EN BANC
(c) that the defendants never refused to pay the justly reduced
G.R. No. L-29449 December 29, 1928
LEODEGARIO AZARRAGA, plaintiff-appellee,
vs.
MARIA GAY, defendant-appellant.
Araneta and Zaragoza for appellant.
Azarraga and Panis for appellee.
VILLAMOR, J.:
By a public document Exhibit A, dated January 17, 1921, the
plaintiff sold two parcels of lands to the defendant for the
lump sum of P47,000, payable in installments.
The conditions of the payment were: P5,000 at the time of
signing the contract Exhibit A; P20,000 upon delivery by the
vendor to the purchaser of the Torrens title to the first parcel
described in the deed of sale, P10,000 upon delivery by the
vendor to the purchaser of Torrens title to the second parcel;
and lastly the sum of P12,000 one year after the delivery of the
Torrens title to the second parcel.
The vendee paid P5,000 to the vendor when the contract was
signed. The vendor delivered the Torrens title to the first
parcel to the vendee who, pursuant to the agreement, paid him
P20,000. In the month of March 1921, Torrens title to the
second parcel was issued and forthwith delivered by the
vendor to the vendee who, however, failed to pay the P10,000
as agreed, neither did she pay the remaining P12,000 one year
after having received the Torrens title to the second parcel.
The plaintiff here claims the sum of P22,000, with legal
interest from the month of April 1921 on the sum of P10,000,
and from April 1922 on the sum of P12,000, until full payment
of the amounts claimed.
The defendant admits that she purchased the two parcels of
land referred to by plaintiff, by virtue of the deed of sale
Exhibit A, but alleges in defense: (a) That the plaintiff
knowing that the second parcels of land he sold had an area of
60 hectares, by misrepresentation lead the defendant to believe
that said second parcel contained 98 hectares, and thus made it
appear in the deed of sale and induced the vendee to bind
herself to pay the price of P47,000 for the two parcels of land,
which he represented contained an area of no less than 200
hectares, to which price the defendant would not have bound
herself had she known that the real area of the second parcel
was 60 hectares, and, consequently, she is entitled to a
reduction in the price of the two parcels in proportion to the
area lacking, that is, that the price be reduced to P38,000; (b)
that the defendant, in addition to the amounts acknowledged
by the plaintiff, had paid other sums amounting to P4,000; and
price, but the plaintiff refused to receive the just amount of the
debt.
And by way of cross-complaint, the defendant prays that she
be indemnified in the sum of P15,000 for damages sustained
by her by reason of the malicious filing of the instant
complaint.
The plaintiff, replying to the amended answer, alleges that the
contract of sale in question was made only for the lump sum
of P47,000, and not at the rate of so much per hectare, and that
the defendant's claim for alleged damages has prescribed.
The lower court, having minutely analyzed the evidence
adduced by the parties held that neither the plaintiff nor the
defendant gave any importance to the area of the land in
consenting to the contract in question, and that there having
been no fraud when the parties agreed to the lump sum for the
two parcels of land described in the deed Exhibit A, following
article 1471 of the Civil Code, ordered the defendant to pay
the plaintiff the sum of P19,300 with legal interest at 8 per
cent per annum from April 30, 1921 on the sum of P7,300, and
from April 30, 1922, on the sum of P12,000. And finally
dismissed the defendant's cross-complaint, without special
pronuncement as to costs.
A motion for a new trial having been denied, this case was
brought up to this court through the proper bill of exceptions.
The appellant alleges that the trial court erred in not
considering that the plaintiff induced the defendant by deceit,
to pay him the stipulated price for the two parcels he sold,
stating falsely in the deed of sale that the second of said
parcels had an area of 98 hectares when he knew that in reality
it only had about 60 hectares more or less, or at least, if such
deceit was not practised that mre that there was a mistake on
the part of Maria Gay in believing that said second parcel
contained 98 hectares.
As a question of fact the trial court found from the evidence
adduced by the parties, that the plaintiff had not practised any
deception in agreeing with the defendant upon the sale of the
two parcels of land described in Exhibit A. We concur with
the trial court in this conclusion. It appears of record that
before the execution of the contract Exhibit A, the defendant
went over the plaintiff's land and made her wn calculations as
to the area of said two parcels. But this not all. The plaintiff
delivered to the defendant the documents covering the land he
was trying to sell. As to the first parcel there is no question
whatever and the defendant's contention is limited solely to
the actual area of the second parcel. The defendant had
document Exhibit 4 in her possession which is the deed by
which the plaintiff acquired the land from the original owner,
Crispulo Beramo, in which document it appears that the area
of the second parcel is about 70 hectares. It was the defendant
who intrusted the drawing of the deed of sale Exhibit A to her
attorney and notary, Hontiveros, and it is to be presumed that
both she and the lawyer who drew the document Exhibit A,
had read the contents of the document Exhibit 4. The plaintiff
declares that he signed the document between 5 and 7 in the
afternoon of that day and he did not pay any attention to the
area of the second parcel, probably in the belief that in the
drawing of the document the data concerning the area of the
land had been taken from the said Exhibit 4. The defendant
testified that she received from the plaintiff a note or piece of
paper containing the data to be inserted in the contract Exhibit
A. The plaintiff denies this and said note or piece of paper was
not presented at the trial. We are of opinion that this testimony
of the defendant's is unimportant, because, in reality, if the
plaintiff had delivered Exhibit 4 to the defendant, there was no
need to deliver to her another note to indicate the area of the
second which already appeared in the said Exhibit 4.
If, notwithstanding the fact that it appeared in Exhibit 4 that
the area of the second parcel was, approximately, 70 hectares,
the defendant, however, stated in said document Exhibit A that
said second parcel contained 98 hectares as was admitted by
him in his interviews with the plaintiff in the months of April
and June, 1924, then she has no right to claim from the
plaintiff the shortage in area of the second parcel.
Furthermore, there is no evidence of record that the plaintiff
made representatin to the defendant as to the area of said
second parcel, and even if he did make such false
representations as are now imputed to him by the defendant,
the latter accepted such representations at her own risk and she
is the only one responsible for the consqunces of her
inexcusable credulousness. In the case of Songco vs. Sellner
(37 Phil., 254), the court said:
The law allows considerable latitude to seller's statements, or
dealer's talk; and experience teaches that it as exceedingly
risky to accept it at its face value.
Assertions concerning the property which is the subject of a
contract of sale, or in regard to its qualities and characteristics,
are the usual and ordinary means used by sellers to obtain a
high price and are always understood as affording to buyers no
grund from omitting to make inquires. A man who relies upon
such an affirmation made by a person whose interest might so
readily prompt him to exaggerate the value of his property
does so at his peril, and must take the consequences of his own
imprudence.
The defendant had ample opportunity to appraise herself of the
condition of the land which she purchased, and the plaintiff
did nothing to prevent her from making such investigation as
she deemed fit, and as was said in Songco vs. Sellner, supra,
when the purchaser proceeds to make investigations by
himself, and the vendor does nothing to prevent such
investigation from being as complete as the former might
wish, the purchaser cannot later allege that the vendor made
false representations to him. (National Cash Register Co. vs.
Townsend, 137 N. C., 652; 70 L. R. A., 349; Williamson vs.
Holt, 147 N. C., 515.) The same doctrine has been sustained
by the courts of the United States in the following cases,
among others: Misrepresentation by a vendor of real property
with reference to its area are not actionable, where a correct
description of the property was given in the deed and recorded
chain of title, which the purchaser's agent undertook to
investigate and report upon, and the vendor made on effort to
prevent a full investigation." (Shappirio vs. Goldberg, 48 Law.
ed., 419.) "One who contracts for the purchase of real estate in
reliance on the representations and statements of the vendor as
to its character and value, but after he has visited and
examined it for himself, and has had the means and
opportunity of verifying such statements, cannot avoid the
contract on the ground that they were false or exaggerated."
(Brown vs. Smith, 109 Fed., 26.)
That the defendant knew that the area of the second parcel was
only about 70 hectares is shown by the fact that she received
the document Exhibit 4 before the execution of the contract
Exhibit A, as also Exhibit E-3 on September 30, 1920; which
is the notification of the day for the trial of the application for
registratin of said parcel, wherein it appears that it had an area
of 60 hectares more or less, and by the fact that she received
from the plaintiff in the month of June 1924 the copy of the
plans of the two parcels, wherein appear their respective areas;
and yet, in spite of all this, she did not complain of the
difference in the area of said second parcel until the year 1926.
Moreover, the record contains several of the defendant's letters
to the plaintiff in the years 1921 to 1925, in which said
defendant acknowledges her debt, and confining herself to
petitioning for extentions of time within which to make
payment for the reasons given therein. But in none of these
letters is there any allusion to such lack of area, nor did she
complain to the plaintiff of the supposed deceit of which she
believes she is a victim. All of which, in our opinion, shows
that no such deceit was practised, as the trial court rightly
found.
As to the alleged error to the effect that the trial court failed to
order the reduction from the price due on the second parcel as
stated in the contract of sale Exhibit A, the proportional price
of the area lacking, we are of the opinion that said error has no
legal ground.
It appears that by the contract Exhibit A, the parties agreed to
the sale of two parcels of land, the first one containing 102
hectares, 67 ares and 32 centares, and the second one
containing about 98 hectares, for the lump sum of P47,000
payable partly in cash and partly in installments. Said two
parcels are defind by means of the boundaries given in the
instrument. Therefore, the case falls within the provision of
article 1471 of the Civil Code, which reads as follows:
ART. 1471. In case of the sale of real estate for a lump sum
and not at the rate of a specified price for each unit of
measure, there shall be no increase or decrease of the price
even if the area be found to be more or less than that stated in
the contract.
The same rule shall apply when two or more estates are sold
for a single price; but, if in addition to a statement of the
boundaries, which is indispensable in every conveyance of
real estate, the area of the estate should be designated in the
contract, the vendor shall be obliged to deliver all that is
included with such boundaries, even should it exceed the area
specified in the contract; and, should he not be able to do so,
he shall suffer a reduction of the price in proportion to what is
lacking of the area, unless the contract be annulled by reason
of the vendee's refusal to accept anything other than that
which was stipulated.
The plaintiff contends that, in accrdance with the first
paragraph of this article, the defendant has no right to ask for
the reduction of price, whatever may be the area of the two
parcels of land sold her. On the ther hand, the defendant
contends that, according to paragraph 2 of the same article of
the Civil Code, she has a right to ask for a reduction of the
price due on the second parcel, in proportion to the area
lacking.
In his comments on the article cited, Manresa says, among
other things:
. . . if the sale was made for a price per unit of measure or
number, the consideration of the contract with respect to the
vendee, is the number of such units, or, if you wish, the thing
purchased as determined by the stipulated number of units.
But if, on the other hand, the sale was made for a lump sum,
the consideration of the contract is the object sold,
independently of its number or measure, the thing as
determined by the stipulated boundaries, which has been
called in law a determinate object.
This difference in consideration between the two cases implies
a distinct regulation of the obligation to deliver the object,
because, for an acquittance delivery must be made in
accordance with the agreement of the parties, and the
performance of the agreement must show the confirmation in
fact, of the consideratin which induces each of the parties to
enter into the contract.
From all this, it follows that the provisions of article 1471
concerning the delivery of determinate objects had to be
materially different from those governing the delivery of
things sold a price per unit of measure or number. Let us
examine it, and for the sake of greater clearness, let us
expound it as we understand it.
With respect to the delivery of determinate objects two cases
may arise, either the determinate object is delivered as
stipulated, that is, delivering everything included within the
boundaries, inasmuch as it is the entirety thereof that
distinguishes the determinate object; or that such entirety is
impaired in the delivery by failing to deliver to the purchaser
something included within the boundaries. These are the two
cases for which the Code has provided although, in our
opinion, it has not been sufficiently explicit in expressing the
distinction; hence, at first sight, the article seems somewhat
difficult to understand.
The first paragraph and the first clause of the second
paragraph of article 1471 deal with the first of said cases; that
is where everything included within the boundaries as set forth
in the contract has been delivered. The Code goes on to
consider the case where a definite area or number has been
expressed in the contract, and enunciates the rule to be
followed when, after delivery, the area included within said
bundaries is found not to coincide with the aforesaid content
or number. Said rule may be thus stated: Whether or not the
object of sale be one realty for a lump sum, or two or more for
a single price also a lump sum, and, consequently, not for so
much per unit of measure or number, there shall be no
increase or decrease in the price even if the area be found to be
more or less than that stated in the contract.
Thus understood the reason for the regulation is clear and no
doubts can arise from its application. It is concerned
with determinate objects. The consideration of the contract,
and the thing to be delivered is a determinate object, and not
the number of units it contains. The price is determined with
relation to it; hence, its greater or lesser area cannot influence
the increase or decrease of the price agreed upon. We have
just learned the reason for the regulation, bearing in mind that
the Code has rightly considered an object as determinate for
the purposes now treated, when it is a single realty as when it
is two or more, so long as they are solds for a single price
constituting a lump sum and not for a specified amount per
unit of measure or number.
We have stated that the second possible case in the delivery of
determinate objects is that in which, on account or
circumstances of diverse possible origins, everything included
within the boundaries is not delivered.
We have indicated about that where everything included
within the boundaries is delivered there can be no increase or
decrease in price, no matter whether the area be more or less
than that given in the contract. From this a very important
consequence follows, to wit: That if the vendor is bound to
deliver a determinate object, he is bound to deliver all of it,
that is, everything within its boundaries, in the contract, and
that from the moment he fails to do so, either because he
cannot, or because, ignoring the meaning of the contract, he
alleges that it contains a greater area than that stipulated, the
contract is partially unfulfilled and it is but just the certain
actions be available to the vendee for the protection of his
right.
The rule in the latter case is found in the second paragraph of
article 1471, with the exception of the first clause which refers
of the former hypothesis. This rule may be stated as follows:
Whether or not the object of the sale be one realty for a lump
sum, or two or more for a single price also a lump sum, and,
consequently not at the rate of a specified price for each unit
of measuring or number, the vendor shall be bound to deliver
everything that is included within the boundaries stated,
although it may exceed the area or number expressed in the
contract; in case he cannot deliver it, the purchaser shall have
the right either to reduce the price proportionately to what is
lacking of the area or number, or to rescind the contract at his
option.
Comprehending the meaning of a sale of a determinate object,
it is easily understod how, in cases wherein by virtue of the
rule enunciated, the vendor has to deliver a greater area than
that expressed in the contract, there is, strictly speaking, no
excess of area, inasmuch as one may always properly ask,
excess with respect to what? With respect to the area
appearing in the deed, it will be answered. But as this area was
not taken into account in entering into the contract inasmuch
as the parties made neither the amount of the price, nor the
efficacy of the contract to depend on the number of its units;
since area was written in to fulfill a formal requisite demanded
by the present rules upon the drawing of public instruments,
but as a condition essential to the contract, which, if it were
not true, would not be consummated, it results in the long run,
that this detail of the written recital, with respect to which the
excess is to be estimated, is so negligible, so inconsistent, so
haphazard, and in the vast majority of cases so wide of the
mark, that it is impossible to calculate the excess; and
considering the nature of a contract of sale of a definite object,
it cannot be strictly held that there is any excess at all.
If everything within the stipulated boundaries is not delivered,
then the determination object which was the consideration of
the contract for the vendee, is not delivered; hence his power
to nullify it. However, it might be (and this he alone can say),
that although he has not received the object, according to the
stipulated terms, it suits him; hence his power to carry the
contract into effect with the just decrease in price referred to in
the article under comment.
The manner in which the matter covered by this article was
distributed in its two paragraphs constributes to making it
difficult to understand. The rule might have been clearly stated
had the first clause of the second paragraph been included in
the first paragraph, the latter to end with the words: "The same
rule shall apply when two or more estates are sold fos a single
price." And if by constituting an independent paragraph, with
the rest of the second paragraph, it were made to appear more
expressly that the rule of the second paragraph thus drawn
referred to all the cases of paragraph one, as we have
expounded, namely, to the case of a sale of one single estate
and that of two or more for one single price, the rule would
have been clearer.
In our opinion, this would have better answered what we deem
to be the indubitable intention of the legislator.
Some eminent commentators construe the last part of article
1471 in a different way. To them the phrase "and should he
not be able to do so" as applied to the vendor, does not mean
as apparently it does "should he not be able to deliver all that
is included within the boundaries stated," but this other thing
namely, that if by reason of the fact that a less area is included
within the boundaries than that expressed in the contract, it is
not possible for the vendor to comply therewith according to
its literal sense, he must suffer the effects of the nullity of the
contract or a reduction of the price proportionately what may
be lacking of the area or number. It is added as a ground for
this solution that if the vendor fulfills the obligations, as stated
in the article, by delivering what is not included with in the
boundaries, there can never be any case of proportionate
reduction of the price on account of shortage of area, because
he does not give less who delivers all that he bound himself
to.1awphi1.net
According to this opinion, which we believe erroneous, if
within the boundaries of the property sold, there is included
more area than that expressed in the title deeds, nothing can be
claimed by the vendor who losses the value of that excess, but
if there is less area, then he loses also because either the price
is reduced or the contract is annulled. This theory would be
anomalous in case of sale of properties in bulk, but, especially,
would work a gross injustice which the legislator never
intended.
There is no such thing. So long as the vendor can deliver, and
for that reason, delivers all the land included within the
boundaries assigned to the property, there can be no claim
whatsoever either on his part, although the area may be found
to be much greater than what was expressed, nor on the part of
the puchaser although that area may be in reality much
smaller. But as he sold everything within the boundaries and
this is all the purchaser has paid, or must pay for whether
much or little, if afterwards it is found that he cannot deliver
all, because, for instance, a part, a building, a valley, various
pieces of land, a glen, etc., are not his, there is no sale of a
determinate object, there is no longer a sale of the object
agreed upon, and the solution given by the article is then just
and logical: Either the contract is annulled or the price reduced
proportionately.
We have quoted from Manresa's Commentaries at length for a
better understanding of the doctrine on the matter, inasmuch
as the contending counsel have inserted in their respective
briefs only such portions of said commentaries as relate to
their respective contentions.
It may be seen from a careful reading of the commentaries on
said article 1471, that the great author distinguishes between
the two cases dealt with in article 1471, and formulates the
proper rules for each. In the delivery of a determinate object,
says the author, two cases may arise; either the determinate
object is delivered as stipulated, that is, delivering everything
included within the boundaries, inasmuch as it is the entirety
thereof that distinguishes the determinate object; or that such
entirely is impaired in the delivery by failing to deliver to the
purchaser something included within the boundaries. For the
first case, Manresa gives the following rule: "Whether or not
the object of the sale be one realty for a lump sum, or two or
more for a single price also a lump sum, and, consequently,
not for so much per unit of measure or number, there shall be
no increase or decrease in the price ecven if the area be found
to be more or less than that stated in the contract." And for the
second case, this other: "Whether or not the object of the sale
one realty for a lump sum, or two or more for a single price
also a lump sum, and, consequently, not at the rate a specified
price for each unit of measure or number, the vendor shall be
bnound to deliver everything that is included within the
boundaries stated, although it may exceed the area or number
expressed in the contract; in case he cannot deliver it, the
purchaser shall have the right either to reduce the price
proportionately to what is lacking of the area or number, or to
rescind the contract, at his option."
Considering the facts of the present controversy, it seems clear
to us that the rule formulated for the second paragraph or
article 1471 is inapplicable in the instant case inasmuch as all
the land included within the boundaries of the two parcels sold
has been delivered inits entirety to the vendee. There is no
division of the land enclosed within the boundaries of the
properties sold; the determinate object which is the subject
matter of the contract has been delivered by the vendor in its
entirety as he obligate himself to do. Therefore, there is no
right to complain either on the part of the vendor, even if there
be a greater area than that stated in the deed, or on the part of
the vendee, though the area of the second parcel be really
much smaller. (Irureta Goyena vs. Tambunting, 1 Phil., 490.)
With regard to the damages prayed for by the defendant, the
lower court finally dismissed the cross-complaint without
special pronouncement as to costs. And according to the
decision of the Supreme Court od Spain of 1897, a judgment
absolving a party from a claim of damages against him, who
has not contravened his obligations, does not violate articles
1101 and 1108 of the Civil Code.
With respect to the question of interest, the lower court
likewise held that, as the defendant had not paid the sum of
P7,300 on April 30, 1921, when the plaintiff had delivered the
certificate of title, she was in default from that date and also
from the date of one year thereafter, with respect to the sum of
P12,000, contituting the last period of the obligation. We are
of the opinion that the lower court has committed no error
which should be corrected by this court.
The judgment appealed from being in accordance with the
law, it should be as it is hereby, affirmed with costs against the
appellant. So ordered
G.R. No. L-12471 April 13, 1959
ROSARIO L. DE BRAGANZA, ET AL., petitioners,
vs.
FERNANDO F. DE VILLA ABRILLE, respondent.
Oscar M. Herrera for petitioners.
R. P. Sarandi and F. Valdez Anama for respondents.
BENGZON, J.:
Rosario L. de Braganza and her sons Rodolfo and Guillermo
petition for review of the Court of Appeal's decision whereby
they were required solidarily to pay Fernando F. de Villa
Abrille the sum of P10,000 plus 2 % interest from October 30,
1944.
The above petitioners, it appears, received from Villa Abrille,
as a loan, on October 30, 1944 P70,000 in Japanese war notes
and in consideration thereof, promised in writing (Exhibit A)
to pay him P10,000 "in legal currency of the P. I. two years
after the cessation of the present hostilities or as soon as
International Exchange has been established in the
Philippines", plus 2 % per annum.
Because payment had not been made, Villa Abrille sued them
in March 1949.
In their answer before the Manila court of first Instance,
defendants claimed to have received P40,000 only — instead
of P70,000 as plaintiff asserted. They also averred that
Guillermo and Rodolfo were minors when they signed the
promissory note Exhibit A. After hearing the parties and their
evidence, said court rendered judgment, which the appellate
court affirmed, in the terms above described.
There can be no question about the responsibility of Mrs.
Rosario L. Braganza because the minority of her consigners
note release her from liability; since it is a personal defense of
the minors. However, such defense will benefit her to the
extent of the shares for which such minors may be responsible,
(Art. 1148, Civil Code). It is not denied that at the time of
signing Exhibit A, Guillermo and Rodolfo Braganza were
minors-16 and 18 respectively. However, the Court of Appeals
found them liable pursuant to the following reasoning:
. . . . These two appellants did not make it appears in the
promissory note that they were not yet of legal age. If they
were really to their creditor, they should have appraised him
on their incapacity, and if the former, in spite of the
information relative to their age, parted with his money, then
he should be contended with the consequence of his act. But,
that was not the case. Perhaps defendants in their desire to
acquire much needed money, they readily and willingly signed
the promissory note, without disclosing the legal impediment
with respect to Guillermo and Rodolfo. When minor, like in
the instant case, pretended to be of legal age, in fact they were
not, they will not later on be permitted to excuse themselves
from the fulfillment of the obligation contracted by them or to
have it annulled. (Mercado, et al. vs. Espiritu, 37 Phil., 215.)
[Emphasis Ours.]
We cannot agree to above conclusion. From the minors' failure
to disclose their minority in the same promissory note they
signed, it does not follow as a legal proposition, that they will
not be permitted thereafter to assert it. They had no juridical
duty to disclose their inability. In fact, according to Corpuz
Juris Secundum, 43 p. 206;
. . . . Some authorities consider that a false representation as to
age including a contract as part of the contract and accordingly
hold that it cannot be the basis of an action in tort. Other
authorities hold that such misrepresentation may be the basis
of such an action, on the theory that such misrepresentation is
not a part of, and does not grow out of, the contract, or that the
enforcement of liability for such misrepresentation as tort does
not constitute an indirect of enforcing liability on the
contract. In order to hold infant liable, however, the fraud
must be actual and not constructure. It has been held that his
mere silence when making a contract as to age does not
constitute a fraud which can be made the basis of an action of
decit. (Emphasis Ours.)
The fraud of which an infant may be held liable to one who
contracts with him in the belief that he is of full age must be
actual not constructive, and mere failure of the infant to
disclose his age is not sufficient. (27 American Jurisprudence,
p. 819.)
The Mecado case1 cited in the decision under review is
different because the document signed therein by the
minor specifically stated he was of age; here Exhibit A
contained no such statement. In other words, in the Mercado
case, the minor was guilty of active misrepresentation;
whereas in this case, if the minors were guilty at all, which we
doubt it is of passive (or constructive) misrepresentation.
Indeed, there is a growing sentiment in favor of limiting the
scope of the application of the Mercado ruling, what with the
consideration that the very minority which incapacitated from
contracting should likewise exempt them from the results of
misrepresentation.
We hold, on this point, that being minors, Rodolfo and
Guillermo Braganza could not be legally bound by their
signatures in Exhibit A.
It is argued, nevertheless, by respondent that inasmuch as this
defense was interposed only in 1951, and inasmuch as
Rodolfo reached the age of majority in 1947, it was too late to
invoke it because more than 4 years had elapsed after he had
become emancipated upon reaching the age of majority. The
provisions of Article 1301 of the Civil Code are quoted to the
effect that "an action to annul a contract by reason of majority
must be filed within 4 years" after the minor has reached
majority age. The parties do not specify the exact date of
Rodolfo's birth. It is undenied, however, that in October 1944,
he was 18 years old. On the basis of such datum, it should be
held that in October 1947, he was 21 years old, and in October
1951, he was 25 years old. So that when this defense was
interposed in June 1951, four years had not yet completely
elapsed from October 1947.
Furthermore, there is reason to doubt the pertinency of the 4-
years period fixed by Article 1301 of the Civil Code where
minority is set up only as a defense to an action, without the
minors asking for any positive relief from the contract. For
one thing, they have not filed in this case an action for
annulment.2 They merely interposed an excuse from liability.
Upon the other hand, these minors may not be entirely
absolved from monetary responsibility. In accordance with the
provisions of Civil Code, even if their written contact is
unenforceable because of non-age, they shall make restitution
to the extent that they have profited by the money they
received. (Art. 1340) There is testimony that the funds
delivered to them by Villa Abrille were used for their
support during the Japanese occupation. Such being the case,
it is but fair to hold that they had profited to the extent of the
value of such money, which value has been authoritatively
established in the so-called Ballantine Schedule: in October
1944, P40.00 Japanese notes were equivalent to P1 of current
Philippine money.
Wherefore, as the share of these minors was 2/3 of P70,000 of
P46,666.66, they should now return P1,166.67. 3Their promise
to pay P10,000 in Philippine currency, (Exhibit A) can not be
enforced, as already stated, since they were minors incapable
of binding themselves. Their liability, to repeat, is presently
declared without regard of said Exhibit A, but solely in
pursuance of Article 1304 of the Civil Code.
Accordingly, the appealed decision should be modified in the
sense that Rosario Braganza shall pay 1/3 of P10,000 i.e.,
P3,333.334 plus 2% interest from October 1944; and Rodolfo
and Guillermo Braganza shall pay jointly5 to the same creditor
the total amount of P1,166.67 plus 6% interest beginning
March 7, 1949, when the complaint was filed. No costs in this
instance.
Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo,
Labrador, Concepcion and Endencia, JJ., concur.
G.R. No. L-65922 December 3, 1991
LAURETA TRINIDAD, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and VICENTE
J. FRANCISCO, respondent.
Ramon A. Gonzales for petitioner.
Raymundo T. Francisco for R.J. Francisco.
Siquia Law Offices for respondents Trinidad J. Francisco &
Rosario F. Kelemen.
CRUZ, J.:
The house looked beautiful in summer but not when the
waters came. Then it was flooded five feet deep and leas than
prepossessing, let alone livable. Disenchanted, the buyer sued
the seller for the annulment of the sale and damages, alleging
fraud.
The house was Bungalow No. 17, situated at Commonwealth
Village in Quezon City, and belonged to the late Vicente J.
Francisco. Sometime in early 1969, Laureta Trinidad, the
petitioner herein, approached him and offered to buy the
property. Francisco was willing to sell. Trinidad inspected the
house and lot and examined a vicinity map which indicated
drainage canals along the property. The purchase price was
P70,000.00 with a down payment of P17,500.00. The balance
was to be paid in five equal annual installments not later than
July 1 of each year at 12% interest per annum.
On March 29, 1969, Trinidad paid Francisco P5,000.00 as
earnest money and entered into the possession of the house.
However, as she relates it, she subsequently heard from her
new neighbors that two buyers had previously vacated the
property because it was subject to flooding. She says she
talked to Francisco about this matter and that he told her
everything had been fixed and the house would never be
flooded again. Thus assured, she gave him P12,500.00 to
complete the down payment. They signed the Contract of
Conditional Sale on August 8, 1969. 1
Trinidad paid the installment for 1970 and 1971 on time but asked Francisco for an extension of
60 days to pay the installment due on July 1, 1972. However, she says she eventually decided
not to continue paying the amortizations because the house was flooded again on July 18, 21,
and 30, 1972, the waters rising to as high as five feet on July 21. Upon her return from the
United States on October 11, 1972, she wrote the City Engineer's office of Quezon City and
requested an inspection of the subject premises to determine the cause of the flooding. The
finding of City Engineer Pantaleon P. Tabora was that "the lot is low and is a narrowed portion
of the creek."
On January 10, 1973, the petitioner filed her complaint against Francisco alleging that she was
induced to enter into the contract of sale because of his misrepresentations. She asked that the
agreement be annulled and her payments refunded to her, together with the actual expenses she
had incurred for the "annexes and decorations" she had made on the house. She also demanded
the actual cost of the losses she had suffered as a result of the floods, moral and exemplary
damages in the sum of P200,000.00, and P10,000.00 attomey's
fees. 2
In his answer and amended answer, the defendant denied the charge of misrepresentation and
stressed that the plaintiff had thoroughly inspected the property before she decided to buy it. The
claimed creek was a drainage lot, and the floods complained of were not uncommon in the
village and indeed even in the Greater Manila area if not the entire Luzon. In any event, the
floods were fortuitous events not imputable to him. He asked for the rescission of the contract
and the forfeiture of payments made by the plaintiff plus monthly rentals with interest of
P700.00 for the property from July 2, 1972, until the actual vacation of the property by the
plaintiff. He also claimed litigation expenses, including attorney's fees. 3
In his decision dated June 17, 1975, Judge Sergio F. Apostol of the then Court of First Instance
of Rizal held in favor of the plaintiff and disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered:
a) ordering the annulment of the contract of conditional sale entered into by the parties;
b) ordering defendant's representatives to pay to the plaintiff the amount of P49,840.00 with
interest from the time of the filing of the complaint;
c) ordering the defendant's representatives to pay the amount of P39,800.00 representing the
value of the improvements and the losses she incurred by virtue of the flood;
d) ordering plaintiff to return to the defendant's representatives the house and lot in question;
e) ordering defendant's representatives to pay the amount of P5,000.00 as and by way of
attomey's fees.
WITH COSTS AGAINST THE DEFENDANT.
Upon separate motions for reconsideration filed by both parties, Judge Apostol ordered and held
a new trial, resulting in a new decision dated April 13, 1976, reiterating his original dispositions.
Both parties appealed to the respondent court, which reversed the trial court in a decision
promulgated on May 31, 1983. 4
The dispositive portion read as follows:
WHEREFORE, the appeal of plaintiff is hereby dismissed.
With respect to the appeal of defendant, the decision of the
lower court is hereby reversed and set aside and another one is
rendered dimissing the complaint and, upon the counterclaim,
sustaining the cancellation of the contract of conditional sale
(Exh. B) and the forfeiture of any and all sums of money paid
by plaintiff to the defendant on account of the contract to be
treated as rentals for the use and occupation of the property
and ordering the plaintiff to vacate the property. No special
pronouncement as to costs.
This Court gave due course to the herein petition for review
on certiorari of the said decision and required the parties to
submit their respective memoranda. Pendente lite, Vicente J.
Francisco died and was eventually substituted by his
heirs, 5 two of whom, Trinidad J. Francisco and Rosario F.
Kelemen, filed their own joint memorandum. 6 The Court has
deliberated on the issues and the arguments of the parties and
is now ready to act on the motions filed by the petitioner and
the private respondents for the resolution of this case.
The petitioner faults the respondent court on the following
grounds:
1. The Intermediate Appellate Court palpably erred in not
finding that the lot on which the house in question stands is a
portion of a creek, hence outside the commerce of man.
2. The Intermediate Appellate Court palpably erred in finding
that there was no fraud prior to the sale that induced petitioner
to enter into the said sale.
3. The Intermediate Appellate Court palpably erred in
cancelling the complaint for non-payment of the installments
and declaring previous installments forfeited.
4. The Intermediate Appellate Court erred in not granting
moral damages and attorney's fees to petitioner.
The basic issue in this controversy is whether or not, under the
established facts, there was misrepresentation on the part of
Francisco to justify the rescission of the sale and the award
damages to the petitioner.
The pertinent provisions of the Civil Code on fraud are the
following:
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would
not have agreed to.
Art. 1339. Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential
relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent.
Fraud is never lightly inferred; it is good faith that is. Under
the Rules of Court, it is presumed that "a person is innocent of
crime or wrong" 7 and that "private transactions have been fair
and regular." 8 While disputable, these presumptions can be
overcome only by clear and preponderant evidence.
Our finding is that the fraud alleged by the petitioner has not
been satisfactorily established to call for the annulment of the
contract. This finding is based on the following
considerations.
First, it was the petitioner who admittedly approached the
private respondent, who never advertised the property nor
offered it for sale to her.
Second, the petitioner had full opportunity to inspect the
premises, including the drainage canals indicated in the
vicinity map that was furnished her, before she entered into
the contract of conditional sale.
Third, it is assumed that she made her appraisal of the
property not with the untrained eye of the ordinary prospective
buyer but with the experience and even expertise of the
licensed real estate broker that she was. 9 If she minimized the
presence of the drainage canals, she has only her own
negligence to blame.
Fourth, seeing that the lot was depressed and there was a
drainage lot abutting it, she cannot say she was not forewarned
of the possibility that the place might be flooded.
Notwithstanding the obvious condition of the property, she
still decided to buy it.
Fifth, there is no evidence except her own testimony that two
previous owners of the property had vacated it because of the
floods and that Francisco assured her that the house would not
be flooded again. The supposed previous owners were not
presented as witnesses and neither were the neighbors.
Francisco himself denied having made the alleged assurance.
Sixth, the petitioner paid the 1970 and 1971 amortizations
even if, according to her Complaint, "since 1969 said lot had
been under floods of about one (1) foot deep," 10 and despite
the floods of September and November 1970.
Seventh, it is also curious that notwithstanding the said floods,
the petitioner still "made annexes and decorations on the
It is true, as the private respondents have insisted and the respondent court has found, that the
house," 11 all of a permanent nature, for which she now claims
Contract of Conditional Sale contains the following condition:
reimbursement from the private respondent.
(d) That should the SECOND PARTY fail to make any of the payments referred to in the
To repeat, it has not been satisfactorily established that the
aforesaid paragraphs 2(a) and (b), of this contract of conditional sale, shall be considered
private respondent inveigled the petitioner through false
automatically rescinded and cancelled without the necessity of notice to the SECOND PARTY,
representation to buy the subject property. Assuming that he
or of any judicial declaration to that effect, and any and all sums paid by the SECOND PARTY
did make such representations, as the petitioner contends, she
shall be considered rents and liquidated damages for the breach of this contract, and the
is deemed to have accepted them at her own risk and must
SECOND PARTY shall forthwith vacate the foresaid property peacefully.
therefore be responsible for the consequences of her careless
credulousness. In the case of Songco v. Sellner, 12 the Court Nevertheless, we cannot say that the petitioner was, strictly speaking, in default in the payment
said: of the remaining amortizations in the sense contemplated in that stipulation. She was not

simply unable to make the required payments. The fact is she refused to make such payments. If
The law allows considerable latitude to seller's statements, or
she suspended her payments, it was because she felt she was justified in doing so in view of the
dealer's talk, and experience teaches that it is exceedingly
defects she found in the property. It is noteworthy that it was she who sued the private
risky to accept it at it at face value. . . .
respondent, not the other way round, and that it was she who argued that the seller was not

entitled to the additional installments because of his violation of the contract. If she asked for the
Assertions concerning the property which is the subject of a
annulment of the contract and the refund to her of the payments she had already made, plus
contract of sale, or in regard to its qualities and characteristics,
damages, it was because she felt she had the right to do so.
are the usual and ordinary means used by sellers to obtain a
high price and are always understood as affording to buyers no
Given such circumstances, the Court feels and so holds that the above-quoted stipulation should
ground for omitting to make inquiries. A man who relies upon
not be strictly enforced, to justify the rescission of the contract. To make her forfeit the
such an affirmation made by a person whose interest might so
payments already made by her and at the same time return the property to the private
readily prompt him to exaggerate the value of his property
respondents for standing up to what she considered her right would, in our view, be unfair and
does so at his peril, and must take the consequences of his own
unconsionable. Justice demands that we moderate the harsh effects of the stipulation.
imprudence.
Accordingly, in the exercise of our equity jurisdiction, we hereby rule that the Contract of

Conditional Sale shall be maintained between the parties except that the petitioner shall not
We have also held that "one who contracts for the purchase of
return the house to the private respondents. However, she will have to pay them the balance of
real estate in reliance on the representations and statements of
the purchase price in the sum of P52,500.00, ** with 12% annual interest from July 1, 1972,
the vendor as to its character and value, but after he has visited
until full payment.
and examined it for himself and has had the means and
opportunity of verifying such statements, cannot avoid the
Obviously, rejection of the petitioner's claim for moral and exemplary damages must also be
contract on the ground that they were false and
sustained.
exaggerated." 13

''The Court must also reject the petitioner's contention that the lot on which the house stands is a What we see here is a bad bargain, not an illegal transaction vitiated by fraud. While we may

portion of a creek and therefore outside the commerce of man as part of the public domain. commiserate with the petitioner for a purchase that has proved unwise, we can only echo what

Mr. Justice Moreland observed in Vales v. Villa, 16

thus:
The said property is covered by TCT No. 102167 of the Registry of Deeds of Quezon City.

Under the Land Registration Act, title to the property covered by a Torrens certificate becomes
indefeasible after the expiration of one year from the entry of the decree of registration. Such
decree of registration is incontrovertible and is binding on all persons whether or not they were
notified of or participated in the registration proceedings.
If such title is to be challenged, it may not be done collaterally as in the present case, because
the judicial action required is a direct attack. Section 48 of the Property Registration Decree
expressly provides that a certificate of title cannot be subject collateral attack and can be altered,
modified or cancelled only in a direct proceeding in accordance with law. This was the same
rule under Act 496. 14
Moreover, the right of reversion belongs to the
State and may be invoked on its behalf only by the Solicitor
General. 15
. . . Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts, or annul
the effects of foolish acts. Courts cannot constitute themselves
guardians of persons who are not legally incompetent. Courts
operate not because one person has been defeated or overcome
by another, but because he has been defeated or
overcome illegally. Men may do foolish things, make
ridiculous contracts, use miserable judgment, and lose money
by them — indeed, all they have in the world; but not for that
alone can the law intervene and restore. There must be, in
addition, a violation of law, the commission of what the law
knows as an actionable wrong, before the courts are
authorized to lay hold of the situation and remedy it.
WHEREFORE, the appealed decision is AFFIRMED as above
modified, with no pronouncement as to costs. It is so ordered.
G.R. No. 167874 January 15, 2010
SPOUSES CARMEN S. TONGSON and JOSE C.
TONGSON substituted by his children namely: JOSE
TONGSON, JR., RAUL TONGSON, TITA TONGSON,
GLORIA TONGSON ALMA TONGSON, Petitioners,
vs.
EMERGENCY PAWNSHOP BULA, INC. and DANILO
R. NAPALA, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 of the 31 August
2004 Decision2 and 10 March 2005 Resolution3 of the Court
of Appeals in CA-G.R. CV No. 58242. In the 31 August 2004
Decision, the Court of Appeals partially granted the appeal
filed by Emergency Pawnshop Bula, Inc. (EPBI) and Danilo
R. Napala (Napala) by modifying the decision of the trial
court. In the 10 March 2005 Resolution, the Court of Appeals
denied the motion for partial reconsideration filed by the
Spouses Jose C. Tongson and Carmen S. Tongson (Spouses
Tongson).
The Facts
In May 1992, Napala offered to purchase from the Spouses
Tongson their 364-square meter parcel of land, situated in
Davao City and covered by Transfer Certificate of Title (TCT)
No. 143020, for ₱3,000,000. Finding the offer acceptable, the
Spouses Tongson executed with Napala a Memorandum of
Agreement4 dated 8 May 1992.
On 2 December 1992, respondents’ lawyer Atty. Petronilo A.
Raganas, Jr. prepared a Deed of Absolute Sale5indicating the
consideration as only ₱400,000. When Carmen Tongson
"noticed that the consideration was very low, she
[complained] and called the attention of Napala but the latter
told her not to worry as he would be the one to pay for the
taxes and she would receive the net amount of ₱3,000,000." 6
To conform with the consideration stated in the Deed of
Absolute Sale, the parties executed another Memorandum of
Agreement, which allegedly replaced the first Memorandum
of Agreement,7 showing that the selling price of the land was
only ₱400,000.8
Upon signing the Deed of Absolute Sale, Napala paid
₱200,000 in cash to the Spouses Tongson and issued a
postdated Philippine National Bank (PNB) check in the
amount of ₱2,800,000,9 representing the remaining balance of
the purchase price of the subject property. Thereafter, TCT
No. 143020 was cancelled and TCT No. T-186128 was issued
in the name of EPBI.10
When presented for payment, the PNB check was dishonored
for the reason "Drawn Against Insufficient Funds." Despite
the Spouses Tongson's repeated demands to either pay the full
value of the check or to return the subject parcel of land,
Napala failed to do either. Left with no other recourse, the
Spouses Tongson filed with the Regional Trial Court, Branch
16, Davao City a Complaint for Annulment of Contract and
Damages with a Prayer for the Issuance of a Temporary
Restraining Order and a Writ of Preliminary Injunction. 11
In their Answer, respondents countered that Napala had
already delivered to the Spouses Tongson the amount of
₱2,800,000 representing the face value of the PNB check, as
evidenced by a receipt issued by the Spouses Tongson.
Respondents pointed out that the Spouses Tongson never
returned the PNB check claiming that it was misplaced.
Respondents asserted that the payment they made rendered the
filing of the complaint baseless.12
At the pre-trial, Napala admitted, among others, issuing the
postdated PNB check in the sum of ₱2,800,000.13 The Spouses
Tongson, on the other hand, admitted issuing a receipt which
showed that they received the PNB check from Napala.
Thereafter, trial ensued.
The Ruling of the Trial Court
The trial court found that the purchase price of the subject
property has not been fully paid and that Napala’s assurance to
the Spouses Tongson that the PNB check would not bounce
constituted fraud that induced the Spouses Tongson to enter
into the sale. Without such assurance, the Spouses Tongson
would not have agreed to the contract of sale. Accordingly,
there was fraud within the ambit of Article 1338 of the Civil
Code,14 justifying the annulment of the contract of sale, the
award of damages and attorney’s fees, and payment of costs.
The dispositive portion of the 9 December 1996 Decision of
the trial court reads:
WHEREFORE, judgment is hereby rendered –
I Annulling the contract entered into by the plaintiffs with the
defendants;
II Declaring the writs of preliminary injunctions issued
permanent;
III Ordering defendants to:
1) reconvey the property subject matter of the case to the
plaintiffs;
2) pay plaintiffs:
a) ₱100,000 as moral damages;
b) ₱50,000 as exemplary damages;
c) ₱20,000 as attorney’s fees; and
d) ₱35,602.50 cost of suit broken down as follows:
₱70.00 bond fee
₱60.00 lis pendens fee
₱902.00 docket fee
₱390.00 docket fee
₱8.00 summons fee
₱12.00 SDF
₱178.50 Xerox
₱9,000 Sidcor Insurance Bond fee
₱25,000 Sidcor Insurance Bond fee
or the total sum of ₱205,602.50.
It is further ordered that the monetary award be offsetted [sic]
to defendants’ downpayment of ₱200,000 thereby leaving a
balance of ₱5,602.50.15
Respondents appealed to the Court of Appeals.
The Ruling of the Court of Appeals
The Court of Appeals agreed with the trial court’s finding that
Napala employed fraud when he misrepresented to the
Spouses Tongson that the PNB check in the amount of
₱2,800,000 would be properly funded at its maturity.
However, the Court of Appeals found that the issuance and
delivery of the PNB check and fraudulent representation made
by Napala could not be considered as the determining cause
for the sale of the subject parcel of land. Hence, such fraud
could not be made the basis for annulling the contract of sale.
Nevertheless, the fraud employed by Napala is a proper and
valid basis for the entitlement of the Spouses Tongson to the
balance of the purchase price in the amount of ₱2,800,000
plus interest at the legal rate of 6% per annum computed from
the date of filing of the complaint on 11 February 1993.
Finding the trial court’s award of damages unconscionable, the
Court of Appeals reduced the moral damages from ₱100,000
to ₱50,000 and the exemplary damages from ₱50,000 to
₱25,000.
The dispositive portion of the 31 August 2004 Decision of the
Court of Appeals reads:
WHEREFORE, the instant appeal is PARTIALLY
GRANTED. The assailed decision of the Regional Trial
Court, 11th Judicial Region, Branch 16, Davao City, in Civil
Case No. 21,858-93, is hereby MODIFIED, to read:
WHEREFORE, judgment is hereby rendered ordering
defendants to pay plaintiffs:
a) the sum of ₱2,800,000.00 representing the balance of the
purchase price of the subject parcel of land, plus interest at the
legal rate of 6% per annum computed from the date of filing
of the complaint on 11 February 1993, until the finality of the
assailed decision; thereafter, the interest due shall be at the
legal rate of 12% per annum until fully paid;
b) ₱50,000 as moral damages;
c) ₱25,000 as exemplary damages;
d) ₱20,000 as attorney’s fees; and
e) The costs of suit in the total amount of ₱35,602.50.
It is understood, however, that plaintiffs’ entitlement to items
a to d, is subject to the condition that they have not received
the same or equivalent amounts in criminal case for Violation
of Batas Pambansa Bilang 22, docketed as Criminal Case No.
30508-93, before the Regional Trial Court of Davao City,
Branch 12, instituted against the defendant Danilo R. Napala
by plaintiff Carmen S. Tongson.
SO ORDERED.16
The Spouses Tongson filed a partial motion for
reconsideration which was denied by the Court of Appeals in
its Resolution dated 10 March 2005.
The Issues
The Spouses Tongson raise the following issues:
1. WHETHER THE CONTRACT OF SALE CAN BE
ANNULLED BASED ON THE FRAUD EMPLOYED BY
NAPALA; and
2. WHETHER THE COURT OF APPEALS ERRED IN
REDUCING THE AMOUNT OF DAMAGES AWARDED
BY THE TRIAL COURT.
The Ruling of the Court
The petition has merit.
On the existence of fraud
A contract is a meeting of the minds between two persons,
whereby one is bound to give something or to render some
service to the other.17 A valid contract requires the
concurrence of the following essential elements: (1) consent or
meeting of the minds, that is, consent to transfer ownership in
exchange for the price; (2) determinate subject matter; and (3)
price certain in money or its equivalent.18
In the present case, there is no question that the subject matter
of the sale is the 364-square meter Davao lot owned by the
Spouses Tongson and the selling price agreed upon by the
parties is ₱3,000,000. Thus, there is no dispute as regards the
presence of the two requisites for a valid sales contract,
namely, (1) a determinate subject matter and (2) a price
certain in money.
The problem lies with the existence of the remaining element,
which is consent of the contracting parties, specifically, the
consent of the Spouses Tongson to sell the property to Napala.
Claiming that their consent was vitiated, the Spouses Tongson
point out that Napala’s fraudulent representations of sufficient
funds to pay for the property induced them into signing the
contract of sale. Such fraud, according to the Spouses
Tongson, renders the contract of sale void.
On the contrary, Napala insists that the Spouses Tongson
willingly consented to the sale of the subject property making
the contract of sale valid. Napala maintains that no fraud
attended the execution of the sales contract.
The trial and appellate courts had conflicting findings on the
question of whether the consent of the Spouses Tongson was
vitiated by fraud. While the Court of Appeals agreed with the
trial court’s finding that Napala employed fraud when he
assured the Spouses Tongson that the postdated PNB check
was fully funded when it fact it was not, the Court of Appeals
disagreed with the trial court’s ruling that such fraud could be
the basis for the annulment of the contract of sale between the
parties.
Under Article 1338 of the Civil Code, there is fraud when,
through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order
that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente),
inducement to the making of the contract.19 Additionally, the
fraud must be serious.20
We find no causal fraud in this case to justify the annulment of
the contract of sale between the parties. It is clear from the
records that the Spouses Tongson agreed to sell their 364-
square meter Davao property to Napala who offered to pay
₱3,000,000 as purchase price therefor. Contrary to the Spouses
Tongson’s belief that the fraud employed by Napala was
"already operational at the time of the perfection of the
contract of sale," the misrepresentation by Napala that the
postdated PNB check would not bounce on its maturity hardly
equates to dolo causante. Napala’s assurance that the check he
issued was fully funded was not the principal inducement for
the Spouses Tongson to sign the Deed of Absolute Sale. Even
before Napala issued the check, the parties had already
consented and agreed to the sale transaction. The Spouses
Tongson were never tricked into selling their property to
Napala. On the contrary, they willingly accepted Napala’s
offer to purchase the property at ₱3,000,000. In short, there
was a meeting of the minds as to the object of the sale as well
as the consideration therefor.
Some of the instances where this Court found the existence of
causal fraud include: (1) when the seller, who had no intention
to part with her property, was "tricked into believing" that
what she signed were papers pertinent to her application for
the reconstitution of her burned certificate of title, not a deed
of sale;21 (2) when the signature of the authorized corporate
officer was forged;22 or (3) when the seller was seriously ill,
and died a week after signing the deed of sale raising doubts
on whether the seller could have read, or fully understood, the
contents of the documents he signed or of the consequences of
his act.23 Suffice it to state that nothing analogous to these
badges of causal fraud exists in this case.
However, while no causal fraud attended the execution of the
sales contract, there is fraud in its general sense, which
involves a false representation of a fact,24 when Napala
inveigled the Spouses Tongson to accept the postdated PNB
check on the representation that the check would be
sufficiently funded at its maturity. In other words, the fraud
surfaced when Napala issued the worthless check to the
Spouses Tongson, which is definitely not during the
negotiation and perfection stages of the sale. Rather, the fraud
existed in the consummation stage of the sale when the parties
are in the process of performing their respective obligations
under the perfected contract of sale. In Swedish Match, AB v.
Court of Appeals,25 the Court explained the three stages of a
contract, thus:
I n general, contracts undergo three distinct stages, to wit:
negotiation; perfection or birth; and consummation.
Negotiation begins from the time the prospective contracting
parties manifest their interest in the contract and ends at the
moment of agreement of the parties. Perfection or birth of the
contract takes place when the parties agree upon the essential
elements of the contract. Consummation occurs when the
parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof.
Indisputably, the Spouses Tongson as the sellers had already
performed their obligation of executing the Deed of Sale,
which led to the cancellation of their title in favor of EPBI.
Respondents as the buyers, on the other hand, failed to
perform their correlative obligation of paying the full amount
of the contract price. While Napala paid ₱200,000 cash to the
Spouses Tongson as partial payment, Napala issued an
insufficiently funded PNB check to pay the remaining balance
of ₱2.8 million. Despite repeated demands and the filing of the
complaint, Napala failed to pay the ₱2.8 million until the
present. Clearly, respondents committed a substantial breach
of their reciprocal obligation, entitling the Spouses Tongson to
the rescission of the sales contract. The law grants this relief to
the aggrieved party, thus:
Article 1191 of the Civil Code provides:
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
Article 1385 of the Civil Code provides the effects of
rescission, viz:
ART. 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it can
be carried out only when he who demands rescission can
return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are
the object of the contract are legally in the possession of third
persons who did not act in bad faith.
While they did not file an action for the rescission of the sales
contract, the Spouses Tongson specifically prayed in their
complaint for the annulment of the sales contract, for the
immediate execution of a deed of reconveyance, and for the
return of the subject property to them.26 The Spouses Tongson
likewise prayed "for such other reliefs which may be deemed
just and equitable in the premises." In view of such prayer,
and considering respondents’ substantial breach of their
obligation under the sales contract, the rescission of the sales
contract is but proper and justified. Accordingly, respondents
must reconvey the subject property to the Spouses Tongson,
who in turn shall refund the initial payment of ₱200,000 less
the costs of suit.
Napala’s claims that rescission is not proper and that he
should be given more time to pay for the unpaid remaining
balance of ₱2,800,000 cannot be countenanced. Having acted
fraudulently in performing his obligation, Napala is not
entitled to more time to pay the remaining balance of
₱2,800,000, and thereby erase the default or breach that he had
deliberately incurred.27 To do otherwise would be to sanction a
deliberate and reiterated infringement of the contractual
obligations incurred by Napala, an attitude repugnant to the
stability and obligatory force of contracts.28
The Court notes that the selling price indicated in the Deed of
Absolute Sale was only ₱400,000, instead of the true purchase
price of ₱3,000,000. The undervaluation of the selling price
operates to defraud the government of the taxes due on the
basis of the correct purchase price. Under the law, 29 the sellers
have the obligation to pay the capital gains tax. In this case,
Napala undertook to "advance" the capital gains tax, among
other fees, under the Memorandum of Agreement, thus:
ATTY. ALABASTRO:
Q Is it not a fact that you were the one who paid for the capital
gains tax?
A No, I only advanced the money.
Q To whom?
A To BIR.
COURT:
Q You were the one who went to the BIR to pay the capital
gains tax?
A It is embodied in the memorandum agreement.30
While Carmen Tongson protested against the "very low
consideration," she eventually agreed to the "reduced" selling
price indicated in the Deed of Absolute since Napala assured
her not to worry about the taxes and expenses, as he had
allegedly made arrangements with the Bureau of Internal
Revenue (BIR) regarding the payment of the taxes, thus:
Q What is the amount in the Deed of Absolute Sale?
A It was only Four Hundred Thousand. And he told me not to
worry because x x x the BIR and not to worry because he will
pay me what was agreed – the amount of Three Million and he
will be paying all these expenses so I was thinking, if that is
the case, anyway he paid me the Two Hundred Thousand cash
and a subsequent Two Point Eight Million downpayment
check so I really thought that he was paying the whole
amount.
COURT:
Proceed.
ATTY. LIZA:
Q So you eventually agreed that this consideration be reduced
to Four Hundred Thousand Pesos and to be reflected in the
Deed of Absolute Sale?
A Yes, but when I was complaining to him why it is so
because I was worried why that was like that but Mr. Napala
told me don’t worry because [he] can remedy this. And I
asked him how can [he] remedy this? And he told me we can
make another Memorandum of Agreement.
COURT:
Q Before you signed the Deed of Absolute Sale, you found out
the amount?
A Yes, sir.
Q And you complained?
A Yes.31
Considering that the undervaluation of the selling price of the
subject property, initiated by Napala, operates to defraud the
government of the correct amount of taxes due on the sale, the
BIR must therefore be informed of this Decision for its
appropriate action.
On the award of damages
Citing Article 1338 of the Civil Code, the trial court awarded
₱100,000 moral damages and ₱50,000 exemplary damages to
the Spouses Tongson. While agreeing with the trial court on
the Spouses Tongson’s entitlement to moral and exemplary
damages, the Court of Appeals reduced such awards for being
unconscionable. Thus, the moral damages was reduced from
₱100,000 to ₱50,000, and the exemplary damages was
reduced from ₱50,000 to ₱25,000.
As discussed above, Napala defrauded the Spouses Tongson in
his acts of issuing a worthless check and representing to the
Spouses Tongson that the check was funded, committing in
the process a substantial breach of his obligation as a buyer.
For such fraudulent acts, the law, specifically the Civil Code,
awards moral damages to the injured party, thus:
ART. 2220. Willful injury to property may be a legal ground
for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The
same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith. (Emphasis supplied)
Considering that the Spouses Tongson are entitled to moral
damages, the Court may also award exemplary damages, thus:
ART. 2232. In contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
Article 2234. When the amount of the exemplary damages
need not be proved, the plaintiff must show that he is entitled
to moral, temperate or compensatory damages before the court
may consider the question of whether or not exemplary
damages would be awarded. In case liquidated damages have
been agreed upon, although no proof of loss is necessary in
order that such liquidated damages may be recovered,
nevertheless, before the court may consider the question of
granting exemplary in addition to the liquidated damages, the
plaintiff must show that he would be entitled to moral,
temperate or compensatory damages were it not for the
stipulation for liquidated damages. (Emphasis supplied)
Accordingly, we affirm the Court of Appeals’ awards of moral
and exemplary damages, which we find equitable under the
circumstances in this case.
WHEREFORE, we PARTIALLY GRANT the petition. We
SET ASIDE the 31 August 2004 Decision and 10 March 2005
Resolution of the Court of Appeals in CA-G.R. CV No.
58242, except as to the award of moral and exemplary
damages, and ORDER the rescission of the contract of sale
between the Spouses Tongson and Emergency Pawnshop
Bula, Inc.
Let a copy of this Decision be forwarded to the Bureau of
Internal Revenue for its appropriate action.
SO ORDERED.
G.R. No. 171428 November 11, 2013
ALEJANDRO V. TANKEH, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES,
STERLING SHIPPING LINES, INC., RUPERTO V.
TANKEH, VICENTE ARENAS, and ASSET
PRIVATIZATION TRUST, Respondents.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari praying that the
assailed October 25, 2005 Decision and the February 9, 2006
Resolution of the Court of Appeals1 be reversed, and that the
January 4, 1996 Decision of the Regional Trial Court of
Manila Branch 32 be affirmed. Petitioner prays that this Court
grant his claims for moral damages and attorney’s fees, as
proven by the evidence.
Respondent Ruperto V. Tankeh is the president of Sterling
Shipping Lines, Inc. It was incorporated on April 23, 1979 to
operate ocean-going vessels engaged primarily in foreign
trade.2 Ruperto V. Tankeh applied for a $3.5 million loan from
public respondent Development Bank of the Philippines for
the partial financing of an ocean-going vessel named the M/V
Golden Lilac. To authorize the loan, Development Bank of the
Philippines required that the following conditions be met:
1) A first mortgage must be obtained over the vessel, which by
then had been renamed the M/V Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh,
Jose Marie Vargas, as well as respondents Sterling Shipping
Lines, Inc. and Vicente Arenas should become liable jointly
and severally for the amount of the loan;
3) The future earnings of the mortgaged vessel, including
proceeds of Charter and Shipping Contracts, should be
assigned to Development Bank of the Philippines; and
4) Development Bank of the Philippines should be assigned no
less than 67% of the total subscribed and outstanding voting
shares of the company. The percentage of shares assigned
should be maintained at all times, and the assignment was to
subsist as long as the assignee, Development Bank of the
Philippines, deemed it necessary during the existence of the
loan.3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V.
Tankeh approached him sometime in 1980.4 Ruperto informed
petitioner that he was operating a new shipping line business.
Petitioner claimed that respondent, who is also petitioner’s
younger brother, had told him that petitioner would be given
one thousand (1,000) shares to be a director of the business.
The shares were worth ₱1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of Shares
of Stock with Voting Rights.6 Petitioner then signed the May
12, 1981 promissory note in December 1981. He was the last
to sign this note as far as the other signatories were
concerned.7 The loan was approved by respondent
Development Bank of the Philippines on March 18, 1981. The
vessel was acquired on September 29, 1981 for $5.3
million.8 On December 3, 1981, respondent corporation
Sterling Shipping Lines, Inc. through respondent Ruperto V.
Tankeh executed a Deed of Assignment in favor of
Development Bank of the Philippines. The deed stated that the
assignor, Sterling Shipping Lines, Inc.:
x x x does hereby transfer and assign in favor of the
ASSIGNEE (DBP), its successors and assigns, future earnings
of the mortgaged M/V "Sterling Ace," including proceeds of
charter and shipping contracts, it being understood that this
assignment shall continue to subsist for as long as the
ASSIGNOR’S obligation with the herein ASSIGNEE remains
unpaid.9
On June 16, 1983, petitioner wrote a letter to respondent
Ruperto V. Tankeh saying that he was severing all ties and
terminating his involvement with Sterling Shipping Lines,
Inc.10 He required that its board of directors pass a resolution
releasing him from all liabilities, particularly the loan contract
with Development Bank of the Philippines. In addition,
petitioner asked that the private respondents notify
Development Bank of the Philippines that he had severed his
ties with Sterling Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in
the Development Bank of the Philippines were transferred to
public respondent Asset Privatization Trust on June 30,
1986.12
Presently, respondent Asset Privatization Trust is known as
the Privatization and Management Office. Asset Privatization
Trust was a government agency created through Presidential
Proclamation No. 50, issued in 1986. Through Administrative
Order No. 14, issued by former President Corazon Aquino
dated February 3, 1987, assets including loans in favor of
Development Bank of the Philippines were ordered to be
transferred to the national government. In turn, the
management and facilitation of these assets were delegated to
Asset Privatization Trust, pursuant to Presidential
Proclamation No. 50. In 1999, Republic Act No. 8758 was
signed into law, and it provided that the corporate term of
Asset Privatization Trust would end on December 31, 2000.
The same law empowered the President of the Philippines to
determine which office would facilitate the management of
assets held by Asset Privatization Trust. Thus, on December 6,
2000, former President Joseph E. Estrada signed Executive
Order No. 323, creating the Privatization Management Office.
Its present function is to identify disposable assets, monitor
the progress of privatization activities, and approve the sale or
divestment of assets with respect to price and buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in
Singapore for $350,000.00 by Development Bank of the
Philippines’ legal counsel Atty. Prospero N. Nograles. When
petitioner came to know of the sale, he wrote respondent
Development Bank of the Philippines to express that the final
price was inadequate, and therefore, the transaction was
irregular. At this time, petitioner was still bound as a debtor
because of the promissory note dated May 12, 1981, which
petitioner signed in December of 1981. The promissory note
subsisted despite Sterling Shipping Lines, Inc.’s assignment of
all future earnings of the mortgaged M/V Sterling Ace to
Development Bank of the Philippines. The loan also continued
to bind petitioner despite Sterling Shipping Lines, Inc.’s cash
equity contribution of ₱13,663,200.00 which was used to
cover part of the acquisition cost of the vessel, pre-operating
expenses, and initial working capital.14
Petitioner filed several Complaints15 against respondents,
praying that the promissory note be declared null and void and
that he be absolved from any liability from the mortgage of the
vessel and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto
V. Tankeh, together with Vicente L. Arenas, Jr. and Jose
Maria Vargas, had exercised deceit and fraud in causing
petitioner to bind himself jointly and severally to pay
respondent Development Bank of the Philippines the amount
of the mortgage loan.16 Although he had been made a
stockholder and director of the respondent corporation Sterling
Shipping Lines, Inc., petitioner alleged that he had never
invested any amount in the corporation and that he had never
been an actual member of the board of directors. 17 He alleged
that all the money he had supposedly invested was provided
by respondent Ruperto V. Tankeh.18 He claimed that he only
attended one meeting of the board. In that meeting, he was
introduced to two directors representing Development Bank of
the Philippines, namely, Mr. Jesus Macalinag and Mr. Gil
Corpus. Other than that, he had never been notified of another
meeting of the board of directors.
Petitioner further claimed that he had been excluded
deliberately from participating in the affairs of the corporation
and had never been compensated by Sterling Shipping Lines,
Inc. as a director and stockholder.19 According to petitioner,
when Sterling Shipping Lines, Inc. was organized, respondent
Ruperto V. Tankeh had promised him that he would become
part of the administration staff and oversee company
operations. Respondent Ruperto V. Tankeh had also promised
petitioner that the latter’s son would be given a position in the
company.20 However, after being designated as vice president,
petitioner had not been made an officer and had been alienated
from taking part in the respondent corporation. 21
Petitioner also alleged that respondent Development Bank of
the Philippines had been inexcusably negligent in the
performance of its duties.22 He alleged that Development Bank
of the Philippines must have been fully aware of Sterling
Shipping Lines, Inc.’s financial situation. Petitioner claimed
that Sterling Shipping Lines, Inc. was controlled by the
Development Bank of the Philippines because 67% of voting
shares had been assigned to the latter.23Furthermore, the
mortgage contracts had mandated that Sterling Shipping
Lines, Inc. "shall furnish the DBP with copies of the minutes
of each meeting of the Board of Directors within one week
after the meeting. Sterling Shipping Lines Inc. shall likewise
furnish DBP its annual audited financial statements and other
information or data that may be needed by DBP as its
accommodations [sic] with DBP are outstanding." 24 Petitioner
further alleged that the Development Bank of the Philippines
had allowed "highly questionable acts" 25 to take place,
including the gross undervaluing of the M/V Sterling
Aces.26 Petitioner alleged that one day after Development
Bank of the Philippines’ Atty. Nograles sold the vessel, the
ship was re-sold by its buyer for double the amount that the
ship had been bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged
that since Arenas had been the treasurer of Sterling Shipping
Lines, Inc. and later on had served as its vice president, he was
also responsible for the financial situation of Sterling Shipping
Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991,
petitioner impleaded respondent Asset Privatization Trust for
being the agent and assignee of the M/V Sterling Ace.
In their Answers28 to the Complaints, respondents raised the
following defenses against petitioner: Respondent
Development Bank of the Philippines categorically denied
receiving any amount from Sterling Shipping Lines, Inc.’s
future earnings and from the proceeds of the shipping
contracts. It maintained that equity contributions could not be
deducted from the outstanding loan obligation that stood at
₱245.86 million as of December 31, 1986. Development Bank
of the Philippines also maintained that it is immaterial to the
case whether the petitioner is a "real stockholder" or merely a
"pseudo-stockholder" of the corporation.29 By affixing his
signature to the loan agreement, he was liable for the
obligation. According to Development Bank of the
Philippines, he was in pari delicto and could not be discharged
from his obligation. Furthermore, petitioner had no cause of
action against Development Bank of the Philippines since this
was a case between family members, and earnest efforts
toward compromise should have been complied with in
accordance with Article 222 of the Civil Code of the
Philippines.30
Respondent Ruperto V. Tankeh stated that petitioner had
voluntarily signed the promissory note in favor of
Development Bank of the Philippines and with full knowledge
of the consequences. Respondent Tankeh also alleged that he
did not employ any fraud or deceit to secure petitioner’s
involvement in the company, and petitioner had been fully
aware of company operations. Also, all that petitioner had to
do to avoid liability had been to sell his shareholdings in the
company.31
Respondent Asset Privatization Trust raised that petitioner had
no cause of action against them since Asset Privatization Trust
had been mandated under Proclamation No. 50 to take title to
and provisionally manage and dispose the assets identified for
privatization or deposition within the shortest possible period.
Development Bank of the Philippines had transferred and
conveyed all its rights, titles, and interests in favor of the
national government in accordance with Administrative Order
No. 14. In line with that, Asset Privatization Trust was
constituted as trustee of the assets transferred to the national
government to effect privatization of these assets, including
respondent Sterling Shipping Lines, Inc.32 Respondent Asset
Privatization Trust also filed a compulsory counterclaim
against petitioner and its co-respondents Sterling Shipping
Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr. for
the amount of ₱264,386,713.84.
Respondent Arenas did not file an Answer to any of the
Complaints of petitioner but filed a Motion to Dismiss that the
Regional Trial Court denied. Respondent Asset Privatization
Trust filed a Cross Claim against Arenas. In his Answer33 to
Asset Privatization Trust’s Cross Claim, Arenas claimed that
he had been released from any further obligation to
Development Bank of the Philippines and its successor Asset
Privatization Trust because an extension had been granted by
the Development Bank of the Philippines to the debtors of
Sterling Shipping Lines, Inc. and/or Ruperto V. Tankeh,
which had been secured without Arenas’ consent.
The trial proceeded with the petitioner serving as a sole
witness for his case. In a January 4, 1996 Decision, 34 the
Regional Trial Court ruled:
Here, we find –
1. Plaintiff being promised by his younger brother, Ruperto V.
Tankeh, 1,000 shares with par value of ₱1 Million with all the
perks and privileges of being stockholder and director of
SSLI, a new international shipping line;
2. That plaintiff will be part of the administration and
operation of the business, so with his son who is with the law
firm Romulo Ozaeta Law Offices;
3. But this was merely the come-on or appetizer for the Real
McCoy or the primordial end of congregating the
incorporators proposed - - that he sign the promissory note
(Exhibit "C"), the mortgage contract (Exhibit "A"), and deed
of assignment so SSLI could get the US $3.5 M loan from
DBP to partially finance the importation of vessel M.V.
"Golden Lilac" renamed M.V. "Sterling ACE";
4. True it is, plaintiff was made a stockholder and director and
Vice-President in 1979 but he was never notified of any
meeting of the Board except only once, and only to be
introduced to the two (2) directors representing no less than
67% of the total subscribed and outstanding voting shares of
the company. Thereafter, he was excluded from any board
meeting, shorn of his powers and duties as director or Vice-
President, and was altogether deliberately demeaned as an
outsider.
5. What kind of a company is SSLI who treated one of their
incorporators, one of their Directors and their paper Vice-
President in 1979 by preventing him access to corporate
books, to corporate earnings, or losses, and to any
compensation or remuneration whatsoever? Whose President
and Treasurer did not submit the required SEC yearly report?
Who did not remit to DBP the proceeds on charter mortgage
contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when
it was then diverted to Singapore to be disposed on negotiated
sale, and not by public bidding contrary to COA Circular No.
86-264 and without COA’s approval. Sterling Ace was
seaworthy but was sold as scrap in Singapore. No foreclosure
with public bidding was made in contravention of the
Promissory Note to recover any deficiency should DBP seeks
[sic] to recover it on the outstanding mortgage loan. Moreover
the sale was done after the account and asset (nay, now only a
liability) were transferred to APT. No approval of SSLI Board
of Directors to the negotiated sale was given.
7. Plaintiff’s letter to his brother President, Ruperto V.
Tankeh, dated June 15, 1983 (Exhibit "D") his letter thru his
lawyer to DBP (Exhibit "J") and another letter to it (Exhibit
"K") show no estoppel on his part as he consistently and
continuously assailed the several injurious acts of defendants
while assailing the Promissory Note itself x x x (Citations
omitted) applying the maxim: Rencintiatio non praesumitur.
By this Dr. Tankeh never waived the right to question the
Promissory Note contract terms. He did not ratify, by
concurring acts, express or tacit, after the reasons had surfaced
entitling him to render the contract voidable, defendants’ acts
in implementing or not the conditions of the mortgage, the
promissory note, the deed of assignment, the lack of audit and
accounting, and the negotiated sale of MV Sterling Ace. He
did not ratify defendants [sic] defective acts (Art. 1396, New
Civil Code (NCC).
The foregoing and the following essays, supported by
evidence, the fraud committed by plaintiff’s brother before the
several documents were signed (SEC documents, Promissory
Note, Mortgage (MC) Contract, assignment (DA)), namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell
the latter of his new shipping business. The project was good
business proposal [sic].
2. Ruperto tells Alejandro he’s giving him shares worth ₱1
Million and he’s going to be a Director.
3. He tells his brother that he will be part of the company’s
Administration and Operations and his eldest son will be in it,
too.
4. Ruperto tells his brother they need a ship, they need to buy
one for the business, and they therefore need a loan, and they
could secure a loan from DBP with the vessel brought to have
a first mortgage with DBP but anyway the other two directors
and comptroller will be from DBP with a 67% SSLI shares
voting rights.
Without these insidious, devastating and alluring words,
without the machinations used by defendant Ruperto V.
Tankeh upon the doctor, without the inducement and promise
of ownership of shares and the exercise of administrative and
operating functions, and the partial financing by one of the
best financial institutions, the DBP, plaintiff would not have
agreed to join his brother; and the safeguarding of the Bank’s
interest by its nominated two (2) directors in the Board added
to his agreeing to the new shipping business. His consent was
vitiated by the fraud before the several contracts were
consummated.
This alone convenes [sic] this Court to annul the Promissory
Note as it relates to plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article
19, NCC, provides him the way as it requires every person, in
the exercise of his rights and performance of his duties, to act
with justice, give everyone his due, and observe honesty and
good faith (Velayo vs. Shell Co. of the Phils., G.R. L-7817,
October 31, 1956). Not to release him from the clutch of the
Promissory Note when he was never made a part of the
operation of the SSLI, when he was not notified of the Board
Meetings, when the corporation nary remitted earnings of M/V
Sterling Ace from charter or shipping contracts to DBP, when
the SSLI did not comply with the deed of assignment and
mortgage contract, and when the vessel was sold in Singapore
(he, learning of the sale only from the newspapers) in
contravention of the Promissory Note, and which he
questioned, will be an injustice, inequitable, and even
iniquitous to plaintiff. SSLI and the private defendants did not
observe honesty and good faith to one of their incorporators
and directors. As to DBP, the Court cannot put demerits on
what plaintiff’s memorandum has pointed out:
While defendant DBP did not exercise the caution and
prudence in the discharge of their functions to protect its
interest as expected of them and worst, allowed the
perpetuation of the illegal acts committed in contrast to the
virtues they publicly profess, namely: "palabra de honor,
delicadeza, katapatan, kaayusan, pagkamasinop at kagalingan"
Where is the vision banking they have for our country?
Had DBP listened to a cry in the wilderness – that of the voice
of the doctor – the doctor would not have allowed the officers
and board members to defraud DBP and he would demand of
them to hew and align themselves to the deed of assignment.
Prescinding from the above, plaintiff’s consent to be with
SSLI was vitiated by fraud. The fact that defendant Ruperto
Tankeh has not questioned his liability to DBP or that Jose
Maria Vargas has been declared in default do not detract from
the fact that there was attendant fraud and that there was
continuing fraud insofar as plaintiff is concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala
siyang sense of righteous indignation and fairness, tatahimik
na lang siya, sira naman ang pinangangalagaan niyang
pangalan, honor and family prestige [sic] (Emphasis
provided).35
xxxx
All of the defendants’ counterclaims and cross-claims x x x
including plaintiff’s and the other defendants’ prayer for
damages are not, for the moment, sourced and proven by
substantial evidence, and must perforce be denied and
dismissed.
WHEREFORE, this Court, finding and declaring the
Promissory Note (Exhibit "C") and the Mortgage Contract
(Exhibit "A") null and void insofar as plaintiff DR.
ALEJANDRO V. TANKEH is concerned, hereby ANNULS
and VOIDS those documents as to plaintiff, and it is hereby
further ordered that he be released from any obligation or
liability arising therefrom.
All the defendants’ counterclaims and cross-claims and
plaintiff’s and defendants’ prayer for damages are hereby
denied and dismissed, without prejudice.
SO ORDERED.36
Respondents Ruperto V. Tankeh, Asset Privatization Trust,
and Arenas immediately filed their respective Notices of
Appeal with the Regional Trial Court. The petitioner filed a
Motion for Reconsideration with regard to the denial of his
prayer for damages. After this Motion had been denied, he
then filed his own Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the Third
Division of the Court of Appeals reversed the trial court’s
findings. The Court of Appeals held that petitioner had no
cause of action against public respondent Asset Privatization
Trust. This was based on the Court of Appeals’ assessment of
the case records and its findings that Asset Privatization Trust
did not commit any act violative of the right of petitioner or
constituting a breach of Asset Privatization Trust’s obligations
to petitioner. The Court of Appeals found that petitioner’s
claim for damages against Asset Privatization Trust was based
merely on his own self-serving allegations.38
As to the finding of fraud, the Court of Appeals held that:
xxxx
In all the complaints from the original through the first, second
and third amendments, the plaintiff imputes fraud only to
defendant Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and fraud exercised
by Ruperto V. Tankeh, plaintiff, together with Vicente L.
Arenas, Jr. and Jose Maria Vargas signed a promissory note in
favor of the defendant, DBP, wherein plaintiff bound himself
to jointly and severally pay the DBP the amount of the
mortgage loan. This document insofar as plaintiff is concerned
is a simulated document considering that plaintiff was never a
real stockholder of Sterling Shipping Lines, Inc. (Emphasis
provided)
More allegations of deceit were added in the Second Amended
Complaint, but they are also attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V.
TANKEH IS SHOWN BY THE FACT THAT when the
Sterling Shipping Lines, Inc. was organized in 1980, Ruperto
V. Tankeh promised plaintiff that he would be a part of the
administration staff so that he could oversee the operation of
the company. He was also promised that his son, a lawyer,
would be given a position in the company. None of these
promsies [sic] was complied with. In fact he was not even
allowed to find out the data about the income and expenses of
the company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS
ALSO SHOWN BY THE FACT THAT PLAINTIFF WAS
INVITED TO ATTEND THE BOARD MEETING OF THE
STERLING SHIPPING LINES INC. ONLY ONCE, WHICH
WAS FOR THE SOLE PURPOSE OF INTRODUCING HIM
TO THE TWO DIRECTORS OF THE DBP IN THE BOARD
OF THE STERLING SHIPPING LINES, INC., NAMELY,
MR. JESUS MACALINAG AND MR. GIL CORPUS.
THEREAFTER HE WAS NEVER INVITED AGAIN.
PLAINTIFF WAS NEVER COMPENSATED BY THE
STERLING SHIPPING LINES, INC. FOR HIS BEING A
SO-CALLED DIRECTOR AND STOCKHOLDER.
xxxx
8-A THAT A WEEK AFTER SENDING THE ABOVE
LETTER PLAINTIFF MADE EARNEST EFFORTS
TOWARDS A COMPROMISE BETWEEN HIM AND HIS
BROTHER RUPERTO V. TANKEH, WHICH EFFORTS
WERE SPURNED BY RUPERTO V. TANKEH, AND ALSO
AFTER THE NEWS OF THE SALE OF THE ‘STERLING
ACE’ WAS PUBLISHED AT THE NEWSPAPER,
PLAINTIFF TRIED ALL EFFORTS TO CONTACT
RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT
RUPERTO V. TANKEH AVOIDED ALL CONTACTS
WITH THE PLAINTIFF UNTIL HE WAS FORCED TO
SEEK LEGAL ASSISTANCE FROM HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against
the other defendants, namely, the DBP, Vicente Arenas,
Sterling Shipping Lines, Inc., and the Asset Privatization
Trust, the plaintiff’s evidence thereon should only be against
Ruperto, since a plaintiff is bound to prove only the
allegations of his complaint. In any case, no evidence of fraud
or deceit was ever presented against defendants DBP, Arenas,
SSLI and APT.
As to the evidence against Ruperto, the same consists only of
the testimony of the plaintiff. None of his documentary
evidence would prove that Ruperto was guilty of fraud or
deceit in causing him to sign the subject promissory note. 39
xxxx
Analyzing closely the foregoing statements, we find no
evidence of fraud or deceit. The mention of a new shipping
lines business and the promise of a free 1,000-share and
directorship in the corporation do not amount to insidious
words or machinations. In any case, the shipping business was
indeed established, with the plaintiff himself as one of the
incorporators and stockholders with a share of 4,000, worth
₱4,000,000.00 of which ₱1,000,000.00 was reportedly paid
up. As such, he signed the Articles of Incorporation and the
corporation’s By-Laws which were registered with the
Securities and Exchange Commission in April 1979. It was
not until May 12, 1981 that he signed the questioned
promissory note. From his own declaration at the witness
stand, the plaintiff signed the promissory note voluntarily. No
pressure, force or intimidation was made to bear upon him. In
fact, according to him, only a messenger brought the paper to
him for signature. The promised shares of stock were given
and recorded in the plaintiff’s name. He was made a director
and Vice-President of SSLI. Apparently, only the promise that
his son would be given a position in the company remained
unfulfilled. However, the same should have been threshed out
between the plaintiff and his brother, defendant Ruperto, and
its non-fulfillment did not amount to fraud or deceit, but was
only an unfulfilled promise.
It should be pointed out that the plaintiff is a doctor of
medicine and a seasoned businessman. It cannot be said that
he did not understand the import of the documents he signed.
Certainly he knew what he was signing. He should have
known that being an officer of SSLI, his signing of the
promissory note together with the other officers of the
corporation was expected, as the other officers also did. It
cannot therefore be said that the promissory note was
simulated. The same is a contract validly entered into, which
the parties are obliged to comply with.40 (Citations omitted)
The Court of Appeals ruled that in the absence of any
competent proof, Ruperto V. Tankeh did not commit any
fraud. Petitioner Alejandro V. Tankeh was unable to prove by
a preponderance of evidence that fraud or deceit had been
employed by Ruperto to make him sign the promissory note.
The Court of Appeals reasoned that:
Fraud is never presumed but must be proved by clear and
convincing evidence, mere preponderance of evidence not
even being adequate. Contentions must be proved by
competent evidence and reliance must be had on the strength
of the party’s evidence and not upon the weakness of the
opponent’s defense. The plaintiff clearly failed to discharge
such burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the
judgment and ordered that plaintiff’s Complaint be dismissed.
Petitioner filed a Motion for Reconsideration dated October
25, 2005 that was denied in a Resolution42promulgated on
February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of
Appeals seriously erred and gravely abused its discretion in
acting and deciding as if the evidence stated in the Decision of
the Regional Trial Court did not exist. He averred that the
ruling of lack of cause of action had no leg to stand on, and the
Court of Appeals had unreasonably, whimsically, and
capriciously ignored the ample evidence on record proving the
fraud and deceit perpetrated on the petitioner by the
respondent. He stated that the appellate court failed to
appreciate the findings of fact of the lower court, which are
generally binding on appellate courts. He also maintained that
he is entitled to damages and attorney's fees due to the deceit
and machinations committed by the respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred
that petitioner had chosen the wrong remedy. He ought to have
filed a special civil action of certiorari and not a Petition for
Review. Petitioner raised questions of fact, and not questions
of law, and this required the review or evaluation of evidence.
However, this is not the function of this Court, as it is not a
trier of facts. He also contended that petitioner had voluntarily
entered into the loan agreement and the position with Sterling
Shipping Lines, Inc. and that he did not fraudulently induce
the petitioner to enter into the contract.
Respondents Development Bank of the Philippines and Asset
Privatization Trust also contended that petitioner's mode of
appeal had been wrong, and he had actually sought a special
civil action of certiorari. This alone merited its dismissal.
The main issue in this case is whether the Court of Appeals
erred in finding that respondent Rupert V. Tankeh did not
commit fraud against the petitioner.
The Petition is partly granted.
Before disposing of the main issue in this case, this Court
needs to address a procedural issue raised by respondents.
Collectively, respondents argue that the Petition is actually
one of certiorari under Rule 65 of the Rules of Court43 and not
a Petition for Review on Certiorari under Rule 45. 44 Thus,
petitioner’s failure to show that there was neither appeal nor
any other plain, speedy or adequate remedy merited the
dismissal of the Complaint.
Contrary to respondent’s imputation, the remedy contemplated
by petitioner is clearly that of a Rule 45 Petition for Review.
In Tagle v. Equitable PCI Bank,45 this Court made the
distinction between a Rule 45 Petition for Review on
Certiorari and a Rule 65 Petition for Certiorari:
Certiorari is a remedy designed for the correction of errors of
jurisdiction, not errors of judgment.1âwphi1 In Pure Foods
Corporation v. NLRC, we explained the simple reason for the
rule in this light: When a court exercises its jurisdiction, an
error committed while so engaged does not deprive it of the
jurisdiction being exercised when the error is committed x x x.
Consequently, an error of judgment that the court may commit
in the exercise of its jurisdiction is not correctable through the
original civil action of certiorari.
xxxx
Even if the findings of the court are incorrect, as long as it has
jurisdiction over the case, such correction is normally beyond
the province of certiorari. Where the error is not one of
jurisdiction, but of an error of law or fact a mistake of
judgment, appeal is the remedy.
In this case, what petitioner seeks to rectify may be construed
as errors of judgment of the Court of Appeals. These errors
pertain to the petitioner’s allegation that the appellate court
failed to uphold the findings of facts of the lower court. He
does not impute any error with respect to the Court of
Appeals’ exercise of jurisdiction. As such, this Petition is
simply a continuation of the appellate process where a case is
elevated from the trial court of origin, to the Court of Appeals,
and to this Court via Rule 45.
Contrary to respondents’ arguments, the allegations of
petitioner that the Court of Appeals "committed grave abuse
of discretion"46 did not ipso facto render the intended remedy
that of certiorari under Rule 65 of the Rules of Court.47
In any case, even if the Petition is one for the special civil
action of certiorari, this Court has the discretion to treat a Rule
65 Petition for Certiorari as a Rule 45 Petition for Review on
Certiorari. This is allowed if (1) the Petition is filed within the
reglementary period for filing a Petition for review; (2) when
errors of judgment are averred; and (3) when there is sufficient
reason to justify the relaxation of the rules.48 When this Court
exercises this discretion, there is no need to comply with the
requirements provided for in Rule 65.
In this case, petitioner filed his Petition within the
reglementary period of filing a Petition for Review. 49 His
Petition assigns errors of judgment and appreciation of facts
and law on the part of the Court of Appeals. Thus, even if the
Petition was designated as one that sought the remedy of
certiorari, this Court may exercise its discretion to treat it as a
Petition for Review in the interest of substantial justice.
We now proceed to the substantive issue, that of petitioner’s
imputation of fraud on the part of respondents. We are
required by the circumstances of this case to review our
doctrines of fraud that are alleged to be present in contractual
relations.
Types of Fraud in Contracts
Fraud is defined in Article 1338 of the Civil Code as:
x x x fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into
a contract which, without them, he would not have agreed to.
This is followed by the articles which provide legal examples
and illustrations of fraud.
Art. 1339. Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential
relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has relied
on the former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
The distinction between fraud as a ground for rendering a
contract voidable or as basis for an award of damages is
provided in Article 1344:
In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay
damages. (1270)
There are two types of fraud contemplated in the performance
of contracts: dolo incidente or incidental fraud and dolo
causante or fraud serious enough to render a contract voidable.
In Geraldez v. Court of Appeals,50 this Court held that:
This fraud or dolo which is present or employed at the time of
birth or perfection of a contract may either be dolo causante or
dolo incidente. The first, or causal fraud referred to in Article
1338, are those deceptions or misrepresentations of a serious
character employed by one party and without which the other
party would not have entered into the contract. Dolo incidente,
or incidental fraud which is referred to in Article 1344, are
those which are not serious in character and without which the
other party would still have entered into the contract. Dolo
causante determines or is the essential cause of the consent,
while dolo incidente refers only to some particular or accident
of the obligation. The effects of dolo causante are the nullity
of the contract and the indemnification of damages, and dolo
incidente also obliges the person employing it to pay
damages.51
In Solidbank Corporation v. Mindanao Ferroalloy
Corporation, et al.,52 this Court elaborated on the distinction
between dolo causante and dolo incidente:
Fraud refers to all kinds of deception -- whether through
insidious machination, manipulation, concealment or
misrepresentation -- that would lead an ordinarily prudent
person into error after taking the circumstances into account.
In contracts, a fraud known as dolo causante or causal fraud is
basically a deception used by one party prior to or
simultaneous with the contract, in order to secure the consent
of the other. Needless to say, the deceit employed must be
serious. In contradistinction, only some particular or accident
of the obligation is referred to by incidental fraud or dolo
incidente, or that which is not serious in character and without
which the other party would have entered into the contract
anyway.53
Under Article 1344, the fraud must be serious to annul or
avoid a contract and render it voidable. This fraud or
deception must be so material that had it not been present, the
defrauded party would not have entered into the contract. In
the recent case of Spouses Carmen S. Tongson and Jose C.
Tongson, et al., v. Emergency Pawnshop Bula, Inc., 54 this
Court provided some examples of what constituted dolo
causante or causal fraud:
Some of the instances where this Court found the existence of
causal fraud include: (1) when the seller, who had no intention
to part with her property, was "tricked into believing" that
what she signed were papers pertinent to her application for
the reconstitution of her burned certificate of title, not a deed
of sale; (2) when the signature of the authorized corporate
officer was forged; or (3) when the seller was seriously ill, and
died a week after signing the deed of sale raising doubts on
whether the seller could have read, or fully understood, the
contents of the documents he signed or of the consequences of
his act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental,
it follows that this type of fraud is not serious enough so as to
render the original contract voidable.
A classic example of dolo incidente is Woodhouse v.
Halili.56 In this case, the plaintiff Charles Woodhouse entered
into a written agreement with the defendant Fortunato Halili to
organize a partnership for the bottling and distribution of soft
drinks. However, the partnership did not come into fruition,
and the plaintiff filed a Complaint in order to execute the
partnership. The defendant filed a Counterclaim, alleging that
the plaintiff had defrauded him because the latter was not
actually the owner of the franchise of a soft drink bottling
operation. Thus, defendant sought the nullification of the
contract to enter into the partnership. This Court concluded
that:
x x x from all the foregoing x x x plaintiff did actually
represent to defendant that he was the holder of the exclusive
franchise. The defendant was made to believe, and he actually
believed, that plaintiff had the exclusive franchise. x x x The
record abounds with circumstances indicative that the fact that
the principal consideration, the main cause that induced
defendant to enter into the partnership agreement with
plaintiff, was the ability of plaintiff to get the exclusive
franchise to bottle and distribute for the defendant or for the
partnership. x x x The defendant was, therefore, led to the
belief that plaintiff had the exclusive franchise, but that the
same was to be secured for or transferred to the partnership.
The plaintiff no longer had the exclusive franchise, or the
option thereto, at the time the contract was perfected. But
while he had already lost his option thereto (when the contract
was entered into), the principal obligation that he assumed or
undertook was to secure said franchise for the partnership, as
the bottler and distributor for the Mission Dry Corporation.
We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the
partnership agreement.
But, on the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or price
plaintiff gave in exchange for the share of 30 percent granted
him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits
because he was transferring his exclusive franchise to the
partnership. x x x.
Plaintiff had never been a bottler or a chemist; he never had
experience in the production or distribution of beverages. As a
matter of fact, when the bottling plant being built, all that he
suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that
plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other
words, by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent
of the latter to give him (plaintiff) a big slice in the net profits.
This is the dolo incidente defined in article 1270 of the
Spanish Civil Code, because it was used to get the other
party's consent to a big share in the profits, an incidental
matter in the agreement.57
Thus, this Court held that the original agreement may not be
declared null and void. This Court also said that the plaintiff
had been entitled to damages because of the refusal of the
defendant to enter into the partnership. However, the plaintiff
was also held liable for damages to the defendant for the
misrepresentation that the former had the exclusive franchise
to soft drink bottling operations.
To summarize, if there is fraud in the performance of the
contract, then this fraud will give rise to damages. If the fraud
did not compel the imputing party to give his or her consent, it
may not serve as the basis to annul the contract, which
exhibits dolo causante. However, the party alleging the
existence of fraud may prove the existence of dolo incidente.
This may make the party against whom fraud is alleged liable
for damages.
Quantum of Evidence to Prove the Existence of Fraud and the
Liability of the Parties
The Civil Code, however, does not mandate the quantum of
evidence required to prove actionable fraud, either for
purposes of annulling a contract (dolo causante) or rendering a
party liable for damages (dolo incidente). The definition of
fraud is different from the quantum of evidence needed to
prove the existence of fraud. Article 1338 provides the legal
definition of fraud. Articles 1339 to 1343 constitute the
behavior and actions that, when in conformity with the legal
provision, may constitute fraud.
Jurisprudence has shown that in order to constitute fraud that
provides basis to annul contracts, it must fulfill two
conditions. First, the fraud must be dolo causante or it must be
fraud in obtaining the consent of the party. Second, this fraud
must be proven by clear and convincing evidence. In Viloria
v. Continental Airlines,58 this Court held that:
Under Article 1338 of the Civil Code, there is fraud when,
through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order
that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente),
inducement to the making of the contract. In Samson v. Court
of Appeals, causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the contract
in order to secure the consent of the other." Also, fraud must
be serious and its existence must be established by clear and
convincing evidence. (Citations omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals60 stating
that mere preponderance of evidence will not suffice in
proving fraud.
Fraud must also be discounted, for according to the Civil
Code:
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is
induced to enter into a contract which without them, he would
not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
To quote Tolentino again, the "misrepresentation constituting
the fraud must be established by full, clear, and convincing
evidence, and not merely by a preponderance thereof. The
deceit must be serious. The fraud is serious when it is
sufficient to impress, or to lead an ordinarily prudent person
into error; that which cannot deceive a prudent person cannot
be a ground for nullity. The circumstances of each case should
be considered, taking into account the personal conditions of
the victim."61
Thus, to annul a contract on the basis of dolo causante, the
following must happen: First, the deceit must be serious or
sufficient to impress and lead an ordinarily prudent person to
error. If the allegedly fraudulent actions do not deceive a
prudent person, given the circumstances, the deceit here
cannot be considered sufficient basis to nullify the contract. In
order for the deceit to be considered serious, it is necessary
and essential to obtain the consent of the party imputing fraud.
To determine whether a person may be sufficiently deceived,
the personal conditions and other factual circumstances need
to be considered.
Second, the standard of proof required is clear and convincing
evidence. This standard of proof is derived from American
common law. It is less than proof beyond reasonable doubt
(for criminal cases) but greater than preponderance of
evidence (for civil cases). The degree of believability is higher
than that of an ordinary civil case. Civil cases only require a
preponderance of evidence to meet the required burden of
proof. However, when fraud is alleged in an ordinary civil
case involving contractual relations, an entirely different
standard of proof needs to be satisfied. The imputation of
fraud in a civil case requires the presentation of clear and
convincing evidence. Mere allegations will not suffice to
sustain the existence of fraud. The burden of evidence rests on
the part of the plaintiff or the party alleging fraud. The
quantum of evidence is such that fraud must be clearly and
convincingly shown.
The Determination of the Existence of Fraud in the Present
Case
We now determine the application of these doctrines regarding
fraud to ascertain the liability, if any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo
incidente or dolo causante that must be proven by clear and
convincing evidence. It stands to reason that both dolo
incidente and dolo causante must be proven by clear and
convincing evidence. The only question is whether this fraud,
when proven, may be the basis for making a contract voidable
(dolo causante), or for awarding damages (dolo incidente), or
both.
Hence, there is a need to examine all the circumstances
thoroughly and to assess the personal circumstances of the
party alleging fraud. This may require a review of the case
facts and the evidence on record.
In general, this Court is not a trier of facts. It makes its rulings
based on applicable law and on standing jurisprudence. The
findings of the Court of Appeals are generally binding on this
Court provided that these are supported by the evidence on
record. In the recent case of Medina v. Court of Appeals,62 this
Court held that:
It is axiomatic that a question of fact is not appropriate for a
petition for review on certiorari under Rule 45. This rule
provides that the parties may raise only questions of law,
because the Supreme Court is not a trier of facts. Generally,
we are not duty-bound to analyze again and weigh the
evidence introduced in and considered by the tribunals below.
When supported by substantial evidence, the findings of fact
of the Court of Appeals are conclusive and binding on the
parties and are not reviewable by this Court, unless the case
falls under any of the following recognized exceptions: (1)
When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) When the inference
made is manifestly mistaken, absurd or impossible; (3) Where
there is a grave abuse of discretion; (4) When the judgment is
based on a misapprehension of facts; (5) When the findings of
fact are conflicting; (6) When the Court of Appeals, in making
its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7)
When the findings are contrary to those of the trial court; (8)
When the findings of fact are conclusions without citation of
specific evidence on which they are based; (9) When the facts
set forth in the petition as well as in the petitioner’s main and
reply briefs are not disputed by the respondents; and (10)
When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and
contradicted by the evidence on record. (Emphasis provided)63
The trial court and the Court of Appeals had appreciated the
facts of this case differently.
The Court of Appeals was not correct in saying that petitioner
could only raise fraud as a ground to annul his participation in
the contract as against respondent Rupert V. Tankeh, since the
petitioner did not make any categorical allegation that
respondents Development Bank of the Philippines, Sterling
Shipping Lines, Inc., and Asset Privatization Trust had acted
fraudulently. Admittedly, it was only in the Petition before this
Court that the petitioner had made the allegation of a "well-
orchestrated fraud"64 by the respondents. However, Rule 10,
Section 5 of the Rules of Civil Procedure provides that:
Amendment to conform to or authorize presentation of
evidence. — When issues not raised by the pleadings are tried
with the express or implied consent of the parties they shall be
treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at
any time, even after judgment; but failure to amend does not
effect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may
grant a continuance to enable the amendment to be made. (5a)
In this case, the commission of fraud was an issue that had
been tried with the implied consent of the respondents,
particularly Sterling Shipping Lines, Inc., Asset Privatization
Trust, Development Bank of the Philippines, and Arenas.
Hence, although there is a lack of a categorical allegation in
the pleading, the courts may still be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to
enter into the contract with respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business
of the Sterling Shipping Lines, Incorporated" [sic]
DR. TANKEH: Sometime in the year 1980, I was approached
by Ruperto Tankeh mentioning to me that he is operating a
new shipping lines business and he is giving me free one
thousand shares (1,000) to be a director of this new business
which is worth one million pesos (₱1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to
me that I will be made a part of the administration staff so that
I can oversee the operation of the business plus my son, the
eldest one who is already a graduate lawyer with a couple of
years of experience in the law firm of Romulo Ozaeta Law
Offices (TSN, April 28, 1988, pp. 10-11.).65
The Second Amended Complaint of petitioner is substantially
reproduced below to ascertain the claim:
xxxx
2. That on May 12, 1981, due to the deceit and fraud exercised
by Ruperto V. Tankeh, plaintiff, together with Vicente L.
Arenas, Jr. and Jose Maria Vargas, signed a promissory note
in favor of the defendant DBP, wherein plaintiff bound
himself to jointly and severally pay the DBP the amount of the
mortgage loan. This document insofar as plaintiff is concerned
is a simulated document considering that plaintiff was never a
real stockholder of the Sterling Shipping Lines, Inc.
3. That although plaintiff’s name appears in the records of
Sterling Shipping Lines, Inc. as one of its incorporators, the
truth is that he had never invested any amount in said
corporation and that he had never been an actual member of
said corporation. All the money supposedly invested by him
were put by defendant Ruperto V. Tankeh. Thus, all the shares
of stock under his name in fact belongs to Ruperto V. Tankeh.
Plaintiff was invited to attend the board meeting of the
Sterling Shipping Lines, Inc. only once, which was for the sole
purpose of introducing him to the two directors of the DBP,
namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Thereafter
he was never invited again. Plaintiff was never compensated
by the Sterling Shipping Lines, Inc. for his being a so-called
director and stockholder. It is clear therefore that the DBP
knew all along that plaintiff was not a true stockholder of the
company.
4. That THE DECEIT OF DEFENDANT RUPERTO V.
TANKEH IS SHOWN BY THE FACT THAT when the
Sterling Shipping Lines, Inc. was organized in 1980, Ruperto
V. Tankeh promised plaintiff that he would be a part of the
administration staff so that he could oversee the operation of
the company. He was also promised that his son, a lawyer,
would be given a position in the company. None of these
promises was complied with. In fact, he was not even allowed
to find out the data about the income and expenses of the
company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS
ALSO SHOWN BY THE FACT THAT PLAINTIFF WAS
INVITED TO ATTEND THE BOARD MEETING OF THE
STERLING SHIPPING LINES, INC. ONLY ONCE, WHICH
WAS FOR THE SOLE PUPOSE OF INTRODUCING HIM
TO THE TWO DIRECTORS OF THE DBP IN THE BOARD
OF THE STERLING SHIPPING LINES, INC., NAMELY,
MR. JESUS MACALINAG AND MR. GIL CORPUS.
THEREAFTER HE WAS NEVER INVITED AGAIN.
PLAINTIFF WAS NEVER COMPENSATED BY THE
STERLING SHIPPING LINES, INC. FOR HIS BEING A
SO-CALLED DIRECTOR AND STOCKHOLDER.
6. That in 1983, upon realizing that he was only being made a
tool to realize the purposes of Ruperto V. Tankeh, plaintiff
officially informed the company by means of a letter dated
June 15, 1983 addressed to the company that he has severed
his connection with the company, and demanded among
others, that the company board of directors pass a resolution
releasing him from any liabilities especially with reference to
the loan mortgage contract with the DBP and to notify the
DBP of his severance from the Sterling Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE
LETTER, PLAINTIFF MADE EARNEST EFFORTS
TOWARDS A COMPROMISE BETWEEN HIM AND HIS
BROTHER RUPERTO V. TANKEH, WHICH EFFORTS
WERE SPURNED BY RUPERTO V. TANKEH, AND ALSO
AFTER THE NEWS OF THE SALE OF THE "STERLING
ACE" WAS PUBLISHED AT THE NEWSPAPER [sic],
PLAINTIFF TRIED ALL EFFORTS TO CONTACT
RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT
RUPERTO V. TANKEH AVOIDED ALL CONTACTS [sic]
WITH THE PLAINTIFF UNTIL HE WAS FORCED TO
SEEK LEGAL ASSISTANCE FROM HIS LAWYER.66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through
the undersigned counsel, and to the Honorable Court, most
respectfully alleges:
xxxx
3. That paragraph 4 is admitted that herein answering
defendant together with the plaintiff signed the promissory
note in favor of DBP but specifically denied that the same was
done through deceit and fraud of herein answering defendant
the truth being that plaintiff signed said promissory note
voluntarily and with full knowledge of the consequences
thereof; it is further denied that said document is a simulated
document as plaintiff was never a real stockholder of the
company, the truth being those alleged in the special and
affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied
specially the imputation of deceit and fraud against herein
answering defendant, the truth being those alleged in the
special and affirmative defenses;
xxxx
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein
answering defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company
organized in accordance with the laws of the Republic of the
Philippines with the plaintiff as one of the incorporators;
10. Plaintiff as one of the incorporators and directors of the
board was fully aware of the by-laws of the company and if he
attended the board meeting only once as alleged, the reason
thereof was known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation
acting through its board of directors, herein answering
defendant could not have promised plaintiff that he would be a
part of the administration staff;
12. As member of the board, plaintiff had all the access to the
data and records of the company; further, as alleged in the
complaint, plaintiff has a son who is a lawyer who could have
advised him;
13. Assuming plaintiff wrote a letter to the company to sever
his connection with the company, he should have been aware
that all he had to do was sell all his holdings in the company;
14. Herein answering defendant came to know only of
plaintiff’s alleged predicament when he received the summons
and copy of the complaint; x x x.67
An assessment of the allegations in the pleadings and the
findings of fact of both the trial court and appellate court
based on the evidence on record led to the conclusion that
there had been no dolo causante committed against the
petitioner by Ruperto V. Tankeh.
The petitioner had given his consent to become a shareholder
of the company without contributing a single peso to pay for
the shares of stock given to him by Ruperto V. Tankeh. This
fact was admitted by both petitioner and respondent in their
respective pleadings submitted to the lower court.
In his Amended Complaint,68 the petitioner admitted that "he
had never invested any amount in said corporation and that he
had never been an actual member of said corporation. All the
money supposedly invested by him were put up by defendant
Ruperto V. Tankeh."69 This fact alone should have already
alerted petitioner to the gravity of the obligation that he would
be undertaking as a member of the board of directors and the
attendant circumstances that this undertaking would entail. It
also does not add any evidentiary weight to strengthen
petitioner’s claim of fraud. If anything, it only strengthens the
position that petitioner’s consent was not obtained through
insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some
exaggerations in trade which negates fraud. It reads:
Art. 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent.
Given the standing and stature of the petitioner, he was in a
position to ascertain more information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in
ascertaining whether a party is guilty of fraud in obtaining the
consent of the party claiming that fraud existed. The plaintiff
Lamberto Songco sought to recover earnings from a
promissory note that defendant George Sellner had made out
to him for payment of Songco’s sugar cane production. Sellner
claimed that he had refused to pay because Songco had
promised that the crop would yield 3,000 piculs of sugar,
when in fact, only 2,017 piculs of sugar had been produced.
This Court held that Sellner would still be liable to pay the
promissory note, as follows:
Notwithstanding the fact that Songco's statement as to the
probable output of his crop was disingenuous and uncandid,
we nevertheless think that Sellner was bound and that he must
pay the price stipulated. The representation in question can
only be considered matter of opinion as the cane was still
standing in the field, and the quantity of the sugar it would
produce could not be known with certainty until it should be
harvested and milled. Undoubtedly Songco had better
experience and better information on which to form an opinion
on this question than Sellner. Nevertheless the latter could
judge with his own eyes as to the character of the cane, and it
is shown that he measured the fields and ascertained that they
contained 96 1/2 hectares.
xxxx
The law allows considerable latitude to seller's statements, or
dealer's talk; and experience teaches that it is exceedingly
risky to accept it at its face value. The refusal of the seller to
warrant his estimate should have admonished the purchaser
that that estimate was put forth as a mere opinion; and we will
not now hold the seller to a liability equal to that which would
have been created by a warranty, if one had been given.
xxxx
It is not every false representation relating to the subject
matter of a contract which will render it void. It must be as to
matters of fact substantially affecting the buyer's interest, not
as to matters of opinion, judgment, probability, or expectation.
(Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick.
[Mass.], 95; Gordon vs. Parmelee, 2 Allen [Mass.], 212;
Williamson vs. McFadden, 23 Fla., 143, 11 Am. St. Rep.,
345.) When the purchaser undertakes to make an investigation
of his own, and the seller does nothing to prevent this
investigation from being as full as he chooses to make it, the
purchaser cannot afterwards allege that the seller made
misrepresentations. (National Cash Register Co. vs.
Townsend, 137 N. C., 652, 70 L. R. A., 349; Williamson vs.
Holt, 147 N. C., 515.)
We are aware that where one party to a contract, having
special or expert knowledge, takes advantage of the ignorance
of another to impose upon him, the false representation may
afford ground for relief, though otherwise the injured party
would be bound. But we do not think that the fact that Songco
was an experienced farmer, while Sellner was, as he claims, a
mere novice in the business, brings this case within that
exception.71
The following facts show that petitioner was fully aware of the
magnitude of his undertaking:
First, petitioner was fully aware of the financial reverses that
Sterling Shipping Lines, Inc. had been undergoing, and he
took great pains to release himself from the obligation.
Second, his background as a doctor, as a bank organizer, and
as a businessman with experience in the textile business and
real estate should have apprised him of the irregularity in the
contract that he would be undertaking. This meant that at the
time petitioner gave his consent to become a part of the
corporation, he had been fully aware of the circumstances and
the risks of his participation. Intent is determined by the acts.
Finally, the records showed that petitioner had been fully
aware of the effect of his signing the promissory note. The
bare assertion that he was not privy to the records cannot
counteract the fact that petitioner himself had admitted that
after he had severed ties with his brother, he had written a
letter seeking to reach an amicable settlement with respondent
Rupert V. Tankeh. Petitioner’s actions defied his claim of a
complete lack of awareness regarding the circumstances and
the contract he had been entering.
The required standard of proof – clear and convincing
evidence – was not met. There was no dolo causante or fraud
used to obtain the petitioner’s consent to enter into the
contract. Petitioner had the opportunity to become aware of
the facts that attended the signing of the promissory note. He
even admitted that he has a lawyer-son who the petitioner had
hoped would assist him in the administration of Sterling
Shipping Lines, Inc. The totality of the facts on record belies
petitioner’s claim that fraud was used to obtain his consent to
the contract given his personal circumstances and the
applicable law.
However, in refusing to allow petitioner to participate in the
management of the business, respondent Ruperto V. Tankeh
was liable for the commission of incidental fraud. In Geraldez,
this Court defined incidental fraud as "those which are not
serious in character and without which the other party would
still have entered into the contract." 72
Although there was no fraud that had been undertaken to
obtain petitioner’s consent, there was fraud in the performance
of the contract. The records showed that petitioner had been
unjustly excluded from participating in the management of the
affairs of the corporation. This exclusion from the
management in the affairs of Sterling Shipping Lines, Inc.
constituted fraud incidental to the performance of the
obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner "could
not have promised plaintiff that he would be a part of the
administration staff"73 since petitioner had been fully aware
that, as a corporation, Sterling Shipping Lines, Inc. acted
through its board of directors. Respondent admitted that
petitioner had been "an incorporator and member of the board
of directors"74 and that petitioner "was fully aware of the by-
laws of the company."75 It was incumbent upon respondent to
act in good faith and to ensure that petitioner would not be
excluded from the affairs of Sterling Shipping Lines, Inc.
After all, respondent asserted that petitioner had entered into
the contract voluntarily and with full consent.
Second, respondent claimed that if petitioner was intent on
severing his connection with the company, all that petitioner
had to do was to sell all his holdings in the company. Clearly,
the respondent did not consider the fact that the sale of the
shares of stock alone did not free petitioner from his liability
to Development Bank of the Philippines or Asset Privatization
Trust, since the latter had signed the promissory and had still
been liable for the loan. A sale of petitioners’ shares of stock
would not have negated the petitioner’s responsibility to pay
for the loan.
Third, respondent Ruperto V. Tankeh did not rebuff
petitioner’s claim that the latter only received news about the
sale of the vessel M/V Sterling Ace through the media and not
as one of the board members or directors of Sterling Shipping
Lines, Inc.
All in all, respondent Ruperto V. Tankeh’s bare assertion that
petitioner had access to the records cannot discredit the fact
that the petitioner had been effectively deprived of the
opportunity to actually engage in the operations of Sterling
Shipping Lines, Inc. Petitioner had a reasonable expectation
that the same level of engagement would be present for the
duration of their working relationship. This would include an
undertaking in good faith by respondent Ruperto V. Tankeh to
be transparent with his brother that he would not automatically
be made part of the company’s administration.
However, this Court finds there is nothing to support the
assertion that Sterling Shipping Lines, Inc. and Arenas
committed incidental fraud and must be held liable. Sterling
Shipping Lines, Inc. acted through its board of directors, and
the liability of respondent Tankeh cannot be imposed on
Sterling Shipping Lines, Inc. The shipping line has a separate
and distinct personality from its officers, and petitioner’s
assertion that the corporation conspired with the respondent
Ruperto V. Tankeh to defraud him is not supported by the
evidence and the records of the case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court held
that:
In all instances where a common cause of action is alleged
against several defendants, some of whom answer and the
others do not, the latter or those in default acquire a vested
right not only to own the defense interposed in the answer of
their co-defendant or co-defendants not in default but also to
expect a result of the litigation totally common with them in
kind and in amount whether favorable or unfavorable. The
substantive unity of the plaintiffs’ cause against all the
defendants is carried through to its adjective phase as
ineluctably demanded by the homogeneity and indivisibility of
justice itself.77
As such, despite Arenas’ failure to submit his Answer to the
Complaint or his declaration of default, his liability or lack
thereof is concomitant with the liability attributed to his co-
defendants or co-respondents. However, unlike respondent
Ruperto V. Tankeh’s liability, there is no action or series of
actions that may be attributed to Arenas that may lead to an
inference that he was liable for incidental fraud. In so far as
the required evidence for both Sterling Shipping Lines, Inc.
and Arenas is concerned, there is no basis to justify the claim
of incidental fraud.
In addition, respondents Development Bank of the Philippines
and Asset Privatization Trust or Privatization and
Management Office cannot be held liable for fraud. Incidental
fraud cannot be attributed to the execution of their actions,
which were undertaken pursuant to their mandated functions
under the law. "Absent convincing evidence to the contrary,
the presumption of regularity in the performance of official
functions has to be upheld."78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his older
brother, petitioner Alejandro, for damages. The obligation to
pay damages to petitioner is based on several provisions of the
Civil Code.
Article 1157 enumerates the sources of obligations.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
This enumeration does not preclude the possibility that a
single action may serve as the source of several obligations to
pay damages in accordance with the Civil Code. Thus, the
liability of respondent Ruperto V. Tankeh is based on the law,
under Article 1344, which provides that the commission of
incidental fraud obliges the person employing it to pay
damages.
In addition to this obligation as the result of the contract
between petitioner and respondents, there was also a patent
abuse of right on the part of respondent Tankeh. This abuse of
right is included in Articles 19 and 21 of the Civil Code which
provide that:
Article 19. Every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to
another in manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage.
Respondent Ruperto V. Tankeh abused his right to pursue
undertakings in the interest of his business operations. This is
because of his failure to at least act in good faith and be
transparent with petitioner regarding Sterling Shipping Lines,
Inc.’s daily operations.
In National Power Corporation v. Heirs of Macabangkit
Sangkay,79 this Court held that:
When a right is exercised in a manner not conformable with
the norms enshrined in Article 19 and like provisions on
human relations in the Civil Code, and the exercise results to
[sic] the damage of [sic] another, a legal wrong is committed
and the wrongdoer is held responsible.80
The damage, loss, and injury done to petitioner are shown by
the following circumstances.
First, petitioner was informed by Development Bank of the
Philippines that it would still pursue his liability for the
payment of the promissory note. This would not have
happened if petitioner had allowed himself to be fully apprised
of Sterling Shipping Lines, Inc.’s financial straits and if he felt
that he could still participate in the company’s operations.
There is no evidence that respondent Ruperto V. Tankeh
showed an earnest effort to at least allow the possibility of
making petitioner part of the administration a reality. The
respondent was the brother of the petitioner and was also the
primary party that compelled petitioner Alejandro Tankeh to
be solidarily bound to the promissory note. Ruperto V. Tankeh
should have done his best to ensure that he had exerted the
diligence to comply with the obligations attendant to the
participation of petitioner.
Second, respondent Ruperto V. Tankeh’s refusal to enter into
an agreement or settlement with petitioner after the latter’s
discovery of the sale of the M/V Sterling Ace was an action
that constituted bad faith. Due to Ruperto’s refusal, his
brother, petitioner Alejandro, became solidarily liable for an
obligation that the latter could have avoided if he had been
given an opportunity to participate in the operations of
Sterling Shipping Lines, Inc. The simple sale of all of
petitioner’s shares would not have solved petitioner’s
problems, as it would not have negated his liability under the
terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling
Shipping Lines, Inc., namely, public respondents
Development Bank of the Philippines and Asset Privatization
Trust. This is an additional financial burden for petitioner.
Nothing in the records suggested the possibility that
Development Bank of the Philippines or Asset Privatization
Trust through the Privatization Management Office will not
pursue or is precluded from pursuing its claim against the
petitioner. Although petitioner Alejandro voluntarily signed
the promissory note and became a stockholder and board
member, respondent should have treated him with fairness,
transparency, and consideration to minimize the risk of
incurring grave financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages
may be awarded on the following bases:
To recover moral damages in an action for breach of contract,
the breach must be palpably wanton, reckless, malicious, in
bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or
breach of contract, moral damages may be recovered when the
defendant acted in bad faith or was guilty of gross negligence
(amounting to bad faith) or in wanton disregard of his
contractual obligation and, exceptionally, when the act of
breach of contract itself is constitutive of tort resulting in
physical injuries.
Moral damages may be awarded in breaches of contracts
where the defendant acted fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or
negligence, it imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known
duty through some motive or interest or ill will that partakes of
the nature of fraud.
xxxx
The person claiming moral damages must prove the existence
of bad faith by clear and convincing evidence for the law
always presumes good faith. It is not enough that one merely
suffered sleepless nights, mental anguish, serious anxiety as
the result of the actuations of the other party. Invariably such
action must be shown to have been willfully done in bad faith
or will ill motive. Mere allegations of besmirched reputation,
embarrassment and sleepless nights are insufficient to warrant
an award for moral damages. It must be shown that the
proximate cause thereof was the unlawful act or omission of
the [private respondent] petitioners.
An award of moral damages would require certain conditions
to be met, to wit: (1) first, there must be an injury, whether
physical, mental or psychological, clearly sustained by the
claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of
the defendant is the proximate cause of the injury sustained by
the claimant; and (4) fourth, the award of damages is
predicated on any of the cases stated in Article 2219 of the
Civil Code. (Citations omitted)82
In this case, the four elements cited in Francisco are present.
First, petitioner suffered an injury due to the mental duress of
being bound to such an onerous debt to Development Bank of
the Philippines and Asset Privatization Trust. Second, the
wrongful acts of undue exclusion done by respondent Ruperto
V. Tankeh clearly fulfilled the same requirement. Third, the
proximate cause of his injury was the failure of respondent
Ruperto V. Tankeh to comply with his obligation to allow
petitioner to either participate in the business or to fulfill his
fiduciary responsibilities with candor and good faith. Finally,
Article 221983 of the Civil Code provides that moral damages
may be awarded in case of acts and actions referred to in
Article 21, which, as stated, had been found to be attributed to
respondent Ruperto V. Tankeh.
In the Appellant’s Brief,84 petitioner asked the Court of
Appeals to demand from respondents, except from respondent
Asset Privatization Trust, the amount of five million pesos
(₱5,000,000.00). This Court finds that the amount of five
hundred thousand pesos (₱500,000.00) is a sufficient amount
of moral damages.
In addition to moral damages, this Court may also impose the
payment of exemplary damages.1âwphi1 Exemplary damages
are discussed in Article 2229 of the Civil Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by
way of example or correction of the public good, in addition to
moral, temperate, liquidated or compensatory damages.
Exemplary damages are further discussed in Articles 2233 and
2234, particularly regarding the pre-requisites of ascertaining
moral damages and the fact that it is discretionary upon this
Court to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a
matter of right; the court will decide whether or not they
should be adjudicated.
ART. 2234. While the amount of the exemplary damages need
not be proven, the plaintiff must show that he is entitled to
moral, temperate or compensatory damages before the court
may consider the question of whether or not exemplary
damages should be awarded x x x
The purpose of exemplary damages is to serve as a deterrent to
future and subsequent parties from the commission of a
similar offense. The case of People v. Rante85 citing People v.
Dalisay86 held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary
or corrective damages are intended to serve as a deterrent to
serious wrong doings, and as a vindication of undue sufferings
and wanton invasion of the rights of an injured or a
punishment for those guilty of outrageous conduct. These
terms are generally, but not always, used interchangeably. In
common law, there is preference in the use of exemplary
damages when the award is to account for injury to feelings
and for the sense of indignity and humiliation suffered by a
person as a result of an injury that has been maliciously and
wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible
conduct of the defendant—associated with such circumstances
as willfulness, wantonness, malice, gross negligence or
recklessness, oppression, insult or fraud or gross fraud—that
intensifies the injury. The terms punitive or vindictive
damages are often used to refer to those species of damages
that may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are intended
in good measure to deter the wrongdoer and others like him
from similar conduct in the future.87
To justify an award for exemplary damages, the wrongful act
must be accompanied by bad faith, and an award of damages
would be allowed only if the guilty party acted in a wanton,
fraudulent, reckless or malevolent manner.88 In this case, this
Court finds that respondent Ruperto V. Tankeh acted in a
fraudulent manner through the finding of dolo incidente due to
his failure to act in a manner consistent with propriety, good
morals, and prudence.
Since exemplary damages ensure that future litigants or parties
are enjoined from acting in a similarly malevolent manner, it
is incumbent upon this Court to impose the damages in such a
way that will serve as a categorical warning and will show that
wanton actions will be dealt with in a similar manner. This
Court finds that the amount of two hundred thousand pesos
(₱200,000.00) is sufficient for this purpose.
In sum, this Court must act in the best interests of all future
litigants by establishing and applying clearly defined standards
and guidelines to ascertain the existence of fraud.
WHEREFORE, this Petition is PARTIALLY GRANTED.
The Decision of the Court of Appeals as to the assailed
Decision in so far as the finding of fraud is SUSTAINED with
the MODIFICATION that respondent RUPERTO V.
TANKEH be ordered to pay moral damages in the amount of
FIVE HUNDRED THOUSAND PESOS (₱500,000.00) and
the amount of TWO HUNDRED THOUSAND PESOS
(₱200,000.00) by way of exemplary damages.
SO ORDERED.
G.R. No. 196182 September 1, 2014
ECE REALTY AND DEVELOPMENT INC., Petitioner,
vs.
RACHEL G. MANDAP, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing
the Decision1 and Resolution2 of the Court of Appeals (CA),
dated July 21, 2010 and March 15, 2011, respectively, in CA-
G.R. SP No. 100741.
The factual and procedural antecedents of the case are as
follows:
Herein petitioner is a corporation engaged in the building and
development of condominium units. Sometime in 1995, it
started the construction of a condominium project called
Central Park Condominium Building located along Jorge St.,
Pasay City. However, printed advertisements were made
indicating therein that the said project was to be built in
Makati City.3 In December 1995, respondent, agreed to buy a
unit from the above project by paying a reservation fee and,
thereafter, downpayment and monthly installments. On June
18, 1996, respondent and the representatives of petitioner
executed a Contract to Sell.4 In the said Contract, it was
indicated that the condominium project is located in Pasay
City.
More than two years after the execution of the Contract to
Sell, respondent, through her counsel, wrote petitioner a letter
dated October 30, 1998 demanding the return of ₱422,500.00,
representing the payments she made, on the ground that she
subsequently discovered that the condominium project was
being built in Pasay City and not in Makati City as indicated
in its printed advertisements.5
However, instead of answering respondent's letter, petitioner
sent her a written communication dated November 30, 1998
informing her that her unit is ready for inspection and
occupancy should she decide to move in.6
Treating the letter as a form of denial of her demand for the
return of the sum she had paid to petitioner, respondent filed a
complaint with the Expanded National Capital Region Field
Office (ENCRFO) of the Housing and Land Use Regulatory
Board (HLURB) seeking the annulment of her contract with
petitioner, the return of her payments, and damages.7
On September 30, 2005, the ENCRFO dismissed respondent's
complaint for lack of merit and directedthe parties to resume
the fulfillment of the terms and conditions of their sales
contract. The ENCRFO held that respondent "failed to show
or substantiate the legal grounds that consist of a fraudulent or
malicious dealing with her by the [petitioner], such as, the
latter's employment of insidious words or machinations which
induced or entrapped her into the contract and which, without
them, would not have encouraged her to buy the unit." 8
Respondent filed a petition for review with the HLURB Board
of Commissioners questioning the decision of the ENCRFO.
On April 25, 2006, the HLURB Board of Commissioners
rendered judgment dismissing respondent's complaint and
affirming the decision of the ENCRFO.9 Giving credence to
the Contract to Sell executed by petitioner and respondent, the
Board of Commissioners held that when the parties reduced
their contract in writing, their rights and duties must befound
in their contract and neither party can place a greater
obligation than what the contract provides.
Aggrieved, respondent filed an appeal with the Office of the
President. On June 21, 2007, the Office of the President
dismissed respondent's appeal and affirmed in totothe decision
of the HLURB Board of Commissioners.10Respondent filed a
Motion for Reconsideration,11 but the Office of the President
denied it in a Resolution12 dated August 29, 2007.
Respondent then filed a petition for review with the CA. 13
On July 21, 2010, the CA promulgated its assailed Decision,
the dispositive portion of which reads, thus:
WHEREFORE, premises considered, We hereby
REVERSEand SET ASIDEthe Decision and the Resolution
dated June 21, 2007 and August 29, 2007, respectively, issued
by the Office of the President in OP Case No. 06-F-224.
Accordingly, the contract between Rachel G. Mandap and
ECE Realty is hereby ANNULLED. Consequently, ECE
Realty is ordered to return the total amountof ₱422,500.00
representing payments made by Rachel G. Mandap on
reservation fee, [downpayment] and monthly installments on
the condominium unit, with legal interest thereon at twelve
percent (12%) per annumfrom the date of filing of action until
fully paid.
No costs.
SO ORDERED.14
The CA held that petitioner employed fraud and machinations
to induce respondent to enter into a contract with it. The CA
also expressed doubt on the due execution of the Contract to
Sell between the parties.
Petitioner filed a Motion for Reconsideration, but the CA
denied it in its March 15, 2011 Resolution.
Hence, the present petition for review on certiorariwith the
following Assignment of Errors:
I severely.
The Court of Appeals gravely erred in ruling that there was
fraud in the execution of the subject contract to sell and
declaring the same as annulled and ordering petitioner ECE to
refund all payments made by respondent.
II
The Court of Appeals erred in ordering the award of legal
interest at the rate of 12% per annum starting from the filing
of the complaint until fully paid when legal interest should
have been pegged at 6%.15
The Court finds the petition meritorious.
The basic issue in the present caseis whether petitioner was
guilty of fraud and if so, whether such fraud is sufficient
ground to nullify its contract with respondent.
Article 1338 of the Civil Code provides that "[t]here is fraud
when through insidious words or machinationsof one of the
contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to."
In addition, under Article 1390 of the same Code, a contract is
voidable or annullable "where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud."
Also, Article 1344 of the same Codeprovides that "[i]n order
that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting
parties." Jurisprudence has shown that in order to constitute
fraud that provides basis to annul contracts, it must fulfill two
conditions.
First, the fraud must be dolo causanteor it must be fraud in
obtaining the consent of the party.16 This is referred to as
causal fraud. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent
person cannot be a ground for nullity.17 The circumstances of
each case should be considered, taking into account the
personal conditions of the victim.18
Second, the fraud must be proven by clear and convincing
evidence and not merely by a preponderance thereof.19
In the present case, this Court finds that petitioner is guilty of
false representation of a fact. This is evidenced by its printed
advertisements indicating that its subject condominium project
is located in Makati City when, in fact, it is in Pasay City. The
Court agrees with the Housing and Land Use Arbiter, the
HLURB Board ofCommissioners, and the Office of the
President, in condemning petitioner's deplorable act of making
misrepresentations in its advertisementsand in issuing a stern
warning that a repetition of this act shall bedealt with more
However, insofar as the present case is concerned, the Court
agrees with the Housing and Land Use Arbiter, the HLURB
Board of Commissioners, and the Office of the President, that
the misrepresentation made by petitioner in its advertisements
does not constitute causal fraud which would have been a
valid basis in annulling the Contract to Sell between petitioner
and respondent.
In his decision, the Housing and Land Use Arbiter found that
respondent failed to show that "the essential and/or moving
factor that led the [respondent] to give her consent and agree
to buy the unit was precisely the project's advantageous or
uniquelocation in Makati [City] – to the exclusion of other
places or cityx x x." Both the HLURB Board of
Commissioners and the Office of the President affirmed the
finding of the Arbiter and unanimously held that respondent
failed to prove that the location of the said project was the
causal consideration or the principal inducement which led her
into buyingher unit in the said condominium project. The
Court finds no cogent reason to depart from the foregoing
findings and conclusion of the above agencies. Indeed,
evidence shows that respondent proceeded to sign the Contract
to Sell despite information contained therein that the
condominium is located in Pasay City. This only means that
she still agreed to buy the subject property regardless of the
fact that it is located in a place different from what she was
originally informed. If she had a problem with the property's
location, she should not havesigned the Contract to Sell and,
instead, immediately raised this issue with petitioner. But she
did not. As correctly observed by the Office of the President, it
took respondent more than two years from the execution of the
Contract to Sell to demand the return of the amount she paid
on the ground that she was misled into believing that the
subject property islocated in Makati City. In the meantime, she
continued to make payments.
The Court is not persuaded by the ruling of the CA which
expresses doubt on the due execution of the Contractto Sell.
The fact remains that the said Contract to Sell was notarized.
Itis settled that absent any clear and convincing proof to the
contrary, a notarized document enjoys the presumption of
regularity and is conclusive as to the truthfulness of its
contents.20 Neither does the Court agree thatthe presumption
of regularity accorded to the notarized Contract to Sell was
overcome by evidence to the contrary. Respondent's allegation
that she signed the said Contract to Sell with several blank
spaces, and which allegedly did not indicate the location of the
condominium, was not supported by proof. The basic rule is
that mere allegation is not evidence and is not equivalent to
proof.21 In addition, the fact that respondent made several
payments prior to the execution of the subject Contract to Sell
is not the kind of evidence needed to overcome such
presumption of regularity.
With respect to the foregoing discussions, the Court quotes
with approval the disquisition of the Office of the President on
the credibility of the claims of petitioner and respondent, to
wit:
xxxx
We give credence to the version of [petitioner] ECE Realty
considering that there is no cogent reason why this Office
could not rely on the truth and veracity of the notarized
Contract to Sell. "Being a notarized document, it had in its
favorthe presumption of regularity, and to overcome the same,
there must be evidence that is clear, convincing and more than
merely preponderant; otherwise, the document should be
upheld. [Respondent] Mandap failed to overcome this
presumption.
The contention that Mandap signed the Contract to Sell in-
blank, and [that] it was ECE Realty that supplied the details on
it is remarkably threadbare for no evidence was submitted to
support such claim in all the proceedings before the ENCRFO
and the Board of Commissioners. It is only now that Mandap
has belatedly submitted the Affidavit of Lorenzo G. Tipon.
This cannot be done without running afoul with the well-
settled principle barring a party from introducing fresh
defenses and facts at the appellate stage. Moreover, the
infirmity of affidavits as evidence is a matter of judicial
experience. It issettled that no undue importance shall be
given to a sworn statement or affidavit as a piece of evidence
because being taken ex parte, an affidavit is almost always
incomplete and inaccurate. Thus, absent, as here, of (sic) any
controverting evidence, it is reasonable to presume that
Mandap knew the contents of the Contract to Sell which was
executed with legal formalities. The ruling in Bernardo vs.
Court of Appeals is enlightening in this wise:
x x x. The rule that one who signs a contract is presumed to
know its contentshas been applied even to contract of illiterate
persons on the ground that if such persons are unable to read,
they are negligent if they fail to have the contract read to them.
If a person cannot read the instrument, it is as much his duty to
procure some reliable persons to read and explain it tohim,
before he signs it, as it would be to read it before he signed it
if he were able to do so and his failure to obtain a reading and
explanation of it is such gross negligence as will estop him
from avoiding it on the ground that he was ignorant of its
contents.22
In any case, even assuming that petitioner’s misrepresentation
consists of fraud which could bea ground for annulling their
Contract to Sell, respondent's act of affixing her signatureto
the said Contract, after having acquired knowledge of the
property's actual location, can be construed as an implied
ratification thereof.
Ratification of a voidable contract is defined under Article
1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or
tacitly.1âwphi1 It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily
implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence
or acquiescence; by acts showing approval or adoption of the
contract; or by acceptance and retention of benefits flowing
therefrom.23
Under Article 1392 of the Civil Code, "ratification
extinguishes the action to annul a voidable contract." In
addition, Article 1396 of the same Code provides that
"[r]atification cleanses the contract from all its defects from
the moment it was constituted."
Hence, based on the foregoing, the findings and conclusions of
the Housing and Land Use Arbiter, the HLURB Board of
Commissioners and the Office of the President, should be
sustained.
WHEREFORE, the instant petition is GRANTED. The
Decision and Resolution of the Court of Appeals, dated July
21, 2010 and March 15, 2011, respectively, are
REVERSEDand SET ASIDE. The September 30, 2005
Decision of the Expanded National Capital Region Field
Office of the Housing and Land Use Regulatory Board, which
dismisses respondent's complaint and directs petitioner and
respondent to resume the fulfillment of their sales contract, is
REINSTATED.
SO ORDERED.

G.R. No. L-20659 November 3, 1923
MARIANO S. TUASON, plaintiff-appellant,
vs.
CRISANTO MARQUEZ, defendant-appellee.
Ramon Sotelo for appellant.
Emiliano T. Tirona for appellee.
MALCOLM, J.:
Out of the vicissitudes of the unfortunate Electric Light
Company of Lucena, Tayabas, has arisen the present litigation
between Mariano S. Tuason, plaintiff and appellant, and
Crisanto Marquez, defendant and appellee. The facts are not in
dispute, and the legal phases of the case are fairly evident.
On March 5, 1921, Crisanto Marquez, the owner of the
electric light plan of Lucena Tayabas, called Sucesores del
Lucena Electric, gave an option to Antonio Tuason for the
purchase of the plant for P14,400. The option was taken
advantage of by Mariano S. Tuason, the real principal, on the
9th of the same month and year, and the contracts as then
formulated was ratified before a notary public on the 18th of
the month and year. The agreement was, that Tuason was to
pay Marquez a total of P14,400; P2,400 within sixty days, and
the remainder, P12,000, within a year. The first installment
was paid subsequent to the sixty-day period; the second
installment has not been paid.
Tuason being once in possession of the electric light plant, it
was run under the management of the Consolidated Electric
Company for about sixteen months, that is, from March 20,
1921, to July 19, 1922. On the date last mentioned, the
property was sold under execution by reason of a judgment in
the case of Levy Hermanos vs. The Philippine Electric Light
Company. The purchaser at said sale was Gregorio Marquez,
brother of Crisanto Marquez, who paid P5,501.57 for the
property.
With this general background of the controversy, we have to
give special attention to one clause in the contract and its
antecedents. The contract Exhibit B entered into by Tuason
and Marquez included as a portion of the property sold by
Marquez to Tuason "el derecho a la franquicia concedido a la
Compañia para la explotacion de la industria a que la misma
esta dedicada."
It appears that originally in either 1913 or 1914, a franchise
for thirty-five years was granted the Lucena Electric
Company. The rights of this company passed to Crisanto
Marquez at a sheriff's sale on September 10, 1919. The
company seems never to have functioned very efficiently
either at that time or at any other time, as appears from the
constant complaint of the municipal authorities of Lucena.
Evidently, Marquez became disgusted with the business, with
the result that on February 28, 1921, that is, prior to the
accomplishment of the contract, he announced to the Public
Utility Commissioner his intention to give up the franchise.
On March 29, 1921, that is, subsequent to the accomplishment
of the contract, the Public Utility Commissioner took action
and declared cancelled the franchise acquired by Crisanto
Marquez from the Lucena Electric Light, Ice & Water
Company.
Tuason and his outfit were permitted to operate the company
pursuant to a special license which was to continue until they
obtained a new franchise. The new franchise was finally
granted by the Public Utility Commissioner with certain
conditions, which amounted to a renovation of the entire plant.
It was then, following a knowledge of what was expected by
the Government, and following the execution sale, that Tuason
conceived the idea of bringing action against Marquez for a
rescission of the contract.
In the complaint filed in the Court of First Instance of Manila,
Mariano S. Tuason, the plaintiff, asked for judgment against
Crisanto Marquez, defendant, for a total of P37,400. The
answer and cross-complaint of the defendant asked for a
dismissal of the action and for an allowance of a total of
P12,654.50 from the plaintiff. The case was submitted on an
agreed statement of facts in relation with certain telegrams of
record. Judgment was rendered, absolving the defendant from
the complaint and permitting the defendant to recover from the
plaintiff P12,240, with legal interest from August 1, 1922.
Parenthetically, it may be explained that P12,000 of this
judgment represented the amount still due on the contract, and
P240 represented rent which the plaintiff was expected to pay
the defendant.
The plaintiff claims in effect that the contract should be
rescinded and that he should be allowed his damages, on
account of the misrepresentation and fraud perpetrated by the
defendant in selling an electric light plan with a franchise,
when the defendant had already given up his rights to that
franchise. In this connection, however, it should be
emphasized that the contract in making mention of the
property of the electric light company, merely renewed a
previous inventory of the property. The franchise, therefore,
was not the determining cause of the purchase. Indeed, the
franchise was then in force and either party could easily have
ascertained its status by applying at the office of the Public
Utility Commissioner. The innocent non-disclosure of a fact
does not effect the formation of the contract or operate to
discharge the parties from their agreement. The maxim caveat
emptor should be recalled.
The equitable doctrine termed with questionable propriety
"estoppel by laches," has particular applicability to the facts
before us. Inexcusable delay in asserting a right and
acquiescene in existing conditions are a bar to legal action.
The plaintiff operated the electric light plant for about sixteen
months without question; he made the first payment on the
contract without protest; he bestirred himself to secure what
damages he could from the defendant only after the venture
had proved disastrous and only after the property had passed
into the hands of a third party. lawphil.net
We find no proof of fraud on the part of the defendant and find
the plaintiff in estopped to press his action.
In accordance with the foregoing, we are clearly of the opinion
that judgment should be, as it is hereby affirmed, with costs
against the appellant. So ordered.
[G.R. No. 110672. September 14, 1999]
RURAL BANK OF STA. MARIA, PANGASINAN, petitio
ner vs. THE HONORABLE COURT OF APPEALS, ROS
ARIO R. RAYANDAYAN, CARMEN R. ARCEO, respond
ents.
[G.R. No. 111201. September 14, 1999]
ROSARIO R. RAYANDAYAN and CARMEN R. ARCEO
, petitioners vs. COURT OF APPEALS, HALSEMA INC. a
nd RURAL BANK OF STA. MARIA, PANGASINAN, IN
C., respondents.
DECISION
GONZAGA_REYES, J.:
Before us are two consolidated[1] petitions for review
on certiorari under Rule 45 of the Revised Rules of Court. In
G.R. No. 110672, petitioner Rural Bank of Sta. Maria,
Pangasinan, assails portions of the Decision dated March 17,
1993, and the Resolution dated January 25, 1993, of the Court
of Appeals[2] in CA-G.R. CV No. 21918, which affirmed with
modification the Decision of the Regional Trial Court (Branch
6, Baguio City)[3] in Civil Case No. 890-R entitled Rosario R.
Rayandayan and Carmen R. Arceo versus Rural Bank of Sta.
Maria, Pangasinan and Halsema, Inc. In G.R. No. 111201,
petitioners Rosario R. Rayandayan and Carmen R. Arceo
likewise assail portions of said Decision adverse to it.
The facts as found by the trial court and adopted by the Court
of Appeals insofar as pertinent to the instant petitions are as
follows:
xxx, the Court Finds that a parcel of land of about 49,969
square meters, located in Residence Section J, Camp 7,
Baguio City, covered by TCT T-29817 (land for short) is
registered in the name of Manuel Behis, married to Cristina
Behis (Exhibit B). Said land originally was part of a bigger
tract of land owned by Behis (one name), father of Manuel
Behis, covered by OCT-0-33 (Exhibit 26, Halsema, for history
of the land). And upon the latters death on September 24,
1971, his children, namely: Saro Behis, Marcelo Behis,
Manuel Behis, Lucia Behis, Clara Behis and Arana Behis, in
an extrajudicial settlement with Simultaneous Sale of
Inheritance dated September 28, 1978, agreed to sell the land
to Manuel Behis, married to Cristina Behis (Exhibit `2,
Halsema) but which subsequently was explained as only an
arrangement adopted by them to facilitate transactions over
the land in a Confirmation of Rights of Co-Ownership over
real Property dated September 26, 1983, showing that the
Behis brothers and sisters, including Manuel Behis, are still
co-owners thereof (Exhibit `30, Halsema, Exhibit `AA).
Manuel Behis mortgaged said land in favor of the Bank in a
Real Estate Mortgage dated October 23, 1978 (Exhibit `Q-1)
as security for loans obtained, covered by six promissory notes
and trust receipts under the Supervised Credit Program in the
total sum of P156,750.00 (Exhibit `Q-2 to `Q-7, Exhibits `4-A
to `4-F, Halsema) and annotated at the back of the title on
February 13, 1979 as Entry No. 85538-10-231 (Exhibit 1-A-1,
Halsema). The mortgage, the promissory notes and trust
receipts bear the signatures of both Manuel Behis and Cristina
Behis.
Unfortunately thereafter, Manuel Behis was delinquent in
paying his debts.
On January 9, 1985, Manuel Behis sold the land to the
plaintiffs[4] in a Deed of Absolute Sale with Assumption of
Mortgage for the sum of P250,000.00 (Exhibit `A) which
bears the signature of his wife Cristina Behis. Manuel Behis
took it upon himself to secure the signature of his wife and
came back with it. On the same date of January 9, 1985,
plaintiffs and Manuel Behis simultaneously executed another
Agreement (Exhibit `15) whereby plaintiffs are indebted to
Manuel Behis for the sum of P2,400,000.00 payable in
installments with P10,000.00 paid upon signing and in case of
default in the installments, Manuel Behis shall have legal
recourse to the portions of the land equivalent to the unpaid
balance of the amounts in installments. Obviously, the real
consideration of the sale of the land of Manuel Behis to the
plaintiffs is contained in this Agreement (Exhibit `15).
Plaintiffs did not present to the Register of Deeds of Baguio
said two contracts and ask that the title, TCT T-29817 in the
name of Manuel Behis be cancelled and a new one issued in
their name which normally a buyer does. Neither did plaintiffs
annotate at theback of the title the aforesaid two contracts. Nor
did they immediately go to the Bank and present said two
contracts. Thus, the title to the land, TCT No. T-29817,
remained in the name of Manuel Behis.
Pursuant to their two contracts with Manuel Behis, plaintiffs
paid him during his lifetime the sum of P10,000.00 plus
P50,000.00 plus P145,800.00 (Exhibit `U as stipulated in the
hearing), and the sum of P21,353.75 for the hospitalization,
medical and burial expenses of Manuel Behis when he died on
June 21, 1985 (Exhibit `II, `JJ, `KK, `LL, `PP, `OO, and
`RR). Obviously, from the above payments, the plaintiffs
were unable to complete their full payment to Manuel Behis of
the sale of the land as it is nowhere near P2,400,000.00.
Meantime, the loan in the name of Manuel Behis with the
Bank secured by the Real Estate Mortgage on the land
continued to accumulate being delinquent. By May 30, 1985,
in a Statement of Account (Exhibit `D) sent to Manuel Behis
by the Bank thru the Paredes Law Office for collection, the
debt of P150,750.00 has ballooned into P316,368.13, with
interest and other charges. In fact, the Bank, thru its President,
Vicente Natividad, initiated foreclosure proceedings. But after
the usual publication, the same was discontinued since many
parties were interested to buy the land outside the said
procedure but none materialized.
On June 19, 1985, Atty. William Arceo, in behalf of Manuel
Behis, wrote a letter asking for a more detailed Statement of
Account from the Bank broken down as to principal, interest
and other charges (Exhibit `E).
Thereafter, plaintiffs finally presented the Deed of Absolute
Sale with Assumption of Mortgage (Exhibit `A) to the Bank
when negotiating with its principal stockholder, Engr.
Edilberto Natividad, in Manila, but did not show to the latter
the Agreement (Exhibit `15) with Manuel Behis providing for
the real consideration of P2,400,000.00. And thus, on August
1, 1985, a Memorandum of Agreement (Exhibit `F) was
entered into between plaintiffs, as assignees of Manuel Behis,
and the Bank, the salient features of which are:
`x x x x x x x x x
`3. That during the lifetime of Manuel Behis he had executed a
Deed of Absolute Sale with Assumption of Mortgage in favor
of Carmen Arceo and Rosario Rayandayan;
`4. That the total obligation of the late Manuel Behis to the
Bank amounts to P343,782.22;
`5. That the assignees hereby offer to redeem the aforesaid real
property and the Bank hereby agrees to release the mortgage
thereon under the following terms and conditions:
(a). That the amount of P35,000.00 shall be paid by the
assignees to the Bank upon execution of this Agreement;
(b). That the amount of P108,000.00 shall be paid by the
assignees to the Bank at the rate of P36,000.00 a month
payable on September 15, 1985, October 15, 1985 and
November 15, 1985;
(c). That the balance of P200,000.00 shall be renewed for one
year and shall be secured by another mortgage over the same
property which is renewable every year upon payment of
interests and at least 10 percent of the principal;
(d). That the bank shall release the mortgage of Manuel Behis
and a new mortgage shall be executed by the assignees and the
bank shall give its consent for the transfer of the title under the
name of the assignees.
x x x.
Plaintiffs did not annotate the Memorandum of Agreement in
the title, TCT T-29817.
Pursuant to the Memorandum of Agreement, plaintiffs paid
the Bank the following:
(1) P35,000.00 on August 1, 1985 as initial deposit when the
Agreement was signed (Exhibits `G and `H);
(2) P15,000.00 on September 16, 1985 (Exhibit `I) and
P21,000.00 on September 20, 1985 (Exhibit `J) to cover the
obligation of P36,000.00 on September 15, 1985;
(3) P20,000.00 on October 17, 1985 (Exhibit `K) and
P16,000.00 on October 25, 1985 (Exhibit `L) to cover the
obligation to pay P36,000.00 on October 15, 1985;
(4) P36,000.00 in the form of dollars remitted to Engr.
Edilberto Natividad on December 18, 1985 (Exhibit `N) to
cover the obligation to pay P36,000.00 on November 15,
1985.
After the last payment of P36,000.00 on December 18, 1985,
received in dollars (Exhibit `N) which completed the
P143,000.00 under paragraphs 5 (a) and 5 (b) of the
Memorandum of Agreement Engr. Edilberto Natividad, wrote
a letter (Exhibit M) to Vicente Natividad, with instructions
that payment be duly credited and Atty. Arceo will
communicate about the transfer of title to them and to consult
the Banks counsel on the matter, and with instructions also to
Ana Acosta of the Rural Bank of Tuba to debit said amount
from the savings of Edilberto Natividad. xxx.
From the above payments made, the total amount of
P143,000.00 as required by paragraphs 5 (a) and 5 (b) of the
Memorandum of Agreement was fully paid by plaintiffs
although they were not paid on time.
Meanwhile, on September 5, 1985, Cristina Behis, widow of
Manuel Behis, wrote a letter to the Bank (Exhibit `3, Halsema)
claiming the Real Estate mortgage was without her
signature. And in another letter dated October 28, 1985 to the
Bank (Exhibit 4, Halsema), Cristina Behis stressed she did not
authorize anybody to redeem the property in her behalf as one
of the mortgagors of the land.
On January 7, 1986, plaintiffs demanded in a letter (Exhibit
`O) that the Bank comply with its obligation under the
Memorandum of Agreement to (1) release the mortgage of
Manuel Behis, (2) give its consent for the transfer of title in
the name of the plaintiffs, and (3) execute a new mortgage
with plaintiffs for the balance of P200,000.00 over the same
land.
Meanwhile on January 18, 1986, Cristina Behis went to the
Bank inquiring about her protest about her signature. The
Bank told her it did not receive her two letters and instead
advised her to write the Bank again as well as the plaintiffs
about her objections.
In a reply letter dated February 11, 1986, (Exhibit `B) to the
demand of the plaintiffs, the Bank said it cannot comply
because of supervening circumstances, enclosing the two
letters of Cristina Behis dated September 5, 1985 and October
28, 1985 which they said were both self explanatory, and
suggested that plaintiffs take up the matter with Mrs. Cristina
Behis.
On February 15, 1986, as suggested by the Bank, Cristina
Behis wrote another letter to the Bank claiming this time that
she was not a party to the Deed of Absolute Sale with
Assumption of Mortgage and her signature was forged
(Exhibit 5, Halsema) and requesting the Bank not to release
the title with copy furnished to the plaintiffs (Exhibit `5-B,
Halsema).
Then, months passed, and nothing was heard from the
plaintiffs by the Bank. On the first week of July, 1986,
Teodoro Verzosa, President of Halsema, Inc., heard about the
land and got interested and had preliminary talks with Vicente
Natividad, President of the Bank, and with Edilberto
Natividad, the principal stockholder of the bank.
x x x.
xxx, upon suggestion of the lawyer of Halsema,
an Assignment of Mortgage was entered into on July 28, 1986
between Halsema and the Bank for the consideration of
P520,765.45 (Exhibit `1, Bank) which amount was the total
indebtedness of Manuel Behis with the Bank at the time
(Exhibit `7-A, Halsema). Note however, that what was
assigned was the Mortgage made originally by Manuel Behis
and not the Mortgage as assumed by plaintiffs under a
restructured and liberalized terms.
As explained by Halsema lawyer, she suggested the
Assignment of Mortgage as the cheapest and fastest way for
Halsema to acquire the property of Manuel Behis as (1) they
assume the role of the Bank as Mortgagee with the assignment
of mortgage credit, (2) they acquire the property for the
amount only of the mortgage debt at the time, (3) after
execution thereof, the Bank is out of the picture, and (4) in
case of foreclosure, Halsema controls the foreclosure
proceedings and is assured of its legality.
In turn, the Bank explained it entered into the Assignment of
Mortgage because at the time it considered the Memorandum
of Agreement cancelled as first, plaintiffs failed to settle the
objections of Cristina Behis aforesaid on her signature being
forged in the Deed of Sale with Assumption of Mortgage
despite the lapse of time from February, 1986 to July,
1986. Second, the terms of the Memorandum of Agreement
have not been fully complied with as the payments were not
made on time on the dates fixed therein; and third, their
consent to the Memorandum of Agreement was secured by the
plaintiffs thru fraud as the Bank was not
shown the Agreement containing the real consideration of
P2,400,000.00 of the sale of the land of Manuel Behis to
plaintiffs.
On the same date of July 28, 1986, Vicente Natividad of the
Bank sent notice of the Assignment of Mortgage to the debtor
mortgagor, Manuel Behis (already dead at the time) and
Cristina Behis. Notice of the Assignment of Mortgage was not
sent to plaintiffs for as aforesaid what was assigned was the
Mortgage originally made by Manuel Behis and not the
Mortgage as assumed by plaintiffs under the restructured and
liberalized terms in the Memorandum of Agreement which
was considered by the Bank as cancelled.
xxx xxx xxx.
After the assignment of mortgage, the Bank returned the
P143,000.00 to plaintiffs (Exhibit `13, Bank). But the latter
rejected the same maintaining the Memorandum of Agreement
is valid until annulled by Court Action. Subsequently,
however, the Bank paid plaintiffs P143,000.00 and P90,000.00
interest in settlement of the criminal case of Estafa against
Edilberto Natividad and Vicente Natividad (Exhibit `14,
Bank).
In the meantime, since the account of the late Manuel Behis
has been delinquent and his widow, Cristina Behis, and his
brothers and sisters could not pay as in fact they have already
assigned their rights to redeem, Halsema as Mortgage Creditor
in place of the Bank instituted foreclosure proceedings by
filing an Application for Foreclosure of Real Estate Mortgage
in the Office of the Sheriff on July 31, 1986 (Exhibit `37,
Halsema) setting the public auction sale on September 2, 1986
and was published and posted as required by law. A Notice of
Foreclosure was sent directly to the mortgagor (Exhibit `38,
Halsema) and the public auction sale was held on September
2, 1986 at 10:00 a.m. at the City Hall, Baguio City, with
Halsema as the only bidder to whom accordingly the Sheriffs
Certificate of Sale was issued (Exhibit `8, Halsema).
At the auction sale, the lawyer of Halsema was approached by
the plaintiff Rosario Rayandayan who told the former that the
land foreclosed was also sold to the plaintiffs. Since plaintiffs
could not do anything anymore, they registered and annotated
on the title, TCT T-29817, their adverse claim on September
3, 1986.[5]
Since the Bank could not comply with the Memorandum of
Agreement, petitioners Rayandayan and Arceo instituted Civil
Case No. 890-R before the Regional Trial Court of Baguio
City (Branch 6) against the Rural Bank of Sta. Maria,
Pangasinan and Halsema, Inc. for Specific Performance,
Declaration of Nullity and/or Annulment of Assignment of
Mortgage and Damages on September 5, 1986, and caused a
notice of lis pendens annotated at the back of the title, TCT T-
29817, on the same date. On March 6, 1989, judgment was
rendered, the dispositive portion of the decision pertinent to
this case reads:
WHEREFORE, in view of All the Foregoing, Judgment is
hereby rendered, as follows:
1. xxx xxx xxx;
2. Declaring the Deed of Sale with assumption of Mortgage
(Exhibit A) and the Agreement (Exhibit 15) taken together
valid until annulled or cancelled;
3. Ordering the Bank to pay the plaintiffs the sum of
P30,000.00 as Moral Damages, P10,000.00 as Exemplary
Damages, P20,000.00 as Attorneys fees and P5,000.00 as
litigation expenses for their bad faith in violating the
Memorandum of Agreement which took place while the
Memorandum of Agreement was still valid there being no
court action first filed to nullify it before entering into the
Assignment of Mortgage;
4. Ordering the plaintiffs to pay the Bank the sum of
P30,000.00 as Moral Damages, P10,000.00 as Exemplary
Damages, P20,000.00 as Attorneys fees and P5,000.00 as
litigation expenses for plaintiffs bad faith in deceiving the
Bank to enter into the Memorandum of Agreement;
5. Ordering the setting off in compensation the Damages
awarded to plaintiffs and the Bank.
6. xxx xxx xxx;
7. Declaring the Memorandum of Agreement as annulled due
to the fraud of plaintiffs;
8. xxx xxx xxx;
9. xxx xxx xxx;
10. xxx xxx xxx,
Without pronouncement as to costs.
SO ORDERED.[6]
From the decision, plaintiffs Rayandayan and Arceo and
defendant Halsema, Inc. appealed. Defendant Rural Bank of
Sta. Maria, Pangasinan did not appeal.[7] The Court of Appeals
rendered herein assailed decision, the dispositive portion
insofar as pertinent to this case reads:
WHEREFORE, premises considered, decision is hereby
rendered:
1. xxx xxx xxx;
2. xxx xxx xxx;
3. xxx xxx xxx;
4. Declaring the Deed of Absolute Sale with Assumption of
Mortgage, Exhibit A and the Memorandum of Agreement,
Exhibit F, valid as between the parties thereto;
5. Ordering and sentencing defendant Rural Bank of Sta.
Maria, Pangasinan to pay plaintiffs-appellant the sum
of P229,135.00 as actual damages, the sum of P30,000.00 as
moral damages, P10,000.00 as exemplary
damages, P20,000.00 as attorneys fees and P5,000.00 as
litigation expenses;
6. Affirming the dismissal of all other counterclaims for
damages;
7. Reversing and setting aside all other dispositions made by
the trial court inconsistent with this decision;
8. There is no pronouncement as to costs.
SO ORDERED.[8]
In sum, the Court of Appeals in its assailed decision: (1)
affirmed the validity of the Memorandum of Agreement
between the parties thereto; (2) reversed and set aside the
finding of the trial court on the bad faith of Rayandayan and
Arceo in concealing the real purchase price of the land sold to
them by Manuel Behis during negotiations with the bank on
the assumption of the mortgage debt; (3) modified the trial
courts finding as to the damages due Rayandayan and Arceo
from the bank by adding P229,135.00 as actual damages; (4)
dismissed the counterclaim for damages by the bank and
deleted the portion on the set-off of damages due between the
bank on the one hand, and Rayandayan and Arceo on the
other.
Motions for reconsideration were filed by plaintiffs-appellants
Rayandanan and Arceo and defendant Rural Bank of Sta.
Maria, Pangasinan which were denied for lack of merit.[9]
Hence, the instant consolidated petitions.
In a Resolution dated August 25, 1993, this Court denied the
petition for review on certiorari (G.R. No. 111201) filed by
Rayandayan and Arceo for having been filed out of time and
for late payment of docket fees.[10] Petitioners Rayandayan and
Arceo moved to reconsider; this Court in a Resolution dated
November 22, 1993, resolved to deny the same with finality
considering petitioners failed to show any compelling reason
and to raise any substantial argument which would warrant a
modification of the said resolution.[11]
What remains for resolution then is G.R. No. 110672, wherein
petitioner Rural Bank of Sta. Maria, Pangasinan, contends
that:
I sale, i.e. P2.4 million, it would not have consented into
THE MEMORANDUM OF AGREEMENT (EXH. F)
ENTERED INTO BETWEEN PRIVATE RESPONDENTS,
AS ALLEGED ASSIGNEES OF MANUEL BEHIS, AND
PETITIONER BANK IS VOIDABLE AND MUST BE
ANNULLED.
II
PRIVATE RESPONDENTS ARE IN BAD FAITH, HENCE,
THEY ARE NOT ENTITLED TO THE SUMS OF
P30,000.00 AS MORAL DAMAGES; P10,000.00 AS
EXEMPLARY DAMAGES; P20,000.00 AS ATTORNEYS
FEES; AND P5,000.00 AS LITIGATION EXPENSES. [12]
The petition is devoid of merit.
Briefly, the antecedents material to this appeal are as follows:
A Deed of Absolute Sale with Assumption of Mortgage was
executed between Manuel Behis as vendor/assignor and
Rayandayan and Arceo as vendees/assignees for the sum of
P250,000.00. On the same day, Rayandayan and Arceo
together with Manuel Behis executed another Agreement
embodying the real consideration of the sale of the land in the
sum of P2,400,000.00. Thereafter, Rayandayan and Arceo
negotiated with the principal stockholder of the bank, Engr.
Edilberto Natividad in Manila, for the assumption of the
indebtedness of Manuel Behis and the subsequent release of
the mortgage on the property by the bank. Rayandayan and
Arceo did not show to the bank the Agreement with Manuel
Behis providing for the real consideration of P2,400,000.00
for the sale of the property to the former. Subsequently, the
bank consented to the substitution of plaintiffs as mortgage
debtors in place of Manuel Behis in a Memorandum of
Agreement between private respondents and the bank with
restructured and liberalized terms for the payment of the
mortgage debt. Instead of the bank foreclosing immediately
for non-payment of the delinquent account, petitioner bank
agreed to receive only a partial payment of P143,000.00 by
installment on specified dates. After payment thereof, the bank
agreed to release the mortgage of Manuel Behis; to give its
consent to the transfer of title to the private respondents; and
to the payment of the balance of P200,000.00 under new terms
with a new mortgage to be executed by the private
respondents over the same land.
This brings us to the first issue raised by petitioner bank that
the Memorandum of Agreement is voidable on the ground that
its consent to enter said agreement was vitiated by fraud
because private respondents withheld from petitioner bank the
material information that the real consideration for the sale
with assumption of mortgage of the property by Manuel Behis
to Rayandayan and Arceo is P2,400,000.00, and not
P250,000.00 as represented to petitioner bank. According to
petitioner bank, had it known of the real consideration for the
entering the Memorandum of Agreement with Rayandayan
and Arceo as it was put in the dark as to the real capacity and
financial standing of private respondents to assume the
mortgage from Manuel Behis. Petitioner bank pointed out that
it would not have assented to the agreement, as it could not
expect the private respondents to pay the bank the
approximately P343,000.00 mortgage debt when private
respondents have to pay at the same time P2,400,000.00 to
Manuel Behis on the sale of the land.
The kind of fraud that will vitiate a contract refers to those
insidious words or machinations resorted to by one of the
contracting parties to induce the other to enter into a contract
which without them he would not have agreed to.[13] Simply
stated, the fraud must be the determining cause of the contract,
or must have caused the consent to be given. It is believed that
the non-disclosure to the bank of the purchase price of the sale
of the land between private respondents and Manuel Behis
cannot be the fraud contemplated by Article 1338 of the Civil
Code.[14] From the sole reason submitted by the petitioner
bank that it was kept in the dark as to the financial capacity of
private respondent, we cannot see how the omission or
concealment of the real purchase price could have induced the
bank into giving its consent to the agreement; or that the bank
would not have otherwise given its consent had it known of
the real purchase price.
First of all, the consideration for the purchase of the land
between Manuel Behis and herein private respondents
Rayandayan and Arceo could not have been the determining
cause for the petitioner bank to enter into the memorandum of
agreement. To all intents and purposes, the bank entered into
said agreement in order to effect payment on the indebtedness
of Manuel Behis. As correctly ruled by the Court of Appeals:
xxx. The real consideration for the sale with assumption of
mortgage, or the non-disclosure thereof, was not the
determining influence on the consent of the bank.
The bank received payments due under the Memorandum of
Agreement, even if delayed. It initially claimed that the sale
with assumption of mortgage was invalid not because of the
concealment of the real consideration of P2,400,000.00 but
because of the information given by Cristina Behis, the widow
of the mortgagor Manuel Behis that her signature on the deed
of absolute sale with assumption of mortgage was
forged. Thus, the alleged nullity of the Memorandum of
Agreement, Exhibit F, is a clear aftertought. It was raised by
defendant bank, by way of counterclaim only after it was sued.
The deceit which avoids the contract exists where the party
who obtains the consent does so by means of concealing or
omitting to state material facts, with intent to deceive, by
reason of which omission or concealment the other party was
induced to give a consent which he would not otherwise have
given (Tolentino, Commentaries and Jurisprudence on the
Civil Code, Vol. IV, p. 480). In this case, the consideration for
the sale with assumption of mortgage was not the inducement
to defendant bank to give a consent which it would not
otherwise have given.
Indeed, whether the consideration of the sale with assumption
of mortgage was P250,000.00 as stated in Exhibit A, or
P2,400,000.00 as stated in the Agreement, Exhibit 15, should
not be of importance to the bank. Whether it was P250,000.00
or P2,400.000.00 the banks security remained unimpaired.
The stipulation in Exhibit 15, reading in case of default in all
of the above, Manuel Behis shall have legal recourse to the
portion of the parcel of land under TCT No. T-29817
equivalent to the unpaid balance of the amount subject of this
Agreement, obviously even if revealed would not have
induced defendant bank to withhold its consent. The legal
recourse to TCT No. T-29817 given to Manuel Behis, under
the Agreement, is subordinate and inferior to the mortgage to
the bank.
We are, therefore, constrained to uphold the validity of the
Memorandum of Agreement, Exhibit F, and reverse and set
aside the ruling declaring the same annulled allegedly due to
fraud of plaintiffs-appellants (paragraph 7, dispositive
portion).
With the above conclusion reached, the award of moral and
exemplary damages, attorneys fees and expenses of litigation
in favor of defendant bank and against plaintiffs-appellants in
paragraph 4 of the dispositive portion of the decision of the
trial court must likewise be reversed and set aside; and
similarly, paragraph 5. The basis for the award, which we
quote for plaintiffs bad faith in deceiving the Bank to enter
into the Memorandum of Agreement is not correct as we have
discussed.[15]
Secondly, pursuant to Article 1339 0f the Civil
Code,[16] silence or concealment, by itself, does not constitute
fraud, unless there is a special duty to disclose certain facts, or
unless according to good faith and the usages of commerce the
communication should be made. Verily, private respondents
Rayandayan and Arceo had no duty, and therefore did not act
in bad faith, in failing to disclose the real consideration of the
sale between them and Manuel Behis.
Thirdly, the bank had other means and opportunity of
verifying the financial capacity of private respondents and
cannot avoid the contract on the ground that they were kept in
the dark as to the financial capacity by the non-disclosure of
the purchase price. As correctly pointed out by respondent
court, the bank security remained unimpaired regardless of the
consideration of the sale. Under the terms of the Memorandum
of Agreement, the property remains as security for the
payment of the indebtedness, in case of default of
payment. Thus, petitioner bank does not and can not even
allege that the agreement was operating to its disadvantage. If
fact, the bank admits that no damages has been suffered by
it. [17]
Consequently, not all elements of fraud vitiating consent for
purposes of annulling a contract concur, to wit: (a) It was
employed by a contracting party upon the other; (b) It induced
the other party to enter into the contract; (c) It was serious;
and; (d) It resulted in damages and injury to the party seeking
annulment.[18] Petitioner bank has not sufficiently shown that
it was induced to enter into the agreement by the non-
disclosure of the purchase price, and that the same resulted in
damages to the bank. Indeed, the general rule is that
whosoever alleges fraud or mistake in any transaction must
substantiate his allegation, since it is presumed that a person
takes ordinary care for his concerns and that private
transactions have been fair and regular. Petitioner bank's
allegation of fraud and deceit have not been established
sufficiently and competently to rebut the presumption of
regularity and due execution of the agreement.
Based on the foregoing, the second issue raised by petitioner
bank must likewise fail. Petitioner bank's imputation of bad
faith to private respondents premised on the same non-
disclosure of the real purchase price of the sale so as to
preclude their entitlement to damages must necessarily be
resolved in the negative. Petitioner bank does not question the
actual damages awarded to private respondents in the amount
of P229,135.00, but only the moral damages of P30,000.00,
exemplary damages of P10,000.00, attorney's fees
of P20,000.00 and litigation expenses of P5,000.00. We may
no longer examine the amounts awarded by the trial court and
affirmed by the appellate court as petitioner bank did not
appeal from the decision of the trial court. It is well-settled
that a party who does not appeal from the decision may not
obtain any affirmative relief from the appellate court other
than what he has obtained from the lower court, if any, whose
decision is brought up on appeal.[19]
WHEREFORE, the petition is hereby DENIED and the
decision of the Court of Appeals, dated March 17, 1993 is
AFFIRMED. No cost.
SO ORDERED.
[G.R. No. 125485. September 13, 2004]
RESTITUTA LEONARDO, assisted by JOSE T.
RAMOS, petitioners, vs. COURT OF APPEALS, and
TEODORO SEBASTIAN, VICENTE SEBASTIAN,
CORAZON SEBASTIAN, assisted by ANDRES
MARCELO; PEDAD SEBASTIAN, HEIRS OF
EDUVIGIS SEBASTIAN, namely: EDUARDO S.
TENORLAS, ABELARDO J. TENORLAS, ADELA S.
and SOLEDAD S. TENORLAS, represented by
EDUARDO S. TENORLAS, and HEIRS OF
DOMINADOR, namely: NAPOLEON SEBASTIAN,
RUPERTO SEBASTIAN, ADORACION SEBASTIAN,
PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA
SEBASTIAN and GLORIA SEBASTIAN, represented by
NAPOLEON SEBASTIAN; EVELYN SEBASTIAN;
AURORA SEBASTIAN; and JULIETA
SEBASTIAN, respondents.
DECISION
CORONA, J.:
This is a petition for review under Rule 45 of the Rules of
Court seeking to reverse and set aside the decision[1] of the
Court of Appeals which in turn affirmed the judgment[2] of
Branch 57, Regional Trial Court (RTC) of San Carlos City,
dismissing for lack of cause of action the complaint filed by
petitioner against private respondents for declaration of nullity
of the extrajudicial settlement of the estate of Jose Sebastian
and Tomasina Paul.
Petitioner Restituta Leonardo is the only legitimate child of
the late spouses Tomasina Paul and Balbino Leonardo. Private
respondents Teodoro, Victor, Corazon, Piedad, as well as the
late Eduvigis and Dominador, all surnamed Sebastian, are the
illegitimate children of Tomasina with Jose Sebastian after she
separated from Balbino Leonardo.
In an action to declare the nullity of the extrajudicial
settlement of the estate of Tomasina Paul and Jose Sebastian
before Branch 57, RTC of San Carlos City, Pangasinan,
petitioner alleged that, on June 24, 1988, at around 5:00 p.m.,
private respondent Corazon Sebastian and her niece Julieta
Sebastian, and a certain Bitang, came to petitioners house to
persuade her to sign a deed of extrajudicial partition of the
estate of Tomasina Paul and Jose Sebastian. Before signing
the document, petitioner allegedly insisted that they wait for
her husband Jose Ramos so he could translate the document
which was written in English. Petitioner, however, proceeded
to sign the document even without her husband and without
reading the document, on the assurance of private respondent
Corazon Sebastian that petitioners share as a legitimate
daughter of Tomasina Paul was provided for in the
extrajudicial partition. Petitioner then asked private respondent
Corazon and her companions to wait for her husband so he
could read the document. When petitioners husband arrived,
however, private respondent Corazon and her companions had
left without leaving a copy of the document. It was only when
petitioner hired a lawyer that they were able to secure a copy
and read the contents thereof.
Petitioner refuted[3] private respondents claim that they were
the legitimate children and sole heirs of Jose Sebastian and
Tomasina Paul. Despite the (de facto) separation of petitioners
father Balbino Leonardo and Tomasina Paul, the latter
remained the lawful wife of Balbino. Petitioner maintained
that no joint settlement of the estate of Jose Sebastian and
Tomasina Paul could be effected since what existed between
them was co-ownership, not conjugal partnership. They were
never married to each other. The extrajudicial partition was
therefore unlawful and illegal.
Petitioner also claimed that her consent was vitiated because
she was deceived into signing the extrajudicial settlement. She
further denied having appeared before Judge Juan Austria of
the Municipal Trial Court (MTC) of Urbiztondo, Pangasinan
on July 27, 1988 to acknowledge the execution of the
extrajudicial partition.
Private respondents, in their answer with
counterclaim,[4] raised the defense of lack of cause of action.
They insisted that the document in question was valid and
binding between the parties. According to them, on July 27,
1988, they personally appeared before Judge Austria of the
MTC of Urbiztondo, who read and explained the contents of
the document which all of them, including petitioner,
voluntarily signed.
Private respondents contended that their declaration that they
were legitimate children of Jose Sebastian and Tomasina Paul
did not affect the validity of the extrajudicial partition.
Petitioners act of signing the document estopped her to deny
or question its validity. They moreover averred that the action
filed by petitioner was incompatible with her complaint.
Considering that petitioner claimed vitiation of consent, the
proper action was annulment and not declaration of nullity of
the instrument.
On July 27, 1989, petitioner filed an amended complaint [5] to
include parties to the extrajudicial partition who were not
named as defendants in the original complaint.
During the August 23, 1990 pre-trial conference,[6] no
amicable settlement was reached and the parties agreed that
the only issue to be resolved was whether petitioners consent
to the extrajudicial partition was voluntarily given.
In a decision dated February 22, 1993, the RTC of San Carlos
City, Pangasinan rendered a decision[7] dismissing the
complaint as well as the counterclaim. The court a quo ruled
that the element of duress or fraud that vitiates consent was
not established and that the proper action was the reformation
of the instrument, not the declaration of nullity of the
extrajudicial settlement of estate. By way of obiter dictum, the
trial court stated that, being a legitimate child, petitioner was
entitled to one-half (or 19,282.5 sq.m.) of Tomasina Pauls
estate as her legitime. The 7,671.75 square meters allotted to
her in the assailed extrajudicial partition was therefore less
than her correct share as provided by law.
On appeal, the Court of Appeals affirmed the judgment of the
trial court in its May 23, 1996 decision. [8] Hence, this petition
for review on certiorari under Rule 45.
The sole issue in this case is whether the consent given by
petitioner to the extrajudicial settlement of estate was given
voluntarily.
We hold that it was not.
The essence of consent is the agreement of the parties on the
terms of the contract, the acceptance by one of the offer made
by the other. It is the concurrence of the minds of the parties
on the object and the cause which constitutes the
contract.[9] The area of agreement must extend to all points
that the parties deem material or there is no consent at all.[10]
To be valid, consent must meet the following requisites: (a) it
should be intelligent, or with an exact notion of the matter to
which it refers; (b) it should be free and (c) it should be
spontaneous. Intelligence in consent is vitiated by error;
freedom by violence, intimidation or undue influence; and
spontaneity by fraud.[11]
In determining the effect of an alleged error, the courts must
consider both the objective and subjective aspects of the case
which is the intellectual capacity of the person who committed
the mistake.[12]
Mistake, on the other hand, in order to invalidate consent
should refer to the substance of the thing which is the object of
the contract, or to those conditions which have principally
moved one or both parties to enter into the contract. [13]
According to the late civil law authority, Arturo M. Tolentino,
the (old) rule that a party is presumed to know the import of a
document to which he affixes his signature and is bound
thereby, has been altered by Art. 1332 of the Civil Code. The
provision states that [w]hen one of the parties is unable to
read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully
explained to the former.
Article 1332 was a provision taken from american law,
necessitated by the fact that there continues to be a fair
number of people in this country without the benefit of a good
education or documents have been written in English or
Spanish.[14] The provision was intended to protect a party to a
contract disadvantaged by illiteracy, ignorance, mental
weakness or some other handicap. It contemplates a situation
wherein a contract is entered into but the consent of one of the
contracting parties is vitiated by mistake or fraud committed
by the other.[15]
Thus, in case one of the parties to a contract is unable to read
and fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the
former.[16] Where a party is unable to read, and he expressly
pleads in his reply that he signed the voucher in question
without knowing (its) contents which have not been explained
to him, this plea is tantamount to one of mistake or fraud in
the execution of the voucher or receipt in question and the
burden is shifted to the other party to show that the former
fully understood the contents of the document; and if he fails
to prove this, the presumption of mistake (if not fraud) stands
unrebutted and controlling.[17]
Contracts where consent is given by mistake or because of
violence, intimidation, undue influence or fraud are
voidable.[18] These circumstances are defects of the will, the
existence of which impairs the freedom, intelligence,
spontaneity and voluntariness of the party in giving consent to
the agreement. In determining whether consent is vitiated by
any of the circumstances mentioned in Art. 1330 of the Civil
Code, courts are given a wide latitude in weighing the facts or
circumstances in a given case and in deciding in favor of what
they believe actually occurred, considering the age, physical
infirmity, intelligence, relationship and the conduct of the
parties at the time of making the contract and subsequent
thereto, irrespective of whether the contract is in a public or
private writing.[19]
Although under Art. 1332 there exists a presumption of
mistake or error accorded by the law to those who have not
had the benefit of a good education, one who alleges any
defect or the lack of a valid consent to a contract must
establish the same by full, clear and convincing evidence, not
merely by preponderance of evidence.[20] Hence, even as the
burden of proof shifts to the defendants to rebut
the presumption of mistake, the plaintiff who alleges such
mistake (or fraud) must show that his personal circumstances
warrant the application of Art. 1332.
In this case, the presumption of mistake or error on the part of
petitioner was not sufficiently rebutted by private respondents.
Private respondents failed to offer any evidence to prove that
the extrajudicial settlement of estate was explained in a
language known to the petitioner, i.e. the Pangasinan dialect.
Clearly, petitioner, who only finished Grade 3, was not in a
position to give her free, voluntary and spontaneous consent
without having the document, which was in English, explained
to her in the Pangasinan dialect. She stated in open court that
she did not understand English. Her testimony, translated into
English, was as follows:
Q: While you were there is your house at barangay Angatel,
Urbiztondo, Pangasinan, what happened?
A: On June 24, 1988, I was in our house because I got sick,
sir.
Q: What happened?
A: When the time was about 5:00 oclock, I was awaken by my
daughter-in-law, Rita Ramos, and told me that my half sister
Corazon would like to tell us something, sir.
Q: What did you do?
A: I let them come in, sir.
Q: Did they come in?
A: Yes, sir.
Q: Who was the companion of your half sister Corazon
Sebastian when she arrived in your house?
A: Julita Sebastian and her daughter Bitang, sir.
Q: And who is this Julita Sebastian to you?
A: She is my niece, sir.
Q: And then when they got inside the house, what happened?
A: I asked them their purpose, sir.
Q: Did they tell you their purpose?
A: I asked their purpose in coming to our house and they told
me, I came here because I have a partition executed so that the
share of each one of us will be given, she said sir.
Q: Did you see that document?
A: Yes, sir.
ATTY. L. TULAGAN
Q: Did you read the document?
A: No, sir because I was waiting for my husband to have that
document read or translated to me because I could not
understand, sir.
Q: What could you not understand?
A: I can not understand English, sir.
Q: But anyway, can you read?
A: Yes, sir in Pangasinan.
Q: Now, that document which according to you was brought
by your half sister Corazon Sebastian, what happened to that
document?
A: Corazon Sebastian request(ed) me to sign, sir.
Q: Did you sign immediately?
A: Yes, sir, because according to her, all my shares were
embodied in that document as a legal daughter.[21]
Petitioners wish to wait for her husband, Jose T. Ramos, to
explain to her the contents of the document in the Pangasinan
dialect was a reasonable and prudent act that showed her
uncertainty over what was written. Due to her limited
educational attainment, she could not understand the
document in English. She wanted to seek assistance from her
husband who was then out of the house. However, due to the
misrepresentation, deception and undue pressure of her half-
sister Corazon Sebastian, petitioner signed the document.
Corazon assured petitioner that she would receive her
legitimate share in the estate of their late mother.
Later on, when petitioners husband examined the extrajudicial
partition agreement, he found out that petitioner was deprived
of her full legitime. Under the law, petitioners share should
have been one-half of her mothers estate, comprising a total
area of 19,282.50 square meters. Under the defective
extrajudicial settlement of estate, however, petitioner was to
receive only 7,671.75 square meters. This was a substantial
mistake clearly prejudicial to the substantive interests of
petitioner in her mothers estate. There is no doubt that, given
her lack of education, petitioner is protected by Art. 1332 of
the Civil Code. There is reason to believe that, had the
provisions of the extrajudicial agreement been explained to
her in the Pangasinan dialect, she would not have consented to
the significant and unreasonable diminution of her rights.
MTC Judge Austria, the officer who notarized the
extrajudicial settlement, stated that he explained the contents
to all the parties concerned. Granting arguendo, however, that
Judge Austria did indeed explain the provisions of the
agreement to them, the records do not reflect that he explained
it to petitioner in a language or dialect known to her. Judge
Austria never stated in his testimony before the court a
quo what language or dialect he used in explaining the
contents of the document to the parties.[22] Significantly, he
was not even certain if the parties to the agreement were
present during the notarization of the document:
ATTY. TULAGAN
Q: Reflected upon all the pages of this Exhibit 1 are numerous
signatures, two of whom belongs (sic) to Piedad Paul
Sebastian and Eduardo Sebastian Tenorlas.
ATTY. D. TULAGAN
(continuing)
The Philippines on July, 1989, will you please educate us now
Judge Austria on this document?
ATTY. O. DE GUZMAN
That will be improper, your Honor.
COURT
What is the question, you repeat the question.
INTERPRETER:
Reflected upon all the pages of this Exhibit 1 are numerous
signatures, two of whom belongs (sic) to Piedad Paul
Sebastian and Eduardo Sebastian Tenorlas, in your just
concluded testimony, you said that everyone of them appeared
with you, we have here a documented evidence coming from
the Department of Justice, Bureau of Immigration and
Deportation, Manila, certifying that Piedad Paul Sebastian and
Eduardo Sebastian Tenorlas did not arrive in the Philippines or
departed from the Philippines on July, 1998, will you please
educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN:
Your Honor please, before the witness answer, may we
examine the certification first and may we state for the record
that the month of July, 1998 does not specify any date.
ATTY. L. TULAGAN:
July.
ATTY. O. DE GUZMAN:
But not a particular date, for the record.
ATTY. L. TULAGAN:
For the whole month of July, no departure and no arrival. This
is a certificate from the Bureau of Immigration, Manila. I do
not know about this, as a matter of fact, I do not even know
this person personally
WITNESS:
Somebody that kind of name appeared before me.
ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo,
Pangasinan it is possible that another person appeared and
signed for that name?
A: Yes, possible.[23]
Therefore, the presumption of mistake under Article 1332 is
controlling, having remained unrebutted by private
respondents. The evidence proving that the document was not
fully explained to petitioner in a language known to her, given
her low educational attainment, remained uncontradicted by
private respondents. We find that, in the light of the
circumstances presented by the testimonies of the witnesses
for both parties, the consent of petitioner was invalidated by a
substantial mistake or error, rendering the agreement voidable.
The extrajudicial partition between private respondents and
petitioner should therefore be annulled and set aside on the
ground of mistake.
In Rural Bank of Caloocan, Inc. v. Court of Appeals,[24] we
ruled that a contract may be annulled on the ground of vitiated
consent, even if the act complained of is committed by a third
party without the connivance or complicity of one of the
contracting parties. We found that a substantial mistake arose
from the employment of fraud or misrepresentation. The
plaintiff in that case was a 70-year-old unschooled and
unlettered woman who signed an unauthorized loan obtained
by a third party on her behalf. The Court annulled the contract
due to a substantial mistake which invalidated her consent.
By the same reasoning, if it is one of the contracting parties
who commits the fraud or misrepresentation, such contract
may all the more be annulled due to substantial mistake.
In Remalante v. Tibe,[25] this Court ruled that
misrepresentation to an illiterate woman who did not know
how to read and write, nor understand English, is fraudulent.
Thus, the deed of sale was considered vitiated with substantial
error and fraud. This Court further held:[26]
Since it has been established by uncontradicted evidence that
the plaintiff is practically unschooled and illiterate, not
knowing how to read, write and understand the English
language in which Exhibit 22 was drafted, it would have been
incumbent upon the defendant to show that the terms there of
have been fully explained to the plaintiff. The evidence is
entirely lacking at this point, and the lack of it is fatal to the
cause of the defendant for his failure to discharge the burden
of proof.
Generally, the remedy of appeal by certiorari under Rule 45 of
the Rules of Court contemplates only questions of law and not
issues of fact.[27] This rule, however, is inapplicable in cases
such as the one at bar where the factual findings complained
of are absolutely devoid of support in the records or the
assailed judgment of the appellate court is based on a
misapprehension of facts.[28] Thus, this case is an exception to
the general rule on the conclusiveness of facts, the evidence
pointing to no other conclusion but the existence of vitiated
consent, given the diminished intellectual capacity of the
petitioner and the misrepresentation of private respondent
Corazon Sebastian on the contents of the extrajudicial
partition.
Private respondents also maintain that petitioner has no cause
of action since the remedy that should be pursued is an action
for annulment and not for declaration of nullity. Private
respondents therefore pray for the dismissal of this petition on
the ground of lack of cause of action.
The petitioners pleading was for the declaration of nullity of
the extrajudicial settlement of estate. However, this did not
necessarily mean the automatic dismissal of the case on the
ground of lack of cause of action.
Granting that the action filed by petitioner was incompatible
with her allegations, it is not the caption of the pleading but
the allegations that determine the nature of the action.[33] The
court should grant the relief warranted by the allegations and
the proof even if no such relief is prayed for. [34] In this case,
the allegations in the pleading and the evidence adduced point
to no other remedy but to annul the extrajudicial settlement of
estate because of vitiated consent.
WHEREFORE, the decision of the Court of Appeals dated
23 May 1996 is hereby REVERSED. The extrajudicial
settlement of the estate of Tomasina Paul and Jose Sebastian is
hereby ANNULLED and SET ASIDE. No cost.
SO ORDERED.
LINA CALILAP- G.R. No. 157330
ASMERON,
Petitioner,
Present:
CORONA, C.J.,
Chairperson,

Before ruling on this procedural matter, a distinction between - versus - LEONARDO-DE

an action for annulment and one for declaration of nullity of CASTRO,
an agreement is called for.
BERSAMIN,
An action for annulment of contract is one filed where consent
is vitiated by lack of legal capacity of one of the contracting DEL CASTILLO, and
parties, or by mistake, violence, intimidation, undue influence
VILLARAMA, JR., JJ.
or fraud.[29] By its very nature, annulment contemplates a DEVELOPMENT BANK OF
contract which is voidable, that is, valid until annulled. Such THE PHILIPPINES, PABLO
contract is binding on all the contracting parties until annulled CRUZ,*TRINIDAD
and set aside by a court of law. It may be ratified. An action CABANTOG,** ENI S.P. Promulgated:
for annulment of contract has a four-year prescriptive ATIENZA and
period.[30] EMERENCIANA
CABANTOG, November 23, 2011
On the other hand, an action for declaration of nullity of
contract presupposes a void contract or one where all of the Respondents.
requisites prescribed by law for contracts are present but the
cause, object or purpose is contrary to law, morals, good x-------------------------------------------------------------------------x
customs, public order or public policy, prohibited by law or
declared by law to be void.[31] Such contract as a rule produces
no legal and binding effect even if it is not set aside by direct
legal action. Neither may it be ratified. An action for the DECISION
declaration of nullity of contract is imprescriptible. [32]

BERSAMIN, J.:
The petitioner challenges the decision promulgated on June
21, 2002,[1] whereby the Court of Appeals (CA) affirmed the
adverse decision rendered by the Regional Trial Court, Branch
11, in Malolos, Bulacan (RTC) in Civil Case No. 50-M-87
entitled Lina Calilap-Asmeron v. Development Bank of the
Philippines, Pablo Cruz, Trinidad Cabantog, Eni S.P. Atienza,
and Emerenciana Cabantog,[2] an action initiated to set aside
the defendant banks rescission of a deed of conditional sale
involving foreclosed property, and to annul the subsequent
sales of the property to other persons.
Antecedents
On March 17, 1975, the petitioner and her brother Celedonio
Calilap constituted a real estate mortgage over two parcels of
land covered by Transfer Certificate of Title (TCT) No. T-
164117 and TCT No.T-160929, both of the Registry of Deeds
of Bulacan, to secure the performance of their loan obligation
with respondent Development Bank of the Philippines
(DBP).[3] With the principal obligation being ultimately
unpaid, DBP foreclosed the mortgage. The mortgaged parcels
of land were then sold to DBP as the highest bidder. The one-
year redemption period expired on September 1, 1981.[4]
As to what thereafter transpired, the petitioner and DBP
tendered conflicting versions.
I dated September 14, 1981, thus:
Version of Petitioner
The thrust of the petitioners suit is that DBP accorded to her a
preferential right to repurchase the property covered by TCT
No. 164117.[5] Her version follows.
In August 1982, the petitioner negotiated with DBP to buy
back the property covered by TCT No. 164117 by
offering P15,000.00 as downpayment. Her offer was rejected
by an executive officer of DBPs Acquired Assets Department,
who required her to pay the full purchase price of P55,500.00
for the property within ten days.[6] She returned to DBP with
the amount, only to be told that DBP would not sell back only
one lot. Being made to believe that the lot covered by TCT
No. 164117 would be released after paying two amortizations
for the other lot (TCT No. 160929), however, she signed the
deed of conditional sale covering both lots for the total
consideration of P157,000.00.[7] When she later on requested
the release of the property under TCT No. 164117 after paying
two quarterly amortizations, DBP did not approve the release.
She continued paying the amortizations until she had
paid P40,000.00 in all, at which point she sought again the
release of the lot under TCT No. 164117. DBP still denied her
request, warning that it would rescind the contract should her
remaining amortizations be still not paid. On August 7, 1985,
DBP rescinded the deed of conditional sale over her
objections.[8]
On November 25, 1987, DBP sold the lot covered by TCT No.
164117 to respondent Pablo Cruz via a deed of absolute
sale.[9] The petitioner consequently filed a complaint for the
rescission of the sale to Cruz on January 30,
1987.[10] Notwithstanding their knowledge of her pending suit
against Cruz, respondents Emerenciana Cabantog and Eni S.P.
Atienza still bought the property from Cruz.[11] Hence,
Cabantog and Atienza were impleaded as additional
defendants by amendment.
II
Version of Respondents
DBP insisted that the petitioners real intention had been to
repurchase the two lots on installment basis. She manifested
her real intention to that effect in writing through her letter
September 14, 1981
DEVELOPMENT BANK OF THE PHIL.
Acquired Assests [sic] Department
Makati, Metro Manila
ATTENTION: MR. J.A. SANCHEZ, JR.
Assistant Manager
------------------------------------------------------------
Dear Sir:
I wish to inform your good office that I am interested to
reacquire the mortgage properties consisting of two (2) parcels
of land under TCT Nos. T-160929 and T-164117 located at
Sumapa, Malolos, Bulacan.
I would like to reacquire the above stated properties under
installment basis but I am requesting your goodselves [sic] to
extend an extension of time up to the first week of November,
1981 for my money is coming by that time.
Your kind consideration on the above request is most highly
appreciated, I remain.
Very truly yours,
(sgd.)
LINA CALILAP-ASMERON
Co-maker[12]
The petitioner also sent a telegram on September 15,
1981,[13] whereby she similarly expressed to DBP her interest
in reacquiring the properties. On November 16, 1981, DBP
received another telegram from her,[14]requesting DBP to put
the bidding of the properties on hold. A year later, she sent a
letter dated August 31, 1982 to reiterate her intention to
repurchase the two properties and to offer to
deposit P55,500.00 as initial payment, to wit:
August 31, 1982
The Manager
Acquired Assets Management Department
Development Bank of the Philippines
Makati, Metro Manila
Dear Sir:
This has reference to our former properties consisting of two
parcels of land with an aggregate area of 2,082.5 sq.m.
covered by TCT Nos. T-160929 and T-164117 together with
all the improvements erected thereon located at Bo. Sumpang
Matanda, Malolos, Bulacan.
I wish to inform you that in view of my intense desire to
preserve said properties for our familys use, I am offering to
buy back these properties for P157,000.00, payable on terms,
balance to be paid in five (5) years on the quarterly
amortization plan.
This is my last appeal for your assistance in my wish to
preserve these properties and should I fail to consummate the
sale, I bind myself to whatever rules and regulations the Bank
may impose with regards to my deposit.
If this offer is acceptable to you, I am willing to deposit the
amount of P55,500.00 on or before September 10, 1982.
May I be advised accordingly?
Thank you.
Very truly yours,
(Sgd.)
LINA CALILAP-ASMERON[15]
The petitioner subsequently made the downpayment on
September 10, 1992,[16] and DBP formally accepted the offer
through its letter dated September 14, 1982, stating therein the
terms and conditions.[17] Said terms and conditions, which
were later embodied in the deed of conditional sale executed
on January 21, 1983, included one that bound her to pay the
first amortization of P7,304.15 three months from the
execution of the deed, and the remaining amortizations to be
due and payable every three months thereafter.[18]
DBP presented the duplicate copies of the receipts indicating
her timely payment for the first quarterly amortization;
however, she incurred delays in her subsequent
installments.[19] She made her last payment amounting
to P4,500.00 on March 12, 1985,[20] leaving five quarterly
amortizations unpaid.[21]
On January 20, 1986, the petitioner sent a handwritten letter
requesting DBP to put on hold any plans of selling the subject
property, viz:
January 20, 1986
Mr. V.M. Macapagal
Executive Officer
Acquired Assets Mgmt. Division
Development Bank of the Philippines
Makati, Metro Manila
Dear Sir:
This is with reference regarding my Sale Acct. No. 617 under
the name of my late brother Celedonio R. Calilap which are
located in Sumapa, Malolos, Bulacan.
In connection with these properties, I have already made an
arrangement that Im going to pay my whole obligations
through a private financier under your Incentive Plan, which
according to my last communication with them it was
extended so I have to make an advance notice of four (4) days
before paying so I may know the exact amount.
I wanted it to be formal, so I send [sic] a letter to your good
office for the reason that last January 17, 1986, your appraiser
went to our place and made an assessment of my properties.
May I request again to please hold any sale of the said
property for Im doing my best to settle my obligation at the
soonest possible time, for sure after a week or two after the
snap election.
Thank you very much for your kind consideration and hoping
for your help regarding my request.
Respectfully yours,
(sgd.)
LINA CALILAP-ASMERON[22]
DBP replied by its letter dated February 5,
1986,[23] demanding payment of the petitioners remaining
obligation of P121,013.75 in cash, otherwise, it would be
constrained to sell the property. She
responded viatelegram,[24] informing DBP that she would be
arriving on March 4, 1986. The telegram was followed by a
handwritten letter dated March 5, 1986[25] stating her
willingness to pay 10% of her outstanding obligations.
On March 12, 1986, DBP demanded the immediate remittance
of the promised amount via telegram.[26] When she did not pay
the six quarterly amortizations, DBP rescinded the deed of
conditional sale and applied for a writ of possession on
November 17, 1986 in the RTC (Branch 17) in Malolos,
Bulacan. Its application for the writ of possession was granted
on November 18, 1986.[27]
Ruling of the RTC
Finding the petitioners complaint lacking in merit, the RTC
(Branch 11) rendered its decision on December 28, 1994
dismissing the case.[28] It observed that the stipulations in the
deed of conditional sale and the tenor of the petitioners
communications to DBP clearly indicated that she had
intended to repurchase both foreclosed properties, not just the
property covered by TCT No. T-164117, thusly:
Lettered as she is, the plaintiff cannot now seek refuge on the
excuse that what she intends to buy was only the property
covered by TCT No. T-164117. The contents of her letter to
the Manager of the Acquired Assets Division of DBP dated
August 31, 1982 (Exh. 1 and its submarkings) and to Asst.
Manager J.A. Sanchez of the DBP dated September 14, 1981
(Exh. 2) clearly demonstrate in unequivocal terms that she
intended to reacquire both of her foreclosed properties.
Moreso, the telegrams sent by her (Exhs. 3 & 4) to defendant
bank clearly indicates the same intention.
The aforequoted terms and conditions in the conditional sale
which defendant failed to comply are clear and not susceptible
whatsoever to any other interpretation as to the intention of the
contracting parties. It is settled and fundamental that if the
terms of the contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of the
stipulations shall control (Art. 1370, Civil Code; Filoil
Marketing Corp. vs. IAC GR 67115; Mercantile Ins. Corp.
vs.Ysmael GR 43862; Baliuag Transit Corp. vs. CA GR
80447). In addition, her subsequent acts of writing DBP and
complying with the terms of the conditional sale bolster the
fact of her acquiescence in the said contract which she
voluntarily entered into and she cannot now take a contrary
position.[29]
Ruling of the CA
The petitioner appealed, contending that:
I
THE LOWER COURT GROSSLY ERRED IN NOT
ANNULLING THE RESCISSION MADE BY THE
DEVELOPMENT BANK OF THE PHILIPPINES (DBP) OF
THE CONDITIONAL SALE OF JANUARY 4, 1983,
APPELLANT HAVING ALREADY PAID A
SUBSTANTIAL AMOUNT OF P100,000.00 OR ABOUT
TWO-THIRDS OF THE PRICE OR CONSIDERATION.
II
THE LOWER COURT ERRED IN NOT ANNULLING THE
SALE MADE BY DBP TO PABLO CRUZ AS WELL AS
THE SALE MADE BY THE LATTER TO THE OTHER
DEFENDANTS.
Yet, on June 21, 2002, the CA affirmed the RTC, [30] pointing
out that the petitioner had not presented testimonial or
documentary evidence to support or corroborate her claim that
she had been misled into signing the deed of conditional sale.
It ruled that DBP could rescind the contract pursuant to the
terms of the deed of conditional sale itself, and that DBP
exercised its right to rescind only after she had failed to pay
her quarterly amortizations.[31]
Issues
In her present appeal, the petitioner submits:
I
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT
DISREGARDED THE TESTIMONIAL EVIDENCE
ADDUCED BY THE PETITIONER, WHICH CLEARLY
DETAILED THE TRUTH SURROUNDING THE
EXECUTION OF THE DEED OF CONDITIONAL SALE
OF THE SUBJECT LOT TO RESPONDENT CRUZ, AND
THE LATTER TO CO-RESPONDENTS CABANTOG AND
ATIENZA NULL AND VOID
II
THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR WHEN IT AFFIRMED THE DECISION OF THE
LOWER COURT UPHOLDING THE RESPONDENT
BANKS RESCISSION OF THE DEED OF CONDITIONAL
SALE CONSIDERING THAT THE PETITIONER HAD
ALREADY PAID A SUBSTANTIAL AMOUNT OF
PHP100,000.00 OR ABOUT TWO-THIRD OF THE FULL
CONSIDERATION OF PHP157,000.00.
The petitioner avers that her testimonial evidence sufficiently
established the facts behind the execution of the deed of
conditional sale; that she thereby proved that she had not fully
understood the terms contained in the deed; that DBP could
not resort to rescission because her nonpayment of the
amortizations was only a slight or casual breach; and that the
sale made by DBP to Cruz was tainted with bad faith, which
was also true with the sale from Cruz to Cabantog and
Atienza.
DBP counters that the petitioner is raising questions of fact in
her present appeal, which is not allowed under Rule 45 of
the Rules of Court; and that it had the right to rescind the deed
of conditional sale under Article 1191 of the Civil Code.
On her part, Remedios Lim-Cruz, who had substituted her
deceased husband, argues that the petitioner did not prove bad
faith on the part of her husband in purchasing the property
from DBP; and that her husband had relied in good faith on
the title of DBP as the registered owner of the property at the
time of the sale.
Ruling
The appeal lacks merit.
I
Appeal under Rule 45 is
limited to questions of law only
The petitioners submissions, that her testimonial evidence
sufficiently established the facts behind the execution of the
deed of conditional sale, and that she had not fully understood
the terms contained in the deed of conditional sale, involved
questions of fact, for the consideration and resolution of them
would definitely require the appreciation of evidence. As such,
her petition for review is dismissible for raising factual issues.
Under Rule 45 of the Rules of Court, only questions of law
may be the proper subject of an appeal in this Court. The
version of Section 1 of Rule 45 in force at the time the
petitioner commenced her present recourse on April 28, 2003
expressly so stated, to wit:
Section 1. Filing of petition with Supreme Court. A party
desiring to appeal by certiorari from a judgment or final order
or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth. (1a, 2a) (emphasis
supplied)[32]
To be sure, we have not lacked in reminding that in exercising
its power of review the Court is not a trier of facts and does
not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the case.
For that reason, the findings of facts of the CA are conclusive
and binding on the Court.
It is true that the Court has recognized several exceptions, in
which it has undertaken the review and re-appreciation of the
evidence. Among the exceptions have been: (a) when the
findings of the CA are grounded entirely on speculation,
surmises or conjectures; (b) when the inference made by the
CA is manifestly mistaken, absurd or impossible; (c) when
there is grave abuse of discretion on the part of the CA; (d)
when the judgment of the CA is based on a misapprehension
of facts; (e) when the findings of facts of the CA are
conflicting; (f) when the CA, in making its findings, went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (g) when
the findings of the CA are contrary to those of the trial court;
(h) when the findings of the CA are conclusions without
citation of specific evidence on which they are based; (i) when
the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondent; (j)
when the findings of fact of the CA are premised on the
supposed absence of evidence and contradicted by the
evidence on record; and (k) when the CA manifestly
overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different
conclusion.[33]
Although the petitioner submits that the CA made findings of
fact not supported by the evidence on record, this case does
not fall under any of the recognized exceptions. Her claim that
she had established the circumstances to prove her having
been misled into signing the deed of conditional sale was
unfounded, for the findings of fact of the CA rested on the
records, as the following excerpt from the assailed decision of
the CA indicates:
Appellant would like this Court to believe that she was misled
by appellee DBPs representatives into signing the Deed of
Conditional Sale even if her original intention was to buy back
only one of the properties, i.e., that which was covered by
TCT No. T-164117. However, a closer scrutiny of the
evidence on record reveals that aside from her bare allegations
as to the circumstances leading to the signing of said Deed of
Conditional Sale, the appellant has not presented other
evidence, testimonial or documentary, to support or
corroborate her claims. On the other hand, appellee DBP has
presented the letter dated August 31, 1982 signed by appellant
herself and addressed to the Manager of the Acquired Assets
Management Department of the appellee DBP, expressing her
intentions to buy back her foreclosed properties. In fact, she
offered therein to pay a total of P157,000.00 for the two
properties with P55,500.00 to be advanced by her as deposit
and the balance to be paid in five (5) years under a quarterly
amortization plan. Said letter has not been categorically denied
by the appellant as during her testimony she merely feigned
any recollections of its content. Moreover, it is well-settled
that bad faith cannot be presumed and must be established by
clear and convincing evidence.[34] (emphasis supplied)
The petitioner apparently relied solely on her bare testimony
to establish her allegation of having been misled, and did not
present other evidence for the purpose. She seemingly forgot
that, firstly, her bare allegation of having been misled was not
tantamount to proof, and that, secondly, she, as the party
alleging a disputed fact, carried the burden of proving her
allegation.[35] In other words, her main duty was to establish
her allegation by preponderance of evidence, because her
failure to do so would result in her defeat. [36] Alas, she did not
discharge her burden.
On the other hand, the records contained clear indicia of her
real intention vis--vis her reacquisition of the two foreclosed
properties. The letters and telegrams she had dispatched to
DBP expressed the singular intention to repurchase both lots,
not just the one covered by TCT No. 164711. That intention
even became more evident and more definite when she set
down the payment terms for the repurchase of both lots in her
letter of August 31, 1982. Given all these, the CA rightly
concluded that her written communications to DBP had
revealed her earnest desire to re-acquire both foreclosed
properties.
II
Article 1332 of the Civil Code
did not apply to the petitioner
The petitioner would have us consider that she had not given
her full consent to the deed of conditional sale on account of
her lack of legal and technical knowledge. In effect, she pleads
for the application of Article 1332 of the Civil Code, which
provides:
Article 1332. When one of the parties is unable to read, or if
the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to
the former.
We cannot accede to the petitioners plea.
The pertinent terms of the deed of conditional sale read:
NOW THEREFORE for and in consideration of the foregoing
premises and for the total sum of ONE HUNDRED FIFTY
SEVEN THOUSAND PESOS (P157,000.00), Philippine
Currency, to be fully paid as hereinafter set forth, the
VENDOR agrees to convey by way of sale and the VENDEE
agrees to buy the above stated properties covered by TCT Nos.
T-160929 and T-164117, more particularly described at the
back hereof under the following terms and conditions:
That the downpayment shall be P55,500 and the balance
of P101,500 to be paid in five (5) years on the quarterly
amortization plan at 15% interest per annum the first
amortization of P7,304.15 shall be due and payable 3 mos.
from the date of execution of the Deed of Conditional Sale and
all subsequent amortizations shall be due and payable every
three (3) months thereafter;
That if the vendee fails to sign the sale document within 15
days from date of receipt of our notice of approval of the offer,
the approval hereof shall be deemed automatically revoked
and the deposit forfeited in accordance with the rules and
regulations of the Bank.
The Vendee/s may pay the whole or part of the account under
this contract at anytime during the term hereof; provided,
however, that if the vendee/s is in default in the payment of at
least six monthly amortizations, if payable monthly; two
quarterly amortizations, if payable quarterly; one semi-annual
and annual amortization if payable semi-annually and
annually, the Vendor may, in its option, declare the whole
account due and payable.
xxx
The title to the real estate property and all improvements
thereon shall remain in the name of the vendor until after the
purchase price, advances and interest shall have been fully
paid. The Vendee/s agrees that in the event of his failure to
pay the amortizations or installments as herein provided for,
the contract shall, at the option of the Vendor, be deemed and
considered annulled, and he shall forfeit, and by these
presents, hereby waives whatever right he might have acquired
to the said property. The Vendor shall then be at liberty to
dispose of same as if this contract has never been made; and in
the event of such annulment, all sums of money paid under the
contract shall be considered and treated as rentals for the use
of the property, and the Vendee/s waives all rights to ask or
demand the return thereof and he further agrees to vacate
peacefully and quietly said property, hereby waiving in favor
of the Vendor whatever expenses he may have incurred in the
property in the form of improvement or under any concept,
without any right to reimbursement whatsoever.
xxx
It is hereby agreed, covenanted and stipulated by and between
the parties hereto that should the Vendor decide to rescind this
contract in view of the failure of the Vendee/s to pay the
amortization/installments, when due, or otherwise fail/s to
comply with any of the terms and conditions herein stipulated,
and the Vendee/s refuse/s to peacefully deliver the possession
of the property hereinbove mentioned to the Vendor, thereby
obliging the Vendor to file suit in court with the view to taking
possession thereof, the Vendee/s hereby agree/s to pay all the
expenses of the suit incident thereto, all the damages that may
be incurred thereby, as well as attorneys fees which it is
hereby agreed, shall be 10% of the total amount due and
outstanding, but in no case shall it be less than P100.00.[37]
It is quite notable that the petitioner did not specify which of
the stipulations of the deed of conditional sale she had
difficulty or deficiency in understanding. Her generalized
averment of having been misled should, therefore, be brushed
aside as nothing but a last attempt to salvage a hopeless
position. Our impression is that the stipulations of the deed of
conditional sale were simply worded and plain enough for
even one with a slight knowledge of English to easily
understand.
The petitioner was not illiterate. She had appeared to the trial
court to be educated, its cogent observation of her as lettered
(supra, at p. 7 hereof) being based on how she had composed
her correspondences to DBP. Her testimony also revealed that
she had no difficulty understanding English, as the following
excerpt shows:
ATTY. CUISON
Q : Mrs. Witness, last time you identified the document,
captioned as Deed of Conditional Sale which was executed
last January 21, 1983, it was read in English language,
correct?
A : Yes, sir.
Q : And, could you testify in this Court without in need of
interpreter?
A : Yes, sir.
Q : So, you are aware or comfortable with the English
language?
A : Yes, sir.[38]
Nor was the petitioners ignorance of the true nature of the
deed of conditional sale probably true. By her own admission,
she had asked the bank officer why she had been made to sign
a deed of conditional sale instead of an absolute sale, which in
itself reflected her full discernment of the matters subject of
her dealings with DBP, to wit:
COURT:
Q : Now, before you signed this Deed of Conditional Sale
sometime on January 21, 1983, did you read this document?
A : Yes, your Honor, and I even told the officer of the Bank,
that why it should be a Deed of Probitional Sale when in fact it
should be a Deed of Absolute Sale because I paid already the
full amount of P55,500.00 for the property covered by TCT
No. 164117 and they told me that after a few amortizations on
the other property, they are going to release the property
which was paid in full but did not push through, Your
Honor.[39]
Thereby revealed was her distinctive ability to
understand written and spoken English, the language in which
the terms of the contract she signed had been written.
Clearly, Article 1332 of the Civil Code does not apply to the
petitioner. According to Lim v. Court of Appeals,[40] the
provision came into being because a sizeable percentage of the
countrys populace had comprised of illiterates, and the
documents at the time had been written either in English or
Spanish, viz:
In calibrating the credibility of the witnesses on this issue, we
take our mandate from Article 1332 of the Civil Code which
provides: When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake
or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the
former. This substantive law came into being due to the
finding of the Code Commission that there is still a fairly large
number of illiterates in this country, and documents are
usually drawn up in English or Spanish. It is also in accord
with our state policy of promoting social justice. It also
supplements Article 24 of the Civil Code which calls on court
to be vigilant in the protection of the rights of those who are
disadvantaged in life.[41] (Emphasis supplied)
III
DBP validly exercised its right to rescind the
deed of conditional sale upon the petitioners default
The petitioner argues that despite the right to rescind due to
nonpayment being stipulated in the deed of conditional sale,
DBP could not exercise its right because her nonpayment of
an obligation constituted only a slight or casual breach that did
not warrant rescission. Moreover, she posits that Article
1191[42] of the Civil Code empowers the court to fix the period
within which the obligor may comply with the obligation.
The petitioners argument lacks persuasion.
Firstly, a contract is the law between the parties. Absent any
allegation and proof that the contract is contrary to law,
morals, good customs, public order or public policy, it should
be complied with in good faith.[43] As such, the petitioner,
being one of the parties in the deed of conditional sale, could
not be allowed to conveniently renounce the stipulations that
she had knowingly and freely agreed to.
upon him. There is nothing in this law which prohibits the
parties from entering into an agreement that a violation of the
terms of the contract would cause its cancellation even without
court intervention. The rationale for the foregoing is that in
contracts providing for automatic revocation, judicial
intervention is necessary not for purposes of obtaining a
judicial declaration rescinding a contract already deemed
rescinded by virtue of an agreement providing for rescission
even without judicial intervention, but in order to determine
whether or not the rescission was proper. Where such
propriety is sustained, the decision of the court will be merely
declaratory of the revocation, but it is not itself the revocatory
act. Moreover, the vendors right in contracts to sell with
reserved title to extrajudicially cancel the sale upon failure of
the vendee to pay the stipulated installments and retain the
sums and installments already received has long been
recognized by the well-established doctrine of 39 years
standing. The validity of the stipulation in the contract
providing for automatic rescission upon non-payment cannot
be doubted. It is in the nature of an agreement granting a party
the right to rescind a contract unilaterally in case of breach
without need of going to court. Thus, rescission under Article
1191 was inevitable due to petitioners failure to pay the
stipulated price within the original period fixed in the
agreement.
ACCORDINGLY, the petition for review is DENIED for lack
of merit, and the decision of the Court of Appeals promulgated
on June 21, 2002 is AFFIRMED.

Secondly, the issue of whether or not DBP validly exercised

the right to rescind is a factual one that the RTC and the CA
Costs of suit shall be paid by the petitioner.
already passed upon and determined. The Court, which is not
a trier of facts, adopts their findings, and sustains the exercise
by DBP of its right to rescind following the petitioners failure
to pay her six monthly amortizations, and after her being given SO ORDERED.
due notice of the notarial rescission.[44] As a consequence of
the valid rescission, DBP had the legal right to thereafter sell
the property to a person other than the petitioner, like Cruz. In
turn, Cruz could validly sell the property to Cabantog and
Trinidad, which he did.

And, thirdly, Article 1191 of the Civil Code did not prohibit
the parties from entering into an agreement whereby a
violation of the terms of the contract would result to its
cancellation. In Pangilinan v. Court of Appeals,[45]the Court
upheld the vendors right in a contract to sell to extrajudicially
cancel the contract upon failure of the vendee to pay the
installments and even to retain the sums already paid,
holding:

[Article 1191 of the Civil Code] makes it available to the

injured party alternative remedies such as the power to rescind
or enforce fulfillment of the contract, with damages in either
case if the obligor does not comply with what is incumbent