Scra [G.R. No. 105567. November 25, 1993.

completed, and hence, the execution of an absolute deed of sale in their favor was in order. No action on the
matter was taken by petitioner.

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner, v. HONORABLE COURT OF

APPEALS and SPOUSES RAUL and ESPERANZA LEUTERIO, Respondents.
The Legal Services Group for Petitioner.
Jaime M. Posadas for Private Respondents.

The instant case was initiated on May 20, 1984 in the RTC of Manila, Br. 11, with the filing of a Complaint for
Specific Performance With Damages to compel petitioner to execute in private respondents favor, the final
Deed of Sale over the subject property. 9 The trial court found for the Leuterios.chanroblesvirtualawlibrary
On January 24, 1992, the Court of Appeals 10 , in its impugned Decision, upheld the trial court solely on the
basis of estoppel. It held that petitioner cannot increase the price of the subject house and lot after it failed,
through the years, to protest against private respondents P200.00-amortization or to require the payment by
them of bigger monthly installments. 11

DECISION

Petitioner now urges the setting aside of the impugned Decision of the Court of Appeals, alleging that it erred
in:jgc:chanrobles.com.ph
PUNO, J.:

This is a petition for review on certiorari to set aside the Decision of the 10th Division of the Court of Appeals
ordering the petitioner GSIS to execute a Final Deed of Sale in favor of the spouses Raul and Esperanza
Leuterio involving a house and lot in the GSIS Village, Project 8-C, Quezon City. 1
The facts show that on December 18, 1963, the petitioner GSIS conducted a lottery draw for the allocation of
lots and housing units in Project 8-C of GSIS Village. Private respondent Esperanza Leuterio won and was
issued a Certificate of Acknowledgment to purchase the subject house and lot 2 on December 27, 1963. In
1965, the parties entered into a Deed of Conditional Sale evidencing the conveyance of the subject property
and all improvements thereon to the Leuterio spouses for the purchase price of P19,740.00, payable over a
fifteen-year period, in 180 equal monthly installments of P168.53 each. Paragraph 11 of the Deed of
Conditional Sale provides:chanrobles law library
"Upon the full payment by the Vendee of the purchase price of the lot and dwelling/improvement above
referred to together with all the interest due thereon, taxes and other charges and upon his faithful compliance
with all the conditions of the Contract, the Vendor agrees to execute in favor of the Vendee, or his/their heirs
and successors-in-interest a final Deed of Sale of the aforementioned land and dwelling/improvements . . ." 3
Three years elapsed before the Deed was notarized, and a copy of the same was given to the private
respondents.
After the land development and housing construction of Project 8-C were completed in 1966, petitioners
Board of Trustees increased the purchase price indicated in the Deeds of Conditional Sale covering houses
and lots therein. The new price was based on the alleged final cost of construction of the GSIS Village. It is
noted that, on the face of the Leuterios Conditional Deed of Sale is the marginal notation "subject to
adjustment pending approval of the Board of Trustees." The Leuterio spouses alleged that this notation was
not in the Deed when they signed the same in 1965. Resolving this factual issue, the trial court found that the
appended words were inserted into the document without the knowledge or consent of the Leuterio spouses.
This finding of fact went undisturbed on appeal to the respondent court. 4cralawnad
Sometime in the early 1970s, a group (not including the Leuterios) of conditional vendees of houses and lots
in Project 8-C of GSIS Village brought suit 5 against herein petitioner, questioning the increase in purchase
price. They likewise wrote a "A Plea For Justice" to then President Ferdinand E. Marcos, requesting for a
directive to petitioners management to "accept payments of amortization installments on the original amounts
stated in the Deed(s) of Conditional Sale."cralaw virtua1aw library
As a result, the Office of the President created a three-man Ad Hoc committee, composed of representatives
of the Office of the President, the petitioner System, and the GSIS Village Association. The committee found
that the final cost of the Village justified a higher price range for the houses and lots in the project.
Based on the ad hoc committees findings, the petitioner System, with the approval of its Board of Trustees,
increased the purchase prices of houses and lots in the GSIS Village.chanroblesvirtualawlibrary
On May 30, 1973, however, then Presidential Executive Assistant Jacobo C. Clave, through a memorandum,
advised petitioner that then President Marcos has approved the "Plea" and wanted its "immediate
implementation." The attempt by petitioner to have the presidential endorsement reconsidered was denied on
December 18, 1980.
Meanwhile, after years of diligently paying the monthly amortizations 6 and real estate taxes on the subject
property, the private respondents spouses informed 7 petitioner that the payments 8 for the property had been

"I. . . . HOLDING THAT THE PETITIONER GSIS IS ESTOPPED FROM ENFORCING THE ADJUSTMENT OF
THE SELLING PRICE
"II. . . . NOT HOLDING THAT THE SPOUSES LEUTERIO MUST BE BOUND BY THE RECOMMENDATION
MADE BY THE AD HOC COMMITTEE
"III. . . . FAILING TO CONSIDER THE JUSTIFICATION FOR THE ADJUSTMENT IN THE SELLING PRICE
OF THE LOTS AND HOUSING UNITS
"IV . . . AFFIRMING THE DECISION OF THE TRIAL COURT WHICH ORDERED THE PETITIONER GSIS TO
EXECUTE THE FINAL DEED OF SALE" 12chanrobles lawlibrary : rednad
Upon the other hand, private respondents, in their Comment, 13 contend that the Petition only raises factual
issues, which cannot be settled by this Court in the instant proceedings. They further contend that no
reversible errors were committed by the Court of Appeals in its impugned Decision.
We find no merit in the petition, but for reasons different from those espoused by the respondent Court of
Appeals.
The decisive issue really involves a question of fact whether or not the spouses Leuterio agreed to the
notation "subject to adjustment pending approval of the Board of Trustees" appearing on the margin of the
parties Conditional Deed of Sale. If there was no agreement, the Leuterio spouses are only obligated to pay
the purchase price of P19,740.00 as stipulated in the main body of the Conditional Deed of Sale.
Trite to state, this Court is not a trier of facts. In a multitude of cases, we have laid down the unbending rule
that findings of fact of lower courts are binding on us unless they are marred by manifest errors. The pleadings
before us do not demonstrate that the trial court grossly erred when it found that the purchase price agreed
upon by the parties was P19,740.00 and this agreement was not made subject to any posterior event or
condition. This finding of fact was based on the explicit testimony of private respondent Raul Leuterio that
when he and his wife signed the Deed of Conditional Sale in 1965, the notation "subject to adjustment pending
approval of the Board of Trustees" was not in the Deed. 14 Likewise, the Answer of petitioner to the Complaint
of the private respondents admitted the non-existence of this notation at the time the Deed of Conditional Sale
was signed, albeit, it called the omission an honest mistake. 15 We quote paragraph 5 of said Answer,
viz:chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
"5. The omission of the marginal notation reading (x) subject to adjustment pending approval of the Board of
Trustees (Annexes B to B-1-b of the Complaint) on the Deed of Conditional Sale signed by the plaintiffs, as
alleged in paragraph VII of the Complaint, must have been an honest mistake on the part of the clerk who
typed the document."cralaw virtua1aw library
This was also confirmed by the petitioner in the instant Petition for Review on Certiorari where it is alleged
that." . . the respondents-spouses Leuterio were not required to sign a new contract as provided in Resolution
No. 996 but instead, the words subject to adjustment pending approval of the Board of Trustees were
inserted in the Deed of Conditional Sale executed in 1965." Petitioner is bound by these judicial admissions.
Quite clearly, therefore, the purchase price mutually agreed upon by the parties was P19,740.00. The spouses
Leuterio did not give their consent for petitioner to make a unilateral upward adjustment of this purchase price
depending on the final cost of construction of the subject house and lot. It is illegal for petitioner to claim this
prerogative, for Article 1473 of the Civil Code provides that "the fixing of the price can never be left to the
discretion of one of the contracting parties . . . ."cralaw virtua1aw library
We also reject petitioners contention that the spouses Leuterio are bound by the recommendation of the ad

hoc committee as this was set aside by then President Ferdinand E. Marcos. 16 The rejection was
communicated by then Presidential Assistant Jacobo Clave to petitioner in a Memorandum dated May 30,
1973. 17 Petitioner moved for its reconsideration but the motion was denied by the former President thru
Presidential Assistant Joaquin Venus, in a letter dated December 18, 1990. 18chanrobles virtual lawlibrary

PAPI. After a few months, the said commission was again reduced to 4%. Two months later, petitioner PAPI
asked for another .25% reduction; hence, respondent Crisostomos franchise commission was further reduced
to 3.75%. Finally, in January 1991, petitioner PAPI again asked for a final reduction of the commission to 2%
to which respondent Crisostomo agreed, on the condition that it be reduced into writing. [5]

Next, petitioner would impress on us the need to adjust the purchase price of the spouses house and lot in
view of the change in the final cost of construction. If petitioner failed to factor this increase in the cost of
construction in the purchase price of the subject house and lot, it has nobody to blame but itself and it alone
should suffer the loss. To be sure, given the expertise of its technical people, it has no reason to be
shortsighted. In any event, our law on contract does not excuse a party from specifically performing his
obligation on the ground that he made a bad business judgment.

Thus, on February 7, 1991, petitioner Dino, and Angelito B. Cruz, Vice-President for Finance and
Administration, signed a Memorandum which reads as follows:
This will confirm your company franchise on all AFPSLAI business with Professional Academic Plans, Inc.
under the following terms and conditions:

IN VIEW WHEREOF, the petition for review on certiorari is DISMISSED. Cost against
petitioner.chanrobles.com : virtual law library

1.

Your franchise commission shall remain at 2% excluding Entrance and Service Fees of the
first year premium for as long as you are connected with the company at whatever
capacity.

2.

This franchise is not transferable.

SO ORDERED.
[G.R. No. 148599. March 14, 2005]
PROFESSIONAL ACADEMIC PLANS, INC., FRANCISCO COLAYCO and BENJAMIN DINO, petitioners,
vs. DINNAH L. CRISOSTOMO, respondent.
DECISION
CALLEJO, SR., J.:

For your guidance.

(Sgd.)
BENJAMIN S. DINO

Before us is a petition for review of the Decision [1] of the Court of Appeals (CA) affirming the decision of
the Regional Trial Court in Civil Case No. 93-197, and its Resolution denying the motion for reconsideration
thereof filed by petitioner Professional Academic Plans, Inc. (PAPI).

(Sgd.)
ANGELITO B. CRUZ[6]

Crisostomo received her 2% commission until October 1991. [7] In the meantime, Col. Victor M.
Punzalan succeeded Col. Noe S. Andaya as President of the AFPSLAI. [8] In a Letter dated December 16,
1991, Col. Punzalan informed PAPI of the AFPSLAIs decision to review the 1988 MOA.
As an aftermath of the negotiation, petitioner PAPI and the AFPSLAI executed a MOA in April 1992,
amending their prior MOA.[9]

The Antecedents

Respondent Dinnah L. Crisostomo was the PAPI District Manager for Metro Manila. As such officer,
she did not receive any salary but was entitled to a franchise commission equivalent to 10% of the payments
on remittances of clients whose contracts or agreements had been negotiated by her, for and in behalf of
PAPI. She was later promoted as Regional Manager.
On May 17, 1988, petitioner PAPI wrote Col. Noe S. Andaya, the President of the Armed Forces of the
Philippines Savings and Loan Association, Inc. (AFPSLAI) offering an Academic Assistance Program for its
members, their children and dependents.
Noel Rueda, a sales consultant of petitioner PAPI, initiated negotiations for the sale of pre-need
educational plans under the said program with the AFPSLAI. However, before an agreement was reached,
Ruedas services were terminated. Respondent Crisostomo, as the district manager and the immediate
supervisor of Rueda, continued the negotiation of the account together with Guillermo R. Macariola, the
Assistant Vice-President for Sales.[2] The AFPSLAI agreed to the proposal.
On November 9, 1988, the AFPSLAI and PAPI executed a Memorandum of Agreement (MOA) [3] in
connection with scholarship funding agreements to be entered into by PAPI and the AFPSLAI members.
These agreements shall then embody the provisions of the Professional Academic Program Agreement. The
parties agreed that all support services would be provided by PAPI and that any amendments and/or
modifications to the MOA would be effective only upon approval of the parties thereto.
By then, Rueda was no longer connected with the petitioner corporation, hence, was disqualified to
receive the franchise commission. Thus, the said commission was offered to Macariola who, however,
declined and waived his right thereto in favor of respondent Crisostomo, Ruedas immediate supervisor. The
Executive Committee of petitioner PAPI agreed to give the franchise commission to respondent Crisostomo. [4]
Initially, respondent Crisostomo received the 10% franchise commission from December 1988 until
April 1989. Later, upon the instance of petitioner Benjamin Dino, then Assistant Vice-President for Marketing,
respondent Crisostomos franchise commission was reduced to 5% to support the operational expenses of

The AFPSLAI resumed its remittances of the installment payments of its members to petitioner PAPI in
June 1992.[10] This time, however, Crisostomo was not paid her commission. In an Inter-Office
Memorandum[11] dated June 1, 1992, respondent Crisostomos franchise commission on sales transacted with
the AFPSLAI was terminated, for the following reasons: (1) the new AFPSLAI management cancelled the old
MOA in October 1991 due to various anomalies and the misrepresentation committed by PAPIs sales force;
(2) the new MOA is largely due to managements effort; hence, no franchise would be granted to any sales
associates; and (3) the franchise guidelines as per the Memorandum dated November 1988 prescribed that in
order to maintain her franchise, 100 new paid plans should be completed on a month to month basis and
respondent Crisostomo was not able to meet these parameters for the period of November 1991 to May 1992.
Nonetheless, respondent Crisostomo insisted on the release of her 2% franchise commission. [12] She
first approached her immediate supervisor, Mrs. Editha Bayoneta, the Senior Assistant Vice-President, but to
no avail. She then went to petitioner Dino, who allegedly threatened her with termination if she persisted with
her demand. Unfazed, she sought a dialogue with the President himself, petitioner Francisco Colayco. They,
however, failed to arrive at a settlement. [13] On July 6, 1992, respondent Crisostomo sent a demand letter to
petitioner PAPI. The latter informed her that it could not accede to her demand for the reasons stated in the
Inter-Office Memorandum dated June 1, 1992.
Thereafter, Crisostomo again approached Colayco who advised her to make a formal proposal. She
complied and submitted a letter [14] on August 13, 1992 where she made the following proposal:
Option 1: That I am willing to settle for a P5 Million amount settlement and an immediate irrevocable
resignation from your good company,
Option 2: That the 2% franchise fee/commission be retained even if and when the undersigned is no longer
connected with Professional Group, Inc. for as long as the AFPSLAI is still doing business with the
Professional Group. This is considered as the royalty fee.[15]
However, in a Letter [16] dated August 17, 1992, petitioner Colayco informed the respondent that her
settlement proposal was totally unacceptable and that she was being placed under preventive suspension in

order to abort any untoward reaction resulting from the denial of her request, which may be detrimental to the
companys interest. Worse, she was advised not to come back after the suspension. Thus, her services in the
company were terminated.

any incompatibility with the first MOA that would amount to an implied extinguishment of the latter; nor did the
new MOA use any word suggesting the cancellation of the first. The CA then ruled that what was executed in
1992 was a mere modification of the first MOA.[21]

On January 21, 1993, respondent Crisostomo filed a complaint for sum of money and damages against
petitioners PAPI, Colayco and Dino. She alleged therein that as of October 2, 1992, petitioner PAPIs sales of
pre-need plans to the AFPSLAI amounted to P9,193,367.20; that she was entitled to 2% of such amount or the
sum of P183,867.34 as franchise commission; and that notwithstanding the said franchise, petitioner PAPI
refused to give her the said commissions. She, likewise, prayed for the grant of moral and exemplary
damages, plus attorneys fees.[17]

The CA further held that the fact that military and political support intervened in facilitating the revival of
the AFPSLAI account did not diminish the respondents right to the franchise commission, considering that it
was awarded to her by the executive committee for successfully initiating the deal with the AFPSLAI in 1988.

The petitioners averred in their answer to the complaint that Crisostomo was not entitled to the
franchise commission because she did not participate in the execution of the 1988 MOA. They pointed out that
under the December 1989 company guidelines, a franchise holder shall be maintained only when 100 new
paid plans are completed on a month-to-month basis. They argued that since respondent Crisostomo was
unable to meet this requirement for the period of November 1991 to May 1992, her franchise was terminated.
The petitioners also claimed that the AFPSLAI did not resume payments in 1992 but entered into a new MOA
after it undertook new negotiations. They maintained that under the new MOA, no one is entitled to a
franchise, much less respondent Crisostomo. [18]
The petitioners adduced testimonial evidence to show that respondent Crisostomo had no participation
whatsoever in the negotiations which culminated in the execution of the two MOAs between petitioner PAPI
and the AFPSLAI. Petitioner Dino testified that before respondent Crisostomo became the regional manager,
she was not an employee of PAPI. According to him, after the termination of Ruedas employment for cause,
the franchise commission should revert back to petitioner PAPI as a rule. While the Executive Committee
agreed to award the commission, it agreed to give respondent Crisostomo only a 5% commission, which was
reduced to 2% until June 1992 under the 1992 MOA. Moreover, Crisostomo had no participation whatsoever in
the negotiations of the two agreements.
After due proceedings, the trial court rendered a Decision on November 20, 1997, the dispositive
portion of which reads:
Premises considered, judgment is hereby rendered in favor of the plaintiff and as against defendants.
Wherefore, defendants are hereby ordered to release to plaintiff:
1.

the sum of one hundred eighty-three thousand eight hundred sixty-seven thousand and
twenty-five centavos (P183,867.25) which constitutes her commission from the AFPSLAI
contract as of October 1992, and the sum equivalent to 2% of all future remittances by
AFPSLAI to defendant PAPI;

2.

moral damages in the amount of P200,000.00;

3.

exemplary [damages] of P50,000.00;

4.

attorneys fees of P50,000.00;

5.

cost of suit.

SO ORDERED.[19]
The petitioners appealed the decision to the CA which rendered judgment [20] on August 31, 2000
affirming in toto the decision of the trial court.

The Ruling of the Court of Appeals

According to the CA, the letter of Col. Punzalan did not indicate any intention to abrogate the first MOA.
At most, it merely suspended the acceptance of the application for pre-need plans while a thorough review of
the terms and conditions of the first MOA was being made. The CA held that the second MOA did not disclose

[22]

The CA ruled that the requirement of completing 100 new plans monthly as a condition for a franchisee
to be entitled to the commission was superseded by the Memorandum dated February 7, 1991, which reduced
the commission to 2% from the earlier 10%. Respondent Crisostomo was entitled to receive such reduced
commission as long as she was connected with the petitioner corporation in whatever capacity. Moreover,
assuming that such condition was still in effect, its non-fulfillment from November 1991 to May 1992 could not
be imputed to the respondent since it was brought about by Col. Punzalans order to suspend the acceptance
of plan applications pending a review of the first MOA.[23]
The CA found that the award of moral and exemplary damages, attorneys fees and the costs of the
suit, in favor of the respondent, was fully supported by the evidence on record and was justified, in light of the
petitioner corporations wanton disregard of respondents claim for her franchise commission. [24]
On June 13, 2001, the CA denied the petitioners motion for reconsideration for lack of merit. Hence,
they filed this petition for review on certiorari.

The Present Petition

The petitioners submit the following issues for our consideration:

A)

WHETHER OR NOT THE OLD MEMORANDUM OF AGREEMENT HAD BEEN

CANCELLED AND RESCINDED BY AFPSLAI;

B)

WHETHER OR NOT RESPONDENT IS ENTITLED TO THE FRANCHISE FEE OR

COMMISSION UNDER THE NEW MEMORANDUM OF AGREEMENT UNDER WHICH
SHE HAD NO PARTICIPATION WHATSOEVER IN THE NEGOTIATION AND
EXECUTION;

C)

WHETHER OR NOT PETITIONERS, IN DENYING RESPONDENT'S CLAIM, HAVE

COMMITTED ACTS THAT RENDER THEM LEGALLY LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES AND COST OF SUIT.[25]

Primarily, the petitioners assert that the respondent is not entitled to a franchise commission. They aver
that the respondent did not participate in initiating, conceptualizing, and negotiating the first MOA with the
AFPSLAI, except that she was present during its signing. The franchise commission for the AFPSLAI account
under the old MOA should have been granted to Noel Rueda, who initiated and conceptualized the
transaction. The petitioners maintain that the franchise commission was only awarded to the respondent
because those who were entitled to it were disqualified to be franchise holders Rueda was disqualified for
being no longer connected with the petitioner company, while Macariola was disqualified for being an
employee.[26]
Assuming that the respondent was entitled to the franchise commission under the old MOA, the
petitioners argue that such privilege was already extinguished, considering that the old MOA was cancelled by
the AFPSLAI thru the Letter dated December 16, 1991. They maintain that in writing the said letter, Col.
Punzalan intended to abrogate the old MOA and not merely suspend the same, otherwise, the intention to
enter into a new agreement mutually beneficial to both parties would not have been mentioned therein.
[27]
They conclude that since there has already been an express cancellation of the old MOA, there is no longer
a need to delve into the issue of whether the new MOA declared in unequivocal terms that the old MOA was
being cancelled, or whether the new MOA is incompatible with the old one. [28]
The petitioners point out that the respondent had no participation whatsoever in the negotiation or
execution of the new MOA. Considering this and the fact that the old MOA had been duly cancelled, the

respondent, therefore, had no right to the franchise commission on the AFPSLAI account under the new MOA.
[29]

The petitioners assert that the award of moral and exemplary damages and attorneys fees has no
basis since they did not act in bad faith in denying the respondents claim. [30]
In her Comment on the petition, the respondent counters that regardless of the execution of the new
MOA and her non-participation in its negotiation and execution, her right to the commissions from all sales
emanating from the AFPSLAI transactions subsists as long as she remained connected with PAPI. She
asserts that the petitioners are now in estoppel to question the grant of her commission since it was granted
through the petitioner corporations authority and it was reduced into writing. [31]

Benefits to accrue directly to the member and

the designated heirs

IMPLEMENTATION

In their Reply, the petitioners stress that the respondents entitlement to the commission was not
absolute. It was subject to certain conditions, i.e., the fact that the respondent must be connected with the
company in order to be entitled to it, and that the old MOA must remain effective, since it was the basis for the
grant of the commission. With its cancellation, the right of respondent to the commission, likewise, ceased to
exist. Without the new MOA, there would no longer be any applications for academic plans from the AFPSLAI
and, consequently, no commission to be earned. [32]

Benefits to accrue directly to the m

designated heirs

IMPLEMENTATION

Assistance by PAPI to AFPSLAI in terms of

support services

Putting up of an extension office n

building at the expense of PAPI

Creation of a Committee to supervise the

initial implementation of the program

Support and services by PAPI in

of the program

The Ruling of the Court

Rule 45 of the Rules of Court provides that only legal issues may be raised. Factual issues are beyond
the province of the Supreme Court in a petition for review, for it is not the Courts function to weigh the
evidence all over again.[33] While the Court may, in exceptional cases, resolve factual issues, the petitioners
herein failed to establish any such exceptional circumstances. Moreover, it is doctrinal that findings of facts of
the CA upholding those of the trial court are binding upon the Supreme Court. [34]

PAYMENT and COLLECTION

Even after a review of the factual issues raised by the petitioners, we find and so rule that the CA was
correct in declaring that the first MOA had not been cancelled, but was merely modified by the second MOA.
A reading of the letter of Col. Punzalan to the petitioner corporation indicates that it merely signified the
suspension of the acceptance of new applications under the first MOA, until such time that a thorough study
was undertaken, and a new agreement mutually beneficial to both parties was entered into. By his letter, Col.
Punzalan did not unilaterally cancel or rescind the first MOA. Indeed, the petitioners failed to adduce a morsel
of evidence to prove that AFPSLAI had agreed to such cancellation or rescission of the first MOA. It bears
stressing that abandonment of contract rights requires proof of actual intent to abandon. [35]
Once a contract is entered into, no party can renounce it unilaterally or without the consent of the other.
This is the essence of the principle of mutuality of contracts entombed in Article 1308 [37] of the Civil Code.
To effectuate abandonment of a contract, mutual assent is always required. [38] The mere fact that one has
made a poor bargain may not be a ground for setting aside the agreement. [39]

PAYMENT and COLLECTION

Financing of the 1st annual payment by

AFPSLAI in the form of educational loan to the
member

Financing in the form of a 5-year

member equivalent to the Gross C
(GCP) of the plan

AFPSLAI as the authorized collecting agent of

monthly installments of the members

Schedule of drawing out the loan

years

Remittance of collections to the PAPI from the

2nd year until the plan is fully paid

Direct payment to PAPI of the 1st year

assistance granted by AFPSLAI to the
member

[36]

- 20% of GCP upon submission

documentation by PAPI an
the loan

- 80% of the GCP to be drawn

monthly installments to sta
AFPSLAI of the 13thmonthl
the member

As can be gleaned from the second MOA, the parties merely made substantial modifications to the first
MOA, and agreed that only those provisions inconsistent with those of the second were considered rescinded,
modified and/or superseded.[40]
As graphically shown below, the parties agreed to continue with the implementation of the Academic
Assistance Program under the acronym LOVES (Loans to Offset Very Expensive Schooling) and to continue
implementing the same. The rights and obligations of the parties under the first MOA were maintained albeit
with modifications, to wit:

1988 MOA

BENEFITS TO AFPSLAI

47.5% of the net Initial Cash Brought-In of all

the 1st year assistance

53.5% out of the 20% of the GCP

and discount

5% of all total collections from the 2nd year up

to the 5th year

5% out of the 80% of the GCP as

1992 MOA

IN GENERAL

BENEFITS TO AFPSLAI

Agreement between PAPI and AFPSLAI to

implement the terms and conditions of the
Academic Assistance Program

IN GENERAL

Agreement between AFPSLAI and the PAPI to

implement the terms and conditions of the Loans to
Offset Very Expensive Schooling (LOVES) Program

IN CASE OF NON-PAYMENT

AFPSLAI to become the receiver of the

contract in case of failure to pay 3 monthly
amortizations

AFPSLAI to acquire all interests from the

contract in case the 1st year assistance is not
fully paid by the member

IN CASE OF NON-PAYMENT

modified, or superseded.

AFPSLAI to automatically become the receiver of

the contract in case of failure to pay the monthly
The fact that the respondent did not participate in the negotiations of the new MOA is of no moment. As
amortization(s), with dispositive right
over
thethe
plan
culled
from
petitioners testimonial evidence, the franchise commission was awarded as an incentive to the
one who initiated and successfully negotiated the AFPSLAI account within a certain period. [41] The franchise
commission was granted subject to two conditions only: (1) that the respondent must remain connected with
the company, and (2) that it is not transferable. At the time the new MOA was executed, the respondent was
still connected with the petitioner corporation; hence, she was still entitled to her commission. Even with the
modification of the first MOA by the second one, the respondent had the right to continue receiving her
franchise commission from the petitioner corporation.
We agree with the respondent that the petitioners are now in estoppel to question her entitlement to the
franchise commission under the old MOA. It must be noted that from December 1988 until October 1991 the
respondent was continuously receiving her franchise commission from the petitioner corporation. It was only
when the remittances for AFPSLAI were suspended that the respondent stopped receiving her commission.
Due to fraud, forgery or misrepresentation of PAPI
On the issue of damages, we rule for the petitioners. Moral damages are recoverable for breach of
personnel
contract where the breach was wanton, reckless, malicious or in bad faith, oppressive or abusive. [42] However,
moral damages are improperly awarded, absent a specific finding and pronouncement from the trial court that
acted in such manner.[43] In the instant case, despite the trial courts award of moral damages, it did
- AFPSLAI to act on it and notifypetitioners
PAPI
not make any pronouncement as to the basis of such award. Therefore, the award of moral damages must be
deleted.
- Members loan to be deducted from the amounts
due to PAPI, or to be billed to PAPI,As
in a
case
consequence, the award for exemplary damages is also vacated. Exemplary damages are not
the former is insufficient
recoverable as a matter of right, and although such damages need not be proved, the plaintiff must first show
that he is entitled to moral, temperate or compensatory damages before a court can favorably consider an
award of exemplary damages.[44] In this case, there was no finding that the respondent is entitled to any such
- no rebate on the service fee and
discounthence, no exemplary damages may be awarded. Finally, we also vacate the award of attorneys
damages;
fees since the trial court did not make any finding that any of the instances enumerated in Art. 2208 of the Civil
Code exists.
Due to death of either the member or beneficiary

IN CASE OF CANCELLATION

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. The awards
moral
- the plan shall be deemed fullyfor
paid
for and exemplary damages and attorneys fees are DELETED. No pronouncement as to costs.
SO ORDERED.
- to be acted upon by PAPI
- outstanding accounts to be deducted from
AFPSLAIs future releases or to be billed to
PAPI subject to certain conditions.

MISCELLANEOUS

AFPSLAI to be free from any legal implication

that may arise as to the agreement between
the member and PAPI

Effectivity of the MOA immediately upon

signing

Amendments and modifications to become

effective only upon approval of the parties

MISCELLANEOUS

AFPSLAI to be free from any liability arising

between the member and PAPI

Effectivity of the MOA immediately upon signing

Amendments and modifications to become

effective only upon approval of the parties

Prior inconsistent agreements deemed rescinded,

G.R. No. L-11318

October 26, 1918

THE MANILA RAILROAD CO., plaintiff-appellant,

vs.
LA COMPAIA TRANSATLANTICA, defendant-appellee. and
THE ATLANTIC GULF & PACIFIC CO., defendant-appellant.
William A. Kincaid & Thomas L. Hartigan for plaintiff-appellant.
Lawrence, Ross & Block for defendant-appellant Atlantic, Gulf & Pacific Co.
Gilbert, Cohn & Fisher for defendant-appellee Compaia Transatlantica.

STREET, J.:
In March 1914, the steamship Alicante, belonging to the Compaia Transatlantica de Barcelona, arrived at
Manila with two locomotive boilers aboard, the property of The Manila Railroad Company. The equipment of
the ship for discharging heavy cargo was not sufficiently strong to handle these boilers, and it was therefore
necessary for the Steamship Company to procure assistance in the port of Manila.
The Atlantic, Gulf and Pacific Company (hereafter called the Atlantic Company) was accordingly employed by
the Steamship Company, as having probably the best equipment for this purpose of any contracting company
in the city. The service to be performed by the Atlantic Company consisted in bringing it s floating crane
alongside theAlicante, lifting the boilers our of the ship's hold, and transferring them to a barge which would be
placed ready to receive them.
Upon the arrival of the Alicante, the Atlantic company sent out its crane in charge of one Leyden. In preparing
to hoist the first boiler the sling was unfortunately adjusted near the middle of the boiler, and it was thus raised
nearly in an horizontal position. The boiler was too long to clear the hatch in this position, and after one end of
the boiler had emerged on one side of the hatch, the other still remained below on the other side. When the
boiler had been gotten into this position and was being hoisted still further, a river near the head of the boiler
was caught under the edge of the hatch. The weight on the crane was thus increased by a strain estimated at
fifteen tons with the result that the cable of the sling parted and the boiler fell to the bottom of the ship's hold.
The sling was again adjusted to the boiler but instead of being placed near the middle it was now slung nearer
one of the ends, as should have been done at first. The boiler was gain lifted; but as it was being brought up,
the bolt at the end of the derrick book broke, and again the boiler fell.
The crane was repaired and the boiler discharged, but it was found to be so badly damaged that it had to be
reshipped to England where it was rebuilt, and afterwards was returned to Manila. The Railroad Company's
damage by reason of the cost of repairs, expenses and loss of the use of the boiler proved to be P23,343.29;
and as to the amount of the damage so resulting there is practically no dispute. To recover these damages the
present action was instituted by the Railroad Company against the Steamship Company. the latter caused the
Atlantic Company to be brought in as a codefendant, and insisted that whatever liability existed should be
fixed upon the Atlantic Company as an independent contractor who had undertaken to discharge the boilers
and had become responsible for such damage as had been done.
The judge of the Court of First Instance gave judgment in favor of the plaintiff against the Atlantic Company,
but the absolved the Steamship Company from the complaint. The plaintiff has appealed from the action of the
court in failing to give judgment against the Steamship company, while the Atlantic company has appealed
from the judgment against it.
The mishap was undoubtedly due, as the lower court found, to the negligence of one Leyden, the foreman in
charge; and we may add that the evidence tends to show that his negligence was of a type which may without
exaggeration be denominated gross. The sling was in the first place improperly adjusted, and the attention of
Leyden was at once called to this by the man in charge of the stevedores. Nevertheless he proceeded and,
instead of lowering the boiler when it was seen that it could not readily pass through the hatch, he attempted

to force it through; and the ship's tackle was brought into use to assist in this maneuver. The second fall was, it
appears, caused by the weakening of the bolt at the head of the derrick boom, due to the shock incident to the
first accident. This defect was possibly such as not to be patent to external observation but we are of the
opinion that a person of sufficient skill to be trusted with the operation of machinery of this character should be
trusted with the operation of machinery of this character should have known that the crane had possibly been
weakened by the jar received in the first accident. The foreman was therefore guilty of negligence in
attempting to hoist the boiler the second time under the conditions that had thus developed. It should be noted
that the operation was at all its states entirely under Leyden's control; and, although in the first lift he utilized
the ship's tackle to aid in hoisting the boiler, everything was done under his immediate supervision. There is no
evidence tending to show that the first fall of the boiler might have been due to any hidden defect in the lifting
apparatus; and if it had not been for the additional strain caused by one end of the boiler catching under the
hatch, the operation would doubtless have been accomplished without difficulty. The accident is therefore to
be attributed to the failure of Leyden to exercise the degree of care which an ordinarily competent and prudent
person would have exhibited under the circumstances which then confronted him. This conclusion of fact
cannot be refuted; and, indeed, no attempt is here made by the appellant to reverse this finding of the trial
court.
Three questions are involved in the case, namely: (1) Is the steamship company liable to the plaintiff by
reason of having delivered the boiler in question in a damaged condition? (2) Is the atlantic company liable to
be made to respond to the steamship company for the amount the latter may be required to pay to the plaintiff
for the damage done? Is the Atlantic company directly liable to the plaintiff, as the trial court held?
It will be observed that the contractual relation existed between the railroad company and the steamship
company; and the duties of the latter with respect to the carrying and delivery of the boilers are to be
discovered by considering the terms and legal effect of that contract. A contractual relation also existed
between the Steamship company and the atlantic company; and the duties owing by the latter to the former
with respect to the lifting and the transferring of the boiler are likewise to be discovered by considering the
terms and legal effect of the contract between these parties. On the other hand, no contractual relation existed
directly between the Railroad Company and the Atlantic Company.
We are all agreed, that, under the contract for transportation from England to Manila, the Steamship company
is liable to the plaintiff for the injury done to the boiler while it was being discharged from the ship. The
obligation to transport the boiler necessarily involves the duty to convey and deliver it in a proper condition
according to its nature, and conformably with good faith, custom, and the law (art. 1258, Civ. Code). The
contract to convey import the duty to convey and deliver safely and securely with reference to the degree of
care which, under the circumstances, are required by law and custom applicable to the case. The duty to carry
and to carry safely is all one.
Such being the contract of the Steamship Company, said company is necessarily liable, under articles 1103
and 1104 of the Civil Code, for the consequences of the omission of the care necessary to the proper
performance of this obligation. The contact to transport and deliver at the port of Manila a locomotive boiler,
which was received by it in proper condition, is not complied with the delivery at the port of destination of a
mass of iron the utility of which had been destroyed.
Nor does the Steamship Company escape liability by reason of the fact that it employed a competent
independent contractor to discharge the boilers. The law applicable to this feature of the case will be more fully
discussed further on in this opinion. At this point we merely observe that in the performance of this service the
Atlantic company, and it has never yet been held that the failure to comply with a contractual obligation can be
excused by showing that such delinquency was due to the negligence of one to whom the contracting party
had committed the performance of the contract.
Coming to the question of the liability of the Atlantic Company to respond to the Steamship Company for the
damages which the latter will be compelled to pay to the plaintiff, we observe that the defense of the Atlantic
company comprises two contentions, to-wit, first, that by the terms of the engagement in accordance with
which the Atlantic company agreed to render the service, all risk incident to the discharge of the boilers was
assumed by the steamship company, and secondly, that the atlantic company should be absolved under the
last paragraph of article 1903 of the civil code, inasmuch as it had used due care in the selection of the
employee whose negligent act caused the damage in question.

At the hearing in first instance the Atlantic Company introduced four witnesses to prove that at the time said
company agreed to lift the boilers out of the Alicante, as upon other later occasions, the steamship company
not be responsible for damage. The vice-president of the atlantic company testified that hew as present upon
the occasion when the agent of the Steamship company made arrangements for the discharge of the boilers
and he heard the conversation between the president and said agent. According to this witness the substance
of the agreement was that, while the Atlantic Company would use all due care in getting the boilers out, no
responsibility was assumed for damage done either to ship or cargo. The intermediary who acted as agent for
the Steamship Company in arranging for the performance of this service stoutly denied that any such terms
were announced by the officials or anybody else connected with the Atlantic Company at any time while the
arrangements were pending.
In the conflict of the evidence, we recognize that, by a preponderance of the evidence, some reservation or
other was made as to the responsibility of the Atlantic Company; was made to the responsibility of the atlantic
company and though the agent who acted on behalf of the steamship company possibly never communicated
this reservation to his principal, the latter should nevertheless be held bound thereby. It thus becomes
necessary to discover what the exact terms of this supposed reservation were.
We think that we must put aside at once the words of studies precision with which the president of the Atlantic
company could exclude the possibility of any liability attaching to his company, though we may accept his
statement as showing that the excepted risk contemplated breakage of the lifting equipment. There is
undoubtedly a larger element of truth in the more reasonable statement by the vice-president of the company.
According to this witness the contract combined two features, namely, an undertaking on the part of the
Atlantic Company to use all due care, combined with a reservation concerning the company's liability for
damage.
The Atlantic Company offered in evidence, a number of letters which had been written by it at different times,
extending over a period of years, in response to inquiries made by other firms and person in Manila
concerning the terms upon which the Atlantic Company was not accustomed to assume the risk incident to
such work and required the parties for whom the service might be rendered either to carry the risk or insure
against it. One such letter, dated nearly four years prior to the occurrence such letter, dated nearly four years
prior to the occurrences which gave rise to this lawsuit, was addressed to the Compaia Transatlantica de
Barcelona one of the defendants in this case. It was stated in this communication that the company's derrick
would be subject to inspection prior to making the lift but that the Atlantic Company would not assume
responsibility for damage that might occur either to ship or cargo from any whatsoever. The steamship
company rejected the services of the Atlantic company in that instance as being too onerous.
The letters directed to this parties, it may observed, would not, generally speaking, be admissible as against
the plaintiff for the purpose of proving that a similar reservation was inserted in the contract with it on this
occasion; but if knowledge of such custom is brought home to the steamship company, the fact that such
reservation was commonly made is of some probative force. Reference to a number of these letters will show
that no particular formula was used by the Atlantic Company in defining its exemption, and the tenor of these
various communications differs materially. We think, however, that some of the letters are of value as an aid in
interpreting the reservation which the Atlantic Company may have intended to make. We therefore quote from
some of these letters as follows:
We will use our best endeavors to carry out the work successfully and will ask you to inspect our
plant but we wish it distinctly understood that we cannot assume responsibility for damage which
may occur . . . while the lift is being made. (To Rear Admiral, U.S.N., Oct. 4, 1909.)
Our quotation is based on the understanding that we assume no responsibility from any accident
which may happen during our operations. We always insert this clause as precautionary measure,
but we have never had to avail ourselves of it as yet and do not expect to now. (To "El Varadero de
Manila," Nov. 1, 1913.)
As is customary in these cases, we will use all precaution as necessary to handle the gun in a
proper manner. Our equipment has been tested and will be again, before making the lift, but we do
not assume any responsibility for damage to the gun ship, or cargo. (To Warner, Barnes & Co.,
June 7, 1909.)

The idea expressed in these letters is, we think entirely consonant with the interpretation which the vicepresident of the company placed upon the contract which was made with the steamship company upon this
occasion, that is, the company recognized its duty to exercise due supervisory care; and the exemption from
liability, whatever may have been its precise words had reference to disasters which might result from some
inherent hidden defect in the lifting apparatus or other unforeseen occurrence not directly attributable to
negligence of the company in the lifting operations. Neither party could have supposed for a moment that it
was intended to absolve the Atlantic Company from its duty to use due care in the work.
It is not pretended that negligence on the part of the Atlantic Company or its employees was expressly
included in the excepted risk, and we are of the opinion that the contract should not be understood as covering
such an exemption. It is a rudimentary principle that the contractor is responsible for the work executed by
persons whom he employees in its performance, and this expressed in the Civil Code in the form of a positive
rule of law (art. 1596). It is also expressly declared by law that liability arising from negligence is demandable
in the fulfillment of all kinds of obligations (art. 1103, Civil Code). Every contract for the presentation of service
therefore has annexed to it, as an inseparable implicit obligation, the duty to exercise due care in the
accomplishment of the work; and no reservation whereby the person rendering the services seeks to escape
from the consequences of a violation of this obligations can viewed with favor.
Contracts against liability for negligence are not favored by law. In some instances, such as
common carriers, they are prohibited as against public policy. In all cases such contracts should be
construed strictly, with every intendment against the party seeking its protection. (Crew vs.
Bradstreet Company, 134 Pa. St., 161; 7 L. R. A., 661; 19 Am. St. Rep., 681.)
The strictness with which contracts conferring such an unusual exemption are construed is illustrated in Bryan
vs. Eastern & Australian S. S. Co. (28 Phil. Rep., 310). The decision in that case is not precisely applicable to
the case at bar, since the court was there applying the law of a foreign jurisdiction, and the question at issue
involved a doctrine peculiar to contracts of common carriers. Nevertheless the case is instructive as illustrating
the universal attitude of courts upon the right of a contracting party to stipulate against the consequences of
his own negligence. It there appeared that the plaintiff had purchased from the defendant company a ticket for
the transportation of himself and baggage from Hongkong to Manila By the terms of the contract printed in
legible type upon the back of the ticket it was provided that the company could not hold itself responsible for
any loss or damage to luggage, under any circumstances whatsoever, unless it had been paid for as freight. It
was held that this limitation upon the liability of the defendant company did not relieve it from liability of the
defendant company for negligence of its servants by which the baggage of the passenger was lost. Said the
court: Ordinarily this language would seem to be broad enough to cover every possible contingency, including
the negligent act of the defendant's servants. To so hold, however, would run counter to the established law of
England and the United States on that subject. The court then quoted the following proposition from the
decision of the King's Bench Division in Price & Co. vs. Union Lighterage Co. ([1903], 1 K. B. D., 750, 754):
"An exemption in general words not expressly relating to negligence, even though the words are
wide enough to include loss by negligence or default of carriers' servants' must be construed as
limiting the liability of the carrier as assurer, and not as relieving from the duty of the exercising
reasonable skill and care."
Even admitting that, generally speaking, a person may stipulate against liability for the consequences of
negligence, at least in those cases where the negligence is not gross or willful, the contract conferring such
exemption must be so clear as to leave no room for the operation of the ordinary rules of liability consecrated
by experience and sanctioned by the express provisions of law.
If the exemption should be understood in the scene that counsel for the Atlantic Company now insists it should
bear, that is, as an absolute exemption from all responsibility for negligence, it is evident that the agreement
was a most inequitable and unfair one, and hence it is one that the steamship company can not be lightly
assumed to have made. Understood in that sense it is the equivalent of licensing the Atlantic Company to
perform its tasks in any manner and fashion that it might please, and to hold it harmless from the
consequences.
It is true that, in these days insurance can usually be obtained in the principal ports of commerce by parties
circumstanced as was the steamship company in the case now before us. But the best insurance against

disasters of this kind is found in the exercise of due care; and the chief incentive to the exercise of care is a
feeling of responsibility on the part of him who undertakes the work. Naturally the courts are little inclined to
aid tin the efforts of contractors to evade this responsibility.
There may have been in the minds of the officials of the Atlantic Company an idea that the promise to use due
care in the lifting operations was not accompanied by a legal obligation, such promise being intended merely
for its moral effect as an assurance to the steamship company that the latter might rely upon competence and
diligence of the employees of the Atlantic Company to accomplish the work in a proper way. The contract can
not be permitted to operate in this one-sided manner. The two features of the engagement, namely, the
promise to use due care and the exemption from liability for damage should be so construed as to give some
legal effect to both. The result is, as already indicated, that the Atlantic Company was bound by its undertaking
to use due care and that he exemption was intended to cover accidents use to hidden defects in the apparatus
or other unforeseeable occurrences not having their origin in the immediate personal negligence of the party in
charge of the operations.
We now proceed to consider the contention that the Atlantic Company under the last paragraph of article 1903
of the Civil Code, which declares that the liability there referred to shall cease when the persons mentioned
therein prove that they employed all the diligence of a good father of a family to avoid the damage. In this
connection the conclusion of fact must be conceded in favor of the Atlantic Company that it had used proper
care in the selection of Leyden and that , so far as the company was aware, he was a person to whom might
properly be committed the task of discharging the boilers. The answer to the contention, however is the
obligation of the Atlantic Company was created by contract, and article 1903 is not applicable to negligence
arising in the course of the performance of a contractual obligation. Article 1903 is exclusively concerned with
cases where the negligence arises in the absence of agreement.
In discussing the liability of the Steamship Company to the plaintiff Railroad Company we have already shown
that a party is bound to the full performance of his contractual engagements under articles 1101 et seq. of the
Civil Code, and other special provisions of the Code relative to contractual obligations; and if he falls short of
complete performance by reason of his own negligence or that of any person to whom he may commit the
work, he is liable for the damages resulting therefrom. What was there said is also applicable with reference to
the liability of the Atlantic Company upon its contract with the Steamship Company, and the same need not be
here repeated. It is desirable, however, in this connection, to bring out somewhat more fully the distinction
between negligence in the performance of a contractual obligation (culpa contractual) and neligence
considered as an independent source of obligation between parties not previously bound (culpa aquiliana).
This distinction is well established in legal jurisprudence and is fully recognized in the provisions of the Civil
Code. As illustrative of this, we quote the following passage from the opinion of this Court in the well-known
case of Rakes vs. Atlantic, Gulf & Pacific Co. (7 Phil. Rep., 359, 365), and in this quotation we reproduce the
first paragraph of here presenting a more correct English version of said passage.
The acts to which these articles are applicable are understood to be those not growing out of
preexisting duties of the parties to one another. But where relations already formed give arise to
duties, whether springing form contract or quasi-contract, then breaches of those duties are
subject to articles 1101, 1103, and 1104 of the same code. A typical application of this distinction
may be found in the consequences of a railway accident due to defective machinery supplied by
the employer. His liability to his employee would arise out of the contract for passage, while that of
the injured by-stander would originate in the negligent act itself. This distinction is thus clearly set
forth by Manresa in his commentary on article 1093:
"We see with reference to such obligations, that culpa, or negligence, may be
understood in two different senses, either as culpa, substantive and independent,
which of itself constitutes the source of an obligation between two person not formerly
bound by any other obligation; or as an incident in the performance of an obligation
which already existed, and which increases the liability arising from the already existing
obligation."
Justice Tracey, the author of the opinion from which we have quoted, proceeds to observe that Manresa, in
commenting on articles 1101 and 1104, has described these two species of negligence as contractual and

extra-contractual, the latter being the culpa aquiliana of the Roman law. "This terminology is unreservedly
accepted by Sanchez Roman (Derecho Civil, fourth section, chapter XI, article II, No. 12), and the principle
stated is supported by decisions of the supreme court of Spain,. among them those of November 29, 11896
(80 Jurisprudencia Civil, No. 151), and June 27, 1894 (75 Jurisprudencia Civil, No. 182.)"
The principle that negligence in the performance of a contract is not governed by article of the Civil Code but
rather by article 1104 of the same Code was directly applied by this court in the case of Baer Senior & Co.'s
successors vs. Compaa Maritima (6 Phil. Rep., 215); and the same idea has been impliedly if not expressly
recognized in other cases (N. T. Hashim & Co. vs. Rocha & Co., 18 Phil. Rep., 315; Tan Chiong Sian vs.
Inchausti & Co., 22 Phil. Rep., 152).
What has been said suffices in our opinion to demonstrate that the Atlantic Company is liable to the Steamship
Company for the damages brought upon the latter by the failure of the Atlantic company to use due care in
discharging the boiler, regardless of the fact that the damage was caused by the negligence of an employee
who was qualified for the work and who had been chosen by the Atlantic Company with due care.
This brings us to the last question here to be answered, which is, Can the Atlantic Company be held directly
liable to the Railroad Company? In other words, can the judgement entered in the trial court directly in favor of
the plaintiff against the Atlantic Company be sustained? To answer this it is necessary to examine carefully the
legal relations existing between the Atlantic Company and the Railroad Company with reference to this affair;
and we shall for a moment ignore the existence of the contract between the steamship company and the
atlantic company, to which the railroad company was not a party.
Having regard then to the bare fact that the Atlantic Company undertook to remove the boiler from the ship's
hold and for this purpose took the property into its power and control, there arose a duty to the owner to use
due care in the performance of that service and to avoid damaging was obviously in existence before the
negligent act may, if we still ignore the existence of the express contract, be considered as an act done in
violation of this duty.
The duty thus to use due care is an implied obligation, of a quasi contractual nature, since it is created by
implication of liability with which we are here confronted is somewhat similar to that which is revealed in the
case of the depositary, or commodatary, whose legal duty with respect to the property committed to their care
is defined by law even in the absence of express contract; and it can not be doubted that a person who takes
possession of the property of another for the purpose of moving or conveying it from one place to another, or
for the purpose of performing any other service in connection therewith (locatio operis faciendi), owes to the
owner a positive duty to refrain from damaging it, to the same extent as if an agreement for the performance of
such service had been expressly made with the owner. The obligation as if an agreement made with the
owner. The obligation here is really a species of contract re, and it has its source and explanation in vital fact,
that the active party has taken upon himself to do something with or to the property and has taken it into his
power and control for the purpose of performing such service. (Compare art. 1889, Civil Code.)
In the passage which we have already from the decision in the Rakes case this Court recognized the fact that
the violation of a quasi-contractual duty is subject to articles 1101, 1103, 1104 of the Civil Code, and not within
the purview of article 1903. Manresa also, in the paragraph reproduced above is of the opinion that
negligence, considered a substantive and independent source of liability, does not include cases where the
parties are previously bound by any other obligation. Again, it is instructive in this connection to refer to the
contents of article 1103 of the Civil Code, where it is demandable in the fulfillment of all kinds of obligations.
These words evidently comprehend both forms of positive obligations, whether arising from express contract
or from implied contract (quasi contract).
In this connection it is instructive to recall celebrate case of Coggs vs. Bernard (2 Ld. Raym, 909), decided in
the court of the King's Bench of England in the year of 1803. The action was brought by the owner of certain
casks of brandy to recover damages from a person who had undertaken to transport them from one place to
another. It was alleged that in so doing the defendant so negligently and improvidently put then down that one
of the casks was staved and the brandy lost. The complaint did not allege that the defendant was a common
carrier or that he was to be paid for his services. It was therefore considered that the compliant did not state
facts sufficient to support an action for breach of any express contract. This made it necessary for the court to
go back to fundamental principles and to place liability on the ground of a violation of the legal duty incident to

the mere fact of carriage. Said Powell, J.: "An action indeed will not lie for not doing the thing, for want of a
sufficient consideration; but yet if the bailee will take the goods into his custody, he shall be answerable for
them; for the taking of the goods into his custody is his own act." S9 Gould, J.: ". . . any man that undertakes
to carry goods in liable to an action, be he a common carrier or whatever he is, if through his neglect they are
lost or come to any damage: . . . . " Behind these expressions was an unbroken line of ancient English
precedents holding persons liable for damage inflicted by reason of a misfeasance in carrying out an
undertaking. The principle determined by the court in the case cited is expressed in the syllabus in these
words: 'If a man undertakes to carry goods safely and securely, he is responsible for any damage they may
sustain in the carriage through his neglect, though he was not a common carrier and was to have nothing for
the carriage." Though not stated in so many words, this decision recognizes that from the mere fact that a
person takes the property of another into his possession and control there arises an obligation in the nature of
an assumpsit that he will use due care with respect thereto. This must be considered a principle of universal
jurisprudence, for it is consonant with justice and common sense and as we have already seen harmonizes
with the doctrine above deduced from the provisions of the Civil Code.

the Compaia Transatlantica de Barcelona. No express adjudication of costs of either instance will be made.
So ordered.

The conclusion must therefore be that if there had been no contract of any sort between the Atlantic company
and the Steamship Company, an action could have been maintained by the Railroad Company, as owner,
against the Atlantic Company to recover the damages sustained by the former. Such damages would have
been demandable under article 1103 of the Civil Code and the action would not have been subject to the
qualification expressed in the last paragraph of article 1903.
The circumstance that a contract was made between the Atlantic Company and the Steamship company
introduces, however, an important, and in our opinion controlling factor into this branch of the case. It cannot
be denied that the Steamship company has possession of this boiler in the capacity of carrier and that as such
it was authorized to make a contract with Atlantic Company to discharge the same from the ship. Indeed, it
appears in evidence that even before the contract of affreightment was made the Railroad Company was
informed that it would necessary for steamship company to procure the services of some contractor in the port
of Manila to handle the discharge, as the ship's tackle was inadequate to handle heavy cargo. It is therefore to
be assumed that the Railroad Company had in fact assented to the employment of a contractor to perform this
service.
Now, it cannot be admitted that a person who contract to do a service like that rendered by the Atlantic
company in this case incurs a double responsibility upon entering upon performance, namely, a responsibility
to the party with whom he contracted, and another entirely different responsibility to the owner, based on an
implied contract. The two liabilities can not in our opinion coexist. It is a general rule that an implied conract
never arises where an express contract has been made.
If double responsibility existed in such case as this, it would result that a person who had limited his liability by
express stipulation might find himself liable to the owner without regard to the limitation which he had seen fit
to impose by contract. There appears to be no possibility of reconciling the conflict that would be developed in
attempting to give effect to those inconsistent liabilities. The contract which was in fact made, in our opinion,
determine not only the character and extent of the liability of the Atlantic company but also the person or entity
by whom the obligation is eligible. It is of course quite clear that if the Atlantic company had refused to carry
out its agreement to discharge the cargo, the plaintiff could have enforced specific performance and could not
have recovered damages for non-performance. (Art. 1257, Civil Code; Donaldson, Sim & Co. vs. Smith, Bell &
Co., 2 Phil. Rep., 766; Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) In view of the preceding
discussion it is equally obvious that, for lack of privity with the contract, the Railroad Company can have no
right of action to recover damages from the Atlantic Company for the wrongful act which constituted the
violation of said contract. The rights of the plaintiff can only be made effective through the Compaia
Trasatlantica de Barcelona with whom the contract of affreightment was made.
The judgment entered in the Court of First Instance must, therefore be reversed not only with respect to the
judgment entered in favor of the plaintiff directly against the Atlantic company but also with respect to the
absolution of the steamship company and the further failure of the court to enter judgment in favor of the latter
against the Atlantic Company. The Compaa Transatlantic de Barcelona should be and is hereby adjudged to
pay to the Manila Railroad Company the sum of twenty nine thousand three hundred forty three pesos and
twenty nine centavos (P23,343.29) with interest from May 11, 1914, until paid; and when this judgment is
satisfied, theCompaia Transatlantic de Barcelona is declared to be entitled to recover the same amount from
the Atlantic & Pacific Gulf Company, against whom judgment is to this end hereby rendered in favor of

[G.R. No. 118248. April 5, 2000]

DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and
REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents. francis
DECISION
YNARES_SANTIAGO, J.:
This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of the Court of
Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings Corporation vs. Victor U. Bartolome, et al.",
[1]
affirming in toto the January 4, 1993 Decision of the Regional Trial Court of Valenzuela, Branch 172, [2] which
dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as attorneys fees.
The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro
Manila which was originally owned by private respondent Victor U. Bartolomes deceased mother,
Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro
Manila, District III. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the
latter as a potential warehouse site.
On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion
Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which
option must be exercised within a period of two years counted from the signing of the Contract. In turn,
petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the
two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its
desire to exercise its option. The contract also provided that in case petitioner chose to lease the property, it
may take actual possession of the premises. In such an event, the lease shall be for a period of six years,
renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and
P18,000.00 for the next six years, in case of renewal.
Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her death in
January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the
sole heir of Encarnacion. Victor, however, refused to accept these payments. iska

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of
Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer
Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the name of Victor
Bartolome.
On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to
lease the property, tendering the amount of P15,000.00 as rent for the month of March. Again, Victor refused
to accept the tendered rental fee and to surrender possession of the property to petitioner.

SECOND ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST BE
SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY.
(C) nigel
THIRD ASSIGNMENT OF ERROR

Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation, Cubao
Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as
P6,000.00 reservation fees for the months of February and March.
Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although
respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the
same or even enter it in the day book or primary register.
Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and
the Register of Deeds,[3] docketed as Civil Case No. 3337-V-90 which was raffled off to Branch 171 of the
Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery of possession of the
subject land in accordance with the Contract terms; the surrender of title for registration and annotation
thereon of the Contract; and the payment of P500,000.00 as actual damages, P500,000.00 as moral
damages, P500,000.00 as exemplary damages and P300,000.00 as attorneys fees.
Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss [4] was filed by one Andres
Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural
riceland, for forty-five years. He questioned the jurisdiction of the lower court over the property and invoked the
Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the
original parties to the case. ella

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED
AND ONEROUS IN FAVOR OF DKC.
(D)
FOURTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED
TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT.
(E)
FIFTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFF-APPELLANT WAS LIABLE
TO DEFENDANT-APPELLEE FOR ATTORNEYS FEES.[8]

On May 18, 1990, the lower court issued an Order[5] referring the case to the Department of Agrarian Reform
for preliminary determination and certification as to whether it was proper for trial by said court.

The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy entered into
by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole
heir, Victor, even after her demise.

On July 4, 1990, the lower court issued another Order [6] referring the case to Branch 172 of the RTC of
Valenzuela which was designated to hear cases involving agrarian land, after the Department of Agrarian
Reform issued a letter-certification stating that referral to it for preliminary determination is no longer required.

Both the lower court and the Court of Appeals held that the said contract was terminated upon the death of
Encarnacion Bartolome and did not bind Victor because he was not a party thereto.

On July 16, 1990, the lower court issued an Order denying the Motion to Intervene, [7] holding that Lanozos
rights may well be ventilated in another proceeding in due time.
After trial on the merits, the RTC of Valenzuela, branch 172 rendered its Decision on January 4, 1993,
dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorneys fees. On appeal to the
CA, the Decision was affirmed in toto.
Hence, the instant Petition assigning the following errors:
(A)
FIRST ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO
EXERCISE OPTION WAS NOT TRANSMISSIBLE.

Article 1311 of the Civil Code provides, as follows"ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the decedent. brnado
xxx

xxx

x x x."

The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest
except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision of law.
In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations
under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by
their nature, transmissible.
The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows:

(B)

"Among contracts which are intransmissible are those which are purely personal, either by provision of law,
such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such
as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the
payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate.
Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the
lawyer, instead of presenting his claim for professional services under the contract to the probate court,
substituted the minors as parties for his client, it was held that the contract could not be enforced against the
minors; the lawyer was limited to a recovery on the basis of quantum meruit."[9]
In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge,
genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or
both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to
render such service."[10] marinella
It has also been held that a good measure for determining whether a contract terminates upon the death of
one of the parties is whether it is of such a character that it may be performed by the promissors personal
representative. Contracts to perform personal acts which cannot be as well performed by others are
discharged by the death of the promissor. Conversely, where the service or act is of such a character that it
may as well be performed by another, or where the contract, by its terms, shows that performance by others
was contemplated, death does not terminate the contract or excuse nonperformance. [11]
In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the
exercise by the latter of its option to lease the same may very well be performed by her heir Victor.
As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." [12] In 1952, it was
ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance
had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was
grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by
their predecessor-in-interest because they have inherited the property subject to the liability affecting their
common ancestor.[13]
It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311
of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his
deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is
also valid and binding as against him. [14] This is clear from Paraaque Kings Enterprises vs. Court of Appeals,
[15]
where this Court rejected a similar defense-alonzo
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless
a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase,
he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the
form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the
sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which
defeated the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first
option to buy.
In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of
a party does not excuse nonperformance of a contract which involves a property right, and the rights and
obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not
excused by the death of the party when the other party has a property interest in the subject matter of the
contract.[16]

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract
of Lease with Option to Buy.
That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the
contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during
the two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the
payment of such reservation fees, except those for February and March, 1990 were admitted by Victor. [17] This
is clear from the transcripts, to wit"ATTY. MOJADO:
One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in
that stipulation that it was issued November of 1989 and postdated Janaury 1990 and then we will admit
all. rodp;fo
COURT:
All reservation fee?
ATTY. MOJADO:
Yes, Your Honor.
COURT:
All as part of the lease?
ATTY. MOJADO:
Reservation fee, Your Honor. There was no payment with respect to payment of rentals." [18]
Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China
Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome,
[19]
for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn
over the subject property.[20]
Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease
through its letter dated Match 12, 1990, [21] well within the two-year period for it to exercise its option.
Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner
to have addressed its letter to her heir.
It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in
accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the
obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years,
pursuant to the Contract of Lease with Option to Buy. micks
Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition.
We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the
lower court and that such denial was never made the subject of an appeal. As the lower court stated in its
Order, the alleged right of the tenant may well be ventilated in another proceeding in due time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the
Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No.
3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to:
(a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249
by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion
Bartolome, under the subject Contract of Lease with Option to Buy;
(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds
for registration and annotation thereon of the subject Contract of Lease with Option to Buy;
(c) pay costs of suit. Sc
Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease
with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a
copy thereof to his office.
SO ORDERED.

the defendant Orense had been the owner of a parcel of land, with the buildings and improvements thereon,
situated in the pueblo of Guinobatan, Albay, the location, area and boundaries of which were specified in the
complaint; that the said property has up to date been recorded in the new property registry in the name of the
said Orense, according to certificate No. 5, with the boundaries therein given; that, on February 14, 1907, Jose
Duran, a nephew of the defendant, with the latter's knowledge and consent, executed before a notary a public
instrument whereby he sold and conveyed to the plaintiff company, for P1,500, the aforementioned property,
the vendor Duran reserving to himself the right to repurchase it for the same price within a period of four years
from the date of the said instrument; that the plaintiff company had not entered into possession of the
purchased property, owing to its continued occupancy by the defendant and his nephew, Jose Duran, by virtue
of a contract of lease executed by the plaintiff to Duran, which contract was in force up to February 14, 1911;
that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely confirmed and
ratified by the defendant Orense; that, in order to perfect the title to the said property, but that the defendant
Orense refused to do so, without any justifiable cause or reason, wherefore he should be compelled to
execute the said deed by an express order of the court, for Jose Duran is notoriously insolvent and cannot
reimburse the plaintiff company for the price of the sale which he received, nor pay any sum whatever for the
losses and damages occasioned by the said sale, aside from the fact that the plaintiff had suffered damage by
losing the present value of the property, which was worth P3,000; that, unless such deed of final conveyance
were executed in behalf of the plaintiff company, it would be injured by the fraud perpetrated by the vendor,
Duran, in connivance with the defendant; that the latter had been occupying the said property since February
14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon him for its payment at
the rate of P30 per month, the just and reasonable value for the occupancy of the said property, the
possession of which the defendant likewise refused to deliver to the plaintiff company, in spite of the
continuous demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez
Hermanos, claiming to have rights of ownership and possession in the said property. Therefore it was prayed
that judgment be rendered by holding that the land and improvements in question belong legitimately and
exclusively to the plaintiff, and ordering the defendant to execute in the plaintiff's behalf the said instrument of
transfer and conveyance of the property and of all the right, interest, title and share which the defendant has
therein; that the defendant be sentenced to pay P30 per month for damages and rental of the property from
February 14, 1911, and that, in case these remedies were not granted to the plaintiff, the defendant be
sentenced to pay to it the sum of P3,000 as damages, together with interest thereon since the date of the
institution of this suit, and to pay the costs and other legal expenses.
The demurrer filed to the amended complaint was overruled, with exception on the part of the defendant,
whose counsel made a general denial of the allegations contained in the complaint, excepting those that were
admitted, and specifically denied paragraph 4 thereof to the effect that on February 14, 1907, Jose Duran
executed the deed of sale of the property in favor of the plaintiff with the defendant's knowledge and
consent.1awphil.net

G.R. No. L-9188 December 4, 1914

GUTIERREZ HERMANOS, plaintiff-appellee,
vs.
ENGRACIO ORENSE, defendant-appellant.
William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant.
Rafael de la Sierra for appellee.

TORRES, J.:
Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April 14, 1913, by the
Honorable P. M. Moir, judge, wherein he sentenced the defendant to make immediate delivery of the property
in question, through a public instrument, by transferring and conveying to the plaintiff all his rights in the
property described in the complaint and to pay it the sum of P780, as damages, and the costs of the suit.
On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the Court of
First Instance of Albay against Engacio Orense, in which he set forth that on and before February 14, 1907,

As the first special defense, counsel for the defendant alleged that the facts set forth in the complaint with
respect to the execution of the deed did not constitute a cause of action, nor did those alleged in the other
form of action for the collection of P3,000, the value of the realty.
As the second special defense, he alleged that the defendant was the lawful owner of the property claimed in
the complaint, as his ownership was recorded in the property registry, and that, since his title had been
registered under the proceedings in rem prescribed by Act No. 496, it was conclusive against the plaintiff and
the pretended rights alleged to have been acquired by Jose Duran prior to such registration could not now
prevail; that the defendant had not executed any written power of attorney nor given any verbal authority to
Jose Duran in order that the latter might, in his name and representation, sell the said property to the plaintiff
company; that the defendant's knowledge of the said sale was acquired long after the execution of the
contract of sale between Duran and Gutierrez Hermanos, and that prior thereto the defendant did not
intentionally and deliberately perform any act such as might have induced the plaintiff to believe that Duran
was empowered and authorized by the defendant and which would warrant him in acting to his own detriment,
under the influence of that belief. Counsel therefore prayed that the defendant be absolved from the complaint
and that the plaintiff be sentenced to pay the costs and to hold his peace forever.
After the hearing of the case and an examination of the evidence introduced by both parties, the court
rendered the judgment aforementioned, to which counsel for the defendant excepted and moved for a new
trial. This motion was denied, an exception was taken by the defendant and, upon presentation of the proper
bill of exceptions, the same was approved, certified and forwarded to the clerk of his court.

This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a
masonry house with the nipa roof erected thereon, effected by Jose Duran, a nephew of the owner of the
property, Engracio Orense, for the sum of P1,500 by means of a notarial instrument executed and ratified on
February 14, 1907.
After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the property to
the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the rate of P30 per month for its
use and occupation since February 14, 1911, when the period for its repurchase terminated. His refusal was
based on the allegations that he had been and was then the owner of the said property, which was registered
in his name in the property registry; that he had not executed any written power of attorney to Jose Duran, nor
had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name; and
that, prior to the execution of the deed of sale, the defendant performed no act such as might have induced
the plaintiff to believe that Jose Duran was empowered and authorized by the defendant to effect the said
sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with
estafa, for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land
and improvements, whereas in reality they did not belong to him, but to the defendant Orense. However, at the
trial of the case Engracio Orense, called as a witness, being interrogated by the fiscal as to whether he and
consented to Duran's selling the said property under right of redemption to the firm of Gutierrez Hermanos,
replied that he had. In view of this statement by the defendant, the court acquitted Jose Duran of the charge of
estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the
owner of the property, to the effect that he had consented to his nephew Duran's selling the property under
right of repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other
remedies, that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the
plaintiff company of all the right, title and interest with Orense had in the property sold, and to pay to the same
the rental of the property due from February 14, 1911.itc-alf
Notwithstanding the allegations of the defendant, the record in this case shows that he did give his consent in
order that his nephew, Jose Duran, might sell the property in question to Gutierrez Hermanos, and that he did
thereafter confirm and ratify the sale by means of a public instrument executed before a notary.
It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant
conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same
way by selling the said property. The principal must therefore fulfill all the obligations contracted by the agent,
who acted within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action of his nephew, who in this case acted as the
manager of his uncle's business, and Orense'r ratification produced the effect of an express authorization to
make the said sale. (Civil Code, arts. 1888 and 1892.)

The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the
beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by
the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself
consented to his nephew Jose Duran's making the said sale. Moreover, pursuant to article 1309 of the Code,
the right of action for nullification that could have been brought became legally extinguished from the moment
the contract was validly confirmed and ratified, and, in the present case, it is unquestionable that the
defendant did confirm the said contract of sale and consent to its execution.
On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was acquitted, and it
would not be just that the said testimony, expressive of his consent to the sale of his property, which
determined the acquittal of his nephew, Jose Duran, who then acted as his business manager, and which
testimony wiped out the deception that in the beginning appeared to have been practiced by the said Duran,
should not now serve in passing upon the conduct of Engracio Orense in relation to the firm of Gutierrez
Hermanos in order to prove his consent to the sale of his property, for, had it not been for the consent admitted
by the defendant Orense, the plaintiff would have been the victim of estafa.
If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling
the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said property.
The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged
to be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure,
because the authority which Orense may have given to Duran to make the said contract of sale is not shown
to have been in writing and signed by Orense, but the record discloses satisfactory and conclusive proof that
the defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew
Jose Duran. Such consent was proven in a criminal action by the sworn testimony of the principal and
presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the
defendant made no objection. Therefore the principal is bound to abide by the consequences of his agency as
though it had actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs.
Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed
that he had given his consent to the sale of his property, meet the requirements of the law and legally excuse
the lack of written authority, and, as they are a full ratification of the acts executed by his nephew Jose Duran,
they produce the effects of an express power of agency.
The judgment appealed from in harmony with the law and the merits of the case, and the errors assigned
thereto have been duly refuted by the foregoing considerations, so it should be affirmed.
The judgment appealed from is hereby affirmed, with the costs against the appellant.

Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being
authorized by him or without his legal representation according to law.
A contract executed in the name of another by one who has neither his authorization nor legal representation
shall be void, unless it should be ratified by the person in whose name it was executed before being revoked
by the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of Duran for
estafa, virtually confirms and ratifies the sale of his property effected by his nephew, Duran, and, pursuant to
article 1313 of the Civil Code, remedies all defects which the contract may have contained from the moment of
its execution.

G.R. No. L-47806

April 14, 1941

LEONCIO GABRIEL, petitioner,

vs.
MONTE DE PIEDAD Y CAJA DE AHARROS and THE COURT OF APPEALS, respondents.
LAUREL, J.:

The herein petitioner was employed as appraiser of jewels in the pawnshop of the Monte de Piedad from 1913
up to May, 1933. On December 13, 1932, he executed a chattel mortgage to secure the payment of the
deficiencies which resulted from his erroneous appraisal of the jewels pawned to the appellee, amounting to
P14,679.07, with six per cent (6%) interest from said date. In this chattel mortgage, the appellant promised to
pay to the appellee the sum of P300 a month until the sum of P14,679.07, with interest is fully paid. The
document was registered on December 22, 1932 (statement, decision of Court of Appeals). To recover the
aforementioned sum less what had been paid, amounting to P3,333.25 or the balance of P11,345.75, and in
case of default to effectuate the chattel mortgage, an action was instituted against the petitioner by the
respondent Monte de Piedad in the Court of First Instance of Manila (civil case No. 50847). The petitioner
answered, denying generally and specifically all the specifications therein, and also denied under oath the
genuiness of the execution of the alleged chattel mortgage attached thereto. By way of special defense, he
alleged (1) that the chattel mortgage was a part of a scheme on the part of the management of the Monte de
Piedad to cover up supposed losses incurred in its pawnshop department; (2) that a criminal action had been
instituted at the instance of the plaintiff against him wherein said chattel mortgage was presented by the
prosecution with regard his supposed responsibility as expert appraiser of jewels of the plaintiff entity but he
was therein acquitted; and (3) that said acquittal constituted a bar to the civil case. By way of cross-complaint,
the petitioner alleged (1) that the chattel mortgage was entered into by E. Marco for and in behalf of the Monte
de Piedad without being duly authorized to do so by the latter; (2) that the defendant was induced, through
false representation, to sign said chattel mortgage against his will; (3) that the chattel mortgage was based
upon all non-existing subject matter and non-existing consideration; and (4) that the chattel mortgage was null
and void ab initio. By way of counterclaim, the petitioner alleged (1) that the payments made by for him the
account of the chattel mortgage amounting to P3,333.25 were made through deceit and without his consent
and consisted of P300 monthly deductions from his salary, printing job for plaintiff done by him in his printing
press, and reimbursement made from the pocket of E. Marco; (2) that he has received P356.25 a month as
expert appraiser of the plaintiff and that he was separated arbitrarily at the end of the month of May 1933, from
notice and plaintiff failed to pay him his salary for the month of May, 1933 and the month of June, 1933, in
accordance with law; and (3) that due to the malicious and systematic prosecution brought in criminal case
No. 49078 and in the present case, he suffered damages and losses both materially and in his reputation in
the amount of at least P15,000. Wherefore, petitioner, among others, prayed that the Monte de Piedad be
ordered to return the unlawful deductions from his monthly remuneration, to pay his salary for the months of
May and June, 1933, and damages and losses he suffered amounting to P15,000.

from his erroneous appraisals of the jewels." A preexisting admitted liability is a good consideration for a
promise. The fact that the bargain is a hard one will not deprived it of validity. The exception to this rule in
modern legislation is where the inadequacy is so gross as to amount to fraud, oppression or undue influence,
or when statutes require the consideration to be adequate. We are not convinced that the instant case falls
within the exception.

The lower court rendered judgment in favor of the Monte de Piedad against the herein petitioner. Petitioner
brought the case on appeal to the Court of Appeals, which affirmed the judgment of the lower court in a
decision rendered May 29, 1940. Hence, this petition for review by certiorari.

We do not find it necessary to discuss the last assignment of error.

Petitioner contends that the provisions of the chattel mortgage contract by which he guaranteed to pay the
deficiencies amounting of P14,679.07 are contrary to law, morals and public policy, and hence, the chattel
mortgage contract is ineffective and the principal obligation secured by it is void. A contract is to be judge by its
character, and courts will look to the substances and not to the mere form of the transaction. The freedom of
contract is both a constitutional and statutory right and to uphold this right, courts should move with all the
necessary caution and prudence in holding contracts void. (People vs. Pomar, 46 Phil., 440; Ferrazzini vs.
Gsell, 34 Phil., 697.) At any rate, courts should not rashly extend the rule which holds that a contract is void as
against public policy. The term "public policy" is vague and uncertain in meaning, floating and changeable in
connotation. It may be said, however, that, in general, a contract which is neither prohibited by law nor
condemned by judicial decision, nor contrary to public morals, contravenes no public policy. In the absence of
express legislation or constitutional prohibition, a court, in order to declare a contract void as against public
policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the
public, is against the public good, or contravenes some established interests of society, or is inconsistent with
sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of
personal liability or of private property. Examining the contract at bar, we are of the opinion that it does not in
anyway militate against the public good. Neither does it contravene the policy of the law nor the established
interests of society.
Petitioner also contends that the chattel mortgage in question is void because it lacks consideration. A
consideration, in the legal sense of the word, is some right, interest, benefit, or advantage conferred upon the
promisor, to which he is otherwise not lawfully entitled, or any detriment, prejudice, loss, or disadvantage
suffered or undertaken by the promisee other than to such as he is at the time of consent bound to suffer. We
think that there is sufficient consideration in this contract, for accounting to the Court of Appeals, "it has been
satisfactorily established that it was executed voluntarily by the latter to guarantee the deficiencies resulting

Another objection raised is that the requirement of section 5 of Act No. 1508 has not been complied with. We
think that there is substantial compliance with the requirements of the Chattel Mortgage Law on this point. The
wording of the affidavit under discussion, as it appears from the record, is almost in the same language of the
statute. Likewise, it appears that it was signed by E. Marco, who was Director-General of the Monte de Piedad
at the time of the execution of the contract of chattel mortgage. The Court of Appeals found that "the
contention that director Marco had no authority to enter into the agreement is without merit. It appears that
there was confirmation of Exhibit A by the Consejo de Administracion of the Monte de Piedad." Statutory
requirements as to forms or words of the affidavits in chattel mortgage contracts must be substantially, but
need not be literally, complied with.
The second assignment of error made by the petitioner is that the Court of Appeals erred in not holding that
the acquittal of the petitioner in criminal case No. 49078 of the Court of First Instance of Manila bars the action
to enforce any civil liability under said chattel mortgage. We do not need to dwell at length on this assignment
of error, for we find no reason for distributing the conclusion reached by the Court of Appeals on this point:
The appellant claims that his acquittal in criminal case No. 49078 of the Court of First Instance of Manila is a
bar to the institution of the present case. The evidence of record does not bear out this contention. There is no
identity of subject matter between the two cases; nor is the instant case defendant upon the said criminal
action. We agree with the trial court that the transactions involved in this case are different from those involved
in criminal case No. 49078. The court's finding that the transactions involved in the case at the bar
commenced in August, 1932, can not be considered erroneous simply because Exhibit F-32 of the plaintiff is
allegedly dated August 20, 1931. Exhibit F-22 can not be given any probative value, it was undated during the
hearing of the case.

The petition is hereby dismissed and the judgment sought to be reviewed is affirmed, with costs against the
petitioner. So ordered.
G.R. No. 61594 September 28, 1990
PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,
vs
HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his
capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN
MAMASIG, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
Ledesma, Saludo & Associates for private respondents.

FELICIANO, J.:
On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign corporation
licensed to do business in the Philippines, executed in Manila two (2) separate contracts of employment, one
with private respondent Ethelynne B. Farrales and the other with private respondent Ma. M.C. Mamasig. 1 The
contracts, which became effective on 9 January 1979, provided in pertinent portion as follows:

5. DURATION OF EMPLOYMENT AND PENALTY

This agreement is for a period of three (3) years, but can be extended by the mutual consent of the parties.
xxx xxx xxx
6. TERMINATION
xxx xxx xxx
Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this agreement at
any time by giving the EMPLOYEE notice in writing in advance one month before the intended termination or
in lieu thereof, by paying the EMPLOYEE wages equivalent to one month's salary.
xxx xxx xxx

On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister, MOLE, adopted
the findings of fact and conclusions of the Regional Director and affirmed the latter's award save for the portion
thereof giving PIA the option, in lieu of reinstatement, "to pay each of the complainants [private respondents]
their salaries corresponding to the unexpired portion of the contract[s] [of employment] . . .". 5
In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and the Order of
the Deputy Minister as having been rendered without jurisdiction; for having been rendered without support in
the evidence of record since, allegedly, no hearing was conducted by the hearing officer, Atty. Jose M.
Pascual; and for having been issued in disregard and in violation of petitioner's rights under the employment
contracts with private respondents.
1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the subject matter
of the complaint initiated by private respondents for illegal dismissal, jurisdiction over the same being lodged in
the Arbitration Branch of the National Labor Relations Commission ("NLRC") It appears to us beyond dispute,
however, that both at the time the complaint was initiated in September 1980 and at the time the Orders
assailed were rendered on January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by
Deputy Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.

10. APPLICABLE LAW:

Art. 278 of the Labor Code, as it then existed, forbade the termination of the services of employees with at
least one (1) year of service without prior clearance from the Department of Labor and Employment:

This agreement shall be construed and governed under and by the laws of Pakistan, and only the Courts of
Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or under this agreement.

Art. 278. Miscellaneous Provisions . . .

Respondents then commenced training in Pakistan. After their training period, they began discharging their job
functions as flight attendants, with base station in Manila and flying assignments to different parts of the
Middle East and Europe.

(b) With or without a collective agreement, no employer may shut down his establishment or dismiss or
terminate the employment of employees with at least one year of service during the last two (2) years, whether
such service is continuous or broken, without prior written authority issued in accordance with such rules and
regulations as the Secretary may promulgate . . . (emphasis supplied)

On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the contracts of
employment, PIA through Mr. Oscar Benares, counsel for and official of the local branch of PIA, sent separate
letters both dated 1 August 1980 to private respondents Farrales and Mamasig advising both that their
services as flight stewardesses would be terminated "effective 1 September 1980, conformably to clause 6 (b)
of the employment agreement [they had) executed with [PIA]." 2

Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear that in case of a
termination without the necessary clearance, the Regional Director was authorized to order the reinstatement
of the employee concerned and the payment of backwages; necessarily, therefore, the Regional Director must
have been given jurisdiction over such termination cases:

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint, docketed as
NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits and bonuses, against PIA with
the then Ministry of Labor and Employment ("MOLE"). After several unfruitful attempts at conciliation, the
MOLE hearing officer Atty. Jose M. Pascual ordered the parties to submit their position papers and evidence
supporting their respective positions. The PIA submitted its position paper, 3 but no evidence, and there
claimed that both private respondents were habitual absentees; that both were in the habit of bringing in from
abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila International Airport had
been discreetly warned by customs officials to advise private respondents to discontinue that practice. PIA
further claimed that the services of both private respondents were terminated pursuant to the provisions of the
employment contract.
In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the reinstatement of
private respondents with full backwages or, in the alternative, the payment to them of the amounts equivalent
to their salaries for the remainder of the fixed three-year period of their employment contracts; the payment to
private respondent Mamasig of an amount equivalent to the value of a round trip ticket Manila-USA Manila;
and payment of a bonus to each of the private respondents equivalent to their one-month salary. 4 The Order
stated that private respondents had attained the status of regular employees after they had rendered more
than a year of continued service; that the stipulation limiting the period of the employment contract to three (3)
years was null and void as violative of the provisions of the Labor Code and its implementing rules and
regulations on regular and casual employment; and that the dismissal, having been carried out without the
requisite clearance from the MOLE, was illegal and entitled private respondents to reinstatement with full
backwages.

Sec. 2. Shutdown or dismissal without clearance. Any shutdown or dismissal without prior clearance shall
be conclusively presumed to be termination of employment without a just cause. The Regional Director shall,
in such case order the immediate reinstatement of the employee and the payment of his wages from the time
of the shutdown or dismissal until the time of reinstatement. (emphasis supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly very explicit
about the jurisdiction of the Regional Director over termination of employment cases:
Under PD 850, termination cases with or without CBA are now placed under the original jurisdiction of
the Regional Director. Preventive suspension cases, now made cognizable for the first time, are also placed
under the Regional Director. Before PD 850, termination cases where there was a CBA were under the
jurisdiction of the grievance machinery and voluntary arbitration, while termination cases where there was no
CBA were under the jurisdiction of the Conciliation Section.
In more details, the major innovations introduced by PD 850 and its implementing rules and regulations with
respect to termination and preventive suspension cases are:
1. The Regional Director is now required to rule on every application for clearance, whether there is opposition
or not, within ten days from receipt thereof.
xxx xxx xxx

(Emphasis supplied)
2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still his order
was null and void because it had been issued in violation of petitioner's right to procedural due process . 6 This
claim, however, cannot be given serious consideration. Petitioner was ordered by the Regional Director to
submit not only its position paper but also such evidence in its favor as it might have. Petitioner opted to rely
solely upon its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no
formal or oral hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner
PIA was able to appeal his case to the Ministry of Labor and Employment. 7
There is another reason why petitioner's claim of denial of due process must be rejected. At the time the
complaint was filed by private respondents on 21 September 1980 and at the time the Regional Director
issued his questioned order on 22 January 1981, applicable regulation, as noted above, specified that a
"dismissal without prior clearance shall be conclusively presumed to be termination of employment without a
cause", and the Regional Director was required in such case to" order the immediate reinstatement of the
employee and the payment of his wages from the time of the shutdown or dismiss until . . . reinstatement." In
other words, under the then applicable rule, the Regional Director did not even have to require submission of
position papers by the parties in view of the conclusive (juris et de jure) character of the presumption created
by such applicable law and regulation. In Cebu Institute of Technology v. Minister of Labor and
Employment, 8 the Court pointed out that "under Rule 14, Section 2, of the Implementing Rules and
Regulations, the termination of [an employee] which was without previous clearance from the Ministry of Labor
is conclusively presumed to be without [just] cause . . . [a presumption which] cannot be overturned by any
contrary proof however strong."
3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of employment with private
respondents Farrales and Mamasig, arguing that its relationship with them was governed by the provisions of
its contract rather than by the general provisions of the Labor Code. 9
Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by agreement
between the parties; while paragraph 6 provided that, notwithstanding any other provision in the Contract, PIA
had the right to terminate the employment agreement at any time by giving one-month's notice to the
employee or, in lieu of such notice, one-months salary.
A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law
between the parties. 10 The principle of party autonomy in contracts is not, however, an absolute principle. The
rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they
may deem convenient, "providedthey are not contrary to law, morals, good customs, public order or public
policy." Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that
provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed
written into the contract. 11 Put a little differently, the governing principle is that parties may not contract away
applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with
public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty
to insulate themselves and their relationships from the impact of labor laws and regulations by simply
contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner
PIA in terms of their consistency with applicable Philippine law and regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that paragraph 5 of that
employment contract was inconsistent with Articles 280 and 281 of the Labor Code as they existed at the time
the contract of employment was entered into, and hence refused to give effect to said paragraph 5. These
Articles read as follows:
Art. 280. Security of Tenure. In cases of regular employment, the employer shall not terminate the services
of an employee except for a just cause or when authorized by this Title An employee who is unjustly dismissed
from work shall be entitled to reinstatement without loss of seniority rights and to his backwages computed
from the time his compensation was withheld from him up to the time his reinstatement.

Art. 281. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreements of the parties, an employment shall be deemed to be
regular where the employee has been engaged to perform activities which are usually necessary or desirable
in the usual business or trade of the employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined at the time of the
engagement of the employee or where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding paragraph: provided,
that, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered as regular employee with respect to the activity in which he is employed and his
employment shall continue while such actually exists. (Emphasis supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had occasion to examine in detail the
question of whether employment for a fixed term has been outlawed under the above quoted provisions of the
Labor Code. After an extensive examination of the history and development of Articles 280 and 281, the Court
reached the conclusion that a contract providing for employment with a fixed period was not necessarily
unlawful:
There can of course be no quarrel with the proposition that where from the circumstances it is apparent that
periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck
down or disregarded as contrary to public policy, morals, etc. But where no such intent to circumvent the law is
shown, or stated otherwise, where the reason for the law does not exist e.g. where it is indeed the employee
himself who insists upon a period or where the nature of the engagement is such that, without being seasonal
or for a specific project, a definite date of termination is a sine qua non would an agreement fixing a period be
essentially evil or illicit, therefore anathema Would such an agreement come within the scope of Article 280
which admittedly was enacted "to prevent the circumvention of the right of the employee to be secured in . . .
(his) employment?"
As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a
narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack
of a fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the
right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows
that such a literal interpretation should be eschewed or avoided. The law must be given reasonable
interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and
subverting to boot the principle of freedom of contract to remedy the evil of employers" using it as a means to
prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more
relevantly, curing a headache by lopping off the head.
xxx xxx xxx
Accordingly, and since the entire purpose behind the development of legislation culminating in the present
Article 280 of the Labor Code clearly appears to have been, as already observed, to prevent circumvention of
the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling
out all written or oral agreements conflicting with the concept of regular employment as defined therein should
be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into
precisely to circumvent security of tenure. It should have no application to instances where a fixed period of
employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper
pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent,
or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal
terms with no moral dominance whatever being exercised by the former over the latter. Unless thus limited in
its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it
thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended
consequences. (emphasis supplied)
It is apparent from Brent School that the critical consideration is the presence or absence of a substantial
indication that the period specified in an employment agreement was designed to circumvent the security of
tenure of regular employees which is provided for in Articles 280 and 281 of the Labor Code. This indication

must ordinarily rest upon some aspect of the agreement other than the mere specification of a fixed term of
the ernployment agreement, or upon evidence aliunde of the intent to evade.
Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner PIA and
private respondents, we consider that those provisions must be read together and when so read, the fixed
period of three (3) years specified in paragraph 5 will be seen to have been effectively neutralized by the
provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the fixed
three (3)-year period ostensibly granted by paragraph 5 by rendering such period in effect a facultative one at
the option of the employer PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and
for any cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a
month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is to render the
employment of private respondents Farrales and Mamasig basically employment at the pleasure of petitioner
PIA, the Court considers that paragraphs 5 and 6 were intended to prevent any security of tenure from
accruing in favor of private respondents even during the limited period of three (3) years, 13 and thus to escape
completely the thrust of Articles 280 and 281 of the Labor Code.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law
of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute
arising out of or in connection with the agreement "only [in] courts of Karachi Pakistan". The first clause of
paragraph 10 cannot be invoked to prevent the application of Philippine labor laws and regulations to the
subject matter of this case, i.e., the employer-employee relationship between petitioner PIA and private
respondents. We have already pointed out that the relationship is much affected with public interest and that
the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing
upon some other law to govern their relationship. Neither may petitioner invoke the second clause of
paragraph 10, specifying the Karachi courts as the sole venue for the settlement of dispute; between the
contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple
and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship
between the parties, upon the other: the contract was not only executed in the Philippines, it was also
performed here, at least partially; private respondents are Philippine citizens and respondents, while petitioner,
although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in
the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to
the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies
as a proper forum for the resolution of contractual disputes between the parties. Under these circumstances,
paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and
courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did
not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed
that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine
law. 14
We conclude that private respondents Farrales and Mamasig were illegally dismissed and that public
respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor any act without or in
excess of jurisdiction in ordering their reinstatement with backwages. Private respondents are entitled to three
(3) years backwages without qualification or deduction. Should their reinstatement to their former or other
substantially equivalent positions not be feasible in view of the length of time which has gone by since their
services were unlawfully terminated, petitioner should be required to pay separation pay to private
respondents amounting to one (1) month's salary for every year of service rendered by them, including the
three (3) years service putatively rendered.
ACCORDINGLY, the Petition for certiorari is hereby DISMISSED for lack of merit, and the Order dated 12
August 1982 of public respondent is hereby AFFIRMED, except that (1) private respondents are entitled to
three (3) years backwages, without deduction or qualification; and (2) should reinstatement of private
respondents to their former positions or to substantially equivalent positions not be feasible, then petitioner
shall, in lieu thereof, pay to private respondents separation pay amounting to one (1)-month's salary for every
year of service actually rendered by them and for the three (3) years putative service by private respondents.
The Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs against petitioner.
SO ORDERED.

G.R. No. L-15127

May 30, 1961

EMETERIO CUI, plaintiff-appellant,

vs.
ARELLANO UNIVERSITY, defendant-appellee.
G.A.S. Sipin, Jr., for plaintiff-appellant.
E. Voltaire Garcia for defendant-appellee.
CONCEPCION, J.:
Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila, absolving defendant
Arellano University from plaintiff's complaint, with costs against the plaintiff, and dismissing defendant's
counter claim, for insufficiency of proof thereon.
In the language of the decision appealed from:
The essential facts of this case are short and undisputed. As established by the agreement of facts Exhibits X
and by the respective oral and documentary evidence introduced by the parties, it appears conclusive that
plaintiff, before the school year 1948-1949 took up preparatory law course in the defendant University. After
finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from the school
year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first
semester of the fourth year. During all the school years in which plaintiff was studying law in defendant law
college, Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law and
legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law studies in the
defendant university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having
severed his connection with defendant and having accepted the deanship and chancellorship of the College of
Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for the last semester of
his fourth year law in the college of law of the Abad Santos University graduating from the college of law of the
latter university. Plaintiff, during all the time he was studying law in defendant university was awarded
scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of
semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by
plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first
semester of his last year in the college of law or the fourth year, is in total P1,033.87. After graduating in law
from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he
needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to
him the needed transcripts. The defendant refused until after he had paid back the P1,033 87 which defendant
refunded to him as above stated. As he could not take the bar examination without those transcripts, plaintiff
paid to defendant the said sum under protest. This is the sum which plaintiff seeks to recover from defendant
in this case.
Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the
following contract covenant and agreement:
"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to
another school without having refunded to the University (defendant) the equivalent of my scholarship cash.

(Sgd.) Emeterio Cui".

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of
1949, on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities,"
reading:
1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial
scholarships to deserving students for excellence in scholarship or for leadership in extra-curricular
activities. Such inducements to poor but gifted students should be encouraged. But to stipulate the condition
that such scholarships are good only if the students concerned continue in the same school nullifies the
principle of merit in the award of these scholarships.
2. When students are given full or partial scholarships, it is understood that such scholarships are merited and
earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently
charged to the recipient students when they decide to quit school or to transfer to another institution.
Scholarships should not be offered merely to attract and keep students in a school.
3. Several complaints have actually been received from students who have enjoyed scholarships, full or
partial, to the effect that they could not transfer to other schools since their credentials would not be released
unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes
that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such
transfer.
that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools
to pass upon the issue on his right to secure the transcript of his record in defendant University, without being
required to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the
plaintiff and so advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript
of records, unless said refund were made, and even recommended to said Bureau that it issue a written order
directing the defendant to release said transcript of record, "so that the case may be presented to the court for
judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said
sum of P1,033.87, in order that he could take the bar examination in 1953. Subsequently, he brought this
action for the recovery of said amount, aside from P2,000 as moral damages, P500 as exemplary damages,
P2,000 as attorney's fees, and P500 as expenses of litigation.
In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the
provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is null
and void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees.

principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the
defendant,
There is one more point that merits refutation and that is whether or not the contract entered into between Cui
and Arellano University on September 10, 1951 was void as against public policy. In the case of Zeigel vs.
Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy
of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes,
and the practice of government officers.' It might take more than a government bureau or office to lay down or
establish a public policy, as alleged in your communication, but courts consider the practices of government
officials as one of the four factors in determining a public policy of the state. It has been consistently held in
America that under the principles relating to the doctrine of public policy, as applied to the law of contracts,
courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated
to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169
U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University
understood clearly the real essence of scholarships and the motives which prompted this office to issue
Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10,
1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of
Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in
Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract
void as against public policy, a court must find that the contract as to consideration or the thing to be done,
contravenes some established interest of society, or is inconsistent with sound policy and good morals or
tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s.
1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in
school to bolster its prestige. In the understanding of that university scholarships award is a business
scheme designed to increase the business potential of an education institution. Thus conceived it is not only
inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good
customs; those generally accepted principles of morality which have received some kind of social and practical
confirmation. The practice of awarding scholarships to attract students and keep them in school is not good
customs nor has it received some kind of social and practical confirmation except in some private institutions
as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the
Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to
reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the
leading colleges and universities of the United States after which our educational practices or policies are
patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school
for their propaganda mine but to reward merit or help gifted students in whom society has an established
interest or a first lien. (Emphasis supplied.)
WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing
the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from
September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's
counterclaim. It is so ordered.

The issue in this case is whether the above quoted provision of the contract between plaintiff and the
defendant, whereby the former waived his right to transfer to another school without refunding to the latter the
equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative,
upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the
provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be
unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and
simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that
the aforementioned memorandum of the Director of Private Schools is null and void because said officer had
no authority to issue it, and because it had been neither approved by the corresponding department head nor
published in the official gazette.

G.R. No. L-10551

We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had
sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the
issue before us, and its far reaching effects, transcend personal equations and demand a determination of the
case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said
Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is
contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound

CARSON, J.:

March 3, 1917

IGNACIO ARROYO, plaintiff-appellant,

vs.
ALFRED BERWIN, defendant-appellee.
J. M. Arroyo for appellant.
No appearance for appellee.

The complaint filed in this action is as follows:

1. That both the plaintiff and the defendant are residents of the municipality of Iloilo, Province of Iloilo,
Philippine Islands.

2. That the defendant is a procurador judicial in the law office of the Attorney John Bordman, and is duly
authorized by the court to practice in justice of the peaces courts of the Province of Iloilo.

The order entered in the court below should, therefore, be affirmed, with the costs of the instance against the
appellant. So ordered.

3. That the defendant, as such procurador judicial, represented Marcela Juanesa in the justice of the peace
court of Iloilo in proceeding for theft prosecuted by the plaintiff Ignacio Arroyo; that said cause was decided by
the said justice of the peace against the accused, and the latter appealed to the Court of First Instance of
Iloilo.
4. That on August 14, 1914, which was the day set for the hearing of the appeal of the said cause against
Marcela Juaneza for theft, Case No. 3120, the defendant requested the plaintiff to agree to dismiss the said
criminal proceeding, and, on August 14, 1914, stipulated with the plaintiff in the presence of Roque Samson,
among other things, that his client Marcela Juaneza would recognize the plaintiff's ownership in the land
situated on Calle San Juan, suburb of Molo, municipality of Iloilo, Province of Iloilo, where his said client
ordered the cane cut, which land and which cut cane are referred to in the cause for theft above-mentioned;
and the defendant furthermore agreed that the plaintiff should obtain a Torrens title to the said land during the
next term of the court for the trial of cadastral cases, and that the defendant's client, Marcela Juaneza, would
not oppose the application for registration to be filed by the said applicant; provided that the plaintiff would ask
the prosecuting attorney to dismiss the said proceedings filed against Marcela Juaneza and Alejandro Castro
for the crime of theft.
5. That the plaintiff on his part complied with the agreement, and requested the prosecuting attorney to
dismiss the above-mentioned criminal cause; that the latter petitioned the court and the court did dismiss the
said cause; that in exchange the defendant does not wish to comply with the above-mentioned agreement;
that the plaintiff delivered to the defendant for the signature of the said Marcela Juaneza a written agreement
stating that the defendant's said client recognized the plaintiff's ownership in the described land and that she
would not oppose the plaintiff's application for registration; and that up to the present time, the defendant has
not returned to the plaintiff the said written agreement, notwithstanding the plaintiff's many demands.
Therefore, the plaintiff prays the court to render judgment ordering the defendant to comply with the
agreement by causing the latter's said client Marcela Juaneza to sign the document in which she recognizes
the plaintiff's ownership of the land on which she ordered the cane cut and states that she will not oppose the
plaintiff's application for the registration of the said land, and, further, by awarding to the plaintiff the costs of
the present suit, as well as any other relief that justice and equity require.

G.R. No. L-19638

June 20, 1966

FILIPINAS COMPAIA DE SEGUROS, ET AL., petitioners and appellees,

vs.
HON. FRANCISCO Y. MANDANAS, in his capacity as Insurance Commissioner, respondent and
appellant.
AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL., intervenors and appellees.
Jalandoni and Jamir for petitioner and appellees.
Office of the Solicitor General Arturo A. Alafriz, 1st Assistant Solicitor General Esmeraldo Umali and Solicitor
Comrade T. Limcaoco for intervenors and appellees.
CONCEPCION, C.J.:

The trial judge dismissed this complaint on the ground of the illegality of the consideration of the alleged
contract, and without stopping to consider any other objection to the complaint than that indicated by the court
below, we are of opinion that the order appealed from must be affirmed.
An agreement by the owner of stolen goods to stifle the prosecution of the person charged with the theft, for a
pecuniary or other valuable consideration, is manifestly contrary to public policy and the due administration of
justice. In the interest of the public it is of the utmost importance that criminals should be prosecuted, and that
all criminal proceedings should be instituted and maintained in the form and manner prescribed by law; and to
permit an offender to escape the penalties prescribed by law by the purchase of immunity from private
individuals would result in a manifest perversion of justice.
Article 1255 of the Civil Code provides that:
The contracting parties may make the agreement and establish the clauses and conditions which they may
dream advisable, provided they are not in contravention of law, morals, or public order.
Article 1275 provides that:
Contracts without consideration or with an illicit one have no effect whatsoever. A consideration is illicit when it
is contrary to law and good morals.

This is a special civil action for a declaratory relief Thirty-nine (39) non-life insurance companies instituted it, in
the Court of First Instance of Manila, to secure a declaration of legality of Article 22 of the Constitution of the
Philippine Rating Bureau, of which they are members, inasmuch as respondent Insurance Commissioner
assails its validity upon the ground that it constitutes an illegal or undue restraint of trade. Subsequently to the
filing of the petition, twenty (20) other non-life insurance companies, likewise, members of said Bureau, were
allowed to intervene in support of the petition. After appropriate proceedings, said court rendered judgment
declaring that the aforementioned Article 22 is neither contrary to law nor against public policy, and that,
accordingly, petitioners herein, as well as the intervenors and other members of the aforementioned Bureau,
may lawfully observe and enforce said Article, and are bound to comply with the provisions thereof, without
special pronouncement as to costs. Hence this appeal by respondent Insurance Commissioner, who insists
that the Article in question constitutes an illegal or undue restraint of trade and, hence, null and void.
The record discloses that on March 11, 1960, respondent wrote to said Bureau, a communication expressing
his doubts of the validity of said Article 22, reading:
xxx

xxx

xxx

In respect to the classes of insurance specified in the Objects of the Bureau 1 and for Philippine business only,
the members of this Bureau agree not to represent nor to effect reinsurance with, nor to accept reinsurance
from, any Company, Body, or Underwriter licensed to do business in the Philippines not a Member in good
standing of this Bureau.

and requesting that said provision, be, accordingly, repealed. On April 11, 1960, respondent wrote another
letter to the Bureau inquiring on the action taken on the subject-matter of his previous communication. In reply
thereto, the Bureau advised respondent that the suggestion to delete said Article 22 was still under
consideration by a committee of said Bureau. Soon thereafter, or on May 9, 1961, the latter was advised by
respondent that, being an illegal agreement or combination in restraint of trade, said Article should not be
given force and effect; that failure to comply with this requirement would compel respondent to suspend the
license issued to the Bureau; and that the latter should circularize all of its members on this matter and advise
them that "violation of this requirement by any member of the Bureau" would also compel respondent "to
suspend the certificate of authority of the company concerned to do business in the Philippines". Thereupon,
or on May 16, 1961, the present action was commenced.
Briefly, appellant maintains that, since, in the aforementioned Article 22, members of the Bureau "agree not to
represent nor to effect reinsurance with, nor to accept reinsurance from any company, body, or underwriter,
licensed to do business in the Philippines not a member in good standing of the Bureau", said provision is
illegal as a combination in restraint of trade. As early as August 10, 1916, this Court had had occasion to
declare that the test on whether a given agreement constitutes an unlawful machination or a combination in
restraint of trade
... is, whether, under the particular circumstances of the case and the nature of the particular contract involved
in it, the contract is, or is not, unreasonable. (Ferrazini vs. Gsell, 34 Phil. 697, 712-13.)
This view was reiterated in Ollendorf vs. Abrahamson (38 Phil. 585) and Red Line Transportation Co. vs.
Bachrach Motor Co. (67 Phil. 77), in the following language:
...The general tendency, we believe, of modern authority, is to make the test whether the restraint is
reasonably necessary for the protection of the contracting parties. If the contract is reasonably necessary to
protect the interest of the parties, it will be upheld.
xxx

xxx

xxx

...we adopt the modern rule that the validity of restraints upon trade or employment is to be determined by
the intrinsic reasonableness of the restriction in each case, rather than by any fixed rule, and that
suchrestrictions may be upheld when not contrary to the public welfare and not greater than is necessary to
afford a fair and reasonable protection to the party in whose favor it is imposed. (Ollendorf vs. Abrahamson, 38
Phil. 585.)
...The test of validity is whether under the particular circumstances of the case and considering the nature of
the particular contract involved, public interest and welfare are not involved and the restraint is not only
reasonably necessary for the protection of the contracting parties but will not affect the public interest or
service. (Red Line Transportation Co. vs. Bachrach Motor Co., 67 Phil. 77.) (See also, Del Castillo vs.
Richmond, 45 Phil. 483.)
The issue in the case at bar hinges, therefore, on the purpose or effect of the disputed provision. The only
evidence on this point is the uncontradicted testimony of Salvador Estrada, Chairman of the Bureau when it
was first organized and when he took the witness stand. Briefly stated, he declared that the purpose of Article
22 is to maintain a high degree or standard of ethical practice, so that insurance companies may earn and
maintain the respect of the public, because the intense competition between the great number of non-life
insurance companies operating in the Philippines is conducive to unethical practices, oftentimes taking the
form of underrating; that to achieve this purpose it is highly desirable to have cooperative action between said
companies in the compilation of their total experience in the business, so that the Bureau could determine
more accurately the proper rate of premium to be charged from the insured; that, several years ago, the very
Insurance Commissioner had indicated to the Bureau the necessity of doing something to combat underrating,
for, otherwise, he would urge the amendment of the law so that appropriate measures could be taken therefor
by his office; that much of the work of the Bureau has to do with rate-making and policy-wording; that ratemaking is actually dependent very much on statistics; that, unlike life insurance companies, which have tables
of mortality to guide them in the fixing of rates, non-life insurance companies have, as yet, no such guides;
that, accordingly, non-life insurance companies need an adequate record of losses and premium collections

that will enable them to determine the amount of risk involved in each type of risk and, hence, to determine the
rates or premiums that should be charged in insuring every type of risk; that this information cannot be
compiled without full cooperation on the part of the companies concerned, which cannot be expected from
non-members of the Bureau, over which the latter has no control; and that, in addition to submitting
information about their respective experience, said Bureau members must, likewise, share in the rather
appreciable expenses entailed in compiling the aforementioned data and in analyzing the same.1wph1.t
We find nothing unlawful, or immoral, or unreasonable, or contrary to public policy either in the objectives thus
sought to be attained by the Bureau, or in the means availed of to achieve said objectives, or in the
consequences of the accomplishment thereof. The purpose of said Article 22 is not to eliminate competition,
but to promote ethical practices among non-life insurance companies, although, incidentally it may discourage,
and hence, eliminate unfair competition, through underrating, which in itself is eventually injurious to the
public. Indeed, in the words of Mr. Justice Brandeis:
... the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains
competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of
their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and
promotes competition, or whether it is such as may suppress or even destroy competition. Todetermine that
question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied;
its condition before and after the restraint was imposed; the nature of the restraint, and its effect, actual or
probable. (Board of Trade of Chicago vs. U.S., 246 U.S. 231, 62 L. ed. 683 [1918].)
Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal Supreme Court added:
The restrictions imposed by the Sherman Act are not mechanical or artificial. We have repeatedly said that
they set up the essential standard of reasonableness. Standard Oil Co. vs. United States, 221 U.S. 1, 55 L.
ed. 619, 31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D, 734; United States vs. American Tobacco Co.,
221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. They are aimed at contracts and combinations which "by reason of
intent or the inherent nature of the contemplated acts, prejudice the public interests by undulyrestraining
competition or unduly obstructing the course of trade." Nash vs. United States, 229 U.S. 373, 376, 57 L. ed.
1232, 1235, 33 S. Ct. 780; United States vs. American Linseed Oil Co., 262 U.S. 371, 388, 389, 67 L. ed.
1035, 1040, 1041, 43 S. Ct. 607. Designed to frustrate unreasonable restraints, they do not prevent the
adoption of reasonable means to protect interstate commerce from destructive or injurious practices and to
promote competition upon a sound basis. Voluntary action to end abuses and to foster fair competitive
opportunities in the public interest may be more effective than legal processes. And cooperative endeavor may
appropriately have wider objectives than merely the removal of evils which are infractions of positive law.
Hence, the City Fiscal of Manila refused to prosecute criminally in Manila Fire Insurance Association for
following a policy analogous to that incorporated in the provision disputed in this case and the action of said
official was sustained by the Secretary of Justice, upon the ground that:
... combinations among insurance companies or their agents to fix and control rates of insurance do not
constitute indictable conspiracies, provided no unlawful means are used in accomplishing their purpose (41
C.J. 161; Aetna Ins. Co. vs. Commonwealth, 106 Ky. 864, 51 SW 624; Queen Ins. Co. vs. State, 86 Tex. 250,
24 SW 397; I Joyce on Insurance, par. 329-a).
Indeed, Mr. Estrada's testimony shows that the limitation upon reinsurance contained in the aforementioned
Article 22 does not affect the public at all, for, whether there is reinsurance or not, the liability of the insurer in
favor of the insured is the same. Besides, there are sufficient foreign reinsurance companies operating in the
Philippines from which non-members of the Bureau may secure reinsurance. What is more, whatever the
Bureau may do in the matter of rate-fixing is not decisive insofar as the public is concerned, for no insurance
company in the Philippines may charge a rate of premium that has not been approved by the Insurance
Commissioner.
In fact, respondent's Circular No. 54, dated February 261 1954, provides:
II. Non-life Insurance company or Group Association of such companies.

Every non-life insurance company or group or association of such companies doing business in the
Philippines shall file with the Insurance Commissioner for approval general basic schedules showing the
premium rates on all classes of risk except marine, as distinguished from inland marine insurable by such
insurance company or association of insurance companies in this country.
xxx

xxx

xxx

An insurance company or group of such companies may satisfy its obligation to make such filings by
becoming a member of or subscriber to a rating organization which makes such filing and by authorizing the
insurance commissioner to accept such filings of the rating organization on such company's or group's behalf.
III. Requiring Previous Application to and Approval by the Insurance Commissioner before any Change in the
Rates Schedules filed with Him Shall Take Effect.
No change in the schedules filed in compliance with the requirements of the next preceding paragraph shall be
made except upon application duly filed with and approved by the Insurance Commissioner. Said application
shall state the changes proposed and the date of their effectivity; all changes finally approved by the Insurance
Commissioner shall be incorporated in the old schedules or otherwise indicated as new in the new schedules.
IV. Empowering the Insurance Commissioner to Investigate All Non-Life Insurance Rates.
The Insurance Commissioner shall have power to examine any or all rates established by non-life insurance
companies or group or association of such insurance companies in the country. Should any rate appear, in the
opinion of the Insurance Commissioner, unreasonably high or not adequate to the financial safety or
soundness to the company charging the same, or pre-judicial to policy-holders, the Commissioner shall, in
such case, hold a hearing and/or conduct an investigation. Should the result of such hearing and/or
investigation show that the rate is unreasonably high or low that it is not adequate to the financial safety and
soundness of the company charging the same, or is prejudicial to policy-holders, the Insurance Commissioner
shall direct a revision of the said rate in accordance with his findings. Any insurance company or group or
association of insurance companies may be required to publish the schedule of rates which may have been
revised in accordance herewith.
The decision of the Insurance Commissioner shall be appealable within thirty days after it has been rendered
to the Secretary of Finance.
V. Prohibiting Non-life Insurance Companies and their Agents from Insuring Any Property in this Country at a
Rate Different from that in the Schedules; Unethical Practices.
No insurance company shall engage or participate in the insurance of any property located in the
Philippines ... unless the schedule of rates under which such property is insured has been filed and approved
in accordance with the provisions of this Circular. ... . (Emphasis ours.)
On the same date, the Constitution of the Bureau, containing a provision substantially identical to the one now
under consideration, was approved. Article 2 of said Constitution reads:
2. OBJECTS
The objects of the Bureau shall be:
a. To establish rates in respect of Fire, Earthquake, Riot and Civil Commotion, Automobile and Workmen's
Compensation, and whenever applicable, Marine Insurance business.
xxx

xxx

xxx

c. To file the rates referred to above, tariff rules, and all other conditions or data which may in any way affect
premium rates with the Office of the Insurance Commissioner on behalf of members for approval. (Emphasis
ours.)
In compliance with the aforementioned Circular No. 54, in April, 1954, the Bureau applied for the license
required therein, and submitted with its application a copy of said Constitution. On April 28, 1954, respondent's
office issued to the Bureau the license applied for, certifying not only that it had complied with the
requirements of Circular No. 54, but, also, that the license empowered it "to engage in the making of rates or
policy conditions to be used by insurance companies in the Philippines". Subsequently, thereafter, the Bureau
applied for and was granted yearly the requisite license to operate in accordance with the provisions of its
Constitution. During all this time, respondent's office did not question, but impliedly acknowledged, the legality
of Article 22. It was not until March 11, 1960, that it assailed its validity.
Respondent's contention is anchored mainly on Paramount Famous Lasky Corp. vs. U.S., 282 U.S. 30, but
the same is not in point, not only because it refers to the conditions under which movie film producers and
distributors determine the terms under which theaters or exhibitors may be allowed to run movie films
thereby placing the exhibitors under the control of the producers or distributors and giving the exhibitors, in
effect, no choice as to what films and whose films they will show but, also, because there is, in the film
industry, no agency or officer with powers or functions comparable to those in the Insurance Commissioner, as
regards the regulation of the business concerned and of the transactions involved therein.
Wherefore, the decision appealed from should be, as it is hereby affirmed, without costs. It is so ordered.
[G. R. No. 126800. November 29, 1999]
NATALIA

P. BUSTAMANTE, petitioner
ROSEL, respondents.

vs.

SPOUSES

RODITO

F.

ROSEL

and

NORMA

A.

RESOLUTION
PARDO, J. :
The case before the Court is a petition for review on certiorari [1] to annul the decision of the Court of
Appeals,[2] reversing and setting aside the decision of the Regional Trial Court, [3], dated November 10, 1992,
Judge Teodoro P. Regino. 3 Quezon City, Branch 84, in an action for specific performance with consignation.
On March 8, 1987, at Quezon City, Norma Rosel entered into a loan agreement with petitioner Natalia
Bustamante and her late husband Ismael C. Bustamante, under the following terms and conditions:
1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER CERTIFICATE
OF TITLE No. 80667, containing an area of FOUR HUNDRED TWENTY THREE (423) SQUARE Meters,
more or less, situated along Congressional Avenue.
2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND (P100,000.00)
PESOS from the LENDER, for a period of two (2) years, counted from March 1, 1987, with an interest of
EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment thereof, they are putting as a collateral
SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein, of the aforestated parcel of
land, however, in the event the borrowers fail to pay, the lender has the option to buy or purchase the collateral
for a total consideration of TWO HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed
amount and interest therein;
3. That the lender do hereby manifest her agreement and conformity to the preceding paragraph, while the
borrowers do hereby confess receipt of the borrowed amount. [4]

When the loan was about to mature on March 1, 1989, respondents proposed to buy at the pre-set
price of P200,000.00, the seventy (70) square meters parcel of land covered by TCT No. 80667, given as
collateral to guarantee payment of the loan. Petitioner, however, refused to sell and requested for extension of
time to pay the loan and offered to sell to respondents another residential lot located at Road 20, Project 8,
Quezon City, with the principal loan plus interest to be used as down payment. Respondents refused to
extend the payment of the loan and to accept the lot in Road 20 as it was occupied by squatters and petitioner
and her husband were not the owners thereof but were mere land developers entitled to subdivision shares or
commission if and when they developed at least one half of the subdivision area. [5]

IN VIEW OF THE FOREGOING, the judgment appeal (sic) from is REVERSED and SET ASIDE and a new
one entered in favor of the plaintiffs ordering the defendants to accept the amount of P47,000.00 deposited
with the Clerk of Court of Regional Trial Court of Quezon City under Official Receipt No. 0719847, and for
defendants to execute the necessary Deed of Sale in favor of the plaintiffs over the 70 SQUARE METER
portion and the apartment standing thereon being occupied by the plaintiffs and covered by TCT No. 80667
within fifteen (15) days from finality hereof. Defendants, in turn, are allowed to withdraw the amount
of P153,000.00 deposited by them under Official Receipt No. 0116548 of the City Treasurers Office of Quezon
City. All other claims and counterclaims areDISMISSED, for lack of sufficient basis. No costs.

Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents which the latter
refused to accept, insisting on petitioners signing a prepared deed of absolute sale of the collateral.

SO ORDERED.[13]
Hence, this petition.[14]

On February 28, 1990, respondents filed with the Regional Trial Court, Quezon City, Branch 84, a
complaint for specific performance with consignation against petitioner and her spouse. [6]
Nevertheless, on March 4, 1990, respondents sent a demand letter asking petitioner to sell the
collateral pursuant to the option to buy embodied in the loan agreement.
On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court, Quezon City a petition
for consignation, and deposited the amount of P153,000.00 with the City Treasurer of Quezon City on August
10, 1990.[7]
When petitioner refused to sell the collateral and barangay conciliation failed, respondents consigned
the amount of P47,500.00 with the trial court. [8] In arriving at the amount deposited, respondents considered
the principal loan of P100,000.00 and 18% interest per annum thereon, which amounted to P52,500.00.[9] The
principal loan and the interest taken together amounted to P152,500.00, leaving a balance of P 47,500.00. [10]
After due trial, on November 10, 1992, the trial court rendered decision holding:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Denying the plaintiffs prayer for the defendants execution of the Deed of Sale to Convey the collateral in
plaintiffs favor;
2. Ordering the defendants to pay the loan of P100,000.00 with interest thereon at 18% per annum
commencing on March 2, 1989, up to and until August 10, 1990, when defendants deposited the amount with
the Office of the City Treasurer under Official Receipt No. 0116548 (Exhibit 2); and

On January 20, 1997, we required respondents to comment on the petition within ten (10) days from
notice.[15] On February 27, 1997, respondents filed their comment. [16]
On February 9, 1998, we resolved to deny the petition on the ground that there was no reversible error
on the part of respondent court in ordering the execution of the necessary deed of sale in conformity the with
the parties stipulated agreement. The contract is the law between the parties thereof ( Syjuco v. Court of
Appeals, 172 SCRA 111, 118, citing Phil. American General Insurance v. Mutuc, 61 SCRA 22; Herrera v.
Petrophil Corporation, 146 SCRA 360).[17]
On March 17, 1998, petitioner filed with this Court a motion for reconsideration of the denial alleging
that the real intention of the parties to the loan was to put up the collateral as guarantee similar to an equitable
mortgage according to Article 1602 of the Civil Code.[18]
On April 21, 1998, respondents filed an opposition to petitioners motion for reconsideration. They
contend that the agreement between the parties was not a sale with right of re-purchase, but a loan with
interest at 18% per annum for a period of two years and if petitioner fails to pay, the respondent was given the
right to purchase the property or apartment for P200,000.00, which is not contrary to law, morals, good
customs, public order or public policy. [19]
Upon due consideration of petitioners motion, we now resolve to grant the motion for reconsideration.
The questions presented are whether petitioner failed to pay the loan at its maturity date and whether
the stipulation in the loan contract was valid and enforceable.
We rule that petitioner did not fail to pay the loan.

3. To pay Attorneys Fees in the amount of P 5,000.00, plus costs of suit.

The loan was due for payment on March 1, 1989. On said date, petitioner tendered payment to settle
the loan which respondents refused to accept, insisting that petitioner sell to them the collateral of the loan.

SO ORDERED.

When respondents refused to accept payment, petitioner consigned the amount with the trial court.

Quezon City, Philippines, November 10, 1992.

TEODORO P. REGINO
Judge[11]
On November 16, 1992, respondents appealed from the decision to the Court of Appeals. [12] On July 8,
1996, the Court of Appeals rendered decision reversing the ruling of the Regional Trial Court. The dispositive
portion of the Court of Appeals decision reads:

We note the eagerness of respondents to acquire the property given as collateral to guarantee the loan.
The sale of the collateral is an obligation with a suspensive condition. [20] It is dependent upon the happening of
an event, without which the obligation to sell does not arise. Since the event did not occur, respondents do not
have the right to demand fulfillment of petitioners obligation, especially where the same would not only be
disadvantageous to petitioner but would also unjustly enrich respondents considering the inadequate
consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City.
Respondents argue that contracts have the force of law between the contracting parties and must be
complied with in good faith. [21] There are, however, certain exceptions to the rule, specifically Article 1306 of
the Civil Code, which provides:

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy.
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the
property given as security for the loan. This is embraced in the concept of pactum commissorium, which is
proscribed by law.[22]
The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of
security for the payment of the principal obligation, and (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within
the stipulated period.[23]
In Nakpil vs. Intermediate Appellate Court,[24] we said:
The arrangement entered into between the parties, whereby Pulong Maulap was to be considered sold to
him (respondent) xxx in case petitioner fails to reimburse Valdes, must then be construed as tantamount
to pactum commissorium which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be
automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the
advances. Thus, contrary to respondents manifestation, all the elements of a pactum commissorium were
present: there was a creditor-debtor relationship between the parties; the property was used as security for the
loan; and there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner.
A significant task in contract interpretation is the ascertainment of the intention of the parties and
looking into the words used by the parties to project that intention. In this case, the intent to appropriate the
property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged to dispose of
the collateral at the pre-agreed consideration amounting to practically the same amount as the loan. In effect,
the creditor acquires the collateral in the event of non payment of the loan. This is within the concept
of pactum commissorium. Such stipulation is void.[25]
All persons in need of money are liable to enter into contractual relationships whatever the condition if
only to alleviate their financial burden albeit temporarily. Hence, courts are duty bound to exercise caution in
the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their
prey.
WHEREFORE, we GRANT petitioners motion for reconsideration and SET ASIDE the Courts
resolution of February 9, 1998. We REVERSE the decision of the Court of Appeals in CA-G. R. CV No.
40193. In lieu thereof, we hereby DISMISS the complaint in Civil Case No. Q-90-4813.
No costs.

GUERRERO, J.:
Petition for review on certiorari of the decision of the Court Appeals 1 in CA-G.R. No. 46975-R entitled "Jose P.
Dizon, Plaintiff-Appellant, vs. Alfredo G. Gaborro (substituted by Pacita de Guzman Gaborro as Judicial
Administratrix of the Estate of Alfredo G, Gaborro) trial the Development Bank of the Philippines, DefendantsAppellees," affirming with modification the decision of the Court of First Instance of Pampanga, Branch II in
Civil Case No. 2184.
The dispositive portion of the decision sought to be reviewed reads:
IN VIEW OF THE FOREGOING, the judgment appealed therefrom is hereby affirmed
with modification that the plaintiff-appellant has the right to refund or reimburse the
defendant- appellees he sum of P131,831.91 with interest at 8% per annum from
October 6, 1959 until full payment, said right to be exercised within one year from the
date this judgment becomes final, with the understanding that, if he fails to do so within
the said period, then he is deemed to have lost his right over the lands forever. With
costs against the appellant. 2
MODIFIED.
The basic issue to be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage', trial
Option to Purchase Real Estate". two instruments executed by trial between Petitioner Jose P. Dizon trial
Alfredo G. Gaborro (defendant below) on the same day, October 6, 1959 constitute in truth trial in fact an
absolute sale of the three parcels of land therein described or merely an equitable mortgage or conveyance
thereof by way of security for reimbursement, refund or repayment by petitioner Jose P. Dizon of any trial all
sums which may have been paid to the Development Bank of the Philippines trial the Philippine National Bank
by Alfredo G. Gaborro (later substituted herein by his wife Pacita de Guzman Gaborro as administratrix of the
estate of Alfredo G. Gaborro) who had died during the pendency of the case.
A supplementary issue raised is whether or not Gaborro or the respondent administratrix of the estate should
account for all the fruits produced trial income received by them from the lands mentioned trial described in the
aforesaid "Deed of Sale with Assumption of Mortgage."
The antecedent facts established in the record are not disputed. Petitioner Jose P. Dizon was the owner of the
three (3) parcels of land, subject matter of this litigation, situated in Mabalacat, Pampanga with an aggregate
area of 130.58 hectares, as evidenced by Transfer Certificate of Title No. 15679. He constituted a first
mortgage lien in favor of the Develop. ment Bank of the Philippines in order to secure a loan in the sum of
P38,000.00 trial a second mortgage lien in favor of the Philippine National Bank to cure his indebtedness to
said bank in the amount of P93,831.91.

SO ORDERED.
G.R. No. L-36821 June 22, 1978
JOSE P. DIZON, petitioner,
vs.
ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial Administratrix of
the Estate of Alfredo G. Gaborro) and the DEVELOPMENT BANK OF THE PHILIPPINES, respondents.
Leonardo Abola for petitioner.
Carlos J. Antiporda for respondents.

Petitioner Dizon having defaulted in the payment of his debt, the Development Bank of the Philippines
foreclosed the mortgage extrajudicially pursuant to the provisions of Act No. 3135. On May 26, 1959, the hinds
were sold to the DBP for- P31,459.21, which amount covered the loan, interest trial expenses, trial the
corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1b was executed in favor of the said On November 12,
1959, Dizon himself executed the deed of sale (Exhibit Al over the properties in favor of the DBP which deed
was recorded in the Office of the Register of Deeds on October 6, 1960.
Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose P. Dizon met. Gaborro became interested in
the lands of Dizon. Dizon originally intended to lease to Gaborro the property which had been lying idle for
some time. But as the mortgage was already foreclosed by the DPB trial the bank in fact purchased the lands
at the foreclosure sale on May 26, 1959, they abandoned the projected lease. They then entered into the
following contract on October 6, 1959 captioned trial quoted, to wit:

DEED OF SALE WITH ASSUMPTION

OF MORTGAGE

before Notary Public of Manila, Mr, I . I as Doc. No............ Page No.......... Reg. No.
Series of 196........... ; WHEREAS, the VENDOR, has offered to sell trial the VENDEE
is willing to purchase the above-described properties for ONE HUNDRED THIRTY
ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91 /100 (P131,831.91),
Philippine Currency, under the terms trial conditions herein below set forth;

KNOW ALL MEN BY THESE PRESENTS:

This DEED OF SALE WITH ASSUMPTION OF MORTGAGE, made trial executed at
the City of Manila, Philippines, on this 6th day of October, 1959 by trial between
JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, with residence trial
postal address at Mabalacat, Pampanga, hereinafter referred to as the VENDOR.
ALFREDO G. GABORRO, likewise of legal age, Filipino, married to Pacita de Guzman,
with residence trial postal address at 46, 7th St., Gilmore Avenue, Quezon City,
hereinafter referred to as the VENDEE,
W I T N E S S E T H: That
WHEREAS, the VENDOR is the registered owner of three (3) parcels of land covered
by Transfer Certificate of Title No. 15679 of the land records of Pampanga. situated in
the Municipality of Mabalacat, Province of Pampanga, trial more particularly described
trial bounded as follows:
1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat, Bounded on the NE
by Lot No 187: on the SE., by Lots Nos. 183, 189, 191 trial 192; on the SW by Lot No.
192 trial on the NW by the unimproved provincial road to Magalang. Containing an
area of TWO HUNDRED AND TWENTY ONE THOUSAND ONE HUNDRED
SEVENTY TWO SQUARE METERS (221,172), more or less.
2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE.,
by a road trial Lots Nos. 569,570 trial 571; on the SE., by Lot No. 571 trial the
unimproved road to Magalang, on the SW by a road; trial on the NE., by a road trial the
Sapang Pritil Containing an area of NINE HUNDRED SEVENTY EIGHT THOUSAND
SEVEN HUNDRED AND SEVENTEEN SQUARE METERS (978,717), more or less.

NOW, THEREFORE, for- trial in consideration of the above premises trial the amount
of ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE
PESOS & 91/100 (P131,831.91), Philippine Currency, in hand paid in cash by the
VENDEE unto the VENDOR, receipt whereof is hereby acknowledged by the VENDOR
to his entire trial full satisfaction, trial the assumption by the VENDEE of the entire
mortgage indebtedness, both with the Development Bank of the Philippines trial the
Philippine National Bank above mentioned, the VENDOR does by these presents, sell,
transfer trial convey, as he had sold, transferred, trial conveyed, by way of absolute
sale, perpetually trial forever, unto the VENDEE, his heirs, successors trial assigns.
above-described properties, with all the improvements thereon, free from all liens trial
encumbrances of whatever nature. except the pre- existing mortgage obligations with
the Development Bank of the Philippines trial the Philippine National Bank
aforementioned. The VENDOR does hereby warrant title, ownership trial possession
over the properties herein sold trial conveyed, trial binds himself to defend the same
from any trial all claimants.
That the VENDEE, does by these presents, assume as he has assumed, under the
same terms trial conditions of the mortgage contracts dated ... and ... of the mortgage
indebtedness of the VENDOR in favor of the Development Bank of the Philippines trial
the Philippine National Bank, respectively, as if the aforesaid documents were
personally executed by the VENDEE trial states trial reiterates all the terms trial
conditions stipulated in said both documents, making them to all intent trial purposes,
parts hereof by reference.
IN WITNESS WHEREOF, the VENDOR and the VENDEE together with their
instrumental witnesses, have signed this deed of the place, date, month trial year first
above written.
(Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO
Vendor Vendee
Signed in the Presence of:

3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE.,
by Lot No. 570, on the SE SW trial NW by roads. Containing an area of ONE
HUNDRED FIVE THOUSAND NINE HUNDRED AND TWENTY ONE SQUARE
METERS (105,921), more or less,
WHEREAS, the above-described properties are presently mortgaged (first mortgage)
to the Development Bank of the Philippines (,formerly Rehabilitation Finance
Corporation) to secure the payment of a loan, plus interest, of THIRTY EIGHT
THOUSAND PESOS ONLY (P38,000.00), Philippine currency, as evidenced by a deed
of mortgage for- P... dated ... which deed was ratified trial acknowledged before Notary
Public of Manila, Mr. ... as Doc. No. Page No. Reg. No. Series of 196 ... ;

(Sgd.) (Illegible) (Sgd.) (Illegible)

(Acknowledgment Omitted)
The second contract executed the same day, October 6, 1959 is called Option to Purchase Real Estate, trial is
in the following wise trial manner:
OPTION TO PURCHASE REAL ESTATE
KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, the aforesaid properties are likewise mortgage (second mortgage) to the
Philippine National Bank to secure the payment of a loan of NINETY THREE
THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P93,831.91),
Philippine Currency, plus interest up to August 13, 1957, as evidenced by deed of
Mortgage for P............. dated................... which deed was ratified trial acknowledged

That 1, ALFREDO G. GABORRO, of legal age, Filipino, married to Pacita de Guzman,

with residence trial postal address at 46, 7th St., Gilmore Ave., Quezon City, forvaluable consideration, do hereby give to JOSE P. DIZON, of legal age, Filipino,

married to Norberta Torres, resident of Mabalacat, Pampanga, his heirs, successors

and assigns, the option of repurchasing the following described properties:

The sum of P131,813.91 which purports to be the consideration of the sale was not actually paid by Alfredo G.
Gaborro to the petitioner. The said amount represents the aggregate debts of the petitioner with the
Development Bank of the Philippines trial the Philippine National Bank.

TRANSFER CERTIFICATE OF TITLE

NO. 15679, PROVINCE OF PAMPANGA
1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Pampanga
containing an area of (211,172) more or less.

After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land in
question.
On October 7, 1959, Gaborro wrote the Development Bank of the Philippines a letter (Exh. J), as follows:
Sir:

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat, Pampanga),
containing an area of (978,172) more or less.
3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat, Pampanga
containing an area of (105,921), more or less. which I acquired from the said Jose P.
Dizon by purchase by virtue of that document entitled "Deed of Sale with Assumption
of Mortgage" dated October 6, 1959, acknowledged by both of us before Notary Public
of Manila GREGORIO SUMBILIO as DOC. No. 342, Page No. 70, Reg. No. VII Series
of 1959.

This is with reference to your mortgage lien of P38,000.00 more or less over the
properties more particularly described in TCT No. 15679 of the land records of
Pampanga in the name of Jose P. Dizon. In this connection, we have the honor to
inform you that pursuant to a Deed of Sale with Assumption of Mortgage executed on
October 6, 1959 by Jose P. Dizon in my favor, copy of which is hereto attached, the
ownership of the same has been transferred to me subject of course to your conformity
to the assumption of mortgage. As a consequence of the foregoing document, the
obligation therefore of paying your goodselves the total amount of indebtedness has
shifted to me

Said option shall be valid trial effective within the period comprises from January, 1965
to December 31, 1970, inclusive, upon payment of the amount of ONE HUNDRED
THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (?
131,831.91), Philippine Currency, plus an interest of eight per centum (8%) thereof, per
annum. This is without prejudice at any time to the payment by Mr. Dizon of any partial
amount to be applied to the principal obligation, without any way disturbing the
possession and/or ownership of the above properties since only full payment can effect
the necessary change.

Considering that these agricultural properties have not been under cultivation for- quite
a long time, I would therefore request that, on the premise that the assumption of
mortgage would be agreeable to you, that I be allowed to pay the outstanding
obligation, under the same terms trial conditions as embodied in the original contract of
mortgage within ten (10) years to be divided in 10 equal annual amortizations. I am
enclosing herewith a check in the amount of P3,609.95 representing 10% of the
indebtedness of Jose P. Dizon to show my honest intention in assuming the mortgage
obligation to you ...

In the event that Mr. Jose P. Dizon may be able to find a purchaser for- the foregoing
properties on or the fifth year from the date the execution of this document, the
GRANTEE, Mr. JOSE P. DIZON, may do so provided that the aggregate amount which
was Paid to Development Bank of the Philippines trial to the Philippine National Bank
together with the interests thereon at the rate of 8% shall be refunded to the
undersigned.
Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for- the said
properties, it shall be his duty to first notify the undersigned of the contemplated sale,
naming the price trial the purchaser therefor, trial awarding the first preference in the
sale hereof to the undersigned.

The Board of Governors of the DBP, in its Resolution No. 7066 dated October 21, 1959 approved the offer of
Gaborro but said Board required him to pay 20% of the purchase price as initial payment, (Exh. D)
Accordingly, on July 11, 1960, the DBP trial Gaborro executed a conditional sale of the properties in
consideration of the sum of P36,090.95 (Exh. C) payable 20% down trial the balance in 10 years in the yearly
amortization plan at 8% per annum.
On January 7, 1960, Dizon assigned his right of redemption Lo Gaborro in an instrument (Exh. 9) entitled:
ASSIGNMENT OF RIGHT OF REDEMPTION
AND ASSUMPTION OF OBLIGATION

IN WITNESS WHEREOF, I have hereunto signed these presents at the City of Manila,
on this 6th day of October, 1959.
(Sgd.) ALFREDO G. GABORRO

KNOW ALL MEN BY THESE PRESENTS:

(Sgd.) JOSE P. DIZON

This instrument, made trial executed by trial between JOSE P. DIZON, married to
Norberta P. Torres, Filipino, of legal age, with residence trial postal address at
Mabalacat, Pampanga. hereinafter referred to as the ASSIGNOR trial ALFREDO G.
GABORRO, married to Pacita de Guzman, likewise of legal age, Filipino, with
residence trial postal address at 46, 7th Street, Gilmore Ave., Quezon City, hereinafter
referred to as the ASSIGNEE,

SIGNED IN THE PRESENCE OF:

WITNESSETH:

CONFORME:

(Acknowledgment Omit)

WHEREAS, the Assignor is the owner trial mortgagor of three (3) parcels agricultural
land together with all the improvements existing thereon trial more particularly
described trial bounded as follows:

IN WITNESS WHEREOF, the parties have hereunto set their hands in the City of
Manila, Philippines this --------- day of - - - - - -1959.
(Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO

TRANSFER CERTIFICATE OF TITLE NO. 1567

Assignor (Assignee)
PROVINCE OF PAMPANGA
(Acknowledgment Omitted)
1. A parcel of land (Lot No. 188 of the Cadastral Survey of
Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat. Bounded on the NE by Lot No. 187:
on the SE. by Lots Nos. 183, 189, 191 trial 192; on the SW. by
Lot No. 192; trial on the NW by the unimproved provincial road
to Magalan. Containing an area of two hundred twenty-one
thousand one hundred trial seventy two square meters
(221,172), more or less.
2. A parcel of land (Lot No. 193 of the Cadastral Survey of
Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat. Bounded on the NE. by a road trial
Lots Nos. 569, 570 trial 571; on the SE. by Lot No. 571 trial the
unimproved road to Magalan-, on the SW. by a road; trial on the
NW by a road trial the Sapang Pritil Containing an area of nine
hundred seventy eight thousand seven hundred and seven
hundred square meters (978,717), more or less.
3. A parcel of Land (Lot No. 568 of the Cadastral Survey of
Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat, Bounded on the NE. by Lot No. 570;
and on the SE., SW. and NW. by roads. Containing an area of
one hundred five thousand nine hundred and twenty-one
square meters (105,921), more or less.
WHEREAS, the above described properties were mortgaged with the Rehabilitation
Finance Corporation, now Development Bank of the Philippines, which mortgage has
been foreclosed on May 26, 1959;
AND WHEREAS, the herein Assignor has still the right to redeem the said properties
from the said Development Bank of the Philippines within a period of one (1) year
counted from the date of foreclosure of the said mortgage.
NOW, THEREFORE, for ......................................... trial other valuable considerations,
receipt whereof is hereby acknowledged by the Assignor from the Assignee, The herein
Assignor does hereby transfer trial assign to the herein Assignee, his heirs, successors
trial assigns the aforesaid right to redeem the aforementioned properties above
described.
That with this document the herein Assignor relinquishes any and all rights to the said
properties including the improvements existing thereon.
That the Assignee, by these presents, hereby assumes the obligation in favor of the d
Development Bank of the Philippines, as Paying whatever legal indebtedness the
Assignor has with the d B in connection with the transaction regarding the hove
mentioned Properties subject to the file and conditions that the said Bank may require
and further recognizes the second mortgage in favor Of the Philippine National Bank.

After the execution of the conditional e to him Gaborro made several payments to the DBP and PNB. He
introduced improvements, cultivated the kinds raised sugarcane and other crops and appropriated the produce
to himself. He will paid the land taxes thereon.
On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to Gaborro informing
him that he is formally offering reimburse Gaborro Of what he paid to the banks but without, however,
tendering any cash, and demanding an accounting of the income and of the pro contending that the
transaction they entered into was one of antichresis. Gaborro did not accede to the demands of the petitioner,
whereupon, on JULY 30, 1962, Jose P. Dizon instituted a complaint in the Court of First Instance of
Pampanga, Gaborro, alleging that the documents Deed of Sale With Assumption of Mortgage and the Option
to Purchase Real Estate did not express the true intention and agreement bet. between the parties. Petitioner
Dizon, as Plaintiff below, contended that the two deeds constitute in fact a single transaction that their real
agreement was not an absolute e of the d of land but merely an equitable mortgage or conveyance by way of
security for the reimbursement or refund by Dizon to Gaborro of any and all sums which the latter may have
paid on account of the mortgage debts in favor of the DBP and the PNB. Plaintiff prayed that defendant
Gaborro be ordered to accept plaintiff's offer to reimburse him of what he paid to the banks; to surrender the
possession of the lands to plaintiff; to make an accounting of all the fruits, produce, harvest and other income
which he had received from the three (3) parcels of land; and to pay the plaintiff for the loss of two barns and
for damages.
In its answer, the DBP specifically denied the material averments of the complaint and stated that on October
6, 1959, the plaintiff Dizon was no longer the owner of the land in question because the DBP acquired them at
the extrajudicial foreclosure sale held on May 26, 1959, and that the only right which plaintiff possessed was a
mere right to redeem the lands under Act 3135 as amended.
Defendant Alfredo G. Gaborro also answer, denying the material averments of the complaint, stating that the
"Deed of Sale with Assumption of Mortgage" expresses the true agreement of the parties "fully, truthfully and
religiously" but the Option to Purchase Real Estate" does not express the true intention of the parties because
it was made only to protect the reputation of the plaintiff among his townmates, and even in the supposition
that said option is valid, the action is premature. He also filed a counterclaim for damages, which plaintiff
denied.
The issues having been joined, a pre-trial was held and the following stipulation of facts admitted by the
parties was approved by the Court in the following order dated February 22, 1963:
ORDER
At today's initial trial the following were present: Mr. Leonardo Abola, for the plaintiff;
Mr. Carlos Antiporda, for the defendant Alfredo Gaborro; and Mr. Virgillo Fugoso, for
the Development Bank of the Philippines:
The parties brave stipulated on the following facts:
1. That Annex A attached to the complaint is marked Exhibit
A- Stipulation. The parties have admitted the due execution, authenticity and

genuineness of said Exhibit A-Stipulation. This fact has been admitted by all the three
parties.

the plaintiff any share hereof. This fact has been admitted by plaintiff and defendant
Gaborro only.

2. That the defendant Gaborro executed Annex B, which is marked Exhibit BStipulation. This fact has been admitted only between plaintiff and defendant Gaborro.

Let a copy of this order be served upon the plaintiff, defendant Gaborro and the
Development Bank of the Philippines with the understanding that, if, within fifteen (15)
days, none of the parties questions the correctness of The facts set forth above. this
stipulation of facts shall be conclusive upon the parties interested in this case.

3. That the three parcels of land referred to in paragraph 3 of the complaint, on or

before October 6, 1959, were subject to a first mortgage lien in favor of the
Development Bank of the Philippines, formerly Rehabilitation Finance Corporation, to
secure payment of a loan obtained by the plaintiff Jose P. Dizon in the original sum of
P38,000.00 plus interest, which has been assumed by defendant Gaborro by virtue of
a document, Exhibit A-Stipulation, and also subject to a second mortgage lien in favor
of the Philippine National Bank to secure the payment of a loan in the sum of
P93,831.91 plus interest up to August 30, 1951, which mortgage liens were duly
annotated on TCT 15679. This fact has been admitted by the plaintiff and defendant
Gaborro.
4. In respect to the foreclosure of the first mortgage referred to above, it was admit that
the same was foreclosed on May 26, 1959, the second mortgage has not been
admitted nor foreclosed.
5. That the Development Bank of the Philippines admits that the first mortgage referred
to above was foreclosed on May 26, 1959 under the provision,,; of Public Act No- 3135,
as amended.
6. That subsequently the Development Bank and the defendant Gaborro executed a
document entitled Conditional Sale over the same parcels of land referred to in
paragraph 3 of the complaint, and copy thereof will be furnished by the Development
Bank of the Philippines and marked Exhibit C-Stipulation.
7. That on or before October 6, 1960, TCT No. 15679 of the Register of D of
Pampanga in the name of Jose P. Dizon covering the three parcels of land referred to
in the complaint was cancelled and in lieu thereof TCT NO. 24292 of the Register of
Deeds of Pampanga was issued in the name of the Development Bank of the
Philippines. This fact has been admitted by all the parties.
8. That after the execution of the deed of conditional sale, certain payments were made
by the defendant Gaborro to the Development Bank, the exact amount to be
determined later and receipts of payments to be also exhibited later. This fact has been
admitted by all the three parties.
9. That since October 6, 1959, the defendant Gaborro has made several payments to
the PNB in the amounts appearing on the receipts which will be shown later, such
payments being made on account of the sum of P38,831.91. The payment was
assumed by said - defendant Gaborro. This fact has been admitted by plaintiff and
defendant Gaborro only.
10. That since the execution of Exhibits A and B-Stipulation, it,, defendant Gaborro has
been and still is in the actual possession f the three parcels of land in question and he
is actually cultivating the same and that the land taxes thereon have been paid by said
defendant Gaborro, the amounts of said taxes appearing on the official receipts to be
shown later. This fact has been admitted by plaintiff and defendant Gaborro only.
11. That since defendant Gaborro took possession of the lands in question, he has
been appropriating all the fruits produced and income of said lands without giving to

Set the trial on the controversial facts on April 18, 1963 at 13:00 clock in the morning.
Paragraphs 3 and 10 of the above quoted order were deleted in an order dated July 26, 1963.
The records disclose that during the pendency of the case in the trial court, motions were filed by the plaintiff
for the appointment of a receiver of the properties but all were denied. plaintiff also reiterated the same motion
before the appellate court which, however, dismissed the same, reserving to him the right to file in the trial
court. Plaintiff did file but with the same result. certiorari proceedings were resorted to in the Court of Appeals
in CA-G.R. No. SP-01403 entitled "Jose P. Dizon vs. Hon. Felipe Buencamino, et al." which the respondent
court denied.
After trial the court held that the true agreement between Jose P. Dizon, the plaintiff therein, and the defendant
Alfredo G. Gaborro is that the defendant would assume and pay the indebtedness of the plaintiff to the
Development Bank of the Philippines and the Philippine National Bank, and in consideration therefor, the
defendant was given the possession and enjoyment of the properties in question until the plaintiff shall have
reimbursed to defendant fully the amount of P131,831.91 plus 8% interest per annum.
Accordingly, on March 14, 1970, the lower court rendered judgment, the dispositive part of which reads:
IN VIEW OF THE FOREGOING, the documents entitled 'Deed of Sale with Assumption
of Mortgage'(Exhibit A-Stipulation) and 'Option to Purchase Real Estate' (Exhibit BStipulation) are hereby reformed to the extent indicated above. However, since this
action was filed before the period allowed the plaintiff to redeem his property, the
prematurity of this action aside from not being principally alleged in the complaint,
deters this Court from ordering further reliefs and remedies. The counterclaim of the
defendant is dismissed.
The plaintiff's motion for new trial and for reconsideration and motion for admission of supplemental complaint
having been denied for lack of merit, on June 6, 1970, plaintiff appealed to the Court of Appeals, which.
however, affirmed the decision with the modification that the plaintiff-appellant has the right to refund or
reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per annum from October 6,
1959 until full payment, said right to be exercised within one (1) year from the date the judgment becomes
final, with the understanding that, if he fails to do so within the said period, then he is deemed to have lost his
right over the lands forever.
Petitioner's motion for reconsideration and/or rehearing having been denied by the Court of Appeals, hence
the present petition for review on certiorari. The petitioner assigns the following errors, to wit:
I. The Court of Appeals, like the lower court, erred in not holding that upon established
facts and undisputed documentary evidence, the deed of sale with assumption of
mortgage (Exhibit A-Stipulation) constitutes an equitable mortgage or conveyance to
secure petitioner's obligation to reimburse or refund to defendant Alfredo Gaborro any
and all sums to the extent of P131,831.91, paid by said defendant in total or partial
satisfaction of petitioner's mortgage debts to the DBP and the PNB. In this connection,
the Court of Appeals erred:

(A) In not finding that the petitioner was the lawful owner of the
lands in question:
(B) In not finding that the deed of sale in question is not a real
and unconditional sale; and
(C) In not holding that the option to purchase real estate
(Exhibit B-Stipulation is conclusive evidence that the transaction
in question is in fact an equitable mortgage.
II. The Court of Appeals also erred in finding that the instrument entitled 'Assignment of
Right of Redemption and Assumption of Obligation' is conclusive evidence that the real
transaction Evidenced by the 'Deed of Sale with Assumption of Mortgage' is not an
equitable mortgage. In this connection the said court also erred or at least committed a
grave abuse of discretion:
(A) In not finding that the said deed of assignment is in fact a
mere reiteration of the terms and condition of the deed of sale;
(B) In finding that the price or consideration of The aforesaid
assignment. of right of redemption consisted of 300 cavans of
palay delivered by Mrs. Gaborro to the petitioner; and
(C) In finding that defendant Gaborro purchased the lands in
question by virtue of the aforementioned deed of assignment.
III. The, Court of Appeals, like the trial court, also erred in not finding that the estate of
Alfredo G. Gaborro is under obligation to render an accounting of all the produce, fruits
and other income of the lands in question from October 6, 1959, and to reconvey the
said lands to the herein petitioner. In to connection, the said court also erred:
(A) In not holding that as a mortgagee in possession the
Gaborro estate has the obligation to either render an
accounting of the produce or fruits of the lands, or to pay rentals
for the occupation of said lands;
(B) In not finding that the Gaborro estate has the obligations to
reconvey the lands in controversy to the herein petitioner, upon
payment of the balance due from him after deducting either the
net value of the produce or fruits of the Said lands or the rentals
thereof,
(C) In not finding that further reliefs or remedies may be granted
the herein petitioner; and
(D) In not ordering the admission of herein petitioners
'Supplemental Complaint' dated April 30, 1970.
IV. The Court of Appeals finally erred in not reversing the decision of the trial court, and
in not rendering judgment declaring that the deed of sale with assumption of mortgage
(Exhibit A Stipulation) is in fact an equitable mortgage; and in not ordering the Gaborro
estate either to render an accounting of all the produce or fruits of the lands in question
or to pay rentals for the occupation thereof, from October 6, 1959; and in not ordering
the estate of Alfredo G. Gaborro to reconvey, transfer and assign unto the petitioner the
aforementioned lands.

The two instruments sought to be reformed in this case ap pear to stipulate rights and obligations between the
parties thereto Pertaining to and involving parcels of land that had already beer foreclosed and sold
extrajudicially, and purchased by the mortgage creditor, a degree party. It becomes, therefore, necessary to
determine the legality of said rights and obligation arising from the foreclosure and e pro. proceedings only
between the two contracting parties to the instruments executed between them but also in the so far a
agreement affects the rights of the degree panty, the purchase Bank.
Act 3135, Section 6 as amended by Act 4118, under which the Properties were extrajudicially foreclosed and
sold, provides that:
Sec. 6. In all cases in which an extrajudicial rule is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or
judgment creditor of e debtor, or any person having a lien on the property subsequent
to the mortgage or deed of trust under which the property is sold, may redeem the
same at any time within the term or one year from and after the date of the sale; and
such redemption shall be governed by the provisions of sections four hundred and
sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so
far as these are not consistent with the provisions of this Act.
Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the
property foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of the
property sold, he is entitled to retain it and receive the fruits, the purchaser not being entitled to such
possession. (Riosa v. Verzosa, 26 Phil. 86; Velasco v. Rosenberg's Inc., 32 Phil. 72; Pabico v. Pauco 43 Phil.
572; Power v. PNB, 54 Phil. 54; Gorospe v. Gochangco L-12735, Oct. 30, 1959).
A judgment debtor, whose property is levied on execution, may transfer his right of redemption to any one
whom he may desire. The right to redeem land sold under execution within 12 months is a property right and
may be sold voluntarily by its owner and may also be attached and sold under execution (Magno v. Viola and
Sotto, 61 Phil. 80).
Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27,
Revised Rules of Court) After the termination of the period of redemption and no redemption having been
made, the purchaser is entitled to a deed of conveyance and to the possession of the properties. (Section 35,
Revised Rules of Court). The weight of authority is to the effect that the purchaser of land sold at public
auction under a writ of execution only has an inchoate right in the property, subject to be defeated and
terminated within the period of 12 months from the date of sale, by a redemption on the part of the owner.
Therefore, the judgment debtor in possession of the property is entitled to remain therein during the period
allowed for redemption. (Riosa v. Verzosa. 26 Phil, 86; 89; Gonzales v. Calimbas, 51 Phil. 355.)
In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained
the right to redeem the lands, the possession, use and enjoyment of the same during the period of
redemption. And these are the only rights that Dizon could legally transfer, cede and convey unto respondent
Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. A-Stipulation),
likewise the same rights that said respondent could acquire in consideration of the latter's promise to pay and
assume the loan of petitioner Dizon with DBP and PNB.
Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly,
because there was absolutely no money consideration therefor, as admittedly stipulated the sum of
P131,831.91 mentioned in the document as the consideration "receipt of which was acknowledged" was not
actually paid; and secondly, because the properties had already been previously sold by the sheriff at the
foreclosure sale, thereby divesting the petitioner of his full right as owner thereof to dispose and sell the lands.
In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights or interests
under Exh. A-Stipulation, cannot grant to petitioner Dizon more that said rights, such ac the option Co
purchase the lands as stipulated in the document called Option to Purchase Real Estate (Exhibit BStipulation), This is necessarily so for the reason that respondent Gaborro did not purchase or acquire the full
title and ownership of the properties by virtue of the Deed of Sale With Assumption of Mortgage (Exh. A

Stipulation), earlier executed between them which We have ruled out as an absolute sale. The only legal effect
of this Option Deed is the grant to petitioner the right to recover the properties upon reimbursing respondent
Gaborro of the total sums of money that the latter may have paid to DBP and PNB on account of the mortgage
debts, the said right to be exercised within the stipulated 5 years period.

(a) Dizon is granted the right to a reconveyance of the properties by reimbursing

Gaborro (or his estate) whatever amounts) the latter has actually paid on account of
the principal only, of Dizon's loans of P38,000.00 and P93,831.91 which the DBP and
PNB, respectively, exclusive of the interests that may have accrued thereon or may
have been paid by Gaborro, on the basis of duly certified statements issued by said
banks;

In the light of the foreclosure proceedings and sale of the properties, a legal point of primary importance here,
as well as other relevant facts and circumstances, We agree with the findings of the trial and appellate courts
that the true intention of the parties is that respondent Gaborro would assume and pay the indebtedness of
petitioner Dizon to DBP and PNB, and in consideration therefor, respondent Gaborro was given the
possession, the enjoyment and use of the lands until petitioner can reimburse fully the respondent the
amounts paid by the latter to DBP and PNB, to accomplish the following ends: (a) payment of the bank
obligations; (b) make the lands productive for the benefit of the possessor, respondent Gaborro, (c) assure the
return of the land to the original owner, petitioner Dizon, thus rendering equity and fairness to all parties
concerned.

(b) Any outstanding balance due on Dizon's original principal loan of P38,000.00 with
the Development Bank of the Philippines assumed by Gaborro and on Dizon's original
principal loan of 93,831.91 with the PNB shag be deducted from the above-fixed
reconveyance price payable to Gaborro, in order to enable Dizon to pay off the said
mortgage loans directly to the said banks, in accordance with file mutually agreed upon
with them by Dizon;
(c) In other words, the maximum reconveyance price that Dizon is obligated to pay is
the total sum of ?131,831.91 (the sum total of the principals of his two original loans
with the DBP and PNB), and should the amounts due to the said banks exceed this
total of P131,831.91 (because of delinquent interests and other charges), nothing shall
be due Gaborro by way of reimbursement and Dizon will thereupon step into the shoes
of Gaborro as owner-mortgagor of the properties and directly arrange with the banks
for the settlement of the amounts still due and payable to them, subject to the right of
Dizon to recover such amounts in excess of P131,831.91 from Gaborro by writ of
execution in this case; and

In view of all these considerations, the law and Jurisprudence, and the facts established. We find that the
agreement between petitioner Dizon and respondent Gaborro is one of those inanimate contracts under Art.
1307 of the New Civil Code whereby petitioner and respondent agreed "to give and to do" certain rights and
obligations respecting the lands and the mortgage debts of petitioner which would be acceptable to the bank.
but partaking of the nature of the antichresis insofar as the principal parties, petitioner Dizon and respondent
Gaborro, are concerned.
Mistake is a ground for the reformation of an instrument which there having been a meeting of the minds of
The parties o a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, and one of the parries may ask for such reformation to the end that such true intention may be
expressed. (Art. 1359, New Civil code). When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed. (Art. 1361, New Civil Code.) It
was a mistake for the parties to execute the Deed of Sale With Assumption of Mortgage and the Option to
Purchase Real Estate and stand on the literal meaning of the file and stipulations used therein.
The instruments must, therefore, be reformed in accordance with the intention and legal rights and obligations
of the parties the petitioner, the respondent and the Banks. We agree with the reformation decreed by the
trial and appellate courts, but in the sense that petitioner Jose P. Dizon has the right to reacquire the three
parcels of land within the one-year period indicated below by refunding or reimbursing to respondent Alfredo
G. Gaborro or the Judicial Administratrix of his Estate whatever amount the latter has actually paid on account
of the principalonly, of the loans of Dizon with the DBP and PNB, excluding the interests and land taxes that
may have been paid or may have accrued, on duly certified financial statements issued by the said banks.
On the issue of the accounting of the fruits, harvests and other income received from the three parcels of land
from October 6, 1959 up to the present, prayed and demanded by Dizon of Gaborro or the Judicial
Administratrix of the latter's estate, We hold that in fairness and equity and in the interests of justice that since
We have ruled out the obligation of petitioner Dizon to reimburse respondent Gaborro of any interests and
land taxes that have accrued or been paid by the latter on the loans of Dizon with DBP and PNB, petitioner
Dizon in turn is not entitled to an accounting of the fruits, harvests and other income received by respondent
Gaborro from the lands, for certainly, petitioner cannot have both benefits and the two may be said to offset
each other.
By virtue of the Option to Purchase Real Estate (Exh. B Stipulation) which on its face granted Dizon the option
to purchase the properties which must be exercise within the period from January, 1960 to December 31, 1965
but which We held to be simply the grant of the right to petitioner Dizon to recover his properties within the
said period, although already expired by reasons and circumstances beyond his control, petitioner is entitled to
a reconveyance of the properties within a reasonable period The period of one year from the date of the
finality of this judgment as laid down by the Court of Appeals for the exercise of such right by petitioner Dizon
appears fair and reasonable and We approve the same.
Since We are not informed of the status of Dizon's loan of P93,831.91 with the Philippine National Bank which
appears to be on a subsisting basis, it is proper to indicate here how petitioner Dizon may exercise the right to
a reconveyance of the properties as herein affirmed, as follows:

(d) As already stated, Dizon is not entitled to an accounting of the fruits, harvests and
other income received by Gaborro from the land while Gaborro in turn is not entitled to
the payment of any interests on any amounts paid by him on account of the principal
loans to the banks nor reimbursement of any interests paid by him to the banks.
WHEREFORE, the judgment appealed from is hereby affirmed with the modification that petitioner Dizon is
granted the right within one year from finality of this decision to a reconveyance of the properties in litigation
upon payment and reimbursement to respondent estate of o G. Gaborro of the amounts actually paid by
Gaborro or his estate on account of the principal only of Dizon's original loans with the Development Bank of
the Philippines and Philippine National Bank in and up to the total amount of P131,831.91, under the terms
and conditions set forth in the preceding paragraph with subparagraphs (a) to (d), which are hereby
incorporated by reference as an integral part of this judgment, and upon the exercise of such right, respondent
estate shall forthwith execute the corresponding deed of reconveyance in favor of petitioner Dizon and deliver
possession of the properties to him. Without pronouncement as to costs.
G.R. No. L-27696 September 30, 1977
MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE
FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and
SEVERINA ENCARNACION, petitioners-appellants,
vs.
SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL
ENCARNACION, oppositors to encumbrance-petitioners-appelles.
Jose F. Singson and Miguel Florentino for appellants.
Pedro Singson for appellees.

GUERRERO, J.:

Appeal from the decision of the Court of First Instance of Ilocos Sur, acting as a land registration court, in Land
Registration case No. N-310.

(3) That all the herein applicants know of the existence of his arrangement as specified in the Deed of Extra
judicial Partition of A adjust 24, 1947;

On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios Encarnacion de Florentino, Manuel
Arce, Jose Florentino, Victorino Florentino, Antonio Florentino, Remedior, Encarnacion and Severina
Encamacion, and the Petitiners-appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and Angel
Encarnacion filed with the Court of First Instance of ilocos Sur an application for the registration under Act 496
of a parcel of agricultural land located at Barrio Lubong Dacquel Cabugao Ilocos Sur.

(4) That the Deed of Extrajudicial Partition of August 24, 194-, not signed by Angel Encarnacion or Salvador
Encarnacion, Jr,.

The application alleged among other things that the applicants are the common and pro-indiviso owners in fee
simple of the said land with the improvements existing thereon; that to the best of their knowledge and belief,
there is no mortgage, lien or encumbrance of any kind whatever affecting said land, nor any other person
having any estate or interest thereon, legal or equitable, remainder, reservation or in expectancy; that said
applicants had acquired the aforesaid land thru and by inheritance from their predecessors in interest, lately
from their aunt, Doa Encarnacion Florentino who died in Vigan, Ilocos Sur in 1941, and for which the said
land was adjudicated to them by virtue of the deed of extrajudicial partition dated August 24, 1947; that
applicants Salvador Encarnacion, Jr. and Angel Encarnacion acquired their respective shares of the land thru
purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores surnamed Singson one hand and from
Asuncion Florentino on the other.
After due notice and publication, the Court set the application for hearing. No Opposition whatsoever was filed
except that of the Director of Lands which was later withdrawn, thereby leaving the option unopposed.
Thereupon, an order of general default was withdrawn against the whole world. Upon application of the asets
the Clerk Of court was commission will and to have the evidence of the agents and or to submit the for the
Court's for resolution.
The crucial point in controversy in this registration case is centered in the stipulation marked Exhibit O-1
embodied in the deed of extrajudicial partition (Exhibit O) dated August 24, 1947 which states:
Los productos de esta parcela de terreno situada en el Barrio Lubong Dacquel Cabugao Ilocos Sur, se
destination para costear los tos de procesio de la Tercera Caida celebration y sermon de Siete Palbras Seis
Estaciones de Cuaresma, procesion del Nino Jesus, tilaracion y conservacion de los mismos, construction le
union camarin en conde se depositan los carros mesas y otras cosas que seven para lot leiracion de Siete
Palabras y otras cosas mas Lo que sobra de lihos productos despues de descontados todos los gastos se
repartira nosotros los herederos.
In his testimony during the trial, applicant Miguel Florentino asked the court to include the said stipulation
(Exhibit O-1) as an encumbrance on the land sought to be registered, and cause the entry of the same on the
face of the title that will finally be issued. Opposing its entry on the title as an encumbrance,
petitionersappellee Salvador Encamacion, Sr., Salvador Encarnaciori, Jr. and Angel Encarriacion filed on
October 3, 1966 a manifestation seeking to withdraw their application on their respective shares of the land
sought to be registered. The withdrawal was opposed by the petitioners-appellants.

The court denied the petitioners-appellee motion to withdraw for lack of merit, and rendered a decision under
date of November 29, 1966 confirming the title of the property in favor of the f appoints with their respective
shares as follows:
Spouses Miguel Florentino and Rosario Encarnacion de Florentino, both of legal age, Filipinos, and residents
of Vigan, Ilocos Sur, consisting of an undivided 31/297 and 8.25/297 portions, respectively;
Manuel Arce, of legal age, Filipino, married to Remedios Pichay and resident of Vigan, Ilocos Sur, consisting
of an undivided 66/297 portion;
Salvador Encarnacion, Jr., of legal age, Filipino, married to Angelita Nagar and resident of Vigan, Ilocos Sur,
consisting of an undivided 66/297; Jose Florentino, of legal age, Filipino, married to Salvacion Florendo and
resident of 16 South Ninth Diliman, Quezon City, consisting of an undivided 33/297 portion;
Angel Encarnacion, of legal age, Filipino, single and resident of 1514 Milagros St., Sta. Cruz, Manila,
consisting of an undivided 33/297 portion;
Victorino Florentino, of legal age, Filipino, married to Mercedes L. Encarnacion and resident of Vigan, Ilocos
Sur, consisting of an undivided 17.5/297 portion;
Antonio Florentino, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided
17.5/297;
Salvador Encarnacion, Sr., of legal age, Filipino, married to Dolores Singson, consisting of an undivided
8.25/297;
Remedios Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an
undivided 8.25/297 portion; and
Severina Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of 8.25/297
undivided portion.

The Court after hearing the motion for withdrawal and the opposition thereto issued on November 17, 1966 an
order and for the purpose of ascertaining and implifying the issues therein stated that all the applicants admit
the truth of the following;

The court, after ruling "that the contention of the proponents of encumbrance is without merit bemuse, taking
the self-imposed arrangement in favor of the Church as a pure and simple donation, the same is void for the
that the donee here has riot accepted the donation (Art. 745, Civil Code) and for the further that, in the case of
Salvador Encarnacion, Jr. and Angel Encarnacion, they had made no oral or written grant at all (Art. 748) as in
fact they are even opposed to it," 1 held in the Positive portion, as follows:

(1) That just after the death of Encarnacion FIorentino in 1941 up to last year and as had always been the
case since time immomorial the products of the land made subiect matter of this land has been used in
answering for the payment for the religious functions specified in the Deed Extrajudicial Partition belated
August 24, 1947:

In view of all these, therefore, and insofar as the question of encumbrance is concerned, let the religious
expenses as herein specified be made and entered on the undivided shares, interests and participations of all
the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel
Encarnacion.

(2) That this arrangement about the products answering for the comment of experisence for religions functions
as mentioned above was not registered in the office of the Register of Deeds under Act No 3344, Act 496 or
and, other system of registration;

On January 3, 1967, petitioners-appellants filed their Reply to the Opposition reiterating their previous
arguments, and also attacking the junction of the registration court to pass upon the validity or invalidity of the
agreement Exhibit O-1, alleging that such is specified only in an ordinary action and not proper in a land
registration proceeding.

The Motion for Reconsideration and of New Trial was denied on January 14, 1967 for lack of merit, but the
court modified its earlier decision of November 29, 1966, to wit:
This Court believes, and so holds, that the contention of the movants (proponents of the encumbrance) is
without merit because the arrangement, stipulation or grant as embodied in Exhibit O (Escritura de Particion
Extrajudicial), by whatever name it may be (called, whether donation, usufruct or ellemosynary gift, can be
revoked as in fact the oppositors Salvador Encarnacion, Sr., who is the only one of the three oppositors who is
a party to said Exhibit O (the two others, Salvador Encarnacion, Jr. and Angel Encarnacion no parties to it) did
revoke it as shown by acts accompanying his refusal to have the same appear as an encumbrance on the title
to be issued. In fact, legally, the same can also be ignored or discararded by will the three oppositors. The
reasons are: First, if the said stipulation is pour bodies in Exhibit O-1 is to be viewed as a stipulation pour
autrui the same cannot now be enforced because the Church in whose favor it was made has not
communicated its acceptance to the oppositors before the latter revoked it. Says the 2nd par. of Art. 1311 of
the New Civil Code:
"If a contract should contain some stipulation in favor of a third person he may demand its fulfillment provided
he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person." No evide nee has ever been submitted by the Church to show its clear acceptance of the grant
before its revocation by the oppositor Salvador Encarnacion, Sr. (or of the two other oppositors, Salvador
Encarnacion, Jr. and Angel Encarnacion, who didn't even make any giant, in the first place), and so not even
the movants who have officiously taken into themselves the right to enforce the grant cannot now maintain any
action to compel compliance with it. (Bank of the P.I. v. Concepcion y Hijos, Inc., 53 Phil. 806). Second, the
Church in whose favor the stipulation or grant had apparently been made ought to be the proper party to
compel the herein three oppositors to abide with the stipulation. But it has not made any appearance nor
registered its opposition to the application even before Oct. 18, 1965 when an order of general default was
issued. Third, the movants are not, in the contemplation of Section 2, Rule 3 of the Rules of Court, the real
party in interest to raise the present issue; and Fourth, the movants having once alleged in their application for
registration that the land is without encumbrance (par. 3 thereof), cannot now be alloted by the rules of
pleading to contradict said allegation of theirs. (McDaniel v. Apacible, 44 Phil. 248)
SO ORDERED. 2
After Motions for Reconsideration were denied by the court, the petitioners- appellants appealed directly to this
Court pursuant to Rule 4 1, Rules of Court, raising the following assign of error:
I. The lower court erred in concluding that the stipulation embodied in Exhibit O on religious expenses is just
an arrangement stipulation, or grant revocable at the unilateral option of the coowners.
II. The lower court erred in finding and concluding that the encumbrance or religious expenses embodied in
Exhibit O, the extrajudicial partition between the co-heirs, is binding only on the appoints Miguel Florentino,
Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Antonio Florentino, Victorino Florentino,
Remedios Encarnacion and Severina Encarnacion.
III. The lower court as a registration court erred in passing upon the merits of the encumbrance (Exhibit O-1)
as the sanie was never put to issue and as the question involved is an adjudication of rights of the parties.

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in cases where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the decedent.
If a contract should contain a stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person.
The second paragraph of Article 1311 above-quoted states the law on stipulations pour autrui. Consent the
nature and purpose of the motion (Exh. O-1), We hold that said stipulation is a station pour autrui. A stipulation
pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and
which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of
the third person, and such third person and demand its fulfillment provoked that he communicates his to the
obligor before it is revoked. 3 The requisites are: (1) that the stipulation in favor of a third person should be a
part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated
by any kind of obligation whatever; and (3) neither of the contracting bears the legal represented or
authorization of third person.
To constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to benefit
the third and it is not sufficient that the third person may be incidentally benefited by the stipulation. The fairest
test to determine whether the interest of third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this
test, it meters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from
the promisee to the third person. That no such obsorption exists may in some degree assist in determining
whether the parties intended to benefit a third person. 4
In the case at bar, the determining point is whether the co-owners intended to benefit the Church when in their
extrajudicial partition of several parcels of land inherited by them from Doa Encarnacion Florendo they
agreed that with respect to the land situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits thereof
shall serve to defray the religious expenses specified in Exhibit O-1. The evidence on record shows that the
true intent of the parties is to confer a direct and material benefit upon the Church. The fruits of the aforesaid
land were used thenceforth to defray the expenses of the Church in the preparation and celebration of the
Holy Week, an annual Church function. Suffice it to say that were it not for Exhibit O-1, the Church would have
necessarily expended for this religious occasion, the annual relisgious procession during the Holy Wock and
also for the repair and preservation of all the statutes, for the celebration of the Seven Last Word.
We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit O-1) is revocable
at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself
before its acceptance by the party favored, the law does not provide when the third person must make his
acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked.
Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of
the co-owners, namely the petitioners-appellants herein. It is not disputed that from the time of the with of
Doa Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before
the firing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The
enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can
only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation.

We find the first and second assignments of error impressed with merit and, therefore, tenable. The stipulation
embodied in Exhibit O-1 on religious expenses is not revocable at the unilateral option of the co-owners and
neither is it binding only on the petitioners-appellants Miguel Florentino, Rosario Encarnacion de Florentino
Manuel Arce, Jose Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion and Severina E
It is also binding on the oppositors-appellees Angel Encarnacion,

The acceptance does not have to be in any particular form, even when the stipulation is for the third person an
act of liberality or generosity on the part of the promisor or promise. 5

The stipulation (Exhibit 411) in pan of an extrajudicial partition (Exh. O) duly agreed and signed by the parties,
hence the sanie must bind the contracting parties thereto and its validity or compliance cannot be left to the
with of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this stipulation takes effect
between the parties, their assign and heirs. The article provides:

A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules
governing donation of real property. The beneficiary of a trust may demand performance of the obligation

It need not be made expressly and formally. Notification of acceptance, other than such as is involved in the
making of demand, is unnecessary. 6

without having formally accepted the benefit of the this in a public document, upon mere acquiescence in the
formation of the trust and acceptance under the second paragraph of Art. 1257 of the Civil Code. 7
Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators at their own option. This
must be so because of Article 1257, Civil Code and the cardinal rule of contracts that it has the force of law
between the parties. 8 Thus, this Court ruled in Garcia v. Rita Legarda, Inc., 9 "Article 1309 is a virtual
reproduction of Article 1256 of the Civil Code, so phrased to emphasize that the contract must bind both
parties, based on the principles (1) that obligation arising from contracts have the force of law between the
contracting parties; and (2) that there must be mutuality between the parties based on their principle equality,
to which is repugnant to have one party bound by the contract leaving the other free therefrom."

IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos Sur in Land Registration
Case No. N-310 is affirmed but modified to allow the annotation of Exhibit O-1 as an encumbrance on the face
of the title to be finally issued in favor of all the applications (herein appellants and herein appellees) in the
registration proceedings below.
No pronouncement as to cost.
SO ORDERED.
G.R. No. L-23276

Consequently, Salvador Encarnacion, Sr. must bear with Exhibit O-1, being a signatory to the Deed of
Extrajudicial Partition embodying such beneficial stipualtion. Likewise, with regards to Salvador, Jr. and Angel
Encarnacion, they too are bound to the agreement. Being subsequent purchasers, they are privies or
successors in interest; it is axiomatic that contracts are enforceable against the parties and their
privies. 10 Furthermore, they are shown to have given their conformity to such agreement when they kept their
peace in 1962 and 1963, having already bought their respective shares of the subject land but did not question
the enforcement of the agreement as against them. They are also shown to have knowledge of Exhibit O-1 as
they had admitted in a Deed of Real Mortgage executed by them on March 8, 1962 involving their shares of
the subject land that, "This parcel of land is encumbered as evidenced by the document No. 420, page 94,
Book 1, series 1947, executed by the heirs of the late Encarnacion Florentino, on August 26, 1947, before M.
Francisco Ante, Notwy Public of Vigan, Ilocos Sur, in its page 10 of the said document of partition, and also by
other documents."
The annotation of Exhibit O-1 on the face of the title to be issued in this case is merely a guarantee of the
continued enforcement and fulfillment of the beneficial stipulation. It is error for the lower court to rule that the
petitioners-appellants are not the real parties in interest, but the Church. That one of the parties to a
contract pour autrui is entitled to bring an action for its enforcement or to prevent its breach is too clear to need
any extensive discussion. Upon the other hand, that the contract involved contained a stipulation pour autrui
amplifies this settled rule only in the sense that the third person for whose benefit the contract was entered
into may also demand its fulfillment provoked he had communicated his acceptance thereof to the obligor
before the stipulation in his favor is revoked. 11
Petitioners-appellants' third assignment of error is not well-taken. Firstly, the otherwise rigid rule that the
jurisdiction of the Land Registration Court, being special and limited in character and proceedings thereon
summary in nature, does not extend to cases involving issues properly litigable in other independent suits or
ordinary civil actions, has time and again been relaxed in special and exceptional circumstances. (See
Government of the Phil. Islands v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Phil. 19 (1957); Luna v.
Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93 Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil.
177 (1952). From these cases, it may be gleaned and gathered that the peculiarity of the exceptions is based
not only on the fact that Land Registration Courts are likewise the same Courts of First Instance, but also the
following premises (1) Mutual consent of the parties or their acquired in submitting the at aforesaid
determination by the court in the registration; (2) Full opportunity given to the parties in the presentation of
their respective skies of the issues and of the evidence in support thereto; (3) Consideration by the court that
the evidence already of record is sufficient and adequate for rendering a decision upon these issues. 12 In the
case at bar, the records clearly show that the second and third premism enumerated abow are fully mt. With
regards to first premise, the petioners-appellants cannot claim that the issues anent Exhibit O-1 were not put
in issue because this is contrary to their stand before the lower court where they took the initial step in praying
for the court's determination of the merits of Exhibit O-1 as an encumbrance to be annotated on the title to be
issued by such court. On the other hand, the petitioners-appellees who had the right to invoke the limited
jurisdiction of the registration court failed to do so but met the issues head-on.
Secondly, for this very special reason, We win uphold the actuation of the lower court in determining the
conflicting interests of the parties in the registration proceedings before it. This case has been languishing in
our courts for thirteen tong years. To require that it be remanded to the lower court for another proceeding
under its general jurisdiction is not in consonance with our avowed policy of speedy justice. It would not be
amiss to note that if this case be remanded to the lower court, and should appeal again be made, the name
issues will once more be raised before us hence, Our decision to resolve at once the issues in the instant
petition.

November 29, 1968

MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC., plaintiffs-appellees,
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.
Antonio de Venecia for plaintiffs-appellees.
Rufino Javier for defendant-appellant.
CONCEPCION, C.J.:
This is an appeal from a decision of the Court of First Instance of Manila, certified to us by the Court of
Appeals, only questions of law being involved therein. Indeed, the pertinent facts have been stipulated and/or,
admitted by the parties at the hearing of the case in the trial court, to dispense with the presentation of
evidence therein.
It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. hereinafter referred to
as the Company issued, in favor of the Manila Yellow Taxicab Co., Inc. hereinafter referred to as the
Insured a common carrier accident insurance policy, covering the period from December 1, 1961 to
December 1, 1962. It was stipulated in said policy that:
The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in
the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured
will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passengerincluding the
Driver, Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accident or injury. 1
While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by Carlito Coquia, met
a vehicular accident at Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured filed
therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of
compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not
accept it. Hence, on September 18, 1962, the Insured and Carlito's parents, namely, Melecio Coquia and
Maria Espanueva hereinafter referred to as the Coquias filed a complaint against the Company to collect
the proceeds of the aforementioned policy. In its answer, the Company admitted the existence thereof, but
pleaded lack of cause of action on the part of the plaintiffs.
After appropriate proceedings, the trial court rendered a decision sentencing the Company to pay to the
plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, which contends that
plaintiffs have no cause of action because: 1) the Coquias have no contractual relation with the Company; and
2) the Insured has not complied with the provisions of the policy concerning arbitration.
As regards the first defense, it should be noted that, although, in general, only parties to a contract may bring
an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of
Article 1311 of the Civil Code of the Philippines, reading:

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person.2
This is but the restatement of a well-known principle concerning contracts pour autrui, the enforcement of
which may be demanded by a third party for whose benefit it was made, although not a party to the contract,
before the stipulation in his favor has been revoked by the contracting parties. Does the policy in question
belong to such class of contracts pour autrui?
In this connection, said policy provides, inter alia:
Section I Liability to Passengers. 1. The Company will, subject to the Limits of Liability and under the Terms
of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor
Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury
to any fare-paying passenger including the Driver ... who is riding in the Motor Vehicle insured at the time of
accident or injury.
Section II Liability to the Public
xxx

xxx

xxx

3. In terms of and subject to the limitations of and for the purposes of this Section, the Company will indemnify
any authorized Driver who is driving the Motor Vehicle....
Conditions
xxx

xxx

xxx

7. In the event of death of any person entitled to indemnity under this Policy, the Company will, in respect of
the liability incurred by such person, indemnify his personal representatives in terms of and subject to the
limitations of this Policy, provided, that such representatives shall, as though they were the Insured, observe,
fulfill and be subject to the Terms of this Policy insofar as they can apply.

If any difference or dispute shall arise with respect to the amount of the Company's liability under this Policy,
the same shall be referred to the decision of a single arbitrator to be agreed upon by both parties or failing
such agreement of a single arbitrator, to the decision of two arbitrators, one to be appointed in writing by each
of the parties within one calendar month after having been required in writing so to do by either of the parties
and in case of disagreement between the arbitrators, to the decision of an umpire who shall have been
appointed in writing by the arbitrators before entering on the reference and the costs of and incident to the
reference shall be dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a
condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators
or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained.
The record shows, however, that none of the parties to the contract invoked this section, or made any
reference to arbitration, during the negotiations preceding the institution of the present case. In fact, counsel
for both parties stipulated, in the trial court, that none of them had, at any time during said negotiations, even
suggested the settlement of the issue between them by arbitration, as provided in said section. Their
aforementioned acts or omissions had the effect of a waiver of their respective right to demand an arbitration.
Thus, in Kahnweiler vs. Phenix Ins. Co. of Brooklyn, 5 it was held:
Another well-settled rule for interpretation of all contracts is that the court will lean to that interpretation of a
contract which will make it reasonable and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause
of this policy, its proper interpretation seems quite clear. When there is a difference between the company and
the insured as to the amount of the loss the policy declares: "The same shall then be submitted to competent
and impartial arbitrators, one to be selected by each party ...". It will be observed that the obligation to procure
or demand an arbitration is not, by this clause, in terms imposed on either party. It is not said that either the
company or the insured shall take the initiative in setting the arbitration on foot. The company has no more
right to say the insured must do it than the insured has to say the company must do it. The contract in this
respect is neither unilateral nor self-executing. To procure a reference to arbitrators, the joint and concurrent
action of both parties to the contract is indispensable. The right it gives and the obligation it creates to refer the
differences between the parties to arbitrators are mutual. One party to the contract cannot bring about an
arbitration. Each party is entitled to demand a reference, but neither can compel it, and neither has the right to
insist that the other shall first demand it, and shall forfeit any right by not doing so. If the company demands it,
and the insured refuses to arbitrate, his right of action is suspended until he consents to an arbitration; and if
the insured demands an arbitration, and the company refuses to accede to the demand, the insured may
maintain a suit on the policy, notwithstanding the language of the twelfth section of the policy, and, where
neither party demands an arbitration, both parties thereby waive it.6
To the same effect was the decision of the Supreme Court of Minnesota in Independent School Dist. No. 35,
St. Louis County vs. A. Hedenberg & Co., Inc.7 from which we quote:

8. The Company may, at its option, make indemnity payable directly to the claimants or heirs of claimants, with
or without securing the consent of or prior notification to the Insured, it being the true intention of this Policy to
protect, to the extent herein specified and subject always to the Terms Of this Policy, the liabilities of the
Insured towards the passengers of the Motor Vehicle and the Public.

This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937, decided in 1893, this court
held that the parties to a construction contract, having proceeded throughout the entire course of their dealings
with each other in entire disregard of the provision of the contract regarding the mode of determining by
arbitration the value of the extras, thereby waived such provision.

Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving the Motor
Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his
personal representatives." In fact, the Company "may, at its option, make indemnity payable directly to
theclaimants or heirs of claimants ... it being the true intention of this Policy to protect ... the liabilities of the
Insuredtowards the passengers of the Motor Vehicle and the Public" in other words, third parties.

xxx

Thus, the policy under consideration is typical of contracts pour autrui, this character being made more
manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which
were deducted from his weekly commissions. Under these conditions, it is clear that the Coquias who,
admittedly, are the sole heirs of the deceased have a direct cause of action against the Company, 3 and,
since they could have maintained this action by themselves, without the assistance of the Insured, it goes
without saying that they could and did properly join the latter in filing the complaint herein. 4
The second defense set up by the Company is based upon Section 17 of the policy reading:

xxx

xxx

The test for determining whether there has been a waiver in a particular case is stated by the author of an
exhaustive annotation in 117 A.L.R. p. 304, as follows: "Any conduct of the parties inconsistent with the notion
that they treated the arbitration provision as in effect, or any conduct which might be reasonably construed as
showing that they did not intend to avail themselves of such provision, may amount to a waiver thereof and
estop the party charged with such conduct from claiming its benefits".
xxx

xxx

xxx

The decisive facts here are that both parties from the inception of their dispute proceeded in entire disregard
of the provisions of the contract relating to arbitration and that neither at any stage of such dispute, either
before or after commencement of the action, demanded arbitration, either by oral or written demand, pleading,
or otherwise. Their conduct was as effective a rejection of the right to arbitrate as if, in the best Coolidge

tradition, they had said, "We do not choose to arbitrate". As arbitration under the express provisions of article
40 was "at the choice of either party," and was chosen by neither, a waiver by both of the right to arbitration
followed as a matter of law.
WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with costs against the
herein defendant-appellant, Fieldmen's Insurance Co., Inc. It is so ordered.
G.R. No. L-22404 May 31, 1971
PASTOR B. CONSTANTINO, plaintiff-appellant,
vs.
HERMINIA ESPIRITU, defendant-appellee.
David Guevara for plaintiff-appellant.

DIZON, J.:
This is a direct appeal on a question of law taken by Pastor B. Constantino from an order of the Court of First
Instance of Rizal denying his motion for the admission of his amended complaint in Civil Case No. 5924,
entitled "Pastor B. Constantine vs. Herminia Espiritu."
Appellant's complaint alleged, inter alia, that he had, by a fictitious deed of absolute sale annexed thereto,
conveyed to appellee on October 30, 1953, for a consideration of P8,000.00, the two-storey house and four (4)
subdivision lots covered by Transfer Certificate of Title No. 20174 issued by the Register of Deeds of Rizal, on
October 25, 1950 in the name of Pastor B. Constantino, married to Honorata Geukeko with the understanding
that appellee would hold the properties in trust for their illegitimate son, Pastor Constantino, Jr., still unborn at
the time of the conveyance; that thereafter appellee mortgaged said properties to the Republic Savings Bank
of Manila twice to secure payment of two loans, one of P3,000.00 and the other of P2,000.00, and that
thereafter she offered them for sale. The complaint then prayed for the issuance of a writ of preliminary
injunction restraining appellee and her agents or representatives from further alienating or disposing of the
properties, and for judgment ordering her to execute a deed of absolute sale of said properties in favor of
Pastor B. Constantino, Jr., the beneficiary (who, at the filing of said complaint, was about five years of age),
and to pay attorney's fees in the sum of P2,000.00.
As a result of the conveyance mentioned heretofore, TCT No. 20714 in the name of plaintiff was partially
cancelled and in lieu thereof, TCT No. 32744 was issued by the Register of Deeds of Rizal in the name of
appellee Herminia Espiritu.
On December 16, 1959, appellee moved to dismiss the complaint on the ground that it stated no cause of
action because Pastor Constantino, Jr., the beneficiary of the alleged trust, was not included as party-plaintiff,
and on the further ground that appellant's cause of action was unenforceable under the Statute of Frauds.
In his opposition to said motion to dismiss, appellant argued that the Statute of Frauds does not apply to
trustee and cestui que trust as in the case of appellee and her illegitimate child, and that for this reason
appellant would not be barred from proving by parol evidence an implied trust existing under Article 1453 of
the Civil Code. On the other hand, in her rejoinder to appellant's opposition, appellee argued that what the
former was invoking in his complaint (Paragraph V, Complaint) was an implied trust under Article 1453 of the
Civil Code and not an express trust under Section 3, Rule 3 of the Revised Rules of Court. Finding the
grounds alleged in the motion to dismiss to be meritorious, the trial court dismissed the complaint, with costs.
Immediately after receiving notice of said order of dismissal, appellant filed a motion for the admission of an
amended complaint, attaching thereto a copy hereof, the amendment consisting mainly of the inclusion of the
minor, Pastor Constantino, Jr. as co-plaintiff. The amended complaint further prayed for the appointment of

appellant as said minor's guardian ad litem. An opposition thereto was filed on the ground that the amendment
aforesaid was not an inclusion but a substitution of the party plaintiff. As the latter had no interest whatsoever
in the subject matter of the case, it was argued that the substitution was not allowed in this jurisdiction.
Appellant's answer to appellee's opposition alleged that, as the ground relied upon in the said opposition was
purely technical, even the substitution of the party plaintiff should be allowed under Section 2, Rule 17 of the
Rules of Court. Thereafter the lower court issued the appealed order denying appellant's motion for the
admission of his amended complaint. Hence, the instant direct appeal.
The original as well as the amended complaint mentioned above allege that the sale made by appellant
Constantino in favor of appellee of the properties described in said pleadings was subject to the agreement
that the vendee would hold them in trust for their at that time already conceived but unborn illegitimate child;
that the vendee violated this agreement, firstly, by subjecting them to two different contracts of mortgage, and
later by trying to sell them, this being not only in violation of the aforesaid agreement but prejudicial to
the cestui que trust; that the action was commenced to compel the vendee to comply with their agreement by
executing the corresponding deed of conveyance in favor of their minor son, and to desist from further doing
any act prejudicial to the interests of the latter.
It appears then that, upon the facts alleged by appellant, the contract between him and appellee was a
contractpour autrui, although couched in the form of a deed of absolute sale, and that appellant's action was,
in effect, one for specific performance. That one of the parties to a contract is entitled to bring an action for its
enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the other hand, that
the contract involved contained a stipulation pour autrui amplifies this settled rule only in the sense that the
third person for whose benefit the contract was entered into may also demand its fulfillment provided he had
communicated his acceptance thereof to the obligor before the stipulation in his favor is revoked.
It appearing that the amended complaint submitted by appellant to the lower court impleaded the beneficiary
under the contract as a party co-plaintiff, it seems clear that the three parties concerned therewith would, as a
result, be before the court and the latter's adjudication would be complete and binding upon them.
The ruling in the case of Echaus vs. Gan, 55 Phil. 527 involving facts similar to the ones before us is of
obvious application to the latter. We quote the following pertinent portions of our decision in said case:
This action was instituted in the Court of First Instance of Occidental Negros by Adoracion Rosales de Echaus,
assisted by her husband Enrique Echaus, for the purpose of obtaining a judicial order requiring the defendant
Maria Gan, as administratrix of the estate of her deceased husband, Manuel Gay Yulingco, as well as the
heirs of said decedent, to execute in due form a contract, with appropriate description of the real property
involved, in conformity with the terms of an agreement dated September 3, 1927, executed by the deceased
Manuel Gay Yulingco, in life, and Enrique Echaus, one of the plaintiffs in the case (Exhibit A). To this action the
defendants interposed a general answer and cross-complaint, in the latter of which they sought a decree
annulling the contract Exhibit A as excessively onerous and illegal. Upon hearing the cause the trial court
absolved the plaintiffs from the cross-complaint and gave judgment in favor of the plaintiffs upon the
complaint, requiring the defendants, within thirty days from the date of the finality of the decision, to execute
before a notary public and deliver to the plaintiffs a contract similar in terms to that indicated in the Exhibit A
but containing, in addition, a description of the real property involved, in such form as would enable the
plaintiffs to procure said contract to be inscribed on the certificate of title corresponding to said property, with
costs against the defendants. From this judgment the defendants appealed.
xxx xxx xxx
The contract in question, Exhibit A, on which this action is based, was executed by Manuel Gay Yulingco and
Enrique Echaus, and although the contract binds Yulingco to pay to Adoracion Rosales de Echaus, the wife of
Enrique Echaus, the sum of fifty centavos for each picul of sugar that may be produced upon the two
haciendas covered by the contract during the fourteen years beginning with the crop for 1927-1928,
nevertheless this action is not instituted by the nominal beneficiary, Adoracion Rosales de Echaus, directly for
the purpose of obtaining the benefit which said contract purports to confer upon her. The purpose of the action
is to compel the defendants to execute a contract pursuant to the tenor of the contract Exhibit A, but containing
an adequate description of the property contained in the two haciendas, for the purpose of enabling Echaus to
procure the annotation of said contract on the Torrens certificates of title. It is therefore evident that, technically

speaking, the proper person to bring this action is Enrique Echaus, the person with whom the contract was
made by Yulingco. It is, nevertheless, equally obvious that the wife of Enrique Echaus is a party in interest,
and she is certainly a proper, if not an entirely necessary party to the action. It results that there is really no
improper joinder of parties plaintiff.
Whether the contract of sale entered into between appellant and appellee was as claimed and the
amended complaint subject to the agreement that appellee would hold the properties in trust for their
unborn child is a question of fact that appellee may raise in her answer for the lower court to determine after
trial. On the other hand, the contention that the contract in question is not enforceable by action by reason of
the provisions of the Statute of Frauds does not appear to be indubitable, it being clear upon the facts alleged
in the amended complaint that the contract between the parties had already been partially performed by the
execution of the deed of sale, the action brought below being only for the enforcement of another phase
thereof, namely, the execution by appellee of a deed of conveyance in favor of beneficiary thereunder.
WHEREFORE, the appealed order is hereby set aside and the case is remanded to the lower court for further
proceedings in accordance with law.
Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Villamor and Makasiar, JJ., concur.
Makalintal, J., concurs in the result.
Separate Opinions
BARREDO, J., concurring:
I concur, but it may not be amiss for me to state briefly my humble view as regards appellee's claim that
appellant's action is barred by the Statute of Frauds.
As I understand the nature of appellant's action, it is not to enforce an entirely unwritten contract, which is
what is generally barred by the Statute of Frauds; rather, it is for the enforcement of a condition not appearing
in the written agreement herein involved but which condition according to appellant, was in fact part thereof
but which the parties had agreed not to include in the deed, probably because of doubt that such a stipulation
in favor of an already conceived but still unborn illegitimate child may not be judicially persible on the other
hand, under the theory of appellee, even assuming, alternatively, that there was such an understanding to
benefit their unborn child, the conveyance to her of the land in question is an entirely separate contract from
the obligation assumed by her of turning over the property in question to said child with the appellant, hence
this separate agreement not being in writing is unenforceable by action under the Statute of Frauds. I consider
such posture of appellee untenable.
To my mind, the obligation of the appellee to execute the conveyance in favor of their child was part and parcel
of one single verbal agreement, in partial implementation of which the said property was conveyed to her. In
other words, appellant's action is simply one for the enforcement of an implied trust under Article 1453 of the
Civil Code which provides thus:
ART. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is
contemplated.
Accordingly, the only rule, that can possibly have any relevance to appellee's situation, instead of the Statute
of Frauds, would be the parol evidence rule which, in any event, is not one of the grounds for dismissal of a
complaint, since it is a rule exclusively of admissibility of evidence and not of any other branch of procedure.
As a matter of fact, under the known circumstances of this case, I even doubt very much if the appellee will be
able to successfully invoke the parol evidence rule when the trial is eventually held, for the simple reason that
appellant has in effect specifically alleged in his complaint that the deed of sale in favor of appellee was
subject to the condition already mentioned that their illegitimate child would be the real beneficiary thereof.

The general rule of admissibility which excludes evidence aliunde 1 tending to vary the terms of a written
agreement is subject to the exception, among others, that the same does not apply when the party wishing to
prove the real agreement or the additional terms specifically alleges such agreement or terms in his pleading.
Otherwise stated, the matter of whether or not there is really an obligation on the part of the appellee to
convey the land in question to her child with appellee is only the one of proof, there being technical bar to the
evidence, much less to appellant's action. Withal, like the Statute of Frauds, the parol evidence rule may not
be used as a shield to commit fraud with impunity, particularly, when, as in this case, it is alleged that an
implied trust is involved. I would even go further. I venture to add that even if this cage were considered as one
involving an express trust under Article 1443 of the Civil Code which provides that an express trust affecting
realty may not be proved by parol evidence, I would still hold that appellant's case is subject to this exception.
It is a fundamental principle underlying all rules of proof that never may the same be utilized as instruments to
conceal or shield fraud.
The main opinion holds that the execution of the deed of conveyance in favor of the appellant was a partial
execution or consummation of the agreement between appellant and appellee which the enforcement of the
obligation in question beyond the pale of the Statute of Frauds. Evidently, the predicate of said proposition is
that the conveyance of the property in question to appellee and her obligation to hold the same only in trust for
their illegitimate child still unborn at that time constitute one single contract, albeit verbal, as I have already
explained above. Consequently, one part of the contract having been complied with already by appellant by
executing the formal deed in favor of appellee, the latter cannot now excuse herself from complying with her
part of the bargain by invoking the Statute of Frauds.
Indeed, from whatever angle one views this case, most of all from the standpoint of the innocent child
begotten by the parties out of wedlock and whose future seems uncertain, the conclusion is inescapable that
the trial court erred in sustaining appellee's motion to dismiss. With the procedural technicalities now set
aside, whether the property in question was indeed intended by appellant and appellee to remain with
appellee for her own benefit or to be in her name only temporarily for the benefit of their child is the main
question of fact which by this decision the court a quo may now try and decide.
G.R. No. 79518 January 13, 1989
REBECCA C. YOUNG assisted by her husband ANTONIO GO, petitioner,
vs.
COURT OF APPEALS, PH CREDIT CORP., PHIL. HOLDING, INC. FRANCISCO VILLAROMAN, FONG
YOOK LU, ELLEN YEE FONG and THE REGISTER OF DEEDS OF MANILA, respondents.
Diego O. Untalan for petitioner.
Esteban B. Bautista for respondents Fong Yook Lu and Ellen Yee Fong.
Janette Borres for respondents.

PARAS, J.:
This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals 1 in CA-G.R.
No. 1002, entitled Spouses Chui Wan and Felisa Tan Yu and Rebecca Young vs. PH Credit Corporation et al.,
which affirmed the decision of the Regional Trial Court of Manila, Branch XXXII, earlier dismissing the
complaint of petitioners for Annulment of Sale, Specific Performance and Damages, against respondents.
The facts of the case are as follows:
Defendant Philippine Holding, Inc. is the former owner of a piece of land located at Soler St., Sta. Cruz,
Manila, and a two storey building erected thereon, consisting of six units; Unit 1350 which is vacant, Unit 1352

occupied by Antonio Young, Unit 1354 by Rebecca C. Young, Unit 1356 by Chui Wan and Felisa Tan Yu, Unit
1358 by Fong Yook Lu and Ellen Yee Fong and Unit 1360 by the Guan Heng Hardware (Rollo, pp. 14-15).

Hence this petition, which was brought to this Court only by Rebecca Young, assisted by her husband Antonio
Go.

The owner Philippine Holding, Inc. secured an order from the City Engineer of Manila to demolish the building.
Antonio Young, then a tenant of said Unit 1352, filed an action to annul the City Engineer's demolition Order
(Civil Case No. 123883) entitled Antonio S. Young vs. Philippine Holding, Inc. before the then Court of First
Instance of Manila, Branch XXX. As an incident in said case, the parties submitted a Compromise Agreement
to the Court on September 24, 1981. Paragraph 3 of said agreement provides that plaintiff (Antonio S. Young)
and Rebecca Young and all persons claiming rights under them bind themselves to voluntarily and peacefully
vacate the premises which they were occupying as lessees (Units 1352 and 1354, respectively) which are the
subject of the condemnation and demolition order and to surrender possession thereof to the defendant
Philippine Holding, Inc. within sixty (60) days from written notice, subject to the proviso that should defendant
decided to sell the subject property or portion thereof, "plaintiff and Rebecca C. Young have the right of first
refusal thereof." (Rollo, p. 49).

On October 2, 1987, respondents Fong Yook Lu, moved to strike out or dismiss outright the instant petition
(Rollo, p. 35). In the resolution of November 4, 1987, the Second Division of this Court required the petitioner
to comment on said motion (Rollo, p. 37), which comment was filed on December 17, 1987 (Rollo, p. 38).
Thereafter, in the resolution of January 20, 1988, respondents were required to file a reply thereto (Rollo, p.
42) which was filed on January 11, 1988 (Rollo, p. 43). On March 24, 1988, petitioner filed a rejoinder to reply
(Rollo, p. 46) in compliance with the resolution of February 29, 1988 (Rollo, p.45).

On September 17, 1981, Philippine Holding, Inc. had previously sold the above said property described in the
compromise agreement by way of dacion in payment to PH Credit Corporation (Rollo, p. 49).

Petitioner raised the following assignments of error:

On November 9, 1982, the property was subdivided into two parcels, one 244.09 sq.m. in area covering Units
1350, 1352 and 1354 (TCT No. 152439) and the other 241.71 sq.m. in area covering Units 1356, 1358 and
1360 (TCT No. 152440) and both titles were placed in the name of PH Credit Corporation.
On December 8, 1982, PH Credit Corporation sold the property covered by TCT 152439 to the Blessed Land
Development Corporation represented by its President Antonio T. S. Young; and on September 16, 1983, PH
Credit Corporation sold the property covered by TCT 152440 embracing Units 1356, 1358 and 1360 to
spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p. 15).
Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the spouses Chui Wan and Felisa Tan Yu filed in
the Regional Trial Court of Manila, Civil Case No. 84-22676 for the annulment of the sale in favor of herein
respondent spouses, Fong Yook Lu and Ellen Yee Fong and for specific performance and damages against
the PH Credit Corporation and Philippine Holding, Incorporated.
Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that defendant corporation and Francisco Villaroman,
sold the property without affording them (the plaintiffs-spouses) the right of first refusal to purchase that portion
of the property which they are renting.
Plaintiff Rebecca C. Young, now petitioner, also claimed the right of first refusal purportedly granted to her
under the aforestated proviso of the abovesaid compromise agreement and prayed that the sale be annulled
and that they be allowed to exercise her right of first refusal to purchase subject property (Rollo, p. 50).
The lower court decided in favor of the defendants and against the plaintiffs, thus dismissing the complaint
together with defendants' counterclaims (Rollo, p. 15)
On the other hand, the claim of Rebecca C. Young was similarly rejected by the trial court on the following
grounds: (1) that she was not a party in the Civil Case No. 123883, wherein subject compromise agreement
was submitted and approved by the trial court apart from the fact that she did not even affix her signature to
the said compromise agreement; (2) that Rebecca Young had failed to present any evidence to show that she
had demanded from the defendants-owners, observance of her right of first refusal before the said owners
sold units 1356, 1358 and 1360; (3) that even assuming that her supposed right of first refusal is a stipulation
for the benefit of a third person, she did not inform the obligor of her acceptance as required by the second
paragraph of Article 1311 of the Civil Code.
Chui Wan and Felisa Tan Yu and Rebecca C. Young, assisted by her husband, appealed to the Court of
Appeals which dismissed the same on August 7, 1987, for lack of merit.

In the resolution of May 11, 1988, the petition was given due course and the parties were required to submit
simultaneously their respective memoranda (Rollo, p. 47). Respondents filed their memorandum on June 29,
1988 (Rollo, p. 48), while petitioner's memorandum was filed on July 14, 1988 (Rollo, p. 64).

1. The lower court erred in holding that Rebecca C. Young cannot enforce the stipulation in her favor in the
compromise agreement as she is not party therein.
2. The lower court erred in holding that even if par. 3 of the compromise agreement is construed as a
stipulation pour autrui Rebecca Young cannot enforce it because she did not communicate her acceptance
thereof to the obligor. (Rollo, p. 7)
The petition is devoid of merit.
The main issue in this case is whether or not petitioner can enforce a compromise agreement to which she
was not a party. This issue has already been squarely settled by this Court in the negative in J.M. Tuason &
Co., Inc. v. Cadampog (7 SCRA 808 [1963])where it was ruled that appellant is not entitled to enforce a
compromise agreement to which he was not a party and that as to its effect and scope, it has been determined
in the sense that its effectivity if at all, is limited to the parties thereto and those mentioned in the exhibits (J.M.
Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). It was reiterated later that a compromise agreement cannot
bind persons who are not parties thereto (Guerrero v. C.A., 29 SCRA 791 [1969]).
The pertinent portion of the Compromise Agreement reads:
Plaintiff Antonio T.S. Young and the Defendant HOLDING hereby agree to implead in this action as necessary
party- plaintiff, plaintiff's daughter Rebecca C. Young who is the recognized lawful lessee of the premises
known and identified as 1354 Soller St., Sta. Cruz, Manila and whose written conformity appears hereunder.
(Rollo, p. 18)
From the terms of this agreement, the conditions are very clear, such as: (1) that Rebecca C. Young shall be
impleaded in the action and (2) that she shall signify her written conformity thereto.
For unknown reasons, the above conditions were not complied with. The parties did not make any move to
implead Rebecca as necessary party in the case. Neither did her written conformity appear in said agreement.
While there is the printed name of Rebecca C. Young appearing at the end of the joint motion for approval of
the Compromise Agreement, she did not affix her signature above her printed name, nor on the left margin of
each and every page thereof.
In fact, on cross-examination, she admitted that she was not a party to the case and that she did not sign the
aforesaid joint motion because it was not presented to her (Rollo, p. 18).

More than that, by the aforesaid actuations of the parties and petitioner's apparent lack of interest, the
intention is evident, not to include the latter either in the onerous, or in the beneficient provisions of said
agreement.
Petitioner further argued that the stipulation giving her the right of first refusal is a stipulation pour autrui or a
stipulation in favor of a third person under Article 1311 of the Civil Code.
The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the following:
(1) there must be a stipulation in favor of a third person.
(2) the stipulation must be a part, not the whole of the contract.
(3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere
incidental benefit or interest.
(4) the third person must have communicated his acceptance to the obligor before its revocation.
(5) neither of the contracting parties bears the legal representation or authorization of the third party.
(Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]).
Assuming that petitioner is correct in claiming that this is a stipulation pour autrui it is unrebutted that she did
not communicate her acceptance whether expressly or impliedly. She insists however, that the stipulation has
not yet been revoked, so that her present claim or demand is still timely.
As correctly observed by the Court of Appeals, the above argument is pointless, considering that the sale of
subject property to some other person or entity constitutes in effect a revocation of the grant of the right of first
refusal to Rebecca C. Young.
PREMISES CONSIDERED, the petition is DENIED for lack of merit, and the decision of the Court of Appeals
is AFFIRMED.
SO ORDERED.
[G.R. No. 79734. December 8, 1988.]
MARMONT RESORT HOTEL ENTERPRISES, Petitioner, v. FEDERICO GUIANG, AURORA
GUIANG, and COURT OF APPEALS, Respondents.
Isagani M. Jungco for Petitioner.
Regalado C. Salvador for Respondents.

SYLLABUS

1. REMEDIAL LAW; JUDICIAL ADMISSIONS; CANNOT BE CONTRADICTED UNLESS A CLEAR

SHOWING OF PALPABLE MISTAKE HAS BEEN COMMITTED IN MAKING THE SAME. The record
shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both
petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues
recognizing the existence of those same two (2) agreements. Such stipulation of facts
constitutes a judicial admission, the veracity of which requires no further proof and which may
be controverted only upon a clear showing that such stipulation had been entered into through

"palpable mistake as provided for under Section 2, Rule 129 of the Revised Rules of Court.
2. ID.; ID.; STIPULATION OF FACT IN CASE AT BAR INCONTROVERTIBLE ABSENT OF PALPABLE
MISTAKE. There has been no showing and respondent spouses do not claim that "palpable
mistake" had intervened here, in respect of the formulation of the facts stipulated by the parties
at the pre-trial conference. Absent any such showing, that stipulation of facts is incontrovertible,
and may be relied upon by the courts. Respondent spouses are estopped from raising as an
issue in this case the existence and admissibility in evidence of both the first and second
Memoranda of Agreement which, having been marked as exhibits during pre-trial, properly form
part of the record of this case, even though not formally offered in evidence after trial.
3. CIVIL LAW; CONJUGAL PARTNERSHIP; WILL NOT BE BOUND WITHOUT THE CONSENT OF THE
HUSBAND AS THE ADMINISTRATOR; CASE AT BAR. Article 165 and 172 state the general
principle under our civil law, that the wife may not validly bind the conjugal partnership without
the consent of the husband, who is legally the administrator of the conjugal partnership. In this
particular case, however, as noted earlier, the second Memorandum of Agreement, although
ostensibly contracted solely by Aurora Guiang with Maris Trading, was also signed by her
husband Federico, as one of the witnesses thereto. This circumstance indicates not only that
Federico was present during the execution of the agreement but also that he had, in fact, given
his consent to the execution thereof by his wife Aurora. Otherwise, he should not have
appended his signature to the document as witness. Respondent spouses cannot now disown
the second Memorandum of Agreement as their effective consent thereto is sufficiently
manifested in the document itself.
4. ID.; CONTRACTS; SECOND MEMORANDUM OF AGREEMENT EXECUTED FOR THE BENEFIT OF
PETITIONER; STIPULATION POUR AUTRUI, DEFINED. A closer scrutiny of the second and third
paragraphs of the second Memorandum of Agreement discloses that the first Memorandum of
Agreement, including the obligations imposed thereunder upon Maris Trading, had been
acknowledged therein: "That the First Party (i.e., Maris Trading) has dug, drilled and tapped
water source for Marmont Resort, located at Bo. Barretto, Olongapo City in accordance with
their agreement executed on May 2, 1975 and notarized before Isagani M. Jungco, Notary Public
and entered as Doc. No. 166; Page No. 135; Book No. XV; Series of 1975. That the First Party
has erected, built and drilled for the water source of Marmont Resort on the land owned by the
Second Party [respondent spouses] at the corner of J. Montelibano Street and Maquinaya Drive
(Provincial Road) with the latters permission; . . ." The above paragraphs establish, among
other things, that construction work had been performed by Maris Trading on the land occupied
by respondent spouses; that such construction work had been performed in accordance with
terms and conditions stipulated in the first Memorandum of Agreement and that the purpose of
the work was to build a water supply facility for petitioner Marmont. It is clear from the
foregoing stipulations that petitioner Marmont was to benefit from the second Memorandum of
Agreement. In fact, said stipulations appear to have been designed precisely to benefit
petitioner and, thus, partake of the nature of stipulations pour autrui, contemplated in Article
1311 of the Civil Code. A stipulation pour autrui is a stipulation in favor of a third person
conferring a clear and deliberate favor upon him, which stipulation is found in a contract entered
into by parties neither of whom acted as agent of the beneficiary. We believe and so hold that
the purpose and intent of the stipulating parties (Maris Trading and respondent spouses) to
benefit the third person (petitioner Marmont) is sufficiently clear in the second Memorandum of
Agreement. Marmont was not of course a party to that second Agreement but, as correctly
pointed out by the trial court and the appellate court, the respondent spouses could not have
prevented Maris Trading from entering the property possessory rights over which had thus been
acquired by Maris Trading. That respondent spouses remained in physical possession of that
particular bit of land, is of no moment; they did so simply upon the sufferance of Maris Trading.
Had Maris Trading, and not the respondent spouses, been in physical possession, we believe
that Marmont would have been similarly entitled to compel Maris Trading to give it (Marmont)
access to the site involved. The two (2) courts below failed to take adequate account of the fact
that the sole purpose of Maris Trading in acquiring possessory rights over that specific portion of
the land where well and pump and piping had been installed, was to supply the water
requirements of petitioners hotel. That said purpose was known by respondent spouses, is
made explicit by the second Memorandum of Agreement. Maris Trading itself had no need for a
water supply facility; neither did the respondent spouses. The water facility was intended solely
for Marmont Resort Hotel. The interest of Marmont cannot therefore be regarded as merely
"incidental."cralaw virtua1aw library

5. ID.; ID.; ID.; RESPONDENT ACTED IN BAD FAITH; MUST BE HELD LIABLE FOR DAMAGES.
Even if it be assumed (for purposes of argument merely) that the second Memorandum of
Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the
circumstances of this case, must be regarded as having acted contrary to the principles of
honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they
refused petitioner Marmont access to the water facility to inspect and repair the same and to
increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced
petitioner Marmont to locate an alternative source of water for its hotel which of course involved
expenditure of money and perhaps loss of hotel revenues. We believe they should respond in
damages.

follows: (a) P10,000.00 representing the amount advanced in payment to the second
contractor; (b) P40,000.00 representing the total project cost of the installation made by Maris
Trading: (c) P50,000.00 representing additional expenses incurred and incidental losses
resulting from failure of the original pump to cope with the water requirements of the Marmont
Resort Hotel; and (d) P10,000.00 for Attorneys fees.chanroblesvirtualawlibrary
In their Answer, 3 the Guiang spouses (defendants below) denied having had any previous
knowledge of the first Memorandum of Agreement and asserted that the second Memorandum
of Agreement was invalid for not having been executed in accordance with law. The spouses
added a counterclaim for damages in the amount of P200,000.00.
On 2 October 1980, at the pre-trial conference, the parties agreed on the following stipulation of
facts and issues embodied in a Pre-Trial Order: 4

DECISION

"III
FELICIANO, J.:
In addition to the admission made elsewhere in their respective pleadings, the parties entered
into the following stipulation of facts:chanrob1es virtual 1aw library
The present Petition for Review seeks to set aside the Decision dated 9 December 1986 of the
Court of Appeals in C.A. - G.R. CV 03299. The appellate court affirmed a Decision dated 31 May
1983 of Branch 83 of the Regional Trial Court of Olongapo City dismissing the complaint in Civil
Case No. 2896-C filed by petitioner company against private respondent
spouses.chanrobles.com:cralaw:red
On 2 May 1975, a Memorandum of Agreement was executed between Maris Trading and
petitioner Marmont Resort Hotel Enterprises, Inc. ("Marmont"), a corporation engaged in the
hotel and resort business with office and establishment at Olongapo City. Under the agreement,
Maris Trading undertook to drill for water and to provide all equipment necessary to install and
complete a water supply facility to service the Marmont Resort Hotel in Olongapo, for a
stipulated fee of P40,000.00. In fulfillment of its contract, Maris Trading drilled a well and
installed a water pump on a portion of a parcel of land situated in Olongapo City, then occupied
by respondent spouses Federico and Aurora Guiang.
Five (5) months later, a second Memorandum of Agreement was executed between Maris
Trading and Aurora Guiang, with Federico Guiang signing as witness. This second agreement in
essential part read: 1
"That the First Party [Maris Trading] has dug, drilled and tapped water source for Marmont
Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on
May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No.
166; Page No. 135; Book No. XV; Series of 1975.
That the First Party has erected, built and drilled for the water source of Marmont Resort on the
land owned by the Second Party [Aurora Guiang] at the corner of J. Montelibano Street and
Maquinaya Drive (Provincial Road) with the latters permission.
That for and in consideration of the sum of P1,500.00 the Second Party hereby Sell, Transfer
and Cede all possessory rights, interest and claims over that portion of the lot wherein the water
source of Marmont Resort is located unto and in favor of Maris Trading."cralaw virtua1aw library
After some time, the water supply of the Marmont Resort Hotel became inadequate to meet the
hotels water requirements. Petitioner Marmont secured the services of another contractor (the
name of which was not disclosed), which suggested that in addition to the existing water pump,
a submersible pump be installed to increase the pressure and improve the flow of water to the
hotel. Accordingly, Juan Montelibano, Jr., manager of the Marmont Resort Hotel, sought
permission from the Guiang spouses to inspect the water pump which had been installed on the
portion of the land previously occupied by the spouses and to make the necessary additional
installations thereon. No such permission, however, was granted.
On 13 May 1980, petitioner Marmont filed a Complaint 2 against the Guiang spouses for
damages resulting from their refusal to allow representatives of petitioner and the second
contractor firm entry into the water facility site. The claimed damages were broken down as

1. Plaintiff is a corporation duly organized and existing under the laws of the Philippines with
office at Montelibano Street, Barrio Barretto, Olongapo City;
2. The contract referred to in paragraph 2 of the complaint between the plaintiff and Maris
Trading is contained in a document captioned Memorandum Agreement executed on May 2,
1975, a xerox copy of which is Annex A of plaintiffs complaint;
3. On October 7, 1975, the Maris Trading represented by Ceferino Cabral and defendant Aurora
Guiang entered into a memorandum agreement;
4. The portion sold under Annex A is still a part of the public domain.
IV
The plaintiff marked the following exhibits in evidence:chanrob1es virtual 1aw library
Exhibit A Memorandum Agreement dated May 2, 1975
Exhibit B Memorandum Agreement dated October 7, 1975.
V
The issues left to be ventilated during the trial are the following:chanrob1es virtual 1aw library
1. Whether defendants has actually prohibited the plaintiff [from] making repairs, [on] the
pump constructed by Maris Trading for the plaintiff under the agreement Exhibit A, if so;
2. Whether defendants [have] the right to prohibit the Maris Trading from performing the
repairs; and if not
3. Whether defendants are liable for damages under the human relations provision of the Civil
Code."cralaw virtua1aw library
On 1 January 1980, the Guiang spouses moved to dismiss the Complaint. 5 The spouses there
assailed the validity of the second Memorandum of Agreement, alleging that the subject matter
thereof involved conjugal property alienated by Aurora Guiang without the marital consent of
her husband, Federico Guiang. Further, it was alleged that the land upon which the hotels water
supply facility was installed and which the Guiang spouses occupied formed part of the
public domain and was then still the subject of a Miscellaneous Sales Application submitted by
Federico Guiang. The Motion to Dismiss, however, was denied by the trial court.chanrobles law

library : red
No evidence having been adduced by the Guiang spouses on their behalf, the case was
submitted for decision. On 31 May 1983, the trial court rendered a decision, 6 dismissing the
complaint. The trial court found that Aurora Guiang had validly alienated her rights over the
disputed portion of land to Maris Trading, but held that the evidence failed to show that Maris
Trading, in turn, had transferred such rights to petitioner Marmont.
Petitioner Marmont appealed to the Court of Appeals which affirmed the decision of the trial
court and dismissed the appeal for lack of merit. 7 The appellate court, citing Section 55, Rule
132 of the Revised Rules of Court, held that the first and second Memoranda of Agreement
could not legally be considered by the court as included in the body of evidence of the case, as
neither document had been formally offered in evidence by either party. It also held that, in any
event, neither document showed that Marmont had in fact acquired from Maris Trading whatever
rights the latter had over the land in dispute.
In the instant Petition for Review, petitioner assigns the following errors: 8
"1. The Court of Appeals erred in not considering the Memorandum of Agreement of May 2,
1975 and 7 October 1975 as the same were already admitted in the pre-trial order; and
2. The Court of Appeals erred in deciding that ownership belongs to Maris Trading hence, private
respondent Guiang can prohibit Marmont Resort from entering the land."cralaw virtua1aw library

That the land in dispute was, at the time of execution of the second Memorandum of
Agreement, public land, is of no consequence here. Pending approval of Federicos Miscellaneous
Sales Application over said land, respondent spouses enjoyed possessory and other rights over
the same which could validly be assigned or transferred in favor of third persons. In this case,
respondent spouses chose to transfer such rights (over the portion upon which the water pump
was installed) to Maris Trading, as evidenced by the fourth paragraph of the second
Memorandum of Agreement, quoted earlier. Further more, assuming (though only for the sake
of argument) that the alienation to Maris Trading was legally objectionable, respondent spouses
are not the proper parties to raise the issue of invalidity, they and Maris Trading being in pari
delicto. Only the government may raise that issue.
Finally, respondent spouses allege that dismissal of the complaint by the trial court was not
improper as petitioner Marmont was not privy to the second Memorandum of Agreement, and
that accordingly, petitioner had no valid cause of action against respondents.
A closer scrutiny of the second and third paragraphs of the second Memorandum of Agreement
discloses that the first Memorandum of Agreement, including the obligations imposed
thereunder upon Maris Trading, had been acknowledged therein:jgc:chanrobles.com.ph
"That the First Party (i.e., Maris Trading) has dug, drilled and tapped water source for Marmont
Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on
May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No.
166; Page No. 135; Book No. XV; Series of 1975.

We find for the petitioner.

Both the trial and appellate courts held that the first and second Memoranda of Agreement are
not properly considered as forming part of the record of this case, because neither had been
formally presented and offered in evidence at the trial of Civil Case No. 2896-C. The record
shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both
petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues
recognizing the existence of those same two (2) agreements. Such stipulation of facts
constitutes a judicial admission, the veracity of which requires no further proof and which may
be controverted only upon a clear showing that such stipulation had been entered into through
"palpable mistake." On this point, Section 2, Rule 129 of the Revised Rules of Court
provides:jgc:chanrobles.com.ph
"Section 2. Judicial Admissions. Admission made by the parties in the pleadings, or in the
course of the trial or other proceedings do not require proof and cannot be contradicted unless
previously shown to have been made through palpable mistake." (Emphasis supplied).
There has been no showing and respondent spouses do not claim that "palpable mistake" had
intervened here, in respect of the formulation of the facts stipulated by the parties at the pretrial conference. Absent any such showing, that stipulation of facts is incontrovertible, 9 and
may be relied upon by the courts. 10 Respondent spouses are estopped from raising as an issue
in this case the existence and admissibility in evidence of both the first and second Memoranda
of Agreement which, having been marked as exhibits during pre-trial, properly form part of the
record of this case, even though not formally offered in evidence after trial. 11
We consider briefly respondent spouses argument that the second Memorandum of Agreement
was invalid for having been executed by Aurora Guiang without the marital consent of Federico,
contrary to Articles 165 and 172 of the Civil Code.chanrobles law library : red
Article 165 and 172 state the general principle under our civil law, that the wife may not validly
bind the conjugal partnership without the consent of the husband, who is legally the
administrator of the conjugal partnership. In this particular case, however, as noted earlier, the
second Memorandum of Agreement, although ostensibly contracted solely by Aurora Guiang
with Maris Trading, was also signed by her husband Federico, as one of the witnesses thereto.
This circumstance indicates not only that Federico was present during the execution of the
agreement but also that he had, in fact, given his consent to the execution thereof by his wife
Aurora. Otherwise, he should not have appended his signature to the document as witness.
Respondent spouses cannot now disown the second Memorandum of Agreement as their
effective consent thereto is sufficiently manifested in the document itself.

That the First Party has erected, built and drilled for the water source of Marmont Resort on the
land owned by the Second Party [respondent spouses] at the corner of J. Montelibano Street
and Maquinaya Drive (Provincial Road) with the latters permission; . . ." (Emphasis supplied).
The above paragraphs establish, among other things, that construction work had been
performed by Maris Trading on the land occupied by respondent spouses; that such construction
work had been performed in accordance with terms and conditions stipulated in the first
Memorandum of Agreement and that the purpose of the work was to build a water supply facility
for petitioner Marmont. The same excerpts also show that the work so performed was with the
knowledge and consent of the Guiang spouses, who were then occupying the
land.chanroblesvirtualawlibrary
It is clear from the foregoing stipulations that petitioner Marmont was to benefit from the
second Memorandum of Agreement. In fact, said stipulations appear to have been designed
precisely to benefit petitioner and, thus, partake of the nature of stipulations pour autrui,
contemplated in Article 1311 of the Civil Code.
A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and
deliberate favor upon him, which stipulation is found in a contract entered into by parties neither
of whom acted as agent of the beneficiary. 12 We believe and so hold that the purpose and
intent of the stipulating parties (Maris Trading and respondent spouses) to benefit the third
person (petitioner Marmont) is sufficiently clear in the second Memorandum of Agreement.
Marmont was not of course a party to that second Agreement but, as correctly pointed out by
the trial court and the appellate court, the respondent spouses could not have prevented Maris
Trading from entering the property possessory rights over which had thus been acquired by
Maris Trading. That respondent spouses remained in physical possession of that particular bit of
land, is of no moment; they did so simply upon the sufferance of Maris Trading. Had Maris
Trading, and not the respondent spouses, been in physical possession, we believe that Marmont
would have been similarly entitled to compel Maris Trading to give it (Marmont) access to the
site involved. The two (2) courts below failed to take adequate account of the fact that the sole
purpose of Maris Trading in acquiring possessory rights over that specific portion of the land
where well and pump and piping had been installed, was to supply the water requirements of
petitioners hotel. That said purpose was known by respondent spouses, is made explicit by the
second Memorandum of Agreement. Maris Trading itself had no need for a water supply facility;
neither did the respondent spouses. The water facility was intended solely for Marmont Resort
Hotel. The interest of Marmont cannot therefore be regarded as merely "incidental." 13 Finally,
even if it be assumed (for purposes of argument merely) that the second Memorandum of
Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the

circumstances of this case, must be regarded as having acted contrary to the principles of
honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they
refused petitioner Marmont access to the water facility to inspect and repair the same and to
increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced
petitioner Marmont to locate an alternative source of water for its hotel which of course involved
expenditure of money and perhaps loss of hotel revenues. We believe they should respond in
damages.
The evidence on record, however, appears insufficient for determination of the amount of
damages for which respondent spouses should be liable. For this reason, the Court is compelled
to remand this case to the trial court for determination of such damages in appropriate further
proceedings.chanrobles law library : red
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The Decision dated 9
December 1986 of the Court of Appeals in C.A. G.R. CV No. 03299, as well as the Decision
dated 31 May 1983 of the Regional Trial Court of Olongapo City in Civil Case No. 2896-C, are
REVERSED. This case is REMANDED to the trial court for determination, in further proceedings
consistent with this decision, of the amount of damages petitioner is entitled to receive from
respondent spouses.

Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a decision,
thus:
WHEREFORE, the decision appealed from is hereby MODIFIED by:
1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;
2. Absolving appellant BANKARD of any responsibility for damages;
3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and
00/100 (P25,000.00) PESOS;
4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100
(P10,000.00) PESOS;

No pronouncement as to costs.

5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well as
interest awarded, and

SO ORDERED.
G.R. No. 119850 June 20, 1996

6. AFFIRMING the dismissal of all counterclaims and cross-claims.

MANDARIN VILLA, INC., petitioner,

vs.
COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.
RESOLUTION

Costs against appellant Mandarin.

SO ORDERED. 5
Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6) assigned errors
which may be reduced to the following issues, to wit: (1) whether or not petitioner is bound to accept payment
by means of credit card; (2) whether or not petitioner is negligent under the circumstances obtaining in this
case; and (3) if negligent, whether or not such negligence is the proximate cause of the private respondent's
damage.

FRANCISCO, J.:p
With ample evidentiary support are the following antecedent facts:
In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and
businessman, hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa Seafoods Village
Greenhills, Mandaluyong City. After dinner the waiter handed to him the bill in the amount of P2,658.50.
Private respondent offered to pay the bill through his credit card issued by Philippine Commercial Credit Card
Inc. (BANKARD). This card was accepted by the waiter who immediately proceeded to the restaurant's cashier
for card verification. Ten minutes later, however, the waiter returned and audibly informed private respondent
that his credit card had expired. 1 Private respondent remonstrated that said credit card had yet to expire on
September 1990, as embossed on its face. 2 The waiter was unmoved, thus, private respondent and two of his
guests approached the restaurant's cashier who again passed the credit card over the verification computer.
The same information was produced,i.e., CARD EXPIRED. Private respondent and his guests returned to their
table and at this juncture, Professor Lirag, another guest, uttered the following remarks: "Clody [referring to
Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng pinggan?" 3 Thereupon,
private respondent left the restaurant and got his BPI Express Credit Card from his car and offered it to pay
their bill. This was accepted and honored by the cashier after verification. 4 Petitioner and his companions left
afterwards.
The incident triggered the filing of a suit for damages by private respondent. Following a full-dress trial,
judgment was rendered directing the petitioner and BANKARD to pay jointly and severally the private
respondent: (a) moral damages in the amount of P250,000.00; (b) exemplary damages in the amount of
P100,000.00, and (c) attorney's fees and litigation expenses in the amount of P50,000.00.

Petitioner contends that it cannot be faulted for its cashier's refusal to accept private respondent's BANKARD
credit card, the same not being a legal tender. It argues that private respondent's offer to pay by means of
credit card partook of the nature of a proposal to novate an existing obligation for which petitioner, as creditor,
must first give its consent otherwise there will be no binding contract between them. Petitioner cannot seek
refuge behind this averment.
We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an "Agreement" 6 entered into
by petitioner and BANKARD dated June 23, 1989, provides inter alia:
The MERCHANT shall honor validly issued PCCCI credit cards presented by their
corresponding holders in the purchase of goods and/or services supplied by it provided
that the card expiration date has not elapsed and the card number does not appear on
the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards
and, no signs of tampering, alterations or irregularities appear on the face of the credit
card. 7
While private respondent, may not be a party to the said agreement, the above-quoted stipulation conferred a
favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a
stipulation pour autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment
provided he communicated his acceptance to the petitioner before its revocation. 8 In this case, private
respondent's offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said
stipulation but also an explicit communication of his acceptance to the obligor.

In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that
"Bankard is accepted here. 9 This representation is conclusive upon the petitioner which it cannot deny or
disprove as against the private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its
obligation to accept private respondent's BANKARD credit card without violating the equitable principle of
estoppel. 10
Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its good
faith in checking, not just once but twice, the validity of the aforementioned credit card prior to its dishonor. It
argues that since the verification machine flashed an information that the credit card has expired, petitioner
could not be expected to honor the same much less be adjudged negligent for dishonoring it. Further,
petitioner asseverates that it only followed the guidelines and instructions issued by BANKARD in dishonoring
the aforementioned credit card. The argument is untenable.
The test for determining the existence of negligence in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent
person would have used in the same situation? If not, then he is guilty of negligence. 11 The Point of Sale
(POS) Guidelines which outlined the steps that petitioner must follow under the circumstances provides.

Petitioner, however, argues that private respondent's own negligence in not bringing with him sufficient cash
was the proximate cause of his damage. It likewise sought exculpation by contending that the remark of
Professor Lirag 15 is a supervening event and at the same time the proximate cause of private respondent's
injury.
We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash
on hand when he hosted a dinner at petitioner's restaurant, this fact alone does not constitute negligence on
his part. Neither can it be claimed that the same was the proximate cause of private respondent's damage. We
take judicial notice 16 of the current practice among major establishments, petitioner included, to accept
payment by means of credit cards in lieu of cash. Thus, petitioner accepted private respondent's BPI Express
Credit Card after verifying its validity, 17 a fact which all the more refutes petitioner's imputation of negligence
on the private respondent.
Neither can we conclude that the remark of Professor Lirag was a supervening event and the proximate cause
of private respondent's injury. The humiliation and embarrassment of the private respondent was brought
about not by such a remark of Professor Lirag but by the fact of dishonor by the petitioner of private
respondent's valid BANKARD credit card. If at all, the remark of Professor Lirag served only to aggravate the
embarrassment then felt by private respondent, albeit silently within himself.

xxx xxx xxx

WHEREFORE, the instant petition is hereby DISMISSED.
CARD EXPIRED
SO ORDERED.
a. Check expiry date on card.
G.R. No. L-13505

February 4, 1919

b. If unexpired, refer to CB.

b.1. If valid, honor up to maximum of SPL only.
b.2. If in CB as Lost, do procedures 2a to 2e.,

GEO. W. DAYWALT, plaintiff-appellant,

vs.
LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees.
C. C. Cohn and Thos. D. Aitken for appellant.
Crossfield & O'Brien for appellee.

b.3. If in CB as Suspended/Cancelled, do not honor card.

STREET, J.:
c. If expired, do not honor card.

12

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the screen of the
verification machine, petitioner should check the credit card's expiry date embossed on the card itself. If
unexpired, petitioner should honor the card provided it is not invalid, cancelled or otherwise suspended. But if
expired, petitioner should not honor the card. In this case, private respondent's BANKARD credit card has an
embossed expiry date of September 1990. 13 Clearly, it has not yet expired on October 19, 1989, when the
same was wrongfully dishonored by the petitioner. Hence, petitioner did not use the reasonable care and
caution which an ordinary prudent person would have used in the same situation and as such petitioner is
guilty of negligence. In this connection, we quote with approval the following observations of the respondent
Court.
Mandarin argues that based on the POS Guidelines (supra), it has three options in
case the verification machine flashes "CARD EXPIRED". It chose to exercise option (c)
by not honoring appellee's credit card. However, appellant apparently intentionally
glossed over option "(a) Check expiry date on card" (id.) which would have shown
without any shadow of doubt that the expiry date embossed on the BANKARD was
"SEP 90". (Exhibit "D".) A cursory look at the appellee's BANKARD would also reveal
that appellee had been as of that date a cardholder since 1982, a fact which would
have entitled the customer the courtesy of better treatment. 14

In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a
contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of
Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be
executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration
and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree
recognizing the right of Teodorica as owner was entered in said court in August 1906, but the Torrens
certificate was not issued until later. The parties, however, met immediately upon the entering of this decree
and made a new contract with a view to carrying their original agreement into effect. This new contract was
executed in the form of a deed of conveyance and bears date of August 16, 1906. The stipulated price was
fixed at P4,000, and the area of the land enclosed in the boundaries defined in the contract was stated to be
452 hectares and a fraction.
The second contract was not immediately carried into effect for the reason that the Torrens certificate was not
yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the
contract had expired. Accordingly, upon October 3, 1908, the parties entered into still another agreement,
superseding the old, by which Teodorica Endencia agreed upon receiving the Torrens title to the land in
question, to deliver the same to the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker
National Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of a balance of
P3,100.

The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative
to the registration of the land, it was found by official survey that the area of the tract inclosed in the
boundaries stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract. In view
of this development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser,
asserting that she never intended to sell so large an amount of land and that she had been misinformed as to
its area.
This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in
obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of
land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and
effect. This decree appears to have become finally effective in the early part of the year 1914. 1
The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its domicile in the city
of Manila. Said corporation was formerly the owner of a large tract of land, known as the San Jose Estate, on
the island of Mindoro, which was sold to the Government of the Philippine Islands in the year 1909. The same
corporation was at this time also the owner of another estate on the same island immediately adjacent to the
land which Teodorica Endencia had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had
maintained large herds of cattle on the farms referred to. Their representative, charged with management of
these farms, was father Isidoro Sanz, himself a members of the order. Father Sanz had long been well
acquainted with Teodorica Endencia and exerted over her an influence and ascendency due to his religious
character as well as to the personal friendship which existed between them. Teodorica appears to be a woman
of little personal force, easily subject to influence, and upon all the important matters of business was
accustomed to seek, and was given, the advice of father Sanz and other members of his order with whom she
came in contact.
Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica Endencia agreed to
sell her land to the plaintiff as well as of the later important developments connected with the history of that
contract and the contract substituted successively for it; and in particular Father Sanz, as well as other
members of the defendant corporation, knew of the existence of the contract of October 3, 1908, which, as we
have already seen finally fixed the rights of the parties to the property in question. When the Torrens certificate
was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant
corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan
Labarga the procurador and chief official of the defendant corporation, until the deliver thereof to the plaintiff
was made compulsory by reason of the decree of the Supreme Court in 1914.
When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle off of that
property; and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation
immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia. As Teodorica
still retained possession of said property Father Sanz entered into an arrangement with her whereby large
numbers of cattle belonging to the defendant corporation were pastured upon said land during a period
extending from June 1, 1909, to May 1, 1914.
Under the first cause stated in the complaint in the present action the plaintiff seeks to recover from the
defendant corporation the sum of P24,000, as damages for the use and occupation of the land in question by
reason of the pasturing of cattle thereon during the period stated. The trial court came to the conclusion that
the defendant corporation was liable for damages by reason of the use and occupation of the premises in the
manner stated; and fixed the amount to be recovered at P2,497. The plaintiff appealed and has assigned error
to this part of the judgment of the court below, insisting that damages should have been awarded in a much
larger sum and at least to the full extent of P24,000, the amount claimed in the complaint.
As the defendant did not appeal, the property of allowing damages for the use and occupation of the land to
the extent o P2,497, the amount awarded, is not now in question an the only thing here to be considered, in
connection with this branch of the case, is whether the damages allowed under this head should be increased.
The trial court rightly ignored the fact that the defendant corporation had paid Teodorica Endencia of ruse and
occupation of the same land during the period in question at the rate of P425 per annum, inasmuch as the
final decree of this court in the action for specific performance is conclusive against her right, and as the
defendant corporation had notice of the rights of the plaintiff under this contract of purchase, it can not be
permitted that the corporation should escape liability in this action by proving payment of rent to a person other
than the true owner.

With reference to the rate of which compensation should be estimated the trial court came to the following
conclusion:
As to the rate of the compensation, the plaintiff contends that the defendant corporation maintained at leas
one thousand head of cattle on the land and that the pasturage was of the value of forty centavos per head
monthly, or P4,800 annually, for the whole tract. The court can not accept this view. It is rather improbable that
1,248 hectares of wild Mindoro land would furnish sufficient pasturage for one thousand head of cattle during
the entire year, and, considering the locality, the rate of forty centavos per head monthly seems too high. The
evidence shows that after having recovered possession of the land the plaintiff rented it to the defendant
corporation for fifty centavos per hectares annually, the tenant to pay the taxes on the land, and this appears
to be a reasonable rent. There is no reason to suppose that the land was worth more for grazing purposes
during the period from 1909 to 1913, than it was at the later period. Upon this basis the plaintiff is entitled to
damages in the sum of p2,497, and is under no obligation to reimburse the defendants for the land taxes paid
by either of them during the period the land was occupied by the defendant corporation. It may be mentioned
in this connection that the Lontok tract adjoining the land in question and containing over three thousand
hectares appears to have been leased for only P1,000 a year, plus the taxes.
From this it will be seen that the trial court estimated the rental value of the land for grazing purposes at 50
centavos per hectare per annum, and roughly adopted the period of four years as the time for which
compensation at that rate should be made. As the court had already found that the defendant was liable for
these damages from June, 1, 1909, to May 1, 1914, or a period of four years and eleven months, there seems
some ground for the contention made in the appellant's first assignment of error that the court's computation
was erroneous, even accepting the rule upon which the damages were assessed, as it is manifest that at the
rate of 50 centavos per hectare per annum, the damages for four years and eleven months would be P3,090.
Notwithstanding this circumstance, we are of the opinion that the damages assessed are sufficient to
compensate the plaintiff for the use and occupation of the land during the whole time it was used. There is
evidence in the record strongly tending to show that the wrongful use of the land by the defendant was not
continuous throughout the year but was confined mostly to the reason when the forage obtainable on the land
of the defendant corporation was not sufficient to maintain its cattle, for which reason it became necessary to
allow them to go over to pasture on the land in question; and it is not clear that the whole of the land was used
for pasturage at any time. Considerations of this character probably led the trial court to adopt four years as
roughly being the period during which compensation should be allowed. But whether this was advertently
done or not, we see no sufficient reason, in the uncertainty of the record with reference to the number of the
cattle grazed and the period when the land was used, for substituting our guess for the estimate made by the
trial court.
In the second cause of action stated in the complaint the plaintiff seeks to recover from the defendant
corporation the sum of P500,000, as damages, on the ground that said corporation, for its own selfish
purposes, unlawfully induced Teodorica Endencia to refrain from the performance of her contract for the sale
of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and
without reasonable cause, maintained her in her defense to the action of specific performance which was
finally decided in favor of the plaintiff in this court. The cause of action here stated is based on liability derived
from the wrongful interference of the defendant in the performance of the contract between the plaintiff and
Teodorica Endencia; and the large damages laid in the complaint were, according to the proof submitted by
the plaintiff, incurred as a result of a combination of circumstances of the following nature: In 1911, it appears,
the plaintiff, as the owner of the land which he had bought from Teodorica Endencia entered into a contract
(Exhibit C) with S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a sugar growing
and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession
of the land and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the
Philippine Islands, communicated his arrangement to the defendant,, and made repeated efforts to secure the
registered title for delivery in compliance with said agreement with Wakefield. Teodorica Endencia seems to
have yielded her consent to the consummation of her contract, but the Torrens title was then in the possession
of Padre Juan Labarga in Manila, who refused to deliver the document. Teodorica also was in the end contract
with the plaintiff, with the result that the plaintiff was kept out of possession until the Wakefield project for the
establishment of a large sugar growing and milling enterprise fell through. In the light of what has happened in
recent years in the sugar industry, we feel justified in saying that the project above referred to, if carried into
effect, must inevitably have proved a great success.

The determination of the issue presented in this second cause of action requires a consideration of two points.
The first is whether a person who is not a party to a contract for the sale of land makes himself liable for
damages to the vendee, beyond the value of the use and occupation, by colluding with the vendor and
maintaining him in the effort to resist an action for specific performance. The second is whether the damages
which the plaintiff seeks to recover under this head are too remote and speculative to be the subject of
recovery.
As preliminary to a consideration of the first of these questions, we deem it well it dispose of the contention
that the members of the defendants corporation, in advising and prompting Teodorica Endencia not to comply
with the contract of sale, were actuated by improper and malicious motives. The trial court found that this
contention was not sustained, observing that while it was true that the circumstances pointed to an entire
sympathy on the part of the defendant corporation with the efforts of Teodorica Endencia to defeat the
plaintiff's claim to the land, the fact that its officials may have advised her not to carry the contract into effect
would not constitute actionable interference with such contract. It may be added that when one considers the
hardship that the ultimate performance of that contract entailed on the vendor, and the doubt in which the
issue was involved to the extent that the decision of the Court of the First Instance was unfavorable to the
plaintiff and the Supreme Court itself was divided the attitude of the defendant corporation, as exhibited in
the conduct of its procurador, Juan Labarga, and other members of the order of the Recollect Fathers, is not
difficult to understand. To our mind a fair conclusion on this feature of the case is that father Juan Labarga and
his associates believed in good faith that the contract cold not be enforced and that Teodorica would be
wronged if it should be carried into effect. Any advice or assistance which they may have given was, therefore,
prompted by no mean or improper motive. It is not, in our opinion, to be denied that Teodorica would have
surrendered the documents of title and given possession of the land but for the influence and promptings of
members of the defendants corporation. But we do not credit the idea that they were in any degree influenced
to the giving of such advice by the desire to secure to themselves the paltry privilege of grazing their cattle
upon the land in question to the prejudice of the just rights of the plaintiff.
The attorney for the plaintiff maintains that, by interfering in the performance of the contract in question and
obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the defendant corporation
made itself a co-participant with Teodorica Endencia in the breach of said contract; and inasmuch as father
Juan Labarga, at the time of said unlawful intervention between the contracting parties, was fully aware of the
existence of the contract (Exhibit C) which the plaintiff had made with S. B. Wakefield, of San Francisco, it is
insisted that the defendant corporation is liable for the loss consequent upon the failure of the project outlined
in said contract.
In this connection reliance is placed by the plaintiff upon certain American and English decisions in which it is
held that a person who is a stranger to contract may, by an unjustifiable interference in the performance
thereof, render himself liable for the damages consequent upon non-performance. It is said that the doctrine of
these cases was recognized by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been
earnestly pressed to extend the rule there enunciated to the situation here presente.
Somewhat more than half a century ago the English Court of the Queen's Bench saw its way clear to permit
an action for damages to be maintained against a stranger to a contract wrongfully interfering in its
performance. The leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared
that the plaintiff, as manager of a theatre, had entered into a contract with Miss Johanna Wagner, an opera
singer,, whereby she bound herself for a period to sing in the plaintiff's theatre and nowhere else. The
defendant, knowing of the existence of this contract, and, as the declaration alleged, "maliciously intending to
injure the plaintiff," enticed and produced Miss Wagner to leave the plaintiff's employment. It was held that the
plaintiff was entitled to recover damages. The right which was here recognized had its origin in a rule, long
familiar to the courts of the common law, to the effect that any person who entices a servant from his
employment is liable in damages to the master. The master's interest in the service rendered by his employee
is here considered as a distinct subject of juridical right. It being thus accepted that it is a legal wrong to break
up a relation of personal service, the question now arose whether it is illegal for one person to interfere with
any contract relation subsisting between others. Prior to the decision of Lumley vs. Gye [supra] it had been
supposed that the liability here under consideration was limited to the cases of the enticement of menial
servants, apprentices, and others to whom the English Statutes of Laborers were applicable. But in the case
cited the majority of the judges concurred in the opinion that the principle extended to all cases of hiring. This
doctrine was followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in
Temperton vs. Russell ([1893], Q. B., 715), it was held that the right of action for maliciously procuring a
breach of contract is not confined to contracts for personal services, but extends to contracts in general. In that

case the contract which the defendant had procured to be breached was a contract for the supply of building
material.
Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract
relations. But upon the authorities it is enough if the wrong-doer, having knowledge of the existence of the
contract relations, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his
spite by working mischief to the employer is immaterial. Malice in the sense of ill-will or spite is not essential.
Upon the question as to what constitutes legal justification, a good illustration was put in the leading case. If a
party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third
person, with a bona fide purpose of benefiting the one who is under contract to go, dissuades him from the
step, no action will lie. But if the advice is not disinterested and the persuasion is used for "the indirect purpose
of benefiting the defendant at the expense of the plaintiff," the intermedler is liable if his advice is taken and
the contract broken.
The doctrine embodied in the cases just cited has sometimes been found useful, in the complicated relations
of modern industry, as a means of restraining the activities of labor unions and industrial societies when
improperly engaged in the promotion of strikes. An illustration of the application of the doctrine in question in a
case of this kind is found in South Wales Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It
there appeared that certain miners employed in the plaintiff's collieries, acting under the order of the executive
council of the defendant federation, violated their contract with the plaintiff by abstaining from work on certain
days. The federation and council acted without any actual malice or ill-will towards the plaintiff, and the only
object of the order in question was that the price of coal might thereby be kept up, a factor which affected the
miner's wage scale. It was held that no sufficient justification was shown and that the federation was liable.
In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent cases is
commonly accepted, though in a few of the States the broad idea that a stranger to a contract can be held
liable upon its is rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to the situation
where the contract is strictly for personal service. (Boyson vs. Thorn, 98 Cal., 578; Chambers &
Marshall vs. Baldwin 91 Ky., 121; Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson
Bros. Com. Co., 138 Mo., 439.)
It should be observed in this connection that, according to the English and American authorities, no question
can be made as to the liability to one who interferes with a contract existing between others by means which,
under known legal cannons, can be denominated an unlawful means. Thus, if performance is prevented by
force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the
person using such unlawful means is, under all the authorities, liable for the damage which ensues. And in
jurisdictions where the doctrine of Lumley vs. Gye [supra] is rejected, no liability can arise from a meddlesome
and malicious interference with a contract relation unless some such unlawful means as those just indicated
are used. (See cases last above cited.)
This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there appeared
that one Cuddy, the owner of a cinematographic film, let it under a rental contract to the plaintiff Gilchrist for a
specified period of time. In violation of the terms of this agreement, Cuddy proceeded to turn over the film also
under a rental contract, to the defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court of
First Instance and produced an injunction restraining the defendants from exhibiting the film in question in their
theater during the period specified in the contract of Cuddy with Gilchrist. Upon appeal to this court it was in
effect held that the injunction was not improperly granted, although the defendants did not, at the time their
contract was made, know the identity of the plaintiff as the person holding the prior contract but did know of
the existence of a contract in favor of someone. It was also said arguendo, that the defendants would have
been liable in damages under article 1902 of the Civil Code, if the action had been brought by the plaintiff to
recover damages. The force of the opinion is, we think, somewhat weakened by the criticism contain in the
concurring opinion, where it is said that the question of breach of contract by inducement was not really
involved in the case. Taking the decision upon the point which was rally decided, it is authority for the
proposition that one who buys something which he knows has been sold to some other person can be
restrained from using that thing to the prejudice of the person having the prior and better right.

Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil. Rep., 542),
indicates that the defendant corporation, having notice of the sale of the land in question to Daywalt, might
have been enjoined by the latter from using the property for grazing its cattle thereon. That the defendant
corporation is also liable in this action for the damage resulting to the plaintiff from the wrongful use and
occupation of the property has also been already determined. But it will be observed that in order to sustain
this liability it is not necessary to resort to any subtle exegesis relative to the liability of a stranger to a contract
for unlawful interference in the performance thereof. It is enough that defendant use the property with notice
that the plaintiff had a prior and better right.
Article 1902 of the Civil Code declares that any person who by an act or omission, characterized by fault or
negligence, causes damage to another shall be liable for the damage so done. Ignoring so much of this article
as relates to liability for negligence, we take the rule to be that a person is liable for damage done to another
by any culpable act; and by "culpable act" we mean any act which is blameworthy when judged by accepted
legal standards. The idea thus expressed is undoubtedly broad enough to include any rational conception of
liability for the tortious acts likely to be developed in any society. Thus considered, it cannot be said that the
doctrine of Lumley vs. Gye [supra] and related cases is repugnant to the principles of the civil law.
Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a somewhat
uncongenial field in which to propagate the idea that a stranger to a contract may sued for the breach thereof.
Article 1257 of the Civil Code declares that contracts are binding only between the parties and their privies. In
conformity with this it has been held that a stranger to a contract has no right of action for the nonfulfillment of
the contract except in the case especially contemplated in the second paragraph of the same article. (Uy Tam
and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad Co. vs. Compaia
Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, when effectually entered into between certain
parties, determines not only the character and extent of the liability of the contracting parties but also the
person or entity by whom the obligation is exigible. The same idea should apparently be applicable with
respect to the person against whom the obligation of the contract may be enforced; for it is evident that there
must be a certain mutuality in the obligation, and if the stranger to a contract is not permitted to sue to enforce
it, he cannot consistently be held liable upon it.
If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation, the
process must be accomplished by distinguishing clearly between the right of action arising from the improper
interference with the contract by a stranger thereto, considered as an independent act generate of civil liability,
and the right of action ex contractu against a party to the contract resulting from the breach thereof. However,
we do not propose here to pursue the matter further, inasmuch as, for reasons presently to be stated, we are
of the opinion that neither the doctrine of Lumley vs. Gye [supra] nor the application made of it by this court in
Gilchristvs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the damages which the plaintiff is
supposed to have suffered by reason of his inability to comply with the terms of the Wakefield contract.
Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting
one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the
stranger cannot become more extensively liable in damages for the nonperformance of the contract than the
party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could
be recovered against the immediate party to the contract would lead to results at once grotesque and unjust.
In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the
liability of the defendant corporation, even admitting that it has made itself coparticipant in the breach of the
contract, can in no even exceed hers. This leads us to consider at this point the extent of the liability of
Teodorica Endencia to the plaintiff by reason of her failure to surrender the certificate of title and to place the
plaintiff in possession.
It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the
breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance
which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this
court, but without obtaining any special adjudication with reference to damages. Indemnification for damages
resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the
obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to
enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore,
it should be considered that the right of action to recover damages for the breach of the contract in question
was exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res

judicata in her behalf; and as the defendant corporation was not a party to that action, and such defense could
not in any event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia
for damages without refernce to this point.
The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to carry out a
contract for the sale of certain land and resisted to the last an action for specific performance in court. The
result was that the plaintiff was prevented during a period of several years from exerting that control over the
property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously.
Now, what is the measure of damages for the wrongful detention of real property by the vender after the time
has come for him to place the purchaser in possession?
The damages ordinarily and normally recoverable against a vendor for failure to deliver land which he has
contracted to deliver is the value of the use and occupation of the land for the time during which it is wrongfully
withheld. And of course where the purchaser has not paid the purchaser money, a deduction may be made in
respect to the interest on the money which constitutes the purchase price. Substantially the same rule holds
with respect to the liability of a landlord who fails to put his tenant in possession pursuant to contract of lease.
The measure of damages is the value of the leasehold interest, or use and occupation, less the stipulated rent,
where this has not been paid. The rule that the measure of damages for the wrongful detention of land is
normally to be found in the value of use and occupation is, we believe, one of the things that may be
considered certain in the law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.)
almost as wellsettled, indeed, as the rule that the measure of damages for the wrongful detention of money is
to be found in the interest.
We recognize the possibility that more extensive damages may be recovered where, at the time of the
creation of the contractual obligation, the vendor, or lessor, is aware of the use to which the purchaser or
lessee desires to put the property which is the subject of the contract, and the contract is made with the eyes
of the vendor or lessor open to the possibility of the damage which may result to the other party from his own
failure to give possession. The case before us is not this character, inasmuch as at the time when the rights of
the parties under the contract were determined, nothing was known to any to them about the San Francisco
capitalist who would be willing to back the project portrayed in Exhibit C.
The extent of the liability for the breach of a contract must be determined in the light of the situation in
existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to
such as might be reasonable are in all events limited to such as might be reasonably foreseen in the light of
the facts then known to the contracting parties. Where the purchaser desires to protect himself, in the
contingency of the failure of the vendor promptly to give possession, from the possibility of incurring other
damages than such as the incident to the normal value of the use and occupation, he should cause to be
inserted in the contract a clause providing for stipulated amount to the paid upon failure of the vendor to give
possession; and not case has been called to our attention where, in the absence of such a stipulation,
damages have been held to be recoverable by the purchaser in excess of the normal value of use and
occupation. On the contrary, the most fundamental conceptions of the law relative to the assessment of
damages are inconsistent with such idea.
The principles governing this branch of the law were profoundly considered in the case Hadley vs. Baxendale
(9 Exch., 341), decided in the English Court of Exchequer in 1854; and a few words relative to the principles
governing will here be found instructive. The decision in that case is considered a leading authority in the
jurisprudence of the common law. The plaintiffs in that case were proprietors of a mill in Gloucester, which was
propelled by steam, and which was engaged in grinding and supplying meal and flour to customers. The shaft
of the engine got broken, and it became necessarily that the broken shaft be sent to an engineer or foundry
man at Greenwich, to serve as a model for casting or manufacturing another that would fit into the machinery.
The broken shaft could be delivered at Greenwich on the second day after its receipts by the carrier it. It was
delivered to the defendants, who were common carriers engaged in that business between these points, and
who had told plaintiffs it would be delivered at Greenwich on the second day after its delivery to them, if
delivered at a given hour. The carriers were informed that the mill was stopped, but were not informed of the
special purpose for which the broken shaft was desired to forwarded, They were not told the mill would remain
idle until the new shaft would be returned, or that the new shaft could not be manufactured at Greenwich until
the broken one arrived to serve as a model. There was delay beyond the two days in delivering the broken
shaft at Greenwich, and a corresponding delay in starting the mill. No explanation of the delay was offered by

the carriers. The suit was brought to recover damages for the lost profits of the mill, cause by the delay in
delivering the broken shaft. It was held that the plaintiff could not recover.

SO PING BUN, petitioner,

vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C. TIONG, respondents.

The discussion contained in the opinion of the court in that case leads to the conclusion that the damages
recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense
necessary damage; and (2) special damages.
QUISUMBING, J.:
Ordinary damages is found in all breaches of contract where the are no special circumstances to distinguish
the case specially from other contracts. The consideration paid for an unperformed promise is an instance of
this sort of damage. In all such cases the damages recoverable are such as naturally and generally would
result from such a breach, "according to the usual course of things." In case involving only ordinary damage
no discussion is ever indulged as to whether that damage was contemplated or not. This is conclusively
presumed from the immediateness and inevitableness of the damage, and the recovery of such damage
follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a matter of law to
be within the contemplation of the parties.
Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is
only found in case where some external condition, apart from the actual terms to the contract exists or
intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without
actual notice of that external condition, could not reasonably be expected to foresee. Concerning this sort of
damage, Hadley vs.Baxendale (1854) [supra] lays down the definite and just rule that before such damage
can be recovered the plaintiff must show that the particular condition which made the damage a possible and
likely consequence of the breach was known to the defendant at the time the contract was made.
The statement that special damages may be recovered where the likelihood of such damages flowing from the
breach of the contract is contemplated and foreseen by the parties needs to be supplemented by a proposition
which, though not enunciated in Hadley vs. Baxendale, is yet clearly to be drawn from subsequent cases. This
is that where the damage which a plaintiff seeks to recover as special damage is so far speculative as to be in
contemplation of law remote, notification of the special conditions which make that damage possible cannot
render the defendant liable therefor. To bring damages which would ordinarily be treated as remote within the
category of recoverable special damages, it is necessary that the condition should be made the subject of
contract in such sense as to become an express or implied term of the engagement. Horne vs. Midland R. Co.
(L. R., 8 C. P., 131) is a case where the damage which was sought to be recovered as special damage was
really remote, and some of the judges rightly places the disallowance of the damage on the ground that to
make such damage recoverable, it must so far have been within the contemplation of the parties as to form at
least an implied term of the contract. But others proceeded on the idea that the notice given to the defendant
was not sufficiently full and definite. The result was the same in either view. The facts in that case were as
follows: The plaintiffs, shoe manufacturers at K, were under contract to supply by a certain day shoes to a firm
in London for the French government. They delivered the shoes to a carrier in sufficient time for the goods to
reach London at the time stipulated in the contract and informed the railroad agent that the shoes would be
thrown back upon their hands if they did not reach the destination in time. The defendants negligently failed to
forward the good in due season. The sale was therefore lost, and the market having fallen, the plaintiffs had to
sell at a loss.
In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica Endencia; and
what has been said suffices in our opinion to demonstrate that the damages laid under the second cause of
action in the complaint could not be recovered from her, first, because the damages laid under the second
cause of action in the complaint could not be recovered from her, first, because the damages in question are
special damages which were not within contemplation of the parties when the contract was made, and
secondly, because said damages are too remote to be the subject of recovery. This conclusion is also
necessarily fatal to the right of the plaintiff to recover such damages from the defendant corporation, for, as
already suggested, by advising Teodorica not to perform the contract, said corporation could in no event
render itself more extensively liable than the principle in the contract.
Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs against
the appellant.
G.R. No. 120554 September 21, 1999

This petition for certiorari challenges the Decision 1 of the Court of Appeals dated October 10, 1994, and the
Resolution2 dated June 5, 1995, in CA-G.R. CV No. 38784. The appellate court affirmed the decision of the
Regional Trial Court of Manila, Branch 35, except for the award of attorney's fees, as follows:
WHEREFORE, foregoing considered, the appeal of respondent-appellant So Ping Bun for lack of merit is
DISMISSED. The appealed decision dated April 20, 1992 of the court a quo is modified by reducing the
attorney's fees awarded to plaintiff Tek Hua Enterprising Corporation from P500,000.00 to P200,000.00. 3
The facts are as follows:
In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with
lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts were premises located at Nos.
930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles.
The contracts each had a one-year term. They provided that should the lessee continue to occupy the
premises after the term, the lease shall be on a month-to-month basis.
When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the
premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading Co.
including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson, petitioner So Ping
Bun, occupied the warehouse for his own textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of the
25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20% effective
January 1, 1990, upon other lessees' demand. Again on December 1, 1990, the lessor implemented a 30%
rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the
lessee to accomplish the contracts shall be deemed as lack of interest on the lessee's part, and agreement to
the termination of the lease. Private respondents did not answer any of these letters. Still, the lease contracts
were not rescinded.
On March 1, 1991, private respondent Tiong sent a letter to petitioner which reads as follows:
March 1, 1991
Mr. So Ping Bun
930 Soler Street
Binondo, Manila
Dear Mr. So,

Due to my closed (sic) business associate (sic) for three decades with your late grandfather Mr. So Pek Giok
and late father, Mr. So Chong Bon, I allowed you temporarily to use the warehouse of Tek Hua Enterprising
Corp. for several years to generate your personal business.
Since I decided to go back into textile business, I need a warehouse immediately for my stocks. Therefore,
please be advised to vacate all your stocks in Tek Hua Enterprising Corp. Warehouse. You are hereby given
14 days to vacate the premises unless you have good reasons that you have the right to stay. Otherwise, I will
be constrained to take measure to protect my interest.
Please give this urgent matter your preferential attention to avoid inconvenience on your part.
Very truly yours,

Petitioner's motion for reconsideration of the above decision was denied.

On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for reconsideration, the
appellate court modified the decision by reducing the award of attorney's fees from five hundred thousand
(P500,000.00) pesos to two hundred thousand (P200,000.00) pesos.
Petitioner is now before the Court raising the following issues:
I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURT'S DECISION FINDING
SO PING BUN GUILTY OF TORTUOUS INTERFERENCE OF CONTRACT?
II. WHETHER THE APPELLATE COURT ERRED IN AWARDING ATTORNEY'S FEES OF P200,000.00 IN
FAVOR OF PRIVATE RESPONDENTS.

(Sgd) Manuel C. Tiong

MANUEL C. TIONG

The foregoing issues involve, essentially, the correct interpretation of the applicable law on tortuous conduct,
particularly unlawful interference with contract. We have to begin, obviously, with certain fundamental
principles on torts and damages.

President 4
Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in
favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had
been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner's
request. The lease contracts in favor of Trendsetter were executed.
In the suit for injunction, private respondents pressed for the nullification of the lease contracts between
DCCSI and petitioner. They also claimed damages.

Damage is the loss, hurt, or harm which results from injury, and damages are the recompense or
compensation awarded for the damage suffered. 6 One becomes liable in an action for damages for a
nontrespassory invasion of another's interest in the private use and enjoyment of asset if (a) the other has
property rights and privileges with respect to the use or enjoyment interfered with, (b) the invasion is
substantial, (c) the defendant's conduct is a legal cause of the invasion, and (d) the invasion is either
intentional and unreasonable or unintentional and actionable under general negligence rules. 7
The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third
person of the existence of contract; and (3) interference of the third person is without legal justification or
excuse.8

After trial, the trial court ruled:

WHEREFORE, judgment is rendered:
1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3, inclusive) all dated March 11, 1991, between
defendant So Ping Bun, doing business under the name and style of "Trendsetter Marketing", and defendant
Dee C. Chuan & Sons, Inc. over the premises located at Nos. 924-B, 924-C, 930 and 930, Int., respectively,
Soler Street, Binondo Manila;
2. Making permanent the writ of preliminary injunction issued by this Court on June 21, 1991;
3. Ordering defendant So Ping Bun to pay the aggrieved party, plaintiff Tek Hua Enterprising Corporation, the
sum of P500,000.00, for attorney's fees;
4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is concerned, and the respective
counterclaims of the defendant;
5. Ordering defendant So Ping Bun to pay the costs of this lawsuit;
This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising Corporation and defendant
Dee C. Chuan & Sons, Inc. to negotiate for the renewal of their lease contracts over the premises located at
Nos. 930, 930-Int., 924-B and 924-C Soler Street, Binondo, Manila, under such terms and conditions as they
agree upon, provided they are not contrary to law, public policy, public order, and morals.
SO ORDERED. 5

A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex
delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his
private
property. 9 This may pertain to a situation where a third person induces a party to renege on or violate his
undertaking under a contract. In the case before us, petitioner's Trendsetter Marketing asked DCCSI to
execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter's
property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference
above-mentioned are present in the instant case.
Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of
furthering his own financial or economic interest. 10 One view is that, as a general rule, justification for
interfering with the business relations of another exists where the actor's motive is to benefit himself. Such
justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities
believe that it is not necessary that the interferer's interest outweigh that of the party whose rights are invaded,
and that an individual acts under an economic interest that is substantial, not merely de minimis, such that
wrongful and malicious motives are negatived, for he acts in self-protection. 11 Moreover justification for
protecting one's financial position should not be made to depend on a comparison of his economic interest in
the subject matter with that of others. 12 It is sufficient if the impetus of his conduct lies in a proper business
interest rather than in wrongful motives. 13
As early as Gilchrist vs. Cuddy, 14 we held that where there was no malice in the interference of a contract,
and the impulse behind one's conduct lies in a proper business interest rather than in wrongful motives, a
party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. 15

In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his
enterprise at the expense of respondent corporation. Though petitioner took interest in the property of
respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice
on him.
Sec. 1314 of the Civil Code categorically provides also that, "Any third person who induces another to violate
his contract shall be liable for damages to the other contracting party." Petitioner argues that damage is an
essential element of tort interference, and since the trial court and the appellate court ruled that private
respondents were not entitled to actual, moral or exemplary damages, it follows that he ought to be absolved
of any liability, including attorney's fees.
It is true that the lower courts did not award damages, but this was only because the extent of damages was
not quantifiable. We had a similar situation in Gilchrist, where it was difficult or impossible to determine the
extent of damage and there was nothing on record to serve as basis thereof. In that case we refrained from
awarding damages. We believe the same conclusion applies in this case.
While we do not encourage tort interferers seeking their economic interest to intrude into existing contracts at
the expense of others, however, we find that the conduct herein complained of did not transcend the limits
forbidding an obligatory award for damages in the absence of any malice. The business desire is there to
make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But
it does not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones.
The respondent appellate court correctly confirmed the permanent injunction and nullification of the lease
contracts between DCCSI and Trendsetter Marketing, without awarding damages. The injunction saved the
respondents from further damage or injury caused by petitioner's interference.
Lastly, the recovery of attorney's fees in the concept of actual or compensatory damages, is allowed under the
circumstances provided for in Article 2208 of the Civil Code. 16 One such occasion is when the defendant's act
or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interest. 17 But we have consistently held that the award of considerable damages should have clear factual
and legal bases. 18 In connection with attorney's fees, the award should be commensurate to the benefits that
would have been derived from a favorable judgment. Settled is the rule that fairness of the award of damages
by the trial court calls for appellate review such that the award if far too excessive can be reduced. 19 This
ruling applies with equal force on the award of attorney's fees. In a long line of cases we said, "It is not sound
policy to place in penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his
successful opponent would throw wide open the door of temptation to the opposing party and his counsel to
swell the fees to undue proportions." 20
Considering that the respondent corporation's lease contract, at the time when the cause of action accrued,
ran only on a month-to-month basis whence before it was on a yearly basis, we find even the reduced amount
of attorney's fees ordered by the Court of Appeals still exorbitant in the light of prevailing
jurisprudence. 21Consequently, the amount of two hundred thousand (P200,000.00) awarded by respondent
appellate court should be reduced to one hundred thousand (P100,000.00) pesos as the reasonable award or
attorney's fees in favor of private respondent corporation.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals
in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that the award of attorney's fees is
reduced from two hundred thousand (P200,000.00) to one hundred thousand (P100,000.00) pesos. No
pronouncement as to costs.1wphi1.nt SO ORDERED.
G.R. No. 119107

March 18, 2005

CORONA, J.:
On June 23, 1982, petitioner Jose Lagon purchased from the estate of Bai Tonina Sepi, through an intestate
court,1 two parcels of land located at Tacurong, Sultan Kudarat. A few months after the sale, private
respondent Menandro Lapuz filed a complaint for torts and damages against petitioner before the Regional
Trial Court (RTC) of Sultan Kudarat.
In the complaint, private respondent, as then plaintiff, claimed that he entered into a contract of lease with the
late Bai Tonina Sepi Mengelen Guiabar over three parcels of land (the "property") in Sultan Kudarat,
Maguindanao beginning 1964. One of the provisions agreed upon was for private respondent to put up
commercial buildings which would, in turn, be leased to new tenants. The rentals to be paid by those tenants
would answer for the rent private respondent was obligated to pay Bai Tonina Sepi for the lease of the land. In
1974, the lease contract ended but since the construction of the commercial buildings had yet to be
completed, the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed administrator
of her estate. But when the administrator advised him to stop collecting rentals from the tenants of the
buildings he constructed, he discovered that petitioner, representing himself as the new owner of the property,
had been collecting rentals from the tenants. He thus filed a complaint against the latter, accusing petitioner of
inducing the heirs of Bai Tonina Sepi to sell the property to him, thereby violating his leasehold rights over it.
In his answer to the complaint, petitioner denied that he induced the heirs of Bai Tonina to sell the property to
him, contending that the heirs were in dire need of money to pay off the obligations of the deceased. He also
denied interfering with private respondent's leasehold rights as there was no lease contract covering the
property when he purchased it; that his personal investigation and inquiry revealed no claims or
encumbrances on the subject lots.
Petitioner claimed that before he bought the property, he went to Atty. Benjamin Fajardo, the lawyer who
allegedly notarized the lease contract between private respondent and Bai Tonina Sepi, to verify if the parties
indeed renewed the lease contract after it expired in 1974. Petitioner averred that Atty. Fajardo showed him
four copies of the lease renewal but these were all unsigned. To refute the existence of a lease contract,
petitioner presented in court a certification from the Office of the Clerk of Court confirming that no record of
any lease contract notarized by Atty. Fajardo had been entered into their files. Petitioner added that he only
learned of the alleged lease contract when he was informed that private respondent was collecting rent from
the tenants of the building.
Finding the complaint for tortuous interference to be unwarranted, petitioner filed his counterclaim and prayed
for the payment of actual and moral damages.
On July 29, 1986, the court a quo found for private respondent (plaintiff below):
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff:
1. Declaring the "Contract of Lease" executed by Bai Tonina Sepi Mangelen Guiabar in favor of the plaintiff on
November 6, 1974 (Exh. "A" and "A-1") over Lot No. 6395, Pls-73. Lot No 6396. Pls.-73. Lot No. 6399. 3ls-73,
and Lot no.9777-A. CSD-11-000076-D (Lot No. 3-A. 40124), all situated along Ledesma St., Tacurong, Sultan
Kudarat, which document was notarized by Atty. Benjamin S. Fajardo, Sr. and entered into his notarial register
as Doc. No. 619. Page No. 24. Book No. II. Series of 1974, to be authentic and genuine and as such valid and
binding for a period of ten (10) years specified thereon from November 1, 1974 up to October 31, 1984;

JOSE V. LAGON, Petitioner,

vs.
HONORABLE COURT OF APPEALS and MENANDRO V. LAPUZ, respondents.

2. Declaring the plaintiff as the lawful owner of the commercial buildings found on the aforesaid lots and he is
entitled to their possession and the collection (of rentals) of the said commercial buildings within the period
covered by this "Contract of Lease" in his favor;

DECISION

3. Ordering the defendant to pay to the plaintiff the following:

a) Rentals of the commercial buildings on the lots covered by the "Contract of Lease" in favor of the plaintiff for
the period from October 1, 1978 up to October 31, 1984, including accrued interests in the total amount of Five
Hundred Six Thousand Eight Hundred Five Pesos and Fifty Six Centavos (P506, 850.56), the same to
continue to bear interest at the legal rate of 12% per annum until the whole amount is fully paid by the
defendant to the plaintiff;

d) Additionally, the defendant is hereby ordered to pay to the plaintiff by way of actual damages the sum
ofP178,425.00 representing the amount of rentals he collected from the period of October 1978 to August
1983, and minus the amount of P42,700.00 representing rentals due the defendant computed at P700.00 per
month for the period from August 1978 to August 1983, with interest thereon at the rate until the same is fully
paid;

b) Moral damages in the amount of One Million Sixty Two Thousand Five Hundred Pesos (P1,062,500.00);

e) Paragraph 4 is deleted.5

c) Actual or compensatory damages in the amount of Three Hundred Twelve Thousand Five Hundred Pesos
(P312, 500.00);
d) Exemplary or corrective damages in the amount of One Hundred Eighty Thousand Five Hundred Pesos
(P187,500.00)

Before the appellate court, petitioner disclaimed knowledge of any lease contract between the late Bai Tonina
Sepi and private respondent. On the other hand, private respondent insisted that it was impossible for
petitioner not to know about the contract since the latter was aware that he was collecting rentals from the
tenants of the building. While the appellate court disbelieved the contentions of both parties, it nevertheless
held that, for petitioner to become liable for damages, he must have known of the lease contract and must
have also acted with malice or bad faith when he bought the subject parcels of land.

e) Temperate or moderate damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);

Via this petition for review, petitioner cites the following reasons why the Court should rule in his favor:

f) Nominal damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);

1. The Honorable Court of Appeals seriously erred in holding that petitioner is liable for interference of
contractual relation under Article 1314 of the New Civil Code;

g) Attorney's fees in the amount of One Hundred Twenty Five Thousand Pesos (P125,000.00);
h) Expenses of litigation in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
i) Interest on the moral damages, actual or compensatory damages temperate or moderate damages, nominal
damages, attorney's fees and expenses of litigation in the amounts as specified hereinabove from May 24,
1982 up to June 27, 1986, in the total amount of Nine Hundred Thousand Pesos (P900,000.00); all of which
will continue to bear interests at a legal rate of 12% per annum until the whole amounts are fully paid by the
defendants to the plaintiffs;
4. For failure of the defendant to deposit with this Court all the rentals he had collected from the thirteen (13)
tenants or occupants of the commercial buildings in question, the plaintiff is hereby restored to the possession
of his commercial buildings for a period of seventy-three (73) months which is the equivalent of the total period
for which he was prevented from collecting the rentals from the tenants or occupants of his commercial
buildings from October 1, 1978 up to October 31, 1984, and for this purpose a Writ of Preliminary Injunction is
hereby issued, but the plaintiff is likewise ordered to pay to the defendant the monthly rental of Seven Hundred
Pesos (P700.00) every end of the month for the entire period of seventy three (73) months. This portion of the
judgment should be considered as a mere alternative should the defendant fail to pay the amount of Five
Hundred Five Pesos and Fifty Six Centavos (P506,805.56) hereinabove specified;
5. Dismissing the counterclaim interposed by the defendant for lack of merit;
6. With costs against the defendant. 2
Petitioner appealed the judgment to the Court of Appeals. 3 In a decision dated January 31, 1995,4 the
appellate court modified the assailed judgment of the trial court as follows:
a) The award for moral damages, compensatory damages, exemplary damages, temperate or moderate
damages, and nominal damages as well as expenses of litigation in the amount of P62,500.00 and interests
under paragraph 3-a(a), (b), (c), (d), (e), (f), (g), (h), and (i) are deleted;
b) The award for attorney's fees is reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are AFFIRMED;

2. The Honorable Court of Appeals erred in not holding that private respondent is precluded from recovering, if
at all, because of laches;
3. The Honorable Court of Appeals erred in holding petitioner liable for actual damages and attorney's fees,
and;
4. The Honorable Court of Appeals erred in dismissing petitioner's counterclaims. 6
Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall
be liable for damages to the other contracting party. The tort recognized in that provision is known as
interference with contractual relations.7 The interference is penalized because it violates the property rights of
a party in a contract to reap the benefits that should result therefrom. 8
The core issue here is whether the purchase by petitioner of the subject property, during the supposed
existence of private respondent's lease contract with the late Bai Tonina Sepi, constituted tortuous interference
for which petitioner should be held liable for damages.
The Court, in the case of So Ping Bun v. Court of Appeals,9 laid down the elements of tortuous interference
with contractual relations: (a) existence of a valid contract; (b) knowledge on the part of the third person of the
existence of the contract and (c) interference of the third person without legal justification or excuse. In that
case, petitioner So Ping Bun occupied the premises which the corporation of his grandfather was leasing from
private respondent, without the knowledge and permission of the corporation. The corporation, prevented from
using the premises for its business, sued So Ping Bun for tortuous interference.
As regards the first element, the existence of a valid contract must be duly established. To prove this, private
respondent presented in court a notarized copy of the purported lease renewal. 10 While the contract appeared
as duly notarized, the notarization thereof, however, only proved its due execution and delivery but not the
veracity of its contents. Nonetheless, after undergoing the rigid scrutiny of petitioner's counsel and after the
trial court declared it to be valid and subsisting, the notarized copy of the lease contract presented in court
appeared to be incontestable proof that private respondent and the late Bai Tonina Sepi actually renewed their
lease contract. Settled is the rule that until overcome by clear, strong and convincing evidence, a notarized
document continues to be prima facie evidence of the facts that gave rise to its execution and delivery. 11
The second element, on the other hand, requires that there be knowledge on the part of the interferer that the
contract exists. Knowledge of the subsistence of the contract is an essential element to state a cause of action

for tortuous interference.12 A defendant in such a case cannot be made liable for interfering with a contract he
is unaware of.13 While it is not necessary to prove actual knowledge, he must nonetheless be aware of the
facts which, if followed by a reasonable inquiry, will lead to a complete disclosure of the contractual relations
and rights of the parties in the contract. 14

damage without injury where the loss or harm is not the result of a violation of a legal duty. In that instance, the
consequences must be borne by the injured person alone since the law affords no remedy for damages
resulting from an act which does not amount to legal injury or wrong. 24 Indeed, lack of malice in the conduct
complained of precludes recovery of damages. 25

In this case, petitioner claims that he had no knowledge of the lease contract. His sellers (the heirs of Bai
Tonina Sepi) likewise allegedly did not inform him of any existing lease contract.

With respect to the attorney's fees awarded by the appellate court to private respondent, we rule that it cannot
be recovered under the circumstances. According to Article 2208 of the Civil Code, attorney's fees may be
awarded only when it has been stipulated upon or under the instances provided therein. 26 Likewise, being in
the concept of actual damages, the award for attorney's fees must have clear, factual and legal bases 27 which,
in this case, do not exist.

After a careful perusal of the records, we find the contention of petitioner meritorious. He conducted his own
personal investigation and inquiry, and unearthed no suspicious circumstance that would have made a
cautious man probe deeper and watch out for any conflicting claim over the property. An examination of the
entire property's title bore no indication of the leasehold interest of private respondent. Even the registry of
property had no record of the same. 15
Assuming ex gratia argumenti that petitioner knew of the contract, such knowledge alone was not sufficient to
make him liable for tortuous interference. Which brings us to the third element. According to our ruling in So
Ping Bun, petitioner may be held liable only when there was no legal justification or excuse for his action 16 or
when his conduct was stirred by a wrongful motive. To sustain a case for tortuous interference, the defendant
must have acted with malice17 or must have been driven by purely impious reasons to injure the plaintiff. In
other words, his act of interference cannot be justified. 18

Regarding the dismissal of petitioner's counterclaim for actual and moral damages, the appellate court
affirmed the assailed order of the trial court because it found no basis to grant the amount of damages prayed
for by petitioner. We find no reason to reverse the trial court and the Court of Appeals. Actual damages are
those awarded in satisfaction of, or in recompense for, loss or injury sustained. To be recoverable, they must
not only be capable of proof but must actually be proved with a reasonable degree of certainty. 28 Petitioner
was unable to prove that he suffered loss or injury, hence, his claim for actual damages must fail. Moreover,
petitioner's prayer for moral damages was not warranted as moral damages should result from the wrongful
act of a person. The worries and anxieties suffered by a party hailed to court litigation are not compensable. 29
With the foregoing discussion, we no longer deem it necessary to delve into the issue of laches.

Furthermore, the records do not support the allegation of private respondent that petitioner induced the heirs
of Bai Tonina Sepi to sell the property to him. The word "induce" refers to situations where a person causes
another to choose one course of conduct by persuasion or intimidation. 19 The records show that the decision
of the heirs of the late Bai Tonina Sepi to sell the property was completely of their own volition and that
petitioner did absolutely nothing to influence their judgment. Private respondent himself did not proffer any
evidence to support his claim. In short, even assuming that private respondent was able to prove the renewal
of his lease contract with Bai Tonina Sepi, the fact was that he was unable to prove malice or bad faith on the
part of petitioner in purchasing the property. Therefore, the claim of tortuous interference was never
established.
In So Ping Bun, the Court discussed whether interference can be justified at all if the interferer acts for the sole
purpose of furthering a personal financial interest, but without malice or bad faith. As the Court explained it:
x x x, as a general rule, justification for interfering with the business relations of another exists where the
actor's motive is to benefit himself. Such justification does not exist where the actor's motive is to cause harm
to the other. Added to this, some authorities believe that it is not necessary that the interferer's interest
outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest
that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts
in self-protection. Moreover, justification for protecting one's financial position should not be made to depend
on a comparison of his economic interest in the subject matter with that of the others. It is sufficient if the
impetus of his conduct lies in a proper business interest rather than in wrongful motives. 20
The foregoing disquisition applies squarely to the case at bar. In our view, petitioner's purchase of the subject
property was merely an advancement of his financial or economic interests, absent any proof that he was
enthused by improper motives. In the very early case of Gilchrist v. Cuddy,21 the Court declared that a person
is not a malicious interferer if his conduct is impelled by a proper business interest. In other words, a financial
or profit motivation will not necessarily make a person an officious interferer liable for damages as long as
there is no malice or bad faith involved.
In sum, we rule that, inasmuch as not all three elements to hold petitioner liable for tortuous interference are
present, petitioner cannot be made to answer for private respondent's losses.
This case is one of damnun absque injuria or damage without injury. "Injury" is the legal invasion of a legal
right while "damage" is the hurt, loss or harm which results from the injury.22 In BPI Express Card Corporation
v. Court of Appeals,,23 the Court turned down the claim for damages of a cardholder whose credit card had
been cancelled by petitioner corporation after several defaults in payment. We held there that there can be

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed decision of the Court of
Appeals is hereby REVERSED and SET ASIDE.
No costs.
G.R. No. 20732

September 26, 1924

C. W. ROSENSTOCK, as administrator of the estate of H. W. ELSER, plaintiff-appellant,

vs.
EDWIN BURKE, defendant-appellant.
THE COOPER COMPANY, intervenor-appellee.
Camus and Delgado for plaintiff-appellant.
Crossfield & O'Brien for defendant-appellant.
Hartigan & Welch for intervenor-appellee.
AVANCEA, J.:
The defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired in Australia in the
year 1920 for the purpose of selling it here. This yacht was purely for recreation and as no purchaser
presented himself, it had been moored for several months until the plaintiff H. W. Elser, at the beginning of the
year 1922, began negotiations with the defendant for the purchase thereof. At the time this yacht was
mortgaged to the Asia Banking Corporation to secure the payment of a debt of P100,000 which was due and
unpaid since one year prior thereto, contracted by the defendant in favor of said bank of which Mr. Avery was
then the manager. The plan of the plaintiff was to organize a yacht club and sell it afterwards the yacht for
P120,000, of which P20,000 was to be retained by him as commission and the remaining P100,000 to be paid
to the defendant. To this end, on February 12, 1922, the defendant obtained from the plaintiff an option in
writing in the following terms:
For the purpose expressed by you of organizing a yacht club, I take pleasure in confirming my verbal offer to
you of the motor yacht Bronzewing, at a price of one hundred and twenty thousand pesos (P120,000). This
offer is open for thirty days from date.

To carry out his plan, the plaintiff proposed to the defendant to make a voyage on board the yacht to the south,
with prominent business men for the purpose, undoubtedly, of making an advantageous sale. But as the yacht
needed some repairs to make it seaworthy for this voyage, and as, on the other hand, the defendant said that
he had no funds to make said repairs, the plaintiff paid almost all their amount. It has been stipulated that the
plaintiff was not to pay anything for the use of the yacht. The cost of those repairs was P6,972.21, which was
already paid by the plaintiff, plus P1,730.84 due to the Cooper Company which still remains unpaid, plus
P832.93, due to the plaintiff, which also remains unpaid. Once the yacht was repaired, the plaintiff gave
receptions on board, and on March 6, 1922, made his pleasure voyage to the south, coming back on the 23d
of the same month. The plaintiff never accepted the offer of the defendant for the purchase of the yacht
contained in the letter of option of February 12, 1922. The plaintiff believed, in view of the result of that
voyage, that it was convenient to replace the engine of the yacht with a new one which would cost P20,000. In
this connection the plaintiff had negotiated with Mr. Avery for another loan of P20,000 with which to purchase
this new engine. On the 31st of that month of March the plaintiff wrote the defendant a letter informing him,
among other things, that after he had tried to obtain from Mr. Avery said new loan of P20,000 for the purchase
of the engine, and that he was not disposed to purchase the vessel for more than P70,000, Mr. Avery had told
him that he was not in position to give one cent more. In this letter the plaintiff suggested to the defendant that
he should speak with Mr. Avery about the matter. The defendant, after an interview with Mr. Avery held on the
same day, answered the plaintiff that he had arrived at an agreement with Mr. Avery about the sale of the
yacht to the plaintiff for P80,000 payable as follows: P5,000 each month during the first six months and
P10,000 thereafter until full payment of the price, the yacht to be mortgaged to secure payment thereof. On
the first of April next, the plaintiff informed the defendant that he was not inclined to accept this proposition. On
the morning of the 3d of the same month, the defendant called at the office of the plaintiff to speak with him
about the matter and as a result of the interview held between them, the plaintiff in the presence of the
defendant wrote a letter addressed to the latter which is literally as follows:
MY DEAR MR. BURKE:
In connection with the yacht Bronzewing, I am in position and am willing to entertain the purchase of it under
the following terms:
(a) The purchase price to be P80,000, Philippine currency.
(b) Initial payment of P10,000 to be made within sixty (60) days.
(c) Payment of the balance to be made in installments of P5,000 per month, with interest on deferred
payments at 9 per cent payable semiannually.
(d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering Co., commercial
value P400,000, book value P600,000. Statement covering this will be furnished you on request.
Yours very truly,

(Sgd.) H. W. ELSER
Proposition Accepted.
(Sgd.) E. BURKE
MANILA, April 3, 1922.

ASIA BKG. CORP.

Agreed to as above.
(Sgd.) W. G. AVERY
Mgr.
Asia Bkg. Corp.
The defendant took this letter and went to the Asia Banking Corporation and after holding an interview with Mr.
Avery, both of them signed at the bottom of the letter of Mr. Elser, as appear there. On the 5th of the same

month of April the plaintiff sent the defendant another letter, telling him that in view of the attitude of Mr. Avery
as to the loan of P20,000 in connection with the installation of a new engine in the yacht, it was impossible for
him to take charge of the boat and he made delivery thereof to the defendant. On the 8th of the same month of
April the defendant answered the plaintiff that as he had accepted, with the consent of the Asia Banking
Corporation, through Mr. Avery, the offer for the purchase of the yacht made by the plaintiff in his letter of the
3d of April (Exhibit 1), he made demand on him for the performance thereof.
The plaintiff brings this action against the defendant to recover the sum of P6,139.28, the value of the repairs
made on the yacht which he had paid for.
The defendant alleges as a defense against this action that the agreement he had with the plaintiff about these
repairs was that the letter was to pay for them for his own account in exchange of the gratuitous use of the
yacht, and prays that he be absolved from the complaint. As a counterclaim he prays that the plaintiff be
compelled to pay him the sum of P832.93, one-half of the price of the canvas used in the repair of the yacht,
which has not as yet been paid by the plaintiff. Furthermore, alleging that the plaintiff purchased the vessel in
accordance with his letter of April 3, 1922, he prays as a cross-complaint that the plaintiff be compelled to
comply with the terms of this contract and to pay damages in the sum of P10,000.
The Cooper Company was admitted to intervene in this action and claims in turn its credit of P1,730.84 for the
repairs made on the yacht, the amount of which has not as yet been paid.
The trial court rendered judgment sentencing the defendant to pay the plaintiff the sum of P6,139.28 with legal
interest thereon at the rate of 6 per cent from April 18, 1922, and to pay the intervenor, the Cooper Company,
the sum of P1,730.84 with legal interest at 6 per cent from May 19, 1922. The plaintiff was sentenced to
comply in all its parts with the contract for the purchase of the yacht, according to the terms of his letter of April
3d (Exhibit 1). Both the plaintiff and the defendant appealed from this judgment.
The plaintiff appeals from the judgment in so far as it compels him to purchase the yacht upon the conditions
stated in the letter of April 3, 1922 (Exhibit 1). This appeal raises the question whether or not this letter was a
definite offer to purchase, and the same having been accepted by the defendant with the consent of Mr. Avery
on behalf of the Asia Banking Corporation, whether or not it is a contract of sale valid and binding against the
plaintiff. The trial court solved this question in the affirmative. We are of the opinion that this is an error.
As was seen, this letter begins as follows: "In connection with the yacht Bronzewing, I am in position and am
willing to entertain the purchase of it under the following terms . . . ." The whole question is reduced to
determining what the intention of the plaintiff was in using that language.
To convey the idea of a resolution to purchase, a man of ordinary intelligence and common culture would use
these clear and simple words, I offer to purchase, I want to purchase, I am in position to purchase. And the
stronger is the reason why the plaintiff should have expressed his intention in the same way, because,
according to the defendant, he was a prosperous and progressive merchant. It must be presumed that a man
in his transactions in good faith uses the best means of expressing his mind that his intelligence and culture
permit so as to convey and exteriorize his will faithfully and unequivocally. But the plaintiff instead of using in
his letter the expression, I want to purchase, I offer to purchase, I am in position to purchase, or other similar
language of easy and unequivocal meaning, used this other, I am in position and am willing to entertain the
purchase of the yacht. The word "entertain" applied to an act does not mean the resolution to perform said act,
but simply a position to deliberate for deciding to perform or not to perform said act. Taking into account only
the literal and technical meaning of the word "entertain," it seems to us clear that the letter of the plaintiff
cannot be interpreted as a definite offer to purchase the yacht, but simply a position to deliberate whether or
not he would purchase the yacht. It was but a mere invitation to a proposal being made to him, which might be
accepted by him or not.
Furthermore there are other circumstances which show that in writing this letter it was really not the intention
of the plaintiff to make a definite offer. The plaintiff never thought of acquiring the yacht for his personal use,
but for the purpose of selling it to another or to acquire it for another, thereby obtaining some gain from the
transaction, and it can be said that the only thing the plaintiff wanted in connection with this yacht was that the
defendant should procure its sale, naturally with some profit for himself. For this reason the original idea of the

plaintiff was to organize a yacht club that would afterwards acquire the yacht through him, realizing some gain
from the sale. This is clearly stated in the letter containing the option that the defendant gave him on February
12, 1922. This accounts for the fact that the plaintiff was not in a position to make a definite offer to purchase,
he being sure to be able to resell the yacht to another, and this explains why he did not say in his letter of the
3d of April that he was in position to purchase the yacht, but only to entertain this purchase.
On the other hand, the plaintiff thought it necessary to replace the engine of the yacht with a new one which
was to cost P20,000 and has been negotiating with Mr. Avery a loan of P20,000 to make the replacing. When
the plaintiff wrote his letter of the 3rd of April, he knew that Mr. Avery was not in position to grant this loan.
According to this, the resolution of the plaintiff to acquire the yacht depended upon him being able to replace
the engine, and this, in turn, depended upon the plaintiff being successful in obtaining the P20,000 that the
new engine was to cost. This accounts also for the fact that the plaintiff was not in position to make a definite
offer.

For all of the foregoing the judgment appealed from is reversed, the defendant is absolved from the complaint,
the plaintiff is sentenced to pay to the Cooper Company the sum of P1,730.84 with interest and to the
defendant the sum of P832.93, and the plaintiff is declared to be under no obligation to purchase the yacht
upon the terms of his letter of April 3, 1922, without special pronouncement as to cost. So ordered.
Malcolm, Villamor and Ostrand, JJ., concur.
Johnson, J. dissents.
Street, J. did not sign.
Separate Opinions
JOHNS, J., concurring and dissenting:

But above all, there is in the record positive proof that in writing this letter of the 3d of April the plaintiff had no
intention to make thereby a definite offer. This letter was written by his stenographer Mr. Parkins in his office
and in the presence of the defendant who has been there precisely for the purpose of speaking about this
purchase. According to the plaintiff when he was dictating that part wherein he said that he was in position to
entertain the purchase of the yacht, the defendant interrupted him and suggested the elimination of the
word entertain and the substitution therefor of a definite offer, but after a discussion between them, during
which the plaintiff clearly said that he was not in position to make a definite offer, the word entertain now
appearing in the letter was preserved. The stenographer Mr. Parkins and another employee of the plaintiff Mr.
Guzman, who were present, corroborate this statement of the plaintiff.

I have read with much interest the opinion of Mr. Justice Avancea, and in so far as the facts are stated they
are correctly stated. In my opinion many important and material facts are not stated.

The lower court seems to have been impressed by the consideration that it was anomalous for the plaintiff to
write that letter if his purpose was only to indicate to the defendant that he wanted the latter to make a
proposal which he (plaintiff) might reject or accept. We see nothing anomalous in this. A proposition may be
acceptable in itself, but its acceptance may depend on other circumstances; thus one may say that a
determinate proposition is acceptable, and yet he may not be in a position to accept the same at the moment.

The testimony is conclusive that at the time the proposition was made, Mr. Burke told Mr. Elser that he had no
faith that such a deal would ever be made, and that later it was abandoned.

The letter of the plaintiff not containing a definite offer but a mere invitation to an offer being made to him, the
acceptance of the defendant placed at the bottom of this letter has not other meaning than that of accepting
the proposition to make this offer, as must have been understood by the plaintiff.
The appeal of the defendant raises the question as to who must pay the repairs made on the yacht. The lower
court decided that it is the defendant. We are of the opinion that this is also an error. The plaintiff was the one
who directly and personally ordered these repairs. It was agreed between the plaintiff and the defendant that
the former was not to pay anything for the use of the yacht. This, at the first glance, would make us believe
that it was the plaintiff who was to pay for the repairs in exchange for the use of the yacht in order that the
profit should be reciprocal. But the plaintiff claims that his agreement was that he had to advance only the
amount of the repairs, and that the defendant was at last the one to pay therefor. The defendant, in turn,
claims that the agreement was that the plaintiff was to pay for these repairs in exchange for the use of the
yacht. Upon this contention there is, on the one hand, but the testimony of the plaintiff and, on the other, the
testimony of the defendant. But it having been the plaintiff who ordered and made these repairs, and in view of
the fact that he was not obliged to pay anything for the use of the yacht, his mere testimony contradicted by
that of the defendant, cannot be considered as a sufficient evidence to establish the latter's obligation.
Furthermore according to the defendant, nothing was agreed upon about the kind of the repairs to be made on
the yacht and there was no limit to said repairs. It seems strange that the defendant should accept liability for
the amount of these repairs, leaving their extent entirely to the discretion of the plaintiff. And this discretion,
according to the contention of the plaintiff, includes even that of determining what repairs must be paid by the
defendant, as evidenced by the fact that the plaintiff has not claimed the amount of any, such as the wireless
telegraph that was installed in the yacht, and yet he claims as a part thereof the salaries of the officers and the
crew which do not represent any improvement on the vessel.
Our conclusion is that the letter of the plaintiff of April 3, 1922, was not a definite offer and that the plaintiff is
bound to pay the amount of the repairs of the yacht in exchange for the use thereof.

The storm center in this case is the legal construction to be place upon Exhibit 1. To arrive at a correct
conclusion, it is necessary and important to analyze the preceding and subsequent letters which passed
between the parties. The first is a letter from Mr. Burke written on February 12, 1922, known as Exhibit D, to
the effect that for the purpose of organizing a yacht club, he placed a price on the yacht of P120,000, which
was open for thirty days, P20,000 of which was to go to Mr. Elser as a commission for making the sale.

On March 31, after his return from the southern islands trip, and after a conference with Avery, Elser wrote
Burke a letter, known as Exhibit B, in which he said:
I explained to him that I would take over the boat with your consent and be responsible to him for the payment
for these engines as well as the other obligations to the bank. However, I told him I wasn't disposed to pay
more than P70,000 for the boat as she now stands.
After my talk with him in regard to the matter, he advised me that he wasn't disposed to advance another cent,
and refused to advise me as what his attitude is towards the P100,000 which you now owe him on the boat,
stating that he would settle the matter with you.
From this is clearly appears that Elser was then willing to pay Burke P70,000 for the yacht, and that the only
thing which prevented the making of the deal at that time was the price, and the further fact that the bank was
not willing to release its mortgage for P100,000, which it held on the yacht.
On receipt of this letter, and upon the same day, Burke had an interview with Avery, and on March 31, 1922,
wrote Mr. Elser the following letter:
I had a long talk this morning with Mr. Avery in regard to the Bronzewing. At first he was not inclined to discuss
the matter but after a while he decided that he would accept the proposition relative to the disposal of the boat
and has agreed on the following terms:
He will turn the boat over to you for P8,000, taking the mortgage on the same and you on part will agree to pay
P5,000 a month for the first six months and P10,000 a month until the balance is paid. This is absolutely the
best he can do. I on my part am agreeable to accept this proposition and if you feel the same please advise
me at once.
In answer to which, and on April 1, Elser wrote a letter to Burke, the material portion of which is as follows:

With reference to your letter of March 31, I do not feel that I am in a position right now to accept the
proposition of Mr. Avery, of paying him five thousand pesos monthly for the first six months and ten thousand a
month until balance is paid.

Elser and Burke were not children. They were both men of affairs and experience in business. They were not
fooling or flirting with one another. Neither were they playing marbles, but as businessmen, they were dealing
with a business proposition which involved P80,000.

April 3, Burke went to Elser's office and obtained from him the letter, known in the record as Exhibit 1, which is
as follows:

In this connection, Burke testified:

In connection with the yacht Bronzewing, I am in position and am willing to entertain the purchase of it under
the following terms:

I called on Mr. Elser personally in his office and asked him to make a proposition in writing that he would be
agreeable to, and that I could take to Mr. Avery, and if he accepted would terminate the whole transaction.
It is very significant that this testimony is not denied, and that it stands as an admitted fact in the record.

(a) The purchase price to be P80,000, Philippine currency.

(b) Initial payment of P10,000 to be made within sixty (60) days.
(c) Payment of the balance to be made in installments of P5,000 per month, with interest on deferred
payments at 9 per cent, payable semi-annually.
(d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering Co., commercial
value P400,000, book value P600,000. Statement covering this will be furnished you on request.
Upon receipt of this letter, Burke went direct from Elser's office to Avery's office, and obtained from Avery the
written consent of the bank to sell the yacht under the terms and conditions proposed by Elser, and then
unconditionally accepted the offer, and on the same day notified Elser of the consent and acceptance. The
acceptance and agreement was made in writing on the bottom of the same sheet of Elser's letter and are as
follows:

Proposition Accepted.
(Sgd.) E. BURKE
MANILA, April 3, 1922.

ASIA BKG. CORP.

Agreed to as above.
(Sgd.) W. G. AVERY
Mgr.
Asia Bkg. Corp.
With such endorsement and in this form, the letter was returned to Elser's office on the day it was received.
April 5, two days later, Elser wrote Burke a letter, the material provisions of which are as follows:
I have decided, because of the attitude of Mr. Avery regarding the advancement to me of P20,000 to install
new engines and put the boat in first class condition, that it is impossible for me to assume the liability of the
yacht Bronzewing.
But nowhere in this letter does Elser claim or assert that his letter of April 3 above quoted, known in the record
as Exhibit 1, was not an offer to purchase the yacht, or that it was not intended as an offer.
Analyzing the combined letters, we are clearly of the opinion that the letter of April 3 should be construed as
an offer to purchase, and that when it was accepted and agreed to by both Burke and the bank, it then
became and is now a valid and binding contract to purchase.

Analyzing the letters above quoted, on March 31, speaking about a conference with Avery, Elser says to
Burke:
However, I told him I wasn't disposed to pay more than P70,000 for the boat as she now stands.
This can only be construed as an admission by Elser that he was then ready and willing to pay "P70,000 for
the boat as she now stands." In response to that letter and after a conference with Avery, Burke wrote Elser to
the effect that they would sell the boat to him for P80,000, and take a mortgage upon it for the purchase price
to be paid at the rate of P5,000 a month for the six months, and P10,000 a month until the balance is paid.
From this it appears that Burke and the bank were not willing to accept Elser's proposition to sell the boat for
P70,000, but that they were ready and willing to sell it for P80,000 upon the terms and conditions stated. In
answer to that, Elser wrote Burke as follows:
I do not feel that I am in a position right now to accept the proposition of Mr. Avery, of paying him five thousand
pesos monthly for the first six months and ten thousand a month until balance is paid.
From this letter it will be noted that Elser did not object to the price of P80,000, and that his only objection was
to the terms of payment of P5,000 monthly for the first six months, and P10,000 a month until the balance is
paid.
The letters above quoted resulted in the conference between Burke and Elser in Elser's office in which Elser
personally dictated and signed Exhibit 1, in which the price is P80,000, P10,000 of which is to be paid within
sixty days, and the balance in installments of P5,000 per month, with interest, and as security, Elser was to
deposit P80,000 in stock of the J. K. Pickering Company. From which it will be noted that the only real
difference between Burke's proposition to Elser, and Elser's proposition to Burke is in the terms and conditions
of payment, and the fact that, as security, Elser was to pledge stock in the Pickering Company, as collateral, in
lieu of the mortgage on the yacht. Both propositions were specific, definite and certain as to time, terms and
conditions of payment, and the price to be paid.
When you take into consideration the previous negotiations between the parties, and the purpose and intent
with which Exhibit 1 was written, and Elser's letter of April 6. Exhibit 1 must be construed as an offer to
purchase the yacht upon the terms and conditions therein specified.
Suppose the conditions were the reverse, and after the offer had been made and accepted, Elser made a
tender of performance, and that Burke and Avery refused to perform, would any member of this court claim
that both Burke and Avery are not bound by the acceptance, or that either of them could refuse to carry out the
contract? Suppose Elser had offered to perform and complete the purchase, and Burke had refused to
complete the sale, would any member of this court claim that Elser could not enforce the specific performance
of the contract? If it is legally binding upon Avery and Burke, then by the same token and for the same reason,
the contract of purchase is legally binding upon Elser.
The acceptance was written on the offer and delivered to Elser on April 3. All of them were residents of Manila
and had their respective offices in the city, and it is fair to assume that they could communicate with each
other by telephone.

Applying the rule of everyday business dealings between businessmen, what would the ordinary businessman
do under the same conditions? Here, the parties had been negotiating some little time for the purchase and
sale of the yacht. To find out whether they could finally get together, Burke went to Elser's office and asked him
to make him a written proposition "that he would be agreeable to," and that he would then submit it to Avery,
"and if he accepted would terminate the whole transaction." With that end in view, and for that purpose, Elser
wrote the letter in question.
It is very apparent that Burke understood it that way because upon receipt of the letter, he went direct to see
Avery, and after some discussion between them, Avery agreed to the proposition, and Burke accepted it, and
returned the letter to Elser's office the day it was written. Upon seeing the letter, with the acceptance of Mr.
Burke and the conforme of Mr. Avery, what would the ordinary businessman have done, knowing that they
treated is as a valid and binding contract? Would he have remained silent for two whole days? When he
received and read the returned letter, he knew how Burke and Avery construed the transaction, and what they
understood it to be. Yet, having that knowledge, he did not call either of them by phone and say that, I did not
intend to make you a final proposition to purchase, and two days later notified them by letter that he did not
then want to purchase the yacht on account of the attitude of Avery. Business is not done between
businessmen in that way. If, upon the receipt of the returned letter, Elser had called either of them by phone,
and said in effect that he never intended to make a final proposition to purchase, another and a different
question would have been presented, and his position would be tenable, and it would have been far more
forcible, if he had said that in substance in the letter which he wrote two days later.
In the final analysis, Elser said in his letter of March 31 that he was not "disposed to pay more than P70,000
for the boat as she now stands." That was after the conference which he had with Avery. Burke then had a
conference with Avery in which they agreed upon and submitted the following terms to Elser:
He will turn the boat over to you for P80,000, taking the mortgage on the same and you on your part will agree
to pay P5,000 a month for the first six months and P10,000 a month until the balance is paid.
In other words, Burke and Avery made a proposition to Elser that they were ready and willing to sell the yacht
for P80,000 upon those terms and conditions. In answer to that, Elser said:

intend that the letter should be a final proposition? And why did he base his refusal to carry out the contract
upon the sole ground of the attitude of Avery, and not for any other reason?
Under Elser's contention, and as sustained by Mr. Justice Avancea's opinion, all of the previous negotiations
did not mean anything. The letter was a blank piece of paper which Elser gave to Burke to deceive and
mislead him, and yet he knew that Burke took and received it in good faith as a proposition, which Elser was
ready and willing to carry out in the event that it received the conforme of Avery and was approved by Burke.
That is a strained and unnatural construction, and imputes to Elser bad faith and a deceptive motive in the
writing and the giving of the letter to Burke. Avery and Burke had made their proposition to which Elser had
declined to agree. Then, as a result of a personal conference, Elser made his proposition to which Elser had
declined to agree. Then, as a result of a personal conference, Elser made his proposition to Avery and Burke
in which the price, terms of payment and the security to be given for the sale and purchase of the yacht were
all specified, and his proposition was by them accepted and approved and returned to Elser the day it was
received. Everything was in writing and signed by the respective parties in interest. Why is that not a valid and
binding contract? What more is required? When Elser's own proposition was accepted and approved and
delivered to him, the minds of the parties had met, and they had mutually agreed in writing upon the price of
the yacht, terms of payment and the security to be given.
There was a completed contract by which Elser proposed to purchase the yacht and Burke and Avery agreed
to sell upon the terms and conditions specified in Elser's proposition. The yacht was then in Elser's
possession, and nothing remained to be done, except the payment of the purchase price by Elser.
The record is conclusive that Elser remained silent for two whole days when he wrote Burke that because of
the attitude of Mr. Avery regarding the advance to him of P20,000, "that he would not assume liability" or make
the purchase. In other words, after a lapse of two days, and because of the attitude of Avery, and for no other
or different reason, Elser declined to make the purchase. It will be noted that Exhibit 1 is unconditional, and
that the proposition is not made contingent on the attitude of Avery or anything else, and that it expressly says:
I am in position and am willing to entertain the purchase of if (the yacht) under the following terms.
In his letter of April 1, he says:

I do not feel that I am in a position right now to accept the proposition of Mr. Avery, of paying him five thousand
pesos monthly for the first six months and ten thousand a month until balance is paid.
In other words, Elser apparently was satisfied with the price, but objected only to the terms and conditions of
payment. This resulted in the final conference between Elser and Burke in which Elser made a proposition,
specifying the terms and conditions upon which he was "willing to entertain the purchase" of the yacht, and
Burke and Avery accepted his proposition in and by which their proposition was modified only as to the terms
and conditions of payment. No change was made in the price, and the only difference as to the payments was
that in the Burke and Avery proposition, Elser was to pay P5,000 a month for the first six months, and P10,000
a month until the balance is paid, and in Elser's proposition, he was to make an initial payment of P10,000
within six days, and the payment of the balance was to be made in installments of P5,000 per month, with
interest.
When Elser gave the letter to Burke, he knew that Burke would submit it to Avery, and he knew that if Avery
gave his conforme, it would be accepted by Burke. Otherwise, why was the letter given to Burke? Why was it
submitted to Avery?

I do not feel that I am in a position right now to accept the proposition of Mr. Avery.
In his letter of April 3, he says:
I am in position and am willing to entertain the purchase, etc.
In one letter he says in legal effect that "I am not in position to accept the proposition of Mr. Avery," and two
days later, he says: "I am in position." The use of the words "I am not in position" on April 1, and the use of the
words "I am in position, two days later are, indeed; very significant. Yet, in the face of those letters, on April 6,
he declined to make the purchase solely on account of the attitude of Avery, and for no other or different
reason.
The proof brings the case squarely within the provisions of Article 1254 of the Civil Code, which says:

In the light of preceding events, can this court assume that Elser intended to mislead and deceive Burke and
to give him a blank piece of paper which would not have any legal force or effect? As a witness Elser testified:

A contract exists from the moment one or more persons consent to be bound with respect to another or others
to deliver something or to render some service.

Q. And at Mr. Burke's request you wrote this letter Exhibit 1? A. Yes.

Cyc., vol. 9, page 244, says;

Why was it written? Why was it signed by Elser? Why did Avery give his conforme? Why was it approved by
Burke? And why was it returned on the same day to Elser? Why did he remain silent for two days after the
receipt of the returned letter? And why, two to days later when he did answer, he never said that he did not

E. Agreement defined. Agreement is the expression by two or more persons of a common intention to affect
their legal relations; it consists in their being of the same mind and intention concerning the matter agreed
upon.

Page 247
2. Offer (a) Definition. An offer, as the term is used in the law of contracts, is a proposal to enter into a
contract.
Page 252
(d) Terms of offer (I) In general. One who makes an offer to enter into a contract may do so of course
upon any terms he may see fit, so long as they are not illegal, and if the offer is accepted they are binding on
both parties. If the terms are expressed and are legal, the only difficulty is in ascertaining the intention of the
parties.
Page 260
(VI) Acceptance by accepting paper containing terms (A) In general. A contract may be formed by
accepting a paper containing terms. If an offer is made by delivering to another a paper containing the terms of
a proposed contract, and the paper is accepted, the accepter is bound by its terms; and this is true as a rule
whether he reads the paper or not. . . .
Page 282
. . . On the other hand an agreement to make and execute a certain written agreement, the terms of which are
mutually understood and agreed upon, is in all respects as valid and obligatory as the written contract itself
would be if executed. If therefore it appears that the minds of the parties have met, that a proposition for a
contract has been made by one party and accepted by the other, that the terms of this contract are in all
respects definitely understood and agreed upon, and that a part of the mutual understanding is that a written
contract embodying these terms shall be drawn and executed by the respective parties, this is an obligatory
agreement.
Corpus Juris, vol. 13, page 263, says:
(SEC. 38) 2. Common intention (a) In general. In order that there may be an agreement, the parties must
have a distinct intention common to both and without doubt or difference. Until all understand alike, there can
be no assent, and, therefore, no contract. Both parties must assent to the same thing in the same sense, and
their minds must meet as to all the terms. . . .
Page 266
SEC. 53) 2. Offer (a) Definition. An offer, as the terms is used in the law of contracts, is a proposal to
enter into a contract.
Page 271
(SEC. 61) (d) Terms of offer (1) In general. One who makes an offer to enter into a contract may do so
on any terms that he may see fit to make, as long as they are not illegal; and if the offer is accepted, such
terms are binding on both parties. If the terms are expressed and are legal, the only difficulty is in ascertaining
the intention of the parties.
Page 277
(SEC. 76) (6) Acceptance by accepting paper containing terms (a) In general. A contract may be formed
by accepting a paper containing terms. If an offer is made by delivering to another a paper containing the

terms of a proposed contract, and the paper is accepted, the acceptor is bound by its terms; and this is true as
a rule whether he reads the paper or not. ..."
Page 277 (Note )
"A great number of contracts are in the present state of society made by the delivery by one of the contracting
parties to the other of a document in a common form, stating the terms by which the person delivering it will
enter into the proposed contract. Such a form constitutes the offer of the party who tenders it. If the form is
accepted without objection by the person to whom it is tendered this person is as a general rule bound by its
contents, and his act amounts to an acceptance of the offer made to him, whether he reads the document or
otherwise informs himself of its contents or not." (Eng. Watkins vs. Rymill, 10 Q. B. D., 178, 183.)
Ruling Case Law, vol., 6, page 599:
21. Generally. In order that a contract may be formed there must be, as has been seen, a concurrence of
intention between a promisor and a promisee. Frequently this idea is expressed by saying that it is essential to
the formation of a contract that there should be a "meeting of the minds" of the parties. It must appear that
their minds met on the same distinct and definite terms. . . .
Page 600
23. Offer or proposal. A contract is ordinarily formed by an offer and an acceptance. . . .
Page 605
Necessity and effect of acceptance. From the discussion in reference to the right to revoke an offer, it is
apparent that the acceptance of an offer is essential. To constitute a contract there must be an acceptance of
the offer, because until the offer is accepted both parties have not assented to the contract, or, in the figurative
language frequently used by the courts, their minds have not met. The effect of acceptance is to convert the
offer into a binding contract. . . .
Upon the question of contemporaneous writings and agreements, Cyc., vol., 35, page 97, says:
In construing contracts of sale all contemporaneous instruments and agreements in regard to the transaction
should be construed together, and if possible so as to give effect to all of them. . . .
Much has been said in this case about the definition of the word "entertain." It is contended that because the
word "entertain" was used in Elser's letter, it should be construed to read, "I am now in a position to buy your
yacht for P80,000 upon the specified terms and conditions, and if you will make an offer to sell it at that price
and upon those conditions, I will purchase the yacht. But before I will enter into a formal agreement to me that
you are ready and willing to sell on those terms, and until such time as you do submit such a proposition and I
formally accept it, I am not bound to purchase, even though we do agree upon the amount of the purchase
price, the terms and conditions of payment, and the security to be given." That is a strained and unnatural
construction, and nullifies the undisputed testimony of both Burke and Elser, and overlooks and does not take
into consideration the purpose and intent with which the letter was written, and the language used in the
previous letters and the subsequent letter of April 6. When they are considered, the meaning of the word
"entertain" is very apparent. The minds of the parties had met. They had agreed upon the price, the terms and
conditions of the sale, and the security to be given, all of which was reduced to writing, and signed by the
respective parties, and when that is done, under the authorities above cited, it constitutes a valid and binding
contract.
Stress is also laid upon the oral testimony of the employees of Elser, who were in his office at the time the
contract was prepared and signed.

This case forcibly illustrates the reason for the inflexible rule that oral testimony is not admissible to change or
vary the terms of a written contract. Here, the contract was in writing, and Elser admits that he signed it. There
is no dispute about any one or either of the letters quoted in this opinion, and Burke's cause of action is
founded upon that letter.

G.R. No. 125761

April 30, 2003

SALVADOR P. MALBAROSA, petitioner,

vs.
HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP., respondents.

The complaint alleges:

CALLEJO, SR., J.:
That on the 3d day of April, 1922, the said plaintiff made an offer in writing to this defendant to purchase from
him the said yacht Bronzewing, in its then condition and including, of course, the repairs placed thereon by
him, for the sum of P80,000, payable P10,000 within sixty days, and the balance in installments of P5,000 per
month, with interest on deferred payments at 9 per cent per annum, payable semi-annually, and that as
security for such purchase price, he would deposit P80,000 in stock of the J. K. Pickering Co., of a commercial
value of P400,00, and a book value of P600,00, which said offer was on the same date and while it was in full
force and effect unconditionally accepted by this defendant, with the written consent of the said Asia Banking
Corporation, and which said offer and acceptance is more fully set out in a certain letter, a true copy of which
is attached hereto, marked Exhibit 1, and made a part hereof, and constitutes a binding contract of purchase
and sale and is obligatory on each of the parties thereto.
Yet, in the face of those allegations and over the vigorous protests and objections of Burke's attorneys, the
oral testimony of Elser's employees was admitted, for the purpose of showing that the written contract does
not mean that it says.
There is no rule of law by which oral testimony is admissible for any such purpose, and least of all should it be
considered by an appellate court.
The stubborn fact remains that Elser wrote and signed the letter, and the specified terms of the purchase were
accepted and approved by both Avery and Burke, and the letter was returned to Elser, and that all of the
previous conversations between Elser and Burke were merged in that letter, and that it is in writing and speaks
for itself. But it is contended that in preparing the letter, Burke wanted Elser to use the words "firm offer," and
that Elser declined to do so. Assuming that to be true, what difference does it make? The fact remains that
Elser did write and sign the letter as it was written, and that it was accepted as written, and that parol
testimony is not admissible to change or alter the words or the meaning of the letter as it was written, and that
plaintiff relies upon the contract as it was written.
It will be noted that all through this case, Burke relies upon evidence in writing, which is signed by the
respective parties, and about which there is not and cannot be any dispute, because the writings speak for
themselves. It will also be noted that Elser's defense is largely founded upon oral testimony. That is specially
true as to the construction which should be placed upon Exhibit 1.
The rule is elementary that the court does not have any right to consider oral testimony for any such purpose.
Again, all of the dealings between Elser and Burke were confined to the sale and purchase of the yacht, and
the repairs which were made upon it. Upon the question of repairs, Justice Avancea finds against Elser and
in favor of Burke. If the parol testimony on behalf of Elser upon the question of repairs is not true, as the court
finds, it should materially weaken his parol evidence as to the sale and purchase of the yacht. But the court
finds that Elser's parol testimony as to the repairs upon the yacht is not true, and finds that his parol testimony
as to the sale and purchase of the yacht is true.
Why should the court find that his testimony is true in one case and false in the other? All of the transactions in
question arose out of, and pertained to, mutual dealings concerning the yacht. If Elser's testimony is not true
as to the repairs, it is not true as to the sale and purchase of the yacht.
Upon all other matters, I agree with the opinion of Justice Avancea. But in the reversal of the judgment in
favor of Burke and against Elser, I vigorously dissent.

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of companies
wholly-owned and controlled by respondent S.E.A. Development Corporation (SEADC). The petitioner
Salvador P. Malbarosa was the president and general manager of Philtectic Corporation, and an officer of
other corporations belonging to the SEADC group of companies. The respondent assigned to the petitioner
one of its vehicles covered by Certificate of Registration No. 04275865 1 described as a 1982 model Mitsubishi
Gallant Super Saloon, with plate number PCA 180 for his use. He was also issued membership certificates in
the Architectural Center, Inc. Louis Da Costa was the president of the respondent and Commonwealth
Insurance Co., Inc., while Senen Valero was the Vice-Chairman of the Board of Directors of the respondent
and Vice-Chairman of the Board of Directors of Philtectic Corporation.
Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his desire to retire from
the SEADC group of companies and requested that his 1989 incentive compensation as president of Philtectic
Corporation be paid to him. On January 8, 1990, the petitioner sent a letter to Senen Valero tendering his
resignation, effective February 28, 1990 from all his positions in the SEADC group of companies, and
reiterating therein his request for the payment of his incentive compensation for 1989. 2
Louis Da Costa met with the petitioner on two occasions, one of which was on February 5, 1990 to discuss the
amount of the 1989 incentive compensation petitioner was entitled to, and the mode of payment thereof. Da
Costa ventured that the petitioner would be entitled to an incentive compensation in the amount of P395,000.
On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed to the
petitioner3stating therein that petitioner's resignation from all the positions in the SEADC group of companies
had been accepted by the respondent, and that he was entitled to an incentive compensation in the amount of
P251,057.67, and proposing that the amount be satisfied, thus:
- The 1982 Mitsubishi Super saloon car assigned to you by the company shall be transferred to you at a value
of P220,000.00. (Although you have indicated a value of P180,000.00, our survey in the market indicates that
P220,000.00 is a reasonable reflection of the value of the car.)
- The membership share of our subsidiary, Tradestar International, Inc. in the Architectural Center, Inc. will be
transferred to you. (Although we do not as yet have full information as to the value of these shares, we have
been informed that the shares have traded recently in the vicinity of P60,000.00.) 4
The respondent required that if the petitioner agreed to the offer, he had to affix his conformity on the space
provided therefor and the date thereof on the right bottom portion of the letter, thus:
Agreed:
SALVADOR P. MALBAROSA
Date: _____________________5
On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the March 14,
1990 Letter-offer for his consideration and conformity. The petitioner was dismayed when he read the letter
and learned that he was being offered an incentive compensation of only P251,057.67. He told Da Costa that
he was entitled to no less than P395,000 as incentive compensation. The petitioner refused to sign the letter-

offer on the space provided therefor. He received the original of the letter and wrote on the duplicate copy of
the letter-offer retained by Da Costa, the words: "Rec'd original for review purposes." 6 Despite the lapse of
more than two weeks, the respondent had not received the original of the March 14, 1990 Letter-offer of the
respondent with the conformity of the petitioner on the space provided therefor. The respondent decided to
withdraw its March 14, 1990 Offer. On April 3, 1996, the Board of Directors of the respondent approved a
resolution authorizing the Philtectic Corporation and/or Senen Valero to demand from the petitioner for the
return of the car and to take such action against the petitioner, including the institution of an action in court
against the petitioner for the recovery of the motor vehicle. 7
On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing the March 14,
1990 Letter-offer of the respondent and demanding that the petitioner return the car and his membership
certificate in the Architectural Center, Inc. within 24 hours from his receipt thereof. 8 The petitioner received the
original copy of the letter on the same day.
On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the latter that he cannot
comply with said demand as he already accepted the March 14, 1990 Letter-offer of the respondent when he
affixed on March 28, 1990 his signature on the original copy of the letter-offer.9 The petitioner enclosed a xerox
copy of the original copy of the March 14, 1990 Letter-offer of the respondent, bearing his signature on the
space provided therefore dated March 28, 1990.10

Agreed:
(Sgd.)
SALVADOR P. MALBAROSA
Date:

3-28-90

15

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

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

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

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

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

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

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

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

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

3. After trial, hold the defendant liable to plaintiff for the use of the motor vehicle in the amount of P1,000.00
per day from date of demand until the motor vehicle is returned to plaintiff.
4. After trial, hold the defendant liable to plaintiff for attorney's fees and costs of litigation in the amount of
P100,000.00.
Plaintiffs likewise prays for such other reliefs as are just and equitable under the circumstances. 11
On April 30, 1990, the trial court issued an order for the issuance of a writ of replevin. 12 Correspondingly, the
writ of replevin was issued on May 8, 1990. 13
On May 11, 1990, the Sheriff served the writ on the petitioner and was able to take possession of the vehicle
in question. On May 15, 1990, the petitioner was able to recover the possession of the vehicle upon his filing
of the counter-bond.14
In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already agreed on
March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had notified the
said plaintiff of his acceptance; hence, he had the right to the possession of the car. Philtectic Corporation had
no right to withdraw the offer of the respondent SEADC. The petitioner testified that after conferring with his
counsel, he had decided to accept the offer of the respondent, and had affixed his signature on the space
below the word "Agree" in the March 14, 1990 Letter-offer, thus:

3. Cost of litigation.
SO ORDERED.18
The trial court stated that there existed no perfected contract between the petitioner and the respondent on the
latter's March 14, 1990 Letter-offer for failure of the petitioner to effectively notify the respondent of his
acceptance of said letter-offer before the respondent withdrew the same. The respondent filed a motion for the
amendment of the decision of the trial court, praying that the petitioner should be ordered to pay to the
respondent reasonable rentals for the car. On October 10, 1992, the court a quo issued an order, granting
plaintiff's motion and amending the dispositive portion of its July 28, 1992 Decision:
1. Ordering defendant to pay to plaintiff lease rentals for the use of the motor vehicle at the rate of P1,000.00
per Day from May 8, 1990 up to the date of actual delivery to the plaintiff of the motor vehicle; and
2. Ordering First Integrated Bonding & Insurance Co. to make good on its obligations to plaintiff under the
Counterbond issued pursuant to this case.
SO ORDERED.19
The petitioner appealed from the decision and the order of the court a quo to the Court of Appeals.

On February 8, 1996, the Court of Appeals rendered its Decision, 20 affirming the decision of the trial court. The
dispositive portion of the decision reads:
WHEREFORE, the Decision dated July 28, 1992 and the Order dated October 10, 1992 of the Regional Trial
Court of Pasig (Branch 158) are hereby AFFIRMED with the MODIFICATION that the period of payment of
rentals at the rate of P1,000.00 per day shall be from the time this decision becomes final until actual delivery
of the motor vehicle to plaintiff-appellee is made.
Costs against the defendant-appellant.
SO ORDERED.21
The Court of Appeals stated that the petitioner had not accepted the respondent's March 14, 1990 Letter-offer
before the respondent withdrew said offer on April 4, 1990.
The petitioner filed a petition for review on certiorari of the decision of the Court of Appeals.
The petitioner raises two issues, namely: (a) whether or not there was a valid acceptance on his part of the
March 14, 1990 Letter-offer of the respondent;22 and (b) whether or not there was an effective withdrawal by
the respondent of said letter-offer.
The petition is dismissed.
Anent the first issue, the petitioner posits that the respondent had given him a reasonable time from March 14,
1990 within which to accept or reject its March 14, 1990 Letter-offer. He had already accepted the offer of the
respondent when he affixed his conformity thereto on the space provided therefor on March 28, 1990 23 and
had sent to the respondent corporation on April 7, 1990 a copy of said March 14, 1990 Letter-offer bearing his
conformity to the offer of the respondent; hence, the respondent can no longer demand the return of the
vehicle in question. He further avers that he had already impliedly accepted the offer when after said
respondent's offer, he retained possession of the car.
For its part, the respondent contends that the issues raised by the petitioner are factual. The jurisdiction of the
Court under Rule 45 of the Rules of Court, as amended, is limited to revising and correcting errors of law of
the CA. As concluded by the Court of Appeals, there had been no acceptance by the petitioner of its March 14,
1990 Letter-offer. The receipt by the petitioner of the original of the March 14, 1990 Letter-offer for review
purposes amounted merely to a counter-offer of the petitioner. The findings of the Court of Appeals are binding
on the petitioner. The petitioner adduced no proof that the respondent had granted him a period within which
to accept its offer. The latter deemed its offer as not accepted by the petitioner in light of petitioner's
ambivalence and indecision on March 16, 1990 when he received the letter-offer of respondent.
We do not agree with the petitioner.

Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract. An offer may be reached at
any time until it is accepted. An offer that is not accepted does not give rise to a consent. The contract does
not come into existence.24 To produce a contract, there must be acceptance of the offer which may be express
or implied25but must not qualify the terms of the offer. The acceptance must be absolute, unconditional and
without variance of any sort from the offer.26
The acceptance of an offer must be made known to the offeror.27 Unless the offeror knows of the acceptance,
there is no meeting of the minds of the parties, no real concurrence of offer and acceptance. 28 The offeror may
withdraw its offer and revoke the same before acceptance thereof by the offeree. The contract is perfected
only from the time an acceptance of an offer is made known to the offeror. If an offeror prescribes the
exclusive manner in which acceptance of his offer shall be indicated by the offeree, an acceptance of the offer
in the manner prescribed will bind the offeror. On the other hand, an attempt on the part of the offeree to
accept the offer in a different manner does not bind the offeror as the absence of the meeting of the minds on
the altered type of acceptance.29 An offer made inter praesentes must be accepted immediately. If the parties
intended that there should be an express acceptance, the contract will be perfected only upon knowledge by
the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the
manner prescribed by the offeror is not effective but constitutes a counter-offer which the offeror may accept or
reject.30 The contract is not perfected if the offeror revokes or withdraws its offer and the revocation or
withdrawal of the offeror is the first to reach the offeree. 31 The acceptance by the offeree of the offer after
knowledge of the revocation or withdrawal of the offer is inefficacious. The termination of the contract when the
negotiations of the parties terminate and the offer and acceptance concur, is largely a question of fact to be
determined by the trial court.32
In this case, the respondent made its offer through its Vice-Chairman of the Board of Directors, Senen Valero.
On March 16, 1990, Da Costa handed over the original of the March 14, 1990 Letter-offer of the respondent to
the petitioner. The respondent required the petitioner to accept the offer by affixing his signature on the space
provided in said letter-offer and writing the date of said acceptance, thus foreclosing an implied acceptance or
any other mode of acceptance by the petitioner. However, when the letter-offer of the respondent was
delivered to the petitioner on March 16, 1990, he did not accept or reject the same for the reason that he
needed time to decide whether to reject or accept the same. 33 There was no contract perfected between the
petitioner and the respondent corporation. 34 Although the petitioner claims that he had affixed his conformity to
the letter-offer on March 28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only
on April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the said March 14,
1990 Letter-offer bearing his conformity that he notified the respondent of his acceptance to said offer. But
then, the respondent, through Philtectic Corporation, had already withdrawn its offer and had already notified
the petitioner of said withdrawal via respondent's letter dated April 4, 1990 which was delivered to the
petitioner on the same day. Indubitably, there was no contract perfected by the parties on the March 14, 1990
Letter-offer of the respondent.
The petitioner's plaint that he was not accorded by the respondent reasonable time to accept or reject its offer
does not persuade. It must be underscored that there was no time frame fixed by the respondent for the
petitioner to accept or reject its offer. When the offeror has not fixed a period for the offeree to accept the offer,
and the offer is made to a person present, the acceptance must be made immediately.35 In this case, the
respondent made its offer to the petitioner when Da Costa handed over on March 16, 1990 to the petitioner its
March 14, 1990 Letter-offer but that the petitioner did not accept the offer. The respondent, thus, had the
option to withdraw or revoke the offer, which the respondent did on April 4, 1990.

Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Even if it is assumed that the petitioner was given a reasonable period to accept or reject the offer of the
respondent, the evidence on record shows that from March 16, 1990 to April 3, 1990, the petitioner had more
than two weeks which was more than sufficient for the petitioner to accept the offer of the respondent.
Although the petitioner avers that he had accepted the offer of the respondent on March 28, 1990, however,
he failed to transmit to the respondent the copy of the March 14, 1990 Letter-offer bearing his conformity
thereto. Unless and until the respondent received said copy of the letter-offer, it cannot be argued that a
contract had already been perfected between the petitioner and the respondent.
On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned and controlled
subsidiary of the respondent, had no authority to withdraw the offer of the respondent. The resolution of the
respondent authorizing Philtectic Corporation to take such action against the petitioner including the institution

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

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

C/Pltf. But he was the one who instructed, your honor.
Court LET the witness answer.
Witness (Stenographer reads back the previous question asked by counsel for him to answer, and . . ..)
A

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

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

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

It is the same.36

IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The Decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
G.R. No. 124242

January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA
LU, respondents.

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

A
Yes. I know that because I was the one who gave the instruction and before it was finally served on
Malbarosa, I was shown about the demand letter.
C/Pltf. Your honor, or rather . . .
Mr. Valero, if I show you a copy of that letter, will you be able to identify the same?
A

Yes, sir.

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

It's the same one I am referring to.

C/Pltf. Your honor, we manifest that the letter has been previously marked as our exh. "D".
Q
Mr. Valero, on the first paragraph of this demand letter, you stated that the letter is written in behalf of
Philtectic Corporation. Do you have any knowledge why it was written this way?

TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla,
(hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No.
T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta,
(hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a
downpayment of fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita
Lu of the same date. Several other payments totaling two hundred thousand pesos (P200,000.00) were made
by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale
in his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified
the spouses about having received information that the spouses sold the same property to another without his
knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be
issued in his favor.

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

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the
property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when the
balance of the purchase price became due, he requested for a reduction of the price and when she refused,
Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos
(P50,000.00) to Babasanta through Eugenio Oya.

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

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of
San Pedro, Laguna, a Complaint for Specific Performance and Damages 1 against his co-respondents herein,
the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold
to him by the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the
execution of a final deed of sale in his favor, respondents allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total
advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the
knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell
the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the
downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu
added that as of November 1987, total payments made by Babasanta amounted to only two hundred
thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand
pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of
the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu
refused to grant Babasantas request, the latter rescinded the contract to sell and declared that the original
loan transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred
thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Managers Check No.
05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show
that she was able and willing to pay the balance of her loan obligation.

the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T7219).

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the issuance of a
writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of
Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was
necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred
in failing to consider that the contract to sell between them and Babasanta had been novated when the latter
abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The
Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge
and consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by
Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.

The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new matters which
seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated
17 January 19905 admitted the amended complaint.

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not
register the respective sales in their favor, ownership of the property should pertain to the buyer who first
acquired possession of the property. The trial court equated the execution of a public instrument in favor of
SLDC as sufficient delivery of the property to the latter. It concluded that symbolic possession could be
considered to have been first transferred to SLDC and consequently ownership of the property pertained to
SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial courts decision to the Court of Appeals alleging in the main that the
trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale
made by the Spouses Lu in favor of SLDC.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for
Intervention6 before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation
because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it
in a Deed of Absolute Sale with Mortgage. 7 It alleged that it was a buyer in good faith and for value and
therefore it had a better right over the property in litigation.

On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of the trial
court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered
the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the
balance of the purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The
appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the
ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments
made by SLDC with legal interest and to pay attorneys fees to Babasanta.

In his Opposition to SLDCs motion for intervention,8 respondent Babasanta demurred and argued that the
latter had no legal interest in the case because the two parcels of land involved herein had already been
conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose
of the two parcels of land to the intervenor.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court. 12 However, in
aManifestation dated 20 December 1995,13 the Spouses Lu informed the appellate court that they are no
longer contesting the decision dated 4 October 1995.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed
its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasantas motion for the issuance of a
preliminary injunction was likewise granted by the trial court in its Order dated 11 January 199110 conditioned
upon his filing of a bond in the amount of fifty thousand pesos (P50,000.00).

In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion for
reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate
court denied SLDCs motion for reconsideration on the ground that no new or substantial arguments were
raised therein which would warrant modification or reversal of the courts decision dated 4 October 1995.

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor
anOption to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the total consideration for the
purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos
(P1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three
hundred twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in
its favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean
and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it only learned of the
filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no obligation to
look beyond the titles submitted to it by the Spouses Lu particularly because Babasantas claims were not
annotated on the certificates of title at the time the lands were sold to it.

Hence, this petition.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to
SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00)
with legal interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorneys fees. On the
complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel

SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD
FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE
OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE
PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE
ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED
PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT
BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS
RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE
ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF
THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN
GOOD FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior notice of Babasantas claim over
the property merely on the basis of its having advanced the amount of two hundred thousand pesos
(P200,000.00) to Pacita Lu upon the latters representation that she needed the money to pay her obligation to
Babasanta. It argued that it had no reason to suspect that Pacita was not telling the truth that the money would
be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred
thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the
purchase price still due from it and should not be construed as notice of the prior sale of the land to
Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to
Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the
property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of
ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC
argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go
beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it
added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter
failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after
the sale of the property to it was consummated on 3 May 1989.1awphi1.nt
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court
that due to financial constraints they have no more interest to pursue their rights in the instant case and submit
themselves to the decision of the Court of Appeals. 16
On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the
property because it failed to comply with the requirement of registration of the sale in good faith. He
emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice
of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioners
registration of the sale did not confer upon it any right. Babasanta further asserted that petitioners bad faith in
the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the
purpose of the issuance of the two hundred thousand pesos (P200,000.00) managers check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a
better right over the two parcels of land subject of the instant case in view of the successive transactions
executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita
Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares
of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna. 17 While the receipt signed by Pacita did
not mention the price for which the property was being sold, this deficiency was supplied by Pacita Lus letter
dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for
fifteen pesos (P15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly
leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and
not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the offer and the
acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance

absolute.20 Moreover, contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. 21
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00)
from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no
stipulation that the seller reserves the ownership of the property until full payment of the price which is a
distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu
never intended to transfer ownership to Babasanta except upon full payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests
for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu
allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not
be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the
sellers intended to transfer title, they could have easily executed the document of sale in its required form
simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed
by Pacita Lu should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title
passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full payment of the price. 22 In a contract of sale,
the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment
being a positive suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. 23
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase
price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment
and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing
the intention to pay without the accompanying payment is not considered a valid tender of
payment.24 Consignation of the amounts due in court is essential in order to extinguish Babasantas obligation
to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta
even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the
sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not a contract to sell,
Babasantas claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent 25 and from that moment, the parties may
reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1) consent or meeting
of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject
matter of the contract; (3) cause of the obligation which is established. 27
The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is
the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal
basis by which to affect dominion or ownership. 28 Under Article 712 of the Civil Code, "ownership and other
real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. 29 Therefore, sale
by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Article 1497 to 1501. 30 The word "delivered" should not be
taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two
principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee. 31 Legal or
constructive delivery, on the other hand, may be had through any of the following ways: the execution of a
public instrument evidencing the sale; 32 symbolical tradition such as the delivery of the keys of the place where
the movable sold is being kept;33 traditio longa manu or by mere consent or agreement if the movable sold
cannot yet be transferred to the possession of the buyer at the time of the sale; 34 traditio brevi manu if the
buyer already had possession of the object even before the sale; 35 and traditio constitutum possessorium,
where the seller remains in possession of the property in a different capacity.36
Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of
the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement
between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no
constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession
of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it
despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to
Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even
on the assumption that the perfected contract between the parties was a sale, ownership could not have
passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the
vendee only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the parties in a double sale is primarily
governed by Article 1544 which lays down the rules of preference between the two purchasers of the same
property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of
double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and
first records it in the Registry of Property, both made in good faith, shall be deemed the owner. 38 Verily, the act
of registration must be coupled with good faith that is, the registrant must have no knowledge of the defect
or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in the title of his vendor. 39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of
Babasantas claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not
sufficient to confer upon the latter any title to the property since the registration was attended by bad faith.
Specifically, he points out that at the time SLDC registered the sale on 30 June 1990, there was already a
notice of lis pendens on the file with the Register of Deeds, the same having been filed one year before on 2
June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery
and possession in good faith which admittedly had occurred prior to SLDCs knowledge of the transaction in
favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of
SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than one half of
the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed

of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the
prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed
up to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and
the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and
the Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some other person has a
right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase,
or beforehe has notice of the claim or interest of some other person in the property.40 Following the foregoing
definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records
that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the property to
SLDC, the vendors were still the registered owners of the property and were in fact in possession of the
lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of registered land
is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which
are noted on the face of the register or on the certificate of title. 41 In assailing knowledge of the transaction
between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice
incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the
Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing, or entering.
However, the constructive notice operates as suchby the express wording of Section 52from the time of
the registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time
the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer
ownership over the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the
notice of lis pendens cannot help Babasantas position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Natao v.
Esteban,42serves as a warning to a prospective purchaser or incumbrancer that the particular property is in
litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the
litigation." Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously,
SLDCs faith in the merit of its cause has been vindicated with the Courts present decision which is the
ultimate denouement on the controversy.
The Court of Appeals has made capital 43 of SLDCs averment in its Complaint-in-Intervention44 that at the
instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory testimony
of Pacita Lu herself on cross-examination.45 However, there is nothing in the said pleading and the testimony
which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they
attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any
event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with
Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of
SLDC.
Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by the prior notice of lis
pendens and assuming further for the same nonce that this is a case of double sale, still Babasantas claim
could not prevail over that of SLDCs. In Abarquez v. Court of Appeals,46 this Court had the occasion to rule
that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the
registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is
done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the
property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee,
Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession.
This Court awarded the property to the Israels because registration of the property by Abarquez lacked the
element of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would

not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it
noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its
favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there
being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities,
the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired
possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the
property at any time, SLDCs right is definitely superior to that of Babasantas.
At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in
this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a
contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not apply to a case
where there was a sale to one party of the land itself while the other contract was a mere promise to sell the
land or at most an actual assignment of the right to repurchase the same land. Accordingly, there was no
double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from
is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna
is REINSTATED. No costs.

6957, otherwise known as the Build-Operate-Transfer Law. On July 21, 1995, the Pre-qualification, Bids and
Awards Committee (PBAC) recommended the pre-qualification of three proponents, namely: i) JANCOM
International Pty. Ltd.; ii) First Philippine International W-E Managers; and iii) PACTECH Development
Corporation. On July 26, 1995,the EXECOM approved the recommendation of the PBAC. On July 27, 1995,
MMDA forwarded to the Investment Coordinating Committee (ICC) Secretariat the pre-feasibility study on the
privatization of the Carmona and San Mateo landfill sites. The project was later presented to the ICCTechnical Board (ICC-TB) and then endorsed to the ICC-Cabinet Committee (ICC-CC).
On May 2, 1996, the PBAC conducted a pre-bid conference where it required the three pre-qualified
bidders to submit, within ninety (90) days, their bid proposals. On August 2, 1996, JANCOM and First
Philippines requested for an extension of time to submit their bids. PACTECH, on the other hand, withdrew
from the bidding.
Subsequently, JANCOM entered into a partnership with Asea Brown Boveri (ABB) to form JANCOM
Environmental Corporation while First Philippines formed a partnership withOGDEN. Due to the change in the
composition of the proponents, particularly in their technology partners and contractors, the PBAC conducted
a post pre-qualification evaluation.
During the second bid conference, the bid proposals of First Philippines for the Carmona site and
JANCOM for the San Mateo site were found to be complete and responsive. Consequently, on February 12,
1997, JANCOM and First Philippines were declared the winning bidders, respectively, for the San Mateo and
the Carmona projects.

SO ORDERED.
[G.R. No. 147465. January 30, 2002]
METROPOLITAN MANILA DEVELOPMENT AUTHORITY, petitioner, vs. JANCOM ENVIRONMENTAL
CORPORATION and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY. LIMITED
OF AUSTRALIA, respondents.
DECISION

In a letter dated February 27, 1997, then MMDA Chairman Prospero I. Oreta informed JANCOMs Chief
Executive Officer Jay Alparslan that the EXECOM had approved the PBAC recommendation to award to
JANCOM the San Mateo Waste-to-Energy Project on the basis of the final Evaluation Report declaring
JANCOM International Ltd., Pty., together with Asea Brown Boveri (ABB), as the sole complying (winning)
bidder for the San Mateo Waste Disposal site, subject to negotiation and mutual approval of the terms and
conditions of the contract of award. The letter also notified Alparslan that the EXECOM had created a
negotiating team composed of Secretary General Antonio Hidalgo of the Housing and Urban Development
Coordinating Council, Director Ronald G. Fontamillas, General Manager Roberto Nacianceno of MMDA, and
Atty. Eduardo Torres of the host local government unit to work out and finalize the contract
award. Chairman Oreta requested JANCOM to submit to the EXECOM the composition of its own negotiating
team.

MELO, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure filed
by petitioner Metropolitan Manila Development Authority (MMDA), seeking to reverse and set aside the
November 13, 2000 decision of the Court of Appeals declaring valid and perfected the waste management
contract entered into by the Republic of the Philippines, represented by the Secretary of National Resources
and the Executive Committee to oversee the build-operate-transfer implementation of solid waste
management projects, and JANCOM Environmental Corporation.

Thereafter, after a series of meetings and consultations between the negotiating teams of EXECOM
and JANCOM, a draft BOT contract was prepared and presented to the Presidential Task Force on Solid
Waste Management.
On December 19, 1997, the BOT Contract for the waste-to-energy project was signed between
JANCOM and the Philippine Government, represented by the Presidential Task Force on Solid Waste
Management through DENR Secretary Victor Ramos, CORD-NCR Chairman Dionisio dela Serna, and MMDA
Chairman Prospero Oreta.

The pertinent facts are as follows:

In 1994, then President Fidel V. Ramos issued Presidential Memorandum Order No. 202 creating the
Executive Committee (EXECOM) to oversee the BOT implementation of solid waste management projects,
headed by the Chairman of the MMDA and the Cabinet Officer for Regional Development-National Capital
Region (CORD-NCR). The EXECOM was to oversee and develop waste-to-energy projects for the waste
disposal sites in San Mateo, Rizal and Carmona, Cavite under the build-operate-transfer (BOT) scheme. The
terms of reference for the waste-to-energy projects provided that its proponents should have the capability to
establish municipal solid waste thermal plants using incineration technology. This type of technology was
selected because of its alleged advantages of greatly reduced waste volume, prolongation of the service life of
the disposal site, and generation of electricity.
While eleven (11) proponents submitted their pre-qualification documents, most failed to comply with
the requirements under Section 5.4 of the Implementing Rules and Regulations (IRR) of Republic Act No.

On March 5, 1998, the BOT contract was submitted to President Ramos for approval but this was too
close to the end of his term which expired without him signing the contract. President Ramos, however,
endorsed the contract to incoming President Joseph E. Estrada.
With the change of administration, the composition of the EXECOM also changed. Memorandum Order
No. 19 appointed the Chairman of the Presidential Committee on Flagship Programs and Project to be the
EXECOM chairman. Too, Republic Act No. 8749, otherwise known as the Clean Air Act of 1999, was passed
by Congress. And due to the clamor of residents of Rizal province, President Estrada had, in the interim, also
ordered the closure of the San Mateo landfill. Due to these circumstances, the Greater Manila Solid Waste
Management Committee adopted a resolution not to pursue the BOT contract with JANCOM. Subsequently,
in a letter dated November 4, 1999, Roberto Aventajado, Chairman of the Presidential Committee on Flagship
Programs and Project informed Mr. Jay Alparslan, Chairman of JANCOM, that due to changes in policy and
economic environment (Clean Air Act and non-availability of the San Mateo landfill), the implementation of the

BOT contract executed and signed between JANCOM and the Philippine Government would no longer be
pursued. The letter stated that other alternative implementation arrangements for solid waste management for
Metro Manila would be considered instead.
JANCOM appealed to President Joseph Estrada the position taken by the EXECOM not to pursue the
BOT Contract executed and signed between JANCOM and the Philippine Government, refuting the cited
reasons for non-implementation. Despite the pendency of the appeal, MMDA, on February 22, 2000, caused
the publication in a newspaper of an invitation to pre-qualify and to submit proposals for solid waste
management projects for Metro Manila. JANCOM thus filed with the Regional Trial Court of Pasig a petition
for certiorari to declare i) the resolution of the Greater Metropolitan Manila Solid Waste Management
Committee disregarding the BOT Contract and ii) the acts of MMDA calling for bids and authorizing a new
contract for Metro Manila waste management, as illegal, unconstitutional, and void; and for prohibition to
enjoin the Greater Metropolitan Manila Solid Waste Management Committee and MMDA from implementing
the assailed resolution and disregarding the Award to, and the BOT contract with, JANCOM, and from making
another award in its place. On May 29, 2000, the trial court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of petitioners JANCOM
ENVIRONMENTAL CORPORATION, and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY.,
LIMITED OF AUSTRALIA, and against respondent GREATER METROPOLITAN MANILA SOLID WASTE
MANAGEMENT COMM., and HON. ROBERTO N. AVENTAJADO, in his Capacity as Chairman of the said
Committee, METRO MANILA DEVELOPMENT AUTHORITY and HON. JEJOMAR C. BINAY, in his capacity
as Chairman of said Authority, declaring the Resolution of respondent Greater Metropolitan Manila Solid
Waste Management Committee disregarding petitioners BOT Award Contract and calling for bids for and
authorizing a new contract for the Metro Manila waste management ILLEGAL and VOID.
Moreover, respondents and their agents are hereby PROHIBITED and ENJOINED from implementing the
aforesaid Resolution and disregarding petitioners BOT Award Contract and from making another award in its
place.
Let it be emphasized that this Court is not preventing or stopping the government from implementing
infrastructure projects as it is aware of the proscription under PD 1818. On the contrary, the Court is paving
the way for the necessary and modern solution to the perennial garbage problem that has been the major
headache of the government and in the process would serve to attract more investors in the country.
(Rollo,p. 159.)
Instead of appealing the decision, MMDA filed a special civil action for certiorari with prayer for a
temporary restraining order with the Court of Appeals which was later docketed therein as CA-G.R. SP No.
59021. The appellate court not only required JANCOM to comment on the petition, it also granted MMDAs
prayer for a temporary restraining order. During the pendency of the petition for certiorari, JANCOM moved for
the execution of the RTC decision, which was opposed by MMDA. However, the RTC granted the motion for
execution on the ground that its decision had become final since MMDA had not appealed the same to the
Court of Appeals. MMDA moved to declare respondents and the RTC judge in contempt of court, alleging that
the RTCs grant of execution was abuse of and interference with judicial rules and processes.
On November 13, 2001, the Court of Appeals dismissed the petition in CA-G.R. SP No. 59021 and a
companion case, CA-G.R. SP No. 60303.
MMDAs motion for reconsideration of said decision having been denied, MMDA filed the instant
petition, alleging that the Court of Appeals gravely erred in finding that:
1) There is a valid and binding contract between the Republic of the Philippines and JANCOM
given that: a) the contract does not bear the signature of the President of the Philippines; b)
the conditions precedent specified in the contract were not complied with; and c) there was
no valid notice of award.

2) The MMDA had not seasonably appealed the Decision of the lower court via a petition for
certiorari.
Before taking up the substantive issue in question, we shall first dispose of the question as to whether it
is fatal to petitioners cause, that rather than appealing the trial courts decision to the Court of Appeals, it
instead filed a petition for certiorari. While petitioner claims that the trial courts decision never became final by
virtue of its having appealed by certiorari to the Court of Appeals, the trial court ruled that petitioners failure to
file an appeal has made its decision final and executory. At bottom, the question involves a determination of
the propriety of petitioners choice of the remedy of certiorari in questioning the decision of the trial court.
Section 1, Rule 65 of the 1997 Rules of Civil Procedure provides:
Section 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to
lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such
tribunal, board or officer, and granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order, or resolution subject thereof,
copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-forum
shopping as provided in the third paragraph of section 3, Rule 46.
Plain it is from a reading of the above provision that certiorari will lie only where a court has acted
without or in excess of jurisdiction or with grave abuse of discretion. If the court has jurisdiction over the
subject matter and of the person, its rulings upon all questions involved are within its jurisdiction, however
irregular or erroneous these may be, they cannot be corrected by certiorari. Correction may be obtained only
by an appeal from the final decision.
Verily, Section 1, Rule 41 of the 1997 Rules of Civil Procedure provides:
SEC. 1. Subject of appeal. An appeal may be taken from a judgment or final order that completely disposes
of the case or of a particular matter therein when declared by these Rules to be appealable.
xxx
xxx

xxx

In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an
appropriate special civil action under Rule 65.
There can be no dispute that the trial courts May 29, 2000 decision was a final order or judgment
which MMDA should have appealed, had it been so minded. In its decision, the trial court disposed of the
main controversy by declaring the Resolution of respondent Greater Metropolitan Manila Solid Waste
Management Committee disregarding petitioners BOT Award Contract and calling for bids for and authorizing
a new contract for the Metro Manila waste management ILLEGAL and VOID. This ruling completely disposed
of the controversy between MMDA and JANCOM. In BA Finance Corporation vs. CA (229 SCRA 5667
[1994]), we held that a final order or judgment is one which disposes of the whole subject matter or
terminates a particular proceeding or action, leaving nothing to be done but to enforce by execution what has
been determined. An order or judgment is deemed final when it finally disposes of the pending action so that
nothing more can be done with it in the trial court. In other words, a final order is that which gives an end to
the litigation. A final order or judgment finally disposes of, adjudicates, or determines the rights, or some right
or rights of the parties, either on the entire controversy or on some definite and separate branch thereof, and
concludes them until it is reversed or set aside. Where no issue is left for future consideration, except the fact
of compliance or non-compliance with the terms of the judgment or doer, such judgment or order is final and
appealable (Investments, Inc. vs. Court of Appeals, 147 SCRA 334 [1987]).

However, instead of appealing the decision, MMDA resorted to the extraordinary remedy
of certiorari, as a mode of obtaining reversal of the judgment. This cannot be done. The judgment was not in
any sense null and void ab initio, incapable of producing any legal effects whatever, which could be resisted at
any time and in any court it was attempted. It was a judgment which could or may have suffered from some
substantial error in procedure or in findings of fact or of law, and on that account, it could have been reversed
or modified on appeal. But since it was not appealed, it became final and has thus gone beyond the reach of
any court to modify in any substantive aspect. The remedy to obtain reversal or modification of the judgment
on the merits is appeal. This is true even if the error, or one of the errors, ascribed to the court rendering the
judgment is its lack of jurisdiction over the subject matter, or the exercise of power in excess thereof, or grave
abuse of discretion in the findings of fact or of law set out in the decision. The existence and availability of the
right of appeal proscribes a resort to certiorari, because one of the requirements for availment of the latter
remedy is precisely that there should be no appeal (Mercado vs. CA, 162 SCRA 75 [1988]). As incisively
observed by the Court of Appeals:
The special civil action for certiorari is available only when there is no appeal nor any plain, speedy and
adequate remedy in the ordinary course of law (Sec. 1, rule 65, id.)
Admittedly, appeal could have been taken from the assailed RTC decision. However, petitioners maintain that
appeal is not a speedy remedy because the RTC decision prohibiting them from conducting a bidding for a
new waste disposal project has adverse and serious effects on the citys garbage situation.
Nevertheless, the RTC decision is not immediately executory. Only judgments in actions for injunction,
receivership, accounting and support and such other judgments as are now or may hereafter be declared to
be immediately executory shall be enforced after their rendition and shall not be stayed by an appeal
therefrom, unless otherwise ordered by the trial court (Sec. 4, rule 39, id.).
Since the RTC decision is not immediately executory, appeal would have stayed its execution. Consequently,
the adverse effects of said decision will not visit upon petitioners during the appeal. In other words, appeal is
a plain, speedy and adequate remedy in the ordinary course of the law.
But as no appeal was taken within the reglementary period, the RTC decision had become final and
executory. Well-settled is the rule that the special civil action for certiorari may not be invoked as a substitute
for the remedy of appeal (BF Corporation vs. Court of Appeals, 288 SCRA 267). Therefore, the extraordinary
remedy of certiorari does not lie.
Moreover, petitioners instituted the instant action without filing a motion for reconsideration of the RTC
decision. Doctrinal is the rule that certiorari will not lie unless a motion for reconsideration is first filed before
the respondent tribunal to allow it an opportunity to correct its errors (Zapanta vs. NLRC, 292 SCRA 580).

The Court thus holds that the Court of Appeals did not err in declaring that the trial courts decision has
become final due to the failure of MMDA to perfect an appeal within the reglementary period.
With the foregoing disquisition, it would appear unnecessarily to discuss and resolve the substantive
issue posed before the Court. However, the procedural flaw notwithstanding, the Court deems it judicious to
take cognizance of the substantive question, if only to put petitioners mind to rest.
In its second assignment of errors, petitioner MMDA contends that there is no valid and binding
contract between the Republic of the Philippines and respondents because: a) the BOT contract does not bear
the signature of the President of the Philippines; b) the conditions precedent specified in the contract were not
complied with; and that c) there was no valid notice of award.
These contentions hold no water.
Under Article 1305 of 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. A contract
undergoes three distinct stages preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in
the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes
place when the parties agree upon the essential elements of the contract. The last stage is
the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof (Bugatti vs. CA, 343 SCRA 335 [2000]). Article 1315 of the Civil
Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract
(See Article 1319, Civil Code). In the case at bar, the signing and execution of the contract by the parties
clearly show that, as between the parties, there was a concurrence of offer and acceptance with respect to the
material details of the contract, thereby giving rise to the perfection of the contract. The execution and signing
of the contract is not disputed by the parties. As the Court of Appeals aptly held:
[C]ontrary to petitioners insistence that there was no perfected contract, the meeting of the offer and
acceptance upon the thing and the cause, which are to constitute the contract (Arts. 1315 and 1319, New Civil
Code), is borne out by the records.
Admittedly, when petitioners accepted private respondents bid proposal (offer), there was, in effect, a meeting
of the minds upon the object (waste management project) and the cause (BOT scheme). Hence, the
perfection of the contract. In City of Cebu vs. Heirs of Candido Rubi (306 SCRA 108), the Supreme Court held
that the effect of an unqualified acceptance of the offer or proposal of the bidder is to perfect a contract, upon
notice of the award to the bidder.

(Rollo, p. 47-48.)

(Rollo, p. 48-49.)

Admittedly, there are instances where the extraordinary remedy of certiorari may be resorted to despite
the availability of an appeal. In Ruiz, Jr. vs. Court of Appeals (220 SCRA 490 [1993]), we held:

In fact, in asserting that there is no valid and binding contract between the parties, MMDA can only
allege that there was no valid notice of award; that the contract does not bear the signature of the President of
the Philippines; and that the conditions precedent specified in the contract were not complied with.

Considered extraordinary, [certiorari] is made available only when there is no appeal, nor any plain, speedy or
adequate remedy in the ordinary course of the law (Rule 65, Rules of Court, Section 1). The long line of
decisions denying the petition for certiorari, either before appeal was availed or specially in instances where
the appeal period has lapsed, far outnumbers the instances when certiorari was given due course. The few
significant exceptions were: when public welfare and the advancement of public policy dictate; or when the
broader interests of justice so require, or when the writs issued are null . . . or when the questioned order
amounts to an oppressive exercise of judicial authority.

In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA points to the
Implementing Rules and Regulations of Republic Act No. 6957, otherwise known as the BOT Law, which
require that i) prior to the notice of award, an Investment Coordinating Committee clearance must first be
obtained; and ii) the notice of award indicate the time within which the awardee shall submit the prescribed
performance security, proof of commitment of equity contributions and indications of financing resources.

In the instant case, however, MMDA has not sufficiently established the existence of any fact or reason
to justify its resort to the extraordinary remedy of certiorari. Neither does the record show that the instant
case, indeed, falls under any of the exceptions aforementioned.

Admittedly, the notice of award has not complied with these requirements. However, the defect was
cured by the subsequent execution of the contract entered into and signed by authorized representatives of
the parties; hence, it may not be gainsaid that there is a perfected contract existing between the parties giving
to them certain rights and obligations (conditions precedents) in accordance with the terms and conditions
thereof. We borrow the words of the Court of Appeals:

Petitioners belabor the point that there was no valid notice of award as to constitute acceptance of private
respondents offer. They maintain that former MMDA Chairman Oretas letter to JANCOM EC dated February
27, 1997 cannot be considered as a valid notice of award as it does not comply with the rules implementing
Rep. Act No. 6957, as amended. The argument is untenable.
The fact that Chairman Oretas letter informed JANCOM EC that it was the sole complying (winning) bidder
for the San Mateo project leads to no other conclusion than that the project was being awarded to it. But
assuming that said notice of award did not comply with the legal requirements, private respondents cannot
be faulted therefore as it was the government representatives duty to issue the proper notice.
In any event, petitioners, as successors of those who previously acted for the government (Chairman Oreta, et
al), are estopped from assailing the validity of the notice of award issued by the latter. As private respondents
correctly observed, in negotiating on the terms and conditions of the BOT contract and eventually signing said
contract, the government had led private respondents to believe that the notice of award given to them
satisfied all the requirement of the law.
While the government cannot be estopped by the erroneous acts of its agents, nevertheless, petitioners may
not now assail the validity of the subject notice of award to the prejudice of private respondents. Until the
institution of the original action before the RTC, invalidity of the notice of award was never invoked as a
ground for termination of the BOT contract. In fact, the reasons cited for terminating theSan Mateo project,
per Chairman Aventajados letter to JANCOM EC dated November 4, 1999, were its purported nonimplementability and non-viability on account of supervening events, e.g., passage of the Clean Air Act, etc.
(Rollo, p. 49-50.)
MMDA also points to the absence of the Presidents signature as proof that the same has not yet been
perfected. Not only that, the authority of the signatories to bind the Republic has even been put to
question. Firstly, it is pointed out that Memorandum Order No. 202 creating the Executive Committee to
oversee the BOT implementation of solid waste management projects only charged the officials thereof with
the duty of recommending to the President the specific project to be implemented under the BOT scheme for
both San Mateo and Carmona sites. Hence, it is concluded that the signatories, CORD-NCR Chairman
Dionisio dela Serna and MMDA Chairman Prospero Oreta, had no authority to enter into any waste
management project for and in behalf of the Government. Secondly, Section 59 of Executive Order No. 292 is
relied upon as authority for the proposition that presidential approval is necessary for the validity of the
contract.
The first argument conveniently overlooks the fact that then Secretary of Environment and Natural
Resources Victor Ramos was likewise a signatory to the contract. While dela Serna and Oreta may not have
had any authority to sign, the Secretary of Environment and Natural Resources has such an authority. In fact,
the authority of the signatories to the contract was not denied by the Solicitor General. Moreover, as observed
by the Court of Appeals, [i]t was not alleged, much less shown, that those who signed in behalf of the
Republic had acted beyond the scope of their authority.
In truth, the argument raised by MMDA does not focus on the lack of authority of the signatories, but on
the amount involved as placing the contract beyond the authority of the signatories to approve. Section 59 of
Executive Order No. 292 reads:

As regards the Presidents approval of infrastructure projects required under Section 59 of Executive Order
No. 292, said section does not apply to the BOT contract in question. Sec. 59 should be correlated with Sec.
58 of Exec. Order No. 292. Said sections read:
SECTION 58. Ceiling for Infrastructure Contracts. The following shall be the ceilings for all civil works,
construction and other contracts for infrastructure projects, including supply contracts for said projects,
awarded through public bidding or through negotiation, which may be approved by the Secretaries of Public
Works and Highways, Transportation and Communications, Local Government with respect to Rural Road
improvement Project and governing boards of government-owned or controlled corporations:
xxx
xxx

xxx

Save as provided for above, the approval ceilings assigned to the departments/agencies involved in national
infrastructure and construction projects shall remain at the levels provided in existing laws, rules and
regulations.
Contrary to petitioners claim that all infrastructure contracts require the Presidents approval (Petition, p. 16),
Sec. 59 provides that such approval is required only in infrastructure contracts involving amounts exceeding
the ceilings set in Sec. 58. Significantly, the infrastructure contracts treated in Sec. 58 pertain only to those
which may be approved by the Secretaries of Public Works and Highways, Transportation and
Communications, Local Government (with respect to Rural Road Improvement Project) and the governing
boards of certain government-owned or controlled corporations. Consequently, the BOT contract in question,
which was approved by the DENR Secretary and the EXCOM Chairman and Co-Chairman, is not covered by
Exec. Order No. 292.
(Rollo, p. 51-52.)
The provision pertinent to the authority of the Secretary of Environment and Natural Resources would
actually be Section 1 of Executive Order No. 380, Series of 1989 which provides that The Secretaries of all
Departments and Governing Boards of government-owned or controlled corporations [except the Secretaries
of Public Works and Highways, Transportation and Communication, and Local Government with respect to
Rural Road Improvement projects] can enter into publicly bidded contracts regardless of amount (See
also Section 515,Government Accounting and Auditing Manual Volume I). Consequently, MMDA may not
claim that the BOT contract is not valid and binding due to the lack of presidential approval.
Significantly, the contract itself provides that the signature of the President is necessary only for its
effectivity (not perfection), pursuant to Article 19 of the contract, which reads:
This contract shall become effective upon approval by the President of the Republic of
the Philippines pursuant to existing laws subject to the condition, precedent in Article 18. This contract shall
remain in full force and effect for twenty-five (25) years subject to renewal for another twenty-five (25) years
from the date of Effectivity. Such renewal will be subject to mutual agreement of the parties and approval of
the President of the Republic of the Philippines.
(Rollo, p. 94.)

Section 59. Contracts for Approval by the President. Contracts for infrastructure projects, including contracts
for the supply of materials and equipment to be used in said projects, which involve amounts above the
ceilings provided in the preceding section shall be approved by the President: Provided, That the President
may, when conditions so warrant, and upon recommendation of the National Economic and Development
Authority, revise the aforesaid ceilings of approving authority.
However, the Court of Appeals trenchantly observed in this connection:

Stated differently, while the twenty-five year effectivity period of the contract has not yet started to run
because of the absence of the Presidents signature, the contract has, nonetheless, already been perfected.
As to the contention that there is no perfected contract due to JANCOMs failure to comply with several
conditions precedent, the same is, likewise, unmeritorious. Article 18 of the BOT contract reads:
ARTICLE 18

CONDITIONS PRECEDENT

SECTION
20.
Ban on Incineration. Incineration, hereby defined as the burning of municipal, biochemical and hazardous wastes, which process emits poisonous and toxic fumes, is hereby prohibited: x x x.

xxx
18.2.1.
The BOT COMPANY hereby undertakes to provide the following within 2 months from
execution of this Contract as an effective document:
a) sufficient proof of the actual equity contributions from the proposed shareholders of the BOT
COMPANY in a total amount not less than PHP500,000,000 in accordance with the BOT
Law and the implementing rules and regulations;
b) sufficient proof of financial commitment from a lending institution sufficient to cover total
project cost in accordance with the BOT Law and the implementing rules and regulations;
c) to support its obligation under this Contract, the BOT COMPANY shall submit a security bond
to the CLIENT in accordance with the form and amount required under the BOT Law.
xxx
18.2.3

Section 20 does not absolutely prohibit incineration as a mode of waste disposal; rather only those burning
processes which emit poisonous and toxic fumes are banned.
As regards the projected closure of the San Mateo landfill vis--vis the implementability of the contract, Art. 2.3
thereof expressly states that [i]n the event the project Site is not delivered x x x, the Presidential task Force
on Solid Waste Management (PTFSWM) and the Client, shall provide within a reasonable period of time, a
suitable alternative acceptable to the BOT COMPANY.
With respect to the alleged financial non-viability of the project because the MMDA and the local government
units cannot afford the tipping fees under the contract, this circumstance cannot, by itself, abrogate the entire
agreement.
Doctrinal is the rule that neither the law nor the courts will extricate a party from an unwise or undesirable
contract, or stipulation for that matter, he or she entered into with full awareness of its consequences
(Opulencia vs. CA, 293 SCRA 385). Indeed, the terms and conditions of the subject contract were arrived at
after due negotiations between the parties thereto.
(Rollo, p. 54.)

Completion of Documentary Requirements as per Schedule 4 by the BOT Company

As clearly stated in Article 18, JANCOM undertook to comply with the stated conditions within 2 months
from execution of the Contract as an effective document. Since the President of the Philippines has not yet
affixed his signature on the contract, the same has not yet become an effective document. Thus, the twomonth period within which JANCOM should comply with the conditions has not yet started to run. It cannot
thus be said that JANCOM has already failed to comply with the conditions precedent mandated by the
contract. By arguing that failure [of JANCOM] to comply with the conditions results in the failure of a contract
or prevents the judicial relation from coming into existence, MMDA reads into the contract something which is
not contemplated by the parties. 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 (Art. 1370, Civil Code).
We, therefore, hold that the Court of Appeals did not err when it declared the existence of a valid and
perfected contract between the Republic of the Philippines and JANCOM. There being a perfected contract,
MMDA cannot revoke or renounce the same without the consent of the other. From the moment of perfection,
the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage, and law (Article
1315, Civil Code). The contract has the force of law between the parties and they are expected to abide in
good faith by their respective contractual commitments, not weasel out of them. Just as nobody can be forced
to enter into a contract, in the same manner, once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other. It is a general principle of law that no one may be permitted to
change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of
the other party. Nonetheless, it has to be repeated that although the contract is a perfected one, it is still
ineffective or unimplementable until and unless it is approved by the President.
Moreover, if after a perfected and binding contract has been executed between the parties, it occurs to
one of them to allege some defect therein as reason for annulling it, the alleged defect must be conclusively
proven, since the validity and the fulfillment of contracts cannot be left to the will of one of the contracting
parties. In the case at bar, the reasons cited by MMDA for not pushing through with the subject contract were:
1) the passage of the Clean Air Act, which allegedly bans incineration; 2) the closure of the San Mateo landfill
site; and 3) the costly tipping fee. These reasons are bereft of merit
Once again, we make reference to the insightful declarations of the Court of Appeals:
Sec. 20 of the Clean Air Act pertinently reads:

WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit and the
decision of the Court of Appeals in CA-G.R. SP No. 59021 dated November 13, 2001AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the
case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San
Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of
said province, within two (2) years from said date with the understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period,
were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First

Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and
damages.
After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell,
and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and
void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering
Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence,
this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:
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.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and
committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of
which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff
maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first
paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell
the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said
property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has
been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said
pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a
"contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as
indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof,
the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for
P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and
this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted,
however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales"
in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article
1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former
establishes the existence of said distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as
March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:

One who prays for judgment on the pleadings without offering proof as to the truth of
his own allegations, and without giving the opposing party an opportunity to introduce
evidence, must be understood to admit the truth of all the material and relevant
allegations of the opposing party, and to rest his motion for judgment on those
allegations taken together with such of his own as are admitted in the pleadings. (La
Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote:
The main contention of appellant is that the option granted to appellee to sell to it barge
No. 10 for the sum of P30,000 under the terms stated above has no legal effect
because it is not supported by any consideration and in support thereof it invokes
article 1479 of the new Civil Code. The article provides:
"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 sell a determinate
thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option" is
not supported by any consideration, that option became binding on appellant when the
appellee gave notice to it of its acceptance, and that having accepted it within the
period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the
Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn any time before
acceptance by communicating such withdrawal, except when
the option is founded upon consideration as something paid or
promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or
"a promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said
article that a unilateral promise to buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the option can
still be withdrawn, even if accepted, if the same is not supported by any consideration.
It is not disputed that the option is without consideration. It can therefore be withdrawn
notwithstanding the acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule regarding offer
and acceptance is that, when the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before acceptance" except when the option is
founded upon consideration, but this general rule must be interpreted as modified by
the provision of article 1479 above referred to, which applies to "a promise to buy and
sell" specifically. As already stated, this rule requires that a promise to sell to be valid
must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold that an offer,
once accepted, cannot be withdrawn, regardless of whether it is supported or not by a

consideration (12 Am. Jur. 528). These authorities, we note, uphold the general
rule applicable to offer and acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific provision embodied in article
1479. While under the "offer of option" in question appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in accordance
with its terms, and there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the law on the
matter is clear. Our imperative duty is to apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later
thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles
1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one
sued upon here was involved, treating such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale
upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the
offeree should decide to exercise his option within the specified time. After accepting
the promise and before he exercises his option, the holder of the option is not bound to
buy. He is free either to buy or not to buy later. In this case, however, upon accepting
herein petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did not just get the
right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral
contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere offer
of a contract of sale, which is not binding until accepted. If,
however, acceptance is made before a withdrawal, it constitutes
a binding contract of sale, even though the option was not
supported by a sufficient consideration. ... . (77 Corpus Juris
Secundum, p. 652. See also 27 Ruling Case Law 339 and
cases cited.)
"It can be taken for granted, as contended by the defendant,
that the option contract was not valid for lack of consideration.
But it was, at least, an offer to sell, which was accepted by
letter, and of the acceptance the offerer had knowledge before
said offer was withdrawn. The concurrence of both acts the
offer and the acceptance could at all events have generated
a contract, if none there was before (arts. 1254 and 1262 of the
Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of
sale.
This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on
contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction
that, in construing different provisions of one and the same law or code, such interpretation should be favored
as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art.
1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former,
and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two

(2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art.
1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two
(2) provisions intended to enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the
doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered
to in theSouthwestern Sugar & Molasses Co. case should be deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant
Severina Rigos. It is so ordered.

G.R. No. L-20435

October 23, 1923

LUIS ASIAIN, plaintiff-appellant,

vs.
BENJAMIN JALANDONI, defendant-appellee.
Arroyo and Gurrea for appellant.
Francisco Soriano for appellee.

MALCOLM, J.:
Luis Asiain, the plaintiff-appellant in this case, is the owner of the hacienda known as "Maria" situated in the
municipality of La Carlota, Province of Occidental Negros, containing about 106 hectares. Benjamin Jalandoni,
the defendant-appellee, is the owner of another hacienda adjoining of Asiain.
Asiain and Jalandoni happening to meet no one of the days of May, 1920, Asiain said to Jalandoni that he was
willing to sell a portion of his hacienda for the sum of P55,000. With a wave of his hand, Asiain indicated the
tract of land in question, affirming that it contained between 25 and 30 hectares, and that the crop of sugar
cane then planted would produce not less than 2,000 piculs of sugar. But Jalandoni, remaining doubtful as to
the extent of the land and as to the amount of crop on it, Asiain wrote Jalandoni the letter which follows:
HDA. MARIA

May, 26, 1920.

MR. BENJAMIN JALANDONI.

DEAR BENJAMIN: I am in receipt of your letter and with regard to your statement that parcel does not contain
21 hectares I do not believe. I bet anything that part only which is planted with cane contains more than 20
hectares, I bet 2 against 1.
If you agree, I would be that you pay only one-half. I am not a surveyor, but these days I had the pleasure to
survey the land and I know more or less its area. 1awph!l.net
Here we are not to deceive each other. If you like that parcel and if you want to buy it I will give you good
propositions. I don't know where and how they learned that I was selling the hacienda and they made me a

good offer, but as we do not want to part but with that parcel, hence my propositions are the following, in view
of the time that has elapsed and the progress of the cane.
I assure (aseguro) that there are 2,000 piculs and sell on that basis, provided that the cane is milled in due
time. In case the sugar does not amount to 2,000 piculs, I will pay in sugar all such amount as will be
necessary to complete the 2,000, but if after milling the cane, as I say, there is an excess over 2,000 piculs, all
the excess shall be mine. So that if you like, I make the sale for the same price that we talked about and the
same conditions, not a dime more or less.
Since you left it did rain, so the "alociman" (Philippine herb) of Guimib must die on the field, whether of
the hacienda or of the "lagatio." You have a contract for a lump sum. Now they have begun to plow the old
plantations within the boundary some days ago and you may rest and throw one (unintelligible), answer yes or
no, so that I may decide.
Your friend LUIS ASIAIN
Sometime later, in July of the same year, Asiain and Jalandoni having met at Iloilo, they prepared and signed
the memorandum-agreement which follows:
Purchase of land of Mr. Luis Asiain and his wife Maria Cadenas, by B. Jalandoni, containing 25
hectares more or less of land bounded by property of the purchaser, with its corresponding crop,
estimated at 2,000 piculs, the total value of which is 55 thousand. The price is to be paid by paying
30 thousand at the signing of the document, and 25 thousand within one year, with interest at the
rate of 10 per cent.
Mr. Asiain is under obligation to take care of all the plantation until the planting is finished and in
case the crop exceeds 2,000 piculs, all the excess will belong to Mr. Asiain.

(1) That Luis Asiain does hereby promise and bind himself to sell to Benjamin
Jalandoni a parcel of land the hacienda "Maria" of the aforesaid Luis Asiain, situated in
the municipality of La Carlota, Province of Occidental Negros, P.I.
(2) That Benjamin Jalandoni does hereby promise and bind himself to purchase the
aforesaid parcel of land in the sum P55,000 upon certain conditions specified in a
memorandum signed by the parties which is in the hands of Attorneys Padilla &
Treas.
(3) That upon the signing of this agreement, the vendor shall have the right to collect
from the purchaser part of the price giving receipts thereof signed by said vendor.
(4) That in case the vendor should withdraw from the contract and desist from signing
the document of final sale, the purchaser shall have the right to collect from said
vendor all such amount as may have been advanced on account of this sale, with an
indemnity of P15,000 as penalty.
(5) In case it is the purchaser who should withdraw from the contract of sale, then he
will lose all such amount as may have been paid in advance on account of this
transaction.
In witness whereof, we have hereunto affixed our signatures, at Iloilo, Iloilo, this 12th day of July,
1920.
(Sgd) "LUIS ASIAIN
"BENJAMIN JALANDONI
Signed in the presence of:

The adjacent landowner on the north and the west is the vendor himself, on the east, B. Jalandoni,
and on the south, B. Jalandoni and the widow of Abdon Ferrer.
The purchaser is under obligation to answer for all the rights and obligations of the land with the
central of Inchausti.
After the planting of the cane is completely finished, Mr. Asiain shall vacate the parcel sold to the
purchaser.
The expenses for taking care of said plantation until the planting is completely finished will be for
the account of the vendor Mr. Asiain.
(Sgd.) "LUIS ASIAIN
"BENJAMIN JALANDONI"
During all of the period of negotiations, Jalandoni remained a doubting Thomas and was continually
suggesting that, in his opinion, the amount of the land and of the crop was overestimated. Asiain on his part
always gave assurances in conformity with the letter which he had written intended to convince Jalandoni that
the latter was in error in his opinion. As a result, the parties executed the agreement which follows:
This document, executed in the city of Iloilo, Province of Iloilo, Philippine Islands, by and between
Messrs. Luis Asiain and Benjamin Jalandoni, of age and residents of the municipality of La Carlota,
Province of Occidental Negros, Philippine Islands.
Witnesseth:

(Sgd.) "ENGRACIO PADILLA

"P.T. TREAS"
Once in possession of the land, Jalandoni did two things. He had the sugar cane ground in La Carlota Sugar
Central with the result that it gave and output of P800 piculs and 23 cates of centrifugal sugar. When
opportunity offered, he secured the certificate of title of Asiain and produced a surveyor to survey the land.
According to his survey, the parcel in question contained an area of 118 hectares, 54 ares, and 22 centiares.
Of the purchase price of P55,000, Jalandoni had paid P30,000, leaving a balance unpaid of P25,000. To
recover the sum of P25,000 from Jalandoni or to obtain the certificate of title and the rent from him, action was
begun by Asiain in the Court of First Instance of Occidental Negros. To the complaint, an answer and a
counter-complaint were interposed by the defendant, by which it was asked that he be absolved from the
complaint, that the contract be annulled, both parties to return whatever they had received, and that he
recover from the plaintiff the sum of P3,600 annually as damages. In a well-reasoned decision, the Honorable
Eduardo Gutierrez David, Judge of First Instance, declared null the document of purchase and its related
memorandum; absolved the defendant from the payment of P25,000; ordered the plaintiff to return to the
defendant the sum of P30,000 with legal interest from July 12, 1920; ordered the defendant to turn over to the
plaintiff the tract of land and the certificate of title No. 468, and absolved the plaintiff from the countercomplaint, all without special finding as to the costs. It is from said judgment that the plaintiff has appealed.
The true facts need not give us pause. They are as found by the trial judge and as pratically agreed to by the
parties. It is only necessary to keep in mind that apparently there was always a difference of opinion between
Asiain and Jalandoni as to the area of the tract and as to the crop of sugar cane; that the agreement between
them mentions land containing 25 hectares more or less, giving the boundaries, and a crop estimated and in
one sense warranted at 2,000 piculs, and that in reality the land contained only a little more than 18 hectares

and produced a crop of only about 800 piculs. The legal consequences arising from these facts are more
difficult of determination.

reduction of the price on account of shortage of an area, because he does not give less who
delivers all that he bound himself to.

Our Civil Code contains provisions which must be taken into consideration. Codal articles 1265, 1266, and
1269 relate to consent given by reason of error and deceit. They provide the rules which shall avoid contracts
for these and other reasons. But the provisions of the Civil Code most directly pertinent are found in articles
1469, 1470, and 1471.

According to this opinion, which we believe erroneous, if within the boundaries of the property sold,
there is included more than area than that expressed in the title deeds, nothing can be claimed by
the vendor who losses the value of that excess, but if there is less area, then he loses also,
because either the price is reduced or the contract is annulled. This theory would be anomalous in
case of sale of properties in bulk, but, above all, would do gross injustice which the legislator never
intended.

The first two mentioned articles, 1469 and 1470, are not applicable because of the proviso relating to the sale
being made at a certain price for each unit of measure or number which is not our case. The facts seem to
fall within article 1471. It first paragraph provides that in case of the sale of real estate for a lump sum and not
at the rate of specified price of each unit or measure, there shall be no increase or decrease of the price even
if the area be found to be more or less than that stated in the contract. The next paragraph provides that the
same rule is applicable when two or more estates are sold for a single price. Then comes the following: ". . .
but, if in addition to a statement of the boundaries, which is indispensable in every conveyance of real estate,
the area estate should be designated in the contract, the vendor shall be obliged to deliver all that is included
within such boundaries, even should it exceed the area specified in the contract; and, should he not be able to
do so, he shall suffer a reduction of the price in proportion to what is lacking of the area, unless the contract
be annulled by reason of the vendee's refusal to accept anything other than that which was stipulated."
A study of the Spanish commentators discloses that the meaning of article 1471 is not clear as it might be, and
that they are not unanimous in their views. Manresa gives emphasis to the intention of the parties and the
option on the part of the purchaser to rescind the contract. To quote from Manresa:
The rule in the latter case is found in the second paragraph of article 1471, with the exception of
the first clause which refers to the former hypothesis. This rule may be formulated as follows:
Whether the case is one of sale of realty for a lump sum or of two or more for a single price which
is also a lump sum and, consequently, not at the rate of specified price for each unit of measure or
number, the vendor shall be bound to deliver all that is within the boundaries stated although it
may exceed the area or number expressed in the contract; in case he cannot deliver it, the
purchaser shall have the right to reduce the price proportionately to what is lacking of the area or
number, or rescind the contract at his option.
xxx

xxx

xxx

The manner in which the matter covered by this article was distributed in its two paragraphs
contributes to making it difficult to understand. The rule might have been clearly stated had the first
clause of the second paragraph been included in the first paragraph, the latter to end with the
words, "The same rule shall apply when two or more estates are sold for a single price." And if by
constituting an independent paragraph, with the rest of the second paragraph, it were made to
appear more expressly that the rule of the second paragraph thus drawn referred to all the cases
of paragraph one, as we have expounded, namely, to the case of a sale of one single estate and
that of two or more for one single price, the precept would have been clearer.

There is no such thing. So long as the vendor can deliver, and for that reason, delivers all the land
included within the boundaries assigned to the property, there can be no claim whatsoever either
on his part, although the area may be found to be much greater than what was expressed, nor on
the part of the purchaser although what area may be in reality much smaller. But as he sold
everything within the boundaries and this is all the purchaser has paid, or must pay, for whether
much or little, if afterwards, it is found that he cannot deliver all, because, for instance, a part, a
building, a valley, various pieces of land, a glen etc., are not his, there is no sale of a specified
thing, there is longer a sale of the object agreed upon, and the solution given by the article is then
just and logical: Either the contract is annulled or the price is reduced proportionately."
(10 Comentarious al Codigo Civil, p. 157.)
The principle is deduced from the Code, that if land shall be sold within boundaries with an expression of the
area and if the area is grossly deficient, the vendee has an option, either to have the price reduced
proportionately or to ask for the rescission of the contract. The rule of the civil law is more favorable to the
purchaser than is the common law. It gives the excess to the purchaser without compensation to the vendor,
where the property is sold by a specific description followed by the mention of the quantity or measure, but
allows the purchaser either to secure a deduction from the price in case a deficiency or to annul the contract.
The decision of this court which gave most direct consideration to article 1471 of the Civil Code, now chiefly
relied upon by the appellant, is found in Irureta Goyena vs. Tambunting ([1902], 1 Phil., 490). The rule
announced in the syllabus is this: "An agreement to purchase a certain specified lot of land at a certain price is
obligatory and enforceable regardless of the fact that its area is less than that mentioned in the contract."
Taken literally, this rule would lead to the result desired by the appellant. But the syllabus naturally must be
understood in relation what is found in the decision itself; and the fact was that the tract of land was mentioned
as being located at No. 20 Calle San Jose, Ermita, Manila. The private contract expressed a specific thing as
the object of the contract and specified a certain price. There was no statement in the document of the
superficial area and no hint in the record that either or both parties were misled. The facts, therefore, are
different than those before us and the doctrine in the Irureta Goyena vs. Tambunting case, can well be
followed and distinguished.
A comparative study of the American Authorities throws considerable light on the situation. In volume 39 Cyc.,
page 1250, under the subject "Vendor and Purchaser," is found the following:

In our opinion, this would have better answered what we deem to be indubitable intention of the
legislator.

If, in a contract of sale the quantity of the realty to be conveyed is indicated by a unit of area, as by
the acre, a marked excess or deficiency in the quantity stipulated for is a ground for avoiding the
contract. Since it is very difficult, if not impossible, to ascertain the quality of a tract with perfect
accuracy, a slight excess or deficiency does not affect the validity of the contract.

Some eminent commentators construe the last part of article 1471 in a different way. To them the
phrase "and should he not be able to do so" as applied to the vendor, does not mean as
apparently it does "should he not be able to deliver all that is included within the boundaries
stated," but this other thing, namely, that if by reason of the fact that a less area is included within
the boundaries than that expressed in the contract, it is not possible for the vendor to comply
therewith according to its literal sense, he must suffer either the effects of the nullity of the contract
or a reduction of the price proportionately to what may be lacking of the area or number. It is added
as a ground for this solution that if the vendor fulfills the obligation, as stated in the article, by
delivering what is not included within the boundaries, there can never by any case of proportionate

Where, however, the contract is not for the sale of a specific quantity of land, but for the sale of
particular tract, or designated lot or parcel, by name or description, for a sum in gross, and the
transaction is bona fide, a mutual mistake as to quantity, but not as to boundaries, will not
generally entitle the purchaser to compensation, and is not ground for rescission. But it is well
settled that a purchaser of land, when it is sold in gross, or with the description, "more or less" or
"about," does not thereby ipso facto take all risk of quantity in the tract. If the difference between
the real and the represented quantity is very great, both parties act obviously under a mistake
which it is the duty of a court of equity to correct. And relief will be granted when the mistake is so
material if the truth had been known to the parties the sale would not have been made.

Volume 27 of the Ruling Case Law, pages 354, 434, 436, states what follows:
A mutual mistake as to the quantity of the land sold may afford ground for equitable relief. As has
been said, if, through gross and palpable mistake, more or less land should be conveyed than was
in the contemplation of the seller to part with or the purchaser to receive, the injured party would
be entitled to relief in like manner as he would be for an injury produced by a similar cause in a
contract of any other species. And when it is evident that there has been a gross mistake s to
quantity, and the complaining party has not been guilty of any fraud or culpable negligence, nor
has he otherwise impaired the equity resulting from the mistake, he may be entitled to relief from
the technical or legal effect of his contract, whether it be executed or only executory. It has also
been held that where there is a very great diference between the actual and the estimated quantity
of acres of land sold in gross, relief may be granted on the ground of gross mistake. Relief,
however, will not be granted as general rule where it appears that the parties intended a contract
of hazard, as where the sale is a sale in gross and not by acreage or quantity as a basis for the
price; and it has been held that a mistake on the part of the vendor of a town lot sold by description
as to number on the plat, as to its area or dimensions, inducing a sale thereof at smaller price than
he would have asked had he been cognizant of its size, not in any way occasioned or concealed
by conduct of the purchaser, constitutes no ground for the rescission of the contract. The apparent
conflict and discrepancies in the adjudicated cases involving mistakes as to quantity arise not from
a denial of or a failure to recognize the general principle, but from the difficulty of its practical
application in particular cases in determining the questions whether the contract was done of
hazard as to quantity or not and whether the variance is unreasonable. The relative extent of the
surplus or deficit cannot furnish, per se, an infallible criterion in each case for its determination, but
each case must be considered with reference not only to that but its other peculiar circumstances.
The conduct of the parties, the value, extent, and locality of the land, the date of the contract, the
price, and other nameless circumstances, are always important, and generally decisive. In other
words, each case must depend on its own peculiar circumstances and surroundings.
The rule denying relief in case of a deficit or an excess is frequently applied in equity as well as at
law, but a court of equity will not interfere on account of either a surplus or a deficiency where it is
clear that the parties intend a contract of hazard, and it is said that although this general rule may
not carry into effect the real intention of the parties it is calculated to prevent litigation. From an
early date, courts of equity under their general jurisdiction to grant relief on the ground of mistake
have in case of mistake in the estimation of the acreage in tract sold and conveyed interposed
their aid to grant relief to the vendor where there was a large surplus over the estimated acreage,
and to the purchaser where there was large deficit. For the purpose of determining whether relief
shall be granted the courts have divided the cases into two general classes: (1) Where the sale is
of a specific quantity which is usually denominated a sale by the acre; (2) where the sale is usually
called a sale in gross. . . .
Sales in gross for the purpose of equitable relief may be divided into various subordinate
classifications: (1) Sales strictly and essentially by the tract, without reference in the negotiation or
in the consideration to any designated or estimated quantity of acres; (2) sales of the like kind, in
which, though a supposed quantity by estimation is mentioned or referred to in the contract, the
reference was made only for the purpose of description, and under such circumstances or in such
a manner as to show that the parties intended to risk the contingency of quantity, whatever it might
be, or how much so ever it might exceed or fall short of that which was mentioned in the contract;
(3) sales in which it is evident, from extraneous circumstances of locality, value, price, time, and
the conduct and conversations of the parties, that they did not contemplate or intend to risk more
than the usual rates of excess or deficit in similar cases, or than such as might reasonably be
calculated on as within the range of ordinary contingency; (4) sales which, though technically
deemed and denominated sales in gross, are in fact sales by the acre, and so understood by the
parties. Contracts belonging to either of the two first mentioned classes, whether executed or
executory, should not be modified by the chancellor when there has been no fraud. But in sales of
either the third of fourth kind, an unreasonable surplus or deficit may entitle the injured party to
equitable relief, unless he has, by his conduct, waived or forfeited his equity. . . .
The memorandum-agreement between Asiain and Jalandoni contains the phrase or "more or less." It is the
general view that this phrase or others of like import, added to a statement of quantity, can only be considered
as covering inconsiderable or small differences one way or the other, and do not in themselves determine the

character of the sale as one in gross or by the acre. The use of this phrase in designating quantity covers only
a reasonable excess or deficiency. Such words may indeed relieve from exactness but not from gross
deficiency.
The apparent conflict and discrepancies in the adjudicated cases arise not from a denial of or a failure to
recognize the general principles. These principles, as commonly agreed to, may be summarized as follows: A
vendee of land when it is sold in gross or with the description "more or less" does not thereby ipso facto take
all risk of quantity in the land. The use of "more or less" or similar words in designating quantity covers only a
reasonable excess or deficiency. Mutual mistake of the contracting parties to sale in regard to the subjectmatter of the sale which is so material as to go to the essence of the contract, is a ground for relief and
rescission. It has even been held that when the parties saw the premises and knew the boundaries it cannot
prevent relief when there was mutual gross mistake as to quantity. Innocent and mutual mistake alone are
sufficient grounds for rescission. (Bigham vs. Madison [1899], 47 L. R. A., 267) The difficulty comes from the
application of the principles in particular cases.
A practical demonstration of what has just been said is disclosed by the notes in volume 27 of Ruling Case
Law, page 439. In the following cases, relief was denied: Lawson vs. Floyd, 124 U. S., 108; 8 S. Ct., 409; 31
U. S. (L. ed.), 347 (estimated acreage about 1,000 acres; shortage 368 acres); Frederick vs. Youngblood, 19
Ala., 680; 54 Am. Dec., 209 (estimated acreage 500 acres more or less; shortage 39 acres); Jones vs. Plater,
2 Gill (Md.), 125; 41 Am. Dec., 408 (stated acreage 998 acres; shortage 55 acres); Frenche vs. State, 51 N. J.
Eq., 624; 27 Atl., 140; 40 A. S. R., 548 (stated acreage 195-98/100 be the same more or less; shortage 137/100); Faure vs.Martin, 7 N. Y., 210; 57 Am. Dec., 515 (stated acreage 96 acres more or less; deficit 10
acres); Smith vs. Evans, 6 Bin. (Pa.), 102; 6 Am. Dec., 436 (shortage of 88 acres in tract conveyed as
containing 991 1/4 acres more or less); Jollife vs. Hite, 1 Call (Va.), 301; 1 Am. Dec., 519 (stated acreage 578
acres more or less; shortage 66 acres); Pendleton vs. Stewart, 5 Call (Va.), 1;2 Am. Dec., 583 (stated acreage
1,100 acres more or less; shortage 160 acres); Nelson vs. Matthews, 2 Hen. & M. (Va.), 164; 3 Am. Dec., 620
(stated acreage 852 acres more or less; shortage of 8 acres). In the following cases relief was granted:
Harrel vs. Hill, 19 Ark., 102; 68 Am. Dec., 202 (stated acreage 180 acres more or less; deficit 84 acres);
Solinger vs. Jewett, 25 Ind., 479; 87 Am. Dec., 372 (stated acreage 121 acres more or less; deficit 36 acres);
Hays vs. Hays, 126 Ind., 92; 25 N.E., 600; 11 L. R. A., 376 (stated acreage 28.4 acres more or less; deficit 5
acres); Baltimore, etc., Land Soc. vs. Smith, 54 Md., 187; 39 Am. Rep., 374 (stated acreage about 65 acres;
deficit 30 to 35 acres); Newton vs. Tolles, 66 N. H., 136; 19 Atl., 1092; 49 A. S. R., 593; 9 L. R. A., 50 (stated
acreage about 200 acres; deficit 65 acres); Couse vs. Boyles, 4 N. J. Eq., 212; 38 Am. Dec., 212 (stated
acreage 135 acres more or less; deficit 30 acres) Belknap vs. Sealey, 14 N. Y., 143; 67 Am. Dec., 120 (stated
acreage 8 acres more or less; deficit 4 acres); Paine vs. Upton, 87 N.Y., 327; 41 Am. Rep., 371 (stated
acreage "about 222 acres be the same more or less;" shortage 18 acres); Bigham vs.Madison, 103 Tenn.,
358; 52 S. W., 1074; 47 L. R. A., 267 (stated acreage 25 acres more or less; deficit 12 acres); Smith vs. Fly, 24
Tex., 345; 76 Am. Dec., 109 (stated acreage 500 acres more or less; deficit 115 acres); Triplett vs. Allen, 26
Grat. (Va.), 721; 21 Am. Dec., 320 (stated acreage 166 acres more or less; deficit 10 acres);
Epes vs. Saunders, 109 Va., 99; 63 S. E., 428; 132 A. S. R., 904 (stated acreage 75 acres more or less; deficit
22 acres); McComb vs. Gilkeson, 110 Va., 406; 66 S. E., 77; 135 A. S. R., 944 (stated acreage 245 acres
more or less; deficit 10 acres).
A case often cited and which on examination is found to contain a most exhaustive review of the decisions, is
that of Belknap vs. Sealey ([1856], 14 N.Y. 143; 67 Am. Dec.,, 120) The facts were: "Upon the merits of the
controversy the case is quite simple in its facts. The land in question is situated in the city of Brooklyn; and
being valuable only for division and sale as city lots, its valuable only for division and sale as city lots, its value
is precisely in proportion to the quantity. In consideration of the gross sum of fourteen thousand dollars, of
which one thousand dollars was paid down, the defendant agreed to convey the land to the plaintiff, describing
it as "the premises conveyed to him by Samuel T. Roberts," by deed dated about nine months previous. The
deed of Roberts contained a definite description by meters and bounds, and stated the quantity to be "about
nine acres, more or less," excepting a certain parcel of one acre and six perches. The quantity in fact is only
about half as much as the deed asserted. The plaintiff, in agreeing to purchase the tract at the sum named,
acted under a mistake which affected the price nearly one half, and the judge has found that the seller was
mistaken also. . . . The Judge has found that the actual quantity was substantially and essentially less than the
plaintiff supposed he was purchasing; and although the finding does not so state in terms, there can be no
difficulty, I think, in affirming that if the true quantity had been known, the contract would not have been made.
The agreement has never been consummated by a conveyance. These are the only essential facts in the
case." The learned Judge remarked: "The counsel for the defendant is obliged to contend, and he does not
contend, that mere mistake as to the quantity of land affords no ground of relief against a contract in the terms

of the present one, however serious such mistake may be, and although we can readily see the contract would
never have been made if the quantity had been made known. The convenience of such a rule has been
insisted on, and in the denial of justice it certainly has the merit of simplicity. If the doctrine is true as broadly
as stated, then there is one class of contracts to which the settled maxim that equity will relieve against
mistake can have no application. Upon a careful examination of the cases cited, as well as upon principle, my
conclusion is, that agreements of this description are not necessarily proof against the maxims which apply to
all others." Then follows a review of the cases not alone of the state of New York and other states in the
America Union but of England as well. The rule was announced that equity will rescind a contract for the sale
of land for mutual mistake as to the quantity of land which the boundaries given in the contract contained,
where the deficiency is material. "More or less," used in the contract in connection with the statement of the
quantity, will not prevent the granting of such relief.
Coordinating more closely the law and the facts in the instant case, we reach the following conclusions: This
was not a contract of hazard. It was a sale in gross in which there was a mutual mistake as to the quantity of
land sold and as to the amount of the standing crop. The mistake of fact as disclosed not alone by the terms of
the contract but by the attendant circumstances, which it is proper to consider in order to throw light upon the
intention of the parties, is, as it is sometimes expressed, the efficient cause of the concoction. The mistake
with reference to the subject-matter of the contract is such that, at the option of the purchaser, it is rescindable.
Without such mistake the agreement would not have been made and since this is true, the agreement is
inoperative and void. It is not exactly a case of over reaching on the plaintiff's part, or of misrepresentation and
deception, or of fraud, but is more nearly akin to a bilateral mistake for which relief should be granted. Specific
performance of the contract can therefore not be allowed at the instance of the vendor.
The ultimate result is to put the parties back in exactly their respective positions before they became involved
in the negotiations and before accomplishment of the agreement. This was the decision of the trial judge and
we think that decision conforms to the facts, the law, and the principles of equity.
Judgment is affirmed, without prejudice to the right of the plaintiff to establish in this action in the lower court
the amount of the rent of the land pursuant to the terms of the complaint during the time the land was in the
possession of the defendant, and to obtain judgment against the defendant for that amount, with costs against
the appellant. So ordered.

Branch 6, in Civil Case No. 4240 which declared, inter alia, the questioned Deed of Donation Inter Vivos valid
and binding on the parties.
The undisputed facts reveal that on December 10, 1973, Filomena Almirol de Sevilla died intestate
leaving 8 children, namely: William, Peter, Leopoldo, Felipe, Rosa, Maria, Luzvilla, and Jimmy, all surnamed
Sevilla. William, Jimmy and Maria are now deceased and are survived by their respective spouses and
children.[4] Filomena Almirol de Sevilla left the following properties:
PARCEL I:
A parcel of land known as Lot No. 653 situated at General Luna St., Dipolog City, with an area of about 804
square meters, more or less, duly covered by Transfer Certificate of Title No. (T-6671)-1448 [in the name of
Filomena Almirol de Sevilla, Honorata Almirol and Felisa Almirol] and assessed at P31,360.00 according to
Tax Dec. No. 018-947;
PARCEL II:
A parcel of land known as Lot No. 3805-B situated at Olingan, Dipolog City, with an area of about 18,934
square meters, more or less, duly covered by Transfer Certificate of Title No. T-6672 and assessed at P5,890
according to Tax Dec. No. 009-761;
PARCEL III:
A parcel of land known as Lot No. 837-1/4 situated at Magsaysay Street, Dipolog City, with an area of about
880 square meters more or less, duly covered by Original Certificate of Title No. 0-6064 and assessed at
P12,870.00 according to Tax Dec. No. 020-1078;
PARCEL IV:
A parcel of residential land known as Lot No. 1106-B-3 situated at Sta. Filomena, Dipolog City, with an area of
300 square meters, more or less, assessed at P3,150.00 according to Tax Dec. No. 006-317;

[G.R. No. 150179. April 30, 2003]

HEIRS OF WILLIAM SEVILLA, NAMELY: WILFREDO SEVILLA, WILSON SEVILLA, WILMA SEVILLA,
WILLINGTON SEVILLA, AND WILLIAM SEVILLA, JR., HEIRS OF MARIA SEVILLA, NAMELY:
AMADOR SEVILLA, JENO CORTES, VICTOR CORTES, MARICEL CORTES,
ALELEI* CORTES AND ANJEI** CORTES, petitioners, vs. LEOPOLDO SEVILLA, PETER
SEVILLA, AND LUZVILLA SEVILLA, respondents.
DECISION
YNARES-SANTIAGO, J.:
One who alleges defect or lack of valid consent to a contract by reason of fraud or undue influence
must establish by full, clear and convincing evidence such specific acts that vitiated a partys consent,
otherwise, the latters presumed consent to the contract prevails. [1]
The instant petition for review seeks to set aside the September 26, 2000 Decision [2] of the Court of
Appeals in CA-G.R. CV No. 48956, affirming in toto the Decision[3] of the Regional Trial Court of Dipolog City,

Commercial building erected on Parcel I above-described; and residential building erected just at the back of
the commercial building above-described and erected on Parcel I above-described; [5]
Parcel I, Lot No. 653, is the paraphernal property of Filomena Almirol de Sevilla which she co-owned
with her sisters, Honorata Almirol and Felisa Almirol, [6] who were both single and without issue. Parcels II, II
and IV are conjugal properties of Filomena Almirol de Sevilla and her late husband Andres Sevilla. [7] When
Honorata died in 1982, her 1/3 undivided share in Lot No. 653 was transmitted to her heirs, Felisa Almirol and
the heirs of Filomena Almirol de Sevilla, who thereby acquired the property in the proportion of one-half share
each.
During the lifetime of Felisa and Honorata Almirol, they lived in the house of Filomena Almirol de
Sevilla, together with their nephew, respondent Leopoldo Sevilla and his family. Leopoldo attended to the
needs of his mother, Filomena, and his two aunts, Honorata and Felisa. [8]
Felisa died on July 6, 1988. [9] Previous thereto, on November 25, 1985, she executed a last will and
testament devising her 1/2 share in Lot No. 653 to the spouses Leopoldo Sevilla and Belen Leyson. [10] On
August 8, 1986, Felisa executed another document denominated as Donation Inter Vivos ceding to Leopoldo
Sevilla her 1/2 undivided share in Lot No. 653, which was accepted by Leopoldo in the same document. [11]
On September 3, 1986, Felisa Almirol and Peter Sevilla, in his own behalf and in behalf of the heirs of
Filomena Almirol de Sevilla, executed a Deed of Extra-judicial Partition, identifying and adjudicating the 1/3
share of Honorata Almirol to the heirs of Filomena Almirol de Sevilla and to Felisa Almirol. [12]

Thereafter, respondents Leopoldo, Peter and Luzvilla Sevilla obtained the cancellation of Transfer
Certificate of Title No. (T-6671)-1448, over Lot No. 653, and the issuance of the corresponding titles to Felisa
Almirol and the heirs of Filomena Almirol de Sevilla. However, the requested titles for Lot Nos. 653-A and 653B, were left unsigned by the Register of Deeds of Dipolog City, pending submission by Peter Sevilla of a
Special Power of Attorney authorizing him to represent the other heirs of Filomena Almirol de Sevilla. [13]
On June 21, 1990, Felipe Sevilla, Rosa Sevilla, and the heirs of William, Jimmy and Maria, all
surnamed Sevilla, filed the instant case against respondents Leopoldo Sevilla, Peter Sevilla and Luzvilla
Sevilla, for annulment of the Deed of Donation and the Deed of Extrajudicial Partition, Accounting, Damages,
with prayer for Receivership and for Partition of the properties of the late Filomena Almirol de Sevilla. [14] They
alleged that the Deed of Donation is tainted with fraud because Felisa Almirol, who was then 81 years of age,
was seriously ill and of unsound mind at the time of the execution thereof; and that the Deed of Extra-judicial
Partition is void because it was executed without their knowledge and consent. [15]
In their answer,[16] respondents denied that there was fraud or undue pressure in the execution of the
questioned documents. They alleged that Felisa was of sound mind at the time of the execution of the
assailed deeds and that she freely and voluntarily ceded her undivided share in Lot No. 653 in consideration of
Leopoldos and his familys love, affection, and services rendered in the past. Respondents further prayed that
Parcels II, III, and IV be partitioned among the heirs of Filomena Almirol de Sevilla in accordance with the law
on intestate succession.
On December 16, 1994, a decision was rendered by the Regional Trial Court of Dipolog City,
Zamboanga del Norte, Branch 6, upholding the validity of the Deed of Donation and declaring the Deed of
Extra-judicial Partition unenforceable. The dispositive portion thereof, reads:
WHEREFORE, IN VIEW OF THE FOREGOING, summing up the evidence for both the plaintiffs and the
defendants, the Court hereby renders judgment:
1)
Declaring the questioned Deed of Donation Inter Vivos valid and binding, and, therefore, has the full
force and effect of law;
2)
Declaring the questioned Deed of Extra-Judicial Partition as unenforceable as yet as against the other
heirs, as it lacks the legal requisites of Special Power of Attorney or any other appropriate instrument to be
executed by the other heirs who were not made parties thereto;
3)
Finding the parties herein entitled to the partition of Parcel II, III, IV as designated in the Complaint, in
equal shares, and, as to Lot No. 653 designated as Parcel I, it shall be divided equally into two, between
defendant Leopoldo Sevilla on one hand, and, collectively, the Heirs of William Sevilla, Heirs of Jimmy Sevilla,
Heirs of Maria Sevilla, Felipe Sevilla, Leopoldo Sevilla, Peter Sevilla, Luzvilla Sevilla-Tan, on the other hand,
as well as the two buildings thereon in proportionate values;
4)
Directing the parties, if they can agree, to submit herewith a project of partition, which shall designate the
share which pertains to the heirs entitled thereto, that is, the particular and specific portions of the properties
subject of the partition;
5)
Directing defendant Peter Sevilla to pay and/or collect from the parties the amounts corresponding to
each one entitled or liable thereto, as recorded in the Statement of Accounts, except for defendant Leopoldo
Sevilla who is found by the Court to have incurred only an overdraft of P5,742.98 and not P33,204.33 as
earlier computed therein.
6)
Dismissing the plaintiffs claim for damages, which is not proved with sufficient evidence, and
defendants counterclaim, on the same ground.
7)

With costs de oficio.

IT IS SO ORDERED.[17]
Both parties appealed to the Court of Appeals. Petitioners contended that the Deed of Donation should
be declared void and that Lot No. 653 should be divided equally among them. Respondents, on the other
hand, posited that the trial court erred in declaring the Deed of Extra-judicial Partition unenforceable against
the other heirs of Filomena Almirol de Sevilla who were not parties to said Deed.

[18]

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

THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING AS VOID AB INITIO THE
DEED OF DONATION EXCUTED BY FELISA ALMIROL IN FAVOR OF RESPONDENT LEOPOLDO SEVILLA
CEDING TO HIM ONE HALF PORTION OF LOT 653, DIPOLOG CADASTRE, IT HAVING BEEN EXECUTED
WITH FRAUD, UNDUE PRESSURE AND INFLUENCE;
THAT THE APPELLATE COURT GREATLY ERRED IN NOT ORDERING THE PARTITION OF LOT 653,
DIPOLOG CADASTRE EQUALLY AMONG THE EIGHT (8) HEIRS OF FILOMENA, HONORATA AND
FELISA, ALL SURNAMED ALMIROL.[20]
To resolve the issue raised in the instant petition for review, the validity of the donation inter
vivos executed by Felisa Almirol in favor of Leopoldo Sevilla must first be determined.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another who accepts it.[21] Under Article 737 of the Civil Code, the donors capacity shall be determined as of
the time of the making of the donation. Like any other contract, an agreement of the parties is essential,
[22]
and the attendance of a vice of consent renders the donation voidable. [23]
In the case at bar, there is no question that at the time Felisa Almirol executed the deed of donation she
was already the owner of 1/2 undivided portion of Lot No. 653. Her 1/3 undivided share therein was increased
by 1/2 when she and Filomena inherited the 1/3 share of their sister Honorata after the latters death. Hence,
the 1/2 undivided share of Felisa in Lot No. 653 is considered a present property which she can validly
dispose of at the time of the execution of the deed of donation. [24]
Petitioners, however, insist that respondent Leopoldo Sevilla employed fraud and undue influence on
the person of the donor. This argument involves appreciation of the evidence. [25]The settled rule is that factual
findings of the trial court, if affirmed by the Court of Appeals, are entitled to great respect. [26] There are
exceptional circumstances when findings of fact of lower courts may be set aside [27] but none is present in the
case at bar. Indeed, neither fraud nor undue influence can be inferred from the following circumstance alleged
by the petitioners, to wit
A.
That Felisa Almirol lived with respondent Leopoldo Sevilla in the residential house owned by petitioners
and respondents;
B.
That the old woman Felisa Almirol was being supported out of the rentals derived from the building
constructed on the land which was a common fund.
C.
That when Felisa Almirol was already 82 years old, he [Leopoldo Sevilla] accompanied her in the Office
of Atty. Vic T. Lacaya, Sr., for the purpose of executing her last will and testament
D.
That in the last will and testament executed by Felisa Almirol, she had devised in favor of respondent
Leopoldo Sevilla one-half of the land in question;

E.
That respondent Leopoldo Sevilla not contented with the execution by Felisa Almirol of her last will and
testament, had consulted a lawyer as to how he will be able to own the land immediately;
F.
That upon the advice of Atty. Helen Angeles, Clerk of Court of the Regional Trial Court of Zamboanga del
Norte, Dipolog City, Felisa Almirol executed a Deed of Donation, hence, the questioned Deed of Donation
executed in his favor;
G.
That the subject matter of the Deed of Donation was the one-half portion of Lot 653, Dipolog Cadastre,
which was willed by Felisa Almirol, in favor of respondent Leopoldo Sevilla in her last will and testament;
H.
That at the time of the execution of the Deed of Donation, Lot No. 653, Dipolog Cadastre, was not yet
partitioned between petitioners and respondents they being heirs of the late Filomena and Honorata, all
surnamed Almirol;
I.
That after the execution of the Deed of Donation, respondent Peter Sevilla and the late Felisa Almirol
were the only ones who executed the Deed of Extra-judicial Partition over Lot 653, Dipolog Cadastre, the
petitioners were not made parties in the said Deed of Extrajudicial Partition;
J.
That on the basis of the Deed of Extrajudicial Partition and Deed of Donation, respondent Leopoldo
Sevilla caused the subdivision survey of Lot 653, Dipolog Cadastre, dividing the same into two (2) lots,
adjudicating one-half of the lot in his favor and the other half in favor of respondents peter Sevilla and Luzvilla
Sevilla, and to respondent Leopoldo Sevilla himself;
K.
That only two persons knew the actual survey of the land, petitioner Felipe Sevilla and respondent
Leopoldo Sevilla himself, the rest of the co-owners were not even notified;
L.
That on the basis of the Extrajudicial Partition, Deed of Donation, the approved subdivision plan,
respondent Leopoldo Sevilla filed a petition for issuance of the corresponding titles for the two lots, but the
Register of Deeds of Dipolog City refused to issue the corresponding titles for the two lots to respondent
Leopoldo Sevilla so that up to this moment the two tiles were left unsigned by the Register of Deeds. [28]
There is fraud when, through the insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to. [29] There is undue
influence when a person takes improper advantage of his power over the will of another, depriving the latter of
a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in financial distress. [30]

Clearly, therefore, the courts below did not err in sustaining the validity of the deed of donation.
Anent the Deed of Extra-judicial Partition, we find that the same is void ab initio and not merely
unenforceable. In Delos Reyes v. Court of Appeals,[34] which is a case involving the sale of a lot by a person
who is neither the owner nor the legal representative, we declared the contract void ab initio. It was held that
one of the requisites of a valid contract under Article 1318 of the Civil Code is the consent and the capacity to
give consent of the parties to the contract. The legal capacity of the parties is an essential element for the
existence of the contract because it is an indispensable condition for the existence of consent. There is no
effective consent in law without the capacity to give such consent. In other words, legal consent presupposes
capacity. Thus, there is said to be no consent, and consequently, no contract when the agreement is entered
into by one in behalf of another who has never given him authorization therefor unless he has by law a right to
represent the latter.[35]
In the case at bar, at the time Felisa executed the deed of extra-judicial partition dividing the share of
her deceased sister Honarata between her and the heirs of Filomena Almirol de Sevilla, she was no longer the
owner of the 1/2 undivided portion of Lot No. 653, having previously donated the same to respondent
Leopoldo Sevilla who accepted the donation in the same deed. A donation inter vivos, as in the instant case,
is immediately operative and final. [36] As a mode of acquiring ownership, it results in an effective transfer of
title over the property from the donor to the donee and the donation is perfected from the moment the donor
knows of the acceptance by the donee. And once a donation is accepted, the donee becomes the absolute
owner of the property donated.
Evidently, Felisa did not possess the capacity to give consent to or execute the deed of partition
inasmuch as she was neither the owner nor the authorized representative of respondent Leopoldo to whom
she previously transmitted ownership of her undivided share in Lot No. 653. Considering that she had no
legal capacity to give consent to the deed of partition, it follows that there is no consent given to the execution
of the deed, and therefore, there is no contract to speak of. As such, the deed of partition is void ab
initio, hence, not susceptible of ratification.
Nevertheless, the nullity of the deed of extra-judicial partition will not affect the validity of the
donation inter vivos ceding to respondent Leopoldo Sevilla the 1/2 undivided share of Felisa Almirol in Lot No.
653. Said lot should therefore be divided as follows: 1/2 shall go to respondent Leopoldo Sevilla by virtue of
the deed of donation, while the other half shall be divided equally among the heirs of Filomena Almirol de
Sevilla including Leopoldo Sevilla, following the rules on intestate succession.
Finally, we note that the name of Rosa Sevilla, daughter of Filomena Almirol de Sevilla, and one of the
plaintiffs herein, was omitted in the dispositive portion of the trial courts decision. [37] Her name should therefore
be included in the dispositive portion as one of the heirs entitled to share in the properties of the late Filomena
Almirol de Sevilla.

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

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

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

DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING
APPAREL,"petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.

SO ORDERED.
G.R. No. 82670 September 15, 1989

Roque A. Tamayo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

equivalent in Philippine currency, with interests at the legal rate from the filing of the
complaint on May 12, 1982 until the whole amount is fully paid, plus twenty percent
(20%) of the amount due as attomey's fees; and to pay the costs.
With costs against defendant-appellee.

CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which, applying the
doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, Branch CV, Quezon City by
deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers
was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time to time remitted certain
amounts of money to petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter
referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation
to effect the above- mentioned transfer through its facilities and to charge the amount to the account of FNSB
with private respondent. Although private respondent was able to send a telex to PNB to pay petitioner
$10,000.00 through the Pilipinas Bank, where petitioner had an account, the payment was not effected
immediately because the payee designated in the telex was only "Wearing Apparel." Upon query by PNB,
private respondent sent PNB another telex dated August 27, 1980 stating that the payment was to be made to
"Irene's Wearing Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through
Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private respondent about the delay and at the same time amended
its instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already received the remittance
of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.
Private respondent debited the account of FNSB for the second $10,000.00 remittance effected through PCIB.
However, when FNSB discovered that private respondent had made a duplication of the remittance, it asked
for a recredit of its account in the amount of $10,000.00. Private respondent complied with the request.
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the latter refused
to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court, Branch CV, Quezon City which
was decided in favor of petitioner as defendant. The trial court ruled that Art. 2154 of the New Civil Code is not
applicable to the case because the second remittance was made not by mistake but by negligence and
petitioner was not unjustly enriched by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held
that Art. 2154 is applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals'
decision reads as follows:
WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and
another one entered in favor of plaintiff-appellant and against defendant-appellee
Domelita (sic) M. Andres, doing business under the name and style "Irene's Wearing
Apparel" to reimburse and/or return to plaintiff-appellant the amount of $10,000.00, its

SO ORDERED. [Rollo, pp. 29-30.]

Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the
right to recover the second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue
would hinge on the applicability of Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through
an error, has been unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained the nature
of this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable.
This legal provision, which determines the quasi-contract of solution indebiti, is one of
the concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. In the Roman Law Digest the maxim was
formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et injuria
fieri locupletiorem." And the Partidas declared: "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Such axiom has grown through the centuries in
legislation, in the science of law and in court decisions. The lawmaker has found it one
of the helpful guides in framing statutes and codes. Thus, it is unfolded in many articles
scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464, 647,
648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This timehonored aphorism has also been adopted by jurists in their study of the conflict of
rights. It has been accepted by the courts, which have not hesitated to apply it when
the exigencies of right and equity demanded its assertion. It is a part of that affluent
reservoir of justice upon which judicial discretion draws whenever the statutory laws
are inadequate because they do not speak or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to
do so; and, (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110
Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance. However, petitioner
contends that the doctrine of solutio indebiti, does not apply because its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second $10,000.00
remittance. It is alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables
from FACETS, the latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last
$10,000.00 remittance being in payment of a pre-existing debt, petitioner was not thereby unjustly enriched.
The contention is without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was
the latter and not private respondent which was indebted to petitioner. On the other hand, the contract for the
transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB.
Petitioner, although named as the payee was not privy to the contract of remittance of dollars. Neither was
private respondent a party to the contract of sale between petitioner and FACETS. There being no contractual
relation between them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake
by private respondent to the outstanding account of FACETS.

The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a
case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v.
Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v.
Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the
Court in the case of De Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129,
citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA 486, held:
... The common law principle that where one of two innocent persons must suffer by a
fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed, cannot be applied in a
case which is covered by an express provision of the new Civil Code, specifically
Article 559. Between a common law principle and a statutory provision, the latter must
prevail in this jurisdiction. [at p. 135.]

Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not
made by mistake but was the result of negligence of its employees. In connection with this the Court of
Appeals made the following finding of facts:
The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the
written interrogatories sent to the First National State Bank of New Jersey through the
Consulate General of the Philippines in New York, Adelaide C. Schachel, the
investigation and reconciliation clerk in the said bank testified that a request to remit a
payment for Facet Funwear Inc. was made in August, 1980. The total amount which
the First National State Bank of New Jersey actually requested the plaintiff-appellant
Manufacturers Hanover & Trust Corporation to remit to Irene's Wearing Apparel was
US $10,000.00. Only one remittance was requested by First National State Bank of
New Jersey as per instruction of Facets Funwear (Exhibit "J", pp. 4-5).
That there was a mistake in the second remittance of US $10,000.00 is borne out by
the fact that both remittances have the same reference invoice number which is 263
80. (Exhibits "A-1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr.
Stanley Panasow").

Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the
case at bar, the Court must reject the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the time
the second $10,000.00 remittance was made, five hundred and ten days had elapsed before private
respondent demanded the return thereof. Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six years prescriptive period for actions based
upon a quasi-contract [Art. 1145 of the New Civil Code].
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.

Plaintiff-appellant made the second remittance on the wrong assumption that

defendant-appellee did not receive the first remittance of US $10,000.00. [Rollo, pp.
26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner
would have this Court review. The Court holds that the finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being based on substantial evidence, is final and conclusive.
The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA
138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for
certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and
revising the errors of law imputed to it, its findings of fact being conclusive" [Chan v.
Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long
line of decisions]. This Court has emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court"
[Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v.
Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court
of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore,
a showing that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such
findings must stand, for this Court is not expected or required to examine or contrast
the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. v.
Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]
Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the
loss.

[G.R. No. 126013. February 12, 1997]

SPOUSES HEINZRICH THEIS AND BETTY THEIS, petitioners, vs.HONORABLE COURT OF APPEALS,
HONORABLE ELEUTERIO GUERRERO, ACTING PRESIDING JUDGE, BRANCH XVIII,
REGIONAL
TRIAL
COURT,
TAGAYTAY
CITY,
CALSONS
DEVELOPMENT
CORPORATION, respondents.
DECISION
HERMOSISIMA, JR., J.:
In the instant petition, we shall have the occasion to apply the concept of mistake in the annulment of
contracts.
Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of land
covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location map), 15516 (parcel no.
2) and 15684 (parcel no. 3), with the area of 1,000 square meters, 226 square meters and 1,000 square
meters, respectively. All three parcels of land are situated along Ligaya Drive, Barangay Francisco, Tagaytay
City. Adjacent to parcel no. 3, which is the lot covered by TCT No. 15684, is a vacant lot denominated as
parcel no. 4.
In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered by TCT
No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, remained idle.
However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two idle lands

(parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead (which was not owned by
private respondent) and covered by TCT Nos. 15516 and 15684.

"Meeting head-on the issue of alleged mistake in the object of the same, defendants in their answer averred
that they relied on the technical descriptions of TCT Nos. 15516 and 15684 appearing in the deed of sale x x x

On October 26, 1987, unaware of the mistake by which private respondent appeared to be the owner of
parcel no. 4 as indicated in the erroneous survey, and based on the erroneous information given by the
surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent, through its authorized
representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to petitioners.

A resolution of the conflicting claims of the parties to the instant controversy calls for an inquiry on their real
intent relative to the identity of the parcels which plaintiff intended to sell to defendants and which the latter in
turn, intended to buy from the former. For, the Court cannot ignore the dictates of logic and common sense
which, ordinarily, could not push a person to sell to another, a property which the former does not own in the
first place, for fear of adverse consequences. The vendee, following the same reasoning, would not buy a
thing unless he is totally certain that the seller is the real owner of the thing offered for sale. It is equally true
that when one sells or buys a real property, he either sells or buys the property as he sees it, in its actual
setting and by its physical metes and bounds, and not be the mere lot number assigned to the same property
in the certificate of title or in any document. And, when a buyer of real property decides to purchase from his
seller, he is ordinarily bound by prudence to ascertain the true nature, identity or character of the property that
he intends to buy and ascertain the title of his vendor before he parts with his money. It is quite obvious that
the foregoing precepts and precautions were observed by the parties in the case at bar as there is no question
at all that the sale in question was consummated through the initiative of Mrs. Gloria Contreras and then ViceMayor Benjamin Erni x x x both brokers of the sale who, after a chance meeting with defendants at the Taal
Vista Lodge Hotel prior to the sale of plaintiff's parcels, brought defendants to the vicinity where plaintiff's three
(3) adjacent parcels of land are located and pointed to defendants the two (2) vacant parcels right beside
plaintiff's house. It is also undisputed that when defendants intimated to the brokers their desire to buy the
vacant lots pointed to them when they visited the same place, they were brought to plaintiff's representative,
Tarcisio S. Calilung, at the latter's office in Makati where the parties discussed the terms of the sale.

Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to
petitioners who, on October 28, 1987, immediately registered the same with the Registry of Deeds of Tagaytay
City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were issued.
Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual price
agreed upon and paid, however, was P486,000.00. This amount was not immediately paid to private
respondent; rather, it was deposited in escrow in an interest-bearing account in its favor with the United
Coconut Planters Bank in Makati City. TheP486,000.00 in escrow was released to, and received by, private
respondent on December 4, 1987.
Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle parcels of
land purchased from private respondent. Instead, petitioners went to Germany.
In the early part of 1990, petitioners returned to the Philippines. When they went to Tagaytay to look
over the vacant lots and to plan the construction of their house thereon, they discovered that parcel no. 4 was
owned by another person. They also discovered that the lots actually sold to them were parcel nos. 2 and 3
covered by TCT Nos. 15516 and 15684, respectively. Parcel no. 3, however, could not have been sold to the
petitioners by the private respondents as a two-storey house, the construction cost of which far exceeded the
price paid by the petitioners, had already been built thereon even prior to the execution of the contract
between the disputing parties.

The Court notes further from the records that defendants' desire to buy vacant lots from plaintiff is not only
confirmed by the testimony of Gloria Contreras and the ocular inspection conducted by the court but by
defendant Betty Theis herself when the latter testified as follows:
'COURT:
Q. Why, what was the lot that you intended to buy?

Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3, and
persisted in claiming that it was parcel no. 4 that private respondent sold to them. However, private respondent
could not have possibly sold the same to them for it did not own parcel no. 4 in the first place.
The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.
To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos. 15515 and
15516, respectively, as these two were precisely the two vacant lots which private respondent owned and
intended to sell when it entered into the transaction with petitioners. Petitioners adamantly rejected the good
faith offer. They refused to yield to reason and insisted on taking parcel no. 3, covered by TCT No. 155864 and
upon which a two-storey house stands, in addition to parcel no. 2, covered by TCT No. 15516, on the ground
that these TCTs have already been cancelled and new ones issued in their name.

A. The right side of the house, Your Honor.' (TSN of November 8, 1991, page 19)
Similarly, in answer to a question propounded to the same defendant by their counsel, she
stated that
'ATTY. ROSALES:
Q. In other words, the titles delivered to you were not the titles covering the right side of
the house?
A. No, sir.' (Ibid., page 20)

Such refusal of petitioners prompted private respondent to make another offer, this time, the return of
an amount double the price paid by petitioners. Petitioners still refused and stubbornly insisted in their stand.
Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof [1] in the Regional Trial Court.[2]
The trial court rendered judgment in favor of private respondent. Identifying the core issue in the instant
controversy to be the voidability of the contract of sale between petitioners and private respondent on the
ground of mistake, the trial court annulled said contract of sale after finding that there was indeed a mistake in
the identification of the parcels of land intended to be the subject matter of said sale. The trial court
ratiocinated:

It is relevant to mention that when the defendants attempted to take possession of the parcels of land they
bought from the plaintiff on which they intended to construct their house after their return from a foreign
sojourn, they admittedly wanted to take that vacant area, which as herein shown, turns out to be a property not
owned by plaintiff. From this act of the defendants, a clear meaning is shown. Defendants themselves, knew
right from the beginning that what they intended to buy was that vacant lot, not the lot where plaintiff's house
stands, covered by TCT No. 15684 which was wrongly mentioned as one of the objects of the sale. x x x
The fact that the Deed of Sale subsequently executed by plaintiff and the defendants on October 27, 1987
covers the parcel of land where plaintiff's two-storey house was constructed will clearly reflect a situation that
is totally different from what defendants had intended to buy from the plaintiff viz-a-viz [sic] the latter's intention
to sell its two (2) vacant lots to defendants. Notwithstanding defendants' claim that it was not possible for
plaintiff's representative not to be familiar with its properties, the acts and circumstances established in this

case would clearly show, and this Court is convinced, that the inclusion of the parcel where plaintiff's house is
constructed is solely attributable to a mistake in the object of the sale between the parties. This mistake,
obviously, was made, on the part of plaintiff's representative when the latter mistook the vacant lot situated on
the right side of plaintiff's house as its vacant parcels of land when its vacant lots are actually situated on the
left side of the same house. Indeed, such mistake on plaintiff's part appears to be tragic as it turned out later
that the vacant lot on the right side of plaintiff's house did not belong to plaintiff. Worse, is the fact that what
was conveyed to defendants under the deed of sale was the parcel where plaintiff's house already stood at the
time of the sale. This, definitely, is not what the parties intended.
x x x Going by the facts established by defendants' evidence, it is clear that defendants did not intend to buy
the parcel of land where plaintiff's house stood as defendant Betty Theis declared in her testimony that they
wanted to buy the parcel at the right side of plaintiff's house where she and her husband would construct their
house (TSN of June 4, 1991, p. 56). Neither can this Court accept the hypothesis that plaintiff intended to sell
that parcel where its house was already constructed for if this was its true intention, it would not sell its two (2)
lots at the price of P486,000.00 which is way below the costs of its construction of P1,500,000.00.

We find that respondent court correctly affirmed the findings and conclusions of the trial court in
annulling the deed of sale as the former are supported by evidence and the latter are in accordance with
existing law and jurisprudence.
Art. 1390 of the New Civil Code provides:
"Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage
to the contracting parties:
(1) x

As earlier stated, the facts obtaining in the case at bar undoubtedly show that when defendants bought the
properties of plaintiff, they intended to buy the vacant lots owned by the latter. As the sale that was finally
consummated by the parties had covered the parcel where plaintiff's house was constructed even before the
sale took place, this Court can safely assume that the deed of sale executed by the parties did not truly
express their true intention. In other words, the mistake or error on the subject of the sale in question appears
to be substantial as the object of the same transaction is different from that intended by the parties.
This fiasco could have been cured and the pain and travails of this litigation avoided, had parties agreed to
reformation of the deed of sale. But, as shown by the sequence of events occurring after the sale was
consummated, and the mistake was discovered, the defendants refused, insisting that they wanted the vacant
lots on the right side of plaintiff's house, which was impossible for plaintiff to do, as said vacant lots were not of
its own dominion."[3] [Emphasis supplied]

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.
x

The law itself explicitly recognizes that consent of the parties is one of the essential elements to the validity of
the contract and where consent is given through mistake, the validity of the contractual relations between the
parties is legally impaired.

x"

In the case at bar, the private respondent obviously committed an honest mistake in selling parcel no.
4. As correctly noted by the Court of Appeals, it is quite impossible for said private respondent to sell the lot in
question as the same is not owned by it. The good faith of the private respondent is evident in the fact that
when the mistake was discovered, it immediately offered two other vacant lots to the petitioners or to
reimburse them with twice the amount paid. That petitioners refused either option left the private respondent
with no other choice but to file an action for the annulment of the deed of sale on the ground of mistake. As
enunciated in the case of Mariano vs. Court of Appeals:[8]
"A contract may be annulled where the consent of one of the contracting parties was procured by mistake,
fraud, intimidation, violence, or undue influence."
Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate consent. It
states:

Aggrieved by the decision of the trial court, petitioners sought its reversal [4] from respondent Court of
Appeals.[5] Respondent court, however, did not find the appeal meritorious and accordingly affirmed [6] the trial
court decision. Ruled the respondent appellate court:

"Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which
is the object of the contract, or to those conditions which have principally moved one or both parties to enter
into the contract."

"There is no doubt that when defendants-appellants attempted to take physical possession of Parcel No. 4 in
May, 1990, they were prevented by the true owner thereof from taking possession of said land. To clear the
matter, plaintiff-appellee hired a new surveyor who revealed in his survey that Parcel No. 4 is not included in
plaintiff-appellee's Transfer Certificates of Title from which said plaintiff-appellee mistakenly offered
defendants-appellants said Parcel No. 4. Realizing its mistake, plaintiff-appellee offered defendants-appellants
Parcels Nos. 1 and 2 under the same Transfer Certificates of Title or the reimbursement of the purchase price
in double amount. But defendants-appellants insisted this time to acquire Parcel No. 3 wherein plaintiffappellee had already a house, and was not the object of the sale.

Tolentino[9] explains that the concept of error in this article must include both ignorance, which is the
absence of knowledge with respect to a thing, and mistake properly speaking, which is a wrong conception
about said thing, or a belief in the existence of some circumstance, fact, or event, which in reality does not
exist. In both cases, there is a lack of full and correct knowledge about the thing. The mistake committed by
the private respondent in selling parcel no. 4 to the petitioners falls within the second type. Verily, such mistake
invalidated its consent and as such, annulment of the deed of sale is proper.

Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-appellee's house already
stands in the said area even before defendants-appellants had chosen Parcel No. 4 which was described to
be on the right side of said plaintiff-appellee's house in Parcel No. 3. There is no dispute that defendantsappellants wanted to buy Parcel No. 4 as testified to by defendant-appellant Betty Theis, herself (p. 19, TSN,
Nov. 8, 1991), which lot turned out to be outside of the Transfer Certificates of Title of plaintiff-appellee.
Defendants-appellants cannot now insist on Parcel No. 3 as the same was not the object of the sale between
the parties.
Clearly, therefore, there was honest mistake on the part of plaintiff-appellee in the sale of Parcel No. 4 to
defendants-appellants which plaintiff-appellee tried to remedy by offering defendants-appellants instead his
Parcels Nos. 1 or 2, or reimbursement of the purchase price in double amount." [7] [Emphasis ours]

The petitioners cannot be justified in their insistence that parcel no. 3, upon which private respondent
constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of construction in 1985 for
the said house (P1,500,000.00) far exceeds the amount paid by the petitioners to the private respondent
(P486,000.00). Moreover, the trial court, in questioning private respondent's witness, Atty. Tarciso Calilung
(who is also its authorized representative) clarified that parcel no. 4, the lot mistakenly sold, was a vacant lot:
[10]

"COURT: What property did you point to them?

A.

I pointed to parcel No. 4, as appearing in the sketch.

COURT: Parcel No. 4 is a vacant lot?

A.

Yes, your Honor.

COURT: So, there was no house on that lot?

A.

There was no house. There were pineapple crops existing on the property.

COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?
A.

Yes, your Honor.

Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept the offer of
the private respondent to give them two (2) other vacant lots in exchange, as well as their insistence on parcel
no. 3, which is a house and lot, is manifestly unreasonable. As held by this Court in the case of Security Bank
and Trust Company v. Court of Appeals[11]:
"Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction
cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of the private respondent.
Such unjust enrichment, as previously discussed, is not allowed by law."
WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-G.R.
47000 dated May 31, 1996 AFFIRMED. Costs against the petitioner.
SO ORDERED
G.R. No. L-10462

March 16, 1916

ANDREA DUMASUG, plaintiff -appellee,

vs.
FELIX MODELO, defendant-appellant.
Fortunato Borromeo Veloso for appellant.
Tomas Alonso for appellee.
TORRES, J.:
An appeal raised, by bill of exceptions, by counsel for defendant from the judgment of September 21, 1914, in
which the Court of First Instance of Cebu held to be null and void the document, marked as Exhibit 1,
executed by the plaintiff Andrea Dumasug, by virtue whereof defendant claims that the lands and carabao, the
subject matter of the complaint, were conveyed to him. The said judgment further declared the plaintiff to be
the exclusive owner of said lands; ordered defendant to deliver and restore the same to the plaintiff and,
moreover, to pay her the sum of P120, the value of her carabao unlawfully sold by him, and likewise P75 as
rent for the use and occupation of the lands in question during the time they were in defendant's possession,
and to pay the costs.
On June 17, 1912, counsel for Andrea Dumasug filed a written complaint in the Court of First Instance of
Cebu, in which he alleged that about the month of November, 1911, defendant persuaded plaintiff to sign a
document by falsely and maliciously making her believe that it contained an engagement on plaintiff's part to
pay defendant a certain sum of money as expresses occasioned the latter by reason of a lawsuit in which
plaintiff Dumasug was one of the parties and was protected and aided by defendant; that this document,
plaintiff, who does not know how to write, signed by affixing her mark thereto, believing in good faith that
defendant had told her the truth and that said document referred to the expenses incurred by defendant; but
that three months after the execution of said document, defendant took possession of a carabao belonging to
plaintiff and also of two parcels of land, likewise belonging to her, situated in the barrio of Katang, pueblo of

Argao, Cebu, the area and boundaries of which are specified in the complaint, and notified plaintiff that she
had conveyed to him by absolute sale said parcels of land and the plow carabao; that in spite of plaintiff's
opposition and protests, defendant took possession of said property and, up to the date of the complaint,
continued to hold possession thereof and to enjoy the products of the lands and of the labor of the carabao;
and that, by reason of such acts, defendant had caused loss and damage to plaintiff in the sum of P1,000.
Said counsel therefore prayed the court to render judgment by declaring null and void and of no value
whatever the alleged contract of purchase and sale of the carabao and the two parcels of land described in the
complaint, to order defendant to restore to plaintiff said work animal and lands, and, besides, to pay her the
sum of P1,000 for the loss and damage caused her, in addition to the costs of the suit.
The demurrer to the aforementioned complaint having been overruled, counsel for defendant in his answer
denied each and all of the facts alleged in the complaint, and in special defense set forth that if defendant had
in his possession the property described in the complaint, it was due to the fact that plaintiff sold it to him,
which sale was recorded in a public instrument duly executed and signed by plaintiff in the presence of
witnesses. Defendant's counsel therefore prayed the court to absolve his client from the complaint and to hold
defendant to be the absolute owner of the disputed property, and to sentence plaintiff to hold her peace for
ever and to pay the costs.
After trial and the hearing of evidence by both parties, the court rendered the aforementioned judgment, to
which defendant excepted and by written motion asked for a reopening of the case and a new trial. This
motion was denied, exception to this ruling was taken by defendant and, upon presentation of the proper bill of
exceptions, the same was approved and transmitted to the clerk of this court.
The sole question to be resolved in this litigation is whether or not the instrument of purchase and sale of two
parcels of land and a plow carabao, Exhibit 1, is null and void. The defendant alleges that by means thereof he
acquired the possession and ownership of the said property, while the plaintiff, in turn, sets forth in her
complaint that the said instrument is of no value whatever, as her consent thereto was obtained by means of
fraud and deceit on the part of defendant.
The instrument, the annulment whereof is requested by the plaintiff, is Exhibit 1 (p. 27 of the record). If sets
forth that on November 3, 1911, plaintiff Andrea Dumasug, in consideration of the sum of P333.49 which she
received from defendant, Felix Modelo, sold and conveyed to the latter outright two parcels of land and the
plow carabao which are the subject matter of the complaint, and furthermore bound herself to warrant and
defend the title thereto. This contract of sale appears to be authorized by the vendor, Andrea Dumasug, by
means of a cross placed between her Christian name and surname in the presence of the witnesses Mariano
Abear and Apolina Minosa, and certified before a notary on the very date of its execution.
In regard to the events leaving up to the said contract, it ought to be stated that on October 12, 1910, Andrea
Dumasug filed suit in the justice of the peace court of Argao against Rosales Albarracin and Gaudencio Saniel,
for the recovery of a parcel of land belonging to plaintiff, measuring two gantas, on which were growing seven
clumps of bamboo. Judgment was rendered for the plaintiff and the usurped land was ordered restored to her.
(See case No. 1211, p. 1, record.) But subsequently, on March 2, 1911, these former defendants, Rosales
Albarracin and Gaudencio Saniel, commenced proceedings in the Court of First Instance of Cebu against the
said Andrea Dumasug in which they prayed for the annulment of the judgment rendered in the court of the
justice of the peace of Argao. In that case Andrea Dumasug, through her attorney, Andres Jayme, appeared in
the said Court of First Instance and demurrer to the complaint.
Before this demurrer had even been ruled on, counsel for plaintiff moved the court to dismiss their complaint,
and this was done by an order of October 2, 1911, in which ruling attorney Jayme acquiesced. (Pages 1 to 13,
record, case No. 1211.) The defendant in the case at bar, Felix Modelo, is neither an attorney nor a procurador
judicial, and the record does not show that he acted as an attorney, procurador judicial, or friend of Andrea
Dumasug in the case brought by the latter in the justice of the peace court of Argao, or in the said case No.
1211, prosecuted in the Court of First Instance of Cebu.
Probably all that Andrea Dumasug did was to ask the advice of Felix Modelo about what she ought to do in
view of the infringement of her rights on the part of Saniel, and defendant probably advised plaintiff to bring the
matter before the authorities; and so far as defendant's direct intervention in those cases was concerned it

was limited to engaging the services of the attorney Andres Jayme to represent plaintiff in the Court of First
Instance.

received an offer of P120 for her carabao, but that she did not wish to sell the animal as she rented if for fifty
centavos per day, her only means of livelihood.

The defendant Felix Modelo stated in his sworn testimony that the sale of the parcels of land and the carabao
was in payment of a debt of P333.49 which the plaintiff was owing him for money he had advanced her to
maintain two actions against Albarracin and Saniel, which sum plaintiff had borrowed of him in small amounts,
first P101.87, afterwards P184.85 and finally P46.77, making a total of P333.49; and that these sums of
money were expended by plaintiff in the payment of attorney's fees, traveling expenses for herself and her
witnesses and for their expenses while in Cebu. The witness Mariano Abear corroborated defendant's
testimony to the effect that the document Exhibit 1 was signed by mark of plaintiff before the notary public
Anselmo S. Legaspi, after the latter had explained to her that it was a conveyance by absolute sale of the
lands and carabao now in question. It would be improper to give credence to the testimony of the justice of the
peace Antonio Minosa, of the pueblo of Argao, with respect to the expenses which plaintiff had to pay on
account of her trips to Cebu, because, as he was a party defendant in case No. 1211, brought to secure the
annulment of the judgment rendered by him, it is incredible that the other defendant, Andrea Dumasug, should
have defrayed Minosa's expenses in Cebu, allowing him to board in restaurants, to amuse himself in the
cinematographs and to remain four days in that city each time that he went there all at the expense of his
codefendant, Andrea Dumasug when the proceedings in the case had not gone beyond the filing of a
demurrer and the principal defendant went to Cebu only twice, staying there one day each time.

It is, then, perfectly evident that the document Exhibit 1, by means of which defendant made himself the owner
of the properties in question is not the instrument of debt which Andrea Dumasug had signed, and if it is the
same one its contents were not duly and faithfully explained to plaintiff in the act of its execution. In either
case, the consent said to have been given by Andrea Dumasug in said document Exhibit 1 is null and void, as
it was given by mistake (arts. 1265 and 1266, Civil Code). This error invalidates the contract, because it goes
to the very substance of the thing which was the subject matter of said contract, for, had the maker thereof
truly understood the contents of said document, she would neither have accepted nor authenticated it by her
mark.

Plaintiff testified that one day in the month of November, 1911, defendant sent for her and after she was inside
defendant's house he told her to sign a document acknowledging that she owed him the sum of P101 for the
work he had performed in her behalf in the two actions she had brought to recover here land; that she did not
object to so doing and signed said document by mark in the presence of the defendant while they were alone
and without any attesting witness and that when she was afterwards taken by defendant to the house of the
notary Anselmo Saniel y Legaspi the latter said nothing to her about the pretended sale of her property. She
added that she had never sold her lands or her carabao to defendant; that she neither offered to sell them to
defendant, nor did the latter offer to buy them for her; that if defendant was now in possession of her two
parcels of land and her carabao, it was due to the fact that three months after she had signed the
acknowledgment of indebtedness defendant took possession of said property by intimidation and force; and
that since then defendant had been harvesting the products of her lands and benefiting himself by the labor of
her plow carabao. She also stated that she signed only one document in favor of the defendant Felix Modelo,
which was that in which she acknowledged she owed him the sum of P101.
It is inconceivable that, in order to recover possession of a parcel of land measuring two gantas, containing
seven clumps of bamboo, by commencing proceedings therefor in the justice of the peace court in Argao
(where Andrea Dumasug lived); and that, in order to defendant herself by filing a demurrer in a suit instituted in
the Court of First Instance of Cebu (which suit was not continued because plaintiffs themselves moved its
dismissal), the defendant in that suit scarcely commenced, now plaintiff in the case at bar, had already
incurred expenses amounting to more than P333. It would have been preferable to have left the small portion
of usurped land in the possession of the deforciant, than to have maintained, in order to defend herself from
such usurper, an unterminated suit which might have resulted in the entire loss of all the aggrieved party's
properties by their being kept, not by the usurper, but by her adviser, a sort of hombre bueno.
The evidence discloses that the only great expense which Andrea Dumasug could have incurred was the sum
that as fees she had to pay the attorney Andres Jayme for filing a demurrer in the Court of First Instance. Said
attorney testified that he received from Andrea Dumasug only P80 or P90, the only large sum which the latter
had to expend. Therefore if plaintiff finally had to admit that she was owing Felix Modelo the sum of P101, and
if for this reason she had to execute the receipt to which she referred in her testimony, it is not unreasonable to
suppose that said sum was the principal expense she incurred, in addition to P20 or P30 for her traveling
expenses from Argao to Cebu, the two times that she made that trip, and for her stay in the latter city.
Defendant's allegation that the traveling expenses of the witnesses taken to Cebu amounted to the large sum
of P333.49 cannot be credited, inasmuch as the proceedings in the Court of First Instance were dismissed
before the complaint was answered and the trial was held, so no witnesses were examined.

If Exhibit 1 is the document signed by her, it is undeniable that she was deceived in order to obtain her
consent thereto, and if the document which she signed is different from the one now presented as Exhibit 1,
then this latter has no value whatever, for the reason that it is not the one which, of her own free will, she
authenticated with her mark.
The consent given by plaintiff being null and void, the document Exhibit 1 is consequently also null, void, and
of no value or effect. Article 1303 of the Civil Code is therefore, applicable, which prescribes that: "When the
nullity of an obligation has been declared, the contracting parties shall restore to each other the things which
have been the object of the contract with their fruits, and the value with its interest." In accordance with this
legal provision defendant must return and deliver to plaintiff the two parcels of land in question with their fruits,
the subject of the complaint, or the value thereof collected by him, which value was justly estimated by the trial
judge at P75.
With respect to the plow carabao that died while in defendant's possession, the value of which is P120,
(record, p. 31) defendant is obliged pursuant to the provision of article 1307 of the same code (to pay and
deliver to plaintiff the value of said animal, with interest as an indemnity for the detriment caused to its owner.)
Defendant has made no claim whatever for reimbursement of the sum of money which he paid to the attorney
Andres Jayme for defending plaintiff in the Court of First Instance of Cebu. It would therefore be improper to
decide in the present case whether he is or is not entitled to such reimbursement. (Secs. 95-97, Code of Civ.
Proc.)
For the foregoing reasons, whereby the errors assigned to the judgment appealed from are deemed to have
been refuted, said judgment should be as it is hereby, affirmed, with the costs of this instance against the
appellant. So ordered
[G.R. No. 107132. October 8, 1999]
MAXIMA HEMEDES, petitioner, vs. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND
CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES, and R & B INSURANCE
CORPORATION,respondents.
[G.R. No. 108472. October 8, 1999]
R & B INSURANCE CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS DOMINIUM
REALTY AND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES and MAXIMA
HEMEDES,respondents.
DECISION

The lower court held that the statements of Andrea Dumasug were well worthy of credence, and, taking into
consideration the merits of the case, reached the conclusion that the sole document which plaintiff signed
about the month of November, 1911, related to the sum of P101 which she acknowledged she was owing to
Felix Modelo, and not to the sale of all her properties. The record shows plaintiff to have stated that she

GONZAGA_REYES, J.:

Assailed in these petitions for review on certiorari is the decision[1] of the eleventh division of the Court
of Appeals in CA-G.R. CV No. 22010 promulgated on September 11, 1992 affirming in toto the decision of
Branch 24 of the Regional Trial Court of Laguna in Civil Case No. B-1766 dated February 22, 1989, [2] and the
resolution dated December 29, 1992 denying petitioner R & B Insurance Corporations (R & B Insurance)
motion for reconsideration. As the factual antecedents and issues are the same, we shall decide the petitions
jointly.
The instant controversy involves a question of ownership over an unregistered parcel of land, identified
as Lot No. 6, plan Psu-111331, with an area of 21,773 square meters, situated in Sala, Cabuyao, Laguna. It
was originally owned by the late Jose Hemedes, father of Maxima Hemedes and Enrique D. Hemedes. On
March 22, 1947 Jose Hemedes executed a document entitled Donation Inter Vivos With Resolutory
Conditions[3] whereby he conveyed ownership over the subject land, together with all its improvements, in
favor of his third wife, Justa Kauapin, subject to the following resolutory conditions:
(a) Upon the death or remarriage of the DONEE, the title to the property donated shall revert to any of the
children, or their heirs, of the DONOR expressly designated by the DONEE in a public document conveying
the property to the latter; or
(b) In absence of such an express designation made by the DONEE before her death or remarriage contained
in a public instrument as above provided, the title to the property shall automatically revert to the legal heirs of
the DONOR in common.
Pursuant to the first condition abovementioned, Justa Kausapin executed on September 27, 1960 a
Deed of Conveyance of Unregistered Real Property by Reversion [4] conveying to Maxima Hemedes the
subject property under the following terms That the said parcel of land was donated unto me by the said Jose Hemedes, my deceased husband, in a
deed of DONATION INTER VIVOS WITH RESOLUTORY CONDITIONS executed by the donor in my favor,
and duly accepted by me on March 22, 1947, before Notary Public Luis Bella in Cabuyao, Laguna;
That the donation is subject to the resolutory conditions appearing in the said deed of DONATION INTER
VIVOS WITH RESOLUTORY CONDITIONS, as follows:
(a) Upon the death or remarriage of the DONEE, the title to the property donated shall revert to any of the
children, or their heirs, of the DONOR expressly designated by the DONEE in a public document conveying
the property to the latter; or
(b) In absence of such an express designation made by the DONEE before her death or remarriage contained
in a public instrument as above provided, the title to the property shall automatically revert to the legal heirs of
the DONOR in common.
That, wherefore, in virtue of the deed of donation above mentioned and in the exercise of my right and
privilege under the terms of the first resolutory condition therein contained and hereinabove reproduced, and
for and in consideration of my love and affection, I do hereby by these presents convey, transfer, and deed
unto my designee, MAXIMA HEMEDES, of legal age, married to RAUL RODRIGUEZ, Filipino and resident of
No. 15 Acacia Road, Quezon City, who is one of the children and heirs of my donor, JOSE HEMEDES, the
ownership of, and title to the property hereinabove described, and all rights and interests therein by reversion
under the first resolutory condition in the above deed of donation; Except the possession and enjoyment of the
said property which shall remain vested in me during my lifetime, or widowhood and which upon my death or
remarriage shall also automatically revert to, and be transferred to my designee, Maxima Hemedes.
Maxima Hemedes, through her counsel, filed an application for registration and confirmation of title
over the subject unregistered land. Subsequently, Original Certificate of Title (OCT) No. (0-941) 0-198 [5] was
issued in the name of Maxima Hemedes married to Raul Rodriguez by the Registry of Deeds of Laguna on
June 8, 1962, with the annotation that Justa Kausapin shall have the usufructuary rights over the parcel of
land herein described during her lifetime or widowhood.

It is claimed by R & B Insurance that on June 2, 1964, Maxima Hemedes and her husband Raul
Rodriguez constituted a real estate mortgage over the subject property in its favor to serve as security for a
loan which they obtained in the amount of P6,000.00. On February 22, 1968, R & B Insurance extrajudicially
foreclosed the mortgage since Maxima Hemedes failed to pay the loan even after it became due on August 2,
1964. The land was sold at a public auction on May 3, 1968 with R & B Insurance as the highest bidder and a
certificate of sale was issued by the sheriff in its favor. Since Maxima Hemedes failed to redeem the property
within the redemption period, R & B Insurance executed an Affidavit of Consolidation dated March 29, 1974
and on May 21, 1975 the Register of Deeds of Laguna cancelled OCT No. (0-941) 0-198 and issued Transfer
Certificate of Title (TCT) No. 41985 in the name of R & B Insurance. The annotation of usufruct in favor of
Justa Kausapin was maintained in the new title.[6]
Despite the earlier conveyance of the subject land in favor of Maxima Hemedes, Justa Kausapin
executed a Kasunduan on May 27, 1971 whereby she transferred the same land to her stepson Enrique D.
Hemedes, pursuant to the resolutory condition in the deed of donation executed in her favor by her late
husband Jose Hemedes. Enrique D. Hemedes obtained two declarations of real property - in 1972, and
again, in 1974, when the assessed value of the property was raised. Also, he has been paying the realty
taxes on the property from the time Justa Kausapin conveyed the property to him in 1971 until 1979. In the
cadastral survey of Cabuyao, Laguna conducted from September 8, 1974 to October 10, 1974, the property
was assigned Cadastral No. 2990, Cad. 455-D, Cabuyao Cadastre, in the name of Enrique
Hemedes. Enrique Hemedes is also the named owner of the property in the records of the Ministry of
Agrarian Reform office at Calamba, Laguna.
On February 28, 1979, Enriques D. Hemedes sold the property to Dominium Realty and Construction
Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit affirming the conveyance of
the subject property in favor of Enrique D. Hemedes as embodied in the Kasunduan dated May 27, 1971,
and at the same time denying the conveyance made to Maxima Hemedes.
On May 14, 1981, Dominium leased the property to its sister corporation Asia Brewery, Inc. (Asia
Brewery) who, even before the signing of the contract of lease, constructed two warehouses made of steel
and asbestos costing about P10,000,000.00 each. Upon learning of Asia Brewerys constructions upon the
subject property, R & B Insurance sent it a letter on March 16, 1981 informing the former of its ownership of
the property as evidenced by TCT No. 41985 issued in its favor and of its right to appropriate the constructions
since Asia Brewery is a builder in bad faith. On March 27, 1981, a conference was held between R & B
Insurance and Asia Brewery but they failed to arrive at an amicable settlement.
On May 8, 1981, Maxima Hemedes also wrote a letter addressed to Asia Brewery wherein she
asserted that she is the rightful owner of the subject property by virtue of OCT No. (0-941) 0-198 and that, as
such, she has the right to appropriate Asia Brewerys constructions, to demand its demolition, or to compel
Asia Brewery to purchase the land. In another letter of the same date addressed to R & B Insurance, Maxima
Hemedes denied the execution of any real estate mortgage in favor of the latter.
On August 27, 1981, Dominium and Enrique D. Hemedes filed a complaint [7] with the Court of First
Instance of Binan, Laguna for the annulment of TCT No. 41985 issued in favor of R & B Insurance and/or the
reconveyance to Dominium of the subject property. Specifically, the complaint alleged that Dominium was the
absolute owner of the subject property by virtue of the February 28, 1979 deed of sale executed by Enrique D.
Hemedes, who in turn obtained ownership of the land from Justa Kausapin, as evidenced by the Kasunduan
dated May 27, 1971. The plaintiffs asserted that Justa Kausapin never transferred the land to Maxima
Hemedes and that Enrique D. Hemedes had no knowledge of the registration proceedings initiated by Maxima
Hemedes.
After considering the merits of the case, the trial court rendered judgment on February 22, 1989 in favor
of plaintiffs Dominium and Enrique D. Hemedes, the dispositive portion of which states
WHEREFORE, judgment is hereby rendered:
(a) Declaring Transfer Certificate of Title No. 41985 of the Register of Deeds of Laguna null and
void and ineffective;

(b) Declaring Dominium Realty and Construction Corporation the absolute owner and possessor
of the parcel of land described in paragraph 3 of the complaint;
(c) Ordering the defendants and all persons acting for and/or under them to respect such
ownership and possession of Dominium Realty and Construction Corporation and to forever
desist from asserting adverse claims thereon nor disturbing such ownership and
possession; and
(d) Directing the Register of Deeds of Laguna to cancel said Transfer Certificate of Title No.
41985 in the name of R & B Insurance Corporation, and in lieu thereof, issue a new transfer
certificate of title in the name of Dominium Realty and Construction Corporation. No
pronouncement as to costs and attorneys fees.[8]
Both R & B Insurance and Maxima Hemedes appealed from the trial courts decision. On September
11, 1992 the Court of Appeals affirmed the assailed decision in toto and on December 29, 1992, it denied R &
B Insurances motion for reconsideration. Thus, Maxima Hemedes and R & B Insurance filed their respective
petitions for review with this Court on November 3, 1992 and February 22, 1993, respectively.
In G.R. No. 107132[9], petitioner Maxima Hemedes makes the following assignment of errors as regards
public respondents ruling

RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO REAL ESTATE MORTGAGE
OVER THE SUBJECT PROPERTY WAS EXECUTED BY PETITIONER MAXIMA HEMEDES IN FAVOR OF
RESPONDENT R & B INSURANCE CORPORATION.
VII
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT THE VALID TITLE COVERING THE
SUBJECT PROPERTY IS THE ORIGINAL CERTIFICATE OF TITLE NO. (0-941) 0-198 IN THE NAME OF
PETITIONER MAXIMA HEMEDES AND NOT THE TRANSFER CERTIFICATE OF TITLE (TCT) NO. 41985 IN
THE NAME OF R & B INSURANCE CORPORATION.[10]
Meanwhile, in G.R. No. 108472 [11], petitioner R & B Insurance assigns almost the same errors, except
with regards to the real estate mortgage allegedly executed by Maxima Hemedes in its favor. Specifically, R &
B Insurance alleges that:
I
RESPONDENT COURT ERRONEOUSLY ERRED IN APPLYING ARTICLE 1332 OF THE CIVIL CODE.
II

I
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN APPLYING ARTICLE 1332 OF THE NEW CIVIL
CODE IN DECLARING AS SPURIOUS THE DEED OF CONVEYANCE OF UNREGISTERED REAL
PROPERTY BY REVERSION EXECUTED BY JUSTA KAUSAPIN IN FAVOR OF PETITIONER MAXIMA
HEMEDES.

RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE KASUNDUAN BY AND
BETWEEN JUSTA KAUSAPIN AND ENRIQUE NOTWITHSTANDING THE FACT THAT JUSTA KAUSAPIN
BY WAY OF A DEED OF CONVEYANCE OF UNREGISTERED REAL PROPERTY BY REVERSION CEDED
THE SUBJECT PROPERTY TO MAXIMA SOME ELEVEN (11) YEARS EARLIER.
III

II
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING AS VOID AND OF NO LEGAL
EFFECT THE KASUNDUAN DATED 27 MAY 1971 EXECUTED BY JUSTA KAUSAPIN IN FAVOR OF
RESPONDENT ENRIQUE HEMEDES AND THE SALE OF THE SUBJECT PROPERTY BY RESPONDENT
ENRIQUE HEMEDES IN FAVOR OF RESPONDENT DOMINIUM REALTY AND CONSTRUCTION
CORPORATION.
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING RESPONDENTS ENRIQUE
AND DOMINIUM IN BAD FAITH.
IV
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT ORIGINAL CERTIFICATE
OF TITLE NO. (0-941) 0-198 ISSUED IN THE NAME OF PETITIONER MAXIMA HEMEDES NULL AND
VOID.
V
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO LOAN WAS OBTAINED BY
PETITIONER MAXIMA HEMEDES FROM RESPONDENT R & B INSURANCE CORPORATION.
VI

RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE AFFIDAVIT OF

REPUDIATION OF JUSTA KAUSAPIN NOTWITHSTANDING THE FACT THAT SHE IS A BIAS (sic)
WITNESS AND EXECUTED THE SAME SOME TWENTY-ONE (21) YEARS AFTER THE EXECUTION OF
THE DEED OF CONVEYANCE IN FAVOR OF MAXIMA.
IV
RESPONDENT COURT SERIOUSLY ERRED IN NOT FINDING THAT THE COMPLAINT OF ENRIQUE AND
DOMINIUM HAS PRESCRIBED AND/OR THAT ENRIQUE AND DOMINIUM WERE GUILTY OF LACHES.
V
RESPONDENT COURT SERIOUSLY ERRED IN FINDING R & B AS A MORTGAGEE NOT IN GOOD FAITH.
VI
RESPONDENT COURT SERIOUSLY ERRED IN NOT GRANTING THE DAMAGES PRAYED FOR BY R & B
IN ITS COUNTERCLAIM AND CROSSCLAIM.[12]
The primary issue to be resolved in these consolidated petitions is which of the two conveyances by
Justa Kausapin, the first in favor of Maxima Hemedes and the second in favor of Enrique D. Hemedes,
effectively transferred ownership over the subject land.

The Register of Deeds of Laguna issued OCT No. (0-941) 0-198 in favor of Maxima Hemedes on the
strength of the Deed of Conveyance of Unregistered Real Property by Reversion executed by Justa
Kausapin. Public respondent upheld the trial courts finding that such deed is sham and spurious and has no
evidentiary value under the law upon which claimant Maxima Hemedes may anchor a valid claim of ownership
over the property. In ruling thus, it gave credence to the April 10, 1981 affidavit executed by Justa Kausapin
repudiating such deed of conveyance in favor of Maxima Hemedes and affirming the authenticity of the
Kasunduan in favor of Enrique D. Hemedes. Also, it considered as pivotal the fact that the deed of
conveyance in favor of Maxima Hemedes was in English and that it was not explained to Justa Kausapin,
although she could not read nor understand English; thus, Maxima Hemedes failed to discharge her burden,
pursuant to Article 1332 of the Civil Code, to show that the terms thereof were fully explained to Justa
Kausapin. Public respondent concluded by holding that the registration of the property on the strength of the
spurious deed of conveyance is null and void and does not confer any right of ownership upon Maxima
Hemedes. [13]
Maxima Hemedes argues that Justa Kausapins affidavit should not be given any credence since she is
obviously a biased witness as it has been shown that she is dependent upon Enrique D. Hemedes for her
daily subsistence, and she was most probably influenced by Enrique D. Hemedes to execute the Kasunduan
in his favor. She also refutes the applicability of article 1332. It is her contention that for such a provision to
be applicable, there must be a party seeking to enforce a contract; however, she is not enforcing the Deed of
Conveyance of Unregistered Real Property by Reversion as her basis in claiming ownership, but rather her
claim is anchored upon OCT No. (0-941) 0-198 issued in her name, which document can stand independently
from the deed of conveyance. Also, there exist various circumstances which show that Justa Kausapin did in
fact execute and understand the deed of conveyance in favor of Maxima Hemedes. First, the Donation
Intervivos With Resolutory Conditions executed by Jose Hemedes in favor of Justa Kausapin was also in
English, but she never alleged that she did not understand such document. Secondly, Justa Kausapin failed
to prove that it was not her thumbmark on the deed of conveyance in favor of Maxima Hemedes and in fact,
both Enrique D. Hemedes and Dominium objected to the request of Maxima Hemedes counsel to obtain a
specimen thumbmark of Justa Kausapin. [14]
Public respondents finding that the Deed of Conveyance of Unregistered Real Property By Reversion
executed by Justa Kausapin in favor of Maxima Hemedes is spurious is not supported by the factual findings
in this case.. It is grounded upon the mere denial of the same by Justa Kausapin. A party to a contract cannot
just evade compliance with his contractual obligations by the simple expedient of denying the execution of
such contract. If, after a perfect and binding contract has been executed between the parties, it occurs to one
of them to allege some defect therein as a reason for annulling it, the alleged defect must be conclusively
proven, since the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties.

Q: As of today, Aling Justa are you continuing to receive any assistance from Enrique Hemedes?
A: Yes Sir.
(TSN pp. 19 and 23, November 17, 1981)[19]
Even Enrique Hemedes admitted that Justa Kausapin was dependent upon him for financial support. The
transcripts state as follows:
Atty. Mora:
Now you said that Justa Kausapin has been receiving from you advances for food, medicine & other
personal or family needs?
E. Hemedes:
A: Yes.
Q: Was this already the practice at the time this Kasunduan was executed?
A: No that was increased, no, no, after this document.
xxx xx

Q: And because of these accommodations that you have given to Justa Kausapin; Justa Kausapin has in
turn treated you very well because shes very grateful for that, is it not?
A: I think thats human nature.

[15]

Q: Answer me categorically, Mr. Hemedes shes very grateful?

Although a comparison of Justa Kausapins thumbmark with the thumbmark affixed upon the deed of
conveyance would have easily cleared any doubts as to whether or not the deed was forged, the records do
not show that such evidence was introduced by private respondents and the lower court decisions do not
make mention of any comparison having been made. [16] It is a legal presumption that evidence willfully
suppressed would be adverse if produced. [17] The failure of private respondents to refute the due execution of
the deed of conveyance by making a comparison with Justa Kausapins thumbmark necessarily leads one to
conclude that she did in fact affix her thumbmark upon the deed of donation in favor of her stepdaughter.

A: Yes she might be grateful but not very grateful.

Moreover, public respondents reliance upon Justa Kausapins repudiation of the deed of conveyance is
misplaced for there are strong indications that she is a biased witness. The trial court found that Justa
Kausapin was dependent upon Enrique D. Hemedes for financial assistance. [18] Justa Kausapins own
testimony attests to this fact Atty. Conchu:
Q: Aling Justa, can you tell the Honorable Court why you donated this particular property to Enrique
Hemedes?
A: Because I was in serious condition and he was the one supporting me financially.

xxx

(TSN, p. 34, June 15, 1984)[20]

A witness is said to be biased when his relation to the cause or to the parties is such that he has an
incentive to exaggerate or give false color to his statements, or to suppress or to pervert the truth, or to state
what is false.[21] At the time the present case was filed in the trial court in 1981, Justa Kausapin was already 80
years old, suffering from worsening physical infirmities and completely dependent upon her stepson Enrique
D. Hemedes for support. It is apparent that Enrique D. Hemedes could easily have influenced his aging
stepmother to donate the subject property to him. Public respondent should not have given credence to a
witness that was obviously biased and partial to the cause of private respondents. Although it is a wellestablished rule that the matter of credibility lies within the province of the trial court, such rule does not apply
when the witness credibility has been put in serious doubt, such as when there appears on the record some
fact or circumstance of weight and influence, which has been overlooked or the significance of which has been
misinterpreted.[22]
Finally, public respondent was in error when it sustained the trial courts decision to nullify the Deed of
Conveyance of Unregistered Real Property by Reversion for failure of Maxima Hemedes to comply with
article 1332 of the Civil Code, which states:

When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former.
Article 1332 was intended for the protection of a party to a contract who is at a disadvantage due to his
illiteracy, ignorance, mental weakness or other handicap. [23] This article contemplates a situation wherein a
contract has been entered into, but the consent of one of the parties is vitiated by mistake or fraud committed
by the other contracting party.[24] This is apparent from the ordering of the provisions under Book IV, Title II,
Chapter 2, section 1 of the Civil Code, from which article 1332 is taken. Article 1330 states that A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable.
This is immediately followed by provisions explaining what constitutes mistake, violence, intimidation, undue
influence, or fraud sufficient to vitiate consent. [25] In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract. [26] Fraud, on the other hand, is present 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. [27] Clearly, article 1332 assumes that the consent of the
contracting party imputing the mistake or fraud was given, although vitiated, and does not cover a situation
where there is a complete absence of consent.
In this case, Justa Kausapin disclaims any knowledge of the Deed of Conveyance of Unregistered
Real Property by Reversion in favor of Maxima Hemedes. In fact, she asserts that it was only during the
hearing conducted on December 7, 1981 before the trial court that she first caught a glimpse of the deed of
conveyance and thus, she could not have possibly affixed her thumbmark thereto. [28] It is private respondents
own allegations which render article 1332 inapplicable for it is useless to determine whether or not Justa
Kausapin was induced to execute said deed of conveyance by means of fraud employed by Maxima
Hemedes, who allegedly took advantage of the fact that the former could not understand English, when Justa
Kausapin denies even having seen the document before the present case was initiated in 1981.
It has been held by this Court that mere preponderance of evidence is not sufficient to overthrow a
certificate of a notary public to the effect that the grantor executed a certain document and acknowledged the
fact of its execution before him. To accomplish this result, the evidence must be so clear, strong and
convincing as to exclude all reasonable controversy as to the falsity of the certificate, and when the evidence
is conflicting, the certificate will be upheld. [29] In the present case, we hold that private respondents have failed
to produce clear, strong, and convincing evidence to overcome the positive value of the Deed of Conveyance
of Unregistered Real Property by Reversion a notarized document. The mere denial of its execution by the
donor will not suffice for the purpose.
In upholding the deed of conveyance in favor of Maxima Hemedes, we must concomitantly rule that
Enrique D. Hemedes and his transferee, Dominium, did not acquire any rights over the subject property. Justa
Kausapin sought to transfer to her stepson exactly what she had earlier transferred to Maxima Hemedes the
ownership of the subject property pursuant to the first condition stipulated in the deed of donation executed by
her husband. Thus, the donation in favor of Enrique D. Hemedes is null and void for the purported object
thereof did not exist at the time of the transfer, having already been transferred to his sister. [30] Similarly, the
sale of the subject property by Enrique D. Hemedes to Dominium is also a nullity for the latter cannot acquire
more rights than its predecessor-in-interest and is definitely not an innocent purchaser for value since Enrique
D. Hemedes did not present any certificate of title upon which it relied.
The declarations of real property by Enrique D. Hemedes, his payment of realty taxes, and his being
designated as owner of the subject property in the cadastral survey of Cabuyao, Laguna and in the records of
the Ministry of Agrarian Reform office in Calamba, Laguna cannot defeat a certificate of title, which is an
absolute and indefeasible evidence of ownership of the property in favor of the person whose name appears
therein.[31] Particularly, with regard to tax declarations and tax receipts, this Court has held on several
occasions that the same do not by themselves conclusively prove title to land. [32]

We come now to the question of whether or not R & B Insurance should be considered an innocent
purchaser of the land in question. At the outset, we note that both the trial court and appellate court found that
Maxima Hemedes did in fact execute a mortgage over the subject property in favor of R & B Insurance. This
finding shall not be disturbed because, as we stated earlier, it is a rule that the factual findings of the trial court,
especially when affirmed by the Court of Appeals, are entitled to respect, and should not be disturbed on
appeal.[33]
In holding that R & B Insurance is not a mortgagee in good faith, public respondent stated that the fact
that the certificate of title of the subject property indicates upon its face that the same is subject to an
encumbrance, i.e. usufructuary rights in favor of Justa Kausapin during her lifetime or widowhood, should have
prompted R & B Insurance to ...investigate further the circumstances behind this encumbrance on the land in
dispute, but which it failed to do. Also, public respondent considered against R & B Insurance the fact that it
made it appear in the mortgage contract that the land was free from all liens, charges, taxes and
encumbrances.[34]
R & B Insurance alleges that, contrary to public respondents ruling, the presence of an encumbrance
on the certificate of title is not reason for the purchaser or a prospective mortgagee to look beyond the face of
the certificate of title. The owner of a parcel of land may still sell the same even though such land is subject to
a usufruct; the buyers title over the property will simply be restricted by the rights of the usufructuary. Thus, R
& B Insurance accepted the mortgage subject to the usufructuary rights of Justa Kausapin. Furthermore, even
assuming that R & B Insurance was legally obliged to go beyond the title and search for any hidden defect or
inchoate right which could defeat its right thereto, it would not have discovered anything since the mortgage
was entered into in 1964, while the Kasunduan conveying the land to Enrique D. Hemedes was only entered
into in 1971 and the affidavit repudiating the deed of conveyance in favor of Maxima Hemedes was executed
by Justa Kausapin in 1981.[35]
We sustain petitioner R & B Insurances claim that it is entitled to the protection of a mortgagee in good
faith.
It is a well-established principle that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued and the law will in no way oblige him to go behind the certificate to
determine the condition of the property.[36] An innocent purchaser for value [37] is one who buys the property of
another without notice that some other person has a right to or interest in such property and pays a full and fair
price for the same at the time of such purchase or before he has notice of the claim of another person. [38]
The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima Hemedes OCT dose not
impose upon R & B Insurance the obligation to investigate the validity of its mortgagors title. Usufruct gives a
right to enjoy the property of another with the obligation of preserving its form and substance. [39] The
usufructuary is entitled to all the natural, industrial and civil fruits of the property [40]and may personally enjoy
the thing in usufruct, lease it to another, or alienate his right of usufruct, even by a gratuitous title, but all the
contracts he may enter into as such usufructuary shall terminate upon the expiration of the usufruct. [41]
Clearly, only the jus utendi and jus fruendi over the property is transferred to the usufructuary.[42]The
owner of the property maintains the jus disponendi or the power to alienate, encumber, transform, and even
destroy the same.[43] This right is embodied in the Civil Code, which provides that the owner of property the
usufruct of which is held by another, may alienate it, although he cannot alter the propertys form or substance,
or do anything which may be prejudicial to the usufructuary.[44]
There is no doubt that the owner may validly mortgage the property in favor of a third person and the
law provides that, in such a case, the usufructuary shall not be obliged to pay the debt of the mortgagor, and
should the immovable be attached or sold judicially for the payment of the debt, the owner shall be liable to the
usufructuary for whatever the latter may lose by reason thereof. [45]
Based on the foregoing, the annotation of usufructuary rights in favor of Justa Kausapin is not sufficient
cause to require R & B Insurance to investigate Maxima Hemedes title, contrary to public respondents ruling,
for the reason that Maxima Hemedes ownership over the property remained unimpaired despite such

encumbrance. R & B Insurance had a right to rely on the certificate of title and was not in bad faith in
accepting the property as a security for the loan it extended to Maxima Hemedes.
Even assuming in gratia argumenti that R & B Insurance was obligated to look beyond the certificate of
title and investigate the title of its mortgagor, still, it would not have discovered any better rights in favor of
private respondents. Enrique D. Hemedes and Dominium base their claims to the property upon the
Kasunduan allegedly executed by Justa Kausapin in favor of Enrique Hemedes. As we have already stated
earlier, such contract is a nullity as its subject matter was inexistent. Also, the land was mortgaged to R & B
Insurance as early as 1964, while the Kasunduan was executed only in 1971 and the affidavit of Justa
Kausapin affirming the conveyance in favor of Enrique D. Hemedes was executed in 1981. Thus, even if R &
B Insurance investigated the title of Maxima Hemedes, it would not have discovered any adverse claim to the
land in derogation of its mortgagors title. We reiterate that at no point in time could private respondents
establish any rights or maintain any claim over the land.
It is a well-settled principle that where innocent third persons rely upon the correctness of a certificate
of title and acquire rights over the property, the court cannot just disregard such rights. Otherwise, public
confidence in the certificate of title, and ultimately, the Torrens system, would be impaired for everyone dealing
with registered property would still have to inquire at every instance whether the title has been regularly or
irregularly issued.[46] Being an innocent mortgagee for value, R & B Insurance validly acquired ownership over
the property, subject only to the usufructuary rights of Justa Kausapin thereto, as this encumbrance was
properly annotated upon its certificate of title.
The factual findings of the trial court, particularly when affirmed by the appellate court, carry great
weight and are entitled to respect on appeal, except under certain circumstances. [47] One such circumstance
that would compel the Court to review the factual findings of the lower courts is where the lower courts
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion. [48] Also, it is axiomatic that the drawing of the proper legal conclusions from
such factual findings are within the peculiar province of this Court. [49]
As regards R & B Insurances prayer that Dominium be ordered to demolish the warehouses or that it
be declared the owner thereof since the same were built in bad faith, we note that such warehouses were
constructed by Asia Brewery, not by Dominium. However, despite its being a necessary party in the present
case, the lower courts never acquired jurisdiction over Asia Brewery, whether as a plaintiff or defendant, and
their respective decisions did not pass upon the constructions made upon the subject property. Courts acquire
jurisdiction over a party plaintiff upon the filing of the complaint, while jurisdiction over the person of a party
defendant is acquired upon the service of summons in the manner required by law or by his voluntary
appearance. As a rule, if a defendant has not been summoned, the court acquires no jurisdiction over his
person, and any personal judgment rendered against such defendant is null and void. [50] In the present case,
since Asia Brewery is a necessary party that was not joined in the action, any judgment rendered in this case
shall be without prejudice to its rights.[51]
As to its claim for moral damages, we hold that R & B Insurance is not entitled to the same for it has not
alleged nor proven the factual basis for the same. Neither is it entitled to exemplary damages, which may only
be awarded if the claimant is entitled to moral, temperate, liquidated or compensatory damages. [52] R & B
Insurances claim for attorneys fees must also fail. The award of attorneys fees is the exception rather than
the rule and counsels fees are not to be awarded every time a party wins a suit. Its award pursuant to article
2208 of the Civil Code demands factual, legal and equitable justification and cannot be left to speculation and
conjecture.[53] Under the circumstances prevailing in the instant case, there is no factual or legal basis for an
award of attorneys fees.
WHEREFORE, the assailed decision of public respondent and its resolution dated February 22, 1989
are REVERSED. We uphold petitioner R & B Insurances assertion of ownership over the property in dispute,
as evidenced by TCT No. 41985, subject to the usufructuary rights of Justa Kausapin, which encumbrance
has been properly annotated upon the said certificate of title. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 111924. January 27, 1997]

ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD
PARANGAN, PHILIPPINE NATIONAL BANK, respondents.
DECISION
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the
Cadastral Survey of Calinog, lloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On
February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for
a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease,
Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to
finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor
of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the
aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by
petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums
of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2,
1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and
all the proceeds therefrom were used by Parangan for his own benefit. [1] These encumbrances were duly
annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale[2] in
favor of Parangan which was superseded by the Deed of Definite Sale [3] dated May 4, 1979 which petitioner
signed upon Parangan's representation that the same merely evidences the loans extended by him unto the
former.
For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded
the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over
the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under
said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan
absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and
damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court
rendered judgment, disposing as follows:
"WHEREFORE and in view of the foregoing, a decision is rendered as follows:
1.
Ordering cancellation by the Register of Deeds of the Province of lloilo, of the unauthorized loans, the
liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos.
286231; 338638; and 352794;
2.
Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May
6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT
No. T-561 of the Register of Deeds of lloilo, as null and void, declaring the same to be Deeds of Equitable
Mortgage;
3.
Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto
as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff;

4.
Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the
Calinog Cadastre described in TCT No. T-561 of the Register of Deeds of lloilo, to plaintiff upon payment of
the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within
ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy
payment of the amount;
5.
Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay
the costs of the suit.
SO ORDERED."[4]
Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this
petition contending that the CA committed the following errors:
"IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE
NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE:
IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE
CONTENTS THEREOF;
IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES
FULL FAITH AND CREDIT;
IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED"
LOANS AS RELEVANT."
Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an
equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by
Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual
findings thus necessitating a review of the evidence on record. [5] After a thorough examination, we note some
errors, both in fact and in law, committed by public respondent CA.
The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown
beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. [6] We agree.
A contract is perfected by mere consent. [7] More particularly, 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. [8] This
meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject
matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.[9] In the case at bench, the evidence is sufficient to
warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the
latter in a single instrument and to secure the same with the subject property. Even when a document
appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with
mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In
this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth
and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such
allegations, the court will enforce the agreement or understanding in consonance with the true intent of the
parties at the time of the execution of the contract. [10]
Articles 1602 and 1604 of the Civil Code respectively provide:
"The contract shall be presumed to be an equitable mortgage in any of the following cases:
1)

When the price of a sale with right to repurchase is unusually inadequate;

2)

When the vendor remains in possession as lessor or otherwise;

3)
When upon or after the expiration of the right to repurchase, another instrument extending the period of
redemption or granting a new period is executed;

6)
In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation."
"Art. 1604.

The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale."

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must
first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale
and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code,
a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the
conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor
an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an
equitable mortgage.[11]
Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage
in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this
category can be inferred from the circumstances surrounding the transaction as herein set forth:
Petitioner had no knowledge that the contract [12] she signed is a deed of sale. The contents of the same were
not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her
conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her
condition constrained her to merely rely on Parangan's assurance that the contract only evidences her
indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.[13] Settled is the rule that where a party to a
contract is illiterate or cannot read or cannot understand the language in which the contract is written, the
burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to
the former in a language understood by him. [14] To our mind, this burden has not been satisfactorily
discharged.
We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to
petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great
respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses
while testifying.[15] The lower court may not have categorically declared Cabial's testimony as doubtful but this
fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive
testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of
the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA
committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of
Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge
Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were
presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land [16], the
latter categorically denied the allegation.[17] This contradiction casts doubt on the credibility of Cabial as it is
ostensible that her version of the story is concocted.
On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained
to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the
transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the
document at the behest of Parangan himself who, at the outset, informed him that he will witness a document
consolidating petitioner's debts. He thus testified:
"Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog?
A: Yes, sir.
Q: Who invited you to go there?
A: Parangan.
Q: You mean Nicolas Parangan?

4)

When the vendor binds himself to pay the taxes on the thing sold;

A: Yes, sir.

5)

When the purchaser retains for himself a part of the purchase price;

Q: What did Nicolas tell you why he invited you to go there?

A: He told me that I will witness on the indebtedness of Adoracion to Parangan.

xxx

xxx

Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property [27] in case the
same is sold to satisfy the unpaid debts.

xxx

Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her?

WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the
following MODIFICATIONS:

A: No, sir.

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing?

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE

SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00
WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION;

A: No, sir.
xxx

xxx

xxx

Q: What did you have in mind when you were signing this document, Exh. "4"?
A: To show that Adoracion Lustan has debts with Nicolas Parangan." [18]
Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed
of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether
petitioner knows how to read or write, he answered in the negative. [19] This latter admission impresses upon us
that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his
assistance would not have been necessary.
The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The
contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of
Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the
agreement it was one executed to secure some loans.
Anent the issue of whether the outstanding mortgages on the subject property can be enforced against
petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own
property.[20] So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan
would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting
that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and
respond for the performance of the principal obligation. [21] It is admitted that petitioner is the owner of the
parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by
petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of
authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a
valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third
persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides:
"Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were not given notice thereof."
The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to
represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal
with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans
were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are
concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within
the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority
according to the understanding between the principal and the agent. [22] The Special Power of Attorney
particularly provides that the same is good not only for the principal loan but also for subsequent commercial,
industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of
attorney is revoked in a public instrument and a copy of which is furnished to PNB. [23] Even when the agent
has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act
as though he had full powers (Article 1911, Civil Code). [24] The mortgage directly and immediately subjects the
property upon which it is imposed. [25] The property of third persons which has been expressly mortgaged to
guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment
thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which
it is liable.[26] However, petitioner has an unquestionable right to demand proportional indemnification from

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY
THEREFORE BE SUBJECTED TO EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00
BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.
SO ORDERED.
G.R. No. 132415

January 30, 2002

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA,

JR.,petitioners,
vs.
BRAULIO KATIPUNAN, JR., respondent.
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari 1 assailing the Decision2 of the Court of Appeals dated July 31,
1997 in CA-GR CV No. 45928, "Braulio Katipunan, Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo
Balguma, Sr., Edgardo Balguma and Leopoldo Balguma, Jr." which set aside the Decision of the Regional
Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 87-39891 for annulment of a Deed of Absolute Sale.
The antecedents are:
Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door apartment
constructed thereon located at 385-F Matienza St., San Miguel, Manila. The lot is registered in his name under
TCT No. 1091933 of the Registry of Deeds of Manila. The apartment units are occupied by lessees.
On December 29, 1985, respondent, assisted by his brother, petitioner Miguel Katipunan, entered into a Deed
of Absolute Sale4with brothers Edgardo Balguma and Leopoldo Balguma, Jr. (co-petitioners), represented by
their father Atty. Leopoldo Balguma, Sr., involving the subject property for a consideration of P187,000.00.
Consequently, respondents title to the property was cancelled and in lieu thereof, TCT No. 168394 5 was
registered and issued in the names of the Balguma brothers. In January, 1986, Atty. Balguma, then still alive,
started collecting rentals from the lessees of the apartments.
On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, 6 a complaint for annulment of the
Deed of Absolute Sale, docketed as Civil Case No. 87-39891. 7 He averred that his brother Miguel, Atty.
Balguma and Inocencio Valdez (defendants therein, now petitioners) convinced him to work abroad. They
even brought him to the NBI and other government offices for the purpose of securing clearances and other
documents which later turned out to be falsified. Through insidious words and machinations, they made him
sign a document purportedly a contract of employment, which document turned out to be a Deed of Absolute
Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants), were able to register the
title to the property in their names. Respondent further alleged that he did not receive the consideration stated
in the contract. He was shocked when his sister Agueda Katipunan-Savellano told him that the Balguma
brothers sent a letter to the lessees of the apartment informing them that they are the new owners. Finally, he

claimed that the defendants, now petitioners, with evident bad faith, conspired with one another in taking
advantage of his ignorance, he being only a third grader.
In their answer, petitioners denied the allegations in the complaint, alleging that respondent was aware of the
contents of the Deed of Absolute Sale and that he received the consideration involved; that he also knew that
the Balguma brothers have been collecting the rentals since December, 1985 but that he has not objected or
confronted them; and that he filed the complaint because his sister, Agueda Savellano, urged him to do so. 8
Twice respondent moved to dismiss his complaint (which were granted) on the grounds that he was actually
instigated by his sister to file the same; and that the parties have reached an amicable settlement after Atty.
Balguma, Sr. paid him P2,500.00 as full satisfaction of his claim. In granting his motions for reconsideration,
the trial court was convinced that respondent did not sign the motions to dismiss voluntarily because of his
poor comprehension, as shown by the medical report of Dr. Annette Revilla, a Resident Psychiatrist at the
Philippine General Hospital. Besides, the trial court noted that respondent was not assisted by counsel in
signing the said motions, thus it is possible that he did not understand the consequences of his action. 9

rule is to accord much weight to the impressions of the trial judge, who had the opportunity to
observe the witnesses directly and to test their credibility by their demeanor on the stand (People
vs. Errojo, 229 SCRA 49). Such impression however, is not per se the basis of a conclusion, for it
needs conformity with the findings of facts relevant to the case.
We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla, whose testimony
remains unshaken and unimpeached. The tests she made are revealing and unrebutted and has a
bearing on facts of the case.
It is a proven fact that Braulio reached only Grade III due to his very low IQ; that he is illiterate; and
that he can not read and is slow in comprehension. His mental age is only that of a six-year old
child. On the other hand, the documents presented by the appellees in their favor, i.e., the deeds
of mortgage and of sale, are all in English. There is no showing that the contracts were read and/or
explained to Braulio nor translated in a language he understood.
Article 1332 of the Civil Code provides:

Eventually the trial court set the case for pre-trial. The court likewise granted respondents motion to appoint
Agueda Savellano as his guardian ad litem.10
After hearing, the trial court dismissed the complaint, holding that respondent failed to prove his causes of
action since he admitted that: (1) he obtained loans from the Balgumas; (2) he signed the Deed of Absolute
Sale; and (3) he acknowledged selling the property and that he stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered the assailed Decision, the
dispositive portion of which reads:
"WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and a new
one entered annulling the Deed of Sale. Consequently, TCT No. 168394 is hereby declared null
and void and of no force and effect. The Register of Deeds of Manila is directed to cancel the
same and restore TCT No. 109193 in the name of Braulio Katipunan.
"SO ORDERED."
In reversing the RTC Decision, the Court of Appeals ruled:
"Upon close scrutiny of all the evidence on record, plaintiff-appellants contention finds support in
the certification dated August 4, 1987 issued by Dr. Ana Marie Revilla, a psychiatrist at the UPPGH, who was presented as an expert witness. Her findings explained the reason why plaintiffappellant showed a lot of inconsistencies when he was put on the stand. It supports the fact that
plaintiff-appellant is slow in comprehension and has a very low IQ. Based on such findings, the trial
court was faulted for its wrong assessment of appellants mental condition. It arbitrarily disregarded
the testimony of a skilled witness and made an unsupported finding contrary to her expert opinion.
Admittedly, expert witnesses when presented to the court must be construed to have been
presented not to sway the court in favor of any of the parties, but to assist the court in the
determination of the issue before it(Espiritu vs. Court of Appeals, 242 SCRA 362). Expert opinions
are not ordinarily conclusive. They are generally regarded as purely advisory in character; the
court may place whatever weight they choose upon such testimony and may reject it if they find it
inconsistent with the facts in the case or otherwise unreasonable (Basic Evidence by Ricardo J.
Francisco, pp. 202).
The trial court whose decision is now under review refused to admit the experts testimony and
prefer to base its decision on its findings that contrary to the allegation of the appellant, he is
nonetheless capable of responding to the questions expounded to him while on the stand. In short,
the court was swayed by its own observation of appellants demeanor on the stand. Of course, the

Art. 1332. When one of the parties is unable to read, or if the contract is in a language
not understood by him, and mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former.
Furthermore, if Braulio has a mental state of a six year old child, he can not be considered as fully
capacitated. He falls under the category of incompetent as defined in Section 2, Rule 92 of the
Rules of Court, which reads:
Sec. 2. Meaning of Word Incompetent - Under this rule, the word incompetent
includes persons suffering the penalty of civil interdiction or who are hospitalized
lepers, prodigals, deaf and dumb who are unable to read and write, those who are of
unsound mind, even though they have lucid intervals, and persons not being of
unsound mind, but by reason of age, disease, weak mind, and other similar causes,
can not, without outside aid, take care of themselves and manage their property,
becoming thereby an easy prey for deceit and exploitation.
We also note the admission of defendant-appellee Miguel Katipunan, that he and Braulio received
the considerations of the sale, although he did not explain what portion went to each other of them.
Anyway, there is no reason why Miguel should receive part of the consideration, since he is not a
co-owner of the property. Everything should have gone to Braulio. Yet, Miguel did not refute that he
was giving him only small amounts (coins).
As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel nor Atty. Balguma
refuted the statement of Braulio that he was being enticed to go abroad - which was the alleged
reason for the purported sale. Nothing was explained about the alleged trip to NBI, the fake
passport, etc., nor of Miguels own plans to go abroad. It is then most probable that it was Miguel
who wanted to go abroad and needed the money for it.
In view of the foregoing, it is apparent that the contract entered into by Braulio and Atty. Balguma is
voidable, pursuant to the provisions of Article 1390 of the Civil Code, to wit:
Art. 1390. The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court, they
are susceptible of ratification."11

Where did you sign that document?

I signed that document in the house of Sencio.

Where is this house of Sencio?

It is just behind our house at San Miguel.

Nobody informed you what document you were signing?

Nobody informed me what document I was signing.

Who asked you to sign that document?

My brother Miguel and Sencio asked me to sign that document.

You never bothered to ask your brother Miguel why you were signing that document?

According to them, if I will not sign, something will happen.

Who particularly told you that if you will not sign that document something will happen?

Atty. Balguma. (witness pointing to Atty. Balguma)

Petitioners filed a motion for reconsideration but was denied. Hence, this petition.
Petitioners, in seeking the reversal of the Court of Appeals Decision, rely heavily on the rule that findings of
fact by the trial courts are entitled to full faith and credence by the Appellate Court. Petitioners contend that the
Court of Appeals erred when it overturned the factual findings of the trial court which are amply supported by
the evidence on record.
The petition is devoid of merit.
While it may be true that findings of a trial court, given its peculiar vantage point to assess the credibility of
witnesses, are entitled to full faith and credit and may not be disturbed on appeal, this rule is not infallible, for it
admits of certain exceptions. One of these exceptions is when there is a showing that the trial court had
overlooked, misunderstood or misapplied some fact or circumstance of weight and substance, which, if
considered, could materially affect the result of the case.12Also, when the factual findings of the trial court
contradict those of the appellate court, this Court is constrained to make a factual review of the records and
make its own assessment of the case. 13The instant case falls within the said exception.
A contract of sale is born from the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.14This meeting of the minds speaks of the intent of the parties in entering into
the contract respecting the subject matter and the consideration thereof. 15Thus, the elements of a contract of
sale are consent, object, and price in money or its equivalent. 16Under Article 1330 of the Civil Code, consent
may be vitiated by any of the following: (a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5)
fraud.17The presence of any of these vices renders the contract voidable.
Here, as borne by the facts on hand, respondent signed the deed without the remotest idea of what it was,
thus:
"ATTY. SARMIENTO:

Q You want to tell the court that Atty. Balguma at that time you signed that document was
present?
A

Yes, sir, he was there.

Q After Miguel received that money which amount you do not remember how much, do you
remember having signed a document purported to be sale of property that which you owned?

What if any did Atty. Balguma do when you were asked to sign that document?

He was asking me also to sign.

Yes, I signed something because they forced me to sign.

COURT (To the witness)

COURT (To the witness)

Do you know how to affix your signature?

Were you threatened with a gun or any instrument?

Yes, Your Honor.

No, Your Honor.

How were you threatened?

I was shoved aside by Sencio and Miguel and I was surprised why they made me sign.

Q You sign your name here. (witness is given a piece of paper by the court wherein he was
made to sign his name)
ATTY. SARMIENTO:

Did you fall down when you were shoved?

Q You said that you remember you have signed a document. Did you come to know what
kind of document was that which you signed at that time?

I was made to move to the side.

And because of that you signed that document that you were being forced to sign?

I do not know.

Yes, sir.

What kind of paper did you sign?

Q You want to tell this court that it was only when your brother Miguel gave (you) money
that he told you that "we have now the money from Atty. Balguma"?

A coupon bond paper.

Was there something written?

There was something written on it, but I do not know.

Q Did you receive any amount from Miguel every time he was given by Atty. Balguma?
You received also money from Miguel every time he was given by Atty. Balguma?

Was it typewritten?

A There was something typewritten when it was shown to me but I do not know what it
was."18(Underscoring supplied)
The circumstances surrounding the execution of the contract manifest a vitiated consent on the part of
respondent. Undue influence was exerted upon him by his brother Miguel and Inocencio Valdez (petitioners)
and Atty. Balguma. It was his brother Miguel who negotiated with Atty. Balguma. However, they did not explain
to him the nature and contents of the document. Worse, they deprived him of a reasonable freedom of choice.
It bears stressing that he reached only grade three. Thus, it was impossible for him to understand the contents
of the contract written in English and embellished in legal jargon. Even the trial court, in reinstating the case
which it earlier dismissed, took cognizance of the medical finding of Dr. Revilla (presented by respondents
counsel as expert witness) who testified during the hearing of respondents motion for reconsideration of the
first order dismissing the complaint. According to her, based on the tests she conducted, she found that
respondent has a very low IQ and a mind of a six-year old child. 19 In fact, the trial court had to clarify certain
matters because Braulio was either confused, forgetful or could not comprehend. 20 Thus, his lack of education,
coupled with his mental affliction, placed him not only at a hopelessly disadvantageous position vis-vis petitioners to enter into a contract, but virtually rendered him incapable of giving rational consent. To be
sure, his ignorance and weakness made him most vulnerable to the deceitful cajoling and intimidation of
petitioners. The trial court obviously erred when it disregarded Dr. Revillas testimony without any reason at all.
It must be emphasized that petitioners did not rebut her testimony.
Even the consideration, if any, was not shown to be actually paid to respondent. Extant from the records is the
fact that Miguel profited from the entire transaction and gave only small amounts of money to respondent,
thus:
"Q Do you know how much money was given to Miguel and from whom did that money come
from?
A

I do not know how much, but the money came from Atty. Balguma.

Q You do not know how much amount was given by Atty. Balguma and for what
consideration was the money given you are not aware of that?
A

I am not aware because I was not there, I do not know anything.

Q You want to tell the court that despite that it is you being the owner of this property it
was Miguel who negotiated the asking of money from Atty. Balguma?
A

Yes, it is like that.

Were you consulted by your brother Miguel when he asked money from Atty. Balguma?

No, sir, in the beginning he kept it a secret then later on he told us.

A No, sir, I did not even know where that money came from. He was about to leave for
abroad when he told me that he received money from Atty. Balguma.

Yes, he would give me small denominations, "barya".

Q When you said "barya", would you be able to tell the court how much this barya you are
referring to is?
A

May be twenty pesos, may be ten pesos, but they are all loose change.

Q Tell us how many times did Miguel receive money from Atty. Balguma as much as you can
recall?
A I do not know because every time my brother Miguel and Atty. Balguma would transact
business, I was not present.
x

Q Before or after the signing of this piece of paper were you given any big amount of
money by your brother Miguel or Atty. Balguma or Sencio?
A After signing that document, Atty. Balguma gave me several loose change "barya", no
paper bills. A just handful of coins." 21 (Underscoring supplied)
We are convinced that respondent was telling the truth that he did not receive the purchase price. His
testimony on this point was not controverted by Miguel. Moreover, Atty. Balguma admitted that it was
Miguel who received the money from him.22 What Miguel gave respondent was merely loose change or
"barya-barya," grossly disproportionate to the value of his property. We agree with the conclusion of the Court
of Appeals that "it is then most probable that it was Miguel who wanted to go abroad and needed the money
for it."
In the case of Archipelago Management and Marketing Corp. vs. Court of Appeals, 23penned by Justice
Artemio V. Panganiban, this Court sustained the decision of the Court of Appeals annulling the deed of sale
subject thereof. In that case, Rosalina (the owner) was convinced by her second husband to sign several
documents, purportedly an application for the reconstitution of her burned certificate of title. However, said
documents turned out to be a Deed of Absolute Sale where it was stipulated that she sold her property for P
1,200,000.00, a consideration which she did not receive. The Court ruled that Rosalina, who was quite old at
that time she signed the deed, was tricked by her own husband, who employed fraud and deceit, into believing
that what she was signing was her application for reconstitution of title.
A contract where one of the parties is incapable of giving consent or where consent is vitiated by mistake,
fraud, or intimidation is not void ab initio but only voidable and is binding upon the parties unless annulled by
proper Court action. The effect of annulment is to restore the parties to the status quo ante insofar as legally
and equitably possible-- this much is dictated by Article 1398 of the Civil Code. As an exception however to the
principle of mutual restitution, Article 1399 provides that when the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when

he has been benefited by the things or price received by him. Thus, since the Deed of Absolute Sale between
respondent and the Balguma brothers is voidable and hereby annulled, then the restitution of the property and
its fruits to respondent is just and proper. Petitioners should turn over to respondent all the amounts they
received starting January, 1986 up to the time the property shall have been returned to the latter. During the
pre-trial and as shown by the Pre-Trial Order, the contending parties stipulated that the Balguma brothers
received from the lessees monthly rentals in the following amounts:
PERIOD

AMOUNT OF RENTALS

January, 1986 to
December, 1987

P 481.00 per month

January, 1988 to
December, 1988

P2,100.00 per month

January, 1989 to
present

P3,025.00 per month

Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a party to a contract who is placed
at a disadvantage on account of his ignorance, mental weakness or other handicap, like respondent herein.
We give substance to this mandate.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated July 3, 1997 in
CA-GR CV No. 45928 is AFFIRMED with MODIFICATION in the sense that petitioners Edgardo Balguma and
Leopoldo Balguma, Jr., are ordered to turn over to respondent Braulio Katipunan, Jr. the rentals they received
for the five-door apartment corresponding to the period from January, 1986 up to the time the property shall
have been returned to him, with interest at the legal rate. Costs against petitioners.
SO ORDERED.
[G.R. No. 125485. September 13, 2004]
RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners, vs.COURT OF APPEALS, and
TEODORO SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by
ANDRES MARCELO; PEDAD SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, namely:
EDUARDO S. TENORLAS, ABELARDO J. TENORLAS, ADELA S. and SOLEDAD S.
TENORLAS, represented by EDUARDO S. TENORLAS, and HEIRS OF DOMINADOR,
namely: NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN,
PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN,
represented by NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; and
JULIETA SEBASTIAN,respondents.

Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and Balbino
Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis and Dominador,
all surnamed Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after she separated
from Balbino Leonardo.
In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul and Jose
Sebastian before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged that, on June 24, 1988,
at around 5:00 p.m., private respondent Corazon Sebastian and her niece Julieta Sebastian, and a certain
Bitang, came to petitioners house to persuade her to sign a deed of extrajudicial partition of the estate of
Tomasina Paul and Jose Sebastian. Before signing the document, petitioner allegedly insisted that they wait
for her husband Jose Ramos so he could translate the document which was written in English. Petitioner,
however, proceeded to sign the document even without her husband and without reading the document, on
the assurance of private respondent Corazon Sebastian that petitioners share as a legitimate daughter of
Tomasina Paul was provided for in the extrajudicial partition. Petitioner then asked private respondent Corazon
and her companions to wait for her husband so he could read the document. When petitioners husband
arrived, however, private respondent Corazon and her companions had left without leaving a copy of the
document. It was only when petitioner hired a lawyer that they were able to secure a copy and read the
contents thereof.
Petitioner refuted[3] private respondents claim that they were the legitimate children and sole heirs of
Jose Sebastian and Tomasina Paul. Despite the (de facto) separation of petitioners father Balbino Leonardo
and Tomasina Paul, the latter remained the lawful wife of Balbino. Petitioner maintained that no joint
settlement of the estate of Jose Sebastian and Tomasina Paul could be effected since what existed between
them was co-ownership, not conjugal partnership. They were never married to each other. The extrajudicial
partition was therefore unlawful and illegal.
Petitioner also claimed that her consent was vitiated because she was deceived into signing the
extrajudicial settlement. She further denied having appeared before Judge Juan Austria of the Municipal Trial
Court (MTC) of Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution of the extrajudicial
partition.
Private respondents, in their answer with counterclaim, [4] raised the defense of lack of cause of action.
They insisted that the document in question was valid and binding between the parties. According to them, on
July 27, 1988, they personally appeared before Judge Austria of the MTC of Urbiztondo, who read and
explained the contents of the document which all of them, including petitioner, voluntarily signed.
Private respondents contended that their declaration that they were legitimate children of Jose
Sebastian and Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioners act of signing
the document estopped her to deny or question its validity. They moreover averred that the action filed by
petitioner was incompatible with her complaint. Considering that petitioner claimed vitiation of consent, the
proper action was annulment and not declaration of nullity of the instrument.
On July 27, 1989, petitioner filed an amended complaint [5] to include parties to the extrajudicial partition
who were not named as defendants in the original complaint.

DECISION

During the August 23, 1990 pre-trial conference, [6] no amicable settlement was reached and the parties
agreed that the only issue to be resolved was whether petitioners consent to the extrajudicial partition was
voluntarily given.

This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside the
decision[1] of the Court of Appeals which in turn affirmed the judgment [2] of Branch 57, Regional Trial Court
(RTC) of San Carlos City, dismissing for lack of cause of action the complaint filed by petitioner against private
respondents for declaration of nullity of the extrajudicial settlement of the estate of Jose Sebastian and
Tomasina Paul.

In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a
decision[7] dismissing the complaint as well as the counterclaim. The court a quo ruled that the element of
duress or fraud that vitiates consent was not established and that the proper action was the reformation of the
instrument, not the declaration of nullity of the extrajudicial settlement of estate. By way of obiter dictum, the
trial court stated that, being a legitimate child, petitioner was entitled to one-half (or 19,282.5 sq.m.) of
Tomasina Pauls estate as her legitime. The 7,671.75 square meters allotted to her in the assailed extrajudicial
partition was therefore less than her correct share as provided by law.

CORONA, J.:

[8]

On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996 decision.
Hence, this petition for review on certiorari under Rule 45.

The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement of
estate was given voluntarily.
We hold that it was not.
The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by
one of the offer made by the other. It is the concurrence of the minds of the parties on the object and the
cause which constitutes the contract. [9] The area of agreement must extend to all points that the parties deem
material or there is no consent at all.[10]
To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact
notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in
consent is vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by fraud. [11]

Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to those
who have not had the benefit of a good education, one who alleges any defect or the lack of a valid consent to
a contract must establish the same by full, clear and convincing evidence, not merely by preponderance of
evidence.[20] Hence, even as the burden of proof shifts to the defendants to rebut the presumption of
mistake, the plaintiff who alleges such mistake (or fraud) must show that his personal circumstances warrant
the application of Art. 1332.
In this case, the presumption of mistake or error on the part of petitioner was not sufficiently rebutted by
private respondents. Private respondents failed to offer any evidence to prove that the extrajudicial settlement
of estate was explained in a language known to the petitioner, i.e.the Pangasinan dialect. Clearly, petitioner,
who only finished Grade 3, was not in a position to give her free, voluntary and spontaneous consent without
having the document, which was in English, explained to her in the Pangasinan dialect. She stated in open
court that she did not understand English. Her testimony, translated into English, was as follows:
Q: While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what
happened?
A:

In determining the effect of an alleged error, the courts must consider both the objective and subjective
aspects of the case which is the intellectual capacity of the person who committed the mistake. [12]
Mistake, on the other hand, in order to invalidate consent should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both parties to
enter into the contract.[13]
According to the late civil law authority, Arturo M. Tolentino, the (old) rule that a party is presumed to
know the import of a document to which he affixes his signature and is bound thereby, has been altered by Art.
1332 of the Civil Code. The provision states that [w]hen one of the parties is unable to read, or if the contract
is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former.
Article 1332 was a provision taken from american law, necessitated by the fact that there continues to
be a fair number of people in this country without the benefit of a good education or documents have been
written in English or Spanish.[14] The provision was intended to protect a party to a contract disadvantaged by
illiteracy, ignorance, mental weakness or some other handicap. It contemplates a situation wherein a contract
is entered into but the consent of one of the contracting parties is vitiated by mistake or fraud committed by the
other.[15]
Thus, in case one of the parties to a contract is unable to read and fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former. [16] Where a
party is unable to read, and he expressly pleads in his reply that he signed the voucher in question without
knowing (its) contents which have not been explained to him, this plea is tantamount to one of mistake or
fraud in the execution of the voucher or receipt in question and the burden is shifted to the other party to show
that the former fully understood the contents of the document; and if he fails to prove this, the presumption of
mistake (if not fraud) stands unrebutted and controlling. [17]

On June 24, 1988, I was in our house because I got sick, sir.

Q: What happened?
A:

When the time was about 5:00 oclock, I was awaken by my daughter-in-law, Rita Ramos,
and told me that my half sister Corazon would like to tell us something, sir.

Q: What did you do?

A:

I let them come in, sir.

Q: Did they come in?

A:

Yes, sir.

Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your
house?
A:

Julita Sebastian and her daughter Bitang, sir.

Q: And who is this Julita Sebastian to you?

A:

She is my niece, sir.

Q: And then when they got inside the house, what happened?
Contracts where consent is given by mistake or because of violence, intimidation, undue influence or
fraud are voidable.[18] These circumstances are defects of the will, the existence of which impairs the freedom,
intelligence, spontaneity and voluntariness of the party in giving consent to the agreement. In determining
whether consent is vitiated by any of the circumstances mentioned in Art. 1330 of the Civil Code, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what
they believe actually occurred, considering the age, physical infirmity, intelligence, relationship and the
conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the
contract is in a public or private writing.[19]

A:

I asked them their purpose, sir.

Q: Did they tell you their purpose?

A:

I asked their purpose in coming to our house and they told me, I came here because I have
a partition executed so that the share of each one of us will be given, she said sir.

Q: Did you see that document?

A:

Yes, sir.

Q: Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom
belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas.

ATTY. L. TULAGAN
ATTY. D. TULAGAN
Q: Did you read the document?
(continuing)
A:

No, sir because I was waiting for my husband to have that document read or translated to
me because I could not understand, sir.

The Philippines on July, 1989, will you please educate us now Judge Austria on this
document?

Q: What could you not understand?

ATTY. O. DE GUZMAN
A:

I can not understand English, sir.

That will be improper, your Honor.

Q: But anyway, can you read?

COURT
A:

Yes, sir in Pangasinan.

What is the question, you repeat the question.

Q: Now, that document which according to you was brought by your half sister Corazon
Sebastian, what happened to that document?
A:

Corazon Sebastian request(ed) me to sign, sir.

Q: Did you sign immediately?

A:

Yes, sir, because according to her, all my shares were embodied in that document as a
legal daughter.[21]

Petitioners wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the document
in the Pangasinan dialect was a reasonable and prudent act that showed her uncertainty over what was
written. Due to her limited educational attainment, she could not understand the document in English. She
wanted to seek assistance from her husband who was then out of the house. However, due to the
misrepresentation, deception and undue pressure of her half-sister Corazon Sebastian, petitioner signed the
document. Corazon assured petitioner that she would receive her legitimate share in the estate of their late
mother.
Later on, when petitioners husband examined the extrajudicial partition agreement, he found out that
petitioner was deprived of her full legitime. Under the law, petitioners share should have been one-half of her
mothers estate, comprising a total area of 19,282.50 square meters. Under the defective extrajudicial
settlement of estate, however, petitioner was to receive only 7,671.75 square meters. This was a substantial
mistake clearly prejudicial to the substantive interests of petitioner in her mothers estate. There is no doubt
that, given her lack of education, petitioner is protected by Art. 1332 of the Civil Code. There is reason to
believe that, had the provisions of the extrajudicial agreement been explained to her in the Pangasinan dialect,
she would not have consented to the significant and unreasonable diminution of her rights.
MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he explained the
contents to all the parties concerned. Granting arguendo, however, that Judge Austria did indeed explain the
provisions of the agreement to them, the records do not reflect that he explained it to petitioner in a language
or dialect known to her. Judge Austria never stated in his testimony before the court a quo what language or
dialect he used in explaining the contents of the document to the parties. [22] Significantly, he was not even
certain if the parties to the agreement were present during the notarization of the document:
ATTY. TULAGAN

INTERPRETER:
Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom
belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas, in your just
concluded testimony, you said that everyone of them appeared with you, we have here a
documented evidence coming from the Department of Justice, Bureau of Immigration and
Deportation, Manila, certifying that Piedad Paul Sebastian and Eduardo Sebastian
Tenorlas did not arrive in the Philippines or departed from the Philippines on July, 1998,
will you please educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN:
Your Honor please, before the witness answer, may we examine the certification first and
may we state for the record that the month of July, 1998 does not specify any date.
ATTY. L. TULAGAN:
July.
ATTY. O. DE GUZMAN:
But not a particular date, for the record.
ATTY. L. TULAGAN:
For the whole month of July, no departure and no arrival. This is a certificate from the
Bureau of Immigration, Manila. I do not know about this, as a matter of fact, I do not
even know this person personally
WITNESS:
Somebody that kind of name appeared before me.

ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another
person appeared and signed for that name?
A:

Yes, possible.[23]

Therefore, the presumption of mistake under Article 1332 is controlling, having remained unrebutted by
private respondents. The evidence proving that the document was not fully explained to petitioner in a
language known to her, given her low educational attainment, remained uncontradicted by private
respondents. We find that, in the light of the circumstances presented by the testimonies of the witnesses for
both parties, the consent of petitioner was invalidated by a substantial mistake or error, rendering the
agreement voidable. The extrajudicial partition between private respondents and petitioner should therefore be
annulled and set aside on the ground of mistake.

On the other hand, an action for declaration of nullity of contract presupposes a voidcontract or one
where all of the requisites prescribed by law for contracts are present but the cause, object or purpose is
contrary to law, morals, good customs, public order or public policy, prohibited by law or declared by law to be
void.[31] Such contract as a rule produces no legal and binding effect even if it is not set aside by direct legal
action. Neither may it be ratified. An action for the declaration of nullity of contract is imprescriptible. [32]
The petitioners pleading was for the declaration of nullity of the extrajudicial settlement of estate.
However, this did not necessarily mean the automatic dismissal of the case on the ground of lack of cause of
action.
Granting that the action filed by petitioner was incompatible with her allegations, it is not the caption of
the pleading but the allegations that determine the nature of the action. [33] The court should grant the relief
warranted by the allegations and the proof even if no such relief is prayed for. [34] In this case, the allegations in
the pleading and the evidence adduced point to no other remedy but to annul the extrajudicial settlement of
estate because of vitiated consent.

In Rural Bank of Caloocan, Inc. v. Court of Appeals,[24] we ruled that a contract may be annulled on the
ground of vitiated consent, even if the act complained of is committed by a third party without the connivance
or complicity of one of the contracting parties. We found that a substantial mistake arose from the employment
of fraud or misrepresentation. The plaintiff in that case was a 70-year-old unschooled and unlettered woman
who signed an unauthorized loan obtained by a third party on her behalf. The Court annulled the contract due
to a substantial mistake which invalidated her consent.

WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED. The
extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian is hereby ANNULLED and SET
ASIDE. No cost.

By the same reasoning, if it is one of the contracting parties who commits the fraud or
misrepresentation, such contract may all the more be annulled due to substantial mistake.

G.R. No. L-5496

In Remalante v. Tibe,[25] this Court ruled that misrepresentation to an illiterate woman who did not know
how to read and write, nor understand English, is fraudulent. Thus, the deed of sale was considered vitiated
with substantial error and fraud. This Court further held:[26]
Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled and illiterate, not
knowing how to read, write and understand the English language in which Exhibit 22 was drafted, it would have been
incumbent upon the defendant to show that the terms there of have been fully explained to the plaintiff. The evidence is
entirely lacking at this point, and the lack of it is fatal to the cause of the defendant for his failure to discharge the burden
of proof.
Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only
questions of law and not issues of fact. [27] This rule, however, is inapplicable in cases such as the one at bar
where the factual findings complained of are absolutely devoid of support in the records or the assailed
judgment of the appellate court is based on a misapprehension of facts. [28] Thus, this case is an exception to
the general rule on the conclusiveness of facts, the evidence pointing to no other conclusion but the existence
of vitiated consent, given the diminished intellectual capacity of the petitioner and the misrepresentation of
private respondent Corazon Sebastian on the contents of the extrajudicial partition.
Private respondents also maintain that petitioner has no cause of action since the remedy that should
be pursued is an action for annulment and not for declaration of nullity. Private respondents therefore pray for
the dismissal of this petition on the ground of lack of cause of action.
Before ruling on this procedural matter, a distinction between an action for annulment and one for
declaration of nullity of an agreement is called for.
An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one
of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud. [29] By its very nature,
annulment contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on
all the contracting parties until annulled and set aside by a court of law. It may be ratified. An action for
annulment of contract has a four-year prescriptive period.[30]

SO ORDERED.
February 19, 1910

MERCEDES MARTINEZ Y FERNANDEZ, ET AL., plaintiffs-appellants,

vs.
THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL., defendants-appellants.
Bruce & Lawrence, for appellants.
Haussermann & Cohn and Rosado, Sanz & Opisso, for appellees.
MORELAND, J.:
This is an action to set aside a contract on the ground that plaintiff's consent thereto was given under duress
and undue influence. Alejandro S. Macleod is joined as plaintiff only for the reason that he is the husband of
Mercedes Martinez and he takes no part in the action personally.
In the statement of facts and some of the legal propositions involved, we have made free use of the forms
contained in the briefs of both parties.
Alejandro S. Macleod was for many years the managing partner of the house of Aldecoa & Co. in the city of
Manila. He withdrew from the management on the 31st day of December, 1906, when Aldecoa & Co. went into
liquidation. At the time that Aldecoa & Co. ceased active business the Hongkong & Shanghai banking
Corporation was a creditor of that firm to the extent of several hundred thousand pesos and claimed to have a
creditor's lien in the nature of a pledge over certain properties of the debtor. In April, 1907, the bank began a
civil action against Alejandro S. Macleod, his wife, Mercedes Martinez, Aldecoa & Co., and the firm known as
Viuda e Hijos de Escao. In the bank's complaint it was alleged that a certain undertaking in favor of Aldecoa
& Co. had been hypothecated to the bank to secure the indebtedness of Aldecoa & Co., but that this obligation
had been wrongfully transferred by Alejandro S. Macleod into an obligation in favor in his wife, Mercedes
Martinez, to the prejudice of the bank. In May, 1907, Aldecoa & Co. began a civil action against Alejandro S.
Macleod and others for the recovery of certain shares of stock of the par value of P161.000 and for damages
in the sum of P150,000, basing its right to recover upon alleged criminal misconduct of Mr. Macleod in his
management of the firm's affairs.

When the two causes of action above referred to were discovered and the suits there mentioned commenced,
Alejandro S. Macleod and Mercedes Martinez, his wife, engaged the services of Messrs. Del-Pan, Ortigas and
Fisher, attorneys at law, to represent and defend them in the matter. Soon thereafter these attorneys made
overtures to the liquidation of Aldecoa & Co, for the settlement of the latter's claims. While these negotiations
were pending Aldecoa & Co. claimed that they had made discoveries of many frauds which Macleod had
perpetrated against the company during the period of his management, whereby the company had been
defrauded of many thousands of pesos.
On the 13th day of July, 1907, it becoming apparent that criminal proceedings would be instituted against him,
Macleod went from Manila to the Portuguese colony of Macao, a territory not covered, it appears, by
extradition treaty between the United States and the Portuguese Government. Four days thereafter, on the
17th day of July, Aldecoa & Co. filed a complaint against Mr. Macleod, charging him with the falsification of a
commercial document, and a warrant for his arrest was issued by the Court of First Instance of Manila, and the
executive department of the Philippine Government issued a formal request to the Portuguese authorities for
the extradition of the accused. This request was denied. In the meantime the attorneys for the respective
parties were engaged in negotiations for the settlement and compromise of the difference then pending and a
clearance of Mr. Macleod from all claims and demands of his creditors. Aldecoa & Co. and the bank, as a
consideration for such settlement, insisted upon the conveyance not only of all the property of Alejandro S.
Macleod but also of at least a portion of the property claimed by his wife, the plaintiff herein. The settlement
offered at that time was the same which was subsequently accepted and consummated on the 14th of August
as shown by Exhibit A. There appears to have been little resistance to this demand on the part of the
representatives of Mr. Macleod, but his wife, the plaintiff herein, stoutly objected to the conveyance required of
her, maintaining that the property which she was asked to transfer was her separate and exlusive property and
not liable for the debts of her husband. Her position was fully stated by her to her attorney, Mr. Fisher, and to
her attorney-in-fact, Mr. William Macleod. An interview between her attorney and the attorney for Aldecoa &
Co. followed this declaration on her part. Thereafter and on the night of August 4 another interview was had
between the plaintiff and her counsel, Mr. Fisher, and others, at which a long list of claims against Mr.
Macleod, prepared by Aldecoa & Co., was exhibited to the plaintiff and its contends explained to her by Mr.
Fisher and her attorney-in-fact. Some of these claims involved criminal as well as civil liability. Mr. Fisher at
that time favored a settlement in accordance with the terms proposed by Aldecoa & Co. The plaintiff, however,
refused to accept such settlement.
This being the state of affairs, one of the attorneys for the bank, on the 7th of August, 1907, was called upon
by counsel for both Aldecoa & Co. and the plaintiff in this action, who requested him to act as intermediary
between the parties and to suggest means by which a settlement could be obtained. At that interview it was
agreed that a full explanation of the condition of affairs should be made to Mr. Kingcome, a son-in-law of the
plaintiff and a businessman. This explanation was made by Mr. Stephen, manager of the Hongkong &
Shanghai Banking Corporation, one of the friends of Mr. Kingcome, at an interview arranged between them
pursuant to the arrangements made by the attorneys for the parties. Whether or not Mr. Kingcome
communicated the substance of that interview with Mr. Stephen to his mother-in-law, the plaintiff, before she
signed the document in question is in dispute in this case. There is some doubt from the record as to the exact
language used in this conversation between Kingcome and Stephen, but it appears that some reference was
made tothe interest which the British colony in Manila, of which Messrs. Stephen, Kingcome, and Macleod
were prominent members, would have in avoiding the scandal and disgrace to the latter which might be
expected to ensue unless the differences between the parties to this action were amicably arranged. It seems
at that interview that Mr. Stephen suggested to Mr. Kingcome that he advise his mother-in-law to act
reasonably in negotiating the proposed settlement. It appears that Mr. Kingcome got the impression from that
interview that Mr. Stephen thought unless the settlement were consummated additional and mortifying
misfortunes wound fall upon Mr. Macleod's family.
About the time that the inmterview between Kingcome and Stephen was celebrated Mr. Fisher was enlisting
the services of Mr. William Macleod, a nephew and close friend of plaintiff and her husband, and plaintiff's
attorney-in-fact, for a mission to plaintiff of a similar character to that of Mr. Kingcome. Mr. William Macleod, as
well as Mr. Kingcome, seems to have been persuaded by what he was told that the consequences of plaintiff's
continued refusal to make the settlement would be disastrous to Alejandro S. Macleod and his family and
would be an exhibition of very bad judgment in every way.
On August 9, 1907, the prosecuting attorney filed a second complaint against Alejandro S. Macleod and his
associate, Osorio, charging them with embezzlement and causing warrants of extradition to issue. The
complaint was made at the instance of the prosecuting attorney because he had heard that Macleod and

Osorio were about to leave for Europe and he wanted to intercept them in territory from which they could be
extradited.
On the 11th of August a long conference was held between plaintiff, her attorney, Mr. Kingcome, her son-inlaw, and William Macleod, her attorney-in-fact, at which she was informed in substance that if she assented to
the requirements of Aldecoa & Co. and the bank the civil suits against herself and her husband would be
dismissed and the criminal charges against him withdrawn, while if she refused her husband must either
spend the rest of his life in Macao or be criminally prosecuted on the charged already filed and tobe filed. At
that interview plaintiff refused to accede to the terms of settlement and that interview was terminated by a
statement on the part of Mr. Fisher, which was "Gentlemen, it is evident that there can be no compromise or
settlement, and the only thing left us to do is to defend Mr. Macleod in the best possible manner."
On the 12th of August, at an interview had between theplaintiff and her attorney-in-fact, Mr. William Macleod,
the plaintiff acceded to the terms proposed by the defendants and authorized Mr. William Macleod to execute
the contractof settlement on her behalf. The document of settlement was prepared and after certain
corrections upon the part of the plaintiff's attorneys, making the same entirely satisfactory to them, it was
signed by the plaintiff's attorney-in-fact on her behalf on the 14th of August. It was thereafter and on the same
day ratified by the plaintiff, who executed the same in person.
After Adecoa & Co. and the bank had taken possession of the property of plaintiff and her husband, conveyed
to them by Exhibit A, the civil suits were dismissed, the criminal charges withdrawn, and Mr. Macleod returned
from macao to Manila. The plaintiff had a surveyor divide the property in Malate, of which she had conveyed a
half interest, into two equal parts. She negotiated for apartition of the land on the basis of this survey. She
joined in the motion for the dismissal of the civil action to which she had been a party and in the motion in the
Court of Land Registration for the recording in the name of thegrantees of a half interest in the Malate land. All
of these acts were in pursuance of Exhibit A.
On December 3, 1907, the plaintiff filed her complaint in the present action, and, after the joining of issue and
thehearing of evidence, judgment was rendered in favor of defendants on the 29th day of May, 1909. From
this judgment, after the usual motion for a new trial, its denial and exception to such denial, plaintiff appealed
to this court.
The Civil Code in relation to the subject-matter in hand contains the following provisions:
ART. 1265. Consent given under error, violence, intimidation, or deceit shall be null.
ART. 1267. There is violence when, inorder to obtain the consent, irresistible force is used.
There is intimidation when one of the contracting parties gives his consent on account of a
reasonable and well-grounded fear of suffering an imminent and serious injury to his person or
property, or to the person or property of his spouse, descendants, or ascendants.
In determining whether or not there is intimidation the age, sex, and status of the person
intimidated must be considered.
Fear of displeasing the persons to whom obedience and respect are due shall not annul the
contract.
ART. 1268. Violence or intimidation shall annul the obligation, even though such violence or
intimidation shall have been used by a third person who did not take part in the contract.
In order that this contract be annuled it must be shown that the plaintiff never gave her consent to the
execution thereof. If a competent person has once assented to a contract freely and fairly, he is bound.
Contracts which are declared void and of no force upon the ground that they were obtained by fraud, duress,
or undue influence are so declared for the reason that the complaining party never really gave his consent

thereto. The consent in such case is not in the eye of the law a consent at all. The person has not acted. He
has done nothing he was in vinculis.
It is necessary to distinguish between real duress and the motive which is present when one gives his consent
reluctantly. A contract is valid even though one of the parties entered into it against his wishes and desires or
even against his better judgment. Contracts are also valid even though they are entered into by one of the
parties without hope of advantage or profit. A contract whereby reparation is made by one party for injuries
which he has willfully inflicted upon another is one which from its inherent nature is entered into reluctantly and
against the strong desires of the party making the reparation. He is confronted with a situation in which he
finds the necessityeither of making reparation or of taking the consequences, civil or criminal, of his unlawfull
acts. Hemakes the contract of reparation with extreme reluctance and only by thecompelling force of the
punishment threatened. Nevertheless such contract is binding and enforceable. Such a contract differs entirely
in its incidents from a contractentered into by a party for the purpose of gain. The latter contract is made with
pleasure and its terms complied with gladly. The former is a contract the execution of which the party is very
apt to repent and the terms of which he is very likely to evade if he can. It is not conclusive against them that
Aldecoa & Co. demanded that the plaintiff do something upon pain of punishing her husband for his crimes. It
is not conclusive that the plaintiff disliked exceedingly to do what they demanded. Neither is it conclusive that
the plaintiff now regrets having performed at their demand instead of compelling a resort to judicial
proceedings. It is not for these reasons that this contract may be declared null and void. If such a contract
were illegal whereby pending litigation is settled by agreement of the parties rather than by decision of the
court. If such a contract were null and void, then would be null and void every contract whereby a wrongdoer
and he who assisted him made reparation for that which he had mis appropriated or misapplied. In legal effect
there is no difference between a contract wherein one of the contracting parties exchanges one condition for
another because he looks for greater gain or profit by reason of such change and an agreement wherein one
of the contracting parties agrees to accept the lesser of two disadvantages. In either case he makes a choice
free and untrammeled and must accordingly abide by it. These are evidence of duress, facts from which
duress may be inferred, but they are not duress of themselves. In the absence of other proof and
circumstances, they might very well be held to establish duress. But there is other proof and we do not believe
that under all the facts of this case as disclosed by the record we can say that the court below erred when he
refused to findthat the plaintiff entered into the contract in question by reason of duress and undue influence.
We find lacking in this case amny of the essential elements usually found in cases of duress. The most that
the facts disclose is that the plaintiff was loath to relinquish certain rights which she claimed to have in certain
property to the end that she might be relieved from litigation then pending against her and that her husband
might escape prosecution for crimes alleged to have been committed; and that she persisted for a
considerable time in her refusal to relinquish such claimed rights. The fact that she did relinquish them upon
such consideration and under such condition does not of itself constitute duress or intimidation, nor does it
destroy the obligatory effect and force of her consent. In order to do so something more is needed. Such
influence must havebeen exercised over her that she was deprived of her free will and choice. She must have
acted from fear and not from judgment.
Not every contract made by a wife to relieve her husband from the consequences of his crimes is viodable.
Subject to certain restrictions a wife may legally dispose of herproperty as she pleases; she may squander it;
she may give it away; she may pledge or transfer it to keep her husband out of state prison. The question in
each case is exactly the same as in all such relations, was she acting according to the dictates of her own
judgment, whether good or bad, or from fear, force, or undue influence? If there are time and opportunity for
judgment to take the place of fear, and if apart from the threat there are reasons disclosed which might lead
one in the exercise of good judgment to perform the acts complained of, then the evidence as to duress and
undue influence must be very clear in order that such acts may be recalled.
The appellant cites many cases in support of her contention that the contract of the 14th of August should be
abrogated.
We have carefully examined not only all of the cases cited by the appellant but also substancially all of the
cases within our reach relating to the questions before vs. Among them are the following: Adams vs. Irving
National Bank (116 N.Y., 606); Allen vs Laflore County (76 Miss., 671); Bently vs. Ronson (11 Mich., 691;
Burton vs McMillan (8 L. R. A., N.S., 991); Bell vs. Campbell (123 Mo., 1); Galusha vs Sherman (47 L. R. A.,
417); MaMahon vs. Smith (47 Conn., 221, 36 Am Rep., 67); Gorringe vs Reed (23 Utah, 120, 90 Am St. Rep.,
692); Bank vs Bryan (62 Ia., 42); Rau vs. Zedlitz (132 Mass., 164); Lomerson vs. Johnston (47 N. J. Eq., 312);
McGroryvs. Reilly (14 Phila., 111); Foley vs. Greene (14 R.I., 618); Coffman vs. Lookout Bank (5 Lea., 232);
Haynes vs.Rudd (102 N. Y., 372); Cribbs vs. Sowle (87 Mich., 340); Osborne vs. Robins (36 N.Y., 365);

Rall vs. Raguet (4 Ohio, 400); Bank vs. Kirk (90 Pa. St., 49); Eadie vs. Slimmon (26 N.Y., 9);
Harris vs. Carmody (131 Mass., 51; Taylor vs. Jacques (106 Mass., 291); Bryant vs. Peck & W. Co. (154
Mass., 460); Hesinger vs. Dyer (147 Mo., 219); Mack vs. Praug (104 Wis., 1); Benedict vs. Broome (106
Mich., 378); Williams vs Bayley (1 Eng. & Ir. App. Cas., 200); Central Bank vs. Copeland (18 Md., 305 , 81 Am.
Dec., 597); Bradley vs. Irish (42 Ill. app., 85); Snyder vs. Willey (33 Mich., 483).
All of the above cases, except Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, are
distinguishable from the case at bar in the following particulars:
1. In those cases there was no time within which to deliberate the matter as it should have been
deliberated.
2. There was no time or opportunity to take the advice of friends or of disinterested persons.
3. There was no time or opportunity to take advice of counsel.
4. The treats made to secure the performance of the acts complained of were made directly to the
complaining party by the person directly interested or by somene in his behalf who was working in
his interest and who had no interest whatever in the welfare of the complaining party.
5. There was no consideration for the performance of the act complained of except immunity from
the prosecution threatened.
6. The property transferred or incumbered by the act complained of was the separate property of
the person performing the act in which the person for whome the act was performed claimed no
interest whatever.
7. There was no dispute as to the title of the property transferred or incumbered, no claim made to
it by anybody, no suits pending to recover it or any portion of it, and no pretension that it could be
taken for the debts of the husband or of any other person.
In the cases of Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, above excepted, the
complainant had the benefit of legal advice and the advice of some friend but in none of those were there
present any of the other circumstances just enumerated.
In the case of Hesinger and another vs. Dyer (147 Mo., 219), it appeared that the plaintiffs were the tenants of
the defendant on defendant's farm. During the last year that they had occupied this farm they raised some 500
bushels of corn upon which the defendant claimed to have a lien under the statue. The plaintiff Hesinger sold
the corn and applied the proceeds to his own use. Dyer threatened to institute criminal proceedings against
Hesinger for embezzling the corn if he and his wife did not execute to him their note for its value, secured by a
deed of trust upon the land of Mrs. Hesinger. They testified that because of this threat and in fear of said
prosecution they executed the note and deed of trust as required. Shortly before the papers were executed the
defendant's home, taking with him a notary public to take the acknowledgement of the deed of trust in the
event that he succeeded in getting the plaintiffs to execute it. This was one of the occasions upon which the
defendant threatened to prosecute Hesinger if he and his wife did not execute the deed of trust as required.
Mrs. Hesinger had all the time refused and still refused to execute the deed; but upon the afternoon of that day
plaintiffs went to Sedalia to consult with their son and with their attorney and thereafter went to J.M. Bailer's
office and there executed the papers in question. The court held that the note and deed of trust were voidable
as having been executed under duress.
It is at once apparent, however, that the facts differ materially from those in the case at bar. In that case the
plaintiffs contended against the personal presence of the defendant and all of the influence which that
presence implies. In that case there was absolutely no consideration moving to Mrs. Hesinger inducing the
execution of the papers in question except the release of her husband from prosecution. There was lacking in

that case everything, every consideration which would appeal to the judgment or reason of the complaining
party.

A mere reading of the facts in that case discloses that it can not be used as an authority in the case at bar. It is
widely different in its facts.

The same may be said of the other two cases, Harris vs. Carmody and Williams vs. Bayley.

A careful analysis of this case discloses the following pecularities:

The plaintiff cites also the case of Jalbuena vs. Ledesma et al. (8 Phil. Rep., 601). In that case it appeared, as
stated by the court, that

In the first place, the undisputed evidence demostrates that the first offers of compromise were made by the
plaintiff herself through her representatives. It appears that from first to last the effort and anxiety to
compromise the claims of the defendants were on the part of the plaintiff through her representatives. The
position of Aldecoa & Co. throughout the negotiations, as it appears from the testimony in the case, was that a
settlement of their claims against the plaintiffs would not result in any peculiar or especial benefit to them
inasmuch as by the actions already commenced against the plaintiff and her husband the defendants would
be able, so they contended, to secure exactly the same property that they would obtain by the settlement
proposed. The soundness of this contention was admitted by the attorneys for the plaintiff. It was the desire on
the part of at least one of the persons especially interested in Aldecoa & Co. that Alejandro S. Macleod should
suffer criminally for the acts which he had committed against that company and such person did not hesitate to
say so repeatedly. There seems to have been throughout the negotations a fear of the part of the attornets for
the plaintiff that, partly, at least, by reason of this especial desire of said person, the negotiations would be
broken off by Aldecoa & Co. before a settlement could be consummated. The defendants never urged the
ultimatum laid down by the defendants. They simply stated to the attorneys for the plaintiffs that they must
claims, and it appeared from the position assumed that it was immaterial to them whether they obtained those
properties through the courts or by means of a settlement. They left Macleod and his wife to choose foir
themselves, upon their own judgment and upon the advice of their attorneys and relatives, the course to be by
them pursued. That the defendants were not especially urging the settlement in question is demonstrated by
the fact that Mr. Fisher, the attorney for the plaintiffs, was doubtful about securing the participation of Aldecoa
& Co. in the agreement up to the very moment of its execution, and it appears from the evidence of Mr. Cohn
that Mr. Fisher, laboring under such apprehension, actually withheld important information from Aldecoa & Co.
for fear such information would deter them at the last moment from giving their assent to the arrangement.

Ildefonso Doronila, having been the tutor of the Ledesma minor children, was cited in August,
1900, before the provost court of Iloilo on the petition of the defendant Lopez, to show cause why
he should not surrender the papers, securities, and money in his charge, and he was in the course
of the proceeding ordered to render his accounts as tutor, and it is to be inferred from the
testimony of the defendant Ledesma that the accounts were in fact rendered. On December 3 he
came to an agreement with the defendant Lopez, as representative of the children, whereby his
accounts were allowed and accepted and the value of the missing papers, claimed to have been
lost in the bombardment of Iloilo, was fixed at P12,000, and a certain obligation of the estate to
Juan Casells to the amount of P4,000 was assumed by him. Subsequently this agreement was
ratified by the family council, which imposed, however, an additional condition that security should
be given by Doronila for the payment of P16,000 in case the missing papers should not be
produced within six months and the novation of the debt of Juan Casells accepted by the debtor.
Thereafter he was brought before the provost judge in the pending proceeding and was ordered to
give additional security, and failing to do so was committed to jail, where he had already been once
confined on the institution of the proceeding. As all of his property was already bound to the estate
for the performance of his duty as guardian, it became expedient to find a surety for him, and the
plaintiff (wife of Doronila), who had accompanied him to the court, was thereupon induced to join
with him in this undertaking. As to the preceedings in court, the testimony of the plaintiff, reduced
to narrative form, is as follows:
"I remeber having been in the office of the provost judge of Iloilo in December, 1900. I
went there to visit my husband, who was in jail. While there I was summoned before
the provost judge by a soldier, and I went up before the provost and requested him to
set my husband free, he not being guilty of anything. I asked him, crying, to put my
husmand at liberty, but the provost did not listen to me; on the contrary, he asked me to
file security for what was lost in my house during the bombardment, and he told me
that he was going to put my husband in jail if I did not obligate my property as security.
Fearing that he was going to be put in jail again, I was compelled to sign, it being a
time when we and others were under fear and I was afraid that he would be punished
and that they would deport him. In the fear that I was then under I did not know any
other remedy but to sign. He told me that my husband would be sent again to jail if I did
not sign."
This communication was carried on through the medium of an interpreter, one Pedro Regalado,
who testified:
"The provost judge told Sra. Vicenta . . . in these terms: "You sign a document
guaranteeing with your property the obligation contracted by Sr. Doronila, your
husband." She answered to these words that her husband was not guilty of the loss of
the documents, as when the bombardment came the documents were in a trunk and
were lost during the bombardment. When she said that she could not respond, then the
provost said: "You sign this document; you either sign this document or I will send you
husband back to jail." More or less I remember that he said: "Interpreter, tell her to
either sign this document or I will have her husband sent again to jail."
In this case the wife sued to set aside the obligation upon the ground that it was obtained from her by duress
and undue influence. She justly succeded.

In the secon place, there were at no time during the course of these negotiations for settlement any direct
personal relations or communications between the parties to this action. During the whole course of the
negotiations no person communicated with the plaintiffs on behalf of the defendants alone. The offers,
proposition, or treats, if any, made by the defendants were filtered to her through the personality, mind, and
judgment of her own attorneys or relatives, all of them being persons who had her welfare and the welfare of
her family deeply at heart and who were acting for her and her husband and not for the defendants. That
personal presence of threatening party and the influence springing therefrom, factors so potent in duress and
undue influence, were wholly lacking.
On the trial an attempt was made to show that the defendants had attempted to influence the plaintiff,
Mercedes Martinez, by acting upon her through her son-in-law, Mr. Kingcome. As stated above, Mr. Stephen
was asked by the attorneys for the plaintiff, as well as the attorneys for the defendants, to see Mr. Kingcome
and ask him to explain to his mother-in-law the facts and circumstances which were the cause of the attempts
at settlement for the purpose of inducing her to act reasonably in the premises. There was some dispute as to
whether or not Mr. Kingcome actually communicated the substance of the interview to his mother-in-law prior
to her signing the contract in question. Mr. Kingcome in his testimony states that according to his best
recollection he communicated the substance of that interview to his mother-in-law on the 11th day of August.
In considering this matter it must be remembered that the interview between Mr. Stephen and Mr. Kingcome
was not brought about by Aldecoa & Co. or its representative. It was brought about by Mr. Cohn acting as
mediary between Mr. Fisher and Mr. Rosado, the one the attorney for the plaintiffs and the other the attorney
for the defendant company, upon the request and with the express approval of both of them. The interview
which followed between Mr. Stephen and Mr. Kingcome was the direct act of plaintiff in exactly the same
manner and in exactly the same degree as it was the act of Aldecoa & Co.
In the third place, the plaintiff by means of the negotiations and settlement in question was engaged partly at
least in the settlement of her own suits and controversies. The plaintiff, Mercedes Martinez, together with
Aldecoa & Co. and Viuda e Hijos de F. Escao were sued in April, 1907, by the Hongkong & Shanghai
Banking Corporation in relation to P45,000 worth of notes claimed to have been fraudulently taken from the
assets of Aldecoa & Co. and transferred into the name and possessio of the plaintiff, Mercedes Martinez. This
was one of the actions settled and terminated by the contract in question. In this property the plaintiff released
her rights under the settlement. The only other property to which she released her rights was a half interest in

property in Malate. As to the legality of her claim that this property was her own individual property there was a
serious question, so serious in fact that she was formally and reapetedly advised by her attorneys that such
claim was in their judgment unfounded. These are the only interest which the plaintiff, Mercedes Martinez,
released or gave over in the settlement complainted of. Both of the claims were substantially in litigation and
the legality of both was seriously questioned and strongly doubted by her own attorneys. While it is not
necessary to decide and we do not decide whether her claim to either of those properties was valid or invalid,
still the fact that the validity of her claims thereto was denied by her own attorneys strongly tends to impeach
the claim that she released those properties by reason of duress and undue influence, rather that as a result of
her own deliberate judgment.
In the fourt place, it must be remembered that the plaintiff, Mercedes Martinez, never at any time stood alone
in the negotiations. There was never a moment when she did not have interposed between her and the
defendants the counsel of skilled attorneys and of interested relatives. Whatever came to her from the
defendants, their demands or their threats, if any, reached her through the medium of her friends and advisers.
She had the assistance of legal learning and business intelligence and experience. She had the careful and
thoughtful advice of her family. She was as far as possible relieved from all fear, stress, or influence except
such as were inherent in the circumstances themselves. It appears undisputed that she and her relatives and
lawyers considered throughout the negotiations and down to and including the time of the execution of the
agreement of settlement that her best interest would be subserved by acceding to the terms laid down by the
defendants. From the evidence in the case it is difficult to arrive at a conclusion other that that the acts which
she performed in making the settlement in question were acts which contributed to her welfare and the welfare
of her whole family. While this fact may not be conclusive in the present case, it nevertheless is of very
importance and significance in determining the question whether duress and undue influence were exercised
or weighing the reasons pro and con.
In the fifth place, we must bot overlook the fact that the plaintiff took advantage of said contract after its
execution and required the complete fulfilling of every one of its provisions favorable to herself. She negotiated
with Aldecoa & Co. for a partition of the Malate property and to that end caused a survey and a division thereof
to be made. She demanded of Aldecoa & Co. payment of the P2,000 provided for by the contract, which said
sum she received. She caused one-half of said Malate property to be assessed against said company. She
caused a change to be made in the proceedings to register the title to said Malate lands, previously begun by
her, so as to register her title to only one-half thereof. She caused to be dismissed the action pending against
her on account of the Escao notes, which dismissal occured after this present action was commenced.
These acts are mentioned not to show a ratification of the contract in the sence that those acts estopped her
from thereafter questioning the same, but rather as confirmatory of the theory that in the execution of the
contract complained of she acted accroding to the dictates of good business judgment rather that from duress
and undue influence.
As we have already stated, not every contract executed by a wife, even though made solely to save her
husband from the consequences of his crimes, is voidable. Solicitation, importunity, argument, and persuasion
are not undue influence and a contract is not to be set aside merely because one party used these means to
obtain the consent of the other. Influence obtained by persuation or argument or by appeals to the affection is
not prohibited either in law or morals and is not obnoxious even in courts of equity. Such may be termed "due
influence." The line between due and undue influence, when drawn, must be with full recognition of the liberty
due every true owner to obey the voice of justice, the dictates of friendship, of gratitude and of benevolence,
as well as the claims of kindred, and, when not hindered by personal incapacity or particular regulation, to
dispose of his own property according to his own free choice. (9 Cyc. 455, and cases there cited.)
On the other hand contracts entered into by a wife whereby she conveys property unquestionably hers, the
sole and only consideration for which contract is the obtaining for her husband immunity from criminal
prosecution, are always justly the objects of suspicion, and it is a wise jurisprudence which holds that, where
she defends upon the ground that she was duressed, the party enforcing such contract must expect the very
closest scrunity of the transaction with the presumptions all against him. Where, however, as in this case,
there is a real question as to the validity of claims laid by the wife to the property transferred, some of which
claimed rights are involved in actual litigation in which she is a party, while the remainder are alleged by
opposing claimants to be subject to seizure and sale under judgements against the husband; and competent
and honorable counsel, after careful and extended consideration of the facts and the law, advise her that the
rights so claimed by her in the property transferred are fictitious, unreal, and defeasible, having no foundation

in law, and she, after abundant opportunity for deliberate consideration, release such claimed rights and
thereby not only secures immunity for her husband, but also quiets litigation against herself, a very different
question is presented. It is undisputed that the attorneys for the plaintiff in this case advised her that, from the
facts which they had before them, facts of which she was fully informed, her husband had been guilty of
embezzlement and misappropriation in the management of the business of Aldecoa & Co. and that, in their
judgment, if prosecuted therefor, he would be convicted. They further advised her that the P45,000 worth of
notes claimed by her and to recover which was part of the purpose of the action against her and her husband
by the Hongkong & Shanghai Banking Corporation were a part of the property of which her husband had
criminally deprived the said company. They advised her that she would not be able to hold such notes as her
own. They further advised her that from the facts before them Aldecoa & Co. would have no difficulty in getting
a judgment for a very large amount against her husband, and, in that event, the interest which she claimed in
the Malate property would be liable in their judgment ganancial. They informed her that all that Aldecoa & Co.
required of here was the transfer of her claims rights in said property. They further advised her that if she did
not so transfer such property, Aldecoa & Co. would nevertheless obtain it by means of the actions already
commenced and to be commenced; that if she did transfer it she would lose no more than she would lose by
means of said action and she would gain in addition the immunity of her husband from criminal prosecution. In
other words, under the advice of her counsel, the situation was so presented to her that it was evidenct that in
signing the agreement of the 14th of August she had all to gain and nothing to lose, whereas, in refusing to
sign said agreement, she had all to lose and nothing to gain. In the one case she would lose her property and
save her husband. In the other, she would lose her property and her husband too. The argument thus
presented to her by her attorneys addressed itself to judgment and not to fear. It appealed to reason and not to
passion. It asked her to be moved by common sense and not by love of family. It spoke to her own interest as
much as to those of her husband. The argument went to her financial interest as well as to those of the
defendants. It spoke to her business judgment as well as to her wifely affections. From the opinions of her
attorneys, as they were presented to her upon facts assumed by all to be true, we do not well see how she
could reasonably have reached a conclusion other than that which she did reach. It is of no consequence here
whether or not her lawyers, as matter of law, she would have been deprived of her alleged interests in the
properties mentioned in the manner described and advised by her attorneys. The important thing is that she
believed and accepted their judicial and acted upon it. The question is not did he make a mistake, but did she
consent; not was she wrongly advised, but was she coerced; not was she wise, but was she duressed.
From the whole case we are of the opinion that the finding of the court below that the plaintiff executed the
contract in suit of her own free will and choice and not from duress is fully sustained by the evidence.
The judgment of the court below, is therefore, affirmed with costs against the appellant. So ordered.
G.R. No. 90423 September 6, 1991
FRANCIS LEE, petitioner,
vs.
COURT OF APPEALS, PEOPLE OF THE PHILIPPINES AND PELAGIA PANLINO DE CHIN, respondents.
Arturo S. Santos for petitioner.

MEDIALDEA, J.:p
This is a petition for review on certiorari to set aside the decision of the Court of Appeals dated June 29, 1989
which reversed the decision of the Regional Trial Court (RTC), National Capital Judicial Region, Branch 129 at
Caloocan City, Metro Manila, and reinstated as well as affirmed in toto the decision of the Metropolitan Trial
Court (MTC), Branch 2, same city. The RTC decision found the petitioner guilty of the crime of light coercion,
the dispositive portion of which reads:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby modified. The accused Francis
Lee is hereby found guilty beyond reasonable doubt of the crime of light coercion, as penalized under
paragraph 2 of Article 287 of the Revised Penal Code and he is hereby sentenced to suffer a penalty of
TWENTY (20) DAYS of ARRESTO MENOR and to pay one-third (1/3) of the costs. (p. 40, Rollo)
On the other hand, the MTC decision convicted the petitioner of the offense of grave coercion, the pertinent
portion of the same is hereby quoted as follows:

WHEREFORE, premises considered, the Court finds the accused Francis Lee, guilty beyond reasonable
doubt of the offense of Grave Coercion, as charged, defined and penalized under Art. 286 of the Revised
Penal Code, and is hereby sentenced to suffer an imprisonment of THREE (3) MONTHS, of arresto mayor,
medium, and to pay a fine of P250.00, with cost.

To determine the degree of the intimidation, the age, sex and condition of the person shall be borne in mind.

The accused is further ordered to indemnify the offended party, Pelagia Paulino de Chin, by way of civil liability
the sum of P5,000.00 as moral damages and the sum of P2,000.00 as exemplary damages.

As a general rule, the findings of facts of the Court of Appeals command utmost respect. However, such
findings are disregarded if there appears in the record some fact or circumstance of weight and influence
which has been overlooked or the significance of which has been misinterpreted that, if considered, would
affect the result of the case (see San Sebastian College v. Court of Appeals, et al., G.R. No. 84401, May 15,
1991).

... (p. 33, Rollo)

A threat to enforce once's claim through competent authority, if the claim is just or legal, does not vitiate
consent.

The facts as stated by the respondent Court of Appeals are undisputed, thus:
At about 10:00 o'clock in the morning of June 20, 1984, the complainant Maria Pelagia Paulino de Chin, 23
years old, was fetched from her house at 112 BLISS Site, 8th Avenue, Caloocan City by Atanacio Lumba, a
bank employee, upon the instruction of the petitioner Branch Manager Francis Lee of Pacific Banking
Corporation (hereinafter referred to as bank). Upon arriving at the office of Pacific Banking Corporation located
at Caloocan City, petitioner Francis Lee did not attend to her immediately. After an hour later, the petitioner
confronted the complainant about a forged Midland National Bank Cashier Check No. 3526794, which the
latter allegedly deposited in the account of Honorio Carpio. During the said confrontation, the petitioner
Francis Lee was shouting at her with piercing looks and threatened to file charges against her unless and until
she returned all the money equivalent of the subject cashier check. Accordingly, the complainant was caused
to sign a prepared withdrawal slip, and later, an affidavit prepared by the bank's lawyer, where she was made
to admit that she had swindled the bank and had return the money equivalent of the spurious check. During
her stay at the said bank, the complainant, who was five (5) months in the family way, was watched by the
bank's employees and security guards. It was about six o'clock in the afternoon of the same day when the
complainant was able to leave the bank premises.
Upon the other hand, the petitioner, 37 years old, presented his version, basically a denial of the charges, to
wit: he was the Branch Bank Manager of Pacific Banking Corporation. After having been informed that Midland
National Bank Cashier Check No. 3526794 was dishonored for being spurious, he examined the relevant bank
records and discovered that complainant Maria Pelagia Paulino de Chin was instrumental in inducing their
bank to accept the subject dollar check and was also the one who withdrew the proceeds thereof, by utilizing a
withdrawal slip purportedly signed by Honorio Carpio. Petitioner, thru Atanacio Lumba, invited the complainant
to his office. Responding to his invitation, the complainant arrived at the bank before noon of June 20, 1984,
but was not attended to immediately as the petitioner had to attend to other bank clients. The complainant was
merely informed about the subject fake dollar check that was deposited with said bank upon her assurance
that it was genuine. The complainant was not compelled into signing the withdrawal slip, but she acted freely
and voluntarily in executing her affidavit and in returning the money equivalent of the subject check. There was
nothing unusual during her lengthy stay in the bank. (pp. 44-45, Rollo)
The sole issue posed in this petition is whether or not the acts of petitioner in simply "shouting at the
complainant with piercing looks" and "threats to file charges against her" are sufficient to convict him of the
crime of grave coercion (p. 6, Rollo).
Article 286 of the Revised Penal Code provides:
ART. 286. Grave coercions. The penalty of arresto mayor and a fine not exceeding 500 pesos shall be
imposed upon any person who, without authority of law, shall, by means of violence, prevent another from
doing something not prohibited by law, or compel him to do something against his will, whether it be right or
wrong.
If the coercion be committed for the purpose of compelling another to perform any religious act or to prevent
him from so doing, the penalty next higher in degree shall be imposed.
Considering that the present case does not involve violence but intimidation, the provisions of Article 1335 of
the New Civil Code on intimidation are relevant. It states:
Art. 1335. ...
There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear
of an imminent and grave evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.

While the appellate court emphasized the pregnancy and feminine gender of the complainant, it overlooked
other significant personal circumstances which are material in determining the presence of coercion in this
case.
The records show that complainant is a highly educated person who is familiar with banking procedures. She
is a graduate of Business Administration major in Banking and Finance from NCBA. She also finished one
semester of MA in graduate school. In 1983, complainant worked with the Insular Bank of Asia and America as
a bank teller (TSN, November 20, 1984, pp. 5-7; Records, pp. 96-98).
Likewise, it appears that complainant actively participated in the deposit and withdrawal of the proceeds of the
controversial check. We find that she told Honorio Carpio (Carpio, for short), a relative and payee of the check;
to open a savings account with the Pacific Banking Corporation (Bank, for short) and accompanied him; that
subsequently, she presented a Midland National Bank Cashier's check payable to Carpio in the sum of
$5,200.00 to Mr. Lamberto R. Cruz (Cruz, for short), PRO Manager, Foreign Department; that she claimed that
she was requested by her uncle to deposit the check for collection; that she was a bank depositor and she
"knew somebody downstairs"; that she assured Cruz that the check would be honored between banks (TSN,
April 15, 1985, pp. 89-92; Records, 180-183); that on June 11, 1984, the bank, after the usual clearing period,
sent out a notice to Carpio that the proceeds of the check were already credited to his account but the same
was returned to the bank because the address was false or not true; that the total amount of the check in
pesos was P92,557.44; that the total deposit of Carpio was P92,607.44, his initial deposit of P50.00 being
added to the amount of the check; that on the same day, complainant personally inquired from the bank
whether the proceeds of the check have already been credited to Carpio's account (TSN, June 11, 1985, p.
163, records, p. 163); that upon an affirmative answer, the bank records show that on that day, the
complainant withdrew the sum of P12,607.00 thru a withdrawal slip purportedly signed by Carpio; that in the
interim, Carpio allegedly left abroad (Annex C, p. 17, Records); that on June 13, 1984, she withdrew the sum
of P80,000.44 from Carpio's account by means of a withdrawal slip allegedly signed by Carpio and then, she
closed his account; that out of the said amount, she redeposited the sum of P50,000.00 to her own savings
account and received in cash the remaining balance of P30,000.44; and on June 15 and 18, 1984,
complainant withdrew the amounts of P2,000.00 and P18,000.00, respectively from her savings account (Exh.
"3", Records, p. 15, in relation to TSN, October 8, 1985, pp. 194-195, Records, pp. 286-287).
In the light of the foregoing circumstances, petitioner's demand that the private respondent return the
proceeds of the check accompanied by a threat to file criminal charges was not improper. There is nothing
unlawful on the threat to sue. In the case of Berg v. National City Bank of New York (102 Phil. 309, 316), We
ruled that:
... It is a practice followed not only by banks but even by individuals to demand payment of their accounts with
the threat that upon failure to do so an action would be instituted in court. Such a threat is proper within the
realm of the law as a means to enforce collection. Such a threat cannot constitute duress even if the claim
proves to be unfounded so long as the creditor believes that it was his right to do so.
The Solicitor General argues that the complainant was intimidated and compelled into disclosing her time
deposit, signing the typewritten withdrawal slip and the affidavit by the petitioner's threat to detain her at the
bank.
At this point, there is a need to make a distinction between a case where a person gives his consent
reluctantly and against his good sense and judgment and where he gives no consent at all, as where he acts
against his will under a pressure he cannot resist. Thus, in Vales v. Villa (35 Phil. 769, 789), We ruled:
... It is clear that one acts as voluntarily and independently in the eye of the law when he acts reluctantly and
with hesitation as when he acts spontaneously and joyously. Legally speaking he acts as voluntarily and freely
when he acts wholly against his better sense and judgment as when he acts in conformity with them. Between

the two acts there is no difference in law. But when his sense, judgment, and his will rebel and he refuses
absolutely to act as requested, but is nevertheless overcome by force or intimidation to such an extent that he
becomes a mere automaton and acts mechanically only, a new element enters, namely, a disappearance of
the personality of the actor. He ceases to exist as an independent entity with faculties and judgment, and in his
place is substituted another the one exercising the force or making use of the intimidation. While his hand
signs, the will which moves it is another's. While a contract is made, it has, in reality and in law, only one party
to it; and, there being only one party, the one using the force or the intimidation, it is unenforceable for lack of
a second party.
From these considerations it is clear that every case of alleged intimidation must be examined to determine
within which class it falls. If it is within the first class it is not duress in law, if it falls in the second, it is.
The circumstances of this case reveal that the complainant, despite her protestations, indeed voluntarily, albeit
reluctantly, consented to do all the aforesaid acts.
Bearing in mind her involvement in the deposit and encashment of the check, the complainant admitted to
being nervous upon being informed that the check was spurious (TSN, November 20, 1984, p. 15; Record, p.
106)
We find that complainant's lengthy stay at the bank was not due to the petitioner's threat. It was rather due to
her desire to prove her innocence. Her testimony on this point is a revelation:
Atty. Dizon: (counsel for petitioner)
You are always talking of signing the withdrawal slip by force, is it not that earlier you admitted that no actual
force was employed upon you in connection with the signing of this document and the force that you are
claiming was the alleged shouting against you coupled with the statement that you could not leave?
A Yes, sir.
Q When Mr. Lee was requiring you to sign the withdrawal slip did it not occur to you to leave the bank?
Atty. Pangilinan:
The question has already been answered she said she cannot leave because she is being threatened.
Atty. Dizon:
That was during the time when she first met Mr. Lee.
Court:
Witness may answer.
A When I was about to sign the withdrawal slip I inquired from him If I signed it I can leave already but he
insisted that I should not leave, Sir.
Q When he told you that did it not occur to you to stand up and go out of the bank?
A No, Sir.
Q Why?
A He was insisting that I return the amount I have withdrawn especially on June 18 when I withdrew
P18,000.00, Sir.
COURT:
The question is why did you not leave and disregarded him?
A Because I cannot just leave him that way, Your Honor.
Atty. Dizon:

Why? What was the reason that you cannot leave him?
A Because he is insisting that the responsibility of one person be my responsibility and at that time I was
feeling nervous and he did not tell me to stand up and leave, Sir. (ibid, pp. 18-20, Records, pp. 109-111)
In her insistence to clear up her name, it is not farfetched for Us to think that the complainant voluntarily but
grudgingly returned the money to show good faith. Thus, it was she who informed the petitioner about the
existence of the RCBC Time Deposit Certificate (Exh. "A", pp. 4-5, Records). The allegation that she did so
because of petitioner's threats came from the complainant herself. She has not been able to present any other
witness to buttress her claim.
Further, We find that contrary to complainant's allegations in her affidavit (ibid, p. 5) it was not the petitioner
who suggested the encashment of the RCBC Time Deposit Certificate but her sister; and that again, it was not
the petitioner who agreed to the sister's suggestion but Cruz, the PRO Manager, Foreign Department of the
bank (TSN, January 8, 1985, pp. 40-41, Records, pp. 131-132).
Moreover, while complainant claimed that her freedom of movement was restrained, she, however, was able
to move about freely unguarded from the office of the petitioner situated at the ground floor to the office of
Cruz at the mezzanine floor where her sister found her (ibid, pp. 39- 40, Records, pp. 130-131). Undoubtedly,
during that time, there were many bank clients who transacted business with the bank (TSN, November 20,
1984, p. 21; Records, p. 112). The bank security guards then were at their posts. Complainant herself
admitted that they manifested no overt acts to prevent her from leaving despite the alleged loud threats of the
petitioner (ibid, pp. 20- 21, Records, pp. 111-112) which could be heard considering that the door to petitioner's
office was kept open (TSN, October 8, 1985, p. 184, Records, p. 276). Given such atmosphere, the
complainant still did not leave the bank.
The respondent court cited the prepared typewritten withdrawal slip and the non-presentation of the
complainant's passbook as indicators of her involuntary acts.
We disagree. The petitioner testified that the general rule was that the bank requires the presentation of the
passbook whenever withdrawals are made. However, there was an exception to this rule, i.e. when the
depositor is a regular customer in depositing or withdrawing money in the bank (TSN, October 8, 1985, pp.
189-190, Records, pp. 281-282). The prosecution failed to submit evidence to rebut his contentions. Besides,
the trial court's conclusion that the withdrawal slip was typewritten was without basis considering that the
complainant merely averred that the withdrawal slip was already prepared when she signed it (Exh. "A",
Records, p. 4).
We also take exception to the following ruling of the appellate court:
It must be noted that the position of a bank manager is one of prestige and dignity and when the said bank
was cheated or swindled it certainly reflects on the capability and efficiency of the manager and one can just
imagine the kind of mental attitude and feeling of anger the latter would have towards the alleged swindler.
Shouting, raising of voice and dagger looks are common characteristics of an angry man and that was what
accused Lee exhibited to a fragile weaker sex and pregnant offended party. It would be natural to get angry
with someone who had victimized you. Naturalness, however is not always righteous. It is like taking the law
into your hands and that was what the accused Lee did. (CA Decision, pp. 11-12, Rollo, pp. 52-53)
This pronouncement creates an impression that the petitioner had made a personal case out of the situation.
However, the evidence does not support this view. We find that at the time the check was deposited and
encashed, the petitioner was then on leave (TSN, June 11, 1985, p. 156; Records, p. 248). Under this
circumstance, it is not fair to consider the bank's mistake in accepting and paying the check as the petitioner's
mistake which could militate against his efficiency. The petitioner attributed the mistake in the payment of the
forged check to the usual risks in banking business. He stated:
Atty. Pangilinan, Private prosecutor (authorized by the Fiscal to prosecute the case in the latter's stead)
Q So you no longer consider him (Carpio) as entitled in (sic) the proceeds of the chek (sic) and therefore at
that point of (sic) time you will now concede that the payment made by you to him was a big mistake?
A When we were asking for the respondent and we were locating Honorio Carpio and we cannot locate him, I
consider that a mistake, Sir.
Q It was a big mistake as a matter of fact?

A When it comes to the falling of the business considering the big amount I would say big mistake but only a
mistake, it was a usual risk in banking business, Sir.
Q But of course Mr. Lee, being a mistake that mistake will harm and tense your personality as a Bank
Manager?
A It is up to our Manager to decide but when it comes to other transactions I am handling Three Million plus
and considering that check I don't think with all modesty it will affect me, Sir.
Q But you are called upon to try to recover any money which was in your judgment was unlawfully taken from
you by anybody
A When it comes to procedure I don't think it was unlawfully taken, as a matter of fact it was our bank who
credited this account, Sir.
Q So it is your bounded (sic) duty to recover money which was paid to someonelse (sic) which payment is not
due to him, am I correct?

Complainant was willing to return the sum of P48,000.00 she took since it was only up to this amount where
her involvement lies. However, as soon as she realized that she would have the enormous task of reimbursing
the bank the balance of the proceeds of the forged check allegedly taken by Carpio, she refused to cooperate
any further. Notwithstanding the alleged threats of petitioner, she did not budge. Thus, We find it as a logical
consequence that she merely asked for the receipt of the P18,000.00 she deposited rather than the
cancellation of her earlier withdrawal. On this point, complainant claimed that after her refusal to sign the
document, she no longer insisted on the return of the money because she felt that it was the only way she
could leave the bank premises (TSN, November 20, 1984, p. 31, Records, p. 120). This pretense, however,
was belied by her subsequent actuations. We find that she and her sister left the bank unescorted to eat their
snack; that they were required by the petitioner to come back; and that they decided not to eat but instead
went home (TSN, November 20, 1984, pp. 31-32, Records, pp. 122-123 and January 8, 1965, pp. 49-50,
Records, pp. 140-141). With such behavior, We are at a loss to understand how coercion could attach in this
case. Obviously, the complainant has not been cowed into submission.
Against this backdrop, We hold that coercion did not exist in this case. Consequently, the petitioner should be
acquitted.

A It is the duty of our lawyer to recover it, Sir.

ACCORDINGLY, the decision appealed from is hereby REVERSED and a new one hereby entered
ACQUITTING the accused of the crime of grave coercion.

Q Is it not a fact that your lawyer is only your agent?

SO ORDERED.

Atty. Dizon:

G.R. No. L-9421

I think we are going too far, it has nothing to do with the particular incident subject matter of the criminal
offense.
Court:
I see the point of the defense but the witness is very intelligent, I can see the point of counsel, because in
order not to effect his integrity he resorted to this, for example in case of a bank employee who stole P500.00
and the other one is P200.00, it could have the same mistake which is supposed to be admonished by
removal. You answer.
A Yes that is the same case whether it is small or big but when it comes to the Manager the Head Office is
very understanding when it comes to bogus checks and of course my work is a supervisory. Sir. (ibid, pp. 170171; Records, pp. 263-264)
The most telling proof of the absence of intimidation was the fact that the complainant refused to sign the
promissory note in spite of the alleged threats of the petitioner (TSN, January 8, 1985, p. 48; Records, p. 139).
American authorities have declared that "(t)he force which is claimed to have compelled criminal conduct
against the will of the actor must be immediate and continuous and threaten grave danger to his person during
all of the time the act is being committed. That is, it must be a dangerous force threatened 'in praesenti.' It
must be a force threatening great bodily harm that remains constant in controlling the will of the unwilling
participant while the act is being performed and from which he cannot then withdraw in safety." (State v. Hood,
165 NE 2d, 28, 31-32, Emphasis ours).
The complainant proferred excuses for her action. For one, she claimed that her sister's presence helped her
recover her composure (TSN, November 20, 1984, p. 29, Records, p. 120).
We are not persuaded. If indeed she had recovered her composure because of her sister's presence, she
could have just left the premises in a huff without encashing the RCBC Time Deposit Certificate or if they
(complainant and sister) were already at the RCBC, they could have desisted from encashing the check and
then could have left for home notwithstanding the alleged presence of Mr. Lumba who was no longer in his
own bank but among the RCBC clients or she could have refused to sign the affidavit which was handed to
her first before the promissory note. Yet, she did neither of these logical possibilities.
Secondly, she averred that she refused to sign the promissory note because she was able to read its contents
unlike the affidavit and she realized that she would have a great responsibility to return the amount taken by
Carpio (ibid, pp. 27-28, Records, pp. 118-119).
Such an excuse is flimsy and weak. It is strange that complainant's sister, who was with her, failed to
corroborate her statement that she was denied the opportunity to read the affidavit. Her bare assertion simply
confirms the voluntariness of her actions. All her disputed acts were geared towards proving her good faith.

July 24, 1915

L.L. HILL, plaintiff-appellant,

vs.
MAXIMINA CH. VELOSO, ET AL., defendants-appellees.
Martin M. Levering for appellant.
P.E. del Rosario for appellee.
ARELLANO, C.J.:
On December 30, 1910, Maximina Ch. Veloso, the wife of Manuel M. Tio Cuana, and Domingo Franco, the
first named with the consent of her husband, executed and signed a document of the following tenor:
For value of the goods we have received in La Cooperativa Filipina we promise to pay jointly and severally to
Michael & Co., S. en C., or its order, in the municipality of Cebu, the sum of six thousand three hundred and
nineteen pesos and thirty-three centavos (6,319.33), in the manner hereinafter set forth, with interest on such
part of said principal as may remain unpaid at the end of each month at the rate of one and a half per cent per
month until the principal shall have been completely paid. The said sum of six thousand three hundred and
nineteen pesos and thirty-three centavos (P6,319.33) shall be paid at the rate of five hundred pesos (P500)
monthly on or before the 15th day of each month, and the interest shall also be paid monthly. In case said
monthly payments are not made in the manner that we have promised hereinabove, then all the unpaid
principal shall become immediately demandable, at the option of the owner of this promissory note. In case
suit be brought for the collection of the amount of this promissory note or any part thereof, we bind ourselves
jointly and severally to pay an additional and reasonable sum as fees of the plaintiff's attorney in said suit.
(Sgd.) MAXIMINA CH. VELOSO.
DOMINGO FRANCO.
I consent to my wife, Maximina Ch. Veloso, signing the foregoing document.
(SGD.) MANUEL M. TIO CUANA.
Cebu, P.I., December 30, 1910.

This promissory note was indorsed to L.L. Hill on January 12, 1911. The following indorsement appears on the
back:
JANUARY 12, 1911.
Pay to the order of L.L. Hill.
E. MICHAEL, S. en C .
By E. MICHAEL, Gerente.
Two thousand pesos have been paid on this note that is, four installments of P500 each on February 10,
March 16, April 16, and May 22, 1911, respectively.
On July 5, 1911, L.L. Hill brought the present suit to recover the following sums: P4,319.33, with interest
thereon at the rate of 1 per cent per month from July 1, 1911, until said sum should be entirely paid;
P473.18 as interest on the principal of said note from December 30 to June 30, 1911; P1,000 as fees for
plaintiff's attorney in this suit and for the costs of the proceedings against the defendants, Maximina Ch.
Veloso and Manuel Martinez Tio Cuana.
Defendants, in answer to the complaint, alleged as a special defense that "about the middle of December,
1910, the deceased Domingo Franco, who was their son-in-law, had stated to them that attorney Martin M.
Levering, in his capacity as guardian of the minor children of Potenciano Chiong Velos, had suggested to the
said Franco the necessity of the defendants' executing in Levering's behalf a document in which it should be
set forth that the defendants would pay to Levering, in his capacity of guardian of said minors, the sum of
P8,000 which defendants had borrowed from Damasa Ricablanca, the former guardian of these minors, in
view of the fact that the court had removed this latter from office and appointed said attorney in her stead; that,
by reason of this statement by Levering to Franco, and having, as they did have, confidence in said decedent,
Domingo Franco, on account of his being a member of their family, defendants were willing to execute in
behalf of the said attorney, Levering, a document that should be set forth the sum owed by them to the wards
represented by Levering; that, consequently, said Domingo Franco had defendants said paper would be filled
out inside his office by recording on the sheet the obligation contracted by them in behalf of said wards; that
defendants did in fact sign the said paper for the purpose indicated, and, up to the death of said Domingo
Franco, which occurred in May of the present year (1911) confided in his good faith and in the belief that the
paper which they had signed had been duly filled out with the obligation contracted by them in behalf of said
wards and had been delivered to attorney Martin M. Levering as guardian of said minors, but that after the
said Franco died they learned that at no time had he ever delivered to said attorney any document whatever
signed by defendants; that they believed that the paper which said deceased had them sign for the alleged
purpose aforementioned was filled out with a totally different obligation from that which they had been made to
believe would be set forth therein. Defendants therefore alleged that, as they had had no transaction whatever
with Michael & Co., S. en C., nor with the plaintiff, and as they had not received any kind of goods whatever
from said firm, and it appearing that they, together with the deceased Domingo Franco, seemingly signed the
promissory note, plaintiff's Exhibit A, all these reasons induced them to believe, and they so alleged, that the
said deceased, without their consent, utilized the aforementioned paper for the execution of said promissory
note. Defendants further alleged that at no time did they intended to execute any promissory note in behalf of
Michael & Co., S. en C.; that it was false that Michael & Co. delivered goods to them in La Cooperativa
Filipina; and that, of their own free will, they did not execute any document whatever in behalf of the creditor
mentioned in said promissory note."
Evidence was adduced by the parties, after which the Court of First Instance of Cebu, who tried the case,
rendered judgment absolving defendants from the complaint, with their costs.
Plaintiff appealed, and his appeal having been heard and the evidence reviewed, it appears:
That the trial court sustained defendants' special defense in all its parts, making it the principal ground for his
judgment, to wit, that defendants' signatures on the promissory note were obtained by means of the fraud
alleged in their answer to the complaint and that defendants at the trial explicitly acknowledged their
signatures. The defendant Maximina Ch. Veloso testified that her son-in-law, Domingo Franco, had her sign

the document in blank; that when she did so contained no writing; and that if he made her sign it, and if she
did sign it, it was because Franco had told her that Levering compelled her to execute a document in his
behalf "for the minor children of Damasa Ricablanca," her sister-in-law and widow of Potenciano Ch. Veloso,
who had deposited with her P8,000 belonging to her minor children to whom witness acknowledged herself to
be indebted in the said sum of P8,000.
Assuming this to be true, by the recognition of the signature of this promissory note, the document became
completely effective, unless there be proof of some exception permitted by law. Were there such an exception,
the maker was the person obliged to proved it and, in the present case, that person is the defendant; and the
latter has presented absolutely no proof of the mistake by reason of which she says she signed the promissory
note, nor of the fraud or deceit she charges to her son-in-law, Domingo Franco, now deceased. Far from it,
something else was shown to have been proven by her own testimony and acts. On her being crossquestioned as to whether it was true that, as she says, she signed the promissory note in blank thinking that
she was signing an obligation in behalf of Levering as guardian of the estate belonging to the minor children of
her deceased brother, she replied that it was, that she had been told by the said Domingo Franco that it was
such an obligation, and so she was willing to sign it, because "it was really a debt."
From this testimony of Maximina Ch. Veloso and from her written answer, it appears that in December, 1910,
she signed in blank the promissory note now in question; that she signed it in the belief that the obligation
which it would contain would be that of acknowledging her debt of P8,000 in favor of the minor children of
Damasa Ricablanca and of paying it to Levering, who at that time was the guardian of then said minors; that
for this reason, in her written answer of August 4, 1911, she set up that special defense of error and deceit,
when she saw that the obligation contained in the document signed in blank was a promissory note made out
to Michael & Co. for P6,319 and some centavos.
It appears that Levering, as guardian of the minor children of Damasa Ricablanca, commenced proceedings
on November 1, 1911, to recover the P8,000 owed by the defendant Maximina Ch. Veloso, and that the latter,
on January 15, 1912, answered the complaint stating that her debt was owing to Damasa Ricablanca herself
in her own right, but not her capacity of guardian of her minor children. (Record, pp. 34 and 36.)
If she said this in 1912, it cannot be maintained that in 1910, on being required to recognize and pay the debt
of P8,000, she consented to sign a document in blank recognizing the debt and binding herself to pay it to
Levering as the then guardian of the minor children of Damasa Ricablanca. What would have been natural
and logical is that then, as in 1912, she would have refused to execute said obligation in writing in favor of
Levering, as she did reject it on January 18, 1912, since she did not consider herself to be in debt to the
minors, but to their mother.
This being shown by the record, the allegation of that other fact, entirely contradicted at trial by the same
person, cannot be considered as proof of the error and deceit alleged in this action.
It is likewise proven in this case that during the trial, after the defendant Veloso had acknowledged the debt
owing the minors represented by Levering, she was cross-questioned as to why she had denied it in 1912
when she was sued for its payment; she replied that possibly demand had been made upon her for payment,
but that she did not remember, and on being cross-questioned as to whether she remembered that judgment
had been rendered against her, she replied that she did and that she had been informed of it by her own
attorney.
This is the only thing in the record which may be opposed to the truth and presumption of truly offered by the
contents of a document freely and willingly signed.
This is not proof, much less preponderant proof, that can outweigh the contents of the promissory note that is
the basis of the complaint; on the contrary, it is conclusive proof of the falsity of the other cause of debt alleged
in the special defense.
But even granted that no such proofs existed in the case; even granted that it was proven at trial that Domingo
Franco acted in the manner stated in the answer and in the defendant Maximina Ch. Veloso's testimony, yet
even so, the deceit and error alleged could not annul the consent of the contracting parties to the promissory

note, nor exempt this defendant from the obligation incurred. The deceit, in order that it may annul the
consent, must be that which the law defines as a cause. "There is deceit when by words or insidious
machinations on the part ofone of the contracting parties, the other is induced to execute a contract which
without them he would not have made." (Civ. Code, art. 1269.)
Domingo Franco is not one of the contracting parties who may have deceitfully induced the other contracting
party, Michael & Co., to execute the contract. The one and the other contracting parties, to whom the law
refers, are the active and the passive subjects of the obligation, the party of the first part and the part of the
second part who execute the contract. The active subject and party of the first part of the promissory note in
question is Michael & Co., and the passive subject and the party of the second part are Maximina Ch. Veloso
and Domingo Franco; two, or be they more, who are one single subject, one single party. Domingo Franco is
not onecontracting party with regard to Maximina Ch. Veloso as the other contracting party. They both are but
one single contracting party in contractual relation with, or as against, Michael & Co. Domingo Franco, like any
other person who might have been able to to induce Maximina Ch. Veloso to act in the manner she is said to
have done, under the influence of deceit, would be, for this purpose, but a third person. There would then not
be deceit on the part of the one of the contracting parties exercised upon the other contracting party, but deceit
practiced by a third person.
"In accordance with the text of the Code, which coincides with that of other foreign codes, deceit by a third
person does not in general annul consent, and in support of this opinion it is alleged that, in such a case, the
two contracting parties act in good faith, (on the hypothesis set forth, Michael & Co., and Maximina Ch.
Veloso); that there is no reason for making one of the parties suffer for the consequences of the act of a third
person in whom the other contracting party may have reposed an imprudent confidence. Notwithstanding
these reasons, the deceit caused by a third person may produce effects and, in some cases, bring about the
nullification of the contract. This will happen when the third person causes the deceit in connivance with, or at
least with the knowledge, without protest, of the favored contracting party: the most probable suppositions, in
which the latter cannot be considered exempt from the responsibility. Moreover, and even without the
attendance of that circumstance, the deceit caused by a third person might lead the contracting party upon
whom it was practiced into error, and as such, though it be not deceit, may vitiate consent. In any case, this
deceit may give rise to more or less extensive and serious responsibility on the part of the third person, and
a corresponding right of action for the contracting party prejudiced" (in the present hypothesis, Maximina Ch.
Veloso against Domingo Franco). (8 Manresa, 659, 2d Ed.)
With respect to the true cause of the debt or cause of the contract, it is not necessary to set forth any
consideration whatever, because, as the deceit and error alleged cannot be estimated, it is of no importance
whether the La Cooperativa Filipina, whose goods were the cause of the debt, exclusively belonged to one or
the other of the debtors, the obligation of debt and payment being joint. But if any consideration with respect to
this error alleged on appeal were necessary, it would be that the evidence against the finding contained in the
judgment appealed from is very conclusive. Isabelo Alburo, a witness for the defense and manager of La
Cooperativa Filipina, testified that the goods furnished by Michael were received in the store La Cooperativa
Filipina; that he signed the bills for collection; that the bill-heads bore the printed legend "La Cooperativa
Filipina de Maximina Ch. Veloso;" and that all the forms, books and accounts were printed in the same
manner. The municipal treasurer exhibited the registry books and testified that the license for that
establishment was issued in the name of Maximina Ch. Veloso, and the appellee herself testified that she was
aware that it was conducted in her name.
The third assignment of error should be considered like the foregoing two. The statement is in all respects
inadmissible that the promissory note in question is absolutely null and void, not merely annulable, and that is
such cases the Supreme Court has decided that no rights can be acquired by a person who obtains a
promissory note by indorsement, in support of which averment the decisions in the cases of Palma vs.
Caizares (1 Phil. Rep., 602) and Lichauco vs. Martinez (6 Phil. Rep., 594) are cited.
In neither of these decisions is such a doctrine set up The syllabus in the first case says: "A promissory note
which represents a gambling debt and is therefore unenforceable in the hands of the payee, obtains no
greater validity in the hands of an assignee in the absence of showing that the debtor has consented to and
approved of the assignment."
And that of the second case:" Money lost at a prohibited game cannot be recovered, though the loser deliver
to the winner his note for the amount lost.

An assignee of such note who took it after it became due has no more rights than assignor.
Both of these decisions deal with a promissory note for a sum of money lost at a prohibited game; and, in the
case at bar, we have not to do with a promissory note of this nature. "The promissory note in question says
the trial court was indorsed to L.L. Hill on January 12, 1911. The note had then already become due,
although the date specified in the note for the payment of the first amount of P500 of the principal had not yet
arrived." (Bill of ex., p. 13.).
If the date for the payment of the first amount of P500 had not yet arrived, it follows that the note had not yet
fallen due, because it could have no other due date than that of the first installment, and this fact was finally
recognized by the court in another order wherein he says: "It appears that the court erred in that part of his
order where he held that the promissory note in question fell due on the date of its conveyance by
indorsement to L.L. Hill." (Bill of ex., p. 16.)
So that, neither by reason of the indorsement, nor by reason of its object, is the promissory note null, or
annulable, and the aforecited decisions are absolutely inapplicable to the case at bar.
The absolution of the defendants from the complaint being unsupported by any grounds of fact or law, it
devolves upon this court to set forth the conclusions of fact and law on which this decision rests.
The defendants' signatures on the promissory note herein concerned were identified at the trial.
These signatures were written and the obligation was contracted, without error or deceit.
There is no evidence whatever that Michael & Co. threatened to bring suit against Domingo Franco unless
Maximina Ch. Veloso signed with Domingo Franco a promissory note for the said sum.
The facts constituting the consideration for the contract contained in the promissory note are fully proven
(though proof was not necessary, as a presumption of law, not destroyed by any evidence whatever to the
contrary, lies in its favor), because it has been fully proven that the goods, the consideration for the debt, were
received in the La Cooperativa Filipina. It was likely fully proven that the La Cooperativa Filipina belonged to
the defendant, with or without Domingo Franco having a share therein, and that the goods came from Michael
& Co.
There is nothing to support the finding that the sale of the goods by Michael & Co. was a sale to Domingo
Franco only. There is no proof whatever that Levering, as the guardian of the minor children of Potenciano
Veloso, had required Maximina Veloso in December, 1910, to sign a document recognizing her debt to said
minors, nor that Domingo Franco acted, for this purpose, as the defendants' attorney and adviser. With regard
to the defendants' debt of P8,000 to the minor children of Potenciano Veloso and Damasa Ricablanca, the
instrument attesting this debt, executed by the defendants in favor of Damasa Ricablanca was who then the
guardian of said minors, had already existed since June 30, 1907, and appears on page 34 of the record.
The facts alleged in the special defense can not in any wise be held to be proven, as above demonstrated in
our examination of the parol evidence adduced in this case, and, besides, because of this other consideration:
If, as stated in the special defense, "Domingo Franco, who was a son-in-law of the defendants, had told them
that attorney Martin M. Levering, in his capacity as guardian of the minor children of Potenciano Ch. Veloso,
had suggested to Franco the necessity of the defendants' executing an instrument setting out that they would
pay to the said Attorney Martin M. Levering, in his capacity of guardian of said minors, the sum of P8,000
which defendants had borrowed from Damasa Ricablanca, the former guardian of said minors;" and if, as held
by the trial court in his judgment, Domingo Franco had then acted as defendants' attorney and adviser, there is
nothing in the record to show why Domingo Franco had to sign such an instrument attesting a debt to the
minors, as the principal obligor, when the creditor required no one but the defendants to sign such a
document; nor was it shown why, on such a supposition, Manuel Martinez did not have to sign the instrument
except merely to authorize his wife, by his permission as her husband, to sign it, when in the special defense it
is admitted that the document in question contains an acknowledgment of the debt of P8,000 "which the
defendants had borrowed from Damasa Ricablanca."

The alleged error Cannot be sustained. There is no other signed document than the promissory note
presented with the intention, on its being signed, of securing the payment of the goods sold to the La
Cooperativa Filipina.
That is what the document says, and its contents must be accepted, pursuant to section 297 of Act No. 190
(Code of Civil Procedure).
The remainder of the principal owing, P4,319.33, must be paid. Payment must also be made of the
covenanted interest at the rate of 1 per cent per month from July 1, 1911, until the whole of the said sum be
completely paid; and, finally the P1,000 stipulated in the contract as fees for the plaintiff's attorney in this case
must be paid.
With respect to the P473.18, interest on the principal of said promissory note from December 30, 1910, to
June 30, 1911, this amount cannot be recovered, because, in conformity with article 1110 of the Civil Code, a
receipt from the creditor for the principal, that contains no stipulation regarding interest, extinguishes the
obligation of the debtor with regard thereot; and the receipts issued by the International Bank show that no
reservation whatever was made with respect to the interest on the P2,000 paid on account.
The judgment appealed from is reversed. Twenty days after notification of this decision, let judgment be
entered against the defendant Maximina Ch. Veloso ordering the payment of P4,319, with the stipulated
interest thereon at the rate of 1 per cent per month from July 1, 1911, and of P1,000 as attorney's fees, with
costs of first instance, without special finding as to the costs of this second instance, it is so ordered.

Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that,
contrary to what was stated in the brochure, there was no European tour manager for their group of tourists,
the hotels in which she and the group were bullited were not first-class, the UGC Leather Factory which was
specifically added as a highlight of the tour was not visited, and the Filipino lady tour guide by private
respondent was a first timer, that is, she was performing her duties and responsibilities as such for the first
time. 2
In said action before the Regional Trial Court of Quezon City, petitioner likewise moved for the issuance of a
writ of preliminary attachment against private respondent on the ground that it committed fraud in contracting
an obligation, as contemplated in Section 1(d), Rule 57 of the Rules of Court, to which no opposition by the
latter appears on the record. This was granted by the court a quo 3 but the preliminary attachment was
subsequently lifted upon the filing by private respondent of a counterbond amounting to P990,000.00. 4
During the pendency of said civil case for damages, petitioner also filed other complaints before the
Department of Tourism in DOT Case No. 90-121 and the Securities and Exchange Commission in PED Case
No. 90-3738, 5wherein, according to petitioner, herein private respondent was meted out a fine of P10,000.00
by the Commission and P5,000.00 by the Department, 6 which facts are not disputed by private respondent in
its comment on the present petition.
On July 9, 1991, the court a quo rendered its decision 7 ordering private respondent to pay petitioner
P500.000.00 as moral damages, P200,000.00 as nominal damages, P300,000.00 as exemplary damages,
P50,000.00 as and for attorney's fees, and the costs of the suit. 8 On appeal, respondent court 9 deleted the
award for moral and exemplary damages, and reduced the awards for nominal damages and attorney's fees
to P30,000.00 and P10,000.00, respectively. 10
Hence, the instant petition from which, after sifting through the blades of contentions alternately thrust and
parried in the exchanges of the parties, the pivotal issue that emerges is whether or not private respondent
acted in bad faith or with gross negligence in discharging its obligations under the contract.

G.R. No. 108253 February 23, 1994

LYDIA L. GERALDEZ, petitioner,
vs.
HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION, respondents.
Natividad T. Perez for petitioner.
Bito, Lozada, Ortega & Castillo for private respondent.

REGALADO, J.:
Our tourism industry is not only big business; it is a revenue support of the nation's economy. It has become a
matter of public interest as to call for its promotion and regulation on a cabinet level. We have special laws and
policies for visiting tourists, but such protective concern has not been equally extended to Filipino tourists
going abroad. Thus, with the limited judicial relief available within the ambit of present laws, our tourists often
prefer who fail to deliver on their undertakings. This case illustrates the recourse of one such tourist who
refused to forget.
An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against
private respondent Kenstar Travel Corporation, docketed as Civil Case No. Q-90-4649 of the Regional Trial
Court of Quezon City, Branch 80. 1 After the parties failed to arrive at an amicable settlement, trial on the
merits ensued.
Culling from the records thereof, we find that sometime in October, 1989, Petitioner came to know about
private respondent from numerous advertisements in newspapers of general circulation regarding tours in
Europe. She then contacted private respondent by phone and the latter sent its representative, Alberto Vito
Cruz, who gave her the brochure for the tour and later discussed its highlights. The European tours offered
were classified into four, and petitioner chose the classification denominated as "VOLARE 3" covering a 22day tour of Europe for $2,990.00. She paid the total equivalent amount of P190,000.00 charged by private
respondent for her and her sister, Dolores.

Both the respondent court and the court a quo agree that private respondent failed to comply faithfully with its
commitments under the Volare 3 tour program, more particularly in not providing the members of the tour
group with a European tour manger whose duty, inter alia, was to explain the points of interest of and
familiarize the tour group with the places they would visit in Europe, and in assigning instead a first timer
Filipino tour guide, in the person of Rowena Zapanta, 11 to perform that role which definitely requires
experience and knowledge of such places. It is likewise undisputed that while the group was able to pay a visit
to the site of the UGC Leather Factory, they were brought there at a very late hour such that the factory was
already closed and they were unable to make purchases at supposedly discounted prices. 12 As to the firstclass hotels, however, while the court a quo found that the hotels were not fist-class, respondent court
believed otherwise, or that, at least, there was substantial compliance with such a representation.
While clearly there was therefore a violation of the rights of petitioner under the aforementioned
circumstances, respondent court, contrary to the findings of the trial court, ruled that no malice or bad faith
could be imputed to private respondent, hence there is no justification for the award of moral and exemplary
damages. Furthermore, it held that while petitioner is entitled to nominal damages, the amount awarded by the
trial court was unconscionable since petitioner did not suffer actual or substantial damage from the breach of
contract, 13 hence its reduction of such award as hereinbefore stated.
After thorough and painstaking scrutiny of the case records of both the trial and appellate courts, we are
satisfactorily convinced, and so hold, that private respondent did commit fraudulent misrepresentations
amounting to bad faith, to the prejudice of petitioner and the members of the tour group.
By providing the Volare 3 tourist group, of which petitioner was a member, with an inexperienced and a first
timer tour escort, private respondent manifested its indifference to the convenience, satisfaction and peace of
mind of its clients during the trip, despite its express commitment to provide such facilities under the Volare 3
Tour Program which had the grandiose slogan "Let your heart sing. 14
Evidently, an inexperienced tour escort, who admittedly had not even theretofore been to Europe, 15 cannot
effectively acquaint the tourists with the interesting areas in the cities and places included in the program, or to
promptly render necessary assistance, especially where the latter are complete strangers thereto, like
witnesses Luz Sui Haw and her husband who went to Europe for their honeymoon. 16
We agree with petitioner that the selection of Zapanta as the group's tour guide was deliberate and conscious
choice on the part of private respondent in order to afford her an on-the-job training and equip her with the

proper opportunities so as to later qualify her as an "experienced" tour guide and eventually be an asset of
respondent corporation. 17 Unfortunately, this resulted in a virtual project experimentation with petitioner and
the members of the tour as the unwitting participants.
We are, therefore, one with respondent court in faulting private respondent's choice of Zapanta as a qualified
tour guide for the Volare 3 tour package. It brooks no argument that to be true to its undertakings, private
respondent should have selected an experienced European tour guide, or it could have allowed Zapanta to go
merely as an understudy under the guidance, control and supervision of an experienced and competent
European or Filipino tour guide, 18 who could give her the desired training.
Moreover, a tour guide is supposed to attend to the routinary needs of the tourists, not only when the latter ask
for assistance but at the moment such need becomes apparent. In other words, the tour guide, especially by
reason of her experience in previous tours, must be able to anticipate the possible needs and problems of the
tourists instead of waiting for them to bring it to her attention. While this is stating the obvious, it is her duty to
see to it that basic personal necessities such as soap, towels and other daily amenities are provided by the
hotels. It is also expected of her to see to it that the tourists are provided with sanitary surroundings and to
actively arrange for medical attention in case of accidents, as what befell petitioner's sister and wherein the
siblings had to practically fend for themselves since, after merely calling for an ambulance, Zapanta left with
the other tour participants. 19
Zapanta fell far short of the performance expected by the tour group, her testimony in open court being
revelatory of her inexperience even on the basic function of a tour guide, to wit:
Q Now, are you aware that there were times that the tourists under the "Volare 3" were not provided with soap
and towels?
A They did not tell me that but I was able to ask them later on but then nobody is complaining.

20

....

The inability of the group to visit the leather factory is likewise reflective of the neglect and ineptness of
Zapanta in attentively following the itinerary of the day. This incompetence must necessarily be traced to the
lack of due diligence on the part of private respondent in the selection of its employees. It is true that among
the thirty-two destinations, which included twenty-three cities and special visits to nine tourist spots, this was
the only place that was not visited. 21 It must be noted, however, that the visit to the UGC Leather Factory was
one of the highlights 22 of the Volare 3 program which even had to be specifically inserted in the itinerary,
hence it was incumbent upon the organizers of the tour to take special efforts to ensure the same. Besides,
petitioner did expect much from the visit to that factory since it was represented by private respondent that
quality leather goods could be bought there at lower prices. 23
Private respondent represents Zapanta's act of making daily overseas calls to Manila as an exercise of
prudence and diligence on the latter's part as a tour guide. 24 It further claims that these calls were needed so
that it could monitor the progress of the tour and respond to any problem immediately. 25 We are not
persuaded. The truth of the matter is that Zapanta, as an inexperienced trainee-on-the-job, was required to
make these calls to private respondent for the latter to gauge her ability in coping with her first assignment and
to provide instructions to her. 26
Clearly, therefore, private respondent's choice of Zapanta as the tour guide is a manifest disregard of its
specific assurances to the tour group, resulting in agitation and anxiety on their part, and which deliberate
omission is contrary to the elementary rules of good faith and fair play. It is extremely doubtful if any group of
Filipino tourists would knowingly agree to be used in effect as guinea pigs in an employees' training program
of a travel agency, to be conducted in unfamiliar European countries with their diverse cultures, lifestyles and
languages.
On the matter of the European tour manager, private respondent's advertisement in its tour contract declares
and represents as follows:
FILIPINO TOUR ESCORT!
He will accompany you throughout Europe. He speaks your language, shares your culture and feels your
excitement.
He won't be alone because you will also be accompanied by a . . .
EUROPEAN TOUR MANAGER!

You get the best of both worlds. Having done so may tours in the past with people like you, he knows your
sentiments, too. So knowledgeable about Europe, there is hardly a question he can't answer. 27
Private respondent contends that the term "European Tour Manager" does not refer to an individual but to an
organization, allegedly the Kuoni Travel of Switzerland which supposedly prepared the itinerary for its "Volare
Europe Tour," negotiated with all the hotels in Europe, selected tourist spots and historical places to visit, and
appointed experienced local tour guides for the tour group. 28
We regret this unseemly quibbling which perforce cannot be allowed to pass judicial muster.
A cursory reading of said advertisement will readily reveal the express representation that the contemplated
European tour manager is a natural person, and not a juridical one as private respondent asserts. A corporate
entity could not possibly accompany the members of the tour group to places in Europe; neither can it answer
questions from the tourists during the tour. Of course, it is absurd that if a tourist would want to know how he
could possibly go to the nearest store or supermarket, he would still have to call Kuoni Travel of Switzerland.
Furthermore, both lower courts observed, and we uphold their observations, that indeed private respondent
had the obligation to provide the tour group not only with a European tour manger, but also with local
European tour guides. The latter, parenthetically, were likewise never made available. 29 Zapanta claims that
she was accompanied by a European local tour guide in most of the major cities in Europe. We entertain
serious doubts on, and accordingly reject, this pretension for she could not even remember the name of said
European tour guide. 30 If such a guide really existed, it is incredible why she could not even identify the former
when she testified a year later, despite the length of their sojourn and the duration of their association.
As to why the word "he" was used in the aforequoted advertisement, private respondent maintains that the
pronoun "he" also includes the word "it," as where it is used as a "nominative case form in general statements
(as in statutes) to include females, fictitious persons (as corporations)." 31 We are constrained to reject this
submission as patently strained and untenable. As already demonstrated, it is incredible that the word "he"
was used by private respondent to denote an artificial or corporate being. From its advertisement, it is beyond
cavil that the import of the word "he" is a natural and not a juridical person. There is no need for further
interpretation when the wordings are clear. The meaning that will determine the legal effect of a contract is that
which is arrived at by objective standards; one is bound, not by what he subjectively intends, but by what he
leads others reasonably to think he intends. 32
In an obvious but hopeless attempt to arrive at a possible justification, private respondent further contends that
it explained the concept of a European tour manager to its clients at the pre-departure briefing, which
petitioner did not attend. 33 Significantly, however, private respondent failed to present even one member of the
tour group to substantiate its claim. It is a basic rule of evidence that a party must prove his own affirmative
allegations. 34 Besides, if it was really its intention to provide a juridical European tour manager, it could not
have kept on promising its tourists during the tour that a European tour manager would come, 35 supposedly to
join and assist them.
Veering to another line of defense, private respondent seeks sanctuary in the delimitation of its responsibility
as printed on the face of its brochure on the Volare 3 program, to wit:
RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR TRAVEL AGENT, THEIR EMPLOYEES OR
SUB-AGENTS SHALL BE RESPONSIBLE ONLY FOR BOOKING AND MAKING ARRANGEMENTS AS
YOUR AGENTS. Kenstar Travel Corporation, your travel Agent, their employees or sub-agents assume no
responsibility or liability arising out of or in connection with the services or lack of services, of any train, vessel,
other conveyance or station whatsoever in the performance of their duty to the passengers or guests, neither
will they be responsible for any act, error or omission, or of any damages, injury, loss, accident, delay or
irregularity which may be occasioned by reason (of) or any defect in . . . lodging place or any
facilities . . . . (Emphasis by private respondent.) 36
While, generally, the terms of a contract result from the mutual formulation thereof by the parties thereto, it is
of common knowledge that there are certain contracts almost all the provisions of which have been drafted by
only one party, usually a corporation. Such contracts are called contracts of adhesion, because the only
participation of the party is the affixing of his signature or his "adhesion" thereto. 37 In situations like these,
when a party imposes upon another a ready-made form of contract, 38 and the other is reduced to the
alternative of taking it or leaving it, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing, a contract of adhesion results. While it is true that an adhesion contract is not
necessarily void, it must nevertheless be construed strictly against the one who drafted the same. 39 This is

especially true where the stipulations are printed in fine letters and are hardly legible as is the case of the tour
contract 40 involved in the present controversy.

Luz Sui Haw, who availed of the Volare 3 tour package with her husband for their honeymoon, shared the
sentiments of petitioner and testified as follows:

Yet, even assuming arguendo that the contractual limitation aforequoted is enforceable, private respondent
still cannot be exculpated for the reason that responsibility arising from fraudulent acts, as in the instant case,
cannot be stipulated against by reason of public policy. Consequently, for the foregoing reasons, private
respondent cannot rely on its defense of "substantial compliance" with the contract.

Q . . . Will you kindly tell us why the hotels where you stayed are not considered first class hotels?

Private respondent submits likewise that the tour was satisfactory, considering that only petitioner, out of
eighteen participants in the Volare 3 Tour Program, actually complained. 41 We cannot accept this argument.
Section 28, Rule 130 of the Rules of Court declares that the rights of a party cannot be prejudiced by an act,
declaration, or omission of another, a statutory adaptation of the first branch of the hornbook rule of res inter
alios acta 42 which we do not have to belabor here.
Besides, it is a commonly known fact that there are tourists who, although the tour was far from what the tour
operator undertook under the contract, choose to remain silent and forego recourse to a suit just to avoid the
expenses, hassle and rancor of litigation, and not because the tour was in accord with was promised. One
does not relish adding to the bitter memory of a misadventure the unpleasantness of another extended
confrontation. Furthermore, contrary to private respondent's assertion, not only petitioner but two other
members of the tour group, Luz Sui Haw and Ercilla Ampil, confirmed petitioner's complaints when they
testified as witnesses for her as plaintiff in the court below. 43
Private respondent likewise committed a grave misrepresentation when it assured in its Volare 3 tour package
that the hotels it had chosen would provide the tourists complete amenities and were conveniently located
along the way for the daily itineraries. 44 It turned out that some of the hotels were not sufficiently equipped
with even the basic facilities and were at a distance from the cities covered by the projected tour. Petitioner
testified on her disgust with the conditions and locations of the hotels, thus:
Q And that these bathrooms ha(ve) bath tub(s) and hot and cold shower(s)?

A Because the hotels where we went, sir, (are) far from the City and the materials used are not first class and
at times there were no towels and soap. And the two (2) hotels in Nevers and Florence the conditions (are)
very worse (sic). 48
Q Considering that you are honeymooners together with your husband, what (were) your feelings when you
found out that the condition were not fulfilled by the defendant?
A I would like to be very honest. I got sick when I reached Florence and half of my body got itch (sic). I think
for a honeymooner I would like to emphasize that we should enjoy that day of our life and it seems my feet
kept on itching because of the condition of the hotel. And I was so dissatisfied because the European Tour
Manager was not around there (were) beautiful promises. They kept on telling us that a European Tour
Manager will come over; until our Paris tour was ended there was no European tour manager. 49
xxx xxx xxx
Q You will file an action against the defendant because there was a disruption of your happiness, in your
honeymoon, is that correct?
A That is one of my causes of (sic) coming up here. Secondly, i was very dissatisfied (with) the condition.
Thirdly, that Volare 89 it says it will let your heart sing. That is not true. There was no European tour (manager)
and the highlights of the tour (were) very poor. The hotels were worse (sic) hotels. 50
Q All the conditions of the hotels as you . . .

Q Did they also provide soap and towels?

A Not all but as stated in the brochure that it is first class hotel. The first class hotels state that all things are
beautiful and it is neat and clean with complete amenities and I encountered the Luxembourg hotel which is
quite very dilapidated because of the flooring when you step on the side "kumikiring" and the cabinets (are)
antiques and as honeymooners we don't want to be disturbed or seen. 51

A Not all, sir, some (had) no toilet paper. 45

xxx xxx xxx

Q Which one?

Q None of these are first class hotels?

A The 2 stars, the 3 stars and some 4 stars (sic) hotels.

A Yes, sir.

Q What I am saying . . .

Q So, for example Ramada Hotel Venezia which according to Miss Geraldez is first class hotel is not first class
hotel?

A You are asking a question? I am answering you. 2 stars, 3 stars and some 4 stars (sic) hotels, no soap, toilet
paper and (the) bowl
stinks. . . .

A Yes, sir.

A Not all, sir.

xxx xxx xxx

Q You share the opinion of Miss Geraldez?

A Yes, sir.

Q And that except for the fact that some of these four star hotels were outside the city they provided you with
the comfort?

Q The same is true with Grand Hotel Palatino which is not a first class hotel?

A Not all, sir.

A Yes, sir.

Q Can you mention some which did not provide you that comfort?

Q And Hotel Delta Florence is not first class hotel?

A For example, if Ramada Hotel Venezia is in Quezon City, our hotel is in Meycauayan. And if Florence or
Ferenze is in manila, our hotel is in Muntinlupa. 46

A That is how I got my itch, sir. Seven (7) days of itch.

xxx xxx xxx

A One more hotel, sir, in Barcelona, Hotel Saint Jacques is also outside the city. Suppose Barcelona is in
Quezon City, our hotel is in Marilao. We looked for this hotel inside the city of Barcelona for three (3) hours.
We wasted our time looking for almost all the hotels and places where to eat. That is the kind of tour that you
have. 47

Q How about Hotel Saint-Jacquez, Paris?

A It is far from the city. It is not first class hotel.
Q So with Hotel Le Prieure Du Coeur de Jesus neither a first class hotel?
A Yes, sir.

Q Hotel De Nevers is not a first class hotel?

A Yes, sir.
Q Hotel Roc Blanc Andorra is not a first class hotel?
A Yes, sir.
Q Saint Just Hotel, Barcelona is not a first class hotel?
A Yes, sir.
Q Hotel Pullman Nice neither is not a first class hotel?
A Yes, sir.
Q Hotel Prinz Eugen and Austrotel are not first class hotels?
A Yes, sir. 52
Private respondent cannot escape responsibility by seeking refuge under the listing of first-class hotels in
publications like the "Official Hotel and Resort Guide" and Worldwide Hotel Guide." 53 Kuoni Travel, its tour
operator,54 which prepared the hotel listings, is a European-based travel agency 55 and, as such, could have
easily verified the matter of first-class accommodations. Nor can it logically claim that the first-class hotels in
Europe may not necessarily be the first-class hotels here in the Philippines. 56 It is reasonable for petitioner to
assume that the promised first-class hotels are equivalent to what are considered first-class hotels in Manila.
Even assuming arguendo that there is indeed a difference in classifications, it cannot be gainsaid that a firstclass hotel could at the very least provide basic necessities and sanitary accommodations. We are accordingly
not at all impressed by private respondent's attempts to trivialize the complaints thereon by petitioner and her
companions.
In a last ditch effort to justify its choice of the hotels, private respondent contends that it merely provided such
"first class" hotels which are commensurate to the tourists budget, or which were, under the given
circumstances, the "best for their money." It postulated that it could not have offered better hostelry when the
consideration paid for hotel accommodations by the tour participants was only so much, 57 and the tour price of
$2,990.00 covers a European tour for 22 days inclusive of lower room rates and meals. 58 this is implausible,
self-serving and borders on sophistry.
The fact that the tourists were to pay a supposedly lower amount, such that private respondent allegedly
retained hardly enough as reasonable profit, 59 does not justify a substandard form of service in return. It was
private respondent, in the first place, which fixed the charges for the package tour and determined the services
that could be availed of corresponding to such price. Hence, it cannot now be heard to complain that it only
made a putative marginal profit out of the transaction. if it could not provide the tour participants with first-class
lodgings on the basis of the amount that they paid, it could and should have instead increased the price to
enable it to arrange for the promised first-class accommodations.
On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary
damages. Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in
bad faith. 60From the facts earlier narrated, private respondent can be faulted with fraud in the inducement,
which is employed by a party to a contract in securing the consent of the other.
This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either
be dolocausante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without which the other party would not
have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those
which are not serious in character and without which the other party would still have entered into the
contract. 61Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only
to some particular or accident of the
obligations. 62 The effects of dolo causante are the nullity of the contract and the indemnification of
damages, 63 and dolo incidente also obliges the person employing it to pay damages. 64
In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions

became patent in the light of after-events when, contrary to its representations, it employed an inexperienced
tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a European tour
manager and the visit to the leather factory, it is indubitably liable for damages to petitioner.
In the belief that an experienced tour escort and a European tour manager would accompany them, with the
concomitant reassuring and comforting thought of having security and assistance readily at hand, petitioner
was induced to join the Volare 3 tourists, instead of travelling alone 65 She likewise suffered serious anxiety
and distress when the group was unable to visit the leather factory and when she did not receive first-class
accommodations in their lodgings which were misrepresented as first-class hotels. These, to our mind, justify
the award for moral damages, which are in the category of an award designed to compensate the claimant for
that injury which she had suffered, and not as a penalty on the wrongdoer, 66 we believe that an award of
P100,000.00 is sufficient and reasonable.
When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also be
decreed. Exemplary damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated or compensatory damages. According to the code Commission, exemplary
damages are required by public policy, for wanton acts must be suppressed. 67 An award, therefore, of
P50,000.00 is called for to deter travel agencies from resorting to advertisements and enticements with the
intention of realizing considerable profit at the expense of the public, without ensuring compliance with their
express commitments. While, under the present state of the law, extraordinary diligence is not required in
travel or tour contracts, such as that in the case at bar, the travel agency acting as tour operator must
nevertheless be held to strict accounting for contracted services, considering the public interest in tourism,
whether in the local or in the international scene. Consequently, we have to likewise reject the theory of private
respondent that the promise it made in the tour brochure may be regarded only as "commendatory trade
talk." 68
With regard to the honorarium for counsel as an item of damages, since we are awarding moral and
exemplary damages, 69 and considering the legal importance of the instant litigation and the efforts of counsel
evident from the records of three levels of the judicial hierarchy, we favorably consider the amount of
P20,000.00 therefor.
WHEREFORE, premises considered, the decision of respondent Court of Appeals is hereby SET ASIDE, and
another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L.
Geraldez the sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary damages, and
P20,000.00 as and for attorney's fees, with costs against private respondent. The award for nominal damages
is hereby deleted.
G.R. No. 90270 July 24, 1992
ARMANDO V. SIERRA, petitioner,
vs.
HON. COURT OF APPEALS, EPIFANIA EBARLE, SOL AND ELE EBARLE, respondents.

CRUZ, J.:
A promissory note is supposed to be a genuine document acknowledging a loan duly received and promising
to pay the same on the date indicated in accordance with the conditions therein set forth. There is no record
is there cannot be of the number of times such a promise has been fulfilled and the debt discharged. But
our casebooks are replete with reports of litigations where the promissory note has been rejected and even
indignantly denounced. The usual objection is that it is spurious or fabricated, or vitiated by fraud or duress or
undue influence, or not reflective of the true intention of the parties.
The present petition is a case in point.
On November 2, 1984, the petitioner filed a complaint against the private respondents in the Regional Trial
Court of Dumaguete City. He sought recovery of a sum of money be allegedly lent them under the following
promissory note which he annexed to his complaint:

PROMISSORY NOTE
For value received, WE, EPIFANIA EBARLE, SOL EBARLE, & ELE EBARLE, hereby
promise to pay Mr. Armando V. Sierra, his heirs and assigns, the sum of EIGHTY FIVE
THOUSAND PESOS ONLY (P85,000.00) Philippine Currency, on or before October 8,
1984 at his residence in Dumaguete City.
In case of default, I will shoulder all expenses incurred in the collection and attorney's
fees of P1,000.00 plus an interest of 12% per annum.

Required to submit a comment, the private respondents contended that the assignment of errors raised only
questions of fact, the determination of which by the lower courts was as a rule final and conclusive upon this
Court. In reply, the petitioner submitted that the erroneous findings of fact made by the respondent court
removed the case from the general rule and justified a review of the challenged decision.
The Court has gone over the records of this case and finds that there was indeed a misapprehension of facts
by the trial and appellate courts. The testimonies of the private respondents on the circumstances surrounding
the execution of the promissory note are, in our view, not believable.
The Rules of Court provide that "when the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other than the contents of the writing." 3 It is
true that parol evidence may be admitted to challenge the contents of such agreement "where a mistake or
imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity
of the agreement is put in issue by the pleadings." 4 However, such evidence must be clear and convincing
and of such sufficient credibility as to overturn the written agreement.

September 8, 1984
Dumaguete City
WITNESSES:
1. (Illegible) 2. _______________

SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September 1984 at the
City of Dumaguete.
In their separate answers, the private respondents denied under oath "the genuineness, due execution,
legality and validity" of the promissory note. They alleged that the note was executed "under duress, fear and
undue influence." As affirmative defenses, they claimed that they had been tacked into signing the note for
P85,000.00 (and another note for P54,550.00, but not the subject of this suit) and that the amount owing to the
petitioner was only P20,000.00. This represented the loan he had extended to Epifania Ebarle, mother of the
other private respondents, Sol Ebarle and Ele Ebarle. They also counterclaimed for damages.
At the trial, the petitioner testified that he had lent the private respondents the sum of P85,000.00 which they
said they needed "to pay some cattle for fattening to be inspected by the inspector of the Land Bank that day"
in connection with their application for a loan of P400,000.00 from the said bank to finance their logging and
cattle business. The application was apparently not approved. When the note fell due, he made demands for
their payment, which were ignored. He thereupon filed is complaint.
For their part, the private respondents declared that on September 8, 1984, they were asked by the petitioner
to sign two promissory notes, one for P85,000.00 and another for P54,550.00, in consideration of Epifania
Ebarle's outstanding debt of P20,000.00 to him. They said they initially objected because of the amounts
indicated in the said notes. They eventually agreed, however, on the petitioner's assurance that the documents
were a mere formality that he had to show his business partner, who was demanding immediate payment of
the said loan. The petitioner also said that if a complaint was filed against them for recovery under the notes,
what they should do was not answer so that they would be declared in default. A new agreement would then
be concluded for the correct amount of Epifania Ebarle's loan and with easier terms of payment.
On July 21, 1988, the trial court rendered a decision holding that the promissory note for P85,000.00 was
invalid and that the private respondents were liable to the petitioner only for the loan of P20,000.00. 1 On
appeal, this decision was affirmed by the respondents court. 2 The petitioner then came to this Court to seek
reversal of the courts below on factual and legal grounds.
The petitioner argues that the Court of Appeals committed reversible error in the interpretation of the
promissory note in light of the established facts. It also erred in not according the said note the presumption of
validity as a duly executed public document.

The private respondents are not unlettered peasants with a modicum of intelligence and unfamiliar with
business and legal matters. They are educated persons with not a little experience in business affairs and
possibly even legal transactions. They own and operate an hacienda consisting of 33 hectares. Epifania
Ebarle was a professor in English for 25 years at the Silliman University. Sol Ebarle holds a degree in
commerce, Ele Ebarle in agriculture. There is no question that these three professionals fully understood the
import and consequences of what they were doing when they signed the two promissory notes on September
8, 1984.
The notes were written in plain English and consisted of only two short paragraphs. There was no fine print to
conceal hidden meanings. Each was a simple promise to pay to the petitioner, for value received, the amounts
indicated therein not later than October 8, 1984, at his residence and to assume all litigation expenses, with
12% interest, in case of default.
The private respondents say they had misgivings about signing the notes but they signed them just the same
upon the petitioner's prodding. That is strange, considering their insistence that all Epifania Ebarle owed the
petitioner was the amount of P20,000.00, which she claimed to have received earlier. If that was all she really
obtained, it is difficult to understand why all three of them signed the promissory notes for a total indebtedness
of P139,550.00 or almost seven times the mother's alleged loan. Their natural reaction when asked to sign the
notes would have been an irate refusal. What they should have done was demand the correction of the notes
to reflect the true amount of the debt in only one note and to sign it only after such correction. Instead,
each of them, one after the other, willingly signed the two notes, the first in the morning and the second in the
afternoon of the same day, without any reservation whatsoever.
The private respondents say that the petitioner was in a hurry to conclude the transactions, but the fact is that
they themselves were not. There was apparently no cogent reason for the immediate signing of the notes as
far as they themselves were concerned. After all, Epifania Ebarle had already received the alleged original and
only loan of P20,000.00, or so they say, which they were simply being made to affirm. Moreover, as they also
insist, they had not received, nor did they expect to receive, the amounts indicated in the two notes.
In this connection, we cannot agree that they could not have received the amounts stated in the notes
because it was not likely that the petitioner would keep such large amounts of cash in his house. That is a
mere conjecture. The petitioner operates his own vineyard as well as his father's hacienda, besides dealing in
the sale of cars and real estate. His transactions require ready cash now and then, which is why he keeps
substantial sums of money available in his house.
In any case, as he says correctly, it is his prerogative to keep money in his house in whatever amount he
pleases, especially since he feels quite secure there with his guards and dogs. What is important is that the
notes the private respondents signed expressly and categorically acknowledged that they received the specific
amounts indicated therein. Whether the money came from the bank or from the petitioner's house did not
affect the validity of their acknowledged indebtedness.

Epifania Ebarle testified that she was also worried about the petitioner's assurance that if they allowed
themselves to be declared in default when sued, a new agreement with easier terms and for the correct
amount of P20,000.00 would be concluded between them. Asked if she understood what default meant, she
said she did. Nevertheless, despite her uneasiness, she signed the two promissory notes one after the other,
and so did her children even if they also felt a similar anxiety. It was only afterwards, she said, that she "went
to a lawyer."
Remarkably, all three of the private respondents signed the two notes notwithstanding their claimed individual
reluctance. One of them at least could have voiced his or her apprehensions and made efforts to be dissuade
the others from signing, but no one did. Everyone signed. And not only that. Having signed one note in the
morning,all of them again signed the second promissory note in the afternoon, again with no one expressing
his or her misgivings. It is as if they were all mesmerized by the petitioner into signing the promissory notes
although, as they now say in hindsight, they were all doing so against their better judgment.

A notarial document, guaranteed by public attestation in accordance with the law, must
be sustained in full force and effect so long as he who impugns it does not present
strong, complete, and conclusive proof of its falsity or nullity on accounts of some flaw
or defect provided against by law. 8
A mere denial of the receipt of the loan, which is stated in a clear and unequivocal
manner in a public instrument, is not sufficient. To overthrow the recitals of a mortgage
deed, clear, convincing and more than merely preponderant evidence is necessary. A
contrary rule would throw wide open doors to fraud. 9
The mere assertion of the private respondents that the notes were not notarized in their presence does not
meet this standard of proof. In any event, a promissory note does not have to be notarized to be binding. The
private respondents have admitted signing the two notes and they have not succeeded in proving that they did
so "under duress, fear and undue influence."

The facts belie this supposition.

Sol Ebarle admitted on the stand that no harassment or threat in any form was employed by the petitioner
upon any of them. 5
Neither were they subjected to any undue influence, which is described in the Civil Code thus:
Art. 1337. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in financial
distress.
This definition is amplified by Tolentino, who says that "undue influence is any means employed upon a party
which, under the circumstances, he could not well resist, and which controlled his volition and induced him to
give his consent to the contract, which otherwise he would not have entered into. It must, in some measure,
destroy the free agency of a party and interfere with the exercise of that independent discretion which is
necessary for determining the advantage or disadvantage of a proposed contract. In every such case, there is
a moral coercion. The moral coercion may be effected through threats, expressed or implied, or through
harassing tactics." 6
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." 7
The non-presentation at the trial of the notary public who attested the promissory notes did not have the effect
of invalidating them. It is well settled that the evidentiary nature of public documents must be sustained in the
absence of strong, complete, and conclusive proof of its nullity.

The private respondents' argument that the two promissory notes are spurious because they were signed
separately on the same day is in fact an argument against them. As they acutely observe, if indeed the
purpose of the notes was simply to acknowledge and renew the P20,000.00 loan, then it could have been
accomplished in only one promissory note specifying this amount. True enough. But the point is that the
purpose was not to acknowledge the supposed loan. It was to acknowledge the two separate loans. The fact
that two promissory notes were signed indicates that two different loans were actually extended, not
simultaneously but successively, one in the morning and the other in the afternoon of September 8, 1984.
It is a no less significant consideration that no written evidence of the supposed original loan of P20,000.00
extended to Epifania Ebarle has been presented. None of the private respondents has produced a copy of any
promissory note therefor, to prove that there was really such a loan. As a businessman, and there being no
special relationship between him and the private respondents, the petitioner would have required a written
acknowledgment of that loan, and given a copy of such instrument to the borrower.
In sum, this Court is asked to believe that three highly educated persons, to acknowledge an alleged debt of
only P20,000.00 owed by one of them, signed on the same day two notarized promissory notes for the total
amount of P139,550.00 on the assurance by the petitioner that it was a mere "formality." The notes were
written in plain English, without the "whereases" and "wherefores" of the legal idiom, and could not have been
misunderstood or not comprehended by them. What is even worse, the private respondents insist that when
they expressed their hesitation, the petitioner assured them that if they were sued on the notes, all they should
do was allow themselves to be declared in default and a new and more liberal agreement specifying the
correct amount of their loan would then be concluded. Although they admitted knowing the meaning of default,
they nevertheless accepted this assurance and freely signed the notes without reservation. None of the three
private respondents tried to dissuade the others when all of them signed the first note in the morning, and this
same acquiescence was repeated when all three of them, again in common concert, signed the second note
that same afternoon.
The defense is preposterous. Despite its acceptance by the lower courts, we reject it as a rank invention.
A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and
under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is
bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a
token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of
this Court and deserves instead its sharp repudiation. So must it be in the case at bar.
WHEREFORE, the appealed decision is REVERSED and SET ASIDE and a new judgment is hereby rendered
requiring the private respondents to pay the petitioner the sum of P85,000.00, with 12% interest from
September 8, 1984, until full payment, plus P15,000.00 as moral damages and P15,000.00 as attorney's fees.
Costs against the respondents. SO ORDERED.
G.R. No. L-20659

November 3, 1923

MARIANO S. TUASON, plaintiff-appellant,

vs.
CRISANTO MARQUEZ, defendant-appellee.
Ramon Sotelo for appellant.
Emiliano T. Tirona for appellee.

MALCOLM, J.:
Out of the vicissitudes of the unfortunate Electric Light Company of Lucena, Tayabas, has arisen the present
litigation between Mariano S. Tuason, plaintiff and appellant, and Crisanto Marquez, defendant and appellee.
The facts are not in dispute, and the legal phases of the case are fairly evident.
On March 5, 1921, Crisanto Marquez, the owner of the electric light plan of Lucena Tayabas, called Sucesores
del Lucena Electric, gave an option to Antonio Tuason for the purchase of the plant for P14,400. The option
was taken advantage of by Mariano S. Tuason, the real principal, on the 9th of the same month and year, and
the contracts as then formulated was ratified before a notary public on the 18th of the month and year. The
agreement was, that Tuason was to pay Marquez a total of P14,400; P2,400 within sixty days, and the
remainder, P12,000, within a year. The first installment was paid subsequent to the sixty-day period; the
second installment has not been paid.

P12,000 of this judgment represented the amount still due on the contract, and P240 represented rent which
the plaintiff was expected to pay the defendant.
The plaintiff claims in effect that the contract should be rescinded and that he should be allowed his damages,
on account of the misrepresentation and fraud perpetrated by the defendant in selling an electric light plan with
a franchise, when the defendant had already given up his rights to that franchise. In this connection, however,
it should be emphasized that the contract in making mention of the property of the electric light company,
merely renewed a previous inventory of the property. The franchise, therefore, was not the determining cause
of the purchase. Indeed, the franchise was then in force and either party could easily have ascertained its
status by applying at the office of the Public Utility Commissioner. The innocent non-disclosure of a fact does
not effect the formation of the contract or operate to discharge the parties from their agreement. The
maxim caveat emptorshould be recalled.
The equitable doctrine termed with questionable propriety "estoppel by laches," has particular applicability to
the facts before us. Inexcusable delay in asserting a right and acquiescene in existing conditions are a bar to
legal action. The plaintiff operated the electric light plant for about sixteen months without question; he made
the first payment on the contract without protest; he bestirred himself to secure what damages he could from
the defendant only after the venture had proved disastrous and only after the property had passed into the
hands of a third party. lawphil.net
We find no proof of fraud on the part of the defendant and find the plaintiff in estopped to press his action.
In accordance with the foregoing, we are clearly of the opinion that judgment should be, as it is hereby
affirmed, with costs against the appellant. So ordered.

Tuason being once in possession of the electric light plant, it was run under the management of the
Consolidated Electric Company for about sixteen months, that is, from March 20, 1921, to July 19, 1922. On
the date last mentioned, the property was sold under execution by reason of a judgment in the case of Levy
Hermanos vs. The Philippine Electric Light Company. The purchaser at said sale was Gregorio Marquez,
brother of Crisanto Marquez, who paid P5,501.57 for the property.
With this general background of the controversy, we have to give special attention to one clause in the
contract and its antecedents. The contract Exhibit B entered into by Tuason and Marquez included as a
portion of the property sold by Marquez to Tuason "el derecho a la franquicia concedido a la Compaia para
la explotacion de la industria a que la misma esta dedicada."
It appears that originally in either 1913 or 1914, a franchise for thirty-five years was granted the Lucena
Electric Company. The rights of this company passed to Crisanto Marquez at a sheriff's sale on September 10,
1919. The company seems never to have functioned very efficiently either at that time or at any other time, as
appears from the constant complaint of the municipal authorities of Lucena. Evidently, Marquez became
disgusted with the business, with the result that on February 28, 1921, that is, prior to the accomplishment of
the contract, he announced to the Public Utility Commissioner his intention to give up the franchise. On March
29, 1921, that is, subsequent to the accomplishment of the contract, the Public Utility Commissioner took
action and declared cancelled the franchise acquired by Crisanto Marquez from the Lucena Electric Light, Ice
& Water Company.

[G.R. No. 110672. September 14, 1999]

RURAL BANK OF STA. MARIA, PANGASINAN, petitioner vs. THE HONORABLECOURT OF APPEALS,
ROSARIO R. RAYANDAYAN, CARMEN R.ARCEO, respondents.
[G.R. No. 111201. September 14, 1999]
ROSARIO R. RAYANDAYAN and CARMEN R. ARCEO, petitioners vs. COURTOF APPEALS, HALSEMA
INC. and RURAL BANK OF STA. MARIA,PANGASINAN, INC., respondents.
DECISION

Tuason and his outfit were permitted to operate the company pursuant to a special license which was to
continue until they obtained a new franchise. The new franchise was finally granted by the Public Utility
Commissioner with certain conditions, which amounted to a renovation of the entire plant. It was then,
following a knowledge of what was expected by the Government, and following the execution sale, that
Tuason conceived the idea of bringing action against Marquez for a rescission of the contract.
In the complaint filed in the Court of First Instance of Manila, Mariano S. Tuason, the plaintiff, asked for
judgment against Crisanto Marquez, defendant, for a total of P37,400. The answer and cross-complaint of the
defendant asked for a dismissal of the action and for an allowance of a total of P12,654.50 from the plaintiff.
The case was submitted on an agreed statement of facts in relation with certain telegrams of record.
Judgment was rendered, absolving the defendant from the complaint and permitting the defendant to recover
from the plaintiff P12,240, with legal interest from August 1, 1922. Parenthetically, it may be explained that

GONZAGA_REYES, J.:
Before us are two consolidated [1] petitions for review on certiorari under Rule 45 of the Revised Rules of
Court. In G.R. No. 110672, petitioner Rural Bank of Sta. Maria, Pangasinan, assails portions of the Decision
dated March 17, 1993, and the Resolution dated January 25, 1993, of the Court of Appeals [2] in CA-G.R. CV
No. 21918, which affirmed with modification the Decision of the Regional Trial Court (Branch 6, Baguio City)
[3]
in Civil Case No. 890-R entitled Rosario R. Rayandayan and Carmen R. Arceo versus Rural Bank of Sta.
Maria, Pangasinan and Halsema, Inc. In G.R. No. 111201, petitioners Rosario R. Rayandayan and Carmen
R. Arceo likewise assail portions of said Decision adverse to it.

The facts as found by the trial court and adopted by the Court of Appeals insofar as pertinent to the
instant petitions are as follows:
xxx, the Court Finds that a parcel of land of about 49,969 square meters, located in Residence Section J,
Camp 7, Baguio City, covered by TCT T-29817 (land for short) is registered in the name of Manuel Behis,
married to Cristina Behis (Exhibit B). Said land originally was part of a bigger tract of land owned by Behis
(one name), father of Manuel Behis, covered by OCT-0-33 (Exhibit 26, Halsema, for history of the land). And
upon the latters death on September 24, 1971, his children, namely: Saro Behis, Marcelo Behis, Manuel
Behis, Lucia Behis, Clara Behis and Arana Behis, in an extrajudicial settlement with Simultaneous Sale of
Inheritance dated September 28, 1978, agreed to sell the land to Manuel Behis, married to Cristina Behis
(Exhibit `2, Halsema) but which subsequently was explained as only an arrangement adopted by them to
facilitate transactions over the land in a Confirmation of Rights of Co-Ownership over real Property
dated September 26, 1983, showing that the Behis brothers and sisters, including Manuel Behis, are still coowners thereof (Exhibit `30, Halsema, Exhibit `AA).
Manuel Behis mortgaged said land in favor of the Bank in a Real Estate Mortgage dated October 23,
1978(Exhibit `Q-1) as security for loans obtained, covered by six promissory notes and trust receipts under
the Supervised Credit Program in the total sum of P156,750.00 (Exhibit `Q-2 to `Q-7, Exhibits `4-A to `4-F,
Halsema) and annotated at the back of the title on February 13, 1979 as Entry No. 85538-10-231 (Exhibit 1A-1, Halsema). The mortgage, the promissory notes and trust receipts bear the signatures of both Manuel
Behis and Cristina Behis.
Unfortunately thereafter, Manuel Behis was delinquent in paying his debts.
On January 9, 1985, Manuel Behis sold the land to the plaintiffs[4] in a Deed of Absolute Sale with Assumption
of Mortgage for the sum of P250,000.00 (Exhibit `A) which bears the signature of his wife Cristina
Behis. Manuel Behis took it upon himself to secure the signature of his wife and came back with it. On
the same date of January 9, 1985, plaintiffs and Manuel Behis simultaneously executed another Agreement
(Exhibit `15) whereby plaintiffs are indebted to Manuel Behis for the sum of P2,400,000.00 payable in
installments with P10,000.00 paid upon signing and in case of default in the installments, Manuel Behis shall
have legal recourse to the portions of the land equivalent to the unpaid balance of the amounts in
installments. Obviously, the real consideration of the sale of the land of Manuel Behis to the plaintiffs
is contained in this Agreement (Exhibit `15).
Plaintiffs did not present to the Register of Deeds of Baguio said two contracts and ask that the title, TCT T29817 in the name of Manuel Behis be cancelled and a new one issued in their name which normally a buyer
does. Neither did plaintiffs annotate at the back of the title the aforesaid two contracts. Nor did they
immediately go to the Bank and present said two contracts. Thus, the title to the land, TCT No. T-29817,
remained in the name of Manuel Behis.
Pursuant to their two contracts with Manuel Behis, plaintiffs paid him during his lifetime the sum of P10,000.00
plus P50,000.00 plus P145,800.00 (Exhibit `U as stipulated in the hearing), and the sum of P21,353.75 for the
hospitalization, medical and burial expenses of Manuel Behis when he died on June 21, 1985 (Exhibit `II, `JJ,
`KK, `LL, `PP, `OO, and `RR). Obviously, from the above payments, the plaintiffs were unable to complete
their full payment to Manuel Behis of the sale of the land as it is nowhere near P2,400,000.00.
Meantime, the loan in the name of Manuel Behis with the Bank secured by the Real Estate Mortgage on the
land continued to accumulate being delinquent. By May 30, 1985, in a Statement of Account (Exhibit `D) sent
to Manuel Behis by the Bank thru the Paredes Law Office for collection, the debt of P150,750.00 has
ballooned into P316,368.13, with interest and other charges. In fact, the Bank, thru its President, Vicente
Natividad, initiated foreclosure proceedings. But after the usual publication, the same was discontinued since
many parties were interested to buy the land outside the said procedure but none materialized.
On June 19, 1985, Atty. William Arceo, in behalf of Manuel Behis, wrote a letter asking for a more detailed
Statement of Account from the Bank broken down as to principal, interest and other charges (Exhibit `E).

Thereafter, plaintiffs finally presented the Deed of Absolute Sale with Assumption of Mortgage (Exhibit `A) to
the Bank when negotiating with its principal stockholder, Engr. Edilberto Natividad, in Manila, butdid not
show to the latter the Agreement (Exhibit `15) with Manuel Behis providing for the real consideration of
P2,400,000.00. And thus, on August 1, 1985, a Memorandum of Agreement (Exhibit `F) was entered into
between plaintiffs, as assignees of Manuel Behis, and the Bank, the salient features of which are:
`x x x

xxx

xxx

`3.
That during the lifetime of Manuel Behis he had executed a Deed of Absolute Sale with Assumption
of Mortgage in favor of Carmen Arceo and Rosario Rayandayan;
`4.

That the total obligation of the late Manuel Behis to the Bank amounts to P343,782.22;

`5.
That the assignees hereby offer to redeem the aforesaid real property and the Bank hereby agrees
to release the mortgage thereon under the following terms and conditions:
(a).
That the amount of P35,000.00 shall be paid by the assignees to the Bank upon execution of this
Agreement;
(b).
That the amount of P108,000.00 shall be paid by the assignees to the Bank at the rate ofP36,000.00
a month payable on September 15, 1985, October 15, 1985 and November 15, 1985;
(c).
That the balance of P200,000.00 shall be renewed for one year and shall be secured by another
mortgage over the same property which is renewable every year upon payment of interests and at least 10
percent of the principal;
(d).
That the bank shall release the mortgage of Manuel Behis and a new mortgage shall be executed by
the assignees and the bank shall give its consent for the transfer of the title under the name of the assignees.
x x x.
Plaintiffs did not annotate the Memorandum of Agreement in the title, TCT T-29817.
Pursuant to the Memorandum of Agreement, plaintiffs paid the Bank the following:
(1) P35,000.00 on August 1, 1985 as initial deposit when the Agreement was signed (Exhibits
`G and `H);
(2) P15,000.00 on September 16, 1985 (Exhibit `I) and P21,000.00 on September 20, 1985
(Exhibit `J) to cover the obligation of P36,000.00 on September 15, 1985;
(3) P20,000.00 on October 17, 1985 (Exhibit `K) and P16,000.00 on October 25, 1985 (Exhibit
`L) to cover the obligation to pay P36,000.00 on October 15, 1985;
(4) P36,000.00 in the form of dollars remitted to Engr. Edilberto Natividad on December 18, 1985
(Exhibit `N) to cover the obligation to pay P36,000.00 on November 15, 1985.
After the last payment of P36,000.00 on December 18, 1985, received in dollars (Exhibit `N) whichcompleted
the P143,000.00 under paragraphs 5 (a) and 5 (b) of the Memorandum of Agreement Engr. Edilberto
Natividad, wrote a letter (Exhibit M) to Vicente Natividad, with instructions that payment be duly credited and
Atty. Arceo will communicate about the transfer of title to them and to consult the Banks counsel on the

matter, and with instructions also to Ana Acosta of the Rural Bank of Tuba to debit said amount from the
savings of Edilberto Natividad. xxx.

shown the Agreement containing the real consideration of P2,400,000.00 of the sale of the land of Manuel
Behis to plaintiffs.

From the above payments made, the total amount of P143,000.00 as required by paragraphs 5 (a) and 5 (b) of
the Memorandum of Agreement was fully paid by plaintiffs although they were not paid on time.

On the same date of July 28, 1986, Vicente Natividad of the Bank sent notice of the Assignment of Mortgage
to the debtor mortgagor, Manuel Behis (already dead at the time) and Cristina Behis. Notice of the
Assignment of Mortgage was not sent to plaintiffs for as aforesaid what was assigned was the Mortgage
originally made by Manuel Behis and not the Mortgage as assumed by plaintiffs under the restructured and
liberalized terms in the Memorandum of Agreement which was considered by the Bank as cancelled.

Meanwhile, on September 5, 1985, Cristina Behis, widow of Manuel Behis, wrote a letter to the Bank (Exhibit
`3, Halsema) claiming the Real Estate mortgage was without her signature. And in another letter dated
October 28, 1985 to the Bank (Exhibit 4, Halsema), Cristina Behis stressed she did not authorize anybody to
redeem the property in her behalf as one of the mortgagors of the land.

xxx xxx

xxx.

On January 7, 1986, plaintiffs demanded in a letter (Exhibit `O) that the Bank comply with its obligation under
the Memorandum of Agreement to (1) release the mortgage of Manuel Behis, (2) give its consent for the
transfer of title in the name of the plaintiffs, and (3) execute a new mortgage with plaintiffs for the balance of
P200,000.00 over the same land.

After the assignment of mortgage, the Bank returned the P143,000.00 to plaintiffs (Exhibit `13, Bank). But the
latter rejected the same maintaining the Memorandum of Agreement is valid until annulled by Court
Action. Subsequently, however, the Bank paid plaintiffs P143,000.00 and P90,000.00 interest in settlement of
the criminal case of Estafa against Edilberto Natividad and Vicente Natividad (Exhibit `14, Bank).

Meanwhile on January 18, 1986, Cristina Behis went to the Bank inquiring about her protest about her
signature. The Bank told her it did not receive her two letters and instead advised her to write the Bank again
as well as the plaintiffs about her objections.

In the meantime, since the account of the late Manuel Behis has been delinquent and his widow, Cristina
Behis, and his brothers and sisters could not pay as in fact they have already assigned their rights to redeem,
Halsema as Mortgage Creditor in place of the Bank instituted foreclosure proceedings by filing an Application
for Foreclosure of Real Estate Mortgage in the Office of the Sheriff on July 31, 1986 (Exhibit `37, Halsema)
setting the public auction sale on September 2, 1986 and was published and posted as required by law. A
Notice of Foreclosure was sent directly to the mortgagor (Exhibit `38, Halsema) and the public auction sale
was held on September 2, 1986 at 10:00 a.m. at the City Hall, Baguio City, with Halsema as the only bidder to
whom accordingly the Sheriffs Certificate of Sale was issued (Exhibit `8, Halsema).

In a reply letter dated February 11, 1986, (Exhibit `B) to the demand of the plaintiffs, the Bank said it cannot
comply because of supervening circumstances, enclosing the two letters of Cristina Behis dated September 5,
1985 and October 28, 1985 which they said were both self explanatory, and suggested that plaintiffs take up
the matter with Mrs. Cristina Behis.
On February 15, 1986, as suggested by the Bank, Cristina Behis wrote another letter to the Bank claiming this
time that she was not a party to the Deed of Absolute Sale with Assumption of Mortgage and her signature
was forged (Exhibit 5, Halsema) and requesting the Bank not to release the title with copy furnished to the
plaintiffs (Exhibit `5-B, Halsema).
Then, months passed, and nothing was heard from the plaintiffs by the Bank. On the first week of July, 1986,
Teodoro Verzosa, President of Halsema, Inc., heard about the land and got interested and had preliminary
talks with Vicente Natividad, President of the Bank, and with Edilberto Natividad, the principal stockholder of
the bank.
x x x.

At the auction sale, the lawyer of Halsema was approached by the plaintiff Rosario Rayandayan who told the
former that the land foreclosed was also sold to the plaintiffs. Since plaintiffs could not do anything anymore,
they registered and annotated on the title, TCT T-29817, their adverse claim on September 3, 1986.[5]
Since the Bank could not comply with the Memorandum of Agreement, petitioners Rayandayan and
Arceo instituted Civil Case No. 890-R before the Regional Trial Court of Baguio City (Branch 6) against the
Rural Bank of Sta. Maria, Pangasinan and Halsema, Inc. for Specific Performance, Declaration of Nullity
and/or Annulment of Assignment of Mortgage and Damages on September 5, 1986, and caused a notice
of lis pendens annotated at the back of the title, TCT T-29817, on the same date. On March 6, 1989, judgment
was rendered, the dispositive portion of the decision pertinent to this case reads:
WHEREFORE, in view of All the Foregoing, Judgment is hereby rendered, as follows:

xxx, upon suggestion of the lawyer of Halsema, an Assignment of Mortgage was entered into on July 28, 1986
between Halsema and the Bank for the consideration of P520,765.45 (Exhibit `1, Bank) which amount was
the total indebtedness of Manuel Behis with the Bank at the time (Exhibit `7-A, Halsema). Note however, that
what was assigned was the Mortgage made originally by Manuel Behis and not the Mortgage as assumed by
plaintiffs under a restructured and liberalized terms.

1. xxx

As explained by Halsema lawyer, she suggested the Assignment of Mortgage as the cheapest and fastest way
for Halsema to acquire the property of Manuel Behis as (1) they assume the role of the Bank as Mortgagee
with the assignment of mortgage credit, (2) they acquire the property for the amount only of the mortgage debt
at the time, (3) after execution thereof, the Bank is out of the picture, and (4) in case of foreclosure, Halsema
controls the foreclosure proceedings and is assured of its legality.

3. Ordering the Bank to pay the plaintiffs the sum of P30,000.00 as Moral Damages,
P10,000.00 as Exemplary Damages, P20,000.00 as Attorneys fees and P5,000.00 as
litigation expenses for their bad faith in violating the Memorandum of Agreement which took
place while the Memorandum of Agreement was still valid there being no court action first
filed to nullify it before entering into the Assignment of Mortgage;

In turn, the Bank explained it entered into the Assignment of Mortgage because at the time it considered the
Memorandum of Agreement cancelled as first, plaintiffs failed to settle the objections of Cristina Behis
aforesaid on her signature being forged in the Deed of Sale with Assumption of Mortgage despite the lapse of
time from February, 1986 to July, 1986. Second, the terms of the Memorandum of Agreement have not been
fully complied with as the payments were not made on time on the dates fixed therein; and third, their consent
to the Memorandum of Agreement was secured by the plaintiffs thru fraud as the Bank was not

4. Ordering the plaintiffs to pay the Bank the sum of P30,000.00 as Moral Damages,
P10,000.00 as Exemplary Damages, P20,000.00 as Attorneys fees and P5,000.00 as
litigation expenses for plaintiffs bad faith in deceiving the Bank to enter into the
Memorandum of Agreement;

xxx

xxx;

2. Declaring the Deed of Sale with assumption of Mortgage (Exhibit A) and the Agreement
(Exhibit 15) taken together valid until annulled or cancelled;

5. Ordering the setting off in compensation the Damages awarded to plaintiffs and the Bank.

6. xxx

xxx

xxx;

Motions for reconsideration were filed by plaintiffs-appellants Rayandanan and Arceo and defendant
Rural Bank of Sta. Maria, Pangasinan which were denied for lack of merit. [9]

7. Declaring the Memorandum of Agreement as annulled due to the fraud of plaintiffs;

Hence, the instant consolidated petitions.
8. xxx

xxx

xxx;

9. xxx

xxx

xxx;

10.

xxx

xxx

xxx,

Without pronouncement as to costs.

In a Resolution dated August 25, 1993, this Court denied the petition for review on certiorari (G.R. No.
111201) filed by Rayandayan and Arceo for having been filed out of time and for late payment of docket fees.
[10]
Petitioners Rayandayan and Arceo moved to reconsider; this Court in a Resolution dated November 22,
1993, resolved to deny the same with finality considering petitioners failed to show any compelling reason and
to raise any substantial argument which would warrant a modification of the said resolution. [11]
What remains for resolution then is G.R. No. 110672, wherein petitioner Rural Bank of Sta. Maria,
Pangasinan, contends that:

SO ORDERED.[6]

From the decision, plaintiffs Rayandayan and Arceo and defendant Halsema, Inc.
appealed. Defendant Rural Bank of Sta. Maria, Pangasinan did not appeal. [7] The Court of Appeals rendered
herein assailed decision, the dispositive portion insofar as pertinent to this case reads:

THE MEMORANDUM OF AGREEMENT (EXH. F) ENTERED INTO BETWEEN PRIVATE RESPONDENTS,

AS ALLEGED ASSIGNEES OF MANUEL BEHIS, AND PETITIONER BANK IS VOIDABLE AND MUST BE
ANNULLED.

WHEREFORE, premises considered, decision is hereby rendered:

1. xxx

xxx

xxx;

2. xxx

xxx

xxx;

3. xxx

xxx

xxx;

4. Declaring the Deed of Absolute Sale with Assumption of Mortgage, Exhibit A and the
Memorandum of Agreement, Exhibit F, valid as between the parties thereto;
5. Ordering and sentencing defendant Rural Bank of Sta. Maria, Pangasinan to pay plaintiffsappellant the sum of P229,135.00 as actual damages, the sum of P30,000.00 as moral
damages, P10,000.00 as exemplary damages, P20,000.00 as attorneys fees
and P5,000.00 as litigation expenses;
6. Affirming the dismissal of all other counterclaims for damages;
7. Reversing and setting aside all other dispositions made by the trial court inconsistent with this
decision;
8. There is no pronouncement as to costs.
SO ORDERED.[8]
In sum, the Court of Appeals in its assailed decision: (1) affirmed the validity of the Memorandum of
Agreement between the parties thereto; (2) reversed and set aside the finding of the trial court on the bad faith
of Rayandayan and Arceo in concealing the real purchase price of the land sold to them by Manuel Behis
during negotiations with the bank on the assumption of the mortgage debt; (3) modified the trial courts finding
as to the damages due Rayandayan and Arceo from the bank by adding P229,135.00 as actual damages; (4)
dismissed the counterclaim for damages by the bank and deleted the portion on the set-off of damages due
between the bank on the one hand, and Rayandayan and Arceo on the other.

II
PRIVATE RESPONDENTS ARE IN BAD FAITH, HENCE, THEY ARE NOT ENTITLED TO THE SUMS OF
P30,000.00 AS MORAL DAMAGES; P10,000.00 AS EXEMPLARY DAMAGES; P20,000.00 AS ATTORNEYS
FEES; AND P5,000.00 AS LITIGATION EXPENSES. [12]
The petition is devoid of merit.
Briefly, the antecedents material to this appeal are as follows: A Deed of Absolute Sale with Assumption
of Mortgage was executed between Manuel Behis as vendor/assignor and Rayandayan and Arceo as
vendees/assignees for the sum of P250,000.00. On the same day, Rayandayan and Arceo together with
Manuel Behis executed another Agreement embodying the real consideration of the sale of the land in the
sum of P2,400,000.00. Thereafter, Rayandayan and Arceo negotiated with the principal stockholder of the
bank, Engr. Edilberto Natividad in Manila, for the assumption of the indebtedness of Manuel Behis and the
subsequent release of the mortgage on the property by the bank. Rayandayan and Arceo did not show to
the bank the Agreement with Manuel Behis providing for the real consideration of P2,400,000.00 for the sale of
the property to the former. Subsequently, the bank consented to the substitution of plaintiffs as mortgage
debtors in place of Manuel Behis in a Memorandum of Agreement between private respondents and the bank
with restructured and liberalized terms for the payment of the mortgage debt. Instead of the bank foreclosing
immediately for non-payment of the delinquent account, petitioner bank agreed to receive only a partial
payment of P143,000.00 by installment on specified dates. After payment thereof, the bank agreed to release
the mortgage of Manuel Behis; to give its consent to the transfer of title to the private respondents; and to the
payment of the balance of P200,000.00 under new terms with a new mortgage to be executed by the private
respondents over the same land.
This brings us to the first issue raised by petitioner bank that the Memorandum of Agreement is
voidable on the ground that its consent to enter said agreement was vitiated by fraud because private
respondents withheld from petitioner bank the material information that the real consideration for the sale with
assumption of mortgage of the property by Manuel Behis to Rayandayan and Arceo is P2,400,000.00, and
not P250,000.00 as represented to petitioner bank. According to petitioner bank, had it known of the real
consideration for the sale, i.e. P2.4 million, it would not have consented into entering the Memorandum of
Agreement with Rayandayan and Arceo as it was put in the dark as to the real capacity and financial
standing of private respondents to assume the mortgage from Manuel Behis. Petitioner bank pointed out that it
would not have assented to the agreement, as it could not expect the private respondents to pay the bank the
approximately P343,000.00 mortgage debt when private respondents have to pay at the same
time P2,400,000.00 to Manuel Behis on the sale of the land.

The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to
by one of the contracting parties to induce the other to enter into a contract which without them he would not
have agreed to.[13] Simply stated, the fraud must be the determining cause of the contract, or must have
caused the consent to be given. It is believed that the non-disclosure to the bank of the purchase price of the
sale of the land between private respondents and Manuel Behis cannot be the fraud contemplated by Article
1338 of the Civil Code.[14] From the sole reason submitted by the petitioner bank that it was kept in the dark as
to the financial capacity of private respondent, we cannot see how the omission or concealment of the real
purchase price could have induced the bank into giving its consent to the agreement; or that the bank would
not have otherwise given its consent had it known of the real purchase price.
First of all, the consideration for the purchase of the land between Manuel Behis and herein private
respondents Rayandayan and Arceo could not have been the determining cause for the petitioner bank to
enter into the memorandum of agreement. To all intents and purposes, the bank entered into said agreement
in order to effect payment on the indebtedness of Manuel Behis. As correctly ruled by the Court of Appeals:
xxx. The real consideration for the sale with assumption of mortgage, or the non-disclosure thereof, was not
the determining influence on the consent of the bank.
The bank received payments due under the Memorandum of Agreement, even if delayed. It initially claimed
that the sale with assumption of mortgage was invalid not because of the concealment of the real
consideration of P2,400,000.00 but because of the information given by Cristina Behis, the widow of the
mortgagor Manuel Behis that her signature on the deed of absolute sale with assumption of mortgage was
forged. Thus, the alleged nullity of the Memorandum of Agreement, Exhibit F, is a clear aftertought. It was
raised by defendant bank, by way of counterclaim only after it was sued.
The deceit which avoids the contract exists where the party who obtains the consent does so by means of
concealing or omitting to state material facts, with intent to deceive, by reason of which omission or
concealment the other party was induced to give a consent which he would not otherwise have given
(Tolentino, Commentaries and Jurisprudence on the Civil Code, Vol. IV, p. 480). In this case, the
consideration for the sale with assumption of mortgage was not the inducement to defendant bank to give a
consent which it would not otherwise have given.
Indeed, whether the consideration of the sale with assumption of mortgage was P250,000.00 as stated in
Exhibit A, or P2,400,000.00 as stated in the Agreement, Exhibit 15, should not be of importance to the
bank. Whether it was P250,000.00 or P2,400.000.00 the banks security remained unimpaired.
The stipulation in Exhibit 15, reading in case of default in all of the above, Manuel Behis shall have legal
recourse to the portion of the parcel of land under TCT No. T-29817 equivalent to the unpaid balance of the
amount subject of this Agreement, obviously even if revealed would not have induced defendant bank to
withhold its consent. The legal recourse to TCT No. T-29817 given to Manuel Behis, under the Agreement, is
subordinate and inferior to the mortgage to the bank.

Thirdly, the bank had other means and opportunity of verifying the financial capacity of private
respondents and cannot avoid the contract on the ground that they were kept in the dark as to the financial
capacity by the non-disclosure of the purchase price. As correctly pointed out by respondent court, the bank
security remained unimpaired regardless of the consideration of the sale. Under the terms of the
Memorandum of Agreement, the property remains as security for the payment of the indebtedness, in case of
default of payment. Thus, petitioner bank does not and can not even allege that the agreement was operating
to its disadvantage. If fact, the bank admits that no damages has been suffered by it. [17]
Consequently, not all elements of fraud vitiating consent for purposes of annulling a contract concur, to
wit: (a) It was employed by a contracting party upon the other; (b) It induced the other party to enter into the
contract; (c) It was serious; and; (d) It resulted in damages and injury to the party seeking annulment.
[18]
Petitioner bank has not sufficiently shown that it was induced to enter into the agreement by the nondisclosure of the purchase price, and that the same resulted in damages to the bank. Indeed, the general rule
is that whosoever alleges fraud or mistake in any transaction must substantiate his allegation, since it is
presumed that a person takes ordinary care for his concerns and that private transactions have been fair and
regular. Petitioner bank's allegation of fraud and deceit have not been established sufficiently and
competently to rebut the presumption of regularity and due execution of the agreement.
Based on the foregoing, the second issue raised by petitioner bank must likewise fail. Petitioner bank's
imputation of bad faith to private respondents premised on the same non-disclosure of the real purchase price
of the sale so as to preclude their entitlement to damages must necessarily be resolved in the
negative. Petitioner bank does not question the actual damages awarded to private respondents in the
amount of P229,135.00, but only the moral damages of P30,000.00, exemplary damages of P10,000.00,
attorney's fees of P20,000.00 and litigation expenses of P5,000.00. We may no longer examine the amounts
awarded by the trial court and affirmed by the appellate court as petitioner bank did not appeal from the
decision of the trial court. It is well-settled that a party who does not appeal from the decision may not obtain
any affirmative relief from the appellate court other than what he has obtained from the lower court, if any,
whose decision is brought up on appeal.[19]
WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals, dated March
17, 1993 is AFFIRMED. No cost.
SO ORDERED.
G.R. No. L-29449

December 29, 1928

LEODEGARIO AZARRAGA, plaintiff-appellee,

vs.
MARIA GAY, defendant-appellant.
Araneta and Zaragoza for appellant.
Azarraga and Panis for appellee.

We are, therefore, constrained to uphold the validity of the Memorandum of Agreement, Exhibit F, and reverse
and set aside the ruling declaring the same annulled allegedly due to fraud of plaintiffs-appellants (paragraph
7, dispositive portion).
With the above conclusion reached, the award of moral and exemplary damages, attorneys fees and
expenses of litigation in favor of defendant bank and against plaintiffs-appellants in paragraph 4 of the
dispositive portion of the decision of the trial court must likewise be reversed and set aside; and similarly,
paragraph 5. The basis for the award, which we quote for plaintiffs bad faith in deceiving the Bank to enter
into the Memorandum of Agreement is not correct as we have discussed. [15]
Secondly, pursuant to Article 1339 0f the Civil Code, [16] silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and
the usages of commerce the communication should be made. Verily, private respondents Rayandayan and
Arceo had no duty, and therefore did not act in bad faith, in failing to disclose the real consideration of the
sale between them and Manuel Behis.

VILLAMOR, J.:
By a public document Exhibit A, dated January 17, 1921, the plaintiff sold two parcels of lands to the
defendant for the lump sum of P47,000, payable in installments.
The conditions of the payment were: P5,000 at the time of signing the contract Exhibit A; P20,000 upon
delivery by the vendor to the purchaser of the Torrens title to the first parcel described in the deed of sale,
P10,000 upon delivery by the vendor to the purchaser of Torrens title to the second parcel; and lastly the sum
of P12,000 one year after the delivery of the Torrens title to the second parcel.

The vendee paid P5,000 to the vendor when the contract was signed. The vendor delivered the Torrens title to
the first parcel to the vendee who, pursuant to the agreement, paid him P20,000. In the month of March 1921,
Torrens title to the second parcel was issued and forthwith delivered by the vendor to the vendee who,
however, failed to pay the P10,000 as agreed, neither did she pay the remaining P12,000 one year after
having received the Torrens title to the second parcel.
The plaintiff here claims the sum of P22,000, with legal interest from the month of April 1921 on the sum of
P10,000, and from April 1922 on the sum of P12,000, until full payment of the amounts claimed.
The defendant admits that she purchased the two parcels of land referred to by plaintiff, by virtue of the deed
of sale Exhibit A, but alleges in defense: (a) That the plaintiff knowing that the second parcels of land he sold
had an area of 60 hectares, by misrepresentation lead the defendant to believe that said second parcel
contained 98 hectares, and thus made it appear in the deed of sale and induced the vendee to bind herself to
pay the price of P47,000 for the two parcels of land, which he represented contained an area of no less than
200 hectares, to which price the defendant would not have bound herself had she known that the real area of
the second parcel was 60 hectares, and, consequently, she is entitled to a reduction in the price of the two
parcels in proportion to the area lacking, that is, that the price be reduced to P38,000; (b) that the defendant,
in addition to the amounts acknowledged by the plaintiff, had paid other sums amounting to P4,000; and (c)
that the defendants never refused to pay the justly reduced price, but the plaintiff refused to receive the just
amount of the debt.
And by way of cross-complaint, the defendant prays that she be indemnified in the sum of P15,000 for
damages sustained by her by reason of the malicious filing of the instant complaint.
The plaintiff, replying to the amended answer, alleges that the contract of sale in question was made only for
the lump sum of P47,000, and not at the rate of so much per hectare, and that the defendant's claim for
alleged damages has prescribed.
The lower court, having minutely analyzed the evidence adduced by the parties held that neither the plaintiff
nor the defendant gave any importance to the area of the land in consenting to the contract in question, and
that there having been no fraud when the parties agreed to the lump sum for the two parcels of land described
in the deed Exhibit A, following article 1471 of the Civil Code, ordered the defendant to pay the plaintiff the
sum of P19,300 with legal interest at 8 per cent per annum from April 30, 1921 on the sum of P7,300, and from
April 30, 1922, on the sum of P12,000. And finally dismissed the defendant's cross-complaint, without special
pronuncement as to costs.
A motion for a new trial having been denied, this case was brought up to this court through the proper bill of
exceptions.
The appellant alleges that the trial court erred in not considering that the plaintiff induced the defendant by
deceit, to pay him the stipulated price for the two parcels he sold, stating falsely in the deed of sale that the
second of said parcels had an area of 98 hectares when he knew that in reality it only had about 60 hectares
more or less, or at least, if such deceit was not practised that mre that there was a mistake on the part of
Maria Gay in believing that said second parcel contained 98 hectares.
As a question of fact the trial court found from the evidence adduced by the parties, that the plaintiff had not
practised any deception in agreeing with the defendant upon the sale of the two parcels of land described in
Exhibit A. We concur with the trial court in this conclusion. It appears of record that before the execution of the
contract Exhibit A, the defendant went over the plaintiff's land and made her wn calculations as to the area of
said two parcels. But this not all. The plaintiff delivered to the defendant the documents covering the land he
was trying to sell. As to the first parcel there is no question whatever and the defendant's contention is limited
solely to the actual area of the second parcel. The defendant had document Exhibit 4 in her possession which
is the deed by which the plaintiff acquired the land from the original owner, Crispulo Beramo, in which
document it appears that the area of the second parcel is about 70 hectares. It was the defendant who
intrusted the drawing of the deed of sale Exhibit A to her attorney and notary, Hontiveros, and it is to be
presumed that both she and the lawyer who drew the document Exhibit A, had read the contents of the
document Exhibit 4. The plaintiff declares that he signed the document between 5 and 7 in the afternoon of

that day and he did not pay any attention to the area of the second parcel, probably in the belief that in the
drawing of the document the data concerning the area of the land had been taken from the said Exhibit 4. The
defendant testified that she received from the plaintiff a note or piece of paper containing the data to be
inserted in the contract Exhibit A. The plaintiff denies this and said note or piece of paper was not presented at
the trial. We are of opinion that this testimony of the defendant's is unimportant, because, in reality, if the
plaintiff had delivered Exhibit 4 to the defendant, there was no need to deliver to her another note to indicate
the area of the second which already appeared in the said Exhibit 4.
If, notwithstanding the fact that it appeared in Exhibit 4 that the area of the second parcel was, approximately,
70 hectares, the defendant, however, stated in said document Exhibit A that said second parcel contained 98
hectares as was admitted by him in his interviews with the plaintiff in the months of April and June, 1924, then
she has no right to claim from the plaintiff the shortage in area of the second parcel. Furthermore, there is no
evidence of record that the plaintiff made representatin to the defendant as to the area of said second parcel,
and even if he did make such false representations as are now imputed to him by the defendant, the latter
accepted such representations at her own risk and she is the only one responsible for the consqunces of her
inexcusable credulousness. In the case of Songco vs. Sellner (37 Phil., 254), the court said:
The law allows considerable latitude to seller's statements, or dealer's talk; and experience
teaches that it as exceedingly risky to accept it at its face value.
Assertions concerning the property which is the subject of a contract of sale, or in regard to its
qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high
price and are always understood as affording to buyers no grund from omitting to make inquires. A
man who relies upon such an affirmation made by a person whose interest might so readily prompt
him to exaggerate the value of his property does so at his peril, and must take the consequences
of his own imprudence.
The defendant had ample opportunity to appraise herself of the condition of the land which she purchased,
and the plaintiff did nothing to prevent her from making such investigation as she deemed fit, and as was said
in Songco vs. Sellner, supra, when the purchaser proceeds to make investigations by himself, and the vendor
does nothing to prevent such investigation from being as complete as the former might wish, the purchaser
cannot later allege that the vendor made false representations to him. (National Cash Register Co. vs.
Townsend, 137 N. C., 652; 70 L. R. A., 349; Williamson vs. Holt, 147 N. C., 515.) The same doctrine has been
sustained by the courts of the United States in the following cases, among others: Misrepresentation by a
vendor of real property with reference to its area are not actionable, where a correct description of the property
was given in the deed and recorded chain of title, which the purchaser's agent undertook to investigate and
report upon, and the vendor made on effort to prevent a full investigation." (Shappirio vs. Goldberg, 48 Law.
ed., 419.) "One who contracts for the purchase of real estate in reliance on the representations and
statements of the vendor as to its character and value, but after he has visited and examined it for himself, and
has had the means and opportunity of verifying such statements, cannot avoid the contract on the ground that
they were false or exaggerated." (Brown vs. Smith, 109 Fed., 26.)
That the defendant knew that the area of the second parcel was only about 70 hectares is shown by the fact
that she received the document Exhibit 4 before the execution of the contract Exhibit A, as also Exhibit E-3 on
September 30, 1920; which is the notification of the day for the trial of the application for registratin of said
parcel, wherein it appears that it had an area of 60 hectares more or less, and by the fact that she received
from the plaintiff in the month of June 1924 the copy of the plans of the two parcels, wherein appear their
respective areas; and yet, in spite of all this, she did not complain of the difference in the area of said second
parcel until the year 1926. Moreover, the record contains several of the defendant's letters to the plaintiff in the
years 1921 to 1925, in which said defendant acknowledges her debt, and confining herself to petitioning for
extentions of time within which to make payment for the reasons given therein. But in none of these letters is
there any allusion to such lack of area, nor did she complain to the plaintiff of the supposed deceit of which
she believes she is a victim. All of which, in our opinion, shows that no such deceit was practised, as the trial
court rightly found.
As to the alleged error to the effect that the trial court failed to order the reduction from the price due on the
second parcel as stated in the contract of sale Exhibit A, the proportional price of the area lacking, we are of
the opinion that said error has no legal ground.

It appears that by the contract Exhibit A, the parties agreed to the sale of two parcels of land, the first one
containing 102 hectares, 67 ares and 32 centares, and the second one containing about 98 hectares, for the
lump sum of P47,000 payable partly in cash and partly in installments. Said two parcels are defind by means
of the boundaries given in the instrument. Therefore, the case falls within the provision of article 1471 of the
Civil Code, which reads as follows:
ART. 1471. In case of the sale of real estate for a lump sum and not at the rate of a specified price
for each unit of measure, there shall be no increase or decrease of the price even if the area be
found to be more or less than that stated in the contract.
The same rule shall apply when two or more estates are sold for a single price; but, if in addition to
a statement of the boundaries, which is indispensable in every conveyance of real estate, the area
of the estate should be designated in the contract, the vendor shall be obliged to deliver all that is
included with such boundaries, even should it exceed the area specified in the contract; and,
should he not be able to do so, he shall suffer a reduction of the price in proportion to what is
lacking of the area, unless the contract be annulled by reason of the vendee's refusal to accept
anything other than that which was stipulated.
The plaintiff contends that, in accrdance with the first paragraph of this article, the defendant has no right to
ask for the reduction of price, whatever may be the area of the two parcels of land sold her. On the ther hand,
the defendant contends that, according to paragraph 2 of the same article of the Civil Code, she has a right to
ask for a reduction of the price due on the second parcel, in proportion to the area lacking.
In his comments on the article cited, Manresa says, among other things:
. . . if the sale was made for a price per unit of measure or number, the consideration of the
contract with respect to the vendee, is the number of such units, or, if you wish, the thing
purchased as determined by the stipulated number of units. But if, on the other hand, the sale was
made for a lump sum, the consideration of the contract is the object sold, independently of its
number or measure, the thing as determined by the stipulated boundaries, which has been called
in law a determinate object.
This difference in consideration between the two cases implies a distinct regulation of the
obligation to deliver the object, because, for an acquittance delivery must be made in accordance
with the agreement of the parties, and the performance of the agreement must show the
confirmation in fact, of the consideratin which induces each of the parties to enter into the contract.
From all this, it follows that the provisions of article 1471 concerning the delivery of determinate
objects had to be materially different from those governing the delivery of things sold a price per
unit of measure or number. Let us examine it, and for the sake of greater clearness, let us expound
it as we understand it.
With respect to the delivery of determinate objects two cases may arise, either the determinate
object is delivered as stipulated, that is, delivering everything included within the boundaries,
inasmuch as it is the entirety thereof that distinguishes the determinate object; or that such entirety
is impaired in the delivery by failing to deliver to the purchaser something included within the
boundaries. These are the two cases for which the Code has provided although, in our opinion, it
has not been sufficiently explicit in expressing the distinction; hence, at first sight, the article seems
somewhat difficult to understand.
The first paragraph and the first clause of the second paragraph of article 1471 deal with the first of
said cases; that is where everything included within the boundaries as set forth in the contract has
been delivered. The Code goes on to consider the case where a definite area or number has been
expressed in the contract, and enunciates the rule to be followed when, after delivery, the area
included within said bundaries is found not to coincide with the aforesaid content or number. Said
rule may be thus stated: Whether or not the object of sale be one realty for a lump sum, or two or
more for a single price also a lump sum, and, consequently, not for so much per unit of measure or

number, there shall be no increase or decrease in the price even if the area be found to be more or
less than that stated in the contract.
Thus understood the reason for the regulation is clear and no doubts can arise from its application.
It is concerned with determinate objects. The consideration of the contract, and the thing to be
delivered is adeterminate object, and not the number of units it contains. The price is determined
with relation to it; hence, its greater or lesser area cannot influence the increase or decrease of the
price agreed upon. We have just learned the reason for the regulation, bearing in mind that the
Code has rightly considered an object as determinate for the purposes now treated, when it is a
single realty as when it is two or more, so long as they are solds for a single price constituting a
lump sum and not for a specified amount per unit of measure or number.
We have stated that the second possible case in the delivery of determinate objects is that in
which, on account or circumstances of diverse possible origins, everything included within the
boundaries is not delivered.
We have indicated about that where everything included within the boundaries is delivered there
can be no increase or decrease in price, no matter whether the area be more or less than that
given in the contract. From this a very important consequence follows, to wit: That if the vendor is
bound to deliver a determinate object, he is bound to deliver all of it, that is, everything within its
boundaries, in the contract, and that from the moment he fails to do so, either because he cannot,
or because, ignoring the meaning of the contract, he alleges that it contains a greater area than
that stipulated, the contract is partially unfulfilled and it is but just the certain actions be available to
the vendee for the protection of his right.
The rule in the latter case is found in the second paragraph of article 1471, with the exception of
the first clause which refers of the former hypothesis. This rule may be stated as follows: Whether
or not the object of the sale be one realty for a lump sum, or two or more for a single price also a
lump sum, and, consequently not at the rate of a specified price for each unit of measuring or
number, the vendor shall be bound to deliver everything that is included within the boundaries
stated, although it may exceed the area or number expressed in the contract; in case he cannot
deliver it, the purchaser shall have the right either to reduce the price proportionately to what is
lacking of the area or number, or to rescind the contract at his option.
Comprehending the meaning of a sale of a determinate object, it is easily understod how, in cases
wherein by virtue of the rule enunciated, the vendor has to deliver a greater area than that
expressed in the contract, there is, strictly speaking, no excess of area, inasmuch as one may
always properly ask, excess with respect to what? With respect to the area appearing in the deed,
it will be answered. But as this area was not taken into account in entering into the contract
inasmuch as the parties made neither the amount of the price, nor the efficacy of the contract to
depend on the number of its units; since area was written in to fulfill a formal requisite demanded
by the present rules upon the drawing of public instruments, but as a condition essential to the
contract, which, if it were not true, would not be consummated, it results in the long run, that this
detail of the written recital, with respect to which the excess is to be estimated, is so negligible, so
inconsistent, so haphazard, and in the vast majority of cases so wide of the mark, that it is
impossible to calculate the excess; and considering the nature of a contract of sale of a definite
object, it cannot be strictly held that there is any excess at all.
If everything within the stipulated boundaries is not delivered, then the determination object which
was the consideration of the contract for the vendee, is not delivered; hence his power to nullify it.
However, it might be (and this he alone can say), that although he has not received the object,
according to the stipulated terms, it suits him; hence his power to carry the contract into effect with
the just decrease in price referred to in the article under comment.
The manner in which the matter covered by this article was distributed in its two paragraphs
constributes to making it difficult to understand. The rule might have been clearly stated had the
first clause of the second paragraph been included in the first paragraph, the latter to end with the
words: "The same rule shall apply when two or more estates are sold fos a single price." And if by

constituting an independent paragraph, with the rest of the second paragraph, it were made to
appear more expressly that the rule of the second paragraph thus drawn referred to all the cases
of paragraph one, as we have expounded, namely, to the case of a sale of one single estate and
that of two or more for one single price, the rule would have been clearer.
In our opinion, this would have better answered what we deem to be the indubitable intention of
the legislator.

Considering the facts of the present controversy, it seems clear to us that the rule formulated for the second
paragraph or article 1471 is inapplicable in the instant case inasmuch as all the land included within the
boundaries of the two parcels sold has been delivered inits entirety to the vendee. There is no division of the
land enclosed within the boundaries of the properties sold; the determinate object which is the subject matter
of the contract has been delivered by the vendor in its entirety as he obligate himself to do. Therefore, there is
no right to complain either on the part of the vendor, even if there be a greater area than that stated in the
deed, or on the part of the vendee, though the area of the second parcel be really much smaller. (Irureta
Goyena vs. Tambunting, 1 Phil., 490.)

Some eminent commentators construe the last part of article 1471 in a different way. To them the
phrase "and should he not be able to do so" as applied to the vendor, does not mean as
apparently it does "should he not be able to deliver all that is included within the boundaries
stated," but this other thing namely, that if by reason of the fact that a less area is included within
the boundaries than that expressed in the contract, it is not possible for the vendor to comply
therewith according to its literal sense, he must suffer the effects of the nullity of the contract or a
reduction of the price proportionately what may be lacking of the area or number. It is added as a
ground for this solution that if the vendor fulfills the obligations, as stated in the article, by
delivering what is not included with in the boundaries, there can never be any case of
proportionate reduction of the price on account of shortage of area, because he does not give less
who delivers all that he bound himself to.1awphi1.net

With regard to the damages prayed for by the defendant, the lower court finally dismissed the cross-complaint
without special pronouncement as to costs. And according to the decision of the Supreme Court od Spain of
1897, a judgment absolving a party from a claim of damages against him, who has not contravened his
obligations, does not violate articles 1101 and 1108 of the Civil Code.

According to this opinion, which we believe erroneous, if within the boundaries of the property sold,
there is included more area than that expressed in the title deeds, nothing can be claimed by the
vendor who losses the value of that excess, but if there is less area, then he loses also because
either the price is reduced or the contract is annulled. This theory would be anomalous in case of
sale of properties in bulk, but, especially, would work a gross injustice which the legislator never
intended.

The judgment appealed from being in accordance with the law, it should be as it is hereby, affirmed with costs
against the appellant. So ordered.

There is no such thing. So long as the vendor can deliver, and for that reason, delivers all the land
included within the boundaries assigned to the property, there can be no claim whatsoever either
on his part, although the area may be found to be much greater than what was expressed, nor on
the part of the puchaser although that area may be in reality much smaller. But as he sold
everything within the boundaries and this is all the purchaser has paid, or must pay for whether
much or little, if afterwards it is found that he cannot deliver all, because, for instance, a part, a
building, a valley, various pieces of land, a glen, etc., are not his, there is no sale of a determinate
object, there is no longer a sale of the object agreed upon, and the solution given by the article is
then just and logical: Either the contract is annulled or the price reduced proportionately.
We have quoted from Manresa's Commentaries at length for a better understanding of the doctrine on the
matter, inasmuch as the contending counsel have inserted in their respective briefs only such portions of said
commentaries as relate to their respective contentions.

With respect to the question of interest, the lower court likewise held that, as the defendant had not paid the
sum of P7,300 on April 30, 1921, when the plaintiff had delivered the certificate of title, she was in default from
that date and also from the date of one year thereafter, with respect to the sum of P12,000, contituting the last
period of the obligation. We are of the opinion that the lower court has committed no error which should be
corrected by this court.

G.R. No. L-65922 December 3, 1991

LAURETA TRINIDAD, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and VICENTE J. FRANCISCO, respondent.
Ramon A. Gonzales for petitioner.
Raymundo T. Francisco for R.J. Francisco.

It may be seen from a careful reading of the commentaries on said article 1471, that the great author
distinguishes between the two cases dealt with in article 1471, and formulates the proper rules for each. In the
delivery of a determinate object, says the author, two cases may arise; either the determinate object is
delivered as stipulated, that is, delivering everything included within the boundaries, inasmuch as it is the
entirety thereof that distinguishes the determinate object; or that such entirely is impaired in the delivery by
failing to deliver to the purchaser something included within the boundaries. For the first case, Manresa gives
the following rule: "Whether or not the object of the sale be one realty for a lump sum, or two or more for a
single price also a lump sum, and, consequently, not for so much per unit of measure or number, there shall
be no increase or decrease in the price ecven if the area be found to be more or less than that stated in the
contract." And for the second case, this other: "Whether or not the object of the sale one realty for a lump sum,
or two or more for a single price also a lump sum, and, consequently, not at the rate a specified price for each
unit of measure or number, the vendor shall be bnound to deliver everything that is included within the
boundaries stated, although it may exceed the area or number expressed in the contract; in case he cannot
deliver it, the purchaser shall have the right either to reduce the price proportionately to what is lacking of the
area or number, or to rescind the contract, at his option."

Siquia Law Offices for respondents Trinidad J. Francisco & Rosario F. Kelemen.

CRUZ, J.:p
The house looked beautiful in summer but not when the waters came. Then it was flooded five feet deep and
leas than prepossessing, let alone livable. Disenchanted, the buyer sued the seller for the annulment of the
sale and damages, alleging fraud.
The house was Bungalow No. 17, situated at Commonwealth Village in Quezon City, and belonged to the late
Vicente J. Francisco. Sometime in early 1969, Laureta Trinidad, the petitioner herein, approached him and
offered to buy the property. Francisco was willing to sell. Trinidad inspected the house and lot and examined a
vicinity map which indicated drainage canals along the property. The purchase price was P70,000.00 with a

down payment of P17,500.00. The balance was to be paid in five equal annual installments not later than July
1 of each year at 12% interest per annum.

Upon separate motions for reconsideration filed by both parties, Judge Apostol ordered and held a new trial,
resulting in a new decision dated April 13, 1976, reiterating his original dispositions.

On March 29, 1969, Trinidad paid Francisco P5,000.00 as earnest money and entered into the possession of
the house. However, as she relates it, she subsequently heard from her new neighbors that two buyers had
previously vacated the property because it was subject to flooding. She says she talked to Francisco about
this matter and that he told her everything had been fixed and the house would never be flooded again. Thus
assured, she gave him P12,500.00 to complete the down payment. They signed the Contract of Conditional
Sale on August 8, 1969. 1

Both parties appealed to the respondent court, which reversed the trial court in a decision promulgated on May
31, 1983. 4 The dispositive portion read as follows:

Trinidad paid the installment for 1970 and 1971 on time but asked Francisco for an extension of 60 days to
pay the installment due on July 1, 1972. However, she says she eventually decided not to continue paying the
amortizations because the house was flooded again on July 18, 21, and 30, 1972, the waters rising to as high
as five feet on July 21. Upon her return from the United States on October 11, 1972, she wrote the City
Engineer's office of Quezon City and requested an inspection of the subject premises to determine the cause
of the flooding. The finding of City Engineer Pantaleon P. Tabora was that "the lot is low and is a narrowed
portion of the creek."
On January 10, 1973, the petitioner filed her complaint against Francisco alleging that she was induced to
enter into the contract of sale because of his misrepresentations. She asked that the agreement be annulled
and her payments refunded to her, together with the actual expenses she had incurred for the "annexes and
decorations" she had made on the house. She also demanded the actual cost of the losses she had suffered
as a result of the floods, moral and exemplary damages in the sum of P200,000.00, and P10,000.00
attomey's
fees. 2
In his answer and amended answer, the defendant denied the charge of misrepresentation and stressed that
the plaintiff had thoroughly inspected the property before she decided to buy it. The claimed creek was a
drainage lot, and the floods complained of were not uncommon in the village and indeed even in the Greater
Manila area if not the entire Luzon. In any event, the floods were fortuitous events not imputable to him. He
asked for the rescission of the contract and the forfeiture of payments made by the plaintiff plus monthly
rentals with interest of P700.00 for the property from July 2, 1972, until the actual vacation of the property by
the plaintiff. He also claimed litigation expenses, including attorney's fees. 3
In his decision dated June 17, 1975, Judge Sergio F. Apostol of the then Court of First Instance of Rizal held in
favor of the plaintiff and disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered:
a) ordering the annulment of the contract of conditional sale entered into by the parties;
b) ordering defendant's representatives to pay to the plaintiff the amount of P49,840.00 with interest from the
time of the filing of the complaint;
c) ordering the defendant's representatives to pay the amount of P39,800.00 representing the value of the
improvements and the losses she incurred by virtue of the flood;

WHEREFORE, the appeal of plaintiff is hereby dismissed. With respect to the appeal of defendant, the
decision of the lower court is hereby reversed and set aside and another one is rendered dimissing the
complaint and, upon the counterclaim, sustaining the cancellation of the contract of conditional sale (Exh. B)
and the forfeiture of any and all sums of money paid by plaintiff to the defendant on account of the contract to
be treated as rentals for the use and occupation of the property and ordering the plaintiff to vacate the
property. No special pronouncement as to costs.
This Court gave due course to the herein petition for review on certiorari of the said decision and required the
parties to submit their respective memoranda. Pendente lite, Vicente J. Francisco died and was eventually
substituted by his heirs, 5 two of whom, Trinidad J. Francisco and Rosario F. Kelemen, filed their own joint
memorandum. 6 The Court has deliberated on the issues and the arguments of the parties and is now ready
to act on the motions filed by the petitioner and the private respondents for the resolution of this case.
The petitioner faults the respondent court on the following grounds:
1. The Intermediate Appellate Court palpably erred in not finding that the lot on which the house in question
stands is a portion of a creek, hence outside the commerce of man.
2. The Intermediate Appellate Court palpably erred in finding that there was no fraud prior to the sale that
induced petitioner to enter into the said sale.
3. The Intermediate Appellate Court palpably erred in cancelling the complaint for non-payment of the
installments and declaring previous installments forfeited.
4. The Intermediate Appellate Court erred in not granting moral damages and attorney's fees to petitioner.
The basic issue in this controversy is whether or not, under the established facts, there was misrepresentation
on the part of Francisco to justify the rescission of the sale and the award damages to the petitioner.
The pertinent provisions of the Civil Code on fraud are the following:
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. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not
in themselves fraudulent.

d) ordering plaintiff to return to the defendant's representatives the house and lot in question;
e) ordering defendant's representatives to pay the amount of P5,000.00 as and by way of attomey's fees.
WITH COSTS AGAINST THE DEFENDANT.

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" 7 and that "private transactions have been fair and regular." 8 While disputable,
these presumptions can be overcome only by clear and preponderant evidence.
Our finding is that the fraud alleged by the petitioner has not been satisfactorily established to call for the
annulment of the contract. This finding is based on the following considerations.

First, it was the petitioner who admittedly approached the private respondent, who never advertised the
property nor offered it for sale to her.
Second, the petitioner had full opportunity to inspect the premises, including the drainage canals indicated in
the vicinity map that was furnished her, before she entered into the contract of conditional sale.
Third, it is assumed that she made her appraisal of the property not with the untrained eye of the ordinary
prospective buyer but with the experience and even expertise of the licensed real estate broker that she
was. 9 If she minimized the presence of the drainage canals, she has only her own negligence to blame.
Fourth, seeing that the lot was depressed and there was a drainage lot abutting it, she cannot say she was not
forewarned of the possibility that the place might be flooded. Notwithstanding the obvious condition of the
property, she still decided to buy it.
Fifth, there is no evidence except her own testimony that two previous owners of the property had vacated it
because of the floods and that Francisco assured her that the house would not be flooded again. The
supposed previous owners were not presented as witnesses and neither were the neighbors. Francisco
himself denied having made the alleged assurance.
Sixth, the petitioner paid the 1970 and 1971 amortizations even if, according to her Complaint, "since 1969
said lot had been under floods of about one (1) foot deep," 10 and despite the floods of September and
November 1970.
Seventh, it is also curious that notwithstanding the said floods, the petitioner still "made annexes and
decorations on the house," 11 all of a permanent nature, for which she now claims reimbursement from the
private respondent.
To repeat, it has not been satisfactorily established that the private respondent inveigled the petitioner through
false representation to buy the subject property. Assuming that he did make such representations, as the
petitioner contends, she is deemed to have accepted them at her own risk and must therefore be responsible
for the consequences of her careless credulousness. In the case of Songco v. Sellner, 12 the Court said:
The law allows considerable latitude to seller's statements, or dealer's talk, and experience teaches that it is
exceedingly risky to accept it at it at face value. . . .
Assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities and
characteristics, are the usual and ordinary means used by sellers to obtain a high price and are always
understood as affording to buyers no ground for omitting to make inquiries. A man who relies upon such an
affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his
property does so at his peril, and must take the consequences of his own imprudence.

If such title is to be challenged, it may not be done collaterally as in the present case, because the judicial
action required is a direct attack. Section 48 of the Property Registration Decree expressly provides that a
certificate of title cannot be subject collateral attack and can be altered, modified or cancelled only in a direct
proceeding in accordance with law. This was the same rule under Act 496. 14 Moreover, the right of reversion
belongs to the State and may be invoked on its behalf only by the Solicitor General. 15
It is true, as the private respondents have insisted and the respondent court has found, that the Contract of
Conditional Sale contains the following condition:
(d) That should the SECOND PARTY fail to make any of the payments referred to in the aforesaid paragraphs
2(a) and (b), of this contract of conditional sale, shall be considered automatically rescinded and cancelled
without the necessity of notice to the SECOND PARTY, or of any judicial declaration to that effect, and any and
all sums paid by the SECOND PARTY shall be considered rents and liquidated damages for the breach of this
contract, and the SECOND PARTY shall forthwith vacate the foresaid property peacefully.
Nevertheless, we cannot say that the petitioner was, strictly speaking, in default in the payment of the
remaining amortizations in the sense contemplated in that stipulation. She was not simply unable to make the
required payments. The fact is she refused to make such payments. If she suspended her payments, it was
because she felt she was justified in doing so in view of the defects she found in the property. It is noteworthy
that it was she who sued the private respondent, not the other way round, and that it was she who argued that
the seller was not entitled to the additional installments because of his violation of the contract. If she asked for
the annulment of the contract and the refund to her of the payments she had already made, plus damages, it
was because she felt she had the right to do so.
Given such circumstances, the Court feels and so holds that the above-quoted stipulation should not be strictly
enforced, to justify the rescission of the contract. To make her forfeit the payments already made by her and at
the same time return the property to the private respondents for standing up to what she considered her right
would, in our view, be unfair and unconsionable. Justice demands that we moderate the harsh effects of the
stipulation. Accordingly, in the exercise of our equity jurisdiction, we hereby rule that the Contract of
Conditional Sale shall be maintained between the parties except that the petitioner shall not return the house
to the private respondents. However, she will have to pay them the balance of the purchase price in the sum of
P52,500.00, **with 12% annual interest from July 1, 1972, until full payment.
Obviously, rejection of the petitioner's claim for moral and exemplary damages must also be sustained.
What we see here is a bad bargain, not an illegal transaction vitiated by fraud. While we may commiserate
with the petitioner for a purchase that has proved unwise, we can only echo what Mr. Justice Moreland
observed inVales v. Villa, 16 thus:

We have also held that "one who contracts for the purchase of real estate in reliance on the representations
and statements of the vendor as to its character and value, but after he has visited and examined it for himself
and has had the means and opportunity of verifying such statements, cannot avoid the contract on the ground
that they were false and exaggerated." 13

. . . 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 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.

''The Court must also reject the petitioner's contention that the lot on which the house stands is a portion of a
creek and therefore outside the commerce of man as part of the public domain.

WHEREFORE, the appealed decision is AFFIRMED as above modified, with no pronouncement as to costs. It
is so ordered.

The said property is covered by TCT No. 102167 of the Registry of Deeds of Quezon City. Under the Land
Registration Act, title to the property covered by a Torrens certificate becomes indefeasible after the expiration
of one year from the entry of the decree of registration. Such decree of registration is incontrovertible and is
binding on all persons whether or not they were notified of or participated in the registration proceedings.

G.R. No. L-11513

December 4, 1917

LAMBERTO SONGCO, plaintiff-appellee,

vs.
GEORGE C. SELLNER, defendant-appellant.

Thos. D. Aitken for appellant.

Perfecto Gabriel for appellee.

STREET, J.:
In December, 1915, the defendant, George C. Sellner, was the owner of a farm at Floridablanca, Pampanga,
which was contiguous to a farm owned by the plaintiff Lamberto Songco. Both properties had a considerable
quantity of the sugar cane ready to be cut. At Dinalupijan, a short distance away, was located a sugar central,
and Sellner desired to mill his cane at this central. One obstacle was that the owners of the central were not
sure they could mill his cane and would not promise to take it. Sellner, however, learning that the central was
going to mill Songco's cane, conceived the idea of buying the cane of the latter, expecting to run his own cane
in that same time the other should be milled. Another motive which evidently operated upon the mind of
Sellner was the desire to get a right of way over Songco's land for converting his own sugar to the central.
Accordingly he bought Songco's cane as it stood in the fields for the agreed sum of P12,000 and executed
therefor three promissory notes of P4,000 each. Two of these notes were paid; and the present action was
instituted to recover upon the third. From a judgement rendered in favor of the plaintiff, the defendant has
appealed.
The note, upon which the action was brought, was exhibited with the complaint. The answer of the defendant
was made under oath, and contained a general denial of all the allegations of the complaint. The answer also
contained the allegation, asserted by way of special defense, that the promissory note in question was
obtained from the defendant by means of certain false and fraudulent representations therein specified. The
note was admitted in evidence by the court; and error is here assigned upon this action, on the ground that the
genuineness and due execution of the note was not proved. There is nothing in this contention for several
reasons. In the first place a general denial of a complaint does not raise a question as to the genuineness or
due execution of a written instrument. Under section 103 of the Code of Civil Procedure it is necessary that the
genuineness and due execution of the instrument shall be specifically denied before an issue is raised up on
this point. This means that the defendant must declare under oath that he did not sign the document or that it
is otherwise false or fabricated. Neither does the statement of the answer to the effect that the instrument was
procured by fraudulent representation raise any issue as to its genuineness or due execution. On the contrary
such a plea is an admission both of the genuineness and due execution thereof, since it seeks to avoid the
instrument upon a ground not affecting either. Furthermore, in this particular case the fourth paragraph of the
answer expressly admits the execution of the instrument by the defendant.
The principal defense here urged relates to a false representation which, it is claimed, was made by the
plaintiff Songco with respect to the quantity of uncut cane standing in the fields at the time the defendant
Sellner became the purchaser thereof. Upon this point it is proved that Songco estimated that this cane would
produce 3,000 piculs of the sugar and that Sellner bought the crop believing this estimate to be substantially
correct. As the crop turned out it produced 2,017 piculs, gross, and after the toll for milling was deducted the
net left to Sellner was very much less. It appears that in the course of negotiations Sellner requested Songco
to guarantee the quantity which the latter claimed to be in fields but he would not do so. He, however,
repeated that he was sure the fields contained the quantity estimated by him. Some evidence was introduced
tending to show that the disparity between Songco's estimate and the quantity actually obtained would have
been more expeditiously conducted. We do not think there is much in this; and even making allowance for
weight unnecessary lost, the harvest fell far short of the amount estimated by Songco. We think it is fairly
shown by the evidence that Songco knew at the time he made the representation in question that he was
greatly exaggerating the probable produce of his fields, and it is impossible to believe that his estimate
honestly reflected his true opinion. He knew what these same fields had been producing over a long period of
years; and he knew that, judging from the customary yield, the harvest of this year should fall far below the
amount stated.
Notwithstanding the fact that Songco's statement as to the probable output of his crop was disingenuous and
uncandid, we nevertheless think that Sellner was bound and that he must pay the price stipulated. The
representation in question can only be considered matter of opinion as the cane was still standing in the field,
and the quantity of the sugar it would produce could not be known with certainty until it should be harvested
and milled. Undoubtedly Songco had better experience and better information on which to form an opinion on

this question than Sellner. Nevertheless the latter could judge with his own eyes as to the character of the
cane, and it is shown that he measured the fields and ascertained that they contained 96 1/2 hectares.
It is of course elementary that a misinterpretation upon a mere matter of opinion is not an actionable deceit,
nor is it a sufficient ground for avoiding a contract as fraudulent. We are aware that statements may be found
in the books to the effect that there is a difference between giving an honest opinion and making a false
representation as to what one's real opinion is. We do not think, however, that this is a case where any such
distinction should be drawn.
The law allows considerable latitude to seller's statements, or dealer's talk; and experience teaches that it is
exceedingly risky to accept it at its face value. The refusal of the seller to warrant his estimate should have
admonished the purchaser that that estimate was put forth as a mere opinion; and we will not now hold the
seller to a liability equal to that which would have been created by a warranty, if one had been given.
Assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities and
characteristics, are the usual and ordinary means used by sellers to obtain a high price and are always
understood as affording to buyers no ground for omitting to make inquiries. A man who relies upon such an
affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his
property does so at his peril, and must take the consequences of his own imprudence. The principles
enunciated above are fully supported by the weight of the judicial authority. In a case where the owners of a
certain logs represented to their vendee that the logs would produce a greater per cent of superior lumber than
was actually realized, but refused to warrant their quality and required the vendee to examine for himself
before making the contract, it was held that the vendee could not avoid the contract. (Fauntleroy vs. Wilcox, 80
Ill., 477.) In Williamson vs. Holt (147 N. C., 515; 17 L. R. A. [N. S.], 240), it appeared that the defendant had
bought an ice plant with the knowledge that its operation had been abandoned because the output did not
equal its capacity. He had full opportunity to investigate its condition. It was held that he could not avoid paying
the purchase price because the vendor stated that, with some repairs, it would turn out about a certain amount
per day. In Poland vs. Brownell (131 Mass., 138), where a man who bought a stock of goods had ample
opportunity to examine and investigate, it was held that he could not rely on the seller's misrepresentations as
to the value of the goods or the extent of the business. It would have been different if the seller had
fraudulently induced him to forbear inquiries or examination which he would otherwise have made.
It is not every false representation relating to the subject matter of a contract which will render it void. It must
be as to matters of fact substantially affecting the buyer's interest, not as to matters of opinion, judgment,
probability, or expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.], 95; Gordon vs.
Parmelee, 2 Allen [Mass.],212; Williamson vs. McFadden, 23 Fla., 143, 11 Am. St. Rep., 345.) When the
purchaser undertakes to make an investigation of his own, and the seller does nothing to prevent this
investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the
seller made misrepresentations. (National Cash Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349;
Williamson vs. Holt, 147 N. C., 515.) 1awphi1.net
We are aware that where one party to a contract, having special or expert knowledge, takes advantage of the
ignorance of another to impose upon him, the false representation may afford ground for relief, though
otherwise the injured party would be bound. But we do not think that the fact that Songco was an experienced
farmer, while Sellner was, as he claims, a mere novice in the business, brings this case within that exception.
An incident of this action was that the plaintiffs sued out an attachment against the defendant, at the time of
the institution of the suit, upon the ground that he was disposing of his property in fraud of his creditors. This
charge was completely refuted by proof showing that the defendant is a man of large resources and had not
attempted to convey away his property as alleged. The court below therefore found that this attachment had
been wrongfully sued out, and awarded damages to the defendant equivalent to the amount actually paid out
by him in procuring the dissolution of the attachment. No appeal was taken from this action of the court by the
plaintiff; but the defendant assigns error to the action of the court in refusing to award to him further damages
for the injury done to his credit. In this connection he shows that one of his creditors, being appraised of the
fact that the defendant had been made the subject of an attachment, withheld further credit and forced him to
sell a large quantity of sugar at a price much lower than he would have received if he could have carried it a
few weeks longer. We think the court below committed no error in refusing to award damages upon this
grounds, as such damages were remote and speculative. It could hardly be foreseen as a probable
consequence of the suing out of this attachment that the hands of the creditors would come down upon their

unfortunate client with such disastrous results; and the plaintiff certainly cannot be held accountable for the
complications of the defendant's affairs which made possible the damage which in fact resulted. The court
below also refused to award punitive damages claimed by the plaintiff on the ground that the attachment was
maliciously sued out. The action of the court in this respect will not be here disturbed.
From what has been said it follows that the judgment of the court below must be affirmed, with costs against
the appellant. So ordered.
G.R. No. L-11872

December 1, 1917

DOMINGO MERCADO and JOSEFA MERCADO, plaintiffs-appellants,

vs.
JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu, defendant-appellee.

and this amount being still insufficient the successively borrowed from said Luis Espiritu other sums of money
aggregating a total of P600; but that later, on May 17,1910, the plaintiffs, alleging themselves to be of legal
age, executed, with their sisters Maria del Consejo and Maria dela Paz, the notarial instrument inserted
integrally in the 5th paragraph of the answer, by which instrument, ratifying said sale under pacto de retro of
the land that had belonged to their mother Margarita Espiritu, effected by their father Wenceslao Mercado in
favor of Luis Espiritu for the sum of P2,600, they sold absolutely and perpetually to said Luis Espiritu, in
consideration of P400, the property that had belonged to their deceased mother and which they acknowledged
having received from the aforementioned purchaser. In this cross-complaint the defendant alleged that the
complaint filed by the plaintiffs was unfounded and malicious, and that thereby losses and damages in the
sum of P1,000 had been caused to the intestate estate of the said Luis Espiritu. He therefore asked that
judgment be rendered by ordering the plaintiffs to keep perpetual silence with respect to the land in litigation
and, besides, to pay said intestate estate P1,000 for losses and damages, and that the costs of the trial be
charged against them.

Perfecto Salas Rodriguez for appellants.

Vicente Foz for appellee.

In reply to the cross-complaint, the plaintiffs denied each and all of the facts therein set forth, and in special
defense alleged that at the time of the execution of the deed of sale inserted in the cross-complaint the
plaintiffs were still minors, and that since they reached their majority the four years fixed by law for the
annulment of said contract had not yet elapsed. They therefore asked that they be absolved from the
defendant's cross-complaint.

TORRES, J.:

After trial and the introduction of evidence by both parties, the court rendered the judgment aforementioned, to
which the plaintiffs excepted and in writing moved for a reopening of the case and a new trial. This motion was
overruled, exception was taken by the petitioners, and the proper bill of exceptions having been presented, the
same was approved and transmitted to the clerk of this court.

This is an appeal by bill of exceptions, filed by the counsel for the plaintiffs from the judgment of September
22, 1914, in which the judge of the Seventh Judicial District dismissed the complaint filed by the plaintiffs and
ordered them to keep perpetual silence in regard to the litigated land, and to pay the costs of the suit.
By a complaint dated April 9, 1913, counsel for Domingo and Josefa Mercado brought suit in the Court of First
Instance of Bulacan, against Luis Espiritu, but, as the latter died soon thereafter, the complaint was amended
by being directed against Jose Espiritu in his capacity of his administrator of the estate of the deceased Luis
Espiritu. The plaintiffs alleged that they and their sisters Concepcion and Paz, all surnamed Mercado, were the
children and sole heirs of Margarita Espiritu, a sister of the deceased Luis Espiritu; that Margarita Espiritu died
in 1897, leaving as her paraphernal property a tract of land of 48 hectares in area situated in the barrio of
Panducot, municipality of Calumpit, Bulacan, and bounded as described in paragraph 4 of the amended
complaint, which hereditary portion had since then been held by the plaintiffs and their sisters, through their
father Wenceslao Mercado, husband of Margarita Espiritu; that, about the year 1910, said Luis Espiritu, by
means of cajolery, induced, and fraudulently succeeded in getting the plaintiffs Domingo and Josefa Mercado
to sign a deed of sale of the land left by their mother, for the sum of P400, which amount was divided among
the two plaintiffs and their sisters Concepcion and Paz, notwithstanding the fact that said land, according to its
assessment, was valued at P3,795; that one-half of the land in question belonged to Margarita Espiritu, and
one-half of this share, that is, one-fourth of said land , to the plaintiffs, and the other one-fourth, to their two
sisters Concepcion and Paz; that the part of the land belonging to the two plaintiffs could produce 180
cavanes of rice per annum, at P2.50 per cavan, was equivalent to P450 per annum; and that Luis Espiritu had
received said products from 1901 until the time of his death. Said counsel therefore asked that judgment be
rendered in plaintiffs' favor by holding to be null and void the sale they made of their respective shares of their
land, to Luis Espiritu, and that the defendant be ordered to deliver and restore to the plaintiffs the shares of the
land that fell to the latter in the partition of the estate of their deceased mother Margarita Espiritu, together with
the products thereof, uncollected since 1901, or their equivalent, to wit, P450 per annum, and to pay the costs
of the suit.
In due season the defendant administrator answered the aforementioned complaint, denying each and all of
the allegations therein contained, and in special defense alleged that the land, the subject-matter of the
complaint, had an area of only 21 cavanes of seed rice; that, on May 25, 1894, its owner, the deceased
Margarita Espiritu y Yutoc, the plaintiffs' mother, with the due authorization of her husband Wenceslao
Mercado y Arnedo Cruz sold to Luis Espiritu for the sum of P2,000 a portion of said land, to wit, an area such
as is usually required for fifteen cavanes of seed; that subsequently, on May 14, 1901, Wenceslao Mercado y
Arnedo Cruz, the plaintiffs' father, in his capacity as administrator of the property of his children sold
under pacto de retro to the same Luis Espiritu at the price of P375 the remainder of the said land, to wit, an
area covered by six cavanes of seed to meet the expenses of the maintenance of his (Wenceslao's) children,

As the plaintiffs assailed the validity of the deed of sale, Exhibit 3, executed by them on May 17, 1910, on the
ground that they were minors when they executed it, the questions submitted to the decision of this court
consist in determining whether it is true that the plaintiffs were then minors and therefore incapable of selling
their property on the date borne by the instrument Exhibit 3; and in case they then were such, whether a
person who is really and truly a minor and, notwithstanding, attests that he is of legal age, can, after the
execution of the deed and within legal period, ask for the annulment of the instrument executed by him,
because of some defect that invalidates the contract, in accordance with the law (Civ. Code, arts. 1263 and
1300), so that he may obtain the restitution of the land sold.
The records shows it to have been fully proven that in 1891 Lucas Espiritu obtained title by composition with
the State, to three parcels of land, adjoining each other, in the sitio of Panducot of the pueblo of Calumpit,
Bulacan, containing altogether an area of 75 hectares, 25 ares, and 59 centares, which facts appear in the title
Exhibit D; that, upon Luis Espiritu's death, his said lands passed by inheritance to his four children named
Victoria, Ines, Margarita, and Luis; and that, in the partition of said decedent's estate, the parcel of land
described in the complaint as containing forty-seven and odd hectares was allotted to the brother and sister
Luis and Margarita, in equal shares. Margarita Espiritu, married to Wenceslao Mercado y Ardeno Cruz, had by
this husband five children, Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, all surnamed
Mercado y Espiritu, who, at the death of their mother in 1896 inherited, by operation of law, one-half of the
land described in the complaint.
The plaintiffs' petition for annulment of the sale and the consequent restitution to them of two-fourths of the
land left by their mother, that is, of one-fourth of all the land described in the complaint, and which, they stated,
amounts to 11 hectares, 86 ares and 37 centares. To this claim the defendant excepted, alleging that the land
in question comprised only an area such as is customarily covered by 21 cavanes of seed.
It was also duly proven that, by a notarial instrument of May 25, 1894, the plaintiffs' mother conveyed by actual
and absolute sale for the sum of P2,000, to her brother Luis Espiritu a portion of the land now on litigation, or
an area such as is usually covered by about 15 cavanes of seed; and that, on account of the loss of the
original of said instrument, which was on the possession of the purchaser Luis Espiritu, and furthermore
because, during the revolution, the protocols or registers of public documents of the Province of Bulacan were
burned, Wenceslao Mercado y Arnedo Cruz, the widower of the vendor and father of the plaintiffs, executed,
at the instance of the interested party Luis Espiritu, the notarial instrument Exhibit 1, of the date of May 20,
1901, in his own name and those of his minor children Maria Consejo, Maria de la Paz, Domingo, Josefa, and

Amalia, and therein set forth that it was true that the sale of said portion of land had been made by his
aforementioned wife, then deceased, to Luis Espiritu in 1894.
However, even prior to said date, to wit, on May 14th of the same year, 1901, the widower Wenceslao
Mercado, according to the private document Exhibit 2, pledged or mortgaged to the same man, Luis Espiritu,
for P375, a part, or an area covered by six cavanes of seed, of the land that had belonged to this vendor's
deceased wife, to the said Luis Espiritu and which now forms a part of the land in question a transaction
which Mercado was obliged to make in order to obtain funds with which "to cover his children's needs."
Wenceslao Mercado, the plaintiffs' father, having died, about the year 1904, the plaintiffs Domingo and Josefa
Mercado, together with their sisters Consejo and Paz, declaring themselves to be of legal age and in
possession of the required legal status to contract, executed and subscribed before a notary the document
Exhibit 3, on May 17, 1910, in which referring to the previous sale of the land, effected by their deceased
mother for the sum of P2,600 and with her husband's permission and authorization, they sold absolutely and
in perpetuity to Luis Espiritu, for the sum of P400 "as an increase" of the previous purchase price, the land
described in said instrument and situated in Panducot, pueblo of Calumpit, Bulacan, of an area equal to that
usually sown with 21 cavanes of seed bounded on the north by the lands of Flaviano Abreu and the heirs of
Pedro Espiritu, on the east by those of Victoria Espiritu and Ines Espiritu, on the south by those of Luis
Espiritu, and on the west by those of Hermogenes Tan-Toco and by the Sapang-Maitu stream.
In this status of the case the plaintiffs seek the annulment of the deed Exhibit 3, on the ground that on the date
of its execution they were minors without legal capacity to contract, and for the further reason that the
deceased purchaser Luis Espiritu availed himself of deceit and fraud in obtaining their consent for the
execution of said deed.
As it was proven by the testimony of the clerk of the parochial church of Apalit (plaintiffs were born in Apalit)
that the baptismal register books of that parish pertaining to the years 1890-1891, were lost or burned, the
witness Maria Consejo Mercado recognized and identified the book Exhibit A, which she testified had been
kept and taken care of by her deceased father Wenceslao Mercado, pages 396 and 397 of which bear the
attestation that the plaintiff Domingo Mercado was born on August 4, 1890, and Josefa Mercado, on July 14,
1891. Furthermore, this witness corroborated the averment of the plaintiffs' minority, by the personal
registration certificate of said Domingo Mercado, of the year 1914, Exhibit C, by which it appears that in 1910
he was only 23 years old, whereby it would also be appear that Josefa Mercado was 22 years of age in 1910,
and therefore, on May 17,1910, when the instrument of purchase and sale, Exhibit 3, was executed, the
plaintiffs must have been, respectively, 19 and 18 years of age.
The witness Maria Consejo Mercado also testified that after her father's death her brother and sisters removed
to Manila to live there, although her brother Domingo used to reside with his uncle Luis Espiritu, who took
charge of the administration of the property left by his predecessors in interest; that it was her uncle Luis who
got for her brother Domingo the other cedula, Exhibit B, pertaining to the year 1910, where in it appears that
the latter was then already 23 years of age; that she did not know why her uncle did so; that she and her
brother and sisters merely signed the deed of May 17, 1910; and that her father Wenceslao Mercado, prior to
his death had pledged the land to her uncle Luis Espiritu.
The witness Ines Espiritu testified that after the death of the plaintiffs' father, it was Luis Espiritu who directed
the cultivation of the land in litigation. This testimony was corroborated by her sister Victoria Espiritu, who
added that her nephew, the plaintiff Domingo, had lived for some time, she did not know just how long, under
the control of Luis Espiritu.

dialect for those of them who did not understand Spanish. On cross-examination, witness added that ever
since he was 18 years of age and began to court, he had known the plaintiff Josefa Mercado, who was then a
young maiden, although she had not yet commenced to attend social gatherings, and that all this took place
about the year 1898, for witness said that he was then [at the time of his testimony, 1914,] 34 years of age.
Antonio Espiritu, 60 years of age, who knew Lucas Espiritu and the properties owned by the latter, testified
that Espiritu's land contained an area of 84 cavanes, and after its owner's death, was under witness'
administration during to harvest two harvest seasons; that the products yielded by a portion of this land, to wit,
an area such as is sown by about 15 cavanes of seed, had been, since 1894, utilized by Luis Espiritu, by
reason of his having acquired the land; and that, after Margarita Espiritu's death, her husband Wenceslao
Mercado took possession of another portion of the land, containing an area of six cavanes of seed and which
had been left by this deceased, and that he held same until 1901, when he conveyed it to Luis
Espiritu. lawphi1.net
The defendant-administrator, Jose Espiritu, son of the deceased Luis Espiritu, testified that the plaintiff
Domingo Mercado used to live off and on in the house of his deceased father, about the year 1909 or 1910,
and used to go back and forth between his father's house and those of his other relatives. He denied that his
father had at any time administered the property belonging to the Mercado brother and sisters.
In rebuttal, Antonio Mercado, a cousin of Wenceslao, father of the plaintiffs, testified that he mediate in several
transactions in connection with a piece of land belonging to Margarita Espiritu. When shown the deed of
purchase and sale Exhibit 1, he stated that he was not acquainted with its contents. This same witness also
testified that he mediated in a transaction had between Wenceslao Mercado and Luis Espiritu (he did not
remember the year), in which the former sold to the latter a parcel of land situated in Panducot. He stated that
as he was a witness of the deed of sale he could identify this instrument were it exhibited to him; but he did not
do so, for no instrument whatever was presented to him for identification. The transaction mentioned must
have concerned either the ratification of the sale of the land of 15 cavanes, in 1901, attested in Exhibit 1, or
the mortgage or pledge of the other parcel of 6 cavanes, given on May 14, 1901, by Wenceslao Mercado to
Luis Espiritu, as may be seen by the private document Exhibit 2. In rebuttal, the plaintiff Josefa Mercado
denied having gone to the house of the notary Tanjutco for the purpose of requesting him to draw up any
document whatever. She stated that she saw the document Exhibit 3 for the first time in the house of her uncle
Luis Espiritu on the day she signed it, on which occasion and while said document was being signed said
notary was not present, nor were the witnesses thereto whose names appear therein; and that she went to her
said uncle's house, because he had sent for her, as well as her brother and sisters, sending a carromata to
fetch them. Victoria Espiritu denied ever having been in the house of her brother. Luis Espiritu in company with
the plaintiffs, for the purpose of giving her consent to the execution of any deed in behalf of her brother.
The evidence adduced at the trial does not show, even circumstantially, that the purchaser Luis Espiritu
employed fraud, deceit, violence, or intimidation, in order to effect the sale mentioned in the document Exhibit
3, executed on May 17, 1910. In this document the vendors, the brother and the sisters Domingo, Maria del
Consejo, Paz and, Josefa surnamed Mercado y Espiritu, attested the certainty of the previous sale which their
mother, during her lifetime, had made in behalf of said purchaser Luis Espiritu, her brother with the consent of
her husband Wenceslao Mercado, father of the vendors of the portion of land situated in the barrio of
Panducot, pueblo of Calumpit, Bulacan; and in consideration of the fact that the said vendor Luis Espiritu paid
them, as an increase, the sum of P400, by virtue of the contract made with him, they declare having sold to
him absolutely and in perpetuity said parcel of the land, waive and thenceforth any and all rights they may
have, inasmuch as said sum constitutes the just price of the property.

Roque Galang, married to a sister of Luis Espiritu, stated that the land that fell to his wife and to his sister-inlaw Victoria, and which had an area of about 8 hectares less than that of the land allotted to the
aforementioned Luis and Margarita produced for his wife and his sister-in-law Victoria a net and minimum yield
of 507 cavanes in 1907, in spite of its being high land and of inferior quality, as compared with the land in
dispute, and that its yield was still larger in 1914, when the said two sisters' share was 764 cavanes.

So that said document Exhibit 3 is virtually an acknowledgment of the contract of sale of the parcel or portion
of land that would contain 15 cavanes of seed rice made by the vendors' mother in favor of the purchaser Luis
Espiritu, their uncle, and likewise an acknowledgment of the contract of pledge or mortgage of the remainder
of said land, an area of six cavanes, made with the same purchaser, at an increase of P400 over the price of
P2,600, making an aggregate sum of P3,000, decomposed as follows: P2,000, collected during her lifetime, by
the vendors' father; and the said increase of P400, collected by the plaintiffs.

Patricio Tanjucto, the notary before whom the deed Exhibit 3 was ratified, was a witness for the defendant. He
testified that this deed was drawn up by him at the request of the plaintiff Josefa Mercado; that the grantors of
the instrument assured him that they were all of legal age; that said document was signed by the plaintiffs and
the other contracting parties, after it had been read to them and had been translated into the Pampangan

In the aforementioned sale, according to the deed of May 25, 1894, Margarita Espiritu conveyed to her brother
Luis the parcel of 15 cavanes of seed, Exhibit 1, and after her death the plaintiffs' widowed father mortgaged
or pledged the remaining parcel or portion of 6 cavanes of seed to her brother-in-law, Luis Espiritu, in May,
1901 (Exhibit 2). So it is that the notarial instrument Exhibit 3, which was assailed by the plaintiffs, recognized

the validity of the previous contracts, and the totality of the land, consisting of an area containing 21 cavanes
of seed rice, was sold absolutely and in perpetuity, the vendors receiving in exchange P400 more; and there is
no conclusive proof in the record that this last document was false and simulated on account of the
employment of any violence, intimidation, fraud, or deceit, in the procuring of the consent of the vendors who
executed it.
Considering the relation that exists between the document Exhibit 3 and those of previous dates, Exhibits 1
and 2, and taking into the account the relationship between the contracting parties, and also the general
custom that prevails in many provinces of these Islands for the vendor or debtor to obtain an increase in the
price of the sale or of the pledge, or an increase in the amount loaned, without proof to the contrary, it would
be improper and illegal to hold, in view of the facts hereinabove set forth, that the purchaser Luis Espiritu, now
deceased, had any need to forge or simulate the document Exhibit 3 inasmuch as, since May, 1894, he has
held in the capacity of owner by virtue of a prior acquisition, the parcel of land of 15 cavanes of seed, and
likewise, since May, 1901, according to the contract of mortgage or pledge, the parcel of 6 cavanes, or the
remainder of the total area of 21 cavanes.
So that Luis Espiritu was, during his lifetime, and now, after his death, his testate or intestate estate is in lawful
possession of the parcel of land situated in Panducot that contains 21 cavanes of seed, by virtue of the title of
conveyance of ownership of the land measuring 15 cavanes, and, in consequence of the contract of pledge or
mortgage in security for the sum of P600, is likewise in lawful possession of the remainder of the land, or an
area containing 6 cavanes of seed.
The plaintiffs have absolutely no right whatever to recover said first parcel of land, as its ownership was
conveyed to the purchaser by means of a singular title of purchase and sale; and as to the other portion of 6
cavanes of seed, they could have redeemed it before May 17, 1910, upon the payment or the return of the
sum which their deceased father Wenceslao Mercado had, during his lifetime, received as a loan under
security of the pledged property; but, after the execution of the document Exhibit 3, the creditor Luis Espiritu
definitely acquired the ownership of said parcel of 6 cavanes. It is therefore a rash venture to attempt to
recover this latter parcel by means of the contract of final and absolute sale, set forth in the deed Exhibit 3.
Moreover, the notarial document Exhibit 1, are regards the statements made therein, is of the nature of a
public document and is evidence of the fact which gave rise to its execution and of the date of the latter, even
against a third person and his predecessors in interest such as are the plaintiffs. (Civ. Code, art. 1218.)
The plaintiffs' father, Wenceslao Mercado, recognizing it to be perfectly true that his wife Margarita Espiritu
sold said parcel of land which she inherited from her father, of an area of about "15 cavanes of seed," to her
brother Luis Espiritu, by means of an instrument executed by her on May 25,1894 an instrument that
disappeared or was burned and likewise recognizing that the protocols and register books belonging to the
Province of Bulacan were destroyed as a result of the past revolution, at the request of his brother-in-law Luis
Espiritu he had no objection to give the testimony recorded in said notarial instrument, as it was the truth
regarding what had occurred, and in so doing he acted as the plaintiffs' legitimate father in the exercise of his
parental authority, inasmuch as he had personal knowledge of said sale, he himself being the husband who
authorized said conveyance, notwithstanding that his testimony affected his children's interest and prejudiced
his own, as the owner of any fruits that might be produced by said real property.
The signature and handwriting of the document Exhibit 2 were identified as authentic by one of the plaintiffs,
Consejo Mercado, and as the record shows no evidence whatever that this document is false, and it does not
appear to have been assailed as such, and as it was signed by the plaintiffs' father, there is no legal ground or
well-founded reason why it should be rejected. It was therefore properly admitted as evidence of the certainty
of the facts therein set forth.

copybook, Exhibit A, notwithstanding the testimony of the plaintiff Consejo Mercado, does not constitute
sufficient proof of the dates of births of the said Domingo and Josefa.
However, even in the doubt whether they certainly were of legal age on the date referred to, it cannot be
gainsaid that in the document Exhibit 3 they stated that they were of legal age at the time they executed and
signed it, and on that account the sale mentioned in said notarial deed Exhibit 3 is perfectly valid a sale that
is considered as limited solely to the parcel of land of 6 cavanes of seed, pledged by the deceased father of
the plaintiffs in security for P600 received by him as a loan from his brother-in-law Luis Espiritu, for the reason
that the parcel of 15 cavanes had been lawfully sold by its original owner, the plaintiffs' mother.
The courts, in their interpretation of the law, have laid down the rule that the sale of real estate, made by
minors who pretend to be of legal age, when in fact they are not, is valid, and they will not be permitted to
excuse themselves from the fulfillment of the obligations contracted by them, or to have them annulled in
pursuance of the provisions of Law 6, title 19, of the 6th Partida; and the judgment that holds such a sale to be
valid and absolves the purchaser from the complaint filed against him does not violate the laws relative to the
sale of minors' property, nor the juridical rules established in consonance therewith. (Decisions of the supreme
court of Spain, of April 27, 1860, July 11, 1868, and March 1, 1875.) itc@alf
With respect to the true age of the plaintiffs, no proof was adduced of the fact that it was Luis Espiritu who took
out Domingo Mercado's personal registration certificate on April 13, 1910, causing the age of 23 years to be
entered therein in order to corroborate the date of the notarial instrument of May 17th of the same year; and
the supposition that he did, would also allow it to be supposed, in order to show the propriety of the claim, that
the cedula Exhibit C was taken out on February 14, 1914, where in it is recorded that Domingo Mercado was
on that date 23 years of age, for both these facts are not proved; neither was any proof adduced against the
statement made by the plaintiffs Domingo and Josefa in the notarial instrument Exhibit 3, that, on the date
when they executed it, they were already of legal age, and, besides the annotation contained in the copybook
Exhibit A, no supplemental proof of their true ages was introduced.
Aside from the foregoing, from a careful examination of the record in this case, it cannot be concluded that the
plaintiffs, who claim to have minors when they executed the notarial instrument Exhibit 3, have suffered
positive and actual losses and damages in their rights and interests as a result of the execution of said
document, inasmuch as the sale effected by the plaintiffs' mother, Margarita Espiritu, in May, 1894, of the
greater part of the land of 21 cavanes of seed, did not occasion any damage or prejudice to the plaintiffs,
inasmuch as their father stated in the document Exhibit 2 that he was obliged to mortgage or pledge said
remaining portion of the land in order to secure the loan of the P375 furnished by Luis Espiritu and which was
subsequently increased to P600 so as to provide for certain engagements or perhaps to meet the needs of his
children, the plaintiff; and therefore, to judge from the statements made by their father himself, they received
through him, in exchange for the land of 6 cavanes of seed, which passed into the possession of the creditor
Luis Espiritu, the benefit which must have accrued to them from the sums of money received as loans; and,
finally, on the execution of the impugned document Exhibit 3, the plaintiffs received and divided between
themselves the sum of P400, which sum, added to that P2,000 received by Margarita Espiritu, and to that of
the P600 collected by Wenceslao Mercado, widower of the latter and father of the plaintiffs, makes all together
the sum of P3,000, the amount paid by the purchaser as the price of all the land containing 21 cavanes of
seed, and is the just price of the property, was not impugned, and, consequently, should be considered as
equivalent to, and compensatory for, the true value of said land.
For the foregoing reasons, whereby the errors assigned to the judgment appealed from have been refuted,
and deeming said judgment to be in accordance with law and the evidence of record, we should, and do
hereby, affirm the same, with costs against the appellants. So ordered.
Arellano, C. J., Johnson, Street, and Malcolm, JJ., concur.

The principal defect attributed by the plaintiffs to the document Exhibit 3 consists in that, on the date of May
17, 1910, when it was executed that they signed it, they were minors, that is, they had not yet attained the age
of 21 years fixed by Act No. 1891, though no evidence appears in the record that the plaintiffs Josefa and
Domingo Mercado were in fact minors, for no certified copies were presented of their baptismal certificates,
nor did the plaintiffs adduce any supplemental evidence whatever to prove that Domingo was actually 19 and
Josefa 18 years of age when they signed the document Exhibit 3, on May 17, 1910, inasmuch as the

Separate Opinions
CARSON, J., concurring:
I concur.

But in order to avoid misunderstanding, I think it well to indicate that the general statement, in the prevailing
opinion to the effect that the making of false representations as to his age by an infant executing a contract will
preclude him from disaffirming the contract or setting up the defense of infancy, must be understood as limited
to cases wherein, on account of the minor's representations as to his majority, and because of his near
approach thereto, the other party had good reason to believe, and did in fact believe the minor capable of
contracting.
The doctrine set forth in the Partidas, relied upon by the supreme court of Spain in the cases cited in the
prevailing opinion, is substantially similar to the doctrine of estoppel as applied in like instances by many of the
courts in the United States.
For the purposes of convenient comparison, I here insert some citations of authority, Spanish and American,
recognizing the limitations upon the general doctrine to which I am inviting attention at this time; and in this
connection it is worthy of note that the courts of the United States look with rather less favor than the supreme
court of Spain upon the application of the doctrine, doubtless because the cases wherein it may properly be
applied, are much less likely to occur in a jurisdiction where majority is reached at the age of 21 than a
jurisdiction wherein majority is not ordinarily attained until the infant reaches the age of 25.
Ley 6, tit. 19, Partida 6. is, in part, as follows:
If he who is minor (1) deceitfully says or sets forth in an instrument that he is over twenty-five years of age,
and this assertion is believed by another person who takes him to be of about that age, (2) in an action at law
he should be deemed to be of the age he asserted, and should no (3) afterwards be released from liability on
the plea that he was not of said age when he assumed the obligation. The reason for this is that the law helps
the deceived and not the deceivers.

In the decision of the supreme court of Spain dated the 27th of April, 1860, I find an excellent illustration of the
conditions under which that court applied the doctrine, as appears from the following resolution therein set
forth.
Sales of real estate made by minors are valid when the latter pretend to be twenty-five years of age and, due
to the circumstances that they are nearly of that age, are married, or have administration of their property, or
on account of other special circumstances affecting them, the other parties to the contract believe them to be
of legal age.
With these citations compare the general doctrine in the United States as set forth in 22 Cyc. (p. 610),
supported by numerous citations of authority.
Estoppel to disaffirm (I) In General. The doctrine of estoppel not being as a general rule applicable to
infants, the court will not readily hold that his acts during infancy have created an estoppel against him to
disaffirm his contracts. Certainly the infant cannot be estopped by the acts or admissions of other persons.
(II) False representations as to age. According to some authorities the fact that an infant at the time of
entering into a contract falsely represented to the person with whom he dealt that he had attained the age of
majority does not give any validity to the contract or estop the infant from disaffirming the same or setting up
the defense of infancy against the enforcement of any rights thereunder; but there is also authority for the view
that such false representations will create an estoppel against the infant, and under the statutes of some
states no contract can be disaffirmed where, on account of the minor's representations as to his majority, the
other party had good reason to believe the minor capable of contracting. Where the infant has made no
representations whatever as to his age, the mere fact that the person with whom he dealt believed him to be of
age, even though his belief was warranted by the infant's appearance and the surrounding circumstances, and
the infant knew of such belief, will not render the contract valid or estop the infant to disaffirm.

In the glossary to these provisions of the Partidas by Gregorio Lopez, I find the following:
(1) De tal tiempo. Nota bene hoc verbum, nam si appareret ex aspectu eum esse minorem, tunc adversarius
non potest dicere se deceptum; imo tam ipse, quam minor videntur esse in dolo, quo casu competit minori
restitutio, quia facta doli compensatione, perinde ast ac si nullus fuiset in dolo, et ideo datur restitutio; et quia
scienti dolus non infertur, l. 1. D. de act. empt. secundum Cyn. Alberic et Salic. in l. 3. C. si minor se major.
dixer. adde Albericum tenentem, quabndo per aspectum a liter constaret, in authent.sacramenta puberum, col.
3. C. si advers vendit.
(2) Engoosamente. Adde 1. 2. et 3. C. si minor se major. dixer. Et adverte nam per istam legem Partitarum,
que non distinguit, an adultus, vel pupillus talem assertionem faciat, videtur comprobari dictum Guillielm. de
Cun. de quo per Paul. de Castr. in 1. qui jurasse. in princ. D. de jurejur. quod si pupillus proximus pubertari
juret, cum contrahit, se esse puberem, et postea etiam juret, quod non veniet contra contractum quod habebit
locum dispositio authenticae sacramenta puberum, sicut si esset pubes: et cum isto dicto transit ibi Paul. de
Cast. multum commendans, dicens, se alibi non legisse; si tamen teneamus illam opinionem, quod etiam
pupillus doli capax obligatur ex juramento, non esset ita miranda dicat, decissio; vide per Alexand. in dict.
1. qui jurasse, in princ. Item lex ista Partitarum expresse sentit de adulto, non de pupillo, cum superius dixit,
que paresciere de tal tiempo: Doctores etiam intelligunt de adulto 11. dict. tit. C. si minor. se major. dixer. et
patet ex 11. illius tituli. Quid autem dicemus in dubio, cum non constat de dolo minoris? Azon. in summa illius
tit. in fin. Cynus tamen, et alli, tenent oppositum, quia dolus non praesumitur, nisi probetur, 1. quotiens, s., qui
dolo, D. de probat. Et hoc etiam vult ista lex Partitarum, cum dicit, si lo faze engoosamente: et ita tenent
Alberic. et Salicet. in dict. 1. 3. ubi etiam Bart. in fin. Si autem minor sui facilitate asserat se mojorem, et ita
juret, tunc distingue, ut habetur dict. 1. 3 quia aut juravit verbo tenus, et tunc non restituitur, nisi per
instrumentum seu scripturam probet se minorem; et si juravit corporaliter, nullo modo restituitur, ut ibi; et per
quae instrumenta probentur, cum verbo tenus juravit, vide per Specul. tit. de restit, in integr. s. quis autem, col.
4. vers. sed cujusmodi erit scriptura, ubi etiam vide per Speculatorem aliquas notabiles quaestiones in ista
materia, in col. 5. videlicet, an praejudicet sibi minor ex tali juramento in aliis contractibus, et tenet, quod non;
et tenet glossa finalis in 1. de aetate, D. de minor. in fin. gloss. vide ibi per Speculat. ubi etiam de aliis in ista
materia.

G.R. No. L-12471

April 13, 1959

ROSARIO L. DE BRAGANZA, ET AL., petitioners,

vs.
FERNANDO F. DE VILLA ABRILLE, respondent.
Oscar M. Herrera for petitioners.
R. P. Sarandi and F. Valdez Anama for respondents.
BENGZON, J.:
Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the Court of Appeal's
decision whereby they were required solidarily to pay Fernando F. de Villa Abrille the sum of P10,000 plus 2 %
interest from October 30, 1944.
The above petitioners, it appears, received from Villa Abrille, as a loan, on October 30, 1944 P70,000 in
Japanese war notes and in consideration thereof, promised in writing (Exhibit A) to pay him P10,000 "in legal
currency of the P. I. two years after the cessation of the present hostilities or as soon as International
Exchange has been established in the Philippines", plus 2 % per annum.
Because payment had not been made, Villa Abrille sued them in March 1949.
In their answer before the Manila court of first Instance, defendants claimed to have received P40,000 only
instead of P70,000 as plaintiff asserted. They also averred that Guillermo and Rodolfo were minors when they

signed the promissory note Exhibit A. After hearing the parties and their evidence, said court rendered
judgment, which the appellate court affirmed, in the terms above described.
There can be no question about the responsibility of Mrs. Rosario L. Braganza because the minority of her
consigners note release her from liability; since it is a personal defense of the minors. However, such defense
will benefit her to the extent of the shares for which such minors may be responsible, (Art. 1148, Civil Code). It
is not denied that at the time of signing Exhibit A, Guillermo and Rodolfo Braganza were minors-16 and 18
respectively. However, the Court of Appeals found them liable pursuant to the following reasoning:
. . . . These two appellants did not make it appears in the promissory note that they were not yet of legal age. If
they were really to their creditor, they should have appraised him on their incapacity, and if the former, in spite
of the information relative to their age, parted with his money, then he should be contended with the
consequence of his act. But, that was not the case. Perhaps defendants in their desire to acquire much
needed money, they readily and willingly signed the promissory note, without disclosing the legal impediment
with respect to Guillermo and Rodolfo. When minor, like in the instant case, pretended to be of legal age, in
fact they were not, they will not later on be permitted to excuse themselves from the fulfillment of the obligation
contracted by them or to have it annulled. (Mercado, et al. vs. Espiritu, 37 Phil., 215.) [Emphasis Ours.]

Furthermore, there is reason to doubt the pertinency of the 4-years period fixed by Article 1301 of the Civil
Code where minority is set up only as a defense to an action, without the minors asking for any positive relief
from the contract. For one thing, they have not filed in this case an action for annulment.2 They merely
interposed an excuse from liability.
Upon the other hand, these minors may not be entirely absolved from monetary responsibility. In accordance
with the provisions of Civil Code, even if their written contact is unenforceable because of non-age, they shall
make restitution to the extent that they have profited by the money they received. (Art. 1340) There is
testimony that the funds delivered to them by Villa Abrille were used for their support during the Japanese
occupation. Such being the case, it is but fair to hold that they had profited to the extent of the value of such
money, which value has been authoritatively established in the so-called Ballantine Schedule: in October
1944, P40.00 Japanese notes were equivalent to P1 of current Philippine money.
Wherefore, as the share of these minors was 2/3 of P70,000 of P46,666.66, they should now return
P1,166.67.3Their promise to pay P10,000 in Philippine currency, (Exhibit A) can not be enforced, as already
stated, since they were minors incapable of binding themselves. Their liability, to repeat, is presently declared
without regard of said Exhibit A, but solely in pursuance of Article 1304 of the Civil Code.

We cannot agree to above conclusion. From the minors' failure to disclose their minority in the same
promissory note they signed, it does not follow as a legal proposition, that they will not be permitted thereafter
to assert it. They had no juridical duty to disclose their inability. In fact, according to Corpuz Juris Secundum,
43 p. 206;

Accordingly, the appealed decision should be modified in the sense that Rosario Braganza shall pay 1/3 of
P10,000 i.e., P3,333.33 4 plus 2% interest from October 1944; and Rodolfo and Guillermo Braganza shall pay
jointly5 to the same creditor the total amount of P1,166.67 plus 6% interest beginning March 7, 1949, when the
complaint was filed. No costs in this instance.

. . . . Some authorities consider that a false representation as to age including a contract as part of the contract
and accordingly hold that it cannot be the basis of an action in tort. Other authorities hold that such
misrepresentation may be the basis of such an action, on the theory that such misrepresentation is not a part
of, and does not grow out of, the contract, or that the enforcement of liability for such misrepresentation as tort
does not constitute an indirect of enforcing liability on the contract. In order to hold infant liable, however, the
fraud must be actual and not constructure. It has been held that his mere silence when making a contract as
to age does not constitute a fraud which can be made the basis of an action of decit. (Emphasis Ours.)

G.R. No. 114950 December 19, 1995

RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARIO,
RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed
SUNTAY, petitioners,
vs.
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.

The fraud of which an infant may be held liable to one who contracts with him in the belief that he is of full age
must be actual not constructive, and mere failure of the infant to disclose his age is not sufficient. (27
American Jurisprudence, p. 819.)
HERMOSISIMA, JR., J.:
The Mecado case1 cited in the decision under review is different because the document signed therein by the
minor specifically stated he was of age; here Exhibit A contained no such statement. In other words, in the
Mercado case, the minor was guilty of active misrepresentation; whereas in this case, if the minors were guilty
at all, which we doubt it is of passive (or constructive) misrepresentation. Indeed, there is a growing sentiment
in favor of limiting the scope of the application of the Mercado ruling, what with the consideration that the very
minority which incapacitated from contracting should likewise exempt them from the results of
misrepresentation.
We hold, on this point, that being minors, Rodolfo and Guillermo Braganza could not be legally bound by their
signatures in Exhibit A.
It is argued, nevertheless, by respondent that inasmuch as this defense was interposed only in 1951, and
inasmuch as Rodolfo reached the age of majority in 1947, it was too late to invoke it because more than 4
years had elapsed after he had become emancipated upon reaching the age of majority. The provisions of
Article 1301 of the Civil Code are quoted to the effect that "an action to annul a contract by reason of majority
must be filed within 4 years" after the minor has reached majority age. The parties do not specify the exact
date of Rodolfo's birth. It is undenied, however, that in October 1944, he was 18 years old. On the basis of
such datum, it should be held that in October 1947, he was 21 years old, and in October 1951, he was 25
years old. So that when this defense was interposed in June 1951, four years had not yet completely elapsed
from October 1947.

Grave danger of destitution and ruin or irretrievable loss of property awaits those who practise or condone
accommodation in order to circumvent the law or to hide from it. This case involving Federico Suntay, a
wealthy landowner from Bulacan, is in point. He is here pitted against his own lawyer, unfortunately his own
nephew, Rafael Suntay, in whose favor he signed and executed a deed of sale of a parcel of valuable and
productive real property for a measly P20,000.00. Federico claims that the sale was merely simulated and has
been executed only for purposes of accommodation. Rafael Suntay, to the consternation or Federico, insists
that the transaction was a veritable sale. Under what showing may the sale be deemed susceptible of
nullification for being simulated? Do we thereby abandon every reverence we have hitherto reposed on
instruments notarized before notaries public?
Before us is a Petition for Review on Certiorari of the Amended Decision 1 of respondent Court of
Appeals 2 and of its Resolution 3 denying petitioner's motion for reconsideration.
These are the pertinent facts:
Respondent Federico Suntay was the registered 4 owner of a parcel of land with an area of 5,118 square
meters, more or less, situated in Sto. Nio, Hagonoy, Bulacan. On the land may be found: a rice mill, a
warehouse, and other improvements. A rice miller, Federico, in a letter, dated September 30, 1960, applied as
a miller-contractor of the then National Rice and Corn Corporation (NARIC). He informed the NARIC that he
had a daily rice mill output of 400 cavans of palay and warehouse storage capacity of 150,000 cavans of

palay. 5 His application, although prepared by his nephew-lawyer, petitioner Rafael Suntay, 6 was
disapproved, 7 obviously because at that time he was tied up with several unpaid loans. For purposes of
circumvention, he had thought of allowing Rafael to make the application for him. Rafael prepared 8an absolute
deed of sale 9 whereby Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel of land
with all its existing structures. Said deed was notarized as Document No. 57 and recorded on Page 13 of Book
1, Series of 1962, of the Notarial Register of Atty. Herminio V. Flores. 10 Less than three months after this
conveyance, a counter sale11 was prepared 12 and signed 13 by Rafael who also caused its delivery 14 to
Federico. Through this counter conveyance, the same parcel of land with all its existing structures was sold by
Rafael back to Federico for the same consideration of P20,000.00. 15 Although on its face, this second deed
appears to have been notarized as Document No. 56 and recorded on Page 15 of Book 1, Series of 1962, 16 of
the notarial register of Atty. Herminio V. Flores, an examination thereof will show that, recorded as Document
No. 56 on Page 13, is not the said deed of sale but a certain "real estate mortgage on a parcel of land with
TCT No. 16157 to secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of
the same notarial register could be found any entry pertaining to Rafael's deed of sale. 17 Testifying on this
irregularity, Atty. Flores admitted that he failed to submit to the Clerk of Court a copy of the second deed.
Neither was he able to enter the same in his notarial register. 18 Even Federico himself alleged in his
Complaint that, when Rafael delivered the second deed to him, it was neither dated nor notarized. 19
Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of Federico
was cancelled and in lieu thereof, TCT No. T-36714 was issued in the name of Rafael. Even after the
execution of the deed, Federico remained in possession of the property sold in concept of owner. Significantly,
notwithstanding the fact that Rafael became the titled owner of said land and rice mill, he never made any
attempt to take possession thereof at any time, 20 while Federico continued to exercise rights of absolute
ownership over the property. 21
In a letter, 22 dated August 14, 1969, Federico, through his new counsel, Agrava & Agrava, requested that
Rafael deliver his copy of TCT No. T-36714 so that Federico could have the counter deed of sale in his favor
registered in his name. The request having been obviously turned down, Agrava & Agrava filed a
petition 23 with the Court of First Instance of Bulacan24 asking Rafael to surrender his owner's duplicate
certificate of TCT No. T-36714. In opposition thereto, Rafael chronicled the discrepancy in the notarization of
the second deed of sale upon which said petition was premised and ultimately concluded that said deed was a
counterfeit or "at least not a public document which is sufficient to transfer real rights according to law." 25 On
September 8, 1969, Agrava & Agrava filed a motion 26 to withdraw said petition, and, on September 13, 1969,
the Court granted the same. 27

2.5 Defendant registered the "Deed of Absolute Sale" . . . with the Register of Deeds of Bulacan, and as a
result, O.C.T. No. 0-2015 in plaintiff's name was cancelled and T.C.T. No. 36714 was issued in defendant's
name.
2.6 After the Deed of Absolute Sale . . . had been registered, defendant prepared and delivered to plaintiff a
counter-deed likewise entitled "Deed of Absolute Sale", duly signed by him, in which he purported to sell back
to plaintiff the same land and improvements . . . for the same consideration of P20,000.00. . . .
2.7 At the time defendant delivered the counter-deed . . . to plaintiff it was signed by defendant, but not dated
or notarized, as defendant told plaintiff that he was delivering the signed counter-deed as a recognition of the
fictitious character of the Deed . . . and authorized plaintiff to date the deed and cause it to be notarized at any
time that plaintiff deemed it necessary or convenient to do so . . .
2.8 From the time plaintiff acquired the land and improvements
. . . from his parents, continuously until the present, plaintiff has been in open, public possession, use and
enjoyment of the land, rice mill, warehouse and other improvements . . . for his sole and exclusive benefit, and
has paid all taxes thereon; and, in fact, from May 19, 1962, the date of the simulated "Deed of Absolute Sale" .
. . until the present, defendant has not exercise a single act of ownership, possession, use or enjoyment of the
said land and improvements.
2.9 During the months of June to August, 1969, desiring to expand his rice mill and warehouse business
located on the land in question, because of government efforts to stimulate rice production, plaintiff requested
defendant to deliver to him the owner's duplicate of the transfer certificate of title over the properties in
question, in order that plaintiff might register the counter-deed . . . and use the property as collateral in
securing a bank loan to finance the expansion of the rice mill and warehouse facilities; but defendant failed
and refused, and continues to fail and refuse to do so, without just cause or legal reason. 29
In his answer, Rafael scoffed at the attack against the validity and genuineness of the sale to him of Federico's
land and rice mill. Rafael insisted that said property was "absolutely sold and conveyed . . . for a consideration
of P20,000.00, Philippine currency, and for other valuable consideration". 30 Accordingly, he raised the
following affirmative and/or special defenses:
xxx xxx xxx

On July 8, 1970, Federico filed a complaint

among others, that:

28

for reconveyance and damages against Rafael. He alleged,

xxx xxx xxx

2.2 Sometime around May, 1962, defendant approached plaintiff and asked plaintiff, purely as an
accommodation and in order only to help defendant in an application that defendant had then filed or intended
to file with the Rice and Corn Administration to be licensed as a rice dealer, to clause the title over the land
and improvement described above to be placed in defendant's name, but with the clear and express
understanding that ownership, possession, use, enjoyment and all other incidents of title would remain vested
in plaintiff; and that, at any time that plaintiff needed or desired that the title be restored to plaintiff's name,
defendant would execute whatever deed and take whatever steps would be necessary to do so; to which
request, in view of their relationship as uncle and nephew, plaintiff acceded.
2.3 Accordingly, defendant prepared a deed entitled "Deed of Absolute Sale" over the land and improvements .
. . which purported to be a sale thereof by plaintiff to defendant in consideration of P20,000.00; which
document plaintiff signed on or about May 19, 1962. . . .
2.4 Defendant never paid or delivered, and plaintiff never demanded or received, the sum of P20,000.00 or
any other valuable consideration for executing the aforesaid "Deed of Absolute Sale", since the same was and
is an absolutely simulated or fictitious transaction, intended solely to accommodate and assist defendant . . .

2.2 Plaintiff is now estopped from questioning the validity, genuineness, valuable consideration and due
execution of the Deed of Absolute Sale, Annex "A" of the Complaint, since he admitted the same in his Petition
in L.R. Case No. 1356 . . . . pertinent portions of which are quoted hereunder:
. . . On August 12, 1962, Rafael G. Suntay sold the property above-described to petitioner through a Deed of
Absolute Sale . . . .
and likewise, plaintiff admitted the validity, genuineness, valuable consideration and due execution of
aforesaid Deed of Absolute Sale . . . as evidenced by the letter of plaintiff's counsel, Attorneys Agrava and
Agrava . . .
3. . . . Sometime in 1962, plaintiff informed defendant that he would repurchase aforesaid property and
requested the defendant to prepare the necessary document. Considering the trust and confidence that
defendant had in plaintiff and pursuant to said request, defendant prepared the proposed Deed of Sale . . .
signed the same and delivered it to the plaintiff with the clear and express understanding that the owner's
duplicate Transfer Certificate of Title would be delivered to the plaintiff only upon full payment of the agreed
repurchase price of P20,000.00 after which said proposed Deed of Sale would be duly notarized. The amount
of P20,000.00 was stated in said proposed Deed of Sale upon request of plaintiff in view of the fact that was
the same amount appearing in the Deed of Absolute Sale, Annex "A" of the Complaint. The plaintiff; not only
failed to pay to defendant the agreed repurchase price of (sic) any portion thereof but even caused the
falsification of the proposed Deed of Sale by making it appear, in connivance with Attorney Herminio Flores,
that defendant acknowledged said document before said Attorney Flores, when in truth and in fact as plaintiff

and Attorney Flores very well knew at the time that defendant never appeared, much less acknowledged,
before Attorney Flores said document . . . 31

question from the plaintiff to the defendant. The mere allegation of the plaintiff that the Deed of Sale (Exh. A) is
simulated and without consideration cannot prevail over his aforesaid admissions.

At the initial hearing on April 7, 1971, Federico took the stand and, when asked why title to the property was
no longer in his name, Rafael's counsel objected thereto upon the ground that Federico, in the petition wherein
he asked Rafael to surrender his owner's duplicate of TCT No. T-36714, had alleged that he sold the land to
Rafael, which allegation, Rafael contends, constitutes as a judicial admission which may not be subject to
contradiction, unless previously shown to have been made through palpable mistake. 32 Rafael's counsel, in
effect, was assailing the admissibility of Federico's anticipated answer which would most likely tend to
establish the simulated nature of the sale executed by Federico in favor of Rafael. Judge Emmanuel Muoz
overruled the objection and reset the case for hearing on June 9, 1971.

. . . In addition thereto is the fact that this Deed of Absolute Sale (Exh. A) was duly recorded in the Notarial
Registry of Notary Public Herminio V. Flores . . . thus showing the regularity and due execution of the
aforesaid document . . . .

On June 7, 1971, Rafael, obviously for the purpose of delay on account of its pettiness,
instituted certiorariproceedings in the Court of Appeals in order to have the aforecited ruling nullified and set
aside. Rafael was naturally rebuffed by the Appellate Court. Considering that the petition for Rafael to
surrender his owner's duplicate of TCT No. T-36714 had been withdrawn upon motion of Federico, the alleged
admission of Federico as to the questioned deed's validity in effect disappeared from the record and had
ceased to have any standing as a judicial admission. 33 Dissatisfied with the ruling, Rafael elevated the matter
to the Supreme Court via a petition for review on certiorari. This was summarily denied by us for lack of
merit. 34
Whereupon, Rafael's counsel moved, as he often did previously, for continuation of trial of the main
case. 35 After a thirteen-year trial with no less than six different Presiding Judges; 36 numerous changes of
lawyers; countless incidents; and a mountain-pile or pleadings a decision in the case was finally rendered
on April 30, 1984. Resolving the sole issue of whether or not the deed of sale executed by Federico in favor of
Rafael was simulated and without consideration, the trial court ruled:
The following documents undisputedly show the admission of the plaintiff that the deed of absolute sale (Exh.
A) is not a simulated or fictitious document but is a genuine deed of absolute sale he executed in favor of the
defendant, to wit:
(a) . . . a demand letter of Attys. Agrava & Agrava, counsel of the plaintiff, the pertinent portion of which is
quoted as follows:
"On May 19, 1972, our client, Federico C. Suntay sold to your goodself for P20,000.00 a parcel of land
situated at Hagonoy, Bulacan . . ."
(b) . . . a Petition for the Surrender of Owner's Duplicate Certificate of Title an/or Cancellation and Issuance of
Substitute Owner's Copy of Transfer Certificate of Title filed in Court on August 19, 1969 by the plaintiff against
the defendant docketed as LRC Case No. 1356 . . . hereby quoted as follows:
"2. Petitioner is the vendee of a parcel of land, together with the improvements existing thereon situated in the
Barrio of Sto. Nio, Hagonoy, Bulacan . . . title to which is still . . . issued in the name of the vendor Rafael G.
Suntay . . . .

The mere fact that plaintiff is in continuous possession of the property in question, pays realty taxes thereon
and have introduced several improvements despite the execution of Deed of Absolute Sale (Exh. A) is not
sufficient basis to conclude that Exh. A is just a simulated sale in the light of the admissions of fire plaintiff in
the aforementioned documentary evidences and furthermore it was explained by the defendant that plaintiff
has been in possession of the property in question and paid taxes thereon because it was their express
understanding that plaintiff would subsequently repurchase the property in question and all the fruits thus
enjoyed by plaintiff and taxes thus paid by him would be accounted for . . . This is borne out by the receipts of
payment of realty taxes which expressly show that plaintiff paid the taxes for and in the name of defendant
Rafael
Suntay. 37
While the trial court upheld the validity and genuineness of the deed of sale executed by Federico in favor of
Rafael, which deed is referred to above as Exhibit A, it ruled that the counter-deed, referred to as Exhibit B,
executed by Rafael in favor of Federico, was simulated and without consideration, hence, null and voidab
initio.
The trial court ratiocinated that:
The Deed of Absolute Sale (Exh. B) which is a resale of the property in question executed by the defendant in
favor of the plaintiff was signed by the defendant but at the time it was handed to the plaintiff it was not dated,
not notarized and above all it has no consideration because plaintiff did not pay defendant the consideration of
the sale in the sum of P20,000.00. . . .
Although Exh. B was subsequently notarized, the fact remained that defendant did not appear and
acknowledge the same before the Notary Public . . . and did not receive the consideration of the aforesaid
Exh. B . . . Consequently (sic), this Exh B for want of consideration and not having been acknowledged by
defendant before the Notary Public is therefore null and void and hence did not transfer ownership of the
property in question to the defendant.
A contract of purchase and sale is void and produces no effect whatsoever where the same is without cause
or consideration in that the purchase price, which appears thereon as paid, has in fact never been paid by the
purchaser to the vendor (Mapalo vs. Mapalo . . . 17 SCRA 114). 38
While the trial court adjudged Rafael as the owner of the property in dispute, it did not go to the extent of
ordering Federico to pay back rentals for the use of the property as the court made the evidential finding that
Rafael simply allowed his uncle to have continuous possession of the property because or their understanding
that Federico would subsequently repurchase the same. The decretal portion of the decision of the trial court
reads:

3. On August 12, 1962, Rafael G. Suntay sold the property . . . to petitioner . . . ."
WHEREFORE, a decision is hereby rendered:
(c) . . . a notice of adverse claim filed by the plaintiff in the Registry of Decision of Bulacan on the land in
question . . . admitting the ownership of the defendant of said land, which is quoted as follows:
"That the property has been sold to me by Rafael G. Suntay through an Absolute Deed of Sale . . . ."
These documents alone are more than sufficient evidence to conclude that Exhibit A is not a simulated Deed
of Absolute Sale but a genuine Deed of Absolute Sale which transferred the ownership of the property in

1. Dismissing this complaint filed by plaintiff against herein defendant;

2. Declaring the Deed absolute Sale (Exh. A) executed by the plaintiff in favor of the defendant of a parcel of
land covered by OCT No. 0-2015-Bulacan Registry as a genuine and valid document;
3. Ordering the defendant to pay the Government of the Republic of the Philippines thru the Office of the
Register of Deeds of Bulacan the true and correct registration fees for the Deed of Absolute Sale (Exh. A) on

the basis of the true consideration of the sale as admitted by the defendant which is P20,000.00 as staled in
the document plus his unpaid attorney's fees in the sum of P114,000.00 within fifteen (15) days from the
finality of this decision;
4. Declaring the Deed of Sale (Exh. B) executed by the defendant in favor of the plaintiff of a parcel of land
covered by TCT No. T-36714-Bulacan Registry as null and void ab initio;
5. The prayer for P500.00/month rental from May, 1962 is hereby denied for lack of merit;
6. With costs against the plaintiff.

39

From the aforecited decision of the trial court, both Federico and Rafael appealed. Before the Court of Appeals
both pleaded invariably the same arguments which they had raised before the trial court. On January 27,
1993, the Court of Appeals rendered judgment in affirmance of the trial court's decision, with a modification.
Federico was ordered to surrender the possession of the disputed property to Rafael. 40

Counsel of Federico filed a motion for reconsideration of the aforecited decision. While the motion was
pending resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of Rafael who had
passed away on November 23, 1988. Atty. Fojas prayed that said heirs be substituted as defendantsappellants in the case. The prayer for substitution was duly noted by the court in a resolution dated April 6,
1993. Thereafter, Atty. Fojas filed in behalf of the heirs an opposition to the motion for reconsideration. The
parties to the case were heard on oral argument on October 12, 1993.
On December 15, 1993, the Court of Appeals reversed itself and rendered an amended judgment, pertinent
portions of which read:
. . . this Court is convinced that the desired reconsideration is impressed with compelling merit. For truly,
certain premises stand out in the chain of evidence, the interplay of which supports the conclusion that the
parties meant Exhibit "A" to be a mere accommodation arrangement executed without any consideration and
therefore simulated contract of sale. Consider the following:
1. Two (2) instruments were executed closely one after the other involving transfer and re-transfer of the same
property at exactly the same price;

The Court of Appeals ruled:

2. The existing close relationship between the parties; and
After a careful examination of the evidence on record, we are inclined to agree with the lower court that Exhibit
"A" is indeed a genuine deed of absolute sale which transferred to Rafael the full ownership of the litigated
property, including the improvements found thereon.
For one, it immediately strikes us as rather unusual for Federico to wait until 1969, or after a period of more
than seven (7) years from May 19, 1962 when he executed Exhibit "A", to seek the restoration of his title over
the same property. Were Federico to be believed, he executed Exhibit "A" simply to accommodate his nephew
in connection with the latter's alleged application as rice dealer of RCA. There is nothing in the record,
however, that Rafael ever became a licensed rice dealer of RCA from 1962 to 1969. . . .
. . . Prudence if not common sense should have cautioned Federico of the dangers attendant to his inaction to
assert immediately his alleged unaffected ownership over the same property. It is simply unthinkable that
Federico could not have considered the possibility that an innocent purchaser for value may acquire the
property from Rafael. Such a thought alone is enough reason for Federico to be wary of the situation which he
allowed to continue for seven (7) years.
Nor can Federico draw comfort from his continued physical possession of the property even after the same
was sold to Rafael. As plausibly explained by Rafael, he allowed Federico to remain in the premises and enjoy
the fruits thereof because of their express understanding that Federico may subsequently repurchase the
property and all the fruits thus enjoyed by the plaintiff and the taxes paid by him would be accounted for at the
time of the repurchase . . . Indeed, the receipts of payment of realty taxes clearly show on their face that
Federico paid the taxes for and in behalf of Rafael . . . .
Independent of the foregoing, documents are on record which are replete with Federico's admissions showing
that Exhibit "A" could not have been a simulated or fictitious deed of sale. . . .
Finally, it is not disputed that Exhibit "A" was duly recorded in the Notarial Register of Notary Public Herminio
V. Flores . . . who testified on the due execution of the same . . .; Against this overwhelming evidence,
Federico's self-serving declaration that Exhibit "A" is a fictitious and simulated contract must certainly fall.
This brings us to the Deed of Absolute Sale (Exh. "B") executed by Rafael in favor of Federico over the same
property.
We cannot add more to what the court a quo has said in declaring that Exhibit "B" is null and void, for which
reason it could not have transferred the ownership of the same property to Federico. . . . 41

3. The value and location of the property purportedly sold, which project in bold relief the gross inadequacy of
the stated contractual consideration therefor.
xxx xxx xxx
There is more. Similarly looming large to attest to the simulated character of Exhibit "A" which, in hindsight,
was unjudiciously brushed aside is the undisputed fact that the physical possession, enjoyment and use of the
property in question remained through the years and up to the present in the hands of Federico. Rafael, as
records show, never assumed the benefits, let alone the burden, of ownership. He did not even include the
property in his statement of assets and liabilities . . . nor paid the taxes therefor. This factor, juxtaposed with
Rafael's execution of the counter deed of sale (Exh. "B"), cannot but unmistakably indicate that the parties
never meant to regard Exhibit "A" as producing actual transfer of ownership and/or rights attached to
ownership. Doubtless, Exhibit "B" manifested, and is an affirmation of, such intention.
We are thus inclined to agree with Federico's main submission that Exhibit "A" is merely a fragment of the
intended transaction, that is, an accommodation loan of title to Rafael and its subsequent return to Federico.
The counter deed of sale executed by Rafael (Exh. "B"), completed it. Stated differently, the first instrument
merely recited a portion of the entire accommodation transaction; the second, as a complementary part, and,
in addition to the first, integrated and made clear the simulated character of the entire agreement.
It is true that in the Decision under consideration, this Court took stock, as Rafael urges, of Federico's
admission in the letter dated August 14, 1969 of the Agrava and Agrava Law office . . . in Federico's petition for
registration . . . and in his affidavit/notice of adverse claim. Viewed in its proper perspective, however, we are
now inclined to consider such admission as no more than a recognition on the part of Federico of the factual
existence of Exhibit "A", by virtue of which his OCT No. 0-2015 was cancelled and a new title (TCT No. T36714) issued in the name of Rafael. . . .
In fine, this Court rules and so holds that the Deed of Absolute Sale executed on May 19, 1962 by plaintiffappellant Federico Suntay in favor of his nephew Rafael G. Suntay (Exh. "A"), is absolutely simulated and
fictitious. As such, it is void and is not susceptible of ratification (Art. 1409, Civil Code), produces no legal
effects (Cario vs. Court of Appeals, 152 SCRA 529), and does not convey property rights nor in any way alter
the juridical situation of the parties (Tongay vs. Court of Appeals, 100 SCRA 99). Along the same vein, the
counter deed of sale (Exh. "B"), executed by Rafael in favor of his uncle Federico, purportedly re-selling to the
latter the very same property earlier fictitiously conveyed by Federico is likewise infected with the same
infirmity that vitiates Exhibit "A". Like the latter document Exhibit "B" is also simulated and therefore it, too, is
incapable of producing legal effects. In short, if was as if no contract of sale was ever executed by Federico in

favor of Rafael, on the one hand, and by Rafael in favor of Federico, on the other hand, although the sad
reality must be acknowledged that on account of Exhibit "A", Federico's title to the property was cancelled and
replaced by a new one in the name of Rafael whose change of heart brought about Federico's travails. 42
We cannot but uphold the foregoing findings and conclusions of the Court of Appeals. While the rule is that
factual findings of the Court of Appeals are binding on us, we endeavored, however, to scrutinize the case
records and read and examined the pleadings and transcripts submitted before the trial court 43 because the
factual findings of the Court of Appeals and that of the trial court are contrary to each other. 44
The sole issue in this case concerns the validity and integrity of the aforedescribed deed of sale in favor of
Rafael Suntay. We necessarily begin with two veritable legal presumptions: first, that there was sufficient
consideration for the contract 45 and, second, that it was the result of a fair and regular private
transaction. 46 These presumptions if shown to hold, infer prima facie the transaction's validity, except that it
must yield to the evidence adduced. 47
In the aggregate, the evidence on record demonstrate a combination of circumstances from which may be
reasonably inferred certain badges of simulation that attach themselves to the deed of sale in question.
I
The late Rafael Suntay and private respondent Federico Suntay were relatives, undisputedly, whose blood
relation was the foundation of their professional and business relationship. The late Rafael testified that he had
completely trusted Federico and so he signed and delivered the counter-deed of sale even without prior
payment of the alleged repurchase price of P20,000.00. Federico had such faith and confidence in the late
Rafael, as nephew and counsel, that he blindly signed and executed the sale in question. He had
recommended Rafael as legal counsel and corporate secretary of the Hagonoy Rural Bank of which he was
founder and once President. He had entrusted to Rafael many of his business documents and personal
papers, the return of which he did not demand even upon termination of their professional relationship. It was
precisely because of this relationship that Federico consented to what he alleged as a loan of title over his
land and rice mill in favor of the late Rafael. We are all too familiar with the practice in the typical Filipino family
where the patriarch with the capital and business standing takes into his fold the young, upcoming,
inexperienced but brilliant and brashly ambitious son, nephew or godchild who, in turn, becomes to his father,
uncle, or godparent, the jack of all trades, trouble shooter and most trusted liaison officer cum adviser. He
wittingly serves his patron without the security of a formal contract and without clarifying the matter of
compensation.
The record is replete with circumstances that establish the closeness, mutual trust and business and
professional interdependence between the late Rafael and private respondent. When their relationship turned
sour, the late Rafael, in all probability knew where to hit Federico where it really hurt because he had been
privy to most of Federico's business and personal dealings and transactions. The documentary evidence
alone proffered by the late Rafael showed the extent of Rafael's knowledge and involvement in both the
business and private affairs of Federico, his wife, his son, and even his wife's relatives. Rafael admitted in
open court that he had come into the possession thereof in the course of rendering legal services to his uncle.
These documents on record and the testimonies of the late Rafael and private respondent establish the
existence of, not only the facts therein stated, but also the circumstance pertaining to the nature of the
relationship between private respondent and the late Rafael. The Court of Appeals simply took a second look
at the evidence on record as was its bounden duty upon the filing of a motion for reconsideration and could no
longer ignore that the close relationship between the late Rafael and private respondent was indeed a badge
of simulation.
There are at least three distinguishable classes of so-called circumstances in evidence which, however,
cannot safely be interpreted in the same way. One class of circumstances, often referred to in trials at law,
includes all outside and related incidents, conditions and happenings which are described by witnesses and
necessarily are subject to all of the dangers and defects of oral and memory testimony. There are also
circumstances which are admitted, or which arise from the nature of the case itself, which cannot be denied,
and lastly there are tangible and visible facts before
court . . . . which are the basis for a judgment . . . .

. . . The law, as well as logic, makes a distinction between surroundings, conditions, and "circumstances" as
compared with real and tangible facts. . . . A bungling, overwritten, traced signature, as well as a coat with a
bullet-hole in the breast are both . . . "silent circumstances" that do not commit perjury. Though silent they
often are eloquent. . . .
All these quite distinct classes of evidence form the basis of legal verdicts and judgments. The great mass of
legal evidence consists of testimony of oral witnesses which has force in proportion as it is believed, but in
many important cases a verdict must be based mainly upon the second or the third class of evidence . . .
Circumstances and facts must be interpreted and illustrated in order to show whether a definite conclusion can
be based on them. In many cases a particular conclusion is
irresistible. 48
The history and relationship of trust, interdependence and intimacy between the late Rafael and Federico is an
unmistakable token of simulation. It has been observed that fraud is generally accompanied by trust. 49Hardly
is it inconsistent with practical experience, especially in the context of the Filipino family's way of life, that
Federico, the uncle, would almost naively lend his land title to his nephew and agree to its cancellation in his
nephew's favor because Federico, in the first place, trusted his nephew; was well aware of his power over him
as uncle, client, and patron; and was actually in possession of the land and rice mill. No one could even
conceive of the possibility of ejecting Federico therefrom on the basis of the sham transaction. The late Rafael
never attempted to physically dispossess his uncle or actually take over the rice mill during his lifetime.
II
The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion en pago" in
satisfaction of Federico's unpaid attorney's fees, 50 What prominently stands out from the mass of records,
however, is the fact that this claim of the late Rafael was only raised in 1976 when he testified on direct
examination. The answer that he filed in 1970 in response to Federico's complaint never mentioned nor even
alluded to any standing liability on the part of Federico as regards unpaid attorney's fees. Neither did the late
Rafael deny or refute Federico's testimony that they did not have a clear-cut compensation scheme and that
Federico gave him money at times, which compensation enabled the late Rafael to purchase his first car. The
late Rafael even affirmed Federico's testimony respecting his appointment as the legal counsel and corporate
secretary of the Hagonoy Rural Bank for which he received compensation as well.
Equally significant is the admission of the late Rafael that he did not inform Federico that he considered the
transfer to be in consideration of his alleged unpaid attorney's fees. 51 Apparently, it is true, as Federico
claimed, that no accounting was undertaken between uncle-client and nephew-lawyer in order to arrive at the
definite amount of the alleged unpaid attorney's fees. Strange and irregular as this matter seems to be, the
same may only become comprehensible when considered as or grave symptom of simulation.
III
Indeed the most protuberant index of simulation is the complete absence of an attempt in any manner on the
part of the late Rafael to assert his rights of ownership over the land and rice mill in question. After the sale, he
should have entered the land and occupied the premises thereof. He did not even attempt to. If he stood as
owner, he would have collected rentals from Federico for the use and occupation of the land and its
improvements. All that the late Rafael had was a title in his name.
If is to be emphasized that the private respondents never parted with the ownership and possession of that
portion of Lot No 785 . . . nor did the petitioners ever enter into possession thereof. As earlier stated, the
issuance of TCT No. T-1346 did not operate to vest upon the latter ownership over the private respondents'
property. That act has never been recognized as a mode of acquiring ownership. As a matter of fact, even the
original registration of immovable property does not vest title thereto; it is merely evidence of such title over a
particular property. The Torrens system of land registration should not be used as a means to perpetrate fraud
against the rightful owner of real property. 52
The failure of the late Rafael to take exclusive possession of the property allegedly sold to him is a clear
badge of fraud. 53 The fact that, notwithstanding the title transfer, Federico remained in actual possession,

cultivation and occupation of the disputed lot from the time the deed of sale was executed until the present, is
a circumstance which is unmistakably added proof of the fictitiousness of the said transfer, 54 the same being
contrary to the principle of ownership. 55

thereto. The intention of the parties still and always is the primary consideration in determining the true nature
of a contract.
VI

Of course, according to the late Rafael, he allowed Federico to remain in the premises and enjoy the fruits
thereof because of their understanding that Federico may subsequently repurchase the property. Contrary to
what Rafael thought, this in fact is added reason for simulation. The idea of allowing a repurchase goes along
the same lines posed by the theory of Federico.
If it were true that the first sale transaction was actually a "dacion en pago" in satisfaction of Federico's alleged
unpaid attorney's fees, it does strain the logical mind that Rafael had agreed to allow the repurchase of the
property three months thereafter. Federico was obviously financially liquid. Had he intended to pay attorney's
fees, he would have paid Rafael in cash and not part with valuable income-producing real property.
IV
The late Rafael, at the very outset, made much of an uproar over the alleged admissions made by Federico in
several documents executed by him or in his behalf.
On the whole, it was the late Rafael's inflexible stand that Federico admitted in various documents that he bad
absolutely sold his land and rice mill to him and could not, thus, subsequently deny or attack that sale. Upon
our examination of such documents, however, we find that neither the letter of Agrava & Agrava, nor the
petition to compel delivery of the owner's duplicate of title and the notice of adverse claim, supports the late
Rafael's posture. Nowhere is it stated in the aforesaid petition and notice of adverse claim that Federico sold
the subject properly to the late Rafael. What was alleged was that Rafael resold to Federico the said property,
and not the other way around, precisely because both documents were assertions of remedies resorted to by
Federico upon the refusal by the late Rafael to tender his owner's duplicate title.
V
Neither does the undisputed fact that the deed of sale executed by Federico in favor of the late Rafael, is a
notarized document, justify the conclusion that said sale is undoubtedly a true conveyance to which the parties
thereto are irrevocably and undeniably bound.
Conduct, to be given jural effects, must be jural in its subject . . . i.e. must concern jural relations, not relations
of friendship or other non-jural relations. The father who promises to bring home a box of tools for his boy is
not bound in contract, though the same promise to his neighbor may be binding. The friend who invites one
with an offer of a dinner is not legally liable, though he who agrees with a restaurant-keeper for a banquet to
be spread there is under a contract of liability. . . . In all such cases, therefore, the conduct is jurally ineffective,
or void. In the traditional phraseology of the parole evidence rule, then, it may always be shown that the
transaction was understood by the parties not to have jural effect.

While the late Rafael vehemently upholds the validity and effectiveness of the deed of sale in question, this
posture is eroded by his admission, on cross-examination during trial that he never declared his ownership of
the subject property in his annual Statement Of Assets And Liabilities. The fact that the late Rafael denied both
intention and knowledge involving the sham sale and firmly maintained the validity and genuineness thereof
has become incongruous because it is irreconcilable with the circumstance that he apparently never
considered the disputed property as one of his assets over which he had rights of absolute ownership.
The allegation of Rafael that the lapse of seven (7) years before Federico sought the issuance of a new title in
his name necessarily makes Federico's claim stale and unenforceable does not hold water. Federico's title
was not in the hands of a stranger or mere acquaintance; it was in the possession of his nephew who, being
his lawyer, had served him faithfully for many years. Federico had been all the while in possession of the land
covered by his title and so there was no pressing reason for Federico to have a title in his name issued. Even
when the relationship between the late Rafael and Federico deteriorated, and eventually ended, it is not at all
strange for Federico to have been complacent and unconcerned about the status of his title over the disputed
property since he has been possessing the same actually, openly, and adversely, to the exclusion of Rafael. It
was only when Federico needed the title in order to obtain a collaterized loan 57 that Federico began to attend
to the task of obtaining a title in his name over the subject land and rice mill.
We, therefore, hold that the deed of sale executed by Federico in favor of his now deceased nephew, Rafael,
is absolutely simulated and fictitious and, hence, null and void, said parties having entered into a sale
transaction to which they did not intend to be legally bound. As no property was validly conveyed under the
deed, the second deed of sale executed by the late Rafael in favor of his uncle, should be considered
ineffective and unavailing.
WHEREFORE, the Amended Decision promulgated by the Court of Appeals on December 15, 1993 in CA-G.R
CV No. 08179 is hereby AFFIRMED IN TOTO. Petitioners, the heirs of Rafael G. Suntay, are hereby ordered
to reconvey to private respondent Federico G. Suntay the property described in paragraph 2.1 of the
complaint, within ten (10) days from the finality of this Decision, and to surrender to him within the same period
the owner's duplicate copy of Transfer Certificate of Title No. T-36714 of the Registry of Deeds of the Province
of Bulacan. In the event that the petitioners fail or refuse to execute the necessary deed of reconveyance as
herein directed, the Clerk of Court of the Regional Trial Court of Bulacan is hereby ordered to execute the
same at the expense of the aforesaid heirs.
Costs against petitioners.
SO ORDERED.

(1) Ordinarily, the bearing of this principle is plain enough on the circumstances. It has been judicially applied
to household services rendered by a member of the family, and to a writing representing merely a family
understanding. . . .
When the document is to serve the purpose of a mere sham, this principle in strictness exonerates the
makers. . . . 56
The cumulative effect of the evidence on record as chronicled aforesaid identified badges of simulation
proving that the sale by Federico to his deceased nephew of his land and rice mill, was not intended to have
any legal effect between them. Though the notarization of the deed of sale in question vests in its favor the
presumption of regularity, it is not the intention nor the function of the notary public to validate and make
binding an instrument never, in the first place, intended to have any binding legal effect upon the parties

G.R. No. L-32437 August 31, 1982

SALANDANG PANGADIL et al., petitioners,

vs.
THE COURT OF FIRST INSTANCE OF COTABATO, BRANCH I, et al., respondents.
Estanislao V. Valdez for petitioners.

and effective and, hence, the action to annul the sale which was filed more than twenty-one years after the
approval thereof is already barred by the statute of limitations.
In their present petition for review on certiorari, petitioners dispute the said pronouncement by the respondent
court on the principal ground that the document known as "Ratificacion De Una Venta" is inexistent and void
and the action for a declaration of its non-existence does not prescribe pursuant to Art. 1410 of the Civil Code.

Zain B. Angas for respondents.

&
VASQUEZ, J.:1wph1.t
This is a petition for review on certiorari of the dismissal of Civil Case No. 2187 of the respondent court of first
instance. The petition was given due course in the Resolution of June 22, 1970 on the ground that the
petitioners have raised only questions of law.
Civil Case No. 2187 of the respondent court is an action filed by the herein petitioners to declare a document
known as "Ratificacion De Una Venta" as inexistent and void ab initio for being absolutely simulated and
fictitious contract.
The record reveals that the parties are in disagreement as to certain facts underlying their controversy.
Nonetheless, insofar as determining the correctness of the dismissal of the action filed by the petitioners
concerned, the material facts relative thereto are not in serious dispute. The parcel of land in question was
formerly owned by Pangadil Maslamama his ownership being evidenced by Original Certificate of Title No.
1272. Sometime in December 1941, the said land was conveyed by Pangadil Maslamama in favor of the
herein private respondents. The said transaction, the nature of which the petitioners insist to be a mortgage
and not a sale as claimed by the private respondents, was merely oral and not evidenced by any writing.
On December 20, 1946, petitioner Salandang Pangadil, one of the petitioners herein, who is a daughter of
Pangadil Maslamama, filed in the' respondent court "Actuacion Especial No. 33" praying for her appointment
as guardian of her minor brothers and sisters who are the other petitioners in this case. The avowed purpose
of the said guardianship proceeding, as stated in the petition filed therein, was to enable the petitioners to
execute the necessary document to formalize the verbal sale executed by their father Pangadil Maslamama of
the land in question in favor of private respondent Tandingan Kagui executed during the lifetime of Pangadil
Maslamama. The petition was granted, Salandang Pangadil was appointed guardian and took her oath as
such.
On February 10, 1947, Salandang Pangadil, in her personal capacity and in her capacity as guardian of her
minor brothers and sisters, and her sister Tinting Pangadil who had attained majority age in the meantime,
executed the questioned document, entitled "Ratificacion De Una Venta" pursuant to which they
acknowledged the sale made by their deceased father Pangadil Maslamama over the parcel of land in
question in favor of respondent Tandingan Kagui for the consideration of the sum of P750.00. Upon the said
document being presented to the guardianship court, the sale was approved pursuant to the order of May 19,
1947. Upon the approval of the said document, the guardianship proceeding was declared closed in an order
dated August 10, 1948.
On January 7, 1969, the petitioners filed Civil Case No. 2187 seeking the annulment of the aforementioned
document and for a declaration of the nullity of the order of the Court of First Instance of Cotabato in
"Actuacion Especial No. 33" approving the said document.
The respondent filed a motion to dismiss Civil Case No. 2187 on two (2) grounds, namely: (1) that plaintiffs'
cause of action has already prescribed; and (2) that the cause of action is barred by a prior judgment. In the
questioned order dated March 5, 1969, the respondent court dismissed the said case on the ground of
prescription. The respondent court declared the document, entitled "Ratificacion De Una Venta" legal, binding

The validity of the posture assumed by the petitioners requires a showing that the document in question is,
indeed, inexistent and void from the beginning. The basis of their claim that the said document is of that nature
is that it is allegedly fictitious and contrary to public policy. It is supposedly violative of public policy because it
deprived the minor brothers and sisters of Salandang Pangadil of their shares in the inheritance from their
father.t@lFThe contention that it is fictitious is premised on the allegation that respondent Tandingan Kagui
misled petitioners Salandang Pangadil and Tinting Pangadil into affixing their thumbmarks to the questioned
document on the misrepresentation that it was merely to ratify an oral contract of mortgage entered into by
their father Pangadil Maslamama in favor of respondent Tandingan Kagui.
The imprescriptibility of an action to declare the inexistence of a contract refers only to the contracts expressly
enumerated in Article 1409 of the Civil Code. The facts appearing herein, even those alleged by the petitioners
but denied by the private respondents, do not provide a basis to categorize the document in question as
inexistent and void ab initio. No circumstance has been alleged by the petitioners to sustain its contention that
the execution of the aforesaid document is contrary to public policy. Admitted facts show that the conveyance
of the land in question in favor of the private respondents had been effected by the father of the petitioners
during his lifetime. It may not be said, therefore, that in executing a deed to ratify said transaction executed by
her father, petitioners Salandang Pangadil and Tinting Pangadil deprived their minor brothers and sisters of
their supposed shares in the inheritance from their deceased father.
The supposed inexistence of the questioned contract is predicated on the allegation of the petitioners that the
execution of the questioned document was attended by fraud and misrepresentation. In their complaint filed in
the trial court, they averred that petitioners Salandang Pangadil and Tinting Pangadil were made to sign the
document on the misrepresentation that it was merely to ratify an oral contract of mortgage executed by her
father during the latter's lifetime, and not to confirm an oral sale of the land in question. Assuming, once again,
that the execution of the deed of ratification was attended by fraud, such circumstance would only make the
contract voidable or annulable (Art. 1309, Civil Code), and not an inexistent and void contract in accordance
with Article 1409 of the same Code. The action to annul a voidable contract is not imprescriptible, unlike in the
case of an inexistent contract. If the action to annul a voidable contract is based on fraud, as in the case
herein, it prescribes in four years from the time of the discovery of the fraud. (Art. 1391, Civil Code.)
It cannot be true, as alleged in the complaint of the petitioners in Civil Case 2187, that it was only sometime
before the filing of the said case, or when the petitioners sought to release the oral contract of mortgage by
tendering to respondent Tandingan Kagui the payment of the amount of the mortgage loan obtained by their
deceased father, that they learned of the alleged fraud consisting of the fact that the document signed by
Salandang Pangadil and Tinting Pangadil was not a document to confirm an oral contract of mortgage but one
to ratify a deed of sale. The record abundantly reveals facts in refutation of such pretense on the part of the
petitioners which was evidently intended to justify the very much delayed filing of Civil Case No. 2187, The
nature of the transaction entered into between the father of the petitioners and private respondents Tandingan
Kagui was brought to the attention of petitioner Salandang Pangadil not once but at least two separate times.
Petitioners do not deny that the land had been conveyed by their father to private respondent Tandingan Kagui
by means of a transaction which was not evidenced by a writing. They merely claim that it was not a sale but
only a mortgage. It appears that in the hearing of the petition for the appointment of Salandang Pangadil as
guardian in "Actuacion Especial No. 33, " evidence was presented by her consisting, among others, of a
document dated August 3, 1944 marked therein as Exhibit "A" which was a private writing signed also by
petitioners Salandang Pangadil and Tinting Pangadil (who was then already of age) confirming the sale made
by their father Pangadil Maslamama in favor of private respondent Tandingan Kagui the said instrument
having been witnessed by Datu Ugalingan Piang, a former congressman of Cotabato. Salandang Pangadil
was the petitioner in the guardianship proceedings wherein she asked that she be appointed as guardian of
her minor brothers and sisters precisely to enable her to formalize the same sale orally done by her father
during his lifetime. It is not easy to imagine that in the execution of the document on August 3, 1944 and in the
proceedings taken in connection with "Actuacion Especial No. 33", all of which show indubitably the intention
to ratify a sale executed by the father of the petitioners in favor of the private respondents, the herein petitioner

Salandang Pangadil, who appears to be the eldest child of Pangadil Maslamama, could have been totally
ignorant of the nature of the documents to which she had affixed her written conformity.

2) Ordering plaintiffs-appellees to vacate the subject properties; and

3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:

It is equally unbelievable that in the span of time from December 1941 up to the date that Civil Case No. 2187
was filed on January 7, 1969, a period of more than twenty-seven years, the petitioners would not have taken
any step to verify the status of the land of their father which had been in the possession of the private
respondents during all the time, particularly as to the possibility of redeeming the supposed mortgage their
father had constituted thereon. Their inaction for such a considerable period of time reflects on the credibility
of their pretense that they merely intended to confirm an oral mortgage, instead of a sale of the land in
question.

a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the subject parcels of
land of which they were deprived in the sum of P26,000.00 and (ii) attorney's fees of P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5,000.00 and (ii) attorney's
fees of P15,000.00.

There is less legal basis to hold that the questioned document is inexistent and void ab initio for being
supposedly a simulated or fictitious contract. Under the law, the simulation of a contract may either be
absolute or relative. It is only when the contract is absolutely simulated or fictitious that it is deemed void.t
@lF There is absolute simulation "when the parties do not intend to be bound at all." In case the parties
merely conceal their true agreement, the simulation is relative, and the contract with that defect is binding
upon the parties unless it prejudices a third person and is intended for a purpose contrary to law, morals, good
customs, public order or public policy. (Arts. 1345 and 1346, Civil Code.)

SO ORDERED.

The document in question may not be deemed absolutely simulated or fictitious. By petitioners' own
admission, they intended to be bound thereby; they merely contend that they thought it was to ratify a contract
of oral mortgage, instead of an oral sale of land. In short, it is not a contract wherein the parties do not intend
to be bound at all which would thereby make it absolutely simulated and, therefore, void. Petitioners,
accordingly, may not seek umbrage under the provision that an action to annul an inexistent contract is
imprescriptible.

During the pre-trial conference, the parties entered into the following stipulation of facts:

WHEREFORE, the Order appealed from is hereby affirmed. With costs against the petitioners.
G.R. No. 89561 September 13, 1990
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C.
RADA, MARIETTA C. ABAEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING
CO., INC., respondents.
Edmundo T. Zepeda for petitioners.
Martin M. De Guzman for respondent BORMAHECO, Inc.

The original complaint for annulment of title filed in the court a quo by herein petitioners included as party
defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the
Philippines (ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera (Rivera). A Second Amended
Complaint was filed, this time impleading Santiago M. Rivera as party plaintiff.

As between all parties: Plaintiff Buenaflor M. Castillo is the judicial administratrix of the estate of Felipe Castillo
in Special Proceeding No. 4053, pending before Branch IX, CFI of Quezon (per Exhibit A) which intestate
proceedings was instituted by Mauricia Meer Vda. de Castillo, the previous administratrix of the said
proceedings prior to 1970 (per exhibits A-1 and A-2) which case was filed in Court way back in 1964;
b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally covered by TCT No.
T-42104 and Tax Dec. No. 14134 with assessed value of P3,100.00; TCT No. T 32227 and Tax Dec. No.
14132, with assessed value of P5,130,00; TCT No. T-31762 and Tax Dec. No. 14135, with assessed value of
P6,150.00; and TCT No. T-42103 with Tax Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A2 and B, B-1 to B-3 C, C-1 -to C3
c) That the above-enumerated four (4) parcels of land were the subject of the Deed of Extra-Judicial Partition
executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto has (sic) been
cancelled and in lieu thereof, new titles in the name of Mauricia Meer Vda. de Castillo and of her children,
namely: Buenaflor, Bertilla, Victoria, Marietta and Leovina, all surnamed Castillo has (sic) been issued,
namely: TCT No. T-12113 (Exhibit E ); TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G ) and TCT
No. T13117 (Exhibit H )

Renato J. Robles for P.M. Parts Manufacturing Co., Inc.

d) That mentioned parcels of land were submitted as guaranty in the Agreement of Counter-Guaranty with
Chattel-Real Estate Mortgage executed on 24 October 1970 between Insurance Corporation of the Philippines
and Slobec Realty Corporation represented by Santiago Rivera (Exhibit 1);

REGALADO, J.:

e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in favor of Insurance
Corporation of the Philippines it was able to transfer to itself the titles over the lots in question, namely: TCT
No. T-23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT No. T-23707 (Exhibit 0) and TCT No. T 23708
(Exhibit P);

This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in CA-GR CV
No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery Parts Manufacturing Co., Inc.,
et al.," 1the dispositive portion whereof provides:
WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be, as it is hereby
REVERSED. In lieu thereof, a judgment is hereby rendered1) Dismissing the complaint, with cost against plaintiffs;

f) That on 10 April 1975, the Insurance Corporation of the Philippines sold to PM Parts the immovables in
question (per Exhibit 6 for PM Parts) and by reason thereof, succeeded in transferring unto itself the titles over
the lots in dispute, namely: per TCT No. T-24846 (Exhibit Q ), per TCT No. T-24847 (Exhibit R ), TCT No. T24848 (Exhibit), TCT No. T-24849 (Exhibit T );
g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to Modesto N. Cervantes stating that she
and her children refused to comply with his demands (Exhibit V-2);

h) That from at least the months of October, November and December 1970 and January 1971, Modesto N.
Cervantes was the Vice-President of Bormaheco, Inc. later President thereof, and also he is one of the Board
of Directors of PM Parts; on the other hand, Atty. Martin M. De Guzman was the legal counsel of Bormaheco,
Inc., later Executive Vice-President thereof, and who also is the legal counsel of Insurance Corporation of the
Philippines and PM Parts; that Modesto N. Cervantes served later on as President of PM Parts, and that Atty.
de Guzman was retained by Insurance Corporation of the Philippines specifically for foreclosure purposes
only;
i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and Development, Inc.,
represented by Santiago Rivera, President, one (1) unit Caterpillar Tractor D-7 with Serial No. 281114
evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco, Inc.;
j) That the Surety Bond No. 14010 issued by co-defendant ICP was likewise secured by an Agreement with
Counter-Guaranty with Real Estate Mortgage executed by Slobec Realty & Development, Inc., Mauricia
Castillo Meer, Buenaflor Castillo, Bertilla Castillo, Victoria Castillo, Marietta Castillo and Leovina Castillo, as
mortgagors in favor of ICP which document was executed and ratified before notary public Alberto R. Navoa of
the City of Manila on October 24,1970;

r) That on 23 January 1971, Slobec Realty Development Corporation, represented by Santiago Rivera,
received from Bormaheco, Inc. one (1) tractor Caterpillar Model D-7 pursuant to Invoice No. 33234 (Exhibits 9
and 9-A, Bormaheco, Inc.) and delivery receipt No. 10368 (per Exhibits 10 and 10-A for Bormaheco, Inc
s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance Corporation of the
Philippines purchased at public auction for said corporation the four (4) parcels of land subject of tills case (per
Exhibit L), and which document was presented to the Register of Deeds on 1 October 1973;
t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of the Philippines
in favor of PM Parts on 1 0 April 1975, Modesto N. Cervantes, formerly Vice- President and now President of
Bormaheco, Inc., sent his letter dated 9 August 1976 to Mauricia Meer Vda. de Castillo (Exhibit V), demanding
that she and her children should vacate the premises;
u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty Development
Corporation was actually reconditioned and repainted. " 2
We cull the following antecedents from the decision of respondent Court of Appeals:

k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City and covered by
TCT Nos. T-13114, T13115,
T-13116 and T-13117 of the Register of Deeds of Lucena City;
l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development, Inc. was delivered to
Bormaheco, Inc. on or about October 2,1973, by Mr. Menandro Umali for purposes of repair;
m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its ownership and the assignment of Mr.
Petronilo Roque as caretaker of the subject property;
n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is worth no less than
Pl,000.00 per harvest.
As between plaintiffs and
defendant Bormaheco, Inc
o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in representation of the Slobec Realty &
Development Corporation executed in favor of Bormaheco, Inc., represented by its Vice-President Modesto N.
Cervantes a Chattel Mortgage concerning one unit model CAT D7 Caterpillar Crawler Tractor as described
therein as security for the payment in favor of the mortgagee of the amount of P180,000.00 (per Exhibit K) that
Id document was superseded by another chattel mortgage dated January 23, 1971 (Exhibit 15);
p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc., represented by its Vice-President Modesto
Cervantes and Slobec Realty Corporation represented by Santiago Rivera executed the sales agreement
concerning the sale of one (1) unit Model CAT D7 Caterpillar Crawler Tractor as described therein for the
amount of P230,000.00 (per Exhibit J) which document was superseded by the Sales Agreement dated
January 23,1971 (Exhibit 16);
q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was executed on 25
November 1970, and in the document entitled Sales Agreement (per Exhibit J) that it was executed on 18
December 1970, it appears in the notarial register of the notary public who notarized them that those two
documents were executed on 11 December 1970. The certified xerox copy of the notarial register of Notary
Public Guillermo Aragones issued by the Bureau of Records Management is hereto submitted as Exhibit BB
That said chattel mortgage was superseded by another document dated January 23, 1971;

Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family are the
owners of a parcel of land located in Lucena City which was given as security for a loan from the Development
Bank of the Philippines. For their failure to pay the amortization, foreclosure of the said property was about to
be initiated. This problem was made known to Santiago Rivera, who proposed to them the conversion into
subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. The
Idea was accepted by the Castillo family and to carry out the project, a Memorandum of Agreement (Exh. U p.
127, Record) was executed by and between Slobec Realty and Development, Inc., represented by its
President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera obliged himself to pay
the Castillo family the sum of P70,000.00 immediately after the execution of the agreement and to pay the
additional amount of P400,000.00 after the property has been converted into a subdivision. Rivera, armed with
the agreement, Exhibit U , approached Mr. Modesto Cervantes, President of defendant Bormaheco, and
proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a Sales Agreement
was executed on December 28,1970 (Exh. J, p. 22, Record).
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc., represented by its
President, Santiago Rivera, executed a Sales Agreement over one unit of Caterpillar Tractor D-7 with Serial
No. 281114, as evidenced by the contract marked Exhibit '16'. As shown by the contract, the price was
P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance of P180,000.00 payable
in eighteen monthly installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco
a Chattel Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the payment of the
aforesaid balance of P180,000.00. As further security of the aforementioned unpaid balance, Slobec obtained
from Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety
and Slobec as principal, in favor of Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The aforesaid
surety bond was in turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I,
p. 24, Record) executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo, Buenaflor
Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as
mortgagors and Insurance Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP
guaranteed the obligation of Slobec with Bormaheco in the amount of P180,000.00. In giving the bond, ICP
required that the Castillos mortgage to them the properties in question, namely, four parcels of land covered
by TCTs in the name of the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and 13117 all
of the Register of Deeds for Lucena City.
On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16', Slobec,
represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement, namely, the
aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No. 33234 (Exhs. 9 and 9-A, p. 112,
Record) and Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to be
a reconditioned and repainted one [Stipulation of Facts, Pre-trial Order, par. (u)].

Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. 1), the
properties of the Castillos were foreclosed by ICP As the highest bidder with a bid of P285,212.00, a
Certificate of Sale was issued by the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the
subject parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely, TCT Nos.
T-23705, T 23706, T-23707 and T-23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the
date of the registration of the certificate of sale, that is, until October 1, 1974, to redeem the property, but they
failed to do so. Consequently, ICP consolidated its ownership over the subject parcels of land through the
requisite affidavit of consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p. 138, Rec.).
Pursuant thereto, a Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP
(Exh. 23, p. 139, Rec.).
On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing Co. (PM
Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto itself the titles
over the lots in dispute so that said parcels of land are now covered by TCT Nos. T-24846, T-24847, T-24848
and T-24849 (Exhs. Q-T, pp. 46-49, Rec.).
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated August 9,1976
addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her children to vacate the subject
property, who (Mrs. Castillo) in turn sent her reply expressing her refusal to comply with his demands.
On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali as
the appointed administratrix of the properties in question filed an action for annulment of title before the then
Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085. Thereafter, they filed an
Amended Complaint on January 10, 1980 (p. 444, Record). On July 20, 1983, plaintiffs filed their Second
Amended Complaint, impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that
all the aforementioned transactions starting with the Agreement of Counter-Guaranty with Real Estate
Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale and the Affidavit of
Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale (Annexes J, K, L and M) are void
for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon,
(Branch IX) before whom the administration proceedings has been pending. Plaintiffs pray that the four (4)
parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo and that all
Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847,
24848 and 24849 as well as those appearing as encumbrances at the back of the certificates of title
mentioned be declared as a nullity and defendants to pay damages and attorney's fees (pp. 71071 1, Record).
In their amended answer, the defendants controverted the complaint and alleged, by way of affirmative and
special defenses that the complaint did not state facts sufficient to state a cause of action against defendants;
that plaintiffs are not entitled to the reliefs demanded; that plaintiffs are estopped or precluded from asserting
the matters set forth in the Complaint; that plaintiffs are guilty of laches in not asserting their alleged right in
due time; that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it
bought the subject property (p. 744, Record). 3

Chattel Mortgage dated January 23, 1971 (Exhibit 17);

Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of Quezon in favor of
Insurance Corporation of the Philippines (Exhibit L);
null and void for being fictitious, spurious and without consideration. Consequently, Transfer Certificates of
Title Nos. T 23705, T-23706, T23707 and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance
Corporation of the Philippines, are likewise null and void.
The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine Machinery Parts
Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer Certificates of Title Nos. T 24846, T24847, T-24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine Machinery
Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of Deeds of Lucena City is
hereby directed to issue, in lieu thereof, transfer certificates of title in the names of the plaintiffs, except
Santiago Rivera.
Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10,000.00,
exemplary damages in the amount of P5,000.00, and actual litigation expenses in the sum of P6,500.00.
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of P10,000.00 for and as
attomey's fees. With costs against the defendants.
SO ORDERED. 4
As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered the
judgment subject of this petitionPetitioners contend that respondent Court of Appeals erred:
1. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and
regular and therefore binding between the parties thereto;
2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts, erroneous
presumptions not supported by the evidence on record but also, holding valid and binding the supposed
payment by ICP of its obligation to Bormaheco, despite the fact that the surety bond issued it had already
expired when it opted to foreclose extrajudically the mortgage executed by the petitioners;
3. In aside the finding of the lower court that there was necessity to pierce the veil of corporate existence; and

After trial, the court a quo rendered judgment, with the following decretal portion:
4. In reversing the decision of the lower court of affirming the same
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, declaring the
following documents:
Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24,1970 (Exhibit 1);
Sales Agreement dated December 28, 1970 (Exhibit J)
Chattel Mortgage dated November 25, 1970 (Exhibit K)
Sales Agreement dated January 23, 1971 (Exhibit 16);

I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of Slobec
Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of Bormaheco, such as
the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-Guaranty with Chattel/Real Estate
Mortgage, 8 are all fraudulent and simulated and should, therefore, be declared nun and void. Such allegation
is premised primarily on the fact that contrary to the stipulations agreed upon in the Sales Agreement (Exhibit
J), Rivera never made any advance payment, in the alleged amount of P50,000.00, to Bormaheco; that the
tractor was received by Rivera only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage
(Exhibit K); and that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was
executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and
Chattel Mortgage had not as yet been executed, aside from the fact that it was Bormaheco, and not Rivera,
which paid the premium for the surety bond issued by ICP

At the outset, it will be noted that petitioners submission under the first assigned error hinges purely on
questions of fact. Respondent Court of Appeals made several findings to the effect that the questioned
documents are valid and binding upon the parties, that there was no fraud employed by private respondents in
the execution thereof, and that, contrary to petitioners' allegation, the evidence on record reveals that
petitioners had every intention to be bound by their undertakings in the various transactions had with private
respondents. It is a general rule in this jurisdiction that findings of fact of said appellate court are final and
conclusive and, thus, binding on this Court in the absence of sufficient and convincing proof, inter alia, that the
former acted with grave abuse of discretion. Under the circumstances, we find no compelling reason to deviate
from this long-standing jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement, which
clearly constitutes a breach of the contract, cannot be availed of by the guilty party to justify and support an
action for the declaration of nullity of the contract. Equity and fair play dictates that one who commits a breach
of his contract may not seek refuge under the protective mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the validity of petitioners' contention
that the contracts entered into by the parties are either absolutely simulated or downright fraudulent.
There is absolute simulation, which renders the contract null and void, when the parties do not intend to be
bound at all by the same. 9 The basic characteristic of this type of simulation of contract is the fact that the
apparent contract is not really desired or intended to either produce legal effects or in any way alter the
juridical situation of the parties. The subsequent act of Rivera in receiving and making use of the tractor
subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance of a surety bond
in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with
Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every intention to be bound by
these contracts. The occurrence of these series of transactions between petitioners and private respondents is
a strong indication that the parties actually intended, or at least expected, to exact fulfillment of their respective
obligations from one another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced
to enter into a contract through the insidious words and machinations of private respondents without which the
former would not have executed such contract. To set aside a document solemnly executed and voluntarily
delivered, the proof of fraud must be clear and convincing. 10 We are not persuaded that such quantum of
proof exists in the case at bar.
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per
se affect the validity of the bond. Petitioners themselves admit in their present petition that Rivera executed a
Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that a part of the
proceeds thereof shall be used to pay the premium for the bond. 11 In effect, Bormaheco accepted the
payment of the premium as an agent of ICP The execution of the deed of sale with a right of repurchase in
favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized
Bormaheco as an agent of ICP Such payment to the agent of ICP is, therefore, binding on Rivera. He is now
estopped from questioning the validity of the suretyship contract.
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal
fiction that a corporation is an entity with a juridical personality separate and distinct from its members or
stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of
persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability
will attach directly to the officers and stockholders. 12 The doctrine applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, 13 or when it is made as a shield to
confuse the legitimate issues 14 or where a corporation is the mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation. 15
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM Parts,
alleging that these corporations employed fraud in causing the foreclosure and subsequent sale of the real
properties belonging to petitioners While we do not discount the possibility of the existence of fraud in the
foreclosure proceeding, neither are we inclined to apply the doctrine invoked by petitioners in granting the

relief sought. It is our considered opinion that piercing the veil of corporate entity is not the proper remedy in
order that the foreclosure proceeding may be declared a nullity under the circumstances obtaining in the legal
case at bar.
In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not seek to
impose a claim against the individual members of the three corporations involved; on the contrary, it is these
corporations which desire to enforce an alleged right against petitioners. Assuming that petitioners were
indeed defrauded by private respondents in the foreclosure of the mortgaged properties, this fact alone is not,
under the circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not intend
to hold the officers and/or members of respondent corporations personally liable therefor. Petitioners are
merely seeking the declaration of the nullity of the foreclosure sale, which relief may be obtained without
having to disregard the aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners
failed to establish by clear and convincing evidence that private respondents were purposely formed and
operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification
for disregarding their separate personalities, 16 absent sufficient showing that the corporate entity was
purposely used as a shield to defraud creditors and third persons of their rights.
III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP
Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons, viz.: (1)
no written notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with
the former, plus the fact that no receipt was presented to show the amount allegedly paid by ICP to
Bormaheco; and (b) at the time of the foreclosure of the mortgage, the liability of ICP under the surety bond
had already expired.
Respondent court, in finding for the validity of the foreclosure sale, declared:
Now to the question of whether or not the foreclosure by the ICP of the real estate mortgage was in the
exercise of a legal right, We agree with the appellants that the foreclosure proceedings instituted by the ICP
was in the exercise of a legal right. First, ICP has in its favor the legal presumption that it had indemnified
Bormaheco by reason of Slobec's default in the payment of its obligation under the Sales Agreement,
especially because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in
consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which provides that it is disputably
presumed that private transactions have been fair and regular. likewise, it is disputably presumed that the
ordinary course of business has been followed: Second, ICP had the right to proceed at once to the
foreclosure of the mortgage as mandated by the provisions of Art. 2071 Civil Code for these further reasons:
Slobec, the principal debtor, was admittedly insolvent; Slobec's obligation becomes demandable by reason of
the expiration of the period of payment; and its authorization to foreclose the mortgage upon Slobec's default,
which resulted in the accrual of ICPS liability to Bormaheco. Third, the Agreement of Counter-Guaranty with
Real Estate Mortgage (Exh. 1) expressly grants to ICP the right to foreclose the real estate mortgage in the
event of 'non-payment or non-liquidation of the entire indebtedness or fraction thereof upon maturity as
stipulated in the contract'. This is a valid and binding stipulation in the absence of showing that it is contrary to
law, morals, good customs, public order or public policy. (Art. 1306, New Civil Code). 17
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have
entitled Bormaheco to demand payment from ICP under the suretyship contract.
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec
undertook to guarantee the payment of the balance of P180,000.00 payable in eighteen (18) monthly
installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently provides in part as follows:
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will expire Twelve (I
2) months from date hereof. Furthermore, it is hereby agreed and understood that the INSURANCE
CORPORATION OF THE PHILIPPINES will not be liable for any claim not presented in writing to the
Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the obligee hereby waives

his right to bring claim or file any action against Surety and after the termination of one (1) year from the time
his cause of action accrues. 18
The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof states:
"NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22, 1971." 19
On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of P180,000.00
shall be payable in eighteen (18) monthly installments. 20 The Promissory Note executed by Slobec on even
date in favor of Bormaheco further provides that the obligation shall be payable on or before February 23,
1971 up to July 23, 1972, and that non-payment of any of the installments when due shall make the entire
obligation immediately due and demandable. 21
It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly
assumed therein. We have repeatedly held that the extent of a surety's liability is determined only by the
clause of the contract of suretyship as well as the conditions stated in the bond. It cannot be extended by
implication beyond the terms the contract. 22
Fundamental likewise is the rule that, except where required by the provisions of the contract, a demand or
notice of default is not required to fix the surety's liability. 23 Hence, where the contract of suretyship stipulates
that notice of the principal's default be given to the surety, generally the failure to comply with the condition will
prevent recovery from the surety. There are certain instances, however, when failure to comply with the
condition will not extinguish the surety's liability, such as a failure to give notice of slight defaults, which are
waived by the obligee; or on mere suspicion of possible default; or where, if a default exists, there is excuse or
provision in the suretyship contract exempting the surety for liability therefor, or where the surety already has
knowledge or is chargeable with knowledge of the default. 24
In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any claim not filed
in writing within thirty (30) days from the expiration of the bond. In its decision dated May 25 1987, the court a
quocategorically stated that '(n)o evidence was presented to show that Bormaheco demanded payment from
ICP nor was there any action taken by Bormaheco on the bond posted by ICP to guarantee the payment of
plaintiffs obligation. There is nothing in the records of the proceedings to show that ICP indemnified
Bormaheco for the failure of the plaintiffs to pay their obligation. " 25 The failure, therefore, of Bormaheco to
notify ICP in writing about Slobec's supposed default released ICP from liability under its surety bond.
Consequently, ICP could not validly foreclose that real estate mortgage executed by petitioners in its favor
since it never incurred any liability under the surety bond. It cannot claim exemption from the required written
notice since its case does not fall under any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence.
Section 1, Rule 131 of the Rules of Court provides that the burden of evidence lies with the party who asserts
an affirmative allegation. Since ICP failed to duly prove the fact of payment, the disputable presumption that
private transactions have been fair and regular, as erroneously relied upon by respondent Court of Appeals,
finds no application to the case at bar.
2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full extent
thereof, such liability is strictly limited to that assumed by its terms. 26 While ordinarily the termination of a
surety's liability is governed by the provisions of the contract of suretyship, where the obligation of a surety is,
under the terms of the bond, to terminate at a specified time, his obligation cannot be enlarged by an
unauthorized extension thereof. 27 This is an exception to the general rule that the obligation of the surety
continues for the same period as that of the principal debtor. 28

valid basis for the exercise of the right to foreclose by ICP since its surety contract had already been
terminated. Besides, the liability of ICP was extinguished when Bormaheco failed to file a written claim against
it within thirty (30) days from the expiration of the surety bond. Consequently, the foreclosure of the mortgage,
after the expiration of the surety bond under which ICP as surety has not incurred any liability, should be
declared null and void.
3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for his
personal indemnity, to which he may resort only after payment by himself, until he has paid something as such
guarantor neither he nor the creditor can resort to such collaterals. 30
The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and in
consideration of the obligations assumed by the Mortgagee-Surety Company under the terms and conditions
of ICP Bond No. 14010 in behalf of Slobec Realty Development Corporation and in favor of Bormaheco,
Inc. 31 There is no doubt that said Agreement of Counter-Guaranty is issued for the personal indemnity of ICP
Considering that the fact of payment by ICP has never been established, it follows, pursuant to the doctrine
above adverted to, that ICP cannot foreclose on the subject properties,
IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title
over the subject properties. The submission is without merit and the conclusion is specious
We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case.
However, its inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It
must be noted that Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as President of
PM Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several
transactions executed between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the
Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts. These facts were
admitted without qualification in the stipulation of facts submitted by the parties before the trial court. Hence,
the defense of good faith may not be resorted to by private respondent PM Parts which is charged with
knowledge of the true relations existing between Bormaheco, ICP and herein petitioners. Accordingly, the
transfer certificates of title issued in its name, as well as the certificate of sale, must be declared null and void
since they cannot be considered altogether free of the taint of bad faith.
WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and
judgment is hereby rendered declaring the following as null and void: (1) Certificate of Sale, dated September
28,1973, executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation of the Philippines;
(2) Transfer Certificates of Title Nos. T-23705, T-23706, T-23707 and T-23708 issued in the name of the
Insurance Corporation of the Philippines; (3) the sale by Insurance Corporation of the Philippines in favor of
Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land covered by the aforesaid
certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849
subsequently issued by virtue of said sale in the name of the latter corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846,
T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing Co., Inc. and to issue
in lieu thereof the corresponding transfer certificates of title in the name of herein petitioners, except Santiago
Rivera.
The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available
to respondent Bormaheco, Inc. against herein petitioners.
SO ORDERED.

It is possible that the period of suretyship may be shorter than that of the principal obligation, as where the
principal debtor is required to make payment by installments. 29 In the case at bar, the surety bond issued by
ICP was to expire on January 22, 1972, twelve (1 2) months from its effectivity date, whereas Slobec's
installment payment was to end on July 23, 1972. Therefore, while ICP guaranteed the payment by Slobec of
the balance of P180,000.00, such guaranty was valid only for and within twelve (1 2) months from the date of
effectivity of the surety bond, or until January 22, 1972. Thereafter, from January 23, 1972 up to July 23, 1972,
the liability of Slobec became an unsecured obligation. The default of Slobec during this period cannot be a

G.R. No. 158380

May 16, 2005

MARIQUITA MACAPAGAL, petitioner,

vs.

CATALINA O. REMORIN, CORAZON CALUZA-BAMRUNGCHEEP, and LAURELIA CALUZAVALENCIANO,respondents.

DECISION
PUNO, J.:
Assailed in this petition for review is the Decision dated March 8, 2002 1 of the Court of Appeals in CA-G.R. CV
No. 448142 which reversed and set aside the Decision of the Regional Trial Court (RTC), Branch 88, of
Quezon City in Civil Case No. Q-90-5384, as well as its Resolution dated May 7, 2003 3 which denied
petitioners motion for reconsideration.

This memorandum of agreement, made and executed by and among CORAZON CALUZA-BAMRUNGCHEEP, of legal age, married, citizen of Thailand by marriage but Filipino by
birth, resident of Bangkok, Thailand, represented by her attorney-in-fact, CONSUELO R. CARUBIO;
PURIFICACION ARCE-CALUZA and CATALINA OGOY-REMORIN, of legal ages, widow[s], Filipino citizens
and residents at (sic) No. 7 Serrano Laktaw St., Quezon City; and
LAURELIA VALENCIANO, of legal age, married, Filipino citizen, and resident of No. 98 Bayani St., Santol,
Quezon City;
witnesseth, that -

Involved in the present controversy is a 105-square meter parcel of land located at No. 7, Serrano Laktaw
Street, Galas, Quezon City, known as Lot 5. Lot 5, together with an adjacent 52.5-square meter lot known as
Lot 4, forms part of the consolidated Lots 24 and 25, Block 12, of subdivision plan Psd-12586, LRC Record
No. 16117.
Lots 24 and 25 were registered in the name of Candido Caluza under Transfer Certificate of Title (TCT) No.
160544. Purificacion Arce-Caluza (Purificacion) is his second wife. Corazon Caluza-Bamrungcheep (Corazon)
is his legally adopted daughter during his first marriage. After Candido died in 1981, Corazon and Purificacion
executed a Deed of Extrajudicial Settlement dated November 21, 1981 4 adjudicating between themselves the
properties of Candido, as the latters surviving heirs. Lots 24 and 25, together with Lot 23 which was
registered in Candidos name under TCT No. 160543, were adjudicated to Corazon. Purificacion got Candidos
land in Bulacan. However, administration of Lots 23, 24 and 25 were entrusted to Purificacion by Corazon as
she had to leave for Thailand after her marriage to a Thai.
Unknown to Corazon and while she was in Thailand, the 74-year old Purificacion executed an Affidavit of Loss
dated December 31, 1983 alleging that TCT Nos. 160543 and 160544 were lost and could no longer be found.
She filed a petition with the RTC of Quezon City for the issuance of new owners duplicates of title alleging that
she was her deceased husbands sole heir. The petition was granted and TCT Nos. 326633 and 326634 were
issued in Purificacions name. In July 1986, Purificacion sold the lots to Catalina Remorin (Catalina) who was
issued TCT Nos. 346876 and 347859. Catalina mortgaged Lots 24 and 25 to L & R Lending Corporation for
two hundred thousand (P200,000.00) pesos.
After she learned of the foregoing, Corazon, through her attorney-in-fact Ramon Remorin, filed a complaint on
December 29, 1986 for reconveyance and damages against Purificacion and Catalina before the RTC of
Quezon City, docketed as Civil Case No. Q-49661. Plaintiff alleged that the two defendants connived with
each other in transferring the three lots in their names through simulated sales. Corazon likewise filed a
criminal complaint for falsification and perjury against the two before the Office of the City Fiscal of Quezon
City, docketed as I.S. No. 87-07726.
On May 4, 1987, Catalina executed a Deed of Transfer, signed by Purificacion as witness, admitting the wrong
they did in illegally transferring the lots in their names and acknowledging Corazon to be the rightful owner
under the Deed of Extrajudicial Settlement dated November 21, 1981. The document was presented by
Corazon in a motion to dismiss Civil Case No. Q-49661 but the motion was withdrawn when counsel for
Catalina and Purificacion objected on the ground that the Deed of Transfer was executed without his legal
assistance. The Deed of Transfer, however, was presented by Corazon before the Register of Deeds of
Quezon City. Catalinas TCT No. 347859 over Lots 24 and 25 was cancelled and TCT No. 375605 was issued
in Corazons name. Prior thereto, however, Catalina mortgaged Lots 24 and 25 to respondent Laurelia CaluzaValenciano (Laurelia) for two hundred ninety-five thousand (P295,000.00) pesos to pay off her mortgage
indebtedness to L & R Lending Corporation. The inscription of the mortgage in favor of Laurelia was carried
over to Corazons TCT No. 375605.
On March 21, 1988, Corazon, Purificacion, Catalina, and Laurelia executed a Memorandum of Agreement 5 to
settle Civil Case No. Q-49661 and Criminal Charge No. I.S. 87-07726. The Agreement read -

Whereas, the above-named parties are involved in Civil Case No. Q-49661 of the Regional Trial Court of
Quezon City and in Criminal Charge No. I.S. 87-07726 of the City Fiscals Office of Quezon City;
Whereas, said parties have decided to mutually resolve their differences out-of-court voluntarily and without
any duress or undue influence on both (sic) of them;
Now, therefore, for and in consideration of the foregoing premises, the above parties hereby agree and
stipulate as follows:
That the first party, Corazon Caluza-Bamrungcheep, hereby cedes and grants unto and in favor of Purificacion
Arce-Caluza full ownership and other real rights over the southernmost apartment (garage) as well as the
portion of the lot occupied thereby, described as Lot 25, Block 12 of the subdn. plan Psd-12586 covered by
Transfer Certificate of Title No. 375605 of the Registry of Deeds for Quezon City; subject to the condition that
said Purificacion Arce-Caluza shall assume satisfaction of the mortgage debt contracted by Catalina OgoyRemorin in favor of Mrs. Laurelia C. Valenciano annotated at the back of the title thereof; and shall cause
transfer of said annotation to the title to be issued in her (Purificacions) name; and furthermore that any and
all expenses for segregation survey, re-titling and annotation of said mortgage shall be shouldered by said
Purificacion Arce-Caluza;
That the parties agree that they shall execute such formal requisites for the implementation of this agreement,
and that henceforth they waive and renounce whatever conflicting claims they may have over the intestate
estate of Candido Caluza, deceased.
Before the agreement could be implemented, however, Purificacion died on July 28, 1988. Consequently,
another compromise agreement6 was executed on September 9, 1988, viz.:
PLAINTIFF AND DEFENDANTS (sic) respectfully submit for the kind consideration and approval of the
Honorable Court this Compromise Agreement, which provides, thus:
1. That they agreed, as they hereby agree, to dismiss the complaint of the plaintiff as well as the counterclaim
of the defendants (sic);
2. That they bind themselves not to bring any further action, suit or complaint against each other in connection
with this case and/or the property in question or the subject-matter hereof;
3. That pursuant to the parties Memorandum of Agreement of March 21, 1986 (sic), a copy of which is
attached as Annex "A" hereof, and with the death of defendant Purificacion Arce Caluza on July 28, 1988, in
Quezon City, without an heir, plaintiff Corazon Caluza Bamrungcheep and defendant Catalina O. Remorin
agreed, as they hereby agree, that title to the southernmost apartment (garage) as well as the portion of the lot
occupied thereby, described as Lot 25, Block 12 of the subdivision plan Psd-12586 covered by Transfer
Certificate of Title No. 375605 of the Registry of Deeds for Quezon City shall be transferred direct to its

interested buyer with defendant Catalina O. Remorin assuming and paying (from the proceeds of the sale) her
mortgage obligation with Mrs. Laurelia C. Valenciano annotated at the back of the title thereof; any and all
expenses for segregation survey, re-titling, capital gains taxes and those connected with the annotation and/or
release of said mortgage should now be shouldered by defendant Catalina O. Remorin; said defendant further
agrees to execute such other documents or papers as are necessary to implement the aforementioned
Memorandum of Agreement of March 21, 1986 (sic).
The Agreement was approved by Judge Benigno T. Dayaw in his Decision dated September 16, 1988. 7
On May 24, 1989, Corazon sold the subject Lot 5 to Laurelia by virtue of a deed entitled "Sale of
Unsegregated Portion of Land." Controversy erupted anew when Catalina sold the same lot to herein
petitioner Mariquita Macapagal on August 24, 1989 claiming to be authorized under the Compromise
Agreement. Laurelia demanded that petitioner and her family vacate the premises, to no avail. On November
28, 1989, Laurelia filed an ejectment suit against petitioner before the Metropolitan Trial Court (MeTC) of
Quezon City, docketed as Civil Case No. 2244. In turn, petitioner filed a complaint for nullification of contract
and damages with prayer for a temporary restraining order and/or writ of preliminary prohibitory injunction
against Catalina, Corazon and Laurelia before the RTC of Quezon City, docketed as Civil Case No. Q-905384, root of the present petition. Petitioner sought to nullify the sale executed by Corazon in favor of Laurelia
and to declare valid the one executed by Catalina in her favor. Plaintiff likewise asked that the MeTC of
Quezon City be ordered to desist from hearing the ejectment suit.
On October 15, 1993, the RTC of Quezon City rendered judgment in favor of petitioner. 8 Corazon and Laurelia
appealed to the Court of Appeals which reversed the decision of the trial court. 9 Hence, this petition for review.
Petitioner contends that the sale executed by Catalina in her favor should prevail over the one executed by
Corazon in favor of Laurelia, as Catalina was the one authorized to sell the disputed property under the
Compromise Agreement dated September 9, 1988.
Respondents, on the other hand, contend that Corazon, the registered owner of the disputed property, did not
give Catalina authority to sell the lot considering Catalinas connivance with Purificacion in illegally transferring
the lots in their names, in the first place. It was provided in the Agreement that Catalina shall pay off her
mortgage obligation and incidental expenses from the proceeds of the sale only to reassure Catalina that her
obligation would be paid in the event that Corazon sells the property.
We rule in favor of respondents.
As correctly pointed out by the appellate court, Corazon was the registered owner of the disputed Lot 5 at the
time the two sales were executed. As owner, she had the right to enjoy and dispose of Lot 5 as well as to
exclude any person from such enjoyment and disposal.10 A waiver may not be casually attributed when the
terms thereof do not explicitly and clearly prove an intent to abandon the right. 11
In the case at bar, the Compromise Agreement dated September 9, 1988 cannot be taken as a waiver of
Corazons authority to sell and grant thereof to Catalina considering that the Agreement merely provided that
Catalina pay off her mortgage obligation and incidental expenses from the proceeds of the sale. Although it
was imperative, as part of the compromise, that the money come from the proceeds of the sale, it was not
expressly stated, nor did it necessarily mean, that Catalina herself be the one to directly sell the property. The
money may merely be handed over to her for such payment. The rule is that any reasonable doubt that the
language used conveys authority to sell will yield a construction that no such authority has been
given.12 Authority to sell must be couched in clear and unmistakable language. 13
Moreover, intent to give Catalina authority to sell may not be easily attributed to Corazon considering that the
latter had to file the reconveyance case as a result of Purificacions and Catalinas acts of transferring the
disputed lot in their names notwithstanding the clear terms of the Deed of Extrajudicial Settlement dated
November 21, 1981. In contract interpretation, analysis is not to be limited to the words used in the contract,
as they may not accurately reflect the parties true intent. 14 Ambiguities are construed against the drafter only
when justified by the operative facts and surrounding circumstances. 15 It is for this reason that the interpreter
must look at the reason behind and the circumstances under which the contract was executed. 16 If the words

of the contract appear to be contrary to the evident intention as revealed by the circumstances, the latter shall
prevail over the former.17
Even assuming arguendo that the parties intended to confer upon Catalina authority to sell the disputed
property, they clearly did not intend the Agreement to be the document itself considering that they agreed to
execute such other documents or papers as are necessary to implement the agreement, 18 which they never
did. Under Article 1878, paragraph 5 of the Civil Code, a special power of attorney is necessary for an agent to
enter into any contract by which the ownership of an immovable property is transmitted or acquired either
gratuitously or for a valuable consideration. Catalina admittedly did not have such a document in her favor.
Neither can petitioner demand enforcement of the Compromise Agreement on the ground that she was the
"interested buyer" referred to therein to whom title to the disputed property shall be directly transferred. Being
a stranger to the Agreement, petitioner cannot demand its enforcement for it is settled that a compromise
agreement determines the rights and obligations only of the parties to it. 19 It cannot favor or prejudice a third
person20 even if he was aware of the contract and has acted with knowledge of it. 21 Moreover, if petitioner was
indeed the interested buyer referred to in the Agreement and there was already a closed deal between her,
Corazon and Catalina, even before the execution of the Compromise Agreement, 22 it is strange that petitioner
was not identified outright as the buyer and that the Deed of Sale in her favor was executed only some twelve
(12) months after or on August 24, 1989.
Petitioner cannot be considered a buyer in good faith considering that she did not buy the disputed lot from its
registered owner. One who buys from a person who is not the registered owner is not a buyer in good
faith.23Moreover, in double sales of real property, ownership passes to the vendee who, in good faith, first
recorded it in the Registry of Property.24 TCT No. 43235 was issued in Laurelias name on July 21, 1989 by
virtue of the "Sale of Unsegregated Portion of Land" executed in her favor by Corazon.
The fact that the deed of sale between respondents Corazon and Laurelia did not accurately reflect the true
consideration thereof is not cause for declaration of its nullity. When the parties intended to be bound by the
contract except that it did not reflect the actual purchase price of the property, there is only a relative
simulation of the contract which remains valid and enforceable. 25 It cannot be declared null and void since it
does not fall under the category of an absolutely simulated or fictitious contract. 26 The contract of sale is valid
but subject to reformation.27
IN VIEW WHEREOF, the petition is DENIED. The assailed Decision of the Court of Appeals, dated March 8,
2002, as well as its Resolution dated May 7, 2003 in CA-G.R. CV No. 44814 is AFFIRMED.
SO ORDERED.
G.R. No. L-14070

March 29, 1961

MARIA GERVACIO BLAS, MANUEL GERVACIO BLAS, LEONCIO GERVACIO BLAS and LODA
GERVACIO BLAS, plaintiffs-appellants,
vs.
ROSALINA SANTOS, in her capacity as Special Administratrix of the Estate of the deceased MAXIMA
SANTOS VDA. DE BLAS, in Sp. Proc. No. 2524, Court of First Instance of Rizal, defendants-appellants.
MARTA GERVACIO BLAS and DR. JOSE CHIVI, defendants-appellants.
LABRADOR, J.:
This action was instituted by plaintiffs against the administration of the estate of Maxima Santos, to secure a
judicial declaration that one-half of the properties left by Maxima Santos Vda. de Blas, the greater bulk of
which are set forth and described in the project of partition presented in the proceedings for the administration
of the estate of the deceased Simeon Blas, had been promised by the deceased Maxima Santos to be
delivered upon her death and in her will to the plaintiffs, and requesting that the said properties so promised
be adjudicated to the plaintiffs. The complaint also prays for actual damages in the amount of P50,000.
(Record on Appeal, pp. 1-65.) The alleged promise of the deceased Maxima Santos is contained in a

document executed by Maxima Santos on December 26, 1936 attached to the complaint as Annex "H" and
introduced at the trial as Exhibit "A". (Ibid., pp. 258-259.) The complaint also alleges that the plaintiffs are
entitled to inherit certain properties enumerated in paragraph 3 thereof, situated in Malabon, Rizal and
Obando, Bulacan, but which properties have already been in included in the inventory of the estate of the
deceased Simeon Blas and evidently partitioned and conveyed to his heirs in the proceedings for the
administration of his (Simeon Blas) estate.

Defendant, who is the administratrix of the estate of the deceased Maxima Santos Vda. de Blas, filed an
answer with a counterclaim, and later, an amended answer and a counterclaim. The said amended answer
admits the allegations of the complaint as to her capacity as administratrix the death of Simeon Blas on
January 3, 1937; the fact that Simeon Blas and Marta Cruz begot three children only one of whom, namely,
Eulalio Blas, left legitimate descendants; that Simeon Blas contracted a second marriage with Maxima Santos
on June 28, 1898. She denies for lack of sufficient information and belief, knowledge edge of the first marriage
of Simeon Blas to Marta Cruz, the averment that Simeon Blas and Marta Cruz acquired properties situated in
Obando, Bulacan, that said properties were utilized as capital, etc. As special defenses, she alleges that the
properties of the spouses Blas and Santos had been settled and liquidated in the project of partition of the
estate of said Simeon Blas; that pursuant to the project of partition, plaintiffs and some defendants had already
received the respective properties adjudicated to them; that the plaintiffs and the defendants Marta Geracio
and Jose Chivi are estopped from impugning the validity of the project of partition of the estate of the
deceased Simeon Blas and from questioning the ownership in the properties conveyed in the project of
partition to Maxima Santos as her own exclusive property; that the testament executed by Maxima Santos is
valid, the plain plaintiffs having no right to recover any portion of Maxima Santos' estate now under
administration by the court. A counterclaim for the amount of P50,000 as damages is also included in the
complaint, as also a cross-claim against Marta Gervacio Blas and Jose Chivi.

II

Trial of the case was Conducted and, thereafter, the court, Hon. Gustave Victoriano, presiding, rendered
judgment dismissing the complaint, with costs against plaintiff, and dismissing also the counterclaim and
cross-claim decision ,the plaintiffs filed by the defendants. From this district have appealed to this Court.

The reason why the testator ordered the preparation of Exhibit "A" was because the properties that the
testator had acquired during his first marriage with Marta Cruz had not been liquidated and were not separated
from those acquired during the second marriage. Pascual's testimony is as follows:

The facts essential to an understanding of the issues involved in the case may be briefly summarized as
follows: Simeon Blas contracted a first marriage with Marta Cruz sometime before 1898. They had three
children, only one of whom, Eulalio, left children, namely, Maria Gervacio Blas, one of the plaintiffs, Marta
Gervacio Blas, one of the defendants, and Lazaro Gervacio Blas. Lazaro died in 1950, and is survived by
three legitimate children who are plaintiffs herein, namely, Manuel Gervacio Blas, Leoncio Gervacio Blas and
Loida Gervacio Blas. Marta Cruz died in 1898, and the following year, Simeon Blas contracted a second
marriage with Maxima Santos. At the time of this second marriage, no liquidation of the properties required by
Simeon Blas and Marta Cruz was made. Three of the properties left are fishponds located in Obando,
Bulacan. Maxima Santos does not appear to have apported properties to her marriage with Simeon Blas.

Q To whom do you refer with the word "they"?

On December 26, 1936, only over a week before over a week before his death on January 9, 1937, Simeon
Blas executed a last will and testament. In the said testament Simeon Blas makes the following declarations:
I
2. Sa panahon ng aking pangalawang asawa, MAXIMA SANTOS DE BLAS, ay nagkaroon ako at nakatipon
ng mga kayamanan (bienes) at pag-aari (propriedades) na ang lahat ng lupa, palaisdaan at iba pang pag-aari
ay umaabot sa halagang ANIM NA RAAN PITONG PU'T WALONG DAAN LIBO WALONG DAAN WALONG
PUNG PISO (678,880-00) sang-ayon sa mga halaga sa amillarimento (valor Amillarado.)
II
1. Ang kalahati ng lahat ng aming pag-aari, matapos mabayaran ang lahat ng aking o aming pag-kakautang
na mag-asawa, kung mayroon man, yayamang ang lahat ng ito ay kita sa loob ng matrimonio (bienes
ganaciales) ay bahagi ng para sa aking asawa, MAXIMA SANTOS DE BLAS, sang-ayon sa batas. (Record on
Appeal, pp. 250-251.)
The above testamentary provisions may be translated as follows:

2. During my second marriage with Maxima Santos de Blas, I possessed and acquired wealth and properties,
consisting of lands, fishponds and other kinds of properties, the total assessed value of which reached the
amount P678,880.00.

1. One-half of our properties, after the payment of my and our indebtedness, all these properties having been
acquired during marriage (conjugal properties), constitutes the share of my wife Maxima Santos de Blas,
according to the law.
At the time of the execution of said will, Andres Pascual a son-in-law of the testator, and Avelina Pascual and
others, were present. Andres Pascual had married a descendant by the first marriage. The will was prepared
by Andres Pascual, with the help of his nephew Avelino Pascual. The testator asked Andres Pascual to
prepare a document which was presented in court as Exhibit "A", thus:
Q Was there anybody who asked you to prepare this document?
A Don Simeon Blas asked me to prepare this document (referring to Exhibit "A"), (t.s.n., Sarmiento to, P.
24).

A Simeon Blas and his first wife, Marta Cruz. When Marta Cruz died they had not made a liquidation of their
conjugal properties and so all those properties were included all in the assets of the second marriage, and that
is the reason why this document was prepared. (t.s.n., Sarmiento, p. 36.)
The above testimony is fully corroborated by that of Leoncio Gervacio, son-in-law of Simeon Blas.
Q Please state to the Court?
A My children were claiming from their grandfather Simeon Blas the properties left by their grandmother
Marta Cruz in the year 1936.
Q And what happened with that claim of your children against Simeon Blas regarding the assets or
properties of the first marriage that were left after the death of Marta Cruz in 1936?
A The claim was not pushed through because they reached into an agreement whereby the parties Simeon
Blas Maxima Santos, Maria Gervacio Bias, Marta Gervacio Blas and Lazaro Gervacio Blas agreed that
Simeon Blas and Maxima Blas will give one-half of the estate of Simeon Blas. (t.s.n., Sarmiento, pp. 143-144).
The document which was thus prepared and which is marked as Exhibit "A" reads in Tagalog, thus:
MAUNAWA NG SINO MANG MAKABABASA:
Na akong si MAXIMA SANTOS DE BLAS, nasa hustong gulang, kasal kay SIMEON BLAS, taga bayan ng
Malabon, Rizal, Philippines, sa pamamagitan ng kasulatang ito ay malaya kong ipinahahayag:

Na aking nabasa at naunawa ang testamento at huling kalooban na nilagdaan ng aking asawa, SIMEON
BLAS, at ipinahahayag ko sa ilalim ng aking karangalan at sa harap ng aking asawa na igagalang at
pagpipitaganan ang lahat at bawa't isang bahagi ng nabanggit na testamento at ipinangangako ko pa sa
pamamagitan ng kasulatang ito na ang lahat ng maiiwang pag-aari at kayamanan naming mag-asawa, na
nauukol at bahaging para sa akin sa paggawa ko naman ng aking testamento ay ipagkakaloob ko ang kalahati
() sa mga herederos at legatarios o pinamamanahan ng aking nabanggit na asawa, SIMEON BLAS, sa
kaniyang testamento, na ako'y makapipili o makahihirang na kahit kangino sa kanila ng aking pagbibigyan at
pamamanahan sang-ayon sa paggalang, paglilingkod, at pakikisama ng gagawin sa akin.
SA KATUNAYAN NG LAHAT NG ITO ay nilagdaan ko ang kasulatang ito ngayon ika 26 ng Diciembre ng taong
1936, dito sa San Francisco del Monte, San Juan, Rizal, Philippines. (Exh. "A", pp. 29-30 Appellant's brief).

(Fdo.) MAXIMA SANTOS DE BLAS

and which, translated into English, reads as follows:

KNOW ALL MEN BY THESE PRESENTS:
That I MAXIMA SANTOS DE BLAS, of legal age, married to SIMEON BLAS, resident of Malabon, Rizal,
Philippines, voluntarily state:
That I have read and knew the contents of the will signed by my husband, SIMEON BLAS, (2) and I promise
on my word of honor in the presence of my husband that I will respect and obey all and every disposition of
said will (3) and furthermore, I promise in this document that all the properties my husband and I will leave, the
portion and share corresponding to me when I make my will, I will give one-half () to the heirs and legatees
or the beneficiaries named in the will of my husband, (4) and that I can select or choose any of them, to whom
I will give depending upon the respect, service and treatment accorded to me.
IN WITNESS WHEREOF, I signed this document this 26th day of December, 1936 at San Francisco del
Monte, San Juan, Rizal, Philippines. (Exh. "A", pp. 30-31, Appellant's brief).

the document was signed by Maxima Santos and one copy thereof, which was presented in court as Exhibit
"A", was kept by plaintiffs' witness Andres Pascual.
Plaintiffs-appellants argue before us that Exhibit "A" is both a trust agreement and a contract in the nature of a
compromise to avoid litigation. Defendants-appellees, in answer, claim that it is neither a trust agreement nor a
compromise a agreement. Considering that the properties of the first marriage of Simeon Blas had not been
liquidated when Simeon Blas executed his will on December 26, 1936', and the further fact such properties
where actually , and the further fact that included as conjugal properties acquired during the second marriage,
we find, as contended by plaintiffs-appellants that the preparation and execution of Exhibit "A" was ordered by
Simeon Blas evidently to prevent his heirs by his first marriage from contesting his will and demanding
liquidation of the conjugal properties acquired during the first marriage, and an accounting of the fruits and
proceeds thereof from the time of the death of his first wife.
Exhibit "A", therefore, appears to be the compromise defined in Article 1809 of the Civil Code of Spain, in force
at the time of the execution of Exhibit "A", which provides as follows:
Compromise is a contract by which each of the parties in interest, by giving, promising, or retaining something
avoids the provocation of a suitor terminates one which has already the provocation been instituted.
(Emphasis supplied.)
Exhibit "A" states that the maker (Maxima Santos) had read and knew the contents of the will of her husband
read and knew the contents of the will Simeon Blas she was evidently referring to the declaration in the
will(of Simeon Blas) that his properties are conjugal properties and one-half thereof belongs to her (Maxima
Santos) as her share of the conjugal assets under the law. The agreement or promise that Maxima Santos
makes in Exhibit "A" is to hold one-half of her said share in the conjugal assets in trust for the heirs and
legatees of her husband in his will, with the obligation of conveying the same to such of his heirs or legatees
as she may choose in her last will and testament. It is to be noted that the conjugal properties referred to are
those that were actually existing at that time, December 26, 1936. Simeon Blas died on January 9, 1937. On
June 2, 1937, an inventory of the properties left by him, all considered conjugal, was submitted by Maxima
Santos herself as administratrix of his estate. A list of said properties is found in Annex "E", the complete
inventory submitted by Maxima Santos Vda. de Blas, is administratrix of the estate of her husband, dated
March 10, 1939. The properties which were given to Maxima Santos as her share in the conjugal properties
are also specified in the project of partition submitted by said Maxima Santos herself on March 14, 1939.
(Record on Appeal, pp. 195-241.) Under Exhibit "A", therefore, Maxima Santos contracted the obligation and
promised to give one-half of the above indicated properties to the heirs and legatees of Simeon Blas.

(Sgd.) MAXIMA SANTOS DE BLAS

The court below held that said Exhibit "A" has not created any right in favor of plaintiffs which can serve as
basis for the complaint; that neither can it be considered as a valid and enforceable contract for lack of
consideration and because it deals with future inheritance. The court also declared that Exhibit "A" is not a will
because it does not comply with the requisites for the execution of a will; nor could it be considered as a
donation, etc.
Both the court below in its decision and the appellees in their brief before us, argue vehemently that the heirs
of Simeon Blas and his wife Marta Cruz can no longer make any claim for the unliquidated conjugal properties
acquired during said first marriage, because the same were already included in the mass of properties
constituting the estate of the deceased Simeon Blas and in the adjudications made by virtue of his will, and
that the action to recover the same has prescribed. This contention is correct. The descendants of Marta Cruz
can no longer claim the conjugal properties that she and her husband may have required during their marriage
although no liquidation of such properties and delivery thereof to the heirs of Marta Cruz have been made, no
action to recover said propertied having been presented in the proceedings for the settlement of the estate of
Simeon Blas.
But the principal basis for the plaintiffs' action in the case at bar is the document Exhibit "A". It is not disputed
that this document was prepared at the instance of Simeon Blas for the reason that the conjugal properties of
me on Blas for the reason his first marriage had not been liquidated; that it was prepared at the same time as
the will of Simeon Blas on December 26, 1936, at the instance of the latter himself. It is also not disputed that

Counsel for the defendant-appellee claims Exhibit "A" is a worthless piece of paper because it is not a will nor
a donation mortis causa nor a contract. As we have in indicated above, it is a compromise and at the same
time a contract with a sufficient cause or consideration. It is also contended that it deals with future
inheritance. We do not think that Exhibit "A" is a contract on future inheritance. it is an obligation or promise
made by the maker to transmit one-half of her share in the conjugal properties acquired with her husband,
which properties are stated or declared to be conjugal properties in the will of the husband. The conjugal
properties were in existence at the time of the execution of Exhibit "A" on December 26, 1936. As a matter of
fact, Maxima Santos included these properties in her inventory of her husband's estate of June 2, 1937. The
promise does not refer to any properties that the maker would inherit upon the death of her husband, because
it is her share in the conjugal assets. That the kind of agreement or promise contained in Exhibit "A" is not void
under Article 1271 of the old Civil Code, has been decided by the Supreme Court of Spain in its decision of
October 8, 19154, thus:
Que si bien el art. 1271 del Codigo civil dispone que sobre la herenciafutura no se podra celebrar otros
contratos que aquellos cuyo objecto seapracticar entre vivos la division de un caudal, conforme al articulo
1056, esta prohibicion noes aplicable al caso, porque la obligacion que contrajoel recurr en contrato privado
de otorgar testamento e instituir heredera a su subrina de los bienes que adquirio en virtud de herencia,
procedentes desu finada consorte que le quedasen sobrantes despues de pagar las deudas, y del ganacial
que se expresa, asi como de reconocer, ademas, con alguna cosaa otros sobrinos, se refiere a bienes
conocidos y determinados existentes cuando tal compromisi se otorgo, y no a la universalidad de una
herencia que, sequn el art. 659 del citado Codigo civil, as determina a muerte, constituyendola todos los
bienes, derechos y obligaciones que por ella no sehayan extinguido: ..." (Emphasis supplied.)

It will be noted that what is prohibited to be the subject matter of a contract under Article 1271 of the Civil Code
is " future inheritance." To us future inheritance is any property or right not in existence or capable of
determination at the time of the contract, that a person may in the future acquire by succession. The properties
subject of the contract Exhibit "A" are well defined properties, existing at the time of the agreement, which
Simeon Blas declares in his statement as belonging to his wife as her share in the conjugal partnership.
Certainly his wife's actual share in the conjugal properties may not be considered as future inheritance
because they were actually in existence at the time Exhibit "A" was executed.
The trial court held that the plaintiffs-appellants in the case at bar are concluded by the judgement rendered in
the proceedings for the settlement of the estate of Simeon Blas for the reason that the properties left by him
belonged to himself and his wife Maxima Santos; that the project of partition in the said case, adjudicating to
Maxima Santos one-half as her share in the conjugal properties, is a bar to another action on the same subject
matter, Maxima Santos having become absolute owner of the said properties adjudicated in her favor. As
already adverted to above, these contentions would be correct if applied to the claim of the plaintiffs-appellants
that said properties were acquired with the first wife of Simeon Blas, Marta Cruz. But the main ground upon
which plaintiffs base their present action is the document Exhibit "A", already fully considered above. As this
private document contains the express promise made by Maxima Santos to convey in her testament, upon her
death, one-half of the conjugal properties she would receive as her share in the conjugal properties, the action
to enforce the said promise did not arise until and after her death when it was found that she did not comply
with her above-mentioned promise. (Art. 1969, old Civil Code.) The argument that the failure of the plaintiffsappellants herein to oppose the project of partition in the settlement of the estate of Simeon Blas, especially
that portion of the project which assigned to Maxima Santos one-half of all the conjugal properties bars their
present action, is, therefore, devoid of merit. It may be added that plaintiffs-appellants did not question the
validity of the project of partition precisely because of the promise made by Maxima Santos in the compromise
Exhibit "A"; they acquised in the approval of said project of partition because they were relying on the promise
made by Maxima Santos in Exhibit "A", that she would transmit one-half of the conjugal properties that she
was going to receive as her share in the conjugal partnership upon her death and in her will, to the heirs and
legatees of her husband Simeon Blas.
Neither can the claim of prescription be considered in favor of the defendants. The right of action arose at the
time of the death of Maxima Santos on October 5,1956, when she failed to comply with the promise made by
her in Exhibit "A". The plaintiffs-appellants immediately presented this action on December 27, 1956, upon
learning of such failure on the part of Maxima Santos to comply with said promise. This defense is, therefore,
also without merit.
It is next contended by the defendant-appellee that Maxima Santos complied with her above-mentioned
promise, that Andres Pascual, Tomasa Avelino, Justo Garcia, Ludovico Pimpin and Marta Gervacio Blas
were given substancial legacies in the will and testament of Maxima Santos. To determine whether she had
actually complied with the promise made in Exhibit "A", there is herein set forth a list only of the fishponds and
their respective areas as contained in the list of properties she acquired as her share in the conjugal
partnership, which list includes, besides many ricelands as well as residential lots, thus:
31. Paco, Obando, Bulacan

5.8396 has.

32. Pangjolo, Obando

3.5857

34. Batang Pirasuan, Lubao, Pampanga

11.9515

"

35. Calangian, Lubao, Pampanga

30.2059

"

38. Bakuling, Lubao, Pampanga

215.4325

39. Bakuling, Lubao, Pampanga

8.3763

40. Bangkal, Sinubli

23.0730

41. Tagulod,

6.8692

44. Bangkal Pugad

"

"

(a) 34.2779

"

(b) 51.7919

"

(c)

45. Magtapat Bangkal, Lubao, Pampanga

"

2.5202

"

(a) 18.0024

(b) 7.3265

(c)

"

"

53.5180

"

46. Pinanganakan, Lubao, Pampanga

159.0078

"

47. Emigdio Lingid, Lubao, Pampanga

34.5229

"

48. Propios, Lubao, Pampanga

80.5382

"

49. Batang Mabuanbuan, Sexmoan, Pampanga

43.3350

"

50. Binatang Mabuanbuan, Sexmoan, Pampanga

3.5069

51. Sapang Magtua, Sexmoan, Pampanga

56,8242

52. Kay Limpin, Sexmoan, Pampanga

5.0130

53. Calise Mabalumbum, Sexmoan, Pampanga

23.8935

"

"

"

"

54. Messapinit Kineke, Sexmoan, Pampanga

"

(a) 5.2972

"

(b) 5.9230

"

(c)

"

"
1.4638

(d) 1.4638

"

(e) 2.8316

"

(f)

10.4412

(g) 3.9033

"

6.0574

55. Dalang, Banga, Sexmoan, Pampanga

23.3989

62. Alaminos, Pangasinan

147.1242

80. Mangasu Sexmoan, Pampanga

10.000

81. Don Tomas, Sexmoan, Pampanga

21.6435

82. Matikling, Lubao, Pampanga

Total area ...............................

WHEREFORE, the judgment appealed from is hereby reversed and the defendant-appellee, administratrix of
the estate of Maxima Santos, is ordered to convey and deliver one-half of the properties adjudicated o Maxima
Santos as her share in the conjugal properties in said Civil Case No. 6707, entitled "Testamentaria del Finado
Don Simeon Blas, Maxima Santos Vda. de Blas, Administradora", to the heirs and the legatees of her husband
Simeon Blas. Considering that all said heirs and legatees, designated in the will of Simeon Blas as the
persons for whose benefit Exhibit "A" had been executed, have not appeared in these proceedings, the record
is hereby remanded to the court below, with instructions that, after the conveyance of the properties
hereinabove ordered had been effected, the said heirs and legatees (of Simeon Blas) file adversary pleadings
to determine the participation of each and every one of them in said properties. Costs against the defendantappellee Rosalina Santos.

"

(h) 11.9263

(i)

share is specified in the project of partition submitted by herself on March 14, 1939 in the settlement of the
estate of her husband, and which is found on pages 195 to 240 of the record on appeal and on pages 27 to 46
of the project of partition, submitted by Maxima Santos herself before the Court of First Instance of Rizal in
Civil Case No. 6707, entitled "Testamentaria del Finado Don Simeon Blas, Maxima Santos Vda. de Bias,
Administradora"; and that she failed to comply with her aforementioned obligation. (Exhibit "A")

"

"

G.R. No. 141882

"

J.L.T. AGRO, INC., represented by its Manager, JULIAN L. TEVES, Petitioner,

vs.
ANTONIO BALANSAG and HILARIA CADAYDAY, respondents.

"

"

DECISION
"

TINGA, J.:

16.0000

1045.7863

March 11, 2005

"

Once again, the Court is faced with the perennial conflict of property claims between two sets of heirs, a
conflict ironically made grievous by the fact that the decedent in this case had resorted to great lengths to
allocate which properties should go to which set of heirs.

"

(See Record on Record, pp. 195-241.)

In her will, Maxima Santos devised to Marta Gervacio Blas the 80-hectare fishpond situated in Lubao,
Pampanga. The fishpond devised is evidently that designated as "Propios" in Lubao, Pampanga, item No. 8 in
the list of properties adjudicated to her in the project of partition. (Record on Appeal, p. 215.) Considering that
the total area of the fishponds amount to 1045.7863 hectares, the 80 hectares devised to Marta Gervacio Blas
is not even one-tenth of the total area of the fishponds. Add to this the fact that in the will she imposed upon
Marta Gervacio Blas de Chivi an existing obligation on said fishponds, namely, its lease in 1957 and the duty
to pay out of the rentals thereof an obligation to the Rehabilitation Finance Corporation RFC (Ibid., pp. 262263.) Angelina Blas was given only a lot of 150 square meters in Hulong Duhat, Malabon, Rizal, and Leony
Blas, the sum of P300.00 (Ibid., p. 264.)
It is evident from a consideration of the above figures and facts that Maxima Santos did not comply with her
obligation to devise one-half of her conjugal properties to the heirs and legatees of her husband. She does not
state that she had complied with such obligation in her will. If she intended to comply therewith by giving some
of the heirs of Simeon Blas the properties mentioned above, the most that can be considered in her favor is to
deduct the value of said properties from the total amount of properties which she had undertaken to convey
upon her death.
All the issues in the pleadings of the parties and in their respective briefs, have now been fully discussed and
considered. Reiterating what we have stated above, we declare that by Exhibit "A", a compromise to avoid
litigation, Maxima Santos promised to devise to the heirs and legatees of her husband Simeon Blas, one-half
of the properties she received as her share in the conjugal partnership of herself and her husband, which

This is a Rule 45 petition assailing the Decision1 dated 30 September 1999 of the Court of Appeals which
reversed the Decision2 dated 7 May 1993 of the Regional Trial Court (RTC), Branch 45, of Bais City, Negros
Oriental.
The factual antecedents follow.
Don Julian L. Teves (Don Julian) contracted two marriages, first with Antonia Baena (Antonia), and after her
death, with Milagros Donio Teves (Milagros Donio). Don Julian had two children with Antonia, namely: Josefa
Teves Escao (Josefa) and Emilio Teves (Emilio). He had also four (4) children with Milagros Donio, namely:
Maria Evelyn Donio Teves (Maria Evelyn), Jose Catalino Donio Teves (Jose Catalino), Milagros Reyes Teves
(Milagros Reyes) and Pedro Reyes Teves (Pedro). 3
The present controversy involves a parcel of land covering nine hundred and fifty-four (954) square meters,
known as Lot No. 63 of the Bais Cadastre, which was originally registered in the name of the conjugal
partnership of Don Julian and Antonia under Original Certificate of Title (OCT) No. 5203 of the Registry of
Deeds of Bais City. When Antonia died, the land was among the properties involved in an action for partition
and damages docketed as Civil Case No. 3443 entitled "Josefa Teves Escao v. Julian Teves, Emilio B.
Teves, et al."4 Milagros Donio, the second wife of Don Julian, participated as an intervenor. Thereafter, the
parties to the case entered into aCompromise Agreement5 which embodied the partition of all the properties of
Don Julian.
On the basis of the compromise agreement and approving the same, the Court of First Instance (CFI) of
Negros Oriental, 12th Judicial District, rendered a Decision6 dated 31 January 1964. The CFI decision declared
a tract of land known as Hacienda Medalla Milagrosa as property owned in common by Don Julian and his two

(2) children of the first marriage. The property was to remain undivided during the lifetime of Don
Julian.7 Josefa and Emilio likewise were given other properties at Bais, including the electric plant, the "movie
property," the commercial areas, and the house where Don Julian was living. The remainder of the properties
was retained by Don Julian, including Lot No. 63.
Paragraph 13 of the Compromise Agreement, at the heart of the present dispute, lays down the effect of the
eventual death of Don Julian vis--vis his heirs:
13. That in the event of death of Julian L. Teves, the properties hereinafter adjudicated to Josefa Teves
Escao and Emilio B. Teves, (excluding the properties comprised as Hacienda Medalla Milagrosa together
with all its accessories and accessions) shall be understood as including not only their one-half share which
they inherited from their mother but also the legitimes and other successional rights which would correspond
to them of the other half belonging to their father, Julian L. Teves. In other words, the properties now
selected and adjudicated to Julian L. Teves (not including his share in the Hacienda Medalla
Milagrosa) shall exclusively be adjudicated to the wife in second marriage of Julian L. Teves and his four
minor children, namely, Milagros Donio Teves, his two acknowledged natural children Milagros Reyes Teves
and Pedro Reyes Teves and his two legitimated children Maria Evelyn Donio Teves and Jose Catalino Donio
Teves. (Emphasis supplied)
On 16 November 1972, Don Julian, Emilio and Josefa executed a Deed of Assignment of Assets with
Assumption of Liabilities8 in favor of J.L.T. Agro, Inc. (petitioner). Less than a year later, Don Julian, Josefa and
Emilio also executed an instrument entitled Supplemental to the Deed of Assignment of Assets with the
Assumption of Liabilities (Supplemental Deed)9 dated 31 July 1973. This instrument which constitutes a
supplement to the earlier deed of assignment transferred ownership over Lot No. 63, among other properties,
in favor of petitioner.10 On 14 April 1974, Don Julian died intestate.
On the strength of the Supplemental Deed in its favor, petitioner sought the registration of the subject lot in its
name. A court, so it appeared, issued an order 11 cancelling OCT No. 5203 in the name of spouses Don Julian
and Antonia on 12 November 1979, and on the same date TCT No. T-375 was issued in the name of
petitioner.12Since then, petitioner has been paying taxes assessed on the subject lot. 13
Meanwhile, Milagros Donio and her children had immediately taken possession over the subject lot after the
execution of the Compromise Agreement. In 1974, they entered into a yearly lease agreement with spouses
Antonio Balansag and Hilaria Cadayday, respondents herein. 14 On Lot No. 63, respondents temporarily
established their home and constructed a lumber yard. Subsequently, Milagros Donio and her children
executed aDeed of Extrajudicial Partition of Real Estate15 dated 18 March 1980. In the deed of partition, Lot
No. 63 was allotted to Milagros Donio and her two (2) children, Maria Evelyn and Jose Catalino. Unaware that
the subject lot was already registered in the name of petitioner in 1979, respondents bought Lot No. 63 from
Milagros Donio as evidenced by the Deed of Absolute Sale of Real Estate16 dated 9 November 1983.
At the Register of Deeds while trying to register the deed of absolute sale, respondents discovered that the lot
was already titled in the name of petitioner. Thus, they failed to register the deed. 17
Respondents, as vendees of Lot No. 63, filed a complaint before the RTC Branch 45 of Bais City, seeking the
declaration of nullity and cancellation of TCT No. T-375 in the name of petitioner and the transfer of the title to
Lot No. 63 in their names, plus damages.18
After hearing, the trial court dismissed the complaint filed by respondents. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, by preponderance of evidence, this Court finds judgment in favor of the
defendant and against the plaintiff, and thus hereby orders:
(1) That complaint be dismissed;

(2) That plaintiffs vacate the subject land, particularly identified as Lot No. 63 registered under Transfer
Certificate of Title No. T-375;
(3) That plaintiffs pay costs.
Finding no basis on the counterclaim by defendant, the same is hereby ordered dismissed. 19
The trial court ruled that the resolution of the case specifically hinged on the interpretation of paragraph 13 of
theCompromise Agreement.20 It added that the direct adjudication of the properties listed in the Compromise
Agreement was only in favor of Don Julian and his two children by the first marriage, Josefa and
Emilio.21Paragraph 13 served only as an amplification of the terms of the adjudication in favor of Don Julian
and his two children by the first marriage.
According to the trial court, the properties adjudicated in favor of Josefa and Emilio comprised their shares in
the estate of their deceased mother Antonia, as well as their potential share in the estate of Don Julian upon
the latters death. Thus, upon Don Julians death, Josefa and Emilio could not claim any share in his estate,
except their proper share in the Hacienda Medalla Milagrosa which was adjudicated in favor of Don Julian in
theCompromise Agreement. As such, the properties adjudicated in favor of Don Julian, except Hacienda
Medalla Milagrosa, were free from the forced legitimary rights of Josefa and Emilio, and Don Julian was under
no impediment to allocate the subject lot, among his other properties, to Milagros Donio and her four (4)
children.22
The trial court further stressed that with the use of the words "shall be," the adjudication in favor of Milagros
Donio and her four (4) children was not final and operative, as the lot was still subject to future disposition by
Don Julian during his lifetime.23 It cited paragraph 1424 of the Compromise Agreement in support of his
conclusion.25 With Lot No. 63 being the conjugal property of Don Julian and Antonia, the trial court also
declared that Milagros Donio and her children had no hereditary rights thereto except as to the conjugal share
of Don Julian, which they could claim only upon the death of the latter.26
The trial court ruled that at the time of Don Julians death on 14 April 1974, Lot No. 63 was no longer a part of
his estate since he had earlier assigned it to petitioner on 31 July 1973. Consequently, the lot could not be a
proper subject of extrajudicial partition by Milagros Donio and her children, and not being the owners they
could not have sold it. Had respondents exercised prudence before buying the subject lot by investigating the
registration of the same with the Registry of Deeds, they would have discovered that five (5) years earlier,
OCT No. 5203 had already been cancelled and replaced by TCT No. T-375 in the name of petitioner, the trial
court added.27
The Court of Appeals, however, reversed the trial courts decision. The decretal part of the appellate decision
reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and SET ASIDE and
a new one is entered declaring the Transfer Certificate of Title No. T-375 registered in the name of J.L.T. Agro,
Inc. as null and void.
With costs against defendant J.L.T. Agro, Inc. represented by its Manager, Julian L. Teves.
SO ORDERED.28
Per the appellate court, the Compromise Agreement incorporated in CFI decision dated 31 January 1964,
particularly paragraph 13 thereof, determined, adjudicated and reserved to Don Julians two sets of heirs their
future legitimes in his estate except as regards his (Don Julians) share in Hacienda Medalla Milagrosa. 29 The
two sets of heirs acquired full ownership and possession of the properties respectively adjudicated to them in
the CFI decision and Don Julian himself could no longer dispose of the same, including Lot No. 63. The
disposition in the CFI decision constitutes res judicata.30 Don Julian could have disposed of only his conjugal
share in the Hacienda Medalla Milagrosa.31

The appellate court likewise emphasized that nobody in his right judgment would preterit his legal heirs by
simply executing a document like the Supplemental Deed which practically covers all properties which Don
Julian had reserved in favor of his heirs from the second marriage. It also found out that the blanks reserved
for the Book No. and Page No. at the upper right corner of TCT No. T-375, "to identify the exact location where
the said title was registered or transferred," were not filled up, thereby indicating that the TCT is "spurious and
of dubious origin."32

For the inheritance to be considered "future," the succession must not have been opened at the time of the
contract.36 A contract may be classified as a contract upon future inheritance, prohibited under the second
paragraph of Article 1347, where the following requisites concur:

Aggrieved by the appellate courts decision, petitioner elevated it to this Court via a petition for review
oncertiorari, raising pure questions of law.

(2) That the object of the contract forms part of the inheritance; and

Before this Court, petitioner assigns as errors the following rulings of the appellate court, to wit: (a) that future
legitime can be determined, adjudicated and reserved prior to the death of Don Julian; (b) that Don Julian had
no right to dispose of or assign Lot No. 63 to petitioner because he reserved the same for his heirs from the
second marriage pursuant to the Compromise Agreement; (c) that the Supplemental Deed was tantamount to
a preterition of his heirs from the second marriage; and (d) that TCT No. T-375 in the name of petitioner is
spurious for not containing entries on the Book No. and Page No. 33
While most of petitioners legal arguments have merit, the application of the appropriate provisions of law to
the facts borne out by the evidence on record nonetheless warrants the affirmance of the result reached by the
Court of Appeals in favor of respondents.
Being the key adjudicative provision, paragraph 13 of the Compromise Agreement has to be quoted again:
13. That in the event of death of Julian L. Teves, the properties herein adjudicated to Josefa Teves Escao and
Emilio B. Teves, (excluding the properties comprised as Hacienda Medalla Milagrosa together with all its
accessories and accessions) shall be understood as including not only their one-half share which they
inherited from their mother but also the legitimes and other successional rights which would correspond to
them of the other half belonging to their father, Julian L.Teves. In other words, the properties now selected
and adjudicated to Julian L. Teves (not including his share in the Hacienda Medalla Milagrosa) shall
exclusively be adjudicated to the wife in second marriage of Julian L. Teves and his four minor
children, namely, Milagros Donio Teves, his two acknowledged natural children Milagros Reyes Teves
and Pedro Reyes Teves and his two legitimated children Maria Evelyn Donio Teves and Jose Catalino
Donio Teves." (Emphasis supplied)
With the quoted paragraph as basis, the Court of Appeals ruled that the adjudication in favor of the heirs of
Don Julian from the second marriage became automatically operative upon the approval of the Compromise
Agreement, thereby vesting on them the right to validly dispose of Lot No. 63 in favor of respondents.
Petitioner argues that the appellate court erred in holding that future legitime can be determined, adjudicated
and reserved prior to the death of Don Julian. The Court agrees. Our declaration in Blas v. Santos34 is
relevant, where we defined future inheritance as any property or right not in existence or capable of
determination at the time of the contract, that a person may in the future acquire by succession. Article
1347 of the New Civil Code explicitly provides:
ART. 1347. All things which are not outside the commerce of men, including future things, may be the object of
a contract. All rights which are not intransmissible may also be the object of contracts.

(1) That the succession has not yet been opened;

(3) That the promissor has, with respect to the object, an expectancy of a right which is purely hereditary in
nature.37
The first paragraph of Article 1080, which provides the exception to the exception and therefore aligns with the
general rule on future things, reads:
ART. 1080. Should a person make a partition of his estate by an act inter vivos, or by will, such partition shall
be respected, insofar as it does not prejudice the legitime of the compulsory heirs.
....
In interpreting this provision, Justice Edgardo Paras advanced the opinion that if the partition is made by an
actinter vivos, no formalities are prescribed by the Article.38 The partition will of course be effective only
after death. It does not necessarily require the formalities of a will for after all it is not the partition that is the
mode of acquiring ownership. Neither will the formalities of a donation be required since donation will not be
the mode of acquiring the ownership here after death; since no will has been made it follows that the mode will
be succession (intestate succession). Besides, the partition here is merely the physical determination of the
part to be given to each heir.39
The historical antecedent of Article 1080 of the New Civil Code is Article 1056 40 of the old Civil Code. The only
change in the provision is that Article 1080 now permits any person (not a testator, as under the old law) to
partition his estate by act inter vivos. This was intended to abrogate the then prevailing doctrine that for a
testator to partition his estate by an act inter vivos, he must first make a will with all the formalities provided by
law.41
Article 1056 of the old Civil Code (now Article 1080) authorizes a testator to partition inter vivos his property,
and distribute them among his heirs, and this partition is neither a donation nor a testament, but
an instrument of a special character, sui generis, which is revocable at any time by the causante during
his lifetime, and does not operate as a conveyance of title until his death. It derives its binding force on
the heirs from the respect due to the will of the owner of the property, limited only by his creditors and the
intangibility of the legitime of the forced heirs. 42
The partition inter vivos of the properties of Don Julian is undoubtedly valid pursuant to Article 1347. However,
considering that it would become legally operative only upon the death of Don Julian, the right of his heirs from
the second marriage to the properties adjudicated to him under the compromise agreement was but a mere
expectancy. It was a bare hope of succession to the property of their father. Being the prospect of a future
acquisition, the interest by its nature was inchoate. It had no attribute of property, and the interest to which it
related was at the time nonexistent and might never exist. 43

No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be
the object of a contract.
Well-entrenched is the rule that all things, even future ones, which are not outside the commerce of man may
be the object of a contract. The exception is that no contract may be entered into with respect to future
inheritance, and the exception to the exception is the partition inter vivos referred to in Article 1080.35

Evidently, at the time of the execution of the deed of assignment covering Lot No. 63 in favor of petitioner, Don
Julian remained the owner of the property since ownership over the subject lot would only pass to his heirs
from the second marriage at the time of his death. Thus, as the owner of the subject lot, Don Julian retained
the absolute right to dispose of it during his lifetime. His right cannot be challenged by Milagros Donio and her
children on the ground that it had already been adjudicated to them by virtue of the compromise agreement.
Emerging as the crucial question in this case is whether Don Julian had validly transferred ownership of the
subject lot during his lifetime. The lower court ruled that he had done so through the Supplemental Deed. The

appellate court disagreed, holding that the Supplemental Deed is not valid, containing as it does a prohibited
preterition of Don Julians heirs from the second marriage. Petitioner contends that the ruling of the Court of
Appeals is erroneous. The contention is well-founded.
Article 854 provides that the preterition or omission of one, some, or all of the compulsory heirs in the direct
line, whether living at the time of the execution of the will or born after the death of the testator, shall annul the
institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious.
Manresa defines preterition as the omission of the heir in the will, either by not naming him at all or, while
mentioning him as father, son, etc., by not instituting him as heir without disinheriting him expressly, nor
assigning to him some part of the properties.44 It is the total omission of a compulsory heir in the direct line
from inheritance.45 It consists in the silence of the testator with regard to a compulsory heir, omitting him in
the testament, either by not mentioning him at all, or by not giving him anything in the hereditary property but
without expressly disinheriting him, even if he is mentioned in the will in the latter case. 46 But there is no
preterition where the testator allotted to a descendant a share less than the legitime, since there was no total
omission of a forced heir.47
In the case at bar, Don Julian did not execute a will since what he resorted to was a partition inter vivos of his
properties, as evidenced by the court approved Compromise Agreement. Thus, it is premature if not irrelevant
to speak of preterition prior to the death of Don Julian in the absence of a will depriving a legal heir of his
legitime. Besides, there are other properties which the heirs from the second marriage could inherit from Don
Julian upon his death. A couple of provisions in the Compromise Agreement are indicative of Don Julians
desire along this line.48 Hence, the total omission from inheritance of Don Julians heirs from the second
marriage, a requirement for preterition to exist, is hardly imaginable as it is unfounded.
Despite the debunking of respondents argument on preterition, still the petition would ultimately rise or fall on
whether there was a valid transfer effected by Don Julian to petitioner. Notably, Don Julian was also the
president and director of petitioner, and his daughter from the first marriage, Josefa, was the treasurer thereof.
There is of course no legal prohibition against such a transfer to a family corporation. Yet close scrutiny is in
order, especially considering that such transfer would remove Lot No. 63 from the estate from which Milagros
and her children could inherit. Both the alleged transfer deed and the title which necessarily must have
emanated from it have to be subjected to incisive and detailed examination.
Well-settled, of course, is the rule that a certificate of title serves as evidence of an indefeasible title to the
property in favor of the person whose name appears therein. 49 A certificate of title accumulates in one
document a precise and correct statement of the exact status of the fee held by its owner. The certificate, in
the absence of fraud, is the evidence of title and shows exactly the real interest of its owner. 50

SEC. 57. Procedure in registration of conveyances. An owner desiring to convey his registered land in fee
simple shall execute and register a deed of conveyance in a form sufficient in law. The Register of Deeds
shall thereafter make out in the registration book a new certificate of title to the grantee and shall prepare and
deliver to him an owners duplicate certificate. The Register of Deeds shall note upon the original and
duplicate certificate the date of transfer, the volume and page of the registration book in which the new
certificate is registered and a reference by number to the last preceding certificate. The original and the
owners duplicate of the grantors certificate shall be stamped "cancelled." The deed of conveyance shall be
filed and endorsed with the number and the place of registration of the certificate of title of the land
conveyed. (Emphasis supplied)
As petitioner bases its right to the subject lot on the Supplemental Deed, it should have presented it to the
Register of Deeds to secure the transfer of the title in its name. Apparently, it had not done so. There is
nothing on OCT No. 5203 or on the succeeding TCT No. T-375 either which shows that it had presented
theSupplemental Deed. In fact, there is absolutely no mention of a reference to said document in the original
and transfer certificates of title. It is in this regard that the finding of the Court of Appeals concerning the
absence of entries on the blanks intended for the Book No. and Page No. gains significant relevance. Indeed,
this aspect fortifies the conclusion that the cancellation of OCT No. 5203 and the consequent issuance of TCT
No. T-375 in its place are not predicated on a valid transaction.
What appears instead on OCT No. 5203 is the following pertinent entry:
Entry No. 1374: Kind: Order: Executed in favor of J.L.T. AGRO, INC.
CONDITIONS: Lost owners duplicate is hereby cancelled, and null and void and a new Certificate of
Title No. 375 is issued per Order of the Court of First Instance on file in this office.
Date of Instrument: November 12, 1979
Date of Inscription: Nov. 12, 1979 4:00 P.M.

(SGD) MANUEL C. MONTESA

Acting Deputy Register of Deeds II
(Emphasis supplied)52

To successfully assail the juristic value of what a Torrens title establishes, a sufficient and convincing quantum
of evidence on the defect of the title must be adduced to overcome the predisposition in law in favor of a
holder of a Torrens title. Thus, contrary to the appellate courts ruling, the appearance of a mere thumbmark of
Don Julian instead of his signature in the Supplemental Deed would not affect the validity of petitioners title for
this Court has ruled that a thumbmark is a recognized mode of signature. 51

What the entry indicates is that the owners duplicate of OCT No. 5203 was lost, a petition for the
reconstitution of the said owners duplicate was filed in court, and the court issued an order for the
reconstitution of the owners duplicate and its replacement with a new one. But if the entry is to be believed,
the court concerned (CFI, according to the entry) issued an order for the issuance of a new title which is TCT
No. T-375 although the original of OCT No. 5203 on file with the Registry of Deeds had not been lost.

The truth, however, is that the replacement of OCT No. 5203 in the name of Julian by T.C.T. No. T-375 is
marred by a grave irregularity which is also an illegality, as it contravenes the orthodox, conventional and
normal process established by law. And, worse still, the illegality is reflected on the face of both titles. Where,
as in this case, the transferee relies on a voluntary instrument to secure the issuance of a new title in his name
such instrument has to be presented to the Registry of Deeds. This is evident from Sections 53 and 57 of
Presidential Decree (P.D.) No. 1529 or the Property Registration Decree. The sections read, thus:

Going by the legal, accepted and normal process, the reconstitution court may order the reconstitution and
replacement of the lost title only, nothing else. Since what was lost is the owners copy of OCT No. 5203, only
that owners copy could be ordered replaced. Thus, the Register of Deeds exceeded his authority in issuing
not just a reconstituted owners copy of the original certificate of title but a new transfer certificate of title in
place of the original certificate of title. But if the court order, as the entry intimates, directed the issuance of a
new transfer certificate of titleeven designating the very number of the new transfer certificate of title itself
the order would be patently unlawful. A court cannot legally order the cancellation and replacement of the
original of the O.C.T. which has not been lost,53 as the petition for reconstitution is premised on the loss merely
of the owners duplicate of the OCT

SEC. 53. Presentation of owners duplicate upon entry of new certificate. No voluntary instrument shall be
registered by the Register of Deeds unless the owners duplicate certificate is presented with such
instrument, except in cases expressly provided for in this Decree or upon order of the court, for cause shown.
(Emphasis supplied)
....

Apparently, petitioner had resorted to the court order as a convenient contrivance to effect the transfer of title
to the subject lot in its name, instead of the Supplemental Deed which should be its proper course of action. It
was so constrained to do because the Supplemental Deed does not constitute a deed of conveyance of the
"registered land in fee simple" "in a form sufficient in law," as required by Section 57 of P.D. No. 1529.

A plain reading of the pertinent provisions of the Supplemental Deed discloses that the assignment is not
supported by any consideration. The provision reads:
....

Article 1409, paragraph (2).59 The absence of the usual recital of consideration in a transaction which normally
should be supported by a consideration such as the assignment made by Don Julian of all nineteen (19) lots
he still had at the time, coupled with the fact that the assignee is a corporation of which Don Julian himself was
also the President and Director, forecloses the application of the presumption of existence of consideration
established by law.60

WHEREAS, in the Deed of Assignment of Assets with the Assumption of Liabilities executed by Julian L.
Teves, Emilio B. Teves and Josefa T. Escao at Dumaguete City on 16 th day of November 1972 and ratified in
the City of Dumaguete before Notary Public Lenin Victoriano, and entered in the latters notarial register as
Doc. No. 367; Page No. 17; Book No. V; series of 1972, Julian L. Teves, Emilio B. Teves and Josefa T.
Escao, transferred, conveyed and assigned unto J.L.T. AGRO, INC., all its assets and liabilities as reflected
in the Balance Sheet of the former as of December 31, 1971.

Neither could the Supplemental Deed validly operate as a donation. Article 749 of the New Civil Code is clear
on the point, thus:

WHEREAS, on the compromise agreement, as mentioned in the Decision made in the Court of First Instance
of Negros Oriental, 12th Judicial District Branch II, on Dec. 31, 1964 pertaining to Civil Case No. 3443 the
following properties were adjudicated to Don Julian L. Teves. We quote.

The acceptance may be made in the same deed of donation or in a separate public document, but it shall not
take effect unless it is done during the lifetime of the donor.

From the properties at Bais

Adjudicated to Don Julian L.Teves
....
Lot No. 63, Tax Dec. No. 33, Certificate of Title No. 5203, together with all improvements. Assessed value
-P2,720.00

Art. 749. In order that the donation of the immovable may be valid, it must be made in a public document,
specifying therein the property donated and the value of the charges which the donee must satisfy.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form,
and this step shall be noted in both instruments.
In Sumipat, et al v. Banga, et al.,61 this Court declared that title to immovable property does not pass from the
donor to the donee by virtue of a deed of donation until and unless it has been accepted in a public instrument
and the donor duly notified thereof. The acceptance may be made in the very same instrument of donation. If
the acceptance does not appear in the same document, it must be made in another. Where the deed of
donation fails to show the acceptance, or where the formal notice of the acceptance, made in a separate
instrument, is either not given to the donor or else not noted in the deed of donation and in the separate
acceptance, the donation is null and void.

....
WHEREAS, this Deed of Assignment is executed by the parties herein in order to effect the registration of the
transfer of the above corporation.
NOW, THEREFORE, for and in consideration of the above premises the ASSIGNOR hereby transfers,
conveys, and assigns unto J.L.T. AGRO, INC., the above described parcel of land[s] with a fair market value
of EIGHTY-FOUR THOUSAND PESOS (P84,000.00), Philippine Currency, and which transfer, conveyance
and assignment shall become absolute upon signing.54 (Emphasis supplied)
The amount of P84,000.00 adverted to in the dispositive portion of the instrument does not represent the
consideration for the assignment made by Don Julian. Rather, it is a mere statement of the fair market value
of allthe nineteen (19) properties enumerated in the instrument, of which Lot No. 63 is just one, that were
transferred by Don Julian in favor of petitioner. Consequently, the testimony 55 of petitioners accountant that
the assignment is supported by consideration cannot prevail over the clear provision to the contrary in
the Supplemental Deed.
The Court of Appeals, on the other hand, apparently considered the 1948 mortgage which is annotated on the
back of the TCT No. T-375 as the consideration for the assignment. 56 However, the said annotation57 shows
that the mortgage was actually executed in favor of Rehabilitation Finance Corporation, not of
petitioner.58 Clearly, said mortgage, executed as it was in favor of the Rehabilitation Finance Corporation and
there being no showing that petitioner itself paid off the mortgate obligation, could not have been the
consideration for the assignment to petitioner.
Article 1318 of the New Civil Code enumerates the requisites of a valid contract, namely: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; and (3) Cause of the
obligation which is established.
Thus, Article 1352 declares that contracts without cause, or with unlawful cause produce no effect whatsoever.
Those contracts lack an essential element and they are not only voidable but void or inexistent pursuant to

In the case at bar, although the Supplemental Deed appears in a public document,62 the absence of
acceptance by the donee in the same deed or even in a separate document is a glaring violation of the
requirement.
One final note. From the substantive and procedural standpoints, the cardinal objectives to write finis to a
protracted litigation and avoid multiplicity of suits are worth pursuing at all times. 63 Thus, this Court has ruled
that appellate courts have ample authority to rule on specific matters not assigned as errors or otherwise not
raised in an appeal, if these are indispensable or necessary to the just resolution of the pleaded
issues.64 Specifically, matters not assigned as errors on appeal but consideration of which are necessary in
arriving at a just decision and complete resolution of the case, or to serve the interest of justice or to avoid
dispensing piecemeal justice.65
In the instant case, the correct characterization of the Supplemental Deed, i.e., whether it is valid or void, is
unmistakably determinative of the underlying controversy. In other words, the issue of validity or nullity of the
instrument which is at the core of the controversy is interwoven with the issues adopted by the parties and the
rulings of the trial court and the appellate court. 66 Thus, this Court is also resolute in striking down the alleged
deed in this case, especially as it appears on its face to be a blatant nullity.
WHEREFORE, foregoing premises considered, the Decision dated 30 September 1999 of the Court of
Appeals is hereby AFFIRMED. Costs against petitioner J.L.T. Agro, Inc.
SO ORDERED.
G.R. No. L-33360 April 25, 1977
MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes), petitioner,
vs.
COURT OF APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL
TUMPAO, respondents,

Sinforoso Fingonil and Sinai C. Hamada for petitioner.

CASTRO, C.J:

On February 21, 1947, as a result of the approval of the Subdivision Survey Plan psd-16786, and pursuant to
the deed of sale executed in 1940 by Maximino Carantes in favor of the Government, T.C.T. No. 2540 in
Maximino's name was cancelled, and in lieu thereof Transfer Certificate of Title No. T98, covering Lots Nos.
44-A, 44-B arid 44-C, was issued in the name of the Government, while Transfer Certificate of Title No. T-99,
covering the remaining Lots Nos. 44-D (100, 345 square meters) and 44-E (10,070 square meters) was issued
in the name of Maximino Carantes, who has up to the present remained the registered owner of said lots.

This is an appeal by certiorari from the decision of the Court of Appeals in CA-G.R. 36078-R promulgated on
December 23, 1970 reversing the judgment of the Court of First Instance of Baguio City, Branch II, in Civil
Case 804, and from the appellate court's resolution dated March 7, 1971 denying herein petitioner's motion for
reconsideration.

On September 4, 1958 the present complaint was filed by three children of the late Mateo Carantes, namely,
Bilad, Lauro and Crispino, and by some of the surviving heirs of Apung and of Sianang ('also children of Mateo
Carantes). Maximino Carantes was named principal defendant, and some of the heirs of Apung and Sianang
were impleaded as parties-defendants in view of their alleged reluctance to join as parties-plaintiffs.

Mateo Carantes was the original owner of Lot No. 44 situated at Loakan, Baguio City, as evidenced by
Original Certificate of Title No. 3 issued in his name on September 22, 1910 by virtue of Free Patent No. 5
granted to him on the same date. In 1913 Mateo died. He was survived by his widow Ogasia and six children,
namely, Bilad, Lauro, Crispino, Maximino, Apung and Sianang, all surnamed Carantes.

In their complaint the plaintiffs alleged inter alia that they and/or their predecessors-in-interest executed the
deed of "Assignment of Right to Inheritance" on October 23, 1939, only because they were made to believe by
the defendant Maximino Carantes that the said instrument embodied the understanding among the parties that
it merely authorized the defendant Maximino to convey portions of Lot No. 44 to the Government in their
behalf to minimize expenses and facilitate the transaction; and that it was only on February 18, 1958, when
the plaintiffs secured a copy of the deed, that they came to know that the same purported to assign in favor of
Maximino their rights to inheritance from Mateo Carantes. The plaintiffs prayed that the deed of "Assignment
of Right to Inheritance" be declared null and void; that Lots Nos. 44-D and 44-E covered by T.C.T. No. T99 be
ordered partitioned into six (6) equal shares and the defendant Maximino Carantes be accordingly ordered to
execute the necessary deeds of conveyance in favor of the other distributees and that the said defendant be
ordered to pay the plaintiffs the sum of P1,000 as attorney's fees and the sum of P200 as costs of suit.

Ruben C. Ayson for private respondents.

In 1930 construction of the Loakan Airport was commenced by the Government. Because a portion of Lot No.
44 was needed for the landing field, the Government instituted proceedings (Civil Case 338) for its
expropriation. For the purpose, Lot No. 44 was subdivided into Lots Nos. 44-A, 44-B, 44-C, 44-D and 44-E.
The portion expropriated by the Government was Lot No. 44-A.
In 1933 Special Proceedings Nos. 409 to 413 were filed with the court for the settlement of the estate of the
late Mateo Carantes. One of his sons, herein petitioner Maximino Carantes, was appointed and qualified as
judicial administrator of the estate. In his capacity as administrator, Maximino filed on June 20, 1939 a project
of partition wherein he listed as the heirs of Mateo Carantes who were entitled to inherit the estate, himself
and his brothers and sisters, or the latter's surviving children Apparently because negotiations were, by that
time, under way for the purchase by the Government of Lots Nos. 44-B and 44-C for the purpose of widening
the Loakan Airport, the only property listed by Maximino in the project of partition was the remaining portion of
Lot No. 44.
On October 23, 1939 a deed denominated "Assignment of Right to Inheritance" was executed by four of
Mateo Carantes children, namely, Bilad, Sianang, Lauro and Crispino, and the heirs of Apung Carantes (also a
son of Mateo who died in 1923), namely, Pitag, Bill, Alson, Eduardo and Juan, assigning to Maximino
Carantes their rights to inheritance in Lot No. 44. The stated monetary consideration for the assignment was
P1.00. However, the document contains a recital to the effect that the said lots, "by agreement of all the direct
heirs and heirs by representation of the deceased Mateo Carantes as expressed and conveyed verbally. by
him during his lifetime, rightly and exclusively belong to the particular heir, Maximino Carantes, now and in the
past in the exclusive, continuous, peaceful and notorious possession of the same for more than ten years."
On the same date Maximino Carantes sold to the Government Lots Nos. 44-B and 44-C and divided the
proceeds of the sale among himself and the other heirs of Mateo.
On February 6, 1940, upon joint petition of the heirs of Mateo Carantes, the Court of First Instance of Baguio
City issued an Order in another proceeding Administrative Case No. 368 cancelling O.C.T. No. 3.
Pursuant thereto the said title was cancelled, and in its place Transfer Certificate of Title No. 2533 was issued
in the joint names of the five children of Mateo Carantes and the children of Apung Carantes (representing
their deceased father) as co-owners pro indiviso, or one-sixth share for each child.
On March 16, 1940 Maximino Carantes registered the deed of "Assignment of Right to Inheritance."
Accordingly, T.C.T. No. 2533 in the names of the heirs was cancelled, and in lieu thereof Transfer Certificate of
Title No. 2540 was issued on the same date in the name of Maximino Carantes. Also on the same date,
Maximino, acting as exclusive owner of the land covered by T.C.T. No. 2540, executed a formal deed of sale in
favor of the Government over Lots Nos. 44-B and 44-C.

On September 10, 1958 the defendants filed a motion to dismiss on the grounds (1) that the plaintiffs' cause of
action is barred by the statute of limitations because the deed of assignment was recorded in the Registry of
Property at the latest on February 21, 1947, hence, plaintiffs' cause of action accrued from the said date, and
since pursuant to article 1144 of the new Civil Code an action based on a written contract must be brought
within ten years from the time the right of action accrues, plaintiffs' right to file the complaint had already
prescribed on September 4, 1958; and (2) that the complaint states no cause of action because ownership
over the property became vested in Maximino Carantes by acquisitive prescription ten years from its
registration in his name on February, 21, 1947.
In an Order dated September 30, 1958, the trial court denied the motion to dismiss on the grounds that there
are allegations of co-ownership and trust in the complaint, and, therefore, prescription did not lie, and that the
complaint alleges that the plaintiffs discovered the alleged fraud only in February, 1958.
In their answer filed on October 7, 1958, the defendants traversed the material averments of the complaint and
alleged inter alia that the property of the deceased Mateo Carantes and his wife had been divided and
distributed among their six children; that the deed of "Assignment of Right to Inheritance" was an
acknowledgment of the fact of designation of the property therein described as specifically pertaining or
belonging by right of inheritance to the defendant Maximino Carantes: that there was never any agreement
between the assignors and the assignee authorizing the latter to merely represent his co-heirs in negotiations
with the Government; and that the assignors knew fully well that the deed of assignment contained what, on its
face, it represented, By way of special defenses, the defendants alleged that any supposed agreement
between the plaintiffs and/or their predecessors-in-interest and the defendant Maximino Carantes, other than
the deed of assignment, is barred by the statute of frauds and is null and void because not in writing, much
less, in a public instrument; that the only agreement between the parties is what appears in the deed of
assignment; that the plaintiffs' right of action has already prescribed; that the defendant Maximino Carantes
acquired absolute ownership over the property in question by acquisitive prescription and registration; and that
any obligation on the part of the defendants in relation to the property had been discharged by novation,
condonation and compensation. The defendants set up the counterclaim that in the event the rights of the
heirs are disturbed, the produce from the lands inherited by the plaintiffs from Mateo Carantes as well as the
real estate taxes on the land paid by the defendant Maximino Carantes should be collated; and that the filing
of the complaint being malicious, the defendants should be awarded the sum of P4,500 by way of nominal,
compensatory, moral and corrective damages, including attorney's fees and expenses of litigation. The
defendants prayed for the dismissal of the complaint and payment of damages to them.

An answer to the counterclaim was filed by the plaintiffs on November 7, 1958 denying the material allegations
of the counterclaim.
After trial, the court rendered its decision on January 28, 1965. It was the trial court's opinion that since an
action based on fraud prescribes in four years from the discovery of the fraud, and in this case the fraud
allegedly perpetrated by the defendant Maximino Carantes must be deemed to have been discovered on
March 16, 1940 when the deed of assignment was registered, the plaintiffs' right of action had already
prescribed when they filed the action in 1958; and even assuming that the land remained the common
property of the plaintiffs and the defendant Maximino Carantes notwithstanding the execution of the deed of
assignment, the co-ownership was completely repudiated by the said defendant by performance of several
acts, the first of which was his execution of a deed of sale in favor of the Government on October 23, 1939,
hence, ownership had vested in the defendant Maximino Carantes by acquisitive prescription. The court
accordingly dismissed the complaint. It likewise dismissed the counterclaim.
The plaintiffs moved for reconsideration. Their motion having been denied in an Order dated March 8, 1965,
they appealed to the Court of Appeals.
As adverted to above, the Court of Appeals reversed the judgment of the trial court, hence the present
recourse.
-IIn her brief filed with this Court, the petitioner argues that the private respondents' action is not actually one for
annulment of the deed of "Assignment of Right to Inheritance" but for the reformation thereof, hence, the said
action has prescribed long before the filing of the complaint.
The petitioner's theory that the private respondents' action is for reformation of an instrument is a new one,
adopted by the petitioner for the first time on appeal to this Court. Her husband did not raise it as a defense in
his answer filed with the trial court, where, consequently, trial proceeded on the theory that the action sought
the declaration of nullity of the deed of assignment. When the case reached the respondent court the
petitioner likewise did not raise this issue, although in truth, even had she done so, it would have been a
belated and futile exercise. She cannot be allowed to change her theory of the case at this stage of the
proceedings.
1

The settled rule is that defenses not pleaded in the answer may not be raised for the first time on appeal. A
party cannot, on appeal, change fundamentally the nature of the issue in the case. 2 When a party deliberately
adopts a certain theory and the case is decided upon that theory in the court below, he will not be permitted to
change the same on appeal, because to permit him to do so would be unfair to the adverse party. 3
Consequently, we have to disregard the petitioner's theory that the action is for reformation of an instrument,
and must proceed on the basis of the issues properly raised and ventilated before the trial court.
- II We do not agree with the respondent court's legal conclusion that the deed of "Assignment of Right to
Inheritance" is void ab initio and inexistent on the grounds that real consent was wanting and the consideration
of P1.00 is so shocking to the conscience that there was in fact no consideration, hence, the action for the
declaration of the contract's inexistence does not prescribe pursuant to article 1410 of the new Civil Code.
Article 1409 (2) of the new Civil Code relied upon by the respondent court provides that contracts "which are
absolutely simulated or fictitious" are inexistent and void from the beginning. The basic characteristic of
simulation is the fact that the apparent contract is not really desired or intended to produce legal effects or in
any way alter the juridical situation of the parties. 4

The respondents' action may not be considered as one to declare the inexistence of a contract for lack of
consideration. It is total absence of cause or consideration that renders a contract absolutely void and
inexistent.5 In the case at bar consideration was not absent. The sum of P1.00 appears in the document as
one of the considerations for the assignment of inheritance. In addition and this of great legal import the
document recites that the decedent Mateo Carantes had, during his lifetime, expressed to the signatories to
the contract that the property subject-matter thereof rightly and exclusively belonged to the petitioner
Maximino Carantes. This acknowledgment by the signatories definitely constitutes valuable consideration for
the contract.
- III The present action is one to annul the contract entitled "Assignment of Right to Inheritance" on the ground of
fraud.
Article 1390 of the new Civil code provides that a contract "where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud," is voidable or annullable. Even article 1359, which deals on reformation
of instruments, provides in its paragraph 2 that "If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract," When the consent to a contract was fraudulently obtained, the contract is
avoidable. 6 Fraud or deceit does not render a contract void ab initio and can only be a ground for rendering
the contract voidable or annullable pursuant to article 1390 of the new Civil Code by a proper action in court. 7
The present action being one to annul a contract on the ground of fraud, its prescriptive period is four years
from the time of the discovery of the fraud. 8
The next question that must be resolved is: from what time must fraud, assuming that there was fraud, be
deemed to have been discovered in the case at bar? From February, 1958, when, according to the private
respondents, and as found by the respondent court, the private respondents actually discovered that they
were defrauded by the petitioner Maximino Carantes when rumors spread that he was selling the property for
half a million pesos? Or from March 16, 1940, when, as admitted by the parties and found by both the trial
court and the respondent court, the deed of "Assignment of Right to Inheritance" was registered by the
petitioner in the Office of the Register of Deeds?
The weight of authorities is to the effect that the registration of an instrument in the Office of the Register of
Deeds constitutes constructive notice to the whole world, and, therefore, discovery of the fraud is deemed to
have taken place at the time of the registration. 9 In this case the deed of assignment was registered on March
16, 1940, and in fact on the same date T.C.T. No. 2533 in the names of the heirs of Mateo Carantes was
cancelled, and T.C.T. No. 2540 in the name of the petitioner was issued in lieu thereof. The four-year period
within which the private respondents could have filed the present action consequently commenced on March
16, 1940; and since they filed it only on September 4, 1958, it follows that the same is barred by the statute of
limitations.
The respondent court refused to accord recognition to the rule of constructive notice, because, according to it,
there was a fiduciary relationship between the parties. Upon this premise it concluded that the four-year
prescriptive period should be deemed to have commenced in February, 1958 when private respondents had
actual notice of the fraud. Without resolving the question of whether or not constructive notice applies when a
fiduciary relationship exists between the parties a point which is not in issue in this case we hold that the
respondent court's conclusion, lacking the necessary premise upon which it should be predicated, is
erroneous.
Definitely, no express trust was created in favor of the private respondents. If trust there was, it could only be
as held by respondent court a constructive trust, which is imposed by law. In constructive trusts there is
neither promise nor fiduciary relations; the so-called trustee does not recognize any trust and has no intent to
hold the property for the beneficiary. 10 In at least two cases, the rule of constructive notice was applied by this
Court although a constructive trust had been created. Thus, in Lopez, et al. vs. Gonzaga, et al., 11 where the
plaintiffs and the defendants were co-heirs and the decedent owner of the lands had merely allowed the
principal defendant to use the products and rentals of the lands for purposes of coconut oil experimentation,

but said defendant later caused the transfer of the certificates of title in his own name through the registration
of certain judicial orders, this Court held that the recording of the judicial orders sufficed as notice to the other
heirs, for the rule is that knowledge of what might have been revealed by proper inquiry is imputable to the
inquirer. In Gerona, et al. vs. De Guzman, et a., supra, the petitioners and the private respondents were coheirs, and the petitioners' action for partition and reconveyance was based upon a constructive trust resulting
from fraud. This Court held that the discovery of the fraud "is deemed to have taken place, in the case at bar,
on June 25, 1948, when said instrument was filed with the Register of Deeds and new certificates of title were
issued in the name of respondents exclusively, for the registration of the deed of extra-judicial settlement
constituted constructive notice to the whole world."
- IV The decision under review found that a constructive trust was created in favor of the private respondents, and,
holding that an action for reconveyance based on constructive trust is imprescriptible, recognized the right of
the private respondents to file an action for reconveyance regardless of the lapse of time, citing Gayandato vs.
Treasurer of the Philippine Islands, et al. 12
We have examined Gayandato, and have failed to find support therein for the holding of the respondent court.
In any event, it is now settled that an action for reconveyance based on implied or constructive trust is
prescriptible it prescribes in ten years. 13 In this case the ten-year prescriptive period began on March 16,
1940, when the petitioner registered the deed of "Assignment of Right to Inheritance" and secured the
cancellation of the certificate of title in the joint names of the heirs of Mateo Carantes, and, in lieu thereof, the
issuance of a new title exclusively in his name. 14 Since the present action was commenced only on
September 4, 1958, it is clear that the same is barred by extinctive prescription.
-VIt was also held by the respondent court that the petitioner was merely holding the property in trust for the
benefit of his co-heirs as administrator, hence, there was a continuing and subsisting trust, and pursuant to
section 38 of the Code of Civil Procedure, the provisions of the said Code on prescription (Secs. 40-41) do not
apply. It is our view, however, that there was no continuing and subsisting trust.
From March 16, 1940, when the petitioner registered the deed of assignment and had the Certificate of title in
the names of the heirs cancelled and a new certificate of title issued in his own name, he began to hold the
property in open and clear repudiation of any trust. 15 It will be noted that on the same date, the petitioner also
executed a formal deed of sale over portions of Lot No. 44 in favor of the Government. In 1948 he mortgaged
Lot No. 44-D with the Philippine National Bank as his exclusive property. The petitioner's exercise of such
rights of dominion is anathema to the concept of a continuing and subsisting trust. The circumstances, found
by the respondent court, that the name of Mateo Carantes still appeared in the tax declaration as owner of the
land and the name of the petitioner as administrator, that the real estate taxes, were shared by the other heirs
with the petitioner, and that some of the heirs are living in houses erected by them on the land, wane in legal
significance in the face of the petitioner's aforesaid uncontroverted acts of strict dominion. In connection with
the payment of real estate taxes, it is to be noted that the respondent court also found that all the receipts
were issued in the name of the petitioner. The circumstances mentioned above do not make out a case of a
continuing and subsisting trust.
ACCORDINGLY, the judgment of the Court of Appeals appealed from is set aside, and another entered
dismissing the complaint in Civil Case No. 804 of the Court of First Instance of Baguio. No costs.
[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 certiorari[1] to annul the Decision[2] dated 26 June 1996 of the Court of
Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed the Decision [3]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 P6,000.00
(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 P1[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 P54,[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 P[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 P20,000.00 (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 P25,000.00 (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:
- XXThe 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;

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]

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 litisxxx 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

The Ruling of the Court of Appeals

The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:
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 latters 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.

stated:

WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-appellants.

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.

SO ORDERED.[9]

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

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-ininterest.[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.

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 Valdozs 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

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 (Ibaez v. Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.

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.
G.R. No. L-27010

April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner,

vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City,
HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents.
R. M. Coronado and Associates for petitioner.
Francisco Lavides for respondent.
REYES, J.B.L., Acting C.J.:
Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City (Branch
IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages, denying
reconsideration, refusing to admit an amended complaint, and declaring the dismissal final and unappealable.
The essential facts are the following:
Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private
respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon
Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as
leading actress in two motion pictures produced by the company, and to recover damages. Upon motion of
defendants, the respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint dismissed,
mainly because the "claim of plaintiff was not evidenced by any written document, either public or private", and

the complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil, Code of the
Philippines, as well as for containing defective allege, petitions. Plaintiff sought reconsideration of the
dismissal and for admission of an amended complaint, attached to the motion. The court denied
reconsideration and the leave to amend; whereupon, a second motion for reconsideration was filed.
Nevertheless, the court also denied it for being pro forma, as its allegations "are, more or less, the same as
the first motion", and for not being accompanied by an affidavit of merits, and further declared the dismissal
final and unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court.
The answer sets up the defense that "the proposed amended complaint did not vary in any material respect
from the original complaint except in minor details, and suffers from the same vital defect of the original
complaint", which is the violation of Article 1356 of the Civil Code, in that the contract sued upon was not
alleged to be in writing; that by Article 1358 the writing was absolute and indispensable, because the amount
involved exceeds five hundred pesos; and that the second motion for reconsideration did not interrupt the
period for appeal, because it was not served on three days' notice.
We shall take up first the procedural question. It is a well established rule in our jurisprudence that when a
court sustains a demurrer or motion to dismiss it is error for the court to dismiss the complaint without giving
the party plaintiff an opportunity to amend his complaint if he so chooses. 1 Insofar as the first order of
dismissal (Annex D, Petition) did not provide that the same was without prejudice to amendment of the
complaint, or reserve to the plaintiff the right to amend his complaint, the said order was erroneous; and this
error was compounded when the motion to accept the amended complaint was denied in the subsequent
order of 3 October 1966 (Annex F, Petition). Hence, the petitioner-plaintiff was within her rights in filing her socalled second motion for reconsideration, which was actually a first motion against the refusal to admit the
amended complaint.
It is contended that the second motion for reconsideration was merely pro forma and did not suspend the
period to appeal from the first order of dismissal (Annex D) because (1) it merely reiterated the first motion for
reconsideration and (2) it was filed without giving the counsel for defendant-appellee the 3 days' notice
provided by the rules. This argument is not tenable, for the reason that the second motion for reconsideration
was addressed to the court' refusal to allow an amendment to the original complaint, and this was a ground
not invoked in the first motion for reconsideration. Thus, the second motion to reconsider was really not pro
forma, as it was based on a different ground, even if in its first part it set forth in greater detail the arguments
against the correctness of the first order to dismiss. And as to the lack of 3 days' notice, the record shows that
appellees had filed their opposition (in detail) to the second motion to reconsider (Answer, Annex 4); so that
even if it were true that respondents were not given the full 3 days' notice they were not deprived of any
substantial right. Therefore, the claim that the first order of dismissal had become final and unappealable must
be overruled.
It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the plaintiffpetitioner was entitled as of right to amend the original dismissed complaint. In Paeste vs. Jaurigue 94 Phil.
179, 181, this Court ruled as follows:
Appellants contend that the lower court erred in not admitting their amended complaint and in
holding that their action had already prescribed. Appellants are right on both counts.
Amendments to pleadings are favored and should be liberally allowed in the furtherance of justice.
(Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of Court, a party
may amend his pleading once as a matter of course, that is, without leave of court, at any time
before a responsive pleading is served. A motion to dismiss is not a "responsive pleading". (Moran
on the Rules of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their complaint before it was
answered, the motion to admit the amendment should not have been denied. It is true that the
amendment was presented after the original complaint had been ordered dismissed. But that order
was not yet final for it was still under reconsideration.
The foregoing observations leave this Court free to discuss the main issue in this petition. Did the court below
abuse its discretion in ruling that a contract for personal services involving more than P500.00 was either
invalid of unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines?

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable
misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code.
In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish Civil Code
of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the parties over formalities:
hence, in general, contracts are valid and binding from their perfection regardless of form whether they be oral
or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first cited provision
prescribes:
ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis
supplied)
Concordantly, the first part of Article 1356 of the Code Provides:
ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.... (Emphasis supplied)
These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3)
consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements exist, the
contract is generally valid and obligatory, regardless of the form, oral or written, in which they are
couched.lawphi1.nt
To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:
However, when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable....

ART. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the
action the contract. (Emphasis supplied) .
It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein
were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the
same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of action
because it did not plead any written agreement.
The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that the
law should require that the contract be in writing, as it does in Article 1358. The law must further prescribe that
without the writing the contract is not valid or not enforceable by action.
WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the court
of origin for further proceedings not at variance with this decision.
Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon
Valenzuela.
G.R. No. 128338

March 28, 2005

TINING RESUENA, ALEJANDRA GARAY, LORNA RESUENA, ELEUTERIO RESUENA, EUTIQUIA

ROSARIO and UNISIMA RESUENA, Petitioner,
vs.
HON. COURT OF APPEALS, 11th DIVISION and JUANITO BORROMEO, SR., Respondents.
DECISION
TINGA, J.:

It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter
partes of a contract that possesses the three validating elements of consent, subject matter, and causa, Article
1356 of the Code establishes only two exceptions, to wit:
(a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make
themvalid and enforceable (the so-called solemn contracts). Of these the typical example is the donation of
immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that the
donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth more than
P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts to pay
interest on loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the agreements
contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil Code.
(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those
covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable
by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing
embodying the terms thereof for their enforceability by action in court.
The contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts
where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But
Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or
unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are
binding and enforceable by action or suit despite the absence of writing.

This is a Rule 45 Petition for Review on Certiorari of the Decision1 of the Court of Appeals affirming that of the
Regional Trial Court (RTC) of Cebu,2 which in turn reversed that of the Metropolitan Trial Court (mtc) of Talisay,
Cebu.3
The facts are as follows:
Private respondent, the late Juanito Borromeo, Sr.4 (hereinafter, respondent), is the co-owner and overseer of
certain parcels of land located in Pooc, Talisay, Cebu, designated as Lots Nos. 2587 and 2592 of the TalisayManglanilla Estate. Respondent owns six-eighths (6/8) of Lot No. 2587 while the late spouses Inocencio
Bascon and Basilisa Maneja (Spouses Bascon) own two-eights (2/8) thereof. On the other hand, Lot No. 2592
is owned in common by respondent and the heirs of one Nicolas Maneja. However, the proportion of their
undivided shares was not determined a quo.
Prior to the institution of the present action, petitioners Tining Resuena, Alejandra Garay, Lorna Resuena,
Eleuterio Resuena, and Unisima Resuena resided in the upper portion of Lot No. 2587, allegedly under the
acquiescence of the Spouses Bascon and their heir, Andres Bascon. On the other hand, petitioner Eutiquia
Rosario occupied a portion of Lot No. 2592, allegedly with the permission of the heirs of Nicolas Maneja, one
of the original co-owners of Lot No. 2587. Respondent claims that all petitioners have occupied portions of the
subject property by virtue of his own liberality.
Respondent developed portions of Lots Nos. 2587 and 2592 occupied by him into a resort known as the
Borromeo Beach Resort. In his desire to expand and extend the facilities of the resort that he established on

the subject properties, respondent demanded that petitioners vacate the property. Petitioners, however,
refused to vacate their homes.
On 16 February 1994, respondent filed a Complaint5 for ejectment with the MTC against the petitioners. After a
summary proceeding, the MTC, in a Decision6 dated 10 October 1994, found that Lots Nos. 2587 and 2592
were owned in common by respondent with other persons. The MTC ruled that respondent did not have a
preferential right of possession over the portions occupied by petitioners, since Lots Nos. 2587 and 2592 were
not yet partitioned nor the disputed portions assigned to respondent as his determinate share. Thus, the MTC
held that respondent had no right to evict petitioners therefrom. Consequently, respondents Complaint was
dismissed.
Notably, the MTC held that respondent and the spouses Bascon were the owners in common of Lot No. 2587
and their respective shares had not yet been determined by partition as proven by a testimony given by
respondent in Civil Case No. R-14600, viz:
Q. And the participation there of Inocencio Bascon is 2/8 of the said parcel of land?
A. Yes sir.
Q. And until the present that parcel of land is undivided?
A. It is not yet partitioned, but during the time of Basilisa Maneja we had already made some indications of the
portions that we came to occupy.
Q. That is the parcel of land where you have your beach resort?
A. Yes, sir; and that was our agreement, verbally, that with respect to the portion of the land towards the seashore it will be my share and that portion of the land towards the upper part will be theirs." 7
On appeal, the RTC reversed the Decision of the MTC. It held that Article 487 of the Civil Code, which allows
any one of the co-owners to bring an action in ejectment, may successfully be invoked by the respondent
because, in a sense, a co-owner is the owner and possessor of the whole, and that the suit for ejectment is
deemed to be instituted for the benefit of all co-owners. 8 The RTC also ruled that assuming petitioners were
authorized to occupy a portion of the co-owned property, they could resume this occupation when the
properties shall have been partitioned and allocated to the ones who gave them permission to reside therein. It
thus held:
WHEREFORE, judgment of the lower court is hereby reversed and the defendants are hereby directed to
vacate the premises in question without prejudice to their going back to the land after partition shall have been
effected by the coheirs and/or co-owners among themselves but to the specific portion or portions adjudicated
to the person or persons who allegedly authorized them to occupy their portions by tolerance. 9
The Court of Appeals affirmed the Decision of the RTC; hence, this petition which involves the following
assignment of errors:10
1. That with grave abuse of discretion, amounting to excess of jurisdiction, the honorable eleventh division of
the court of appeals erred in NOT APPLYING and/or in NOT DECLARING private respondent juanito
borromeo estopped in filing this ejectment case against the herein six (6) petitioners.
2. That with grave abuse of discretion, the honorable eleventh division of the court of appeals erred in
incorrectly applying the statute of frauds, considering that the verbal agreement entered into by and between
spouses inocencio bascon and basilisa maneja on the one hand and juanito borromeo on the other more than
twenty (20) years ago today, was already an EXECUTED CONTRACT.

3. That with grave abuse of discretion, amounting to excess of jurisdiction, the honorable eleventh division of
the court of appeals erred in ignoring outright article 493 of the new civil code of the philippines, considering
that the six (6) petitioners are only ASSIGNEES, pure and simple, of co-owners spouses ignacio bascon and
basilisa maneja and/or andres bascon, the adopted son of the said spouses.
4. That granting arguendo that the herein six (6) petitioners have to be ejected, the eleventh division of the
court of appeals erred in NOT remanding this case to the court of origin for the reception of evidence for
damages, pursuant to and in accordance with art. 546, new civil code.
The petition cannot prosper.
At the outset it must be stated that petitioners ground their petition on respondents testimony in Civil Case No.
R-14600 that he had agreed with co-owner, Basilisa Maneja, on the portions they each were to occupy in Lot
No. 2587 prior to the partition of the property. However, respondents testimony and, consequently, the
agreement alluded to therein pertains solely to Lot No. 2587which, admittedly, all of petitioners occupy, save
for Eutiquia Rosario who occupies Lot No. 2592. No argument was presented in this petition as regards the
latters claim. Having no basis to review Eutiquia Rosarios claim to be allowed to continue in her occupation of
Lot No. 2592, this Court maintains the holding of the RTC on this matter, as affirmed by the Court of Appeals,
that respondent has the right to eject petitioner Eutiquia Rosario from Lot No. 2592.
With regard to the other five (5) petitioners, the Court notes that their first three assignments of errors are
interrelated and built on each other. Petitioners allege that respondents testimony in Civil Case No. R-14600,
expressing that the upper two-eighths (2/8) portion of Lot No. 2587 would be occupied by Basilisa Maneja,
constituting as it does a waiver of said portion, has estopped respondent from claiming the portion. Basilisa
Maneja and her husband allegedly relied on this agreement when the spouses assigned the upper portion of
Lot No. 2587 to petitioners. Moreover, petitioners claim that their occupation of the upper portion of Lot No.
2587 had consummated the verbal agreement between respondent and Basilisa Maneja and brought
agreement beyond the purview of the Statute of Frauds.
A careful perusal of the foregoing issues reveals that petitioners assumed the following as proven facts: (1)
respondent had indicated to Basilisa Maneja the portions they were to occupy in Lot No. 2587; and (2) the
Spouses Bascon assigned to petitioners their portions of Lot No. 2587. By claiming these as the bases for
their assignment of errors, petitioners in essence are raising questions of fact. 11
The issues raised by petitioners on the application of estoppel, statute of frauds, and the assignment of
properties owned in common in their favor, while ostensibly raising questions of law, invite this Court to rule on
questions of fact. This runs counter to the settled rule that only questions of law may be raised in a petition for
review before the Court and the same must be distinctly set forth. 12
It is not the function of this Court to weigh anew the evidence already passed upon by the Court of Appeals for
such evidence is deemed final and conclusive and may not be reviewed on appeal. A departure from the
general rule may be warranted, among others, where the findings of fact of the Court of Appeals are contrary
to the findings and conclusions of the trial court, or when the same is unsupported by the evidence on
record.13
In the instant case, the RTC and the Court of Appeals rendered judgment merely on questions of law as
applied to the facts as determined by the MTC. Consequently this Court must proceed on the same set of
facts without assuming, as petitioners have done, the veracity of claims which have been considered, but not
accepted as facts, by the courts below.
Guided by the foregoing, this Court finds in this case that filtered of the muddle from petitioners assignment of
errors, it is unmistakable that respondent has a right to eject the petitioners from Lot No. 2587.
Article 487 of the Civil Code, which provides simply that "[a]ny one of the co-owners may bring an action in
ejectment," is a categorical and an unqualified authority in favor of respondent to evict petitioners from the
portions of Lot. No. 2587.

This provision is a departure from Palarca v. Baguisi,14 which held that an action for ejectment must be brought
by all the co-owners. Thus, a co-owner may bring an action to exercise and protect the rights of all. When the
action is brought by one co-owner for the benefit of all, a favorable decision will benefit them; but an adverse
decision cannot prejudice their rights. 15
Respondents action for ejectment against petitioners is deemed to be instituted for the benefit of all co-owners
of the property16 since petitioners were not able to prove that they are authorized to occupy the same.
Petitioners lack of authority to occupy the properties, coupled with respondents right under Article 487, clearly
settles respondents prerogative to eject petitioners from Lot No. 2587. Time and again, this Court has ruled
that persons who occupy the land of another at the latter's tolerance or permission, without any contract
between them, are necessarily bound by an implied promise that they will vacate the same upon demand,
failing in which a summary action for ejectment is the proper remedy against them. 17
Petitioners pose the strange claim that respondent had estopped himself from filing an ejectment case against
petitioners by his aforequoted testimony in Civil Case No. R-14600. Such testimony is irrelevant to the case at
bar, as it does nothing to strengthen the claim of petitioners that they had a right to occupy the properties. This
testimony merely indicates that there might have been an agreement between the Spouses Bascon and
Borromeo as to which of them would occupy what portion of Lot No. 2587. Yet this averment hardly
establishes a definitive partition, or moreover, any right of petitioners to dwell in any portion of Lot No. 2587.
Besides, "[e]stoppel is effective only as between the parties thereto or their successors in interest;" thus, only
the spouses Bascon or their successors in interest may invoke such "estoppel." A stranger to a transaction is
neither bound by, nor in a position to take advantage of, an estoppel arising therefrom. 18
For the same reason, it is of no moment whether indeed, as petitioners claim, there was a verbal contract
between Basilisa Maneja and Borromeo when the latter indicated the portions they each were to occupy in Lot
No. 2587. Such verbal contract, assuming there was one, does not detract from the fact that the common
ownership over Lot No. 2587 remained inchoate and undivided, thus casting doubt and rendering purely
speculative any claim that the Spouses Bascon somehow had the capacity to assign or transmit determinate
portions of the property to petitioners.
Thus, in order that the petition may acquire any whiff of merit, petitioners are obliged to establish a legal basis
for their continued occupancy of the properties. The mere tolerance of one of the co-owners, assuming that
there was such, does not suffice to establish such right. Tolerance in itself does not bear any legal fruit, and it
can easily be supplanted by a sudden change of heart on the part of the owner. Petitioners have not adduced
any convincing evidence that they have somehow become successors-in-interest of the Spouses Bascon, or
any of the owners of Lot No. 2587.
Indeed, there is no writing presented to evidence any claim of ownership or right to occupancy to the subject
properties. There is no lease contract that would vest on petitioners the right to stay on the property. As
discussed by the Court of Appeals,19 Article 1358 of the Civil Code provides that acts which have for their
object the creation, transmission, modification or extinguishment of real rights over immovable property must
appear in a public instrument. How then can this Court accept the claim of petitioners that they have a right to
stay on the subject properties, absent any document which indubitably establishes such right? Assuming that
there was any verbal agreement between petitioners and any of the owners of the subject lots, Article 1358
grants a coercive power to the parties by which they can reciprocally compel the documentation of the
agreement.20
Thus, the appellate court correctly appreciated the absence of any document or any occupancy right of
petitioners as a negation of their claim that they were allowed by the Spouses Bascon to construct their
houses thereon and to stay thereon until further notice. On this note, this Court will no longer belabor
petitioners allegation that their occupation of Lot No. 2587 is justified pursuant to the alleged but unproven
permission of the Spouses Bascon.
All six (6) petitioners claim the right to be reimbursed "necessary expenses" for the cost of constructing their
houses in accordance with Article 546 of the Civil Code. 21 It is well-settled that while the Article allows full
reimbursement of useful improvements and retention of the premises until reimbursement is made, applies

only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof.
Verily, persons whose occupation of a realty is by sheer tolerance of its owners are not possessors in good
faith.22
The lower courts have made a common factual finding that petitioners are occupying portions of Lots No. 2587
and 2592 by mere tolerance. Thus, petitioners have no right to get reimbursed for the expenses they incurred
in erecting their houses thereon.
WHEREFORE, premises considered, the Petition is DENIED and the Decision of the Court of Appeals
AFFIRMED. Costs against petitioners.
SO ORDERED.
[G.R. No. L-8060. September 28, 1955.]
PAULINO GARCIA, Plaintiff-Appellant, v. MARIA BISAYA, ET AL., Defendants-Appellees.
Francisco P. Madlangbayan for Appellant.
Augusto L. Valencia for Appellees.

SYLLABUS

1. CONTRACTS; REFORMATION OF INSTRUMENT; PRESCRIPTION. An action to correct an alleged

mistake in a deed of sale covering a piece of land, prescribes in ten years counted from the day it could have
been instituted. There being nothing in the pleadings to show that the error was discovered more than ten
years before the present action was filed the action should not have been dismissed as having already
prescribed before the factual basis for prescription had been established and clarified by evidence.
2. PLEADING AND PRACTICE; REFORMATION OF INSTRUMENT; ALLEGATION THAT INSTRUMENT
DOES NOT EXPRESS INTENTION OF PARTIES, ESSENTIAL. Appellants complaint states no cause of
action, for it fails to allege that the instrument to be reformed does not express the real agreement or intention
of the parties. Such allegation is essential since the object sought in an action for reformation is to make an
instrument conform to be real agreement or intention of the parties. It is not the function of the remedy to make
a new agreement, but to establish and perpetuate the true existing one.

DECISION

REYES, A., J.:

On May 20, 1952, plaintiff filed a complaint against the defendants in the Court of First Instance of Oriental
Mindoro, alleging that on November 12, 1938, defendants executed in favor of plaintiff a deed of sale covering
a parcel of land therein described; that the said land "was erroneously designated by the parties in the deed of
sale as an unregistered land (not registered under Act 496, nor under the Spanish Mortgage Law) when in
truth and in fact said land is a portion of a big mass of land registered under Original Certificate of Title No.
6579 in the Office of the Register of Deeds of Oriental Mindoro" ; that despite persistent demand from plaintiff
to have the error corrected, defendants have refused to do so. Plaintiff, therefore, prayed for judgment
ordering defendants to make the aforesaid correction in the deed of sale.
Answering the complaint, defendants denied having executed the alleged deed of sale and pleaded
prescription as a defense. Traversing the plea of prescription, plaintiff alleged, among other things, that he
"was without knowledge of the error sought to be corrected at the time the deed of sale was executed and for
many years thereafter," having discovered the said error "only recently."
Without trial on the merits and merely upon motion, the lower court dismissed the case on the ground that

plaintiffs action had already prescribed. From this order plaintiff has appealed directly to this Court.
Both appellant and appellees apparently regard the present action as one for the reformation of an instrument
under Chapter 4, Title II, Book IV of the new Civil Code. Specifically, the object sought is the correction of an
alleged mistake in a deed of sale covering a piece of land. The action being upon a written contract, it should
prescribe in ten years counted from the day it could have been instituted. Obviously, appellant could not have
instituted his action to correct an error in a deed until that error was discovered. There being nothing in the
pleadings to show that the error was discovered more than ten years before the present action was filed on
May 20, 1952, while, on the other hand, there is allegation that the error was discovered "only recently", we
think the action should not have been dismissed as having already prescribed before the factual basis for
prescription had been established and clarified by evidence.
We note, however, that appellants complaint states no cause of action, for it fails to allege that the instrument
to the reformed does not express the real agreement or intention of the parties. Such allegation is essential
since the object sought in an action for reformation is to make an instrument conform to the real agreement or
intention of the parties. (Art. 1359, new Civil Code; 23 R. C. L., par. 2.) But the complaint does not even allege
what the real agreement or intention was. How then is the court to know that the correction sought will make
the instrument conform to what was agreed or intended by the parties? It is not the function of the remedy of
reformation to make a new agreement, but to establish and perpetuate the true existing one. (23 R. C. L., par.
4, p. 311.)
Moreover, courts do not reform instruments merely for the sake of reforming them, but only to enable some
party to assert right under them as reformed. (23 R. C. L., par. 2). If the instrument in the present case is
reformed by making it state that the land therein conveyed is already covered by a Torrens certificate of title,
what right will the appellant, as vendee, be able to assert under the reformed instrument when according to
himself or his counsel states in his brief said title is in the name of Torcuata Sandoval, obviously a
person other than the vendor? Would not the sale to him then be ineffective, considering that he would be in
the position of one who knowingly purchased property not belonging to the vendor?
Perhaps appellants real grievance is that he has been led to enter into the contract of sale through fraud or
misrepresentation on the part of the vendor or in the mistaken belief that, as stated in the deed, the property
he was buying was unregistered land. But if that be the case, article 1359 of the new Civil Code expressly
provides that "the proper remedy is not reformation of the instrument but annulment of the contract."
Appellants complaint, however, does not ask for the annulment of the deed; neither does it contain allegations
essential to an action for that purpose.
In view of the foregoing, the order of dismissal must be as it is hereby affirmed, not because appellants action
has already prescribed, but because his complaint states no cause of action. Without pronouncement as to
costs.
[G.R. No. 128991. April 12, 2000]
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO
PORMIDA, petitioners, vs. HONORABLE MATEO M. LEANDA, in his capacity as Presiding Judge of
RTC, Tacloban City, Branch 8, and LEYTE GULF TRADERS, INC., respondents.
DECISION
KAPUNAN, J.:
Reformation of an instrument is that remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties when some error or mistake has
been committed.[1] It is predicated on the equitable maxim that equity treats as done that which ought to be
done.[2] The rationale of the doctrine is that it would be unjust and unequitable to allow the enforcement of a
written instrument which does not reflect or disclose the real meeting of the minds of the parties. [3] However,
an action for reformation must be brought within the period prescribed by law, otherwise, it will be barred by
the mere lapse of time. The issue in this case is whether or not the complaint for reformation filed by
respondent Leyte Gulf Traders, Inc. has prescribed and in the negative, whether or not it is entitled to the
remedy of reformation sought. Oldmiso
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent corporation) filed a
complaint for reformation of instrument, specific performance, annulment of conditional sale and damages with
prayer for writ of injunction against petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito

Pormida. The case was docketed as Civil Case No. 92-05-88 and raffled to Judge Pedro S. Espina, RTC,
Tacloban City, Branch 7. Respondent corporation alleged that it entered into a contract of lease of a parcel of
land with petitioner Bentir for a period of twenty (20) years starting May 5, 1968. According to respondent
corporation, the lease was extended for another four (4) years or until May 31, 1992. On May 5, 1989,
petitioner Bentir sold the leased premises to petitioner spouses Samuel Pormada and Charito Pormada.
Respondent corporation questioned the sale alleging that it had a right of first refusal. Rebuffed, it filed Civil
Case No. 92-05-88 seeking the reformation of the expired contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of lease executed in 1968, the verbal agreement or
understanding between the parties that in the event petitioner Bentir leases or sells the lot after the expiration
of the lease, respondent corporation has the right to equal the highest offer. Ncm
In due time, petitioners filed their answer alleging that the inadvertence of the lawyer who prepared the lease
contract is not a ground for reformation. They further contended that respondent corporation is guilty of laches
for not bringing the case for reformation of the lease contract within the prescriptive period of ten (10) years
from its execution.
Respondent corporation then filed its reply and on November 18, 1992, filed a motion to admit amended
complaint. Said motion was granted by the lower court.[4]
Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be dismissed on the
ground of prescription.
On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order dismissing the
complaint premised on its finding that the action for reformation had already prescribed. The order
reads: Scjuris
ORDER
Resolved here is the defendants MOTION TO DISMISS PLAINTIFFS complaint on
ground of prescription of action.
It is claimed by plaintiff that he and defendant Bentir entered into a contract of lease of
a parcel of land on May 5, 1968 for a period of 20 years (and renewed for an additional
4 years thereafter) with the verbal agreement that in case the lessor decides to sell the
property after the lease, she shall give the plaintiff the right to equal the offers of other
prospective buyers. It was claimed that the lessor violated this right of first refusal of
the plaintiff when she sureptitiously (sic) sold the land to co-defendant Pormida on May
5, 1989 under a Deed of Conditional Sale. Plaintiffs right was further violated when
after discovery of the final sale, plaintiff ordered to equal the price of co-defendant
Pormida was refused and again defendant Bentir surreptitiously executed a final deed
of sale in favor of co-defendant Pormida in December 11, 1991.
The defendant Bentir denies that she bound herself to give the plaintiff the right of first
refusal in case she sells the property. But assuming for the sake of argument that such
right of first refusal was made, it is now contended that plaintiffs cause of action to
reform the contract to reflect such right of first refusal, has already prescribed after 10
years, counted from May 5, 1988 when the contract of lease incepted. Counsel for
defendant cited Conde vs. Malaga, L-9405 July 31, 1956 and Ramos vs. Court of
Appeals, 180 SCRA 635, where the Supreme Court held that the prescriptive period for
reformation of a written contract is ten (10) years under Article 1144 of the Civil Code.
This Court sustains the position of the defendants that this action for reformation of
contract has prescribed and hereby orders the dismissal of the case.
SO ORDERED.[5]

On December 29, 1995, respondent corporation filed a motion for reconsideration of the order dismissing the
complaint. Juris

seasonably filed its motion for reconsideration. But, before the said motion for
reconsideration was acted upon by the court, the latter issued an Order on 15
December 1995, DISMISSING this case on the lone ground of prescription of the
cause of action of plaintiffs complaint on "reformation" of the lease contract, without
anymore considering the remaining cause of action, viz.: (a) on Specific Performance;
(b) an Annulment of Sale and Title; (c) on Issuance of a Writ of Injunction, and (d) on
Damages.

On January 11, 1996, respondent corporation filed an urgent ex-parte motion for issuance of an order directing
the petitioners, or their representatives or agents to refrain from taking possession of the land in question.
Considering that Judge Pedro S. Espina, to whom the case was raffled for resolution, was assigned to the
RTC, Malolos, Bulacan, Branch 19, Judge Roberto A. Navidad was designated in his place. Manikan

With due respect to the judicial opinion of the Honorable Presiding Judge of Branch 7
of this Court, the undersigned, to whom this case was raffled to after the inhibition of
Judge Roberto Navidad, as acting magistrate of Branch 7, feels not necessary any
more to discuss at length that even the cause of action for "reformation" has not, as
yet, prescribed.

On March 28, 1996, upon motion of herein petitioners, Judge Navidad inhibited himself from hearing the case.
Consequently, the case was re-raffled and assigned to RTC, Tacloban City, Branch 8, presided by herein
respondent judge Mateo M. Leanda.

To the mind of this Court, the dismissal order adverted to above, was obviously
premature and precipitate, thus resulting denial upon the right of plaintiff that
procedural due process. The other remaining four (4) causes of action of the complaint
must have been deliberated upon before that court acted hastily in dismissing this
case.

On May 10, 1996, respondent judge issued an order reversing the order of dismissal on the grounds that the
action for reformation had not yet prescribed and the dismissal was "premature and precipitate", denying
respondent corporation of its right to procedural due process. The order reads: Suprema
ORDER

WHEREFORE, in the interest of substantial justice, the Order of the court, (Branch 7,
RTC) dismissing this case, is hereby ordered RECONSIDERED and SET ASIDE.

Stated briefly, the principal objectives of the twin motions submitted by the plaintiffs, for
resolution are:
(1) for the reconsideration of the Order of 15 December 1995 of the Court (RTC, Br. 7),
dismissing this case, on the sole ground of prescription of one (1) of the five (5) causes
of action of plaintiff in its complaint for "reformation" of a contract of lease; and,

Let, therefore, the motion of plaintiff to reconsider the Order admitting the amended
answer and the Motion to Dismiss this case (ibid), be set for hearing on May 24, 1996,
at 8:30 oclock in the morning. Service of notices must be effected upon parties and
counsel as early as possible before said scheduled date.

(2) for issuance by this Court of an Order prohibiting the defendants and their priviesin-interest, from taking possession of the leased premises, until a final court order
issues for their exercise of dominical or possessory right thereto.

Concomitantly, the defendants and their privies-in-interest or agents, are hereby

STERNLY WARNED not to enter, in the meantime, the litigated premises, before a final
court order issues granting them dominical as well as possessory right thereto.

The records of this case reveal that co-defendant BENTER (Yolanda) and plaintiff
Leyte Gulf Traders Incorporation, represented by Chairman Benito Ang, entered into a
contract of lease of a parcel of land, denominated as Lot No. 878-D, located at
Sagkahan District, Tacloban City, on 05 May 1968, for a period of twenty (20) years,
(later renewed for an additional two (2) years). Included in said covenant of lease is the
verbal understanding and agreement between the contracting parties, that when the
defendant (as lessor) will sell the subject property, the plaintiff as (lessee) has the "right
of first refusal", that is, the right to equal the offer of any other prospective third-party
buyer. This agreement (sic) is made apparent by paragraph 4 of the lease agreement
stating:

To the motion or petition for contempt, filed by plaintiff, thru Atty. Bartolome C. Lawsin,
the defendants may, if they so desire, file their answer or rejoinder thereto, before the
said petition will be set for hearing. The latter are given ten (10) days to do so, from the
date of their receipt of a copy of this Order.

"4. IMPROVEMENT. The lessee shall have the right to erect on the leased
premises any building or structure that it may desire without the consent or
approval of the Lessor x x x provided that any improvements existing at the
termination of the lease shall remain as the property of the Lessor without
right to reimbursement to the Lessee of the cost or value thereof."
That the foregoing provision has been included in the lease agreement if only to
convince the defendant-lessor that plaintiff desired a priority right to acquire the
property (ibid) by purchase, upon expiration of the effectivity of the deed of lease.
In the course of the interplay of several procedural moves of the parties herein, the
defendants filed their motion to admit their amended answer to plaintiffs amended
complaint. Correspondingly, the plaintiff filed its opposition to said motion. The former
court branch admitted the amended answer, to which order of admission, the plaintiff

SO ORDERED.[6]
On June 10, 1996, respondent judge issued an order for status quo ante, enjoining petitioners to desist from
occupying the property.[7]
Aggrieved, petitioners herein filed a petition for certiorari to the Court of Appeals seeking the annulment of the
order of respondent court with prayer for issuance of a writ of preliminary injunction and temporary restraining
order to restrain respondent judge from further hearing the case and to direct respondent corporation to desist
from further possessing the litigated premises and to turn over possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no error in the questioned order nor grave abuse of
discretion on the part of the trial court that would amount to lack, or in excess of jurisdiction, denied the petition
and affirmed the questioned order.[8] A reconsideration of said decision was, likewise, denied on April 16, 1997.
[9]

Thus, the instant petition for review based on the following assigned errors, viz:

6.01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN ACTION FOR

REFORMATION IS PROPER AND JUSTIFIED UNDER THE CIRCUMSTANCES OF
THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FOR
REFORMATION HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN OPTION TO BUY IN
A CONTRACT OF LEASE IS REVIVED FROM THE IMPLIED RENEWAL OF SUCH
LEASE; AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A STATUS QUO ANTE
ORDER IS NOT AN INJUNCTIVE RELIEF THAT SHOULD COMPLY WITH THE
PROVISIONS OF RULE 58 OF THE RULES OF COURT.[10]

Even if we were to assume for the sake of argument that the instant action for reformation is not time-barred,
respondent corporations action will still not prosper. Under Section 1, Rule 64 of the New Rules of Court, [17] an
action for the reformation of an instrument is instituted as a special civil action for declaratory relief. Since the
purpose of an action for declaratory relief is to secure an authoritative statement of the rights and obligations
of the parties for their guidance in the enforcement thereof, or compliance therewith, and not to settle issues
arising from an alleged breach thereof, it may be entertained only before the breach or violation of the law or
contract to which it refers.[18] Here, respondent corporation brought the present action for reformation after an
alleged breach or violation of the contract was already committed by petitioner Bentir. Consequently, the
remedy of reformation no longer lies. Ncmmis
We no longer find it necessary to discuss the other issues raised considering that the same are predicated
upon our affirmative resolution on the issue of the prescription of the action for reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision of the Court of Appeals dated January 17,
1997 is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Tacloban City, Branch 7, dated
December 15, 1995 dismissing the action for reformation is REINSTATED. Scncm

The petition has merit. Scsdaad

SO ORDERED.
The core issue that merits our consideration is whether the complaint for reformation of instrument has
prescribed. Sdaad

G.R. No. 158901

March 9, 2004

The remedy of reformation of an instrument is grounded on the principle of equity where, in order to express
the true intention of the contracting parties, an instrument already executed is allowed by law to be reformed.
The right of reformation is necessarily an invasion or limitation of the parol evidence rule since, when a writing
is reformed, the result is that an oral agreement is by court decree made legally effective. [11] Consequently, the
courts, as the agencies authorized by law to exercise the power to reform an instrument, must necessarily
exercise that power sparingly and with great caution and zealous care. Moreover, the remedy, being an
extraordinary one, must be subject to limitations as may be provided by law. Our law and jurisprudence set
such limitations, among which is laches. A suit for reformation of an instrument may be barred by lapse of
time. The prescriptive period for actions based upon a written contract and for reformation of an instrument is
ten (10) years under Article 1144 of the Civil Code. [12] Prescription is intended to suppress stale and fraudulent
claims arising from transactions like the one at bar which facts had become so obscure from the lapse of time
or defective memory.[13] In the case at bar, respondent corporation had ten (10) years from 1968, the time
when the contract of lease was executed, to file an action for reformation. Sadly, it did so only on May 15,
1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of action has become stale,
hence, time-barred. Sdaamiso

PROCESO QUIROS and LEONARDA VILLEGAS, petitioners,

vs.
MARCELO ARJONA, TERESITA BALARBAR, JOSEPHINE ARJONA, and CONCHITA
ARJONA, respondents.

In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling of the
Regional Trial Court that the 10-year prescriptive period should be reckoned not from the execution of the
contract of lease in 1968, but from the date of the alleged 4-year extension of the lease contract after it expired
in 1988. Consequently, when the action for reformation of instrument was filed in 1992 it was within ten (10)
years from the extended period of the lease. Private respondent theorized, and the Court of Appeals agreed,
that the extended period of lease was an "implied new lease" within the contemplation of Article 1670 of the
Civil Code,[14] under which provision, the other terms of the original contract were deemed revived in the
implied new lease.

On December 19, 1996, petitioners Proceso Quiros and Leonarda Villegas filed with the office of the barangay
captain of Labney, San Jacinto, Pangasinan, a complaint for recovery of ownership and possession of a parcel
of land located at Labney, San Jacinto, Pangasinan. Petitioners sought to recover from their uncle Marcelo
Arjona, one of the respondents herein, their lawful share of the inheritance from their late grandmother Rosa
Arjona Quiros alias Doza, the same to be segregated from the following parcels of land:

We do not agree. First, if, according to respondent corporation, there was an agreement between the parties
to extend the lease contract for four (4) years after the original contract expired in 1988, then Art. 1670 would
not apply as this provision speaks of an implied new lease (tacita reconduccion) where at the end of the
contract, the lessee continues to enjoy the thing leased "with the acquiescence of the lessor", so that the
duration of the lease is "not for the period of the original contract, but for the time established in Article 1682
and 1687." In other words, if the extended period of lease was expressly agreed upon by the parties, then the
term should be exactly what the parties stipulated, not more, not less. Second, even if the supposed 4-year
extended lease be considered as an implied new lease under Art. 1670, "the other terms of the original
contract" contemplated in said provision are only those terms which are germane to the lessees right of
continued enjoyment of the property leased.[15] The prescriptive period of ten (10) years provided for in Art.
1144[16] applies by operation of law, not by the will of the parties. Therefore, the right of action for reformation
accrued from the date of execution of the contract of lease in 1968.

DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the decision of the Court of Appeals in an action for the
execution/enforcement of amicable settlement between petitioners Proceso Quiros and Leonarda Villegas and
respondent Marcelo Arjona. Appellate court reversed the decision of the Regional Trial Court of Dagupan CityBranch 44 and reinstated the decision of the Municipal Trial Court of San Fabian-San Jacinto, Pangasinan.

a) A parcel of land (Lot 1, plan Psu-189983, L.R. Case No. D-614, LRC Record No. N- 22630),
situated in the Barrio of Labney, Torud, Municipality of San Jacinto, Province of Pangasinan x x x
Containing an area of Forty Four Thousand Five Hundred and Twenty (44,520) square meters,
more or less, covered by Tax Decl. No. 607;
b) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, San Jacinto, Pangasinan with
an area of 6450 sq. meters, more or less declared under Tax Decl. No. 2066 of the land records of
San Jacinto, Pangasinan assessed at P2390.00 x x x;
c) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan with an area of
6450 sq. meters, more or less, declared under Tax Declaration No. 2047 of the land records of San
Jacinto, Pangasinan assessed at P1700.00 x x x

d) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan assessed at
P5610.00 x x x;
e) A parcel of Cogon land situated at Brgy. Labney, San Jacinto, Pangasinan, with an area of
14133 sq. meters, more or less declared under Tax Declaration No. 14 of the land records of San
Jacinto, Pangasinan assessed at P2830.00 x x x.1
On January 5, 1997, an amicable settlement was reached between the parties. By reason thereof, respondent
Arjona executed a document denominated as "PAKNAAN" ("Agreement", in Pangasinan dialect), which reads:
AGREEMENT
I, MARCELO ARJONA, of legal age, resident of Barangay Sapang, Buho, Palayan City, Nueva Ecija, have a
land consisting of more or less one (1) hectare which I gave to Proceso Quiros and Leonarda Villegas, this
land was inherited by Doza that is why I am giving the said land to them for it is in my name, I am affixing my
signature on this document for this is our agreement besides there are witnesses on the 5 th day (Sunday) of
January 1997.

(Sgd) Avelino N. de la Masa, Sr.

Barangay Captain
Brgy. Labney, San Jacinto
Pangasinan
Witnesses:
1) Irene Banda
(sgd.)
2) Jose (illegible) x x x
Petitioners filed a complaint with the Municipal Circuit Trial Court with prayer for the issuance of a writ of
execution of the compromise agreement which was denied because the subject property cannot be
determined with certainty.
The Regional Trial Court reversed the decision of the municipal court on appeal and ordered the issuance of
the writ of execution.

Signed in the presence of:

(Sgd) Avelino N. De la Masa, Jr.

Respondents appealed to the Court of Appeals, which reversed the decision of the Regional Trial Court and
reinstated the decision of the Municipal Circuit Trial Court. 2

(Sgd) Marcelo Arjona

Hence, this petition on the following errors:

Witnesses:

I
1) (Sgd.) Teresita Balarbar

THE PAKNAAN BEING A FINAL AND EXECUTORY JUDGMENT UNDER THE LAW IS AN IMMUTABLE
JUDGMENT CAN NOT BE ALTERED, MODIFIED OR CHANGED BY THE COURT INCLUDING THE
HIGHEST COURT; and

2) (Sgd.) Josephine Arjona

II

3) (Sgd.) Conchita Arjona

On the same date, another "PAKNAAN" was executed by Jose Banda, as follows:

THE SECOND PAKNAAN ALLEGEDLY EXECUTED IN CONJUNCTION WITH THE FIRST PAKNAAN WAS
NEVER ADDUCED AS EVIDENCE BY EITHER OF THE PARTIES, SO IT IS ERROR OF JURISDICTION TO
CONSIDER THE SAME IN THE DECISION MAKING.

AGREEMENT
I, JOSE BANDA, married to Cecilia L. Banda, of legal age, and resident of Sitio Torrod, Barangay Labney, San
Jacinto, Pangasinan. There is a land in which they entrusted to me and the same land is situated in Sitio
Torrod, Brgy. Labney, San Jacinto, Pangasinan, land of Arjona family.
I am cultivating/tilling this land but if ever Leonarda Villegas and Proceso Quiros would like to get this land, I
will voluntarily surrender it to them.
In order to attest to the veracity and truthfulness of this agreement, I affixed (sic) my signature voluntarily
below this document this 5th day (Sunday) of January 1997.
(Sgd.) Jose Banda
Signed in the presence of:

The pivotal issue is the validity and enforceability of the amicable settlement between the parties and corollary
to this, whether a writ of execution may issue on the basis thereof.
In support of their stance, petitioners rely on Section 416 of the Local Government Code which provides that
an amicable settlement shall have the force and effect of a final judgment upon the expiration of 10 days from
the date thereof, unless repudiated or nullified by the proper court. They argue that since no such repudiation
or action to nullify has been initiated, the municipal court has no discretion but to execute the agreement which
has become final and executory.
Petitioners likewise contend that despite the failure of the Paknaan to describe with certainty the object of the
contract, the evidence will show that after the execution of the agreement, respondent Marcelo Arjona
accompanied them to the actual site of the properties at Sitio Torod, Labney, San Jacinto, Pangasinan and
pointed to them the 1 hectare property referred to in the said agreement.
In their Comment, respondents insist that respondent Arjona could not have accompanied petitioners to the
subject land at Torrod, Labney because he was physically incapacitated and there was no motorized vehicle to
transport him to the said place.

The Civil Code contains salutary provisions that encourage and favor compromises and do not even require
judicial approval. Thus, under Article 2029 of the Civil Code, the courts must endeavor to persuade the
litigants in a civil case to agree upon some fair compromise. Pursuant to Article 2037 of the Civil Code, a
compromise has upon the parties the effect and authority of res judicata, and this is true even if the
compromise is not judicially approved. Articles 2039 and 2031 thereof also provide for the suspension of
pending actions and mitigation of damages to the losing party who has shown a sincere desire for a
compromise, in keeping with the Codes policy of encouraging amicable settlements. 3
Cognizant of the beneficial effects of amicable settlements, the Katarungang Pambarangay Law (P.D. 1508)
and later the Local Government Code provide for a mechanism for conciliation where party-litigants can enter
into an agreement in the barangay level to reduce the deterioration of the quality of justice due to
indiscriminate filing of court cases. Thus, under Section 416 of the said Code, an amicable settlement shall
have the force and effect of a final judgment of the court upon the expiration of 10 days from the date thereof,
unless repudiation of the settlement has been made or a petition to nullify the award has been filed before the
proper court
Petitioners submit that since the amicable settlement had not been repudiated or impugned before the court
within the 10-day prescriptive period in accordance with Section 416 of the Local Government Code, the
enforcement of the same must be done as a matter of course and a writ of execution must accordingly be
issued by the court.
Generally, the rule is that where no repudiation was made during the 10-day period, the amicable settlement
attains the status of finality and it becomes the ministerial duty of the court to implement and enforce it.
However, such rule is not inflexible for it admits of certain exceptions. In Santos v. Judge Isidro, 4 the Court
observed that special and exceptional circumstances, the imperatives of substantial justice, or facts that may
have transpired after the finality of judgment which would render its execution unjust, may warrant the
suspension of execution of a decision that has become final and executory. In the case at bar, the ends of
justice would be frustrated if a writ of execution is issued considering the uncertainty of the object of the
agreement. To do so would open the possibility of error and future litigations.
The Paknaan executed by respondent Marcelo Arjona purports to convey a parcel of land consisting of more
or less 1 hectare to petitioners Quiros and Villegas. Another Paknaan, prepared on the same date, and
executed by one Jose Banda who signified his intention to vacate the parcel of land he was tilling located at
Torrod, Brgy. Labney, San Jacinto, Pangasinan, for and in behalf of the Arjona family. On ocular inspection
however, the municipal trial court found that the land referred to in the second Paknaan was different from the
land being occupied by petitioners. Hence, no writ of execution could be issued for failure to determine with
certainty what parcel of land respondent intended to convey.
In denying the issuance of the writ of execution, the appellate court ruled that the contract is null and void for
its failure to describe with certainty the object thereof. While we agree that no writ of execution may issue, we
take exception to the appellate courts reason for its denial.
Since an amicable settlement, which partakes of the nature of a contract, is subject to the same legal
provisions providing for the validity, enforcement, rescission or annulment of ordinary contracts, there is a
need to ascertain whether the Paknaan in question has sufficiently complied with the requisites of validity in
accordance with Article 1318 of the Civil Code. 5
There is no question that there was meeting of the minds between the contracting parties. In executing the
Paknaan, the respondent undertook to convey 1 hectare of land to petitioners who accepted. It appears that
while the Paknaan was prepared and signed by respondent Arjona, petitioners acceded to the terms thereof
by not disputing its contents and are in fact now seeking its enforcement. The object is a 1-hectare parcel of
land representing petitioners inheritance from their deceased grandmother. The cause of the contract is the
delivery of petitioners share in the inheritance. The inability of the municipal court to identify the exact location
of the inherited property did not negate the principal object of the contract. This is an error occasioned by the
failure of the parties to describe the subject property, which is correctible by reformation and does not indicate
the absence of the principal object as to render the contract void. It cannot be disputed that the object is
determinable as to its kind, i.e.1 hectare of land as inheritance, and can be determined without need of a new
contract or agreement.6Clearly, the Paknaan has all the earmarks of a valid contract.

Although both parties agreed to transfer one-hectare real property, they failed to include in the written
document a sufficient description of the property to convey. This error is not one for nullification of the
instrument but only for reformation.
Article 1359 of the Civil Code provides:
When, there having been a meeting of the minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the contract.
Reformation is a remedy in equity whereby a written instrument is made or construed so as to express or
conform to the real intention of the parties where some error or mistake has been committed. 7 In granting
reformation, the remedy in equity is not making a new contract for the parties, but establishing and
perpetuating the real contract between the parties which, under the technical rules of law, could not be
enforced but for such reformation.
In order that an action for reformation of instrument as provided in Article 1359 of the Civil Code may prosper,
the following requisites must concur: (1) there must have been a meeting of the minds of the parties to the
contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the
instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or
accident.8
When the terms of an agreement have been reduced to writing, it is considered as containing all the terms
agreed upon and there can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement, except when it fails to express the true intent and
agreement of the parties thereto, in which case, one of the parties may bring an action for the reformation of
the instrument to the end that such true intention may be expressed. 9
Both parties acknowledge that petitioners are entitled to their inheritance, hence, the remedy of nullification,
which invalidates the Paknaan, would prejudice petitioners and deprive them of their just share of the
inheritance. Respondent can not, as an afterthought, be allowed to renege on his legal obligation to transfer
the property to its rightful heirs. A refusal to reform the Paknaan under such circumstances would have the
effect of penalizing one party for negligent conduct, and at the same time permitting the other party to escape
the consequences of his negligence and profit thereby. No person shall be unjustly enriched at the expense of
another.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated March 21, 2003 of the
Court of Appeals, which reversed the decision of the Regional Trial Court and reinstated the decision of the
Municipal Trial Court, is AFFIRMED. This is without prejudice to the filing by either party of an action for
reformation of the Paknaan executed on January 5, 1997.
SO ORDERED.
G.R. No. L-22487

May 21, 1969

ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their respective husbands,
HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO LACANDALO, ISABEL ATILANO and
GREGORIO ATILANO, plaintiffs-appellees,
vs.
LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants.

Climaco and Azcarraga for plaintiff-appellee.

T. de los Santos for defendants-appellants.
MAKALINTAL, J.:
In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535 of the then
municipality of Zamboanga cadastre. The vendee thereafter obtained transfer certificate of title No. 1134 in his
name. In 1920 he had the land subdivided into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D
and 535-E, respectively. On May 18 of the same year, after the subdivision had been effected, Eulogio Atilano
I, for the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano
II, who thereupon obtained transfer certificate of title No. 3129 in his name. Three other portions, namely lots
Nos. 535-B, 535-C and 535-D, were likewise sold to other persons, the original owner, Eulogio Atilano I,
retaining for himself only the remaining portion of the land, presumably covered by the title to lot No. 535-A.
Upon his death the title to this lot passed to Ladislao Atilano, defendant in this case, in whose name the
corresponding certificate (No. T-5056) was issued.
On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his wife Luisa Bautista,
he and his children obtained transfer certificate of title No. 4889 over lot No. 535-E in their names as coowners. Then, on July 16, 1959, desiring to put an end to the co-ownership, they had the land resurveyed so
that it could properly be subdivided; and it was then discovered that the land they were actually occupying on
the strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred to in the
deed, while the land which remained in the possession of the vendor, Eulogio Atilano I, and which passed to
his successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A.
On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed the present action
in the Court of First Instance of Zamboanga, alleging, inter alia, that they had offered to surrender to the
defendants the possession of lot No. 535-A and demanded in return the possession of lot No. 535-E, but that
the defendants had refused to accept the exchange. The plaintiffs' insistence is quite understandable, since lot
No. 535-E has an area of 2,612 square meters, as compared to the 1,808 square-meter area of lot No. 535-A.

The real issue here is not adverse possession, but the real intention of the parties to that sale. From all the
facts and circumstances we are convinced that the object thereof, as intended and understood by the parties,
was that specific portion where the vendee was then already residing, where he reconstructed his house at the
end of the war, and where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A;
and that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the
document.1wphi1.et The mistake did not vitiate the consent of the parties, or affect the validity and binding
effect of the contract between them. The new Civil Code provides a remedy for such a situation by means of
reformation of the instrument. This remedy is available when, there having been a meeting of the funds of the
parties to a contract, their true intention is not expressed in the instrument purporting to embody the
agreement by reason of mistake, fraud, inequitable conduct on accident (Art. 1359, et seq.) In this case, the
deed of sale executed in 1920 need no longer reformed. The parties have retained possession of their
respective properties conformably to the real intention of the parties to that sale, and all they should do is to
execute mutual deeds of conveyance.
WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to execute a deed of
conveyance of lot No. 535-E in favor of the defendants, and the latter in turn, are ordered to execute a similar
document, covering lot No. 595-A, in favor of the plaintiffs. Costs against the latter.
G.R. No. 133643

June 6, 2002

RITA SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE LOY, ERLINDA DARMING,
NICANDRA SARMING, MANSUETA SARMING, ARTURO CORSAME, FELY CORSAME, FEDERICO
CORSAME, ISABELITA CORSAME, NORMA CORSAME, CESAR CORSAME, RUDY CORSAME,
ROBERTA CORSAME, ARTEMIO CORSAME, ELPIDIO CORSAME, ENRIQUITA CORSAME, and
GUADALUPE CORSAME TAN, petitioners,
vs.
CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES, LUISA FLORES, SATURNINA ORGANISTA,
REMEDIOS ORGANISTA, OFELIA ORGANISTA, LYDIA ORGANISTA, ZOSIMO ORGANISTA, DOMISIANO
FLORES, FLORITA FLORES, EDUARDO FLORES, BENIGNA FLORES, ANGELINA FLORES, MARCIAL
FLORES, and MARIO FLORES, respondents.

In their answer to the complaint the defendants alleged that the reference to lot No. 535-E in the deed of sale
of May 18, 1920 was an involuntary error; that the intention of the parties to that sale was to convey the lot
correctly identified as lot No. 535-A; that since 1916, when he acquired the entirety of lot No. 535, and up to
the time of his death, Eulogio Atilano I had been possessing and had his house on the portion designated as
lot No. 535-E, after which he was succeeded in such possession by the defendants herein; and that as a
matter of fact Eulogio Atilano I even increased the area under his possession when on June 11, 1920 he
bought a portion of an adjoining lot, No. 536, from its owner Fruto del Carpio. On the basis of the foregoing
allegations the defendants interposed a counterclaim, praying that the plaintiffs be ordered to execute in their
favor the corresponding deed of transfer with respect to lot No. 535-E.

QUISUMBING, J.:

The trial court rendered judgment for the plaintiffs on the sole ground that since the property was registered
under the Land Registration Act the defendants could not acquire it through prescription. There can be, of
course, no dispute as to the correctness of this legal proposition; but the defendants, aside from alleging
adverse possession in their answer and counterclaim, also alleged error in the deed of sale of May 18, 1920,
thus: "Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio y traspaso a su hermano Eulogio
Atilano 2.do el lote No. 535-E en vez del Lote No. 535-A."lawphi1.et

Petitioners are the successors-in-interest of original defendant Silveria Flores, while respondents Cresencio
Dy and Ludivina Dy-Chan are the successors-in-interest of the original plaintiff Alejandra Delfino, the buyer of
one of the lots subject of this case. They were joined in this petition by the successors-in-interest of Isabel,
Juan, Hilario, Ruperto, Tomasa, and Luisa and Trinidad themselves, all surnamed Flores, who were also the
original plaintiffs in the lower court. They are the descendants of Venancio 4 and Jose5, the brothers of the
original defendant Silveria Flores.

The logic and common sense of the situation lean heavily in favor of the defendants' contention. When one
sells or buys real property a piece of land, for example one sells or buys the property as he sees it, in its
actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the
certificate of title. In the particular case before us, the portion correctly referred to as lot No. 535-A was already
in the possession of the vendee, Eulogio Atilano II, who had constructed his residence therein, even before the
sale in his favor even before the subdivision of the entire lot No. 535 at the instance of its owner, Eulogio
Atillano I. In like manner the latter had his house on the portion correctly identified, after the subdivision, as lot
No. 535-E, even adding to the area thereof by purchasing a portion of an adjoining property belonging to a
different owner. The two brothers continued in possession of the respective portions the rest of their lives,
obviously ignorant of the initial mistake in the designation of the lot subject of the 1920 until 1959, when the
mistake was discovered for the first time.

In their complaint for reformation of instrument against Silveria Flores, the original plaintiffs alleged that they,
with the exception of Alejandra Delfino, are the heirs of Valentina Unto Flores, who owned, among others, Lot
5734, covered by OCT 4918-A; and Lot 4163, covered by OCT 3129-A, both located at Dumaguete City.

This petition for review assails the decision1 dated September 23, 1997 of the Court of Appeals in CA-G.R. CV
No. 39401, which affirmed the decision2 of the Regional Trial Court, Branch 41 in Negros Oriental, Dumaguete
City and the resolution3 dated April 21, 1998 denying petitioners' motion for reconsideration.
The facts as culled from records are as follows:

After the death of Valentina Unto Flores, her three children, namely: Jose, Venancio, and Silveria, took
possession of Lot 5734 with each occupying a one-third portion. Upon their death, their children and
grandchildren took possession of their respective shares. The other parcel, Lot 4163 which is solely registered
under the name of Silveria, was sub-divided between Silveria and Jose. Two rows of coconut trees planted in
the middle of this lot serves as boundary line.

In January 1956, Luisa, Trinidad, Ruperto and Tomasa, grandchildren of Jose and now owners of one-half of
Lot 4163, entered into a contract with plaintiff Alejandra Delfino, for the sale of one-half share of Lot 4163 after
offering the same to their co-owner, Silveria, who declined for lack of money. Silveria did not object to the sale
of said portion to Alejandra Delfino.
Before preparing the document of sale, the late Atty. Deogracias Pinili, Alejandra's lawyer, called Silveria and
the heirs of Venancio to a conference where Silveria declared that she owned half of the lot while the other
half belonged to the vendors; and that she was selling her three coconut trees found in the half portion offered
to Alejandra Delfino for P15. When Pinili asked for the title of the land, Silveria Flores, through her daughter,
Cristita Corsame, delivered Original Certificate of Title No. 4918-A, covering Lot No. 5734, and not the correct
title covering Lot 4163. At that time, the parties knew the location of Lot 4163 but not the OCT Number
corresponding to said lot.
Believing that OCT No. 4918-A was the correct title corresponding to Lot 4163, Pinili prepared a notarized
Settlement of Estate and Sale (hereinafter "deed") duly signed by the parties on January 19, 1956. As a result,
OCT No. 4918-A was cancelled and in lieu thereof, TCT No. 5078 was issued in the names of Silveria Flores
and Alejandra Delfino, with one-half share each. Silveria Flores was present during the preparation and
signing of the deed and she stated that the title presented covered Lot No. 4163.
Alejandra Delfino immediately took possession and introduced improvements on the purchased lot, which was
actually one-half of Lot 4163 instead of Lot 5734 as designated in the deed.
Two years later, when Alejandra Delfino purchased the adjoining portion of the lot she had been occupying,
she discovered that what was designated in the deed, Lot 5734, was the wrong lot. She sought the assistance
of Pinili who approached Silveria and together they inquired from the Registry of Deeds about the status of Lot
4163. They found out that OCT No. 3129-A covering Lot 4163 was still on file. Alejandra Delfino paid the
necessary fees so that the title to Lot 4163 could be released to Silveria Flores, who promised to turn it over to
Pinili for the reformation of the deed of sale. However, despite repeated demands, Silveria did not do so,
prompting Alejandra and the vendors to file a complaint against Silveria for reformation of the deed of sale with
damages before the Regional Trial Court of Negros Oriental, Branch 41, docketed as Civil Case No. 3457.
In her answer, Silveria Flores claimed that she was the sole owner of Lot 4163 as shown by OCT No. 3129-A
and consequently, respondents had no right to sell the lot. According to her, the contract of sale clearly stated
that the property being sold was Lot 5734, not Lot 4163. She also claimed that respondents illegally took
possession of one-half of Lot 4163. She thus prayed that she be declared the sole owner of Lot 4163 and be
immediately placed in possession thereof. She also asked for compensatory, moral, and exemplary damages
and attorney's fees.
The case lasted for several years in the trial court due to several substitutions of parties. The complaint was
amended several times. Moreover, the records had to be reconstituted when the building where they were
kept was razed by fire. But, earnest efforts for the parties to amicably settle the matters among themselves
were made by the trial court to no avail.
On September 29, 1992, the trial court found in favor of herein respondents, who were the plaintiffs below,
decreeing as follows:
WHEREFORE, this Court finds the preponderance of evidence in favor of the plaintiffs and veritably against
the defendants and, as such, renders judgment accordingly, thereby ORDERING the defendants, the heirs of
the deceased-defendant SILVERIA FLORES and her successors-in-interest the following:
1) To enter into the reformation of the subject contract or execute a mutual conveyance of sale, by making the
one-half (1/2) eastern portion of Lot 4163, the subject of the document of sale, in favor of plaintiff, the late
Alejandra Delfino or her heirs and/or successors-in-interest;
2) To sign a document ceding to the heirs of the heirs of Maxima Flores and Venancio Flores the excess of her
one-third (1/3) share; and further ordering the heirs of the late Alejandra Delfino to correspondingly sign a

document for the return of the one-half (1/2) portion of Lot 5734 to the original registered owners, in exchange
thereby;
3) To pay to the heirs of the late plaintiff Alejandra Delfino, the sum of P5,000.00 as actual damages and the
sum of P10,000.00 as moral damages;
4) To pay P2,000.00 as attorney's fees plus the costs of this suit.
SO ORDERED.6
According to the trial court, the claims of herein respondents were anchored on valid grounds. It noted that
Alejandra had been occupying one-half portion of Lot 4163 since 1956 and it was the one pointed to her by the
vendors. Citing the case of Atilano vs. Atilano7, it ruled that when one sells or buys real property, he sells or
buys the said property as is shown to her and as he sees it, at its actual setting and by its physical metes and
bounds, not by the mere lot number assigned to it in the certificate of title. Thus, it concluded that from the
facts and circumstances of the case, it is clear that the object of the sale, as understood by the parties, was
that portion "Y" of Lot 4163 and that its designation as Lot 5734 in the document of sale was a simple mistake
in the drafting of the document, which mistake, however, did not vitiate the consent of the parties or affect the
validity and the binding effect of the contract between them. Hence, the remedy of reformation of instrument is
proper.8
Petitioners appealed the decision to the Court of Appeals, which affirmed the ruling of the trial court as follows:
WHEREFORE, the appealed decision is hereby AFFIRMED. Costs against defendants-appellants.
SO ORDERED.9
In affirming the decision of the trial court, the Court of Appeals agreed that the real intention of the parties was
for the sale of Lot 4163 which Alejandra Delfino had been occupying, and the designation of Lot 5734 in the
deed was a mistake in the preparation of the document. It noted that Silveria Flores did not object when
Alejandra Delfino took possession of one-half portion of Lot 4163 immediately after the sale, considering that it
was Silveria's son, Michael Corsame, who developed the area purchased by Alejandra. 10
Aggrieved but undeterred, the successors-in-interest of defendant Silveria Flores seasonably filed their petition
for review under Rule 45 of the Rules of Court. They assail the decision of the Court of Appeals on the
following grounds:
1. THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT FAILED TO ORDER THE
DISMISSAL OF CIVIL CASE NO. 3457 FOR LACK OF CAUSE OF ACTION.
2. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN LAW AND
JURISPRUDENCE WHEN IT FAILED TO RULE THAT, BASED ON THE UNDISPUTED EVIDENCE ON
RECORD AND THE SETTLEMENT OF ESTATE AND SALE ITSELF, THE PLAINTIFFS HAVE NO CAUSE OF
ACTION AGAINST SILVERIA FLORES BECAUSE SHE DID NOT SELL HER LAND TO ALEJANDRA
DELFINO. HENCE SILVERIA FLORES CANNOT BE BOUND NOR PREJUDICED BY THE CONTRACT OF
SALE ENTERED BY ALEJANDRA DELFINO AND HER CO-PLAINTIFFS (CAPITOL INSURANCE & SURETY
CO INC. V. CENTRAL AZUCARERA DEL DAVAO, 221 SCRA 98; OZAETA V. CA, 228 SCRA 350).
3. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR WHEN IT
FAILED TO PRONOUNCE THAT SILVERIA FLORES WHO IS NOT A PARTY TO THE CONTRACT OF SALE
INVOLVING LOT NO. 5734 COVERED BY OCT NO. 4918-A CANNOT BE LEGALLY COMPELLED BY
ALEJANDRA DELFINO THRU AN ACTION FOR REFORMATION OF CONTRACT TO EXECUTE A
"CONVEYANCE OF SALE" INVOLVING LOT NO. 4163 COVERED BY OCT NO. 3129-A OWNED AND
REGISTERED SOLELY IN THE NAME OF SILVERIA FLORES.

4. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS WHEN
IT RULED THAT THE OBJECT OF THE CONTRACT OF SALE WAS LOT NO. 4163 COVERED BY OCT NO.
3129-A, DESPITE THE UNASSAILABLE FACT THAT THE OBJECT OF THE SETTLEMENT AND SUBJECT
OF THE CONTRACT OF SALE WAS LOT NO. 5734 COVERED BY OCT NO. 4918-A.
5. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS IN
NOT UPHOLDING THAT THERE WAS NO MISTAKE IN THE DRAFTING OF THE DOCUMENT AS WELL AS
IN THE OBJECT OF THE SETTLEMENT OF ESTATE AND SALE BECAUSE THE DOCUMENT WAS
PREPARED BY ATTY. DEOGRACIAS PINILI, THE LAWYER OF ALEJANDRA DELFINO.
6. THE COURT OF APPEALS AND THE TRIAL COURT GROSSLY MISAPPREHENDED THE FACTS WHEN
IT RULED THAT THE GRANDCHILDREN OF JOSE FLORES ARE OWNERS AND COULD SELL THE ONEHALF (1/2) PORTION OF LOT NO. 4163 TO ALEJANDRA DELFINO DESPITE THE INCONTROVERTIBLE
EVIDENCE THAT LOT NO. 4163 COVERED BY OCT NO. 3129-A IS REGISTERED AND SOLELY OWNED
BY SILVERIA FLORES WHO IS PAYING THE REAL PROPERTY TAXES.
7. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN LAW
WHEN IT DISREGARDED ARTICLE 1370 OF THE CIVIL CODE OF THE PHILIPPINES AND PERTINENT
JURISPRUDENCE RELEVANT TO THIS CASE EVEN IF THE TERMS OF THE SETTLEMENT OF ESTATE
AND SALE ARE CLEAR AND LEAVE NO DOUBT ON THE INTENTION OF THE CONTRACTING PARTIES.
8. THE COURT OF APPEALS AND THE TRIAL COURT GRAVELY ERRED IN DISREGARDING SETTLED
JURISPRUDENCE THAT A PUBLIC DOCUMENT EXECUTED AND ATTESTED THROUGH THE
INTERVENTION OF A NOTARY PUBLIC IS EVIDENCE OF THE FACTS IN CLEAR, UNEQUIVOCAL
MANNER AND TO CONTRADICT IT THERE MUST BE CLEAR AND CONVINCING EVIDENCE NOT
MERELY PREPONDERANT EVIDENCE (GEVERO VS. INTERMEDIATE APPELLATE COURT, G.R. NO.
77029, AUGUST 30, 1990; ZAMBO V. COURT OF APPEALS, 224 SCRA 855; REBULDEDA V. IAC, 155
SCRA 520; CHILIANCHIN V. COQUINCO, 84 PHIL. 714; CENTENERA V. GARCIA PALICIO, 29 PHIL. 470).
9. THE COURT OF APPEALS AND THE TRIAL COURT COMMITTED A REVERSIBLE ERROR WHEN IT
SUBSTITUTED, REVISED AND MODIFIED THE AGREEMENT OF THE PARTIES DESPITE THE ABSENCE
OF FRAUD, MISTAKE, INEQUITABLE CONDUCT OR ACCIDENT.
10. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED TO RULE
ON THE ISSUE OF WHETHER THE TRIAL COURT GRAVELY ERRED IN ORDERING THE HEIRS OF
SILVERIA FLORES TO PAY ACTUAL AND MORAL DAMAGES AS WELL AS ATTORNEY'S FEES TO THE
HEIRS OF ALEJANDRA DELFINO.11
After careful consideration, we find the following relevant issues for our resolution: (1) whether or not there is a
cause of action for reformation of instrument against Silveria Flores, and consequently the petitioners; (2)
whether or not reformation of the subject deed is proper by reason of mistake in designating the correct lot
number; and (3) whether or not the heirs of Alejandra Delfino are entitled to actual and moral damages
including attorney's fees.
In seeking the reversal of the appellate court's decision, the heirs of Silveria Flores, herein petitioners, ascribe
to the appellate court several errors: first, the Court of Appeals committed error in failing to appreciate that
there is no cause of action against Silveria as she was never a party to the contract of sale; second, the
appellate court erred in giving probative value to the biased testimony of Trinidad Flores to the effect that Lot
No. 4163 was subdivided into two, one-half of which is occupied by her and her siblings; and third, the
appellate court erred in not considering the fact that Silveria is the only registered owner of Lot 4163.
Petitioners submit that the evidence adduced is insufficient to sustain a decision in respondents' favor.
Respondents, for their part, maintain that the present petition is pro forma as it does not raise any new matter
worth considering. They also assert that the arguments and issues raised by petitioners have been more than
adequately and exhaustively discussed by the trial court as well as the Court of Appeals. 12

On the first issue, petitioners contend that there is no cause of action against them and their predecessor-ininterest, Silveria Flores, because she and they were not parties to the contract sought to be reformed.
However, a close perusal of the deed would show that Silveria Flores was a party to the contract. She is not
only the seller of the coconut trees worth P15 but she was also one of the heirs entitled to the estate of
Venancio and Maxima, one of the heirs of Jose Flores. Her name did not appear as one of the sellers of onehalf lot to Alejandra Delfino because she never sold her share. What was sold was the one-half share of Jose
Flores, as represented by his heirs. It is also established that it was Silveria Flores herself who delivered the
subject lot to the vendee Alejandra Delfino. Said the lower court:
The truth of the matter, is that what the plaintiffs-vendors really intended to sell and what Alejandra Delfino
intended to buy, of which both of the parties agreed to be the subject of the transaction, was actually that
parcel of land, with two rows of coconut trees as the dividing line, and which lot is known as Lot 4163. This lot,
on the western portion, was the very portion which was pointed to and delivered to Alejandra Delfino by the
original defendant Silveria Flores and her two children, together with the vendors on January 19, 1956. When
the title to the said property was delivered to the notary public, for the preparation of the document of sale, the
title that was delivered was for Lot 5734. So, the document, that was executed, was done by reason of
mistake, inequitable conduct and accident, because the said document did not express the true and real
agreement and intention of the contracting parties. What was made to appear in the said document was the
sale of the one-half portion of another lot. Lot 5734, when in truth and in fact, the subject property sold was Lot
4163.13 (Underscoring and italics supplied.)
Through her actions, Silveria Flores had made the parties to the deed believe that the lot intended to be the
object of the contract was the same lot described in the deed. Thus, by mistake or accident, as well as
inequitable conduct, neither she nor her successors-in-interest could deny involvement in the transaction that
resulted in a deed that now ought to be reformed.
Worth stressing, the existence of a cause of action is not determined by one's involvement in a contract.
Participation in a contract is not an element to determine the existence of a cause of action. The rule is that
only the allegations in the complaint may properly be considered in ascertaining the existence of a cause of
action. Lack of cause of action must appear on the face of the complaint and its existence may be determined
only by the allegations of the complaint. Consideration of other facts is proscribed and any attempt to prove
extraneous circumstances is not allowed.14
The test of sufficiency of the facts found in a complaint as constituting a cause of action is whether or not,
admitting the facts alleged, the court can render a valid judgment upon the same in accordance with the
prayer in the complaint.15 An examination of the complaint16 shows herein respondents, as plaintiffs in the trial
court, are entitled to the relief of reformation of instrument if the following factual allegations of respondents
are deemed admitted, to wit: (1) that Silveria is a co-owner of Lots No. 5734 and 4163, in different shares; (2)
that the heirs of Jose, her co-owner in Lot No. 4163, offered to sell to her their one-half share but she declined
for lack of money; (3) that said share was later sold to Alejandra; (4) that Silveria was asked to deliver the title
of Lot No. 4163 but instead she delivered the title of Lot No. 5734; (5) that after the sale, Alejandra occupied
one-half portion of Lot No. 4163 while Lot No. 5734 was still in the possession of Venancio and the heirs of
Maxima and Silveria; (6) that it was only when Alejandra was about to buy the adjacent lot that she realized
that what was indicated in the Settlement of Estate and Sale was Lot No. 5734 and not 4163. In sum, we find
that the original plaintiffs in the trial court alleged sufficient facts in the complaint that properly constituted a
cause of action against the defendants.
On the second issue, petitioners contend respondents failed to show, specifically, a cause of action for the
reformation of the instrument in question. Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or conform to the real intention of the parties. 17 As provided
in Article 1359 of the Civil Code:
Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is
not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable
conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true
intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the contract.

A:

Yes.

xxx
An action for reformation of instrument under this provision of law may prosper only upon the concurrence of
the following requisites: (1) there must have been a meeting of the minds of the parties to the contact; (2) the
instrument does not express the true intention of the parties; and (3) the failure of the instrument to express
the true intention of the parties is due to mistake, fraud, inequitable conduct or accident. 18
All of these requisites, in our view, are present in this case. There was a meeting of the minds between the
parties to the contract but the deed did not express the true intention of the parties due to mistake in the
designation of the lot subject of the deed. There is no dispute as to the intention of the parties to sell the land
to Alejandra Delfino but there was a mistake as to the designation of the lot intended to be sold as stated in
the Settlement of Estate and Sale.
While intentions involve a state of mind which may sometimes be difficult to decipher, subsequent and
contemporaneous acts of the parties as well as the evidentiary facts as proved and admitted can be reflective
of one's intention. The totality of the evidence clearly indicates that what was intended to be sold to Alejandra
Delfino was Lot 4163 and not Lot 5734. As found by both courts below, there are enough bases to support
such conclusion. We particularly note that one of the stipulated facts during the pre-trial is that one-half of Lot
4163 is in the possession of plaintiff Alejandra Delfino "since 1956 up to the present." 19 Now, why would
Alejandra occupy and possess one-half of said lot if it was not the parcel of land which was the object of the
sale to her? Besides, as found by the Court of Appeals, if it were true that Silveria Flores was the sole owner
of Lot 4163, then she should have objected when Alejandra Delfino took possession of one-half thereof
immediately after the sale. Additionally, we find no cogent reason to depart from the conclusion of both the
Court of Appeals and the trial court, based on the evidence on record, that Silveria Flores owns only one-half
of Lot 4163. The other half belongs to her brother Jose, represented now by his grandchildren successors-ininterest. As such, the latter could rightfully sell the land to Alejandra Delfino.
Furthermore, on record, it has been shown that a spot investigation conducted by a duly licensed surveyor
revealed that Lot 4163 is subdivided into two portions, one belonging to Silveria Flores and the other to the
heirs of Jose Flores.20 As found by the trial court, if indeed it was Lot 5734 that was sold, then Silveria Flores
was occupying more than her share of the inherited lot. Thus:
x x x That, with respect to Lot No. 5734 and Lot No. 4292, in an on-the-spot investigation, made by a licensed
surveyor, Mr. Rilthe Dorado, his findings thereon show that Silveria Flores is in possession on the western
portion of Lot 5734, with an area of more than one-half and, to be exact, with an area of 2,462, in spite of the
fact that she is the registered owner only of a one-third (1/3) share; and admitting, for the sake of argument,
that it was the one-half portion, of Lot 5734, that was sold, why should Silveria Flores possess more than
2,190 square meters, which is the 1/2 of Lot 5734, Isabel Flores, the daughter of Venancio Flores is
possessing the middle portion, with an area of only 884 square meters; and Trinidad Flores Nodado, in
representation of her aunt, Maxima Flores, is possessing an area of 1,034 sq. m. 21
As a matter of fact, the trial court also found that in spite of her title over Lot 4163, Silveria recognized the right
of Jose's grandchildren over one-half portion of the property.22 The trial court gave credence to the testimony
of Trinidad Flores, one of the grandchildren, who testified as follows:
Q:
During the lifetime of Jose and Silveria when they were possessing Lot 4163, did they subdivide it
because they were possessing it in common?
A:

They subdivided it into two halves.

xxx
Q:

And after Jose and Silveria subdivided Lot 4163, they possessed their respective shares of Lot 4163?

Q:
Now you said that you are the heirs of Jose and Roman Flores (father and son) and so when they died
this portion of Lot 4163 devolved on you, did you ever take possession of Lot 4163?
A:

Yes, we, the brothers and sisters immediately took possession of it. 23

On cross-examination, Trinidad sufficiently explained why the title to Lot No. 4163 is in the name of Silveria
Flores alone. Thus:
Q:

Now, this Lot No. 4163, do you know if this lot is also titled?

A:
Yes, it was titled, only in the name of Silveria Flores because my aunt was not able to go with her; only
my aunt was alone at that time.24
xxx
Q:
And as you have stated earlier, that what you are intending to sell was Lot 4163 to plaintiff Alejandra
Delfino, and during this time that you sold this intended lot 4163, you were not aware this particular lot 4163
was titled exclusively in the name of Silveria Flores, is that correct?
A:
I knew already that the said lot was already titled, but it was titled only in the name of Silveria Flores
because she was the only one who went there to have it titled in her name. And at the time of the sale of the
lot, we demanded for the title from Silveria Flores, and what she delivered was the 5734 (sic). 25
Petitioners now claim that the foregoing testimony of Trinidad Flores was biased. But we note that the
appellate court sustained the trial court's reliance on her testimony, which both found to be credible. As
consistently held, factual findings of the trial court, especially when affirmed by the appellate court, are binding
upon this Court26and entitled to utmost respect.27 Considering these findings, we see no reason to disturb the
trial court's finding, affirmed by the Court of Appeals, that the object of the contract of sale, as intended and
understood by the parties, was Lot 4163 covered by OCT 3129-A which Alejandra, and now her heirs, have
been occupying. The designation of the lot in the deed of sale as Lot 5734, covered by OCT 4918-A, was a
mistake in the preparation of the document. Thus, we concur in the conclusion reached by the courts a
quo that reformation of the instrument is proper.
However, on the matter of damages, the award of actual damages in the amount of P5,000 lacks evidentiary
support. Actual damages if not supported by the evidence on record cannot be granted. 28 Moral damages
forP10,000 was also improperly awarded, absent a specific finding and pronouncement from the trial court that
petitioners acted in bad faith or with malice. However, the award of attorney's fees for P2,000 is justified under
Article 2208(2) of the Civil Code,29 in view of the trial court's finding that the unjustified refusal of petitioners to
reform or to correct the document of sale compelled respondents to litigate to protect their interest.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39401
is AFFIRMED withMODIFICATION. It is hereby ordered that the document entitled Settlement of Estate and
Sale be reformed by changing the phrase "Lot 5734" to "Lot 4163" found in the sixth paragraph of the deed,
thereby ceding in favor of respondents one-half portion of Lot 4163 instead of Lot 5734. The award to
respondents of attorney's fees in the amount of P2,000 is affirmed. However, the award of actual damages in
the amount of P5,000 and of moral damages in the amount of P10,000 are both SET ASIDE. No
pronouncement as to costs. SO ORDERED.
G.R. No. L-22962 September 28, 1972

PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE BORROMEO,

CONSUELO B. MORALES and CANUTO V. BORROMEO, JR., petitioners,
vs.
COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased) Substituted by FELISA VILLAMOR,
ROSARIO V. LIAO LAMCO, MANUEL VILLAMOR, AMPARO V. COTTON, MIGUEL VILLAMOR and
CARMENCITA VILLAMOR, respondents.
Filiberto Leonardo for petitioners.
Ramon Duterte for private respondents.

FERNANDO, J.:p
The point pressed on us by private respondents, 1 in this petition for review of a decision of the Court of
Appeals in the interpretation of a stipulation which admittedly is not free from ambiguity, there being a mention
of a waiver of the defense of prescription, is not calculated to elicit undue judicial sympathy. For if accorded
acceptance, a creditor, now represented by his heirs, 2 who, following the warm and generous impulse of
friendship, came to the rescue of a debtor from a serious predicament of his own making would be barred from
recovering the money loaned. Thus the promptings of charity, unfortunately not often persuasive enough,
would be discredited. It is unfortunate then that respondent Court of Appeals did not see it that way. For its
decision to be upheld would be to subject the law to such a scathing indictment. A careful study of the relevant
facts in the light of applicable doctrines calls for the reversal of its decision.
The facts as found by the Court of Appeals follow: "Before the year 1933, defendant [Jose A. Villamor] was a
distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City.
Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo] used to borrow from the latter
certain amounts from time to time. On one occasion with some pressing obligation to settle with Mr. Miller,
defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and house in Cebu
City. Mr. Miller filed civil action against the defendant and attached his properties including those mortgaged to
plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered because not properly
drawn up. Plaintiff then pressed the defendant for settlement of his obligation, but defendant instead offered to
execute a document promising to pay his indebtedness even after the lapse of ten years. Liquidation was
made and defendant was found to be indebted to plaintiff in the sum of P7,220.00, for which defendant signed
a promissory note therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay
'as soon as I have money'. The note further stipulates that defendant 'hereby relinquish, renounce, or
otherwise waive my rights to the prescriptions established by our Code of Civil Procedure for the collection or
recovery of the above sum of P7,220.00. ... at any time even after the lapse of ten years from the date of this
instrument'. After the execution of the document, plaintiff limited himself to verbally requesting defendant to
settle his indebtedness from time to time. Plaintiff did not file any complaint against the defendant within ten
years from the execution of the document as there was no property registered in defendant's name, who
furthermore assured him that he could collect even after the lapse of ten years. After the last war, plaintiff
made various oral demands, but defendants failed to settle his account, hence the present complaint for
collection." 3 It was then noted in the decision under review that the Court of First Instance of Cebu did
sentence the original defendant, the deceased Jose A. Villamor, to pay Canuto O. Borromeo, now represented
by petitioners, the sum of P7,220.00 within ninety days from the date of the receipt of such decision with
interest at the rate of 12% per annum from the expiration of such ninety-day period. That was the judgment
reversed by the Court of Appeals in its decision of March 7, 1964, now the subject of this petition for review.
The legal basis was the lack of validity of the stipulation amounting to a waiver in line with the principle "that a
person cannot renounce future prescription." 4
The rather summary and curt disposition of the crucial legal question of respondent Court in its five-page
decision, regrettably rising not too-far-above the superficial level of analysis hardly commends itself for
approval. In the first place, there appeared to be undue reliance on certain words employed in the written
instrument executed by the parties to the total disregard of their intention. That was to pay undue homage to
verbalism. That was to ignore the warning of Frankfurter against succumbing to the vice of literalism in the
interpretation of language whether found in a constitution, a statute, or a contract. Then, too, in effect it would

nullify what ought to have been evident by a perusal that is not-too-cursory, namely, that the creditor moved by
ties of friendship was more than willing to give the debtor the utmost latitude as to when his admittedly scanty
resources will allow him to pay. He was not renouncing any right; he was just being considerate, perhaps
excessively so. Under the view of respondent Court, however, what had been agreed upon was in effect
voided. That was to run counter to the well-settled maxim that between two possible interpretations, that which
saves rather than destroys is to be preferred. What vitiates most the appealed decision, however, is that it
would amount not to just negating an agreement duly entered into but would put a premium on conduct that is
hardly fair and could be characterized as duplicitous. Certainly, it would reflect on a debtor apparently bent all
the while on repudiating his obligation. Thus he would be permitted to repay an act of kindness with base
ingratitude. Since as will hereafter be shown, there is, on the contrary, the appropriate construction of the
wording that found its way in the document, one which has all the earmarks of validity and at the same time is
in consonance with the demands of justice and morality, the decision on appeal, as was noted at the outset,
must be reversed.
1. The facts rightly understood argue for the reversal of the decision arrived at by respondent Court of
Appeals. Even before the event that gave rise to the loan in question, the debtor, the late Jose A. Villamor,
being a friend and a former classmate, used to borrow from time to time various sums of money from the
creditor, the late Canuto O. Borromeo. Then faced with the need to settle a pressing obligation with a certain
Miller, he did borrow from the latter sometime in 1933 what respondent Court called "a large sum of money for
which he mortgaged his land and house in Cebu City." 5 It was noted that this Miller did file a suit against him,
attaching his properties including those he did mortgage to the late Borromeo, there being no valid objection to
such a step as the aforesaid mortgage, not being properly drawn up, could not be registered. Mention was
then made of the late Borromeo in his lifetime seeking the satisfaction of the sum due with Villamor unable to
pay, but executing a document promising "to pay his indebtedness even after the lapse of ten years." 6 It is with
such a background that the words employed in the instrument of November 29, 1933 should be viewed. There
is nothing implausible in the view that such language renouncing the debtor's right to the prescription
established by the Code of Civil Procedure should be given the meaning, as noted in the preceding sentence
of the decision of respondent Court, that the debtor could be trusted to pay even after the termination of the
ten-year prescriptive period. For as was also made clear therein, there had been since then verbal requests on
the part of the creditor made to the debtor for the settlement of such a loan. Nor was the Court of Appeals
unaware that such indeed was within the contemplation of the parties as shown by this sentence in its
decision: "Plaintiff did not file any complaint against the defendant within ten years from the execution of the
document as there was no property registered in defendant's name who furthermore assured him that he
could collect even after the lapse of ten years." 7
2. There is much to be said then for the contention of petitioners that the reference to the prescriptive period is
susceptible to the construction that only after the lapse thereof could the demand be made for the payment of
the obligation. Whatever be the obscurity occasioned by the words is illumined when the light arising from the
relationship of close friendship between the parties as well as the unsuccessful effort to execute a mortgage,
taken in connection with the various oral demands made, is thrown on them. Obviously, it did not suffice for
the respondent Court of Appeals. It preferred to reach a conclusion which for it was necessitated by the strict
letter of the law untinged by any spirit of good morals and justice, which should not be alien to legal norms.
Even from the standpoint of what for some is strict legalism, the decision arrived at by the Court of Appeals
calls for disapproval. It is a fundamental principle in the interpretation of contracts that while ordinarily the
literal sense of the words employed is to be followed, such is not the case where they "appear to be contrary
to the evident intention of the contracting parties," which "intention shall prevail." 8 Such a codal provision has
been given full force and effect since the leading case of Reyes v. Limjap, 9 a 1910 decision. Justice Torres,
who penned the above decision, had occasion to reiterate such a principle when he spoke for the Court in De
la Vega v. Ballilos 10 thus: "The contract entered into by the contracting parties which has produced between
them rights and obligations is in fact one of antichresis, for article 1281 of the Civil Code prescribes among
other things that if the words should appear to conflict with the evident intent of the contracting parties, the
intent shall prevail." 11 In Abella v. Gonzaga, 12 this Court through the then Justice Villamor, gave force to such
a codal provision when he made clear that the inevitable conclusion arrived at was "that although in the
contract Exhibit A the usual words 'lease,' 'lessee,' and 'lessor' were employed, that is no obstacle to holding,
as we do hereby hold, that said contract was a sale on installments, for such was the evident intention of the
parties in entering into said contract. 13 Only lately in Nielson and Company v. Lepanto Consolidated Mining
Company, 14 this Court, with Justice Zaldivar, as ponente, after stressing the primordial rule that in the
construction and interpretation of a document, the intention of the parties must be sought, went on to state:
"This is the basic rule in the interpretation of contracts because all other rules are but ancillary to the
ascertainment of the meaning intended by the parties. And once this intention has been ascertained it
becomes an integral part of the contract as though it had been originally expressed therein in unequivocal

terms ... ." 15 While not directly in point, what was said by Justice Labrador in Tumaneng v. Abad 16 is relevant:
"There is no question that the terms of the contract are not clear on the period of redemption. But the intent of
the parties thereto is the law between them, and it must be ascertained and enforced." 17 Nor is it to be
forgotten, following what was first announced in Velasquez v. Teodoro 18 that "previous, simultaneous and
subsequent acts of the parties are properly cognizable indicia of their true intention." 19
There is another fundamental rule in the interpretation of contracts specifically referred to in Kasilag v.
Rodriguez,20 as "not less important" 21 than other principles which "is to the effect that the terms, clauses and
conditions contrary to law, morals and public order should be separated from the valid and legal contract when
such separation can be made because they are independent of the valid contract which expresses the will of
the contracting parties. Manresa, commenting on article 1255 of the Civil Code and stating the rule of
separation just mentioned, gives his views as follows: 'On the supposition that the various pacts, clauses, or
conditions are valid, no difficulty is presented; but should they be void, the question is as to what extent they
may produce the nullity of the principal obligation. Under the view that such features of the obligation are
added to it and do not go to its essence, a criterion based upon the stability of juridical relations should tend to
consider the nullity as confined to the clause or pact suffering therefrom, except in cases where the latter, by
an established connection or by manifest intention of the parties, is inseparable from the principal obligation,
and is a condition, juridically speaking, of that the nullity of which it would also occasion.' ... The same view
prevails in the Anglo-American law as condensed in the following words: 'Where an agreement founded on a
legal consideration contains several promises, or a promise to do several things, and a part only of the things
to be done are illegal, the promises which can be separated, or the promise, so far as it can be separated,
from the illegality, may be valid. The rule is that a lawful promise made for a lawful consideration is not invalid
merely because an unlawful promise was made at the same time and for the same consideration, and this rule
applies, although the invalidity is due to violation of a statutory provision, unless the statute expressly or by
necessary implication declares the entire contract void. ..." 22
Nor is it to be forgotten that as early as Compania Agricola Ultramar v. Reyes, 23 decided in 1904, the then
Chief Justice Arellano in a concurring opinion explicitly declared: "It is true that contracts are not what the
parties may see fit to call them, but what they really are as determined by the principles of law." 24 Such a
doctrine has been subsequently adhered to since then. As was rephrased by Justice Recto in Aquino v.
Deala: 25 "The validity of these agreements, however, is one thing, while the juridical qualification of the
contract resulting therefrom is very distinctively another." 26 In a recent decision, Shell Company of the Phils.,
Ltd. vs. Firemen's Insurance Co. of Newark, 27 this court, through Justice Padilla, reaffirmed the doctrine thus:
"To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given
it by the contracting parties, should there be a controversy as to what they really had intended to enter into,
but the way the contracting parties do or perform their respective obligations, stipulated or agreed upon may
be shown and inquired into, and should such performance conflict with the name or title given the contract by
the parties, the former must prevail over the latter." 28 Is it not rather evident that since even the denomination
of the entire contract itself is not conclusively determined by what the parties call it but by the law, a stipulation
found therein should likewise be impressed with the characterization the law places upon it?
What emerges in the light of all the principles set forth above is that the first ten years after November 29,
1933 should not be counted in determining when the action of creditor, now represented by petitioners, could
be filed. From the joint record on appeal, it is undoubted that the complaint was filed on January 7, 1953. If the
first ten-year period was to be excluded, the creditor had until November 29, 1953 to start judicial proceedings.
After deducting the first ten-year period which expired on November 29, 1943, there was the additional period
of still another ten years. 29 Nor could there be any legal objection to the complaint by the creditor Borromeo of
January 7, 1953 embodying not merely the fixing of the period within which the debtor Villamor was to pay but
likewise the collection of the amount that until then was not paid. An action combining both features did
receive the imprimatur of the approval of this Court. As was clearly set forth in Tiglao v. The Manila Railroad
Company: 30 "There is something to defendant's contention that in previous cases this Court has held that the
duration of the term should be fixed in a separate action for that express purpose. But we think the lower court
has given good reasons for not adhering to technicalities in its desire to do substantial justice." 31 The
justification became even more apparent in the latter portion of the opinion of Justice Alex Reyes for this
Court: "We may add that defendant does not claim that if a separate action were instituted to fix the duration of
the term of its obligation, it could present better proofs than those already adduced in the present case. Such
separate action would, therefore, be a mere formality and would serve no purpose other than to
delay." 32 There is no legal obstacle then to the action for collection filed by the creditor. Moreover, the
judgment of the lower court, reversed by the respondent Court of Appeals, ordering the payment of the amount
due is in accordance with law.

3. There is something more to be said about the stress in the Tiglao decision on the sound reasons for not
adhering to technicalities in this Court's desire to do substantial justice. The then Justice, now Chief Justice,
Concepcion expressed a similar thought in emphasizing that in the determination of the rights of the
contracting parties "the interest of justice and equity be not ignored." 33 This is a principle that dates back to
the earliest years of this Court. The then Chief Justice Bengzon in Arrieta v. Bellos, 34 invoked equity. Mention
has been made of "practical and substantial justice," 35 "[no] sacrifice of the substantial rights of a litigant in the
altar of sophisticated technicalities with impairment of the sacred principles of justice," 36 "to afford substantial
justice" 37 and "what equity demands." 38 There has been disapproval when the result reached is "neither fair,
nor equitable." 39 What is to be avoided is an interpretation that "may work injustice rather than promote
justice." 40 What appears to be most obvious is that the decision of respondent Court of Appeals under review
offended most grievously against the above fundamental postulate that underlies all systems of law.
WHEREFORE, the decision of respondent Court of Appeals of March 7, 1964 is reversed, thus giving full force
and effect to the decision of the lower court of November 15, 1956. With costs against private respondents.

G.R. No. 46623 December 7, 1939

MARCIAL KASILAG, petitioner,
vs.
RAFAELA RODRIGUEZ, URBANO ROQUE, SEVERO MAPILISAN and IGNACIO DEL
ROSARIO, respondents.
Luis M. Kasilag for petitioner.
Fortunato de Leon for respondents.

IMPERIAL, J.:
This is an appeal taken by the defendant-petitioner from the decision of the Court of Appeals which modified
that rendered by the court of First Instance of Bataan in civil case No. 1504 of said court and held: that the
contract Exhibit "1" is entirely null and void and without effect; that the plaintiffs-respondents, then appellants,
are the owners of the disputed land, with its improvements, in common ownership with their brother Gavino
Rodriguez, hence, they are entitled to the possession thereof; that the defendant-petitioner should yield
possession of the land in their favor, with all the improvements thereon and free from any lien; that the
plaintiffs-respondents jointly and severally pay to the defendant-petitioner the sum of P1,000 with interest at 6
percent per annum from the date of the decision; and absolved the plaintiffs-respondents from the crosscomplaint relative to the value of the improvements claimed by the defendant-petitioner. The appealed
decision also ordered the registrar of deeds of Bataan to cancel certificate of title No. 325, in the name of the
deceased Emiliana Ambrosio and to issue in lieu thereof another certificate of title in favor of the plaintiffsrespondents and their brother Gavino Rodriguez, as undivided owners in equal parts, free of all liens and
incumbrances except those expressly provided by law, without special pronouncement as to the costs.
The respondents, children and heirs of the deceased Emiliana Ambrosio, commenced the aforesaid civil case
to the end that they recover from the petitioner the possession of the land and its improvements granted by
way of homestead to Emiliana Ambrosio under patent No. 16074 issued on January 11, 1931, with certificate
of title No. 325 issued by the registrar of deeds of Bataan on June 27, 1931 in her favor, under section 122 of
Act No. 496, which land was surveyed and identified in the cadastre of the municipality of Limay, Province of
Bataan, as lot No. 285; that the petitioner pay to them the sum of P650 being the approximate value of the
fruits which he received from the land; that the petitioner sign all the necessary documents to transfer the land
and its possession to the respondents; that he petitioner be restrained, during the pendency of the case, from
conveying or encumbering the land and its improvements; that the registrar of deeds of Bataan cancel
certificate of title No. 325 and issue in lieu thereof another in favor of the respondents, and that the petitioner
pay the costs of suit.

The petitioner denied in his answer all the material allegations of the complaint and by way of special defense
alleged that he was in possession of the land and that he was receiving the fruits thereof by virtue of a
mortgage contract, entered into between him and the deceased Emiliana Ambrosio on May 16, 1932, which
was duly ratified by a notary public; and in counterclaim asked that the respondents pay him the sum of
P1,000 with 12 per cent interest per annum which the deceased owed him and that, should the respondents
be declared to have a better right to the possession of the land, that they be sentenced to pay him the sum of
P5,000 as value of all the improvements which he introduced upon the land.lawphil.net
On May 16, 1932 Emiliana Ambrosio, in life, and the petitioner executed the following public deed:
"This agreement, made and entered into this 16th day of May, 1932, by and between Emiliana Ambrosio,
Filipino, of legal age, widow and resident of Limay, Bataan, P.L., hereinafter called the party of the first part,
and Marcial Kasilag, Filipino, of legal age, married to Asuncion Roces, and resident at 312 Perdigon Street,
Manila, P.L., hereinafter called party of the second part.
WITNESSETH: That the parties hereto hereby covenant and agree to and with each other as follows:

ARTICLE VII. That within thirty (30) days after date of execution of this agreement, the party of the first part
shall file a motion before the Court of First Instance at Balanga, Bataan, P. I., requesting cancellation of
Homestead Certificate of Title No. 325 referred to in Article I hereof and the issuance, in lieu thereof, of a
certificate of title under the provisions of Land Registration Act No. 496, as amended by Act 3901.
ARTICLE III. It if further agreed that if upon the expiration of the period of time (4) years stipulated in this
mortgage, the mortgagor should fail to redeem this mortgage, she would execute a deed of absolute sale of
the property herein described for the same amount as this mortgage, including all unpaid interests at the rate
of 12 per cent per annum, in favor of the mortgagee.
ARTICLE IX. That in the event the contemplated motion under Article VII hereof is not approved by the Court,
the foregoing contract of sale shall automatically become null and void, and the mortgage stipulated under
Article IV and V shall remain in full force and effect.
In testimony whereof, the parties hereto have hereunto set their hands the day and year first herein before
written.

ARTICLE I. That the party of the first part is the absolute registered owner of a parcel of land in the barrio of
Alngan, municipality of Limay, Province of Bataan, her title thereto being evidenced by homestead certificate
of title No. 325 issued by the Bureau of Lands on June 11, 1931, said land being lot No. 285 of the Limay
Cadastre, General Land Registration Office Cadastral Record No. 1054, bounded and described as follows:

(Sgd.) MARCIAL KASILAG

Beginning at point marked 1 on plan E-57394, N. 84 32' W. 614.82 m. from B.B.M. No. 3, thence N. 66 35' E.
307.15 m. to point "2"; S. 5 07' W. to point "5"; S.6 10' E. 104.26 m. to point "4"; S. 82 17' W. to point "5"; S.
28 53' W. 72.26 m. to point "6"; N. 71 09' W. to point "7"; N. 1 42' E. 173.72 m. to point 1, point of beginning,
"Containing an area of 6.7540 hectares. "Points 1,2,6 and 7, B.L.; points 3,4 and 5, stakes; points 4, 5 and 6
on bank of Alangan River. "Bounded on the North, by property claimed by Maria Ambrosio; on the East, by
Road; on the South, by Alangan River and property claimed by Maxima de la Cruz; and on the West, by
property claimed by Jose del Rosario. "Bearing true. Declination 0 51' E. "Surveyed under authority of
sections 12-22, Act No. 2874 and in accordance with existing regulations of the Bureau of Lands, by Mamerto
Jacinto, public land surveyor, on July 8, 1927 and approved on February 25, 1931.

Signed in the presence of:

ARTICLE II. That the improvements on the above described land consist of the following:
Four (4) mango trees, fruit bearing: one hundred ten (110) hills of bamboo trees; one (1) tamarind and six (6)
boga trees.
ARTICLE III. That the assessed value of the land is P940 and the assessed value of the improvements is
P860, as evidenced by tax declaration No. 3531 of the municipality of Limay, Bataan.
ARTICLE IV. That for and in consideration of the sum of one thousand pesos (P1,000) Philippine currency,
paid by the party of second part to the party of the first part, receipt whereof is hereby acknowledged, the party
of the first part hereby encumbers and hypothecates, by way of mortgage, only the improvements described in
Articles II and III hereof, of which improvements the party of the first part is the absolute owner.
ARTICLE V. That the condition of said mortgage is such that if the party of the first part shall well and truly pay,
or cause to paid to the party of the second part, his heirs, assigns, or executors, on or before the 16th day of
November, 1936, or four and one-half (4) years after date of the execution of this instrument, the aforesaid
sum of one thousand pesos (P1,000) with interest at 12 per cent per annum, then said mortgage shall be and
become null and void; otherwise the same shall be and shall remain in full force and effect, and subject to
foreclosure in the manner and form provided by law for the amount due thereunder, with costs and also
attorney's fees in the event of such foreclosure.lawphil.net
ARTICLE VI. That the party of the first part shall pay all taxes and assessments which are or may become due
on the above described land and improvements during the term of this agreement.

(Sgd.) EMILIANA AMBROSIO

(Sgd.) ILLEGIBLE
(Sgd.) GAVINO RODRIGUEZ.

PHILIPPINE ISLANDS } ss.

BALANGA, BATAAN } ss.
Before me this day personally appeared Emiliana Ambrosio without cedula by reason of her sex, to me known
and known to me to be the person who signed the foregoing instrument, and acknowledged to me that she
executed the same as her free and voluntary act and deed.
I hereby certify that this instrument consists of three (3) pages including this page of the acknowledgment and
that each page thereof is signed by the parties to the instrument and the witnesses in their presence and in the
presence of each other, and that the land treated in this instrument consists of only one parcel.
In witness whereof I have hereunto set my hand and affixed my notarial seal, this 16th day of May, 1932.
(Sgd.) NICOLAS NAVARRO
Notary Public
My commission expires December 31, 1933.

Doc. No. 178

Page 36 of my register
Book No. IV

suffering therefrom, except in case where the latter, by an established connection or by manifest intention of
the parties, is inseparable from the principal obligation, and is a condition, juridically speaking, of that the
nullity of which it would also occasion. (Manresa, Commentaries on the Civil Code, Volume 8, p. 575.)

One year after the execution of the aforequoted deed, that is, in 1933, it came to pass that Emiliana Ambrosio
was unable to pay the stipulated interests as well as the tax on the land and its improvements. For this reason,
she and the petitioner entered into another verbal contract whereby she conveyed to the latter the possession
of the land on condition that the latter would not collect the interest on the loan, would attend to the payment of
the land tax, would benefit by the fruits of the land, and would introduce improvements thereon. By virtue of
this verbal contract, the petitioner entered upon the possession of the land, gathered the products thereof, did
not collect the interest on the loan, introduced improvements upon the land valued at P5,000, according to him
and on May 22, 1934 the tax declaration was transferred in his name and on March 6, 1936 the assessed
value of the land was increased from P1,020 to P2,180.

The same view prevails in the Anglo-American law, as condensed in the following words:

After an analysis of the conditions of Exhibit "1" the Court of Appeals came to the conclusion and so held that
the contract entered into by and between the parties, set out in the said public deed, was one of absolute
purchase and sale of the land and its improvements. And upon this ruling it held null and void and without legal
effect the entire Exhibit 1 as well as the subsequent verbal contract entered into between the parties, ordering,
however, the respondents to pay to the petitioner, jointly and severally, the loan of P1,000 with legal interest at
6 per cent per annum from the date of the decision. In this first assignment of error the petitioner contends that
the Court of Appeals violated the law in holding that Exhibit 1 is an absolute deed of sale of the land and its
improvements and that it is void and without any legal effect.
The cardinal rule in the interpretation of contracts is to the effect that the intention of the contracting parties
should always prevail because their will has the force of law between them. Article 1281 of the Civil Code
consecrates this rule and provides, that if the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal sense of its stipulations shall be followed; and if the words
appear to be contrary to the evident intention of the contracting parties, the intention shall prevail. The contract
set out in Exhibit 1 should be interpreted in accordance with these rules. As the terms thereof are clear and
leave no room for doubt, it should be interpreted according to the literal meaning of its clauses. The words
used by the contracting parties in Exhibit 1 clearly show that they intended to enter into the principal contract
of loan in the amount of P1,000, with interest at 12 per cent per annum, and into the accessory contract of
mortgage of the improvements on the land acquired as homestead, the parties having moreover, agreed upon
the pacts and conditions stated in the deed. In other words, the parties entered into a contract of mortgage of
the improvements on the land acquired as homestead, to secure the payment of the indebtedness for P1,000
and the stipulated interest thereon. In clause V the parties stipulated that Emiliana Ambrosio was to pay, within
four and a half years, or until November 16, 1936, the debt with interest thereon, in which event the mortgage
would not have any effect; in clause VI the parties agreed that the tax on the land and its improvements,
during the existence of the mortgage, should be paid by the owner of the land; in clause VII it was covenanted
that within thirty days from the date of the contract, the owner of the land would file a motion in the Court of
First Instance of Bataan asking that certificate of title No. 325 be cancelled and that in lieu thereof another be
issued under the provisions of the Land Registration Act No. 496, as amended by Act No. 3901; in clause VIII
the parties agreed that should Emiliana Ambrosio fail to redeem the mortgage within the stipulated period of
four years and a half, she would execute an absolute deed of sale of the land in favor of the mortgagee, the
petitioner, for the same amount of the loan of P1,000 including unpaid interest; and in clause IX it was
stipulated that in case the motion to be presented under clause VII should be disapproved by the Court of First
Instance of Bataan, the contract of sale would automatically become void and the mortgage would subsist in
all its force.
Another fundamental rule in the interpretation of contracts, not less important than those indicated, is to the
effect that the terms, clauses and conditions contrary to law, morals and public order should be separated from
the valid and legal contract and when such separation can be made because they are independent of the valid
contract which expresses the will of the contracting parties. Manresa, commenting on article 1255 of the Civil
Code and stating the rule of separation just mentioned, gives his views as follows:
On the supposition that the various pacts, clauses or conditions are valid, no difficulty is presented; but should
they be void, the question is as to what extent they may produce the nullity of the principal obligation. Under
the view that such features of the obligation are added to it and do not go to its essence, a criterion based
upon the stability of juridical relations should tend to consider the nullity as confined to the clause or pact

Where an agreement founded on a legal consideration contains several promises, or a promise to do several
things, and a part only of the things to be done are illegal, the promises which can be separated, or the
promise, so far as it can be separated, from the illegality, may be valid. The rule is that a lawful promise made
for a lawful consideration is not invalid merely because an unlawful promise was made at the same time and
for the same consideration, and this rule applies, although the invalidity is due to violation of a statutory
provision, unless the statute expressly or by necessary implication declares the entire contract void. . . . (13 C.
J., par. 470, p. 512; New York Cent. etc. R. Co. v. Gray, 239 U.S., 583; 60 Law ed., 451; U.S. v. Mora, 97 U.S.,
413, 24 Law. ed., 1017; U.S. v. Hodson, 10 Wall, 395; 19 Law ed. 937; Gelpcke v. Dubuque, 1 Wall. 175, 17
Law ed., 520; U.S. v. Bradly, 10 Pet. 343, 9 Law. ed., 448; Borland v. Prindle, 144 Fed 713; Western Union Tel.
Co. v. Kansas Pac. R. Co., 4 Fed., 284; Northern Pac. R. Co. v. U.S., 15 Ct. Cl., 428.)
Addressing ourselves now to the contract entered into by the parties, set out in Exhibit 1, we stated that the
principal contract is that of loan and the accessory that of mortgage of the improvements upon the land
acquired as a homestead. There is no question that the first of these contract is valid as it is not against the
law. The second, or the mortgage of the improvements, is expressly authorized by section 116 of Act No.
2874, as amended by section 23 of Act No. 3517, reading:
SEC. 116. Except in favor of the Government or any of its branches, units or institutions, or legally constituted
banking corporations, lands acquired under the free patent or homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval of the application and for a term of five years from
and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any
debt contracted prior to the expiration of said period; but the improvements or crops on the land may be
mortgaged or pledged to qualified persons, associations, or corporations.
It will be recalled that by clause VIII of Exhibit 1 the parties agreed that should Emiliana Ambrosio fail to
redeem the mortgage within the stipulated period of four and a half years, by paying the loan together with
interest, she would execute in favor of the petitioner an absolute deed of sale of the land for P1,000, including
the interest stipulated and owing. The stipulation was verbally modified by the same parties after the expiration
of one year, in the sense that the petitioner would take possession of the land and would benefit by the fruits
thereof on condition that he would condone the payment of interest upon the loan and he would attend to the
payment of the land tax. These pacts made by the parties independently were calculated to alter the mortgage
a contract clearly entered into, converting the latter into a contract of antichresis. (Article 1881 of the Civil
Code.) The contract of antichresis, being a real encumbrance burdening the land, is illegal and void because it
is legal and valid.
The foregoing considerations bring us to the conclusion that the first assignment of error is well-founded and
that error was committed in holding that the contract entered into between the parties was one of absolute sale
of the land and its improvements and that Exhibit 1 is null and void. In the second assignment of error the
petitioner contends that the Court of Appeals erred in holding that he is guilty of violating the Public Land Act
because he entered into the contract, Exhibit 1. The assigned error is vague and not specific. If it attempts to
show that the said document is valid in its entirety, it is not well-founded because we have already said that
certain pacts thereof are illegal because they are prohibited by section 116 of Act No. 2874, as amended.
In the third assignment of error the petitioner insists that his testimony, as to the verbal agreement entered into
between him and Emiliana Ambrosio, should have been accepted by the Court of Appeals; and in the fourth
and last assignment of error the same petitioner contends that the Court of Appeals erred in holding that he
acted in bad faith in taking possession of the land and in taking advantage of the fruits thereof, resulting in the
denial of his right to be reimbursed for the value of the improvements introduced by him.
We have seen that subsequent to the execution of the contract, Exhibit 1, the parties entered into another
verbal contract whereby the petitioner was authorized to take possession of the land, to receive the fruits

thereof and to introduce improvements thereon, provided that he would renounce the payment of stipulated
interest and he would assume payment of the land tax. The possession by the petitioner and his receipt of the
fruits of the land, considered as integral elements of the contract of antichresis, are illegal and void
agreements because, as already stated, the contract of antichresis is a lien and such is expressly prohibited
by section 116 of Act No. 2874, as amended. The Court of Appeals held that the petitioner acted in bad faith in
taking possession of the land because he knew that the contract he made with Emiliana Ambrosio was an
absolute deed of sale and, further, that the latter could not sell the land because it is prohibited by section 116.
The Civil Code does not expressly define what is meant by bad faith, but section 433 provides that "Every
person who is unaware of any flaw in his title, or in the manner of its acquisition, by which it is invalidated,
shall be deemed a possessor in good faith"; and provides further, that "Possessors aware of such flaw are
deemed possessors in bad faith". Article 1950 of the same Code, covered by Chapter II relative to prescription
of ownership and other real rights, provides, in turn, that "Good faith on the part of the possessor consists in
his belief that the person from whom he received the thing was the owner of the same, and could transmit the
title thereto." We do not have before us a case of prescription of ownership, hence, the last article is not
squarely in point. In resume, it may be stated that a person is deemed a possessor in bad faith when he
knows that there is a flaw in his title or in the manner of its acquisition, by which it is invalidated.
Borrowing the language of Article 433, the question to be answered is whether the petitioner should be
deemed a possessor in good faith because he was unaware of any flaw in his title or in the manner of its
acquisition by which it is invalidated. It will be noted that ignorance of the flaw is the keynote of the rule. From
the facts found established by the Court of Appeals we can neither deduce nor presume that the petitioner was
aware of a flaw in his title or in the manner of its acquisition, aside from the prohibition contained in section
116. This being the case, the question is whether good faith may be premised upon ignorance of the laws.
Manresa, commenting on article 434 in connection with the preceding article, sustains the affirmative. He
says:
"We do not believe that in real life there are not many cases of good faith founded upon an error of law. When
the acquisition appears in a public document, the capacity of the parties has already been passed upon by
competent authority, and even established by appeals taken from final judgments and administrative remedies
against the qualification of registrars, and the possibility of error is remote under such circumstances; but,
unfortunately, private documents and even verbal agreements far exceed public documents in number, and
while no one should be ignorant of the law, the truth is that even we who are called upon to know and apply it
fall into error not infrequently. However, a clear, manifest, and truly unexcusable ignorance is one thing, to
which undoubtedly refers article 2, and another and different thing is possible and excusable error arising from
complex legal principles and from the interpretation of conflicting doctrines.
But even ignorance of the law may be based upon an error of fact, or better still, ignorance of a fact is possible
as to the capacity to transmit and as to the intervention of certain persons, compliance with certain formalities
and appreciation of certain acts, and an error of law is possible in the interpretation of doubtful doctrines.
(Manresa, Commentaries on the Spanish Civil Code. Volume IV, pp. 100, 101 and 102.)
According to this author, gross and inexcusable ignorance of law may not be the basis of good faith, but
possible, excusable ignorance may be such basis. It is a fact that the petitioner is not conversant with the laws
because he is not a lawyer. In accepting the mortgage of the improvements he proceeded on the wellgrounded belief that he was not violating the prohibition regarding the alienation of the land. In taking
possession thereof and in consenting to receive its fruits, he did not know, as clearly as a jurist does, that the
possession and enjoyment of the fruits are attributes of the contract of antichresis and that the latter, as a lien,
was prohibited by section 116. These considerations again bring us to the conclusion that, as to the petitioner,
his ignorance of the provisions of section 116 is excusable and may, therefore, be the basis of his good faith.
We do not give much importance to the change of the tax declaration, which consisted in making the petitioner
appear as the owner of the land, because such an act may only be considered as a sequel to the change of
possession and enjoyment of the fruits by the petitioner, to about which we have stated that the petitioner's
ignorance of the law is possible and excusable. We, therefore, hold that the petitioner acted in good faith in
taking possession of the land and enjoying its fruits.
The petitioner being a possessor in good faith within the meaning of article 433 of the Civil Code and having
introduced the improvements upon the land as such, the provisions of article 361 of the same Code are
applicable; wherefore, the respondents are entitled to have the improvements and plants upon indemnifying

the petitioner the value thereof which we fix at P3,000, as appraised by the trial court; or the respondents may
elect to compel the petitioner to have the land by paying its market value to be fixed by the court of origin.
The respondents also prayed in their complaint that the petitioner be compelled to pay them the sum of P650,
being the approximate value of the fruits obtained by the petitioner from the land. The Court of Appeals
affirmed the judgment of the trial court denying the claim or indemnity for damages, being of the same opinion
as the trial court that the respondents may elect to compel the petitioner to have the land. The Court of
Appeals affirmed the judgment of the trial court that the respondents have not established such damages.
Under the verbal contract between the petitioner and the deceased Emiliana Ambrosio, during the latter's
lifetime, the former would take possession of the land and would receive the fruits of the mortgaged
improvements on condition that he would no longer collect the stipulated interest and that he would attend to
the payment of the land tax. This agreement, at bottom, is tantamount to the stipulation that the petitioner
should apply the value of the fruits of the land to the payment of stipulated interest on the loan of P1,000 which
is, in turn, another of the elements characterizing the contract of antichresis under article 1881 of the Civil
Code. It was not possible for the parties to stipulate further that the value of the fruits be also applied to the
payment of the capital, because the truth was that nothing remained after paying the interest at 12% per
annum. This interest, at the rate fixed, amounted to P120 per annum, whereas the market value of the fruits
obtainable from the land hardly reached said amount in view of the fact that the assessed value of said
improvements was, according to the decision, P860. To this should be added the fact that, under the verbal
agreement, from the value of the fruits had to be taken a certain amount to pay the annual land tax. We
mention these data here to show that the petitioner is also not bound to render an accounting of the value of
the fruits of the mortgaged improvements for the reason stated that said value hardly covers the interest
earned by the secured indebtednes.
For all the foregoing considerations, the appealed decision is reversed, and we hereby adjudge: (1) that the
contract of mortgage of the improvements, set out in Exhibit 1, is valid and binding; (2) that the contract of
antichresis agreed upon verbally by the parties is a real incumbrance which burdens the land and, as such, is
a null and without effect; (3) that the petitioner is a possessor in good faith; (4) that the respondents may elect
to have the improvements introduced by the petitioner by paying the latter the value thereof, P3,000, or to
compel the petitioner to buy and have the land where the improvements or plants are found, by paying them
its market value to be filed by the court of origin, upon hearing the parties; (5) that the respondents have a
right to the possession of the land and to enjoy the mortgaged improvements; and (6) that the respondents
may redeem the mortgage of the improvements by paying to the petitioner within three months the amount of
P1,000, without interest, as that stipulated is set off by the value of the fruits of the mortgaged improvements
which petitioner received, and in default thereof the petitioner may ask for the public sale of said
improvements for the purpose of applying the proceeds thereof to the payment of his said credit. Without
special pronouncement as to the costs in all instances. So ordered.
G.R. No. 93625 November 8, 1993
VICENTE J. SANTI, petitioner,
vs.
HON. COURT OF APPEALS, HEIRS OF AUGUSTO A. REYES, JR., represented by ALEXANDER
REYES,respondents.
Manolo L. Lazaro for petitioner.
Mario R. Gomez for private respondents.

NOCON, J.:
The sole issue of the instant case is the interpretation specifically of paragraph 3 of the Contract of
Lease 1executed between Esperanza Jose, predecessor-in-interest of herein petitioner and Augusto Reyes, Jr.

The undisputed facts of the case as summarized by the trial court are as follows:

xxx xxx xxx

Esperanza Jose was in her lifetime the registered owner and in absolute possession of a parcel of land known
as Lot 3, Block 89, situated in Cavite City, more particularly described in TCT. No. 5508 (RT-3159) with an
area of 1,472 square meters; that sometime on July 12, 1957 she leased a portion of the property unto
spouses Eugenio Vitan and Beatriz Francisco for a period of 20 years "automatically extended" for another 20
years but with a rental of P220.00 per month as per Lease Contract ratified before Notary Public Abraham F.
Aguilar (Exhibit "8") and on which the lessees constructed a cinema house; that sometime in 1962, the
lessees sold all their rights, interest and participation over the cinema house together with the leasehold rights
on the lessor's property unto Augusto A. Reyes, Jr. and a new contract of lease was entered between the new
owner and Esperanza Jose (Exhibit "A") for a period of 20 years from and after April 1, 1962 with a monthly
rental of P180.00 payable in advance, said period of lease being "extendable" for another period of 20 years
with a monthly rental increased to P220.00 also payable in advance on or about the first day of each month
(Exhibit "2-B"). In the interim, Esperanza Jose sold all her rights and participation over the parcel of land to
Vicente J. Santi and TCT No. T-3968 of the Land Records of Cavite City was issued in his favor, on February
23, 1982 the lease having expired, plaintiff wrote Alexander Reyes as representative of Augusto Reyes, Jr.,
who had died, informing him of the termination of the lease on March 31, 1982 and demanding peaceful turnover of possession, defendant refused on the ground that after consulting his lawyer, Atty. Gregorio R. Familiar
the latter informed him that the lease was automatically extended for another 20 years at the rate of P220.00 a
month and which amount he tendered unto plaintiff who refused and by virtue thereof, religiously deposited
said amounts with the Clerk of Court of the Municipal Trial Court of Cavite City (Exhibits "5" and "6"). In view of
defendant's refusal to vacate plaintiff filed a routine complaint against Alexander Reyes with the office of
Barangay Captain of Barangay 34, "Lapu-lapu" of the City of Cavite; and no settlement having been reached
the Barangay Captain issued a certification to file action (Exh. "B").

The suggestion to enter into new negotiations run counter to the lease contract for, as already said, everything
necessary for its renewal or extension has been agreed upon. All that was left to abide by the lease
contract. . . . 4

During the pre-trial, the parties agreed that the only question to be resolved in this case is the interpretation of
Par. 3 of the Contract of Lease, Exhibit "A", of the plaintiff and Exhibit "2" for defendant which reads as follows:
That this lease shall be for a period of twenty (20) years from and after the date of the execution of this
document with a monthly rental of ONE HUNDRED EIGHTY PESOS (P180.00) payable in advance, said
period of lease being extendable for another period of twenty (20) years with a monthly rental of TWO
HUNDRED TWENTY PESOS (P220.00) also payable in advance on or before the 1st day of each month; (pp.
73-75, orig. rec.), Emphasis supplied.
The trial court rendered judgment for the petitioner, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court finds for plaintiff and orders defendant Alexander Reyes as
representative of the heirs of Augusto Reyes, Jr., to turn over the possession of the property, Lot 3, Block 89
on which the cine house is erected unto plaintiff, to pay monthly rental of P1,000.00 commencing April 1, 1982
up to and until they have vacated and turned over the possession of the premises unto plaintiff, to pay the sum
of P5,000.00 as attorney's fees, and to pay the costs.

We disagree.
Inasmuch as both parties to the lease contract have already died, a resort to the terms and conditions of the
lease contract is inevitable in order to ascertain the true intent of the parties.
In a wealth of cases and as provided for in Articles 1370 and 1372 of the Civil Code, 5 we have ruled that when
terms and stipulations embodied in the contract are clear and leave no room for doubt, such should be read in
its literal sense and that there is absolutely no reason to construe the same in another meaning. 6
Thus, the lease contract executed between Esperanza Jose and spouses Eugenio Vitan and Beatriz
Francisco on July 12, 1957, 7 being clear and unambiguous, providing fro an automatic extension of twenty
(20) years from the expiration of the first twenty (20) years, there is no reason why said contract should not be
interpreted in the way the contracting parties meant it to be, that is the automatic extension of the lease for
another twenty (20) years. Thus, paragraph 3 of the contract reads:
3. That the period of TWENTY YEARS (20) herein above provided shall be automatically extended for another
TWENTY YEARS (20) but with the rental of TWO HUNDRED & TWENTY PESOS (220.00) per month also
payable in advance on or before the 1st day of each corresponding month, at the residence of the Party of the
First part. 8 (Emphasis supplied).
The same could not be said in the case at bar. The phase "automatically extended" did not appear and was
not used in the lease contract subsequently entered into by Esperanza Jose and Augusto Reyes, Jr. for the
simple reason that the lessor does not want to be bound by the stipulation of automatic extension as provided
in the previous lease contract.
To our mind, the stipulation "said period of lease being extendable for another period of twenty (20) years . . ."
is clear that the lessor's intention is not to automatically extend the lease contract but to give her time to
ponder and think whether to extend the lease. If she decides to do so, then a new contract shall be entered
into between the lessor and lessee for a term of another twenty years and at a monthly rental of P220.00. This
must be so, for twenty (20) years is rather a long period of time and the lessor may have other plans for the
property.
If the intention of the parties were to provide for an automatic extension of the lease contract, then they could
have easily provided for a straight forty years contract instead of twenty.

SO ORDERED. 2
It is the contention of herein petitioner that to extend the lease contract for another 20 years requires a
subsequent agreement between the parties as the phrase "being extendable" meant "capable of being
extended."3
On the other hand, private respondents argue that the terms of the lease contract are clear and that the same
should be automatically extended upon the expiration of the first 20 years.
The court a quo, however, gave merit to the contention of herein private respondents and said:
To enter into new negotiations to extend the contract would, therefore, be superfluous and unnecessary, an
idle ceremony, for the lease contract already contains all that is necessary for the extension thereof.

We find the trial court's decision more in accord with the true intention of the parties except that portion
wherein private respondents were ordered to pay a monthly rental of P1,000.00 starting from April 1, 982 up to
and until they shall have vacated and turned over the possession of the premises unto herein petitioner. 9 This
is in error.
The law in point is Article 1670 of the Civil Code, which reads:
If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the original contract, but for the time
established in Articles 1682 and 1687. The other terms of the original contract shall be revived.
Article 1687 provides as follows:

If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if
the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been
set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one
year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in
possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee
has stayed in the place for over one month.
The law provides that if after the end of the lease contract, the parties continue to enjoy the thing leased, an
implied lease is created for the period mentioned in Article 1687, hence herein private respondents may
continue to occupy the leased premises provided such is with the permission and consent of herein petitionerlessor. Since the lease contract provided for a monthly rental of P220 to be paid by the lessee upon the
expiration of the first twenty years, the latter shall be bound by such amount which shall be paid by herein
private respondents to petitioner-lessor.
ACCORDINGLY, herein private respondent is hereby ordered to turn over the possession of the disputed
property and to pay a monthly rental of P220 starting from April 1, 1982 up to and until they shall have vacated
and turned over the possession of the premises to herein petitioner, and to pay the sum of P5,000 as
attorney's fees.

2. ID.; ID.; RIGHT OF RESCISSION; FAILURE TO EXERCISE THE SAME CONSTITUTES WAIVER;
ESTOPPEL. The contracts provided for private respondents right of rescission which may be exercised
upon petitioners failure to pay installments for three months. Private respondents failure to exercise her right
of rescission after petitioners alleged default constitutes a waiver of such right. Her continued acceptance of
the installment payments places her in estoppel.
3. ID.; ID.; EXTINGUISHMENT; PAYMENTS; APPLICATION (ART. 1253); INSTALLMENTS WITH INTEREST
ON BALANCE; DUTY OF CREDITOR. After pondering on the meaning of Article 1253, we reach the
conclusion that in a contract involving installment payments with interest chargeable against the remaining
balance of the obligation, it is the duty of the creditor to inform the debtor of the amount of interest that falls
due and that he is applying the installment payments to cover said interest. Otherwise, the creditor cannot
apply the payments to the interest and then hold the debtor in default for non-payment of installments on the
principal.

DECISION

WHEREFORE, the petition is hereby GRANTED, and the appealed decision REVERSED and SET ASIDE.
The decision of the trial court is hereby REINSTATED and MODIFIED as provided for in the preceding
paragraph. With costs.

QUIASON, J.:

SO ORDERED.

This is a petition for review on certiorari assailing the Decision of the Court of Appeals in CA-G.R. CV No.
29944, which affirmed the Decision of the Regional Trial Court, Branch 117, Pasay City in Civil Case No.
7224.chanrobles virtual lawlibrary

[G.R. No. 109680. July 14, 1995.]

We grant the petition.

DIEGO RAPANUT, Petitioner, v. THE COURT OF APPEALS and SUSAN FLUNKER, Respondents.

Legerio V . Ancheta for Petitioner.

Oscar A. Nudo for Private Respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SUPPLEMENTAL AGREEMENT; INTERPRETATION;
INTENT OF THE PARTIES, DETERMINED. The controversial provision in the Supplemental Agreement
reads: ". . . the VENDOR/MORTGAGEE is willing to sell said portion of her lot to the VENDEE/MORTGAGOR
for a total price of P37,485. 00 payable in monthly installments of P500.00 with an interest of 10% per annum
on the remaining balance until the full amount is paid" Private respondents view is that the 10% interest must
be paid every year. Petitioner posits that the P500.00 monthly installments include the 10% interest. The
interpretation of the provision in question having been put in issue, the Court is constrained to determine which
interpretation is more in accord with the intent of the parties (cf . Capital Insurance & Surety Co., Inc. v. Central
Azucarera del Danao, 221 SCRA 98 [1993]). To ascertain the intent of the parties, the court shall look at their
contemporaneous and subsequent acts (Civil Code of the Philippines Art. 1371). The Deed of Conditional Sale
with Mortgage categorically provides for the date of payment of the P500.00 monthly installments, that is, not
later than the fifth of every month, and of the P1,000.00 semi-annual installment, that is, on June 30 and
December 31. The Supplemental Agreement was likewise specific that petitioner shall pay private respondent
"monthly installments of P500.00 with an interest of 10% per annum on the remaining balance until the full
amount is paid." A liberal interpretation of the contracts in question is that at the end of each year, all the
installment payments made shall be deducted from the principal obligation. The 10% interest on the balance is
then added to whatever remains of the principal. Thereafter, petitioner shall pay the monthly installments on
the stipulated dates. In other words, the interests due are added to and paid like the remaining balance of the
principal. Thus, we must rule that the parties intended that petitioner pay the monthly installments at
predetermined dates, until the full amount, consisting of the purchase price and the interests on the balance, is
paid. Significant is the fact that private respondent accepted the payments petitioner religiously made for four
years.

On November 29, 1985, petitioner and private respondent executed a Deed of Conditional Sale with
Mortgage. Under the contract, private respondent agreed to sell to petitioner a parcel of land in San Rafael,
Pasay City, covered by TCT No. 77982 for P42,840.00, payable in monthly installments of P500.00 to be paid
not later than the fifth day of every month and in semi-annual installments of P1,000.00 to be paid on June 30
and December 31 of every year, "with an interest of 10% per annum on the remaining balance until the full
amount is paid" (Rollo, p. 22).
In April 1986, petitioner and private respondent entered into a Supplemental Agreement with the following
stipulations:chanroblesvirtuallawlibrary
"WHEREAS, the VENDOR/MORTGAGEE is willing to sell said portion of her lots to the
VENDEE/MORTGAGOR for a total price of P37,485.00 payable in monthly installments of P500.00 with an
interest of 10% per annum on the remaining balance until the full amount is paid.
"Payments of the monthly installments of P500.00 shall be made not later than the fifth day of every month
without need of demand starting January, 1986. Failure to pay any of the monthly installments when due for
three months, shall be sufficient cause for rescission of this contract and all payments made shall be applied
as corresponding rentals" (Rollo, pp. 25-26).
Petitioner, thus, had been making the P500.00 monthly installment payments until he received a letter dated
February 13, 1990 from private respondents counsel informing him that for his failure to pay the monthly
installments plus 10% per annum interest on the balance, the Deed of Conditional Sale with Mortgage and the
Supplemental. Agreement were rescinded "as of receipt hereof," and that payments made were considered
rentals. The letter further demanded that petitioner vacate the premises within 15 days from receipt
thereof.chanrobles virtual lawlibrary
On March 14, 1990, private respondent filed a complaint against petitioner in the Regional Trial Court, Branch
117, Pasay City for rescission of the contracts (Civil Case No. 7224). After trial, the court a quo

disposed:jgc:chanrobles.com.ph
"WHEREFORE, in view of the foregoing, the Court renders judgment in favor of [private respondent] against
[petitioner] and orders the rescission of the Deed of Conditional Sale with Mortgage and Supplemental
Agreement; [petitioner] is also ordered to pay the amount of P5,000.00 by way of acceptance fee; P1,000.00
for every court appearance as attorneys fees; and actual damages in the amount of P2,000.00, plus costs"
(Rollo, pp. 48-49).

A liberal interpretation of the contracts in question is that at the end of each year, all the installment payments
made shall be deducted from the principal obligation. The 10% interest on the balance is then added to
whatever remains of the principal. Thereafter, petitioner shall pay the monthly installments on the stipulated
dates. In other words, the interests due are added to and paid like the remaining balance of the principal.
Thus, we must rule that the parties intended that petitioner pay the monthly installments at predetermined
dates, until the full amount, consisting of the purchase price and the interests on the balance, is paid.

Petitioner appealed to the Court of Appeals, which affirmed the trial courts decision but deleted the award of
actual damages and attorneys fees.chanroblesvirtuallawlibrary

Significant is the fact that private respondent accepted the payments petitioner religiously made for four years.
Private respondent cannot rely on the clause in the contract stating that no demand is necessary to explain
her silence for four years as to the 10% interest, as such clause refers to the P500.00 monthly installments.

II

Even granting as acceptable private respondents theory that the monthly amortizations shall first be applied to
the payment of the interests, we must still rule for petitioner.chanrobles virtual lawlibrary

Before us, petitioner raises the following issues: (1) whether the February 13, 1990 letter resolving the two
contracts was effective; and (2) whether petitioner has substantially complied with his obligation.

The contracts provided for private respondents right of rescission which may be exercised upon petitioners
failure to pay installments for three months. Private respondents failure to exercise her right of rescission after
petitioners alleged default constitutes a waiver of such right. Her continued acceptance of the installment
payments places her in estoppel.

Petitioner had paid private respondent the amount of P24,500.00, consisting of the P500.00 monthly
installments from January 1986 to January 1990.
The trial court and the appellate court agreed with private respondents theory that the above payments should
be applied to the unpaid accrued interest (10% per annum on the balance) for the years 1986 to 1989 totalling
P10,966.18, pursuant to Article 1253 of the Civil Code of the Philippines. Said Article provides that" [i]f the debt
produces interest, payment of the principal shall not be deemed to have been made until the interests have
been covered." chanroblesvirtuallawlibrary
Thus, the courts a quo concluded that after such application of payment, petitioner had unpaid installments in
the amount of P23,751.18 representing 21 monthly installments.
Petitioner, on the other hand, contends that under the contracts, "the provision on the payment of 10% should
be understood to mean that the accrued and accumulated interests will be added to the principal and
petitioner will continue to pay the monthly installment of P500.00 until the whole amount together with the
interest are fully paid" (Rollo, p. 16). He asserts that this contention finds support in the fact that the contracts
did not specify the date of payment of the 10% interest and the number of years within which to pay the
installments (Rollo, p. 16).
III

The controversial provision in the Supplemental Agreement reads: ". . . the VENDOR/MORTGAGEE is willing
to sell said portion of her lot to the VENDEE/MORTGAGOR for a total price of P37,485.00 payable in monthly
installments of P500.00 with an interest of 10% per annum on the remaining balance until the full amount is
paid" (Rollo, pp. 25-26; Emphasis supplied).chanroblesvirtuallawlibrary
Private respondents view is that the 10% interest must be paid every year. Petitioner posits that the P500.00
monthly installments include the 10% interest.
The interpretation of the provision in question having been put in issue, the Court is constrained to determine
which interpretation is more in accord with the intent of the parties (cf. Capital Insurance & Surety Co., Inc. v.
Central Azucarera del Danao, 221 SCRA 98 [1993]). To ascertain the intent of the parties, the Court shall look
at their contemporaneous and subsequent acts (Civil Code of the Philippines, Art. 1371)
The Deed of Conditional Sale with Mortgage categorically provides for the date of payment of the P500.00
monthly installments, that is, not later than the fifth of every month, and of the P1,000.00 semi-annual
installment, that is, on June 30 and December 31. The Supplemental Agreement was likewise specific that
petitioner shall pay private respondent "monthly installments of P500.00 with an interest of 10% per annum on
the remaining balance until the full amount is paid" (Rollo, p. 26).chanroblesvirtualawlibrary

In Angeles v. Calasanz, 135 SCRA 323 (1985), therein defendants-appellants accepted delayed installment
payments from the plaintiffs-appellees, but subsequently rescinded the contract to sell. Paragraph six of said
contract provided for the vendors right to rescind the contract upon the vendees failure to pay an installment,
which can be exercised after the lapse of a grace period of one month. We ruled that:jgc:chanrobles.com.ph
". . . We agree with the plaintiffs-appellees that when the defendants-appellants, instead of availing of their
alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffsappellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the
defendants-appellants have waived and are now estopped from exercising their alleged right of rescission" (at
p. 332).chanrobles virtual lawlibrary
Angeles cites as precedent De Guzman v. Guieb, 48 SCRA 68 (1972). In De Guzman, the "Option to
Purchase Real Property" provided that the option was rendered null and void upon the failure of the grantee to
pay the monthly rentals for six consecutive months. The Court held:jgc:chanrobles.com.ph
"But appellants do not deny that inspite of long arrearages, neither they nor their predecessor . . . even took
steps to cancel the option or to eject the appellees from the home lot in question. On the contrary, it is
admitted that the delayed payments were received without protest or qualification. . . . Under these
circumstances, We cannot but agree with the lower court that at the time appellees exercised their option,
appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect
of the non-payment of six months rentals by appellees by their having accepted without qualification on July
21, 1964 the full payment of appellees of all their arrearages" (at p. 77).
After pondering on the meaning of Article 1253, we reach the conclusion that in a contract involving installment
payments with interest chargeable against the remaining balance of the obligation, it is the duty of the creditor
to inform the debtor of the amount of interest that falls due and that he is applying the installment payments to
cover said interest. Otherwise, the creditor cannot apply the payments to the interest and then hold the debtor
in default for non-payment of installments on the principal.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is REVERSED and a new one
entered as follows:chanrob1es virtual 1aw library
1. Private respondents rescission of the contracts is ANNULLED; and
2. Private respondent is ORDERED to ACCEPT the monthly installments of petitioner without penalty until the
full amount of the contracts, including the accrued interest, is paid in full.chanroblesvirtuallawlibrary
SO ORDERED.
G.R. No. L-29155 May 13, 1970

UNIVERSAL FOOD CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N.
FRANCISCO, respondents.
Wigberto E. Taada for petitioner.
Teofilo Mendoza for respondents.

CASTRO, J.:
Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals of
February 13, 1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V. Francisco, plaintiffsappellants vs. Universal Food Corporation, defendant-appellee), the dispositive portion of which reads as
follows: "WHEREFORE the appealed decision is hereby reversed; the BILL OF ASSIGNMENT marked Exhibit
A is hereby rescinded, and defendant is hereby ordered to return to plaintiff Magdalo V. Francisco, Sr., his
Mafran sauce trademark and formula subject-matter of Exhibit A, and to pay him his monthly salary of P300.00
from December 1, 1960, until the return to him of said trademark and formula, plus attorney's fees in the
amount of P500.00, with costs against defendant." 1
On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of First
Instance of Manila, against, the Universal Food Corporation, an action for rescission of a contract entitled "Bill
of Assignment." The plaintiffs prayed the court to adjudge the defendant as without any right to the use of the
Mafran trademark and formula, and order the latter to restore to them the said right of user; to order the
defendant to pay Magdalo V. Francisco, Sr. his unpaid salary from December 1, 1960, as well as damages in
the sum of P40,000, and to pay the costs of suit. 1
On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3 thereof
"admits the allegations contained in paragraph 3 of plaintiffs' complaint." The answer further alleged that the
defendant had complied with all the terms and conditions of the Bill of Assignment and, consequently, the
plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V. Francisco, Sr. was not dismissed
from the service as permanent chief chemist of the corporation as he is still its chief chemist; and, by way of
special defenses, that the aforesaid plaintiff is estopped from questioning 1) the contents and due execution of
the Bill of Assignment, 2) the corporate acts of the petitioner, particularly the resolution adopted by its board of
directors at the special meeting held on October 14, 1960, to suspend operations to avoid further losses due
to increase in the prices of raw materials, since the same plaintiff was present when that resolution was
adopted and even took part in the consideration thereof, 3) the actuations of its president and general
manager in enforcing and implementing the said resolution, 4) the fact that the same plaintiff was negligent in
the performance of his duties as chief chemist of the corporation, and 5) the further fact that the said plaintiff
was delinquent in the payment of his subscribed shares of stock with the corporation. The defendant
corporation prayed for the dismissal of the complaint, and asked for P750 as attorney's fees and P5,000 in
exemplary or corrective damages.
On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant's claim for
damages and attorney's fees, with costs against the former, who promptly appealed to the Court of Appeals.
On February 13, 1969 the appellate court rendered the judgment now the subject of the present recourse.

assistance of Tirso T. Reyes who, after a series of negotiations, formed with others defendant Universal Food
Corporation eventually leading to the execution on May 11, 1960 of the aforequoted "Bill of Assignment"
(Exhibit A or 1).
Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V. Francisco, Sr. was appointed Chief
Chemist with a salary of P300.00 a month, and plaintiff Victoriano V. Francisco was appointed auditor and
superintendent with a salary of P250.00 a month. Since the start of the operation of defendant corporation,
plaintiff Magdalo V. Francisco, Sr., when preparing the secret materials inside the laboratory, never allowed
anyone, not even his own son, or the President and General Manager Tirso T. Reyes, of defendant, to enter
the laboratory in order to keep the formula secret to himself. However, said plaintiff expressed a willingness to
give the formula to defendant provided that the same should be placed or kept inside a safe to be opened only
when he is already incapacitated to perform his duties as Chief Chemist, but defendant never acquired a safe
for that purpose. On July 26, 1960, President and General Manager Tirso T. Reyes wrote plaintiff requesting
him to permit one or two members of his family to observe the preparation of the 'Mafran Sauce' (Exhibit C),
but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes did not compel or force plaintiff
to accede to said request. Thereafter, however, due to the alleged scarcity and high prices of raw materials, on
November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of defendant issued a Memorandum (Exhibit
B), duly approved by the President and General Manager Tirso T. Reyes that only Supervisor Ricardo
Francisco should be retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be
stopped for the time being until the corporation should resume its operation. Some five (5) days later, that is,
on December 3, 1960, President and General Manager Tirso T. Reyes, issued a memorandom to Victoriano
Francisco ordering him to report to the factory and produce "Mafran Sauce" at the rate of not less than 100
cases a day so as to cope with the orders of the corporation's various distributors and dealers, and with
instructions to take only the necessary daily employees without employing permanent employees (Exhibit B).
Again, on December 6, 1961, another memorandum was issued by the same President and General Manager
instructing the Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are connected in
the production of Mafran Sauce and also some additional daily employees for the production of Porky Pops
(Exhibit B-1). On December 29, 1960, another memorandum was issued by the President and General
Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent, to
produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with further instructions to hire
daily laborers in order to cope with the full blast protection (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr.
received his salary as Chief Chemist in the amount of P300.00 a month only until his services were terminated
on November 30, 1960. On January 9 and 16, 1961, defendant, acting thru its President and General
Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the corporation including its
trademarks, formula and assets at a price of not less than P300,000.00 (Exhibits D and D-1). Due to these
successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, the latter filed
the present action on February 14, 1961. About a month afterwards, in a letter dated March 20, 1961,
defendant, thru its President and General Manager, requested said plaintiff to report for duty (Exhibit 3), but
the latter declined the request because the present action was already filed in court (Exhibit J).
1. The petitioner's first contention is that the respondents are not entitled to rescission. It is argued that under
article 1191 of the new Civil Code, the right to rescind a reciprocal obligation is not absolute and can be
demanded only if one is ready, willing and able to comply with his own obligation and the other is not; that
under article 1169 of the same Code, 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; that in this case the
trial court found that the respondents not only have failed to show that the petitioner has been guilty of default
in performing its contractual obligations, "but the record sufficiently reveals the fact that it was the plaintiff
Magdalo V. Francisco who had been remiss in the compliance of his contractual obligation to cede and
transfer to the defendant the formula for Mafran sauce;" that even the respondent Court of Appeals found that
as "observed by the lower court, 'the record is replete with the various attempt made by the defendant (herein
petitioner) to secure the said formula from Magdalo V. Francisco to no avail; and that upon the foregoing
findings, the respondent Court of Appeals unjustly concluded that the private respondents are entitled to
rescind the Bill of Assignment.

The Court of Appeals arrived at the following "uncontroverted" findings of fact:

That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the
manufacture of a food seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce; that
the manufacture of this product was used in commercial scale in 1942, and in the same year plaintiff
registered his trademark in his name as owner and inventor with the Bureau of Patents; that due to lack of
sufficient capital to finance the expansion of the business, in 1960, said plaintiff secured the financial

The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent Magdalo V.
Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran sauce. 2
The Bill of Assignment sets forth the following terms and conditions:

THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive owner of the MAFRAN
trade-mark and the formula for MAFRAN SAUCE;
THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net annual profit which the
PARTY OF THE Second Part [Universal Food Corporation] may realize by and/or out of its production of
MAFRAN SAUCE and other food products and from other business which the Party of the Second Part may
engage in as defined in its Articles of Incorporation, and which its Board of Directors shall determine and
declare, said Party of the First Part hereby assign, transfer, and convey all its property rights and interest over
said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part;
THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit which the Party of the
Second Part obligates itself to pay unto the Party of the First Part as founder and as owner of the MAFRAN
trademark and formula for MAFRAN SAUCE, shall be paid at every end of the Fiscal Year after the proper
accounting and inventories has been undertaken by the Party of the Second Part and after a competent
auditor designated by the Board of Directors shall have duly examined and audited its books of accounts and
shall have certified as to the correctness of its Financial Statement;
THAT it is hereby understood that the Party of the First Part, to improve the quality of the products of the Party
of the First Part and to increase its production, shall endeavor or undertake such research, study, experiments
and testing, to invent or cause to invent additional formula or formulas, the property rights and interest thereon
shall likewise be assigned, transferred, and conveyed unto the Party of the Second Part in consideration of the
foregoing premises, covenants and stipulations:
THAT in the operation and management of the Party of the First Part, the Party of the First Part shall be
entitled to the following Participation:
(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist of the
Party of the Second Part, which appointments are permanent in character and Mr. VICTORIANO V.
FRANCISCO shall be appointed Auditor thereof and in the event that the Treasurer or any officer who may
have the custody of the funds, assets and other properties of the Party of the Second Part comes from the
Party of the First Part, then the Auditor shall not be appointed from the latter; furthermore should the Auditor
be appointed from the Party representing the majority shares of the Party of the Second Part, then the
Treasurer shall be appointed from the Party of the First Part;
(b) THAT in case of death or other disabilities they should become incapacitated to discharge the duties of
their respective position, then, their shares or assigns and who may have necessary qualifications shall be
preferred to succeed them;

the Party of the Second Part," and the last paragraph states that such "assignment, transfer and conveyance
is absolute and irrevocable (and) in no case shall the PARTY OF THE First Part ask, demand or sue for the
surrender of its rights and interest over said MAFRAN trademark and mafran formula."
However, a perceptive analysis of the entire instrument and the language employed therein 3 would lead one to
the conclusion that what was actually ceded and transferred was only the use of the Mafran sauce formula.
This was the precise intention of the parties, 4 as we shall presently show.
Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of TWO (2%)
PER CENTUM of the net annual profit" which the petitioner corporation may realize by and/or out of its
production of Mafran sauce and other food products, etc. The word "royalty," when employed in connection
with a license under a patent, means the compensation paid for the use of a patented invention.
'Royalty,' when used in connection with a license under a patent, means the compensation paid by the
licensee to the licensor for the use of the licensor's patented invention." (Hazeltine Corporation vs. Zenith
Radio Corporation, 100 F. 2d 10, 16.) 5
Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized proliferation,
it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to be appointed "chief chemist ...
permanent in character," and that in case of his "death or other disabilities," then his "heirs or assigns who
may have necessary qualifications shall be preferred to succeed" him as such chief chemist. It is further
provided in paragraph 5-(d) that the same respondent shall have and shall exercise absolute control and
supervision over the laboratory assistants and personnel and over the purchase and safekeeping of the
chemicals and other mixtures used in the preparation of the said product. All these provisions of the Bill of
Assignment clearly show that the intention of the respondent patentee at the time of its execution was to part,
not with the formula for Mafran sauce, but only its use, to preserve the monopoly and to effectively prohibit
anyone from availing of the invention. 6
Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation eventually
take place, "the property rights and interests over said trademark and formula shall automatically revert to the
respondent patentee. This must be so, because there could be no reversion of the trademark and formula in
this case, if, as contended by the petitioner, the respondent patentee assigned, ceded and transferred the
trademark and formula and not merely the right to use it for then such assignment passes the property in
such patent right to the petitioner corporation to which it is ceded, which, on the corporation becoming
insolvent, will become part of the property in the hands of the receiver thereof. 7

(c) That the Party of the First Part shall always be entitled to at least two (2) membership in the Board of
Directors of the Party of the Second Part;

Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and transferred by
virtue of the Bill of Assignment is the "use of the formula" (and not the formula itself). This incontrovertible fact
is admitted without equivocation in paragraph 3 of the petitioner's answer. Hence, it does "not require proof
and cannot be contradicted." 8 The last part of paragraph 3 of the complaint and paragraph 3 of the answer are
reproduced below for ready reference:

(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the Party of the Second Part, the
Chief Chemist shall have and shall exercise absolute control and supervision over the laboratory assistants
and personnel and in the purchase and safekeeping of the Chemicals and other mixtures used in the
preparation of said products;

3. ... and due to these privileges, the plaintiff in return assigned to said corporation his interest and rights
over the said trademark and formula so that the defendant corporation could use the formula in the
preparation and manufacture of the mafran sauce, and the trade name for the marketing of said project, as
appearing in said contract ....

THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall the PARTY OF
THE First Part ask, demand or sue for the surrender of its rights and interest over said MAFRAN trademark
and mafran formula, except when a dissolution of the Party of the Second Part, voluntary or otherwise,
eventually arises, in which case then the property rights and interests over said trademark and formula shall
automatically revert the Party of the First Part.

3. Defendant admits the allegations contained in paragraph 3 of plaintiff's complaint.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the respondent
patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran
sauce. Thus, the last part of the second paragraph recites that the respondent patentee "assign, transfer and
convey all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto

Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be interpreted
to effect "the least transmission of right," 9 and is there a better example of least transmission of rights than
allowing or permitting only the use, without transfer of ownership, of the formula for Mafran sauce.

Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce formula by
the respondent patentee.

The foregoing reasons support the conclusion of the Court of Appeals 10 that what was actually ceded and
transferred by the respondent patentee Magdalo V. Francisco, Sr. in favor of the petitioner corporation was
only the use of the formula. Properly speaking, the Bill of Assignment vested in the petitioner corporation no
title to the formula. Without basis, therefore, is the observation of the lower court that the respondent patentee
"had been remiss in the compliance of his contractual obligation to cede and transfer to the defendant the
formula for Mafran sauce."
2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr. was
dismissed from his position as chief chemist of the corporation without justifiable cause, and in violation of
paragraph 5-(a) of the Bill of Assignment which in part provides that his appointment is "permanent in
character."
The petitioner submits that there is nothing in the successive memoranda issued by the corporate officers of
the petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the respondent patentee was
being dismissed from his position as chief chemist of the corporation. The fact, continues the petitioner, is that
at a special meeting of the board of directors of the corporation held on October 14, 1960, when the board
decided to suspend operations of the factory for two to four months and to retain only a skeletal force to avoid
further losses, the two private respondents were present, and the respondent patentee was even designated
as the acting superintendent, and assigned the mission of explaining to the personnel of the factory why the
corporation was stopping operations temporarily and laying off personnel. The petitioner further submits that
exhibit B indicates that the salary of the respondent patentee would not be paid only during the time that the
petitioner corporation was idle, and that he could draw his salary as soon as the corporation resumed
operations. The clear import of this exhibit was allegedly entirely disregarded by the respondent Court of
Appeals, which concluded that since the petitioner resumed partial production of Mafran sauce without
notifying the said respondent formally, the latter had been dismissed as chief chemist, without considering that
the petitioner had to resume partial operations only to fill its pending orders, and that the respondents were
duly notified of that decision, that is, that exhibit B-1 was addressed to Ricardo Francisco, and this was made
known to the respondent Victoriano V. Francisco. Besides, the records will show that the respondent patentee
had knowledge of the resumption of production by the corporation, but in spite of such knowledge he did not
report for work.
The petitioner further submits that if the respondent patentee really had unqualified interest in propagating the
product he claimed he so dearly loved, certainly he would not have waited for a formal notification but would
have immediately reported for work, considering that he was then and still is a member of the corporation's
board of directors, and insofar as the petitioner is concerned, he is still its chief chemist; and because Ricardo
Francisco is a son of the respondent patentee to whom had been entrusted the performance of the duties of
chief chemist, while the respondent Victoriano V. Francisco is his brother, the respondent patentee could not
feign ignorance of the resumption of operations.
The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is dated
December 29, 1960, the records will show that the petitioner was set to resume full capacity production only
sometime in March or April, 1961, and the respondent patentee cannot deny that in the very same month
when the petitioner was set to resume full production, he received a copy of the resolution of its board of
directors, directing him to report immediately for duty; that exhibit H, of a later vintage as it is dated February
1, 1961, clearly shows that Ricardo Francisco was merely the acting chemist, and this was the situation on
February 1, 1961, thirteen days before the filing of the present action for rescission. The designation of
Ricardo Francisco as the chief chemist carried no weight because the president and general manager of the
corporation had no power to make the designation without the consent of the corporation's board of directors.
The fact of the matter is that although the respondent Magdalo V. Francisco, Sr. was not mentioned in exhibit
H as chief chemist, this same exhibit clearly indicates that Ricardo Francisco was merely the acting chemist as
he was the one assisting his father.
In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28, 1960 the
secretary-treasurer of the corporation issued a memorandum (exh. B), duly approved by its president and
general manager, directing that only Ricardo Francisco be retained in the factory and that the salary of
respondent patentee, as chief chemist, be stopped for the time being until the corporation resumed operations.
This measure was taken allegedly because of the scarcity and high prices of raw materials. Five days later,
however, or on December 3, the president and general manager issued a memorandum (exh. B-1) ordering
the respondent Victoria V. Francisco to report to the factory and to produce Mafran sauce at the rate of no less

than 100 cases a day to cope with the orders of the various distributors and dealers of the corporation, and
instructing him to take only the necessary daily employees without employing permanent ones. Then on
December 6, the same president and general manager issued yet another memorandum (exh. B-2),
instructing Ricardo Francisco, as assistant chief chemist, to recall all daily employees connected with the
production of Mafran sauce and to hire additional daily employees for the production of Porky Pops. Twentythree days afterwards, or on December 29, the same president and general manager issued still another
memorandum (exh. S-2), directing "Ricardo Francisco, as Chief Chemist" and Porfirio Zarraga, as acting
superintendent, to produce Mafran sauce and, Porky Pops in full swing, starting January 2, 1961, with the
further instruction to hire daily laborers in order to cope with the full blast production. And finally, at the hearing
held on October 24, 1961, the same president and general manager admitted that "I consider that the two
months we paid him (referring to respondent Magdalo V. Francisco, Sr.) is the separation pay."
The facts narrated in the preceding paragraph were the prevailing milieu on February 14, 1961 when the
complaint for rescission of the Bill of Assignment was filed. They clearly prove that the petitioner, acting
through its corporate officers, 11 schemed and maneuvered to ease out, separate and dismiss the said
respondent from the service as permanent chief chemist, in flagrant violation of paragraph 5-(a) and (b) of the
Bill of Assignment. The fact that a month after the institution of the action for rescission, the petitioner
corporation, thru its president and general manager, requested the respondent patentee to report for duty
(exh. 3), is of no consequence. As the Court of Appeals correctly observed, such request was a "recall to
placate said plaintiff."
3. We now come to the question of rescission of the Bill of Assignment. In this connection, we quote for ready
reference the following articles of the new Civil Code governing rescission of contracts:
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 of the Mortgage Law.
ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.
ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused.
At the moment, we shall concern ourselves with the first two paragraphs of article 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 fulfillment and rescission of the obligation, with payment of
damages in either case.
In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in
nature. The petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by
terminating the services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable
cause.
Upon the factual milieu, is rescission of the Bill of Assignment proper?
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 breach as would defeat the very object of the parties in making the

agreement.12 The question of whether a breach of a contract is substantial depends upon the attendant
circumstances. 13 The petitioner contends that rescission of the Bill of Assignment should be denied, because
under article 1383, rescission is a subsidiary remedy which cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same. However, in this case the
dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the
corporation is a fundamental and substantial breach of the Bill of Assignment. He was dismissed without any
fault or negligence on his part. Thus, apart from the legal principle that the option to demand performance
or ask for rescission of a contract belongs to the injured party, 14 the fact remains that the respondentsappellees had no alternative but to file the present action for rescission and damages. It is to be emphasized
that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for
the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief
Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he would
have "absolute control and supervision over the laboratory assistants and personnel and in the purchase and
safeguarding of said products;" and that only by all these measures could the respondent patentee preserve
effectively the secrecy of the formula, prevent its proliferation, enjoy its monopoly, and, in the process afford
and secure for himself a lifetime job and steady income. The salient provisions of the Bill of Assignment,
namely, the transfer to the corporation of only the use of the formula; the appointment of the respondent
patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said
respondent patentee to continue research on the patent to improve the quality of the products of the
corporation; the need of absolute control and supervision over the laboratory assistants and personnel and in
the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product
all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual
nullification of the rest.
4. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent
patentee is entitled to payment of his monthly salary of P300 from December 1, 1960, until the return to him of
the Mafran trademark and formula, arguing that under articles 1191, the right to specific performance is not
conjunctive with the right to rescind a reciprocal contract; that a plaintiff cannot ask for both remedies; that the
appellate court awarded the respondents both remedies as it held that the respondents are entitled to rescind
the Bill of Assignment and also that the respondent patentee is entitled to his salary aforesaid; that this is a
gross error of law, when it is considered that such holding would make the petitioner liable to pay respondent
patentee's salary from December 1, 1960 to "kingdom come," as the said holding requires the petitioner to
make payment until it returns the formula which, the appellate court itself found, the corporation never had;
that, moreover, the fact is that the said respondent patentee refused to go back to work, notwithstanding the
call for him to return which negates his right to be paid his back salaries for services which he had not
rendered; and that if the said respondent is entitled to be paid any back salary, the same should be computed
only from December 1, 1960 to March 31, 1961, for on March 20, 1961 the petitioner had already formally
called him back to work.
The above contention is without merit. Reading once more the Bill of Assignment in its entirety and the
particular provisions in their proper setting, we hold that the contract placed the use of the formula for Mafran
sauce with the petitioner, subject to defined limitations. One of the considerations for the transfer of the use
thereof was the undertaking on the part of the petitioner corporation to employ the respondent patentee as the
Second Vice-President and Chief Chemist on a permanent status, at a monthly salary of P300, unless "death
or other disabilities supervened. Under these circumstances, the petitioner corporation could not escape
liability to pay the private respondent patentee his agreed monthly salary, as long as the use, as well as the
right to use, the formula for Mafran sauce remained with the corporation.
5. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return to the
respondents the trademark and formula for Mafran sauce, when both the decision of the appellate court and
that of the lower court state that the corporation is not aware nor is in possession of the formula for Mafran
sauce, and the respondent patentee admittedly never gave the same to the corporation. According to the
petitioner these findings would render it impossible to carry out the order to return the formula to the
respondent patentee. The petitioner's predicament is understandable. Article 1385 of the new Civil Code
provides that rescission creates the obligation to return the things which were the object of the contract. But
that as it may, it is a logical inference from the appellate court's decision that what was meant to be returned to
the respondent patentee is not the formula itself, but only its use and the right to such use. Thus, the
respondents in their complaint for rescission specifically and particularly pray, among others, that the petitioner
corporation be adjudged as "without any right to use said trademark and formula."

ACCORDINGLY, conformably with the observations we have above made, the judgment of the Court of
Appeals is modified to read as follows: "Wherefore the appealed decision is reversed. The Bill of Assignment
(Exhibit A) is hereby rescinded, and the defendant corporation is ordered to return and restore to the plaintiff
Magdalo V. Francisco, Sr. the right to the use of his Mafran sauce trademark and formula, subject-matter of
the Bill of Assignment, and to this end the defendant corporation and all its assigns and successors are hereby
permanently enjoined, effective immediately, from using in any manner the said Mafran sauce trademark and
formula. The defendant corporation shall also pay to Magdalo V. Francisco, Sr. his monthly salary of P300
from December 1, 1960, until the date of finality of this judgment, inclusive, the total amount due to him to earn
legal interest from the date of the finality of this judgment until it shall have been fully paid, plus attorney's fees
in the amount of P500, with costs against the defendant corporation." As thus modified, the said judgment is
affirmed, with costs against the petitioner corporation.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor, JJ., concur.
Teehankee J., took no part.
[G.R. No. 157480. May 6, 2005]
PRYCE CORPORATION (formerly PRYCE PROPERTIES CORPORATION), petitioner, vs. PHILIPPINE
AMUSEMENT AND GAMING CORPORATION,respondent.
DECISION
PANGANIBAN, J.:
In legal contemplation, the termination of a contract is not equivalent to its rescission. When an
agreement is terminated, it is deemed valid at inception. Prior to termination, the contract binds the parties,
who are thus obliged to observe its provisions. However, when it is rescinded, it is deemed inexistent, and the
parties are returned to their status quo ante. Hence, there is mutual restitution of benefits received. The
consequences of termination may be anticipated and provided for by the contract. As long as the terms of the
contract are not contrary to law, morals, good customs, public order or public policy, they shall be respected by
courts. The judiciary is not authorized to make or modify contracts; neither may it rescue parties from
disadvantageous stipulations. Courts, however, are empowered to reduce iniquitous or unconscionable
liquidated damages, indemnities and penalties agreed upon by the parties.
The Case
Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, assailing the May 22, 2002
Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 51629 and its March 4, 2003 Resolution [3] denying
petitioners Motion for Reconsideration. The assailed Decision disposed thus:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: (1) In Civil Case No. 9368266, the appealed decision[,] is AFFIRMED with MODIFICATION[,] ordering [Respondent] Philippine
Amusement and Gaming Corporation to pay [Petitioner] Pryce Properties Corporation the total amount
of P687,289.50 as actual damages representing the accrued rentals for the quarter September to November
1993 with interest and penalty at the rate of two percent (2%) per month from date of filing of the complaint
until the amount shall have been fully paid, and the sum of P50,000.00 as attorneys fees; (2) In Civil Case No.
93-68337, the appealed decision is REVERSED and SET ASIDE and a new judgment is rendered ordering
[Petitioner] Pryce Properties Corporation to reimburse [Respondent] Philippine Amusement and Gaming
Corporation the amount of P687,289.50 representing the advanced rental deposits, which amount may be
compensated by [Petitioner] Pryce Properties Corporation with its award in Civil Case No. 93-68266 in the
equal amount of P687,289.50.[4]
The Facts

According to the CA, the facts are as follows:

Sometime in the first half of 1992, representatives from Pryce Properties Corporation (PPC for brevity) made
representations with the Philippine Amusement and Gaming Corporation (PAGCOR) on the possibility of
setting up a casino in Pryce Plaza Hotel in Cagayan de Oro City. [A] series of negotiations followed.
PAGCOR representatives went to Cagayan de Oro City to determine the pulse of the people whether the
presence of a casino would be welcomed by the residents. Some local government officials showed keen
interest in the casino operation and expressed the view that possible problems were surmountable. Their
negotiations culminated with PPCs counter-letter proposal dated October 14, 1992.
On November 11, 1992, the parties executed a Contract of Lease x x x involving the ballroom of the Hotel for
a period of three (3) years starting December 1, 1992 and until November 30, 1995. On November 13, 1992,
they executed an addendum to the contract x x x which included a lease of an additional 1000 square meters
of the hotel grounds as living quarters and playground of the casino personnel. PAGCOR advertised the start
of their casino operations on December 18, 1992.
Way back in 1990, the Sangguniang Panlungsod of Cagayan de Oro City passed Resolution No. 2295 x x x
dated November 19, 1990 declaring as a matter of policy to prohibit and/or not to allow the establishment of a
gambling casino in Cagayan de Oro City. Resolution No. 2673 x x x dated October 19, 1992 (or a month
before the contract of lease was executed) was subsequently passed reiterating with vigor and vehemence the
policy of the City under Resolution No. 2295, series of 1990, banning casinos in Cagayan de Oro City. On
December 7, 1992, the Sangguniang Panlungsod of Cagayan de Oro City enacted Ordinance No. 3353 x x x
prohibiting the issuance of business permits and canceling existing business permits to any establishment for
using, or allowing to be used, its premises or any portion thereof for the operation of a casino.

1993. PPC sent PAGCOR another Letter dated September 3, 1993 x x x as a follow-up to the parties earlier
conference. PPC sent PAGCOR another Letter dated September 15, 1993 x x x stating its Board of Directors
decision to collect the full rentals in case of pre-termination of the lease.
PAGCOR sent PPC a letter dated September 20, 1993 x x x [stating] that it was not amenable to the payment
of the full rentals citing as reasons unforeseen legal and other circumstances which prevented it from
complying with its obligations. PAGCOR further stated that it had no other alternative but to pre-terminate the
lease agreement due to the relentless and vehement opposition to their casino operations. In a letter dated
October 12, 1993 x x x, PAGCOR asked PPC to refund the total of P1,437,582.25 representing the
reimbursable rental deposits and expenses for the permanent improvement of the Hotels parking lot. In a
letter dated November 5, 1993 x x x, PAGCOR formally demanded from PPC the payment of its claim for
reimbursement.
On November 15, 1993 x x x, PPC filed a case for sum of money in the Regional Trial Court of Manila
docketed as Civil Case No. 93-68266. On November 19, 1993, PAGCOR also filed a case for sum of money
in the Regional Trial Court of Manila docketed as Civil Case No. 93-68337.
In a letter dated November 25, 1993, PPC informed PAGCOR that it was terminating the contract of lease
due to PAGCORs continuing breach of the contract and further stated that it was exercising its rights under
the contract of lease pursuant to Article 20 (a) and (c) thereof.
On February 2, 1994, PPC filed a supplemental complaint x x x in Civil Case No. 93-68266, which the trial
court admitted in an Order dated February 11, 1994. In an Order dated April 27, 1994, Civil Case No. 9368377 was ordered consolidated with Civil Case No. 93-68266. These cases were jointly tried by the court a
quo. On August 17, 1995, the court a quo promulgated its decision. Both parties appealed.[5]

In the afternoon of December 18, 1992 and just hours before the actual formal opening of casino operations,
a public rally in front of the hotel was staged by some local officials, residents and religious leaders.
Barricades were placed [which] prevented some casino personnel and hotel guests from entering and exiting
from the Hotel. PAGCOR was constrained to suspend casino operations because of the rally. An agreement
between PPC and PAGCOR, on one hand, and representatives of the rallyists, on the other, eventually ended
the rally on the 20th of December, 1992.

In its appeal, PPC faulted the trial court for the following reasons: 1) failure of the court to award actual
and moral damages; 2) the 50 percent reduction of the amount PPC was claiming; and 3) the courts ruling
that the 2 percent penalty was to be imposed from the date of the promulgation of the Decision, not from the
date stipulated in the Contract.

On January 4, 1993, Ordinance No. 3375-93 x x x was passed by the Sangguniang Panlungsod of Cagayan
de Oro City, prohibiting the operation of casinos and providing for penalty for violation thereof. On January 7,
1993, PPC filed a Petition for Prohibition with Preliminary Injunction x x x against then public respondent
Cagayan de Oro City and/or Mayor Pablo P. Magtajas x x x before the Court of Appeals, docketed as CA G.R.
SP No. 29851 praying inter alia, for the declaration of unconstitutionality of Ordinance No. 3353. PAGCOR
intervened in said petition and further assailed Ordinance No. 4475-93 as being violative of the nonimpairment of contracts and equal protection clauses. On March 31, 1993, the Court of Appeals promulgated
its decision x x x, the dispositive portion of which reads:

On the other hand, PAGCOR criticized the trial court for the latters failure to rule that the Contract of
Lease had already been terminated as early as September 21, 1993, or at the latest, on October 14, 1993,
when PPC received PAGCORs letter dated October 12, 1993. The gaming corporation added that the trial
court erred in 1) failing to consider that PPC was entitled to avail itself of the provisions of Article XX only when
PPC was the party terminating the Contract; 2) not finding that there were valid, justifiable and good reasons
for terminating the Contract; and 3) dismissing the Complaint of PAGCOR in Civil Case No. 93-68337 for lack
of merit, and not finding PPC liable for the reimbursement of PAGCORS cash deposits and of the value of
improvements.

IN VIEW OF ALL THE FOREGOING, Ordinance No. 3353 and Ordinance No. 3375-93 are hereby
DECLARED UNCONSTITUTIONAL and VOID and the respondents and all other persons acting under their
authority and in their behalf are PERMANENTLY ENJOINED from enforcing those ordinances.
SO ORDERED.
Aggrieved by the decision, then public respondents Cagayan de Oro City, et al. elevated the case to the
Supreme Court in G.R. No. 111097, where, in an En Banc Decision dated July 20, 1994 x x x, the Supreme
Court denied the petition and affirmed the decision of the Court of Appeals.
In the meantime, PAGCOR resumed casino operations on July 15, 1993, against which, however, another
public rally was held. Casino operations continued for some time, but were later on indefinitely suspended
due to the incessant demonstrations. Per verbal advice x x x from the Office of the President of the
Philippines, PAGCOR decided to stop its casino operations in Cagayan de Oro City. PAGCOR stopped its
casino operations in the hotel prior to September, 1993. In two Statements of Account dated September 1,
1993 x x x, PPC apprised PAGCOR of its outstanding account for the quarter September 1 to November 30,

Ruling of the Court of Appeals

First, on the appeal of PAGCOR, the CA ruled that the PAGCORS pretermination of the Contract of
Lease was unjustified. The appellate court explained that public demonstrations and rallies could not be
considered as fortuitous events that would exempt the gaming corporation from complying with the latters
contractual obligations. Therefore, the Contract continued to be effective until PPC elected to terminate it on
November 25, 1993.
Regarding the contentions of PPC, the CA held that under Article 1659 of the Civil Code, PPC had the
right to ask for (1) rescission of the Contract and indemnification for damages; or(2) only indemnification plus
the continuation of the Contract. These two remedies were alternative, not cumulative, ruled the CA.
As PAGCOR had admitted its failure to pay the rentals for September to November 1993, PPC correctly
exercised the option to terminate the lease agreement. Previously, the Contract remained effective, and PPC
could collect the accrued rentals. However, from the time it terminated the Contract on November 25, 1993,
PPC could no longer demand payment of the remaining rentals as part of actual damages, the CA added.

Denying the claim for moral damages, the CA pointed out the failure of PPC to show that PAGCOR had
acted in gross or evident bad faith in failing to pay the rentals from September to November 1993. Such
failure was shown especially by the fact that PPC still had in hand three (3) months advance rental deposits of
PAGCOR. The former could have simply applied this deposit to the unpaid rentals, as provided in the
Contract. Neither did PPC adequately show that its reputation had been besmirched or the hotels goodwill
eroded by the establishment of the casino and the public protests.

PPC anchors its right to collect future rentals upon the provisions of the Contract. Likewise, it argues
that termination, as defined under the Contract, is different from the remedy of rescission prescribed under
Article 1659 of the Civil Code. On the other hand, PAGCOR contends, as the CA ruled, that Article 1659 of the
Civil Code governs; hence, PPC is allegedly no longer entitled to future rentals, because it chose
to rescind the Contract.
Contract Provisions

Finally, as to the claimed reimbursement for parking lot improvement, the CA held that PAGCOR had
not presented official receipts to prove the latters alleged expenses. The appellate court, however, upheld the
trial courts award to PPC of P50,000 attorneys fees.
Hence this Petition.[6]
Issues
In their Memorandum, petitioner raised the following issues:

Clear and Binding

Article 1159 of the Civil Code provides that obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith. [8] In deference to the rights of the
parties, the law[9] allows them to enter into stipulations, clauses, terms and conditions they may deem
convenient; that is, as long as these are not contrary to law, morals, good customs, public order or public
policy. Likewise, it is settled that if the terms of the contract clearly express the intention of the contracting
parties, the literal meaning of the stipulations would be controlling. [10]
In this case, Article XX of the parties Contract of Lease provides in part as follows:

MAIN ISSUE:
Did the Honorable Court of Appeals commit x x x grave and reversible error by holding that Pryce was not
entitled to future rentals or lease payments for the unexpired period of the Contract of Lease between Pryce
and PAGCOR?
Sub-Issues:
1. Were the provisions of Sections 20(a) and 20(c) of the Contract of Lease relative to the right of PRYCE
to terminate the Contract for cause and to moreover collect rentals from PAGCOR corresponding to the
remaining term of the lease valid and binding?
2. Did not Article 1659 of the Civil Code supersede Sections 20(a) and 20(c) of the Contract, PRYCE
having rescinded the Contract of Lease?

XX. BREACH OR DEFAULT

a) The LESSEE agrees that all the terms, conditions and/or covenants herein contained shall be deemed
essential conditions of this contract, and in the event of default or breach of any of such terms, conditions
and/or covenants, or should the LESSEE become bankrupt, or insolvent, or compounds with his creditors, the
LESSOR shall have the right to terminate and cancel this contract by giving them fifteen (15 days) prior notice
delivered at the leased premises or posted on the main door thereof. Upon such termination or cancellation,
the LESSOR may forthwith lock the premises and exclude the LESSEE therefrom, forcefully or otherwise,
without incurring any civil or criminal liability. During the fifteen (15) days notice, the LESSEE may prevent the
termination of lease by curing the events or causes of termination or cancellation of the lease.
b)

xxx

xxx

xxx

3. Do the case of Rios, et al. vs. Jacinto Palma Enterprises, et al. and the other cases cited by PAGCOR
support its position that PRYCE was not entitled to future rentals?

c) Moreover, the LESSEE shall be fully liable to the LESSOR for the rentals corresponding to the
remaining term of the lease as well as for any and all damages, actual or consequential resulting from such
default and termination of this contract.

4.

Would the collection by PRYCE of future rentals not give rise to unjust enrichment?

d)

5.

Could we not have harmonized Article 1659 of the Civil Code and Article 20 of the Contract of Lease?

The above provisions leave no doubt that the parties have covenanted 1) to give PPC the right to
terminate and cancel the Contract in the event of a default or breach by the lessee; and 2) to make PAGCOR
fully liable for rentals for the remaining term of the lease, despite the exercise of such right to terminate.
Plainly, the parties have voluntarily bound themselves to require strict compliance with the provisions of the
Contract by stipulating that a default or breach, among others, shall give the lessee the termination option,
coupled with the lessors liability for rentals for the remaining term of the lease.

6. Is it not a basic rule that the law, i.e. Article 1659, is deemed written in contracts, particularly in the
PRYCE-PAGCOR Contract of Lease?[7]

xxx

xxx

x x x. (Italics supplied)

The Courts Ruling

The Petition is partly meritorious.
Main Issue:
Collection of Remaining Rentals

For sure, these stipulations are valid and are not contrary to law, morals, good customs, public order or
public policy. Neither is there anything objectionable about the inclusion in the Contract of mandatory
provisions concerning the rights and obligations of the parties. [11] Being the primary law between the parties, it
governs the adjudication of their rights and obligations. A court has no alternative but to enforce the
contractual stipulations in the manner they have been agreed upon and written. [12] It is well to recall that courts,
be they trial or appellate, have no power to make or modify contracts. [13] Neither can they save parties from
disadvantageous provisions.
Termination or Rescission?

Well-taken is petitioners insistence that it had the right to ask for termination plus the full payment of
future rentals under the provisions of the Contract, rather than just rescissionunder Article 1659 of the Civil
Code. This Court is not unmindful of the fact that termination and rescission are terms that have been used
loosely and interchangeably in the past. But distinctions ought to be made, especially in this controversy, in
which the terms mean differently and lead to equally different consequences.
The term rescission is found in 1) Article 1191 [14] of the Civil Code, the general provision on rescission
of reciprocal obligations; 2) Article 1659,[15] which authorizes rescission as an alternative remedy, insofar as the
rights and obligations of the lessor and the lessee in contracts of lease are concerned; and 3) Article
1380[16] with regard to the rescission of contracts.
In his Concurring Opinion in Universal Food Corporation v. CA,[17] Justice J. B. L. Reyes differentiated
rescission under Article 1191 from that under Article 1381 et seq. as follows:
x x x. The rescission on account of breach of stipulations is not predicated on injury to economic interests of
the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties.
It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for
rescission thereunder is subordinated to anything other than the culpable breach of his obligations to the
defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held
bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: Non servanti
fidem, non est fides servanda. Hence, the reparation of damages for the breach is purely secondary.
On the contrary, in rescission by reason of lesion or economic prejudice, the cause of action is subordinated
to the existence of that prejudice, because it is the raison detre as well as the measure of the right to rescind.
x x x.[18]
Relevantly, it has been pointed out that resolution was originally used in Article 1124 of the old Civil
Code, and that the term became the basis for rescission under Article 1191 (and, conformably, also Article
[19]
1659).
Now,
as
to
the
distinction
between termination (or cancellation)
and rescission (more
properly, resolution), Huibonhoa v. CA[20] held that, where the action prayed for the payment of rental
arrearages, the aggrieved party actually sought the partial enforcement of a lease contract. Thus, the remedy
was not rescission, but termination or cancellation, of the contract. The Court explained:
x x x. By the allegations of the complaint, the Gojoccos aim was to cancel or terminate the contract because
they sought its partial enforcement in praying for rental arrearages. There is a distinction in law between
cancellation of a contract and its rescission. To rescind is to declare a contract void in its inception and to put
an end to it as though it never were. It is not merely to terminate it and release parties from further obligations
to each other but to abrogate it from the beginning and restore the parties to relative positions which they
would have occupied had no contract ever been made.
x x x. The termination or cancellation of a contract would necessarily entail enforcement of its terms prior to
the declaration of its cancellation in the same way that before a lessee is ejected under a lease contract, he
has to fulfill his obligations thereunder that had accrued prior to his ejectment. However, termination of a
contract need not undergo judicial intervention. x x x. [21] (Italics supplied)
Rescission has likewise been defined as the unmaking of a contract, or its undoing from the
beginning, and not merely its termination. Rescission may be effected by both parties by mutual agreement;
or unilaterally by one of them declaring a rescission of contract without the consent of the other, if a legally
sufficient ground exists or if a decree of rescission is applied for before the courts. [22] On the other
hand, termination refers to an end in time or existence; a close, cessation or conclusion. With respect to a
lease or contract, it means an ending, usually before the end of the anticipated term of such lease or contract,
that may be effected by mutual agreement or by one party exercising one of its remedies as a consequence of
the default of the other.[23]

Thus, mutual restitution is required in a rescission (or resolution), in order to bring back the parties to
their original situation prior to the inception of the contract. [24] Applying this principle to this case, it means that
PPC would re-acquire possession of the leased premises, and PAGCOR would get back the rentals it paid the
former for the use of the hotel space.
In contrast, the parties in a case of termination are not restored to their original situation; neither is the
contract treated as if it never existed. Prior to its termination, the parties are obliged to comply with their
contractual obligations. Only after the contract has been cancelled will they be released from their obligations.
In this case, the actions and pleadings of petitioner show that it never intended to rescind the Lease
Contract from the beginning. This fact was evident when it first sought to collect the accrued rentals from
September to November 1993 because, as previously stated, it actually demanded the enforcement of the
Lease Contract prior to termination. Any intent to rescind was not shown, even when it abrogated the Contract
on November 25, 1993, because such abrogation was not the rescission provided for under Article 1659.
Future Rentals
As to the remaining sub-issue of future rentals, Rios v. Jacinto[25] is inapplicable, because the remedy
resorted to by the lessors in that case was rescission, not termination. The rights and obligations of the
parties in Rios were governed by Article 1659 of the Civil Code; hence, the Court held that the damages to
which the lessor was entitled could not have extended to the lessees liability for future rentals.
Upon the other hand, future rentals cannot be claimed as compensation for the use or enjoyment of
anothers property after the termination of a contract. We stress that by abrogating the Contract in the present
case, PPC released PAGCOR from the latters future obligations, which included the payment of rentals. To
grant that right to the former is to unjustly enrich it at the latters expense.
However, it appears that Section XX (c) was intended to be a penalty clause. That fact is manifest from
a reading of the mandatory provision under subparagraph (a) in conjunction with subparagraph (c) of the
Contract. A penal clause is an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally
consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled.[26]
Quite common in lease contracts, this clause functions to strengthen the coercive force of the obligation
and to provide, in effect, for what could be the liquidated damages resulting from a breach. [27] There is nothing
immoral or illegal in such indemnity/penalty clause, absent any showing that it was forced upon or fraudulently
foisted on the obligor.[28]
In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the
indemnity for damages and the payment of interests in case of noncompliance; that is, if there is no stipulation
to the contrary,[29] in which case proof of actual damages is not necessary for the penalty to be demanded.
[30]
There are exceptions to the aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of
the Civil Code: 1) when there is a stipulation to the contrary, 2) when the obligor is sued for refusal to pay the
agreed penalty, and 3) when the obligor is guilty of fraud. In these cases, the purpose of the penalty is
obviously to punish the obligor for the breach. Hence, the obligee can recover from the former not only the
penalty, but also other damages resulting from the nonfulfillment of the principal obligation. [31]
In the present case, the first exception applies because Article XX (c) provides that, aside from the
payment of the rentals corresponding to the remaining term of the lease, the lessee shall also be liable for
any and all damages, actual or consequential, resulting from such default and termination of this contract.
Having entered into the Contract voluntarily and with full knowledge of its provisions, PAGCOR must be held
bound to its obligations. It cannot evade further liability for liquidated damages.
Reduction of Penalty

In certain cases, a stipulated penalty may nevertheless be equitably reduced by the courts. [32] This
power is explicitly sanctioned by Articles 1229 and 2227 of the Civil Code, which we quote:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced
if they are iniquitous or unconscionable.
The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of
the courts. To be considered in fixing the amount of penalty are factors such as -- but not limited to -- the
type, extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its
consequences; the supervening realities; the standing and relationship of the parties; and the like. [33]
In this case, PAGCORs breach was occasioned by events that, although not fortuitous in law, were in
fact real and pressing. From the CAs factual findings, which are not contested by either party, we find that
PAGCOR conducted a series of negotiations and consultations before entering into the Contract. It did so not
only with the PPC, but also with local government officials, who assured it that the problems were
surmountable. Likewise, PAGCOR took pains to contest the ordinances [34] before the courts, which
consequently declared them unconstitutional. On top of these developments, the gaming corporation was
advised by the Office of the President to stop the games in Cagayan de Oro City, prompting the former to
cease operations prior to September 1993.
Also worth mentioning is the CAs finding that PAGCORs casino operations had to be suspended for
days on end since their start in December 1992; and indefinitely from July 15, 1993, upon the advice of the
Office of President, until the formal cessation of operations in September 1993. Needless to say, these
interruptions and stoppages meant that PAGCOR suffered a tremendous loss of expected revenues, not to
mention the fact that it had fully operated under the Contract only for a limited time.
While petitioners right to a stipulated penalty is affirmed, we consider the claim for future rentals to the
tune of P7,037,835.40 to be highly iniquitous. The amount should be equitably reduced. Under the
circumstances, the advanced rental deposits in the sum of P687,289.50 should be sufficient penalty for
respondents breach.
WHEREFORE, the Petition is GRANTED in part. The assailed Decision and Resolution are
hereby MODIFIED to include the payment of penalty. Accordingly, respondent is ordered to pay petitioner the
additional amount of P687,289.50 as penalty, which may be set off or applied against the formers advanced
rental deposits. Meanwhile, the CAs award to petitioner of actual damages representing the accrued rentals
for September to November 1993 -- with interest and penalty at the rate of two percent (2%) per month, from
the date of filing of the Complaint until the amount shall have been fully paid -- as well as the P50,000 award
for attorneys fees, is AFFIRMED. No costs.

May 26, 2005

SPS. FELIPE AND LETICIA CANNU, petitioners,

vs.
SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE
CORPORATION,respondents.
DECISION
CHICO-NAZARIO, J.:

A complaint3 for Specific Performance and Damages was filed by petitioners-spouses Felipe and Leticia
Cannu against respondents-spouses Gil and Fernandina Galang and the National Home Mortgage Finance
Corporation (NHMFC) before Branch 135 of the RTC of Makati, on 24 June 1993. The case was docketed as
Civil Case No. 93-2069.
The facts that gave rise to the aforesaid complaint are as follows:
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association
forP173,800.00 to purchase a house and lot located at Pulang Lupa, Las Pias, with an area of 150 square
meters covered by Transfer Certificate of Title (TCT) No. T-8505 in the names of respondents-spouses. To
secure payment, a real estate mortgage was constituted on the said house and lot in favor of Fortune Savings
& Loan Association. In early 1990, NHMFC purchased the mortgage loan of respondents-spouses from
Fortune Savings & Loan Association for P173,800.00.
Respondent Fernandina Galang authorized 4 her attorney-in-fact, Adelina R. Timbang, to sell the subject house
and lot.
Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to assume the balance of the
mortgage obligations with the NHMFC and with CERF Realty5 (the Developer of the property).
Of the P120,000.00, the following payments were made by petitioners:
Date
July 19, 1990

Amount Paid
P40,000.006

March 13, 1991

15,000.007

April 6, 1991

15,000.008

November 28, 1991

Total

5,000.009
P75,000.00

Thus, leaving a balance of P45,000.00.

SO ORDERED.
G.R. No. 139523

Before Us is a Petition for Review on Certiorari which seeks to set aside the decision1 of the Court of Appeals
dated 30 September 1998 which affirmed with modification the decision of Branch 135 of the Regional Trial
Court (RTC) of Makati City, dismissing the complaint for Specific Performance and Damages filed by
petitioners, and its Resolution2 dated 22 July 1999 denying petitioners motion for reconsideration.

A Deed of Sale with Assumption of Mortgage Obligation 10 dated 20 August 1990 was made and entered into
by and between spouses Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe Cannu
(vendees) over the house and lot in question which contains, inter alia, the following:
NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED FIFTY THOUSAND
PESOS (P250,000.00), Philippine Currency, receipt of which is hereby acknowledged by the
Vendors and the assumption of the mortgage obligation, the Vendors hereby sell, cede and
transfer unto the Vendees, their heirs, assigns and successor in interest the above-described
property together with the existing improvement thereon.

It is a special condition of this contract that the Vendees shall assume and continue with the
payment of the amortization with the National Home Mortgage Finance Corporation Inc. in the
outstanding balance ofP_______________, as of __________ and shall comply with and abide by
the terms and conditions of the mortgage document dated Feb. 27, 1989 and identified as Doc.
No. 82, Page 18, Book VII, S. of 1989 of Notary Public for Quezon City Marites Sto. Tomas Alonzo,
as if the Vendees are the original signatories.
Petitioners immediately took possession and occupied the house and lot.
Petitioners made the following payments to the NHMFC:
Date

Amount

Receipt No.

July 9, 1990

P 14,312.47 D-50398611

March 12, 1991

8,000.00 D-72947812

February 4, 1992

10,000.00 D-99912713

March 31, 1993

6,000.00 E-56374914

April 19, 1993

10,000.00 E-58243215

April 27, 1993

7,000.00 E-61832616

Respondent NHMFC filed its Answer.21 It claimed that petitioners have no cause of action against it because
they have not submitted the formal requirements to be considered assignees and successors-in-interest of the
property under litigation.
In their Answer,22 respondents-spouses alleged that because of petitioners-spouses failure to fully pay the
consideration and to update the monthly amortizations with the NHMFC, they paid in full the existing
obligations with NHMFC as an initial step in the rescission and annulment of the Deed of Sale with Assumption
of Mortgage. In their counterclaim, they maintain that the acts of petitioners in not fully complying with their
obligations give rise to rescission of the Deed of Sale with Assumption of Mortgage with the corresponding
damages.
After trial, the lower court rendered its decision ratiocinating:
On the basis of the evidence on record, testimonial and documentary, this Court is of the view that
plaintiffs have no cause of action either against the spouses Galang or the NHMFC. Plaintiffs have
admitted on record they failed to pay the amount of P45,000.00 the balance due to the Galangs in
consideration of the Deed of Sale With Assumption of Mortgage Obligation (Exhs. "C" and "3").
Consequently, this is a breach of contract and evidently a failure to comply with obligation arising
from contracts. . . In this case, NHMFC has not been duly informed due to lack of formal
requirements to acknowledge plaintiffs as legal assignees, or legitimate tranferees and, therefore,
successors-in-interest to the property, plaintiffs should have no legal personality to claim any right
to the same property.23
The decretal portion of the decision reads:

P 55,312.47
Petitioners paid the "equity" or second mortgage to CERF Realty.

Premises considered, the foregoing complaint has not been proven even by preponderance of
evidence, and, as such, plaintiffs have no cause of action against the defendants herein. The
above-entitled case is ordered dismissed for lack of merit.
Judgment is hereby rendered by way of counterclaim, in favor of defendants and against plaintiffs,
to wit:

17

Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in the
alternative to vacate the property in question, petitioners refused to do so.
In a letter18 dated 29 March 1993, petitioner Leticia Cannu informed Mr. Fermin T. Arzaga, Vice President,
Fund Management Group of the NHMFC, that the ownership rights over the land covered by TCT No. T-8505
in the names of respondents-spouses had been ceded and transferred to her and her husband per Deed of
Sale with Assumption of Mortgage, and that they were obligated to assume the mortgage and pay the
remaining unpaid loan balance. Petitioners formal assumption of mortgage was not approved by the
NHMFC.19
Because the Cannus failed to fully comply with their obligations, respondent Fernandina Galang, on 21 May
1993, paid P233,957.64 as full payment of her remaining mortgage loan with NHMFC. 20
Petitioners opposed the release of TCT No. T-8505 in favor of respondents-spouses insisting that the subject
property had already been sold to them. Consequently, the NHMFC held in abeyance the release of said TCT.
Thereupon, a Complaint for Specific Performance and Damages was filed asking, among other things, that
petitioners (plaintiffs therein) be declared the owners of the property involved subject to reimbursements of the
amount made by respondents-spouses (defendants therein) in preterminating the mortgage loan with NHMFC.

1. Ordering the Deed of Sale With Assumption of Mortgage Obligation (Exhs. "C" and "3")
rescinded and hereby declared the same as nullified without prejudice for defendants-spouses
Galang to return the partial payments made by plaintiffs; and the plaintiffs are ordered, on the other
hand, to return the physical and legal possession of the subject property to spouses Galang by
way of mutual restitution;
2. To pay defendants spouses Galang and NHMFC, each the amount of P10,000.00 as litigation
expenses, jointly and severally;
3. To pay attorneys fees to defendants in the amount of P20,000.00, jointly and severally; and
4. The costs of suit.
5. No moral and exemplary damages awarded.24
A Motion for Reconsideration25 was filed, but same was denied. Petitioners appealed the decision of the RTC
to the Court of Appeals. On 30 September 1998, the Court of Appeals disposed of the appeal as follows:
Obligations arising from contract have the force of law between the contracting parties and should
be complied in good faith. The terms of a written contract are binding on the parties thereto.

Plaintiffs-appellants therefore are under obligation to pay defendants-appellees spouses Galang

the sum of P250,000.00, and to assume the mortgage.

Hence, this Petition for Certiorari.

Petitioners raise the following assignment of errors:

Records show that upon the execution of the Contract of Sale or on July 19, 1990 plaintiffsappellants paid defendants-appellees spouses Galang the amount of only P40,000.00.
The next payment was made by plaintiffs-appellants on March 13, 1991 or eight (8) months after
the execution of the contract. Plaintiffs-appellants paid the amount of P5,000.00.
The next payment was made on April 6, 1991 for P15,000.00 and on November 28, 1991, for
another P15,000.00.
From 1991 until the present, no other payments were made by plaintiffs-appellants to defendantsappellees spouses Galang.
Out of the P250,000.00 purchase price which was supposed to be paid on the day of the execution
of contract in July, 1990 plaintiffs-appellants have paid, in the span of eight (8) years, from 1990 to
present, the amount of only P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at
the time of the execution of contract in 1990. Eight (8) years have already lapsed and plaintiffsappellants have not yet complied with their obligation.

1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT PETITIONERS

BREACH OF THE OBLIGATION WAS SUBSTANTIAL.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IN EFFECT IT HELD THAT THERE
WAS NO SUBSTANTIAL COMPLIANCE WITH THE OBLIGATION TO PAY THE MONTHLY
AMORTIZATION WITH NHMFC.
3. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THE
OTHER FACTS AND CIRCUMSTANCES THAT MILITATE AGAINST RESCISSION.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THAT
THE ACTION FOR RESCISSION IS SUBSIDIARY.29
Before discussing the errors allegedly committed by the Court of Appeals, it must be stated a priori that the
latter made a misappreciation of evidence regarding the consideration of the property in litigation when it relied
solely on the Deed of Sale with Assumption of Mortgage executed by the respondents-spouses Galang and
petitioners-spouses Cannu.

We consider this breach to be substantial.

The tender made by plaintiffs-appellants after the filing of this case, of the Managerial Check in the
amount of P278,957.00 dated January 24, 1994 cannot be considered as an effective mode of
payment.
Performance or payment may be effected not by tender of payment alone but by both tender and
consignation. It is consignation which is essential in order to extinguish plaintiffs-appellants
obligation to pay the balance of the purchase price.
In addition, plaintiffs-appellants failed to comply with their obligation to pay the monthly
amortizations due on the mortgage.
In the span of three (3) years from 1990 to 1993, plaintiffs-appellants made only six payments. The
payments made by plaintiffs-appellants are not even sufficient to answer for the arrearages,
interests and penalty charges.
On account of these circumstances, the rescission of the Contract of Sale is warranted and
justified.
...
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with
modification. Defendants-appellees spouses Galang are hereby ordered to return the partial
payments made by plaintiff-appellants in the amount of P135,000.00.
No pronouncement as to cost.26
The motion for reconsideration27 filed by petitioners was denied by the Court of Appeals in a
Resolution28 dated 22 July 1999.

As above-quoted, the consideration for the house and lot stated in the Deed of Sale with Assumption of
Mortgage is P250,000.00, plus the assumption of the balance of the mortgage loan with NHMFC. However,
after going over the record of the case, more particularly the Answer of respondents-spouses, the evidence
shows the consideration therefor is P120,000.00, plus the payment of the outstanding loan mortgage with
NHMFC, and of the "equity" or second mortgage with CERF Realty (Developer of the property). 30
Nowhere in the complaint and answer of the petitioners-spouses Cannu and respondents-spouses Galang
shows that the consideration is "P250,000.00." In fact, what is clear is that of the P120,000.00 to be paid to the
latter, only P75,000.00 was paid to Adelina Timbang, the spouses Galangs attorney-in-fact. This debunks the
provision in the Deed of Sale with Assumption of Mortgage that the amount of P250,000.00 has been received
by petitioners.
Inasmuch as the Deed of Sale with Assumption of Mortgage failed to express the true intent and agreement of
the parties regarding its consideration, the same should not be fully relied upon. The foregoing facts lead us to
hold that the case on hand falls within one of the recognized exceptions to the parole evidence rule. Under the
Rules of Court, a party may present evidence to modify, explain or add to the terms of the written agreement if
he puts in issue in his pleading, among others, its failure to express the true intent and agreement of the
parties thereto.31
In the case at bar, when respondents-spouses enumerated in their Answer the terms and conditions for the
sale of the property under litigation, which is different from that stated in the Deed of Sale with Assumption
with Mortgage, they already put in issue the matter of consideration. Since there is a difference as to what the
true consideration is, this Court has admitted evidence aliunde to explain such inconsistency. Thus, the Court
has looked into the pleadings and testimonies of the parties to thresh out the discrepancy and to clarify the
intent of the parties.
As regards the computation32 of petitioners as to the breakdown of the P250,000.00 consideration, we find the
same to be self-serving and unsupported by evidence.
On the first assigned error, petitioners argue that the Court erred when it ruled that their breach of the
obligation was substantial.

Settled is the rule that rescission or, more accurately, resolution, 33 of a party to an obligation under Article
119134is predicated on a breach of faith by the other party that violates the reciprocity between them. 35 Article
1191 reads:
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.
Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for
such breaches that are substantial and fundamental as to defeat the object of the parties in making the
agreement.36The question of whether a breach of contract is substantial depends upon the attending
circumstances37 and not merely on the percentage of the amount not paid.
In the case at bar, we find petitioners failure to pay the remaining balance of P45,000.00 to be substantial.
Even assuming arguendo that only said amount was left out of the supposed consideration of P250,000.00, or
eighteen (18%) percent thereof, this percentage is still substantial. Taken together with the fact that the last
payment made was on 28 November 1991, eighteen months before the respondent Fernandina Galang paid
the outstanding balance of the mortgage loan with NHMFC, the intention of petitioners to renege on their
obligation is utterly clear.
Citing Massive Construction, Inc. v. Intermediate Appellate Court,38 petitioners ask that they be granted
additional time to complete their obligation. Under the facts of the case, to give petitioners additional time to
comply with their obligation will be putting premium on their blatant non-compliance of their obligation. They
had all the time to do what was required of them (i.e., pay the P45,000.00 balance and to properly assume the
mortgage loan with the NHMFC), but still they failed to comply. Despite demands for them to pay the balance,
no payments were made.39
The fact that petitioners tendered a Managers Check to respondents-spouses Galang in the amount of
P278,957.00 seven months after the filing of this case is of no moment. Tender of payment does not by itself
produce legal payment, unless it is completed by consignation. 40 Their failure to fulfill their obligation gave the
respondents-spouses Galang the right to rescission.
Anent the second assigned error, we find that petitioners were not religious in paying the amortization with the
NHMFC. As admitted by them, in the span of three years from 1990 to 1993, their payments covered only
thirty months.41 This, indeed, constitutes another breach or violation of the Deed of Sale with Assumption of
Mortgage. On top of this, there was no formal assumption of the mortgage obligation with NHMFC because of
the lack of approval by the NHMFC42 on account of petitioners non-submission of requirements in order to be
considered as assignees/successors-in-interest over the property covered by the mortgage obligation. 43
On the third assigned error, petitioners claim there was no clear evidence to show that respondents-spouses
Galang demanded from them a strict and/or faithful compliance of the Deed of Sale with Assumption of
Mortgage.
We do not agree.
There is sufficient evidence showing that demands were made from petitioners to comply with their obligation.
Adelina R. Timbang, attorney-in-fact of respondents-spouses, per instruction of respondent Fernandina
Galang, made constant follow-ups after the last payment made on 28 November 1991, but petitioners did not
pay.44Respondent Fernandina Galang stated in her Answer 45 that upon her arrival from America in October

1992, she demanded from petitioners the complete compliance of their obligation by paying the full amount of
the consideration (P120,000.00) or in the alternative to vacate the property in question, but still, petitioners
refused to fulfill their obligations under the Deed of Sale with Assumption of Mortgage. Sometime in March
1993, due to the fact that full payment has not been paid and that the monthly amortizations with the NHMFC
have not been fully updated, she made her intentions clear with petitioner Leticia Cannu that she will rescind
or annul the Deed of Sale with Assumption of Mortgage.
We likewise rule that there was no waiver on the part of petitioners to demand the rescission of the Deed of
Sale with Assumption of Mortgage. The fact that respondents-spouses accepted, through their attorney-in-fact,
payments in installments does not constitute waiver on their part to exercise their right to rescind the Deed of
Sale with Assumption of Mortgage. Adelina Timbang merely accepted the installment payments as an
accommodation to petitioners since they kept on promising they would pay. However, after the lapse of
considerable time (18 months from last payment) and the purchase price was not yet fully paid, respondentsspouses exercised their right of rescission when they paid the outstanding balance of the mortgage loan with
NHMFC. It was only after petitioners stopped paying that respondents-spouses moved to exercise their right of
rescission.
Petitioners cite the case of Angeles v. Calasanz46 to support their claim that respondents-spouses waived their
right to rescind. We cannot apply this case since it is not on all fours with the case before us. First, in Angeles,
the breach was only slight and casual which is not true in the case before us. Second, in Angeles, the buyer
had already paid more than the principal obligation, while in the instant case, the buyers (petitioners) did not
pay P45,000.00 of the P120,000.00 they were obligated to pay.
We find petitioners statement that there is no evidence of prejudice or damage to justify rescission in favor of
respondents-spouses to be unfounded. The damage suffered by respondents-spouses is the effect of
petitioners failure to fully comply with their obligation, that is, their failure to pay the remaining P45,000.00 and
to update the amortizations on the mortgage loan with the NHMFC. Petitioners have in their possession the
property under litigation. Having parted with their house and lot, respondents-spouses should be fully
compensated for it, not only monetarily, but also as to the terms and conditions agreed upon by the parties.
This did not happen in the case before us.
Citing Seva v. Berwin & Co., Inc.,47 petitioners argue that no rescission should be decreed because there is no
evidence on record that respondent Fernandina Galang is ready, willing and able to comply with her own
obligation to restore to them the total payments they made. They added that no allegation to that effect is
contained in respondents-spouses Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall squarely with the case on hand. In the former, the failure of
one party to perform his obligation was the fault of the other party, while in the case on hand, failure on the
part of petitioners to perform their obligation was due to their own fault.
Second, what is stated in the book of Justice Edgardo L. Paras is "[i]t (referring to the right to rescind or
resolve) can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation, and
the other is not." In other words, if one party has complied or fulfilled his obligation, and the other has not, then
the former can exercise his right to rescind. In this case, respondents-spouses complied with their obligation
when they gave the possession of the property in question to petitioners. Thus, they have the right to ask for
the rescission of the Deed of Sale with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on Article 1383 of the Civil Code, maintain that the Court of
Appeals erred when it failed to consider that the action for rescission is subsidiary.
Their reliance on Article 1383 is misplaced.

The subsidiary character of the action for rescission applies to contracts enumerated in Articles 1381 48 of the
Civil Code. The contract involved in the case before us is not one of those mentioned therein. The provision
that applies in the case at bar is Article 1191.

As a consequence of the rescission or, more accurately, resolution of the Deed of Sale with Assumption of
Mortgage, it is the duty of the court to require the parties to surrender whatever they may have received from
the other. The parties should be restored to their original situation. 51

In the concurring opinion of Justice Jose B.L. Reyes in Universal Food Corp. v. Court of Appeals,49 rescission
under Article 1191 was distinguished from rescission under Article 1381. Justice J.B.L. Reyes said:

The record shows petitioners paid respondents-spouses the amount of P75,000.00 out of the P120,000.00
agreed upon. They also made payments to NHMFC amounting to P55,312.47. As to the petitioners alleged
payment to CERF Realty of P46,616.70, except for petitioner Leticia Cannus bare allegation, we find the
same not to be supported by competent evidence. As a general rule, one who pleads payment has the burden
of proving it.52 However, since it has been admitted in respondents-spouses Answer that petitioners shall
assume the second mortgage with CERF Realty in the amount of P35,000.00, and that Adelina Timbang,
respondents-spouses very own witness, testified53 that same has been paid, it is but proper to return this
amount to petitioners. The three amounts total P165,312.47 -- the sum to be returned to petitioners.

. . . The rescission on account of breach of stipulations is not predicated on injury to economic

interests of the party plaintiff but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned
without disclosing anywhere that the action for rescission thereunder is subordinated to anything
other than the culpable breach of his obligations by the defendant. This rescission is a principal
action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when
the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides
servanda." Hence, the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d tre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused,
the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384.
But the operation of these two articles is limited to the cases of rescission for lesion enumerated in
Article 1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191.

WHEREFORE, premises considered, the decision of the Court of Appeals is hereby AFFIRMED with
MODIFICATION. Spouses Gil and Fernandina Galang are hereby ordered to return the partial payments made
by petitioners in the amount of P165,312.47. With costs.
SO ORDERED.
G.R. No. 144934

January 15, 2004

From the foregoing, it is clear that rescission ("resolution" in the Old Civil Code) under Article 1191 is a
principal action, while rescission under Article 1383 is a subsidiary action. The former is based on breach by
the other party that violates the reciprocity between the parties, while the latter is not.

ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA, petitioners,

vs.
FIDELA DEL ROSARIO (deceased and substituted by her co-respondents), and her children, OSCAR,
ROSITA, VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed DEL
ROSARIO,respondents.

In the case at bar, the reciprocity between the parties was violated when petitioners failed to fully pay the
balance of P45,000.00 to respondents-spouses and their failure to update their amortizations with the
NHMFC.

DECISION
QUISUMBING, J.:

Petitioners maintain that inasmuch as respondents-spouses Galang were not granted the right to unilaterally
rescind the sale under the Deed of Sale with Assumption of Mortgage, they should have first asked the court
for the rescission thereof before they fully paid the outstanding balance of the mortgage loan with the NHMFC.
They claim that such payment is a unilateral act of rescission which violates existing jurisprudence.

Before us is a petition for review on certiorari of the Court of Appeals decision1, dated November 29, 1999, in
CA-G.R. CV No. 60552, which affirmed the judgment 2 of the Regional Trial Court (RTC) of Malolos, Bulacan,
Branch 17, in Civil Case No. 151-M-93. The RTC granted respondents complaint for nullity of contract of sale
and annulment of the transfer certificates of title issued in favor of petitioners.

In Tan v. Court of Appeals,50 this court said:

The facts, as found by the Court of Appeals, are as follows:
. . . [T]he power to rescind obligations is implied in reciprocal ones in case one of the obligors
should not comply with what is incumbent upon him is clear from a reading of the Civil Code
provisions. However, it is equally settled that, in the absence of a stipulation to the contrary, this
power must be invoked judicially; it cannot be exercised solely on a partys own judgment that the
other has committed a breach of the obligation. Where there is nothing in the contract empowering
the petitioner to rescind it without resort to the courts, the petitioners action in unilaterally
terminating the contract in this case is unjustified.
It is evident that the contract under consideration does not contain a provision authorizing its extrajudicial
rescission in case one of the parties fails to comply with what is incumbent upon him. This being the case,
respondents-spouses should have asked for judicial intervention to obtain a judicial declaration of rescission.
Be that as it may, and considering that respondents-spouses Answer (with affirmative defenses) with
Counterclaim seeks for the rescission of the Deed of Sale with Assumption of Mortgage, it behooves the court
to settle the matter once and for all than to have the case re-litigated again on an issue already heard on the
merits and which this court has already taken cognizance of. Having found that petitioners seriously breached
the contract, we, therefore, declare the same is rescinded in favor of respondents-spouses.

Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr., Carlos, Juanito and Eloisa, all
surnamed Del Rosario, were the registered owners of Lot No. 1083-C, a parcel of land situated at Lolomboy,
Bulacan. This lot spanned an area of 15,029 square meters and was covered by TCT No. T-50.668 (M)
registered in the Registry of Deeds of Bulacan.
On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa, executed a Special Power of
Attorney3in favor of their mother and co-respondent, Fidela, authorizing her to sell, lease, mortgage, transfer
and convey their rights over Lot No. 1083-C.4 Subsequently, Fidela borrowed P250,000 from Mariano Rivera
in the early part of 1987. To secure the loan, she and Mariano Rivera agreed to execute a deed of real estate
mortgage and an agreement to sell the land. Consequently, on March 9, 1987, Mariano went to his lawyer,
Atty. Efren Barangan, to have three documents drafted: the Deed of Real Estate Mortgage 5,
a Kasunduan (Agreement to Sell)6, and a Deed of Absolute Sale.7
The Kasunduan provided that the children of Mariano Rivera, herein petitioners Adelfa, Cynthia and Jose,
would purchase Lot No. 1083-C for a consideration of P2,141,622.50. This purchase price was to be paid in
three installments: P250,000 upon the signing of the Kasunduan, P750,000 on August 31, 1987,
and P1,141,622.50 on December 31, 1987. 8 It also provided that the Deed of Absolute Sale would be

executed only after the second installment is paid and a postdated check for the last installment is deposited
with Fidela.9 As previously stated, however, Mariano had already caused the drafting of the Deed of Absolute
Sale. But unlike the Kasunduan, the said deed stipulated a purchase price of only P601,160, and covered a
certain Lot No. 1083-A in addition to Lot No. 1083-C. 10 This deed, as well as the Kasunduan and the Deed of
Real Estate Mortgage11, was signed by Marianos children, petitioners Adelfa, Cynthia and Jose, as buyers
and mortgagees, on March 9, 1987.12
The following day, Mariano Rivera returned to the office of Atty. Barangan, bringing with him the signed
documents. He also brought with him Fidela and her son Oscar del Rosario, so that the latter two may sign the
mortgage and the Kasunduan there.
Although Fidela intended to sign only the Kasunduan and the Real Estate Mortgage, she inadvertently affixed
her signature on all the three documents in the office of Atty. Barangan on the said day, March 10, 1987.
Mariano then gave Fidela the amount of P250,000. On October 30, 1987, he also gave Fidela a check
for P200,000. In the ensuing months, also, Mariano gave Oscar del Rosario several amounts totaling P67,800
upon the latters demand for the payment of the balance despite Oscars lack of authority to receive payments
under the Kasunduan.13 While Mariano was making payments to Oscar, Fidela entrusted the owners copy of
TCT No. T-50.668 (M) to Mariano to guarantee compliance with the Kasunduan.

predecessor in interest, Mariano Rivera, on March 9, 1987. But on the following day Fidela decided to sell the
lot to petitioners for P2,161,622.50. When Mariano agreed (on the condition that Lot No. 1083-C will be
delivered free from all liens and encumbrances), the Kasunduan was consequently drawn up and signed. After
that, however, Fidela informed Mariano of the existence of Feliciano Nietos tenancy right over the lot to the
extent of 9,000 sq. m. When Mariano continued to want the land, albeit on a much lower price of
only P601,160, as he had still to deal with Feliciano Nieto, the parties drafted the Deed of Absolute Sale on
March 10, 1987, to supersede theKasunduan.
Petitioners likewise argued that respondents cause of action had been barred by laches or estoppel since
more than four years has lapsed from the time the parties executed the Deed of Absolute Sale on March 10,
1987, to the time respondents instituted their complaint on February 18, 1993.
Petitioners also filed a counterclaim asking for moral and exemplary damages and the payment of attorneys
fees and costs of suit.
After trial, the RTC ruled in favor of respondents:
WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:

When Mariano unreasonably refused to return the TCT,14 one of the respondents, Carlos del Rosario, caused
the annotation on TCT No. T-50.668 (M) of an Affidavit of Loss of the owners duplicate copy of the title on
September 7, 1992. This annotation was offset, however, when Mariano registered the Deed of Absolute Sale
on October 13, 1992, and afterwards caused the annotation of an Affidavit of Recovery of Title on October 14,
1992. Thus, TCT No. T-50.668 (M) was cancelled, and in its place was issued TCT No. 158443 (M) in the
name of petitioners Adelfa, Cynthia and Jose Rivera.15
Meanwhile, the Riveras, representing themselves to be the new owners of Lot No. 1083-C, were also
negotiating with the tenant, Feliciano Nieto, to rid the land of the latters tenurial right. When Nieto refused to
relinquish his tenurial right over 9,000 sq. m. of the land, the Riveras offered to give 4,500 sq. m. in exchange
for the surrender. Nieto could not resist and he accepted. Subdivision Plan No. Psd-031404-052505 was then
made on August 12, 1992. Later, it was inscribed on TCT No. 158443 (M), and Lot No. 1083-C was divided
into Lots 1083 C-1 and 1083 C-2.16
To document their agreement with Feliciano Nieto, the Riveras executed a Kasulatan sa Pagtatakwil ng
Karapatan sa Pagmamay-ari ng Bahagi ng Isang Lagay na Lupa (Written Abdication of Rights over a Portion
of a Parcel of Land)17 on November 16, 1992. Four days later, they registered the document with the Registry
of Deeds. Two titles were then issued: TCT No. T-161784 (M) in the name of Nieto, for 4,500 sq. m. of land,
and TCT No. T-161785 (M) in the name of petitioners Adelfa, Cynthia and Jose Rivera, over the remaining
10,529 sq. m. of land.18
On February 18, 1993, respondents filed a complaint 19 in the Regional Trial Court of Malolos, asking that
theKasunduan be rescinded for failure of the Riveras to comply with its conditions, with damages. They also
sought the annulment of the Deed of Absolute Sale on the ground of fraud, the cancellation of TCT No. T161784 (M) and TCT No. T-161785 (M), and the reconveyance to them of the entire property with TCT No. T50.668 (M) restored.20

1. Declaring the Deed of Absolute Sale dated March 10, 1987 as null and void;
2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M) both in the names of Adelfa, Cynthia and Jose,
all surnamed Rivera;
3. Declaring the plaintiffs to be the legitimate owners of the land covered by TCT No. T-161785 (M) and
ordering defendant Adelfa, Cynthia, and Jose, all surnamed Rivera, to reconvey the same to the plaintiffs;
4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-161785 (M) and to issue in its place a new
certificate of title in the name of the plaintiffs as their names appear in TCT No. T-50.668;
5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto as valid;
6. Ordering the defendant Riveras to pay the plaintiffs solidarily the following amounts:
a) P191,246.98 as balance for the 4,500 square-meter portion given to defendant Feliciano Nieto
b) P200,000.00 as moral damages
c) P50,000.00 as exemplary damages
d) P50,000.00 as attorneys fees

Respondents claimed that Fidela never intended to enter into a deed of sale at the time of its execution and
that she signed the said deed on the mistaken belief that she was merely signing copies of the Kasunduan.
According to respondents, the position where Fidelas name was typed and where she was supposed to sign
her name in the Kasunduan was roughly in the same location where it was typed in the Deed of Absolute Sale.
They argued that given Fidelas advanced age (she was then around 72 at the time) 21 and the fact that the
documents were stacked one on top of the other at the time of signing, Fidela could have easily and
mistakenly presumed that she was merely signing additional copies of the Kasunduan. 22 They also alleged
that petitioners acquired possession of the TCT through fraud and machination.
In their defense, petitioners denied the allegations and averred that the Deed of Absolute Sale was validly
entered into by both parties. According to petitioners, Fidela del Rosario mortgaged Lot No. 1083-C to their

e) costs of the suit.

7. Dismissing the counterclaim of the defendant Riveras;
8. Dismissing the counterclaim and the crossclaim of defendant Feliciano Nieto.
SO ORDERED.23

The trial court ruled that Fidelas signature in the Deed of Absolute Sale was genuine, but found that Fidela
never intended to sign the said deed. Noting the peculiar differences between the Kasunduan and the Deed of
Absolute Sale, the trial court concluded that the Riveras were guilty of fraud in securing the execution of the
deed and its registration in the Registry of Deeds. 24 This notwithstanding, the trial court sustained the validity
of TCT No. T-161784 (M) in the name of Feliciano Nieto since there was no fraud proven on Nietos part. The
trial court found him to have relied in good faith on the representations of ownership of Mariano Rivera. Thus,
Nietos rights, according to the trial court, were akin to those of an innocent purchaser for value. 25

IV
THE COURT A QUO HAS NO JURISDICTION OVER THE RESPONDENTS CAUSE OF ACTION AND OVER
THE RES CONSIDERING THAT FELICIANO NIETO IS AN AGRICULTURAL TENANT OF THE RICELAND IN
QUESTION.
V

On the foregoing, the trial court rescinded the Kasunduan but ruled that the P450,000 paid by petitioners be
retained by respondents as payment for the 4,500 sq. m. portion of Lot No. 1083-C that petitioners gave to
Nieto.26 The trial court likewise ordered petitioners to pay P191,246.98 as balance for the price of the land
given to Nieto, P200,000 as moral damages, P50,000 as exemplary damages, P50,000 as attorneys fees,
and the costs of suit.27
On appeal to the Court of Appeals, the trial courts judgment was modified as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED with the MODIFICATION that the Deed of
Absolute Sale dated March 10, 1987 is declared null and void only insofar as Lot No. 1083-C is concerned, but
valid insofar as it conveyed Lot No. 1083-A, that TCT No. 158443 (M) is valid insofar as Lot No. 1083-A is
concerned and should not be annulled, and increasing the amount to be paid by the defendants-appellants to
the plaintiffs-appellees for the 4,500 square meters of land given to Feliciano Nieto to P323,617.50.
Costs against the defendants-appellants.
SO ORDERED.28
Petitioners motion for reconsideration was denied. Hence, this petition.
While this petition was pending, respondent Fidela del Rosario died. She was substituted by her children,
herein respondents.
In this petition, petitioners rely on the following grounds:
I
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS, GRAVE AND REVERSIBLE ERROR IN
AWARDING LOT 1083-A IN FAVOR OF THE PETITIONERS AND FELICIANO NIETO WHICH IS
ADMITTEDLY A PART AND PORTION OF THE EXISTING NORTH LUZON EXPRESSWAY AND AS SUCH
ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION, OR WITH GRAVE ABUSE OF JUDICIAL
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION.
II
RESPONDENTS FAILED TO PAY THE CORRECT DOCKET, FILING AND OTHER LAWFUL FEES WITH
THE OFFICE OF THE CLERK OF COURT OF THE COURT A QUO (RTC, MALOLOS, BULACAN) AT THE
TIME OF THE FILING OF THE ORIGINAL COMPLAINT IN 1993 PURSUANT TO THE SIOL 29 DOCTRINE.
III
[THE] TRIAL COURT AWARDED RELIEFS NOT SPECIFICALLY PRAYED FOR IN THE AMENDED
COMPLAINT WITHOUT REQUIRING THE PAYMENT OF THE CORRECT DOCKET, FILING AND OTHER
LAWFUL FEES.

RESPONDENTS[] MAIN CAUSE OF ACTION [IS] FOR RESCISSION OF CONTRACT WHICH IS

SUBSIDIARY IN NATURE[,] AND ANNULMENT OF SALE[,] BOTH OF WHICH HAVE ALREADY
PRESCRIBED UNDER ARTICLES 1389 AND 1391 OF THE CIVIL CODE. 30
Petitioners assignment of errors may be reduced into three issues: (1) Did the trial court acquire jurisdiction
over the case, despite an alleged deficiency in the amount of filing fees paid by respondents and despite the
fact that an agricultural tenant is involved in the case? (2) Did the Court of Appeals correctly rule that the Deed
of Absolute Sale is valid insofar as Lot 1083-A is concerned? (3) Is the respondents cause of action barred by
prescription?
On the first issue, petitioners contend that jurisdiction was not validly acquired because the filing fees
respondents paid was only P1,554.45 when the relief sought was reconveyance of land that was
worth P2,141,622.50 under the Kasunduan. They contend that respondents should have paid filing fees
amounting to P12,183.70. In support of their argument, petitioners invoke the doctrine in Sun Insurance
Office, Ltd., (SIOL) v. Asuncion31 and attach a certification32 from the Clerk of Court of the RTC of Quezon City.
Respondents counter that it is beyond dispute that they paid the correct amount of docket fees when they filed
the complaint. If the assessment was inadequate, they could not be faulted because the clerk of court made
no notice of demand or reassessment, respondents argue. Respondents also add that since petitioners failed
to contest the alleged underpayment of docket fees in the lower court, they cannot raise the same on appeal. 33
We rule in favor of respondents. Jurisdiction was validly acquired over the complaint. In Sun Insurance Office,
Ltd., (SIOL) v. Asuncion,34 this Court ruled that the filing of the complaint or appropriate initiatory pleading and
the payment of the prescribed docket fee vest a trial court with jurisdiction over the subject matter or nature of
the action. If the amount of docket fees paid is insufficient considering the amount of the claim, the clerk of
court of the lower court involved or his duly authorized deputy has the responsibility of making a deficiency
assessment. The party filing the case will be required to pay the deficiency, but jurisdiction is not automatically
lost.
Here it is beyond dispute that respondents paid the full amount of docket fees as assessed by the Clerk of
Court of the Regional Trial Court of Malolos, Bulacan, Branch 17, where they filed the complaint. If petitioners
believed that the assessment was incorrect, they should have questioned it before the trial court. Instead,
petitioners belatedly question the alleged underpayment of docket fees through this petition, attempting to
support their position with the opinion and certification of the Clerk of Court of another judicial region.
Needless to state, such certification has no bearing on the instant case.
Petitioners also contend that the trial court does not have jurisdiction over the case because it involves an
agricultural tenant. They insist that by virtue of Presidential Decree Nos. 316 and 1038, 35 it is the Department
of Agrarian Reform Adjudication Board (DARAB) that has jurisdiction. 36
Petitioners contention lacks merit. The DARAB has exclusive original jurisdiction over cases involving the
rights and obligations of persons engaged in the management, cultivation and use of all agricultural lands
covered by the Comprehensive Agrarian Reform Law.37 However, the cause of action in this case is primarily
against the petitioners, as indispensable parties, for rescission of the Kasunduan and nullification of the Deed
of Sale and the TCTs issued because of them. Feliciano Nieto was impleaded merely as a necessary party,
stemming from whatever rights he may have acquired by virtue of the agreement between him and the
Riveras and the corresponding TCT issued. Hence, it is the regular judicial courts that have jurisdiction over
the case.

On the second issue, contrary to the ruling of the Court of Appeals that the Deed of Absolute Sale is void only
insofar as it covers Lot No. 1083-C, we find that the said deed is void in its entirety. Noteworthy is that during
the oral arguments before the Court of Appeals, both petitioners and respondents admitted that Lot No. 1083A had been expropriated by the government long before the Deed of Absolute Sale was entered into. 38 Whats
more, this case involves only Lot No. 1083-C. It never involved Lot 1083-A. Thus, the Court of Appeals had no
jurisdiction to adjudicate on Lot 1083-A, as it was never touched upon in the pleadings or made the subject of
evidence at trial.39
As to the third issue, petitioners cite Articles 1383,40 138941 and 139142 of the New Civil Code. They submit that
the complaint for rescission of the Kasunduan should have been dismissed, for respondents failure to prove
that there was no other legal means available to obtain reparation other than to file a case for rescission, as
required by Article 1383. Moreover, petitioners contend that even assuming respondents had satisfied this
requirement, prescription had already set in, the complaint having been filed in 1992 or five years after the
execution of the Deed of Absolute Sale in March 10, 1987.
Respondents counter that Article 1383 of the New Civil Code applies only to rescissible contracts enumerated
under Article 1381 of the same Code, while the cause of action in this case is for rescission of a reciprocal
obligation, to which Article 1191 43 of the Code applies. They assert that their cause of action had not
prescribed because the four-year prescriptive period is counted from the date of discovery of the fraud, which,
in this case, was only in 1992.
Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from
rescission of contracts under Article 1383 of the same Code. Both presuppose contracts validly entered into as
well as subsisting, and both require mutual restitution when proper, nevertheless they are not entirely
identical.44
In countless times there has been confusion between rescission under Articles 1381 and 1191 of the Civil
Code. Through this case we again emphasize that rescission of reciprocal obligations under Article 1191 is
different from rescissible contracts under Chapter 6 of the law on contracts under the Civil Code. 45 While
Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which
Article 1191 was based, was resolution.46 Resolution is a principal action that is based on breach of a party,
while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article
1381 of the New Civil Code,47which expressly enumerates the following rescissible contracts:

A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a
contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to
the vendee until full payment of the purchase price. 48 In a contract to sell, the payment of the purchase price is
a positive suspensive condition,49 the failure of which is not a breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force. 50
Respondents in this case bound themselves to deliver a deed of absolute sale and clean title covering Lot No.
1083-C after petitioners have made the second installment. This promise to sell was subject to the fulfillment
of the suspensive condition that petitioners pay P750,000 on August 31, 1987, and deposit a postdated check
for the third installment of P1,141,622.50.51 Petitioners, however, failed to complete payment of the second
installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and
effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligors
failure to comply with an obligation already extant, not a failure of a condition to render binding that
obligation.52Failure to pay, in this instance, is not even a breach but an event that prevents the vendors
obligation to convey title from acquiring binding force. 53 Hence, the agreement of the parties in the instant case
may be set aside, but not because of a breach on the part of petitioners for failure to complete payment of the
second installment. Rather, their failure to do so prevented the obligation of respondents to convey title from
acquiring an obligatory force.54
Coming now to the matter of prescription. Contrary to petitioners assertion, we find that prescription has not
yet set in. Article 1391 states that the action for annulment of void contracts shall be brought within four years.
This period shall begin from the time the fraud or mistake is discovered. Here, the fraud was discovered in
1992 and the complaint filed in 1993. Thus, the case is well within the prescriptive period.
On the matter of damages, the Court of Appeals awarded respondents P323,617.50 as actual damages for the
loss of the land that was given to Nieto, P200,000 as moral damages, P50,000 as exemplary
damages, P50,000 as attorneys fees and the costs of suit. Modifications are in order, however.
Moral damages may be recovered in cases where one willfully causes injury to property, or in cases of breach
of contract where the other party acts fraudulently or in bad faith. 55 Exemplary damages are imposed by way
of example or correction for the public good,56 when the party to a contract acts in a wanton, fraudulent,
oppressive or malevolent manner.57 Attorneys fees are allowed when exemplary damages are awarded and
when the party to a suit is compelled to incur expenses to protect his interest. 58

ART. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due
them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
Obviously, the Kasunduan does not fall under any of those situations mentioned in Article 1381. Consequently,
Article 1383 is inapplicable. Hence, we rule in favor of the respondents.
May the contract entered into between the parties, however, be rescinded based on Article 1191?

While it has been sufficiently proven that the respondents are entitled to damages, the actual amounts
awarded by the lower court must be reduced because damages are not intended for a litigants enrichment, at
the expense of the petitioners.59 The purpose for the award of damages other than actual damages would be
served, in this case, by reducing the amounts awarded.
Respondents were amply compensated through the award of actual damages, which should be sustained.
The other damages awarded total P300,000, or almost equivalent to the amount of actual damages.
Practically this will double the amount of actual damages awarded to respondents. To avoid breaching the
doctrine on enrichment, award for damages other than actual should be reduced. Thus, the amount of moral
damages should be set at only P30,000, and the award of exemplary damages at only P20,000. The award of
attorneys fees should also be reduced to P20,000, which under the circumstances of this case appears
justified and reasonable.
WHEREFORE, the assailed decision of the Court of Appeals is MODIFIED. The Deed of Absolute Sale in
question is declared NULL and VOID in its entirety. Petitioners are ORDERED to pay
respondents P323,617.50 as actual damages, P30,000.00 as moral damages, P20,000.00 as exemplary
damages and P20,000.00 as attorneys fees. No pronouncement as to costs.
SO ORDERED.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. ("Mayfair") for a period
of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about
1,610 square meters of floor area, which respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the
lease of another portion of the latter's property namely, a part of the second floor of the two-storey building,
with a floor area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine,
with a combined floor area of about 300 square meters. In that space, Mayfair put up another movie house
known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.

G.R. No. 133879

November 21, 2001

EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,

vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar
factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the
basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true that
ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. The peculiar facts
of the present controversy as found by this Court in an earlier relevant Decision show that delivery was not
actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner,
petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. Furthermore,
petitioner's bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of
such benefits. Otherwise, bad faith would be rewarded instead of punished.
The Case
Filed before this Court is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the March 11,
1998 Order2 of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The dispositive
portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed
by plaintiff Equatorial is hereby DISMISSED." 3
Also questioned is the May 29, 1998 RTC Order 4 denying petitioner's Motion for Reconsideration.
The Facts
The main factual antecedents of the present Petition are matters of record, because it arose out of an earlier
case decided by this Court on November 21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc.5 (henceforth referred to as the "mother case"), docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land, together with two 2-storey buildings
constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its
name by the Register of Deeds of Manila.

Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties.
However, on July 30, 1978 within the 20-year-lease term the subject properties were sold by Carmelo to
Equatorial Realty Development, Inc. ("Equatorial") for the total sum of P11,300,000, without their first being
offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional
Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and
Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower court rendered a
Decision in favor of Carmelo and Equatorial. This case, entitled "Mayfair" Theater, Inc. v. Carmelo and
Bauermann, Inc., et al.," was docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside
the judgment of the lower court.
The controversy reached this Court via G.R No. 106063. In this mother case, it denied the Petition for Review
in this wise:
"WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CAG.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is
ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to
execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00."6
The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997,
Mayfair filed a Motion for Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair
deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 less; P847,000 as
withholding tax. The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in
favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila canceled Equatorial's titles
and issued new Certificates of Title7 in the name of Mayfair.
Ruling on Equatorial's Petition for Certiorari and Petition contesting the foregoing manner of execution, the CA
in its Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as
withholding tax. Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the
said sum with the Office of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned
over to Equatorial.
Equatorial questioned the legality of the above CA ruling before this Court in G.R No. 136221 entitled
"Equatorial Realty Development, Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May 12,
2000,8 this Court directed the trial court to follow strictly the Decision in GR. No. 106063, the mother case. It
explained its ruling in these words:

"We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred
thousand pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not deduct from the purchase
price the amount of eight hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to
withhold taxes due, if any, is imposed on the seller Carmelo and Bauermann, Inc." 9

Hence, the present recourse.14

Meanwhile, on September 18, 1997 barely five months after Mayfair had submitted its Motion for Execution
before the RTC of Manila, Branch 7 Equatorial filed with the Regional Trial Court of Manila, Branch 8, an
action for the collection of a sum of money against Mayfair, claiming payment of rentals or reasonable
compensation for the defendant's use of the subject premises after its lease contracts had expired. This action
was the progenitor of the present case.

Petitioner submits, for the consideration of this Court, the following issues: 15

In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises
occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises
occupied by Miramar Theater lapsed on March 31, 1989.10 Representing itself as the owner of the subject
premises by reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from Mayfair's
occupation thereof.
Ruling of the RTC Manila, Branch 8
As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the Motion
for Reconsideration filed by Equatorial.11
The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission of the
Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary
rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial was the
owner of the subject property and could thus enjoy the fruits or rentals therefrom. It declared the rescinded
Deed of Absolute Sale as avoid at its inception as though it did not happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court of
Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held that, 'to rescind is to declare a contract void
in its inception and to put an end as though it never were. It is not merely to terminate it and release parties
from further obligations to each other but to abrogate it from the beginning and restore parties to relative
positions which they would have occupied had no contract ever been made.'
"Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo dated July
31, 1978 is void at its inception as though it did not happen.

Issues

"A
The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic concepts and
principles in the law on contracts and in civil law, especially those on rescission and its corresponding legal
effects, but also ignores the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063
entitled 'Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by Carmelo &
Bauermann, Inc., dated July 31, 1978, over the premises used and occupied by respondent, having been
'deemed rescinded' by the Supreme Court in G.R. No. 106063, is 'void at its inception as though it did not
happen.'
"C.
The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale, dated July 31,
1978, having been 'deemed rescinded' by the Supreme Court in G.R. No. 106063, petitioner 'is not the owner
and does not have any right to demand backrentals from the subject property,' and that the rescission of the
Deed of Absolute Sale by the Supreme Court does not confer to petitioner 'any vested right nor any residual
proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of March 11,
1998, was not raised by respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not one of the
grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure."

"The argument of Equatorial that this complaint for back rentals as 'reasonable compensation for use of the
subject property after expiration of the lease contracts presumes that the Deed of Absolute Sale dated July 30,
1978 from whence the fountain of Equatorial's all rights flows is still valid and existing.

Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled to
back rentals; and (2) the procedural issue of whether the court a quo's dismissal of Civil Case No. 97-85141
was based on one of the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the
Rules of Court.

xxx

This Court's Ruling

xxx

xxx

"The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner
and does not have any right to demand backrentals from the subject property. . . 12
The trial court added: "The Supreme Court in the Equatorial case, G.R No. 106063, has categorically stated
that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint
to res judicata."13

The Petition is not meritorious.

First Issue:
Ownership of Subject Properties

We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in
its Decision promulgated in 1996 in the mother case, no right of ownership was transferred from Carmelo to
Equatorial in view of a patent failure to deliver the property to the buyer.
Rental a Civil
Fruit of Ownership

"Has the vendor complied with this express commitment? she did not. As provided in Article 1462, the thing
sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which
situation does not here obtain because from the execution of the sale up to the present the vendee was never
able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming
ownership thereof. And although it is postulated in the same article that the execution of a public document is
equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the
passing of the property from the hands of the vendor into those of the vendee. x x x." 31

To better understand the peculiarity of the instant case, let us begin with some basic parameters. Rent is a civil
fruit16 that belongs to the owner of the property producing it 17 by right of accession.18 Consequently and
ordinarily, the rentals that fell due from the time of the perfection of the sale to petitioner until its rescission by
final judgment should belong to the owner of the property during that period.

The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such
presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or
when by other means it is shown that such delivery was not effected, because a third person was actually in
possession of the thing. In the latter case, the sale cannot be considered consummated.

By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of and to deliver a
determinate thing and the other to pay therefor a price certain in money or its equivalent." 19

However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a
right to the fruits of the thing sold from the time the obligation to deliver the property to petitioner arose. 32 That
time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide
that the parties to a sale may reciprocally demand performance. 33 Does this mean that despite the judgment
rescinding the sale, the right to the fruits34 belonged to, and remained enforceable by, Equatorial?

Ownership of the thing sold is a real right, 20 which the buyer acquires only upon delivery of the thing to him "in
any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee." 21 This right is transferred, not merely by contract, but
also by tradition or delivery.22 Non nudis pactis sed traditione dominia rerum transferantur. And there is said to
be delivery if and when the thing sold "is placed in the control and possession of the vendee." 23 Thus, it has
been held that while the execution of a public instrument of sale is recognized by law as equivalent to the
delivery of the thing sold,24 such constructive or symbolic delivery, being merely presumptive, is deemed
negated by the failure of the vendee to take actual possession of the land sold.25
Delivery has been described as a composite act, a thing in which both parties must join and the minds of both
parties concur. It is an act by which one party parts with the title to and the possession of the property, and the
other acquires the right to and the possession of the same. In its natural sense, delivery means something in
addition to the delivery of property or title; it means transfer of possession. 26 In the Law on Sales, delivery may
be either actual or constructive, but both forms of delivery contemplate "the absolute giving up of the control
and custody of the property on the part of the vendor, and the assumption of the same by the vendee." 27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is clear
that petitioner never took actual control and possession of the property sold, in view of respondent's timely
objection to the sale and the continued actual possession of the property. The objection took the form of a
court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the
mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a
legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from
the hands of the vendor into those of the vendee. 28 When there is such impediment, "fiction yields to reality
the delivery has not been effected." 29
Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally
sufficient impediment that effectively prevented the passing of the property into the latter's hands.
This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,30 in which the Court held as
follows:
"The question that now arises is: Is there any stipulation in the sale in question from which we can infer that
the vendor did not intend to deliver outright the possession of the lands to the vendee? We find none. On the
contrary, it can be clearly seen therein that the vendor intended to place the vendee in actual possession of
the lands immediately as can be inferred from the stipulation that the vendee 'takes actual possession
thereof . . . with full rights to dispose, enjoy and make use thereof in such manner and form as would be most
advantageous to herself.' The possession referred to in the contract evidently refers to actual possession and
not merely symbolical inferable from the mere execution of the document.

Article 1385 of the Civil Code answers this question in the negative, because "[r]escission creates the
obligation to return the things which were the object of the contract, together with their fruits, and the price with
its interest; x x x" Not only the land and building sold, but also the rental payments paid, if any, had to be
returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial x x x has received rents" from Mayfair
"during all the years that this controversy has been litigated." The Separate Opinion of Justice Teodoro Padilla
in the mother case also said that Equatorial was "deriving rental income" from the disputed property. Even
hereinponente's Separate Concurring Opinion in the mother case recognized these rentals. The question now
is: Do all these statements concede actual delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial during the litigation should not be
interpreted to mean either actual delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial as alleged buyer of the disputed properties and
as alleged successor-in-interest of Carmelo's rights as lessor submitted two ejectment suits against
Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on
July 9, 1987; and thesecond, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both.
However, to be able to maintain physical possession of the premises while awaiting the outcome of the mother
case, it had no choice but to pay the rentals.
The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new
owner. They were made merely to avoid imminent eviction. It is in this context that one should understand the
aforequoted factual statements in the ponencia in the mother case, as well as the Separate Opinion of Mr.
Justice Padilla and the Separate Concurring Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However,
thisgeneral principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals.
What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or
delivery. Under the factual environment of this controversy as found by this Court in the mother case,
Equatorial was never put in actual and effective control or possession of the property because of Mayfair's
timely objection.
As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, "laws are
interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh and blood
and cannot be decided on the basis of isolated clinical classroom principles." 36

In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it
could be consummated. Petitioner never acquired ownership, not because the sale was void, as erroneously
claimed by the trial court, but because the sale was not consummated by a legally effective delivery of the
property sold.

Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial
proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in respondent's Motion to
Dismiss. Worse, it allegedly based its dismissal on a ground not provided for in a motion to dismiss as
enunciated in the Rules of Court.@lawphil.net

Benefits Precluded by
Petitioner's Bad Faith

We are not convinced A review of respondent's Motion to Dismiss Civil Case No. 97-85141 shows that there
were two grounds invoked, as follows:

Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled to any
benefits from the "rescinded" Deed of Absolute Sale because of its bad faith. This being the law of the mother
case decided in 1996, it may no longer be changed because it has long become final and executory.
Petitioner's bad faith is set forth in the following pertinent portions of the mother case:

"(A)

"First and foremost is that the petitioners acted in bad faith to render Paragraph 8 'inutile.'

"(B)

xxx

Plaintiff's cause of action, if any, is barred by prior judgment." 39

xxx

xxx

"Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
xxx

xxx

xxx

"As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad
faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of
lease prior to the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that would prejudice its own interests.
xxx

xxx

xxx

"On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full
knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial
took unconscientious advantage of Mayfair." 37 (Italics supplied)
Thus, petitioner was and still is entitled solely to he return of the purchase price it paid to Carmelo; no more,
no less. This Court has firmly ruled in the mother case that neither of them is entitled to any consideration of
equity, as both "took unconscientious advantage of Mayfair." 38
In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same
token, rentals, another fruit of ownership, cannot be granted without mocking this Court's en banc Decision,
which has long become final.
Petitioner's claim of reasonable compensation for respondent's use and occupation of the subject property
from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in
silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of
punished.@lawphil.net
We uphold the trial court's disposition, not for the reason it gave, but for (a) the patent failure to deliver the
property and (b) petitioner's bad faith, as above discussed.
Second Issue:itc-alf
Ground in Motion to Dismiss

Plaintiff is guilty of forum-shopping.itc-alf

The court a quo ruled, inter alia, that the cause of action of petitioner plaintiff in the case below) had been
barred by a prior judgment of this Court in G.R No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute
Sale was avoid," we hold, nonetheless, that petitioner's cause of action is indeed barred by a prior judgment of
this Court. As already discussed, our Decision in G.R No. 106063 shows that petitioner is not entitled to back
rentals, because it never became the owner of the disputed properties due to a failure of delivery. And even
assuming arguendo that there was a valid delivery, petitioner's bad faith negates its entitlement to the civil
fruits of ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of
competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any
subsequent litigation between the same parties and for the same cause. 40 Thus, "[a] final judgment on the
merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their
privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of
action."41 Res judicata is based on the ground that the "party to be affected, or some other with whom he is in
privity, has litigated the same matter in a former action in a court of competent jurisdiction, and should not be
permitted to litigate it again.42
It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the
same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the
rule of law.@lawphil.net
We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of
res judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back
rentals from respondent. Although the court a quo erred when it declared "void from inception" the Deed of
Absolute Sale between Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to
Dismiss on the ground that our prior judgment in G.R No. 106063 has already resolved the issue of back
rentals.
On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss, the trial court found
that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. We
quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the Deed of
Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res
judicata."43(Emphasis in the original)

Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in interpreting
the meaning of "rescinded" as equivalent to "void" In short, it ruled on the ground raised; namely, bar by prior
judgment. By granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale was
wrong. The correct reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.itc-alf
SO ORDERED.
[G.R. No. 100319. August 8, 1996]
THE UNION INSURANCE SOCIETY OF CANTON, petitioner, vs. THE COURT OF APPEALS and FAR
EAST CHEMCO LEASING AND FINANCING CORPORATION, respondents.
DECISION
TORRES, JR., J.:
This petition for review on certiorari seeks to reverse and set aside the decision dated March 12, 1991
of the Court of Appeals [1] in CA-G.R. CV No. 16981, which reversed the decision dated January 2, 1985 of the
Regional Trial Court of Makati, Branch CXLIV in Civil Case No. 6487.
The undisputed facts as stated by the trial court and reproduced by the respondent Court of Appeals in
its decision are as follows:
This is an action filed by the plaintiff The Union Insurance Society of Canton, Ltd., a foreign corporation duly
authorized to do business in the Philippines, against the defendant The Far East Chemco Leasing
Corporation, a domestic corporation organized in accordance with the laws of the Philippines. The complaint
prays that the defendant be ordered to return to the plaintiff certain vessels or their value plus damages and
attorneys fees.
The record discloses that upon being served summons on March 5, 1984, the defendant, through counsel,
filed a motion for extension of time to file its answer which was granted by the Court giving the defendant an
extension of 15 days from March 20, 1984 within which to file its answer. However, despite the said extension
it prayed for and granted by the Court, the defendant failed to file an answer thereby prompting the plaintiff to
move that the defendant be declared in default which the Court granted and at the same time authorizing the
plaintiff to present its evidence ex parte.
Subsequently, the defendant filed a motion to set aside the order of default and the plaintiff filed an opposition
thereto. However, at the scheduled hearing of the said motion on June 1, 1984, the defendants counsel
instead manifested that the defendant will submit a proposal for an amicable settlement of the case with the
plaintiff for which reason the hearing of the defendants motion was reset to June 29, 1984, at 2:00 p.m., but
when the motion was called for hearing the defendants counsel failed to appear despite previous notice in
open Court. Having found the grounds of the said motion unmeritorious, the Court resolved to deny the same.
It appears that on March 11, 1976, the Union Insurance Society of Canton, Ltd., through its general agent,
Ker & Co., as insurer subrogee of Litton Mills, Inc. (Consignee), filed a complaint for damages with the former
Court of First Instance of Manila docketed therein as Civil Case No. 101598 against the Philippine Tugs, Inc.,
a corporation engaged in carrying goods on lighters from vessels anchored in Manila Bay to any part of the
Philippines. On July 19, 1977, the said Court rendered judgment in favor of the plaintiff and against Philippine
Tugs, Inc. ordering the latter to reimburse to the plaintiff as subrogee the amount of P1,849,044.23 with legal
interest from the date of the filing of the complaint until full payment thereof plus costs. For a better
understanding of the facts of that case and what gave rise to the said action and the award of damages to the
plaintiff, pertinent excerpts of the said Courts decision (Exh. A) are quoted as follows:

On September 5, 1975, the defendant entered into a contract with Litton Mills, Inc. for the former to lighter the
cargo of said Litton Mills Inc. consisting of 2,045 bales of compressed cotton from SS Pres. Magsaysay,
which was then moored at the Manila South Harbor, and its destination was Magallanes Drive. In accordance
with this agreement, the defendant dispatched its barge, the Ben Michael II to the Manila South Harbor and
received from the SS Pres. Magsaysay 2,045 bales of compressed cotton for delivery to Litton Mills,
Inc. This shipment of 2,045 bales of cotton was insured by Litton Mills, Inc. with the plaintiffs. On October 14,
1975, Litton Mills Inc. sent four formal claims to plaintiff, Ker & Co. Ltd. (Exhibits E to E-3), informing the
latter that of the total cargo of 2,045 bales, only 2,036 bales were delivered and there was a shortage of nine
bales and that out of the 2,036 bales, 521 bales were totally damaged by seawater and stains and therefore,
no longer usable. That the total value of the lost and damaged bales of cotton was P1,849,044.23. Similar
demands were made by Litton Mills Inc. to the defendant, Exhibits F-3. When the defendant refused to pay
the alleged damaged, the plaintiffs paid to Litton Mills, Inc. the total demand of P1,849,044.23 (Exhibits H to
H-3) and the defendant was accordingly advised of this payment, Exhibit I to I-3. On February 25, 1976,
the plaintiff, thru its counsel, wrote a letter to the defendant, (Exhibit M) informing the latter that they have
paid Litton Mills, Inc. the amount of P1,849,044.23, at the same time as the subrogee, seeking reimbursement
of the amount for the reason that the shortage and damage was defendants responsibility. On March 2, 1976,
the defendant, thru its counsel (Exhibit 6), answered, totally denying responsibility of the ordinary claims for
loss or damage to the cargo. In other words, the plaintiff claims that the defendant actually received 2,045
bales of cotton from the SS Pres. Magsaysay, but it only delivered 2,036 bales to Litton Mills, Inc., thus
having a shortage of nine bales, and further, out of the 2,036 bales, 521 bales were in bad order condition
because they were damaged by seawater when they were in the possession of said defendant. That by virtue
of the contract between Litton Mills, Inc. and the latter is liable as a common carrier as provided for under
Article 1735, 1736 and 1737 of the New Civil Code.
The dispositive portion of the decision of the CFI of Manila presided over by Hon. Alfredo C. Florendo reads:
WHEREFORE, in view of the foregoing considerations, the Court hereby renders judgment in favor of the
plaintiff and against the defendant, and the latter is hereby ordered to reimburse to the plaintiff, as subrogee,
the amount of ONE MILLION EIGHT HUNDRED FORTY NINE THOUSAND FORTY FOUR PESOS & 23/100
(P1,849,044.23), with legal interest from the date of full payment and to pay the costs.
The Philippine Tugs, Inc. appealed the said decision to the then Court of Appeals docketed therein as CAG.R. No. 63144-R, but it was affirmed in toto by the Court of Appeals in the latters decision promulgated on
September 29, 1982 (Exh. B). x x x
The evidence on record consisting of the articles of incorporation and other documents from the Securities
and Exchange Commission disclose that Angel T. Rodriguez was the Vice-President and Treasurer and at the
same time a director of the Philippine Tugs, Inc. while Julian R. Cordero and Francisco Y. Wong were also
directors (Exh. C), and all the three of them were the controlling stockholders of the said corporation it
appearing that of the P60,000.00 subscribed capital stock (60,000 shares at the par value of P1.00 per share),
they owned P15,000.00, P12,000.00 and P13,000.00 worth of stock, respectively, or 40,000 of 60,000 shares
or roughly 67% of the subscribed capital stock (Exhs. C, C-1 to C-8).
These three persons likewise appear to be the controlling stockholders of another corporation, the Valenzuela
Watercraft Corporation, it being also disclosed by the documents on file with the SEC that Julian R. Cordero
was its president, Angel T. Rodriguez, its Vice-President, and Francisco Y. Wong, its treasurer-secretary (Exh.
D-2); and of the 2,000 subscribed capital stock worth P200,000.00 (at the par value of P100.00 per share)
Angel T. Rodriguez owned 500 shares worth P50,000.00; Julian R. Cordero, 400 shares worth P40,000.00;
and Francisco Y. Wong, 700 shares worth P70,000.00 - a total of 1,600 shares worth P160,000.00 - or 80%
of its subscribed capital stock (Exhs. D, D-1 to D-12).
In the meantime, during the pendency of the said action in the CFI of Manila, the Philippine Tugs, Inc.,
through the said Angel T. Rodriguez, Julian R. Cordero and Francisco Y. Wong who as aforesaid altogether
owned 67% of the subscribed capital stock of the said corporation, transferred a number of its vessels
including its tugboat M/T Legionaire, formerly known as Sea Rover, its tugboat M/T Centurion, formerly
known as Good Hope, and the barge Pencar 1311, formerly known as Ben Michael, as shown by a Deed of
Absolute Sale dated September 30, 1976 (Exh. G), to the said Valenzuela Watercraft Corporation 80% of the
subscribed capital stock of which as aforesaid was also owned by the aforenamed stockholders of the
Philippine Tugs, Inc.

Soon after the promulgation of the said judgment by the CFI of Manila on July 19, 1977, what the plaintiff
through its counsel did was to cause the said judgment to be annotated on the titles to the said tugboats and
barge pursuant to the letter of the plaintiffs counsel addressed to the Administrator of the Maritime Industry
Authority dated August 2, 1977 and received by the said office on August 4, 1977 (Exh. F). Likewise, the
plaintiffs adverse claim on the said vessels was annotated in the Registration and Licensing Section of the
Philippine Coast Guard on October 17, 1977 (Exh. G). Despite the said notice of the judgment and
annotation, however, of the plaintiffs adverse claim, the herein defendant Far East Chemco Leasing
Corporation still bought the aforesaid vessels on September 7, 1978 from Valenzuela Watercraft Corporation
(Exh. G, Exhs. H and H-1), and subsequently sold the same vessels on May 27, 1980 to Peninsula Tourist
Shipping Corporation (Exh. E). Hence, this action brought by the plaintiff against Far East Chemco Leasing
Corporation.
The documentary evidence presented by the plaintiff consists of certified copies of the original with the
exception of Exhs. F and G which were identified by Atty. Alejandro B. Elmido, an associate in the law office of
the plaintiffs counsel, Atty. Alfonso Felix, Jr.
The plaintiff likewise presented Mr. Emilio Ramos, 60 years of age, and a marine surveyor engineer. He has
been one of the appraisers of the Hull Pool of the Philippines, an association of insurance companies which
have pooled their resources in covering up hull and cargo insurance. He holds the position of vice president
and marine manager of the Manila Adjusters and Surveyors Company which is considered the largest firm in
its field of work in the Philippines. Mr. Ramos has had thirty-seven years of practice and experience behind
him during which span of time, he has surveyed over five thousand (5,000) vessels. And based on his
extensive experience, he gave his expert opinion that M/T Legionaire, formerly known as the Sea Rover
should now be worth P650,000.00, the M/T Centurion, formerly known as the Good Hope should now be
worth P1,500,000.00, while the barge Pencar formerly known as Ben Michael should now be worth
P450,000.00 - or a total of P2,600,000.00 for the three vessels. (t.s.n., April 26, 1984, p. 7)
Lastly, the plaintiffs counsel, Atty. Alfonso Felix, Jr., took the witness stand. He declared that before filing this
case, he tried repeatedly to communicate with the defendant for the purpose of settling the same, but without
any result. His agreement with his client is that he will receive 20% of the value of the vessels by way of
attorneys fees. (t.s.n., April 26, 1984, p. 8) (Decision of the Regional Trial Court, pp. 1-8; Original Record, pp.
198-206)
Evaluating the evidence before it, the trial court sustained the claim of Union Insurance that the transfer
made by Philippine Tugs, Inc. of the said tugboats and barge to Valenzuela Watercraft Corporation was made
fraudulently and, thus, after disregarding the fiction of the corporate entities of the two corporations, it declared
said transfer as invalid. Likewise, the trial court ruled that the subsequent sale of the tugboats and barge
made by Valenzuela Watercraft Corporation to Far East Chemco Leasing Corporation was fraudulent and that
the latter corporation was a party to the fraud. Considering that the said water vessels were subsequently sold
by Far East Chemco to Peninsula Tourist Shipping Corporation which is not a party to the case and, therefore,
cannot be returned to the plaintiff, the trial court resolved that the value of said water vessels instead which is
now worth P2,600,000.00 be returned to the plaintiff. And lastly, the trial court found that the Union Insurance
is entitled to its claim for attorneys fees because of the unjustified refusal by Far East Chemco of the formers
demand for payment. The trial court rendered judgment, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the
latter to pay the former:
1) the sum of P2,600,000.00 representing the value of the three vessels in question with legal interest from
September 7, 1978 until the amount is fully paid;
2) the sum equivalent to 20% of the total amount due as attorneys fees, plus;
3) the costs of the suit.
SO ORDERED. (Decision, p. 16, Record, p. 214)

On appeal by Far East Chemco Leasing and Finance Corporation to the respondent Court of Appeals,
the latter reversed the trial courts decision and dismissed the complaint.
Hence, the instant petition.
Petitioner did not make any formal assignment of errors but in lieu thereof the petitioner imputes to
respondent court the error of:
1. sustaining respondents allegation that the trial court erred in declaring respondent liable to petitioner for
the value of the subject vessels despite the fact that petitioners claim is based on a lien.
and
2. sustaining Far East Chemcos allegation that the trial court erred in awarding attorneys fees equivalent to
20% of the total amount due notwithstanding the fact that the case below was based on an exparte proceedings.
Petitioner posits the following allegations: that it is a principle of law that when an Affidavit of Adverse
Claim is filed giving notice to the whole world that there is a case in court involving certain property or
properties, any person purchasing such properties or acquiring an interest on the same does so at his own
peril; that in this particular case, there can be no question that Far East Chemco had notice of the lien on the
vessels; that the Court of Appeals in the decision under review held that Far East Chemco had by intervening
in all these transactions made itself a party to the fraud committed by PTI on its creditor, the herein petitioner;
that the proper remedy is not an action for rescission but merely a return of the vessels or their value which is
precisely what our original complaint seeks for the transfer to Far East Chemco is not only voidable but is null
and void"; that Far East Chemco deprived them of property which they were entitled to execute for the
satisfaction of the final judgment in their favor; that since the vessels cannot now be returned, because they
are nowhere to be found and due to the lapse of time, even if they were found, they would now be a mass of
junk, Far East Chemco is bound to pay them the value of the vessels, with interest, attorneys fees and costs.
Petitioner further avers that the reason given by the respondent Court for dismissing the complaint
despite its finding that Far East Chemco acted with fraud has no value in law. According to petitioner, to
reason that instead of filing an Affidavit of Adverse Claim, they should have filed a petition for attachment
or Lis Pendens is purely and simply a groping about for technicalities and, technicalities have no place in the
administration of justice.
We find the petition without merit.
While Far East Chemco, as a buyer of the vessels purchased the same at its own risk, the assumed
risk pertains only to the possibility of the sale being rescinded. It is error to make private respondent pay
petitioner the value of the three (3) vessels or to order the return of the vessels to petitioner without the sale
first being rescinded.
The vessels are no longer owned by private respondent. When petitioner filed the complaint on
February 21, 1984, it was already aware that the vessels have been sold by private respondent to Peninsula
Tourist Shipping Corporation on May 27, 1980. [2] Yet petitioner did not implead Peninsula Tourist Shipping
Corporation as a co-defendant of Far East Chemco.
Petitioner Union Insurance contends that technicalities have no place in the administration of
justice. But petitioner, who did not cause the attachment of PTIs properties to forestall its sale, cannot be
given its justice at the expense of others, namely: 1.) Peninsula Tourist Shipping Corporation who cannot be
bound by an adverse decision in a case where it was not given a chance to defend itself [3] and 2.) private
respondent who should not be made to pay anothers indebtedness in the absence of showing that PTI, the
judgment debtor, has not paid petitioner or that PTI has no other properties to answer for its liabilities to the

petitioner. To order private respondent to pay petitioner the value of the vessels is one without legal basis and
could result in unjust enrichment of petitioner.
Furthermore, as aptly stated by the respondent court and we quote:
Has appellee shown in this case that it is entitled to rescind the said fraudulent transaction? We find in the
negative. The plaintiff asking for rescission must prove that he has no other legal means to obtain
reparation. The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same (Article 1383, Civil Code). Appellee has
failed to adduce sufficient and convincing evidence showing that it had pursued all available legal remedies
against PTIs properties in order to satisfy its claims against the latter. Neither is it shown that the vessels
subject of the dispute were the only assets of PTI.
Hence, there being insufficient basis to allow appellee to rescind the sale of the vessels subject of the dispute
to appellant, the latters acquisition thereof albeit rescissible should be upheld binding and valid until legally
rescinded and appellant have no obligation to appellee to return the said vessels or to pay the value
thereof. Therefore, We find the lower courts order to appellant to pay for the value of the said vessels to
appellee erroneous and not in accordance with law. [4]
An assiduous scrutiny of the records reveals that some of the issues raised in the case at bar are
factual and as such are not germane in a petition for review on certiorari. In Go vs. Court of Appeals, we
ruled, thus:
We have consistently stressed in a long line of decisions that the resolution of factual questions is the primacy
and often the final task of the lower courts. This Court is not a trier of facts. The ascertainment of what
actually happened in a controverted situation is the function of the trial court. And its findings thereon are
received with much respect, if indeed not considered conclusive, by the appellate court.
The reason for this policy is that this court is not supposed to re-try every case that comes before it on
certiorari. This would not only prolong the judicial process but also unduly imposed on this court which is
burdened enough as it is with its heavily clogged dockets." [5]

On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and P241,668,
respectively, payable to "cash." Upon presentment by petitioner with the drawee bank, the checks were
dishonored for the reason "account closed." Demands to make good the checks proved futile. As a
consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as Criminal Cases Nos.
22127-28, were filed by petitioner against LIM with Branch 23 of the Regional Trial Court (RTC) of Cebu City.
In its decision 1 dated 29 December 1992, the court a quo convicted LIM as charged. The case is pending
before this Court for review and docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in Criminal Case
No. Q-89-2216 2 filed by a certain Victoria Suarez. This decision was affirmed by the Court of Appeals. On
appeal, however, this Court, in a decision 3 promulgated on 7 April 1997, acquitted LIM but held her civilly
liable in the amount of P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and purportedly
executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the
Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 563 sq. m. and covered by TCT No.
93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 600 sq. m. and covered by TCT No.
93434;
(3) a parcel of land situated at Cebu City containing an area of
368 sq. m. and covered by TCT No. 87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an
area of 511 sq. m. and covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the names of the donees.

ACCORDINGLY, the decision appealed from dated March 12, 1991 is hereby AFFIRMED and the
instant petition DENIED for lack of merit.
SO ORDERED.
G.R. No. 134685 November 19, 1999
MARIA ANTONIA SIGUAN, petitioner,
vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.

DAVIDE, JR., C.J.:

May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children be
rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan? This is the pivotal issue to
be resolved in this petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The relevant facts, as borne out of the records, are as follows:

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18 of the
RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void the new transfer
certificates of title issued for the lots covered by the questioned Deed. The complaint was docketed as Civil
Case No. CEB-14181. Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of
Donation, fraudulently transferred all her real property to her children in bad faith and in fraud of creditors,
including her; that LIM conspired and confederated with her children in antedating the questioned Deed of
Donation, to petitioner's and other creditors' prejudice; and that LIM, at the time of the fraudulent conveyance,
left no sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal Cases
Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the Court of
Appeals. As regards the questioned Deed of Donation, she maintained that it was not antedated but was made
in good faith at a time when she had sufficient property. Finally, she alleged that the Deed of Donation was
registered only on 2 July 1991 because she was seriously ill.
In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed of
donation; (2) declared null and void the transfer certificates of title issued in the names of private respondents
Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate
the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner, jointly and
severally, the sum of P10,000 as moral damages; P10,000 as attorney's fees; and P5,000 as expenses of
litigation.

On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the decision of
the trial court and dismissed petitioner's accion pauliana. It held that two of the requisites for filing an accion
pauliana were absent, namely, (1) there must be a credit existing prior to the celebration of the contract; and
(2) there must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking the
rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged before a
notary public, appears on its face to have been executed on 10 August 1989. Under Section 23 of Rule 132 of
the Rules of Court, the questioned Deed, being a public document, is evidence of the fact which gave rise to
its execution and of the date thereof. No antedating of the Deed of Donation was made, there being no
convincing evidence on record to indicate that the notary public and the parties did antedate it. Since LIM's
indebtedness to petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation,
the first requirement for accion pauliana was not met.
Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was nevertheless
in fraud of creditors because Victoria Suarez became LIM's creditor on 8 October 1987, the Court of Appeals
found the same untenable, for the rule is basic that the fraud must prejudice the creditor seeking the
rescission.
Her motion for reconsideration having been denied, petitioner came to this Court and submits the following
issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN
FRAUD OF [THE] CREDITORS OF RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud of
creditors is contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the case of Oria
v. McMicking, 8which enumerated the various circumstances indicating the existence of fraud in a transaction.
She reiterates her arguments below, and adds that another fact found by the trial court and admitted by the
parties but untouched by the Court of Appeals is the existence of a prior final judgment against LIM in Criminal
Case No. Q-89-2216 declaring Victoria Suarez as LIM's judgment creditor before the execution of the Deed of
Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23, 9 Rule 132 of
the Rules of Court, in holding that "being a public document, the said deed of donation is evidence of the fact
which gave rise to its execution and of the date of the latter." Said provision should be read with Section
30 10 of the same Rule which provides that notarial documents are prima facie evidence of their execution, not
"of the facts which gave rise to their execution and of the date of the latter."
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code, which
provides: "The donation is always presumed to be in fraud of creditors when at the time of the execution
thereof the donor did not reserve sufficient property to pay his debts prior to the donation." In this case, LIM
made no reservation of sufficient property to pay her creditors prior to the execution of the Deed of Donation.
On the other hand, respondents argue that (a) having agreed on the law and requisites of accion pauliana,
petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit of Victoria Suarez,
who is not a party to this case, to support her accion pauliana; (c) the Court of Appeals correctly applied or
interpreted Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to present convincing evidence
that the Deed of Donation was antedated and executed in fraud of petitioner; and (e) the Court of Appeals
correctly struck down the awards of damages, attorney's fees and expenses of litigation because there is no
factual basis therefor in the body of the trial court's decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud of petitioner
and, therefore, rescissible. A corollary issue is whether the awards of damages, attorney's fees and expenses
of litigation are proper.

We resolve these issues in the negative.

The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals via
Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter court are
conclusive, except in a number of instances. 11 In the case at bar, one of the recognized exceptions warranting
a review by this Court of the factual findings of the Court of Appeals exists, to wit, the factual findings and
conclusions of the lower court and Court of Appeals are conflicting, especially on the issue of whether the
Deed of Donation in question was in fraud of creditors.
Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are "those
contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due
them."
The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the
following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the
alienation, 12although demandable later; (2) the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; 13 (4) the
act being impugned is fraudulent; 14 (5) the third person who received the property conveyed, if it is by onerous
title, has been an accomplice in the fraud. 15
The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent
alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the
contract.16 Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the
credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely
declaratory, with retroactive effect to the date when the credit was constituted. 17
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of
donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was antedated to make it
appear that it was made prior to petitioner's credit. Notably, that deed is a public document, it having been
acknowledged before a notary public. 18 As such, it is evidence of the fact which gave rise to its execution and
of its date, pursuant to Section 23, Rule 132 of the Rules of Court.
Petitioner's contention that the public documents referred to in said Section 23 are only those entries in public
records made in the performance of a duty by a public officer does not hold water. Section 23 reads:
Sec. 23. Public documents as evidence. Documents consisting of entries in public
records made in the performance of a duty by a public officer are prima facie evidence
of the facts therein stated. All other public documents are evidence, even against a
third person, of the fact which gave rise to their execution and of the date of the latter.
(Emphasis supplied).
The phrase "all other public documents" in the second sentence of Section 23 means those public documents
other than the entries in public records made in the performance of a duty by a public officer. And these
include notarial documents, like the subject deed of donation. Section 19, Rule 132 of the Rules of Court
provides:
Sec. 19. Classes of docum/ents. For the purpose of their presentation in evidence,
documents are either public or private.
Public documents are:
(a) . . .

(b) Documents acknowledged before a notary public except last wills and
testaments. . . .

During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by her in
the amount of about P800,000 to P900,000. 26 Thus:

It bears repeating that notarial documents, except last wills and testaments, are public documents and are
evidence of the facts that gave rise to their execution and of their date.

ATTY. FLORIDO:

In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to
overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is
10 August 1989. Petitioner's claim against LIM was constituted only in August 1990, or a year after the
questioned alienation. Thus, the first two requisites for the rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the contract of
donation, still her action for rescission would not fare well because the third requisite was not met. Under
Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the
creditors cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that
the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same. The term "subsidiary remedy" has been
defined as "the exhaustion of all remedies by the prejudiced creditor to collect claims due him before
rescission is resorted to." 19It is, therefore, "essential that the party asking for rescission prove that he has
exhausted all other legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged nor proved that
she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the
fraud charged actually did exist." 21
The fourth requisite for an accion pauliana to prosper is not present either.
Art. 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not
reserve sufficient property to pay all debts contracted before the donation. Likewise, Article 759 of the same
Code, second paragraph, states that the donation is always presumed to be in fraud of creditors when at the
time thereof the donor did not reserve sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties
which creditors might have recourse for the collection of their credits existing before the execution of the
donation.
As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was executed.
She cannot, therefore, be said to have been prejudiced or defrauded by such alienation. Besides, the
evidence disclose that as of 10 August 1989, when the deed of donation was executed, LIM had the following
properties:
(1) A parcel of land containing an area of 220 square meters,
together with the house constructed thereon, situated in Sto.
Nio Village, Mandaue City, Cebu, registered in the name of
Rosa Lim and covered by TCT No. 19706; 22

A Including the residential house P800,000.00 to P900,000.00.

Q How about the lot which includes the house. How much was
the price in the Deed of Sale of the house and lot at Sto. Nio
Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent the
property in no. 2, LIM testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4, the
total market value stated in the tax declarations dated 23 November 1993 was P56,871.60. Aside
from these tax declarations, petitioner did not present evidence that would indicate the actual
market value of said properties. It was not, therefore, sufficiently established that the properties left
behind by LIM were not sufficient to cover her debts existing before the donation was made.
Hence, the presumption of fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387 of
the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any other
manner recognized by the law of evidence. Thus in the consideration of whether certain transfers are
fraudulent, the Court has laid down specific rules by which the character of the transaction may be
determined. The following have been denominated by the Court as badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious
or is inadequate;
(2) A transfer made by a debtor after suit has begun and while it
is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;

(2) A parcel of land located in Benros Subdivision, Lawa-an,

Talisay, Cebu; 23
(3) A parcel of land containing an area of 2.152 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard,
Southern Leyte, and covered by Tax Declaration No. 13572. 24
(4) A parcel of land containing an area of 3.6 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard,
Southern Leyte, and covered by Tax Declaration No. 13571.

Q These properties at the Sto. Nio Village, how much did you
acquire this property?

(5) The transfer of all or nearly all of his property by a debtor,

especially when he is insolvent or greatly embarrassed
financially;
(6) The fact that the transfer is made between father and son,
when there are present other of the above circumstances; and

25

(7) The failure of the vendee to take exclusive possession of all

the property. 28
The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are as varied
as the men who perpetrate the fraud in each case. This Court has therefore declined to define it, reserving the
liberty to deal with it under whatever form it may present itself. 29
Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or any other
circumstance from which fraud can be inferred. Accordingly, since the four requirements for the rescission of a
gratuitous contract are not present in this case, petitioner's action must fail.
In her further attempt to support her action for rescission, petitioner brings to our attention the 31 July 1990
Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was therein held
guilty of estafa and was ordered to pay complainant Victoria Suarez the sum of P169,000 for the obligation
LIM incurred on 8 October 1987. This decision was affirmed by the Court of Appeals. Upon appeal, however,
this Court acquitted LIM of estafa but held her civilly liable for P169,000 as actual damages.

nevertheless, it is necessary to show clearly that the alleged fraudulent vendor has no property with which to
pay the suing creditor.
2. ID.; SALE DECLARED FRAUDULENT ONLY SO FAR AS NECESSARY. Where a sale is declared
fraudulent, at the suit of a particular creditor, courts will declare such sale fraudulent only so far as necessary
to pay the suing creditor; it will not be disturbed any further than that.
3. ID.; TEST TO DETERMINE WHETHER SALE IS FRAUDULENT. In an action to determine whether or
not a given sale is fraudulent, the test to determine its real character is: Did it materially prejudice the rights of
the suing creditor?
4. ID.; CIRCUMSTANCES INDICATING FRAUD. In determining whether or not a sale is fraudulent, the
following circumstances, attending such sale, are indications of fraud:chanrob1es virtual 1aw library
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has been begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.

It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the questioned
alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides that rescission shall
only be to the extent necessary to cover the damages caused. Under this Article, only the creditor who brought
the action for rescission can benefit from the rescission; those who are strangers to the action cannot benefit
from its effects. 31 And the revocation is only to the extent of the plaintiff creditor's unsatisfied credit; as to the
excess, the alienation is maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify rescission
of the subject deed of donation.
Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses of litigation in
favor of the petitioner. We have pored over the records and found no factual or legal basis therefor. The trial
court made these awards in the dispositive portion of its decision without stating, however, any justification for
the same in the ratio decidendi. Hence, the Court of Appeals correctly deleted these awards for want of basis
in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of Appeals in CAG.R. CV. No. 50091 is AFFIRMED in toto.

4. Evidence of large indebtedness or complete insolvency.

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present other of the above
circumstances.
7. The failure of the vendee to take exclusive possession of all of the property.
5. ID.; PROCEDURE BY CREDITOR; ACTION BY ALLEGED OWNER. Whether or not a sale is fraudulent
as to a suing creditor, can be tested and determined without first resorting to a direct action to annul the sale.
A creditor may attack the sale by ignoring it and seizing under his execution. the property or any necessary
part thereof which is the subject matter of the sale. The character of the sale will then be determined in the
action brought by the alleged owner against the execution creditor.
6. ID.; SALE DECLARED FRAUDULENT AS TO SUING CREDITOR. The facts in the case at bar examined
and held sufficient to sustain a judgment declaring the sale fraudulent as to the suing creditor.

No pronouncement as to costs.
DECISION
SO ORDERED.
MORELAND, J. :
These are the facts:chanrob1es virtual 1aw library
[G.R. No. 7003. January 18, 1912. ]
MANUEL ORIA Y GONZALEZ, Plaintiff-Appellant, v. JOSE MCMICKING, as sheriff of the city of Manila,
GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL PEREZ, and LEOPOLDO
CRIADO, Defendants-Appellees.
Chicote & Miranda, for Appellant.
Eduardo Gutierrez Repide for Appellees.
SYLLABUS
1. ACTION TO SET ASIDE SALE IN FRAUD OF CREDITORS; PROOF THAT THE VENDOR HAS No
PROPERTY TO PAY SUING CREDITOR. While, in an action to set aside a conveyance, on the ground that
it is made in fraud of creditors, it is not necessary to prove the issuance and return of an execution nulla bona,

In the month of August, 1909, Gutierrez Hermanos brought an action against Oria Hermanos & Co. for the
recovery of P147,204.28; that action is known as No. 7289 in the Court of First Instance of Manila. In March,
1910, the same plaintiff began another action against the same defendant for the recovery of P12,318.57; this
case was known as No. 7719 in said court. Subsequent to the beginning of the above actions, and on or about
the 30th day of April, 1910, the members of the company of Oria Hermanos & Co., on account of the
expiration of the time stated in their agreement of copartnership, dissolved their relations and entered into
liquidation. On the 1st day of June, 1910, Tomas Oria y Balbas, as managing partner in liquidation, acting for
himself and on behalf of his other coowners Casimiro Oria y Balbas and Adolfo Fuster Robles, entered into a
contract with the plaintiff in this case, Manuel Oria Gonzalez, which said contract was for the purpose of selling
and transferring to the plaintiff in this action all of the property of which the said Oria Hermanos & Co. was
owner. Said instrument contained the following clauses:jgc:chanrobles.com.ph
"5. I, Tomas Oria y Balbas, do further state and declare that I have agreed with the other party hereto, Don
Manuel Oria y Gonzalez, to sell all the property I have mentioned, which is specified more in detail in the
general inventory of Oria Hermanos & Co., for the price and under the conditions hereinafter expressed; and

in order to carry into effect such agreement made by me with the said Don Manuel Oria y Gonzalez, in my own
right and also in representation of my partners, Don Casimiro Oria and Don Adolfo Fuster, I do hereby
stipulate and agree:jgc:chanrobles.com.ph
"6. As managing partner and liquidator of Oria Hermanos & Co., and further in my own right and in the name
and representation of Don Casimiro Oria y Balbas and Don Adolfo Fuster y Robles, personally and as partners
in Oria Hermanos & Co., in consideration of the sum of two hundred seventy-four thousand pesos (P274,000),
which the said Don Manuel Oria y Gonzalez undertakes and engages to pay to the firm of Oria Hermanos &
Co. in liquidation, or to us the parties hereto, myself and the persons I represent, as partners in Oria
Hermanos & Co., which sum shall be paid in installments, in the manner and under the conditions hereinafter
set forth. I hereby sell, cede and transfer absolutely and forever to the said Don Manuel Oria y Gonzalez, his
heirs and assigns, all and every part of the property mentioned in the fourth section hereof and more
specifically described in the general inventory of Oria Hermanos & Co.; under the following mutual
conditions:jgc:chanrobles.com.ph
"(a) Don Manuel Oria y Gonzalez engages and undertakes to pay and to settle the sum agreed upon for this
sale, cession and transfer within a period of twelve (12) years, further engaging and undertaking to pay each
year a sum of not less than ten thousand (10,000) pesos and at the end of said period to settle the balance of
said price.
"(b) After the first six (6) years of the period for the payment of the stipulated price, that is, during the last six
years of said period, Don Manuel Oria y Gonzalez engages and undertakes to pay interest at 3 per cent a year
on the price stipulated or the part thereof unpaid at such time; provided, that this is a mutual obligation and the
interest payable annually.
"(c) Don Manuel Oria y Gonzalez further engages and undertakes to pay to Don Tomas Oria, Don Casimiro
Oria and Don Adolfo Fuster during the time that they remain in the Philippines and do not reside abroad, the
sum of one hundred and fifty (150) pesos monthly; which obligation shall be understood to be contracted
individually with each of the said parties; and the amounts so paid to each and all of them shall be charged to
the account of Oria Hermanos & Co., in liquidation, in discharge of the stipulated consideration and the
installments thereof and interest thereon when due.
"(d) Don Manuel Oria y Gonzalez engages and undertakes not to sell, alienate, transfer or mortgage, either
wholly or in part, the property hereby sold to him, without the written authorization of Don Tomas Oria as
liquidator of the firm of Oria Hermanos & Co., so long as the consideration of this sale is not fully satisfied, to
guarantee which this restriction is imposed: provided, that this restriction applies only to the vessels, real
estate and branch stores in the towns mentioned in the fourth section of this instrument, not to the rest of the
property.
"(e) Don Manuel Oria y Gonzalez engages and undertakes to cede gratuitously in the dwelling-house in the
town of Laoang, hereby sold, the use of the same or the portion thereof that may be necessary for Don Tomas
Oria to establish therein the liquidation office of Oria Hermanos & Co.; provided, that this cession is made for a
period of only two (2) years.

On the 17th day of September, 1910, case No. 7719, above referred to, was resolved by the Court of First
Instance in favor of Gutierrez Hermanos and against Oria Hermanos & Co. for the sum demanded in the
complaint. The cause was appealed to the Supreme Court and, the judgment therein having been affirmed, 1
execution was issued thereon and placed in the hands of the sheriff of Manila. The sheriff immediately
demanded that Tomas Oria y Balbas, as liquidator of the firm of Oria Hermanos & Co. make payment of the
said judgment, to which he replied that there were no funds with which to pay the same. Thereupon the sheriff
levied upon the said steamer Serantes, took possession of the same, and announced it for sale at public
auction on the 21st day of October, 1910. On the 18th day of October, 1910, three days before the sale, the
plaintiff in this action presented to the sheriff a written statement claiming to be the owner of the said
steamship, and to have the right of possession of the same by reason of the sale to him by Oria Hermanos &
Co. of all of the property belonging to said company, including the said steamer Serantes, as shown by the
instrument above referred to and quoted. The sheriff thereupon required Gutierrez Hermanos to present a
bond for his protection, which having been done, the sheriff proceeded to the sale of the said steamship. At
the sale Gutierrez Hermanos became the purchaser, said company being the highest bidder, and the sum
which it paid being the highest sum bidden for the same.
On the 19th day of October, 1911, the plaintiff began the present action, which has for its object, as shown by
the prayer of the complaint: First, the issuance of a preliminary injunction to prevent the sale of said
steamship; and, second, the declaration that the plaintiff is the owner of said steamship and is entitled to the
possession of the same, and that the defendant be required to restore the same to the plaintiff and to pay
P10,000 damages for its detention.
Upon the trial judgment was found in favor of the defendant and against the plaintiff, and the complaint was
dismissed upon the merits with costs. From that judgment this appeal is taken.
The substantial question presented for our consideration is the validity of the sale from Oria Hermanos & Co.
to Manuel Oria y Gonzalez as against the creditors of said company. It is the contention of Gutierrez
Hermanos that said sale is fraudulent as against the creditors of Oria Hermanos & Co., and that the transfer
thereby consummated of the steamship in question was void as to said creditors and as to Gutierrez
Hermanos in particular.
There is some contention on the part of the plaintiffs that aside from the property included in the sale referred
to, Oria Hermanos & Co. had sufficient other property to pay the judgment of Gutierrez Hermanos. The trial
court found, however, against the plaintiff in this regard. A careful examination of the record fails to disclose
any sufficient reason for the reversal of this finding. While the evidence is somewhat conflicting, we are of the
opinion that there is sufficient to sustain the findings made.
In determining whether or not the sale in question was fraudulent as against creditors, these facts must be
kept in mind:chanrob1es virtual 1aw library
1. At the time of said sale the value of the assets of Oria Hermanos & Co., as stated by the partners
themselves, was P274,000.

"(f) Don Tomas Oria y Balbas and Don Adolfo Fuster engage and undertake to place their personal services at
the disposal of Don Manuel Oria y Gonzalez in everything relating to his instruction in the management and
conduct of the property and business hereby sold; provided, that this obligation and promise shall be binding
upon Don Adolfo Fuster only for the time he may reside in the Philippines and upon both parties only for a
maximum period of 12 months.

2. That at the time of said sale actions were pending against said company by one single creditor for sums
aggregating in amount nearly P160,000.

"7. I, Manuel Oria y Gonzalez, being informed of the foregoing action and contract executed by Don Tomas
Oria y Balbas, do on my part stipulate and agree: that I accept the sale, cession and transfer hereby made by
him in my favor and engage and undertake to pay to Oria Hermanos & Co., either in liquidation, or if
necessary to the partners of Oria Hermanos & Co., the price of said sale, cession and transfer, that is, the sum
of P274,000, within a period of 12 years, in the manner and under the conditions set forth by him in the
preceding section, and especially engage not to sell, alienate, transfer or mortgage the property involved in
this sale which is specified in paragraph (d) of the preceding section, without the previous written authorization
of the vendor, Oria Hermanos & Co., such property being so exempted as a guaranty for the payment of the
purchase price of this sale."cralaw virtua1aw library

4. Nothing of value seems to have been delivered by the plaintiff in consideration of said sale and no security
whatever was given for the payments therein provided for.

Among the goods transferred by this instrument was the steamship Serantes, which is the subject of this
litigation.

3. The vendee of said sale was a son of Tomas Oria y Balbas and a nephew of the other two persons
heretofore mentioned which said three brothers together constituted all of the members of said company.

5. The plaintiff is a young man twenty-five years of age. There is no pretense whatever that he owned any
property or had any business at the time of the sale. On the contrary it appears without contradiction that,
when the sale took place, he was merely a student without assets and without gainful occupation.
6. Plaintiff, at the time of the sale, was fully aware of the two suits that had already been begun against the
company whose assets he was purchasing and well knew that if said suits should terminate in favor of the
plaintiffs therein the judgments in which they terminated would have to be paid out of the property which he
was then taking over or they would not be paid at all.

7. Under all the circumstances the sale in question was, so far as the creditors were concerned, without
consideration. To turn over a business worth P274,000 to an "impecunious and vocationless youth" who knew
absolutely nothing about the business he received, and whose adaptability to the management of that
business was entirely unknown, without a penny being paid down, without any security whatever, is a
proceeding so unusual, so devoid of care and caution, and so wholly outside of the well-defined lines of
ordinary business transactions, as to startle any person interested in the concern.
8. It is certain that the members of the company of Oria Hermanos & Co. would never have made a similar
contract or executed a similar instrument with a stranger.
9. The prohibition in the contract against the sale of certain portions of the property by the plaintiff offers no
protection whatever to the creditors. Such prohibition is not security. The parties who made the original
transfer can waive and release it at pleasure. Such restriction is of no value to the creditors of the company.
They can not utilize it for the reduction of their claims or in any other beneficial way.
In determining whether or not a certain conveyance is fraudulent the question in every case is whether the
conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it conserves
to the debtor a special right. It is not sufficient that it is founded on good consideration or is made with bona
fide intent: it must have both elements. If defective in either of these particulars, although good between the
parties, it is voidable as to creditors. The rule is universal both at law and in equity that whatever fraud creates
justice will destroy. The test as to whether or not a conveyance is fraudulent s, does it prejudice the rights of
creditors?
In the consideration of whether or not certain transfers were fraudulent, courts have laid down certain rules by
which the fraudulent character of the transaction may be determined. The following are some of the
circumstances attending sales which have been denominated by the courts badges of fraud:chanrob1es
virtual 1aw library
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has been begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially.
6. The fact that the transfer is made between father and son; when there are present other of the above
circumstances.
7. The failure of the vendee to take exclusive possession of all the property.
The case at bar presents every one of the badges of fraud above enumerated. Tested by the inquiry, does the
sale prejudice the rights of creditors, the result is clear. The sale in the form in which it was made leaves the
creditors substantially without recourse. The property of the company is gone, its income is gone, the business
itself is likely to fail, the property is being dissipated, and is depreciating in value. As a result, even if the claims
of the creditors should live twelve years and the creditors themselves wait that long, it is more than likely that
nothing would be found to satisfy their claims at the end of the long wait. (Regalado v. Luchsinger & Co., 5
Phil. Rep., 625; art. 1297, Civil Code, par. 1; Manresas Commentaries, vol. 8, pp. 713-719.)
Since the record shows that there was no property with which the judgment in question could be paid, the
defendants were obliged to resort to and levy upon the steamer in suit. The court below was correct in finding
the sale fraudulent and void as to Gutierrez Hermanos in so far as was necessary to permit the collection of its
judgment. As a corollary, the court below found that the evidence failed to show that the plaintiff was the owner
or entitled to the possession of the steamer in question at the time of the levy and sale complained of, or that
he was damaged thereby. Defendant had the right to make the levy and test the validity of the sale in that way,
without first resorting to a direct action to annul the sale. The creditor may attack the sale by ignoring it and
seizing under his execution the property, or any necessary portion thereof, which is the subject of the sale.
For these reasons the judgment is affirmed, without special finding as to costs. So ordered.

[G.R. No. 129644. September 7, 2001]

CHINA BANKING CORPORATION, petitioner, vs. HON. COURT OF APPEALS, PAULINO ROXAS CHUA
and KIANG MING CHU CHUA, respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
Private respondents Paulino Roxas Chua and Kiang Ming Chu Chua have filed before this Court a
Motion for Reconsideration of the Decision dated March 7, 2000, the dispositive portion of which reads:
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 46735
is REVERSED and SET ASIDE. The permanent injunction enjoining petitioner, the Sheriff of Manila, the
Register of Deeds of San Juan, their officers, representatives, agents and persons acting on their behalf from
causing the transfer of possession, ownership and title of the property covered by TCT No. 410603 in favor of
petitioner is LIFTED. The Assignment of Rights to Redeem dated November 21, 1988 executed by Alfonso
Roxas Chua in favor of Paulino Roxas Chua is ordered RESCINDED. The levy on execution dated February
4, 1991 and the Certificate of Sale dated April 30, 1992 in favor of petitioner are DECLARED VALID against
the one-half portion of the subject property.
SO ORDERED.
Briefly, the facts are restated as follows:
By virtue of the adverse decision of the Regional Trial Court of Manila, Branch 46, in Civil Case No. 8214134, entitled Metropolitan Bank and Trust Company v. Pacific Multi Commercial Corporation and Alfonso
Roxas Chua, the residential land covered by Transfer Certificate of Title No. 410603 in the name of spouses
Alfonso Roxas Chua and Kiang Ming Chu Chua was levied on execution. Kiang Ming Chu Chua filed an
action questioning the levy on the ground that the land was conjugal partnership property. This resulted in a
compromise agreement to the effect that the levy shall be valid only to the extent of the share pertaining to
Alfonso Roxas Chua. Accordingly, an alias notice of levy was issued affecting the said undivided portion of
the property. After the execution sale, a certificate of sale was executed in favor of Metrobank, the judgment
creditor, and the same was annotated on TCT No. 410603 on December 22, 1987.
Meanwhile, China Banking Corporation filed a complaint for sum of money against Pacific Multi AgroIndustrial Corporation and Alfonso Roxas Chua, docketed as Civil Case No. 85-31257 of the Regional Trial
Court of Manila, Branch 29. On November 7, 1985, judgment was rendered ordering defendants to pay
Chinabank the aggregate amount of P2,500,000.00 plus interests, penalties and attorneys fees. Defendants
appealed to the Court of Appeals but the same was dismissed for failure to file appellants brief. Thus, notice
of levy on execution was issued on February 4, 1991 against the right and interest of Alfonso Roxas Chua in
TCT No. 410603. The same was later sold at public auction and a certificate of sale was executed in favor of
Chinabank, and inscribed on TCT 410603 on May 4, 1992.
Previously, however, on November 21, 1988, Alfonso Roxas Chua executed in favor of his son, Paulino
Roxas Chua, an Assignment of Right to Redeem, pertaining to his right to redeem the undivided portion of
the land sold to Metrobank. On January 11, 1989, Paulino redeemed the property from Metrobank. On March
14, 1989, the Assignment of Right to Redeem and the redemption by Paulino Roxas Chua of the property from
Metrobank were annotated on TCT No. 410603.
Private respondents Paulino Roxas Chua and Kiang Ming Chu Chua filed Civil Case No. 63199 before
the Regional Trial Court of Pasig, Branch 163, alleging that Paulino has a prior and better right over
Chinabank inasmuch as the assignment to him of the right to redeem and his redemption of Alfonsos share in
the property were inscribed on the title on an earlier date than the annotation of the notice of levy and
certificate of sale in favor of Chinabank. Both the trial court and the Court of Appeals ruled in favor of private

respondents and enjoined Chinabank, the Sheriff of Manila and the Register of Deeds of San Juan from
causing the transfer of possession, ownership and certificate of title, or otherwise disposing of the property
covered by TCT No. 410603 in favor of Chinabank or any other person.
On March 7, 2000, we rendered the now assailed Decision reversing the judgment of the Court of
Appeals and rescinding the Assignment of Right to Redeem executed by Alfonso in favor of Paulino Roxas
Chua, for having been entered into in fraud of creditors.
In their Motion for Reconsideration, private respondents raise the following grounds:
2.1.
The Decision, with due respect, failed to consider vital facts showing that the assignment was
indubitably:
[a] for valuable consideration; and
[b] In good faith;
which if considered, would result in a complete reversal.
2.2.
The dispositive portion of the decision rescinding the assignment of the right to redeem and
validating the levy on execution dated April 30, 1992 in favor of petitioner, with due respect, cannot be
enforced because:

same. As a matter of fact, Paulino still had to pay Metrobank the redemption price of P1,463,375.39. Whether
or not the latter amount was adequate is beyond the scope of this inquiry. Suffice it to state that Metrobank
accepted the same and reconveyed the property to Paulino. Moreover, only Alfonsos conjugal share in the
property was affected, and the determination of its value was still subject to liquidation of debts and charges
against the conjugal partnership.
It must be emphasized that the reconsideration of our earlier Decision on this score does not depart
from well-settled doctrines and jurisprudence. Rather, it entailed merely a re-evaluation of the evidence on
record.
Going now to the second ground, private respondent points out that the dispositive portion of our
Decision can not be executed without affecting the rights of Metrobank inasmuch as Alfonsos right of
redemption, which he assigned to Paulino, only had a lifetime of twelve months from the date of registration of
the certificate of sale in favor of Metrobank. The rescission of the assignment of the right to redeem would
have had the effect of allowing the twelve-month period of redemption to lapse, and thus confer on Metrobank
the right to consolidate ownership over the property and to the execution of the sheriffs final deed of sale.
The certificate of sale in favor of Metrobank was registered on December 22, 1987. Under the 1964
Rules of Court which were in effect at that time, the judgment debtor or redemptioner had the right to redeem
the property from Metrobank within twelve months [8] from the date of registration of the certificate of sale.
[9]
Chinabank was a redemptioner, being then a creditor with a lien by judgment on the property sold,
subsequent to the judgment under which the property was sold. [10]
Upon the expiration of the twelve-month period of redemption and no such redemption is made, the
purchaser shall be entitled to the final deed of sale over the property sold on execution.

[a] rescission is late; and

[b] levy on execution was on the wrong property.
2.3.
The Petition was invalid and failed to vest the Honorable Court with the jurisdiction to review the
decision by the Court of Appeals.[1]
Petitioner filed its Comment,[2] and private respondents filed their Reply with leave of Court. [3]
Under their first ground, private respondents argue that there was sufficient evidence to overthrow the
presumption that the assignment of the right to redeem was in fraud of creditors. After a re-examination of the
evidence, we agree with private respondents.
Indeed, Article 1387 of the Civil Code provides that alienations made by a debtor by gratuitous title are
presumed fraudulent when the donor did not reserve sufficient property to pay his outstanding
debts. Likewise, alienations by onerous title are presumed fraudulent when made by persons against whom
some judgment has been rendered or some writ of attachment has been issued. These, however, are mere
presumptions which are in no way conclusive. The presumption of fraud can be overthrown by evidence
showing that the conveyance was made in good faith and for a sufficient and valuable consideration. [4]
In the case at bar, private respondents sufficiently established that the conveyance was made in good
faith and for valuable consideration. Paulino maintains that he had no knowledge of his father Alfonsos
financial problem with petitioner Chinabank until he was about to cause the cancellation of TCT No. 410603.
[5]
Furthermore, he paid the sum of P100,000.00 to Alfonso for the right to redeem, [6]and paid the redemption
amount of P1,463,375.39 to Metrobank.[7]
Expectedly, petitioner refutes these, saying that the amounts paid by Paulino were grossly
disproportionate to the right to redeem the property, which is a residential house and lot located in North
Greenhills, San Juan, Metro Manila. But as correctly pointed out by private respondents, the amount of
P100,000.00 paid by Paulino to Alfonso was not for the property itself, but merely for the right to redeem the

Deed and possession to be given at expiration of redemption period. By whom executed or given. --- If no
redemption be made within twelve (12) months after the sale, the purchaser, or his assignee, is entitled to a
conveyance and possession of the property; or, if so redeemed, whenever sixty (60) days have elapsed and
no other redemption has been made, and notice thereof given, and the time for redemption has expired, the
last redemptioner, or his assignee, is entitled to the conveyance and possession; but in all cases the judgment
debtor shall have the entire period of twelve (12) months from the date of the sale to redeem the
property. The deed shall be executed by the officer making the sale or by his successor in office, and in the
latter case shall have the same validity, as though the officer making the sale had continued in office and
executed it.
Upon the execution and delivery of said deed, the purchaser, or redemptioner, or his assignee, shall be
substituted to and acquire all the right, title, interest and claim of the judgment debtor to the property as of the
time of the levy, except as against the judgment debtor in possession, in which case the substitution shall be
effective as of the date of the deed. The possession of the property shall be given to the purchaser or last
redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment
debtor.[11]
Hence, at the time Chinabank levied on Alfonso Roxas Chuas share in TCT No. 410603 on February 4,
1991, the said property was no longer his. The same had already been acquired by Metrobank and, later,
redeemed by Paulino Roxas Chua. Even without the assignment of the right to redeem to Paulino, the subject
share in the property would pertain to Metrobank. Either way, Chinabank would not stand to acquire the
same. It is an established doctrine that a judgment creditor only acquires at an execution sale the identical
interest possessed by the judgment debtor in the property which is the subject of the sale. It follows that if, at
the time of the execution sale, the judgment debtor had no more right to or interest in the property because he
had already sold it to another, then the purchaser acquires nothing. [12]
Otherwise stated, the rescission of the assignment of the right to redeem would have nullified Paulinos
redemption of the property. Thus, Metrobanks inchoate right to the property would have become complete as
of December 1988, when the twelve-month redemption period expired without the right of redemption having
been exercised.

As stated above, Chinabank was a redemptioner that could redeem the property from Metrobank. It
was a judgment creditor with a lien on the property sold subsequent to the judgment under which the property
was sold. Hence, what Chinabank could have done was to redeem the property ahead of Paulino. In the
alternative, it could have moved for the rescission of the assignment to Paulino of the right to redeem, but
within the twelve-month period of redemption. Beyond that, there would be no more right of redemption and,
thus, no more assignment to rescind.

PERMANENTLY ENJOINED from causing the transfer of possession, ownership and title, or from otherwise
disposing, of the property covered by Transfer Certificate of Title No. 410603 in favor of petitioner China
Banking Corporation or to any other person acting on its behalf. The Register of Deeds of San Juan, Metro
Manila is ordered to CANCEL all annotations on TCT No. 410603 in favor of China Banking Corporation
pursuant to Civil Case No. 85-31257.
SO ORDERED.

Assuming that there was no valid assignment of the right to redeem, Paulino, as the son and
compulsory heir of Alfonso, could still redeem his fathers share in the property from Metrobank. Under
Rule 39, Section 29 (a) of the 1964 Rules of Court, the judgment debtor or his successor in interest may
redeem real property sold on execution. Paulino is included within the term successor in interest.
The successor-in-interest contemplated by the above provisions includes a person to whom the
judgment debtor has transferred his right of redemption, or one to whom he has conveyed his interests in the
property for purposes of redemption, or one who succeeds to his property by operation of law, or a person with
a joint interest in the property, or his spouse or heirs. A compulsory heir to the judgment debtor qualifies as a
successor-in-interest who can redeem property sold on execution. [13]

G.R. No. 138104

April 11, 2002

MR HOLDINGS, LTD., petitioner,

vs.
SHERIFF CARLOS P. BAJAR, SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION, AND
MARCOPPER MINING CORPORATION, respondents.
SANDOVAL-GUTIERREZ, J.:

In Director of Lands v. Lagniton, [14] we held that the right of a son, with respect to the property of a
father or mother, is an inchoate or contingent interest, because upon the death of the father or the mother or
both, he will have a right to inherit said conjugal property. If any holder of an inchoate interest is a successor
in interest with right to redeem a property sold on execution, then the son is such a successor in interest, as
he has an inchoate right to the property of his father.

In the present Petition for Review on Certiorari, petitioner MR Holdings, Ltd. assails the a) Decision1 dated
January 8, 1999 of the Court of Appeals in CA-G.R. SP No. 49226 finding no grave abuse of discretion on the
part of Judge Leonardo P. Ansaldo of the Regional Trial Court (RTC), Branch 94, Boac, Marinduque, in
denying petitioners application for a writ of preliminary injunction; 2 and b) Resolution3 dated March 29, 1999
denying petitioners motion for reconsideration.

Thus, Paulinos redemption on January 11, 1989 from Metrobank of the share of Alfonso Roxas
Chua in the property covered by TCT No. 410603, with or without the execution of the Assignment of Right to
Redeem, was valid. Necessarily, therefore, the said property no longer belonged to Alfonso Roxas Chua on
February 4, 1991, when notice of levy was made against him pursuant to the judgment in Civil Case No. 8531257 in favor of Chinabank. Petitioner should have levied on other properties of Alfonso Roxas Chua.

The facts of the case are as follows:

Finally, it is not disputed that the property covered by TCT No. 410603 is a family home occupied by
Kiang Ming Chu Chua and her children. The levy and execution sale in favor of Metrobank affected the
undivided share thereof. In the instant petition, Chinabank prays that the assignment to Paulino of Alfonsos
right to redeem be declared null and void and that the levy in its favor on the undivided portion of the
property be declared valid. Ultimately, petitioner Chinabanks objective is to acquire ownership of the
undivided portion of the property. However, the acquisition by Chinabank, or Metrobank for that matter, of the
said portion will create an absurd co-ownership between a bank, on the one hand, and a family, on the other
hand, of the latters family home.
The rigid and technical application of the Rules may be relaxed in order to avoid an absurd result. After
all, the Rules of Court mandates that a liberal construction of the Rules be adopted in order to promote their
object and to assist the parties in obtaining just, speedy and inexpensive determination of every action and
proceeding. This rule of construction is especially useful in the present case where adherence to the letter of
the law would result in absurdity and manifest injustice. [15]
Therefore, we affirm the decision of the Court of Appeals in CA-G.R. CV No. 46735, except the awards
of moral and exemplary damages, which are deleted. There is no proof of private respondents physical or
mental suffering as a result of petitioners acts. Likewise, petitioner does not appear to have acted in a
malevolent or oppressive manner towards private respondents. However, petitioner should be liable for the
attorneys fees incurred by private respondents, since its act of resisting private respondents causes of action
compelled private respondents to litigate.
WHEREFORE, in view of the foregoing, our Decision dated March 7, 2000 is RECONSIDERED AND
SET ASIDE. The decision of the Court of Appeals in CA-G.R. CV No. 46735 is AFFIRMED with
MODIFICATION. Petitioner is ordered to pay private respondents the sum of P100,000.00 as attorneys fees
and to pay the costs. Petitioner China Banking Corporation, the Sheriff of Manila, and the Register of Deeds
of San Juan, Metro Manila, their officers, representatives, agents or persons acting on their behalf, are

Under a "Principal Loan Agreement"4 and "Complementary Loan Agreement,"5 both dated November 4, 1992,
Asian Development Bank (ADB), a multilateral development finance institution, agreed to extend to Marcopper
Mining Corporation (Marcopper) a loan in the aggregate amount of US$40,000,000.00 to finance the latters
mining project at Sta. Cruz, Marinduque. The principal loan of US$ 15,000,000.00 was sourced from ADBs
ordinary capital resources, while the complementary loan of US$ 25,000,000.00 was funded by the Bank of
Nova Scotia, a participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation which owns 40% of
Marcopper, executed a "Support and Standby Credit Agreement" whereby the latter agreed to provide
Marcopper with cash flow support for the payment of its obligations to ADB.
To secure the loan, Marcopper executed in favor of ADB a "Deed of Real Estate and Chattel Mortgage" 6 dated
November 11, 1992, covering substantially all of its (Marcoppers) properties and assets in Marinduque. It was
registered with the Register of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in fulfillment of its undertaking
under the "Support and Standby Credit Agreement," and presumably to preserve its international credit
standing, agreed to have its subsidiary corporation, petitioner MR Holding, Ltd., assumed Marcoppers
obligation to ADB in the amount of US$ 18,453,450.02. Consequently, in an "Assignment Agreement" 7 dated
March 20, 1997, ADB assigned to petitioner all its rights, interests and obligations under the principal and
complementary loan agreements, ("Deed of Real Estate and Chattel Mortgage," and "Support and Standby
Credit Agreement"). On December 8, 1997, Marcopper likewise executed a "Deed of Assignment" 8 in favor of
petitioner. Under its provisions, Marcopper assigns, transfers, cedes and conveys to petitioner, its assigns
and/or successors-in-interest all of its (Marcoppers) properties, mining equipment and facilities, to wit:
Land and Mining Rights
Building and Other Structures

Other Land Improvements

Machineries & Equipment, and Warehouse Inventory
Mine/Mobile Equipment
Transportation Equipment and Furniture & Fixtures
Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation (Solidbank) obtained a Partial
Judgment9against Marcopper from the RTC, Branch 26, Manila, in Civil Case No. 96-80083 entitled
"Solidbank Corporation vs. Marcopper Mining Corporation, John E. Loney, Jose E. Reyes and Teodulo C.
Gabor, Jr.," the decretal portion of which reads:
"WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby rendered ordering
defendant Marcopper Mining Corporation, as follows:
1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred Seventy
Thousand Pesos Seven Hundred Fifty Six and 89/100 only (PHP 52,970,756.89), plus
interest and charges until fully paid;
2. To pay an amount equivalent to Ten Percent (10%) of above-stated amount as
attorneys fees; and
3. To pay the costs of suit.
"SO ORDERED."
Upon Solidbanks motion, the RTC of Manila issued a writ of execution pending appeal directing Carlos P.
Bajar, respondent sheriff, to require Marcopper "to pay the sums of money to satisfy the Partial
Judgment."10Thereafter, respondent Bajar issued two notices of levy on Marcoppers personal and real
properties, and over all its stocks of scrap iron and unserviceable mining equipment. 11 Together with sheriff
Ferdinand M. Jandusay (also a respondent) of the RTC, Branch 94, Boac, Marinduque, respondent Bajar
issued two notices setting the public auction sale of the levied properties on August 27, 1998 at the Marcopper
mine site.12
Having learned of the scheduled auction sale, petitioner served an "Affidavit of Third-Party Claim" 13 upon
respondent sheriffs on August 26, 1998, asserting its ownership over all Marcoppers mining properties,
equipment and facilities by virtue of the "Deed of Assignment."
Upon the denial of its "Affidavit of ThirdParty Claim" by the RTC of Manila, 14 petitioner commenced with the
RTC of Boac, Marinduque, presided by Judge Leonardo P. Ansaldo, a complaint for reivindication of
properties, etc., with prayer for preliminary injunction and temporary restraining order against respondents
Solidbank, Marcopper, and sheriffs Bajar and Jandusay.15 The case was docketed as Civil Case No. 98-13.
In an Order16 dated October 6, 1998, Judge Ansaldo denied petitioners application for a writ of preliminary
injunction on the ground that a) petitioner has no legal capacity to sue, it being a foreign corporation doing
business in the Philippines without license; b) an injunction will amount "to staying the execution of a final
judgment by a court of co-equal and concurrent jurisdiction;" and c) the validity of the "Assignment Agreement"
and the "Deed of Assignment" has been "put into serious question by the timing of their execution and
registration."

Unsatisfied, petitioner elevated the matter to the Court of Appeals on a Petition for Certiorari, Prohibition and
Mandamus, docketed therein as CA-G.R. SP No. 49226. On January 8, 1999, the Court of Appeals rendered a
Decision holding that Judge Ansaldo did not commit grave abuse of discretion in denying petitioners prayer
for a writ of preliminary injunction, ratiocinating as follows:
"Petitioner contends that it has the legal capacity to sue and seek redress from Philippine courts as
it is a non-resident foreign corporation not doing business in the Philippines and suing on isolated
transactions.
xxx

xxx

"We agree with the finding of the respondent court that petitioner is not suing on an isolated
transaction as it claims to be, as it is very obvious from the deed of assignment and its
relationships with Marcopper and Placer Dome, Inc. that its unmistakable intention is to continue
the operations of Marcopper and shield its properties/assets from the reach of legitimate creditors,
even those holding valid and executory court judgments against it. There is no other way for
petitioner to recover its huge financial investments which it poured into Marcoppers rehabilitation
and the local situs where the Deeds of Assignment were executed, without petitioner continuing to
do business in the country.
xxx

xxx

"While petitioner may just be an assignee to the Deeds of Assignment, it may still
fall within the meaning of "doing business" in light of the Supreme Court ruling
in the case of Far East International Import and Export Corporation vs. Nankai
Kogyo Co., 6 SCRA 725, that:
Where a single act or transaction however is not merely incidental or casual but indicates
the foreign corporations intention to do other business in the Philippines, said single act or
transaction constitutes doing or engaging in or transacting business in the Philippines.
"Furthermore, the court went further by declaring that even a single act may constitute
doing business if it is intended to be the beginning of a series of transactions. (Far East
International Import and Export Corporation vs. Nankai Kogyo Co. supra).
"On the issue of whether petitioner is the bona fide owner of all the mining facilities and equipment
of Marcopper, petitioner relies heavily on the Assignment Agreement allegedly executed on March
20, 1997 wherein all the rights and interest of Asian Development Bank (ADB) in a purported Loan
Agreement were ceded and transferred in favor of the petitioner as assignee, in addition to a
subsequent Deed of Assignment dated December 28, 1997 conveying absolutely all the
properties, mining equipment and facilities of Marcopper in favor of petitioner.
"The Deeds of Assignment executed in favor of petitioner cannot be binding on the judgment
creditor, private respondent Solidbank, under the general legal principle that contracts can only
bind the parties who had entered into it, and it cannot favor or prejudice a third person (Quano vs.
Court of Appeals, 211 SCRA 40). Moreover, by express stipulation, the said deeds shall be
governed, interpreted and construed in accordance with laws of New York.1wphi1.nt
"The Deeds of Assignment executed by Marcopper, through its President, Atty. Teodulo C.
Gabor, Jr., were clearly made in bad faith and in fraud of creditors, particularly private
respondent Solidbank. The first Assignment Agreement purportedly executed on March 20,
1997 was entered into after Solidbank had filed on September 19, 1996 a case against
Marcopper for collection of sum of money before Branch 26 of the Regional Trial Court
docketed as Civil Case No. 96-80083. The second Deed of Assignment purportedly executed
on December 28, 1997 was entered into by President Gabor after Solidbank had filed its
Motion for Partial Summary Judgment, after the rendition by Branch 26 of the Regional Trial

Court of Manila of a Partial Summary Judgment and after the said trial court had issued a
writ of execution, and which judgment was later affirmed by the Court of Appeals. While the
assignments (which were not registered with the Registry of Property as required by Article 1625 of
the new Civil Code) may be valid between the parties thereof, it produces no effect as against third
parties. The purported execution of the Deeds of Assignment in favor of petitioner was in violation
of Article 1387 of the New Civil Code x x x." (Emphasis Supplied)
Hence, the present Petition for Review on Certiorari by MR Holdings, Ltd. moored on the following grounds:
"A. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN
COMPLETELY DISREGARDING AS A MATERIAL FACT OF THE CASE THE EXISTENCE OF
THE PRIOR, REGISTERED 1992 DEED OF REAL ESTATE AND CHATTEL MORTGAGE
CREATING A LIEN OVER THE LEVIED PROPERTIES, SUBJECT OF THE ASSIGNMENT
AGREEMENT DATED MARCH 20, 1997, THUS, MATERIALLY CONTRIBUTING TO THE SAID
COURTS MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF PETITIONERS
CASE.
B. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING A
FACTUAL FINDING THAT THE SAID ASSIGNMENT AGREEMENT IS NOT REGISTERED, THE
SAME BEING CONTRARY TO THE FACTS ON RECORD, THUS, MATERIALLY
CONTRIBUTING TO THE SAID COURTS MISPERCEPTION AND MISAPPRECIATION OF THE
MERITS OF PETITIONERS CASE.
C. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN MAKING A
FACTUAL FINDING ON THE EXISTENCE OF AN ATTACHMENT ON THE PROPERTIES
SUBJECT OF INSTANT CASE, THE SAME BEING CONTRARY TO THE FACTS ON RECORD,
THUS, MATERIALLY CONTRIBUTING TO THE SAID COURTS MISPERCEPTION AND
MISAPPRECIATION OF THE MERITS OF PETITIONERS CASE.
D. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING
THAT THE SAID ASSIGNMENT AGREEMENT AND THE DEED OF ASSIGNMENT ARE NOT
BINDING ON RESPONDENT SOLIDBANK WHO IS NOT A PARTY THERETO, THE SAME
BEING CONTRARY TO LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR REGISTERED
MORTGAGE LIENS AND ON PREFERENCE OF CREDITS.
E. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN FINDING
THAT THE AFOREMENTIONED ASSIGNMENT AGREEMENT AND DEED OF ASSIGNMENT
ARE SHAM, SIMULATED, OF DUBIOUS CHARACTER, AND WERE MADE IN BAD FAITH AND
IN FRAUD OF CREDITORS, PARTICULARLY RESPONDENT SOLIDBANK, THE SAME BEING
IN COMPLETE DISREGARD OF, VIZ: (1) THE LAW AND ESTABLISHED JURISPRUDENCE ON
PRIOR, REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF CREDITS, BY REASON
OF WHICH THERE EXISTS NO CAUSAL CONNECTION BETWEEN THE SAID CONTRACTS
AND THE PROCEEDINGS IN CIVIL CASE NO. 96-80083; (2) THAT THE ASIAN
DEVELOPMENT BANK WILL NOT OR COULD NOT HAVE AGREED TO A SHAM;
SIMULATED, DUBIOUS AND FRAUDULENT TRANSACTION; AND (3) THAT RESPONDENT
SOLIDBANKS BIGGEST STOCKHOLDER, THE BANK OF NOVA SCOTIA, WAS A MAJOR
BENEFICIARY OF THE ASSIGNMENT AGREEMENT IN QUESTION.
F. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING
THAT PETITIONER IS WITHOUT LEGAL CAPACITY TO SUE AND SEEK REDRESS FROM
PHILIPPINE COURTS, IT BEING THE CASE THAT SECTION 133 OF THE CORPORATION
CODE IS WITHOUT APPLICATION TO PETITIONER, AND IT BEING THE CASE THAT THE
SAID COURT MERELY RELIED ON SURMISES AND CONJECTURES IN OPINING THAT
PETITIONER INTENDS TO DO BUSINESS IN THE PHILIPPINES.

G. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING

THAT RESPONDENT MARCOPPER, PLACER DOME, INC., AND PETITIONER ARE ONE AND
THE SAME ENTITY, THE SAME BEING WITHOUT FACTUAL OR LEGAL BASIS.
H. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN HOLDING
PETITIONER GUILTY OF FORUM SHOPPING, IT BEING CLEAR THAT NEITHER LITIS
PENDENTIANOR RES JUDICATA MAY BAR THE INSTANT REIVINDICATORY ACTION, AND
IT BEING CLEAR THAT AS THIRD-PARTY CLAIMANT, THE LAW AFFORDS PETITIONER THE
RIGHT TO FILE SUCH REIVINDICATORY ACTION.
I. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN
RENDERING A DECISION WHICH IN EFFECT SERVES AS JUDGMENT ON THE MERITS OF
THE CASE.
J. THE SHERIFFS LEVY AND SALE, THE SHERIFFS CERTIFICATE OF SALE DATED
OCTOBER 12, 1998, THE RTC-MANILA ORDER DATED FEBRUARY 12, 1999, AND THE RTCBOAC ORDER DATED NOVEMBER 25, 1998 ARE NULL AND VOID.
K. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR IN
AFFIRMING THE DENIAL BY THE RTC-BOAC OF PETITIONERS APPLICATION FOR
PRELIMINARY INJUNCTION, THE SAME BEING IN TOTAL DISREGARD OF PETITIONERS
RIGHT AS ASSIGNEE OF A PRIOR, REGISTERED MORTGAGE LIEN, AND IN DISREGARD
OF THE LAW AND JURISPRUDENCE ON PREFERENCE OF CREDIT."
In its petition, petitioner alleges that it is not "doing business" in the Philippines and characterizes its
participation in the assignment contracts (whereby Marcoppers assets where transferred to it) as mere
isolated acts that cannot foreclose its right to sue in local courts. Petitioner likewise maintains that the two
assignment contracts, although executed during the pendency of Civil Case No. 96-80083 in the RTC of
Manila, are not fraudulent conveyances as they were supported by valuable considerations. Moreover, they
were executed in connection with prior transactions that took place as early as 1992 which involved ADB, a
reputable financial institution. Petitioner further claims that when it paid Marcoppers obligation to ADB, it
stepped into the latters shoes and acquired its (ADBS) rights, titles, and interests under the "Deed of Real
Estate and Chattel Mortgage." Lastly, petitioner asserts its existence as a corporation, separate and distinct
from Placer Dome and Marcopper.
In its comment, Solidbank avers that: a) petitioner is "doing business" in the Philippines and this is evidenced
by the "huge investment" it poured into the assignment contracts; b) granting that petitioner is not doing
business in the Philippines, the nature of its transaction reveals an "intention to do business" or "to begin a
series of transaction" in the country; c) petitioner, Marcopper and Placer Dome are one and the same entity,
petitioner being then a wholly-owned subsidiary of Placer Dome, which, in turn, owns 40% of
Marcopper; d) the timing under which the assignments contracts were executed shows that petitioners
purpose was to defeat any judgment favorable to it (Solidbank); and e) petitioner violated the rule on forum
shopping since the object of Civil Case No. 98-13 (at RTC, Boac, Marinduque) is similar to the other cases
filed by Marcopper in order to forestall the sale of the levied properties.
Marcopper, in a separate comment, states that it is merely a nominal party to the present case and that its
principal concerns are being ventilated in another case.
The petition is impressed with merit.
Crucial to the outcome of this case is our resolution of the following issues: 1) Does petitioner have the legal
capacity to sue? 2) Was the Deed of Assignment between Marcopper and petitioner executed in fraud of
creditors? 3) Are petitioner MR Holdings, Ltd., Placer Dome, and Marcopper one and the same entity?
and 4) Is petitioner guilty of forum shopping?
We shall resolve the issues in seriatim.

I
The Court of Appeals ruled that petitioner has no legal capacity to sue in the Philippine courts because it is a
foreign corporation doing business here without license. A review of this ruling does not pose much complexity
as the principles governing a foreign corporations right to sue in local courts have long been settled by our
Corporation Law.17 These principles may be condensed in three statements, to wit: a) if a foreign
corporationdoes business in the Philippines without a license, it cannot sue before the Philippine
courts;18 b) if a foreign corporation is not doing business in the Philippines, it needs no license to
sue before Philippine courts on an isolated transaction 19 or on a cause of action entirely independent of any
business transaction;20 and c) if a foreign corporation does business in the Philippines with the required
license, it can sue before Philippine courts on any transaction. Apparently, it is not the absence of the
prescribed license but the "doing (of) business" in the Philippines without such license which debars the
foreign corporation from access to our courts.21
The task at hand requires us to weigh the facts vis--vis the established principles. The question whether or
not a foreign corporation is doing business is dependent principally upon the facts and circumstances of each
particular case, considered in the light of the purposes and language of the pertinent statute or statutes
involved and of the general principles governing the jurisdictional authority of the state over such
corporations.22
Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of the Philippines," is silent as to what
constitutes doing" or "transacting" business in the Philippines. Fortunately, jurisprudence has supplied the
deficiency and has held that the term "implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of, the purpose and object for which the corporation was
organized."23In Mentholatum Co. Inc., vs. Mangaliman,24 this Court laid down the test to determine whether a
foreign company is "doing business," thus:
" x x x The true test, however, seems to be whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another. (Traction Cos. vs. Collectors of
Int. Revenue[C.C.A., Ohio], 223 F. 984,987.) x x x."
The traditional case law definition has metamorphosed into a statutory definition, having been adopted with
some qualifications in various pieces of legislation in our jurisdiction. For instance, Republic Act No. 7042,
otherwise known as the "Foreign Investment Act of 1991," defines "doing business" as follows:
"d) The phrase doing business shall include soliciting orders, service contracts, opening offices,
whether called liaison offices or branches; appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period or periods totalling one
hundred eight(y) (180) days or more; participating in the management, supervision or control of
any domestic business, firm, entity, or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works; or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization; Provided, however, That the phrase doing business shall
not be deemed to include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such investor, nor
having a nominee director or officer to represent its interests in such corporation, nor appointing a
representative or distributor domiciled in the Philippines which transacts business in its own name
and for its own account." (Emphasis supplied)25
Likewise, Section 1 of Republic Act No. 5455, 26 provides that:
"SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase doing business shall include
soliciting orders, purchases, service contracts, opening offices, whether called liaison offices or
branches; appointing representatives or distributors who are domiciled in the Philippines or who in

any calendar year stay in the Philippines for a period or periods totaling one hundred eighty days
or more; participating in the management, supervision or control of any domestic business firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization."
There are other statutes27 defining the term "doing business" in the same tenor as those above-quoted, and as
may be observed, one common denominator among them all is the concept of "continuity."
In the case at bar, the Court of Appeals categorized as "doing business" petitioners participation under the
"Assignment Agreement" and the "Deed of Assignment." This is simply untenable. The expression "doing
business" should not be given such a strict and literal construction as to make it apply to any corporate dealing
whatever.28 At this early stage and with petitioners acts or transactions limited to the assignment contracts, it
cannot be said that it had performed acts intended to continue the business for which it was organized. It may
not be amiss to point out that the purpose or business for which petitioner was organized is not
discernible in the records. No effort was exerted by the Court of Appeals to establish the nexus
between petitioners business and the acts supposed to constitute "doing business." Thus, whether
the assignment contracts were incidental to petitioners business or were continuation thereof is
beyond determination. We cannot apply the case cited by the Court of Appeals, Far East Intl Import and
Export Corp. vs. Nankai Kogyo Co., Ltd.,29 which held that a single act may still constitute "doing business" if
"it is not merely incidental or casual, but is of such character as distinctly to indicate a purpose on the part of
the foreign corporation to do other business in the state." In said case, there was an express admission from
an official of the foreign corporation that he was sent to the Philippines to look into the operation of mines,
thereby revealing the foreign corporations desire to continue engaging in business here. But in the case at
bar, there is no evidence of similar desire or intent. Unarguably, petitioner may, as the Court of Appeals
suggested, decide to operate Marcoppers mining business, but, of course, at this stage, that is a mere
speculation. Or it may decide to sell the credit secured by the mining properties to an offshore investor, in
which case the acts will still be isolated transactions. To see through the present facts an intention on the
part of petitioner to start a series of business transaction is to rest on assumptions or probabilities
falling short of actual proof. Courts should never base its judgments on a state of facts so
inadequately developed that it cannot be determined where inference ends and conjecture begins.
Indeed, the Court of Appeals holding that petitioner was determined to be "doing business" in the Philippines
is based mainly on conjectures and speculation. In concluding that the "unmistakable intention" of petitioner is
to continue Marcoppers business, the Court of Appeals hangs on the wobbly premise that "there is no other
way for petitioner to recover its huge financial investments which it poured into Marcoppers rehabilitation
without it (petitioner) continuing Marcoppers business in the country." 30 This is a mere presumption. Absent
overt acts of petitioner from which we may directly infer its intention to continue Marcoppers business, we
cannot give our concurrence. Significantly, a view subscribed upon by many authorities is that the mere
ownership by a foreign corporation of a property in a certain state, unaccompanied by its active use in
furtherance of the business for which it was formed, is insufficient in itself to constitute doing
business.31 In Chittim vs. Belle Fourche Bentonite Products Co., 32 it was held that even if a foreign
corporation purchased and took conveyances of a mining claim, did some assessment work thereon,
and endeavored to sell it, its acts will not constitute the doing of business so as to subject the
corporation to the statutory requirements for the transacting of business. On the same vein, petitioner, a
foreign corporation, which becomes the assignee of mining properties, facilities and equipment cannot be
automatically considered as doing business, nor presumed to have the intention of engaging in mining
business.
One important point. Long before petitioner assumed Marcoppers debt to ADB and became their assignee
under the two assignment contracts, there already existed a "Support and Standby Credit Agreement"
between ADB and Placer Dome whereby the latter bound itself to provide cash flow support for Marcoppers
payment of its obligations to ADB. Plainly, petitioners payment of US$ 18,453,450.12 to ADB was more of a
fulfillment of an obligation under the "Support and Standby Credit Agreement" rather than an investment. That
petitioner had to step into the shoes of ADB as Marcoppers creditor was just a necessary legal consequence
of the transactions that transpired. Also, we must hasten to add that the "Support and Standby Credit
Agreement" was executed four (4) years prior to Marcoppers insovency, hence, the alleged "intention of

petitioner to continue Marcoppers business" could have no basis for at that time, Marcoppers fate cannot yet
be determined.
In the final analysis, we are convinced that petitioner was engaged only in isolated acts or transactions. Single
or isolated acts, contracts, or transactions of foreign corporations are not regarded as a doing or carrying on of
business. Typical examples of these are the making of a single contract, sale, sale with the taking of a note
and mortgage in the state to secure payment therefor, purchase, or note, or the mere commission of a tort. 33 In
these instances, there is no purpose to do any other business within the country.
II
Solidbank contends that from the chronology and timing of events, it is evident that there existed a pre-set
pattern of response on the part of Marcopper to defeat whatever court ruling that may be rendered in favor of
Solidbank.
We are not convinced.
While it may appear, at initial glance, that the assignment contracts are in the nature of fraudulent
conveyances, however, a closer look at the events that transpired prior to the execution of those contracts
gives rise to a different conclusion. The obvious flaw in the Court of Appeals Decision lies in its constricted
view of the facts obtaining in the case. In its factual narration, the Court of Appeals definitely left out some
events. We shall see later the significance of those events.
Article 1387 of the Civil Code of the Philippines provides:
"Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against
whom some judgment has been rendered in any instance or some writ of attachment has
been issued. The decision or attachment need not refer to the property alienated, and need
not have been obtained by the party seeking rescission.

Marcopper with cash flow support for the payment to ADB of its obligations. When Marcopper ceased
operations on account of disastrous mine tailings spill into the Boac River and ADB pressed for payment of the
loan, Placer Dome agreed to have its subsidiary, herein petitioner, paid ADB the amount of US
$18,453,450.12. Thereupon, ADB and Marcopper executed, respectively, in favor of petitioner an "Assignment
Agreement" and a "Deed of Assignment." Obviously, the assignment contracts were connected with
transactions that happened long before the rendition in 1997 of the Partial Judgment in Civil Case No. 9680083 by the Manila RTC. Those contracts cannot be viewed in isolation. If we may add, it is highly
inconceivable that ADB, a reputable international financial organization, will connive with Marcopper to feign or
simulate a contract in 1992 just to defraud Solidbank for its claim four years thereafter. And it is equally
incredible for petitioner to be paying the huge sum of US $ 18,453,450.12 to ADB only for the purpose of
defrauding Solidbank of the sum of P52,970,756.89.
It is said that the test as to whether or not a conveyance is fraudulent is -- does it prejudice the rights of
creditors?38 We cannot see how Solidbanks right was prejudiced by the assignment contracts considering that
substantially all of Marcoppers properties were already covered by the registered "Deed of Real Estate and
Chattel Mortgage" executed by Marcopper in favor of ADB as early as November 11, 1992. As such, Solidbank
cannot assert a better right than ADB, the latter being a preferred creditor. It is basic that mortgaged properties
answer primarily for the mortgaged credit, not for the judgment credit of the mortgagors unsecured creditor.
Considering that petitioner assumed Marcoppers debt to ADB, it follows that Solidbanks right as judgment
creditor over the subject properties must give way to that of the former.1wphi1.nt
III
The record is lacking in circumstances that would suggest that petitioner corporation, Placer Dome and
Marcopper are one and the same entity. While admittedly, petitioner is a wholly-owned subsidiary of Placer
Dome, which in turn, which, in turn, was then a minority stockholder of Marcopper, however, the mere fact
that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify
their being treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence
shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those
arising in their respective business.39
The recent case of Philippine National Bank vs. Ritratto Group Inc.,40 outlines the circumstances which are
useful in the determination of whether a subsidiary is but a mere instrumentality of the parent-corporation, to
wit:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.

In addition to these presumptions, the design to defraud creditors may be proved in any other
manner recognized by law and of evidence.

(b) The parent and subsidiary corporations have common directors or officers.

This article presumes the existence of fraud made by a debtor. Thus, in the absence of satisfactory evidence
to the contrary, an alienation of a property will be held fraudulent if it is made after a judgment has been
rendered against the debtor making the alienation. 34 This presumption of fraud is not conclusive and may be
rebutted by satisfactory and convincing evidence. All that is necessary is to establish affirmatively that the
conveyance is made in good faith and for a sufficient and valuable consideration. 35

(c) The parent corporation finances the subsidiary.

The "Assignment Agreement" and the "Deed of Assignment" were executed for valuable considerations.
Patent from the "Assignment Agreement" is the fact that petitioner assumed the payment of US$
18,453,450.12 to ADB in satisfaction of Marcoppers remaining debt as of March 20, 1997. 36 Solidbank cannot
deny this fact considering that a substantial portion of the said payment, in the sum of US$ 13,886,791.06,
was remitted in favor of the Bank of Nova Scotia, its major stockholder.37

(e) The subsidiary has grossly inadequate capital.

The facts of the case so far show that the assignment contracts were executed in good faith. The execution of
the "Assignment Agreement" on March 20, 1997 and the "Deed of Assignment" on December 8,1997 is not
the alphaof this case. While the execution of these assignment contracts almost coincided with the rendition
on May 7, 1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC, however, there was no
intention on the part of petitioner to defeat Solidbanks claim. It bears reiterating that as early as November 4,
1992, Placer Dome had already bound itself under a "Support and Standby Credit Agreement" to provide

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes
its incorporation.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets
except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporations own.

(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary, but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
In this catena of circumstances, what is only extant in the records is the matter of stock ownership.
There are no other factors indicative that petitioner is a mere instrumentality of Marcopper or Placer
Dome. The mere fact that Placer Dome agreed, under the terms of the "Support and Standby Credit
Agreement" to provide Marcopper with cash flow support in paying its obligations to ADB, does not mean that
its personality has merged with that of Marcopper. This singular undertaking, performed by Placer Dome with
its own stockholders in Canada and elsewhere, is not a sufficient ground to merge its corporate personality
with Marcopper which has its own set of shareholders, dominated mostly by Filipino citizens. The same view
applies to petitioners payment of Marcoppers remaining debt to ADB.
With the foregoing considerations and the absence of fraud in the transaction of the three foreign corporations,
we find it improper to pierce the veil of corporate fiction that equitable doctrine developed to address
situations where the corporate personality of a corporation is abused or used for wrongful purposes.
IV
On the issue of forum shopping, there could have been a violation of the rules thereon if petitioner and
Marcopper were indeed one and the same entity. But since petitioner has a separate personality, it has the
right to pursue its third-party claim by filing the independent reivindicatory action with the RTC of Boac,
Marinduque, pursuant to Rule 39, Section 16 of the 1997 Rules of Civil Procedures. This remedy has been
recognized in a long line of cases decided by this Court. 41 In Rodriguez vs. Court of Appeals,42 we held:
". . . It has long been settled in this jurisdiction that the claim of ownership of a third party over
properties levied for execution of a judgment presents no issue for determination by the court
issuing the writ of execution.

"SEC. 3 Grounds for issuance of preliminary injunction. A preliminary injunction may be granted
when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the acts or acts complained of during
the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the judgment
ineffectual."
Petitioners right to stop the further execution of the properties covered by the assignment contracts is clear
under the facts so far established. An execution can be issued only against a party and not against one who
did not have his day in court.44 The duty of the sheriff is to levy the property of the judgment debtor not that of
a third person. For, as the saying goes, one mans goods shall not be sold for another man's debts. 45 To allow
the execution of petitioners properties would surely work injustice to it and render the judgment on the
reivindicatory action, should it be favorable, ineffectual. In Arabay, Inc., vs. Salvador,46 this Court held that an
injunction is a proper remedy to prevent a sheriff from selling the property of one person for the purpose of
paying the debts of another; and that while the general rule is that no court has authority to interfere by
injunction with the judgments or decrees of another court of equal or concurrent or coordinate jurisdiction,
however, it is not so when a third-party claimant is involved. We quote the instructive words of Justice
Querube C. Makalintal in Abiera vs. Court of Appeals,47 thus:
"The rationale of the decision in the Herald Publishing Company case 48 is peculiarly applicable to
the one before Us, and removes it from the general doctrine enunciated in the decisions cited by
the respondents and quoted earlier herein.

. . .Thus, when a property levied upon by the sheriff pursuant to a writ of execution is claimed by
third person in a sworn statement of ownership thereof, as prescribed by the rules, an entirely
different matter calling for a new adjudication arises. And dealing as it does with the all
important question of title, it is reasonable to require the filing of proper pleadings and the holding
of a trial on the matter in view of the requirements of due process.

1. Under Section 17 of Rule 39 a third person who claims property levied upon on execution may
vindicate such claim by action. Obviously a judgment rendered in his favor, that is, declaring him to
be the owner of the property, would not constitute interference with the powers or processes of the
court which rendered the judgment to enforce which the execution was levied. If that be so and
it is so because the property, being that of a stranger, is not subject to levy then an
interlocutory order such as injunction, upon a claim and prima facie showing of ownership
by the claimant, cannot be considered as such interference either."

. . . In other words, construing Section 17 of Rule 39 of the Revised Rules of Court (now Section
16 of the 1997 Rules of Civil Procedure), the rights of third-party claimants over certain properties
levied upon by the sheriff to satisfy the judgment may not be taken up in the case where such
claims are presented but in a separate and independent action instituted by the claimants."
(Emphasis supplied)

WHEREFORE, the petition is GRANTED. The assailed Decision dated January 8, 1999 and the Resolution
dated March 29, 1999 of the Court of Appeals in CA G.R. No. 49226 are set aside. Upon filing of a bond
ofP1,000,000.00, respondent sheriffs are restrained from further implementing the writ of execution issued in
Civil Case No. 96-80083 by the RTC, Branch 26, Manila, until further orders from this Court. The RTC, Branch
94, Boac, Marinduque, is directed to dispose of Civil Case No. 98-13 with dispatch.

This "reivindicatory action" has for its object the recovery of ownership or possession of the property seized by
the sheriff, despite the third party claim, as well as damages resulting therefrom, and it may be brought against
the sheriff and such other parties as may be alleged to have connived with him in the supposedly wrongful
execution proceedings, such as the judgment creditor himself. Such action is an entirely separate and
distinct action from that in which execution has been issued. Thus, there being no identity of parties and
cause of action between Civil Case No. 98-13 (RTC, Boac) and those cases filed by Marcopper, including Civil
Case No. 96-80083 (RTC, Manila) as to give rise to res judicata or litis pendentia, Solidbanks allegation of
forum-shopping cannot prosper.43
All considered, we find petitioner to be entitled to the issuance of a writ of preliminary injunction. Section 3,
Rule 58 of the 1997 Rules of Civil Procedure provides:

SO ORDERED.
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.
G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD
SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON
GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL,
defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendantsappellants.

FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental
in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion
of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract, Appendix "F", of
the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage lien on the machineries and other
chattels mentioned therein, all of which are property of the defendant partnership "Isabela Sawmill", (2) that
the plaintiffs, as creditors of the defendant partnership, have a preferred right over the assets of the said
partnership and over the proceeds of their sale at public auction, superior to the right of the defendant
Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the
defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with
legal interest thereon from the filing of the complaint on June 5, 1959; (4) that the same defendant is indebted
to the plaintiff Manuel G. Singsong in the total amount of P5,723.50, with interest thereon at the rate of 1 %
per month from May 6, 1959, (the date of the statements of account, Exhs. "L" and "M"), and 25% of the total
indebtedness at the time of payment, for attorneys' fees, both interest and attorneys fees being stipulated in
Exhs. "I" to "17", inclusive; (5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the
amount of P933.73, with legal interest thereon from the filing of the complaint on June 5, 1959; (6) that the
same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest
thereon from the filing of the complaint on June 5, 1959; (7) that the same defendant is indebted to the plaintiff
Bacolod Southern Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the filing of the
complaint on June 5, 1959; (8) that the same defendant is indebted to the plaintiff Jose Belzunce in the
amount of P2,052.10, with legal interest thereon from the filing of the complaint on June 5. 1959; (9) that the
defendant Margarita G. Saldajeno, having purchased at public auction the assets of the defendant partnership
over which the plaintiffs have a preferred right, and having sold said assets for P 45,000.00, is bound to pay to
each of the plaintiffs the respective amounts for which the defendant partnership is held indebted to, them, as
above indicated and she is hereby ordered to pay the said amounts, plus attorneys fees equivalent to 25% of
the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20%
of the respective judgments in favor of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil
Code of the Philippines; (10) The defendants Leon Garibay and Timoteo Tibungbanua are hereby ordered to
pay to the plaintiffs the respective amounts adjudged in their favor in the event that said plaintiffs cannot
recover them from the defendant Margarita G. Saldajeno and the surety on the bond that she has filed for the
lifting of the injunction ordered by this court upon the commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid Timoteo
Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs.
SO ORDERED. 1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the
Supreme Court "considering that the resolution of this appeal involves purely questions or question of law over
which this Court has no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern
Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I,
against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo
Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of Negros
Occidental from proceeding with the sales at public auction that he advertised in two notices issued by him on
May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until further orders of this Court;
and to make said injunction permanent after hearing on the merits:

(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson the sum
of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for attorney's fees, and
costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest thereon and 25%
attorney's fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78, plus
6% annual interest thereon and 25% attorney's fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc.
the sum of P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and costs:
(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo Tubungbanua
in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and void being in fraud of
creditors of the defendant partnership and without valuable consideration insofar as the said defendant is
concerned:
(4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership in case
the latter fails to pay the judgment that the plaintiffs may recover in the action, with instructions that the
proceeds of the sale b e applied in payment of said judgment before any part of saod proceeds is paid to the
defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared jointly
liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of the sale of the assets of
the defendnt partnership are supplied in payment of the judgment that said plaintiffs may recover in this action;
(6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled to, with
costs to the defendants.
Bacolod City, June 4, 1959. 3
The action was docketed as Civil Case No. 5343 of said court.

6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances, gasoline,
crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of defendants Margarita G. Isabela
Sawmill as a former partnership of defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved;
7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc., Agustin
R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the amounts sought to
be recovered by them in this action is less than P2,000.00 each, exclusive of interests;
8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of
parties because this is not a class suit, and therefore this Honorable Court cannot take jurisdictionof the claims
for payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned inthe
statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming that there were
such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence
that a court of first instance has no power or jurisdiction to annul judgments or decrees of a coordinate court
because other function devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R. No. L13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124),
as it appears from the complaint in this case to annul the decision of this same court, but of another branch
(Branch II, Judge Querubin presiding). 4
Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua
praying "that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs
the amount claimed in the latter's complaint, that the cross claimant whatever amount is paid by the latter to
the plaintiff in accordance to the said judgment. ... 5

In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged
the following special and affirmative defenses:

After trial, judgment was rendered in favor of the plaintiffs and against the defendants.

xxx xxx xxx

The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals
assigning the following errors:

2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter of:
Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;

I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.

3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros Occidental
in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became
the successors-in-interest to the said defunct partnership and have bound themselves to answere for any and
all obligations of the defunct partnership to its creditors and third persons;
4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo
Tubungbanua to the answering defendant herein, the former have constituted a chattel mortgage over the
properties mentioned in the annexes to that instrument entitled "Assignment of Rights with Chattel Mortgage"
entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental on the same
date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of Messrs.
Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such they have no
cause of action against answering defendant herein and the defendant Isabela Sawmill;

II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE WITHDRAWAL
OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE
DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA
SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID
MARGARITA G. SALDAJENO).
IV

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.

V
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958,
WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED IN
CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS
NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANTAPPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223
CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G. SALDAJENO
BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE
MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL
CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE
FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY
THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION OF THE OLD
PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE
TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.

1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo
Tubungbanua entered into a Contract of Partnership under the firm name "Isabela Sawmill", a copy of which is
hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the
partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the said purcahse price, the said
partnership agreed to make arrangements with the International Harvester Company at Bacolod City so that
the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to be
paid by the partnership. A copy of the corresponding contract of sle is attached hereto as Appendix "B".
3. That through the method of payment stipulated in the contract marked as Appendix "B" herein, the
International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of P1,288.89
as shown in the statements hereto attached as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita G.
Saldajeno against the Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy of which Complaint
is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and Margarita G. Saldajeno
entered into a "Memorandum Agreement", a copy of which is hereto attached as Appendix 'E' in Civil Case
4797 of the Court of First Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno
executed a document entitled "Assignment of Rights with Chattel Mortgage", a copy of which documents and
its Annexes "A" to "A-5" forming a part of the record of the above mentioned Civil Case No. 4797, which deed
was referred to in the Decision of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797 dated
May 29, 1958, a copy of which is hereto attached as Appendix "F" and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and
properties of the "Isabela Sawmill" between them, but they continued the business of said partnership under
the same firm name "Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he would
sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain trucks, tractors, machinery,
officeequipment and other things that were involved in Civil Case No. 5223 of the Court of First Instance of
Negros Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1".

X
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-APPELLEES.

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a Certificate ofSale in favor
of the defendant Margarita G. Saldajeno, as a result of the sale conducted by him on October 14 and 15, 1959
for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, a certified copy of which certificte of sale is hereto attached as Appendix "H".

XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA. 6

10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of the
Pan Oriental Lumber Company transfering to the latter for the sum of P45,000.00 the trucks, tractors,
machinery, and other things that she had purchashed at a public auction referred to in the foregoing
paragraph, a certified true copy of which Deed of Sale is hereto attached as Appendix "I".

The facts, as found by the trial court, are:

11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.

At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio and
Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation
reads as folows:

Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B", "C",
"C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I".

The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly
documentary, while the cross-defendants did not present any evidence. The case hardly involves quetions of
fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October 6,
1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the
said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leavng an unpaid balance of
P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of the
defendant partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May 25,
1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and bran, on account of
which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff also proved that
the partnership ownes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his Exhs.
"N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard advanced the
sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash advance, the defendant
partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of
P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano Palmares
an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of P1,500.00 to the
defendsant 'Isabela Sawmill', that against the said cash advance, the defendant partnership delivered to the
said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on January 27,
1959, leaving an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness, and
through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he sold to the defedant
"Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of said transactions, the
defendant partnersip ownes him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff sold to
the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant "Isabela Sawmill" which the
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and said purchase price was
applied to the judgment that she has obtained against he said mortgagors in Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita G.
Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties that she
had bought at public aucton one week before.
xxx xxx xxx 7
It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over
Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the
Bacolod Southern Lumber Yard sought to collect sums of moeny, the biggest amount of which was less than
P2,000.00 and, therefore, within the jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right
with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon
Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls

under the jurisdiction of the Court of First Instnace. Where the basic issue is something more than the right to
recover a sum of money and where the money claim is purely incidental to or a consequence of the principal
relief sought, the action is as a case where the subject of the litigation is not capable of pecuniary estimation
and is cognizable exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of
litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have
exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation.
An action for the annulment of a judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this
Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the cliam is considered capable of pecuniary estimation, and
whether jurisdiciton is in the municipal courts or in the courts of first instance would depend on the amount of
the claim. However, where the basic issue is something other than the right to recover a sum of money, where
the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject ogf the litigation may not be estimated in terms of money,
and are cognizable exclusively by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:
Actions for specific performance of contracts have been expressly prounounced to be exclusively cognizable
by courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28, 1967;Manufacturers'
Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason appears, and none is here
advanced by the parties, why an actin for rescission (or resolution) should be differently treated, a "rescission"
being a counterpart, so to speak, of "specific performance'. In both cases, the court would certainly have to
undertake an investigation into facts that would justify one act of the other. No award for damages may be had
in an action for resicssion without first conducting an inquiry into matters which would justify the setting aside
of a contract, in the same manner that courts of first instance would have to make findings of fact and law in
actions not capable of pecuniary estimnation espressly held to be so by this Court, arising from issues like
those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the conveyance
sought for and the determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285,
April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a
mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right to support
created by the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963
(the validity or nullity of documents upon which claims are predicated). Issues of the same nature may be
raised by a party against whom an action for rescission has been brought, or by the plaintiff himself. It is,
therefore, difficult to see why a prayer for damages in an action for rescission should be taken as the basis for
concluding such action for resiccison should be taken as the basis for concluding such action as one cpable of
pecuniary estimation - a prayer which must be included in the main action if plaintiff is to be compensated for
what he may have suffered as a result of the breach committed by defendant, and not later on precluded from
recovering damages by the rule against splitting a cause of action and discouraging multiplicitly of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this Court
held:
On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was ruled
therein that although the purposes of an action is to recover an amount plus interest which comes within the
original jurisidction of the Justice of the Peace Court, yet when said action involves the foreclosure of a chattel
mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action should be
instituted before the Court of First Instance.
In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves the
foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is clearly within the
competence of the respondent court to try and resolve.

In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in
exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be annulled because it had been
judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel
mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and
coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot be
allowed to interfere with each others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case

12

where this Court said:

The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch of the
same court is not infringed when the Judge who modifies or annuls the order isued by the other Judge acts in
the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is infringed
when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoint the sheriff
from carrying out an order by execution issued in another case by the Judge of another branch of the same
court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was
rendered by the Court of First Instance of Iloilo and the action for annullment was filed with the Court of First
Instance of Antique, both courts belonging to the same Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not only possessed by but restricted to the court in which
the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be
interfered with by any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First
Instance belongs solely to the very same branch which rendered the judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v.
Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that
the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent
jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court feels that this is as
good an occasion as any to re-examine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity of
the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right to
judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the actgion

which grave rise to the judgment sought to be annulled, for a direct attack against a final and executory
judgment is not a incidental to, but is the main object of the proceeding. The cause of action in the two cases
being distinct and separate from each other, there is no plausible reason why the venue of the action to annul
the judgment should necessarily follow the venue of the previous action ...
The present doctrine which postulate that one court or one branch of a court may not annul the judgment of
another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court)
but also limit the opportunity for the application of said rule.
Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and
jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered by
another court of first instance or by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First
Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two
branches of the same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying
on of the business. 18 However, on dissolution, the partnershop is not terminated but continuous until the
winding up to the business. 19
The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding
up the business of the partnership, they continued the business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement that the remaining partners had constituted themselves
as the partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo
Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used
the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo
Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was
correctly held liable by the trial court because she purchased at public auction the properties of the partnership
which were mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended
to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela
Sawmill" could be enforced against the proeprties of said partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the
partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the
liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua
continue doing the business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement
with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in
good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno
not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the aprtnership, the applees would not have been misled into thinking that they were still
dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that technically speaking the

partnership "Isabela Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The
partnership was not terminated and it continued doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the
propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G.
Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may
exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which would positively result to him from the contract in which he
has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the action to nullify the
chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffsappellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the
rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable
to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by
their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay
and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela
Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo
Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio
Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.

ANGELINA J. MALABANAN, petitioner,

vs.
GAW CHING and THE INTERMEDIATE APPELLATE COURT, respondents.
G.R. No. L-75524-25 January 17, 1990
LEONIDA CHY SENOLOS, LEONARD CHAN and LEONSO CHY CHAN, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and GAW CHING, respondents.
Puruganan, Chato, Chato, Chato & Tan and Romero, Lagman, Torres, Arrieta & Evangelista for
petitioners in 75524-25.
Quiason, Makalintal, Barot & Torres for petitioners in 74938-39.
Limqueco & Macaraeg Law Office and Herminio T. Sugay for respondent Gaw Ching.
RESOLUTION

FELICIANO, J.:
The two (2) Petitions before us G.R. Nos. 74938-39 and 75524-25 assail the decision of the then
Intermediate Appellate Court in A.C.-G.R. CV Nos. 05136-05137 dated 31 January 1986, which reversed
the decision of the Regional Trial Court in two (2) consolidated cases, namely: Civil Case No. R-81-416
and Civil Case No. R-82-6789. Upon motion of petitioners, we ordered the consolidation of the two (2)
Petitions.
Respondent Gaw Ching instituted two (2) cases against petitioners Angelina Malabanan, Leonida
Senolos, et al. in connection with the sale of piece of land located in Binondo, Manila. The first case,
Civil Case No. R-81-416, sought to annul such sale and to enjoin the demolition of a building standing
on that piece of land, and also prayed for the award of damages. The second case, Civil Case No. G.R.
82-6798, demanded damages from petitioner Senolos for bringing about the demolition of the building.
The following facts found by the trial court, and adopted and incorporated by the appellate court, are
undisputed:

G.R. No. 74938-39 January 17, 1990

Evidence for plaintiff showed that Gaw Ching has been leasing the house and lot located [in] 697-699
Asuncion Street, Binondo, Manila from Mr. Jabit since 1951. Plaintiff conducted his business (Victoria
Blacksmith Shop) on the ground floor and lived on the second floor. When Mr. Jabit died, his daughter,
defendant Malabanan continued to lease the premises to plaintiff but at an increased rental of
P1,000.00 per month. Before the increase, Gaw Ching paid P700.00 per month, as evidenced by
receipts of rentals. There was no written contract of lease between plaintiff and Mr. Jabit as to its
duration but the rentals were evidently, paid monthly. On April 27, 1980, Angelina Malabanan told him
that she was selling the house and lot for P5,000.00 per square meter. Plaintiff told her however, that
the price is prohibitive. On May 13, 1980, defendant Malabanan wrote plaintiff, reiterating that she was
selling the house and lot at P5,000.00 per square meter and that if he is not agreeable, she will sell it to
another person. After receiving the letter, plaintiff turned over the letter to his counsel, Atty. Sugay.
Gaw Ching claims that he is not in a position to buy the property at P5,000.00 per square meter
because it was expensive. Subsequently, Gaw Ching tried to pay the rent for June, 1980, but
Malabanan refused to accept it. Plaintiff's counsel advised him to deposit the rentals in a bank which
he did, after which, his counsel wrote Malabanan informing her about the deposit (Exh. B). On October
2, 1980, plaintiff received another letter from defendant Malabanan which he gave to his counsel who
told him that said defendant is offering the house and lot at P5,000.00 per square meter and that if he

is not agreeable, she will sell the premises to another person at P4,000.00 per square meter. Plaintiff
testified that he was willing to buy the subject property at P4,000.00 but hastened to add that it was
still expensive and did not ask his counsel to write Malabanan about it. So, also, it was the opinion of
his counsel that it was not necessary to reply because the context of the letter was invariably a threat.
On November 3, 1980, plaintiff received another letter from Defendant Malabanan, informing him that
the premises in question had already been sold to defendant Leonida Senolos. This time, Atty. Sugay
sent a reply dated November 24, 1980, requesting that the pertinent documents of the sale be sent to
them but according to plaintiff, they were not furnished a copy of said sale. Consequently, plaintiff
received a letter from Atty. Techico dated December 5, 1980 demanding that he vacate the premises
and to pay the arrearages in rentals from October to December, as they were more importantly, going
to repair and convert the dwelling into a warehouse. Atty. Sugay sent a reply dated February 17, 1981
(Exh. C) requesting Atty. Techico to furnish them with the Deed of Sale and TCT because he doubted
the veracity of the sale. It took a long time before Atty. Sugay's letter was answered and he was never
furnished a copy of the Deed of Sale and Transfer Certificate of Title. After exerting all efforts, plaintiff
finally was able to procure a copy of the Deed of Sale and TCT No. 14789 (Exh- A) which reflected that
the date of entry of the Deed of Sale was December 9, 1980, whereas the Deed of Sale was dated
August 23, 1979 (Exh. I). Plaintiff then told Atty. Sugay to file a civil case against defendants. On
October 7, 1981, Atty. Techico sent a reply to Atty. Sugay's letter of February 17, 1981 (Exh K). Plaintiff
presented the receipt of rentals he paid (Exhs. L to L-6). He deposited the monthly rentals which
Malabanan refused to accept, with the Pacific Banking Corporation (Exh. M). At a later period, plaintiff
had to move out of the premises when it was demolished by the defendant. Gaw Ching however,
admitted that he was not yet a Filipino Citizen at the time the offer to sell was made, i.e., on April 27,
1980, May 13, 1980 and October 2, 1980 and that he became a Filipino citizen only on October 7, 1980,
when he was issued a certificate of naturalization (Exh. 1-Malabanan). He did not, however, inform
Malabanan on the matter of his newly acquired citizenship. Likewise, Gaw Ching admitted that he did
not make any counter-offer in writing so as to price the property.
As to plaintiffs claim for damages, he testified, that this was motivated by the incident on November
16, 1981, while he was on the ground floor, when there was a sudden brownout, and around 50 people
came thereat, climbed the roof with the use of a ladder, cut the electric wires and started banging the
roof. Plaintiff, his wife, and mother-in-law were in the house and about 7 laborers were in the shop
when the incident happened. Plaintiff then immediately called up Atty. Sugay and told him that Leonida
Senolos called some people to demolish the house. Plaintiff further testified that ... he was not notified
of the demolition. . . . On that same day, Atty. Sugay arrived at about 10:00 a.m. and told plaintiff that
he was going to the City Hall. When Atty. Sugay came back, he was with Roldan (Building Inspector),
who ordered that the demolition be stopped, but Leonida Senolos refused to heed the order. Atty.
Sugay and Roldan went back to the City Hall. . . . At about 3:00 p.m., Atty. Sugay came back with
another person from the City Hall who presented a letter to Leonida Senolos to which defendant
affixed her signature. The formal letter was dated November 6, 1981 addressed to Leonida Senolos by
Romulo del Rosario, City Engineer and Building Officer. Upon receipt of the letter, the policeman
remained but the demolition continued. Plaintiff together with Atty. Sugay, and the City Hall official,
went to the police precinct where the City Hall Official talked with somebody in the precinct. It was
only when they returned to the premises at about 4:00 p.m. with a policeman that the demolition was
stopped. . . .
On cross examination, plaintiff admitted that he received a letter from the Office of the City Engineer
dated July 29, 1981 (Exh. 1-Senolos) condemning the building. He also admitted that he was furnished
a copy of the Demolition Order (Exh. 2-Senolos) to which he affixed his signature.
After receiving Exhibits "I" and "2," Gaw Ching still refused to vacate the premises because he was
told that the building was still in good condition and he continued paying the monthly rental.
On redirect, plaintiff declared that after receiving the notice of the City Engineer, he filed a complaint
with the Ministry of Public Works and Highways by reason of which, the MPWH issued an order that
the demolition to be stopped. (Exh. 3).
xxx xxx xxx

Another witness presented by plaintiff was Felix Tienzo, Actg. Chief of Enforcement Division, (Ministry
of Public Works and Highways). . .
Mr. Felix Tienzo believes that the City of Manila was correct in ordering the demolition of the building
but he intended to hold in abeyance the demolition of the building only in obedience to the order of
the MPWH. However, both Mr. Tienzo and Mr. Roldan claim that they do not usually receive an order
from the MPWH stopping the demolitions.
xxx xxx xxx 1
On 10 August 1984, the trial court rendered a decision which upheld the validity of the contract of sale
between petitioner Malabanan and petitioner Senolos. The trial court declared that petitioner
Malabanan had not violated Sections 4 and 6 of Presidential Decree No. 1517 in relation to Presidential
Proclamation No. 1893 and Letter of Instruction (LOI) No. 935 which provide for a preemptive right on
the part of a lessee over leased property. The trial court stressed that respondent Gaw Ching had been
given ample opportunity to exercise any right of first refusal he might have had, but he had chosen not
to do so.
Respondent Gaw Ching went on appeal to the then Intermediate Appellate Court. By a vote of three (3)
to two (2), the appellate court voted to reverse the decision of the trial court and hence to nullify the
contract of sale between petitioners Malabanan and Senolos inter se. 2 The majority also held that the
transaction between petitioners was vitiated by fraud, deceit and bad faith allegedly causing damage
to respondent Gaw Ching. Petitioners were held liable jointly and severally to respondent for moral,
exemplary and actual damages in the amount of P350,000.00 and for attorney's fees in the amount of
P20,000.00
for the indulgence in inequitous conduct to plaintiff-appellant's (respondent Gaw Ching) prejudice and
for the unwarranted demolition of the building by defendants-appellees (petitioners herein) after the
issuance of the cease-and-desist order on October 30, 1981.
While holding that the land in question was located outside the Urban Land Reform Zone declared by
Proclamations Nos. 1767 and 1967, the majority ruled that circumstances surrounding the sale of the
land to petitioner Senolos had rendered that sale null and void. The majority were here referring to the
finding that when petitioner Malabanan offered in October 1980 to sell the land involved to respondent
Gaw Ching at P5,000.00 per square meter, that land had already been sold to petitioner Senolos as
early as August 1979 for only P1,176.48 per square meter. On the matter of the demolition of the
building, the majority held that the same was unwarranted and that even if petitioner Senolos had a
demolition order,
that order of demolition was valid only if there are no more tenants residing in the building. If there are
tenants and they refused to vacate, the order of demolition is unavailing. It could not rise higher than
the Civil Code and the Rules of Court. 3
In the instant Petitions for Certiorari, petitioners assail both the annulment of the deed of sale and the
grant of P350,000.00 worth of "moral, exemplary and actual damages" to respondent Gaw Ching.
We believe that the Petitions must be granted.
I
The firmly settled rule is that strangers to a contract cannot sue either or both of the contracting
parties to annul and set aside that contract. Article 1397 of the Civil Code embodies that rule in the
following formulation:

Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those
with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these flaws of the contract. (Emphasis
supplied)
Article 1397 itself follows from Article 1311 of the Civil Code which establishes the fundamental rule
that:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.
xxx xxx xxx
(Emphasis supplied)
As long ago as 1912, this Court in Ibanez v. Hongkong and Shanghai Bank, 4 pointed out that it is the
existence of an interest in a particular contract that is the basis of one's right to sue for nullification of
that contract and that essential interest in a given contract is, in general, possessed only by one who
is a party to the contract. In Ibanez, Mr. Justice Torres wrote:
From these legal provisions it is deduced that it is the interest had in a given contract, that is the
determining reason of the right which lies in favor of the party obligated principally or subsidiarily to
enable him to bring an action for the nullity of the contract in which he intervened, and, therefore, he
who has no right in a contract is not entitled to prosecute an action for nullity, for, according to the
precedents established by the courts, the person who is not a party to a contract nor has any cause of
action or representation from those who intervened therein, is manifestly without right of action and
personality such as to enable him to assail the validity of the contract. (Decisions of the Supreme
Court of Spain, of April 18, 1901, and November 23, 1903, pronounced in cases requiring an
application of the preinserted article 1302 of the Civil Code. 5
Mr. Justice Torres went on to indicate a possible qualification to the above general principle, that is, a
situation where a non-party to a contract could be allowed to bring an action for declaring that
contract null:

What is important for present purposes is that respondent Gaw Ching, admittedly a stranger to the
contract of sale of a piece of land between petitioners Malabanan and Senolos inter se, does not fall
within the possible exception recognized in Ibanez v. Hongkong & Shanghai Bank. In the first place,
Gaw Ching had no legal right of preemption in respect of the house and lot here involved. The majority
opinion of the appellate court itself explicitly found that the subject piece of land is located outside the
Urban Land Reform Zones declared pursuant to P.D. No. 1517. 7 Even assuming for purposes of
argument merely, that the land here involved was in fact embraced in a declared Urban Land Reform
Zone (which it was not), Gaw Ching would still not have been entitled to a right of preemption in
respect of the land sold. In Santos v. Court of Appeals, 8 this Court held that the preemptive or
redemptive rights of a lessee under P.D. No. 1517 exists only in respect of the urban land under lease
on which the tenant or lessee had built his home and in which he had resided for ten (10) years or
more and that, in consequence, where both land and building belong to the lessor, that preemptive or
redemptive right was simply not available under the law.
Finally, we are unable to understand the respondent appellate court's view that respondent Gaw Ching
having been a long-time tenant of the property in question, had acquired a preferred right to purchase
that property. This holding is simply bereft of any legal basis. We know of no law, outside the Urban
Land Reform Zone or P.D. No. 1517, that grants such a right to a lessee no matter how long the period
of the lease has been. If such right existed at all, it could only have been created by
contract; 9 respondent Gaw Ching does not, however, pretend that there had been such a contractual
stipulation between him and petitioners.
In the second place, assuming once again, for present purposes only, that respondent Gaw Ching did
have a preemptive right to purchase the land from petitioner Malabanan (which he did not), it must be
stressed that petitioner Malabanan did thrice offer the land to Gaw Ching but the latter had
consistently refused to buy. Since Gaw Ching did not in fact accept the offer to sell and did not buy the
land, he suffered no prejudice, and could not have suffered any prejudice, by the sale of the same
piece of land to petitioner Senolos. No fraud was thus worked upon him notwithstanding his
insinuation that the sale of the land to petitioner Senolos had preceded the offer of the same piece of
land to himself.
In the third place, and contrary to the holding of the majority appellate court opinion, the fact that Gaw
Ching had been lessee of the house and lot was simply not enough basis for a right to bring an action
to set aside the contract of sale between the petitioners inter se. A lessee, it is elementary, cannot
attack the title of his lessor over the subject matter of the lease. 10 Moreover, the lease contract
between petitioner Malabanan and respondent Gaw Ching must in any case be held to have lapsed
when the leased house was condemned and the order of demolition issued.
II

He who is not the party obligated principally or subsidiarily in a contract may perhaps be entitled to
exercise an action for nullity, if he is prejudiced in his rights with respect to one of the contracting
parties; but, in order that such be the case, it is indispensable to show the detriment which positively
would result to him from the contract in which he had no intervention
xxx xxx xxx

We consider next petitioners' claim that the appellate court erred grievously in imposing upon them an
award of P350,000.00 for "moral, exemplary and actual damages" not only because petitioners had
"indulged in inequitous conduct to [respondent Gaw Ching's] prejudice" but also "for the unwarranted
demolition of the building by [petitioners] after the issuance of the cease and desist order on October
30, 1981."

(Emphasis supplied)

Here again, we are compelled to hold that the appellate court lapsed into reversible error. The relevant
conclusions of fact which the trial court arrived at are set out in its decision in the following manner:

There is an important and clear, albeit implicit, limitation upon the right of a person who is in fact
injured by the very operation of a contract between two (2) third parties to sue to nullify that contract:
that contract may be nullified only to the extent that such nullification is absolutely necessary to
protect the plaintiff's lawful rights. It may be expected that in most instances, an injunction restraining
the carrying out of acts in fact injurious to the plaintiff's rights would be sufficient and that there
should be no need to set aside the contract itself which is a res inter alios acta and which may have
any number of other provisions, implementation of which might have no impact at all upon the
plaintiff's rights and interests.

On the legality of the demolition necessarily raising the question: (3) whether or not plaintiff was
notified within a reasonable period of time of the demolition, and a fortiori whether this admittedly
exercise of police power, the validity of which was already being determined by the Court could be
stopped by a pretenatural [sic] administrative order from the office of the Assistant Secretary for
Operation of the MPWH brought about by an appeal by a person other than the owner of the building,
which office had not done anything to immediately forestall the imminent injury to person and damage
to property. (Please see P.D. 1096, Rule XII, Sec. 5 thereof).

In the first place, the claim of the plaintiff that the demolition of the house rented by him came as a
surprise, is fiercely contradicted by his own evidence. A copy of the demolition order is attached to
the complaint as Annex "L", now marked as Exhibit "9" for the defendant Senolos, unmistakably show
that plaintiff received a copy of the order of demolition from the City Engineer's Office, approved by
the Mayor, on October 5, 1981.
Verily, the present action before the Court is procedurally and substantially correct in abating a
nuisance. This exercise of police power is not only being cordoned sanitaired [sic] by the doctrinal
pronouncements, the provisions of Art. 482 in relation to Art. 436 of the Civil Code, Sections 275 and
276 of the compilation of ordinances of the City of Manila but also by Rule VII, par. 5 of the
implementing Rules and Regulations of the National Building Code of the Philippines (P.D. 1096).
Indeed, the latter law does not authorize any person other than the owner, to appeal the order of the
City Engineer to the Ministry of Public Works and Highways. This is the position espoused by the City
Legal Officer of Manila in defense of the City Engineer and the Mayor, in opposition to the move of the
plaintiff to dismiss the order of demolition as improvidently issued.
The demolition was invariably a valid exercise of police power which may be ordered done by the
authorities or caused to be done at the expense of the owner. The exigency is made more demanding
especially, the demolition, when it was ordered stopped thru an order inadvertently issued, as it was
not as a consequence of an appeal by the owner of the building, but by the lessee, was during its last
stages.
It therefore stands to reason that the order of demolition which is unquestionably legal could not be
stopped by an inoperative administrative order, assuming that the appeal to the MPWH could validly
be filed by the lessee, as it was filed only during the finishing touches of a demolition. Decidedly, the
move exude physiological features of delay. This is compounded by the failure of the MPWH to act
assertively, which in a sense, could be interpreted as an admission that the issuance of the order was
inopportune.
On the claim for damages predicated on (4) whether or not there was an indscriminate careless
handling and pilferage of the properties of the plaintiff, causing their loss or destruction:
It is readily explained that between October 5, 1981 to November 6,1981, plaintiff could have avoided
the misplaced fear, but assuming without having necessarily to concede that he was not able to guard
against an actual demolition on November 6, 1981, rendering him so helpless, and prompting him to
just sit on the sidewalk and watch the demolition team wreck the building indiscriminately, thereby
causing destruction and loss of his personal properties, such as: (a) office equipment; (b) assorted
tools; (c) machines; (d) finished products; and (e) steel box containing jewelries. The claim is almost
too good to be true, considering first, that these items were so huge that they could not be spirited
away without being noticed and, secondly; it has been established that there was a policeman detailed
to the demolition scene from the start of the said demolition, to whom he could have easily reported
the matter, caused the apprehension of the culprits, and prevent the loss of his personal properties,
thirdly, he could have grabbed the steel box containing jewelries if this were the last thing he would
have done. Waiting idly by the sidewalk and watching your properties pilfered by persons whom you
could have successfully identified at the time and referring the matter to the policeman on duty, which
plaintiff did not do, is certainly against the natural order of things and the legal presumption that a
person takes great care of his concern. Plaintiff strongly relies on the alleged illegal and
indiscriminate destruction of his properties as basis for his claim for damages. Truth to tell, there was
no suddenness or indiscriminate destruction of plaintiffs property nor pilferage thereof, as alleged, in
the demolition of the house owned by the defendant. The order was lawful as it was an abatement of a
nuisance and the dismantling of the house owned by defendant Senolos could only be conceived as
having been carried out in a manner consistent only with utmost care. Conversely, its indiscriminate
destruction is contrary to the interest of the defendant Senolos as it is a truism that every bit of useful
material should be preserved either for use of, or for profit of the owner. It would be sheer folly to
assume that the demolition team would have taken a selective method of care for the still serviceable
materials of the house and a destructive stance for the properties of the occupants. Understandably,
the unorthodox position taken by plaintiff would not only lose his residence but also his place of
business.

By and large, the basis for the claim for damages do not physically nor imaginatively exist, for it has
defied reason and common sense. 11
We note that the majority opinion chose to disregard the above conclusions of fact of the trial court
and instead quoted extensively from respondent Gaw Ching's brief and, presumably relied upon such
brief The majority opinion, however, failed to indicate why it preferred Gaw Ching's version of the facts
set out in his brief over the trial court's findings. No indication was offered where the trial court had
fallen into error or what evidence had been misapprehended by it. In this situation, the Court
considers that it must go back to the trial court's findings of fact in line with the time-honored rule that
such findings are entitled to great respect from appellate courts since the trial court judge had the
opportunity to examine the evidence directly and to listen to the witnesses and observe their
demeanor while testifying.
It appears therefore that firstly, the order of condemnation or demolition had been issued by the
proper authorities which order was valid and subsisting at the time the demolition was actually carried
out. Secondly, under Section 5.3 of Rule VII entitled "Abandonment/Demolition of Buildings" of the
Rules and Regulations Implementing the National Building Code of the Philippines (P.D. No. 1096, as
amended dated 19 February 1977), an order for demolition may be appealed, by the owner of the
building or installation to be demolished, to the Secretary of Public Works and Highways. In the case
at bar, it was respondent Gaw Ching, a lessee merely of the building condemned that sought to block
the implementation of the demolition order. It does not even appear from the record whether or not
Gaw Ching actually filed a formal appeal to the Secretary, even though he was not entitled to do so.
What does appear from the record 12 is that Gaw Ching's counsel, Atty. Sugay, was able to obtain a
letter dated 6 November 1981 from the Office of the City Engineer and Building Official, enclosing a
xerox copy of a letter from the Assistant Secretary for Operations, Ministry of Public Works and
Highways, "directing this office to hold the demolition in abeyance." This letter, which did not purport
to set aside the order of demolition, was served upon the demolition team on site while the demolition
was in progress. After some hesitation, the demolition was in fact stopped. 13
It is worth noting that officials from the Office of the City Engineer, City of Manila, testified that it was
not "normal practice to receive an order from the Ministry of Public Works and Highways stopping
demolitions."
In the fourth place, respondent Gaw Ching, in the action that he had filed before the Regional Trial
Court of Manila to set aside the contract of sale between petitioners Malabanan and Senolos, had
sought preliminary injunction precisely to restrain the implementation of the order for demolition. That
application for preliminary injunction was denied by the trial court and the order for demolition was
implemented only after such denial. Thus, there was no subsisting court order restraining the
demolition at the time such demolition was carried out.
In the fifth place, Gaw Ching had ample notice of the demolition order and had adequate time to
remove his belongings from the premises if he was minded to obey the order for demolition. He chose
not to obey that order. If he did suffer any lossesthe trial court did not believe his claims that he did
he had only himself to blame.
ACCORDINGLY, The Court Resolved to GRANT the Petition and to REVERSE and SET ASIDE the
Decision of the then Intermediate Appellate Court dated 31 January 1986 and its Resolution dated 5
June 1986, in AC-G.R. CV Nos. 05136-05137. The Decision of the trial court dated 10 August 1984 in
consolidated Civil Cases Nos. R-81-416 and R-82-6798, is hereby REINSTATED. No pronouncement as
to costs.
[G.R. No. 158314. June 3, 2004]
SAMAHAN NG MAGSASAKA SA SAN JOSEP, represented by DOMINADOR MAGLALANG, petitioner,
vs. MARIETTA VALISNO, ADELA, AQUILES, LEANDRO, HONORIO, LUMEN, NICOLAS, all surnamed
VALISNO; RANDY V. WAGNER, MARIA MARTA B. VALISNO, NOELITO VALISNO, MARY ANN L.

VALISNO, PHILIP V. BRANZUELA and BRENDON V. YUJUICO; MA. CRISTINA VALISNO, BENEDICTO V.
YUJUICO, GREGORIO V. YUJUICO and LEONORA V. YUJUICO, respondents.

On November 4, 1998, Regional Director Renato F. Herrera issued an Order which pertinently reads:
WHEREFORE, premises considered, an ORDER is hereby issued as follows:

DECISION
YNARES-SANTIAGO, J.:
The sole issue in this petition for review on certiorari is whether or not the grandchildren of the late Dr. Nicolas
Valisno Sr. are entitled to retention rights as landowners under Republic Act No. 6657, or the Comprehensive
Agrarian Reform Law (hereafter, CARL).
The original 57-hectare property, situated in La Fuente, Sta. Rosa, Nueva Ecija, was formerly registered in the
name of Dr. Nicolas Valisno, Sr. under Transfer Certificate of Title No. NT-38406. Before the effectivity of
Presidential Decree No. 27,[1] the land was the subject of a judicial ejectment suit, whereby in 1971, the
Valisnos tenants were ejected from the property.[2] Among these tenants was Dominador Maglalang, who
represents the SMSJ in the instant proceedings.
Meanwhile, on October 20 and 21, 1972, Dr. Valisno mortgaged 12 hectares of his property to Renato and
Angelito Banting.[3] Thereafter, the property was subdivided into ten lots and on November 8, 1972, individual
titles were issued in the name of the eight children of Nicolas, Angelito Banting, and Renato Banting. [4]

1.
GRANTING the application for retention of the heirs of Dr. Nicolas Valisno, Sr., namely: Marietta
Valisno; Honorio Valisno; Leandro Valisno; Adela Valisno; Nicolas Valisno, Jr.; Aquiles Valisno; and Lumen
Valisno of not more than five (5) hectares each or a total of 35 hectares covered by Title Nos. 118446, 118443,
118442, 118440, 118445, 118441 and 118444, respectively, all located at La Fuente, Sta. Rosa, Nueva Ecija;
2.
PLACING the excess of 19.0 hectares, more or less, under RA 6657 and acquiring the same thru
Compulsory Acquisition for distribution to qualified farmer-beneficiaries taking into consideration the basic
qualifications set forth by law;
3.

DENYING the request for the award to children of the applicants for utter lack of merit; and

4.
DIRECTING the applicants-heirs to cause the segregation and survey of the retained area at their own
expense and to submit within thirty (30) days the final approved survey plan to this Office.
SO ORDERED.[12]

After the mortgage on the 12 hectare portion was foreclosed and the property sold at public auction, four
grandchildren of Dr. Nicolas Valisno, namely: Maria Cristina F. Valisno, daughter of Romulo D. Valisno; and
Leonora Valisno Yujuico, Benedicto Valisno Yujuico and Gregorio Valisno Yujuico, children of Marietta Valisno
redeemed the same from the mortgagees. [5] At the time of the redemption, Maria Cristina, Leonora and
Gregorio were all minors; only Benedicto was of legal age, being then 26 years old. [6] The redemption was
made on October 25, 1973, but the titles to the land were not transferred to the redemptioners until November
26, 1998.[7]

On appeal, the DAR Secretary affirmed the Order of the Regional Director with the following relevant
ratiocination:

Subsequently, the entire 57-hectare property became the subject of expropriation proceedings before the
Department of Agrarian Reform (DAR). In 1994, Dominador Maglalang, in behalf of the SMSP, filed a
petition for coverage of the subject landholding under the CARL, which petition was dismissed for want of
jurisdiction.[8] On June 14, 1995, Rogelio Chaves, DAR Provincial Agrarian Reform Officer (PARO), issued a
Memorandum stating that the property had been subdivided among the heirs of Dr. Nicolas Valisno Sr. before
the issuance of PD 27 into tracts of approximately six hectares each. [9] Nevertheless, PARO Chaves added
that the excess over the five-hectare retention limit could still be covered under RA 6657. [10]

xxx

On appeal, the Office of the Regional Director issued an Order dated January 2, 1996, declaring the Valisno
property exempt from the coverage of PD 27 and RA 6657. [11] This was reversed by then Secretary Garilao,
who held that the property is covered by the Comprehensive Agrarian Reform Program, subject to the
retention rights of the heirs of Nicolas, Sr. The Valisno heirs filed a motion for reconsideration of the said
order, but the same was denied.
On September 25, 1997, the Valisno heirs filed a Consolidated Application for Retention and Award under RA
6657. Specifically, the petition was filed by (1) Adela, Aquiles, Leandro, Honorio, Lumen, Nicolas and Marietta
Valisno, seven children of Nicolas Valisno, Sr., who applied for retention rights as landowners; (2) Randy V.
Wagner, Maria Marta B. Valisno, Noelito Valisno, Mary Ann L. Valisno, Philip V. Branzuela and Brendon V.
Yujuico, grandchildren of Nicolas Sr. (hereafter collectively the Grandchildren-Awardees), who applied to be
considered qualified child-awardees; and (3) Ma. Cristina Valisno, Benedicto V. Yujuico, Gregorio V. Yujuico
and Leonora V. Yujuico, likewise grandchildren of Nicolas Sr. (hereafter collectively the RedemptionerGrandchildren), who applied for retention rights as landowners over the 12-hectare portion of the property
alleged to have been mortgaged by Nicolas Sr. in 1972 to Angelito and Renato Banting.
The SMSJ, through Dominador Maglalang, opposed the Consolidated Application for Retention, specifically
objecting to the award in favor of the Grandchildren-Awardees because they are not actually tilling nor directly
managing the land in question as required by law.

In the second assignment of error, appellants faulted the Regional Director for not giving due consideration to
the two (2) mortgages constituted by the original owner over a portion of his landholding in 1972 and
redeemed by the latters grandchildren in 1973, when the 12-hectare land subject of the mortgages were
ordered to be distributed to CARP beneficiaries.
xxx

xxx

The alleged redemption of the mortgaged property by the four (4) grandchildren of Nicolas Valisno, Sr., namely
Ma. Cristina, Leonora, Gregorio and Benedicto, is not likewise worthy of any credence. The mortgaged
property was allegedly redeemed on October 25, 1973. From the evidence on record, three (3) of the alleged
redemptioners represented to be of legal age in the Discharge of Mortgage were still minors, hence, without
any legal capacity at the time the redemption was made. [13]
On June 23, 2000, the motion for reconsideration filed by the heirs of Dr. Valisno was denied. [14]
Respondent heirs filed a petition for review with the Court of Appeals, arguing that the Secretary of Agrarian
Reform erred (1) in disallowing the award of one hectare to each of the seven Grandchildren-Awardees of Dr.
Nicolas Valisno, as qualified children-awardees under the CARL; and (2) in not recognizing the redemption
made by the four grandchildren of Dr. Nicolas Valisno over the 12-hectare riceland mortgaged to Renato and
Angelito Banting.[15]
On March 26, 2002, the Court of Appeals reversed the Orders of the DAR Secretary, granted the award of one
hectare each for the seven Grandchildren-Awardees, and affirmed the retention rights of the RedemptionerGrandchildren over three hectares each, or a total of 12 hectares. [16]
Petitioners filed a partial motion for reconsideration, assailing the right of retention of the four RedemptionerGrandchildren over the 12-hectare property, and praying that an amended decision be rendered placing the 12
hectares under the coverage of the CARP.[17] This motion was denied on March 25, 2003. [18]
Hence, this appeal, on the sole assignment of error:

THE HONORABLE COURT OF APPEALS ERRED WHEN, IN EFFECT, IT RULED THAT THE
REDEMPTIONERS (GRANDCHILDREN OF THE DECEASED NICOLAS VALISNO, SR.) WERE ENTITLED
TO RETENTION RIGHTS AS LANDOWNERS UNDER THE AGRARIAN REFORM LAW DESPITE THE FACT
THAT THE REDEMPTION WAS DONE BY THEIR PARENTS (CHILDREN OF THE DECEASED) ONLY IN
THEIR NAME AND FOR THEIR BENEFIT.[19]

The transfer of the titles to the two 6-hectare properties in 1972 removed the parcels of land from the entire
Valisno estate. The evidence clearly demonstrates that Renato Banting and Angelito Banting became the
registered owners of the property in 1972. These two separate properties were then transferred to the
Redemptioner-Grandchildren in 1973. Regardless of the source of their funds, and regardless of their
minority, they became the legal owners of the property in 1973.

The appeal lacks merit.

Moreover, although Maria Cristina, Leonora and Gregorio were all minors in 1973, they were undoubtedly of
legal age in 1994, when SMSP initiated the petition for coverage of the subject landholding under the CARL,
and of course were likewise of legal age in 1997, when all the Valisno heirs filed their Consolidated Application
for Retention and Award under RA 6657.

The Court of Appeals found the following facts relevant: First, that the mortgages were constituted over a 12hectare portion of Dr. Valisnos estate in 1972. Second, that the titles to the property were transferred to the
names of the mortgagees in 1972, viz., TCT No. NT-118447, covering a 6-hectare property in La Fuente, Sta.
Rosa, Nueva Ecija, issued in the name of Angelito Banting; and TCT No. NT-118448, likewise covering a 6hectare property in La Fuente, Sta. Rosa, Nueva Ecija, issued in the name of Renato Banting. Third, these
properties were redeemed by the Redemptioner-Grandchildren on October 25, 1973, at the time of which
redemption three of the four Redemptioner-Grandchildren were minors.
It is a well-settled rule that only questions of law may be reviewed by the Supreme Court in an appeal
by certiorari.[20] Findings of fact by the Court of Appeals are final and conclusive and cannot be reviewed on
appeal to the Supreme Court.[21] The only time this Court will disregard the factual findings of the Court of
Appeals (which are ordinarily accorded great respect) is when these are based on speculation, surmises or
conjectures or when these are not based on substantial evidence. [22]
In the case at bar, no reason exists for us to disregard the findings of fact of the Court of Appeals. The factual
findings are borne out by the record and are supported by substantial evidence.
Given these settled facts, the resolution of the sole issue in this case hinges on (1) the validity of the
redemption in 1973, made when three of the Redemptioner-Grandchildren were minors; and (2) if the
redemption was valid, the determination of the retention rights of the Redemptioner-Grandchildren, if any,
under RA 6557.
The relevant laws governing the minors redemption in 1973 are the general Civil Code provisions on legal
capacity to enter into contractual relations. Article 1327 of the Civil Code provides that minors are incapable of
giving consent to a contract. Article 1390 provides that a contract where one of the parties is incapable of
giving consent is voidable or annullable. Thus, the redemption made by the minors in 1973 was
merely voidable or annullable, and was not void ab initio, as petitioners argue.
Any action for the annulment of the contracts thus entered into by the minors would require that: (1) the
plaintiff must have an interest in the contract; and (2) the action must be brought by the victim and not the
party responsible for the defect.[23] Thus, Article 1397 of the Civil Code provides in part that [t]he action for the
annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However,
persons who are capable cannot allege the incapacity of those with whom they contracted. The action to
annul the minors redemption in 1973, therefore, was one that could only have been initiated by the minors
themselves, as the victims or the aggrieved parties in whom the law itself vests the right to file suit. This action
was never initiated by the minors. We thus quote with approval the ratiocination of the Court of Appeals:
Respondents contend that the redemption made by the petitioners was simulated, calculated to avoid the
effects of agrarian reform considering that at the time of redemption the latter were still minors and could not
have resources, in their own right, to pay the price thereof.
We are not persuaded. While it is true that a transaction entered into by a party who is incapable of consent is
voidable, however such transaction is valid until annulled. The redemption made by the four petitioners has
never been annulled, thus, it is valid.[24]

As owners in their own right of the questioned properties, Redemptioner-Grandchildren enjoyed the right of
retention granted to all landowners. This right of retention is a constitutionally guaranteed right, which is
subject to qualification by the legislature. [25] It serves to mitigate the effects of compulsory land acquisition by
balancing the rights of the landowner and the tenant and by implementing the doctrine that social justice was
not meant to perpetrate an injustice against the landowner.[26] A retained area, as its name denotes, is land
which is not supposed to leave the landowners dominion, thus sparing the government from the
inconvenience of taking land only to return it to the landowner afterwards, which would be a pointless process.
In the landmark case of Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian
Reform,[27] we held that landowners who have not yet exercised their retention rights under PD 27 are entitled
to the new retention rights under RA 6657.[28] The retention rights of landowners are provided in Sec. 6 of RA
6657, which reads in relevant part:
SECTION 6. Retention Limits. Except as otherwise provided in this Act, no person may own or retain,
directly or indirectly, any public or private agricultural land, the size of which shall vary according to factors
governing a viable family-size, such as commodity produced, terrain, infrastructure, and soil fertility as
determined by the Presidential Agrarian Reform Council (PARC) created hereunder, but in no case shall
retention by the landowner exceed five (5) hectares. Three (3) hectares may be awarded to each child of the
landowner, subject to the following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he
is actually tilling the land or directly managing the farm; Provided, That landowners whose land have been
covered by Presidential Decree No. 27 shall be allowed to keep the area originally retained by them
thereunder, Provided further, That original homestead grantees or direct compulsory heirs who still own the
original homestead at the time of the approval of this Act shall retain the same areas as long as they continue
to cultivate said homestead.
The right to choose the area to be retained, which shall be compact or contiguous, shall pertain to the
landowner. Provided, however, That in case the area selected for retention by the landowner is tenanted, the
tenant shall have the option to choose whether to remain therein or be a beneficiary in the same or another
agricultural land with similar or comparable features. In case the tenant chooses to remain in the retained
area, he shall be considered a leaseholder and shall lose his right to be a beneficiary under this Act. In case
the tenant chooses to be a beneficiary in another agricultural land, he loses his right as a lease-holder to the
land retained by the landowner. The tenant must exercise this option within a period of one (1) year from the
time the landowner manifests his choice of the area for retention.
This section defines the nature and incidents of a landowners right of retention. For as long as the area to be
retained is compact or contiguous and it does not exceed the retention ceiling of five hectares, a landowners
choice of the area to be retained must prevail.
Each of the four Redemptioner-Grandchildren is thus entitled to retain a parcel of land with a ceiling of five
hectares, for a total of 20 hectares. The parcels of land in question total only 12 hectares, or only three
hectares each, which is well within the statutory retention limits.
WHEREFORE, premises considered, the Decision of the Court of Appeals in CA-G.R. SP No. 59752
dated March 26, 2002, and Resolution of the Court of Appeals dated March 25, 2003, which upheld the
retention rights of respondents Ma. Cristina Valisno, Benedicto V. Yujuico, Gregorio V. Yujuico and Leonora V.
Yujuico, are AFFIRMED.

SO ORDERED.
G.R. No. L-18210

The complaint was met by defendant's motion to dismiss upon two grounds: (1) lack of cause of action and (2)
prescription.
December 29, 1966

LAURENTIO ARMENTIA, plaintiff-appellant,

vs.
ERLINDA PATRIARCA, FLORENCIA SOMECIERA JULIANA ARMENTIA JOSE SOMECIERA and
SOFRONIO FLORES in his capacity as The Register of Deeds for the Province of Iloilo, defendantsappellees.
Cesar T. Martin for plaintiff and appellant.
Benjamin M. Moreno for defendants and appellees.
SANCHEZ, J.:
Plaintiff Laurentio Armentia, and Juliana and Marta Armentia, were brother and sisters of the full blood. Jose
Someciera is the acknowledged natural son of their deceased mother. Defendant Florencia Someciera is a
daughter of Jose Someciera. Defendant Erlinda Patriarea is a granddaughter of Juliana Armentia. Marta
Armentia was married to Gregorio Bueno who died sometime in 1942.
By notarial document, Annex A of the complaint, dated July 22, 1955, Marta Armentia did two things: First, she
adjudicated to herself a parcel of land (Lot 5482, Pototan cadastre, [Iloilo]) with the improvements thereon,
covered by Transfer Certificate of Title 21328. and which she inherited from her deceased husband
pursuant to Section 1, Rule 74 of the 1940 Rules of Court; 1 and second, for and in consideration of P-99.00,
which she acknowledged to have received from Erlinda Patriarca, 13 years of age, single, and Florencia
Someciera, 20 years of age, single, she sold to them the property just mentioned. The foregoing document
was, on July 22, 1955, recorded in the registry of deeds. - Whereupon, Torrens title 21323 was cancelled by
Transfer Certificate of Title 18797 in the names of Erlinda Patriarca and Florencia Someciera.
Marta Armentia died intestate and without forced heirs on May 28, 1960.
On September 17, 1960, Laurentio Armentia commenced suit 2 against Erlinda Patriarca and Florencia
Someciera as principal defendants.3 The complaint, as amended, and reamended, avers: That the sale made
by Marta in favor of Erlinda and Florencia "is null and void because it is simulated and fictitious and if not null
and void it is voidable because the said defendants were minors at the time the contract was executed and
could not then have given their consent to the sale"; that "the said sale was fraudulently executed, and after
the supposed sale, Marta Armentia remained in possession of the house and lot, as owner paying the taxes on
the land until she died"; that "even assuming hypothetically that there was consideration in the supposed sale,
the consideration was grossly inadequate"; that "plaintiff only came to know of the supposed sale in Annex A
one week before the suit was filed that "at the time of the alleged sale in Annex A", the "house was already
standing on the land", and that "after its execution Marta Armentia repaired the house"; and that "the
defendants Erlinda Patriarca, Florencia Someciera, Juliana Armentia and Jose Someciera are personally
possessing the land and the house in question". The complaint further avers that Marta Armentia also left a
"Singer" sewing machine. Paragraph 8 thereof says that said sewing machine is "now in the possession of
Erlinda Patriarca and Florencia Someciera". However, paragraph 20 of the very same complaint speaks of
said sewing machine as "now in the possession of the defendants Erlinda Patriarca, Florencia Someciera,
Jose Someciera and Juliana Armentia"4
The complaint winds up with the prayer that the deed of sale be "declared inexistent or in the alternative
annulled"; that plaintiff Laurentio Armentia and defendant Juliana Armentia, as heir of Marta Armentia, be
declared owners of the land in dispute; that the Register of Deeds be directed to cancel Torrens title 18797 in
the names of Erlinda Patriarca and Florencia Someciera, and, in lieu thereof, to issue a new title in the names
of Laurentio Armentia and Juliana Armentia; that the house and lot and sewing machine be partitioned and
plaintiff's share be delivered to him; and that should partition not be feasible, said properties be sold and
plaintiff given his share.

On November 21, 1960, over plaintiff's opposition, the lower court dismissed the case for the reason that
plaintiff's action to annul the sale had prescribed. A move to reconsider was thwarted by the court in its order
of December 17, 1960.
The case is now before us on plaintiff's appeal in forma pauperis.
1. Plaintiff's attack is primarily directed at the sale. Plaintiff charges that the contract therefor was fraudulently
executed, but in the same breadth characterizes it, as simulated and fictitious. These statements and but
conclusions of law. Controlling, of course, is the statement of' ultimate facts. 6
Let us then look at the factual recitals. Particularly striking is the fact that plaintiff does not dispute the selfadjudication made by Marta Armentia in the deed. Plaintiff does not impugn the genuineness of Marta's
signature thereon. He solo puts in issue that portion of the document where the sale appears to have been
made to Erlinda Patriarca and Florencia Someciera.
To drive home his averment of nullity, plaintiff summons to his aid the following circumstances: At the time of
the sale, the vendees were still minors and the consideration was grossly inadequate; after the sale, Marta
Armentia repaired the house, continued possession of the premises, paid the taxes thereon until her demise.
Hypothetically admitting the truth of these allegations, the conclusion is irresistible that the sale is merely
voidable. Because Marta Armentia executed the document, and this is not controverted by plaintiff. Besides,
the fact that the vendees were minors, makes the contract, at worst, annullable by them. Then again,
inadequacy of consideration does not imply total want of consideration. Without more, the purported acts of
Marta Armentia after the sale did not indicate that said sale was void from the beginning.
The sum total of all of these is that, in essence, plaintiff's case is bottomed on fraud, which renders the
contract voidable.
2. May plaintiff annul the sale on the theory of fraud? Plaintiff was but a brother of the deceased Marta
Armentia. True, he is an intestate heir of Marta; but he is not a forced heir. Upon the other hand, Marta was
free to dispose of her properties the way she liked it. She had neither ascendants nor descendants.
By Article 1397 of the Civil Code, "[t]he action for annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily". This must be construed in conjunction with Article 1311 of the same
code providing that "[c]on tracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation
or by provision of law", and that "the heir is not liable beyond the value of the property he received from the
decedent". Plaintiff is not a forced heir. He is not obliged principally or subsidiarily under the contract. Marta
Armentia did not transmit to him by devise or otherwise any rights to the property, the subject thereof. On the
contrary, Marta voluntarily disposed of it. No creditors are defrauded; there are none. No legitimes are
impaired. Therefore, plaintiff has no cause of action to annul or to rescind the sale.
In point is Concepcion vs. Sta. Ana, 87 Phil. 787. The facts there may well be analogized with those of the
present. In the Concepcion case, plaintiff Monico Concepcion was the only surviving legitimate brother of
Perpetua Concepcion, who died without issue and without leaving any will. In her lifetime, or more precisely,
on June 29, 1945, said Perpetua Concepcion, "in connivance with the defendant and with intent to defraud the
plaintiff, sold and conveyed three parcels of land for a false and fictitious consideration to the defendant, who
secured transfer certificate of title of said lands issued under her name and that the defendant has been in
possession of the properties sold since the death of Perpetua Concepcion, thereby causing damages to the
plaintiff in the amount of not less than two hundred (P200) pesos". 6 On motion to dismiss, the lower court
threw the complaint out of court upon the ground that "the plaintiff is not a party to the deed of sale executed
by Perpetua Concepcion in favor of the defendant"; that even on the assumption "that the consideration of the
contract is fictitious, the plaintiff has no right of action against the defendant"; that under Article 1302 of the old

Civil Code, "the action to annul a contract may be brought by any person principally bound thereby"; that
"plaintiff is not bound by the deed of sale executed by the d ceased in favor of the defendant"; and that he has
"no obligations under the deed."
The following reproduced in haec verba from the Concepcion opinion is illuminating:
(2) As to the appellant's second and last contention, under the law action to annul a contract entered into with
all the requisites mentioned in article 12617 whenever they are tainted with the vice which invalidate them in
accordance with law, may be brought not only by any person principally bound or who made them, but also by
his heir to whom the right and obligation arising from the contract are transmitted. Hence if no such rights,
actions or obligations have been transmitted to the heir, the latter can not bring an action to annul the contract
in representation of the contracting party who made it. In Wolfson vs. Estate of Martinez, 20 Phil., 340, this
Supreme Court quoted with approval the judgment of the Supreme Court of Spain of April 18, 1901, in which it
was held that "he who is not a party to a contract, or an assignee thereunder, or does not represent those who
took part therein, has under Articles 1257 and 1302 8of the Civil Code no legal capacity to challenge the
validity of such contract". And in Irlanda vs. Pitargue (22 Phil. 383) we held that "the testamentary or legal heir
continues in law as the juridical personality of his predecessor in interest, who transmit to him from the
moment of his death such of his rights, actions and obligations as are not extinguished thereby".

3. But even if a right of action be conceded, plaintiff's case fails just the same. An action to annul a contract
based on fraud must be filed within four (4) years from the discovery thereof. 12 In legal contemplation,
discovery must be reckoned to have taken place from the time the document was registered in the office of the
register of deeds. For, the familiar rule is that registration is notice to the whole world, including plaintiff. 13 As
aforestated, the document in question was recorded on July 22, 1955. Action was started only on September
17, 1960. The four-year period has elapsed. And, plaintiff's cause of action, if any, is time-barred.
4. All that remains is the small item of plaintiff's share in the "Singer" sewing machine which was not the
subject of the sale aforesaid. The Court may well take judicial notice 14 of the fact that such share does not
exceed P5,000.15 Plaintiff's separate action if any he had to obtain said share, should have been
addressed to the Municipal Court.
Premised on the foregoing considerations, the appealed order of November 21, 1960 dismissing the second
amended complaint is, as it should be, affirmed. No cots So ordered.
Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, JP Zaldivar and Castro, JJ., concur.

The question to be resolved is, therefore, whether the deceased Perpetua Concepcion has transmitted to the
plaintiff any right arising from the contract under consideration in order that he can bring an action to annul the
sale voluntarily made by her to the defendant with a false consideration.
Separate Opinions
We are of the opinion and so hold, that the late Perpetua Concepcion has not transmitted to the plaintiff any
right arising from the contract of conveyance or sale of her lands to the defendant, and therefore the plaintiff
cannot file an action to annul such contract as representative of the deceased.
According to the complaint the deceased, in connivance with the defendant and with intent to defraud the
plaintiff, (that is, in order not to leave the properties above mentioned upon her death to the plaintiff) sold and
conveyed them to the latter, for a false and fictitious consideration. It is, therefore obvious, that the
conveyance or sale of said properties to the defendant was voluntarily made by the deceased to said
defendant. As the deceased had no forced heir, she was free to dispose of all her properties as absolute
owner thereof, without further limitation than those established by law, and the right to dispose of a thing
involves the light to give or convey it to another without any consideration. The only limitation established by
law on her right to convey said properties to the defendant without any consideration is, that she could not
dispose of or transfer her property to another in fraud of her creditors. And this court, in Solis vs. Chua Pua
Hermanos (50 Phil. 636), through Mr. Justice Street, held that a "voluntary conveyance, without any
consideration whatever, is prima facie good as between the parties, and such an instrument can not be
declared fraudulent as against creditors in the absence of proof, that there was at the time of the execution of
the conveyance a creditor who could be defrauded by the conveyance, 27 C.J., 4770".
xxx

xxx

xxx

The reason why a forced heir has the right to institute an action of rescission is that the right to the legitimeis
similar to a credit of a creditor. As the same Spanish author Manresal correctly states in commenting on article
12919 of the Civil Code: "The rights of a forced heir to the legitime are undoubtedly similar to a credit of a
creditor in so far as the rights to the legitime may be defeated by fraudulent contracts" and are superior to the
will of those bound to respect them. In its judgment of October 28, 1897, the Supreme Court of Spain held that
the forced heirs instituted as such by their father to the latter's testament have the undeniable right to institute
an action to annul contracts entered into by the father to their prejudice. As it is seen the action is called action
of nullity, but is rather an action of rescission taking into account the purpose for which it is instituted and the
confusion of ideas that has prevailed in this matter. The doctrine we shall expound in commenting on articles
1302 and 1306 10 will confirm what we have just stated'. (Manresa, Codigo Civil, 4th edition, Vol. 8, pp. 667
and 668.)11
Our opinion in Concepcion needs no further elaboration. It would suffice to say that plaintiff here has no cause
of action.

REYES, J.B.L., J., concurring:

I concur with the main decision, but can not bring myself to agree to the proposition that the heirs intestate
would have no legal standing to contest the conveyance by the deceased if the same were made without any
consideration, or for a false and fictitious consideration. For under the Civil Code of the Philippines, Article
1409, par. 3, contracts with a cause that did not exist at the time of the transaction are inexistent and void from
the beginning. The same is true of contracts stating a false cause (consideration) unless the persons
interested in upholding the contract should prove that there is another true and lawful consideration therefor
(Ibid., Art. 1353).
If therefore the contract has no causa or considerations or the causa is false and fictitious (and no true
hiddencausa is proved) the property allegedly conveys never really leaves the patrimony of the transferor, and
upon the latter's death without a testament, such property would pass to the transferor's heirs intestate and be
recoverable by them or by the Administrator of the transferor's estate, should there be any. The cause of
action of the plaintiffs would not be then on fraud of creditors at all, but upon the fact that the property in
question is still part of the transferor's estate. In this particular regard, I think Concepcion vs. Sta. Ana, 87 Phil.
787 and Solis vs. Chua Pua Hermanos, 50 Phil. 536, do not correctly state the present law, and must be
clarified.
It is unquestionable that the owner of property has the right to convey it to another person, either for a
consideration (onerous contract) or out of sheer liberality (gratuitous transfer). But it must not be overlooked
that while the law does not limit the lawful consideration as the transferor deems adequate (and he is the
primary judge of its adequacy), gratuitous transfers are by no means equally untrammeled The law, justifiably
or not, looks with suspicion at gratuitous conveyances (perhaps considering them contrary to man's innate
egotism) and subjects their validity to the observance of specific formalities designed to assure that the nature
of the conveyance is well understood, and that it is not done impulsively, without due deliberation. It is well
known that our law only recognizes two forms of gratuitous conveyances: inter vivos by way of donation
and mortis causa by way of last will and testament. In either case, the validity of the transfer of ownership is
subordinated to the observance of the formalities prescribed by law. Where Ian or tenements are conveyed,
a donation and its acceptance must appear in a public document, with the acceptance duly notified to the
donor (Civ. Code, Art. 749); in case of movables, there must be at least a private writing unless the donation is
accompanied by simultaneous delivery of the donated chattel (Art. 748). In last wills and testaments, the
formalities ordained by law must be necessarily observed (Arts. 804, et seq.) and ' in addition, the will must be
judicially allowed or probated (Art. 838, Civil Code).

It is a consequence of all the preceding considerations that a purported sale of property would not vest
ownership in the transferee if it is established that the transfer was really gratuitous, and that the alleged price
is non-existent. Such a "sale" would then either be void for lack of an essential requisite, or else be a
'disguised donation, that would not be operative unless the formalities prescribed for a valid donation are
observed.1 If they are not, then no title passes to the transferee, regardless of the voluntary accomplishment of
the deed of conveyance by the transferor, because the naked intent to convey, without the required
solemnities, does not suffice for gratuitous alienations, even as between the parties inter se.

heirs and heirs by representation of the deceased Mateo Carantes as expressed and conveyed verbally. by
him during his lifetime, rightly and exclusively belong to the particular heir, Maximino Carantes, now and in the
past in the exclusive, continuous, peaceful and notorious possession of the same for more than ten years."

Of course, in the case at bar, it has not been satisfactorily established that the price is non-existent, and for
that reason the transaction, being onerous and not gratuitous, must be upheld.

On February 6, 1940, upon joint petition of the heirs of Mateo Carantes, the Court of First Instance of Baguio
City issued an Order in another proceeding Administrative Case No. 368 cancelling O.C.T. No. 3.
Pursuant thereto the said title was cancelled, and in its place Transfer Certificate of Title No. 2533 was issued
in the joint names of the five children of Mateo Carantes and the children of Apung Carantes (representing
their deceased father) as co-owners pro indiviso, or one-sixth share for each child.

G.R. No. L-33360 April 25, 1977

MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes), petitioner,
vs.
COURT OF APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO CARANTES and MICHAEL
TUMPAO, respondents,

On the same date Maximino Carantes sold to the Government Lots Nos. 44-B and 44-C and divided the
proceeds of the sale among himself and the other heirs of Mateo.

On March 16, 1940 Maximino Carantes registered the deed of "Assignment of Right to Inheritance."
Accordingly, T.C.T. No. 2533 in the names of the heirs was cancelled, and in lieu thereof Transfer Certificate of
Title No. 2540 was issued on the same date in the name of Maximino Carantes. Also on the same date,
Maximino, acting as exclusive owner of the land covered by T.C.T. No. 2540, executed a formal deed of sale in
favor of the Government over Lots Nos. 44-B and 44-C.

Sinforoso Fingonil and Sinai C. Hamada for petitioner.

Ruben C. Ayson for private respondents.

CASTRO, C.J:
This is an appeal by certiorari from the decision of the Court of Appeals in CA-G.R. 36078-R promulgated on
December 23, 1970 reversing the judgment of the Court of First Instance of Baguio City, Branch II, in Civil
Case 804, and from the appellate court's resolution dated March 7, 1971 denying herein petitioner's motion for
reconsideration.
Mateo Carantes was the original owner of Lot No. 44 situated at Loakan, Baguio City, as evidenced by
Original Certificate of Title No. 3 issued in his name on September 22, 1910 by virtue of Free Patent No. 5
granted to him on the same date. In 1913 Mateo died. He was survived by his widow Ogasia and six children,
namely, Bilad, Lauro, Crispino, Maximino, Apung and Sianang, all surnamed Carantes.
In 1930 construction of the Loakan Airport was commenced by the Government. Because a portion of Lot No.
44 was needed for the landing field, the Government instituted proceedings (Civil Case 338) for its
expropriation. For the purpose, Lot No. 44 was subdivided into Lots Nos. 44-A, 44-B, 44-C, 44-D and 44-E.
The portion expropriated by the Government was Lot No. 44-A.
In 1933 Special Proceedings Nos. 409 to 413 were filed with the court for the settlement of the estate of the
late Mateo Carantes. One of his sons, herein petitioner Maximino Carantes, was appointed and qualified as
judicial administrator of the estate. In his capacity as administrator, Maximino filed on June 20, 1939 a project
of partition wherein he listed as the heirs of Mateo Carantes who were entitled to inherit the estate, himself
and his brothers and sisters, or the latter's surviving children Apparently because negotiations were, by that
time, under way for the purchase by the Government of Lots Nos. 44-B and 44-C for the purpose of widening
the Loakan Airport, the only property listed by Maximino in the project of partition was the remaining portion of
Lot No. 44.
On October 23, 1939 a deed denominated "Assignment of Right to Inheritance" was executed by four of
Mateo Carantes children, namely, Bilad, Sianang, Lauro and Crispino, and the heirs of Apung Carantes (also a
son of Mateo who died in 1923), namely, Pitag, Bill, Alson, Eduardo and Juan, assigning to Maximino
Carantes their rights to inheritance in Lot No. 44. The stated monetary consideration for the assignment was
P1.00. However, the document contains a recital to the effect that the said lots, "by agreement of all the direct

On February 21, 1947, as a result of the approval of the Subdivision Survey Plan psd-16786, and pursuant to
the deed of sale executed in 1940 by Maximino Carantes in favor of the Government, T.C.T. No. 2540 in
Maximino's name was cancelled, and in lieu thereof Transfer Certificate of Title No. T98, covering Lots Nos.
44-A, 44-B arid 44-C, was issued in the name of the Government, while Transfer Certificate of Title No. T-99,
covering the remaining Lots Nos. 44-D (100, 345 square meters) and 44-E (10,070 square meters) was issued
in the name of Maximino Carantes, who has up to the present remained the registered owner of said lots.
On September 4, 1958 the present complaint was filed by three children of the late Mateo Carantes, namely,
Bilad, Lauro and Crispino, and by some of the surviving heirs of Apung and of Sianang ('also children of Mateo
Carantes). Maximino Carantes was named principal defendant, and some of the heirs of Apung and Sianang
were impleaded as parties-defendants in view of their alleged reluctance to join as parties-plaintiffs.
In their complaint the plaintiffs alleged inter alia that they and/or their predecessors-in-interest executed the
deed of "Assignment of Right to Inheritance" on October 23, 1939, only because they were made to believe by
the defendant Maximino Carantes that the said instrument embodied the understanding among the parties that
it merely authorized the defendant Maximino to convey portions of Lot No. 44 to the Government in their
behalf to minimize expenses and facilitate the transaction; and that it was only on February 18, 1958, when
the plaintiffs secured a copy of the deed, that they came to know that the same purported to assign in favor of
Maximino their rights to inheritance from Mateo Carantes. The plaintiffs prayed that the deed of "Assignment
of Right to Inheritance" be declared null and void; that Lots Nos. 44-D and 44-E covered by T.C.T. No. T99 be
ordered partitioned into six (6) equal shares and the defendant Maximino Carantes be accordingly ordered to
execute the necessary deeds of conveyance in favor of the other distributees and that the said defendant be
ordered to pay the plaintiffs the sum of P1,000 as attorney's fees and the sum of P200 as costs of suit.
On September 10, 1958 the defendants filed a motion to dismiss on the grounds (1) that the plaintiffs' cause of
action is barred by the statute of limitations because the deed of assignment was recorded in the Registry of
Property at the latest on February 21, 1947, hence, plaintiffs' cause of action accrued from the said date, and
since pursuant to article 1144 of the new Civil Code an action based on a written contract must be brought
within ten years from the time the right of action accrues, plaintiffs' right to file the complaint had already
prescribed on September 4, 1958; and (2) that the complaint states no cause of action because ownership
over the property became vested in Maximino Carantes by acquisitive prescription ten years from its
registration in his name on February, 21, 1947.
In an Order dated September 30, 1958, the trial court denied the motion to dismiss on the grounds that there
are allegations of co-ownership and trust in the complaint, and, therefore, prescription did not lie, and that the
complaint alleges that the plaintiffs discovered the alleged fraud only in February, 1958.

In their answer filed on October 7, 1958, the defendants traversed the material averments of the complaint and
alleged inter alia that the property of the deceased Mateo Carantes and his wife had been divided and
distributed among their six children; that the deed of "Assignment of Right to Inheritance" was an
acknowledgment of the fact of designation of the property therein described as specifically pertaining or
belonging by right of inheritance to the defendant Maximino Carantes: that there was never any agreement
between the assignors and the assignee authorizing the latter to merely represent his co-heirs in negotiations
with the Government; and that the assignors knew fully well that the deed of assignment contained what, on its
face, it represented, By way of special defenses, the defendants alleged that any supposed agreement
between the plaintiffs and/or their predecessors-in-interest and the defendant Maximino Carantes, other than
the deed of assignment, is barred by the statute of frauds and is null and void because not in writing, much
less, in a public instrument; that the only agreement between the parties is what appears in the deed of
assignment; that the plaintiffs' right of action has already prescribed; that the defendant Maximino Carantes
acquired absolute ownership over the property in question by acquisitive prescription and registration; and that
any obligation on the part of the defendants in relation to the property had been discharged by novation,
condonation and compensation. The defendants set up the counterclaim that in the event the rights of the
heirs are disturbed, the produce from the lands inherited by the plaintiffs from Mateo Carantes as well as the
real estate taxes on the land paid by the defendant Maximino Carantes should be collated; and that the filing
of the complaint being malicious, the defendants should be awarded the sum of P4,500 by way of nominal,
compensatory, moral and corrective damages, including attorney's fees and expenses of litigation. The
defendants prayed for the dismissal of the complaint and payment of damages to them.
An answer to the counterclaim was filed by the plaintiffs on November 7, 1958 denying the material allegations
of the counterclaim.
After trial, the court rendered its decision on January 28, 1965. It was the trial court's opinion that since an
action based on fraud prescribes in four years from the discovery of the fraud, and in this case the fraud
allegedly perpetrated by the defendant Maximino Carantes must be deemed to have been discovered on
March 16, 1940 when the deed of assignment was registered, the plaintiffs' right of action had already
prescribed when they filed the action in 1958; and even assuming that the land remained the common
property of the plaintiffs and the defendant Maximino Carantes notwithstanding the execution of the deed of
assignment, the co-ownership was completely repudiated by the said defendant by performance of several
acts, the first of which was his execution of a deed of sale in favor of the Government on October 23, 1939,
hence, ownership had vested in the defendant Maximino Carantes by acquisitive prescription. The court
accordingly dismissed the complaint. It likewise dismissed the counterclaim.
The plaintiffs moved for reconsideration. Their motion having been denied in an Order dated March 8, 1965,
they appealed to the Court of Appeals.
As adverted to above, the Court of Appeals reversed the judgment of the trial court, hence the present
recourse.
-I-

The settled rule is that defenses not pleaded in the answer may not be raised for the first time on appeal. 1 A
party cannot, on appeal, change fundamentally the nature of the issue in the case. 2 When a party deliberately
adopts a certain theory and the case is decided upon that theory in the court below, he will not be permitted to
change the same on appeal, because to permit him to do so would be unfair to the adverse party. 3
Consequently, we have to disregard the petitioner's theory that the action is for reformation of an instrument,
and must proceed on the basis of the issues properly raised and ventilated before the trial court.
- II We do not agree with the respondent court's legal conclusion that the deed of "Assignment of Right to
Inheritance" is void ab initio and inexistent on the grounds that real consent was wanting and the consideration
of P1.00 is so shocking to the conscience that there was in fact no consideration, hence, the action for the
declaration of the contract's inexistence does not prescribe pursuant to article 1410 of the new Civil Code.
Article 1409 (2) of the new Civil Code relied upon by the respondent court provides that contracts "which are
absolutely simulated or fictitious" are inexistent and void from the beginning. The basic characteristic of
simulation is the fact that the apparent contract is not really desired or intended to produce legal effects or in
any way alter the juridical situation of the parties. 4
The respondents' action may not be considered as one to declare the inexistence of a contract for lack of
consideration. It is total absence of cause or consideration that renders a contract absolutely void and
inexistent.5 In the case at bar consideration was not absent. The sum of P1.00 appears in the document as
one of the considerations for the assignment of inheritance. In addition and this of great legal import the
document recites that the decedent Mateo Carantes had, during his lifetime, expressed to the signatories to
the contract that the property subject-matter thereof rightly and exclusively belonged to the petitioner
Maximino Carantes. This acknowledgment by the signatories definitely constitutes valuable consideration for
the contract.
- III The present action is one to annul the contract entitled "Assignment of Right to Inheritance" on the ground of
fraud.
Article 1390 of the new Civil code provides that a contract "where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud," is voidable or annullable. Even article 1359, which deals on reformation
of instruments, provides in its paragraph 2 that "If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract," When the consent to a contract was fraudulently obtained, the contract is
avoidable. 6 Fraud or deceit does not render a contract void ab initio and can only be a ground for rendering
the contract voidable or annullable pursuant to article 1390 of the new Civil Code by a proper action in court. 7

In her brief filed with this Court, the petitioner argues that the private respondents' action is not actually one for
annulment of the deed of "Assignment of Right to Inheritance" but for the reformation thereof, hence, the said
action has prescribed long before the filing of the complaint.

The present action being one to annul a contract on the ground of fraud, its prescriptive period is four years
from the time of the discovery of the fraud. 8

The petitioner's theory that the private respondents' action is for reformation of an instrument is a new one,
adopted by the petitioner for the first time on appeal to this Court. Her husband did not raise it as a defense in
his answer filed with the trial court, where, consequently, trial proceeded on the theory that the action sought
the declaration of nullity of the deed of assignment. When the case reached the respondent court the
petitioner likewise did not raise this issue, although in truth, even had she done so, it would have been a
belated and futile exercise. She cannot be allowed to change her theory of the case at this stage of the
proceedings.

The next question that must be resolved is: from what time must fraud, assuming that there was fraud, be
deemed to have been discovered in the case at bar? From February, 1958, when, according to the private
respondents, and as found by the respondent court, the private respondents actually discovered that they
were defrauded by the petitioner Maximino Carantes when rumors spread that he was selling the property for
half a million pesos? Or from March 16, 1940, when, as admitted by the parties and found by both the trial
court and the respondent court, the deed of "Assignment of Right to Inheritance" was registered by the
petitioner in the Office of the Register of Deeds?
The weight of authorities is to the effect that the registration of an instrument in the Office of the Register of
Deeds constitutes constructive notice to the whole world, and, therefore, discovery of the fraud is deemed to

have taken place at the time of the registration. 9 In this case the deed of assignment was registered on March
16, 1940, and in fact on the same date T.C.T. No. 2533 in the names of the heirs of Mateo Carantes was
cancelled, and T.C.T. No. 2540 in the name of the petitioner was issued in lieu thereof. The four-year period
within which the private respondents could have filed the present action consequently commenced on March
16, 1940; and since they filed it only on September 4, 1958, it follows that the same is barred by the statute of
limitations.
The respondent court refused to accord recognition to the rule of constructive notice, because, according to it,
there was a fiduciary relationship between the parties. Upon this premise it concluded that the four-year
prescriptive period should be deemed to have commenced in February, 1958 when private respondents had
actual notice of the fraud. Without resolving the question of whether or not constructive notice applies when a
fiduciary relationship exists between the parties a point which is not in issue in this case we hold that the
respondent court's conclusion, lacking the necessary premise upon which it should be predicated, is
erroneous.

executed a formal deed of sale over portions of Lot No. 44 in favor of the Government. In 1948 he mortgaged
Lot No. 44-D with the Philippine National Bank as his exclusive property. The petitioner's exercise of such
rights of dominion is anathema to the concept of a continuing and subsisting trust. The circumstances, found
by the respondent court, that the name of Mateo Carantes still appeared in the tax declaration as owner of the
land and the name of the petitioner as administrator, that the real estate taxes, were shared by the other heirs
with the petitioner, and that some of the heirs are living in houses erected by them on the land, wane in legal
significance in the face of the petitioner's aforesaid uncontroverted acts of strict dominion. In connection with
the payment of real estate taxes, it is to be noted that the respondent court also found that all the receipts
were issued in the name of the petitioner. The circumstances mentioned above do not make out a case of a
continuing and subsisting trust.
ACCORDINGLY, the judgment of the Court of Appeals appealed from is set aside, and another entered
dismissing the complaint in Civil Case No. 804 of the Court of First Instance of Baguio. No costs.
[G.R. No. L-3246. February 9, 1907. ]

Definitely, no express trust was created in favor of the private respondents. If trust there was, it could only be
as held by respondent court a constructive trust, which is imposed by law. In constructive trusts there is
neither promise nor fiduciary relations; the so-called trustee does not recognize any trust and has no intent to
hold the property for the beneficiary. 10 In at least two cases, the rule of constructive notice was applied by this
Court although a constructive trust had been created. Thus, in Lopez, et al. vs. Gonzaga, et al., 11 where the
plaintiffs and the defendants were co-heirs and the decedent owner of the lands had merely allowed the
principal defendant to use the products and rentals of the lands for purposes of coconut oil experimentation,
but said defendant later caused the transfer of the certificates of title in his own name through the registration
of certain judicial orders, this Court held that the recording of the judicial orders sufficed as notice to the other
heirs, for the rule is that knowledge of what might have been revealed by proper inquiry is imputable to the
inquirer. In Gerona, et al. vs. De Guzman, et a., supra, the petitioners and the private respondents were coheirs, and the petitioners' action for partition and reconveyance was based upon a constructive trust resulting
from fraud. This Court held that the discovery of the fraud "is deemed to have taken place, in the case at bar,
on June 25, 1948, when said instrument was filed with the Register of Deeds and new certificates of title were
issued in the name of respondents exclusively, for the registration of the deed of extra-judicial settlement
constituted constructive notice to the whole world."

CADWALLADER & COMPANY, Plaintiff-Appellant, v. SMITH, BELL & COMPANY and HENRY W.
PEABODY & COMPANY, Defendants-Appellees.
Thomas E. Kepner, for Appellant.
Kinney, Odlin & Lawrence, for Appellees.
SYLLABUS
1. SALE; MISREPRESENTATION BY CONSIGNEE. The consignee who by means of misrepresentation of
the condition of the market induces his consignors to sell to him the property consigned, at a price less than
that for which he had already contracted to sell part of it, and who thereafter disposes of the whole at an
advance, must answer for the difference.
2. ID.; FRAUD; ANNULMENT OF CONTRACT. Such conduct on the part of the agent constitutes fraud,
entitling the principal to annul the contract of sale.

- IV The decision under review found that a constructive trust was created in favor of the private respondents, and,
holding that an action for reconveyance based on constructive trust is imprescriptible, recognized the right of
the private respondents to file an action for reconveyance regardless of the lapse of time, citing Gayandato vs.
Treasurer of the Philippine Islands, et al. 12

3. ID.; AGENCY; COMMISSIONS. Commissions should be allowed the agent on sales made by him under
his original authorization, but not on sales of property included in the annulled contract.
DECISION
TRACEY, J. :

We have examined Gayandato, and have failed to find support therein for the holding of the respondent court.
In any event, it is now settled that an action for reconveyance based on implied or constructive trust is
prescriptible it prescribes in ten years. 13 In this case the ten-year prescriptive period began on March 16,
1940, when the petitioner registered the deed of "Assignment of Right to Inheritance" and secured the
cancellation of the certificate of title in the joint names of the heirs of Mateo Carantes, and, in lieu thereof, the
issuance of a new title exclusively in his name. 14 Since the present action was commenced only on
September 4, 1958, it is clear that the same is barred by extinctive prescription.
-VIt was also held by the respondent court that the petitioner was merely holding the property in trust for the
benefit of his co-heirs as administrator, hence, there was a continuing and subsisting trust, and pursuant to
section 38 of the Code of Civil Procedure, the provisions of the said Code on prescription (Secs. 40-41) do not
apply. It is our view, however, that there was no continuing and subsisting trust.
From March 16, 1940, when the petitioner registered the deed of assignment and had the Certificate of title in
the names of the heirs cancelled and a new certificate of title issued in his own name, he began to hold the
property in open and clear repudiation of any trust. 15 It will be noted that on the same date, the petitioner also

In this action the plaintiff, as assignee of the Pacific Export Lumber Company, sues for $3,486, United States
currency, the differences between the amount turned over to the company on account of a cargo of cedar piles
consigned to the defendants as its agents and afterwards bought by them, and the amount actually received
by them on the subsequent sale thereof. The defendant were allowed by the court below a counterclaim of
$6,993.80, United States currency, from which was deducted $2,063.16 for the plaintiffs claim, leaving a
balance in favor of the defendants of $4,930.64, for the equipment of which, to wit, 9,861.28 pesos, judgment
was entered. The defendants have not appealed. The plaintiff took several exceptions, but on the argument its
counsel stated that its contention was confined to the allowance by the trial court of the commissions of the
defendant on selling the piling.
In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer Quito five hundred
and eighty-one (581) piles to the defendant, Henry W. Peabody & Company, at Manila, on the sale of which
before storage the consignees were to receive a commission of one half of whatever sum was obtained over
$15 for each pile and 5 per cent of the price of the piles sold after storage. After the arrival of the steamer on
August 2, Peabody and Company wrote the agent of the Pacific Company at Shanghai that for lack of a
demand the piles would have to be sold at considerably less than $15 apiece; whereupon the companys
agent directed them to make the best possible offer for the piles, in response to which on August 5 they
telegraphed him an offer of $12 apiece. It was accepted by him on August 6, in consequence of which the
defendant paid the Pacific Company $6,972.

It afterwards appeared that on July 9 Peabody & Company had entered into negotiations with the Insular
Purchasing Agent for the sale for the piles at $20 a piece, resulting of August 4 in the sale to the Government
of two hundred and thirteen (213) piles at $19 each. More of them were afterwards sold to the Government at
the same figure and the remainder to other parties at carrying prices, the whole realizing to the defendants
$10,41.66, amounting to $3,445.66 above the amount paid by the defendant to the plaintiff therefor. Thus it is
clear that at the time when the agents were buying from their principal these piles at $12 apiece on the
strength of their representation that no better price was obtainable, they had already sold a substantial part of
them at $19. In these transactions the defendant, Smith, Bell & Company, were associated with the
defendants, Henry W. Peabody & Company, who conducted the negotiations, and are consequently
accountable with them.
It is plaint that in concealing from their principal the negotiations with the Government, resulting in a sale of the
piles at 19 a piece and in misrepresenting the condition of the market, the agents committed a breach of duty
from which they should benefit. The contract of sale to themselves thereby induced was founded on their fraud
and was subject to annulment by the aggrieved party. (Civil Code, articles 1265 and 1269.) Upon annulment
the parties should be restored to their original position by mutual restitution. (Article 1303 and 1306.) Therefore
the defendants are not entitled to retain their commission realized upon the piles included under the contract
so annulled. In respect of the 213 piles, which at the time of the making of this contract on August 5 they had
already sold under the original agency, their commission should be allowed.
The court below found the net amount due from the defendants to the plaintiff for the Quito piles, after
deducting the expense of landing the same and $543.10 commission, was $1,760.88, on which it allowed
interest at the rate of 6 per cent from March 1, 1903. This amount should be increased by the addition thereto
of the amount of the commission disallowed, to wit, $331.17 giving $2,092.05. Interest computed on this sum
to the date of the entry of judgment below amounts to $359.77, which added to the principal sum makes
$2,241.82, the amount of plaintiffs claim, which is to be deducted from defendants counterclaim of $6,993.80,
leaving a balance of $4,541.98, equivalent to 9,083.96 pesos, the amount for which judgment below should
have been entered in favor of the defendants.

THE COURT OF APPEALS ERRED IN AWARDING "LEGAL INTEREST" IN FAVOR OF DEFENDANTS

(NOW PRIVATE RESPONDENTS) WHO DID NOT APPEAL FROM THE TRIAL COURT'S DECISION WHICH
DID NOT AWARD ANY SUCH "LEGAL INTEREST". 2
In support thereto, petitioners argue that a party who has not himself appealed cannot obtain from the
appellate court any affirmative relief other than those granted in the decision of the court below. Thus, they
maintain that the award of legal interest, an affirmative relief granted by the respondent court, is erroneous as
private respondents never appealed from the trial court's decision which did not award such interest.
We find the appeal unmeritorious. The respondent court ruled for the return of the contract price of
P150,000.00 with legal interest over the subject property to private respondents with the following justification
which we quote with approval:
. . . Since the sale is annulled the parties are to be governed by Article 1398 of the Civil Code whereunder they
shall restore to each other the things which have been the subject matter of the contract, with their fruits, and
the price with interest; the same precept is substantially embodied in Article 1385 in reference to rescission of
contracts. Indeed even the principle against unjust enrichment (Article 22, Civil Code) would eschew a
contrary conclusion. 3
Furthermore, in resolving the petitioner's motion for reconsideration to delete the award of interest, respondent
court correctly explained that the imposition of legal interest on the amount due was made not because the
appellees sought affirmative relief but because the award of legal interest on the amount due is a necessary
consequence of the finding that the Contract of Sale executed by appellant Hortencia Ines is void in its
entirety, and in the exercise of its appellate jurisdiction it may resolve or consider errors not assigned in the
appellant's brief when it is necessary for a just, fair and equitable resolution of the case, or when an issue is
closely related to an error properly assigned in the appellants' brief and upon which the resolution of an
assigned error is dependent. 4

Let the judgment of the Court of First Instance be modified accordingly, without costs to either party.
After expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter the
record remanded to the court below for proper action. So ordered.
G.R. No. 114051 August 14, 1995
DAVID INES and HORTENCIA CASTRO-INES, petitioners,
vs.
COURT OF APPEALS and DIONISIO GERONIMO, respondents.

FRANCISCO, J.:
Petitioners spouses David Ines and Hortencia Castro-Ines filed an action before the Regional Trial Court to
annul a deed of sale over their conjugal residential house and lot in favor of private respondents spouses
Geronimo. The trial court declared the deed of sale void as to the one-half conjugal share of David Ines in the
subject property due to the forgery of his signature and the other half belonging to his wife as equitable
mortgage. Private respondents were ordered to reconvey the one-half share of the wife upon the return of the
sum of P150,000.00, the consideration of the contract. Petitioners appealed to the Court of Appeals on the
ground that the husband's forged signature did not bind the conjugal partnership, hence the entire contract is
voidable as the consent of an indispensable party, the husband, was lacking. Private respondents did not
appeal. Public respondent Court of Appeals 1 sustained petitioners' contention, declared the deed of sale void
in its entirety and ordered private respondents to reconvey the entire subject property in favor of petitioners
who were again ordered to return the P150,000.00 consideration they received from the sale, but with legal
interest from April 15, 1982 until fully paid. Petitioners' motion for the partial reconsideration of the decision to
delete the imposition of legal interest on the amount of P150,000.00 was subsequently denied. Hence this
petition under Rule 45 of the Revised Rules of Court, assigning a lone assignment of error, to wit:

To the above quoted justification, we must moreover add that the award of legal interest is based on equitable
grounds duly sanctioned by the Civil Code under Article 2210 which provides:
Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.
Thus, in De Lima v. Laguna Tayabas Co. 5 and Cabral v. Court of Appeals, 6 We sustained the Court of
Appeals' award of legal interest on the basis of said provision despite its absence in the trial courts' decisions
and despite the lack of appeal of private respondents therein.
We take exception, however, to the ruling of public respondent as to the date when the legal interest should
commence to run which we hold, in view of the consistent rulings of this Court, 7 should start from the time of
the rendition of the trial court's decision on July 31, 1990 instead of April 15, 1982, the date when the deed of
sale was executed.
ACCORDINGLY, subject to the above modification that the legal interest should commence to run from July
31, 1990 until fully paid, the decision appealed from should be, as it is hereby AFFIRMED in all other respects.
SO ORDERED.

G.R. No. 142310

September 20, 2004

ARRA REALTY CORPORATION and SPOUSES CARLOS ARGUELLES and REMEDIOS DELA RAMA
ARGUELLES, petitioners,
vs.
GUARANTEE DEVELOPMENT CORPORATION AND INSURANCE AGENCY and ENGR. ERLINDA
EALOZA,respondents.

on May 15, 1987.18 Of the purchase price of P22,000,000, the GDCIA retained P1,000,000 to answer for any
damages arising from any suits of the occupants of the building.
On May 28, 1987, Pealoza filed a complaint against the ARC, the GDCIA, and the Spouses Arguelles, with
the Regional Trial Court of Makati, Branch 61, for "specific performance or damages" with a prayer for a writ of
preliminary injunction.
Pealoza prayed for the following reliefs:

DECISION
WHEREFORE, it is most respectfully prayed of this Honorable Court that
CALLEJO, SR., J.:
1.- Before hearing, a temporary restraining order immediately issue;
Arra Realty Corporation (ARC) was the owner of a parcel of land, located in Alvarado Street, Legaspi Village,
Makati City, covered by Transfer Certificate of Title (TCT) No. 112269 issued by the Register of
Deeds.1 Through its president, Architect Carlos D. Arguelles, the ARC decided to construct a five-story building
on its property and engaged the services of Engineer Erlinda Pealoza as project and structural engineer. In
the process, Pealoza and the ARC, through Carlos Arguelles, agreed on November 18, 1982 that Pealoza
would share the purchase price of one floor of the building, consisting of 552 square meters for the price
of P3,105,838: P901,738, payable within sixty (60) days from November 20, 1982, and the balance payable in
twenty (20) equal quarterly installments of P110,205. The parties further agreed that the payments of
Pealoza would be credited to her account in partial payment of her stock subscription in the ARCs capital
stock.2 Sometime in May 1983, Pealoza took possession of the one-half portion of the second floor, with an
area of 552 square meters3 where she put up her office and operated the St. Michael International Institute of
Technology. Unknown to her, ARC had executed a real estate mortgage over the lot and the entire building in
favor of the China Banking Corporation as security for a loan on May 12, 1983. 4 The deed was annotated at
the dorsal portion of TCT No. 112269 on June 3, 1983. 5From February 23, 1983 to May 31, 1984, Pealoza
paid P1,175,124.59 for the portion of the second floor of the building she had purchased from the ARC. 6 She
learned that the property had been mortgaged to the China Banking Corporation sometime in July 1984.
Thereafter, she stopped paying the installments due on the purchase price of the property.
Pealoza wrote the China Banking Corporation on August 1, 1984 informing the bank that the ARC had
conveyed a portion of the second floor of the building to her, and that she had paid P1,175,124.59 out of the
total price ofP3,105,838. She offered to open an account with the bank in her name in the amount
of P300,000, and to make monthly deposits of P50,000 each, to serve as payments of the equivalent loan of
the ARC upon the execution of the appropriate documents. She also proposed for the bank to assist her in
requesting the ARC to execute a deed of absolute sale over the portion of the second floor she had purchased
and the issuance of the title in her name upon the payment of the purchase price. 7 However, the bank rejected
her proposal.8 She then wrote the ARC on August 31, 1984 informing it of China Banking Corporations
rejection of her offer to assume its equivalent loan from the bank and reminded it that it had conformed to her
proposal to assume the payment of its loan from the bank up to the equivalent amount of the balance of the
purchase price of the second floor of the building as agreed upon, and the consequent execution by the ARC
of a deed of absolute sale over the property in her favor.9 Pealoza then sent a copy of a deed of absolute
sale with assumption of mortgage for the ARCs consideration, and informed the latter that, in the meantime,
she was withholding installment payments.10 On October 3, 1984, Pealoza transferred the school to another
building she had purchased, but retained her office therein. She later discovered that her office had been
padlocked.11 She had the office reopened and continued holding office thereat. To protect her rights as
purchaser, she executed on November 26, 1984 an affidavit of adverse claim over the property which was
annotated at the dorsal portion of TCT No. 112269 on November 27, 1984. 12 However, the adverse claim was
cancelled on February 11, 1985.13
When the ARC failed to pay its loan to China Banking Corporation, the subject property was foreclosed
extrajudicially, and, thereafter, sold at public auction to China Banking Corporation on August 13, 1986
forP13,953,171.07.14 On April 29, 1987, the ARC and the Guarantee Development Corporation and Insurance
Agency (GDCIA) executed a deed of conditional sale covering the building and the lot for P22,000,000, part of
which was to be used to redeem the property from China Banking Corporation. 15 With the money advanced by
the GDCIA, the property was redeemed on May 4, 1987. 16 On May 14, 1987, the petitioner executed a deed of
absolute sale over the lot and building in favor of the GDCIA for P22,000,000.17 The ARC obliged itself under
the deed to deliver possession of the property without any occupants therein. The Register of Deeds,
thereafter, issued TCT No. 147846 in favor of the GDCIA over the property without any liens or encumbrances

2.- After notice and hearing, and the filing of an injunction bond, a preliminary injunction be issued forthwith
enjoining and restraining the defendant Register of Deeds for Makati, Metro Manila, from receiving and
registering any document transferring, conveying, encumbering or, otherwise, alienating the land and edifice
covered by Transfer Certificate of Title No. 112269 of said Registry of Deeds and from issuing a new title
therefor;
3.- After hearing and trial
(a) Ordering defendants ARRA and Arguelles to execute a deed of sale in favor of plaintiff over the second
floor of that 5-storey edifice built on 119 Alvarado Street, Legaspi Village, Makati, Metro Manila,
simultaneously with the tender of the remaining balance on the purchase price thereon;
(b) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff such moral damages as
may be proved during the trial;
(c) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff exemplary damages in
such amount as may be deem (sic) just, sufficient and equitable as exempary (sic) damages;
(d) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff an amount equivalent to
20% of whatever she may recover herein as and for attorneys fees;P500.00 per appearance of counsel in
Court; and miscellaneous litigation expenses and cost of suit;
4.- On the Alternative Cause of Action, in the event that specific performance cannot be effected for any
reason, to render judgment in favor of the plaintiff and against the defendants
(a) Ordering the defendants, jointly and reveraaly (sic), to restitute to the plaintiff the sum ofP1,444,124.59 with
interest thereon at bank borrowing rate from August 1984 until the same is finally wholly returned;
(b) Ordering the defendants, jointly and severally, to pay the plaintiff the difference between the selling price on
the second floor of the 5-storey edifice after deducting P1,444,124.59 therefrom;
(c) Directing defendant Guarantee Development Corporation & Insurance Agency to deposit with the
Honorable Court any amount still in its possession on the purchase price of the land and the 5-storey edifice in
question;
(d) Ordering the defendants, jointly and severally, to pay the plaintiff moral and exemplary damages as may be
proved during the trial and/or as this Honorable Court may deem just, adequate and equitable in the premises;

(e) Ordering the defendants, jointly and severally, to pay the plaintiff an amount equivalent to 20% of whatever
she may recover from the defendants in this suit as and for attorneys fees, litigation expenses and costs.

9.- That after her occupation and taking possession of the second floor of the said 5-storey edifice, the plaintiff
caused the installation of a water tank and water pumps thereto;

PLAINTIFF further prays for such other reliefs and remedies as may be just and equitable in the premises 19

10.- That the water tank installed on the second floor of the 5-storey edifice involved an outlay ofP15,000.00
as evidenced by Cash Vouchers, copies of which are hereto attached as Annexes "G" and "G-1," while the
water pumps involved the disbursement of P52,000.00 from the funds of the plaintiff as evidenced by Cash
Vouchers, copies of which are hereto attached as Annexes "H," "H-1" hereof;

On her first cause of action, Pealoza alleged, inter alia:

2.- That on or about November 18, 1982, the plaintiff and defendant ARRA represented by its President and
General Manager, defendant Arguelles, entered into an agreement whereby for and in consideration of the
amount of P3,105,828.00 on a deferred payment plan payable in five (5) years, defendants ARRA and
Arguelles agreed to sell to the plaintiff one (1) whole floor of a prospective 5-storey building which said
defendants planned to build on a 992 square meter lot located at 119 Alvarado Street, Legaspi Village, Makati,
Metro Manila, covered by Transfer Certificate of Title No. 112269 of the Registry of Deeds for Makati, Metro
Manila, copy of which agreement is hereto attached as Annex "A" and made integral part hereof ;

11.- That when the defendants ARRA and Arguelles mortgaged with (sic) land and the 5-storey edifice to the
China Banking Corporation, the mortgage included the water tank and water pumps servicing the second floor
thereof installed by the plaintiff; 21
Pealoza caused the annotation of the notice of lis pendens at the dorsal portion of TCT No. 112269.
The GDCIA interposed the following affirmative and special defenses in its answer to the complaint:

3.- That consonant with the aforementioned agreement between the plaintiff and defendants ARRA and
Arguelles, the former paid to said defendants the total amount of P1,377,124.59 as evidenced by receipts and
cash vouchers copies of which are hereto attached as Annexes "B," "B-1" to "B-10" and made integral parts
hereof;

26. Guarantee acquired clean title to the Property, as evidenced by the transfer certificate of title attached as
Annex 4 hereof.

4.- That upon completion of the 5-storey edifice on May 31, 1984, the plaintiff made her choice of the second
floor thereof as the subject matter or object of the sale in her favor, and with the express knowledge and
consent of defendants ARRA and Arguelles, she immediately took possession and occupied the same as
contained in a certification to said effect of the defendants, and where they further certified that the certificate
of condominium corresponding to the second floor "is presently under process," copy of said certification is
hereto attached as Annex "C" hereof;

27. Guarantee was an innocent purchaser for value and in good faith of the Property who: (i) verified that the
title to the Property in the Registry of Deeds of Makati was absolutely free and clear of any encumbrances,
liens or claims other than the mortgage to China Banking Corporation; and, (ii) even obtained explicit
confirmation of that fact from Arra and Arguelles.

5.- That sometime in August 1984, the plaintiff learned that the defendants ARRA and Arguelles, conspiring
with one another in a clear and unmistakeably (sic) scheme to defraud the plaintiff of her investment on the
second floor of the 5-storey edifice, mortgaged the land and the building covered by Transfer Certificate of
Title No. 112269 of the Registry of Deeds for Makati, Metro Manila, with the China Banking Corporation in
order to secure the payment of their loan in the total sum of P6,500,000.00 without the knowledge and/or
consent of the plaintiff;

30. Consequently, Guarantee could rely, as it did, on the absence of any annotation of encumbrance on the
title to the Property. By clear provision of law, the present action, which is a collateral attack on the title to the
Property in question, cannot be allowed by the Court.

6.- That after verifying the fact of mortgage with the China Banking Corporation and realizing the risk of loss of
her investment of P1,377,124.59 she had so far paid on the purchase price of the second floor of the 5-storey
edifice, the plaintiff wrote the defendants ARRA and Arguelles on August 31, 1984 proposing to defendants
ARRA and Arguelles the execution of a deed of sale with assumption of mortgage in her favor of the portion of
the loan corresponding to the second floor of the said edifice and informing them of her resolve to hold further
payments on the purchase price of the second floor until her rights and interest over the same shall have been
adequately and properly secured, copy of said letter is hereto attached as Annex "D" hereof;
7.- That in order to facilitate the transaction and expeditious execution of the sale over the second floor in her
favor, the plaintiff had a Deed of Sale with Assumption of Mortgage prepared and forwarded the same to
defendants ARRA and Arguelles for their consideration and signature with an accompanying letter therefor
dated September 25, 1984, copy of said draft of a deed of sale with assumption of mortgage and the
accompanying letter therefor are hereto attached as Annexes "E" and"E-1," respectively;
8.- That by reason of the unjustified, unwarranted and malicious inaction and/or refusal and failure of the
defendants ARRA and Arguelles to comply with plaintiffs perfectly valid and legal demand for the execution of
a document of sale over the second floor of the 5-storey edifice, and in order to protect her rights and interest
in said transaction, the plaintiff caused to be prepared and executed an affidavit of Adverse Claim and effected
the annotation thereof on Transfer Certificate of Title No. 112269 of the Registry of Deeds for Makati, M.M.,
copy of said Adverse Claim is hereto attached as Annex "F" hereof. 20
On her second cause of action, Pealoza alleged, as follows:

31. The complaint (para. 6) admits that plaintiff was unable to pay the purchase price for the portion of the
building which she allegedly bought under the letter agreement with Arra dated November 18, 1982 (Annex
"A," Complaint). Assuming plaintiffs agreement with Arra to be valid and enforceable, her failure to discharge
her part of the agreement bars her from now attempting to compel performance from Arra and Arguelles.
32. Plaintiffs remedy, should her claim, indeed, be meritorious, is a personal action for damages against Arra
and Arguelles.22
The GDCIA prayed that, after due proceedings, judgment be rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that, after due hearing, judgment be rendered:
(i) Dismissing the complaint for lack of merit;
(ii) Ordering plaintiff to pay attorneys fees in such amount as may be proven in the course of trial;
(iii) Ordering plaintiff to pay to Guarantee the amount of P500,000.00 as moral damages;
or, in the alternative, should plaintiffs claim be adjudged meritorious,
(iv) Ordering defendants Arra and Arguelles, solidarily, to return the purchase price of the Property with interest
as stated in the Deed of Conditional Sale;

(v) Ordering defendants Arra and Arguelles, solidarily, to pay to Guarantee the amount ofP1,000,000.00 as
punitive and exemplary damages;

18. That the negotiation for the sale of the building took almost a year and during such period, plaintiff was
cooperative in showing the second floor which she was then occupying to prospective buyers;

(vi) Ordering defendants Arra and Arguelles to pay attorneys fees in such amount as may be proven in the
course of trial;

19. Whatever right plaintiff may have acquired over the second floor of the subject 5-storey building has been
extinguished upon her failure to comply with her obligation, which was the payment of the total amount
of P3,105,838.00 within the specific period expressly provided as the essence of the agreement. 24

(vii) Ordering defendants Arra and Arguelles to pay to Guarantee the amount of P500,000.00 as moral
damages.
Other just and equitable reliefs are prayed for.23
The ARC and the Spouses Arguelles interposed the following special and affirmative defenses:
10. Plaintiff has no cause of action against answering defendants; her complaint is definitely a nuisance suit;
11. When answering defendants decided to erect a 5-storey building on their lot in 1982, plaintiff and
answering defendants agree that plaintiff will share in the construction of any one (1) floor thereof; hence, the
agreement between them (Annex "A");

The ARC and the Spouses Arguelles also interposed counterclaims against the GDCIA, while the latter
secured a writ of preliminary attachment against its co-defendants and garnished their funds. On April 17,
1995, the trial court rendered judgment in favor of Pealoza and the GDCIA, and against the ARC and the
Spouses Arguelles, thus:
WHEREFORE, premises above considered, judgment is hereby rendered as prayed for by plaintiff
PEALOZA in the case for SUM OF MONEY as against defendants ARRA and SPOUSES CARLOS D.
ARGUELLES and REMEDIOS DELA RAMA-ARGUELLES, who are hereby ORDERED as follows:
1. TO PAY plaintiff the amount of P1,444,124.59 with interest of 12 per centum per annum from August 1984
until fully paid;
2. TO PAY the amount of P150,000.00 for and as attorneys fees; and

12. Plaintiff not only refused and failed to comply with her Agreement despite repeated demands but also
grossly violated said agreement as she paid only an initial amount of P200,000.00 on February 7, 1982 in
contrary to the specific, express decisive stipulation in Annex "A" which was synchronized with the agreement
of Answering Defendants with the contractor of the building, Pyramid Construction & Engineering Corp., who
was committed to finish the building in a period of five (5) months;
13. Having committed to construct the 5-storey edifice on their lot, answering defendants has (sic) to raise the
required initial amount to start the construction and for this reason, they were constrained to borrow the rest of
the amount necessary for the completion of the building and they used their own land and the building itself as
collateral to enable defendant Arguelles to finish the building plus his own funding in the amount
of P7,000,000.00;

3. TO PAY the Costs of the proceedings.

The case for SPECIFIC PERFORMANCE and prayer for PRELIMINARY INJUNCTION are considered as
DISMISSED on grounds that this case for this alternative relief was filed after the Transfer Certificate of Title of
the property was already issued by defendant Register of Deeds in the name of GUARANTEE.
The case as against DEFENDANT Guarantee Development Corporation & Insurance Agency (GUARANTEE)
is hereby DISMISSED for insufficiency of evidence.
The counterclaims of DEFENDANTS are hereby DISMISSED for insufficiency of evidence.

14. Despite her non-compliance with her agreement, plaintiff, on her own and without the consent of
answering defendants, occupied the second floor of the building and converted the same into a school the St.
Michael International School and other business establishments whereby she earned no less
thanP3,000,000.00 in a period of four (4) years of her occupancy as a squatter thereof without paying the
rentals to answering defendants;

SO ORDERED.25

15. Due to plaintiffs persistent requests for the issuance in her favor of a certification of her occupancy of the
second floor to enable her to secure a loan in the amount of P3,105,838.00 to complete payment of her
obligation, defendant Carlos Arguelles, always a kind and understanding person, issued Annex "C" with the
expectation that plaintiff could, indeed, comply with her agreement within a period of three (3) months as she
promised;

I IN NOT ANNULLING OR RESCINDING THE CONDITIONAL DEED OF SALE OF REALTY DATED APRIL
29, 1987 AND DEED OF ABSOLUTE SALE DATED MAY 14, 1999;

16. Having failed to fulfill her promise and to comply with her obligation as mentioned in the immediately
preceding paragraph hereof, plaintiff voluntarily vacated the second floor of the said building on (sic) May
1986;
17. As a consequence of plaintiffs violation of her written agreement, answering defendants naturally
defaulted in their mortgage obligation with China Banking Corporation and answering defendants lot and
building were, therefore, foreclosed by said bank and having no means of redeeming the mortgaged
properties within the redemption period, answering defendants were compelled to negotiate for the sale of the
foreclosed properties which sale was monitored to the plaintiff together with her statement of account;

Pealoza, as well as the ARC and the Spouses Arguelles, appealed the decision to the Court of Appeals (CA).
The ARC and the Spouses Arguelles alleged that the Regional Trial Court (RTC) erred as follows:

II IN NOT ORDERING THE DEFENDANT GUARANTEE DEVELOPMENT AND INSURANCE AGENCY TO

PAY DEFENDANTS-APPELLANTS FOR THE MALICIOUS AND UNFOUNDED FILING OF WRIT OF
ATTACHMENT AND GARNISHMENT; AND
III IN NOT DIRECTING PACES TO PAY ARRA REALTY AND SPOUSES ARGUELLES ARREARS IN
RENTALS PLUS INTERESTS AND DISMISSING THE ORIGINAL AND AMENDED COMPLAINTS. 26
The CA rendered judgment, on September 30, 1998, affirming with modification the appealed decision. The
fallo reads:
WHEREFORE, the appeals of both ARRA Realty Corporation and plaintiff Engineer Erlinda Pealoza are
hereby DISMISSED, and the Decision of the lower court is hereby AFFIRMED but the award ofP150,000.00

as attorneys fees in favor of said plaintiff is deleted. The Register of Deeds of Makati City is hereby ordered to
cancel the Notice of Lis Pendens annotated on Transfer Certificate of Title No. 147845 registered in the name
of Guarantee Development Corporation and Insurance Agency.27
The ARC and the Spouses Arguelles filed a motion for reconsideration of the decision of the CA on the
following grounds:
1.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT PEALOZAS ACTION WAS
TANTAMOUNT TO FORFEITURE OR WAIVER OF HER RIGHTS.
2.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT APPRECIATING THE EVIDENCE OF CODEFENDANTS ARRA/ARGUELLES ESPECIALLY THE ARREARS IN RENTALS/OUT OF POCKET
ADVANCES WITH THE RESULTANT UNJUST ENRICHMENT ON THE PART OF PEALOZA. 28
However, the appellate court denied the said motion. Pealoza filed a petition for review on certiorari with this
Court docketed as G.R. No. 136876, wherein she made the following assignment of errors:
I
The Court of Appeals gravely erred in finding respondent Guarantee an innocent purchaser for value and in
good faith contrary to settled jurisprudence that a buyer of a parcel of land who did not pay the purchase price
in full and who could not have failed to know or discover that the land sold to him was in the adverse
possession of another is a buyer in bad faith.
II

4. Ordering respondents, jointly and severally, to pay petitioner attorneys fees of ten (10%) percent of the
amount involved.
On the alternative cause of action, in the event that specific performance cannot be affected, to render
judgment:
1. Ordering respondents, jointly and severally, to pay petitioner the sum of P1,944,124.59 with interest of
twelve (12%) percent from August 1984 until fully paid.
2. Ordering respondents, jointly and severally, to pay moral and exemplary damages of One Million Pesos
(P1,000,000.00).
3. Ordering respondents, jointly and severally, to pay attorneys fees of ten (10%) percent of the amount
involved.
Such other reliefs just and proper are, likewise, prayed for.30
On March 15, 1999, the Court resolved to deny due course to the petition for failure of the petitioner therein to
show any reversible error committed by the CA in its decision. Entry of judgment was made of record on April
14, 1999.31
For their part, the ARC and the Spouses Arguelles, now the petitioner, filed their petition for review with this
Court, contending that:
I

The Court of Appeals gravely erred in finding that petitioner, who had established her legal right for sum of
money against respondents Arra and the Arguelles spouses, may be effectively barred from pursuing her
alternative remedy for recovery of title against respondent Guarantee contrary to Section 2, Rule 8 of the
Rules of Court.

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT HOLDING
THAT NO PERFECTED CONTRACT EXISTS BETWEEN ARRA REALTY CORPORATION AND ENGINEER
ERLINDA PEALOZA.

III

II

The Court of Appeals gravely erred in not awarding damages and attorneys fees despite violation of the rights
of the petitioner on the wrongful or fraudulent action on the part of the respondents. 29

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT HOLDING
THAT GUARANTEE DEVELOPMENT CORPORATION IS NOT AN INNOCENT PURCHASER FOR VALUE
AND THAT AUTOMATIC RESCISSION IS PRESENT.32

WHEREFORE, premises considered, it is respectfully prayed that the Decision of the Court of Appeals in CAG.R. CV No. 52911 dated September 30, 1998 as well as its Resolution dated December 23, 1998 be
reversed and set aside and that a Decision be rendered:
1. Declaring as null and void the title of Guarantee (TCT No. 147845) over the subject property located at No.
119 Alvarado St., Legaspi Village, Makati, Metro Manila.
2. Ordering respondents to execute a Deed of Sale in favor of the petitioner covering the subject second floor
of the subject property simultaneously with the tender of the remaining balance on the purchase price.
3. Ordering respondents, jointly and severally, to pay petitioner moral and exemplary damages of One Million
Pesos (P1,000,000.00).

III
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT HOLDING
THAT ENGINEER ERLINDA PEALOZA IS GUILTY OF FRAUD AND IS IN BAD FAITH. HENCE, LIABLE
FOR DAMAGES.
At the outset, it must be pointed out that the issues raised by the parties in their respective pleadings in this
Court have already been resolved in G.R. No. 136876, where we denied due course to Pealozas petition for
review. Nonetheless, considering that the sole petitioner in the said case was Pealoza, whereas the
petitioners in the petition at bar are the ARC and the Spouses Arguelles, we shall resolve the petition on its
merits. Furthermore, since the issues raised by the petitioners in their assignment of errors are interrelated,
the Court shall delve into and resolve the same simultaneously.
The petitioners posit that no contract of sale over the subject property was perfected between the petitioner
ARC, on the one hand, and respondent Pealoza, on the other, because the latter failed to pay the balance of
the total purchase price of a portion of the second floor of the building as provided in their November 18, 1982
agreement. They aver that respondent Pealoza bound and obliged herself to pay the downpayment

of P901,738 on or before January 1983, and the balance in twenty (20) equal quarterly payments of P110,205.
However, the petitioners aver, respondent Pealoza was able to complete the downpayment only on March 4,
1983 and managed to pay only three quarterly installments, and part of the fourth quarterly installment. They
assert that, in violation of the November 18, 1982 agreement, respondent Pealoza used the property as a
school instead of an office, and later abandoned the same without prior notice to the petitioner ARC. The
petitioners assert that respondent Pealoza failed to pay for the advances extended to her, amounting
to P302,753.06 inclusive of interests, as well as rentals for her occupancy of the property in the total amount
of P2,177,935. The petitioners contend that, even if the payments of respondent Pealoza amounting
to P1,735,500 would be deducted from the agreed purchase price, she would still end up owing the petitioner
ARC the net amount of P930,815.56, excluding interests. They aver that respondent Pealoza should be
ordered to pay damages under Article 19 of the New Civil Code because she acted in bad faith, and pray that
the payments she made to the petitioner ARC for the purchase of the said portion of the building be forfeited in
its favor.
The petitioners further contend that respondent GDCIA was a purchaser of the property in bad faith because it
purchased the lot and building despite its presumed knowledge of the claims of respondent Pealoza and the
fact that the building was occupied by private individuals and/or corporations. The petitioners aver that they
even offered to return the P21,000,000 paid by the respondent GDCIA for the property, less the
retained P1,000,000, but that the latter rejected the offer. Hence, the deed of absolute sale executed by the
petitioner ARC and the respondent GDCIA over the property was automatically rescinded.

Such other reliefs just and proper are, likewise, prayed for.33
In its comment on the petition, the respondent GDCIA avers that the issues raised by the petitioners and
respondent Pealoza in her Comment had already been resolved by this Court in G.R. No. 136876, when the
petition therein was denied due course.
We rule against the petitioners.
Central to the issue is the November 18, 1982 letter-agreement of the parties, which reads:
Ms. Erlinda Pealoza
5th Flr. ODC Intl. Plaza Bldg.
Salcedo St., Legaspi Village
Makati, Metro Manila
Dear Linda:

WHEREFORE, premises considered, it is respectfully prayed that the petition be denied and that the Decision
of the Court of Appeals in CA-G.R. CV No. 52911 dated September 30, 1998 as well as its Resolution dated
February 21, 2000 be modified in that:

I would like to review the arrangement arrived at our meeting yesterday afternoon. You shall share one (1)
floor of the proposed 5-storey office building to be constructed on a 992 sq. mt. lot owned by ARRA Realty
Corporation located at Alvarado St., Legaspi Village, Makati, Metro Mla. The consideration for which you shall
own one (1) floor is THREE MILLION ONE HUNDRED FIVE THOUSAND EIGHT HUNDRED THIRTY-EIGHT
PESOS (P3,105,838.00) on a deferred payment plan. The initial payment of NINE HUNDRED ONE
THOUSAND SEVEN HUNDRED THIRTY-EIGHT PESOS (P901,738.00) shall be paid within sixty (60) days
from November 20, 1982 and the balance payable in 20 equal quarterly payments of ONE HUNDRED TEN
THOUSAND TWO HUNDRED FIVE PESOS (P110,205.00). Every payment that you make, ARRA shall credit
your account by way of partial payment to your stock subscriptions of ARRAs capital stock. As soon as our
contractor, Pyramid Construction and Engineering Corporation, complete its commitment with us, which is not
more than five (5) months, you shall immediately take possession of the floor of your choice. Further, as soon
as practicable, the Title corresponding to the floor that you own shall be transferred to your name.

1. Declaring as null and void the title of Guarantee (TCT No. 147845) over the subject property located at No.
119 Alvarado St., Legaspi Village, Makati, Metro Manila.

However, should you pay in full at the end of the fourth quarter or at any time prior to the 5-year arrangement,
the price shall be adjusted accordingly.

2. Ordering petitioners and respondent Guarantee to execute a Deed of Sale in favor of the petitioner covering
the subject second floor of the subject property simultaneously with the tender of the remaining balance on the
purchase price.

I believe that this accurately summarizes our understanding. If you have any questions or if I have not properly
stated our agreement, please let me know, otherwise, you may signify your conformity by signing the duplicate
copy of this letter.

3. Ordering petitioners and respondent Guarantee, jointly and severally, to pay Pealoza moral and exemplary
damages of One Million Pesos (P1,000,000.00).

Very truly yours,

In her comment on the petition, respondent Pealoza averred that her November 18, 1982 agreement with the
petitioner ARC is a perfected contract of sale. She asserts that the CA erred in holding that she was barred
from recovering the property from the respondent GDCIA and in not finding that the latter is not an innocent
purchaser in good faith because, by its own admission, it purchased the building although it was still occupied.
In fact, she notes, the respondent GDCIA retained P1,000,000 of the purchase price of the property to answer
for any claims for damages of the said occupants. She prayed, thus:

4. Ordering petitioners and respondent Guarantee, jointly and severally, to pay Pealoza attorneys fees of ten
(10%) percent of the amount involved.
In the alternative, in the event that specific performance cannot be affected, to render judgment:

(Sgd.)

CARLOS D. ARGUELLES
President & General Manager

1. Ordering petitioners and respondent Guarantee, jointly and severally, to pay petitioner the sum
ofP1,944,124.59 with interest of twelve (12%) percent from August 1984 until fully paid.
2. Ordering petitioners and respondent Guarantee, jointly and severally, to pay moral and exemplary damages
of One Million Pesos (P1,000,000.00).
3. Ordering petitioners and respondent Guarantee, jointly and severally, to pay attorneys fees of ten (10%)
percent of the amount involved.

CONFORME:

(Sgd.)

PL:FP:ccr

ERLINDA PEALOZA
Date: __________34

As gleaned from the agreement, the petitioner ARC, as vendor, and respondent Pealoza, as vendee, entered
into a contract of sale over a portion of the second floor of the building yet to be constructed for the price
ofP3,105,838 payable in installments, the first installment of P901,738 to be paid within sixty (60) days from
November 20, 1982 or on or before January 20, 1983, and the balance payable in twenty (20) equal quarterly
payments of P110,205. As soon as the second floor was constructed within five (5) months, respondent
Pealoza would take possession of the property, and title thereto would be transferred to her name. The
parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the contract
of sale was perfected, it being consensual in nature, perfected by mere consent, which, in turn, was
manifested the moment there was a meeting of the minds as to the offer and the acceptance thereof. 35 The
perfection of the sale is not negated by the fact that the property subject of the sale was not yet in existence.
This is so because the ownership by the seller of the thing sold at the time of the perfection of the contract of
sale is not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of
non-ownership on the part of the seller at the time of its perfection. What the law requires is that the seller has
the right to transfer ownership at the time the thing is delivered. Perfection per se does not transfer ownership
which occurs upon the actual or constructive delivery of the thing sold. 36

Respondent Pealoza was impelled to cause the annotation of an adverse claim at the dorsal portion of TCT
No. 112269. Her testimony is quoted, thus:
Q: And did you finally acquire the certificate of title to the 2nd floor of the said building?
A: No, Sir.
Q: Why not?
A: Because the said building was mortgaged by ARRA Realty and Architect Arguelles with China Banking
Corporation and subsequently sold to Guaranty (sic) Development Corporation.
Q: When, for the first time, did you learn about the mortgage of the building to China Banking Corp.?

In May 1983, respondent Pealoza took possession of a portion of the second floor of the building sold to her
with an area of 552 square meters. She put up her office and operated the St. Michael International Institute of
Technology. Thenceforth, respondent Pealoza became the owner of the property, conformably to Article 1477
of the New Civil Code which reads:
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive
delivery thereof.
In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor
cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the property. The
failure of the buyer to pay the purchase price within the stipulated period does not by itself bar the transfer of
ownership or possession of the property sold, nor ipso facto rescind the contract. 37 Such failure will merely
give the vendor the option to rescind the contract of sale judicially or by notarial demand as provided for by
Article 1592 of the New Civil Code:

A: It was sometime in July of 1984.

Q: How did you learn about it?
A: Since I took possession of the 2nd floor and made payments thereon, I asked Architect Arguelles every now
and then about the execution of a Deed of Sale to the 2nd floor.
Q: What was the reply of Arguelles?
A: He told me that he had to work out yet the titling of the 2nd floor as a condominium unit.
Q: Was Arguelles able to have the 2nd floor titled as a condominium unit?

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.
Admittedly, respondent Pealoza failed to pay the downpayment on time. But then, the petitioner ARC
accepted, without any objections, the delayed payments of the respondent; hence, as provided in Article 1235
of the New Civil Code, the obligation of the respondent is deemed complied with:

A: No, Sir.
Q: Why not?
A: Because he did not take any steps about it.
Q: When Arguelles did not take steps about it, what did you do?

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.
The respondent cannot be blamed for suspending further remittances of payment to the petitioner ARC
because when she pushed for the issuance of her title to the property after taking possession thereof, the ARC
failed to comply. She was aghast when she discovered that in July 1984, even before she took possession of
the property, the petitioner ARC had already mortgaged the lot and the building to the China Banking
Corporation; when she offered to pay the balance of the purchase price of the property to enable her to secure
her title thereon, the petitioner ARC ignored her offer. Under Article 1590 of the New Civil Code, a vendee may
suspend the payment of the price of the property sold:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he
have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he
may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless
the latter gives security for the return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of
trespass shall not authorize the suspension of the payment of the price.

A: I inquired why Arguelles was not doing anything about the titling of the 2nd floor and the sale thereof to me.
That was how I discovered that Arguelles mortgaged the same to the China Banking Corp. 38

Q: With those letters, what did you do?

A: On August 31, 1984, I wrote a letter to ARRA requesting them to execute a deed of sale with the
assumption of mortgage in my favor. I attached a copy of the deed of sale and assumption of mortgage to the
said letter, may I request this letter be marked as Exh. "U" and the deed of sale attached to it with the
assumption of mortgage as Exh. "U-1."
Q: Did ARRA reply to your letter?

A: ARRA and Arguelles ignored the said letter.

A: One Monday, I went to our office at the 2nd floor at 119 Alvarado for work.

Q: What did you do then?

Q: Were you able to enter the office?

A: On September 25, 1984, I wrote a letter to ARRA which I request to be marked as Exh. "V" reiterating the
signing of the deed of sale and at the same time telling him that I was suspending my payments on the 2nd
floor unless and until he signs that Deed of Sale. I offered to pay the full amount so I can get the certificate of
title, because I had more than sufficient money to pay him at the time. Here are copies of my bank deposits
from 1982 to 1986 which show my liquidity. I request that they be marked as Exh. "W" and "W-1" to "W-59"
inclusive.

A: No, Sir.

Q: What did ARRA do with that letter?

Q: How did you discover that?

A: ARRA and Arguelles ignored the said letter.

A: Because when I was using my key to my padlock, it would not fit.

Q: What steps did you take?

Q: What did you do?

A: Upon [the] advise of my lawyer, I filed a Notice of Adverse Claim dated November 26, 1984, which I request
to be marked as Exh. "X" which was inscribed the next day, November 7, 1984, at the back of the Certificate of
Title No. 112269, which I request to be marked as Exh. "Y" and the inscription of the Notice of Adverse Claim
to be bracketed and marked as Exh. "Y-1."39

A: I went to the office of Engr. Arguelles at ARRA Realty Corp. at the upper floor and asked them why they
changed the padlock. Nobody wanted to explain to me why the padlock was changed but they gave me the
key and I had it duplicated for my use, so I continued holding office there. I held office in the said premises
continuously for about a year. Later on, it was padlocked. 40

Contrary to the claim of the petitioners, respondent Pealoza did not waive her right to enforce the letteragreement or abandon the property she had purchased from the petitioner ARC. While she transferred the
school to another location, the respondent maintained her office in the subject property, only to discover that
the petitioner had had her office padlocked. Nevertheless, she had her office reopened and continued holding
office thereat for a year or so, thereafter:

Respondent Pealoza turned over the possession of the property to the petitioner ARC on October 7, 1986
and, shortly thereafter, filed her complaint against the petitioner ARC. The bare fact that the respondent filed
her complaint shortly after vacating the property is evidence of her determination to pursue her claims against
the petitioners.

Q: In the meantime, did you continue holding office and holding classes for St. Michael on the 2nd floor?
A: Sometime in April of 1986 when classes ended I transferred the St. Michael School to a building which I
purchased at Yakal St. also in Makati.

Q: Why not?
A: Because the padlock that I placed there had been changed.

In view of the failure of the petitioner ARC to transfer the title of the property to her name because of the
mortgage thereof to China Banking Corporation and the subsequent sale thereof to the GDCIA, respondent
Pealoza is entitled to the refund of the amount she paid to the petitioner ARC, conformably to Article 1398 of
the New Civil Code, which reads:

Q: Why did you transfer the St. Michael School at that building in Yakal St.?

Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things
which have been the subject matter of the contract, with their fruits, and the price with its interest, except in
cases provided by law.

A: Because after three years of operation the St. Michael School has grown too big for the 2nd floor of that
building at 119 Alvarado.

In obligations to render service, the value thereof shall be the basis for damages.

Q: How about your Engineering Office?

A: My Engineering Office has also grown bigger, just right for that space at the 2nd floor, so it remained there.
Q: So the office of Pealoza Engineering retained the Alvarado office?
A: Yes, Sir.

We reject the petitioners claim that respondent Pealoza is liable for P2,177,935 by way of advances and
unpaid rentals. We note that in their answer to the amended complaint of respondent Pealoza, the petitioners
did not interpose any counterclaims for actual damages in the form of unpaid rentals. Neither did the
petitioners assign as error in their brief in the CA the failure of the trial court to award P302,753.06 to them for
advances. It was only when they moved for the reconsideration of the decision of the CA did they claim, for the
first time on appeal, their entitlement to P302,753.06 as refund for advances. The petitioner ARC is, thus,
barred from raising the said issue in this Court.41
Likewise barren of factual and legal basis is the petitioners claim for damages against the respondent based
on Article 19 of the New Civil Code, which reads:

Q: After St. Michael left it, were you able to hold office there peacefully?
A: No, Sir.
Q: Why not?

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith.

In this case, respondent Pealoza suspended the payment of the balance of the purchase price of the
property because she had the right to do so. While she failed to pay the purchase price on time, the petitioner
ARC nevertheless accepted such delayed payments. The respondent even proposed to assume the loan
account of the petitioner ARC with the China Banking Corporation in an amount equivalent to the balance of
the purchase price of the subject property, which the petitioner ARC rejected. In fine, respondent Pealoza
acted in accord with law and in utmost good faith. Hence, she is not liable for damages to the petitioners under
Article 19 of the New Civil Code.
The law is that men, singly or in combination, may use any lawful means to accomplish a lawful purpose,
although the means adopted may cause injury to another.42 When a person is doing a lawful thing in a lawful
way, his conduct is not actionable though it may result in damages to another; for, though the damage caused
is undoubted, no legal right of another is invaded; hence, it is said to be damnum absque injuria. 43
The elements of abuse of rights are the following: (a) the existence of a legal right or duty, (b) which is
exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. Malice or bad faith is at the
core of said provision.44 Good faith is presumed and he who alleges bad faith has the duty to prove the
same.45 Good faith refers to the state of the mind which is manifested by the acts of the individual concerned.
It consists of the intention to abstain from taking an unconscionable and unscrupulous advantage of
another.46 Bad faith, on the other hand, does not simply connote bad judgment to simple negligence. It imports
a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty due to
some motive or interest or ill-will that partakes of the nature of fraud. 47 Malice connotes ill-will or spite and
speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm. The petitioners
failed to adduce evidence of bad faith or malice on the part of respondent Pealoza. This cannot be said of the
petitioner ARC. It mortgaged the property to China Banking Corporation even after having sold the same to
respondent Pealoza, and, thereafter, sold the same anew to GDCIA; respondent Pealoza was, thus, left
holding the proverbial bag.
On the last issue, the petitioners contend that the deed of conditional sale and deed of absolute sale executed
by them and the respondent GDCIA were automatically nullified because the latter had actual or personal
knowledge that the property sold had tenants. Furthermore, the respondent GDCIA retained P1,000,000 on
account of the claims of respondent Pealoza, Paces Industrial Development Corporation, and Emeterio
Samson over the portions of the property.
The contention of the petitioners has no merit.
First. The petitioners did not file a counterclaim against the respondent GDCIA for the rescission of the
aforesaid decision.48 Moreover, the petitioners did not adduce evidence to prove bad faith on the part of the
respondent GDCIA. Additionally, the petitioners warranted in the aforesaid deeds in favor of the said
respondent, that:
d) It is hereby agreed, convenanted and stipulated by and between the parties hereto that the VENDOR will
execute and deliver to the VENDEE a definite or absolute Deed of Sale upon the full payment by the VENDEE
of the unpaid balance of the purchase price hereinabove stipulated.
1. The VENDOR undertakes and commits to deliver the Property, including all floors of the building, as entirely
vacant to the VENDEE not later than May 15, 1987. Physical possession, however, of the first and second
floors of the Building can be turned over to the VENDEE at any time convenient to them. 49

The VENDOR undertakes to perform, fulfill and comply with the representations, warranties and undertaking
stated in the Deed of Conditional Sale. Should the VENDOR fail to do so, this agreement shall become null
and void and the VENDEE shall be entitled to enforce its right under Section 8 of the Deed of Conditional
Sale.50

Second. The respondent GDCIA relied on the representations of the petitioners. However, the respondent
received claims for ownership of portions of the property from tenants of the building, including respondent
Pealoza, which impelled it to retain P1,000,000 of the purchase price to answer for said claims. There is,
thus, no factual and legal basis for the plea of the petitioners that the trial court and the CA erred in not
rendering judgment in their favor declaring the said deeds rescinded.
On the claim of respondent Pealoza against the petitioners and her co-respondent GDCIA, we agree with the
latter that the same is barred by the resolution of this Court in G.R. No. 136876, denying due course to her
petition for review of the decision of the CA on the ground that no reversible error was committed by the said
court, which resolution has become final and executory.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision and resolution of the
Court of Appeals are AFFIRMED. Costs against the petitioners.
SO ORDERED.
G.R. No. 132415

January 30, 2002

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA,

JR.,petitioners,
vs.
BRAULIO KATIPUNAN, JR., respondent.
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari 1 assailing the Decision2 of the Court of Appeals dated July 31,
1997 in CA-GR CV No. 45928, "Braulio Katipunan, Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo
Balguma, Sr., Edgardo Balguma and Leopoldo Balguma, Jr." which set aside the Decision of the Regional
Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 87-39891 for annulment of a Deed of Absolute Sale.
The antecedents are:
Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door apartment
constructed thereon located at 385-F Matienza St., San Miguel, Manila. The lot is registered in his name under
TCT No. 1091933 of the Registry of Deeds of Manila. The apartment units are occupied by lessees.
On December 29, 1985, respondent, assisted by his brother, petitioner Miguel Katipunan, entered into a Deed
of Absolute Sale4with brothers Edgardo Balguma and Leopoldo Balguma, Jr. (co-petitioners), represented by
their father Atty. Leopoldo Balguma, Sr., involving the subject property for a consideration of P187,000.00.
Consequently, respondents title to the property was cancelled and in lieu thereof, TCT No. 168394 5 was
registered and issued in the names of the Balguma brothers. In January, 1986, Atty. Balguma, then still alive,
started collecting rentals from the lessees of the apartments.
On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, 6 a complaint for annulment of the
Deed of Absolute Sale, docketed as Civil Case No. 87-39891. 7 He averred that his brother Miguel, Atty.
Balguma and Inocencio Valdez (defendants therein, now petitioners) convinced him to work abroad. They
even brought him to the NBI and other government offices for the purpose of securing clearances and other
documents which later turned out to be falsified. Through insidious words and machinations, they made him
sign a document purportedly a contract of employment, which document turned out to be a Deed of Absolute
Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants), were able to register the
title to the property in their names. Respondent further alleged that he did not receive the consideration stated
in the contract. He was shocked when his sister Agueda Katipunan-Savellano told him that the Balguma
brothers sent a letter to the lessees of the apartment informing them that they are the new owners. Finally, he
claimed that the defendants, now petitioners, with evident bad faith, conspired with one another in taking
advantage of his ignorance, he being only a third grader.

In their answer, petitioners denied the allegations in the complaint, alleging that respondent was aware of the
contents of the Deed of Absolute Sale and that he received the consideration involved; that he also knew that
the Balguma brothers have been collecting the rentals since December, 1985 but that he has not objected or
confronted them; and that he filed the complaint because his sister, Agueda Savellano, urged him to do so. 8
Twice respondent moved to dismiss his complaint (which were granted) on the grounds that he was actually
instigated by his sister to file the same; and that the parties have reached an amicable settlement after Atty.
Balguma, Sr. paid him P2,500.00 as full satisfaction of his claim. In granting his motions for reconsideration,
the trial court was convinced that respondent did not sign the motions to dismiss voluntarily because of his
poor comprehension, as shown by the medical report of Dr. Annette Revilla, a Resident Psychiatrist at the
Philippine General Hospital. Besides, the trial court noted that respondent was not assisted by counsel in
signing the said motions, thus it is possible that he did not understand the consequences of his action. 9
Eventually the trial court set the case for pre-trial. The court likewise granted respondents motion to appoint
Agueda Savellano as his guardian ad litem.10
After hearing, the trial court dismissed the complaint, holding that respondent failed to prove his causes of
action since he admitted that: (1) he obtained loans from the Balgumas; (2) he signed the Deed of Absolute
Sale; and (3) he acknowledged selling the property and that he stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered the assailed Decision, the
dispositive portion of which reads:
"WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and a new one entered
annulling the Deed of Sale. Consequently, TCT No. 168394 is hereby declared null and void and of no force
and effect. The Register of Deeds of Manila is directed to cancel the same and restore TCT No. 109193 in the
name of Braulio Katipunan.
"SO ORDERED."
In reversing the RTC Decision, the Court of Appeals ruled:
"Upon close scrutiny of all the evidence on record, plaintiff-appellants contention finds support in the
certification dated August 4, 1987 issued by Dr. Ana Marie Revilla, a psychiatrist at the UP-PGH, who was
presented as an expert witness. Her findings explained the reason why plaintiff-appellant showed a lot of
inconsistencies when he was put on the stand. It supports the fact that plaintiff-appellant is slow in
comprehension and has a very low IQ. Based on such findings, the trial court was faulted for its wrong
assessment of appellants mental condition. It arbitrarily disregarded the testimony of a skilled witness and
made an unsupported finding contrary to her expert opinion.
Admittedly, expert witnesses when presented to the court must be construed to have been presented not to
sway the court in favor of any of the parties, but to assist the court in the determination of the issue before
it(Espiritu vs. Court of Appeals, 242 SCRA 362). Expert opinions are not ordinarily conclusive. They are
generally regarded as purely advisory in character; the court may place whatever weight they choose upon
such testimony and may reject it if they find it inconsistent with the facts in the case or otherwise unreasonable
(Basic Evidence by Ricardo J. Francisco, pp. 202).
The trial court whose decision is now under review refused to admit the experts testimony and prefer to base
its decision on its findings that contrary to the allegation of the appellant, he is nonetheless capable of
responding to the questions expounded to him while on the stand. In short, the court was swayed by its own
observation of appellants demeanor on the stand. Of course, the rule is to accord much weight to the
impressions of the trial judge, who had the opportunity to observe the witnesses directly and to test their
credibility by their demeanor on the stand (People vs. Errojo, 229 SCRA 49). Such impression however, is
not per se the basis of a conclusion, for it needs conformity with the findings of facts relevant to the case.

We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla, whose testimony remains
unshaken and unimpeached. The tests she made are revealing and unrebutted and has a bearing on facts of
the case.
It is a proven fact that Braulio reached only Grade III due to his very low IQ; that he is illiterate; and that he can
not read and is slow in comprehension. His mental age is only that of a six-year old child. On the other hand,
the documents presented by the appellees in their favor, i.e., the deeds of mortgage and of sale, are all in
English. There is no showing that the contracts were read and/or explained to Braulio nor translated in a
language he understood.
Article 1332 of the Civil Code provides:
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been
fully explained to the former.
Furthermore, if Braulio has a mental state of a six year old child, he can not be considered as fully capacitated.
He falls under the category of incompetent as defined in Section 2, Rule 92 of the Rules of Court, which
reads:
Sec. 2. Meaning of Word Incompetent - Under this rule, the word incompetent includes persons suffering the
penalty of civil interdiction or who are hospitalized lepers, prodigals, deaf and dumb who are unable to read
and write, those who are of unsound mind, even though they have lucid intervals, and persons not being of
unsound mind, but by reason of age, disease, weak mind, and other similar causes, can not, without outside
aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and
exploitation.
We also note the admission of defendant-appellee Miguel Katipunan, that he and Braulio received the
considerations of the sale, although he did not explain what portion went to each other of them. Anyway, there
is no reason why Miguel should receive part of the consideration, since he is not a co-owner of the property.
Everything should have gone to Braulio. Yet, Miguel did not refute that he was giving him only small amounts
(coins).
As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel nor Atty. Balguma refuted the
statement of Braulio that he was being enticed to go abroad - which was the alleged reason for the purported
sale. Nothing was explained about the alleged trip to NBI, the fake passport, etc., nor of Miguels own plans to
go abroad. It is then most probable that it was Miguel who wanted to go abroad and needed the money for it.
In view of the foregoing, it is apparent that the contract entered into by Braulio and Atty. Balguma is voidable,
pursuant to the provisions of Article 1390 of the Civil Code, to wit:
Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage
to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court, they are susceptible of
ratification."11
Petitioners filed a motion for reconsideration but was denied. Hence, this petition.

Petitioners, in seeking the reversal of the Court of Appeals Decision, rely heavily on the rule that findings of
fact by the trial courts are entitled to full faith and credence by the Appellate Court. Petitioners contend that the
Court of Appeals erred when it overturned the factual findings of the trial court which are amply supported by
the evidence on record.

Where is this house of Sencio?

It is just behind our house at San Miguel.

The petition is devoid of merit.

Nobody informed you what document you were signing?

While it may be true that findings of a trial court, given its peculiar vantage point to assess the credibility of
witnesses, are entitled to full faith and credit and may not be disturbed on appeal, this rule is not infallible, for it
admits of certain exceptions. One of these exceptions is when there is a showing that the trial court had
overlooked, misunderstood or misapplied some fact or circumstance of weight and substance, which, if
considered, could materially affect the result of the case.12Also, when the factual findings of the trial court
contradict those of the appellate court, this Court is constrained to make a factual review of the records and
make its own assessment of the case. 13The instant case falls within the said exception.

Nobody informed me what document I was signing.

Who asked you to sign that document?

My brother Miguel and Sencio asked me to sign that document.

You never bothered to ask your brother Miguel why you were signing that document?

According to them, if I will not sign, something will happen.

Who particularly told you that if you will not sign that document something will happen?

Atty. Balguma. (witness pointing to Atty. Balguma)

You want to tell the court that Atty. Balguma at that time you signed that document was present?

Yes, sir, he was there.

Q After Miguel received that money which amount you do not remember how much, do you remember
having signed a document purported to be sale of property that which you owned?

What if any did Atty. Balguma do when you were asked to sign that document?

He was asking me also to sign.

A contract of sale is born from the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.14This meeting of the minds speaks of the intent of the parties in entering into
the contract respecting the subject matter and the consideration thereof. 15Thus, the elements of a contract of
sale are consent, object, and price in money or its equivalent. 16Under Article 1330 of the Civil Code, consent
may be vitiated by any of the following: (a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5)
fraud.17The presence of any of these vices renders the contract voidable.
Here, as borne by the facts on hand, respondent signed the deed without the remotest idea of what it was,
thus:
"ATTY. SARMIENTO:

Yes, I signed something because they forced me to sign.

COURT (To the witness)

COURT (To the witness)

Do you know how to affix your signature?

Were you threatened with a gun or any instrument?

Yes, Your Honor.

No, Your Honor.

How were you threatened?

I was shoved aside by Sencio and Miguel and I was surprised why they made me sign.

Q You sign your name here. (witness is given a piece of paper by the court wherein he was made to sign his
name)
ATTY. SARMIENTO:

Did you fall down when you were shoved?

Q You said that you remember you have signed a document. Did you come to know what kind of
document was that which you signed at that time?

I was made to move to the side.

I do not know.

And because of that you signed that document that you were being forced to sign?

Where did you sign that document?

Yes, sir.

I signed that document in the house of Sencio.

What kind of paper did you sign?

A coupon bond paper.

Was there something written?

There was something written on it, but I do not know.

Was it typewritten?

A There was something typewritten when it was shown to me but I do not know what it was." 18(Underscoring
supplied)
The circumstances surrounding the execution of the contract manifest a vitiated consent on the part of
respondent. Undue influence was exerted upon him by his brother Miguel and Inocencio Valdez (petitioners)
and Atty. Balguma. It was his brother Miguel who negotiated with Atty. Balguma. However, they did not explain
to him the nature and contents of the document. Worse, they deprived him of a reasonable freedom of choice.
It bears stressing that he reached only grade three. Thus, it was impossible for him to understand the contents
of the contract written in English and embellished in legal jargon. Even the trial court, in reinstating the case
which it earlier dismissed, took cognizance of the medical finding of Dr. Revilla (presented by respondents
counsel as expert witness) who testified during the hearing of respondents motion for reconsideration of the
first order dismissing the complaint. According to her, based on the tests she conducted, she found that
respondent has a very low IQ and a mind of a six-year old child. 19 In fact, the trial court had to clarify certain
matters because Braulio was either confused, forgetful or could not comprehend. 20 Thus, his lack of education,
coupled with his mental affliction, placed him not only at a hopelessly disadvantageous position vis-vis petitioners to enter into a contract, but virtually rendered him incapable of giving rational consent. To be
sure, his ignorance and weakness made him most vulnerable to the deceitful cajoling and intimidation of
petitioners. The trial court obviously erred when it disregarded Dr. Revillas testimony without any reason at all.
It must be emphasized that petitioners did not rebut her testimony.
Even the consideration, if any, was not shown to be actually paid to respondent. Extant from the records is the
fact that Miguel profited from the entire transaction and gave only small amounts of money to respondent,
thus:
"Q
A

Do you know how much money was given to Miguel and from whom did that money come from?
I do not know how much, but the money came from Atty. Balguma.

Q You do not know how much amount was given by Atty. Balguma and for what consideration was
the money given you are not aware of that?
A

I am not aware because I was not there, I do not know anything.

Q You want to tell the court that despite that it is you being the owner of this property it was Miguel
who negotiated the asking of money from Atty. Balguma?
A

Yes, it is like that.

Were you consulted by your brother Miguel when he asked money from Atty. Balguma?

No, sir, in the beginning he kept it a secret then later on he told us.

Q You want to tell this court that it was only when your brother Miguel gave (you) money that he told
you that "we have now the money from Atty. Balguma"?

A No, sir, I did not even know where that money came from. He was about to leave for abroad when
he told me that he received money from Atty. Balguma.
Q Did you receive any amount from Miguel every time he was given by Atty. Balguma? You received
also money from Miguel every time he was given by Atty. Balguma?
A

Yes, he would give me small denominations, "barya".

When you said "barya", would you be able to tell the court how much this barya you are referring to is?

May be twenty pesos, may be ten pesos, but they are all loose change.

Tell us how many times did Miguel receive money from Atty. Balguma as much as you can recall?

A I do not know because every time my brother Miguel and Atty. Balguma would transact business, I
was not present.
x

Q Before or after the signing of this piece of paper were you given any big amount of money by your
brother Miguel or Atty. Balguma or Sencio?
A After signing that document, Atty. Balguma gave me several loose change "barya", no paper bills.
A just handful of coins."21 (Underscoring supplied)
We are convinced that respondent was telling the truth that he did not receive the purchase price. His
testimony on this point was not controverted by Miguel. Moreover, Atty. Balguma admitted that it was
Miguel who received the money from him.22 What Miguel gave respondent was merely loose change or
"barya-barya," grossly disproportionate to the value of his property. We agree with the conclusion of the Court
of Appeals that "it is then most probable that it was Miguel who wanted to go abroad and needed the money
for it."
In the case of Archipelago Management and Marketing Corp. vs. Court of Appeals, 23penned by Justice
Artemio V. Panganiban, this Court sustained the decision of the Court of Appeals annulling the deed of sale
subject thereof. In that case, Rosalina (the owner) was convinced by her second husband to sign several
documents, purportedly an application for the reconstitution of her burned certificate of title. However, said
documents turned out to be a Deed of Absolute Sale where it was stipulated that she sold her property for P
1,200,000.00, a consideration which she did not receive. The Court ruled that Rosalina, who was quite old at
that time she signed the deed, was tricked by her own husband, who employed fraud and deceit, into believing
that what she was signing was her application for reconstitution of title.
A contract where one of the parties is incapable of giving consent or where consent is vitiated by mistake,
fraud, or intimidation is not void ab initio but only voidable and is binding upon the parties unless annulled by
proper Court action. The effect of annulment is to restore the parties to the status quo ante insofar as legally
and equitably possible-- this much is dictated by Article 1398 of the Civil Code. As an exception however to the
principle of mutual restitution, Article 1399 provides that when the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when
he has been benefited by the things or price received by him. Thus, since the Deed of Absolute Sale between
respondent and the Balguma brothers is voidable and hereby annulled, then the restitution of the property and
its fruits to respondent is just and proper. Petitioners should turn over to respondent all the amounts they
received starting January, 1986 up to the time the property shall have been returned to the latter. During the
pre-trial and as shown by the Pre-Trial Order, the contending parties stipulated that the Balguma brothers
received from the lessees monthly rentals in the following amounts:

PERIOD

AMOUNT OF RENTALS

January, 1986 to
December, 1987

P 481.00 per month

After staying a little less than a year in China, Santiago Pastrano returned to the Philippines where he
remained till his death in Cebu, in March, 1901. He never saw Chan Quieg again, but received letters from her
informing him that she had borne him a son, Uy Soo Lim, the present plaintiff. He died without ever having
seen Uy Soo Lim, but under the belief that he was his only son, and it was in this belief that he dictated the
provisions of his will.

January, 1988 to
December, 1988

P2,100.00 per month

On March 6, 1901, Santiago Pastrano died in Cebu, leaving a large estate. The persons who survived him,
and then or afterward laid claim to an interest in the estate, were his wife, Candida Vivares, his daughters,
Francisca Pastrano and Concepcion Pastrano, Chan Quieg, and the plaintiff Uy Soo Lim.

January, 1989 to
present

P3,025.00 per month

Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a party to a contract who is placed
at a disadvantage on account of his ignorance, mental weakness or other handicap, like respondent herein.
We give substance to this mandate.

By the terms of his will, Santiago Pastrano attempted to dispose of the greater part of his estate in favor of the
appellant, Uy Soo Lim. The will was duly probated in the Court of First Instance of Cebu, and the defendant
Benito Tan Unchuan, husband of the defendant Francisca Pastrano, who was named in the will as executor,
duly qualified as such on May 13, 1902. Basilio Uy Bundan, one of the defendants herein and brother of
Santiago Pastrano, was named by the testator as guardian of Francisca Pastrano, Concepcion Pastrano, and
Uy Soo Lim, who were all three minors at the time of the death of the testator, and duly qualified as such
before the court on August 6, 1902.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated July 3, 1997 in
CA-GR CV No. 45928 is AFFIRMED with MODIFICATION in the sense that petitioners Edgardo Balguma and
Leopoldo Balguma, Jr., are ordered to turn over to respondent Braulio Katipunan, Jr. the rentals they received
for the five-door apartment corresponding to the period from January, 1986 up to the time the property shall
have been returned to him, with interest at the legal rate. Costs against petitioners.

On October 21, 1904 the Court of First Instance of Cebu, in the matter of the testamentary estate of Santiago
Pastrano, deceased, issued an order requiring Benito Tan Unchuan, as executor of the testamentary estate of
Santiago Pastrano, to deliver to Basilio Uy Bundan, guardian of Francisca Pastrano, Concepcion Pastrano,
and Uy Soo Lim, the property to which they were entitled under the will of said Santiago Pastrano. This order
was complied with and the administration of the testamentary estate declared closed.

SO ORDERED.

Basilio Uy Bundan having received, as guardian of the minors Francisca Pastrano, Concepcion Pastrano, and
Uy Soo Lim, the property devised to them under the will of said Santiago Pastrano, continued to administer the
said property as guardian without incident of note till October, 1910. On October 18, 1910, the court, in the
matter of the aforesaid guardianship, issued an order on the guardian, Basilio Uy Bundan, in which it was
noted that Francisca Pastrano had reached majority, that Concepcion Pastrano would reach her majority in a
few months, and that Uy Soo Lim had married and the guardian was therefore ordered to present a plan of
distribution of the estate in accordance with the dispositions of the will of Santiago Pastrano.

G.R. No. 12605

September 7, 1918

UY SOO LIM, plaintiff-appellant,

vs.
BENITO TAN UNCHUAN, FRANCISCA PASTRANO and BASILIO CEFRANO UY BUNDAN, defendantsappellees.
Gibbs, McDonough & Johnson for appellant.
Williams, Ferrier & Sycip and Pantaleon E. del Rosario for appellees.
FISHER, J.:
This is an appeal by plaintiff upon the law and the facts, from a judgment of the Court of First Instance of
Cebu, dismissing on the merits his action for the annulment of a contract by the terms of which he sold to the
defendant Francisca Pastrano all his interest in the estate of the late Santiago Pastrano Uy Toco.
The material facts as found by the trial court, whose findings are fully supported by the evidence, are that at
the age of about thirteen Santiago Pastrano Uy Toco, a Chinese, came from China to reside in the Philippine
Islands. He was then unmarried. On August 2, 1882, he married Candida Vivares, a Filipina woman, at
Mambajao, in the province of Cagayan de Misamis. Of this marriage there were born two daughters, Francisca
and Concepcion. Francisca is a defendant in this suit and is the wife of the co-defendant, Benito Tan Unchuan.
At the time of this marriage, Santiago Pastrano possessed very little property a tienda worth about two
thousand pesos. The large estate left by him at his death was acquired by him during his marriage with
Candida Vivares.
In 1891, Santiago Pastrano, who had resided continuously in the Philippines since he came to the Islands at
the age of 13, returned to China were he remained for little less than a year. While there he entered into illicit
relations with a Chinese woman, Chan Quieg, also referred to as Chan Ni Yu.

The guardian did not comply with this order at once, and, before the plan of the distribution called for by this
order could be presented, objections against carrying into effect the provisions of the will were presented to
this court.
On May 25, 1991, Candida Vivares presented, through her attorneys, a motion in the matter of the
testamentary estate of Santiago Pastrano in which she claimed the right as the widow of the deceased to onehalf of all the estate, and asked that the administration of said estate reopened and the rights of the persons
readjudged and determined according to law. A motion of similar purport was filed by her in the matter of the
guardianship of Uy Soo Lim et al.
On June 5, 1911, Francisca Pastrano and Concepcion Pastrano filed, through their attorneys, a motion in the
guardianship of Uy Soo Lim et al., in which they opposed the distribution of the estate of Santiago Pastrano in
accordance with the terms of his will, alleging that Uy Soo Lim was not entitled under the law to the amount of
the estate assigned him in the will, for the reason that the marriage alleged therein of Santiago Pastrano with
Chan Quieg, was null and void, and, furthermore, that Uy Soo Lim was not a son, legitimate or illegitimate, of
said Santiago Pastrano. They, therefore, asked for a suspension of the distribution and a reopening of the
matter of the testamentary estate of Santiago Pastrano and that the rights of all persons in interest be
readjudged and determined according to law. Chan Quieg also appeared in the matter of the estate of
Santiago Pastrano on October 7, 1911, and asked that she be declared entitled to one-half the estate on
account of "having in the year 1892 in the city of Amoy, China, held carnal relations with the deceased
Santiago Pastrano, having lived maritally with him during his stay in said city that year, which union, under the
laws and customs of China, constitutes all the forms of valid marriage in said jurisdiction."
The effect of all these motions was to put in question the right of Uy Soo Lim to seven-ninths of the property as
left him by Santiago Pastrano in his will and even to put in question his right to receive anything at all. If Uy

Soo Lim was merely an illegitimate son of Santiago Pastrano not legitimated and incapable of being
legitimated or of being given the status of an acknowledged natural son, and if Candida Vivares was the lawful
wife of Santiago Pastrano and Francisca and Concepcion are the lawful issue of that marriage, then the
utmost that Uy Soo Lim could have taken under the will of Santiago Pastrano, according to the contention of
Pastrano's widow and daughters, would have been the third of Santiago Pastrano's one-half interest in the
community estate subject to the testator's disposition, or one-sixth of the entire estate, instead of the sevenninths bequeathed him by said will.
Uy Soo Lim, had married in China in 1910. He was aware of the fact that he was heir to a large fortune in the
Philippine Islands under the terms of the will of Santiago Pastrano, having already drawn from the estate for
his personal use P26,800. Before Candida Vivares, Francisca Pastrano, Concepcion Pastrano, and his own
supposed mother Chan Quieg had formally impeached before the court his right to seven-ninths of the
property described in the will of Santiago Pastrano, he was fully aware of the preparations being made to
reduce his interest to nothing or to a small fraction of that conferred by the will. If was for the express purpose
of frustrating these efforts that Uy Soo Lim left China and arrived in Manila on March 13, 1911, about two
months more or less before the first formal protest made in court attacking the rights conferred on Uy Soo Lim
under the will.
Before setting out for Manila Uy Soo Lim employed as his agent and advise one Choa Tek Hee, a resident
merchant of Manila, then on a visit to China. Plaintiff came to Manila on March 13, 1911, and resided in the
house of Choa Tek Hee till his departure in November, 1911. Choa Tek Hee was then in China, but came to
Manila in time to aid plaintiff executed a power of attorney in favor of Choa Tek Hee to represent him in the
pending negotiations. He also secured the services of two attorneys, Major Bishop to represent him in Manila
and Levering, of Cebu, to represent him in Cebu.
About the end of October, 1911, or, perhaps the early part of November, an agreement was reached between
Choa Tek Hee and plaintiff, of the one part, and Tan Unchuan and Del Rosario, an attorney of Cebu,
representing the interest of Candida Vivares, Francisca and Concepcion Pastrano, on the other, to submit the
entire matter in dispute to the judgment of three respectable Chinese merchants designated. The persons thus
designated were not, strictly speaking, arbitrators, but rather friendly advisers, since there was no agreement
that their findings should be binding on the parties. These advisers came to the conclusion that the sum of
P82,500 should be accepted by plaintiff in full satisfaction and relinquishment of all his right, title, and interest
in and to the estate of the deceased Santiago Pastrano, and this recommendation was accepted by Choa Tek
Hee and plaintiff and by Tan Unchuan and Del Rosario. In accordance with this agreement, plaintiff, on
November 18, 1911, executed a deed by which he relinguished and sold to Francisca Pastrano all his right,
title, and interest in the estate of the deceased Santiago Pastrano in consideration of P82,500, of which sum
P10,000 was received in cash and the balance was represented by six promissory notes payable to Choa Tek
Hee as attorney in fact for Uy Soo Lim, the first for P22,500 and the remaining five for P10,000 each. This is
the document known as plaintiff's Exhibit B, which plaintiff is seeking to annul in the present action. Thereafter,
on December 6, 1911, Candida Vivares and Concepcion Pastrano, then of age, executed separate deeds by
where they relinquished and sold to Francisca Pastrano all their right, title, and interest in the estate left by
Santiago Pastrano.
On November 29, 1911, Chan Quieg, then temporarily in the port of Cebu, executed a deed whereby she sold
and relinquished to Francisca Pastrano all her right, title, and interest in the estate of Santiago Pastrano. On
December 4, 1911, Chan Quieg executed a public document in which she gave her consent to the sale by Uy
Soo Lim of his right and interest in said estate "in case the same should be necessary by virtue of any legal
requirements of the laws of the Philippine Islands."
And finally, on December 4, 1911, Basilio Uy Bundan executed a public document in which he declared that in
spite of the statements in the will of Santiago Pastrano, said testator was the owner of the entire business in
Cebu known as Santiago Pastrano & Co., and that Calixto Uy Conchio, the brother of testator and of said
Basilio Uy Bundan, did not, as declared in said will, own a three-quarter interest in said business, or any
interest at all therein, for which reason the said Basilio Uy Bundan renounced any interest in said business
which he might appear to have as brother and heir of said Calixto Uy Conchio, who died without direct heirs in
the ascending or descending line, said renunciation of right being made in favor of Francisca Pastrano.
All the documents above mentioned having been duly presented to the lower court by Pantaleon del Rosario
acting as attorney of Francisca Pastrano, that court, on December 11, 1911, issued an order in the matter of

the guardianship of Uy Soo Lim et al., by which Francisca Pastrano was declared the sole owner of the
property left by the deceased Santiago Pastrano, and the guardian Basilio Uy Bundan was order to deliver the
same to Francisca Pastrano. On December 14, 1911, upon proof of compliance with said order, the
guardianship was closed and the guardians bond cancelled.
On August 24, 1914, the plaintiff and appellant, Uy Soo Lim, commenced the present action in the Court of
First Instance of Cebu, for the purpose of vacating the orders of the lower court of December 11, 1911 and to
rescind and annul the contract by which he had sold and transferred to Francisca Pastrano his interest in the
estate of Santiago Pastrano.
The complaint alleges as one of the reasons for setting aside plaintiffs sale of his rights to Francisca Pastrano
that defendants Benito Tan Unchuan and Basilio Uy Bundan induced the plaintiff to execute the deed of
cession by conspiring together to exercise under influence upon the plaintiff, by taking advantage of his youth,
passions, and inexperience, by misrepresenting materials facts concerning the value of the property and
interest in questions, and by concealing others. The court below held that appellant had not been induced by
deceit, or undue influence to enter into the contract, but did so deliberately with full knowledge of the facts,
after mature deliberation and upon the advice of capable counsel. This ruling of the court is assigned by
appellant as error. Upon this branch of the case the trial judge said:
The plaintiff testified before the court and a careful reading of the verbal and documentary evidence furnishes
a fair idea of the general characteristics of the plaintiff. That he is a spendthrift and unable to make a wise use
of money is quite evident. But it is equally evident that the plaintiff now is and at the same time of executing
the bill of sale was a youth of more than ordinary intelligence, with a keen appreciation and understanding of
all the elements of strength and weakness in his case that could only have been bettered by a study of the law
as a profession. As a witness be displayed uncommon ability in avoiding a direct answer to inconvenient
questions and in professing lack of memory in other points. It is true that this testimony was given some three
years, more or less, after signing the document of cession, but the court has no reason to believe that the
plaintiff's evident intelligence, not to say cunning, was appreciably less then than now. The court upon review
of the evidence finds that plaintiff when he signed the document was in possession of all the essential facts
bearing upon his interest in the estate and had an intelligent comprehension of the nature of the deed of
cession, its contents and its effect upon his interests.
Some shadow of claim might be made on this issue if plaintiff, then a minor, had signed the document without
careful and competent advisers to direct him. He had however three advisers. One of them was Choa Tek
Hee, characterized by Judge Del Rosario as a person of unusual ability. Whatever discord may have arisen
subsequently between plaintiff and Choa Tek Hee, there is no serious claim either in the complaint or based
on the evidence that Choa Tek Hee was a party to the supposed conspiracy against plaintiff, and the Court
does not doubt but what Choa Tek Hee exerted all his ability to procure for plaintiff the best possible terms. But
plaintiff from the very beginning until the end had the benefit of the advice of two lawyers, Major Bishop to
consult with in Manila, where the document itself was signed, and Mr. Levering of Cebu, where most of the
property was situated, where the other parties in interest lived and where the litigation itself was pending. To
claim that plaintiff did not know what he was signing appears to the court to be an impeachment of the
intelligence which a reading of the testimony shows the plaintiff to have possessed at the time in question. To
claim that the two attorneys named allowed their client to sign the document without being satisfied that he
understood its import and thereafter consented to the final decree issued by the court in Cebu based on said
sale, constitutes in the opinion of the court an untenable impeachment of the conduct of two lawyers well and
favorably known to the Bench and Bar of these Islands as attorneys of ability and integrity.
In support of the claim that material facts were concealed and misrepresented by defendants, special stress is
laid on a memorandum furnished the "arbitrators" by Tan Unchuan. This memorandum was shown to plaintiff's
agent Choa Tek Hee and was a general account of the property left by Santiago Pastrano's estate was
credited with a quarter interest in the business known as Santiago Pastrano & Co., his deceased brother
Calixto Uy Conchio being credited with only the remaining three-fourths, while as a matter of fact it would
appear that Santiago Pastrano was the owner of the entire interest in said business and subsequently to the
execution of the document in question by plaintiff the entire interest in the business passed by decree of this
court to Francisca Pastrano who has purchased the interest of all the other heirs. But whatever may have
been the effect of the presentation of this memorandum, plaintiff is not shown to have relied thereon. It was for
the purpose among others of being informed as to the nature and value of his interests and as to the weight
that might be attached to the claims made by persons with adverse interest that plaintiff employed a lawyer in

Cebu where most of the property (and the business known as Santiago Pastrano & Co.) was located and the
facts relating thereto accessible. Without better proof than has been presented the court will not presume that
a document circulated among the arbitrators, though seen by plaintiff, influenced plaintiff in signing the deed of
cession when he had employed attorneys well able to revise and check up any statements, made in said
memorandum.
Furthermore, the bill of sale itself specifically states that among the rights sold by plaintiff is his interest in the
business of Santiago Pastrano, whatever that might be, and expressly states that the will erroneously stated
that testator's interest was one quarter, whereas in reality testator owned the entire business. The court finds
under the evidence that plaintiff understood this part of the bill of sale along with its other provisions and that
its import was explained to him by his attorneys before he signed it.
Without going further into all the evidence on this question, the court finds that not only has plaintiff not
sustained the burden of proving the fraud, imposition and deceit, which the law never presumes, but that
plaintiff in fact signed the deed of cession in question without relying upon the statements and representations
of the defendants as the motive for signing the same; that before signing the same he understood the nature
of said document, its contents and its effect upon his interest, and that in signing the same he was determined
by the advice of his own agent Choa Tek Hee and upon the advice of his two lawyers, who explained to him
fully and to his complete understanding the nature, contents and effect of said instrument.
Appellant vigorously assails these conclusions of the trial court, but the evidence is amply sufficient to support
the findings, and we find nothing in the record to indicate that the trial court has failed to consider all the
evidence adduced, or that the findings are contrary to the weight of the testimony. Whenever there is a conflict
in the evidence and the conclusion to be reached must rest largely upon the relative credibility of the
witnesses, we rarely disturb the findings of the trial court, and we can see no reason for doing so in this case.
On the contrary, we are convinced that the weight of the evidence strongly supports the findings, and that the
court did not err in rejecting appellant's contention that the contract is voidable upon the ground that his
consent was obtained by fraud or undue influence. We are particularly impressed by the fact that it is
expressly stated in the contract (Exhibit B) which plaintiff now seeks to repudiate that notwithstanding the
statement to the contrary in Pastrano's will, the latter was in fact the sole owner of the business referred to in
that document. Plaintiff therefore had full information regarding the assets which composed the Pastrano's
estate, and surrounded as he was by skillful and competent advisers, we have no doubt that he was fully
aware of the value of those assets.

This cable, sent to forestall further payment to Choa Tek Hee, evidences a clear and convincing knowledge by
plaintiff both of the conditions of the bill of sale and his rights thereunder.
Not being able amicably to adjust with Choa Tek Hee the matter of such moneys, Uy Soo Lim filed suit against
him in the Court of First Instance, Manila, asking that the power of attorney be canceled, and for an
accounting. This complaint is dated March 31, 1913, and has attached thereto a copy of the will of Santiago
Pastrano. It recites that plaintiff's interest in the estate of Santiago Pastrano was reasonably worth P200,000;
that this interest had been liquidated and "reduced to a money basis," and that in consequence money and
choses in action had come into the hand of Choa Tek Hee amounting to P83,000 more or less. There is also
an allegation that the power of attorney was executed while plaintiff was still a minor.
These allegations are important as showing that on March 31, 1913, plaintiff, while claiming his interest in the
estate of Santiago Pastrano was reasonably worth P200,000 knew such interest had been sold for P83,000,
more or less, and also knew he was a minor under Philippine laws at the time of such sale.
By his answer Choa Tek Hee laid claim to a considerable portion of the P42,500 collected by him, for "services
rendered," etc., his statement showing a cash balance of only P2,867.94. This latter amount, upon petition of
plaintiff, was ordered deposited with the clerk of the court.
In the meantime Chas. E. Tenney had been appointed guardian ad litem of plaintiff, and on May 12, 1913, filed
a motion on behalf of plaintiff reciting that promissory note No. 4 for P10,000 (being one of the notes executed
on account of plaintiff's bill of sale) would fall due on May 18, 1913, and asking that Choa Tek Hee be directed
to indorse it over to the clerk of the court for collection. As the note was drawn in favor of Choa Tek Hee it took
some time to adjust the matter of payment, it being finally paid by Tan Unchuan to the clerk of the court on
October 24, 1913. The P10,000 due on note No. 5 was paid into court on December 18, 1913, and the final
P10,000, being note No. 6, was paid on May 23, 1914.
In the meantime, on October 8, 1913, Uy Soo Lim reached his majority under Philippine laws, being then 21
years of age. On October 10, 1913, Chas. E. Tenney, his guardian ad litem, filed a motion with the court
reciting the fact of Uy Soo Lim's majority, stating that the services of a guardian ad litem were no longer
necessary.

The trial court found that plaintiff was a minor at the time of the execution of the contract in question, but that
he not only failed to repudiate it promptly upon reaching his majority but tacitly ratified it by disposing of the
greater part of the proceeds after he became of age and after he had full knowledge of the facts upon which
he now seeks to disaffirm the agreement.

The sum of P2,867.94 deposited by Choa Tek Hee was part of the proceeds accruing to plaintiff under his bill
of sale to Francisca Pastrano, as was also the P30,000, deposited by Tan Unchuan in payment of promissory
notes Nos. 4, 5, and 6, which notes accrued subsequent to the filing of suit against Choa Tek Hee. The whole
of this P30,000 was paid into court upon demand of plaintiff, such payments being made after October 8,
1913, when plaintiff became of age.

By the terms of the contract by which appellant transferred to the appellee Francisca Pastrano his interest in
the Pastrano Estate he was paid P10,000 in cash, the balance of the P82,500 being represented by six
promissory notes dated November 18, 1911, signed as maker by the defendant Tan Unchuan, the husband of
the defendant Francisca Pastrano. The first note was for P22,500 payable twelve days after date, and the
other five for P10,000 each, payable in six, twelve, eighteen, twenty-four and thirty months, respectively.
These notes were made payable to Choa Tek Hee, or order, as attorney in fact for Uy Soo Lim.

On March 30, 1914, Uy Soo Lim secured judgment against Choa Tek Hee in the sum of P31,511.993, with
interest, which amount was in addition to the P32,867.94 deposited with the court during the pendency of the
proceedings. As heretofore noted, the final promissory note for P10,000 was paid into court on May 23, 1914.
On May 25, 1914, or within two days after the final P10,000 due upon his bill of sale had been paid into court,
Uy Soo Lim filed suit in the Court of First Instance of Manila, to annul it on the ground of minority, fraud,
conspiracy, and deceit.

Of these notes the first three, amounting to P42,500 were paid to Choa Tek Hee as they fell due. It appears,
however, that Choa Tek Hee failed to account to the satisfaction of Uy Soo Lim for the money so received,
whereupon the latter returned to Manila on February 20, 1913, to seek an adjustment of his affairs with his
attorney in fact.

Before filing the suit to annul his contract plaintiff had already withdrawn from the P32,867.94 deposited with
the court, the sum of P9,517.20, of which amount the sum of P7,550 was withdrawn after he reached his
majority.

Uy Soo Lim, upon his arrival in Manila, sent the following cable to Tan Unchuan at Cebu:
I revoke power to Teck Hee. Don't pay him any more money. Please forward account payments to him Urgent,
Address P. O. 1360.
(Sgd.) UY SOO LIM.

In filing his suit to annul the contract no offer was made by appellant to return to Francisca Pastrano the
consideration of such contract, or to hold, subject to her disposition, the balance of P54,863.61 then on
deposit with the court and represented by the Choa Tek Hee judgment. On the contrary, he proceeded with the
utmost celerity to secure, spend and otherwise dispose of the last cent of such consideration.
On August 24, 1914, or more than ten months after plaintiff reached his majority, the present suit was filed in
the Court of First Instance of Cebu, the action brought in Manila having been dismissed for lack of jurisdiction.

On March 29, 1915, this court affirmed on appeal the decision of the trial court awarding Uy Soo Lim
P31,511.93, with interest, in his suit against Choa Tek Hee. 1 Appellant lost no time in seeking to get
possession of these additional funds. Execution was secured against Choa Tek Hee on April 27, 1915, and by
June 5, 1915, the whole of this judgment was collected and converted to plaintiff's use except the sum of
P7,200.
By the time the present action came to trial, therefore, the whole of this P64,377.81 the then available
balance on hand derived from plaintiff's bill of sale had been collected and converted by him save and
except the sum of P7,200, still due upon the judgment against Choa Tek Hee. As soon as the trial of this case
was closed appellant proceeded at once to realize this remaining remnant accruing from his bill of sale, by
transferring his interest therein to one Wee Thiam Tew, of Singapore.
As showing how and in what manner the P82,500 was realized by plaintiff, we quote as follows from the
findings of the trial court (B. E., pp. 109,110):
To recapitulate, plaintiff has secured and converted to his own use the entire amount of P82,500 the
consideration for which he executed the deed of cession he is now seeking to annul.
Of this amount of P82,500, plaintiff, speaking in rough figures, has received and converted to his own use:
About P20,000 before coming of age under the laws of the Philippine Islands.
About P62,500 since coming of age under the laws of the Philippine Islands.
Of the P62,500 received and spent by plaintiff since coming of age under our laws, plaintiff has spent
approximately about P7,500 before bringing suit to set aside his deed of cession, and about P55,000 since
filing his first action in Manila to set aside the deed of cession.
And of this sum of about P55,000, about P36,000 were received and spent by plaintiff after filing the present
suit.
And of the sum of P36,000 more or less which plaintiff has received and spent since filing the present suit,
P7,200 was received and spent after the trial of the present case before this court had been closed; that is,
after all the evidence had been presented and the case submitted to the court for its final decision upon briefs
to be filed. It was this disposal by plaintiff of the lasts remains of the consideration price which was presented
to the court as additional evidence on the reopening of the trial.
It is important to note that this final P7,200 was disposed of by plaintiff on April 13, 1916, or more than two and
a half years after he reached his majority, and an equal time after he knew all the facts now alleged by him to
constitute fraud.
Uy Soo Lim became of age under Philippine laws on October 8, 1913. On March 31, 1913 (some months prior
to reaching majority) he filed suit against Choa Tek Hee for an accounting, wherein reference is had to this bill
of sale and to the fact of minority. The purpose of that action was to reduce to possession the consideration
accruing to him from his bill of sale.
Knowing his legal rights, therefore, plaintiff should have been prompt to disaffirm his contract upon reaching
majority. This was not done. Instead, he deliberately permitted defendants to continue making payments
thereunder, and then, on May 25, 1914, when the last cent upon such contract was collected, sought to avail
himself of this ground of rescission. This was almost eight months after he had attained his majority.
The privilege granted minors of disaffirming their contracts upon reaching majority is subject to prompt election
in the matter. The court, in Hastings vs. Dollarhide (24 Cal., 195, 212), states the principle thus:

The exemption of infants from liability on their contracts proceeds solely upon the principle that such
exemption is essential to their protection; and it is admitted that the law of infancy should be so administered
that result may, in all cases, be secured. But it has not unfrequently happened that courts, in their anxiety to
protect the rights of infants in the matter of contracts made by them during non-age, have after they have
become adults, treated them to same extent as infants still, exempting them from the operation of rules of law,
not only of general obligation, but founded on essential justice. The strong tendency of the modern decisions,
however, is to limit the exemptions of infancy to the principle upon which the disability proceeds.
To the same effect Goodnow vs. Empire Lumber Company (31 Minn., 468; 47 Am. Rep., 798) where the court,
in discussing the question, said:
The rule holding certain contracts of an infant voidable (among them his conveyances of real estate) and
giving him the right to affirm or disaffirm after he arrives at majority, is for the protection of minors, and so that
they shall not be prejudiced by acts done or obligations incurred at a time when they are not capable of
determining what is for their interest to do. For this purpose of protection the law gives them an opportunity,
after they have become capable of judging for themselves, to determine whether such acts or obligations are
beneficial or prejudicial to them, and whether they will abide by or avoid them. If the right to affirm or disaffirm
extends beyond an adequate opportunity to so determine and to act on the result, it ceases to be a measure of
protection, and becomes, in the language of the court in Wallace vs. Lewis (4 Harr., 75, 80), "a dangerous
weapon of offense, instead of a defense." For we cannot assent to the reason given in Boodyvs. McKenney
(23 Me., 517), (the only reason given by any of the cases for the rule that long acquiescense is no proof of
ratification), "that by his silent acquiescence he occasions no injury to other persons, and secures no benefits
or new rights to himself. There is nothing to urge him as a duty to others to act speedily." The existence of
such an infirmity in one's title as the right of another at his pleasure to defeat it, is necessarily prejudicial to it;
and the longer it may continue, the more serious the injury. Such a right is a continual menace to the title.
Holding such a menace over the title is of course an injury to the owner of it; one possessing such a right is
bound in justice and fairness toward the owner of the title to determine without unnecessary delay whether he
will exercise it. The right of a minor to disaffirm on coming of age, like the right to disaffirm in any other case,
should be exercised with some regard to the rights of others with as much regard to those rights as is fairly
consistent with due protection to the interests of the minor.
In every other case of a right to disaffirm, the party holding it is required, out of regard to the rights of those
who may be affected by its exercise, to act upon it within a reasonable time. There is no reason for allowing
greater latitude where the right exists because of infancy at the time of making the contract. A reasonable time
after majority within which to act is all that is essential to the infant's protection. That ten, fifteen, or twenty
years, or such other time as the law may give for bringing an action, is necessary as a matter of protection to
him is absurd. The only effect of giving more than a reasonable time is to enable the mature man, not to
correct what he did amiss in his infancy, but to speculate on the events of the future a consequence entirely
foreign to the purposes of the rule, which is solely protection to the infant. Reason, justice to others, public
policy (which is not subserved by cherishing defective titles), and convenience, require the right of
disaffirmance to be acted upon within a reasonable time. What is a reasonable time will depend on the
circumstances of each particular case, and may be either for the court or for the jury to decide. Where, as in
this case, there is mere delay, with nothing to explain or excuse it, or show its necessity, it will be for the court.
The above decisions (which could be multiplied indefinitely) are based upon justice and sound sense, and
have peculiar application to the case now before us. Here plaintiff not only showed a personal knowledge of
his rights under this contract prior to and at the time of reaching majority, but he was surrounded by able
advisers, legal and otherwise, retained to protect his interests. As a result of his failure to disaffirm promptly on
reaching majority, he received a balance of P30,000 upon the contact, which amount certainly would not have
been paid if it had been known that he was about to attempt to repudiate his agreement. This amount was not
only collected by Uy Soo Lim after reaching majority, but was effectually disposed of as rapidly as possible.
The record shows that of the P2,867.94 deposited in court by Choa Tek Hee, and the P30,000 paid into court
by Tan Unchuan, only P1,967.20 was withdrawn by plaintiff before reaching majority. Seven thousand five
hundred and fifty pesos was withdrawn after he became of age and before filing suit to rescind. There was still
uncollected the P31,511.93, with interest represented by the Choa Tek Hee judgment. When plaintiff
reached majority, therefore, there was P62,412.67 of the original consideration available for refund, and there
still remained P55,000 when he filed his suit to rescind. This sum could have been returned to Francisca
Pastrano or held by the court for her account.

Positive statutory law, no less than uniform court decisions, require, as a condition precedent to rescission of a
contract on account of minority that the consideration received be refunded. We cite and quote as follows:
ART. 1295 (Civil Code). Rescission obliges the return of the things which were the objects of the contract, with
their fruits and the sum with interest; therefore it can only be carried into effect when the person who may have
claimed it can return that which, on his part, he is bound to do.
ART. 1304 (Civil Code). When the nullity arises from the incapacity of one of the contracting parties, the
incapacitated person is not obliged to make restitution, except to the extent he has profited by the thing or by
the sum he may have received.
ART. 1308 (Civil Code). While one of the contracting parties does not return that which he is obliged to deliver
by virtue of the declaration of nullity, the other cannot be compelled to fulfill, on his part, what is incumbent on
him.
Not only should plaintiff have refunded all moneys in his possession upon filing his action to rescind, but, by
insisting upon receiving and spending such consideration after reaching majority, knowing the rights conferred
upon him by law, he must be held to have forfeited any right to bring such action.
Article 1314, Civil Code, provides as follows:
The action for nullity of a contract shall also be extinguished when the thing which is the object thereof should
be lost by fraud or fault of the person having the right to bring the action.
If the cause of the action should be the incapacity of any of the contracting parties, the loss of the thing shall
be no obstacle for the action to prevail, unless it has occurred by fraud or fault on the part of the plaintiff after
having acquired capacity.
Plaintiff has disposed of the whole of the P85,000 which was paid him in consideration of the execution of the
contract he is now seeking to annul. The record establishes beyond peradventure of doubt that he is utterly
without funds to reimburse this consideration. In the Choa Tek Hee suit (Exhibit 10) there appears at folio 17 a
motion by plaintiff, under oath, wherein he recites as a ground for realizing certain of the moneys deposited
under this contract that he (plaintiff) has no funds with which to support himself except such as may be
advanced to him out of the moneys belonging to him which is now or may hereafter be in the hands of the
clerk of this court." Being without other funds, there was the greater reason why this deposit, derived from the
very contract sought to be repudiated, should have been held intact to reimburse his vendee.
In note to Englebert vs. Pritchett reported in 26 L.R.A., 177, the various cases relating to the necessity of
returning the entire consideration in order to disaffirm infant's contracts are correlated and discussed. We
quote as follows:
The rule which comes the nearest to being general is that all consideration which remains in the infant's
possession upon his reaching majority or at the time of an attempted disaffirmance in case he is still under age
must be returned, but that disaffirmance will not be defeated by inability to return what he has parted with prior
to such time.
He will not be permitted to regain what he parted with or refuse payment while still possessed of what he
received.
There have been many distinctions attempted such as between executory and executed contacts, and
between seeking relief at law and in equity, but with only a few exceptions the rule as stated above has
governed the decisions regardless of the facts relied on as distinguishing facts. There is no substantial ground
for a distinction as to the rule to be applied, although there may be as to the manner of its application.

The rule is that the consideration must be restored. (Dickerson vs. Gordon, 24 N. Y. S. R., 448.)
Whatever difference may exist in the authorities as to the obligation of the infant to return the entire
consideration received as a condition precedent to disaffirming the contract, they are unanimous in holding
that he must return such portion thereof as remains in his possession when reaching majority.
As heretofore noted, a very considerable portion of the moneys called for by the contract under consideration
was collected and used by plaintiff after May 25, 1914, when he definitely elected to disaffirm it by bringing suit
to rescind.
A leading case on the general subject is that of Manning vs. Johnson (26 Ala., 446), reported in 62 Am. Dec.
732, with an extensive footnote. Discussing the general subject the court there lays down the following rule. (p.
733):
When we come to reason upon the proposition, however, it is surrounded with difficulty; for if the infant can
raise money to the whole value of his estate by a voidable sale or mortgage and can only avoid the
conveyance after refunding, he is furnished the means of indulging habits of dissipation and prodigality, which
in many instances would doubtless result in squandering the whole of the proceeds, while the purchaser or
mortgagee would risk nothing, the land or estate of the infant so sold or mortgaged furnishing adequate
security. On the other hand to allow the infant to retain the consideration and yet to repudiate or disaffirm the
conveyance, would tempt as well as enable him to practice frauds upon others. We think safe rule should
furnish a check both upon the infant and the party contracting with him. That rule we take to be this: If the
infant after he arrives at age is shown to be possessed of the consideration paid him, whether it be property,
money or choses in action, and either disposes of it so that he cannot restore it, or retains it for an
unreasonable length of time after attaining his majority, this amounts to an affirmance of the contract. So
likewise if it be shown that he has the power to restore the thing that he received, he cannot be allowed to
rescind without first making restitution.
Certainly the rule as above stated is far and equitable.
Appellant argues that the notes of Tan Unchuan were accepted in payment of the consideration moving from
Francisca Pastrano and that therefore the fact that some of these notes were collected after he reached his
majority is of no importance. We cannot accept this view. Even had the whole of the payment been made
in cashat the time of the execution of the contract, if it had been shown that all or part of that money or its
proceeds was still in the possession of appellant when he attained his majority, it would have been incumbent
upon him to make restitution, as far as was then possible, upon coming of age. The important fact is not the
time when he received the money, but the time when he disposed of it.
The contract involved herein is an executed contract. When plaintiff reached majority there was P62,412.67 in
esse, and, when suit was filed, the sum of P55,000. The "offer to account" in paragraph 20 of the complaint, "if
such accounting should be necessary," is not the tender or offer to produce or pay, which the law makes a
condition precedent to demanding equitable relief. Certainly it cannot be so construed in the present case,
where it is conclusively shown that plaintiff after reaching majority and after filing his action to annul, that he
had "no other funds." If plaintiff had succeeded in having the contract set aside it would have left him in the
same position as that in which he stood when it was executed that is to say, he would have been compelled
to face the contention that he was lawfully entitled to little or nothing. Had he made restitution of all the money
which came into his hands after he attained his majority, a decision in favor of the claims of the widow and
legitimate daughters of Santiago Pastrano would not have been a wholly barren victory for them. By
consuming the last centavo of the proceeds of the contract plaintiff placed himself in a position where he was
bound to enjoy the most advantageous position whatever might be the outcome of the litigation. To give
countenance to such conduct would be to encourage deliberate bad faith.
On the assumption, therefore, that plaintiff might have had a right to rescind this contract on the ground of
minority, his action fails.
(1) Because, with a full knowledge of his rights in the premises, he failed to disaffirm his contract within a
reasonable time after reaching majority; and

(2) Because he not only failed to tender, or offer to produce and pay the consideration in esse when he
reached majority, and when he filed his action, but proceeded, after such events, to demand, collect and
dispose of such consideration when according to his own statement under oath he had no other funds with
which to make reimbursement.
It is argued on behalf of appellee that it having been shown that appellant is a Chinese subject or citizen, and
that under the law of China he was of age when he executed the contract here in dispute his contractual
capacity must be determined by his national law (estatuti personal). The conclusion we have reached upon the
assumption most favorable to appellant, the he was a minor at the time of the execution of the contract makes
it unnecessary for us to decide this question or to consider the effect of the marriage of appellant before
attaining the age of twenty-one upon his contractual capacity.
For the reasons stated we are of the opinion that the judgment of the trial court is without error, and it is,
therefore, affirmed, with the costs of both instances. So ordered.

reduced to writing. Private respondents undertook to deliver to the petitioners the deed of conveyance over the
building and the deed of assignment of the contract of lease within sixty (60) days from the date of payment of
the downpayment of P20,000.00. The balance was to be paid in monthly installments. On 20 March 1976,
petitioners paid the downpayment and issued eight (8) postdated checks drawn against the Equitable Banking
Corporation for the payment of the eight (8) monthly installments, as follows:
Check No. Amount Due Date
10112253 P10,000.00 June 30, 1976
10112254 20,000.00 July 30, 1976
10112255 20,000.00 August 30, 1976
10112256 20,000.00 September 30, 1976
10112257 20,000.00 October 30, 1976
10112258 20,000.00 November 30, 1976
10112259 20,000.00 December 30, 1976
10112260 20,000.00 January 31, 1977
Relying on the good faith of private respondents, petitioners constructed in May 1976 a weaving factory on the
leased lot. Unfortunately, private respondents, despite extensions granted, failed to comply with their
undertaking to execute the deed to sale and to assign the contract despite the fact that they were able to
encash the checks dated 30 June and 30 July 1976 in the total amount of P30,000.00. Worse, the lot owner
made it plain to petitioners that he was unwilling to give consent to the assignment of the lease unless
petitioners agreed to certain onerous terms, such as an increase in rental, or the purchase of the land at a
very unconscionable price.
Petitioners were thus compelled to request for a stop payment order of the six (6) remaining checks.
Succeeding negotiations to save the transaction proved futile by reason of the continued failure of private
respondents to execute the deed of sale of the building and the deed of assignment of the contract of lease.

G.R. No. L-51058 January 27, 1992

ASIA PRODUCTION CO., INC., WANG TA PENG and WINSTON WANG, petitioners,
vs.
HON. ERNANI CRUZ PAO, as Judge of the Court of First Instance of Rizal (Quezon City, Branch XVIII),
LOLITA LEE LE HUA and ALBERTO DY, respondents.
Ismael J. Andres for petitioner Asia Production Co., Inc.
Burgos, Sarte, Rebueno & Sarte for petitioners.
Roman Careaga for Alberto Dy.

DAVIDE, JR. J.:

The simple issue in this case is whether or not an action for the refund of partial payments of the purchase
price of a building covered by an oral agreement to sell it with an oral promise to assign the contract of lease
on the lot where the building is constructed is barred by the Statute of Frauds.
Sometime in March 1976, private respondents, who claimed to be the owners of a building constructed on a
lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered to sell the building to the
petitioners for P170,000.00. Petitioners agreed because of private respondents' assurance that they will also
assign to the petitioners the contract of lease over the land. The above agreement and promise were not

So, on or about 29 December 1976, upon prior agreement with private respondents, petitioners removed all
their property, machinery and equipment from the building, vacated the same and returned its possession to
private respondents. Petitioners demanded from the latter the return of their partial payment for the purchase
price of the building in the total sum of P50,000.00. Private respondents refused to return it. Hence,
petitioners, filed against private respondents a complaint 1 for its recovery and for actual, moral and exemplary
damages and attorney's fees with the then Court of First Instance (now Regional Trial Court) of Quezon City,
which was docketed as Civil Case No. Q-23593. The case was raffled to Branch XVIII of the court which was
then presided over by herein respondent Judge.
Private respondent Lolita Lee Le Hua did not file an Answer; hence, she was declared in default.
Upon the other hand, private respondent Alberto Dy filed a motion
to dismiss the complaint on the ground that the claim on which the action is based an alleged purchase of a
building which is not evidenced by any writing cannot be proved by parol evidence since Article 1356 in
relation to Article 1358 of the Civil Code requires that it should be in writing. 2 In their
opposition 3 to said motion, petitioners argue that their complaint is essentially for collection of a sum of
money; it does not seek to enforce the sale, but aims to compel private respondents to refund a sum of money
which was paid to them as purchase price in a sale which did not materialize by reason of their bad faith.
Furthermore, the execution of the document was an undertaking of the private respondents, which they
refused to comply with. Hence, they cannot now be heard to complain against something which they
themselves brought about.
In his Order 4 of 18 April 1979, respondent Judge granted the motion to dismiss on the ground that the
complaint is barred by the Statute of Frauds. He says:
It cannot be disputed that the contract in this case is condemned by the Statutes of Fraud (sic) it involves not
merely the sale of real property (the building), it also includes an alleged lease agreement that must certainly
be for more than one year (See Art. 1403, No. 2, subparagraph e, New Civil Code).

Plaintiffs cannot avoid the Statutes of Fraud (sic) by saying that this is merely an action for the collection of a
sum of money. To be entitled to the sum of P50,000.00, it is necessary to show that such contract was
executed and the same was violated but plaintiffs are prevented from proving this alleged agreement by
parol evidence.
Neither may plaintiffs claim that by the payment of the sum of P50,000.00 the contract was removed from the
Statutes of Fraud (sic). This is so because plaintiffs have not fully complied with their obligation to pay
P170,000.00. If there had been full payment of P170,000.00, the situation would have been different.

Private respondents did not file their Brief.

We find merit in the petition. Respondent Judge committed grave abuse of discretion in dismissing the
complaint on the ground that the claim is barred by the Statute of Frauds.
Article 1403 of the Civil Code declares the following contracts, among others, as unenforceable, unless they
are ratified:

Plaintiffs knew or should have known that their contract (as described by them in their complaint) was
unenforceable; they had thereby voluntarily assumed the risks attendant to such contract. Moreover, the
primordial aim of the Statutes of Fraud (sic) is to prevent fraud and perjury in the enforcement of obligations
depending upon the unassisted memory of witnesses (Shoemaker vs. La Tondea, 68 Phil. 24). The Court
would find it difficult to determine whether the sum of P50,000.00 was paid because of the unenforceable
contract or for some other transactions.

xxx xxx xxx

Their motion for reconsideration 5 having been denied by respondent Judge in his Order 6 of 21 June 1979 for
the reason that the oral contract in this case was not removed from the operation of the Statute of Frauds
because there was no full or complete performance by the petitioners of the contract as required in Paterno
vs. Jao Yan 7 and Babao vs. Perez, 8petitioners filed this petition 9 on 16 July 1979, alleging therein as ground
therefor grave abuse of discretion on the part of respondent Judge in issuing the orders of 18 April 1979 and
21 June 1979.

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

After private respondent Alberto Dy filed his Comment 10 to the petition in compliance with the resolution 11 of
23 July 1979 and petitioners filed their Reply 12 to said comment on 2 April 1980, this Court gave due
course 13 to the petition. Private respondent Lolita Lee Le Hua was considered to have waived her right to file
her comment to the petition. 14
Petitioners were subsequently required to file their Brief, which they complied with on 13 October 1981;
make the following assignment of errors:

15

they

I
The lower court erred in holding that for a contract of purchase and sale to be removed from the operation of
the Statute of Frauds, there must be full and complete payment of the purchase price.

(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:

(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of
such things in action, or pay at the time some part of the purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it
is a sufficient memorandum;
(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;
(f) A representation to the credit of a third person.
xxx xxx xxx

II
The lower court erred in failing to appreciate the nature of petitioners' cause of action.
III
The lower court erred in not finding that this case is not covered by the Statute of Frauds.
IV
The lower court erred in not following the procedure prescribed by this Honorable Court in cases when partial
performance is alleged.
V
The lower court erred in dismissing the case.

The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations depending for their
evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions
to be evidenced by a writing signed by the party to be charged. 16 It was not designed to further or perpetuate
fraud. Accordingly, its application is limited. It makes only ineffective actions for specific performance of the
contracts covered by it; it does not declare them absolutely void and of no effect. As explicitly provided for in
the above-quoted paragraph (2), Article 1403 of the Civil Code, the contracts concerned are simply
"unenforceable" and the requirement that they or some note or memorandum thereof be in writing refers
only to the manner they are to be proved. It goes without saying then, as held in the early case of Almirol, et
al. vs. Monserrat, 17 that the statute will apply only to executory rather than executed contracts. Partial
execution is even enough to bar the application of the statute. In Carbonnel vs. Poncio, et al., 18 this Court
held:
. . . It is well-settled in this jurisdiction that the Statute of Frauds is applicable only to executory contracts
(Facturan vs. Sabanal, 81 Phil. 512), not to contracts that are totally or partially performed (Almirol, et al. vs.
Monserrat, 48 Phil. 67, 70; Robles vs. Lizarraga Hermanos, 50 Phil. 387; Diana vs. Macalibo, 74 Phil. 70).
Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that part performance of
a parol contract for the sale of real estate has the effect, subject to certain conditions concerning the nature
and extent of the acts constituting performance and the right to equitable relief generally, of taking such

contract from the operation of the statute of frauds, so that chancery may decree its specific performance or
grant other equitable relief. It is well settled in Great Britain and in this country, with the exception of a few
states, that a sufficient part performance by the purchaser under a parol contract for the sale of real estate
removes the contract form the operation of the statute of frauds (49 Am. Jur. 722-723).
In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there is a wide field
for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting
parties. The statute has precisely been enacted to prevent fraud." (Comments on the Rules of Court, by
Moran, Vol. III [1957 ed.] p. 178). However, if a contract has been totally or partially performed, the exclusion
of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits
already derived by him form the transaction in litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by him thereby.
It follows then that the statute applies only to executory contracts and in actions for their specific performance.
It does not apply to actions which are neither for violation of a contract nor for the performance thereof. 19

We thus rule that an action by a withdrawing party to recover his partial payment of the consideration of a
contract, which is otherwise unenforceable under the Statute of Frauds, by reason of the failure of the other
contracting party to comply with his obligation, is not covered by the Statute of Frauds.
WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18 April 1979 and 21 June 1979 in
Civil Case No. Q-23593 of the court below are hereby ANNULLED and SET ASIDE, and the complaint in said
case is hereby ordered REINSTATED. The default order against private respondent Lolita Lee Le Hua shall
stand and private respondent Alberto Dy is ordered to file his Answer to the complaint with the court below
within ten (10) days from receipt of this decision. This decision shall be immediately executory.
Costs against private respondents.
IT IS SO ORDERED.
G.R. No. L-23213 October 28, 1977

There can be no dispute that the instant case is not for specific performance of the agreement to sell the
building and to assign the leasehold right. Petitioners merely seek to recover their partial payment for the
agreed purchase price of the building, which was to be paid on installments, with the private respondents
promising to execute the corresponding deed of conveyance, together with the assignment of the leasehold
rights, within two (2) months from the payment of the agreed downpayment of P20,000.00. By their motion to
dismiss, private respondents theoretically or hypothetically admitted the truth of the allegations of fact in the
complaint. 20 Among the allegations therein are:
(1) that the P50,000.00 sought to be recovered represents the downpayment of P20,000.00 and two (2)
monthly installments of the purchase price, and (2) that petitioners decided, in effect, to withdraw from the
agreement by ordering the stop payment of the remaining six (6) checks and to return the possession of the
building to private respondents because of the latter's failure to comply with their agreement. The action is
definitely not one for specific performance, hence the Statute of Frauds does not apply. And even if it were for
specific performance, partial execution thereof by petitioners effectively bars the private respondents from
invoking it. Since it is for refund of what petitioners had paid under the agreement, originally unenforceable
under the statute, because petitioners had withdrawn therefrom due to the "bad faith" of the private
respondents, the latter cannot be allowed to take shelter under the statute and keep the P50,000.00 for
themselves. If this were the case, the statute would only become a shield for fraud, allowing private
respondents not only to escape performance of their obligations, but also to keep what they had received from
petitioners, thereby unjustly enriching themselves.
Besides, even if the action were for specific performance, it was premature for the respondent Judge to
dismiss the complaint by reason of the Statute of Frauds despite the explicit allegations of partial payment. As
this Court stated in Carbonnel vs. Poncio, et al.: 21
For obvious reasons, it is not enough for a party to allege partial performance in order to hold that there has
been such performance and to render a decision declaring that the Statute of Frauds is inapplicable. But
neither is such party required to establish such partial performance by documentaryproof before he could have
the opportunity to introduce oral testimony on the transaction. Indeed, such oral testimony would usually be
unnecessary if there were documents proving partial performance. Thus, the rejection of any and all
testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is inapplicable to
contracts which have been partly executed, and lead to the very evils that the statute seeks to prevent.

WESTERN MINDANAO LUMBER CO., INC., plaintiff-appellant,

vs.
NATIVIDAD M. MEDALLE and ANTONIO MEDALLE, defendants-appellees.
Jalandoni & Jamir for appelant.
Fernandez Law Office for appellee

CONCEPCION JR., J.:t.hqw

Appeal from the order of the Court of First Of the complaint upon the ground that the claim on which it is
founded is unenforceable under the Statute of Fraud and Special law.
The complaint, filed on December 16, 1960, alleges that: +.wph!1
2. The Plaintiff is engaged in logging operations in Curuan Zamboanga City and in connection with the said
logging operation it obtained on September 8, 1955 a right-of-way through the said Lot 2136, of the Cadastral
Survey of Zamboanga from Mr. Luciano Hernandez, then the registered owner, a copy of the agreement being
enclosed as Annex A';
3. The former owners of the logging concession operated by the Plaintiff constructed and maintained the
said road through Lot 2136, but the Plaintiff improved the said road, paying to the registered owner for all the
improvements damaged by the improvement of the road;

xxx xxx xxx

4. Long before the execution of the right-of-way agreement on September 8, 1955, since then and up to the
present time the said road has been maintained and used not only by the predecessor of the Plaintiff and the
Plaintiff, but also by the public:

When the party concerned has pleaded partial performance, such party is entitled to a reasonable chance to
establish by parol evidence the truth of this allegation, as well as the contract itself. "The recognition of the
exceptional effect of part performance in taking an oral contract out of the statute of frauds involves the
principle that oral evidence is admissible in such cases to prove both the contract and the part performance of
the contract" (49 Am. Jur. 927).

5. The said Lot 2136 was purchased by the defendants in 1958 and the said road then existed and was in
public use and the defendants did not oppose but instead allowed the continued use and maintenance of the
road by the Plaintiff and the public;
6. The said road is indispensable to the business operations of the Plaintiff, because it is the only access
from their concession to the highway;

7. That defendants have now sent to the Plaintiff a notice (Annex'B') of their intention to close the road; and

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

8. The Plaintiff has the right to the continued use of said road, the closing of which will cause injustice and
irreparable damages to the Plaintiff and the Plaintiff is willing to post a bond for the issuance of a writ of
preliminary injunction to stop the defendants from closing the road.

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos
unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of
such things in action, or pay at the time somepart of the purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale price, names of purchasers and person on whose account the sale is made, it is
sufficient memorandum;

xxx xxx xxx

Wherefore, the plaintiff prayed that a writ of preliminary injunction be issued restraining the defendants from
closing the said road, and after hearing, make the injunction permanent. It also prayed that the defendants be
directed to recognize and respect the said road right-of-way agreement. 1 Copies of the road right-of-way
agreement and the letter of the defendants advising the plaintiff of the closure of the road were attached
thereto. 2 Upon the filing of a bond in the amount of P1,000.00, a writ of preliminary injunction was issued,
restraining the defendants from closing the road. 3
Instead of a responsive pleading, the defendants filed a motion to dismiss the complaint on January 4, 1961,
upon the ground that the claim on which the action or suit is founded is unenforceable under the provisions of
the Statute of Frauds and special law, in that the first page of the said road right-of-way agreement was not
signed by both parties and their instrumental witnesses; page two thereof is not dated, and the signature of the
plaintiffs corporate agent does not appear; and that said agreement is not acknowledged before a person
authorized to administer oaths. 4
The plaintiff opposed the motion, stating that the agreement between plaintiff and Luciano Hernandez is not
one of those agreements specified in the Statute of Frauds 5 Nevertheless, the trial court granted the motion to
dismiss on January 17, 1961 and the cases. 6

(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;
(f) A representation as to the credit of a third person.

13

Obviously, an agreement creating an easement of right-of-way is not one of those contracts coverede by the
statue of rauds since it is not a sale of property or of an interest therein. The trial court therefore, erred in
dismissing the case upon the defendants' claim that the road fight-of-way agreement in question is
unenforceable under the statute of frauds. Besides, the complaint, as amended, may be viewed not only as a
claim for the recognition of the existence of an easement of right-of-way on defendants' estate, but also a
demand for the establishment of an easement of right-of-way, if none exist, pursuant to Art. 649 of the Civil
Code, in view of the plaintiffs offer to pay reasonable compensation for the use of the land.
WHEREFORE, the judgment from is hereby reversed and the order of January 17, 1961 and September 6,
1961 set aside.Costs against the defendants-appellees. SO ORDERED.
G.R. No. 118509 December 1, 1995

The plaintiff filed a motion for reconsideration of the said order, insisting that the road right-of-way agreement
is not covered by the Statute of Frauds. 7 Then, on March 4, 1961, the plaintiff filed an Amended Complaint,
accompanied by a motion for its admission. The plaintiff therein prayed, among others, that the Defendants be
ordered to keep the road open and to respect the right-of-way agreement, and "should it be ascertained that
under the law the plainttiff is bound to pay compensation for the right-of- way to the defendants, it is prayed
that the reasonable amount of such compensation be fixed. 8
After hearing the parties, the trial court issued an order on September 6, 1961, denying the motion for
reconsideration. 9
Whereupon, the plaintiff perfected an appeal to the Court of Appeals.
questions of law are raised, elevated the appeal to this Court. 11

10

The Appellate Court, finding that only

LIMKETKAI SONS MILLING, INC., petitioner,

vs.
COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE, respondents.

MELO, J.:
The issue in the petition before us is whether or not there was a perfected contract between petitioner
Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering the sale of a parcel
of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila.

The plaintiff-appellant made the following assignment of errors in its Brief: +.wph!1

2. The trial court erred in denying plaintiffs motion for reconsideration.

Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig ruled that
there was a perfected contract of sale between petitioner and BPI. It stated that there was mutual consent
between the parties; the subject matter is definite; and the consideration was determined. It concluded that all
the elements of a consensual contract are attendant. It ordered the cancellation of a sale effected by BPI to
respondent National Book Store (NBS) while the case was pending and the nullification of a title issued in
favor of said respondent NBS.

The appeal is meritorious. The Statute of Frauds refers to specific kinds of transactions and cannot apply to
any that is not enumerated therein. 12 The transactions or agrrements covered by said statute are the
following: +.wph!1

Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected because
there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. The decision of
the trial court was reversed and the complaint dismissed.

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

Hence, the instant petition.

(b) A special promise to answer for the debt, default, or miscarriage of another;

Shorn of the interpretations given to the acts of those who participated in the disputed sale, the findings of
facts of the trial court and the Court of Appeals narrate basically the same events and occurrences. The

1. The trial court erred in dismissing the complaint on the ground that the claim on which the action or suit is
founded is unenforceable under the provisions of the Statute of Frauds and special law; and

records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage,
administer, and sell its real estate property. One such piece of property placed under trust was the disputed
lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of
Title No. 493122.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the
lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of the Philippine
Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8, 1988,
petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant Vice-President, to
enter and view the property they were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On July 11,
1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were
entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that the price
of P1,000.00 per square meter be reduced to P900.00 while Albano stated the price to be P1,100.00. The
parties finally agreed that the lot would be sold at P1,000.00 per square meter to be paid in cash. Since the
authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this juncture
that there is no dispute over petitioner's being the first comer and the buyer to be first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Lim asked if
it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment
on terms because in previous transactions, the same had been allowed. It was the understanding, however,
that should the term payment be disapproved, then the price shall be paid in cash.
It was Albano who dictated the terms under which the installment payment may be approved, and acting
thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano embodying the
payment initially of 10% and the remaining 90% within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim went to
BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused
because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn
from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive
payment.
An action for specific performance with damages was thereupon filed on August 25, 1988 by petitioner against
BPI. In the course of the trial, BPI informed the trial court that it had sold the property under litigation to NBS
on July 14, 1989. The complaint was thus amended to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of the Philippine
Islands and National Book Store, Inc.:
1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of the Bank of the
Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store, Inc.,
null and void;
2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of Title which may
have been issued in favor of National Book Store, Inc. by virtue of the aforementioned Deed of Sale dated July
14, 1989;

3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000.00, to execute a Deed of
Sale in favor of plaintiff of the aforementioned property at the price of P1,000.00 per square meter; in default
thereof, the Clerk of this Court is directed to execute the said deed;
4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether executed by defendant
BPI or the Clerk of Court and payment of the corresponding fees and charges, to cancel said T.C.T. No.
493122 and to issue, in lieu thereof, another transfer certificate of title in the name of plaintiff;
5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the plaintiff the sums
of P10,000,000.00 as actual and consequential damages and P150,000.00 as attorney's fees and litigation
expenses, both with interest at 12% per annum from date hereof;
6. On the cross-claim of defendant bank against National Book Store, ordering the latter to indemnify the
former of whatever amounts BPI shall have paid to the plaintiff by reason hereof; and
7. Dismissing the counterclaims of the defendants against the plaintiff and National Book Store's cross-claim
against defendant bank.
Costs against defendants.
(pp. 44-45, Rollo.)
As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and
Mabutas,JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's complaint for
specific performance and damages.
The issues raised by the parties revolve around the following four questions:
(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the subject
matter of the contract and the cause of the obligation?
(2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned contract?
(3) Is there competent and admissible evidence to support the alleged meeting of the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith?
There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine Remnant Co.
authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine
Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot; (c) that petitioner
and Revilla agreed on the former buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin
allowed the broker and the buyer to inspect the property; and (e) that BPI was formally informed about the
broker having procured a buyer.
The controversy revolves around the interpretation or the significance of the happenings or events at this
point.
Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top officials and
broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI
offices.

Respondents, however, contend that what transpired on this date were part of continuing negotiations to buy
the land and not the perfection of the sale. The arguments of respondents center on two propositions (1)
Vice-Presidents Aromin and Albano had no authority to bind BPI on this particular transaction and (2) the
subsequent attempts of petitioner to pay under terms instead of full payment in cash constitutes a counteroffer which negates the existence of a perfected contract.
The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record.
At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed lot.
Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where is basis the
property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given to
him was to sell and not merely to look for a buyer, as contended by respondents.
Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for and
in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land,
Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the authority to sell to a licensed
broker, we see no reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in the
Bank was to manage and administer real estate property.
Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made up of top
bank officials. It appears from the record that this trust committee meets rather infrequently and it does not
have to pass on regular transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real
Property Management Unit. He had been in the Real Estate Division since 1985 and was the head supervising
officer of real estate matters. Aromin had been with the BPI Trust Department since 1968 and had been
involved in the handling of properties of beneficial owners since 1975 (tsn., December 3, 1990, p. 5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo Barcelon, while
purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in charge of
Torrens titles, lease contracts, problems of tenants, insurance policies, installment receivables, management
fees, quitclaims, and other matters involving real estate transactions. His immediate superior, Vice-President
Merlin Albano had been with the Real Estate Division for only one week but he was present and joined in the
discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla
brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural
manner on the transaction before him with not the slightest indication that he was acting ultra vires. This
shows that BPI held Aromin out to the public as the officer routinely handling real estate transactions and, as
Trust Officer, entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell this particular trust property was
later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as
alleged, there was no need to withdraw authority which he never possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank vs. Court
of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs. Dakota Trust Co. (52 ND 752, 204
NW 818, 40 ALR 1021), to wit:
Accordingly a banking corporation is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person for his own ultimate benefit.
(at pp. 652-653.)

In the present case, the position and title of Aromin alone, not to mention the testimony and documentary
evidence about his work, leave no doubt that he had full authority to act for BPI in the questioned transaction.
There is no allegation of fraud, nor is there the least indication that Aromin was acting for his own ultimate
benefit. BPI later dismissed Aromin because it appeared that a top official of the bank was personally
interested in the sale of the Pasig property and did not like Aromin's testimony. Aromin was charged with poor
performance but his dismissal was only sometime after he testified in court. More than two long years after the
disputed transaction, he was still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine Remnants Co.
regarding the sale of the firm's property was addressed to Aromin. The P1,000.00 figure on the first page of
broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The price was later brought down again
to P1,000.00, also by Aromin. The permission given to petitioner to view the lot was signed by Aromin and
honored by the BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a
buyer was addressed to Aromin. The conference on July 11, 1988 when the contract was perfected was with
Aromin and Vice-President Albano. Albano and Aromin were the ones who assured petitioner Limketkai's
officers that term payment was possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants
to state that the BPI rejected payment on terms and it was to Aromin that Philippine Remnants gave the go
signal to proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the
bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an inefficient
and undesirable officer and who, in fact, was dismissed after he testified in this case. But, of course, Aromin's
alleged inefficiency is not proof that he was not fully clothed with authority to bind BPI.
Respondents' second contention is that there was no perfected contract because petitioner's request to pay on
terms constituted a counter-offer and that negotiations were still in progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among his
statements is one to the effect that
. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter-offered to sell
the property at P1,100.00 per square meter but after the usual haggling, we finally agreed to sell the property
at the price of P1,000.00 per square meter . . .
(tsn, 12-3-90, p. 17; Emphasis supplied.)
Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of
P1,000.00 per square meter, Aromin answered:
Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir.
(ibid, p. 17.)
The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI VicePresident Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying
on terms was referred to the Trust Committee but with the mutual agreement that "if the proposed payment on
terms will not be approved by our Trust Committee, Limketkai should pay in cash . . . the amount was no
longer subject to the approval or disapproval of the Committee, it is only on the terms." (ibid, p. 19). This is
incontrovertibly established in the following testimony of Aromin:
A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority says the payment
must be in cash basis, what transpired later on?
B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting the covering
proposal if they will be allowed to pay on terms. They requested us to give them a guide on how to prepare the
corresponding letter of proposal. I recall that, upon the request of Mr. Albino Limketkai, we dictated a guide on
how to word a written firm offer that was to be submitted by Mr. Lim to the bank setting out the terms of

payment but with the mutual agreement that if his proposed payment on terms will not be approved by our
trust committee, Limketkai should pay the price in cash.

c. consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract
(Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995).

Q And did buyer Limketkai agree to pay in cash in case the offer of terms will be cash (disapproved).

But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:

A Yes, sir.

. . . A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally,
its consummation. Negotiation covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded (perfected). Theperfection of the contract takes
place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection
is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge orcommodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in
order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of
consummation begins when the parties perform their respective undertakings under the contract culminating in
the extinguishment thereof.

Q At the start, did they show their willingness to pay in cash?

A Yes, sir.
Q You said that the agreement on terms was to be submitted to the trust committee for approval, are you
telling the Court that what was to be approved by the trust committee was the provision on the payment on
terms?
A Yes, sir.
Q So the amount was no longer subject to the approval or disapproval of the committee, it is only on the
terms?
A Yes, sir.
(tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.)
The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because
petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials.
Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right
within the period given to him and tendered payment in full. The BPI rejected the payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of Appeals (238 SCRA
602 [1994]) to bolster its case. Contrarywise, it would seem that the legal principles found in said case
strengthen and support petitioner's submission that the contract was perfected upon the meeting of the minds
of the parties.
The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell the
lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell
the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations
with Aromin and Albano at the BPI offices.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees.
(238 SCRA 602; 611 [1994].)
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents similar to this
case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities, upheld the perfection of
the contract of sale thusly:
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. (Art. 1475,Ibid.)
xxx xxx xxx
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer (Art. 1319, Civil Code). "An acceptance may be express or implied." (Art. 1320,
Civil Code).
xxx xxx xxx

The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso
Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per
square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker.
There was a concurrence of offer and acceptance, on the object, and on the cause thereof.

It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a
binding acceptance. "So long as it is clear that the meaning of the acceptance is positively and unequivocally
to accept the offer, whether such request is granted or not, a contract is formed." (Stuart vs. Franklin Life Ins.
Co., 105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).

The phases that a contract goes through may be summarized as follows:

xxx xxx xxx

a. preparation, conception or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;

. . . the vendor's change in a phrase of the offer to purchase, which change does not essentially change the
terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer. (Stuart vs.
Franklin Life Ins. Co., supra.)

b. perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the
contract; and

(at pp. 362-363; 365-366.)

In the case at bench, the allegation of NBS that there was no concurrence of the offer and acceptance upon
the cause of the contract is belied by the testimony of the very BPI official with whom the contract was
perfected. Aromin and Albano concluded the sale for BPI. The fact that the deed of sale still had to be signed
and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of
the form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The
requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure
to comply therewith does not affect the validity and binding effect of the act between the parties (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or
other special form, as in the sale of real property, the contracting parties may compel each other to observe
that form, once the contract has been perfected. Their right may be exercised simultaneously with action upon
the contract (Article 1359, Civil Code).
Regarding the admissibility and competence of the evidence adduced by petitioner, respondent Court of
Appeals ruled that because the sale involved real property, the statute of frauds is applicable.
In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts
infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on crossexamination. The succinct words of Justice Araullo still ring in judicial cadence:
As no timely objection or protest was made to the admission of the testimony of the plaintiff with respect to the
contract; and as the motion to strike out said evidence came too late; and, furthermore, as the defendants
themselves, by the cross-questions put by their counsel to the witnesses in respect to said contract, tacitly
waived their right to have it stricken out, that evidence, therefore, cannot be considered either inadmissible or
illegal, and court, far from having erred in taking it into consideration and basing his judgment thereon,
notwithstanding the fact that it was ordered to be stricken out during the trial, merely corrected the error he
committed in ordering it to be so stricken out and complied with the rules of procedure hereinbefore cited.
(at p. 748.)
In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the contract
itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of
the litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda.
de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same
became competent and admissible because of the cross-examination, which elicited evidence proving the
evidence of a perfected contract. The cross-examination on the contract is deemed a waiver of the defense of
the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p.
563).
The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were stricken
out, the cross-examination could have no object whatsoever, and if the questions were put to the witnesses
and answered by them, they could only be taken into account by connecting them with the answers given by
those witnesses on direct examination" (pp. 747-748).
Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to
the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The
memorandum may be found in several writings, not necessarily in one document. The memorandum or
memoranda is/are written evidence that such a contract was entered into.
We cite the findings of the trial court on this matter:
In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written contract of the sale
is not necessary so long as the agreement to sell real property is evidenced by a written note or
memorandum, embodying the essentials of the contract and signed by the party charged or his agent. Thus, it
has been held:

The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines,does not require that the
contract itself be written. The plain test of Article 1403, Paragraph (2) is clear that a written note or
memorandum, embodying the essentials of the contract and signed by the party charged, or his agent suffices
to make the verbal agreement enforceable, taking it out of the operation of the statute. (Emphasis supplied)
xxx xxx xxx
In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and telegram
(Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended as
Exhibit A to plaintiffs opposition to the motion to dismiss. The letter, transcribed above in part, together with the
one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the
defendant-appellant; refer to the property sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62,
give its area as 1,825 square meters and the purchase price of four (P4.00) pesos per square meter payable
in cash. We have in them, therefore, all the essential terms of the contract and they satisfy the requirements of
the Statute of Frauds.
(Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).
While there is no written contract of sale of the Pasig property executed by BPI in favor of plaintiff, there are
abundant notes and memoranda extant in the records of this case evidencing the elements of a perfected
contract. There is Exhibit P, the letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the
sale of the subject property at the price of P1,000.00 per square meter giving 2% commission to the broker
and instructing that the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh.
P), an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co.,
authorizing the latter to sell the property at the initial quoted price of P1,000.00 per square meter which was
altered on an unaccepted offer by Technoland. After the letter authority was issued to Mr. Revilla, a letter
authority was signed by Mr. Aromin allowing the buyer to enter the premises of the property to inspect the
same (Exh. C). On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing it that
he had procured a buyer in the name of Limketkai Sons Milling, Inc. with offices at Limketkai Bldg., Greenhills,
San Juan, Metro Manila, represented by its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the
plaintiff, through Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming their transaction
regarding the purchase of the subject property (Exh. E). On July 18, 1988, the plaintiff tendered upon the
officials of the bank a check for P33,056,000.00 covered by Check No. CA510883, dated July 18, 1988. On
July 1, 1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no
transaction closed with Assetrade Co. (Exh. S). Combining all these notes and memoranda, the Court is
convinced of the existence of perfected contract of sale. Aptly, the Supreme Court, citing American cases with
approval, held:
No particular form of language or instrument is necessary to constitute a memorandum or note in writing under
the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing
evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to
contents and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient
memorandum or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also
be filled in on a printed form. (37 C.J.S., 653-654).
The note or memorandum required by the statute of frauds need not be contained in a single document, nor,
when contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy
the statute. Two or more writings properly connected may be considered together, matters missing or
uncertain in one may be supplied or rendered certain by another, and their sufficiency will depend on whether,
taken together, they meet the requirements of the statute as to contents and the requirements of the statutes
as to signature, as considered respectively infra secs. 179-200 and secs. 201-215.
(pp. 460-463, Original RTC Record).
The credibility of witnesses is also decisive in this case. The trial court directly observed the demeanor and
manner of testifying of the witnesses while the Court of Appeals relied merely on the transcript of stenographic
notes.

In this regard, the court of origin had this to say:

Apart from weighing the merits of the evidence of the parties, the Court had occasion to observe the
demeanor of the witnesses they presented. This is one important factor that inclined the Court to believe in the
version given by the plaintiff because its witnesses, including hostile witness Roland V. Aromin, an assistant
vice-president of the bank, were straightforward, candid and unhesitating in giving their respective testimonies.
Upon the other hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their answers
to cross examination questions. Moreover, the witnesses for BPI and NBS contradicted each other. Fernando
Sison III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by which a broker may
convince a prospective buyer that he had authority to offer the property mentioned therein for sale and did not
bind the bank. On the contrary, Alfonso Zamora, a Senior Vice-President of the bank, admitted that the
authority to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank being signed by
two class "A" signatories and that the bank cannot back out from its commitment in the authority to sell to Mr.
Revilla.
While Alfredo Ramos of NBS insisted that he did not know personally and was not acquainted with Edmundo
Barcelon, the latter categorically admitted that Alfredo Ramos was his friend and that they have even
discussed in one of the luncheon meetings the matter of the sale of the Pasig property to NBS. George
Feliciano emphatically said that he was not a consultant of Mr. Ramos nor was he connected with him in any
manner, but his calling card states that he was a consultant to the chairman of the Pacific Rim Export and
Holdings Corp. whose chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his being
a consultant to Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he committed
some underhanded maneuvers in manipulating to have the subject property sold to NBS, instead of being sold
to the plaintiff.
(pp. 454-455, Original RTC Record.)
On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial
court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA
107 [1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of
witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to
observe the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof.
While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a question
of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in exceptional
situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions
on questions of fact and the credibility of witnesses.
(at p. 110.)
On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is
not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the
willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the
contract with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner from
paying the agreed price and getting possession of the property:
1. The sale was supposed to be done through an authorized broker, but top officials of BPI personally and
directly took over this particular sale when a close friend became interested.

2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was his
friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot. Barcelon's
father was a business associate of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop the case
and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but failed to convince him
inspite of various and increasing offers.
4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse marked by
easy portability. The warehouse is bolted to its foundations and can easily be dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly negates any
allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its
title to the land and recognize the right of the vendee to proceed against the vendor if the title to the land turns
out to be defective as when the land belongs to another person, the reverse is found in the deed of sale
between BPI and NBS. Any losses which NBS may incur in the event the title turns out to be vested in another
person are to be borne by NBS alone. BPI is expressly freed under the contract from any recourse of NBS
against it should BPI's title be found defective.
NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply cites the
badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration there
is exclusive. The decision in said case plainly states "the following are some of the circumstances attending
sales which have been denominated by courts (as) badges of fraud." There are innumerable situations where
fraud is manifested. One enumeration in a 1912 decision cannot possibly cover all indications of fraud from
that time up to the present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the amended
complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses of Cebu-based
counsel. Petitioner also claimed, and the trial court awarded, damages for the profits and opportunity losses
caused to petitioner's business in the amount of P10,000,000.00.
We rule that the profits and the use of the land which were denied to petitioner because of the non-compliance
or interference with a solemn obligation by respondents is somehow made up by the appreciation in land
values in the meantime.
Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner Limketkai;
that the BPI officials who transacted with petitioner had full authority to bind the bank; that the evidence
supporting the sale is competent and admissible; and that the sale of the lot to NBS during the trial of the case
was characterized by bad faith.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET ASIDE. The
June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National Capital Judicial Region
stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten Million Pesos (P10,000,000.00)
damages which is hereby DELETED.
SO ORDERED.
G.R. No. L-8334

December 28, 1957

BIENVENIDO BABAO, ETC., plaintiff-appellee,

vs.
FLORENCIO PEREZ, ETC., ET AL., defendants-appellants.
Ozaeta, Lichauco and Picazo for appellants.
Feria, Manglapuz and Associates for appellee.

BAUTISTA ANGELO, J.:

This is an action to recover one-half () of a parcel of land containing an area of 156 hectares situated in San
Juan, Batangas, plus the value of the produce gathered thereon from August, 1947 until actual recovery and in
the alternative, to recover the Sum of P47,000 representing reimbursement of the amount of useful and
necessary expenses incurred to the clear and improve the aforesaid land.
Plaintiff is the judicial administrator of the estate of the late Santiago Babao while defendant Florencio Perez is
the judicial administrator of the estate of the late Celestina Perez. The other defendants are purchasers and
actual owners of portions of the land which is sought to be recovered in the present litigation.

Bernardo Perez until her death in 1947; that since then Celestina Perez prohibited Santiago from interfering
with the administration of the land and designated another person in his place, and for the work he did from
1930 to 1935, he was more than compensated because the proceeds of the harvests during said years were
all given only to him and his wife and Celestina was given only what was barely sufficient for her maintenance.
Defendants also alleged that the sales made by Celestina Perez through her attorney-in-fact Leovigildo Perez
of several portions of the land were not fictitious is alleged but were made with full knowledge and authority of
Celestina who executed in favor of Leovigildo Perez a power of Attorney under the authority notary public in
the presence of Santiago Babao himself who did not interpose any objection to the execution of said power of
attorney and, therefore, said sales are real, valid and genuine, having been executed in accordance with law.
Defendants prayed that the complaint be dismissed with costs, after awarding to them moral damages in the
amount that the court may deem proper to fix.
After hearing, the court rendered in favor of the plaintiff and against the defendants,

The complaint alleges that Celestina Perez was in her lifetime the owner of the parcel of land in question
which was not registered either under Act 496 or under the Spanish Mortgage law: that sometime in 1924
when the deceased Santiago Babao married Maria Cleofe Perez, niece of Celestina Perez, the latter and the
former entered into a verbal agreement whereby Santiago Babao bound himself to improve the land by
leveling and clearing all the forest trees standing thereon and planting in lieu there of coconuts, rice, corn and
other crops such as bananas and bamboo trees, and to act at the same time as administrator thereof during
the lifetime of Celestina Perez, all expenses for labor, and materials to be at his cost, in consideration of which
Celestina in turn bound herself to convey to Santiago Babao or, his wife of land, together with all the
improvements thereon upon her death; that pursuant to said verbal agreement, Santiago Babao in 1924 left
his job as administrator of the Llana Estate in San Juan, Batangas for which he was receiving a salary of P150
a month, and started leveling and clearing the land having planted in an area of 50 hectares 50,000 coconuts
trees, and rice and corn in another area of 70 hectares, leaving out only 50 hectares unimproved, all of which
having been administered by him from 1924 to 1946; that for clearing and improving the portions of land
above-mentioned, he incurred expenses amounting to P7,400 which added to his salary as administrator from
l924 to 1946 at rate P150 a month mounting to P39,600, makes a total of P47,000; that in the violation of the
aforesaid verbal agreement, Celestina Perez, acting through Leovigildo Perez, to whom she extended a power
of Attorney to sell, sold few days before she died about 127 __ hectares of the land in question in
consequence of which Santiago Babao was deprived of the possession and administration thereof from 1945.
that said sales are fictitious and were made clear violation of the oral agreement made between Celestina
Perez and Santiago Babao and as such the same are null and void; that Celestina Perez died on August 24,
1947 as a result of which intestate proceedings were instituted for the settlement of her estate and one
Florencio Perez was named as judicial administrator; that Santiago Babao died on January 6, 1948 and as a
consequence in estate proceedings were instituted for the settlement of his estate and Bienvenido Babao
failed to recover the portion of the lane herein litigated, said estate would suffer an irreparable damage of
not less than P366,700 representing fruits which it has failed to receive during the last 20 years. Wherefore,
plaintiff played for the conveyance of portion of the land in question and for annulment of the sales of the
portion for having been made fictitiously, and in the alternative, for judgment in plaintiff's favor for the sum of
P47,000 representing the amount of useful and necessary expenses incurred by Santiago Babao in improving
the land in line with the oral agreement.
Defendants denied plaintiff's claim that a verbal agreement was entered into between Celestina Perez Babao
relative to the clearing, improving and administering the land belonging to the former having an area of 156
hectares, as well as the other claim that Santiago Babao had actually cleared and improve a great portion
thereof at the cost at around P7,400. They alleged in 1924 and for many years prior thereto, the land in
question had already been cleared and cultivated for agricultural purposes with an exception of a portion of 50
hectares: that said land was cleared and cultivated due partly to the effort made by Celestinas husband,
Esteban de Villa, her overseers and tenants, and partly to the "trusco" system employed by them whereby
persons were allowed to clear the land and plat thereon and from the harvest were compensated according to
a graduated scale of division varying from year to year; that the coconut trees, banana plants and bamboo
trees now standing thereon were planted not by Santiago Babao nor at his expenses but by the tenants of the
spouses Esteban de Villa and Celestina Perez who were dully compensated according to the "trusco" system;
that although Santiago Babao and Maria Cleofe Perez were married in 1924, the former did not have anything
to do with the land in question to Esteban de Villa was then still living and actively managed the same with
help of his overseer and tenants until he died in 1930; that it was only in that year when Santiago Babao
began administering the land in the capacity of a nephew of Celestina until 1935 when Celestina disgusted
with the conduct of Santiago, left the company of Santiago and his wife and went to live with her nephew

Wherefore, judgement is rendered in favor of the plaintiff and against the defendants,
(1) Declaring the sales of Lupang Parang by and between the defendants, fraudulent and fictitious, null and
void;
(2) Ordering defendant Florencio Perea as administrator of the testate of the deceased Celestina Perez, to
pay plaintiff the sum of P3,786.66 annually from August 25, 1947 until delivery of the land to the latter, with
interest thereon at the rate of 6 per cent per annum from the date of the filing of the complaint;
(3) Divesting the title of defendants over of Lupang Parang both in quantity and quality and vesting title
however in plaintiff pursuant to section 10 of Rule 39. To carry out this judgement, the Clerk of Court is hereby
appointed representative of this Court to designate a disinterested surveyor for the necessary survey and
division, the expenses therefor to be defrayed half and half by plaintiff and Florencio Perez;
(4) Ordering defendants to surrender the possession of the half adjudicated and vested in favor of the plaintiff
after the same has been designated under the proceeding paragraph; and .
(5) To pay the costs.
Defendants in due time took the case on appeal to the Court of Appeals where the parties submitted their
respective briefs within the reglementary period, and thereafter the court rendered judgment reversing in
toto the decision appealed from and dismissing the case without pronouncement as to costs. But when its
attention was called, thru a proper motion, that the court acted without jurisdiction because the amount
involved was more than P50,000, the court in a resolution entered on August 14, 1954 set aside its decision
and forwarded the case to us to have remanded to the Court of Appeals proved futile.
While this case was pending in the lower court, counsel for appellants filed a motion to dismiss on the ground,
amount others, but the alleged verbal agreement between Santiago Babao and Celestina Perez was
enforceable under the Statute of frauds. The trial court denied this motion on the ground that it appears from
the complaint "that Santiago fully complied with his part of the oral contract between the parties and that this is
an action not only specific performance but also for damages." Consequently, the court held that the Statute of
frauds cannot be invoked for the reason that "performance by one party of his part of the contract takes the
case out of the statute." And pursuant to such ruling, when the case was tried on the merits, the court
overruled to the introduction of oral testimony to prove the alleged verbal agreement.
The important question then to be determined is whether or not the alleged verbal agreement falls within the
prohibition of the Statute of frauds.
This statute, formerly incorporated as Section 21 of Rule 123 of our Rules of Court, is now found in Article
1403 of the new Civil Code, which provides, in so far as pertinent to this case, as follows:1awphi1.net

In the following cases an agreement hereafter made shall be enforceable 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 secondary evidence of its contents;
(a) An agreement that by its terms is not to be performed within a year from the making thereof.
xxx

xxx

xxx

(e) An agreement . . . for the sale of real property or of an interest therein.

Appellants contends that the alleged verbal agreement falls under the paragraphs (a) and (c) above-quoted
because the same may be considered as an agreement which by its terms is not to be performed within one
year from the making thereof, or one which involves a sale of real property or of an interest therein. If this
premise is correct, appellants contend, then the trial court erred in allowing the introduction of parole evidence
to prove the alleged agreement over the vigorous objection of counsel for appellants.
That the alleged verbal agreement is one which by its terms is not to be performed within one year is very
apparent from the allegations of the complaint. Thus, it is therein alleged that the agreement was allegedly
made in 1924 and by its terms Santiago Babao bound himself (1) to improve all the forest trees and planting
thereon coconuts, rice, corn and other crops such as bananas and bamboo trees, and (2) to act at the same
time as administrator of said land and improvements during the lifetime to Celestina Perez. And in
consideration of such undertaking, Celestina Perez "bound herself to give and deliver, either to Santiago
Babao or his wife Cleofe Perez, one-half () of the whole area of said land as improved with all the
improvements thereon upon her death". It is also alleged in the complaint that Celestina Perez died on August
24, 1947, or 23 years after the making of the alleged agreement while Santiago Babao died on January 6,
1948. From the above terms, therefore, it is not difficult to see that the undertaking assumed by Santiago
Babao which was to clear, level and plant to coconut trees and other plants 156 hectares of forest land could
not be accomplished in one year. In fact, the alleged improvements were supposedly accomplished during the
lifetime of Celestina, which lasted over a period of 23 years, and even then not all was cleared and planted but
only a portion thereof. Another part of his undertaking is that he is to administer the land during the lifetime of
Celestina, and as we have already said, her death occurred 23 years after the agreement.
But the trial court expressed the view that the statute does not apply because it assumed that Santiago Babao
was fully complied with his part of the oral contract between the parties, and in its opinion "performance by
one party of his part of the contract takes the case out of the statute." Even if his assumption were correct, still
we find one flaw in its logic which fully nullifies it for it falls to consider that in order that a partial performance
of the contract may take the case out of the operation of the statute, it must appear clear that the full
performance has been made by one party within one year, as otherwise the statute would apply. Thus, the rule
on this point is well stated in Corpus Juris in the following wise: Contracts which by their terms are not to be
performed within one year, may be taken out of the statute through performance by one party thereto. All that
is required in such case is complete performance within the year by one party, however many tears may have
to elapse before the agreement is performed by the other party. But nothing less than full performance by one
party will suffice, and it has been held that, if anything remains to be done after the expiration of the year
besides the mere payment of money, the statute will apply." 1 (Emphasis supplied). It is not therefore correct to
state that Santiago Babao has fully complied with his part within the year from the alleged contract in question.
When, in an oral contract which, by its terms, is to be performed within one year from the execution of the
contracting parties has complied within the year with obligations imposed on him by said contract, the other
party cannot avoid the fulfillment of those incumbent on him under the same contract by invoking the statute of
frauds because the latter aims to prevent and not to protect fraud. (Shoemaker vs. La Tondea, Inc. 68 Phil.,
24.).
The broad view is that the statute of Frauds applies only to agreements not to be performed on either side
within a year from the making thereof. Agreements to be fully performed on one side within the year are taken
out of the operation of the statute. (National Bank vs. Philippine Vegetable Oil Co., Phil., 857, 858.).

Assuming arguendo that the agreement in question falls also under paragraph (a) of article 1403 of the new
Civil Code, i.e., it is a contract or agreement for the sale of real property or of an interest therein, it cannot also
be contended that the provision does not apply to the present case for the reason that there was part
performance on the part of one of the parties. In this connection, it must be noted that this statute is one based
on equity. It is based on equitable estoppel or estoppel by conduct. It operates only under certain specified
conditions and when adequate relief of law is unavailable (49 Am. Jur., Statute of Frauds, Section 422, p. 727).
And one of the requisites that need be present is that the agreement relied on must be certain, definite, clear,
unambiguous and unequivocal in its terms before the statute may operate. Thus, the rule on this matter is as
follows:
The contract must be fully made and completed in every respect except for the writing required by the statute,
in order to be enforceable on the ground of part performance. The parol agreement relied on must be certain,
definite, clear, unambiguous, and unequivocal in its terms, particularly where the agreement is between parent
and child, and be clearly established by the evidence. The requisite of clearness and definiteness extends to
both the terms and the subject matter of the contract. Also, the oral contract must be fair, reasonable and just
in its provisions for equity to enforce it on the ground of part performance. If it would be inequitable to enforce
the oral agreement, or if its specific enforcement would be harsh or oppressive upon the defendant, equity will
withhold its aid. Clearly, the doctrine of part performance taking an oral contract out of the statute of frauds
does not apply so as to support a suit for specific performance where both the equities and the statute support
the defendant's case. (49 Am. Jur., p. 729.).
The alleged agreement is far from complying with the above requirement for, according to the complaint,
Santiago Babao bound himself to convert a big parcel of forest land of 156 hectares into a veritable farm
planted to coconuts, rice, corn and other crops such as bananas and bamboo trees and to act as administrator
of said farm during the lifetime of Celestina Perez, while the latter in turn bound herself to give either to
Santiago or his wife of the land as improved with all the improvements thereupon her death. This agreement
is indeed vague and ambiguous for it does not specify how many hectares was to be planted to coconuts, how
many to rice and corn, and what portion to bananas and bamboo trees. And as counsel for appellants puts it,
"as the alleged contract stands, if Santiago Babao should plant one-half hectares to coconuts, one-half to rice,
and another half hectare to corn, and the rest to bananas and bamboo trees, he would be entitled to receive
one-half of 156 hectares, or 78 hectares, of land for his services. That certainly would be unfair and unheard
of; no sane property owner would enter into such contract. It costs much more time, money, and labor to plant
coconut trees than to plant bananas and bamboo trees; and it also costs less to convert forest land to rice and
corn land than to convert it into a coconut plantation. On the part of Celestina Perez, her promise is also
incapable of execution. How could she give and deliver one half of the land upon her death?"
The terms of the alleged contract would appear more vague if we consider the testimony of Carlos Orense
who claimed to have been present at the time the alleged agreement was made between Celestina Perez and
Santiago Babao for apparently the same does not run along the same line as the one claimed by appellee.
This is what Orense said: "You, Santiago, leave the Llana estate and attend to this lupang parang. Have it
cleared and planted to coconuts, for that land will eventually fall in your hands" (as translated from Tagalog),
which runs counter with the claim of appellee. The agreement being vague and ambiguous, the doctrine of
part performance cannot therefore be invoked to take this case out of the operation of the statute.
Obviously, there can be no part performance until there is a definite and complete agreement between the
parties. In order to warrant the specific enforcement of a parol contract for the sale of land, on the ground of
part performance, all the essential terms of the contract must be established by competent proof, and shown
to be definite, certain, clear, and unambiguous.
And this clearness and definiteness must extend to both the terms and the subject matter of the contract.
The rule that the court will not specifically enforce a contract for the sale of land unless its terms have been
definitely understood and agreed upon by the parties, and established by the evidence, is especially
applicable to oral contracts sought to be enforced on the ground of part performance. An oral contract, to be
enforced on this ground, must at least have that degree of certainty which is required of written contracts
sought to be specifically enforced.lawphi1.net

The parol contract must be sufficiently clear and definite to render the precise acts which are to be performed
thereunder clearly ascertainable. Its terms must be so clear and complete as to allow no reasonable doubt
respecting its enforcement according to the understanding of the parties. (101 A.L.R., pp. 950-951).
In this jurisdiction, as in the United States, the existence of an oral agreement or understanding such as that
alleged in the complaint in the case at bar cannot be maintained on vague, uncertain, and indefinitetestimony,
against the reasonable presumption that prudent men who enter into such contracts will execute them in
writing, and comply with the formalities prescribed by law for the creation of a valid mortgage. But where the
evidence as to the existence of such an understanding or agreement is clear, convincing and satisfactory, the
same broad principles of equity operate on this jurisdiction as in the United States to compel the parties to live
up to the terms of their contract. (Cuyugan vs. Santos, 34 Phil., 100, 101.).
There is another flaw that we find in the decision of the court a quo. During the trial of this case, counsel for
appellants objected the admission of the testimony of plaintiff Bernardo Babao and that of his mother Cleofe
Perez as to what occurred between Celestina Perez and Santiago Babao, with regard to the agreement on the
ground that their testimony was prohibited by section 26(c) of Rule 123 of the Rules of Court. This rule
prohibits parties or assignors of parties to a case, or persons in whose behalf case is prosecuted, against an
executor or administrator of a deceased person upon a claim or demand against the estate of such deceased
person from testifying as to any matter of fact occurring before the death of such deceased person. But the
court overruled the opposition saying that said rule did not apply where the complaint against the estate of a
deceased person alleges fraud, citing the case of Ong Chua vs. Carr, 53 Phil., 980. Here again the court is in
error because if in that case the witness was allowed to testify it was because the existence of fraud was first
established by sufficient and competent evidence. Here, however, the alleged fraud is predicated upon the
existence of the agreement itself which violates the rule of petitio principii. Evidently, the fraud to exist must be
established by evidence aliunde and not by the same evidence which is to sought to be prevented. The
infringement of the rule is evident.
. . . The reason for this rule is that "if death has closed the lips of one party, the policy of the law is to close the
lips of the other.' Another reason is that `the temptation to falsehood and concealment in such cases is
considered too great to allow the surviving party to testify in his own behalf.' Accordingly, the incompetency
applies whether the deceased died before or after the commencement of the action against him, if at the time
the testimony was given he was dead and cannot disprove it, since the reason for the prohibition, which is to
discourage perjury, exists in both instances. (Moran, Comments on the Rules of Court, Vol. 3, 1952 Ed., p.
234.).lawphi1.net
Having reached the conclusion that all the parol evidence of appellee was submitted in violation of the Statute
of Frauds, or of the rule which prohibits testimony against deceased persons, we find unnecessary to discuss
the other issues raised in appellants' brief.
Wherefore, the decision appealed from is reversed, and the case is dismissed, with costs against appellee.
G.R. No. L-5447

no credit he was unable to continue the purchase of the necessary lumber, plaintiffs, with whom he was
dealing, absolutely refusing to allow any lumber to leave their yard without payment in advance. The work on
the house being delayed for the lack of the necessary materials, defendant accompanied the contractor to
plaintiffs' lumber yard, and after satisfying plaintiffs as to his own financial responsibility, and that as a property
owner and an attorney in active practice in the city of Manila, he was good for the amount of lumber needed in
the repair of his house, he entered into an agreement with them whereby they were to deliver the necessary
lumber to the contractor for use in the repair of his house.
In pursuance of and in accordance with the directions of the defendant, plaintiffs delivered to Kabalsa a
considerable amount of lumber which was used in the repairs upon defendant's house, and judgment in this
action was rendered in favor of the plaintiffs for the proven amount of the unpaid balance of the purchase price
of this lumber.
Appellant makes various assignments of error, and contends: First, that the trial court erred in declining to
allow an amendment to defendant's answer for the purpose of formally denying plaintiff's allegations as to
defendant's guaranty of payment of the purchase price of the lumber; second, that the trial court erred in
failing to set out in its decision the finding of facts upon which the judgment rests; third, that the evidence of
record does not sustain a finding that the defendant did in fact assume responsibility for the payment of the
purchase price of the lumber delivered to his contractor; and forth, that even if it be held that he did so, then
since the alleged promise, as set up by plaintiffs in their evidence, merely guaranteed payment for the lumber
and was not in writing, proof thereof was not admissible in evidence, and defendant was not bound thereby,
under the provisions of section 335 of the Code of Civil Procedure.
The alleged errors of procedures may be dismissed without much discussion. We think a reading of the
judgment itself clearly discloses that the trial judge did in fact make the necessary findings of fact, and that he
expressly held that, admitting all the evidence offered by both parties, the evidence of record establishes the
existence of defendant's promise to pay for the lumber, and discloses the existence of a balance due on
account of the lumber delivered to defendant's contractor. Without considering whether, under the pleadings,
the defendant's evidence should have been stricken out of the record and his motion to amend his answer
denied, as appears to have been the opinion of the trial court, we agree with the trial court that even if the
evidence be admitted and the complaint amended, the weight of all the evidence, including the evidence, thus
admitted, supports the plaintiffs' allegation touching defendants' promise to pay for the lumber in question, and
establishes his contention that this lumber was in fact delivered to the defendant's contractor, and by him used
in the construction of the house under the direction of the defendant, and that the amount for which the
judgment was given in the court below was the amount of the unpaid purchase price of the lumber thus
delivered. If, therefore, it was error of the trial court to rule that defendant's evidence should be stricken from
the record and that defendant's answer should not be amended in accordance with a motion for that purpose
made three weeks after judgment was rendered, it was at most error without prejudice.
The only question that remains is defendant's contention that his alleged guaranty of payment of the purchase
price of the lumber furnished at his request to his contractor Kabalsa not being in writing, it is unenforceable in
this action.

March 1, 1910
Section 335 of Act No. 190 is as follows:

PAUL REISS, ET AL., plaintiffs-appellees,

vs.
JOSE M. MEMIJE, defendant-appellant.
Jose Valera y Calderon, for appellant.
Gibbs & Gale, for appellees.

In the following cases an agreement hereafter made shall be unenforceable by action unless the same, or
some note or memorandum thereof, by in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement can not be received without the writing, or secondary evidence of its
contents:
xxx

xxx

xxx

CARSON, J.:
2 A special promise to answer for the debt, default, or miscarriage of another;
Defendant appellant entered into a contract with one Buenaventura Kabalsa for the repair of a house in the
city of Manila. The contractor undertook to furnish the necessary materials, including a considerable amount of
lumber, to be used in the repairs. The contractor being a man of no commercial standing in the community
was unable to secure credit therefor, and was compelled to pay cash for all purchases. Having no money and

xxx

xxx

xxx

An immense amount of litigation has arisen in England and the United States over the construction of similar
provisions which are found in most, if not all, of the so-called statutes of fraud which have been enacted in
those jurisdictions, and many courts and text writer have acknowledged their inability to find anything like
uniform rules of construction in the conflicting decisions which have been rendered, applying the statute to the
infinite variety of facts which have presented themselves; so that it has been said by some that the law upon
the subject is in a state of hopeless confusion.
The true test as to whether a promise is within the statute had been said to lie in the answer to the question
whether the promise is an original or a collateral one. If the promise is an original or an independent one; that
is, if the promisor becomes thereby primarily liable for the payment of the debt, the promise is not within the
statute. But, on the other hand, if the promise is collateral to the agreement of another and the promisor
becomes thereby merely a surety, the promise must be in writing. (Gull vs. Lindsay, 4 Exch. 45; and other
cases cited under note 2, p. 906, Encyclopedia of Law, vol. 29.)

As has been said before, it is frequently a matter of difficulty to determine to whom the credit has actually been
given, whether to the defendant alone, in which case the debt is his own and his promise is good without
writing; or in part to the third party, in which case the defendant's promise being collateral to and in aid of the
third party's liability, requires a writing to support it, or to both jointly, in which case as has been said their
engagement need not be in writing. This must be determined from the language and expressions used by the
parties promising, and from an examination of the circumstance showing the understanding of the parties. The
unexplained fact that charges were made against a third party on the plaintiffs' books, or that the bill was
presented to the original debtor in the first instance, unqualified by special circumstances, tends to prove that
the credit was given in whole or in part to him, and that the defendant's promise is a collateral one.
(Larson vs. Wyman, 14 Wend. (N.Y.), 246; Pennell vs. Pentz, 4 E. D. Smith (N. Y.), 639.) But it is evidently
quite impossible to specify any one fact or set of facts on which the question as to whom the plaintiff gave
credit is to be determined. In the language of Buchanan, C.J., in Elder vs. Warfield (7 Harris & (Md.), 397), "the
extent of the understaking, the express in used, the situation of the parties, and all the circumstances of the
case should be taken into consideration."

Just what is the character of a promise as original or collateral is a question of law and fact which must in each
case be determined from the evidence as to the language used in making the promise, and the circumstances
under which the promise was made; and, since as a general rule the parties making a promise of this nature
rarely understand the legal and technical difference between an original and a collateral promise, the precise
form of words used, even when established by undisputed testimony is not always conclusive. So that it is said
that "While, as a matter of law, a promise, absolute in form, to pay or to be 'responsible' or to be the
'paymaster,' is an original promise, and while, on the other hand, if the promisor says, 'I will see you paid,' or 'I
will pay if he does not,' or uses equivalent words, the promise standing alone is collateral, yet under all the
circumstances of the case, an absolute promise to pay, or a promise to be 'responsible,' may be found to be
collateral, or promises deemed prima facie collateral may be adjudged original." (Encyclopedia of Law, 2d ed.,
vol. 29, p. 907, and many cases there cited.)

Application of these principles has been made in many cases where owners of buildings going up under
contract enter into agreements upon the faith of which subcontractors or other have continued to supply labor
or material after the principle contractor has become either actually or probably unable to pay. In these cases,
the question is whether the services for which the action is brought against the owner of the building were
performed solely upon the credit of his promise, to be himself responsible and to pay for the materials and
labor furnished, or whether the subcontractors and laborers continued to furnish labor and materials to the
principal contractor relying upon his obligation guaranteed by the promise of the owner. (Gill vs. Herrick, 11
Mass., 501; Walker vs. Hill, 119 Mass., 249; Clifford vs. Luhring, 69 Ill., 401; Rawson vs. Springsteen, 2
Thomp. & C. (N. Y.), 416; Belknap vs. Bender, 6 Thomp. & C. (N.Y.), 611; Jefferson County vs. Slagle, 66 Pa.
St., 202. See Eshleman vs. Harnish, 76 Pa. St., 97; Harvey vs. Mercur, 78 Pa. St., 257;
Weyland vs. Critchfield, 3 Grant (Pa.), 113; Lakeman vs. Mountstephen, L.R. 7 H. L., 17.)

If goods are sold upon the sole credit and responsibility of the party who make the promise, then, even though
they be delivered to a third person, there is no liability of the third person to which that of the party promising
can be collateral, and consequently such a promise to pay does not require a memorandum in writing; and on
the same principle it has been held that when one advances money at the request of another (on his promise
to repay it) to pay the debt of a third party, as the payment creates no debt against such third party, not being
made at all upon his credit, the liability of the party on whose request and promise it was made is original and
not collateral, and not with the Statute of Frauds. (Pearse vs. Blagrave, 3 Com. Law, 338; Prop'rs. of Upper
Locks vs.Abbott, 14 N. H., 157.) But it has been said that if the person for whose benefit the promise is made
was himself liable at all, the promise of the defendant must be in writing. (Matson vs. Wharam, 2 T. R., 80.)
And the text writers point out that if this rule be understood as confined to cases where a third party and the
defendant are liable in the same way, and to do the same thing, one as principal and the other as surety, it
may be accepted as the uniform doctrine of all the cases both in England and in the United States. (Browse on
the Statute of Frauds, par. 197, and cases there cited.) In such cases, the defendant is said to come in aid to
procure the credit to be given to the principal debtor, and the question, therefore, ultimate is "upon whose
credit the goods were sold or the money advanced, or whatever other thing done which the defendant by his
promise procured to be done;" and where the defendant stands in the relation to the third party of surety to
principal "if any credit at all be given to the third party, the defendant's promise is required to be in writing as
collateral." (Browne on the Statute of Frauds, p. 227, and notes 2 and 4.) But it must be clearly recognized that
these principles are applicable only where the parties are liable in the same way to do the same thing, one as
principal and the other as surety, for if the credit is given to both jointly, since neither can be said to be surety
for the other to the creditor, their engagement need not be in writing.

Taking into consideration all the circumstances of the case at bar, we are satisfied that the credit for the lumber
delivered by the plaintiffs to defendant's contractor was extended solely and exclusively to the defendant
under the verbal agreement had with him, and therefore, that the provisions of the statue did not require that it
should be made in writing. Defendant admitted on the stand that his contractor had no commercial credit or
standing in the community, and it appears that plaintiffs, after investigation, absolutely refused to extent him
any credit whatever upon any conditions and that the defendant was well aware of that fact. From the
testimony of the contractor himself, it seems clear that when the agreement for the delivery of lumber was
made, the credit was extended not to the contractor but to the defendant. It appears that both plaintiffs and
defendant exercised especial precautions to see that all the lumber was delivered on defendant's lot, and that
before each bill of lumber was delivered, defendant carefully examined the invoice, which the agreement was
submitted to him, and that no lumber was delivered without his approval. The precise language in which the
verbal agreement was made does not appear from the evidence, and while it is true that one of the plaintiffs in
his disposition, made in the United States, refers to the agreement as one whereby defendant "guaranteed"
payment for the lumber, we are satisfied from all the evidence that the word was not used by this witness in its
technical sense, and that he did not mean thereby to say that defendant guaranteed payment by the
contractor, but rather that after satisfying plaintiffs as to his own financial responsibility, he obligated himself to
pay for the lumber delivered to his contractor for use in his house. The only evidence in the whole record
which tends to put our conclusion in this regard in doubt, is the testimony of plaintiffs' acting manager during
plaintiffs' absence in the United States who stated that he sent a statement of account and a bill for the lumber
to the contractor; but this fact, which under ordinary circumstances would be strong evidence that the credit
was originally extended to the contractor and merely guaranteed by the defendant, was satisfactorily and
sufficiently explained by proof that plaintiffs were compelled to leave for the United States quite unexpectedly,
with no opportunity to go over the accounts with their acting manager, who was left in charge, so that the latter
having no knowledge whatever as to plaintiffs' agreement with defendant, and learning that the lumber had
been delivered to the contractor, supposed that it had been sold to him, and only discovered his mistake on
later investigation and correspondence with his principals, after the contractor had notified him as to the true
nature of the transaction.
The judgment appealed from should be affirmed with the costs of this instance against the appellant. So
ordered.
Arellano, C.J., Torres, Mapa, Johnson and Moreland, JJ., concur.

[G.R. No. 107624. January 28, 1997]

GAMALIEL C. VILLANUEVA and IRENE C. VILLANUEVA, petitioners, vs. COURT OF APPEALS,
SPOUSES JOSE and LEONILA DELA CRUZ, and SPOUSES GUIDO and FELICITAS PILE, respondents.
DECISION
PANGANIBAN, J.:
The main issue here is whether a contract of sale has been perfected under the attendant facts and
circumstances.
The petition filed on December 18, 1992 assails the Decision [1] of respondent Court of Appeals promulgated
on October 23, 1992 in CA-G.R. CV No. 30741 rendered by the Eleventh Division [2] dismissing the appeal of
petitioners and affirming the decision in Civil Case No. Q-50844 dated December 28, 1990 of the Regional
Trial Court, Branch 83 of Quezon City, presided by Judge Estrella T. Estrada. The dispositive portion of the
affirmed decision of the RTC reads: [3]
"WHEREFORE, judgment is hereby rendered dismissing plaintiff's instant action for specific performance.
However, defendant Jose de la Cruz is hereby ordered to refund or reimburse the amount of Ten Thousand
Pesos (P10,000.00) to plaintiff Irene Villanueva.

half portion of the parcel of land wherein plaintiff Gamaliel Villanueva's apartment unit is situated, designated
as Lot 3-A of the Subdivision Plan (LRC) Psd-337290, Block 24, Pcs-4865, with an area of 201.50 square
meters, more or less, and covered by Transfer Certificate of Title 332445, purportedly as full payment and
satisfaction of an indebtedness (sic) obtained from defendants Pili (sic) (Exhibit 'G'; Exhibit '3'). Consequently,
Transfer Certificate of Title No. 356040 was issued in the name of defendants Pili (sic) also on March 6, 1987.
Immediately thereafter, the plaintiffs came to know of such assignment and transfer and issuance of a new
certificate of title in favor of defendants Pili (sic) so that plaintiff Gamaliel Villanueva complained to the
barangay captain of Bahay Turo, Quezon City, on the ground that there was already an agreement between
defendants Dela Cruz and themselves that said portion of the parcel of land owned by defendants Dela Cruz
would be sold to him. As there was no settlement arrived at, the plaintiffs elevated their complaint to this Court
through the instant action."
The trial court rendered its decision in favor of private respondents. An appeal was duly brought to public
respondent which as earlier stated affirmed the said decision. Hence, this petition for review
on certiorari under Rule 45 of the Rules of Court.
The Issues
The following errors are alleged to have been committed by public respondent:

[6]

"I
The Court of Appeals erred in failing to find that there is a perfected contract of sale of subject property
between petitioners and respondents spouses Dela Cruz

The parties' other claims for damages and attorney's fees are also hereby dismissed for being necessary
consequences of litigation.

II
No pronouncement as to costs."
The Court of Appeals erred in applying the Statute of Frauds in this case when it is a contract of sale that was
partly executed

The Facts
The factual antecedents of this case as found by the trial court were reproduced in the assailed Decision,
follows: [5]

[4]

as

"x x x plaintiff (and now petitioner) Gamaliel Villanueva has been a tenant-occupant of a unit in the 3-door
apartment building erected on a parcel of land owned by defendants-spouses (now private respondents) Jose
Dela Cruz and Leonila dela Cruz, with an area of 403 square meters, more or less, located at Short Horn,
Project 8, Quezon City (Exhibit 'L'), having succeeded in the occupancy of said unit from the previous tenant
Lolita Santos sometime in 1985. About February of 1986, defendant Jose dela Cruz offered said parcel of land
with the 3-door apartment building for sale and plaintiffs, son and mother, showed interest in the property. As
an initial step, defendant Jose dela Cruz gave plaintiff Irene Villanueva a letter of authority dated February 12,
1986 (Exhibit 'A') for her to inspect the subject property. Because said property was in arrears in the payment
of the realty taxes, defendant Jose dela Cruz approached plaintiff Irene Villanueva and asked for a certain
amount to pay for the taxes so that the property would be cleared of any incumbrance (sic). Plaintiff Irene
Villanueva gave P10,000.00 on two occasions P5,000.00 on July 15, 1986 (Exhibit 'F') and
another P5,000.00 on October 17, 1986 (Exhibit 'D'). It was agreed by them that said P10,000.00 would form
part of the sale price of P550,000.00. Sometime thereafter, defendant Jose dela Cruz went to plaintiff Irene
Villanueva bringing with him Mr. Ben Sabio, a tenant of one of the units in the 3-door apartment building
located on the subject property, and requested her and her son to allow said Ben Sabio to purchase one-half
(1/2) of the property where the unit occupied by him pertained to which the plaintiffs consented, so that they
would just purchase the other half portion and would be paying only P265,000.00, they having already
given an amount of P10,000.00 used for paying the realty taxes in arrears. Accordingly the property was
subdivided and two (2) separate titles were secured by defendants Dela Cruz. Mr. Ben Sabio immediately
made payments by installments.
Sometime in March, 1987 or more specifically on March 6, 1987, defendants Dela Cruz executed in favor of
their co-defendants, the spouses Guido Pili (sic) and Felicitas Pili (sic), a Deed of Assignment of the other one-

III
The Court of Appeals erred in not finding that this being a case of double sale of immovable property, although
respondents spouses Pili (sic) recorded the deed of assignment to them in the Registry of Deeds they were
not in good faith while (sic) petitioners as purchasers thereof were in prior possession in good faith of the
property.
IV
The Court of Appeals erred in failing to reverse and set aside the appealed judgment of the trial court and
rendering a judgment for petitioners"
In the opinion of this Court, these four issues may be summed up in a single question: Under the factual
circumstances of this case, was there a perfected contract of sale?
Petitioners contend that the adopted findings of facts of public respondent are contradicted by its ruling that
there is no agreement as to the price of the apartments. They argue that on the basis of the facts found by
public respondent, "the conclusion is ineluctable that there was a perfected contract of sale of the subject
property." [7] According to petitioners, private respondents had to secure their consent to enable "Sabio to buy
the one-half portion of the property where the unit Sabio was renting pertains so that petitioners will pay only
the balance ofP265,000.00 for the purchase of the other half after deducting the P10,000.00 petitioners
advanced." [8] Public respondent's conclusion that the P10,000.00 paid to petitioners was not intended as part
of the purchase price allegedly "collides" with its quoted findings, as follows: [9]

"It was agreed by them that said P10,000.00 would form part of the sale price of P550,000.00. x x x defendant
Jose de la Cruz .x x x requested her and her son to allow said Ben Sabio to purchase one-half (1/2) of the
property where the unit occupied by him pertained to which plaintiffs consented, so they would purchase the
other half portion and would be paying only P265,000.00 they having already given an amount of P10,000,00
used for paying the realty taxes in arrears.x x x" (Underscoring in the petition).
The Court's Ruling
The arguments of petitioners do not persuade us. While it is true that respondent Court adopted the recitation
of facts of the trial court, it nonetheless later corrected the relevant portions thereof as it found that no
perfected contract of sale was agreed upon. Thus, public respondent explained: [10]
"Appellants' theory of earnest money cannot be sustained in view of the catena of circumstance showing that
the P10,000.00 given to appellees was not intended to form part of the purchase price. As the great
commentator Manresa observes that the delivery of part of the purchase price should not be understood as
constituting earnest money unless it be shown that such was the intention of the parties (Manresa
Commentaries on the Civil Code, 2d ed., Vol. 10, p. 85). Moreover, as can be gleaned from the records there
was no concrete agreement to the price and manner of payment:
'Q

Will you tell us why your transaction with plaintiffs (petitioners herein) did not materialize?

A Because I have been returning to Mrs. Villanueva and in fact we have executed a Deed of Sale which
was in fact not signed.
Q

In fact, a review of the evidence merely strengthens the conclusions of public respondent. We scoured the
transcripts but we found that respondent dela Cruz never testified that he (or his spouse Leonila) had agreed
to a definite price for the subject property. In fact, his testimony during the cross-examination firmly negated
any price agreement with petitioners because he and his wife quoted the price of P575,000.00 and did not
agree to reduce it to P550,000.00 as claimed by petitioner: [16]
"Q And despite the fact that the property was mortgaged with Development Bank of Rizal you still contrated
(sic) Sandiego (sic) for the purpose of selling the property?
A

Yes, sir.

Q And did Sandiego (sic) agree as agent in selling the property despite the fact that it was mortgaged with
the Development Bank of Rizal?
A

Yes, sir.

Can you recall the condition you offered to Sandiego (sic) to act as your agent in selling the same?

He will get certain commission for the same.

Will you state the price and conditions set forth in selling the property?

P575 thousand, sir.

That is the same offer that was given to you by plaintiff Mrs. Villanueva?

I can not recall, I think so.

And you will agree with me that 1/2 of P575 thousand is how much (sic)?

Why did you not sign the Deed of Sale you mentioned?

A The Villanuevas told me to prepare the documents involved in this transaction because according to her
(sic) she (sic) was only waiting for the money to come but because I was then being pressed by Felicitas Pile
for the payment of my loan. I was constrained to assign the property to her.
Q

trial court overlooked, disregarded, or misinterpreted some facts of weight and significance, which if
considered would have altered the result of the case. [15] In this case, and subject to the above clarification
made by the appellate court, petitioners have failed to convince us to alter such findings.

What are your other reasons?

A Aside from that we were still huggling (sic) for the purchase price then and since I was being pressed by
my creditor, I was forced to make the assignment.'"
The most that public respondent can be faulted with is its failure to expressly state that although its conclusion
of law was correct, the trial court erred in its statement of the facts.

ATTY. MANZO:

Was There a Perfected Contract of Sale?

There (is) nothing to agree with you counsel.

Petitioners contend that private respondents' counsel admitted that "P10,000 is partial or advance payment of
the property (TSN, June 14 [should be 15], 4 (sic) 1990, pages 6 to 7)." Necessarily then, there must have
been an agreement as to price. They cite Article 1482 of the Civil Code which provides that "(w)henever
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." [11]

ATTY. GUPIT:

Private respondents contradict this claim with the argument that "(w)hat was clearly agreed (upon) between
petitioners and respondents Dela Cruz was that the P10,000.00 primarily intended as payment for realty tax
was going to form part of the consideration of the sale if and when the transaction would finally be
consummated." [12] Private respondents insist that there "was no clear agreement as to the true amount of
consideration." [13]
Generally, the findings of fact of the lower courts are entitled to great weight and not disturbed except for
cogent reasons. [14] Indeed, they should not be changed on appeal in the absence of a clear showing that the

And the offer to you, the agreed price between you and Mrs. Villanueva is P275 thousand as stated in the
agreement that was prepared?
ATTY. MANZO:
Counsel is again assuming that there was an agreement made already.
(ATTY. GUPIT:)
He answered there is a document between Villanueva and Dela Cruz.

ATTY. (MANZO):

cause, they should have shown some effort to procure it. They could have secured it through a subpoena
duces tecum or thru the use of one of the modes of discovery. But petitioners made no such effort. And even if
produced, it would not have commanded any probative value as it was not signed.

Let the witness be confronted by the document."

We are not unmindful of petitioner Irene Villanueva's claim that the parties agreed on the sum of P550,000.00,
as follows: [17]
"ATTY. GUPIT
What was the result of the negotiations?
WITNESS (Irene Villanueva):
We agreed that he would sell the land to us for the sum of, the amount of P550,000.00
xxx

xxx

xxx

WITNESS
After the Deed of Sale relative to the purchase of the property was prepared, Mr. dela Cruz (private
respondent Jose) came to me and told me that he talked with one of the tenants and he offered to buy the
portion he was occupying if I will agree and I will cause the partition of the property between us.
ATTY. GUPIT
Did you agree with the proposal of Mr. dela Cruz that the portion of the property will be sold to one of the
tenants?

As has been said in an old case, the price of the leased land not having been fixed, the essential elements
which give life to the contract were lacking. It follows that the lessee cannot compel the lessor to sell the
leased land to him. [21] The price must be certain, it must be real, not fictitious. [22] It is not necessary that the
certainty of the price be actual or determined at the time of executing the contract. The fact that the exact
amount to be paid therefor is not precisely fixed, is no bar to an action to recover such compensation, provided
the contract, by its terms, furnishes a basis or measure for ascertaining the amount agreed upon. [23] The price
could be made certain by the application of known factors; where, in a sale of coal, a basic price was fixed, but
subject to modification "in proportion to variations in calories and ash content, and not otherwise," the price
was held certain. [24] A contract of sale is not void for uncertainty when the price, though not directly stated in
terms of pesos and centavos, can be made certain by reference to existing invoices identified in the
agreement. In this respect, the contract of sale is perfected. [25] The price must be certain, otherwise there is
no true consent between the parties. [26] There can be no sale without a price. [27] In the instant case, however,
what is dramatically clear from the evidence is that there was no meeting of mind as to the price, expressly or
impliedly, directly or indirectly.
Sale is a consensual contract. He who alleges it must show its existence by competent proof. Here, the very
essential element of price has not been proven.
Lastly, petitioners' claim that they are ready to pay private respondents [28] is immaterial and irrelevant as the
latter cannot be forced to accept such payment, there being no perfected contract of sale in the first place.
Applicability of Statute of Frauds and the Law on Double Sale
Petitioners contend that the statute of frauds does not apply because such statute applies only to executory
contracts whereas in this case the contract of sale had already been partly executed. [29] Further, petitioners,
citing Article 1544 of the Civil Code asseverate that being in possession of the property in good faith therefore
they should be deemed the lawful owners thereof. [30] On the other hand, private respondents counter that the
contract in this case is a "mere executory contract and not a completed or executed contract." [31]

WITNESS
Yes(,) sir. I agreed because we are (sic) both tenants.
ATTY. GUPIT

Both contentions are inaccurate. True, the statute of frauds applies only to executory contracts and not to
partially or completely executed ones. [32] However, there is no perfected contract in this case, therefore there
is no basis for the application of the statute of frauds. The application of such statute presupposes the
existence of a perfected contract and requires only that a note or memorandum be executed in order to
compel judicial enforcement thereof. Also, the civil law rule on double sale finds no application because there
was no sale at all to begin with.

How about the price? How much are (sic) you supposed to pay in order to complete your payments?
WITNESS

At bottom, what took place was only a prolonged negotiation to buy and to sell, and at most, an offer and a
counter-offer but no definite agreement was reached by the parties. Hence, the rules on perfected contract of
sale, statute of frauds and double sale find no relevance nor application.

We are (sic) supposed to divide the amount of P550,000.00."

WHEREFORE, the Petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioners.

To settle the above conflicting claims of the parties, petitioners could have presented the contract of sale
allegedly prepared by private respondent Jose dela Cruz. Unfortunately, the contract was not presented in
evidence. However, petitioners aver that even if the unsigned deed of sale was not produced, private
respondent Jose dela Cruz "admitted preparing (said) deed in accordance with their agreement." [18] This
judicial admission" is allegedly the "best proof of its existence." [19] Further it was "impossible" for petitioners to
produce the same "since it was and remained in the possession" of private respondent Jose dela Cruz. [20]

SO ORDERED.

We do not agree with petitioners. Assuming arguendo that such draft deed existed, it does not necessarily
follow that there was already a definite agreement as to the price. If there was, why then did private
respondent Jose de la Cruz not sign it? If indeed the draft deed of sale was that important to petitioners'

G.R. No. L-25400

January 14, 1927

THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
THE PHILIPPINE VEGETABLE OIL CO., INC., defendant-appellee.
PHIL. C. WHITAKER, intevenor-appellant.
Jose Abad Santos for plaintiff-appellee.
No appearance for defendant-appellee.
Ross, Lawrence & Selph, Thomas Cary Welch and Paredes, Buencamino & Yulo for appellant.
MALCOLM, J.:
This appeal involves the legal right of the Philippine National Bank to obtain a judgment against the Philippine
Vegetable Oil Co., Inc., for P15,812,454, and to foreclose a mortgage on the property of the Philippine
Vegetable Oil Co., Inc., for P17,000,000, and the legal right of Phil. C. Whitaker as intervenor to obtain a
judgment declaring the mortgage which the Philippine National Bank seeks to foreclose to be without force
and effect, requiring an accounting from the Philippine National Bank of the sales of the property and assets of
the Philippine Vegetable Oil Co., Inc., and ordering the Philippine Vegetable Oil Co., Inc., and the Philippine
National Bank to pay him the sum of P4,424,418.37.
In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called the Vegetable Oil Company,
found itself in financial straits. It was in debt to the extent of approximately P30,000,000. The Philippine
National Bank was the largest creditor. The Vegetable Oil Company owed the bank P17,000,000. Over
P13,000,000 were due the other creditors. The Philippine National Bank was secured principally by a real and
chattel mortgage for P3,500,000. On January 10, 1921, the Vegetable Oil Company executed another chattel
mortgage in favor of the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of sums
not to exceed P4,000,000.
This was the precarious situation which in the latter part of 1920 and the early part of 1921 confronted the
Vegetable Oil Company, its General Manager Phil. C. Whitaker, the Philippine National Bank, and the various
creditors of the Vegetable Oil Company. Bankruptcy was imminent. On January 1, 1921, Mr. Whitaker made
his first offer to pledge certain private properties to secure the creditors of the Oil Company (Intervenor's
Exhibit 1). In February of the same year, a creditors' meeting was held. At the instance of Mr. Whitaker but
inspired to such action by the bank, a receiver for the Vegetable Oil Company was appointed by the Court of
First Instance of Manila on March 11, 1921. (Case No. 19644, Court of First Instance of Manila.)
During the period when a receiver was in control of the property of the Vegetable Oil Company, a number of
events occurred. The first was the agreement perfected by the Vegetable Oil Company, Mr. Whitaker, and
some of the creditors of the Oil Company on June 27, 1921, the creditors transferred to Mr. Whitaker a part of
their claims against the Vegetable Oil Company in consideration of the execution by Mr. Whitaker of a trust
deed of his property. The Philippine National Bank was not a direct party to the agreement although the
officials of the bank had full knowledge of its accomplishment and the general manager of the bank placed his
O. K. at the end of the final draft. (Intervenor's Exhibit 10.) The next move of the bank was to obtain a new
mortgage from the Vegetable Oil Company on February 20, 1922. Shortly thereafter, on February 28, 1922,
the receivership for the Vegetable Oil Company was terminated. The bank suspended the operation of the
Vegetable Oil Company in May, 1922, and definitely closed the Oil Company's plant on August 14, 1922.
Out of the foregoing facts which are not in dispute and others which are in dispute, arose the action of the
Philippine National Bank of May 7, 1924, to foreclose its mortgage on the property of the Vegetable Oil
Company. The Vegetable Oil Company on its part countered with certain special defenses which need not be
described and with the interposition of a counterclaim for P6,000,000. Phil. C. Whitaker presented a complaint
in intervention. The judgment rendered was in favor of the plaintiff and against the defendant which was
ordered to pay the sum of P15,787,454.54, representing the liquidation between the plaintiff and the
defendant, with legal interest beginning with May 8, 1923, together with P25,000 attorney's fees, and costs,
with the addition of the usual order to foreclose the mortgage. The counterclaim of the defendant and the
complaint in intervention were dismissed.

The trial judge in his decision announced and answered three questions, viz: (1) Whether the execution of the
mortgage, Exhibit A of the plaintiff, was the free act of the defendant; (2) whether this mortgage was null and
without force because at the time of its execution all the property of the defendant was under the control of a
receiver appointed by the court and neither the approval of the receiver nor of the court had been obtained;
and (3) whether the plaintiff had failed to comply with the contract, that it was alleged to have celebrated with
the defendant and the intervenor, that it would furnish funds to the defendant so that it could continue
operating its factory. Much the same analysis of the issues is made by the intervenor as appellant. The first
error, in relation with the sixth error of the assignment of errors, concerns the holding that the mortgage,
Exhibit A, has been legally and validly executed by the Philippine Vegetable Oil Co., Inc. The second, third,
fourth, and fifth errors, in relation with the sixth error of the assignment of errors, concern the holding that the
Philippine National Bank had not bound itself to finance the operation of the Philippine Vegetable Oil Co., Inc.
In this later connection, the main point at issue between the Philippine National Bank and Phil. C. Whitaker as
disclosed by the amended answer of the Philippine National Bank to the complaint in intervention, and the
opening sentence of the memorandum for intervenor-appellant filed in this court, is whether the Philippine
National Bank ever made any contract binding the bank to provide the necessary operating capital to the
Philippine Vegetable Oil Co., Inc., and whether Mr. Whitaker has established his right to recover damages
from the bank by reason of the latter's alleged refusal to finance the operation of the Philippine Vegetable Oil
Co., Inc. It results, therefore, in the appeal dividing into two main subjects, the first, the validity of the
Philippine National Bank-Philippine Vegetable Oil Co., Inc., mortgage of February 20, 1922, and second, the
alleged agreement of the Philippine Vegetable Oil Co., Inc. These two topics we propose to discuss separately
and in order. Parenthetically, it may be said that our mode of approach will be to sweep aside technicalities
and to resolve in a broad and liberal manner the various perplexing questions which are before the court.
I. Validity of the Philippine National Bank Philippine Vegetable Oil Co., Inc., mortgage of February 10, 1922.
At the outset, the appellee challenges the right of Phil. C. Whitaker as intervenor to ask that the mortgage
contract executed by the Vegetable Oil Company be declared null and void. Appellee is right as to the
premises. The Vegetable Oil Company is the defendant. The corporation has not appealed. At the same time,
it is evident that Phil. C. Whitaker was one of the largest individual stockholders of the Vegetable Oil Company,
and was until the inauguration of the receivership, exercising control over and dictating the policy of that
company. Out of twenty-eight thousand shares of the Vegetable Oil Company, Mr. Whitaker was the owner of
5,893 fully paid shares of the par value of P100 each. He it was who asked for the appointment of the receiver.
He it was who was the leading figure in the negotiations between the Vegetable Oil Company, the Philippine
National Bank, and the other creditors. He it was who pledged his own property to the extent of over
P4,000,000 in an endeavor to assist in the rehabilitation of the Vegetable Oil Company. He is in juriously
affected by the mortgage. In truth, Mr. Whitaker is more vitally interested in the outcome of this case than is
the Vegetable Oil Company. Conceivably if the mortgage had been the free act of the Vegetable Oil Company,
it could not be heard to allege its own fraud, and only a creditor could take advantage of the fraud to intervene
to avoid the conveyance.
We find no merit in appellee's objection and pass on to consider the main question on its merits.
The mortgage, Exhibit A, was executed on February 20, 1922, by "Philippine Vegetable Oil Co., Inc., By E. G.
Abry, Secretary-Treasurer" "Philippine National Bank By E. W. Wilson, General Manager." E. G. Abry,
according to his testimony, was employed as secretary-treasurer of the Vegetable Oil Company after a
conference with Mr. Wilson and continued in this position during the period when the Vegetable Oil Company
was under the control either of a receiver or of the bank. The other signature to the instrument was that of E.
W. Wilson, General Manager of the Philippine National Bank.
At this time, E. W. Wilson and Miguel Cuaderno, a Director of the Philippine National Bank, were serving as
Directors of the Vegetable Oil Company. Messrs. Wilson had on July 26, 1921, in a letter to Mr. Whitaker
relative to the reorganization of the Vegetable Oil Company, suggested the resignation of two members of the
Board of Directors so that the bank might "have rather a close working relationship with the Philippine
Vegetable Oil Co." (Intervenor's Exhibit 4). The resolution of the Board of Directors of September 2, 1921,
naming Messrs. Wilson and Cuaderno "to represent the Philippine National Bank in the Board of Directors of
the Philippine Vegetable Oil Co. as members thereof" did so with the understanding "that neither one of them
has any interest other than that of the bank's in the Philippine Vegetable Oil Co., and that in accepting these
directorships they are doing it solely for the bank." According to the testimony of Major Randall, Mr. Wilson
became President of the Vegetable Oil Company on September 12, 1921.

It has been said that the mortgage was executed on February 20, 1922. That is undeniable. The allegation of
the plaintiff's complaint is "That the defendant, on the 20th day of February, 1922, duly executed to the plaintiff
a mortgage." The mortgage in question recites: "This mortgage, executed at the City of Manila, Philippine
Islands, this twentieth day of February, nineteen hundred and twenty-two." However, the mortgage was not
ratified before a notary public until March 8, 1922, and was not recorded in the registry of property until March
21, 1922.
To add one more date, it will be recalled that the receivership ended on February 28, 1922. In other words, as
partially interpretative of the situation, the mortgage was executed by the Philippine National Bank, through its
General Manager, and another corporation before the termination of the receivership of the said corporation,
but was not acknowledged or recorded until after the termination of the receivership.
In the complaint of Phil. C. Whitaker filed in the Court of First Instance of Manila in which it was prayed that a
receiver be appointed to take charge of the Philippine Vegetable Oil Co., Inc., it was alleged "that the largest
individual creditor of said corporation is the Philippine National Bank, the indebtedness to which amounts to
approximately P16,000,000, a portion of which indebtedness is secured by mortgage on the major part of the
assets of the corporation." The order of the court appointing a receiver contained a similar recital. The
Philippine National Bank held the mortgage mentioned, and possibly two others not mentioned, when the
receivership proceedings were initiated.
It must be evident to all that the Philippine National Bank could legally secure no new mortgage by the
accomplishment of documents between its officials and the officials of the Vegetable Oil Company while the
property of the latter company was in custodia legis. The Vegetable Oil Company was then inhibited absolutely
from giving a mortgage on its property. The receiver was not a party to the mortgage. The court had not
authorized the receiver to consent to the execution of a new mortgage. Whether the court could have done so
is doubtful, but that it would have thus consented is hardly debatable, considering that it would desire to
protect the rights of all the creditors and not the rights of one particular creditor. The legal conclusion is
axiomatic. (Code of Civil Procedure, secs. 173 et seq., Compaia General de Tabaccos vs. Gauzon and
Pomar [1911], 20 Phil., 261.)
To all this the appellee as well as the trial court have answered that while it is true that the document was
executed on February 20, 1922, at a time when the properties of the mortgagor were under receivership, the
mortgage was not acknowledged before a notary public until March 8, 1922, after the court had determined
that the necessity for a receiver no longer existed. But the additional fact remains that while the mortgage
could not have been executed without the dissolution of the receivership, such dissolution was apparently
secured through representations made to the court by counsel for the bank that the bank would continue to
finance the operations of the Vegetable Oil Company (See testimony of Judge Simplicio del Rosario). Instead
of so doing, the bank within less than two months after the mortgage was recorded, withdrew its support from
the Vegetable Oil Company, and in effect closed its establishment. Also it must not be forgotten that the hands
of other creditors were tied pursuant to the creditors' agreement of June 27, 1921.
To place emphasis on the outstanding facts, it must be repeated that the mortgage was executed while a
receiver was in charge of the Vegetable Oil Company. A mortgage accomplished at such a time by the
corporation under receivership and a creditor would be a nullity. The mortgage was definitely perfected
subsequent to the lifting of the receivership pursuant to implied promises that the bank would continue to
operate the Vegetable Oil Company. It was then accomplished when the Philippine National Bank was a
dominating influence in the affairs of the Vegetable Oil Company. On the one hand was the Philippine National
Bank in person. On the other hand was the Philippine National Bank by proxy. Under such circumstances, it
would be unconscionable to allow the bank, after the hands of the other creditors were tied, virtually to
appropriate to itself all the property of the Vegetable Oil Company.
Whether we consider the action taken as not expressing the free will of the Vegetable Oil Company, or as
disclosing undue influence on the part of the Philippine National Bank in procuring the mortgage, or as
constituting deceit under the civil law, or whether we go still further and classify the facts as constructive fraud,
the result is the same. The mortgage is clearly voidable.
The setting aside of the mortgage of February 20, 1922, will not necessarily result in the Philippine National
Bank being left without security. It is our understanding that before the receivership was thought of, the bank

was the holder of three mortgages on the property of the Vegetable Oil Company, the first dated April 11,
1919, for an uncertain amount; the second, dated November 18, 1920, for P3,500,000; and the third, dated
January 10, 1921, for P4,000,000. These mortgages remain in effect and may be foreclosed.
Addressing ourselves directly to the first two questions discussed in the decision of the trial court and to the
first and sixth errors assigned by the intervenor as appellant, we rule that the Philippine National BankPhilippine Vegetable Co., Inc., mortgage of February 20, 1922, has not been legally executed by the Philippine
Vegetable Oil Co., Inc.
II. Alleged agreement of the Philippine National Bank to finance the Philippine Vegetable Oil Co., Inc.
Before it need be decided if the intervenor has a right to recover damages from either the plaintiff or the
defendant because of the plaintiff's refusal to finance the operations of the defendant, it must be determined if
the Philippine National Bank ever entered into any valid agreement by which it bound itself to provide the
necessary operating capital of the Philippine Vegetable Oil Co., Inc. The question presents both legal and
factual aspects. The legal inquiry relates to the applicability or non-applicability of the Statute of Frauds as
found in section 335 of our Code of Civil Procedure. The question of fact goes on the assumption that the oral
evidence can be received without violating the Statute of Frauds and then, of course, comes down to the
weighing of the evidence.
The broad view is that the Statute of Frauds applies only to agreements not to be performed on either side
within a year from the making thereof. Agreements to be fully performed on one side within the year are taken
out of the operation of the statute. As intervenor's theory proceeds on the assumption that Mr. Whitaker has
entirely performed his part of the agreement, equity would argue that all evidence be admitted to prove the
alleged agreement. Surely since the Statute of Frauds was enacted for the purpose of preventing frauds, it
should not be made the instrument to further them.
As preliminary to a presentation of the evidence, it is well to have an understanding of the applicable law. The
Charter of the Philippine National Bank, Act No. 2612, section 20, as amended by Act No. 2938, provides that
"The General Manager of the Bank, shall, among others, have the following powers and duties: . . . (b) To
make, with advice and consent of the board of directors, all contracts on beheld of the said bank and to enter
into all necessary obligations by this Act required or permitted." Predicated on our general liberal point of view,
we feel free to take into consideration the applicable law although no special defense to this effect was
interposed by the Philippine National Bank to intervenor's complaint.
Let us now look into the evidence in detail. We may properly begin with the applicable resolutions of the Board
of Directors of the Philippine National Bank.
In the minutes of the Board of Directors of the Philippine National Bank of October 4, 1921, is found the
following:
Philippine Vegetable Oil Co. On motion of Director Westerhouse, duly seconded, the following resolution
was adopted by the Board: Be it resolved, that the General Manager be, and he is, hereby authorized to
finance the operation of the Philippine Vegetable Oil Co. under the Receivership to the extent of P500,000 to
be secured by copra and oil and to be further secured by P500,000 pledged by Phil. C. Whitaker in his
creditor's agreement.
Under date of October 28, 1921, is found the following:
The following additional loans with which to buy more copra were approved by the Board, at the
recommendation of the Oil Factory Committee. Philippine Vegetable Oil Co. F. W. Carpenter, Receiver, P. V.
O., P200,000.
Under date of December 5, 1921, is found the following:

After a long discussion and careful deliberation, and on motion of Director Westerhouse, duly seconded by
Director Seaver, the following was unanimously approved by the Board: To protect the large investments of the
Bank, it is the sense of the Board of Directors to continue financing the operation under receivership of the
Philippine Vegetable Oil Co., the Philippine Manufacturing Co., the Cristobal Oil Co., and the Santa Ana Oil
Mills, in as modest and economical way as is consistent with conditions, the General Manager to report and
secure the approval of the Board for necessary credits from time to time, and that the Board also recommends
that the Oil Committee continue studying the advisability of financing the operation of other oil mills indebted to
the Bank.
Other portions of the minutes of the Board of Directors disclose that the Board authorized advances to the
Vegetable Oil Company to the extent of more than P1,000,000.

short time he had permitted, and that the P. V. O. had evidently made good money in the past and if allowed to
resume would make good again in the future, that the P. N. B., as the largest creditor, contemplated financing
a resumption of the company's operations if the company could be kept out of insolvency." Giving to this
testimony its broadest effect, we still discover no definite agreement binding on the bank but only a general
intimation proffered by the General Manager of the Bank in conference that his bank contemplated financing
the operations of the Vegetable Oil Company.
That is all the evidence, documentary and oral, at all pertinent to the issue. We are clear that taking it entirely
into consideration it discloses no binding promise, tacit or express, made by the Philippine National Bank to
continue indefinitely its backing of the Vegetable Oil Company.

Logically, our review of the evidence should stop here. No contract entered into by the General Manager of the
Bank would be valid unless made with the advice and consent of its Board of Directors. What the Board of
Directors had decreed was that the Vegetable Oil Company be financed under the receivership to the extent of
P500,000, a sum which was later increased. The Board not alone specified the amounts of the loans but
cautiously added that the General Manager "report and secure the approval of the Board for necessary credits
from time to time." There was no indication in any action taken by the Board of Directors that it had ever
consented to an agreement for practically unlimited backing of the Vegetable Oil Company, or that it had
ratified any such promise made by its General Manager.

Mr. Whitaker was in no way personally responsible for any part of the obligations of the Vegetable Oil
Company. Nevertheless, he signed the creditors' agreement. That was a praiseworthy act. We sympathize
with him in the situation in which he finds himself. The various creditors have a large amount of his property.
The Philippine National Bank has taken over the assets of the Vegetable Oil Company. The latter company
has ceased operations. Mr. Whitaker has not made himself the successor in interest of the Vegetable Oil
Company and so cannot recover from it in these proceedings. But sympathy cannot be transmuted into legal
authoritativeness. If Mr. Whitaker has any other remedy, that is for him to determine. Here we cannot give him
redress for he has not made out his case except insofar as he has been successful in overturning the last
mortgage of the Philippine National Bank on the property of the Vegetable Oil Company.

Out of consideration for the parties, however, we will go further and will examine the remaining evidence.

III. Result

Passing in review intervenor's exhibits, we first notice Mr. Whitaker's letter to the Hongkong and Shanghai
Banking Corporation of January 1, 1921. He there confirms his undertaking to assume an obligation to pledge
and mortgage specified personal holdings. The offer is made "contingent upon its acceptance by the other
unsecured creditors . . . . A further condition to the foregoing offer is that the banks parties to the proposed
arrangement supply, subject to the approval of their representatives on the Board of Directors of the P. V. O.
Co., funds sufficient to enable the P. V. O. Co., to continue its operations during the full term for which my
personal secured undertaking remains in effect." The condition named related to all the banks and not the
Philippine National Bank. (Intervenor's Exhibit 1.) The trust deed by Mr. Whitaker in favor of H. C. Stanford
makes the purposes and uses among others "To secure the Philippine National Bank against such losses as it
may sustain, not exceeding a total of P500,000, on such sums as it shall, from time to time and within three
years from July 1, 1921, advance to the Philippine Vegetable Oil Company to enable the latter to resume
business and continue the manufacture of vegetable oil." This recital is specific as to P500,000 and is general
as to further advances, and is made in a document to which the Philippine National Bank was not a party.
(Intervenor's Exhibit 2.) The creditors' agreement is of similar tenor. (Intervenor's 3.) One of the paragraphs in
the preamble of the power of attorney from the Roman Catholic Archbishop of Manila to Phil. C. Whitaker
mentioned that Mr. Whitaker "has also arranged with the Philippine National Bank for the funds necessary to
enable said Oil Company to resume its business and continue in the manufacture of vegetable oil." Although
this proxy may have been procured at the instance of the Philippine National Bank, yet obviously it did not bind
the officials of the bank. (Intervenor's Exhibit 5.) The letter of Mr. Wilson as General Manager of the Philippine
National Bank of June 8, 1921, addressed to Mr. Whitaker stated: "I see no good reason why you should use
your property to secure unsecured obligations, and not provide for the operation of the plant." Merely a friendly
warning. (Intervenor's Exhibit 8.) Mr. Wilson's letter to Mr. Whitaker to enabled the Bank to put its securities in
first-class shape. In order to do this, however, it was necessary for it to furnish certain money for operating the
plant, and an additional mortgage was executed. . . . It is my judgment that it was good business for the
Philippine National Bank to operate the plant as long as it had the P500,000 guarantee. However, the bank put
into the undertaking a great deal more money than it originally intended. Then, too, the guarantee was not as
good as we thought, because the first lien on the property was not being paid off as rapidly as we thought it
would be." Here was merely an expression of gratification regarding the additional mortgage and emphasis on
the P500,000 guarantee. (Intervenor's Exhibit 7.) We discover nothing further of interest in the exhibits.

We announce the following conclusions:

The only oral testimony in point is that given by A. D. Gibbs and Phil. C. Whitaker. Mr. Gibbs, testifying as to a
meeting of the creditors of the Vegetable Oil Company, said: "Mr. Wilson stated in substance that if the
negotiations which were then pending between Mr. Whitaker and the other creditors, whereby the other
creditors were to refrain from throwing the P. V. O. Co. into insolvency or from bringing action against it, could
be carried out, that his bank would finance the P. V. O. Co., and keep it in operation." Mr. Whitaker, testifying
as to the same meeting, said: Mr. Wilson stated that he had looked into the affairs of the P. V. O. as far as the

(1) Plaintiff is entitled to a money judgment against the defendant for P14,183,679.37 with legal interest
thereon beginning with May 8, 1924. Exhibit C 1 shows that after May 6, 1924, when Exhibit B 1 was
formulated, two further payments were made on the promissory note for P16,869,975.59, which further
reduced the principal from P15,760,312.85 as totaled in Exhibit B 1 to P14,183,679.37 as evidenced by
Exhibit C 1. As interest has already been charged up to May 7, 1924, legal interest should begin to run from
that date instead of from May 8, 1923, as fixed by the trial court.
(2) The Philippine National Bank-Philippine Vegetable Oil Co., mortgage of February 20, 1922, has not been
legally executed by the Philippine Vegetable Oil Co., Inc., and consequently cannot be given effect. But the
prior mortgages held by the Philippine National Bank of April 11, 1919, November 18, 1920, and January 10,
1921, remain in force and may be foreclosed.
(3) The Philippine National Bank will obviously have a preferred claim when the three mortgages above
mentioned shall be foreclosed. The remainder of the assets of the Philippine Vegetable Oil Co., Inc., if any,
should then be applied to the payment pro rata of the unsecured claims, among them that of Mr. Whitaker and
the unsecured part of the debt to the Philippine National Bank. Intervenor Whitaker is entitled to an accounting
of the proceeds of the Vegetable Oil Company's properties caused to be sold by the Philippine National Bank
and of the business operations of the Vegetable Oil Company since March 11, 1921.
(4) Intervenor Whitaker has failed to establish an agreement binding the Philippine National Bank to provide
the necessary operating capital to the Vegetable Oil Company, and so is not entitled to recover damages from
the Philippine National Bank. Nor can intervenor Whitaker recover P4,424,418.37 from the Vegetable Oil
Company since he is not the legatee of the assets of that company. The trial judge accordingly committed no
error in dismissing intervenor's complaint.
(5) No pronouncement is made with reference to intervenor Whitaker's possible rights in connection with the
creditors' agreement since that agreement is not here in question and the parties thereto are not before the
court.
The case will be remanded to the lower court for the entry of judgment and further proceedings as herein
indicated. Judgment affirmed in part and reversed in part, without special finding as to costs in either instance.

Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

G.R. No. L-11231

May 12, 1958

ROSARIO CARBONNEL, plaintiff-appellant,

vs.
JOSE PONCIO, RAMON INFANTE, and EMMA INFANTE, defendants-appellees.
Tolentino and Garcia and D. R. Cruz for appellant.
Guillermo B. Guevarra, Ricardo P. Guevarra and Emmanuel S. Tipon for appellees.

In his answer, Poncio denied specifically some allegations of said complaint and alleged that he had no
knowledge sufficient to form a belief as to the truth of the other averments therein. By way of special defenses,
he alleged that he had consistently turned down several offers, made by plaintiff, to buy the land in question,
at P15 a square meter, for he believes that it is worth not less than P20 a square meter; that Mrs. Infante,
likewise, tried to buy the land at P15 a square meter; that, on or about January 27, 1955, Poncio was advised
by plaintiff that should she decide to buy the property at P20 a square meter, she would allow him to remain in
the property for one year; that plaintiff then induced Poncio to sign a document, copy of which is probable, the
one appended to the second amended complaint; that Poncio signed it "relying upon the statement of the
plaintiff that the document was a permit for him to remain in the premises in the event that defendant decided
to sell the property to the plaintiff at P20 a square meter"; that on January 30, 1955, Mrs. Infante improved her
offer and he agreed to sell the land and its improvements to her for P3,535; that Poncio has not lost "his
mind," to sell his property, worth at least P4,000, for the paltry sum of P1,177.48, the amount of his obligation
to the Republic Savings Bank; and that plaintiff's action is barred by the Statute of Frauds. Poncio similarly set
up a counterclaim for damages.
As the case came up for trial on February 23, 1956 plaintiff introduced the testimony of one Constancio
Meonada, who said that he is janitor of the Sto. Domingo Church and a high school, as well as auto-mechanic,
graduate; that he has been and still is a paying boarder in plaintiff's house; that Poncio is his townmate, both
being from Mahatao, Batanes; that, after making a rough draft, based upon data furnished by plaintiff, he
typed Exhibit A, which is, in the Batanes dialect; that, thereafter, Poncio came to plaintiff's house, where he
was shown Exhibit A; that after the witness had read its contents to Poncio and given him a copy thereof,
Poncio signed Exhibit A and so did the plaintiff; that Meonada likewise signed at the foot of Exhibit A, as
attesting witness; and that translated freely into English, Exhibit A, reads as follows:

CONCEPCION, J.:
The issue in this case is whether the Statute of Frauds is applicable thereto.
Plaintiff Rosario Carbonnel alleges, in her second amended complaint, filed with the Court of First Instance of
Rizal, that, on January 27, 1955, she purchased from defendant Jose Poncio, at P9.50 a square meter, a
parcel of land of about 195 square meters, more or less, located in San Juan del Monte, Rizal, known as Lot
No. 13-B of subdivision plan Psd-19567, and more particularly described in Transfer Certificate of Title No.
5040 (now No. 37842), excluding the improvements thereon; that plaintiff paid P247.26 on account of the price
and assumed Poncio's obligation with the Republic Savings Bank amounting to P1,177.48, with the
understanding that the balance would be payable upon execution of the corresponding deed of conveyance;
that one of the conditions of the sale was that Poncio would continue staying in said land for one year, as
stated in a document signed by him (and later marked as Exhibit A), a translation of which was attached to the
said complaint: that Poncio refuses to execute the corresponding deed of sale, despite repeated demand; that
plaintiff has thereby suffered damages in the sum of P5,000, aside from attorney's fees amounting to P1,000;
that Poncio has conveyed the same property to defendants Ramon R. Infante and Emma L. Infante, who
knew, of the first sale to plaintiff; and that the Infantes had thereby, caused damages to plaintiff in the sum of
P5,000.
Plaintiff prayed, therefore, that she be declared owner of the land in question; that the sale to the Infantes be
annulled; that Poncio be required to execute the corresponding deed of conveyance in plaintiff's favor; that the
Register of Deeds of Rizal be directed to issue the corresponding title in plaintiff's name; and that defendants
be sentenced to pay damages.
Defendants moved to dismiss said complaint upon the ground that plaintiff's claim is unenforceable under the
Statute of Frauds, and that said pleading does not state facts sufficient to constitute a cause of action. The
motion was denied, "without prejudice to considering, when this case is decided on the merits, whether the
same falls under the Statute of Frauds."
Thereafter, the Infantes filed an answer denying, most of the allegations of said complaint and alleged, by way
of special defense, that they purchased the land in question in good faith, for value, and without knowledge of
the alleged sale to plaintiff; and that plaintiff's claim is unenforceable under the Statute of Frauds. They,
likewise, set up counterclaims for damages.

From this date, January 27, Jose Poncio may stay in this lot that I bought from him until one year without
payment. After that one year and he cannot find any place where to transfer his house, he can also stay in this
lot and he will pay according agreement. (t.s.n., p. 4.)
Then, taking the witness stand, plaintiff testified that she has known Poncio since childhood, he being related
to her mother; that Poncio's lot adjoins her lot, in San Juan, Rizal; that one day Poncio told her that he wanted
to sell his property; that, after both had agreed on its price, he said that his lot is mortgaged to the Republic
savings Bank; and that at noon time, on the same day, he came back stating that both would "go to the bank
to pay the balance in arrears." At this juncture, defense counsel moved to strike out the statement of the
witness, invoking, in support of the motion, the Statute of Frauds. After an extended discussion, the parties
agreed to submit memoranda and the hearing was suspended. Later on, the lower court issued an order
dismissing plaintiff's complaint, without costs, upon the ground that her cause of action is unenforceable under
the Statute of Frauds. The counterclaims were, also, dismissed. Hence, this appeal by plaintiff.
We are of the opinion and so hold that the appeal is well taken. It is well settled in this jurisdiction that the
Statute of Frauds is applicable only to executory contracts (Facturan vs. Sabanal, 81 Phil., 512), not to
contracts that are totally or partially performed (Almirol, et al., vs. Monserrat, 48 Phil., 67, 70; Robles vs.
Lizarraga Hermanos, 50 Phil., 387; Diana vs. Macalibo, 74 Phil., 70).
Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted view that part performance of
a parol contract for the sale of real estate has the effect, subject to certain conditions concerning the nature
and extent of the acts constituting performance and the right to equitable relief generally, of taking such
contract from the operation of the statute of frauds, so that chancery may decree its specific performance or
grant other equitable relief. It is well settled in Great Britain and in this country, with the exception of a few
states, that a sufficient part performance by the purchaser under a parol contract for the sale of real estate
removes the contract from the operation of the statute of frauds. (49 Am. Jur. 722-723.)
In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there is a wide field
for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting
parties. The statute has precisely been enacted to prevent fraud." (Comments on the Rules of Court, by
Moran, Vol. III [1957 ed.], p. 178.) However, if a contract has been totally or partially performed, the exclusion
of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits
already denied by him from the transaction in litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by him thereby.

For obvious reasons, it is not enough for a party to allege partial performance in order to hold that there has
been such performance and to render a decision declaring that the Statute of Frauds is inapplicable. But
neither is such party required to establish such partial performance by documentary proof before he could
have the opportunityto introduce oral testimony on the transaction. Indeed, such oral testimony would usually
be unnecessary if there were documents proving partial performance. Thus, the rejection of any and all
testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is inapplicable to
contracts which have been partly executed, and lead to the very evils that the statute seeks to prevent.
The true basis of the doctrine of part performance according to the overwhelming weight of authority, is that it
would be a fraud upon the plaintiff if the defendant were permitted to escape performance of his part of the
oral agreement after he has permitted the plaintiff to perform in reliance upon the agreement. The oral contract
is enforced in harmony with the principle that courts of equity will not allow the statute of frauds to be used as
an instrument of fraud. In other words, the doctrine of part performance was established for the same purpose
for which, the statute of frauds itself was enacted, namely, for the prevention of fraud, and arose from the
necessity of preventing the statute from becoming an agent of fraud for it could not have been the intention of
the statue to enable any party to commit a fraud with impunity. (49 Am. Jur., 725-726; emphasis supplied.)
When the party concerned has pleaded partial performance, such party is entitled to a reasonable chance to;
establish by parol evidence the truth of this allegation, as well as the contract itself. "The recognition of the
exceptional effect of part performance in taking an oral contract out of the statute of frauds involves the
principle that oral evidence is admissible in such cases to prove both the contract and the part performance of
the contract" (49 Am. Jur., 927).
Upon submission of the case for decision on the merits, the Court should determine whether said allegation is
true, bearing in mind that parol evidence is easier to concoct and more likely to be colored or inaccurate than
documentary evidence. If the evidence of record fails to prove clearly that there has been partial performance,
then the Court should apply the Statute of Frauds, if the cause of action involved falls within the purview
thereof. If the Court is, however, convinced that the obligation in question has been partly executed and that
the allegation of partial performance was not resorted to as a devise to circumvent the Statute, then the same
should not be applied.

of some usurious loan or accommodation, rather than earnest money or part payment of the land. Neither is a
competent or satisfactory evidence to prove the conveyance on the land in question the fact that the bank
book account of Jose Poncio happens to be in the possession of the plaintiff. (Defendants-Appellees' brief, pp.
25-26.)
How shall we know why Poncio's bank deposit book is in plaintiff's possession or whether there is any relation
between the P247.26 entry therein and the partial payment of P247.26 allegedly made by plaintiff to Poncio on
account of the price of his land, if we do not allow the plaintiff to explain it on the witness stand? Without
expressing any opinion on the merits of plaintiff's claim, it is clear, therefore, that she is entitled, legally as well
as from the viewpoint of equity, to an opportunity to introduce parol evidence in support of the allegations of
her second amended complaint.
Wherefore, the order appealed from is hereby set aside, and let this case be remanded to the lower court for
further proceedings not inconsistent with this decision, with the costs of this instance against defendantsappellees. It is so ordered.

G.R. No. 115849

January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE
JANOLO,respondents.
DECISION

Apart from the foregoing, there are in the case at bar several circumstances indicating that plaintiff's claim
might not be entirely devoid of factual basis. Thus, for instance, Poncio admitted in his answer that plaintiff had
offered several times to purchase his land.
Again, there is Exhibit A, as document signed by the defendant. It is in the Batanes dialect, which, according to
plaintiff's uncontradicted evidence, is the one spoken by, Poncio, he being a native of said region. Exhibit A
states that Poncio would stay in the land sold by him to plaintiff for one year, from January 27, 1955, free of
charge, and that, if he cannot find a place where to transfer his house thereon, he may remain in said lot under
such terms as may be agreed upon. Incidentally, the allegation in Poncio's answer to the effect that he signed
Exhibit A under the belief that it "was a permit for him to remain in the premises in the event" that "he decided
to sell the property" to the plaintiff at P20 a sq. m." is, on its face, somewhat difficult to believe. Indeed, if he
had not decided as yet to sell the land to plaintiff, who, had never increased her offer of P15 a square meter,
there was no reason for Poncio to get said, Permit from her. Upon the other hand, if plaintiff intended to
mislead Poncio, she would have caused Exhibit A to be drafted, probably in English, instead of taking the
trouble of seeing to it that it was written precisely in his native dialect, the Batanes. Moreover, Poncio's
signature on Exhibit A suggests that he is neither illiterate nor so ignorant as to sign a document without
reading its contents, apart from the fact that Meonada had read Exhibit A to him and given him a copy thereof,
before he signed thereon, according to Meonada's uncontradicted testimony.
Then, also, defendants say in their brief:
The only allegation in plaintiff's complaint that bears any relation to her claim that there has been partial
performance of the supposed contract of sale, is the notation of the sum of P247.26 in the bank book of
defendant Jose Poncio. The noting or jotting down of the sum of P247.26 in the bank book of Jose Poncio
does not prove the fact that said amount was the purchase price of the property in question. For all we knew,
the sum of P247.26 which plaintiff claims to have paid to the Republic Savings Bank for the account of the
defendant, assuming that the money paid to the, Republic Savings Bank came from the plaintiff, was the result

PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters
and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares
of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the
Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate
such "apparent authority" after said contract has been deemed perfected? During the pendency of a suit for
specific performance, does the filing of a "derivative suit" by the majority shareholders and directors of the
distressed bank to prevent the enforcement or implementation of the sale violate the ban against forumshopping?
Simply stated, these are the major questions brought before this Court in the instant Petition for review
oncertiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of
the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14, 1994
denying the motion for reconsideration. The dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under
paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to
P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and
hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.

The dispositive portion of the trial court's 2 decision dated July 10, 1991, on the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at
Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in
Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between
the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million
(P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the
plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the
aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owner's copies of T.C.T.
Nos. T-106932 to T- 106937, inclusive, for purposes of registration of the same deed and transfer of the six (6)
titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the
sums of P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary
damages ;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by
way of attorney's fees;

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six
parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment
and Development Corporation which had them mortgaged with the bank as collateral for a loan. The original
plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated
negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's legal counsel,
Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the
defendant bank. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990,
pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase
offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentleman:
I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder
located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the
amount of P20,000.00;

TCT NO.

AREA

With costs against the defendants.

T-106932

113,580 sq. m.

T-106933

70,899 sq. m.

T-106934

52,246 sq. m.

T-106935

96,768 sq. m.

T-106936

187,114 sq. m.

T-106937

481,481 sq. m.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was
given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective
memoranda and reply memoranda. The First Division transferred this case to the Third Division per resolution
dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court assigned the case
to the undersigned ponente for the writing of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for
brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines.
Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this
case, Head-Manager of the Property Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original
plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside
through this petition.
The Facts
The facts of this case are summarized in the respondent Court's Decision 3 as follows:

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is
hereunder quoted (Exh. "C"):

September 1, 1987
JP M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your
offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total
price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the
Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T.
Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. "F"):

Attention: JOSE O. JANOLO

Dear Sir:

Attention: Atty. Demetrio Demetria

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned
by Byme Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for more
than 101 hectares on lot basis.
We shall be very glad to hear your position on the on the matter.

Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at Sta. Rosa,
Laguna is under study yet as of this time by the newly created committee for submission to the newly
designated Acting Conservator of the bank.

Best regards.
For your information.
(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"):
September 17, 1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I
would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH..
Hoping that this proposal meets your satisfaction.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what
plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the
bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to
defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5 million "pursuant to (our) perfected
sale agreement." Defendants refused to receive both the payment and the letter. Instead, the parcels of land
involved in the transaction were advertised by the bank for sale to any interested buyer (Exh, "H" and "H-1").
Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected
agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located
in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.

(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting on
September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera
as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987,
plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. "E"):

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in
the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was
received by you on October 5, 1987.

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

In view of the above circumstances, we believe that an agreement has been perfected. We were also informed
that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment.
Instead, you have advertised for sale the same lot to others.

Attention: Mr. Mercurio Rivera

In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the
necessary actions/documentation within three (3) days from your receipt hereof. We are ready to remit the
agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court
action to protect the interest of our client.

Re: 101 Hectares of Land

in Sta. Rosa, Laguna
Gentlemen:

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its
communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our
Conservator for proper disposition" However, no response came from the Acting Conservator. On December
14, 1987, the plaintiffs made a second tender of payment (Exh. "L" and "L-1"), this time through the Acting
Conservator, defendant Encarnacion. Plaintiffs' letter reads:

Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion on
the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with
prejudice."5 Private respondent, in his memorandum, averred that this motion is still pending in the Makati
RTC.
In their Petition6 and Memorandum7, petitioners summarized their position as follows:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator

I.
The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution
of Demetria and Janolo) and the bank.
II.

We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the
amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932,
106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase
price of the said lots. Please inform us of the date of documentation of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through
counsel, made a final demand for compliance by the bank with its obligations under the considered perfected
contract of sale (Exhibit "N"). As recounted by the trial court (Original Record, p. 656), in a reply letter dated
May 12, 1988 (Annex "4" of defendant's answer to amended complaint), the defendants through Acting
Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the
plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants
justified the refusal of the tenders of payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its
Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with
the bank resulted in a perfected contract of sale, The defendants took the position that there was no such
perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no
meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and
Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank's
outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial
court issued an order denying the motion to intervene on the ground that it was filed after trial had already
been concluded. It also denied a motion for reconsideration filed thereafter. From the trial court's decision, the
Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which subsequently
affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria
and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other
stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action
(hereafter, the "Second Case") purportedly a "derivative suit" with the Regional Trial Court of Makati,
Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any
perfected sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the
sale"4 In his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case
then pending in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a

The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke
acts of previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit on the ground 8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and
may no longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo
(substituted by; respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the
agency and the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to
revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised
Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore
commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of
Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is
pending" in said courts or agencies. A violation of the said circular entails sanctions that include the summary
dismissal of the multiple petitions or complaints. To be sure, petitioners have included a
VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil Case No. 921606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of
petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to
Dismiss Without Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual
forum shopping because the instant petition pending before this Court involves "identical parties or interests
represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court,
Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so interwined that a judgement
or resolution in either case will constitute res judicata in the other." 10
On the other hand, petitioners explain

11

that there is no forum-shopping because:

1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant,
whereas in the "Second Case" (assuming the Bank is the real party in interest in a derivative suit), it
wasplaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the
Petition identifies the action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal
question for the courts to decide";
4) Petitioners did not hide the Second Case at they mentioned it in the said VERIFICATION/CERTIFICATION.
We rule for private respondent.
12

To begin with, forum-shopping originated as a concept in private international law. , where non-resident
litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or
excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid
overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the
principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse
impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not
precluded from seeking remedies elsewhere.

In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his
action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or
verdict." Hence, according to Words and Phrases14, "a litigant is open to the charge of "forum shopping"
whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and
litigants should be encouraged to attempt to settle their differences without imposing undue expenses and
vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it
was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of
venues), the Rules of Court, for example, allow a plaintiff to commence personal actions "where the defendant
or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice
of pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a
public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa
criminal each remedy being available independently of the others although he cannot recover more than
once.
In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his
action, This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies
simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts and
consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.
Thus, "forum shopping" had acquired a different concept which is unethical professional legal practice. And
this necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting
the practice. 15
What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for
solving problems has been abused and mis-used to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned,
promulgated Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and
Guidelines issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this
insidious malpractice. Forum shopping as "the filing of repetitious suits in different courts" has been
condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs.
Heirs of Orval Hughes, et al.,"as a reprehensible manipulation of court processes and
proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed
in the courts but also in connection with litigations commenced in the courts while an administrative
proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the
court in which the second suit was brought, has no jurisdiction. 18
The test for determining whether a party violated the rule against forum shopping has been laid dawn in the
1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa, and that is, forum shopping exists where the
elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the
other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at
least such parties as represent the same interests in both actions, as well as identity of rights asserted and
relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars is

such that any judgment rendered in the other action, will, regardless of which party is successful, amount
to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant.
xxx

xxx

xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards
parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree
sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same
identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction will
prevent any further delay in the settlement of the controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563
promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues the same party against
whom another action or actions for the alleged violation of the same right and the enforcement of the same
relief is/are still pending, the defense of litis pendencia in one case is bar to the others; and, a final judgment in
one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum
shopping could be cited by the other party as a ground to ask for summary dismissal of the two 20 (or more)
complaints or petitions, and for imposition of the other sanctions, which are direct contempt of court, criminal
prosecution, and disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious
that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs
sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by
the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to
enforce the alleged perfected sale of real estate. On the other hand, the complaint 21 in the Second Case
seeks to declare such purported sale involving the same real property "as unenforceable as against the Bank",
which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in representation
of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In
brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the
petitioner Bank to escape from the obligation to sell the property to respondent. In Danville Maritime, Inc. vs.
Commission on Audit. 22, this Court ruled that the filing by a party of two apparently different actions, but with
the same objective,constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded different respondents
therein PNOC in the case before the lower court and the COA in the case before this Court and sought
what seems to be different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the
COA dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into
by and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to
enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T Andres
Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the memorandum of
agreement and damages. One can see that although the relief prayed for in the two (2) actions are ostensibly
different, the ultimate objective in both actions is the same, that is, approval of the sale of vessel in favor of
petitioner and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale. (emphasis
supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this
Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping.
Both actions unquestionably involve the same transactions, the same essential facts and circumstances. The
petitioners' claim of absence of identity simply because the PCGG had not been impleaded in the RTC suit,
and the suit did not involve certain acts which transpired after its commencement, is specious. In the RTC
action, as in the action before this Court, the validity of the contract to purchase and sell of September 1,
1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of implementing the same (by

paying the pledgee banks the amount of their loans, obtaining the release of the pledged shares, etc.) were
the basic issues. So, too, the relief was the same: the prevention of such implementation and/or the
restoration of the status quo ante. When the acts sought to be restrained took place anyway despite the
issuance by the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It
remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises was plain and
patent: the filing of an amended and supplemental pleading in the RTC suit, so as to include the PCGG as
defendant and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was
certainly not the institution of another action in another forum based on essentially the same facts, The
adoption of this latter recourse renders the petitioners amenable to disciplinary action and both their actions, in
this Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the
plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the
same interest and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in
controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the
assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a
"derivative suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers
Bank of the Philippines" 24. Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he
holdsstock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to
sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA
40, 47 [1979]; emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite
strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the
minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding
capital stock, but also constitute the majority in the Board of Directors of petitioner Bank. That being so, then
they really represent the Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity
of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and
distinct from its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a
means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals." 25
In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant
case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of
the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the
minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case,
the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in
using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use
their shareholders as fronts to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there
is identity of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in the (first)
case while it was the plaintiff in the other (Second Case)",citing as authority Victronics Computers, Inc.,
vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where Court held:

The rule has not been extended to a defendant who, for reasons known only to him, commences a new action
against the plaintiff instead of filing a responsive pleading in the other case setting forth therein, as
causes of action, specific denials, special and affirmative defenses or even counterclaims, Thus, Velhagen's
and King's motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as
such did not exist in the first place. (emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the
forum in said case.
Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the
present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file
anyresponsive pleading in the first case. In other words, they did not make any denial or raise any defense or
counter-claim therein In the case before us however, petitioners filed a responsive pleading to the complaint
as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive pleadings, the
petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they
repeated in the Second Case.

A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of
an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was
instructed to advertise acquired assets for sale so on that basis, I have to entertain offer; to accept offer,
formal offer and upon having been offered, I present it to the Committee. I provide the Committee with
necessary information about the property such as original loan of the borrower, bid price during the
foreclosure, total claim of the bank, the appraised value at the time the property is being offered for sale and
then the information which are relative to the evaluation of the bank to buy which the Committee considers and
it is the Committee that evaluate as against the exposure of the bank and it is also the Committee that submit
to the Conservator for final approval and once approved, we have to execute the deed of sale and it is the
Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt
with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were
dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss information relative to price determination.
Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official information regarding
the price, as determined by the Committee and approved by the Conservator, can be had. And Rivera
confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is
clear on this point (TSN of May 31,1990, pp. 27-28):

Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the
vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative
agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in
the process creating the possibility of conflicting decisions being rendered by the different fora upon the same
issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the
parties front enforcing or implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other 28.

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his
authority to sell any property?

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible
now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because
petitioners' present counsel entered their appearance only during the proceedings in this Court, and the
Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second
Case to show good faith in observing Circular 28-91. The Lawyers who filed the Second Case are not before
us; thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against
them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are
admonished to strictly follow the rules against forum-shopping and not to trifle with court proceedings and
processes They are warned that a repetition of the same will be dealt with more severely.

Q Please answer the question.

Having said that, let it be emphasized that this petition should be dismissed not merely because of forumshopping but also because of the substantive issues raised, as will be discussed shortly.

What transpired after the meeting of early August 1987 are consistent with the authority and the duties of
Rivera and the bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the
plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of P3.5
Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept such
offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffsbuyers with their proposed buying price on one hand, and the bank Committee, the Conservator and ultimately
the bank itself with the set price on the other, and considering further the discussion of price at the meeting of
August resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than that
when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million
for more than 101 hectares on lot basis," such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by
the Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the
bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly
worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the facts
established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been
established, respondent Court stated:
There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired
assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by the
Bank's Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite that
the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department of the defendant bank, in early August
1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera
on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon by both
the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would take because he
was saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it
will take for the committee to decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two week's (sic) time, in effect what he was saying he was not the one who was to
decide. But he would refer it to the committee and he would relay the decision of the committee to me.

A He did not say that he had the authority (.) But he said he would refer the matter to the committee and he
would relay the decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with
Jose Entereso as one of the members.

There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not
discussed by the Committee and that price. As correctly characterized by the trial court, this is not credible.
The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the
gratuitous and self-serving character of these declarations, the bank's submission on this point does not
inspire belief. Both Co ad Entereso, as members of the Past Due Committee of the bank, claim that the offer

of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit
that they seldom attend the meetings of the Committee. It is important to note that negotiations on the price
had started in early August and the plaintiffs had already offered an amount as purchase price, having been
made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for
approval by the bank and that the bank's decision will be relayed to plaintiffs. From the facts, the official bank
price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and
negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later
say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar
doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as
possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with
the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577,
583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No.
103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(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."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of
land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third
requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which
Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was
nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis of the
respondent Court's findings that there was an offer made by Janolo for P3.5 million, to which the Bank
counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court's findings
of fact. Verily, in a petition under Rule 45 such as this, errors of fact if there be any - are, as a rule, not
reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the evidence
presented by respondent more than that presented by petitioners is not by itself a reversible error. In fact, such
findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and
meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the
question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was
extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be
drawn from the factual findings of the respondent Court. They also delve into the contractual elements of
consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of
"apparent authority", with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals31,
where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by
the agent. The agent's apparent representation yields to the principal's true representation and the contract is
considered as entered into between the principal and the third person (citing National Food Authority vs.
Intermediate Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of
the officers in their representative capacity but not for acts outside the scape of their authority (9 C.J.S., p.
417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the
frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds even though no benefit may accrue to the bank therefrom
(10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing his authority and attempting to

perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota
Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).
Application of these principles is especially necessary because banks have a fiduciary relationship with the
public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will
be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting
in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied
authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of the
Property Management Department of the Bank". By his own admission, Rivera was already the person in
charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial
meeting between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than
P3.3 million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July
30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property
for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN,
January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during which the
Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a
major shareholder and officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's
counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for
the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the
officer mentioned in the Bank's advertisements offering for sale the property in question (cf. Exhs. "S" and "S1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the Court, through Justice
Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer
of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings
with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony
which seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as
they consist of Rivera's self-serving testimony and various inter-office memoranda that purport to show
his limited actual authority, of which private respondent cannot be charged with knowledge. In any event, since
the issue is apparent authority, the existence of which is borne out by the respondent Court's findings, the
evidence of actual authority is immaterial insofar as the liability of a corporation is concerned 33.
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had
once acted for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's

limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the
buyers had no notice of Rivera's actual authority prior to the sale. In fact, the Bank has not shown that they
acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that
Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership),
one of whose members (Atty. Susana Parker) acted in said criminal cases.

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an
opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due
process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural
grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the
lower courts, the inevitable conclusion is simply that there was a perfected contract of sale.

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September
17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent Court's finding that
"there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (letter
dated September 30, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated
September 17, 1987)", citing the late Justice Paras35, Art. 1319 of the Civil Code 36 and related Supreme Court
rulings starting with Beaumont vs. Prieto 37.

The Third Issue: Is the Contract Enforceable?

However, the above-cited authorities and precedents cannot apply in the instant case because, as found by
the respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter
dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and
Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of
September 30, 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the
September 28, 1987 meeting "was meant to have the offerors improve on their position of P5.5.
million."38However, both the trial court and the Court of Appeals found petitioners' testimonial evidence "not
credible", and we find no basis for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private
respondents' evidence is more in keeping with truth and logic that during the meeting on September 28,
1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed upon by the Committee and
could no longer be lowered (TSN of April 27, 1990, pp. 34-35)" 39. Hence, assuming arguendo that the counteroffer of P4.25 million extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price
during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter
accepting thisrevived offer, there was a meeting of the minds, as the acceptance in said letter was absolute
and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action,
particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12,
1988 or more than seven (7) months after Janolo' acceptance. Such delay, and the absence of any
circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a binding contractual
obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on the part of the
petitioners that the written offer made on September 1, 1987 was carried through during the meeting of
September 28, 1987. This is the conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first
time on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of
fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not
be, considered by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No.
74243, November 14, 1986, 145 SCRA 592).40

The petition alleged42:

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28
September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30
September 1987, the contract produced thereby would be unenforceable by action there being no note,
memorandum or writing subscribed by the Bank to evidence such contract. (Please see article 1403[2], Civil
Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the
price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear
embodiments of the fact that a contract of sale was perfected between the parties, such contract being binding
in whatever form it may have been entered into (case citations omitted). Stated simply, the banks' letter of
September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987, constitute in law a
sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications commenced not only from
September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters
constitute sufficient memoranda since they include the names of the parties, the terms and conditions of the
contract, the price and a description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute
a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply
by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5
million. Hence, petitioners by such utter failure to object are deemed to have waived any defects of the
contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the
failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under
them.
As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer
of P5.5 million is a plenty and the silence of petitioners all throughout the presentation makes the evidence
binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to
accompany him we were able to meet Luis Co at the Bank.
xxx

xxx

xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the
trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of
fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
[1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70
[1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).41

A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?

A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and
that is the price they intends (sic) to have, sir.

A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty.
Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir.

Q What do you mean?.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

A That is the amount they want, sir.

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract.

Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant Rivera's
counter-offer of 5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners
energetically contended that the conservator has the power to revoke or overrule actions of the management
or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:

Q What is the response of Mr. Luis Co?.

A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?
A We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could
still be reduced and he said that was already passed upon by the committee. What the bank expects which
was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we
should indicate our position as soon as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and
Mr. Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers
Bank Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial intermediary performing quasi-banking functions is in
a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the
assets, liabilities, and the management of that institution, collect all monies and debts due said institution and
exercise all powers necessary to preserve the assets of the institution, reorganize the management thereof,
and restore its viability. He shall have the power to overrule or revoke the actions of the previous management
and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any
provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem
necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract
of sale was raised for the first time in this Petition as this was not litigated in the trial court or Court of
Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of
Appeals, "cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play,
justice and due process." 43
In the second place, there is absolutely no evidence that the Conservator, at the time the contract was
perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator at the time,
Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really
referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected
on September 30, 1987 (Annex V, petition) which unilaterally repudiated not the contract but the
authority of Rivera to make a binding offer and which unarguably came months after the perfection of the
contract. Said letter dated May 12, 1988 is reproduced hereunder:
May 12, 1988

Q By Mr. Co you are referring to?

A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank?

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila

A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer
of the bank which is P5.5 million.

Dear Atty. Zarate:

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6)
parcels of land located at Sta. Rosa, Laguna.

Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is
not within his power to reduce this amount. What can you say to that statement that the amount of P5.5 million
was reached by the Committee?

We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a
"contract to sell and buy" with any of them for the following reasons.

In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Acting
Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions
of Property Management Department (PMD) staff and officers (Annex A.), you will immediately read that
Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged
counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and
Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator
may authorize the sale of any property of the corportion/bank..
Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators
(starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were
just preliminary discussions/consultations between him and your clients, which everyone knows cannot bind
the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently
violative of corporate and banking laws. We believe that this is more than sufficient legal justification for
refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official, legal and in
accordance with law. We also have no personal interest in any of the properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator
of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the
bank, (the reorganization of) the management thereof and (the restoration of) its viability." Such powers,
enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions,
otherwise they would infringe against the non-impairment clause of the Constitution 44. If the legislature itself
cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator
under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under
existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the
conservator merely takes the place of a bank's board of directors. What the said board cannot do such as
repudiating a contract validly entered into under the doctrine of implied authority the conservator cannot do
either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His
authority would be only to bring court actions to assail such contracts as he has already done so in the
instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by
common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third
parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or
another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor
vested interests of the third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the
Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust
Corporation, 45, we held:

. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of
the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158
SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45
of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact being
conclusive " [Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long
line of decisions]. This Court has emphatically declared that "it is not the function of the Supreme Court to
analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that
might have been committed by the lower court" (Tiongco v. De la Merced, G. R. No. L-24426, July 25, 1974,
58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs.
Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a showing that
the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as
to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to
examine or contrast the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. vs.
Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46, we held:
The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of
evidence and the credibility of witnesses presented. This Court so held that it is not the function of the
Supreme Court to analyze or weigh such evidence all over again. The Supreme Court's jurisdiction is limited
to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier
of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp. 47:
The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are
final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we
find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts
below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company
Inc. vs.Hon. Court of Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the function of
this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the
parties, particularly where, such as here, the findings of both the trial court and the appellate court on the
matter coincide. (emphasis supplied)
Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which
were not only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the
"Bank's counter-offer price of P5.5 million had been determined by the past due committee and approved by
conservator Romey, after Rivera presented the same for discussion" and (2) "the meeting with Co was not to
scale down the price and start negotiations anew, but a meeting on the already determined price of P5.5
million" Hence, citing Philippine National Bank vs. Court of Appeals 49, petitioners are asking us to review and
reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals 50, thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by
letter that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis, "such counteroffer price had been determined by the Past Due Committee and approved by the Conservator after Rivera
had duly presented plaintiffs' offer for discussion by the Committee . . . Tersely put, under the established fact,
the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at
which the bank was selling the property. (p. 11, CA Decision)
xxx

xxx

xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September
28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was
the possible lowering of the price, the bank official refused it and confirmed that the P5.5 Million price had
been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p.
15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not
credible" and "at best equivocal and considering the gratuitous and self-serving character of these
declarations, the bank's submissions on this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to
testify on their behalf, as he would have been in the best position to establish their thesis. Under the rules on
evidence 51, such suppression gives rise to the presumption that his testimony would have been adverse, if
produced.
The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed
insufficient by both the trial court and the respondent Court, and instead, it was respondent's submissions that
were believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are
valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion
they are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court
of Appeals 52. We have studied both the records and the CA Decision and we find no such exceptions in this
case. On the contrary, the findings of the said Court are supported by a preponderance of competent and
credible evidence. The inferences and conclusions are seasonably based on evidence duly identified in the
Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending
credibility and dependability to its findings. The best that can be said in favor of petitioners on this point is that
the factual findings of respondent Court did not correspond to petitioners' claims, but were closer to the
evidence as presented in the trial court by private respondent. But this alone is no reason to reverse or ignore
such factual findings, particularly where, as in this case, the trial court and the appellate court were in common
agreement thereon. Indeed, conclusions of fact of a trial judge as affirmed by the Court of Appeals are
conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind,
because the trial court is in a better position to observe the demeanor of the witnesses and their courtroom
manner as well as to examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first
time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to
repudiate contracts entered into by the Bank's officers] which per se could justify the dismissal of the
present case. We did not limit ourselves thereto, but delved as well into the substantive issues the
perfection of the contract of sale and its enforceability, which required the determination of questions of fact.
While the Supreme Court is not a trier of facts and as a rule we are not required to look into the factual bases
of respondent Court's decisions and resolutions, we did so just the same, if only to find out whether there is
reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor by
which the parties through their respective eloquent counsel, argued their positions before this Court.

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a
government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its feet
. . . as many people depend on (it) for investments, deposits and well as employment. As of June 1987, the
Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and there were (other) offers to
buy the subject properties for a substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally
close its eyes to overriding considerations of substantive and procedural law, like respect for perfected
contracts, non-impairment of obligations and sanctions against forum-shopping, which must be upheld under
the rule of law and blind justice.
This Court cannot just gloss over private respondent's submission that, while the subject properties may
currently command a much higher price, it is equally true that at the time of the transaction in 1987, the price
agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a
foreclosure sale for no more than P3.5 million 54. That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding
obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because
the property in question has algebraically accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its imprimatur
on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby
DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for
engaging in forum-shopping and WARNED that a repetition of the same or similar acts will be dealt with more
severely. Costs against petitioners.
SO ORDERED.
G.R. No. L-45645 June 28, 1983
FRANCISCO A. TONGOY, for himself and as Judicial Administrator of the Estate of the Late Luis D.
Tongoy and Ma. Rosario Araneta Vda. de Tongoy, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SONORA, JESUS T.
SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P. TONGOY, AMADO P.
TONGOY, and NORBERTO P. TONGOY, respondents.
Taada, Sanchez, Tanada & Tanada Law Office for petitioners.
Reyes & Pablo Law Office for respondents.

MAKASIAR, J.:
This is a petition for certiorari, to review the decision of respondent Court of Appeals in CA-G.R. No. 45336-R,
entitled "Mercedes T. Sonora, et al. versus Francisco A. Tongoy, et al.", promulgated on December 3, 1975.
The antecedent facts which are not controverted are quoted in the questioned decision, as follows:
The case is basically an action for reconveyance respecting two (2) parcels of land in Bacolod City. The first is
Lot No. 1397 of the Cadastral Survey of Bacolod, otherwise known as Hacienda Pulo, containing an area of
727,650 square meters and originally registered under Original Certificate of Title No. 2947 in the names of
Francisco Tongoy, Jose Tongoy, Ana Tongoy, Teresa Tongoy and Jovita Tongoy in pro-indiviso equal shares.

Said co-owners were all children of the late Juan Aniceto Tongoy. The second is Lot No. 1395 of the Cadastral
Survey of Bacolod, briefly referred to as Cuaycong property, containing an area of 163,754 square meters,
and formerly covered by Original Certificate of Title No. 2674 in the name of Basilisa Cuaycong.
Of the original registered co-owners of Hacienda Pulo, three died without issue, namely: Jose Tongoy, who
died a widower on March 11, 1961; Ama Tongoy, who also died single on February 6, 1957, and Teresa
Tongoy who also died single on November 3, 1949. The other two registered co-owners, namely, Francisco
Tongoy and Jovita Tongoy, were survived by children. Francisco Tongoy, who died on September 15, 1926,
had six children; Patricio D. Tongoy and Luis D. Tongoy by the first marriage; Amado P. Tongoy, Ricardo P.
Tongoy; Cresenciano P. Tongoy and Norberto P. Tongoy by his second wife Antonina Pabello whom he
subsequently married sometime after the birth of their children. For her part, Jovita Tongoy (Jovita Tongoy de
Sonora), who died on May 14, 1915, had four children: Mercedes T. Sonora, Juan T. Sonora, Jesus T. Sonora
and Trinidad T. Sonora.
By the time this case was commenced, the late Francisco Tongoy's aforesaid two children by his first
marriage, Patricio D. Tongoy and Luis D. Tongoy, have themselves died. It is claimed that Patricio D. Tongoy
left three acknowledged natural children named Fernando, Estrella and Salvacion, all surnamed Tongoy. On
the other hand, there is no question that Luis D. Tongoy left behind a son, Francisco A. Tongoy, and a
surviving spouse, Ma. Rosario Araneta Vda. de Tongoy.
The following antecedents are also undisputed, though by no means equally submitted as the complete facts,
nor seen in Identical lights: On April 17, 1918, Hacienda Pulo was mortgaged by its registered co-owners to
the Philippine National Bank (PNB), Bacolod Branch, as security for a loan of P11,000.00 payable in ten (10)
years at 8% interest per annum. The mortgagors however were unable to keep up with the yearly
amortizations, as a result of which the PNB instituted judicial foreclosure proceedings over Hacienda Pulo on
June 18, 1931. To avoid foreclosure, one of the co-owners and mortgagors, Jose Tongoy, proposed to the
PNB an amortization plan that would enable them to liquidate their account. But, on December 23, 1932, the
PNB Branch Manager in Bacolod advised Jose Tongoy by letter that the latter's proposal was rejected and that
the foreclosure suit had to continue. As a matter of fact, the suit was pursued to finality up to the Supreme
Court which affirmed on July 31, 1935 the decision of the CFI giving the PNB the right to foreclose the
mortgage on Hacienda Pulo. In the meantime, Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933
a Declaration of Inheritance wherein they declared themselves as the only heirs of the late Francisco Tongoy
and thereby entitled to the latter's share in Hacienda Pulo. On March 13, 1934, Ana Tongoy, Teresa Tongoy,
Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy executed an "Escritura de Venta" (Exh.
2 or Exh. W), which by its terms transferred for consideration their rights and interests over Hacienda Pulo in
favor of Luis D. Tongoy. Thereafter, on October 23, 1935 and November 5, 1935, respectively, Jesus Sonora
and Jose Tongoy followed suit by each executing a similar "Escritura de Venta" (Exhs. 3 or DD and 5 or AA)
pertaining to their corresponding rights and interests over Hacienda Pulo in favor also of Luis D. Tongoy. In the
case of Jose Tongoy, the execution of the "Escritura de Venta" (Exh. 5 or AA) was preceded by the execution
on October 14, 1935 of an Assignment of Rights (Exh. 4 or Z) in favor of Luis D. Tongoy by the Pacific
Commercial Company as judgment lien-holder (subordinate to the PNB mortgage) of Jose Tongoy's share in
Hacienda Pulo. On the basis of the foregoing documents, Hacienda Pulo was placed on November 8, 1935 in
the name of Luis D. Tongoy, married to Maria Rosario Araneta, under Transfer Certificate of "Title No. 20154
(Exh. 20). In the following year, the title of the adjacent Cuaycong property also came under the name of Luis
D. Tongoy, married to Maria Rosario Araneta, per Transfer Certificate of Title No. 21522, by virtue of an
"Escritura de Venta" (Exh. 6) executed in his favor by the owner Basilisa Cuaycong on June 22, 1936
purportedly for P4,000.00. On June 26, 1936, Luis D. Tongoy executed a real estate mortgage over the
Cuaycong property in favor of the PNB, Bacolod Branch, as security for loan of P4,500.00. Three days
thereafter, on June 29, 1936, he also executed a real estate mortgage over Hacienda Pulo in favor of the
same bank to secure an indebtedness of P21,000.00, payable for a period of fifteen (15) years at 8% per
annum. After two decades, on April 17, 1956, Luis D. Tongoy paid off all his obligations with the PNB,
amounting to a balance of P34,410.00, including the mortgage obligations on the Cuaycong property and
Hacienda Pulo. However, it was only on April 22, 1958 that a release of real estate mortgage was executed by
the bank in favor of Luis D. Tongoy. On February 5, 1966, Luis D. Tongoy died at the Lourdes Hospital in
Manila, leaving as heirs his wife Maria Rosario Araneta and his son Francisco A. Tongoy. Just before his
death, however, Luis D. Tongoy received a letter from Jesus T. Sonora, dated January 26, 1966, demanding
the return of the shares in the properties to the co-owners.
Not long after the death of Luis D. Tongoy, the case now before Us was instituted in the court below on
complaint filed on June 2, 1966 by Mercedes T. Sonora, Juan T. Sonora ** , Jesus T. Sonora, Trinidad T.

Sonora, Ricardo P. Tongoy and Cresenciano P. Tongoy. Named principally as defendants were Francisco A.
Tongoy, for himself and as judicial administrator of the estate of the late Luis D. Tongoy, and Maria Rosario
Araneta Vda. de Tongoy. Also impleaded as defendants, because of their unwillingness to join as plaintiffs
were Amado P. Tongoy, Norberto P. Tongoy ** and Fernando P. Tongoy. Alleging in sum that plaintiffs and/or
their predecessors transferred their interests on the two lots in question to Luis D. Tongoy by means of
simulated sales, pursuant to a trust arrangement whereby the latter would return such interests after the
mortgage obligations thereon had been settled, the complaint prayed that 'judgment be rendered in favor of
the plaintiffs and against the defendants(a) Declaring that the HACIENDA PULO, Lot 1397-B-3 now covered by T.C.T. No. 29152, Bacolod City, and
the former Cuaycong property, Lot 1395 now covered by T.C.T. No. T-824 (RT-4049) (21522), Bacolod City, as
trust estate belonging to the plaintiffs and the defendants in the proportion set forth in Par. 26 of this complaint;
(b) Ordering the Register of Deeds of Bacolod City to cancel T.C.T. No. 29152 and T.C.T. No. T-824 (RT-4049)
(21522), Bacolod City, and to issue new ones in the names of the plaintiffs and defendants in the proportions
set forth in Par. 26 thereof, based on the original area of HACIENDA PULO;
(c) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy to render an
accounting to the plaintiffs of the income of the above two properties from the year 1958 to the present and to
deliver to each plaintiff his corresponding share with legal interest thereon from 1958 and until the same shall
have been fully paid;
(d) Ordering the defendants Francisco Tongoy and Ma. Rosario Araneta Vda. de Tongoy to pay to the plaintiffs
as and for attorney's fees an amount equivalent to twenty-four per cent (24%) of the rightful shares of the
plaintiffs over the original HACIENDA PULO and the Cuaycong property, including the income thereof from
1958 to the present; and
(e) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy to pay the costs of this suit.
Plaintiffs also pray for such other and further remedies just and equitable in the premises.
Defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy filed separate answers, denying in effect
plaintiffs' causes of action, and maintaining, among others, that the sale to Luis D. Tongoy of the two lots in
question was genuine and for a valuable consideration, and that no trust agreement of whatever nature
existed between him and the plaintiffs. As affirmative defenses, defendants also raised laches, prescription,
estoppel, and the statute of frauds against plaintiffs. Answering defendants counter claimed for damages
against plaintiffs for allegedly bringing an unfounded and malicious complaint.
For their part, defendants Norberto Tongoy and Amado Tongoy filed an answer under oath, admitting every
allegation of the complaint. On the other hand, defendant Fernando Tongoy originally joined Francisco A.
Tongoy in the latter's answer, but after the case was submitted and was pending decision, the former filed a
verified answer also admitting every allegation of the complaint.
Meanwhile, before the case went to trial, a motion to intervene as defendants was filed by and was granted to
Salvacion Tongoy and Estrella Tongoy, alleging they were sisters of the full blood of Fernando Tongoy. Said
intervenors filed an answer similarly admitting every allegation of the complaint.
After trial on the merits, the lower court rendered its decision on October 15, 1968 finding the existence of an
implied trust in favor of plaintiffs, but at the same time holding their action for reconveyance barred by
prescription, except in the case of Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy, and Norberto
P. Tongoy, who were adjudged entitled to reconveyance of their corresponding shares in the property left by
their father Francisco Tongoy having been excluded therefrom in the partition had during their minority, and not
having otherwise signed any deed of transfer over such shares. The dispositive portion of the decision reads:

IN VIEW OF ALL THE FOREGOING considerations, judgment is hereby rendered dismissing the complaint,
with respect to Mercedes, Juan, Jesus and Trinidad, all surnamed Sonora. The defendants Francisco Tongoy
and Rosario Araneta Vda. de Tongoy are hereby ordered to reconvey the proportionate shares of Ricardo P.,
Cresenciano P., Amado P., and Norberto P., all surnamed Tongoy in Hda. Pulo and the Cuaycong property.
Without damages and costs.

5) To pay the costs.

SO ORDERED (pp. 207-208, Vol. 1, rec.).

SO ORDERED.

Petitioners Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy (defendants-appellants) have come
before Us on petition for review on certiorari with the following assignments of errors (pp. 23-24, Brief for
Petitioners):

Upon motion of plaintiffs, the foregoing dispositive portion of the decision was subsequently clarified by the
trial court through its order of January 9, 1969 in the following tenor:

I. The Court of Appeals erred in finding that there was a trust constituted on Hacienda Pulo.

Considering the motion for clarification of decision dated November 7, 1968 and the opposition thereto, and
with the view to avoid further controversy with respect to the share of each heir, the dispositive portion of the
decision is hereby clarified in the sense that, the proportionate legal share of Amado P. Tongoy, Ricardo P.
Tongoy, Cresenciano P. Tongoy and the heirs of Norberto P. Tongoy, in Hda. Pulo and Cuaycong property
consist of 4/5 of the whole trust estate, leaving 1/5 of the same to the heirs of Luis D. Tongoy.

II. The Court of Appeals erred in finding that the purchase price for the Cuaycong property was paid by Jose
Tongoy and that said property was also covered by a trust in favor of respondents.
III. Conceding, for the sake of argument, that respondents have adequately proven an implied trust in their
favor, the Court of Appeals erred in not finding that the rights of respondents have prescribed, or are barred by
laches.

SO ORDERED. (pp. 157-166, Vol. I, rec.).

Both parties appealed the decision of the lower court to respondent appellate court. Plaintiffs-appellants
Mercedes T. Sonora, Jesus T. Sonora, Trinidad T. Sonora and the heirs of Juan T. Sonora questioned the
lower court's decision dismissing their complaint on ground of prescription, and assailed it insofar as it held
that the agreement created among the Tongoy-Sonora family in 1931 was an implied, and not an express,
trust; that their action had prescribed; that the defendants-appellants were not ordered to render an accounting
of the fruits and income of the properties in trust; and that defendants were not ordered to pay the attorney's
fees of plaintiffs- appellants. For their part, defendants-appellants Francisco A. Tongoy and Ma. Rosario
Araneta Vda. de Tongoy not only refuted the errors assigned by plaintiffs-appellants, but also assailed the
findings that there was preponderance of evidence in support of the existence of an implied trust; that Ricardo
P. Tongoy, Amado P. Tongoy and Norberto P. Tongoy are the legitimate half-brothers of the late Luis D. Tongoy;
that their shares in Hacienda Pulo and Cuaycong property should be reconveyed to them by defendantsappellants; and that an execution was ordered pending appeal.

IV. The Court of Appeals erred in finding that the respondents Tongoy are the legitimated children of Francisco
Tongoy.
V. Granting arguendo that respondents Tongoy are the legitimated children of Francisco Tongoy, the Court of
Appeals erred in not finding that their action against petitioners has prescribed.
VI. The Court of Appeals erred in ordering petitioners to pay attorney's fees of P 20,000.00.
VII. The Court of Appeals erred in declaring that execution pending appeal in favor of respondents Tongoys
was justified.
I

On December 3, 1975, respondent court rendered the questioned decision, the dispositive portion of which is
as follows:
WHEREFORE, judgment is hereby rendered modifying the judgment and Orders appealed from by ordering
Maria Rosario Araneta Vda. de Tongoy and Francisco A. Tongoy.
1) To reconvey to Mercedes T. Sonora, Juan T. Sonora (as substituted and represented by his heirs), Jesus T.
Sonora and Trinidad T. Sonora each a 7/60th portion of both Hacienda Pulo and the Cuaycong property,
based on their original shares;
2) To reconvey to Ricardo P. Tongoy, Cresenciano P. Tongoy, Amado P. Tongoy and Norberto P. Tongoy as
substituted and represented by his heirs each a 14/135th portion of both Hacienda Pulo and the Cuaycong
property, also based on their original shares; provided that the 12 hectares already reconveyed to them by
virtue of the Order for execution pending appeal of the judgment shall be duly deducted;
3) To render an accounting to the parties named in pars. 1 and 2 above with respect to the income of
Hacienda Pulo and the Cuaycong property from May 5, 1958 up to the time the reconveyances as herein
directed are made; and to deliver or pay to each of said parties their proportionate shares of the income, if any,
with legal interest thereon from the date of filing of the complaint in this case, January 26, 1966, until the same
is paid;
4) To pay unto the parties mentioned in par. 1 above attorney's fees in the sum of P 20,000.00; and

It appears to US that the first and second errors assigned by petitioners are questions of fact which are
beyond OUR power to review.
Thus, as found by the respondent Court of Appeals:
xxx xxx xxx
We shall consider first the appeal interposed by plaintiffs-appellants. The basic issues underlying the disputed
errors raised suggest themselves as follows: 1) whether or not the conveyance respecting the questioned lots
made in favor of Luis D. Tongoy in 1934 and 1935 were conceived pursuant to a trust agreement among the
parties; 2) if so, whether the trust created was an express or implied trust; and 3) if the trust was not an
express trust, whether the action to enforce it has prescribed.
The first two issues indicated above will be considered together as a matter of logical necessity, being so
closely interlocked. To begin with, the trial court found and ruled that the transfers made in favor of Luis D.
Tongoy were clothed with an implied trust, arriving at this conclusion as follows:
The Court finds that there is preponderance of evidence in support of the existence of constructive, implied or
tacit trust. The hacienda could have been leased to third persons and the rentals would have been sufficient to
liquidate the outstanding obligation in favor of the Philippine National Bank. But the co-owners agreed to give
the administration of the property to Atty. Luis D. Tongoy, so that the latter can continue giving support to the
Tongoy-Sonora family and at the same time, pay the amortization in favor of the Philippine National Bank, in

the same manner that Jose Tongoy did. And of course, if the administration is successful, Luis D. Tongoy
would benefit with the profits of the hacienda. Simulated deeds of conveyance in favor of Luis D. Tongoy were
executed to facilitate and expedite the transaction with the Philippine National Bank. Luis D. Tongoy supported
the Tongoy-Sonora family, defrayed the expenses of Dr. Jesus Sonora and Atty. Ricardo P. Tongoy, in their
studies. Luis Tongoy even gave Sonoras their shares in the "beneficacion" although the "beneficacion" were
included in the deeds of sale. The amount of consideration of the one-fifth (15) share of Jose Tongoy is one
hundred (P 100,00) pesos only. Likewise the consideration of the sale of the interests of the Pacific
Commercial Company is only P100.00 despite the fact that Jose Tongoy paid in full his indebtedness in favor
of said company. The letter of Luis D. Tongoy dated November 5, 1935 (Exhibit 'BB-1') is very significant, the
tenor of which is quoted hereunder:
Dear Brother Jose:
Herewith is the deed which the bank sent for us to sign. The bank made me pay the Pacific the sum of
P100.00 so as not to sell anymore the land in public auction. This deed is for the purpose of dispensing with
the transfer of title to the land in the name of the bank, this way we will avoid many expenses.
Yours,
Luis D. Tongoy
Jose Tongoy signed the deed because he incurred the obligation with the Pacific and paid it. In releasing the
second mortgage, Luis Tongoy paid only P100.00 and the deed was in favor of Luis Tongoy. This was done in
order "to avoid many expenses " of both Jose and Luis as obviously referred to in the word "WE".
Those two transactions with nominal considerations are irrefutable and palpable evidence of the existence of
constructive or implied trust.
Another significant factor in support of the existence of constructive trust is the fact that in 1933-34, when
proposals for amicable settlement with the Philippine National Bank were being formulated and considered,
Luis D. Tongoy was yet a neophite (sic) in the practice of law, and he was still a bachelor. It was proven that it
was Jose Tongoy, the administrator of Hda. Pulo, who provided for his expenses when he studied law, when
he married Maria Araneta, the latter's property were leased and the rentals were not sufficient to cover all the
considerations stated in the deeds of sale executed by the co-owners of Hda. Pulo, no matter how inadequate
were the amounts so stated. These circumstances fortified the assertion of Judge Arboleda that Luis D.
Tongoy at that time was in no condition to pay the purchase price of the property sold,
But the Court considers the evidence of execution of express trust agreement insufficient. Express trust
agreement was never mentioned in the plaintiffs' pleadings nor its existence asserted during the pre-trial
hearings. It was only during the trial on the merits when Atty. Eduardo P. Arboleda went on to testify that he
prepared the deed of trust agreement.
Indeed the most formidable weapon the plaintiff could have used in destroying the "impregnable walls of the
defense castle consisting of public documents" is testimony of Atty. Eduardo P. Arboleda. He is most qualified
and in a knowable position to testify as to the truth of the existence of the trust agreement, because he was
not only the partner of the late Luis D. Tongoy in their practice of law especially during the time he prepared
and/or notarized the deeds of sale but he was also his colleague in the City Council. But however forceful
would be the impact of his testimony, it did not go beyond the establishment of constructive or implied trust
agreement. In the first place, if it is true that written trust agreement was prepared by him and signed by Luis
D. Tongoy for the security of the vendor, why is it that only two copies of the agreement were prepared, one
copy furnished Jose Tongoy and the other kept by Luis Tongoy, instead of making five copies and furnished
copy to each co-owner, or at least one copy would have been kept by him? Why is it that when Atty. Arboleda
invited Mrs. Maria Rosario Araneta Vda. de Tongoy and her son to see him in his house, Atty. Arboleda did not
reveal or mention the fact of the existence of a written trust agreement signed by the late Luis D. Tongoy? The
revelation of the existence of a written trust agreement would have been a vital and controlling factor in the
amicable settlement of the case, which Atty. Arboleda would have played an effective role as an unbiased
mediator. Why did not Atty. Arboleda state the precise context of the written agreement; its form and the

language it was written, knowing as he should, the rigid requirements of proving the contents of a lost
document. It is strange that when Mrs. Maria Rosario Araneta Vda. de Tongoy and her son were in the house
of Atty. Arboleda, in compliance with his invitation for the supposed friendly settlement of the case, Atty.
Arboleda did not even submit proposals for equitable arbitration of the case. On the other hand, according to
Mrs. Tongoy, Mrs. Arboleda intimated her desire to have Atty. Arboleda be taken in. The Court refuses to
believe that Judge Arboleda was aware of the alleged intimations of Mrs. Arboleda, otherwise he would not
have tolerated or permitted her to indulge in such an embarrassing and uncalled for intrusion. The plaintiffs
evidently took such ungainly insinuations with levity so much so that they did not think it necessary to bring
Mrs. Arboleda to Court to refute this fact.
The parties, on either side of this appeal take issue with the conclusion that there was an implied trust, one
side maintaining that no trust existed at all, the other that the trust was an express trust.
To begin with, We do not think the trial court erred in its ultimate conclusion that the transfers of the two lots in
question made in favor of the late Luis D. Tongoy by his co-owners in 1933 and 1934 created an implied trust
in favor of the latter. While, on one hand, the evidence presented by plaintiffs-appellants to prove an express
trust agreement accompanying the aforesaid transfers of the lots are incompetent, if not inadequate, the
record bears sufficiently clear and convincing evidence that the transfers were only simulated to enable Luis
D. Tongoy to save Hacienda Pulo from foreclosure for the benefit of the co-owners, including himself.
Referring in more detail to the evidence on the supposed express trust, it is true that plaintiffs- appellants
Jesus T. Sonora, Ricardo P. Tongoy, Mercedes T. Sonora and Trinidad T. Sonora have testified with some
vividness on the holding of a family conference in December 1931 among the co-owners of Hacienda Pulo to
decide on steps to be taken vis-a-vis the impending foreclosure of the hacienda by the PNB upon the unpaid
mortgage obligation thereon. Accordingly, the co-owners had agreed to entrust the administration and
management of Hacienda Pulo to Luis D. Tongoy who had newly emerged as the lawyer in the family.
Thereafter, on the representation of Luis D. Tongoy that the bank wanted to deal with only one person it being
inconvenient at time to transact with many persons, specially when some had to be out of town the co-owners
agreed to make simulated transfers of their participation in Hacienda Pulo to him. As the evidence stands,
even if the same were competent, it does not appear that there was an express agreement among the coowners for Luis D. Tongoy to hold Hacienda Pulo in trust, although from all the circumstances just indicated
such a trust may be implied under the law (Art. 1453, Civil Code; also see Cuaycong vs. Cuaycong, L-21616,
December 11, 1967, 21 SCRA 1192, 1197-1198). But, whatever may be the nature of the trust suggested in
the testimonies adverted to, the same are incompetent as proof thereof anent the timely objections of
defendants-appellees to the introduction of such testimonial evidence on the basis of the survivorship rule.
The witnesses being themselves parties to the instant case, suing the representatives of the deceased Luis D.
Tongoy upon a demand against the latter's estate, said witnesses are barred by the objections of defendantsappellees from testifying on matters of fact occurring before the death of the deceased (Sec. 20[a], Rule 130),
more particularly where such occurrences consist of verbal agreements or statements made by or in the
presence of the deceased.
Neither has the existence of the alleged contra-documento-- by which Luis D. Tongoy supposedly
acknowledged the transfers to be simulated and bound himself to return the shares of his co-owners after the
mortgage on the Hacienda had been discharged-been satisfactorily established to merit consideration as proof
of the supposed express trust. We can hardly add to the sound observations of the trial court in rejecting the
evidence to the effect as insufficient, except to note further that at least plaintiffs-appellants Mercedes T.
Sonora and Trinidad T. Sonora have testified having been apprised of the document and its contents when
Luis D. Tongoy supposedly delivered one copy to Jose Tongoy. And yet as the trial court noted, no express
trust agreement was ever mentioned in plaintiffs-appellants' pleadings or at the pre-trial.
Nevertheless, there is on record enough convincing evidence not barred by the survivorship rule, that the
transfers made by the co-owners in favor of Luis D. Tongoy were simulated and that an implied or resulting
trust thereby came into existence, binding the latter to make reconveyance of the co-owners' shares after the
mortgage indebtedness on Hacienda Pulo has been discharged. Thus it appears beyond doubt that Hacienda
Pulo has been the source of livelihood to the co-owners and their dependents, when the subject transfers
were made. It is most unlikely that all of the several other co-owners should have come at the same time to
one mind about disposing of their participation in the hacienda, when the same counted so much in their
subsistence and self-esteem. Only extreme necessity would have forced the co-owners to act in unison
towards earnestly parting with their shares, taking into account the meager considerations mentioned in the
deeds of transfer which at their most generous gave to each co-owner only P2,000.00 for a 1/5 part of the
hacienda. As it appears to Us, the impending foreclosure on the mortgage for P11,000.00 could not have

created such necessity. Independent of testimony to the effect, it is not hard to surmise that the hacienda
could have been leased to others on terms that would have satisfied the mortgage obligation. Moreover, as it
turned out, the PNB was amenable, and did actually accede, to a restructuring of the mortgage loan in favor of
Luis D. Tongoy, thereby saving the hacienda from foreclosure. As a matter of fact, the co-owners must have
been posted on the attitude of the bank regarding the overdue mortgage loan, and its willingness to renew or
restructure the same upon certain conditions. Under such circumstances, it is more reasonable to conclude
that there was no compelling reason for the other co-owners to sell out their birthrights to Luis D. Tongoy, and
that the purported transfers were, as claimed by them in reality simulated pursuant to the suggestion that the
bank wanted to deal with only one person. In fact, as recited in the Escritura de Venta (Exh. AA) executed
between Luis. D. Tongoy and Jose Tongoy, it appears that the series of transfers made in favor of the former
by the co-owners of Hacienda Pulo followed and was made pursuant to a prior arrangement made with the
PNB by Luis D. Tongoy to redeem the shares or participation of his co-owners. That this was readily assented
to in the anxiety to save and preserve Hacienda Pulo for all its co-owners appears very likely anent undisputed
evidence that the said co-owners had been used to entrusting the management thereof to one among them,
dating back to the time of Francisco Tongoy who once acted as administrator, followed by Jose Tongoy, before
Luis D. Tongoy himself took over the hacienda.
Strongly supported the theory that the transfers were only simulated to enable Luis D. Tongoy (to) have
effective control and management of the hacienda for the benefit of all the co-owners is preponderant
evidence to the effect that he was in no financial condition at the time to purchase the hacienda. Witness
Eduardo Arboleda who was a law partner of Luis D. Tongoy when the transfers were made, and who is not a
party in this case, emphatically testified that Luis D. Tongoy could not have produced the money required for
the purchase from his law practice then. On the other hand, the suggestion that his wife Ma. Rosario Araneta
had enough income from her landed properties to sufficiently augment Luis D. Tongoy's income from his
practice is belied by evidence that such properties were leased, and the rentals collected in advance, for
eleven (11) crop years beginning 1931 (Exh. EEE), when they were not yet married.
The financial incapacity of Luis D. Tongoy intertwines, and together gains strength, with proof that the coowners as transferors in the several deeds of sale did not receive the considerations stated therein. In addition
to the testimony of the notary public, Eduardo P. Arboleda, that no consideration as recited in the deeds of
transfer were ever paid in his presence, all the transferors who testified including Jesus T. Sonora, Mercedes
T. Sonora and Trinidad T. Sonora-all denied having received the respective considerations allegedly given
them. While said transferors are parties in this case, it has been held that the survivorship rule has no
application where the testimony offered is to the effect that a thing did not occur (Natz vs. Agbulos, CA-G.R.
No. 4098-R, January 13, 1951; Mendoza v. C. Vda. de Goitia, 54 Phil. 557, cited by Mora, Comments on the
Rules of Court, 1970 ed., Vol. 5, p. 174).
Also of some significance is the fact that the deeds of transfer executed by Ana Tongoy, Teresa Tongoy,
Mercedes Sonora, Trinidad Sonora, Juan Sonora, and Patricio Tongoy (Exh. W) as well as that by Jesus
Sonora (Exh. DD) did not even bother to clarify whether Luis D. Tongoy as transferee of his co-owners' share
was assuming the indebtedness owing to the PNB upon the mortgage on Hacienda Pulo. In an honest-togoodness sale, it would have been most unlikely that the transferors would have paid no attention to this
detail, least of all where, as in this case, the transfers were apparently prompted by the inability of the coowners to discharge the mortgage obligation and were being pressed for payment.
Furthermore, the tenor of the letter from Luis D. Tongoy to Jose Tongoy, dated November 5, 1935 (Exhibit Bb1), as heretofore quoted with portions of the decision on appeal, is very revealing of the fact that the steps
taken to place Hacienda Pulo in the name of Luis D. Tongoy were made for the benefit not only of himself but
for the other co-owners as well. Thus, the letter ends with the clause-"this way we will avoid many expenses.
Finally, it is not without significance that the co-owners and their dependents continued to survive apparently
from the sustenance from Hacienda Pulo for a long time following the alleged transfers in favor of Luis D.
Tongoy. In fact, it does not appear possible that Jesus T. Sonora and Ricardo P. Tongoy could have finished
medicine and law, respectively, without support from Luis D. Tongoy as administrator of the common property.
All the foregoing, considered together, constitute clear and convincing evidence that the transfers made in
favor of Luis D. Tongoy by his co- owners were only simulated, under circumstances giving rise to an implied
or resulting trust whereby Luis D. Tongoy is bound to hold title in trust for the benefit of his co-owners (cf. de
Buencamino, et al. vs. De Matias, et al., L-19397, April 30, 1966, 16 SCRA 849)" [pp. 170-181, Vol. I, rec.].

The Court of Appeals found enough convincing evidence not barred by the aforecited survivorship rule to the
effect that the transfers made by the co- owners in favor of Luis D. Tongoy were simulated.
All these findings of fact, as a general rule, are conclusive upon US and beyond OUR power to review. It has
been well-settled that the jurisdiction of the Supreme Court in cases brought to IT from the Court of Appeals is
limited to reviewing and revising errors of law imputed to it, its findings of fact being conclusive as a matter of
general principle (Chan vs. C.A., 33 SCRA 737, 744; Alquiza vs. Alquiza, 22 SCRA 494, 497).
The proofs submitted by petitioners do not place the factual findings of the Court of Appeals under any of the
recognized exceptions to the aforesaid general rule.
I
The initial crucial issue therefore is-whether or not the rights of herein respondents over subject properties,
which were the subjects of simulated or fictitious transactions, have already prescribed.
The negative answer to the aforesaid query is found in Articles 1409 and 1410 of the New Civil Code. Said
provisions state thus:
Art. 1409. The following contracts are inexistent and void from the beginning:
xxx xxx xxx
2) Those which are absolutely simulated or fictitious;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived (emphasis
supplied).
Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
The characteristic of simulation is the fact that the apparent contract is not really desired nor intended to
produce legal effects nor in any way alter the juridical situation of the parties. Thus, where a person, in order to
place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really
intend to divest himself of his title and control of the property; hence, the deed of transfer is but a sham. This
characteristic of simulation was defined by this Court in the case of Rodriguez vs. Rodriguez, No. L-23002,
July 31, 1967, 20 SCRA 908.
A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never
been entered into, and which cannot be validated either by time or by ratification (p. 592, Civil Code of the
Philippines, Vol. IV, Tolentino, 1973 Ed.).
Avoid contract produces no effect whatsoever either against or in favor of anyone; hence, it does not create,
modify or extinguish the juridical relation to which it refers (p. 594, Tolentino, supra).
The following are the most fundamental characteristics of void or inexistent contracts:
1) As a general rule, they produce no legal effects whatsoever in accordance with the principle "quod nullum
est nullum producit effectum."
2) They are not susceptible of ratification.

3) The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.
4) The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible.
5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not
directly affected (p. 444, Comments and Jurisprudence on Obligations and Contracts, Jurado, 1969 Ed.;
emphasis supplied).
The nullity of these contracts is definite and cannot be cured by ratification. The nullity is permanent, even if
the cause thereof has ceased to exist, or even when the parties have complied with the contract
spontaneously (p. 595, Tolentino, supra).
In Eugenio vs. Perdido, et al., No. L-7083, May 19, 1955, 97 Phil. 41, this Court thus reiterated:
Under the existing classification, such contract would be "inexisting" and the "action or defense for declaration'
of such inexistence "does not prescribe' (Art. 14 10 New Civil Code). While it is true that this is a new provision
of the New Civil Code, it is nevertheless a principle recognized since Tipton vs. Velasco, 6 Phil. 67 that "mere
lapse of time cannot give efficacy to contracts that are null and void.
Consistently, this Court held that 11 where the sale of a homestead is nun and void, the action to recover the
same does not prescribe because mere lapse of time cannot give efficacy to the contracts that are null and
void and inexistent" (Angeles, et al. vs. Court of Appeals, et al., No. L-11024, January 31, 1958, 102 Phil.
1006).
In the much later case of Guiang vs. Kintanar (Nos. L-49634-36, July 25, 1981, 106 SCRA 49), this Court
enunciated thus:
It is of no consequence, pursuant to the same article, that petitioners, the Guiang spouses, executed on
August 21, 1975, apparently in ratification of the impugned agreement, the deeds of sale covering the two lots
already referred to and that petitioners actually received in part or in whole the money consideration stipulated
therein, for according to the same Article 1409, contracts contemplated therein, as the one We are dealing
with, "cannot be ratified nor the defense of its illegality be waived." Neither it it material, much less decisive,
that petitioners had not earlier judicially moved to have the same annulled or set aside. Under Article 1410 of
the Civil Code, (t)he action or defense for declaration of the inexistence of a contract does not prescribe.
Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were from the very beginning
absolutely simulated or fictitious, since the same were made merely for the purpose of restructuring the
mortgage over the subject properties and thus preventing the foreclosure by the PNB.
Considering the law and jurisprudence on simulated or fictitious contracts as aforestated, the within action for
reconveyance instituted by herein respondents which is anchored on the said simulated deeds of transfer
cannot and should not be barred by prescription. No amount of time could accord validity or efficacy to such
fictitious transactions, the defect of which is permanent.
There is no implied trust that was generated by the simulated transfers; because being fictitious or simulated,
the transfers were null and void ab initio-from the very beginning and thus vested no rights whatsoever in favor
of Luis Tongoy or his heirs. That which is inexistent cannot give life to anything at all.
II
But even assuming arguendo that such an implied trust exists between Luis Tongoy as trustee and the private
respondents as cestui que trust, still the rights of private respondents to claim reconveyance is not barred by
prescription or laches.

Petitioners maintain that, even conceding that respondents have adequately proven an implied trust in their
favor, their rights have already prescribed, since actions to enforce an implied trust created under the old Civil
Code prescribes in ten years.
Under Act No. 190, whose statute of limitation would apply if there were an implied trust as in this case, the
longest period of extinctive prescription was only ten years (Salao vs. Salao, 70 SCRA 84; Diaz vs. Gorricho
and Aguado, 103 Phil. 261, 226).
On the other hand, private respondents contend that prescription cannot operate against the cestui que trust in
favor of the trustee, and that actions against a trustee to recover trust property held by him are imprescriptible
(Manalang vs. Canlas, 50 OG 1980). They also cite other pre-war cases to bolster this contention, among
which are: Camacho vs. Municipality of Baliwag, 28 Phil. 46; Uy vs. Cho Jan Ling, 19 Phil. 202 [pls. see pp.
258-259, Brief for Respondents, p. 398, rec.]. They further allege that possession of a trustee is, in law,
possession of thecestui que trust and, therefore, it cannot be a good ground for title by prescription (Laguna
vs. Levantino, 71 Phil. 566; Cortez vs. Oliva, 33 Phil. 480, cited on p. 261, Brief for Respondents, supra).
The rule now obtaining in this jurisdiction is aptly discussed in the case of Bueno vs. Reyes (27 SCRA 1179,
1183), where the Court through then Mr. Justice Makalintal, held:
While there are some decisions which hold that an action upon a trust is imprescriptible, without distinguishing
between express and implied trusts, the better rule, as laid down by this Court in other decisions, is that
prescription does supervene where the trust is merely an implied one. The reason has been expressed by Mr.
Justice J.B.L. Reyes in J.M. Tuazon and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:
Under Section 40 of the Old Code of Civil Procedure, all actions for recovery of real property prescribe in ten
years, excepting only actions based on continuing or subsisting trusts that were considered by section 38 as
imprescriptible. As held in the case of Diaz vs. Gorricho, L-11229, March 29, 1958, however, the continuing or
subsisting trusts contemplated in Sec. 38 of the Code of Civil Procedure referred only to express unrepudiated
trusts, and did not include constructive trusts (that are imposed by law) where no fiduciary relation exists and
the trustee does not recognize the trust at all.
This doctrine has been reiterated in the latter case of Escay vs. C.A. (61 SCRA 370, 387), where WE held that
implied or constructive trusts prescribe in ten years. "The prescriptibility of an action for reconveyance based
on implied or constructive trust, is now a settled question in this jurisdiction. It prescribes in ten years" (Boaga
vs. Soler, et al., 2 SCRA 755; J.M. Tuazon and Co., Inc. vs. Magdangal, 4 SCRA 88, special attention to
footnotes).
Following such proposition that an action for reconveyance such as the instant case is subject to prescription
in ten years, both the trial court and respondent appellate court are correct in applying the ten-year
prescriptive period.
The question, however, is, from what time should such period be counted?
The facts of the case at bar reveal that the title to Hacienda Pulo was registered in the name of Luis D. Tongoy
with the issuance of TCT No. 20154 on November 8, 1935; that the title to the adjacent Cuaycong property
was transferred to Luis D. Tongoy with the issuance of TCT No. 21522 on June 22, 1936. The properties were
mortgaged in the year 1936 by said Luis D. Tongoy for P4,500.00 and P 21,000.00, respectively, for a period
of fifteen years; that the mortgage obligations to the PNB were fully paid on April 17, 1956; that the release of
mortgage was recorded in the Registry of Deeds on May 5, 1958; and that the case for reconveyance was
filed in the trial court on June 2, 1966.
Considering that the implied trust resulted from the simulated sales which were made for the purpose of
enabling the transferee, Luis D. Tongoy, to save the properties from foreclosure for the benefit of the coowners, it would not do to apply the theory of constructive notice resulting from the registration in the trustee's
name. Hence, the ten-year prescriptive period should not be counted from the date of registration in the name
of the trustee, as contemplated in the earlier case of Juan vs. Zuiga (4 SCRA 1221). Rather, it should be

counted from the date of recording of the release of mortgage in the Registry of Deeds, on which date May 5,
1958 the cestui que trust were charged with the knowledge of the settlement of the mortgage obligation, the
attainment of the purpose for which the trust was constituted.
Indeed, as respondent Court of Appeals had correctly held:
... as already indicated, the ten-year prescriptive period for bringing the action to enforce the trust or for
reconveyance of plaintiffs-appellants" shares should be toned from the registration of the release of the
mortgage obligation, since only by that time could plaintiffs-appellants be charged with constructive knowledge
of the liquidation of the mortgage obligations, when it became incumbent upon them to expect and demand
the return of their shares, there being no proof that plaintiffs-appellants otherwise learned of the payment of
the obligation earlier. More precisely then the prescriptive period should be reckoned from May 5, 1958 when
the release of the mortgage was recorded in the Registry of Deeds, which is to say that the present complaint
was still filed within the period on June 4, 1966 (p. 35 of questioned Decision, on p. 191, rec.).
Consequently, petitioner Francisco A. Tongoy as successor-in-interest and/or administrator of the estate of the
late Luis D. Tongoy, is under obligation to return the shares of his co-heirs and co-owners in the subject
properties and, until it is done, to render an accounting of the fruits thereof from the time that the obligation to
make a return arose, which in this case should be May 5, 1958, the date of registration of the document of
release of mortgage.
Hence, WE find no evidence of abuse of discretion on the part of respondent Court of Appeals when it ordered
such accounting from May 5, 1958, as well as the imposition of legal interest on the fruits and income
corresponding to the shares that should have been returned to the private respondents, from the date of actual
demand which has been determined to have been made on January 26, 1966 by the demand letter (Exh. TT)
of respondent Jesus T. Sonora to deceased Luis D. Tongoy.
III
With respect to the award of attorney's fees in the sum of P20,000.00, the same appears to have been
properly made, considering that private respondents were unnecessarily compelled to litigate (Flordelis vs.
Mar, 114 SCRA 41; Sarsosa Vda. de Barsobin vs. Cuenco, 113 SCRA 547; Phil. Air Lines vs. C.A., 106 SCRA
393). As pointed out in the questioned decision of the Court of Appeals:
As for the claim for attorney's fees, the same appears to be well taken in the light of the findings WE have
made considering that prevailing plaintiffs- appellants were forced to litigate to enforce their rights, and that
equity under all the circumstances so dictate, said plaintiffs-appellants should recover attorney's fees in a
reasonable amount. We deem P20,000.00 adequate for the purpose (p. 36 of Decision, p. 151, rec.).
IV
The remaining assignement of error dwells on the question of whether or not respondents Amado, Ricardo,
Cresenciano and Norberto, all surnamed Tongoy, may be considered legitimated by virtue of the marriage of
their parents, Francisco Tongoy and Antonina Pabello, subsequent to their births and shortly before Francisco
died on September 15, 1926. Petitioners maintain that since the said respondents were never acknowledged
by their father, they could not have been legitimated by the subsequent marriage of their parents, much less
could they inherit from the estate of their father, the predecessor-in-interest of Luis D. Tongoy, who is
admittedly the half brother of the said respondents.
Both the trial court and the respondent appellate court have found overwhelming evidence to sustain the
following conclusions: that Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy and Norberto P.
Tongoy were born illegitimate to Antonina Pabello on August 19, 1910 (Exh. A), August 12,1914 (Exh. B),
December 1, 1915 (Exhs. C and C- 1) and August 4, 1922 (Exh. D), respectively; that Francisco Tongoy was
their father; that said Francisco Tongoy had before them two legitimate children by his first wife, namely, Luis
D. Tongoy and Patricio D. Tongoy; that Francisco Tongoy and Antonina Pabello were married sometime before
his death on September 15, 1926 (Exh. H); that shortly thereafter, Luis D. Tongoy and Patricio D. Tongoy

executed an Extra-Judicial Declaration of Heirs, leaving out their half-brothers Amado, Ricardo, Cresenciano,
and Norberto, who were then still minors; that respondents Amado, Ricardo, Cresenciano and Norberto were
known and accepted by the whole clan as children of Francisco; that they had lived in Hacienda Pulo with their
parents, but when they went to school, they stayed in the old family home at Washington Street, Bacolod,
together with their grandmother, Agatona Tongoy, as well as with the Sonoras and with Luis and Patricio
Tongoy; that everybody in Bacolod knew them to be part of the Tongoy-Sonora clan; and that Luis D. Tongoy
as administrator of Hacienda Pulo, also spent for the education of Ricardo Tongoy until he became a lawyer;
and that even petitioners admit the fact that they were half-brothers of the late Luis D. Tongoy.
The bone of contention, however, hinges on the absence of an acknowledgment through any of the modes
recognized by the Old Civil Code (please see Articles 131 and 135 of the Old Civil Code), such that
legitimation could not have taken place in view of the provisions of Art. 121 of the same Code which states that
"children shall be considered legitimated by a subsequent marriage only when they have been acknowledged
by the parents before or after the celebration thereof."
Of course, the overwhelming evidence found by respondent Court of Appeals conclusively shows that
respondents Amado, Ricardo, Cresenciano and Norberto have been in continuous possession of the status of
natural, or even legitimated, children. Still, it recognizes the fact that such continuous possession of status is
not,per se, a sufficient acknowledgment but only a ground to compel recognition (Alabat vs. Alabat, 21 SCRA
1479; Pua vs. Chan, 21 SCRA 753; Larena vs. Rubio, 43 Phil. 1017).
Be that as it may, WE cannot but agree with the liberal view taken by respondent Court of Appeals when it
said:
... It does seem equally manifest, however, that defendants-appellants stand on a purely technical point in the
light of the overwhelming evidence that appellees were natural children of Francisco Tongoy and Antonina
Pabello, and were treated as legitimate children not only by their parents but also by the entire clan. Indeed, it
does not make much sense that appellees should be deprived of their hereditary rights as undoubted natural
children of their father, when the only plausible reason that the latter could have had in mind when he married
his second wife Antonina Pabello just over a month before his death was to give legitimate status to their
children. It is not in keeping with the more liberal attitude taken by the New Civil Code towards illegitimate
children and the more compassionate trend of the New Society to insist on a very literal application of the law
in requiring the formalities of compulsory acknowledgment, when the only result is to unjustly deprive children
who are otherwise entitled to hereditary rights. From the very nature of things, it is hardly to be expected of
appellees, having been reared as legitimate children by their parents and treated as such by everybody, to
bring an action to compel their parents to acknowledge them. In the hitherto cited case of Ramos vs.
Ramos, supra, the Supreme Court showed the way out of patent injustice and inequity that might result in
some cases simply because of the implacable insistence on the technical amenities for acknowledgment.
Thus, it held
Unacknowledged natural children have no rights whatsoever (Buenaventura vs. Urbano, 5 Phil. 1; Siguiong vs.
Siguiong, 8 Phil. 5, 11; Infante vs. Figueras, 4 Phil. 738; Crisolo vs. Macadaeg, 94 Phil. 862). The fact that the
plaintiffs, as natural children of Martin Ramos, received shares in his estate implied that they were
acknowledged. Obviously, defendants Agustin Ramos and Granada Ramos and the late Jose Ramos and
members of his family had treated them as his children. Presumably, that fact was well-known in the
community. Under the circumstances, Agustin Ramos and Granada Ramos and the heirs of Jose Ramos, are
estopped from attacking plaintiffs' status as acknowledged natural children (See Arts. 283 [4] and 2666 [3],
New Civil Code). [Ramos vs. Ramos, supra].
With the same logic, estoppel should also operate in this case in favor of appellees, considering, as already
explained in detail, that they have always been treated as acknowledged and legitimated children of the
second marriage of Francisco Tongoy, not only by their presumed parents who raised them as their children,
but also by the entire Tongoy-Sonora clan, including Luis D. Tongoy himself who had furnished sustenance to
the clan in his capacity as administrator of Hacienda Pulo and had in fact supported the law studies of
appellee Ricardo P. Tongoy in Manila, the same way he did with Jesus T. Sonora in his medical studies. As
already pointed out, even defendants-appellants have not questioned the fact that appellees are half-brothers
of Luis D. Tongoy. As a matter of fact, that are really children of Francisco Tongoy and Antonina Pabello, and
only the technicality that their acknowledgment as natural children has not been formalized in any of the
modes prescribed by law appears to stand in the way of granting them their hereditary rights. But estoppel, as

already indicated, precludes defendants-appellants from attacking appellees' status as acknowledged natural
or legitimated children of Francisco Tongoy. In addition to estoppel, this is decidedly one instance when
technicality should give way to conscience, equity and justice (cf. Vda. de Sta. Ana vs. Rivera, L-22070,
October 29, 1966,18 SCRA 588) [pp. 196-198, Vol. 1, rec.].
It is time that WE, too, take a liberal view in favor of natural children who, because they enjoy the blessings
and privileges of an acknowledged natural child and even of a legitimated child, found it rather awkward, if not
unnecessary, to institute an action for recognition against their natural parents, who, without their asking, have
been showering them with the same love, care and material support as are accorded to legitimate children.
The right to participate in their father's inheritance should necessarily follow.
The contention that the rights of the said respondents Tongoys have prescribed, is without merit. The death
of Francisco Tongoy having occurred on September 15, 1926, the provisions of the Spanish Civil Code is
applicable to this case, following the doctrine laid down in Villaluz vs. Neme (7 SCRA 27) where this Court,
through Mr. Justice Paredes, held:
Considering that Maria Rocabo died (on February 17, 1937) during the regime of the Spanish Civil Code, the
distribution of her properties should be governed by said Code, wherein it is provided that between co-heirs,
the act to demand the partition of the inheritance does not prescribe (Art. 1965 [Old Civil Code]; Baysa, et al.
vs. Baysa, 53 Off. Gaz. 7272). Verily, the 3 living sisters were possessing the property as administratices of
the other co-heirs, plaintiffs-appellants herein, who have the right to vindicate their inheritance regardless of
the lapse of time (Sevilla vs. De los Angeles, L- 7745, 51 Off. Gaz. 5590, and cases cited therein).

June 22, 1936 An Escritura de Venta was executed by Basilisa Cuaycong over the Cuaycong property in
favor of Luis D. Tongoy, thereby resulting in the issuance of TCT No. 21522 in the name of Luis D. Tongoy
married to Ma. Rosario Araneta;
June 26, 1936 Luis D. Tongoy executed a real estate mortgage over the Cuaycong property in favor of the
PNB to secure a loan of P4,500.00; and
June 29, 1936 Luis D. Tongoy executed a real estate mortgage over Hacienda Pulo to secure a loan of
P21,000.00 payable for fifteen years.
When the mortgages were constituted, respondents Cresenciano Tongoy and Norberto Tongoy were still
minors, while respondent Amado Tongoy became of age on August 19, 1931, and Ricardo Tongoy attained
majority age on August 12, 1935. Still, considering that such transfer of the properties in the name of Luis D.
Tongoy was made in pursuance of the master plan to save them from foreclosure, the said respondents were
precluded from doing anything to assert their rights. It was only upon failure of the herein petitioner, as
administrator and/or successor-in-interest of Luis D. Tongoy, to return the properties that the prescriptive
period should begin to run.
As above demonstrated, the prescriptive period is ten year-from the date of recording on May 5, 1958 of the
release of mortgage in the Registry of Deeds.
WHEREFORE, THE JUDGMENT APPEALED FROM IS HEREBY AFFIRMED IN TOTO.

Even following the more recent doctrine enunciated in Gerona vs. de Guzman (11 SCRA 153) that "an action
for reconveyance of real property based upon a constructive or implied trust, resulting from fraud, may be
barred by the statute of limitations" (Candelaria vs. Romero, L-12149, Sept. 30, 1960; Alzona vs. Capunita, L10220, Feb. 28, 1962)", and that "the action therefor may be filed within four years from the discovery of the
fraud x x x", said period may not be applied to this case in view of its peculiar circumstances. The registration
of the properties in the name of Luis D. Tongoy on November 8, 1935 cannot be considered as constructive
notice to the whole world of the fraud.
It will be noted that the foreclosure on the original mortgage over Hacienda Pulo was instituted by PNB as
early as June 18, 1931, from which time the members of the Tongoy-Sonora clan had been in constant
conference to save the property. At that time all the respondents-Tongoys were still minors (except Amado,
who was already 23 years old then), so that there could be truth to the allegation that their exclusion in the
Declaration of Inheritance executed by Patricio and Luis Tongoy on April 29, 1933 was made to facilitate
matters-as part of the general plan arrived at after the family conferences to transfer the administration of the
property to the latter. The events that followed were obviously in pursuance of such plan, thus:

SO ORDERED.
G.R. No. L-15127

May 30, 1961

EMETERIO CUI, plaintiff-appellant,

vs.
ARELLANO UNIVERSITY, defendant-appellee.
G.A.S. Sipin, Jr., for plaintiff-appellant.
E. Voltaire Garcia for defendant-appellee.
CONCEPCION, J.:

March 13, 1934 An Escritura de Venta (Exh. 2 or W) was executed in favor of Luis D. Tongoy by Ana
Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy, transferring
their rights and interests over Hacienda Pulo to the former.

Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila, absolving defendant
Arellano University from plaintiff's complaint, with costs against the plaintiff, and dismissing defendant's
counter claim, for insufficiency of proof thereon.

October 23, 1935 An Escritura de Venta (Exh. 3 or DD) was executed by Jesus Sonora, likewise
transferring his rights and interests over Hacienda Pulo to Luis D. Tongoy;

In the language of the decision appealed from:

November 5, 1935 An Escritura de Venta (Exh. 5 or AA) was also executed by Jose Tongoy in favor of Luis
D. Tongoy for the same purpose; (Note: This was preceded by the execution on October 14, 1935 of an
Assignment of Rights [4 or Z) in favor of Luis D. Tongoy by the Pacific Commercial Company as judgment lienholder [subordinate of the PNB mortgage] of Jose Tongoy on Hacienda Pulo
November 5, 1935 Hacienda Pulo was placed in the name of Luis D. Tongoy married to Ma. Rosario
Araneta with the issuance of TCT 20154 (Exh. 20);

The essential facts of this case are short and undisputed. As established by the agreement of facts Exhibits X
and by the respective oral and documentary evidence introduced by the parties, it appears conclusive that
plaintiff, before the school year 1948-1949 took up preparatory law course in the defendant University. After
finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from the school
year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first
semester of the fourth year. During all the school years in which plaintiff was studying law in defendant law
college, Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law and
legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law studies in the
defendant university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having
severed his connection with defendant and having accepted the deanship and chancellorship of the College of
Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for the last semester of
his fourth year law in the college of law of the Abad Santos University graduating from the college of law of the

latter university. Plaintiff, during all the time he was studying law in defendant university was awarded
scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of
semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by
plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first
semester of his last year in the college of law or the fourth year, is in total P1,033.87. After graduating in law
from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he
needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to
him the needed transcripts. The defendant refused until after he had paid back the P1,033 87 which defendant
refunded to him as above stated. As he could not take the bar examination without those transcripts, plaintiff
paid to defendant the said sum under protest. This is the sum which plaintiff seeks to recover from defendant
in this case.
Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the
following contract covenant and agreement:
"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to
another school without having refunded to the University (defendant) the equivalent of my scholarship cash.

(Sgd.) Emeterio Cui".

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of
1949, on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities,"
reading:
1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial
scholarships to deserving students for excellence in scholarship or for leadership in extra-curricular
activities. Such inducements to poor but gifted students should be encouraged. But to stipulate the condition
that such scholarships are good only if the students concerned continue in the same school nullifies the
principle of merit in the award of these scholarships.
2. When students are given full or partial scholarships, it is understood that such scholarships are merited and
earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently
charged to the recipient students when they decide to quit school or to transfer to another institution.
Scholarships should not be offered merely to attract and keep students in a school.
3. Several complaints have actually been received from students who have enjoyed scholarships, full or
partial, to the effect that they could not transfer to other schools since their credentials would not be released
unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes
that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such
transfer.
that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools
to pass upon the issue on his right to secure the transcript of his record in defendant University, without being
required to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the
plaintiff and so advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript
of records, unless said refund were made, and even recommended to said Bureau that it issue a written order
directing the defendant to release said transcript of record, "so that the case may be presented to the court for
judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said
sum of P1,033.87, in order that he could take the bar examination in 1953. Subsequently, he brought this
action for the recovery of said amount, aside from P2,000 as moral damages, P500 as exemplary damages,
P2,000 as attorney's fees, and P500 as expenses of litigation.
In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the
provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is null
and void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees.

The issue in this case is whether the above quoted provision of the contract between plaintiff and the
defendant, whereby the former waived his right to transfer to another school without refunding to the latter the
equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative,
upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the
provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be
unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and
simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that
the aforementioned memorandum of the Director of Private Schools is null and void because said officer had
no authority to issue it, and because it had been neither approved by the corresponding department head nor
published in the official gazette.
We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had
sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the
issue before us, and its far reaching effects, transcend personal equations and demand a determination of the
case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said
Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is
contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound
principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the
defendant,
There is one more point that merits refutation and that is whether or not the contract entered into between Cui
and Arellano University on September 10, 1951 was void as against public policy. In the case of Zeigel vs.
Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy
of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes,
and the practice of government officers.' It might take more than a government bureau or office to lay down or
establish a public policy, as alleged in your communication, but courts consider the practices of government
officials as one of the four factors in determining a public policy of the state. It has been consistently held in
America that under the principles relating to the doctrine of public policy, as applied to the law of contracts,
courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated
to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169
U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University
understood clearly the real essence of scholarships and the motives which prompted this office to issue
Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10,
1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of
Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in
Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract
void as against public policy, a court must find that the contract as to consideration or the thing to be done,
contravenes some established interest of society, or is inconsistent with sound policy and good morals or
tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s.
1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in
school to bolster its prestige. In the understanding of that university scholarships award is a business
scheme designed to increase the business potential of an education institution. Thus conceived it is not only
inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good
customs; those generally accepted principles of morality which have received some kind of social and practical
confirmation. The practice of awarding scholarships to attract students and keep them in school is not good
customs nor has it received some kind of social and practical confirmation except in some private institutions
as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the
Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to
reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the
leading colleges and universities of the United States after which our educational practices or policies are
patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school
for their propaganda mine but to reward merit or help gifted students in whom society has an established
interest or a first lien. (Emphasis supplied.)
WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing
the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from
September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's
counterclaim. It is so ordered.
G.R. No. 130716 May 19, 1999

FRANCISCO I. CHAVEZ, petitioner,

vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO, (in
his capacity as chairman of the PCGG), respondents, GLORIA A. JOPSON, CELNAN A. JOPSON,
SCARLET A. JOPSON, and TERESA A. JOPSON, petitioners-in-intervention.
RESOLUTION

PANGANIBAN, J.:
Before the Court are (1) a "Motion for Leave to Intervene with Motion for Leave to File the Attached Partial
Motion for Reconsideration . . ." and (2) "Partial Motion for Reconsideration," both filed on January 22, 1999,
as well as movants' Memorandum of Authorities filed on March 16, 1999.
Movants Ma. Imelda Marcos-Manotoc, Ferdinand R. Marcos II and Irene Marcos-Araneta allege that they are
parties and signatories 1 to the General and Supplemental Agreements dated December 28, 1993, which this
Court, in its Decision promulgated on December 9, 1998, declared "NULL AND VOID for being contrary to law
and the Constitution." As such, they claim to "have a legal interest in the matter in litigation, or in the success
of either of the parties or an interest against both as to warrant their intervention." They add that their
exclusion from the instant case resulted in a denial of their constitutional rights to due process and to equal
protection of the laws. They also raise the "principle of hierarchical administration of justice" to impugn the
Court's cognizance of petitioner's direct action before it.

We rule that the movants are merely incidental, not indispensable, parties to the instant case. Being
contractors to the General and Supplemental Agreements involving their supposed properties, they claim that
their interests are affected by the petition. However, as exhaustively discussed in the assailed Decision, the
Agreements undeniably contain terms an condition that are clearly contrary to the Constitution and the laws
and are not subject to compromise. Such terms and conditions cannot be granted by the PCGG to anyone, not
just to movants. Being so, no argument of the contractors will make such illegal and unconstitutional
stipulations pass the test of validity.4 The void agreement will not be rendered operative by the parties' alleges
performance (partial or full) of their respective prestations. A contract that violates the Constitution and the law
is null and void ab intio and vests no rights and creates no obligations. It produces no legal effect at all. 5 In
legal terms, the movants have really no interest to protect or right to assert in this proceeding. Contrary to their
allegations, no infraction upon their rights has been committed.
The original petition of Francisco I. Chavez sought to enforce a constitutional right against the Presidential
Commission on Good Government (PCGG) and to determine whether the latter has been acting within the
bounds of its authority. In the process of adjudication, there is no need to call on each and every party whom
said agency has contracted with.
In any event, we are now ruling on the merits of the arguments raised by movants; hence, they can no longer
complain of not having been heard in this proceeding.
Petition Treated as an Exception to
the Principle of Hierarchical
Administration of Justice

The motions are not meritorious.

Intervention Not Allowed
After Final Judgment
First, we cannot allow the Motion for Leave to Intervene at this late stage of the proceedings. Section 2, Rule
19 of the Rules of Court, provides that a motion to intervene should be filed "before rendition of judgment . . ."
Our Decision was promulgated December 9, 1998, while movants came to us only on January 22, 1999.
Intervention can no longer be allowed in a case already terminated by the final judgment. 2
Second, they do not even offer any valid plausible excuse for such late quest to assert their alleged rights.
Indeed, they may have no cogent reason at all. As Petitioner Chavez asserts, 3 the original petition, which was
filed on October 3, 1997, was well-publicized. So were its proceedings, particularly the oral arguments heard
on March 16, 1998. Movants have long been back in the mainstream of Philippine political and social life.
Indeed, they could not (and in fact did not) even feign unawareness of the petition prior to its disposition.
Third, the assailed Decision has become final and executory; the original parties have not filed any motion for
reconsideration, and the period for doing so has long lapsed. Indeed, the movants are now legally barred from
seeking leave to participate in this proceeding. Nevertheless, we shall tackle their substantive arguments,
most of which have been taken up in said Decision, so as to finally dispose any allegation, even in the remote
future, of lack of due process or violation of the right to equal protection.
No Denial of Due Process
Movants claim that their exclusion from the proceeding regarding the Agreements to which they were parties
and signatories was a denial of "their property right to contract without due process of law."

Movants allege that despite petitioner's own statement that he did not intended "to stop or delay . . . the
proceedings involving the subject agreements as an incident before the Sandiganbayan," this Court ruled the
validity of the said Agreements. They submit that it thereby preempted the Sandiganbayan and rendered moot
the three-year proceedings so far undertaken by the latter court regarding the same. Movants pray that the
proceedings before the anti-graft court be allowed to take their due course, consistent with the principle of the
hierarchical administration of justice.
This matter has been discussed and ruled upon in the assailed Decision. Movants have not raised any new
argument that has not been taken up. In any event, we wish to point out that the principle of the hierarchy of
the courts generally applies to cases involving factual question. The oft-repeated justification for invoking it is
that such cases do not only impose upon the precious time of the Court but, more important, inevitably result
in their delayed adjudication. Often, such cases have to be remanded or referred to the lower court as the
proper forum or as better equipped t resolve to the issues, since the Supreme Court is not a trier of
facts. 6 Inasmuch as the petition at bar involves only constitutional and legal questions concerning public
interest, the Court resolved to exercise primary jurisdiction on the matter.
Moreover, in taking jurisdiction over the Chavez petition, the Court actually avoided unnecessary delays and
expenses in the resolution of the ill-gotten wealth cases, which have been pending for about twelve years now.
With this Decision, the Sandiganbayan may now more speedily resolves the merits of Civil Case No. 141.
Finally, it is an elementary rule that this Court may at its sound discretion suspend procedural rules in the
interest of substantial justice. 7
Petition Sought to Define
Scope of Right to Information
Movants insist that there was "nothing "secret" or "furtive" about the agreements as to warrant their
compulsory disclosure by the Honorable Court . . .." They submit that when they filed their Motion for Approval

of Compromise Agreements before the Sandiganbayan, they practically "opened to public scrutiny the
agreements and everything else related thereto."
In our Decision, we have already discussed this point and, hence, shall no longer belabor it. Suffice it to say
that in our Decision, we ruled that the Chavez petition was not confined to the conclude terms contained in the
Agreements, but likewise concerned other ongoing and future negotiations and agreement, perfected or not. It
sought a precise interpretation of the scope of the twin constitutional provisions on "public transactions." It was
therefore not endered moot and academic simply by the public disclosure of the subject Agreements.

The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the
consent of one renders the sale null and void, while the vitiation thereof makes it merely voidable. Only in the
latter case can ratification cure the defect.
The Case

These were the principles that guided the Court in deciding this petition for review of the Decision [1] dated
January 30, 1996 and the Resolution[2] dated May 28, 1996, promulgated by the Court of Appeals in CA-GR
CV No. 41758, affirming the Decision of the lower court and denying reconsideration, respectively.

Alleged Partial Implementation

of Agreements Immaterial
The movants also claim that PCGG's grant to their mother of access rights to one of their sequestered
properties may be equivalent to an implied ratification of the Agreements. As we have ruled, the subject
Agreements are null and void for being contrary to the Constitution and the laws. Being null and void, they are
not subject to ratification. 8 Neither will they acquire validity through the passage of time. 9
Petition Presented Actual

On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended Complaint [3] against her husband Judie
Corpuz and Petitioners-Spouses Antonio and Luzviminda Guiang. The said Complaint sought the declaration
of a certain deed of sale, which involved the conjugal property of private respondent and her husband, null and
void. The case was raffled to the Regional Trial Court of Koronadal, South Cotabato, Branch 25. In due
course, the trial court rendered a Decision[4] dated September 9, 1992, disposing as follows: [5]
ACCORDINGLY, judgment is rendered for the plaintiff and against the defendants,
1.
Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. A) and the amicable
settlement dated March 16, 1990 (Exh. B) as null and void and of no effect;

Case and Judicial Question

We reiterate that mandamus, over which this Court has original jurisdiction, is proper recourse for a citizen to
enforce a public right and to compel the performance of a public duty, most especially when mandated by the
Constitution. As aptly pointed out by Mr. Justice Jose C. Vitug, 10 "procedural rules . . . [are] not cogent
reasons to deny to the Court its taking cognizance of the case."
There is no political question involved here. The power and the authority of the PCGG to compromise is not
the issue. In fact, we have not prohibited or restrained it from doing so. But when the compromise entered into
palpably violated the Constitution and the laws, this Court is duty-bound to strike it down as null and void.
Clearly, by violating the Constitution and the laws, the PCGG gravely abused its discretion. 11

2.
Recognizing as lawful and valid the ownership and possession of plaintiff Gilda Corpuz over the
remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409 which has been the subject of the Deed of
Transfer of Rights (Exh. A);
3.
Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda and Antonio Guiang the amount of
NINE THOUSAND (P9,000.00) PESOS corresponding to the payment made by defendants Guiangs to
Manuel Callejo for the unpaid balance of the account of plaintiff in favor of Manuel Callejo, and another sum
of P379.62 representing one-half of the amount of realty taxes paid by defendants Guiangs on Lot 9, Block 8,
(LRC) Psd-165409, both with legal interests thereon computed from the finality of the decision.
No pronouncement as to costs in view of the factual circumstances of the case.

In sum, we hold that the motions are procedurally flawed and that, at this late stage, intervention can no longer
be allowed. Moreover, movants are not indispensable parties to this suit which principally assails the
constitutionality and legality of PCGG's exercise of its discretion. In any event, the Court has ruled on the
merits of movants' claims. Hence, they can no longer complain, however remotely, of deprivation of due
process or of equal protection of the law.
WHEREFORE, the motions are hereby DENIED for lack of merit. Let the Decision of this Court, dated
December 9, 1998, be now entered.1wphi1.nt
SO ORDERED.
[G.R. No. 125172. June 26, 1998]
Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners, vs. COURT OF APPEALS and GILDA
CORPUZ, respondents.
DECISION
PANGANIBAN, J.:

Dissatisfied, petitioners-spouses filed an appeal with the Court of Appeals. Respondent Court, in its
challenged Decision, ruled as follows: [6]
WHEREFORE, the appealed decision of the lower court in Civil Case No. 204 is hereby AFFIRMED by this
Court. No costs considering plaintiff-appellees failure to file her brief, despite notice.
Reconsideration was similarly denied by the same court in its assailed Resolution: [7]
Finding that the issues raised in defendants-appellants motion for reconsideration of Our decision in this case
of January 30, 1996, to be a mere rehash of the same issues which We have already passed upon in the said
decision, and there [being] no cogent reason to disturb the same, this Court RESOLVES to DENY the instant
motion for reconsideration for lack of merit.
The Facts

The facts of this case are simple. Over the objection of private respondent and while she was in Manila
seeking employment, her husband sold to the petitioners-spouses one half of their conjugal property,
consisting of their residence and the lot on which it stood. The circumstances of this sale are set forth in the
Decision of Respondent Court, which quoted from the Decision of the trial court, as follows: [8]

1.
Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses. They were married on
December 24, 1968 in Bacolod City, before a judge. This is admitted by defendants-spouses Antonio and
Luzviminda Guiang in their answer, and also admitted by defendant Judie Corpuz when he testified in court
(tsn. p..3, June 9, 1992), although the latter says that they were married in 1967. The couple have three
children, namely: Junie 18 years old, Harriet 17 years of age, and Jodie or Joji, the youngest, who was 15
years of age in August, 1990 when her mother testified in court.
Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with plaintiff-wife Gilda Corpuz as
vendee, bought a 421 sq. meter lot located in Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South
Cotabato, and particularly known as Lot 9, Block 8, (LRC) Psd-165409 from Manuel Callejo who signed as
vendor through a conditional deed of sale for a total consideration of P14,735.00. The consideration was
payable in installment, with right of cancellation in favor of vendor should vendee fail to pay three successive
installments (Exh. 2, tsn. p. 6, February 14, 1990).
2.
Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half portion of their Lot No. 9,
Block 8, (LRC) Psd-165409 to the defendants-spouses Antonio and Luzviminda Guiang. The latter have since
then occupied the one-half portion [and] built their house thereon (tsn. p. 4, May 22, 1992). They are thus
adjoining neighbors of the Corpuzes.
3.
Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to look for work abroad, in
[the] Middle East. Unfortunately, she became a victim of an unscrupulous illegal recruiter. She was not able
to go abroad. She stayed for sometime in Manila however, coming back to Koronadal, South Cotabato, x x x
on March 11, 1990. Plaintiffs departure for Manila to look for work in the Middle East was with the consent of
her husband Judie Corpuz (tsn. p. 16, Aug.12, 1990; p. 10, Sept. 6, 1991).
After his wifes departure for Manila, defendant Judie Corpuz seldom went home to the conjugal dwelling. He
stayed most of the time at his place of work at Samahang Nayon Building, a hotel, restaurant, and a
cooperative. Daughter Harriet Corpuz went to school at Kings College, Bo. 1, Koronadal, South Cotabato, but
she was at the same time working as household help of, and staying at, the house of Mr. Panes. Her brother
Junie was not working. Her younger sister Jodie (Joji) was going to school. Her mother sometimes sent them
money (tsn. p. 14, Sept. 6, 1991).
Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the remaining one-half
portion including their house, of their homelot to defendants Guiangs. She wrote a letter to her mother
informing her. She [Gilda Corpuz] replied that she was objecting to the sale. Harriet, however, did not inform
her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that she [Guiang] would advise
her father (tsn. pp. 16-17, Sept. 6, 1991).
4.
However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz pushed through the sale of
the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409. On March 1, 1990, he sold to defendant
Luzviminda Guiang thru a document known as Deed of Transfer of Rights (Exh. A) the remaining one-half
portion of their lot and the house standing thereon for a total consideration of P30,000.00 of which P5,000.00
was to be paid in June , 1990. Transferor Judie Corpuzs children Junie and Harriet signed the document as
witnesses.
Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure whatever defect in defendant Judie
Corpuzs title over the lot transferred, defendant Luzviminda Guiang as vendee executed another agreement
over Lot 9, Block 8, (LRC) Psd-165408 (Exh. 3), this time with Manuela Jimenez Callejo, a widow of the
original registered owner from whom the couple Judie and Gilda Corpuz originally bought the lot (Exh. 2),
who signed as vendor for a consideration of P9,000.00. Defendant Judie Corpuz signed as a witness to the
sale (Exh. 3-A). The new sale (Exh. 3) describes the lot sold as Lot 8, Block 9, (LRC) Psd-165408 but it is
obvious from the mass of evidence that the correct lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot earlier
sold to the couple Gilda and Judie Corpuz.

5.
Sometime on March 11, 1990, plaintiff returned home. She found her children staying with other
households. Only Junie was staying in their house. Harriet and Joji were with Mr. Panes. Gilda gathered her
children together and stayed at their house. Her husband was nowhere to be found. She was informed by her
children that their father had a wife already.
6.
For staying in their house sold by her husband, plaintiff was complained against by defendant
Luzviminda Guiang and her husband Antonio Guiang before the Barangay authorities of Barangay General
Paulino Santos (Bo. 1), Koronadal, South Cotabato, for trespassing (tsn. p. 34, Aug. 17, 1990). The case was
docketed by the barangay authorities as Barangay Case No. 38 for trespassing. On March 16, 1990, the
parties thereat signed a document known as amicable settlement. In full, the settlement provides for, to wit:
That respondent, Mrs. Gilda Corpuz and her three children, namely: Junie, Hariet and Judie to leave
voluntarily the house of Mr. and Mrs. Antonio Guiang, where they are presently boarding without any charge,
on or before April 7, 1990.
FAIL NOT UNDER THE PENALTY OF THE LAW.
Believing that she had received the shorter end of the bargain, plaintiff went to the Barangay Captain of
Barangay Paulino Santos to question her signature on the amicable settlement. She was referred however to
the Officer-In-Charge at the time, a certain Mr. de la Cruz. The latter in turn told her that he could not do
anything on the matter (tsn. p. 31, Aug. 17, 1990).
This particular point was not rebutted. The Barangay Captain who testified did not deny that Mrs. Gilda
Corpuz approached him for the annulment of the settlement. He merely said he forgot whether Mrs. Corpuz
had approached him (tsn. p. 13, Sept. 26, 1990). We thus conclude that Mrs. Corpuz really approached the
Barangay Captain for the annulment of the settlement. Annulment not having been made, plaintiff stayed put
in her house and lot.
7.
Defendant-spouses Guiang followed thru the amicable settlement with a motion for the execution of the
amicable settlement, filing the same with the Municipal Trial Court of Koronadal, South Cotabato. The
proceedings [are] still pending before the said court, with the filing of the instant suit.
8.
As a consequence of the sale, the spouses Guiang spent P600.00 for the preparation of the Deed of
Transfer of Rights, Exh. A; P9,000.00 as the amount they paid to Mrs. Manuela Callejo, having assumed the
remaining obligation of the Corpuzes to Mrs. Callejo (Exh. 3); P100.00 for the preparation of Exhibit 3; a total
of P759.62 basic tax and special educational fund on the lot; P127.50 as the total documentary stamp tax on
the various documents; P535.72 for the capital gains tax; P22.50 as transfer tax; a standard fee of P17.00;
certification fee of P5.00. These expenses particularly the taxes and other expenses towards the transfer of
the title to the spouses Guiangs were incurred for the whole Lot 9, Block 8, (LRC) Psd-165409.
Ruling of Respondent Court

Respondent Court found no reversible error in the trial courts ruling that any alienation or encumbrance by the
husband of the conjugal property without the consent of his wife is null and void as provided under Article 124
of the Family Code. It also rejected petitioners contention that the amicable settlement ratified said sale,
citing Article 1409 of the Code which expressly bars ratification of the contracts specified therein, particularly
those prohibited or declared void by law.
Hence, this petition.[9]
The Issues

In their Memorandum, petitioners assign to public respondent the following errors: [10]

ATTY. FUENTES:

Whether or not the assailed Deed of Transfer of Rights was validly executed.

When did you come back to Koronadal, South Cotabato?

II

That was on March 11, 1990, Maam.

Whether or not the Court of Appeals erred in not declaring as voidable contract under Art. 1390 of the Civil
Code the impugned Deed of Transfer of Rights which was validly ratified thru the execution of the amicable
settlement by the contending parties.

Q Now, when you arrived at Koronadal, was there any problem which arose concerning the ownership of
your residential house at Callejo Subdivision?
A
When I arrived here in Koronadal, there was a problem which arose regarding my residential house and
lot because it was sold by my husband without my knowledge.

III
Whether or not the Court of Appeals erred in not setting aside the findings of the Court a quo which recognized
as lawful and valid the ownership and possession of private respondent over the remaining one half (1/2)
portion of the subject property.
In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of Transfer of Rights) was merely
voidable, and (2) such contract was ratified by private respondent when she entered into an amicable
settlement with them.
This Courts Ruling

The petition is bereft of merit.

First Issue: Void or Voidable Contract?

Petitioners insist that the questioned Deed of Transfer of Rights was validly executed by the partieslitigants in good faith and for valuable consideration. The absence of private respondents consent merely
rendered the Deed voidable under Article 1390 of the Civil Code, which provides:
ART. 1390. The following contracts are voidable or annullable, even though there may have been no damage
to the contracting parties:
xxx
(2)

xxx

xxx

Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of
ratification.(n)
The error in petitioners contention is evident. Article 1390, par. 2, refers to contracts visited by vices of
consent, i.e., contracts which were entered into by a person whose consent was obtained and vitiated through
mistake, violence, intimidation, undue influence or fraud. In this instance, private respondents consent to the
contract of sale of their conjugal property was totally inexistent or absent. Gilda Corpuz, on direct
examination, testified thus:[11]
Q

Now, on March 1, 1990, could you still recall where you were?

I was still in Manila during that time.

xxx

xxx

xxx

This being the case, said contract properly falls within the ambit of Article 124 of the Family Code, which was
correctly applied by the two lower courts:
ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both
spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to recourse to the court
by the wife for proper remedy, which must be availed of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers of administration. These powers do not
include the powers of disposition or encumbrance which must have the authority of the court or the written
consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance
shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other
spouse or authorization by the court before the offer is withdrawn by either or both offerors.(165a) (Italics
supplied)
Comparing said law with its equivalent provision in the Civil Code, the trial court adroitly explained the
amendatory effect of the above provision in this wise: [12]
The legal provision is clear. The disposition or encumbrance is void. It becomes still clearer if we compare
the same with the equivalent provision of the Civil Code of the Philippines. Under Article 166 of the Civil Code,
the husband cannot generally alienate or encumber any real property of the conjugal partnership without the
wifes consent. The alienation or encumbrance if so made however is not null and void. It is merely
voidable. The offended wife may bring an action to annul the said alienation or encumbrance. Thus, the
provision of Article 173 of the Civil Code of the Philippines, to wit:
Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the
courts for the annulment of any contract of the husband entered into without her consent, when such consent
is required, or any act or contract of the husband which tends to defraud her or impair her interest in the
conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of
the marriage, may demand the value of property fraudulently alienated by the husband.(n)
This particular provision giving the wife ten (10) years x x x during [the] marriage to annul the alienation or
encumbrance was not carried over to the Family Code. It is thus clear that any alienation or encumbrance
made after August 3, 1988 when the Family Code took effect by the husband of the conjugal partnership
property without the consent of the wife is null and void.
Furthermore, it must be noted that the fraud and the intimidation referred to by petitioners were perpetrated in
the execution of the document embodying the amicable settlement. Gilda Corpuz alleged during trial that
barangay authorities made her sign said document through misrepresentation and coercion. [13] In any event,
its execution does not alter the void character of the deed of sale between the husband and the petitioners-

spouses, as will be discussed later. The fact remains that such contract was entered into without the wifes
consent.

Appeal from the order of the Court of First Instance of Pangasinan dismissing the complaint filed in Civil Case
No. D1227 and the order denying the motion for the reconsideration of said order.

In sum, the nullity of the contract of sale is premised on the absence of private respondents consent. To
constitute a valid contract, the Civil Code requires the concurrence of the following elements: (1) cause, (2)
object, and (3) consent,[14] the last element being indubitably absent in the case at bar.

The complaint, filed on August 1, 1961, is for the annulment of a document, denominated "DEED OF
ABSOLUTE SALE", executed on August 3, 1955, by and between Paulino Galvan, professedly the
predecessor in interest of herein plaintiffs, and defendants Josefa Galvan and Natividad S. Galvan, and for
damages and attorney's fees. The plaintiffs therein alleged that Paulino Galvan, during his lifetime, was the
registered owner of an undivided one- half (1/2) interest over two parcels of land, known as Lot Nos. 4541 and
4542 of the Dagupan Cadastre and covered by OCT Nos. 38131 and 39317. respectively, of the Register of
Deeds of Dagupan City. The other undivided half is owned by his two daughters by a first marriage. herein
defendants Josefa Galvan and Natividad Galvan. On these lots, which are contiguous, is built the family home.
On February 10, 1961, Paulino Galvan died and the plaintiffs, out of "delicadeza" waited for the defendants to
initiate the move for the settlement of his estate. But, after waiting for some time and finding that none was
forthcoming, the plaintiffs became apprehensive, so that they began to go over the papers concerning the
properties of the decedent. In the office of the Register of Deeds of Dagupan City, they were surprised to find
a deed of sale, signed by the late Paulino Galvan and the plaintiff, Maria Encarnacion Castillo, whereby they
had purportedly sold for P500.00 the one-half undivided portion of Paulino Galvan over said lots in favor of
defendants. When apprised of the existence of a deed of sale, plaintiff Maria Encarnacion Castillo
remembered that way back in 1953, she and her husband Paulino Galvan were made to sign a certain
document by Josefa Galvan "upon the fraudulent misrepresentation that the said document was only for the
purpose of enabling them, the co-owners of the parcels of land in question, to have their separate tax
declarations for the respective portions owned by them so that they can pay their respective real estate taxes
separately, the said spouses not knowing that the said document is a deed of sale for which no consideration
was even paid." The plaintiffs further alleged that Paulino Galvan could not have intended to sell his share and
participation over the lots in question during his lifetime as he had no other residential lot to live in and there is
no necessity for him to sell the same as he and his wife had sufficient income to sustain them. Besides, the
undivided halt share of Paulino Galvan was worth around P22,500.00 so that he could not have sold it for only
P500.00. Wherefore, they prayed that the deed of sale be declared null and void; that the plaintiffs be declared
the owners of four-sixths (4/6) of the undivided half share pertaining to Paulino Galvan; that the defendants be
ordered to pay the amount of P1,500.00, as attorney's fees; and to pay the costs of suit. 1

Second Issue: Amicable Settlement

Insisting that the contract of sale was merely voidable, petitioners aver that it was duly ratified by the
contending parties through the amicable settlement they executed on March 16, 1990 in Barangay Case No.
38.
The position is not well taken. The trial and the appellate courts have resolved this issue in favor of the private
respondent. The trial court correctly held:[15]
By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed of Transfer of Rights (Exh. A)
cannot be ratified, even by an amicable settlement. The participation by some barangay authorities in the
amicable settlement cannot otherwise validate an invalid act. Moreover, it cannot be denied that the
amicable settlement (Exh. B) entered into by plaintiff Gilda Corpuz and defendant spouses Guiang is a
contract. It is a direct offshoot of the Deed of Transfer of Rights (Exh. A). By express provision of law, such a
contract is also void. Thus, the legal provision, to wit:
Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent. (Civil
Code of the Philippines).
In summation therefore, both the Deed of Transfer of Rights (Exh. A) and the amicable settlement (Exh. 3)
are null and void.
Doctrinally and clearly, a void contract cannot be ratified. [16]
Neither can the amicable settlement be considered a continuing offer that was accepted and perfected by the
parties, following the last sentence of Article 124. The order of the pertinent events is
clear: after the sale, petitioners filed a complaint for trespassing against private respondent, after which
the barangay authorities secured an amicable settlement and petitioners filed before the MTC a motion for its
execution. The settlement, however, does not mention a continuing offer to sell the property or an acceptance
of such a continuing offer. Its tenor was to the effect that private respondent would vacate the property. By no
stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124.
WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged Decision and
Resolution. Costs against petitioners.

The defendants filed their answer with counterclaim on August 23, 1961 wherein they interposed negative and
affirmative defenses. As their affirmative defense, the defendants claim that "they are the absolute and
exclusive owners of whole parcels of land described iii the complaint for having acquired the portions
belonging to their late partner Paulino Galvan through legal and valid conveyance and this fact is known to the
plaintiffs long before the filing of the complaint," 2
Three years thereafter, or on August 24, 1964, but before the case was tried, the defendants filed an amended
answer with the corresponding motion to admit it, which amended answer contained an allegation that "the
action of plaintiffs is barred by the statute of limitations." 3
The plaintiffs filed objections to the defendants' motion to amend their answer. Plaintiffs' principal objection
was their contention that the defendants had waived the right to plead the statute of stations and were
estopped from pleading it by reason of the fact that they had tried to do so after the filing of their answer to the
complaint The plaintiff further contend that the inclusion of the defense of prescription substantially altered the
defense. 4

SO ORDERED.
G.R. No. L-27841 October 20, 1978
MARIA ENCARNACION CASTILLO, ELISEA GALVAN, and PATROCINIO GALVAN, plaintiffs-appellants,
vs.
JOSEFA GALVAN, EMILIO SAMSON, and NATIVIDAD GALVAN, defendants-appellees.

CONCEPCION, JR., J.:

Over plaintiffs objections, the trial court permitted the defendants to amend their answer by adding the defense
of statute of limitations. 5
Then two more years later or on August 27, 1966, the defendants filed a motion to dismiss the complaint upon
the ground that the action is barred by the statute of stations for the reason that the present action for the
annulment of the instrument of sale is based upon fraud which should be brought within four (4) years from the
time of the discovery of the same in accordance with Article 1391 of the Civil Code; and fraud, as a ground for
annulment, shall be deemed to be discovered from the date of the registration of the alleged fraudulent
documents; and considering that the deed of sale in question was registered on August 4, 1955, while the
action for its annulment was commenced only on August 1, 1961, or after the lapse of more than four (4) years
from its registration with the Register of Deeds, the action for annulment had prescribed. 6

The trial court sustained the defendants' contention, and, consequently, dismissed the complaint without costs,
on September 22, 1966. 7 A motion for the reconsideration of this order having been denied on November 2,
1966, 8 the plaintiffs interposed the present appeal.
The appeal raises two issues for determination, the first of which is whether or not the trial court erred in
admitting the amended answer which incorporated a defense of prescription not heretofore pleaded in the
original answer.
The plaintiffs insist that the defendants, by their commission to plead the statute of limitations in their original
answer, waived W relinquished that plea for all time, and that it was therefore error for the trial court to permit
the plea. On this contention, plaintiffs direct our attention to Sec. 2, Rule 9, of the Rules of Court which reads
as follows:
Section 2. Defenses and objections not pleaded deemed waived. Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived; except the failure to state a cause of action
which may be alleged in a later pleading, if one is permitted, or by motion for judgment on the pleadings, or at
the trial on the merits; but in the last instance. the motion shall be disposed of as provided in Section 5 of Rule
10 in the light of any evidence which may have been received. Whenever it appears that the court has no
jurisdiction over the-subject-matter, it shall dismiss the action.
The plaintiffs have apparently ignored the rule that a party may amend his pleading once as a matter of course
at any time before a responsive pleading is served, or, if the pleading is one to which no responsive pleading
is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within
ten (10) days after it is served. After the case is set for hearing, substantial amendments may be made only
upon leave of court. But such leave may be refused if it appears to the court that the motion was made with
intent to delay the action or that the cause of action or defense is substantially altered. 9
Here, leave to file an amended answer was sought after the case had been set for trial but before the trial
thereof,10 so that it is wen within the ambit of the rule aforementioned. Indeed, if the plaintiffs believed that the
trial court gravely abused its discretion in allowing the amendments to the answer, they should have filed the
proper corrective action earlier. The inclusion of the defense of statute of limitations is also claimed to have
substantially altered the defense, in that in the original answer, the defendants invoked only "specific denial"
as their defense, which means that they deny the truth of the allegations of fact constituting the fraud as
alleged in the complaint, whereas the defense of statute of limitations impliedly admits the truth of facts
alleged in the complaint as constituting the fraud, and, therefore, inadmissible.
The alteration pointed to by the plaintiffs is but nominal, and can not be considered a substantial alteration in
the defense within the meaning of the rule. Comparing the original answer with amendments made thereto.
there are no allegations in the amended answer wholly different from those which were stated in the original
answer, except for the addition of the allegation that "the action of' the plaintiff's is barred by the statute of
limitations." As in their original answer, the defendants have maintained that "they are absolute and exclusive
owners of whole parcels of land described in the complaint for having acquired the portions belonging to their
late father Paulino Galvan through legal and valid conveyance and this fact is known to plaintiffs long before
the filing of the complaint." Even the prayer is the same. It is a sound estimate that the defense of prescription
was, interposed to strengthen Their previous defense of estoppel or laches The plaintiffs could not have been
placed at a disadvantage for as a Matter of fact, the plaintiffs had anticipated the defense of prescription in
their complaint by pleading that they came to know of the existence of the deed of sale only after the went
over the papers concerning the land in the office of the register of Deeds of Dagupan City in 196 1, after the
death of Paulino Galvan. 11
At any rate, under Section 2, Rule 8 of the Rules of Court, a party is allowed to set forth in his pleading two or
more statements or a claim or defense alternatively or hypothetically either in one cause of action or defense
or in separate causes of action or defenses. And a defendant may set forth by his answer as many defenses
and counterclaim as he may whatever be their nature regardless of consistency, provided, that each is
consisted with itself. 12

The other issue raised is whether or not the trial court improperly dismissed the complaint on the ground of
prescription. In its order dated September 22, 1966, dismissing the complaint, the trial court said:
The complaint, among others. prays for the annulment of document, which is a deed of sale dated August 3.
1955, purporting conveyance of the two parcels described in the complaint in favor of defendants Josefa
Galvan and Natividad Galvan and Emilio Sam son. Said document (Exh. I for defendants) was registered on
August 1, 1955 (Exhs. I-A and I-B). It is the contention of the defendants that plaintiffs' action has prescribed
as the same was not presented within four years from the registration of the document.
The court sustains defendants' contention. The basis of the annulment is alleged fraud, and the action for the.
annulment of the document should be brought within 4 years from the discovery of fraud (Mauricio vs.
Villanueva, L-11072, September 24, 1959), and that such discovery of fraud is deemed to have taken place
when the instrument was filed and registered with the Register of Deeds and new transfer certificate of title is
issued in the name of the vendee for the registration of the deed constitutes Constructive notice to the whole
world (Diaz vs. Gorricho, L-11229, March 29, 1964).
In view of the foregoing, the court resolves to dismiss as it hereby dismisses, the complaint without cost.

13

The allegations of the complaint show, however, that the plaintiffs' action is to declare void and inexistent the
deed of sale executed by Paulino Galvan and Encarnacion Castillo on August 3. 1955 in favor of Josefa and
Natividad Galvan, upon 'he grounds that (a) there is fraud in securing the signatures of the vendors in said
deed of sale: and (b) there was no consideration given at the time of the transaction. In other words, the
plaintiffs are seeking a judicial declaration that the deed of sale in question is void ab initio, which action is
inprescriptible. 14The trial court erred, therefore, in dismissing the complaint for the reasons stated.
WHEREFORE, the judgment appealed from is reversed and the order of September 22. 1966, dismissing the
complaint is hereby set aside. Let this case be remanded to the court of origin for further proceedings. Without
costs.
SO ORDERED.
Fernando (Chairman), Antonio, Aquino, and Santos JJ., concur.
Separate Opinions
BARREDO, J., concurring:
Because I am in favor of liberalizing the rule on waiver of defenses in order to promote substantial justice: The
main opinion as well as that of Justice Concepcion Jr., have that tendency. See attached concurring opinion.
AQUINO, J., concurring:
I concur. The trial court committed a grievous error in dismissing the complaint on the ground of prescription. It
erroneously assumed that plaintiffs' cause of action is for the annulment of a deed of sale on the ground of
fraud.
In reality, plaintiffs' action is to declare void or inexistent the fictitious deed of sale of August 3, 1955 on the
ground that its consideration did not exist at the time of the transaction. That action is imprescriptible (Arts.
1409[3] and 1410, Civil Code).
Fraud was alleged in the complaint merely to show why the alleged vendor (the septuagenarian father of the
vendees signed the deed of sale.

The plaintiffs categorically alleged in paragraph 9 of the complaint that no consideration was paid for the sale.
They prayed that the sale "be declared null and void" (pp. 4-6, Record on Appeal). The thrust of the action is to
a judicial declaration that the sale is void ab initio.

However. they were deceived into signing on October 15, 1936 a deed of absolute sale for the entire land in
favor of Miguel Mapalo Their signatures were procured by fraud. They were made to believe by Maximo and
the notary public that r tie document was a deed of covering the eastern halt t their land.

A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid,
has in fact never been paid by the purchaser to the vendor (Arts. 1352 and 1353, Civil Code; Ocejo Perez and
Co. vs. Flores and Bas 40 Phil 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 17 SCRA 114,122).

Although the deed of sale stated a consideration of P500 (as in the instant case) the said spouses did not
receive anything value for land The spouses remained in possession of the western hail of the land.

Such a sale is nonexistent and cannot be considered consummated (Borromeo vs. Borromeo, 98 Phil. 432;
Cruzado vs. Bustos and Escaler 34 Phil 17; Garanciang vs. Garanciang, 2235 1. May 21, 1969, 28 SCRA
229).
Plaintiffs' cause of action is supported by the following ultimate facts alleged in their complaint:
Paulino Galvan married twice. By his first marriage, he begot two daughters, defendants Josefa Galvan and
Natividad Galvan. His second wife was Encarnacion Castillo with whom he begot three children named E
Patrocinio and Florangel
Paulino Galvan was the owner of a one proindiviso share in two parcels of land located at Burgos Street,
Dagupan City with a total area of 1, 1 15 square meters. The other one half share is owned by Natividad
Galvan and Josefa Galvan, his two daughters of the first marriage.

On March 15, 1938 Maximo Mapalo registered the sale and obtained a Torres obtained for the entire land. On
October 20, 1951 Maximo sold the entire land to Evaristo, Petronila Pacifico and Miguel, all surnamed
Narciso. A transfer certificate of title was issued to the Narciso's for the whole land. they took possession of
the eastern halt of the land.
On February 7, 1952 the Narciso's sued the Mapalo spouses. They prayed that they be declared the owners
of the entire land. They sought to recover possession of its western portion. The Mapalo spouses filed a
counterclaim, wherein they prayed that the western half o the land be conveyed to them. They alleged that
their signatures to the deed of sale were obtained through fraud. They sued the Narciso's in 1957. They asked
that the 1936 and 1951 deeds of sale be declared void as to the western portion.
The Court of Appeals held that the sale was merely voidable on the ground of fraud; that the action for
annulment should have been brought within four years from the registration of the sale, and that, as that
period had already expired, the action had also prescribed.

Existing on those two tots in the conjugal house of the spouse Paulino Galvan and Encarnacion Castro. The
house is made of wood with galvanized iron roofing.

This Court, reversing the decision of the Court of Appeals, held that the 1936 sale was not merely voidable but
was void or inexistent and that the "inexistence of a contract is permanent and incurable and cannot be the
subject of prescription". The holding of the trial court that the Mapalo spouses should be issued a Torrens title
for the western half of the land was affirmed.

On August 3, 1955, when Paulino Galvan, who did not have much education, was already seventy-eight years
old, not daughter, Josefa, asked him and his wife, Encarnacion, also old and not highly educated, to sign a
document which, according to Josefa, was necessary in order to have separate tax declarations for their
respective one-half portions of the two lots.

The ruling in the Mapalo case is squarely applicable to this case.

The Galvan spouses signed the document, Paulino Galvan died on February 10, 1961 at the age of eightyfour years. He was survived by his second wife and his five above-named children.
It was only after the death of Paulino Galvan that his widow and their three children discovered that the
document, which Josefa had asked her father to sign, was a deed of sale, which is in English, a language not
known to the Galvan spouses.

In the instant case, the plaintiffs, the widow and a child of the first marriage, as compulsory heirs of Paulino
Galvan, the victim of the alleged fraud, have the right to sue to declare the sale void because they were
deprived of their legitimate in the estate of Paulino Galvan (Art. 221[4], Civil Code; Reyes vs. Court of Appeals,
95 Phil. 952; Armentia vs. Patriarca, L-18210, December 29, 1966, 18 SCRA 1253, 1258-1260).
G.R. No. 153201

January 26, 2005

Paulino Galvan could not have sold his one-half share in the two lots for a measly sum of P500, the price
stated in the deed of sale, because in 1961 the two lots were worth P45,000, at forty pesos a square meter,
Paulino Galvan's one-half share was worth at least P22,500.

JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ, RODOLFO MENCHAVEZ, CESAR
MENCHAVEZ, REYNALDO, MENCHAVEZ, ALMA MENCHAVEZ, ELMA MENCHAVEZ, CHARITO M.
MAGA, FE M. POTOT, THELMA M. REROMA, MYRNA M. YBAEZ, and SARAH M.
VILLABER, petitioners,
vs.
FLORENTINO TEVES JR., respondent.

The action to declare the sale void was filed on August 1, 1961 against Natividad Galvan and Josefa Galvan,
They pleaded as a defense that the sale was valid. Later, they amended their answer by pleading prescription.
The trial court dismissed the complaint on that ground.

DECISION

The trial court overlooked the fact that the fraudulent manner by which the signatures of the Galvan spouses in
the deed were obtained strengthens plaintiffs' theory that the sale is void or inexistent because it would appear
that the said spouses did not Consent at. a to the sale.
In the Mapalo case. supra. the spouses, Miguel Mapalo and Candida Quiba, illiterate farmers decided to
donate to Maximo Mapalo The brother of Miguel, the eastern halt of their 1,635-square meter residential land
located in Manaoag, Pangasinan.

PANGANIBAN, J.:
Avoid contract is deemed legally nonexistent. It produces no legal effect. As a general rule, courts leave
parties to such a contract as they are, because they are in pari delicto or equally at fault. Neither party is
entitled to legal protection.
The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 28, 2001
Decision2and the April 16, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 51144. The
challenged Decision disposed as follows:
"WHEREFORE, the assailed decision is hereby MODIFIED, as follows:
"1. Ordering [petitioners] to jointly and severally pay the [respondent] the amount of P128,074.40 as actual
damages, and P50,000.00 as liquidated damages;
"2. Dismissing the third party complaint against the third party defendants;
"3. Upholding the counterclaims of the third party defendants against the [petitioners. Petitioners] are hereby
required to pay [the] third party defendants the sum of P30,000.00 as moral damages for the clearly
unfounded suit;
"4. Requiring the [petitioners] to reimburse the third party defendants the sum of P10,000.00 in the concept of
attorneys fees and appearance fees of P300.00 per appearance;
"5. Requiring the [petitioners] to reimburse the third party defendants the sum of P10,000.00 as exemplary
damages pro bono publico and litigation expenses including costs, in the sum of P5,000.00."4
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
On February 28, 1986, a "Contract of Lease" was executed by Jose S. Menchavez, Juan S. Menchavez Sr.,
Juan S. Menchavez Jr., Rodolfo Menchavez, Simeon Menchavez, Reynaldo Menchavez, Cesar Menchavez,
Charito M. Maga, Fe M. Potot, Thelma R. Reroma, Myrna Ybaez, Sonia S. Menchavez, Sarah Villaver, Alma
S. Menchavez, and Elma S. Menchavez, as lessors; and Florentino Teves Jr. as lessee.l^vvphi1.net The
pertinent portions of the Contract are herein reproduced as follows:
"WHEREAS, the LESSORS are the absolute and lawful co-owners of that area covered by FISHPOND
APPLICATION No. VI-1076 of Juan Menchavez, Sr., filed on September 20, 1972, at Fisheries Regional Office
No. VII, Cebu City covering an area of 10.0 hectares more or less located at Tabuelan, Cebu;
xxxxxxxxx
"NOW, THEREFORE, for and in consideration of the mutual covenant and stipulations hereinafter set forth,
the LESSORS and the LESSEE have agreed and hereby agree as follows:
"1. The TERM of this LEASE is FIVE (5) YEARS, from and after the execution of this Contract of Lease,
renewable at the OPTION of the LESSORS;
"2. The LESSEE agrees to pay the LESSORS at the residence of JUAN MENCHAVEZ SR., one of the
LESSORS herein, the sum of FORTY THOUSAND PESOS (P40,000.00) Philippine Currency, annually x x x;
"3. The LESSORS hereby warrant that the above-described parcel of land is fit and good for the intended use
as FISHPOND;
"4. The LESSORS hereby warrant and assure to maintain the LESSEE in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract;

"5. The LESSORS hereby further warrant that the LESSEE can and shall enjoy the intended use of the leased
premises as FISHPOND FOR THE ENTIRE DURATION OF THE CONTRACT;
"6. The LESSORS hereby warrant that the above-premises is free from all liens and encumbrances, and shall
protect the LESSEE of his right of lease over the said premises from any and all claims whatsoever;
"7. Any violation of the terms and conditions herein provided, more particularly the warranties abovementioned, the parties of this Contract responsible thereof shall pay liquidated damages in the amount of not
less than P50,000.00 to the offended party of this Contract; in case the LESSORS violated therefor, they
bound themselves jointly and severally liable to the LESSEE;"
x x x x x x x x x.5
On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon demolished the fishpond
dikes constructed by respondent and delivered possession of the subject property to other parties. 6 As a
result, he filed a Complaint for damages with application for preliminary attachment against petitioners. In his
Complaint, he alleged that the lessors had violated their Contract of Lease, specifically the peaceful and
adequate enjoyment of the property for the entire duration of the Contract. He claimed P157,184.40 as
consequential damages for the demolition of the fishpond dikes, P395,390.00 as unearned income, and an
amount not less than P100,000.00 for rentals paid. 7
Respondent further asserted that the lessors had withheld from him the findings of the trial court in Civil Case
No. 510-T, entitled "Eufracia Colongan and Paulino Pamplona v. Juan Menchavez Sr. and Sevillana S.
Menchavez." In that case involving the same property, subject of the lease, the Menchavez spouses were
ordered to remove the dikes illegally constructed and to pay damages and attorneys fees. 8
Petitioners filed a Third Party Complaint against Benny and Elizabeth Allego, Albino Laput, Adrinico Che and
Charlemagne Arendain Jr., as agents of Eufracia Colongan and Paulino Pamplona. The third-party defendants
maintained that the Complaint filed against them was unfounded. As agents of their elderly parents, they could
not be sued in their personal capacity. Thus, they asserted their own counterclaims. 9
After trial on the merits, the RTC ruled thus:
"[The court must resolve the issues one by one.] As to the question of whether the contract of lease between
Teves and the [petitioners] is valid, we must look into the present law on the matter of fishponds. And this is
Pres. Decree No. 704 which provides in Sec. 24:
Lease of fishponds-Public lands available for fishpond development including those earmarked for family-size
fishponds and not yet leased prior to November 9, 1972 shall be leased only to qualified persons,
associations, cooperatives or corporations, subject to the following conditions.
1. The lease shall be for a period of twenty five years (25), renewable for another twenty five years;
2. Fifty percent of the area leased shall be developed and be producing in commercial scale within three
years and the remaining portion shall be developed and be producing in commercial scale within five years;
both periods begin from the execution of the lease contract;
3. All areas not fully developed within five years from the date of the execution of the lease contract shall
automatically revert to the public domain for disposition of the bureau; provided that a lessee who failed to
develop the area or any portion thereof shall not be permitted to reapply for said area or any portion thereof or
any public land under this decree; and/or any portion thereof or any public land under this decree;
4. No portion of the leased area shall be subleased.

The Constitution, (Sec. 2 & 3, Art. XII of the 1987 Constitution) states:

"2. Dismissing the third party complaint against the third party defendants;

Sec. 2 - All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of
potential energy, fisheries, forests, or timber, wild life, flora and fauna and other natural resources are owned
by the state.

"3. Upholding the counterclaims of the third party defendants against the [petitioners. The petitioners] are
hereby required to pay third party defendants the sum of P30,000.00 as moral damages for this clearly
unfounded suit;

Sec. 3 - Lands of the public domain are classified into agricultural, forest or timber, mineral lands and national
parks. Agricultural lands of the public domain may be further classified by law according to the uses to which
they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands x x x.

"4. Requiring the [petitioners] to reimburse the third party defendants the sum of P10,000.00 in the concept of
attorneys fees and appearance fees of P300.00 per appearance;

"As a consequence of these provisions, and the declared public policy of the State under the Regalian
Doctrine, the lease contract between Florentino Teves, Jr. and Juan Menchavez Sr. and his family is a patent
nullity. Being a patent nullity, [petitioners] could not give any rights to Florentino Teves, Jr. under the principle:
NEMO DAT QUOD NON HABET - meaning ONE CANNOT GIVE WHAT HE DOES NOT HAVE, considering
that this property in litigation belongs to the State and not to [petitioners]. Therefore, the first issue is resolved
in the negative, as the court declares the contract of lease as invalid and void ab-initio.

"5. Requiring the [petitioners] to pay to the third party defendants the sum of P10,000.00 as exemplary
damages probono publico and litigation expenses including costs, in the sum of P5,000.00."10(Underscoring in
the original)
Respondent elevated the case to the Court of Appeals, where it was docketed as CA-GR CV No. 51144.
Ruling of the Court of Appeals

"On the issue of whether [respondent] and [petitioners] are guilty of mutual fraud, the court rules that the
[respondent] and [petitioners] are in pari-delicto. As a consequence of this, the court must leave them where
they are found. x x x.

The CA disagreed with the RTCs finding that petitioners and respondent were in pari delicto. It contended that
while there was negligence on the part of respondent for failing to verify the ownership of the subject property,
there was no evidence that he had knowledge of petitioners lack of ownership. 11 It held as follows:

xxxxxxxxx
"x x x. Why? Because the defendants ought to have known that they cannot lease what does not belong to
them for as a matter of fact, they themselves are still applying for a lease of the same property under litigation
from the government.
"On the other hand, Florentino Teves, being fully aware that [petitioners were] not yet the owner[s], had
assumed the risks and under the principle of VOLENTI NON FIT INJURIA NEQUES DOLUS - He who
voluntarily assumes a risk, does not suffer damage[s] thereby. As a consequence, when Teves leased the
fishpond area from [petitioners]- who were mere holders or possessors thereof, he took the risk that it may
turn out later that his application for lease may not be approved.
"Unfortunately however, even granting that the lease of [petitioners] and [their] application in 1972 were to be
approved, still [they] could not sublease the same. In view therefore of these, the parties must be left in the
same situation in which the court finds them, under the principle IN PARI DELICTO NON ORITOR ACTIO,
meaning[:] Where both are at fault, no one can found a claim.
"On the third issue of whether the third party defendants are liable for demolishing the dikes pursuant to a writ
of execution issued by the lower court[, t]his must be resolved in the negative, that the third party defendants
are not liable.l^vvphi1.net First, because the third party defendants are mere agents of Eufracia Colongan and
Eufenio Pamplona, who are the ones who should be made liable if at all, and considering that the demolition
was pursuant to an order of the court to restore the prevailing party in that Civil Case 510-T, entitled: Eufracia
Colongan v. Menchavez.
"After the court has ruled that the contract of lease is null and void ab-initio, there is no right of the
[respondent] to protect and therefore[,] there is no basis for questioning the Sheriffs authority to demolish the
dikes in order to restore the prevailing party, under the principle VIDETUR NEMO QUISQUAM ID CAPERE
QUOD EI NECESSE EST ALII RESTITUERE - He will not be considered as using force who exercise his
rights and proceeds by the force of law.

"x x x. Contrary to the findings of the lower court, it was not duly proven and established that Teves had actual
knowledge of the fact that [petitioners] merely usurped the property they leased to him. What Teves admitted
was that he did not ask for any additional document other than those shown to him, one of which was the
fishpond application. In fact, [Teves] consistently claimed that he did not bother to ask the latter for their title to
the property because he relied on their representation that they are the lawful owners of the fishpond they are
holding for lease. (TSN, July 11, 1991, pp. 8-11)" 121awphi1.nt
The CA ruled that respondent could recover actual damages in the amount of P128,074.40. Citing Article
135613of the Civil Code, it further awarded liquidated damages in the amount of P50,000, notwithstanding the
nullity of the Contract.14
Hence, this Petition.15
The Issues
Petitioners raise the following issues for our consideration:
"1. The Court of Appeals disregarded the evidence, the law and jurisprudence when it modified the trial courts
decision when it ruled in effect that the trial court erred in holding that the respondent and petitioners are in
pari delicto, and the courts must leave them where they are found;
"2. The Court of Appeals disregarded the evidence, the law and jurisprudence in modifying the decision of the
trial court and ruled in effect that the Regional Trial Court erred in dismissing the respondents Complaint." 16
The Courts Ruling
The Petition has merit.

"WHEREFORE, in view of all foregoing [evidence] and considerations, this court hereby renders judgment as
follows:

Main Issue:

"1. Dismissing the x x x complaint by the [respondent] against the [petitioners];

Were the Parties in Pari Delicto?

The Court shall discuss the two issues simultaneously.

In Pari Delicto Rule on Void Contracts

Respondent himself admitted that he was aware that the petitioners lease application for the fishpond had not
yet been approved.35 Thus, he knowingly entered into the Contract with the risk that the application might be
disapproved. Noteworthy is the fact that the existence of a fishpond lease application necessarily contradicts a
claim of ownership. That respondent did not know of petitioners lack of ownership is therefore incredible.

The parties do not dispute the finding of the trial and the appellate courts that the Contract of Lease was
void.17Indeed, the RTC correctly held that it was the State, not petitioners, that owned the fishpond. The 1987
Constitution specifically declares that all lands of the public domain, waters, fisheries and other natural
resources belong to the State.18 Included here are fishponds, which may not be alienated but only
leased.19 Possession thereof, no matter how long, cannot ripen into ownership. 20

The evidence of respondent himself shows that he negotiated the lease of the fishpond with both Juan
Menchavez Sr. and Juan Menchavez Jr. in the office of his lawyer, Atty. Jorge Esparagoza. 36 His counsels
presence during the negotiations, prior to the parties meeting of minds, further debunks his claim of lack of
knowledge. Lawyers are expected to know that fishponds belong to the State and are inalienable. It was
reasonably expected of the counsel herein to advise his client regarding the matter of ownership.

Being merely applicants for the lease of the fishponds, petitioners had no transferable right over them. And
even if the State were to grant their application, the law expressly disallowed sublease of the fishponds to
respondent.21Void are all contracts in which the cause, object or purpose is contrary to law, public order or
public policy.22

Indeed, the evidence presented by respondent demonstrates the contradictory claims of petitioners regarding
their alleged ownership of the fishpond. On the one hand, they claimed ownership and, on the other, they
assured him that their fishpond lease application would be approved. 37 This circumstance should have been
sufficient to place him on notice. It should have compelled him to determine their right over the fishpond,
including their right to lease it.

A void contract is equivalent to nothing; it produces no civil effect. 23 It does not create, modify or extinguish a
juridical relation.24 Parties to a void agreement cannot expect the aid of the law; the courts leave them as they
are, because they are deemed in pari delicto or "in equal fault."25 To this rule, however, there are exceptions
that permit the return of that which may have been given under a void contract. 26 One of the exceptions is
found in Article 1412 of the Civil Code, which states:
"Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense,
the following rules shall be observed:
"(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the others undertaking;

The Contract itself stated that the area was still covered by a fishpond application. 38 Nonetheless, although
petitioners declared in the Contract that they co-owned the property, their erroneous declaration should not be
used against them. A cursory examination of the Contract suggests that it was drafted to favor the lessee. It
can readily be presumed that it was he or his counsel who prepared it -- a matter supported by petitioners
evidence.39 The ambiguity should therefore be resolved against him, being the one who primarily caused it. 40
The CA erred in finding that petitioners had failed to prove actual knowledge of respondent of the ownership
status of the property that had been leased to him. On the contrary, as the party alleging the fact, it was he
who had the burden of proving through a preponderance of evidence 41 -- that they misled him regarding the
ownership of the fishpond. His evidence fails to support this contention. Instead, it reveals his fault in entering
into a void Contract. As both parties are equally at fault, neither may recover against the other.42

"(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."

Liquidated Damages Not Proper

On this premise, respondent contends that he can recover from petitioners, because he is an innocent party to
the Contract of Lease.27 Petitioners allegedly induced him to enter into it through serious misrepresentation. 28

The CA erred in awarding liquidated damages, notwithstanding its finding that the Contract of Lease was void.
Even if it was assumed that respondent was entitled to reimbursement as provided under paragraph 1 of
Article 1412 of the Civil Code, the award of liquidated damages was contrary to established legal
principles.1a\^/phi1.net

Finding of In Pari Delicto:

A Question of Fact
The issue of whether respondent was at fault or whether the parties were in pari delicto is a question of fact
not normally taken up in a petition for review on certiorari under Rule 45 of the Rules of Court. 29 The present
case, however, falls under two recognized exceptions to this rule. 30 This Court is compelled to review the facts,
since the CAs factual findings are (1) contrary to those of the trial court; 31 and (2) premised on an absence of
evidence, a presumption that is contradicted by the evidence on record. 32
Unquestionably, petitioners leased out a property that did not belong to them, one that they had no authority to
sublease. The trial court correctly observed that petitioners still had a pending lease application with the State
at the time they entered into the Contract with respondent. 33
Respondent, on the other hand, claims that petitioners misled him into executing the Contract. 34 He insists that
he relied on their assertions regarding their ownership of the property. His own evidence, however, rebuts his
contention that he did not know that they lacked ownership. At the very least, he had notice of their doubtful
ownership of the fishpond.

Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of a breach
thereof.43Liquidated damages are identical to penalty insofar as legal results are concerned. 44 Intended to
ensure the performance of the principal obligation, such damages are accessory and subsidiary
obligations.45 In the present case, it was stipulated that the party responsible for the violation of the terms,
conditions and warranties of the Contract would pay not less than P50,000 as liquidated damages. Since the
principal obligation was void, there was no contract that could have been breached by petitioners; thus, the
stipulation on liquidated damages was inexistent. The nullity of the principal obligation carried with it the nullity
of the accessory obligation of liquidated damages. 46
As explained earlier, the applicable law in the present factual milieu is Article 1412 of the Civil Code. This law
merely allows innocent parties to recover what they have given without any obligation to comply with their
prestation. No damages may be recovered on the basis of a void contract; being nonexistent, the agreement
produces no juridical tie between the parties involved. Since there is no contract, the injured party may only
recover through other sources of obligations such as a law or a quasi-contract. 47 A party recovering through
these other sources of obligations may not claim liquidated damages, which is an obligation arising from a
contract.
WHEREFORE, the Petition is GRANTED and the assailed Decision and Resolution SET ASIDE. The Decision
of the trial court is hereby REINSTATED.

No pronouncement as to costs.SO ORDERED.

[G.R. No. 145031. January 22, 2004]
SPS. RUFINO ANGEL and EMERITA ANGEL, petitioners, vs. SIMPLICIO ALEDO and FELIXBERTO
MODALES, respondents.
DECISION
CARPIO-MORALES, J.:

During the pre-trial of the case, only the defendant-third party plaintiff spouses Angel showed up. The plaintiff
Aledo did not show up, albeit their counsel had priorly filed a motion to withdraw as counsel in view of his
appointment as Special Prosecutor and to postpone the pre-trial to afford his client ample time to seek the
services of a new counsel, which motion was not, however, passed upon by the trial court, Branch 97 of the
Quezon City RTC. Neither did third party defendant Modales who, by his claim, was not duly notified thereof
as, indeed, the Order of January 31, 1991 [9] shows that only the plaintiff Aledo and the defendants-third party
plaintiffs spouses Angel and their respective counsels were furnished copies thereof.
On motion of the Angels, the trial court declared the plaintiff Aledo non-suited and accordingly dismissed his
complaint by Order made in open court on March 1, 1991. [10] On a subsequent motion of the Angels, they
prayed that third party defendant Modales be declared as in default and that the dismissal Order of March 1,
1991 should apply only to the original complaint.

The facts material to the decision of the present petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. CV No. 44679 are as follows:

The plaintiff Aledo later filed a Motion for Reconsideration of the March 1, 1991 Order of the trial court.

In November 1984, the spouses Rufino and Emerita Angel (spouses Angel or the Angels), herein petitioners,
engaged the services of respondent Felixberto Modales (Modales) to construct a two-storey residential
building at GSIS La Mesa Homesite in Novaliches, Quezon City.

By Order of April 16, 1991, [11] the trial court clarified its Order of March 1, 1991, stating that the latter order
shall be for the dismissal of the original complaint but reserving to the defendant[s] [-] third party plaintiffs the
right to prove their counterclaim and third party complaint against the plaintiff and third party defendant,
respectively. (Emphasis and underscoring supplied)

In their November 22, 1984 contract denominated Construction Agreement, [1] since Modales was at the time
an engineer under the employ of the Department of Public Works and Highways, the parties made it appear
that the contractor was Modales father-in-law, his herein co-respondent Simplicio Aledo (Aledo). The said
agreement was for the construction of the building up to its rough finish stage.

The defendants-third party plaintiffs spouses Angel were thus allowed to present before the branch clerk of
court evidence ex-parte consisting of the testimony of an engineer (whom the Angels claimed to have hired
regarding the alleged defects in the construction) and documentary evidence including the Construction
Agreements.

After the completion of the building in its rough finish stage, [2] another Construction Agreement dated
February 11, 1985[3] was forged by the spouses Angel and Aledo for effecting the finishing touches of the
building.

The trial court, by Decision of March 30, 1993, [12] rendered judgment in favor of the defendants-third party
plaintiffs Angels, the dispositive portion of which judgment reads:

Completion of the finishing touches was certified[4] to by Mrs. Angel on April 31, 1985.
On September 27, 1988, Aledo filed before the Quezon City Regional Trial Court (RTC) a Complaint [5] for
collection of sum of money against the spouses Angel, alleging that despite the completion of the construction
of their building and their acceptance thereof, they failed to pay, demands notwithstanding, the amount of
P22,850.00 representing the balance of the consideration of the contract and P6,713.00 representing the
cost of materials supplied by him.
In their Answer,[6] the spouses Angel claimed that Aledo has no cause of action as he is only a dummy of his
son-in-law Modales who was the actual contractor with whom they contracted for the construction of their
residential building; and that, in any event, there were defects in the construction and some of the materials
deposited by Modales in the construction site were not used. By way of counterclaim, the Angels alleged that
as a result of the filing of the unfounded complaint, they were forced to retain the services of counsel with
whom they agreed to pay P10,000.00 as attorneys fees and they stood to incur P5,000.00 as litigation
expenses.
In July 1989, the spouses Angel filed a Third Party Complaint [7] against Modales, alleging that he failed to
comply with his obligation under the Construction Agreements as, among other things, the building had a lot
of defects, to correct or remedy which would cost them the amount of Eighty Five Thousand (P85,000.00)
Pesos, hence, Modales should be held liable for moral damages and attorneys fees.
Modales in his Answer to the Third Party Complaint [8] alleged that the Angels have no cause of action against
him as he had nothing to do with the contracts; and that [he] (sic) never acted as a dummy and, in any
event, the Angels never complained of any defect in the construction, hence, they are in estoppel and are
guilty of laches.

WHEREFORE, premises considered, judgment is hereby rendered ordering plaintiff to pay defendants/thirdparty plaintiffs P10,000.00 for attorneys fees and P5,000.00 for litigation expenses and cost of suit and thirdparty defendant to pay third-party plaintiffs the sum of P85,000.00 as actual damages and P50,000.00 by
way of moral damages. (Emphasis and underscoring supplied)
Aledo and Modales appealed to the Court of Appeals. Aledos appeal was dismissed, however, for failure to
file Appellants Brief within the reglementary period. He filed a motion for reconsideration of the resolution of
dismissal but as it was belatedly filed, it was denied.
As for Modales, since he failed to file Appellants Brief, the Court of Appeals likewise dismissed his appeal by
Resolution of February 6, 1996. [13] He received on February 21, 1996 a copy of the said Resolution of the
Court of Appeals dismissing his appeal, and filed by mail on March 11, 1996[14] a Verified Motion for
Reconsideration [thereof] and To Admit [his] Appellants Brief which was granted.
By the now assailed Decision of September 7, 2000, [15] the Court of Appeals reversed and set aside the
decision of the trial court and entered a new one dismissing the Angels Counterclaim and Third-Party
Complaint.
In dismissing the Counterclaim and Third-Party Complaint, the Court of Appeals held that the Construction
Agreements, which were entered into by the parties with the knowledge that [Modales] [wa]s prohibited from
contracting without the requisite permission from the proper government authorities, were contrary to law and
public policy, hence, following Article 1412 of the Civil Code which reads:
ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense,
the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of
the contract, or demand the performance of the others undertaking;
(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 (Underscoring supplied),
they were in pari delicto and, therefore, they have no action against each other.
Thus spawned the present petition for review on certiorari filed by the spouses Angel (hereinafter referred to
as petitioners), assigning the following errors to the Court of Appeals:

In sum, since admittedly it was with respondent Modales that petitioners contracted to construct their
residential building but that his father-in-law co-respondent Aledo, his mere dummy, was named in the
Construction Agreements, the Court of Appeals did not err in holding that said agreements were contrary to
law and public policy, hence, petitioners and respondents Aledo and Modales were in pari delicto, and in
accordingly pronouncing the dismissal of petitioners Counterclaim and dismissing their Third-Party
Complaint. Ex dolo malo non oritur actio. In pari delicto potior est conditio defendentis.
WHEREFORE, the petition is, in light of the foregoing discussions, hereby DISMISSED.
SO ORDERED.
[G.R. No. L-1411. September 29, 1953.]

A. THE COURT OF APPEALS HAD DEPARTED FROM THE ADOPTED COURSE OF JUDICIAL
PROCEEDINGS BY REVERSING THE DECISION OF THE TRIAL COURT WHICH HAD LONG BEEN FINAL
AND EXECUTORY.

DIONISIO RELLOSA, Petitioner, vs. GAW CHEE HUN, Respondent.

DECISION

B. THE COURT OF APPEALS, IN ITS DECISION DATED SEPTEMBER 7, 2000, DECIDED A QUESTION OF
SUBSTANCE IN A MANNER THAT IS NOT IN ACCORD WITH THE LAW AND APPLICABLE
JURISPRUDENCE,
and proffering the following as grounds for the allowance of the petition:
1. THE COURT OF APPEALS ERRED AND ACTED WITHOUT JURISDICTION WHEN IT REVERSED A
DECISION OF THE TRIAL COURT WHICH HAD LONG BEEN FINAL AND EXECUTORY.
2. THE COURT OF APPEALS ERRED IN HOLDING THAT THE PARTIES WERE IN PARI DELICTO,
HENCE, THEY SHALL HAVE NO ACTION AGAINST EACH OTHER AND SHOULD BE LEFT AS THEY ARE.
Petitioners argue that the Court of Appeals erred in taking jurisdiction over the case of the plaintiff Aledo, given
its dismissal of his appeal which had long become final and executory.
And they argue that the Court of Appeals had no jurisdiction over the appeal of the third party defendant
Modales because his Motion for Reconsideration of the Resolution of the Court of Appeals dismissing his
appeal was filed beyond the reglementary period.
On petitioners argument that it was error for the Court of Appeals to still consider the appeal of Aledo as it had
long dismissed it and had become final and executory: There was nothing for Aledo to appeal from, for the
counterclaim of petitioners, which was compulsory, hence, could not remain pending for independent
adjudication by the court,[16] was, along with Aledos complaint, dismissed on the counterclaimant-defendants
motion on March 1, 1991. The trial courts Order of April 16, 1991 clarifying that only Alejos original
complaint was dismissed and accordingly giving due course to petitioners counterclaim was thus null and
void. It being void ab initio, the Order of April 16, 1991 had no legality from its inception, and the decision of
the trial court against the plaintiff Aledo was itself void as it emanated from a void order. [17]
With respect to petitioners argument that the Motion for Reconsideration of Modales from the Court of
Appeals Resolution of dismissal of his appeal was filed beyond the reglementary period. As reflected above,
the motion was mailed on March 7, 1996, [18] albeit received by the Court of Appeals on March 11, 1996. It
bears stressing that it is the date of mailing, not the date of receipt, of the mail matter, which shall be
considered as the date of filing.[19]

BAUTISTA ANGELO, J.:

This is a petition for review of a decision of the Court of Appeals holding that the sale in question is valid and,
even if it were invalid, plaintiff cannot maintain the action under the principle of pari delicto.
On February 2, 1944, Dionisio Rellosa sold to Gaw Chee Hun a parcel of land, together with the house
erected thereon, situated in the City of Manila, Philippines, for the sum of P25,000. The vendor remained in
possession of the property under a contract of lease entered into on the same date between the same parties.
Alleging that the sale was executed subject to the condition that the vendee, being a Chinese citizen, would
obtain the approval of the Japanese Military Administration in accordance with (seirei) No. 6 issued on April 2,
1943, by the Japanese authorities, and said approval has not been obtained, and that, even if said
requirement were met, the sale would at all events be void under article XIII, section 5, of our Constitution, the
vendor instituted the present action in the Court of First Instance of Manila seeking the annulment of the sale
as well as the lease covering the land and the house above mentioned, and praying that, once the sale and
the lease are declared null and void, the vendee be ordered to return to vendor the duplicate of the title
covering the property, and be restrained from in any way dispossessing the latter of said property.
Defendant answered the complaint setting up as special defense that the sale referred to in the complaint was
absolute and unconditional and was in every respect valid and binding between the parties, it being not
contrary to law, morals and public order, and that plaintiff is guilty of estoppel in that, by having executed a
deed of lease over the property, he thereby recognized the title of defendant to that property.
Issues having been joined, and the requisite evidence presented by both parties, the court declared both the
sale and the lease valid and binding and dismissed the complaint. The court likewise ordered plaintiff to turn
over the property to defendant and to pay a rental of P50 a month from August 1, 1945 until the property has
been actually delivered. As this decision was affirmed in toto by the Court of Appeals, plaintiff sued out the
present petition for review.
One of the issues raised by petitioner refers to the validity of Seirei No. 6 issued on April 2, 1943 by the
Japanese authorities which prohibits an alien from acquiring any private land not agricultural in nature during
the occupation unless the necessary approval is obtained from the Director General of the Japanese Military
Administration. Petitioner contends that the sale in question cannot have any validity under the above military
directive in view of the failure of respondent to obtain the requisite approval and it was error for the Court of
Appeals to declare said directive without any binding effect because the occupation government could not
have issued it under article 43 of the Hague Regulations which command that laws that are municipal in
character of an occupied territory should be respected and cannot be ignored unless prevented by military
necessity.

We do not believe it necessary to consider now the question relative to the validity of Seirei No. 6 of the
Japanese Military Administration for the simple reason that in our opinion the law that should govern the
particular transaction is not the above directive but the Constitution adopted by the then Republic of the
Philippines on September 4, 1943, it appearing that the aforesaid transaction was executed on February 2,
1944. Said Constitution, in its article VIII, section 5, provides that "no private agricultural land shall be
transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of
the public domain in the Philippines", which provisions are similar to those contained in our present
Constitution. As to whether the phrase "private agricultural land" employed in said Constitution includes
residential lands, as the one involved herein, there can be no doubt because said phrase has already been
interpreted in the affirmative sense by this court in the recent case of Krivenko vs. Register of Deeds, 79 Phil.
461, wherein this court held that "under the Constitution aliens may not acquire private or public agricultural
lands, including residential lands." This matter has been once more submitted to the court for deliberation, but
the ruling was reaffirmed. This ruling fully disposes of the question touching on the validity of the sale of the
property herein involved.
The sale in question having been entered into in violation of the Constitution, the next question to be
determined is, can petitioner have the sale declared null and void and recover the property considering the
effect of the law governing rescission of contracts? Our answer must of necessity be in the negative following
the doctrine laid down in the case of Trinidad Gonzaga de Cabauatan, et al. vs. Uy Hoo, et al., 88 Phil. 103,
wherein we made the following pronouncement: "We can, therefore, say that even if the plaintiffs can still
invoke the Constitution, or the doctrine in the Krivenko Case, to set aside the sale in question, they are now
prevented from doing so if their purpose is to recover the lands that they have voluntarily parted with, because
of their guilty knowledge that what they were doing was in violation of the Constitution. They cannot escape
this conclusion because they are presumed to know the law. As this court well said: 'A party to an illegal
contract cannot come into a court of law and ask to have his illegal objects carried out. The law will not aid
either party to an illegal agreement; it leaves the parties where it finds them.' The rule is expressed in the
maxims: 'Ex dolo malo non oritur actio,' and 'In pari delicto potior est conditio defendentis.' (Bough and Bough
vs. Cantiveros and Hanopol, 40 Phil., 210, 216.)"
The doctrine above adverted to is the one known as In Pari Delicto. This is well known not only in this
jurisdiction but also in the United States where common law prevails. In the latter jurisdiction, the doctrine is
stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal contract; no
suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered,
or the money agreed to be paid, or damages for its violation. The rule has sometimes been laid down as
though it were equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will
be given to one against the other." (Pomeroy's Equity Jurisprudence, Vol. 3, 5th ed., p. 728.)
It is true that this doctrine is subject to one important limitation, namely, "whenever public policy is considered
as advanced by allowing either party to sue for relief against the transaction" (idem, p. 733). But not all
contracts which are illegal because opposed to public policy come under this limitation. The cases in which
this limitation may apply only "include the class of contracts which are intrinsically contrary to public policy,
contracts in which the illegality itself consists in their opposition to public policy, and any other species of illegal
contracts in which, from their particular circumstances, incidental and collateral motives of public policy require
relief." Examples of this class of contracts are usurious contracts, marriage-brokerage contracts and gambling
contracts. (Idem. pp. 735-737.)
In our opinion, the contract in question does not come under this exception because it is not intrinsically
contrary to public policy, nor one where the illegality itself consists in its opposition to public policy. It is illegal
not because it is against public policy but because it is against the Constitution. Nor may it be contended that
to apply the doctrine of pari delicto would be tantamount to contravening the fundamental policy embodied in
the constitutional prohibition in that it would allow an alien to remain in the illegal possession of the land,
because in this case the remedy is lodged elsewhere. To adopt the contrary view would be merely to benefit
petitioner and not to enhance public interest.
The danger foreseen by counsel in the application of the doctrine above adverted to is more apparent than
real. If we go deeper in the analysis of our situation we would not fail to see that the best policy would be for
Congress to approve a law laying down the policy and the procedure to be followed in connection with
transactions affected by our doctrine in the Krivenko case. We hope that this should be done without much
delay. And even if this legislation be not forthcoming in the near future, we do not believe that public interest

would suffer thereby if only our executive department would follow a more militant policy in the conservation of
our natural resources as or dained by our Constitution. And we say so because there are at present two ways
by which this situation may be remedied, to wit, (1) action for reversion, and (2) escheat to the state. An action
for reversion is slightly different from escheat proceeding, but in its effects they are the same. They only differ
in procedure. Escheat proceedings may be instituted as a consequence of a violation of article XIII, section 5
of our Constitution, which prohibits transfers of private agricultural lands to aliens, whereas an action for
reversion is expressly authorized by the Public Land Act (sections 122, 123, and 124 of Commonwealth Act
No. 141).
In the United States, as almost everywhere else, the doctrine which imputes to the sovereign or to the
government the ownership of all lands and makes such sovereign or government the original source of private
titles, is well recognized (42 Am. Jur., 785). This doctrine, which was expressly affirmed in Lawrence vs.
Garduo, G. R. No. 16542, and which underlies all titles in the Philippines, (See Ventura, Land Registration and
Mortgages, 2nd ed., pp. 2-3) has been enshrined in our Constitution (article XIII). The doctrine regarding the
course of all titles being the same here as in the United States, it would seem that if escheat lies against aliens
holding lands in those states of the Union where common law prevails or where similar constitutional or
statutory prohibitions exist, no cogent reason is perceived why similar proceedings may not be instituted in this
jurisdiction.
"Escheat is an incident or attribute of sovereignty, and rests on the principle of the ultimate ownership by the
state of all property within its jurisdiction.' (30 C.J.S., 1164.)
". . . America escheats belong universally to the state or some corporation thereof as the ultimate proprietor of
land within its Jurisdiction." (19 Am. Jur., 382.)
"An escheat is nothing more or less than the reversion of property to the state, which takes place when the
title fails." (Delany vs. State, 42 N. D., 630, 174 N.W., 290, quoted in footnote 6, 19 Am. Jur., 381.)
"As applied to the right of the state to lands purchased by an alien, it would more properly be termed a
'forfeiture' at common law." (19 Am. Jur., 381.)
"In modern law escheat denotes a falling of the estate into the general property of the state because the
tenant is an alien or because he has died intestate without lawful heirs to take his estate by succession, or
because of some other disability to take or hold property imposed by law." (19 Am. Jur.,
With regard to an action for reversion, the following sections of Commonwealth Act No. 141 are pertinent:
"SEC. 122. No land originally acquired in any manner under the provisions of this Act, nor any permanent
improvement on such land, shall be encumbered, alienated, or transferred, except to persons, corporations,
associations, or partnerships who may acquire lands of the public domain under this Act or to corporations
organized in the Philippines authorized therefor by their charters."
"SEC. 123. No land originally acquired in any manner under the provisions of any previous Act, ordinance,
royal decree, royal order, or any other provision of law formerly in force in the Philippines with regard to public
lands, terrenos baldios y realenqos, or lands of any other denomination that were actually or presumptively of
the public domain or by royal grant or in any other form, nor any permanent improvement on such land, shall
be encumbered, alienated, or conveyed, except to persons, corporations or associations who may acquire
land of the public domain under this Act or to corporate bodies organized in the Philippines whose charters
authorize them to do so: Provided, however, That this prohibition shall not be applicable to the conveyance or
acquisition by reason of hereditary succession duly acknowledged and legalized by competent courts;
Provided, further, That in the event of the ownership of the lands and improvements mentioned in this section
and in the last preceding section being transferred by judicial decree to persons, corporations or associations
not legally capacitated to acquire the same under the provisions of this Act, such persons, corporation, or
associations shall be obliged to alienate said lands or improvements to others so capacitated within the
precise period of five years; otherwise, such property shall revert to the Government."

"SEC. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in violation of
any of the provisions of sections one hundred and eighteen, one hundred and twenty, one hundred and
twenty-one, one hundred and twenty-two, and one hundred and twenty-three of this Act shall be unlawful and
null and void from its execution and shall produce the effect of annulling and cancelling the grant, title, patent,
or permit originally issued, recognized or confirmed, actually or presumptively, and cause the reversion of the
property and its improvements to the State."
Note that the last quoted provision declared any prohibited conveyance not only unlawful but null and void ab
initio. More important yet, it expressly provides that such conveyances will produce "the effect of annulling and
cancelling the grant, title, patent, or permit, originally issued, recognized of confirmed, actually or
presumptively", and of causing "the reversion of the property and its improvements to the State." The
reversion would seem to be but a consequence of the annulment and cancellation of the original grant or title,
and this is so for in the event of such annulment or cancellation no one else could legitimately claim the
property except its original owner or grantor the state.
We repeat. There are two ways now open to our government whereby it could implement the doctrine of this
Court in the Krivenko case thereby putting in force and carrying to its logical conclusion the mandate of our
Constitution. By following either of these remedies, or by approving an implementary law as above suggested,
we can enforce the fundamental policy of our Constitution regarding our natural resources without doing
violence to the principle of pari delicto. With these remedies open to us, we see no justifiable reason for
pursuing the extreme unusual remedy now vehemently urged by the amici curiae.
In view of the foregoing, we hold that the sale in question is null and void, but plaintiff is barred from taking the
present action under the principle of pari delicto.
The decision appealed from is hereby affirmed without pronouncement as to costs.
G.R. No. 143958

July 11, 2003

ALFRED FRITZ FRENZEL, petitioner,

vs.
EDERLINA P. CATITO, respondent.
CALLEJO, SR., J.:
Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 53485 which
affirmed the Decision2 of the Regional Trial Court of Davao City, Branch 14, in Civil Case No. 17,817
dismissing the petitioner's complaint, and the resolution of the Court of Appeals denying his motion for
reconsideration of the said decision.
The Antecedents3
As gleaned from the evidence of the petitioner, the case at bar stemmed from the following factual backdrop:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He is an electrical engineer by
profession, but worked as a pilot with the New Guinea Airlines. He arrived in the Philippines in 1974, started
engaging in business in the country two years thereafter, and married Teresita Santos, a Filipino citizen. In
1981, Alfred and Teresita separated from bed and board without obtaining a divorce.

Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He went to King's Cross, a night
spot in Sydney, for a massage where he met Ederlina Catito, a Filipina and a native of Bajada, Davao City.
Unknown to Alfred, she resided for a time in Germany and was married to Klaus Muller, a German national.
She left Germany and tried her luck in Sydney, Australia, where she found employment as a masseuse in the
King's Cross nightclub. She was fluent in German, and Alfred enjoyed talking with her. The two saw each other
again; this time Ederlina ended up staying in Alfred's hotel for three days. Alfred gave Ederlina sums of money
for her services.4
Alfred was so enamored with Ederlina that he persuaded her to stop working at King's Cross, return to the
Philippines, and engage in a wholesome business of her own. He also proposed that they meet in Manila, to
which she assented. Alfred gave her money for her plane fare to the Philippines. Within two weeks of
Ederlina's arrival in Manila, Alfred joined her. Alfred reiterated his proposal for Ederlina to stay in the
Philippines and engage in business, even offering to finance her business venture. Ederlina was delighted at
the idea and proposed to put up a beauty parlor. Alfred happily agreed.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in Australia. Alfred proposed
marriage to Ederlina, but she replied that they should wait a little bit longer.
Ederlina found a building at No. 444 M.H. del Pilar corner Arquiza Street, Ermita, Manila, owned by one Atty.
Jose Hidalgo who offered to convey his rights over the property for P18,000.00. Alfred and Ederlina accepted
the offer. Ederlina put up a beauty parlor on the property under the business name Edorial Beauty Salon, and
had it registered with the Department of Trade and Industry under her name. Alfred paid Atty. Hidalgo
P20,000.00 for his right over the property and gave P300,000.00 to Ederlina for the purchase of equipment
and furniture for the parlor. As Ederlina was going to Germany, she executed a special power of attorney on
December 13, 19835appointing her brother, Aser Catito, as her attorney-in-fact in managing the beauty parlor
business. She stated in the said deed that she was married to Klaus Muller. Alfred went back to Papua New
Guinea to resume his work as a pilot.
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence and found it unsuitable for
her. He decided to purchase a house and lot owned by Victoria Binuya Steckel in San Francisco del Monte,
Quezon City, covered by Transfer Certificate of Title No. 218429 for US$20,000.00. Since Alfred knew that as
an alien he was disqualified from owning lands in the Philippines, he agreed that only Ederlina's name would
appear in the deed of sale as the buyer of the property, as well as in the title covering the same. After all, he
was planning to marry Ederlina and he believed that after their marriage, the two of them would jointly own the
property. On January 23, 1984, a Contract to Sell was entered into between Victoria Binuya Steckel as the
vendor and Ederlina as the sole vendee. Alfred signed therein as a witness. 6 Victoria received from Alfred, for
and in behalf of Ederlina, the amount of US$10,000.00 as partial payment, for which Victoria issued a
receipt.7 When Victoria executed the deed of absolute sale over the property on March 6, 1984, 8 she received
from Alfred, for and in behalf of Ederlina, the amount of US$10,000.00 as final and full payment. Victoria
likewise issued a receipt for the said amount.9 After Victoria had vacated the property, Ederlina moved into her
new house. When she left for Germany to visit Klaus, she had her father Narciso Catito and her two sisters
occupy the property.
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to Australia and sold his
fiber glass pleasure boat to John Reid for $7,500.00 on May 4, 1984. 10 He also sold his television and video
business in Papua New Guinea for K135,000.00 to Tekeraoi Pty. Ltd. 11 He had his personal properties shipped
to the Philippines and stored at No. 14 Fernandez Street, San Francisco del Monte, Quezon City. The
proceeds of the sale were deposited in Alfred's account with the Hong Kong Shanghai Banking Corporation
(HSBC), Kowloon Branch under Bank Account No. 018-2-807016. 12 When Alfred was in Papua New Guinea
selling his other properties, the bank sent telegraphic letters updating him of his account. 13 Several checks
were credited to his HSBC bank account from Papua New Guinea Banking Corporation, Westpac Bank of
Australia and New Zealand Banking Group Limited and Westpac Bank-PNG-Limited. Alfred also had a peso
savings account with HSBC, Manila, under Savings Account No. 01-725-183-01. 14
Once, when Alfred and Ederlina were in Hong Kong, they opened another account with HSBC, Kowloon, this
time in the name of Ederlina, under Savings Account No. 018-0-807950. 15 Alfred transferred his deposits in
Savings Account No. 018-2-807016 with the said bank to this new account. Ederlina also opened a savings
account with the Bank of America Kowloon Main Office under Account No. 30069016. 16

On July 28, 1984, while Alfred was in Papua New Guinea, he received a Letter dated December 7, 1983 from
Klaus Muller who was then residing in Berlin, Germany. Klaus informed Alfred that he and Ederlina had been
married on October 16, 1978 and had a blissful married life until Alfred intruded therein. Klaus stated that he
knew of Alfred and Ederlina's amorous relationship, and discovered the same sometime in November 1983
when he arrived in Manila. He also begged Alfred to leave Ederlina alone and to return her to him, saying that
Alfred could not possibly build his future on his (Klaus') misfortune. 17
Alfred had occasion to talk to Sally MacCarron, a close friend of Ederlina. He inquired if there was any truth to
Klaus' statements and Sally confirmed that Klaus was married to Ederlina. When Alfred confronted Ederlina,
she admitted that she and Klaus were, indeed, married. But she assured Alfred that she would divorce Klaus.
Alfred was appeased. He agreed to continue the amorous relationship and wait for the outcome of Ederlina's
petition for divorce. After all, he intended to marry her. He retained the services of Rechtsanwaltin Banzhaf
with offices in Berlin, as her counsel who informed her of the progress of the proceedings. 18 Alfred paid for the
services of the lawyer.
In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo Morelos covered by
TCT No. 92456 located in Pea Street, Bajada, Davao City.19 Alfred again agreed to have the deed of sale
made out in the name of Ederlina. On September 7, 1984, Rodolfo Morelos executed a deed of absolute sale
over the said property in favor of Ederlina as the sole vendee for the amount of P80,000.00. 20 Alfred paid
US$12,500.00 for the property.
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo, located in Moncado,
Babak, Davao, covered by TCT No. 35251. Alfred once more agreed for the name of Ederlina to appear as the
sole vendee in the deed of sale. On December 31, 1984, Atty. Camporedondo executed a deed of sale over
the property for P65,000.00 in favor of Ederlina as the sole vendee. 21 Alfred, through Ederlina, paid the lot at
the cost of P33,682.00 and US$7,000.00, respectively, for which the vendor signed receipts. 22 On August 14,
1985, TCT No. 47246 was issued to Ederlina as the sole owner of the said property.23
Meanwhile, Ederlina deposited on December 27, 1985, the total amount of US$250,000 with the HSBC
Kowloon under Joint Deposit Account No. 018-462341-145. 24
The couple decided to put up a beach resort on a four-hectare land in Camudmud, Babak, Davao, owned by
spouses Enrique and Rosela Serrano. Alfred purchased the property from the spouses for P90,000.00, and
the latter issued a receipt therefor.25 A draftsman commissioned by the couple submitted a sketch of the beach
resort.26 Beach houses were forthwith constructed on a portion of the property and were eventually rented out
by Ederlina's father, Narciso Catito. The rentals were collected by Narciso, while Ederlina kept the proceeds of
the sale of copra from the coconut trees in the property. By this time, Alfred had already spent P200,000.00 for
the purchase, construction and upkeep of the property.
Ederlina often wrote letters to her family informing them of her life with Alfred. In a Letter dated January 21,
1985, she wrote about how Alfred had financed the purchases of some real properties, the establishment of
her beauty parlor business, and her petition to divorce Klaus. 27
Because Ederlina was preoccupied with her business in Manila, she executed on July 8, 1985, two special
powers of attorney28 appointing Alfred as attorney-in-fact to receive in her behalf the title and the deed of sale
over the property sold by the spouses Enrique Serrano.
In the meantime, Ederlina's petition for divorce was denied because Klaus opposed the same. A second
petition filed by her met the same fate. Klaus wanted half of all the properties owned by Ederlina in the
Philippines before he would agree to a divorce. Worse, Klaus threatened to file a bigamy case against
Ederlina.29
Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the establishment of a
corporation, with Ederlina owning 30% of the equity thereof. She initially agreed to put up a corporation and
contacted Atty. Armando Dominguez to prepare the necessary documents. Ederlina changed her mind at the
last minute when she was advised to insist on claiming ownership over the properties acquired by them during
their coverture.

Alfred and Ederlina's relationship started deteriorating. Ederlina had not been able to secure a divorce from
Klaus. The latter could charge her for bigamy and could even involve Alfred, who himself was still married. To
avoid complications, Alfred decided to live separately from Ederlina and cut off all contacts with her. In one of
her letters to Alfred, Ederlina complained that he had ruined her life. She admitted that the money used for the
purchase of the properties in Davao were his. She offered to convey the properties deeded to her by Atty.
Mardoecheo Camporedondo and Rodolfo Morelos, asking Alfred to prepare her affidavit for the said purpose
and send it to her for her signature.30 The last straw for Alfred came on September 2, 1985, when someone
smashed the front and rear windshields of Alfred's car and damaged the windows. Alfred thereafter executed
an affidavit-complaint charging Ederlina and Sally MacCarron with malicious mischief. 31
On October 15, 1985, Alfred wrote to Ederlina's father, complaining that Ederlina had taken all his life savings
and because of this, he was virtually penniless. He further accused the Catito family of acquiring for
themselves the properties he had purchased with his own money. He demanded the return of all the amounts
that Ederlina and her family had "stolen" and turn over all the properties acquired by him and Ederlina during
their coverture.32
Shortly thereafter, Alfred filed a Complaint 33 dated October 28, 1985, against Ederlina, with the Regional Trial
Court of Quezon City, for recovery of real and personal properties located in Quezon City and Manila. In his
complaint, Alfred alleged, inter alia, that Ederlina, without his knowledge and consent, managed to transfer
funds from their joint account in HSBC Hong Kong, to her own account with the same bank. Using the said
funds, Ederlina was able to purchase the properties subject of the complaints. He also alleged that the beauty
parlor in Ermita was established with his own funds, and that the Quezon City property was likewise acquired
by him with his personal funds.34
Ederlina failed to file her answer and was declared in default. Alfred adduced his evidence ex parte.
In the meantime, on November 7, 1985, Alfred also filed a complaint 35 against Ederlina with the Regional Trial
Court, Davao City, for specific performance, declaration of ownership of real and personal properties, sum of
money, and damages. He alleged, inter alia, in his complaint:
4. That during the period of their common-law relationship, plaintiff solely through his own efforts and
resources acquired in the Philippines real and personal properties valued more or less at P724,000.00; The
defendant's common-law wife or live-in partner did not contribute anything financially to the acquisition of the
said real and personal properties. These properties are as follows:
I. Real Properties
a. TCT No. T-92456 located at Bajada, Davao City, consisting of 286 square meters, (with residential house)
registered in the name of the original title owner Rodolfo M. Morelos but already fully paid by plaintiff. Valued
at P342,000.00;
b. TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600 square
meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum, Davao del Norte
valued at P144,000.00;
c. A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte, consisting of 4.2936
hectares purchased from Enrique Serrano and Rosela B. Serrano. Already paid in full by plaintiff. Valued at
P228,608.32;
II. Personal Properties:
a. Furniture valued at P10,000.00.
...

5. That defendant made no contribution at all to the acquisition, of the above-mentioned properties as all the
monies (sic) used in acquiring said properties belonged solely to plaintiff; 36

WHEREFORE, plaintiff respectfully prays that the Honorable Court adjudge defendant bank, upon hearing the
evidence that the parties might present, to pay plaintiff:

Alfred prayed that after hearing, judgment be rendered in his favor:

1. ONE HUNDRED TWENTY SIX THOUSAND TWO HUNDRED AND THIRTY U.S. DOLLARS AND NINETY
EIGHT CENTS (US$126,230.98) plus legal interests, either of Hong Kong or of the Philippines, from 20
December 1984 up to the date of execution or satisfaction of judgment, as actual damages or in restoration of
plaintiffs lost dollar savings;

WHEREFORE, in view of the foregoing premises, it is respectfully prayed that judgment be rendered in favor
of plaintiff and against defendant:
a) Ordering the defendant to execute the corresponding deeds of transfer and/or conveyances in favor of
plaintiff over those real and personal properties enumerated in Paragraph 4 of this complaint;

2. The same amount in (1) above as moral damages;

3. Attorney's fees in the amount equivalent to TWENTY FIVE PER CENT (25%) of (1) and (2) above;

b) Ordering the defendant to deliver to the plaintiff all the above real and personal properties or their money
value, which are in defendant's name and custody because these were acquired solely with plaintiffs money
and resources during the duration of the common-law relationship between plaintiff and defendant, the
description of which are as follows:
(1) TCT No. T-92456 (with residential house) located at Bajada, Davao City, consisting of 286 square meters,
registered in the name of the original title owner Rodolfo Morelos but already fully paid by plaintiff. Valued at
P342,000.00;
(2) TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600 square
meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum, Davao del Norte,
valued at P144,000.00;
(3) A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte, consisting of 4.2936
hectares purchased from Enrique Serrano and Rosela B. Serrano. Already fully paid by plaintiff. Valued at
P228,608.32;
c) Declaring the plaintiff to be the sole and absolute owner of the above-mentioned real and personal
properties;
d) Awarding moral damages to plaintiff in an amount deemed reasonable by the trial court;
e) To reimburse plaintiff the sum of P12,000.00 as attorney's fees for having compelled the plaintiff to litigate;
f) To reimburse plaintiff the sum of P5,000.00 incurred as litigation expenses also for having compelled the
plaintiff to litigate; and
g) To pay the costs of this suit;
Plaintiff prays other reliefs just and equitable in the premises. 37
In her answer, Ederlina denied all the material allegations in the complaint, insisting that she acquired the said
properties with her personal funds, and as such, Alfred had no right to the same. She alleged that the deeds of
sale, the receipts, and certificates of titles of the subject properties were all made out in her name. 38 By way of
special and affirmative defense, she alleged that Alfred had no cause of action against her. She interposed
counterclaims against the petitioner.39
In the meantime, the petitioner filed a Complaint dated August 25, 1987, against the HSBC in the Regional
Trial Court of Davao City40 for recovery of bank deposits and damages.41 He prayed that after due
proceedings, judgment be rendered in his favor, thus:

4. Litigation expenses in the amount equivalent to TEN PER CENT (10%) of the amount in (1) above; and
5. For such other reliefs as are just and equitable under the circumstances. 42
On April 28, 1986, the RTC of Quezon City rendered its decision in Civil Case No. Q-46350, in favor of Alfred,
the decretal portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering the defendant to perform the
following:
(1) To execute a document waiving her claim to the house and lot in No. 14 Fernandez St., San Francisco Del
Monte, Quezon City in favor of plaintiff or to return to the plaintiff the acquisition cost of the same in the
amount of $20,000.00, or to sell the said property and turn over the proceeds thereof to the plaintiff;
(2) To deliver to the plaintiff the rights of ownership and management of the beauty parlor located at 444
Arquiza St., Ermita, Manila, including the equipment and fixtures therein;
(3) To account for the earnings of rental of the house and lot in No. 14 Fernandez St., San Francisco Del
Monte, Quezon City, as well as the earnings in the beauty parlor at 444 Arquiza St., Ermita, Manila and turn
over one-half of the net earnings of both properties to the plaintiff;
(4) To surrender or return to the plaintiff the personal properties of the latter left in the house at San Francisco
Del Monte, to wit:
"(1) Mamya automatic camera
(1) 12 inch "Sonny" T.V. set, colored with remote control.
(1) Micro oven
(1) Electric fan (tall, adjustable stand)
(1) Office safe with (2) drawers and safe
(1) Electric Washing Machine
(1) Office desk and chair

(1) Double bed suits

(1) Mirror/dresser

On March 8, 2000, the CA rendered a decision affirming in toto the decision of the RTC. The appellate court
ruled that the petitioner knowingly violated the Constitution; hence, was barred from recovering the money
used in the purchase of the three parcels of land. It held that to allow the petitioner to recover the money used
for the purchase of the properties would embolden aliens to violate the Constitution, and defeat, rather than
enhance, the public policy.46

(1) Heavy duty voice/working mechanic

Hence, the petition at bar.
(1) "Sony" Beta-Movie camera
The petitioner assails the decision of the court contending that:
(1) Suitcase with personal belongings
(1) Cardboard box with belongings
(1) Guitar Amplifier

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULE OF IN PARI DELICTO IN THE
INSTANT CASE BECAUSE BY THE FACTS AS NARRATED IN THE DECISION IT IS APPARENT THAT THE
PARTIES ARE NOT EQUALLY GUILTY BUT RATHER IT WAS THE RESPONDENT WHO EMPLOYED
FRAUD AS WHEN SHE DID NOT INFORM PETITIONER THAT SHE WAS ALREADY MARRIED TO
ANOTHER GERMAN NATIONAL AND WITHOUT SUCH FRAUDULENT DESIGN PETITIONER COULD NOT
HAVE PARTED WITH HIS MONEY FOR THE PURCHASE OF THE PROPERTIES.47

(1) Hanger with men's suit (white)."

and
To return to the plaintiff, (1) Hi-Fi Stereo equipment left at 444 Arquiza Street, Ermita, Manila, as well as the
Fronte Suzuki car.
(4) To account for the monies (sic) deposited with the joint account of the plaintiff and defendant (Account No.
018-0-807950); and to restore to the plaintiff all the monies (sic) spent by the defendant without proper
authority;

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INTENTION OF THE
PETITIONER IS NOT TO OWN REAL PROPERTIES IN THE PHILIPPINES BUT TO SELL THEM AT PUBLIC
AUCTION TO BE ABLE TO RECOVER HIS MONEY USED IN PURCHASING THEM. 48
Since the assignment of errors are intertwined with each other, the Court shall resolve the same
simultaneously.

(5) To pay the amount of P5,000.00 by way of attorney's fees, and the costs of suit.
SO ORDERED.43
However, after due proceedings in the RTC of Davao City, in Civil Case No. 17,817, the trial court rendered
judgment on September 28, 1995 in favor of Ederlina, the dispositive portion of which reads:
WHEREFORE, the Court cannot give due course to the complaint and hereby orders its dismissal. The
counterclaims of the defendant are likewise dismissed.
SO ORDERED.44
The trial court ruled that based on documentary evidence, the purchaser of the three parcels of land subject of
the complaint was Ederlina. The court further stated that even if Alfred was the buyer of the properties; he had
no cause of action against Ederlina for the recovery of the same because as an alien, he was disqualified from
acquiring and owning lands in the Philippines. The sale of the three parcels of land to the petitioner was null
and void ab initio. Applying the pari delicto doctrine, the petitioner was precluded from recovering the
properties from the respondent.
Alfred appealed the decision to the Court of Appeals 45 in which the petitioner posited the view that although he
prayed in his complaint in the court a quo that he be declared the owner of the three parcels of land, he had no
intention of owning the same permanently. His principal intention therein was to be declared the transient
owner for the purpose of selling the properties at public auction, ultimately enabling him to recover the money
he had spent for the purchase thereof.

The petitioner contends that he purchased the three parcels of land subject of his complaint because of his
desire to marry the respondent, and not to violate the Philippine Constitution. He was, however, deceived by
the respondent when the latter failed to disclose her previous marriage to Klaus Muller. It cannot, thus, be said
that he and the respondent are "equally guilty;" as such, the pari delicto doctrine is not applicable to him. He
acted in good faith, on the advice of the respondent's uncle, Atty. Mardoecheo Camporedondo. There is no
evidence on record that he was aware of the constitutional prohibition against aliens acquiring real property in
the Philippines when he purchased the real properties subject of his complaint with his own funds. The
transactions were not illegal per se but merely prohibited, and under Article 1416 of the New Civil Code, he is
entitled to recover the money used for the purchase of the properties. At any rate, the petitioner avers, he filed
his complaint in the courta quo merely for the purpose of having him declared as the owner of the properties,
to enable him to sell the same at public auction. Applying by analogy Republic Act No. 133 49 as amended by
Rep. Act No. 4381 and Rep. Act No. 4882, the proceeds of the sale would be remitted to him, by way of refund
for the money he used to purchase the said properties. To bar the petitioner from recovering the subject
properties, or at the very least, the money used for the purchase thereof, is to allow the respondent to enrich
herself at the expense of the petitioner in violation of Article 22 of the New Civil Code.
The petition is bereft of merit.
Section 14, Article XIV of the 1973 Constitution provides, as follows:
Save in cases of hereditary succession, no private land shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands in the public domain. 50
Lands of the public domain, which include private lands, may be transferred or conveyed only to individuals or
entities qualified to acquire or hold private lands or lands of the public domain. Aliens, whether individuals or
corporations, have been disqualified from acquiring lands of the public domain. Hence, they have also been
disqualified from acquiring private lands.51

Even if, as claimed by the petitioner, the sales in question were entered into by him as the real vendee, the
said transactions are in violation of the Constitution; hence, are null and void ab initio.52 A contract that violates
the Constitution and the law, is null and void and vests no rights and creates no obligations. It produces no
legal effect at all.53 The petitioner, being a party to an illegal contract, cannot come into a court of law and ask
to have his illegal objective carried out. One who loses his money or property by knowingly engaging in a
contract or transaction which involves his own moral turpitude may not maintain an action for his losses. To
him who moves in deliberation and premeditation, the law is unyielding. 54 The law will not aid either party to an
illegal contract or agreement; it leaves the parties where it finds them. 55 Under Article 1412 of the New Civil
Code, the petitioner cannot have the subject properties deeded to him or allow him to recover the money he
had spent for the purchase thereof.56 Equity as a rule will follow the law and will not permit that to be done
indirectly which, because of public policy, cannot be done directly.57 Where the wrong of one party equals that
of the other, the defendant is in the stronger position . . . it signifies that in such a situation, neither a court of
equity nor a court of law will administer a remedy.58 The rule is expressed. in the maxims: EX DOLO ORITUR
ACTIO and IN PARI DELICTO POTIOR EST CONDITIO DEFENDENTIS.59
The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he acted in good faith, let
alone assert that he is less guilty than the respondent. The petitioner is charged with knowledge of the
constitutional prohibition.60 As can be gleaned from the decision of the trial court, the petitioner was fully aware
that he was disqualified from acquiring and owning lands under Philippine law even before he purchased the
properties in question; and, to skirt the constitutional prohibition, the petitioner had the deed of sale placed
under the respondent's name as the sole vendee thereof:

xxx

xxx

xxx

Q.

What happened after that?

A.

She said you foreigner you are using Filipinos to buy property.

Q.

And what did you answer?

A:
I said thank you very much for the property I bought because I gave you a lot of money (tsn., p.
14,ibid).
It is evident that the plaintiff was fully aware that as a non-citizen of the Philippines, he was disqualified from
validly purchasing any land within the country.61
The petitioner's claim that he acquired the subject properties because of his desire to marry the respondent,
believing that both of them would thereafter jointly own the said properties, is belied by his own evidence. It is
merely an afterthought to salvage a lost cause. The petitioner admitted on cross-examination that he was all
along legally married to Teresita Santos Frenzel, while he was having an amorous relationship with the
respondent:

Such being the case, the plaintiff is subject to the constitutional restrictions governing the acquisition of real
properties in the Philippines by aliens.

ATTY. YAP:

From the plaintiff's complaint before the Regional Trial Court, National Capital Judicial Region, Branch 84,
Quezon City in Civil Case No. Q-46350 he alleged:

Q
When you were asked to identify yourself on direct examination you claimed before this Honorable
Court that your status is that of being married, do you confirm that?

x x x "That on account that foreigners are not allowed by the Philippine laws to acquire real properties in their
name as in the case of my vendor Miss Victoria Vinuya (sic) although married to a foreigner, we agreed and I
consented in having the title to subject property placed in defendant's name alone although I paid for the
whole price out of my own exclusive funds." (paragraph IV, Exhibit "W.")

Yes, sir.

To whom are you married?

and his testimony before this Court which is hereby quoted:

To a Filipina, since 1976.

ATTY. ABARQUEZ:

Would you tell us who is that particular person you are married since 1976?

Q.

In whose name the said house and lot placed, by the way, where is his house and lot located?

Teresita Santos Frenzel.

A.

In 14 Fernandez St., San Francisco, del Monte, Manila.

Where is she now?

Q.

In whose name was the house placed?

In Australia.

Is this not the person of Teresita Frenzel who became an Australian citizen?

I am not sure, since 1981 we were separated.

You were only separated, in fact, but not legally separated?

Thru my counsel in Australia I filed a separation case.

As of the present you are not legally divorce[d]?

A.
Ederlina Catito because I was informed being not a Filipino, I cannot own the property. (tsn, p. 11,
August 27, 1986).
xxx

xxx

xxx

COURT:
Q.

So you understand that you are a foreigner that you cannot buy land in the Philippines?

A.
That is correct but as she would eventually be my wife that would be owned by us later on. (tsn, p. 5,
September 3, 1986)

I am still legally married.62

The respondent was herself married to Klaus Muller, a German citizen. Thus, the petitioner and the
respondent could not lawfully join in wedlock. The evidence on record shows that the petitioner in fact knew of
the respondent's marriage to another man, but nonetheless purchased the subject properties under the name
of the respondent and paid the purchase prices therefor. Even if it is assumed gratia arguendi that the
respondent and the petitioner were capacitated to marry, the petitioner is still disqualified to own the properties
in tandem with the respondent.63

IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The decision of the Court of Appeals is
AFFIRMED in toto.
Costs against the petitioner. SO ORDERED.
[G.R. No. 148376. March 31, 2005]

The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:

LEONARDO ACABAL and RAMON NICOLAS, petitioners, vs. VILLANER ACABAL, EDUARDO ACABAL,
SOLOMON ACABAL, GRACE ACABAL, MELBA ACABAL, EVELYN ACABAL, ARMIN ACABAL, RAMIL
ACABAL, and BYRON ACABAL, respondents.

Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is
designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has
paid or delivered.64

DECISION
CARPIO MORALES, J.:

The provision applies only to those contracts which are merely prohibited, in order to benefit private interests.
It does not apply to contracts void ab initio. The sales of three parcels of land in favor of the petitioner who is a
foreigner is illegal per se. The transactions are void ab initio because they were entered into in violation of the
Constitution. Thus, to allow the petitioner to recover the properties or the money used in the purchase of the
parcels of land would be subversive of public policy.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No. 4882, which reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real property may be mortgaged in favor
of any individual, corporation, or association, but the mortgagee or his successor-in-interest, if disqualified to
acquire or hold lands of the public domain in the Philippines, shall not take possession of the mortgaged
property during the existence of the mortgage and shall not take possession of mortgaged property except
after default and for the sole purpose of foreclosure, receivership, enforcement or other proceedings and in no
case for a period of more than five years from actual possession and shall not bid or take part in any sale of
such real property in case of foreclosure: Provided, That said mortgagee or successor-in-interest may take
possession of said property after default in accordance with the prescribed judicial procedures for foreclosure
and receivership and in no case exceeding five years from actual possession. 65
From the evidence on record, the three parcels of land subject of the complaint were not mortgaged to the
petitioner by the owners thereof but were sold to the respondent as the vendee, albeit with the use of the
petitioner's personal funds.
Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground, shall return the same to
him.66

Before this Court is a Petition for Review on Certiorari of the February 15, 2001 Decision[1] of the Court of
Appeals reversing that of the Regional Trial Court (RTC) of Dumaguete City, Branch 35. [2]
In dispute is the exact nature of the document [3] which respondent Villaner Acabal (Villaner) executed in favor
of his godson-nephew-petitioner Leonardo Acabal (Leonardo) on April 19, 1990.
Villaners parents, Alejandro Acabal and Felicidad Balasabas, owned a parcel of land situated in Barrio
Tanglad, Manjuyod, Negros Oriental, containing an area of 18.15 hectares more or less, described in Tax
Declaration No. 15856.[4] By a Deed of Absolute Sale dated July 6, 1971, [5] his parents transferred for
P2,000.00 ownership of the said land to him, who was then married to Justiniana Lipajan. [6]
Sometime after the foregoing transfer, it appears that Villaner became a widower.
Subsequently, he executed on April 19, 1990 a deed [7] conveying the same property[8] in favor of Leonardo.
Villaner was later to claim that while the April 19, 1990 document he executed now appears to be a Deed of
Absolute Sale purportedly witnessed by a Bais City trial court clerk Carmelo Cadalin and his wife Lacorte,
what he signed was a document captioned Lease Contract [9] (modeled after a July 1976 lease
agreement[10] he had previously executed with previous lessee, Maria Luisa Montenegro [11]) wherein he leased
for 3 years the property to Leonardo at P1,000.00 per hectare[12] and which was witnessed by two women
employees of one Judge Villegas of Bais City.
Villaner thus filed on October 11, 1993 a complaint [13] before the Dumaguete RTC against Leonardo and
Ramon Nicolas to whom Leonardo in turn conveyed the property, for annulment of the deeds of sale.
At the witness stand, Villaner declared:

The provision is expressed in the maxim: "MEMO CUM ALTERIUS DETER DETREMENTO PROTEST" (No
person should unjustly enrich himself at the expense of another). An action for recovery of what has been paid
without just cause has been designated as an accion in rem verso.67 This provision does not apply if, as in this
case, the action is proscribed by the Constitution or by the application of the pari delicto doctrine. 68 It may be
unfair and unjust to bar the petitioner from filing an accion in rem verso over the subject properties, or from
recovering the money he paid for the said properties, but, as Lord Mansfield stated in the early case
of Holman vs. Johnson:69 "The objection that a contract is immoral or illegal as between the plaintiff and the
defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the
objection is ever allowed; but it is founded in general principles of policy, which the defendant has the
advantage of, contrary to the real justice, as between him and the plaintiff."

Q:
It appears, Mr. Acabal, that you have signed a document of sale with the defendant Leonardo Acabal on
April 19, 1990, please tell the court whether you have really agreed to sell this property to the defendant on or
before April 19, 1990?
A:

We had some agreement but not about the selling of this property.

Q:

What was your agreement with the defendant Leonardo Acabal?

A:

Our agreement [was] that he will just rent. [14]

Q:

Q:

By the way, who is this Mellie Cadalin?

Now, please tell the court how were you able to sign this document on April 19, 1990?

A:

Mellie Cadalin is also working in the sala of Judge Villegas.

A:

I do not know why I signed that, that is why I am puzzled.

Q:

Who requested Mellie Cadalin to prepare this document?

Q:

Why, did you not read the contents of this document?

A:

Maybe it was Leonardo Acabal.

A:

I have not read that. I only happened to read the title of the Lease Contract.

Q:
By the way, when for the first time did you talk to Leonardo Acabal regarding your agreement to lease
this property to him?

Q:
And do you recall who were the witnesses of the document which you signed in favor of
Leonardo Acabal?

A:

March 14, 1990, in San Carlos.

A:

Employees of Judge Villegas of Bais City.

Q:

And what document did you give to him in order that that document will be prepared?

Q:

Did you see them sign that document?

A:
[17]

A:

Yes, sir.
x

Q:
These signatures appearing in this document marked as Exhibit C for the plaintiff and Exhibit
1 for the defendant, please examine over (sic) these signatures if these were the signatures of these
witnesses who signed this document?
A:

I have given (sic) some papers and contract of lease that I have signed to (sic) Mrs. Montenegro.
(Emphasis and underscoring supplied)
x

Q:
Now, Carmelo Cadalin [Mellie] also testified before this court that in fact he identified the document
marked as Exhibit C for the plaintiff that what you executed on April 19, 1990 was a deed of sale and not a
contract of lease, what can you say to that statement?

These are not the signatures of the two women.

Q:
And after signing this document on April 19, 1990, did you appear before a notary public to have this
notarized?

A:

That is a lie.

Q:

And whats the truth then?

What really (sic) I have signed was the document of lease contract.

A:

No, I went home to San Carlos.[15]

A:

Q:
Now, can you explain to the Honorable Court why it so happened that on April 19, you were able
to sign a deed of sale?

Q:
According to this document, you sell (sic) this property at P10,000.00, did you sell this property to
Leonardo Acabal?

A:
What I can see now is that perhaps those copies of the deed of sale were placed by Mr. Cadalin
under the documents which I signed the lease contract. But why is it that it has already a deed of sale
when what I have signed was only the lease of contract or the contract of lease.

A:

No, sir.

Q:

How about after April 19, 1990, did you receive this amount from Leonardo Acabal?

Q:
Now, Mr. Cadalin also stated before this court that he handed over to you this Deed of Sale marked as
Exhibit C and according to him you read this document, what can you say to this statement?

A:

No, sir.[16]

A:

Q:
How sure are you that what you signed on April 19, 1990 was really a contract of lease and not a
contract of sale?

Q:
Now you said that on May 25, 1990, Leonardo Acabal did not pay the amount that he promised to you,
what did you do of (sic) his refusal to pay that amount?
A:
I went to Mr. [Carmelo] Mellie Cadalin because he was the one who prepared the papers and to
ask Leonardo Acabal why he will not comply with our agreement.

Yes, there was a document that he gave me to read it (sic)but it was a contract of lease.

A:
Because when I signed the contract of lease the witnesses that witnessed my signing the
document were the employees of Judge Villegas and then I am now surprised why in the deed of sale
which I purportedly signed are witnessed by Carmelo Cadalin and his wife Lacorte.[18] (Emphasis and
underscoring supplied)

On the other hand, Leonardo asserts that what Villaner executed was a Deed of Absolute Sale for a
consideration of P10,000.00 which he had already paid, [19] and as he had become the absolute owner of the
property, he validly transferred it to Ramon Nicolas on May 19, 1990. [20]
Carmelo Cadalin who admittedly prepared the deed of absolute sale and who appears as a witness, along
with his wife, to the execution of the document corroborated Leonardos claim:
Q:

Mr. Cadalin, do you know the plaintiff Villaner Acabal?

A:

Yes, I know.[21]

Q:

And I would like to ask you Mr. witness why do you know Villaner Acabal?

A:

Yes, this is the one.[23]

Q:
Also stated in the document is the phrase Signed in the presence of and there is a number and
then two signatures, could you please examine the document and say whether these signatures are
familiar to you?
A:

Yes, number one is my signature and number 2 is the signature of my wife as witness. [24]

Q:

After Villaner Acabal signed the document, what did Villaner Acabal do?

A:

He was given the payment by Leonardo Acabal. [25]

A:
At the time that he went to our house together with Leonardo Acabal he requested me to prepare
a deed of sale as regards to a sale of the property.[22]
x

Q:

And after they requested you to prepare a document of sale, what did you do?

Q:
Aside from the document, deed of absolute sale, that you mentioned earlier that you prepared for
Villaner Acabal and Leonardo Acabal, what other documents, if any, did you prepare for them?
A:

A:
At first I refused to [do] it because I have so many works to do, but then they insisted so I
prepared the deed.

Affidavit of non-tenancy and aggregate area.[26] (Emphasis and underscoring supplied)

The complaint was later amended[27] to implead Villaners eight children as party plaintiffs, they being heirs of
his deceased wife.

Q:

After you prepared the document, what did you do?

A:

After I prepared it I gave it to him so that he could read the same.

Q:

When you say him, whom do you refer to?

A:

Villaner Acabal.

Q:

And did Villaner Acabal read the document you prepared?

Hence, Leonardo and Ramon Nicolas present petition for review on certiorari,[29] anchored on the following
assignments of error:

A:

Yes, he read it.

I.

Q:

And after reading it what did Villaner Acabal do?

A:

He signed the document.

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT
VILLANER ACABAL WAS DECEIVED INTO SIGNING THE DEED OF ABSOLUTE SALE WHEN THE
LATTER KNOWINGLY, FREELY AND VOLUNTARILY EXECUTED THE SAME IN FAVOR OF PETITIONER
LEONARDO ACABAL.

By Decision of August 8, 1996, the trial court found for the therein defendants-herein petitioners Leonardo and
Ramon Nicolas and accordingly dismissed the complaint.
Villaner et al. thereupon brought the case on appeal to the Court of Appeals which reversed the trial court, it
holding that the Deed of Absolute Sale executed by Villaner in favor of Leonardo was simulated and
fictitious.[28]

Q:
Showing to you a document which is marked Exhibit C for the plaintiff and Exhibit 1 for the
defendants, please tell the Honorable Court what relation this document has to the document which
you described earlier?

II.

COURT INTERPRETER:

THE COURT OF APPEALS ERRED WHEN IT RULED THAT THE CONSIDERATION OF THE DEED OF
ABSOLUTE SALE IN THE AMOUNT OF TEN THOUSAND PESOS (P10,0000.00) WAS UNUSUALLY LOW
AND INADEQUATE, ESPECIALLY TAKING INTO ACCOUNT THE LOCATION OF THE SUBJECT
PROPERTY.

Witness is confronted with the said document earlier marked as Exhibit C for the prosecution and
Exhibit 1 for the defense.

III.

THE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER WHY RESPONDENT VILLANER
ACABAL ONLY QUESTIONED THE POSSESSION AND OWNERSHIP OF PETITIONER RAMON NICOLAS
IN COURT AFTER THE LATTER WAS IN OPEN, CONTINUOUS AND PEACEFUL POSSESSION OF THE
SUBJECT PROPERTY FOR ALMOST THREE (3) YEARS.
IV.
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT FAILED TO DECLARE
PETITIONER RAMON NICOLAS AS A BUYER IN GOOD FAITH AS THE LATTER TOOK THE NECESSARY
STEPS AN ORDINARY AND PRUDENT MAN WOULD HAVE TAKEN BEFORE BUYING THE QUESTIONED
PROPERTY.

were placed by Mr. Cadalin under the documents which I signed the contract of lease, [36] must fail, for facts
not conjectures decide cases.
Attempting to seek corroboration of his account, Villaner presented Atty. Vicente Real who notarized the
document. While on direct examination, Atty. Real virtually corroborated Villaners claim that he did not bring
the document to him for notarization,[37] on cross-examination, Atty. Real conceded that it was impossible to
remember every person who would ask him to notarize documents:
Q:
And in the course of your notarization, can you remember each and every face that come (sic) to
you for notarization?
A:

No, it is impossible.

V.
THE COURT OF APPEALS ERRED IN RULING IN FAVOR OF RESPONDENT VILLANER ACABAL WHEN
THE LATTER DID NOT PRESENT A SINGLE WITNESS TO TESTIFY ON THE ALLEGED CONTRACT OF
LEASE WHICH HE ALLEGEDLY SIGNED AND WITNESSED BY THE EMPLOYEES OF JUDGE VILLEGAS.
VI.
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN LAW WHEN IT RULED THAT RULE 8,
SECTION 8 OF THE 1987 (sic) RULE (sic) OF CIVIL PROCEDURE IS NOT APPLICABLE IN THE CASE AT
BAR, CONTRARY TO THE RULING OF THE LOWER COURT.
VII.
THE COURT OF APPEALS ERRED WHEN IT ORDERED PETITIONERS TO PAY RESPONDENTS
JOINTLY AND SEVERALLY BY WAY OF RENTAL THE SUM OF P10,000.00 PER YEAR FROM 1990 UP TO
THE TIME THEY VACATE THE PREMISES.[30]
Procedurally, petitioners contend that the Court of Appeals erred when it failed to apply Section 8, Rule 8 of
the Rules of Court, respondent Villaner having failed to deny under oath the genuineness and due execution
of the April 19, 1990 Deed of Absolute Sale.

Q:
In the case of Villaner Acabal which you have his document notarized (sic) in 1990, can you
remember his face when he came to you?
A:

No.

Q:
And can you also say, if a person who came to you having a document to be notarized and if he
will appear again after a month, can you remember whether he was the one who came to you?
A:
Not so much because everyday there are many people who appear with documents to be
notarized,
Q:
So, it is safe to say that if Villaner Acabal came to you on April 25 or rather April 16, 1990
andhave (sic) his document notarized if he comes back in, say May 25, can you still remember if he
was the one who came to you?
A:
I cannot be sure but at least, there are times I can remember persons because he seems to be
close to me already.
Q:

Is this Villaner close to you?

Petitioners contention does not persuade. The failure to deny the genuineness and due execution of an
actionable document does not preclude a party from arguing against it by evidence of fraud, mistake,
compromise, payment, statute of limitations, estoppel, and want of consideration. [31]

A:

Because he has been frequenting the house/asking for a copy of the document.

Q:

So, he became close to you after you notarized the document?

On the merits, this Court rules in petitioners favor.

A:

Yes.[38] (Emphasis and underscoring supplied)

It is a basic rule in evidence that the burden of proof lies on the party who makes the allegations [32] ei
incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum negantis probatio nulla sit.[33] If he
claims a right granted by law, he must prove it by competent evidence, relying on the strength of his own
evidence and not upon the weakness of that of his opponent.

On Villaners claim that two women employees of Judge Villegas signed as witnesses to the deed [39] but that
the signatures appearing thereon are not those of said witnesses, [40] the same must be discredited in light of
his unexplained failure to present such alleged women employee-witnesses.

More specifically, allegations of a defect in or lack of valid consent to a contract by reason of fraud or undue
influence are never presumed but must be established not by mere preponderance of evidence but by clear
and convincing evidence.[34] For the circumstances evidencing fraud and misrepresentation are as varied as
the people who perpetrate it in each case, assuming different shapes and forms and may be committed in as
many different ways.[35]
In the case at bar, it was incumbent on the plaintiff-herein respondent Villaner to prove that he was deceived
into executing the Deed of Absolute Sale. Except for his bare allegation that the transaction was one of lease,
he failed to adduce evidence in support thereof. His conjecture that perhaps those copies of the deed of sale

In another vein, Villaner zeroes in on the purchase price of the property P10,000.00 which to him was
unusually low if the transaction were one of sale. To substantiate his claim, Villaner presented Tax
Declarations covering the property for the years 1971,[41] 1974,[42] 1977,[43] 1980,[44] 1983,[45] 1985,[46] as well as
a Declaration of Real Property executed in 1994.[47]
It bears noting, however, that Villaner failed to present evidence on the fair market value of the property as of
April 19, 1990, the date of execution of the disputed deed. Absent any evidence of the fair market value of a
land as of the time of its sale, it cannot be concluded that the price at which it was sold was inadequate.

[48]

Inadequacy of price must be proven because mere speculation or conjecture has no place in our judicial
system.[49]
Victor Ragay, who was appointed by the trial court to conduct an ocular inspection [50] of the property and to
investigate matters relative to the case,[51] gave an instructive report dated December 3, 1994,[52] the pertinent
portions of which are hereby reproduced verbatim:
a) Only three (3) to four (4) hectares of the eighteen (18) were planted to sugar cane, the rest was never
cultivated;

family-sized farm, such as commodity produced, terrain, infrastructure, and soil fertility as determined by the
Presidential Agrarian Reform Council (PARC) created hereunder, but in no case shall retention by the
landowner exceed five (5) hectares. Three (3) hectares may be awarded to each child of the landowner,
subject to the following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is tilling
the land or directly managing the farm: Provided, That landowners whose lands have been covered by
Presidential Decree No. 27 shall be allowed to keep the areas originally retained by them thereunder: [57]
Provided further, That original homestead grantees or direct compulsory heirs who still own the original
homestead at the time of the approval of this Act shall retain the same areas as long as they continue to
cultivate said homestead.
x

b) the soil is reddish and somewhat sandy in composition;

c) the soil contains so much limestones (rocks consisting mainly of calcium carbonate);
d) no part of the land in question is plain or flat, contrary to claim of the plaintiff that almost 10 hectares of the
land in question is plain or flat;

Upon the effectivity of this Act, any sale, disposition, lease, management, contract or transfer of
possession of private lands executed by the original landowner in violation of this Act shall be null
and void: Provided, however, that those executed prior to this Act shall be valid only when registered with the
Register of Deeds within a period of three (3) months after the effectivity of this Act. Thereafter, all Registers
of Deeds shall inform the DAR within thirty (30) days of any transaction involving agricultural lands in excess
of five (5) hectares.

e) some areas, eastward of and adjacent of the land in question (mistakenly to be owned by the defendant
Nicolas) were planted to sugar cane by the owners Kadusales;

f) the road going to the land in question (as claimed to be the road) is no longer passable because it has been
abandoned and not maintained by anyone, thus it makes everything impossible for anybody to get and haul
the sugar cane from the area;

SECTION 70. Disposition of Private Agricultural Lands. The sale or disposition of agricultural lands retained
by a land owner as a consequence of Section 6 hereof shall be valid as long as the total landholdings that
shall be owned by the transferee thereof inclusive of the land to be acquired shall not exceed the landholding
ceilings provided for in this Act.

g) the Commissioner has discovered some stockpiles of abandoned harvested sugar canes left to rot, along
the side of the road, undelivered to the milling site because of the difficulty in bringing up trucks to the scene of
the harvest;

Any sale or disposition of agricultural lands after the effectivity of this Act found to be contrary to the
provisions hereof shall be null and void.

h) the sugarcanes presently planted on the land in question at the time of the ocular inspection were three (3)
feet in height and their structural built was thin or lean;
i) Most of the part of the 18 hectares is not planted or cultivated because the same is too rocky and not
suitable for planting to sugarcane. [53]
Additionally, Ragay reported that one Anatolio Cabusog recently purchased a 6-hectare property adjoining that
of the subject property for only P1,600.00[54] or P266.67 per hectare. Given that, had the 18-hectare subject
property been sold at about the same time, it would have fetched the amount of P4,800.00,[55] hence,
the P10,000.00 purchase price appearing in the questioned April 19, 1990 document is more than reasonable.
Even, however, on the assumption that the price of P10,000.00 was below the fair market value of the property
in 1990, mere inadequacy of the price per se will not rule out the transaction as one of sale. For the price
must be grossly inadequate or shocking to the conscience such that the mind revolts at it and such that a
reasonable man would neither directly nor indirectly be likely to consent to it. [56]
Still in another vein, Villaner submits that Leonardos transfer of the property to Nicolas in a span of one month
for a profit of P30,000.00 conclusively reflects Leonardos fraudulent intent. This submission is a non sequitur.
As for Villaners argument that the sale of the property to Leonardo and the subsequent sale thereof to Nicolas
are void for being violative of the retention limits imposed by Republic Act No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law, the same fails. The pertinent provisions of said law read:
SECTION 6. Retention Limits. Except as otherwise provided in this Act, no person may retain, directly or
indirectly, any public or agricultural land, the size of which may vary according to factors governing a viable

Transferees of agricultural lands shall furnish the appropriate Register of Deeds and the BARC an affidavit
attesting that his total landholdings as a result of the said acquisition do not exceed the landholding ceiling.
The Register of Deeds shall not register the transfer of any agricultural land without the submission of his
sworn statement together with proof of service of a copy thereof to the BARC. (Emphasis and underscoring
supplied)
As the above-quoted provisions of the Comprehensive Agrarian Reform Law show, only those private lands
devoted to or suitable for agriculture are covered by it.[58] As priorly related, Victor Ragay, who was appointed
by the trial court to conduct an ocular inspection of the property, observed in his report that only three (3) to
four (4) hectares were planted with sugarcane while the rest of the property was not suitable for planting as
the soil was full of limestone.[59] He also remarked that the sugarcanes were only 3 feet in height and very
lean,[60] whereas sugarcanes usually grow to a height of 3 to 6 meters (about 8 to 20 feet) and have stems 2 to
5 centimeters (1-2 inches) thick.[61]
It is thus gathered that the property was not suitable for agricultural purposes. In any event, since the area
devoted to the planting of sugarcane, hence, suitable for agricultural purposes, comprises only 4 hectares at
the most, it is less than the maximum retention limit prescribed by law. There was then no violation of the
Comprehensive Agrarian Reform Law.
Even assuming that the disposition of the property by Villaner was contrary to law, he would still have no
remedy under the law as he and Leonardo were in pari delicto, hence, he is not entitled to afirmative relief
one who seeks equity and justice must come to court with clean hands. In pari delicto potior est conditio
defendentis.[62]

The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit
can be maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its violation. The rule has sometimes been
laid down as though it were equally universal, that where the parties are in pari delicto, no affirmative relief of
any kind will be given to one against the other.[63] (Emphasis and underscoring supplied)
The principle of pari delicto is grounded on two premises: first, that courts should not lend their good offices to
mediating disputes among wrongdoers;[64] and second, that denying judicial relief to an admitted wrongdoer is
an effective means of deterring illegality.[65] This doctrine of ancient vintage is not a principle of justice but one
of policy as articulated in 1775 by Lord Mansfield in Holman v. Johnson:[66]
The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds at all times
very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is
founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice,
as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo
malo non oritur actio.[67] No court will lend its aid to a man who founds his cause of action upon an immoral or
an illegal act. If, from the plaintiffs own stating or otherwise, the cause of action appears to arise ex turpi
causa,[68] or the transgression of a positive law of this country, there the court says he has no right to be
assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not
lend their aid to such a plaintiff. So if the plaintiff and the defendant were to change sides, and the defendant
was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are
equally in fault potior est conditio defendentis.[69]
Thus, to serve as both a sanction and as a deterrent, the law will not aid either party to an illegal agreement
and will leave them where it finds them.
The principle of pari delicto, however, is not absolute, admitting an exception under Article 1416 of the Civil
Code.
ART. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is
designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has
paid or delivered.
Under this article, recovery for what has been paid or delivered pursuant to an inexistent contract is allowed
only when the following requisites are met: (1) the contract is not illegal per se but merely prohibited; (2) the
prohibition is for the protection of the plaintiffs; and (3) if public policy is enhanced thereby. [70] The exception is
unavailing in the instant case, however, since the prohibition is clearly not for the protection of the plaintifflandowner but for the beneficiary farmers. [71]
In fine, Villaner is estopped from assailing and annulling his own deliberate acts. [72]
More. Villaner cannot feign ignorance of the law, nor claim that he acted in good faith, let alone assert that he
is less guilty than Leonardo. Under Article 3 of the Civil Code, ignorance of the law excuses no one from
compliance therewith.
And now, Villaners co-heirs claim that as co-owners of the property, the Deed of Absolute Sale executed by
Villaner in favor of Leonardo does not bind them as they did not consent to such an undertaking. There is no
question that the property is conjugal. Article 160 of the Civil Code[73] provides:
ART. 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved
that it pertains exclusively to the husband or to the wife. [74]
The presumption, this Court has held, applies to all properties acquired during marriage. For the presumption
to be invoked, therefore, the property must be shown to have been acquired during the marriage. [75]

In the case at bar, the property was acquired on July 6, 1971 during Villaners marriage with Justiniana
Lipajan. It cannot be seriously contended that simply because the tax declarations covering the property was
solely in the name of Villaner it is his personal and exclusive property.
In Bucoy v. Paulino[76] and Mendoza v. Reyes[77] which both apply by analogy, this Court held that registration
alone of the properties in the name of the husband does not destroy the conjugal nature of the properties. [78]
What is material is the time when the land was acquired by Villaner, and that was during the lawful existence
of his marriage to Justiniana.
Since the property was acquired during the existence of the marriage of Villaner and Justiniana, the
presumption under Article 160 of the Civil Code is that it is the couples conjugal property. The burden is on
petitioners then to prove that it is not. This they failed to do.
The property being conjugal, upon the death of Justiniana Lipajan, the conjugal partnership was terminated.
[79]
With the dissolution of the conjugal partnership, Villaners interest in the conjugal partnership became
actual and vested with respect to an undivided one-half portion. [80] Justiniana's rights to the other half, in turn,
vested upon her death to her heirs[81] including Villaner who is entitled to the same share as that of each of
their eight legitimate children.[82] As a result then of the death of Justiniana, a regime of co-ownership arose
between Villaner and his co-heirs in relation to the property.[83]
With respect to Justinianas one-half share in the conjugal partnership which her heirs inherited, applying the
provisions on the law of succession, her eight children and Villaner each receives one-ninth (1/9) thereof.
Having inherited one-ninth (1/9) of his wifes share in the conjugal partnership or one eighteenth (1/18) [84] of
the entire conjugal partnership and is himself already the owner of one half (1/2) or nine-eighteenths (9/18),
Villaners total interest amounts to ten-eighteenths (10/18) or five-ninths (5/9).
While Villaner owns five-ninths (5/9) of the disputed property, he could not claim title to any definite portion of
the community property until its actual partition by agreement or judicial decree. Prior to partition, all that he
has is an ideal or abstract quota or proportionate share in the property.[85] Villaner, however, as a co-owner of
the property has the right to sell his undivided share thereof. The Civil Code provides so:
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.
Thus, every co-owner has absolute ownership of his undivided interest in the co-owned property and is free to
alienate, assign or mortgage his interest except as to purely personal rights. While a co-owner has the right to
freely sell and dispose of his undivided interest, nevertheless, as a co-owner, he cannot alienate the shares of
his other co-owners nemo dat qui non habet.[86]
Villaner, however, sold the entire property without obtaining the consent of the other co-owners. Following the
well-established principle that the binding force of a contract must be recognized as far as it is legally possible
to do so quando res non valet ut ago, valeat quantum valere potest [87] the disposition affects only Villaners
share pro indiviso, and the transferee gets only what corresponds to his grantors share in the partition of the
property owned in common.[88]
As early as 1923, this Court has ruled that even if a co-owner sells the whole property as his, the sale will
affect only his own share but not those of the other co-owners who did not consent to the sale. This is
because under the aforementioned codal provision, the sale or other disposition affects only his undivided
share and the transferee gets only what would correspond to this grantor in the partition of the thing owned in
common. Consequently, by virtue of the sales made by Rosalia and Gaudencio Bailon which are valid with
respect to their proportionate shares, and the subsequent transfers which culminated in the sale to private
respondent Celestino Afable, the said Afable thereby became a co-owner of the disputed parcel of land as
correctly held by the lower court since the sales produced the effect of substituting the buyers in the enjoyment
thereof.

From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of
the entire property by one co-owner without the consent of the other co-owners is not null and void. However,
only the rights of the co-owner-seller are transferred., thereby making the buyer a co-owner of the property.
The proper action in cases like this is not for the nullification of the sale or the recovery of possession of the
thing owned in common from the third person who substituted the co-owner or co-owners who alienated their
shares, but the DIVISION of the common property as if it continued to remain in the possession of the coowners who possessed and administered it.[89]
Thus, it is now settled that the appropriate recourse of co-owners in cases where their consent were not
secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the coowners is an action for PARTITION under Rule 69 of the Revised Rules of Court. Neither recovery of
possession nor restitution can be granted since the defendant buyers are legitimate proprietors and
possessors in joint ownership of the common property claimed. [90] (Italics in the original; citations omitted;
underscoring supplied)

MANILA LODGE NO. 761, BENEVOLENT AND PROTECTIVE ORDER OF THE ELKS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, CITY OF MANILA, and TARLAC DEVELOPMENT
CORPORATION,respondents.
No. L-41012 September 30, 1976
TARLAC DEVELOPMENT CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS, CITY OF MANILA, LODGE NO. 761, BENEVOLENT AND
PROTECTIVE ORDER OF ELKS, INC., respondents.

CASTRO, C.J.:t.hqw
This Court is not unmindful of its ruling in Cruz v. Leis[91] where it held:
STATEMENT OF THE CASE AND STATEMENTOF THE FACTS
It is conceded that, as a rule, a co-owner such as Gertrudes could only dispose of her share in the property
owned in common. Article 493 of the Civil Code provides:
x

Unfortunately for private respondents, however, the property was registered in TCT No. 43100 solely in the
name of Gertrudes Isidro, widow. Where a parcel of land, forming part of the undistributed properties of the
dissolved conjugal partnership of gains, is sold by a widow to a purchaser who merely relied on the face of the
certificate of title thereto, issued solely in the name of the widow, the purchaser acquires a valid title to the land
even as against the heirs of the deceased spouse. The rationale for this rule is that a person dealing with
registered land is not required to go behind the register to determine the condition of the property. He is only
charged with notice of the burdens on the property which are noted on the face of the register or the certificate
of title. To require him to do more is to defeat one of the primary objects of the Torrens system. [92] (Citation
omitted)
Cruz, however, is not applicable for the simple reason that in the case at bar the property in dispute is
unregistered. The issue of good faith or bad faith of a buyer is relevant only where the subject of the sale is a
registered land but not where the property is an unregistered land. [93] One who purchases an unregistered
land does so at his peril.[94] Nicolas claim of having bought the land in good faith is thus irrelevant. [95]
WHEREFORE, the petition is GRANTED. The Court of Appeals February 15, 2001 Decision in CA-G.R. CV
No. 56148 is REVERSED and SET ASIDE and another is rendered declaring the sale in favor of petitioner
Leonardo Acabal and the subsequent sale in favor of petitioner Ramon Nicolas valid but only insofar as fiveninths (5/9) of the subject property is concerned.
No pronouncement as to costs.
SO ORDERED.

G. R. No. L-41001 September 30, 1976

These two cases are petitions on certiorari to review the decision dated June 30, 1975 of the Court of Appeals
in CA-G.R. No. 51590-R entitled "Tarlac Development Corporation vs. City of Manila, and Manila Lodge No.
761, Benevolent and Protective Order of Elks, Inc.," affirming the trial court's finding in Civil Case No. 83009
that the property subject of the decision a quo is a "public park or plaza."
On June 26, 1905 the Philippine Commission enacted Act No. l360 which authorized the City of Manila to
reclaim a portion of Manila Bay. The reclaimed area was to form part of the Luneta extension. The Act
provided that the reclaimed area "Shall be the property of the City of Manila" and that "the City of Manila is
hereby authorized to set aside a tract of the reclaimed land formed by the Luneta extension x x x at the north
end not to exceed five hundred feet by six hundred feet in size, for a hotel site, and to lease the same, with the
approval of the Governor General, to a responsible person or corporation for a term not exceed ninety-nine
years."
Subsequently, the Philippine Commission passed on May 18, 1907 Act No. 1657, amending Act No. 1360, so
as to authorize the City of' Manila either to lease or to sell the portion set aside as a hotel site.
The total area reclaimed was a little over 25 hectares. The City of Manila applied for the registration of the
reclaimed area, and on January 20, 1911, O.C.T. No. 1909 was issued in the name of the City of Manila. The
title described the registered land as "un terreno conocido con el nombre de Luneta Extension, situato en el
distrito de la Ermita x x x." The registration was "subject, however to such of the incumbrances mentioned in
Article 39 of said law (Land Registration Act) as may be subsisting" and "sujeto a las disposiciones y
condiciones impuestas en la Ley No. 1360; y sujeto tambein a los contratos de venta, celebrados y otorgados
por la Ciudad de Manila a favor del Army and Navy Club y la Manila Lodge No. 761, Benevolent and
Protective Order of Elks, fechados respectivamente, en 29 de Diciembre de 1908 y 16 de Enero de 1909." 1
On July 13, 1911 the City of Manila, affirming a prior sale dated January 16, 1909 cancelled 5,543.07 square
meters of the reclaimed area to the Manila Lodge No. 761, Benevolent and Protective Order of Elks of the
U.S.A. (BPOE, for short) on the basis of which TCT No. 2195 2 was issued to the latter over the Marcela de
terreno que es parte de la Luneta Extension, Situada en el Distrito le la Ermita ... ." At the back of this title vas
annotated document 4608/T-1635, which in part reads as follows: "que la citada Ciusdad de Manila tendra
derecho a su opcion, de recomparar la expresada propiedad para fines publicos solamete in cualquier tiempo
despues de cincuenta anos desde el 13 le Julio le 1911, precio de la misma propiedad, mas el valor que
entonces tengan las mejoras."
For the remainder of the Luneta Extension, that is, after segregating therefrom the portion sold to the Manila
Lodge No. 761, PBOE, a new Certificate of Title No. 2196 3 was issued on July 17, 1911 to the City of Manila.

Manila Lodge No. 761, BPOE, subsequently sold the said 5,543.07 square meters to the Elks Club, Inc., to
which was issued TCT No. 67488. 4 The registered owner, "The Elks Club, Inc.," was later changed by court
oder to "Manila Lodge No. 761, Benevolent and Protective Order of Elks, Inc."
In January 1963 the BPOE. petitioned the Court of First Instance of Manila, Branch IV, for the cancellation of
the right of the City of Manila to repurchase the property This petition was granted on February 15, 1963.
On November 19, 1963 the BPOE sold for the sum of P4,700,000 the land together with all the improvements
thereon to the Tarlac Development Corporation (TDC, for short) which paid P1,700.000 as down payment and
mortgaged to the vendor the same realty to secure the payment of the balance to be paid in quarterly
installments.5 At the time of the sale,, there was no annotation of any subsisting lien on the title to the
property. On December 12, 1963 TCT No. 73444 was issued to TDC over the subject land still described as
"UNA PARCELA DE TERRENO, que es parte de la Luneta Extension, situada en el Distrito de Ermita ... ."
In June 1964 the City of Manila filed with the Court of First Instance of Manila a petition for the reannotation of
its right to repurchase; the court, after haering, issued an order, dated November 19, 1964, directing the
Register of Deeds of the City of Manila to reannotate in toto the entry regarind the right of the City of Manila to
repurchase the property after fifty years. From this order TDC and BPOE appealed to this Court which on July
31, 1968 affirmed in G.R. Nos. L-24557 and L-24469 the trial court's order of reannotation, but reserved to
TDC the right to bring another action for the clarification of its rights.
As a consequence of such reservation, TDC filed on April 28, 1971 against the City of Manila and the Manila
Lodge No. 761, BPOE, a complaint, docketed as Civil Case No. 83009 of the Court of First Instance of Manila,
containing three causes of action and praying a) On the first cause of action, that the plaintiff TDC be declared to have purchased the parcel of land now in
question with the buildings and improvements thereon from the defendant BPOE for value and in good faith,
and accordingly ordering the cancellation of Entry No. 4608/T-1635 on Transfer Certificate of Title No. 73444
in the name of the Plaintiff;
b) On the second cause of action, ordering the defendant City of Manila to pay the plaintiff TDC damages in
the sum of note less than one hundred thousand pesos (P100,000.00);
c) On the third cause of action, reserving to the plaintiff TDC the right to recover from the defendant BPOE the
amounts mentioned in par. XVI of the complaint in accordance with Art. 1555 of the Civil Code, in the remote
event that the final judgment in this case should be that the parcel of land now in question is a public park; and
d) For costs, and for such other and further relief as the Court may deem just and equitable.

Therein defendant City of Manila, in its answer dated May 19, 1971, admitted all the facts alleged in the first
cause of action except the allegation that TDC purchased said property "for value and in good faith," but
denied for lack of knowledge or information the allegations in the second and third causes of action. As,
special and affirmative defense, the City of Manila claimed that TDC was not a purchaser in good faith for it
had actual notice of the City's right to repurchase which was annotated at the back of the title prior to its
cancellation, and that, assuming arguendo that TDC had no notice of the right to repurchase, it was,
nevertheless, under obligation to investigate inasmuch as its title recites that the property is a part of the
Luneta extension. 7
The Manila Lodge No. 761, BPOE, in its answer dated June 7, 1971, admitted having sold the land together
with the improvements thereon for value to therein plaintiff which was in good faith, but denied for lack of
knowledge as to their veracity the allegations under the second cause of action. It furthermore admitted that
TDC had paid the quarterly installments until October l5, 1964 but claimed that the latter failed without
justifiable cause to pay the subsequent installments. It also asserted that it was a seller for value in good faith
without having misrepresented or concealed tacts relative to the title on the property. As counterclaim, Manila
Lodge No. 761 (BPOE) sought to recover the balance of the purchase price plus interest and costs. 8

On June 15, 1971 TDC answered the aforesaid counterclaim, alleging that its refusal to make further
payments was fully justified. 9
After due trial the court a quo rendered on July 14, 1972 its decision finding the subject land to be part of the
"public park or plaza" and, therefore, part of the public domain. The court consequently declared that the sale
of the subject land by the City of Manila to Manila Lodge No. 761, BPOE, was null and void; that plaintiff TDC
was a purchaser thereof in g faith and for value from BPOE and can enforce its rights against the latter; and
that BPOE is entitled to recover from the City of Manila whatever consideration it had 'paid the latter. 'The
dispositive part of the decision reads: +.wph!1
WHEREFORE, the Court hereby declares that the parcel of land formerly covered by Transfer Certificate of
Title Nos 2195 and 67488 in the name of BPOE and now by Transfer Certificate of Title No. 73444 in the name
of Tarlac Development Corporation is a public' park or plaza, and, consequently, instant complaint is dimissed,
without pronouncement as to costs.
In view of the reservation made by plaintiff Tarlac Development Corporation to recover from defendant BPOE
the amounts mentioned in paragraph XVI of the complaint in accordance with Article 1555 of the Civil Code,
the Court makes no pronouncement on this point. 10
From said decision the therein plaintiff TDC as well as the defendant Manila Lodge No. 761, BPOE, appealed
to the Court of Appeals.
In its appeal docketed as CA-G.R. No. 51590-R, the Manila Lodge No. 761, BPOE, avers that the trial court
committed the following errors, namely:
1. In holding that the property subject of the action is not patrimonial property of the City of Manila; and
2. In holding that the Tarlac Development Corporation may recover and enforce its right against the defendant
BPOE. 11
The Tarlac Development Corporation, on the other hand, asserts that the trial court erred:
(1) In finding that the property in question is or was a public park and in consequently nullifying the sale
thereof by the City of Manila to BPOE;
(2) In applying the cases of Municipality of Cavite vs. Rojas, 30 Phil. 602, and Government vs. Cabangis, 53
Phil. 112, to the case at bar; and
(3) In not holding that the plaintiff-appellant is entitled to ,recover damages from the defendant City of
Manila. 12
Furthermore, TDC as appellee regarding the second assignment of error raised by BPOE, maintained that it
can recover and enforce its rigth against BPOE in the event that the land in question is declared a public park
or part thereof. 13
In its decision promulgated on June 30, 1975, the Court of Appeals concur ed in the findings and conclusions
of the lower court upon the ground that they are supported by he evidence and are in accordance with law,
and accordingly affirmed the lower court's judgment.
Hence, the present petitions for review on certiorari.
G.R. No. L-41001

The Manila Lodge No. 761, BPOE, contends, in its petition for review on certiorari docketed as G.R. No. L41001, that the Court of Appeals erred in (1) disregarding the very enabling acts and/or statutes according to
which the subject property was, and still is, patrimonial property of the City of Manila and could therefore be
sold and/or disposed of like any other private property; and (2) in departing from the accepted and usual
course of judicial proceedings when it simply made a general affirmance of the court a quo's findings and
conclusions without bothering to discuss or resolve several vital points stressed by the BPOE in its assigned
errrors. 14
G.R. No. L-41012
The Tarlac Development Corporation, in its petition for review on certiorari docketed as G.R. No. L-41012,
relies on the following grounds for the allowance of its petition:
1. that the Court of Appeals did not correctly interpret Act No. 1360, as amended by Act No. 1657, of the
Philippine Commission; and
2. that the Court of Appeals has departed from the accepted and usual course of judicial proceedings in that it
did not make its own findings but simply recited those of the lower court. 15
ISSUES AND ARGUMENTS
FIRST ISSUE
Upon the first issue, both petitioners claim that the property subject of the action, pursuant to the provisions of
Act No. 1360, as amended by Act No. 1657, was patrimonial property of the City of Manila and not a park or
plaza.
Arguments of Petitioners
In G.R. No. L-41001, the Manila Lodge No. 761, BPOE, admits that "there appears to be some logic in the
conclusion" of the Court of Appeals that "neither Act No. 1360 nor Act No. 1657 could have meant to supply
the City of Manila the authority to sell the subject property which is located at the south end not the north of
the reclaimed area." 16 It argues, however, that when Act No. 1360, as amended, authorized the City of Manila
to undertake the construction of the Luneta extension by reclaimed land from the Manila Bay, and declared
that the reclaimed land shall be the "property of the City of Manila," the State expressly granted the ownership
thereof to the City of Manila which. consequently. could enter into transactions involving it; that upon the
issuance of O.C.T. No. 1909, there could he no doubt that the reclaimed area owned by the City was its
patrimonial property;" that the south end of the reclaimed area could not be for public use for. as argued by
TDC a street, park or promenade can be property for public use pursuant to Article 344 of the Spanish Civil
Code only when it has already been so constructed or laid out, and the subject land, at the time it was sold to
the Elk's Club, was neither actually constructed as a street, park or promenade nor laid out as a street, park or
promenade;" that even assuming that the subject property was at the beginning property of public dominion, it
was subsequently converted into patrimonial property pursuant to Art. 422 of the Civil Code, inasmuch as it
had never been used, red or utilized since it was reclaimed in 1905 for purpose other than this of an ordinary
real estate for sale or lease; that the subject property had never been intended for public use, is further shown
by the fact that it was neither included as a part of the Luneta Park under Plan No. 30 of the National Planning
Commission nor considered a part of the Luneta National Park (now Rizal Park) by Proclamation No. 234
dated December 19, 1955 of President Ramon Magsaysay or by Proclamation Order No. 274 dated October
4, 1967 of President Ferdinand E. Marcos;" 19 that, such being the case, there is no reason why the subject
property should -not be considered as having been converted into patrimonial property, pursuant to the ruling
in Municipality vs. Roa 7 Phil. 20, inasmuch as the City of Manila has considered it as its patrimonial property
not only bringing it under the operation of the Land Registration Act but also by disposing of it; 20 and that to
consider now the subject property as a public plaza or park would not only impair the obligations of the parties
to the contract of sale (rated July 13, 1911, but also authorize deprivation of property without due process of
law. 21

G.R. No. L-410112

In L-41012, the petitioner TDC stresses that the principal issue is the interpretation of Act No. 1360, as
amended by. Act No. 1657 of the Philippine Commission, 22 and avers that inasmuch as Section 6 of Act No.
1360, as amended by Act 1657, provided that the reclamation of the Luneta extension was to be paid for out of
the funds of the City of Manila which was authorized to borrow P350,000 "to be expended in the construction
of Luneta Extension," the reclaimed area became "public land" belonging to the City of Manila that spent for
the reclamation, conformably to the holding in Cabangis,23 and consequently, said land was subject to sale
and other disposition; that the Insular Government itself considered the reclaimed Luneta extension as
patrimonial property subject to disposition as evidenced by the fact that See. 3 of Act 1360 declared that "the
land hereby reclaimed shall be the property of the City of Manila;" that this property cannot be property for
public use for according to Article 344 of the Civil Code, the character of property for public use can only
attach to roads and squares that have already been constructed or at least laid out as such, which conditions
did not obtain regarding the subject land, that Sec. 5 of Act 1360 authorized the City of Manila to lease the
northern part of the reclaimed area for hotel purposes; that Act No. 1657 furthermore authorized the City of
Manila to sell the same; 24 that the express statutory authority to lease or sell the northern part of the reclaimed
area cannot be interpreted to mean that the remaining area could not be sold inasmuch as the purpose of the
statute was not merely to confer authority to sell the northern portion but rather to limit the city's power of
disposition thereof, to wit: to prevent disposition of the northern portion for any purpose other than for a hotel
site that the northern and southern ends of the reclaimed area cannot be considered as extension of the
Luneta for they lie beyond the sides of the original Luneta when extended in the direction of the sea, and that
is the reason why the law authorized the sale of the northern portion for hotel purposes, and, for the same
reason, it is implied that the southern portion could likewise be disposed of. 26
TDC argues likewise that there are several items of uncontradicted circumstantial evidence which may serve
as aids in construing the legislative intent and which demonstrate that the subject property is patrimonial in
nature, to wit: (1) Exhibits "J" and "J-1", or Plan No. 30 of the National Planning Commission showing the
Luneta and its vicinity, do not include the subject property as part of the Luneta Park; (2) Exhibit "K", which is
the plan of the subject property covered by TCT No. 67488 of BPOE, prepared on November 11, 1963,
indicates that said property is not a public park; (3) Exhibit "T", which is a certified copy of Proclamation No.
234 issued on December 15, 1955 is President Magsaysay, and Exhibit "U" which is Proclamation Order No.
273 issued on October 4, 1967 by President Marcos, do not include the subject property in the Luneta Park-,
(4) Exhibit "W", which is the location plan of the Luneta National Park under Proclamations Nos. 234 and 273,
further confirms that the subject property is not a public park; and (5) Exhibit "Y", which is a copy of O.C.T. No.
7333 in the name of the United States of America covering the land now occupied by the America covering the
land now occupied by the American Embassy, the boundaries of which were delineated by the Philippine
Legislature, states that the said land is bounded on the northwest by properties of the Army and Navy Club
(Block No. 321) and the Elks Club (Block No. 321), and this circumstance shows that even the Philippine
Legislature recognized the subject property as private property of the Elks Club. 27
TDC furthermore contends that the City of Manila is estopped from questioning the validity of the sale of the
subject property that it executed on July 13, 1911 to the Manila Lodge No. 761, BPOE, for several reasons,
namely: (1) the City's petition for the reannotation of Entry No. 4608/T-1635 was predicated on the validity of
said sale; (2) when the property was bought by the petitioner TDC it was not a public plaza or park as testified
to by both Pedro Cojuanco, treasurer of TDC, and the surveyor, Manuel Aoneuvo, according to whom the
subject property was from all appearances private property as it was enclosed by fences; (3) the property in
question was cadastrally surveyed and registered as property of the Elks Club, according to Manuel
Anonuevo; (4) the property was never used as a public park, for, since the issuance of T.C.T. No. 2165 on July
17, 1911 in the name of the Manila Lodge NO. 761, the latter used it as private property, and as early as
January 16, 1909 the City of Manila had already executed a deed of sale over the property in favor of the
Manila Lodge No. 761; and (5) the City of Manila has not presented any evidence to show that the subject
property has ever been proclaimed or used as a public park. 28
TDC, moreover, contends that Sec. 60 of Com. Act No. 141 cannot apply to the subject land, for Com. Act No.
141 took effect on December 1, 1936 and at that time the subject land was no longer part of the part of the
public domain. 29
TDC also stresses that its rights as a purchaser in good faith cannot be disregarded, for the mere mention in
the certificate of title that the lot it purchased was "part of the Luneta extension" was not a sufficient warning

that tile title to the City of Manila was invalid; and that although the trial court, in its decision affirmed by the
Court of Appeals, found the TDC -to has been an innocent purchaser for value, the court disregarded the
petitioner's rights as such purchaser that relied on Torrens certificate of title. 30
The Court, continues the petitioner TDC erred in not holding that the latter is entitled to recover from the City
of Manila damages in the amount of P100,000 caused by the City's petition for- reannotation of its right to
repurchase.
DISCUSSION AND RESOLUTION OF FIRST ISSUE
It is a cardinal rule of statutory construction that courts must give effect to the general legislative intent that can
be discovered from or is unraveled by the four corners of the statute, 31 and in order to discover said intent, the
whole statute, and not only a particular provision thereof, should be considered. 32 It is, therefore, necessary to
analyze all the provisions of Act No. 1360, as amended, in order to unravel the legislative intent.
Act No. 1360 which was enacted by the Philippine Commission on June 26, 1905, as amended by Act No.
1657 enacted on May 18, 1907, authorized the "construction of such rock and timber bulkheads or sea walls
as may be necessary for the making of an extension to the Luneta" (Sec. 1 [a]), and the placing of the material
dredged from the harbor of Manila "inside the bulkheads constructed to inclose the Luneta extension above
referred to" (Sec. 1 [a]). It likewise provided that the plan of Architect D. H. Burnham as "a general outline for
the extension and improvement of the Luneta in the City of Manila" be adopted; that "the reclamation from the
Bay of Manila of the land included in said projected Luneta extension... is hereby authorized and the land
thereby reclaimed shall be the property of the City of Manila" (Sec. 3); that "the City of Manila is hereby
authorized to set aside a tract of the reclaimed land formed by the Luneta extension authorized by this Act at
the worth end of said tract, not to exceed five hundred feet by six hundred feet in size, for a hotel site, and to
lease the same with the approval of the Governor General, ... for a term not exceeding ninety-nine years; that
"should the Municipal Board ... deem it advisable it is hereby authorized to advertise for sale to sell said tract
of land ... ;" "that said tract shall be used for hotel purposes as herein prescribed, and shall not be devoted to
any other purpose or object whatever;" "that should the grantee x x x fail to maintain on said tract a first-class
hotel x x x then the title to said tract of land sold, conveyed, and transferred, and shall not be devoted to any
other purpose or object whatever;" "that should the grantee x x x fail to maintain on said tract a first-class hotel
x x x then the title to said tract of land sold, conveyed, and transferred to the grantee shall revert to the City of
Manila, and said City of Manila shall thereupon become entitled to immediate possession of said tract of land"
(Sec. 5); that the construction of the rock and timber bulkheads or sea wall "shall be paid for out of the funds
of the City of Manila, but the area to be reclaimed by said proposed Luneta extension shall be filled, without
cost to the City of Manila, with material dredged from Manila Bay at the expense of the Insular Government"
(Sec. 6); and that "the City of Manila is hereby authorized to borrow from the Insular Government ... the sum of
three hundred thousand pesos, to be expended in the construction of Luneta extension provided for by
paragraph (a) of section one hereof" (Sec.7).
The grant made by Act No. 1360 of the reclaimed land to the City of Manila is a grant of "public" nature, the
same having been made to a local political subdivision. Such grants have always been strictly construed
against the grantee. 33 One compelling reason given for the strict interpretation of a public grant is that there is
in such grant a gratuitous donation of, public money or resources which results in an unfair advantage to the
grantee and for that reason, the grant should be narrowly restricted in favor of the public. 34 This reason for
strict interpretation obtains relative to the aforesaid grant, for, although the City of Manila was to pay for the
construction of such work and timber bulkheads or sea walls as may be necessary for the making of the
Luneta extension, the area to be reclaimed would be filled at the expense of the Insular Government and
without cost to the City of Manila, with material dredged from Manila Bay. Hence, the letter of the statute
should be narrowed to exclude maters which if included would defeat the policy of the legislation.
The reclaimed area, an extension to the Luneta, is declared to be property of the City of Manila. Property,
however, is either of public ownership or of private ownership. 35 What kind of property of the City is the
reclaimed land? Is it of public ownership (dominion) or of private ownership?
We hold that it is of public dominion, intended for public use.

Firstly, if the reclaimed area was granted to the City of Manila as its patrimonial property, the City could, by
virtue of its ownership, dispose of the whole reclaimed area without need of authorization to do so from the
lawmaking body. Thus Article 348 of the Civil Code of Spain provides that "ownership is the right to enjoy and
dispose of a thing without further limitations than those established by law." 36 The right to dispose (jus
disponendi) of one's property is an attribute of ownership. Act No. 1360, as amended, however, provides by
necessary implication, that the City of Manila could not dispose of the reclaimed area without
being authorized by the lawmaking body. Thus the statute provides that "the City of Manila is hereby
authorized to set aside a tract ... at the north end, for a hotel site, and to lease the same ... should the
municipal board ... deem it advisable, it is hereby authorized ...to sell said tract of land ... " (Sec. 5). If the
reclaimed area were patrimonial property of the City, the latter could dispose of it without need of the
authorization provided by the statute, and the authorization to set aside ... lease ... or sell ... given by the
statute would indeed be superfluous. To so construe the statute s to render the term "authorize," which is
repeatedly used by the statute, superfluous would violate the elementary rule of legal hermeneutics that effect
must be given to every word, clause, and sentence of the statute and that a statute should be so interpreted
that no part thereof becomes inoperative or superfluous. 37 To authorize means to empower, to give a right to
act. 38 Act No. 1360 furthermore qualifies the verb it authorize" with the adverb "hereby," which means "by
means of this statue or section," Hence without the authorization expressly given by Act No. 1360, the City of
Manila could not lease or sell even the northern portion; much less could it dispose of the whole reclaimed
area. Consequently, the reclaimed area was granted to the City of Manila, not as its patrimonial property. At
most, only the northern portion reserved as a hotel site could be said to be patrimonial property for, by express
statutory provision it could be disposed of, and the title thereto would revert to the City should the grantee fail
to comply with the terms provided by the statute.
TDC however, contends that the purpose of the authorization provided in Act No. 1360 to lease or sell was
really to limit the City's power of disposition. To sustain such contention is to beg the question. If the purpose
of the law was to limit the City's power of disposition then it is necessarily assumed that the City had already
the power to dispose, for if such power did not exist, how could it be limited? It was precisely Act 1360 that
gave the City the power to dispose for it was hereby authorized by lease of sale. Hence, the City of Manila had
no power to dispose of the reclaimed land had such power not been granted by Act No. 1360, and the purpose
of the authorization was to empower the city to sell or lease the northern part and not, as TDC claims, to limit
only the power to dispose. Moreover, it is presumed that when the lawmaking body enacted the statute, it had
full knowledge of prior and existing laws and legislation on the subject of the statute and acted in accordance
or with respect thereto. 39 If by another previous law, the City of Manila could already dispose of the reclaimed
area, which it could do if such area were given to it as its patrimonial property, would it then not be a
superfluity for Act No. 1360 to authorize the City to dispose of the reclaimed land? Neither has petitioner TDC
pointed to any other law that authorized the City to do so, nor have we come across any. What we do know is
that if the reclaimed land were patrimonial property, there would be no need of giving special authorization to
the City to dispose of it. Said authorization was given because the reclaimed land was not intended to be
patrimonial property of the City of Manila, and without the express authorization to dispose of the northern
portion, the City could not dispose of even that part.
Secondly, the reclaimed area is an "extension to the Luneta in the City of Manila." 40 If the reclaimed area is an
extension of the Luneta, then it is of the same nature or character as the old Luneta. Anent this matter, it has
been said that a power to extend (or continue an act or business) cannot authorize a transaction that is totally
distinct. 41 It is not disputed that the old Luneta is a public park or plaza and it is so considered by Section 859
of the Revised Ordinances of the City of Manila. 42 Hence the "extension to the Luneta" must be also a public
park or plaza and for public use.
TDC, however, contends that the subject property cannot be considered an extension of the old Luneta
because it is outside of the limits of the old Luneta when extended to the sea. This is a strained interpretation
of the term "extension," for an "extension," it has been held, "signifies enlargement in any direction in
length, breadth, or circumstance." 43
Thirdly, the reclaimed area was formerly a part of the manila Bay. A bay is nothing more than an inlet of the
sea. Pursuant to Article 1 of the Law of Waters of 1866, bays, roadsteads, coast sea, inlets and shores are
parts of the national domain open to public use. These are also property of public ownership devoted to public
use, according to Article 339 of the Civil Code of Spain.

When the shore or part of the bay is reclaimed, it does not lose its character of being property for public use,
according to Government of the Philippine Islands vs. Cabangis. 44 The predecessor of the claimants in this
case was the owner of a big tract of land including the lots in question. From 1896 said land began to wear
away due to the action of the waters of Manila Bay. In 1901 the lots in question became completely
submerged in water in ordinary tides. It remained in such a state until 1912 when the Government undertook
the dredging of the Vitas estuary and dumped the Sand and - silt from estuary on the low lands completely
Submerged in water thereby gradually forming the lots in question. Tomas Cabangis took possession thereof
as soon as they were reclaimed hence, the claimants, his successors in interest, claimed that the lots
belonged to them. The trial court found for the claimants and the Government appealed. This Court held that
when the lots became a part of the shore. As they remained in that condition until reclaimed by the filling done
by the Government, they belonged to the public domain. for public use .4' Hence, a part of the shore, and for
that purpose a part of the bay, did not lose its character of being for public use after it was reclaimed.

Having disposed of the petitioners' principal arguments relative to the main issue, we now pass to the items of
circumstantial evidence which TDC claims may serve as aids in construing the legislative intent in the
enactment of Act No. 1360, as amended. It is noteworthy that all these items of alleged circumstantial
evidence are acts far removed in time from the date of the enactment of Act No.1360 such that they cannot be
considered contemporaneous with its enactment. Moreover, it is not farfetched that this mass of circumstantial
evidence might have been influenced by the antecedent series of invalid acts, to wit: the City's having
obtained over the reclaimed area OCT No. 1909 on January 20,1911; the sale made by the City of the subject
property to Manila Lodge No. 761; and the issuance to the latter of T.C.T. No. 2195. It cannot gainsaid that if
the subsequent acts constituting the circumstantial evidence have been base on, or at least influenced, by
those antecedent invalid acts and Torrens titles S they can hardly be indicative of the intent of the lawmaking
body in enacting Act No. 1360 and its amendatory act.
TDC claims that Exhs. "J," "J-l" "K," "T," "U," "W" and "Y" show that the subject property is not a park.

Fourthly, Act 1360, as amended, authorized the lease or sale of the northern portion of the reclaimed area as
a hotel sites. The subject property is not that northern portion authorized to be leased or sold; the subject
property is the southern portion. Hence, applying the rule of expresio unius est exlusio alterius, the City of
Manila was not authorized to sell the subject property. The application of this principle of statutory construction
becomes the more imperative in the case at bar inasmuch as not only must the public grant of the reclaimed
area to the City of Manila be, as above stated, strictly construed against the City of Manila, but also because a
grant of power to a municipal corporation, as happens in this case where the city is author ized to lease or sell
the northern portion of the Luneta extension, is strictly limited to such as are expressly or impliedly authorized
or necessarily incidental to the objectives of the corporation.
Fifthly, Article 344 of the Civil Code of Spain provides that to property of public use, in provinces and in towns,
comprises the provincial and town roads, the squares streets fountains, and public waters the promenades,
and public works of general service paid for by such towns or provinces." A park or plaza, such as the
extension to the Luneta, is undoubtedly comprised in said article.
The petitioners, however, argue that, according to said Article 344, in order that the character of property for
public use may be so attached to a plaza, the latter must be actually constructed or at least laid out as such,
and since the subject property was not yet constructed as a plaza or at least laid out as a plaza when it was
sold by the City, it could not be property for public use. It should be noted, however, that properties of
provinces and towns for public use are governed by the same principles as properties of the same character
belonging to the public domain. 46 In order to be property of public domain an intention to devote it to public
use is sufficient. 47 The, petitioners' contention is refuted by Manresa himself who said, in his comments", on
Article 344, that: +.wph!1
Las plazas, calles y paseos publicos correspondent sin duda aiguna aldominio publico municipal ), porque se
hallan establecidos sobre suelo municipal y estan destinadas al uso de todos Laurent presenta tratando de las
plazas, una question relativa a si deben conceptuarse como de dominio publico los lugares vacios libres, que
se encuenttan en los Municipios rurales ... Laurent opina contra Pioudhon que toda vez que estan al servicio
de todos pesos lugares, deben considerable publicos y de dominion publico. Realmente, pala decidir el punto,
bastara siempre fijarse en el destino real y efectivo de los citados lugares, y si este destino entraa un uso
comun de todos, no hay duda que son de dominio publico municipal si no patrimoniales.
It is not necessary, therefore, that a plaza be already constructed of- laid out as a plaza in order that it be
considered property for public use. It is sufficient that it be intended to be such In the case at bar, it has been
shown that the intention of the lawmaking body in giving to the City of Manila the extension to the Luneta was
not a grant to it of patrimonial property but a grant for public use as a plaza.
We have demonstrated ad satietatem that the Luneta extension as intended to be property of the City of
Manila for public use. But, could not said property-later on be converted, as the petitioners contend, to
patrimonial property? It could be. But this Court has already said, in Ignacio vs. The Director of Lands, 49 the
executive and possibly the legislation department that has the authority and the power to make the declaration
that said property, is no longer required for public use, and until such declaration i made the property must
continue to form paint of the public domain. In the case at bar, there has been no such explicit or unequivocal
declaration It should be noted, furthermore, anent this matter, that courts are undoubted v not. primarily called
upon, and are not in a position, to determine whether any public land is still needed for the purposes specified
in Article 4 of the Law of Waters . 50

Exhibits "J" and "J-1," the "Luneta and vicinity showing proposed development" dated May 14, 1949, were
prepared by the National Urban Planning Commission of the Office of the President. It cannot be reasonably
expected that this plan for development of the Luneta should show that the subject property occupied by the
ElksClub is a public park, for it was made 38 years after the sale to the Elks, and after T.C.T. No. 2195 had
been issued to Elks. It is to be assumed that the Office of the President was cognizant of the Torrens title of
BPOE. That the subject property was not included as a part of the Luneta only indicated that the National
Urban Planning Commission that made the plan knew that the subject property was occupied by Elks and that
Elks had a Torrens title thereto. But this in no way proves that the subject property was originally intended to
be patrimonial property of the City of Manila or that the sale to Elks or that the Torrens-title of the latter is valid.
Exhibit "K" is the "Plan of land covered by T.C.T . No ----, as prepared for Tarlac Development Company." It
was made on November 11, 1963 by Felipe F. Cruz, private land surveyor. This surveyor is admittedly a
surveyor for TDC. 51 This plan cannot be expected to show that the subject property is a part of the Luneta
Park, for he plan was made to show the lot that "was to be sold to petitioner." This plan must have also
assumed the existence of a valid title to the land in favor of Elks.
Exhibits "T" and "U" are copies of Presidential Proclamations No. 234 issued on November 15, 1955 and No.
273 issued on October 4, 1967, respectively. The purpose of the said Proclamations was to reserve certain
parcels of land situated in the District of Ermita, City of Manila, for park site purposes. Assuming that the
subject property is not within the boundaries of the reservation, this cannot be interpreted to mean that the
subject property was not originally intended to be for public use or that it has ceased to be such. Conversely,
had the subject property been included in the reservation, it would mean, if it really were private property, that
the rights of the owners thereof would be extinguished, for the reservations was "subject to private rights, if
any there be." That the subject property was not included in the reservation only indicates that the President
knew of the existence of the Torrens titles mentioned above. The failure of the Proclamations to include the
subject property in the reservation for park site could not change the character of the subject property as
originally for public use and to form part of the Luneta Park. What has been said here applies to Exhibits "V",
"V-1" to "V-3," and "W" which also refer to the area and location of the reservation for the Luneta Park.
Exhibit "Y" is a copy of O.C.T. No. 7333 dated November 13, 1935, covering the lot where now stands the
American Embassy [Chancery]. It states that the property is "bounded ... on the Northwest by properties of
Army and Navy Club (Block No.321) and Elks Club (Block No. 321)." Inasmuch as the said bounderies
delineated by the Philippine Legislature in Act No. 4269, the petitioners contend that the Legislature
recognized and conceded the existence of the Elks Club property as a primate property (the property in
question) and not as a public park or plaza. This argument is non sequitur plain and simple Said Original
Certificate of Title cannot be considered as an incontrovertible declaration that the Elks Club was in truth and
in fact the owner of such boundary lot. Such mention as boundary owner is not a means of acquiring title nor
can it validate a title that is null and void.
TDC finally claims that the City of Manila is estopped from questioning the validity of the sale it executed on
July 13,'1911 conconveying the subject property to the Manila Lodge No. 761, BPOE. This contention cannot
be seriously defended in the light of the doctrine repeatedly enunciated by this Court that the Government is
never estopped by mistakes or errors on the pan of its agents, and estoppel does not apply to a municipal
corporation to validate a contract that is prohibited by law or its against Republic policy, and the sale of July
13, 1911 executed by the City of Manila to Manila Lodge was certainly a contract prohibited by law. Moreover,

estoppel cannot be urged even if the City of Manila accepted the benefits of such contract of sale and the
Manila Lodge No. 761 had performed its part of the agreement, for to apply the doctrine of estoppel against
the City of Manila in this case would be tantamount to enabling it to do indirectly what it could not do directly.

52

The sale of the subject property executed by the City of Manila to the Manila Lodge No. 761, BPOE, was void
and inexistent for lack of subject matter. 53 It suffered from an incurable defect that could not be ratified either
by lapse of time or by express ratification. The Manila Lodge No. 761 therefore acquired no right by virtue of
the said sale. Hence to consider now the contract inexistent as it always has seen, cannot be, as claimed by
the Manila Lodge No. 761, an impairment of the obligations of contracts, for there was it, contemplation of law,
no contract at all.
The inexistence of said sale can be set up against anyone who asserts a right arising from it, not only against
the first vendee, the Manila Lodge No. 761, BPOE, but also against all its suceessors, including the TDC
which are not protected the doctrine of bona fide ii purchaser without notice, being claimed by the TDC does
not apply where there is a total absence of title in the vendor, and the good faith of the purchaser TDC cannot
create title where none exists. 55
The so-called sale of the subject property having been executed, the restoration or restitution of what has
been given is order 56
SECOND ISSUE
The second ground alleged in support of the instant petitions for review on certiorari is that the Court of
Appeals has departed from the accepted and usual course of judicial proceedings as to call for an exercise of
the power of supervision. TDC in L-41012, argues that the respondent Court did not make its own findings but
simply recited those of the lower court and made a general affirmance, contrary to the requirements of the
Constitution; that the respondent Court made glaring and patent mistakes in recounting even the copied
findings, palpably showing lack of deliberate consideration of the matters involved, as, for example, when said
court said that Act No. 1657 authorized the City of Manila to set aside a portion of the reclaimed land "formed
by the Luneta Extension of- to lease or sell the same for park purposes;" and that respondent Court. further
more, did not resolve or dispose of any of the assigned errors contrary to the mandate of the Judiciary Act.. 57
The Manila Lodge No. 761, in L-41001, likewise alleges, as one of the reasons warranting review, that the
Court of Appeals departed from the accepted and usual course of Judicial proceedings by simply making a
general affirmance of the court a quo findings without bothering to resolve several vital points mentioned by
the BPOE in its assigned errors. 58
COMMENTS ON SECOND ISSUE
We have shown in our discussion of the first issue that the decision of the trial court is fully in accordance with
law. To follows that when such decision was affirmed by the Court of Appeals, the affirmance was likewise in
accordance with law. Hence, no useful purpose will be served in further discussing the second issue.

SIMEON B. MIGUEL, ET AL., plaintiffs-appellants,

vs.
FLORENDO CATALINO, defendant-appellee.
Bienvenido L. Garcia for plaintiffs-appellants.
Moises P. Cating for defendant-appellee.
REYES, J.B.L., J.:
Direct appeal from the judgment in Civil Case No. 1090 of the Court of First Instance of Baguio, dismissing the
plaintiffs' complaint for recovery of possession of a parcel of land, registered under Act 496, in the name of one
Bacaquio,1 a long-deceased illiterate non-Christian resident of Mountain Province, and declaring the defendant
to be the true owner thereof.
On January 22, 1962, appellants Simeon, Emilia and Marcelina Miguel, and appellant Grace Ventura brought
suit in the Court below against Florendo Catalino for the recovery of the land above-described, plaintiffs
claiming to be the children and heirs of the original registered owner, and averred that defendant, without their
knowledge or consent, had unlawfully taken possession of the land, gathered its produce and unlawfully
excluded plaintiffs therefrom. Defendant answered pleading ownership and adverse possession for 30 years,
and counterclaimed for attorney's fees. After trial the Court dismissed the complaint, declared defendant to be
the rightful owner, and ordered the Register of Deeds to issue a transfer certificate in lieu of the original.
Plaintiffs appealed directly to this Court, assailing the trial Court's findings of fact and law.
As found by the trial Court, the land in dispute is situated in the Barrio of San Pascual, Municipality of Tuba,
Benguet, Mountain Province and contains an area of 39,446 square meters, more or less. It is covered by
Original Certificate of Title No. 31, which was issued on 28 December 1927 in the name of Bacaquio (or
Bakakew), a widower. No encumbrance or sale has ever been annotated in the certificate of title.
The plaintiff-appellant Grace Ventura 2 is the only child of Bacaquio by his first wife, Debsay, and the other
plaintiffs-appellants, Simeon, Emilia and Marcelina, all surnamed "Miguel", are his children by his third wife,
Cosamang. He begot no issue with his second wife, Dobaney. The three successive wives have all died.
Bacaquio, who died in 1943, acquired the land when his second wife died and sold it to Catalino Agyapao,
father of the defendant Florendo Catalino, for P300.00 in 1928. Of the purchase price P100.00 was paid and
receipted for when the land was surveyed, but the receipt was lost; the balance was paid after the certificate of
title was issued. No formal deed of sale was executed, but since the sale in 1928, or for more than 30 years,
vendee Catalino Agyapao and his son, defendant-appellee Florendo Catalino, had been in possession of the
land, in the concept of owner, paying the taxes thereon and introducing improvements.
On 1 February 1949, Grace Ventura, by herself alone, "sold" (as per her Transferor's Affidavit, Exhibit "6")
anew the same land for P300.00 to defendant Florendo Catalino.
In 1961, Catalino Agyapao in turn sold the land to his son, the defendant Florendo Catalino.

CONCLUSION
ACCORDINGLY, the petitions in both G.R. Nos. L-41001 and L-41012 are denied for lack of merit, and the
decision of the Court of Appeals of June 30, 1975, is hereby affirmed, at petitioner's cost.
Makasiar, Munoz Palma and Martin, JJ., concur.1wph1.t
Teehankee, concurs in the result which is wholly consistent with the basic rulings and jugdment of this Court in
its decision of July 31, 1968.
G.R. No. L-23072

November 29, 1968

This being a direct appeal from the trial court, where the value of the property involved does not exceed
P200,000.00, only the issues of law are reviewable by the Supreme Court, the findings of fact of the court a
quobeing deemed conceded by the appellant (Jacinto v. Jacinto, 105 Phil. 1218; Del Castillo v. Guerro, L11994, 25 July 1960; Abuyo, et al. v. De Suazo, L-21202, 29 Oct. 1966; 18 SCRA 600, 601). We are thus
constrained to discard appellant's second and third assignments of error.
In their first assignment, appellants assail the admission in evidence over the objection of the appellant of
Exhibit "3". This exhibit is a decision in favor of the defendant-appellee against herein plaintiff-appellant Grace
Ventura, by the council of Barrio of San Pascual, Tuba, Benguet, in its Administrative Case No. 4, for the
settlement of ownership and possession of the land. The decision is ultra vires because barrio councils, which
are not courts, have no judicial powers (Sec. 1, Art. VIII, Constitution; see Sec. 12, Rep. Act 2370, otherwise

known as the Barrio Charter). Therefore, as contended by appellants, the exhibit is not admissible in a judicial
proceeding as evidence for ascertaining the truth respecting the fact of ownership and possession (Sec. 1,
Rule 128, Rules of Court).
Appellants are likewise correct in claiming that the sale of the land in 1928 by Bacaquio to Catalino Agyapao,
defendant's father, is null and void ab initio, for lack of executive approval (Mangayao et al. vs. Lasud, et al., L19252, 29 May 1964). However, it is not the provisions of the Public Land Act (particularly Section 118 of Act
2874 and Section 120 of Commonwealth Act 141) that nullify the transaction, for the reason that there is no
finding, and the contending parties have not shown, that the land titled in the name of Bacaquio was acquired
from the public domain (Palad vs. Saito, 55 Phil. 831). The laws applicable to the said sale are: Section 145(b)
of the Administrative Code of Mindanao and Sulu, providing that no conveyance or encumbrance of real
property shall be made in that department by any non-christian inhabitant of the same, unless, among other
requirements, the deed shall bear indorsed upon it the approval of the provincial governor or his
representative duly authorized in writing for the purpose; Section 146 of the same Code, declaring that every
contract or agreement made in violation of Section 145 "shall be null and void"; and Act 2798, as amended by
Act 2913, extending the application of the above provisions to Mountain Province and Nueva Vizcaya.
Since the 1928 sale is technically invalid, Bacaquio remained, in law, the owner of the land until his death in
1943, when his title passed on, by the law on succession, to his heirs, the plaintiffs-appellants.
Notwithstanding the errors aforementioned in the appealed decision, we are of the opinion that the judgment in
favor of defendant-appellee Florendo Catalino must be sustained. For despite the invalidity of his sale to
Catalino Agyapao, father of defendant-appellee, the vendor Bacaquio suffered the latter to enter, possess and
enjoy the land in question without protest, from 1928 to 1943, when the seller died; and the appellants, in turn,
while succeeding the deceased, also remained inactive, without taking any step to reivindicate the lot from
1944 to 1962, when the present suit was commenced in court. Even granting appellants' proposition that no
prescription lies against their father's recorded title, their passivity and inaction for more than 34 years (19281962) justifies the defendant-appellee in setting up the equitable defense of laches in his own behalf. As a
result, the action of plaintiffs-appellants must be considered barred and the Court below correctly so held.
Courts can not look with favor at parties who, by their silence, delay and inaction, knowingly induce another to
spend time, effort and expense in cultivating the land, paying taxes and making improvements thereon for 30
long years, only to spring from ambush and claim title when the possessor's efforts and the rise of land values
offer an opportunity to make easy profit at his expense. In Mejia de Lucas vs. Gamponia, 100 Phil. 277, 281,
this Court laid down a rule that is here squarely applicable:
Upon a careful consideration of the facts and circumstances, we are constrained to find, however, that while
no legal defense to the action lies, an equitable one lies in favor of the defendant and that is, the equitable
defense of laches. We hold that the defense of prescription or adverse possession in derogation of the title of
the registered owner Domingo Mejia does not lie, but that of the equitable defense of laches. Otherwise
stated, we hold that while defendant may not be considered as having acquired title by virtue of his and his
predecessors' long continued possession for 37 years, the original owner's right to recover back the
possession of the property and title thereto from the defendant has, by the long period of 37 years and by
patentee's inaction and neglect, been converted into a stale demand.
As in the Gamponia case, the four elements of laches are present in the case at bar, namely: (a) conduct on
the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is
made and for which the complaint seeks a remedy; (b) delay in asserting the complainant's rights, the
complainant having had knowledge or notice, of the defendant's conduct and having been afforded an
opportunity to institute a suit; (c) lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and (d) injury or prejudice to the defendant in the event relief
is accorded to the complainant, or the suit is not held to be barred. In the case at bar, Bacaquio sold the land
in 1928 but the sale is void for lack of the governor's approval. The vendor, and also his heirs after him, could
have instituted an action to annul the sale from that time, since they knew of the invalidity of the sale, which is
a matter of law; they did not have to wait for 34 years to institute suit. The defendant was made to feel secure
in the belief that no action would be filed against him by such passivity, and also because he "bought" again
the land in 1949 from Grace Ventura who alone tried to question his ownership; so that the defendant will be
plainly prejudiced in the event the present action is not held to be barred.

The difference between prescription and laches was elaborated in Nielsen & Co., Inc. vs. Lepanto
Consolidated Mining Co., L-21601, 17 December 1966, 18 SCRA p. 1040, as follows:
Appellee is correct in its contention that the defense of laches applies independently of prescription. Laches is
different from the statute of limitations. Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay. Prescription is a matter of time; laches is principally a question of inequity
of permitting a claim to be enforced, this inequity being founded on some change in the condition of the
property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in equity, whereas
prescription applies at law. Prescription is based on fixed time laches is not, (30 C.J.S., p. 522.See
also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177) (18 SCRA 1053).
With reference to appellant Grace Ventura, it is well to remark that her situation is even worse than that of her
co-heirs and co-plaintiffs, in view of her executing an affidavit of transfer (Exh. 6) attesting under oath to her
having sold the land in controversy to herein defendant-appellee, and the lower Court's finding that in 1949
she was paid P300.00 for it, because she, "being a smart woman of enterprise, threatened to cause trouble if
the defendant failed to give her P300.00 more, because her stand (of being the owner of the land) was
buttressed by the fact that Original Certificate of Title No. 31 is still in the name of her father, Bacaquio"
(Decision, Record on Appeal, p. 24). This sale, that was in fact a quitclaim, may not be contested as needing
executive approval; for it has not been shown that Grace Ventura is a non-christian inhabitant like her father,
an essential fact that cannot be assumed (Sale de Porkan vs. Yatco, 70 Phil. 161, 175).
Since the plaintiffs-appellants are barred from recovery, their divestiture of all the elements of ownership in the
land is complete; and the Court a quo was justified in ordering that Bacaquio's original certificate be cancelled,
and a new transfer certificate in the name of Florendo Catalino be issued in lieu thereof by the Register of
Deeds.
FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with costs against the plaintiffsappellants.

G.R. No. L-31618 August 17, 1983

EFREN R. MENDOZA and INOCENCIA R. DE MENDOZA, petitioner,
vs.
PONCIANO S. REYES and THE COURT OF APPEALS, respondents.
G.R. No. L-31625 August 17, 1983
JULIA R. DE REYES, petitioner,
vs.
PONCIANO S. REYES and COURT OF APPEALS, respondents.
Conrado B. Enriquez and Elpidio G. Navarro for petitioners.
Pacifico M. Castro for respondents.

GUTIERREZ, JR., J.:

Questioned in these consolidated petitions for review on certiorari is the decision of the Court of Appeals, now
Intermediate Appellate Court, reversing the decision of the Court of First Instance of Rizal, Quezon City
Branch. The dispositive portion of the appellate decision reads:
WHEREFORE, (a) the judgment appealed from is hereby reversed; (b) the deed of sale executed by appellee
Julia de Reyes on March 3, 1961 in favor of appellees Efren V. Mendoza and Inocencia R. Mendoza, covering
lots 5 and 6, Block No. 132 of Subdivision Plan Psd. 14841, situated at Retiro Street, Quezon City, is hereby
declared null and void with respect to one- half share of appellant therein; (c) the Register of Deeds of Quezon
City is hereby directed to cancel TCT Nos. 5611 0 and 56111, now covering said lots, and to issue, in lieu
thereof, certificates of title in favor of appellant Ponciano S. Reyes for one-half (1/2) pro-indiviso and the
spouses Efren V. Mendoza and Inocencia Mendoza for one-half (1/2) also pro-indiviso; (d) the appellees
Mendozas are hereby ordered to pay unto the appellant the accrued rentals of style properties in litigation due
to the share corresponding to said appellant, at the rate of P350.00 a month from March 3, 1961 until the
finality of this decision, with legal interest thereon; and (e) said appellees are likewise ordered to pay unto the
appellant the amount of THREE THOUSAND (P3,000.00) PESOS as attorney's fees, plus the costs in both
instances.
This case originated with the filing of a complaint by Ponciano S. Reyes with the Court of First Instance of
Rizal docketed as Civil Case No. Q-6905, for the annulment of a deed of sale of two parcels of land with their
improvements, executed by his wife, Julia R. De Reyes as vendor and the spouses Efren V. Mendoza and
Inocencia R. De Mendoza, as vendees. Ponciano S. Reyes averred that said properties were conjugal
properties of himself and his wife and that she had sold them to petitioners "all by herself" and without his
knowledge or consent.
Petitioners Efren V. Mendoza and Inocencia R. De Mendoza alleged in their answer that the properties were
paraphernal properties of Julia R. de Reyes and that they had purchased the same in good faith and for
adequate consideration. In a separate answer, petitioner Julia R. De Reyes, supported the spouses
Mendozas' contentions.
In its decision, the Court of First Instance of Rizal dismissed the complaint and declared the properties in
question exclusive and paraphernal properties of petitioner Julia R. De Reyes. It ruled that she could validly
dispose of the same without the consent of her husband and that the Mendozas are innocent purchasers.
As earlier stated, the Court of Appeals reversed the decision of the court a quo.
The petitioners filed separate petitions for review on certiorari. Efren V. Mendoza and Inocencia R. De
Mendoza raised the following assignments of errors:
I
THE COURT OF APPEALS ERRED NOT MERELY IN GIVING CREDENCE, BUT IN FACT IN
CONSIDERING AT ALL, PROOF OF THE ALLEGED CONJUGAL CHARACTER OF THE PROPERTIES l-,
QUESTION, AND IN NOT INVOKING THE DOCTRINE -E OF ESTOPPEL TO RULE OUT ANY AND ALL
SUCH PROOF ALTOGETHER.
II

THE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY OF BAD FAITH IN PURCHASING
THE PROPERTIES LITIGATED FOR WITHOUT EVIDENCE OF SUCH FACT BEING PRESENTED AND, ON
THE STRENGTH MERELY OF A SIMPLE PRESUMPTION UNWARRANTEDLY DRAWN FROM ONE OF ITS
OWN OBSCURE AND HARDLY AUTHORITATIVE RULINGS, AND AGAINST ABUNDANT, POSITIVE AND
UNCONTRADICTED PROOF OF GOOD FAITH.
III
THE COURT OF APPEALS ERRED UPON EQUITABLE GROUNDS IN, IN EFFECT, GIVING JUDICIAL FLAT
To THE UNJUST ENRICHMENT OR BENEFIT OF ONE PERSON AT THE EXPENSE OF ANOTHER OR
OTHERS.
On the other hand, Julia R. De Reyes made the following assignments of errors in her petition for review.
THE COURT OF APPEALS ERRED IN DECLARING THAT THE PROPERTIES IN QUESTION ARE THE
CONJUGAL PROPERTIES OF THE RESPONDENT PONCIANO S. REYES AND THE PETITIONER IN
SPITE OF THE CATEGORICAL JUDICIAL DECLARATION AND ADMISSION BY SAID RESPONDENT THAT
THE SAID PROPERTIES ARE THE EXCLUSIVE AND PARAPHERNAL PROPERTIES OF HIS WIFE, THE
PETITIONER HEREIN.
THE COURT OF APPEALS ERRED IN HAVING DECIDED THE CASE NOT IN ACCORDANCE WITH LAW
AND THE APPLICABLE DECISIONS ON THE MATTER IN THE SENSE, PARTICULARLY, THAT THE ACT
AND DECLARATION OF A PARTY AGAINST HIS INTERESTS CAN NOT BE CONTRADICTED BY HIM, AND
IN SO DOING THE DECISION AMOUNTED TO SANCTIONING A PERJURED TESTIMONY.
On the first issue regarding the alleged paraphernal character of the disputed properties, we find that the
records sustain the findings of the Court of Appeals
The fact are:
xxx xxx xxx
... Ponciano Reyes and Julia de Reyes-to be herein referred to as Ponciano and Julia alone for brevity-were
married in 1915. The properties in question consisting of Lots 5 and 6, Block No. 132, situated at Retiro Street,
Quezon City-plus the buildings erected thereon, were bought from J. M. Tuason & Co., represented by
Gregorio Araneta, Inc. to be herein mentioned as "Araneta"-February, 1947 on installment basis. (Testimony of
Julia, t.s.n., p. 74, February 15, 1963). The first installment on Lot No. 5 was P69.96 and on Lot No. 6 was
P102.00 (Exh. 'H' and uncontradicted testimony of Ponciano, t.s.n., p. 4, July 20, 1964).
The spouses were always in arrears in the payment of the installments to Araneta due to lack of money (t.s.n.,
pp. 5-7, July 20, 1964) so they had to borrow money from the Rehabilitation Finance Corporation-herein after
referred to as RFC for short. Thus, on November 26, 1948, they jointly obtained a loan of P12,000.00 from the
RFC for the following exclusive purposes only: 'to complete the construction of one-storey residential building
on 9th Street, La Loma Quezon City; and to pay the balance of the price of the lot offered as security' which is
Lot 5, (Deed of Mortgage, Exh. 'A') l'). Out of this loan, the amount of P5,292.00 was paid to Araneta as price
of Lot 5. The corresponding deed of absolute sale thereof was executed by Araneta on November 27, 1948
(Exh. 'A'). On October 2, 1952, the spouses secured an additional loan of P8,000.00 from the RFC 'to pay the
balance of the lot herein offered (Lot No. 6) as additional security, and to defray the expenses incurred in the
repairs of the building' as the deed of mortgage so recites (Exh. 'B- l'). From the amount of this loan, the sum
of P7,719.60, as price of Lot No. 6, was paid and the deed of absolute sale was forthwith executed by Araneta
(Exh. 'B'). In the deed of sale, the vendee named is 'Julia de Reyes'. Her signatures appear over the caption
vendee and those of Ponciano under the phrase: 'with my marital consent.
As a result of these sales, Transfer Certificates of Title Nos. 8550 (Exh. 'F') and 19998 (Exh. 'G') were issued
for Lots 5 and 6, respectively, by the Register of Deeds of Quezon City, in the name of "JULIA REYES married

to PONCIANO REYES." The mortgage contracts (Exhs. 'A-1' and 'B-1') executed by the spouses in favor of
the RFC were duly registered and annotated on the said transfer Certificates of Title (Exhs. 'F' and 'G').
As promised to the RFC, the spouses built a house and later a camarin on the two lots. The camarin was
leased as a school building to the Quezon City Elementary School of La Loma for the period of two years
(1950-51) at P500.00 a month. When the school was transferred to another place, the camarin was leased on
December 10, 1952 to Mr. and Mrs. Mendoza, appellees, for ten years at P600.00 a month for the first year
and P700.00 for the remaining nine years. The contract of lease was signed by Julia as lessor, with the marital
consent of Ponciano. The camarin was converted into a movie house and used as such by the lessees. (Exh.
'G').
In spite of the good rentals they had been receiving for the building, the spouses failed to pay seasonably their
obligations to the RFC so, as late as November 28, 1958, they had to ask for an extension of 5 years from the
Development Bank of the Philippines or DBP, as successor of the RFC, for the payment of an outstanding
balance of P7,876.13 (Exh. 'D').
On March 3, 1961, while Ponciano was absent attending his farm in Arayat, Pampanga, Julia sold absolutely
the lots in question, together with their improvements to appellees Mendozas for the sum of P80,000.00
without the knowledge and consent of Ponciano (Exh. 'I'-Mendoza). At the same time the spouses were living
separately and were not in speaking terms. By virtue of such sale, Transfer Certificates of Title Nos. 561 10
and 56111 were subsequently issued in the name of the Mendozas.
The applicable provision of law is Article 153 of the Civil Code which provides:
ART. 153. The following are conjugal partnership property:
(1) That which is acquired by onerous title during the marriage at the expense of the common fund, whether
the acquisition be for the partnership, or for only one of the spouses;
xxx xxx xxx
The presumption found in Article 160 of the Civil Code must also be overcome by one who contends that the
disputed property is paraphernal Article 160 provides:
ART. 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved
that it pertains exclusively to the husband or to the wife.

... The position thus taken by appellants is meritorous, for the reason that the deeds show the loans to have
been made by Dr. Nicanor Jacinto and by Gabriel and Purificacion Gonzales, to both spouses Marcelo Castillo
and Macaria Pasco, as joint borrowers. The loans thus became obligations of the conjugal partnership of both
debtor spouses and the money loaned is logically conjugal property.
Citing Palanca v. Smith Bell & Co. (9 Phil. 13 1) interpreting Par. 3, Article 1401 of the old Civil Code, the Court
inCastillo v. Pasco stated:
If money borrowed by the husband alone on the security of his wife's property is conjugal in character, a
fortiori should it be conjugal when borrowed by both spouses. The reason obviously is that the loan becomes
an obligation of the conjugal partnership which is the one primarily bound for its repayment.
To rebut the presumption and the evidence of the conjugal character of the property, the petitioners have only
the testimony of Julia de Reyes to offer.
Mrs. Reyes testified that she bought the two parcels of land on installment basis and that the first payment of a
little less than P2,000.00 came from her personal funds: The receipt issued by Araneta, however, shows that
the first installment on one lot was only P69.96 and on the other lot, P102.00. Mrs. Reyes also testified that
she paid the entire purchase price and the construction of the buildings from her personal funds and money
borrowed from the Philippine National Bank. The mortgage contracts, however, show that the properties were
paid out of the loan from RFC.
As a matter of fact, Mrs. Reyes' testimony about a loan from Mrs. Rosa Borja, the sale of a lot in Cabiao,
Nueva Ecija given by her mother, and the loan from PNB only emphasize the conjugal nature of the disputed
properties because she stated that these sums were also used to put up their gravel and sand business, a
poultry farm, and a banana plantation plus a jeepney transportation line although according to her, every
business venture handled by her husband failed. The two were establishing businesses and buying properties
together as husband and wife, in happier times.
The Court of Appeals ruled upon the testimony of Julia De Reyes as follows:
Julia's testimony that she had sold her Cabiao property to Rosa Borja is not supported by the deed of sale
(Exh. 'I') which shows that the property was sold to Encarnacion Goco and Mariano Robles. Again, her claim
that said Cabiao property was donated to her by her mother is negated by the deeds of sale (Exhs. 'J' and 'K')
which show that said property was donated to her and her two brothers, Pablo and Jose del Rosario, who
afterwards sold their participation thereof to the spouses, Ponciano and Julia.

The presumption is a strong one. As stated in Camia de Reyes v. Reyes de Ilano (63 Phil. 629, 639), "it is
sufficient to prove that the property was acquired during the marriage in order that the same may be deemed
conjugal property." And in Laluan v. Malpaya (65 SCRA 494, 504) we stated, "proof of acquisition of the
property in dispute during the marriage suffices to render the statutory presumption operative."

Her claim of exclusive ownership is further belied by the Income Tax Returns (Exhs. 'N' to 'N'- 3') which she
herself prepared and filed in behalf of the conjugal partnership wherein she made the statement that the
rentals paid by her co-appellees were income of the conjugal partnership; and by the Income Tax Returns
(Exhs. 'O' to '0-4') also filed by her for the conjugal partnership, were she made to appear the properties in
question as capital assets of the conjugal partnership. It should be noted that Julia did not care to deny the
truth of said statements. Neither did she endeavor to offer any explanation for such damaging averments.

There is no question that the disputed property was acquired by onerous title during the marriage. But were
the funds used to buy the lot and build the improvements at the expense of the common fund?

Petitioners also raised the issue of estoppel in their assignments of errors. They alleged:

The records show that the funds came from loans obtained by the spouses from the Rehabilitation Finance
Corporation. Under Article 161 of the Civil Code, all debts and obligations contracted by the husband and the
wife for the benefit of the conjugal partnership are liabilities of the partnership.
As stated in Castillo, Jr. vs. Pasco (1 1 SCRA 102, 107):

Even so, petitioners would have small legal cause to dispute the respondent Court's giving credence to the
husband's pretensions did there not also exist in the record plain and indisputable evidence that he had on a
former occasion both solemnly confirmed the paraphernal character of the very properties now in question and
disclaimed the existence of any conjugal partnership funds or properties of himself and his wife. (Petitioner's
Brief, L-31616, p. 7).
It turns out that in 1948, Ponciano Reyes was sued in the then Municipal Court of Manila for ejectment from a
leased hotel that he was then operating. Judgment was rendered against Reyes in favor of the lessors, the
brothers named Gocheco Having failed in a bid to garnish the rentals of the disputed buildings because the

municipal court stated that it had no jurisdiction to decide the paraphernal or conjugal nature of the properties,
the Gocheco brothers filed Civil Case No. 24772 for revival of judgment with the Court of First Instance of
Manila.
It was in this latter case where Mr. Reyes stated in his special defenses that he and his wife never had any
kind of fund which could be called conjugal partnership funds, that they acted independently from one another
whenever either one engaged in any business, andThat the herein plaintiff has not limited his action in the present case against defendant Ponciano S. Reyes as
he did in the original case above-mentioned, that is, Civil Case No. 7524 of the Manila Municipal Court which
the instant case derived from, but has included the defendant's wife Julia Reyes, with the only intended
purpose and design of going over and against the paraphernal properties of said Julia Reyes. (par. 4, Special
Defenses, Answer, Exh. II; Petitioner's Brief, L-31618, pp. 9-10).
Article 1437 of the Civil Code on estoppel involving immovable property provides:
Art. 1437. When in a contract between third persons concerning immovable property, one of them is misled by
a person with respect to the ownership or real right over the real estate, the latter is precluded from asserting
his legal title or interest therein, provided all these requisites are present:
(1) There must be fraudulent representation or wrongful concealment of facts known to the party estopped;
(2) The party precluded must intend that the other should act upon the facts as misrepresented;
(3) The party misled must have been unaware of the true facts; and

Property acquired during a marriage is presumed to be conjugal and the fact that the land is later registered in
the name of only one of the spouses does not destroy its conjugal nature. (Bucoy v. Paulino, 23 SCRA 249).
Section 46 of P.D. 1529, the Property Registration Decree, reiterates the proviso in Section 70 of the former
Land Registration Act that registration cannot be construed to relieve registered land or the owners thereof
from any rights incident to the relation of husband and wife. (See also: Marigsa v. Macabuntoc 17 Phil. 107,
109; Romero de Pratts v. Menzi & Co., Inc., 53 Phil. 51, 54; Padilla v. Padilla, 74 Phil. 377, 382-384; Vitug v.
Montemayor, 91 Phil. 286, 290, 291, citing Guinguing v. Abuton, 48 Phil. 144; Sideco v. Aznar, 92 Phil. 952,
961-962, citing Flores v. Flores, 48 Phil. 288; Guinoo v. Court of Appeals, 97 Phil. 235, 238; Silos v. Ramos, 97
Phil. 263, 270, citingCommonwealth v. Sandiko 72 Phil. 258, 260; and Alvarez v. Espiritu, 14 SCRA 893).
If the fact that property acquired during marriage was registered in the name of the husband alone does not
affect its conjugal nature, neither does registration in the name of the wife. Any person who buys land
registered in the married name of the wife is put on notice about its conjugal nature.
The mortgage contracts (Exhs. "A-1 " and "B-1 ") executed by the spouses Ponciano S. Reyes and Julia
Reyes in favor of RFC were duly registered in the Registry of Deeds of Quezon City and seasonably
annotated on transfer certificates of title Nos. 8550 (Exh. "F") and 19998 (Exh. "G"), which were issued in the
name of Julia Reyes "married to Ponciano Reyes". Their dates of inscription were November 29, 1948 and
October 11, 1952, respectively. On December 10, 1952, the lots and the building were leased by Julia, with the
marital consent of Ponciano to the petitioners Mendozas The contract of lease was registered in the Registry
of Deeds and was annotated in the transfer certificates of title on May 5, 1952. At that time, the RFC
mortgages were already noted at the back of the transfer certificates of title. The petitioners, therefore, are
unquestionably charged with notice of the existence and contents of said mortgages, their joint execution by
the spouses Ponciano Reyes and Julia Reyes and the application of the loans to the payment to Araneta of
the purchase price of the lots in question.
Furthermore, the consent of the Ponciano Reyes to the mere lease of the properties was demanded by the
Mendozas allegedly for their own protection, yet when it came to the deed of sale which entailed a greater
transfer of rights such consent was not required.

(4) The party defrauded must have acted in accordance with the representation.
The principle of estoppel rests on the rule that whenever a party has, by his declaration, act or omission,
intentionally and deliberately led the other to believe a particular thing true and to act, upon such belief he
cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it. (Sotto v.
Teves, 86 SCRA 154.)
Estoppel can only be invoked between the person making the misrepresentation and the person to whom it
was addressed. It is essential that the latter shag have relied upon the misrepresentation and had been
influenced and misled thereby.

The final argument refers to the alleged unjust enrichment by Ponciano Reyes if the deed of sale is nullified
This petitioners admit that the benefit including that represented by one-half of the purchase price, accrued not
to the respondent but to his wife. Since Mr. Reyes did not receive any part of the proceeds of the sale and his
wife has been aligning herself with the Mendoza couple, there could be no unjust enrichment as alleged. The
assignments of errors have no merit.
WHEREFORE, the petitions for review on certiorari are hereby DENIED for lack of merit. The judgment of the
Court of Appeals is affirmed.
SO ORDERED.

There is no showing that the respondent had intentionally and deliberately led the petitioners Mendozas to
believe what was contained in the pleading, "Exh. 11", and to make them act upon it. As observed by the
respondent, they were not even a party in the case where the said pleadin was filed. Neither is there any
assertion by the Mendozas that the said pleading was shown to them or that they happened to see it or to
have any knowledge about it before they purchased the properties in question. The alleged representation
was never addressed to the petitioners, much less made with the intention that they would act upon it.
Moreover, there is no specific and clear reference to the disputed lots as paraphernal in the cited answer. The
petitioners cannot invoke estoppel in these petitions.
May the Mendoza spouses be considered buyers in good faith?
The proof that the petitioners in L-31618 are purchasers in good faith comes from the testimony of Mrs.
Inocencia Mendoza herself. Mrs. Mendoza testified that Mrs. Julia R. De Reyes assured her that the
properties were paraphernal that her lawyer verified the titles being in the name of Mrs. Julia R. De Reyes,
and that she never dealt with Mr. Ponciano Reyes when she and her husband were still renting the properties
they later purchased. On cross-examination, Mrs. Mendoza admitted that she learned of the RFC mortgage
when the lots were about to be purchased.

G.R. No. L-26699 March 16, 1976

BENITA SALAO, assisted by her husband, GREGORIO MARCELO; ALMARIO ALCURIZA, ARTURO
ALCURIZA, OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being minors are represented by
guardian ad litem, ARTURO ALCURIZA, plaintiffs-appellants,
vs.
JUAN S. SALAO, later substituted by PABLO P. SALAO, Administrator of the Intestate of JUAN S.
SALAO; now MERCEDES P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO VDA. DE SANTOS,
LUCIANA P. SALAO, ISABEL SALAO DE SANTOS, and PABLO P. SALAO, as successors-in-interest of
the late JUAN S. SALAO, together with PABLO P. SALAO, Administrator, defendants-appellants.
Eusebio V. Navarro for plaintiffs-appellants.
Nicolas Belmonte & Benjamin T. de Peralta for defendants-appellants.

(10) Riceland in the name of Ambrosia Salao, with an area of 11,678 square meters, of which 2,173 square
meters were sold to Justa Yongco . . . . . . . . . .9,505
AQUINO, J.:
TOTAL . . . . . . . . . . . . .. 179,022 square
This litigation regarding a forty-seven-hectare fishpond located at Sitio Calunuran, Hermosa, Bataan involves
the law of trusts and prescription. The facts are as follows:
The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal begot four children
named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel Salao died in 1885. His eldest son, Patricio,
died in 1886 survived by his only child. Valentin Salao.
There is no documentary evidence as to what, properties formed part of Manuel Salao's estate, if any. His
widow died on May 28, 1914. After her death, her estate was administered by her daughter Ambrosia.
It was partitioned extrajudicially in a deed dated December 29, 1918 but notarized on May 22, 1919 (Exh. 21).
The deed was signed by her four legal heirs, namely, her three children, Alejandra, Juan and Ambrosia, and
her grandson, Valentin Salao, in representation of his deceased father, Patricio.
The lands left by Valentina Ignacio, all located at Barrio Dampalit were as follows:
Nature of Land
Area in
square meters
(1) One-half interest in a fishpond which she had inherited from her parents, Feliciano Ignacio and Damiana
Mendoza, and the other half of which was owned by her co-owner, Josefa Sta. Ana . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 21,700

meters
To each of the legal heirs of Valentina Ignacio was adjudicated a distributive share valued at P8,135.25. In
satisfaction of his distributive share, Valentin Salao (who was then already forty-eight years old) was given the
biggest fishpond with an area of 50,469 square meters, a smaller fishpond with an area of 6,989 square
meters and the riceland with a net area of 9,905 square meters. Those parcels of land had an aggregate
appraised value of P13,501 which exceeded Valentin's distributive share. So in the deed of partition he was
directed to pay to his co-heirs the sum of P5,365.75. That arrangement, which was obviously intended to avoid
the fragmentation of the lands, was beneficial to Valentin.
In that deed of partition (Exh. 21) it was noted that "desde la muerte de Valentina Ignacio y Mendoza, ha
venido administrando sus bienes la referida Ambrosia Salao" "cuya administracion lo ha sido a satisfaccion de
todos los herederos y por designacion los mismos". It was expressly stipulated that Ambrosia Salao was not
obligated to render any accounting of her administration "en consideracion al resultado satisfactorio de sus
gestiones, mejoradas los bienes y pagodas por ella las contribusiones (pages 2 and 11, Exh. 21).
By virtue of the partition the heirs became "dueos absolutos de sus respectivas propiedadas, y podran
inmediatamente tomar posesion de sus bienes, en la forma como se han distribuido y llevado a cabo las
adjudicaciones" (page 20, Exh. 21).
The documentary evidence proves that in 1911 or prior to the death of Valentina Ignacio her two children, Juan
Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title, OCT No. 185 of the Registry of Deeds of
Pampanga, in their names for a forty-seven-hectare fishpond located at Sitio Calunuran, Lubao, Pampanga
(Exh. 14). It is also known as Lot No. 540 of the Hermosa cadastre because that part of Lubao later became a
part of Bataan.
The Calunuran fishpond is the bone of contention in this case.

(2) Fishpond inherited from her parents . . . . . . . . . . . . 7,418

(4) Fishpond with a bodega for salt . . . . . . . . . . . . . . . . 50,469

Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had engaged in the fishpond business.
Where they obtained the capital is not shown in any documentary evidence. Plaintiffs' version is that Valentin
Salao and Alejandra Salao were included in that joint venture, that the funds used were the earnings of the
properties supposedly inherited from Manuel Salao, and that those earnings were used in the acquisition of
the Calunuran fishpond. There is no documentary evidence to support that theory.

(5) Fishpond with an area of one hectare, 12 ares and 5 centares purchased from Bernabe and Honorata
Ignacio by Valentina Ignacio on November 9, 1895 with a bodega for salt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . 11,205

On the other hand, the defendants contend that the Calunuran fishpond consisted of lands purchased by Juan
Y. Salao, Sr. and Ambrosia Salao in 1905, 1906, 1907 and 1908 as, shown in their Exhibits 8, 9, 10 and 13.
But this point is disputed by the plaintiffs.

(6) Fishpond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

However, there can be no controversy as to the fact that after Juan Y. Salao, Sr. and Ambrosia Salao secured
a Torrens title for the Calunuran fishpond in 1911 they exercised dominical rights over it to the exclusion of
their nephew, Valentin Salao.

(3) Fishpond inherited from her parents . . . . . . . . . . . . . 6,989

(7) One-half interest in a fishpond with a total area of 10,424 square meters, the other half was owned by A.
Aguinaldo . . . . . . . . . . . . . . . . . . . . . . . 5,217
(8) Riceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,454
(9) Riceland purchased by Valentina Ignacio from Eduardo Salao on January 27, 1890 with a house and two
camarins thereon . . . . . . . . . . . . . . . . . . 8,065

Thus, on December 1, 1911 Ambrosia Salao sold under pacto de retro for P800 the Calunuran fishpond to
Vicente Villongco. The period of redemption was one year. In the deed of sale (Exh19) Ambrosia confirmed
that she and her brother Juan were the dueos proindivisos of the said pesqueria. On December 7, 1911
Villongco, the vendee a retro, conveyed the same fishpond to Ambrosia by way of lease for an anual canon of
P128 (Exh. 19-a).
After the fishpond was redeemed from Villongco or on June 8, 1914 Ambrosia and Juan sold it under pacto de
retro to Eligio Naval for the sum of P3,360. The period of redemption was also one year (Exh. 20). The

fishpond was later redeemed and Naval reconveyed it to the vendors a retro in a document dated October 5,
1916 (Exh. 20-a).
The 1930 survey shown in the computation sheets of the Bureau of Lands reveals that the Calunuran fishpond
has an area of 479,205 square meters and that it was claimed by Juan Salao and Ambrosia Salao, while the
Pinanganacan fishpond (subsequently acquired by Juan and Ambrosia) has an area of 975,952 square meters
(Exh. 22).
Likewise, there is no controversy as to the fact that on May 27, 1911 Ambrosia Salao bought for four thousand
pesos from the heirs of Engracio Santiago a parcel of swampland planted to bacawan and nipa with an area of
96 hectares, 57 ares and 73 centares located at Sitio Lewa, Barrio Pinanganacan, Lubao, Pampanga (Exh.
17-d).
The record of Civil Case No. 136, General Land Registration Office Record No. 12144, Court of First Instance
of Pampanga shows that Ambrosia Salao and Juan Salao filed an application for the registration of that land in
their names on January 15, 1916. They alleged in their petition that "han adquirido dicho terreno por partes
iguales y por la compra a los herederos del finado, Don Engracio Santiago" (Exh. 17-a).
At the hearing on October 26, 1916 before Judge Percy M. Moir, Ambrosia testified for the applicants. On that
same day Judge Moir rendered a decision, stating, inter alia, that the heirs of Engracio Santiago had sold the
land to Ambrosia Salao and Juan Salao. Judge Moir "ordena la adjudicacion y registro del terreno solicitado a
nombre de Juan Salao, mayor de edad y de estado casado y de su esposa Diega Santiago y Ambrosia Salao,
de estado soltera y mayor de edad, en participaciones iguales" (Exh. 17-e).
On November 28, 1916 Judge Moir ordered the issuance of a decree for the said land. The decree was issued
on February 21, 1917. On March 12, 1917 Original Certificate of Title No. 472 of the Registry of Deeds of
Pampanga was issued in the names of Juan Salao and Ambrosia Salao.
That Pinanganacan or Lewa fishpond later became Cadastral Lot No. 544 of the Hermosa cadastre (Exh. 23).
It adjoins the Calunuran fishpond (See sketch, Exh. 1).
Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years (Exh. C). His nephew, Valentin Salao,
died on February 9, 1933 at the age of sixty years according to the death certificate (Exh. A. However, if
according to Exhibit 21, he was forty-eight years old in 1918, he would be sixty-three years old in 1933).
The intestate estate of Valentin Salao was partitioned extrajudicially on December 28, 1934 between his two
daughters, Benita Salao-Marcelo and Victorina Salao-Alcuriza (Exh. 32). His estate consisted of the two
fishponds which he had inherited in 1918 from his grandmother, Valentina Ignacio.
If it were true that he had a one-third interest in the Calunuran and Lewa fishponds with a total area of 145
hectares registered in 1911 and 1917 in the names of his aunt and uncle, Ambrosia Salao and Juan Y. Salao,
Sr., respectively, it is strange that no mention of such interest was made in the extrajudicial partition of his
estate in 1934.
It is relevant to mention that on April 8, 1940 Ambrosia Salao donated to her grandniece, plaintiff Benita Salao,
three lots located at Barrio Dampalit with a total area of 5,832 square meters (Exit. L). As donee Benita Salao
signed the deed of donation.
On that occasion she could have asked Ambrosia Salao to deliver to her and to the children of her sister,
Victorina, the Calunuran fishpond if it were true that it was held in trust by Ambrosia as the share of Benita's
father in the alleged joint venture.
But she did not make any such demand. It was only after Ambrosia Salao's death that she thought of filing an
action for the reconveyance of the Calunuran fishpond which was allegedly held in trust and which had
become the sole property of Juan Salao y Santiago (Juani).

On September 30, 1944 or during the Japanese occupation and about a year before Ambrosia Salao's death
on September 14, 1945 due to senility (she was allegedly eighty-five years old when she died), she donated
her one-half proindiviso share in the two fishponds in question to her nephew, Juan S. Salao, Jr. (Juani) At that
time she was living with Juani's family. He was already the owner of the the other half of the said fishponds,
having inherited it from his father, Juan Y. Salao, Sr. (Banli) The deed of denotion included other pieces of real
property owned by Ambrosia. She reserved for herself the usufruct over the said properties during her lifetime
(Exh. 2 or M).
The said deed of donation was registered only on April 5, 1950 (page 39, Defendants' Record on Appeal).
The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated January 26, 1951 informed
Juan S. Salao, Jr. that his clients had a one-third share in the two fishponds and that when Juani took
possession thereof in 1945, he refused to give Benita and Victorina's children their one-third share of the net
fruits which allegedly amounted to P200,000 (Exh. K).
Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that Valentin Salao did not have
any interest in the two fishponds and that the sole owners thereof his father Banli and his aunt Ambrosia, as
shown in the Torrens titles issued in 1911 and 1917, and that he Juani was the donee of Ambrosia's one-half
share (Exh. K-1).
Benita Salao and her nephews and niece filed their original complaint against Juan S. Salao, Jr. on January 9,
1952 in the Court of First Instance of Bataan (Exh. 36). They amended their complaint on January 28, 1955.
They asked for the annulment of the donation to Juan S. Salao, Jr. and for the reconveyance to them of the
Calunuran fishpond as Valentin Salao's supposed one-third share in the 145 hectares of fishpond registered in
the names of Juan Y. Salao, Sr. and Ambrosia Salao.
Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility of the Torrens title secured by his
father and aunt. He also invoked the Statute of Frauds, prescription and laches. As counter-claims, he asked
for moral damages amounting to P200,000, attorney's fees and litigation expenses of not less than P22,000
and reimbursement of the premiums which he has been paying on his bond for the lifting of the receivership
Juan S. Salao, Jr. died in 1958 at the age of seventy-one. He was substituted by his widow, Mercedes Pascual
and his six children and by the administrator of his estate.
In the intestate proceedings for the settlement of his estate the two fishponds in question were adjudicated to
his seven legal heirs in equal shares with the condition that the properties would remain under administration
during the pendency of this case (page 181, Defendants' Record on Appeal).
After trial the trial court in its decision consisting of one hundred ten printed pages dismissed the amended
complaint and the counter-claim. In sixty-seven printed pages it made a laborious recital of the testimonies of
plaintiffs' fourteen witnesses, Gregorio Marcelo, Norberto Crisostomo, Leonardo Mangali Fidel de la Cruz,
Dionisio Manalili, Ambrosio Manalili, Policarpio Sapno, Elias Manies Basilio Atienza, Benita Salao, Emilio
Cagui Damaso de la Pea, Arturo Alcuriza and Francisco Buensuceso, and the testimonies of defendants' six
witnesses, Marcos Galicia, Juan Galicia, Tiburcio Lingad, Doctor Wenceslao Pascual, Ciriaco Ramirez and
Pablo P. Salao. (Plaintiffs presented Regino Nicodemus as a fifteenth witness, a rebuttal witness).
The trial court found that there was no community of property among Juan Y. Salao, Sr., Ambrosia Salao and
Valentin Salao when the Calunuran and Pinanganacan (Lewa) lands were acquired; that a co-ownership over
the real properties of Valentina Ignacio existed among her heirr after her death in 1914; that the co-ownership
was administered by Ambrosia Salao and that it subsisted up to 1918 when her estate was partitioned among
her three children and her grandson, Valentin Salao.
The trial court surmised that the co-ownership which existed from 1914 to 1918 misled the plaintiffs and their
witnesses and caused them to believe erroneously that there was a co-ownership in 1905 or thereabouts. The
trial court speculated that if valentin had a hand in the conversion into fishponds of the Calunuran and Lewa
lands, he must have done so on a salary or profit- sharing basis. It conjectured that Valentin's children and
grandchildren were given by Ambrosia Salao a portion of the earnings of the fishponds as a reward for his
services or because of Ambrosia's affection for her grandnieces.

The trial court rationalized that Valentin's omission during his lifetime to assail the Torrens titles of Juan and
Ambrosia signified that "he was not a co-owner" of the fishponds. It did not give credence to the testimonies of
plaintiffs' witnesses because their memories could not be trusted and because no strong documentary
evidence supported the declarations. Moreover, the parties involved in the alleged trust were already dead.
It also held that the donation was validly executed and that even if it were void Juan S. Salao, Jr., the donee,
would nevertheless be the sole legal heir of the donor, Ambrosia Salao, and would inherit the properties
donated to him.
Both parties appealed. The plaintiffs appealed because their action for reconveyance was dismissed. The
defendants appealed because their counterclaim for damages was dismissed.
The appeals, which deal with factual and legal issues, were made to the Court of Appeals. However, as the
amounts involved exceed two hundred thousand pesos, the Court of Appeals elevated the case to this Court in
its resolution of Octoter 3, 1966 (CA-G.R. No. 30014-R).
Plaintiffs' appeal. An appellant's brief should contain "a subject index index of the matter in the brief with a
digest of the argument and page references" to the contents of the brief (Sec. 16 [a], Rule 46, 1964 Rules of
Court; Sec. 17, Rule 48, 1940 Rules of Court).
The plaintiffs in their appellants' brief consisting of 302 pages did not comply with that requirement. Their
statements of the case and the facts do not contain "page references to the record" as required in section
16[c] and [d] of Rule 46, formerly section 17, Rule 48 of the 1940 Rules of Court.
Lawyers for appellants, when they prepare their briefs, would do well to read and re-read section 16 of Rule
46. If they comply strictly with the formal requirements prescribed in section 16, they might make a competent
and luminous presentation of their clients' case and lighten the burden of the Court.
What Justice Fisher said in 1918 is still true now: "The pressure of work upon this Court is so great that we
cannot, in justice to other litigants, undertake to make an examination of the voluminous transcript of the
testimony (1,553 pages in this case, twenty-one witnesses having testified), unless the attorneys who desire
us to make such examination have themselves taken the trouble to read the record and brief it in accordance
with our rules" (Palara vs. Baguisi 38 Phil. 177, 181). As noted in an old case, this Court decides hundreds of
cases every year and in addition resolves in minute orders an exceptionally considerable number of petitions,
motions and interlocutory matters (Alzua and Arnalot vs. Johnson, 21 Phil. 308, 395; See In re Almacen, L27654, February 18, 1970, 31 SCRA 562, 573).
Plaintiffs' first assignment of error raised a procedural issue. In paragraphs 1 to 14 of their first cause of action
they made certain averments to establish their theory that Valentin Salao had a one-third interest in the two
fishponds which were registrered in the names of Juan Y. Salao, Sr. (Banli) and Ambrosia Salao.
Juan S. Salao, Jr. (Juani) in his answer "specifically" denied each and all the allegations" in paragraphs I to 10
and 12 of the first cause of action with the qualification that Original certificates of Title Nos. 185 and 472 were
issued "more than 37 years ago" in the names of Juan (Banli) and Ambrosia under the circumstances set forth
in Juan S. Salao, Jr.'s "positive defenses" and "not under the circumstances stated in the in the amended
complaint".
The plaintiffs contend that the answer of Juan S. Salao, Jr. was in effect tin admission of the allegations in
their first cause of action that there was a co-ownership among Ambrosia, Juan, AIejandra and Valentin, all
surnamed Salao, regarding the Dampalit property as early as 1904 or 1905; that the common funds were
invested the acquisition of the two fishponds; that the 47-hectare Calunuran fishpond was verbally adjudicated
to Valentin Salao in the l919 partition and that there was a verbal stipulation to to register "said lands in the
name only of Juan Y. Salao".

That contention is unfounded. Under section 6, Rule 9 of the 1940 of Rules of Court the answer should
"contain either a specific dinial a statement of matters in accordance of the cause or causes of action asserted
in the complaint". Section 7 of the same rule requires the defendant to "deal specificaly with each material
allegation of fact the truth of wihich he does not admit and, whenever practicable shall set forth the substance
of the matters which he will rely upon to support his denial". "Material averments in the complaint, other than
those as to the amount damage, shall be deemed admitted when specifically denied" (Sec. 8). "The defendant
may set forth set forth by answer as many affirmative defenses as he may have. All grounds of defenses as
would raise issues of fact not arising upon the preceding pleading must be specifically pleaded" (Sec. 9).
What defendant Juan S. Salao, Jr. did in his answer was to set forth in his "positive defenses" the matters in
avoidance of plaintiffs' first cause of action which which supported his denials of paragraphs 4 to 10 and 12 of
the first cause of action. Obviously, he did so because he found it impracticable to state pierceneal his own
version as to the acquisition of the two fishponds or to make a tedious and repetitious recital of the ultimate
facts contradicting allegations of the first cause of action.
We hold that in doing so he substantially complied with Rule 9 of the 1940 Rules of Court. It may be noted that
under the present Rules of Court a "negative defense is the specific denial of t the material fact or facts
alleged in the complaint essential to plaintiff's cause of causes of action". On the other hand, "an affirmative
defense is an allegation of new matter which, while admitting the material allegations of the complaint,
expressly or impliedly, would nevertheless prevent or bar recovery by the plaintiff." Affirmative defenses
include all matters set up "by of confession and avoidance". (Sec. 5, Rule 6, Rules of Court).
The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and similar cases are distinguishable from
the instant case. In the El Hogar case the defendant filed a laconic answer containing the statement that it
denied "generally ans specifically each and every allegation contained in each and every paragraph of the
complaint". It did not set forth in its answer any matters by way of confession and avoidance. It did not
interpose any matters by way of confession and avoidance. It did not interpose any affirmative defenses.
Under those circumstances, it was held that defendant's specific denial was really a general denial which was
tantamount to an admission of the allegations of the complaint and which justified judgment on the pleadings.
That is not the situation in this case.
The other nine assignments of error of the plaintiffs may be reduced to the decisive issue of whether the
Calunuran fishpond was held in trust for Valentin Salao by Juan Y. Salao, Sr. and Ambrosia Salao. That issue
is tied up with the question of whether plaintiffs' action for reconveyance had already prescribed.
The plaintiffs contend that their action is "to enforce a trust which defendant" Juan S. Salao, Jr. allegedly
violated. The existence of a trust was not definitely alleged in plaintiffs' complaint. They mentioned trust for the
first time on page 2 of their appelants' brief.
To determine if the plaintiffs have a cause of action for the enforcement of a trust, it is necessary to maek
some exegesis on the nature of trusts (fideicomosis). Trusts in Anglo-American jurisprudence were derived
from thefideicommissa of the Roman law (Government of the Philippine Islands vs. Abadilla, 46 Phil. 642,
646).
"In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial
enjoyment of property, the legal title to which is vested in another, but the word 'trust' is frequently employed to
indicate duties, relations, and responsibilities which are not strictly technical trusts" (89 C.J.S. 712).
A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property
for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been
created is referred to as the beneficiary" (Art. 1440, Civil Code). There is a fiduciary relation between the
trustee and the cestui que trust as regards certain property, real, personal, money or choses in action
(Pacheco vs. Arro, 85 Phil. 505).

"Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties.
Implied trusts come into being by operation of law" (Art. 1441, Civil Code). "No express trusts concerning an
immovable or any interest therein may be proven by parol evidence. An implied trust may be proven by oral
evidence" (Ibid, Arts. 1443 and 1457).
"No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly
intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-19012, October 30,
1967, 21 SCRA 543, 546). "Express trusts are those which are created by the direct and positive acts of the
parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to
create a trust" (89 C.J.S. 72).
"Implied trusts are those which, without being expressed, are deducible from the nature of the transaction
asmatters of intent, or which are superinduced on the transaction by operation of law as matter of
equity,independently of the particular intention of the parties" (89 C.J.S. 724). They are ordinarily subdivided
into resulting and constructive trusts (89 C.J.S. 722).
"A resulting trust. is broadly defined as a trust which is raised or created by the act or construction of law, but
in its more restricted sense it is a trust raised by implication of law and presumed to have been contemplated
by the parties, the intention as to which is to be found in the nature of their transaction, but not expressed in
the deed or instrument of conveyance (89 C.J.S. 725). Examples of resulting trusts are found in articles 1448
to 1455 of the Civil Code. (See Padilla vs. Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168,
179; Martinez vs. Grao 42 Phil. 35).
On the other hand, a constructive trust is -a trust "raised by construction of law, or arising by operation of law".
In a more restricted sense and as contra-distinguished from a resulting trust, a constructive trust is "a trust not
created by any words, either expressly or impliedly evincing a direct intension to create a trust, but by the
construction of equity in order to satisfy the demands of justice." It does not arise "by agreement or intention,
but by operation of law." (89 C.J.S. 726-727).
Thus, "if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the property comes" (Art. 1456, Civil Code).
Or "if a person obtains legal title to property by fraud or concealment, courts of equity will impress upon the
title a so-called constructive trust in favor of the defrauded party". Such a constructive trust is not a trust in the
technical sense. (Gayondato vs. Treasurer of the P. I., 49 Phil. 244).
Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there was an express
trust over the Calunuran fishpond in favor of Valentin Salao. Purely parol evidence was offered by them to
prove the alleged trust. Their claim that in the oral partition in 1919 of the two fishponds the Calunuran
fishpond was assigned to Valentin Salao is legally untenable.
It is legally indefensible because the terms of article 1443 of the Civil Code (already in force when the action
herein was instituted) are peremptory and unmistakable: parol evidence cannot be used to prove an express
trust concerning realty.
Is plaintiffs' massive oral evidence sufficient to prove an implied trust, resulting or constructive, regarding the
two fishponds?
Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The trial court's firm
conclusion that there was no community of property during the lifetime of Valentina; Ignacio or before 1914 is
substantiated by defendants' documentary evidence. The existence of the alleged co-ownership over the lands
supposedly inherited from Manuel Salao in 1885 is the basis of plaintiffs' contention that the Calunuran
fishpond was held in trust for Valentin Salao.

But that co-ownership was not proven by any competent evidence. It is quite improbable because the alleged
estate of Manuel Salao was likewise not satisfactorily proven. The plaintiffs alleged in their original complaint
that there was a co-ownership over two hectares of land left by Manuel Salao. In their amended complaint,
they alleged that the co-ownership was over seven hectares of fishponds located in Barrio Dampalit, Malabon,
Rizal. In their brief they alleged that the fishponds, ricelands and saltbeds owned in common in Barrio
Dampalit had an area of twenty-eight hectares, of which sixteen hectares pertained to Valentina Ignacio and
eleven hectares represented Manuel Salao's estate.
They theorized that the eleven hectares "were, and necessarily, the nucleus, nay the very root, of the property
now in litigation (page 6, plaintiffs-appellants' brief). But the eleven hectares were not proven by any
trustworthy evidence. Benita Salao's testimony that in 1918 or 1919 Juan, Ambrosia, Alejandra and Valentin
partitioned twenty-eight hectares of lands located in Barrio Dampalit is not credible. As noted by the
defendants, Manuel Salao was not even mentioned in plaintiffs' complaints.
The 1919 partition of Valentina Ignacio's estate covered about seventeen hectares of fishponds and ricelands
(Exh. 21). If at the time that partition was made there were eleven hectares of land in Barrio Dampalit
belonging to Manuel Salao, who died in 1885, those eleven hectares would have been partitioned in writing as
in the case of the seventeen hectares belonging to Valentina Ignacio's estate.
It is incredible that the forty-seven-hectare Calunuran fishpond would be adjudicated to Valentin Salao mere
by by word of mouth. Incredible because for the partition of the seventeen hectares of land left by Valentina
Ignacio an elaborate "Escritura de Particion" consisting of twenty-two pages had to be executed by the four
Salao heirs. Surely, for the partition of one hundred forty-five hectares of fishponds among three of the same
Salao heirs an oral adjudication would not have sufficed.
The improbability of the alleged oral partition becomes more evident when it is borne in mind that the two
fishponds were registered land and "the act of registration" is "the operative act" that conveys and affects the
land (Sec. 50, Act No. 496). That means that any transaction affecting the registered land should be evidenced
by a registerable deed. The fact that Valentin Salao and his successors-in-interest, the plaintiffs, never
bothered for a period of nearly forty years to procure any documentary evidence to establish his supposed
interest ox participation in the two fishponds is very suggestive of the absence of such interest.
The matter may be viewed from another angle. As already stated, the deed of partition for Valentina Ignacio's
estate wag notarized in 1919 (Exh. 21). The plaintiffs assert that the two fishponds were verbally partitioned
also in 1919 and that the Calunuran fishpond was assigned to Valentin Salao as his share.
Now in the partition of Valentina Ignacio's estate, Valentin was obligated to pay P3,355.25 to Ambrosia Salao.
If, according to the plaintiffs, Ambrosia administered the two fishponds and was the custodian of its earnings,
then it could have been easily stipulated in the deed partitioning Valentina Ignacio's estate that the amount due
from Valentin would just be deducted by Ambrosia from his share of the earnings of the two fishponds. There
was no such stipulation. Not a shred of documentary evidence shows Valentin's participation in the two
fishponds.
The plaintiffs utterly failed to measure up to the yardstick that a trust must be proven by clear, satisfactory and
convincing evidence. It cannot rest on vague and uncertain evidence or on loose, equivocal or indefinite
declarations (De Leon vs. Molo-Peckson, 116 Phil. 1267, 1273).
Trust and trustee; establishment of trust by parol evidence; certainty of proof. Where a trust is to be
established by oral proof, the testimony supporting it must be sufficiently strong to prove the right of the
alleged beneficiary with as much certainty as if a document proving the trust were shown. A trust cannot be
established, contrary to the recitals of a Torrens title, upon vague and inconclusive proof. (Syllabus, Suarez vs.
Tirambulo, 59 Phil. 303).
Trusts; evidence needed to establish trust on parol testimony. In order to establish a trust in real property by
parol evidence, the proof should be as fully convincing as if the act giving rise to the trust obligation were
proven by an authentic document. Such a trust cannot be established upon testimony consisting in large part
of insecure surmises based on ancient hearsay. (Syllabus, Santa Juana vs. Del Rosario 50 Phil. 110).

The foregoing rulings are good under article 1457 of the Civil Code which, as already noted, allows an implied
trust to be proven by oral evidence. Trustworthy oral evidence is required to prove an implied trust because,
oral evidence can be easily fabricated.
On the other hand, a Torrens title is generally a conclusive of the ownership of the land referred to therein
(Sec. 47, Act 496). A strong presumption exists. that Torrens titles were regularly issued and that they are
valid. In order to maintain an action for reconveyance, proof as to the fiduciary relation of the parties must be
clear and convincing (Yumul vs. Rivera and Dizon, 64 Phil. 13, 17-18).
The real purpose of the Torrens system is, to quiet title to land. "Once a title is registered, the owner may rest
secure, without the necessity of waiting in the portals of the court, or sitting in the mirador de su casa, to avoid
the possibility of losing his land" (Legarda and Prieto vs. Saleeby, 31 Phil. 590, 593).
There was no resulting trust in this case because there never was any intention on the part of Juan Y. Salao,
Sr., Ambrosia Salao and Valentin Salao to create any trust. There was no constructive trust because the
registration of the two fishponds in the names of Juan and Ambrosia was not vitiated by fraud or mistake. This
is not a case where to satisfy the demands of justice it is necessary to consider the Calunuran fishpond "
being held in trust by the heirs of Juan Y. Salao, Sr. for the heirs of Valentin Salao.
And even assuming that there was an implied trust, plaintiffs' action is clearly barred by prescription or laches
(Ramos vs. Ramos, L-19872, December 3, 1974, 61 SCRA 284; Quiniano vs. Court of Appeals, L-23024, May
31, 1971, 39 SCRA 221; Varsity Hills, Inc. vs. Navarro, 9, February 29, 1972, 43 SCRA 503; Alzona vs.
Capunitan and Reyes, 114 Phil. 377).
Under Act No. 190, whose statute of limitation would apply if there were an implied trust in this case, the
longest period of extinctive prescription was only ten year (Sec. 40; Diaz vs. Gorricho and Aguado, 103 Phil.
261, 266).
The Calunuran fishpond was registered in 1911. The written extrajudicial demand for its reconveyance was
made by the plaintiffs in 1951. Their action was filed in 1952 or after the lapse of more than forty years from
the date of registration. The plaintiffs and their predecessor-in-interest, Valentin Salao, slept on their rights if
they had any rights at all. Vigilanti prospiciunt jura or the law protects him who is watchful of his rights (92
C.J.S. 1011, citing Esguerra vs. Tecson, 21 Phil. 518, 521).
"Undue delay in the enforcement of a right is strongly persuasive of a lack of merit in the claim, since it is
human nature for a person to assert his rights most strongly when they are threatened or invaded". "Laches or
unreasonable delay on the part of a plaintiff in seeking to enforce a right is not only persuasive of a want of
merit but may, according to the circumstances, be destructive of the right itself." (Buenaventura vs. David, 37
Phil. 435, 440-441).

Defendants' appeal. The defendants dispute the lower court's finding that the plaintiffs filed their action in
good faith. The defendants contend that they are entitled to damages because the plaintiffs acted maliciously
or in bad faith in suing them. They ask for P25,000 attorneys fees and litigation expenses and, in addition,
moral damages.
We hold that defemdamts' appeal is not meritorious. The record shows that the plaintiffs presented fifteen
witnesses during the protracted trial of this case which lasted from 1954 to 1959. They fought tenaciously.
They obviously incurred considerable expenses in prosecuting their case. Although their causes of action
turned out to be unfounded, yet the pertinacity and vigor with which they pressed their claim indicate their
sincerity and good faith.
There is the further consideration that the parties were descendants of common ancestors, the spouses
Manuel Salao and Valentina Ignacio, and that plaintiffs' action was based on their honest supposition that the
funds used in the acquisition of the lands in litigation were earnings of the properties allegedly inherited from
Manuel Salao.
Considering those circumstances, it cannot be concluded with certitude that plaintiffs' action was manifestly
frivolous or was primarily intended to harass the defendants. An award for damages to the defendants does
not appear to be just and proper.
The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not the moral
damages contemplated in the law (Solis & Yarisantos vs. Salvador, L-17022, August 14, 1965, 14 SCRA 887;
Ramos vs. Ramos, supra). The instant case is not among the cases mentioned in articles 2219 and 2220 of
the Civil Code wherein moral damages may be recovered. Nor can it be regarded as analogous to any of the
cases mentioned in those articles.
The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of
moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so
precious that moral damages may not be charged on those who may exercise it erroneously. (Barreto vs.
Arevalo, 99 Phil. 771. 779).
The defendants invoke article 2208 (4) (11) of the Civil Code which provides that attorney's fees may be
recovered "in case of a clearly unfounded civil action or proceeding against the plaintiff" (defendant is a
plaintiff in his counterclaim) or "in any other case where the court deems it just and equitable" that attorney's
fees should he awarded.
But once it is conceded that the plaintiffs acted in good faith in filing their action there would be no basis for
adjudging them liable to the defendants for attorney's fees and litigation expenses (See Rizal Surety &
Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA 61).

Having reached the conclusion that the plaintiffs are not entitled to the reconveyance of the Calunuran
fishpond, it is no longer n to Pass upon the validity of the donation made by Ambrosia Salao to Juan S. Salao,
Jr. of her one-half share in the two fishponds The plaintiffs have no right and personality to assil that donation.

It is not sound public policy to set a premium on the right to litigate. An adverse decision does not ipso facto
justify the award of attorney's fees to the winning party (Herrera vs. Luy Kim Guan, 110 Phil. 1020, 1028; Heirs
of Justiva vs. Gustilo, 61 O. G. 6959).

Even if the donation were declared void, the plaintiffs would not have any successional rights to Ambrosia's
share. The sole legal heir of Ambrosia was her nephew, Juan, Jr., her nearest relative within the third degree.
Valentin Salao, if living in 1945 when Ambrosia died, would have been also her legal heir, together with his first
cousin, Juan, Jr. (Juani). Benita Salao, the daughter of Valentin, could not represent him in the succession to
the estate of Ambrosia since in the collateral line, representation takes place only in favor of the children of
brothers or sisters whether they be of the full or half blood is (Art 972, Civil Code). The nephew excludes a
grandniece like Benita Salao or great-gandnephews like the plaintiffs Alcuriza (Pavia vs. Iturralde 5 Phil. 176).

The trial court's judgment is affirmed. No pronouncement as to costs.

The trial court did not err in dismissing plaintiffs' complaint.

SO ORDERED.
G.R. No. L-20449

January 29, 1968

ESPERANZA FABIAN, BENITA FABIAN and DAMASO PAPA Y FABIAN, plaintiffs-appellants,

vs.
SILBINA FABIAN, FELICIANO LANDRITO, TEODORA FABIAN and FRANCISCO DEL
MONTE, defendants-appellees.

Felix Law Office for plaintiffs-appellants.

J.G. Mendoza for defendants-appellees.
CASTRO, J.:
Before us is the appeal taken by Esperanza Fabian, Benita I Fabian and Damaso Papa y Fabian from the
decision of the Court of First Instance of Rizal which dismissed their complaint for reconveyance, in civil case
295-R, filed against the defendants spouses Silbina Fabian and Feliciano Landrito and Teodora Fabian and
Francisco del Monte, upon the ground that the latter had acquired a valid and complete title to the land in
question by acquisitive prescription.
This case traces its origin way back to January 1, 1909 when Pablo Fabian bought from the Philippine
Government lot 164 of the Friar Lands Estate in Muntinlupa, Rizal, of an area 1 hectare, 42 ares and 80
centares, for the sum of P112 payable in installments. By virtue of this purchase, he was issued sale certificate
547. He died on August 2, 1928, survived by four children, namely, Esperanza, Benita I, Benita II, 1 and Silbina.
On October 5, 1928 Silbina Fabian and Teodora Fabian, niece of the deceased, executed an affidavit, reciting,
among other things,
Que el finado Pablo Fabian, no dejo ningun otro heredero sino los declarantes, con derecho a heredar el lote
No. 164 de la hacienda Muntinlupa, relicto por dicho finado Pablo Fabian y para la aprobacion de traspaso a
nosotros el referido lote No. 164, prestamos esta declaracion para todos los efectos que pueden covenir a la
Oficina de Terenos a defender por nuestro mayor derecho de heredar dicho lote contra las reclamaciones
juntas de quien las presentare.
On the strength of this affidavit, sale certificate 547 was assigned to them. On November 14, 1928 the acting
Director of Lands, on behalf of the Government, sold lot 164, under deed 17272, to Silbina Fabian, married to
Feliciano Landrito, and to Teodora Fabian, married to Francisco del Monte, for the sum of P120. The vendees
spouses forthwith in 1929 took physical possession thereof, cultivated it, and appropriated the produce
therefrom (and concededly have up to the present been appropriating the fruits from the land exclusively for
themselves). In that same year, they declared the lot in their names for taxation purposes under tax
declaration 3374. This tax declaration was later cancelled, and in lieu thereof two tax declarations (2418 and
2419) were issued in favor of Teodora Fabian and Silbina Fabian, respectively. Since 1929 up to the present,
they have been paying the real estate taxes thereon. In 1937 the Register of Deeds of Rizal issued TCT
33203 over lot 164 in their names. And on May 4, 1945, they subdivided the lot into two equal parts; TCT
33203 was then cancelled and TCT 38095 was issued over lot 164-A in the name of Silbina Fabian, married to
Feliciano Landrito, and 38096 was issued over lot 164-B in the name of Teodora Fabian, married to Francisco
del Monte.
On July 18, 1960 the plaintiffs filed the present action for reconveyance against the defendants spouses,
averring that Silbina and Teodora, through fraud perpetrated in their affidavit aforesaid, made it appear that "el
finado Pablo Fabian no dejo ningun otro heredero sino los declarantes con derecho a heredar el lote No. 164
de la hacienda de Muntinlupa", which is a false narration of facts because Silbina knew that she is not the only
daughter and heir of the deceased Pablo Fabian, and Teodora likewise knew all along that, as a mere niece of
the deceased, she was precluded from inheriting from him in the presence of his four surviving daughters; that
by virtue of this affidavit, the said defendants succeeded in having sale certificate 547 assigned to them and
thereafter in having lot 164 covered by said certificate transferred in their names; and that by virtue also of
these assignment and transfer, the defendants succeeded fraudulently in having lot 164 registered in their
names under TCT 33203. They further allege that the land has not been transferred to an innocent purchaser
for value. A reconveyance thereof is prayed for, aside from P3,000 attorney's fees and costs.
In their answer of August 31, 1960, 2 the defendants spouses claim that Pablo Fabian was not the owner of lot
164 at the time of his death on August 2, 1928 because he had not paid in full the amortizations on the lot; that
they are the absolute owners thereof, having purchased it from the Government for the sum of P120, and from
that year having exercised all the attributes of ownership thereof up to the present; and that the present action
for reconveyance has already prescribed. The dismissal of the complaint is prayed for.

On the basis of a partial stipulation of facts together with annexes, the lower court rendered judgment on June
28, 1962, declaring that the defendants spouses had acquired a valid and complete title to the property by
acquisitive prescription, and accordingly dismissed the complaint, with costs against the plaintiffs. The latter's
motion for reconsideration was thereafter denied.
Hence, the present recourse.
The three resulting issues of law tendered for resolution in this appeal, by the formulation of the parties are: (1)
Was Pablo Fabian the owner of lot 164 at the time of his death, in the face of the fact, admitted by the
defendants-appellees, that he had not then paid the entire purchase price thereof? (2) May laches constitute a
bar to an action to enforce a constructive trust? (3) Has title to the land vested in the appellees through the
mode of acquisitive prescription?
1. Lot 164 was a part of the Friar Lands Estate of Muntinlupa, Rizal; its sale to Pablo Fabian was therefore
governed by Act 1120, otherwise known as the Friar Lands Act. While under section 15 of the said Act, title to
the land sold is reserved to the Government until the purchaser makes full payment of all the required
installments and the interest thereon, this legal reservation refers.
to the bare, naked title. The equitable and beneficial title really went to the purchaser the moment he paid the
first installment and was given a certificate of sale. The reservation of the title in favor of the Government is
made merely to protect the interest of the Government so as to preclude or prevent the purchaser from
encumbering or disposing of the lot purchased before the payment in full of the purchase price. Outside of this
protection the Government retains no right as an owner. For instance, after issuance of the sales certificate
and pending payment in full of the purchase price, the Government may not sell the lot to another. It may not
even encumber it. It may not occupy the land to use or cultivate; neither may it lease it or even participate or
share in its fruits. In other words, the Government does not and cannot exercise the rights and prerogatives of
owner. And when said purchaser finally pays the final installment on the purchase price and is given a deed of
conveyance and a certificate of title, the title at least in equity, retroacts to the time he first occupied the land,
paid the first installment and was issued the corresponding certificate of sale. In other words, pending the
completion of the payment of the purchase price, the purchaser is entitled to all the benefits and advantages
which may accrue to the land as well as suffer the losses that may befall it. 3
That Pablo Fabian had paid five annual installments to the Government, and in fact been issued sale
certificate 547 in his name, are conceded. He was therefore the owner of lot 164 at the time of his death. He
left four daughters, namely, Esperanza, Benita I, Benita II and Silbina to whom all his rights and interest over
lot 164 passed upon his demise.
In case a holder of a certificate dies before the giving of the deed and does not leave a widow, then the
interest of the holder of the certificate shall descend and deed shall issue to the person who under the laws of
the Philippine Islands would have taken had the title been perfected before the death of the holder of the
certificate, upon proof of the holders thus entitled of compliance with all the requirements of the certificate. 4
The assignment and sale of the lot to the defendants. Silbina and Teodora were therefore null and void as to
that portion sold to Teodora, and as well as to that portion which lawfully devolved in favor of the appellants. To
the extent of the participation of the appellants, application must be made of the principle that if property is
acquired through fraud, the person obtaining it is considered a trustee of an implied trust for the benefit of the
person from whom the property comes (Gayondato vs. Insular Treasurer, 49 Phil. 244).
2. In Diaz, et al. vs. Gorricho, et al., 103 Phil. 264-265 (1958), this Court, speaking through Mr. Justice J.B.L.
Reyes, declared in no uncertain terms that laches may bar an action brought to enforce a constructive trust
such as the one in the case at bar. Illuminating are the following excerpts from the decision penned by Mr.
Justice Reyes:
Article 1456 of the new Civil Code, while not retroactive in character, merely expresses a rule already
recognized by our courts prior to the Code's promulgation (see Gayondato vs. Insular Treasurer, 49 Phil. 244).
Appellants are, however, in error in believing that like express trust, such constructive trusts may not be barred
by lapse of time. The American law on trusts has always maintained a distinction between express trusts

created by the intention of the parties, and the implied or constructive trusts that are exclusively created by
law, the latter not being trusts in their technical sense (Gayondato vs. Insular Treasurer, supra). The express
trusts disable the trustee from acquiring for his own benefit the property committed to his management or
custody, at least while he does not openly repudiate the trust, and makes such repudiation known to the
beneficiary or cestui que trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the
rules on adverse possession does not apply to "continuing and subsisting" (i.e., unrepudiated) trusts.
But in constructive trusts, . . . the rule is that laches constitutes a bar to actions to enforce the trust, and
repudiation is not required, unless there is a concealment of the facts giving rise to the trust (54 Am. Jur., secs.
580, 581; 65 C.J., secs. 956, 957; Amer. Law Institute, Restatement of Trusts, section 219; on Restitution,
section 179; Stianson vs. Stianson 6 ALR 287; Claridad vs. Benares, 97 Phil. 973.
The assignment of sale certificate 547 was effected on October 5, 1928; and the actual transfer of lot 164 was
made on the following November 14. It was only on July 8, 1960, 32 big years later, that the appellants for the
first time came forward with their claim to the land. The record does not reveal, and it is not seriously asserted,
that the appellees concealed the facts giving rise to the trust. Upon the contrary, paragraph 13 of the
stipulation of facts of the parties states with striking clarity "that defendants herein have been in possession of
the land in question since 1928 up to the present publicly and continuously under claim of ownership; they
have cultivated it, harvested and appropriated the fruits for themselves." (emphasis supplied.)
3. Six years later, in Gerona, et al. vs. De Guzman, et al., L-19060, May 29, 1964, the factual setting attending
which is substantially similar to that obtaining in the case at bar, this Court, in an excellently-phrased decision
penned by Chief Justice, then Associate Justice, Roberto Concepcion, unequivocally reaffirmed the rule,
overruling previous decisions to the contrary, that "an action for reconveyance of real property based upon a
constructive or implied trust, resulting from fraud, may be barred by the statute of limitations," and further that
"the action therefor may be filed within four years from the discovery of the fraud," the discovery in that case
being deemed to have taken place when new certificates of title were issued exclusively in the names of the
respondents therein. The following is what Justice Concepcion, speaking for the Court, said:
[A]lthough, as a general rule, an action for partition among co-heirs does not prescribe, this is true only as long
as the defendants do not hold the property in question under an adverse title (Cordova vs. Cordova, L-9936,
January 14, 1948). The statute of limitations operates, as in other cases, from the moment such adverse title
is asserted by the possessor of the property (Ramos v. Ramos, 45 Phil., 362; Bargayo v. Camumot, 40 Phil.,
857; Castro v. Echarri, 20 Phil., 23).
When respondents executed the aforementioned deed of extra-judicial settlement stating therein that they are
the sole heirs of the late Marcelo de Guzman, and secured new transfer certificates of title in their own name,
they thereby excluded the petitioners from the estate of the deceased, and consequently, set up a title adverse
to them. And this is why petitioners have brought this action for the annulment of said deed upon the ground
that the same is tainted with fraud.
Although, there are some decisions to the contrary (Jacinto v. Mendoza, L-12540, February 28, 1959; Cuison
v. Fernandez, L-11764, January 31, 1959; Marabiles v. Quito, L-10408, October 18, 1956 and Sevilla v. De los
Angeles, L-7745, November 18, 1955), it is already settled in this jurisdiction that an action for reconveyance
of real property based upon a constructive or implied trusts, resulting from fraud, may be barred by the statute
of limitations (Candelaria vs. Romero, L-12149, September 30, 1960; Alzona v. Capunita, L-10220, February
28, 1962).
Inasmuch as petitioners seek to annul the aforementioned deed of "extra-judicial settlement" upon the ground
of fraud in the execution thereof, the action therefor may be filed within four (4) years from the discovery of the
fraud (Mauricio v. Villanueva, L-11072, September 24, 1959). Such discovery is deemed to have taken place,
in the case at bar, on June 25, 1948, when said instrument was filed with the Register of Deeds and new
certificates of title in the name of the respondents exclusively, for the registration of the deed of extra-judicial
settlement constitutes constructive notice to the whole world (Diaz v. Gorricho, L-11229, March 29, 1958;
Avecilla v. Yatco, L-11578, May 14, 1958; J. M. Tuason & Co., Inc. v. Magdangal, L-15539, January 30, 1962;
Lopez v. Gonzaga, L-18788, January 31, 1964). (Emphasis supplied.)

Upon the undisputed facts in the case at bar, not only had laches set in when the appellants instituted their
action for, reconveyance in 1960, but as well their right to enforce the constructive trust had already
prescribed. 5
It logically follows from the above disquisition that acquisitive prescription has likewise operated to vest
absolute title in the appellees, pursuant to the provisions of section 41 of Act 190 that
Ten years actual adverse possession by any person claiming to be the owner for that time of any land or
interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or otherwise, in
whatever way such occupancy may have commenced or continued, 6shall vest in every actual occupant or
possessor of such land a full and complete title. . . . (Emphasis ours.)
The stringent mandate of said section 41 that "the possession by the claimant or by the person under or
through whom he claims must have been actual, open, public, continuous under a claim of title exclusive of
any other right and adverse to all other claimants," was adjudged by the lower court as having been fulfilled in
the case at hand. And we agree. Although paragraph 13 of the stipulation of facts hereinbefore adverted to
does not explicitly employ the word "adverse" to characterize the possession of the defendants from 1928 up
to the filing of the complaint in 1960, the words, "defendants have been in possession of the land since 1928
up to the present [1960] publicly and continuously under claim of ownership; they have cultivated it, harvested
and appropriated the fruits for themselves," clearly delineate, and can have no other logical meaning than,
the adverse character of the possession exercised by the appellees over the land. If the import of the
abovequoted portion of the stipulation of facts is at all doubted, such doubt is dispelled completely by
additional cumulative facts in the record which are uncontroverted. Thus, the appellees declared the lot for
taxation purposes in their names, and the resulting tax declaration was later concelled and two tax
declarations were issued in favor of Silbina Fabian and Teodora Fabian, respectively. They have been paying
the real estate taxes thereon from 1929 to the present. And in 1945 they subdivided the lot into two equal
parts, and two transfer certificates of title were issued separately in their names.
Upon the foregoing disquisition, we hold not only that the appellants' action to enforce the constructive trust
created in their favor has prescribed, but as well that a valid, full and complete title has vested in the appellees
by acquisitive prescription.1wph1.t
ACCORDINGLY, the judgment a quo, dismissing the complaint, is affirmed. No pronouncement as to costs.
G.R. No. L-22587

April 28, 1969

RUFINO BUENO, FILOMENA B. GUERRO, LUIS B. GUERRERO, BENJAMIN B. GUERRERO, VIOLETA B.

REYES-SAMONTE, FELICIDAD B. REYES-FONACIER, MERCEDES B. REYES, HONESTA B. REYESSARMIENTO, TEODORA B. REYES-DALUMPINES, MAMERTA B. REYES-MERCADO, ROSARIO B.
REYES-CONCEPCION, FEDERICO B. REYES and CONCEPCION B. REYES, plaintiffs-appellants,
vs.
MATEO H. REYES, and JUAN H. REYES defendants-appellees.
Rafael B. Ruiz and Benjamin B. Guerrero for plaintiffs-appellants.
Harold M. Hernando for defendants-appellees.
MAKALINTAL, J.:
In Civil Case No. 3636 of the Court of First Instance of Ilocos Norte, the plaintiffs' complaint was dismissed,
upon motion of the defendants, in an order dated July 29, 1963. The case is before us on appeal from the said
order of dismissal.
The antecedent facts are as follows: On January 7, 1936 Francisco H. Reyes filed an answer in Cadastral
Case No. 47 of Ilocos Norte, claiming lot No. 2857 of the Laoag Cadastre as property belonging to himself and
to his two brothers, Juan and Mateo. The case was heard without opposition, and the lot was adjudicated in

favor of the claimants on March 27, 1939, in whose names Original Certificate of Title No. 19074 was issued
on the following July 7.
Twenty-three years thereafter, or on December 12, 1962 to be exact, the plaintiffs filed the action below for
reconveyance of lot No. 2357. They allege in their complaint that the said lot originally belonged to Jorge
Bueno, who died leaving three children, namely, Brigida Bueno, Eugenia Bueno and Rufino Bueno, to whom
the property descended by intestate succession; that subsequently Brigida and Eugenia died, leaving their
respective children, who are now the plaintiffs-appellants together with Rufino Bueno; that Francisco H. Reyes
was Eugenia's husband and the father of the plaintiffs surnamed Reyes, "who agreement among the heirs of
Jorge Bueno was entrusted in filing the answer in the cadastral proceedings and in obtaining the title thereto
for and in behalf of all the heirs of Jorge Bueno, including his wife Eugenia Bueno." (Par. V of the complaint.)
The other pertinent allegations in the complaint read:

If any trust can be deduced at all from the foregoing facts it was an implied one, arising by operation of law not
from any presumed intention of the parties but to satisfy the demands of justice and equity and as a protection
against unfair dealing or downright fraud. Indeed, in this kind of implied trust, commonly denominated
constructive, as distinguished from resulting, trust, there exists a certain antagonism between the cestui
que trust and the trustee. Thus, for instance, under Article 1456 of the Civil Code, "if property is acquired
through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for
the benefit of the person from whom the property comes." In a number of cases this Court has held that
registration of property by one person in his name, whether by mistake or fraud, the real owner being another
person, impresses upon the title so acquired the character of a constructive trust for the real owner, which
would justify an action for reconveyance. 3
While there are some decisions which hold that an action upon a trust is imprescriptible, without distinguishing
between express and implied trusts, the better rule, as laid down by this Court in other decisions, is that
prescription does supervene where the trust is merely an implied one. 4 The reason has been expressed by
Justice J.B.L. Reyes in J.M. Tuason and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:

VI
That as agreed upon with said Francisco Reyes, said Francisco Reyes declared the said parcel of land abovedescribed in his name, and either in bad faith or by mistake filed an answer in the cadastral proceedings and
obtained title thereto in his name and those of brothers, Mateo and Juan, who connived and consented to the
malicious or erroneous acts of the late Francisco Reyes, knowing fully well that said parcel of land was never
owned by them and has never been in their possession, and knowing further that said parcel of land belonged
to, and possessed by the wife of Francisco Reyes in conjunction with her sister and brother, Brigida and
Rufino, respectively;
VII
That the fact that Francisco Reyes, Mateo Reyes and Juan Reyes are declared owners of the lot in suit by
virtue of Original Certificate of Title No. 19074 has only been discovered during this year when Mateo Reyes
and Juan Reyes, the defendants herein, including Francisco Reyes who was dead long ago, filed with this
Court a petition for the issuance of a writ of possession against a wrong person by the name of Mateo R.
Reyes, who now admittedly (sic) not the possessor of the lot but plaintiffs herein, and the plaintiffs have
demanded from the defendants the reconveyance and/or the quitclaiming of their undivided shares as
appearing in said Certificate of Title No. 19074 but then, they refused, and continue to refuge to do so;
The defendants Juan and Mateo Reyes 1 filed their answer, in which, they raised a number of defenses,
including laches, imprescriptibility of title, and prescription of action. This last defense was reiterated in a
subsequent motion to dismiss, which was upheld by the court a quo in the order already referred to and now
subject of this appeal.
Two errors are assigned by the appellants: (1) in the dismissal of the complaint on the ground of prescription;
and (2) in the dismissal of the complaint "even in relation to appellants surnamed Reyes, the children of
Francisco Reyes."
Both the appellees and the court below proceeded on the theory that the action for reconveyance was
predicated on the existence of an implied trust, and that such an action prescribes in 10 years. The appellants
counter, in this appeal, that the trust was not implied but express, and that in any case even an implied trust,
according to some decisions of this Court, is imprescriptible.
The first prong of the appellants' argument is untenable. What was apparently designed to be an express trust,
as alleged in paragraph V of the complaint, was for the late Francisco H. Reyes to file an answer in the
cadastral proceeding and to obtain title to the land for and in behalf of all the heirs of Jorge Bueno. 2 But such
express trust failed to materialize. In the next paragraph of the complaint Francisco H. Reyes is charged with
"either bad faith or mistake" in filing the cadastral answer and obtaining title to the property in his own name
and in the names of his two brothers, Juan and Mateo, "who connived and consented to the (said) malicious
or erroneous acts."

Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real property prescribed in 10
years, excepting only actions based on continuing or subsisting trusts that were considered by section 38 as
imprescriptible. As held in the case of Diaz v. Gorricho, L-11229, March 29, 1958, however, the continuing or
subsisting trusts contemplated in section 38 of the Code of Civil Procedure referred only to express
unrepudiated trusts, and did not include constructive trusts (that are imposed by law) where no fiduciary
relation exists and the trustee does not recognize the trust at all.
Upon the general proposition that an action for reconveyance such as the present is subject to prescription in
ten years the appellees and the court a quo are correct. The question here, however, is: from what time should
the prescriptive period be counted, in the light of the allegations in the complaint? It should be remembered
that the constructive trust arose by reason of the "bad faith or mistake" of the deceased Francisco H. Reyes,
compounded by the connivance of the appellees Juan and Mateo Reyes. Consequently, the cause of action
upon such trust must be deemed to have accrued only upon the discovery of such bad faith or mistake, or to
put it more specific upon the discovery by the appellants that Francisco H. Reyes, in violation of their
agreement with him, had obtained registration of the disputed property in his own name and in the names of
his brothers. It would not do to say that the cadastral proceeding itself, by virtue of its nature as a
proceeding in rem, was constructive notice to the appellants, for as far as they were concerned the cadastral
answer they had authorized Francisco H. Reyes to file was not adverse to them; and neither he nor the
appellees may invoke the constructive-notice rule on the basis of their own breach of the authority thus given.
On top of all this, it was the appellants and not the appellees who were in possession of the property as
owners, continuously up to 1962, when for the first time the latter appeared upon the scene and tried to get
such possession, thereby revealing to them the fact of the mistaken or fraudulent registration.
The foregoing, of course, are not facts already established by evidence. But they are alleged in the complaint
and therefore deemed hypothetically admitted for purposes of the motion to dismiss filed by the defendants. To
be sure, there are contradictory allegations of fact in the answer, but these are matters of defense that must be
sunbstantiated at the trial. At the very least the grounds upon which the order of dismissal is based do not
appear to us to be indubitable; and it would be more in keeping with justice to afford the plaintiffs as well as
the defendants the opportunity to lay their respective claims and defenses before the Court in a full-blown
litigation.
With this view we take of the case, it is unnecessary to take up the second error assigned.lawphi1.nt
WHEREFORE, the order appealed from is set aside and the case is remanded for further proceedings. No
costs.
G.R. No. L-25563 July 28, 1972
MARIANO TAMAYO, petitioner,
vs.
AURELIO CALLEJO and the HON. COURT OF APPEALS, respondents.

Marcelino T. Macaraeg for petitioner.

Hermogenes S. Decano for private respondent.

CONCEPCION, C.J.:p
This action, initiated in the Court of First Instance of Pangasinan, was brought by Aurelio Callejo, originally
against Mariano Tamayo only, and, later, against his brother Marcos Tamayo, also, for the reconveyance of the
northern portion of a parcel of land formerly covered by Original Certificate of Title No. 2612, in the names of
said brothers. In due course, said court dismissed the complaint, with costs against the plaintiff. The latter
appealed to the Court of Appeals which, in turn, rendered a decision the dispositive part of which reads:
IN VIEW WHEREOF, judgment must have to be as it is hereby, reversed, and the land in question claimed in
par. 2 of the original and amended complaint and graphically shown in Exh. Q in the name of appellant, is
declared reconveyed unto him, but the expenses of registration of this decision once it should have become
final, shall be at his, appellant's cost; no other pronouncement as to costs whether here, whether in Lower
Court; all other claims between appellant and appellee within their respective pleadings are hereby dismissed.
It appears that the spouses Vicente Tamayo and Cirila Velasco-Tamayo owned a parcel of land in the barrio of
Oalsic or Gualsic, between the municipalities of Alcala and Malasiqui, Pangasinan. Prior to February 1, 1912,
said spouses sold part of the northern portion of said land, with an area of 22,125-1/3 square meters, to
Fernando Domantay, who took possession thereof. Sometime after this sale, but before said date, Vicente
Tamayo died. His widow having waived her rights to the remaining portion of their original property in favor of
her children Mariano Tamayo and Marcos Tamayo, these brothers were, on February 1, 1912, declared, in
Civil Case No. 136 of the Court of First Instance of Pangasinan, sole heirs of the deceased. On September 29,
1913, Mariano Tamayo and Marcos Tamayo applied, in Cadastral Case No. 61, G.L.R.O. Record No. 10548 of
the same court, for the registration in their names, of a tract of land of about 383,509 square meters, alleging
that they had thus inherited the same from their deceased father.
After appropriate proceedings, judgment was rendered, directing the registration, in the name of Mariano
Tamayo; and Marcos Tamayo, of 205,421 square meters only of the land applied for, said applicants having
acknowledged that the remaining portion thereof belonged to the estate of Gregorio Flor Mata, deceased.
Upon the issuance of the corresponding decree thereafter, said OCT No. 2612 was, on November 15, 1915,
issued in favor of the brothers Mariano Tamayo and Marcos Tamayo. Not long after, or on August 22, 1918,
Fernando Domantay sold his above mentioned land of 22,125-1/3 square meters to Aurelio Callejo, who took
possession thereof since then. Subsequently, or on May 23, 1930, Marcos Tamayo sold his undivided share in
the property covered by OCT No. 2612 to his brother Mariano Tamayo, who, accordingly, obtained, on May 26,
1930, Transfer Certificate of Title No. 5486 in his name, in lieu of OCT No. 2612. Then, on February 24, 1940,
Mariano Tamayo sold 70,000 square meters, more or less, on the western portion of said property, to Proceso
Estacio, upon whose request surveyor Fidel Diaz went, sometime in June 1952, to the land covered by said
TCT No. 5486, for the purpose of preparing a subdivision plan and segregating the seven (7) hectares thus
conveyed by Mariano Tamayo, but Diaz did not accomplish his purpose, for he was not allowed by Callejo to
enter the portion held by the latter. What is more, Callejo asked Mariano Tamayo to cause to be excluded from
TCT No. 5486 the land held by the former, but the latter refused to do so. Hence, on June 16, 1952, Callejo
registered his adverse claim over said land, which claim was annotated in TCT No. 5486.
Then, on June 25, 1952, Callejo filed, with the Court of First Instance of Pangasinan, his present complaint, for
reconveyance and damages, against Mariano Tamayo. The complaint was later amended to include Marcos
Tamayo as one of the defendants, he having, meanwhile, reacquired his share in the land covered before by
OCT No. 2612, and then TCT No. 5486. Having failed to answer the amended complaint, defendant Marcos
Tamayo was declared in default, whereas defendant Mariano Tamayo filed his answer with counterclaim. His
main defense was that the land claimed by Callejo is outside the perimeter of the area covered by the
aforementioned certificates of title. In his amended answer, Mariano Tamayo pleaded, also, the statute of
limitations. After due trial, said court rendered a decision dismissing the complaint, upon the ground that the
land purchased by Fernando Domantay from the parent of Mariano and Marcos Tamayo is not included in said

titles. On appeal taken by plaintiff Callejo, this decision was reversed by the Court of Appeals, which found, as
a fact, that the land claimed by him is part of the land covered by the aforementioned certificates of title, and
overruled the plea of prescription set up by Mariano Tamayo, upon the theory that the title to said portion of
land now claimed by Callejo, and, before, by Fernando Domantay, is held in trust by the Tamayos and that the
action to enforce said trust does not prescribe. The case is now before Us on petition for review filed by
Mariano Tamayo. The petition was, at first denied by minute resolution, which was later reconsidered and the
petition given due course.
In his brief before this Court, Tamayo maintains that the Court of Appeals has erred: (1) "in not holding that the
respondent Aurelio Callejo's cause of action, if any, had already prescribed"; (2) "in holding that the petitioner's
failure to appeal from the decision that did not grant him affirmative relief on the matter of possession,
constitutedres adjudicata thereon"; (3) "in disregarding the judicial admission made by the respondent Callejo
and his counsel"; (4) "in making conclusions not supported by the facts on record"; and (5) "in not affirming the
decision rendered by the trial court."
Under his first assignment of error, Tamayo argues that if the erroneous inclusion in his certificate of title of the
parcel of land formerly sold by his parents to Fernando Domantay created, by operation of law, an implied
trust, the corresponding action for reconveyance of said parcel prescribed ten (10) years from the accrual of
the cause of action, on November 15, 1915, when OCT No. 2612 was issued, or long before the institution of
this case on June 25, 1952.
It should be noted, however, that although the trust created by the application for registration filed by Mariano
and Marcos Tamayo, on or about September 29, 1913, and the inclusion in OCT No. 2612, issued in their
names, on November 15, 1915, of the tract of land previously sold by their parents to Fernando Domantay
and later conveyed by him to Aurelio Callejo may have had a constructive or implied nature, its status was
substantiallyaffected on June 28, 1918, by the following facts, namely: On the date last mentioned, Fernando
Domantay and petitioner Mariano Tamayo the latter acting in his own behalf and on that of his brother
Marcos Tamayo executed the public instrument Exhibit I whereby Mariano Tamayo explicitly acknowledged
that his deceased parents, Vicente Tamayo and Cirila Velasco, had sold to Fernando Domantay, for the sum of
P200, the parcel of land of about 22,125-1/3 square meters, then held by the latter, and stipulating, inter alia,
that Fernando Domantay is the absolute owner of said land, free from any lien or encumbrance thereon, and
that, in view of the sale thus made by his parents, he (Mariano Tamayo) "quedo responsible al susodicho Don
Fernando Domantay, sus herederos y causa habientes por la propiedad, cuyo titulo me comprometo a
defender contra las reclamaciones ... de quienes las presentare." 1
This express recognition by Mariano Tamayo on his behalf and that of his brother Marcos Tamayo of the
previous sale, made by their parents, to Fernando Domantay had the effect of imparting to the aforementioned
trust the nature of an express trust it having been created by the will of the parties, "no particular words"
being "required for the creation of an express trust, it being sufficient that a trust is clearly intended" 2 which
express trust is a "continuing and subsisting" trust, not subject to the statute of limitations, at least, until
repudiated, in which event the period of prescription begins to run only from the time of the repudiation. 3 The
latter did not take place, in the case at bar, until early in June, 1952, when Mariano Tamayo rejected Aurelio
Callejo's demand that the now disputed portion be excluded from TCT No. 5486 in the former's name. But,
then, the case at bar was filed weeks later, or on June 25, 1952, when the period of prescription had barely
begun to run.
It is thus apparent that the Court of Appeals did not err in overruling the plea of prescription.
Under his second assignment of error, petitioner Tamayo maintains that "the Court of Appeals erred in holding
that the petitioner's failure to appeal from the decision that did not grant him affirmative relief on the matter of
possession, constituted res adjudicata thereon." This pretense is manifestly devoid of merit, for the Court of
Appeals had explicitly acknowledged Callejo's title over the disputed land and declared the same reconveyed
to him. This necessarily implied that Callejo is entitled to remain in possession of said land.
The third assignment of error impugns the following observations made in the decision of the Court of Appeals:

... it is true that appellees sought to show that it was outside of their titled land, and north of this, and is now
identified as Lot 12340 of the Malasiqui cadastre, and peculiarly enough, there is an answer in cross by
appellant himself that might indicate that he indeed admitted that this land in question is Lot 12340 of the
Malasiqui cadastre, tsn. 21, Abalos, but his counsel must have apparently discovered that this was an error, so
much so that even in Lower Court, in the memorandum that he filed, he contended that the questioned land
could not be Lot 12340, R.A., p.48, so that even were this testimony to be given the category of a judicial
admission, Rule 129, sec. 2 of the Revised Rules of Court, the same must have to give way to the truth if the
latter were shown to be otherwise from the evidence, because then it would have been shown to have been
due to palpable mistake, and let it be remembered that technical numerations of their lots very probably are
not known with exactness by lay witnesses; ... .

Q. That land north of the land described in your title TCT 5486 was later owned by Maximo Rico, is it not?

Petitioner maintains that "it has not been shown by clear evidence" that respondent Callejo had made the
admission in question "through palpable mistake"; and that Callejo's counsel and said appellate court had, in
turn, admitted the inexistence of evidence of such "palpable mistake."

A. Matias Lomibao bought that land from Felipe Novida and Matias Lomibao sold that land to Maximo Rico.
tsn. 36, Rollazo;

The Court of Appeals did not make the admission imputed thereto. Neither did it "disregard" the admission of
Callejo. The latter is to the effect that in cadastral case No. 92, Cadastral Record No. 1860, he had asserted
his claim to the "land in question" by filing an answer dated June 25, 1952 which refers to Lot No. 12340
of the cadastral survey. Callejo's counsel had, also, made a similar admission, in the trial court. Callejo did not
admit, however, that Lot No. 12340, is the property conveyed to Fernando Domantay his predecessor in
interest by the parents of Mariano and Marcos Tamayo. Needless to say, in the answer (Exhibits P and 1)
filed by him in said Case No. 92, on June 25, 1952, to which petitioner referred in connection with said
admission Callejo could not have legally claimed any portion of Lot No. 12341 covered by TCT No. 5486, in
the name of Mariano Tamayo for the very reason that the latter's right to the registration of this Lot 12341
had already been settled in the decision and decree upon which OCT No. 2612 from which said TCT No
5486 has been derived was based and such decision is no longer subject to review, although without
prejudice to the corresponding action for reconveyance, if proper. Hence, coetaneously with the filing of said
answer (Exhibits P and 1), Callejo had commenced the present action for reconveyance and damages.
Thus Callejo claimed both Lot No. 12340 and the northern portion of Lot No. 12341. Indeed, said answer
describes the southern boundary of said Lot No. 12340 as Lot No. "12341, Mariano Tamayo portion
claimed by Aurelio Callejo." Thus, Callejo alleged in said pleading that, aside from Lot No. 12340, he claimed,
also, a portion of the land included in Lot No. 12341. What is more, he alleged, in paragraph 5 of the
aforementioned answer, that he had acquired the said Lot No. 12340 by "purchase from Maximo Rico" not
from Fernando Domantay, his predecessor in interest with respect to his title to the northern portion of Lot No.
12341. And this is borne out by the very testimony of petitioner herein, who admitted that the property inherited
by him from his parents is bounded on the north by the land formerly belonging to said Maximo Rico, and,
more significantly, by the deed Exhibit I, in which petitioner acknowledged that the property sold by his parents
to Fernando Domantay is bounded "al norte, con el terreno de la propiedad de Maximo Rico." These
admissions by petitioner herein leave no room for doubt that Lot No. 12340 is not the property so conveyed to
Domantay and then assigned by the latter to Callejo.

A. Not only Maximo Rico, also Fernando Dumatay, tsn. 39. Rollazo.
which confirms the testimony of witness, Fernando Rico, son of Maximo:
Q. That land bought by your father from Matias Lomibao used to be the property of one Felipe Novida is that
right?

therefore, the portion bought by appellant in 1918 is persuasively shown by these details to be really that
northern portion within the former Tamayo land; it is true that appelles sought to show that it was outside of
their titled land, and north of this, and is now identified as Lot 12340 of the Malasiqui cadastre, and peculiarly
enough, there is an answer in cross by appellant himself that might indicate that he indeed admitted that this
land in question is Lot 12340 of the Malsiqui cadastre, t.s.n. 21, Abalos but his counsel must have apparently
discovered that this was an error, so much so that even in Lower Court, in the memorandum that he filed, he
contended that the questioned land could not be Lot 12340, R.A., p. 48, so that even were this testimony to be
given the category of a judicial admission, Rule 129, see. 2 of the Revised Rules of Court the same must have
to give way to the truth if the latter were shown to be otherwise from the evidence, because then it would have
been shown to have been due to a palpable mistake, and let it be remembered that technical numerations of
their lots very probably are not known with exactness by law witnesses; at any rate, and indeed, a further
examination of the proof would demonstrate that this Lot 12340 is not really the land that had been bought by
appellant from Fernando Dumatay, but is a land north of that; because:
1st This Lot 12340 is shown by the very Exh. 2 of defendants-appellees, to have been acquired by
appellant, not from Fernando Dumatay but from Maximo Rico, see par. 5 thereof;
2nd. The fact that appellant had bought a portion of said Maximo Rico's land north of the titled property that
is to say, north of Lot 12341, is admitted by appellee himself in cross.
Q. That land north of the land described in your title, TCT 5486 was later owned by Maximo Rico, is it not?
A. Not only Maximo Rico, also Fernando Dumatay.
Q. Who is the owner now of that land north of the land covered by TCT 5486?

The full text of the finding of the Court of Appeals of which the contested observations are but a part
reads:

A. It was sold to Aurelio Callejo, now the heirs of Aurelio Callejo and Fernando Dumatay. tsn. 39, Rollazo,
witness, Mariano Tamayo;

CONSIDERING: Therefore, that question of whether or not appellees' titled land had included appellant's
portion bought from Fernando Domantay, and since an examination of evidence would show that the said land
that bad been bought by appellant was bounded on the North by Maximo Rico and Moises Rosal, on the East
by Felomena Macaraeg, on the South by Mariano Tamayo and on the West by Maria Olea, see Exhs. F and I,
while the land that had been titled in the name of defendants was bounded on the North by Felipe Novida on
the NE by properties of Felomena Macaraeg and Santiago Tamayo, on the South by property of the estate of
Gregorio Flor Mata, on the West, by Macaro Creek and on the Northwest by the property of Felipe Novida, see
Exh. B, and since appellant's purchase referred only to a portion of the Tamayo land, the fact that it was
bounded on the south by Mariano Tamayo according to Exhs. E and I would support his claim that said portion
was really part, the northern part, of the original Tamayo land; the fact that the boundary on the north of the
land he purchased was Maximo Rico and Moises Rosal as shown in Exhs. F and I, in the light of the proven
fact that Maximo Rico was the successor in interest to that land toward the north, formerly of Felipe Novida
and this is admitted by appellee himself:

3rd This can only mean that Lot 12340, which is the Lot 12341, which is appellee's land had been
acquired by appellant Aurelio, not from Fernando Dumatay, but from Maximo Rico, successor in interest
of Felipe Novida the former boundary owner north of the titled land, as shown indeed in appellant's answer in
the cadastral case, Exh. 2, exhibited by appellees themselves;
4th Appellee's own exhibit 2, which is a verified copy of the plan in the Bureau of Lands of Lots 12340 and
12341, would indicate that Lot 12340 is as so testified by surveyor Diaz, outside of land surveyed in Plan 117384 which is the plan of the titled property; but on the other hand, surveyor Diaz it must be remembered. also
prepared and identified his own plan, Exh. Q which is sketch plan of 11-7384 Amd', and her it is graphically
seen that Lot A thereof, therein denominated as part of the land described in the plan 11-7384 Amd. is for
and in the name of, "Aurelio Callejo", so much so that it even indicates the position and location of Aurelio's
house.

None of the premises on which the foregoing finding is based has been assailed by petitioner herein. Hence,
the third assignment of error is clearly untenable.
Under petitioner's fourth assignment of error, it is urged that the conclusion of the Court of Appeals to the
effect that Lot No. 12340 was acquired by respondent Callejo from Maximo Rico "is not supported by
any direct testimonial evidence." This argument is in the nature of a negative pregnant. It does not deny the
existence ofindirect testimonial evidence, such as the circumstances pointed out in the above-quoted finding
of the Court of Appeals. Neither does it assail the existence of direct documentary evidence, such as
petitioner's aforementioned admission in Exhibit I. In short, it does not deny the existence of substantial
evidence in support of the contested, conclusion of fact of the Court of Appeals.
Apart from the foregoing, this assignment of error, like the third, tends to impugn the finding of the Court of
Appeals to the effect that the land sold by petitioner's parents to Domantay is within the perimeter of the
property covered by TCT No. 5486. This, however, is essentially a question of fact, and, consequently, the
finding to this effect is final and not subject to review in the present appeal on certiorari. 5 Indeed, its
determination would require an examination of all the evidence introduced before the trial court, a
consideration of the credibility of witnesses, and of the circumstances surrounding the case, and their
relevancy or relation to one another and to the whole, as well as an appraisal of the probabilities of the entire
situation. It would thus abolish the distinction between an ordinary appeal on the one hand, and a review
on certiorari, on the other, and thus defeat the purpose for which the latter procedure has been established. In
short, the issue raised in petitioner's third and fourth assignments of error is basically one of fact, not
reviewable by Us oncertiorari.
Under the last assignment of error, petitioner questions the right of Callejo to demand a reconveyance, insofar
as it may affect the portion of 70,000 square meters sold by him to Proceso Estacio, upon the ground that the
latter is a purchaser in good faith for value. This is, however, a defense not available to petitioner herein, aside
from the fact that he has not even pleaded it in the trial court or otherwise raised it either in that court or in the
Court of Appeals.
We note that the dispositive part of the decision of the Court of Appeals declares that the land in question is
"declared reconveyed" to said respondent. Such reconveyance cannot, however, be deemed made without a
survey defining with precision the metes and bounds of the area to be segregated for herein respondent,
Aurelio Callejo. Accordingly, the case should be remanded to the court of origin for the preparation of a
subdivision plan of the portion thus to be segregated and the judicial approval of such plan, and only after
such approval has become final and executory may the reconveyance be either made or deemed effected.
SO MODIFIED, the appealed decision of the Court of Appeals is hereby affirmed in all other respects, with the
costs of this instance against petitioner Mariano Tamayo. It is so ordered.
G.R. No. 140457

January 19, 2005

HEIRS OF MAXIMO SANJORJO, namely, VICENTE SANJORJO, MACARIA SANJORJO, DOMINGO

SANJORJO, ALFREDO CASTRO, and SPOUSES SANTOS AND LOLITA INOT, petitioners,
vs.
HEIRS OF MANUEL Y. QUIJANO, namely, ROSA Q. LEDESMA, MILAGROS Q. YULIONGSIU, ALAN P.
QUIJANO AND GWENDOLYN P. ENRIQUEZ, and VICENTE Z. GULBE, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the Decision 1 dated
February 17, 1999 of the Court of Appeals (CA) in CA-G.R. CV No. 50246 and its Resolution 2 dated October
12, 1999 denying the petitioners motion for reconsideration.

The Antecedents
On August 29, 1988, Free Patent No. VII-4-2974 was issued to Alan P. Quijano, married to Mila Matutina, over
a parcel of land located in Antipolo, Medellin, Cebu, with an area of 14,197 square meters identified as Lot
374, Cadastre 374-D. Based on the said patent, Original Certificate of Title (OCT) No. OP-38221 was issued
by the Register of Deeds to and in the name of Alan P. Quijano on September 6, 1988. 3 On November 11,
1988, Free Patent No. VII-4-3088 was issued to and in favor of Gwendolyn Q. Enriquez, married to Eugenio
G. Enriquez, over a parcel of land located in Antipolo, Medellin, Cebu, identified as Lot 379, Cadastre 374-D,
with an area of 6,640 square meters. Based on the said patent, OCT No. OP-39847 was issued in her favor on
February 11, 1989.4
In the meantime, Gwendolyn Enriquez filed an application for a free patent over Lot 376 of Cadastre 374-D
with the Department of Environment and Natural Resources (DENR). The application was docketed as Free
Patent Application (F.P.A.) No. VII-4-3152. She also filed an application for a free patent over Lot 378,
docketed as F.P.A. No. VII-4-3152-A. However, the heirs of Guillermo Sanjorjo, namely, Tranquilina, Pablo,
Boir, Erlinda, Josefina, Maria, Maximo, Isabel, Jose, Dario, Vicente, Noel, Albina, Ramon, Domingo, Adriano
and Celedonia, all surnamed Sanjorjo, filed a protest/complaint with the DENR on May 22, 1991, praying for
the cancellation of Free Patent No. VII-4-2974, as well as Free Patent No. VII-4-3088, and for the dismissal of
the free patent applications over Lots 376 and 378. 5 The complaint was docketed as PENRO Claim No. PN
072231-4, and was assigned to the Regional Executive Director for hearing and decision.
The protestants/claimants alleged that the said parcels of land were originally owned by Ananias Ursal but
were exchanged for a parcel of land located in San Remegio, Cebu, owned by their predecessor, Guillermo
Sanjorjo, married to Maria Ursal, and from whom they inherited the property. They prayed that:
WHEREFORE, premises considered and after hearing on the merits, it is most respectfully prayed of this most
Honorable Office to render judgment ordering:
1. The cancellation of Free Patent Titles Nos. VII-4-2974 and VII-4-3088 issued to respondents Alan P.
Quijano and Gwendolyn Quijano Enriquez concerning Lot Nos. 374 and 379, respectively.
2. The cancellation of Free Patent Application Nos. VII-4-3152, VII-4-3152-A, and VII-1-18277-I of respondents
concerning Lot Nos. 376 and 378.
3. The return of possession and ownership of these lots to the complainants/protestants who are the rightful
owners by inheritance.
Protestants further pray for other relief, just and equitable, under the premises. 6
During the pre-trial conference of August 2, 1991, the protestants/claimants manifested that they were
withdrawing their protest/complaint. Thus, on April 14, 1992, the Regional Executive Director rendered a
decision7giving due course to the applications. However, he ruled that the free patents over Lots 374 and 379
could no longer be disturbed since the complaint for the cancellation was filed more than one year from their
issuance. The dispositive portion of the decision reads:
WHEREFORE, it is hereby ordered that the above-entitled administrative case be dismissed and dropped
from the records. It is further ordered that the Free Patent Application of applicants-respondents over Lot Nos.
376 and 378 be given due course for being in the actual adverse and continuous possession of the land in
controversy. Patent/Titles already issued and entered in the Registry Book in favor of applicants-respondents
on Lot Nos. 374 and 379 in 1988 and 1989 need not be disturbed anymore, for failure to show evidence of
actual fraud in the procurement of such titles. 8
On September 13, 1993, Vicente Sanjorjo, the heirs of Maximo Sanjorjo, namely, Macaria Sanjorjo, Domingo
Sanjorjo, Alfredo Castro, and the Spouses Santos and Lolita Inot, herein petitioners, filed a complaint for
cancellation of titles under tax declarations and reconveyance of possession of real property covering Lots

374, 376, 378 and 379 located in Medellin, Cebu, against the private respondents, the heirs of Manuel
Quijano, namely, Rosa Q. Ledesma, Milagros Q. Yuliongsiu, Alan P. Quijano and Gwendolyn P. Enriquez, and
Vicente Gulbe. The petitioners did not implead the rest of the heirs of Guillermo Sanjorjo, including his
daughter Tranquilina Sanjorjo, as parties-plaintiffs, and alleged, inter alia
3. That the plaintiffs are the owners of several parcels of land in Antipolo, Medellin, Cebu, which are more
particularly described as follows:

8. That sometime in September 1991, the defendant ALAN QUIJANO charged plaintiff ALFREDO CASTRO
with QUALIFIED THEFT for allegedly having stolen the coconuts on the properties in question. Subsequently,
the Municipal Court of Medellin acquitted CASTRO on the ground that he was the real owner of the lot. It was
only on that time that plaintiffs discovered that defendants had already titled their lots. Furthermore, in 1992,
the herein plaintiffs were sued by the defendants for Quieting of Title, which case they subsequently withdrew.
This case made the plaintiffs realize that all their properties had already been titled in defendants names;

(a) Lot No. 374 with an area of 14,179 sq.m. and covered by Tax Declaration No. 00718 in the name of
PONCIANO DEMIAR and Tax Declaration No. 01042 in the name of TRANQUILINA SANJORJO;

9. That, at present, defendants have leased these lots to a certain VICENTE GULBE, who is named as a
defendant in this case. Plaintiffs also demanded from defendant GULBE the return of their possession over
these lots but to no avail. The Certification to File Action from the barangay captain of Antipolo, Medellin,
Cebu, is hereto attached and marked as Annex "J" and made an integral part of this complaint;

(b) Lot No. 376 with an area of 6,177 sq.m. and covered by Tax Declaration No. 01038 in the name of MAURO
SANJORJO;

10. That upon their discovery of defendants fraudulent acts, plaintiffs demanded the return of their properties
but the defendants have failed and refused and continue to fail and refuse to do so. 9

(c) Lot No. 378 with an area of 3,201 sq.m. and covered by Tax Declaration No. 01035 in the name of
FLORENTINO SANJORJO;

The petitioners prayed that, after due proceedings, judgment be rendered in their favor:

(d) Lot No. 379 with an area of 6,640 sq.m. and covered by Tax Declaration No. 00772 in the name of
SANTOS INOT and Tax Declaration No. 01039 in the name of SABINIANO SANJORJO;
The said Tax Declarations are hereto attached and marked as Annexes "A," "B," "C," "D," "E" and "F,"
respectively, and made integral parts of this complaint;

(a) Ordering the cancellation of OCT Nos. OP-38221 and OP-39847 and Tax Declaration No. 10015;
(b) Ordering the defendants to pay rentals to the plaintiffs in the amount of P4,500.00 per year from 1983 up to
the time the properties are returned to the plaintiffs; and
(c) Ordering the defendants to pay the plaintiffs moral damages in the amount of not less than P20,000.00.

4. That the aforestated lots originally belonged to the late MAXIMO SANJORJO who died during World War II.
His children MAURO, FLORENTINO, SABINIANO, TRANQUILINA and RAYMUNDA, all surnamed
SANJORJO, inherited the said properties. They have also passed away and the plaintiffs, who are the children
of MAXIMO SANJORJOs children are now the rightful heirs of the aforementioned parcels of land;
5. That sometime in 1983, the parcels of land in question were leased to MANUEL QUIJANO for a two (2) year
period at the rate of P4,500.00 per year. However, the lease was never paid for nor was possession of the said
properties ever returned to the plaintiffs, despite repeated demands on QUIJANO to return the same;
6. That MANUEL QUIJANO died in 1987 and the herein defendants, the heirs of MANUEL QUIJANO, divided
among themselves the land belonging to the plaintiffs. Titles and Tax Declarations were then issued on the
said lots in the name of the defendants, as follows:
(a) Lot No. 374 is now covered by OCT No. OP-38221 in the name of defendant ALAN P. QUIJANO. A copy of
the title is hereto attached and marked as Annex "G" and made an integral part of this complaint;
(b) Lot No. 376 is now covered by Tax Declaration No. 10015 in the name of MANUEL Y. QUIJANO married to
FLAVIANA P. QUIJANO. A copy of the said tax declaration is hereto attached and marked as Annex "H" and
made an integral part of this complaint;
(c) Lot No. 379 is now covered by OCT No. OP-39847 in the name of GWENDOLYN Q. ENRIQUEZ. A copy of
the title is hereto attached and marked as Annex "I" and made an integral part of this complaint;
7. That the plaintiffs nor their ascendants have never sold, donated, or mortgaged any of these lots in question
to the defendants or their ascendants;

Plaintiffs further pray for such other relief and remedies as this Court may deem just and equitable under the
premises.10
The private respondents filed a motion to dismiss the complaint on the ground of res judicata based on the
decision of the Regional Executive Director on April 14, 1992. They maintained that the decision of the
Regional Executive Director had become final and executory and, as such, barred the petitioners action.
The petitioners opposed the motion. In their reply to such opposition, the private respondents invoked another
ground that the petitioners action was barred by the issuance of OCT No. OP-38221 covering Lot 374 on
August 29, 1988, and OCT No. OP-39847 covering Lot 379 on November 11, 1988.
On September 13, 1994, the trial court issued an Order dismissing the complaint on the ground of res judicata.
The petitioners appealed the order to the CA.
We note that the petitioners limited the issues to the two titled lots, Lots 374 and 379, arguing that there can
be no res judicata in this case because one of its elements, i.e., that the former judgment is a judgment on the
merits, was lacking. The petitioners did not assail the trial courts order dismissing the complaint insofar as
Lots 376 and 378 are concerned. Moreover, according to the petitioners, the April 14, 1992 Decision of the
Regional Executive Director was not a decision on the merits of the complaint, as they had yet to prove their
allegation of fraud as regards the said lots.
In its Decision promulgated on February 17, 1999, the appellate court affirmed the assailed order of the trial
court, albeit for a different reason, i.e., prescription. Citing Section 32 of Presidential Decree No. 1529, 11 it held
that the OCTs issued to the respondents on the basis of their respective free patents became as indefeasible
as one which was judicially secured upon the expiration of one year from the date of the issuance of the
patent. The CA did not deem it necessary to rule on the issue of res judicata since it dismissed the case on the
ground of prescription.12
When their motion for reconsideration of the said decision of the CA was denied, 13 the petitioners filed the
instant petition for review, contending that:

THE HONORABLE COURT OF APPEALS (THIRD DIVISION) GRAVELY ERRED IN AFFIRMING THE
DECISION OF THE REGIONAL TRIAL COURT, BRANCH 13, CEBU CITY, DATED SEPTEMBER 13, 1994.
PETITIONERS BEG THAT THIS PETITION BE GIVEN DUE COURSE IN THE INTEREST OF SUBSTANTIAL
JUSTICE, [SINCE] THE DECISION OF THE COURT OF APPEALS, IF NOT CORRECTED, WOULD CAUSE
IRREPARABLE INJURY TO THE PREJUDICE OF HEREIN PETITIONERS WHO ARE THE REAL OWNERS
OF THE LOTS IN QUESTION.14
The petitioners maintain that the appellate court erred in holding that their action in Civil Case No. CEB 14580
was barred by the Decision dated April 14, 1992 of the DENR Regional Executive Director. They contend that
the latter decision is not a decision on its merits so as to bar their complaint.
We agree.
The elements of res judicata are the following: (1) the previous judgment has become final; (2) the prior
judgment was rendered by a court having jurisdiction over the subject matter and the parties; (3) the first
judgment was made on the merits; and (4) there was substantial identity of parties, subject matter and causes
of action, as between the prior and subsequent actions. 15
A judgment on the merits is one rendered after argument and investigation, and when there is determination
which party is right, as distinguished from a judgment rendered upon some preliminary or formal or merely
technical point, or by default and without trial. 16
As gleaned from the decision of the DENR Regional Executive Director, he dismissed the petitioners
complaint for the cancellation of Free Patent Nos. VII-4-2974 and VII-4-3088 on the ground that it was filed
only on May 22, 1991, more than three years from the issuance of the said patents on August 29, 1988 and
November 11, 1988, respectively. In the said decision, the Regional Executive Director declared that after the
lapse of one year from the issuance of patent and registry thereof in the Registry Book of the Register of
Deeds, Cebu Province, only the regular courts of justice have jurisdiction on the matter of cancellation of
title.17 The petitioners agreed with the Regional Executive Director and withdrew their complaint, opting to file
an appropriate action in court for the nullification of the said patents and titles. Hence, the decision of the
Regional Executive Director was not a decision on the merits of the petitioners complaint.
On the second issue, we agree with the petitioners that their action against the private respondents for the
reconveyance of Lots 374 and 379, covered by OCT No. OP-38221 issued on September 6, 1988 and OCT
No. OP-39847 issued on February 11, 1989, respectively, was not barred by Section 32 of P.D. No. 1529,
which reads:
SEC. 32. Review of decree of registration; Innocent purchaser for value. The decree of registration shall not
be reopened or revised by reason of absence, minority, or other disability of any person adversely affected
thereby, nor by any proceeding in any court for reversing judgments, subject, however, to the right of any
person, including the government and the branches thereof, deprived of land or of any estate or interest
therein by such adjudication or confirmation of title obtained by actual fraud, to file in the proper Court of First
Instance a petition for reopening and review of the decree of registration not later than one year from and after
the date of the entry of such decree of registration, but in no case shall such petition be entertained by the
court where an innocent purchaser for value has acquired the land or an interest therein, whose rights may be
prejudiced. Whenever the phrase "innocent purchaser for value" or any equivalent phrase occurs in this
Decree, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for value. 18
We agree with the ruling of the CA that the torrens title issued on the basis of the free patents became as
indefeasible as one which was judicially secured upon the expiration of one year from date of issuance of the
patent.19 The order or decision of the DENR granting an application for a free patent can be reviewed only
within one year thereafter, on the ground of actual fraud via a petition for review in the Regional Trial Court
(RTC) provided that no innocent purchaser for value has acquired the property or any interest thereon.
However, an aggrieved party may still file an action for reconveyance based on implied or constructive trust,
which prescribes in ten years from the date of the issuance of the Certificate of Title over the property provided
that the property has not been acquired by an innocent purchaser for value. Thus:

The basic rule is that after the lapse of one (1) year, a decree of registration is no longer open to review or
attack although its issuance is attended with actual fraud. This does not mean, however, that the aggrieved
party is without a remedy at law. If the property has not yet passed to an innocent purchaser for value, an
action for reconveyance is still available. The decree becomes incontrovertible and can no longer be reviewed
after one (1) year from the date of the decree so that the only remedy of the landowner whose property has
been wrongfully or erroneously registered in anothers name is to bring an ordinary action in court for
reconveyance, which is an action in personam and is always available as long as the property has not passed
to an innocent third party for value. If the property has passed into the hands of an innocent purchaser for
value, the remedy is an action for damages. In this case, the disputed property is still registered in the name of
respondent Demetrio Caringal, so that petitioner was correct in availing himself of the procedural remedy of
reconveyance.20
An action for reconveyance is one that seeks to transfer property, wrongfully registered by another, to its
rightful and legal owner.21 All that must be alleged in the complaint are two (2) facts which, admitting them to
be true, would entitle the plaintiff to recover title to the disputed land, namely, (1) that the plaintiff was the
owner of the land and, (2) that the defendant had illegally dispossessed him of the same. 22 The body of the
pleading or complaint determines the nature of an action, not its title or heading. 23 In their complaint, the
petitioners clearly asserted that their predecessors-in-interest have long been the absolute and exclusive
owners of the lots in question and that they were fraudulently deprived of ownership thereof when the private
respondents obtained free patents and certificates of title in their names. 24 These allegations certainly
measure up to the requisite statement of facts to constitute an action for reconveyance.
Article 1456 of the New Civil Code provides that a person acquiring property through fraud becomes by
operation of law a trustee of an implied trust for the benefit of the real owner of the property. The presence of
fraud in this case created an implied trust in favor of the petitioners, giving them the right to seek
reconveyance of the property from the private respondents. However, because of the trial courts dismissal
order adverted to above, the petitioners have been unable to prove their charges of fraud and
misrepresentation.
The petitioners action for reconveyance may not be said to have prescribed, for, basing the present action on
implied trust, the prescriptive period is ten years. 25 The questioned titles were obtained on August 29, 1988
and November 11, 1988, in OCT Nos. OP-38221 and OP-39847, respectively. The petitioners commenced
their action for reconveyance on September 13, 1993. Since the petitioners cause of action is based on fraud,
deemed to have taken place when the certificates of title were issued, 26 the complaint filed on September 13,
1993 is, therefore, well within the prescriptive period.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of
Appeals is MODIFIED. Accordingly, the Regional Trial Court of Cebu City, Branch 13, is DIRECTED to
reinstate the complaint insofar as Lots 374 and 379 are concerned. No costs.
SO ORDERED.
[G.R. No. 144773. May 16, 2005]
AZNAR BROTHERS REALTY COMPANY, petitioner, vs. LAURENCIO AYING, IN HIS OWN BEHALF AND
IN BEHALF OF THE OTHER HEIRS OF EMILIANO AYING, PAULINO AYING, IN HIS OWN BEHALF AND
IN BEHALF OF THE OTHER HEIRS OF SIMEON AYING, AND WENCESLAO SUMALINOG, IN HIS OWN
BEHALF AND IN BEHALF OF THE OTHER HEIRS OF ROBERTA AYING, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the petition for review on certiorari seeking the modification of the Decision[1] of the Court of
Appeals (CA) dated March 7, 2000 which affirmed with modification the Decision of the Regional Trial Court

(RTC) of Lapu-Lapu City, Branch 27 in Civil Case No. 2930-L; and the Resolution dated August 2, 2000
denying petitioners motion for reconsideration of the aforementioned decision.
The antecedent facts are as follows:
The disputed property is Lot No. 4399 with an area of 34,325 square meters located at Dapdap, Lapu-Lapu
City. Crisanta Maloloy-on petitioned for the issuance of a cadastral decree in her favor over said parcel of
land. After her death in 1930, the Cadastral Court issued a Decision directing the issuance of a decree in the
name of Crisanta Maloloy-ons eight children, namely: Juan, Celedonio, Emiliano, Francisco, Simeon,
Bernabe, Roberta and Fausta, all surnamed Aying. The certificate of title was, however, lost during the war.
Subsequently, all the heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed
of Absolute Sale dated March 3, 1964, conveying the subject parcel of land to herein petitioner Aznar Brothers
Realty Company. Said deed was registered with the Register of Deeds of Lapu-Lapu City on March 6, 1964
under Act No. 3344 (the law governing registration for unregistered land), and since then, petitioner had been
religiously paying real property taxes on said property.
In 1988, herein petitioner filed a Petition for Reconstitution of the Original Title as the original title over the
subject property had been lost during the war. On April 12, 1988, the court granted said petition, thereby
directing the Register of Deeds of Lapu-Lapu City to issue a reconstituted title in the name of the
abovementioned Aying siblings. Thus, Original Certificate of Title (OCT) No. RO-2856 was issued.
In 1991, petitioner, claiming to be the rightful owner of the subject property, sent out notices to vacate,
addressed to persons occupying the property. Unheeded, petitioner then filed a complaint for ejectment
against the occupants before the Metropolitan Trial Court (MTC), Lapu-Lapu City.
On February 1, 1994, the MTC ordered the occupants to vacate the property. The case eventually reached
this Court, docketed as G.R. No. 128102, entitled Aznar Brothers Realty Company vs. Court of Appeals, Luis
Aying, Demetrio Sida, Felomino Augusto, Federico Abing, and Romeo Augusto.[2] On March 7, 2000, a
Decision was promulgated in favor of herein petitioner, declaring it as the rightful possessor of the parcel of
land in question.
Meanwhile, herein respondents, along with other persons claiming to be descendants of the eight Aying
siblings, all in all numbering around 220 persons, had filed a complaint for cancellation of the Extra-Judicial
Partition with Absolute Sale, recovery of ownership, injunction and damages with the RTC of Lapu-Lapu City.
The complaint was dismissed twice without prejudice. Said complaint was re-filed on August 19, 1993,
docketed as Civil Case No. 2930-L.
In their amended complaint, herein respondents (plaintiffs before the RTC) alleged that: they are co-owners of
subject property, being descendants of the registered owners thereof under OCT No. RO-2856; they had been
in actual, peaceful, physical, open, adverse, continuous and uninterrupted possession in concept of owner of
subject parcel of land since time immemorial; their possession was disturbed only in the last quarter of 1991
when some of them received notices to vacate from petitioner and several weeks thereafter, earthmoving
equipment entered the disputed land, bulldozing the same and destroying plants, trees and concrete
monuments (mohon); respondents discovered that such activities were being undertaken by petitioner
together with Sta. Lucia Realty and Development, Inc.; petitioner claimed to be the owner of subject property
by virtue of an extra-judicial partition of real estate with deed of absolute sale executed in petitioners favor by
the alleged heirs of Crisanta Maloloy-on; the aforementioned extra-judicial partition of real estate with deed of
absolute sale is a fraud and is null and void ab initio because not all the co-owners of subject property affixed
their signature on said document and some of the co-owners who supposedly signed said document had been
dead at the time of the execution thereof; petitioner entered subject land in bad faith, knowing fully well that it
did not have any right to the land and used force, threat and intimidation against respondents; and they
suffered moral damages.[3]
Petitioner (defendant before the RTC) filed its Answer, denying that respondents are the lawful owners of
subject parcel of land by virtue of their being descendants or heirs of the registered owners of subject
property. Instead, petitioner alleged that it had been in actual possession of subject land as owner thereof by

virtue of the extra-judicial partition of real property and deed of absolute sale executed in its favor; that in fact,
it had been paying taxes thereon religiously; that it tolerated about 6 persons to live on said land but said
persons were eventually ejected by court order. Petitioner then raised the affirmative defenses of failure to
state cause of action and prescription, as it took respondents 27 years, 10 months and 27 days to file the
action to recover subject property, when an action to recover property based on an implied trust should be
instituted within 4 years from discovery of the fraud.[4]
In the Pre-Trial Order dated January 30, 1995 of the RTC, the issues were narrowed down to the following:
1.
4399.

Whether or not the plaintiffs [herein respondents] are the heirs of the registered owners of Lot No.

2.

Whether or not plaintiffs are the owners of Lot No. 4399.

3.
4399.

Whether or not the defendant Aznar [herein petitioner] is estopped to make any claim on Lot No.

4.

Whether or not the defendant Aznar is a builder in bad faith.

5.

Whether or not the defendants are liable for damages and attorneys fees in favor of the plaintiffs.

6.
Whether or not the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is valid and
had, in effect, validly conveyed to defendant Aznar Lot No. 4399.
7.

Whether or not the plaintiffs action has prescribed.[5]

After trial, the RTC rendered a Decision dated July 4, 1997, ruling that respondents evidence failed to prove
that the extra-judicial partition with deed of absolute sale was a totally simulated or fictitious contract and
concluded that said document is valid, thus, effectively conveying to petitioner the property in question. It
further held that respondents action had prescribed in that the action is considered as one for reconveyance
based on implied or constructive trust, it prescribed in 10 years from the registration of the deed on March 6,
1964; and if the action is considered as one for annulment of contract on the ground of fraud, it should have
been filed within 4 years from discovery of the fraud. The trial court also ruled that respondents failed to
present any admissible proof of filiation, hence, they were not able to prove that they are indeed heirs of the
eight Aying siblings who appear as the registered owners under OCT No. RO-2856.
The dispositive portion of the RTC Decision reads as follows:
WHEREFORE, judgment is hereby rendered dismissing the amended complaint on the ground of prescription,
and declaring the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale dated March 3, 1964 as
valid and binding, adjudging that Lot 4399 with an area of 34,325 square meters located at Dapdap, Mactan,
Lapu-Lapu City had been validly conveyed to and in favor of Aznar Brothers Realty Company, and directing
the Register of Deeds of Lapu-Lapu City to register the above-mentioned deed in accordance with law and to
cancel Original Certificate of Title No. RO-2856, and to issue a transfer certificate of title in the name of Aznar
Brothers Realty Company upon payment of the necessary registration fees pursuant thereto.
The Writ of Preliminary Injunction issued in this case is hereby ordered dissolved.
The Motion for Contempt filed by the plaintiffs against defendants is dismissed for want of factual and legal
basis.
Costs against the plaintiffs.

SO ORDERED.[6]
Herein respondents appealed the foregoing decision to the CA and on March 7, 2000, said court promulgated
its Decision, the dispositive portion of which is reproduced hereunder:
THE FOREGOING CONSIDERED, the contested Decision while AFFIRMED is hereby MODIFIED. The heirs
of Emiliano Aying, Simeon Aying and Roberta Aying are hereby declared as the lawful owners of the contested
property but equivalent only to 3/8.

At the outset, it should be stressed that not all the plaintiffs who filed the amended complaint before the trial
court had been impleaded as respondents in the present petition. The only parties impleaded are the heirs of
Emiliano, Simeon and Roberta Aying, whom the CA adjudged as owners of a 3/8 portion of the land in dispute
for not having participated in the execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute
Sale.
It is significant to note that herein petitioner does not question the CA conclusion that respondents are heirs of
the aforementioned three Aying siblings. Hence, the trial court and appellate courts findings that the ExtraJudicial Partition of Real Estate with Deed of Absolute Sale was not forged nor simulated and that the heirs of
Emiliano, Simeon and Roberta Aying did not participate in the execution thereof, are now beyond cavil.

SO ORDERED.
In modifying the RTC judgment, the CA ratiocinated that an action for recovery of possession of registered
land never prescribes in view of the provision of Section 44, Act No. 496 (now Sec. 47, PD 1520), to the effect
that no title to registered land in derogation to that of a registered owner shall be acquired by prescription.
The CA further ruled that even if the action is deemed to be based on implied trust, prescription did not begin
to run since there is no evidence that positive acts of repudiation were made known to the heirs who did not
participate in the execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. Thus,
striking down the RTCs ruling that the respondents complaint is dismissible on the ground of prescription, the
CA held instead that herein respondents action had not prescribed but upheld the validity of the Extra-Judicial
Partition of Real Estate with Deed of Absolute Sale, except as to the shares of the heirs of Emiliano, Simeon
and Roberta, who did not participate in the execution of said document.
Herein petitioners motion for reconsideration of the CA decision was denied per Resolution dated August 2,
2000.

The issues raised by petitioner for the Courts resolution are (1) whether or not respondents cause of action is
imprescriptible; and (2) if their right to bring action is indeed imprescriptible, may the principle of laches apply.
Respondents alleged in their amended complaint that not all the co-owners of the land in question signed or
executed the document conveying ownership thereof to petitioner and made the conclusion that said
document is null and void. We agree with the ruling of the RTC and the CA that the Extra-Judicial Partition of
Real Estate with Deed of Absolute Sale is valid and binding only as to the heirs who participated in the
execution thereof, hence, the heirs of Emiliano, Simeon and Roberta Aying, who undisputedly did not
participate therein, cannot be bound by said document.
However, the facts on record show that petitioner acquired the entire parcel of land with the mistaken belief
that all the heirs have executed the subject document. Thus, the trial court is correct that the provision of law
applicable to this case is Article 1456 of the Civil Code which states:

Hence, the present petition for review on certiorari assailing the CA decision on the following grounds:

ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.

In Vda. De Esconde vs. Court of Appeals,[8] the Court expounded thus:

THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE RULE THAT AN HEIR OF THE ORIGINAL
REGISTERED OWNER MAY LOSE HIS RIGHT TO RECOVER A TITLED PROPERTY BY REASON OF
LACHES;

Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court stated:

THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE RULE THAT THE ACT OF REGISTRATION
OF THE DEED OF PARTITION WITH SALE MAY BE CONSIDERED AN UNEQUIVOCAL REPUDIATION OF
THE TRUST GIVING RISE TO PRESCRIPTION;

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust,
confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui
que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive
trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express
trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is
neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor
intends holding the property for the beneficiary.[9]

III

The concept of constructive trusts was further elucidated in the same case, as follows:

THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE PROVISIONS OF ARTICLE 1104 OF THE
CIVIL CODE TO THE EFFECT THAT IN THE ABSENCE OF BAD FAITH OR FRAUD, THE PARTITION WITH
PRETERITION OF ANY COMPULSORY HEIR SHALL NOT BE RESCINDED. [7]

. . . implied trusts are those which, without being expressed, are deducible from the nature of the transaction
as matters of intent or which are superinduced on the transaction by operation of law as matters of equity,
independently of the particular intention of the parties. In turn, implied trusts are either resulting or
constructive trusts. These two are differentiated from each other as follows:

II

In their Comment, respondents argue that this case is an action to declare as null and void the Extra-Judicial
Partition of Real Estate with Deed of Absolute Sale, hence, under Article 1410 of the Civil Code, an action for
declaration of an inexistent contract does not prescribe. Respondents further posit that the principle of laches
should be applied against petitioner and not against them, as they (respondents) had been in actual
possession of the subject property, while petitioner merely brought action to eject them more than 29 years
after the alleged execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. They also
refuted petitioners arguments regarding the application of the principles of implied and constructive trusts in
this case.

Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines
the equitable title or interest and are presumed always to have been contemplated by the parties. They arise
from the nature of circumstances of the consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On
the other hand, constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention against one who,
by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought
not, in equity and good conscience, to hold. [10] (Emphasis supplied)

Based on such concept of constructive trusts, the Court ruled in said case that:
The rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and
unless he repudiates the trust, applies to express trusts and resulting implied trusts. However,
in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the
relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the
prescriptive period.[11]
The next question is, what is the applicable prescriptive period?
In Amerol vs. Bagumbaran,[12] the Court expounded on the prescriptive period within which to bring an action
for reconveyance of property based on implied or constructive trust, to wit:
. . . under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the
law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the title thereto in
favor of the true owner. In this context, and vis--vis prescription, Article 1144 of the Civil Code is applicable.
Article 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
xxx

xxx

xxx

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and
not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule.
Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructive trust
prescribes in ten years from the issuance of the Torrens title over the property.[13]
It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the
deed or the date of the issuance of the certificate of title over the property, but if the person claiming to be the
owner thereof is in actual possession of the property, the right to seek reconveyance, which in effect seeks to
quiet title to the property, does not prescribe. [14]
In the present case, respondents Wenceslao Sumalinog, an heir of Roberta Aying; Laurencio Aying, an heir of
Emiliano Aying; and Paulino Aying, an heir of Simeon Aying, all testified that they had never occupied or been
in possession of the land in dispute. [15] Hence, the prescriptive period of ten years would apply to herein
respondents.
The question then arises as to the date from which the ten-year period should be reckoned, considering that
the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and
not under Act No. 496 (Land Registration Act), despite the fact the land in dispute was already titled under Act
No. 496 in the names of the Aying siblings at the time the subject document was executed.
In Spouses Abrigo vs. De Vera,[16] it was held that registration of instruments must be done in the proper
registry, in order to affect and bind the land and, thus, operate as constructive notice to the world. [17] Therein,
the Court ruled:

x x x If the land is registered under the Land Registration Act (and has therefore a Torrens Title), and it is sold
but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as amended,
such sale is not considered REGISTERED x x x .[18]
In this case, since the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under
Act No. 3344 and not under Act No. 496, said document is deemed not registered. Accordingly, the ten-year
prescriptive period cannot be reckoned from March 6, 1964, the date of registration of the subject document
under Act No. 3344. The prescriptive period only began to run from the time respondents had actual notice of
the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale.
The only evidence on record as to when such prescriptive period commenced as to each of the respondents
are Wenceslao Sumalinogs (heir of Roberta Aying) testimony that about three years after 1964, they already
learned of the existence of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale; [19] and
Laurencio Ayings (heir of Emiliano Aying) admission that he found out about the sale of the land in dispute a
long time ago and can only estimate that it must be after martial law.[20] Paulino Aying (heir of Simeon Aying)
gave no testimony whatsoever as to when the children of Simeon Aying actually learned of the existence of
the document of sale. On the other hand, petitioner did not present any other evidence to prove the date
when respondents were notified of the execution of the subject document.
In view of the lack of unambiguous evidence of when the heirs of Emiliano Aying and Simeon Aying
discovered the existence of the document of sale, it must be determined which party had the burden of proof
to establish such fact.
The test for determining where the burden of proof lies is to ask which party to an action or suit will fail if he
offers no evidence competent to show the facts averred as the basis for the relief he seeks to obtain.
[21]
Moreover, one alleging a fact that is denied has the burden of proving it and unless the party asserting the
affirmative of an issue sustains the burden of proof of that issue by a preponderance of the evidence, his
cause will not succeed.[22] Thus, the defendant bears the burden of proof as to all affirmative defenses which
he sets up in answer to the plaintiffs claim or cause of action; he being the party who asserts the truth of the
matter he has alleged, the burden is upon him to establish the facts on which that matter is predicated and if
he fails to do so, the plaintiff is entitled to a verdict or decision in his favor. [23]
In the case at bar, it was petitioner, as the defendant before the RTC, which set up in its Answer the affirmative
defense of prescription. It was, therefore, incumbent upon petitioner to prove the date from which the
prescriptive period began to run. Evidence as to the date when the ten-year prescriptive period began exists
only as to the heirs of Roberta Aying, as Wenceslao Sumalinog admitted that they learned of the existence of
the document of sale in the year 1967. As to the heirs of Emiliano Aying and Simeon Aying, there is no clear
evidence of the date when they discovered the document conveying the subject land to petitioner. Petitioner
miserably failed to adduce proof of when the heirs of Emiliano Aying and Simeon Aying were notified of the
subject document. Hence, with regard to said heirs, the Court may consider the admission in the amended
complaint that they learned of the conveyance of the disputed land only in 1991 when petitioner sent notices to
vacate to the occupants of the subject land, as the date from which the ten-year prescriptive period should be
reckoned.
Respondents filed their Amended Complaint on December 6, 1993. [24] Thus, with regard to respondent heirs of
Roberta Aying who had knowledge of the conveyance as far back as 1967, their cause of action is already
barred by prescription when said amended complaint was filed as they only had until 1977 within which to
bring action. As to the respondent heirs of Emiliano and Simeon Aying, they were able to initiate their action
for reconveyance of property based on implied or constructive trust well within the ten-year prescriptive period
reckoned from 1991 when they were sent by petitioner a notice to vacate the subject property.
Evidently, laches cannot be applied against respondent heirs of Emiliano and Simeon Aying, as they took
action to protect their interest well within the period accorded them by law.
With regard to petitioners argument that the provision of Article 1104 of the Civil Code, stating that a partition
made with preterition of any of the compulsory heirs shall not be rescinded, should be applied, suffice it to say
that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is not being rescinded. In fact, its

validity had been upheld but only as to the parties who participated in the execution of the same. As
discussed above, what was conveyed to petitioner was ownership over the shares of the heirs who executed
the subject document. Thus, the law, particularly, Article 1456 of the Civil Code, imposed the obligation upon
petitioner to act as a trustee for the benefit of respondent heirs of Emiliano and Simeon Aying who, having
brought their action within the prescriptive period, are now entitled to the reconveyance of their share in the
land in dispute.
IN VIEW OF THE FOREGOING, the petition is PARTIALLY GRANTED and the Decision of the Court of
Appeals dated March 7, 2000 is MODIFIED, as follows: The amended complaint of the heirs of Roberta Aying
is DISMISSED on the ground of prescription. However, the heirs of Emiliano Aying and Simeon Aying, having
instituted the action for reconveyance within the prescriptive period, are hereby DECLARED as the LAWFUL
OWNERS of a 2/8 portion of the parcel of land covered by Original Certificate of Title No. RO-2856.

SO ORDERED.