Sales Case Set 7

[G.R. No. 83432. May 20, 1991.
]
RADIOWEALTH FINANCE COMPANY v MANUELITO S. PALILEO
SYLLABUS
1. CIVIL LAW; DOUBLE SALE OF IMMOVABLE PROPERTY; REGISTRATION IS THE OPERATIVE ACT TO
CONVEY OR AFFECT REGISTERED LANDS AS FAR AS THIRD PERSONS ARE CONCERNED. Article 1544 of
the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred:
(1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person
who presents the oldest title, provided there is good faith. There is no ambiguity regarding the application of
the law with respect to lands registered under the Torrens System. Section 51 of Presidential Decree No.
1529 (amending Section 50 of Act No. 496 clearly provides that the act of registration is the operative act to
convey or affect registered lands insofar as third persons are concerned. Thus, 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
certificate of title. Following this principle, this Court has time and again held that a purchaser in good faith
of registered land (covered by a Torrens Title) acquires a good title as against all the transferees thereof
whose right is not recorded in the registry of deeds at the time of the sale.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF APPEALS CONCLUSIVE ON THE
SUPREME COURT. As regards the first and second assigned errors, suffice it to state that findings of fact
of the Court of Appeals are conclusive on this Court and will not be disturbed unless there is grave abuse of
discretion. The finding of the Court of Appeals that the property in question was already sold to private
respondent by its previous owner before the execution sale is evidenced by a deed of sale. Said deed of sale
is notarized and is presumed authentic. There is no substantive proof to support petitioners allegation that
the document is fictitious or simulated. With this in mind, We see no reason to reject the conclusion of the
Court of Appeals that private respondent was not a mere administrator of the property. That he exercised
acts of ownership through his mother also remains undisputed.
3. CIVIL LAW; LAND REGISTRATION; PHRASE "WITHOUT PREJUDICE TO A THIRD PARTY WITH A BETTER
RIGHT", CONSTRUED; CASE OF CARUMBA V. CA, 31 SCRA 558, APPLICABLE. Under Act No. 3344,
registration of instruments affecting unregistered lands is "without prejudice to a third party with a better
right." The aforequoted phrase has been held by this Court to mean that the mere registration of a sale in
ones favor does not give him any light over the land if the vendor was not anymore the owner of the land
having previously sold the same to somebody else even if the earlier sale was unrecorded. The case of
Carumba v. Court of Appeals is a case in point. It was held therein that Article 1644 of the Civil Code has no
application to land not registered under Act No. 496. Like in the case at bar, Carumba dealt with a double
sale of the same unregistered land. The first sale was made by the original owners and was unrecorded
while the second was an execution sale that resulted from a complaint for a sum of money filed against the
said original owners. Applying Section 35, Rule 39 of the Revised Rules of Court, this Court held that Article
1544 of the Civil Code cannot be invoked to benefit the purchaser at the execution sale though the latter
was a buyer in good faith and even if this second sale was registered. It was explained that this is because
the purchaser of unregistered land at a sheriff s execution sale only steps into the shoes of the judgment
debtor, and merely acquires the latters interest in the property sold as of the time the property was levied
upon.
DECISION
GANCAYCO, J.:
If the same piece of land was sold to two different purchasers, to whom shall ownership belong? Article
1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be
transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2)
in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the
person who presents the oldest title, provided there is good faith. There is no ambiguity regarding the
application of the law with respect to lands registered under the Torrens System. Section 51 of Presidential
Decree No. 1529 (amending Section 50 of Act No. 496 clearly provides that the act of registration is the
operative act to convey or affect registered lands insofar as third persons are concerned. Thus, 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 certificate of title. 1 Following this principle, this Court has time and again held that a purchaser
in good faith of registered land (covered by a Torrens Title) acquires a good title as against all the
transferees thereof whose right is not recorded in the registry of deeds at the time of the sale. 2
The question that has to be resolved in the instant petition is whether or not the rule provided in Article
1544 of the Civil Code as discussed above, is applicable to a parcel of unregistered land purchased at a
judicial sale. To be more specific, this Court is asked to determine who, as between two buyers of
unregistered land, is the rightful owner the first buyer in a prior sale that was unrecorded, or the second
buyer who purchased the land in an execution sale whose transfer was registered in the Register of Deeds.
chanroble s
la wlibrary : re dnad
The facts as found by the Court of Appeals are as follows:
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"On April 13, 1970, defendant spouses Enrique Castro and Herminia R. Castro sold to plaintiff-appellee
Manuelito Palileo (private respondent herein), a parcel of unregistered coconut land situated in Candiis,
Mansayaw, Mainit, Surigao del Norte. The sale is evidenced by a notarized Deed of Absolute Sale (Exh. "E").
The deed was not registered in the Registry of Property for unregistered lands in the province of Surigao del
Norte. Since the execution of the deed of sale, appellee Manuelito Palileo who was then employed at Lianga,
Surigao del Sur, exercised acts of ownership over the land through his mother Rafaela Palileo, as
administratrix or overseer. Appellee has continuously paid the real estate taxes on said land from 1971 until
the present (Exhs. "C" to "C-7", inclusive).
On November 29, 1976, a judgment was rendered against defendant Enrique T. Castro, in Civil Case No.
0103145 by the then Court of First Instance of Manila, Branch XIX, to pay herein defendant-appellant
Radiowealth Finance Company (petitioner herein), the sum of P22,350.35 with interest thereon at the rate of
16% per annum from November 2, 1975 until fully paid, and the for the sum of P2,235.03 as attorneys
fees, and to pay the costs. Upon the finality of the judgment, a writ of execution was issued. Pursuant to
said writ, defendant provincial Sheriff Marietta E. Eviota, through defendant Deputy Provincial Sheriff
Leopoldo Risma, levied upon and finally sold at public auction the subject land that defendant Enrique Castro
had sold to appellee Manuelito Palileo on April 13, 1970. A certificate of sale was executed by the Provincial
Sheriff in favor of defendant-appellant Radiowealth Finance Company, being the only bidder. After the period
of redemption has (sic) expired, a deed of final sale was also executed by the same Provincial Sheriff. Both
the certificate of sale and the deed of final sale were registered with the Registry of Deeds." 3
Learning of what happened to the land, private respondent Manuelito Palileo filed an action for quieting of
title over the same. After a trial on the merits, the court a quo rendered a decision in his favor. On appeal,
the decision of the trial court was affirmed. Hence, this petition for review on certiorari.
In its petition, Radiowealth Finance Company presents the following errors:
"1. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE DEED OF ABSOLUTE SALE (EXHIBIT B)
ALLEGEDLY EXECUTED BY ENRIQUE CASTRO IN FAVOR OF APPELLEE MANUELITO PALILEO, WAS SIMULATED
OR FICTITIOUS.
2. THE COURT OF APPEALS ERRED IN NOT FINDING APPELLEE MANUELITO PALILEO AS ADMINISTRATOR
ONLY OF THE DISPUTED PROPERTY; AND
3. THE COURT OF APPEALS ERRED IN NOT FINDING DEFENDANT-APPELLANT RADIOWEALTH FINANCE
COMPANY OWNER OF THE DISPUTED PROPERTY BY REASON OF THE CERTIFICATE OF SALE AND THE DEED
OF FINAL SALE WHICH WERE ALL REGISTERED IN THE REGISTER OF DEEDS, HENCE, SUPERIOR TO THAT
OF THE DEED OF SALE IN POSSESSION OF MANUELITO PALILEO, FOR BEING NOT REGISTERED." 4
As regards the first and second assigned errors, suffice it to state that findings of fact of the Court of
Appeals are conclusive on this Court and will not be disturbed unless there is grave abuse of discretion. The
finding of the Court of Appeals that the property in question was already sold to private respondent by its
previous owner before the execution sale is evidenced by a deed of sale. Said deed of sale is notarized and
is presumed authentic. There is no substantive proof to support petitioners allegation that the document is
fictitious or simulated. With this in mind, We see no reason to reject the conclusion of the Court of Appeals
that private respondent was not a mere administrator of the property. That he exercised acts of ownership
through his mother also remains undisputed.
chanroble s virtual lawlibrary
Going now to the third assigned error which deals with the main issue presented in the instant petition, We
observe that the Court of Appeals resolved the same in favor of private respondent due to the following
reason; what the Provincial Sheriff levied upon and sold to petitioner is a parcel of land that does not belong
to Enrique Castro, the judgment debtor, hence the execution is contrary to the directive contained in the writ
of execution which commanded that the lands and buildings belonging to Enrique Castro be sold to satisfy
the execution. 5
There is no doubt that had the property in question been a registered land, this case would have been
decided in favor of petitioner since it was petitioner that had its claim first recorded in the Registry of Deeds.
For, as already mentioned earlier, it is the act of registration that operates to convey and affect registered
land. Therefore, a bona fide purchaser of a registered land at an execution sale acquires a good title as
against a prior transferee, if such transfer was unrecorded.
However, it must be stressed that this case deals with a parcel of unregistered land and a different set of
rules applies. We affirm the decision of the Court of Appeals.
Under Act No. 3344, registration of instruments affecting unregistered lands is "without prejudice to a third
party with a better right." The aforequoted phrase has been held by this Court to mean that the mere
registration of a sale in ones favor does not give him any light over the land if the vendor was not anymore
the owner of the land having previously sold the same to somebody else even if the earlier sale was
unrecorded.
chanrobles law library
The case of Carumba v. Court of Appeals 6 is a case in point. It was held therein that Article 1644 of the
Civil Code has no application to land not registered under Act No. 496. Like in the case at bar, Carumba
dealt with a double sale of the same unregistered land. The first sale was made by the original owners and
was unrecorded while the second was an execution sale that resulted from a complaint for a sum of money
filed against the said original owners. Applying Section 35, Rule 39 of the Revised Rules of Court, 7 this
Court held that Article 1544 of the Civil Code cannot be invoked to benefit the purchaser at the execution
sale though the latter was a buyer in good faith and even if this second sale was registered. It was explained
that this is because the purchaser of unregistered land at a sheriff s execution sale only steps into the shoes
of the judgment debtor, and merely acquires the latters interest in the property sold as of the time the
property was levied upon.
chanrobles virtual lawlibrary
Applying this principle, the Court of Appeals correctly held that the execution sale of the unregistered land in
favor of petitioner is of no effect because the land no longer belonged to the judgment debtor as of the time
of the said execution sale.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 10788 is
hereby AFFIRMED. No costs.
SO ORDERED.
[G.R. No. L-18497. May 31, 1965.]

DAGUPAN TRADING COMPANY, v RUSTICO MACAM
SYLLABUS
1. SALES; CONFLICTING SALES; ONE SALE BEFORE REGISTRATION OF LAND AND THE OTHER AN
EXECUTION SALE AFTER REGISTRATION OF LAND; LAW GOVERNING. Where one of two conflicting sales
of a piece of land was executed before the land was registered, while the other was an execution sale in
favor of the judgment creditor of the owner made after the same property had been registered, what should
determine the issue are the provisions of the last paragraph of Section 35, Rule 39 of the Rules of Court to
the effect that, upon the execution and delivery of the final certificate of sale in favor of the purchaser of
land sold in an execution sale, such purchaser "shall be substituted to and acquire all the rights, title,
interest and claim of the judgment debtor to the property as of the time of the levy."
2. ID.; ID.; ID.; UNREGISTERED SALE CANNOT BE DEFEATED BY SUBSEQUENT EXECUTION SALE AND
REGISTRATION OF LATTER. Where for a considerable time prior to the levy on execution the interest of
the owner of the land levied upon had already been conveyed to another who took possession thereof and
introduced improvements therein, the aforesaid levy is void. The prior sale, albeit unregistered, cannot be
deemed automatically cancelled upon the subsequent issuance of the Torrens title over the land.
3. ID.; ID.; ID.; RIGHT OF OWNERSHIP ALREADY FIXED UNDER CIVIL LAW AND/OR MORTGAGE LAW
CANNOT BE OVERTHROWN BY NEW LAW. As between a right of ownership already fixed and established
under the Civil Law and/or the Spanish Mortgage Law, and a new law or system which would make possible
the overthrowing of such ownership on admittedly artificial and technical grounds, the former must be
upheld.
DECISION
DIZON, J.:
Appeal taken by the Dagupan Trading Company from the decision of the Court of Appeals affirming the one
rendered by the Court of First Instance of Pangasinan in Civil Case No. 13772, dismissing its complaint.
On September 4, 1958, appellant commenced the action mentioned above against appellee Rustico Macam,
praying that it be declared owner of one-eighth portion of the land described in paragraph 2 of the
complaint; that a partition of the whole property be made; that appellee be ordered to pay it the amount of
P500.00 a year as damages from 1958 until said portion is delivered, plus attorneys fees and costs.
Answering the complaint, appellee alleged, in the main, that Sammy Marons share in the property described
in the complaint, as well as that of all his co-heirs, had been acquired by purchase by appellee since June 19
and September 21, 1955, before the issuance of the original certificate of title in their name; that at the
time levy in execution was made on Sammy Marons share therein, the latter had no longer any right or
interest in said property; that appellant and its predecessor in interest were cognizant of the facts already
mentioned; that since the sales made in his favor, he had enjoyed uninterrupted possession of the property
and introduced considerable improvements therein. Appellee likewise sought to recover damages by way of
counterclaim.
After trial upon the issue thus joined, the court rendered judgment dismissing the complaint, which, on
appear, was affirmed by the Court of Appeals.
The facts of the case are not disputed.
In the year 1955, Sammy Maron and his seven brothers and sisters were pro-indiviso owners of a parcel of
unregistered land located in barrio Parayao, Municipality of Binmaley, Pangasinan. While their application for
registration of said land under Act No. 496 was pending, they executed, on June 19 and September 21,
1955, two deeds of sale conveying the property to appellee, who thereafter took possession thereof and
proceeded to introduce substantial improvements therein. One month later, that is on October 14, 1955,
Original Certificate of Title No. 6942 covering the land was issued in the name of the Marons, free from all
liens and encumbrances.
On August 4, 1956, by virtue of a final judgment rendered in Civil Case No. 42215 of the Municipal Court of
Manila against Sammy Maron in favor of the Manila Trading and Supply Company, levy was made upon
whatever interest he had in the aforementioned property, and thereafter said interest was sold at public
auction to the judgment creditor. The corresponding notice of levy, certificate of sale and the sheriffs
certificate of final sale in favor of the Manila Trading and Supply Co. because nobody exercised the right of
redemption were duly registered. On March 1, 1958, the latter sold all its rights and title in the property
to Appellant.
The question before Us now is: Who has the better right as between appellant Dagupan Trading Company,
on the one hand, and appellee Rustico Macam, on the other, to the one-eighth share of Sammy Maron in the
property mentioned heretofore?
If the property covered by the conflicting sales were unregistered land, Macam would undoubtedly have the
better right in view of the fact that his claim is based on a prior sale coupled with public, exclusive and
continuous possession thereof as owner. On the other hand, were the land involved in the conflicting
transactions duly registered land, We would be inclined to hold that appellant has the better right because,
as We have consistently held, in case of conveyance of registered real estate, the registration of the deed of
sale is the operative act that gives validity to the transfer. This would be fatal to appellees claim, the deeds
of sale executed in his favor by the Marons not having been registered, while the levy in execution and the
provisional certificate of sale as well as the final deed of sale in favor of appellant were registered.
Consequently, this registered conveyance must prevail although posterior to the one executed in favor of
appellee, and appellant must be deemed to have acquired such right, title and interest as appeared on the
certificate of title issued in favor of Sammy Maron, subject to no lien, encumbrance or burden not noted
thereon. (Anderson & Co., v. Garcia 64 Phil. 506; Reynes Et. Al., v. Barrera, Et Al., 68 Phil. 656; Banco
National, etc. v. Camus, 70 Phil. 289)
The present case, however, does not fall within either situation. Here the sale in favor of appellee was
executed before the land subject matter thereof was registered, while the conflicting sale in favor of
appellant was executed after the same property had been registered. We can not, therefore, decide the case
in the light of whatever adjudicated cases there are covering the two situations mentioned in the preceding
paragraph. It is our considered view that what should determine the issue are the provisions of the last
paragraph of Section 35, Rule 39 of the Rules of Court, to the effect that upon the execution and delivery of
the final certificate of sale in favor of the purchaser of land sold in an execution sale, such purchaser "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." Now We ask: What was the interest and claim of Sammy Maron on the one-eight
portion of the property inherited by him and his co-heirs, at the time of the levy? The answer must
necessarily be that he had none, because for a considerable time prior to the levy, his interest had already
been conveyed to appellee, "fully and irretrievably" as the Court of Appeals held. Consequently,
subsequent levy made on the property for the purpose of satisfying the judgment rendered against Sammy
Maron in favor of the Manila Trading Company was void and of no effect. (Buson v. Licauco 13 Phil. 357-358;
Landig v. U. S. Commercial Company, 89 Phil. 638). Needless to say, the unregistered sale and the
consequent conveyance of title and ownership in favor of appellee could not have been cancelled and
rendered of no effect upon the subsequent issuance of the Torrens title over the entire parcel of land. We
can not, therefore, but agree with the following statement contained in the appealed decision:
jgc:chanroble s.com.ph
". . . Separate and apart from this, however, we believe that in the inevitable conflict between a right of
ownership already fixed and established under the Civil Law and/or the Spanish Mortgage Law which
cannot be affected by any subsequent levy or attachment or executions and a new law or system which
would make possible the overthrowing of such ownership on admittedly artificial and technical grounds, the
former must be upheld and applied."
cralaw virtua1aw library
But to the above considerations must be added the important circumstance that, as already stated before,
upon the execution of the deed of sale in his favor by Sammy Maron, appellee took possession of the land
conveyed as owner thereof, and introduced considerable improvements therein. To deprive him now of the
same by sheer force of technicality would be against both justice and equity.
IN VIEW OF ALL THE FOREGOING, the decision appealed from is affirmed, with costs.
[G.R. No. L-27587. February 18, 1970.]

AMADO CARUMBA v COURT OF APPEALS
SYLLABUS
1. CIVIL LAW; PURCHASE AND SALE; RULE ON DOUBLE SALE OF UNREGISTERED LAND. While under
Article 1544, registration in good faith prevails over possession in the event of a doubt sale by the vendor of
the same piece of land to different vendees, said article is of no application to the case at bar. The reason is
that the purchaser of unregistered land at a sheriffs execution sale only steps into the shoes of the
judgment debtor. He merely acquires the latters interest in the property sold as of the time the property
was levied upon.
2. ID.; ID.; SALE OF UNREGISTERED LAND, RIGHT OF PURCHASER WHO TAKES POSSESSION THEREOF.
The deed of sale in favor of Canuto was executed two years before the levy was made by the Sheriff. While
it is true that the said deed of sale was only embodied in a private document, the same, coupled with the
fact that the buyer (petitioner Carumba) had taken possession of the unregistered land sold, sufficed to vest
ownership on the said buyer. So that when levy was made by the Sheriff, the judgment debtor no longer had
dominical interest nor any real right over the land that could pass to the purchaser at the execution sale.
Hence, the latter must yield the land to petitioner Carumba.
DECISION
REYES, J.B.L., J.:
Amado Carumba petitions this Supreme Court for a certiorari to review a decision of the Court of Appeals,
rendered in its Case No. 36094-R, that reversed the judgment in his favor rendered by the Court of First
Instance of Camarines Sur (Civil Case 4646).
The factual background and history of these proceeding is thus stated by the Court of Appeals (pages 12):
"On April 12, 1956, the spouses Amado Canuto and Nemesia Ibasco, by virtue of a `Deed of Sale of
Unregistered Land with Covenants of "Warranty (Exh. A), sold a parcel of land, partly residential and partly
coconut land with a periphery (area) of 359.09 square meters, more or less, located in the barrio of Santo
Domingo, Iriga, Camarines Sur, to the spouses Amado Carumba and Benita Canuto, for the sum of P350.00.
The referred deed of sale was never registered in the Office of the Register of Deeds of Camarines Sur, and
the Notary, Mr. Vicente Malaya, was not then an authorized notary public in the place, as shown by Exh. 5.
Besides, it has been expressly admitted by appellee that he is the brother-in-law of Amado Canuto, the
alleged vendor of the property sold to him. Amado Canuto is the older brother of the wife of the herein
appellee, Amado Carumba.
On January 21, 1957, a complaint (Exh. B) for a sum of money was filed by Santiago Balbuena against
Amado Canuto and Nemesia Ibasco before the Justice of the peace Court of Iriga, Camarines Sur, known as
Civil Case No. 139 and on April 15, 1967, a decision (Exh. C) was rendered in favor of the plaintiff and
against the defendants. On October 1, 1958, the ex-officio Sheriff, Justo V. Imperial, of Camarines Sur,
issued a "Definite Deed of Sale (Exh. D) of the property now in question in favor of Santiago Balbuena,
which instrument of sale was registered before the Office of the Register of Deeds of Camarines Sur, on
October 3, 1958. The aforesaid property was declared for taxation purposes (Exh. 1) in the name of
Santiago Balbuena in 1958."
The Court of First Instance, finding that after execution of the document Carumba had taken possession of
the land, planting bananas, coffee and other vegetables thereon, declared him to be the owner of the
property under a consummated sale; held void the execution levy made by the sheriff, pursuant to a
judgment against Carumbas vendor, Amado Canuto; and nullified the sale in favor of the judgment creditor,
Santiago Balbuena. The Court, therefore, declared Carumba the owner of the litigated property and ordered
Balbuena to pay P30.00, as damages, plus the costs.
The Court of Appeals, without altering the findings of fact made by the court of origin, declared that there
having been a double sale of the land subject of the suit Balbuenas title was superior to that of his
adversary under Article 1644 of the Civil Code of the Philippines, since the execution sale had been properly
registered in good faith and the sale to Carumba was not recorded.
We disagree. While under the invoked Article 1544 registration in good faith prevails over possession in the
event of a doubt sale by the vendor of the same piece of land to different vendees, said article is of no
application to the case at bar, even if Balbuena, the later vendee, was ignorant of the prior sale made by his
judgment debtor in favor of petitioner Carumba. The reason is that the purchaser of Unregistered land at a
sheriffs execution sale only steps into the shoes of the judgment debtor, and merely acquires the latters
interest in the property sold as of the time the property was levied upon. This is specifically provided by
section 35 of Rule 39 of the Revised Rules of Court, the second paragraph of said section specifically
providing that:
"Upon the execution and delivery of said (final) deed the purchaser, 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 time of the deed . . ." (Italics supplied)
While the time of the levy does not clearly appear, it could not have been made prior to 15 April 1957, when
the decision against the former owners of the land was rendered in favor of Balbuena. But the deed of sale
in favor of Canuto had been executed two years before, on 12 April 1955, and while only embodied in a
private document, the same, coupled with the fact that the buyer (petitioner Carumba) had taken
possession of the unregistered land sold, sufficed to vest ownership on the said buyer. When the levy was
made by the Sheriff, therefore, the judgment debtor no longer had dominical interest nor any real right over
the land that could pass to the purchaser at the execution sale. 1 Hence, the latter must yield the land to
petitioner Carumba. The rule is different in case of lands covered by Torrens titles, where the prior sale is
neither recorded nor known to the execution purchaser prior to the levy; 2 but the land here in question is
admittedly not registered under Act No. 496.
WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First Instance
affirmed. Costs against respondent Santiago Balbuena.
[G.R. No. 16483. December 7, 1921. ]

PHILIPPINE TRUST COMPANY v PHILIPPINE NATIONAL BANK
SYLLABUS
1. INSOLVENT CANNOT MAKE PREFERENCE. Where a person files a petition in the Court of First Instance
to be adjudged insolvent under Act No. 1956 of the Philippine Legislature, pending the final adjudication, the
filing of the petition ipso facto takes away from, and deprives the petitioner of the right to, do or commit any
act of preference as to creditors.
2. TITLE OF ASSIGNEE RELATES BACK. Where an insolvency petition is filed in the proper court, and, in
the ordinary course of business, the petitioner is adjudged insolvent and an assignee is duly elected, the title
of the assignee to the property of the insolvent relates back and becomes vested as of the date the
insolvency petition was filed.
3. TITLE CARRIES POSSESSION. Where in January, 1919, a firm borrowed money from a bank and
executed its promissory notes and delivered to the bank negotiable quedans as collateral to secure their
payment, the indorsement and delivery of the quedans and the pledging of the collateral ipso facto carries
with it the title to the property described in the quedans, together with the constructive possession of it, and
legally the owner and holder of the quedans becomes the owner of the property described in the quedans,
and is entitled to its possession.
4. OWNER OF NEGOTIABLE QUEDANS IS OWNER OF PROPERTY. Where quedans were endorsed and
delivered in January, 1919, to secure a preexisting debt, and the insolvency petition was filed on April 21,
1919, the holder of such quedans is the owner of the property therein described, as against the assignee or
any creditor of the insolvent.
5. STATEMENTS AND REPRESENTATIONS DO NOT CONVEY TITLE. Where on February 10, 1919, a firm
received certain quedans under a promise to return them on or before February 27th, to which was attached
a certificate of the firm dated February 8, 1919, that certain described property was in its bodegas which it
promised would not be removed without first consulting its creditor, construed together, such instruments do
not constitute a negotiable quedan, and are nothing more than a representation and a promise and do not
convey title to the property.
6. ASSIGNEE ENTITLED TO POSSESSION. Where it appears that on February 8, 1919, on behalf of one of
its creditors, a firm made a representation, and on February 10th, made a certificate at to certain property,
and filed its insolvency petition on April 21, 1919, and the property was left and remained in possession of
the insolvent firm, and was not delivered to the creditor until May 3, 1919, the assignee of the insolvent
firm, as against such creditor, is entitled to the possession of the property or its value.
7 DECLARED VALUE MAY BECOME MARKET VALUE. Where there is no evidence of the actual market value
of the property, but the parties themselves placed a declared value on the property at the time of delivery,
in the absence of other testimony, the declared value will be considered and treated as the market value.
DECISION
JOHNS, J. :
The plaintiff and defendant are corporations organized under the laws of the Philippine Islands and domiciled
in the city of Manila.
Salvador Hermanos was a copartnership and during the month of January, 1919, executed to the defendant
eight promissory notes aggregating P156,000, payable on demand, and each secured by a quedan, or
warehouse receipt, issued by the firm of Nieva, Ruiz & Company. Each note recites that it is payable on
demand after date, for value received, and that the firm has deposited "with the said bank as collateral
security for the payment of this note, or any note given in extension or renewal thereof, as well as for the
payment of any other liability or liabilities of the undersigned to the said bank, due or to become due,
whether now existing or hereafter arising, the following property owned by the undersigned." The note then
specifies the number of the quedan and the amount of copra in piculs, and states that the quedan was
issued by Nieva, Ruiz & Company. The note for P8,000, dated January 18, 1919, was secured by warehouse
receipt No. 30; for P20,000, dated January 22, 1919, was secured by receipt No. 35; for P20,000, dated
January 24, 1919, was secured by receipt No. 38; for P20,000, dated January 27, 1919, was secured by
receipt No. 41; for P14,000, dated January 28, 1919, was secured by receipt No. 42; for P18,000, dated
January 21, 1919, was secured by receipt No. 33; for P18,000, dated January 23, 1919, was secured by
receipt No. 36; and for P18,000, dated January 25, 1919, was secured by receipt No. 39, making a total of
16,051.10 piculs of copra, covered by the warehouse receipts of the firm of Nieva, Ruiz & Company issued to
the firm of Salvador Hermanos, and by that firm pledged as collateral to the defendant to secure the
payment of the eight above-described notes. Each of them further recites that "on the nonperformance of
this promise, or upon the non-payment of any of the liabilities above-mentioned, or upon the failure of the
undersigned forthwith, with or without notice, to furnish satisfactory additional securities in case of decline,
as aforesaid, then and in either such case, this note and all liabilities of the undersigned, or any of them,
shall forthwith become due and payable, without demand or notice, and full power and authority are hereby
given to said bank to sell, assign transfer and deliver the whole of the said securities, or any part thereof, or
any substitutes therefor or any additions thereto, or any other securities or property given unto or left in the
possession of or hereafter given unto or left in the possession of the said bank by the undersigned for safe
keeping or otherwise, at any brokers board or at public or private sale, at the option of said bank or of its
president or secretary, without either demand, advertise mentor notice of any kind, which are hereby
expressly waived. At any such sale, the said bank may itself purchase the whole or any part of the property
sold, free from any right of redemption on the part of the undersigned, which is hereby waived and
released." Stamped in red ink across the face of each quedan are the words "Negotiable Warrant," and each
of them was in the usual form of warehouse receipts.
On February 10, 1919, the firm of Salvador Hermanos withdrew from the defendant bank, by and with its
consent, warehouse receipts Nos. 33, 36, and 39 above described, which the bank was holding as collateral
security for each of the three 18,000-peso notes amounting to P54,000. The total amount of copra
evidenced by the receipts withdrawn was 6,024.55 piculs, the declared value of which, shown on the face of
such receipts, was P90,368.25. At the time of the withdrawal, the firm executed the following writing:
"We received from the Philippine National Bank the warehouse receipts issued by Messrs. Nieva, Ruiz &
Company, the contents of which are as follow:
chanrob1es virtual 1aw library
No. Date Sacks Piculs Declared

value
33 January 21/19 2,325 2,040.55 P30,608.25
36 January 23/19 2,175 1,992.00 29,880.00
39 January 25/19 2,335 1,992.00 29,880.00
_____ ______ ________
Total 6,835 6,024.55 90,368.25
"We promise to return to this bank the warehouse receipts above cited on or before the 27th instant. These
warehouse receipts are guaranteed by the attached certificate of existence of the effects of the 8th of
February, 1919, issued by us.
"Manila, P. I., February 10, 1919.
"SALVADOR HERMANOS.
"Per (Sgd.) G. SALVADOR."
to which was attached this writing:
"MANILA, P. I., February 8, 1919.

"We hereby certify that there exist the following articles in our bodegas as follows:
"Soler Bodega.
100 tons kapok @ 200.00 P20,000.00
100 piculs hemp @ 60.00 6,000.00
20,000 sacks (empty) @ 0.30 6,000.00
1 lot gum copal 1,900.00
1 lot gum elemi 1,700.00
500,000 rattan @ 12.00 6,000.00
Aceites y grasas 800.00
9,000 sacks common salt @ 2.00 18,000.00
________
60,400.00
"Wise & Co. Gagalagin Bodega.
905 cas. Gs. in case @ 12.75 P11,538.75
77 cas. Gs. in drums
54 gals. 64.80 4,989.60
________
16,528.35
_________
P76,928.35
========
and promise that none of the above articles would be removed without consulting first with the Philippine
National Bank.
"SALVADOR HERMANOS.
"Per (Sgd.) G. SALVADOR."
Neither writing was in any manner authenticated by a notary or by a competent public official. The writing of
February 10 is in form a receipt from the firm of Salvador Hermanos to the Philippine National Bank of the
quedans, or warehouse receipts, for the copra therein described. The one of February 8 is, in legal effect,
the certificate of Salvador Hermanos "that there exist the following articles in our bodegas as follows:" (Here
follows the described property.) That is to say, that the firm certifies that the property described is in the
warehouse of the firm.
Act No. 1956 of the Philippine Legislature provides for the suspension of payments, the relief of insolvent
debtors, the protection of creditors, and the punishment of fraudulent debtors. The Act provides:
"SECTION 1. This Act shall be known and may be cited as The Insolvency Law, and in accordance with its
provisions every insolvent debtor may be permitted to suspend payments or be discharged from his debts
and liabilities."
Section 2 provides that debtor who possesses sufficient property to cover the debts, be it an individual, firm
or corporation, and who is unable to meet them at maturity, "may petition that he be declared in the state of
suspension of payments by the court, or the judge thereof in vacation."
Section 3 enacts that upon the filing of the petition, the court shall make an order calling a meeting of
creditors specifying the time and place; that notice thereof shall be published in a newspaper, and that "said
order shall further contain an absolute injunction forbidding the petitioning debtor from disposing in any
manner of his property, except in so far as concerns the ordinary operations of commerce or of industry in
which the petitioner is engaged, and, furthermore, from making any payments outside of the necessary or
legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of
payments are pending, and said proceedings for the purposes of this Act shall be considered to have been
instituted from the date of the filing of the petition."
Section 14, chapter 3, provides that any person owing debts exceeding P1,000 may apply to be discharged
from his debts and liabilities by petition to the Court of First Instance in which he has resided for six months
preceding the filing of the petition.
Section 18 enacts that upon receiving and filing of the petition, schedule, and inventory, the court, or the
judge, shall make an order declaring the petitioner insolvent, and "shall further forbid the payment to the
debtor of any debts due to him and the delivery to the debtor, or to any person for him, of any property
belonging to him, and the transfer of any property by him, and shall further appoint a time and place for a
meeting of the creditors to choose an assignee of the estate."
On April 21, 1919, Salvador Hermanos filed a petition of insolvency in the Court of First Instance of the city
of Manila. Article 5 of the petition recites:
"That the following property and merchandise are being pledged in favor of the Philippine National Bank, as
shown by a written document, on account of its credit which amounts to P175,563.19, which are described
as follows:
81,904 kilos kapok @ 0.20 ko 16,380.80

521,600 pieces rattan split 11.00 m 5,737.60
93.94 piculs almaciga value 2,300.00
80 drums Union gasoline @ 53 gls. each
@ 1.485 gal 6,415.20
100 cases gasoline 14.00 cs 1,400.00
8 drums gasoline @ 54 gals. ea. 1.485 gl 641.52
10,000 piculs copra p. picul 14.50 145,000.00
35 bales cardboard value 1,451.52
___________
P179,326.64"
The testimony is undisputed and conclusive that about May 3, 1919, Gregorio Salvador, a member of the
firm of Salvador Hermanos, delivered certain goods, wares, and merchandise to and in the warehouse of
Nieva, Ruiz & Company, and requested that firm to issue its receipt therefor to and in favor of the Philippine
National Bank, and that, pursuant to such request, that firm did issue eight quedans to the bank as
follows:
No. 161 for 32 bales of hemp;

No. 162 for 953 bundles of rattan;
No. 165 for 72 bundles of empty sacks;
No. 167 for 136 sacks of gum;
No. 168 for 1,461 bales of kapok;
No. 175 for 288 packages of Talcum Powder;
No. 176 for 35 packages of cardboard; and
No. 185 for 134 bundles of empty sacks.
On and between May 6, 1919 and August 7, 1919, acting under the terms and provisions of its respective
notes, the defendant bank sold all of the personal property for which it held warehouse receipts, or which
had been surrendered to it by the Hermanos firm, save and except the property described in the three
warehouse receipts, which were released and surrendered to that firm on February 10, 1919.
Based upon its insolvency petition, and in the ordinary course of business, the firm of Salvador Hermanos
was adjudged insolvent, and on July 19, 1919, the Philippine Trust Company was elected assignee of said
firm and duly qualified. September 13, 1919, as such assignee, it made a demand upon the bank for the
surrender and delivery of the property described in all of the above receipts, and, upon the banks refusal,
commenced this action to recover its value alleged to be P242,579.61, claiming that on April 21, 1919, the
firm of Salvador Hermanos was the sole and exclusive owner of the property, and that, as to the copra,
about June 28, 1919, and after the filing of the insolvency petition, the bank unlawfully seized and converted
the copra to its own use, the value of which was P192,260. For a second cause of action, the plaintiff alleges
that, as such assignee, it was the owner of the remaining personal property, and that, after the insolvency
petition was filed, the defendant unlawfully seized and converted such property to its own use, and that it
was of the value of P50,319.61.
For answer, the bank makes a general denial, as to each cause of action, of all of the material allegations of
the complaint This presents the question as to who is the owner and entitled to possession of the property.
There is but little, if any, dispute as to the facts.
It is conceded that in January, 1919, the firm of Salvador Hermanos executed to the Philippine National Bank
the eight promissory notes above described, and that each note was secured by the quedan, or warehouse
receipt, of Nieva, Ruiz & Company, issued to the firm of Salvador Hermanos for so many piculs of copra. that
the notes are of the same form, the only difference being the date and the amount of the note, and the
number of the quedan, or warehouse receipt, and the amount of copra in piculs. Each warehouse receipt
was duly numbered, dated and signed by Nieva, Ruiz & Company, and recites "received from Salvador
Hermanos the following packages of copra as specified below, which are stored in warehouse No. 2, situated
at_____________, subject to the terms and conditions stated on the face and back hereof, to be delivered
unto Salvador Hermanos, or order," giving the number of the warehouse where located, and the number of
sacks, gross weight and the declared value; across the face of each receipt is stamped in red ink the words
"Negotiable Warrant." Among the conditions printed on the back of the receipt is paragraph 4, as follows:
"4. This Company will deliver the packages noted hereon, on surrender to the Company of this warrant
endorsed by the party who shall be for the time registered in the books of the Company as the owner of the
packages described hereon; and the production by the Company of this warrant shall at all times be
conclusive proof that the Packages hereon noted have been properly delivered by the Company and shall
exempt the Company from all responsibility in connection with the said packages or goods."
Also the following:
"Delivery is hereby authorized unto________________," opposite which some of the receipts were signed
by the firm of Salvador Hermanos, and others were not signed by any one.
The fact remains that at the time the eight promissory notes were executed, a given quedan, or warehouse
receipt, was described and incorporated in the note as to its number, when and by whom issued, and the
property it represented, and each receipt was then delivered by the firm to the defendant bank, all of which
was during the month of January, 1919. The bank never had the manual possession or the physical control
of any of this property until after the insolvency petition was filed, and it is for such reason that the plaintiff
claims that it was the property of the firm, and that the defendant should account to the assignee.
Each quedan, or warehouse receipt, was specifically described in a given note, and was made a part of it,
and the note recites that, for any breach of its terms or conditions, the bank has full power and authority "to
sell, assign, transfer and deliver the whole of the said security, or any part thereof, etc.," and that "at any
such sale, the said bank may itself purchase the whole or any part of the property sold, free from any right
of redemption on the part of the undersigned, which is hereby waived and released."
In addition, the quedan itself was delivered to and held by the bank, and the warehouseman recognized the
bank as the owner of the property. Legally speaking, the owner of the quedans, or warehouse receipts, was
the owner of the property described in them, and the quedans were given as collateral to secure promissory
notes, which, for value received, were executed to the bank.
The execution of the notes, the physical possession of the negotiable quedan, or warehouse receipt, and the
recognition of ownership by the warehouseman, legally carries with it both the title to, and the possession
of, the property. In such a case, title is not founded on a public instrument which should be authenticated by
a notary or by a competent public official. Legally speaking, the execution of the promissory notes and the
pledging of the quedans, or warehouse receipts, as collateral, and the describing of them in the notes, and
the manual delivery of the quedan, or warehouse receipt itself, carries with it not only the title, but the legal
possession of the property. In other words, as to the property described in the quedans, or warehouse
receipts, which were pledged, as collateral, in January, 1919, to secure the eight respective promissory
notes, both the title and the possession of that property were delivered to and vested in the defendant bank
in January, 1919. Three of those quedans, or warehouse receipts, were returned to the firm by the bank on
February 10, 1919, but the bank still owned and held the notes, which were secured but those warehouse
receipts, and no part of the debt itself was paid by or through the surrender of the receipts. For such
reasons as to the first cause of action, the plaintiff cannot recover, and, as to it, the judgment of the lower
court should be affirmed.
The second cause of action presents another and different question.
February 10, 1919, for some unexplained reason, the bank surrendered and returned to Salvador Hermanos
the three quedans, or warehouse receipts, Nos. 33, 36, and 39, which the firm had pledged to it as collateral
on January 21, 23, and 25, 1919, to secure the payment of the three notes of P18,000 each, executed on
those respective dates. In its receipt for them, the firm promised to return the quedans to the bank "on or
before the 27th instant;" meaning January 27, 1919, and it was therein stated that such warehouse receipts
"are guaranteed by the attached certificate of existence of the effects of the 8th of February, 1919, issued
by us." The legal effect of this receipt is a promise on the part of the firm to return the three quedans on or
before January 27, 1919, and a statement that such receipts are guaranteed by the attached certificate of
the existence in the warehouse of the property described in the certificate. The statement of February 8,
recites "we hereby certify that there exist the following articles in our bodegas." Then follows a description
of the property. This is nothing but a statement or representation to the effect that the firm has the property
in its warehouse Nothing more. After describing the property, the certificate then says: "And promise that
none of the above articles would be removed without consulting first with the Philippine National Bank."
There is no statement or representation of any kind showing when or from whom the property was received,
or how it was held, or who was the owner, or when or to whom it would be delivered When analyzed, this
writing is nothing more than a certificate of the firm that the described property was then in its warehouse,
and a promise that none of the "articles would be removed without consulting first with the Philippine
National Bank." Such a writing would not transfer the title of the property to the bank, or give it possession,
either actual or constructive. It will be noted that both the receipt of February 10 and the certificate and
promise of February 8, are signed by the firm of Salvador Hermanos, and that the certificate says that the
property was then in the firms warehouse, and that neither instrument was in any manner authenticated by
a notary or a competent public official, as provided by article 1216 of the Civil Code, and that the property
was in the warehouse of the firm.
Article 1863 of the Civil Code provides:
"In addition to the requisites mentioned in article 1857, it shall be necessary, in order to constitute the
contract of pledge, that the pledge be placed in the possession of the creditor or of a third person appointed
by common consent."
But here, it appears from the certificate that the property was then in the possession of the firm, who made
the certificate, and that it was in the possession of that firm when its insolvency petition was filed on April
21, 1919. It further appears that on May 3, 1919, Gregorio Salvador, a member of the firm, appeared at the
offices of Nieva, Ruiz & Company, and requested that firm to issue its warehouse receipts to the Philippine
National Bank for certain goods, which on that date he placed in the warehouse of that company, and, in
accord with his request, Nieva, Ruiz & Company did issue to and in favor of the Philippine National Bank the
following quedans, or warehouse receipts:
No. 161 for 32 bales of hemp, in warehouse No. 2, of the declared value of P880;
No. 162 for 953 bundles of rattan, in warehouse No. 2, of the declared value of P3,700.40;
No. 165 for empty sacks, in warehouse No. 2, of the declared value of P450;
No. 167 for 136 sacks of almaciga, in warehouse No. 1, of the declared value of P2,300;
No. 168 for 1,461 bales of kapok, in warehouse No. 1, of the declared value of P14,571.48;
No. 175 for 288 packages of talcum powder, in warehouse No. 5, of the declared value of P15,582.26;
No. 176 for 35 packages of cartulina, in warehouse No. 5, of the declared value of P2,588.48; and
No. 185 for 134 bundles of empty sacks, in warehouse No. 2, of the declared value of P670, making a total
declared value of the property evidenced by such receipts of P40,742.62.
In the second cause of action, the complaint alleges that the defendant took and converted 88 drums of
gasoline and 100 cases of gasoline; none of which is included in the above receipts. Otherwise the property
described in quedans Nos. 161 to 185, inclusive, correspond and are identical with the property described in
the second cause of action.
The bank founds its right to claim the property described in the quedans Nos. 161 to 185, inclusive, upon
the firms certificate of February 8, 1919, above quoted. By comparison, it will be found that the property
described in such quedans, or warehouse receipts, does not correspond with the property described in the
firms certificate of February 8. In the certificate of February 8, there are aceites y grasas, or oil and grease,
valued at P800, and 9,000 sacks of common salt valued at P18,000 in the bodegas of the firm, and 905
cases of gasoline valued at P11,538.75 and 77 cases of gasoline in drums, 64 gallons, valued at P4,989.60,
in the warehouse of Wise & Company, that are not described in the quedans Nos. 161 to 185, inclusive It
also appears that Talcum Powder in receipt No. 175 of the value of P17,140, and cartulina in receipt No. 176
of the value of P2,847 are not included in the property described in the certificate of February 8, making a
total value of the property described in those two receipts, and which is not included in the certificate of
February 8, of P19,987.
There is not any evidence of the actual market value of the property, but it does appear that at the time
quedans Nos. 161 to 185, inclusive, were issued, the bank itself placed a declared value upon that property
of P40,742.62. Those quedans do not include the gasoline which the bank admits it sold on May 24, 1919,
for P4,989.60, and the gasoline which it sold on May 28, 1919, for the sum of P2,641.80, or P7,631.40
which it received for gasoline. It is true that it appears from the sales report that the bank sold the property
described in quedans Nos. 161 to 185, inclusive, for much less money than the valuation which it placed
upon the property, but, in legal effect, when the quedans were issued, the conversion of that property took
place at the time they were issued to and accepted by the bank, and it should be charged with the value of
the property at the time of its conversion, and in the absence of any testimony as to the market value, it
should be charged with the amount which it actually received from the sale of the gasoline.
It will be noted that the promissory notes executed by the firm to the bank recite:
"Full power and authority are hereby given to said bank to sell, assign, transfer and deliver the whole of the
said securities, or any part thereof, or any substitutes therefor or any additions thereto, or any other
securities or property given unto or left in the possession of or hereafter given unto or left in the possession
of the said Bank by the undersigned."
Hence, the power and authority of the bank to sell, assign, or transfer is confined to property which was
given unto or left in its possession.
As we have pointed out none of the property described in the certificate of February 8 was ever given unto
or left in the possession of the bank.
The insolvency petition was filed April 21, 1919, and the plaintiff was duly elected and qualified, as assignee,
on July 19, 1919, and, as such, it represents both the creditors and the firm. Although it was not appointed
until July, 1919, yet when it did qualify its right and title to all the property of the firm related back and
became vested as of April 21, 1919, when the insolvency petition was filed, and from that time it alone had
the power and authority to act for and represent the firm. Under the terms and provisions of Act No. 1956 of
the Philippine Legislature, after it was filed, the power of the firm or any member of it to deliver possession
of the property to secure a preexisting debt was suspended pending final adjudication. That is to say, if the
debt was not legally secured before the insolvency petition was filed, no member of the firm had any legal
right to secure it after the petition was filed, and any attempt to do so would be null and void.
As to the first cause of action, we hold that in January, 1919, the bank became and remained the owner of
the five quedans Nos. 30, 35, 38, 41, and 42; that they were in form negotiable, and that, as such owner, it
was legally entitled to the possession and control of the property therein described at the time the
insolvency petition was filed and had a right to sell it and apply the proceeds of the sale to its promissory
notes, including the three notes of P18,000 each, which were formerly secured by the three quedans Nos.
33, 36, and 39, which the bank surrendered to the firm. That is to say, the bank had a legal right to apply
the Proceeds from the property described in the five remaining quedans to the payment of its eight
promissory notes.
As to the second cause of action, the judgment of the lower court is reversed, and one will be entered here
in favor of the Philippine Trust Company, the plaintiff, and against the Philippine National Bank, the
defendant, for P40,742.62, the declared value of the property described in quedans Nos. 161 to 185,
inclusive, and for the further sum of P7,631.40, the value of the gasoline sold in May, 1919, or a total of
P48,374.02, with interest thereon from September 22, 1919, at the rate of 6 per cent per annum, and for
the costs and disbursements in this and the lower court. So ordered.
[G.R. No. 34655. March 5, 1932.]

SIY CONG BIENG & CO., INC v HONGKONG & SHANGHAI BANKING CORPORATION
SYLLABUS
1. NEGOTIABLE WAREHOUSE RECEIPTS; ENDORSED IN BLANK. Plaintiff sold certain quantity of hemp to
one by the name of Otto Ranft by quedans and sent the quedans, together with the covering invoice, to
Ranft, without having been paid for, but plaintiffs understanding was that the payment would be made
against the quedans. Ranft on the same day turned over the quedans to the defendant bank to secure
payment of his preexisting debts. Ranft died on the evening of the day the quedans wee delivered to the
bank. Plaintiff brought this action to recover the quedans or their values. Held: Taking into consideration that
the quedans were negotiable in form and duly endorsed in blank by the plaintiff and by Otto Ranft, it follows
that on delivery of the quedans to the bank, they were no longer the property of the indorser unless he
liquidated his debts with the bank.
2. ID.; ID.; AUTHORITY TO NEGOTIATE. The bank had a perfect right to accept the quedans in security of
preexisting debts without investigation of the authority of the person negotiating them. (Section 47, 38 and
40 of the Warehouse Receipts Act No. 2137.)
3. ID.; ID.; ESTOPPEL TO DENY VALID TITLE. Since plaintiff had voluntarily clothed the person who
negotiated the quedans with all the attributes of ownership and upon which the bank relied, it is estopped to
deny that the bank had a valid title to the quedans.
DECISION
OSTRAND, J.:
This action was brought in the Court of First Instance of Manila to recover the sum of P31,645, the value of
464 bales of hemp deposited in certain bonded warehouses as evidenced by the quedans (warehouse
receipts) described in the complaint, said quedans having been delivered as pledge by one Otto Ranft to the
herein defendant, the Hong Kong and Shanghai Banking Corporation, for the graduate of a preexisting debt
of the former to the latter. The record shows that both parties, through their respective counsel, subscribed
and submitted to the court below the following agreement of facts:
"STIPULATIONS OF FACTS
(Translated into English)
"Come now the parties, both the plaintiff and the defendant Hongkong & Shanghai Banking Corporation,
through their respective counsel in the above entitled case, and respectfully submit to the court the
following agreed statement of facts:
"1. That both the plaintiff and the defendant Hongkong & Shanghai Banking Corporation are corporations
domiciled in the City of Manila and duly authorized to transact business in accordance with the laws of the
Philippine Islands.
"2. That the plaintiff is a corporation engaged in business generally, and that the defendant Hongkong &
Shanghai Banking Corporation is a foreign bank authorized to engage in the banking business in the
Philippines.
"3. That on June 25, 1926, certain negotiable warehouse receipts described below were pledged by Otto
Ranft to the defendant Hongkong & Shanghai Banking Corporation to secure the payment of his preexisting
debts to the latter:
No. Warehouseman Depositor Bales
1707 Public Warehouse Co Siy Cong Bieng & Co., Inc. 27
133 W.F. Stevenson Co do 67
1722 Public Warehouse Co do 60
1723 do do 4
1634 The Philippine Warehouse
Company do 99
1918 Public Warehouse Co O. Ranft 166
2 Siy Cong Bieng & Co., Inc do 2
1702 The Philippine Warehouse
Company Siy Cong Bieng & Co., Inc. 39
And that the baled hemp covered by these warehouse receipts was worth P31,635; receipts numbers 1707,
133, 1722, 1723, 1634, and 1702 being endorsed in blank by the plaintiff and Otto Ranft, and numbers
1918 and 2, by Otto Ranft alone.
"4. That in the night of June 25, 1926, said Otto Ranft died suddenly at his home in the City of Manila.
"5. That both parties submit this agreed statement of facts, but reserve their right to have in evidence upon
other points not included herein, and upon which they cannot come to an agreement.
"Manila, August 7, 1929."
The evidence shows that on June 25, 1926, Ranft called at the office of the herein plaintiff to purchase hemp
(abaca), and he was offered the bales of hemp as described in the quedans above mentioned. The parties
agreed to the aforesaid price, and on the same date the quedans, together with the covering invoice, were
sent to Ranft by the plaintiff, without having been paid for the hemp, but the plaintiffs understanding was
that the payment would be made against the same quedans, and it appears that in previous transactions of
the same kind between the bank and the plaintiff, quedans were paid one or two days after their delivery to
them.
In the evening of the day upon which the quedans in question were delivered to the herein defendant, Ranft
died, and when the plaintiff found that such was the case, it immediately demanded the return of the
quedans, or the payment of the value, but was told that the quedans had been sent to the herein defendant
as soon as they were received by Ranft.
Shortly thereafter the plaintiff filed a claim for the aforesaid sum of P31,645 in the intestate proceedings of
the estate of the deceased Otto Ranft, which on an appeal from the decision of the committee on claims,
was allowed by the Court of First Instance in case No. 31372 (City of Manila). In the meantime, demand had
been made by the plaintiff on the defendant bank for the return of the quedans, or their value, which
demand was refused by the bank on the ground that it was a holder of the quedans in due course.
Thereupon the plaintiff filed its first complaint against the defendant, wherein it alleged that it had "sold" the
quedans in question to the deceased O. Ranft for cash, but that the said O. Ranft had not fulfilled the
conditions of the sale. Lateron, plaintiff filed an amended complaint, wherein they changed the word "sold"
referred to in the first complaint to the words "attempted to sell."
Upon trial the judge of the court below rendered judgment in favor of the plaintiff principally on the ground
that in the opinion of the court the defendant bank "could not have acted in good faith for the reason that
according to the statement of its own witness, Thiele, the quedans were delivered to the bank in order to
secure the debts of Ranft for the payment of their value and from which it might be deduced that the said
bank knew that the value of the said quedans was not as yet paid when the same were endorsed to it, and
its alleged belief that Ranft was the owner of the said quedans was not in accordance with the facts proved
at the time" ; and that, moreover, the circumstances were such that "the bank knew, or should have known,
that Ranft had not yet acquired the ownership of the said, quedans and that it therefore could not invoke the
presumption that it was acting in good faith and without negligence on its part."
In our opinion the judgment of the court below is not tenable. It may be noted, first, that the quedans in
question were negotiable in form; second, that they were pledged by Otto Ranft to the defendant bank to
secure the payment of his preexisting debts to said bank (paragraph 3 of the Stipulation of Facts); third,
that such of the quedans as were issued in the name of the plaintiff were duly endorsed in blank by the
plaintiff and by Otto Ranft; and fourth, that the two remaining quedans which were issued directly in the
name of Otto Ranft were also duly endorsed in blank by him.
When these quedans were thus negotiated, Otto Ranft was indebted to the Hongkong & Shanghai Banking
Corporation in the sum of P622,753.22, which indebtedness was partly covered by quedans. He was also
being pressed to deposit additional payments as a further security to the bank, and there is no doubt that
the quedans here in question were received by the bank to secure the payment of Ranfts preexisting debts;
it is so stated in paragraph 3 of the stipulation of facts agreed on by the parties and hereinbefore quoted.
It further appears that it has been the practice of the bank in its transactions with Ranft that the value of the
quedans has been entered in the current accounts between Ranft and the bank, but there is no evidence to
the effect that the bank was at any time bound to pay back to Ranft the amount of any of the quedans, and
there is nothing in the record to show that the bank has promised to pay the value of the quedans neither to
Ranft nor to the herein plaintiffs; on the contrary, as stated in the stipulation of facts, the "negotiable
warehouse receipts were pledged by Otto Ranft to the defendant Hongkong & Shanghai Banking
Corporation to secure the payment of his preexisting debts to the latter", and taking into consideration that
the quedans were negotiable in form and duly endorsed in blank by the plaintiff and by Otto Ranft, it follows
that on the delivery of the quedans to the bank they were no longer the property of the indorser unless he
liquidated his debt with the bank.
In his brief the plaintiff insists that the defendant, before the delivery of the quedans, should have
ascertained whether Ranft had any authority to negotiate the quedans.
We are unable to find anything in the record which in any manner would have compelled the bank to
investigate the indorser. The bank had a perfect right to act as it did, and its action is in accordance with
sections 47, 38, and 40 of the Warehouse Receipts Act (Act No. 2137), which read as follows:
"SEC. 47. When negotiation not impaired by fraud, mistake, or duress. The validity of the negotiation of a
receipt is not impaired by the fact that such negotiation was a breach of duty on the part of the person
making the negotiation, or by the fact that the owner of the receipt was induced by fraud, mistake, or
duress to intrust the possession or custody of the receipt to such person, if the person to whom the receipt
was negotiated, or a person to whom the receipt was subsequently negotiated, paid value therefor, without
notice of the breach of duty, or fraud, mistake, or duress."
"SEC. 38. Negotiation of negotiable receipts by indorsement. A negotiable receipt may be negotiated by
the indorsement of the person to whose order the goods are, by the terms of the receipt, deliverable. Such
indorsement may be in blank, to bearer or to a specified person. . . Subsequent negotiation may be made in
like manner."
"SEC. 40. Who may negotiate a receipt. A negotiable receipt may be negotiated:
"(a) By the owner thereof, or

"(b) By any person to whom the possession or custody of the receipt has been entrusted by the owner, if, by
the terms of the receipt, the warehouseman undertakes to deliver the goods to the order of the person to
whom the possession or custody of the receipt has been entrusted, or if at the time of such entrusting the
receipt is in such form that it may be negotiated by delivery."
The question as to the rights the defendant bank acquired over the aforesaid quedans after indorsement and
delivery to it by Ranft, we find in section 41 of the Warehouse Receipts Act (Act No. 2137):
"SEC. 41. Rights of person to whom a receipt has been negotiated. A person to whom a negotiable receipt
has been duly negotiated acquires thereby:
"(a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a
purchaser in good faith for value, and also such title to the goods as the depositor of person to whose order
the goods were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in
good faith for value, and . . ."
In the case of the Commercial National Bank of New Orleans v. Canal-Louisiana Bank & Trust Co. (239 U. S.,
520), Chief Justice Hughes said in regard to negotiation of receipts:
"It will be observed that one who takes by trespass or a finder is not included within the description of those
who may negotiate. (Report of Commissioner on Uniform State Laws, January 1, 1910, p. 204.) Aside from
this, the intention is plain to facilitate the use of warehouse receipts as documents of title. Under sec. 40,
the person who may negotiate the receipt is either the owner thereof, or a person to whom the possession
or custody of the receipt has been intrusted by the owner if the receipt is in the form described. The
warehouse receipt represents the goods, but the intrusting of the receipt, as stated, is more than the mere
delivery of the goods; it is a representation that the one to whom the possession of the receipt has been so
intrusted has the title to the goods. By sec. 47, the negotiation of the receipt to a purchaser for value
without notice is not impaired by the fact that it is a breach of duty, or that the owner of the receipt was
induced by fraud, mistake, or duress to intrust the receipt to the person who negotiated it. And, under sec.
41, one to whom the negotiable receipt has been duly negotiated acquires such title to the goods as the
person negotiating the receipt to him, or the depositor or person to whose order the goods were deliverable
by the terms of the receipt, either had or had ability to convey to a purchaser in good faith for value. The
clear import of these provisions is that if the owner of the goods permits another to have the possession or
custody of negotiable warehouse receipts running to the order of the latter, or to bearer, it is a
representation of title upon which bona fide purchasers for value are entitled to rely, despite breaches of
trust or violations of agreement on the part of the apparent owner."
In its second assignment of error, the defendant-appellant maintains that the plaintiff-appellee is estopped
to deny that the bank had a valid title to the quedans for the reason that the plaintiff had voluntarily clothed
Ranft with all the attributes of ownership and upon which the defendant bank relied. In our opinion, the
appellants view is correct. In the National Safe Deposit v. Hibbs (229 U. S., 391), certain certificates of
stock were pledged as collateral by the defendant in error to the plaintiff bank, which certificates were
converted by one of the trusted employees of the bank to his own use and sold by him. The stock
certificates were unqualifiedly endorsed in blank by the defendant when delivered to the bank. The Supreme
Court of the United States through Justice Day applied the familiar rule of equitable estoppel that where one
of two innocent persons must suffer a loss he who by his conduct made the loss possible must bear it, using
the following language:
"We think this case correctly states the principle, and, applied to the case in hand, is decisive of it. Here one
of two innocent persons must suffer and the question at last is, Where shall the loss fall? It is undeniable
that the broker obtained the stock certificates, containing all the indicia of ownership and possible of ready
transfer, from one who had possession with the banks consent, and who brought the certificates to him,
apparently clothed with the full ownership thereof by all the tests usually applied by business men to gain
knowledge upon the subject before making a purchase of such property. On the other hand, the bank, for a
legitimate purpose, with confidence in one of its own employees, instrusted the certificates to him, with
every evidence of title and transferability upon them. The banks trusted agent, in gross breach of his duty,
whether with technical criminality or not is unimportant, took such certificates, thus authenticated with
evidence of title, to one who, in the ordinary course of business, sold them to parties who paid full value for
them. In such case we think the principles which underlie equitable estoppel place the loss upon him whose
misplaced confidence has made the wrong possible. . . ."
We regret that the plaintiff in this case has suffered the loss of the quedans, but as far as we can see, there
is now no remedy available to the plaintiff. The bank is not responsible for the loss; the negotiable quedans
wee duly negotiated to the bank and as far as the record shows, there has been no fraud on the part of the
defendant.
The appealed judgment is reversed and the appellant is absolved from the plaintiffs complaint. Without
costs. So ordered.
[G.R. No. 75111. November 21, 1991.]

MARGARITO ALMENDRA v INTERMEDIATE APPELLATE COURT
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; CREDIBILITY; TESTIMONY OF NOTARY THAT HE NOT
ONLY SAW AFFIANT SIGNED AND AFFIXED HER THUMBMARK BUT ALSO THAT AFFIANT
COUNTED THE MONEY, DESERVES MORE CREDENCE THAN SELF-SERVING ALLEGATION
OF ABSENCE OF CONSIDERATION. We agree with the appellate court that there is no
valid, legal and convincing reason for nullifying the questioned deeds of sale. Petitioner
had not presented any strong, complete and conclusive proof to override the
evidentiary value of the duly notarized deeds of sale. Moreover, the testimony of the
lawyer who notarized the deeds of sale that he saw not only Aleja signing and affixing
her thumbmark on the questioned deeds but also Angeles and Aleja "counting money
between them," deserves more credence than the self-serving allegations of the
petitioners. Such testimony is admissible as evidence without further proof of the due
execution of the deeds in question and is conclusive as to the truthfulness of their
contents in the absence of clear and convincing evidence to the contrary.
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALE; FINAL; FILIAL LOVE TAKEN INTO
ACCOUNT IN PAYMENT OF CONSIDERATION OF CONTRACT. The petitioners
allegations that the deeds of sale were "obtained through fraud, undue influence and
misrepresentation," and that there was a defect in the consent of Aleja in the execution
of the documents because she was then residing with Angeles, had not been fully
substantiated. They failed to show that the uniform price of P2,000 in all the sales was
grossly inadequate. It should be emphasized that the sales were effected between a
mother and two of her children in which case filial love must be taken into account.
3. ID.; ID.; ID.; SALE OF PARAPHERNAL PROPERTY BY THE WIFE, VALID. The sale of
the one-half portion of the parcel of land covered by Tax Declaration No. 27190 is valid
because the said property is paraphernal being Alejas inheritance from her own father.
4. ID.; ID.; ID.; A PARTY CAN NOT DISPOSE OF PROPERTY ADJUDICATED TO OTHERS.
As regards the sale of the property covered by Tax Declaration No. 11500, we hold
that, since the property had been found in Civil Case No. 4387 to have been subdivided,
Aleja could not have intended the sale of the whole property covered by said tax
declaration. She could exercise her right of ownership only over Lot No. 6366 which was
unconditionally adjudicated to her in said case.
5. ID.; ID.; ID.; APPLICABILITY OF THE DOCTRINE OF CAVEAT EMPTOR IN CASE AT
BAR. Lot No. 6352 was given to Aleja in Civil Case No. 4387 "subject to whatever
may be the rights thereto of her son Magdaleno Ceno." A reading of the deed of Sale
covering this parcel of land would show that the sale is subject to the condition stated
above; hence, the rights of Magdaleno Ceno are amply protected. The role on caveat
emptor applies.
DECISION
FERNAN, C.J.:
This is a petition for review on certiorari of the then Intermediate Appellate Courts
decision and resolution denying the motion for reconsideration of said decision which
upheld the validity of three (3) deeds of sale of real properties by a mother in favor of
two of her children in total reversal of the decision of the lower court.
The mother, Aleja Ceno, was first married to Juanso Yu Book with whom she had three
children named Magdaleno, Melecia and Bernardina, all surnamed Ceno. Sometime in
the 1920s, Juanso Yu Book took his family to China where he eventually died. Aleja and
her daughter Bernardina later returned to the Philippines.
During said marriage, Aleja acquired a parcel of land which she declared in her name
under Tax Declaration No. 11500. 1 After Juanso Yu Books death, Bernardina filed
against her mother a case for the partition of the said property in the then Court of First
Instance of Leyte. 2 On August 17, 1970, the lower court 3 rendered a "supplemental
decision" 4 finding that the said property had been subdivided into Lots Nos. 6354
(13,738 square meters), 6353 (16,604 square meters), 6352 (23,868 square meters)
and 6366 (71,656 square meters). The dispositive portion of said decision reads:
"IN VIEW OF THE FOREGOING, the Court hereby renders judgment:.
1. Declaring plaintiff Bernardina C. Ojeda as owner and entitled to the possession of Lot
No. 6354 as described in the sketch found on page 44 of the record;
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2. Declaring said plaintiff as owner and entitled to the possession of Lot 6353 as
described in the sketch, without prejudice to whatever may be the rights thereto of her
sister Melecia Ceno who is said to be presently in China;
3. Declaring defendant Aleja C. Almendra as owner and entitled to the possession of Lot
No. 6366 as described in the sketch found on page 44 of the record;
4. Declaring said defendant also as owner and entitled to the possession of Lot No.
6352 as described in the sketch, subject to whatever may be the rights thereto of her
son Magdaleno Ceno who is said to be presently in China.
No special pronouncement as to costs, except that the fees of the commissioner shall
be proportionately borne by the parties.
SO ORDERED."
Meanwhile, Aleja married Santiago Almendra with whom she had four children named
Margarito, Angeles, Roman and Delia. During said marriage Aleja and Santiago acquired
a 59,196-square-meter parcel of land in Cagbolo, Abuyog, Leyte. Original Certificate of
Title No. 10094 was issued therefor in the name of Santiago Almendra married to Aleja
Ceno and it was declared for tax purposes in his name. 5
In addition to said properties, Aleja inherited from her father, Juan Geno, a 16,000square-meter parcel of land also in Cagbolo. 6 For his part, her husband Santiago
inherited from his mother, Nicolasa Alvero, a 16-square-meter parcel of residential land
located in Nalibunan, Abuyog, Leyte. 7
While Santiago was alive, he apportioned an these properties among Alejas children in
the Philippines, including Bernardina, who, in turn, shared the produce of the properties
with their parents. After Santiagos death, Aleja sold to her daughter, Angeles
Almendra, for P2,000 two parcels of land more particularly described in the deed of sale
dated August 10, 1973, 8 as follows:
"1. Half-portion, which pertains to me as my conjugal share, with my late husband

Santiago Almendra of the land located at Bo. Cagbolo, under T/D No. 22234, covered
by OCT No. P-10094 in the name of Santiago Almendra; having an area of 5.9196
hectares; with boundaries specifically designated at the technical descriptions of the
title thereof; and hence the half portion subject of sale shall have an area of more or
less 2.9598 hectares; specifically designated in the sketch below marked as X: the hilly
portion.
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"2. Half-portion of a parcel of land located at Bo. Cagbolo, Abuyog, Leyte under T/D No.
27190 in the name of Aleja Ceno; having an area of 1.6000 hectares bounded as
follows to wit: N. Cagbolo creek; E. Leon Elmido; S. Magno Elmido and W., Higasan
River, which portion shall have an area of more or less 8000 hec. (sic), and designated
as X in the sketch below:" 9
On December 26, 1973, Aleja sold to her son, Roman Almendra, also for P2,000 a
parcel of land described in the deed of sale as located in Cagbulo (sic), Abuyog, Leyte
"under T/D No. 11500 which cancelled T/D No. 9635; having an area of 6.6181 hec.,
assessed at P1,580.00 . . ." 10
On the same day, Aleja sold to Angeles and Roman again for P2,000 yet another parcel
of land described in the deed of sale 11 as follows:
"A parcel of land designated as Lot No. 6352 in the name of Melicia Ceno, under Project
PLS-645, Abuyog, Leyte, which had been treated in the CIVIL Case No. 4387, For
PARTITION OF REAL PROPERTY, CFI-Leyte, Tacloban City, Branch 11; Bernardina Ojeda,
Plaintiff, -vs.- Aleja C. Almendra, defendant, wherein said SUPPLEMENTAL DECISION,

dated August 17th, 1970, in said case by Judge Jesus N. Borromeo:
PART OF THE DECISION, COMMISSIONERS REPORT:
Par. 3) That the partition, plaintiff and defendant agreed to exchange the names or
owners of Lot No. 6353 which is in the name of Magdaleno Ceno with Lot No. 6352 in
the name of Melicia Ceno as appearing in the sketch, copy of the Public Land
Subdivision of Abuyog, Leyte, under Project PLS-645 . . .
DISPOSITIVE PORTION OF SAID DECISION:
Par. 4) Declaring said defendant (Aleja C. Almendra) also as owner and entitled to the
possession of Lot No. 6352 as described in the sketch, subject to whatever may be the
rights thereto of her son Magdaleno Ceno who is said to be presently in China."
Aleja died on May 7, 1975. On January 21, 1977 Margarito, Delia and Bernardina filed a
complaint against Angeles and Roman for the annulment of the deeds of sale in their
favor, partition of the properties subjects therein and accounting of their produce. 12
From China, their sister Melecia signed a special power of attorney in favor of
Bernardina. Magdaleno, who was still in China, was impleaded as a defendant in the
case and summons by publication was made on him. Later, the plaintiffs informed the
court that they had received a document in Chinese characters which purportedly
showed that Magdaleno had died. Said document, however, was not produced in court.
Thereafter, Magdaleno was considered as in default without prejudice to the provisions
of Section 4, Rule 18 of the Rules of Court which allows the court to decide a case
wherein there are several defendants upon the evidence submitted only by the
answering defendants.
On April 30, 19819 the lower court rendered a decision 13 the dispositive portion of
which states:
cralawnad
"WHEREFORE, judgment is hereby rendered declaring the deeds of sale herein (Exhs.E,
F and H) to be simulated and therefore null and void; ordering the partition of the
estate of the deceased Aleja Ceno among her heirs and assigns; appointing the Acting
Clerk of Court, Atty. Cristina T. Pontejos, as commissioner, for the purpose of said
partition, who is expected to proceed accordingly upon receipt of a copy of this
decision; and to render her report on or before 30 days from said receipt. The expenses
of the commissioner shall be borne proportionately by the parties herein.
SO ORDERED."
The defendants appealed to the then Intermediate Appellate Court which, on February
20, 1986 rendered a decision 14 finding that, in nullifying the deeds of sale in question,
the lower court totally disregarded the testimony of the notary public confirming the
authenticity of the signatures of Aleja on said deeds and the fact that Angeles and
Roman actually paid their mother the amounts stipulated in the contracts. The appellate
court also stated that the uniformity in the prices of the sale could not have nullified the
sale because it had been duly proven that there was consideration and that Angeles and
Roman could afford to pay the same. Hence, it upheld the validity of the deeds of sale
and ordered the partition of the "undisposed" properties left by Aleja and Santiago
Almendra and, if an extrajudicial partition can be had, that it be made within a
reasonable period of time after receipt of its decision.
The plaintiffs motion for reconsideration having been denied, they filed the instant
petition for review on certiorari contending principally that the appellate court erred in
having sanctioned the sale of particular portions of yet undivided real properties.
While petitioners contention is basically correct, we agree with the appellate court that
there is no valid, legal and convincing reason for nullifying the questioned deeds of sale.
Petitioner had not presented any strong, complete and conclusive proof to override the
evidentiary value of the duly notarized deeds of sale. 15 Moreover, the testimony of the
lawyer who notarized the deeds of sale that he saw not only Aleja signing and affixing
her thumbmark on the questioned deeds but also Angeles and Aleja "counting money
between them," 16 deserves more credence than the self-serving allegations of the
petitioners. Such testimony is admissible as evidence without further proof of the due
execution of the deeds in question and is conclusive as to the truthfulness of their
contents in the absence of clear and convincing evidence to the contrary. 17
The petitioners allegations that the deeds of sale were "obtained through fraud, undue
influence and misrepresentation," and that there was a defect in the consent of Aleja in
the execution of the documents because she was then residing with Angeles, 18 had
not been fully substantiated. They failed to show that the uniform price of P2,000 in all
the sales was grossly inadequate. It should be emphasized that the sales were effected
between a mother and two of her children in which case filial love must be taken into
account. 19
On the other hand, private respondents Angeles and Roman amply proved that they
had the means to purchase the properties. Petitioner Margarito Almendra himself
admitted that Angeles had a sari-sari store and was engaged in the business of buying
and selling logs. 20 Roman was a policeman before he became an auto mechanic and
his wife was a school teacher. 21
The unquestionability of the due execution of the deeds of sale notwithstanding, the
Court may not put an imprimatur on the intrinsic validity of all the sales. The August
10, 1973 sale to Angeles of one-half portion of the conjugal property covered by OCT
No. P-10094 may only be considered valid as a sale of Alejas one-half interest therein.
Aleja could not have sold the particular hilly portion specified in the deed of sale in the
absence of proof that the conjugal partnership property had been partitioned after the
death of Santiago. Before such partition, Aleja could not claim title to any definite
portion of the property for all she had was an ideal or abstract quota or proportionate
share in the entire property. 22
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However, the sale of the one-half portion of the parcel of land covered by Tax
Declaration No. 27190 is valid because the said property is paraphernal being Alejas
inheritance from her own father. 23
As regards the sale of the property covered by Tax Declaration No. 11500, we hold that,
since the property had been found in Civil Case No. 4387 to have been subdivided,
Aleja could not have intended the sale of the whole property covered by said tax
declaration. She could exercise her right of ownership only over Lot No. 6366 which was
unconditionally adjudicated to her in said case.
Lot No. 6352 was given to Aleja in Civil Case No. 4387 "subject to whatever may be the
rights thereto of her son Magdaleno Ceno." A reading of the deed of Sale 24 covering
this parcel of land would show that the sale is subject to the condition stated above;
hence, the rights of Magdaleno Ceno are amply protected. The role on caveat emptor
applies.
WHEREFORE, the decision of the then Intermediate Appellate Court is hereby affirmed
subject to the modifications herein stated. The lower court is directed to facilitate with
dispatch the preparation and approval of a project of partition of the properties
considered unsold under this decision. No costs.
SO ORDERED
[G.R. No. 61584. November 25, 1992.]

DONATO S. PAULMITAN v COURT OF APPEALS
SYLLABUS
1. CIVIL LAW; PROPERTY; CO-OWNERSHIP; SALE BY CO-OWNER OF THING OWNED IN
COMMON WITHOUT THE CONSENT OF ALL CO-OWNERS; CONSEQUENCES; CASE AT
BAR. When Donato Paulmitan sold on May 28, 1974 Lot No. 1091 to his daughter
Juliana P. Fanesa, he was only a co-owner with respondents and as such, he could only
sell that portion which may be allotted to him upon termination of the co-ownership.
The sale did not prejudice the rights of respondents to one half (1/2) undivided share of
the land which they inherited from their father. It did not vest ownership in the entire
land with the buyer but transferred only the sellers pro indiviso share in the property
and consequently made the buyer a co-owner of the land until it is partitioned. In
Bailon-Casilao v. Court of Appeals, the Court, through Justice Irene R. Cortes, outlined
the effects of a sale by one co-owner without the content of all the co-owners, thus:
"The rights of a co-owner of a certain property are clearly specified in Article 493 of the
Civil Code. Thus: 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 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. 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 [Punsalan v. Boon
Liat, 44 Phil. 320 (1923)]. 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 his grantor in the partition of the thing owned in
common. [Ramirez v. Bautista, 14 Phil. 528 (1909)]. 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 [Mainit v. Bandoy, 14 Phil.
730 (1910)]. 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 coowner-seller are transferred, thereby making the buyer a co-owner of the property."
Applying this principle to the case at bar, the sale by petitioner Donato Paulmitan of the
land to his daughter, petitioner Juliana P. Fanesa, did not give to the latter ownership
over the entire land but merely transferred to her the one half (1/2) undivided share of
her father, thug making her the co-owner of the land in question with the respondents,
her first cousins.
2. ID.; ID.; ID.; REDEMPTION BY CO-OWNER OF THING OWNED IN COMMON;
CONSEQUENCES; CASE AT BAR. The redemption of the land made by Fanesa did not
terminate the co-ownership nor give her title to the entire land subject of the coownership. While the records show that petitioner redeemed the property in its entirety,
shouldering the expenses therefor, that did not make him the owner of all of it. In other
words, it did not put to end the existing state of co-ownership (Supra, art. 489). There
is no doubt that redemption of property entails a necessary expense. Under the Civil
Code: ART. 488. Each co-owner shall have a right to compel the other co-owners to
contribute to the expenses of preservation of the thing or right owned in common and
to the taxes. Any one of the latter may exempt himself from this obligation by
renouncing so much of his undivided interest as may be equivalent to his share of the
expenses and taxes. No such waiver shall be made if it is prejudicial to the coownership. The result is that the property remains to be in a condition of co-ownership.
Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain
the property and consolidate title thereto in his name (Supra, art. 1607). But the
provision does not give to the redeeming co-owner the right to the entire property. It
does not provide for a mode of terminating a co-ownership." Although petitioner Fanesa
did not acquire ownership over the entire lot by virtue of the redemption she made,
nevertheless, she did acquire the right to be reimbursed for half of the redemption price
she paid to the Provincial Government of Negros Occidental on behalf of her co-owners.
Until reimbursed, Fanesa holds a lien upon the subject property for the amount due her.
3. ID.; SUCCESSION; RIGHTS TO SUCCESSION TRANSMITTED FROM MOMENT OF
DEATH OF DECEDENT; RELATIVE NEAREST IN DEGREE EXCLUDES MORE DISTANT
ONES; CASE AT BAR. When Agatona died in 1953, she was survived by two (2) sons,
Donato and Pascual. Since it is well-settled by virtue of Article 777 of the Civil Code
that" [t]he rights to the succession are transmitted from the moment of the death of
the decedent," the right of ownership, not only of Donato but also of Pascual, over their
respective shares in the inheritance was automatically and by operation of law vested in
them in 1953 when their mother died intestate. At that stage, the children of Donato
and Pascual did not yet have any right over the inheritance since" [i]n every inheritance
the relative nearest in degree excludes the more distant ones." Donato and Pascual
excluded their children as to the right to inherit from Agatona Sagario Paulmitan, their
mother.
4. ID.; ID.; BEFORE PARTITION WHOLE ESTATE OF DECEDENT OWNED IN COMMON BY
HEIRS; CASE AT BAR. From the time of the death of Agatona Sagario Paulmitan to
the subsequent passing away of her son Pascual in 1953, the estate remained
unpartitioned. Article 1078 of the Civil Code provides: "Where there are two or more
heirs, the whole estate of the decedent is, before its partition, owned in common by
such heirs, subject to the payment of debts of the deceased." Donato and Pascual
Paulmitan were, therefore, co-owners of the estate left by their mother as no partition
was ever made. When Pascual Paulmitan died intestate in 1953, his children, the
respondents, succeeded him in the co-ownership of the disputed property. Pascual
Paulmitans right of ownership over an undivided portion of the property passed on to
his children, who, from the time of Pascuals death, became co-owners with their uncle
Donato over the disputed decedent estate.
5. REMEDIAL LAW; APPEAL; ONLY QUESTIONS OF LAW RAISED IN PETITION FOR
REVIEW; FACTUAL FINDINGS OF TRIAL COURT AND COURT OF APPEALS GENERALLY
FINAL AND CONCLUSIVE. Petitioners dispute the order of the trial court, which the
Court of Appeals affirmed, for them to pay private respondents P5,000.00 per year
from 1966 until the partition of the estate which represents the share of private
respondents in the fruits of the land. According to petitioners, the land is being leased
for P2,000.00 per year only. This assigned error, however, raises a factual question. The
settled rule is that only questions of law may be raised in a petition for review. As a
general rule, findings of fact made by the trial court and the Court of Appeals are final
and conclusive and cannot be reviewed on appeal.
DECISION
ROMERO, J.:
This is a petition for review on certiorari seeking the reversal of the decision 1 of the
Court of Appeals, dated July 14, 1982 in CA-G.R. No. 62255-R entitled "Alicio
Paulmitan, Et. Al. v. Donato Sagario Paulmitan, Et. Al." which affirmed the decision 2 of
the then Court of First Instance (now RTC) of Negros Occidental, 12th Judicial District,
Branch IV, Bacolod City, in Civil Case No. 11770.
The antecedent facts are as follows:
Agatona Sagario Paulmitan, who died sometime in 1953, 3 left the two following parcels
of land located in the Province of Negros Occidental: (1) Lot No. 757 with an area of
1,946 square meters covered by Original Certificate of Title (OCT) No. RO-8376; and
(2) Lot No. 1091 with an area of 69,080 square meters and covered by OCT No. RO11653. From her marriage with Ciriaco Paulmitan, who is also now deceased, Agatona
begot two legitimate children, namely: Pascual Paulmitan, who also died in 1953, 4
apparently shortly after his mother passed away, and Donato Paulmitan, who is one of
the petitioners. Petitioner Juliana P. Fanesa is Donatos daughter while the third
petitioner, Rodolfo Fanesa, is Julianas husband. Pascual Paulmitan, the other son of
Agatona Sagario, is survived by the respondents, who are his children, namely: Alicio,
Elena, Abelino, Adelina, Anita, Baking and Anito, all surnamed Paulmitan.
Until 1963, the estate of Agatona Sagario Paulmitan remained unsettled and the titles
to the two lots mentioned above remained in the name of Agatona. However, on August
11, 1963, petitioner Donato Paulmitan executed an Affidavit of Declaration of Heirship,
extrajudicially adjudicating unto himself Lot No. 757 based on the claim that he is the
only surviving heir of Agatona Sagario. The affidavit was filed with the Register of
Deeds of Negros Occidental who, on August 20, 1963, cancelled OCT No. RO-8376 in
the name of Agatona Sagario and issued Transfer Certificate of Title (TCT) No. 35979 in
Donatos name.
As regards Lot No. 1091, Donato executed on May 28, 1974 a Deed of Sale over the
same in favor of petitioner Juliana P. Fanesa, his daughter. 5
In the meantime, sometime in 1952, for non-payment of taxes, Lot No. 1091 was
forfeited and sold at a public auction, with the Provincial Government of Negros
Occidental being the buyer. A Certificate of Sale over the land was executed by the
Provincial Treasurer in favor of the Provincial Board of Negros Occidental. 6
On May 29, 1974, Juliana P. Fanesa redeemed the property from the Provincial
Government of Negros Occidental for the amount of P2,959.09. 7
On learning of these transactions, respondents children of the Late Pascual Paulmitan
filed on January 18, 1975 with the Court of First Instance of Negros Occidental a
Complaint against petitioners to partition the properties plus damages.
chanroble s virtual lawlibrary
Petitioners set up the defense of prescription with respect to Lot No. 757 as an
affirmative defense, contending that the Complaint was filed more than eleven years
after the issuance of a transfer certificate of title to Donato Paulmitan over the land as a
consequence of the registration with the Register of Deeds, of Donatos affidavit
extrajudicially adjudicating unto himself Lot No. 757. As regards Lot No. 1091,
petitioner Juliana P. Fanesa claimed in her Answer to the Complaint that she acquired
exclusive ownership thereof not only by means of a deed of sale executed in her favor
by her father, petitioner Donato Paulmitan, but also by way of redemption from the
Provincial Government of Negros Occidental.
Acting on the petitioners affirmative defense of prescription with respect to Lot No.
757, the trial court issued an order dated April 22, 1976 dismissing the complaint as to
the said property upon finding merit in petitioners affirmative defense. This order,
which is not the object of the present petition, has become final after respondents
failure to appeal therefrom.
Trial proceeded with respect to Lot No. 1091. In a decision dated May 20, 1977, the
trial court decided in favor of respondents as to Lot No. 1091. According to the trial
court, the respondents, as descendants of Agatona Sagario Paulmitan were entitled to
one-half (1/2) of Lot No. 1091, pro indiviso. The sale by petitioner Donato Paulmitan to
his daughter, petitioner Juliana P. Fanesa, did not prejudice their rights. And the
repurchase by Juliana P. Fanesa of the land from the Provincial Government of Negros
Occidental did not vest in Juliana exclusive ownership over the entire land but only gave
her the right to be reimbursed for the amount paid to redeem the property. The trial
court ordered the partition of the land and directed petitioners Donato Paulmitan and
Juliana P. Fanesa to pay private respondents certain amounts representing the latters
share in the fruits of the land. On the other hand, respondents were directed to pay
P1,479.55 to Juliana P. Fanesa as their share in the redemption price paid by Fanesa to
the Provincial Government of Negros Occidental. The dispositive portion of the trial
courts decision reads:
"WHEREFORE, judgment is hereby rendered on the second cause of action pleaded in

the complaint as follows:
"1. The deed of sale (Exh.F) dated May 28, 1974 is valid insofar as the one-half
undivided portion of Lot 1091 is concerned as to vest ownership over said half portion
in favor of defendant Juliana Fanesa and her husband Rodolfo Fanesa, while the
remaining half shall belong to plaintiffs, pro-indiviso;
"2. Lot 1091, Cadastral Survey of Pontevedra, Province of Negros Occidental, now
covered by TCT No. RO-11653 (N.A.), is ordered partitioned. The parties must proceed
to an actual partition by property instrument of partition, submitting the corresponding
subdivision within sixty (60) days from finality of this decision, and should they fail to
agree, commissioners of partition may be appointed by the Court;
"3. Pending the physical partition, the Register of Deeds of Negros Occidental is ordered
to cancel Original Certificate of Title No. RO-11653 (N.A.) covering Lot 1091,
Pontevedra Cadastre, and to issue in lieu thereof a new certificate of title in the name of
plaintiffs and defendants, one half portion each, pro-indiviso, as indicated in paragraph
1 above;
"4. Plaintiffs are ordered to pay, jointly and severally, defendant Juliana Fanesa the
amount of P1,479.55 with interest at the legal rate from May 28, 1974 until paid;
"5. Defendants Donato Sagario Paulmitan and Juliana Paulmitan Fanesa are ordered to
account to plaintiffs and to pay them, jointly and severally, the value of the produce
from Lot 1091 representing plaintiffs share in the amount of P5,000.00 per year from
1966 up to the time of actual partition of the property, and to pay them the sum of
P2,000.00 as attorneys fees as well as the costs of the suit."
On appeal, the Court of Appeals affirmed the trial courts decision. Hence this petition.
To determine the rights and obligations of the parties to the land in question, it is well
to review, initially, the relatives who survived the decedent Agatona Sagario Paulmitan.
When Agatona died in 1953, she was survived by two (2) sons, Donato and Pascual. A
few months later in the same year, Pascual died, leaving seven children, the private
respondents. On the other hand, Donatos sole offspring was petitioner Juliana P.
Fanesa.
At the time of the relevant transactions over the properties of decedent Agatona
Sagario Paulmitan, her son Pascual had died, survived by respondents, his children. It
is, thus, tempting to apply the principles pertaining to the right of representation as
regards respondents. It must, however, be borne in mind that Pascual did not
predecease his mother 8 thus precluding the operation of the provisions in the Civil
Code on the right of representation 9 with respect to his children, the respondents.
When Agatona Sagario Paulmitan died intestate in 1952, her two (2) sons Donato and
Pascual were still alive. Since it is well-settled by virtue of Article 777 of the Civil Code
that" [t]he rights to the succession are transmitted from the moment of the death of
the decedent," 10 the right of ownership, not only of Donato but also of Pascual, over
their respective shares in the inheritance was automatically and by operation of law
vested in them in 1953 when their mother died intestate. At that stage, the children of
Donato and Pascual did not yet have any right over the inheritance since" [i]n every
inheritance the relative nearest in degree excludes the more distant ones." 11 Donato
and Pascual excluded their children as to the right to inherit from Agatona Sagario
Paulmitan, their mother.
chanroblesvirtualawlibrary
From the time of the death of Agatona Sagario Paulmitan to the subsequent passing
away of her son Pascual in 1953, the estate remained unpartitioned. Article 1078 of the
Civil Code provides: "Where there are two or more heirs, the whole estate of the
decedent is, before its partition, owned in common by such heirs, subject to the
payment of debts of the deceased." 12 Donato and Pascual Paulmitan were, therefore,
co-owners of the estate left by their mother as no partition was ever made.
When Pascual Paulmitan died intestate in 1953, his children, the respondents,
succeeded him in the co-ownership of the disputed property. Pascual Paulmitans right
of ownership over an undivided portion of the property passed on to his children, who,
from the time of Pascuals death, became co-owners with their uncle Donato over the
disputed decedent estate.
Petitioner Juliana P. Fanesa claims ownership over Lot No. 1091 by virtue of two
transactions, namely: (a) the sale made in her favor by her father Donato Paulmitan;
and (b) her redemption of the land from the Provincial Government of Negros
Occidental after it was forfeited for non-payment of taxes.
When Donato Paulmitan sold on May 28, 1974 Lot No. 1091 to his daughter Juliana P.
Fanesa, he was only a co-owner with respondents and as such, he could only sell that
portion which may be allotted to him upon termination of the co-ownership. 13 The sale
did not prejudice the rights of respondents to one half (1/2) undivided share of the land
which they inherited from their father. It did not vest ownership in the entire land with
the buyer but transferred only the sellers pro indiviso share in the property 14 and
consequently made the buyer a co-owner of the land until it is partitioned. In BailonCasilao v. Court of Appeals, 15 the Court, through Justice Irene R. Cortes, outlined the
effects of a sale by one co-owner without the content of all the co-owners, thus:
"The rights of a co-owner of a certain property are clearly specified in Article 493 of the
Civil Code. Thus:
ARTICLE 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 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. [Emphasis supplied.].
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 [Punsalan v. Boon Liat, 44 Phil. 320 (1923)]. 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 his grantor in
the partition of the thing owned in common. [Ramirez v. Bautista, 14 Phil. 528 (1909)].
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
[Mainit v. Bandoy, 14 Phil. 730 (1910)].
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."
Applying this principle to the case at bar, the sale by petitioner Donato Paulmitan of the
land to his daughter, petitioner Juliana P. Fanesa, did not give to the latter ownership
over the entire land but merely transferred to her the one half (1/2) undivided share of
her father, thug making her the co-owner of the land in question with the respondents,
her first cousins.
Petitioner Juliana P. Fanesa also claims ownership of the entire property by virtue of the
fact that when the Provincial Government of Negros Occidental bought the land after it
was forfeited for non-payment of taxes, she redeemed it.
The contention is without merit.
The redemption of the land made by Fanesa did not terminate the co-ownership nor
give her title to the entire land subject of the co-ownership. Speaking on the same
issue raised by petitioners, the Court, in Adille v. Court of Appeals, 16 resolved the
same with the following pronouncements:
"The petition raises a purely legal issue: May a co-owner acquire exclusive ownership
over the property held in common?
Essentially, it is the petitioners contention that the property subject of dispute devolved
upon him upon the failure of his co-heirs to join him in its redemption within the period
required by law. He relies on the provisions of Article 1515 of the old Civil Code, Article
1613 of the present Code, giving the vendee a retro the right to demand redemption of
the entire property.
There is no merit in this petition.

The right of repurchase may be exercised by a co-owner with respect to his share alone
(CIVIL CODE, art. 1612; CIVIL CODE (1889), art. 1514.). While the records show that
petitioner redeemed the property in its entirety, shouldering the expenses therefor, that
did not make him the owner of all of it. In other words, it did not put to end the existing
state of co-ownership (Supra, art. 489). There is no doubt that redemption of property
entails a necessary expense. Under the Civil Code:
ARTICLE 488. Each co-owner shall have a right to compel the other co-owners to
contribute to the expenses of preservation of the thing or right owned in common and
to the taxes. Any one of the latter may exempt himself from this obligation by
renouncing so much of his undivided interest as may be equivalent to his share of the
expenses and taxes. No such waiver shall be made if it is prejudicial to the coownership.
The result is that the property remains to be in a condition of co-ownership. While a
vendee a retro, under Article 1613 of the Code, "may not be compelled to consent to a
partial redemption," the redemption by one co-heir or co-owner of the property in its
totality does not vest in him ownership over it. Failure on the part of all the co-owners
to redeem it entitles the vendee a retro to retain the property and consolidate title
thereto in his name (Supra, art. 1607). But the provision does not give to the
redeeming co-owner the right to the entire property. It does not provide for a mode of
terminating a co-ownership."
Although petitioner Fanesa did not acquire ownership over the entire lot by virtue of the
redemption she made, nevertheless, she did acquire the right to be reimbursed for half
of the redemption price she paid to the Provincial Government of Negros Occidental on
behalf of her co-owners. Until reimbursed, Fanesa holds a lien upon the subject
property for the amount due her. 17
Finally, petitioners dispute the order of the trial court, which the Court of Appeals
affirmed, for them to pay private respondents P5,000.00 per year from 1966 until the
partition of the estate which represents the share of private respondents in the fruits of
the land. According to petitioners, the land is being leased for P2,000.00 per year only.
This assigned error, however, raises a factual question. The settled rule is that only
questions of law may be raised in a petition for review. As a general rule, findings of
fact made by the trial court and the Court of Appeals are final and conclusive and
cannot be reviewed on appeal. 18
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals
AFFIRMED.
[G.R. No. L-17681. February 26, 1965.]
MINDANAO ACADEMY, INC v ILDEFONSO D. YAP
SYLLABUS
1. SALE; VOID ENTIRELY WHERE VENDORS CEDED ALSO INTEREST BELONGING TO
PERSONS NOT PARTIES AND PRESTATION IS INDIVISIBLE. A contract of sale is
entirely null and void where it purports to sell properties of which the sellers were not
the only owners and the prestation involved was indivisible, and therefore incapable of
partial annulment.
2. ID.; LEGAL FICTION OF GOOD FAITH CEASES AFTER COMPLAINT IS FILED IN
COURT. Although the bad faith of one party neutralizes that of the other and hence
as between themselves their rights would be as if both of them had acted in good faith
at the time of the transaction, this legal fiction of the buyers good faith ceased when
the complaint against him was filed.
3. ID.; ID.; POSSESSOR IN GOOD FAITH NOT ENTITLED TO FRUITS AFTER LEGAL
INTERRUPTION OF POSSESSION. A possessor in good faith is entitled to the fruits

only so long as his possession is not legally interrupted, and such interruption takes
place upon service of judicial summons.
4. ID.; ID.; POSSESSOR IN GOOD FAITH NOT ENTITLED TO REIMBURSEMENT OF
IMPROVEMENTS CONSTRUCTED AFTER FILING OF ACTION FOR ANNULMENT. A
possessor in good faith cannot recover the value of a new building constructed after the
filing of an action for annulment of the sale of land on which it is constructed, thus
rendering him a builder in bad faith who is denied by law any right of reimbursement.
5. DAMAGES; NOMINAL AND EXEMPLARY DAMAGES NOT AWARDED TO
STOCKHOLDERS ALREADY REPRESENTED BY THE CORPORATION. Where the
interests of the stockholders were already represented by the corporation itself, which
was the proper party plaintiff, and no cause of action accruing to them separately from
the corporation is alleged in the complaint, the trial courts ruling out the claim for
moral damages to the corporation also rules out any award for such nominal and
exemplary damages to the stockholders.
DECISION
MAKALINTAL, J.:
By deed entitled "Mutual Agreement," executed on May 10, 1964, Rosenda A. de Nuqui
(widow of deceased Sotero Dionisio) and her son Sotero Dionisio, Jr. sold three parcels
of residential land in Oroquieta, Misamis Occidental, and another parcel in Ozamis City
in favor of Ildefonso D. Yap. Included in the sale were certain buildings situated on said
lands as well as laboratory equipment, books, furniture and fixtures used by two
schools established in the respective properties: the Mindanao Academy in Oroquieta
and the Misamis Academy in Ozamis City. The aggregate price stated in the deed was
P100,700.00, to be paid according to the terms and conditions specified in the contract.
Besides Rosenda and her son Sotero, Jr., both of whom signed the instrument, Adelaida
Dionisio Nuesa (a daughter of Rosenda) is also named therein as co-vendor, but actually
did not take part either personally or through her uncle and supposed attorney-in-fact,
Restituto Abuton.
These three Rosenda and her two children above named are referred to in the deed
as the owners pro-indiviso of the properties sold. The truth, however, was that there
were other co-owners of the lands, namely, Erlinda D. Diaz, Ester Aida D. Bas,
Rosalinda D. Belleza and Luz Minda D. Dajao, children also of Rosenda by her deceased
husband Sotero Dionisio, Sr., and that as far as the school buildings, equipment, books,
furniture and fixtures were concerned, they were owned by the Mindanao Academy,
Inc., a corporation operating both the Mindanao Academy in Oroquieta and the Misamis
Academy in Ozamis City.
The buyer, Ildefonso D. Yap, obtained possession of the properties by virtue of the sale,
took over the operation of the two schools and even changed their names to Harvardian
Colleges. In view thereof two actions were commenced in the Court of First Instance of
Misamis Occidental. The first was for annulment of the sale and recovery of rents and
damages (Civil Case No. 1774, filed May 3,1955) with the Mindanao Academy, Inc., the
five children of Rosenda Nuqui who did not take part in the deed of sale, and several
other persons who were stockholders of the said corporation, as plaintiffs, and the
parties who signed the deed of sale as defendants. The second action was for rescission
(Civil Case No. 1907, filed July 17, 1956) with Rosenda Nuqui, Sotero Dionisio, Jr. and
Erlinda D. Diaz (and the latters husband Antolin Diaz) as plaintiffs, and Ildefonso D.
Yap as lone defendant. The other four children of Rosenda did not join, having
previously ceded and quitclaimed their shares in the litigated properties in favor of their
sister Erlinda D. Diaz.
The two actions were tried jointly and on March 31, 1960 the court a quo rendered
judgment as follows:
"In both Cases

(1) The Mutual Agreement is hereby declared null and void ab initio;
(2) Defendant Ildefonso D. Yap is hereby ordered to pay the costs of the proceedings in
both cases.
In Civil Case No. 1907 only
(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the plaintiffs in said case
all the buildings and grounds described in the Mutual Agreement together with all the
permanent improvements thereon;
(2) To pay to the plaintiffs therein the amount of P300.00 monthly from July 31, 1956
up to the time he shall have surrendered the properties in question to the plaintiffs
therein, plus P1,000.00 as attorneys fees to plaintiffs Antolin and Erlinda D. Diaz.
In Civil Case No. 1774 only
(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the Mindanao Academy,
Inc., all the books, laboratory apparatus, furniture and other equipments described in
the Mutual Agreement and specified in the Inventory attached to the Records of this
case; or in default thereof, their value in the amount of P23,500.00;
(2) To return all the Records of the Mindanao Academy and Misamis Academy;
(3) To pay to the plaintiffs stockholders of the Mindanao Academy, Inc., the amount of
P10,000.00 as nominal damages; P3,000.00 as exemplary damages; and P2,000.00 as
attorneys fees. These damages shall be apportioned to each of the stockholders named
as plaintiffs in said case in proportion to their respective interests in the corporation."
Ildefonso D. Yap appealed from the foregoing judgment and has assigned five errors
therein.
I. He first contends that the lower court erred "in declaring that the mutual agreement
dated May 10, 1954 . . . is entirely void and legally non existent in that the vendors
therein ceded to defendant-appellant not only their interest, rights, shares and
participation in the property sold but also those that belonged to persons who were not
parties thereto."
The lower court did not rule categorically on the question of rescission, considering it
unnecessary to do so in view of its conclusion that the contract of sale is null and void.
This conclusion is premised on two grounds: (a) the contract purported to sell
properties of which the sellers were not the only owners, since of the four parcels of
land mentioned in the deed their shares consisted only of 7/12, (6/12 for Rosenda
Nuqui and 1/12 for Sotero, Jr.), while in the buildings, laboratory equipment, books,
furniture and fixtures they had no participation at all, the owner being the Mindanao
Academy, Inc.; and (b) the prestation involved in the sale was indivisible, and therefore
incapable of partial annulment, inasmuch as the buyer Yap, by his own admission,
would not have entered into the transaction except to acquire all of the properties
purchased by him.
These premises are not challenged by appellant. But he calls attention to one point,
namely, that the four children of Rosenda Nuqui who did not take part in the sale,
besides Erlinda Dionisio Diaz, quitclaimed in favor of the latter their interests in the
properties; and that the trial court held that Erlinda as well as her husband acted in bad
faith, because "having reasonable notice of defendants having unlawfully taken
possession of the property, they failed to make reasonable demands for (him) to vacate
the premises to respect their rights thereto." It is argued that being herself guilty of
bad faith, Erlinda D. Diaz, as owner of 5/12 undivided interest in the properties
(including the 4/12 ceded to her by her four sisters), is in no position to ask for
annulment of the sale. The argument does not convince us. In the first place the
quitclaim, in the form of an extrajudicial partition, was made on May 6, 1956, after the
action for annulment was filed, wherein, the plaintiffs were not only Erlinda but also the
other co-owners who took no part in the sale and to whom there has been no
imputation of bad faith. Secondly the trial courts finding of bad faith is an erroneous
conclusion induced by a manifest oversight of an undisputed fact, namely, that on June
10, 1954, just a month after the deed of sale in question, Erlinda D. Diaz did file an
action against Ildefonso D. Yap and Rosenda Nuqui, among others, asserting her rights
as co-owner of the properties (Case No. 1646). Finally, bad faith on the part of Erlinda
would not militate against the nullity of the sale, considering that it included not only
the lands in common by Rosenda Nuqui and her six children but also the buildings and
school facilities owned by the Mindanao Academy, Inc., an entity which had nothing to
do with the transaction and which could be represented solely by its Board of Trustees.
The first assignment of error is therefore without merit.
II. The second and third errors are discussed jointly in appellant brief. They read as
follows:
"THE LOWER COURT ERRED IN HOLDING DEFENDANT - APPELLANT LIABLE FOR RENTS
AND ATTORNEYS FEES IN THE SUM OF P1,000.00 AFTER DECLARING THAT ALL THE
PLAINTIFFS-APPELLEES IN CIVIL CASE NO. 1907 ACTED IN BAD FAITH.
"THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLEES IN SAID CIVIL
CASE NO. 1907 ARE ENTITLED TO RECOVER ALL THE LANDS, BUILDINGS AND OTHER
PERMANENT IMPROVEMENTS DESCRIBED IN THE MUTUAL AGREEMENT DATED MAY 10,
1954."
The lower court correctly found that both vendors and vendee in the sale acted in bad
faith and therefore must be treated, vis-a-vis each other, as having acted in good faith.
The return of the properties by the vendee is a necessary consequence of the decree of
annulment. No part of the purchase price having been paid, as far as the record shows,
the trial court correctly made no corresponding order for the restitution thereof.
In regard to the rents the trial court found that prior to the sale the Mindanao Academy,
Inc., was paying P300.00 monthly for its occupancy of the lands on which the buildings
are situated. This is the amount the defendant has been ordered to pay to the plaintiffs
in Civil Case No. 1907, beginning July 31, 1956, when he filed his "first pleading" in the
case. There can be no doubt that Erlinda D. Diaz is entitled to recover a share of the
said rents in proportion to her own interest in the lands and the interest of her four coowners which she had acquired. Rosenda Nuqui and her son Sotero, it is true, acted in
bad faith when they sold the properties as theirs alone; but so did the defendant Yap
when he purchased them with knowledge of the fact that there were other co-owners.
Although the bad faith of one party neutralizes that of the other and hence as between
themselves their rights would be as if both of them had acted in good faith at the time
of the transaction, this legal fiction of Yaps good faith ceased when they sold the
properties as theirs alone; but so did the courts declaration of liability for the rents
thereafter is correct and proper. A possessor in good faith is entitled to the fruits only
so long as his possession is not legally interrupted, and such interruption takes place
upon service of judicial summons (Arts. 544 and 1123, Civil Code).
In our opinion the award of attorneys fees to Erlinda D. Diaz and her husband is
erroneous. Civil Case No. 1907, in which said fees have been adjudged, is for rescission
(more properly resolution) of the so-called "mutual agreement" on the ground that the
defendant Yap failed to comply with certain undertakings specified therein relative to
the payment of the purchase price. Erlinda Diaz was not a party to that agreement and
hence had no cause of action for rescission. And as already stated, the trial court did
not decide the matter of rescission because of the decree of annulment it rendered in
the other case (Civil No. 1774), wherein the defendants are not only Ildefonso D. Yap
but also Rosenda Nuqui and her son Sotero. Erlinda D. Diaz could just as well have
refrained from joining as plaintiff in the action for rescission, not being a part to the
contract sought to be rescinded and being already one of the plaintiffs in the other
action. In other words, it cannot be said with justification that she was constrained to
litigate, in Civil Case No. 1907, because of some cause attributable to the Appellant.
The appellant claims reimbursement for the value of the improvements he allegedly
introduced in the schools, consisting of new building worth P8,000.00 and a toilet
costing P800.00, besides laboratory equipment, furniture, fixtures and books for the
libraries. It should be noted that the judgment of the trial court specifies, for delivery to
the plaintiffs (in Civil Case No. 1907), only "the buildings and grounds described in the
mutual agreement together with all the permanent improvements thereon." If the
defendant constructed a new building, as he alleges, he cannot recover its value
because the construction was done after the filing of the action for annulment, thus
rendering him a builder in bad faith who is denied by law any right of reimbursement.
In connection with the equipment, books, furniture and fixtures brought in by him, he is
not entitled to reimbursement either, because the judgment does not award them to
any of the plaintiffs in these two actions. What is adjudged (in Civil Case No. 1774) is
for the defendant to restore to the Mindanao Academy, Inc. all the books, laboratory
apparatus, furniture and other equipment "described in the Mutual Agreement and
specified in the Inventory attached to the records of this case; or in default thereof,
their value in the amount of P23,500.00." In other words, whatever has been brought
in by the defendant is outside the scope of the judgment and may be retained by him.
III. The appellants fourth assignment of error refers to the nominal and exemplary
damages, as well as the attorneys fees, granted to the stockholders of the Mindanao
Academy, Inc. The trial court awarded no compensatory damages because the
Mindanao Academy, Inc., had been operating the two schools at a loss before the sale
in question, and the defendant himself was no more successful after he took over. Are
the stockholders of the said corporation who joined as plaintiffs in Civil Case No. 1774
entitled to nominal and exemplary damages? We do not believe so. According to their
second amended complaint they were joined merely pro forma, and "for the sole
purpose of the moral damage which has been all the time alleged in the original
complaint." Indeed the interests of the said stockholders, if any, were already
represented by the corporation itself, which was the proper party plaintiff; and no cause
of action accruing to them separately from the corporation is alleged in the complaint,
other than that for moral damages due to "extreme mental anguish, serious anxiety
and wounded feelings." The trial court, however, ruled out this claim for moral damages
and no appeal from such ruling has taken. The award for nominal and exemplary
damages should be eliminated in toto.
The award for attorneys fees in the amount of P2,000.00 should be upheld, although
the same should be for the account, not of the plaintiff stockholders of the Mindanao
Academy, Inc., but of the corporation itself, and payable to their common counsel as
prayed for in the complaint.
IV. Under the fifth and last assignment of error the appellant insists on the warranty
provided for in Clause VI of the deed of sale in view of the claims of the co-owners who
did not take part therein. The said clause provides: "if any claim shall be filed against
the properties or any right, share or interest which are in the possession of the party of
the First Part (vendors) which had been hereby transferred, ceded and conveyed unto
the party of the Second Part (vendee) the party of the First Part assumes as it hereby
holds itself answerable."
It is unnecessary to pass upon the question posed in this assignment of error in view of
the total annulment of the sale on grounds concerning which both parties thereto were
at fault. The nullity of the contract precludes enforcement of any of its stipulations.
WHEREFORE, the judgment appealed from is modified by eliminating therefrom the
award of attorneys fees of P1,000.00 in favor of Erlinda D. Diaz and her husband,
plaintiffs in Civil Case No. 1907, and the award of nominal and exemplary damages in
Civil Case No. 1774; and making the award of attorneys fees in the sum of P2,000.00
payable to counsel for the account of the Mindanao Academy, Inc. instead of the
plaintiff stockholders. In all other respects the judgment appealed from is affirmed. No
pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes J.B.L., Paredes and Bengzon,
J.P., JJ., concur.

Sales Case Set 7

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[G.R. No. 83432. May 20, 1991.

The facts as found by the Court of Appeals are as follows:

[G.R. No. L-18497. May 31, 1965.]

[G.R. No. L-27587. February 18, 1970.]

REYES, J.B.L., J.:

[G.R. No. 16483. December 7, 1921. ]

No. Date Sacks Piculs Declared

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to which was attached this writing:

"MANILA, P. I., February 8, 1919.

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81,904 kilos kapok @ 0.20 ko 16,380.80

No. 161 for 32 bales of hemp;

Also the following:

[G.R. No. 34655. March 5, 1932.]

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"(a) By the owner thereof, or

[G.R. No. 75111. November 21, 1991.]

"IN VIEW OF THE FOREGOING, the Court hereby renders judgment:.

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"1. Half-portion, which pertains to me as my conjugal share, with my late husband

Plaintiff, -vs.- Aleja C. Almendra, defendant, wherein said SUPPLEMENTAL DECISION,

PART OF THE DECISION, COMMISSIONERS REPORT:

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[G.R. No. 61584. November 25, 1992.]

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"WHEREFORE, judgment is hereby rendered on the second cause of action pleaded in

There is no merit in this petition.

INTERRUPTION OF POSSESSION. A possessor in good faith is entitled to the fruits

"In both Cases

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