factual findings of the trial court will not be disturbed on appeal unless the court has overlooked or
ignored some fact or circumstance of sufficient weight or significance, which, if considered, would
alter the result of the case.17 When there is no conflict between the findings of the trial and appellate
courts, a review of the facts found by the appellate court is unnecessary.18

Since the trial court and the Court of Appeals agree that Iluminada Abiertas owned Lot Nos. 1046,
1057 and a portion of Lot No. 1047, and that Justo Abiertas Jr. owned Lot Nos. 1001, 1048, and
1049, such findings are binding on this Court, which is not a trier of facts.19 However, the record
shows that Lot No. 1018 should be divided into Lot No. 1018-A and 1018-B, the delineation of which
the Court of Appeals clarified in its decision.

The issues in this case, therefore, are limited to those properties which were owned by Iluminada
Abiertas, ascendant of petitioner, consisting of Lot Nos. 1018-A, 1046, 1057, and a portion of 1047.

In his petition, Ricardo Distajo assails the genuineness of the signatures of Iluminada Abiertas in the
deeds of sale of the parcels of land, and claims that Rufo Distajo forged the signature of Iluminada
Abiertas. However, no handwriting expert was presented to corroborate the claim of forgery.
Petitioner even failed to present a witness who was familiar with the signature of Iluminada Abiertas.
Forgery should be proved by clear and convincing evidence, and whoever alleges it has the burden
of proving the same.20

Petitioner likewise contends that the sale transactions are void for having been entered into by the
administrator of the properties. We disagree. The pertinent Civil Code provision provides:
1âw phi 1

"Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them,
unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;" x x x
Under paragraph (2) of the above article, the prohibition against agents purchasing property in their
hands for sale or management is not absolute. It does not apply if the principal consents to the sale
of the property in the hands of the agent or administrator. In this case, the deeds of sale signed by
Iluminada Abiertas shows that she gave consent to the sale of the properties in favor of her son,
Rufo, who was the administrator of the properties. Thus, the consent of the principal Iluminada
Abiertas removes the transaction out of the prohibition contained in Article 1491(2).

Petitioner also alleges that Rufo Distajo employed fraudulent machinations to obtain the consent of
Iluminada Abiertas to the sale of the parcels of land. However, petitioner failed to adduce convincing
evidence to substantiate his allegations.

In the absence of any showing of lack of basis for the conclusions made by the Court of Appeals,
this Court finds no cogent reason to reverse the ruling of the appellate court.

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of Appeals in
CA-G.R. CV No. 30063.

SO ORDERED.

33
A.C. No. 6210 December 9, 2004

FEDERICO N. RAMOS, complainant,

vs.
ATTY. PATRICIO A. NGASEO, respondent.

DECISION

YNARES-SANTIAGO, J.:

This is a complaint for suspension of respondent Atty. Patricio A. Ngaseo for violation of the Code of
Professional Responsibility and Article 1491 of the Civil Code by demanding from his client,
complainant Federico N. Ramos, the delivery of 1,000 square meters of land, a litigated property, as
payment for his appearance fees.

The facts as narrated by the complainant are as follows:

Sometime in 1998, complainant Federico Ramos went to respondent Atty. Patricio Ngaseo's Makati
office to engage his services as counsel in a case1 involving a piece of land in San Carlos,
Pangasinan. Respondent agreed to handle the case for an acceptance fee of P20,000.00,
appearance fee of P1,000.00 per hearing and the cost of meals, transportation and other incidental
expenses. Complainant alleges that he did not promise to pay the respondent 1,000 sq. m. of land
as appearance fees.2

On September 16, 1999, complainant went to the respondent's office to inquire about the status of
the case. Respondent informed him that the decision was adverse to them because a congressman
exerted pressure upon the trial judge. Respondent however assured him that they could still appeal
the adverse judgment and asked for the additional amount of P3,850.00 and another P2,000.00 on
September 26, 2000 as allowance for research made.3

Although an appeal was filed, complainant however charges the respondent of purposely failing to
submit a copy of the summons and copy of the assailed decision. Subsequently, complainant
learned that the respondent filed the notice of appeal 3 days after the lapse of the reglementary
period.

On January 29, 2003, complainant received a demand-letter from the respondent asking for the
delivery of the 1,000 sq. m. piece of land which he allegedly promised as payment for respondent's
appearance fee. In the same letter, respondent also threatened to file a case in court if the
complainant would not confer with him and settle the matter within 30 days.

Respondent alleged that sometime in the late 1997, a former client, Federico Ramos and his
brother, Dionisio, went to his Makati office to engage his professional services in connection with a
2-hectare parcel of land situated in San Carlos, Pangasinan which the complainant's family lost 7
years earlier through an execution sale in favor of one Alfredo T. Castro. Complainant, who was deaf
and could only speak conversational Tagalog haltingly, was assisted by his brother Dionisio. They
came all the way from Pangasinan because no lawyer in San Carlos City was willing to handle the
case. Complainant, through Dionisio, avers that he has consulted 2 local lawyers but did not engage
their services because they were demanding exorbitant fees. One local lawyer was willing to handle
the case for at least one-half of the land involved as his attorney's fee, plus cash expenses, while the
other asked for ¼ of the land in addition to a large sum of money. Respondent agreed to handle the
case for an acceptance fee of P60,000.00 plus an appearance fee of P3,000.00 per hearing.
Complainant told him that he would consult his siblings on the matter.

Six months later, i.e., in April 1998, complainant, assisted by one Jose Castillo, went to respondent's
office to discuss the legal fees. Complainant, through Castillo, told respondent that he was willing to
pay an acceptance fee of P40,000.00, P20,000.00 of which shall be paid upon engagement and the
remaining P20,000.00 to be paid after their treasure hunt operations in Nueva Viscaya were
terminated. Further, complainant offered, in lieu of P3,000.00 per appearance, 1,000 sq. m. of land
from the land subject matter of the case, if they win, or from another piece of property, if they lose. In
addition, complainant also offered to defray the expenses for transportation, meals and other
incidental expenses. Respondent accepted the complainant's offer.

Respondent claims that after the trial court dismissed Civil Case No. SCC 2128, he filed a timely
notice of appeal and thereafter moved to be discharged as counsel because he had colon cancer.
Complainant, now assisted by one Johnny Ramos, implored respondent to continue handling the
case, with an offer to double the 1,000 sq. m. piece of land earlier promised and the remaining
balance of P20,000.00 acceptance fee. Johnny Ramos made a written commitment and gave
respondent's secretary P2,000.00 of the P3,850.00 expenses for the preparation of the appellant's
brief.
On July 18, 2001, the Court of Appeals rendered a favorable decision ordering the return of the
disputed 2-hectare land to the complainant and his siblings. The said decision became final and
executory on January 18, 2002. Since then complainant allegedly failed to contact respondent,
which compelled him to send a demand letter on January 29, 2003.

On February 14, 2003, complainant filed a complaint before the IBP charging his former counsel,
respondent Atty. Ngaseo, of violation of the Code of Professional Responsibility for demanding the
delivery of 1,000 sq. m. parcel of land which was the subject of litigation.

In a report dated July 18, 2003, IBP Commissioner Rebecca Villanueva-Maala found the respondent
guilty of grave misconduct and conduct unbecoming of a lawyer in violation of the Code of
Professional Responsibility and recommended that he be suspended from the practice of law for 1
year.4

On August 30, 2003, the IBP Board of Governors passed Resolution No. XVI-2003-47 the full text of
which reads:5

RESOLVED to ADOPT and APPROVE, as it is hereby ADOPTED and APPROVED, the

Report and Recommendation of the Investigating Commissioner of the above-entitled case,
herein made part of this Resolution/Decision as Annex "A"; and, finding the recommendation
fully supported by the evidence on record and the applicable laws and rules, with
modification, and considering that respondent have violated the Code of Professional
Responsibility for grave misconduct and conduct unbecoming of a lawyer Atty. Patricio A.
Ngaseo is hereby SUSPENDED from the practice of law for six (6) months.

On December 11, 2003, respondent filed a petition for review assailing IBP Resolution No. XVI-
2003-47 for having been issued without or in excess of jurisdiction.6

Respondent argues that he did not violate Article 1491 of the Civil Code because when he
demanded the delivery of the 1,000 sq. m. of land which was offered and promised to him in lieu of
the appearance fees, the case has been terminated, when the appellate court ordered the return of
the 2-hectare parcel of land to the family of the complainant.

Respondent further contends that he can collect the unpaid appearance fee even without a written
contract on the basis of the principle of quantum meruit. He claims that his acceptance and
appearance fees are reasonable because a Makati based legal practitioner, would not handle a case
for an acceptance fee of only P20,000.00 and P1,000.00 per court appearance.

Under Article 1491(5) of the Civil Code, lawyers are prohibited from acquiring either by purchase or
assignment the property or rights involved which are the object of the litigation in which they
intervene by virtue of their profession.7 The prohibition on purchase is all embracing to include not
only sales to private individuals but also public or judicial sales. The rationale advanced for the
prohibition is that public policy disallows the transactions in view of the fiduciary relationship
involved, i.e., the relation of trust and confidence and the peculiar control exercised by these
persons.8 It is founded on public policy because, by virtue of his office, an attorney may easily take
advantage of the credulity and ignorance of his client and unduly enrich himself at the expense of his
client.9 However, the said prohibition applies only if the sale or assignment of the property takes
place during the pendency of the litigation involving the client's property. Consequently, where the
property is acquired after the termination of the case, no violation of paragraph 5, Article 1491 of the
Civil Code attaches.
Invariably, in all cases where Article 1491 was violated, the illegal transaction was consummated
with the actual transfer of the litigated property either by purchase or assignment in favor of the
prohibited individual. In Biascan v. Lopez, respondent was found guilty of serious misconduct and
suspended for 6 months from the practice of law when he registered a deed of assignment in his
favor and caused the transfer of title over the part of the estate despite pendency of Special
Proceedings No. 98037 involving the subject property.10 In the consolidated administrative cases
of Valencia v. Cabanting,11 the Court suspended respondent Atty. Arsenio Fer Cabanting for six (6)
months from the practice of law when he purchased his client's property which was still the subject of
a pending certiorari proceeding.

In the instant case, there was no actual acquisition of the property in litigation since the respondent
only made a written demand for its delivery which the complainant refused to comply. Mere demand
for delivery of the litigated property does not cause the transfer of ownership, hence, not a prohibited
transaction within the contemplation of Article 1491. Even assuming arguendo that such demand for
delivery is unethical, respondent's act does not fall within the purview of Article 1491. The letter of
demand dated January 29, 2003 was made long after the judgment in Civil Case No. SCC-2128
became final and executory on January 18, 2002.

We note that the report of the IBP Commissioner, as adopted by the IBP Board of Governors in its
Resolution No. XVI-2003-47, does not clearly specify which acts of the respondent constitute gross
misconduct or what provisions of the Code of Professional Responsibility have been violated. We
find the recommended penalty of suspension for 6 months too harsh and not proportionate to the
offense committed by the respondent. The power to disbar or suspend must be exercised with great
caution. Only in a clear case of misconduct that seriously affects the standing and character of the
lawyer as an officer of the Court and member of the bar will disbarment or suspension be imposed
as a penalty.12 All considered, a reprimand is deemed sufficient and reasonable.

WHEREFORE, in view of the foregoing, respondent Atty. Patricio A. Ngaseo is found guilty of
conduct unbecoming a member of the legal profession in violation of Rule 20.04 of Canon 20 of the
Code of Professional Responsibility. He is REPRIMANDED with a warning that repetition of the
same act will be dealt with more severely.

SO ORDERED.