Sales Cases For Midterms

PHILIPPINE JURISPRUDENCE - FULL TEXT
The Lawphil Project - Arellano Law Foundation

G.R. No. L-8506 August 31, 1956
CELESTINO CO & COMPANY vs. COLLECTOR OF INTERNAL
REVENUE
Republic of the Philippines

m
Manila
EN BANC

m petitioner,

vs.
respondent.
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Appeal from a decision of the Court of Tax Appeals.
Celestino Co & Company is a duly registered general copartnership doing business under
the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of
7 per cent on the gross receipts of its sash, door and window factory, in accordance with
section one hundred eighty-six of the National Revenue Code imposing taxes on sale of
manufactured articles. However in 1952 it began to claim liability only to the contractor's
3 per cent tax (instead of 7 per cent) under section 191 of the same Code; and having
failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of
Tax Appeals, where it also failed. Said the Court:
To support his contention that his client is an ordinary contractor . . . counsel

presented . . . duplicate copies of letters, sketches of doors and windows and price
quotations supposedly sent by the manager of the Oriental Sash Factory to four
customers who allegedly made special orders to doors and window from the said
factory. The conclusion that counsel would like us to deduce from these few
exhibits is that the Oriental Sash Factory does not manufacture ready-made
doors, sash and windows for the public but only upon special order of its select
customers. . . . I cannot believe that petitioner company would take, as in fact it
has taken, all the trouble and expense of registering a special trade name for its
sash business and then orders company stationery carrying the bold print
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(Celestino Co & Company, Prop.) 926 Raon St. Quiapo,
Manila, Tel. No. 33076,

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üsolely for the purpose of supplying the needs for doors, windows
and sash of its special and limited customers. One ill note that petitioner has
chosen for its tradename and has offered itself to the public as a "Factory", which
means it is out to do business, in its chosen lines on a big scale. As a general rule,
sash factories receive orders for doors and windows of special design only in
particular cases but the bulk of their sales is derived from a ready-made doors
and windows of standard sizes for the average home. Moreover, as shown from
the investigation of petitioner's book of accounts, during the period from January
1, 1952 to September 30, 1952, it sold sash, doors and windows worth
P188,754.69. I find it difficult to believe that this amount which runs to six figures
was derived by petitioner entirely from its few customers who made special
orders for these items.
Even if we were to believe petitioner's claim that it does not manufacture ready-
made sash, doors and windows for the public and that it makes these articles only
special order of its customers, that does not make it a contractor within the
purview of section 191 of the national Internal Revenue Code. there are no less
than fifty occupations enumerated in the aforesaid section of the national Internal
Revenue Code subject to percentage tax and after reading carefully each and
every one of them, we cannot find under which the business of manufacturing
sash, doors and windows upon special order of customers fall under the category
of "road, building, navigation, artesian well, water workers and other
construction work contractors" are those who alter or repair buildings,
structures, streets, highways, sewers, street railways railroads logging roads,
electric lines or power lines, and includes any other work for the construction,
altering or repairing for which machinery driven by mechanical power is used.
(Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).
Having thus eliminated the feasibility off taxing petitioner as a contractor under
191 of the national Internal Revenue Code, this leaves us to decide the remaining
issue whether or not petitioner could be taxed with lesser strain and more
accuracy as seller of its manufactured articles under section 186 of the same code,
as the respondent Collector of Internal Revenue has in fact been doing the
Oriental Sash Factory was established in 1946.
The percentage tax imposed in section 191 of our Tax Code is generally a tax on
the sales of services, in contradiction with the tax imposed in section 186 of the
same Code which is a tax on the original sales of articles by the manufacturer,
producer or importer. (Formilleza's Commentaries and Jurisprudence on the
National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold are
manufactured by the seller does not exchange the contract from the purview of
section 186 of the National Internal Revenue Code as a sale of articles.
There was a strong dissent; but upon careful consideration of the whole matter we are
inclined to accept the above statement of the facts and the law. The important thing to
remember is that Celestino Co & Company sash, windows and doors, as
it has represented in its stationery and advertisements to the public. That it
"manufactures" the same is practically admitted by appellant itself. The fact that windows
and doors are made by it only when customers place their orders, does not alter the
nature of the establishment, for it is obvious that it only accepted such orders as called for
the employment of such material-moulding, frames, panels-as it ordinarily manufactured
or was in a position habitually to manufacture.
Perhaps the following paragraph represents in brief the appellant's position in this Court:
Since the petitioner, by clear proof of facts not disputed by the respondent,
manufacturers sash, windows and doors only for special customers and upon
their special orders and in accordance with the desired specifications of the
persons ordering the same and not for the general market: since the doors
ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence
and which never would have existed but for the order of the party desiring it; and
since petitioner's contractual relation with his customers is that of a contract for a
piece of work or since petitioner is engaged in the sale of services, it follows that
the petitioner should be taxed under section 191 of the Tax Code and NOT under
section 185 of the same Code." (Appellant's brief, p. 11-12).
But the argument rests on a false foundation. Any builder or homeowner, with sufficient
money, may order windows or doors of the kind manufactured by this appellant.
Therefore it is not true that it serves special customers or confines its services to
them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro &
Sons Inc. may purchase from appellant doors of the same kind, provided he pays the
price. Surely, the appellant will not refuse, for it can easily duplicate or even mass-
produce the same doors-it is mechanically equipped to do so.
That the doors and windows must meet desired specifications is neither here nor there. If
these specifications do not happen to be of the kind habitually manufactured by appellant
Ȅ special forms for sash, mouldings of panels Ȅ it would not accept the order Ȅ and no
sale is made. If they do, the transaction would be no different from a purchasers of
manufactured goods held is stock for sale; they are bought because they meet the
specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with the peculiar
specifications of a customer-sizes not previously held in stock for sale to the public-it
thereby becomes an employee or servant of the customer,1 not the seller of lumber. The
same consideration applies to this sash manufacturer.
The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or
habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and
combining them in such forms as its customers may desire.
On the other hand, petitioner's idea of being a contractor doing construction jobs is
untenable. Nobody would regard the doing of two window panels a construction work in
common parlance.2
Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in
filing orders for windows and doors according to specifications, it did not sell, but merely
contracted for particular pieces of work or "merely sold its services".
Said article reads as follows:
A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market,
whether the same is on hand at the time or not, is a contract of sale, but if the
goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, it is contract for a piece of work.
It is at once apparent that the Oriental Sash Factory did not merely sell
" to Don
Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth
of the matter is that it sold materials ordinarily manufactured by it Ȅ sash, panels,
mouldings Ȅ to Teodoro & Co., although in such form or combination as suited the fancy
of the purchaser. Such new form does not divest the Oriental Sash Factory of its character
as manufacturer. Neither does it take the transaction out of the category of sales under
Article 1467 above quoted, because although the Factory does not, in the ordinary course
of its business, manufacture and keep on stock
sold to Teodoro, it could
stock and/or probably had in stock the sash, mouldings and panels it used therefor (some
of them at least).
In our opinion when this Factory accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally performed by it-it thereby
contracts for a
Ȅ filing special orders within the meaning of Article 1467.
The orders herein exhibited were not shown to be special. They were merely orders for
work Ȅ nothing is shown to call them special requiring extraordinary service of the
factory.
The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders
previously made, such orders should not be called work, but regular work. Would
a factory do business performing only special, extraordinary or peculiar merchandise?
Anyway, supposing for the moment that the transactions were not sales, they were
neither lease of services nor contract jobs by a contractor. But as the doors and windows
had been admittedly "manufactured" by the Oriental Sash Factory, such transactions
could be, and should be taxed as "transfers" thereof under section 186 of the National
Revenue Code.
The appealed decision is consequently affirmed. So ordered.

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1With all the consequences in Article 1729 New Civil Code and Act No. 3959
(bond of contractor).
2 With all the consequences in Article 1729 New Civil Code and Act No. 3959
(bond of contractor).

G.R. No. L-45955 April 5, 1939
TEODORICA R. VIUDA DE JOSE vs. JULIO VELOSO BARRUECO

m
Manila
EN BANC

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vs.
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The petitioner-appellant brought this case before this court thru petition for a writ of

to review the decision of the Court of Appeals promulgated on October 30,
1937.
Mary Ando leased from Julio Barrueco a China cabinet valued T P70. She undertook,
under the lease, to pay P14 upon signing the contract and P5 monthly thereafter for a
period not specified but extendible at the owner's pleasure. The contract of lease further
provided that upon leasee's default, the contract would be rescinded; that the leasee was
not liberty to remove said cabinet from house No 1030 Misericordia Street where she
lived, and that upon failure to comply with the terms of the lease, the owner could
immediately take possession of the property leased. Under similar terms and conditions,
Mary Ando also leased from said store a narra wardrobe valued at P120, paying P24 cash
and P10 monthly.
Unable to pay the rent of the house, Mary Ando attempted to move therefrom, taking with
her the cabinet and the wardrobe. She was presented from doing so by Teodorica R.
Viuda de Jose, the owner of the house, who claimed to be entitled to said personal
properties in lieu of rents due.
Upon a complaint filed by Julio Veloso Barrueco to recover the properties in question
from Teodorica R. Viuda de Jose, the Court of First Instance of Manila held that the
contracts of lease (Exhibits A and B) were fictitious, and that the real contract between
the plaintiff and Mary Ando was one of sale on the installment basis, wherefore, the
complaint was dismissed and defendant declared entitled to the properties in litigation.
Brought to the Court of Appeals, the judgment was reversed, and the contracts between
plaintiff and Mary Ando held to be those of lease.
The case is here on petition, by defendant Teodorica R. Viuda de Jose, now petitioner,
contending that the decision of the Court of Appeals is erroneous for the following
reasons:
(a) summarize the conditions of both scriptures "lease," Exhibits A and B, extracted in the
part of the appeal decision quoted above, highlights these facts:
First Valor Exhibit furniture monthly rental payment period remaining price payment
required
A ............. P70.00 P14.00 P56.00 P5.00 Eleven months
B ............. 120.00 24.00 96.00 10.00 Ten months
(b) The writing must be given immediately payments of P14 and P24, which are not
leases, and have no other meaning but payments on account of the price of the furniture.
These quantities, represent exactly the advance payment of 20 percent, or one fifth of the
value.
(c) The remaining four fifths of the value is payable in the form of monthly installments
within a period of 10 to 11 months. If this car is not on account of the amount of furniture,
the contract will be grossly immoral, usurious and oppressive.
(d) There is no doubt that these payments are to cover the contract price, as the appeal
acknowledges that further consideration of the sale are the same monthly payments, and
"lessee" says that "properties... were on account of the total , "" as payment in
installments ".
(e) The prices fixed furniture in the scriptures are in line with the nature of purchase, as
this greatly increased. On the same day that the matter was in the Municipal Court of
Manila, the respondent-appellant took precious furniture stores in the identical, and I
find that alone worth a total of P61, instead of P190 (nt, p. 21) . This test has not been
contradicted.
(f) The parties have undertaken not just the one to deliver the furniture, and the other to
pay. Indeed, things have been delivered, and part of the price was paid.
(g) The decision says that is not purchase, but lease with option to buy, but if the
consideration of the lease and purchase is one and the same, as in this case, according to
the same decision under appeal, double contract then there is but one simple, conditional
sales or in installments. To be lease-purchase must be a separate purchase price for the
lease price that does not happen in this case.
( ) Resumiendo las condiciones de ambas escrituras de "arrendamiento," Exhibits

A y B, extractadas en la parte de la decision recurrida arriba acotada, se destacan
estos datos:
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A
P70.00 P14.00 P56.00 P5.00 Once meses
.............
B
120.00 24.00 96.00 10.00 Diez meses
.............
() Al otorgarse la escritura hay inmediatamente pagos de P14 y P24, !
!
, y que no tienen otro significado sino &

. Estas candidades representan exactamente el pago anticipado del 20 por
ciento, o !
"
.
() Los cuatro quintos restantes del valor son pagaderos en forma de
mensualidades dentro de un periodo de 10 a 11 meses. Si este alquiler no es a
cuenta del importe del mueble, el contrato sera escandalosamente inmoral, por
usurario y opresivo.
() Es indudable que estos pagos son para cubrir el precio estipulado, pues el
recurrido admite que la consideracion de la venta ulterior son las mismas
mensualidades, y la "arrendataria" dice que "los alquileres . . . eran a cuenta del
importe total," "como pago a plazos".
() Los precios de los muebles fijados en las escrituras guardan armonia con la
indole de venta a plazos, pues esta aumentado considerablemente. En el mismo
dia en que el asunto se vio en el Juzgado Municipal de Manila, la apelada-
recurrente tomo precious en los establecimientos de muebles identicos, y hallo
que solo valen P61 en total, en vez de P190 (n. t., p. 21). Esta prueba no ha sido
contradicha.
( ) Las partes no solo se han obligado, el uno a entregar los muebles, y la otra, a
pagarlos. En efecto, la cosa ha sido entregada, y parte del precio fue pagado.
(&) La decision dice que no es venta a plazos, sino arrendamiento con opcion de
compra, pero si la consideracion del arrendamiento y la de la compra es una y la
misma, como ocurre en el presente caso, segun la misma decision recurrida,
entonces no existe contrato doble, sino uno y simple, de venta condicional o a
plazos. Para que sea arrendamiento con opcion de compra debe haber un precio
para la compra distinta del precio de arrendamiento, que no occurre en el
presente caso.
A perusal of the record of this case shows that in Exhibit A, the amount of P70 was fixed
as the cost price for the cupboard, P14 as the down payment made at the signing of the
contract and P5 as the monthly rentals of said furniture. In Exhibit B the amount of P120
was also fixed as the cost price of the modern narra wardrobe, the down payment made
as P24 and the monthly rental at P10. These Exhibits A and B are denominated
m m, the monthly payments for both pieces of furniture are called
rentals, and Mary Ando is mentioned as "leasee." What is the nature of these contracts?
The answer to this question is not to be found in any denomination which the parties may
have given to the instruments, and not alone in any particular provision it contains,
disconnected from all others, but in the ruling intention of the parties, gathered from the
language they have used. It is the legal effect of the whole which is to be sought for. The
form of the instrument is of little account. (Herryford " Davis, 26 Law. ed. [ U. S.], pp.
160, 162.).
We find that the parties intended to have the ownership of the furniture transferred to
Mary Ando upon the latter complying with the conditions of the contract. (Testimony of
plaintiff, p. 9, s. n.; and Mary Ando, p. 17, s. n.) Cf. Valdez " Sibal 1.º, 46 Phil., 930.)
In H. E. Heacock Co. " Buntal Manufacturing Co. (G. R. No. 44471, promulgated
September 26, 1938), we said:
Furthermore we say that the fact of having fixed the price of the machine in the contract,
makes the lease but not sales, because the leases, unlike contracts of sale, is unjustified
redunduncia, fix or make further mention of the price of the thing that is given on lease.
(Arts 1445, 1543, Civil Code.) When the terms of a contract are unclear or contradictory
to each other, as are those in Exhibit A, to give effect to the intention of the parties (article
1281 of Civil Code) , and the intention of the plaintiff and the defendants in this case we
see printed according to the contract Exhibit A, together considering all of its terms is
that the contract that they concluded was the hire-purchase and not lease .
A mayor abundamiento debemos decir que el hecho de haberse fijado el precio de

la maquina en el contrato, hace que este no sea de arrendamiento sino de
compraventa, porque en los contratos de arrendamiento, a diferencia de los
contratos de compraventa, es redunduncia injustifiable, fijar o hacer mencion
siguiera del precio de la cosa que se da en arrendamiento. (Arts. 1445, 1543,
Codigo Civil.) Cuando los terminos de un contrato no son claros o son
contradictorios entre si, como lo son los del Exhibit A, debe darse efecto a la
intencion de las partes (art 1281 del Codigo Civil), y la intencion de la
demandante y de los demandados en esta causa segun la vemos impresa en el
contrato Exhibit A, considerando en conjunto todos sus terminos y clausulas es
que el contrato por ellos celebrado fue el de compraventa a plazos, y no de
arrendamiento.
In #

"# (G.R. No. 46378, promulgated December 17,
1938), we also observed:
For the above considerations, we are of opinion, and so declare, that when a contract is
entitled to lease movable property stipulates that the lessee pay a certain amount of
course the signing of the contract and on or before 5th of each month, another fixed
amount, by way of rent, giving the tenant assumed right of option to buy the said movable
property before the expiry of the lease term, which is the time it takes to pay that amount
at the rate of a bit per month minus the payments made as an advance and monthly rent
assumptions, and the tenant does of course and pay several monthly advance, stating in
your account and receipts to be issued that such payments are on account of the amount
of allegedly leased movable property, the contract has the concept of sale and not lease
term.
Por las consideraciones arriba expuestas, somos de opinion, y asi declaramos, que
cuando en un contrato que se titula de arrendamiento de cosa mueble se estipula
que el supuesto arrendatario pagara cierta cantidad al firmarse el contrato, y en o
antes del dia 5 de cada mes, otra cantidad determinada, en concepto de alguiler,
dando al supuesto arrendatario derecho de opcion para comprar la citada cosa
mueble antes de expirar el plazo del arrendamiento, que es el tiempo que se
necesita para pagar dicho importe a razon de un tanto al mes, descontando los
pagos hechos en concepto de adelanto y de supuestos alquileres mensuales, y
dicho supuesto arrendatario hace el adelanto y paga varias mensualidades,
haciendose constar en su cuenta y en los recibos que se le expiden que dichos
pagos son a cuenta del importe de la cosa mueble supuestamente arrendada,
dicho contrato tiene el concepto de venta a plazo y no de arrendamiento.
Sellers desirous of making conditional sales of their goods, but who do not wish openly to
make a bargain in that form, for one reason or another, have frequently resorted to the
device of making contracts in the form of leases either with options to the buyer to
purchase for a small consideration at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent throughout the term is paid, title shall
thereupon vest in the lessee. It is obvious that such transactions are leases only in name.
The so-called rent must necessarily be regarded as payment of the price in installments
since the due payment of the agreed amount results, by the terms of the bargain, in the
transfer of title to the lessee.
The writ of

is granted, and the judgement of the Court of Appeals is reserved
and that of the Court of First Instance of Manila declared in full force and effect. With out
costs. So ordered.
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Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it
liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea,
notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-
nigh insuperable stands in the way. The decision under review conforms to and is in accordance
with the controlling doctrine announced in the recent case of #
+
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# . The decisive test, as therein set forth, is the retention of the ownership of the goods
delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price
and terms remaining subject to the control of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The
juridical consequences must inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio
R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and
compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on
the part of petitioner for the cancellation of such assessment, which request was turned down. As a
result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then
Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a
commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court
of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount
due from it being fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber International, the
former being referred to as the Distributor and the latter specifically designated as the Company.
The contract was to apply to transactions between the former and petitioner, as Distributor, from
July 1, 1948 to continue in force until terminated by either party giving to the other sixty days'
notice.8 The shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo,
Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being
precluded from disposing such products elsewhere than in the above places unless written consent
would first be obtained from the Company. Petitioner, as Distributor, is required to exert every
effort to have the shipment of the products in the maximum quantity and to promote in every way
the sale thereof.% The prices, discounts, terms of payment, terms of delivery and other conditions of
sale were subject to change in the discretion of the Company.
Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor
and the Distributor will receive, accept and/or hold upon consignment the products specified under
the terms of this agreement in such quantities as in the judgment of the Company may be necessary
for the successful solicitation and maintenance of business in the territory, and the Distributor
agrees that responsibility for the final sole of all goods delivered shall rest with him. All goods on
consignment shall remain the property of the Company until sold by the Distributor to the
purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which the
sale price of all goods sold less the discount given to the Distributor by the Company in accordance
with the provision of paragraph 13 of this agreement, whether or not such sale price shall have
been collected by the Distributor from the purchaser or purchasers, shall immediately be paid and
remitted by the Distributor to the Company. It is further agreed that this agreement does not
constitute Distributor the agent or legal representative 4 of the Company for any purpose
whatsoever. Distributor is not granted any right or authority to assume or to create any obligation
or responsibility, express or implied, in behalf of or in the name of the Company, or to bind the
Company in any manner or thing whatsoever."
All specifications for the goods ordered were subject to acceptance by the Company with petitioner,
as Distributor, required to accept such goods shipped as well as to clear the same through customs
and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole
or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other
sources of Company's brands.9 Shipments were to be invoiced at prices to be agreed upon, with the
customs duties being paid by petitioner, as Distributor, for account of the Company. Moreover, all
resale prices, lists, discounts and general terms and conditions of local resale were to be subject to
the approval of the Company and to change from time to time in its discretion. The dealer, as
Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made
under such agreement.
On a date to be determined by the Company, the petitioner, as Distributor, was required to

report to it data showing in detail all sales during the month immediately preceding, specifying
therein the quantities, sizes and types together with such information as may be required for
accounting purposes, with the Company rendering an invoice on sales as described to be dated as of
the date of inventory and sales report. As Distributor, petitioner had to make payment on such
invoice or invoices on due date with the Company being privileged at its option to terminate and
cancel the agreement forthwith upon the failure to comply with this obligation. The Company, at
its own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a
result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as
Distributor, assumed full responsibility with reference to the stock and its safety at all times; and
upon request of the Company at any time, it was to render inventory of the existing stock which
could be subject to change. 8 There was furthermore this equally tell-tale covenant: "Upon the
termination or any cancellation of this agreement all goods held on consignment shall be held by
the Distributor for the account of the Company, without expense to the Company, until such time as
provision can be made by the Company for disposition."
The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is
one of vendor and vendee or of broker and principal. Not that there would have been the slightest
doubt were it not for the categorical denial in the contract that petitioner was not constituted as
"the agent or legal representative of the Company for any purpose whatsoever." It would be,
however, to impart to such an express disclaimer a meaning it should not possess to ignore what is
manifestly the role assigned to petitioner considering the instrument as a whole. That would be to
lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the
language of the decision now on appeal: "
1.Y That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber
International is borne out by the facts that petitioner can dispose of the products of the
Company only to certain persons or entities and within stipulated limits, unless excepted by
the contract or by the Rubber Company (Par. 2);
2.Y that it merely receives, accepts and/or holds upon consignment the products, which remain
properties of the latter company (Par. 8);
3.Y that every effort shall be made by petitioner to promote in every way the sale of the
products (Par. 3);
4.Y that sales made by petitioner are subject to approval by the company (Par. 12);
5.Y that on dates determined by the rubber company, petitioner shall render a detailed report
showing sales during the month (Par. 14);
6.Y that the rubber company shall invoice the sales as of the dates of inventory and sales report
(Par. 14);
7.Y that the rubber company agrees to keep the consigned goods fully insured under insurance
policies payable to it in case of loss (Par. 15);
8.Y that upon request of the rubber company at any time, petitioner shall render an inventory
of the existing stock which may be checked by an authorized representative of the former
(Par. 15);
9.Y and that upon termination or cancellation of the Agreement, all goods held on consignment
shall be held by petitioner for the account of the rubber company until their disposition is
provided for by the latter (Par. 19).
All these circumstances are irreconcilably antagonistic to the idea of an independent

merchant." % Hence its conclusion: "However, upon analysis of the contract, as a whole,
together with the actual conduct of the parties in respect thereto, we have arrived at the
conclusion that the relationship between them is one of brokerage or agency." We find
ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its
counsel. As noted at the outset, we cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker "includes all persons,
other than importers, manufacturers, producers, or bona fide employees, who, for compensation or
profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed
buyers and sellers together, or negotiate freights or other business for owners of vessels or other
means of transportation, or for the shippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes commission merchants." The
controlling decision as to the test to be followed as to who falls within the above definition of a
commercial broker is that of #
+
'""# . 9 In the language of
Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the goods,
even as it delivered possession unto the dealer for resale to customers, the price and terms of which
were subject to the company's control, the relationship between the company and the dealer is one
of agency, ... ." An excerpt from Salisbury v. Brooks cited in support of such a view follows: "
'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has
led to the establishment of rules by the application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who
must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to
sell is the delivery to an agent, not as his property, but as the property of the principal, who remains
the owner and has the right to control sales, fix the price, and terms, demand and receive the
proceeds less the agent's commission upon sales made.' " 8 The opinion relied on the work of
Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote
treatises on Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate
the necessity or presence of these mutual requirements and obligations on any theory other than
that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into
a marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that
purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms
of the agreement, less the compensation fixed by the parties in lieu of interest on the money
advanced and for services as agent. These requirements and stipulations are in tent with any other
conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they
cannot be ignored. They were placed there for some purpose, doubtless as the result of definite
antecedent negotiations therefore, consummated by the final written expression of the agreement."
8 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract
that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever"
does not suffice to yield the conclusion that it is an independent merchant if the control over the
goods for resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision
now under review pays fealty to such an applicable doctrine.
2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals.
Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the
implementation of the contract by both the United States Rubber International and petitioner, as
was contended in the second assignment of error. Petitioner ought to have been aware that there
was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is
lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was
contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was
not one of seller and purchaser. If it were thus intended, then it would not have included covenants
which in their totality would negate the concept of a firm acquiring as vendee goods from another.
Instead, the stipulations were so worded as to lead to no other conclusion than that the control by
the United States Rubber International over the goods in question is, in the language of the
Constantino opinion, "pervasive". The insistence on a relationship opposed to that apparent from
the language employed might even yield the impression that such a mode of construction was
resorted to in order that the applicability of a taxing statute might be rendered nugatory. Certainly,
such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which
has developed an expertise in view of its function being limited solely to the interpretation of
revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of
discretion is manifest. It would be to frustrate the objective for which administrative tribunals are
created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms
the staple of their specialized competence. While it is to be admitted that counsel for petitioner did
scrutinize with care the decision under review with a view to exposing what was considered its
flaws, it cannot be said that there was such a failure to apply what the law commands as to call for
its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to
which the Court in the recent Constantino decision gave the imprimatur of its approval.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against
petitioner.
##$'$%(*, / "

#
%

$$

#$
1 L-25926, February 27, 1970, 31 SCRA 779.
2 Contract between the United States Rubber International and petitioner, par. 1
quoted in the Decision of the Court of Tax Appeals, Annex A to Petition, p. 2.
3 +., par. 2, p. 2.
4 +., par. 3, p. 2.
5 +., par. 7, p. 3.
6 +., par. 8, pp. 3 and 4.
7 +., par. 9, to 4.
8 +., par. 10, p. 4.
9 +., par. 12, p. 4.
10 +., par. 13, p. 4.
11 +., par. 14, p. 5.
12 +., par. 15, p. 5.
13 +., par. 19, p. 6.
14 Decision, Annex A to the Petition, pp. 10-11.
15 +., p. 10.
16 Section 194(t).
17 L-25926, February 27, 1970, 31 SCRA 779.
18 +., p. 785.
19 94 SE 117 (1917).
20 L-25926, February 27, 1970, 31 SCRA 779, 796.
21 94 SE 117, 118 (1917).
PHILIPPINE JURISPRUDENCE Ȃ FULL TEXT

G.R. No. 149420 October 8, 2003
SONNY LO VS. KJS ECO-FORMWORK SYSTEM PHIL., INC.

m
Manila
FIRST DIVISION

%%82.$'8
m petitioner,
vs.
:+m=:mm4

respondent.
DECISION
mm p
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale
of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and
style Sanǯs Enterprises, is a building contractor. On February 22, 1990, petitioner ordered
scaffolding equipments from respondent worth P540,425.80.1 He paid a downpayment in
the amount of P150,000.00. The balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner.2 Petitioner was able to pay the first
two monthly installments.¢ 012¢ His business, however, encountered financial
difficulties and he was unable to settle his obligation to respondent despite oral and
written demands made against him.3
On October 11, 1990, petitioner and respondent executed a Deed of Assignment,4

whereby petitioner assigned to respondent his receivables in the amount of P335,462.14
from Jomero Realty Corporation. Pertinent portions of the Deed provide:
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house
located at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR
purchased on account scaffolding equipments from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the
purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty
Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five
Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine
Currency which represents part of the ASSIGNORǯs collectible from Jomero Realty Corp.,
said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles
amounting to the said amount of P335, 462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full
power and authority to demand, collect, receive, compound, compromise and give
acquittance for the same or any part thereof, and in the name and stead of the said
ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its
successors and assigns that said debt is justly owing and due to the ASSIGNOR for Jomero
Realty Corporation and that said ASSIGNOR has not done and will not cause anything to
be done to diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its
successors or assigns, from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his
heirs, executors, administrators, or assigns, shall and will at times hereafter, at the
request of said ASSIGNEE, its successors or assigns, at his cost and expense, )

+3
"
"
+3Ä'

&
. xxx5 (Italics supplied)
However, when respondent tried to collect the said credit from Jomero Realty
Corporation, the latter refused to honor the Deed of Assignment because it claimed that
petitioner was also indebted to it.6 On November 26, 1990, respondent sent a letter7 to
petitioner demanding payment of his obligation, but petitioner refused to pay claiming
that his obligation had been extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of
money against the petitioner before the Regional Trial Court of Makati, Branch 147,
which was docketed as Civil Case No. 91-074.8
During the trial, petitioner argued that his obligation was extinguished with the execution
of the Deed of Assignment of credit. Respondent, for its part, presented the testimony of
its employee, Almeda Bañaga, who testified that Jomero Realty refused to honor the
assignment of credit because it claimed that petitioner had an outstanding indebtedness
to it.
On August 25, 1994, the trial court rendered a decision9 dismissing the complaint on the
ground that the assignment of credit extinguished the obligation. The decretal portion
thereof provides:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to
pay the defendant attorneyǯs fees in the amount of P25,000.00.¢ 012¢
Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the
appellate court rendered a decision,10 the dispositive portion of which reads:
WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and
enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS
ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four
Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from
January 10, 1991 (filing of the Complaint) until fully paid and attorneyǯs fees equivalent
to 10% of the amount due and costs of the suit.
SO ORDERED.11
In finding that the Deed of Assignment did not extinguish the obligation of the petitioner
to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his
warranty under the Deed; (2) the object of the Deed did not exist at the time of the
transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3)
petitioner violated the terms of the Deed of Assignment when he failed to execute and do
all acts and deeds as shall be necessary to effectually enable the respondent to recover
the collectibles.12
Petitioner filed a motion for reconsideration of the said decision, which was denied by the
Court of Appeals.13
In this petition for review, petitioner assigns the following errors:
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING

THE DEED OF ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK OF OBJECT ON
THE BASIS OF A MERE HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF

ASSIGNMENT (EXH. "4") DID NOT EXTINGUISH PETITIONERǯS OBLIGATION ON THE
WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS WARRANTY
THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE

TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEYǯS FEES.14
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known

as the assignor, by a legal cause, such as sale, &, exchange or donation, and
without the consent of the debtor, transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.15
Corollary thereto, in &, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt.16 In order that there be a valid in payment, the following are the requisites:
(1) There must be the performance of the prestation in lieu of payment ( ")
which may consist in the delivery of a corporeal thing or a real right or a credit against
the third person; (2) There must be some difference between the prestation due and that
which is given in substitution (
); (3) There must be an agreement between
the creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due.17 The undertaking really partakes in
one sense of the nature of sale, that is, the creditor is really buying the thing or property
of the debtor, payment for which is to be charged against the debtorǯs debt. As such, the
vendor in good faith shall be responsible, for the existence and legality of the credit at the
time of the sale but not for the solvency of the debtor, in specified circumstances.18
Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property,19 produced the effects of a dation in payment which may extinguish
the obligation.20 However, as in any other contract of sale, the vendor or assignor is
bound by certain warranties. More specifically, the first paragraph of Article 1628 of the
Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at
the time of the sale, unless it should have been sold as doubtful; but not for the solvency
of the debtor, unless it has been so expressly stipulated or unless the insolvency was
prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
claimed that it was no longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner has been extinguished
by compensation.21 In other words, respondent alleged the non-existence of the credit
and asserted its claim to petitionerǯs warranty under the assignment. Therefore, it
behooved on petitioner to make good its warranty and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of
Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his
heirs, executors, administrators, or assigns, shall and will at times hereafter, at the
request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and
do all such further acts and deeds as shall be reasonably necessary to effectually enable
said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with
the true intent and meaning of these presents.22 (underscoring ours)
Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay
respondent the sum of P335,462.14 with legal interest thereon. However, we find that the
award by the Court of Appeals of attorneyǯs fees is without factual basis. No evidence or
testimony was presented to substantiate this claim. Attorneyǯs fees, being in the nature of
actual damages, must be duly substantiated by competent proof.
=4, in view of the foregoing, the Decision of the Court of Appeals dated April
19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of
P335,462.14 with legal interest of 6% per annum from January 10, 1991 until fully paid is
AFFIRMED with MODIFICATION
Upon finality of this Decision, the rate of legal interest
shall be 12% per annum, inasmuch as the obligation shall thereafter become equivalent
to a forbearance of credit.23 The award of attorneyǯs fees is DELETED for lack of
evidentiary basis.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio and Azcuna, JJ., concur.
#$
1 Exhibit "A," Records, p. 128.
2 Exhibits "B-B-8," Records, pp. 130-138.
3 Exhibit "C," Records, p. 139.
4 Records, pp. 142-143.
5 Records, p. 142.
6 TSN, April 28, 1993, p. 25.
7 Exhibit "C," Records, p. 139.
8 Records, pp. 1-6.
9 Penned by Judge Teofilo L. Guadiz, Jr.
10Penned by Justice Hilarion L. Aquino with Justices Ma. Alicia Austria-Martinez

(now a member of this Court) and Jose L. Sabio, Jr., concurring.
11 Decision, CA-G.R. CV No. 47713, p. 6; Rollo, p. 14.
12 Rollo, pp. 9-14.
13 Rollo, p. 50.
14 Petition, pp. 6-7, Rollo, pp. 24-25.
15South City Homes, Inc., et al. v. BA Finance Corporation, G.R. No. 135462, 7
December 2001.
16Filinvest Credit Corporation v. Philippine Acetylene, Co., Inc., G.R. No. L-50449,
January 30, 1982.
173 Castan, Vol. I, 8th Ed., page 283 cited in IV Caguioa 'Comments and Cases in
Civil Law, page 325.
18Civil Code, Article 1628. The vendor in good faith shall be responsible for the
existence and legality of the credit at the time of the sale unless it should have
been sold as doubtful; but not for the solvency of the debtor, unless it has been so
expressly stipulated or unless the solvency was prior to the sale and of common
knowledge. xxx
19 Civil Code, Art. 417. The following are also considered as personal property:
(1) Obligations and actions which have for their object movables or
demandable sums, and xxx.
20 Civil Code, Art. 1231. Obligations are extinguished:
(1) By payment or performance; xxx.
Civil Code, Art. 1278. Compensation shall take place when two persons, in their
21
own rights, are creditors and debtors of each other.
22 Records, p. 143.
23Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994,
234 SCRA 78.

m* m
+4 m*

%
Petitioner,
Present:
PANGANIBAN, #$
#

"
YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, $$
m
* m
/#0*
/#0
Promulgated:
*

Respondents.August 31, 2006

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

*m
+m
p "
Before the Court is a Petition for Review on #

of the Decision of the Court of
Appeals (CA) in CA-G.R. CV No. 60085 affirming on appeal the Decision of the Regional Trial Court
(RTC), Quezon City, Branch 105, in Civil Case No. Q-91-10576.
JMA House Incorporated (JMA) applied for a P1,500,000.00 loan from the Pioneer Savings
and Loan Association, Inc. (Pioneer). To secure payment thereof, JMA executed a real estate
mortgage over a parcel of land identified as Lot No. 4, Block No. 13, Subdivision Plan No. Psd-35337
covered by Transfer Certificate of Title (TCT) No. 268126. The lot, which was located in Quezon City
across Gate 1 of the Maryknoll College, had an area of 1,611.6 square meters. There was likewise a
three-storey commercial and residential building which was occupied by tenants. Upon the failure
of JMA to pay its loan, the real estate mortgage was foreclosed extrajudicially. Pioneer was the
winning bidder at P2,000,000.00 during the sale at public auction held on August 26, 1985. The
Sheriff executed a Certificate of Sale over the property in favor of Pioneer which was annotated at
the dorsal portion of TCT No. 268126 on October 11, 1985. JMA had one year or until October 11,
1986 to redeem the property.
JMA decided to redeem the property from Pioneer sometime in June 1986. It offered to
borrow from Sta. Monica Industrial and Development Corporation (Sta. Monica) the amount of
P2,300,000.00. During the negotiations between Rosita Alberto, the General Manager of JMA, and
Sta. Monicaǯs president Eugenio Trinidad, the parties agreed that the latter would purchase the
property for P3,021,000.00. Trinidad insisted that JMA execute a deed of absolute sale over the
property for the price of P4,100,000.00. Rosita Alberto suggested that instead of a deed of absolute
sale, a real estate mortgage be executed considering that the property was worth much more than
P4,100,000.00. Trinidad refused. By way of a compromise, Alberto suggested that a supplement
deed giving JMA the option to repurchase the property within a period of two years be executed.
Trinidad agreed to this proposal. Thus, the lawyers of JMA and Sta. Monica prepared two deeds.
From the P3,021,000.00 it received from Sta. Monica, JMA remitted P2,300,000.00 to Pioneer.
On June 23, 1986, Pioneer and JMA executed a Deed of Legal Redemption and Absolute Sale
in which Pioneer, for and consideration of P2,300,000.00, transferred to JMA all the rights over the
property, including the improvements thereon, which Pioneer acquired under the Certificate of
Sale. The parties, likewise, declared therein that it was their intention that, with the execution of
said deed, the loan of JMA amounting to P1,250,000.00, including all interests, penalties and
charges thereon, were considered fully paid and legally extinguished.
On June 30, 1986 JMA, represented by its General Manager Rosita Alberto, executed a *
over the lot, including the buildings thereon, in favor of Sta. Monica, represented by
Eugenio Trinidad. The receipt for P4,100,000.00 as purchase price was acknowledged by JMA from
Sta. Monica. As agreed upon by the parties, the parties likewise executed a contract denominated as
Option to Buy, in which Sta. Monica gave JMA the option to buy the property for P4,100,000.00
within one (1) year from the execution of the Deed Of Absolute Sale on or before July 1, 1987, with a
ǲgrace periodǳ of one year immediately upon the expiration thereof (until July 1, 1988). The parties
agreed that, in case JMA availed of such extension, JMA would be obligated to pay an additional
amount equivalent to 3.5% a month as liquidated damages, until the whole amount is fully paid
and/or the option is finally exercised.
Alberto turned over to Trinidad the ownerǯs duplicate of TCT No. 26812.6 The Register of
Deeds thereafter issued TCT No. 347638 in the name of Sta. Monica; however, the Option to Buy
was not annotated at the dorsal portion of the title.
As agreed upon between JMA and Sta. Monica, the latter thenceforth paid the realty taxes on
the property. JMA continued collecting the rentals from the tenants of the buildings with the
knowledge and conformity of Sta. Monica. On November 17, 1986, Sta. Monica mortgaged the
property to the PCI Capital Corporation as security for a P3,600,000.00 loan.
In a letter dated January 26, 1988, Sta. Monica, through Eugenio Trinidad, informed Rosita
Alberto and the tenants of the buildings in the property that due to the failure of JMA to
ǲrepurchaseǳ the property, it had been sold to A. Guerrero Development Corporation (AGCOR)
effective February 1, 1988, and, as the new owner, AGCOR would be collecting the rentals. Rosita
Alberto protested to Trinidad, insisting that the period given to JMA to buy back the property had
not yet elapsed. Nevertheless, on February 2, 1988, Sta. Monica and AGCOR executed a Deed of
Absolute Sale over the property for P5,700,000.00, receipt of which was acknowledged by Sta.
Monica. Part of the amount was used by Sta. Monica to redeem the property from PCI Capital
Corporation which executed a Release of Real Estate Mortgage on February 16, 1988. On February
17, 1988, the Register of Deeds issued TCT No. 376746 in the name of AGCOR. It paid the realty
taxes on the property starting 1988.
Despite the sale of the property to AGCOR, Trinidad received, on June 30, 1988, five checks
from Rosita Alberto drawn against the account of JMA in the total amount of P3,000,000.00. He
likewise received P57,000.00 from Atty. Rosalie Alberto, Rositaǯs sister and a member of the JMA
Board of Directors ǲas partial payment of the account of JMA for the property located at No. 335,
Katipunan Street, Quezon City.ǳ However, the checks were dishonored by the drawee Bank.
Trinidad failed to return the cash amount of P57,000.00 to JMA.
On October 30, 1989, AGCOR mortgaged the property to Planterǯs Development Bank as
security for a P7,000,000.00 loan.
Almost two years thereafter, or on November 11, 1991, JMA filed a complaint against Sta.
Monica and AGCOR, as defendants, in the RTC of Quezon City for specific performance,
reconveyance and damages. It alleged that it mortgaged its property to Sta. Monica as security for a
P3,021,000.00 loan and P1,079,000.00 as interest; however, upon the insistence of Trinidad, in lieu
of a real estate mortgage, a deed of absolute sale was executed over the property for the price of
P4,100,000.00; an Option to Buy was also executed in its favor, giving it the option to buy the
property for P4,100,000.00 within a period of one (1) year from execution thereof, and in the
meantime, it retained dominion over the property; on January 26, 1988, it received notice that
beginning February 1, 1988, the tenants will pay their rentals to the new owner of the property,
defendant AGCOR, to which it protested; defendant Sta. Monica assured the plaintiff that defendant
AGCOR was aware of its option to buy the property.
JMA further alleged that it informed defendant Sta. Monica on June 30, 1988 that it was
ready to repurchase the property for P5,822,000.00 with an initial payment of P3,057,000.00 to be
immediately tendered on said date, and the remaining balance of P2,765,000.00 after one month.
Sta. Monica assured JMA that the property would be delivered to it with AGCORǯs conformity. JMA
paid P3,057,000.00 on June 30, 1988, per redemption receipt issued by Trinidad, who however
refused to receive the balance. Despite representations to defendant AGCOR to abide by the Option
to Buy, AGCOR maintained its right to possess and own the property and even filed ejectment cases
against it; worse, Sta. Monica never returned the downpayment given on June 30, 1988 and
continues to benefit therefrom.
JMA averred that it had a right to repurchase the property under the terms of the Option to
Buy Agreement dated June 30, 1986, considering that the transaction actually entered into is one of
equitable mortgage and not a deed of sale with option to buy. Defendant Sta. Monica is mandated by
law to abide by the said agreement and could not have sold the questioned property to defendant
AGCOR, taking into account that it has accepted the amount of P3,057,000.00 as downpayment for
the purchase price. Having sold the property to AGCOR, defendant Sta. Monica must be made to pay
the plaintiff the amount of P15,000,000.00 which is the actual market value of the property, as well
as the rental payments which it failed to collect. The plaintiff prayed that judgment be rendered in
its favor, thus:
WHEREFORE, it is most respectfully prayed of this Honorable Court that

judgment be rendered in favor of the plaintiff ordering:
1) Defendants Sta. Monica and AGCOR to respect and acknowledge the right
of JMA to repurchase and consequently own and possess the property free from
liens and all encumbrances;
2) Defendants to solidarily pay the plaintiff the accrued rentals of

P2,362,500.00 as of October 1991, with an additional P52,500.00 every month
thereafter until defendant AGCOR ceases to collect the mentioned rentals from the
tenants of the premises;
3) Ordering defendants to pay exemplary damages in the amount of

P100,000.00, nominal damages in the amount of P100,000.00, attorneyǯs fees in the
sum of P200,000.00 and the costs of suit;
Just and equitable reliefs are, likewise, prayed for under the premises.
For its part, Sta. Monica alleged in its Answer to the complaint the following special and
affirmative defenses: (1) JMA has no cause of action against it; (2) the complaint is unfounded and
malicious; (3) it acted in good faith; (4) the supposed ǲOption to Buyǳ is not supported by valuable
consideration and, therefore, is unenforceable; (5) assuming arguendo that there was an extension
to exercise the said ǲOption to Buy,ǳ it was not in writing, without consideration and, therefore,
unenforceable; (6) the amount/s which JMA had given to it had been offset by the value of the
property and the resulting damages sustained by it (Sta. Monica). Defendant claimed
P1,000,000.00, P500,000.00, P200,000.00 and P100,000.00 compulsory counterclaim representing
actual, moral and exemplary damages, including attorneyǯs fees and the litigation expenses,
respectively.
Defendant AGCOR alleged in its Answer with Cross-claim and Counterclaims that the
physical possession of the subject property was voluntarily surrendered by Sta. Monica to it upon
execution of the Deed of Absolute Sale. It came to know of the alleged ǲOption to Buyǳ only on
September 30, 1988 when Trinidad made an offer to repurchase the subject property with an initial
downpayment of P3,000,000.00, the balance to be paid on the following day. However, Trinidad
never owed up or called as promised.
As special and affirmative defenses, it claimed that there was no cause of action against it,
since even assuming that an option to buy was duly executed, it was not a party thereto. It pointed
out that the option was not registered nor annotated in the title with the Register of Deeds for the
purpose of giving notice to the whole world; JMA was estopped from claiming that its contract with
Sta. Monica was a sale with right to repurchase, considering that there was no pre-existing
condition or limitation whatsoever to serve as notice to third persons dealing with the said
property; it was a purchaser in good faith without knowledge of any agreement between JMA and
Sta. Monica or any fact that would vitiate consent in the acquisition of the property; it acquired legal
title thru sale and in fact, TCT No. 376746 was issued in its name; and JMA is guilty of laches and it
had not completely exercised its option to repurchase by paying the total amount and there is no
proof that the option was extended by Sta. Monica for another year.
By way of cross-claim, AGCOR alleged that JMA and Sta. Monica should be the only parties in
this case, since they executed the ǲOption to Buy,ǳ to its exclusion. Because of its inclusion as
defendant, its goodwill was damaged and it was deprived of its right of full ownership; thus, cross-
defendant Sta. Monica should be held liable for actual or compensatory damages in the amount of
P1,000,000.00. It likewise asserted compulsory counterclaims in the amount of P500,000.00 as
moral damages, P300,000.00 as exemplary damages, and P200,000.00 as attorneyǯs fees.
On January 10, 1992, Eugenio Trinidad died. Victor Trinidad became the President of Sta.
Monica.
During trial, JMA presented Rosita Alberto and her sister, Atty. Rosalie Alberto as witnesses.
Rosita testified that she graduated from the University of the Philippines with a Bachelor of Arts
degree in Economics. It was Eugenio Trinidad who insisted that JMA execute a deed of absolute
sale instead of a real estate mortgage to secure the P4,100,000.00 loan. She, in turn, requested that
an option to buy be executed by the plaintiff to supplement the deed of absolute sale to which
Trinidad agreed. JMA retained possession of the property and continued collecting rentals from the
tenants since the transaction between the parties was precisely a contract of mortgage. When she
protested to Trinidadǯs letter dated January 26, 1988 informing her and the tenants that the
property had not been repurchased by JMA, Trinidad verbally assured her that JMA could
repurchase the property and pay the price thereof within a reasonable time. Trinidad agreed to the
repurchasing of the property for P5,822,000.00 payable in two installments, to wit: (a)
P3,057,000.00 on June 30, 1988; and (b) the balance of P2,768,000.00 within a reasonable time. On
June 30, 1988, P3,000,000.00 in checks and P57,000.00 cash was paid by JMA, through Atty. Rosalie
Alberto and Atty. Rellosa to Trinidad, and for which the latter issued a redemption receipt. JMA was
ready to pay the balance of the repurchase price (P2,768,000.00) but Trinidad could not be located,
and worse, failed to return the initial amount paid.
On cross-examination, Rosita Alberto admitted that her agreement with Trinidad, that JMA
can repurchase the property by paying the price within a reasonable time, was merely verbal
because she trusted Trinidad. JMA did not file any complaint for consignation of the amount for its
repurchase of the property. She admitted that the checks delivered to Trinidad had been
dishonored. The respective lawyers of Sta. Monica and JMA typed the deed of absolute sale and
option to buy.
Atty. Rosalie Alberto testified that JMA is a family corporation. She learned of the deed of
absolute sale and option to buy only in February 1988. She represented JMA in the negotiations
with Trinidad for the repurchase of the property. Trinidad informed her that he had already
informed defendant AGCOR of plaintiffǯs tender of P3,057,000.00. He, however, suggested that she
personally inform AGCOR of said tender. When she did so, Guerrero informed her that AGCOR
could no longer accept the offer. She wanted to tell Trinidad about what Guerrero had said, but she
could no longer locate him.
Franco Marquez, President of the Philippine Appraisal Co., Inc., testified that the property
was appraised on May 15, 1986, and its value was pegged at P11,080,000.00.
Defendant Sta. Monica presented its president, Victor Trinidad, who testified on the
damages sustained by it. On cross-examination, he admitted that, despite the deed of absolute sale,
it never took possession of the property. Neither did defendant collect rentals from the tenants of
the building because of the option to buy.
Alberto Guerrero, a doctor of medicine and a lawyer, testified that he was the president of
AGCOR, also a family corporation. When the property was offered for sale by Sta. Monica, he
examined the title in the Register of Deeds and discovered that it was mortgaged to PCI Capital
Corporation. He agreed to buy the property and paid Sta. Monicaǯs loan on February 3 and 16, 1988,
upon which a Release of Real Estate Mortgage was issued. In due course, defendants AGCOR and
Sta. Monica executed a Deed of Absolute Sale covering the property. He further declared that
AGCOR secured a P2,500,000.00 loan from Planterǯs Bank and used the money to pay Sta. Monica.
On October 30, 1989, Sta. Monica executed a real estate mortgage over the property in favor of
Planterǯs Bank as security for a P7,000,000.00 loan. The deed was annotated at the dorsal portion of
TCT No. 376746 on November 15, 1980. The property was declared for taxation purposes after the
property had been purchased.
On January 26, 1996, JMA filed an Omnibus Motion to Admit Newly-Discovered Evidence,
which included the Appraisal Report of the Philippine Appraisal Co., Inc. to prove the fair market
value of the property as of February 1, 1988. The RTC granted the motion and allowed Franco M.
Marquez to testify on the Appraisal Report. The plaintiff offered the Report as part of the motion
and to prove that the appraisal value of the property in May 1986 was P11,080,000.00. The report
was admitted as part of the testimony of Marquez.
On December 8, 1997, the trial court rendered judgment in favor of the defendants. It
ordered the dismissal of the complaint and ordered the plaintiff to pay P50,000.00 to each of the
defendants. The of the decision reads:
WHEREFORE, in light of the foregoing, the Court renders judgment as

follows:
1. Plaintiffǯs complaint is dismissed and it is ordered on the counterclaim, to

pay the amount of P50,000.00 each to defendant Sta. Monica Industrial &
Development Corporation and defendant A. Guerrero Development Corporation as
attorneyǯs fees; and to pay the costs of suit;
2. The cross-claim of A. Guerrero Development Corporation against Sta.

Monica Industrial and Development Corporation is dismissed.
SO ORDERED.
The trial court disbelieved the testimony of Atty. Alberto, holding that to declare the
transaction between the plaintiff and defendant Sta. Monica as an equitable mortgage would be
unjust to the latter. The trial court noted that the plaintiff agreed to the execution of the deed of
absolute sale and the option to buy; Rosita Alberto was an Economics graduate and was assisted by
a lawyer. When the deed of absolute sale over the property was executed, JMA even offered to
repurchase/buy the property instead of redeeming it, and waited up to June 30, 1988 to tender the
repurchase price. The RTC concluded that the true intention of the parties was the property to be
sold to Sta. Monica for profit, with JMA retaining the option to buy it back for P4,100,000.00 within
a specific period of time. Moreover, considering that JMA failed to file an action for reformation of
deed, it was estopped from claiming that the deed of absolute sale and option to buy failed to reflect
the true intention of the parties.
The RTC ruled that the Appraisal Report had no probative weight because the property
subject thereof was covered by TCT No. 20416, not the property covered by TCT No. 268216 which
was the subject of the contract between the plaintiff and defendant Sta. Monica. Further, the
remittances made to Trinidad by way of checks did not buttress the case for JMA because they were
so remitted after the stipulated one-year period and was short of the agreed amount of
P4,100,000.00. It was further pointed out that the checks bounced.
The RTC also declared that before AGCOR bought the property, it had no knowledge of the
option to buy executed by JMA and Sta. Monica; and even if it had, JMA had failed to exercise its
option and pay the purchase price of the property within the stipulated period. It was further stated
that there is no evidence to prove the supposed obligation of Sta. Monica to return the amount of
P57,000.00 received by Trinidad on June 30, 1988; there is no evidence that he was authorized by
Sta. Monica to do so and that he received the amount for and in its behalf.
JMA appealed the decision to the CA. On January 28, 2002, the appellate court dismissed the
appeal and affirmed the decision of the RTC, holding that the contracts entered into by the parties
are what they purport to be: a Deed of Absolute Sale and Option to Buy; the deeds were notarized,
hence, are public documents, and have the presumption of regularity. Furthermore, there were no
ambiguities in the deeds. It was further held that JMA was barred by laches to enforce its claim that
the deed of absolute sale was in fact an equitable mortgage. It pointed out that the property was not
repurchased within the timeline fixed in the Option to Buy.
JMA filed a motion for the reconsideration of the decision which the CA denied on July 1,
2002.
JMA, now petitioner, filed the instant petition for review on

, seeking to reverse the
ruling of the CA on the following grounds:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING

ARTICLE 1602 OF THE CIVIL CODE AND NOT HOLDING THAT THE CONTRACT
SUBJECT MATTER OF THE INSTANT PETITION IS THAT OF AN EQUITABLE
MORTGAGE.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT

PETITIONER IS GUILTY OF LACHES IN ASSERTING ITS RIGHT OVER ITS PROPERTY.
III
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE

FINDING OF THE LOWER COURT THAT RESPONDENT AGCOR HAS NO
KNOWLEDGE OF THE OPTION TO BUY.
It maintains that the trial court and the CA failed to consider the testimony of its General
Manager Rosita Alberto, to prove that the contract entered into between it and respondent Sta.
Monica is, in reality, a real estate mortgage. Petitioner maintains that the trial court and the
appellate court ignored the facts based on the following evidence: (1) petitioner was in dire need of
money when it executed the Deed of Absolute Sale and Option to Buy on June 30, 1985; (2) it
continued to possess the property after the execution of the Deed of Sale and Option to Buy, and
even collected the rentals from the tenants of the commercial and residential buildings; (3) the
purchase price of P4,100,000.00 is grossly inadequate as purchase price of the property compared
to its market value (P11,080,000.00) as found by the Philippine Appraisal Company.
On the other hand, respondents aver that the issues raised by the petitioner are factual,
which the Court is proscribed from reviewing. Moreover, the findings of facts of the trial court were
affirmed by the CA; hence, such findings are conclusive on this Court. They insist that the CA
decision is in accord with the law and the evidence on record. Article 1602 of the New Civil Code
does not apply in this case because petitioner failed to exercise its option and pay the agreed upon
repurchase price; hence, the CA correctly ruled that it was barred by laches when it filed its
complaint below only on November 11, 1991.
The threshold issues are the following: (1) whether the Court is proscribed from reviewing
the factual issues raised by petitioner; (2) whether the transaction between the parties is an
equitable mortgage; (3) whether the petitioner is barred by laches from filing the action against the
respondent; and (4) whether respondent AGCOR was in good faith when it purchased the property
from respondent Sta. Monica for P5,700,000.00.
The petition is denied for lack of merit.
Section 1, Rule 45 of the Rules of Court provides that only questions of law may be raised in
this Court. Th e rationale for the rule is that the Court is not a trier of facts; it is not to re-examine
and calibrate the evidence on record, as such task is assigned to the trial court. The trial courtǯs
findings, as affirmed by the CA, are conclusive on this Court unless there is preponderant evidence
that the lower court ignored, misconstrued or misinterpreted cogent and substantial facts and
circumstances which, if considered, would modify or reverse the outcome of the case. The Court
may look into and resolve factual issues in exceptional cases such as when the findings and
conclusions of the trial court are contrary to evidence on record or tainted with grave abuse of
discretion amounting to excess of jurisdiction.
On the second issue, the law is that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the
courts may not read into it any other intention that would contradict its plain import. The clear
terms of the contract should never be the subject matter of interpretation. Neither abstract justice
nor the rule of liberal interpretation justifies the creation of a contract for the parties which they
did not make themselves or the imposition upon one party to a contract or obligation not assumed
simply or merely to avoid seeming hardships. Their true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope and effects. If the parties execute two or
more separate writings covering a common transaction and subject matter, the writings should be
read and interpreted together to render the partiesǯ intention effective. On the other hand, if the
contract is ambiguous or the contracting parties offer conflicting claims on their intent, the trial
court, at the first instance, has to ascertain the true intent of the parties, taking into account the
contemporaneous and subsequent conduct, actions and words of the parties material to the case,
and pertinent facts having a tendency to fix and determine the real intent of the parties and
undertaking shall be considered. It is the partiesǯ intention which shall be accorded primordial
consideration. The reasonableness of the result obtained, after analysis and construction of the
contract/contracts, must also be carefully considered. The ascertained intention of the parties is
deemed an integral part of the contract, as though it had been originally expressed in unequivocal
terms. The Court will enforce the true agreement of the parties even if the property in question has
already been registered and a new transfer certificate of title is issued in the name of the transferee.
The rule is that he who alleges that a contract does not reflect the true intention of the
parties thereto may prove the same by documentary or parol evidence. In this case, petitioner
alleges that the Deed of Absolute Sale and Option to Buy do not reflect the true intention of the
parties, which according to it is a loan with mortgage or an equitable mortgage. The petitioner is
burdened to prove, by clear and convincing evidence, the terms of the writings. In the language of
State Supreme Court of North Carolina in Ä4
"(, ǲthe intention must be established, not by
simple declarations of the parties, but by proof of facts and circumstances, inconsistent with the
rule of absolute purchase, otherwise, the solemnity of deeds would always be exposed to the
slippery memory of witnesses.ǳ The presumption is that the contract is what it purports to be; and,
to establish its character as a mortgage, the evidence must be clear, unequivocal and convincing
which reasons tending to show that the transaction was intended as a security for debt; and thus to
be a mortgage must be sufficient to satisfy every reasonable mind without hesitation. A less
rigorous rule would mean that no man is safe in taking a deed of property. It would be only
necessary for the grantor to bring witnesses to an agreement that the deed was regarded as an
equitable mortgage, to enable him, on payment of the purchase price and interest, to redeem,
particularly if the value of the property had doubled or trebled in ratio. Unless the testimony is
entirely plain and convincing beyond reasonable controversy, the writing will be held to express
correctly the intention of the parties. If there is a doubt as to the fact whether the transaction is in
the nature of a mortgage, the presumption, in order to avoid a forfeiture is always in favor of a
position to redeem, to subserve abstract justice and avert injurious consequences.
An equitable mortgage is one which, although lacking in some formality, or form or words
or other requisites deemed required by statutes nevertheless reveals the intention of the parties to
charge a real property as security for a debt and contains nothing impossible or contrary to law. An
equitable mortgage may be constituted by any writing from which the intention to create such a
lien may be patterned.
Under Article 1602 of the New Civil Code, a contract shall be presumed to be an equitable
mortgage in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually

inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of
the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
For the presumptions under the article to apply, two requisites must concur: (1) that the
parties entered into a contract denominated as a sale; and (2) that their intention was to secure an
existing debt by way of mortgage. In order for a deed to be declared a mortgage, the relation of
debtor and creditor must exist between the grantor in such a deed and one who seeks to have it
declared a mortgage. There must be a continuing binding debt; a debt in its fullest sense. >

& &5

&

. If
there is an indebtedness or liability between the parties, either a debt existing prior to the
conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other
cause, and this debt is still left subsistent, not being discharged or satisfied by the conveyance, but
the grantor is regarded as still owing and bound to pay at some future time, so that the payment
stipulated for in the agreement to re-convey is in reality the payment of this existing debt, then the
whole transaction amounts to a mortgage, whatever stipulation they may have inserted in the
instruments. +

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In the present case, the trial and appellate courts declared that based on the evidence on
record, petitioner sold the property to respondent Sta. Monica for P3,021,000.00; as stated in the
Option to Buy, petitioner may opt to repurchase the property for P4,100,000.00. Respondent Sta.
Monica agrees with the findings of the trial court and the appellate court.
The trial court failed to make any finding why petitioner sold the property to respondent
Sta. Monica for P3,021,000.00, which is contrary to what appears on the face of the deed of absolute
sale - P4,100,000.00-which amount petitioner acknowledged to have received from said
respondent. Although petitioner claimed in its complaint that the true purchase price of the
property was P3,021,000.00 and that it borrowed from respondent Sta. Monica P1,079,000.00 as
mortgage for one year (from June 30, 1986 to June 30, 1987), no testimonial and documentary
evidence was adduced to prove the same. Petitioner was burdened to prove its claim in its
complaint that it borrowed P3,021,000.00 from respondent Sta. Monica, failing which its claim will
be defeated even if respondents failed to present any evidence to prove their side.
To reiterate, there is no evidence on record that petitioner borrowed P3,021,000.00 from

respondent Sta. Monica in 1986 as alleged in its complaint. The only evidence on record is that
petitioner decided in June 1986 to redeem the property from Pioneer much earlier than the one-
year-period therefor and needed P2,300,000.00 for the purpose. Petitioner received the amount
from respondent Sta. Monica and was able to redeem the property from Pioneer. The only evidence
of petitioner that it received money from respondent Sta. Monica is the Deed of Absolute Sale, in
which the petitioner acknowledged to have received P4,100,000.00.
The ǲRedemption Receiptǳ signed by Trinidad on June 30, 1988 for P3,000,000.00 in the
form of checks and P57,000.00 in cash ǲas partial payment of the account of JMA for the property x
x xǳ does not constitute evidence that petitioner secured a loan of P3,021,000.00 from respondent
Sta. Monica in June 1986. The said amount was part of the P5,822,000.00 which petitioner was
obliged to pay to respondent Sta. Monica, in case it opted to buy the property under the Option to
Buy, representing the repurchase price, inclusive of liquidated damages. In fact, Rosita Alberto
testified that petitioner expected respondent Sta. Monica to execute a deed of sale over the property
upon its payment of P4,100,000.00. This is gleaned from the testimony of Atty. Alberto:
Atty. Balbastro:
Q Let me put it this way, under these documents, Exhibits B and C, more
particularly Exhibit C, the Option to Buy, JMA House Incorporated was given
up to June 30, 1988 within which to exercise her option to buy, is that
correct?
A Yes, Sir.
Q And as of June 30, 1988, how much money did you tender to Sta. Monica
Industrial Corporation?
A I tendered a total amount of three million fifty-seven thousand pesos, Sir.
Q And how much is the redemption price, if you know? If you know the
repurchase price?
A Based on the papers that can be found on the deed of absolute sale, if JMA
House Incorporated was to redeem the property during the first year, we
were supposed to repurchase on time.
COURT:
Q You are a lawyer, right?
A Yes, Your Honor.
WITNESS:
A

"
+

67

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xxxx
Atty. Balbastro:
Q Aside from Exhibit G, you do not have any other document concerning the
payment you made to Sta. Monica Industrial Corporation?
A No other.
Q 3! 89 )% #

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If, as claimed by petitioner, the transaction between it and respondent Sta. Monica was an
equitable mortgage, the latter would be obliged to execute a Cancellation of Real Estate Mortgage or
Release of Mortgage over the property in favor of the petitioner. But, as admitted by Rosita Alberto,
petitioner did not expect respondent Sta. Monica to execute any of these; petitioner expected that a
deed of sale would be executed in its favor.
It bears stressing that petitioner and respondent Sta. Monica were assisted by their
respective lawyers during the negotiations held between Rosita Alberto and Trinidad. While
Trinidad insisted on a deed of absolute sale, Rosita Alberto suggested that a real estate mortgage be
executed by the parties instead. Trinidad rejected this, upon which Rosita proposed that an option
to buy be executed as a supplement to the deed of absolute sale, to which Trinidad readily agreed.
Obviously, the parties had arrived at a
compromise to execute two deeds: a deed of absolute sale for P4,100,000.00, and a deed of option
to enable petitioner to buy the property for the same price. Rosita Alberto testified, thus:
Q 3

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ATTY. LAZARO:
Q Madam Witness, do you still recall the exact date when this deed of absolute
sale was executed?
A It was June 30th 1986.
Q And how about the option to buy agreement that you are mentioning? When
was it executed?
A + )= > $6?¢
Q I am going to show you now a deed of absolute sale between JMA House
Incorporated and Sta. Monica Industrial and Development Corporation
which has been previously marked as Exhibit B and Exhibit B-1. What is the
relation of this deed of absolute sale to the one that you are referring to?
A This is the same deed of absolute sale that we signed.
Q And I am calling your attention to Exhibit B-1 wherein the signature over and
above the name Rosita Alberto [appears], whose signature is that?
A My signature, Sir.
Q And I am also calling your attention to the signature over and above the name
Eugenio E. Trinidad, President and General Manager. Whose signature is
that?
A Mr. Trinidad[ǯs].
The respective lawyers of petitioner and respondent Sta. Monica thereafter prepared the
deeds which were executed on June 30, 1986 before the same Notary Public, Atilano H. Lim.
According to Rosita Alberto, the Option to Buy the Deed of Absolute Sale. The
testimony of Rosita Alberto on the matter follows:
Q Alright, I will read to you your Exh. ǲC,ǳ under the second WHEREAS, and I
quote: Whereas, the parties in the aforementioned Deed mutually agreed
that the VENDOR JMA HOUSE INCORPORATED is given an option to buy
back the properties subject theretoǥǳ Do you recall this provision?
A Yes. This is the document.
Q And, in this second WHEREAS, the aforementioned Deed referred to here is

the Deed referred to in the first WHEREAS, that is the Deed of Absolute Sale,
marked as Exhibit ǲBǳ, is that correct?
A Yes.
Q I am going back to my first question. In other words, the basis of the option to
buy is the supposed mutual agreement between JMA House Incorporated
and Sta. Monica Industrial and Development Corporation to give JMA House
Incorporated the [option] to buy back the property as provided in the Deed
of Absolute Sale marked here as Exhibit ǲB,ǳ is that correct?
A
&

.
The fact that petitioner sold the property to respondent Sta. Monica is evidenced by Rosita
Albertoǯs admission that she delivered to respondent Sta. Monica the ownerǯs duplicate of TCT No.
268126, after which the latter had the property registered in its name, conformably with their ǲpre-
arrangement.ǳ This can be gleaned from her testimony, in answer to the questions of counsel of
respondent AGCOR:
ATTY. LUCAS:
Q After June 30, 1986, Your Honor.
WITNESS:
A After June 30, 1986, the taxes were paid by STA. MONICA. That was

&, Your Honor, with STA. MONICA. And it would be absurd for
JMA to pay the taxes when the title was with STA. MONICA. And we believe
that they would be using it for their purposes, the title; for STA. MONICAǯs
purposes. So, they are more than willing to take up the taxes.
Although Rosita Alberto did not specify the particulars of her ǲpre-arrangementǳ with
Trinidad outside of the Deed of Absolute Sale and Option to Buy, it can safely be presumed that they
agreed that petitioner would continue collecting rentals from the tenants, and respondent may
mortgage
the property as security for its P3,600,000.00 loan from the PCI Capital Corporation. Petitioner
would then be able to generate funds for the purchase of the property on or before June 30, 1987 or
1988, partly from the rentals. On the other hand, respondent Sta. Monica was able to generate funds
from its loan, with the property as collateral, for its business. Both parties benefited under the
arrangement.
While it is true that per Appraisal Report of the Philippine Appraisal Corporation, the
property of the petitioner had a value, as of 1986, of P11,080,000.00, despite which, Alberto agreed
to sell the property for P4,100,000.00 under the Deed of Absolute Sale, nevertheless, Alberto cannot
be faulted. After all, under the Option to Buy, petitioner was obliged to pay only P4,100,000.00.
It must be stressed that an option is a continuing offer or contract by which an owner

stipulates with another that the latter shall have the right to buy the property at a fixed price with a
certain time, or under, or in compliance with, certain terms and conditions; or which gives to the
owner of the property the right to sell or demand a sale. It is, in fine, an unaccepted offer, governed
by the second paragraph of Article 1479 of the New Civil Code which states that ǲ

&

.ǳ An option is not of itself a
purchase, but merely secures the privilege to buy. An option is a privilege given by the owner of the
property to another to buy the property at his election, and the owner does not sell the property
but gives another the right to buy at his election. It imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Without acceptance, it is not, properly
speaking, treated as a contract, and does not vest, transfer or agree to transfer, any title to, or any
interest or right in the subject property, but is merely a contract by which the owner of the
property gives the optionee the right or privilege of accepting the offer and buying the property on
certain terms.
Thus, an option contract involves two distinct elements, that is: (1) the offer to sell, which does
not become a contract until accepted; (2) the completed contract to lease the offer for a specified
time. It is a separate and distinct contract from that which the parties may enter into, upon the
consummation of the option.
It bears stressing that an option must be supported by a consideration distinct and separate
from the price. A consideration for an optional contract is just as important as the consideration for
any other kind of contract. If there is no consideration for the optional contract, then it cannot be
enforced anymore than any other contract where no consideration exists. However, case law is that
although an option is not binding as a contract for want of consideration, yet if the offer contained
therein is not withdrawn, its acceptance within the time limited gives rise to a contract of sale,
binding on the vendor, which cannot be affected by any subsequent attempt to withdraw the offer.
The optionee or promisee is burdened to prove such consideration for the option. The
consideration for the option is not presumed. In
"#
, the Court ruled that
consideration is ǲthe why of the contract, the essential reason which moves the contracting parties
to enter into the contract.ǳ The consideration for a contract, including an option, need not be money
or anything of monetary value but may consist of either a benefit or a detriment to the promisor.
There is sufficient consideration for a promise if there is any benefit to the promisee or any
detriment to the promisor. A benefit should not necessarily accrue to the promisee if a detriment to
the promisor is present; and there is consideration if the promisee does anything legal which he is
not bound to do or refrain from doing anything which he has a right to do, whether or not there is
any actual loan or detriment to him or actual benefit to the promisor. It is sufficient that something
valuable flows from the person to whom it is made, or that he suffers some prejudice or
inconvenience, and that the promise is the inducement to the transaction. Indeed, there is a
consideration if the promisee, in return for the promise, does anything legal which he is not bound
to do, or refrains from doing anything which he has a right to do, whether there is any actual loss or
detriment to him or actual benefit to the promisor or not.
We agree with the rulings of the trial court and the CA that the option granted to the
petitioner has a consideration distinct from the purchase price of the property for P4,100,000.00.
As gleaned from the Option to Buy itself, the agreement was executed by the parties because
of the Deed of Absolute Sale they had executed on the same occasion. Instead of the parties
executing a Real Estate Mortgage as suggested by petitioner, the parties, by way of compromise,
agreed to execute a Deed of Absolute Sale, on the condition that they execute an Option to Buy,
giving petitioner the privilege to repurchase the property within a period of one year, with a grace
period of one year immediately upon the expiration of the original one year period. As admitted by
Rosita Alberto, the two deeds complemented each other, the Option to Buy being a supplement to
the Deed of Absolute Sale. In fine, petitioner would not have agreed to sell the property to
respondent Sta. Monica unless petitioner was given the option to repurchase the property for the
same amount.
However, we agree with the ruling of the CA that petitioner failed to exercise its option and
notify respondent Sta. Monica of its acceptance of the latterǯs offer within the timeline under the
Option to Buy. Under the said deed, petitioner had one year from June 30, 1986 or up to June 30,
1987 to exercise its option, and in case of failure to do so, it had a one year grace period (from July
1, 1987 to June 30, 1988), provided that, in the latter case, it would pay equitable damages of 3.5%
a month from July 1, 1987 to June 30, 1988 until full payment of the purchase price or until the
option is finally exercised. The pertinent portion of the contract reads:
NOW, THEREFORE, for and in consideration of the foregoing premises,

stipulations and conditions, the JMA HOUSE INCORPORATED is hereby given an
option to buy back the subject properties mentioned in the aforesaid Deed of
Absolute Sale, and in like manner the STA. MONICA INDUSTRIAL AND
DEVELOPMENT CORPORATION hereby undertakes and binds itself to resell the
same unto the said JMA HOUSE INCORPORATED within a period of One (1) year
from and after date of execution of the said Deed for a fixed consideration of FOUR
MILLION ONE HUNDRED THOUSAND PESOS (P4,100,000.00) Philippine Currency;
PROVIDED, HOWEVER, should the said JMA HOUSE INCORPORATED failed (sic) to
exercise the herein option to buy back within the above-stated period, the JMA
HOUSE INCORPORATED be (sic) given a grace period of another One (1) year
immediately thereafter. In case of such extension the JMA HOUSE INCORPORATED
hereby undertakes and binds itself to pay an amount equivalent to Three and one-
half percent (sic) month for and as liquidated damages until the whole amount is
fully paid and/or the option is finally exercised.
It is clear that petitioner failed to exercise its option on or before June 30, 1987. Neither did
petitioner exercise its option and pay the liquidated damages to respondent Sta. Monica from July 1,
1987 up to June 1988. This impelled respondent Sta. Monica to inform petitioner that because of its
failure to exercise its option to purchase the property, it had to discontinue collecting the rentals
from the tenants of the buildings. On February 2, 1988, respondent Sta. Monica sold the property to
respondent AGCOR, which secured TCT No. 376746 on February 17, 1988.
The Option to Buy provides that acceptance must be accompanied by payment of liquidated
damages; such payment is a condition precedent to the exercise of the right to buy, and the money
must be tendered or offered. A mere notice of an intention to accept, or of an acceptance without
such payment or tender, does not constitute a valid compliance. Respondent Sta. Monicaǯs
acceptance of the five checks in the total amount of P3,000,000.00 and the cash amount of
P57,000.00 on June 30, 1988, as partial payment of petitionerǯs account did not resuscitate the right
which petitioner had by then already lost, particularly since the property had already been sold and
titled to AGCOR. The said partial payment was an exercise in futility, made worse by the fact that
the five checks were dishonored by the drawee bank.
4 4 the petition is **

Costs against the petitioner.
m**.
+
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Associate Justice
WE CONCUR:

]
Chief Justice
Chairperson
m mm

m!
Associate Justice Associate Justice

4!
Associate Justice

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

]
Chief Justice
Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Oswaldo D. Agcaoili (retired)
and Sergio L. Pestaño (deceased), concurring;
, pp. 51-66.
Penned by Judge Benedicto B. Ulep (retired); id. at 70-80.
' , p. 81.
Exhibits ǲHǳ to ǲH-10.ǳ
Exhibits ǲAǳ to ǲA-4.ǳ
CA
, p. 89.
TSN, September 4, 1992, pp. 4-5.
TSN, September 11, 1992, p. 22.
Exhibits ǲA,ǳ ǲA-1ǳ to ǲA-4.ǳ
Exhibit ǲA.ǳ
Exhibit ǲB.ǳ
Exhibit ǲC.ǳ
Exhibit ǲP.ǳ
TSN, October 29, 1992, p. 7.
Exhibit 4.
Exhibits ǲDǳ and ǲE.ǳ
Exhibit ǲ7.ǳ
Exhibits ǲ4,ǳ ǲ4-Dǳ; Exhibit ǲ5.ǳ
Exhibit ǲ2.ǳ
Exhibits ǲ6ǳ and ǲ7.ǳ
Exhibit ǲG.ǳ
Records, p. 62.
Id. at 7-8.
Id. at 9-10.
Exhibit ǲB,ǳ id. at 17.
Records, pp. 33-35.
TSN, February 4. 1993, p. 8.
Id. at 5.
Id. at 7-8.
Id. at 9-12.
Id. at 10-11.
Id. at 20
Id. at 22.
TSN, February 4, 1993, pp. 3-7.
Id. at 16.
Id. at 17.
Exhibit ǲJ.ǳ
TSN, August 11, 1994, p. 12.
Id. at 20-21.
TSN, October 12, 1993, p. 5.
Exhibit ǲ4ǳ- AGCOR.
Exhibit ǲE.ǳ
Exhibit ǲ2-Aǳ- AGCOR.
Exhibits ǲ9,ǳ ǲ10ǳ & ǲ11ǳ Ȃ AGCOR.
Records, pp. 243-263.
Exhibits ǲJǳ to ǲJ-18.ǳ
Records, p. 364.
Id. at 435-436.
Id. at 433.
Id. at 426-436.
Id. at 127-142.
Id. at 172-173.
' , p. 22.
% & "#
, 403 Phil. 780, 788 (2001); "#
, 403 Phil. 883, 889
(2001); +
#

% ", G.R. No. 141968, February 12, 2001, 351 SCRA 516.
Art. 1370, New Civil Code.

&+"3 (
' #, 403 Phil. 572, 589 (2001).
+
(
#("#
G.R. No. 126850, April 28, 2004, 428 SCRA 79,
92.
"
*" % , 444 Phil. 309, 318 (2003).
* +"#

388 Phil. 404, 415 (2000).
, "#
, G.R. No. 122611, March 8, 2001, 354 SCRA 8.
' "* "G.R. No. 155634, August 16, 2004, 436 SCRA 577, 583-584.
( "#
, G.R. No. 115307, July 8, 1997, 275 SCRA 237.
!"#
, 380 Phil. 736, 741 (2000); Ä "#
, G.R. No. 109696,
August 14, 1995, 247 SCRA 274, 281.
3
"#
, 178 S.W. 2d 240; Ä""
, 173 S.O. 844.
200 S.E. 865.
3
"#
, 178 S.W. 2d 240.
'"

184 N.W. 589.
: "% , 97 U.A. 624, 626.
#
": , 22 Mills 377.

"(, G.R. No. 156522, May 28, 2004, 430 SCRA 338, 347; "#
446
Phil. 133, 141 (2003).

"
166 S.W. 2d 276.
" , 122 So. 16.
+
@#, 178 B.R. 154 (1995); see +
@ , 843 F.2d 235 (1988); "AN.D. Ill.
1987).
CA
, pp. 87-88.
SECTION 1, RULE 131, REVISED RULES OF EVIDENCE.

"(, supra note 73, at 348.
TSN, February 4, 1993, pp. 22-24. (Emphasis supplied)

TSN, September 4, 1992, pp. 4-5. (Emphasis supplied)
TSN, October 29, 1992, pp. 6-7. (Emphasis supplied)
77 #
$
, 65 I;

+"#
, G.R. No. 111238, January
25, 1995, 240 SCRA 565, 579.
>
A &
# "%
, 253 U.S. 408 S. Ct. 460.
("#
, G.R. No. 135929, April 20, 2001, 357 SCRA 209, 215; 77 #
$

, p. 652.
#
$
, p. 652.
# " "* ,, 37 Phil. 982 (1917).
Id. at 991.
Pemeroy on Equity (2d Ed.) p. 4934; James on Option Contracts, p. 1217; Elliot on Contracts, p. 395;

B#"', 125 Ky. 585, 101 S. W. 964, 10 L. R. A. (N.S.) 195, 128 Am. St. Rep.
261;
"
: , 13 Wyo. 37, 77 P. 134, 67 L. R. A. 571, 110 Am. St. Rep. 963.
G.R. No. 97332, October 10, 1991, 202 SCRA 607.
Id. at 615, citing , "

, 67 Phil. 682 (1939).
Wellistone on Contracts, Volume I, Section 102, ruled in *

" , 184 So. 886.
Contracts, 17 #
$
, p. 425.
13 #$, Contracts, Sec. 150, pp. 315, 316. See, also, :

"C
82 Fla. 110, 89 So. 635,
%& "%& , 95 Me. 17, 49 A.49.
77 #$Sales, p. 654, citing "

& , 4 S.E.2d 91; ">, 100 S.E. 714.
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Petitioners in this case seek the review of the Court of Appeals Decision[1] dated 22 January 2002
and Resolution[2] dated 16 June 2002 in CA-G.R. CV No. 63168 which affirmed the Decision[3] of the
Regional Trial Court (RTC) of Makati City, Branch 146 dated 1 December 1998 in Civil Case No. 90-
2534.
This case stemmed from a Complaint[4] for specific performance filed by respondent Titan
Construction Corporation (Titan) on 11 September 1990 before the RTC against petitioners'
predecessor-in-interest, Antonio F. Bernabe, and his siblings Patricio F. Bernabe, Jose F. Bernabe
and Cecilia Bernabe Perez (the defendants), who are co-owners of an undivided one-half (Â½)
share in two (2) parcels of land located in La Huerta, ParaÃ±aque, Metro Manila. In an undated *
' [5] entered into by Titan and the defendants, the latter sold their one-half (Â½)
share in the properties to Titan for P17,700,00.00 to be paid in the following manner:
ONE MILLION (P1,000,000.00) PESOS upon the signing by the VENDORS for this DEED OF SALE[,]
provided[,] however, that payment may be made each VENDORS [] as the latter signs this DEED
OF SALE;
The balance shall be paid within, but not later than sixty (60) days after the acquisition by the
VENDEE at the latter's expenses [] of a RIGHT OF WAY from the Municipal Government of
ParaÃ±aque, Metro Manila, and upon the presentation by the VENDORS of an agreement with the
ERIBERTA DEVELOPMENT CORPORATION that the latter has agreed that VENDOR'S [] share is
the northern half and had waived the right of First Refusal as provided for in the DEED OF
PARTITION OF REAL ESTATE; and upon the surrender by the VENDORS of the titles of the property
subject of this DEED OF SALE. A violation by the VENDORS of the provision of this paragraph shall
be a ground for cancellation of this Deed title.[6]
Titan prayed for judgment ordering defendants to comply with their obligations under the contract
and to pay damages, alleging that it had already paid a substantial portion of the down payment and
was still waiting for the defendants' compliance with their undertaking which they had failed to
perform despite repeated reminders. Sometime in August 1990, Titan received a letter[7] from the
defendants' counsel, Atty. Samuel A. Arcamo, (Atty. Arcamo) canceling and revoking the deed of sale
allegedly in view of Titan's failure to comply with the terms of the deed. Insisting that it was the
defendants who had incurred in default, Titan also sought the award of damages.
Defendants Antonio and Jose filed their Answer,[8] alleging therein that they alone signed[9] the deed
of sale because the other defendants, Patricio and Cecilia, did not agree to the terms of the deed.
They conceded that they received the down payment corresponding to their share in the property
subject of the sale, and claimed that they had written to the municipal council of ParaÃ±aque for the
grant of a right of way but the same had remained unacted upon since Titan failed to comply with
its undertaking to shoulder the expenses of the grant. They denied having authorized Atty. Arcamo
to cancel the deed of sale or even to send a letter of cancellation and revocation to respondent.
Patricio filed a separate Amended Answer,[10] alleging that he had never met any of Titan's
representatives much less entered into an agreement with anyone for the sale of the property or
authorized anyone to act in his behalf pertaining to any sale. Cecilia, however, was declared in
default for failure to file an answer.
On 26 December 1991, while the case was pending, Jose died without leaving any heir except his co-
defendants.
A compromise agreement was subsequently entered into by Titan and the remaining defendants,
whereby the latter agreed to the sale of their one-half (Â½) share in the properties to Titan and
waived whatever cause of action for damages they might have against each other. By virtue of the
compromise agreement, similar * # dated 3 March 1994 were separately
entered into by respondent Titan as vendee, and defendants Patricio, Cecilia, and Antonio, who is
represented by his attorneys-in-fact, as vendors of their undivided shares in the two properties.
The three deeds were similarly worded and contained the same terms and conditions and differed
only as to the amount of the purchase price.[11]
The parties filed a Joint Motion for Judgment Based on Compromise Agreement.[12] Antonio
opposed the motion, contending that he had not entered into any compromise agreement.[13] It
turned out, however, that the joint motion though not signed by Antonio was executed in his behalf
by his two children, Jose III and Shirley Ann, by virtue of a

[14] (SPA) that
Antonio himself had executed. Thus, the motion was denied.[15]
Later, on 16 August 1994, defendant Antonio died and left herein petitioners -- his surviving spouse
Evelyn Cruz and her children, Jose III, Shirley Ann, Gregory and Michael -- as his heirs.
Titan subsequently filed a supplemental complaint[16] alleging that Antonio had already received a
substantial portion of the down payment for the sale of his share in the properties; that prior to his
death, Antonio executed a SPA in favor of his two children, Jose III and Shirley Ann, empowering
them to execute in his favor the 3 March 1994 * # [17] involving his share in the
properties; that on the basis of the deed, it made additional substantial advances on the purchase
price and even expended certain amounts to satisfy the judgment debt of Antonio in Civil Case No.
92-2328; that the heirs of Antonio refused to execute the formal deed of sale; and that through its
exclusive efforts, the one-half share of the original defendants in both properties was segregated
and TCT No. 86793[18] covering the same was subsequently issued.
Petitioners, as defendants, filed their Answer[19] to the supplemental complaint essentially

controverting the validity of the contracts entered into by the parties. They denied that a
consummated sale was made between Titan and the original defendants since only an unconcluded
negotiation is reflected in the * ' and that the fact that the negotiations did
not push through is shown by the absence of the signatures of defendants Patricio and Cecilia.
Petitioners also questioned the genuineness of the * # , pointing out that it had
been signed only later by Titan's representative. They argued that, hence, the * #
is null and void and if found otherwise, should be cancelled and rescinded for failure of Titan to
comply with its undertaking.
The compromise agreements entered into by Titan and defendants Patricio and Cecilia were
approved by the RTC in separate partial judgments.[20] No settlement of the case was reached
between Titan and petitioners.
After trial, the RTC decided in favor of Titan in its Decision dated 1 December 1998. The trial court
upheld the validity of both the * ' and the * # . It held
that there was no basis to rescind the contracts since petitioners had not proven that Titan had
failed to comply with its undertaking under them. The dispositive portion of the RTC decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to:
1.Y Execute the registrable Deed of Sale in favor of plaintiff upon payment by the latter of the
remaini[n]g purchase price;
2.Y And to pay plaintiff cost[s] of suit.
SO ORDERED.[21]
The RTC modified the decision in its Order[22] dated 15 February 1999 by specifying that in view of
the compromise agreements entered into by Titan and defendants Patricio and Cecilia, the 1
December 1998 Decision should be rendered against the heirs of Antonio. Accordingly, said heirs
were ordered to execute a registrable Deed of Absolute Sale over the one-third (1/3) share of
Antonio in the property covered by TCT No. 86793 of the Register of Deeds of ParaÃ±aque,
pursuant to the * # , upon Titan's payment to them of the amount of
P3,431,058.42 representing the balance of the purchase price.
Petitioners appealed the RTC decision to the Court of Appeals. The appeal was dismissed in the
Decision dated 22 January 2002, and the RTC decision was affirmed Petitioners' motion for
reconsideration was denied in the Resolution[23] dated 16 July 2002.
In the present petition for review, petitioners submit the following issues for resolution by the
Court:
(1) Under a deed of conditional sale of a parcel of land, may the vendee compel the vendors to
execute a registerable deed of sale based on the allegation that it had paid a substantial portion
of the P1 million down payment of the total consideration of P17,700,000.00, where it was
expressly stipulated that the vendors would execute the necessary deed of absolute sale in
favor of the vendee only upon full payment?
(2) May the vendors in a deed of conditional sale ask for rescission of contract for failure of the
vendee to pay in full the agreed consideration?[24]
Petitioners, contending that the * ' and * # are
contracts to sell and not contracts of sale, allege that Titan has no cause of action to file the
complaint for specific performance since it failed to pay the purchase price in full as agreed upon in
the contracts. Petitioners argue that the import of the stipulations in the * ' --
which was not signed by Titan's representative or by two of the four alleged vendors, and which
was neither notarized nor registered and hence defective--is that full payment of the purchase price
must be made before ownership of the properties passes to Titan. The * # ,
which necessarily superseded and nullified the * ' , expressed this intent
more clearly when it stated that "upon full payment of the purchase price, Vendor shall execute the
necessary Deed of Absolute Sale in favor of Vendee transferring and conveying all his undivided
shares in the x x x properties."[25]
While Titan admitted that it had already made payments of substantial amounts, petitioners on the
one hand argue that this is not the full payment agreed upon in the * # that
would entitle Titan to demand the execution of a deed of absolute sale in its favor. Petitioners
believe that Titan should have at least tendered payment to them or deposited the money in court
by way of consignation if acceptance of payment was refused; otherwise, Titan has no right to
demand specific performance from petitioners. Thus, for failure of Titan to comply with its
obligations, petitioners pray for the rescission of the * # and the dismissal of
Titan's complaint for specific performance.
On the other hand, Titan dismisses petitioners' claim that the * ' was
superseded and nullified by the subsequent * # , arguing that neither of these
documents exclusively controls and determines the agreement between the parties. Instead, it
relies on the declaration of the Court of Appeals that there was a perfected contract of sale of real
estate evidenced by the * ' However, Titan expounds, said contract was not
in the form required for registration under the law and so the courts below, in affirming it and
requiring petitioners to execute a registerable deed, simply followed the provisions of the Civil
Code governing the form of contracts, particularly Articles 1356, 1357 and 1358. Titan adds that it
is only upon the execution of a registerable deed of sale that full payment of the consideration
should be made, and that since the contract still has to be put in a registerable form as required by
law, there is nothing yet to rescind. Moreover, it claims that it has not been shown to have breached
the contract as in fact its obligation to pay the remainder of the purchase price would arise only
upon petitioners' fulfillment of several conditions stipulated in the contract. It thus argues that
petitioners have no cause of action for rescission.[26]
The petition should be denied.
The document that spells out the nature of the transaction of the parties is the * #
Stemming from the compromise agreement entered into by Titan and petitioners, the *
# has superseded the * ' which is the original contract. The
whole essence of a compromise is that by making reciprocal concessions, the parties avoid litigation
or put an end to one already commenced.[27] A compromise agreement can be entered into without
novating or supplanting existing contracts,[28] but in this case, the irreconcilable incompatibility
between the * ' and the * # inevitably resulted in
extinctive novation.[29]
The first contract or the * ' embodies a perfected contract of sale. There is
no stipulation in the said deed that title to the properties would remain with defendants until full
payment of the consideration, or that the right to unilaterally resolve the contract upon Titan's
failure to pay within a fixed period is given to defendants. Patently, the contract executed by the
parties is a contract of sale and not a contract to sell.
When the parties entered into a compromise, they executed new contracts involving the shares of
Patricio, Cecilia and Antonio in the properties. These new contracts are the three deeds of
conditional sale entered into by Titan with Patricio, Cecilia and Antonio, the last represented by his
attorneys-in-fact. These contracts, all entitled * # , are contracts to sell.
The difference between contracts of sale and contracts to sell is relevant. In a contract of sale, the
title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell,
ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership
over the property and cannot recover it until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until full payment of the price. In the
latter contract, payment of the price is a positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.[30]
A careful reading of the stipulations in the * # conveys the intent of the parties
to enter into a contract to sell. The fourth paragraph of the contract explicitly states that only when
full payment of the purchase price is made shall Antonio execute the deed of absolute sale
transferring and conveying his shares in the subject properties. Clearly, the intent is to reserve
ownership in the seller, Antonio, until the buyer, Titan, pays in full the purchase price. The full
payment of the purchase price does not automatically vest ownership in Titan. A deed of absolute
sale still has to be executed by Antonio.
As earlier noted, the * ' is substituted by the subsequent deeds of
conditional sale. The * ' and the deeds of conditional sale involve different
parties and different amounts, and impose different obligations. The original deed, on one hand,
and the latter three, on the other, are incompatible and cannot subsist all at the same time.
Titan filed the complaint for specific performance based on petitioners' refusal to honor the *
' Titan's prayer in the complaint was for petitioners to comply with their
obligations under the deed or in other words, to honor the contract. The same relief is reiterated in
the supplemental complaint since petitioners also refused to honor the * # .
Petitioners' refusal to honor the contract permeates the records of the case. Petitioners argued
before the trial court that no consummated sale had been entered into by their father Antonio, his
co-owners and Titan; that the * ' embodied only an unconsummated
negotiation; and that the * # , which petitioners Shirley Anne and Jose III signed
in behalf of their father,was spurious. They attacked the validity of the contracts but alternatively
argued for rescission based on Titan's failure to comply with its prestations thereunder.[31] With the
trial court's finding that there was a valid agreement between the parties for the sale of the
properties, petitioners in their brief before the Court of Appeals harped on Titan's supposed failure
to fulfill its obligations under the contract to sell and on that basis sought the rescission of the
contract.[32] The same arguments are laid down before this court.
Thus, Titan has a cause of action since it has already partially performed the contract by making
down and other payments on the purchase price, as well as effecting and spending for the
segregation and titling of the shares of petitioners and their co-owners in the properties. Titan
seeks only to enforce the contract.
Petitioners argue that Titan's failure to pay the remainder of the purchase price constitutes a failure
to perform its obligation under the deed and thus a ground for rescission. The demand for
rescission is based on Article 1191[33] of the New Civil Code. This article refers to rescission
applicable to reciprocal obligations. Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They are to be performed simultaneously such that
the performance of one is conditioned upon the simultaneous fulfillment of the other. While Article
1191 uses the term "rescission," the original term which was used in Article 1124 of the old Civil
Code, from which the article was based, was "resolution." Resolution is a principal action which is
based on breach of a party[34] or breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the provision is the obligor's failure to comply with an
existing obligation.[35] Thus, the power to rescind is given only to the injured party. The injured
party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his
obligation.[36]
Under the * # , the balance of the purchase price should be paid within sixty
(60) days from the fulfillment of several conditions. At the time of the filing of the supplemental
complaint, only three of the four conditions had been carried out. Thus, at that point, the balance of
the purchase price had not yet become due and so, too, petitioners' obligation to execute a
registerable deed of absolute sale had not yet arisen.
The first condition, , that Eriberta Development Corporation must agree to make the vendors'
share pertain to the northern half of the properties, was deemed fulfilled with the segregation and
titling of the interests of Antonio, Patricio and Cecilia under TCT No. 86793.[37] The separation of the
property was registered on 12 October 1994, just a few months after the parties executed the *
# . With the segregation of the property and the issuance of TCT No. 86793, the
fourth condition, ., that the titles to the properties be surrendered to Titan, was also satisfied
since the segregation would not have transpired had the old titles not been surrendered.[38] The
second condition involving the co-owners' waiver of their right of first refusal was also complied
with, as evidenced by similar declarations in the deeds of conditional sale executed by Patricio and
Cecilia.[39] It is only the third condition--the acquisition of a right of way over the northern part of
the property--that had not yet been fulfilled at the time of the filing of the supplemental complaint.
It was only during the trial that the fulfillment and/or waiver of the third condition was established.
Titan presented proof that on 15 May 1995, its board of directors adopted a resolution declaring
Titan's waiver of the acquisition of a right of way over the northern half portion of the properties as
a condition to the sale, and its consequent willingness to pay the purchase price even before the
right of way is secured.[40] It was on the basis of the fulfillment of all the conditions that the RTC
ordered the execution of the registerable deed of sale but only upon Titan's payment of the balance.
Although it was not explicitly stated, the trial court was essentially expressing that payment of the
balance had already become due. But since the trial court's decision was appealed all the way to this
Court, it could not attain finality and execution could not be ordered. In short, the pendency of the
appeal put resolution of the controversy on hold.
Thus, petitioners cannot ask for rescission of the * # since it has been proven
that far from violating the conditions of the deed, Titan was ready and willing to perform its
contractual obligations. That the balance had not yet become due and demandable is a result of the
appeal from the RTC and CA decisions, and is not due to Titan's alleged refusal to comply with the
contract. Accordingly, the * # remains valid, but petitioners cannot be
compelled by specific performance to execute the deed of absolute sale in favor of Titan until and
unless Titan settles the balance of the purchase price as agreed upon.
Under the * # , defendant Antonio promised to sell to Titan his "registered 1/12
interest and his 1/3 of 1/12 share in the 1/12 registered share of his late mother" in the properties
covered by TCT No. 86793 for the consideration of P5,889,333.00. The trial court had ordered
petitioners to execute the registerable deed of absolute sale of said shares upon payment to them
by Titan of the amount of P3,431,058.42 representing the balance of the purchase price thereof. The
amount due was affirmed by the Court of Appeals which found that based on the admitted exhibits,
vouchers, checks, compromise agreement/partial judgments, the total payments already made by
Titan is P2,458,274.58 which, if subtracted from the agreed purchase price of P5,889,333.00, would
yield P3,431,058.42.[41] It is this amount that Titan should pay to petitioners sixty (60) days from
the fulfillment of the conditions in order to compel petitioners to execute the deed of absolute sale
in its favor.
WHEREFORE, in view of the foregoing, the petition is DENIED. Respondent Titan Construction
Corporation is ORDERED to PAY petitioners Heirs of Antonio F. Bernabe the amount of
P3,431,058.42 within sixty (60) days from the finality of this decision. Petitioners are ORDERED to
ACCEPT the payment and thereupon EXECUTE the proper deed of absolute sale. Both parties are
ORDERED to COMPLY with the other stipulations in the * # . No
pronouncement as to costs.
SO ORDERED.
â&8#

9<
&#

and $
$$ concur.
' , pp. 13-22. Penned by Justice Conrado M. Vasquez, Jr., concurred in by Justices Andres B.
[1]
Reyes, Jr. and Amelita G. Tolentino.
[2] Id. at 24-25.
[3] Id. at 53-56. Penned by Judge Salvador S. Tensuan.
[4] Id. at 28-32.
[5] Id. at 33-35. Entered into sometime in May 1990.
[6] Id. at 33-34.
[7] Records, p. 9.
[8] Id. at 15-16. Dated 28 November 1990.
[9] They signed the deed on 20 May 1990.
[10] Records, pp. 37-41.
[11] See Records, pp. 356-359, 385-388, and 390-393.
[12] Id. at 124-125.
[13] Id. at 133-134.
[14] Id. at 126-128. Dated 28 February 1994.
[15] Id. at 135. Order dated 23 May 1994.
[16] ' , pp. 36-43. Dated 22 May 1995.
[17] Id. at 44-47.
The subject properties were originally covered by TCT Nos. (301818) (35977-A) 34945 and
[18]
(301819) (19616-A) 34944. Subsequent to the execution of the * # by the
parties, the two properties were consolidated into one and partitioned into two lots of equal size,
Lots 1 and 2 of approved plan (LRC) Pcs-28052 and covered by separate titles. Lot 1, covered by
TCT No. 86793 and representing the shares of the original defendants, was partitioned to Antonio,
Patricio and Cecilia.
[19] Records, pp. 197-199. Dated 21 June 1995.

[20] Id. at 313-314 and 315-316. Partial Judgments dated 3 June 1998.
[21] ' , pp. 55-56.
[22] Id. at 57.
[23] Id. at 24-25.
[24] Id. at 132.
[25] Records, p. 358.
[26] Id. at 120-126; Memorandum of Respondents dated 7 June 2004.
'

&
"#

"# #
*" #

, G.R.
[27]
No. 143273, 20 September 2004, 438 SCRA 471, 483.
[28] Id. at 482-483.
[29] Civil Code, Art. 1292.
[30] ,
"#
, 327 Phil. 944, 955 (1996).
See Answer, records, p. 197-198; Memorandum for Defendants Heirs of Antonio Bernabe,
[31]
records, pp. 457, 459.
[32] See Brief for Defendants-Appellants, CA

, pp. 37-40.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
[33]
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thin, in accordance with articles 1385 and 1388 and the Mortgage Law.
[34] Ä&"#
, 369 Phil. 243, 252 (1999).
[35]
"#
, 413 Phil. 360, 373 (2001).
[36]
"#
, 447 Phil. 467, 482 (2003).
[37] TSN, 2 April 1998, pp. 5-6.
[38] Id. at 8.
[39] Id. at 6-8. See also records, pp. 3887 and 392.
[40] Id. at 3-5. See also records, p. 389, Secretary's Certificate, Exhibit "M."
[41] See CA Decision,

, p. 22.
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The two Petitions for Review on #

[1] now before this Court seek to challenge, under Rule 45
of the Rules of Court, the Decision[2] dated 17 June 1999 of the Court of Appeals in CA-G.R. CV No.
35688, which reversed and set aside the Decision[3] dated 25 November 1991 of the Regional Trial
Court (RTC) of Pasay City, Branch 119, in the consolidated cases of LRC Case No. LP-553-P (an
application for registration of title to real property) and Civil Case No. 6914-P (an action to declare
ownership over real property, formerly numbered Pq-8557-P). The Court of Appeals upheld the
title of Rosario Bondoc to the disputed property, thus, overturning the finding of the RTC of Pasay
City that Maria Q. Cristobal and Dulos Realty & Development Corporation have a registrable title to
the same property.
a
At the core of the controversy in the Petitions at bar is a parcel of unregistered land located in
Tungtong, Las PiÃ±as, formerly of the Province of Rizal, now a part of Metro Manila, designated as
Lot 1 of Plan Psu-205035, with an area of 19,545 square meters (subject property). It previously
formed part of a bigger parcel of agricultural land[4] first declared in the name of Domingo Lozada
(Domingo) in the year 1916 under Tax Declaration No. 2932.[5]
During the lifetime of Domingo, he was married twice. From his first marriage to Hisberta Guevarra
in the year 1873,[6] he fathered two children, namely Bernardo and Anatalia. After the death of
Hisberta, Domingo married Graciana San Jose in the year 1887[7] and their marriage produced two
children, namely Nicomedes and Pablo.
Domingo and Graciana died on 27 February 1930 and 12 August 1941, respectively. On 18 March
1965, Nicomedes and the heirs of his brother Pablo entered into an ,'/70(2(/)m$)$1$#<
-$/$[8] of their parents Domingo and Graciana. According to the settlement, the entire parcel
of agricultural land declared in the name of Domingo[9] was divided into two, Lot 1 and Lot 2, in
accordance with the approved subdivision plan Psu-205035. The subject property, , Lot 1, was
adjudicated to Nicomedes; while Lot 2 was given to the heirs of Pablo. Nicomedes then declared the
subject property in his name in 1965 under Tax Declaration No. 2050.[10]
On 23 June 1965, Nicomedes executed a *$$0<#0((#/)m/)$[11]over the subject property in
favor of Emma Ver Reyes (Emma), which provided:
That the Vendor [Nicomedes] is the true and lawful owner of a parcel of land situated at Tungtong,
Las Pinas, Rizal, more particularly described as follows:
"A parcel of land ( <&)/#8), x x x; containing an area of NINETEEN THOUSAND
FIVE HUNDRED FOURTY FIVE (19,545) SQUARE METERS, more or less, and still a portion of the
land covered by Tax Declaration No. 2304 of Las Pinas, Rizal, in the name of Domingo Lozada, and
with a total assessed value of P1,860.00."
That the [subject property] is a &/'/&-$'#/)&'&$'?<-$ $#0' [Nicomedes], the same
having been inherited by him from his deceased mother, Graciana San Jose, but was declared for
taxation in the name of his deceased father, Domingo Lozada;
That for and in consideration of the sum of FOUR PESOS AND FIFTY CENTAVOS (P4.50), Philippine
Currency, per square meter to be paid by the Vendee to the Vendor, the said Vendor by these
presents hereby m m*mmm/#0 m.?6/?<* m the
above-described parcel of land together with all the improvements thereon to the said Vendee
[Emma], her heirs, assigns and successors, free from all liens and encumbrances, under the
following terms and conditions, to wit:
1. That the Vendee [Emma] will pay the Vendor [Nicomedes] as follows:
(a). TWENTY FIVE PERCENT (25%) of the total price on the date of the signing of this contract;
(b). The next TWENTY FIVE PERCENT (25%) of the total price upon the issuance of the title for the
land described above; and
(c). The balance of FIFTY PERCENT (50%) of the total price within one (1) year from the issuance of
the said title;
2. That (<-$ $#0$$>11/@</()&/?-$ $#0'>(21$0$@-$1/$0(#
&/'/'/&-A.B/#0A2B/.;$6(-(#-$&$'(0(&)/$0/#0/<$'-$'/2$&$'(0<
#$AB1#-<'$/2-&/?1$#-(2#'/2-/))/1/(2/))?.$#))/#0;(0/#0<#
$<<$2 without the necessity of any demand, notice or filing the necessary action in court, and -$
$#0'>(21$0$@-/))-/;$-$<))/#0$,2)(;$'(-$))'/#<$'/#02#;$?
/.)$)?-$/.;$0$2'(.$0&'&$'?/#?&$'#.-$/(0 $#0'>(21$0$@
-/))'$'#-$ $#0$$>11/@/))-$/1#&/(0-(1.?'$/#<-(2#'/2
6(-/#?(#$'$&#-$/)$<-$/(0&'&$'?/#-$'&$'#;
3. That the total price shall be subject to adjustment in accordance with the total area of the above-
described property that will be finally decreed by the court in favor of the herein Vendor
[Nicomedes]; and
4. That -$ $#0'>(21$0$@6())$,$2$/<(#/)0$$0</.)$/)$2;$'(#-$/(0

&'&$'?(#</;'<-$ $#0$$>11/@&#-$<))&/?1$#<-$/)2#(0$'/(# in
accordance with the stipulations above. (Emphases ours.)
The Deed of Conditional Sale was registered in the Registry of Property for Unregistered Lands in
August 1965.[12]
It would appear from the records of the case that Emma was only able to pay the first installment of
the total purchase price agreed upon by the parties. Furthermore, as will be discussed later on,
Nicomedes did not succeed in his attempt to have any title to the subject property issued in his
name.
On 14 June 1968, Nicomedes entered into another contract involving the subject property with
Rosario D. Bondoc (Rosario). Designated as an '$$1$#<'2-/$/#0m/)$,[13] the significant
portions thereof states:
NOW, THEREFORE, for and in consideration of the foregoing premises and of the sum of ONE
HUNDRED SEVENTY FIVE THOUSAND NINE HUNDRED FIVE PESOS (P175,905.00) Philippine
Currency, which the BUYER [Rosario] shall pay to the SELLER [Nicomedes] in the manner and form
hereinafter specified, -$m >(21$0$@.?-$$&'$$#-$'$.?/'$$0/#0
2#'/2$0$))/))-('(-(#$'$()$/#06#$'-(&;$'-$&/'2$)<)/#0,,,
#-$] >/'(@6--$'$.?/'$$/#0.(#0-$'$)<&'2-/$<'1-$
<'1$'-$/<'$/(0&/'2$)<)/#0, subject to the following terms and conditions:
1. Upon the execution of this Agreement, the BUYER [Rosario] shall pay the SELLER [Nicomedes],
the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine Currency.
2. [That] upon the delivery by the SELLER [Nicomedes] to the BUYER [Rosario] of a valid title of the
aforesaid parcel of land, free from any and all liens and encumbrances, and the execution of the
final Deed of Sale, the BUYER [Rosario] shall pay to the SELLER [Nicomedes], the sum of THIRTY
SEVEN THOUSAND SEVEN HUNDRED FIVE PESOS (P37,705.00) Philippine Currency, and the final
balance of ONE HUNDRED TWENTY THREE THOUSAND AND TWO HUNDRED PESOS
(P123,200.00) Philippine Currency, one year from the date of execution of the final deed of sale, all
without interest.
3. That (#-$$;$#-$] >/'(@</()&/?/#?/1#/&$2(<($0(#m$2(#8

/'/'/&--$#-(2#'/2-/)).?-$1$'$</2<##&/?1$#$,&('$($)</#0-/))
.$2#(0$'$0/1/(2/))?2/#2$))$0<#;/)$/#0$<<$2, and immediately thereafter the
SELLER [Nicomedes] shall return to the BUYER [Rosario] the sums of money he had received from
the BUYER [Rosario] without any interests and 6-/$;$'(1&';$1$#'(1&';$1$#1/0$
'(#'02$0.?-$] >/'(@#-$).$(#)0-/))/22'$-$6#$'-(&/#0
&$(#<-$m >(21$0$@
xxxx
6. -$m >(21$0$@-$'$.?6/''/#-$$<)/#0&$/2$<)&$(#/#0

22&/(#<-$).7$21/$'<-(/'$$1$#.?-$] >/'(@. (Emphasis
ours.)
On 7 March 1969, Nicomedes and Rosario executed a +(#<<(0/;(,[14] whereby they confirmed
the sale of the subject property by Nicomedes to Rosario through the Agreement of Purchase and
Sale dated 14 June 1968. They likewise agreed to have the said Agreement registered with the
Registry of Deeds in accordance with the provisions of Section 194 of the Revised Administrative
Code, as amended by Act No. 3344. The Agreement of Purchase and Sale was thus registered on 10
March 1969.[15]
The records of this case show that, of the entire consideration stipulated upon in the Agreement,
only the first installment was paid by Rosario. No title to the subject property was ever delivered to
her since, at the time of the execution of the above contract, Nicomedes's application for the
registration of the subject property was still pending.
Five months thereafter, Nicomedes executed on 10 August 1969 a third contract, a *$$0<
.)$m/)$< #'$($'$0 /#0[16] involving a portion of the subject property measuring
2,000 square meters, in favor of Maria Q. Cristobal (Maria).[17] The relevant terms of the Deed
recite:
THAT I, NICOMEDES J. LOZADA, of legal age, Filipino citizen, married and a resident of Las PiÃ±as,
Rizal, Philippines, for and in consideration of the sum of TWENTY FIVE THOUSAND (P25,000.00)
PESOS, Philippine currency, receipt of which is hereby acknowledged to my full and entire
satisfaction, do hereby $))'/#<$'/#02#;$? to MARIA Q. CRISTOBAL, likewise of legal age,
Filipino citizen, married to Juan [Dulos], and a resident of 114 Real Street, Las PiÃ±as, Rizal,
Philippines, her heirs, executors, administrators and assigns, =4 m*mC m
A8B<'/#$/$1$#<6/?</&/'2$)<#'$($'$0)/#0 situated in the Barrio of
Tungtong, Municipality of Las PiÃ±as, Province of Rizal, Philippines, exclusively belonging to and
possessed by me, and more particularly described as follows:
"A parcel of land described under Tax Declaration No. 9575 (Lot No. 1, Psu 205035), situated in the
Barrio of Tuntong, Municipality of Las PiÃ±as, Province of Rizal, Philippines. xxx [C]ontaining an
area of 1.9545 hectares, more or less." (Emphasis ours.)
Nicomedes passed away on 29 June 1972. The Deed of Absolute Sale of Unregistered Land between
Nicomedes and Maria was registered only on 8 February 1973,[18] or more than seven months after
the former's death.
On 10 August 1979, Nicomedes's heirs, namely, the four children from his first marriage,[19] the six
children from his second marriage,[20] and his surviving second spouse Genoveva Pallera Vda. De
Lozada, executed a *$$0<,'/70(2(/)m$)$1$#<-$/$<-$ /$(21$0$+

D/0/6(-/(<(2/(#</$'/(#*$$0<.)$m/)$< #'$($'$0 /#0.[21] The heirs
declared in said Deed of Extrajudicial Settlement that the only property left by Nicomedes upon his
death was the subject property. They also ratified therein the prior sale of a portion of the subject
property made by Nicomedes in favor of Maria, but they clarified that the actual area of the portion
sold as presented in the plan was 2,287 square meters, not 2,000 square meters. After excluding the
portion sold to Maria, the heirs claimed equal
" shares in the remaining 17,258 square
meters of the subject property.
On 30 July 1980, Nicomedes's heirs[22] collectively sold, for the sum of P414,192.00, their shares in
the subject property in favor of Dulos Realty and Development Corporation (Dulos Realty), as
represented by its President Juan B. Dulos, " a *$$0<.)$m/)$</# #'$($'$0
/#0
[23] The said Deed of Absolute Sale dated 30 July 1980, however, was not registered.
a
On 11 April 1966, after executing the Deed of Conditional Sale in favor of Emma on 23 June 1965,
Nicomedes filed an application for the registration of the subject property with the then Court of
First Instance (CFI) of Pasig, docketed as /$
99. The grandchildren of Domingo by
his former marriage[24] opposed the application for registration and Emma and her husband Ramon
filed their intervention.
Sometime in 1973, following the execution in her favor of the Agreement of Purchase and Sale
dated 14 June 1968 and Joint Affidavit dated 7 March 1969, Rosario filed a motion to intervene in
LRC Case No. N-6577 then pending before the CFI of Pasig; however, her motion was denied by the
CFI of Pasig, in an Order dated 2 June 1973.[25] Rosario no longer appealed from the order denying
her motion to intervene in said case.
In view of the conflicting claims over the subject property, the CFI of Pasig dismissed without
prejudice LRC Case No. N-6577 on 21 November 1975 and ordered the parties therein, namely, the
applicant Nicomedes and the oppositors/intervenors, to litigate first the issues of ownership and
possession.[26]
Five years later, on 27 June 1980, Domingo's grandchildren from his first marriage, Dominador,
,[27] filed an Application for Registration[28] of title to the subject property with the CFI of Rizal,
docketed as /$
. In their Application, Dominador, ., alleged,
, that
they were the owners of the subject property by virtue of inheritance; they were the actual
occupants of the said property; and, other than Emma, they had no knowledge of any encumbrance
or claim of title affecting the same.
On 6 November 1980, Rosario, assisted by her husband Mariano Bondoc, invoking the Agreement of
Purchase and Sale executed in her favor by Nicomedes on 14 June 1968, filed a Complaint[29] before
the CFI of Rizal for the declaration in her favor of ownership over the subject property, with an
application for a temporary restraining order or preliminary injunction, against Trinidad Lozada
(one of Domingo's heirs from his first marriage who applied for registration of the subject property
in LRC Case No. LP-553-P) and two other persons, who allegedly trespassed into the subject
property. Rosario's complaint was docketed as (;()/$
39
On 4 August 1981, the parties agreed to have LRC Case No. LP-553-P (the application for land
registration of Dominador, ) consolidated with Civil Case No. Pq-8557-P (the action for
declaration of ownership of Rosario).[30]
By subsequent events,[31] and in consideration of the location of the subject property in Las PiÃ±as,
LRC Case No. LP-553-P and Civil Case No. Pq-8557-P, reinstated as (;()/$
%, were
finally transferred to and decided by the RTC of Pasay City.
In its Decision dated 25 November 1991, the RTC of Pasay City, Branch 119, disposed of the cases
thus:
WHEREFORE, considering all the foregoing, the court denies the application of Dominador
Salvador, Sr. et al, having no more right over the land applied for, dismisses Civil Case No. Pq-8557-
P now 6914 for lack of merit, and hereby declares /'(/'(./)*)/#0*)$/)?/#0
*$;$)&1$#'&'/(# to have a registrable title, confirming title and decreeing the
registration of Lot 1 PSU-205035 containing a total area of 19,545 square meters, 2,287 square
meters of which appertains to Maria Cristobal Dulos married to Juan Dulos and the remaining
portion, in favor of Dulos Realty and Development Corporation, without pronouncement as to
costs.[32] (Emphasis ours.)
In so ruling, the RTC rationalized that the subject property constituted Domingo's share in the
conjugal properties of his second marriage to Graciana San Jose and, therefore, properly pertained
to Nicomedes as one of his sons in said marriage. Being Domingo's heirs from his first marriage,
Dominador, ., were not entitled to the subject property.
The lower court also found that neither Emma nor Rosario acquired a better title to the subject
property as against Maria and Dulos Realty. No final deed of sale over the subject property was
executed in favor of Emma or Rosario, while the sales of portions of the same property in favor of
Maria and of the rest to Dulos Realty were fully consummated as evidenced by the absolute deeds of
sale dated 10 August 1969 and 30 July 1980, respectively.
Dominador, , Emma and her spouse Ramon Reyes (Ramon), and Rosario separately appealed
to the Court of Appeals the foregoing Decision dated 25 November 1991 of the RTC of Pasay City.[33]
Their consolidated appeals were docketed as CA-G.R. CV No. 35688.
Dominador, , however, moved to withdraw their appeal in light of the amicable settlement they
entered into with Maria and Dulos Realty.[34] In a Resolution dated 24 September 1992,[35] the Court
of Appeals granted their Motion to Withdraw Appeal. Dominador, later filed a motion to
withdraw their earlier Motion to Withdraw Appeal, but this was denied by the Court of Appeals in a
Resolution dated 15 January 1993.[36]
In their respective Briefs before the appellate court,[37] Emma and Rosario both faulted the RTC of
Pasay City for awarding the subject property to Maria and Dulos Realty. They each claimed
entitlement to the subject property and asserted the superiority of their respective contracts as
against those of the others.
On 17 June 1999, the Court of Appeals rendered its assailed Decision, ruling as follows:
As gathered above, both contracts [entered into with Emma and Rosario] gave Nicomedes, as
vendor, the right to unilaterally rescind the contract the moment the buyer failed to pay within a
fixed period (Pingol v. CA, 226 SCRA 118), after which he, as vendor, was obliged to return without
interest the sums of money he had received from the buyer (under the Deed of Conditional Sale [to
Emma], upon the sale of the property to another). Additionally, under the Agreement of Purchase
and Sale [with Rosario], the vendor, in case of rescission, would become the owner and entitled to
the possession of whatever improvements introduced by the buyer.
Under the Deed of Conditional Sale [to Emma], there was no provision that possession would be, in
case of rescission, returned to the vendor, thereby implying that possession remained with him
(vendor). Such being the case, it appears to be a contract to sell. Whereas under the Agreement of
Purchase and Sale [with Rosario], the provision that in case of rescission, any improvements
introduced by the vendee would become the vendor's implies that possession was transferred to
the vendee and, therefore, it appears to be a contract of sale.
That the Agreement of Purchase and Sale [with Rosario] was a contract of sale gains light from the
Joint Affidavit subsequently executed by Rosario and Nicomedes stating that "an Agreement of
Purchase and Sale wherein the former (Nicomedes J. Lozada) sold to the latter (Rosario D. Bondoc)
a parcel of land" had been executed but that the lot "not having been registered under Act No. 496
nor under the Spanish Mortgage Law, the parties hereto have agreed to register the Agreement of
Purchase and Sale ... under the provision of Section 194 of the Revised Administrative Code, as
amended by Act No. 3344."
Rosario registered the Agreement of Purchase and Sale alright on March 10, 1969. She paid taxes on
the lot from 1980 - 1985. She fenced the lot with concrete and hollow blocks. And apart from
opposing the land registration case, she filed a complaint against Trinidad, et al., for declaration
ownership.
Article 1371 of the Civil Code provides:

"Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered."
From the provisions of the Agreement of Purchase and Sale [to Rosario] and the subsequent acts of
the parties then including the execution of the Joint Affidavit by Rosario and Nicomedes stating that
"an Agreement of Purchase and Sale wherein the former (Nicomedes...) sold to the latter (Rosario...)
a parcel of land", had been executed, there is no mistaking that the lot was sold to Rosario xxx.
Anent the effect of Rosario's registration of the Agreement of Purchase and Sale on Emma's contract
involving the same lot, Act No. 3344 (Amending Sec. 194 of the Administrative Code [Recording of
instruments or deeds relating to real estate not registered under Act No. 496 or under the Spanish
Mortgage Law]) provides that any registration made under Sec. 194 of the Administrative Code
"shall be understood to be without prejudice to a third party who has a better right".
"Better right", however, was not defined by law.
But author Narciso PeÃ±a is inclined to concur that "better right" should refer to a "right which
must have been acquired by a third party independently of the unregistered deed, such as, for
instance, title by prescription, and that it has no reference to rights acquired under that
unregistered deed itself", he citing Nisce v. Milo, G.R. No. 425016, January 17, 1936 Unrep. 62 Phil.
976 x x x.
Given the fact that the contract in Emma's favor is a mere contract to sell, as against Rosario's
contract which, as demonstrated above is one of sale and, in any event, independently of Emma's
contract to sell, she has no claim of a better right unlike Rosario who has, not to mention the fact
that she (Rosario) registered her contract earlier than Emma's, Rosario must prevail.
The lot having been previously sold to Rosario, there was no lot or portion thereof to be later sold
to Maria and to Dulos Realty in 1979 and 1980, respectively.
WHEREFORE, the appealed Joint Decision is hereby REVERSED and SET ASIDE and another is
rendered confirming the title of /'(*
]#02 over subject lot, Lot 1, PSU-205035 containing
an area of 19,545 sq.m., ordering its registration in her name, and dismissing the claims of
ownership of all other claimants. Appellees Maria Cristobal and Dulos Realty and Development
Corporation and all other claimants to subject land including all persons claiming under them are
hereby ordered to vacate and restore possession to appellant Rosario D. Bondoc.
Upon issuance of title to subject lot, appellant Rosario D. Bondoc is ordered to pay the balance of
the purchase price to the heirs of Nicomedes Lozada in accordance with the Agreement of Purchase
and Sale executed by the latter in her favor. This judgment is without prejudice to the rights which
Emma Ver Reyes and Maria Cristobal and Dulos Realty and Development Corporation might have
against the estate or surviving heirs of Nicomedes Lozada to the extent that the latter was/were
benefited.[38] (Emphasis ours.)
Aggrieved, Emma and her husband Ramon,[39] as well as Maria and Dulos Realty,[40] without seeking
reconsideration of the appellate court's decision, filed directly before this Court separate Petitions
for Review on #

under Rule 45 of the Rules of Court, docketed as G.R. No. 139047 and G.R.
No. 139365, respectively, assailing the 17 June 1999 Decision of the appellate court. Upon the
manifestation and motion of Maria and Dulos Realty,[41] the two Petitions were ordered
consolidated by this Court in a Resolution[42] dated 13 December 1999.
In their Petition, Emma and her husband Ramon raise the following issues:
I.
WHETHER OR NOT OWNERSHIP OF THE DISPUTED LOT WAS VALIDLY AND LEGALLY
TRANSFERRED TO EMMA VER REYES.
II.
WHETHER OR NOT MARIA CRISTOBAL DULOS AND DULOS REALTY AND DEVELOPMENT
CORPORATION ARE PURCHASERS IN BAD FAITH.
III.
WHETHER OR NOT EMMA VER REYES AND RAMON REYES ARE BARRED BY PRESCRIPTION OR
LACHES.
IV.
WHETHER OR NOT THE COURT OF APPEALS PATENTLY AND GRAVELY ERRED IN CONFIRMING
THE TITLE OF ROSARIO BONDOC OVER THE DISPUTED LOT, ORDERING ITS REGISTRATION IN
HER NAME AND DISMISSING THE CLAIM OF EMMA VER REYES AND RAMON REYES.[43]
Maria and Dulos Realty, on the other hand, submitted in their Petition the following issues for
consideration of this Court:
I.
WHETHER OR NOT BONDOC'S AGREEMENT OF PURCHASE AND SALE AND SPOUSES REYES DEED
OF CONDITIONAL SALE ARE REGISTRABLE ABSOLUTE CONVEYANCES IN FEE SIMPLE TO SERVE
AS BASIS FOR AN AWARD AND REGISTRATION OF THE SUBJECT LOT IN THEIR FAVOR.
II.
WHETHER OR NOT RESPONDENTS BONDOC AND THE REYESES ARE BARRED BY LACHES
AND/OR PRESCRIPTION.
III.
WHETHER OR NOT RESPONDENT BONDOC IS BARRED BY '$A*+#.[44]

The fundamental issue that the Court is called upon to resolve is, in consideration of all the
contracts executed by Nicomedes and/or his heirs involving the subject property, which party
acquired valid and registrable title to the same.
Emma and Ramon contend that although the subject property was conditionally sold to them by
Nicomedes, the "conditionality" of the sale did not suspend the transfer of ownership over the
subject property from Nicomedes to Emma. Even though Nicomedes may automatically rescind the
contract in case of non-payment by Emma of the balance of the purchase price, it did not bar the
transfer of title to the subject property to Emma in the meantime. Emma and Reyes likewise claim
that there was constructive delivery of the subject property to Emma, inasmuch as the Deed of
Conditional Sale in her favor was a public instrument. Furthermore, Emma was in possession of the
subject property in the concept of owner since she had been paying realty taxes for the same, albeit
in the name of Nicomedes (in whose name it was declared), from the time of the sale in 1965 until
1972. Emma and Ramon also assert that Maria and Dulos Realty were in bad faith as the sales of the
subject property in their favor, on 10 August 1969 and 30 July 1980, respectively, occurred only
after the filing of the cases involving the property[45] and the registration of the sale to Emma.
Finally, Emma and Ramon maintain that the Court of Appeals erred in ruling that the contract in
favor of Rosario was a contract of sale for the sole reason that actual possession of the property was
already transferred to the latter.
For their part, Maria and Dulos Realty point out that Emma and Rosario are not holders of absolute
deeds of conveyances over the subject property, which would have entitled them to register the
same in their respective names. They further buttress their alleged superior right to the subject
property based on the execution of two notarized documents of sale in their favor, which
constituted symbolic and constructive delivery of the subject property to them. Maria and Dulos
Realty likewise assert that the claims of Emma and Rosario are already barred by laches and
prescription because they only decided to enforce their respective rights over the subject property
after Domingo's heirs filed with the CFI of Rizal on 27 June 1980 an application for registration of
the subject property, docketed as LRC Case No. LP-553-P, notwithstanding their knowledge of
Nicomedes's death on 29 June 1972. Lastly, Maria and Dulos Realty aver that Rosario is already
barred by
. since her motion to intervene in LRC Case No. 6577, the case instituted by
Nicomedes to register the subject property, was denied by the CFI of Pasig. The dismissal of
Rosario's motion to intervene in the case for registration of the subject property already became
final and executory, thus, barring Rosario from pursuing her claim over the same.
a

After a conscientious review of the arguments and evidence presented by the parties, the Court
finds that the Deed of Conditional Sale between Nicomedes and Emma and the Agreement of
Purchase and Sale between Nicomedes and Rosario were both mere 2#'/2$))and did not
transfer ownership or title to either of the buyers in light of their failure to fully pay for the
purchase price of the subject property.
In #
"#
,[46] this Court effectively provided the guidelines for differentiating
between a contract to sell and a contract of sale, to wit:
The Civil Code defines a 2#'/2</)$, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
Sale, by its very nature, is a 2#$#/)2#'/2.$2/$((&$'<$2$0.?1$'$2#$#. The
essential elements of a contract of sale are the following:
Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
a)
price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. In a 2#'/2$)), the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the happening of
an event, which for present purposes we shall take as the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when
the entire amount of the purchase price is delivered to him. In other words the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer. In '!"( , (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a contract to sell
where the ownership or title is retained by the seller and is not to pass until the full payment of the
price, such payment being a positive suspensive condition and failure of which is not a breach,
casual or serious, but simply an event that prevented the obligation of the vendor to convey title
from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
$,&'$)?'$$';(#-$6#$'-(&<-$.7$2&'&$'? despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a 2#0((#/)2#'/2<
/)$ where the seller may likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated (cf. : :&#
"#
, 133 SCRA 777 [1984]).
However, (<-$&$#(;$2#0((#(<)<())$0-$2#'/2</)$(-$'$.?&$'<$2$0, such
that if there had already been previous delivery of the property subject of the sale to the buyer,
6#$'-(&-$'$/1/(2/))?'/#<$'-$.?$'.?&$'/(#<)/6 without any
further act having to be performed by the seller.
In a 2#'/2$))&#-$<)<())1$#<-$&$#(;$2#0((# which is the full payment

of the purchase price, 6#$'-(&6())#/1/(2/))?'/#<$'-$.?$' although the
property may have been previously delivered to him. The &'&$2(;$$))$'())-/2#;$?
()$-$&'&$2(;$.?$'.?$#$'(#(#/2#'/2</.)$/)$
(Emphases ours.)
Also in #
"#
, the Court highlighted the importance of making the distinction
between a contract to sell and a contract of sale:
It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with,
but to a third person, as in the case at bench. In a 2#'/2$)), there being no previous sale of
the property, a third person buying such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in
bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is
no double sale in such case. Title to the property will transfer to the buyer after registration
because there is no defect in the owner-seller's title
, but the latter, of course, may be sued for
damages by the intending buyer.
In a 2#0((#/)2#'/2</)$, however, upon the fulfillment of the suspensive condition, the
sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had
been previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer
to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such defect in the seller's title, or at least was
charged with the obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the sale.[47]
Even in the absence of an express stipulation to such effect, the intention of the parties to execute a
contract to sell may be implied from the provisions of the contract. While Article 1478[48] of the Civil
Code recognizes the right of the parties to agree that the ownership of the thing shall not pass to the
purchaser until he has fully paid the price therefore, the same statutory provision does not require
that such be expressly stipulated in the contract.
In

+"#
,[49] the Court ruled that since the contract between the
parties therein did not contain a stipulation on reversion or reconveyance of the property to the
seller in the event that the buyer did not comply with its obligation, it may legally be inferred that
the parties never intended to transfer ownership to the buyer prior to the completion of the
payment of the purchase price. Consequently, the contract involved in the aforementioned case was
a mere contract to sell.
An agreement is also considered a contract to sell if there is a stipulation therein giving the vendor
the rights to unilaterally rescind the contract the moment the vendee fails to pay within a fixed
period and to consequently open the subject property anew to purchase offers.[50] In the same vein,
where the seller promises to execute a deed of absolute sale upon the completion by the buyer of
the payment of the price, the contract is only a contract to sell.[51]
Viewed in light of the foregoing pronouncements, the Deed of Conditional Sale executed by
Nicomedes in favor of Emma on 23 June 1965 is unmistakably a mere contract to sell. The Court
looks beyond the title of said document, since the denomination or title given by the parties in their
contract is not conclusive of the nature of its contents.[52] In the construction or interpretation of an
instrument, the intention of the parties is primordial and is to be pursued.[53] If the terms of the
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control. If the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.[54]
A simple reading of the terms of the 23 June 1965 Deed of Conditional Sale readily discloses that it
contains stipulations characteristic of a contract to sell. It provides for the automatic cancellation of
the contract should Emma fail to pay the purchase price as required therein; and, in such an event,
it grants Nicomedes the exclusive right to thereafter sell the subject property to a third person. As
in

, the contract between Nicomedes and Emma does not provide for reversion or
reconveyance of the subject property to Nicomedes in the event of nonpayment by Emma of the
purchase price. More importantly, the Deed in question clearly states that Nicomedes will issue a
final deed of absolute sale only upon the full payment of the purchase price for the subject property.
Taken together, the terms of the Deeds reveal the evident intention of the parties to reserve
ownership over the subject property to Nicomedes pending payment by Emma of the full purchase
price for the same.
While the Deed of Conditional Sale dated 23 June 1965 was indeed contained in a public
instrument, it did not constitute constructive delivery of the subject property to Emma in view of
the contrary inference in the Deed itself that the ownership over the subject property was reserved
by Nicomedes.[55] Moreover, other than her claim that she paid the realty taxes on the subject
property, Emma did not present any evidence that she took actual and physical possession of the
subject property at any given time.
This Court also finds that, contrary to the ruling of the Court of Appeals, the Agreement of Purchase
and Sale executed by Nicomedes in favor of Rosario on 14 June 1968 is likewise a mere contract to
sell.
The Agreement itself categorically states that Nicomedes only undertakes to sell the subject
property to Rosario upon the payment of the stipulated purchase price and that an absolute deed of
sale is yet to be executed between the parties. Thus:
NOW, THEREFORE, for and in consideration of the foregoing premises and of the sum of ONE
HUNDRED SEVENTY FIVE THOUSAND NINE HUNDRED FIVE PESOS (P175,905.00) Philippine
Currency, which the BUYER shall pay to the SELLER in the manner and form hereinafter specified,
-$m .?-$$&'$$#-$'$.?/'$$0/#02#'/2$0$))/))-('(-(#$'$
()$/#06#$'-(&;$'-$&/'2$)<)/#0,,,#-$] 6--$'$.?/'$$/#0
.(#0-$'$)<&'2-/$<'1-$<'1$'-$/<'$/(0&/'2$)<)/#0, subject to the
following terms and conditions:
1. Upon the execution of this Agreement, the BUYER shall pay the SELLER, the sum of FIFTEEN
THOUSAND PESOS (P15,000.00), Philippine Currency.
2. That upon the delivery by the SELLER to the BUYER of a valid title of the aforesaid parcel of land,
free from any and all liens and encumbrances, and -$$,$2(#<-$<(#/)*$$0<m/)$, the
BUYER shall pay to the SELLER, the sum of THIRTY SEVEN THOUSAND SEVEN HUNDRED FIVE
PESOS (P37,705.00) Philippine Currency, and the final balance of ONE HUNDRED TWENTY THREE
THOUSAND AND TWO HUNDRED PESOS (P123,200.00) Philippine Currency, one year from the
date of the execution of the final deed of sale, all without interest.[56] (Emphases ours.)
The Agreement additionally grants Nicomedes the right to automatically cancel the same in the
event of nonpayment by Rosario of any of the specified sums therein and any improvement
introduced in the subject property shall thereby accrue to Nicomedes, ",:
3. That (#-$$;$#-$] </()&/?/#?/1#/&$2(<($0(#m$2(#8/'/'/&-
-$#-(2#'/2-/)).?-$1$'$</2<##&/?1$#$,&('$($)</#0-/)).$
2#(0$'$0/1/(2/))?2/#2$))$0<#;/)$/#0$<<$2, and immediately thereafter the
SELLER shall return to the buyer the sums of money he had received from the BUYER without any
interests and 6-/$;$'(1&';$1$#'(1&';$1$#1/0$'(#'02$0.?-$] #
-$).$(#)0-/))/22'$-$6#$'-(&/#0&$(#<-$m .[57]
As can be clearly read above, only the rights to possess the property and construct improvements
thereon have been evidently given to Rosario. The provisions of the Agreement do not in any way
indicate that the ownership of the subject property has likewise been transferred to Rosario. That
Nicomedes shall appropriate the improvements as his own should Rosario default in her payment
of the purchase price only further supports the conclusion that title to the subject property itself
still remained with Nicomedes.
The Court concludes that the Deed of Conditional Sale in favor of Emma and the Agreement of
Purchase and Sale in favor of Rosario were mere contracts to sell. As both contracts remained
unperfected by reason of the non-compliance with conditions thereof by all of the parties thereto,
Nicomedes can still validly convey the subject property to another buyer. This fact, however, is
without prejudice to the rights of Emma and Rosario to seek relief by way of damages against the
estate and heirs of Nicomedes to the extent that the latter were benefited by the sale to succeeding
buyers.[58]
Thus, the Deeds of Absolute Sale in favor of Maria and Dulos Realty were the only conveyances of
the subject property in this case that can be the source of a valid and registrable title. Both
contracts were designated as absolute sales and the provisions thereof leave no doubt that the
same were true contracts of sale. The total considerations for the respective portions of the subject
property were fully paid by the buyers and no conditions whatsoever were stipulated upon by the
parties as regards the transmission of the ownership of the said property to the said buyers.
The fact that Rosario was the first among the parties to register her contract in the Registry of
Property for Unregistered Lands on 10 March 1969 is of no moment.
Act No. 3344,[59] which amended Section 194 of the Administrative Code, enunciates that any
registration made under Section 194 of the Administrative Code "shall be understood to be without
prejudice to a third party who has a better right."
In this case, Maria and Dulos Realty acquired their title to the property in separate deeds of
absolute sale executed in their favor by Nicomedes and his heirs. Upon the execution of these deeds,
the ownership of the subject property was vested unto the said buyers instantly, unlike the
contracts to sell executed in favor of Emma and Rosario. Consequently, the rights to the subject
property of Maria and Dulos Realty, acquired through the contracts of sale in their favor, are
undeniably better or superior to those of Emma or Rosario, and can thus be confirmed by
registration.
In sum, this Court recognizes the valid and registrable rights of Maria and Dulos Realty to the
subject property, but without prejudice to the rights of Emma and Rosario to seek damages against
the estate and heirs of Nicomedes.
=4, premises considered, the Petition in G.R. No. 139047 is **, while the Petition
in G.R. No. 139365 is *. The assailed Decision of the Court of Appeals in CA-G.R. CV No.
35688 dated 17 June 1999 is mm* and the Decision dated 25 November 1991 of the Regional
Trial Court of Pasay City, Branch 119, is m*. No costs.
m**
& D $

D3
and '$$ concur.
*Per Special Order No. 517, dated 27 August 2008, signed by Chief Justice Reynato S. Puno,
designating Associate Justices Dante O. Tinga and Presbitero J. Velasco, Jr. to replace Associate
Justices Consuelo Ynares-Santiago and Ma. Alicia Austria-Martinez, who are on official leave.
[1] ' (G.R. No. 139047), pp. 33-57;

(G.R. No. 139365), pp. 14-36.
[2] Penned by Associate Justice Conchita Carpio-Morales (now an Associate Justice of this Court)
with Associate Justices Artemon D. Luna and Bernardo P. Abesamis, concurring;
(G.R. No.
139047), pp. 11-29.
[3] Penned by Judge Aurora P. Navarrete-ReciÃ±a;

(G.R. No. 139047), pp. 124-129.
[4] There appears to be a discrepancy between the statement of the Court of Appeals and some
relevant documents forming part of the records of this case with respect to the total land area of the
parcel of land declared in the name of Domingo. The appellate court declared that the said property
had a total area of 39,091 square meters [' (G.R. No. 139047), p. 12], while in the Deed of Extra-
judicial Settlement of Estates filed by the heirs of Domingo by his second marriage, ., Nicomedes
and the heirs of Pablo, the said property contained a total area of 46,387 square meters (Records,
Vol. 1, p. 351).
[5] Exhibit "G" for Applicants Salvador, et al., Records, Vol. 1, p. 162.
[6] Exhibit "F," id. at 161.
[7] Exhibit "8" for Oppositors Dulos, Records, Vol. 1, p. 349.
[8] Exhibit "10," id. at 351-353.
[9] Exhibits "G and H" for Applicants Salvador, et al., Records, Vol. 1, pp. 162-163.
[10] Exhibit "K" for Reyes, Records, Vol. 2.
[11] ' (G.R. No. 139047), pp. 107-108.
[12] The Court of Appeals cites the specific date as 12 August 1969 (' , G.R. No. 139047, p. 13),
while the RTC states the date as 13 August 1969 (' , G.R. No. 139047, p. 128). The Memorandum
of the Spouses Reyes, however, claim that the date of registration was 14 August 1969 (' , G.R.
No. 139365, p. 99).
[13] Records, Vol. 1, pp. 257-258.
[14] ' (G.R. No. 139047), p. 262.
[15] Id. at 261.
[16] Id. at 268-269.
Maria Q. Cristobal is married to Juan B. Dulos, President of Dulos Realty and Development
[17]
Corporation, and is sometimes referred to as Maria Q. Cristobal Dulos.
[18] ' (G.R. No. 139047), p. 269.
Adrilina Lozada Vda. De Baltasar, Servando Lozada, Presentacion Lozada Pagtalunan, and Lolita
[19]
Lozada Feliciano.
Teresita Lozada, Danilo Lozada, Evelyn Lozada, Josephine Lozada, Maria Victoria Lozada and
[20]
Grace Lozada.
[21] Exhibit "2" for Oppositors Dulos, Records, Vol. 1, pp. 334-338.
[22] With the exception of Danilo Lozada.
[23] ' (G.R. No. 139047), pp. 270-274.
Dominador Salvador, Emilio Fuerte, Trinidad Lozada Castillo, Rosalina Padlan and Aurora
[24]
Tolentino
[25] Exhibit "10" for Oppositor Bondoc, Records, Vol. 2, p. 20.
[26] Records, Vol. 1, pp. 217-218.
Dominador Salvador, Emilio Fuerte, Trinidad Lozada Castillo, Rosalina Padlan and Aurora
[27]
Tolentino
[28] ' (G.R. No. 139047), pp. 109-110.
[29] Id. at 111-114.
[30] Records, Vol. 1, p. 65.
[31]The CFI of Rizal dismissed Civil Case No. Pq-8557-P on 11 January 1984 in view of Rosario's
alleged failure to exert the proper efforts in prosecuting her case (Exhibit "10" for Oppositor
Bondoc, Records, Vol. 2, p. 60). However, the CFI of Rizal later on, on 29 February 1984, ordered
that the case be referred instead to the RTC of Makati, as the subject property was located in Las
PiÃ±as (Exhibit "10" for Oppositor Bondoc, Records, Vol. 2, p. 61). The case was docketed as Civil
Case No. 6914 before the RTC of Makati. The RTC of Makati likewise dismissed without prejudice
Civil Case No. 6914 on 29 May 1985 as Rosario supposedly failed to prosecute her case despite the
lapse of four years since the institution thereof (Exhibit "10" for Oppositor Bondoc, Records, Vol. 2,
p. 62). Rosario filed with the RTC of Makati a Manifestation (Exhibit "10" for Oppositor Bondoc,
Records, Vol. 2, pp. 63-64) explaining that she did not pursue her case before the said court since
she already received an Order from the RTC of Pasay City setting her case for hearing. Pursuant to
Rosario's Manifestation, the RTC of Makati ordered on 1 July 1985 that the records of the case be
forwarded to the RTC of Pasay City, Branch 112 (Exhibit "10" for Oppositor Bondoc, Records, Vol. 2,
p. 68). The cases were re-raffled to Branch 119 of the same court.
[32] ' (G.R. No. 139047), p. 129.
[33] CA
, p. 160; Records, Vol. 1, pp. 472-473, 482-483.
[34] CA
, pp. 17-18.
[35] Id. at 128-129.
[36] Id. at 47.
[37] ' (G.R. No. 139047), pp. 132-152, 159-169.

[38] Id. at 26-29.
[39] Id. at 33-57.
[40] ' , (G.R. No. 139365), pp. 14-36.
[41] ' (G.R. No. 139047), pp. 226-228.
[42] Id. at 229-230.
[43] ' (G.R. No. 139365), p. 101.
[44] Id. at 148-149.
[45]LRC Case No. N-6577, which was filed on 11 April 1966, and LRC Case No. LP-553-P, which was
filed on 27 June 1980.
[46] 331 Phil. 294, 308-311 (1996).
[47] Id. at 311.
Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser
[48]
until he has fully paid the price.
[49] 310 Phil. 623 (1995).
[50] 3 % "#

, 330 Phil. 1048, 1070-1071 (1996).
[51] Id.
(
+"' %
*" #

, G.R. No. 163075, 23 January
[52]
2006, 479 SCRA 462, 467-468.
[53] Id.
[54] NEW CIVIL CODE, Article 1370.
See

*" #

"

, 159 Phil. 998, 1007-1008
[55]
(1975).
[56] Records, Vol. 1, p. 257.
[57] Id.
[58] See #
"#
supra note 46.
An Act to amend section one hundred and ninety-four of the Administrative Code, as amended
[59]
by Act Numbered Two thousand eight hundred and thirty-seven, concerning the recording of
instruments relating to land not registered under Act Numbered four hundred and ninety-six,
entitled "The Land Registration Act," and fixing the fees to be collected by the register of deeds for
instruments recorded under said Act.

m
Manila
EN BANC

8*$2$1.$'8%
m 4 *:4 petitioners,

vs.
44
m/#0] *
respondents.

A
B

"

p
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December
1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of
execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-
41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by
Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng
and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-
41058, alleging, among others, that plaintiffs are tenants or lessees of residential
and commercial spaces owned by defendants described as Nos. 630-638 Ongpin
Street, Binondo, Manila; that they have occupied said spaces since 1935 and have
been religiously paying the rental and complying with all the conditions of the lease
contract; that on several occasions before October 9, 1986, defendants informed
plaintiffs that they are offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of
P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs
thereafter asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on
October 24, 1986 asking that they specify the terms and conditions of the offer to
sell; that when plaintiffs did not receive any reply, they sent another letter dated
January 28, 1987 with the same request; that since defendants failed to specify the
terms and conditions of the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants' offer to
sell was never accepted by the plaintiffs for the reason that the parties did not agree
upon the terms and conditions of the proposed sale, hence, there was no contract of
sale at all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or below,
plaintiffs will have the right of first refusal. Thus the dispositive portion of the
decision states:
WHEREFORE, judgment is hereby rendered in favor of the

defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for a
purchase price of Eleven Million Pesos or lower, then the plaintiffs
has the option to purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by
Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification the lower court's
judgment, holding:
In resume, there was no meeting of the minds between the parties

concerning the sale of the property. Absent such requirement, the
claim for specific performance will not lie. Appellants' demand for
actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render summary
judgment when there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law (Garcia
vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court !is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment

appealed from is hereby AFFIRMED, but subject to the following
modification: The court ! in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is
sold for a purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of first
refusal to herein appellants in the event that the subject property is
sold for a price in excess of Eleven Million pesos. No pronouncement
as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review
on

. The Supreme Court denied the appeal on May 6, 1991 "for
insufficiency in form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by
this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition)
transferring the property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION

PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys for
and in favor of the VENDEE, his heirs, executors, administrators or
assigns, the above-described property with all the improvements
found therein including all the rights and interest in the said
property free from all liens and encumbrances of whatever nature,
except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax,

registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng
spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name
of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter
to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of regarding Civil Case No. 87-
41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No.
21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as
follows:
Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu
Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and
Atty. Anacleto Magno respectively were duly notified in today's
consideration of the motion as evidenced by the rubber stamp and
signatures upon the copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6,
1991, stating that the aforesaid modified decision had already
become final and executory.
It is the observation of the Court that this property in dispute was

the subject of the 3 (and that the modified
decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide to
offer the property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold for
a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the

necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right
of first refusal and that a new Transfer Certificate of Title be issued
in favor of the buyer.
All previous transactions involving the same property

notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-

entitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the property in
litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of P15,000,000.00 and ordering the
Register of Deeds of the City of Manila, to cancel and set aside the
title already issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants and to
register the new title in favor of the aforesaid plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C,
Petition) was issued.
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court !.
In this petition for review on

, petitioners contend that Buen Realty can be held bound by
the writ of execution by virtue of the notice of , carried over on TCT No. 195816 issued in
the name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991
from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such arrangements as
the right of first refusal, a purchase option and a contract to sell. For ready reference, we might
point out some fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (

¢¢7#" #). The obligation
is constituted upon the concurrence of the essential elements thereof, ",: (a) The " .
or
.
which is the efficient cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts); (b) the .which is the prestation or
conduct; required to be observed (to give, to do or not to do); and (c) the .
who,
viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor)
subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give something or to
render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its consummation. 3& covers the
period
the time the prospective contracting parties indicate interest in the contract the time
the contract is concluded (perfected). The
of the contract takes place upon the
concurrence of the essential elements thereof. A contract which is as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the
object and on the cause thereof. A contract which requires, in addition to the above, the delivery of
the object of the agreement, as in a pledge or , is commonly referred to as a

contract. In a contract, compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the prescribed form being
thereby an essential element thereof. The stage of begins when the parties perform
their respective undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation. In sales, particularly, to which the topic for discussion about the case at bench
belongs, the contract is perfected when a person, called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over
which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is but , such as in a "Contract to Sell" where invariably the
ownership of the thing sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force.8In *&"#
(158
SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any
"that title is reserved or the right to unilaterally
rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the
property sold. Where the condition is imposed upon the perfection of the contract itself, the failure
of the condition would prevent such perfection.If the condition is imposed on the obligation of a
party which is not fulfilled, the other party may either waive the condition or refuse to proceed with
the sale (Art. 1545, Civil Code).%
An unconditional
to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted.
An

which the &
paid,
"
and

, is what may properly be
termed a perfected contract of . This contract is legally binding, and in sales, it conforms with
the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price

certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price. (1451a)
Observe, however, that the option is the contract of sale itself.9 The optionee has the right, but
not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise

8 9 is merely an offer. Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. These relations, until a contract
is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing
and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which to accept the offer, the following rules generally
govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree
(see
¢6EF#" #5 C
B#"# ¢?E F, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in
>
&
" EF 5see also
¢6¢ #" #5'
%
- !
+"' ¢67#'F? 5 ,"'&F7#'6). The right to withdraw, however,
must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim
under Article 19 of the Civil Code which ordains that "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."
(2) If the period has a separate consideration, a contract of "option" is deemed

, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected main
agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the
optioner-offeror

(exercise of the option) by the optionee-
offeree, the latter may not sue for

on the proposed contract ("object" of the
option) since it has failed to reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the option. In these cases, care should be taken of
the real nature of the
given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of the optionee, the main
contract could be deemed perfected; a similar instance would be an "earnest money" in a contract
of sale that can evidence its perfection (
¢FE#" #).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless
to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code.
Neither can the right of first refusal, understood in its normal concept,
be brought within the
purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 1319of the same Code. An option or an offer would require, among other
things,a clear certainty on both the object and the cause or consideration of the envisioned
contract. In a right of first refusal, while the object might be made determinate, the exercise of the
right, however, would be dependent not only on the grantor's eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that obviously are yet
to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of
preparatory juridical relations governed not by contracts (since the essential elements to establish
the " .
would still be indefinite and inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like
here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment
that merely recognizes its existence, nor would it sanction an action for specific performance
without thereby negating the indispensable element of consensuality in the perfection of contracts.
is not to say, however, that the right of first refusal would be inconsequential for, such as
It
already intimated above, an unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 198of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of
first refusal" in favor of petitioners. The consequence of such a declaration entails no more than
what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by
the failure of private respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for damages in a proper
forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any
case, be considered bound to respect the registration of the in Civil Case No. 87-41058
are matters that must be independently addressed in appropriate proceedings. Buen Realty, not
having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution
issued by respondent Judge, let alone ousted from the ownership and possession of the property,
without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the
writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-
G.R. CV-21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial
court as modified by this Court. As already stated, there was nothing in said decision
that decreed the execution of a deed of sale between the Cu Unjiengs and
respondent lessees, or the fixing of the price of the sale, or the cancellation of title in
the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng
Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122
SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed
at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders,
dated 30 August 1991 and 27 September 1991, of the court !. Costs against petitioners.
SO ORDERED.
3
" #$ %'& * "$
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.
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1 ' , pp. 32-38.
2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.
3 See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777.
4 Delta Motor Corporation vs. Genuino, 170 SCRA 29.
5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948.
6 It is well to note that when the consideration given, for what otherwise would
have been an option, partakes the nature in reality of a part payment of the
purchase price (termed as "earnest money" and considered as an initial payment
thereof), an actual contract of sale is deemed entered into and enforceable as such.
7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982.
8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.
9 Article 1319, Civil Code, provides:
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.

and the acceptance absolute. A qualified acceptance constitutes a counter-
offer. (Emphasis supplied.)
10 It is also essential for an option to be binding that valuable consideration distinct

from the price should be given (see Montilla vs. Court of Appeals, 161 SCRA 167;
Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co., Inc., 78 SCRA 331).
11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil.
38; Salonga vs. Ferrales, 105 SCRA 359).
12 Art. 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good
faith.
13 The decision referred to reads:
In resume, there was no meeting of the minds between the parties concerning the
sale of the property. Absent such requirement, the claim for specific performance
will not lie. Appellants' demand for actual, moral and exemplary damages will
likewise fail as there exists no justifiable ground for its award. Summary judgment
for defendants was properly granted. Courts may render summary judgment when
there is no genuine issue as to any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the court ! is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is
hereby AFFIRMED, but subject to the following modification: The court ! in the
aforestated decision, gave the plaintiffs Ȅ considering the mercurial and uncertain
forces in our market economy today. We find no reason not to grant the same right
of first refusal to herein appellants in the event that the subject property is sold for a
price in excess of Eleven Million pesos. No pronouncement as to costs.
4 + m * 5

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vs.
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This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the
Decision1 of the Court of Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals
decision reversed and set aside the Decision2 dated May 13, 1996 of Branch 217 of the Regional
Trial Court of Quezon City in Civil Case No. Q-93-18582.¢¢G
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and
Federico Bantugan, herein respondents, against Rosencor Development Corporation (hereinafter
"Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for annulment
of absolute deed of sale but was later amended to one for rescission of absolute deed of sale. A
complaint-for intervention was thereafter filed by respondents Fernando Magbanua and Danna
Lizza Tiangco. The complaint-in-intervention was admitted by the trial court in an Order dated May
4, 1994.3
The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:
"This action was originally for the annulment of the Deed of Absolute Sale dated September
4, 1990 between defendants Rosencor and Eufrocina de Leon but later amended (sic)
praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-
story residential apartment located at No. 150 Tomas Morato Ave., Quezon City covered by
TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The lease was not
covered by any contract. The lessees were renting the premises then for P150.00 a month
and were allegedly verbally granted by the lessors the pre-emptive right to purchase the
property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by the late spouses Tiangcos. The
lessees continued to stay in the premises and allegedly spent their own money amounting
from P50,000.00 to P100,000.00 for its upkeep. These expenses were never deducted from
the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they
vacate the premises so that the demolition of the building be undertaken. They refused to
leave the premises. In that same month, de Leon refused to accept the lesseesǯ rental
payment claiming that they have run out of receipts and that a new collector has been
assigned to receive the payments. Thereafter, they received a letter from Eufrocina de Leon
offering to sell to them the property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De
Leon told them that she will be submitting the offer to the other heirs. Since then, no answer
was given by de Leon as to their offer to buy the property. However, in November 1990,
Rene Joaquin came to the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding that
they vacate the premises. A month thereafter, the lessees received a letter from de Leon
advising them that the heirs of the late spouses Tiangcos have already sold the property to
Rosencor. The following month Atty. Aguila wrote them another letter demanding the rental
payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of
the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she and
the late Tiangcos have promised them. They also asked for a copy of the deed of sale
between her and the new owners thereof but she refused to heed their request. In the same
manner, when they asked Rene Joaquin a copy of the deed of sale, the latter turned down
their request and instead Atty. Aguila wrote them several letters demanding that they
vacate the premises. The lessees offered to tender their rental payment to de Leon but she
refused to accept the same.
In April 1992 before the demolition can be undertaken by the Building Official, the barangay
interceded between the parties herein after which Rosencor raised the issue as to the rental
payment of the premises. It was also at this instance that the lessees were furnished with a
copy of the Deed of Sale and discovered that they were deceived by de Leon since the sale
between her and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon
made the offer to them only in October 1990 or after the sale with Rosencor had been
consummated. The lessees also noted that the property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional
P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused,
they filed the present action praying for the following: a) rescission of the Deed of Absolute
Sale between de Leon and Rosencor dated September 4, 1990; b) the defendants
Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and c) de Leon be
ordered to reimburse the plaintiffs for the repairs of the property, or apply the said amount
as part of the price for the purchase of the property in the sum of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a Decision5 dated May 13, 1996
dismissing the complaint. The trial court held that the right of redemption on which the complaint.
The trial court held that the right of redemption on which the complaint was based was merely an
oral one and as such, is unenforceable under the law. The dispositive portion of the May 13, 1996
Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs
and plaintiffs-intervenors are hereby ordered to pay their respective monthly rental of
P1,000.00 per month reckoned from May 1990 up to the time they leave the premises. No
costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated
June 3, 1996. On the same date, the trial court issued an Order for the elevation of the records of the
case to the Court of Appeals. On August 8, 1997, respondents filed their appellate brief before the
Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision7 reversing the decision of the trial
court. The dispositive portion of the June 25, 1999 decision is as follows:
"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the
Regional Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby
REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between the appellees on
September 4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon,
to afford the appellants thirty days within which to exercise their right of first
refusal by paying the amount of ONE MILLION PESOS (P1,000,000.00) for the
subject property; and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to
the time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the
same was denied in a Resolution dated October 15, 1999.9
Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation
and Rene Joaquin raise the following assignment of errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE
ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN MANDATING THAT

EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR
RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS

HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE PETITIONERSǯ RELIANCE
ON THEIR DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia Tiangco, did
not appeal the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional Trial Court relied on Article
1403 of the New Civil Code, more specifically the provisions on the statute of frauds, in coming out
with their respective decisions. The trial court, in denying the petition for reconveyance, held that
right of first refusal relied upon by petitioners was not reduced to writing and as such, is
unenforceable by virtue of the said article. The Court of Appeals, on the other hand, also held that
the statute of frauds governs the "right of first refusal" claimed by respondents. However, the
appellate court ruled that respondents had duly proven the same by reason of petitionersǯ waiver of
the protection of the statute by reason of their failure to object to the presentation of oral evidence
of the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold issue of
whether or not a right of first refusal is indeed covered by the provisions of the New Civil Code on
the statute of frauds. The resolution of the issue on the applicability of the statute of frauds is
important as it will determine the type of evidence which may be considered by the trial court as
proof of the alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which require certain classes of contracts to
be in writing. This statute does not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the contract necessary to render it
enforceable. Thus, they are included in the provisions of the New Civil Code regarding
unenforceable contracts, more particularly Art. 1403, paragraph 2. Said article provides, as follows:
"Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a year from the
making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to

marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the
time some part of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of purchasers and
person on whose account the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of
real property or of an interest therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the party to be
charged.11 Moreover, the statute of frauds refers to specific kinds of transactions and cannot apply
to any other transaction that is not enumerated therein.12 The application of such statute
presupposes the existence of a perfected contract.13
The question now is whether a "right of first refusal" is among those enumerated in the list of
contracts covered by the Statute of Frauds. More specifically, is a right of first refusal akin to "an
agreement for the leasing of a longer period than one year, or for the sale of real property or of an
interest therein" as contemplated by Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements "affecting land" must be put into writing to attain
enforceability.14 Thus, we have held that the setting up of boundaries,15 the oral partition of real
property16, and an agreement creating a right of way17 are not covered by the provisions of the
statute of frauds. The reason simply is that these agreements are not among those enumerated in
Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute of frauds.
Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the
existence of a perfected, albeit unwritten, contract of sale.18 A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected contract of sale of real property. At
best, it is a contractual grant, not of the sale of the real property involved, but of the right of first
refusal over the property sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases involving a right of first
refusal. As such, a right of first refusal need not be written to be enforceable and may be proven by
oral evidence.
The next question to be ascertained is whether or not respondents have satisfactorily proven their
right of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that respondents have
adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo,
and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and
Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were
currently leasing should they decide to sell the same. Moreover, respondents presented a letter20
dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs of the spouses
Tiangco, informed them that they had received an offer to buy the disputed property for
P2,000,000.00 and offered to sell the same to the respondents at the same price if they were
interested. Verily, if Eufrocina de Leon did not recognize respondentsǯ right of first refusal over the
property they were leasing, then she would not have bothered to offer the property for sale to the
respondents.
It must be noted that petitioners did not present evidence before the trial court contradicting the
existence of the right of first refusal of respondents over the disputed property. They only
presented petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted having
no personal knowledge of the details of the sales transaction between Rosencor and the heirs of the
spouses Tiangco21. They also dispensed with the testimony of Eufrocina de Leon22 who could have
denied the existence or knowledge of the right of first refusal. As such, there being no evidence to
the contrary, the right of first refusal claimed by respondents was substantially proven by
respondents before the lower court.
Having ruled upon the question as to the existence of respondentsǯ right of first refusal, the next
issue to be answered is whether or not the Court of Appeals erred in ordering the rescission of the
Deed of Absolute Sale dated September 4, 1990 between Rosencor and Eufrocina de Leon and in
decreeing that the heirs of the spouses Tiangco should afford respondents the exercise of their right
of first refusal. In other words, may a contract of sale entered into in violation of a third partyǯs
right of first refusal be rescinded in order that such third party can exercise said right?
The issue is not one of first impression.
In , % & #+"%"23, the Court upheld the decision of a lower court
ordering the rescission of a deed of sale which violated a right of first refusal granted to one of the
parties therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the
Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason
of injury to third persons, like creditors. The status of creditors could be validly accorded
the Bonnevies for they had substantial interests that were prejudiced by the sale of the
subject property to the petitioner without recognizing their right of first priority under the
Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and
even to third persons, to secure reparations for damages caused to them by a contract, even
if this should be valid, by means of the restoration of things to their condition at the
moment prior to the celebration of said contract. It is a relief allowed for the protection of
one of the contracting parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferent right created by the
contract. Rescission implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act in bad faith. However, this
rule is not applicable in the case before us because the petitioner is not considered a third
party in relation to the Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good faith for the record shows that it
categorically admitted that it was aware of the lease in favor of the Bonnevies, who were
actually occupying the subject property at the time it was sold to it. Although the occupying
the subject property at the time it was sold to it. Although the Contract of Lease was not
annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent
to and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without
notice that some other person has a right to or interest in such property without and pays a
full and fair price for the same at the time of such purchase or before he has notice of the
claim or interest of some other person in the property. Good faith connotes an honest
intention to abstain from taking unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of
the lease of the property by the Bonnevies and such knowledge should have cautioned it to
look deeper into the agreement to determine if it involved stipulations that would prejudice
its own interests."
Subsequently24 in !
' *" +"

+25, the Court,
, with three justices dissenting,26 ordered the rescission of a contract entered into in violation
of a right of first refusal. Using the ruling in , % &B#+"%" as basis, the
Court decreed that since respondent therein had a right of first refusal over the said property, it
could only exercise the said right if the fraudulent sale is first set aside or rescinded. Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that
Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It
is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of
its intention to sell the said property in 1974. There was an exchange of letters evidencing
the offer and counter-offers made by both parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially recognized Mayfairǯs right of first refusal,
Carmelo violated such right when without affording its negotiations with Mayfair the full
process to ripen to at least an interface of a definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold, without prior notice to
Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in
question, rescissible. We agree with respondent Appellate Court that the records bear out
the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to
the sale, studied the said contracts. As such, Equatorial cannot tenably claim that to be a
purchaser in good faith, and, therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights of
and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract or lease prior to the sale.
Equatorialǯs knowledge of the stipulations therein should have cautioned it to look further
into the agreement to determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent sale is
first set aside or rescinded. All of these matters are now before us and so there should be no
piecemeal determination of this case and leave festering sores to deteriorate into endless
litigation. The facts of the case and considerations of justice and equity require that we
order rescission here and now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by the contract. The sale of the
subject real property should now be rescinded considering that Mayfair, which had
substantial interest over the subject property, was prejudiced by the sale of the subject
property to Equatorial without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulate periond.27
In
!C&

+"#
28 the Court held that the allegations in a
complaint showing violation of a contractual right of "first option or priority to buy the properties
subject of the lease" constitute a valid cause of action enforceable by an action for specific
performance. Summarizing the rulings in the two previously cited cases, the Court affirmed the
nature of and concomitant rights and obligations of parties under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the amount of
P9,000,000.00, the price for which they were finally sold to respondent Raymundo, should
have likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations
under, a right of first refusal in the case of , % &B#"%". In that case,
under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of
first priority" to purchase the leased property in case the lessor (Reynoso) decided to sell.
The selling price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a
mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to
and accepted by Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash
while the balance was to be paid only when the property was cleared of occupants. We held
that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless,
Reynoso could not sell it to another for a lower price and under more favorable terms and
conditions without first offering said favorable terms and price to the Bonnevies as well.
Only if the Bonnevies failed to exercise their right of first priority could Reynoso thereafter
lawfully sell the subject property to others, and only under the same terms and conditions
previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case of !

' "

+ which was decided en banc. This Court upheld the right of first refusal of the lessee
Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty
"considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the
LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same." Carmelo initially offered to sell the leased property
to Mayfair for six to seven million pesos. Mayfair indicated interest in purchasing the
property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo.
Four years later, the latter sold its entire Recto Avenue property, including the leased
premises, to Equatorial for P11,300,000.00 without priorly informing Mayfair. The Court
held that both Carmelo and Equatorial acted in bad faith: Carmelo or knowingly violating
the right of first option of Mayfair, and Equatorial for purchasing the property despite being
aware of the contract stipulation. In addition to rescission of the contract of sale, the Court
ordered Carmelo to allow Mayfair to buy the subject property at the same price of
P11,300,000.00.
In the recent case of (. "(B'#

,29 the Court, also citing the case of ,
% &B#"%", held that the sale made therein in violation of a right of first refusal
embodied in a mortgage contract, was rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants
upon L&R Corporation the right of first refusal over the mortgaged property in the event the
mortgagor decides to sell the same. We see nothing wrong in this provision. The right of
first refusal has long been recognized as valid in our jurisdiction. The consideration for the
loan mortgage includes the consideration for the right of first refusal. L&R Corporation is in
effect stating that it consents to lend out money to the spouses Litonjua provided that in
case they decide to sell the property mortgaged to it, then L&R Corporation shall be given
the right to match the offered purchase price and to buy the property at that price. Thus,
while the spouses Litonjua had every right to sell their mortgaged property to PWHAS
without securing the prior written consent of L&R Corporation, they had the obligation
under paragraph 9, which is a perfectly valid provision, to notify the latter of their intention
to sell the property and give it priority over other buyers. It is only upon the failure of L&R
Corporation to exercise its right of first refusal could the spouses Litonjua validly sell the
subject properties to the others, under the same terms and conditions offered to L&R
Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporationǯs
contractual right of first refusal? On this score, we agree with the Amended Decision of the
Court of Appeals that the sale made to PWHAS is rescissible. The case of , % &B
#"%" is instructive on this point.
XXX
It was then held that the Contract of Sale there, which violated the right of first refusal, was
rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L &
R Corporation over the subject properties since the Deed of Real Estate Mortgage containing
such a provision was duly registered with the Register of Deeds. As such, PWHAS is
presumed to have been notified thereof by registration, which equates to notice to the
whole world.
XXX
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding
the absence of L & R Corporationǯs prior written consent thereto. Inasmuch as the sale to
PWHAS was valid, its offer to redeem and its tender of the redemption price, as successor-
in-interest of the spouses Litonjua, within the one-year period should have been accepted as
valid by the L & R Corporation. However, while the sale is, indeed, valid, the same is
rescissible because it ignored L & R Corporationǯs right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into
in violation of a right of first refusal of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of this doctrine in the case at
bench. In the cases cited above, the Court ordered the rescission of sales made in violation of a right
of first refusal precisely because the vendees therein could not have acted in good faith as they
were aware or should have been aware of the right of first refusal granted to another person by the
vendors therein. The rationale for this is found in the provisions of the New Civil Code on
rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3, a contract validly
agreed upon may be rescinded if it is "undertaken in fraud of creditors when the latter cannot in
any manner collect the claim due them." Moreover, under Article 1385, rescission shall not 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."30
It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the
instant case was an oral one given to respondents by the deceased spouses Tiangco and
subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad faith,
there must be clear and convincing proof that petitioners were made aware of the said right of first
refusal either by the respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is adduced.31 A
purchaser in good faith is one who buys the property of another without notice that some other
person has a right or interest in such a property and pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest of some other person in the property.32 In
this regard, the rule on constructive notice would be inapplicable as it is undisputed that the right
of first refusal was an oral one and that the same was never reduced to writing, much less
registered with the Registry of Deeds. In fact, even the lease contract by which respondents derive
their right to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in
entering into the deed of sale over the disputed property with the heirs of the spouses Tiangco.
Respondents failed to present any evidence that prior to the sale of the property on September 4,
1990, petitioners were aware or had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 199033 as indicative of petitionersǯ knowledge of the
said right. In this letter, a certain Atty. Erlinda Aguila demanded that respondent Irene Guillermo
vacate the structure they were occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is
made of the right of first refusal granted to respondents. The name of petitioner Rosencor or any of
it officers did not appear on the letter and the letter did not state that Atty. Aguila was writing in
behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the
heirs of the spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in
behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that time that such a
right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified
Rosencor or Atty. Aguila of their right of first refusal over the property. Respondents did not try to
communicate with Atty. Aguila and inform her about their preferential right over the disputed
property. There is even no showing that they contacted the heirs of the spouses Tiangco after they
received this letter to remind them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she
recognized the right of first refusal of respondents, as indicative of the bad faith of petitioners. We
do not agree. Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners
and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of
first refusal. It does not show that petitioners were likewise aware of the existence of the said right.
Moreover, the letter was made a month after the execution of the Deed of Absolute Sale on
September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no
showing that prior to the date of the execution of the said Deed, petitioners were put on notice of
the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on respondentsǯ evidence, it would only be on
the part of Eufrocina de Leon as she was aware of the right of first refusal of respondents yet she
still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina de Leon
does not mean that petitioner Rosencor likewise acted in bad faith. There is no showing that prior
to the execution of the Deed of Absolute Sale, petitioners were made aware or put on notice of the
existence of the oral right of first refusal. Thus, absent clear and convincing evidence to the
contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed
of Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals
thus erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between
petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor of the
property subject of the right of first refusal is an obstacle to the action for its rescission where, as in
this case, it was shown that Rosencor is in lawful possession of the subject of the contract and that
it did not act in bad faith.34
This does not mean however that respondents are left without any remedy for the unjustified
violation of their right of first refusal. Their remedy however is not an action for the rescission of
the Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal35.
WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is
REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City Regional Trial
Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission of the
Deed of Absolute Sale dated September 4, 1990 and orders the payment of monthly rentals of
P1,000.00 per month reckoned from May 1990 up to the time respondents leave the premises.
SO ORDERED.
& & "
,$$

#$
1Penned by Associate Justice Ramon Mabutas, Jr. and concurred in by Associate Justices
Hilarion L. Aquino and Wenceslao I. Agnir. Jr.
2 Penned by Judge Gil P. Fernandez, Sr.
3 RTC Records, p. 80.
4 Rollo, pp. 37-39.

5 Annex "F" of Petition; Rollo, pp. 73-77.
6 Rollo, p. 77.
7 Annex "A" of Petition; Rollo, pp. 36-49.
8 Rollo, pp. 48-49.
9 Annex "B" of Petition; Rollo, pp. 50-51.
10 Rollo, p. 17.
11 Asia Production Co., Inc., et al vs. Pano, et al, 205 SCRA 458.
12Western Mindanao Lumber Co. vs. Medalla, 79 SCRA 708; Cruz vs. J.M. Tuazon, 76 SCRA
543.
13 Villanueva vs. Court of Appeals, 267 SCRA 89.
14 Victorino Hernandez vs. Court of Appeals, 160 SCRA 321.
15 Ibid.
16 Simprosa Vda. De Espina vs. Abaya, 196 SCRA 312.
17 Western Mindanao Lumber Co. vs. Medalla, supra.
18 Villanueva vs. Court of Appeals,

19 Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc., 264 SCRA 483.
20 Exhibit "B"; RTC Records, p. 177.
21 T.S.N., October 05, 1995, p. 33.
23 206 SCRA 668.
24 Previous to this case, the Court promulgated the case of &<"
#
, 238 SCRA 602. In this case, the Court refused to rescind a contract of sale
which violated the right of first refusal of petitioner therein. The Court characterized a right
of first refusal as belonging to a class of preparatory juridical relations governed not by
contracts but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct. The Court held that the breach of the right of
first refusal granted to a party cannot justify the issuance of a writ of execution, nor would it
sanction an action for specific performance as the indispensable element of consensuality in
contracts would be negated. As such, the remedy of a person aggrieved by an unjustified
disregard of his right of first refusal is not an action for the rescission of the contract but an
action for recovery of damages under Article 19 of the Civil Code. On the issue of whether or
not the alleged purchaser of the property therein acted in good or bad faith in purchasing
the property subject to the right of first refusal, the Court held that the matter should be
independently addressed in appropriate proceedings.¢¢G
25 264 SCRA 483.
26 namely Justices Flerida Ruth P. Romero, Jose C. Vitug and Justo P. Torres.
27In their dissent, the three justices concurred with the ruling that the stipulation in the
contract involves a right of first refusal. However, they disagreed with the ruling of the
Court regarding the rescissible nature of the contract entered into in violation of the said
right, citing the case of &<"#

, as precedent.
28 268 SCRA 727.
29 320 SCRA 405.
30Guzman, Bocaling and Co. vs. Bonnevie, supra, citing Cordovero and Alcazar vs. Villaruz
and Borromeo, 46 Phil. 473.
31 Heirs of Severa P. Gregorio vs. Court of Appeals, 300 SCRA 565.
32 Co vs. Court of Appeals, 196 SCRA 705.
33 Exhibit "G", RTC Records, p. 181.
34 Guzman, Bocaling & Co. vs. Bonnevie,

35 Ang Yu Asunscion vs. Court of Appeals,


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"
A litigation is not simply a contest of litigants before the bar of public opinion; more than that, it is a
pursuit of justice through legal and equitable means. To prevent the search for justice from evolving
into a competition for public approval, society invests the judiciary with complete independence
thereby insulating it from demands expressed through any medium, the press not excluded. Thus, if
the court would merely reflect, and worse, succumb to the great pressures of the day, the end
result, it is feared, would be a travesty of justice.
In the early sixties, petitioner National Development Corporation (NDC), a government owned and
controlled corporation created under CA 182 as amended by CA 311 and PD No. 668, had in its
disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was
popularly known as the NDC compound and covered by Transfer Certificates of Title Nos. 92885,
110301 and 145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc. (FIRESTONE) manifested its
desire to lease a portion of the property for its ceramic manufacturing business. On 24 August 1965
NDC and FIRESTONE entered into a contract of lease denominated as Contract No. C-30-65 covering
a portion of the property measured at 2.90118 hectares for use as a manufacturing plant for a term
of ten (10) years, renewable for another ten (10) years under the same terms and conditions.1 In
consequence of the agreement, FIRESTONE constructed on the leased premises several warehouses
and other improvements needed for the fabrication of ceramic products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE entered into a second
contract of lease with NDC over the latter's four (4)-unit pre-fabricated reparation steel warehouse
stored in Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for eventual assembly
within the NDC compound. The second contract, denominated as Contract No. C-26-68, was for
similar use as a ceramic manufacturing plant and was agreed expressly to be "co-extensive with the
lease of LESSEE with LESSOR on the 2.60 hectare-lot."2
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-fabricated steel
warehouse which, as agreed upon by the parties, would expire on 2 December 1978.3 Prior to the
expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for an extension of
their lease agreement. Consequently on 29 November 1978 the Board of Directors of NDC adopted
Resolution No. 11-78-117 extending the term of the lease, subject to several conditions among
which was that in the event NDC "with the approval of higher authorities, decide to dispose and sell
these properties &

&"("4 (

& ).
On 22 December 1978, in pursuance of the resolution, the parties entered into a new agreement for
a ten-year lease of the property, renewable for another ten (10) years, expressly granting
FIRESTONE the first option to purchase the leased premises in the event that it decided "to dispose
and sell these properties including the lot . . . . "5
The contracts of lease conspicuously contain an identically worded provision requiring FIRESTONE
to construct buildings and other improvements within the leased premises worth several hundred
thousands of pesos.6
The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE, cognizant
of the impending expiration of their lease agreement with NDC, informed the latter through several
letters and telephone calls that it was renewing its lease over the property. While its letter of 17
March 1988 was answered by Antonio A. Henson, General Manager of NDC, who promised
immediate action on the matter, the rest of its communications remained unacknowledged.7
FIRESTONE's predicament worsened when rumors of NDC's supposed plans to dispose of the
subject property in favor of petitioner Polytechnic University of the Philippines (PUP) came to its
knowledge. Forthwith, FIRESTONE served notice on NDC conveying its desire to purchase the
property in the exercise of its contractual right of first refusal.
Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an
action for specific performance to compel NDC to sell the leased property in its favor. FIRESTONE
averred that it was pre-empting the impending sale of the NDC compound to petitioner PUP in
violation of its leasehold rights over the 2.60-hectare8 property and the warehouses thereon which
would expire in 1999. FIRESTONE likewise prayed for the issuance of a writ of preliminary
injunction to enjoin NDC from disposing of the property pending the settlement of the controversy.9
In support of its complaint, FIRESTONE adduced in evidence a letter of Antonio A. Henson dated 15
July 1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to Executive Secretary
Catalino Macaraeg, reviewing a proposed memorandum order submitted to then President Corazon
C. Aquino transferring the whole NDC compound, including the leased property, in favor of
petitioner PUP. Attached to the letter was a draft of the proposed memorandum order as well as a
summary of existing leases on the subject property. The survey listed FIRESTONE as lessee of a
portion of the property, placed at 29,00010 square meters, whose contract with NDC was set to
expire on 31 December 198911 renewable for another ten (10) years at the option of the lessee.

)

&,+'Ä3H
&

ü

."12
Meanwhile, on 21 February 1989 PUP moved to intervene and asserted its interest in the subject
property, arguing that a "purchaser of property which is subject of a litigation is
entitled to intervene in the proceedings."13 PUP referred to
Ä

3E¢F issued by
then President Aquino ordering the transfer of the whole NDC compound to the National
Government, which in turn would convey the aforementioned property in favor of PUP at
acquisition cost. The issuance was supposedly made in recognition of PUP's status as the "Poor
Man's University" as well as its serious need to extend its campus in order to accommodate the
growing student population. The order of conveyance of the 10.31-hectare property would
automatically result in the cancellation of NDC's total obligation in favor of the National
Government in the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that ought to be joined as party
defendant in order to avoid multiplicity of suits, the trial court granted PUP's motion to intervene.
FIRESTONE moved for reconsideration but was denied. On certiorari, the Court of Appeals affirmed
the order of the trial court. FIRESTONE came to us on review but in a Resolution dated 11 July 1990
we upheld PUP's inclusion as party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint to include PUP and
Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and sought the annulment of

Ä

3E¢F. FIRESTONE alleged that although
Ä

3E¢F was
issued "subject to such liens/leases existing [on the subject property]," PUP disregarded and
violated its existing lease by increasing the rental rate at P200,000.00 a month while demanding
that it vacated the premises immediately.14 FIRESTONE prayed that in the event

Ä

3E¢F was not declared unconstitutional, the property should be sold in its favor at the
price for which it was sold to PUP - P554.74 per square meter or for a total purchase price of
P14,423,240.00.15
Petitioner PUP, in its answer to the amended complaint, argued in essence that the lease contract
covering the property had expired long before the institution of the complaint, and that further, the
right of first refusal invoked by FIRESTONE applied solely to the six-unit pre-fabricated warehouse
and not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the contracts of lease executed between
FIRESTONE and NDC covering the 2.60-hectare property and the warehouses constructed thereon
valid and existing until 2 June 1999. PUP was ordered and directed to sell to FIRESTONE the "2.6
hectare leased premises or as may be determined by actual verification and survey of the actual size
of the leased properties where plaintiff's fire brick factory is located" at P1,500.00 per square meter
considering that, as admitted by FIRESTONE, such was the prevailing market price thereof.
The trial court ruled that the contracts of lease executed between FIRESTONE and NDC were
interrelated and inseparable because "each of them forms part of the integral system of plaintiff's
brick manufacturing plant x x x if one of the leased premises will be taken apart or otherwise
detached from the two others, the purpose of the lease as well as plaintiff's business operations
would be rendered useless and inoperative."16 It thus decreed that FIRESTONE could exercise its
option to purchase the property until 2 June 1999 inasmuch as the 22 December 1978 contract
"

8¢?9

&
&"&
&

.
The trial court also sustained the constitutionality of

Ä

3E¢F which was not

hostile to FIRESTONE's property rights, but deplored as prejudicial thereto the "very manner
with which defendants NDC and PUP interpreted and applied the same, ignoring in the process that
plaintiff has existing contracts of lease protectable by express provisions in the Memorandum No.
214 itself."17 It further explained that the questioned memorandum was issued "subject to such
liens/leases existing thereon"18 and petitioner PUP was under express instructions "to enter,
occupy and take possession of the transferred property .

)&
"198 9.
Petitioners PUP, NDC and the Executive Secretary separately filed their 3 , but a few
days thereafter, or on 3 September 1996, perhaps realizing the groundlessness and the futility of it
all, the Executive Secretary withdrew his appeal.20
Subsequently, the Court of Appeals affirmed the decision of the trial court ordering the sale of the
property in favor of FIRESTONE but deleted the award of attorney's fees in the amount of Three
Hundred Thousand Pesos (P300,000.00). Accordingly, FIRESTONE was given a grace period of six
(6) months from finality of the court's judgment within which to purchase the property in
questioned in the exercise of its right of first refusal. The Court of Appeals observed that as there
was a sale of the subject property, NDC could not excuse itself from its obligation TO OFFER THE
PROPERTY FOR SALE FIRST TO FIRESTONE BEFORE IT COULD TO OTHER PARTIES. The Court of
Appeals held: "NDC cannot look to
Ä

3E¢F to excuse or shield it from its
contractual obligations to FIRESTONE. There is nothing therein that allows NDC to disavow or
repudiate the solemn engagement that it freely and voluntarily undertook, or agreed to
undertake."21
PUP moved for reconsideration asserting that in ordering the sale of the property in favor of
FIRESTONE the courts !unfairly created a contract to sell between the parties. It argued that
the "court cannot substitute or decree its mind or consent for that of the parties in determining
whether or not a contract (has been) perfected between PUP and NDC."22 PUP further contended
that since "a real property located in Sta. Mesa can readily command a sum of P10,000.00 per
square (meter)," the lower court gravely erred in ordering the sale of the property at only
P1,500.00 per square meter. PUP also advanced the theory that the enactment of

Ä

3E¢F amounted to a withdrawal of the option to purchase the property granted to
FIRESTONE. NDC, for its part, vigorously contended that the contracts of lease executed between
the parties had expired without being renewed by FIRESTONE; consequently, FIRESTONE was no
longer entitled to any preferential right in the sale or disposition of the leased property.
We do not see it the way PUP and NDC did. It is elementary that a party to a contract cannot
unilaterally withdraw a right of first refusal that stands upon valuable consideration. That principle
was clearly upheld by the Court of Appeals when it denied on 6 June 2000 the twin motions for
reconsideration filed by PUP and NDC on the ground that the appellants failed to advance new
arguments substantial enough to warrant a reversal of the Decision sought to be reconsidered.23 On
28 June 2000 PUP filed an urgent motion for an additional period of fifteen (15) days from 29 June
2000 or until 14 July 2000 within which to file a
'"#

of the * of
the Court of Appeals.
On the last day of the extended period PUP filed its
'"#

assailing the
* of the Court of Appeals of 6 December 1999 as well as the ' of 6 June 2000
denying reconsideration thereof. PUP raised two issues: (a) whether the courts ! erred when
they "conjectured" that the transfer of the leased property from NDC to PUP amounted to a sale;
and, (b) whether FIRESTONE can rightfully invoke its right of first refusal. Petitioner posited that if
we were to place our

on the decisions of the courts !, "public welfare or specifically
the constitutional priority accorded to education" would greatly be prejudiced.24
Paradoxically, our paramount interest in education does not license us, or any party for that matter,
to destroy the sanctity of binding obligations. Education may be prioritized for legislative or
budgetary purposes, but we doubt if such importance can be used to confiscate private property
such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within which to appeal
inasmuch as the aforesaid pleading lacked an affidavit of service of copies thereof on the Court of
Appeals and the adverse party, as well as written explanation for not filing and serving the pleading
personally.25
Accordingly, on 26 July 2000 we issued a ' dismissing PUP's

'" for having
been filed out of time. PUP moved for reconsideration imploring a resolution or decision on the
merits of its petition. Strangely, about the same time, several articles came out in the newspapers
assailing the denial of the petition. The daily papers reported that we unreasonably dismissed
PUP's petition on technical grounds, affirming in the process the decision of the trial court to sell
the disputed property to the prejudice of the government in the amount of P1,000,000,000.00.26
Counsel for petitioner PUP, alleged that the trial court and the Court of Appeals "have decided a
question of substance in a way definitely not in accord with law or jurisprudence."27
At the outset, let it be noted that the amount of P1,000,000,000.00 as reported in the papers was
way too exaggerated, if not fantastic. We stress that NDC itself sold the whole 10.31-hectare
property to PUP at only P57,193,201.64 which represents NDC's obligation to the national
government that was, in exchange, written off. The price offered per square meter of the property
was pegged at P554.74. FIRESTONE's leased premises would therefore be worth only
P14,423,240.00. From any angle, this amount is certainly far below the ballyhooed price of
P1,000,000,000.00.
On 4 October 2000 we granted PUP's

'
to give it a chance to ventilate its
right, if any it still had in the leased premises, thereby paving the way for a reinstatement of its

'".28 In its appeal, PUP took to task the courts ! for supposedly "substituting or
decreeing its mind or consent for that of the parties (referring to NDC and PUP) in determining
whether or not a contract of sale was perfected." PUP also argued that inasmuch as "it is the parties
alone whose minds must meet in reference to the subject matter and cause," it concluded that it
was error for the lower courts to have decreed the existence of a sale of the NDC compound thus
allowing FIRESTONE to exercise its right of first refusal.
On the other hand, NDC separately filed its own

'" and advanced arguments which,
in fine, centered on whether or not the transaction between petitioners NDC and PUP amounted to
a sale considering that "ownership of the property remained with the government."29 Petitioner
NDC introduced the novel proposition that if the parties involved are both government entities the
transaction cannot be legally called a sale.
In due course both petitions were consolidated.30
We believe that the courts ! did not hypothesize, much less conjure, the sale of the disputed
property by NDC in favor of petitioner PUP. Aside from the fact that the intention of NDC and PUP to
enter into a contract of sale was clearly expressed in the
Ä

3E¢F,31 a close
perusal of the circumstances of this case strengthens the theory that the conveyance of the property
from NDC to PUP was one of absolute sale, for a valuable consideration, and not a mere paper
transfer as argued by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates
himself to transfer the ownership of and to deliver a determinate thing to the other or others who
shall pay therefore a sum certain in money or its equivalent.32 It is therefore a general requisite for
the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there
should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of
the vendee to receive and pay for the property so delivered and transferred. The Civil Code
provision is, in effect, a "catch-all" provision which effectively brings within its grasp a whole gamut
of transfers whereby ownership of a thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the
questioned transaction. Petitioners NDC and PUP have their respective charters and therefore each
possesses a separate and distinct individual personality.33 The inherent weakness of NDC's
proposition that there was no sale as it was only the government which was involved in the
transaction thus reveals itself. Tersely put, it is not necessary to write an extended dissertation on
government owned and controlled corporations and their legal personalities. Beyond cavil, a
government owned and controlled corporation has a personality of its own, distinct and separate
from that of the government.34 The intervention in the transaction of the Office of the President
through the Executive Secretary did not change the independent existence of these entities. The
involvement of the Office of the President was limited to brokering the consequent relationship
between NDC and PUP. But the withdrawal of the appeal by the Executive Secretary is considered
significant as he knew, after a review of the records, that the transaction was subject to existing
liens and encumbrances, particularly the priority to purchase the leased premises in favor of
FIRESTONE.
True that there may be instances when a particular deed does not disclose the real intentions of the
parties, but their action may nevertheless indicate that a binding obligation has been undertaken.
Since the conduct of the parties to a contract may be sufficient to establish the existence of an
agreement and the terms thereof, it becomes necessary for the courts to examine the
contemporaneous behavior of the parties in establishing the existence of their contract.
The preponderance of evidence shows that NDC sold to PUP the whole NDC compound, including
the leased premises, without the knowledge much less consent of private respondent FIRESTONE
which had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale, were attendant
in the "disposition" and "transfer" of the property from NDC to PUP -

.
,and
therefor.
Consent to the sale is obvious from the prefatory clauses of

Ä

3E¢F which
explicitly states the acquiescence of the parties to the sale of the property -
WHEREAS, PUP has )

& !
3*#

3*#
)
&

A 8

& 9.35
Furthermore, the cancellation of NDC's liabilities in favor of the National Government in the amount
of P57,193,201.64 constituted the "consideration" for the sale. As correctly observed by the Court
of Appeals-
The defendants-appellants' interpretation that there was a mere transfer, and not a sale,
apart from being specious sophistry and a mere play of words, is too strained and
hairsplitting. For it is axiomatic that every sale imposes upon the vendor the obligation to
transfer ownership as an essential element of the contract. Transfer of title or an agreement
to transfer title for a price paid, or promised to be paid, is the very essence of sale (C
B
#"(& , 38 SCRA 524; BÄ
+"'$(
,&#
., 166 SCRA
493). At whatever legal angle we view it, therefore, the inescapable fact remains that all the
requisites of a valid sale were attendant in the transaction between co-defendants-
appellants NDC and PUP concerning the realities subject of the present suit.36
What is more, the conduct of petitioner PUP immediately after the transaction is in itself an
admission that there was a sale of the NDC compound in its favor. Thus, after the issuance of

Ä

3E¢F petitioner PUP asserted its ownership over the property by posting
notices within the compound advising residents and occupants to vacate the premises.37 In its

+
"petitioner PUP admitted that its interest as a "purchaser "
would be better protected if it was joined as party-defendant in the controversy thereby confessing
that it indeed
the property.
In light of the foregoing disquisition, we now proceed to determine whether FIRESTONE should be
allowed to exercise its right of first refusal over the property. Such right was expressly stated by
NDC and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on 22
December 1978 which, as found by the courts !, was interrelated to and inseparable from their
first contract denominated as C-30-65 executed on 24 August 1965 and their second contract
denominated as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any
extension thereof, the LESSOR shall first give to the LESSEE, which shall have the
&

the leased premises subject to mutual agreement of both parties.38
In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease
and is inseparable from the whole contract. The consideration for the right is built into the
reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist that there was no
consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the
stipulation is part and parcel of the contract of lease making the consideration for the lease the
same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the
lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made
an offer to sell to the latter at a certain price and the lessee has failed to accept it.39 The lessee has a
right that the lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit of
FIRESTONE which, in view of the total amount of its investments in the property, wanted to be
assured that it would be given the first opportunity to buy the property at a price for which it would
be offered. Consistent with their agreement, it was then implicit for NDC to have first offered the
leased premises of 2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE
failed to exercise its right of first priority could NDC lawfully sell the property to petitioner PUP.
It now becomes
to ask whether the courts !were correct in fixing the proper
consideration of the sale at P1,500.00 per square meter. In contracts of sale, the basis of the right of
first refusal must be the current offer of the seller to sell or the offer to purchase of the prospective
buyer. Only after the lessee-grantee fails to exercise its right under the same terms and within the
period contemplated can the owner validly offer to sell the property to a third person, again,

&
.40 It appearing that the whole NDC compound was sold to
PUP for P554.74 per square meter, it would have been more proper for the courts below to have
ordered the sale of the property also at the same price. However, since FIRESTONE never raised
this as an issue, while on the other hand it admitted that the value of the property stood at
P1,500.00 per square meter, then we see no compelling reason to modify the holdings of the courts
! that the leased premises be sold at that price.
Our attention is invited by petitioners to &<"#41 in concluding that if our holding in
&< would be applied to the facts of this case then FIRESTONE's "option, if still subsisting, is not
enforceable," the option being merely a preparatory contract which cannot be enforced.
The contention has no merit. At the heels of &<came !
' *" +"

+,42 where after much deliberation we declared, and so we hold, that a right of
first refusal is neither "amorphous nor merely preparatory" and can be enforced and executed
according to its terms. Thus, in !
we ordered the rescission of the sale which was made in
violation of the lessee's right of first refusal and further ordered the sale of the leased property in
favor of Mayfair Theater, as grantee of the right. Emphatically, we held that "(a right of first
priority) should be enforced according to the law on contracts instead of the panoramic and
indefinite rule on human relations." We then concluded that the execution of the right of first
refusal consists in directing the grantor to comply with his obligation according to the terms at
which he should have offered the property in favor of the grantee and at that price when the offer
should have been made.
One final word. Petitioner PUP should be cautioned against bidding for public sympathy by
bewailing the dismissal of its petition before the press. Such advocacy is not likely to elicit the
compassion of this Court or of any court for that matter. An entreaty for a favorable disposition of a
case not made directly through pleadings and oral arguments before the courts do not persuade us,
for as judges, we are ruled only by our forsworn duty to give justice where justice is due.
=4the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the
first contract of lease fixed the area of the leased premises at 2.90118 hectares while the second
contract placed it at 2.60 hectares, let a ground survey of the leased premises be immediately
conducted by a duly licensed, registered surveyor at the expense of private respondent FIRESTONE
CERAMICS, INC., within two (2) months from finality of the judgment in this case. Thereafter,
private respondent FIRESTONE CERAMICS, INC., shall have six (6) months from receipt of the
approved survey within which to exercise its right to purchase the leased property at P1,500.00 per
square meter, and petitioner Polytechnic University of the Philippines is ordered to reconvey the
property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal upon payment of
the purchase price thereof.
SO ORDERED.
, % *($

$$ concur.
â&$ no part due to prior close relations.
#$
1 Original Records, pp. 12-19.
2In the first contract of lease, the area of the property leased was stated as 2.90118
hectares; in the second contract it is 2.60 hectares.
3 Contract No. C-14-73.
4 See Note 1 at p. 46.
5 Contract No. A-10-78, ., pp. 45-50.

6Par. IX of C-30-65 and par. I, subpar. (c), of A-10-78 require FIRESTONE to make several
improvements with the leased premises in the amount of not less than Three Hundred
Thousand Pesos (P300,000.00).
7 In his letter dated 8 April 1988, Mr. Henson wrote, "We thank you for your letter of March
17, 1988 regarding the NDC property, a portion of which is currently under lease by your
company," see Note 1 at p. 40.
8 In their lease contract denominated as C-30-65 the area is referred to as 2.90118 hectares.
9 In his Order dated 19 August 1988 Judge Cesar D. Francisco, RTC-Br. 117, Pasay City,
issued a temporary restraining order against NDC, ., pp. 34-35. On 12 September 1988, the
trial court, after conducting several hearings, issued a writ of preliminary injunction
restraining NDC from selling the leased property, see Note 1 at pp. 176-178.
10 Interchangeably referred to as 2.90118 or 2.6 hectares.
11Contract No. A-10-78 dated 22 December 1978 fixed the period of lease for ten (10) years
effective 2 December 1978 until 2 June 1989, i.e., following the expiration of the stipulated
180-day construction period, the ten (10)-year period renewable for another ten (10) years
or until 2 June 1999.
12 See Note 1 at pp. 49-53.
13 +, pp. 186-190.
14 +., pp. 233-243.
15Per Memorandum Order No. 214, the 10.31 hectare property was sold by NDC for
P57,193,201.64 or at P 554.74 per square meter; ' in G.R. No. 143513, pp. 51-52; '
in G.R. No. 143590, pp. 99-100.
16Decision penned by Judge Leonardo M. Rivera, RTC-Br. 117, Pasay City, ' in G.R. No.
143513, pp. 101- 132.
17 +
18 +
19 +
20 See CA Decision in CA-G.R. CV No. 54295, promulgated 6 December 1999, ' , p. 32.
21Decision penned by Associate Justice Renato C. Dacudao, concurred in by Associate

Justices Ma. Alicia Austria-Martinez and Salvador J. Valdez, Jr., Seventh Division, Court of
Appeals, CA ' , pp. 137-151.
22 See Note 16 at pp. 153-171.

23 Resolution dated 6 June 2000 in CA-G.R. CV No. 54295, ' in G.R. No. 143513, p. 219.
24 ' in G. R. No. 143513, p. 26.
25 +., p. 5.
26"PUP in last-ditch try to save Sta. Mesa lot," Manila Bulletin, 30 September 2000, p. 12;
"Gov't stands to lose P1B from sale of PUP land," Philippine Daily Inquirer, 26 September
2000, p. B14.
27 ' in G.R. No. 143513, pp. 11-12.
28 +, p. 256.
29 ' in G.R. No. 143590, pp. 10-23.
31The third "whereas as" clause of Memorandum Order No. 214 expressly provides,
"WHEREAS the PUP has expressed its willingness to acquire said NDC properties and NDC
has expressed its willingness to sell the properties to PUP," see Note 15.
32 Art. 1458.
33NDC was created under CA 182 (1936), as amended by CA 311 (1938) and PD No. 668
(1975), while PUP was constituted in 1978 by virtue of PD No. 668.
34 ' "#+, No. 552783, 19 December 1981, 110 SCRA 456; 3
B
#

"#+', No. 17874, 31 August 1963, 8 SCRA 781;
"#, 205
PHIL 609 (1983).
35 See Note 15 at p. 51, ' in G.R. No. 143513; p. 99, ' in G.R. No. 143590.
37 See Note 1 at pp. 259-260.
39
- !C&

+"#, 335 PHIL. 1184, (1997); , % &B#"
%", G.R. No. 86150, 2 March 1992, 206 SCRA 668.
40 +
41 G.R. No. 109125, 2 December 1994, 238 SCRA 602.
42 G.R. No. 106063, 21 November 1996, 264 SCRA 483.

m
Manila
THIRD DIVISION

989;$1.$'8

petitioner,
vs.
4
m/#0C 4 *
* m respondents
p
The parties pose this question: May the "

demand the rescission of a contract for the sale of a
parcel of land for a cause traceable to his own failure to have the squatters on the subject property
evicted within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production,
manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In
1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on
a land area of approximately 2,000 square meters. The project was made known to several
freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a
parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Parañaque, Metro
Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua
vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the
area, he found the place suitable for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of
P50,000.00 which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per square meter. Petitioner
expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale,"
was executed between petitioner and private respondent. The simply-drawn contract read:
**Ä#Ä3*++Ä3((
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati, Philippines this 9th
day of June, 1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino
and residing at 105 Simoun St., Quezon City, Metro Manila,
hereinafter referred to as the VENDOR;
-and-
VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age,

Filipino, and residing at 110 San Miguel St., Plainview Subd.,
Mandaluyong Metro Manila,
hereinafter referred to as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of
ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or
less, located in Barrio San Dionisio, Municipality of Parañaque, Province of Rizal,
covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more
particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for () has offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to the terms and conditions hereinafter
stipulated:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE
HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY,
Philippine Currency, payable by VENDEE to in to () manner set forth, the VENDOR
agrees to sell to the VENDEE, their heirs, successors, administrators, executors,
assign, all her rights, titles and interest in and to the property mentioned in the
FIRST WHEREAS CLAUSE, subject to the following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY

Philippine Currency, is to be paid upon signing and execution of this
instrument.
2. The balance of the purchase price in the amount of ONE MILLION
FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS
(P1,511,600.00) ONLY shall be paid 45 days after the removal of all
squatters from the above described property.
3. Upon full payment of the overall purchase price as aforesaid,

VENDOR without necessity of demand shall immediately sign,
execute, acknowledged () and deliver the corresponding deed of
absolute sale in favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid and updated.
It is hereby agreed, covenanted and stipulated by and between the parties hereto
that if after 60 days from the date of the signing of this contract the VENDOR shall
not be able to remove the squatters from the property being purchased, the
downpayment made by the buyer shall be returned/reimbursed by the VENDOR to
the VENDEE.
That in the event that the VENDEE shall not be able to pay the VENDOR the balance
of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to
the VENDEE of the removal of the squatters from the property being purchased, the
FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be
forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees, documentary stamp, transfer
fee, assurances and such other fees and expenses as may be necessary to transfer
the title to the name of the VENDEE shall be for the account of the VENDEE while
capital gains tax shall be paid by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those () presents in the City
of Makati MM, Philippines on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz
Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a

check for P50,000.008from petitioner.
Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579)
against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of
Parañaque. A few months later, or on 21 February 1989, judgment was rendered ordering the
defendants to vacate the premises. The decision was handed down beyond the 60-day period
(expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was
issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received
from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F.
Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable diligence considering the
favorable decision rendered by the Court and the writ of execution issued pursuant
thereto, it is now possible to eject the squatters from the premises of the subject
property, for which reason, he proposes that he shall take it upon himself to eject
the squatters, provided, that expenses which shall be incurred by reason thereof
shall be chargeable to the purchase price of the land.%
Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional
Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Parañaque for a grace
period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families.
Acting favorably on the request, the court suspended the enforcement of the writ of execution
accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace
period and his client's willingness to "underwrite the expenses for the execution of the judgment
and ejectment of the occupants."
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty.
Apostol that the Deed of Conditional Sale had been rendered and "by virtue of his client's
failure to evict the squatters from the premises within the agreed 60-day period. He added that
private respondent had "decided to retain the property."
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the very moment that
there was a meeting of the minds of the parties upon the subject lot and the price in
the amount of P1,561,600.00. Moreover, the contract had already been partially
fulfilled and executed upon receipt of the downpayment of your client. Ms. Ongsiong
is precluded from rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed period. Suffice it
to state that, the provision of the Deed of Conditional Sale do not grant her the
option or prerogative to rescind the contract and to retain the property should she
fail to comply with the obligation she has assumed under the contract. In fact, a
perusal of the terms and conditions of the contract clearly shows that the right to
rescind the contract and to demand the return/reimbursement of the downpayment
is granted to our client for his protection.
Instead, however, of availing himself of the power to rescind the contract and
demand the return, reimbursement of the downpayment, our client had opted to
take it upon himself to eject the squatters from the premises. Precisely, we refer you
to our letters addressed to your client dated April 17, 1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the power to rescind is given to
the injured party. Undoubtedly, under the circumstances, our client is the injured
party.
Furthermore, your client has not complied with her obligation under their contract
in good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts
to eject the squatters from the premises of the subject property and her decision to
retain the property was brought about by the sudden increase in the value of
realties in the surrounding areas.
Please consider this letter as a tender of payment to your client and a demand to
execute the absolute Deed of Sale.9
A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued
refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court
of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus
damages, and for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an writ of execution in
Civil Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makatirendered
decision holding that private respondent had no right to rescind the contract since it was she who
"violated her obligation to eject the squatters from the subject property" and that petitioner, being
the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the
agreement. The court ruled that the provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the
property from squatters within the stipulated period or (b), upon the other hand, the sum's
forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted to
"penalty clauses". The court added:
This Court is not convinced of the ground relied upon by the plaintiff in seeking the
rescission, namely: (1) he () is afraid of the squatters; and (2) she has spent so
much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against
her profession of good faith is plaintiffs conduct which is not in accord with the
rules of fair play and justice. Notably, she caused the issuance of an writ of
execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two
months after she filed the complaint before this Court on June 27, 1989. If she were
really afraid of the squatters, then she should not have pursued the issuance of an
writ of execution. Besides, she did not even report to the police the alleged
phone threats from the squatters. To the mind of the Court, the so-called squatter
factor is simply factuitous ().
The lower court, accordingly, dismissed the complaint and ordered, instead, private
respondent to eject or cause the ejectment of the squatters from the property and to
execute the absolute deed of conveyance upon payment of the full purchase price by
petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered
its decision. It opined that the contract entered into by the parties was subject to a resolutory
condition, .., the ejectment of the squatters from the land, the non-occurrence of which resulted in
the failure of the object of the contract; that private respondent substantially complied with her
obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price
and fulfill his part of the contract, and that the provision requiring a mandatory
return/reimbursement of the P50,000.00 in case private respondent would fail to eject the
squatters within the 60-day period was not a penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new
one entered declaring the contract of conditional sale dated June 9, 1988 cancelled
and ordering the defendant-appellee to accept the return of the downpayment in the
amount of P50,000.00 which was deposited in the court below. No pronouncement
as to costs.
Failing to obtain a reconsideration, petitioner filed this petition for review on

raising
issues that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance
made by petitioner.
A perfected contract of sale may either be absolute or conditional8depending on whether the

agreement is devoid of, or subject to, any condition imposed on the & of title of the thing to be
conveyed or on the & of a party thereto. When ownership is retained until the fulfillment of
a positive condition the breach of the condition will simply prevent the duty to convey title from
acquiring an &

. If the condition is imposed on an & of a party which is not
complied with, the

may either refuse to proceed or waive said condition (Art. 1545, Civil
Code). Where, of course, the condition is imposed upon the
of the contract itself, the
failure of such condition would prevent the juridical relation itself from coming into existence.
In determining the real character of the contract, the title given to it by the parties is not as much
significant as its substance. For example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in
the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition.%
The term "condition" in the context of a

contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case
of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly perfected
contract. A sale is at once perfected when a person (the seller) obligates himself, for a price certain,
to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which
the latter agrees.
The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter
lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the
Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and
the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the above
described property."
From the moment the contract is perfected, the parties are bound not only to the fulfillment of what
has been expressly stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. Under the agreement, private respondent is obligated
to evict the squatters on the property. The ejectment of the squatters is a the operative act
of which sets into motion the period of compliance by petitioner of his own obligation,.., to pay
the balance of the purchase price. Private respondent's failure "to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the
agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option
clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent
does not constitute a "potestative condition dependent solely on his will" that might, otherwise, be
void in accordance with Article 1182 of the Civil Code9 but a "mixed" condition "dependent not on
the will of the vendor alone but also of third persons like the squatters and government agencies
and personnel concerned." We must hasten to add, however, that where the so-called
"potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the
obligation is avoided, leaving unaffected the obligation itself.
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee
to choose between proceeding with the agreement or waiving the performance of the condition. It
is this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has
waived the performance of the condition imposed on private respondent to free the property from
squatters.8
In any case, private respondent's action for rescission is not warranted. She is not the injured party.
8 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity between them.88 It is
private respondent who has failed in her obligation under the contract. Petitioner did not breach
the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in
the ejectment case and to make arrangements with the sheriff to effect such execution. In his letter
of 23 June 1989, counsel for petitioner has tendered payment and demanded forthwith the
execution of the deed of absolute sale. Parenthetically, this offer to pay, having been made prior to
the demand for rescission, assuming for the sake of argument that such a demand is proper under
Article 15928 of the Civil Code, would likewise suffice to defeat private respondent's prerogative to
rescind thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance payment is
reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our foregoing
conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to
proceed with the sale, neither may petitioner demand its reimbursement from private respondent
nor may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET
ASIDE, and another is entered ordering petitioner to pay private respondent the balance of the
purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
'
& $$

#$
1 Records, pp. 60-61.
2 Exh. 9.
3 Exh. 2.
4 Records, p. 116.
5 Exh. 8-B.
6 Exh. D.
8 Presided by Judge Buenaventura J. Guerrero.
9 Records, p. 205.
10 Penned by Associate Justice Fermin A. Martin, Jr. and concurred in by Associate

Justices Emeterio C. Cui and Cezar D. Francisco.
11 ' , p. 46.
12 Art. 1458, second paragraph, Civil Code of the Philippines.
13 Ang Yu Asuncion, et al., vs. Court of Appeals, 238 SCRA 602.
14 +., Vol. V, p. 3 & Dignos v. Court of Appeals, No. L-59266, February 29,
1988, 158 SCRA 375.
15 Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
16 Art. 1545. Where the obligation of either party to a contract of sale is subject to
any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If the other party has
promised that the condition should happen or be performed, such first mentioned
party may also treat the nonperformance of the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the
fulfillment by the seller of his obligation to deliver the same as described and as
warranted expressly or by implication in the contract of sale as a condition of the
obligation of the buyer to perform his promise to accept and pay for the thing.
17 Art. 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon chance or upon
the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.
18 Decision, p. 17.
19 Osmeña vs. Rama, 14 Phil. 99.
20 : Intestate Estate of the Late Ricardo P. Presbitero, Sr. v. Court of Appeals, 217
SCRA 372.
21 In Boysaw v. Interphil. Promotions, Inc. (148 SCRA 635, 643), the Court has said:
"The power to rescind is given to the injured party. 'Where the plaintiff is the party
who did not perform the undertaking which he was bound by the terms of the
agreement to perform, he is not entitled to insist upon the performance of the
contract by the defendant, or recover damages by reason of his own breach.'"
22 Deiparine, Jr. v. Court of Appeals, 221 SCRA 503, 513 &Universal Food
Corporation v. Court of Appeals, 33 SCRA 1.
23 Ocampo v. Court of Appeals,

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

m
Manila
m** m

8*$2$1.$'%8
*
] petitioner,
vs.
m
m *
m /#04
m respondents.
C m ] p
This petition for review on certiorari seeks to annul the decision dated March 4, 1997,1 of the Court
of Appeals in CA-G.R. CV No. 32817, which reversed and set aside the judgment dated October 17,
1990,2 of the Regional Trial Court of Manila, Branch 54, in Civil Case No.87-41515, finding herein
petitioner to be the owner of 1/3
"share in a parcel of land. ¢¢G
The pertinent facts of the case, as borne by the records, are as follows:
Jose T. Santiago owned a parcel of land covered by TCT No. 64729, located in Rizal Avenue
Extension, Sta. Cruz, Manila. Alleging that Jose had fraudulently registered it in his name alone, his
sisters Nicolasa and Amanda (now respondents herein) sued Jose for recovery of 2/3 share of the
property.3 On April 20, 1981, the trial court in that case decided in favor of the sisters, recognizing
their right of ownership over portions of the property covered by TCT No. 64729. The Register of
Deeds of Manila was required to include the names of Nicolasa and Amanda in the certificate of title
to said property.4
Jose died intestate on February 6, 1984. On August 5, 1987, respondents filed a complaint for
recovery of title, ownership, and possession against herein petitioner, Ida C. Labagala, before the
Regional Trial Court of Manila, to, recover from her the 1/3 portion of said property pertaining to
Jose but which came into petitioner's sole possession upon Jose's death.
Respondents alleged that Jose's share in the property belongs to them by operation of law, because
they are the only legal heirs of their brother, who died intestate and without issue. They claimed
that the purported sale of the property made by their brother to petitioner sometime in March
19795 was executed through petitioner's machinations and with malicious intent, to enable her to
secure the corresponding transfer certificate of title (TCT No. 1723346) in petitioner's name alone.7
Respondents insisted that the deed of sale was a forgery .The deed showed that Jose affixed his
thumbmark thereon but respondents averred that, having been able to graduate from college, Jose
never put his thumb mark on documents he executed but always signed his name in full. They
claimed that Jose could not have sold the property belonging to his "poor and unschooled sisters
who. ..sacrificed for his studies and personal welfare."8 Respondents also pointed out that it is
highly improbable for petitioner to have paid the supposed consideration of P150,000 for the sale
of the subject property because petitioner was unemployed and without any visible means of
livelihood at the time of the alleged sale. They also stressed that it was quite unusual and
questionable that petitioner registered the deed of sale only on January 26, 1987, or almost eight
years after the execution of the sale.9
On the other hand, petitioner claimed that her true name is not Ida C. Labagala as claimed by
respondent but Ida C. Santiago. She claimed not to know any person by the name of Ida C. Labagala.
She claimed to be the daughter of Jose and thus entitled to his share in the subject property. She
maintained that she had always stayed on the property, ever since she was a child. She argued that
the purported sale of the property was in fact a donation to her, and that nothing could have
precluded Jose from putting his thumbmark on the deed of sale instead of his signature. She pointed
out that during his lifetime, Jose never acknowledged respondents' claim over the property such
that respondents had to sue to claim portions thereof. She lamented that respondents had to
disclaim her in their desire to obtain ownership of the whole property.
Petitioner revealed that respondents had in 1985 filed two ejectment cases against her and other
occupants of the property. The first was decided in her and the other defendants' favor, while the
second was dismissed. Yet respondents persisted and resorted to the present action.
Petitioner recognized respondents' ownership of 2/3 of the property as decreed by the RTC. But
she averred that she caused the issuance of a title in her name alone, allegedly after respondents
refused to take steps that would prevent the property from being sold by public auction for their
failure to pay realty taxes thereon. She added that with a title issued in her name she could avail of a
realty tax amnesty.
On October 17, 1990, the trial court ruled in favor of petitioner, decreeing thus:
WHEREFORE, judgment is hereby rendered recognizing the plaintiffs [herein respondents]

as being entitled to the ownership and possession each of one-third (1/3) pro indiviso share
of the property originally covered by Transfer Certificate of Title No. 64729, in the name of
Jose T. Santiago and presently covered by Transfer Certificate of Title No. 172334, in the
name of herein defendant [herein petitioner] and which is located at No. 3075-A Rizal
Avenue Extension, Sta. Cruz, Manila, as per complaint, and the adjudication to plaintiffs per
decision in Civil Case No. 56226 of this Court, Branch VI, and the remaining one-third (1/3)
pro indiviso share adjudicated in said decision to defendant Jose T. Santiago in said case, is
hereby adjudged and adjudicated to herein defendant as owner and entitled to possession
of said share. The Court does not see fit to adjudge damages, attorney's fees and costs. Upon
finality of this judgment, Transfer Certificate of Title No. 172334 is ordered cancelled and a
new title issued in the names of the two (2) plaintiffs and the defendant as owners in equal
shares, and the Register of Deeds of Manila is so directed to effect the same upon payment
of the proper fees by the parties herein.
SO ORDERED.10
According to the trial court, while there was indeed no consideration for the deed of sale executed
by Jose in favor of petitioner, said deed constitutes a valid donation. Even if it were not, petitioner
would still be entitled to Jose's 1/3 portion of the property as Jose's daughter. The trial court ruled
that the following evidence shows petitioner to be the daughter of Jose: (1) the decisions in the two
ejectment cases filed by respondents which stated that petitioner is Jose's daughter, and (2) Jose's
income tax return which listed petitioner as his daughter. It further said that respondents knew of
petitioner's existence and her being the daughter of Jose, per records of the earlier ejectment cases
they filed against petitioner. According to the court, respondents were not candid with the court in
refusing to recognize petitioner as Ida C. Santiago and insisting that she was Ida C. Labagala, thus
affecting their credibility.
Respondents appealed to the Court of Appeals, which reversed the decision of the trial court.
WHEREFORE, the appealed decision is REVERSED and one is entered declaring the
appellants Nicolasa and Amanda Santiago the co-owners in equal shares of the one-third
(1/3) pro indiviso share of the late Jose Santiago in the land and building covered by TCT
No. 172334. Accordingly, the Register of Deeds of Manila is directed to cancel said title and
issue in its place a new one reflecting this decision.
SO ORDERED.
Apart from respondents' testimonies, the appellate court noted that the birth certificate of Ida
Labagala presented by respondents showed that Ida was born of different parents, not Jose and his
wife. It also took into account the statement made by Jose in Civil Case No. 56226 that he did not
have any child.
Hence, the present petition wherein the following issues are raised for consideration:
1. Whether or not petitioner has adduced preponderant evidence to prove that she is the daughter
of the late Jose T. Santiago, and
2. Whether or not respondents could still impugn the filiation of the petitioner as the daughter of
the late Jose T. Santiago.
Petitioner contends that the trial court was correct in ruling that she had adduced sufficient
evidence to prove her filiation by Jose Santiago, making her his sole heir and thus entitled to inherit
his 1/3 portion. She points out that respondents had, before the filing of the instant case, previously
"considered"11 her as the daughter of Jose who, during his lifetime, openly regarded her as his
legitimate daughter. She asserts that her identification as Jose's daughter in his ITR outweighs the
"strange" answers he gave when he testified in Civil Case No. 56226.
Petitioner asserts further that respondents cannot impugn her filiation collaterally, citing the case
of "#
12in which we held that "(t)he legitimacy of (a) child can be impugned
only in a direct action brought for that purpose, by the proper parties and within the period limited
by law."13 Petitioner also cites Article 263 of the Civil Code in support of this contention.14
For their part, respondents contend that petitioner is not the daughter of Jose, per her birth
certificate that indicates her parents as Leo Labagala and Cornelia Cabrigas, instead of Jose Santiago
and Esperanza Cabrigas.15 They argue that the provisions of Article 263 of the Civil Code do not
apply to the present case since this is not an action impugning a child's legitimacy but one for
recovery of title, ownership, and possession of property .
The issues for resolution in this case, to our mind, are (1) whether or not respondents may impugn
petitioner's filiation in this action for recovery of title and possession; and (2) whether or not
petitioner is entitled to Jose's 1/3 portion of the property he co-owned with respondents, through
succession, sale, or donation.
On the first issue, we find petitioner's reliance on Article 263 of the Civil Code to be misplaced. Said
article provides:
.Art. 263. The action to impugn the legitimacy of the child shall be brought within one year
from the recording of the birth in the Civil Register, if the husband should be in the same
place, or in a proper case, any of his heirs.
If he or his heirs are absent, the period shall be eighteen months if they should reside in the
Philippines; and two years if abroad. If the birth of the child has been concealed, the term
shall be counted from the discovery of the fraud.
This article should be read in conjunction with the other articles in the same chapter on paternity
and filiation in the Civil Code. A careful reading of said chapter would reveal that it contemplates
situations where a doubt exists that a child is indeed a man's child by his wife, and the husband (or,
in proper cases, his heirs) denies the child's filiation. It does not refer to situations where a child is
alleged not to be the child at all of a particular couple.16
Article 263 refers to an action to impugn the & of a child, to assert and prove that a person
is not a man's child by his wife. However, the present case is not one impugning petitioner's
legitimacy. Respondents are asserting not merely that petitioner is not a legitimate child of Jose, but
that she is not a child of Jose at all.17 Moreover, the present action is one for recovery of title and
possession, and thus outside the scope of Article 263 on prescriptive periods.
Petitioner's reliance on is likewise improper. The factual milieu present in does not
obtain in the instant case. What was being challenged by petitioners in was (1) the validity
of the adoption of Delia and Edmundo by the deceased Teodoro and Isabel Sayson, and (2) the
legitimate status of Doribel Sayson. While asserting that Delia and Edmundo could not have been
validly adopted since Doribel had already been born to the Sayson couple at the time, petitioners at
the same time made the conflicting claim that Doribel was not the child of the couple. The Court
ruled in that case that it was too late to question the decree of adoption that became final years
before. Besides, such a challenge to the validity of the adoption cannot be made collaterally but in a
direct proceeding.18
In this case, respondents are not assailing petitioner's legitimate status but are, instead, asserting
that she is not at all their brother's child. The birth certificate presented by respondents support
this allegation.
We agree with the Court of Appeals that:
The Certificate. of Record of Birth (Exhibit H)19 plainly states that... Ida was the child of the
spouses Leon Labagala and [Cornelia] Cabrigas. This document states that it was Leon
Labagala who made the report to the Local Civil Registrar and therefore the supplier of the
entries in said Certificate. Therefore, this certificate is proof of the filiation of Ida. Appellee
however denies that Exhibit H is her Birth Certificate. She insists that she is not Ida Labagala
but Ida Santiago. If Exhibit H is not her birth certificate, then where is hers? She did not
present any though it would have been the easiest thing to do considering that according to
her baptismal certificate she was born in Manila in 1969. This court rejects such denials and
holds that Exhibit H is the certificate of the record of birth of appellee Ida...
Against such evidence, the appellee Ida could only present her testimony and a baptismal
certificate (Exhibit 12) stating that appellee's parents were Jose Santiago and Esperanza
Cabrigas. But then, a decisional rule in evidence states that a baptismal certificate is not a
proof of the parentage of the baptized person. This document can only prove the identity of
the baptized, the date and place of her baptism, the identities of the baptismal sponsors and
the priest who administered the sacrament -- nothing more.20 (Citations omitted.)
At the pre-trial conducted on August 11, 1988, petitioner's counsel admitted that petitioner did not
have a birth certificate indicating that she is Ida Santiago, though she had been using this name all
her life.21
Petitioner opted not to present her birth certificate to prove her relationship with Jose and instead
offered in evidence her baptismal certificate.22 However, as we held in :

# "#

:
...a baptismal certificate is evidence only to prove the administration of the sacrament on
the dates therein specified, but not the veracity of the declarations therein stated with
respect to [a person's] kinsfolk. The same is conclusive only of the baptism administered,
according to the rites of the Catholic Church, by the priest who baptized subject child, but it
does not prove the veracity of the declarations and statements contained in the certificate
concerning the relationship of the person baptized.23
A baptismal certificate, a private document, is not conclusive proof of filiation.24 More so are the
entries made in an income tax return, which only shows that income tax has been paid and the
amount thereof.25
We note that the trial court had asked petitioner to secure a copy of her birth certificate but
petitioner, without advancing any reason therefor, failed to do so. Neither did petitioner obtain a
certification that no record of her birth could be found in the civil registry, if such were the case. We
find petitioner's silence concerning the absence of her birth certificate telling. It raises doubt as to
the existence of a birth certificate that would show petitioner to be the daughter of Jose Santiago
and Esperanza Cabrigas. Her failure to show her birth certificate would raise the presumption that
if such evidence were presented, it would be adverse to her claim. Petitioner's counsel argued that
petitioner had been using Santiago all her life. However, use of a family name certainly does not
establish pedigree.
Further, we note that petitioner, who claims to be Ida Santiago, has the same birthdate as Ida
Labagala.26 The similarity is too uncanny to be a mere coincidence.
During her testimony before the trial court, petitioner denied knowing Cornelia Cabrigas, who was
listed as the mother in the birth certificate of Ida Labagala. In her petition before this Court,
however, she stated that Cornelia is the sister of her mother, Esperanza. It appears that petitioner
made conflicting statements that affect her credibility and could cast along shadow of doubt on her
claims of filiation.
Thus, we are constrained to agree with the factual finding of the Court of Appeals that petitioner is
in reality the child of Leon Labagala and Cornelia Cabrigas, and contrary to her averment, not of
Jose Santiago and Esperanza Cabrigas. Not being a child of Jose, it follows that petitioner can not
inherit from him through intestate succession. It now remains to be seen whether the property in
dispute was validly transferred to petitioner through sale or donation.
On the validity of the purported deed of sale, however, we agree with the Court of Appeals that:
...This deed is shot through and through with so many intrinsic defects that a reasonable
mind is inevitably led to the conclusion that it is fake. The intrinsic defects are extractable
from the following questions: a) If Jose Santiago intended to donate the properties in
question to Ida, what was the big idea of hiding the nature of the contract in the facade of
the sale? b) If the deed is a genuine document, how could it have happened that Jose
Santiago who was of course fully aware that he owned only 1/3
"of the
properties covered by his title sold or donated the whole properties to Ida? c) Why in
heaven's name did Jose Santiago, a college graduate, who always signed his name in
documents requiring his signature (citation omitted) [affix] his thumbmark on this deed of
sale? d) If Ida was [the] child of Jose Santiago, what was the sense of the latter donating his
properties to her when she would inherit them anyway upon his death? e) Why did Jose
Santiago affix his thumbmark to a deed which falsely stated that: he was single (for he was
earlier married to Esperanza Cabrigas ); Ida was of legal age (for [ s ]he was then just 15
years old); and the subject properties were free from liens and encumbrances (for Entry No.
27261, Notice of Adverse Claim and Entry No. 6388, Notice of Lis Pendens were already
annotated in the title of said properties). If the deed was executed in 1979, how come it
surfaced only in 1984 after the death of Jose Santiago and of all people, the one in
possession was the baptismal sponsor of Ida?27
Clearly, there is no valid sale in this case. Jose did not have the right to transfer ownership of the
entire property to petitioner since 2/3 thereof belonged to his sisters.28 Petitioner could not have
given her consent to the contract, being a minor at the time.29 Consent of the contracting parties is
among the essential requisites of a contract,30 including one of sale, absent which there can be no
valid contract. Moreover, petitioner admittedly did not pay any centavo for the property,31 which
makes the sale void. Article 1471 of the Civil Code provides:
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in
reality a donation, or some other act or contract.
Neither may the purported deed of sale be a valid deed of donation. Again, as explained by the Court
of Appeals:
...Even assuming that the deed is genuine, it cannot be a valid donation. It lacks the
acceptance of the donee required by Art. 725 of the Civil Code. Being a minor in 1979, the
acceptance of the donation should have been made by her father, Leon Labagala or [her]
mother Cornelia Cabrigas or her legal representative pursuant to Art. 741 of the same Code.
No one of those mentioned in the law - in fact no one at all - accepted the "donation" for
Ida.32
In sum, we find no reversible error attributable to the assailed decision of the Court of Appeals,
hence it must be upheld. ¢¢G
=4the petition is **and the decision of the Court of Appeals in CA-G.R. CY No.
32817 is *
Costs against petitioner.
m**
#$
1 Rollo, pp. 51-56.

2 +at 23-33.
3Civil Case No. 56226, lodged before the then Court of First Instance of Manila, Branch 6
(Records, p. 9). In the TSN, the case no. is listed as 56626. See Exhibit G to G-11, records, pp.
165-176.
4 Records, p. 17. .
5The purported deed of sale is dated "- day of February, 1979" but was notarized on March
19, 1979. See records, pp. 147-148; TSN, June 29,1989, p. 19.
6 Records, p. 161.
7 +. at 3,18.
8 +at 4.
9 +at 3-4, 18.
10 Rollo, pp. 32-33.
11+at 17.
12 G.R. Nos. 89224-25, 205 SCRA 321 (1992).
13 Rollo, p. 18. v. #

at 328.
14 The present controversy arose prior to the effectivity of the Family Code.
15 Esperanza and Cornelia were sisters. See rollo, p. 16.
16See %, % "#

, G.R. No. 105625, 229 SCRA 468, 473 (1994). This
case deals with Articles 164, 166, 170, and 171 of the Family Code. Article 263 of the Civil
Code is now Article 170 of the Family Code.
17 Cabatbat-Lim v. Intermediate Appellate Court, No. L-69679, 166 SCRA 451, 457 (1988).
18 "#

note 12, at 326-328.
19 Records, p. 179.
20 Rollo, pp. 52-53.
21 TSN, August 11, 1988, p. 10.
22 Exhibit 10.
23 :

# "#
, G.R. Nos. 106314-15, 316 SCRA 338, 344 (1999),
citing ( & &"#
, No. L-49542, 100 SCRA 73, 84 (1980).
24 +at 343.
25 Exhibit 11.
26 TSN, June 29, 1989, p. 3.
27 Rollo, pp. 54-55.
28 CIVIL CODE OF THE PHILIPPINES, Article 1459.
31 TSN, June 29, 1989, pp. 17, 25.
32 Rollo, pp. 54-55. Articles 725 and 741 of the Civil Code state:
Art. 725. Donation is an act of liberality whereby a person disposes gratuitously of a

thing or right in favor of another, who accepts it.
Art. 741. Minors and others who cannot enter into a contract may become donees
but acceptance shall be done through their parents or legal representatives.

m
Manila
]

+/#/'?8
* petitioner,
vs.
/#04 5 m respondents.
*

Ä

mp p
"
Petition to review a decision of the Court of Tax Appeals upholding a tax assessment of the Collector
of Internal Revenue except with respect to the imposition of so-called compromise penalties, which
were set aside.
The records show that on or about May 20, 1944, petitioning taxpayer Antonio Medina married
Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later,
however, petitioner acquired forest, concessions in the municipalities of San Mariano and Palanan
in the Province of Isabela. From 1946 to 1948, the logs cut and removed by the petitioner from his
concessions were sold to different persons in Manila through his agent, Mariano Osorio.
Some time in 1949, Antonia R. Medina, petitioner's wife, started to engage in business as a lumber
dealer, and up to around 1952, petitioner sold to her almost all the logs produced in his San
Mariano, concession. Mrs. Medina, In turn, sold in Manila the logs bought from her husband through
the same agent, Mariano Osorio. The proceeds were, upon instructions from petitioner, either
received by Osorio for petitioner or deposited by said agent in petitioner's current account with the
Philippine National Bank.
On the thesis that the sales made by petitioner to his wife were null and void pursuant to the
provisions of Article 1490 of the Civil Code of the Philippines (formerly, Art. 1458, Civil Code of
1889), the Collector considered the sales made by Mrs. Medina as the petitioner's original sales
taxable under Section 186 of the National Internal Revenue Code and, therefore, imposed a tax
assessment on petitioner, calling for the payment of P4,553.54 as deficiency sales taxes and
surcharges from 1949 to 1952. This same assessment of September 26, 1953 sought also the
collection of another sum of P643.94 as deficiency sales tax and surcharge based on petitioner's
quarterly returns from 1946 to 1952.
On November 30, 1953, petitioner protested the assessment; however, respondent Collector
insisted on his demand. On July 9, 1954, petitioner filed a petition for reconsideration revealing for
the first time the existence of an alleged premarital agreement of complete separation of properties
between him and his wife, and contending that the assessment for the years 1946 to 1952 had
already prescribed. After one hearing, the Conference Staff of the Bureau of Internal Revenue
eliminated the 50% fraud penalty and held that the taxes assessed against him before 1948 had
already prescribed. Based on these findings, the Collector issued a modified assessment, demanding
the payment of only P3,325.68, computed as follows:
5% tax due on P7,209.83 -1949 P 360.49

5% tax due on 16,945.55 - 1950 847.28
5% tax due on 16,874.52 - 1951 843.75
5% tax due on 11,009.94 - 1952 550.50
TOTAL sales tax due P2,602.0
25% Surcharge thereon 650.51
Short taxes per quarterly returns, 3rd 58.52
quarter, 1950
25% Surcharge thereon 14.63
TOTAL AMOUNT due & collectible P3,325.68
Petitioner again requested for reconsideration, but respondent Collector, in his letter of April 4,
1955, denied the same.
Petitioner appealed to the Court of Tax Appeals, which rendered judgment as aforesaid. The Court's
decision was based on two main findings, namely, (a) that there was no premarital agreement of
absolute separation of property between the Medina spouse; and (b) assuming that there was such
an agreement, the sales in question made by petitioner to his wife were fictitious, simulated, and
not
In his petition for review to this Court, petitioner raises several assignments of error revolving
around the central issue of whether or not the sales made by the petitioner to his wife could be
considered as his original taxable sales under the provisions of Section 186 of the National Internal
Revenue Code.
Relying mainly on testimonial evidence that before their marriage, he and his wife executed and
recorded a prenuptial agreement for a regime of complete separation of property, and that all trace
of the document was lost on account of the war, petitioner imputes lack of basis for the tax court's
factual finding that no agreement of complete separation of property was ever executed by and
between the spouses before their marriage. We do not think so. Aside from the material
inconsistencies in the testimony of petitioner's witnesses pointed out by the trial court, the
circumstantial evidence is against petitioner's claim. Thus, it appears that at the time of the
marriage between petitioner and his wife, they neither had any property nor business of their own,
as to have really urged them to enter into the supposed property agreement. Secondly, the
testimony that the separation of property agreement was recorded in the Registry of Property
three months before the marriage, is patently absurd, since such a prenuptial agreement could not
be effective before marriage is celebrated, and would automatically be cancelled if the union was
called off. How then could it be accepted for recording prior to the marriage? In the third place,
despite their insistence on the existence of the ante nuptial contract, the couple, strangely enough,
did not act in accordance with its alleged covenants. Quite the contrary, it was proved that even
during their taxable years, the ownership, usufruct, and administration of their properties and
business were in the husband. And even when the wife was engaged in lumber dealing, and she and
her husband contracted sales with each other as aforestated, the proceeds she derived from her
alleged subsequent disposition of the logs Ȅ incidentally, by and through the same agent of her
husband, Mariano Osorio Ȅ were either received by Osorio for the petitioner or deposited by said
agent in petitioner's current account with the Philippine National Bank. Fourth, although petitioner,
a lawyer by profession, already knew, after he was informed by the Collector on or about
September of 1953, that the primary reason why the sales of logs to his wife could not be
considered as the original taxable sales was because of the express prohibition found in Article
1490 of the Civil Code of sales between spouses married under a community system; yet it was not
until July of 1954 that he alleged, for the first time, the existence of the supposed property
separation agreement. Finally, the Day Book of the Register of Deeds on which the agreement
would have been entered, had it really been registered as petitioner insists, and which book was
among those saved from the ravages of the war, did not show that the document in question was
among those recorded therein.
We have already ruled that when the credibility of witnesses is the one at issue, the trial court's
judgment as to their degree of credence deserves serious consideration by this Court (Collector vs.
Bautista, et al., G.R. Nos. L-12250 & L-12259, May 27, 1959). This is all the more true in this case
because not every copy of the supposed agreement, particularly the one that was said to have been
filed with the Clerk of Court of Isabela, was accounted for as lost; so that, applying the "best
evidence rule", the court did right in giving little or no credence to the secondary evidence to prove
the due execution and contents of the alleged document (see Comments on the Rules of Court,
Moran, 1957 Ed., Vol. 3, pp. 10.12).
The foregoing findings notwithstanding, the petitioner argues that the prohibition to sell expressed
under Article 1490 of the Civil Code has no application to the sales made by said petitioner to his
wife, because said transactions are contemplated and allowed by the provisions of Articles 7 and 10
of the Code of Commerce. But said provisions merely state, under certain conditions, a presumption
that the wife is authorized to engage in business and for the incidents that flow therefrom when she
so engages therein. But the transactions permitted are those entered into with strangers, and do
not constitute exceptions to the prohibitory provisions of Article 1490 against sales between
spouses.
Petitioner's contention that the respondent Collector can not assail the questioned sales, he being a
stranger to said transactions, is likewise untenable. The government, as correctly pointed out by the
Tax Court, is always an interested party to all matters involving taxable transactions and, needless
to say, qualified to question their validity or legitimacy whenever necessary to block tax evasion.
Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin
vs. Cantollas, 70 Phil. 55; Uy Coque vs. Sioca 45 Phil. 43). Being void transactions, the sales made by
the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that
considered as the taxable sales those made by the wife through the spouses' common agent,
Mariano Osorio. In upholding that stand, the Court below committed no error.
It is also the petitioner's contention that the lower court erred in using illegally seized documentary
evidence against him. But even assuming
& the truth of petitioner's charge regarding the
seizure, it is now settled in this jurisdiction that illegally obtained documents and papers are
admissible in evidence, if they are found to be competent and relevant to the case (see Wong & Lee
vs. Collector of Internal Revenue, G.R. No. L-10155, August 30, 1958). In fairness to the Collector,
however, it should be stated that petitioner's imputation is vehemently denied by him, and relying
on Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions of Revenue Regulations
No. V-1 and citing this Court's ruling in U.S. vs. Aviado, 38 Phil. 10, the Collector maintains that he
and other internal revenue officers and agents could require the production of books of accounts
and other records from a taxpayer. Having arrived at the foregoing conclusion, it becomes
unnecessary to discuss the other issues raised, which are but premised on the assumption that a
premarital agreement of total separation of property existed between the petitioner and his wife.
WHEREFORE, the decision appealed from is affirmed, with costs against the petitioner.
% & (

%

,* " *,$$ concur.
m$&/'/$&(#(#
p concurring:
I concur in the result. I do not share the view that documents and papers illegally obtained are
admissible in evidence, if competent and relevant to the case. In this connection, I believe in the
soundness of the following observations of the Supreme Court of the A >"
A (232 US 383, 58 L. ed. 652, 34 S. Ct. 341):1
The effect of the Fourth Amendment is to put the courts of the United States and Federal
officials, in the exercise of their power and authority, under limitations and restraints as to
the exercise of such power and authority, an to forever secure the people, their persons,
houses, papers, and effects against all unreasonable searches and seizures under the guise
of law. This protection reaches all alike, whether accused of crime or not, and the duty of
giving to it force and effect is obligatory upon all entrusted under our Federal system with
the enforcement of the laws. The tendency of those who execute the criminal laws of the
country to obtain conviction by means of unlawful seizures and enforced confessions, the
latter often obtained after subjecting accused persons to unwarranted practices destructive
of rights secured by the Federal Constitution, should find no sanction in the judgments of
the courts which are charged at all times with the support of the Constitution and to which
people of all conditions have a right to appeal for the maintenance of such fundamental
rights.
xxx xxx xxx
If letters and private documents can thus be seized and held and used in evidence, against a
citizen accused of an offense, the protection of the Fourth. Amendment declaring his right to
be secured against such searches and seizures is of no value, and, so far as those thus placed
are concerned well be stricken from the Constitution. The efforts of the courts and their
officials to bring the guilty to punishment, praiseworthy as they are, are not to be aided by
the sacrifice of those great principles established by years of endeavor and suffering which
have resulted in their embodiment in the fundamental law of the land." as applied and
amplified in Elkins v. United States (June 27, 1960), 4 L. ed. 1669.
#$
1See also Silverthorne Lumber Co. v. United States, 251 US 385, 64 L. ed. 319, 40 Ct. 182, 24
ALR 1426; Gouled v. United States, 255 US 298, 65 L. ed. 647, 41 S. Ct. 261; Amos v. United
States, 255 US 313, 65 L. ed. 654, 41 S. Ct. 266; Agello v. United States, 269 US 20, 70 L. ed.
145, 46 S. Ct. 4, 51 ALR 409; Go Bart Importing Co. v. United States, 282 US 344, 75 L. ed.
374, 51 S. Ct. 153; Grau v. United States, 287 US 124, 77 L. ed. 212, 53 S. Ct. 38; McDonald v.
United States, 335 US 451, 93 L. ed. 153, 69 S. Ct. 191; United States, v. Jeffers 342 US 48, 96
L. ed. 59, 72 S. Ct 93.

m
Manila
FIRST DIVISION

9%+#$88%
*m mpetitioner,
vs.
4
= +0$'<('(#/#2$</#/(#/#]'/#2-/#0
!* mrespondents.

,( Ä

4p
Petition for Review on certiorari assailing the Decision, dated October 6, 1980, and the Resolution
on the Motion for Reconsideration, dated November 27, 1980, of the then Court of First Instance of
Pangasinan, Branch I, in Civil Case No. 15620 entitled "Corazon DAGUINES vs. MERCEDES Calimlim-
Canullas," upholding the sale of a parcel of land in favor of DAGUINES but not of the conjugal house
thereon'
The background facts may be summarized as follows: Petitioner MERCEDES Calimlim-Canullas and
FERNANDO Canullas were married on December 19, 1962. They begot five children. They lived in a
small house on the residential land in question with an area of approximately 891 square meters,
located at Bacabac, Bugallon, Pangasinan. After FERNANDO's father died in 1965, FERNANDO
inherited the land.
In 1978, FERNANDO abandoned his family and was living with private respondent Corazon
DAGUINES. During the pendency of this appeal, they were convicted of concubinage in a judgment
rendered on October 27, 1981 by the then Court of First Instance of Pangasinan, Branch II, which
judgment has become final.
On April 15, 1980, FERNANDO sold the subject property with the house thereon to DAGUINES for
the sum of P2,000.00. In the document of sale, FERNANDO described the house as "also inherited by
me from my deceased parents."
Unable to take possession of the lot and house, DAGUINES initiated a complaint on June 19, 1980
for quieting of title and damages against MERCEDES. The latter resisted and claimed that the house
in dispute where she and her children were residing, including the coconut trees on the land, were
built and planted with conjugal funds and through her industry; that the sale of the land together
with the house and improvements to DAGUINES was null and void because they are conjugal
properties and she had not given her consent to the sale,
In its original judgment, respondent Court principally declared DAGUINES "as the lawful owner of
the land in question as well as the one-half () of the house erected on said land." Upon
reconsideration prayed for by MERCEDES, however, respondent Court resolved:
WHEREFORE, the dispositive portion of the Decision of this Court, promulgated on

October 6, 1980, is hereby amended to read as follows:
(1) Declaring plaintiff as the true and lawful owner of the land in question and the
10 coconut trees;
(2) Declaring as null and void the sale of the conjugal house to plaintiff on April 15,
1980 (Exhibit A) including the 3 coconut trees and other crops planted during the
conjugal relation between Fernando Canullas (vendor) and his legitimate wife,
herein defendant Mercedes Calimlim- Canullas;
xxx xxx xxx
The issues posed for resolution are (1) whether or not the construction of a conjugal house on the
exclusive property of the husband gave the land the character of conjugal property; and
(2) whether or not the sale of the lot together with the house and improvements thereon was valid
under the circumstances surrounding the transaction.
The determination of the first issue revolves around the interpretation to be given to the second
paragraph of Article 158 of the Civil Code, which reads:
xxx xxx xxx
Buildings constructed at the expense of the partnership during the marriage on land
belonging to one of the spouses also pertain to the partnership, but the value of the
land shall be reimbursed to the spouse who owns the same.
We hold that pursuant to the foregoing provision both the land and the building belong to the
conjugal partnership but the conjugal partnership is indebted to the husband for the value of the
land. The spouse owning the lot becomes a creditor of the conjugal partnership for the value of the
lot, which value would be reimbursed at the liquidation of the conjugal partnership. 8
In his commentary on the corresponding provision in the Spanish Civil Code (Art. 1404), Manresa
stated:
El articulo cambia la doctrine; los edificios construidos durante el matrimonio en

suelo propio de uno de los conjuges son gananciales, abonandose el valor del suelo
al conj uge a quien pertenezca.
It is true that in the case of

"(, relied upon by respondent Judge, it was held that
the land belonging to one of the spouses, upon which the spouses have built a house, becomes
conjugal property only when the conjugal partnership is liquidated and indemnity paid to the
owner of the land. We believe that the better rule is that enunciated by Mr. Justice J.B.L. Reyes in
"
3 SCRA 678, 691 (1961), where the following was explained:
As to the above properties, their conversion from paraphernal to conjugal assets

should be deemed to retroact to the time the conjugal buildings were first
constructed thereon or at the very latest, to the time immediately before the death
of Narciso A. Padilla that ended the conjugal partnership. They can not be
considered to have become conjugal property only as of the time their values were
paid to the estate of the widow Concepcion Paterno because by that time the
conjugal partnership no longer existed and it could not acquire the ownership of
said properties. The acquisition by the partnership of these properties was, under
the 1943 decision, subject to the suspensive condition that their values would be
reimbursed to the widow at the liquidation of the conjugal partnership; once paid,
the effects of the fulfillment of the condition should be deemed to retroact to the
date the obligation was constituted (Art. 1187, New Civil Code) ...
The foregoing premises considered, it follows that FERNANDO could not have alienated the house
and lot to DAGUINES since MERCEDES had not given her consent to said sale. %
Anent the second issue, we find that the contract of sale was null and void for being contrary to
morals and public policy. The sale was made by a husband in favor of a concubine after he had
abandoned his family and left the conjugal home where his wife and children lived and from
whence they derived their support. That sale was subversive of the stability of the family, a basic
social institution which public policy cherishes and protects.
Article 1409 of the Civil Code states

that: contracts whose cause, object, or purpose is
contrary to law, morals, good customs, public order, or public policy are " and inexistent from
the very beginning.
Article 1352 also provides that: "Contracts without cause, or with

"
The cause is unlawful if it is contrary to law, morals, good customs, public order, or
public policy."
Additionally, the law emphatically prohibits the spouses from selling property to each other subject
to certain exceptions. Similarly, donations between spouses during marriage are prohibited. 9 And
this is so because if transfers or con conveyances between spouses were allowed during marriage,
that would destroy the system of conjugal partnership, a basic policy in civil law. It was also
designed to prevent the exercise of undue influence by one spouse over the other,as well as to
protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to
a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those
who incurred guilt would turn out to be better than those in legal union." Those provisions are
dictated by public interest and their criterion must be imposed upon the wig of the parties. That
was the ruling in % "
"% also penned by Justice JBL Reyes (CA) 50 O.G. 3679, and
cited in "#
" . We quote hereunder the pertinent dissertation on this point:
We reach a different conclusion. While Art. 133 of the Civil Code considers as void a
donation between the spouses during the marriage, policy considerations of the
most exigent character as wen as the dictates of
require that the

As announced in the outset of this opinion, a 1954 Court of Appeals decision,

Buenaventura vs. Bautista, 50 OG 3679, interpreting a similar provision of the old
Civil Code speaks unequivocally. If the policy of the law is, in the language of the
opinion of the then Justice J.B.L. Reyes of that Court, 'to prohibit donations in favor
of the other consort and his descendants because of fear of undue influence and

upon the donor, a prejudice deeply rooted in our ancient law, ...,
then
"

"
"&
&
. For it is not to be doubted
that assent to such irregular connection for thirty years bespeaks greater influence
of one party over the other, so that the danger that the law seeks to avoid is
correspondingly increased'. Moreover, as pointed out by Ulpian (in his lib 32 ad
Sabinum, fr. 1), "It would not be just that such donations Ȅ should subsist, lest the
conditions of those who incurred guilt should turn out to be better." So long as
marriage remains the cornerstone of our family law, reason and morality alike
demand that the disabilities attached to marriage should likewise attach to
& (Emphasis supplied),
WHEREFORE, the Decision of respondent Judge, dated October 6, 1980, and his Resolution of
November 27, 1980 on petitioner's Motion for Reconsideration, are hereby set aside and the sale of
the lot, house and improvements in question, is hereby declared null and void. No costs.
SO ORDERED.
8#
9 ' "
,$
* $$

#$
1 Tabotabo vs. Molero, 22 Phil. 418 (1912).
2 Vda. de Padilla vs. Paterno, 3 SCRA 678, 691 (1961).
3 20 SCRA 474 (1967).
4 Article 166, Civil Code.
6 Article 1490,+
7 Article 133, +
8 Article 1337+
9 38 SCRA 284 (1971).
FIRST DIVISION
[G.R. No. 112954. August 25, 2000]
RICARDO DISTAJO, ERNESTO DISTAJO, RAUL DISTAJO, FEDERICO DISTAJO, ZACARIAS A. DISTAJO,
EDUARDO DISTAJO, and PILAR DISTAJO TAPAR,
" COURT OF APPEALS and LAGRIMAS
SORIANO DISTAJO,

DECISION
PARDO, $.:
The case under consideration is a petition for review on

of a decision of the Court of
Appeals, which modified the ruling of the Regional Trial Court, Roxas City regarding seven parcels
of land located in Barangay Hipona, Pontevedra, Capiz.
During the lifetime of Iluminada Abiertas, she designated one of her sons, Rufo Distajo, to be the
administrator of her parcels of land denoted as Lot Nos. 1018, 1046, 1047, and 1057 situated in
Barangay Hipona, Pontevedra, Capiz.
On May 21, 1954, Iluminada Abiertas sold a portion of Lot No. 1018 (1018-A) to her other children,
namely, Raul Distajo, Ricardo Distajo, Ernesto Distajo, Federico Distajo, and Eduardo Distajo.
On May 29, 1963, Iluminada Abiertas certified to the sale of Lot Nos. 1046 and 1047 in favor of Rufo
Distajo.
On June 4, 1969, Iluminada Abiertas sold Lot No. 1057 to Rhodora Distajo, the daughter of Rufo
Distajo.
On July 12, 1969, Iluminada Abiertas sold Lot No. 1018 to Rufo Distajo.
Meanwhile, Justo Abiertas, Jr., the brother of Iluminada Abiertas, died leaving behind his children,
Teresita, Alicia, Josefa and Luis Abiertas. Teresita paid for the real estate taxes of the following
properties, which she inherited from her father: Lot Nos. 1001, 1048, 1049, and a portion of Lot No.
1047, all located in Capiz. On May 26, 1954, Teresita Abiertas sold Lot No. 1001 in favor of Rufo
Distajo. On June 2, 1965, Teresita Abiertas, for herself and representing her sisters and brother,
sold Lot Nos. 1048, 1049, and a portion of Lot No. 1047 to Rufo Distajo.
After purchasing the above-mentioned parcels of land, Rufo Distajo took possession of the property
and paid the corresponding real estate taxes thereon. Rhodora Distajo likewise paid for the real
estate taxes of Lot No. 1057.
When Iluminada Abiertas died in 1971, Zacarias Distajo, Pilar Distajo-Tapar, and Rizaldo Distajo,
demanded possession of the seven parcels of land from Lagrimas S. Distajo, and her husband, Rufo
Distajo. The latter refused.
Consequently, on June 5, 1986, Ricardo Distajo, with the other heirs of Iluminada Abiertas, namely,
Ernesto Distajo, Raul Distajo, Federico Distajo, Zacarias Distajo, Eduardo Distajo, and Pilar Distajo,
filed with the Regional Trial Court, Roxas City a complaint for recovery of possession and
ownership of Lot No. 1018, partition of Lot Nos. 1001, 1018-B, 1046, 1047, 1048, 1049, 1057, and
damages.
On September 4, 1986, private respondent Lagrimas Distajo filed an answer with counterclaim.
On April 9, 1990, the trial court dismissed the complaint for lack of cause of action, laches and
prescription. The counterclaim was likewise dismissed. The parties appealed to the Court of
Appeals.
On August 21, 1992, the Court of Appeals rendered its decision, the dispositive portion of which
states as follows:
ǲPREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE and a new judgment
rendered, as follows:
WHEREFORE, the Court decides the case in favor of the defendant and dismisses the plaintiffsǯ
complaint for lack of cause of action except with regard to the plaintiffsǯ claim over a 238 sq. m.
portion of Lot No. 1018 (the portion adjoining the market site and measuring seventeen meters and
that adjoining the property of E. Rodriguez measuring 14 meters). The Court hereby Orders the
partition of Lot No. 1018 to conform to the following: 238 sq. m. as above specified to belong to the
plaintiffs as prayed for by them while the rest is declared property of the defendant.
Upon partition of Lot No. 1018 in accordance with this Courtǯs Order, the City Assessor of Roxas
City is hereby Ordered to cancel Tax Declaration 2813 in the name of Rufo Distajo (or any
subsequent tax declaration/s issued relative to the above-cited Tax Declaration No. 2813) and
forthwith to issue the corresponding tax declarations in the names of the respective parties herein.
SO ORDERED.ǳ
On September 10, 1992, Ricardo Distajo filed a motion for reconsideration. On December 9, 1993,
the Court of Appeals denied the motion.
Hence, this petition.
Petitioner alleges that Iluminada Abiertas exclusively owns the seven parcels of land delineated as
Lot Nos. 1001, 1018, 1046, 1047, 1048, 1049, and 1057, all of which should be partitioned among
all her heirs. Furthermore, Rufo Distajo cannot acquire the subject parcels of land owned by
Iluminada Abiertas because the Civil Code prohibits the administrator from acquiring properties
under his administration. Rufo Distajo merely employed fraudulent machinations in order to obtain
the consent of his mother to the sale, and may have even forged her signature on the deeds of sale
of the parcels of land.
In her comment dated May 13, 1994, private respondent Lagrimas S. Distajo contends that Rufo
Distajo rightfully owns the subject parcels of land because of various deeds of sale executed by
Iluminada Abiertas selling Lot Nos. 1018-B, 1047 and 1046 in favor of Rufo Distajo and Lot No.
1057 in favor of Rhodora Distajo. Private respondent also avers that petitioner cannot claim any
right over Lot Nos. 1001, 1048 and 1049, considering that such lands belong to the brother of
Iluminada Abiertas, namely, Justo Abiertas, Jr., whose heirs sold said parcels of land to Rufo Distajo.
The petition lacks merit.
Factual findings of the trial court will not be disturbed on appeal unless the court has overlooked or
ignored some fact or circumstance of sufficient weight or significance, which, if considered, would
alter the result of the case. When there is no conflict between the findings of the trial and appellate
courts, a review of the facts found by the appellate court is unnecessary.
Since the trial court and the Court of Appeals agree that Iluminada Abiertas owned Lot Nos. 1046,
1057 and a portion of Lot No. 1047, and that Justo Abiertas Jr. owned Lot Nos. 1001, 1048, and
1049, such findings are binding on this Court, which is not a trier of facts. However, the record
shows that Lot No. 1018 should be divided into Lot No. 1018-A and 1018-B, the delineation of
which the Court of Appeals clarified in its decision.
The issues in this case, therefore, are limited to those properties which were owned by Iluminada
Abiertas, ascendant of petitioner, consisting of Lot Nos. 1018-A, 1046, 1057, and a portion of 1047.
In his petition, Ricardo Distajo assails the genuineness of the signatures of Iluminada Abiertas in the
deeds of sale of the parcels of land, and claims that Rufo Distajo forged the signature of Iluminada
Abiertas. However, no handwriting expert was presented to corroborate the claim of forgery.
Petitioner even failed to present a witness who was familiar with the signature of Iluminada
Abiertas. Forgery should be proved by clear and convincing evidence, and whoever alleges it has
the burden of proving the same.
Petitioner likewise contends that the sale transactions are void for having been entered into by the
administrator of the properties. We disagree. The pertinent Civil Code provision provides:
ǲArt. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under guardianship;
(2) Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;ǳ x x x
Under paragraph (2) of the above article, the prohibition against agents purchasing property in
their hands for sale or management is not absolute. It does not apply if the principal consents to the
sale of the property in the hands of the agent or administrator. In this case, the deeds of sale signed
by Iluminada Abiertas shows that she gave consent to the sale of the properties in favor of her son,
Rufo, who was the administrator of the properties. Thus, the consent of the principal Iluminada
Abiertas removes the transaction out of the prohibition contained in Article 1491(2).
Petitioner also alleges that Rufo Distajo employed fraudulent machinations to obtain the consent of
Iluminada Abiertas to the sale of the parcels of land. However, petitioner failed to adduce
convincing evidence to substantiate his allegations.
In the absence of any showing of lack of basis for the conclusions made by the Court of Appeals, this
Court finds no cogent reason to reverse the ruling of the appellate court.
=4, the Court DENIES the petition and AFFIRMSthe decision of the Court of Appeals in
CA-G.R. CV No. 30063.
SO ORDERED.
Davide, Jr., C.J., (Chairman), and Ynares-Santiago, JJ., concur.
Puno, and Kapunan, JJ., no part.

In CA-G.R. CV No. 30063, promulgated on August 21, 1992, Justice Serafin V.C. Guingona, ponente,
with Justices Santiago M. Kapunan and Oscar M. Herrera, concurring.
Delineated as Lot Nos. 1001, 1018, 1046, 1047, 1048, 1049, and 1057.
Deed of Absolute Sale, Trial Court Record, p. 209.
Deed of Certification of Sale of Unregistered Land, Trial Court Record, pp. 290-292.
Deed of Absolute Sale, Trial Court Record, pp. 293-294.
+, p. 289.
+, p. 270.
+, p. 272.
Petitioner Ricardo Distajo is the son of the late Rizaldo Distajo.
Rufo Distajo died on January 2, 1986.
Docketed as CA-G.R. CV No. 30063.
Decision, Court of Appeals ' , pp. 64-75.
Court of Appeals Record, pp. 76-80.
Resolution, Court of Appeals Record, p. 100.
Filed on February 23, 1994, ' , pp. 14-39.
Article 1491, Civil Code.
Sumbad ". Court of Appeals, G.R. No. 106060, June 21, 1999, & Heirs of Felicidad Canque ".
Court of Appeals, 275 SCRA 741 (1997).
+, & Kierulf v. Court of Appeals, 269 SCRA 433 (1997).
Moomba Mining Exploration Company ". Honorable Court of Appeals, G.R. No. 108846, October 26,
1999.
Sumbad ". Court of Appeals, G. R. No. 106060, June 21, 1999, &Veloso ". Court of Appeals, 260
SCRA 593 (1996).

G.R. No. 146608 October 23, 2003
SPOUSES CONSTANTE FIRME, ET AL. VS. BUKAL ENTERPRISES
AND DEVELOPMENT CORPORATION

m
Manila
FIRST DIVISION

%2.$'88
m mmm*!

petitioners,
vs.
: mm** respondent.
DECISION
p
The Case
This is a petition for review on certiorari of the Decision1 dated 3 January 2001 of the
Court of Appeals in CA-G.R. CV No. 60747. The Court of Appeals reversed the Decision2 of
the Regional Trial Court, Branch 223, Quezon City ("trial court"), which held that there
was no perfected contract of sale since there was no consent on the part of the seller.
The Facts
Petitioner Spouses Constante and Azucena Firme ("Spouses Firme") are the registered
owners of a parcel of land3 ("Property") located on Dahlia Avenue, Fairview Park, Quezon
City. Renato de Castro ("De Castro"), the vice president of Bukal Enterprises and
Development Corporation ("Bukal Enterprises") authorized his friend, Teodoro Aviles
("Aviles"), a broker, to negotiate with the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific performance and
damages with the trial court, alleging that the Spouses Firme reneged on their agreement
to sell the Property. The complaint asked the trial court to order the Spouses Firme to
execute the deed of sale and to deliver the title to the Property to Bukal Enterprises upon
payment of the agreed purchase price.
During trial, Bukal Enterprises presented five witnesses, namely, Aviles, De Castro,
Antonio Moreno, Jocelyn Napa and Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of Bukal Enterprises
for the purchase of the Property. According to Aviles, he met with the Spouses Firme on
23 January 1995 and he presented them with a draft deed of sale4 ("First Draft") dated
February 1995. The First Draft of the deed of sale provides:
DEED OF ABSOLUTE SALE
This DEED OF ABSOLUTE SALE made and executed by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizens and with
postal address at No. 1450 Union, Paco, City of Manila, hereinafter called the VENDOR,
and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized

and registered in accordance with Philippine Laws, with business address at Dahlia
Avenue, Fairview Park, Quezon City, herein represented by its PRESIDENT, MRS.
ZENAIDA A. DE CASTRO, hereinafter called the VENDEE.
WITNESSETH:
That the VENDOR is the absolute and registered owner of a certain parcel of land located
at Fairview Park, Quezon City, and more particularly described as follows:
A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC) Pcs-8124,

Sheet No. I, being a portion of the consolidation of Lots 41-B-2-A and 41-B-2-C, Psd-1136
and Lot (LRC) Pcs-2665, (LRC) GLRO) Record. No. 1037), situated in Quezon City, Island
of Luzon. Bounded on the NE., points 2 to 5 by Road Lot 24, of the consolidation-
subdivision plan. Beginning at a point marked "1" on plan, being S. 67 deg. 23ǯW., 9288.80
m. from BLLM I, Mp of Montalban, Rizal; thence N. 85 deg. 35ǯE., 17.39 m. to point 2;
thence S. 54 deg. 22ǯE., 4.00 m. to point 3; thence S. 14 deg. 21ǯE., 17.87 m. to point 4;
thence 3 deg. 56ǯE., 17.92 m. to point 5; thence N. 85 deg. 12ǯ W., 23.38 m. to point 6;
thence N. 4 deg. 55ǯ W., 34.35 m. to the point of beginning; containing an area of EIGHT
HUNDRED AND SIX (806) SQUARE METERS, more or less.
VENDORǯS title thereto being evidenced by Transfer Certificate of Title No. 264243 issued
by the Register of Deeds of Quezon City;
That the VENDOR, for and in consideration of the sum of THREE MILLION TWO
HUNDRED TWENTY FOUR THOUSAND PESOS (P3,224,000.00) Philippine Currency, to
them in hand paid and receipt whereof is hereby acknowledged, do hereby SELL,
TRANSFER and CONVEY unto the said VENDEE, its assigns, transferees and successors in
interest the above described property, free from all liens and encumbrances whatsoever;
It is hereby mutually agreed that the VENDEE shall bear all the expenses for the capital
gains tax, documentary stamps, documentation, notarization, removal and relocation of
the squatters, registration, transfer tax and other fees as may be required by law;
That the VENDOR shall pay the real estate tax for the current year and back real estate
taxes, charges and penalties if there are any.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of
February, 1995, at Quezon City, Philippines.
CONSTANTE FIRME BUKAL ENTERPRISES AND

DEVELOPMENT CORP.
BY:
AZUCENA E. FIRME ZENAIDA A. DE CASTRO

VENDOR President
xxx
The Spouses Firme rejected this First Draft because of several objectionable conditions,
including the payment of capital gains and other government taxes by the seller and the
relocation of the squatters at the sellerǯs expense. During their second meeting, Aviles
presented to the Spouses Firme another draft deed of sale5 ("Second Draft") dated March
1995. The Spouses Firme allegedly accepted the Second Draft in view of the deletion of
the objectionable conditions contained in the First Draft. According to Aviles, the Spouses
Firme were willing to sell the Property at P4,000 per square meter. They then agreed that
payment would be made at the Far East Bank and Trust Company ("FEBTC"), Padre Faura
Branch, Manila. However, the scheduled payment had to be postponed due to problems in
the transfer of funds. The Spouses Firme later informed Aviles that they were no longer
interested in selling the Property.6
De Castro testified that he authorized Aviles to negotiate for Bukal Enterprises the
purchase of the Property owned by the Spouses Firme. The Property was located beside
the Dahlia Commercial Complex owned by Bukal Enterprises. Aviles informed him that
the Spouses Firme agreed to sell the Property at P4,000 per square meter, payable in cash
for a lump sum of P3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes
due and to undertake the relocation of the squatters on the Property. For this purpose,
Bukal Enterprises applied for a loan of P4,500,000 which FEBTC granted. Bukal
Enterprises then relocated the four families squatting on the Property at a cost of
P60,000 per family. After the squatters vacated the Property, Bukal Enterprises fenced
the area, covered it with filling materials, and constructed posts and riprap. Bukal
Enterprises spent approximately P300,000 for these improvements. In a letter7 dated 7
March 1995, Bukal Enterprises offered to pay the purchase price of P3,224,000 to the
Spouses Firme upon execution of the transfer documents and delivery of the ownerǯs
duplicate copy of TCT No. 264243. The Spouses Firme did not accept this offer but
instead sent Bukal Enterprises a letter demanding that its workers vacate the Property.
Bukal Enterprises then filed a complaint for specific performance and damages.8
Antonio Moreno, one of the alleged squatters on the Property, testified that he
constructed his house on the Property sometime in 1982. On 26 February 1995, he was
summoned together with the other squatters to a meeting with Aviles regarding their
relocation. They agreed to relocate provided they would be given financial assistance of
P60,000 per family. Thus, on 6 March 1995, the squatter families were each paid P60,000
in the presence of De Castro and Aviles. Thereafter, they voluntarily demolished their
houses and vacated the Property.9
Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified that Bukal Enterprises
has been their client since 1994. According to her, Bukal Enterprises applied for a loan of
P4,500,000 on the third week of February 1995 allegedly to buy a lot in Fairview. FEBTC
approved the loan on the last week of February and released the proceeds on the first
week of March.10
Antonio Ancheta ("Ancheta"), barangay captain of Barangay Fairview, testified that he

was present when one of the officers of Bukal Enterprises, a certain Renato, paid each of
the four squatter families around P60,000 to P100,000. Ancheta informed Dr. Constante
Firme that he told the squatters to leave considering that they already received payment
for their relocation. According to Ancheta, Dr. Constante Firme must have misunderstood
him and thought that the squatters left through Anchetaǯs own efforts.11
On the other hand, Dr. Constante Firme ("Dr. Firme") was the sole witness for the
defendant spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met with Aviles at the
Aristocrat Restaurant in Quezon City. Aviles arranged the meeting with the Spouses
Firme involving their Property in Fairview. Aviles offered to buy the Property at P2,500
per square meter. The Spouses Firme did not accept the offer because they were
reserving the Property for their children. On 6 February 1995, the Spouses Firme met
again with Aviles upon the latterǯs insistence. Aviles showed the Spouses Firme a copy of
a draft deed of sale12 ("Third Draft") which Aviles prepared. The Third Draft of the deed
of sale provides:
CONRACT OF SALE
This AGREEMENT, executed this ___ day of February, 1995, by and between the Spouses
CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age, Filipino citizen and with
postal address at __________, Quezon City, hereinafter referred to as the VENDORS, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly organized
and registered in accordance with Philippine Laws, with postal address at Fairview Park,
Quezon City, herein represented by its President and Chief Executive Officer, hereinafter
referred to as the VENDEE.
WITNESSETH:
That for and in consideration of the sum of THREE MILLION TWO HUNDRED TWENTY
FOUR THOUSAND PESOS (P3,224,000.00), Philippine Currency, payable in the form
hereinafter expressed, agreed to sell to the VENDEE and the VENDEE has agreed to buy
from the VENDORS, a parcel of land situated at Dahlia Avenue corner Rolex Street,
Fairview Park, Quezon City, containing an area of 806 Square Meters more or less, of
which the VENDORS are the absolute registered owners in accordance with the Land
Registration Act, as evidenced by Transfer Certificate of Title No. 264243 issued by the
Register of Deeds of Quezon City, more particularly described and bounded as follows:
(DESCRIPTION AND BOUNDARIES OF PROPERTY)
THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS FOLLOWS:
1. The VENDEE agrees to pay the VENDORS upon execution of this Contract the
sum of ONE MILLION PESOS (P1,000,000.00), Philippine Currency, as
downpayment and agrees to pay the balance of TWO MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (P2,224,000.00) at the post office address of
the VENDORS in Quezon City, or such other place or Office as the VENDORS may
designate within a period of sixty (60) days counted from the date of this
Contract;
2. The VENDORS have hereunto authorized the VENDEE to mortgage the property
and submit this Contract, together with a certified true copy of the TCT, Tax
Declaration, Tax Clearance and Vicinity/Lot Plan, with their Lending Bank. The
proceeds of the VENDEEǯS Loan shall directly be paid and remitted by the Bank to
the VENDORS;
3. The said parcel of land shall remain in the name of the VENDORS until the
Lending Bank of the VENDEE shall have issued a Letter Guaranty Payment in
favor of the VENDORS, at which time the VENDORS agree to execute a Deed of
Absolute Sale in favor of the VENDEE and cause the issuance of the Certificate of
Title in the name of the latter. The Capital Gains Tax and Documentary Stamps
shall be charged from the VENDORS in accordance with law;¢ ¢I
4. The payment of the balance of P2,224,000.00 by the VENDEE to the VENDORS

shall be within a period of sixty (60) days effective from the date of this Contract.
After the lapse of 60 days and the loan has not yet been released due to fortuitous
events the VENDEE shall pay an interest of the balance a monthly interest based
on existing bank rate until said fortuitous event is no longer present;
5. The VENDEE shall remove and relocate the Squatters, however, such actual,
reasonable and necessary expenses shall be charged to the VENDORS upon
presentation of receipts and documents to support the act;
6. The VENDEE shall be allowed for all legal purposes to take possession of the
parcel of land after the execution of this Contract and payment of the
downpayment;
7. The VENDEE shall shoulder all expenses like the documentation, registration,
transfer tax and relocation of the property.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____ day of
February, 1995, at Quezon City, Philippines.
CONSTANTE E. FIRME BUKAL ENTERPRISES DEV. CORP.
VENDOR VENDEE
BY:
AZUCENA E. FIRME ________________________

VENDOR President & Chief Executive Officer
xxx
The Spouses Firme did not accept the Third Draft because they found its provisions one-
sided. The Spouses Firme particularly opposed the provision on the delivery of the
Propertyǯs title to Bukal Enterprises for the latter to obtain a loan from the bank and use
the proceeds to pay for the Property. The Spouses Firme repeatedly told Aviles that the
Property was not for sale when Aviles called on 2 and 4 March 1995 regarding the
Property. On 6 March 1995, the Spouses Firme visited their Property and discovered that
there was a hollow block fence on one side, concrete posts on another side and bunkers
occupied by workers of a certain Florante de Castro. On 11 March 1995, Spouses Firme
visited the Property again with a surveyor. Dr. Firme talked with Ancheta who told him
that the squatters had voluntarily demolished their shanties. The Spouses Firme sent a
letter13 dated 20 March 1995 to Bukal Enterprises demanding removal of the bunkers
and vacation by the occupants of the Property. On 22 March 1995, the Spouses Firme
received a letter14 dated 7 March 1995 from Bukal Enterprises demanding that they sell
the Property.15
On 7 August 1998, the trial court rendered judgment against Bukal Enterprises as
follows:
WHEREFORE, in the light of the foregoing premises, the above-entitled case [is] hereby
DISMISSED and plaintiff BUKAL ENTERPRISES DEVELOPMENT CORPORATION is hereby
ordered to pay the defendants Spouses Constante and Azucena Firme:
1. the sum of Three Hundred Thirty Five Thousand Nine Hundred Sixty Four and
90/100 (P335,964.90) as and by way of actual and compensatory damages;
2. the sum of Five Hundred Thousand Pesos (P500,000.00) as and by way of

moral damages;
3. the sum of One Hundred Thousand Pesos (P100,000.00) as and by way of

attorneyǯs fees; and
4. the costs of the suit.
SO ORDERED.16
Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the
decision of the trial court. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the Decision, dated August 7, 1998, is hereby

REVERSED and SET ASIDE. The complaint is granted and the appellees are directed to
henceforth execute the Deed of Absolute Sale transferring the ownership of the subject
property to the appellant immediately upon receipt of the purchase price of
P3,224,000.00 and to perform all such acts necessary and proper to effect the transfer of
the property covered by TCT No. 264243 to appellant. Appellant is directed to deliver the
payment of the purchase price of the property within sixty days from the finality of this
judgment. Costs against appellees.
SO ORDERED.17
Hence, the instant petition.¢ 012¢
The Ruling of the Trial Court
The trial court held there was no perfected contract of sale. Bukal Enterprises failed to
establish that the Spouses Firme gave their consent to the sale of the Property. The
parties did not go beyond the negotiation stage and there was no evidence of meeting of
the minds between the parties. Furthermore, Aviles had no valid authority to bind Bukal
Enterprises in the sale transaction. Under Sections 23 and 36 (No. 7) of the Corporation
Code, the corporate power to purchase a specific property is exercised by the Board of
Directors of the corporation. Without an authorization from the Board of Directors, Aviles
could not validly finalize the purchase of the Property on behalf of Bukal Enterprises.
There is no basis to apply the Statute of Frauds since there was no perfected contract of
sale.
The Ruling of the Court of Appeals
The Court of Appeals held that the lack of a board resolution authorizing Aviles to act on
behalf of Bukal Enterprises in the purchase of the Property was cured by ratification.
Bukal Enterprises ratified the purchase when it filed the complaint for the enforcement of
the sale.
The Court of Appeals also held there was a perfected contract of sale. The appellate court
ruled that the Spouses Firme revealed their intent to sell the Property when they met
with Aviles twice. The Spouses Firme rejected the First Draft because they considered the
terms unacceptable. When Aviles presented the Second Draft without the objectionable
provisions, the Spouses Firme no longer had any cause for refusing to sell the Property.
On the other hand, the acts of Bukal Enterprises in fencing the Property, constructing
posts, relocating the squatters and obtaining a loan to purchase the Property are
circumstances supporting their claim that there was a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of ownership over the
Property when the latter introduced improvements on the Property and evicted the
squatters. These acts constitute partial performance of the contract of sale that takes the
oral contract out of the scope of the Statute of Frauds.
The Issues
The Spouses Firme raise the following issues:
1. WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT THERE WAS A

PERFECTED CONTRACT OF SALE BETWEEN PETITIONERS AND RESPONDENT
DESPITE THE ADDUCED EVIDENCE PATENTLY TO THE CONTRARY;
2. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE

ALLEGED CONTRACT OF SALE IS ENFORCEABLE DESPITE THE FACT THAT THE
SAME IS COVERED BY THE STATUTE OF FRAUDS;
3. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT

THAT IT WAS NOT LEGALLY AND FACTUALLY POSSIBLE FOR RESPONDENT TO
PERFECT A CONTRACT OF SALE; AND
4. THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD BY THE TRIAL
COURT OF MORAL AND COMPENSATORY DAMAGES TO PETITIONERS IS
IMPROPER.18
The Ruling of the Court
The petition is meritorious.
The fundamental question for resolution is whether there was a perfected contract of sale
between the Spouses Firme and Bukal Enterprises. This requires a review of the factual
and legal issues of this case. As a rule, only questions of law are appealable to this Court
under Rule 4519 of the Rules of Civil Procedure. The findings of fact by the Court of
Appeals are generally conclusive and binding on the parties and are not reviewable by
this Court.20 However, when the factual findings of the Court of Appeals are contrary to
those of the trial court or when the inference made is manifestly mistaken, this Court has
the authority to review the findings of fact.21 Likewise, this Court may review findings of
fact when the judgment of the Court of Appeals is premised on a misapprehension of
facts.22 This is the situation in this case.
Whether there was a perfected contract of sale
We agree with the finding of the trial court that there was no perfected contract of sale.
Clearly, the Court of Appeals misapprehended the facts of the case in ruling otherwise.
First, the records indubitably show that there was no consent on the part of the Spouses
Firme. Aviles did not present any draft deed of sale during his first meeting with the
Spouses Firme on 30 January 1995.23 Dr. Firme was consistent in his testimony that he
and his wife rejected the provisions of the Third Draft presented by Aviles during their
second meeting on 6 February 1995. The Spouses Firme found the terms and conditions
unacceptable and told Aviles that they would not sell the property.24 Aviles showed them
only one draft deed of sale (Third Draft) during their second and last meeting on 6
February 1995.25 When shown a copy of the First Draft, Dr. Firme testified that it was not
the deed of sale shown to them by Aviles during their second meeting26 and that the
Third Draft was completely different from the First Draft.27
On the other hand, Aviles gave conflicting testimony as to what transpired during the two
meetings with the Spouses Firme. In his direct examination, Aviles testified that during
his first meeting with the Spouses Firme on 23 January 1995, he showed them the First
Draft which the Spouses Firme rejected.28 On their second meeting, Aviles showed the
Spouses Firme the Second Draft, which the Spouses Firme allegedly approved because
the objectionable conditions contained in the First Draft were already deleted. However,
a perusal of the First Draft and the Second Draft would show that both deeds of sale
contain exactly the same provisions. The only difference is that the date of the First Draft
is February 1995 while that of the Second Draft is March 1995.
When Aviles testified again as rebuttal witness, his testimony became more confusing.
Aviles testified that during his first meeting with the Spouses Firme on 30 January 1995,
he showed them the Third Draft, which was not acceptable to the latter.29 However, upon
further questioning by his counsel, Aviles concurred with Dr. Firmeǯs testimony that he
presented the Third Draft (Exh. "5"; Exh. "L") to the Spouses Firme only during their
second meeting. He also stated that he prepared and presented to the Spouses Firme the
First Draft (Exh. "C") and the Second Draft (Exh. "C-1") during their first or second
meeting. He testified:
ATTY. MARQUEDA:
Q: On page 11 of the tsn dated August 5, 1997 a question was posed "How did you
find this draft the Contract of Sale which was presented to you by Mr. Aviles on
the second meeting?" The answer is "On the first meeting(sic), we find it totally
unacceptable, sir."30 What can you say on this? Before that, Mr. Witness, what is
this Contract of Sale that you presented to Mr. Aviles on the second meeting? Is
this different from the Contract of Sale that was marked as Exhibit "5-L"?
Q: May I see the document )7J(?31
INTERPRETER:
Witness going over the record.
ATTY. MARQUEDA:
Q: +

&

;
A: J

+

&
&

Q: What about Exhibit C and C-1 [which] were identified by you. When was this
presented to Dr. Firme?
A: This is the same.

Q: Exhibit C and C-1?
A: Yes because I prepared two documents during our meeting. One already with
notarial, the one without notarial page and the other one with notarial page
already, so I prepared two documents but with the same contents both were
dated February of 1995.32
Q: So, you are referring now to Exhibit C and C-1 for the plaintiff?
A: C-1 is already in the final form because we agreed already as to the date of the
payment, so I prepared already another document which is dated March 1995.33
(Emphasis supplied)
In his cross-examination, Aviles again changed his testimony. According to him, he

presented the Third Draft to the Spouses Firme during their first meeting.34 However,
when he went over the records, he again changed his answer and stated that he
presented the Third Draft during their second meeting.35
In his re-direct examination, Aviles gave another version of what he presented to the
Spouses Firme during the two meetings. According to him, he presented the Third Draft
during the first meeting. On their second meeting, he presented the First and the Second
Drafts to the Spouses Firme.36
Furthermore, Aviles admitted that the first proposal of Bukal Enterprises was at P2,500
per square meter for the Property.37 But the First, Second and Third Drafts of the deed of
sale prepared by Aviles all indicated a purchase price of P4,000 per square meter or a
lump sum of P3,224,000 (P4,000 per sq.m. x 806 sq.m. = P3,224,000) for the Property.
Hence, Aviles could not have presented any of these draft deeds of sale to the Spouses
Firme during their first meeting.
Considering the glaring inconsistencies in Avilesǯ testimony, it was proper for the trial
court to give more credence to the testimony of Dr. Firme.
Even after the two meetings with Aviles, the Spouses Firme were firm in their decision
not to sell the Property. Aviles called the Spouses Firme twice after their last meeting. The
Spouses Firme informed Aviles that they were not selling the Property.38 Aviles himself
admitted this during his testimony, thus:
Q. Now, the next question which states: "But did you not have any occasion to talk
to him after that second meeting?" and the answer of Dr. Firme is "He called up a
month after, thatǯs March 2, 1995." What can you say on this?
A. I called him to inform him that the loan was already transferred from Makati to
Padre Faura Branch of the Far East Bank, so I scheduled already the payment of
their property.
Q. When?
A. On March 4, 1995.
Q. And then the next question which also states: "What did you talked (sic) about
over the telephone?" The answer of Dr. Firme was "When I found out that he was
calling, I told him that the property is not for sale." What can you say on this?
:

&

, perhaps
they would like a higher price of the property. They did not mention to me. I do
not know what was their reason.
Q. The next question "So, what happened next?" The answer is "He called up two
days later, March 4 and my wife answered the telephone and told him that the
property is not for sale, sir." What can you say on this?
A.

&
"

&

"
.
Q. When was that?
A. March 4, 1995, your honor.39 (Emphasis supplied)
Significantly, De Castro also admitted that he was aware of the Spouses Firmeǯs refusal to
sell the Property.40
The confusing testimony of Aviles taken together with De Castroǯs admission that he was
aware of the Spouses Firmeǯs refusal to sell the Property reinforces Dr. Firmeǯs testimony
that he and his wife never consented to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil Code provides:
Art. 1318. There is no contract unless the following requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.
The absence of any of these essential elements will negate the existence of a perfected
contract of sale.41 Thus, where there is want of consent, the contract is non-existent.42 As
held in Salonga, et al. v. Farrales, et al.:43
It is elementary that consent is an essential element for the existence of a contract, and
where it is wanting, the contract is non-existent. -$$$#2$<2#$#(-$
2#<'1(?<-$&/'($#-$$'1<-$2#'/2-$/22$&/#2$.?#$<-$
<<$'1/0$.?-$-$'
The contract to sell is a bilateral contract. Where there is
merely an offer by one party, without the acceptance of the other, there is no consent.
(Emphasis supplied)
In this case, the Spouses Firme flatly rejected the offer of Aviles to buy the Property on
behalf of Bukal Enterprises. There was therefore no concurrence of the offer and the
acceptance on the subject matter, consideration and terms of payment as would result in
a perfected contract of sale.44 Under Article 1475 of the Civil Code, the contract of sale is
perfected at the moment there is a meeting of minds on the thing which is the object of
the contract and on the price.
Another piece of evidence which supports the contention of the Spouses Firme that they
did not consent to the contract of sale is the fact they never signed any deed of sale. If the
Spouses Firme were already agreeable to the offer of Bukal Enterprises as embodied in
the Second Draft, then the Spouses Firme could have simply affixed their signatures on
the deed of sale, but they did not.
Even the existence of a signed document purporting to be a contract of sale does not
preclude a finding that the contract is invalid when the evidence shows that there was no
meeting of the minds between the seller and buyer.45 In this case, what were offered in
evidence were mere unsigned deeds of sale which have no probative value.46 Bukal
Enterprises failed to show the existence of a perfected contract of sale by competent
proof.¢""¢I
Second, there was no approval from the Board of Directors of Bukal Enterprises as would
finalize any transaction with the Spouses Firme. Aviles did not have the proper authority
to negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro, had asked
him to negotiate with the Spouses Firme to buy the Property.47 De Castro, as Bukal
Enterprisesǯ vice president, testified that he authorized Aviles to buy the Property.48
However, there is no Board Resolution authorizing Aviles to negotiate and purchase the
Property on behalf of Bukal Enterprises.49
It is the board of directors or trustees which exercises almost all the corporate powers in
a corporation. Thus, the Corporation Code provides:
SEC. 23. The board of directors or trustees. Ȅ Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stock, or where
there is no stock, from among the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and qualified. x x x
SEC. 36. Corporate powers and capacity. Ȅ Every corporation incorporated under this
Code has the power and capacity:
xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by the law and
the Constitution.
xxx
Under these provisions, the power to purchase real property is vested in the board of
directors or trustees. While a corporation may appoint agents to negotiate for the
purchase of real property needed by the corporation, the final say will have to be with the
board, whose approval will finalize the transaction.50 A corporation can only exercise its
powers and transact its business through its board of directors and through its officers
and agents when authorized by a board resolution or its by-laws.51 As held in AF Realty &
Development, Inc. v. Dieselman Freight Services, Co.:52
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the board
of directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the
corporation. (Emphasis supplied)
In this case, Aviles, who negotiated the purchase of the Property, is neither an officer of
Bukal Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is
no Board Resolution authorizing Aviles to negotiate and purchase the Property for Bukal
Enterprises. There is also no evidence to prove that Bukal Enterprises approved
whatever transaction Aviles made with the Spouses Firme. In fact, the president of Bukal
Enterprises did not sign any of the deeds of sale presented to the Spouses Firme. Even De
Castro admitted that he had never met the Spouses Firme.53 Considering all these
circumstances, it is highly improbable for Aviles to finalize any contract of sale with the
Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with the
trial court, Aviles signed54 the verification and certification of non-forum shopping.55 The
verification and certification of non-forum shopping was not accompanied by proof that
Bukal Enterprises authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the board of directors. "The
physical acts of the corporation, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate by-laws or by a specific act
of the board of directors."56
The purpose of verification is to secure an assurance that the allegations in the pleading
are true and correct and that it is filed in good faith.57 True, this requirement is
procedural and not jurisdictional. However, the trial court should have ordered the
correction of the complaint since Aviles was neither an officer of Bukal Enterprises nor
authorized by its Board of Directors to act on behalf of Bukal Enterprises.
Whether the Statute of Frauds is applicable

The Court of Appeals held that partial performance of the contract of sale takes the oral
contract out of the scope of the Statute of Frauds. This conclusion arose from the
appellate courtǯs erroneous finding that there was a perfected contract of sale. The
records show that there was no perfected contract of sale. There is therefore no basis for
the application of the Statute of Frauds. The application of the Statute of Frauds
presupposes the existence of a perfected contract.58 Article 1403 of the Civil Code
provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum thereof,
be in writing and subscribed by the party charged or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;
xxx
Whether Bukal Enterprises is a builder in good faith
Bukal Enterprises is not a builder in good faith. The Spouses Firme did not accept Avilesǯ
offer to purchase the Property. Aviles testified that when he called the Spouses Firme on
2 March 1995, Dr. Firme informed him that they were no longer interested in selling the
Property. On 4 March 1995, Aviles called again and this time Mrs. Firme told him that
they were not selling the Property. Aviles informed De Castro of the refusal of the
Spouses Firme to sell the Property. However, Bukal Enterprises still proceeded in
relocating the squatters and constructing improvements on the Property. De Castro
testified:
ATTY. EJERCITO:
Q: The truth of the matter, Mr. Witness, is that the post was constructed sometime
late 1994. Is that not correct?
A: No, sir. It is not true.
Q: >
;
A: That March.
Q: When in March?
A: 1995.
Q: When in March 1995?
A:

E¢ 7
8E9

"
!

Q: >
!

";
WITNESS:
A:

8F9!

ATTY. EJERCITO:
Q: When did you find out that the Spouses Firme did not want to sell the same?
A: First week of March 1995.
Q: In your Complaint you said you find out on March 3, 1995. Is that not correct?
A: I cannot exactly remember, sir.
ATTY. MARQUEDA:
In the Complaint it does not state March 3. Maybe counsel was thinking of this
Paragraph 6 which states, "When the property was rid of the squatters on March
2, 1995 for the documentation and payment of the sale, xxx".
ATTY. EJERCITO:
Q:
E¢ 7
&

&

+
;
A: <

"

Q: Mr. Aviles relayed to you that the Spouses Firme were no longer interested in
selling to you the property in March 2, 1995. Is that correct?
A: Yes, sir. Mr. Aviles told me.
Q: In so many words, Mr. Witness, you learned that the Spouses Firme were no
longer interested in selling the property before you spent allegedly all the sum of
money for the relocation of squatters for all this construction that you are telling
this Court now?
WITNESS:
A: The refusal to sell is not yet formal and the lawyer sent a letter tendering full
payment of the purchase price.
ATTY. EJERCITO:
Q: You mean to say that you did not believe Mr. Aviles when he told you that the
Spouses Firme were no longer selling the property?
A: No, sir.
Q: Was there anything formal when you say the Spouses Firme agreed to sell the
property?
A: None, sir.
Q: And yet that time you believe Mr. Aviles when he verbally told you that the Sps.
Firme agreed to sell the property? At what point of the transaction with the
Spouses Firme were you advised by your lawyer?
WITNESS:
A: At the time when they refused to sell the lot.
ATTY. EJERCITO:
Q: Was that before the squatters were relocated allegedly by Bukal Enterprises?
A: Yes, sir.
Q: In fact, it was the lawyer who advised you to relocate the squatters. Is it not
true?
A: No, sir.59 (Emphasis supplied)
Bukal Enterprises is obviously a builder in bad faith. No deed of sale has been executed in
this case. Despite the refusal of the Spouses Firme to sell the Property, Bukal Enterprises
still proceeded to introduce improvements on the Property. Bukal Enterprises introduced
improvements on the Property without the knowledge and consent of the Spouses Firme.
When the Spouses Firme learned about the unauthorized constructions made by Bukal
Enterprises on the Property, they advised the latter to desist from further acts of trespass
on their Property.60
The Civil Code provides:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is
built, planted or sown without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad
faith may demand the demolition of the work, or that the planting or sowing be removed,
in order to replace things in their former condition at the expense of the person who
built, planted or sowed; or he may compel the builder or planter to pay the price of the
land, and the owner the proper rent.
Under these provisions the Spouses Firme have the following options: (1) to appropriate
what Bukal Enterprises has built without any obligation to pay indemnity; (2) to ask
Bukal Enterprises to remove what it has built; or (3) to compel Bukal Enterprises to pay
the value of the land.61 Since the Spouses Firme are undoubtedly not selling the Property
to Bukal Enterprises, they may exercise any of the first two options. They may
appropriate what has been built without paying indemnity or they may ask Bukal
Enterprises to remove what it has built at Bukal Enterprisesǯ own expense.
Bukal Enterprises is not entitled to reimbursement for the expenses incurred in

relocating the squatters. Bukal Enterprises spent for the relocation of the squatters even
after learning that the Spouses Firme were no longer interested in selling the Property.
De Castro testified that even though the Spouses Firme did not require them to remove
the squatters, they chose to spend for the relocation of the squatters since they were
interested in purchasing the Property.62
Whether the Spouses Firme are entitled to compensatory and moral damages
The Court agrees with the Court of Appeals to delete the award for compensatory and
moral damages. In awarding actual damages, the trial court took into account the
traveling expenses incurred by the Spouses Firme who are already residing in the United
States. However, the trial court failed to consider the testimony of Dr. Firme that they
normally travel to the Philippines more than once a year to visit their children.63 Thus,
the expenses for the roundtrip tickets dated 1996-1997 could not be attributed solely for
the attendance of hearings in the case.
Nevertheless, an award of nominal damages of P30,000 is warranted since Bukal

Enterprises violated the property rights of the Spouses Firme.64 The Civil Code provides:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any
source enumerated in article 1157, or in every case where any property right has been
invaded.
The award of damages is also in accordance with Article 451 of the Civil Code which
states that the landowner is entitled to damages from the builder in bad faith.65
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RENDER a new
one:
1. Declaring that there was no perfected contract of sale;

2. Ordering Bukal Enterprises to pay the Spouses Firme P30,000 as nominal
damages.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Azcuna, JJ., concur.
Ynares-Santiago, J., on official leave.
#$
1Penned by Associate Justice Teodoro P. Regino, with Associate Justices Delilah

Vidallon-Magtolis and Josefina Guevara-Salonga concurring.
2 Penned by JudgeVictorino P. Evangelista.
3 Covered by TCT No. 264243.
4 Exh. "C," Rollo, pp. 363-364.
5 Exh. "C-1," Rollo, pp. 366-367.
6 TSN, 26 March 1996, pp. 15-35; TSN, 25 April 1996, pp. 37-39.
7 Exh. "B," Rollo, p. 358.
8 TSN, 19 September 1996, pp. 5-23; TSN, 7 November 1996, pp. 3-4.
9 TSN, 21 May 1996, pp. 3-16.
10 TSN, 20 May 1997, pp. 6-16.
11 TSN, 14 April 1998, pp. 8-13, 16-17.
12 Exh. "5," Exh. "L," Rollo, pp. 359-360.
13 Exh. "6," Rollo, p. 365.
14 Exh. "B," Rollo, p. 358.
15 TSN, 5 August 1997, pp. 3-20; TSN, 12 August 1997, pp. 6-7, 21.
16 Rollo, p. 85.
17 Ibid., p. 74.
18 Rollo, pp.17-18.
19 Section 1, Rule 45 reads:
SECTION 1. Filing of petition with Supreme Court. Ȅ 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. (Emphasis supplied)
20Rizal Surety & Insurance Company v. Court of Appeals, G.R. No. 112360, 18 July
2000, 336 SCRA 12; Food Terminal Incorporated v. Court of Appeals, G.R. No.
108397, 21 June 2000, 334 SCRA 156.
21Manongsong v. Estimo, G.R. No. 136773, 25 June 2003; Si v. Court of Appeals,

G.R. No. 122047, 12 October 2000, 342 SCRA 653; Nokom v. National Labor
Relations Commission, G.R. No. 140043, 18 July 2000, 336 SCRA 97.
Peñalosa v. Santos, 416 Phil. 12 (2001); Romago Electric Co., Inc. v. Court of
22
Appeals, G.R. No. 125997, 8 June 2000, 333 SCRA 291.
23 TSN, 9 September 1997, p. 10.
24TSN, 5 August 1997, pp. 9-12; TSN, 12 August 1997, p. 25; TSN, 9 September
1997, pp. 7-8.
26 TSN, 12 August 1997, p. 27.
28 TSN, 26 March 1996, pp. 19, 22-23.
29 TSN, 12 February 1998, pp. 14-16, 28-29.
30Atty. Marqueda misread page 11 of TSN dated 5 August 1997. The portion
referred to actually reads:
Q How did you find this draft of a contract of sale which was presented to
you by Mr. Aviles on the second meeting?
A We found it totally unacceptable, sir.
31 The Third Draft is marked as Exh. "5" and also Exh. "L" in the Records.
32 The First Draft (Exh. "C") and the Second Draft (Exh. "C-1") have exactly the
same contents except for the date. Both have "notarial page." Only the First Draft
is dated February 1995 while the Second Draft is dated March 1995.
33 TSN, 12 February 1998, pp. 30-33.
34 Ibid., pp. 44-47.
35 Ibid., pp. 48-49.
36 Ibid., p. 59.
37 Ibid., p. 42.
38 TSN, 5 August 1997, pp. 12-13.
39 TSN, 12 February 1998, pp. 39-41.
40 TSN, 7 November 1996, p. 28.
41 Dizon v. CA, 361 Phil. 963 (1999).
42 Islamic Directorate of the Philippines v. CA, 338 Phil. 970 (1997).
43 192 Phil. 614, 622-623 (1981).
44Palattao v. Court of Appeals, G.R. No. 131726, 7 May 2002; Uy v. Hon.

Evangelista, 413 Phil. 403 (2001); Pua v. Court of Appeals, G.R. No. 134992, 20
November 2000, 345 SCRA 233.
45Santos v. Heirs of Jose P. Mariano & Erlinda Mariano-Villanueva, G.R. 143325,

24 October 2000, 344 SCRA 284.
46 Villanueva v. Court of Appeals, G.R. No. 107624, 28 January 1997, 267 SCRA
89.
47 TSN, 25 April 1996, pp. 7-8.
48 TSN, 19 September 1996, pp. 6-7.
49 TSN, 25 April 1996, pp. 8-10.
50 1 Jose Campos, Jr. & Maria Clara L. Campos, The Corporation Code 388 (1990).
51De Liano v. Court of Appeals, G.R. No. 142316, 22 November 2001, 370 SCRA
349.
52 G.R. No. 111448, 16 January 2002, 373 SCRA 385.

54De Castro even testified that he did not read the complaint before it was filed
and that it was Aviles who verified the complaint. TSN, 7 November 1996, pp. 26-
27.
56Shipside Incorporated v. Court of Appeals, G.R. No. 143377, 20 February 2001,

352 SCRA 334.
57 Ibid.
58Rosencor Development Corporation v. Inquing, G.R. No. 140479, 8 March 2001,

354 SCRA 119.
59 TSN, 1 April 1997, pp. 17-21.
60 A letter was sent to Bukal Enterprises which states:
March 20, 1995
BUKAL ENTERPRISES
AND DEVELOPMENT CORPORATION
Fairview Park, Quezon City
Attention: Mr. Florante Castro
Gentlemen:
Our clients, Dr. & Mrs. Constante N. Firme and Azucena E. Firme, referred to us for
appropriate action the matter of your having constructed a fence along the creek
and sixteen (16) posts sometime in the middle of 1994 inside their property
located at corner Rolex and Dahlia Streets, Fairview Park, Quezon City and more
particularly described as Lot 4, Block 33. Aside from the said illegal structures,
our clients informed us that you instructed your workers to squat on their
property.
Needless to state, all of your aforesaid actions are illegal as they were done
without our clientsǯ prior knowledge and consent.
Kindly, therefore, desist from any other act of trespass inside our clientsǯ property
and instruct your workers to clean up their shanties and leave the said property
immediately; otherwise, we shall be constrained to take legal action against you.
Truly yours,
CORPUZ & EJERCITO
LAW OFFICES
By: (signed)
GREGORIO S. EJERCITO, JR.
Barangay Captain Antonio A. Ancheta

Barangay Hall, Dahlia Street,
Fairview Park, Quezon City
61 Bugatti v. Court of Appeals, G.R. No. 138113, 17 October 2000, 343 SCRA 335.
62 TSN, 1 April 1997, pp. 9-11.
63 TSN, 5 August 1997, p. 22.
64Cojuangco, Jr. v. Court of Appeals, 369 Phil. 41 (1999); Urquiaga v. CA, 361 Phil.
660 (1999).
65Heirs of Ramon Durano, Sr. v. Uy, G.R. No. 136456, 24 October 2000, 344 SCRA
238; De Vera v. Court of Appeals, 365 Phil. 170 (1999).

G.R. No. 122544 January 28, 2003
REGINA P. DIZON vs. COURT OF APPEALS, ET AL.

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On January 28, 1999, this Court rendered judgment in these consolidated cases as
follows:
=4, in view of the foregoing, both petitions are *. The

decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-
G.R. CV Nos. 25153-54, as well as the decision dated December 11, 1995 and the
resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals
are hereby m*/#0mm*.
Let the records of this case be remanded to the trial court for immediate
execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155
of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch III as
affirmed in the decision dated September 26, 1984 of the then Intermediate
Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985
of this Court.
However, petitioners are ordered to * to private respondent the amount

of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.
m**.
Private respondent filed a Motion for Reconsideration, Second Motion for

Reconsideration, and Motion to Suspend Procedural Rules in the Higher Interest of
Substantial Justice, all of which have been denied by this Court. This notwithstanding, the
cases were set for oral argument on March 21, 2001, on the following issues:
1. WHETHER THERE ARE CIRCUMSTANCES THAT WOULD JUSTIFY SUSPENSION

OF THE RULES OF COURT;
2. WHETHER THE SUM OF P300,000.00 RECEIVED BY ALICE DIZON FROM

PRIVATE RESPONDENT WAS INTENDED AS PARTIAL PAYMENT OF THE
PURCHASE PRICE OF THE PROPERTY, OR AS PAYMENT OF BACK RENTALS ON
THE PROPERTY;
3. WHETHER ALICE DIZON WAS AUTHORIZED TO RECEIVE THE SUM OF

P300,000.00 ON BEHALF OF PETITIONERS;
4. (A) IF SO, WHETHER PETITIONERS ARE ESTOPPED FROM QUESTIONING THE

BELATED EXERCISE BY PRIVATE RESPONDENT OF ITS OPTION TO BUY WHEN
THEY ACCEPTED THE SAID PARTIAL PAYMENT;
(B) IF SO, WHETHER ALICE DIZON CAN VALIDLY BIND PETITIONERS IN THE
ABSENCE OF A WRITTEN POWER OF ATTORNEY;
5. (A) WHETHER THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE

PARTIES;
(B) WHETHER THERE WAS A CONTRACT OF SALE AT LEAST WITH RESPECT TO

THE SHARES OF FIDELA AND ALICE DIZON; AND
6. WHETHER PRIVATE RESPONDENT'S ACTION FOR SPECIFIC PERFORMANCE

HAS PRESCRIBED.
In order to resolve the first issue, it is necessary to pass upon the other questions which
relate to the merits of the case. It is only where there exist strong compelling reasons,
such as serving the ends of justice and preventing a miscarriage thereof, that this Court
can suspend the rules.1
After reviewing the records, we find that, despite all of private respondent's
protestations, there is absolutely no written proof of Alice Dizon's authority to bind
petitioners. First of all, she was not even a co-owner of the property. Neither was she
empowered by the co-owners to act on their behalf.
The acceptance of the amount of P300,000.00, purportedly as partial payment of the

purchase price of the land, was an act integral to the sale of the land. As a matter of fact,
private respondent invokes such receipt of payment as giving rise to a perfected contract
of sale. In this connection, Article 1874 of the Civil Code is explicit that: "When a sale of a
piece of land or any interest therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void."
When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. Thus
the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A special power of
attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an appointee of an
agency (couched) in general terms to sell must be one that expressly mentions a
sale or that includes a sale as a necessary ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell real estate, a power of attorney
must so express the powers of the agent in clear and unmistakable language.
When there is any reasonable doubt that the language so used conveys such
power, no such construction shall be given the document.2
It necessarily follows, therefore, that petitioners cannot be deemed to have received

partial payment of the supposed purchase price for the land through Alice Dizon. It
cannot even be said that Alice Dizon's acceptance of the money bound at least the share of
Fidela Dizon, in the absence of a written power of attorney from the latter. It should be
borne in mind that the Receipt dated June 20, 1975, while made out in the name of Fidela
Dizon, was signed by Alice Dizon alone.
Moreover, there could not have been a perfected contract of sale. As we held in our
Decision dated January 28, 1999, the implied renewal of the contract of lease between the
parties affected only those terms and conditions which are germane to the lessee's right
of continued enjoyment of the property. The option to purchase afforded private
respondent expired after the one-year period granted in the contract. Otherwise stated,
the implied renewal of the lease did not include the option to purchase. We see no reason
to disturb our ruling on this point, ",:
In this case, there was a contract of lease for one (1) year with option to purchase.
The contract of lease expired without the private respondent, as lessee,
purchasing the property but remained in possession thereof. Hence, there was an
implicit renewal of the contract of lease on a monthly basis. The other terms of
the original contract of lease which are revived in the implied new lease under
Article 1670 of the New Civil Code are only those terms which are germane to the
lessee's right of continued enjoyment of the property leased. Therefore, an
implied new lease does not ipso facto carry with it any implied revival of private
respondent's option to purchase (as lessee thereof) the leased premises. The
provision entitling the lessee the option to purchase the leased premises is not
deemed incorporated in the impliedly renewed contract because it is alien to the
possession of the lessee. Private respondent's right to exercise the option to
purchase expired with the termination of the original contract of lease for one
year. The rationale of this Court is that:
"This is a reasonable construction of the provision, which is based on the

presumption that when the lessor allows the lessee to continue enjoying
possession of the property for fifteen days after the expiration of the
contract he is willing that such enjoyment shall be for the entire period
corresponding to the rent which is customarily paid Ȅ in this case up to
the end of the month because the rent was paid monthly. Necessarily, if
the presumed will of the parties refers to the enjoyment of possession the
presumption covers the other terms of the contract related to such
possession, such as the amount of rental, the date when it must be paid,
the care of the property, the responsibility for repairs, etc. But no such
presumption may be indulged in with respect to special agreements
which by nature are foreign to the right of occupancy or enjoyment
inherent in a contract of lease."3
There being no merit in the arguments advanced by private respondent, there is no need
to suspend the Rules of Court and to admit the motion for reconsideration. While it is
within the power of the Court to suspend its own rules, or to except a particular case from
its operation, whenever the interest of justice require it, however, the movant must show
strong compelling reasons such as serving the ends of justice and preventing a grave
miscarriage thereof,4 none of which obtains in this case.
Litigation must end sometime and somewhere. An effective and efficient administration
of justice requires that, once a judgment has become final, the winning party be not,
through a mere subterfuge, deprived of the fruits of the verdict. Courts must, therefore,
guard against any scheme calculated to bring about that result. Constituted as they are to
put an end to controversies, courts should frown upon any attempt to prolong them.5
* , the Motion to Suspend Procedural Rules in the Higher Interest of

Substantial Justice filed by private respondent is DENIED WITH FINALITY. No further
pleadings will be entertained in these cases.
m**.
* "$
#$ see separate opinion.
$ concur.
m$&/'/$&(#(#
* *+
p concurring:
After a meticulous evaluation of the antecedent facts in these cases I respectfully submit
that private respondent's submission that the sum of P3,000 was intended as partial
payment of the purchase price; it was received by Alice Dizon for and in behalf of Fidela
Dizon, mother of petitioners; and that Fidela Dizon ratified the at of Alice by accepting the
cashier's check representing that consideration drawn in favor of Fidela Dizon, and in
encashing it. Neither Alice nor Fidela returned the money.
Therefore, there was indeed, a perfected sale in favor of private respondent of, at the very
least, the rights, shares and participation in the property in question to private
respondent. Hence, private respondent became a co-owner of the property as regards
Fidela's co-owner.
That private respondent exercised its option to buy beyond the term of the original terms
of the lease contract is then rendered academic. For, by accepting the P300,000 as partial
payment of the land in question and using it for her own benefit and advantages Fidela
effectively estopped herself from insisting or a technicality.
I therefore vote to grant,

", the second motion for reconsideration and to
modify the decision by now declaring that Fidela Dizon is bound by the perfected sale to
private respondent of, at least, her rights, participation, or share in the property in
question.
#$
1

"<. G.R. No. 140486, February 6, 2001.
2 #(
#
"#
, 265 SCRA 168, 176 (1996].
3 *, "#

302 SCRA 288, 300-301 [1999], citing *,
" & , 57 SCRA 250, 254 [1974].
4 ! #+% "C, G.R. No. 142950 March 26, 2001.
5 #& "#

., G.R. No. 116092, June 29,
2001.
m* m
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Present:

PUNO, #$#

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*SANDOVAL-GUTIERREZ,

CORONA,

AZCUNA and

GARCIA, $$
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Promulgated:
July 12, 2007
,,
*m
p
Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of
Court is the decision dated September 27, 2004 of the Court of Appeals (CA) in # ' # 3
7???E as reiterated in its resolution dated May 8, 2006, denying reconsideration thereof. The
challenged decision reversed that of the Regional Trial Court (RTC) of Makati City, Branch 66, in its
#" # 3 ¢ ¢, an action for

+. thereat commenced by the
herein petitioners against the respondents. The Makati RTC ruled that a perfected contract of sale
existed in favor of Jorge Navarra and Carmelita Bernardo Navarra (Navarras) over the properties
involved in the suit and accordingly ordered Planters Development Bank (Planters Bank) to execute
the necessary deed of sale therefor. The CA reversed that ruling. Hence, this recourse by the
petitioners.
The facts:
The Navarras are the owners of five (5) parcels of land located at B.F. Homes, Parañaque
and covered by Transfer Certificates of Title (TCT) Nos. S-58017, S-58011, S-51732, S-51733 and A-
14574. All these five (5) parcels of land are the subject of this controversy.
On July 5, 1982, the Navarras obtained a loan of P1,200,000.00 from Planters Bank and, by
way of security therefor, executed a deed of mortgage over their aforementioned five (5) parcels of
land. Unfortunately, the couple failed to pay their loan obligation. Hence, Planters Bank foreclosed
on the mortgage and the mortgaged assets were sold to it for P1,341,850.00, it being the highest
bidder in the auction sale conducted on May 16, 1984. The one-year redemption period expired
without the Navarras having redeemed the foreclosed properties.
On the other hand, co-petitioner RRRC Development Corporation (RRRC) is a real estate
company owned by the parents of Carmelita Bernardo Navarra. RRRC itself obtained a loan from
Planters Bank secured by a mortgage over another set of properties owned by RRRC. The loan
having been likewise unpaid, Planters Bank similarly foreclosed the mortgaged assets of RRRC.
Unlike the Navarras, however, RRRC was able to negotiate with the Bank for the redemption of its
foreclosed properties by way of a concession whereby the Bank allowed RRRC to refer to it would-
be buyers of the foreclosed RRRC properties who would remit their payments directly to the Bank,
which payments would then be considered as redemption price for RRRC. Eventually, the
foreclosed properties of RRRC were sold to third persons whose payments therefor, directly made
to the Bank, were in excess by P300,000.00 for the redemption price.
In the meantime, Jorge Navarra sent a letter to Planters Bank, proposing to repurchase the five
(5) lots earlier auctioned to the Bank, with a request that he be given until August 31, 1985 to pay
the down payment of P300,000.00. Dated July 18, 1985 and addressed to then Planters Bank
President Jesus Tambunting, the letter reads in full:
This will formalize my request for your kind consideration in allowing my

brother and me to buy back my house and lot and my restaurant building and lot
together with the adjacent road lot.
Since my brother, who is working in Saudi Arabia, has accepted this

arrangement only recently as a result of my urgent offer to him, perhaps it will be
safe for us to set August 31, 1985 as the last day for the payment of a P300,000.00
downpayment. I hope you will grant us the opportunity to raise the funds within
this period, which includes an allowance for delays.
The purchase price, I understand, will be based on the redemption value

plus accrued interest at the prevailing rate up to the date of our sales contract.
Maybe you can give us a long term payment scheme on the basis of my brotherǯs
annual savings of roughly US$30,000.00 everytime he comes home for his home
leave.
I realize that this is not a regular transaction but I am seeking your favor to
give me a chance to reserve whatever values I can still recover from the properties
and to avoid any legal complications that may arise as a consequence of the total
loss of the Balangay lot. I hope that you will extend to me your favorable action on
this grave matter.
In response, Planters Bank, thru its Vice-President Ma. Flordeliza Aguenza, wrote back
Navarra " a letter dated August 16, 1985, thus:
Regarding your letter dated July 18, 1985, requesting that we give up to
August 31, 1985 to buy back your house and lot and restaurant and building subject
to a P300,000.00 downpayment on the purchase price, please be advised that the
Collection Committee has agreed to your request.
Please see Mr. Rene Castillo, Head, Acquired Assets Unit, as soon as possible
for the details of the transaction so that they may work on the necessary
documentation.
Accordingly, Jorge Navarra went to the Office of Mr. Rene Castillo on August 20, 1985,
bringing with him a letter requesting that the excess payment of P300,000.00 in connection with
the redemption made by the RRRC be applied as down payment for the Navarrasǯ repurchase of
their foreclosed properties.
Because the amount of P300,000.00 was sourced from a different transaction between
RRRC and Planters Bank and involved different debtors, the Bank required Navarra to submit a
board resolution from RRRC authorizing him to negotiate for and its behalf and empowering him to
apply the excess amount of P300,000.00 in RRRCǯs redemption payment as down payment for the
repurchase of the Navarrasǯ foreclosed properties.
Meanwhile, titles to said properties were consolidated in the name of Planters Bank, and on
August 27, 1985, new certificates of title were issued in its name, to wit: TCT Nos. 97073, 97074,
97075, 97076 and 97077.
Then, on January 21, 1987, Planters Bank sent a letter to Jorge Navarra informing him that it
could not proceed with the documentation of the proposed repurchase of the foreclosed properties
on account of his non- compliance with the Bankǯs request for the submission of the needed board
resolution of RRRC.
In his reply-letter of January 28, 1987, Navarra claimed having already delivered copies of
the required board resolution to the Bank. The Bank, however, did not receive said copies. Thus,
on February 19, 1987, the Bank sent a notice to the Navarrras demanding that they surrender and
vacatethe properties in question for their failure to exercise their right of redemption.
Such was the state of things when, on June 31, 1987, in the RTC of Makati City, the Navarras
filed their complaint for

+. against Planters Bank. In their
complaint docketed in said court as #" # 3¢ ¢ and raffled to Branch 66 thereof, the
Navarras, as plaintiffs, alleged that a perfected contract of sale was made between them and
Planters Bank whereby they would repurchase the subject properties for P1,800,000.00 with a
down payment of P300,000.00.
In its Answer, Planters Bank asserted that there was no perfected contract of sale because
the terms and conditions for the repurchase have not yet been agreed upon.
On September 9, 1988, a portion of the lot covered by TCT No. 97077 (formerly TCT No. A-
14574) was sold by Planters Bank to herein co-respondent Roberto Gatchalian Realty, Inc.
(Gatchalian Realty). Consequently, TCT No. 97077 was cancelled and TCT No. 12692 was issued in
the name of Gatchalian Realty. This prompted the Navarras to amend their complaint by impleading
Gatchalian Realty as additional defendant.
In a decision dated July 10, 1995, the trial court ruled that there was a perfected contract of
sale between the Navarras and Planters Bank, and accordingly rendered judgment as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered

ordering:
a) the cancellation of the Deed of Absolute Sale (Exh. ǲ2ǳ) over lot
4137-C between defendant Planters Development Bank and
defendant Roberto Gatchalian Realty Corporation (RGRI) with the
vendor bank refunding all the payments made by the vendee RGRI
ǲwithout interest less the five percent (5%) brokerǯs commissionǳ:
b) the defendant Planters Development Bank to execute the Deed

of Absolute Sale over the lots covered by TCT Nos. 97073, 97074,
97075, 97076, and 97077 in favor of all the plaintiffs for a
consideration of ONE MILLION EIGHT HUNDRED THOUSAND
(P1,800,000.00) less the downpayment of P300,000.00 plus interest
at the rate of twenty five percent (25%) per year for five (5) years to
be paid in full upon the execution of the contract;
c) the defendant Planters Development Bank the amount of TEN

THOUSAND PESOS (P10,000.00) by way of attorneyǯs fees.
d) No costs.
SO ORDERED.
Therefrom, Planters Bank and Gatchalian Realty separately went on appeal to the CA
whereat their appellate recourse were consolidated and docketed as # '#37???E.
As stated at the threshold hereof, the appellate court, in its decision of September 27, 2004,
reversed that of the trial court and ruled that there was no perfected contract of sale between the
parties. Partly says the CA in its decision:
The Court cannot go along with the deduction of the trial court that the
response of Planters Bank was favorable to Jorge Navarraǯs proposal and that the
P300,000.00 in its possession is a down payment and as such sufficient bases to
conclude that there was a valid and perfected contract of sale. Based on the turn of
events and the tenor of the communications between the offerors and the creditor
bank, it appears that there was not even a perfected contract to sell, much less a
perfected contract of sale.
Article 1319 cited by the trial court provides that the acceptance to an offer
must be /.)$. Simply put, there must be unqualified acceptance and no
condition must tag along. But Jorge Navarra in trying to convince the bank to agree,
had himself laid out terms in offering (1) a downpayment of P300,000.00 and
setting (2) as deadline August 31, 1985 for the payment thereof. Under these terms
and conditions the bank indeed accepted his offer, and these are essentially the
contents of Exhibits ǲJǳ and ǲK.ǳ
But was there compliance? According to the evidence on file the P300,000.00,
if at all, was given beyond the agreed period. The court a quo missed the fact that the
said amount came from the excess of the proceeds of the sale to the Peña spouses
which Jorge Navarra made to appear was made before the deadline he set of August
31, 1985. But this is athwart Exhibits ǲM-1ǳ and ǲNǳ, the Contract to Sell and the
Deed of Sale between RRRC and the Peñas, for these were executed only on
September 13, 1985 and October 7, 1985 respectively.
xxx xxx xxx
There were two separate and independent loans secured by distinct

mortgages on different lots and their only commonality is the relationship of the
Navarras and Bernardo families. It is thus difficult to conceive and to conclude that
such Byzantine arrangement was acquiesced to and provided for in that single and
simple letter of the bank.
With their motion for reconsideration having been denied by the CA in its resolution of May
8, 2006, petitioners are now with this Court " this recourse on their submission that the CA erred
-
I
XXX IN CONCLUDING THAT THERE WAS NO PERFECTED CONTRACT TO

REPURCHASE THE FORECLOSED PROPERTIES BETWEEN THE PETITIONERS AND
THE PRIVATE RESPONDENT PLANTERS DEVELOPMENT BANK, AS CORRECTLY
FOUND BY THE TRIAL COURT.
II
XXX IN HOLDING THAT THE PARTIES NEVER GOT PAST THE NEGOTIATION
STAGE.
While the question raised is essentially one of fact, of which the Court normally eschews
from, yet, given the conflicting factual findings of the trial and appellate courts, the Court shall go by
the exception to the general rule and proceed to make its own assessment of the evidence.
We *.
Petitioners contend that a perfected contract of sale came into being when respondent
Bank, thru a letter dated August 16, 1985, formally accepted the offer of the Navarras to repurchase
the subject properties.
In general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth,
and consummation. $(/(# begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of their agreement. $'<$2(# or birth of the
contract takes place when the parties agree upon the essential elements of the contract, ,
consent, object and price. #11/(# occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof.
A negotiation is formally initiated by an
which should be certain with respect to both
the object and the cause or consideration of the envisioned contract. In order to produce a contract,
there must be , which may be express or implied, but it must not qualify the terms of the
offer. The acceptance of an offer must be unqualified and absolute to perfect the contract. In other
words, it must be identical in all respects with that of the offer so as to produce consent or meeting
of the minds.
Here, the Navarras assert that the following exchange of correspondence between them and
Planters Bank constitutes the offer and acceptance, thus:
Letter dated July 18, 1985 of Jorge Navarra:
This will formalize my request for your kind consideration in allowing my

brother and me to buy back my house and lot and my restaurant building and lot
together with the adjacent road lot.
Since my brother, who is working in Saudi Arabia, has accepted this

arrangement only recently as a result of my urgent offer to him, perhaps it will be
safe for us to set August 31, 1985 as the last day for the payment of a P300,000.00
downpayment. I hope you will grant us the opportunity to raise the funds within
this period, which includes an allowance for delays.
The purchase price, I understand, will be based on the redemption value

plus accrued interest at the prevailing rate up to the date of our sales contract.
Maybe you can give us a long term payment scheme on the basis of my brotherǯs
annual savings of roughly US$30,000.00 everytime he comes home for his home
leave.
I realize that this is not a regular transaction but I am seeking your favor to
give me a chance to reserve whatever values I can still recover from the properties
and to avoid any legal complications that may arise as a consequence of the total
loss of the Balangay lot. I hope that you will extend to me your favorable action on
this grave matter.
Letter dated August 16, 1985 of Planters Bank

Regarding your letter dated July 18, 1985, requesting that we give up to
August 31, 1985 to buy back your house and lot and restaurant and building subject
to a P300,000.00 downpayment on the purchase price, please be advised that the
Collection Committee has agreed to your request.
)$/$$$'
$#$/())4$/023('$0$ #(/#/
&(.)$<'-$0$/()<-$'/#/2(#-/-$?1/?6'F#-$
#$2$/'?021$#/(#. (Emphasis ours)
Given the above, the basic question that comes to mind is: Was the offer certain and the
acceptance absolute enough so as to engender a meeting of the minds between the parties?
Definitely not.
While the foregoing letters indicate the amount of P300,000.00 as down payment, they are,
however, completely silent as to how the succeeding installment payments shall be made. At most,
the letters merely acknowledge that the down payment of P300,000.00 was agreed upon by the
parties. However, this fact cannot lead to the conclusion that a contract of sale had been perfected.
Quite recently, this Court held that before a valid and binding contract of sale can exist, the manner
of payment of the purchase price must first be established since the agreement on the manner of
payment goes into the price such that a disagreement on the manner of payment is tantamount to a
failure to agree on the price.
Too, the Navarrasǯ letter/offer failed to specify a definite amount of the purchase price for
the sale/repurchase of the subject properties. It merely stated that the ǲpurchase price will be
based on the redemption value plus accrued interest at the prevailing rate up to the date of the
sales contract.ǳ The ambiguity of this statement only bolsters the uncertainty of the Navarrasǯ so-
called ǲofferǳ for it leaves much rooms for such questions, as: what is the redemption value? what
prevailing rate of interest shall be followed: is it the rate stipulated in the loan agreement or the
legal rate? when will the date of the contract of sale be based, shall it be upon the time of the
execution of the deed of sale or upon the time when the last installment payment shall have been
made? To our mind, these questions need first to be addressed, discussed and negotiated upon by
the parties before a definite purchase price can be arrived at.
Significantly, the Navarras wrote in the same letter the following:
Maybe you can give us a long-term payment scheme on the basis of my

brotherǯs annual savings of roughly US$30,000.00 every time he comes home for his
home leave.
Again, the offer was not clear insofar as concerned the exact number of years that will
comprise the long-term payment scheme. As we see it, the absence of a stipulated period within
which the repurchase price shall be paid all the more adds to the indefiniteness of the Navarrasǯ
offer.
Clearly, then, the lack of a definite offer on the part of the spouses could not possibly serve
as the basis of their claim that the sale/repurchase of their foreclosed properties was perfected.
The reason is obvious: one essential element of a contract of sale is wanting: the price certain.
There can be no contract of sale unless the following elements concur: (a) consent or meeting of the
minds; (b) determinate subject matter; and (c) price certain in money or its equivalent. Such
contract is born or perfected from the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. Here, what is dramatically clear is that there was no
meeting of minds " " the price, expressly or impliedly, directly or indirectly.
Further, the tenor of Planters Bankǯs letter-reply negates the contention of the Navarras
that the Bank fully accepted their offer. The letter specifically stated that there is a need to negotiate
on the other
before the sale may be formalized. Such statement in the
Bankǯs letter clearly manifests lack of agreement between the parties as to the terms of the
purported contract of sale/repurchase, particularly the mode of payment of the purchase price and
the period for its payment. The law requires acceptance to be absolute and unqualified. As it is, the
Bankǯs letter is not the kind which would constitute acceptance as contemplated by law for it does
not evince any categorical and unequivocal undertaking on the part of the Bank to sell the subject
properties to the Navarras.
The Navarrasǯ attempt to prove the existence of a perfected contract of sale all the more
becomes futile in the light of the evidence that there was in the first place no acceptance of their
offer. It should be noted that aside from their first letter dated July 18, 1985, the Navarras wrote
another letter dated August 20, 1985, this time requesting the Bank that the down payment of
P300,000.00 be instead taken from the excess payment made by the RRRC in redeeming its own
foreclosed properties. The very circumstance that the Navarras had to make this new request is a
clear indication that no definite agreement has yet been reached at that point. As we see it, this
request constitutes a new offer on the part of the Navarras, which offer was again conditionally
accepted by the Bank as in fact it even required the Navarras to submit a board resolution of RRRC
before it could proceed with the proposed sale/repurchase. The eventual failure of the spouses to
submit the required board resolution precludes the perfection of a contract of sale/repurchase
between the parties. As earlier mentioned, contracts are perfected when there is concurrence of the
partiesǯ wills, manifested by the acceptance by one of the offer made by the other. Here, there was
no concurrence of the offer and acceptance as would result in a perfected contract of sale.
Evidently, what transpired between the parties was only a prolonged negotiation to buy and
to sell, and, at the most, an offer and a counter-offer with no definite agreement having been
reached by them. With the hard reality that no perfected contract of sale/repurchase exists in this
case, any independent transaction between the Planters Bank and a third-party, like the one
involving the Gatchalian Realty, cannot be affected.
=4, the petition is ** and the assailed decision and resolution of the Court
of Appeals are *.
m**.

Associate Justice
WE CONCUR:
m

Chief Justice
Chairperson
(On leave)
m* !


* m
!
Associate Justice

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courtǯs Division.
m

Chief Justice
* On leave.
Penned by then Associate Justice Roberto A. Barrios (deceased) with Associate Justices
Amelita G. Tolentino and Vicente S.E. Veloso, concurring; rollo, pp. 44-58.
Id. at 66-68.

"#
, G.R. No. 11849, April 25, 2003, 401 SCRA 594.
%& "#
, G.R. No. 138113, October 17, 2000, 343 SCRA 335.
%"#
, G.R. No. 128120, October 20, 2004, 441 SCRA 1.

"' , G.R. No. 154413, August 31, 2005, 468 SCRA 597.
(
"#
, G.R. No. 136427, December 17, 2002, 394 SCRA 133.
Rollo, p. 49.

"%

*" #

, G.R. No. 146608, October 23, 2003,
414 SCRA 190.

G.R. No. 154493 December 6, 2006
REYNALDO VILLANUEVA vs. PHILIPPINE NATIONAL BANK

m
Manila
m* m

%%*$2$1.$'8
* petitioner,

vs.
4 ]:A]B respondent.
*m
m!p
"
The Petition for Review on #

under Rule 45 before this Court assails the January
29, 2002 Decision1 and June 27, 2002 Resolution2 of the Court of Appeals (CA) in CA-G.R.
CV No. 520083 which reversed and set aside the September 14, 1995 Decision4 of the
Regional Trial Court, Branch 22, General Santos City (RTC) in Civil Case No. 4553.
As culled from the records, the facts are as follows:
The Special Assets Management Department (SAMD) of the Philippine National Bank
(PNB) issued an advertisement for the sale thru bidding of certain PNB properties in
Calumpang, General Santos City, including Lot No. 17, covered by TCT No. T-15042,
consisting of 22,780 square meters, with an advertised floor price of P1,409,000.00, and
Lot No. 19, covered by TCT No. T-15036, consisting of 41,190 square meters, with an
advertised floor price of P2,268,000.00.5 Bidding was subject to the following conditions:
1) that cash bids be submitted not later than April 27, 1989; 2) that said bids be
accompanied by a 10% deposit in managerǯs or cashierǯs check; and 3) that all acceptable
bids be subject to approval by PNB authorities.
In a June 28, 1990 letter6 to the Manager, PNB-General Santos Branch, Reynaldo
Villanueva (Villanueva) offered to purchase Lot Nos. 17 and 19 for P3,677,000.00. He also
manifested that he was depositing P400,000.00 to show his good faith but with the
understanding that said amount may be treated as part of the payment of the purchase
price only when his offer is accepted by PNB. At the bottom of said letter there appears an
unsigned marginal note stating that P400,000.00 was deposited into Villanuevaǯs account
(Savings Account No. 43612) with PNB-General Santos Branch. 7
PNB-General Santos Branch forwarded the June 28, 1990 letter of Villanueva to Ramon
Guevara (Guevara), Vice President, SAMD.8 On July 6, 1990, Guevara informed Villanueva
that only Lot No. 19 is available and that the asking price therefor is P2,883,300.00.9
Guevara further wrote:
If our quoted price is acceptable to you, please submit a revised offer to purchase.
Sale shall be subject to our Board of Directorǯs approval and to other terms and
conditions imposed by the Bank on sale of acquired assets. 10 (Emphasis ours)
Instead of submitting a revised offer, Villanueva merely inserted at the bottom of

Guevaraǯs letter a July 11, 1990 marginal note, which reads:
C O N F O R M E:
PRICE OF P2,883,300.00 (

.) 11
Villanueva paid P200,000.00 to PNB which issued O.R. No. 16997 to acknowledge receipt
of the "partial payment deposit on offer to purchase."12 On the dorsal portion of Official
Receipt No. 16997, Villanueva signed a typewritten note, stating:
This is a deposit made to show the sincerity of my purchase offer with the
understanding that it shall be returned without interest if my offer is not
favorably considered or be forfeited if my offer is approved but I fail/refuse to
push through the purchase.13
Also, on July 24, 1990, P380,000.00 was debited from Villanuevaǯs Savings Account No.
43612 and credited to SAMD.14
On October 11, 1990, however, Guevara wrote Villanueva that, upon orders of the PNB
Board of Directors to conduct another appraisal and public bidding of Lot No. 19, SAMD is
deferring negotiations with him over said property and returning his deposit of
P580,000.00.15 Undaunted, Villanueva attempted to deliver postdated checks covering
the balance of the purchase price but PNB refused the same.
Hence, Villanueva filed with the RTC a Complaint16 for specific performance and damages
against PNB. In its September 14, 1995 Decision, the RTC granted the Complaint, thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendant directing it to do the following:
1. To execute a deed of sale in favor of the plaintiff over Lot 19 comprising 41,190
square meters situated at Calumpang, General Santos City covered by TCT No. T-
15036 after payment of the balance in cash in the amount of P2,303,300.00;
2. To pay the plaintiff P1,000,000.00 as moral damages; P500,000.00 as attorneyǯs

fees, plus litigation expenses and costs of the suit.
SO ORDERED.17
The RTC anchored its judgment on the finding that there existed a perfected contract of
sale between PNB and Villanueva. It found:
The following facts are either admitted or undisputed:
xxx
The defendant through Vice-President Guevara negotiated with the plaintiff in

connection with the offer of the plaintiff to buy Lots 17 & 19. The offer of plaintiff
to buy, however, was accepted by the defendant only insofar as Lot 19 is
concerned as exemplified by its letter dated July 6, 1990 where the plaintiff
signified his concurrence after conferring with the defendantǯs vice-president.
The conformity of the plaintiff was typewritten by the defendantǯs own people
where the plaintiff accepted the price of P2,883,300.00. The defendant also issued
a receipt to the plaintiff on the same day when the plaintiff paid the amount of
P200,000.00 to complete the downpayment of P600,000.00 (Exhibit "F" & Exhibit
"I"). With this development, the plaintiff was also given the go signal by the
defendant to improve Lot 19 because it was already in effect sold to him and
because of that the defendant fenced the lot and completed his two houses on the
property.18
The RTC also pointed out that Villanuevaǯs P580,000.00 downpayment was actually in the
nature of earnest money acceptance of which by PNB signified that there was already a
sale.19 The RTC further cited contemporaneous acts of PNB purportedly indicating that, as
early as July 25, 1990, it considered Lot 19 already sold, as shown by Guevaraǯs July 25,
1990 letter (Exh. "H")20 to another interested buyer.
PNB appealed to the CA which reversed and set aside the September 14, 1995 RTC
Decision, thus:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE and another
rendered DISMISSING the complaint.
SO ORDERED.21
According to the CA, there was no perfected contract of sale because the July 6, 1990
letter of Guevara constituted a qualified acceptance of the June 28, 1990 offer of
Villanueva, and to which Villanueva replied on July 11, 1990 with a modified offer. The CA
held:
In the case at bench, consent, in respect to the price and manner of its payment, is
lacking. The record shows that appellant, thru Guevaraǯs July 6, 1990 letter, made
a qualified acceptance of appelleeǯs letter-offer dated June 28, 1990 by imposing
an asking price of P2,883,300.00 in cash for Lot 19. The letter dated July 6, 1990
constituted a counter-offer (Art. 1319, Civil Code), to which appellee made a new
proposal, ., to pay the amount of P2,883,300.00 in staggered amounts, that is,
P600,000.00 as downpayment and the balance within two years in quarterly
amortizations.
A qualified acceptance, or one that involves a new proposal, constitutes a counter-

offer and a rejection of the original offer (Art. 1319, id.). Consequently, when
something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because any modification or
variation from the terms of the offer annuls the offer (Tolentino, Commentaries
and Jurisprudence on the Civil Code of the Philippines, 6th ed., 1996, p. 450, cited
in ABS-CBN Broadcasting Corporation v. Court of Appeals, et al., 301 SCRA 572).
Appelleeǯs new proposal, which constitutes a counter-offer, was not accepted by

appellant, its board having decided to have Lot 19 reappraised and sold thru
public bidding.
Moreover, it was clearly stated in Guevaraǯs July 6, 1990 letter that "the sale shall
be subject to our Board of Directorǯs approval and to other terms and conditions
imposed by the Bank on sale of acquired assets."22
Villanuevaǯs Motion for Reconsideration23 was denied by the CA in its Resolution of June
27, 2002.
Petitioner Villanueva now assails before this Court the January 29, 2002 Decision and
June 27, 2002 Resolution of the CA. He assigns five issues which may be condensed into
two: first, whether a perfected contract of sale exists between petitioner and respondent
PNB; and second, whether the conduct and actuation of respondent constitutes bad faith
as to entitle petitioner to moral and exemplary damages and attorneyǯs fees.
The Court sustains the CA on both issues.

Contracts of sale are perfected by mutual consent whereby the seller obligates himself,
for a price certain, to deliver and transfer ownership of a specified thing or right to the
buyer over which the latter agrees.24 Mutual consent being a state of mind, its existence
may only be inferred from the confluence of two acts of the parties: an offer certain as to
the object of the contract and its consideration, and an acceptance of the offer which is
absolute in that it refers to the exact object and consideration embodied in said offer.25
While it is impossible to expect the acceptance to echo every nuance of the offer, it is
imperative that it assents to those points in the offer which, under the operative facts of
each contract, are not only material but motivating as well. Anything short of that level of
mutuality produces not a contract but a mere counter-offer awaiting acceptance.26 More
particularly on the matter of the consideration of the contract, the offer and its
acceptance must be unanimous both on the rate of the payment and on its term. An
acceptance of an offer which agrees to the rate but varies the term is ineffective. 27
To determine whether there was mutual consent between the parties herein, it is
necessary to retrace each offer and acceptance they made.
Respondent began with an invitation to bid issued in April 1989 covering several of its
acquired assets in Calumpang, General Santos City, including Lot No. 19 for which the
floor price was P2,268,000.00. The offer was subject to the condition that sealed bids,
accompanied by a 10% deposit in managerǯs or cashierǯs check, be submitted not later
than 10 oǯclock in the morning of April 27, 1989.
On June 28, 1990, petitioner made an offer to buy Lot No. 17 and Lot No. 19 for an
aggregate price of P3,677,000.00. It is noted that this offer exactly corresponded to the
April 1989 invitation to bid issued by respondent in that the proposed aggregate
purchase price for Lot Nos. 17 and 19 matched the advertised floor prices for the same
properties. However, it cannot be said that the June 28, 1990 letter of petitioner was an
effective acceptance of the April 1989 invitation to bid for, by its express terms, said
invitation lapsed on April 27, 1989.28 More than that, the April 1989 invitation was
subject to the condition that all sealed bids submitted and accepted be approved by
respondentǯs higher authorities.
Thus, the June 28, 1990 letter of petitioner was an offer to buy independent of the April
1989 invitation to bid. It was a definite offer as it identified with certainty the properties
sought to be purchased and fixed the contract price.
However, respondent replied to the June 28, 1990 offer with a July 6, 1990 letter that
only Lot No. 19 is available and that the price therefor is now P2,883,300.00. As the CA
pointed out, this reply was certainly not an acceptance of the June 28, 1990 offer but a
mere counter-offer. It deviated from the original offer on three material points: first, the
object of the proposed sale is now only Lot No. 19 rather than Lot Nos. 17 and 19; second,
the area of the property to be sold is still 41,190 sq. m but an 8,797-sq. m portion is now
part of a public road; and third, the consideration is P2,883,300 for one lot rather than
P3,677,000.00 for two lots. More important, this July 6, 1990 counter-offer imposed two
conditions: one, that petitioner submit a revised offer to purchase based on the quoted
price; and two, that the sale of the property be approved by the Board of Directors and
subjected to other terms and conditions imposed by the Bank on the sale of acquired
assets.
In reply to the July 6, 1990 counter-offer, petitioner signed his July 11, 1990 conformity
to the quoted price of P2,883,300.00 but inserted the term "downpayment of
P600,000.00 and the balance payable in two years at quarterly amortization." The CA
viewed this July 11, 1990 conformity not as an acceptance of the July 6, 1990 counter-
offer but a further counter-offer for, while petitioner accepted the P2,883,300.00 price for
Lot No. 19, he qualified his acceptance by proposing a two-year payment term.
Petitioner does not directly impugn such reasoning of the CA. He merely questions it for
taking up the issue of whether his July 11, 1990 conformity modified the July 6, 1990
counter-offer as this was allegedly never raised during the trial nor on appeal.29
Such argument is not well taken. From beginning to end, respondent denied that a
contract of sale with petitioner was ever perfected.30 Its defense was broad enough to
encompass every issue relating to the concurrence of the elements of contract,
specifically on whether it consented to the object of the sale and its consideration. There
was nothing to prevent the CA from inquiring into the offers and counter-offers of the
parties to determine whether there was indeed a perfected contract between them.
Moreover, there is merit in the ruling of the CA that the July 11, 1990 marginal note was a
further counter-offer which did not lead to the perfection of a contract of sale between
the parties. Petitionerǯs own June 28, 1990 offer quoted the price of P3,677,000.00 for
two lots but was silent on the term of payment. Respondentǯs July 6, 1990 counter-offer
quoted the price of P2,833,300.00 and was also silent on the term of payment. Up to that
point, the term or schedule of payment was not on the negotiation table. Thus, when
petitioner suddenly introduced a term of payment in his July 11, 1990 counter-offer, he
interjected into the negotiations a new substantial matter on which the parties had no
prior discussion and over which they must yet agree.31 Petitionerǯs July 11, 1990 counter-
offer, therefore, did not usher the parties beyond the negotiation stage of contract making
towards its perfection. He made a counter-offer that required acceptance by respondent.
As it were, respondent, through its Board of Directors, did not accept this last counter-
offer. As stated in its October 11, 1990 letter to petitioner, respondent ordered the
reappraisal of the property, in clear repudiation not only of the proposed price but also
the term of payment thereof.
Petitioner insists, however, that the October 11, 1990 repudiation was belated as
respondent had already agreed to his July 11, 1990 counter-offer when it accepted his
"downpayment" or "earnest money" of P580,000.00.32 He cites Article 1482 of the Civil
Code where it says that acceptance of "downpayment" or "earnest money" presupposes
the perfection of a contract.
Not so. Acceptance of petitionerǯs payments did not amount to an implied acceptance of
his last counter-offer.
To begin with, PNB-General Santos Branch, which accepted petitionerǯs P380,000.00

payment, and PNB-SAMD, which accepted his P200,000.00 payment, had no authority to
bind respondent to a contract of sale with petitioner.33 Petitioner is well aware of this. To
recall, petitioner sent his June 28, 1990 offer to PNB-General Santos Branch. Said branch
did not act on his offer except to endorse it to Guevarra. Thereafter, petitioner transacted
directly with Guevarra. Petitioner then cannot pretend that PNB-General Santos Branch
had authority to accept his July 11, 1990 counter-offer by merely accepting his
P380,000.00 payment.
Neither did SAMD have authority to bind PNB. In its April 1989 invitation to bid, as well
as its July 6, 1990 counter-offer, SAMD was always careful to emphasize that whatever
offer is made and entertained will be subject to the approval of respondentǯs higher
authorities. This is a reasonable disclaimer considering the corporate nature of
respondent. 34
Moreover, petitionerǯs payment of P200,000.00 was with the clear understanding that his
July 11, 1990 counter-offer was still subject to approval by respondent. This is borne out
by respondentǯs Exhibits "2-a" and "2-b", which petitioner never controverted, where it
appears on the dorsal portion of O.R. No. 16997 that petitioner acceded that the amount
he paid was a mere "x x x deposit made to show the sincerity of [his] purchase offer with
the understanding that it shall be returned without interest if [his] offer is not favorably
considered x x x."35 This was a clear acknowledgment on his part that there was yet no
perfected contract with respondent and that even with the payments he had advanced,
his July 11, 1990 counter-offer was still subject to consideration by respondent.
Not only that, in the same Exh. "2-a" as well as in his June 28, 1990 offer, petitioner
referred to his payments as mere "deposits." Even O.R. No. 16997 refers to petitionerǯs
payment as mere deposit. It is only in the debit notice issued by PNB-General Santos
Branch where petitionerǯs payment is referred to as "downpayment". But then, as we
said, PNB-General Santos Branch has no authority to bind respondent by its
interpretation of the nature of the payment made by petitioner.
In sum, the amounts paid by petitioner were not in the nature of downpayment or
earnest money but were mere deposits or proof of his interest in the purchase of Lot No.
19. Acceptance of said amounts by respondent does not presuppose perfection of any
contract.36
It must be noted that petitioner has expressly admitted that he had withdrawn the entire
amount of P580,000.00 deposit from PNB-General Santos Branch.37
With the foregoing disquisition, the Court foregoes resolution of the second issue as it is
evident that respondent acted well within its rights when it rejected the last counter-offer
of petitioner.
In fine, petitionerǯs petition lacks merit.
WHEREFORE, the petition is **. The Decision dated January 29, 2002 and
Resolution dated June 27, 2002 of the Court of Appeals are *.
No costs.
SO ORDERED.
& #$8#

9<
&# .
# 3 ,
$$ concur.
#$
1Penned by Associate Justice Edgardo P. Cruz and concurred in by Associate Justices

Hilarion L. Aquino and Amelita G. Tolentino.
2 CA
, p. 132.
3Entitled "' " " 3 % *
."
4 Records, p. 151.
5 Exhibit "B", Plaintiffǯs Folder of Exhibits, p. 2.
6 Exhibit "C", id. at 3.
7 Exhibit "C-1", id.
8 Exhibit "D", id. at 5.
9 Exhibit "F", id. at 7.
10 Id.
11 Exhibit "F-1", id.
12 Exhibit "E", id. at 6.
13 Exhibit "2-a" and "2-b", id. (dorsal portion).
14 Exhibit "G", id. at 8.
15 Exhibit "J", id. at 12.
16 Records, p. 1.
17 Id. at 157-158.
18 Id. at 155.
19 Id. at 156.
20 Plaintiffǯs Folder of Exhibits, p. 9.
21 CA
, p. 105.
22 Id. at 102-103.
23 Id. at 112.
24 % "& : , G.R. No. 155594. September 27, 2004, 439 SCRA 273, 292.
25% "&

& &% "#
, G.R. No. 143896, July 8,
2005, 463 SCRA 64, 77; (
,*" #

"#
, G.R. No.
124242, January 21, 2005, 449 SCRA 99, 111.
26 "#

, G.R. No. 128120, October 20, 2004, 441 SCRA 1,
19.
27
&"% "&
& &% , G.R. No. 161524, January 27,
2006, 480 SCRA 399, 408.
28 & "#
, G.R. No. 111495, August 18, 2006.
29 ' , pp. 27-28.
30 Records, pp. 23 and 38.
31
&"% "&
& &% , supra note 27.
32 ' , pp. 28-30.
33
"%

*" #

, G.R. No. 146608, October 23,
2003, 414 SCRA 190, 207.
34*" % "Ä&, G.R. Nos. 144661 and 144797, June 15,
2005, 460 SCRA 170, 183;
"% , supra note 33.
35 See note 13.
36 &

+": &, 391 Phil. 636, 646, (2000),
citing 3 "
"&

#
"
& , +, 111 Phil. 820
(1961); +"#
, 314 Phil. 201, 214 (1995); "#

151-A Phil. 868 (1973).
37 TSN, October 18, 1997, p. 27.

G.R. No. L-34845 March 3, 1932
ANASTACIO PINEDA vs. MARGARITA SANTOS

m
Manila
EN BANC

%%/'2-8
m* plaintiff-appellee,

vs.
mm(#-$'6#.$-/)</#0/70(2(/)/01(#('/'(,<-$
(#$/$$/$<//)(m/# defendant-appellant.

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B'

p
The defendant Margarita Santos in her own behalf and as judicial administratrix of the
intestate estate of Natalio Santos, appealed from the judgment of the Court of First
Instance of Rizal requiring her to pay the plaintiff the sum of P8,000 with legal interest
from March 28, 1926 until fully paid, and the amount of P2,334.30 as damages, and costs.
The action was brought by the plaintiff-appellee to annul the contract of sale hereinafter
discussed.
On July 14, 1925, appellant and appellee executed Exhibit D whereby the former bound
herself to sell to the latter 213,370 square meters of calcareous land in the municipality
of Montalban, Province of Rizal, belonging to the late Natalio Santos, whose judicial
administratrix she was, for the sum of P8,000, the contract to be subject to the approval
of the proper probate court. According to Exhibit C the appellee made a part payment of
P500 to the appellant. Having obtained the judicial approval on the 30th of that month,
the parties executed the deed Exhibit A, whereby the appellant sold the land in fee simple
to the appellee at the price stipulated, receiving a check (Exhibit B) for the remainder of
the agreed price, P7,500. The appellee entrusted the draughting of the deed of sale to his
lawyer, Lorenzo Sunico and upon the date of its execution and acknowledgment both
parties appeared before the latter, who acted as notary public. In the deed the appellant
expressly stated that she was the owner in fee simple of the property, and that she
conveyed it "free of all charge, lien, and liability." At that time the property was registered
under the Torrens system and the transfer certificate of title No. 8986 was issued in favor
of one Gabriel Cruz who had previously executed another absolute deed of sale in favor of
the late Natalio Santos, but as it had not been presented for registration, no new transfer
certificate was issued. On that occasion the appellant exhibited the said transfer
certificate to the notary public; the latter as well as the appellee examined it and saw that
it bore no annotation of any encumbrance, or of the which now appears
thereon and which we shall discuss later. After the deed had been signed Attorney Sunico
took it with him, together with the transfer certificate of title, to the office of the registrar
of deed for the Province of Rizal, in order to have the first recorded and the second
cancelled, and a new transfer certificate issued in favor of the appellee. When the lawyer
went back to said office to get those documents he was surprised to see that the
notice had been entered on the transfer certificate of title as of April 25, 1925,
8.16 a.m. He spoke to registrar Jose Tupas, and upon asking him why he had made the
annotation with an earlier date, he was told that one A. A. Addison had filed a
notice on April 24, 1925, and that, having noted the 25th of said month on the original
certificate of title to the land, he had to do so on the transfer certificate as well. Sunico left
the office and returning to his own, informed his client, the appellee, of what had
happened, who thereupon took steps to have the deed of sale set aside, and later brought
an action to nullity, which was nonsuited, and later reproduced in the action which gave
rise to this appeal.
Some time before the discovery of the notice, the appellee had conveyed the
same property at the same price to the Pineda, Ampil Manufacturing & Co., Inc., but when
the latter found that there was such a notice recorded, it sought and obtained the
rescission of the sale.
While the appellee was in possession of the land and before he transferred it and brought
the action for nullity, he was engaged in the lime business for which he had purchased the
property, and spent the sum of P2,334.30 which is one of the sums awarded to him by the
court.
The appellant has assigned a number of alleged errors as committed by the court !,
but they all hinge on the main question, whether the notice appearing on the
transfer certificate of title was entered after the consummation of the contract of sale, and
whether there was fraud in the contract vitiating the appellee's consent. For this reason
we shall not stop to consider or take up these assignments of error separately.
We have carefully examined all the evidence and arrived at the conclusion that said
annotation was entered on the transfer certificate of title after the execution of the deed
of sale, and that the appellant's statement in the deed to the effect that the property was
absolutely free of all liens and encumbrances was untrue and therefore misled the
appellee into giving his consent. This conclusion is borne out both by the testimony of the
appellee and Attorney Sunico, and by the admissions of the registrar of deeds, Jose Tupas.
The latter plainly admitted during his testimony that he entered the notice
upon the transfer certificate of title many days after the date therein set forth, probably
after 1st of May, and from this it may be reasonably inferred that this official did not
exactly remember the correct date of the annotation, which leads us to believe that the
testimony of Attorney Sunico and the appellee was not altogether improbable when they
said that such annotation was made after July 30, 1925, and only when t he transfer
certificate of title was presented at the office of the registrar together with the deed of
sale.
A notice of the pendency of an action in accordance with section 79 of Act No. 496,
applicable to the case in question, constitutes a legal lien and the result of the litigation
referred to affects the parties thereto and all who might have any interest in the lands
which are the subject of such action. (Section 79, Act No. 496; Atkins, Kroll & Co. "
Domingo, 46 Phil., 362.) The present case must not be governed by the provisions of
articles 42 and 43 of the Mortgage Law, invoked by the appellant.
The judgement appealed from being in accordance with the law, it is hereby affirmed in
its entirely, with the costs of this instance against the appellant. So ordered.
" - #$$

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m
Manila
FIRST DIVISION

8$.'/'?89
m mm4!44m*]4mpetitioners,

vs.
4] m4] m*
+ * ]45 mm*
respondents.
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In the instant petition, we shall have the occasion to apply the concept of mistake in the annulment
of contracts.
Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of
land covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location map),
15516 (parcel no. 2) and 15684 (parcel no. 3), with the area of 1,000 square meters, 226 square
meters and 1,000 square meters, respectively. All three parcels of land are situated along Ligaya
Drive, Barangay Francisco, Tagaytay City. Adjacent to parcel no. 3, which is the lot covered by TCT
No. 15684, is a vacant lot denominated as parcel no. 4.
In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered by
TCT No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, remained
idle.
However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two idle
lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead (which
was not owned by private respondent) and covered by TCT Nos. 15516 and 15684.
On October 26, 1987, unaware of the mistake by which private respondent appeared to be the
owner of parcel no. 4 as indicated in the erroneous survey, and based on the erroneous information
given by the surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent,
through its authorized representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to
petitioners.
Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to
petitioners who, on October 28, 1987, immediately registered the same with the Registry of Deeds
of Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were issued.
Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual price
agreed upon and paid, however, was P486,000.00. This amount was not immediately paid to
private respondent; rather, it was deposited in escrow in an interest-bearing account in its favor
with the United Coconut Planters Bank in Makati City. The P486,000.00 in escrow was released to,
and received by, private respondent on December 4, 1987.
Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle parcels
of land purchased from private respondent. Instead, petitioners went to Germany.
In the early part of 1990, petitioners returned to the Philippines. When, they went to Tagaytay to
look over the vacant lots and to plan the construction of their house thereon, they discovered that
parcel no. 4 was owned by another person. They also discovered that the lots actually sold to them
were parcel nos. 2 and 3 covered by TCT Nos. 15516 and 15684. respectively. Parcel no. 3, however,
could not have been sold to the petitioners by the private respondents as a two-storey house, the
construction cost of which far exceeded the price paid by the petitioners, had already been built
thereon even prior to the execution of the contract between the disputing parties.
Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3, and
persisted in claiming that it was parcel no. 4 that private respondent sold to them. However, private
respondent could not have possibly sold the same to them for it did not own parcel no. 4 in the first
place.
The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.
To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos. 15515
and 15516, respectively, as these two were precisely the two vacant lots which private respondent
owned and intended to sell when it entered into the transaction with petitioners. Petitioners
adamantly rejected the good faith offer. They refused to yield to reason and insisted on taking
parcel no. 3, covered by TCT No. 155864 and upon which a two-storey house stands, in addition to
parcel no. 2, covered by TCT No. 15516, on the ground that these TCTs have already been cancelled
and new ones issued in their name.
Such refusal of petitioners prompted private respondent to make another offer, this time, the return
of an amount double the price paid by petitioners. Petitioners still refused and stubbornly insisted
in their stand.
Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof in the Regional Trial Court.8
The trial court rendered judgment in favor of private respondent. Identifying the core issue in the
instant controversy to be the voidability of the contract of sale between petitioners and private
respondent on the ground of mistake, the trial court annulled said contract of sale after finding that
there was indeed a mistake in the identification of the parcels of land intended to be the subject
matter of said sale. The trial court ratiocinated:
Meeting head-on the issue of alleged mistake in the object of the same, defendants in
their answer averred that they relied on the technical descriptions of TCT Nos.
15516 and 15684 appearing in the deed of sale.
...
A resolution of the conflicting claims of the parties to the instant controversy calls
for an inquiry on their real intent relative to the identity of the parcels which
plaintiff intended to sell to defendants and which the latter in turn, intended to buy
from the former. For, the Court cannot ignore the dictates of logic and common
sense which, ordinarily, could not push a person to sell to another, a property which
the former does not own in the first place, for fear of adverse consequences. The
vendee, following the same reasoning, would not buy a thing unless he is totally
certain that the seller is the real owner of the thing offered for sale. It is equally true
that when one sells or buys a real property, he either sells or buys the property as
he sees it, in its actual setting and by its physical metes and bounds, and not be the
mere lot number assigned to the same property in the certificate of title or in any
document. And, when a buyer of real property decides to purchase from his seller,
he is ordinarily bound by prudence to ascertain the true nature, identity or
character of the property that he intends to buy and ascertain the title of his vendor
before he parts with his money. It is quite obvious that the foregoing precepts and
precautions were observed by the parties in the case at bar as there is no question
at all that he sale in question was consummated through the initiative of Mrs. Gloria
Contreras and then Vice-Mayor Benjamin Erni . . . both brokers of the sale who, after
a chance meeting with defendants at the Taal Vista Lodge Hotel prior to the sale of
plaintiffs parcels, brought defendants to the vicinity where plaintiffs three (3)
adjacent parcels of land are located and pointed to defendants the two (2) vacant
parcels right beside plaintiffs house. It is also undisputed that when defendants
intimated to the brokers their desire to buy the vacant lots pointed to them when
they visited the same place, they were brought to plaintiffs representative, Tarcisio
S. Calilung, at the latter's office in Makati where the parties discussed the terms of
the sale.
The Court notes further from the records that defendants' desire to buy vacant lots
from plaintiff is not only confirmed by the testimony of Gloria Contreras and the
ocular inspection conducted by the court but by defendant Betty Theis herself when
the latter testified as follows:
"COURT:
Q. Why, what was the lot that you intended to buy?
A. The right side of the house, Your Honor." (TSN of November 8,

1991, page 19)
Similarly, in answer to a question propounded to the same defendant by their counsel, she stated
that Ȅ
"ATTY. ROSALES:
Q. In other words, the titles delivered to you were not the titles
covering the right side of the house?
A No, sir." (+., page 20)
It is relevant to mention that when the defendants attempted to take possession of

the parcels of land they bought from the plaintiff on which they intended to
construct their house after their return from a foreign sojourn, they admittedly
wanted to take that vacant area, which as herein shown, turns out to be a property
not owned by plaintiff. From this act of the defendants, a clear meaning is shown.
Defendants themselves, knew right from the beginning that what they intended to
buy was that vacant lot, not the lot where plaintiffs house stands, covered by TCT
No. 15684 which was wrongly mentioned as one of the objects of the sale. . . .
The fact that the Deed of Sale subsequently executed by plaintiff and the defendants
on October 27, 1987 covers the parcel of land where plaintiffs two- storey house
was constructed will clearly reflect a situation that is totally different from what
defendants had intended to buy from the plaintiff viz-a-viz [sic] the latter's intention
to sell its two (2) vacant lots to defendants. Notwithstanding defendants' claim that
it was not possible for plaintiffs representative not to be familiar with its properties,
the acts and circumstances established in this case would clearly show, and this
Court is convinced, that the inclusion of the parcel where plaintiffs house is
constructed is solely attributable to a mistake in the object of the sale between the
parties. This mistake, obviously, was made, on the part of plaintiffs representative
when the latter mistook the vacant lot situated on the right side of plaintiffs house
as its vacant parcels of land when its vacant lots are actually situated on the left side
of the same house. Indeed, such mistake on plaintiffs part appears to be tragic as it
turned out later that the vacant lot on the right side of plaintiffs house did not
belong to plaintiff. Worse, is the fact that what was conveyed to defendants under
the deed of sale was the parcel where plaintiff s house already stood at the time of
the sale. This, definitely, is not what the parties intended.
. . . Going by the facts established by defendants' evidence, it is clear that

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The law itself explicitly recognizes that consent of the parties is one of the essential
elements to the validity of the contract and where consent is given through mistake,
the validity of the contractual relations between the parties is legally impaired.
As earlier stated, the facts obtaining in the case at bar undoubtedly show that when
defendants bought the properties of plaintiff, they intended to buy the vacant lots
owned by the latter. As the sale that was finally consummated by the parties had
covered the parcel where plaintiffs house was constructed even before the sale took
place, this Court can safely assume that the deed of sale executed by the parties did
not truly express their true intention. In other words,

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. [Emphasis ours]
Aggrieved by the decision of the trial court, petitioners sought its

reversal % from respondent Court of Appeals. Respondent court, however, did not find the appeal
meritorious and accordingly affirmed the trial court decision. Ruled the respondent appellate
court:
There is no doubt that when defendants-appellants attempted to take physical

possession of Parcel No. 4 in May, 1990, they were prevented by the true owner
thereof from taking possession of said land. To clear the matter, plaintiff-appellee
hired a new surveyor who revealed in his survey that Parcel No. 4 is not included in
plaintiff-appellee's Transfer Certificates of Title from which said plaintiff-appellee
mistakenly offered defendants-appellants said Parcel No. 4. Realizing its mistake,
plaintiff- appellee offered defendants-appellants Parcels Nos. 1 and 2 under the
same Transfer Certificates of Title or the reimbursement of the purchase price in
double amount. But defendants-appellants insisted this time to acquire Parcel No. 3
wherein plaintiff-appellee had already a house, and was not the object of the sale.
Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-
appellee's house already stands in the said area even before defendants-appellants
had chosen Parcel No. 4 which was described to be on the right side of said plaintiff-
appellee's house in Parcel No. 3. There is no dispute that defendants-appellants
wanted to buy Parcel No. 4 as testified to by defendant-appellant Petty Theis, herself
(p. 19, tsn, Nov. 8, 1991), which lot turned out to be outside of the Transfer
Certificates of Title of plaintiff-appellee. Defendants-appellants cannot now insist on
Parcel No. 3 as the same was not the object of the sale between the parties.
#

3F which plaintiff- appellee tried to remedy
by offering defendants-appellant instead his Parcels Nos. 1 or 2, or reimbursement
of the purchase price in double amount.9 [Emphasis ours]
We find that respondent court correctly affirmed the findings and conclusions of the trial court in
annulling the deed of sale as the former are supported by evidence and the latter are in accordance
with existing law and jurisprudence.
Art. 1390 of the New Civil Code provides:
Art. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) . . .
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence, or fraud.
xxx xxx xxx
In the case at bar, the private respondent obviously committed an honest mistake in selling parcel
no. 4. As correctly noted by the Court of Appeals, it is quite impossible for said private respondent
to sell the lot in question as the same is not owned by it. The good faith of the private respondent is
evident in the fact that when the mistake was discovered, it immediately offered two other vacant
lots to the petitioners or to reimburse them with twice the amount paid. That petitioners refused
either option left the private respondent with no other choice but to file an action for the annulment
of the deed of sale on the ground of mistake. As enunciated in the case of Mariano vs. Court of
Appeals:
A contract may be annulled where the consent of one of the contracting parties was
procured by mistake, fraud, intimidation, violence, or undue influence.
Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate
consent. It states:
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
Tolentino explains that the concept of error in this article must include both ignorance, which is
the absence of knowledge with respect to a thing, and mistake properly speaking, which is a wrong
conception about said thing, or a belief in the existence of some circumstance, fact, or event, which
in reality does not exist. In both cases, there is a lack of full and correct knowledge about the thing.
The mistake committed by the private respondent in selling parcel no. 4 to the petitioners falls
within the second type. Verily, such mistake invalidated its consent and as such, annulment of the
deed of sale is proper.
The petitioners cannot be justified in their insistence that parcel no. 3, upon which private
respondent constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of
construction in 1985 for the said house (P1,500,000.00) far exceeds the amount paid by the
petitioners to the private respondent (P486,000.00). Moreover, the trial court, in questioning
private respondent's witness, Atty. Tarciso Calilung (who is also its authorized representative)
clarified that parcel no. 4, the lot mistakenly sold, was a vacant lot:
COURT: What property did you point to them?
A. I pointed to parcel No. 4, as appearing in the sketch.
COURT: Parcel No. 4 is a vacant lot?
A. Yes, your Honor.
COURT: So, there was no house on that lot?
A. There was no house. There were pineapple crops existing on the property.
COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?
A. Yes, your Honor.
Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept
the offer of the private respondent to give them two (2) other vacant lots in exchange, as well as
their insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable. As held by this
Court in the case of
%
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:
Hence, to allow petitioner bank to acquire the constructed building at a price far
below its actual construction cost would undoubtedly constitute unjust enrichment
for the bank to the prejudice of the private respondent. Such unjust enrichment, as
previously discussed, is not allowed by law.
WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-G.R.
47000 dated May 31, 1996 AFFIRMED. Costs against the petitioner.
SO ORDERED.
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#$
1 Civil Case No. TG-1167.

2 Branch 18, Tagaytay City, Cavite.
3 Decision of the RTC in Civil Case No. TG-1167 penned by Judge Julieto P. Tabiolo
and dated December 15, 1993, pp. 3-6, ' , pp. 87-90.
4 Petitioners' appeal was docketed as CA-G.R CV No. 47000.
5 Eighth Division.
6 Decision promulgated on May 31, 1996 and penned by Associate Justice Lourdes
K. Tayao-Jaguros, with Associate Justices Jaime M. Lantin and B.A Adefuin-de la Cruz
concurring, ' , pp. 28-34.
7 +., pp. 6-7, ' , pp. 31-32.
8 220 SCRA 716 (1993)
9 TOLENTINO, CIVIL CODE OF THE PHILIPPINES p. 476, Vol. 4 (1991 ed.).
10 ' , pp. 109-110.
11 249 SCRA 206 (1995).

m
Manila
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vs.
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This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated March 29,
2005 in CA-G.R. CV No. 53632, which affirmed the Decision2 of the Regional Trial Court of
Cebu City, Branch 6, in Civil Case No. CEB-11140 for specific performance and reconveyance of
property. Also assailed is the Resolution3 dated August 31, 2005 denying the motion for
reconsideration.
On September 27, 1961, petitioner Province of Cebu leased4 in favor of Rufina Morales a 210-square
meter lot which formed part of Lot No. 646-A of the Banilad Estate. Subsequently or sometime in
1964, petitioner donated several parcels of land to the City of Cebu. Among those donated was Lot
No. 646-A which the City of Cebu divided into sub-lots. The area occupied by Morales was
thereafter denominated as Lot No. 646-A-3, for which Transfer Certificate of Title (TCT) No. 308835
was issued in favor of the City of Cebu.
On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated lots at public auction in
order to raise money for infrastructure projects. The highest bidder for Lot No. 646-A-3 was Hever
Bascon but Morales was allowed to match the highest bid since she had a preferential right to the
lot as actual occupant thereof.6 Morales thus paid the required deposit and partial payment for the
lot.7
In the meantime, petitioner filed an action for reversion of donation against the City of Cebu
docketed as Civil Case No. 238-BC before Branch 7 of the then Court of First Instance of Cebu. On
May 7, 1974, petitioner and the City of Cebu entered into a compromise agreement which the court
approved on July 17, 1974.8 The agreement provided for the return of the donated lots to petitioner
except those that have already been utilized by the City of Cebu. Pursuant thereto, Lot No. 646-A-3
was returned to petitioner and registered in its name under TCT No. 104310.9
Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC.10 Apart from the
deposit and down payment, she was not able to make any other payments on the balance of the
purchase price for the lot.
On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote to then
Cebu Governor Eduardo R. Gullas asking for the formal conveyance of Lot No. 646-A-3 to Moralesǯ
surviving heirs, in accordance with the award earlier made by the City of Cebu.11 This was followed
by another letter of the same tenor dated October 10, 1986 addressed to Governor Osmundo G.
Rama.12
The requests remained unheeded thus, Quesada, together with the other nieces of Morales namely,
respondents Nenita Villanueva and Erlinda V. Adriano, as well as Moralesǯ sister, Felomina V.
Panopio, filed an action for specific performance and reconveyance of property against petitioner,
which was docketed as Civil Case No. CEB-11140 before Branch 6 of the Regional Trial Court of
Cebu City.13 They also consigned with the court the amount of P13,450.00 representing the balance
of the purchase price which petitioner allegedly refused to accept.14
Panopio died shortly after the complaint was filed.15
Respondents averred that the award at public auction of the lot to Morales was a valid and binding
contract entered into by the City of Cebu and that the lot was inadvertently returned to petitioner
under the compromise judgment in Civil Case No. 238-BC. They alleged that they could not pay the
balance of the purchase price during the pendency of said case due to confusion as to whom and
where payment should be made. They thus prayed that judgment be rendered ordering petitioner
to execute a final deed of absolute sale in their favor, and that TCT No. 104310 in the name of
petitioner be cancelled.16
Petitioner filed its answer but failed to present evidence despite several opportunities given thus, it
was deemed to have waived its right to present evidence.17
On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and against the defendant
Province of Cebu, hereby directing the latter to convey Lot 646-A-3 to the plaintiffs as heirs
of Rufina Morales, and in this connection, to execute the necessary deed in favor of said
plaintiffs.
SO ORDERED.18
In ruling for the respondents, the trial court held thus:
[T]he Court is convinced that there was already a consummated sale between the City of
Cebu and Rufina Morales. There was the offer to sell in that public auction sale. It was
accepted by Rufina Morales with her bid and was granted the award for which she paid the
agreed downpayment. It cannot be gainsaid that at that time the owner of the property was
the City of Cebu. It has the absolute right to dispose of it thru that public auction sale. The
donation by the defendant Province of Cebu to Cebu City was not voided in that Civil Case
No. 238-BC. The compromise agreement between the parties therein on the basis of which
judgment was rendered did not provide nullification of the sales or disposition made by the
City of Cebu. Being virtually successor-in-interest of City of Cebu, the defendant is bound by
the contract lawfully entered into by the former. Defendant did not initiate any move to
invalidate the sale for one reason or another. Hence, it stands as a perfectly valid contract
which defendant must respect. Rufina Morales had a vested right over the property. The
plaintiffs being the heirs or successors-in-interest of Rufina Morales, have the right to ask
for the conveyance of the property to them. While it may be true that the title of the
property still remained in the name of the City of Cebu until full payment is made, and this
could be the reason why the lot in question was among those reverted to the Province, the
sellerǯs obligation under the contract was, for all legal purposes, transferred to, and
assumed by, the defendant Province of Cebu. It is then bound by such contract.19
Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court .
Upon denial of its motion for reconsideration, petitioner filed the instant petition under Rule 45 of
the Rules of Court, alleging that the appellate court erred in:
FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE RIGHT
TO EQUAL THE BID OF THE HIGHEST BIDDER OF THE SUBJECT PROPERTY AS LESSEES
THEREOF;
FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA MORALES,
THE SALE WAS IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND THAT THE
TRANSACTION WAS PERFECTED AND CONSUMMATED;
FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST

RESPONDENTS;
FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-BC, PLAINTIFFS WERE
NOT ABLE TO PAY THE AGREED INSTALLMENTS;
AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE RESPONDENTS AND
AGAINST THE PETITIONERS.20
The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu, is
bound to respect the contract of sale entered into by the latter pertaining to Lot No. 646-A-3. The
City of Cebu was the owner of the lot when it awarded the same to respondentsǯ predecessor-in-
interest, Morales, who later became its owner before the same was erroneously returned to
petitioner under the compromise judgment. The award is tantamount to a perfected contract of sale
between Morales and the City of Cebu, while partial payment of the purchase price and actual
occupation of the property by Morales and respondents effectively transferred ownership of the lot
to the latter. This is true notwithstanding the failure of Morales and respondents to pay the balance
of the purchase price.
Petitioner can no longer assail the award of the lot to Morales on the ground that she had no right to
match the highest bid during the public auction. Whether Morales, as actual occupant and/or lessee
of the lot, was qualified and had the right to match the highest bid is a foregone matter that could
have been questioned when the award was made. When the City of Cebu awarded the lot to
Morales, it is assumed that she met all qualifications to match the highest bid. The subject lot was
auctioned in 1965 or more than four decades ago and was never questioned. Thus, it is safe to
assume, as the appellate court did, that all requirements for a valid public auction sale were
complied with.
A sale by public auction is perfected "when the auctioneer announces its perfection by the fall of the
hammer or in other customary manner".21 It does not matter that Morales merely matched the bid
of the highest bidder at the said auction sale. The contract of sale was nevertheless perfected as to
Morales, since she merely stepped into the shoes of the highest bidder.
Consequently, there was a meeting of minds between the City of Cebu and Morales as to the lot sold
and its price, such that each party could reciprocally demand performance of the contract from the
other.22 A contract of sale is a consensual contract and is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the price. From that moment,
the parties may reciprocally demand performance subject to the provisions of the law governing
the form of contracts. The elements of a valid contract of sale under Article 1458 of the Civil Code
are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in
money or its equivalent.23 All these elements were present in the transaction between the City of
Cebu and Morales.
There is no merit in petitionerǯs assertion that there was no perfected contract of sale because no
"Contract of Purchase and Sale" was ever executed by the parties. As previously stated, a contract of
sale is a consensual contract that is perfected upon a meeting of minds as to the object of the
contract and its price. Subject to the provisions of the Statute of Frauds, a formal document is not
necessary for the sale transaction to acquire binding effect.24 For as long as the essential elements
of a contract of sale are proved to exist in a given transaction, the contract is deemed perfected
regardless of the absence of a formal deed evidencing the same.
Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of the
purchase price is evidence that there was really no contract of sale over the lot between Morales
and the City of Cebu. On the contrary, the fact that there was an agreed price for the lot proves that
a contract of sale was indeed perfected between the parties. Failure to pay the balance of the
purchase price did not render the sale inexistent or invalid, but merely gave rise to a right in favor
of the vendor to either demand specific performance or rescission of the contract of sale.25 It did not
abolish the contract of sale or result in its automatic invalidation.
As correctly found by the appellate court, the contract of sale between the City of Cebu and Morales
was also partially consummated. The latter had paid the deposit and downpayment for the lot in
accordance with the terms of the bid award. She first occupied the property as a lessee in 1961,
built a house thereon and was continuously in possession of the lot as its owner until her death in
1969. Respondents, on the other hand, who are all surviving heirs of Morales, likewise occupied the
property during the latterǯs lifetime and continue to reside on the property to this day.26
The stages of a contract of sale are as follows: (1) & , covering the period from the time the
prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (2)
, which takes place upon the concurrence of the essential elements of the
sale which are the meeting of the minds of the parties as to the object of the contract and upon the
price; and (3) , which begins when the parties perform their respective undertakings
under the contract of sale, culminating in the extinguishment thereof.27 In this case, respondentsǯ
predecessor had undoubtedly commenced performing her obligation by making a down payment
on the purchase price. Unfortunately, however, she was not able to complete the payments due to
legal complications between petitioner and the city.
Thus, the City of Cebu could no longer dispose of the lot in question when it was included as among
those returned to petitioner pursuant to the compromise agreement in Civil Case No. 238-BC. The
City of Cebu had sold the property to Morales even though there remained a balance on the
purchase price and a formal contract of sale had yet to be executed. Incidentally, the failure of
respondents to pay the balance on the purchase price and the non-execution of a formal agreement
was sufficiently explained by the fact that the trial court, in Civil Case No. 238-BC, issued a writ of
preliminary injunction enjoining the city from further disposing the donated lots. According to
respondents, there was confusion as to the circumstances of payment considering that both the city
and petitioner had refused to accept payment by virtue of the injunction.28 It appears that the
parties simply mistook Lot 646-A-3 as among those not yet sold by the city.
The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to petitioner
under the compromise agreement in Civil Case No. 238-BC. At that time, the city merely retained
rights as an unpaid seller but had effectively transferred ownership of the lot to Morales. As
successor-in-interest of the city, petitioner could only acquire rights that its predecessor had over
the lot. These rights include the right to seek rescission or fulfillment of the terms of the contract
and the right to damages in either case.29
In this regard, the records show that respondent Quesada wrote to then Cebu Governor Eduardo R.
Gullas on March 11, 1983, asking for the formal conveyance of Lot 646-A-3 pursuant to the award
and sale earlier made by the City of Cebu. On October 10, 1986, she again wrote to Governor
Osmundo G. Rama reiterating her previous request. This means that petitioner had known, at least
as far back as 1983, that the city sold the lot to respondentsǯ predecessor and that the latter had
paid the deposit and the required down payment. Despite this knowledge, however, petitioner did
not avail of any rightful recourse to resolve the matter.
Article 1592 of the Civil Code pertinently provides:
Article 1592. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract shall
of right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by
notarial act. After the demand, the court may not grant him a new term. (Underscoring
supplied)
Thus, respondents could still tender payment of the full purchase price as no demand for rescission
had been made upon them, either judicially or through notarial act. While it is true that it took a
long time for respondents to bring suit for specific performance and consign the balance of the
purchase price, it is equally true that petitioner or its predecessor did not take any action to have
the contract of sale rescinded. Article 1592 allows the vendee to pay as long as no demand for
rescission has been made.30 The consignation of the balance of the purchase price before the trial
court thus operated as full payment, which resulted in the extinguishment of respondentsǯ
obligation under the contract of sale.
Finally, petitioner cannot raise the issue of prescription and laches at this stage of the proceedings.
Contrary to petitionerǯs assignment of errors, the appellate court made no findings on the issue
because petitioner never raised the matter of prescription and laches either before the trial court or
Court of Appeals. It is basic that defenses and issues not raised below cannot be considered on
appeal.31 Thus, petitioner cannot plead the matter for the first time before this Court.
=4 in view of the foregoing, the petition is hereby ** and the decision and
resolution of the Court of Appeals in CA-G.R. CV No. 53632 are *.
m**.
m mm

Associate Justice
= :

m!
Associate Justice
*
* *]
4
]
m
Associate Justice
m
I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courtǯs Division.
m mm

Associate Justice
Chairperson, Third Division

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersonǯs Attestation, it
is hereby certified that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Courtǯs Division.
m

Chief Justice
#$
* In lieu of Justice Minita V. Chico-Nazario, per Special Order No. 484 dated January 11,
2008.
1 ' , pp. 26-32.
2 Id. at 33-36.
3 Id. at 37-38.
4 Id. at 39-41.
5 RTC Records, pp. 8-9.
6 Id. at 119.
7 Id. at 12.
8 Id. at 134-141.
9 Id. at 15.
10 Id. at 105.
11 Id. at 130.
12 Id. at 131.
13 Id. at 1-6.
14 Id. at 125.
15 Id. at 133.
16 Id. at 4-5.
17 Id. at 143.
18 ' , p. 36.
19 Id. at 35-36.
20 Id. at 17-18.
21 CIVIL CODE, Art. 1476(2).
22 Id., Art. 1475.
23 # #":
# ', 366 Phil. 70, 78 (1999).
24 Article 1483 of the Civil Code states:
Art. 1483. Subject to the provisions of the Statute of Frauds and of any other
applicable statute, a contract of sale may be made in writing, or by word of mouth,
or partly in writing and partly by word of mouth, or may be inferred from the
conduct of the parties.
25 % "
"#
, 461 Phil. 761, 772 (2003).
26 TSN, August 12, 1994, pp. 11 and 36.
27 &

+": &, 391 Phil. 636, 645 (2000).
28 TSN, August 12, 1994, p. 32.
29 Article 1191 of the Civil Code states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
30 See note 23 at 83.
31 ' "
, G.R. No. 149756, February 11, 2005, 451 SCRA 103, 122.

m
Manila
THIRD DIVISION

89&'()8
-$] petitioner,
vs.
4m** ]#/1$)?G+
] ]]4 * ]]m
m ]4respondents.
! mp
This is a petition for review on #

under Rule 45 of the Rules of Court seeking to set aside
the Decision of the Court of Appealsdated October 2, 1996 and the Order denying the Motion for
Reconsideration8dated February 7, 1997 in CA-G.R. CV No. 40098 entitled :
# ', .
. ".
'. Ä- , . .
The following antecedents stated in the decision of the Court of Appeals are undisputed:
Candido Rubi was a lessor () from the Province of Cebu of a parcel of land
identified as Lot 1141 of the Banilad Estate containing an area of THIRTY THREE
THOUSAND ONE HUNDRED EIGHTY EIGHT (33,188) square meters, more or less,
covered by Transfer Certificate of Title No. RT-5513 (Exh. A).
Paragraph 7 of the contract of lease provides that the lessee shall use the leased
premises for residential and agricultural purposes only and pursuant to this
stipulation, Candido Rubi introduced various improvements, among which is a
residential building constructed in 1961 where he and his family resided up to the
time of his death in 1983.
In 1964, the Province of Cebu conveyed by way of donation to the City of Cebu two
hundred and ten (210) lots among which was Lot 1141 leased to Candido Rubi.
On March 4, 1965, the City Council of Cebu enacted Ordinance No. 522 (Exh. D)
authorizing the City Mayor to sell at public auction the 210 province-owned lots
donated to defendant City of Cebu, among which was Lot 1141.
Among the conditions set forth in Ordinance No. 522 (see par. C.) was that "if the lot
is leased, the lessee. . . shall be given the right to equal the highest bid on the date of
the public bidding and if he so equals the highest bid, he shall be awarded the sale.
On August 5, 1965 after the public bidding held on the same day, the bidding
committee wrote Candido Rubi advising him that the highest bid for Lot 1141 was
submitted by Mr. Miguel Kho in the amount P104,556.00 and that since he "stated"
that he is the actual occupant and "going" to equal the highest bid, he is advised to
deposit with the City Treasurer 5% of P104,556.00 as earnest money and an
additional 15% as downpayment, after which the corresponding contract of sale will
be entered into between him and the City on August 9, 1965 (Exh. E.).
A day after the bidding, however, on August 6, 1965, a writ of preliminary injunction
was issued in Civil Case 238-BC filed by the province of Cebu from selling or
otherwise disposing any of the 210 lots donated by the province (Lot 1141
included).
On July 15, 1974, on the basis of a compromise agreement entered into in Civil Case
No. 238-BC, Lot No. 1141, among others, was adjudicated to defendant City of Cebu.
By this time, Lot 1141 had already been subdivided into Lots 1141-A, 1141-B, 1141-
C and 1141-D, the last the lot subject of the case, containing an area of 11,779
square meters where the house of Candido Rubi stands.
On September 19, 1974, the City Council of Cebu through Resolution No. 1747,
authorized the City Mayor to advertise the sale of Lots 1141-A and 1141-D (Exh. M-
1).
At the public bidding held on October 1, 1974, there was no bidder for Lot 1141-D
(Exh. M-1).
On January 30, 1976, Candido Rubi paid the amount of P4,500.00 under OR No.
9876421 as bidder's cash bond for Lot No. 1141-D (Exh. N).
On February 3, 1976, Candido Rubi wrote the City Mayor of Cebu stating that he was
one of the bidders of Lots 1141-B, 1141-C and 1141-D in a bidding held January 30,
1976 at 10:00 a.m. at the Office of the City Mayor and that as lessee of Lot No. 1141-
D he is exercising his option of equaling the highest bid price at P10.00 per square
meter on the area that is on level ground and P8.00 per square meter on the
remaining area (Exh. O).
On March 2, 1976, the Committee on Award awarded "Lot 1141-D consisting of

11,934 square meters at P10.00 per square meter" to Candido Rubi (Exh. P).
On March 9, 1976, Mayor Eulogio E. Borres furnished Candido Rubi a copy of the
award and instructed him to make the necessary payment for the land in order that
the deed of sale may be executed in his favor (Exh Q).
On April 7, 1976, the City Appraisal Committee, acting upon the 1st Indorsment
dated April 6, 1976 of the City Mayor indorsing Candido Rubi's letter dated
February 3, 1976 (Exh. O) resolved to appraise a portion of Lot No. 1141-D
containing an area of 6,423 square meters at P10.00 per square meter and the lower
area containing an area of 5511 square meters, more or less, at P8.00 per square
meter" (Exh. T).
On April 23, 1976, Mayor Eulogio Borres again wrote Candido Rubi furnishing him a
copy of Resolution No. 7 of the City of Appraisal Committee and advising him to pay
for the lot within 15 days from receipt thereof (Exh. U).
On May 11, 1976, Candido Rubi wrote the City Mayor a letter reading:
By reason of circumstances beyond my control, I regret to inform

you that I am unable to complete the payment for Lot 1141-D as
required by your office. For this reason I most respectfully request
that I be given an extension of the time within which to make the
said payment (Exh. V.).
In a 2nd Indorsement, dated December 23, 1980, the City Administrator referred to
the City Attorney "for comment and/or legal advice" all pertinent correspondence
relative to the purchaser of Lot 1141-D by Candido Rubi "considering that as per
documents submitted, Mr. Rubi has not fully paid the total purchase price of the
hereinmentioned lot" (Exh. X).
In a 3rd Indorsement, dated January 6, 1981, the City Attorney replied to the City
Administrator's 2nd Indorsement stating that there appears to be no legal
impediment to the request of Mr. Rubi, however, per the charter of the City of Cebu,
the City Mayor must be clothed with the corresponding authority from the
Sangguniang Panglunsod to sell Lot 1141-D to Candido Rubi at the price approved
by the Committee on Award per Resolution No. 7 of the City Appraisal Committee
dated April 7, 1976 (Exh. Y).
Candido Rubi died on February 17, 1983, survived by his wife, Maria J. Rubi, and
children Lina Rubi Bonoan, Hilda Rubi Borres and Sylvia Machacor, plaintiffs in the
case.
On May 17, 1989, plaintiffs filed the complaint at bench for specific performance
(Record, p. 1). On the same day, plaintiffs tendered the amount of P103,818.00 to
the City Treasurer of Ceby City (Exh. 9) and on June 28, 1989, consigned the amount
with the Clerk of Court (Exhs. AA, AA-1 to AA-4).
On January 17, 1991, the Court a ! rendered the appealed decision dismissing the
complaint ad "declaring the defendant to have been released of its obligation to sell
the property to the plaintiffs under the terms and conditions of the award in 1976,
stating:
The Court believes, and so holds, that the contract between the
parties was a mere contract to sell on the part of the defendant City
of Cebu in which the full payment of the price was a positive
suspensive condition. Since the latter condition was not met, the
seller's obligation to deliver and transfer ownership of the property
never vested.
The acceptance of a unilateral promise to sell must be plain, clear

and unconditional. Therefore, if there is a qualified acceptance, with
terms different from the offer, there is no acceptance, and there is no
perfected sale. (Beaumonth vs. Prieto 41 Phil 670).
As there was no absolute acceptance on the part of Candid Rubi of the terms of the
Award, nor of the condition of the City acting through the City Mayor, to pay for the
property within the period provided, the transaction between the parties never
ripened into a contract of sale. Consequently, the defendant cannot be compelled to
execute the necessary documents of conveyance to the plaintiffs. (Decision, pp. 8-9;
Rollo, pp. 60-61)
The Court of Appeals reversed the court !. It ruled that there was a perfected contract of sale
but Candido Rubi was not able to make payments thereunder due to circumstances beyond his
control. Such failure of the buyer to pay within a fixed period does not, by itself, bar the transfer to
ownership or possession, much less dissolve the contract of sale; in the sale of an immovable under
Article 1592 of the Civil Code, the vendee is allowed to pay for the purchase price so long as no
demand has been made for rescission judicially or by a notarial act. The Court added that the fact
that the obligation was already substantially performed in good faith militates against the unilateral
extinguishment/rescission claimed by the City of Cebu.%
In seeking the reversal of the Court of Appeals decision, the petitioner assigns the following errors:
I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN

CONSIDERING AND DECLARING THAT THERE WAS A PERFECTED
CONTRACT OF SALE BY AND BETWEEN CANDIDO RUBI AND THE
CITY OF CEBU OVER LOT NO. 1141-D.
II. THAT EVEN CONCEDING '+'A3+THAT A CONTRACT

OF SALE WAS PERFECTED BY MERE REASON OF THE AWARD OF
SALE GRANTED IN FAVOR OF CANDIDO RUBI, RESPONDENTS' LATE
PREDECESSOR-IN-INTEREST, THE HONORABLE COURT OF
APPEALS NEVERTHELESS SERIOUSLY ERRED IN NOT CONSIDERING
THAT SAID CANDIDO RUBI, WAS GUILTY OF UNREASONABLE
DELAY AND/OR LACHES IN COMPLYING WITH THE CONDITIONS
OF THE AWARD.
III. EVEN ASSUMING THAT THERE WAS A PERFECTED CONTRACT

OF SALE, THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN DECLARING THAT THERE WAS NO AUTOMATIC RECESSION OF
THE CONTRACT, NOTWITHSTANDING RESPONDENTS' FAILURE TO
PAY THE PRICE AT THE TIME AGREED UPON.
IV. THAT IT IS PATENTLY ERRONEOUS FOR THE HONORABLE

COURT OF APPEALS TO ORDER HEREIN PETITIONER CITY OF CEBU
TO EXECUTE THE NECESSARY DEED OF CONVEYANCE WITHOUT
ORDERING RESPONDENTS TO PAY LEGAL INTEREST ON THE
PURCHASE PRICE RECKONED FROM THE DATE OF AWARD IN 1976
UNTIL ITS CONSIGNATION IN 1989.
The petitioner reiterates its position that the contract entered into by the petitioner and Candido
Rubi was a contract to sell and the failure of Rubi to make payment caused the automatic rescission
of the obligation. Petitioner bases its claim on two grounds:
1. that title to the remained with the petitioner, City of Cebu, before the necessary
payment of the purchase price of the lot in question was made by the respondents;
and
2. that there was no written contract which makes the contract unenforceable under
the statute of frauds.
Petitioner also avers that even if the contract was indeed a contract of sale, the respondents
were guilty of laches in exercising and enforcing their rights.
On the other hand, respondents maintain that the contract entered into by the City and Rubi was a
contract of sale. They argue that a contract of sale can be perfected without a written document
since a contract of sale is a consensual contract, and since it is a contract of sale, respondents could
still tender payment of the purchase price because no demand to rescind the contract was made by
the petitioner, citing Article 1592 of the Civil Code. They also assert that there was no delay in the
performance of the obligation by the respondents since the City impliedly granted Rubi an
extension of time to pay the purchase price.9
We agree with the Court of Appeals that there was a perfected contract of sale between the parties.
A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the price. From the moment, the
parties may reciprocally demand performance subject to the provisions of the law governing the
form of contracts.The elements of a valid contract of sale under Article 1458 of the Civil Code are
(1) consent or meeting of the minds; (2) determine subject matter; and (3) price certain in money
or its equivalent.All three elements are present in the transaction between the City of Cebu and
Candido Rubi. On February 3, 1976, Candido Rubi wrote the City Mayor that he was one of the
bidders of Lot 1141-D in a bidding held on January 30, 1976 and that he was exercising his option
of equaling the highest bid price of P10.00 per square meter for the area containing 6,423 square
meter and P8.00 per square meter for the area containing 5,511 square meters. The acceptance by
the city was conveyed in the letter of Mayor Eulogio Borres informing Rubi of the resolution of the
Appraisal Committee appraising Lot 1141-D at P10.00 for the area of 6,423 square meters and
advising him to pay for the lot within 15 days from receipt thereof. There was a perfected
agreement between the City of Cebu and Rubi whereby the City obligated itself to transfer the
ownership of and deliver Lot 1141-D and Rubi to pay the price. The effect of an unqualified
acceptance of the offer or proposal of the bidder is to perfect a contract, upon notice of the award to
the bidder. An agreement presupposes a meeting of the minds and when that point is reached in
the negotiations between the parties intending to enter into a contract, the purported contract is
deemed perfected and none of them may thereafter disengage himself therefrom without being
liable to the other in an action for specific performance.
The deed of sale was never formalized, and there is no documents the terms of which may be
interpreted to determine its legal significance, particularly whether the parties have entered into a
contract of sale or a contract to sell.
However, there is nothing in the exchange of correspondence between the parties namely:
1. Exhibit O Ȅ the letter of Candido Rubi addressed to the Mayor where he notified
the Mayor that he was exercising his option of equaling the highest bid price over
Lot No. 1141-D;
2. Exhibit P Ȅ the award of the Committee on Awards awarding Lot 1141-D to

Candido Rubi;
3. Exhibit Q Ȅ the latter of Mayor Eulogio E. Borres to Rubi informing him to pay for
Lot 1141-D;
4. Exhibit T Ȅ the appraisal made by the City Appraisal Committee appraising the
value of the lot to be P10.00 per square meter for the area containing 6,423 square
meters and P8.00 per square meter for the area containing 5,511 square meters;
and
5. Exhibit U Ȅ the second letter of Mayor Borres again informing Rubi to pay for Lot
1141-D at the price appraised by the City Appraisal Committee.
taken together with the documents of record, from which it can reasonably be deduced that
the parties intended to enter into a contract to sell, .., one whereby the prospective seller
would explicitly reserve the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer ownership of the property
subject of the contract to sell until full payment of the price, such payment being a positive
suspensive condition, the failure of which is not considered a breach, casual or serious, but
simply an event which prevented the obligation from acquiring any obligatory force. 8 A
contract to sell is commonly entered into so as to protect the seller against a buyer who
intends to buy the property in installments by withholding ownership over the property
until the buyer effects full payment therefor. In this case, the parties intended to enter
into a contract of sale of Lot 1141-D for a cash price of P108,318.00 in one payment. The
advertisement for bids for Lot 1141-D expressly stated that the "sale shall be for cash" %
and Rubi's letter exercising the lessee's option to equal the equal the bid offered a straight
bid of P10.00 per square meter. Mayor Borres' letter of March 9, 1976 informing Rubi of
the award asked Rubi to make the necessary payment, stating that "This must be made
before we have to execute the deed of sale in your favor and the title to the lot." ; and a
subsequent letter dated April 23, 1976 requested Rubi "to pay the lot subject of (your) bid,
within fifteen days from receipt hereof." 9 The assumption of both parties that the offer and
acceptance was for a bid price in cash, not in staggered payments taken together with the
fact that there was no expressed or apparent intent to reserve ownership over the lot until
full payment was made leads to no other conclusion that Rubi and the City entered into a
contract of sale.
As stated, no deed of sale was ever formalized but there was compliance with the
requirements of the statute of frauds. Under this law, an agreement for the sale of real
property or of an interest thereon shall be unenforceable "unless the same or some note or
memorandum thereof be in writing" and subscribed by the party charged or his agent. We
hold that the exchange of written correspondence between the parties, earlier cited,
constitute sufficient writing to evidence the agreement for purposes of complying with the
statute of frauds.
The next issue to be addressed is whether the failure of Rubi to pay the balance of the
purchase price within fifteen days as directed as directed by the City Mayor is fatal to his
right to enforce the agreement and ask the City of Cebu to execute the deed of sale in his
favor.
The rescission of a sale immovable property is specially governed by Article 1592 of New
Civil Code which reads:
In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendeee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has been made upon him
either judicially or by a notarial act. After the demand, the court may not grant him a
new term.
It is not disputed that the City of Cebu did not give notice of rescission much less make a
judicial or notarial demand for rescission. The only subsequent action taken by petitioner
was to send to the respondents a "Formal Notice" dated March 4, 1989 ordering the latter to
vacate the premises within fifteen days from receipt of notice for the reason that the
occupancy of lot 1141-D is presumed t be illegal as the lot is still registered in the name of
the City of Cebu. 8 This letter did not amount to a demand for rescission, as indeed there
was no reference to the sale much less a declaration that the sale was being rescinded or
abrogated from the beginning. 8 It was only when the City of Cebu filed its Answer on June
15, 1989 to the instant complaint for specific performance that the city invoked "automatic
rescission" and prayed for relief allowing it to rescind the contract.
Given that there was no valid demand for rescission made by the City of Cebu, was Rubi
justified in not making full payment or tendering such payment of the price despite the long
lapse of time since the award was a made in his favor?
The Court notes that the vendee Rubi requested for an extension of time to pay as he was
"prevented by circumstances beyond his control" from making payment within fifteen days
from notice, but this request was not acted upon. Neither did Rubi follow up his request; he
tendered payment only when he had filed this action for specific performance, which suit
was filed only after he received notice from the petitioner to vacate the premises.
The petitioner admits in its pleadings 88 that an extension was impliedly given. However, we
are not prepared to rule that an implied extension of time to pay the purchase price was
granted when the City of Cebu did not act on Rubi's request for extension. The general rule
is that an agreement to extend the time of payment, in order to be valid, must be for a
definite time, although it seems that no precise date be fixed, it being sufficient that the time
readily be determined. 8
We accordingly do not agree with the ruling of the Court of Appeals that the request for
extension was granted by the City of Cebu, as shown by the "complete silence" on the part of
the City of Cebu on Rubi's request for extension. The fact that the City did not act on the
request for what amounts to an indefinite extension may be construed just as logically as a
denial thereof.
Is the contract of sale still subsisting after the lapse of several years, during which time
neither party took any action to enforce the contract. The City did not demand compliance
or rescission and Rubi did not pursue enforcement. Petitioner's Amended Answer claims
that Rubi was guilty of unreasonable delay and/or laches, as he brought his action for
specific performance full payment of the price only in 1989. However, the City is no less
guilty of neglect and delay in not reiterating its demand for payment within a reasonable
period from the implied extension which it admittedly granted. Article 1592 allows the
vendee to pay, even after the expiration of the period agreed upon, as long as no demand for
rescission has been made either judicially or by notarial act, and it was incumbent upon the
City to demand rescission. This conclusion also takes into account the fact that Rubi had
made a partial payment, consisting of the bidder's cash bond which the was accepted by the
City, and also the consideration that the City was mindful of the need to protect the rights of
the actual lessees to the lands formerly comprising the Friar Lands Estate having granted
said lessees the right to match the offer of the highest bidder in the public auction. Rubi has
been a lessee/occupant of the property since 1957, has introduced considerable
improvements thereon consisting of a90-meter road, a residential house, water pipes, and
fruit trees 8% and has lived in the lot since 1961. 8 He was awarded Lot 1141-D not only
once, but twice; the first time was in 1965, (which did not materialize because of the filing
of Civil Case No. 238-BC and the injunction issued therein) and the second time in 1976. The
respondents alleged in the Comment and this is not controverted in petitioner's reply, that:
After Candido Rubi paid the City the sum of P4,500.00 representing partial payment
of the bid price, he was advised that the balance will be payable as soon as the
Sangguniang Panglunsod approves a resolution authorizing the City Mayor to sell
Lot 1141-D at the price approved by the Committee on Awards.
After an unreasonable lapse of time without the resolution having been approved,
Candido Rubi repeatedly inquired from the Sangguniang Panglunsod of Cebu City
the reason for the delay.
The matter was endorsed to the Office of the City Attorney for legal opinion. On
January 6, 1981, City Attorney Vicente Varela, Jr. rendered an opinion to the effect
that the agreement between the City of Cebu and the late Candido Rubi was valid
and binding notwithstanding the non-payment of the full consideration of the sale
(Exh. "Y").
In 1981, the Committee on Laws of the Sangguniang Panglunsod to which the

manner was referred, found that all the legal requirements relative to the purchase
of Lot 1141-D (Exh. "BB") was complied with the recommended the approval of a
resolution authorizing the City Mayor to sign the deed of sale in favor of Candido
Rubi (Exhibit "Z"). 8
Verily, Rubi has not slept on his rights. A finding of laches, which is an equitable doctrine
and the application of which is controlled by equitable considerations, 89again Rubi would
not conform to law nor equity taking into account the factual milieu of this case.
With respect to the petitioner's claim that the Court of Appeals erred in not ordering
respondents to pay interest due from the time of the award in 1976 until the time of the
consignation of the balance of the purchase price in 1989, respondents aver that:
petitioner did not raise the issue of interest in the Lower Court. Neither was the
issue raised in their "Appeal Brief" when the case was elevated to the Court of
Appeals. It was only in the "Motion for Reconsideration of the Decision of the Court
of Appeals" that the issue of legal interest was raised for the first time as an
alternative remedy.
Neither did petitioner refute the above allegation in its Brief. Rather it invokes "fairness and
justice" in seeking payment of interest.
We find the plea unavailing. This Court has had occasion to rule that:
. . . the issue of interest was never raised before and cannot be raised for the first
time on appeal. 8
. . . petitioner is deemed to have waived such right for his failure to raise its violation
before the trail court . . . In petitions under Rule 45, as distinguished from an
ordinary appeal of criminal cases where the whole case is opened for review, the
appeals is generally limited to the errors assigned by the petitioner. Issues not
raised below cannot be pleaded for the first time on appeal. 8 (Emphasis supplied)
Points of law, theories, issues and arguments not adequately brought to the
attention of the lower court need not be, and ordinarily will not be, considered by a
reviewing court as they cannot be raised for the first time on appeal. Basic
considerations of due process impel this rule.
In view of the foregoing, the petition is denied due course, and the Decision of the Court of
Appeals appealed from is hereby AFFIRMED.¢¢G
SO ORDERED.
'
& &
$$

#$
1 Seventh Division composed of the, J. Eduardo G. Montenegro; and the

members, J. Emeterio C. Cui (Chairman) and J. Jose C. De La Rama, concurring.
2 J. Jainal D. Rasul replaced retired J. De La Rama.
3 Decision of the Court of Appeals, pp. 1-7; ' , pp. 25-31.

4 Decision of the Court of Appeals, pp. 12-14; ' , pp. 36-38.
5 Petition for Review, p. 10; ' , p. 16.
6 +.
7 Answer to Petition for Review, pp. 7, 11-13; ' pp. 58, 62-64.
8 Art. 1475, Civil Code.
9 Dignos vs. Court of Appeals 158 SCRA 375 at pp. 382-383 [1988].
10 Valencia vs. RFC and Court of Appeals, 103 Phil. 444 at p. 450 [1958].
11 Maharlika Publishing Corp. vs. Tagle, 142 SCRA 553 at pp. 564-565 [1986];
Central Bank of the Philippines vs. Court of Appeals, 63 SCRA 431 at pp. 446-447
[1975].
12 Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. 46 SCRA 381 at p. 387
[1972]; Rillo vs. Court of Appeals, 274 SCRA 461 at p. 467 [1997]; Coronel vs. Court
of Appeals, 263 SCRA 15 at p. 28 [1996].
13 Coronel vs. Court of Appeals,

.
14 Par. (2), Exhibit "J".
15 Exhibit "O".
16 Exhibit "Q".
17 Exhibit "U".
18 Art. 1403(e), Civil code.
19 Art. 1592 requiring demand by suit or notarial act in case the vendor wants to
rescind does not apply to a contract to sell or promise to sell where title remains
with the vendor until fulfillment of a positive condition such as full payment of the
price [Roque vs. Lapuz, 96 SCRA 74] & Manuel vs. Rodriguez 109 Phil.
20 Exhibit "7".
21 Ocampo vs. Court of Appeals, 233 SCRA 551 at p. 561 [1994].
22 Petition, p. 17; Amended Answer, par. 16.
23 Pacific Asai Banking Corp. vs. Court of Appeals, 173 SCRA 102 at p. 113 [1989].
24 Answer to Petition for Review, p. 3.

25 Petition for Review, p. 15.
26 Comment, pp. 5-6; ' , pp. 56-57.
27 Jimenez vs. Fernandez, 184 SCRA 190 at p. 197 [1990].
28 Canonizado vs. Ordonez-Benitez, 149 SCRA 555 at 560, [1987].

G.R. No. 157493 February 5, 2007
RIZALINO ET AL. VS. PARAISO DEVT. CORP.

m
Manila
THIRD DIVISION

9%$.'/'?89
! .($0.?-(-$('+m */#0*m

]]+
]*/#0C /))'#/1$0m
Petitioners,
vs.
m* Respondent.
DECISION
4!p
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to reverse and set aside the Court of Appeals Decision1
dated 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino, Ernesto, Leonora, Bibiano,
Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso Development
Corporation, as modified by its Resolution2 dated 4 March 2003, declaring the Contract to
Sell valid and binding with respect to the undivided proportionate shares of the six
signatories of the said document, herein petitioners, namely: Ernesto, Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to execute
the Deed of Absolute Sale concerning their 6/8 share over the subject parcels of land in
favor of herein respondent Paraiso Development Corporation, and to pay the latter the
attorneyǯs fees plus costs of the suit. The assailed Decision, as modified, likewise ordered
the respondent to tender payment to the petitioners in the amount of P3,216,560.00
representing the balance of the purchase price of the subject parcels of land.
/H1/?'$)(#?#2#'/2$))0/6/?;/)(0-$#2$'0$'$0

$,$2$-$*$$0<.)$m/)$
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed
Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers
and sisters, and the co-owners of undivided shares of two parcels of agricultural and
tenanted land situated in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720
with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769
sq. m., or a total land area of 55,276 sq. m. Both lots are unregistered and originally
owned by their parents, Bibiano Oesmer and Encarnacion Durumpili, who declared the
lots for taxation purposes under Tax Declaration No. 34383 (cancelled by I.D. No. 6064-A)
for Lot 720 and Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. When
the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as
heirs of the former by right of succession.
Respondent Paraiso Development Corporation is known to be engaged in the real estate

business.
Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of
Carmona, Cavite, brought along petitioner Ernesto to meet with a certain Sotero Lee,
President of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The
said meeting was for the purpose of brokering the sale of petitionersǯ properties to
respondent corporation.
Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of
Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed
the aforesaid Contract to Sell. A check in the amount of P100,000.00, payable to Ernesto,
was given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and
Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and
Jesus, did not sign the document.
On 5 April 1989, a duplicate copy of the instrument was returned to respondent

corporation. On 21 April 1989, respondent brought the same to a notary public for
notarization.
In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners

informed the former of their intention to rescind the Contract to Sell and to return the
amount of P100,000.00 given by respondent as option money.
Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners,
together with Adolfo and Jesus, filed a Complaint7 for Declaration of Nullity or for
Annulment of Option Agreement or Contract to Sell with Damages before the Regional
Trial Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil Case No. BCV-91-
49.
During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an
Order,8 dated 16 September 1992, to the effect that the deceased petitioner be
substituted by his surviving spouse, Josefina O. Oesmer, and his children, Rolando O.
Oesmer and Fernando O. Oesmer. However, the name of Rizalino was retained in the title
of the case both in the RTC and the Court of Appeals.
After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in
favor of the respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of herein

[respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid and
binding only to the undivided proportionate share of the signatory of this document and
recipient of the check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter
is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8 share over
the subject two parcels of land in favor of herein [respondent] corporation, and to pay the
latter the attorneyǯs fees in the sum of Ten Thousand (P10,000.00) Pesos plus costs of
suit.
The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10
Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26
April 2002, the appellate court rendered a Decision modifying the Decision of the court a
quo by declaring that the Contract to Sell is valid and binding with respect to the
undivided proportionate shares of the six signatories of the said document, herein
petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The decretal portion of the said Decision states that:
WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED.
Judgment is hereby rendered in favor of herein [respondent] Paraiso Development
Corporation. The assailed Contract to Sell is valid and binding with respect to the
undivided proportionate share of the six (6) signatories of this document, [herein
petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of
Absolute Sale concerning their 6/8 share over the subject two parcels of land and in favor
of herein [respondent] corporation, and to pay the latter the attorneyǯs fees in the sum of
Ten Thousand Pesos (P10,000.00) plus costs of suit.11
Aggrieved by the above-mentioned Decision, petitioners filed a Motion for

Reconsideration of the same on 2 July 2002. Acting on petitionersǯ Motion for
Reconsideration, the Court of Appeals issued a Resolution dated 4 March 2003,
maintaining its Decision dated 26 April 2002, with the modification that respondent
tender payment to petitioners in the amount of P3,216,560.00, representing the balance
of the purchase price of the subject parcels of land. The dispositive portion of the said
Resolution reads:
WHEREFORE, premises considered, the assailed Decision is hereby modified.¢ ¢

Judgment is hereby rendered in favor of herein [respondent] Paraiso Development
Corporation. The assailed Contract to Sell is valid and binding with respect to the
undivided proportionate shares of the six (6) signatories of this document, [herein
petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer). The said [petitioners] are hereby ordered to execute the Deed of
Absolute Sale concerning their 6/8 share over the subject two parcels of land in favor of
herein [respondent] corporation, and to pay the latter attorneyǯs fees in the sum of Ten
Thousand Pesos (P10,000.00) plus costs of suit. Respondent is likewise ordered to tender
payment to the above-named [petitioners] in the amount of Three Million Two Hundred
Sixteen Thousand Five Hundred Sixty Pesos (P3,216,560.00) representing the balance of
the purchase price of the subject two parcels of land. 12
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the Court of Appeals erred:
I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit
D) is not binding upon petitioner Ernesto Oesmerǯs co-owners (herein petitioners
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora).
II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit
D) is void altogether considering that respondent itself did not sign it as to
indicate its consent to be bound by its terms. Moreover, Exhibit D is really a
unilateral promise to sell without consideration distinct from the price, and
hence, void.
Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora, on the margins of the supposed Contract to Sell did not confer
authority on petitioner Ernesto as agent to sell their respective shares in the questioned
properties, and hence, for lack of written authority from the above-named petitioners to
sell their respective shares in the subject parcels of land, the supposed Contract to Sell is
void as to them. Neither do their signatures signify their consent to directly sell their
shares in the questioned properties. Assuming that the signatures indicate consent, such
consent was merely conditional. The effectivity of the alleged Contract to Sell was subject
to a suspensive condition, which is the approval of the sale by all the co-owners.
Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the
findings of the Court of Appeals, is not couched in simple language.
They further claim that the supposed Contract to Sell does not bind the respondent
because the latter did not sign the said contract as to indicate its consent to be bound by
its terms. Furthermore, they maintain that the supposed Contract to Sell is really a
unilateral promise to sell and the option money does not bind petitioners for lack of
cause or consideration distinct from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora, on the Contract to Sell did not confer authority on petitioner
Ernesto as agent authorized to sell their respective shares in the questioned properties
because of Article 1874 of the Civil Code, which expressly provides that:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.
The law itself explicitly requires a written authority before an agent can sell an
immovable. The conferment of such an authority should be in writing, in as clear and
precise terms as possible. It is worth noting that petitionersǯ signatures are found in the
Contract to Sell. The Contract is absolutely silent on the establishment of any principal-
agent relationship between the five petitioners and their brother and co-petitioner
Ernesto as to the sale of the subject parcels of land. Thus, the Contract to Sell, although
signed on the margin by the five petitioners, is not sufficient to confer authority on
petitioner Ernesto to act as their agent in selling their shares in the properties in
question.
However, despite petitioner Ernestoǯs lack of written authority from the five petitioners
to sell their shares in the subject parcels of land, the supposed Contract to Sell remains
valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who
signed the said Contract to Sell; the other five petitioners also personally affixed their
signatures thereon. Therefore, a written authority is no longer necessary in order to sell
their shares in the subject parcels of land because, by affixing their signatures on the
Contract to Sell, they were not selling their shares through an agent but, rather, they were
selling the same directly and in their own right.
The Court also finds untenable the following arguments raised by petitioners to the effect
that the Contract to Sell is not binding upon them, except to Ernesto, because: (1) the
signatures of five of the petitioners do not signify their consent to sell their shares in the
questioned properties since petitioner Enriqueta merely signed as a witness to the said
Contract to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora, and
Bibiano, Jr., did not understand the importance and consequences of their action because
of their low degree of education and the contents of the aforesaid contract were not read
nor explained to them; and (2) assuming that the signatures indicate consent, such
consent was merely conditional, thus, the effectivity of the alleged Contract to Sell was
subject to a suspensive condition, which is the approval by all the co-owners of the sale.
It is well-settled that contracts are perfected by mere consent, upon the acceptance by the
offeree of the offer made by the offeror. From that moment, the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage
and law. To produce a contract, the acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. For a contract to arise, the
acceptance must be made known to the offeror. Accordingly, the acceptance can be
withdrawn or revoked before it is made known to the offeror.13
In the case at bar, the Contract to Sell was perfected when the petitioners consented to
the sale to the respondent of their shares in the subject parcels of land by affixing their
signatures on the said contract. Such signatures show their acceptance of what has been
stipulated in the Contract to Sell and such acceptance was made known to respondent
corporation when the duplicate copy of the Contract to Sell was returned to the latter
bearing petitionersǯ signatures.
As to petitioner Enriquetaǯs claim that she merely signed as a witness to the said contract,
the contract itself does not say so. There was no single indication in the said contract that
she signed the same merely as a witness. The fact that her signature appears on the right-
hand margin of the Contract to Sell is insignificant. The contract indisputably referred to
the "Heirs of Bibiano and Encarnacion Oesmer," and since there is no showing that
Enriqueta signed the document in some other capacity, it can be safely assumed that she
did so as one of the parties to the sale.
Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta
concurrently signed the Contract to Sell. As the Court of Appeals mentioned in its
Decision,14 the records of the case speak of the fact that petitioner Ernesto, together with
petitioner Enriqueta, met with the representatives of the respondent in order to finalize
the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the
said contract when the same was drafted. She even admitted that she understood the
undertaking that she and petitioner Ernesto made in connection with the contract. She
likewise disclosed that pursuant to the terms embodied in the Contract to Sell, she
updated the payment of the real property taxes and transferred the Tax Declarations of
the questioned properties in her name.15 Hence, it cannot be gainsaid that she merely
signed the Contract to Sell as a witness because she did not only actively participate in the
negotiation and execution of the same, but her subsequent actions also reveal an attempt
to comply with the conditions in the said contract.
With respect to the other petitionersǯ assertion that they did not understand the
importance and consequences of their action because of their low degree of education
and because the contents of the aforesaid contract were not read nor explained to them,
the same cannot be sustained.
We only have to quote the pertinent portions of the Court of Appeals Decision, clear and
concise, to dispose of this issue. Thus,
First, the Contract to Sell is couched in such a simple language which is undoubtedly easy
to read and understand. The terms of the Contract, specifically the amount of
P100,000.00 representing the option money paid by [respondent] corporation, the
purchase price of P60.00 per square meter or the total amount of P3,316,560.00 and a
brief description of the subject properties are well-indicated thereon that any prudent
and mature man would have known the nature and extent of the transaction
encapsulated in the document that he was signing.
Second, the following circumstances, as testified by the witnesses and as can be gleaned
from the records of the case clearly indicate the [petitionersǯ] intention to be bound by
the stipulations chronicled in the said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of

the subject property as he in fact was the one who initiated the negotiation process and
culminated the same by affixing his signature on the Contract to Sell and by taking receipt
of the amount of P100,000.00 which formed part of the purchase price.
xxxx
As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly

affixed his signature on a document written in a language (English) that he purportedly
does not understand. He testified that the document was just brought to him by an 18
year old niece named Baby and he was told that the document was for a check to be paid
to him. He readily signed the Contract to Sell without consulting his other siblings.
Thereafter, he exerted no effort in communicating with his brothers and sisters regarding
the document which he had signed, did not inquire what the check was for and did not
thereafter ask for the check which is purportedly due to him as a result of his signing the
said Contract to Sell. (TSN, 28 September 1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September
1993, p. 19). As such, he is expected to act with that ordinary degree of care and prudence
expected of a good father of a family. His unwitting testimony is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said
Contract to Sell. The theory adopted by the [petitioners] that because of their low degree
of education, they did not understand the contents of the said Contract to Sell is devoid of
merit. The [appellate court] also notes that Adolfo (one of the co-heirs who did not sign)
also possess the same degree of education as that of the signing co-heirs (TSN, 15 October
1991, p. 19). He, however, is employed at the Provincial Treasury Office at Trece
Martirez, Cavite and has even accompanied Rogelio Paular to the Assessorǯs Office to
locate certain missing documents which were needed to transfer the titles of the subject
properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners],
like Adolfo, are far from ignorant, more so, illiterate that they can be extricated from their
obligations under the Contract to Sell which they voluntarily and knowingly entered into
with the [respondent] corporation.
The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]),
citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as
follows:
"The Court does not accept the petitionerǯs claim that she did not understand the terms
and conditions of the transactions because she only reached Grade Three and was already
63 years of age when she signed the documents. She was literate, to begin with, and her
age did not make her senile or incompetent. x x x.
At any rate, Metrobank had no obligation to explain the documents to the petitioner as
nowhere has it been proven that she is unable to read or that the contracts were written
in a language not known to her. It was her responsibility to inform herself of the meaning
and consequence of the contracts she was signing and, if she found them difficult to
comprehend, to consult other persons, preferably lawyers, to explain them to her. After
all, the transactions involved not only a few hundred or thousand pesos but, indeed,
hundreds of thousands of pesos.
As the Court has held:
x x x The rule that one who signs a contract is presumed to know its contents has been
applied even to contracts 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 to him, before he signs it, as it would be to read it before he signed it if
he were able to do and his failure to obtain a reading and explanation of it is such gross
negligence as will estop from avoiding it on the ground that he was ignorant of its
contents."16
That the petitioners really had the intention to dispose of their shares in the subject
parcels of land, irrespective of whether or not all of the heirs consented to the said
Contract to Sell, was unveiled by Adolfoǯs testimony as follows:
ATTY. GAMO: This alleged agreement between you and your other brothers and sisters
that unless everybody will agree, the properties would not be sold, was that agreement in
writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus
and you did not sign that agreement which had been marked as [Exhibit] "D", your
brothers and sisters were grossly violating your agreement.
WITNESS: Yes, sir, they violated what we have agreed upon.17
We also cannot sustain the allegation of the petitioners that assuming the signatures
indicate consent, such consent was merely conditional, and that, the effectivity of the
alleged Contract to Sell was subject to the suspensive condition that the sale be approved
by all the co-owners. The Contract to Sell is clear enough. It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its stipulation shall
control.18 The terms of the Contract to Sell made no mention of the condition that before
it can become valid and binding, a unanimous consent of all the heirs is necessary. Thus,
when the language of the contract is explicit, as in the present case, leaving no doubt as to
the intention of the parties thereto, the literal meaning of its stipulation is controlling.
In addition, the petitioners, being owners of their respective undivided shares in the
subject properties, can dispose of their shares even without the consent of all the co-
heirs. Article 493 of the Civil Code expressly provides:
Article 493. Each co-owner shall have the full ownership of his part and of the fruits and
benefits pertaining thereto, and he may therefore
it, and

even substitute another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with respect to the co-owners,
shall be to the portion which may be allotted to him in the division upon the
termination of the co-ownership. [Emphases supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the
Contract to Sell is still valid and binding with respect to the 6/8 proportionate shares of
the petitioners, as properly held by the appellate court.
Therefore, this Court finds no error in the findings of the Court of Appeals that all the
petitioners who were signatories in the Contract to Sell are bound thereby.
The final arguments of petitioners state that the Contract to Sell is void altogether
considering that respondent itself did not sign it as to indicate its consent to be bound by
its terms; and moreover, the Contract to Sell is really a unilateral promise to sell without
consideration distinct from the price, and hence, again, void. Said arguments must
necessarily fail.
The Contract to Sell is not void merely because it does not bear the signature of the
respondent corporation. Respondent corporationǯs consent to be bound by the terms of
the contract is shown in the uncontroverted facts which established that there was partial
performance by respondent of its obligation in the said Contract to Sell when it tendered
the amount of P100,000.00 to form part of the purchase price, which was accepted and
acknowledged expressly by petitioners. Therefore, by force of law, respondent is required
to complete the payment to enforce the terms of the contract. Accordingly, despite the
absence of respondentǯs signature in the Contract to Sell, the former cannot evade its
obligation to pay the balance of the purchase price.
As a final point, the Contract to Sell entered into by the parties is not a unilateral promise
to sell merely because it used the word option money when it referred to the amount of
P100,000.00, which also form part of the purchase price.
Settled is the rule that in the interpretation of contracts, the ascertainment of the
intention of the contracting parties is to be discharged by looking to the words they used
to project that intention in their contract, all the words, not just a particular word or two,
and words in context, not words standing alone.19
In the instant case, the consideration of P100,000.00 paid by respondent to petitioners

was referred to as "option money." However, a careful examination of the words used in
the contract indicates that the money is not option money but
. "Earnest
money" and "option money" are not the same but distinguished thus: (a) earnest money
is part of the purchase price, while option money is the money given as a distinct
consideration for an option contract; (b) earnest money is given only where there is
already a sale, while option money applies to a sale not yet perfected; and, (c) when
earnest money is given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy, but may even forfeit it depending on
the terms of the option.20
The sum of P100,000.00 was part of the purchase price. Although the same was
denominated as "option money," it is actually in the nature of earnest money or down
payment when considered with the other terms of the contract. Doubtless, the agreement
is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial
court and the appellate court declared in their Decisions.
WHEREFORE, premises considered, the Petition is DENIED, and the Decision and
Resolution of the Court of Appeals dated 26 April 2002 and 4 March 2003, respectively,
are *, thus, (a) the Contract to Sell is * *valid and binding with respect
to the undivided proportionate shares in the subject parcels of land of the six signatories
of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr.,
and Leonora (all surnamed Oesmer); (b) respondent is **to tender payment to
petitioners in the amount of P3,216,560.00 representing the balance of the purchase
price for the latterǯs shares in the subject parcels of land; and (c) petitioners are further
**to execute in favor of respondent the Deed of Absolute Sale covering their
shares in the subject parcels of land after receipt of the balance of the purchase price, and
to pay respondent attorneyǯs fees plus costs of the suit. Costs against petitioners.
SO ORDERED.

4!
Associate Justice
WE CONCUR:
m mIm

Associate Justice
Chairperson

m! +
+m
Associate Justice Asscociate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Courtǯs Division.
m mm

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersonǯs
Attestation, it is hereby certified that the conclusions in the above Decision were reached
in consultation before the case was assigned to the writer of the opinion of the Courtǯs
Division.
m

Chief Justice
#$
1Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Conrado
M. Vasquez, Jr., and Mario L. Guariña III, concurring, rollo, pp. 31-44.
2 Id. at 46-49.
3 Rollo, p. 58.
4 Id. at 59.
5 Id. at 235.
6 Records, p. 44.
7 Rollo, pp. 53-57.
8 Id. at 68.
9 Penned by Judge Edelwina C. Pastoral; rollo, pp. 69-73.
10 Id. at 73.
11 Id. at 43-44.
12 Id. at 48-49.
13 Jardine Davies, Inc. v. Court of Appeals, 389 Phil. 204, 212 (2000).
14 Rollo, pp. 31-44.
15 TSN, 15 October 1991, pp. 13-14.
16 Rollo, pp. 36-40.
17 TSN, 28 September 1993, pp. 17-18.
18German Marine Agencies, Inc. v. National Labor Relations Commission, 403 Phil.
572, 588-589 (2001).
19 Limson v. Court of Appeals, G.R. No. 135929, 20 April 2001, 357 SCRA 209, 216.
20 Id. at 217.

G.R. No. 170633 October 17, 2007
MCC INDUSTRIAL SALES CORPORATION vs. SSANGYONG
CORPORATION

m
Manila
4** m

92.$'989
* m m mpetitioner,

vs.
mm respondents.
*m
4 p "
Before the Court is a petition for review on

of the Decision1 of the Court of Appeals in CA-
G.R. CV No. 82983 and its Resolution2 denying the motion for reconsideration thereof.
Petitioner MCC Industrial Sales (MCC), a domestic corporation with office at Binondo, Manila, is
engaged in the business of importing and wholesaling stainless steel products.3 One of its suppliers
is the Ssangyong Corporation (Ssangyong),4 an international trading company5 with head office in
Seoul, South Korea and regional headquarters in Makati City, Philippines.6 The two corporations
conducted business through telephone calls and facsimile or telecopy transmissions.7 Ssangyong
would send the

invoices containing the details of the steel product order to MCC; if the
latter conforms thereto, its representative affixes his signature on the faxed copy and sends it back
to Ssangyong, again by fax.8
On April 13, 2000, Ssangyong Manila Office sent, by fax, a letter9 addressed to Gregory Chan, MCC
Manager [also the President10 of Sanyo Seiki Stainless Steel Corporation], to confirm MCC's and
Sanyo Seiki's order of 881$'(2# (MT) of hot rolled stainless steel under a preferential rate of
mJ
per MT. Chan, on behalf of the corporations, assented and affixed his signature on the

portion of the letter.11
On April 17, 2000, Ssangyong forwarded to MCC

Invoice No. m8mm%12
containing the terms and conditions of the transaction. MCC sent back by fax to Ssangyong the
invoice bearing the conformity signature13 of Chan. As stated in the

invoice, payment for
the ordered steel products would be made through an irrevocable letter of credit (L/C) at sight in
favor of Ssangyong.14 Following their usual practice, delivery of the goods was to be made after the
L/C had been opened.
In the meantime, because of its confirmed transaction with MCC, Ssangyong placed the order with
its steel manufacturer, Pohang Iron and Steel Corporation (POSCO), in South Korea15 and paid the
same in full.
Because MCC could open only a partial letter of credit, the order for 220MT of steel was split into
two,16 one for covered by

Invoice No. m8mm%17 and another for
110MT covered by m8mm%8,18 both dated April 17, 2000.
On June 20, 2000, Ssangyong, through its Manila Office, informed Sanyo Seiki and Chan, by way of a
fax transmittal, that it was ready to ship 193.597MT of stainless steel from Korea to the Philippines.
It requested that the opening of the L/C be facilitated.19 Chan affixed his signature on the fax
transmittal and returned the same, by fax, to Ssangyong.20
Two days later, on June 22, 2000, Ssangyong Manila Office informed Sanyo Seiki, thru Chan, that it
was able to secure a US$30/MT price adjustment on the contracted price of US$1,860.00/MT for
the 200MT stainless steel, and that the goods were to be shipped in two tranches, the first 100MT
on that day and the second 100MT not later than June 27, 2000. Ssangyong reiterated its request for
the facilitation of the L/C's opening.21
Ssangyong later, through its Manila Office, sent a letter, on June 26, 2000, to the Treasury Group of
Sanyo Seiki that it was looking forward to receiving the L/C details and a cable copy thereof that
day.22 Ssangyong sent a separate letter of the same date to Sanyo Seiki requesting for the opening of
the L/C covering payment of the first 100MT not later than June 28, 2000.23 Similar letters were
transmitted by Ssangyong Manila Office on June 27, 2000.24 On June 28, 2000, Ssangyong sent
another facsimile letter to MCC stating that its principal in Korea was already in a difficult
situation25 because of the failure of Sanyo Seiki and MCC to open the L/C's.
The following day, June 29, 2000, Ssangyong received, by fax, a letter signed by Chan, requesting an
extension of time to open the L/C because MCC's credit line with the bank had been fully availed of
in connection with another transaction, and MCC was waiting for an additional credit line.26 On the
same date, Ssangyong replied, requesting that it be informed of the date when the L/C would be
opened, preferably at the earliest possible time, since its Steel Team 2 in Korea was having
problems and Ssangyong was incurring warehousing costs.27 To maintain their good business
relationship and to support MCC in its financial predicament, Ssangyong offered to negotiate with
its steel manufacturer, POSCO, another US$20/MT discount on the price of the stainless steel
ordered. This was intimated in Ssangyong's June 30, 2000 letter to MCC.28 On July 6, 2000, another
follow-up letter29 for the opening of the L/C was sent by Ssangyong to MCC.
However, despite Ssangyong's letters, MCC failed to open a letter of credit.30 Consequently, on
August 15, 2000, Ssangyong, through counsel, wrote Sanyo Seiki that if the L/C's were not opened,
Ssangyong would be compelled to cancel the contract and hold MCC liable for damages for breach
thereof amounting to US$96,132.18, inclusive of warehouse expenses, related interests and
charges.31
Later,

Invoice Nos. ST2-POSTS080-132 and ST2-POSTS080-233 dated August 16, 2000
were issued by Ssangyong and sent via fax to MCC. The invoices slightly varied the terms of the
earlier

invoices (m8mm%, m8mm% and m8mm%8), in that
the quantity was now officially per invoice and the price was reduced to mJ9
per
MT. As can be gleaned from the photocopies of the said August 16, 2000 invoices submitted to the
court, they both bear the conformity signature of MCC Manager Chan.
On August 17, 2000, MCC finally opened an L/C with PCIBank for US$170,000.00 covering payment
for 100MT of stainless steel coil under

Invoice No. m8mm8.34 The goods
covered by the said invoice were then shipped to and received by MCC.35
MCC then faxed to Ssangyong a letter dated August 22, 2000 signed by Chan, requesting for a price
adjustment of the order stated in

Invoice No. ST2-POSTS080-1, considering that the
prevailing price of steel at that time was US$1,500.00/MT, and that MCC lost a lot of money due to a
recent strike.36
Ssangyong rejected the request, and, on August 23, 2000, sent a demand letter37 to Chan for the
opening of the second and last L/C of US$170,000.00 with a warning that, if the said L/C was not
opened by MCC on August 26, 2000, Ssangyong would be constrained to cancel the contract and
hold MCC liable for US$64,066.99 (representing cost difference, warehousing expenses, interests
and charges as of August 15, 2000) and other damages for breach. Chan failed to reply.
Exasperated, Ssangyong through counsel wrote a letter to MCC, on September 11, 2000, canceling
the sales contract under m8mm% /m8mm%8, and demanding payment of
US$97,317.37 representing losses, warehousing expenses, interests and charges.38
Ssangyong then filed, on November 16, 2001, a civil action for damages due to breach of contract
against defendants MCC, Sanyo Seiki and Gregory Chan before the Regional Trial Court of Makati
City. In its complaint,39 Ssangyong alleged that defendants breached their contract when they
refused to open the L/C in the amount of US$170,000.00 for the remaining 100MT of steel under

Invoice Nos. m8mm% and m8mm%8.
After Ssangyong rested its case, defendants filed a Demurrer to Evidence40 alleging that Ssangyong
failed to present the original copies of the

invoices on which the civil action was based. In
an Order dated April 24, 2003, the court denied the demurrer, ruling that the documentary
evidence presented had already been admitted in the December 16, 2002 Order41 and their
admissibility finds support in Republic Act (R.A.) No. 8792, otherwise known as the Electronic
Commerce Act of 2000. Considering that both testimonial and documentary evidence tended to
substantiate the material allegations in the complaint, Ssangyong's evidence sufficed for purposes
of a prima facie case.42
After trial on the merits, the RTC rendered its Decision43 on March 24, 2004, in favor of Ssangyong.
The trial court ruled that when plaintiff agreed to sell and defendants agreed to buy the 220MT of
steel products for the price of US$1,860 per MT, the contract was perfected. The subject transaction
was evidenced by

Invoice Nos. m8mm%1 and m8mm%8, which were
later amended only in terms of reduction of volume as well as the price per MT, following

Invoice Nos. m8mm and m8mm8. The RTC, however, excluded Sanyo
Seiki from liability for lack of competent evidence. The of the decision reads:
WHEREFORE, premises considered, Judgment is hereby rendered ordering defendants MCC

Industrial Sales Corporation and Gregory Chan, to pay plaintiff, jointly and severally the
following:
1) Actual damages of US$93,493.87 representing the outstanding principal claim plus

interest at the rate of 6% per annum from March 30, 2001.
2) Attorney's fees in the sum of P50,000.00 plus P2,000.00 per counsel's appearance in
court, the same being deemed just and equitable considering that by reason of defendants'
breach of their obligation under the subject contract, plaintiff was constrained to litigate to
enforce its rights and recover for the damages it sustained, and therefore had to engage the
services of a lawyer.
3) Costs of suit.
No award of exemplary damages for lack of sufficient basis.
SO ORDERED.44
On April 22, 2004, MCC and Chan, through their counsel of record, Atty. Eladio B. Samson, filed their
Notice of Appeal.45 On June 8, 2004, the law office of Castillo Zamora & Poblador entered its
appearance as their collaborating counsel.
In their Appeal Brief filed on March 9, 2005,46 MCC and Chan raised before the CA the following
errors of the RTC:
I. THE HONORABLE COURT âAÄ PLAINLY ERRED IN FINDING THAT APPELLANTS

VIOLATED THEIR CONTRACT WITH APPELLEE
A. THE HONORABLE COURT âAÄ PLAINLY ERRED IN FINDING THAT

APPELLANTS AGREED TO PURCHASE 200 METRIC TONS OF STEEL PRODUCTS
FROM APPELLEE, INSTEAD OF ONLY 100 METRIC TONS.
1. THE HONORABLE COURT âAÄ PLAINLY ERRED IN ADMITTING IN

EVIDENCE THE 'ÄÄ' INVOICES WITH REFERENCE NOS. ST2-
POSTS0401-1 AND ST2-POSTS0401-2.
II. THE HONORABLE COURT âAÄ PLAINLY ERRED IN AWARDING ACTUAL DAMAGES TO
APPELLEE.
III. THE HONORABLE COURT âAÄ PLAINLY ERRED IN AWARDING ATTORNEY'S FEES TO
APPELLEE.
IV. THE HONORABLE COURT âAÄ PLAINLY ERRED IN FINDING APPELLANT GREGORY
CHAN JOINTLY AND SEVERALLY LIABLE WITH APPELLANT MCC.47
On August 31, 2005, the CA rendered its Decision48 affirming the ruling of the trial court, but
absolving Chan of any liability. The appellate court ruled, among others, that Pro Forma Invoice
Nos. m8mm% and m8mm%8 (Exhibits "E", "E-1" and "F") were admissible in
evidence, although they were mere facsimile printouts of MCC's steel orders.49 The dispositive
portion of the appellate court's decision reads:
WHEREFORE, premises considered, the Court holds:
(1) The award of actual damages, with interest, attorney's fees and costs ordered by the
lower court is hereby AFFIRMED.
(2) Appellant Gregory Chan is hereby ABSOLVED from any liability.
SO ORDERED.50
A copy of the said Decision was received by MCC's and Chan's principal counsel, Atty. Eladio B.
Samson, on September 14, 2005.51 Their collaborating counsel, Castillo Zamora & Poblador,52
likewise, received a copy of the CA decision on September 19, 2005.53
On 2.$'%8, Castillo Zamora & Poblador, on behalf of MCC, filed a motion for
reconsideration of the said decision.54 Ssangyong opposed the motion contending that the decision
of the CA had become final and executory on account of the failure of MCC to file the said motion
within the reglementary period. The appellate court resolved, on November 22, 2005, to deny the
motion on its merits,55 without, however, ruling on the procedural issue raised.
Aggrieved, MCC filed a petition for review on

56 before this Court, imputing the following
errors to the Court of Appeals:
THE COURT OF APPEALS DECIDED A LEGAL QUESTION NOT IN ACCORDANCE WITH

JURISPRUDENCE AND SANCTIONED A DEPARTURE FROM THE USUAL AND ACCEPTED
COURSE OF JUDICIAL PROCEEDINGS BY REVERSING THE #ÄA'âAÄH DISMISSAL OF
THE COMPLAINT IN CIVIL CASE NO. 02-124 CONSIDERING THAT:
I. THE COURT OF APPEALS ERRED IN SUSTAINING THE ADMISSIBILITY IN

EVIDENCE OF THE PRO-FORMA INVOICES WITH REFERENCE NOS. ST2-
POSTSO401-1 AND ST2-POSTSO401-2, DESPITE THE FACT THAT THE SAME WERE
MERE PHOTOCOPIES OF FACSIMILE PRINTOUTS.
II. THE COURT OF APPEALS FAILED TO APPRECIATE THE OBVIOUS FACT THAT,
EVEN ASSUMING PETITIONER BREACHED THE SUPPOSED CONTRACT, THE FACT
IS THAT PETITIONER FAILED TO PROVE THAT IT SUFFERED ANY DAMAGES AND
THE AMOUNT THEREOF.
III. THE AWARD OF ACTUAL DAMAGES IN THE AMOUNT OF US$93,493.87 IS

SIMPLY UNCONSCIONABLE AND SHOULD HAVE BEEN AT LEAST REDUCED, IF NOT
DELETED BY THE COURT OF APPEALS.57
In its Comment, Ssangyong sought the dismissal of the petition, raising the following arguments:
that the CA decision dated 15 August 2005 is already final and executory, because MCC's motion for
reconsideration was filed beyond the reglementary period of 15 days from receipt of a copy thereof,
and that, in any case, it was a

motion; that MCC breached the contract for the purchase of
the steel products when it failed to open the required letter of credit; that the printout copies
and/or photocopies of facsimile or telecopy transmissions were properly admitted by the trial
court because they are considered original documents under R.A. No. 8792; and that MCC is liable
for actual damages and attorney's fees because of its breach, thus, compelling Ssangyong to litigate.
The principal issues that this Court is called upon to resolve are the following:
I Ȃ Whether the CA decision dated 15 August 2005 is already final and executory;
II Ȃ Whether the print-out and/or photocopies of facsimile transmissions are electronic evidence
and admissible as such;
III Ȃ Whether there was a perfected contract of sale between MCC and Ssangyong, and, if in the
affirmative, whether MCC breached the said contract; and
IV Ȃ Whether the award of actual damages and attorney's fees in favor of Ssangyong is proper and
justified.
-I-
It cannot be gainsaid that in "#

,58 we held that receipt of a copy of the
decision by one of several counsels on record is notice to all, and the period to appeal commences
on such date even if the other counsel has not yet received a copy of the decision. In this case, when
Atty. Samson received a copy of the CA decision on September 14, 2005, MCC had only fifteen (15)
days within which to file a motion for reconsideration conformably with Section 1, Rule 52 of the
Rules of Court, or to file a petition for review on certiorari in accordance with Section 2, Rule 45.
The period should not be reckoned from September 29, 2005 (when Castillo Zamora & Poblador
received their copy of the decision) because notice to Atty. Samson is deemed notice to
collaborating counsel.
We note, however, from the records of the CA, that it was Castillo Zamora & Poblador, not Atty.
Samson, which filed both MCC's and Chan's Brief and Reply Brief. Apparently, the arrangement
between the two counsels was for the collaborating, not the principal, counsel to file the appeal
brief and subsequent pleadings in the CA. This explains why it was Castillo Zamora & Poblador
which filed the motion for the reconsideration of the CA decision, and they did so on October 5,
2005, well within the 15-day period from September 29, 2005, when they received their copy of the
CA decision. This could also be the reason why the CA did not find it necessary to resolve the
question of the timeliness of petitioner's motion for reconsideration, even as the CA denied the
same.
Independent of this consideration though, this Court assiduously reviewed the records and found
that strong concerns of substantial justice warrant the relaxation of this rule.
In

"
& #
*" #

,59 we ruled that:
In Ä
"+
#
, we held that where strong considerations of
substantive justice are manifest in the petition, this Court may relax the strict application of
the rules of procedure in the exercise of its legal jurisdiction. In addition to the basic merits
of the main case, such a petition usually embodies justifying circumstance which warrants
our heeding to the petitioner's cry for justice in spite of the earlier negligence of counsel. As
we held in Ä"#
:
[W]e cannot look with favor on a course of action which would place the
administration of justice in a straight jacket for then the result would be a poor kind
of justice if there would be justice at all. Verily, judicial orders, such as the one
subject of this petition, are issued to be obeyed, nonetheless a non-compliance is to
be dealt with as the circumstances attending the case may warrant. What should
guide judicial action is the principle that a party-litigant is to be given the fullest
opportunity to establish the merits of his complaint or defense rather than for him
to lose life, liberty, honor or property on technicalities.
The rules of procedure are used only to secure and not override or frustrate justice. A six-
day delay in the perfection of the appeal, as in this case, does not warrant the outright
dismissal of the appeal. In *" % "#
, we gave
due course to the petitioner's appeal despite the late filing of its brief in the appellate court
because such appeal involved public interest. We stated in the said case that the Court may
exempt a particular case from a strict application of the rules of procedure where the
appellant failed to perfect its appeal within the reglementary period, resulting in the
appellate court's failure to obtain jurisdiction over the case. In ' "+
$
., we
also held that there is more leeway to exempt a case from the strictness of procedural rules
when the appellate court has already obtained jurisdiction over the appealed case. We
emphasize that:
[T]he rules of procedure are mere tools intended to facilitate the attainment of
justice, rather than frustrate it. A strict and rigid application of the rules must
always be eschewed when it would subvert the rule's primary objective of
enhancing fair trials and expediting justice. Technicalities should never be used to
defeat the substantive rights of the other party. Every party-litigant must be
afforded the amplest opportunity for the proper and just determination of his cause,
free from the constraints of technicalities.60
Moreover, it should be remembered that the Rules were promulgated to set guidelines in the
orderly administration of justice, not to shackle the hand that dispenses it. Otherwise, the courts
would be consigned to being mere slaves to technical rules, deprived of their judicial discretion.
Technicalities must take a backseat to substantive rights. After all, it is circumspect leniency in this
respect that will give the parties the fullest opportunity to ventilate the merits of their respective
causes, rather than have them lose life, liberty, honor or property on sheer technicalities.61
The other technical issue posed by respondent is the alleged

nature of MCC's motion for
reconsideration, ostensibly because it merely restated the arguments previously raised and passed
upon by the CA.
In this connection, suffice it to say that the mere restatement of arguments in a motion for
reconsideration does not per se result in a

motion. In
%
#
+"# ,62 we held that a motion for reconsideration may not be necessarily

even if
it reiterates the arguments earlier passed upon and rejected by the appellate court. A movant may
raise the same arguments precisely to convince the court that its ruling was erroneous.
Furthermore, the

rule will not apply if the arguments were not sufficiently passed upon
and answered in the decision sought to be reconsidered.
- II -
The second issue poses a novel question that the Court welcomes. It provides the occasion for this
Court to pronounce a definitive interpretation of the equally innovative provisions of the Electronic
Commerce Act of 2000 (R.A. No. 8792) " K " the Rules on Electronic Evidence.
Although the parties did not raise the question whether the original facsimile transmissions are
"electronic data messages" or "electronic documents" within the context of the Electronic
Commerce Act (the petitioner merely assails as inadmissible evidence the photocopies of the said
facsimile transmissions), we deem it appropriate to determine first whether the said fax
transmissions are indeed within the coverage of R.A. No. 8792 before ruling on whether the
photocopies thereof are covered by the law. In any case, this Court has ample authority to go
beyond the pleadings when, in the interest of justice or for the promotion of public policy, there is a
need to make its own findings in order to support its conclusions.63
Petitioner contends that the photocopies of the

invoices presented by respondent
Ssangyong to prove the perfection of their supposed contract of sale are inadmissible in evidence
and do not fall within the ambit of R.A. No. 8792, because the law merely admits as the best
evidence the
& fax transmittal. On the other hand, respondent posits that, from a reading of
the law and the Rules on Electronic Evidence, the original facsimile transmittal of the

invoice is admissible in evidence since it is an electronic document and, therefore, the best evidence
under the law and the Rules. Respondent further claims that the photocopies of these fax
transmittals (specifically m8mm% and m8mm%8) are admissible under the
Rules on Evidence because the respondent sufficiently explained the non-production of the original
fax transmittals.
In resolving this issue, the appellate court ruled as follows:

+"5%
#

Turning first to the appellants' argument against the admissibility of the Pro Forma Invoices
with Reference Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E", "E-1" and "F",
pp. 215-218, Records), appellants argue that the said documents are inadmissible (sic)
being violative of the best evidence rule.
The argument is untenable.
The copies of the said pro-forma invoices submitted by the appellee are admissible in
evidence, although they are mere electronic facsimile printouts of appellant's orders. Such
facsimile printouts are considered Electronic Documents under the New Rules on Electronic
Evidence, which came into effect on August 1, 2001. (Rule 2, Section 1 [h], A.M. No. 01-7-01-
SC).
"(h) 'Electronic document' refers to information or the representation of

information, data, figures, symbols or other modes of written expression, described
or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be proved and affirmed, which is received,
recorded, transmitted, stored, processed, retrieved or produced electronically. It
includes digitally signed documents and any printout or output, readable by sight or
other means, which accurately reflects the electronic data message or electronic
document. For purposes of these Rules, the term 'electronic document' may be used
interchangeably with 'electronic data message'.
An electronic document shall be regarded as the equivalent of an original document under
the Best Evidence Rule, as long as it is a printout or output readable by sight or other means,
showing to reflect the data accurately. (Rule 4, Section 1, A.M. No. 01-7-01-SC)
The ruling of the Appellate Court is incorrect. R.A. No. 8792,64 otherwise known as the Electronic
Commerce Act of 2000, considers an electronic data message or an electronic document as the
functional equivalent of a written document for evidentiary purposes.65 The Rules on Electronic
Evidence66 regards an electronic document as admissible in evidence if it complies with the rules on
admissibility prescribed by the Rules of Court and related laws, and is authenticated in the manner
prescribed by the said Rules.67 An electronic document is also the equivalent of an original
document under the Best Evidence Rule, if it is a printout or output readable by sight or other
means, shown to reflect the data accurately.68
Thus, to be admissible in evidence as an electronic data message or to be considered as the

functional equivalent of an original document under the Best Evidence Rule, the
&

ü
&ü
ü
ü
The Electronic Commerce Act of 2000 defines electronic data message and electronic document as
follows:
Sec. 5. a

. For the purposes of this Act, the following terms are defined, as
follows:
xxx
c. "Electronic Data Message" refers to information generated, sent, received or stored by

electronic, optical or similar means.
xxx
f. "Electronic Document" refers to information or the representation of information, data,

figures, symbols or other modes of written expression, described or however represented,
by which a right is established or an obligation extinguished, or by which a fact may be
proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved
or produced electronically.
The Implementing Rules and Regulations (IRR) of R.A. No. 8792,69 which was signed on July 13,
2000 by the then Secretaries of the Department of Trade and Industry, the Department of Budget
and Management, and then Governor of the % &
& , defines the terms as:
Sec. 6. a

. For the purposes of this Act and these Rules, the following
terms are defined, as follows:
xxx
(e) "Electronic Data Message" refers to information generated, sent, received or stored by
electronic, optical or similar means,

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(h) "Electronic Document" refers to information or the representation of information, data,

or produced electronically.
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The phrase "

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" in the IRR's definition of "electronic data message" is copied from the Model Law on
Electronic Commerce adopted by the United Nations Commission on International Trade Law
(UNCITRAL),70 from which majority of the provisions of R.A. No. 8792 were taken.71 While Congress
deleted this phrase in the Electronic Commerce Act of 2000, the drafters of the IRR reinstated it.
The deletion by Congress of the said phrase is significant and pivotal, as discussed hereunder.
The clause on the interchangeability of the terms "electronic data message" and "electronic
document" was the result of the Senate of the Philippines' adoption, in Senate Bill 1902, of the
phrase "electronic data message" and the House of Representative's employment, in House Bill
9971, of the term "electronic document."72 In order to expedite the reconciliation of the two
versions, the technical working group of the Bicameral Conference Committee adopted both terms
and intended them to be the equivalent of each one.73 Be that as it may, there is a slight difference
between the two terms. While "data message" has reference to

&"

&
)&
& ,74 unlike an electronic document. Evident from the law, however, is the legislative intent
to give the two terms the same construction.
The Rules on Electronic Evidence promulgated by this Court defines the said terms in the following
manner:
SECTION 1. *

. Ȃ For purposes of these Rules, the following terms are
defined, as follows:
xxxx
(g) "Electronic data message" refers to information generated, sent, received or stored by
electronic, optical or similar means.
(h) "Electronic document" refers to information or the representation of information, data,

or produced electronically. + & &

&

&

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&."
Given these definitions, we go back to the original question: Is an original printout of a facsimile
transmission an electronic data message or electronic document?
The definitions under the Electronic Commerce Act of 2000, its IRR and the Rules on Electronic
Evidence,
& , convey the impression that facsimile transmissions are electronic data
messages or electronic documents because they are
. The expanded
definition of an "electronic data message" under the IRR, consistent with the UNCITRAL Model Law,
further supports this theory considering that the enumeration "xxx [is] not limited to, electronic
data interchange (EDI), electronic mail, telegram, telex or ." And to telecopy is

" ) .75
As further guide for the Court in its task of statutory construction, Section 37 of the Electronic
Commerce Act of 2000 provides that
Unless otherwise expressly provided for, the interpretation of this Act &"
&

& and the need to promote uniformity in its application and the
observance of good faith in international trade relations. The generally accepted principles
of international law and convention on electronic commerce shall likewise be considered.
Obviously, the "international origin" mentioned in this section can only refer to the UNCITRAL
Model Law, and the UNCITRAL's definition of "data message":
"Data message" means information generated, sent, received or stored by electronic, optical
or similar means &

&8*+9

&
)
.76
is substantially the same as the IRR's characterization of an "electronic data message."
However, Congress deleted the phrase, "

&8*+9

&
)
," and replaced the term "data message" (as found in the
UNCITRAL Model Law ) with "electronic data message." This legislative divergence from what is
assumed as the term's "international origin" has bred uncertainty and now impels the Court to
make an inquiry into the true intent of the framers of the law. Indeed, in the construction or
interpretation of a legislative measure, the primary rule is to search for and determine the intent
and spirit of the law.77 A construction should be rejected that gives to the language used in a statute
a meaning that does not accomplish the purpose for which the statute was enacted, and that tends
to defeat the ends which are sought to be attained by the enactment.78
Interestingly, when Senator Ramon B. Magsaysay, Jr., the principal author of Senate Bill 1902 (the
predecessor of R.A. No. 8792), sponsored the bill on second reading, he proposed to adopt the term
"data message" as formulated and defined in the UNCITRAL Model Law.79 During the period of
amendments, however, the term evolved into "
data message," and the phrase "

&8*+9
&
)
" in the
UNCITRAL Model Law was deleted. Furthermore, the term "electronic data message," though
maintaining its description under the UNCITRAL Model Law, except for the aforesaid deleted
phrase, "
&, as revealed in the following proceedings:
xxxx
Senator Santiago. Yes, Mr. President. I will furnish a copy together with the explanation of
this proposed amendment.
And then finally, before I leave the Floor, may I please be allowed to go back to Section 5;
the Definition of Terms. In light of the acceptance by the good Senator of my proposed
amendments, it will then become necessary to add certain terms in our list of terms to be
defined. I would like to add a definition on what is "data," what is "electronic record" and
what is an "electronic record system."
If the gentleman will give me permission, I will proceed with the proposed amendment on
Definition of Terms, Section 5.
Senator Magsaysay. Please go ahead, Senator Santiago.
Senator Santiago. We are in Part 1, short title on the Declaration of Policy, Section 5,
Definition of Terms.
At the appropriate places in the listing of these terms that have to be defined since these are
arranged alphabetically, Mr. President, I would like to insert the term DATA and its
definition. So, the amendment will read: "DATA" MEANS REPRESENTATION, IN ANY FORM,
OF INFORMATION OR CONCEPTS.
The explanation is this: This definition of "data" or "data" as it is now fashionably

pronounced in America - - the definition of "data" ensures that our bill applies to any form
of information in an electronic record, whether these are figures, facts or ideas.
So again, the proposed amendment is this: "DATA" MEANS REPRESENTATIONS, IN ANY

FORM, OF INFORMATION OR CONCEPTS.
Senator Magsaysay. May I know how will this affect the definition of "Data Message" which
encompasses electronic records, electronic writings and electronic documents?
Senator Santiago. These are completely congruent with each other. These are compatible.
When we define "data," we are simply reinforcing the definition of what is a data message.
Senator Magsaysay. It is accepted, Mr. President.
Senator Santiago. Thank you. The next term is "ELECTRONIC RECORD." The proposed
amendment is as follows:
"ELECTRONIC RECORD" MEANS DATA THAT IS RECORDED OR STORED ON ANY MEDIUM

IN OR BY A COMPUTER SYSTEM OR OTHER SIMILAR DEVICE, THAT CAN BE READ OR
PERCEIVED BY A PERSON OR A COMPUTER SYSTEM OR OTHER SIMILAR DEVICE. IT
INCLUDES A DISPLAY, PRINTOUT OR OTHER OUTPUT OF THAT DATA.
The explanation for this term and its definition is as follows: The term "ELECTRONIC
RECORD" fixes the scope of our bill. The record is the data. The record may be on any
medium. It is electronic because it is recorded or stored in or by a computer system or a
similar device.
The amendment is intended to apply, for example, to data on magnetic strips on cards or in
Smart cards. !

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.
Senator Magsaysay. Mr. President, if my memory does not fail me, earlier, the lady Senator
accepted that we use the term "Data Message" rather than "ELECTRONIC RECORD" in being
consistent with the UNCITRAL term of "Data Messageü
&ü(#'Ä3+#'#Ä'*ü
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ü(#'Ä3+#'#Ä'*ü?
Senator Santiago. No, it will not. Thank you for reminding me.
+

(#'Ä3+#* ü(#'Ä3+#'#Ä'*ü
Senator Magsaysay. Then we are, in effect, $
%
$!&' () .
Senator Santiago. Thank you, Mr. President.
xxxx
Senator Santiago. Mr. President, I have proposed all the amendments that I desire to,
including the amendment on the effect of error or change. I will provide the language of the
amendment together with the explanation supporting that amendment to the distinguished
sponsor and then he can feel free to take it up in any session without any further
intervention.
Senator Magsaysay. Before we end, Mr. President, I understand from the proponent of these
amendments that these are based on the #
( ¢ . Is that not
right?
Senator Santiago.
.80
Thus, when the Senate consequently voted to adopt the term "electronic data message," it was
consonant with the explanation of Senator Miriam Defensor-Santiago that it would not apply "
)
))
&
) A3

." In explaining the term "electronic record" patterned after the E-Commerce Law of
Canada, Senator Defensor-Santiago had in mind the term "electronic data message." This term then,
while maintaining part of the UNCITRAL Model Law's terminology of "data message," has assumed
a different context, this time, consonant with the term "electronic record" in the law of Canada. It
accounts for the addition of the word "electronic" and the deletion of the phrase "

&8*+9
&
)
." Noteworthy is that the
Uniform Law Conference of Canada, explains the term "electronic record," as drafted in the Uniform
Electronic Evidence Act, in a manner strikingly similar to Sen. Santiago's explanation during the
Senate deliberations:
"Electronic record" fixes the scope of the Act. The record is the data. The record may be any
medium. It is "electronic" because it is recorded or stored in or by a computer system or
similar device. The Act is intended to apply, for example, to data on magnetic strips on
cards, or in smart cards. As drafted, )
)8)
&
)9 A3 (
#
. It would also
not apply to regular digital telephone conversations, since the information is not recorded.
It would apply to voice mail, since the information has been recorded in or by a device
similar to a computer. Likewise video records are not covered, though when the video is
transferred to a Web site it would be, because of the involvement of the computer. Music
recorded by a computer system on a compact disk would be covered.
In short, not all data recorded or stored in "digital" form is covered. A computer or similar
device has to be involved in its creation or storage. The term "similar device" does not
extend to all devices that create or store data in digital form. Although things that are not
recorded or preserved by or in a computer system are omitted from this Act, they may well
be admissible under other rules of law. This Act focuses on replacing the search for
originality, proving the reliability of systems instead of that of individual records, and using
standards to show systems reliability.
Paper records that are produced directly by a computer system, such as printouts, are
themselves electronic records, being just the means of intelligible display of the contents of
the record. Photocopies of the printout would be paper records subject to the usual rules
about copies, but the "original" printout would be subject to the rules of admissibility of this
Act.
However, printouts that are used only as paper records, and whose computer origin is
never again called on, are treated as paper records. See subsection 4(2). In this case the
reliability of the computer system that produced the record is relevant to its reliability.81
There is no question then that when Congress formulated the term "electronic data message," it
intended the same meaning as the term "electronic record" in the Canada law. This construction of
the term "electronic data message," which ) )
))
&
),
is in harmony with the Electronic Commerce Law's focus on "paperless" communications and the
"functional equivalent approach"82 that it espouses. In fact, the deliberations of the Legislature are
replete with discussions on paperless and digital transactions.
Facsimile transmissions are not, in this sense, "paperless," but verily are paper-based.
A facsimile machine, which was first patented in 1843 by Alexander Bain,83 is a device that can send
or receive pictures and text over a telephone line. It works by digitizing an imageȄdividing it into a
grid of dots. Each dot is either on or off, depending on whether it is black or white. Electronically,
each dot is represented by a bit that has a value of either 0 (off) or 1 (on). In this way, the fax
machine translates a picture into a series of zeros and ones (called a bit map) that can be
transmitted like normal computer data. On the receiving side, a fax machine reads the incoming
data, translates the zeros and ones back into dots, and reprints the picture.84 A fax machine is
essentially an image scanner, a modem and a computer printer combined into a highly specialized
package. The scanner converts the content of a physical document into a digital image, the modem
sends the image data over a phone line, and the printer at the other end makes a duplicate of the
original document.85 Thus, in
" " $
.,86 where we explained the unacceptability of filing
pleadings through fax machines, we ruled that:
A facsimile or fax transmission is a process involving the transmission and reproduction of

printed and graphic matter by scanning an original copy, one elemental area at a time, and
representing the shade or tone of each area by a specified amount of electric current. The
current is transmitted as a signal over regular telephone lines or via microwave relay and is
used by the receiver to reproduce an image of the elemental area in the proper position and
the correct shade. The receiver is equipped with a stylus or other device that produces a
printed record on paper referred to as a facsimile.
x x x A facsimile is not a genuine and authentic pleading. It is, at best, an exact copy
preserving all the marks of an original. Without the original, there is no way of determining
on its face whether the facsimile pleading is genuine and authentic and was originally
signed by the party and his counsel. It may, in fact, be a sham pleading.87
Accordingly, in an ordinary facsimile transmission, there exists an original

information
or data that is scanned, sent through a phone line, and re-printed at the receiving end. Be it noted
that in enacting the Electronic Commerce Act of 2000, Congress intended "

writings to be the equivalent and to have the same & as paper-based
documents.88 Further, in a virtual or paperless environment, technically, there is no original copy to
speak of, as all direct printouts of the virtual reality are the same, in all respects, and are considered
as originals.89 Ineluctably, the law's definition of "electronic data message," which, as aforesaid, is
interchangeable with "electronic document," could not have included
, which
have an
&
copy and a
copy
". These two
copies are distinct from each other, and have different legal effects. While Congress anticipated
future developments in communications and computer technology90 when it drafted the law, it
excluded the early forms of technology, like telegraph, telex and telecopy (except computer-
generated faxes, which is a newer development as compared to the ordinary fax machine to fax
machine transmission), when it defined the term "electronic data message."
Clearly then, the IRR went beyond the parameters of the law when it adopted verbatim the
UNCITRAL Model Law's definition of "data message," without considering the intention of Congress
when the latter deleted the phrase "

&8*+9

&
)
." The inclusion of this phrase in the IRR offends a basic tenet in the
exercise of the rule-making power of administrative agencies. After all, the power of administrative
officials to promulgate rules in the implementation of a statute is necessarily limited to what is
found in the legislative enactment itself. The implementing rules and regulations of a law cannot
extend the law or expand its coverage, as the power to amend or repeal a statute is vested in the
Legislature.91 Thus, if a discrepancy occurs between the basic law and an implementing rule or
regulation, it is the former that prevails, because the law cannot be broadened by a mere
administrative issuanceȄan administrative agency certainly cannot amend an act of Congress.92
Had the Legislature really wanted ordinary fax transmissions to be covered by the mantle of the
Electronic Commerce Act of 2000, it could have easily lifted without a bit of tatter the entire
wordings of the UNCITRAL Model Law.
Incidentally, the National Statistical Coordination Board Task Force on the Measurement of E-
Commerce,93 on November 22, 2006, recommended a working definition of "electronic commerce,"
as "[a]ny commercial transaction conducted through electronic, optical and similar medium, mode,
instrumentality and technology. The transaction includes the sale or purchase of goods and
services, between individuals, households, businesses and governments conducted over computer-
mediated networks through the Internet, mobile phones, electronic data interchange (EDI) and
other channels through open and closed networks." The Task Force's proposed definition is similar
to the Organization of Economic Cooperation and Development's (OECD's) broad definition as it
covers transactions made over any network, and, in addition, it adopted the following provisions of
the OECD definition: (1) for transactions, it covers sale or purchase of goods and services; (2) for
channel/network, it considers any computer-mediated network and NOT limited to Internet alone;
(3) it excludes transactions received/placed using fax, telephone or non-interactive mail; (4) it
considers payments done online or offline; and (5) it considers delivery made online (like
downloading of purchased books, music or software programs) or offline (deliveries of goods).94
We, therefore, conclude that the terms "

&ü ü
ü

#
E???
.
Accordingly, a
cannot be considered as $)$2'#(2$;(0$#2$. It is not the
functional equivalent of an original under the Best Evidence Rule and is not admissible as

".
Since a facsimile transmission is not an "electronic data message" or an "electronic document," and
cannot be considered as electronic evidence by the Court, with greater reason is a photocopy of
such a fax transmission not electronic evidence. In the present case, therefore, Pro Forma Invoice
Nos. m8mm% and m8mm%2 (Exhibits "E" and "F"), which are 1$'$
&-2&($ of the original fax transmittals, are not electronic evidence, contrary to the position of
both the trial and the appellate courts.
- III -
Nevertheless, despite the

invoices not being electronic evidence, this Court finds that
respondent has proven by preponderance of evidence the existence of a perfected contract of sale.
In an action for damages due to a breach of a contract, it is essential that the claimant proves (1) the
existence of a perfected contract, (2) the breach thereof by the other contracting party and (3) the
damages which he/she sustained due to such breach.

ndi. The burden of
proof rests on the party who advances a proposition affirmatively.95 In other words, a plaintiff in a
civil action must establish his case by a preponderance of evidence, that is, evidence that has
greater weight, or is more convincing than that which is offered in opposition to it.96
In general, contracts are perfected by mere consent,97 which is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute.98 They are, moreover, obligatory in whatever
form they may have been entered into, provided all the essential requisites for their validity are
present.99 Sale, being a consensual contract, follows the general rule that it is perfected at the
moment there is a meeting of the minds upon the thing which is the object of the contract and upon
the price. From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.100
The essential elements of a contract of sale are (1) consent or meeting of the minds, that is, to
transfer ownership in exchange for the price, (2) object certain which is the subject matter of the
contract, and (3) cause of the obligation which is established.101
In this case, to establish the existence of a perfected contract of sale between the parties,
respondent Ssangyong formally offered in evidence the testimonies of its witnesses and the
following exhibits:
Exhibit Description Purpose

E

Invoice dated 17 To show that defendants contracted
April 2000 with Contract No. with plaintiff for the delivery of 110 MT
m8mm%, of stainless steel from Korea payable by
way of an irrevocable letter of credit in
favor of plaintiff, among other
conditions.
E-1

Invoice dated 17 To show that defendants sent their
April 2000 with Contract No. confirmation of the (i) delivery to it of
m8mm%, the specified stainless steel products,
2

) (ii) defendants' payment thereof by way
of an irrevocable letter of credit in favor
&
of plaintiff, among other conditions.

&
##
E
???@F¢
E-2 #
signature of Mr. To show that defendants sent their
Gregory Chan, confirmation of the (i) delivery to it of
2

) the total of 220MT specified stainless
steel products, (ii) defendants' payment
&
thereof by way of an irrevocable letter

of credit in favor of plaintiff, among

other conditions.
&
##
E
???@F¢
F Pro forma Invoice dated 17 To show that defendants contracted
April 2000 with Contract No. with plaintiff for delivery of another
m8mm%8, 110 MT of stainless steel from Korea
payable by way of an irrevocable letter
of credit in favor of plaintiff, among
other conditions.
G Letter to defendant SANYO To prove that defendants were
SEIKE dated 20 June 2000, informed of the date of L/C opening and
2
defendant's
/approval thereof.

G-1 Signature of defendant Gregory

Chan,
2

.
H Letter to defendants dated 22 To prove that defendants were
June 2000,
& informed of the successful price
adjustments secured by plaintiff in
favor of former and were advised of the
schedules of its L/C opening.
I Letter to defendants dated 26 To prove that plaintiff repeatedly
June 2000,
& requested defendants for the agreed
J Letter to defendants dated 26 opening of the Letters of Credit,
June 2000,
& defendants' failure and refusal to
comply with their obligations and the
K Letter to defendants dated 27
problems of plaintiff is incurring by
June 2000,
&
reason of defendants' failure and
L Facsimile message to refusal to open the L/Cs.
defendants dated 28 June 2000,

M Letter from defendants dated To prove that defendants admit of their
29 June 2000, liabilities to plaintiff, that they
2

) requested for "more extension" of time
for the opening of the Letter of Credit,
&
and begging for favorable

understanding and consideration.

&
##
E $??¢¢@¢E
M-1 Signature of defendant Gregory
Chan,
2

)

&

&
##
$??¢¢@¢E
N Letter to defendants dated 29
June 2000,
&
O Letter to defendants dated 30 To prove that plaintiff reiterated its
June 2000, request for defendants to L/C opening
after the latter's request for extension
of time was granted, defendants' failure
and refusal to comply therewith
extension of time notwithstanding.
P Letter to defendants dated 06
July 2000,
&
Q Demand letter to defendants To prove that plaintiff was constrained
dated 15 Aug 2000,
& to engaged services of a lawyer for
collection efforts.
R Demand letter to defendants To prove that defendants opened the
dated 23 Aug 2000,
& first L/C in favor of plaintiff, requested
for further postponement of the final
L/C and for minimal amounts, were
urged to open the final L/C on time, and
were informed that failure to comply
will cancel the contract.
S Demand letter to defendants To show defendants' refusal and failure
dated 11 Sept 2000,
& to open the final L/C on time, the
cancellation of the contract as a
consequence thereof, and final demand
upon defendants to remit its
obligations.
W Letter from plaintiff To prove that there was a perfected sale
SSANGYONG to defendant and purchase agreement between the
SANYO SEIKI dated 13 April parties for 220 metric tons of steel
2000, with fax back from products at the price of US$1,860/ton.
defendants SANYO SEIKI/MCC
to plaintiff SSANGYONG,
2

W-1 #
signature of To prove that defendants, acting
defendant Gregory Chan, through Gregory Chan, agreed to the
sale and purchase of 220 metric tons of
contained 2

steel products at the price of
US$1,860/ton.
W-2 Name of sender MCC Industrial To prove that defendants sent their
Sales Corporation conformity to the sale and purchase
agreement by facsimile transmission.
X

Invoice dated 16 To prove that defendant MCC agreed to
August 2000, adjust and split the confirmed purchase
order into 2 shipments at 100 metric
tons each at the discounted price of
US$1,700/ton.
X-1 Notation "1/2", To prove that the present

a
Invoice was the first of 2 pro forma
invoices.
X-2 Ref. No. ST2-POSTS080-1, To prove that the present

Invoice was the first of 2

invoices.
X-3 #
signature of To prove that defendant MCC, acting
defendant Gregory Chan, through Gregory Chan, agreed to the
sale and purchase of the balance of 100
metric tons at the discounted price of
US$1,700/ton, apart from the other
order and shipment of 100 metric tons
which was delivered by plaintiff
SSANGYONG and paid for by defendant
MCC.
DD Letter from defendant MCC to To prove that there was a perfected sale
plaintiff SSANGYONG dated 22 and purchase agreement between
August 2000, plaintiff SSANGYONG and defendant
2

MCC for the balance of 100 metric tons,
apart from the other order and
shipment of 100 metric tons which was
delivered by plaintiff SSANGYONG and
paid for by defendant MCC.
DD-1 Ref. No. ST2-POSTS080-1, To prove that there was a perfected sale
2
and purchase agreement between

plaintiff SSANGYONG and defendant
MCC for the balance of 100 metric tons,
apart from the other order and
shipment of 100 metric tons which was
delivered by plaintiff SSANGYONG and
paid for by defendant MCC.
DD-2 Signature of defendant Gregory To prove that defendant MCC, acting
Chan, contained through Gregory Chan, agreed to the
2

sale and purchase of the balance of 100
metric tons, apart from the other order
and shipment of 100 metric tons which
was delivered by plaintiff Ssangyong
and paid for by defendant MCC.102
Significantly, among these documentary evidence presented by respondent, MCC, in its petition
before this Court, assails the admissibility only of

Invoice Nos. m8mm% and
m8mm%8 (Exhibits "E" and "F"). After sifting through the records, the Court found that
these invoices are 1$'$&-2&($ of their original fax transmittals. Ssangyong avers that these
documents were prepared after MCC asked for the splitting of the original order into two, so that
the latter can apply for an L/C with greater facility. It, however, failed to explain why the originals
of these documents were not presented.
To determine whether these documents are admissible in evidence, we apply the ordinary Rules on
Evidence, for as discussed above we cannot apply the Electronic Commerce Act of 2000 and the
Rules on Electronic Evidence.
Because these documents are mere photocopies, they are simply secondary evidence, admissible
only upon compliance with Rule 130, Section 5, which states, "[w]hen the original document has
been lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or
existence and the cause of its unavailability without bad faith on his part, may prove its contents by
a copy, or by a recital of its contents in some authentic document, or by the testimony of witnesses
in the order stated." Furthermore, the offeror of secondary evidence must prove the predicates
thereof, namely: (a) the loss or destruction of the original without bad faith on the part of the
proponent/offeror which can be shown by circumstantial evidence of routine practices of
destruction of documents; (b) the proponent must prove by a fair preponderance of evidence as to
raise a reasonable inference of the loss or destruction of the original copy; and (c) it must be shown
that a diligent and but unsuccessful search has been made for the document in the proper
place or places. It has been held that where the missing document is the foundation of the action,
more strictness in proof is required than where the document is only collaterally involved.103
Given these norms, we find that respondent failed to prove the existence of the original fax
transmissions of Exhibits E and F, and likewise did not sufficiently prove the loss or destruction of
the originals. Thus, Exhibits E and F cannot be admitted in evidence and accorded probative weight.
It is observed, however, that respondent Ssangyong did not rely merely on Exhibits E and F to
prove the perfected contract. It also introduced in evidence a variety of other documents, as
enumerated above, together with the testimonies of its witnesses. Notable among them are

Invoice Nos. m8mm and m8mm8 which were issued by Ssangyong and
sent via fax to MCC. As already mentioned, these invoices slightly varied the terms of the earlier
invoices such that the quantity was now officially per invoice and the price reduced to
mJ9
per MT. The copies of the said August 16, 2000 invoices submitted to the court bear
the conformity signature of MCC Manager Chan.

Invoice No. m8mm (Exhibit "X"), however, is a mere photocopy of its original.
But then again, petitioner MCC does not assail the admissibility of this document in the instant
petition. Verily, evidence not objected to is deemed admitted and may be validly considered by the
court in arriving at its judgment.104 Issues not raised on appeal are deemed abandoned.
As to

Invoice No. m8mm8 (Exhibits "1-A" and "2-C"), which was certified by
PCIBank as a true copy of its original,105 it was, in fact, petitioner MCC which introduced this
document in evidence. Petitioner MCC paid for the order stated in this invoice. Its admissibility,
therefore, is not open to question.
These invoices (m8mm%m8mm/#0m8mm8), along with the other

unchallenged documentary evidence of respondent Ssangyong, preponderate in favor of the claim
that a contract of sale was perfected by the parties.
This Court also finds merit in the following observations of the trial court:
Defendants presented Letter of Credit (Exhibits "1", "1-A" to "1-R") referring to Pro Forma
Invoice for Contract No. ST2POSTS080-2, in the amount of US$170,000.00, and which bears
the signature of Gregory Chan, General Manager of MCC. Plaintiff, on the other hand,
presented Pro Forma Invoice referring to Contract No. ST2-POSTS080-1, in the amount of
US$170,000.00, which likewise bears the signature of Gregory Chan, MCC. Plaintiff
accounted for the notation "1/2" on the right upper portion of the Invoice, that is, that it
was the first of two (2) pro forma invoices covering the subject contract between plaintiff
and the defendants. Defendants, on the other hand, failed to account for the notation "2/2"
in its Pro Forma Invoice (Exhibit "1-A"). Observably further, both Pro Forma Invoices bear
the same date and details, which logically mean that they both apply to one and the same
transaction.106
Indeed, why would petitioner open an L/C for the second half of the transaction if there was no first
half to speak of?
The logical chain of events, as gleaned from the evidence of both parties, started with the petitioner
and the respondent agreeing on the sale and purchase of 220MT of stainless steel at US$1,860.00
per MT. This initial contract was
. Later, as petitioner asked for several extensions to pay,
adjustments in the delivery dates, and discounts in the price as originally agreed, the parties
slightly varied the terms of their contract, without necessarily novating it, to the effect that the
original order was reduced to 200MT, split into two deliveries, and the price discounted to
US$1,700 per MT. Petitioner, however, paid only half of its obligation and failed to open an L/C for
the other 100MT. Notably, the conduct of both parties sufficiently established the existence of a
contract of sale, even if the writings of the parties, because of their contested admissibility, were
not as explicit in establishing a contract.107 Appropriate conduct by the parties may be sufficient to
establish an agreement, and while there may be instances where the exchange of correspondence
does not disclose the exact point at which the deal was closed, the actions of the parties may
indicate that a binding obligation has been undertaken.108
With our finding that there is a valid contract, it is crystal-clear that when petitioner did not open
the L/C for the first half of the transaction (100MT), despite numerous demands from respondent
Ssangyong, petitioner breached its contractual obligation. It is a well-entrenched rule that the
failure of a buyer to furnish an agreed letter of credit is a breach of the contract between buyer and
seller. Indeed, where the buyer fails to open a letter of credit as stipulated, the seller or exporter is
entitled to claim damages for such breach. Damages for failure to open a commercial credit may, in
appropriate cases, include the loss of profit which the seller would reasonably have made had the
transaction been carried out.109
- IV -
This Court, however, finds that the award of actual damages is not in accord with the evidence on
record. It is axiomatic that actual or compensatory damages cannot be presumed, but must be
proven with a reasonable degree of certainty.110 In
"#
,111 we explained
that:
Actual or compensatory damages are those awarded in order to compensate a party for an
injury or loss he suffered. They arise out of a sense of natural justice and are aimed at
repairing the wrong done. Except as provided by law or by stipulation, a party is entitled to
an adequate compensation only for such pecuniary loss as he has duly proven. It is
hornbook doctrine that to be able to recover actual damages, the claimant bears the onus of
presenting before the court actual proof of the damages alleged to have been suffered, thus:
A party is entitled to an adequate compensation for such pecuniary loss actually

suffered by him as he has duly proved. Such damages, to be recoverable, must not
only be capable of proof, but must actually be proved with a reasonable degree of
certainty. We have emphasized that these damages cannot be presumed and courts,
in making an award must point out specific facts which could afford a basis for
measuring whatever compensatory or actual damages are borne.112
In the instant case, the trial court awarded to respondent Ssangyong US$93,493.87 as actual
damages. On appeal, the same was affirmed by the appellate court. Noticeably, however, the trial
and the appellate courts, in making the said award, relied on the following documents submitted in
evidence by the respondent: (1) Exhibit "U," the Statement of Account dated March 30, 2001; (2)
Exhibit "U-1," the details of the said Statement of Account); (3) Exhibit "V," the contract of the
alleged resale of the goods to a Korean corporation; and (4) Exhibit "V-1," the authentication of the
resale contract from the Korean Embassy and certification from the Philippine Consular Office.
The statement of account and the details of the losses sustained by respondent due to the said
breach are, at best, self-serving. It was respondent Ssangyong itself which prepared the said
documents. The items therein are not even substantiated by official receipts. In the absence of
corroborative evidence, the said statement of account is not sufficient basis to award actual
damages. The court cannot simply rely on speculation, conjecture or guesswork as to the fact and
amount of damages, but must depend on proof that the claimant had suffered, and on
evidence of, the actual amount thereof.113
Furthermore, the sales contract and its authentication certificates, Exhibits "V" and "V-1," allegedly
evidencing the resale at a loss of the stainless steel subject of the parties' breached contract, fail to
convince this Court of the veracity of its contents. The steel items indicated in the sales contract114
with a Korean corporation are different in all respects from the items ordered by petitioner MCC,
even in size and quantity. We observed the following discrepancies:
List of commodities as stated in Exhibit "V":
COMMODITY: Stainless Steel HR Sheet in Coil, Slit Edge

SPEC: SUS304 NO. 1
SIZE/Q'TY:
2.8MM X 1,219MM X C 8.193MT
3.0MM X 1,219MM X C 7.736MT
3.0MM X 1,219MM X C 7.885MT
3.0MM X 1,219MM X C 8.629MT
4.0MM X 1,219MM X C 7.307MT
4.0MM X 1,219MM X C 7.247MT
4.5MM X 1,219MM X C 8.450MT
4.5MM X 1,219MM X C 8.870MT
5.0MM X 1,219MM X C 8.391MT
6.0MM X 1,219MM X C 6.589MT
6.0MM X 1,219MM X C 7.878MT
6.0MM X 1,219MM X C 8.397MT
TOTAL: 95.562MT115
List of commodities as stated in Exhibit "X" (the invoice that was not paid):
DESCRIPTION: Hot Rolled Stainless Steel Coil SUS 304

SIZE AND QUANTITY:
2.6 MM X 4' X C 10.0MT
3.0 MM X 4' X C 25.0MT
4.0 MM X 4' X C 15.0MT
4.5 MM X 4' X C 15.0MT
5.0 MM X 4' X C 10.0MT
6.0 MM X 4' X C 25.0MT
TOTAL: 100MT116
From the foregoing, we find merit in the contention of MCC that Ssangyong did not adequately
prove that the items resold at a loss were the same items ordered by the petitioner. Therefore, as
the claim for actual damages was not proven, the Court cannot sanction the award.
Nonetheless, the Court finds that petitioner knowingly breached its contractual obligation and
obstinately refused to pay despite repeated demands from respondent. Petitioner even asked for
several extensions of time for it to make good its obligation. But in spite of respondent's continuous
accommodation, petitioner completely reneged on its contractual duty. For such inattention and
insensitivity, MCC must be held liable for nominal damages. "Nominal damages are 'recoverable
where a legal right is technically violated and must be vindicated against an invasion that has
produced no actual present loss of any kind or where there has been a breach of contract and no
substantial injury or actual damages whatsoever have been or can be shown.'"117 Accordingly, the
Court awards nominal damages of P200,000.00 to respondent Ssangyong.
As to the award of attorney's fees, it is well settled that no premium should be placed on the right to
litigate and not every winning party is entitled to an automatic grant of attorney's fees. The party
must show that he falls under one of the instances enumerated in Article 2208 of the Civil Code.118
In the instant case, however, the Court finds the award of attorney's fees proper, considering that
petitioner MCC's unjustified refusal to pay has compelled respondent Ssangyong to litigate and to
incur expenses to protect its rights.
=4, mm m**, the appeal is *. The Decision of the
Court of Appeals in CA-G.R. CV No. 82983 is ** in that the award of actual damages is
* *. However, petitioner is ** to pay respondent * min the
amount of P200,000.00, and the Kmm as awarded by the trial court.
m**.
<
&#

,# 3 ,
'$$ concur.
#$
1Penned by Associate Justice Rodrigo V. Cosico, with Associate Justices Danilo B. Pine and
Arcangelita Romilla Lontok, concurring; CA rollo, pp. 120-131.
2 CA rollo, pp. 164-165.
3 Records, p. 2.
4 TSN, June 18, 2003, pp. 7-8.
5 TSN, August 21, 2002, p. 7.
6 Records, p. 198; Exhibit "A."
7 CA rollo, p. 97.
8 TSN, August 21, 2002, p. 18.
9 Records, pp. 336-337; Exhibit "W." The document is an original copy of the fax transmittal
in thermal paper received by Ssangyong, however, the same is accompanied by a photocopy
thereof containing a clearer print of its contents.
10 Records, p. 49.
11 Id. at 336-337; Exhibit "W-1."
12Id. at 216-217; Exhibits "E-1." The document is an original copy of the fax transmittal in
thermal paper received by Ssangyong, however, the same is accompanied by a photocopy
13 Id.; Exhibit "E-2."
14 Id.; Exhibit "E-1."
15 TSN, August 21, 2002, pp. 41-42, 67-68.
16 TSN, October 15, 2003, pp. 89-92.
17 Records, p. 215; Exhibit "E." This is a mere photocopy of the fax transmittal.
18 Id. at 218; Exhibit "F." This is a mere photocopy of the fax transmittal.
19Id. at 219-220; Exhibit "G." The document is an original copy of the fax transmittal in
20 Id.; Exhibit "G-1."
21 Id. at 221; Exhibit "H."
22 Id. at 223; Exhibit "I."
23 Id. at 224; Exhibit "J."
24 Id. at 225; Exhibit "K."
25 Id. at 226; Exhibit "L." The document is a mere photocopy of the original fax message.
26Id. at 227-228; Exhibit "M." The document is an original copy of the fax transmittal in
27 Id. at 229; Exhibit "N."
28 Id. at 230; Exhibit "O." The document is a mere photocopy of the original letter.
29 Id. at 231; Exhibit "P."
30 Id. at 232-233; Exhibit "Q."
31 Id. at 232.
32 Id. at 338; Exhibit "X." The document is a mere photocopy of the original fax transmittal.
33Id. at 321; Exhibit "2-C." The document was certified as the true copy of its original by
PCIBank.
34Id. at 318-320; Exhibits "2", "2-A" and "2-B." These documents were certified as true
copies of their originals by PCIBank.
35 Id. at 300-317; Exhibits "1-B" to "1-R."
36Id. at 378-379; Exhibit "DD." The document is an original copy of the fax transmittal in
37 Id. at 234; Exhibit "R."
38 Id. at 235; Exhibit "S."
39 Id. at 1-10.
40 Id. at 262-267.
41 Id. at 254.
42 Id. at 275.
43 Id. at 408-412.
44 Id. at 411-412.
45 Id. at 444.
46 CA rollo, pp. 29-49.
47 Id. at 36.
48 Supra note 1.
49 CA rollo, pp. 127-128.
50 Id. at 131.
51 Id. at 160.
52 The firm's name was later changed to Zamora Poblador Vasquez & Bretaña.
53 CA rollo, p. 161.
54 Id. at 140-150.
55 Supra note 2.
56 Rollo, pp. 9-26.
57 Id. at 15.
58 415 Phil. 761 (2001).
59 G.R. No. 146478, July 30, 2004, 435 SCRA 512.
60Philippine Ports Authority v. Sargasso Construction & Development Corporation, supra, at

527-528.
61 Yuchengco v. Court of Appeals, G.R. No. 165793, October 27, 2006, 505 SCRA 716, 723.
62 396 Phil. 1081 (2000).
63 Maharlika Publishing Corporation v. Tagle, 226 Phil. 456, 463-464 (1986).

64Entitled "An Act Providing for the Recognition and Use of Electronic Commercial and Non-
Commercial Transactions and Documents, Penalties for Unlawful Use Thereof and For Other
Purposes." Approved on June 14, 2000.
65 Sections 6, 7 and 10 of R.A. No. 8792 read:
Sec. 6. Legal Recognition of Data Messages. Information shall not be denied legal
effect, validity or enforceability solely on the grounds that it is in the data message
purporting to give rise to such legal effect, or that it is merely referred to in that
electronic data message.
Sec. 7. Legal Recognition of Electronic Documents. Ȃ Electronic documents shall

have the legal effect, validity or enforceability as any other document or legal
writing, and Ȃ
(a) Where the law requires a document to be in writing, that requirement is met by
an electronic document if the said electronic document maintains its integrity and
reliability and can be authenticated so as to be usable for subsequent reference, in
that Ȃ
(i) The electronic document has remained complete and unaltered, apart
from the addition of any endorsement and any authorized change, or any
change which arises in the normal course of communication, storage and
display; and
(ii) The electronic document is reliable in the light of the purpose for which
it was generated and in the light of all the relevant circumstances.
(b) Paragraph (a) applies whether the requirement therein is in the form of an
obligation or whether the law simply provides consequences for the document not
being presented or retained in its original form.
(c) Where the law requires that a document be presented or retained in its original
form, that requirement is met by an electronic document if Ȃ
(i) There exists a reliable assurance as to the integrity of the document from
the time when it was first generated in its final form; and
(ii) That document is capable of being displayed to the person to whom it is

to be presented: Provided, That no provision of this Act shall apply to vary
any and all requirements of existing laws on formalities required in the
execution of documents for their validity.
For evidentiary purposes, an electronic document shall be the functional equivalent

of a written document under existing laws.
This Act does not modify any statutory rule relating to the admissibility of electronic
data messages or electronic documents, except the rules relating to authentication
and best evidence.
Sec. 10. Original Documents. Ȃ (1) Where the law requires information to be
presented or retained in its original form, that requirement is met by an electronic
data message or electronic document if:
(a) The integrity of the information from the time when it was first generated in its
final form, as an electronic data message or electronic document is shown by
evidence aliunde or otherwise; and
(b) Where it is required that information be presented, that the information is

capable of being displayed to the person to whom it is to be presented.
(2) Paragraph (1) applies whether the requirement therein is in the form of an
obligation or whether the law simply provides consequences for the information not
being presented or retained in its original form.
(3) For the purposes of subparagraph (a) of paragraph (1):
(a) the criteria for assessing integrity shall be whether the information has
remained complete and unaltered, apart from the addition of any
endorsement and any change which arises in the normal course of
communication, storage and display; and
(b) the standard of reliability required shall be assessed in the light of the
purpose for which the information was generated and in the light of all
relevant circumstances.
66 A.M. No. 01-7-01-SC, effective on August 1, 2001.
67 Rule 3 of the Rules on Electronic Evidence reads:
RULE 3
ELECTRONIC DOCUMENTS
SECTION 1. Electronic Documents as functional equivalent of paper-based

documents. Ȃ Whenever a rule of evidence refers to the term writing, document,
record, instrument, memorandum or any other form of writing, such term shall be
deemed to include an electronic document as defined in these Rules.
SEC. 2. Admissibility. Ȃ An electronic document is admissible in evidence if it

complies with the rules on admissibility prescribed by the Rules of Court and
related laws and is authenticated in the manner prescribed by these Rules.
68 Rule 4 of the Rules on Electronic Evidence reads:
RULE 4
BEST EVIDENCE RULE
SECTION 1. Original of an Electronic Document. Ȃ An electronic document shall be

regarded as the equivalent of an original document under the Best Evidence Rule if
it is a printout or output readable by sight or other means, shown to reflect the data
accurately.
SEC. 2. Copies as equivalent of the originals. - When a document is in two or more

copies executed at or about the same time with identical contents, or is a
counterpart produced by the same impression as the original, or from the same
matrix, or by mechanical or electronic re-recording, or by chemical reproduction, or
by other equivalent techniques which accurately reproduces the original, such
copies or duplicates shall be regarded as the equivalent of the original.
Notwithstanding the foregoing, copies or duplicates shall not be admissible to the

same extent as the original if:
(a) a genuine question is raised as to the authenticity of the original; or
(b) in the circumstances it would be unjust or inequitable to admit the copy

in lieu of the original.
69 The Electronic Commerce Act of 2000 provides, in its Section 34, that the DTI
[Department of Trade and Industry], Department of Budget and Management and the
Bangko Sentral ng Pilipinas are empowered to enforce the provisions of the Act and issue
implementing rules and regulations necessary, in coordination with the Department of
Transportation and Communications, National Telecommunications Commission, National
Computer Center, National Information Technology Council, Commission on Audit, other
concerned agencies and the private sector, to implement the Act within sixty (60) days after
its approval.
70 On June 12, 1996, the Commission, after consideration of the text of the draft Model Law
as revised by the drafting group, decided to adopt the said law and to recommend that all
States give favorable consideration to the said Model Law on Electronic Commerce when
they enact or revise their laws, in view of the need for uniformity of the law applicable to
alternatives of paper-based forms of communication and storage of information (UNCITRAL
Model Law on Electronic Commerce with Guide to Enactment 1996 with additional article 5
bis as adopted in 1998, United Nations Publication, New York, 1999).
71 Record of the Senate, Vol. III, No. 61, February 16, 2000, p. 405.
72R.A. No. 8792 is a consolidation of Senate Bill 1902 and House Bill 9971 (Senate
Proceedings, June 8, 2000, p. 90).
73 The Electronic Commerce Act and its Implementing Rules and Regulations, Annotations
by Atty. Jesus M. Disini, Jr., Legislative History by Janette C. Toral, published by the
Philippine Exporters Confederation, Inc. in September 2000.
74 House of Representatives' Transcript of Proceedings, June 5, 2000.
75 <http://www.webopedia.com/TERM/T/telecopy.html> (visited August 27, 2007).
76 UNCITRAL Model Law on Electronic Commerce with Guide to Enactment 1996 with
additional article 5 bis as adopted in 1998, United Nations publication, New York, 1999.
77 People v. Purisima, 176 Phil. 186, 204 (1978).
78 De Guia v. Commission on Elections, G.R. No. 104712, May 6, 1992, 208 SCRA 420, 425.
79 III RECORD, SENATE 11th CONGRESS 2nd SESSION 399 (February 16, 2000).
80 Senate Transcript of Proceedings, Vol. II, No. 88, April 3, 2000, pp. 32-37.
81BLG, Consolidated E-Commerce Statutes, Part II-Electronic Evidence Laws, UEEA,

Copyright © Carswell, a Division of Thomson Canada Ltd. or its Licensors;
<www.westlaw.com> (visited August 27, 2007).
82In its Guide to Enactment, the UNCITRAL explains the functional-equivalent approach of
the Model Law in this way:
"E. The 'functional-equivalent' approach
"15. The Model Law is based on the recognition that legal requirements prescribing
the use of traditional paper-based documentation constitute the main obstacle to
the development of modern means of communication. In the preparation of the
Model Law, consideration was given to the possibility of dealing with impediments
to the use of electronic commerce posed by such requirements in national laws by
way of extension of the scope of such notions as 'writing', 'signature' and 'original',
with a view to encompassing computer-based techniques. Such an approach is used
in a number of existing legal instruments, e.g., article 7 of the UNCITRAL Model Law
on International Commercial Arbitration and article 13 of the United Nations
Convention on Contracts for the International Sale of Goods. It was observed that
the Model Law should permit States to adapt their domestic legislation to
developments in communications technology applicable to trade law without
necessitating the wholesale removal of the paper-based requirements themselves or
disturbing the legal concepts and approaches underlying those requirements. At the
same time, it was said that electronic fulfillment of writing requirements might in
some cases necessitates the development of new rules. This was due to one of many
distinctions between EDI messages and paper-based documents, namely, that the
latter were readable by the human eye, while the former were not so readable
unless reduced to paper or displayed on a screen.
"16. The Model Law thus relies on a new approach, sometimes referred to as the
'functional equivalent approach', which is based on an analysis of the purposes and
functions of the traditional paper-based requirement with a view to determining
how those purposes or functions could be fulfilled through electronic-commerce
techniques. For example, among the functions served by a paper document are the
following: to provide that a document would be legible by all; to provide that a
document would remain unaltered over time; to allow for the reproduction of a
document so that each party would hold a copy of the same data; to allow for the
authentication of data by means of a signature; and to provide that a document
would be in a form acceptable to public authorities and courts. It should be noted
that in respect of all of the above-mentioned functions of paper, electronic records
can provide the same level of security as paper and, in most cases, a much higher
degree of reliability and speed, especially with respect to the identification of the
source and content of the data, provided that a number of technical and legal
requirements are met. However, the adoption of the functional-equivalent approach
should not result in imposing on users of electronic commerce more stringent
standards of security (and the related costs) than in a paper-based environment.
"17. A data message, in and of itself, cannot be regarded as an equivalent of a paper

document in that it is of a different nature and does not necessarily perform all
conceivable functions of a paper document. That is why the Model Law adopted a
flexible standard, taking into account the various layers of existing requirements in
a paper-based environment: when adopting the "functional-equivalent" approach,
attention was given to the existing hierarchy of form requirements, which provides
distinct levels of reliability, traceability and inalterability with respect to paper-
based documents. For example, the requirement that date be presented in written
form (which constitutes a 'threshold requirement') is not to be confused with more
stringent requirements such as 'signed writing,' 'signed original' or 'authenticated
legal act'.
"18. The Model Law does not attempt to define a computer-based equivalent to any
kind of paper document. Instead, it singles out basic functions of paper-based form
requirements, with a view to providing criteria which, once they are met by data
messages, enable such data messages to enjoy the same level of legal recognition as
corresponding paper documents performing the same function. It should be noted
that the functional-equivalent approach has been taken in articles 6 to 8 of the
Model Law with respect to the concepts of 'writing', 'signature' and 'original' but not
with respect to other legal concepts dealt with in the Model Law. For example,
article 10 does not attempt to create a functional equivalent of existing storage
requirements." (UNCITRAL Model Law on Electronic Commerce with Guide to
Enactment 1996 with additional article 5 bis as adopted in 1998, United Nations
publication, New York, 1999.)
83<http://inventors.about.com/od/bstartinventors/a/fax_machine.htm> (visited August

27, 2007).
84
<http://inventors.about.com/gi/dynamic/offsite.htm?zi=1/XJ&sdn=inventors&zu=http%3
A%2F%
2F web-opedia.internet.com%2FTERM%2Ff%2Ffax -machine.html> (visited August 27,

2007).
85 <http://en.wikipedia.org/wiki/Fax_machine> (visited August 27, 2007).
86 338 Phil. 484, 496-497 (1997).
87Go v. Commission on Elections, G.R. No. 147741, May 10, 2001, 357 SCRA 739, involving
the filing of a withdrawal of certificate of candidacy thru fax, but the original copy thereof
was filed on the following day; see also Justice Cuevas v. Muñoz, 401 Phil. 752 (2000), in
which the facsimile transmission of the request for provisional arrest and other supporting
documents was allowed in extradition proceedings; Heirs of Lourdes Sabanpan v.
Comorposa, 456 Phil. 161 (2003), concerning a facsimile signature; and Cathay Pacific
Airways v. Fuentebella, G.R. No. 142541, December 15, 2005, 478 SCRA 97, which involves a
facsimile transmission of a notice of hearing.
88 III RECORD, SENATE 11th CONGRESS 2nd SESSION 781-783 (March 22, 2000).
89 House of Representatives' Transcript of Proceedings, June 5, 2000.
90III RECORD, SENATE 11th CONGRESS 2nd SESSION 437 (February 21, 2000); III RECORD,
SENATE 11th CONGRESS 2nd SESSION 450-451 (February 22, 2000).
91Public Schools District Supervisors Association. v. De Jesus, G.R. 157286, June 16, 2006,
491 SCRA 55, 71.
92Nasipit Lumber Co. v. National Wages and Productivity Commission, 352 Phil. 503, 518
(1998).
93The Philippine Statistical System (PSS), through the NSCB, created the Task Force to
address the statistical information requirements of the Electronic Commerce Act of 2000.
The composition of the Task Force is as follows: the Department of Trade and Industry as
Chair; the NSCB as Vice Chair; and the Bangko Sentral ng Pilipinas, the Commission on
Audit, the Department of Budget and Management, the Department of Labor and
Employment, the Department of Science and Technology, the Department of Transportation
and Communications/National Telecommunications Commission, the National Computer
Center, the National Economic and Development Authority, the National Statistics Office, the
Statistical Research and Training Center, and the Philippine Internet Services Organization,
as members.
94Recommendations of the NSCB Task Force on the Measurement of e-Commerce,

November 22, 2006, p. 5 <http://www.nscb.gov.ph/resolutions/2006/Annex%20BR-16-
2006-01.pdf> (visited August 27, 2007).
95 Black's Law Dictionary, 5th ed. (1979).
96Heirs of Cipriano Reyes v. Calumpang, G.R. No. 138463, October 30, 2006, 506 SCRA 56,
72.
97 Civil Code, Art. 1315.

98Johannes Schuback & Sons Philippine Trading Corporation v. Court of Appeals, G.R. No.
105387, November 11, 1993, 227 SCRA 717, 721.
99San Lazaro Development Corporation v. Court of Appeals, G.R. No. 124242, January 21,
2005, 449 SCRA 99, 111.
100 Civil Code, Art. 1475.
101 San Lazaro Development Corporation v. Court of Appeals, supra note 99, at 113.
102 Records, pp. 193-195 and 332-334.
103 Lee v. People, G.R. No. 159288, October 19, 2004, 440 SCRA 662, 683-684.
104 Interpacific Transit, Inc. v. Aviles, G.R. No. 86062, June 6, 1990, 186 SCRA 385, 390.
105 Under Rule 130, Section 7, a certified true copy is an admissible evidence only when the
original document is a public record.
106 Records, p. 411.
107 Standard Bent Glass Corp. v. Glassrobots Oy, 333 F. 3d 440.
108Maharlika Publishing Corporation v. Tagle, 226 Phil. 456, 468 (1986), quoting American
Jurisprudence 2d., Section 73 (pp. 186-187).
Reliance Commodities, Inc. v. Daewoo Industrial Company, Ltd., G.R. No. 100831,
109
December 17, 1993, 228 SCRA 545, 555.
110 Development Bank of the Philippines v. Court of Appeals, 348 Phil. 15, 34 (1998).
111 G.R. No. 134239, May 26, 2005, 459 SCRA 58.
112 Villafuerte v. Court of Appeals, supra, at 69.
113 Id. at 74-75.
114 Records, p. 245.
115 Id. at 243 and 245.
116 Id. at 338.
117 Francisco v. Ferrer, Jr., 405 Phil. 741, 751 (2001).
Tanay Recreation Center and Development Corp. v. Fausto, G.R. No. 140182, April 12,
118
2005, 455 SCRA 436, 457.

m** m
mm
* ** ***

8
Petitioners,
Present:
- versus - QUISUMBING, $, Chairperson,
YNARES-SANTIAGO,
CARPIO MORALES,
TINGA, and
4] m4m VELASCO, JR.,$$

4 m #/1$)?
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Respondents.
Promulgated:
July 21, 2008
,,
*m
C m ] p "
This petition for review seeks to reverse the Decision dated November 22, 2004 and the
Resolution dated May 27, 2005 of the Court of Appeals in CA-G.R. CV No. 71996. The appellate
court had affirmed with modification the Decision dated February 20, 2001 of the Regional Trial
Court (RTC), Branch 15, Naic, Cavite in Civil Case No. NC-652-95, annulling the sale in favor of the
petitioners Edgardo and Natividad Fidel of a 150-square meter parcel of unregistered land located
at San Miguel Street, Indang, Cavite and owned by the late Vicente Espineli.
The facts, culled from the records, are as follows:
On February 21, 1995, respondents filed a Complaint for Annulment of Sale, Tax
Declaration, Reconveyance with Damages against the petitioners Edgardo and Natividad Fidel and
Guadalupe Espineli-Cruz before the RTC, Branch 15, Naic, Cavite. In their complaint, respondents
alleged that they are compulsory heirs of Primitivo Espineli, the only child of Vicente and his first
wife, Juliana Asas. Respondents further alleged that they discovered that the abovementioned
parcel of land owned by the late Vicente was sold on October 7, 1994 to the petitioners despite the
fact that Vicente died intestate on June 4, 1941. They argue that the sale is void and simulated
because Vicenteǯs signature appearing on the deed of sale is a forgery.
In her Answer, Guadalupe, the only surviving child of Vicente and his second wife, Pacencia
Romea, denied any knowledge of the deed of sale allegedly signed by Vicente. She, however,
admitted selling the property but by virtue of another deed of sale signed by her as heir of Vicente
and in representation of her nephews and nieces who are children of her deceased siblings, all
children of Vicente and Pacencia. She further denied knowledge of Vicenteǯs alleged first marriage
with Juliana Asas. She argues that the heirs of Primitivo must first establish their filiation from
Vicente, prior to instituting the complaint for annulment of sale. Guadalupe further stresses that the
petitioners Fidel have been able to register the sale of the property and to obtain Tax Declaration
No. 16304in their name.
On February 20, 2001, the RTC ruled in respondentsǯ favor. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and

against the defendants as follows:
1. Ordering the annulment of the sale in favor of the defendants spouses

Edgardo and Natividad Fidel of the property in litigation;
2. Ordering the Regis[ter] of Deeds and/or the Provincial Assessor of

Cavite to cancel the registration and/or Tax Declaration No. 16304,
Series of 1995;
3. Ordering the defendants spouses Edgardo and Natividad Fidel to cause

the reconveyance of the property to Vicente Espineli and/or his heirs for
disposition subject to the laws of intestacy;
4. Ordering the defendants jointly and severally, to pay the plaintiffs the
amount of P50,000.00 as moral damages and P30,000.00 as exemplary
damages;
5. Ordering the defendants jointly and severally, to reimburse the

plaintiffs their expenses for litigation in the amount of P50,000.00 as
attorneyǯs fees;
6. And to pay costs of suit.
SO ORDERED.
On November 22, 2004, the Court of Appeals affirmed with modification the RTC Decision
as follows:
Accordingly, the subject property should be reconveyed to the Estate of the

late Vicente Espineli but the proper proceedings should be instituted to determine
the latterǯs heirs, and if appropriate, to partition the subject property.
WHEREFORE, premises considered, the assailed DECISION is hereby

AFFIRMED subject to the foregoing MODIFICATION. No costs.
SO ORDERED.
Thus, the instant petition by the spouses Edgardo and Natividad Fidel, alleging that the
appellate court:
I.
ǥ ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT, CONSIDERING
THAT PRIVATE RESPONDENTS HAVE NO LEGAL PERSONALITY TO INSTITUTE THE
ACTION. PRIVATE RESPONDENTS MUST FIRST ESTABLISH THE SAME IN PROPER
ACTION TO PROVE THEIR FILIATION. LACK OF SUCH DETERMINATION ON THE
ISSUE OF FILIATION ON SEPARATE AND INDEPENDENT ACTION, PRIVATE
RESPONDENTS HAVE NO LEGAL PERSONALITY TO INSTITUTE THE ACTION FOR
ANNULMENT OF SALE, CONVEYANCE AND DAMAGES.
II.
ǥ LIKEWISE COMMITTED ERROR IN RECOGNIZING AND/OR ADMITTING THE
BAPTISMAL CERTIFICATE OF PRIMITIVO ESPINELI AS PROOF OF FILIATION THAT
[VICENTE ESPINELI IS HIS FATHER].
III.
ǥ ERRED IN AWARDING DAMAGES AND ATTORNEYǯS FEES, CONSIDERING THAT
PRIVATE RESPONDENTS MUST FIRST INSTITUTE A SEPARATE ACTION TO PROVE
THEIR FILIATION.
Respondents for their part raise the following issues:
I.
WHETHER OR NOT PRIVATE RESPONDENTS ARE SUFFICIENTLY CLOTHED WITH
LEGAL PERSONALITY TO FILE THE PRESENT ACTION FOR ANNULMENT OF SALE,
RECONVEYANCE WITH DAMAGES WITHOUT PREJUDICE TO INSTITUTING A
SEPARATE ACTION TO ESTABLISH FILIATION AND HEIRSHIP IN A SEPARATE
[PROCEEDING].
II.
ASSUMING PETITIONERS HAVE PERSONALITY TO RAISE THE ISSUE OF FILIATION,
WHETHER OR NOT THE BAPTISMAL CERTIFICATE OF PRIMITIVO ESPINELI IS
VALID AND COMPETENT EVIDENCE OF HIS FILIATION AS CHILD OF VICENTE
ESPINELI.
III.
WHETHER OR NOT THE SALE OF SUBJECT PROPERTY BY GUADALUPE TO
PETITIONERS FIDEL IS VALID UNDER THE PRINCIPLE OF BUYER IN GOOD FAITH.
IV.
WHETHER OR NOT THE AWARD OF DAMAGES AND ATTORNEYǯS FEES TO
PRIVATE RESPONDENTS HAS NO BASIS SINCE A [SEPARATE] ACTION TO PROVE
THEIR FILIATION SHOULD FIRST BE FILED.
Briefly stated, the issues for our resolution are: (1) Do respondents have the legal
personality to file the complaint for annulment of title? (2) Is the baptismal certificate of Primitivo
valid and competent evidence to prove his filiation by Vicente? (3) Are petitioners buyers in good
faith? and (4) Is the award of attorneyǯs fees and damages to respondents proper?
At the outset, we entertain no doubt that the first deed of sale, allegedly signed by Vicente, is
void because his signature therein is a patent forgery. Records show he died in 1941, but the deed
of sale was allegedly signed on October 7, 1994. Article 1409 of the Civil Code of the Philippines
states:
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order, or public policy;
(2) -$6-(2-/'$/.)$)?(1)/$0'<(2((;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived. (Emphasis supplied.)
As for the deed of sale signed by Guadalupe as heir of Vicente and in representation of her
nephews and nieces, petitioners insist that the sale is valid because respondents have no legal
personality to file the complaint, the latter not having established their filiation by Vicente. They
argue that respondents first need to establish their filiation by Vicente prior to instituting a
complaint in a separate action, and not in the present action. On the other hand, respondents
contend that their filiation was established by the baptismal certificate of their father, Primitivo,
showing that Primitivo is the son of Vicente.
On this point we rule in favor of respondents.
While respondentsǯ principal action was for the annulment of the sale and not an action to
impugn oneǯs legitimacy and that oneǯs legitimacy can be questioned only in a direct action
seasonably filed by the proper party, it is necessary to pass upon the relationship of respondents to
the deceased Vicente for the purpose of determining what legal rights respondents have in the
property. In fact, the issue of whether or not respondents are heirs of Vicente was squarely raised
by petitioners in their Pre-Trial Brief filed on April 26, 1995, before the trial court, hence they are
now estopped from assailing the trial courtǯs ruling on respondentsǯ status. In the similar case of

,"
,, the Supreme Court held:
It must be noted that the respondentsǯ principal action was for the
declaration of absolute nullity of two documents, namely: deed of extra-judicial
partition and deed of absolute sale, and not an action to impugn oneǯs legitimacy.
The respondent court ruled on the filiation of petitioner Rodolfo Fernandez in order
to determine Rodolfoǯs right to the deed of extra-judicial partition as the alleged
legitimate heir of the spouses Fernandez. =-()$ 6$ /'$ /6/'$ -/ #$L
)$((1/2? 2/# .$ 3$(#$0 #)? (# / 0('$2 /2(# $/#/.)? <()$0 .? -$
&'&$' &/'?-(02'(#$-/#/&&)(2/(#(#-$(#/#2/$2#(0$'(#
-/ '$&#0$#L 2)/(1 6/ -/ &$((#$' 0)< 6/ # .'# -$
0$2$/$0 &$ +$ /#0 $#$'/ $'#/#0$D; we do not have a situation
wherein they (respondents) deny that Rodolfo was a child of their uncleǯs wife. . . .
xxxx
Thus, ((#$2$/'?&/&#-$'$)/(#-(&<&$((#$'0)<

$'#/#0$D-$0$2$/$0&$$'#/#0$D<'-$&'&$<0$$'1(#(#
6-/ )$/) '(- 0)< -/ (# -$ &'&$'? .7$2 < -$ $,'/70(2(/)
&/'((#. In fact, the issue of whether or not Rodolfo Fernandez was the son of the
deceased spouses Jose Fernandez and Generosa de Venecia was squarely raised by
petitioners in their pre-trial brief filed before the trial court, hence they are now
estopped from assailing the trial courtǯs ruling on Rodolfoǯs status. (Emphasis
supplied.)
Petitioners nonetheless contend that Primitivoǯs baptismal certificate is neither a public

document nor a conclusive proof of the legitimate filiation by Vicente of Primitivo, the respondentsǯ
father. We find petitionersǯ contention lacking in merit, hence we reject it.
Records show that Primitivo was born in 1895. At that time, the only records of birth are
those which appear in parochial records. This Court has held that as to the nature and character of
the entries contained in the parochial books and the certificates thereof issued by a parish priest,
the same have not lost their character of being public documents for the purpose of proving acts
referred to therein, inasmuch as from the time of the change of sovereignty in the Philippines to the
present day, no law has been enacted abolishing the official and public character of parochial books
and entries made therein. Parish priests continue to be the legal custodians of the parochial books
kept during the former sovereignty, and as such they may issue certified copies of the entries
contained therein in the same manner as do keepers of archives.
The baptismal certificate of Primitivo is, therefore, a valid and competent evidence to prove
his filiation by Vicente.
Accordingly, we uphold the Court of Appeals ruling that the subject property should be
reconveyed to the Estate of the late Vicente Espineli and proper proceedings be instituted to
determine the latterǯs heirs, and, if appropriate, to partition the subject property.
Anent the third issue, can petitioners be considered buyers in good faith? Our ruling on this
point is: no, they cannot be considered buyers in good faith. For we find that petitioners were only
able to register the sale of the property and Tax Declaration No. 16304 in their name; they did not
have a Torrens title. Unlike a title registered under the Torrens System, a tax declaration does not
constitute constructive notice to the whole world. The issue of good faith or bad faith of a buyer is
relevant only where the subject of the sale is a registered land but not where the property is an
unregistered land.
However, on the issue of actual and moral damages and attorneyǯs fees awarded by the trial
court to respondents, we find the award bereft of factual basis. A party is entitled to an adequate
compensation for such pecuniary loss or losses actually suffered by him which he has duly proven.
Such damages, to be recoverable, must not only be capable of proof, but must actually be proved
with a reasonable degree of certainty. Courts cannot simply rely on speculation, conjecture or
guesswork in determining the fact and amount of damages. Attorneyǯs fees should therefore be
deleted for lack of factual basis and legal justification. Moral damages should likewise not be
awarded since respondents did not show proof of moral suffering, mental anguish, serious anxiety,
besmirched reputation, nor wounded feelings and social humiliation.
=4, the petition is **. The assailed Decision dated November 22, 2004 and
the Resolution dated May 27, 2005 of the Court of Appeals in CA-G.R. CV No. 71996 are *
with the *that the award of moral and exemplary damages as well as attorneyǯs fees
be * *. No pronouncement as to costs.
m**
*
C m ]
Associate Justice
WE CONCUR:
m mm
Associate Justice
4 m *

m]+
m+
Associate Justice
m
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courtǯs Division.
*
C m ]
Associate Justice
Chairperson

Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courtǯs Division.
m

Chief Justice
* Additional member in place of Associate Justice Arturo D. Brion who is on leave.
' , pp. 9-19. Penned by Associate Justice Salvador J. Valdez, Jr., with Associate Justices Juan Q.
Enriquez, Jr. and Vicente Q. Roxas concurring.
Id. at 20-22.
Id. at 58-72. Penned by Judge Napoleon V. Dilag.
Records, pp. 1-6.
Id. at 28-31.
Id. at 15.
' , p. 72.
Id. at 18-19.
Id. at 172.
Id. at 147-148.
Records, pp. 45-47.
G.R. No. 143256, August 28, 2001, 363 SCRA 811.
Id. at 821-823.
A "" & , 29 Phil. 215, 219 (1915), citing A "
, 11 Phil. 530,
536 (1908).
" #

, G.R. No. 40145, July 29, 1992, 211 SCRA 858, 865-866, citing * " "
% , No. L-48322, April 8, 1987, 149 SCRA 140, 151.

,"
,, supra note 12, at 829-830.
Id.

m
Manila
FIRST DIVISION

9%/?
mm petitioner,
vs.
* :
4 * ] /#04
respondents.

%

(

(
3

"

mp
What in essence the petitioner seeks is the enforcement of certain agreements in infringement of
the Constitution. Such an attempt cannot of course be allowed to succeed. For this, and other
reasons hereafter set out, judgment must go against the petitioner.
The basic agreements are embodied in two (2) private documents. The first, dated January 20,
1958, shows on its face that petitioner Rosa Silagan purchased from Rita Macabasag a parcel of land
known as Lot 630-A at the price of P3,500.00. Silagan says she paid Macabasag Pl,500.00 on that
day, and their understanding was that the balance was payable any time upon demand, and on full
payment thereof, the final deed of sale would be executed.
The other private document, dated December 6, 1958, shows that Silagan also bought Macabasag's
adjacent lot, Lot 630-C, at the price of P2,000.00 8 Since only Pl,650.00 was paid by Silagan on that
day, this resulted in a balance due from her, on account of her purchase of the two (2) lots, of
P2,350.00. According to Silagan, the agreement was that this balance of P2,350.00 would also be
paid any time upon demand. %
Silagan and her husband, Yao King Chiong, took possession of the lots and erected a house and a
noodle (miki and misua) factory thereon. But no registrable public instrument of sale was ever
executed in her favor, and consequently no Torrens title was ever issued in her name over either
lot.
On February 3, 1958Ȅon the 14th day after Macabasag had purportedly sold one of the lots, Lot
630-A to Rosa Silagan-Rita Macabasag sold the same Lot 630-A as well as Lot 630-C to Tito K. Yao
and Chun Peng for P5,500.00, Pl,500.00 being given as down payment and the balance of P4,000.00
stipulated to be payable after the surrender of the owner's duplicate certificate of title to the
vendees. And on December 10, 1958Ȅon the 4th day after Macabasag had purportedly sold her
second lot, Lot 630-C to Rosa SilaganȄMacabasag executed a second public instrument conveying
by way of absolute sale the aforementioned two lots to Yao and Chun. This second deed of sale was
registered; Macabasag's title, OCT No. 152-RO-3, was cancelled; and a new one, TCT No. 4618, was
issued to the vendees. And on April 30, 1960, Macabasag signed and delivered to the vendees a
"Deed of Confirmation of the Sale and Quit-Claim" involving the same property. 9 The buyers then
began paying the real estate taxes on the lots. Later, they caused consolidation of the two lots into
one: Lot 630-A.
It is Rosa Silagan's claim that these public instruments are simulated, and void and inefficacious as
to her. According to Silagan, Rita Macabasag really intended to sell the two lots to her, and this was
known to both Tito K. Yao and Chun Peng, Yao and Chun, like Rosa Silagan's common-law-husband
ȄYao King Chiong @ Chionga Ȅ were members of the Wei Due
Association. One of the purposes of the Association was "to assist members who need some loans .
. . (or otherwise require) financial help. There had been an agreement among them that Yao and
Chun should appear as the buyers of Lot 630-A, the lot first sold. This was "because Rosa Silagan,
with the assistance of her common-law-husband, Yao King Chiong, was to secure a loan from the
Wei Due Association to be paid in ten (10) years, and after paying x x the indebtedness (in ten (10)
years), the said Tito K. Yao and Chung Ping will transfer the property to Rosa Silagan." The
purpose of this arrangement was "to protect the Wei Due Association for the faithful compliance by
Rosa Silagan of the loan. 8 It was pursuant to this arrangement that Lot 630-A was ostensibly sold
to Yao and Chun on February 3,1958. Now, when Rita Macabasag sold the second lot, Lot 630- C, to
Rosa Silagan on December 6, 1958, and the latter incurred an obligation in the former's favor in the
sum of P2,350.00, representing the balance of the price of the two (2) lots, she (Silagan) secured a
loan in . . . (this amount) from the Wei Due Association. This amount she paid to Macabasag; and
she and her husband, Yao King Chiong, bound themselves to pay the loan in monthly installments of
P50.00 to P100.00, depending on the state of their business. Now, since the association wished to
have some security for the loan, and since it was not feasible to transfer the property to the
association as it was not qualified to own property, it was arranged that Macabasag execute a
simulated deed of sale of the lots in favor of Tito K Yao and Chung Peng, who were naturalized
Filipinos and members of the society, but although the sale would be registered, the certificate of
title would not be transferred to the latter's names. This is why, Silagan continues "another
document was also executed (by Macabasag) in favor of Tito K. Yao and Chung Peng . . . to protect
the Wei Due Association for the faithful compliance by Rosa Silagan of the loan," but as before, the
agreement was to transfer the property to her after ten (10) years upon payment (of the loan) to
the Wei Due Association. %
It is further Silagan's claim that over the years, she and Chionga, her husband, had paid to the Wei
Due Association, in installments, the total amount of P10,560.00, not only in payment of their
aforesaid loan but also "at the same time as contribution to the said association, (her husband)
being member thereof", although the receipts make it appear that the payments were for rentals on
the premises.
Silagan also alleges that on March 8,1971, thirteen (13) years after the execution of the private
deeds of sale in her favor, she caused the annotation of an adverse claim on TCT No. 4618, which, as
above mentioned, had been issued in the names of Tito K Yao and Chung Peng. The annotation
reads as follows: "Entry No. 14190. Affidavit of Adverse Claim executed by Rosa Silagan. Conditions.
The parcel of land described in this cert. of title is subject to adverse claim. (For other conditions
documents on file.) Date of Instrument ȄMarch 8, 1971. Date of Inscription Ȅ March 8, 1971, at
8:00 A.M." She also claims to have sent a registered letter to Tito K. Yao on January 27, 19.72 but
never got an answer. 9
On January 3, 1972, some fourteen (14) years after their purchase of the lots in question, Yao and
Chun sold the same lots (then already consolidated) to Daniel Cabigon and Chan Yan Peng. Cabigon
and Chan registered the sale and obtained title in their names, TCT No. 7836, their vendors' title
(TCT No. 4618) being cancelled in the process.
Cabigon and Chan subsequently filed an ejectment suit against Rosa Silagan in the Municipal Court
of Tacloban City to obtain possession of the lots.
Silagan in turn filed in the Court of First Instance of Leyte (Palo) an action against Yao, Chun,
Cabigon and Chan for recovery of ownership of the property and the cancellation of their titles. In
this suit, she sought to prove what she contended to be the real nature of her agreement with Rita
Macabasag, setting forth in her complaint the facts already above narrated. Her cause did not
however prosper. She failed to persuade the Court of the truthfulness of her asseverations. The
Court dismissed her action by a decision dated December 26, 1975. 8
Silagan appealed to the Court of Appeals. But there she fared no better. The Appellate Court
rendered judgment on June 28, 1984 8 affirming that of the Trial Court. 88 The Court declared that
the private document of sale on which Silagan based her claim to the property was "hardly
sufficient to convey title or ownership" to her, the land being then already registered under the
Torrens System and "hence, any deed of conveyance must be made . . . in accordance with the
procedure outlined in Section 57, Act 496" and "it is the act of registration that operates to convey
registered land or affect title thereto (Section 50, Act 496 and Section 51, PD No. 1529)"; that the
rule on double sales under Article 1544 of the Civil Code was applicable (.., that if the same
immovable property should have been sold to different vendees, "the ownership shall belong to the
person acquiring it who in good faith recorded it in the Registry of Property"); that defendants were
buyers in good faith, there being no convincing evidence on record of their full awareness of the
prior sale of the land to Rosa Silagan, it appearing that when Cabigon and Chan, vendees of Yao and
Chun, "checked the original Certificate of Title with the Register of Deeds (before buying it on
January 3, 1978) . . . (they) found out that there was no encumbrance shown on said title, 8 and it is
established doctrine that a purchaser need not go beyond the statements of and annotations on the
title itself 8% that assuming it to be true, as argued by Rosa Silagan, that the sale by Macabasag to
Yao and Chun was relatively simulatedȄthe real buyer being her common-law-husband, a Chinese
national, and that there was an agreement for the reconveyance of the lots to her Ȅ the transaction
would still be void because designed to convey land to a non-Filipino in infringement of the
Constitution and against public policy. 8
Silagan has come to this Court on

, praying for the reversal of the Appellate Court's
judgment. She submits that the fact that Yao and Chun were mere trustees of the property, who
were bound to reconvey it to her after ten (10) years, is convincingly demonstrated by their having
refrained from effecting any transfer of the title to the land to themselves for that period of ten
years. She argues further that the sales by Macabasag to Yao and Chun, and by the latter to Cabigon
and Chan, were highly suspicious, and had been resorted to as a means of negating her rights to the
property. In substantiation, she points out that (1) the lots were sold to Yao and Chun by Macabasag
for P5,500.00, which is the same consideration for the sale of the same lots to her by Macabasag; (2)
Macabasag's signature on the deed of confirmation of sale and quitclaim is different from that
purporting to be hers affixed on the deeds of sale by Macabasag to her (Silagan) as well as to Yao
and Chun; (3) there is a strange disparity in the price at which the lots were sold to Yao and ChunȄ
.., P5,500.00 plus an additional amount of P2,000.00, or a total of P7,500.00 Ȅ and the price at
which they were sold 12 years later to Cabigon and Chan Ȅ .., P6,500.00; in other words, the lots
bought in 1958 were sold in 1972 at a loss of Pl,000.00; (4) the residence certificates of Yao and
Chun appearing in the deed of sale executed by them in favor of Cabigon and Chan were falsified,
this being shown by the fact that the deed was acknowledged by the notary public on January 3,
1972, three days earlier than the date of issuance of Chun's residence certificate on January 6, 1972,
and the residence certificate of Yao does not appear in the cash book of the Bureau of Internal
Revenue in Tacloban City; and (5) the deed did not have the notary's dry seal affixed thereon. She
states, finally, that the annotation of her adverse claim on the title of Yao and Chun, TCT No. 4618,
as well as on that of Cabigon and Chan, TCT No. 7836, operated as notice to the whole world
precluding the acquisition of ownership of the property by Yao and Chun, who were trustees
thereof, and Cabigon and Chan, who did not exercise the diligence of good purchasers.
Two considerations dictate rejection of the petitioner's recourse: (1) the well-settled doctrine that
the findings of fact of the Court of Appeals are generally final and not reviewable by the Supreme
Court, 8 and (2) the equally established and familiar principle that who comes to the courts must
come with clean hands.89
The Intermediate Appellate Court found that Cabigon and Chan were purchasers in good faith, that
they were not aware of petitioner's claim to the property by virtue of alleged prior purchase. Not
only does such finding, as one of fact, merit acceptance by this Court under the first cited doctrine;
nothing in the record militates against its correctness sufficiently to warrant a reversal.
About the only circumstance that would cast some doubt on said purchasers' good faith is the
alleged recording of petitioner's affidavit of adverse claim 8 on the TCT No. T-4618 on March 8,
1971 or one year before the property was sold to Cabigon and Chan, which would have forewarned
the latter about the petitioner's asserted right to the property if, as the Appellate Court found they
did, 8they had looked up the records of the title in the Register of Deeds before making the
purchase. The evidence, however, fails to establish with any persuasion, but on the contrary
engenders serious doubts about, the purported prior and regular execution and recording of said
adverse claim.
Two copies of TCT No. T-4618 were offered in evidence. One, Exhibit 5, is a machine copy of the file
copy of said certificate of title in the Registry of Deeds of Tacloban City. The other, Exhibit 6, is a
copy of the owner's duplicate of the same certificate. While an inscription of the adverse claim
appears as Entry No. 14190 in the Memorandum of Encumbrances on Exhibit 5, the file copy in the
Registry of Deeds, it does not appear at all in Exhibit 6, the owner's duplicate certificate. Both
however carry, as Entry No. 15464, an annotation of the sale to Cabigon and Chan, but apparently
typed on different machines. The inscription of the adverse claim (Entry No. 14190) on Exhibit 5,
moreover, is clearly a superimposition made over another entry which had been erased to make
way for it.
In the Trial Court, counsel for the present respondents advanced and Ȅ through the testimony of
witnesses, principally, Fiscal Joventino Isidro, deputy register of deeds at the time, and Elsie E.
Maga, an employee also of the Registry of Deeds of Tacloban City Ȅ sought to develop the thesis
that the adverse claim had been annotated on Exhibit 5 subsequent to the annotation of the sale to
Cabigon and Chan, and that it was in fact the latter inscription that had been erased to make way for
the annotation of the adverse claim, said inscription then being re-typed in the space below.
The physical evidence tends to confirm that hypothesis, for as already observed, an examination of
the questioned entries themselves clearly shows that the annotation of the adverse claim on Exhibit
5, the file copy of the title, had been typed over another existing entry which erasure and over-
typing did not completely obliterate; that incompletely erased entry could have been nothing else
but the inscription of the sale to Cabigon and Chan.
This was, however disputed by Elsie R. Maga, who tried to explain that the erased and typed-over
entry was that of the adverse claim, not of the sale. What seems to emerge from her lengthy and
rather involved account is that when both file copy and owner's duplicate certificate of TCT No.
4618 were given to her for annotation thereon of the sale, she had inserted both documents in her
typewriter, the owner's duplicate over the file copy with a carbon sheet in between; and that she
had inadvertently typed the entry of the sale on the space in the owner's duplicate that overlay the
entry of the adverse claim on the file copy, the resulting carbon impression thereby "overlapping"
the latter inscription. Upon noticing this, after consulting her superior, she had erased the carbon
impression on the file copy restored the original entry (of the adverse claim) then typed under it
the entry of the sale.
Maga's explanation is hardly convincing, nor is its credibility improved by her vagueness, apparent
confusion and lapses in recollection under further questioning. It offers no satisfactory account of
why the same entry regarding the sale is typed on one machine in the file copy of the title and on a
different machine in the owner's duplicate certificate, and is signed by the register of deeds in
duplicate certificate and unsigned in the file copy; why erasure and superimposition of entries was
resorted to in apparent disregard of the prescribed procedure of simply marking or stamping
incorrect or irregular entries "cancelled" 8 or, finally, why the annotation of the adverse claim was
not carried over to the owner's duplicate when the same was, as it must have been, surrendered for
cancellation of TCT No. T-4618 and the issuance, in lieu thereof, of a new certificate of title (TCT No.
T-7836) in the names of Cabigon and Chan.
These considerations surely did not escape the Appellate Court when it ruled that there was no
convincing evidence that respondents Cabigon and Chua were aware of the prior sale to the
petitioner. This Court quite agrees that they are hardly calculated to allay the doubts they raise
about the regular execution and recording of the adverse claim Ȅ doubts that can only be deepened
by the further fact that a brother of the petitioner, Leonilo Silagan, himself an employee of the
Registry of Deeds of Tacloban during the relevant period, not only admitted to some participation
in the recording of the adverse claim; he also appears to have manifested unusual interest in the
prosecution of the petitioner's action, even leaving his duties to attend the hearings and give help to
his sister and her counsel.
But even an assumption that Cabigon and Chan are not innocent purchasers would not help the
petitioner's cause. This, because she herself has not come guiltless to the courts. Quoted in the
decision of the Trial Court is her recorded testimony % admitting that the property being acquired
in the round-about way already narrated was being bought with income of herself and her
common-law husband, and was intended to become their common property. Since there is no
question, and in fact petitioner also confessed, that said husband was a Chinese national who never
acquired Philippine citizenship, it is clear that what was proposed and meant to be eventually
consummated amounted to a violation of the fundamental law which then and now, and subject
only to exceptions which do not operate in the context of the dispute at bar, limits acquisition and
ownership of real property in this country to its citizens. To grant the petitioner any relief in the
premises would be tantamount to rewarding, instead of penalizing, contravention of a paramount
public policy enunciated in no less than the Constitution itself.
According to Pomeroy:
The proposition is universal that no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed to be paid, or damages
for its violation. The rule has sometimes been laid down as though it were equally
universal, that where the parties are
, no affirmative relief of any kind
will be given to one against the other.
The principle has been consistently cited and followed in this

jurisdiction, except only where its application would violate well-established public
policy; 9 and it is hardly disputable that what would violate public policy in this instance is
not the application of the principle but, indeed, the invocation of the exception.
If, as is already evident, the rule of

, as expressed in Art. 1411 of the Civil Code would
have operated to bar any action of petitioner to enforce the sale in her favor against the original
seller, Rita Macabasag, now deceased, it works with equal and even greater force to proscribe her
present action against the private respondents Cabigon and Chua.
WHEREFORE, the Decision of the Intermediate Appellate Court under review is affirmed ,
without pronouncement as to costs.
SO ORDERED.
#
,
- ! $$

#$
1 ' , p. 15.
2 +., p. 15.
3 (P3,500.00 + P2,000.00) or P5,500.00 (total price for both lots)-(P1,500.00 +

P1,650.00) or P3,150.00 (total amount thus far paid by Silagan) = P2,350.00
4 ' , p. 29.
5 ' , p. 30.
6 +., pp. 9,107-1 TSN, Nov. 4.1974. pp. 12-34; TSN, Nov. 15, 1974, pp. 19-52.
7 +., p. 30.
8 +., 31; TSN, Nov. 4, 1974. pp. 33-34.
9 +., p. 103.
10 +., p. 36.
11 +., pp. 103-104.
12 +., pp. 3,104.
13 +., p. 104.
14 +., p. 104.
15 +., p. 37.
16 +., p. 70.
17 +., p. 40.
18 +., p. 105.
19 +., pp. 28 and-31.
20 ' , p. 29.
21
#! , $; Zosa and Castro-Bartolome, JJ., concurring.
22 ' , p. 28 !.
23 +., p. 31; reference being made in the judgment to "Exh. 6- A Cabigon," "Entry No.
15463, Exh. 6-A-1-Cabigon" and the signature thereon by the Register of Deeds, Exh.
6-A-2-Cabigon".
24 With voluminous citations.
25 #& par. 1, Art. 1409 and Art. 1346, Civil Code.
26 Tolentino vs. de Jesus, 56 SCRA 67, and cases cited therein; Cesar vs.
Sandiganbayan, 134 SCRA 105,121; Maclan vs. Santos, 156 SCRA 541; Malaysian
Airline System Bernad vs. CA, 156 SCRA 321 -1 Balde vs. CA, 150 SCRA 585; Sese vs.
IAC, 152 SCRA 585; Andres v. Manufacturers Hanover & Trust Corp., 177 SCRA 618;
Director of Lands vs. Cabral, G.R. No. 52491, Jan. 29, 1990.
27 Bouvier's Law Dictionary, 3rd Revision, Vol. 1, p. 502 & Trice v. Comstock,
121 Fed. 620, 57 C.C.A. 646,61 L.R.A. 176; West v. Washburn, 153 App. Div. 460,138
N.Y. Supp. 230.
28 Exhibit J.
29 IAC Decision; ' , p. 31.
30 TSN Palencia, November 14, 1975.
31 +., November 28, 1975, pp. 104-140.
32 +., November 14, 1975, pp. 65-66 (testimony of J. Isidro).
33 +., December 11, 1975, pp. 148, 151; 171-172.
34 Record on Appeal, pp. 60-62; TSN, Duarte, November 6, 1973, pp. 50-54,
35 Equity Jurisprudence, Vol. 3, 5th ed., p. 728.
36 Cabautan vs. Uy Hoo, L-2207, Jan. 23, 1951; Rellosa vs. Gaw Chee Hun, 93 Phil.
827 (1953); Caoile vs. Yu Chiao Peng, 93 Phil. 861 (1 953), which involved also a
sale of real property to an alien.
37 Angeles vs. CA, No. L-11024, Jan. 31, 1958; Liguez vs. CA, L-11240, Feb. 13, 1958.

G.R. No. 143958 July 11, 2003
ALFRED FRITZ FRENZEL vs. EDERLINA P. CATITO

m
Manila
m** m

%+)?8
*!! petitioner,
vs.
*
respondent.
+m
p
"
Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No.
53485 which affirmed the Decision2 of the Regional Trial Court of Davao City, Branch 14,
in Civil Case No. 17,817 dismissing the petitioner's complaint, and the resolution of the
Court of Appeals denying his motion for reconsideration of the said decision.
3
As gleaned from the evidence of the petitioner, the case at bar stemmed from the
following factual backdrop:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He is an

electrical engineer by profession, but worked as a pilot with the New Guinea Airlines. He
arrived in the Philippines in 1974, started engaging in business in the country two years
thereafter, and married Teresita Santos, a Filipino citizen. In 1981, Alfred and Teresita
separated from bed and board without obtaining a divorce.
Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He went to
King's Cross, a night spot in Sydney, for a massage where he met Ederlina Catito, a
Filipina and a native of Bajada, Davao City. Unknown to Alfred, she resided for a time in
Germany and was married to Klaus Muller, a German national. She left Germany and tried
her luck in Sydney, Australia, where she found employment as a in the King's
Cross nightclub. She was fluent in German, and Alfred enjoyed talking with her. The two
saw each other again; this time Ederlina ended up staying in Alfred's hotel for three days.
Alfred gave Ederlina sums of money for her services.4
Alfred was so enamored with Ederlina that he persuaded her to stop working at King's
Cross, return to the Philippines, and engage in a wholesome business of her own. He also
proposed that they meet in Manila, to which she assented. Alfred gave her money for her
plane fare to the Philippines. Within two weeks of Ederlina's arrival in Manila, Alfred
joined her. Alfred reiterated his proposal for Ederlina to stay in the Philippines and
engage in business, even offering to finance her business venture. Ederlina was delighted
at the idea and proposed to put up a beauty parlor. Alfred happily agreed.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in
Australia. Alfred proposed marriage to Ederlina, but she replied that they should wait a
little bit longer.
Ederlina found a building at No. 444 M.H. del Pilar corner Arquiza Street, Ermita, Manila,
owned by one Atty. Jose Hidalgo who offered to convey his rights over the property for
P18,000.00. Alfred and Ederlina accepted the offer. Ederlina put up a beauty parlor on the
property under the business name Edorial Beauty Salon, and had it registered with the
Department of Trade and Industry under her name. Alfred paid Atty. Hidalgo P20,000.00
for his right over the property and gave P300,000.00 to Ederlina for the purchase of
equipment and furniture for the parlor. As Ederlina was going to Germany, she executed a
special power of attorney on December 13, 19835 appointing her brother, Aser Catito, as
her attorney-in-fact in managing the beauty parlor business. She stated in the said deed
that she was married to Klaus Muller. Alfred went back to Papua New Guinea to resume
his work as a pilot.
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence and
found it unsuitable for her. He decided to purchase a house and lot owned by Victoria
Binuya Steckel in San Francisco del Monte, Quezon City, covered by Transfer Certificate of
Title No. 218429 for US$20,000.00. Since Alfred knew that as an alien he was disqualified
from owning lands in the Philippines, he agreed that only Ederlina's name would appear
in the deed of sale as the buyer of the property, as well as in the title covering the same.
After all, he was planning to marry Ederlina and he believed that after their marriage, the
two of them would jointly own the property. On January 23, 1984, a Contract to Sell was
entered into between Victoria Binuya Steckel as the vendor and Ederlina as the sole
vendee. Alfred signed therein as a witness.6 Victoria received from Alfred, for and in
behalf of Ederlina, the amount of US$10,000.00 as partial payment, for which Victoria
issued a receipt.7 When Victoria executed the deed of absolute sale over the property on
March 6, 1984,8 she received from Alfred, for and in behalf of Ederlina, the amount of
US$10,000.00 as final and full payment. Victoria likewise issued a receipt for the said
amount.9 After Victoria had vacated the property, Ederlina moved into her new house.
When she left for Germany to visit Klaus, she had her father Narciso Catito and her two
sisters occupy the property.
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to
Australia and sold his fiber glass pleasure boat to John Reid for $7,500.00 on May 4,
1984.10 He also sold his television and video business in Papua New Guinea for
K135,000.00 to Tekeraoi Pty. Ltd.11 He had his personal properties shipped to the
Philippines and stored at No. 14 Fernandez Street, San Francisco del Monte, Quezon City.
The proceeds of the sale were deposited in Alfred's account with the Hong Kong Shanghai
Banking Corporation (HSBC), Kowloon Branch under Bank Account No. 018-2-807016.12
When Alfred was in Papua New Guinea selling his other properties, the bank sent
telegraphic letters updating him of his account.13 Several checks were credited to his
HSBC bank account from Papua New Guinea Banking Corporation, Westpac Bank of
Australia and New Zealand Banking Group Limited and Westpac Bank-PNG-Limited.
Alfred also had a peso savings account with HSBC, Manila, under Savings Account No. 01-
725-183-01.14
Once, when Alfred and Ederlina were in Hong Kong, they opened another account with
HSBC, Kowloon, this time in the name of Ederlina, under Savings Account No. 018-0-
807950.15 Alfred transferred his deposits in Savings Account No. 018-2-807016 with the
said bank to this new account. Ederlina also opened a savings account with the Bank of
America Kowloon Main Office under Account No. 30069016.16
On July 28, 1984, while Alfred was in Papua New Guinea, he received a Letter dated
December 7, 1983 from Klaus Muller who was then residing in Berlin, Germany. Klaus
informed Alfred that he and Ederlina had been married on October 16, 1978 and had a
blissful married life until Alfred intruded therein. Klaus stated that he knew of Alfred and
Ederlina's amorous relationship, and discovered the same sometime in November 1983
when he arrived in Manila. He also begged Alfred to leave Ederlina alone and to return
her to him, saying that Alfred could not possibly build his future on his (Klaus')
misfortune.17
Alfred had occasion to talk to Sally MacCarron, a close friend of Ederlina. He inquired if
there was any truth to Klaus' statements and Sally confirmed that Klaus was married to
Ederlina. When Alfred confronted Ederlina, she admitted that she and Klaus were, indeed,
married. But she assured Alfred that she would divorce Klaus. Alfred was appeased. He
agreed to continue the amorous relationship and wait for the outcome of Ederlina's
petition for divorce. After all, he intended to marry her. He retained the services of
Rechtsanwaltin Banzhaf with offices in Berlin, as her counsel who informed her of the
progress of the proceedings.18 Alfred paid for the services of the lawyer.
In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo
Morelos covered by TCT No. 92456 located in Peña Street, Bajada, Davao City.19 Alfred
again agreed to have the deed of sale made out in the name of Ederlina. On September 7,
1984, Rodolfo Morelos executed a deed of absolute sale over the said property in favor of
Ederlina as the sole vendee for the amount of P80,000.00.20 Alfred paid US$12,500.00 for
the property.
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo,
located in Moncado, Babak, Davao, covered by TCT No. 35251. Alfred once more agreed
for the name of Ederlina to appear as the sole vendee in the deed of sale. On December
31, 1984, Atty. Camporedondo executed a deed of sale over the property for P65,000.00
in favor of Ederlina as the sole vendee.21 Alfred, through Ederlina, paid the lot at the cost
of P33,682.00 and US$7,000.00, respectively, for which the vendor signed receipts.22 On
August 14, 1985, TCT No. 47246 was issued to Ederlina as the sole owner of the said
property.23
Meanwhile, Ederlina deposited on December 27, 1985, the total amount of US$250,000
with the HSBC Kowloon under Joint Deposit Account No. 018-462341-145.24
The couple decided to put up a beach resort on a four-hectare land in Camudmud, Babak,
Davao, owned by spouses Enrique and Rosela Serrano. Alfred purchased the property
from the spouses for P90,000.00, and the latter issued a receipt therefor.25 A draftsman
commissioned by the couple submitted a sketch of the beach resort.26 Beach houses were
forthwith constructed on a portion of the property and were eventually rented out by
Ederlina's father, Narciso Catito. The rentals were collected by Narciso, while Ederlina
kept the proceeds of the sale of copra from the coconut trees in the property. By this time,
Alfred had already spent P200,000.00 for the purchase, construction and upkeep of the
property.
Ederlina often wrote letters to her family informing them of her life with Alfred. In a
Letter dated January 21, 1985, she wrote about how Alfred had financed the purchases of
some real properties, the establishment of her beauty parlor business, and her petition to
divorce Klaus.27
Because Ederlina was preoccupied with her business in Manila, she executed on July 8,
1985, two special powers of attorney28 appointing Alfred as attorney-in-fact to receive in
her behalf the title and the deed of sale over the property sold by the spouses Enrique
Serrano.
In the meantime, Ederlina's petition for divorce was denied because Klaus opposed the
same. A second petition filed by her met the same fate. Klaus wanted half of all the
properties owned by Ederlina in the Philippines before he would agree to a divorce.
Worse, Klaus threatened to file a bigamy case against Ederlina.29
Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the

establishment of a corporation, with Ederlina owning 30% of the equity thereof. She
initially agreed to put up a corporation and contacted Atty. Armando Dominguez to
prepare the necessary documents. Ederlina changed her mind at the last minute when
she was advised to insist on claiming ownership over the properties acquired by them
during their coverture.
Alfred and Ederlina's relationship started deteriorating. Ederlina had not been able to
secure a divorce from Klaus. The latter could charge her for bigamy and could even
involve Alfred, who himself was still married. To avoid complications, Alfred decided to
live separately from Ederlina and cut off all contacts with her. In one of her letters to
Alfred, Ederlina complained that he had ruined her life. She admitted that the money used
for the purchase of the properties in Davao were his. She offered to convey the properties
deeded to her by Atty. Mardoecheo Camporedondo and Rodolfo Morelos, asking Alfred to
prepare her affidavit for the said purpose and send it to her for her signature.30 The last
straw for Alfred came on September 2, 1985, when someone smashed the front and rear
windshields of Alfred's car and damaged the windows. Alfred thereafter executed an
affidavit-complaint charging Ederlina and Sally MacCarron with malicious mischief.31
On October 15, 1985, Alfred wrote to Ederlina's father, complaining that Ederlina had
taken all his life savings and because of this, he was virtually penniless. He further
accused the Catito family of acquiring for themselves the properties he had purchased
with his own money. He demanded the return of all the amounts that Ederlina and her
family had "stolen" and turn over all the properties acquired by him and Ederlina during
their coverture.32
Shortly thereafter, Alfred filed a Complaint33 dated October 28, 1985, against Ederlina,
with the Regional Trial Court of Quezon City, for recovery of real and personal properties
located in Quezon City and Manila. In his complaint, Alfred alleged,
, that
Ederlina, without his knowledge and consent, managed to transfer funds from their joint
account in HSBC Hong Kong, to her own account with the same bank. Using the said
funds, Ederlina was able to purchase the properties subject of the complaints. He also
alleged that the beauty parlor in Ermita was established with his own funds, and that the
Quezon City property was likewise acquired by him with his personal funds.34
Ederlina failed to file her answer and was declared in default. Alfred adduced his
evidence )
.
In the meantime, on November 7, 1985, Alfred also filed a complaint35 against Ederlina
with the Regional Trial Court, Davao City, for specific performance, declaration of
ownership of real and personal properties, sum of money, and damages. He alleged,

, in his complaint:
4. That during the period of their common-law relationship, plaintiff solely

&

acquired in the Philippines real and
personal properties valued more or less at P724,000.00; The defendant's
common-law wife or live-in partner did not contribute anything financially to the
acquisition of the said real and personal properties. These properties are as
follows:
I. '

a. TCT No. T-92456 located at Bajada, Davao City, consisting of 286 !

, (with residential house) registered in the name of the original title
owner Rodolfo M. Morelos but already fully paid by plaintiff. Valued at
P342,000.00;
b. TCT No. T-47246 (with residential house) located at Babak, Samal,

Davao, consisting of 600 square meters, registered in the name of Ederlina
Catito, with the Register of Deeds of Tagum, Davao del Norte valued at
P144,000.00;
c. A parcel of agricultural land located at Camudmud, Babak, Samal, Davao

del Norte, consisting of 4.2936 hectares purchased from Enrique Serrano
and Rosela B. Serrano. Already paid in full by plaintiff. Valued at
P228,608.32;
II.

:
a. Furniture valued at P10,000.00.
...
5. That defendant made no contribution at all to the acquisition, of the above-

mentioned properties as all the monies () used in acquiring said properties
belonged solely to plaintiff;36
Alfred prayed that after hearing, judgment be rendered in his favor:
WHEREFORE, in view of the foregoing premises, it is respectfully prayed that

judgment be rendered in favor of plaintiff and against defendant:
a) Ordering the defendant to execute the corresponding deeds of transfer and/or

conveyances in favor of plaintiff over those real and personal properties
enumerated in Paragraph 4 of this complaint;
b) Ordering the defendant to deliver to the plaintiff all the above real and
personal properties or their money value, which are in defendant's name and
custody because these were acquired solely with plaintiffs money and resources
during the duration of the common-law relationship between plaintiff and
defendant, the description of which are as follows:
(1) TCT No. T-92456 (with residential house) located at Bajada, Davao
City, consisting of 286 square meters, registered in the name of the
original title owner Rodolfo Morelos but already fully paid by plaintiff.
Valued at P342,000.00;
(2) TCT No. T-47246 (with residential house) located at Babak, Samal,
Davao, consisting of 600 square meters, registered in the name of Ederlina
Catito, with the Register of Deeds of Tagum, Davao del Norte, valued at
P144,000.00;
(3) A parcel of agricultural land located at Camudmud, Babak, Samal,

Davao del Norte, consisting of 4.2936 hectares purchased from Enrique
Serrano and Rosela B. Serrano. Already fully paid by plaintiff. Valued at
P228,608.32;
c) Declaring the plaintiff to be the sole and absolute owner of the above-
mentioned real and personal properties;
d) Awarding moral damages to plaintiff in an amount deemed reasonable by the

trial court;
e) To reimburse plaintiff the sum of P12,000.00 as attorney's fees for having

compelled the plaintiff to litigate;
f) To reimburse plaintiff the sum of P5,000.00 incurred as litigation expenses also

for having compelled the plaintiff to litigate; and
g) To pay the costs of this suit;
Plaintiff prays other reliefs just and equitable in the premises.37
In her answer, Ederlina denied all the material allegations in the complaint, insisting that
she acquired the said properties with her personal funds, and as such, Alfred had no right
to the same. She alleged that the deeds of sale, the receipts, and certificates of titles of the
subject properties were all made out in her name.38 By way of special and affirmative
defense, she alleged that Alfred had no cause of action against her. She interposed
counterclaims against the petitioner.39
In the meantime, the petitioner filed a Complaint dated August 25, 1987, against the HSBC
in the Regional Trial Court of Davao City40 for recovery of bank deposits and damages.41
He prayed that after due proceedings, judgment be rendered in his favor, thus:
WHEREFORE, plaintiff respectfully prays that the Honorable Court adjudge

defendant bank, upon hearing the evidence that the parties might present, to pay
plaintiff:
1. ONE HUNDRED TWENTY SIX THOUSAND TWO HUNDRED AND THIRTY U.S.
DOLLARS AND NINETY EIGHT CENTS (US$126,230.98) plus legal interests, either
of Hong Kong or of the Philippines, from 20 December 1984 up to the date of
execution or satisfaction of judgment, as actual damages or in restoration of
plaintiffs lost dollar savings;
2. The same amount in (1) above as moral damages;
3. Attorney's fees in the amount equivalent to TWENTY FIVE PER CENT (25%) of
(1) and (2) above;
4. Litigation expenses in the amount equivalent to TEN PER CENT (10%) of the
amount in (1) above; and
5. For such other reliefs as are just and equitable under the circumstances.42
On April 28, 1986, the RTC of Quezon City rendered its decision in Civil Case No. Q-46350,
in favor of Alfred, the decretal portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering the

defendant to perform the following:
(1) To execute a document waiving her claim to the house and lot in No. 14
Fernandez St., San Francisco Del Monte, Quezon City in favor of plaintiff or to
return to the plaintiff the acquisition cost of the same in the amount of
$20,000.00, or to sell the said property and turn over the proceeds thereof to the
plaintiff;
(2) To deliver to the plaintiff the rights of ownership and management of the
beauty parlor located at 444 Arquiza St., Ermita, Manila, including the equipment
and fixtures therein;
(3) To account for the earnings of rental of the house and lot in No. 14 Fernandez
St., San Francisco Del Monte, Quezon City, as well as the earnings in the beauty
parlor at 444 Arquiza St., Ermita, Manila and turn over one-half of the net
earnings of both properties to the plaintiff;
(4) To surrender or return to the plaintiff the personal properties of the latter left
in the house at San Francisco Del Monte, to wit:
"(1) Mamya automatic camera

(1) 12 inch "Sonny" T.V. set, colored with remote control.
(1) Micro oven
(1) Electric fan (tall, adjustable stand)
(1) Office safe with (2) drawers and safe
(1) Electric Washing Machine
(1) Office desk and chair
(1) Double bed suits
(1) Mirror/dresser
(1) Heavy duty voice/working mechanic
(1) "Sony" Beta-Movie camera
(1) Suitcase with personal belongings
(1) Cardboard box with belongings
(1) Guitar Amplifier
(1) Hanger with men's suit (white)."
To return to the plaintiff, (1) Hi-Fi Stereo equipment left at 444 Arquiza Street,
Ermita, Manila, as well as the Fronte Suzuki car.
(4) To account for the monies () deposited with the joint account of the plaintiff
and defendant (Account No. 018-0-807950); and to restore to the plaintiff all the
monies () spent by the defendant without proper authority;
(5) To pay the amount of P5,000.00 by way of attorney's fees, and the costs of
suit.
SO ORDERED.43
However, after due proceedings in the RTC of Davao City, in Civil Case No. 17,817, the
trial court rendered judgment on September 28, 1995 in favor of Ederlina, the dispositive
portion of which reads:
WHEREFORE, the Court cannot give due course to the complaint and hereby
orders its dismissal. The counterclaims of the defendant are likewise dismissed.
SO ORDERED.44
The trial court ruled that based on documentary evidence, the purchaser of the three
parcels of land subject of the complaint was Ederlina. The court further stated that even if
Alfred was the buyer of the properties; he had no cause of action against Ederlina for the
recovery of the same because as an alien, he was disqualified from acquiring and owning
lands in the Philippines. The sale of the three parcels of land to the petitioner was null
and void . Applying the
doctrine, the petitioner was precluded from
recovering the properties from the respondent.
Alfred appealed the decision to the Court of Appeals45 in which the petitioner posited the
view that although he prayed in his complaint in the court ! that he be declared the
owner of the three parcels of land, he had no intention of owning the same permanently.
His principal intention therein was to be declared the transient owner for the purpose of
selling the properties at public auction, ultimately enabling him to recover the money he
had spent for the purchase thereof.
On March 8, 2000, the CA rendered a decision affirming the decision of the RTC.
The appellate court ruled that the petitioner knowingly violated the Constitution; hence,
was barred from recovering the money used in the purchase of the three parcels of land.
It held that to allow the petitioner to recover the money used for the purchase of the
properties would embolden aliens to violate the Constitution, and defeat, rather than
enhance, the public policy.46
Hence, the petition at bar.
The petitioner assails the decision of the court contending that:
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULE OF +3

'+*(+#Ä IN THE INSTANT CASE BECAUSE BY THE FACTS AS NARRATED IN
THE DECISION IT IS APPARENT THAT THE PARTIES ARE 3ÄâA((<A+(<
BUT RATHER IT WAS THE RESPONDENT WHO EMPLOYED FRAUD AS WHEN SHE
DID NOT INFORM PETITIONER THAT SHE WAS ALREADY MARRIED TO
ANOTHER GERMAN NATIONAL AND WITHOUT SUCH FRAUDULENT DESIGN
PETITIONER COULD NOT HAVE PARTED WITH HIS MONEY FOR THE PURCHASE
OF THE PROPERTIES.47
and
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

INTENTION OF THE PETITIONER IS NOT TO OWN REAL PROPERTIES IN THE
PHILIPPINES BUT TO SELL THEM AT PUBLIC AUCTION TO BE ABLE TO
RECOVER HIS MONEY USED IN PURCHASING THEM.48
Since the assignment of errors are intertwined with each other, the Court shall resolve
the same simultaneously.
The petitioner contends that he purchased the three parcels of land subject of his
complaint because of his desire to marry the respondent, and not to violate the Philippine
Constitution. He was, however, deceived by the respondent when the latter failed to
disclose her previous marriage to Klaus Muller. It cannot, thus, be said that he and the
respondent are "equally guilty;" as such, the
doctrine is not applicable to him.
He acted in good faith, on the advice of the respondent's uncle, Atty. Mardoecheo
Camporedondo. There is no evidence on record that he was aware of the constitutional
prohibition against aliens acquiring real property in the Philippines when he purchased
the real properties subject of his complaint with his own funds. The transactions were not
illegal
but merely prohibited, and under Article 1416 of the New Civil Code, he is
entitled to recover the money used for the purchase of the properties. At any rate, the
petitioner avers, he filed his complaint in the court ! merely for the purpose of having
him declared as the owner of the properties, to enable him to sell the same at public
auction. Applying by analogy Republic Act No. 13349 as amended by Rep. Act No. 4381
and Rep. Act No. 4882, the proceeds of the sale would be remitted to him, by way of
refund for the money he used to purchase the said properties. To bar the petitioner from
recovering the subject properties, or at the very least, the money used for the purchase
thereof, is to allow the respondent to enrich herself at the expense of the petitioner in
violation of Article 22 of the New Civil Code.
The petition is bereft of merit.
Section 14, Article XIV of the 1973 Constitution provides, as follows:
Save in cases of hereditary succession, no private land shall be transferred or

conveyed except to individuals, corporations, or associations qualified to acquire
or hold lands in the public domain.50
Lands of the public domain, which include private lands, may be transferred or conveyed
only to individuals or entities qualified to acquire or hold private lands or lands of the
public domain. Aliens, whether individuals or corporations, have been disqualified from
acquiring lands of the public domain. Hence, they have also been disqualified from
acquiring private lands.51
Even if, as claimed by the petitioner, the sales in question were entered into by him as the
real vendee, the said transactions are in violation of the Constitution; hence, are null and
void .52 A contract that violates the Constitution and the law, is null and void and
vests no rights and creates no obligations. It produces no legal effect at all.53 The
petitioner, being a party to an illegal contract, cannot come into a court of law and ask to
have his illegal objective carried out. One who loses his money or property by knowingly
engaging in a contract or transaction which involves his own moral turpitude may not
maintain an action for his losses. To him who moves in deliberation and premeditation,
the law is unyielding.54 The law will not aid either party to an illegal contract or
agreement; it leaves the parties where it finds them.55 Under Article 1412 of the New Civil
Code, the petitioner cannot have the subject properties deeded to him or allow him to
recover the money he had spent for the purchase thereof.56 Equity as a rule will follow the
law and will not permit that to be done indirectly which, because of public policy, cannot
be done directly.57 Where the wrong of one party equals that of the other, the defendant
is in the stronger position . . . it signifies that in such a situation, neither a court of equity
nor a court of law will administer a remedy.58 The rule is expressed. in the maxims: L
*Ä(ÄÄ'+A'#+Ä and +3'+*(+#ÄÄ+Ä'#Ä3*++Ä*3*3+.59
The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he
acted in good faith, let alone assert that he is less guilty than the respondent. The
petitioner is charged with knowledge of the constitutional prohibition.60 As can be
gleaned from the decision of the trial court, the petitioner was fully aware that he was
disqualified from acquiring and owning lands under Philippine law even before he
purchased the properties in question; and, to skirt the constitutional prohibition, the
petitioner had the deed of sale placed under the respondent's name as the sole vendee
thereof:
Such being the case, the plaintiff is subject to the constitutional restrictions
governing the acquisition of real properties in the Philippines by aliens.
From the plaintiff's complaint before the Regional Trial Court, National Capital
Judicial Region, Branch 84, Quezon City in Civil Case No. Q-46350 he alleged:
x x x "That on account that foreigners are not allowed by the Philippine

laws to acquire real properties in their name as in the case of my vendor
Miss Victoria Vinuya () although married to a foreigner, we agreed and I
consented in having the title to subject property placed in defendant's
name alone although I paid for the whole price out of my own exclusive
funds." (paragraph IV, Exhibit "W.")
and his testimony before this Court which is hereby quoted:
ATTY. ABARQUEZ:
Q. In whose name the said house and lot placed, by the way, where is his
house and lot located?
A. In 14 Fernandez St., San Francisco, del Monte, Manila.
Q. In whose name was the house placed?
A. Ederlina Catito because I was informed being not a Filipino, I cannot own
the property. (tsn, p. 11, August 27, 1986).
xxx xxx xxx
COURT:
Q. So you understand that you are a foreigner that you cannot buy land in the
Philippines?
A. That is correct but as she would eventually be my wife that would be

owned by us later on. (tsn, p. 5, September 3, 1986)
xxx xxx xxx
Q. What happened after that?

A. She said you foreigner you are using Filipinos to buy property.
Q. And what did you answer?
A: I said thank you very much for the property I bought because I gave you a
lot of money (tsn., p. 14, ).
It is evident that the plaintiff was fully aware that as a non-citizen of the Philippines, he
was disqualified from validly purchasing any land within the country.61
The petitioner's claim that he acquired the subject properties because of his desire to
marry the respondent, believing that both of them would thereafter jointly own the said
properties, is belied by his own evidence. It is merely an afterthought to salvage a lost
cause. The petitioner admitted on cross-examination that he was all along legally married
to Teresita Santos Frenzel, while he was having an amorous relationship with the
respondent:
ATTY. YAP:
Q When you were asked to identify yourself on direct examination you

claimed before this Honorable Court that your status is that of being married, do
you confirm that?
A Yes, sir.
Q To whom are you married?
A To a Filipina, since 1976.
Q Would you tell us who is that particular person you are married since
1976?
A Teresita Santos Frenzel.
Q Where is she now?
A In Australia.
Q Is this not the person of Teresita Frenzel who became an Australian citizen?
A I am not sure, since 1981 we were separated.
Q You were only separated, in fact, but not legally separated?
A Thru my counsel in Australia I filed a separation case.
Q As of the present you are not legally divorce[d]?

A I am still legally married.62
The respondent was herself married to Klaus Muller, a German citizen. Thus, the
petitioner and the respondent could not lawfully join in wedlock. The evidence on record
shows that the petitioner in fact knew of the respondent's marriage to another man, but
nonetheless purchased the subject properties under the name of the respondent and paid
the purchase prices therefor. Even if it is assumed &

& that the respondent
and the petitioner were capacitated to marry, the petitioner is still disqualified to own the
properties in tandem with the respondent.63
The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and
the prohibition by the law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered.64
The provision applies only to those contracts which are merely prohibited, in order to
benefit private interests. It does not apply to contracts void . The sales of three
parcels of land in favor of the petitioner who is a foreigner is illegal
. The
transactions are void because they were entered into in violation of the
Constitution. Thus, to allow the petitioner to recover the properties or the money used in
the purchase of the parcels of land would be subversive of public policy.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act No.
4882, which reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real

property may be mortgaged in favor of any individual, corporation, or association,
but the mortgagee or his successor-in-interest, if disqualified to acquire or hold
lands of the public domain in the Philippines, shall not take possession of the
mortgaged property during the existence of the mortgage and shall not take
possession of mortgaged property except after default and for the sole purpose of
foreclosure, receivership, enforcement or other proceedings and in no case for a
period of more than five years from actual possession and shall not bid or take
part in any sale of such real property in case of foreclosure:
", That said
mortgagee or successor-in-interest may take possession of said property after
default in accordance with the prescribed judicial procedures for foreclosure and
receivership and in no case exceeding five years from actual possession.65
From the evidence on record, the three parcels of land subject of the complaint were not
mortgaged to the petitioner by the owners thereof but were to the respondent as the
vendee, albeit with the use of the petitioner's personal funds.
Futile, too, is petitioner's reliance on Article 22 of the New Civil Code which reads:
Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him.66
The provision is expressed in the maxim: "Ä#A('+A*'*'3Ä
'Ä" (No person should unjustly enrich himself at the expense of another). An
action for recovery of what has been paid without just cause has been designated as an

"
.67 This provision does not apply if, as in this case, the action is
proscribed by the Constitution or by the application of the
doctrine. 68 It may
be unfair and unjust to bar the petitioner from filing an
"
over the
subject properties, or from recovering the money he paid for the said properties, but, as
Lord Mansfield stated in the early case of : "$:69 "The objection that a
contract is immoral or illegal as between the plaintiff and the defendant, sounds at all
times very ill in the mouth of the defendant. It is not for his sake, however, that the
objection is ever allowed; but it is founded in general principles of policy, which the
defendant has the advantage of, contrary to the real justice, as between him and the
plaintiff."
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The decision of the Court
of Appeals is AFFIRMED .
Costs against the petitioner.
SO ORDERED.
%

, & $$ concur.
â&$ is on leave.
#$
1Penned by Justice Martin Villarama, Jr., with Presiding Justice Cancio C. Garcia
and Justice Andres B. Reyes, Jr. concurring.
2 Penned by Judge William M. Layague.
3The petitioner adduced testimonial and documentary evidence. The respondent

did not adduce any testimonial evidence, but adduced as Exhibit "5," the
petitioner's complaint in Civil Case No. 18,750-87 filed with the RTC of Davao
City.
4 Exhibits "A" to "D-4."
5 Exhibits "B" and "B-1."
6 Exhibit "C."
7 Exhibit "E."
8 Exhibit "D."
9 Exhibit "F."
10 Exhibit "G."
11 Exhibits "H" to "H-12."
12 Exhibit "J."
13 Exhibits "K" to "K-5."
14 Exhibit "L."
15 Exhibit "M."
16 Exhibit "V."
17 Exhibit "N."
18 Exhibits "O" to "O-4."
19 Exhibit "P-4."
20 Exhibit "P" & "P-1."
21 Exhibit "Q" & "Q-1."
22 Exhibits "Q-4" to "Q-6."
23 Exhibit "Q-20."
24 Exhibits "V-4"Ȃ"V-10."
25 Exhibit "R-5."
26 Exhibit "R-13."
27 Exhibit "BB."
28 Exhibits "S" and "T."
29 Exhibit "BB."
30 Exhibits "CC" to "CC-4."
31Exhibit "U;" Entitled and docketed as

,
, "
# ,
Civil Case No. 46350.
32 Exhibit "GG."
33Entitled and docketed as

,
, "
# , Civil Case No.
Q-46350.
34 Exhibit "W."
35Entitled and docketed as Alfred Frenzel vs. Ederlina P. Catito, Civil Case No.
17,817.
36 Records, p. 2.
37 Records, pp. 4Ȃ5.
38 Exhibit "5."
40 Docketed as Civil Case No. 18,750-87.
41 Exhibit "5;" Records, pp. 194Ȃ198.
42 Exhibit "5-D;" Records, pp. 197Ȃ198.
43 Exhibit "X-2"Ȃ"X-3."
44 Records, p. 232.
45 Docketed as CA-G.R. CV. No. 53485.
46 Rollo, p. 30.
47 +., at 16.
48 +., at 19.
49An act to authorize the mortgage of private real property in favor of any
individual, corporation or association subject to certain conditions.
50
. The conveyances subject of the case were executed when the 1973
Constitution was in effect.
51 Ä&#&"#
, 239 SCRA 341 [1994].
52 )
C
""'&
* ., 79 Phil. 461 [1947]; ' "
:, 93 Phil. 827 [1953]; # "&, 93 Phil. 861 [1953]; Ä&#&"
#
,
.
53
# ","
#"
., 307
SCRA 394 [1999].
54 "# > &

'

, 667 [1938].
55 Rellosa vs. Hun, supra.
56ART. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking. . .
57#
"'
, 40 N.W., Reporter, 2d 726 [1950], * "# " ,
260 N.W. Reporter, 898 [1935].
58 19 Am. Jur., Equity, Section 478.
59 %&B%&"# "
: , 40 Phil. 209 [1919], Reporter.
60 # "+
#
., 193 SCRA 93 [1991].
62 TSN, 7 April 1987, pp. 2Ȃ3 (Frenzel).
63 See note 57.
64
.
65
.
66
.
67 +., at 85.
68 Tolentino, #" # , 1990 ed., Vol. I, p. 85.
69 Cited in
"% & , 123 So. 2d 537 [1960].
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Petition for review by

of the judgment of the Court of Appeals dated November 17, 1969
in its CA-G.R. 27655-R which reverses the judgment of the Court of First Instance of Pampanga in
favor of petitioners-appellants against the Secretary and Undersecretary of Public Works &
Communications in the case instituted to annul the order of November 25, 1958 of respondent
Secretary of Public Works & Communications directing the removal by the petitioners of the dikes
they had constructed on Lot No. 15856 of the Register of Deeds of Pampanga, which order was
issued pursuant to the provisions of Republic Act No. 2056. The dispositive portion of the judgment
of reversal of the Court of Appeals reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is

hereby reversed, and another entered: [1] upholding the validity of the decision
reached by the respondent officials in the administrative case; [2] dissolving the
injunction issued by the Court below; and [3] cancelling the registration of Lot No. 2,
the disputed area, and ordering its reconveyance to the public domain. No costs in
this instance.
The background facts are stated by the Court of Appeals as follows:
The spouses Romeo Martinez and Leonor Suarez, now petitioners-appellees, are the
registered owners of two (2) parcels of land located in Lubao, Pampanga, covered by
transfer certificate of title No. 15856 of the Register of Deeds of the said province.
Both parcels of land are fishponds. The property involved in the instant case is the
second parcel mentioned in the above-named transfer certificate of title.
The disputed property was originally owned by one Paulino Montemayor, who
secured a "titulo real" over it way back in 1883. After the death of Paulino
Montemayor the said property passed to his successors-in-interest, Maria
Montemayor and Donata Montemayor, who in turn, sold it, as well as the first parcel,
to a certain Potenciano Garcia.
Because Potenciano Garcia was prevented by the then municipal president of Lubao,
Pedro Beltran, from restoring the dikes constructed on the contested property, the
former, on June 22, 1914, filed Civil Case No. 1407 with the Court of First Instance
against the said Pedro Beltran to restrain the latter in his official capacity from
molesting him in the possession of said second parcel, and on even date, applied for
a writ of preliminary injunction, which was issued against said municipal president.
The Court, by decision promulgated June 12, 1916, declared permanent the
preliminary injunction, which, decision, on appeal, was affirmed by the Supreme
Court on August 21, 1918. From June 22, 1914, the dikes around the property in
question remained closed until a portion thereof was again opened just before the
outbreak of the Pacific War.
On April 17, 1925. Potenciano Garcia applied for the registration of both parcels of
land in his name, and the Court of First Instance of Pampanga, sitting as land
registration court, granted the registration over and against the opposition of the
Attorney-General and the Director of Forestry. Pursuant to the Court's decision,
original certificate of title No. 14318, covering said parcels 1 and 2 was issued to the
spouses Potenciano Garcia and Lorenza Sioson.
These parcels of land were subsequently bought by Emilio Cruz de Dios in whose
name transfer certificate of title No. 1421 was first issued on November 9, 1925.
Thereafter, the ownership of these properties changed hands until eventually they
were acquired by the herein appellee spouses who hold them by virtue of transfer
certificate of title No. 15856.
To avoid any untoward incident, the disputants agreed to refer the matter to the
Committee on Rivers and Streams, by then composed of the Honorable Pedro
Tuason, at that time Secretary of Justice, as chairman, and the Honorable Salvador
Araneta and Vicente Orosa, Secretary of Agriculture and National Resources and
Secretary of Public Works and Communications, respectively, as members. This
committee thereafter appointed a Sub-Committee to investigate the case and to
conduct an ocular inspection of the contested property, and on March 11, 1954, said
Sub-Committee submitted its report to the Committee on Rivers and Streams to the
effect that Parcel No. 2 of transfer certificate of title No. 15856 was not a public river
but a private fishpond owned by the herein spouses.
On July 7, 1954, the Committee on Rivers and Streams rendered its decision the
dispositive part of which reads:
"In view of the foregoing considerations, the spouses Romeo
Martinez and Leonor Suarez should be restored to the exclusive
possession, use and enjoyment of the creek in question which forms
part of their registered property and the decision of the courts on the
matter be given full force and effect."
The municipal officials of Lubao, led by Acting Mayor Mariano Zagad, apparently
refused to recognize the above decision, because on September 1, 1954, the spouses
Romeo Martinez and Leonor Suarez instituted Civil Case No. 751 before the Court of
First Instance of Pampanga against said Mayor Zagad, praying that the latter be
enjoined from molesting them in their possession of their property and in the
construction of the dikes therein. The writ of preliminary injunction applied for was
issued against the respondent municipal Mayor, who immediately elevated the
injunction suit for review to the Supreme Court, which dismissed Mayor Zagad's
petition on September 7, 1953. With this dismissal order herein appellee spouses
proceeded to construct the dikes in the disputed parcel of land.
Some four (4) years later, and while Civil Case No. 751 was still pending the
Honorable Florencio Moreno, then Secretary of Public Works and Communications,
ordered another investigation of the said parcel of land, directing the appellees
herein to remove the dikes they had constructed, on the strength of the authority
vested in him by Republic Act No. 2056, approved on June 13, 1958, entitled "An Act
To Prohibit, Remove and/or Demolish the Construction of Dams. Dikes, Or Any
Other Walls In Public Navigable Waters, Or Waterways and In Communal Fishing
Grounds, To Regulate Works in Such Waters or Waterways And In Communal
Fishing Grounds, And To Provide Penalties For Its Violation, And For Other
Purposes. 1 The said order which gave rise to the instant proceedings, embodied a
threat that the dikes would be demolished should the herein appellees fail to comply
therewith within thirty (30) days.
The spouses Martinez replied to the order by commencing on January 2, 1959 the
present case, which was decided in their favor by the lower Court in a decision
dated August 10, 1959, the dispositive part of which reads:
"WHEREFORE, in view of the foregoing considerations, the Court

hereby declares the decision, Exhibit S, rendered by the
Undersecretary of Public Works and Communications null and void;
declares the preliminary injunction, hereto for issued, permanent,
and forever enjoining both respondents from molesting the spouses
Romeo Martinez and Leonor Suarez in their possession, use and
enjoyment of their property described in Plan Psu-9992 and referred
to in their petition."
"Without pronouncement as to costs."
"SO ORDERED."
As against this judgment respondent officials of the Department of Public Works and
Communications took the instant appeal, contending that the lower Court erred:
1. In holding that then Senator Rogelio de la Rosa, complainant in the administrative
case, is not an interested party and his letter-complaint dated August 15, 1958 did
not confer jurisdiction upon the respondent Undersecretary of Public Works and
Communications to investigate the said administrative case;
2. In holding that the duty to investigate encroachments upon public rivers

conferred upon the respondent Secretary under Republic Act No. 7056 cannot be
lawfully delegated by him to his subordinates;
3. In holding that the investigation ordered by the respondent Secretary in this case
is illegal on the ground that the said respondent Secretary has arrogated unto
himself the power, which he does not possess, of reversing, making nugatory, and
setting aside the two lawful decisions of the Court Exhibits K and I, and even
annulling thereby, the one rendered by the highest Tribunal of the land;
4. In not sustaining respondent's claim that petitioners have no cause of action

because the property in dispute is a public river and in holding that the said claim
has no basis in fact and in law;
5. In not passing upon and disposing of respondent's counterclaim;
6. In not sustaining respondent's claim that the petition should not have been
entertained on the ground that the petitioners have not exhausted administrative
remedies; and
7. In holding that the decision of the respondents is illegal on the ground that it
violates the principles that laws shall have no retroactive effect unless the contrary
is provided and in holding that the said Republic Act No. 2056 is unconstitutional on
the ground that respondents' threat of prosecuting petitioners under Section 3
thereof for acts done four years before its enactment renders the said law )
.
The Court of Appeals sustained the above-mentioned assignment of errors committed by the Court
of First Instance of Pampanga and, as previously stated, reversed the judgment of the latter court.
From this reversal this appeal by certiorari was taken, and before this Court, petitioners-appellants
assigned the following errors allegedly committed by the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN DECLARING IN THE INSTANT CASE THAT

PARCEL NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO. 15856 IS A PUBLIC RIVER
AND ORDERING THE CANCELLATION OF ITS REGISTRATION BECAUSE THIS
CONSTITUTES A COLLATERAL ATTACK ON A TORRENS TITLE IN VIOLATION OF
THE LAW AND THE WELL-SETTLED JURISPRUDENCE ON THE MATTER.
2. THE COURT OF APPEALS ERRED IN REOPENING AND RE-LITIGATING THE ISSUE

AS TO WHETHER OR NOT LOT NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO.
15856 REGISTER OF DEEDS OF PAMPANGA, IS A PUBLIC RIVER
NOTWITHSTANDING THE FACT THAT THIS ISSUE HAS BEEN LONG RESOLVED
AND SETTLED BY THE LAND REGISTRATION COURT OF PAMPANGA IN LAND
REGISTRATION PROCEEDING NO. 692 AND IS NOW '$A*+#.
3. THE COURT OF APPEALS ERRED IN ORDERING THE CANCELLATION OF THE
REGISTRATION OF LOT NO. 2 OF TRANSFER CERTIFICATE OF TITLE NO. 15856
NOTWITHSTANDING THE FACT THAT THE TORRENS TITLE COVERING IT HAS
BEEN VESTED IN THE PETITIONERS WHO ARE THE SEVENTH OF THE SUCCESSIVE
INNOCENT PURCHASERS THEREOF AND WHO IN PURCHASING THE SAME RELIED
ON THE PRINCIPLE THAT THE PERSONS DEALING WITH REGISTERED LAND NEED
NOT GO BEHIND THE REGISTER TO DETERMINE THE CONDITION OF THE
PROPERTY.
The 1st and 2nd assignment of errors, being closely related, will be taken up together.
The ruling of the Court of Appeals that Lot No. 2 covered by Transfer Certificate of Title No. 15856
of the petitioners-appellants is a public stream and that said title should be cancelled and the river
covered reverted to public domain, is assailed by the petitioners-appellants as being a collateral
attack on the indefeasibility of the torrens title originally issued in 1925 in favor of the petitioners-
appellants' predecessor-in-interest, Potenciano Garcia, which is violative of the rule of res judicata.
It is argued that as the decree of registration issued by the Land Registration Court was not re-
opened through a petition for review filed within one (1) year from the entry of the decree of title,
the certificate of title issued pursuant thereto in favor of the appellants for the land covered thereby
is no longer open to attack under Section 38 of the Land Registration Act (Act 496) and the
jurisprudence on the matter established by this Tribunal. Section 38 of the Land Registration Act
cited by appellants expressly makes a decree of registration, which ordinarily makes the title
absolute and indefeasible, subject to the exemption stated in Section 39 of the said Act among
which are: "liens, claims or rights arising or existing under the laws or Constitution of the United
States or of the Philippine Islands which the statute of the Philippine Islands cannot require to
appear of record in the registry."
At the time of the enactment of Section 496, one right recognized or existing under the law is that
provided for in Article 339 of the old Civil Code which reads as follows:
Property of public ownership is:
1. That destined to the public use, such as roads, canals, rivers, torrents, ports, and
bridges constructed by the State, and banks shores, roadsteads, and that of a similar
character. (Par. 1)
The above-mentioned properties are parts of the public domain intended for public use, are outside
the commerce of men and, therefore, not subject to private appropriation. ( 3 Manresa, 6th ed. 101-
104.)
In ( " + , 49 Phil. 769, this Court held:
A simple possession of a certificate of title under the Torrens system does not
necessarily make the possessor a true owner of all the property described therein. If
a person obtains title under the Torrens system which includes by mistake or
oversight, lands which cannot be registered under the Torrens system, he does not
by virtue of said certificate alone become the owner of the land illegally included.
In
"
, 59 Phil. 592, it was also said:
It is useless for the appellant now to allege that she has obtained certificate of title
No. 329 in her favor because the said certificate does not confer upon her any right
to the creek in question, inasmuch as the said creek, being of the public domain, is
included among the various exceptions enumerated in Section 39 of Act 496 to
which the said certificate is subject by express provision of the law.
The same ruling was laid down in *

( "' # % / & , 61 Phil.
644, as regards public plaza.
In *, "'

&, G.R. No. L-20300-01 and G.R. No. L-20355-56, April 30, 1965, 20
SCRA 704, it was held that the incontestable and indefeasible character of a Torrens certificate of
title does not operate when the land covered thereby is not capable of registration.
It is, therefore, clear that the authorities cited by the appellants as to the conclusiveness and
incontestability of a Torrens certificate of title do not apply here. The Land Registration Court has
no jurisdiction over non-registerable properties, such as public navigable rivers which are parts of
the public domain, and cannot validly adjudge the registration of title in favor of a private applicant.
Hence, the judgment of the Court of First Instance of Pampanga as regards the Lot No. 2 of
Certificate of Title No. 15856 in the name of petitioners-appellants may be attacked at any time,
either directly or collaterally, by the State which is not bound by any prescriptive period provided
for by the Statute of Limitations (Article 1108, par. 4, new Civil Code). The right of reversion or
reconveyance to the State of the public properties fraudulently registered and which are not
capable of private appropriation or private acquisition does not prescribe. (Republic v. Ramona
Ruiz, et al., G.R. No. L-23712, April 29, 1968, 23 SCRA 348; Republic v. Ramos, G.R. No.
L-15484, January 31, 1963, 7 SCRA 47.)
When it comes to registered properties, the jurisdiction of the Secretary of Public Works &
Communications under Republic Act 2056 to order the removal or obstruction to navigation along a
public and navigable creek or river included therein, has been definitely settled and is no longer
open to question (Lovina v. Moreno, G.R. No L-17821, November 29, 1963, 9 SCRA 557; Taleon v.
Secretary of Public Works & Communications G.R. No. L-24281, May 16, 1961, 20 SCRA 69, 74).
The evidence submitted before the trial court which was passed upon by the respondent Court of
Appeals shows that Lot No. 2 (Plan Psu 992) of Transfer Certificate of Title No. 15856, is a river of
the public domain. The technical description of both Lots Nos. 1 and 2 appearing in Original
Certificate of Title No. 14318 of the Register of Deeds of Pampanga, from which the present
Transfer Certificate of Title No. 15856 was derived, confirms the fact that Lot No. 2 embraced in
said title is bounded practically on all sides by rivers. As held by the Court of First Instance of
Pampanga in Civil Case No. 1247 for injunction filed by the petitioners' predecessors-in-interest
against the Municipal Mayor of Lubao and decided in 1916 (Exh. "L"), Lot No. 2 is a branch of the
main river that has been covered with water since time immemorial and, therefore, part of the
public domain. This finding having been affirmed by the Supreme Court, there is no longer any
doubt that Lot No. 2 of Transfer Certificate of Title No. 15856 of petitioners is a river which is not
capable of private appropriation or acquisition by prescription. (Palanca v. Com. of the Philippines,
69 Phil. 449; Meneses v. Com. of the Philippines, 69 Phil. 647). Consequently, appellants' title does
not include said river.
++
As regards the 3rd assignment of error, there is no weight in the appellants' argument that, being a
purchaser for value and in good faith of Lot No. 2, the nullification of its registration would be
contrary to the law and to the applicable decisions of the Supreme Court as it would destroy the
stability of the title which is the core of the system of registration. Appellants cannot be deemed
purchasers for value and in good faith as in the deed of absolute conveyance executed in their favor,
the following appears:
6. Que la segunda parcela arriba descrita y mencionada esta actualmente abierta, sin
malecones y excluida de la primera parcela en virtud de la Orden Administrative No.
103, tal como fue enmendada, del pasado regimen o Gobierno.
7. Que los citados compradores Romeo Martinez y Leonor Suarez se encargan de

gestionar de las autoridades correspondientes para que la citada segunda parcela
pueda ser convertida de nuevo en pesqueria, corriendo a cuenta y cargo de los
mismos todos los gastos.
8. Que en el caso de que dichos compradores no pudiesen conseguir sus propositos

de convertir de nuevo en pesquera la citada segunda parcela, los aqui vendedores
no devolveran ninguna cantidad de dinero a los referidos compradores; este es, no
se disminuiriat el precio de esta venta. (Exh. 13-a, p. 52, respondents record of
exhibits)
These stipulations were accepted by the petitioners-appellants in the same conveyance in the
following terms:
Romeo Martinez y Leonor Suarez, mayores de edad, filipinos y residentes en al

Barrio de Julo Municipio de Malabon, Provincia de Rizal, por la presente, declaran
que estan enterados del contenido de este documento y lo aceptan en los precisos
terminos en que arriba uedan consignados. (Exh. 13-a, )
Before purchasing a parcel of land, it cannot be contended that the appellants who were the
vendees did not know exactly the condition of the land that they were buying and the obstacles or
restrictions thereon that may be put up by the government in connection with their project of
converting Lot No. 2 in question into a fishpond. Nevertheless, they willfully and voluntarily
assumed the risks attendant to the sale of said lot. One who buys something with knowledge of
defect or lack of title in his vendor cannot claim that he acquired it in good faith (Leung Lee v.
Strong Machinery Co., et al., 37 Phil. 664).
The ruling that a purchaser of a registered property cannot go beyond the record to make inquiries
as to the legality of the title of the registered owner, but may rely on the registry to determine if
there is no lien or encumbrances over the same, cannot be availed of as against the law and the
accepted principle that rivers are parts of the public domain for public use and not capable of
private appropriation or acquisition by prescription.
FOR ALL THE FOREGOING, the judgment of the Court of Appeals appealed from is in accordance
with law, and the same is hereby affirmed with costs against the petitioners-appellants.
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This is a Petition for Review on #

under Rule 45 of the Rules of Court, assailing the
Decision1 dated 31 January 2006 rendered by the Court of Appeals in CA-G.R. SP No. 87066, which
affirmed the Decision2 dated 30 June 2003 of the Office of the President, in O.P. Case No. 02-A-007,
approving the application of respondent Elena Socco-Beltran to purchase the subject property.
The subject property in this case is a parcel of land originally identified as Lot No. 6-B, situated in
Zamora Street, Dinalupihan, Bataan, with a total area of 360 square meters. It was originally part of
a larger parcel of land, measuring 1,022 square meters, allocated to the Spouses Marcelo Laquian
and Constancia Socco (Spouses Laquian), who paid for the same with Japanese money. When
Marcelo died, the property was left to his wife Constancia. Upon Constanciaǯs subsequent death, she
left the original parcel of land, along with her other property, with her heirs Ȃ her siblings, namely:
Filomena Eliza Socco, Isabel Socco de Hipolito, Miguel R. Socco, and Elena Socco-Beltran.3 Pursuant
to an unnotarized document entitled "Extrajudicial Settlement of the Estate of the Deceased
Constancia R. Socco," executed by Constanciaǯs heirs sometime in 1965, the parcel of land was
partitioned into three lotsȂLot No. 6-A, Lot No. 6-B, and Lot No. 6-C.4 The subject property, Lot No.
6-B, was adjudicated to respondent, but no title had been issued in her name.
On 25 June 1998, respondent Elena Socco-Beltran filed an application for the purchase of Lot No. 6-
B before the Department of Agrarian Reform (DAR), alleging that it was adjudicated in her favor in
the extra-judicial settlement of Constancia Soccoǯs estate.5
Petitioners herein, the heirs of the late Arturo Reyes, filed their protest to respondentǯs petition
before the DAR on the ground that the subject property was sold by respondentǯs brother, Miguel R.
Socco, in favor of their father, Arturo Reyes, as evidenced by the Contract to Sell, dated 5 September
1954, stipulating that:6
That I am one of the co-heirs of the Estate of the deceased Constancia Socco; and that /1
(#-$'( as such a portion of her lot consisting of Four Hundred Square Meters (400)
more or less located on the (sic) Zamora St., Municipality of Dinalupihan, Province of
Bataan, bounded as follows:
xxxx
That for or in consideration of the sum of FIVE PESOS (P5.00) per square meter, hereby sell,
convey and transfer by way of this 2#0((#/)/)$ the said 400 sq.m. more or less unto
Atty. Arturo C. Reyes, his heirs, administrator and assigns x x x. (Emphasis supplied.)
Petitioners averred that they took physical possession of the subject property in 1954 and had been
uninterrupted in their possession of the said property since then.
Legal Officer Brigida Pinlac of the DAR Bataan Provincial Agrarian Reform Office conducted an
investigation, the results of which were contained in her Report/ Recommendation dated 15 April
1999. Other than recounting the afore-mentioned facts, Legal Officer Pinlac also made the following
findings in her Report/Recommendation:7
Further investigation was conducted by the undersigned and based on the documentary
evidence presented by both parties, the following facts were gathered: that the house of
[the] Reyes family is adjacent to the landholding in question and portion of the subject
property consisting of about 15 meters [were] occupied by the heirs of Arturo Reyes were a
kitchen and bathroom [were] constructed therein; on the remaining portion a skeletal form
made of hollow block[s] is erected and according to the heirs of late Arturo Reyes, this was
constructed since the year (sic) 70ǯs at their expense; that construction of the said skeletal
building was not continued and left unfinished which according to the affidavit of Patricia
Hipolito the Reyes family where (sic) prevented by Elena Socco in their attempt of
occupancy of the subject landholding; (affidavit of Patricia Hipolito is hereto attached as
Annex "F"); that Elena Socco cannot physically and personally occupy the subject property
because of the skeletal building made by the Reyes family who have been requesting that
they be paid for the cost of the construction and the same be demolished at the expense of
Elena Socco; that according to Elena Socco, [she] is willing to waive her right on the portion
where [the] kitchen and bathroom is (sic) constructed but not the whole of Lot [No.] 6-B
adjudicated to her; that the Reyes family included the subject property to the sworn
statement of value of real properties filed before the municipality of Dinalupihan, Bataan,
copies of the documents are hereto attached as Annexes "G" and "H"; that likewise Elena
Socco has been continuously and religiously paying the realty tax due on the said property.
In the end, Legal Officer Pinlac recommended the approval of respondentǯs petition for issuance of
title over the subject property, ruling that respondent was qualified to own the subject property
pursuant to Article 1091 of the New Civil Code.8 Provincial Agrarian Reform Officer (PARO) Raynor
Taroy concurred in the said recommendation in his Indorsement dated 22 April 1999.9
In an Order dated 15 September 1999, DAR Regional Director Nestor R. Acosta, however, dismissed
respondentǯs petition for issuance of title over the subject property on the ground that respondent
was not an actual tiller and had abandoned the said property for 40 years; hence, she had already
renounced her right to recover the same.10 The dispositive part of the Order reads:
1. DISMISSING the claims of Elena Socco-Beltran, duly represented by Myrna Socco for lack
of merit;
2. ALLOCATING Lot No. 6-B under Psd-003-008565 with an area of 360 square meters,
more or less, situated Zamora Street, Dinalupihan, Bataan, in favor of the heirs of Arturo
Reyes.
3. ORDERING the complainant to refrain from any act tending to disturb the peaceful
possession of herein respondents.
4. DIRECTING the MARO of Dinalupihan, Bataan to process the pertinent documents for the
issuance of CLOA in favor of the heirs of Arturo Reyes.11
Respondent filed a Motion for Reconsideration of the foregoing Order, which was denied by DAR
Regional Director Acosta in another Order dated 15 September 1999.12
Respondent then appealed to the Office of the DAR Secretary. In an Order, dated 9 November 2001,
the DAR Secretary reversed the Decision of DAR Regional Director Acosta after finding that neither
petitionersǯ predecessor-in-interest, Arturo Reyes, nor respondent was an actual occupant of the
subject property. However, since it was respondent who applied to purchase the subject property,
she was better qualified to own said property as opposed to petitioners, who did not at all apply to
purchase the same. Petitioners were further disqualified from purchasing the subject property
because they were not landless. Finally, during the investigation of Legal Officer Pinlac, petitioners
requested that respondent pay them the cost of the construction of the skeletal house they built on
the subject property. This was construed by the DAR Secretary as a waiver by petitioners of their
right over the subject property.13 In the said Order, the DAR Secretary ordered that:
=4, premises considered, the September 15, 1999 Order is hereby SET ASIDE
and a new Order is hereby issued APPROVING the application to purchase Lot [No.] 6-B of
Elena Socco-Beltran.14
Petitioners sought remedy from the Office of the President by appealing the 9 November 2001
Decision of the DAR Secretary. Their appeal was docketed as O.P. Case No. 02-A-007. On 30 June
2003, the Office of the President rendered its Decision denying petitionersǯ appeal and affirming the
DAR Secretaryǯs Decision.15 The fallo of the Decision reads:
=4, premises considered, judgment appealed from is * and the instant
appeal *mmm*.16
Petitionersǯ Motion for Reconsideration was likewise denied by the Office of the President in a
Resolution dated 30 September 2004.17 In the said Resolution, the Office of the President noted that
petitioners failed to allege in their motion the date when they received the Decision dated 30 June
2003. Such date was material considering that the petitionersǯ Motion for Reconsideration was filed
only on 14 April 2004, or almost nine months after the promulgation of the decision sought to be
reconsidered. Thus, it ruled that petitionersǯ Motion for Reconsideration, filed beyond fifteen days
from receipt of the decision to be reconsidered, rendered the said decision final and executory.
Consequently, petitioners filed an appeal before the Court of Appeals, docketed as CA-G.R. SP No.
87066. Pending the resolution of this case, the DAR already issued on 8 July 2005 a Certificate of
Land Ownership Award (CLOA) over the subject property in favor of the respondentǯs niece and
representative, Myrna Socco-Beltran.18 Respondent passed away on 21 March 2001,19 but the
records do not ascertain the identity of her legal heirs and her legatees.
Acting on CA-G.R. SP No. 87066, the Court of Appeals subsequently promulgated its Decision, dated
31 January 2006, affirming the Decision dated 30 June 2003 of the Office of the President. It held
that petitioners could not have been actual occupants of the subject property, since actual
occupancy requires the positive act of occupying and tilling the land, not just the introduction of an
unfinished skeletal structure thereon. The Contract to Sell on which petitioners based their claim
over the subject property was executed by Miguel Socco, who was not the owner of the said
property and, therefore, had no right to transfer the same. Accordingly, the Court of Appeals
affirmed respondentǯs right over the subject property, which was derived form the original
allocatees thereof.20 The of the said Decision reads:
=4, premises considered, the instant = is *mmm*.

Accordingly, the Decision dated 30 June 2003 and the Resolution dated 30 December 2004
both issued by the Office of the President are hereby *
21
The Court of Appeals denied petitionersǯ Motion for Reconsideration of its Decision in a Resolution
dated 16 August 2006.22
Hence, the present Petition, wherein petitioners raise the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE

FINDINGS OF THE OFFICE OF THE PRESIDENT THAT THE SUBJECT LOT IS VACANT AND
THAT PETITIONERS ARE NOT ACTUAL OCCUPANTS THEREOF BY DENYING THE LATTERǯS
CLAIM THAT THEY HAVE BEEN IN OPEN, CONTINUOUS, EXCLUSIVE, NOTORIOUS AND
AVDERSE POSSESSION THEREOF SINCE 1954 OR FOR MORE THAN THIRTY (30) YEARS.
II
WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT HELD THAT PETITIONERS
"CANNOT LEGALLY ACQUIRE THE SUBJECT PROPERTY AS THEY ARE NOT CONSIDERED
LANDLESS AS EVIDENCED BY A TAX DECLARATION."
III
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT "ǥWHATEVER

RESERVATION WE HAVE OVER THE RIGHT OF MYRNA SOCCO TO SUCCEED WAS ALREADY
SETTLED WHEN NO LESS THAN MIGUEL SOCCO (PREDECESSOR-IN INTEREST OF HEREIN
PETITIONERS) EXECUTED HIS WAIVER OF RIGHT DATED APRIL 19, 2005 OVER THE
SUBJECT PROPERTY IN FAVOR OF MYRNA SOCCO.
IV
WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONERS

MOTION FOR NEW TRIAL THEREBY BRUSHING ASIDE THE FACT THAT MYRNA V. SOCCO-
ARIZO GROSSLY MISREPRESENTED IN HER INFORMATION SHEET OF BENEFICIARIES AND
APPLICATION TO PURCHASE LOT IN LANDED ESTATES THAT SHE IS A FILIPINO CITIZEN,
WHEN IN TRUTH AND IN FACT, SHE IS ALREADY AN AMERICAN NATIONAL.23
The main issue in this case is whether or not petitioners have a better right to the subject property
over the respondent. Petitionerǯs claim over the subject property is anchored on the Contract to Sell
executed between Miguel Socco and Arturo Reyes on 5 September 1954. Petitioners additionally
allege that they and their predecessor-in-interest, Arturo Reyes, have been in possession of the
subject lot since 1954 for an uninterrupted period of more than 40 years.
The Court is unconvinced.
Petitioners cannot derive title to the subject property by virtue of the Contract to Sell. It was
unmistakably stated in the Contract and made clear to both parties thereto that the vendor, Miguel
R. Socco, was not yet the owner of the subject property and was merely expecting to inherit the
same as his share as a co-heir of Constanciaǯs estate.24 It was also declared in the Contract itself that
Miguel R. Soccoǯs conveyance of the subject to the buyer, Arturo Reyes, was a conditional sale. It is,
therefore, apparent that the sale of the subject property in favor of Arturo Reyes was conditioned
upon the event that Miguel Socco would actually inherit and become the owner of the said property.
Absent such occurrence, Miguel R. Socco never acquired ownership of the subject property which
he could validly transfer to Arturo Reyes.
Under Article 1459 of the Civil Code on contracts of sale, "The thing must be licit and the vendor
must have a right to transfer ownership thereof at the time it is delivered." The law specifically
requires that the vendor must have ownership of the property at the time it is delivered. Petitioners
claim that the property was constructively delivered to them in 1954 by virtue of the Contract to
Sell. However, as already pointed out by this Court, it was explicit in the Contract itself that, at the
time it was executed, Miguel R. Socco was not yet the owner of the property and was only expecting
to inherit it. Hence, there was no valid sale from which ownership of the subject property could
have transferred from Miguel Socco to Arturo Reyes. Without acquiring ownership of the subject
property, Arturo Reyes also could not have conveyed the same to his heirs, herein petitioners.
Petitioners, nevertheless, insist that they physically occupied the subject lot for more than 30 years
and, thus, they gained ownership of the property through acquisitive prescription, citing " "
+
"
25 and & #

"#
. 26
In Sandoval, petitioners therein sought the enforcement of Section 54, paragraph 6 of Act No. 926,
otherwise known as the Land Registration Act, which required -- for the issuance of a certificate of
title to agricultural public lands -- the open, continuous, exclusive, and notorious possession and
occupation of the same in good faith and under claim of ownership for more than ten years. After
evaluating the evidence presented, consisting of the testimonies of several witnesses and proof that
fences were constructed around the property, the Court in the afore-stated case denied the petition
on the ground that petitioners failed to prove that they exercised acts of ownership or were in open,
continuous, and peaceful possession of the whole land, and had caused it to be enclosed to the
exclusion of other persons. It further decreed that whoever claims such possession shall exercise
acts of dominion and ownership which cannot be mistaken for the momentary and accidental
enjoyment of the property. 27
In & #

, the Court reiterated the rule that the open, exclusive, and undisputed
possession of alienable public land for the period prescribed by law creates the legal fiction
whereby land ceases to be public land and is, therefore, private property. It stressed, however, that
the occupation of the land for 30 years must be " established. Thus, the evidence offered
by petitioner therein Ȃ tax declarations, receipts, and the sole testimony of the applicant for
registration, petitionerǯs predecessor-in-interest who claimed to have occupied the land before
selling it to the petitioner Ȃ were considered insufficient to satisfy the quantum of proof required to
establish the claim of possession required for acquiring alienable public land.28
As in the two aforecited cases, petitioners herein were unable to prove actual possession of the
subject property for the period required by law. It was underscored in & #

that
the open, continuous, exclusive, and notorious occupation of property for more than 30 years must
be no less than 2#2)(;$, such quantum of proof being necessary to avoid the erroneous
validation of actual fictitious claims of possession over the property that is being claimed.29
In the present case, the evidence presented by the petitioners falls short of being conclusive. Apart
from their self-serving statement that they took possession of the subject property, the only proof
offered to support their claim was a general statement made in the letter30 dated 4 February 2002
of %
& Captain Carlos Gapero, certifying that Arturo Reyes was the occupant of the subject
property "since peace time and at present." The statement is rendered doubtful by the fact that as
early as 1997, when respondent filed her petition for issuance of title before the DAR, Arturo Reyes
had already died and was already represented by his heirs, petitioners herein.
Moreover, the certification given by %

& Captain Gapero that Arturo Reyes occupied the
premises for an unspecified period of time, , since peace time until the present, cannot prevail
over Legal Officer Pinlacǯs more particular findings in her Report/Recommendation. Legal Officer
Pinlac reported that petitioners admitted that it was only in the 1970s that they built the skeletal
structure found on the subject property. She also referred to the averments made by Patricia
Hipolito in an Affidavit,31 dated 26 February 1999, that the structure was left unfinished because
respondent prevented petitioners from occupying the subject property. Such findings disprove
petitionersǯ claims that their predecessor-in-interest, Arturo Reyes, had been in open, exclusive,
and continuous possession of the property since 1954. The adverted findings were the result of
Legal Officer Pinlacǯs investigation in the course of her official duties, of matters within her
expertise which were later affirmed by the DAR Secretary, the Office of the President, and the Court
of Appeals. The factual findings of such administrative officer, if supported by evidence, are entitled
to great respect.32
In contrast, respondentǯs claim over the subject property is backed by sufficient evidence. Her
predecessors-in-interest, the spouses Laquian, have been identified as the original allocatees who
have fully paid for the subject property. The subject property was allocated to respondent in the
extrajudicial settlement by the heirs of Constanciaǯs estate. The document entitled "Extra-judicial
Settlement of the Estate of the Deceased Constancia Socco" was not notarized and, as a private
document, can only bind the parties thereto. However, its authenticity was never put into question,
nor was its legality impugned. Moreover, executed in 1965 by the heirs of Constancia Socco, or
more than 30 years ago, it is an ancient document which appears to be genuine on its face and
therefore its authenticity must be upheld.33 Respondent has continuously paid for the realty tax due
on the subject property, a fact which, though not conclusive, served to strengthen her claim over the
property.34
From the foregoing, it is only proper that respondentǯs claim over the subject property be upheld.
This Court must, however, note that the Order of the DAR Secretary, dated 9 November 2001, which
granted the petitionerǯs right to purchase the property, is flawed and may be assailed in the proper
proceedings. Records show that the DAR affirmed that respondentǯs predecessors-in-interest,
Marcelo Laquian and Constancia Socco, having been identified as the original allocatee, have fully
paid for the subject property as provided under an agreement to sell. By the nature of a contract or
agreement to sell, the title over the subject property is transferred to the vendee upon the full
payment of the stipulated consideration. Upon the full payment of the purchase price, and absent
any showing that the allocatee violated the conditions of the agreement, ownership of the subject
land should be conferred upon the allocatee.35 Since the extrajudicial partition transferring
Constancia Soccoǯs interest in the subject land to the respondent is valid, there is clearly no need for
the respondent to purchase the subject property, despite the application for the purchase of the
property erroneously filed by respondent. The only act which remains to be performed is the
issuance of a title in the name of her legal heirs, now that she is deceased.
Moreover, the Court notes that the records have not clearly established the right of respondentǯs
representative, Myrna Socco-Arizo, over the subject property. Thus, it is not clear to this Court why
the DAR issued on 8 July 2005 a CLOA36 over the subject property in favor of Myrna Socco-Arizo.
Respondentǯs death does not automatically transmit her rights to the property to Myrna Socco-
Beltran. Respondent only authorized Myrna Socco-Arizo, through a Special Power of Attorney37
dated 10 March 1999, to represent her in the present case and to administer the subject property
for her benefit. There is nothing in the Special Power of Attorney to the effect that Myrna Socco-
Arizo can take over the subject property as owner thereof upon respondentǯs death. That Miguel V.
Socco, respondentǯs only nephew, the son of the late Miguel R. Socco, and Myrna Socco-Arizoǯs
brother, executed a waiver of his right to inherit from respondent, does not automatically mean that
the subject property will go to Myrna Socco-Arizo, absent any proof that there is no other qualified
heir to respondentǯs estate. Thus, this Decision does not in any way confirm the issuance of the
CLOA in favor of Myrna Socco-Arizo, which may be assailed in appropriate proceedings.
=4 , the instant Petition is **. The assailed Decision of the Court of
Appeals in CA-G.R. SP No. 87066, promulgated on 31 January 2006, is * with
*. This Court withholds the confirmation of the validity of title over the subject
property in the name of Myrna Socco-Arizo pending determination of respondentǯs legal heirs in
appropriate proceedings. No costs.
m**.

4!
Associate Justice
WE CONCUR:
m mm

Associate Justice
Chairperson

m! * *]
4
Acting Chairperson
]
m
Associate Justice
m
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courtǯs Division.
m mm

Associate Justice
Chairperson

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersonǯs Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
m

Chief Justice
#$
1Penned by Associate Justice Bienvenido L. Reyes with Associate Justices Arturo D. Brion
(now an Associate Justice of the Supreme Court) and Mariflor Punzalan Castillo, concurring.
Rollo, pp. 32-40.
2 Penned by Senior Deputy Executive Secretary Waldo Q. Flores. Rollo, pp. 81-82.
3 Records, p. 113.
4 Rollo, pp. 55-58.
5 Records, p. 26.
6 Rollo, p. 54.
7 Records, pp. 112-113.
8 Id. at 112. Art. 1091 of the Civil Code provides that:
Art. 1091. A partition legally made confers upon each heir the exclusive ownership of the
property adjudicated to him.
9 Id. at 114.
10 Rollo, pp. 59-61.
11 Id. at 60-61.
12 Id. at 65-66.
13 CA rollo, pp. 42-46.
14 Id. at 46.
15 Rollo, pp. 81-82.
16 Id. at 82.
17 Id. at 86-88.
18 CA rollo, pp. 153, 160-161.
19 Id. at 64.
20 Rollo, pp. 36-38.
21 Id. at 40.
22 Id. at 41-43.
23 Id. at 16.
24In the Contract To Sell, Miguel R. Socco states that, "That I am one of the co-heirs of the
Estate of the deceased Constancia Socco; and that I am to inherit as such a portion of her lot
consisting of Four Hundred Square Meters (400) more or less located on the (sic) Zamora
St., Municipality of Dinalupihan, Province of Bataan." (Rollo, p. 54.)
25 12 Phil. 648 (1909).
26 G.R. No. 57667, 28 May 1990, 185 SCRA 722.
27 Sandoval v. Insular Government, supra note 25 at 654-656.

28 San Miguel Corporation v. Court of Appeals, supra note 26 at 724-726.
29 Id.
30 Rollo, p. 117.
31 Records, p. 105.
32Spouses Calvo v. Spouses Vergara, 423 Phil. 939, 947 (2001); Dulos Realty and
Development Corporation v. Court of Appeals, 422 Phil. 292, 304 (2001); Advincula v. Dicen,
G.R. No. 162403, 16 May 2005, 458 SCRA 696, 712; Balbastro v. Junio, G.R. No. 154678, 17
July 2007, 527 SCRA 680, 693.
33 Sec. 22, Rule 132 of the Revised Rules of Court states that:
SEC. 22. How genuineness of handwriting proved. Ȃ The handwriting of a person

may be proved by any witness who believes it to be the handwriting of such person
because he has seen the person write, or has seen writing purporting to be his upon
which the witness has acted or been charged, and has thus acquired knowledge of
the handwriting of such person. Evidence respecting the handwriting may also be
given by a comparison, made by the witness or the court, with writings admitted or
treated as genuine by the party against whom the evidence is offered, or proved to
be genuine to the satisfaction of the judge. (Manongsong v. Estimio, 452 Phil. 862,
878 [2003].)
34 Records, p. 112.
35 Spouses Tuazon v. Hon. Garilao, 415 Phil. 62, 69 and 72 (2001).
36 CA rollo, pp. 160-161.
37 Records, p. 100.

G.R. No. 127520 February 9, 2007
AURORA FE B. CAMACHO VS. COURT OF APPEALS, ET AL.

m
Manila
THIRD DIVISION

898$.'/'?89
]
4Petitioner,
vs.
m/#0 ]! Respondents.
DECISION
+m
p
This is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 41268 affirming with modification the Decision2 of the Regional Trial
Court (RTC) of Balanga, Bataan, Branch 1.
The Antecedents
Camacho was the owner of Lot 261, a 7.5-hectare parcel of land situated in Balanga,
Bataan and covered by Transfer Certificate of Title No. T-10,185.
On July 14, 1968, Camacho and respondent Atty. Angelino Banzon entered into a contract
for legal services denominated as a "Contract of Attorneyǯs Fee."3 The agreement is
worded as follows:
That we, Aurora B. Camacho, widow, of legal age and resident of Balanga, Bataan, and
Angelino M. Banzon, have agreed on the following:
That I, Aurora B. Camacho is the registered owner of Lot No. 261 Balanga Cadastre, has
secured the legal services of Atty. Angelino M. Banzon to perform the following:
1. To negotiate with the Municipal Government of Balanga so that the above-

mentioned lot shall be the site of the proposed Balanga Public Market;
2. To sell 1200 sq. m. for the sum of TWENTY- FOUR THOUSAND PESOS
(P24,000.00) right at the Market Site;
3. And to perform all the legal phase incidental to this work.
That for and in consideration of this undertaking, I bind myself to pay Atty. Angelino M.
Banzon FIVE THOUSAND SQUARE METERS (5000) of the said lot, for which in no case I
shall not be responsible for payment of income taxes in relation hereto, this area located
also at market site.
That I, Angelino M. Banzon, is willing to undertake the above-enumerated undertaking.
WITNESS our hands this 14 of July, 1968, in Balanga, Bataan.
(Signed) (Signed)
ANGELINO M. BANZON AURORA B. CAMACHO
Pursuant to the agreement, Atty. Banzon, on even date, sent a letter-proposal4 to the
municipal council offering three sites for the proposed public market which included Lot
261. Still on the same date, Camacho executed a Special Power of Attorney5 giving Atty.
Banzon the authority to execute and sign for her behalf a Deed of Donation transferring a
17,000-sq-m portion of Lot 261 to the municipal government of Balanga, Bataan. The
Deed of Donation was executed, which was later accepted by the local government unit in
Municipal Resolution No. 127.6
Silvestre Tuazon had been an agricultural tenant in Lot 261 since World War II. On
August 22, 1968, Tuazon and Camacho entered into an "Agreement with Voluntary
Surrender"7 where Tuazon voluntarily surrendered his right as a tenant of the
landholding. Despite the agreement, however, Tuazon plowed a portion of the lot and
planted palay without Camachoǯs consent. Since Tuazon refused to vacate the premises,
Camacho and the Municipality of Balanga, through then Acting Mayor Victor Y. Baluyot,
filed a complaint8 for forcible entry on November 18, 1969 before the Municipal Trial
Court (MTC) of Balanga, Bataan. The complaint was docketed as Civil Case No. 424. The
case was eventually decided in favor of the plaintiffs and Tuazon was ordered to vacate
the lot. On appeal to the RTC, trial de novo ensued, in view of the absence of the transcript
of stenographic notes of the proceedings before the MTC. The RTC issued a preliminary
mandatory injunction ordering Tuazon to "discontinue entering the subject premises
until further orders of the court."9
On September 1, 1973, the plaintiffs, through Atty. Banzon, and Tuazon entered into an
"Agreement to Stay Court Order."10 Under the agreement, Tuazon was allowed to
cultivate specific portions of the property as indicated in a sketch plan which the parties
prepared, and to use the marketǯs water supply to irrigate his plants within the lot subject
to the marketǯs preferential rights. The parties also contracted that "the agreement shall
in no way affect the merits of Civil Case No. 3512 and CAR Case No. 520-Bǯ73; and that no
part shall be construed as impliedly creating new tenancy relationship."
On December 6, 1973, Camacho filed a Manifestation11 in Civil Case No. 3512 declaring
that she had terminated the services of Atty. Banzon and had retained the services of new
counsel, Atty. Victor De La Serna.
On December 17, 1973, Atty. Banzon filed a Complaint-in-Intervention12 in Civil Case No.
3512. He alleged that Camacho had engaged his services as counsel in CAR Case No. 59
Bǯ65 (where a favorable decision was rendered) and in Civil Case No. 3512. Under the
Contract of Attorneyǯs Fee which they had both signed, Camacho would compensate him
with a 5,000-sq-m portion of Lot 261 in case he succeeds in negotiating with the
Municipality of Balanga in transferring the projected new public market which had been
set for construction at the Doña Francisca Subdivision, all legal requirements having been
approved by a municipal resolution, the Development Bank of the Philippines, and the
National Urban Planning Commission. Atty. Banzon further claimed that as a consequence
of the seven cases filed by/against Camacho, she further bound herself orally to give him
a 1,000-sq-m portion of Lot 261 as attorneyǯs fee. He had also acquired from Camacho by
purchase an 80-sq-m portion of the subject lot as evidenced by a Provisional Deed of
Sale13 and from third parties an 800-sq-m portion. He further declared that his requests
for Camacho to deliver the portions of the subject lot remained unheeded, and that of the
seven cases14 he had handled for Camacho, four had been decided in her favor while three
are pending. Atty. Banzon thus prayed for the following relief:
1. Ordering the ejectment of Defendant Silvestre Tuazon, in so far as (6880)

square meters is concerned, INTERVENORǯS claim over Lot 261;
2. The First Cause of Action, ordering the Plaintiff Aurora B. Camacho to deliver
(5000) square meters as per Annex "A"; EIGHTY square meters as per Annex "C";
EIGHT HUNDRED (800) square meters which the INTERVENOR purchased from
third parties;
3. On the Second Cause of Action, ordering the Plaintiff Aurora B. Camacho to pay
the sum of P8,820.00, corresponding to the lease rental of (5880) square meters a
month, counted from July, 1973, until the same is delivered to the INTERVENOR;
4. On the Third Cause of Action, ordering the Plaintiff Aurora B. Camacho to

deliver (1000) square meters, as attorneyǯs fee in handling seven (7) cases;
5. Ordering the Plaintiff Aurora B. Camacho and Defendant Silvestre Tuazon to

pay jointly and severally, the sum of P5,000.00 for attorneyǯs fee for legal services
to the INTERVENOR; cost and litigation expenses of P1,000. until the case is
terminated.
6. To grant such relief, just and equitable in the premises.15
Camacho opposed16 Atty. Banzonǯs motion on the ground that the admission of the
complaint-in-intervention would merely serve to delay the case. She also claimed that his
interest could be fully ventilated in a separate case for recovery of property or for
damages.
On April 5, 1974, the RTC granted17 the motion and subsequently admitted the complaint-
in-intervention.
On December 31, 1973, Atty. Banzon and Tuazon entered into the following amicable
settlement:
1. That for and in consideration of the sum of TWO THOUSAND PESOS

(P2,000.00), Philippine currency, which have been received from the
INTERVENOR and acknowledged to have been received by the Defendant
Silvestre Tuazon, the latter hereby acknowledges, waives his defenses against the
claim of the INTERVENOR ANGELINO M. BANZON over a portion of Lot No. 261,
portion of the lot in question, to the extent of SIX THOUSAND EIGHT HUNDRED
EIGHTY (6880) SQUARE METERS as claimed and contained in the COMPLAINT IN
INTERVENTION and to give effect to this AMICABLE SETTLEMENT hereby
surrenders the actual possession of the said portion, subject to the approval of
this Hon. Court, in favor of the INTERVENOR;
2. That the herein parties to this AMICABLE SETTLEMENT waive and renounce
whatever rights or claims, including future claims that each may have against
each other;
3. That the parties herein bind themselves to comply with the conditions of the
foregoing settlement;
4. That the foregoing AMICABLE SETTLEMENT was realized and achieved

between the herein parties, thru the prior intercession of the Defendantǯs counsel
Atty. Narciso V. Cruz, Jr.
WHEREFORE, it is respectfully prayed that the foregoing AMICABLE SETTLEMENT be

approved and made as the basis of this Hon. Courtǯs decision between the herein
INTERVENOR and DEFENDANT Silvestre Tuazon.18
In Answer19 to the complaint-in-intervention, Camacho denied that she solicited the

services of Atty. Banzon to facilitate the transfer of the site of the proposed public market;
in fact, it was Atty. Banzon who approached and convinced her to donate a portion of the
lot to the municipality of Balanga. He assured her that the municipality of Balanga
planned to relocate the public market and was scouting for a new location. He also told
her that her lot appeared to be the most ideal location, and that he would take care of all
the legal problems.
Camacho admitted, however, that she signed the Contract of Attorneyǯs Fee but only upon
the request of Atty. Banzon. He told her that the document would be shown to the
municipal councilors "for formalityǯs sake" to prove his authority to act for and in behalf
of Camacho. It was never intended to bind her to pay attorneyǯs fees.20 She further denied
that she agreed to give to Atty. Banzon 1,000 sq m for handling the seven cases; they
never discussed attorneyǯs fees. The cases stemmed from his assurance that he would
take care of any legal problem resulting from the donation of her property. She was not
even a party in some of the cases cited by Atty. Banzon.21 Lastly, she denied that he had
made demands to deliver the mentioned portions of the property.22
In his Reply,23 Atty. Banzon countered that the Balanga Municipal Council Resolution No.
128 transferring the market site to Camachoǯs property was enacted precisely because of
his letter-proposal24 to the municipal council.
On August 14, 1977, Camacho and Tuazon entered into a Compromise Agreement,25
whereby Camacho agreed to transfer a 1,000-sq-m portion of Lot 261-B in favor of
Tuazon; for his part, Tuazon moved to dismiss Civil Case No. 3805 and to remove all the
improvements outside the portion of the property which Camacho had agreed to convey
to him. Thus, the RTC rendered a partial decision26 approving the compromise
agreement.
On September 12, 1978, Camacho filed a Motion to Dismiss27 the Complaint-in-

Intervention filed by Atty. Banzon on the ground that the jurisdiction of the court to try
the case ceased to exist because the principal action had been terminated. The RTC
denied the motion in its Order28 dated March 16, 1979. It held that Atty. Banzon had an
interest over the subject property which he had to protect and that the compromise
agreement between Camacho and Tuazon did not include him. Moreover, the dismissal of
the intervention would not achieve its purpose of avoiding multiplicity of suits. The
propriety of the denial of Camachoǯs motion to dismiss was finally settled by this Court in
# "#
29 where this Court affirmed the denial of the motion.
After trial on the merits, the RTC rendered a Decision30 on September 1, 1992 in favor of
Atty. Banzon. The fallo reads:
ACCORDINGLY, judgment is hereby rendered:
1. Ordering plaintiff Aurora B. Camacho under the Contract of Attorneyǯs Fees, [to
deliver] 5000 square meters of the subject landholding, Lot 261-B-1, covered by
Transfer Certificate of Title No. T-76357, or any other derivative sublots of the
original Lot 261-B;
2. Declaring the dismissal of said intervenor from the case at bar as unjustified;
3. Ordering said plaintiff to pay and deliver to said intervenor 1000 square meters
of the property in question, Lot 261-B-1 or any other derivative sublots of the
original Lot 261-B in case of deficiency, for legal services rendered in seven (7)
cases;
4. Directing said plaintiff to deliver to said intervenor, under a Provisional Deed of

Sale, 80 square meters of the subject property, Lot 261-B-1 or any other
derivative sublots of the original Lot 261 in case of deficiency, after payment of
the balance of the purchase price;
5. Ordering said plaintiff to execute the corresponding Deed of Sale in favor of

said intervenor for the aforesaid 80 square meters;
6. Condemning said plaintiff to pay moral damages to said intervenor in the

amount of P100,000.00; attorneyǯs fees in the sum of P30,000.00; and the costs of
the suit.
SO ORDERED.31
According to the RTC, Camacho had indeed read the contract and freely affixed her
signature thereon. Applying the provisions of Section 7 (now section 9), Rule 13032 of the
Rules of Court, it concluded that the terms of the contract were embodied in the
document itself. Moreover, Camacho did not bother to pay for all the other cases being
handled by Atty. Banzon because she knew that she had agreed already to pay attorneyǯs
fees. The court likewise found that applying the provisions of Sections 2433 and 26,34 Rule
138 of the Rules of Court, the area of the lot agreed upon as attorneyǯs fees appears to be
a reasonable compensation for his services. Since Atty. Banzon handled other cases
subsequent to the execution of the contract of attorneyǯs fees, the additional 1,000-sq-m
lot which the parties had orally agreed upon is proper. The RTC declared that Atty.
Banzon was entitled to be compensated based on !
since his dismissal
from the present case was unjustified. It also held that Camacho was obliged to execute
the necessary public instrument covering the 80-sq-m portion of the lot which she had
sold to Atty. Banzon. It went further and awarded moral damages to Atty. Banzon on
account of the mental anguish and besmirched reputation he had suffered.
On October 8, 1992, Atty. Banzon filed a Motion for Execution Pending Appeal.35
Camacho, on the other hand, filed a Notice of Appeal. Atty. Banzon filed a motion to
dismiss on the ground that since the case originated from the municipal court, it should
be assailed via petition for review. On November 20, 1992, the court issued an Order36
denying the motion for execution pending appeal for failure to state good reasons
therefor. It likewise granted the notice of appeal on the ground that the complaint-in-
intervention originated from the RTC and not from the MTC; under the factual backdrop
of the case, ordinary appeal is proper.
On appeal to the CA, Camacho raised the following errors:
I.
THE LOWER COURT ERRED IN ALLOWING JUDGE ABRAHAM VERA TO SIGN THE
DECISION IN THE INSTANT CASE, CONSIDERING THAT JUDGE VERA HAD LONG
CEASED TO BE THE JUDGE OF THAT COURT AND WAS THE PRESIDING JUDGE OF
BRANCH 90 OF THE REGIONAL TRIAL COURT OF QUEZON CITY WHEN THE
INSTANT DECISION WAS SIGNED ON SEPTEMBER 1, 1992.
II.
THE LOWER COURT ERRED IN UPHOLDING THE VALIDITY AND DUE

EXECUTION OF CONTRACT EXH. "C" AND IN ORDERING PLAINTIFF TO DELIVER
TO INTERVENOR 5,000 SQUARE METERS OF LOT 261-B-1, T.C.T. T-76357,
CONSIDERING THAT THIS LOT IS NOT SPECIFIED IN EXH. "C".
III.
THE LOWER COURT ERRED IN DECLARING THAT INTERVENORǯS DISCHARGE AS

PLAINTIFFǯS COUNSEL IN THE CASE AT BAR WAS UNJUSTIFIED, IN AWARDING
INTERVENOR MORAL DAMAGES, AND IN DISMISSING PLAINTIFFSǯ
COUNTERCLAIMS.
IV.
THE LOWER COURT ERRED IN AWARDING INTERVENOR 1,000 SQUARE

METERS OF PLAINTIFFǯS LAND FOR HIS HANDLING OF ALLEGED SEVEN CASES.
V.
THE LOWER COURT ERRED IN ORDERING PLAINTIFF TO EXECUTE A FINAL

DEED OF SALE FOR 80 SQUARE METERS OUT OF LOT 261-B-1, CONSIDERING
THAT LOT 261-B-1 IS NOT SPECIFIED IN THE PROVISIONAL DEED OF SALE.37
On October 29, 1996, the CA rendered a decision38 affirming with modification the RTC
ruling. The fallo reads:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with

modification requiring plaintiff Camacho to DELIVER 5,000 sq.m. and 1,000 sq. m. of Lot
261-B-1 to Intervenor as his attorneyǯs fee and 80 sq. m. also from Lot 261 subject to the
conditions embodied under no. 4 of the dispositive portion of the assailed decision all
within thirty (30) days from the finality of this decision.
SO ORDERED.39
The CA held that all the elements of a valid contract were present: Camacho (a dentistry
graduate and an experienced businesswoman conversant in English) cannot plead that
she did not understand the undertaking she had entered into; the object of the contract is
certain since the genus of the object was expressed although there was no determination
of the individual specie; and the cause of the obligation Ȃ to negotiate and offer a site
where the public market will be constructed Ȃ is not unlawful and cannot be considered
as influence peddling. As to the alleged violation of the terms of the special power of
attorney, the court held that Camacho was estopped from claiming damages by reason
thereof.
The CA likewise found the award of moral damages to be in order; that the discharge of
Atty. Banzon as counsel for Camacho was not justified and his discharge does not in any
way deprive him of his right to attorneyǯs fees. Lastly, the CA held that the RTC erred in
requiring Camacho to deliver Lot 261-B-1, since Atty. Banzon cannot demand a portion of
superior quality in the same way that appellant cannot transfer an inferior quality.
On December 3, 1996, the CA issued a Resolution40 instituting petitioner Aurora Fe

Camacho as substitute for the deceased Aurora B. Camacho.
Atty. Banzon filed a Motion for Partial Reconsideration of the CA Decision, as well as a
Motion to Declare Decision Final insofar as Camacho was concerned. On the other hand,
Camacho moved to cancel the notice of lis pendens. In the meantime, petitioner had filed
the petition before this Court. Thus, the CA no longer acted on the motions on the ground
that it had already lost jurisdiction over the case.41
In the present petition, petitioner raises the following issues:
1. WHETHER OR NOT INTERVENOR CAN BE AWARDED A FAVORABLE

JUDGMENT DESPITE ABSENCE OF ANY FINDINGS OF FACT IN THE DECISION
WHICH SHOW THAT HE WAS ABLE TO PROVE THE (SIC) HIS MATERIAL
ALLEGATIONS UPON WHICH HE BASIS (SIC) HIS CLAIM UNDER CONTRACT OF
ATTORNEYǯS FEE, EXH. "C," ESPECIALLY PAR. 7 OF THE COMPLAINT-IN-
INTERVENTION.
CAN THE BURDEN OF PROVING THE AND (SIC) DUE EXECUTION OF CONTRACT
EXH. "C" BE SHIFTED TO PLAINTIFF CAMACHO WITHOUT VIOLATING SECT. 1,
RULE 131, OF THE RULES OF COURT?
2. DID THE COURT OF APPEALS CORRECTLY APPLY THE PROVISION OF ART.

1246 OF THE CIVIL CODE TO THE INSTANT CASE IN RULING THAT CONTRACT
EXH. "C" IS VALID AS TO OBJECT?
WILL THE DECISION REQUIRING THE DELIVERY OF 5,000 SQUARE METERS OF

LOT 261 BASED ON THE SAID ART. 1246, IN WHICH INTERVENOR CANNOT
DEMAND A THING OF SUPERIOR QUALITY AND NEITHER CAN PLAINTIFF
CAMACHO DELIVER A THING OF INFERIOR QUALITY, BE SUSCEPTIBLE OF
IMPLEMENTATION WITHOUT NEED OF A NEW CONTRACT OR AGREEMENT
BETWEEN THE PARTIES?
IF SO, WILL THAT NOT ALL THE MORE PROVE THAT TE OBJECT OF CONTRACT
EXH. "C" IS INDETERMINATE PURSUANT [TO] ART. 1349 OF THE CIVIL CODE?
3. WHETHER OR NOT THE COURT OF APPEALS WAS IN A POSITION TO

PROCLAIM THE LEGALITY OR ILLEGALITY OF THE ALLEGED CONTRACT
WITHOUT FIRST REVEALING OR SETTING FORTH THE REAL NATURE OF THIS
OR THESE UNDERTAKINGS BASED ON THE ALLEGATIONS AND TESTIMONIES
OF INTERVENOR. HENCE, WHETHER OR NOT THE TWO UNDERTAKINGS IN
CONTRACT EXH. "C" ARE LAWFUL.
4. WHETHER OR NOT THE COURT OF APPEALS COMMIT A GRAVE ABUSE OF

DISCRETION BY TREATING LIKE A MATTER OUT OF RECORD THE ALLEGED
REASONS OF PLAINTIFF CAMACHO FOR DISMISSING INTERVENOR AS HER
COUNSEL IN THE CASE AT BAR, WHICH WERE ENUMERATED AND DISCUSSED
ON PAGES 42-60 OF HER APPELLANTǯS BRIEF, ANNEX "B," AND WHICH WERE
PRINCIPALLY AND SPECIFICALLY COVERED IN HER THIRD ASSIGNMENT OF
ERRORS AND CONSIDERING THAT ONE OF THESE ALLEGED REASONS ALSO
CONSTITUTE PLAINTIFF CAMACHOǯS COUNTERCLAIM FOR WHICH SHE IS
SEEKING MORAL DAMAGES OF P100,000.
DID NOT THE COURT OF APPEALS COMMIT GRAVE ABUSE OF DISCRETION IN

REPRESENTING PLAINTIFF CAMACHOǯS THIRD ASSIGNED ERROR AS
REFERRING MERELY TO THE ISSUE OF WHETHER OR NOT THE AWARD OF
MORAL DAMAGES TO INTERVENOR IS JUSTIFIED.
WAS NOT PLAINTIFF CAMACHO THEREBY DEPRIVED OF HER CONSTITUTIONAL

RIGHT TO DUE PROCESS OF LAW?
5. WHETHER OR NOT THE AWARD OF 1,000 SQ. M. OF LOT 261 ATTORNEYǯS FEE
FOR ALLEGED HANDLING OF SEVEN CASES HAS ANY LEGAL BASIS
CONSIDERING THAT THERE IS NO SHOWING IN THE DECISION THAT THE ORAL
CONTRACT ALLEGED BY INTERVENOR TO BE THE BASIS OF THE SAID
ATTORNEYǯS FEE WAS DULY POROVEN (SIC).42
Petitioner argues that the findings of facts in the assailed decision are mere conclusions,
without citation of evidence to support them. She likewise avers that consent was not
clearly proven; the conclusion of the CA was based on the presumption that the document
was read prior to being signed. Petitioner insists that there is no "object certain" to speak
of since the exact location of the subject property cannot be determined; in short, the
issue is not the quality of the property but its identity. Petitioner further asserts that the
cause of the contract Ȃ pirating of the municipalityǯs market project and ejecting the
tenant to convert the property into a commercial establishment Ȃ is illegal. She further
insists that respondent failed to accomplish the twin objective of ejecting Silvestre
Tuazon and converting the remaining land into a commercial area; thus, he is not entitled
to the 5,000-sq-m lot. She further contends that the CA erred in awarding moral damages
because respondent did not ask for it in his complaint-in-intervention. Lastly, she asserts
that the CA erred in affirming the award of the 1,000-sq-m lot pursuant to a verbal
contract between Camacho and respondent, especially considering the prevailing
jurisprudence against a lawyerǯs acquisition of a clientǯs lot in litigation without the
latterǯs consent.
In his Comment,43 respondent counters that the elements of a valid contract are present:
Camachoǯs consent to the contract is evidenced by her signature which was in fact
admitted by the latter; that while it is true that the identity of the 5,000-sq-m portion of
Lot 261 has not been specified due to the absence of the necessary technical descriptions,
it is capable of being made determinate without the need of a new agreement between
the parties; as to the validity of the cause of the contract, the general principle of estoppel
applies.
Article 1305 of the New Civil Code defines a contract as a "meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to
render some service." Contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.44
In general, there are three (3) essential requisites for a valid contract: (1) of the
contracting parties; (2) an .
which is the subject of the contract; and (3) the
of the obligation which is established.45

J
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Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the agreement.46 In this case, Camacho admitted the
existence of the contract as well as the genuineness of her signature. However, she
claimed that she signed only upon the request of Atty. Banzon, who told her that the
document would only be shown to the municipal councilors ("for formalityǯs sake") to
prove his authority in her behalf. It was never intended to bind her to pay him attorneyǯs
fees;47 in short, petitioner insists that Camacho had not given her consent to the contract.
We, however, do not agree. The contract between Camacho and respondent is evidenced
by a written document signed by both parties denominated as Contract of Attorneyǯs Fee.
It is an established rule that written evidence is so much more certain and accurate than
that which rests in fleeting memory only; that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit weaker evidence to control and
vary the stronger, and to show that the parties intended a different contract from that
expressed in the writing signed by them.48 Moreover, the moment a party affixes her
signature thereon, he or she is bound by all the terms stipulated therein and is open to all
the legal obligations that may arise from their breach.49
In the instant case, Camacho voluntarily signed the document evidencing the contract.
Camachoǯs claim that the document was intended only to show respondentǯs authority to
represent her with respect to the transaction is flimsy, since a special power of attorney
could just as easily have accomplished that purpose. In fact, Camacho did execute a
Special Power of Attorney50 after the Contract of Attorneyǯs Fee was executed, and if
Camacho were to be believed, the Contract of Attorneyǯs Fee should have been
immediately canceled thereafter since it was no longer needed. As correctly held by the
CA, Camacho was an experienced businesswoman, a dentistry graduate and is conversant
in the English language. We note that the words and phrases used in the Contract of
Attorneyǯs Fee are very simple and clear; thus, she cannot plead that she did not
understand the undertaking she had entered into.51 Considering that her undertaking was
to part with a 5,000-sq-m portion of her property, she should have been more vigilant in
protecting her rights.
Even assuming that the contract did not reflect the true intention of the parties as to their
respective obligations, it is nevertheless binding. The existence of the written contract,
coupled with Camachoǯs admission that the signature appearing thereon was hers,
constitute ineluctable evidence of her consent to the agreement. It cannot be overcome by
mere denial and allegations that they did not intend to be bound thereby. We also note
that Camacho did not avail of the remedy of reformation of the instrument in order to
reflect what, according to her, was the true agreement.
Camachoǯs consent to the contract was further manifested in the following events that
transpired after the contract was executed: the execution of the agreement with
voluntary surrender signed by Tuazon; the execution of the Deed of Donation where Atty.
Banzon was authorized to sign the same on behalf of Camacho; and the sale of 1200 sq. m.
portion of the property right at the market site. In all these transactions, Atty. Banzon
represented Camacho pursuant to the Contract of Attorneyǯs Fee.
The object of the contract is still certain despite the partiesǯ failure to indicate the specific
portion of the property to be given as compensation for services
Articles 1349 and 1460 of the Civil Code provide the guidelines in determining whether
or not the object of the contract is certain:
Article 1349. The object of every contract must be determinate as to its kind. The fact that
the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract
between the parties.
xxxx
Article 1460. A thing is determinate when it is particularly designated and/or physically

segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered
into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties.
In this case, the object of the contract is the 5,000-sq-m portion of Lot 261, Balanga
Cadastre. The failure of the parties to state its exact location in the contract is of no
moment; this is a mere error occasioned by the partiesǯ failure to describe with
particularity the subject property, which does not indicate the absence of the principal
object as to render the contract void.52 Since Camacho bound herself to deliver a portion
of Lot 261 to Atty. Banzon, the description of the property subject of the contract is
sufficient to validate the same.
The Cause or Consideration of the contract is not illegal
In general, the cause is the why of the contract or the essential reason which moves the
contracting parties to enter into the contract.53 For the cause to be valid, it must be lawful
such that it is not contrary to law, morals, good customs, public order or public policy.54
Petitioner insists that the cause of the subject contract is illegal. However, under the
terms of the contract, Atty. Banzon was obliged to negotiate with the municipal
government of Balanga for the transfer of the proposed new public market to Camachoǯs
property (Lot 261); to sell 1,200 square meters right at the market site; and to take
charge of the legal phases incidental to the transaction which include the ejectment of
persons unlawfully occupying the property (whether through amicable settlement or
court action), and the execution of the Deed of Donation and other papers necessary to
consummate the transaction. There was thus nothing wrong with the services which
respondent undertook to perform under the contract. They are not contrary to law,
morals, good customs, public order or public policy.
Petitioner argues that the cause of the contract is the "pirating" of the municipalityǯs
market project and ejecting the tenant to convert the property into a commercial
establishment. This is premised on the fact that the construction of the new public market
at Doña Francisca Subdivision had originally been approved by the municipal council of
Balanga, the Development Bank of the Philippines, and the National Urban Planning
Commission; and at the time the contract was executed, Tuazon occupied the property.
The records show, however, that the municipal council was scouting for a new location
because it had reservations regarding the site of the proposed project. And while Lot 261
was considered to be the most ideal (because it stands on higher ground and is not
susceptible to flooding) it does not follow that respondent no longer negotiated for and in
Camachoǯs behalf. There were other terms to be negotiated, such as the mode of transfer
(whether sale or donation); the titling of the property in the name of the municipality; the
terms of payment, if any; and such other legalities necessary to consummate the
transaction.
It must be stressed that Camacho was not deprived of any property right. The portions of
her property which she parted with (the 17,000-sq-m portion donated to the
municipality; the 5,000-sq-m portion given to respondent as attorneyǯs fees; and the
1,200-sq-m portion which was sold) were either in exchange for services rendered or for
monetary consideration. In fact, all these transactions resulted in the increase in the
economic value of her remaining properties.
Thus, the defense of the illegality of respondentǯs undertaking is baseless. The municipal
council had the authority to choose the best site for its project. We also note that the
market site was transferred with the active participation of Camacho, who agreed to
donate the 17,000-sq-m portion of her property; the new public market was constructed
and became operational; and the sale of the 1,200-sq-m lot was consummated when
Camacho executed the deeds herself. Thus, petitioner cannot be allowed to evade the
payment of Camachoǯs liabilities under the contract with respondent; a contrary
conclusion would negate the rule of estoppel and unjust enrichment.
As to the additional 1,000-sq-m-portion of Lot 261, however, we find and so hold that
respondent is not entitled thereto.
Indeed, it was sufficiently established that an attorney-client relationship existed

between Camacho and respondent and that the latter handled several other cases for his
client. The records show that the parties had agreed upon specific sums of money as
attorneyǯs fees for the other cases:
Civil Case No. C-1773 P10,000.0055
Civil Case No. 424 P1,000.0056
CAR Case No. 278-Bǯ70 P2,000.0057
CAR Case No. 520-Bǯ73 P5,000.0058
Civil Case No. 3281 P5,000.0059
This clearly negates respondentǯs claim of an additional 1,000-sq-m share as

compensation for services rendered. Likewise, there being no evidence on respondentǯs
right over the 800-sq-m allegedly purchased from third persons, he is likewise not
entitled to this portion of the property.
On the other hand, Camacho admitted in her Answer60 to the Complaint-in-Intervention

that respondent had purchased from her an 80-sq-m portion of the property. Since she
had merely executed a Provisional Deed of Sale,61 we agree with the RTC that respondent
has the right to require the execution of a public instrument evidencing the sale.
It must be understood that a retainer contract is the law that governs the relationship
between a client and a lawyer.62 Unless expressly stipulated, rendition of professional
services by a lawyer is for a fee or compensation and is not gratuitous.63 Whether the
lawyerǯs services were solicited or they were offered to the client for his assistance,
inasmuch as these services were accepted and made use of by the latter, we must
consider that there was a tacit and mutual consent as to the rendition of the services, and
thus gives rise to the obligation upon the person benefited by the services to make
compensation therefor.64 Lawyers are thus as much entitled to judicial protection against
injustice on the part of their clients as the clients are against abuses on the part of the
counsel. The duty of the court is not only to see that lawyers act in a proper and lawful
manner, but also to see that lawyers are paid their just and lawful fees.65 If lawyers are
entitled to fees even if there is no written contract, with more reason that they are
entitled thereto if their relationship is governed by a written contract of attorneyǯs fee.
In her fourth assigned error, petitioner claims that the CA failed to rule on the propriety
of the dismissal of respondent as Camachoǯs counsel.
We do not agree. We uphold the following pronouncement of the CA on the matter:
In this case, the grounds relied upon by plaintiff Camacho as justifications for the
discharge of Intervenor are not sufficient to deprive the latter of his attorneyǯs fees.
Intervenor may see the case in an angle different from that seen by plaintiff Camacho. The
procedures adopted by Intervenor may not be what plaintiff Camacho believes to be the
best. But these do not in any way prove that Intervenor was working to the prejudice of
plaintiff Camacho.
Failure of plaintiff Camacho to prove that Intervenor intended to damage her, We

consider the charges of plaintiff Camacho as mere honest difference of opinions.
As to the charge that Intervenor failed to account the money he collected in behalf of
plaintiff Camacho, the same is not supported by any evidence. Suffice it to say that mere
allegations cannot prove a claim.66
The ruling of the CA on the award of moral damages is likewise in accordance with the
facts and established jurisprudence:
The act of plaintiff Camacho is a clear case of breach of contract.¢ ""¢ Worst, when
Intervenor demanded payment, plaintiff Camacho adopted all sorts of strategies to delay
payment. This case dragged on for twenty (20) years. And until this time, plaintiff
Camacho continues to unjustifiably refuse the payment of the attorneyǯs fees due to
intervenor.
For these, one can readily imagine the worries and anxiety gone through by Intervenor.
Award of moral damages is but proper.
Moral damages may be granted if the party had proven that he suffered mental anguish,
serious anxiety and moral shock as a consequence of the act of the other party. Moral
damages can be awarded when a party acted in bad faith as in this case by Camacho.67
IN LIGHT OF ALL THE FOREGOING, the appealed decision is AFFIRMED with the
MODIFICATION that the award of a 1,000-square-meter portion of Lot 261 to respondent
Atty. Angelito Banzon as attorneyǯs fees is DELETED.
SO ORDERED.
+
+m
Associate Justice
WE CONCUR:
m mm

Associate Justice

m!
4!
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courtǯs Division.
m mm

Associate Justice
Chairperson
CERTIFICATION
Attestation, it is hereby certified that the conclusions in the above decision were reached
in consultation before the case was assigned to the writer of the opinion of the Courtǯs
Division.
m

Chief Justice
#$
1Penned by Associate Justice Eugenio S. Labitoria (retired), with Associate

Justices Cancio C. Garcia (now Associate Justice of the Court) and Artemio G.
Tuquero (retired), concurring; rollo, pp. 127-141.
2 Penned by Judge Abraham P. Vera; id. at 208-234.
3 Records, p. 371.
4 Exhibit "B."
5 ' , p. 236.
6 Kapasiyahan Blg. 127; Exhibit "E."
7 Exhibit "I."
8 Records, pp. 1-3.
9 Id. at 154-155.
10 Id. at 310-312.
11 Id. at 325.
12 Id. at 364-370.
13 Annex "C," p. 372.
14The other cases which Atty. Banzon handled for Camacho are as follows: (1)
Civil Case No. 3512 from which this petition stemmed; (2) CAR Case No. 278 Bǯ70
entitled "Tuazon v. Camacho, et. al."; (3) Civil Case No. 3281 "Emilio Ma Naval,
et.al. v. Camacho, et. al"; (4) I.S. No. 36-71; (5) CAR Case No. 520 Bǯ73 "Tuazon v.
Camacho"; (6) Civil Case No. C-1773 "Calvelo v. Camacho, et. al."; and (7) Civil
Case No. 3510 "Balanga Market Vendors Association, et. al. v. Municipality of
Balanga, et. al." (records, pp. 514-515).
15 Records, p. 369.
16 Id. at 413-417.
17 Id. at 471.
18 Id. at 524-525.
19 Id. at 799-804.
20 Id. at 801.
21 Id.
22 Id. at 802.
23 Id. at 819-830.
24 Exhibit "B."
25 Records, Vol. II, pp. 40-43.
26 Id. at 47-49.
27 Id. at 99-100.
28 Id. at 116-118.
29 G.R. No. 79564, November 24, 1989, 179 SCRA 604.
30 Supra note 2.
31 Records, pp. 519-520.
32 Section 7. "

&
Ȃ When the terms of an agreement
have been reduced to writing, it is to be considered as containing all such terms,

and, therefore, there can be, between the parties and their successors in interest,
no evidence of the terms of the agreement other than the contents of the writing,
except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to

express the true intent and agreement of the parties, or the validity of the
agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
The term "agreement" includes wills.
33Section 24. #

5 &
Ȃ An attorney shall
be entitled to have and recover from his client no more than a reasonable
compensation for his services, with a view to the importance of the subject matter
of the controversy, the extent of the services rendered, and the professional
standing of the attorney. No court shall be bound by the opinion of attorneys as
expert witnesses as to the proper compensation, but may disregard such
testimony and base its conclusion on its own professional knowledge. A written
contract for services shall control the amount to be paid therefor unless found by
the court to be unconscionable or unreasonable.
34Section 26. # &

. Ȃ An attorney may retire at any time from any
action or special proceeding, by the written consent of his client filed in court. He
may also retire at any time from an action or special proceeding, without the
consent of his client, should the court, on notice to the client and attorney, and on
hearing, determine that he ought to be allowed to retire. In case of substitution,
the name of the attorney newly employed shall be entered on the docket of the
court in place of the former one, and written notice of the change shall be given to
the adverse party.
A client may at any time dismiss his attorney or substitute another in his
place, but if the contract between client and attorney has been reduced to
writing and the dismissal of the attorney was without justifiable cause, he
shall be entitled to recover from the client the full compensation
stipulated in the contract. However, the attorney may, in the discretion of
the court, intervene in the case to protect his rights. For the payment of
his compensation the attorney shall have a lien upon all judgments for the
payment of money, and executions issued in pursuance of such judgment,
rendered in the case wherein his services had been retained by the client.
35 Records, pp. 521-523.
36 Id. at 601-603.
37 CA rollo, pp. 53-54.
38 Supra note 1.
39 CA rollo, p. 356.
40 Id. at 367-368.
41 Embodied in a Resolution dated April 16, 1997; CA rollo, pp. 510a and 510b.
42 Rollo, pp. 58-59.
43 Id. at 246-294.
44 CIVIL CODE, Art. 1356.
45CIVIL CODE, Art. 1318, " & $

G.R. No. 155043, September
30, 2004, 439 SCRA 649, 657; #
(" !,, 447 Phil.
306, 319 (2003); % #%3%
&#
"#
361 Phil. 499,
519 (1999).
46Caugma v. People, G.R. No. 167048, April 7, 2006, 486 SCRA 611, 641; '&
+"#, 414 Phil. 807, 813 (2001).
47 Records, p. 801.
48 ' "
, 414 Phil. 343, 356 (2001).
49 ("#
, 324 Phil. 400, 410 (1996).
50 Supra note 5.
51 ' , pp. 133-134.
52 â
"
. , G.R. No. 158901, March 9, 2004, 425 SCRA 57, 64-65.
53') "*/,
&$
, G.R. No. 152072, January 31, 2006, 481 SCRA 258,
276.
54 CIVIL CODE, Art. 1352.
55 Exh. "L-3."
56 Exh. "O"; TSN, August 14, 1980, p. 13.
57 Exh. "P-10"; TSN, August 14, 1980, p. 15.
58 Exh. "Q-11"; TSN, August 14, 1980, p. 16.
59 Exh. "S-1"; Id.
60 Records, p. 802.
61 Annex "C," id. at 236.
62 '

"' +"#
, 334 Phil. 652 (1997).
63 Id.
64 Id., citing
,"
2 Phil. 682 (1903).
65 "C , A.M. No. RTJ-05-1900, January 28, 2005, 449 SCRA 446, 456.
66 ' , p. 139.
67 Id. at 138.

m
Manila
SECOND DIVISION

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petitioners,
vs.
* !respondent.
*!p
This is a petition for review on

of the decision of the Court of Appeals reversing the
decision of the Regional Trial Court, Naga City, Branch 19, in Civil Case No. 87-1335, as well as the
appellate court's resolution denying reconsideration.
The antecedent facts are as follows:
Juan San Andres was the registered owner of Lot No. 1914-B-2 situated in Liboton, Naga City. On
September 28, 1964, he sold a portion thereof, consisting of 345 square meters, to respondent
Vicente S. Rodriguez for P2,415.00. The sale is evidenced by a Deed of Sale. 8
Upon the death of Juan San Andres on May 5, 1965, Ramon San Andres was appointed judicial
administrator of the decedent's estate in Special Proceedings No. R-21, RTC, Branch 19, Naga City.
Ramon San Andres engaged the services of a geodetic engineer, Jose Peñero, to prepare a
consolidated plan (Exh. A) of the estate. Engineer Peñero also prepared a sketch plan of the 345-
square meter lot sold to respondent. From the result of the survey, it was found that respondent
had enlarged the area which he purchased from the late Juan San Andres by 509 square meters.
Accordingly, the judicial administrator sent a letter, % dated July 27, 1987, to respondent demanding
that the latter vacate the portion allegedly encroached by him. However, respondent refused to do
so, claiming he had purchased the same from the late Juan San Andres. Thereafter, on November 24,
1987, the judicial administrator brought an action, in behalf of the estate of Juan San Andres, for
recovery of possession of the 509-square meter lot.
In his Re-amended Answer filed on February 6, 1989, respondent alleged that apart from the 345-
square meter lot which had been sold to him by Juan San Andres on September 28, 1964, the latter
likewise sold to him the following day the remaining portion of the lot consisting of 509 square
meters, with both parties treating the two lots as one whole parcel with a total area of 854 square
meters. Respondent alleged that the full payment of the 509-square meter lot would be effected
within five (5) years from the execution of a formal deed of sale after a survey is conducted over
said property. He further alleged that with the consent of the former owner, Juan San Andres, he
took possession of the same and introduced improvements thereon as early as 1964.
As proof of the sale to him of 509 square meters, respondent attached to his answer a receipt (Exh.
2) signed by the late Juan San Andres, which reads in full as follows:
Received from Vicente Rodriguez the sum of Five Hundred (P500.00) Pesos
representing an advance payment for a residential lot adjoining his previously paid
lot on three sides excepting on the frontage with the agreed price of Fifteen (15.00)
Pesos per square meter and the payment of the full consideration based on a survey
shall be due and payable in five (5) years period from the execution of the formal
deed of sale; and it is agreed that the expenses of survey and its approval by the
Bureau of Lands shall be borne by Mr. Rodriguez.
Naga City, September 29, 1964.
(Sgd.)
JUAN
R. SAN
ANDRE
S
Vendor
Noted:
(Sgd.)
VICENTE RODRIGUEZ
Vendee
Respondent also attached to his answer a letter of judicial administrator Ramon San Andres
(Exh. 3), asking payment of the balance of the purchase price. The letter reads:
Dear Inting,
Please accommodate my request for Three Hundred (P300.00) Pesos as I am in need

of funds as I intimated to you the other day.
We will just adjust it with whatever balance you have payable to the subdivision.
Thanks.
S
i
n
c
e
r
e
l
y
,
(Sgd.)
R
A
M
O
N
S
A
N
A
N
D
R
E
S
Vicente Rodriguez
Penafrancia Subdivision, Naga City
P.S.
You can let bearer Enrique del Castillo sign for the amount.
Received One Hundred Only
(Sgd.)
RAMON SAN ANDRES
3/30/66
Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the
aforesaid 509-square meter lot.
While the proceedings were pending, judicial administrator Ramon San Andres died and was
substituted by his son Ricardo San Andres. On the other band, respondent Vicente Rodriguez died
on August 15, 1989 and was substituted by his heirs. 9
Petitioner, as plaintiff, presented two witnesses. The first witness, Engr. Jose Peñero, testified that
based on his survey conducted sometime between 1982 and 1985, respondent had enlarged the
area which he purchased from the late Juan San Andres by 509 square meters belonging to the
latter's estate. According to Peñero, the titled property (Exh. A-5) of respondent was enclosed with
a fence with metal holes and barbed wire, while the expanded area was fenced with barbed wire
and bamboo and light materials.
The second witness, Ricardo San Andres, administrator of the estate, testified that respondent had
not filed any claim before Special Proceedings No. R-21 and denied knowledge of Exhibits 2 and 3.
However, he recognized the signature in Exhibit 3 as similar to that of the former administrator,
Ramon San Andres. Finally, he declared that the expanded portion occupied by the family of
respondent is now enclosed with barbed wire fence unlike before where it was found without
fence.
On the other hand, Bibiana B. Rodriguez, widow of respondent Vicente Rodriguez, testified that
they had purchased the subject lot from Juan San Andres, who was their compadre, on September
29, 1964, at P15.00 per square meter. According to her, they gave P500.00 to the late Juan San
Andres who later affixed his signature to Exhibit 2. She added that on March 30, 1966; Ramon San
Andres wrote them a letter asking for P300.00 as partial payment for the subject lot, but they were
able to give him only P100.00. She added that they had paid the total purchase price of P7,035.00
on November 21, 1988 by depositing it in court. Bibiana B. Rodriquez stated that they had been in
possession of the 509-square meter lot since 1964 when the late Juan San Andres signed the
receipt. (Exh. 2) Lastly, she testified that they did not know at that time the exact area sold to them
because they were told that the same would be known after the survey of the subject lot.
On September 20, 1994, the trial court rendered judgment in favor of petitioner. It ruled that
there was no contract of sale to speak of for lack of a valid object because there was no sufficient
indication in Exhibit 2 to identify the property subject of the sale, hence, the need to execute a new
contract.
Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision
reversing the decision of the trial court. The appellate court held that the object of the contract was
determinable, and that there was a conditional sale with the balance of the purchase price payable
within five years from the execution of the deed of sale. The dispositive portion of its decision's
reads:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby

REVERSED and SET ASIDE and a new one entered DISMISSING the complaint and
rendering judgment against the plaintiff-appellee:
1. to accept the P7,035.00 representing the balance of the purchase price of the
portion and which is deposited in court under Official Receipt No. 105754 (page
122, Records);
2. to execute the formal deed of sale over the said 509 square meter portion of Lot
1914-B-2 in favor of appellant Vicente Rodriguez;
3. to pay the defendant-appellant the amount of P50,000.00 as damages and

P10,000.00 attorney's fees as stipulated by them during the trial of this case; and
4. to pay the costs of the suit.
SO ORDERED.
Hence, this petition. Petitioner assigns the following errors as having been allegedly committed by
the trial court:
I. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT THE
DOCUMENT (EXHIBIT "2") IS A CONTRACT TO SELL DESPITE ITS
LACKING ONE OF THE ESSENTIAL ELEMENTS OF A CONTRACT,
NAMELY, OBJECT CERTAIN AND SUFFICIENTLY DESCRIBED.
II. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER IS OBLIGED TO HONOR THE PURPORTED CONTRACT
TO SELL DESPITE NON-FULFILLMENT BY RESPONDENT OF THE
CONDITION THEREIN OF PAYMENT OF THE BALANCE OF THE
PURCHASE PRICE.
III. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT

CONSIGNATION WAS VALID DESPITE NON-COMPLIANCE WITH THE
MANDATORY REQUIREMENTS THEREOF.
IV. THE HON. COURT OF APPEALS ERRED IN HOLDING THAT

LACHES AND PRESCRIPTION DO NOT APPLY TO RESPONDENT
WHO SOUGHT INDIRECTLY TO ENFORCE THE PURPORTED
CONTRACT AFTER THE LAPSE OF 24 YEARS.
The petition has no merit.
First. Art. 1458 of the Civil Code provides:
By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
As thus defined, the essential elements of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in

exchange for the price;
b) Determinate subject matter; and,
c) Price certain in money or its equivalent. 8
As shown in the receipt, dated September 29, 1964, the late Juan San Andres received P500.00 from
respondent as " "

.&
"

)&
&; the agreed purchase price was P15.00 per square meter; and the full
amount of the purchase price was to be based on the results of a survey and would be due and
payable in five (5) years from the execution of a deed of sale.
Petitioner contends, however, that the "property subject of the sale was not described with
sufficient certainty such that there is a necessity of another agreement between the parties to
finally ascertain the identity; size and purchase price of the property which is the object of the
alleged sale." He argues that the "quantity of the object is not determinate as in fact a survey is needed to determine its exact size and the full
purchase price therefor" % In support of his contention, petitioner cites the following provisions of the Civil Code:
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinable shall not be
an obstacle to the existence of a contract, provided it is possible to determine the same without the need of a new contract between
the parties.
Art. 1460. . . . The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of
being made determinate without the necessity of a new and further agreement between the parties.
Petitioner's contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This
portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the
"previously paid lot." Since the lot subsequently sold to respondent is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable
of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey
does not detract from the fact that they are determinate or determinable. As the Court of Appeals explained:
Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate
if at the time the contract is entered into, the thing is capable of being determinate without necessity of a new or further agreement
between the parties. Here, this definition finds realization.
Appellee's Exhibit "A" (page 4, Records) affirmingly shows that the original 345 sq. m. portion earlier sold lies at the middle of Lot
1914-B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the north.
The northern boundary is a 12 meter road. Conclusively, therefore, this is the only remaining 509 sq. m. portion of Lot 1914-B-2
surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is quite difined, determinate and certain. Withal, this is the same
portion adjunctively occupied and possessed by Rodriguez since September 29, 1964, unperturbed by anyone for over twenty (20)
years until appellee instituted this suit.
Thus, all of the essential elements of a contract of sale are present, .., that there was a meeting of the minds between the parties, by virtue of which the late
Juan San Andres undertook to transfer ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil Code provides:
The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price. . . .
That the contract of sale is perfected was confirmed by the former administrator of the estates, Ramon San Andres, who wrote a letter to respondent on
March 30, 1966 asking for P300.00 as partial payment for the subject lot. As the Court of Appeals observed:
Without any doubt, the receipt profoundly speaks of a meeting of the mind between San Andres and Rodriguez for the sale of the
property adjoining the 345 square meter portion previously sold to Rodriguez on its three (3) sides excepting the frontage. The price
is certain, which is P15.00 per square meter. Evidently, this is a perfected contract of sale on a deferred payment of the purchase
price. All the pre-requisite elements for a valid purchase transaction are present. Sale does not require any formal document for its
existence and validity. And delivery of possession of land sold is a consummation of the sale (Galar vs. Husain, 20 SCRA 186 [1967]).
A private deed of sale is a valid contract between the parties (Carbonell v. CA, 69 SCRA 99 [1976]).
In the same vein, after the late Juan R. San Andres received the P500.00 downpayment on March 30, 1966, Ramon R. San Andres
wrote a letter to Rodriguez and received from Rodriguez the amount of P100.00 (although P300.00 was being requested) deductible
from the purchase price of the subject portion. Enrique del Castillo, Ramon's authorized agent, correspondingly signed the receipt
for the P100.00. Surely, this is explicitly a veritable proof of he sale over the remaining portion of Lot 1914-B-2 and a confirmation
by Ramon San Andres of the existence thereof.
There is a need, however, to clarify what the Court of Appeals said is a conditional contract of sale. Apparently, the appellate court considered as a
"condition" the stipulation of the parties that the full consideration, based on a survey of the lot, would be due and payable within five (5) years from the
execution of a formal deed of sale. It is evident from the stipulations in the receipt that the vendor Juan San Andres sold the residential lot in question to
respondent and undertook to transfer the ownership thereof to respondent without any qualification, reservation or condition. In &<". #

, 9 we held:
In *&". #

(158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any
"that title is reserved or the right to unilaterally rescind is stipulated, &., until or
unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (&., by the execution
of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of
the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code).
Thus, in. one case, when the sellers declared in a "Receipt of Down Payment" that they received an amount as purchase price for a house and lot without any
reservation of title until full payment of the entire purchase price, the implication was that they sold their property. + H+
#

#

". #
, it was stated:
A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is
reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period.
Applying these principles to this case, it cannot be gainsaid that the contract of sale between the parties is absolute, not conditional. There is no reservation
of ownership nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of the lot to
respondent. 8 Thus, Art. 1477 provides that the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof.
The stipulation that the "payment of the full consideration based on a survey shall be due and payable in five (5) years from the execution of a formal deed of
sale" is not a condition which affects the efficacy of the contract of sale. It merely provides the manner by which the full consideration is to be computed and
the time within which the same is to be paid. But it does not affect in any manner the effectivity of the contract. Consequently, the contention that the
absence of a formal deed of sale stipulated in the receipt prevents the happening of a sale has no merit.
. With respect to the contention that the Court of Appeals erred in upholding the validity of a consignation of P7,035.00 representing the balance of
the purchase price of the lot, nowhere in the decision of the appellate court is there any mention of consignation. Under Art. 1257 of this Civil Code,
consignation is proper only in cases where an existing obligation is due. In this case, however, the contracting parties agreed that full payment of purchase
price shall be due and payable within five (5) years from the execution of a formal deed of sale. At the time respondent deposited the amount of P7,035.00 in
the court, no formal deed of sale had yet been executed by the parties, and, therefore, the five-year period during which the purchase price should be paid
had not commenced. In short, the purchase price was not yet due and payable.
This is not to say, however, that the deposit of the purchase price in the court is erroneous. The Court of Appeals correctly ordered the execution of a deed of
sale and petitioners to accept the amount deposited by respondent.

. The claim of petitioners that the price of P7,035.00 is iniquitous is untenable. The amount is based on the agreement of the parties as evidenced by the
receipt (Exh. 2). Time and again, we have stressed the rule that a contract is the law between the parties, and courts have no choice but to enforce such
contract so long as they are not contrary to law, morals, good customs or public policy. Otherwise, court would be interfering with the freedom of contract of
the parties. Simply put, courts cannot stipulate for the parties nor amend the latter's agreement, for to do so would be to alter the real intentions of the
contracting parties when the contrary function of courts is to give force and effect to the intentions of the parties.

. Finally, petitioners argue that respondent is barred by prescription and laches from enforcing the contract. This contention is likewise untenable.
The contract of sale in this case is perfected, and the delivery of the subject lot to respondent effectively transferred ownership to him. For this reason,
respondent seeks to comply with his obligation to pay the full purchase price, but because the deed of sale is yet to be executed, he deemed it appropriate to
deposit the balance of the purchase price in court. Accordingly, Art. 1144 of the Civil Code has no application to the instant case. 8 Considering that a survey
of the lot has already been conducted and approved by the Bureau of Lands, respondent's heirs, assign or successors-in-interest should reimburse the
expenses incurred by herein petitioners, pursuant to the provisions of the contract.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that respondent is ORDERED to reimburse petitioners for the
expenses of the survey.
SO ORDERED.
% % $$

â& *($

$$
"
#$
1 Per Justice Conrado M. Vasquez and concurred in by Justices Fermin A. Martin, Jr. and Artemio S. Tuquero.
2 Records, p. 119.
3 TSN, pp. 1-23, April 5, 1993.
4 Records, p. 84.
5 +., p. 120.
6 +., p. 121.
7 +., p. 69.
8 TSN, pp. 1-23, April 5, 1993.
9 TSN, pp. 1-22, July 7, 1993.
10 TSN, pp. 1-33, April 13, 1994.
11 Presided over by Judge Gregorio E. Manio, Jr.
12 Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160 (1997); Coronel v. Court of Appeals, 263 SCRA 15 (1996).
13 ' , p. 15.
14 +., p. 16.
15 CA Decision, p. 5.
16 +., pp. 5-6.

17 238 SCRA 602, 612 (1994).
18 Coronel v. Court of Appeals, 263 SCRA 15 (1996)
19 281 SCRA 206 (1997).
20 # Lim v. Court of Appeals, 263 SCRA 569 (1996).
21 Bucton v. Gabar, 55 SCRA 499 (1974).

m
Manila
SECOND DIVISION

/'2-8
* ! petitioner,

vs.
m/#0!M!respondents.
*!p

of the decision of the Court of Appeals in C.A.-G.R. CV No.
31546, reversing the decision of the Regional Trial Court, Branch 106, Quezon City, dismissing the
complaint for specific performance brought by private respondent. The appellate court instead
ordered petitioner to convey the property in question to private respondent.
The background of this case is as follows.
Petitioner Fidela Mananzala is the registered owner of a parcel of land located at Bagong Pagasa,
Quezon City, under Transfer Certificate of Title No. 32314, issued on January 15, 1985. Petitioner
had been in actual possession of the land since 1955 by virtue of a conditional sale made in her
favor by the Philippine Homesite and Housing Corporation (PHHC), now the National Housing
Authority (NHA). In 1960, however, the PHHC awarded the land to Nestor and Elisea Mercado who
took possession of the land in that year.
Petitioner contested the award in court. She claimed precedence not only in actual occupation of
the land but also in application for its purchase. Her right to the land was upheld by the Court of
First Instance of Quezon City, whose decision was later affirmed by the Intermediate Appellate
Court. Consequently, the PHHC cancelled the award made to the Mercado spouses.
On December 14, 1984, petitioner paid in full the price of the land under the deed of conditional
sale. The NHA therefore executed a deed of sale in her favor on January 14, 1985.8The next day a
transfer certificate of title to the lot was issued in the name of petitioner.
On January 31, 1985, private respondent Corazon Aranez brought this action below for specific
performance against petitioner to enforce a deed of sale covering the same lot allegedly entered
into between her and petitioner on March 22, 1960. The contract %stipulated that title to the land
shall be transferred to private respondent within 30 days after full payment of the purchase price
by petitioner to the PHHC. The deed was notarized by Atty. Pio Lopez, who was petitioner's
counsel in her case against the Mercado spouses. Private respondent alleged that petitioner
refused, despite repeated demands made by her, to comply with the stipulation in their contract.
She prayed that petitioner be ordered to transfer ownership of the land to her.
Petitioner denied selling the land to private respondent. She contended that the deed was a forgery
and that her signature was secured through fraud by private respondent and by Atty. Pio Lopez. In
the alternative, she averred that the deed of sale was void because it was made before the actual
award of the land to her and that it was made in violation of the prohibition in the rules and
regulations of the PHHC against the subsequent disposition of the land within one year of the
issuance of the title.
The trial court dismissed the complaint. Although finding petitioner's signature on the deed to be
genuine, it nevertheless ruled that there was no perfected contract of sale because petitioner never
really intended to sell the land. Furthermore, the trial court also found the alleged contract to be
null and void because, at the time of the sale, petitioner was not yet the owner thereof.9
On appeal, the Court of Appeals reversed. It held that there was a meeting of the minds between
the parties as evidenced by the signature of the petitioner on the deed of sale which the National
Bureau of Investigation found to be genuine. The notarization of the deed gave rise to the
presumption of its regularity. The Court of Appeals further held that petitioner could validly sell
the land even before the actual award to her pursuant to Art. 1461 of the Civil Code, which provides
that things having a potential existence may be the object of a contract of sale. Consequently, the
court ordered petitioner to transfer ownership of the land to private respondent. Hence this
petition.
Petitioner alleges two grounds for her petition, to wit:
THE RESPONDENT COURT OF APPEALS ERRED IN VALIDATING A CONTRACT

EXECUTED IN VIOLATION OF LAW AND PUBLIC POLICY.
II
THE CHALLENGED NOTARIAL DOCUMENT, APART FROM BEING CONTRARY TO

LAW AND PUBLIC POLICY, DOES NOT SERVE THE PRESUMPTION OF REGULARITY.
We shall deal with these questions in inverse order.

. Petitioner avers that the appellate court erred in relying on the presumption of regularity
accorded to notarial documents in holding the deed of sale between her and private respondent to
be valid.
This is not true. The decision of the appellate court shows that the court also took into account the
evidence of the parties. It relied on the report of the National Bureau of Investigation which found
the signature of the petitioner on the questioned document to be genuine. The NBI report was
based on a comparison of the signature on the deed and ten specimen signatures of petitioner's.
The trial court itself arrived at the same conclusion as to the genuiness and due execution of the
deed. Indeed, petitioner's claim that her signature on the deed had been procured through fraud
is contradicted by her allegation in court that the signature on the deed was not hers. As she
claimed in her testimony, "That is not my signature."8 If the signature on the deed was not her
signature, then it could not have been procured by fraud.
Anyway, that the signature of petitioner in the deed in question is genuine is a factual finding of
both the trial court and the Court of Appeals which, in the absence of very clear evidence to the
contrary, this Court will not revise.
. The other question is whether the contract between petitioner and private respondent is
valid and binding. Petitioner invokes the ruling in + ".+
#
. %In that
case the transfer of rights to petitioner was disapproved by the PHHC in view of Resolution No. 82
providing that the "sale of more than one lot per person shall nor be permitted." Petitioner was
already the holder of a land by reason of a previous award made to him by the PHHC. Accordingly,
the right of the awardee to recover the possession of the lot from him was upheld. In this case,
however, there is no evidence that the sale to private respondent of the lot was made in violation of
any rule of the PHHC. This issue was never passed upon by either the trial court or the Court of
Appeals.
The above argument, as well as petitioner's contention that the sale to private respondent is void
because it was made within one year after the title to the property was issued in the name of
petitioner, while raised by petitioner in her answer in the trial court, was not passed upon and she
did not urge it anymore except now. As already noted, the trial court based its decision on its
finding that the sale was void on the ground that there was no meeting of the minds of the patties.
When its decision was appealed, petitioner (as appellee) did not urge her original defenses to
uphold the decision in her favor. She merely relied on the ruling of the trial court. The appellate
court, in reversing the trial court, simply considered the issues raised by the trial court's decision,
namely, whether petitioner's signature on the deed was a forgery, whether there was a meeting of
the minds of the parties, and whether there could be a sale of future property. The question
whether the sale was void because it was made within the one-year period of prohibition to
petitioner as awardee was never briefed or in any way argued below. For all intents and purposes,
therefore, petitioner waived this ground and cannot now urge it as ground for reversing the
decision of the Court of Appeals.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
'&

,$$

#$
1 Per Justice Manuel C. Herrera (chairman) and concurred in by Justice Cezar D.

Francisco and Justice Buenaventura J. Guerrero (members).
2 Exh. 2.
3 Exh. 1.
4 Exhs. A (plaintiff's) and 3(defendant's). Both are exact copies of each other.
5 +., Stipulation 3.
6 +., TSN, testimony of Fidela Manansala, pp. 9-15, Oct. 17, 1985.
7 Record, pp. 432-433; the trial court & Arts. 1305 and 1409 of the Civil Code.
8 ' , pp. 27-32.
9 #& Joson v. Baltazar, 194 SCRA 114, 191 (1991) and Favor v. Court of Appeals,
194 SCRA 308, 313 (1991).
10 Exh. S.
11 Record, p. 432.
12 TSN, p. 9, Oct. 17, 1985.
13 De Guzman v. Court of Appeals, 260 SCRA 389 (1996); Meneses v. Court of

Appeals, 246 SCRA 162, 171 (1995).
14 209 SCRA 510 (1992).
15 Court of Appeals ' , pp. 56-59.
4 + m * 5

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FIRST DIVISION

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The Court of Appeals, in accordance with Section 31 of the Judiciary Act of 1948, as amended,
certified to Us the appeal docketed as CA-G.R. No. 56674-R entitled ü
'

"

," as only questions of
law are involved.
On January 14, 1974, Amparo del Rosario filed a complaint against the spouses Andres F. Santos
and Aurora O. Santos, for specific performance and damages allegedly for failure of the latter to
execute the Deed of Confirmation of Sale of an undivided 20,000 square meters of land, part of Lot
1, Psu-206650, located at Barrio Sampaloc, Tanay, Rizal, in malicious breach of a Deed of Sale
(Exhibit A or 1) dated September 28, 1964.
Amparo del Rosario died on Sept. 21, 1980 so that she is now substituted by the heirs named in her
will still undergoing probate proceedings. Andres F. Santos also died, on Sept. 5, 1980, and he is
substituted by the following heirs: Jovita Santos Gonzales, Arnulfo O. Santos, Archimedes O. Santos,
Germelina Santos Ravida, and Andres O. Santos, Jr.
The Deed of Sale (Exh. A or 1) is herein reproduced below:
DEED OF SALE
I, ANDRES F. SANTOS, of legal age, married to Aurora 0. Santos, Filipino and resident
cf San Dionisio, Paranaque, Rizal, Philippines, for and in consideration of the sum of
TWO THOUSAND (P 2,000.00) PESOS, Philippine Currency, the receipt whereof is
hereby acknowledged, do hereby SELLS, CONVEYS, and TRANSFERS (sic) unto
Amparo del Rosario, of legal age, married to Fidel del Rosario but with legal
separation, Filipino and resident of San Dionisio, Paranaque, Rizal, Philippines that
certain 20,000 square meters to be segregated from Lot 1 of plan Psu-206650 along
the southeastern portion of said lot, which property is more particularly described
as follows:
A parcel of land (Lot 1 as shown on plan Psu-206650, situated in the

Barrio of Sampaloc, Municipality of Tanay, Province of Rizal.
Bounded on the SW., along lines 1-2-3, by Lot 80 of Tanay Public
Land Subdivision, Pls-39; on the NW., along lines 3-4-5, by Lot 2; and
along lines 5-6-7-8-9-10-11, by Lot 6; on the NE., along lines 11-12-
13, by Lot 3: and along lines 13-1415, by Lot 4, all of plan Psu-
206650; and on the SE., along line 15-1, by Lot 5 of plan Psu- 206650
... ; containing an area of ONE HUNDRED EIGHTY ONE THOUSAND
FOUR HUNDRED TWENTY (181,420) SQUARE METERS. All points
referred to are indicated on the plan and are marked on the ground
as follows: ...
of which above-described property, I own one-half (1/2) interest thereof being my

attorney's fee, and the said 20,000 square meters will be transferred unto the
VENDEE as soon as the title thereof has been released by the proper authority or
authorities concerned:
That the parties hereto hereby agree that the VENDOR shall execute a Deed of
Confirmation of Deed of Sale in favor of the herein VENDEE as soon as the title has
been released and the subdivision plan of said Lot 1 has been approved by the Land
Registration Commissioner.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of September,
1964, in the City of Manila, Philippines.
s/ ANDRES F. SANTOS t/ ANDRES F. SANTOS
With My Marital Consent:
s/ Aurora O. Santos (Wife) t/ Aurora O. Santos (Wife)
SIGNED IN THE PRESENCE OF: s/ Felicitas C. Moro s/ Corona C. Venal
REPUBLIC OF THE PHILIPPINES) ) SS.
BEFORE ME, a Notary Public for and in Rizal, Philippines, personally appeared
Andres F. Santos, with Res. Cert. No. 4500027 issued at Paranaque, Rizal, on Jan. 9,
1964, B-0935184 issued at Paranaque, Rizal on April 15, 1964, and Aurora 0. Santos,
with Res. Cert. No. A-4500028 issued at Paranaque, Rizal, on Jan. 9, 1964, giving her
marital consent to this instrument, both of whom are known to me and to me known
to be the same persons who executed the foregoing instruments and they
acknowledged to me that the same is their free act and voluntary deed.
IN WITNESS WHEREOF, I have hereunto signed this instrument and affixed my

notarial seal this lst day of October, 1964, in Pasig, Rizal, Philippines.
Doc. No. 1792; Page No. 85; Book No. 19; Series of 1964.
s/ FLORENCIO LANDRITO t/ FLORENCIO LANDRITO
NOTARY PUBLIC Until December 31, 1965 8
Plaintiff claimed fulfillment of the conditions for the execution of the Deed of Confirmation of Sale,
namely: the release of the title of the lot and the approval of the subdivision plan of said lot by the
Land Registration Commission. She even enumerated the titles with their corresponding land areas
derived by defendants from the aforesaid lot, to wit:
(a) TCT 203580 Ȅ 30,205 sq. meters
(b) TCT 203581 Ȅ 19, 790 sq. meters
(c) TCT 167568 Ȅ 40,775 sq. meters
In a motion to dismiss, defendants pleaded, inter alia, the defenses of lack of jurisdiction of the
court a quo over the subject of the action and lack of cause of action allegedly because there was no
allegation as to the date of the approval of the subdivision plan, no specific statement that the titles
therein mentioned were curved out of Lot I and no clear showing when the demands were made on
the defendants. They likewise set up the defense of prescription allegedly because the deed of sale
was dated September 28, 1964 and supposedly ratified October 1, 1964 but the complaint was filed
only on January 14, 1974, a lapse of more than nine years when it should have been filed within five
years from 1964 in accordance with Article 1149, New Civil Code.
Defendant also claimed that the demand set forth in the complaint has been waived, abandoned or
otherwise extinguished. It is alleged that the deed of sale was "only an accommodation graciously
extended, out of close friendship between the defendants and the plaintiff and her casual business
partner in the buy and sell of real estate, one Erlinda Cortez;" that in order to allay the fears of
plaintiff over the non-collection of the debt of Erlinda Cortez to plaintiff in various sums exceeding
P 2,000.00, defendants, who were in turn indebted to Erlinda Cortez in the amount of P 2,000.00,
voluntarily offered to transfer to plaintiff their inexistent but expectant right over the lot in
question, the same to be considered as part payment of Erlinda Cortez' indebtedness; that as
Erlinda Cortez later on paid her creditor what was then due, the deed of sale had in effect been
extinguished. Defendants thereby characterized the said deed of sale as a mere tentative agreement
which was never intended nor meant to be ratified by and acknowledged before a notary public. In
fact, they claimed that they never appeared before Notary Public Florencio Landrito.
Finally, defendants alleged that the claim on which the action or suit is founded is unenforceable
under the statute of frauds and that the cause or object of the contract did not exist at the time of
the transaction.
After an opposition and a reply were filed by the respective parties, the Court !resolved to
deny the motion to dismiss of defendants. Defendants filed their answer with counterclaim
interposing more or less the same defenses but expounding on them further. In addition, they
claimed that the titles allegedly derived by them from Lot 1 of Annex A or I were cancelled and/or
different from said Lot I and that the deed of sale was simulated and fictitious, plaintiff having paid
no amount to defendants; and that the deed was entrusted to plaintiff's care and custody on the
condition that the latter; (a) would secure the written consent of Erlinda Cortez to Annex A or I as
part payment of what she owed to plaintiff; (b) would render to defendants true accounting of
collections made from Erlinda showing in particular the consideration of 2,000.00 of Annex A or I
duly credited to Erlinda's account. %
Plaintiff filed a reply and answer to counterclaim and thereafter a motion for summary judgment
and/or judgment on the pleadings on the ground that the defenses of defendants fail to tender an
issue or the same do not present issues that are serious enough to deserve a trial on the merits,
submitting on a later date the affidavit of merits. Defendants filed their corresponding opposition to
the motion for summary judgment and/or judgment on the pleadings. Not content with the
pleadings already submitted to the Court, plaintiff filed a reply while defendants filed a
supplemental opposition.
With all these pleadings filed by the parties in support of their respective positions, the Court !
still held in abeyance plaintiff's motion for summary judgment or judgment on the pleadings
pending the pre-trial of the case. At the pre-trial, defendants offered by way of compromise to pay
plaintiff the sum of P2,000.00, the consideration stated in the deed of sale. But the latter rejected
the bid and insisted on the delivery of the land to her. Thus, the pre-trial proceeded with the
presentation by plaintiff of Exhibits A to Q which defendants practically admitted, adopted as their
own and marked as Exhibits 1 to 17. In addition, the latter offered Exhibit 18, which was their reply
to plaintiff's letter of demand dated December 21, 1973.
From the various pleadings filed in this case by plaintiff, together with the annexes and affidavits as
well as the exhibits offered in evidence at the pre-trial, the Court a quo found the following facts as
having been duly established since defendant failed to meet them with countervailing evidence:
In February, 1964, Teofilo Custodia owner of a parcel of unregistered land with an

area of approximately 220,000 square meters in Barrio Sampaloc, Tanay, Rizal,
hired Attorney Andres F. Santos "to cause the survey of the above-mentioned
property, to file registration proceedings in court, to appear and represent him in all
government office relative thereto, to advance all expenses for surveys, taxes to the
government, court fees, registration fees ... up to the issuance of title in the name" of
Custodia. They agreed that after the registration of the title in Custodio's name, and
"after deducting all expenses from the total area of the property," Custodio would
assign and deliver to Santos "one-half (1/2) share of the whole property as
appearing in the certificate of title so issued." Exh. B or 2).
On March 22, 1964, Custodio's land was surveyed under plan Psu-226650 (Exh. D or
4). It was divided into six (6) lots, one of which was a road lot. The total area of the
property as surveyed was 211,083 square meters. The respective areas of the lots
were as follows:
Lot 1 181,420
square
meters
Lot 2 7,238 square

meters
Lot 3 7,305 square

meters
Lot 4 5,655 square

meters
Lot 5 5,235 square

meters
Road Lot 6 4,230 square

meters
TOTAL 211,083
square
meters
xxx xxx xxx
On December 27, 1965, a decree of registration No. N-108022 was issued in Land
Registration Case No. N-5023, of the Court of First Instance of Rizal, LRC Record No.
N-27513, in favor of Teofilo Custodia married to Miguela Perrando resident of
Tanay, Rizal. On March 23, 1966, Original Certificate of Title No. 5134 (Exh. Q or 17)
was issued to Custodio for Lots 1, 2, 3, 4 and 5, Psu- 206650, with a total area of
206,853 square meters. The areas of the five (5) lots were as follows:
Lot 1 181,420
square
meters
Lot 2 7,238 square

meters
Lot 3 7,305 square

meters
Lot 4 5,655 square

meters
Lot 5 5,235 square

meters
In April to May, 1966, a consolidation-subdivision survey (LRC) Pcs-5273 (Exh. E or

5) was made on the above lots converting them into six (6) new lots as follows:
xxx xxx xxx
Lot 1 20,000
square
meters
Lot 2 40,775
square
meters
Lot 3 50,000
square
meters
Lot 4 40,775
square
meters
Lot 5 50,000
square
meters
Road Lot 6 5,303 square

meters
TOTAL 206,853
square
meters
On June 22, 1966, the consolidation-subdivision plan (LRC) Pcs-5273 (Exh. E or 5)

was approved by the Land Registration Commission and by the Court of First
Instance of Rizal in an order dated July 2, 1966 (Entry No. 61037 T-167561, Exh. Q).
Upon its registration, Custodio's O.C.T. No. 5134 (Exh. Q) was cancelled and TCT
Nos. 167561, 167562, 167563, 167564 (Exh. G), 167565 (Exh. H and 167566 were
issued for the six lots in the name of Custodio (Entry No. 61035, Exh. Q).
On June 23, 1966, Custodio conveyed to Santos Lots 4 and 5, Pcs-5273 with a total
area of 90,775 square meters (Exh. B or 2) described in Custodio's TCT No. 167564
(Exh. G or 7) and TCT No. 167565 (Exh. H or 8), plus a one-half interest in the Road
Lot No. 6, as payment of Santos' attorney's fees and advances for the registration of
Custodio's land.
Upon registration of the deed of conveyance on July 5, 1966, Custodio's TCT Nos.
167564 and 167565 (Exhs. G and H) were cancelled. TCT No. 167568 (Exh. I or 9)
for Lot 4 and TCT No. 167585 (Exh. J or 10) for Lot 5 were issued to Santos.
On September 2, 1967, Santos' Lot 5, with an area of 50,000 square meters was
subdivided into two (2) lots, designated as Lots 5-A and 5-B in the plan Psd-78008
(Exh. F or 6), with the following areas:
Lot 5- 30,205
A square
meters
Lot 5- 19,795
B square
meters
TOTAL 50,000
square
meters
Upon registration of Psd-78008 on October 3, 1967, Santos' TCT No. 167585 (Exh. J)
was cancelled and TCT No. 203578 for Lot 5- A and TCT No. 203579 for Lot 5-B
were supposed to have been issued to Santos (See Entry 6311 in Exh. J or 10).
Actually, TCT No. 203580 was issued for Lot 5-A (Exh. K or 1 1), and TCT No.
203581 for Lot 5-B (Exh. L or 12), both in the name of Andres F. Santos.
Out of Custodio's original Lot 1, Psu-206650, with an area of 181,420 square meters,
Santos was given a total of 90,775 square meters, registered in his name as of
October 3, 1967 under three (3) titles, namely:
TCT No.
167585 for
Lot 4 Pcs- 40,775 sq.

5273 m.
(Exh. J or 10)
TCT No.
203580 for
Lot 5-A Psd- 30,205 sq.

78008 m.
(Exh. K or 11)
TCT No.
203581 for
Lot 5-B Psd- 19,795 sq.

78008 m.
(Exh. L or 12)
90,775 sq.m.
plus one-half of the road lot, Lot 6, PCS-5273, with an area of 5,303 square meters,
which is registered jointly in the name of Santos and Custodio (Exh. B & E)
The court ! thereupon concluded that there are no serious factual issues involved so the
motion for summary judgment may be properly granted. Thereafter, it proceeded to dispose of the
legal issues raised by defendants and rendered judgment in favor of plaintiff. The dispositive
portion of the decision states as follows:
WHEREFORE, defendants Andres F. Santos and Aurora Santos are ordered to

execute and convey to plaintiff Amparo del Rosario, within ten (10) days from the
finality of this decision, 20,000 square meters of land to be taken from the
southeastern portion of either Lot 4, Pcs-5273, which has an area of 40,775 square
meters, described in TCT No. 167568 (Exh. I or 9) of from their LOL 5-A. with an
area of 30,205 square meters, described in TCI No. 203; O (Exh. K or 11). The
expenses of segregating the 20,000 square meters portion shall be borne fqually by
the parties. rhe expenses for the execution and registration of the sale shall be borne
by the defendants (Art. 1487, Civil Code). Since the defendants compelled the
plaintiff to litigate and they failed to heed plainliff's just demand, they are further
ordered to pay the plaintiff the sum of P2,000.00 as attorney's fees and the costs of
this action.
SO ORDERED. 9
Aggrieved by the aforesaid decision, the defendant's filed all appeal to the Court of Appeals
submitting for resolution seven assignments of errors, to wit:
I. The lower court erred in depriving the appellants of their right to the procedural
due process.
II. The lower court erred in holding that the appellee's claim has not been
extinguished.
III. The lower court erred in sustaining appellee's contention that there are no other
unwritten conditions between the appellants and the appellee except those express
in Exh. "1" or "A", and that Erlinda Cortez' conformity is not required to validate the
appellants' obligation.
IV. The lower court erred in holding that Exh. "l" or "A" is not infirmed and
expressed the true intent of the parties.
V. The lower court erred in declaring that the appellants are co-owners of the lone
registered owner Teofilo Custodia.
VI. The lower court erred in ordering the appellants to execute and convey to the
appellee 20,000 sq. m. of land to be taken from the southeastern portion of either
their lot 4, Pcs-5273, which has an area of 40,775 sq.m., described in T.C.T. No.
167568 (Exh. 9 or 1), or from their lot No. 5-A, with an area of 30,205 sq.m.
described in T.C.T. No. 203580 (Exh. 11 or K), the expenses of segregation to be
borne equally by the appellants and the appellee and the expenses of execution and
registration to be borne by the appellants.
VII. The lower court erred in ordering heappellants topay to the appellee the sum of
P2,000. 00 as attorney's fee and costs.
The first four revolve on the issue of the propriety of the rendition of summary judgment by the
court !, which concededly is a question of law. The last three assail the summary judgment
itself. Accordingly, the Court of Appeals, with whom the appeal was filed, certified the records of the
case to this Court for final determination.
For appellants herein, the rendition of summary judgment has deprived them of their right to
procedural due process. They claim that a trial on the merits is indispensable in this case inasmuch
as they have denied under oath all the material allegations in appellee's complaint which is based
on a written instrument entitled "Deed of Sale", thereby putting in issue the due execution of said
deed.
Appellants in their opposition to the motion for summary judgment and/or judgment on the
pleadings, however, do not deny the genuineness of their signatures on the deed of sale.
(Par. 3 of said Motion, p. 101, Record on Appeal). They do not contest the words and figures in said
deed except in the acknowledgment portion thereof where certain words were allegedly cancelled
and changed without their knowledge and consent and where, apparently, they appeared before
Notary Public Florencio Landrito when, in fact, they claimed that they did not. In effect, there is an
admission of the due execution and genuineness of the document because by the admission of the
due execution of a document is meant that the party whose signature it bears admits that
voluntarily he signed it or that it was signed by another for him and with his authority; and the
admission of the genuineness of the document is meant that the party whose signature it bears
admits that at the time it was signed it was in the words and figures exactly as set out in the
pleading of the party relying upon it; and that any formal requisites required by law, such as
swearing and acknowledgment or revenue stamps which it requires, are waived by him.
As correctly pointed out by the court !, the alleged false notarization of the deed of sale is of no
consequence. For a sale of real property or of an interest therein to be enforceable under the
Statute of Frauds, it is enough that it be in writing. It need not be notarized. But the vendee may
avail of the right under Article 1357 of the New Civil Code to compel the vendor to observe the form
required by law in order that the instrument may be registered in the Registry of Deeds. Hence,
the due execution and genuineness of the deed of sale are not really in issue in this case.
Accordingly, assigned error I is without merit.
What appellants really intended to prove through the alleged false notarization of the deed of sale is
the true import of the matter, which according to them, is a mere tentative agreement with
appellee. As such, it was not intended to be notarized and was merely entrusted to appellee's care
and custody in order that: first, the latter may secure the approval of one Erlinda Cortez to their
(appellants') offer to pay a debt owing to her in the amount of P2,000.00 to appellee instead of
paying directly to her as she was indebted to appellee in various amounts exceeding P2,000.00; and
second once the approval is secured, appellee would render an accounting of collections made from
Erlinda showing in particular the consideration of P2,000.00 of the deed of sale duly credited to
Erlinda's account.
According to appellants, they intended to prove at a full dress trial the material facts: (1) that the
aforesaid conditions were not fulfilled; (2) that Erlinda Cortez paid her total indebtedness to
appellee in the amount of P14,160.00, the P2,000.00 intended to be paid by appellant included; and
(3) that said Erlinda decided to forego, renounce and refrain from collecting the P2,000.00 the
appellants owed her as a countervance reciprocity of the countless favors she also owes them.
Being conditions which alter and vary the terms of the deed of sale, such conditions cannot,
however, be proved by parol evidence in view of the provision of Section 7, Rule 130 of the Rules of
Court which states as follows:
Sec. 7. Evidence of written agreements when the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and, therefore,
there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true
intent and agreement of the parties, or the validity of the agreement is put in issue
by the pleadings;
(b) When there is an intrinsic ambiguity in the writing. The term "agreement"
includes wills."
The parol evidence rule forbids any addition to or contradiction of the terms of a written
instrument by testimony purporting to show that, at or before the signing of the document, other or
different terms were orally agreed upon by the parties. 8
While it is true, as appellants argue, that Article 1306 of the New Civil Code provides that "the
contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided that they are not contrary to law, morals, good customs, public order, or
public policy" and that consequently, appellants and appellee could freely enter into an agreement
imposing as conditions thereof the following: that appellee secure the written conformity of Erlinda
Cortez and that she render an accounting of all collections from her, said conditions may not be
proved as they are not embodied in the deed of sale.
The only conditions imposed for the execution of the Deed of Confirmation of Sale by appellants in
favor of appellee are the release of the title and the approval of the subdivision plan. Thus,
appellants may not now introduce other conditions allegedly agreed upon by them because when
they reduced their agreement to writing, it is presumed that "they have made the writing the only
repository and memorial of truth, and whatever is not found in the writing must be understood to
have been waived and abandoned."
Neither can appellants invoke any of the exceptions to the parol evidence rule, more particularly,
the alleged failure of the writing to express the true intent and agreement of the parties. Such an
exception obtains where the written contract is so ambiguous or obscure in terms that the
contractual intention of the parties cannot be understood from a mere reading of the instrument. In
such a case, extrinsic evidence of the subject matter of the contract, of the relations of the parties to
each other, and of the facts and circumstances surrounding them when they entered into the.
contract may be received to enable the court to make a proper interpretation of the instrumental. %
In the case at bar, the Deed of Sale (Exh. A or 1) is clear, without any ambiguity, mistake or
imperfection, much less obscurity or doubt in the terms thereof. We, therefore, hold and rule that
assigned errors III and IV are untenable.
According to the court ! "(s)ince Santos, in his Opposition to the Motion for Summary
Judgment failed to meet the plaintiff's evidence with countervailing evidence, a circumstance
indicating that there are no serious factual issues involved, the motion for summary judgment may
properly be granted." We affirm and sustain the action of the trial court.
Indeed, where a motion for summary judgment and/or judgment on the pleadings has been filed, as
in this case, supporting and opposing affidavits shall be made on personal knowledge, shall set forth
such facts as may be admissible in evidence, and shall show affirmatively that the affiant is
competent to testify as to the matters stated therein. Sworn or certified copies of all papers or parts
thereof referred to in the affidavitshalibeattachedtheretoorservedtherewith.
Examining the pleadings, affidavits and exhibits in the records, We find that appellants have not
submitted any categorical proof that Erlinda Cortez had paid the P2,000.00 to appellee, hence,
appellants failed to substantiate the claim that the cause of action of appellee has been
extinguished. And while it is true that appellants submitted a receipt for P14,160.00 signed by
appellee, appellants, however, have stated in their answer with counterclaim that the P2,000.00
value of the property covered by the Deed of Sale, instead of being credited to Erlinda Cortez, was
conspicuously excluded from the accounting or receipt signed by appellee totalling P14,160.00. The
aforesaid receipt is no proof that Erlinda Cortez subsequently paid her P2,000.00 debt to appellee.
As correctly observed by the court a quo, it is improbable that Cortez would still pay her debt to
appellee since Santos had already paid it.
Appellants' claim that their P2,000.00 debt to Erlinda Cortez had been waived or abandoned is not
also supported by any affidavit, document or writing submitted to the court. As to their allegation
that the appellee's claim is barred by prescription, the ruling of the trial court that only seven years
and six months of the ten-year prescription period provided under Arts. 1144 and 155 in cases of
actions for specific performance of the written contract of sale had elapsed and that the action had
not yet prescribed, is in accordance with law and, therefore, We affirm the same.
The action of the court ! in rendering a summary judgment has been taken in faithful
compliance and conformity with Rule 34, Section 3, Rules of Court, which provides that "the
judgment sought shall be rendered forthwith if the pleadings, depositions, and admissions on file
together with the affidavits, show that, except as to the amount of damages, there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. "
Resolving assignments of errors, V, VI, and VII which directly assail the summary judgment, not the
propriety of the rendition thereof which We have already resolved to be proper and correct, it is
Our considered opinion that the judgment of the court ! is but a logical consequence of the
failure of appellants to present any defense to appellee's claim. Said judgment is simply
the application of the law to the undisputed facts of the case, one of which is the finding of the court
!, to which We agree, that appellants are owners of one-half (1/2) interest of Lot I and,
therefore, the fifth assignment of error of appellants is without merit.
By the terms of the Deed of Sale itself, which We find genuine and not infirmed, appellants declared
themselves to be owners of one-half (1/2) interest thereof. But in order to avoid appellee's claim,
they now contend that Plan Psu-206650 where said Lot I appears is in the exclusive name of Teofilo
Custodio as the sole and exclusive owner thereof and that the deed of assignment of one-half (1/2)
interest thereof executed by said Teofilo Custodio in their favor is strictly personal between them.
Notwithstanding the lack of any title to the said lot by appellants at the time of the execution of the
deed of sale in favor of appellee, the said sale may be valid as there can be a sale of an expected
thing, in accordance with Art. 1461, New Civil Code, which states:
Art. 1461. Things having a potential existence may be the object of the contract of
sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the
condition that the thing will come into existence.
The sale of a vain hope or expectancy is void.
In the case at bar, the expectant right came into existence or materialized for the appellants actually
derived titles from Lot I .
We further reject the contention of the appellants that the lower court erred in ordering the
appellants to execute and convey to the appellee 20,000 sq.m. of land to be taken from the
southeastern portion of either their Lot 4, Pcs-5273, which has an area of 40,775 sq.m., described in
T.C.T. No. 167568 (Exh. 9 or 1), or from their Lot No. 5-A, with an area of 30,205 sq.m. described in
T.C.T. No. 203580 (Exh. 11 or K), the expenses of segregation to be borne equally by the appellants
and the appellee and the expenses of execution and registration to be borne by the appellants. Their
argument that the southeastern portion of Lot 4 or Lot 5-A is no longer the southeastern portion of
the bigger Lot 1, the latter portion belonging to the lone registered owner, Teofilo Custodia is not
impressed with merit. The subdivision of Lot I between the appellants and Teofilo Custodio was
made between themselves alone, without the intervention, knowledge and consent of the appellee,
and therefore, not binding upon the latter. Appellants may not violate nor escape their obligation
under the Deed of Sale they have agreed and signed with the appellee b3 simply subdividing Lot 1,
bisecting the same and segregating portions to change their sides in relation to the original Lot 1.
Finally, considering the trial court's finding that the appellants compelled the appellee to litigate
and they failed to heed appellee's just demand, the order of the court awarding the sum of
P2,000.00 as attorney's fees is just and lawful, and We affirm the same.
WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby AFFIRMED in
toto, with costs against the appellants.
SO ORDERED.

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1 Seventh Division; Gancayco. J., ponente, Escolin and Agrava, JJ., concurring.
2 Record on Appeal, pp. 13-16.
3 +, p. 21.
4 +. p. 43.
5 +.., p. 75.
6 Record on Appeal, pp. 153-163.

7 +., p. 168.
8 Brief for the Appellants, pp. 1-3.
9 Moran, Manuel V., Comments on the Rules of Court, Vol. I, p. 327 (1970)
10 Civil Code, Article 1403.
11 +, Art. 1406.
12 Francisco, Vicente J.; The Revised Rules of Court in the Philippines, Vol. VII, p.
152 (1973).
13 Moran, op. cit., Vol. V, p. 104.
14 Francisco op. cit., Vol. VII, pp. 161-162 (1973).
15 Rule 34, Sec. 5, Rules of Court.
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Petitioners-appellants in this appeal by

seek the reversal of the decision of the Court of
Appeals dated December 24, 1969.
The Court of Appeals narrated the facts thus: .
It appears that the spouses Francisco Yturralde and Margarita de los Reyes, owned a
parcel of agricultural land located in Guilinan, Tungawan, Zamboanga del Sur,
containing an area of 14.1079 hectares, more or less, and registered in their names
under Original Certificate of Title No. 2356 of the Office of the Register of Deeds of
Zamboanga del Sur. Sometime in the year 1944, Francisco Yturralde died intestate,
survived by his wife, Margarita de los Reyes, and their children who are the
petitioners herein, Ernesto, Fortunata, Montano, Zosimo, Ramon, Guadalupe, Luis,
Josefina and Rosalia, all surnamed Yturralde. In 1950, Margarita de los Reyes
contracted a second marriage with her brother-in-law and uncle of the petitioners
herein, Damaso Yturralde .
On May 30, 1952, Damaso Yturralde and Margarita de los Reyes executed a deed of
sale with right of repurchase in favor of the respondent herein, Isabelo Rebollos,
covering the above-mentioned property in consideration of the sum of P1,715.00.
The vendors

failed to exercise the right to repurchase the property within
the three-year period agreed upon, which expired on May 30, 1955. In 1961,
Margarita de los Reyes died.
On May 3, 1965, the respondent, Isabelo Rebollos, filed a petition for consolidation
of ownership with the Court of First Instance of Zamboanga del Sur, docketed as
Civil Case No. 436 therein, naming as respondents in the case the petitioners herein
and Damaso Yturralde (Annex A, Petition). Summons was then issued, and received
on June 17, 1965 by the respondent therein, Damaso, Ernesto, Fortunata, Montano,
Guadalupe, Luis and Rosalia, all surnamed Yturralde (Annexes C and F, Petition).
However, summons could not be served on three of the respondents therein,
Josefina, Zosima and Ramon Yturralde, as they were no longer residing at their last
known addresses (Annexes B, C and F, Petition). The Judge then presiding the Court
of First Instance of Zamboanga del Sur, Hon. Dimalanes Buissan, in his order dated
October 7, 1965, directed that summons be served upon the said three respondents
therein (Annex C, Petition). The copies of the petition sent to said three respondents,
but returned without service, were then delivered by Rebollos to the Clerk of Court
of the Court of First Instance of Zamboanga del Sur to complete the delivery thereof
under Section 6 of Rule 13, Rules of Court (Annex D, Petition). Thereafter, on motion
filed by Rebollos to declare the respondents in the case in default (Annex E,
Petition), the Court issued an order dated November 13, 1965, declaring all the
respondents therein in default, after which Rebollos presented his evidence
(Annexes F and G, Petition). On November 20, 1965, the Court rendered a decision
consolidating the ownership of the subject property in favor of Rebollos, and
ordering the Register of Deeds of Zamboanga del Sur to cancel Original Certificate of
Title No. 2356 covering said property and, in lieu thereof, to issue a transfer
certificate of title in the name of Rebollos (Annex H, Petition).
On June 3, 1966, Rebollos filed a motion to order the petitioner Montano Yturralde
herein to surrender and deliver to the Register of Deeds the owner's duplicate of
Original Certificate of Title No. 2356, which motion was granted by the Court
presided at the time by Judge Antonio Montilla (Annexes I and H, Petition). Due to
the failure of petitioner Montano Yturralde to comply with the order (Annex J) and
on the motion filed by Rebollos, the Court, then presided by the respondent Judge
ordered the arrest of said Montano Yturralde, but the order of arrest was
subsequently lifted on motion filed by Montano Yturralde (Annexes K, L, M, N, O and
P, Petition).
On motion filed by Rebollos, dated January 6, 1969, the respondent Judge ordered
the execution of the judgment in Civil Case No. 436, and on January 20, 1969, the
corresponding writ of execution was issued (Annexes Q, R and S, Petition). The
petitioners herein then filed a motion for reconsideration of the order granting
execution and for the quashing of the writ of execution, which was denied by the
respondent Judge in his order of March 21, 1969 (Annex T, U, V and W, Petition). On
petition filed by Rebollos, the respondent Judge, ordered the demolition of all
buildings not belonging to said Rebollos found on the premises in question
(Annexes X and Y, Petition).The petitioners then filed a motion for reconsideration
of the order of demolition, which was denied by the respondent Judge, who,
however, on motion of said petitioners, directed the respondent Sheriff to defer the
implementation of the writ of execution and the order of demolition until after June
23, 1969 (Annexes Z and AA, Petition). Thereafter, the petitioners instituted the
present proceedings.
The petition was given due course by this Court, and on June 19, 1969, a writ of
preliminary injunction was issued, restraining the respondents from enforcing the
decision and the orders complained of in Civil Case No. 436, until further orders. In
his answer to the petition filed by the respondent, Isabelo Rebollos, he averred that
on January 3, 1968, he sold the property in question to Pilar M. vda. de Reyes under
a deed of absolute sale and, accordingly, a Transfer Certificate of Title was issued in
favor of said vendee covering the subject property by the Register of Deeds
(Answers and Annexes 4 and 5 thereto).
The case before us is one for prohibition. (Section 2 of Rule 65, Rules of Court). (Pp.
16-19, rec.).
The Court of Appeals held that the action for prohibition before it seeking to restrain the
enforcement of the decision in Civil Case No. 436 and the implementing orders issued subsequent
thereto by the respondent Judge of the Court of First Instance of Zamboanga del Sur, will not
prosper; because prohibition is a preventive remedy to restrain the exercise of a power or the
performance of an act and not a remedy against acts already accomplished, which cannot be
undone through a writ of prohibition, and in the instant case, the judgment of the lower trial court
consolidates the ownership of the entire property involved in Civil Case No. 436 in favor of
respondent Isabelo Rebollos, orders the cancellation of the original certificate of title covering the
same, and directs the issuance of a new certificate of title in the name of respondent Rebollos.
By virtue of an absolute deed of sale executed on January 3, 1968 by respondent Isabelo Rebollos, a
new certificate of title was issued in the name of the vendee, Pilar M. Vda. de Reyes (citing Annexes
4 and 5 of the Answer). The respondent Court of Appeals then concluded that "As the thing sought
to be restrained had already been done, and since a certificate of title is conclusive evidence of the
ownership of the land referred to therein (Section 47, Act No. 496, as amended; Aldecoa & Co. vs.
Warner, Barnes & Co., 30 Phil. 153; Yumul vs. Rivera, et a1., 64 Phil. 13), and the same cannot be
collaterally attacked, but can only be challenged in a direct proceeding (Menderson vs. Garrido, 90
Phil. 624), prohibition in this case is not the proper remedy." .
Petitioners-appellants claim that the Court of Appeals erred (1) in sustaining the actuation of the
trial court in allowing service of summons upon appellants Josefina, Zosima and Ramon Yturralde
by registered mail pursuant to Section 6, Rule 13, of the Rules of Court; (2) in sustaining the ruling
of the trial court that it properly acquired jurisdiction over the aforesaid three appellants by virtue
of such mode of service of summons; and (3) in not declaring as null and void the decision of the
trial court along with its implementing orders, at least insofar as the aforenamed three appellants
are concerned on the ground that they were not given their day in court.
The three assigned errors shall be discussed jointly.
The respondent Court of Appeals erred in holding that the petition for prohibition before it will not
prosper as the act sought to be prevented had already been performed; because the order for the
issuance of the writ of execution, the corresponding writ of execution and the order for demolition
respectively dated January 6, 1969, January 20, 1969 and May 15, 1969 in Special Civil Case No. 436
were not enforced by the respondent trial judge, who in his order dated May 26, 1969 directed the
provincial sheriff to defer the implementation thereof (Annex "AA", p. 66, record of C.A. G.R. No.
43310; pp. 19-26, rec.). The petitioners herein reiterated that they are still in possession of the
property in question, which possession was recognized and protected by the respondent Court of
Appeals itself when it issued the writ of preliminary injunction dated June 19, 1969 against private
respondent Isabelo Rebollos pursuant to its resolution dated June 17, 1969 (pp. 67-74, rec. of C.A.
G.R. No. 43310).
It should be noted that the petition for prohibition filed with the Court of Appeals prayed for the
issuance of the writ of preliminary injunction.
enjoining herein respondents from enforcing the Decision dated November 20,
1965, the orders dated January 15, 1969, March 21, 1969, May 15, 1969 and May 26,
1969, Annexes "H", "R", "W", "Y", and "AA" hereof, and after due hearing ..., the
preliminary writ of injunction be made permanent and so with the writ of
prohibition.
Petitioners also pray for such other and further reliefs to which they may be entitled
under the law.
While it is true that the decision in Special Civil Case No. 436 was already rendered, Original
Certificate of Title No. 2356 was cancelled and a new transfer certificate of title issued in the name
of Pilar V. vda. de Reyes by virtue of the deed of absolute sale executed on January 3, 1968 by
private respondent Isabelo Rebollos in her favor; the writ of execution and the order of demolition,
as heretofore stated, were never enforced by reason of which herein petitioners remain and are still
in possession of the land. Moreover, the general prayer for such other reliefs as herein petitioners
may be entitled to under the law, includes a prayer for the nullification of the decision of November
20, 1965 as well as the questioned orders above-mentioned.
II
Unlike the old Civil Code, Article 1607 of the new Civil Code of 1950 provides that consolidation of
ownership in the vendee

of real property by virtue of the failure of the vendor

"to
comply with the provisions of Article 1616 shall not be recorded in the Registry of Property without
a judicial order, after the vendor has been duly heard." In the case of
"
this
Court, through Mr. Justice Jose B. L. Reyes, ruled that under the aforesaid Article 1607 of the new
Civil Code, such consolidation shall be effected through an ordinary civil action, not by a mere
motion, and that the vendor

should be made a party defendant, who should be served with
summons in accordance with Rule 14 of the Revised Rules of Court; and that the failure on the part
of the court to cause the service of summons as prescribed in Rule 14, is sufficient cause for
attacking the validity of the judgment and subsequent orders on jurisdictional grounds.8The Court
in said case stressed that the reason behind the requirement of a judicial order for consolidation as
directed by Article 1067 of the new Civil Code is because "experience has demonstrated too often
that many sales with right of re-purchase have been devised to circumvent or ignore our usury laws
and for this reason, the law looks upon them with disfavor (Report of the Code Commission, pp. 63-
64). When, therefore, Article 1607 speaks of a judicial order after the vendor shall have been duly
heard, it contemplates none other than a regular court proceeding under the governing Rules of
Court, wherein the parties are given full opportunity to lay bare before the court the real covenant.
Furthermore, the obvious intent of our Civil Code, in requiring a judicial confirmation of the
consolidation in the vendee

of the ownership over the property sold, is not only to have all
doubts over the true nature of the transaction speedily ascertained, and decided, but also to
prevent the interposition of buyers in good faith while such determination is being made. Under the
former method of consolidation by a mere extrajudicial affidavit of the buyer

, the latter
could easily cut off any claims of the seller by disposing of the property, after such consolidation, to
strangers in good faith and without notice. The chances of the seller

to recover his property
would thus be nullified, even if the transaction were really proved to be a mortgage and not a sale."

The doctrine in the aforesaid case of

"
was reiterated by this Supreme Tribunal
through Mr. Justice Jose P. Bengzon in the case of Ä& ":
$& %
The jurisdiction over the persons of herein petitioners Josefina, Zosima and Ramon all surnamed
Yturralde, was not properly acquired by the court because they were not properly served with
summons in the manner directed by Rule 14 of the Revised Rules of Court. The said three
petitioners cannot therefore be legally declared in default. Rule 13 of the Revised Rules of Court on
service and filing of pleadings and other papers with the court, does not apply to service of
summons. Rule 14 of the Revised Rules of Court on service of summons, which should govern,
provides that "upon the filing of the complaint, the Clerk of Court shall forthwith issue the
corresponding summons to the defendants" (Section 1, Rule 14), which summons shall be served by
the sheriff or other proper court officer or for special reason by any person specially authorized by
the court issuing the summons by personally handing a copy of the same to the defendants
(Sections 5 & 7, Rule 14). If the residence of the defendant is unknown or cannot be ascertained by
diligent inquiry or if the defendant is residing abroad, service may be made by publication in a
newspaper of general circulation in accordance with Sections 16 & 17, Rule 14.The sheriff or
private respondent Isabelo Rebollos himself should have made a diligent inquiry as to the
whereabouts of the three petitioners aforementioned. The trial court could have directed such an
inquiry, which would have disclosed that petitioners Josefina, Ramon and Zosima reside
respectively at Sibugey in Zamboanga del Sur, Roxas Street in Basilan City, and Washington, D.C.,
U.S.A. There is no showing that such a diligent inquiry was made to justify a substituted service of
summons by publication. The return dated June 18, 1965, of the acting chief of police of Tungawan,
Zamboanga del Sur, to the clerk of court and ) provincial sheriff "that Josefina, Zosima and
Ramon are no longer residing in this municipality" (Annex "B" to Petition of Court of Appeals, p. 20,
rec. of C.A. G.R. No. 43310), does not suffice to indicate that a careful investigation of their
whereabouts was made. And even if it did, substituted service of summon by publication should
have been required. Aside from the fact that the said return of service is a nullity as it is not under
oath, there is no showing even that the acting chief of police was especially authorized by the court
to serve the summons (Sections5 & 20, Rule 14, Revised Rules of Court.)
To emphasize, Section 3 of Rule 14 of the Revised Rules of Court commands the service of summons
together with a copy of the petition, on each of the defendants who must be specifically named in
the summons, upon the filing of such petition, like the petition in Special Civil Case No. 436 filed by
privaterespondent Isabelo Rebollos for consolidation of ownership over the lot coveredby Original
Certificate of Title No. 2356 in the name of "Francisco Yturralde married to Margarita de los Reyes."
.
III
The action for consolidation should be brought against all the indispensable parties, without whom
no final determination can be had of the action; and such indispensable parties who are joined as
party defendants must be properly summoned pursuant to Rule 14 of the Revised Rules of Court. If
anyone of the party defendants, who are all indispensable parties is not properly summoned, the
court acquires no jurisdiction over the entire case and its decision and orders therein are null and
void. 9
The

sale executed by Margarita de los Reyes ü & *
<
" expressly stipulates that she only sold all her rights, interests and participation in the lot
covered by O.C.T. No. 2356 (Annex "I", p. 66, rec.). Margarita therefore, could not, for she had no
right to, sell the entire lot, which is registered under O.C.T. No. 2356 "inthe name of Francisco
Yturralde married to Margarita de los Reyes." Said lot is acknowledge by herein petitioners as the
conjugal property of Francisco and Margarita (p. 2, rec. of C.A. G.R. No. 43310). What she validly
disposed of under the aforesaid

sale of 1952 was only her conjugal share in the lot
plus her successional right as heir in the conjugal share of her deceased husband Francisco.
Consequently, the vendee

, Isabelo Rebollos, cannot legally petition for the consolidation of
his ownership over the entire lot.
But in the petition he filed in Special Civil Case No. 436 on May 3, 1965 against herein nine
petitioners as children and heirs of the deceased spouses Francisco Yturralde (who died in 1944)
and Margarita de los Reyes (who died in 1961), and Damaso Yturralde, stepfather of herein
petitioners, Rebollos prayed for the consolidation of his ownership over the entire lot covered by
O.C.T. No. 2356, and not merely over the interest conveyed to him by Margarita. As the petition of
private respondent Rebollos sought to divest all of them of their undivided interest in the entire
agricultural land, which undivided interest was never alienated by them to Rebollos, herein
petitioners became indispensable parties. Rebollos himself acknowledged that they are
indispensable parties, for he included them as party-defendants in his petition in order to acquire
their undivided interest in the lot. While summons were served properly on all the other
defendants in said Civil Case No. 436, herein petitioners Josefina, Zosima and Ramon were not so
served. Because of such failure to comply with Rule 14 of the Revised Rules of Court on service of
summons on indispensable parties, as heretofore stated, the trialcourt did not validly acquire
jurisdiction over the case; because no complete and final determination of the action can be had
without the aforesaid three petitioners Josefina, Zosima and Ramon.
The petition for consolidation filed by herein private respondent Rebollos is similar in effect to an
action for partition by a co-owner, wherein each co-owner is an indispensable party; for without
him no valid judgment for partition may be rendered.
That the three children, herein petitioners Josefina, Zosima and Ramon, are essential parties,
without whom no valid judgment may be rendered, is further underscored by the fact that the
agricultural land in question was owned by them in common and pro indiviso with their mother
and their brothers and sisters and was not then as now physically partitioned among them.
For attempting to acquire the entire parcel by foisting upon the court the misrepresentation that
the whole lot was sold to him, private respondent Isabelo Rebollos must suffer the consequences of
his deceit by the nullification of the entire decision in his favor granting the consolidation of his title
over the entire land in question. This Court condemns such deception.
It should be noted that herein petitioners in 1967 also filed an action against only Isabelo Rebollos
for the recovery of ownership, annulment of judgment, redemption and damages in the Court of
First Instance of Zamboanga del Sur docketed as Civil Case No. 944 and entitled "Fortunata
Yturralde, et al. vs. Rebollos" (pp. 76, 84-96, rec. of C.A. G.R. No. 43310).
In their complaint in said Civil Case No. 944 dated May 23, 1967 (pp. 117-124, rec. of C.A. G.R. No.
43310), herein petitioners allege
that the respondent trial court (in Special Civil Case No.
436) had no jurisdiction over their share in the aforementioned lot through a "summary
proceedings without notice to them" (pp. 88-89, rec. of C.A. G.R. No. 43310).
Herein petitioners should amend their complaint in Civil Case No. 944 so as toinclude Pilar V. vda.
de Reyes party defendant therein in order that they can obtain a full and complete valid judgment
in the same action; because the vendee is an indispensable party.
It is a curious fact that Rebollos filed his petition for consolidation of title only on May 3, 1965,
almost ten years after the redemption period expiredon May 30, 1955, and about four years after
the death in 1961 of the vendor

lt is equally interesting to note that after herein petitioners filed in 1967 an action against Rebollos
for the recovery of ownership, annulment of judgment, redemption and damages, Rebollos sold on
January 3, 1968 the land in question to Pilar V. vda. de Reyes, with the deed of sale duly notarized
by Atty. Geronimo G. Pajarito, counsel for Rebollos in Special Civil Case No. 436 (pp. 16-17, 22-25,
31, 42, 44-47, 51, 56, 59, 61-62, 93, rec. of C.A. G.R. No. 43310).
But more intriguing is the fact that, after Rebollos sold on January 3, 1968 the land to Pilar V. vda.
de Reyes, Rebollos himself, not his vendee, filed:
(1) a motion dated January 6, 1969 for the issuance of a writ of execution from the
judgment in Special Civil Case No. 436, by reason of which the corresponding writ of
execution was issued on January 20, 1969; .
(2) an opposition to the motion of herein petitioners for the reconsideration of the
aforesaid order of January 20, 1969; and .
(3) a motion dated April 7, 1969 for execution and demolition of the buildings of
herein petitioners (pp, 61-62, rec. of CA-G.R. No. 43310).
WHEREFORE, judgment is hereby rendered reversing the decision of respondent Court of Appeals
dated December 24, 1969, and setting aside as null and void .
(1) the decision of the respondent trial judge dated November 20, 1965; .
(2) the order for the issuance of the writ of execution dated January 6, 1969; .
(3) the writ of execution dated January 20, 1969; and .
(4) the order of demolition dated May 15, 1969 in Special Civil Case No. 436; .
without prejudice to the final outcome of Civil Case No. 944.
With costs against private respondent Isabelo Rebollos.
##$'$%( / "

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1 L-15312, Nov. 29, 1960, 110 Phil. 222, 225-226.
2 110 Phil. 222, 225.
3 110 Phil. 226.
4 L-20941, Sept. 17, 1965, 15 SCRA 30, 32-33.
5 Pantaleon vs. Asuncion, L-13141, May 22, 1959, 105 Phil. 761, 764-765; Mabanag
vs. Gallemore, 81 Phil. 254, 255-258.
6 Sequito, et al. vs. Letundo, July 20, 1959, 105 Phil. 1139-1140.
7 Section 7, Rule 3, Revised Rules of Court; Leyte-Samar Sales, et al. vs. Cea, May 20,
1953, 93 Phil. 100, 104-106; Araneta vs. Montelibano, 14 Phil. 117; Ruguian et al. vs.
Ruguian, 9 Phil. 527; Garcia de Lara vs. Gonzales de Lara, 2 Phil, 294; Vol. 1, Moran,
Comments on the Rules of Court, 1970 Ed., p. 160.
8 Ruguian et al. vs. Ruguian, supra; Leyte-Samar Sales, et al. vs. Cea, supra; Araneta
vs. Montelibano, supra; Garcia de Lara vs. Gonzales de Lara, supra; Vol. 1, Moran,
Comments on the Rules of Court, 1970 Ed., p. 180.
9 Alberto, et al. vs. Mananghala, 89 Phil. 188, 191-192; Ocejo, etc. vs. International,
37 Phil. 631; Lacno vs. Lacno, 12 Phil. 508; Moran Vol. I, Comments on the Rules of
Court, 1970 Ed., pp. 180-181.
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of the April 3, 1986 decision
of the then Intermediate
Appellate Court in AC-G.R. CV No. 03616 reversing the appealed decision of the Court of First
Instance of Cavite, and the July 15, 1986 resolution of the same court denying the motion for
reconsideration.
The controversy in this case involves a residential lot situated in Digman, Bacoor, Cavite, and a
house constructed thereon. Herein petitioner Vicente I. Santos and private respondents Maximino
de Leon and Valentina Barron all died during the pendency of the case and were all duly
substituted.
As found by the trial court, the undisputed facts of this case are as follows:
The late spouses Antonio San Jose and Valentina Barron, who were childless, took custody of the
late Maximino de Leon, who was then a baby, without formalities of legal or judicial adoption.
Together, they lived in a conjugal house on the land, now in question, in Digman, Bacoor, Cavite,
even after Maximino de Leon had gotten married and raised a family. (Rollo, pp. 203-204).
On February 27, 1955, Antonio San Jose died, leaving a last will and testament, which was duly
probated by the Court of First Instance of Cavite in a decision rendered on April 20, 1955 in Special
Proceedings No. 5668. Among the properties bequeathed by the deceased in his will to Maximino
de Leon was piece of residential lot with a house erected thereon described as "isang loobang
tirahan sa baybay dagat sa Digman at kasama ang bahay (materiales mistos) na nakatirik doon"
(Rollo, p. 8).
In March, 1955, Valentina Barron, the widow, at her own expense, caused the demolition of the said
conjugal house and replaced it with a new one (now in question) on the same spot. Maximino de
Leon consented to an even helped in said construction, and thereafter, lived therein with is family.
Later, Maximino de Leon and his family moved and settled elsewhere.
In a Project of Partition dated December 15, 1955 (Exhibit "E") duly executed by Maximino de Leon
and Valentina Barron, Item "H", consisting of one (1) residential lot at Poblacion Bacoor, Cavite,
covered by Tax Declaration No. 6108 and assessed at P740.00, was assigned and adjudicated in
favor of Maximino de Leon. Said project of partition was duly approved by the probate court in an
Order dated July 12, 1956. Upon motion of the administrator of the estate, the court a quo issued an
Order on March 29, 1957 (Exhibit "G") ordering the distribution of the estate of the deceased
Antonio San Jose among his heirs in accordance with the aforesaid project of partition (Rollo, P. 9).
When de Leon returned in 1959, he found private respondents spouses Eugenio Cruz and Maria
Reyes occupying the house together with Valentina Barron. When said occupants refused to vacate
the premises, Maximino de Leon, on July 16, 1959, filed an ejectment case, Civil Case No. 113, with
the Municipal Court of Bacoor, Cavite, claiming ownership of the house in question.
In the answer, it was alleged that Valentina Barron is the true and legitimate owner of the house.
She built it at her own expense after the death of her husband and prior to the preparation and
approval of the Project of Partition. The house is now covered by Tax Declaration No. 7101 in the
name of Valentina Barron as lawful owner thereof. Respondents pointed out that only the
residential lot, without any house, has been adjudicated to Maximino de Leon in the Project of
Partition dated December 15, 1955 and approved by the Court of First Instance of Cavite "in its
order dated July 12, 1956, with the express approval of Maximino de Leon. As such, he is in estoppel
to impugn the validity and legality of the adjudication to him of the lot only, without the house.
In the alternative, they raised the defense that Valentina Barron is a builder in good faith since that
improvement was constructed at a time when said controverted lot was still part of the conjugal
property of Valentina Barron and the deceased Antonio San Jose, and that under Article 448 of the
Civil Code, Maximino de Leon has the option to pay the value of the improvement which is greater
than the lot.
On November 7, 1957, the Justice of the Peace Court of Bacoor, finding that the case involved
conflicting claims on the ownership of the house subject of litigation, dismissed the same for lack of
jurisdiction. The dismissal was appealed to the Court of First Instance of Cavite, and the same was
docketed therein as Civil Case No. 143 (Rollo, P. 205).
Subsequently, on January 2, 1962, while the said Civil Case No. 143 was pending, Maximino de Leon
filed Civil Case No. 411 against the same defendants in Civil Case No. 143, for recovery of possession
of the lot and house. In both cases, defendants, particularly Valentine Barron, claimed, among other
defenses, the right of a builder in good faith under Article 448 of the Civil Code.
While these cases were pending, Valentina Barron died on March 27, 1963 and was substituted by
respondents spouses Eugenio Cruz and Maria Reyes on November 6, 1964. Meanwhile, on April 2,
1964, respondent Maximino de Leon, for the sum of P15,700.00, sold the questioned lot (more or
less 930 square meters) and the house (Record, pp. 84-85) to Vicente Santos, petitioner herein,
without notice to the trial court nor to private respondents. The sale was duly registered with the
Registry of Deeds for the Province of Cavite on April 6, 1964 (Exhibit "A-1-A").
On April 25, 1964, petitioner wrote a letter (Exhibit "H") to respondent Maria Reyes, advising her
that he had acquired title over the parcel of land, the house and the "camalig" being occupied by
them and that he now needs the property in the pursuit of his business, for which reason, he
demanded that they vacate the premises and surrender the same to him within ten (10) days from
receipt thereof, including the payment of P500.00 monthly rental from April 2, 1964 for the use of
the property. This letter was received by the addressee through mail as evidenced by the Registry
Return Card presented as Exhibit "H-1" (Rollo, p. 27).
On April 30, 1965, petitioner filed a Complaint in Intervention in Civil Case No. 411 claiming that he
bought the litigated land with an area of 930 square meters from Maximino de Leon.
On May 6, 1965, petitioner sent another letter to respondent Maria Reyes (Exhibit "I") reiterating
his demand to vacate the premises and the payment of P500.00 monthly rentals from April 2, 1964
within five (5) days from receipt.
In her reply of May 16, 1965 (Exhibit "X'), respondent Maria Reyes stated that petitioner has no
right to collect the rental demanded considering that the property acquired is still under litigation,
to which, petitioner, in his letter of May 20, 1965 (Exhibit "IC'), made the rejoinder that it is only the
house which is the subject of litigation and that the lot is never involved in the suit between
respondent and respondent Maximino de Leon.
In the answer to the complaint-in-intervention, the spouses Maria Reyes and Eugenio Cruz claimed
that Maximino de Leon had no right to sell the land because of the pendency of a case wherein
Maximino sought the annulment of the Project of Partition involving the land where the house is
constructed. As counterclaim, respondents invoked the rights of pre-emption appertaining to a
builder in good faith.
In the meantime, petitioner had a parcel of land he bought from Maximino de Leon, surveyed. On
February 2, 1967, the Director of Lands approved the survey plan over the land, designated as Psu-
216172 (Exhibit "B") showing a total area of 1,937 square meters.
On August 29, 1969, the trial court dismissed said Civil Case No. 411 without prejudice.
Aforesaid Civil Cases Nos. 143 and N-411 were revived by the petitioner, filing with the trial court
on April 7, 1972, Civil Case No. N-1 762 (latter known as Civil Case No. B-16), against herein private
respondents together with Maximino de Leon for recovery of the subject land, now claimed to be
1,937 square meters.
In their Answer with Counterclaim and a Cross-Claim (Records, pp. 26-34), private respondents
aver that the area of the subject land is only 930 square meters, more or less, and that petitioner is
estopped from claiming that its area is 1,937 square meters; that the land area in excess of 930
square meters, and north of subject land, is a public land covered by Miscellaneous Sales (III-I)
Application No. 633 of respondent Medina, filed with the Bureau of Lands, who actually occupied
said public land, introducing improvements thereon; that the court has no jurisdiction over said
public land, jurisdiction being with the Bureau of Lands; that as builder in good faith, they are
entitled to retention of subject land, without obligation to pay rental until Maximino de Leon shall
have exercised the option; that they have preferential rights to buy the subject land; and that the
sale of subject land by Maximino de Leon to Vicente Santos is rescissible or annulable. In their
cross-claim against their co-respondent Maximino de Leon, they asserted ownership of the house in
question, sought enforcement of their rights as builders in good faith, and prayed for a rescission of
the sale of subject land for being in fraud of private respondents.
After a protracted trial, the question of ownership of said house was settled, when on October 18,
1973, respondent Maximino de Leon (as cross-defendant) and respondents spouses Maria Reyes
and Eugenio S. Cruz (as cross-claimants) filed a Motion to Approve Compromise Agreement (+.,
pp. 44, 46), wherein Maximino de lion admitted that: (1) the house in question was constructed by
Valentina Barron Reyes, at her own expense, on the portion of the land pertaining to the conjugal
partnership property of the spouses Antonio San Jose and Valentina Barron Reyes, prior to his
acquisition of the said lot; (2) he was prevailed upon by petitioner, who was aware of the pendency
of Civil Cases Nos. 143 and N-411 and was even his financier in the said cases, to sell the land in
question to him (petitioner); (3) he did not offer to buy the house from respondents spouses nor
from their predecessor-in-interest Valentina Barron Reyes, nor did he offer to sell the questioned
land to them; (4) he did not notify them of his intention to sell the land in question; (5) that he
decided to sell the land to petitioner; (6) that he sold to petitioner the parcel of land in question
with an area of 930 square meters only, and the excess portion is a Public land which is actually
occupied by respondents spouses Edwardo Medina and Luceria Reyes; (7) that he recognizes the
right of private respondents to purchase the land on which the house in question is erected; and (8)
that he recognizes their right to, a rescission of the contract of sale of subject lot between him and
petitioner. Said Compromise Agreement was signed by private respondents Maria Reyes and
Eugenio S. Cruz on the one hand and by Maximino de Leon on the other, assisted by their respective
counsel. This Compromise Agreement was approved by the trial court in an order dated October 22,
1973 as its judgment (+, pp. 69-70).
In a decision dated July 30,1982 (+, pp. 91-110), the trial court ruled in favor of petitioner. The
decretal portion of the said decision reads:
WHEREFORE, by preponderance of evidence, judgment is hereby rendered for the
plaintiff and against the defendants as follows:
a) Declaring plaintiff and his successors-in-interest to be the lawful owners of the

parcel of land described in the complaint and on the survey plan Psu-216172,
including all the improvements now existing thereon;
b) Ordering defendants to immediately vacate and surrender to plaintiff possession

of the aforesaid land and all the improvements found thereon;
c) Sentencing defendants Maria Reyes and Eugenio Cruz to jointly and severally pay
rental to plaintiff for their use and occupation of the premises under litigation at the
rate of P500.00 a month from April, 1964 until the plaintiff is fully restored in
possession of the same, with interest at the legal rate from the filing of this case;
d) Requiring the defendants to jointly and severally pay plaintiff attorney's fees in
the sum of P10,000.00;
e) Dismissing defendants' counterclaim and for the latter to pay the costs.
On appeal, public respondent, then Intermediate Appellate Court, in its decision of April 3, 1986
(Rollo, pp. 23-32), reversed the appealed decision Ȅ
WHEREFORE, the decision !is hereby REVERSED or SET ASIDE and another
one is rendered rescinding or declaring as null and void the deed of sale (Exh. A or
23) and ordering Maximino de Leon, his heirs, successors or assigns, to execute a
deed of sale conveying the land in question in favor of the defendants-appellants for
the sum of ELEVEN THOUSAND SEVEN HUNDRED PESOS (P11,700.00), Philippine
Currency, representing the price of the land after deducting the sum of P4,000.00,
the price of the house, from the purchase price of both house and lot in the total sum
of P15,700.00 as stated in Exh. A or 23, within 30 days from receipt of the order of
execution to be issued in this case. No costs.
Petitioner filed a Motion for Reconsideration (+ pp. 3439), but the same was denied in a
resolution dated July 15, 1986 (+, p. 33). Hence, the instant petition. The Second Division of this
Court, after the required pleadings were filed, (+, p. 147) gave due course to the petition in the
resolution of January 9, 1989 and required the parties to submit simultaneously their respective
memoranda. In compliance therewith, petitioner filed his memorandum on May 29, 1989 (+, pp.
180-192), while private respondents filed their memorandum on July 8, 1989 (+, pp. 203-225).
There is no dispute as to the ownership of the lot bequeathed by the late Antonio San Jose to
Maximino de Leon but only as to the ownership of the house built thereon by the surviving spouse
Valentina Barron immediately after the death of her husband San Jose. The question at issue is
whether or not Valentina Barron was a builder in good faith and as such, is entitled to the rights of
pre-emption prescribed under Article 448 of the Civil Code. At the outset, it must be stated that
pursuant to Article 527 of the Civil Code, which reads:
Art. 527. Good faith is always presumed, and upon him who alleges bad faith on the
part of a possessor rests the burden of proof.
The late Valentina Barron, predecessor-in-interest of private respondents, except Maximino de
Leon, has in her favor the presumption that she constructed the house in question in good faith. As
aptly argued by private respondents, there is no allegation in the complaint that even remotely
suggests that the late Valentina Barron was a builder in bad faith; that there is not even a scintilla of
proof, attempting to show that she was in bad faith; and that in such situation, presumption of good
faith remains (Sideco v. Pascua, 13 Phil. 342). The reason for the presumption of innocence is given
because every person should be presumed honest until the contrary is proved (U.S. v. Rapinan, 1
Phil. 294). Moreover, on equitable grounds, she was entitled to the property.
It will be recalled that Valentina Barron constructed the house on the lot in question sometime in
March, 1955, less than a month after her husband died on February 27, 1955 and before the
approval of a project of partition submitted on or about February 21, 1966 in Sp. Proc. No. 5668,
made for the purpose of segregating the house from the land. It is of record that when Barron gave
her conformity to the project of partition what was included in the estate of her husband and
allotted to Maximino de Leon as one of his shares in the inheritance, is the lot only, now covered by
Tax Declaration No. 6108 (Rollo, p. 29).
It, therefore, stands to reason that when Valentina Barron constructed the house she thought that
said land was still her conjugal property unknowing that it was the same land bequeathed by her
husband to Maximino de Leon, the ownership and possession of which, by the latter, retroacted as
of February 27, 1955, the death of the testator (Article 777, Civil Code; Rollo, p. 73). In fact, the
error in the Identification of the land, if any, is attributable not only to Valentina Barron alone but
also to Maximino de Leon who as earlier stated, not only consented but also helped in the
construction of the house in litigation. Thus, under similar circumstances, this Court ruled:
The proof clearly shows that the defendant went into possession of the land in
question and erected her house thereon by and with the permission of the plaintiff,
and therefor in good faith. The improvement thus made by the defendant, can not
become the property of the plaintiff except upon paying a due consideration to the
defendant. (Azingo v. Arena, 14 Phil. 263, 268 [1909]).
In the final analysis, it is more reasonable to believe that bad faith lies in the actuations of Maximino
de Leon as shown by his admissions in a compromise agreement that knowing the rights of
Valentina Barron over the property he sold the parcel of land to petitioner without notice. Neither
can de Leon claim that as there is no dispute as to the ownership of the land, the same is not in
litigation. Precisely, respondents' claim of pre-emption and right of retention placed the same
under litigation and subject to disposition by the trial court. Having opted to sell the land, de Leon is
bound under the law to sell the same to Barron and not to petitioner. Hence, the sale of the land to
petitioner is rescissible under Article 1381, Civil Code,
paragraph 4.
It is likewise established that petitioner is a buyer in bad faith, on the unrebutted testimony of
Eugenio Cruz, that he told the petitioner at the wake of Barron that the cases against subject
property are still pending and that the same involved both house and land (Rollo, p. 217).
Ultimately, respondent court did not err in declaring the sale of subject land invalid for being in
fraud of creditors and rescinded, under Article 1381 of the Civil Code, paragraph 4. More accurately,
the sale was rescissible because the property was then under litigation.
PREMISES CONSIDERED, the instant petition is hereby DENIED and the assailed decision of the
Intermediate Appellate Court, now Court of Appeals, is hereby AFFIRMED.
SO ORDERED.

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This petition seeks to review on

the decision of the Court of Appeals, dated March 1,
1988, which modified and/or amended the decision of the Regional Trial Court of Kalookan City by
declaring private respondents Celso Uy and Thomas S. Ong purchasers in good faith and for value of
a parcel of land (contrary to the findings of the trial court) as follows:
WHEREFORE, IN VIEW OF THE ABOVE, the appealed decision is hereby MODIFIED

and TCT-12456 issued in the names of Thomas S. Ong and Celso Uy is hereby
declared valid without prejudice on the part of plaintiff-appellee to file a separate
action for reimbursement for the value of said property from appellant Lilia Sevilla.
Other than the modification above indicated, the rest of the decision appealed from
dated April 25, 1984 is hereby AFFIRMED in . No pronouncement as to cost.
SO ORDERED. (p. 6, ' )
As culled from the decision of the trial court the facts of the case are as follows:
Petitioner Norma S. Tirado (hereafter Mrs. Tirado) acquired ownership of a parcel of land under a
Deed of Assignment executed by her father Jose Dimzon on October 12, 1967. The deed assigned
73,000 sq. m. of Dimzon's land consisting of 361,558 sq. m., (Plan of Lot B-2, Psd-4350, Exh. "C,"
Lilia Sevilla) (p. 163, ' ).
Tirado subsequently sought the assistance of respondent Lilia Sevilla to have her land titled,
including that of her father. Mrs. Sevilla agreed, provided Mrs. Tirado sold one hectare of land to
her. A deed of sale was finalized on September 30,1974, under which Mrs. Sevilla would get 10,600
sq. m. (1 ha.) for a consideration of P500,000.00. Mrs. Sevilla failed to pay the downpayment of
P50,000.00 within the agreed one-week period.
Keenly interested in having her land titled, Mrs. Tirado agreed to execute another deed of sale
whereby she would sell 15,000 sq. m. (or 1.5 has.) to Mrs. Sevilla who, in turn, would deliver three
(3) fishing boats worth P150,000.00 and advance initial expenses for the titling of the land. The first
deed of sale would be deemed cancelled. The second document of sale was finalized on December
23, 1975.
Despite the lapse of several months, and repeated demands, Mrs. Sevilla failed to institute any
proceedings nor to advance any money for the titling of Mrs. Tirado's land. Instead, without Mrs.
Tirado's consent and knowledge, she filed a petition in her name (Civil Case 1755, CFI, Br. XXXII
Kalookan City) for the issuance of title over the entire area of Lot B-2, Psd-4350 (Dimzon's land)
which includes Mrs. Tirado's 73,000 sq. m.
On December 23, 1976, TCT No. 4128 (covering both Mrs. Tirado and Dimson's lands, or the entire
Lot B-2 of Plan Psd 4350) was issued in Mrs. Sevilla's name. Later, Mrs. Sevilla submitted a
subdivision plan on the basis of which three (3) transfer certificates of title (TCT Nos. C-5374, C-
5379 and C-5380) were issued in lieu of TCT-4128, likewise in the name of Mrs. Sevilla.
On March 29, 1977, TCT No. C-5380 was cancelled and in its stead Transfer Certificate of Title Nos.
C-10298 and C-10299 were issued, again in Mrs. Sevilla's name.
On November 8, 1977, Mrs. Sevilla sold 4/5 portion of TCT No. C-10299 to Thomas Ong and, on
November 15, 1977, 1/5 portion thereof to Celso Uy (p. 77, ' ). On February 14, 1978, TCT No. C-
12456 was issued to Ong and Uy, (co-respondents in this petition).
On the other hand, Mrs. Tirado who had verified the issuance of TCT No. 4128, filed on December
23, 1977, this case (CC No. 6667, RTC, Br. XXXIII, Kalookan City) for the annulment of the judgment
in Civil Case 1755 and the corresponding cancellation of TCT No. 4128. Respondent Sevilla was
declared in default for failure to file her answer and petitioner was allowed to present her evidence
)
. Ong and Uy, who had been impleaded on an amended complaint (filed on January 14,
1980) filed an answer with counterclaim and crossclaim against Lilia Sevilla, on September 12,
1980.
On February 20, 1984, Ong and Uy were likewise declared in default for failure of their counsel,
who had been given a special power of Attorney, to appear on their behalf at the pre-trial.
Petitioner was likewise allowed to present her evidence )
against Ong and Uy.
On April 25, 1984, the trial court rendered a decision, the dispositive portion of which provides:
WHEREFORE, judgment is rendered in favor of petitioner and against respondent

Lilia Sevilla, ordering the questioned decision partly nullified and transfer certificate
of title No. 4128 issued therefrom is hereby amended to exclude the claim of herein
petitioner to the extent of 73,000 square meters. Necessarily, subsequent transfers,
if any, from the said title particularly Transfer of Certificate Nos. C-5380, C-10298, C-
10299 and C-12456, involving the property awarded to herein petitioner are
declared null and void . As to petitioner's prayer that the Register of Deeds
for the City of Kalookan be directed to issue separate transfer certificate of title in
the name of herein petitioner for the area claimed by her totalling seventy three
thousand (73,000) square meters, this Court cannot rule on this prayer considering
that the issuance of such title by the Register of Deeds shall be subject to the
submission of a subdivision plan duly approved by the Land Registration
Commission. Further respondent Lilia Sevilla is ordered to pay unto petitioner the
following:
1. The amount of P30,000.00 for moral damages and the further sum of P20,000.00
as exemplary damages;
2. The amount of P10,000.00 for and as attorney's fees; and
3. The costs of suit.
With regards (sic) to the cross-claim interposed against respondent Liha D. Sevilla
and as aforestated, respondent Lilia D. Sevilla is further ordered to pay respondents
Thomas S. Ong and Celso Uy the following:
1. The amount of the purchase price of the parcel of land purchased by respondents
Thomas S. Ong and Celso Uy from respondent Lilia D. Sevilla and which property is
more particularly described in the herein cancelled TCT No. C-12456;
2. The amount of P10,000.00 for and as attorney's fees; and
3. Costs of suit.
The counterclaim as interposed by respondents Thomas Ong and Celso Uy are

hereby DISMISSED for lack of basis to support the same.
SO ORDERED. (pp. 55-56, RTC Decision, ' )
A motion for reconsideration filed by Ong and Uy was denied on October 23, 1984.
On appeal by Mrs. Sevilla, Ong and Uy, the Court of Appeals modified the decision by declaring Ong
and Uy purchasers in good faith and for value, in effect depriving Mrs. Tirado of that portion of land
to the extent covered by TCT No. 12456.
Hence, this petition by Mrs. Tirado questioning the validity of TCT No. C-12456 issued in the names
of Ong and Uy.
We affirm the ruling of the Court of Appeals.
Mrs. Tirado anchors her argument on the earlier inscribed in TCT Nos. 10298 and 10299
on July 29, 1977. This was, however, done at the instance of the counsel of Mrs. Tirado's mother,
Mrs, Roqueta Rodriguez-Dimson who had earlier flied CC- 1836, in the then CFI, Br. 120, Kalookan
City (p. 97, ' ) for the annulment likewise of TCT No. 4128 and all titles emanating therefrom.
The case was however subsequently dismissed on December 15, 1977 because Mrs. Dimson was
not the real party-in-interest (p. 105, ' ). The order cancelling Mrs. Dimson's lis pendens was
inscribed on February 7, 1978 (p. 75, ' ) or seven (7) days prior to the issuance of TCT No.
12456 on February 14, 1978 in Ong and Uy's name. Mrs. Tirado insists that since the lis pendens
had been duly inscribed on TCT No. 5380 on July 29, 1977, and subsequently carried over to TCT
Nos. 10298 and 10299, Ong and Uy had been duly forwarned about an infirmity in said title; hence,
at the time they purchased subject property in November, 1977, they could not be considered
purchasers in good faith, and the subsequent issuance of TCT 12456 was an error.
The purpose of filing notice of lis pendens is to charge strangers with notice of the particular
litigation referred to in the notice; and if the notice is effective, a third person who acquires the
property affected by the lis pendens takes same subject to the eventuality of the litigation. But when
the adverse right fails in such litigation, the lis pendens loses its efficacy (Atkins Kroll & Co. vs.
Domingo, 46 Phil. 362, 1924) cited in Noblejas and Noblejas, Registration of Land Titles and Deeds,
Ann., 1986 Ed., p. 304)
Thus, the Court of Appeals correctly ruled:
... at the time appellants Ong and Uy purchased the realty in question (TCT No. C-
10299), they were well aware that it was involved in a litigation because of a notice
of lis pendens filed by the counsel of Roqueta Rodriguez on July 28, 1977. However,
they (Ong and Uy) took a calculated risk and brought () it just the same from Lilia
Sevilla, hoping all the while mayhap, that a decision would be rendered favorable to
their predecessor-in-interest, Lilia Sevilla in Civil Case No. C-1836. And true enough
and as per their expectation, after said sale to appellants (Ong and Uy), said notice of
lis pendens was cancelled by virtue of the order of the Court of First Instance of
Rizal, Caloocan, Branch XII on December 17, 1977, by virtue of a favorable decision
rendered in favor of said Lilia Sevilla. On February 14, 1978, T.C.T. No. C-12456 was
issued in the names of defendants-appellants Thomas S. Ong and Celso S. Uy (Exh. C.
Uy-Ong; p. 177, Records). Said Torrens Title does not also show any notice (sic) lis
pendens annotated therein, (pp. 39-40, Rollo, CA Decision)
xxx xxx xxx
At bar, it is beyond question that at the beginning, Lilia Sevilla's title to said property
was contested by Roqueta Rodriguez, However, once the Court of First Instance of
Caloocan, Branch XII rendered its decision in favor of said Lilia Sevilla, her title
thereto became judicially settled so that it ineluctably follows that the title awarded
to her is a legal title. It also logically follows that appellants Uy and Ong then stepped
into the shoes of Lilia Sevilla so that the latter (Uy and Ong) are to all intents and
purposes purchasers in good faith and for value because their predecessor's title
was held valid by the court in Civil Case No. 1836. (p. 72, ' , CA Resolution on
Motion for Reconsideration)
To require Ong and Uy to go beyond the lis pendens annotation or to look beyond TCT No. 10299
would be to impose an additional burden on Ong and Uy since the lis pendens annotation
sufficiently served its purpose.
Moreover, the lis pendens annotation, although considered a "general notice to all the world, . . . it is
not correct to speak of it as a part of the doctrine of notice,

& &
&"
&
&
&

.

ü(2 Bouvier, Law Dictionary and Concise Encyclopedia, p. 2032, SCRA
Annotation on Civil Law, the Public Land Act and the Property Registration Decree, 1983 Ed.,
Central Lawbook Publishing Co., Inc., pp. 118-119) (emphasis supplied).
It is now pointed out that Mrs. Tirado had likewise caused to be inscribed a lis pendens on TCT No.
10298 which had remained titled in Sevilla's name. The parcel of land covered by said title however
was never the subject of any deed of sale between her and Ong and Uy. Moreover, such lis pendens
was inscribed only on August 31, 1979, two years after Ong and Uy had brought the land covered by
TCT No. 10299 in 1977, and a year after TCT No. 10299 was cancelled on February 14, 1978 to give
way to TCT No. 12456 in Ong and Uy's name.
Petitioner again points out that she had likewise caused to be inscribed a lis pendens on TCT No.
12456 (p. 8, ' ). This move however is irrelevant since the inscription was made on April 22,
1980, or two years after TCT 12456 had long become indefeasible. We quote from the CA decision:
In a host of cases, our Supreme Court has enunciated the well-settled rule that "The
Certificate serves as evidence of an indefeasible title to the property in favor of the
person whose name appears therein. After the expiration of the one year period
from the issuance of the decree of registration upon which it is based, it becomes
incontrovertible (Pamintuan vs. San Agustin, 43 Phil. 558; Reyes and Nadres vs.
Borbon and Director of Lands, 50 Phil. 791; Manuel Syjuco et al. vs. Luis Francisco,
53 O.G. 2186, April 15, 1957; Brizuela, et al. vs. Ciriaco Vda. de Vargas, 53 O.G. 2822,
May 15, 1987. (p. 41, ' )
Besides, Ong and Uy were impleaded by Mrs. Tirado on an amended complaint on January 14, 1980,
two years after the issuance of TCT 12456.
ACCORDINGLY, we AFFIRM the decision of the Court of Appeals. No Costs.
SO ORDERED.
3
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1 RTC, NCJR, CXXIII, Kalookan City.

G.R. No. 119255 April 9, 2003
TOMAS K. CHUA vs. COURT OF APPEALS, ET AL.

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seeking to reverse the decision1 of the Court of
Appeals in an action for specific performance2 filed in the Regional Trial Court3 by
petitioner Tomas K. Chua ("Chua") against respondent Encarnacion Valdes-Choy
("Valdes-Choy"). Chua sought to compel Valdes-Choy to consummate the sale of her
paraphernal house and lot in Makati City. The Court of Appeals reversed the decision4
rendered by the trial court in favor of Chua.

Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area
of 718 square meters located at No. 40 Tampingco Street corner Hidalgo Street, San
Lorenzo Village, Makati City. The Property is covered by Transfer Certificate of Title No.
162955 ("TCT") issued by the Register of Deeds of Makati City in the name of Valdes-
Choy. Chua responded to the advertisement. After several meetings, Chua and Valdes-
Choy agreed on a purchase price of P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt
("Receipt") evidencing the transaction, & by Valdes-Choy as seller, and Chua as
buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of
ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for
the sale of the property located at 40 Tampingco cor. Hidalgo, San Lorenzo
Village, Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is

payable on or before 155 July 1989. Capital Gains Tax for the account of the seller.

¢7$ ¢

"

6
CONFORME:
ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
x x x.7
In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce
("PBCom") a manager's check for P480,000.00. Strangely, after securing the manager's
check, Chua immediately gave PBCom a verbal stop payment order claiming that this
manager's check for P480,000.00 "was lost and/or misplaced."8 On the same day, after
receipt of Chua's verbal order, PBCom Assistant ViceȂPresident Julie C. Pe notified in
writing9 the PBCom Operations Group of Chua's stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective
counsels to execute the necessary documents and arrange the payments.10 Valdes-Choy
as vendor and Chua as vendee & two Deeds of Absolute Sale ("Deeds of Sale"). The
first Deed of Sale covered the house and lot for the purchase price of P8,000,000.00.11 The
second Deed of Sale covered the furnishings, fixtures and movable properties contained
in the house for the purchase price of P2,800,000.00.12 The parties also computed the
capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed
to Valdes-Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay
the capital gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy
issued a receipt showing that Chua had a remaining balance of P10,215,000.00 after
deducting the advances made by Chua. This receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of
FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial
Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St., San
Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT No.
162955 of the Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken down as follows:
SELLING PRICE P10,800,000.00

EARNEST MONEY P100,000.00
PARTIAL PAYMENT 485,000.00
585,000.00
BALANCE DUE TO
ENCARNACION VALDEZ-CHOY P10,215,000.00
PLUS P80,000.00 for documentary stamps
paid in advance by seller 80,000.00
P10,295,000.00
x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the
P485,000.00 manager's check to her account with Traders Royal Bank. She then
purchased a Traders Royal Bank manager's check for P480,000.00 payable to the
Commissioner of Internal Revenue for the capital gains tax. Valdes-Choy and Chua
returned to the office of Valdes-Choy's counsel and handed the Traders Royal Bank check
to the counsel who undertook to pay the capital gains tax. It was then also that Chua
showed to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing the
balance of the purchase price. Chua, however, did not give this PBCom manager's check to
Valdes-Choy because the TCT was still registered in the name of Valdes-Choy. Chua
required that the Property be registered first in his name before he would turn over the
check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale, claiming
that what Chua required was not part of their agreement.14
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to
PBCom an affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom
Assistant Vice-President Pe, however, testified that the manager's check was nevertheless
honored because Chua subsequently verbally advised the bank that he was lifting the
stop-payment order due to his "special arrangement" with the bank.16
On 15 July 1989, the deadline for the payment of the balance of the purchase price,
Valdes-Choy suggested to her counsel that to break the impasse Chua should deposit in
escrow the P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to
cause the issuance of a new TCT in the name of Chua even without receiving the balance
of the purchase price. Valdes-Choy believed this was the only way she could protect
herself if the certificate of title is transferred in the name of the buyer before she is fully
paid. Valdes-Choy's counsel promised to relay her suggestion to Chua and his counsel, but
nothing came out of it.
On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy
which the trial court dismissed on 22 November 1989. On 29 November 1989, Chua re-
filed his complaint for specific performance with damages. After trial in due course, the
trial court rendered judgment in favor of Chua, the dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is an
action for specific performance where the plaintiff, as vendee, wants to pursue the
sale, and in order that the fears of the defendant may be allayed and still have the
sale materialize, judgment is hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days
from finality of this decision:
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
b. the covering tax declaration and the latest tax receipt evidencing
payment of real estate taxes;
c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989,
duly executed by defendant in favor of the plaintiff, whether notarized or
not; and
2. Within five (5) days from compliance by the defendant of the above, ordering
the plaintiff to deliver to the Branch Clerk of Court of this Court the sum of
P10,295,000.00 representing the balance of the consideration (with the sum of
P80,000.00 for stamps already included);
3. Ordering the Branch Clerk of this Court or her duly authorized representative:
a. to make representations with the BIR for the payment of capital gains
tax for the sale of the house and lot (not to include the fixtures) and to pay
the same from the funds deposited with her;
b. to present the deed of sale executed in favor of the plaintiff, together

with the owner's duplicate copy of TCT No. 162955, real estate tax receipt
and proof of payment of capital gains tax, to the Makati Register of Deeds;
c. to pay the required registration fees and stamps (if not yet advanced by
the defendant) and if needed update the real estate taxes all to be taken
from the funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the
property and the fixtures that were prepared by Atty. Mark Bocobo and executed
by the parties, the Branch Clerk of Court of this Court is hereby authorized and
empowered to prepare, sign and execute the said deeds of sale for and in behalf of
the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and compensatory damages

for the plaintiff; and
b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees

and cost of litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to
be taken from the funds said plaintiff has deposited with the Court, the amounts
covered at paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the defendant after deducting

therefrom the following amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration of the sale, updating of real

estate taxes, and transfer of title; and
c. the amounts paid under this judgment to the plaintiff.

8. Ordering the defendant to surrender to the plaintiff or his representatives the
premises with the furnishings intact within seventy-two (72) hours from receipt
of the proceeds of the sale;
9. No interest is imposed on the payment to be made by the plaintiff because he

had always been ready to pay the balance and the premises had been used or
occupied by the defendant for the duration of this case.
II. In the event that specific performance cannot be done for reasons or causes not
attributable to the plaintiff, judgment is hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with
interest at the legal rate from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate
from July 14, 1989 until fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages
and the additional sum of P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's

fees and cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial
court. The Court of Appeals handed down a new judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE,
and another one is rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00, representing earnest money as

forfeited in favor of defendant-appellant;
(3) Ordering defendant-appellant to return/refund the amount of

P485,000.00 to plaintiff-appellee without interest;
(4) Dismissing defendant-appellant's compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the costs.19
Hence, the instant petition.

#
H' &
The trial court found that the transaction reached an impasse when Valdes-Choy wanted
to be first paid the full consideration before a new TCT covering the Property is issued in
the name of Chua. On the other hand, Chua did not want to pay the consideration in full
unless a new TCT is first issued in his name. The trial court faulted Valdes-Choy for this
impasse.
The trial court held that the parties entered into a

on 30 June 1989, as
evidenced by the Receipt for the P100,000.00 earnest money. The trial court pointed out
that the contract to sell was subject to the following conditions: (1) the balance of
P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes-Choy may stay in the
Property until 13 August 1989; and (3) all papers must be "in proper order" before full
payment is made.
The trial court held that Chua complied with the terms of the contract to sell. Chua
showed that he was prepared to pay Valdes-Choy the consideration in full on 13 July
1989, two days before the deadline of 15 July 1989. Chua even added P80,000.00 for the
documentary stamp tax. He purchased from PBCom two manager's checks both payable
to Valdes-Choy. The first check for P485,000.00 was to pay the capital gains tax. The
second check for P10,215,000.00 was to pay the balance of the purchase price. The trial
court was convinced that Chua demonstrated his capacity and readiness to pay the
balance on 13 July 1989 with the production of the PBCom manager's check for
P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not perform her correlative
obligation under the contract to sell to put all the papers in order. The trial court noted
that as of 14 July 1989, the capital gains tax had not been paid because Valdes-Choy's
counsel who was suppose to pay the tax did not do so. The trial court declared that
Valdes-Choy was in a position to deliver only the owner's duplicate copy of the TCT, the
signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The trial court
concluded that these documents were all useless without the Bureau of Internal Revenue
receipt evidencing full payment of the capital gains tax which is a pre-requisite to the
issuance of a new certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the
agreed date was due to Valdes-Choy's fault.
#
H' &
In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full
consideration only after the Property is registered in his name was not the agreement of
the parties. The Court of Appeals noted that there is a whale of difference between the
phrases "all papers are in proper order" as written on the Receipt, and "transfer of title"
as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all the papers
were in order and that Chua had no valid reason not to pay on the agreed date. Valdes-
Choy was in a position to deliver the owner's duplicate copy of the TCT, the signed Deeds
of Sale, the tax declarations, and the latest realty tax receipt. The Property was also free
from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering Chua's showing to
Valdes-Choy of the PBCom manager's check for P10,215,000.00 as compliance with
Chua's obligation to pay on or before 15 July 1989. The Court of Appeals pointed out that
Chua did not want to give up the check unless "the property was already in his name."20
Although Chua demonstrated his capacity to pay, this could not be equated with actual
payment which he refused to do.
The Court of Appeals did not consider the non-payment of the capital gains tax as failure
by Valdes-Choy to put the papers "in proper order." The Court of Appeals explained that
the payment of the capital gains tax has no bearing on the validity of the Deeds of Sale. It
is only after the deeds are signed and notarized can the final computation and payment of
the capital gains tax be made.
+
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE

PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY

WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL
CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE

PURCHASE PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE
CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE
AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF

APPEALS TO DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF
P100,000.00 AS FORFEITED IN FAVOR OF VALDES-CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW,

REASON AND EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.21
The issues for our resolution are: (a) whether the transaction between Chua and Valdes-
Choy is a perfected contract of sale or a mere contract to sell, and (b) whether Chua can
compel Valdes-Choy to cause the issuance of a new TCT in Chua's name even before
payment of the full purchase price.
#
H' &
There is no dispute that Valdes-Choy is the absolute owner of the Property which is
registered in her name under TCT No.162955, free from all liens and encumbrances. She
was ready, able and willing to deliver to Chua the owner's duplicate copy of the TCT, the
signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There is also
no dispute that on 13 July 1989, Valdes-Choy received PBCom Check No. 206011 for
P100,000.00 as earnest money from Chua. Likewise, there is no controversy that the
Receipt for the P100,000.00 earnest money embodied the terms of the binding contract
between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua
agreed on the following terms: (1) the balance of P10,215,000.00 is payable on or before
15 July 1989; (2) the capital gains tax is for the account of Valdes-Choy; and (3) if Chua
fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the
right to forfeit the earnest money, provided that "all papers are in proper order." On 13
July 1989, Chua gave Valdes-Choy the PBCom manager's check for P485,000.00 to pay the
capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00
to Valdes-Choy on the agreed date. On 13 July 1989, Chua did to
Valdes-Choy the PBCom manager's check for P10,215,000.00, with Valdes-Choy as payee.
However, Chua
to give this check to Valdes-Choy until a new TCT covering the
Property is registered in Chua's name. Or, as the trial court put it, until there is proof of
payment of the capital gains tax which is a pre-requisite to the issuance of a new
certificate of title.

+@#

#
;
Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the
Receipt, as a contract to sell and not a contract of sale. This has been Chua's persistent
contention in his pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than a
contract to sell. He contends that there was no reservation in the contract of sale that
Valdes-Choy shall retain title to the Property until after the sale. There was no agreement
for an automatic rescission of the contract in case of Chua's default. He argues for the first
time that his payment of earnest money and its acceptance by Valdes-Choy precludes the
latter from rejecting the binding effect of the contract of sale. Thus, Chua claims that
Valdes-Choy may not validly rescind the contract of sale without following Article 159222
of the Civil Code which requires demand, either judicially or by notarial act, before
rescission may take place.
Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not
raised in the court below cannot be raised for the first time on appeal, as this is offensive
to the basic rules of fair play, justice and due process.23 In addition, when a party
deliberately adopts a certain theory, and the case is tried and decided on that theory in
the court below, the party will not be permitted to change his theory on appeal. To permit
him to change his theory will be unfair to the adverse party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement
between Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a
contract of sale. The distinction between a contract of sale and contract to sell is well-
settled:
In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership
over the property and cannot recover it until and unless the contract is resolved
or rescinded; whereas, in a contract to sell, title is retained by the vendor until full
payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between the parties was a
contract to sell. Ownership over the Property was retained by Valdes-Choy and was not
to pass to Chua until full payment of the purchase price.

, the Receipt provides that the earnest money shall be forfeited in case the buyer fails
to pay the balance of the purchase price on or before 15 July 1989. In such event, Valdes-
Choy can sell the Property to other interested parties. There is in effect a right reserved in
favor of Valdes-Choy not to push through with the sale upon Chua's failure to remit the
balance of the purchase price before the deadline. This is in the nature of a stipulation
reserving ownership in the seller until full payment of the purchase price. This is also
similar to giving the seller the right to rescind unilaterally the contract the moment the
buyer fails to pay within a fixed period.26
, the agreement between Chua and Valdes-Choy was embodied in a receipt rather
than in a deed of sale, ownership not having passed between them. The signing of the
Deeds of Sale came later when Valdes-Choy was under the impression that Chua was
about to pay the balance of the purchase price. The absence of a formal deed of
conveyance is a strong indication that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment of the purchase price.27

, Valdes-Choy retained possession of the certificate of title and all other documents
relative to the sale. When Chua refused to pay Valdes-Choy the balance of the purchase
price, Valdes-Choy also refused to turn-over to Chua these documents.28 These are
additional proof that the agreement did not transfer to Chua, either by actual or
constructive delivery, ownership of the Property.29
It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is
given in a contract of sale, it shall be considered as part of the price and proof of the
perfection of the contract." However, this article speaks of earnest money given in a

. In this case, the earnest money was given in a contract to sell. The Receipt
evidencing the contract to sell stipulates that the earnest money is a forfeitable deposit,
to be forfeited if the sale is not consummated should Chua fail to pay the balance of the
purchase price. The earnest money forms part of the consideration only if the sale is
consummated upon full payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the balance of the purchase
price. Chua, however, has the right to walk away from the transaction, with no obligation
to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract
of sale. The earnest money was given in a contract to sell, and thus Article 1482, which
speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full
payment of the purchase price partakes of a suspensive condition. The non-fulfillment of
the condition prevents the obligation to sell from arising and ownership is retained by
the seller without further remedies by the buyer.30 Article 1592 of the Civil Code permits
the buyer to pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by notarial act.
However, Article 1592 does not apply to a contract to sell where the seller reserves the
ownership until full payment of the price.31

+@> &
%

Chua insists that he was ready to pay the balance of the purchase price but withheld
payment because Valdes-Choy did not fulfill her contractual obligation to put all the
papers in "proper order." Specifically, Chua claims that Valdes-Choy failed to show that
the capital gains tax had been paid after he had advanced the money for its payment. For
the same reason, he contends that Valdes-Choy may not forfeit the earnest money even if
he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as
written in the Receipt. There is no dispute though, that as long as the papers are "in
proper order," Valdes-Choy has the right to forfeit the earnest money if Chua fails to pay
the balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with the
Bureau of Internal Revenue receipt as proof of payment. The Court of Appeals held
otherwise. We quote verbatim the ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the payment of the capital
gains tax, of which Section 33 of the National Internal Revenue Code of 1977, is
the governing provision insofar as its computation is concerned. The trial court
failed to consider Section 34-(a) of the said Code, the last sentence of which
provides, that "[t]he amount realized from the sale or other disposition of
property
" plus the fair market value of the
property (other than money) received;" and that the computation of the capital
gains tax can only be finally assessed by the Commission on Internal Revenue
upon the presentation of the Deeds of Absolute Sale themselves, without which
any premature computation of the capital gains tax becomes of no moment. At
any rate, the computation and payment of the capital gains tax has no bearing
insofar as the validity and effectiveness of the deeds of sale in question are
concerned, because it is only after the contracts of sale are finally executed in due
form and have been duly notarized that the final computation of the capital gains
tax can follow as a matter of course. Indeed, exhibit D, the PBC Check No. 325851,
dated July 13, 1989, in the amount of P485,000.00, which is considered as part of
the consideration of the sale, was deposited in the name of appellant, from which
she in turn, purchased the corresponding check in the amount representing the
sum to be paid for capital gains tax and drawn in the name of the Commissioner of
Internal Revenue, which then allayed any fear or doubt that that amount would
not be paid to the Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. In this case, the suspensive condition is the full
payment of the purchase price by Chua. Such full payment gives rise to Chua's right to
demand the execution of the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the buyer. Article 1458 of the Civil Code
defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself

of and to deliver a determinate thing, and the other

in money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated to transfer
ownership to the buyer, even if there is a contract to sell between them. It is also upon the
existence of the contract of sale that the buyer is obligated to pay the purchase price to
the seller. Since the transfer of ownership is in exchange for the purchase price, these
obligations must be simultaneously fulfilled at the time of the execution of the contract of
sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil
Code, as follows:
Art. 1495. The vendor is bound to

of and deliver, as well as
warrant the thing which is the object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer

of the thing sold. In the
sale of real property, the seller is not obligated to transfer in the name of the buyer a new
certificate of title, but rather to transfer ownership of the real property. There is a
difference between transfer of the certificate of title in the name of the buyer, and
transfer of ownership to the buyer. The buyer may become the owner of the real property
even if the certificate of title is still registered in the name of the seller. As between the
seller and buyer, ownership is transferred not by the issuance of a new certificate of title
in the name of the buyer but by the execution of the instrument of sale in a public
document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the
noted civil law commentator Arturo M. Tolentino explains it, -
Delivery is not only a necessary condition for the enjoyment of the thing, but is a
mode of acquiring dominion and determines the transmission of ownership, the
birth of the real right. "

"

¢F ¢7?7&

"

" . The delivery of the thing constitutes an indispensable
requisite for the purpose of acquiring ownership. Our law does not admit the
doctrine of transfer of property by mere consent; the ownership, the property
right, is derived only from delivery of the thing. x x x.33 (Emphasis supplied)
In a contract of sale of real property, delivery is effected when the instrument of sale is
executed in a public document. When the deed of absolute sale is signed by the parties
and notarized, then delivery of the real property is deemed made by the seller to the
buyer. Article 1498 of the Civil Code provides that Ȃ
Art. 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be
inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and willing to
sign the deed of absolute sale before a notary public, the seller is in a position to transfer
ownership of the real property to the buyer. At this point, the seller complies with his
undertaking to sell the real property in accordance with the contract to sell, and to
assume all the obligations of a vendor under a contract of sale pursuant to the relevant
articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer
ownership to the buyer. Neither is the seller obligated to cause the issuance of a new
certificate of title in the name of the buyer. However, the seller must put all his papers in
proper order to the point that he is in a position to transfer ownership of the real
property to the buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her obligations as a
seller under the contract to sell. First, she already signed the Deeds of Sale in the office of
her counsel in the presence of the buyer. Second, she was prepared to turn-over the
owner's duplicate of the TCT to the buyer, along with the tax declarations and latest
realty tax receipt. Clearly, at this point Valdes-Choy was ready, able and willing to
transfer ownership of the Property to the buyer as required by the contract to sell, and by
Articles 1458 and 1495 of the Civil Code to consummate the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the
balance of the purchase price. Chua imposed the condition that a new TCT should first be
issued in his name, a condition that is found neither in the law nor in the contract to sell
as evidenced by the Receipt. Thus, at this point Chua was not ready, able and willing to
pay the full purchase price which is his obligation under the contract to sell. Chua was
also not in a position to assume the principal obligation of a vendee in a contract of sale,
which is also to pay the full purchase price at the agreed time. Article 1582 of the Civil
Code provides that Ȃ
Art. 1582. The vendee is bound to accept delivery and
&

.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the
purchase price "on or before 15 July 1989." The signed Deeds of Sale also stipulated that
the buyer shall pay the balance of the purchase price upon signing of the deeds. Thus, the
Deeds of Sale, &# , state as follows:
* "

& :
xxx
For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00),

Philippine Currency,

&3*Ä'

3*, the VENDOR sells, transfers and conveys unto the VENDEE, his
heirs, successors and assigns, the said parcel of land, together with the
improvements existing thereon, free from all liens and encumbrances.34
(Emphasis supplied)
* "

&
&:
xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED

THOUSAND PESOS (P2,800,000.00), Philippine Currency,

&3*Ä'
3*, the VENDOR sells,
transfers and conveys unto the VENDEE, his heirs, successors and assigns, the
said furnitures, fixtures and other movable properties thereon, free from all liens
and encumbrances.35 (Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase price as
required by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil
Code. Chua was therefore in default and has only himself to blame for the rescission by
Valdes-Choy of the contract to sell.
Even if measured under existing usage or custom, Valdes-Choy had all her papers "in
proper order." Article 1376 of the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
Customarily, in the absence of a contrary agreement, the submission by an individual

seller to the buyer of the following papers would complete a sale of real estate: (1)
owner's duplicate copy of the Torrens title;36 (2) signed deed of absolute sale; (3) tax
declaration; and (3) latest realty tax receipt. The buyer can retain the amount for the
capital gains tax and pay it upon authority of the seller, or the seller can pay the tax,
depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since this is
a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as
the government is concerned, the capital gains tax remains a liability of the seller since it
is a tax on the seller's gain from the sale of the real estate. & )
"

!

. The transfer of
ownership takes effect upon the signing and notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds37 and the transfer of the
certificate of title in the name of the buyer are necessary only to bind third parties to the
transfer of ownership.38 As between the seller and the buyer, the transfer of ownership
takes effect upon the execution of a public instrument conveying the real estate.39
Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of
title, does not confer ownership on the buyer. Such registration or issuance of a new
certificate of title is not one of the modes of acquiring ownership.40
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that
customarily would complete the sale, and to pay as well the capital gains tax. On the other
hand, Chua's condition that a new TCT be first issued in his name before he pays the
balance of P10,215,000.00, representing 94.58% of the purchase price, is not customary
in a sale of real estate. Such a condition, not specified in the contract to sell as evidenced
by the Receipt, cannot be considered part of the "omissions of stipulations which are
ordinarily established" by usage or custom.41 What is increasingly becoming customary is
to deposit in escrow the balance of the purchase price pending the issuance of a new
certificate of title in the name of the buyer. Valdes-Choy suggested this solution but
unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to
him the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations,
and the latest realty tax receipt. There was no hindrance to paying the capital gains tax as
Chua himself had advanced the money to pay the same and Valdes-Choy had procured a
manager's check payable to the Bureau of Internal Revenue covering the amount. It was
only a matter of time before the capital gains tax would be paid. Chua acted precipitately
in filing the action for specific performance a mere two days after the deadline of 15 July
1989 when there was an impasse. While this case was dismissed on 22 November 1989,
he did not waste any time in re-filing the same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full on the agreed date, which
is a suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the
Property. Article 1181 of the Civil Code provides that -
ART. 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired shall depend upon the
happening of the event which constitutes the condition.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to

him because the suspensive condition - the full payment of the purchase price - did not
happen. There is no correlative obligation on the part of Valdes-Choy to transfer
ownership of the Property to Chua. There is also no obligation on the part of Valdes-Choy
to cause the issuance of a new TCT in the name of Chua since unless expressly stipulated,
this is not one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23
February 1995 is AFFIRMED in toto.
SO ORDERED.
* "$
#$8#
9&<
& , $$ concur.
#$
1In CA-G.R. CV No. 37652, dated 23 February 1995, penned by Associate Justice
Artemon D. Luna with Associate Justices Cancio C. Garcia and Godardo A. Jacinto
concurring.
2 Civil Case No. 89-5772.
3Branch 142, Makati, National Capital Judicial Region, presided by Judge Salvador
P. De Guzman, Jr.
4 Dated 29 August 1991.
5 The typewritten figure "30" was corrected in ink to "15".
6 The italicized portions were also handwritten in ink and initialed by Chua.
7 Annex "A," Records, p. 7.
8 TSN, 24 July 1990, pp. 20-28.
9 Exhibit "8," Records, p. 140.
10 TSN, 25 January 1990, p. 87.
11 Exhibit "B," Records, pp. 107-109.
12 Exhibit "C," Records, pp. 110-112.
13 Records, p. 73.
14 TSN, 25 January 1990, p. 226.
15 Exhibit "9," Records, p. 141.
16 TSN, 24 July 1989, p. 37.
17 TSN, 5 February 1990, pp. 37-38.
18 Rollo, pp. 71-72.
19 +., p. 62.
20 Rollo, p. 60.
21 +, p. 203.
22Art. 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.
23 '"
"#
, G.R. No. 44111, 10 August 1989, 176 SCRA 169.
24 +#"#
, G.R. No. 85141, 28 November 1989, 179 SCRA 638.
25 ,
"#
, G.R. No. 118203, 5 July 1996, 258 SCRA 317.
26 3 % "#

, G.R. No. 119580, 26 September
1996, 262 SCRA 464.
27 "#
, G.R. No. 63745, 8 June 1990, 186 SCRA 400.
28 TSN, 5 February 1990, pp. 33-34.
29 ,
"#
,
, see note 25.
30 '!"( ,, G.R. No. L-32811, 31 March 1980, 96 SCRA 741.
31 "#
,
, see note 27.
32 Rollo, pp. 60-61.
33ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES, VOL. V, p. 51

(1992).
34 Exhibit "B," Records, pp. 51-53.
35 Exhibit "C," Records, pp. 54-54-(A).
36 Section 53 of PD No. 1529 provides:
Section 53.

H

.
Ȅ No voluntary instrument shall be registered by the Register of Deeds,
unless the owner's duplicate certificate is presented with such
instrument, except in cases expressly provided for in this Decree or upon
order of the court, for cause shown.
The production of the owner's duplicate certificate, whenever any

voluntary instrument is presented for registration, shall be conclusive
authority from the registered owner to the Register of Deeds to enter a
new certificate or to make a memorandum of registration in accordance
with such instrument, and the new certificate or memorandum shall be
binding upon the registered owner and upon all persons claiming under
him, in favor of every purchaser for value and in good faith.
x x x.
37
"#
, G.R. Nos. L-48971 and 49011, 22 January 1980, 95
SCRA 380.
38 Sections 51 and 52, Property Registration Decree (PD No.1529).
39 " , 103 Phil. 658 (1958); "* ,, 124 Phil.1138
(1966);
*" #
"

, G.R. No. L-
19545, 18 April 1975, 63 SCRA 397.
40 % ,"<&, G.R. No. L-29442, 11 November 1987, 155 SCRA 506.
41
"< , 120 Phil. 407 (1964).

G.R. No. 136054 September 5, 2001
HEIRS OF SEVERINA SAN MIGUEL, ET AL. vs. THE HON. COURT OF
APPEALS, ET AL.

m
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#
The case is a petition for review on

1 of the decision of the Court of Appeals,2
affirming that of the Regional Trial Court, Cavite, Branch 19, Bacoor3 ordering petitioners,
Heirs of Severina San Miguel (hereafter, "Severina's heirs") to surrender to respondents
Dominador San Miguel, et al. (hereafter, "Dominador, et al."), Transfer Certificate of Title
No. 223511 and further directing Severina's heirs to pay for the capital gains and related
expenses for the transfer of the two (2) lots to Dominador, et al.

This case involves a parcel of land originally claimed by Severina San Miguel (petitioners'
predecessor-in-interest, hereafter, "Severina"). The land is situated in Panapan, Bacoor,
Cavite with an area of six hundred thirty two square meters (632 sq. m.), more or less.
Without Severina's knowledge, Dominador managed to cause the subdivision of the land
into three (3) lots, to wit:4
"LRC Psu-1312 - with an area of 108 square meters;
"LRC Psu-1313 - Lot 1, with an area of 299 square meters;
"LRC Psu-1313 - Lot 2, with an area of 225 square meters."
On September 25, 1974, Dominador, et al. filed a petition with the Court of First Instance,
Cavite, as a land registration court, to issue title over Lots 1 and 2 of LRC Psu-1313, in
their names.5
On July 19, 1977, the Land Registration Commission (hereafter "LRC") rendered a
decision directing the issuance of Original Certificate of Title No. 0-1816 in the names of
Dominador, et al.
On or about August 22, 1978, Severina filed with the Court of First Instance of Cavite a
petition for review of the decision alleging that the land registration proceedings were
fraudulently concealed by Dominador from her.6
On December 27, 1982, the court resolved to set aside the decision of July 19, 1977, and
declared Original Certificate of Title No. 0-1816 as null and void.
On July 13, 1987, the Register of Deeds of Cavite issued Transfer Certificate of Title No. T-
223511 in the names of Severina and her heirs.7
On February 15, 1990, the trial court issued an order in favor of Severina's heirs, to wit:8
"WHEREFORE, as prayed for, let the writ of possession previously issued in favor
of petitioner Severina San Miguel be implemented."
However, the writ was returned unsatisfied.
On November 28, 1991, the trial court ordered:9
"WHEREFORE, as prayed for, let an alias writ of demolition be issued in favor of

petitioners, Severina San Miguel."
Again, the writ was not satisfied.
On August 6, 1993, Severina's heirs, decided not to pursue the writs of possession and
demolition and entered into a compromise with Dominador, et al. According to the
compromise, Severina's heirs were to sell the subject lots10 to Dominador, et al. for one
and a half million pesos (P1.5 M) with the delivery of Transfer Certificate of Title No. T-
223511 (hereafter, "the certificate of title") conditioned upon the purchase of another lot
11 which was not yet titled at an additional sum of three hundred thousand pesos
(P300,000.00). The salient features of the compromise (hereafter " ") are:12
"5. Na ang Lot 1 at Lot 2, plano LRC Psu-1313 na binabanggit sa itaas na

ipinagkasundo ng mga tagapagmana ni Severina San Miguel na kilala sa
kasulatang ito sa taguring LAPINA (representing Severina's heirs), na ilipat sa
pangalan nina SAN MIGUEL (representing Dominador's heirs) alang alang sa
halagang ISANG MILYON AT LIMANG DAANG LIBONG PISO (P1,500,000.00) na
babayaran nina SAN MIGUEL kina LAPINA;
"6. Na si LAPINA at SAN MIGUEL ay nagkakasundo na ang lote na sakop ng plano

LRC-Psu-1312, may sukat na 108 metro cuadrado ay ipagbibili na rin kina SAN
MIGUEL sa halagang TATLONG DAANG LIBONG PISO (P300,000.00);
"7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na

sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at
sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng
sino mang tao;
"8. Na ang nasabing halaga na TATLONG DAANG LIBONG PISO (P300,000.00) ay

babayaran nina SAN MIGUEL kina LAPINA sa loob ng dalawang (2) buwan mula
sa petsa ng kasulatang ito at kung hindi mabayaran nina SAN MIGUEL ang
nasabing halaga sa takdang panahon ay mawawalan ng kabuluhan ang kasulatang
ito;
"9. Na sina LAPINA at SAN MIGUEL ay nagkakadunso (sic) rin na ang owner's
copy ng Transfer Certificate of Title No. T-223511 na sumasakop sa Lots 1 at 2,
plano LRC Psu-1313 ay ilalagay lamang nina LAPINA kina SAN MIGUEL
pagkatapos mabayaran ang nabanggit na P300,000.00"
On the same day, on August 6, 1993, pursuant to the , Severina's heirs and
Dominador, et al. executed a deed of sale designated as " & ."13
On November 16, 1993, Dominador, et al. filed with the trial court,14 Branch 19, Bacoor,
Cavite, a motion praying that Severina's heirs deliver the owner's copy of the certificate of
title to them.15
In time, Severina's heirs opposed the motion stressing that under the , the
certificate of title would only be surrendered upon Dominador, et al.'s payment of the
amount of three hundred thousand pesos (P300,000.00) within two months from August
6, 1993, which was not complied with.16
Dominador, et al. admitted non-payment of three hundred thousand pesos (P300,000.00)

for the reason that Severina's heirs have not presented any proof of ownership over the
untitled parcel of land covered by LRC-Psu-1312. Apparently, the parcel of land is
declared in the name of a third party, a certain Emiliano Eugenio.17
Dominador, et al. prayed that compliance with the be deferred until such time
that Severina's heirs could produce proof of ownership over the parcel of land.18
Severina's heirs countered that the arguments of Dominador, et al. were untenable in
light of the provision in the where Dominador, et al. admitted their ownership
over the parcel of land, hence dispensing with the requirement that they produce actual
proof of title over it.19 Specifically, they called the trial court's attention to the following
statement in the :20
"7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na

sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang magpapatitulo nito at
sina LAPINA ay walang pananagutan sa pagpapatitulo nito at sa paghahabol ng
sino mang tao;"
According to Severina's heirs, since Dominador, et al. have not paid the amount of three
hundred thousand pesos (P300,000.00), then they were justified in withholding release
of the certificate of title.21
The trial court conducted no hearing and then rendered judgment based on the pleadings
and memoranda submitted by the parties.

#
H' &
On June 27, 1994, the trial court issued an order to wit:22
"WHEREFORE, finding the Motion to Order to be impressed with merit, the

defendants-oppositors-vendors Heirs of Severina San Miguel are hereby ordered
to surrender to the movant-plaintiffs-vendees-Heirs of Dominador San Miguel the
Transfer Certificates of Title No. 223511 and for herein defendants-oppositors-
vendors to pay for the capital gains and related expenses for the transfer of the
two lots subject of the sale to herein movants-plaintiffs-vendees-Heirs of
Dominador San Miguel."
"SO ORDERED."
On July 25, 1994, Severina's heirs filed with the trial court a motion for reconsideration of
the afore-quoted order.23
On January 23, 1995, the trial court denied the motion for reconsideration for lack of
merit and further ordered:24
"x x x . . . Considering that the Lots 1 and 2 covered by TCT No. T-223511 had
already been paid since August 6, 1993 by the plaintiffs-vendees Dominador San
Miguel, et al. (Vide, Kasulatan sa Bilihan ng Lupa, Rollo, pp. 174-176), herein
defendants-vendors-Heirs of Severina San Miguel is hereby ordered (sic) to
deliver the aforesaid title to the former (Dominador San Miguel, et al.) within
thirty (30) days from receipt of this order. In case the defendants-vendors-Heirs
of Severina San Miguel fail and refuse to do the same, then the Register of Deeds
of Cavite is ordered to immediately cancel TCT No. T-223511 in the name of
Severina San Miguel and issue another one in the name of plaintiffs Dominador
San Miguel, et al.
"Also send a copy of this Order to the Register of Deeds of the Province of Cavite,
Trece Martires City, for her information and guidance.
"SO ORDERED."
On February 7, 1995, Severina's heirs appealed the orders to the Court of Appeals.25
#
H' &
On June 29, 1998, the Court of Appeals promulgated a decision denying the appeal, and
affirming the decision of the trial court. The Court of Appeals added that the other
matters raised in the petition were "extraneous" to the .26 The Court of Appeals
upheld the validity of the contract of sale and sustained the parties' freedom to contract.
The Court of Appeals decided, thus:27
"WHEREFORE, the decision appealed from is hereby AFFIRMED.
"SO ORDERED."
On August 4, 1998, Severina's heirs filed with the Court of Appeals a motion for
reconsideration of the above decision.28 On October 14, 1998, the Court of Appeals denied
the motion for reconsideration for lack of merit.29
Hence, this appeal.30
+
Severina's heirs submit that the Court of Appeals erred and committed grave abuse of
discretion: First, when it held that the had no effect on the "
& ." Second, when it ordered them to surrender the certificate of title to
Dominador, et al., despite non-compliance with their prior obligations stipulated under
the .
, when it did not find that the was null and void for
having been entered into by Dominador, et al. fraudulently and in bad faith.31
We find the above issues raised by Severina's heirs to be factual. The question whether
the prerequisites to justify release of the certificate of title to Dominador, et al. have been
complied with is a question of fact.32
However, we sift through the arguments and identify the main legal issue, which is
whether Dominador, et al. may be compelled to pay the three hundred thousand pesos
(P300,000.00) as agreed upon in the (as a pre-requisite for the release of the
certificate of title), despite Severina's heirs' lack of evidence of ownership over the parcel
of land covered by LRC Psu-1312.
#
H' &
We resolve the issue in the negative, and find the petition without merit.
Severina's heirs anchor their claim on the , stressing on their freedom to

stipulate and the binding effect of contracts. This argument is misplaced.33 The Civil Code
provides:
ARTICLE 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient
"

, morals, good customs, public order or public policy (italics ours).
It is basic that the law is deemed written into every contract.34 Although a contract is the
law between the parties, the provisions of positive law which regulate contracts are
deemed written therein and shall limit and govern the relations between the parties.35
The Civil Code provisions on "sales" state:
ARTICLE 1458. By the contract of sale one of the contracting parties obligates
himself

of and to deliver a determinate thing, and the
other to pay a price certain in money or its equivalent. . . .
ARTICLE 1459. The thing must be licit and the "

"
&

thereof at the time it is delivered.
ARTICLE 1495. The "

of and deliver, as
well as warrant the thing which is the object of sale (emphasis ours).
True, in contracts of sale, the vendor need not possess title to the thing sold at the
perfection of the contract.36 However, the vendor must possess title and must be able to
transfer title at the time of delivery. In a contract of sale, title only passes to the vendee
upon full payment of the stipulated consideration, or upon delivery of the thing sold.37
Under the facts of the case, Severina's heirs are not in a position to transfer title. Without
passing on the question of who actually owned the land covered by LRC Psu -1312, we
note that there is no proof of ownership in favor of Severina's heirs. In fact, it is a certain
Emiliano Eugenio, who holds a tax declaration over the said land in his name.38 Though
tax declarations do not prove ownership of the property of the declarant, tax declarations
and receipts can be strong evidence of ownership of land when accompanied by
possession for a period sufficient for prescription.39 Severina's heirs have nothing to
counter this document.
Therefore, to insist that Dominador, et al. pay the price under such circumstances would
result in Severina's heirs' unjust enrichment.40 Basic is the principle in law, "3&

!

,
."41 The essence of a sale is the transfer of
title or an agreement to transfer it for a price actually paid or promised.42 In 3 "#

,43 we held that if the sellers cannot deliver the object of the sale to the buyers,
such contract may be deemed to be inoperative. By analogy, such a contract may fall
under Article 1405, No. 5 of the Civil Code, to wit:
ARTICLE 1405. The following contracts are inexistent and void from the
beginning: . . .
(5) Those which contemplate an impossible service.
xxx xxx xxx
Severina's heirs insist that delivery of the certificate of title is predicated on a condition
Ȅ payment of three hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of
LRO Psu 1312. We find this argument not meritorious. The condition cannot be honored
for reasons afore-discussed. Article 1183 of the Civil Code provides that,
"Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not affected by the impossible or
unlawful condition shall be valid, x x x"
Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a
valid justification for refusal to deliver the certificate of title.
Besides, we note that the certificate of title covers Lots 1 and 2 of LRC Psu-1313, which
were fully paid for by Dominador, et al. Therefore, Severina's heirs are bound to deliver
the certificate of title covering the lots.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R.
CV No. 48430 is AFFIRMED .
No costs.
SO ORDERED.
* "$
#$C <
&$$ concur.
#$
1 Under Rule 45 of the Revised Rules of Court.
2 In CA-G.R CV No. 48430, promulgated on June 29, 1998, Cui, J., ponente, Mabutas,
Jr., and Aquino, JJ., concurring.
3 In BCV 91-62, dated June 27, 1994, Judge Edelwina C. Pastoral, presiding.
4 Petition for Review, Rollo, pp. 11-30, p. 18.
5 The case was docketed as LRC Case No. B-15.
6As stated in the Complaint for Reconveyance and Damages filed by Dominador
San Miguel, et al. with the Regional Trial Court, Br. XIX, Bacoor, Cavite on July 18,
1991, RTC Records, pp. 1-13, p. 6.
7 CA Rollo, pp. 110-111.
8 As quoted in the Alias Writ of Demolition, RTC Records, pp. 136-137.
9 Alias Writ of Demolition, RTC Records, pp. 136-137.
10 Lot 1 and 2 of LRC Psu-1313.
11 With an area of 108 square meters (LRC-Psu-1312).
12 Brief for Defendants-Appellants, Annex "A", Kasunduan, CA Rollo, pp. 37-39.
13Brief for Defendants-Appellants, Annex "B", Kasulatan sa Bilihan ng Lupa, CA

Rollo, pp. 40-42.
14 Designated as a "motion to order."
15Brief for Defendants-Appellants, Annex "C", Motion to Order, CA Rollo, pp. 43-
45.
16Brief for Defendants-Appellants, Annex "D", Opposition to Motion to Order, CA

Rollo, pp. 46-47.
17 Declaration of Real Property, Tax Declaration No. 20233, CA Rollo, p. 118.
18Brief for Defendants-Appellants, Annex "E", Reply to the Opposition to Motion

to Order, CA Rollo, pp. 48-49.
19Brief for Defendants-Appellants, Annex "F", Rejoinder to Reply, CA Rollo, pp.
50-51.
20 Brief for Defendants-Appellants, Annex "A", Kasunduan, CA Rollo, p. 38.
21
, Note 13.
22Petition for Review, Annex "A", Order of the Regional Trial Court dated June 27,
1994, Rollo, pp. 32-36, pp. 35-36.
23Brief for Defendants-Appellants, Annex "K", Motion for Reconsideration, CA

Rollo, pp. 72-73.
24Petition for Review, Annex "B", Order of the Regional Trial Court dated January
23, 1995, Rollo, pp. 37-39, p. 39.
25 CA Rollo, p. 147.
26Petition for Review, Annex "C", Decision of the Court of Appeals, Rollo, pp. 40-
44, p. 44.
27Petition for Review, Annex "C", Decision of the Court of Appeals, Rollo, pp. 40-
44, p. 44.
28 CA Rollo, pp. 189-192.
29 Petition for Review, Annex "D", Resolution of the Court of Appeals, Rollo, p. 46.
30Notice of Appeal was filed on November 11, 1998 (Petition for Extension of
Time to File Petition for Review on Certiorari), CA Rollo, p. 202-203; On June 23,
1999, the Court resolved to give due course to the petition (Rollo, p. 58).
31 Petition for Review, Rollo, pp. 11-31, pp. 20-21.
32A question of law exists when doubt or difference arises as to what is the
pertaining law given a certain state of facts. On the other hand, there is a question
of fact when doubt arises as to the truth or falsity of the alleged facts ('"
#
, 328 Phil. 171, 179 [1996]).
33Article 1306 of the Civil Code is one of the exceptions to the rule that contracts
have the force of law between the contracting parties and must be complied with
in good faith (% "' , 319 SCRA 413, [1999]).
34 3 #

"'&
#
( 3
%
E
+ & #, 304 SCRA 595 [1999].
35 >
'
+"3 (
' #, 313 SCRA 1
[1999].
36In ":

A & (313 SCRA 493 [1999]), "When a person
who is not the owner of the thing sells or alienates or delivers it, and later, the
seller or grantor acquires title thereto, such title passes by operation of law to the
buyer or grantee."
37
"#
, 363 Phil. 495 [1999]. See also 3
% "#
, 338 Phil. 795 [1997].
38 Declaration of Real Property, Tax Declaration No. 20233, CA Rollo, p. 118.
39
"#
, 308 SCRA 527, 534-535 [1999].
40There is "unjust enrichment" when something is received when there is no

right to demand it. In such a case, the person who received it is under an
obligation to return it (Civil Code, Article 2154).
41 No one shall unjustly enrich himself at the expense of another.
42 #
+
'""#
, 271 SCRA 605 [1997].
43 276 SCRA 149 [1997]. In this case, the sellers were no longer able to deliver the
object of the sale to the buyers as the buyers themselves have already acquired
title and delivery thereof from the rightful owner.
THIRD DIVISION
mm
m* */#0

98
mm
*+ ] ]
Present:
Petitioners,
YNARES-SANTIAGO,$
Chairperson,
- "
- AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, $$
mm
**/#0m ]*
Respondents. Promulgated:
July 4, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
*m
CHICO-NAZARIO, $.:

under Rule 45 of the Revised Rules of Court filed by
petitioners Spouses Carlos and Eulalia Raymundo and Spouses Angelito and Jocelyn Buenaobra
seeking the reversal and setting aside of the Decision of the Court of Appeals dated 26 September
2005 and its Resolution dated 24 January 2006 in CA-G.R. CV No. 59557. The Court of Appeals, in
its assailed Decision and Resolution, reversed the Decision of the Regional Trial Court (RTC) dated
28 January 1998, in Civil Case No. C-14980, declaring the Deed of Sale executed by respondent
Dominador Bandong (Dominador) in favor of petitioner Eulalia Raymundo (Eulalia) as valid and
binding. The dispositive portion of the asailed Court of Appeals Decision reads:
WHEREFORE, premises considered, we hereby GRANT the appeal. The

January 28, 1998 decision of the RTC, Branch 126, Caloocan City is hereby
REVERSED and SET ASIDE and a new one entered:
1. the Deed of Absolute Sale dated February 3,

1989 as a deed of sale, and considering it instead as a real
estate mortgage of the disputed property to secure the
payment of the P70,000.00 the plaintiffs-appellants spouses
Bandong owe the defendants-appellees spouses Raymundo.
The spouses Bandong are given one (1) year from the finality
of this Decision within which to pay the P70,000.00 owed to
the spouses Raymundo, at 12% interest per annum
computed from July 17, 1991 until its full payment.
2. the Deed of Absolute Sale dated September 25,

1990, between the spouses Raymundo as vendors and the
spouses Buenaobra as vendees.
3. * the Register of Deeds of Caloocan City to issue a

new Transfer Certificate of Title covering Lot 18, Block 2 of
the subdivision plan PSD 16599, a portion of Lot 1073 of the
Cadastral Survey of Caloocan, in the names of the spouses
Dominador and Rosalia Bandong, after the cancellation
pursuant to this Decision of TCT No. 222871 currently in the
names of the spouses Angelito and Jocelyn Buenaobra; and
4* the said Register of Deeds to annotate
in the new Transfer Certificate of Title in the names of the
spouses Bandong a real estate mortgage in favor of the
spouses Carlos and Eulalia Raymundo reflecting the terms of
this Decision.
4. =* Ȃ moral damages in the amount of P50,000.00;
exemplary damages of P20,000.00; and attorneyǯs fees and
expenses of litigation of P20,000.00, plus P500.00 per proven
appearance of the plaintiffs-appellantsǯ counsel in court Ȃ all
solidarily payable by the spouses Carlos and Eulalia
Raymundo and the spouses Angelito and Jocelyn Buenaobra,
to the spouses Dominador and Rosalia Bandong.
5. * the payment of the costs of the suit, payable by the

spouses Carlos and Eulalia Raymundo and the spouses
Angelito and Jocelyn Buenaobra.
The factual and procedural backdrop of this case are as follows:
Eulalia was engaged in the business of buying and selling large cattle from different
provinces within the Philippines. For this purpose, she employed i
M whose primary task
involved the procuring of large cattle with the financial capital provided by Eulalia and delivering
the procured cattle to her for further disposal. In order to secure the financial capital she advanced
for the i
MEulalia required them to surrender the Transfer Certificates of Title (TCTs) of
their properties and to execute the corresponding Deeds of Sale in her favor.
Dominador had been working for Eulalia as one of her

for three decades.
Considering his long years of service without any previous derogatory record, Eulalia no longer
required Dominador to post any security in the performance of his duties.
However, in 1989, Eulalia found that Dominador incurred shortage in his cattle
procurement operation in the amount of P70,000.00. Dominador and his wife Rosalia Bandong
(Rosalia) then executed a Deed of Sale in favor of Eulalia on 3 February 1989, covering a parcel of
land with an area of 96 square meters, more or less, located at Caloocan City and registered under
TCT No. 1421 (subject property), in the name of the Spouses Bandong. On the strength of the
aforesaid deed, the subject property was registered in the names of Eulalia and her husband Carlos
Raymundo (Carlos). The subject property was thereafter sold by the Spouses Raymundo to
Eulaliaǯs grandniece and herein co-petitioner, Jocelyn Buenaobra (Jocelyn). Thus, the subject
property came to be registered in the name of Jocelyn and her husband Angelito Buenaobra
(Angelito).
After the TCT of the subject property was transferred to their names, the Spouses
Buenaobra instituted before the Metropolitan Trial Court (MeTC) of Caloocan City, an action for
ejectment against the Spouses Bandong, docketed as (;()/$
8 seeking the eviction of
the latter from the subject property, which the Spouses Bandong opposed on the ground that they
are the rightful owners and possessors thereof. The MeTC ruled in favor of the Spouses Buenaobra
which, on appeal, was affirmed by the RTC and subsequently, by the Court of Appeals.
Finally, when the case was raised on appeal before us in

%88we issued a Resolution
dated 12 July 1993, finding that no substantial arguments were raised therein to warrant the
reversal of the appealed decision.
To assert their right to the subject property, the Spouses Bandong instituted an action for
annulment of sale before the RTC against Eulalia and Jocelyn on the ground that their consent to the
sale of the subject property was vitiated by Eulalia after they were served by Jocelynǯs counsel with
the demand to vacate. This was docketed as (;()/$
%. The Spouses Bandong alleged
that there was no sale intended but only equitable mortgage for the purpose of securing the
shortage incurred by Dominador in the amount of P70,000 while employed as i
M by Eulalia.
Eulalia countered that Dominador received from her a significant sum of money, either as
cash advances for the purpose of procuring large cattle or as personal loan, and when he could no
longer pay his obligations, the Spouses Bandong voluntarily ceded the subject property to her by
executing the corresponding deed of sale in her favor. Indeed, the Spouses Bandong personally
appeared before the Notary Public and manifested that the deed was their own voluntary act and
deed.
For her part, Jocelyn maintained that she was a buyer in good faith and for value for she
personally inquired from the Register of Deeds of the presence of any liens and encumbrances on
the TCT of the subject property and found that the same was completely free therefrom. While she
admitted that she had previous notice that Dominador and a certain Lourdes Santos (Lourdes)
were in possession of the subject property, Jocelyn claimed that the said possessors already
acknowledged her ownership thereof and even asked for time to vacate. In the end, though, they
refused to leave the premises.
On 28 June 1998, the RTC rendered a Decision in Civil Case No. C-14980 in favor of Eulalia
and Jocelyn by declaring that the Deed of Sale between Dominador and Eulalia was valid and
binding and, consequently, the subsequent sale between Eulalia and Jocelyn was also lawful absent
any showing that Jocelyn was a buyer in bad faith. The dispositive portion of the said decision
reads:
WHEREFORE, judgment is hereby rendered DISMISSING the complaint filed

by the [Spouses Bandong] and ordering said [Spouses Bandong] to pay [herein
petitioners] spouses Raymundo and Buenaobra the amount of P50,000 and P30,000,
respectively, as attorneyǯs fees and costs of the suit.
On appeal in CA-G.R. SP No. 59557, the Court of Appeals reversed the RTC Decision and
found that the transaction entered into by Dominador and Eulalia was not one of sale but an
equitable mortgage considering that the purchase price was grossly inadequate and the Spouses
Bandong remained as possessors of the subject property after Eulaliaǯs alleged purchase thereof.
The appellate court likewise charged Jocelyn with knowledge that the Spouses Raymundo were not
the absolute owners of the subject property negating the presumption that she was an innocent
purchaser for value.
The Court of Appeals found the Motion for Reconsideration filed by petitioners
unmeritorious and denied the same in its Resolution dated 24 January 2006.
Hence, this instant Petition for Review on #

filed by the petitioners assailing the
Decision dated 26 September 2005 and the Resolution dated 24 January 2006 rendered by the
Court of Appeals. For the resolution of this Court are the following issues:
I.
WHETHER OR NOT THE DEED OF SALE BETWEEN DOMINADOR AND EULALIA IS

VALID AND BINDING.
II.
WHETHER OR NOT JOCELYN IS A BUYER IN GOOD FAITH.
In arguing that the sale between Dominador and Eulalia is valid, petitioners posit that gross
inadequacy of the price is not sufficient to invalidate the sale, and granting
& that
insufficient consideration may void a sale, it has not been proven that the consideration of sale
between Dominador and Eulalia was grossly inadequate.

Elaborating, petitioners maintain that the amount of P110,000.00 (which they claimed they
have given to Dominador), or even the sum of P70,000.00 (which respondents admitted receiving),
was a substantial consideration, sufficient to support a sale contract. Mere inadequacy of the price
is not sufficient to invalidate a sale; the price must be grossly inadequate or utterly shocking to the
conscience in order to avoid a contract of sale.
Petitioners further aver that the alleged market value of the subject property as submitted
by the appraiser, one of respondentsǯ witnesses, would not serve as an objective basis in
determining the actual value of the subject property, much less the supposed amount of its
purchase price, in the absence of any logical and valid basis for its determination.
Finally, petitioners contend that so long as the contract was voluntarily entered into by the
parties and in the absence of a clear showing that their consent thereto was vitiated by fraud,
mistake, violence or undue influence, such as in the case at bar, the said contract should be
upheld.
We do not agree.
An equitable mortgage is one that - although lacking in some formality, forms and words, or
other requisites demanded by a statute - nevertheless reveals the intention of the parties to charge
a real property as security for a debt and contains nothing impossible or contrary to law.
The instances when a contract - regardless of its nomenclature - may be presumed to be an

equitable mortgage are enumerated in the Civil Code as follows:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in
any of the following cases:
(1) When the price of a sale with right to repurchase is unusually

inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold.
(6) In any other case where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.
For Articles 1602 and 1604 to apply, two requisites must concur: one, the parties entered
into a contract denominated as a contract of sale; and two, their intention was to secure an existing
debt by way of an equitable mortgage.

There is no question that Dominador and Eulalia entered into a contract of sale as
evidenced by the document denominated as Deed of Sale signed by them. As to whether the parties
intended to transfer ownership of the subject property or merely to constitute a security for an
existing debt is an issue that needs to be addressed by this Court.
In resolving this kind of controversy, the doctrine in '"#

directs us to
give utmost consideration to the intention of the parties in light of the relative situation of each and
the circumstances surrounding the execution of the contract, thus:
In determining whether a deed absolute in form is a mortgage, the court is

not limited to the written memorials of the transaction. -$ 0$2((;$ </2' (#
$;/)/(# 2- /'$$1$# ( -$ (#$#(# < -$ &/'($ / -6# #
#$2$/'()?.?-$$'1(#)?$0(#-$2#'/2..?/))-$''#0(#
2('21/#2$ 2- / -$ '$)/(;$ (/(# < -$ &/'($ / -/ (1$ the
attitude acts, conduct, declarations of the parties, the negotiations between them
leading to the deed, and generally, all pertinent facts having a tendency to fix and
determine the real nature of their design and understanding. x x x (Emphasis
supplied.)
By applying the aforestated principle to the case at bar, we are constrained to rule that in executing
the said Deed of Sale, Dominador and Eulalia never intended the transfer of ownership of the
subject property but to burden the same with an encumbrance to secure the indebtedness incurred
by Dominador on the occasion of his employment with Eulalia.
By Eulaliaǯs own admission, it was her customary business practice to require her

to deliver to her the titles to their real properties and to execute in her favor the corresponding
deeds of sale over the said properties as security for the money she provided for their cattle
procurement task, and since Dominador worked for Eulaliaǯs business for years, he was allowed to
advance the money without any security. Significantly, it was only after he incurred a shortage that
the sale contract was executed.
We are not inclined to believe the contention of the petitioners that Dominador ceded his
property to Eulalia as payment for his obligation for it is contrary to human experience that a
person would easily part with his property after sustaining a debt. Rather, he would first look for
means to settle his obligation, and the selling of a property on which the house that shelters him
and his family stands, would be his last resort. The only reasonable conclusion that may be derived
from Dominadorǯs act of executing a Deed of Sale in favor of Eulalia is that the latter required him to
do so in order to ensure that he will subsequently pay his obligation to her.
This conclusion is in accord with the doctrine we enunciated in &
"#

that:
-$$,&)(2(&';((#<'(2)$8-//#?<-$2('21/#2$6)0

<<(2$2#'$/2#'/2</)$.$#$<$3(/.)$1'/$((#
2##/#2$6(--$')$-/-$)/6</;'-$)$/'/#1((#<
&'&$'?'(-. To stress, the existence of any one of the conditions under Article
1602, not a concurrence, or an overwhelming number of such circumstances,
suffices to give rise to the presumption that the contract is an equitable mortgage.
While we agree in the petitionersǯ insistence that inadequacy of the price is not sufficient to
nullify the contract of sale, their persistence is, however, misplaced. It is worthy to note that the
factual circumstances attendant in the case at bar call not for the application of the legal and
jurisprudential principles on annulment of contract
but more aptly, of the provisions of
Articles 1602 and 1604 of the Civil Code on the construction of the contract of sale as an equitable
mortgage.
Consequently, the agreement between Dominador and Eulalia was not avoided in its
entirety so as to prevent it from producing any legal effect at all. Instead, we construe that said
transaction is an equitable mortgage, thereby merely altering the relationship of the parties from
seller and buyer, to mortgagor and mortgagee, while the subject property is not transferred but
subjected to a lien in favor of the latter.
Moreover, granting that the purchase price is adequate, the fact that respondents remain in
possession of the subject property after its supposed sale is sufficient to support our finding that
the contract is one of equitable mortgage and not of sale. '$($'/$-$$,($#2$</#?#$
<-$2#0((##0$''(2)$8#/2#2''$#2$'/#;$'6-$)1(##1.$'<2-
2('21/#2$ <<(2$ (;$ '($ -$ &'$1&(# -/ -$ 2#'/2 ( /# $3(/.)$
1'/$.
4/;(#-'$-$0-$($-/-$'$6/#/)$(#</;'<)/)(/./#$3(/.)$

1'/$)$/0/#(#$;(/.)$2#2)(#-/-$-/#'(-.$3$#)?'/#<$'
6#$'-(&<-$.7$2&'&$'?(#2##/#2$6(--$&'(#2(&)$-/#.0?2/#0(&$
<6-/-$0$#-/;$
#$<-$$,2$&(#-(')$-6$;$'2/#.$<#0(#'(2)$
<-$(;()0$6-$'$(#-$$))$'-/;(0/.)$()$/&'&$'?.-(()$-/#
?$.$$##))(<($0/-$(1$<-$/)$/#0-$.$3$#.?$'<-$&'&$'?6/(#
0</(-

An innocent purchaser for value is one who buys the property of another, without notice that
some other person has a right or interest in the property, for which a full and fair price is paid by
the buyer at the time of the purchase or before receipt of any notice of claims or interest of some
other person in the property.
Petitioners are harping on the contention that Jocelyn was an innocent purchaser for value.
Invoking the indefeasibility of a Torrens title, they assert that there is nothing in the subject
propertyǯs TCT that should arouse Jocelynǯs suspicion as to put her on guard that there is a defect in
Eulaliaǯs title.
Again, we are not persuaded. The burden of proving the purchaserǯs good faith lies in the
one who asserts the same. In discharging the burden, it is not enough to invoke the ordinary
presumption of good faith. In
"â-we have elucidated that:
[A] person dealing with registered land, [is not required] to inquire further that
what the Torrens title on its face indicates. This rule, however, is not absolute but
admits of exceptions.
-6-()$(('$,,,-//&$'#0$/)(#6(-'$($'$0)/#0
#$$0#.$?#0-$2$'(<(2/$<()$(()(F$6($/6$))$)$0')$-/
/&'2-/$''1'/$$2/##2)$-($?$</26-(2--)0&/
'$/#/.)$1/##-(/'0/#0-$#2)/(1-/-$/2$0(#0</(-#0$'
-$.$)($<-/-$'$6/#0$<$2(#-$()$<-$;$#0''1'/'. His
mere refusal to face up to the fact that such defect exists, or his willful closing of his
eyes to the possibility of the existence of a defect in the vendorǯs or mortgagorǯs
title, will not make him an innocent purchaser for value, if it afterwards develops
that the title was in fact defective, and it appears that he had such notice of the
defect as would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.

In the present case, we are not convinced by the petitionersǯ incessant assertion that Jocelyn is an
innocent purchaser for value. To begin with, she is a grandniece of Eulalia and resides in the same
locality where the latter lives and conducts her principal business. It is therefore impossible for her
not to acquire knowledge of her grand auntǯs business practice of requiring her
to
surrender the titles to their properties and to sign the corresponding deeds of sale over said
properties in her favor, as security. This alone should have put Jocelyn on guard for any possible
abuses that Eulalia may commit with the titles and the deeds of sale in her possession.
The glaring lack of good faith of Jocelyn is more apparent in her own admission that she was aware
that Dominador and a certain Lourdes were in possession of the subject property. A buyer of real
property that is in the possession of a person other than the seller must be wary. A buyer who does
not investigate the rights of the one in possession can hardly be regarded as a buyer in good faith.
Jocelynǯs self-serving statement that she personally talked to Dominador and Lourdes about her
acquisition of the subject property and intention to take possession of the same, and that
Dominador and Lourdes even pleaded for time to vacate the subject property cannot be given
credence in light of the prompt filing by the Spouses Bandong of an action for the annulment of the
sale contract between Dominador and Eulalia after they received the demand to vacate from
Jocelynǯs lawyer.
In the last analysis, good faith, or the lack of it, is a question of intention. But in ascertaining the
intention that impels one on a given occasion, the courts are necessarily controlled by the evidence
as to the conduct and other outward acts by which the motive may be safely determined.
Petitioners question further the belated filing by the Spouses Bandong of an action for the
annulment of sale, since the Spouses Bandong filed the same only after they received the notice to
vacate, and not immediately after the execution of the assailed Deed of Sale. We have repeatedly
held that the one who is in actual possession of a piece of land claiming to be the owner thereof may
await to vindicate his right. His undisturbed possession gives him a continuing right to seek the aid
of a court of equity to ascertain and determine the nature of the adverse claim of a third party and
its effect on his own title, which right can be claimed only by one who is in possession.
Finally, we agree with the Court of Appeals that the ejectment case which had been litigated to
finality by the Spouses Buenaobra and the respondents need not alter our conclusion in the present
case. Well entrenched is the doctrine that in ejectment cases, the sole question for resolution is the
physical or material possession of the property in question, so that neither the claim of juridical
possession nor an averment of ownership can outrightly prevent the court from taking cognizance
of the case. In ejectment cases, all the court may do is to resolve who is entitled to its possession
although, in doing so, it may make a determination of who is the owner of the property in order to
resolve the issue of possession. But such determination of ownership is not clothed with finality.
Neither will it affect ownership of the property or constitute a binding and conclusive adjudication
on the merits with respect to the issue of ownership.
=4, =4 the instant Petition is **

The Decision
dated 26 September 2005, and the Resolution dated 24 January 2006, rendered by the Court of
Appeals in CA-G.R. SP No. 59957, are hereby *
m**.

4!
Associate Justice
WE CONCUR:
m mm
Associate Justice
Chairperson

m!* *]
4
m

I attest that the conclusions in the above Decision were reached in consultation before the case
m mm
Associate Justice

Attestation, it is hereby certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the Courtǯs Division.
m

Chief Justice
Penned by Associate Justice Arturo D. Brion with Associate Justices Godardo A. Jacinto and
Regalado L. Maambong, concurring;
, pp. 30-54.
Id. at 55-56.
Id. at 64-72.
Id. at 52-53.
Id. at 31-32.
Records, Vol. I, pp. 514-516.
Id. at 719-731.
Appeal was docketed as CA-G.R. SP No. 29639
Id. at 733.
Id. at 64-72.
Id. at 55-56.
# "+ ( &

, G.R. No. 155856, 28 May 2004, 430
SCRA 323, 335.
:
(

, % "(, G.R. No. 152168, 10 December
2004, 446 SCRA 57, 69.
Records, Vol. I, pp. 9-10.
'"#
, 393 Phil. 479, 489 (2000).
Id.
' p. 14
380 Phil. 736, 742 (2000).
Id.
, "' (
, 59 Phil. 446, 450 (1934).
The other exceptions are provided by Article 1505 of the Civil Code.
Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is
not the owner thereof, and who does not sell them under authority or with the consent of
the owner, the buyer acquires no better title to the goods than the seller had, unless the
owner of the goods is by his conduct precluded from denying the sellerǯs authority to sell.
Nothing in this title, however, shall affect:
(1) The provisions of any factorsǯ acts, recording laws, or any other provision of law
enabling the apparent owner of goods to dispose of them as if he were the true owner
thereof;
(2) The validity of any contract of sale under the statutory power of sale or under the
order of a court of competent jurisdiction;
(3) Purchases made in merchantǯs store, or in fair, or markets, in accordance with the
Code of Commerce and special laws.

+
#

" #

, G.R. No. 163994, 16 December
2005, 478 SCRA 420, 427-428.
"' 449 Phil. 396, 410 (2003).
G.R. No. 145794, 26 January 2005, 449 SCRA 284, 296-297.
"', supra note 23

+
#
" #

supra note 22.

&"#
, 428 Phil. 381, 398 (2002).
*v. Ibajan, 379 Phil. 482, 490 (2000).
Id.

G.R. No. 129428 February 27, 2003
BENJAMIN NAVARRO AND ROSITA FORTEA VS. SECOND LAGUNA
DEVELOPMENT BANK ET AL.

m
Manila
THIRD DIVISION

8%8$.'/'?898
]+ /#0mpetitioners,
vs.
m* * ]:/#0m mmm !/#0
m m respondents.
DECISION
m* !p
Before us is a petition for review on

1 assailing the Decision2 of the Court of
Appeals dated April 21, 1997 in CA-G.R. CV No. 44240 affirming with modification the
Decision of the Regional Trial Court (RTC), Branch 148, Makati City in Civil Case No. 90-
849, "%. 3 "
'
"( & *" %
*
3 "
( 3 "
+ ,

" for annulment of foreclosure of mortgage and consolidation of
ownership and damages.
Subject of this suit is the 1/6 portion of a parcel of land located in Alabang, Muntinlupa,
known as Lot No. 1513-A, Plan Psd-51043, consisting of 345 square meters and covered
by TCT No. (244200) 114525 of the Registry of Deeds of Makati City.
Records show that the late Catalino Navarro and his wife Consuelo Hernandez originally
owned Lot No. 1513-A. On December 4, 1968, they sold 5/6 of the unsegregated portion
of the lot to their children, namely, Leticia, Esther, Benjamin, Luciana and Leoniza, all
surnamed Navarro. By virtue of the sale, TCT No. 244200 was issued in their names.
Spouses Benjamin and Rosita Navarro, herein petitioners, are listed therein as co-owners
of the property.
On March 18, 1978, without the knowledge and consent of petitioners, spouses Donalito
Velasco and Esther Navarro, conspiring with the latterǯs sister Luciana Navarro, executed
a falsified Deed of Absolute Sale wherein they made it appear that the entire lot was sold
to said spouses Velasco for P35,000.00. TCT No. 244200 was thus cancelled and in lieu
thereof, TCT No. 114526 was issued in the names of spouses Velasco. Subsequently, they
mortgaged the property to respondent Second Laguna Development Bank to secure
payment of a loan.
On June 30, 1987, upon failure of spouses Velasco to pay their loan, respondent bank had
the mortgage foreclosed. On August 8, 1988 and January 5, 1990, petitioners, introducing
themselves as attorneys-in-fact of Esther Navarro-Velasco, wrote respondent bank,
offering to redeem the property for P450,000.00. However, they failed to do so. Hence,
ownership thereof was consolidated in the name of respondent bank under TCT No.
168230 issued on February 1, 1990.
On March 26, 1990, petitioners filed with the RTC a complaint against respondent bank
and spouses Velasco (docketed as Civil Case No. 90-849) praying for the (a) annulment of
the mortgage; (b) cancellation of TCT No. 168230 in the name of respondent bank; and
(c) award of damages and attorneyǯs fees. In their complaint, petitioners alleged that the
sale of the lot with respect to their 1/6 share (59 square meters) is void
considering that their signatures appearing in the Deed of Absolute Sale dated March 18,
1978 were falsified. Consequently, the mortgage contract involving their share executed
by spouses Velasco and respondent bank is likewise void.
On April 3, 1990, respondent bank sold the lot to respondent spouses Isaac Guzman and
Vilma Esporlas and on May 18, 1990, TCT No. 1699293 was issued in their names.
Thereupon, petitioners impleaded spouses Guzman as additional defendants in Civil Case
No. 90-849. Petitioners alleged that said spouses were purchasers in bad faith because
they knew of the pending litigation concerning the property.
On July 29, 1991, the trial court declared spouses Velasco in default for their failure to file
an answer.¢ ¢I
On September 29, 1993, the trial court rendered its Decision4 dismissing petitionersǯ
complaint; upholding the validity of the foreclosure of mortgage and declaring
respondent spouses Guzman the lawful owners of the property; ordering petitioners to
pay said spouses P50,000.00 as actual damages, P30,000.00 as moral damages and
P35,000.00 as attorneyǯs fees; ordering petitioners to pay respondent bank P25,000.00 as
attorneyǯs fees; and ordering spouses Velasco to pay petitioners P268,000.00
corresponding to the value of the latterǯs 1/6 share in the property and P20,000.00 as
attorneyǯs fees.
On appeal, the Court of Appeals affirmed with modification the RTC decision, thus:
"WHEREFORE, the decision appealed from is hereby MODIFIED by deleting the awards of
actual and moral damages as well as attorneyǯs fees in favor of defendant spouses Vilma
Esporlas Guzman and Isaac Guzman, and the award of attorneyǯs fees in favor of
defendant Second Laguna Development Bank.
"With the above modifications, the judgment below is AFFIRMED in all other respects.
"No pronouncement as to costs.
"SO ORDERED."5
The Court of Appeals ratiocinated as follows:
"Inevitably, the core of the controversy is the determination of whether or not defendant
spouses Vilma Esporlas and Isaac Guzman are purchasers in good faith.
"Apart from appellantsǯ bare assertion, we find no evidence to establish appelleesǯ bad
faith. It is settled jurisprudence that whoever alleges bad faith in any transaction must
substantiate his allegation, since it is presumed that a person takes ordinary care of his
concerns and that private transactions have been entered in good faith.
"Clearly, we find appellants wanting in this respect.

"In this connection, it is essential to point out that prior to the foreclosure sale, appellants
had the opportunity to object to the validity of the mortgage over the property in
controversy.
"It is beyond dispute, as disclosed by evidence, that on June 4, 1986, appellant Benjamin
Navarro wrote a certain ǮOscarǯ of defendant-appellee bank, asking for the Statement of
Accounts of defendant Esther Navarro.
"On August 8, 1988, appellant spouses wrote defendant-appellee bank, introducing

themselves as the attorneys-in-fact of defendant Esther Navarro.¢ 012¢
"Again, on January 5, 1990, appellant Benjamin Valerio (believed to be Benjamin Navarro

by the court ! per his signature) wrote the Far East Bank & Trust Company, the
owner of defendant bank, requesting the latter to allow redemption of the land for
(P450,000.00).
"On all these occasions, appellants did not even bother to question the validity of the
purchasersǯ title over the property. Hence, we agree with the court ! that these acts
of appellants were tainted with laches and estoppel. They failed for an unreasonable
length of time to do that which by exercising due diligence could or should have been
done earlier. They neglected or omitted to assert their right within a time reasonable
under the premises, thereby warranting a presumption that they have abandoned such
right.
"However, we find no sufficient justification for the awards of actual and moral damages
as well as attorneyǯs fees by the court !
"Needless to emphasize, actual damages refer to those recoverable because of pecuniary

loss, which include the value of the loss suffered and unrealized profits (8 Manresa 100).
Actual damages must be proved and the amount of damages must possess at least some
degree of certainty ( "
L-7047, August 21, 1958, in relation to #
:" &:, 34 Phil. 447).
"Reviewing the records, we find no evidence whatsoever adduced by defendants-

appellees to prove the actual loss suffered by them. All the court ! did, in awarding
actual damages in the amount of P50,000.00, is to state that defendants-appellees Isaac
Guzman and Vilma Esporlas are entitled to actual damages for they were not able to enjoy
their lawfully acquired property. This reason is simply not enough basis to award actual
damages.
"As regards the claim for moral damages and attorneyǯs fees, the court ! likewise
erred in awarding them. In * "#
, 231 SCRA 456, it was held that
it is improper to award them on the sole basis of an action later declared to be unfounded
in the absence of deliberate intent to cause prejudice to the other. No proof has been
introduced that the action filed by appellant spouses was deliberately intended to
prejudice defendants-appellees. At the most, what we see here is appellantsǯ legitimate
and genuine desire to seek redress through the judicial system and to obtain complete
relief by including spouses Vilma Esporlas and Isaac Guzman and the Second Laguna
Development Bank as party defendants."6
Petitioners filed a partial motion for reconsideration of the Court of Appeals Decision but
it was denied in the Resolution7 dated June 11, 1997.
Petitioners contend that the Court of Appeals erred in upholding the validity of the sale of
the property between respondent bank and spouses Guzman and declaring that they are
estopped from questioning the validity of the mortgage and its foreclosure.
In their separate comments, respondents practically reiterated the findings and

conclusion of the Court of Appeals in its assailed Decision.
In '
% # "#
,8 this Court held that the rule that
persons dealing with registered lands can rely solely on the certificate of title does not
apply to ./#F because their business is one affected with public interest, keeping in
trust money belonging to their depositors, which they should guard against loss by not
committing any act of negligence which amounts to lack of good faith. Thus, in #
,"
% #

9 this Court stressed that a mortgagee-bank is expected to
exercise greater care and prudence before entering into a mortgage contract, even those
involving registered lands. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its
operations.
In entering into the mortgage contract with spouses Velasco, there was no indication that
respondent bank acted in bad faith. Spouses Velasco presented to the bank their TCT No.
114256 showing they were then the absolute owners thereof. Indeed, there were no
circumstances or indications that aroused respondent bankǯs suspicion that the title was
defective.
As to the validity of the sale of the property to respondent spouses Guzman, this Court
agrees with the finding of the Court of Appeals that petitioners are estopped from
assailing the same.
Article 1431 of the Civil Code states that "through estoppel an admission or
representation is rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon."
A person, who by his deed or conduct has induced another to act in a particular manner,
is barred from adopting an inconsistent position, attitude or course of conduct that
thereby causes loss or injury to another.10
It bears reiterating that in their two letters to respondent bank earlier mentioned,
petitioners did not state that spouses Velasco falsified their signatures appearing in the
Deed of Absolute Sale. Nor did they question the validity of the mortgage and its
foreclosure. Indeed, those letters could have led respondent bank to believe that
petitioners recognized the validity of the Deed of Absolute Sale and the mortgage as well
as its subsequent foreclosure.
WHEREFORE, the instant petition is DISMISSED. The challenged Decision dated April 21,
1997 of the Court of Appeals in CA-G.R. CV No. 44240 is AFFIRMED.
SO ORDERED.
Puno, (Chairman), Panganiban and Carpio-Morales, JJ., concur.
Corona, J., on leave.
#$
1 Pursuant to Rule 45 of the 1997 Rules of Civil Procedure, as amended.
2Penned by Justice Artemio G. Tuquero, with Justices Artemon D. Luna and

Hector L. Hofileña concurring (all had retired).
3 RTC records at 35.
4 Rollo at 65-91.
5 + at 36.
6 +at 35-36.
7 + at 101.
8 271 SCRA 76, 88 (1997), citing " , 98 SCRA 280, 286 (1980).
9G.R. No. 147788, March 19, 2002 citing # "*" % "(, 324
SCRA 346 (2000), *" % "#
, 331
SCRA 267 (2000)and +"#
"+#, 203 SCRA
210 (1991).
10 ##

"Ä
& #
+'3
¢F?, May 9, 2002; &" & , 344 SCRA 838, 851(2000); #
,"
#
, 293 SCRA 239, 255-256 (1998).

G.R. No. L-11108 June 30, 1958
CHUA HAI vs. RUPERTO KAPUNAN, JR., ET AL.

m
Manila
]

+#$
4 4 petitioner,
vs.
4
: +
/+0$<-$'<('#/#2$</#()//#0
m4 respondents.

&

(

Ä&
m+
]

p
#

against an order of the Court of First Instance of Manila, Hon. Ruperto
Kapunan, Jr. presiding, ordering the return to the complainant in criminal case No. 34250,
"'
, of 100 sheets of galvanized iron roofing which had been sold by
the accused in said case to petitioner herein, Chua Hai. The order is as follows:
Counsel for the complainant in this case seeks the return of the 700 sheets of
galvanized iron now with the Manila Police Department which form part of the
hardware materials involved in this case. Chua Hai, one of the persons who
purchased from the accused one hundred (100) pieces of the said galvanized iron
sheets, opposes the said motion on the ground that the question of ownership
should be determined in the proper proceedings, claiming that he has a valid title
to the 100 pieces, having bought them from the accused Roberto Soto on
February 1, 1956. Roberto Soto is presently at large, his arrest having been
ordered by this Court on June 13, 1956, for failure to appear for trial.
Considering the provisions of Article 105 of the Revised Penal Code, the said 700
sheets, except five of them which are to be retained for purposes of evidence, are
hereby ordered returned to the complainant, subject, however, to the condition
that the complainant post a bond in an amount equal to twice the value of 100
sheets in favor of Chua Hai who has a claim of ownership to the said 100 sheets,
and without prejudice on the part of said Chua Hai to file the corresponding
action on the matter of ownership thereof by virtue of his purchase from the
herein accused.
From the facts alleged in the pleadings presented in this case, we gather the following: On
January 31, 1956, Roberto Soto purchased from Youngstown Hardware, owned by Ong
Shu, 700 corrugated galvanized iron sheets and 249 pieces of round iron bar for
P6,137.70, and in payment thereof he issued a check drawn against the Security Bank and
Trust Company for P7,000.00, without informing Ong Shu that he had no sufficient funds
in said bank to answer for the same. When the check was presented for payment, it was
dishonored for insufficiency of funds. Soto sold 165 sheets in Pangasinan and 535 sheets
in Calapan, Mindoro. Of those sold in Pangasinan, 100 were sold to petitioner Chua Hai.
When the case was filed in the Court of First Instance of Manila against Roberto Soto, for
estafa, the offended party filed a petition asking that the 700 galvanized iron sheets,
which were deposited with the Manila Police Department, be returned to him, as owner
of the Youngstown Hardware. Petitioner herein opposed the motion with respect to the
100 sheets that he had bought from Soto. Notwithstanding the opposition, the court
ordered the return of the galvanized iron sheets to Ong Shu. Petitioner then presented a
motion to reconsider the order, alleging that by the return thereof to the offended party,
the court had not only violated the contract of deposit, because it was in that concept that
petitioner had delivered the 100 sheets to the Manila Police Department, and that said
return to Ong Shu amounted to a deprivation of his property without due process of law.
It is also claimed that Article 105 of the Revised Penal Code, under whose authority the
return was ordered, can be invoked only after the termination of the criminal case and
not while said criminal case is still pending trial.
The court having given no heed to these protests on the part of the petitioner, the latter
brought the present petition to this Court alleging that the order of the respondent judge
constitutes a deprivation of petitioner's property without due process of law, violating
the contract of deposit under which the sheets were delivered to the police department of
the City of Manila, and determining the respective rights of petitioner and respondent
Ong Shu without a previous trial of the criminal case Ȅ all of which constitute a grave
abuse of discretion and excess of jurisdiction. In answer to the petition, it is claimed that
as respondent Ong Shu is the owner of the property, he has the right to recover
possession thereof even if said property appears to have fallen into the possession of a
third party who acquired it by legal means, provided that said form of acquisition is not
that provided for in Article 464 of the Civil Code (where property has been pledged in a
established under authority of the Government) ; that even if the
property was acquired in good faith, the owner who has been unlawfully deprived
thereof may recover it from the person in possession of the same unless a person in
possession acquired it in good faith at a public sale. (Art. 559, Civil Code of the
Philippines). It is also claimed that under the provisions of Article 105 of the Revised
Penal Code, under which restitution is made by a return of the thing itself whenever
possible, the galvanized iron sheets in question should be returned to the offended party,
the owner, and that there is no provision of law requiring that the criminal case must first
be finally disposed of before restitution of the goods swindled can be ordered returned to
the owner. In answer to the allegation that petitioner has been deprived of his property
without due process of law, it is alleged that same is without foundation because the
petitioner was given ample time to be heard. As to the claim that the galvanized iron
sheets in question were deposited with the Manila Police Department, it is argued that
the delivery to the Manila Police Department was by virtue of the order of the court,
because the said sheets, were the subject of or are the instruments of the commission of
the crime of , and the court had the power to order the return thereof to the owner
after it had satisfied itself of the ownership thereof by the offended party. It is also alleged
in defense that petitioner's rights, if any, are sufficiently protected by the bond that the
court has required to be filed.
We find the case meritorious, since petitioner's good faith is not questioned. To deprive
the possessor in good faith, even temporarily and provisionally, of the chattels possessed,
violates the rule of Art. 559 of the Civil Code. The latter declares that possession of
chattels in good faith is !" ; i.e., that for all intents and purposes, the
possessor is the owner, until ordered by the proper court to restore the thing to the one
who was illegally deprived thereof. Until such decree is rendered (and it can not be
rendered in a criminal proceeding in which the possessor is not a party), the possessor, as
presumptive owner, is entitled to hold and enjoy the thing; and "every possessor has a
right to be respected in his possession; and should he be disturbed therein he shall be
protected in or restored to said possession established by the means established by the
laws and the Rules of Court."(Art. 539, New Civil Code).
The decision of the court below, instead of conforming to Arts. 559 and 539 of the Civil
Code, directs possessor to surrender the chattel to the claimant Ong Shu before the latter
has proved that he was illegally deprived thereof, without taking into account that the
mere filing of a criminal action for is no proof that was in fact committed.
Instead of regarding the possessor as the owner of the chattel until illegal deprivation is
shown, the court below regards the possessor of the chattel not as an owner, but as a
usurper, and compels him to surrender possession even before the illegal deprivation is
proved. We see no warrant for such a reversal of legal rules.
It can not be assumed at this stage of the proceedings that respondent Ong Shu is still the
owner of the property; to do so it take for granted that the was in fact committed,
when so far, the trial on the merits has not even started, and the presumption of
innocence holds full sway.
In the third place, the civil liability of the offender to make restitution, under Art. 105 of
the Revised Penal Code,
until his criminal liability is finally declared, since
the former is a consequence of the latter. Art. 105 of the Revised Penal Code, therefore,
can not be invoked to justify the order of the court below, since that very article
recognizes the title of an innocent purchaser when it says:
ART. 105. Restitution Ȅ . . .
The thing itself shall be restored, even though it be found in the possession of a
third person who has acquired it by lawful means, saving to the latter his action
against the proper person who may be liable to him.
This provision is not applicable in cases in which the & !

!
, by law, bar an
action for its recovery. (R.P.C.) (Emphasis supplied)
The last paragraph of Article 105 plainly refers to those cases where recovery is denied
by the civil law, notwithstanding the fact that the former owner was deprived of his
chattels through crime. One of these cases is that provided for in Art. 85 of the Code of
Commerce:
ART. 85. Ȅ La compra de mercaderias en almacenes o tiendas abiertas al publico
causara prescripcion de derecho a favor del comprador respecto de las
mercaderias adquiridas, quedando a salvo en su caso los derechos del propietario
de los objetos vendidos para ejercitar las acciones civiles o criminales que puedan
corresponderle contra el que los vendiere indebidamente. (Civ. 464)
Para los efectos de esta prescripcion, se reputaran almacenes o tiendas abiertas al

publico:
1.º Los que establezcan los comerciantes inscritos.
2.º Los que establezcan los comerciantes no inscritos, siempre que los almacenes
o tiendas permanezcan abiertos al publico por espacio de echo dias consecutivos,
o se hayan anunciado por medio de rotulos, muestras o titulos en el local mismo, o
por avisos repartidos al publico o insertos en los diarios de la localidad.
Notwithstanding the claim of some authors that this Art. 85 has been repealed, the fact is
that its rule exists and has been confirmed by Article 1505 of the new Civil Code:
ART. 1505. Subject to the provisions of this Title, where goods are sold by a
person who is not the owner thereof, and who does not sell them under authority
or with consent of the owner, the buyer acquires no better title to the goods than
the seller had, unless the owner of the goods is by his conduct precluded from
denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
xxx xxx xxx
(3) Purchases made in a merchant's store, or in fairs, or markets in accordance

with the Code of Commerce and special laws. (C.C.)
But even if the articles in dispute had not been acquired in a market, fair or merchant's
store, still, so far as disclosed, the facts do not justify a finding that the owner, respondent
Ong Shu, was & deprived of the iron sheets, at least in so far as appellant was
concerned. It is not denied that Ong Shu delivered the sheets to Soto upon a perfected
contract of sale, and such delivery transferred title or ownership to the purchaser. Says
Art. 1496:
ART. 1496. The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in articles 1497 to
1501, or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee. (C.C.)
The failure of the buyer to make good the price does not, in law, cause the ownership to
revest in the seller until and unless the bilateral contract of sale is first rescinded or
resolved pursuant to Article 1191 of the new Civil Code.
And, assuming that the consent of Ong Shu to the sale in favor of Sotto was obtained by
the latter through fraud or deceit, the contract was not thereby rendered void ,
but only voidable by reason of the fraud, and Article 1390 expressly provides that:
ART. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification. (C.C.)
Agreeably to this provision, Article 1506 prescribes:
ART. 1506. Where the seller of goods has a voidable title thereto, but his title has
not been avoided at the time of the sale, the buyer acquires a good title to the
goods, provided he buys them in good faith, for value, and without notice of the
seller's defect of title. (C.C.)
Hence, until the contract of Ong Shu with Sotto is set aside by a competent court
(assuming that the fraud is established to its satisfaction), the validity of appellant's claim
to the property in question cannot be disputed, and his right to the possession thereof
should be respected.
It is no excuse that the respondent Ong Shu was required to post a redelivery bond. An
indemnity bond, while answering for damages, is not, by itself alone, sufficient reason for
disturbing property rights, whether temporarily or permanently. If the invasion is not
warranted, the filing of a bond will not make it justifiable.
Questions of ownership and possession being eminently civil in character, they should
not be settled by exclusive reference to the Revised Penal Code. If Ong Shu has reason to
fear that petitioner Chua Hai may dispose of the chattels in dispute and thereby render
nugatory his eventual right to restitution, then the proper remedy lies in a civil suit and
attachment, not in an order presuming to adjudicate in a criminal case the civil rights of
one who is not involved therein.
Summing up, we hold:
1) That the acquirer and possessor in good faith, of a chattel or movable property is
entitled to be respected and protected in his possession, as if he were the true owner
thereof, until a competent court rules otherwise;
2) That being considered, in the meantime, as the true owner, the possessor in good faith
cannot be compelled to I surrender possession nor to be required to institute an action
for the recovery of the chattel, whether or not an indemnity bond is issued in his favor;
3) That the filing of an information charging that the chattel was illegally obtained
through estafa from its true owner by the transferor of the bona fide possessor does not
warrant disturbing the possession of the chattel against the will of the possessor; and
4) That the judge taking cognizance of the criminal case against the vendor of the
possessor in good faith has not right to interfere with the possession of the latter, who is
not a party to the criminal proceedings, and such unwarranted interference is not made
justifiable by requiring a bond to answer for damages caused to the possessor.
Wherefore, the writ of certiorari is granted, and the order of the Court of First Instance of
Manila in Criminal Case No. 34250, dated July 31, 1956, is hereby revoked and set aside,
as issued in abuse of discretion amounting to excess of jurisdiction. Costs against
appellant Ong Shu.

#$%&,
'% & # $$
concur.
m$&/'/$&(#(#
5p concurring:
The issue in this case revolves around the proposition of whether or not "goods
purchased by an accused, for which he paid with a rubber check, can be seized from a
third party who bought the same in good faith and for a valuable consideration
the
offender, who was charged with estafa, is tried and convicted."
I concur with the reasons adduced in the majority decision but the main basis of my vote
with the majority of the Court is based on the principle that Article 105 of the Revised
Penal Code relied upon by the lower Court for the issuance of the order which We
revoked and set aside in this instance, cannot be invoked and made applicable to the case
at bar.
As it is known, among the civil liabilities established by Articles 100 to 103 of the Revised
Penal Code restitution is included and Article 105 of the same Code dealing on restitution,
provides the following:
ART. 105. ': . Ȅ The restitution of the &
"
, with allowance for the deterioration or diminution of
value as determined by the court.
The & shall be restored, even though it be found in the possession of a
third person who has acquired it by lawful means, saving to the latter his action
against the proper person who may be liable to him.
This provision & !

!

"
.
There is no dispute that petitioner herein, Chua Hai, purchased from Roberto Sotto 100
sheets of galvanized iron roofing in good faith and for value, and there is no denial either
that this stock comes from and is a part of the 700 sheets that Roberto Sotto bought and
paid with a check that bounced for lack of funds. Under such circumstances, there is no
question that the purchase was perfected by the agreement of the respondent Ong Shu
and defendant Sotto and as a consequence of the transaction, upon delivery of the sheets
to the latter, ownership of the same was conveyed and transferred & to the
purchaser who, from that moment, with or without payment of the consideration
therefor was in turn entitled to sell and convey all or a portion of the property in question
to a third party who definitely acquired said goods, specially when he acted in good faith
and for value. Had those goods been sold on credit by Ong Shu to Roberto Sotto, the
failure of the latter to pay the purchase price thereof would not entitle the vendor, under
the circumstances obtaining in the instant case, to take the goods from Chua Hai and
much less without a previous court action. And the same thing can be said in the case at
bar where the vendor was induced to part with his property by the issuance of a rubber
check. Both in the case of sale on credit as well as on the case of sale through the payment
with rubber check, the transaction is perfected and the transfer of ownership verified, the
difference being only circumscribed to the liability of the first purchaser (Sotto) which in
the first case would be merely civil, while in the latter case is also criminal.1 The first sale
of the property having been & consummated, the 100 sheets of galvanized iron
herein involved could not be recovered from Chua Hai even in case of Sotto's conviction
of , because under the terms of Article 105 of the Revised Penal Code, the

&

& !

(Chua Hai)

!
(in addition to the other
means enumerated in the majority decision)

"
. I am,
therefore, of the opinion and thus hold that in cases where the ownership of the effects of
the crime has already been transferred by the offender to an innocent third party, the
restitution of the & referred to in Article 105 of the Revised Penal Code must
necessarily be limited to cases in which the offended party was &
"of the
property involved in the crime committed, such as in cases of robbery and theft, but not
to cams wherein the offended party has not been
"of his property which he
delivered to the purchaser with the expectation of course, of receiving the consideration
of the sale.
I, therefore, concur in the majority decision penned by Mr. Justice J. B. L. Reyes.
]*p dissenting:
I dissent. Before proceeding to the discussion of the facts it seems necessary for an
understanding of this dissent that this is a certiorari originally instituted in this Court
against an order of Judge Ruperto Kapunan, Jr. of the Court of First Instance of Manila. As
a case of

, not a petition for review, the only pertinent issue, as I see it, is
whether under the facts and circumstances of the case the order against which the
petition is instituted was issued in excess of jurisdiction or with grave abuse of discretion.
The order issued by the respondent judge was provisional in character, subject to the
outcome of the criminal case and any other future litigation respecting the property
subject of the proceedings.
The

seeks to set aside the order for the return to the complainant in criminal
case No. 34250, People vs. Roberto Sotto, of 100 sheets of galvanized iron roofing which
had been sold by the accused in said case to petitioner herein, Chua Hai. The order is as
follows:
Counsel for the complainant in this case seeks the return of the 700 sheets of
galvanized iron now with the Manila Police Department which form part of the
hardware materials involved in this case. Chua Hai, one of the persons who
purchased from the accused one hundred (100) pieces of the said galvanized iron
sheets, opposes the said motion on the ground that the question of ownership
should be determined in the proper proceedings, claiming that he has a valid title
to the 100 pieces, having bought them from the accused Roberto Sotto on
February 1, 1956. Roberto Sotto is presently at large, his arrest having been
ordered by this Court on June 13, 1956, for failure to appear for trial.
Considering the provisions of Article 105 of the Revised Penal Code, the said 700
sheets, except five of them which are to be retained for purposes of evidence, are
hereby ordered returned to the complainant, subject, however, to the condition
that the complainant post a bond in an amount equal to twice the value of 100
sheets in favor of Chua Hai who has a claim of ownership to the said 100 sheets,
and without prejudice on the part of said Chua Hai to file the corresponding
action on the matter of ownership thereof by virtue of his purchase from the
herein accused.
From the facts alleged in the pleadings prescribed in this case, we gather the following:
On January 31, 1956, Roberto Sotto purchased from Youngstown Hardware, owned by
Ong Shu, 700 corrugated galvanized iron sheets and 249 pieces of round iron bar for
P6,137.70, and in payment thereof he issued a check drawn against the Security Bank and
Trust Company for P7,000.00, without informing Ong Shu that had no sufficient funds in
said bank to answer for the same. When the check was presented for payment it was
dishonored for insufficiency of funds. Sotto sold 165 sheets in Pangasinan and 535 sheets
in Calapan, Mindoro. Of those sold in Pangasinan, 100 was sold to petitioner Chua Hai.
When the case was filed in the Court of First Instance of Manila against Roberto Sotto, for
estafa, the offended party filed a petition asking that the 700 galvanized iron sheets which
were deposited with the Manila Police Department be returned to him, as owner of the
Youngstown Hardware. Petitioner herein opposed the motion with respect to the 100
sheets that he had bought from Sotto. Notwithstanding the opposition the court ordered
the return of the galvanized iron sheets to Ong Shu. Petitioner then presented a motion to
reconsider the order, alleging that by the return thereof to the offended party, the court
had not only violated the contract of deposit, because it was in that concept that
petitioner had deliver the 100 sheets to the Manila Police Department, and that said
return to Ong Shu amounted to a deprivation of his property without due process of law.
It is also claimed that Article 105 of the Revised Penal Code, under whose authority the
return was ordered, can be invoked only after the termination of the criminal case and
not while said criminal case is still pending trial.
The court giving no heed to these protests on the part of the petitioner, the latter brought
the present petition to this Court alleging that the order of the respondent judge
constitutes a deprivation of petitioner's property without due process of law, violating
the contract of deposit under which the sheets were delivered to the police department of
the City of Manila, and determining the respective rights of petitioner and respondent
Ong Shu without a previous trial of the criminal case Ȅ all of which constitute a grave
abuse of discretion and excess of jurisdiction. In answer to the petition it is claimed that
as respondent Ong Shu is the owner of the property, he has the right to recover
possession thereof even if said property appears to have fallen into the possession of a
third party who acquired it by legal means, provided that said form of acquisition is not
that provided for in Article 464 of the Civil Code (where property has been pledged in a
established under authority of the Government) ; that even if the
property was acquired in good faith, the owner who has been unlawfully deprived
thereof may recover it from the person in possession of the same unless a person in
possession acquired it in good faith at a public sale (Art. 559, Civil Code of the
Philippines). It is also claimed that under the provisions of Article 105 of the Revised
Penal Code, under which restitution is made by a return of the thing itself whenever
possible, the galvanized iron sheets in question should be returned to the offended party,
the owner, and that there is no provision of law requiring that the criminal case must first
be finally disposed of before restitution of the goods swindled can be ordered returned to
the owner. In answer to the allegation that petitioner has been deprived of his property
without due process of law, it is alleged that same is without foundation because the
petitioner was given ample time to be heard. As to the claim that the galvanized iron
sheets in question were deposited with the Manila Police Department, it is argued that
the delivery to the Manila Police Department was by virtue of the order of the court,
because the said sheets were the subject of or are the instruments of the commission of
the crime of , and the court had the power to order the return thereof to the owner
after it had satisfied itself of the ownership thereof by the offended party. It is also alleged
in defense that petitioner's rights, if any, are sufficiently protected by the bond that the
court has required to be filed.
I find no merit in the contention that petitioner was deprived of the possession and
ownership of the galvanized iron sheets without due process of law, it appearing that
sufficient opportunity was given him to explain his right to the possession and ownership
thereof when he presented him motion for reconsideration which the court heard and
which it finally denied. The claim that the respective rights of the petitioner and the
respondent owner can only be decided in the final criminal action is also without merit.
The criminal case seeks to determine the fact of the commission of the crime by the
accused. When as in this case it cannot be seriously contended that the galvanized iron
sheet in question were not the ones that the accused had taken away from the offended
party by illegal means, there is no advantage to be gained by postponing the
determination of the ownership of the stolen property as between the offended party and
the purchaser. Anyway, the order of the court is merely provisional in character and it is
expressly provided therein that the claims of the parties to the property are to be
determined in the final action that the petitioner may file, if he desires to do so.
The decision of the majority supposedly rests on the provisions of Article 599 of the Civil
Code, which is as follows:
The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner can not obtain
its return without reimbursing the price paid therefor.
We fully agree with the majority that this Article covers the case, but we are of the
humble opinion that the provision that is applicable is not paragraph 1, but paragraph 2.
Granting that the petitioner was a possessor in good faith, the facts disclosed not by the
information alone, but by the motion for the return of the goods and other parts of the
record show that these movable properties used to belong to the respondent Ong Shu and
that he was deprived thereof unlawfully because a certain person purchased it with a
bogus check. As between the purchaser and Ong Shu, the lawful owner, even if the former
is clothed with all the good faith, the owner of the property Ong Shu has a better right to
recover possession thereof. The criminal law provides that the subject of a crime can
always be recovered from whoever is in possession of the same, irrespective of the good
faith of the possessor. Were we to adopt the ruling of the majority, we will be encouraging
crooks because by artful connivance with supposed buyers in good faith (and the worst
part of it is good faith is always presumed), we will have a holiday for crooks, thieves and
robbers.
While it is true that the information does not deny the good faith of petitioner, but as
against that of the lawful owner, Ong Shu, the latter should be given preference.
It is not disputed that the respondent Ong Shu was originally the lawful owner. If that is
so and he was deprived of the property by a criminal act, how can such ownership now
have been destroyed and can now be denied. The only way by which the petitioner, the
buyer from the thief, can be protected in his possession is by applying the provisions of
paragraph 2 of Article 599 of the Civil Code, which reads:
If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner can not obtain
its return without reimbursing the price paid therefor.
Note that we have underlined the words public sale. This he has not proved and no
evidence has been shown or is insinuated in the record. Even if he had acquired it at
public sale, the right for reimbursement of the price still remains. The price is fully
guaranteed by the bond approved by the court.
#$
1 See People vs. Ma Su (Chino), 90 Phil., 706.

G.R. No. 151319 November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC. vs. PEDRO L.
LINSANGAN

m
Manila
m** m

;$1.$'888%
:
petitioner,
vs.
*
m respondent.
*m
p
"
For resolution in this case is a classic and interesting texbook question in the law on
agency.
This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June
2001, and its Resolution2 dated 12 December 2001 in CA G.R. CV No. 49802 entitled
"Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al.," finding Manila Memorial
Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to
respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden
State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to
Baluyot, a former owner of a memorial lot under Contract No. 25012 was no longer
interested in acquiring the lot and had opted to sell his rights subject to reimbursement
of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty.
Linsangan that once reimbursement is made to the former buyer, the contract would be
transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the
amount to be reimbursed to the original buyer and to complete the down payment to
MMPCI.3 Baluyot issued handwritten and typewritten receipts for these payments.4
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued
Contract No. 28660, a new contract covering the subject lot in the name of the latter
instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him
that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full
down payment leaving a balance of about P75,000.00.5
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15),
Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt No.
118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed
price of P132,250.00. Atty. Linsangan objected to the new contract price, as the same was
not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a
document6 confirming that while the contract price is P132,250.00, Atty. Linsangan
would pay only the original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00 and the
difference will be issued as discounted to conform to the previous price as
previously agreed upon. --- P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under Contract
No. 28660 states that the total price of P132,250.00 your undertaking is to pay
only the total sum of P95,000.00 under the old price. Further the total sum of
P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been
credited in the total purchase price thereby leaving a balance of P75,162.00 on a
monthly installment of P1,800.00 including interests (sic) charges for a period of
five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official
Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12)
postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April
1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was
cancelled for reasons the latter could not explain, and presented to him another proposal
for the purchase of an equivalent property. He refused the new proposal and insisted that
Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint7 for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No.
28660 was cancelled conformably with the terms of the contract8 because of non-
payment of arrearages.9 MMPCI stated that Baluyot was not an agent but an independent
contractor, and as such was not authorized to represent MMPCI or to use its name except
as to the extent expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI
was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in
fact received a down payment and monthly installments as indicated in the contract.11
Official receipts showing the application of payment were turned over to Baluyot whom
Atty. Linsangan had from the beginning allowed to receive the same in his behalf.
Furthermore, whatever misimpression that Atty. Linsangan may have had must have
been rectified by the Account Updating Arrangement signed by Atty. Linsangan which
states that he "expressly admits that Contract No. 28660 'on account of serious
delinquencyǥis now due for cancellation under its terms and conditions.'''12
The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that
Baluyot was an agent of MMPCI and that the latter was estopped from denying this
agency, having received and enchased the checks issued by Atty. Linsangan and given to it
by Baluyot. While MMPCI insisted that Baluyot was authorized to receive only the down
payment, it allowed her to continue to receive postdated checks from Atty. Linsangan,
which it in turn consistently encashed.14
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby rendered in

favor of plaintiff declaring Contract No. 28660 as valid and subsisting and
ordering defendants to perform their undertakings thereof which covers burial
lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at
Novaliches, Quezon City. All payments made by plaintiff to defendants should be
credited for his accounts. NO DAMAGES, NO ATTORNEY'S FEES but with costs
against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as against

defendant Baluyot is GRANTED up to the extent of the costs.
SO ORDERED.15
MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty.
Linsangan is bound by the written contract with MMPCI, the terms of which were clearly
set forth therein and read, understood, and signed by the former.17 It also alleged that
Atty. Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered
into the contract, is presumed to know his contractual obligations and is fully aware that
he cannot belatedly and unilaterally change the terms of the contract without the consent,
much less the knowledge of the other contracting party, which was MMPCI. And in this
case, MMPCI did not agree to a change in the contract and in fact implemented the same
pursuant to its clear terms. In view thereof, because of Atty. Linsangan's delinquency,
MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as
the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It
added that it cannot be charged with making any misrepresentation, nor of having
allowed Baluyot to act as though she had full powers as the written contract expressly
stated the terms and conditions which Atty. Linsangan accepted and understood. In
canceling the contract, MMPCI merely enforced the terms and conditions imposed
therein.18
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the
former's obligation, as a party knowingly dealing with an alleged agent, to determine the
limitations of such agent's authority, particularly when such alleged agent's actions were
patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify
Baluyot's authority or ask copies of official receipts for his payments.19
The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's
finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered
into, having represented MMPCI's interest and acting on its behalf in the dealings with
clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to
act and represent MMPCI even beyond her authority.20 The appellate court likewise found
that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in
its behalf and stead. While Baluyot's authority "may not have been expressly conferred
upon her, the same may have been derived impliedly by habit or custom, which may have
been an accepted practice in the company for a long period of time."21 Thus, the Court of
Appeals noted, innocent third persons such as Atty. Linsangan should not be prejudiced
where the principal failed to adopt the needed measures to prevent misrepresentation.
Furthermore, if an agent misrepresents to a purchaser and the principal accepts the
benefits of such misrepresentation, he cannot at the same time deny responsibility for
such misrepresentation.22 Finally, the Court of Appeals declared:
There being absolutely nothing on the record that would show that the court a quo
overlooked, disregarded, or misinterpreted facts of weight and significance, its factual
findings and conclusions must be given great weight and should not be disturbed by this
Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the
appealed decision in Civil Case No. 88-1253 of the Regional Trial Court, National
Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED in toto.
SO ORDERED.23
MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred
in disregarding the plain terms of the written contract and Atty. Linsangan's failure to
abide by the terms thereof, which justified its cancellation. In addition, even assuming
that Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty.
Linsangan knew or should have known about this considering his status as a long-
practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to
consider that the facts and the applicable law do not support a judgment against Baluyot
only "up to the extent of costs."26
Atty. Linsangan argues that he did not violate the terms and conditions of the contract,
and in fact faithfully performed his contractual obligations and complied with them in
good faith for at least two years.27 He claims that contrary to MMPCI's position, his
profession as a lawyer is immaterial to the validity of the subject contract and the case at
bar.28 According to him, MMPCI had practically admitted in its Petition that Baluyot was
its agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to
act as though she had full powers to be held solidarily liable with the latter.29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules
of Court is limited to reviewing only errors of law, not fact, unless the factual findings
complained of are devoid of support by the evidence on record or the assailed judgment
is based on misapprehension of facts.30 In BPI Investment Corporation v. D.G. Carreon
Commercial Corporation,31 this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of
Appeals may be reviewed by the Supreme Court, such as (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 petitioners' main and
reply briefs are not disputed by the respondents; and (10) the findings of fact of
the Court of Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record.32
In the case at bar, the Court of Appeals committed several errors in the apprehension of
the facts of the case, as well as made conclusions devoid of evidentiary support, hence we
review its findings of fact.
By the contract of agency, a person binds himself to render some service or to do

something in representation or on behalf of another, with the consent or authority of the
latter.33 Thus, the elements of agency are (i) consent, express or implied, of the parties to
establish the relationship; (ii) the object is the execution of a juridical act in relation to a
third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent
acts within the scope of his authority.34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its
Agency Manager Agreement; an agency manager such as Baluyot is considered an
independent contractor and not an agent.35 However, in the same contract, Baluyot as
agency manager was authorized to solicit and remit to MMPCI offers to purchase
interment spaces belonging to and sold by the latter.36 Notwithstanding the claim of
MMPCI that Baluyot was an independent contractor, the fact remains that she was
authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial
court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the
interest of the latter, and having been allowed by MMPCI to represent it in her dealings
with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by
the contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces
obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are
contained in such forms and, when signed by the buyer and an authorized officer of
MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by
MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein
that "Purchaser agrees that he has read or has had read to him this agreement, that he
understands its terms and conditions, and that there are no covenants, conditions,
warranties or representations other than those contained herein."37 By signing the Offer
to Purchase, Atty. Linsangan signified that he understood its contents. That he and
Baluyot had an agreement different from that contained in the Offer to Purchase is of no
moment, and should not affect MMPCI, as it was obviously made outside Baluyot's
authority. To repeat, Baluyot's authority was limited only to soliciting purchasers. She
had no authority to alter the terms of the written contract provided by MMPCI. The
document/letter "confirming" the agreement that Atty. Linsangan would have to pay the
old price was executed by Baluyot alone. Nowhere is there any indication that the same
came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted, the burden of proof is upon
them to establish it.38 The basis for agency is representation and a person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the agent.39 If
he does not make such an inquiry, he is chargeable with knowledge of the agent's
authority and his ignorance of that authority will not be any excuse.40
As noted by one author, the ignorance of a person dealing with an agent as to the scope of
the latter's authority is no excuse to such person and the fault cannot be thrown upon the
principal.41 A person dealing with an agent assumes the risk of lack of authority in the
agent. He cannot charge the principal by relying upon the agent's assumption of authority
that proves to be unfounded. The principal, on the other hand, may act on the
presumption that third persons dealing with his agent will not be negligent in failing to
ascertain the extent of his authority as well as the existence of his agency.42
In the instant case, it has not been established that Atty. Linsangan even bothered to
inquire whether Baluyot was authorized to agree to terms contrary to those indicated in
the written contract, much less bind MMPCI by her commitment with respect to such
agreements. Even if Baluyot was Atty. Linsangan's friend and known to be an agent of
MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent
of her authority.43 Atty. Linsangan as a practicing lawyer for a relatively long period of
time when he signed the contract should have been put on guard when their agreement
was not reflected in the contract. More importantly, Atty. Linsangan should have been
alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and
was unable to make good her written commitment, nor convince MMPCI to assent
thereto, as evidenced by several attempts to induce him to enter into other contracts for a
higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of
caution should be expected of Atty. Linsangan especially in dealings involving legal
documents. He did not even bother to ask for official receipts of his payments, nor inquire
from MMPCI directly to ascertain the real status of the contract, blindly relying on the
representations of Baluyot. A lawyer by profession, he knew what he was doing when he
signed the written contract, knew the meaning and value of every word or phrase used in
the contract, and more importantly, knew the legal effects which said document
produced. He is bound to accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For
the trial court, MMPCI's acts of accepting and encashing the checks issued by Atty.
Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI
confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted
MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in
view of MMPCI's acceptance of the benefits of Baluyot's misrepresentation, it can no
longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil
Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope
of his authority, and the principal does not ratify the contract, it shall be void if
the party with whom the agent contracted is aware of the limits of the powers
granted by the principal. In this case, however, the agent is liable if he undertook
to secure the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal,
unless he ratifies them, expressly or impliedly. Only the principal can ratify; the agent
cannot ratify his own unauthorized acts. Moreover, the principal must have knowledge of
the acts he is to ratify.44
Ratification in agency is the adoption or confirmation by one person of an act performed

on his behalf by another without authority. The substance of the doctrine is confirmation
after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal
must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing such facts and
regardless of the parties between whom the question of ratification may arise.45
Nevertheless, this principle does not apply if the principal's ignorance of the material
facts and circumstances was willful, or that the principal chooses to act in ignorance of
the facts.46 However, in the absence of circumstances putting a reasonably prudent man
on inquiry, ratification cannot be implied as against the principal who is ignorant of the
facts.47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty.
Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot
was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly
installments as indicated in the contract. Thus, every time an installment falls due,
payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash
component of P1,455.00 from Baluyot.49 However, it appears that while Atty. Linsangan
issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This
was supported by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales
Manager of MMPCI, two days after she received the copy of the Complaint. In the letter,
she admitted that she was remiss in her duties when she consented to Atty. Linsangan's
proposal that he will pay the old price while the difference will be shouldered by her. She
likewise admitted that the contract suffered arrearages because while Atty. Linsangan
issued the agreed checks, she was unable to give her share of P1,455.00 due to her own
financial difficulties. Baluyot even asked for compassion from MMPCI for the error she
committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as
MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer to
Purchase signed by Atty. Linsangan and MMPCI's authorized officer. The down payment
of P19,838.00 given by Atty. Linsangan was in accordance with the contract as well.
Payments of P3,235.00 for at least two installments were likewise in accord with the
contract, albeit made through a check and partly in cash. In view of Baluyot's failure to
give her share in the payment, MMPCI received only P1,800.00 checks, which were
clearly insufficient payment. In fact, Atty. Linsangan would have incurred arrearages that
could have caused the earlier cancellation of the contract, if not for MMPCI's application
of some of the checks to his account. However, the checks alone were not sufficient to
cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check
payments for being insufficient. It would not have applied to his account the P1,800.00
checks. Moreover, the fact that Baluyot had to practically explain to MMPCI's Sales
Manager the details of her "arrangement" with Atty. Linsangan and admit to having made
an error in entering such arrangement confirm that MMCPI had no knowledge of the said
agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was
fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i)
conduct of a party amounting to false representation or concealment of material facts or
at least calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or at
least expectation, that this conduct shall be acted upon by, or at least influence, the other
party; and (iii) knowledge, actual or constructive, of the real facts.51
While there is no more question as to the agency relationship between Baluyot and
MMPCI, there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to
believe that Baluyot had the authority to alter the standard contracts of the company.
Neither is there any showing that prior to signing Contract No. 28660, MMPCI had any
knowledge of Baluyot's commitment to Atty. Linsangan. One who claims the benefit of an
estoppel on the ground that he has been misled by the representations of another must
not have been misled through his own want of reasonable care and circumspection.52
Even assuming that Atty. Linsangan was misled by MMPCI's actuations, he still cannot
invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot,
and could have easily determined, had he only been cautious and prudent, whether said
agent was clothed with the authority to change the terms of the principal's written
contract. Estoppel must be intentional and unequivocal, for when misapplied, it can easily
become a most convenient and effective means of injustice.53 In view of the lack of
sufficient proof showing estoppel, we refuse to hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the
authority of defendant Baluyot may not have been expressly conferred upon her;
however, the same may have been derived impliedly by habit or custom which may have
been an accepted practice in their company in a long period of time." A perusal of the
records of the case fails to show any indication that there was such a habit or custom in
MMPCI that allows its agents to enter into agreements for lower prices of its interment
spaces, nor to assume a portion of the purchase price of the interment spaces sold at such
lower price. No evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No.
28660 between MMPCI and by Atty. Linsangan for the purchase of an interment space in
the former's cemetery. The other is the agreement between Baluyot and Atty. Linsangan
for the former to shoulder the amount P1,455.00, or the difference between P95,000.00,
the original price, and P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the
principal unless the latter ratifies the same. It also bears emphasis that when the third
person knows that the agent was acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If the said third person was aware of such
limits of authority, he is to blame and is not entitled to recover damages from the agent,
unless the latter undertook to secure the principal's ratification.54
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and
Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the
terms and conditions thereof. When Atty. Linsangan incurred delinquencies in payment,
MMCPI merely enforced its rights under the said contract by canceling the same.
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he
claims to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00
contract price is concerned, is void and cannot be enforced as against MMPCI. Neither can
he hold Baluyot liable for damages under the same contract, since there is no evidence
showing that Baluyot undertook to secure MMPCI's ratification. At best, the "agreement"
between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is
concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00
under Contract No. 28660, and had in fact received several payments in accordance with
the same contract. If the contract was cancelled due to arrearages, Atty. Linsangan's
recourse should only be against Baluyot who personally undertook to pay the difference
between the true contract price of P132,250.00 and the original proposed price of
P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised
to shoulder the said difference would be to conclude that MMPCI undertook to pay itself
the difference, a conclusion that is very illogical, if not antithetical to its business
interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to
recover damages from Baluyot, not as an agent of MMPCI, but in view of the latter's
breach of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00
in addition to Atty. Linsangan's P1,800.00 to complete the monthly installment payment
under the contract, which, by her own admission, she was unable to do due to personal
financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed
upon, and were it not for Baluyot's failure to provide the balance, Contract No. 28660
would not have been cancelled. Thus, Atty. Linsangan has a cause of action against
Baluyot, which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals
dated 22 June 2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802,
as well as the Decision in Civil Case No. 88-1253 of the Regional Trial Court, Makati City
Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-
1253 is DISMISSED for lack of cause of action. No pronouncement as to costs.
SO ORDERED.
8#
9

,# .
# 3 ,
$$ concur.
#$
1Promulgated by the Eighth Division, penned by Associate Justice Perlita J. Tria

Tirona, with Justices Eugenio S. Labitoria and Eloy R. Bello, Jr., concurring; Rollo.
pp. 91-98.
2 Id. at 101.
3 Id. at 92.
5 Id. at 247.
6 Id. at 128.
7Docketed as CV-88-1253, raffled to Regional Trial Court o Makati, Branch 27,

presided by Judge Arsenio Magpale. Id. at 1.
8 Id. at 247; the contract provides in part:
Time is of the essence of this agreement and Purchaser agrees that should
any of the foregoing payments, including accrued interest, remain unpaid
or should any of the covenants or conditions contained herein remain
unperformed by him for a period of 30 days after the same was to have
been paid or performed under this Offer to Purchase, Purchaser shall
forthwith and without demand be in default and in that event this
agreement shall, at the option of Seller, become automatically null and
void, and Seller may re-enter the above-described property and hold, sell,
or dispose the same without any liability to Purchaser, and retain all
payments made by Purchaser prior to such re-entry as liquidated
damages. Should Purchaser default in the payment of any one of the
above-stated downpayments or installments, then the entire obligation
shall automatically become due and demandable, and in that event, all
discounts and interest-free concessions previously granted shall be
deemed nullified and the discounts shall be added back to the above
purchase price and interest shall be charged at the rate of twenty-four
percent (24%) per annum on the declining balance. Purchaser further
agrees that waiver by Seller of any breach of any of the covenants or
conditions contained herein shall not be construed as a waiver of any
subsequent breach. Purchaser agrees that the exercise by the Seller of any
remedy to protect its rights shall not be a waiver of any other remedy by
law.
9 Rollo, p. 56.

11 Id. at 36.
12 Id. at 33.
13 Decision dated 27 February 1995, Rollo, pp. 156-161.
14 Id. at 160-161.
15 Id. at 161.
16 Docketed as CA- G.R. CV No.49802.
17 CA Records, pp. 190-191.
18 Rollo, pp. 207-218.
19 Id. at 220-227.
20 Id. at 95.
21 Id. at 96.
22 Id. at 97.
23 Id. at 97.
24 Id. at 136-152.
25 Id. at 154.
26 Id. at 58-60.
26 Id. at 60.
27 Id. at 277.
28 Id. at 273.
29 Id. at 280.
30 Tsai v. Court of Appeals, G.R. No. 120098, 2 October 2001, 366 SCRA 324, 335,
citing Congregation of the Religious of the Virgin Mary v. Court of Appeals, 291
SCRA 385 (1998).
31 422 Phil. 367 (2001).
32Id. at 378 citing Cebu Shipyard and Engineering Works, Inc. v. William Lines,
Inc., 366 Phil. 439 (1999), citing Misa v. Court of Appeals, 212 SCRA 217.
34 A. Tolentino, the Civil Code 396 (1992).
36 Art. IV of the Agency Manager Agreement provides in part :
Subject to the terms and conditions hereinafter set forth and effective as
of the date set forth above, the COMPANY authorizes AGENCY MANAGER
to solicit and remit to COMPANY offers to purchase interment spaces
belonging to and sold by the COMPANY. Such offers to purchase shall be
obtained on forms provided by the COMPANY which, on execution by a
duly authorized officer of the COMPANY, and not before, will bind the
COMPANY. (RTC Records, pp. 459.)
37 Id. at 247.
38 Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).
39Safic Alcan & Cie v. Imperial Vegetable Oil Co., Inc., G.R. No. 126751, 28 March
2001, 355 SCRA 559, 568, citations omitted.
40Bacaltos Coal Mines v. Court of Appeals, G.R. No. 114091, June 29, 1995, 245
SCRA 460, 467.
41 V. J. Francisco, Agency 265 (1952).
42 Id. citing 2 Am. Jur. 76-77
43 Supra note 38 at 467.
44 Supra note 34 citing Brownell v. Parreño, (C.A.) 54 Off. Gaz. 7419.
45J. Nolledo and Capistrano, The Philippine Law of Agency, 47 (1960) citing 2
C.J.S. 1081.
46 Id. at 47 citing Hutchinson Co. v. Gould, 181 p. 651, 180 Cal. 356.
47 Id. at 48.
49 Id. at 50.
50 Id. at 466.
51 Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 43-44 (2002( citing
Philippine National Bank v. Court of Appeals, 308 SCRA 229 (1999).
Mijares v. Court of Appeals, G.R. No. 113558, 338 Phil. 274, 286 (1997) citing 28
52
Am Jur 2d Estoppel § 80, citations omitted:
One who claims the benefit of an estoppel on the ground that he has been
misled by the representations of another must not have been misled
through his own want of reasonable care and circumspection. A lack of
diligence by a party claiming estoppel is generally fatal. If the party
conducts himself with careless indifference to means of information
reasonable at hand, or ignores highly suspicious circumstances, he may
not invoke the doctrine of estoppel. Good faith is generally regarded as
requiring the exercise of reasonable diligence to learn the truth, and
accordingly, estoppel is denied where the party claiming it was put on
inquiry as to the truth and had available means for ascertaining it, at least
where actual fraud has not been practiced on the party claiming the
estoppel ǥ
53Arcelona v. Court of Appeals, 345 Phil. 250 (1997) citing La Naval Drug
Corporation v. Court of Appeals, 236 SCRA 78 (1994).
54 Supra note 39 at 569 citing Cervantes v. Court of Appeals, 304 SCRA 25 (1999).

m
Manila
SECOND DIVISION

%+)?88

*mpetitioner,
vs.
44
m/#0+m
*!respondents.
p
Petitioner Cecilia U. Ledesma prays before this Court for the reversal of the Decision of the
respondent Court of Appeals of August 30, 1990 ordering the dismissal of her ejectment complaint
before the Manila Metropolitan Trial Court for lack of cause of action due to non-compliance with
Sections 6 and 9 of P.D. 1508 (Katarungang Pambarangay Law) as well as the Resolution of January
7, 1991 8denying petitioner's Motion for Reconsideration of said Decision.
The facts of this case as summarized by thepetitioner in her Memorandum are as follows:
Petitioner is the owner-lessor of an apartment building located at 800-802

Remedios Street, Malate, Manila. Two (2) units of said apartment building were
leased (now being unlawfully occupied) to private respondent at monthly rates of
P3,450.00 for the unit/apartment located at 800 Remedios Street, Malate, Manila
and P2,300.00 for the unit/apartment located at 802 Remedios Street, Malate,
Manila, respectively. . . .
Said lease was originally covered by written contracts of lease both dated December
10, 1984 and except for the rates and duration, the terms and conditions of said
contracts were impliedly renewed on a "month-to-month" basis pursuant to Article
1670 of the Civil Code.
One of the terms and conditions of the said Contract of Lease, that of monthly rental
payments, was violated by private respondent and that as of October 31, 1988, said
private respondent has incurred arrears for both units in the total sum of
P14,039.00 for which letters of demand were sent to, and received by, private
respondent.
Upon failure of private respondent to honor the demand letters, petitioner referred
the matter to the Barangay for conciliation which eventually issued a certification to
file action. Petitioner was assisted by her son, Raymond U. Ledesma, (who is not a
lawyer) during the barangay proceeding as she was suffering from recurring
psychological and emotional ailment as can be seen from the receipts and
prescriptions issued by her psychiatrist, copies of which are attached as Annexes "E-
E10" of the said Petition.
Due to the stubborn refusal of the private respondent to vacate the premises,
petitioner was constrained to retain the services of counsel to initiate this ejectment
proceeding.
The Metropolitan Trial Court, Branch 10, Manila, rendered a decision on June 21, 1989 ordering
private respondent to vacate the premises, to pay rentals falling due after May 1989 and to pay
attorney's fees in the amount of P2,500.00. % The Regional Trial Court of Manila, Branch IX, on
appeal, affirmed the MTC ruling except for the award of attorney's fees which it reduced to
P1,000.00.
Private respondent, however, found favor with the respondent Court of Appeals when he elevated
the case in a Petition for Review, when it ruled, thus:
IN VIEW WHEREOF, the Decision dated October 13, 1989 of the RTC of Manila, Br. IX
in Civil Case No. 89-49672 is reversed and set aside and the Complaint for Ejectment
against petitioner is dismissed for lack of cause of action. No costs.
Thus, this appeal, raising several assignments of error, namely, that the Court of Appeals erred Ȅ
1. In holding that private respondent raised the issue of non-compliance with

Sections 6 and 9 of P.D. 1508 in the lower court when in fact and in truth his answer
and position paper failed to do so, contrary to evidence on record;
2. In failing to consider that private respondent had waived his right to question the
lack of cause of action of the complaint, if there is any, contrary to law, established
jurisprudence, and evidence on record;
3. In giving undue weight and credence to the self-serving allegations of the private
respondent that summons was not served him, contrary to law, established
jurisprudence and evidence on record.
4. In disregarding the well-known principle of law that barangay authorities are

presumed to have performed their official duties and to have acted regularly in
issuing the certificate to file action and grossly and manifestly erred in making an
opposite conclusion to this effect, contrary to law, established jurisprudence and
evidence on record.
5. In not holding that the settlement was repudiated, contrary to law and evidence
on record.
6. In not affirming the judgment rendered by the Metropolitan Trial Court and
Regional Trial Court below.
Petitioner assails private respondent for raising the issue of non-compliance with Sections 6 and 9
of P.D. 1508 only in his petition for review with the appellate court and which mislead the court to
erroneously dismiss her complaint for ejectment.
Section 6 of P.D. 1508 states:
Sec. 6. #
& . Ȅ No complaint, petition,
action or proceeding involving any matter within the authority of the Lupon as
provided in Section 2 hereof shall be filed or instituted in court or any other
government office for adjudication unless there has been a confrontation of the
parties before the Lupon Chairman or the Pangkat and no conciliation or settlement
has been reached as certified by the Lupon Secretary or the Pangkat Secretary,
attested by the Lupon or Pangkat Chairman, or unless the settlement has been
repudiated. . . .
xxx xxx xxx
while Section 9 states that:

Sec. 9.

. Ȅ In all proceedings provided for herein, the
parties must appear in person without the assistance of counsel/representative,
with the exception of minors and incompetents who may be assisted by their next of
kin who are not lawyers.
Petitioner submits that said issue, not having been raised by private respondent in the court below,
cannot be raised for the first time on appeal, specially in the Court of Appeals, citing ".
.
. 9 Private respondent had waived said objection, following the line of reasoning in '
". +
#
.
Private respondent denies having waived the defenses of non-compliance with Sections 6 and 9 of
P.D. 1508. His Answer before the Metropolitan Trial Court, specifically paragraphs 4, 7, & 8,
substantially raised the fact of non-compliance by petitioner with Sections 6 and 9 of P.D. 1508 and
consequently, subjected petitioner's complaint to dismissal for lack of cause of action, to wit:
xxx xxx xxx
4. Answering defendant denies the allegations of paragraph 8, the truth of the

matter being that he was not duly summoned nor subpoenaed by the Barangay
Chairman, who issued the alluded certification, to appear for hearing.
xxx xxx xxx
7. Plaintiff has no cause of action against answering defendant.
8. The certification to file action (annex D of the complaint) was improperly or

irregularly issued as the defendant was never summoned nor subpoenaed by the
Barangay Chairman to appear for hearing in connection with the alleged complaint
of the plaintiff. In effect the mandatory provision of P.D. 1508 was not complied with
warranting the dismissal of the instant complaint.
xxx xxx xxx
We do not agree with petitioner that the issue of non-compliance with Sections 6 and 9 of P.D. 1508
was raised only for the first time in the Court of Appeals. When private respondent stated that he
was never summoned or subpoenaed by the Barangay Chairman, he, in effect, was stating that since
he was never summoned, he could not appear in person for the needed confrontation of the parties
before the Lupon Chairman for conciliation and/or amicable settlement. Without the mandatory
personal confrontation, no complaint could be filed with the MTC. Private respondent's allegation in
paragraph 4 of his Answer that he was never summoned or subpoenaed by the Barangay Chairman;
that plaintiff has no cause of action against him as alleged in paragraph 7 of the Answer; and that
the certification to file action was improperly issued in view of the foregoing allegations thereby
resulting in non-compliance with the mandatory requirements of P.D. No. 1508, as stated in
paragraph 8 of the Answer are in substantial compliance with the raising of said issues and/or
objections in the court below.
Petitioner would like to make it appear to this Court that she appeared before the Lupon Chairman
to confront private respondent. She stated in her Petition and her Memorandum 8 that:
Upon failure of private respondent to honor the demand letters, petitioner referred
the matter to the barangay for conciliation which eventually issued a certification to
file action. Petitioner was assisted by her son, Raymond U. Ledesma, (who is not a
lawyer) during the barangay proceeding as she was suffering from recurring
psychological and emotional ailment as can be seen from the receipt and
prescriptions issued by her psychiatrist copies of which are attached herewith as
Annexes
"E-E10."
However, as found out by the respondent court:
We agree with the petitioner that private respondent Cecile Ledesma failed to
comply with section 6 of P.D. 1508. The record of the case is barren showing
compliance by the private respondent. Indeed, the documentary evidence of the
private respondent herself attached to the complaint buttresses this conclusion.
They show that it is not the private respondent but her son. Raymund U. Ledesma,
and her lawyer, Atty. Epifania Navarro who dealt with the petitioner regarding their
dispute. Thus, the demand letter dated October 18, 1988 sent to the petitioner for
payment of rentals in the sum of P14,039.00 was signed by Raymund Ledesma. On
the other hand, the demand letter dated November 14, 1988 was signed by Atty.
Epifania Navarro. More telling is the Certification to File Action signed by Barangay
Chairman, Alberto A. Solis where it appears that the complainant is Raymund U.
Ledesma and not the private respondent.
As stated earlier, Section 9 of P.D. 1508 mandates personal confrontation of the parties because:
. . . a personal confrontation between the parties without the intervention of a

counsel or representative would generate spontaneity and a favorable disposition to
amicable settlement on the part of the disputants. In other words, the said
procedure is deemed conducive to the successful resolution of the dispute at the
barangay level. %
Petitioner tries to show that her failure to personally appear before the barangay Chairman was
because of her recurring psychological ailments. But for the entire year of 1988 Ȅ specifically
September to December 6 Ȅ there is no indication at all that petitioner went to see her psychiatrist
for consultation. The only conclusion is that 1988 was a lucid interval for petitioner. There was,
therefore, no excuse then for her non-appearance at the Lupon Chairman's office.
Petitioner, not having shown that she is incompetent, cannot be represented by counsel or even by
attorney-in-fact who is next of kin.
As explained by the Minister of Justice with whom We agree:
To ensure compliance with the requirement of personal confrontation between the

parties, and thereby, the effectiveness of the barangay conciliation proceedings as a
mode of dispute resolution, the above-quoted provision is couched in mandatory
language. Moreover, pursuant to the familiar maxim in statutory construction
dictating that ")
)
", the express exceptions made
regarding minors and incompetents must be construed as exclusive of all others not
mentioned. 9
Petitioner's non-compliance with Secs. 6 and 9 of P.D. 1508 legally barred her from pursuing the
ejectment case in the MTC of Manila. Having arrived at this conclusion, there is no need for Us to
discuss the other issues involved.
WHEREFORE, the questioned decision and resolution of the respondent Court are affirmed
with treble costs against petitioner.
SO ORDERED.
3
" #$ '& $$

#$
1 ' , p. 34.
2 ' , p. 50.
3 ' . pp. 115-117.
4 Decision of Manila RTC, Br. X, p. 34, ' .
5 Decision of Manila RTC, Br. IX, p. 34, ' .
6 CA-G.R. SP No. 19704 dated Aug. 30, 1990, penned by Justice Reynato S. Puno and
concurred in by Justice Jorge S. Imperial and Artemon D. Luna (' , p. 47).
7 44 O.G. 12, pp. 4892, 4894.
8 127 SCRA 470, 471, 474.
9 ' , p. 51.
10 ' , p. 52.
11 ' , p. 12.
12 ' , p. 116.
13 ' , p. 44.
14 Opinion No. 135, Minister of Justice, s. 1981.
15 Annexes E to E-10-2.

16 Section 9, P.D. 1508; Ramos vs. Court of Appeals, 174 SCRA 690, 695.
17 Opinion No. 135, Minister of Justice, s. 1981.
18 Section 4(d), P.D. 1508; Ramos vs. Court of Appeals, 174 SCRA 690, 695.
m* m
>

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"

[1]assailing the Decision[2] of the Court of Appeals (CA) in
CA-G.R. CV No. 42993 which reversed and set aside the Decision of the Regional Trial Court (RTC) of
Olongapo City, Branch 74, in Civil Case No. 558-0-88.
The instant case traces its origin to an action for partition filed by petitioners Felix Ting Ho, Jr.,
Merla Ting Ho Braden, Juana Ting Ho and Lydia Ting Ho Belenzo against their brother, respondent
Vicente Teng Gui, before the RTC, Branch 74 of Olongapo City. The controversy revolves around a
parcel of land, and the improvements established thereon, which, according to petitioners, should
form part of the estate of their deceased father, Felix Ting Ho, and should be partitioned equally
among each of the siblings.
In their complaint before the RTC, petitioners alleged that their father Felix Ting Ho died intestate
on June 26, 1970, and left upon his death an estate consisting of the following:
a) A commercial land consisting of 774 square meters, more or less, located at Nos. 16 and 18
Afable St., East Bajac-Bajac, Olongapo City, covered by Original Certificate of Title No. P-1064 and
Tax Declaration No. 002-2451;
b) A two-storey residential house on the aforesaid lot;
c) A two-storey commercial building, the first floor rented to different persons and the second floor,
Bonanza Hotel, operated by the defendant also located on the above described lot; and
d) A sari-sari store (formerly a bakery) also located on the above described lot.[3]
According to petitioners, the said lot and properties were titled and tax declared under trust in the
name of respondent Vicente Teng Gui for the benefit of the deceased Felix Ting Ho who, being a
Chinese citizen, was then disqualified to own public lands in the Philippines; and that upon the
death of Felix Ting Ho, the respondent took possession of the same for his own exclusive use and
benefit to their exclusion and prejudice.[4]
In his answer, the respondent countered that on October 11, 1958, Felix Ting Ho sold the
commercial and residential buildings to his sister-in-law, Victoria Cabasal, and the bakery to his
brother-in-law, Gregorio Fontela.[5] He alleged that he acquired said properties from the respective
buyers on October 28, 1961 and has since then been in possession of subject properties in the
concept of an owner; and that on January 24, 1978, Original Certificate of Title No. P-1064 covering
the subject lot was issued to him pursuant to a miscellaneous sales patent granted to him on
January 3, 1978.[6]
The undisputed facts as found by the trial court (RTC), and affirmed by the appellate court (CA), are
as follows:
[T]he plaintiffs and the defendant are all brothers and sisters, the defendant being the oldest. They
are the only legitimate children of the deceased Spouses Felix Ting Ho and Leonila Cabasal. Felix
Ting Ho died on June 26, 1970 while the wife Leonila Cabasal died on December 7, 1978. The
defendant Vicente Teng Gui is the oldest among the children as he was born on April 5, 1943. The
father of the plaintiffs and the defendant was a Chinese citizen although their mother was Filipino.
That sometime in 1947, the father of the plaintiffs and defendant, Felix Ting Ho, who was already
then married to their mother Leonila Cabasal, occupied a parcel of land identified to (sic) as Lot No.
18 Brill which was thereafter identified as Lot No. 16 situated at Afable Street, East Bajac-Bajac,
Olongapo City, by virtue of the permission granted him by the then U.S. Naval Reservation Office,
Olongapo, Zambales. The couple thereafter introduced improvements on the land. They built a
house of strong material at 16 Afable Street which is a commercial and residential house and
another building of strong material at 18 Afable Street which was a residential house and a bakery.
The couple, as well as their children, lived and resided in the said properties until their death. The
father, Felix Ting Ho had managed the bakery while the mother managed the sari-sari store. #
.$<'$-$0$/-<$)(,(#46-0($0#+#$89-$$,$2$0#2.$'
/*$$0<.)$m/)$</-$<'#1/$'(/))2/$0/</.)$m'$$
)#/&!/1./)$&$2(<(2/))?0$2'(.$0(#/,*$2

%8(#</;'< (2'(//.//)
-(($'(#)/6A,-
B
This Deed of Sale cancelled the Tax Dec. of Felix Ting Ho over the said
building (Exh. C-1) and the building was registered in the name of the buyer Victoria Cabasal, as per
Tax Dec. No. 7579 (Exh. C-2). #-$/1$0/$2.$'-$/(0$)(,(#4/)
)0/.()0(#<'#1/$'(/))2/$0/</.)$m'$$0$2'(.$0(#/,*$2

8
(#</;'< '$'(#$)/<)$/)/$/#1$'(2/#2((D$#1/''($0A,-
*B
This Deed of
Sale, in effect, cancelled Tax Dec. No. 5982 and the same was registered in the name of the buyer
Gregorio Fontela, as per Tax Dec. No. 7580 (Exh. D-2). #'# (2'(//.//)/#0-$'-./#0
'$'(#$)/)0 (2$#$$# (#2.$'8-$.()0(#6-(2-6$'$
.-.?-$1<'1$)(,(#4/#0-$('/,0$2)/'/(#<'-$.()0(#-$?.-
A,-
8/#0*8B6$'$/22'0(#)?2/#2$))$0/#0-$/(0.()0(#6$'$'$($'$0(#-$
#/1$<-$0$<$#0/# (2$#$$# (A,-
/#0*B
On October 25, 1966 the father of
the parties Felix Ting Ho executed an Affidavit of Transfer, Relinquishment and Renouncement of
Rights and Interest including Improvements on Land in favor of his eldest son the defendant
Vicente Teng Gui. On the basis of the said document the defendant who then chose Filipino
citizenship filed a miscellaneous sales application with the Bureau of Lands. (2$))/#$m/)$
/$#
9%9<-$)/#06-(2-6/-$#(0$#(<($0.$
%2#((#<
99%3/'$1$$'6/($0-$/&&)(2/# (2$#$$# (/#0/22'0(#)?#-$8%-
<+/#/'?9'((#/)$'(<(2/$<()$
%2;$'(#-$)(#3$(#6/
($0-$0$<$#0/# (2$#$$# (
Although the buildings and improvements on the land
in question were sold by Felix Ting Ho to Victoria Cabasal and Gregorio Fontela in 1958 and who in
turn sold the buildings to the defendant in 1961 the said Felix Ting Ho and his wife remained in
possession of the properties as Felix Ting Ho continued to manage the bakery while the wife
Leonila Cabasal continued to manage the sari-sari store. During all the time that the alleged
buildings were sold to the spouses Victoria Cabasal and Gregorio Fontela in 1958 and the
subsequent sale of the same to the defendant Vicente Teng Gui in October of 1961 the plaintiffs and
the defendant continued to live and were under the custody of their parents until their father Felix
Ting Ho died in 1970 and their mother Leonila Cabasal died in 1978.[7] (Emphasis supplied)
In light of these factual findings, the RTC found that Felix Ting Ho, being a Chinese citizen and the
father of the petitioners and respondent, resorted to a series of simulated transactions in order to
preserve the right to the lot and the properties thereon in the hands of the family. As stated by the
trial court:
After a serious consideration of the testimonies given by both one of the plaintiffs and the
defendant as well as the documentary exhibits presented in the case, the Court is inclined to believe
that Felix Ting Ho, the father of the plaintiffs and the defendant, and the husband of Leonila Cabasal
thought of preserving the properties in question by transferring the said properties to his eldest
son as he thought that he cannot acquire the properties as he was a Chinese citizen. To transfer the
improvements on the land to his eldest son the defendant Vicente Teng Gui, he first executed
simulated Deeds of Sales in favor of the sister and brother-in-law of his wife in 1958 and after three
(3) years it was made to appear that these vendees had sold the improvements to the defendant
Vicente Teng Gui who was then 18 years old. The Court finds that these transaction (sic) were
simulated and that no consideration was ever paid by the vendees.
xxx xxx xxx
With regards (sic) to the transfer and relinquishment of Felix Ting Ho's right to the land in question
in favor of the defendant, the Court believes, that although from the face of the document it is stated
in absolute terms that without any consideration Felix Ting Ho was transferring and renouncing his
right in favor of his son, the defendant Vicente Teng Gui, still the Court believes that the transaction
was one of implied trust executed by Felix Ting Ho for the benefit of his family...[8]
Notwithstanding such findings, the RTC considered the Affidavit of Transfer, Relinquishment and
Renouncement of Rights and Interests over the land as a donation which was accepted by the
donee, the herein respondent. With respect to the properties in the lot, the trial court held that
although the sales were simulated, pursuant to Article 1471 of the New Civil Code[9] it can be
assumed that the intention of Felix Ting Ho in such transaction was to give and donate such
properties to the respondent. As a result, it awarded the entire conjugal share of Felix Ting Ho in
the subject lot and properties to the respondent and divided only the conjugal share of his wife
among the siblings. The dispositive portion of the RTC decision decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant as
the Court orders the partition and the adjudication of the subject properties, Lot 418, Ts-308,
specifically described in original Certificate of Title No. P-1064 and the residential and commercial
houses standing on the lot specifically described in Tax Decs. Nos. 9179 and 9180 in the name of
Vicente Teng Gui in the following manner, to wit: To the defendant Vicente Teng Gui is adjudicated
an undivided six-tenth (6/10) of the aforementioned properties and to each of the plaintiffs Felix
Ting Ho, Jr., Merla Ting-Ho Braden, Juana Ting and Lydia Ting Ho-Belenzo each an undivided one-
tenth (1/10) of the properties...[10]
From this decision, both parties interposed their respective appeals. The petitioners claimed that
the RTC erred in awarding respondent the entire conjugal share of their deceased father in the lot
and properties in question contrary to its own finding that an implied trust existed between the
parties. The respondent, on the other hand, asserted that the RTC erred in not ruling that the lot
and properties do not form part of the estate of Felix Ting Ho and are owned entirely by him.
On appeal, the CA reversed and set aside the decision of the RTC. The appellate court held that the
deceased Felix Ting Ho was never the owner and never claimed ownership of the subject lot since
he is disqualified under Philippine laws from owning public lands, and that respondent Vicente
Teng Gui was the rightful owner over said lot by virtue of Miscellaneous Sales Patent No. 7457
issued in his favor, ",:
-$0$2$/$0$)(,(#4&)/(#(<<K/#00$<$#0/#K)/$</-$'6/#$;$'-$6#$'<
-$.7$2)#6(0$#(<($0/
%2;$'$0.?
%A,-
G
$2'0&
%B
/$0.?$)(,(#4#)$(#-$N<<(0/;(<'/#<$'
$)(#3(-1$#/#0$##2$1$#<(-/#0#$'$N$2
A,-
]"$2'0&
9B
$,$2$0#2.$'8-$-$)/$$)(,(#46/1$'$)?/&$''22&/#
<-$.7$2)N.?;('$</&$'1((#'/#$0
.?-$-$#
m
/;/)$$';/(#
<<(2$)#/&!/1./)$N
The late Felix Ting Ho was never the owner and never claimed
ownership of the land. (Emphasis supplied)
The affidavit, Exhibit B, was subscribed and sworn to before a Land Investigator of the Bureau of
Lands and in the said affidavit, the late Felix Ting Ho expressly acknowledged that because he is a
Chinese citizen he is not qualified to purchase public lands under Philippine laws for which reason
he thereby transfers, relinquishes and renounces all his rights and interests in the subject land,
including all the improvements thereon to his son, the defendant Vicente Teng Gui, who is of legal
age, single, Filipino citizen and qualified under the public land law to acquire lands.
xxx xxx xxx
*$<$#0/# (2$#$$# (/23('$0-$.7$2)/#0.?/)$&/$#'&'2-/$<'1-$

;$'#1$#/#0#<'1-(</-$'-$)/$$)(,(#4
It cannot be said that he acquired or
bought the land in trust for his father because on December 5, 1977 when the subject land was sold
to him by the government and on January 3, 1978 when Miscellaneous Sales Patent No. 7457 was
issued, the late Felix Ting Ho was already dead, having died on June 6, 1970 (TSN, January 10, 1990,
p. 4).[11]
Regarding the properties erected over the said lot, the CA held that the finding that the sales of the
two-storey commercial and residential buildings and sari-sari store to Victoria Cabasal and
Gregorio Fontela and subsequently to respondent were without consideration and simulated is
supported by evidence, which clearly establishes that these properties should form part of the
estate of the late spouses Felix Ting Ho and Leonila Cabasal.
Thus, while the appellate court dismissed the complaint for partition with respect to the lot in
question, it awarded the petitioners a four-fifths (4/5) share of the subject properties erected on
the said lot. The dispositive portion of the CA ruling reads as follows:
WHEREFORE, premises considered, the decision appealed from is REVERSED and SET ASIDE and
NEW JUDGMENTrendered:
1.Y DISMISSING plaintiff-appellants' complaint with respect to the subject parcel of land,
identified as Lot No. 418, Ts-308, covered by OCT No. P-1064, in the name of plaintiff-
appellants [should be defendant-appellant];
2.Y DECLARING that the two-storey commercial building, the two-storey residential building
and sari-sari store (formerly a bakery), all erected on the subject lot No. 418, Ts-308, form
part of the estate of the deceased spouses Felix Ting Ho and Leonila Cabasal, and that
plaintiff-appellants are entitled to four-fifths (4/5) thereof, the remaining one-fifth (1/5)
being the share of the defendant-appellant;
3.Y DIRECTING the court ! to partition the said two-storey commercial building, two-storey
residential building and sari-sari store (formerly a bakery) in accordance with Rule 69 of
the Revised Rules of Court and pertinent provisions of the Civil Code;
4.Y Let the records of this case be remanded to the court of origin for further proceedings;
5.Y Let a copy of this decision be furnished the Office of the Solicitor General; and
6.Y There is no pronouncement as to costs.
SO ORDERED.[12]
Both petitioners and respondent filed their respective motions for reconsideration from this ruling,
which were summarily denied by the CA in its Resolution[13] dated August 5, 1997. Hence, this
petition.
According to the petitioners, the CA erred in declaring that Lot No. 418, Ts-308 does not form part
of the estate of the deceased Felix Ting Ho and is owned alone by respondent. Respondent, on the
other hand, contends that he should be declared the sole owner not only of Lot No. 418, Ts-308 but
also of the properties erected thereon and that the CA erred in not dismissing the complaint for
partition with respect to the said properties.
The primary issue for consideration is whether both Lot No. 418, Ts-308 and the properties erected
thereon should be included in the estate of the deceased Felix Ting Ho.
We affirm the CA ruling.
With regard to Lot No. 418, Ts-308, Article XIII, Section 1 of the 1935 Constitution states:
Section 1. ))/'(2)'/)(1.$'/#01(#$'/))/#0<-$&.)(201/(#, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential energy and other natural resources of
the Philippines.$)#-$m/$/#0-$('0(&((#$,&)(/(#0$;$)&1$#'
()(D/(#-/)).$)(1($02((D$#<-$-()(&&(#$'2'&'/(#'/2(/(#/
)$/(,?&$'2$#1<-$2/&(/)<6-(2-(6#$0.?2-2((D$#subject to any existing
right, grant, lease, or concession at the time of the inauguration of the Government established
under this Constitution... (Emphasis supplied9
Our fundamental law cannot be any clearer. The right to acquire lands of the public domain is
reserved for Filipino citizens or corporations at least sixty percent of the capital of which is owned
by Filipinos. Thus, in :'(;$#F;
$($'<*$$0[14]the Court enunciated that:
...$'-/&-$$<<$2<'2#'2(#(&'$2)0$/)($#/01($0<'$$)?(#-$
-()(&&(#$<'16#(#($6-$'$-$?1/?.()0-$('-1$
](<-((-$)$1#
1/#0/$<-$#((#6$6())#/$1&21&'1($($;$#(#-$#/1$</1(?
'$3(?
We are satisfied, however, that aliens are not completely excluded by the Constitution
from the use of lands for residential purposes. Since their residence in the Philippines is temporary,
they may be granted temporary rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and share our fortunes and misfortunes,
Filipino citizenship is not impossible to acquire.[15]
In the present case, the father of petitioners and respondent was a Chinese citizen; therefore, he
was disqualified from acquiring and owning real property in the Philippines. In fact, he was only
occupying the subject lot by virtue of the permission granted him by the then U.S. Naval
Reservation Office of Olongapo, Zambales. As correctly found by the CA, the deceased Felix Ting Ho
was never the owner of the subject lot in light of the constitutional proscription and the respondent
did not at any instance act as the dummy of his father.
On the other hand, the respondent became the owner of Lot No. 418, Ts-308 when he was granted
Miscellaneous Sales Patent No. 7457 on January 3, 1978, by the Secretary of Natural Resources "By
Authority of the President of the Philippines," and when Original Certificate of Title No. P-1064 was
correspondingly issued in his name. The grant of the miscellaneous sales patent by the Secretary of
Natural Resources, and the corresponding issuance of the original certificate of title in his name,
show that the respondent possesses all the qualifications and none of the disqualifications to
acquire alienable and disposable lands of the public domain. These issuances bear the presumption
of regularity in their performance in the absence of evidence to the contrary.
Registration of grants and patents involving public lands is governed by Section 122 of Act No. 496,
which was subsequently amended by Section 103 of Presidential Decree No. 1529, ",@
Sec. 103. $'(<(2/$<()$&'/#&/$#.--Whenever public land is by the Government
alienated, granted or conveyed to any person, the same shall be brought forthwith under the
operation of this Decree. It shall be the duty of the official issuing the instrument of alienation,
grant, patent or conveyance in behalf of the Government to cause such instrument to be filed with
the Register of Deeds of the province or city where the land lies, and to be there registered like
other deeds and conveyance, whereupon a certificate of title shall be entered as in other cases of
registered land, and an owner's duplicate issued to the grantee. The deeds, grant, patent or
instrument of conveyance from the Government to the grantee shall not take effect as a conveyance
or bind the land, but shall operate only as a contract between the Government and the grantee and
as evidence of authority to the Register of Deeds to make registration. It is the act of registration
that shall be the operative act to affect and convey the land, and in all cases under this Decree
registration shall be made in the office of the Register of Deeds of the province or city where the
land lies. The fees for registration shall be paid by the grantee. <$'0$'$('/(#/#0
(/#2$<-$2$'(<(2/$<()$2-)/#0-/)).$0$$1$0.$'$($'$0)/#0/))
(#$#/#0&'&$#0$'-(*$2'$$
[16](Emphasis supplied)
Under the law, a certificate of title issued pursuant to any grant or patent involving public land is as
conclusive and indefeasible as any other certificate of title issued to private lands in the ordinary or
cadastral registration proceeding. The effect of the registration of a patent and the issuance of a
certificate of title to the patentee is to vest in him an incontestable title to the land, in the same
manner as if ownership had been determined by final decree of the court, and the title so issued is
absolutely conclusive and indisputable, and is not subject to collateral attack.[17]
Nonetheless, petitioners invoke equity considerations and claim that the ruling of the RTC that an
implied trust was created between respondent and their father with respect to the subject lot
should be upheld.
This contention must fail because the prohibition against an alien from owning lands of the public
domain is absolute and not even an implied trust can be permitted to arise on equity
considerations.
In the case of ))$';

))$'[18] wherein the respondent, a German national, was seeking
reimbursement of funds claimed by him to be given in trust to his petitioner wife, a Philippine
citizen, for the purchase of a property in Antipolo, the Court, in rejecting the claim, ruled that:
Respondent was aware of the constitutional prohibition and expressly admitted his knowledge
thereof to this Court. He declared that he had the Antipolo property titled in the name of the
petitioner because of the said prohibition. His attempt at subsequently asserting or claiming a right
on the said property cannot be sustained.
-$'<&&$/)$''$0(#-)0(#-//#(1&)($0'6/2'$/$0/#0'$)$0.?
&$'/(#<)/6(#;($6<&$((#$'K1/''(/$'$&#0$#
m/;$<'-$$,2$&(#
&';(0$0(#2/$<-$'$0(/'?22$(#'$&#0$#K0(3/)(<(2/(#<'16#(#)/#0
(#-$-()(&&(#$(/.)$
$;$#/#6#$'-(&(#'(/))6$0
Besides, where the
purchase is made in violation of an existing statute and in evasion of its express provision, no trust
can result in favor of the party who is guilty of the fraud. To hold otherwise would allow
circumvention of the constitutional prohibition.
Invoking the principle that a court is not only a court of law but also a court of equity, is likewise
misplaced. It has been held that equity as a rule will follow the law and will not permit that to be
done indirectly which, because of public policy, cannot be done directly...[19]
Coming now to the issue of ownership of the properties erected on the subject lot, the Court agrees
with the finding of the trial court, as affirmed by the appellate court, that the series of transactions
resorted to by the deceased were simulated in order to preserve the properties in the hands of the
family. The records show that during all the time that the properties were allegedly sold to the
spouses Victoria Cabasal and Gregorio Fontela in 1958 and the subsequent sale of the same to
respondent in 1961, the petitioners and respondent, along with their parents, remained in
possession and continued to live in said properties.
However, the trial court concluded that:

In fairness to the defendant, although the Deeds of Sale executed by Felix Ting Ho regarding the
improvements in favor of Victoria Cabasal and Gregorio Fontela and the subsequent transfer of the
same by Gregorio Fontela and Victoria Cabasal to the defendant are all simulated, yet, &'/#
'(2)$%9<-$$6(;()0$(2/#.$/1$0-/-$(#$#(#<$)(,(#4(#
2-'/#/2(#6/(;$/#00#/$-$(1&';$1$#-($)0$#-$0$<$#0/#
(2$#$$# (... [20]
Its finding was based on Article 1471 of the Civil Code, which provides that:
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality
a donation, or some other act or contract.[21]
The Court holds that the reliance of the trial court on the provisions of Article 1471 of the Civil Code
to conclude that the simulated sales were a valid donation to the respondent is misplaced because
its finding was based on a 1$'$/1&(# when the law requires positive proof.
The respondent was unable to show, and the records are bereft of any evidence, that the simulated
sales of the properties were intended by the deceased to be a donation to him. Thus, the Court holds
that the two-storey residential house, two-storey residential building and sari-sari store form part
of the estate of the late spouses Felix Ting Ho and Leonila Cabasal, entitling the petitioners to a
four-fifths (4/5) share thereof.
==4, the petition is **. The assailed Decision dated December 27, 1996 of the
Court of Appeals in CA-G.R. CV No. 42993 is hereby *.
m**
#
#
, and (
*#
$$ concur.
[1] Under Rule 45 of the 1997 Rules of Civil Procedure.
' pp. 49-62; penned by Associate Justice Eduardo G. Montenegro, concurred in by Associate
[2]
Justices Antonio M. Martinez and Celia Lipana-Reyes.
[3] +at 78.
[4] +at 78-79.
[5] +at 79.
[6] + at 80.
[7] + at 53-55.
[8] + at 84-85.
[9] Article 1471 of the Civil Code provides:
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality
a donation, or some other act or contract.
[10] ' p. 86.
[11] + at 55-57 (emphasis supplied).
[12] ' , pp. 60-61.
[13] CA Records, p. 235.
[14] 79 Phil. 461 (1947).
[15] +at 474 (emphasis supplied).
[16] Property Registration Decree, P.D. No. 1529, Â§ 103.
This rule does not apply where the land covered by a patent issued by the Government had
[17]
previously been determined in a registration proceeding and adjudicated in favor of a private

individual other than the patentee, which situation is not present in this case.
[18] G.R. No. 149615, August 29, 2006, 500 SCRA 65.
[19] + at 68.
[20] ' , pp. 85-86 (emphasis supplied).
[21] Civil Code, Art. 1471.

m
Manila
m** m

8*$2$1.$'%8
*
] petitioner,
vs.
m
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m /#04
m respondents.
C m ] p
This petition for review on certiorari seeks to annul the decision dated March 4, 1997,1 of the Court
of Appeals in CA-G.R. CV No. 32817, which reversed and set aside the judgment dated October 17,
1990,2 of the Regional Trial Court of Manila, Branch 54, in Civil Case No.87-41515, finding herein
petitioner to be the owner of 1/3
"share in a parcel of land. ¢¢G
The pertinent facts of the case, as borne by the records, are as follows:
Jose T. Santiago owned a parcel of land covered by TCT No. 64729, located in Rizal Avenue
Extension, Sta. Cruz, Manila. Alleging that Jose had fraudulently registered it in his name alone, his
sisters Nicolasa and Amanda (now respondents herein) sued Jose for recovery of 2/3 share of the
property.3 On April 20, 1981, the trial court in that case decided in favor of the sisters, recognizing
their right of ownership over portions of the property covered by TCT No. 64729. The Register of
Deeds of Manila was required to include the names of Nicolasa and Amanda in the certificate of title
to said property.4
Jose died intestate on February 6, 1984. On August 5, 1987, respondents filed a complaint for
recovery of title, ownership, and possession against herein petitioner, Ida C. Labagala, before the
Regional Trial Court of Manila, to, recover from her the 1/3 portion of said property pertaining to
Jose but which came into petitioner's sole possession upon Jose's death.
Respondents alleged that Jose's share in the property belongs to them by operation of law, because
they are the only legal heirs of their brother, who died intestate and without issue. They claimed
that the purported sale of the property made by their brother to petitioner sometime in March
19795 was executed through petitioner's machinations and with malicious intent, to enable her to
secure the corresponding transfer certificate of title (TCT No. 1723346) in petitioner's name alone.7
Respondents insisted that the deed of sale was a forgery .The deed showed that Jose affixed his
thumbmark thereon but respondents averred that, having been able to graduate from college, Jose
never put his thumb mark on documents he executed but always signed his name in full. They
claimed that Jose could not have sold the property belonging to his "poor and unschooled sisters
who. ..sacrificed for his studies and personal welfare."8 Respondents also pointed out that it is
highly improbable for petitioner to have paid the supposed consideration of P150,000 for the sale
of the subject property because petitioner was unemployed and without any visible means of
livelihood at the time of the alleged sale. They also stressed that it was quite unusual and
questionable that petitioner registered the deed of sale only on January 26, 1987, or almost eight
years after the execution of the sale.9
On the other hand, petitioner claimed that her true name is not Ida C. Labagala as claimed by
respondent but Ida C. Santiago. She claimed not to know any person by the name of Ida C. Labagala.
She claimed to be the daughter of Jose and thus entitled to his share in the subject property. She
maintained that she had always stayed on the property, ever since she was a child. She argued that
the purported sale of the property was in fact a donation to her, and that nothing could have
precluded Jose from putting his thumbmark on the deed of sale instead of his signature. She pointed
out that during his lifetime, Jose never acknowledged respondents' claim over the property such
that respondents had to sue to claim portions thereof. She lamented that respondents had to
disclaim her in their desire to obtain ownership of the whole property.
Petitioner revealed that respondents had in 1985 filed two ejectment cases against her and other
occupants of the property. The first was decided in her and the other defendants' favor, while the
second was dismissed. Yet respondents persisted and resorted to the present action.
Petitioner recognized respondents' ownership of 2/3 of the property as decreed by the RTC. But
she averred that she caused the issuance of a title in her name alone, allegedly after respondents
refused to take steps that would prevent the property from being sold by public auction for their
failure to pay realty taxes thereon. She added that with a title issued in her name she could avail of a
realty tax amnesty.
On October 17, 1990, the trial court ruled in favor of petitioner, decreeing thus:
WHEREFORE, judgment is hereby rendered recognizing the plaintiffs [herein respondents]

as being entitled to the ownership and possession each of one-third (1/3) pro indiviso share
of the property originally covered by Transfer Certificate of Title No. 64729, in the name of
Jose T. Santiago and presently covered by Transfer Certificate of Title No. 172334, in the
name of herein defendant [herein petitioner] and which is located at No. 3075-A Rizal
Avenue Extension, Sta. Cruz, Manila, as per complaint, and the adjudication to plaintiffs per
decision in Civil Case No. 56226 of this Court, Branch VI, and the remaining one-third (1/3)
pro indiviso share adjudicated in said decision to defendant Jose T. Santiago in said case, is
hereby adjudged and adjudicated to herein defendant as owner and entitled to possession
of said share. The Court does not see fit to adjudge damages, attorney's fees and costs. Upon
finality of this judgment, Transfer Certificate of Title No. 172334 is ordered cancelled and a
new title issued in the names of the two (2) plaintiffs and the defendant as owners in equal
shares, and the Register of Deeds of Manila is so directed to effect the same upon payment
of the proper fees by the parties herein.
SO ORDERED.10
According to the trial court, while there was indeed no consideration for the deed of sale executed
by Jose in favor of petitioner, said deed constitutes a valid donation. Even if it were not, petitioner
would still be entitled to Jose's 1/3 portion of the property as Jose's daughter. The trial court ruled
that the following evidence shows petitioner to be the daughter of Jose: (1) the decisions in the two
ejectment cases filed by respondents which stated that petitioner is Jose's daughter, and (2) Jose's
income tax return which listed petitioner as his daughter. It further said that respondents knew of
petitioner's existence and her being the daughter of Jose, per records of the earlier ejectment cases
they filed against petitioner. According to the court, respondents were not candid with the court in
refusing to recognize petitioner as Ida C. Santiago and insisting that she was Ida C. Labagala, thus
affecting their credibility.
Respondents appealed to the Court of Appeals, which reversed the decision of the trial court.
WHEREFORE, the appealed decision is REVERSED and one is entered declaring the
appellants Nicolasa and Amanda Santiago the co-owners in equal shares of the one-third
(1/3) pro indiviso share of the late Jose Santiago in the land and building covered by TCT
No. 172334. Accordingly, the Register of Deeds of Manila is directed to cancel said title and
issue in its place a new one reflecting this decision.
SO ORDERED.
Apart from respondents' testimonies, the appellate court noted that the birth certificate of Ida
Labagala presented by respondents showed that Ida was born of different parents, not Jose and his
wife. It also took into account the statement made by Jose in Civil Case No. 56226 that he did not
have any child.
Hence, the present petition wherein the following issues are raised for consideration:
1. Whether or not petitioner has adduced preponderant evidence to prove that she is the daughter
of the late Jose T. Santiago, and
2. Whether or not respondents could still impugn the filiation of the petitioner as the daughter of
the late Jose T. Santiago.
Petitioner contends that the trial court was correct in ruling that she had adduced sufficient
evidence to prove her filiation by Jose Santiago, making her his sole heir and thus entitled to inherit
his 1/3 portion. She points out that respondents had, before the filing of the instant case, previously
"considered"11 her as the daughter of Jose who, during his lifetime, openly regarded her as his
legitimate daughter. She asserts that her identification as Jose's daughter in his ITR outweighs the
"strange" answers he gave when he testified in Civil Case No. 56226.
Petitioner asserts further that respondents cannot impugn her filiation collaterally, citing the case
of "#
12in which we held that "(t)he legitimacy of (a) child can be impugned
only in a direct action brought for that purpose, by the proper parties and within the period limited
by law."13 Petitioner also cites Article 263 of the Civil Code in support of this contention.14
For their part, respondents contend that petitioner is not the daughter of Jose, per her birth
certificate that indicates her parents as Leo Labagala and Cornelia Cabrigas, instead of Jose Santiago
and Esperanza Cabrigas.15 They argue that the provisions of Article 263 of the Civil Code do not
apply to the present case since this is not an action impugning a child's legitimacy but one for
recovery of title, ownership, and possession of property .
The issues for resolution in this case, to our mind, are (1) whether or not respondents may impugn
petitioner's filiation in this action for recovery of title and possession; and (2) whether or not
petitioner is entitled to Jose's 1/3 portion of the property he co-owned with respondents, through
succession, sale, or donation.
On the first issue, we find petitioner's reliance on Article 263 of the Civil Code to be misplaced. Said
article provides:
.Art. 263. The action to impugn the legitimacy of the child shall be brought within one year
from the recording of the birth in the Civil Register, if the husband should be in the same
place, or in a proper case, any of his heirs.
If he or his heirs are absent, the period shall be eighteen months if they should reside in the
Philippines; and two years if abroad. If the birth of the child has been concealed, the term
shall be counted from the discovery of the fraud.
This article should be read in conjunction with the other articles in the same chapter on paternity
and filiation in the Civil Code. A careful reading of said chapter would reveal that it contemplates
situations where a doubt exists that a child is indeed a man's child by his wife, and the husband (or,
in proper cases, his heirs) denies the child's filiation. It does not refer to situations where a child is
alleged not to be the child at all of a particular couple.16
Article 263 refers to an action to impugn the & of a child, to assert and prove that a person
is not a man's child by his wife. However, the present case is not one impugning petitioner's
legitimacy. Respondents are asserting not merely that petitioner is not a legitimate child of Jose, but
that she is not a child of Jose at all.17 Moreover, the present action is one for recovery of title and
possession, and thus outside the scope of Article 263 on prescriptive periods.
Petitioner's reliance on is likewise improper. The factual milieu present in does not
obtain in the instant case. What was being challenged by petitioners in was (1) the validity
of the adoption of Delia and Edmundo by the deceased Teodoro and Isabel Sayson, and (2) the
legitimate status of Doribel Sayson. While asserting that Delia and Edmundo could not have been
validly adopted since Doribel had already been born to the Sayson couple at the time, petitioners at
the same time made the conflicting claim that Doribel was not the child of the couple. The Court
ruled in that case that it was too late to question the decree of adoption that became final years
before. Besides, such a challenge to the validity of the adoption cannot be made collaterally but in a
direct proceeding.18
In this case, respondents are not assailing petitioner's legitimate status but are, instead, asserting
that she is not at all their brother's child. The birth certificate presented by respondents support
this allegation.
We agree with the Court of Appeals that:
The Certificate. of Record of Birth (Exhibit H)19 plainly states that... Ida was the child of the
spouses Leon Labagala and [Cornelia] Cabrigas. This document states that it was Leon
Labagala who made the report to the Local Civil Registrar and therefore the supplier of the
entries in said Certificate. Therefore, this certificate is proof of the filiation of Ida. Appellee
however denies that Exhibit H is her Birth Certificate. She insists that she is not Ida Labagala
but Ida Santiago. If Exhibit H is not her birth certificate, then where is hers? She did not
present any though it would have been the easiest thing to do considering that according to
her baptismal certificate she was born in Manila in 1969. This court rejects such denials and
holds that Exhibit H is the certificate of the record of birth of appellee Ida...
Against such evidence, the appellee Ida could only present her testimony and a baptismal
certificate (Exhibit 12) stating that appellee's parents were Jose Santiago and Esperanza
Cabrigas. But then, a decisional rule in evidence states that a baptismal certificate is not a
proof of the parentage of the baptized person. This document can only prove the identity of
the baptized, the date and place of her baptism, the identities of the baptismal sponsors and
the priest who administered the sacrament -- nothing more.20 (Citations omitted.)
At the pre-trial conducted on August 11, 1988, petitioner's counsel admitted that petitioner did not
have a birth certificate indicating that she is Ida Santiago, though she had been using this name all
her life.21
Petitioner opted not to present her birth certificate to prove her relationship with Jose and instead
offered in evidence her baptismal certificate.22 However, as we held in :

# "#

:
...a baptismal certificate is evidence only to prove the administration of the sacrament on
the dates therein specified, but not the veracity of the declarations therein stated with
respect to [a person's] kinsfolk. The same is conclusive only of the baptism administered,
according to the rites of the Catholic Church, by the priest who baptized subject child, but it
does not prove the veracity of the declarations and statements contained in the certificate
concerning the relationship of the person baptized.23
A baptismal certificate, a private document, is not conclusive proof of filiation.24 More so are the
entries made in an income tax return, which only shows that income tax has been paid and the
amount thereof.25
We note that the trial court had asked petitioner to secure a copy of her birth certificate but
petitioner, without advancing any reason therefor, failed to do so. Neither did petitioner obtain a
certification that no record of her birth could be found in the civil registry, if such were the case. We
find petitioner's silence concerning the absence of her birth certificate telling. It raises doubt as to
the existence of a birth certificate that would show petitioner to be the daughter of Jose Santiago
and Esperanza Cabrigas. Her failure to show her birth certificate would raise the presumption that
if such evidence were presented, it would be adverse to her claim. Petitioner's counsel argued that
petitioner had been using Santiago all her life. However, use of a family name certainly does not
establish pedigree.
Further, we note that petitioner, who claims to be Ida Santiago, has the same birthdate as Ida
Labagala.26 The similarity is too uncanny to be a mere coincidence.
During her testimony before the trial court, petitioner denied knowing Cornelia Cabrigas, who was
listed as the mother in the birth certificate of Ida Labagala. In her petition before this Court,
however, she stated that Cornelia is the sister of her mother, Esperanza. It appears that petitioner
made conflicting statements that affect her credibility and could cast along shadow of doubt on her
claims of filiation.
Thus, we are constrained to agree with the factual finding of the Court of Appeals that petitioner is
in reality the child of Leon Labagala and Cornelia Cabrigas, and contrary to her averment, not of
Jose Santiago and Esperanza Cabrigas. Not being a child of Jose, it follows that petitioner can not
inherit from him through intestate succession. It now remains to be seen whether the property in
dispute was validly transferred to petitioner through sale or donation.
On the validity of the purported deed of sale, however, we agree with the Court of Appeals that:
...This deed is shot through and through with so many intrinsic defects that a reasonable
mind is inevitably led to the conclusion that it is fake. The intrinsic defects are extractable
from the following questions: a) If Jose Santiago intended to donate the properties in
question to Ida, what was the big idea of hiding the nature of the contract in the facade of
the sale? b) If the deed is a genuine document, how could it have happened that Jose
Santiago who was of course fully aware that he owned only 1/3
"of the
properties covered by his title sold or donated the whole properties to Ida? c) Why in
heaven's name did Jose Santiago, a college graduate, who always signed his name in
documents requiring his signature (citation omitted) [affix] his thumbmark on this deed of
sale? d) If Ida was [the] child of Jose Santiago, what was the sense of the latter donating his
properties to her when she would inherit them anyway upon his death? e) Why did Jose
Santiago affix his thumbmark to a deed which falsely stated that: he was single (for he was
earlier married to Esperanza Cabrigas ); Ida was of legal age (for [ s ]he was then just 15
years old); and the subject properties were free from liens and encumbrances (for Entry No.
27261, Notice of Adverse Claim and Entry No. 6388, Notice of Lis Pendens were already
annotated in the title of said properties). If the deed was executed in 1979, how come it
surfaced only in 1984 after the death of Jose Santiago and of all people, the one in
possession was the baptismal sponsor of Ida?27
Clearly, there is no valid sale in this case. Jose did not have the right to transfer ownership of the
entire property to petitioner since 2/3 thereof belonged to his sisters.28 Petitioner could not have
given her consent to the contract, being a minor at the time.29 Consent of the contracting parties is
among the essential requisites of a contract,30 including one of sale, absent which there can be no
valid contract. Moreover, petitioner admittedly did not pay any centavo for the property,31 which
makes the sale void. Article 1471 of the Civil Code provides:
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in
reality a donation, or some other act or contract.
Neither may the purported deed of sale be a valid deed of donation. Again, as explained by the Court
of Appeals:
...Even assuming that the deed is genuine, it cannot be a valid donation. It lacks the
acceptance of the donee required by Art. 725 of the Civil Code. Being a minor in 1979, the
acceptance of the donation should have been made by her father, Leon Labagala or [her]
mother Cornelia Cabrigas or her legal representative pursuant to Art. 741 of the same Code.
No one of those mentioned in the law - in fact no one at all - accepted the "donation" for
Ida.32
In sum, we find no reversible error attributable to the assailed decision of the Court of Appeals,
hence it must be upheld. ¢¢G
=4the petition is **and the decision of the Court of Appeals in CA-G.R. CY No.
32817 is *
m**
#$
1 Rollo, pp. 51-56.
2 +at 23-33.
3Civil Case No. 56226, lodged before the then Court of First Instance of Manila, Branch 6
(Records, p. 9). In the TSN, the case no. is listed as 56626. See Exhibit G to G-11, records, pp.
165-176.
4 Records, p. 17. .
5The purported deed of sale is dated "- day of February, 1979" but was notarized on March
19, 1979. See records, pp. 147-148; TSN, June 29,1989, p. 19.
6 Records, p. 161.
7 +. at 3,18.
8 +at 4.
9 +at 3-4, 18.
10 Rollo, pp. 32-33.
11+at 17.
12 G.R. Nos. 89224-25, 205 SCRA 321 (1992).
13 Rollo, p. 18. v. #

at 328.
14 The present controversy arose prior to the effectivity of the Family Code.
15 Esperanza and Cornelia were sisters. See rollo, p. 16.
16See %, % "#

, G.R. No. 105625, 229 SCRA 468, 473 (1994). This
case deals with Articles 164, 166, 170, and 171 of the Family Code. Article 263 of the Civil
Code is now Article 170 of the Family Code.
17 Cabatbat-Lim v. Intermediate Appellate Court, No. L-69679, 166 SCRA 451, 457 (1988).
18 "#

note 12, at 326-328.
19 Records, p. 179.
20 Rollo, pp. 52-53.
21 TSN, August 11, 1988, p. 10.
22 Exhibit 10.
23 :

# "#
, G.R. Nos. 106314-15, 316 SCRA 338, 344 (1999),
citing ( & &"#
, No. L-49542, 100 SCRA 73, 84 (1980).
24 +at 343.
25 Exhibit 11.
26 TSN, June 29, 1989, p. 3.
27 Rollo, pp. 54-55.
31 TSN, June 29, 1989, pp. 17, 25.
32 Rollo, pp. 54-55. Articles 725 and 741 of the Civil Code state:
Art. 725. Donation is an act of liberality whereby a person disposes gratuitously of a

thing or right in favor of another, who accepts it.
Art. 741. Minors and others who cannot enter into a contract may become donees
but acceptance shall be done through their parents or legal representatives.

m
Manila
EN BANC

88+/#/'?98
* ]:44 mplaintiff-appellee,

vs.

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m m * m * /#0 defendants-
appellants.
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Appeal from the decision of the Court of First Instance of Manila in its Civil Case No. 56037
sentencing appellants to jointly and severally pay to the appellee Development Bank of the
Philippines the sum of P1,648,591.45, claimed by the said Bank to be the deficiency or unpaid
balance of appellants' overdue obligation under certain agricultural and industrial loans it had
granted to appellants after applying to the said loans the proceeds of the extrajudicial foreclosure
and public auction sale of the properties mortgaged to secure their payment, plus attorney's fees
and costs.
It appears that on April 12, 1947 and December 15, 1947, the appellee Development Bank of the
Philippines (then known as the Rehabilitation Finance Corporation) granted agricultural loans in
the amounts of P120,000.00 and P22,000.00, respectively, in favor of one Sebastian Moll, Sr. who, to
secure the payment of said loans, mortgaged in favor of the appellee Bank fourteen (14) parcels of
land Ȅ comprising the property known as "Hacienda Moll" Ȅ covered by certificates of title and
tax declarations issued by the land registry of the province of Camarines Sur. Said Sebastian Moll,
Sr. having subsequently died, his heirs (appellants) executed on May 14, 1949 an extrajudicial
partition of his estate, including the properties above-mentioned, adjudicating the same to
themselves, albeit binding themselves, jointly and severally, to assume payment of the
indebtedness of the deceased with the appellee Bank; and starting from the said date, appellants
themselves applied for and were granted by the appellee Bank new and additional loans, to wit:
May 14, 1949 Ȅ an industrial loan of P150,000.00; May 28, 1951 Ȅ an additional agricultural loan
of P100,000.00; and May 31, 1951 Ȅ another industrial loan of P580,000.00. The additional
agricultural loan was granted by the appellee Bank on the security of the same properties already
mortgaged to the appellee Bank by appellants' predecessor in interest, earlier stated; while the new
industrial loans were secured by mortgages on machineries, equipment and some other real estate.
Appellants thereafter failed to comply with the terms of the loan contracts as they fell due.
Consequently, the above-mentioned mortgages on their properties were extrajudicially foreclosed
under the provisions of Act 3135, as amended; and in the public auction sale thereof subsequently
conducted by the Provincial Sheriff of Camarines Sur on June 30, 1962, the 14 parcels of land
mortgaged to secure payment of the agricultural loans and the machineries, equipment and other
real estate mortgaged to secure payment of the industrial loans were awarded in favor of the
appellee Bank Ȅ as the sole and highest bidder Ȅ for the amounts of P176,174.50 and P19,750.00,
respectively, which were accordingly applied to the payment of the corresponding portions of the
said loans.
As the proceeds of the foreclosure sales aforesaid were not sufficient to cover the loan indebtedness
of appellants, the appellee Bank then instituted the present case in the Court of First Instance of
Manila on January 23, 1964, for the purpose of recovering so the complaint alleges, the sums of
P173,117.55, on account of the agricultural loans, and P1,475,473.90, on account of the industrial
loans, which it claims to be the outstanding balances or deficiencies under the two types of loans
obtained by appellants.
In their answer, appellants admit the existence of their indebtedness to the appellee Bank under the
loan contracts mentioned in the latter's complaint; but they deny and dispute, among others, the
deficiency claims of the appellee Bank, contending at the same time, by way of affirmative and
special defenses, that the extrajudicial foreclosure and public auction sales of the properties
mortgaged had been carried out by the sheriff irregularly and improperly in violation of the
pertinent provisions of Rule 39 of the Rules of Court and had thus resulted in the sale for
unconscionable prices of their mortgaged properties which, according to appellants' own estimate,
have a total actual value of not less than P5,000,000.00.
It appears, further, that the corresponding deeds and certificates of sale issued in favor of the
appellee Bank in consequence of the disputed foreclosure proceeding and public auction sales were
registered with the Register of Deeds concerned only on November 11, 1964 and December 7, 1964
Ȅ some ten (10) months later than the commencement of the present action for collection of the
deficiency claim of the appellee Bank. .
After trial, the court below rendered the decision appealed from which, as stated earlier in the
opening paragraph hereof, sustains the above-mentioned deficiency claims of the appellee
Development Bank of the Philippines. .
In this appeal, appellants assail the said judgment thus: .
"I. THE HONORABLE COURT A QUO ERRED IN NOT SETTING ASIDE THE ALLEGED
AUCTION SALE ON JUNE 30,1962, OF THE MORTGAGED PROPERTIES BY THE
DEFENDANTS-APPELLANTS TO THE PLAINTIFF-APPELLEE, ON THE GROUND
THAT THE SELLING AUCTION PRICES OF SAID PROPERTIES WERE UNJUST,
DISPROPORTIONATE AND UNCONSCIONABLE IN THE LIGHT OF THE FAIR AND
CURRENT MARKET VALUE OF THE SAME PROPERTIES AT THE TIME OF SAID
AUCTION SALE. .
"II. THE HONORABLE COURT âAÄ ERRED IN NOT DISMISSING THE COMPLAINT
AT BAR FOR RECOVERY OF A DEFICIENCY CLAIM, ON THE GROUND THAT SAID
COMPLAINT WAS OR IS, PREMATURE, FOR THE REASON THAT IT HAD BEEN FILED
DURING THE PERIOD OF LEGAL REDEMPTION GRANTED BY LAW TO
DEFENDANTS-APPELLANTS AS MORTGAGE-DEBTORS." .
The thrust of appellants' argument in respect of the first assignment of error is to the effect that if in
1947 and 1951 when the agricultural and industrial loans herein involved were obtained by
appellants, the appellee Bank, after due inspection and appraisal of the securities they offered
therefor, had granted them a total agricultural loan of P242,000.00 upon the security of the 14
parcels of land they mortgaged and a total industrial loan of P770,000.00 upon the security of other
lands and machineries and equipment they also mortgaged, hence, it is inconceivable that after the
lapse of more than ten years and the fast and steadily increasing real estate values these past years,
the same properties would command, in the extrajudicial foreclosure sales conducted by the
provincial sheriff of Camarines Sur in 1962, only the measly sums of P176,174.50 and P19,750.00,
respectively, considering that pursuant to consistent banking practice, the aforesaid amounts of
loans granted would represent only 60% of the actual and current market value of the securities at
the time of the grant of said loans. In short, it is the position of appellants that the foreclosure sales
aforesaid should be set aside because "the total auction selling price of P195,924.50 for both the
collateral securities to the agro-industrial loans, is so inadequate, disproportionate and shocking to
conscience." .
It does appear that the purchase prices in question are considerably out of proportion to the
possible actual market value of appellants' securities. Considering, however, that the impugned
sales were made subject to appellants' right of redemption, the following ruling in ("
' #

,sufficiently disposes of their contention: .
In support of their second assignment of error, the Sorianos maintain that the sum
of P10,000.00, for which the Parañaque property was sold to the RFC, is ridiculously
inadequate, considering that said property had been assessed at P59,647.05. This
presense is devoid of merit, for said property was subject to redemption and:
... where there is the right to redeem ... Ȅ inadequacy of price should not be
material, because the judgment debtor may re-acquire the property or else sell his
right to redeem and thus recover any loss he claims to have suffered by reason of
the price obtained at the execution sale (Barrozo vs. Macaraig, 83 Phil. 378, 381,
Emphasis Ours.)
Then, again, as the trial court had correctly observed:
But, mere inadequacy of the price obtained at the sheriff's sale unless shocking to
the conscience will not be sufficient to set aside the sale if there is no showing that,
in the event of a regular sale, a better price can be obtained. The reason is that,
generally, and, in forced sales, low prices are usually offered (1 Moran's Rules of
Court, 834-835). Considering that in Gov't. of P.I. vs. Soriano, G.R. No. 32196,
wherein property worth P120,000.00 was sold for only P15,000.00, in Philippine
National Bank vs. Gonzales, 45 Phil. 693, wherein property valued at P45,000.00
was sold for P15,000.00 and in Cu Unjieng & Sons v. Mabalacat Sugar Co., 58 Phil.
439, property worth P300,000.00 to P400,000.00 was sold for P177,000.00, the
Court cannot consider the sale of the Bacolod properties, the Taft Avenue house and
lot and the Parañaque property of the Sorianos null and void for having been sold at
inadequate prices shocking to the conscience and there being no showing that in the
event of a resale, better prices can be obtained.'
This ruling was reiterated in the more recent case of De Leon vs. Salvador, et al.,8
... (w)hile in ordinary sales for reasons of equity a transaction may be invalidated on
the ground of inadequacy of price, or when such inadequacy shocks one's
conscience as to justify the courts to interfere, such does not follow when the law
gives to the owner the right to redeem, as when a sale is made at public auction,
upon the theory that the lesser the price the easier it is for the owner to effect the
redemption. And so it was aptly said: "When there is the right to redeem,
inadequacy of price should not be material, because the judgment debtor may
reacquire the property or also sell his right to redeem and thus recover the loss he
claims to have suffered by reason of the price obtained at the auction sale.
At this juncture, it may not be amiss to make it clear that appellants' period to redeem the
properties sold in the extrajudicial foreclosure sales in question is one year, "computed from the
date of the registration of the certificates of sales of the mortgaged properties," since registered
lands are involved in this case, and, as explained lately by this Court in Quimson, et al. vs. Philippine
National Bank, 3 "this Court has uniformly ruled that redemption from execution sales under
ordinary judgments pursuant to Section 30, Rule 39 of the Rules of Court should be made within
twelve (12) months from the registration of the same and We have uniformly applied the same rule
to sales upon extrajudicial foreclosure of registered lands.".
On the other hand, it may also be stressed that actions seeking to set aside auction sales do not toll
the running of the period of redemption; and this We have to emphasize now, if only to forestall the
possibility of the parties' coming up here in the future and praying for a definite ruling on the
matter. This question was resolved in

,"*" % L-23764,
December 26, 1967, 21 SCRA 1374, thus: .
Under the second assignment of error, plaintiffs maintain that the period of one (1)
year to redeem the property in question was suspended by the institution of Case
No. 29306 (commenced by Sumerariz and his wife against the DBP and the Sheriff of
Manila to set aside the foreclosure sale involved therein) on March 26, 1956, or
three (3) days before the expiration of said period. We have not found, however, any
statute or decision in support of this pretense. Moreover, up to now plaintiffs have
not exercised the right of redemption. Indeed, although they have intimated their
wish to redeem the property in question, they have not deposited the amount
necessary therefor. It may not be amiss to note that, unlike Section 30 of Rule 39 of
the Rules of Court, which permits the extension of the period of redemption of
mortgaged properties, (Enage vs. Vda. e Hijas de F. Escano, 38 Phil. 657) Section 3 of
Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which
governs the redemption of property mortgaged to the Bank, does not contain a
similar provision (Nepomuceno vs. Rehabilitation Finance Corporation, L-14897,
November 23, 1960). Again this question has been definitely settled by the decision
in the previous case declaring that plaintiffs' right of redemption has already been
extinguished in view of their failure to exercise it within the statutory period.
Perforce then We must hold that the foreclosure sales here involved cannot be set aside on the
ground, vigorously alleged by appellants, that the prices obtained therein are grossly inadequate
and unconscionable. Corollarily, We do not deem it necessary to discuss further and rule upon
appellants' claim that the foreclosure sales referred to were improperly and irregularly conducted
by the provincial sheriff of Camarines Sur because the latter sold the mortgaged properties here
involved in mass and within a single day, although the record appears to be bereft of any concrete
showing, other than appellants' claim that better prices could had been obtained for the said
mortgaged securities had the above-mentioned provincial sheriff conducted the sales in question
otherwise.%
Anent appellants' second assignment of error to the effect that the present case was prematurely
instituted on the ground that an action for recovery of an alleged deficiency claim cannot be legally
entertained during the period of redemption, appellants argue in their brief (pp. 16-18), as follows:
.
In the case at bar, the suit to recover deficiency claim was instituted on January 23,
1964, (page 1 Record on Appeal), but, the Certificate of Sale by the Provincial Sheriff
of Camarines Sur in connection with the auction sale of the collateral securities on
the industrial loans was registered in the Office of the Register of Deeds of said
province on November 11, 1964, and, the Certificate of Sale of said provincial sheriff
in connection with the auction sale of the collateral securities on the agricultural
loans, was registered in the same office on December 7, 1964. Therefore, the present
action for recovery of deficiency claim was filed even before the registration of both
Certificates of Sale, as shown by Exhibit '2' for appellants (pp. 33-34, Record on
Appeal). As the running of the period of one year of the right of redemption
commenced from the date and/or dates of registration of the Certificate of Sale, it is
too clear and unassailable that the filing of the case at bar on January 23, 1964, was
improper and premature. For indeed, the filing of a suit for recovery of a deficiency
claim before the commencement or, during the period of the right of redemption,
constitutes a clever anticipation that the auction sale arising from the effects of
extrajudicial foreclosure had been conducted with all the earmarks of validity, even
if it were not. Suppose an auction sale were declared illegal due to irregularities and
violation of the mandate of the law, what would be the effect of such
pronouncement in an action for deficiency claim when such action has no legal
basis? If a suit for recovery of a deficiency judgment or deficiency claim is a legal
consequence of an auction sale arising from judicial or extrajudicial foreclosure,
then such suit should await for the expiration period of the right of redemption
within which period, precisely, the redemptioner may ordinarily institute an action
to assail the manner with which the auction sale was conducted. ... .
In the case of % #

"*
,We held: .
"A reading of the provisions of Act No. 3135, as amended (re extrajudicial foreclosure) discloses
nothing, it is true, as to the mortgagee's right to recover such deficiency. But neither do we find any
provision thereunder which expressly or impliedly prohibits such recovery. .
Article 2131 of the new Civil Code, on the contrary, expressly provides that "The
form, extent and consequences of a mortgage, both as to its constitution,
modification and extinguishment, and as to other matters not included in this
Chapter, shall be governed by the provisions of the Mortgage Law and of the Land
Registration Law." Under the Mortgage Law, which is still in force, the mortgagee
has the right to claim for the deficiency resulting from the price obtained in the sale
of the real property at public auction and the outstanding obligation at the time of
the foreclosure proceedings. (See Soriano vs. Enriquez, 24 Phil. 584; Banco de Islas
Filipinas v. Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101).
Under the Rules of Court (Sec. 6, Rule 70), "Upon the sale of any real property, under
an order for a sale to satisfy a mortgage or other incumbrance thereon, if there be a
balance due to the plaintiff after applying the proceeds of the sale, the court, upon
motion, should render a judgment against the defendant for any such balance for
which, by the record of the case, he may be personally liable to the plaintiff,... ." It is
true that this refers to a judicial foreclosure, but the underlying principle is the
same, that the mortgage is but a security and not a satisfaction of indebtedness. ... .
Under the provisions of section 6 of Rule 70 Ȅ now section 6 of Rule 68 of the revised Rules of
Court Ȅ above-cited, it is expressly provided that "if there be a balance due to the plaintiff after
applying the proceeds of the sale, the court, upon motion, shall render judgment against the
defendant for any such balance for which, by the record of the case, he may be personally liable to
the plaintiff, upon which execution may issue immediately if the balance is all due at the time of the
rendition of the judgment." Said provisions are equivalent to those of section 260 of the old Code of
Civil Procedure, under which it was held in a case,"that in order that a decree for any balance for
which the mortgagor may be personally liable to the mortgagee may be issued, it is necessary that
the sale of the mortgaged real property has been made according to the decree for said sale to
satisfy the judgment; that there has remained a balance due the mortgagee after applying the
proceeds of the sale to the debt; (and) that the mortgagee presents a motion for the issuance of a
decree for said balance", while in another case, 7 it was said that "Section 260 requires the
rendition and entry of a judgment for the deficiency against the defendant, who shall be personally
liable to the plaintiff, and execution may issue on said judgment at once." We believe it is apparent
from the provisions and decisions above-quoted that once the auction sale of the mortgaged
property is effected and the resulting deficiency in the mortgage debt is ascertained, the mortgagee-
creditor is then and there entitled to secure a deficiency judgment which may immediately be
executed, whether or not the mortgagor is still entitled to redeem the property sold. We hold then
that appellants' right to redeem their auctioned properties could not be a bar to the present action
of appellee to recover the deficiencies which it claims to have resulted after applying the proceeds
of the foreclosure sales here involved in payment of appellants' mortgage debt. .
WHEREFORE, the decision appealed from is affirmed, with costs against appellants.
##$'$%( / "

$$

#

$$

#$
1 L-24571. December 18, 1970, 36 SCRA 289, 302.
2 L-30871, December 28, 1970, 36 SCRA 567, 579-580.
3 L-24920, November 24, 1970, 36 SCRA 26, 32.
4 See Villar vs. Paderanga, 97 Phil. 604, 608, where it was said that "the rule that
real property, consisting of several lost, should be sold separately, applies to sales in
execution (Rule 39, section 19) and not to foreclosure of mortgages."
5 L-18816, December 29, 1962, 6 SCRA 1026, 1029.
6 Gov't. of P.I. vs. Torralba Vda. de Santos, 61 Phil. 689, 691.
7 Soriano vs. Enriquez, 24 Phil. 584, 593.
FIRST DIVISION
[G.R. No. 126376. November 20, 2003]
SPOUSES BERNARDO BUENAVENTURA and CONSOLACION JOAQUIN, SPOUSES JUANITO EDRA and
NORA JOAQUIN, SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and NATIVIDAD JOAQUIN,

" COURT OF APPEALS, SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO,
SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, SPOUSES TOMAS JOAQUIN and SOLEDAD
ALCORAN, SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES, SPOUSES ALEXANDER
MENDOZA and CLARITA JOAQUIN, SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN,
SPOUSES DANILO VALDOZ and FE JOAQUIN, and SPOUSES GAVINO JOAQUIN and LEA ASIS,
.
DECISION
CARPIO, $.:
The Case

to annul the Decision dated 26 June 1996 of the Court of
Appeals in CA-G.R. CV No. 41996. The Court of Appeals affirmed the Decision dated 18 February
1993 rendered by Branch 65 of the Regional Trial Court of Makati (ǲtrial courtǳ) in Civil Case No.
89-5174. The trial court dismissed the case after it found that the parties executed the Deeds of
Sale for valid consideration and that the plaintiffs did not have a cause of action against the
defendants.
The Facts
The Court of Appeals summarized the facts of the case as follows:
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita,
Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children are joined in this
action by their respective spouses.
Sought to be declared null and void ab initio are certain deeds of sale of real property executed by
defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children
and the corresponding certificates of title issued in their names, to wit:
1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan (LRC) Psd-256395 executed on
11 July 1978, in favor of defendant Felicitas Joaquin, for a consideration of P6,000.00 (Exh. ǲCǳ),
pursuant to which TCT No. [36113/T-172] was issued in her name (Exh. ǲC-1ǳ);
2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan (LRC) Psd-256394 executed on 7
June 1979, in favor of defendant Clarita Joaquin, for a consideration of P1[2],000.00(Exh. ǲDǳ),
pursuant to which TCT No. S-109772 was issued in her name (Exh. ǲD-1ǳ);
3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan (LRC) Psd-256394 executed on 12
May 1988, in favor of defendant spouses Fidel Joaquin and Conchita Bernardo, for a consideration
of P54,[3]00.00 (Exh. ǲEǳ), pursuant to which TCT No. 155329 was issued to them (Exh. ǲE-1ǳ);
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan (LRC) Psd-256394 executed on 12
May 1988, in favor of defendant spouses Artemio Joaquin and Socorro Angeles, for a consideration
of P[54,3]00.00 (Exh. ǲFǳ), pursuant to which TCT No. 155330 was issued to them (Exh. ǲF-1ǳ); and
5. Absolute Sale of Real Property covering Lot 168-C-4 of subdivision plan (LRC) Psd-256395
executed on 9 September 1988, in favor of Tomas Joaquin, for a consideration of P20,000.00 (Exh.
ǲGǳ), pursuant to which TCT No. 157203 was issued in her name (Exh. ǲG-1ǳ).
[6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan (LRC) Psd-256395 executed on 7
October 1988, in favor of Gavino Joaquin, for a consideration of P25,000.00 (Exh. ǲKǳ), pursuant to
which TCT No. 157779 was issued in his name (Exh. ǲK-1ǳ).]
In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs,
in their complaint, aver:
- XX-
The deeds of sale, Annexes ǲC,ǳ ǲD,ǳ ǲE,ǳ ǲF,ǳ and ǲG,ǳ [and ǲKǳ] are simulated as they are, are NULL
AND VOID AB INITIO because Ȃ
a) Firstly, there was no actual valid consideration for the deeds of sale xxx over the
properties in litis;
b) Secondly, assuming that there was consideration in the sums reflected in the
questioned deeds, the properties are more than three-fold times more valuable than
the measly sums appearing therein;
c) Thirdly, the deeds of sale do not reflect and express the true intent of the parties
(vendors and vendees); and
d) Fourthly, the purported sale of the properties in litis was the result of a deliberate
conspiracy designed to unjustly deprive the rest of the compulsory heirs (plaintiffs
herein) of their legitime.
- XXI -
Necessarily, and as an inevitable consequence, Transfer Certificates of Title Nos. 36113/T-172, S-

109772, 155329, 155330, 157203 [and 157779] issued by the Registrar of Deeds over the
properties in litis xxx are NULL AND VOID AB INITIO.
Defendants, on the other hand aver (1) that plaintiffs do not have a cause of action against them as
well as the requisite standing and interest to assail their titles over the properties in litis; (2) that
the sales were with sufficient considerations and made by defendants parents voluntarily, in good
faith, and with full knowledge of the consequences of their deeds of sale; and (3) that the
certificates of title were issued with sufficient factual and legal basis. (Emphasis in the original)
The Ruling of the Trial Court

Before the trial, the trial court ordered the dismissal of the case against defendant spouses Gavino
Joaquin and Lea Asis. Instead of filing an Answer with their co-defendants, Gavino Joaquin and Lea
Asis filed a Motion to Dismiss. In granting the dismissal to Gavino Joaquin and Lea Asis, the trial
court noted that ǲcompulsory heirs have the right to a legitime but such right is contingent since
said right commences only from the moment of death of the decedent pursuant to Article 777 of the
Civil Code of the Philippines.ǳ
After trial, the trial court ruled in favor of the defendants and dismissed the complaint. The trial
court stated:
In the first place, the testimony of the defendants, particularly that of the xxx father will show that
the Deeds of Sale were all executed for valuable consideration. This assertion must prevail over the
negative allegation of plaintiffs.
And then there is the argument that plaintiffs do not have a valid cause of action against defendants
since there can be no legitime to speak of prior to the death of their parents. The court finds this
contention tenable. In determining the legitime, the value of the property left at the death of the
testator shall be considered (Art. 908 of the New Civil Code). Hence, the legitime of a compulsory
heir is computed as of the time of the death of the decedent. Plaintiffs therefore cannot claim an
impairment of their legitime while their parents live.
All the foregoing considered, this case is DISMISSED.
In order to preserve whatever is left of the ties that should bind families together, the counterclaim
is likewise DISMISSED.
No costs.
SO ORDERED.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the decision of the trial court. The appellate court ruled:
To the mind of the Court, appellants are skirting the real and decisive issue in this case, which is,
whether xxx they have a cause of action against appellees.
Upon this point, there is no question that plaintiffs-appellants, like their defendant brothers and
sisters, are compulsory heirs of defendant spouses, Leonardo Joaquin and Feliciana Landrito, who
are their parents. However, their right to the properties of their defendant parents, as compulsory
heirs, is merely inchoate and vests only upon the latterǯs death. While still alive, defendant parents
are free to dispose of their properties, provided that such dispositions are not made in fraud of
creditors.
Plaintiffs-appellants are definitely not parties to the deeds of sale in question. Neither do they claim
to be creditors of their defendant parents. Consequently, they cannot be considered as real parties
in interest to assail the validity of said deeds either for gross inadequacy or lack of consideration or
for failure to express the true intent of the parties. In point is the ruling of the Supreme Court in
Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:
The plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily
bound thereby; hence, they have no legal capacity to challenge their validity.
Plaintiffs-appellants anchor their action on the supposed impairment of their legitime by the
dispositions made by their defendant parents in favor of their defendant brothers and sisters. But,
as correctly held by the court a quo, ǲthe legitime of a compulsory heir is computed as of the time of
the death of the decedent. Plaintiffs therefore cannot claim an impairment of their legitime while
their parents live.ǳ
With this posture taken by the Court, consideration of the errors assigned by plaintiffs-appellants is
inconsequential.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with costs against plaintiffs-
appellants.
SO ORDERED.
Issues
Petitioners assign the following as errors of the Court of Appeals:
1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE IN QUESTION HAD
NO VALID CONSIDERATION.
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN ASSUMING THAT THERE WAS A
CONSIDERATION, THE SAME IS GROSSLY INADEQUATE.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE DEEDS OF SALE DO NOT
EXPRESS THE TRUE INTENT OF THE PARTIES.
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE CONVEYANCE WAS PART AND
PARCEL OF A CONSPIRACY AIMED AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF
THE SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF THEIR INTEREST OVER THE
SUBJECT PROPERTIES.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONERS HAVE A GOOD,
SUFFICIENT AND VALID CAUSE OF ACTION AGAINST THE PRIVATE RESPONDENTS.
We find the petition without merit.
We will discuss petitionersǯ legal interest over the properties subject of the Deeds of Sale before
discussing the issues on the purported lack of consideration and gross inadequacy of the prices of
the Deeds of Sale.
>

" &

"

. *
Petitionersǯ Complaint betrays their motive for filing this case. In their Complaint, petitioners
asserted that the ǲpurported sale of the properties in litis was the result of a deliberate conspiracy
designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime.ǳ
Petitionersǯ strategy was to have the Deeds of Sale declared void so that ownership of the lots
would eventually revert to their respondent parents. If their parents die still owning the lots,
petitioners and their respondent siblings will then co-own their parentsǯ estate by hereditary
succession.
It is evident from the records that petitioners are interested in the properties subject of the Deeds
of Sale, but they have failed to show any legal right to the properties. The trial and appellate courts
should have dismissed the action for this reason alone. An action must be prosecuted in the name
of the real party-in-interest.
[T]he question as to ǲreal party-in-interestǳ is whether he is ǲthe party who would be benefitted or
injured by the judgment, or the Ǯparty entitled to the avails of the suit.ǯǳ
xxx
In actions for the annulment of contracts, such as this action, the real parties are those who are
parties to the agreement or are bound either principally or subsidiarily or are prejudiced in their
rights with respect to one of the contracting parties and can show the detriment which would
positively result to them from the contract even though they did not intervene in it (Ibañez v.
Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.
These are parties with ǲa present substantial interest, as distinguished from a mere expectancy or
future, contingent, subordinate, or consequential interestǥ. The phrase Ǯpresent substantial
interestǯ more concretely is meant such interest of a party in the subject matter of the action as will
entitle him, under the substantive law, to recover if the evidence is sufficient, or that he has the
legal title to demand and the defendant will be protected in a payment to or recovery by him.ǳ
Petitioners do not have any legal interest over the properties subject of the Deeds of Sale. As the
appellate court stated, petitionersǯ right to their parentsǯ properties is merely inchoate and vests
only upon their parentsǯ death. While still living, the parents of petitioners are free to dispose of
their properties. In their overzealousness to safeguard their future legitime, petitioners forget that
theoretically, the sale of the lots to their siblings does not affect the value of their parentsǯ estate.
While the sale of the lots reduced the estate, cash of equivalent value replaced the lots taken from
the estate.
>
*
"

Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds
of Sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void.
A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a
contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If
there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the
manner of payment, or even the breach of that manner of payment. If the real price is not stated in
the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of
the minds of the parties as to the price, because the price stipulated in the contract is simulated,
then the contract is void. Article 1471 of the Civil Code states that if the price in a contract of sale is
simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract of sale. Payment of the
price has nothing to do with the perfection of the contract. Payment of the price goes into the
performance of the contract. Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or cancellation of the
obligation under an existing valid contract while the latter prevents the existence of a valid
contract.
Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated. To prove
simulation, petitioners presented Emma Joaquin Valdozǯs testimony stating that their father,
respondent Leonardo Joaquin, told her that he would transfer a lot to her through a deed of sale
without need for her payment of the purchase price. The trial court did not find the allegation of
absolute simulation of price credible. Petitionersǯ failure to prove absolute simulation of price is
magnified by their lack of knowledge of their respondent siblingsǯ financial capacity to buy the
questioned lots. On the other hand, the Deeds of Sale which petitioners presented as evidence
plainly showed the cost of each lot sold. Not only did respondentsǯ minds meet as to the purchase
price, but the real price was also stated in the Deeds of Sale. As of the filing of the complaint,
respondent siblings have also fully paid the price to their respondent father.
>
*
"

&
!
Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to
invalidate the Deeds of Sale.
Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law,

(
unless there has been fraud, mistake or undue influence. (Emphasis supplied)
Article 1470 of the Civil Code further provides:
Art. 1470. ë

except as may indicate a
defect in the consent, or that the parties really intended a donation or some other act or contract.
(Emphasis supplied)
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil
Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that
the price be equal to the exact value of the subject matter of sale. All the respondents believed that
they received the commutative value of what they gave. As we stated in ã
( ã:
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 & . Men may do foolish things, make ridiculous contracts, use
miserable judgment, and lose money by them Ȃ indeed, all they have in the world; but not for that
alone can the law intervene and restore. There must be, in addition, a " of the law, the
commission of what the law knows as an wrong, before the courts are authorized to lay
hold of the situation and remedy it. (Emphasis in the original)
Moreover, the factual findings of the appellate court are conclusive on the parties and carry greater
weight when they coincide with the factual findings of the trial court. This Court will not weigh the
evidence all over again unless there has been a showing that the findings of the lower court are
totally devoid of support or are clearly erroneous so as to constitute serious abuse of discretion. In
the instant case, the trial court found that the lots were sold for a valid consideration, and that the
defendant children actually paid the purchase price stipulated in their respective Deeds of Sale.
Actual payment of the purchase price by the buyer to the seller is a factual finding that is now
conclusive upon us.
=4, we the decision of the Court of Appeals .
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.
Under Rule 45 of the Rules of Court.
Penned by Associate Justice Artemio G. Tuquero, with Associate Justices Cancio C. Garcia and
Romeo J. Callejo, Sr., concurring.
Penned by Judge Salvador S. Abad Santos.
' , pp. 29-31.
Records, pp. 189, 204.
+, pp. 170-175.
+, p. 189.
+, pp. 355-356.
' , pp. 32-33.
+, pp. 16-17.
Article 1078 of the Civil Code of the Philippines states: ǲWhere there are two or more heirs, the
whole estate of the decedent is, before its partition, owned in common by such heirs, subject to the
payment of debts of the deceased.ǳ
Section 2, Rule 3, 1997 Rules of Civil Procedure.
Kilosbayan " Morato, 316 Phil. 652 (1995).
Ladanga, et al. " CA, et al., 216 Phil. 332 (1984). CESAR L. VILLANUEVA, PHILIPPINE LAW ON
SALES 54 (1998).
Rido Montecillo " Ignacia Reynes and Spouses Redemptor and Elisa Abucay, G.R. No. 138018, 26
July 2002.
TSN, 17 May 1991, pp. 497-498.
Embrado " Court of Appeals, G.R. No. 51457, 27 June 1994, 233 SCRA 335; TSN, 17 May 1991,
497-498 (Emma Joaquin Valdoz); TSN, 22 May 1991, pp. 11-12, 20-21 (Nora Joaquin Edra).
TSN, 14 June 1991, p. 19 (Leonardo Joaquin); TSN, 30 October 1991, p. 6 (Fidel Joaquin); TSN, 27
November 1991, p. 10 (Felicitas Joaquin Carreon); TSN, 7 January 1992, pp. 5-6 (Artemio Joaquin);
TSN, 31 January 1992, p. 12 (Clarita Joaquin Mendoza); TSN, 11 March 1992, pp. 16-17 (Tomas
Joaquin).
35 Phil. 769 (1916).
Nazareno " Court of Appeals, G.R. No. 138842, 18 October 2000, 343 SCRA 637.
THIRD DIVISION
4 mm

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$((#$'
Present:
PANGANIBAN, $#

SANDOVAL-GUTIERREZ,
CORONA,
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CARPIO-MORALES, and

GARCIA, $$

Promulgated:

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$&#0$#
October 24, 2005

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In this petition for review on

under Rule 45 of the Rules of Court, petitioner
Philippine Free Press, Inc. seeks the reversal of the Decision[1] dated February 25, 1998 of the
Court of Appeals (CA) in # '#37E?affirming, with modification, an earlier decision of
the Regional Trial Court at Makati, Branch 146, in an action for annulment of deeds of sale
thereat instituted by petitioner against the Presidential Commission for Good
Government (PCGG) and the herein private respondent, Liwayway Publishing, Inc.
As found by the appellate court in the decision under review, the facts are:
xxx [Petitioner] . . . is a domestic corporation engaged in the publication of

Philippine Free Press Magazine, one of the . . . widely circulated political magazines
in the Philippines. Due to its wide circulation, the publication of the Free Press
magazine enabled [petitioner] to attain considerable prestige prior to the
declaration of Martial Law as well as to achieve a high profit margin. . . .
Sometime in . . . 1963, [petitioner] purchased a parcel of land situated at No.

2249, Pasong Tamo Street, Makati which had an area of 5,000 square meters as
evidenced by . . . (TCT) No. 109767 issued by the Register of Deeds of Makati
(Exh. Z). Upon taking possession of the subject land, [petitioner] constructed an
office building thereon to house its various machineries, equipment, office
furniture and fixture. [Petitioner] thereafter made the subject building its
main office . . . .
During the 1965 presidential elections, [petitioner] supported the late

President Diosdado Macapagal against then Senate President Ferdinand Marcos.
Upon the election of the late President Ferdinand Marcos in 1965 and prior to the
imposition of Martial law on September 21, 1972, [petitioner] printed numerous
articles highly critical of the Marcos administration, exposing the corruption and
abuses of the regime. The [petitioner] likewise ran a series of articles exposing
the plan of the Marcoses to impose a dictatorship in the guise of Martial Law . . . .
In the evening of September 20, 1972, soldiers surrounded the Free Press
Building, forced out its employees at gunpoint and padlocked the said
establishment. The soldier in charge of the military contingent then informed
Teodoro Locsin, Jr., the son of Teodoro Locsin, Sr., the President of [petitioner], that
Martial Law had been declared and that they were instructed by the late President
Marcos to take over the building and to close the printing press. xxx.
On September 21, 1972 . . ., Teodoro Locsin, Sr. was arrested [and] . . . . was
brought to Camp Crame and was subsequently transferred to the maximum security
bloc at Fort Bonifacio.
Sometime in December, 1972, Locsin, Sr. was informed . . . that no charges
were to be filed against him and that he was to be provisionally released subject to
the following conditions, to wit: (1) he remained (sic) under Ǯcity arrestǯ; xxx (5) he
was not to publish the

nor was he to do, say or write anything
critical of the Marcos administration . . . .
Consequently, the publication of the

ceased. The
subject building remained padlocked and under heavy military guard (TSB, 27
May 1993, pp. 51-52; stipulated). The cessation of the publication of the ...
magazine led to the financial ruin of [petitioner] . . . . [Petitionerǯs] situation was
further aggravated when its employees demanded the payment of separation
pay as a result of the cessation of its operations. [Petitionerǯs] minority
stockholders, furthermore, made demands that Locsin, Sr. buy out their shares.
xxx.
On separate occasions in 1973, Locsin, Sr. was approached by the late Atty.
Crispin Baizas with offers from then President Marcos for the acquisition of the
[petitioner]. However, Locsin, Sr. refused the offer stating that [petitioner] was not
for sale (TSN, 2 May 1988, pp. 8-9, 40; 27 May 1993, pp. 66-67).
A few months later, the late Secretary Guillermo De Vega approached Locsin,
Sr. reiterating Marcosǯs offer to purchase the name and the assets of the
[petitioner].xxx
Sometime during the middle of 1973, Locsin, Sr. was contacted by Brig.
Gen. Hans Menzi, the former of then President Marcos concerning
the sale of the [petitioner]. Locsin, Sr. requested that the meeting be held inside the
[petitioner] Building and this was arranged by Menzi (TSN, 27 May 1993, pp. 69-
70). During the said meeting, Menzi once more reiterated Marcosǯs offer to purchase
both the name and the assets of [petitioner] adding that ǲMarcos cannot be deniedǳ
(TSN, 27 May 1993, p. 71). Locsin, Sr. refused but Menzi insisted that he had no
choice but to sell. Locsin, Sr. then made a counteroffer that he will sell the land,
the building and all the machineries and equipment therein but he will be allowed
to keep the name of the [petitioner]. Menzi promised to clear the matter with
then President Marcos (TSN, 27 May 1993, p. 72). Menzi thereafter contacted
Locsin, Sr. and informed him that President Marcos was amenable to his
counteroffer and is offering the purchase price of Five Million Seven Hundred Fifty
Thousand (P5, 750,000.00) Pesos for the land, the building, the machineries, the
office furnishing and the fixtures of the [petitioner] on a ǲtake-it-or-leave-itǳ basis
(TSN, 2 May 1988, pp.42-43; 27 May 1993, p. 88).
On August 22, 1973, Menzi tendered to Locsin, Sr. a check for One Million (P1,
000,000.00) Pesos downpayment for the sale, . . . Locsin, Sr. accepted the check,
subject to the condition that he will refund the same in case the sale will not push
through. (Exh. 7).
On August 23, 1973, the Board of Directors of [petitioner] held a meeting and
reluctantly passed a resolution authorizing Locsin, Sr. to sell the assets of the
[petitioner] to Menzi minus the name ǲPhilippine Free Press (Exhs. A-1 and 1; TSN,
27 May 1993, pp. 73-76).
On October 23, 1973, the parties [petitioner, as vendor and private

respondent, represented by B/Gen. Menzi, as vendee] met . . . and executed two (2)
notarized Deeds of Sale covering the land, building and the machineries of the
[petitioner]. Menzi paid the balance of the purchase price in the amount of . . .
(P4,750,000.00) Pesos (Exhs. A and (; B and 10;TSN, 27 May 1993, pp. 81-82; 3 June
1993, p. 89).
Locsin, Sr. thereafter used the proceeds of the sale to pay the separation pay
of [petitionerǯs] employees, buy out the shares of the minority stockholders as well
as to settle all its obligations.
On February 26, 1987, [petitioner] filed a complaint for Annulment of Sale

against [respondent] Liwayway and the PCGG before the Regional Trail Court of
Makati, Branch 146 on the grounds of vitiated consent and gross inadequacy of
purchase price. On motion of defendant PCGG, the complaint against it was
dismissed on October 22, 1987. (Words in bracket and underscoring added)
In a decision dated October 31, 1995,[2] the trial court dismissed petitionerǯs complaint and
granted private respondentǯs counterclaim, to wit:
WHEREFORE, in view of all the foregoing premises, the herein complaint for
annulment of sales is hereby dismissed for lack of merit.
On [respondent] counterclaim, the court finds for [respondent] and against

[petitioner] for the recovery of attorneyǯs fees already paid for at P1,945,395.98,
plus a further P316,405.00 remaining due and payable.
SO ORDERED. (Words in bracket added)
In time, petitioner appealed to the Court of Appeals (CA) whereat its appellate recourse was
docketed as # '#37E?.
As stated at the outset hereof, the appellate court, in a decision dated February 25, 1998,
affirmed with modification the appealed decision of the trial court, the modification consisting of
the deletion of the award of attorneyǯs fees to private respondent, thus:
WHEREFORE, with the sole modification that the award of attorneyǯs fees in
favor of [respondent] be deleted, the Decision appealed from is hereby AFFIRMED in
all respects.
SO ORDERED.
Hence, petitionerǯs present recourse, urging the setting aside of the decision under
review which, to petitioner, decided questions of substance in a way not in accord with law and
applicable jurisprudence considering that the appellate court gravely erred:
xxx IN ITS MISAPPLICATION OF THE DECISIONS OF THE HONORABLE COURT

THAT RESULTED IN ITS ERRONEOUS CONCLUSION THAT PETITIONER'S CAUSE OF
ACTION HAD ALREADY PRESCRIBED.
II
xxx IN CONCLUDING THAT THE UNDISPUTED FACTS AND CIRCUMSTANCES

PRECEDING THE EXECUTION OF THE CONTRACTS OF SALE FOR THE
PETITIONER'S PROPERTIES DID NOT ESTABLISH THE FORCE, INTIMIDATION,
DURESS AND UNDUE INFLUENCE WHICH VITIATED PETITIONER'S CONSENT.
A. xxx IN CONSIDERING AS HEARSAY THE TESTIMONIAL EVIDENCE WHICH
CLEARLY ESTABLISHED THE THREATS MADE UPON PETITIONER AND
THAT RESPONDENT LIWAYWAY WILL BE USED AS THE CORPORATE
VEHICLE FOR THE FORCED ACQUISITION OF PETITIONER'S PROPERTIES.
B. xxx IN CONCLUDING THAT THE ACTS OF THEN PRESIDENT MARCOS

DURING MARTIAL LAW DID NOT CONSTITUTE THE FORCE, INTIMIDATION,
DURESS AND UNDUE INFLUENCE WHICH VITIATED PETITIONER'S
CONSENT.
C. xxx IN RESOLVING THE INSTANT CASE ON THE BASIS OF MERE SURMISES

AND SPECULATIONS INSTEAD OF THE UNDISPUTED EVIDENCE ON
RECORD.
III
xxx IN CONCLUDING THAT THE GROSSLY INADEQUATE PURCHASE PRICE FOR

PETITIONER'S PROPERTIES DOES NOT INDICATE THE VITIATION OF
PETITIONER'S CONSENT TO THE CONTRACTS OF SALE.
IV
xxx IN CONCLUDING THAT PETITIONER'S USE OF THE PROCEEDS OF THE SALE

FOR ITS SURVIVAL CONSTITUTE AN IMPLIED RATIFICATION [OF] THE
CONTRACTS OF SALE.
xxx IN EXCLUDING PETITIONER'S EXHIBITS ǲX-6ǳ TO ǲX-7ǳ AND ǲY-3ǳ (PROFFER)

WHICH ARE ADMISSIBLE EVIDENCE WHICH COMPETENTLY PROVE THAT THEN
PRESIDENT MARCOS OWNED PRIVATE RESPONDENT LIWAYWAY, WHICH WAS
USED AS THE CORPORATE VEHICLE FOR THE ACQUISITION OF PETITIONER'S
PROPERTIES.
Petitioner starts off with its quest for the allowance of the instant recourse on the submission
that the martial law regime tolled the prescriptive period under Article 1391 of the Civil Code,
which pertinently reads:
Article 391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect
of the consent ceases.
xxx xxx xxx
It may be recalled that the separate deeds of sale[3] sought to be annulled under petitionerǯs
basic complaint were both executed on October 23, 1973. Per the appellate court, citing
*" % =*%>"&
l the 4-year prescriptive period for the
annulment of the aforesaid deeds ended ǲ ¢ M, doubtless suggesting that petitionerǯs
right to seek such annulment accrued four (4) years earlier, a starting time-point
corresponding, more or less, to the date of the conveying deed, ., October 23, 1973. Petitioner
contends, however, that the 4-year prescriptive period could not have commenced to run on
October 23, 1973, martial law being then in full swing. Plodding on, petitioner avers that the
continuing threats on the life of Mr. Teodoro Locsin, Sr. and his family and other menacing effects
of martial law Ȃ which should be considered as
.
- ceased only after the February 25,
1986 People Power uprising.
Petitioner instituted its complaint for annulment of contracts on February 26, 1987. The
question that now comes to the fore is: Did the 4-year prescriptive period start to run in late
October1973, as postulated in the decision subject of review, or on February 25, 1986, as petitioner
argues, on the theory that martial law has the effects of a
.
l which, in turn, works to
suspend the running of the prescriptive period for the main case filed with the trial court.
Petitioner presently faults the Court of Appeals for its misapplication of the doctrinal rule laid
down in *%"&
l where this Court, citing and quoting excerpts from the ruling in
"#
[7], as reiterated in 3 *" # "#
[8]
wrote Ȃ
We can not accept the petitionersǯ contention that the period during which
authoritarian rule was in force had interrupted prescription and that the same
began to run only on February 25, 1986, when the Aquino government took power.
It is true that under Article 1154 [of the Civil Code] xxx fortuitous events have the
effect of tolling the period of prescription. :"
"

E¢¢ E
&

E7¢ " "

.
) ü
ü

& "

&
&

#
While this Court is cognizant of acts of the last regime,
especially political acts, that might have indeed precluded the enforcement of
liability against that regime and/or its minions, the Court is not inclined to make
quite a sweeping pronouncement, . . . . It is our opinion that claims should be taken
on a case-to-case basis. This selective rule is compelled, among others, by the fact
that not all those imprisoned or detained by the past dictatorship were true political
oppositionists, or, for that matter, innocent of any crime or wrongdoing. Indeed, not
a few of them were manipulators and scoundrels. [Italization in the original;
Underscoring and words in bracket added]
According to petitioner, the appellate court misappreciated and thus misapplied the correct
thrust of the case, as reiterated in *% which, per petitionerǯs own formulation, is the
following:[9]
The prevailing rule, therefore, is that #/2/$2/$./(, the Martial Law
regime may be treated as
.
that suspends the running of the applicable
prescriptive period provided that it is established that the party invoking the
imposition of Martial Law as a
.
are '$ &&((#( during the
Martial Law regime and that /(0 &/'? 6/ 2('21/#2$0 -/ ( 6/
(1&(.)$ <' /(0 &/'? 211$#2$ 2#(#$ ' $;$# '$( /# /2(#
0'(#-$0(2/'(/)'$(1$. (Emphasis and underscoring in the original)
We are not persuaded.
It strains credulity to believe that petitioner found it impossible to commence and succeed
in an annulment suit during the entire stretch of the dictatorial regime. The Court can grant that
Mr. Locsin, Sr. and petitioner were, in the context of *% and , ǲ
M during the
period of material law. Petitioner, however, has failed to convincingly prove that Mr. Locsin, Sr., as
its then President, and/or its governing board, were so circumstanced that it was well-nigh
impossible for him/them to successfully institute an action during the martial law years. Petitioner
cannot plausibly feign ignorance of the fact that shortly after his arrest in the evening of September
20, 1972, Mr. Locsin, Sr., together with several other journalists[10], dared to file suits against
powerful figures of the dictatorial regime and veritably challenged the legality of the declaration of
martial law. Docketed in this Court as
, the case, after its consolidation with eight
(8) other petitions against the martial law regime, is now memorialized in books of jurisprudence
and cited in legal publications and case studies as !"
.[11]
Incidentally, Mr. Locsin Sr.,as gathered from the of then Chief Justice Querube
Makalintal in ! was released from detention notwithstanding his refusal to withdraw from
his petition in said case. Judging from the actuations of Mr. Locsin, Sr. during the onset of martial
law regime and immediately thereafter, any suggestion that intimidation or duress forcibly stayed
his hands during the dark days of martial law to seek judicial assistance must be rejected.[12]
Given the foregoing perspective, the Court is not prepared to disturb the ensuing ruling of
the appellate court on the effects of martial law on petitionerǯs right of action:
In their testimonies before the trial court, both Locsin, Sr. and Locsin, Jr.
claimed that they had not filed suit to recover the properties until 1987 as they
could not expect justice to be done because according to them, Marcos controlled
every part of the government, including the courts, (TSN, 2 May 1988, pp. 23-24; 27
May 1993, p. 121). While that situation may have obtained during the early years of
the martial law administration, We could not agree with the proposition that it
remained consistently unchanged until 1986, a span of fourteen (14) years. The
unfolding of subsequent events would show that while dissent was momentarily
stifled, it was not totally silenced. On the contrary, it steadily simmered and
smoldered beneath the political surface and culminated in that groundswell of
popular protest which swept the dictatorship from power.[13]
The judiciary too, as an institution, was no ivory tower so detached from the
ever changing political climate. While it was not totally impervious to the influence
of the dictatorshipǯs political power, it was not hamstrung as to render it inutile to
perform its functions normally. To say that the Judiciary was not able to render
justice to the persons who sought redress before it . . . during the Martial Law years
is a sweeping and unwarranted generalization as well as an unfounded
indictment. The Judiciary, . . . did not lack in gallant jurists and magistrates who
refused to be cowed into silence by the Marcos administration. Be that as it may, the
Locsinǯs mistrust of the courts and of judicial processes is no excuse for their non-
observance of the prescriptive period set down by law.
Corollary to the presented issue of prescription of action for annulment of contract voidable on
account of defect of consent[14] is the question of whether or not duress, intimidation or undue
influence vitiated the petitionerǯs consent to the subject contracts of sale. Petitioner delves at
length on the vitiation issue and, relative thereto, ascribes the following errors to the appellate
court:
, in considering as hearsay the testimonial evidence that may prove the element of
"
ü against petitioner or Mr. Locsin, Sr., and the dictatorial regime's use of private
respondent as a corporate vehicle for forcibly acquiring petitionerǯs properties; , in
concluding that the acts of then President Marcos during the martial law years did not have a
consent-vitiating effect on petitioner; and
, in resolving the case on the basis of mere surmises
and speculations.
The evidence referred to as hearsay pertains mainly to the testimonies of Messrs. Locsin, Sr.
and Teodoro Locsin, Jr. (the Locsins, collectively), which, in gist, established the following facts: 1)
the widely circulated

magazinewhich, prior to the declaration of Martial Law, took the
strongest critical stand against the Marcos administration, was closed down on the eve of such
declaration, which closure eventually drove petitioner to financial ruin; 2) upon Marcosǯ orders, Mr.
Locsin, Sr. was arrested and detained for over 2 months without charges and, together with his
family, was threatened with execution; 3) Mr. Locsin, Sr. was provisionally released on the
condition that he refrains from reopening

and writing anything critical of the Marcos
administration; and 4) Mr. Locsin, Sr. and his family remained fearful of reprisals from Marcos until
the 1986 EDSA Revolution.
Per the Locsins, it was amidst the foregoing circumstances that petitionerǯs property in
question was sold to private respondent, represented by Gen. Menzi, who, before the sale, allegedly
applied the squeeze on Mr. Locsin, Sr. thru the medium of the ǲ
ǳ and ǲ[>
" ǳ line.
The appellate court, in rejecting petitionerǯs above posture of vitiation of consent,
observed:
It was under the above-enumerated circumstances that the late Hans Menzi,
allegedly acting on behalf of the late President Marcos, made his offer to purchase
the Free Press. It must be noted, however, that the testimonies of Locsin, Sr. and
Locsin, Jr. regarding Menziǯs alleged implied threat that ǲMarcos cannot be deniedǳ
and that [respondent] was to be the corporate vehicle for Marcosǯs takeover of the
Free Press is hearsay as Menzi already passed away and is no longer in a position to
defend himself; the same can be said of the offers to purchase made by Atty. Crispin
Baizas and Secretary Guillermo de Vega who are also both dead. It is clear from the
provisions of Section 36, Rule 130 of the 1989 Revised Rules on Evidence that any
evidence, . . . is hearsay if its probative value is not based on the personal knowledge
of the witness but on the knowledge of some other person not on the witness stand.
Consequently, hearsay evidence, whether objected to or not, has no probative value
unless the proponent can show that the evidence falls within the exceptions to the
hearsay evidence rule (Citations omitted)
The appellate courtǯs disposition on the vitiation-of-consent angle and the

therefor
commends itself for concurrence.
Jurisprudence instructs that evidence of statement made or a testimony is hearsay if offered

against a party who has no opportunity to cross-examine the witness. Hearsay evidence is excluded
precisely because the party against whom it is presented is deprived of or is bereft of opportunity
to cross-examine the persons to whom the statements or writings are attributed.[15] And there
can be no quibbling that because death has supervened, the late Gen Menzi, like the other
purported Marcos subalterns, Messrs. Baizas and De Vega, cannot cross-examine the Locsins for the
threatening statements allegedly made by them for the late President.
Like the Court of Appeals, we are not unmindful of the exception to the hearsay rule provided
in Section 38, Rule 130 of the Rules of Court, which reads:
SEC. 38. *

&
. Ȃ The declaration made by a person
deceased or unable to testify, against the interest of the declarant, if the fact
asserted in the declaration was at the time it was made so far contrary to the
declarant's own interest, that a reasonable man in his position would not have made
the declaration unless he believed it to be true, may be received in evidence against
himself or his successors-in-interest and against third persons.
However, in assessing the probative value of Gen. Menziǯs supposed declaration against
interest, that he was acting for the late President Marcos when he purportedly coerced Mr.
Locsin, Sr. to sell the Free Press property, we are loathed to give it the evidentiary weight
petitioner endeavors to impress upon us. For, the Locsins can hardly be considered as
disinterested witnesses. They are likely to gain the most from the annulment of the subject
contracts. Moreover, allegations of duress or coercion should, like fraud, be viewed with utmost
caution. They should not be laid lightly at the door of men whose lips had been sealed by death.l'
Francisco explains why:
[I]t has been said that ǲof all evidence, the narration of a witness of his conversation
with a dead person is esteemed in justice the weakest.ǯǳ One reason for its
unreliability is that the alleged declarant can not recall to the witness the
circumstances under which his statement were made. The temptation and
opportunity for fraud in such cases also operate against the testimony. Testimony
to statements of a deceased person, at least where proof of them will prejudice his
estate, is regarded as an unsafe foundation for judicial action except in so far as such
evidence is borne out by what is natural and probable under the circumstances
taken in connection with actual known facts. And a court should be very slow to act
upon the statement of one of the parties to a supposed agreement after the death of
the other party; such corroborative evidence should be adduced as to satisfy the
court of the truth of the story which is to benefit materially the person telling it. [17]
Excepting, petitioner insists that the testimonies of its witnesses Ȃ the Locsins - are not hearsay
because:
In this regard, hearsay evidence has been defined as ǲthe evidence not of what
the witness knows himself but of what he has heard from others.ǳ xxx Thus, the
mere fact that the other parties to the conversations testified to by the witness are
already deceased does [not] render such testimony inadmissible for being hearsay.
[18]
xxx xxx xxx
The testimonies of Teodoro Locsin, Sr. and Teodoro Locsin, Jr. that the late
Atty. Baizas, Gen. Menzi and Secretary de Vega stated that they were representing
Marcos, that ǲMarcos cannot be deniedǳ, and the fact that Gen. Menzi stated that
private respondent Liwayway was to be the corporate vehicle for the then President
Marcos' take-over of petitioner Free Press are not hearsay. Teodoro Locsin, Sr.
and Teodoro Locsin, Jr. were in fact testifying to 1/$' < -$(' 6# &$'#/)
F#6)$0$ .$2/$ -$? 6$'$ $(-$' &/'($ -$ /(0 2#;$'/(# '
6$'$&'$$#/-$(1$-$/(0/$1$#6$'$1/0$. [19]
Again, we disagree.
Even if petitioner succeeds in halving its testimonial evidence, one-half purporting to

quote the words of a live witness and the other half purporting to quote what the live witness
heard from one already dead, the other pertaining to the dead shall nevertheless remain hearsay in
character.
The all too familiar rule is that ǲ
&M. [20] There can be no quibbling that petitionerǯs witnesses cannot testify respecting
what President Marcos said to Gen. Menzi about the acquisition of petitionerǯs newspaper, if any
there be, precisely because none of said witnesses ever had an opportunity to hear what the two
talked about.
Neither may petitioner circumvent the hearsay rule by invoking the exception under the
declaration-against-interest rule. In context, the only declaration supposedly made by Gen. Menzi
which can conceivably be labeled as adverse to his interest could be that he was acting in behalf of
Marcos in offering to acquire the physical assets of petitioner. Far from making a statement
contrary to his own interest, a declaration conveying the notion that the declarant possessed the
authority to speak and to act for the President of the Republic can hardly be considered as a
declaration against interest.
Petitioner next assails the Court of Appeals on its conclusion that Martial Law is not
a
consent-vitiating phenomenon. Wrote the appellate court: [21]
In other words, the act of the ruling power, in this case the martial law
administration, was not an act of mere trespass but a trespass in law - not a

but a

- justified as it is by an act
of government in legitimate self-defense (+#( & & #

v.

*

#

, ǥ, citing # ) ( .) v. ', 84 Phil. 654
[1949]. Consequently, the act of the Philippine Government in declaring martial law
can not be considered as an act of intimidation of a third person who did not take
part in the contract (Article 1336, Civil Code). It is, therefore, incumbent on
[petitioner] to present clear and convincing evidence showing that the late
President Marcos, acting through the late Hans Menzi,

& . In view of the largely hearsay nature of
appellantǯs evidence on this point, appellantǯs cause must fall.
According to petitioner, the reasoning of the appellate court is "flawed" because:[22]
It is implicit from the foregoing reasoning of the Court of Appeals that it

treated the forced closure of the petitioner's printing press, the arrest and
incarceration without charges of Teodoro Locsin, Sr., the threats that he will be shot
and the threats that other members of his family will be arrested as )$/)/2 done
by a dictator under the Martial Law regime. The same flawed reasoning led the
Court of Appeals to the erroneous conclusion that such acts do not constitute force,
intimidation, duress and undue influence that vitiated petitioner's consent to the
Contracts of Sale.
The contention is a rehash of petitionerǯs bid to impute on private respondent acts of force and
intimidation that were made to bear on petitioner or Mr. Locsin, Sr. during the early years of
martial law. It failed to take stock of a very plausible situation depicted in the appellate courtǯs
decision which supports its case disposition on the issue respecting vitiation. Wrote that court:
Even assuming that the late president Marcos is indeed the owner of
[respondent], it does not necessarily follow that he, acting through the late Hans
Menzi, abused his power by resorting to intimidation and undue influence to coerce
the Locsins into selling the assets of Free Press to them (sic).
It is an equally plausible scenario that Menzi convinced the Locsins to sell the
assets of the Free Press without resorting to threats or moral coercion by simply
pointing out to them the hard fact that the Free Press was in dire financial straits
after the declaration of Martial Law and was being sued by its former employees,
minority stockholders and creditors. Given such a state of affairs, the Locsins had
no choice but to sell their assets.[23]
Petitioner laments that the scenario depicted in the immediately preceding quotation as a case
of a court resorting to ǲ

M [24] oblivious that petitioner itself can only
offer, as counterpoint, also mere surmises and speculations, such as its claim about EugenioLopez
Sr. and Imelda R. Marcos offering ǲ& ǳ to buy

.[25]
It bears stressing at this point that even after the imposition of martial law, petitioner,
represented by Mr. Locsin, Sr., appeared to have dared the ire of the powers-that-be. He did not
succumb to, but in fact spurned offers to buy, lock-stock-and-barrel, the

magazine,
dispatching Marcosǯ emissaries with what amounts to a curt ǲFree Press is not for saleǳ. This reality
argues against petitionerǯs thesis about vitiation of its contracting mind, and, to be sure, belying the
notion that Martial Law worked as a Sword of Damocles that reduced petitioner or Mr. Locsin, Sr.
into being a mere automaton. The following excerpt from the Court of Appealsǯ decision is self-
explanatory: [26]
Noteworthy is the fact that although the threat of arrest hung over his head
like the Sword of Damocles, Locsin Sr. was still able to reject the offers of Atty.
Baizas and Secretary De Vega, both of whom were supposedly acting on behalf of
the late President Marcos, without being subjected to reprisals. In fact, the Locsins
testified that the initial offer of Menzi was rejected even though it was supposedly
accompanied by the threat that ǲMarcos cannot be deniedǳ. Locsin, Sr. was,
moreover, even able to secure a compromise that only the assets of the Free Press
will be sold. It is, therefore, quite possible that plaintiff-appellantǯs financial
condition, albeit caused by the declaration of Martial Law, was a major factor in
influencing Locsin, Sr. to accept Menziǯs offer. It is not farfetched to consider that
Locsin, Sr. would have eventually proceeded with the sale even in the absence of the
alleged intimidation and undue influence because of the absence of other buyers.
Petitionerǯs third assigned error centers on the gross inadequacy of the purchase price,
referring to the amount of P5,775,000.00 private respondent paid for the property in question. To
petitioner, the amount thus paid does not even approximate the actual market value of the assets
and properties,[27] and is very much less than the P18 Million offered by Eugenio Lopez.[28]
Accordingly, petitioner urges the striking down, as erroneous, the ruling of the Court of Appeals on
purchase price inadequacy, stating in this regard as follows: [29]
Furthermore, the Court of Appeals in determining the adequacy of the price
for the properties and assets of petitioner Free Press relied heavily on the claim that
the audited financial statements for the years 1971 and 1972 stated that the .F
;/)$ of the land is set at Two Hundred Thirty-Seven Thousand Five Hundred Pesos
(P237,500.00). However, the Court of Appeals' reliance on the book value of said
assets is clearly misplaced. It should be noted that the book value of fixed assets
bears very little correlation with the /2/) 1/'F$ ;/)$ of an asset. (Emphasis
and underscoring in the original).
With the view we take of the matter, the book or actual market value of the property at the
time of sale is presently of little moment. For, petitioner is effectively precluded, by force of the
principle of ,[30] from cavalierly disregarding with impunity its own books of account in
which the property in question is assigned a value less than what was paid therefor. And, in line
with the rule on the ! of evidence required in civil cases, neither can we cavalierly brush
aside private respondentǯs evidence, cited with approval by the appellate court, that tends to
prove that-[31]
xxx the net book value of the Properties was actually only P994,723.66 as
appearing in Free Press's Balance Sheet as of November 30, 1972 (marked as Exh.
13 and Exh. V), which was duly audited by SyCip, Gorres, and Velayo, thus clearly
showing that Free Press actually realized a hefty profit of P4,755,276.34 from the
sale to Liwayway.
Lest it be overlooked, gross inadequacy of the purchase price does not, as a matter of civil law,

affect a contract of sale. Article 1470 of the Civil Code says so. It reads:
Article 1470. Gross inadequacy of price does not affect a contract of sale,
except as it may indicate a defect in the consent, or that the parties really intended a
donation or some other act or contract.
Following the aforequoted codal provision, it behooves petitioner to first prove ǲ
ǳ, failing which its case for annulment contract of sale on ground gross inadequacy of
price must fall. The categorical conclusion of the Court of Appeals, confirmatory of that of the
trial court, is that the price paid for the

4 office building, and other physical assets is
not unreasonable to justify the nullification of the sale. This factual determination, predicated as
it were on offered evidence, notably petitionerǯs Balance Sheet as of November 30, 1972 (Exh. 13),
must be accorded great weight if not finality.[32]
In the light of the foregoing disquisition, the question of whether or not petitionerǯs
undisputed utilization of the proceeds of the sale constitutes, within the purview of Article 1393
of the Civil Code,[33] implied ratification of the contracts of sale need not detain us long. Suffice it to
state in this regard that the ruling of the Court of Appeals on the matter is well-taken. Wrote the
appellate court: [34]
In the case at bench, Free Pressǯs own witnesses admitted that the proceeds
of the 1973 sale were used to settle the claims of its employees, redeem the shares
of its stockholders and finance the companyǯs entry into money-market
shareholdings and fishpond business activities (TSN, 2 May 1988, pp. 16, 42-45). It
need not be overemphasized that by using the proceeds in this manner, Free Press
only too clearly confirmed the voluntaries of its consent and ratified the sale.
Needless to state, such ratification cleanses the assailed contract from any alleged
defects from the moment it was constituted (Art. 1396, Civil Code).
Petitionerǯs posture that its use of the proceeds of the sale does not translate to tacit
ratification of what it viewed as voidable contracts of sale, such use being a ǲmatter of [its
financial] survivalǳ,[35] is untenable. As couched, Article 1393 of the Civil Code is concerned
only with the act which passes for ratification of contract, not the reason which actuated the
ratifying person to act the way he did. ǲA )&&
.
When the law does not distinguish, neither should weǳ. [36]
Finally, petitioner would fault the Court of Appeals for excluding Exhibits ǲX-6ǳ to ǲX-7ǳ and
ǲY-3ǳ (proffer). These excluded documents which were apparently found in the presidential
palace or turned over by the US Government to the PCGG, consist of, among others, what appears to
be private respondentǯs Certificate of Stock for 24,502 shares in the name of Gen. Menzi, but
endorsed in blank. The proffer was evidently intended to show that then President Marcos owned
private respondent, Liwayway Publishing Inc. Said exhibits are of little relevance to the resolution
of the main issue tendered in this case. Whether or not the contracts of sale in question are
voidable is the issue, not -$6#$'-(&< (6/?6/?.)(-(##2
=4, the petition is **and the challenged decision of the Court of Appeals
*.
m**.

Associate Justice
WE CONCUR:

]
Associate Justice
Chairman
m* !


4 m
Associate Justice
m
I attest that the conclusions in the above decision were reached in consultation before the case

]
Associate Justice
Chairman, Third Division

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's
Attestation, it is hereby certified that the conclusions in the above decision were reached in
consultation before the case was assigned to the writer of the opinion of the Court.
4
* *+
Chief Justice
[1] Penned by then Associate Justice Consuelo Ynares-Santiago (now a member of this
Court), with then Associate Justices Bernardo LL. Salas (ret.) and Demetrio G. Demetria, concurring;
Rollo, pp. 149-177.
[2] Rollo, pp. 194-201.
[3] Rollo, p. 178 !., and p. 182 !.
[4] 218 SCRA 118 [1993].
[5] Art. 1154. The period during which the obligee was prevented by a fortuitous event from
enforcing his right is not reckoned against him.
[6] See Note #4,

.
[7] 195 SCRA 355 [1991].
[8] 211 SCRA 422, 435 [1992].
[9] Petition, p. 32; Rollo, p- 40.
[10] Joaquin P. Roces, Rolando Fadul, Rosalind Galang, Go Eng Guan, Maximo M. Soliven,
Renato Constantino, and Luis R. Mauricio.
[11] 59 SCRA 183, 184 [1974].
[12] v. #
, See Note # 7

[13] Court of Appeals Decision, Rollo, pp. 172-173.

[14] Art. 1330. A contract where consent is given through mistake, violence, intimidation,
undue influence or frauds is voidable.
[15] Philippine Home Assurance Corp. vs. Court of Appeals, 257 SCRA 468 [1996], citing
Baguio v. Court of Appeals, 226 SCRA 366 [1993].
[16] '
&,v.'
&, 20 SCRA 908 [1967]).
[17] Francisco R. J., BASIC EVIDENCE, 1999 ed., p. 496; citing II Moore on Facts, 1014-1015.
[18] Petition, p. 83; Rollo, p. 90.
[20] Rules on Evidence, Rule 130, Section 36.
[21] Court of Appeals Decision; Rollo, pp. 166-167.
[23] Court of Appeals Decision; Rollo, pp. 167.
[24] Petition, pp. 100-105; Rollo, pp. 108-113.
[25] Petition, pp. 101; Rollo, p. 109.
[26] Court of Appeals Decision; Rollo, pp. 168.
[27] Petition, p. 109.
[28] +., p. 107.
[30] Civil Code, Article 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon.
[31] Memorandum for Liwayway, p. 35; Rollo, p. 880.
[32] # "#
, 298 SCRA 713; + "#
, 212 SCRA 160 [1992).
[33] Article 1393. Ratification may be effected expressly or tacitly. It is understood that there
is a tacit ratification if, with knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his right.
[34] Court of Appeals Decision; Rollo, p. 174.
[35] Memorandum for Free Press, p. 146; Rollo, p. 1041.
[36] vs. COMELEC, 424 SCRA 277, 439 [2004], separate opinion of Justice Alicia
Austria-Martinez.

m
Manila
FIRST DIVISION

9$.'/'?889
m mmm*4Petitioners

vs.
** Respondent.
DECISION
m* !p
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
as amended, assailing the Decision1 of the Court of Appeals dated January 29, 1999 and its
Resolution dated July 14, 1999 in CA-G.R. CV No. 48824.
Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in Las
Piñas, Metro Manila covered by Transfer Certificate of Title No. T-9905.
Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot. $((#$'
/'$$0$))(/
&$'3/'$1$$'. Respondent then gave petitioners P100,000.00
as partial payment. In turn, petitioners gave respondent the corresponding receipt stating that
respondent promised to pay the balance of the purchase price on or before March 23, 1990, thus:
Las Piñas, Metro Manila
March 19, 1990
RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS PIÑAS,
METRO MANILA
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS
(P100,000.00) AS OF OUR LOT SITUATED IN LAS PIÑAS, M.M. COVERED BY
TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH
23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.
SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIÑAS, M.M.
(SGD) AMPARO HERRERA (SGD) ONNIE SERRANO"2
On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners
informing them of his readiness to pay the balance of the contract price and requesting them to
prepare the final deed of sale.3
On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter4 to respondent stating that
petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they are
canceling the transaction. Petitioners also informed respondent that he can recover the earnest
money of P100,000.00 anytime.
Again, on April 6, 1990,5 petitioners wrote respondent stating that they delivered to his counsel
Philippine National Bank Managerǯs Check No. 790537 dated April 6, 1990 in the amount of
P100,000.00 payable to him.
In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial
Court, Branch 63, Makati City a complaint against them for specific performance and damages,
docketed as Civil Case No. 90-1067.6
On June 27, 1994, after hearing, the trial court rendered its Decision7 finding there was a perfected
contract of sale between the parties and ordering petitioners to execute a final deed of sale in favor
of respondent. The trial court held:
xxx
In the evaluation of the evidence presented by the parties as to the issue as to who was ready to
comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that plaintiffǯs
position deserves more weight and credibility. First, the P100,000.00 that plaintiff paid whether as
downpayment or earnest money showed that there was already a perfected contract. Art. 1482 of
the Civil Code of the Philippines, reads as follows, to wit:
ǮArt. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract.ǯ
Second, plaintiff was the first to react to show his eagerness to push through with the sale by
sending defendants the letter dated March 25, 1990. (Exh. ǮDǯ) and reiterated the same intent to
pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase price
ready for payment (Exh. ǮCǯ). Defendantsǯ mere allegation that it was plaintiff who did not appear on
March 23, 1990 is unavailing. Defendantsǯ letters (Exhs. Ǯ2ǯ and Ǯ5ǯ) appear to be mere afterthought.
On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial
courtǯs judgment.
Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate
court in its Resolution8 dated July 14, 1999.
Hence, the present recourse.
The basic issue to be resolved is whether the document entitled "Receipt for Partial Payment"
signed by both parties earlier mentioned is a contract to sell or a contract of sale.
Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article
14589 in relation to Article 147510 of the Civil Code. The delivery to them of P100,000.00 as down
payment cannot be considered as proof of the perfection of a contract of sale under Article 148211
of the same Code since -$'$6/#2)$/'/'$$1$#.$6$$#-$&/'($/-$/1#<
2#(0$'/(#.
Generally, the findings of fact of the lower courts are entitled to great weight and should not be
disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal (#-$
/.$#2$</2)$/'-6(#-/-$'(/)2';$')F$00('$/'0$0'1((#$'&'$$0
1$</2<6$(-/#0(#(<(2/#2$6-(2-(<2#(0$'$06)0-/;$/)$'$0-$'$)<
-$2/$
¢ ¢12 In the present case, we find that both the trial court and the Court of
Appeals interpreted some significant facts resulting in an erroneous resolution of the issue
involved.
In holding that there is a perfected 2#'/2</)$, both courts mainly relied on the earnest
money given by respondent to petitioners. They invoked Article 1482 of the Civil Code which
provides that "Whenever earnest money is given in a contract of sale, it shall be considered as part
of the price and as proof of the perfection of the contract."
We are not convinced.
In &

+": &13 we held that the stages of a contract of
sale are: (1) & , covering the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected; (2)
, which takes
place upon the concurrence of the essential elements of the sale, which is the meeting of the minds
of the parties as to the object of the contract and upon the price; and (3) , which
begins when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof.
With the above postulates as guidelines, we now proceed to determine the real nature of the
contract entered into by the parties.
It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended.14 Thus, when petitioners
declared in the said "Receipt for Partial Payment" that they Ȃ
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS
(P100,000.00) AS OF OUR LOT SITUATED IN LAS PIÑAS, M.M. COVERED BY
TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH
23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.
there can be no other interpretation than that they agreed to a conditional contract of sale,
consummation of which is subject only to the full payment of the purchase price.
A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of a future and uncertain event, so that
if the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed. -$&$#(;$2#0((#(211#)?<))&/?1$#<-$
&'2-/$&'(2$.15
The differences between a contract to sell and a contract of sale are well-settled in jurisprudence.
As early as 1951, in &<" ,16 we held that:
x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon
delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved
in the seller and is not to pass until the full payment, of the purchase price is made. In the first case,
non-payment of the price is a negative resolutory condition; in the second case, full payment is a
positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first
case, the vendor has lost and cannot recover the ownership of the land sold until and unless the
contract of sale is itself resolved and set aside. In the second case, however, the title remains in the
vendor if the vendee does not comply with the condition precedent of making payment at the time
specified in the contract.
In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the
buyer until full payment of the price.17
In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties is
a 2#'/2$)).

, ownership over the property was retained by petitioners and was not to pass to
respondent until full payment of the purchase price. Thus, petitioners need not push
through with the sale should respondent fail to remit the balance of the purchase price
before the deadline on March 23, 1990. In effect, petitioners have the right to rescind
unilaterally the contract the moment respondent fails to pay within the fixed period.18
, the agreement between the parties was not embodied in a deed of sale. The absence
of a formal deed of conveyance is a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after full payment of the purchase
price.19

, petitioners retained possession of the certificate of title of the lot. This is an
additional indication that the agreement did not transfer to respondent, either by actual or
constructive delivery, ownership of the property.20
It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the
contract." However, this article speaks of $/'#$1#$? given in a contract of sale. In this case, the
$/'#$1#$?6/(;$#(#/2#'/2$)). The earnest money forms part of the
consideration only if the sale is consummated upon full payment of the purchase price.21 Now, since
the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale,
does not apply.
As previously discussed, the suspensive condition (payment of the balance by respondent) did not
take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to
him.
=4 we the instant Petition for Review. The challenged Decision of the Court of
Appeals is m* and respondentǯs complaint is *mmm*.
SO ORDERED.
m* !
Associate Justice
WE CONCUR:
m

Chief Justice
Chairperson
(On official leave)

* m
!

Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to the writer of the
opinion of the Courtǯs Division.
m

Chief Justice
#$
1 Penned by Associate Justice Conchita Carpio Morales (now a member of this Court) and
concurred in by Associate Justice Jainal D. Rasul and Associate Justice Bernardo P. Abesamis
(both retired).
2 Exhibit "B," Records, p. 124.
3 Exhibit "D," id., p. 125.
4 Exhibit "2," id., p. 173.
5 Exhibit "5," ' , p. 177.
6 Records, pp. 1-4.
7 Id., pp. 423-430.
8 Id., p. 25.
9
¢F7. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other himself to pay
therefore a price certain in money or its equivalent. A contract of sale may be absolute or
conditional.

¢F7. The contract of sale is perfected at the moment there is a meeting of the
10
the provisions of the law governing the form of contracts.
11Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered
as part of the price and as proof of the perfection of the contract.
12 # " +

# " "#
$ (
* #
, G.R. No. 107624, January 28, 1997, 267 SCRA
89.
13G.R. No. 137290, July 31, 2000, 336 SCRA 737, citing &<"#

E6#'?E8¢ F9
14 "#
G.R. No. 100942, August 12, 1992, 212 SCRA 586.
15 3 % "#

( ,C 3&G.R. No. 119580,
September 26, 1996, citing ' &#+"#
167 SCRA 309, 318
(1988)and ("#
182 SCRA 564, 670 (1990), with citations.
16 47 O.G. 6372 (1951).
17 +, citing $ "C

,, 209 SCRA 246, 254 (1992).
18 C# "#

#, G.R. No. 119255, April 9,
2003, 401 SCRA 54.
19 +.
20 +.
21 +.

m
Manila
4** m

88;$1.$'88%

+!+
/#0]
+!petitioners,
vs.
+ +m+* respondent.
*m
]p
"
Oft-repeated is the doctrine that the cause of action in a civil case is determined by the allegations
of the complaint, never by those of the defendant's answer. However, ambiguities and lapses in the
language of these allegations may be understood or clarified through a recourse to the annexes of
the complaint, related pleadings or other submissions of the plaintiff.
-$/$
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 28,
2002 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 66455. The CA disposed as follows:
"In fine, then, we find and so declare that the [respondent] had a cause of action against the
[petitioner spouses] for 'Specific Performance and Damages.' Hence, the [c]ourt a quo
committed a reversible error in dismissing the 'Supplement to Amended Complaint' of the
[respondent] as against the [petitioner spouses].
"Before we write finis to the present recourse, we stress that our resolution of the issue on
the nature of the transaction over the property between the [respondent] and x x x Bunye is
merely provisional. The final resolution of the issue will have to be rendered by the court a
quo after the parties shall have adduced their respective evidence on said issue.
"IN THE LIGHT OF ALL THE FOREGOING, the appeal is GRANTED. The Order of the [c]ourt a
quo, dated February 1, 2000, is SET ASIDE. Let the records be remanded to the [c]ourt a quo
for further proceedings."3
-$/2
The CA narrated the facts as follows:
"Madeliene S. Bunye was the owner of a parcel of residential land, located in Adelfa Street,
Ayala Alabang Village, Alabang, Muntinlupa, Metro Manila, covered by Transfer Certificate
of Title No. 17133 issued by the Register of Deeds. On December 27, 1993, [Respondent]
Juan Jose Jordana wrote a letter to x x x Bunye offering to purchase the said property for the
price of P12,300,000.00 payable in cash, on January 31, 1994, and to remit to her, by way of
earnest money, the amount of P500,000.00 within five (5) days from his receipt of her
acceptance of said offer. On December 28, 1993, x x x Bunye wrote a letter to [respondent]
informing the latter that she accepted his offer and requesting him to remit the earnest
money within five (5) days from his receipt of said letter. [Respondent] received the letter,
on December 29, 1993, and had until January 3, 1994 within which to remit the earnest
money. [Respondent] did remit the P500,000.00 earnest money but x x x Bunye refused to
receive the money. On January 3, 1994, x x x Bunye wrote a letter to [respondent]
confirming her rejection of the earnest money and that she can no longer accept his offer of
P12,300,000.00 as her property was worth much more. She apologized for any
inconvenience caused to him. However, she added that she would be willing to sell her
property to him for P16,000,000.00.
"Unknown to [respondent], x x x Bunye executed a 'Special Power of Attorney' on December

29, 1993, or a day after [she] accepted [his] offer to purchase the property, authorizing
Lourdes Cuerva to sell the said property and to execute the appropriate contract therefor.
The latter did offer to sell the said property to the [petitioners,] Spouses Ramon R. Jimenez,
Jr. and Annabelle L. Jimenez, for the price of P14,350,000.00, and the couple agreed. On
August 5, 1994, x x x Bunye, through her attorney-in-fact, Lourdes Cuerva, as Seller, and
[petitioner-]spouses x x x as Buyers, executed a 'Contract to Sell' over the said property for
said price, of which P4,500,000.00 was payable, upon the execution of said deed, and the
balance payable on or before March 30, 1995 and with the understanding of the Seller that:
'2. Upon completion of payment, the SELLER agrees to execute a Deed of Absolute
Sale over subject property in favor of the BUYERS free from all liens and
encumbrances, and in connection therewith, the SELLER agrees to
submit/surrender to the BUYERS all documents and papers evidencing their right of
ownership over the property subject of this Contract necessary to formalize
BUYERS' title over the same, and undertake to sign all documents that may be
necessary for the purpose.'
"Conformably with the said deed, [petitioner-spouses] remitted to x x x Cuerva, on August 5,

1994, the amount of P4,500,000.00 as downpayment for the property for which x x x Cuerva
issued a 'Receipt.' To protect their rights over the property, the spouses x x x executed an
'Affidavit of Adverse Claim' over the property and had the same annotated, on August 15,
1994, at the dorsal portion of Transfer Certificate of Title [TCT] No. 171333.
"On March 1, 1995, [petitioners] wrote a letter to x x x Cuerva informing her that they will
be paying the balance of the purchase price of the property earlier, on March 3, 1995, at 8:00
o'clock in the morning, x x x.
"On March 7, 1995, [petitioners] received a letter from x x x Cuerva informing [them] that
she was no longer the attorney-in-fact of Bunye, who was then in the United States of
America and suggested that [petitioners] communicate with her at her address in the
United States stated in the letter.
"On March 10, 1995, the Register of Deeds cancelled the 'Adverse Claim' of [petitioners]
annotated at the dorsal portion of [TCT] No. 171333.
"On March 14, 1995, [petitioners] wrote a letter to Bunye, in the United States of America,
informing her that they had already deposited the balance of the purchase price of the
property, in her account, with the Asian Bank, Greenbelt Branch, under Savings Account No.
2006-13-00558-4. [They then] requested Bunye to execute the appropriate 'Deed of
Absolute Sale' over the property in their favor and deliver to them the owner's duplicate of
the title to the property under their names, within five (5) days from her receipt thereof.
"On March 15, 1995, or more than one (1) year from the rejection by Bunye of his proferred
earnest money, [Respondent] Jordana filed a complaint against Bunye, with the Regional
Trial Court of Makati City, entitled and docketed as 'Juan Jose Jordana, Plaintiff versus
Madeliene S. Bunye, Defendant, Civil Case No. 95-443,' for 'Specific Performance and
Damages' praying that, after due proceedings, judgment be rendered in her favor x x x.
[Respondent] alleged, inter alia, in his complaint, that he and x x x Bunye had already
entered into a perfected contract over the property but that, despite his demand, she
refused to execute a 'Deed of Absolute Sale' over the property despite his offer to remit the
earnest money and his readiness to pay the balance of the purchase price of the property.
"On March 15, 1995, [respondent] filed a 'Notice of Lis Pendens' with the Register of Deeds,
for annotation at the dorsal portion of [TCT] No. 171333. However, the Register of Deeds
refused claiming that the action of [respondent] was personal and that no formal deed of
sale has been executed between [respondent] and Bunye over the property.
"On the same day, Bunye wrote a letter to [petitioners] informing them that she will be in
the Philippines on March 23, 1995. [Bunye] requested the spouses to have the 'Deed of
Absolute Sale' over the property prepared for her signature when she arrived in Manila.
"On March 17, 1995, [respondent], through counsel, wrote a letter to x x x Bunye in the
United States informing her of the filing, by [respondent] of his complaint against her, with
the Regional Trial Court, for 'Specific Performance.'
"In the meantime, on March 19, 1995, [petitioners] wrote a letter to Madeliene S. Bunye
suggesting that she execute a 'Special Power of Attorney' authorizing Lourdes Cuerva to
execute the 'Deed of Absolute Sale' over the property in their favor even before her arrival
in the Philippines. Bunye agreed to the appointment of an attorney-in-fact, in the person of
Ernesto del Rosario.
"When Bunye received the letter of the counsel of [respondent], she wrote a letter to
[petitioners], dated March 23, 1995, informing them of the claim of [respondent] in his
complaint and that, as soon as she received the 'Special Power of Attorney' from the
Secretary of the State of Washington, she will return to the Philippines.
"In the meantime, [respondent] filed, on March 24, 1995, in Civil Case No. 95-443, a 'Very
Urgent Ex-Parte Motion,' praying that an x x x an Order [be] immediately issued directing
the Register of Deeds of Makati to immediately annotate the [Notice of] Lis Pendens on TCT
No. 171333.'
"The summons and complaint in Civil Case No. 95-443 were served on Bunye through her
security guard, Joseph Ytac, on March 23, 1995, as she was still in the United States of
America.
"On March 28, 1995, [petitioners] filed, in Civil Case No. 95-443, a 'Motion for Leave to
Intervene' x x x. "However, [respondent] opposed the motion x x x.
"[Petitioners, on the other hand,] opposed the motion of [respondent] to compel the
Register of Deeds to annotate the 'Notice of Lis Pendens' at the dorsal portion of [TCT] No.
171333.
"On March 30, 1995, [respondent] executed a 'Notice of Adverse Claim' and had the same
annotated on March 31, 1995 at the dorsal portion of [TCT] No. 171333.
"On April 5, 1995, [TCT] No. 171333 was cancelled on the basis of the 'Deed of Absolute
Sale' executed on March 30, 1995 by Bunye, pendente lite, in favor of [petitioners] and, on
the same day, the Register of Deeds issued [TCT] No. 200308 over the property to and
under the name of the said spouses. The 'Adverse Claim' of [respondent] was carried over in
said title, x x x, as Entry No. 18053.
"On June 13, 1995, [petitioners] secured a loan from the Urban Bank in the amount of
P12,000,000.00 and executed a 'Real Estate Mortgage' over the said property, as security
therefor which deed was annotated, on June 14, 1995, at the dorsal portion of [TCT] No.
200308.
"On September 12, 1995, [respondent] filed an 'Amended Complaint' impleading the
[petitioners] as Parties-Defendants x x x.
"[Petitioner] spouses x x x filed a 'Motion to Dismiss' the Amended Complaint on the

grounds that the Amended Complaint did not state a cause of action against them and [for]
laches. [Respondent] filed an 'Opposition' to the 'Motion to Dismiss' of [the] spouses.
"In the meantime, the Register of Deeds caused the annotation, on October 24, 1995, of the
'Notice of Lis Pendens' filed by [respondent] at the dorsal portion of [TCT] No. 200308.
"Before the Court could resolve the 'Motion to Dismiss' of the [petitioners], [respondent]
filed a 'Motion for Leave to File Supplement to Amended Complaint,' impleading the Urban
Bank, as [p]arty-[d]efendant x x x.
"On February 7, 1996, [respondent] filed his 'Supplement to Amended Complaint' x x x.
"[Petitioners] filed an 'Opposition' to [respondent's] motion. On July 2, 1996, the Court

issued an Order granting the motion of [respondent] and admitting [his] 'Supplement to
Amended Complaint.' [Petitioners] filed a 'Motion for Reconsideration' of the aforesaid
Order of the Court. [Urban] Bank likewise filed a 'Motion to Dismiss' the 'Supplement to
Amended Complaint' on the ground that it stated no cause of action against it. [Respondent]
filed an 'Opposition' to the 'Motion for Reconsideration' of [petitioners] and the 'Motion to
Dismiss' of the x x x bank. On February 1, 2000, the Court issued an Order granting the
'Motion to Dismiss' of [Urban] Bank and the 'Motion for Reconsideration' of [petitioners] on
the ground that the 'Amended Complaint' and the 'Supplement to Amended Complaint' did
not state causes of action against [them]."4
)(#<-$'<&&$/)
The CA ruled that the trial court had erred in dismissing the "Supplement to Amended Complaint."
The appellate court held that respondent alleged a sufficient cause of action against petitioners for
the recovery of the Adelfa property. The CA said that such action was "real," not personal.
Moreover, the appellate court held that respondent and Bunye had entered into a Contract of Sale --
not a Contract to Sell -- which was perfected by their mere consent thereto. Thus, Bunye was
deemed to have relinquished ownership of the property to respondent.
Regarding the double sale of the property, the CA said that the spouses could not have registered
the second sale in good faith because they had prior knowledge of respondent's claim. It noted that
even the Deed of Absolute Sale in favor of petitioners had been executed during the pendency of the
Complaint.
Hence, this Petition.5
$
In their Memorandum, petitioners raise the following issues:
"1. Has Jordana alleged a sufficient cause of action against the Spouses Jimenez?
"2. Did Jordana and Bunye execute a contract of sale or a contract to sell the subject
property?
"3. Did Jordana make a valid tender and consignation of payment to Bunye?
"4. Did the Spouses Jimenez register their title to the subject property in good faith?
"5. Is Jordana guilty of laches?"6
The foregoing questions point to only one main issue: the nature and the sufficiency of respondent's
cause of action, if any.
-$'K)(#
The Petition has no merit.
/(#$"
/'$/#0m<<(2($#2?<$&#0$#K/$<2(#
The trial court and the CA differed in characterizing the suit of respondent. The RTC opined that he
failed to allege against petitioners a cause of action for specific performance. On the other hand, the
appellate court held that the action was actually for recovery of real property. Clearly then, the crux
of the present controversy is the nature and the sufficiency of respondent's cause of action against
petitioner-spouses.
In resolving this issue, we shall begin with some basic rules and guiding principles regarding cause
of action, dismissal of suit, and the law on sales.

!
Cause of action is defined as "the act or omission by which a party violates a right of another."7 It
has the following elements: 1) the legal right of the plaintiff; 2) the correlative obligation of the
defendant to respect that legal right; and 3) an act or omission of the defendant that violates such
right.8
The nature of an action is determined by the material averments in the complaint and the character
of the relief sought,9 not by the defenses asserted in the answer or motion to dismiss.10 Thus, the
complaint must contain a concise statement of the ultimate or essential facts11 constituting the
plaintiff's cause of action.12
In a motion to dismiss, a defendant hypothetically admits the truth of the material allegations of the
plaintiff's complaint. This hypothetical admission extends to the relevant and material facts pleaded
in, and the inferences fairly deducible from, the complaint.13 Hence, to determine whether the
sufficiency of the facts alleged in the complaint constitutes a cause of action, the test is as follows:
admitting the truth of the facts alleged, can the court render a valid judgment in accordance with
the prayer?14
To sustain a motion to dismiss, the movant needs to show that the plaintiff's claim for relief does
not exist at all. On the contrary, the complaint is sufficient "if it contains sufficient notice of the
cause of action even though the allegations may be vague or indefinite, in which event, the proper
recourse would be, not a motion to dismiss, but a motion for a bill of particulars."15
Generally, the court takes into account only the material allegations of the complaint, without
considering extraneous facts and circumstances. In some cases, however, the court may also
consider -- in addition to the complaint -- annexes or documents appended to it, other pleadings of
the plaintiff, or admissions in the record.16 It must then bear in mind that the facts proving the
existence of a cause of action do not have to be established or alleged by the complaint and/or the
other pleadings at the outset but, under exceptional circumstances, even during the trial on the
merits of the case.17

*
The elements of a valid contract of sale under Article 1458 of the Civil Code are the following: (1)
the parties' consent or meeting of minds, (2) a determinate subject matter, and (3) a price certain in
money or its equivalent. Being consensual, a contract of sale is perfected upon the meeting of the
minds of the buyer and the seller as to the object of the sale and the cause or consideration.18 From
that moment on, the parties may reciprocally demand performance; that is, the vendee may compel
the transfer of the ownership of the object of the sale, and the vendor may require the vendee to
pay the price of the thing sold.
We shall now apply the foregoing discussion to the issues at hand.
In the present case, the cause of action of respondent against petitioners was premised on the
material averments in the Complaint as follows:
1. He offered to buy,19 and Bunye agreed to sell20 to him, the Adelfa property for
P12,300,000.
2. As agreed, he tendered to her the sum of P500,000 on January 3, 1994, but she refused to
accept it.21
3. She informed him by letter, which he received on January 4, 1994, that she could no
longer accept the offer of P12,300,000, but that she was willing to sell it for P16,000,000;
thus, she was declining to receive the P500,000 earnest money he had sent.22
4. There was a perfected contract of sale, which Bunye breached by her unreasonable
refusal to complete the sale.23
5. She unreasonably refused to heed his demand for compliance with the contract, which
she "should be compelled to specifically perform."24
6. On or about March 30, 1995, she sold the same property to petitioners, pursuant to which
TCT No. 171333 was cancelled and TCT No. 200308 issued to the latter on April 3, 1995.25
7. "Bunye and [the] Jimenezes should be compelled to execute a contract or deed of sale
over the subject property in [his] favor x x x which complies with the requirements of
Article 1358 of the Civil Code"26 that a contract involving real rights over immovable
property must appear in a public document.27
8. As a result of Bunye's and the spouses' "unreasonable breach and circumvention of the
contract," he suffered actual damages.28
9. Having acted in a "wanton, fraudulent, reckless, oppressive, or malevolent manner,"

Bunye and petitioners should be ordered to pay exemplary damages.29
10. Their acts or omissions have compelled him to litigate, for which they must be ordered
to reimburse attorney's fees and litigation expenses.30
Specifically, respondent expressly prayed for a judgment ordering Bunye and petitioners "to
immediately and specifically perform on the contract to sell the subject property to [him] for
P12,300,000.00;"31 "to execute a contract or deed of sale in [his] favor x x x over the subject
property;"32 and to pay him actual and exemplary damages plus attorney's fees and litigation
expenses.33
What appears from all these contentions is that the action rests upon the basic hypothesis that,
prior to the second sale and delivery to petitioners, there was already a perfected sale of the Adelfa
property to respondent. Hence, Bunye was duty-bound to execute a deed of sale; and petitioners, to
reconvey the property to him. From this hypothesis sprang the CA's conclusion that the suit against
petitioners was for recovery of property.
We agree with the appellate court. Indeed, what respondent instituted against petitioners was a
real action for the recovery of property. It has been held that where a party makes a claim contrary
to ownership, and the relief prayed for cannot be granted without the court deciding on who has a
better right to the property, the suit is a real action.34
The correctness of the ruling as to the nature of the case, however, answers only half of the issue.
The other half is whether respondent has alleged a sufficient cause of action for recovery of
property against petitioners. Like the CA, we find that he indeed has. There are at least three
reasons for this conclusion.
First, it is readily apparent that respondent has stated a demandable right over the subject
property. Assaying the allegations of the Supplement to Amended Complaint -- allegations that
were hypothetically admitted to be correct for the purpose of the Motion to Dismiss -- he averred
that through an exchange of letters,35 a definite offer and an unqualified acceptance as to the object
of the sale and the cause or consideration therefor transpired between him and Bunye. Upon these
allegations, a contract of sale was deemed perfected as of December 29, 1993, the day he received
Bunye's letter of unqualified acceptance.36 From that moment, respondent acquired the legal right
to compel the transfer of ownership of the property to him.
Second, respondent has the right to compel petitioners to respect, not violate, his rights as a prior
buyer. His reference to the second sale to petitioners -- in paragraphs 8 and 10 of the Supplement to
Amended Complaint, in which he had alleged that they did not have any "rightful or valid title to the
subject property"37 -- was only for the purpose of underscoring that fact.
Third, despite the discrepancies and the linguistic lapses in the material averments of the
Supplement, the acts and/or the omissions that violated respondent's rights are fairly discernible
from the records and the pleadings of the plaintiff. They more than compensate for such
shortcomings.
By intervening38 in Civil Case No. 95-443, petitioners made of record -- long before the Amended
Complaint39 and the Supplement to Amended Complaint40 -- the essential factual allegation that
they had actual notice and knowledge of the claim of respondent against Bunye; but that, just the
same, they proceeded to purchase the subject property. Also, upon such intervention, the faxed
messages between them and Bunye regarding respondent's Complaint were inscribed in the record
of the case.
Likewise, the Oppositions41 of respondent to the Motion for Leave to Intervene and Motion to
Dismiss filed by petitioners are heavy with allegations of the latter's actual notice and knowledge of
the previous sale. He averred thus:
"4. In fact, Intervenors were officially notified on March 24, 1995 about plaintiff's earlier
contract with Madeliene E. Bunye on December 29, 1993 to purchase the same property.
The seller's refusal to honor the contract was highlighted in said letter which prompted
[respondent] to file this suit to enforce his contract against [Bunye], docketed as Civil Case
No. 94-443.
"5. Earlier on March 15, 1995, a Notice of Lis Pendens was filed by plaintiff before the
Register of Deeds, Makati, Metro Manila informing the Honorable Office of the pendency of a
case docketed as Civil Case No. 94-443 involving the property covered by TCT No. 17133.
"6. Based on these factual setting, it would readily reveal that Intervenors are no longer
buyers in good faith and as such has no interest whatsoever against both [respondent] and
[Bunye] much more on the property in question covered by TCT No. 171333 x x x."42
Clearly then, he has successfully shown their knowledge of his claim prior to the actual sale of the
property on March 30, 1995, before the registration of the property in their names on April 3, 1995.
In Voluntad v. Spouses Dizon,43 we explained as follows:
"x x x. It is a settled rule that a purchaser of real estate with knowledge of any defect or lack
of title of the vendor cannot claim that he has acquired title thereto in good faith as against
the true owner of the land or interest therein. The same rule applies to one with knowledge
of facts which should have put him on inquiry and investigation as might be necessary to
acquaint him with the defects in the title of his vendor. If circumstances exist that require a
prudent man to investigate and he does not, he is deemed to have acted in mala fide. A
party's mere refusal to believe that a defect exists or his willful closing of his eyes to the
possibility of the existence of a defect in his vendor's title will not make him an innocent
purchaser for value if it afterwards develops that the title was in fact defective. x x x."44
Taken together, the allegations in the Complaint, the pleadings of the plaintiff and the record of the
case sufficiently support a cause of action for recovery of property against petitioners. It is
generally accepted that when property belonging to a person is unlawfully or fraudulently taken by
another, the former has the right of action against the latter for the recovery of the property.45
Respondent himself recognizes that his causes of action against Bunye and petitioners, which are
subject to joinder under Section 5 of Rule 246 of the Rules of Court, are entirely different. Notably, he
stated in his Opposition47 to Urban Bank's Motion to Dismiss that his case was "one for specific
performance by Bunye and reconveyance by the Jimenezes." Certainly, as he seeks the
consummation of the Contract of Sale by Bunye, so also must he ensure the recovery of the
property, which was allegedly wrongfully registered in petitioners' name.
His averments as to Bunye are inclined to support the conclusion that there was a breach of
contract. Such breach gives rise to a cause of action for specific performance, the remedy he has
chosen as against rescission.48 To this effect, he contends that Bunye must be compelled to
complete the sale, to execute the Deed of Sale in accordance with the requirements of Article 1358
of the Civil Code, and to pay him actual damages for the breach and the circumvention of the
contract. Article 1475 of the Civil Code gives the parties to a perfected contract of sale the right to
reciprocally demand performance and to observe a particular form, if warranted.
On the other hand, respondent is not suing petitioners for contractual breach but for a recovery of
property. It is not relevant, therefore, even to argue that the parties have no privity of contract. We
stress that participation in a contract is not necessarily an element that determines the existence of
a cause of action.49
Having decided that the CA correctly ruled that respondent had a cause of action against
petitioners, we deem it no longer necessary to take up the other issues. These questions deal with
evidentiary facts that need to be finally resolved by the trial court after trial on the merits.
The Court must, however, emphasize the provisional nature of any ruling herein on the nature of
the contract between respondent and Bunye, as we have premised such ruling only on the
hypothetical admissions of petitioners' averments. Additionally, in determining that a cause of
action exists against petitioners, the Court has necessarily inquired only into the sufficiency, not the
veracity, of the material allegations.50 The truth of those allegations, as well as petitioners' defenses,
can be determined only after the parties have adduced their respective sets of evidence.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.
SO ORDERED.
"
,#

$$ concur.
#
$ on leave.
#$
1 Rollo, pp. 8-32.
2Id., pp. 34-59. Penned by Justice Romeo J. Callejo Sr. (Eleventh Division chairman and now
a member of this Court), with the concurrence of Justices Remedios Salazar-Fernando and
Perlita J. Tria Tirona (members).
3 CA Decision, pp. 25-26; rollo, pp. 58-59.
4 CA Decision, pp. 1-9; rollo, pp. 34-42.
5The Petition was deemed submitted for decision on July 9, 2003, upon the Court's receipt
of petitioners' Memorandum signed by Atty. Maria Katrina Bote-Veguillas of Padilla Jimenez
Kintanar & Asuncion Law Offices. Respondent's Memorandum, on the other hand, which
was signed by Atty. Ruscius G. Zaragoza, was received on April 2, 2003.
6 Petitioners' Memorandum, p. 6; rollo, p. 256.

7 §2 of Rule 2 of the Rules of Court. See also Westmont Bank v. Ong, 425 Phil. 834, 843,
January 30, 2002.
8Ceroferr Realty Corporation v. CA, 426 Phil. 522, 528, February 5, 2002; Relucio v. Lopez,
424 Phil. 617, 623, January 16, 2002; Sta. Clara Homeowners' Association v. Gaston, 425
Phil. 221, 240, January 23, 2000.
9Sarming v. Dy, 432 Phil. 685, 697, June 6, 2002; Sarne v. Maquiling, 431 Phil. 675, 685, May
9, 2002; Alemar's (Sibal & Sons), Inc. v. CA, 350 SCRA 333, 339, January 26, 2001; Saura v.
Saura Jr., 313 SCRA 465, 472, September 1, 1999; Salva v. CA, 364 Phil. 281, 303, March 11,
1999; Unilongo v. CA, 365 Phil. 105, 114, April 5, 1999; Abrin v. Campos, 203 SCRA 420, 423,
November 12, 1991.
10Gochan v. Young, 354 SCRA 207, 211 & 216, March 12, 2001; Saura v. Saura Jr., supra;
Spouses Abrin v. Campos, 203 SCRA 420, 423, November 12, 1991.
11A fact is considered essential if it cannot be stricken out without leaving the statement of
the cause of action inadequate. See Uy v. Evangelista, 413 Phil. 405, 415, July 11, 2003
(citing Vda. De Daffon v. CA, 436 Phil. 233, 240, August 20, 2002).
12 Vda. de Daffon v. CA, supra.
13Id., p. 39; Drilon v. CA, 357 SCRA 12, 22, April 20, 2001; Fil-Estate Golf and Development,
Inc. v. CA, 333 Phil. 465, 490, December 16, 1996.
14 Pabalan v. Santarin, 393 SCRA 203, 209, November 17, 2002; Heirs of Ambrosio Kionisala
v. Heirs of Honorio Dacut, 378 SCRA 206, 249, February 27, 2002; Fil-Estate Golf and
Development, Inc. v. CA, supra.
15 Ramos v. Condez, 127 Phil. 601, 606, August 30, 1967, per Angeles, J.
16Alberto v. CA, 390 Phil. 253, 264-265, June 30, 2000; City of Cebu v. CA, 327 Phil. 799,
807-808, July 5, 1996; Marcopper Mining Corporation v. Garcia, 227 Phil. 166, 176, July 30,
1986.
17Alberto v. CA, supra, p. 263 (citing Parañaque Kings Enterprises, Inc. v. CA, 335 Phil. 1184,
1195, February 26, 1997).
18 Article 1475 of the Civil Code.
Par. 3, Supplement to Amended Complaint; rollo, p. 296. Respondent's offer to buy was
19
made on December 27, 1993.
20 Par. 4, ibid.
21 Par. 5, ibid.
22 Par. 5.1, ibid.

23 Par. 6, id., pp. 296-297.
24 Par. 7, id., p. 297.
25 Par. 8, ibid.
26 Par. 9, ibid.
27 Par. 9.1, ibid.
28 Par. 11, id., p. 298.
29 Par. 12, ibid.
30 Par. 13, ibid.
31 Par. (a) of Prayer, ibid.
32 Par. (b), id., p. 299.
33 Paragraphs (c), (d) and (e) of the Prayer, ibid.
34Gumabon v. Larin, 422 Phil. 222, 228, November 27, 2001; Espeneli v. Santiago, 107 Phil.
830, 833, April 28, 1960.
35 Annexes "B" and "C" of the Supplement to Amended Complaint.
36Under the second paragraph of Article 1319 of the Civil Code, "acceptance by letter or
telegram does not bind the offeror except from the time it came to his knowledge."
37 Supplement to Amended Complaint, p. 4; rollo, p. 298; records, p. 240.
38Petitioners' Motion for Leave to Intervene was filed before the RTC on March 28, 1995;
records, pp. 32-36.
39 This was filed on September 12, 1995; id., pp. 169-173.
40The Supplement dated January 22, 1996 was filed by respondent on February 7, 1996; id.,
pp. 237-242.
41 Id., pp. 86-88 and pp. 224-229, respectively.
42 Id., pp. 86-87.
43 372 Phil. 82, 91, August 26, 1999.
44 Ibid, per Bellosillo, J.

45 Heirs of Seraspi v. CA, 387 Phil. 306, 314, April 28, 2000.
46 §5 of Rule 2 of the Rules of Court provides:
"SEC. 5. Joinder of causes of action. Ȃ A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an
opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of
parties;
(b) The joinder shall not include special civil actions or actions governed by special
rules;
(c) Where the causes of action are between the same parties but pertain to different
venues or jurisdictions, the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the jurisdiction of said court and the
venue lies therein; and
(d) Where the claims in all the causes of action are principally for recovery of
money, the aggregate amount claimed shall be the test of jurisdiction."
47 Par. 4.1 thereof; records, p. 330.
48 Under Article 1191 of the Civil Code, "[t]he injured party may choose between the
fulfillment and rescission of the obligation, with the payment of damages in either case. x x
x."
49 Sarming v. Dy, supra.
50 Dabuco v. CA, 379 Phil. 939, 949, January 20, 2000.

m
Manila
FIRST DIVISION

8+/#/'?8
] m petitioner,

vs.
m*!A<'-(1$)</#0/'#$?(#/2<+)(/($#D/
]$#$0(2*$ $#/#0(D/)(#($#D/B ! !*
!/#0 ] respondents.
p
This case arose from an action for specific performance and damages filed by & % 1
(petitioner) against the , (respondents), namely,
, (for himself and as the
Attorney-in-Fact of Julita Atienza, Benedicto De Leon and Rizalino Atienza), , ,

&
, and #
, , all compulsory heirs of spouses Artemio Atienza and
Esperenza Trinidad.
The records show that on April 13, 1977, respondents sold to petitioner a parcel of land in Tagaytay
City, with an area of approximately 158,386 square meters, for one million five hundred thousand
pesos (P1,500,000.00).2 At the time of the sale, the lot was still registered in the names of the
deceased parents of the respondents under #3. FFof the Register of Deeds of Cavite. The
Contract of Sale3 provides,
:
CONTRACT OF SALE
xxx xxx xxx
WHEREAS, the above named forced and/or compulsory heirs, herein referred to as the
SELLERS, have agreed as they hereby agree, to enter into a #
with the BUYER
involving the property covered by TCT No. T-6744;
NOW, THEREFORE, for and in consideration of ONE MILLION FIVE HUNDRED THOUSAND
PESOS (P1,500,000.00) the SELLERS hereby cede, transfer and convey and sell, as by these
presents,((',

(
), "() , %A<', his heirs,
successors in interest, assigns, executor or administrator, any and

&, ,

,

, "

"
#3. FFunder the
following terms and conditions:
TERMS OF PAYMENT:
a) The sum of TEN THOUSAND PESOS (P10,000.00) shall be paid by the BUYER to
the SELLERS upon the signing of this Contract of Sale;
b) 3+3<:ÄA3*Ä8 ????.??9 %A<'

(('
(('%A<'

.

&

(('
. However, the BUYER advance the necessary
amount to the SELLERS for the payment of their back taxes, inheritance tax and
other taxes which might be required by the Register of Deeds of Tagaytay City
before transfer certificate of title from the registered owners to the sellers can be
effected, but not exceeding NINETY THOUSAND PESOS (P90,000.00). Any and all
cash advances shall be deducted from the second payment of NINETY THOUSAND
PESOS (P90,000.00);
c) The sum of TWO HUNDRED SIXTY THOUSAND PESOS (P260,000.00) shall be paid
by the BUYER to the SELLERS thirty (30) days after the Transfer Certificate of Title
to the heirs and/or the SELLERS have been effected; and
d) The balance of ONE MILLION ONE HUNDRED FORTY THOUSAND PESOS

(P1,140,000.00) shall be paid by the BUYER to the SELLERS within two (2) years
from the date of the last payment of TWO HUNDRED SIXTY THOUSAND PESOS
(P260,000.00).
. . . (emphasis supplied)
Petitioner paid the down payment of ten thousand pesos (P10,000.00) on the date of the sale.4
In July 1977, respondent Pedro Atienza wrote a letter to petitioner, asking him for an additional
sum of fifty thousand pesos (P50,000.00). The money was intended for the inheritance and realty
taxes due on the subject property and other incidental expenses to facilitate the transfer of the title
of the subject property in their names.5
Petitioner refused to give the additional money. In a letter dated August 25, 1977, he pointed out
that under paragraph (b) of their Contract of Sale, the sum of ninety thousand pesos (P90,000.00)
would be due only upon presentation by the respondents of the new TCT showing that the subject
property was already registered in their names. Petitioner then asked respondent Pedro Atienza to
turn over to him the documents required by the Register of Deeds, namely: the owner's duplicate
copy of TCT No. T-6744, the original copies of the annexes of the Contract of Sale, the Petition for
Extra-judicial Partition, the Certificate of Publication of the Petition for Extra-judicial Partition, and
the Affidavit that the property is not planted with rice or corn. Respondents did not comply.
Thereafter, respondent's counsel, Atty. Antonio Jose Cortes, sent a demand letter to petitioner,
requiring him to pay the amount of ninety thousand pesos (P90,000.00) within three (3) days from
receipt of the letter.6 Petitioner insisted that paragraph (b) of the contract merely states that he
" " advance the necessary amount to the respondents for the settlement of their back taxes,
hence, such payment would be discretionary on his part.7
On November 1, 1977, petitioner retained the services of Mariano Jumarang as overseer of the
subject property for a monthly salary of P200.00 plus a 50% share in the net harvest of the crops to
be planted on the subject property.8 While awaiting the registration of the subject property in the
names of the respondents, petitioner also prepared project studies and subdivision plans for the
property.¢¢G
In the same month of November 1977, petitioner met Nicanor Papa, Sr., then Chairman of the Board
of Directors of Realty Baron Corporation (intervenor), through a broker named Ligaya Sangalang.
They discussed the possible sale of the subject property in favor of Realty Baron Corporation.
Petitioner showed Papa some of the plans for the Tagaytay property. He also gave Papa a copy of
the Contract of Sale dated April 13, 1977, as proof of his ownership over the subject property.9
Upon ocular inspection, however, Papa changed his mind and wanted to buy only the one-half
western portion of the property, with an area of approximately 87,555 square meters. He found the
other portion of the lot too steep and occupied by squatters. The sale did not push through.
In a letter dated January 8, 1978, petitioner again asked the respondents to deliver to him the
certificate of title of the subject property and other documents needed by the Register of Deeds of
Tagaytay City to effect the transfer of the title in his name.10
On January 31, 1978, Atty. Cortes executed a document called "Notarial Act for the Cancellation of
Contract to Sell as Provided for in Article 1592 of the New Civil Code and Republic Act 6552."11 A
copy of the said document was sent by registered mail to petitioner. Respondent Pedro Atienza also
returned the down payment and cash advances to petitioner through Philippine Trust Company
Check no. 309276.12 Petitioner, through his lawyer, returned the check to the respondents on March
1, 1978.13
Meanwhile, real estate agents persuaded the respondents to sell the property to Realty Baron
Corporation. Respondents agreed provided the corporation would advance the payment for the
taxes due on the property, as well as the documentation and registration expenses related to the
projected sale. Thus, Realty Baron Corporation advanced the amount of P100,000.00 as down
payment.
Eventually, respondents managed to have the subject property subdivided into two (2) lots. One lot
was registered in their names under #3. ¢E¢?. The other lot, with an area of approximately
eighty seven thousand five hundred fifty five (87,555) square meters, was covered by TCT No.
12106.14
On October 30, 1978,15 the lot covered by TCT No. 12106 was sold by respondents to Realty Baron
Corporation for eight hundred seventy five thousand five hundred fifty pesos (P875,550.00).
Accordingly, TCT No. T-12113 was issued in favor of Realty Baron Corporation.
On January 26, 1979, petitioner verified from the Register of Deeds of Tagaytay if respondents had
already secured a new title for the property. He discovered that the property sold to him has been
subdivided into two lots.16 He also learned that the respondents sold to Realty Baron Corporation
the property covered by TCT No. 12106 (now TCT No. 12113), the same area which Papa was
planning to buy from him.17
On January 27, 1979, petitioner wrote a letter18 to Felicito Papa, son of Nicanor Papa, Sr. and
President of Realty Baron Corporation, reminding the latter that he is the owner of the property
sold by the respondents.19
On April 3, 1979, a Notice of Adverse Claim was registered by petitioner in the Register of Deeds of
Tagaytay City, against TCT No.
T-12107.20 Petitioner also filed an adverse claim over the lot covered by TCT No. 12113. The
adverse claims were cancelled after the lapse of the period provided by law.
On December 29, 1979, petitioner filed the present action for specific performance and damages,
docketed as Civil Case No. 35608 before the Regional Trial Court of Pasig, to compel the
respondents to comply with their obligation to deliver the title over the property.
Petitioner also caused the annotation of a notice of over TCT Nos. 12107 and 12113
before the Register of Deeds of Tagaytay City.21 Thus, Realty Baron Corporation decided not to pay
the balance of the contract price in the amount of P520,000.00.22 It also intervened in the specific
performance case.
Petitioner claimed that due to respondents' nonperformance of their obligations under the contract,
he would need to spend more to develop the property. He also suffered sleepless nights and
experienced serious anxieties.23 Moreover, he was constrained to engage the services of a lawyer to
file the complaint for specific performance against the respondents for a P20,000.00 legal fee.24
On September 17, 1986, the lower court rendered its decision,25 declaring that there was a
perfected
between petitioner and the respondents. It held that title over the subject
lot did not pass to petitioner because the sale was subject to the condition that petitioner would
advance the necessary expenses for the registration of the property in the names of respondents.
Further, it held that petitioner was the one who reneged on his obligation so he could not
successfully demand for specific performance nor ask for damages. It ordered petitioner to pay
P100,000.00 as actual damages and P50,000.00 as attorney's fees. Realty Baron Corporation was
also directed to complete its payment of P500,000.00 to the respondents.
Petitioner's motion for reconsideration was denied. He appealed to the Court of Appeals.
On January 31, 1996, the Court of Appeals rendered its Decision in CA-G.R. CV No. 33213, affirming
the lower court ruling. Hence, the present petition. Petitioner contends that the appellate court
erred:
IN AFFIRMING THE TRIAL COURT'S DECISION NOTWITHSTANDING ITS FINDING THAT

"THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES";
II
IN CONCLUDING THAT PETITIONER "AGREED AND ASSUMED THE OBLIGATION TO

EXTEND CASH ADVANCES IN ORDER TO FACILITATE THE TRANSFER OF TITLE OF THE
PROPERTY SUBJECT OF THE CONTRACT IN FAVOR OF (THE ATIENZAS)";
III
IN DECLARING THAT THE ATIENZAS HAD THE RIGHT TO RESCIND THE CONTRACT OF
SALE BECAUSE OF PETITIONER'S REFUSAL TO ADVANCE THE PAYMENT INTENDED TO
PAY FOR TAXES AND OTHER FEES;
IV
IN DECLARING THAT, IN THE CASE AT BENCH, PETITIONER WAS "THE PARTY WHO DID
NOT PERFORM THE UNDERTAKING WHICH HE IS BOUND BY THE TERMS OF THE
AGREEMENT TO PERFORM, THUS, HE CANNOT INSIST ON THE PERFORMANCE OF THE
CONTRACT BY (THE ATIENZAS) OR RECOVER DAMAGES BY REASON OF HIS OWN
BREACH";
IN AFFIRMING THE TRIAL COURT'S CONCLUSION THAT THE GROUND FOR THE AWARD
OF DAMAGES AND ATTORNEY'S FEES WAS BASED ON JUDICIOUS FINDINGS'; AND
VI
IN AFFIRMING THE TRIAL COURT'S DECISION DISMISSING PETITIONER'S COMPLAINT

FOR SPECIFIC PERFORMANCE AND DAMAGES.
We grant the petition.
We agree with the initial ruling of the respondent court characterizing the contract in the case at
bar as a contract of sale. We quote its pertinent ruling:
Construing the foregoing, it can be seen that defendants-appellees (Atienzas) agreed to sell
and the plaintiff-appellant (petitioner) agreed to buy a definite object, that is 158,386 sq. m.
lot covered by TCT No. 6744 registered in the name of deceased spouses Atienza. The
parties also agreed on a definite price of One Million Five Hundred Thousand
(P1,500,000.00) Pesos. The contract here is complete since the parties have already agreed
not only on the thing and the price but also on who should bear the expenses with respect
to the transfer of title of the property subject of the sale. Hence,

. Article 1475 of the Civil Code of
the Philippines reads:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
the provisions of law governing the form of contracts.
From the moment the contract is perfected, the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all consequences which according to their
nature, may be in keeping with good faith, usage and law.
A perfected contract of sale, however, may either be absolute, or conditional. Depending on

whether the agreement is devoid of, or subject to, any condition imposed on the passing of
the title of the thing to be conveyed or on the obligation of a party thereto. When ownership
is retained until fulfillment of a positive condition the breach of the condition will simply
prevent the duty to convey title from acquiring an obligatory force. If the condition is
imposed on an obligation of a party which is not complied with, the other party may either
refuse to proceed or waive said condition.
In this case, the contract entered into by the parties is subject to the following terms and
conditions, to wit:
a. P10,000.00 upon signing of the contract;
b. P90,000.00 upon the defendants' (Atienzas) presentation to the plaintiff of a new

certificate of title of the property subject of the sale, registered in their name.
However, the plaintiff (buyer) may advance the necessary amount to the defendants
(sellers) for payment of their back taxes, inheritance tax and other taxes which
might be required by the Register of Deeds of Tagaytay City before the transfer
certificate of title from the registered owners (parents of the defendants) to the
defendants (sellers) can be effected but not exceeding P90,000.00 Any and all cash
advances made by the plaintiff to the defendants shall be deducted from the second
payment of P90,000.00;
Thus, the foregoing provides a () reciprocal obligations to be performed by the parties.
Compliance by one party of the aforementioned undertaking would, in turn, demand
performance of the reciprocal obligation of the other. There is no dispute that defendants-
appellees upon execution of the contract forthwith received and acknowledged the initial
payment of Ten Thousand (P10,000.00) Pesos, thus, the issue now is whether or not
defendants-appellants () can reject the binding effects of the contract.
We disagree, however, with the respondent court that under paragraph (b) of the above contract,
"plaintiff-appellant (.., petitioner) agreed and () assumed the obligation to extend cash
advances in order to facilitate the transfer of title of the property subject of the contract in favor of
the defendants (.., respondent Atienzas) and any amount extended to defendants (.., respondent
Atienzas) is deductible from the amount of Ninety Thousand (P90,000.00) Pesos." On these bases,
the respondent court held that the respondent Atienzas had a valid ground to rescind their contract
and sell half of the subject lot to the respondent Baron Corporation.
The rule is that where the language of a contract is plain and unambiguous, its meaning should be
determined without reference to extrinsic facts or aids. The intention of the parties must be
gathered from that language, and from that language alone. Stated differently, where the language
of a written contract is clear and unambiguous, the contract must be taken to mean that which, on
its face, it purports to mean, unless some good reason can be assigned to show that the words used
should be understood in a different sense. Courts cannot make for the parties better or more
equitable agreements than they themselves have been satisfied to make, or rewrite contracts
because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of
one party and to the detriment of the other, or by construction, relieve one of the parties from
terms which he voluntarily consented to, or impose on him those which he did not.26
In the case at bar, paragraph (b) of the Contract of Sale is plain and unambiguous. It provides that:
(1) the petitioner as buyer shall pay to the respondent Atienzas as seller the sum of P90,000.00
upon presentation to the buyer of a new certificate of title already registered in the name of the
sellers. At the time of the sale, the subject land was still in the name of the deceased parents of the
sellers; (2) the petitioner as buyer <advance to the respondents as sellers the necessary amount
(not exceeding P90,000.00) for the payment of such taxes as may be required before the transfer
certificate of title in favor of the sellers can be effected, and (3) in the event such advances are
made, they shall be deducted from the second payment of P90,000.00. The use of the word <is
significant. It meant that petitioner has the
whether or not to advance the P90,000.00. He
has to do it. It is purely optional on his part. It is incomprehensible for the respondent court
to construe it as mandatory. Needless to state, petitioner did not violate the contract when he
refused to pay the advance money. Corollarily, the respondent Atienzas had no right to rescind said
contract on that ground.
We now come to the validity of the sale by the respondent Atienzas to respondent Baron
Corporation. We hold that it has no force and effect. As had above-discussed, the respondent
Atienzas had no right to rescind the sale of the subject lot to petitioner. Moreover, respondent
Baron Corporation cannot pretend to be a buyer in good faith. In A
".#
,27 we
held that ". . . knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register the second buyer of the first to register the second sale, since such knowledge taints
his prior registration with bad faith. This is the price exacted by Article 1544 of the Civil Code for
the second buyer being able to displace the first buyer; that before the second can obtain priority
over the first, he must show that he acted in good faith throughout (.., in ignorance of the first sale
and of the first buyer's rights Ȅ from the time of acquisition until title is transferred to him by
registration or failing registration, by delivery of possession." There is no dispute that respondent
Baron Corporation knew that petitioner was the first buyer of the subject lot. Its initial plan was to
buy the whole lot from the petitioner. It changed its plan only when if found squatters on the hilly
portion of the property. Thus, it cannot claim the right of an innocent purchaser for value.
We have held that:28
One who purchases real estate with knowledge of a defect or lack of title in his vendor
cannot claim good faith as well as one who has knowledge of facts which should have put
him upon such inquiry or investigation as might be necessary to acquaint him with the
defects in the title of his vendor . . . His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of existence of a defect in the vendor's title, will
not make him an innocent purchaser for value if it afterwards develop that title was in fact
defective and it appears that he had such notice of defect as would have led to its discovery
had he acted with that measure of precaution which may reasonably be required of a
prudent man in a like situation.
On the other hand, we reject the petitioner's claim for damages. The court ! held that "the
records do not disclose that the plaintiff (.., petitioner) ever adduced evidence to prove
damages."29 This factual finding binds this Court.
IN VIEW WHEREOF, the questioned judgment of the Court of Appeals in CA-G.R. C.V. No. 33213 is
REVERSED and SET ASIDE. Instead, we render the following judgment:
1. The notarial rescission executed by Atty. Cortes on January 31, 1978, is declared null and
void and without force and effect on the Contract of Sale, dated April 13, 1977, executed
between petitioner and the respondents;
2. The estate of petitioner Angel Bautista and/or his legal heirs are declared as the true and
rightful owner of the subject parcel of land in Tagaytay City, formerly covered by TCT No. T-
6744, with an area of approximately 158,386 square meters, pursuant to the Contract of
Sale of April 13, 1977;
3. The Deed of Sale with Mortgage, dated October 30, 1978 and TCT No. T-12113 issued in
favor of respondent Realty Baron Corporation is declared null and void;
4. The administrator of petitioner's estate and/or the authorized representative of

petitioner's legal heirs are ordered to pay the balance of the purchase price of the Contract
of Sale of April 13, 1977, pursuant to the terms and conditions specified therein;
5. Respondent Atienzas are ordered to deliver TCT No. 12107 to the authorized
representative of the legal heirs of petitioner and/or the administrator of petitioner's estate
and to execute all the necessary documents as may be required by the Register of Deeds of
Tagaytay City to facilitate the issuance of the TCT in the names of petitioner's legal heirs;
6. The Regional Trial Court of Pasig, Branch CLX, is ordered to cause the cancellation by the
Register of Deeds of Tagaytay City of TCT No. T-12113 and TCT No. 12107 and the issuance,
thereof, of the corresponding certificate of title in the names of petitioner's legal
heirs.
SO ORDERED.¢¢G
* "$
#$C
<
&$$ concur.
#$
1Angel Bautista died on June 30, 1992, during the pendency of his appeal before the Court
of Appeals. He was substituted by his legal heirs, represented by his son, Crisostomo, who
died on June 23, 1998. Maria Veronica B. Bautista substituted Crisostomo as legal
representative of the heirs of deceased petitioner Angel Bautista.
2 Folder of Exhibits I, p. 1.
3 ' , p. 54.
4 Exhibits "J", "K" and "K-1", Folder of Exhibits I, pp. 19-a-21.
5 Exhibits "G", "G-1" to"G-5", Folder of Exhibits I, pp. 12-16.
6 Exhibit "2", Folder of Exhibits II, p. 6.
8 Exhibit "F", Folder of Exhibits I, p. 11.
9 TSN, April 30, 1981, pp. 8-9.
10 TSN, March 27, 1981, pp. 6-8.
11 Folder of Exhibits II, p. 8.
12 Exhibit "6-a."
13 TSN, January 22, 1982, pp. 35-39. Folder of Exhibits II, pp. 12-14 and 14-a.
14 ' , pp. 65-68.
15 Deed of Sale with Mortgage, ' , pp. 58-64.
16 TSN, March 27, 1981 pp. 8-10.
17 +., pp. 12-13.

18 +., pp. 14-16; Exhibit "LL", Folder of Exhibits I, p. 22.
19 +., pp. 20-23.
21 Exhibit "7", Folder of Exhibits III, p. 10.
22 TSN, January 22, 1982, pp. 53-55.
23 TSN, March 27, 1981, pp. 20-23.
24 +., pp. 23-24.
25 ' , pp. 74-85.
26 17A Am. Jur. 2d 348-349.
27 278 SCRA 702 (1997).
28 Leung Yee vs. F.L. Strong Machinery Co., 37 Phil. 644 (1918).
29 Decision, September 17, 1986, ' , p. 84.

m
Manila
FIRST DIVISION

8/'2-%
*
/#0 * petitioners,
vs.
44] m/#0 C mrespondents.
#
,

' $

"

: p
Petitioners seek to review the decision of the Court of Appeals dismissing their petition to reverse
the decision of the Regional Trial Court of Manila, the dispositive portion of which reads:
WHEREFORE, judgment is rendered:
(a) Vacating and setting aside the appealed judgment of the lower court;
(b) Ordering the defendants to vacate the premises under their respective
occupation and surrender possession thereof to the plaintiff;
(c) Ordering said defendants to pay to the plaintiff their rental in arrears computed
from March 1987 and their current rentals until they vacate the premises leased to
them at the following month rates:
NAMES RENTAL
(1) Francisco Merdeja P45.00

(2) Angelina Villarin 53.40
(3) Luz A. Mondejar 53.14
(4) Ramon Mondejar 48.31
(5) Virginia Pagco 62.76
(6) Asuncion Bandung 45.00
(7) Apolonia Vda. de Glory 3.14
(8) Angelina Molina 43.92
(9) Gaudencio Pagco 48.31
(10) Benjamin Aguilar 45.00
(11) Victor Maguad 45.00
(d) Ordering the defendants to pay their proportionate shares in the costs.
(e) Remand the records of this case to the court of origin for immediate execution.
SO ORDERED.8
Private respondent Peter Quimson is the owner of a parcel if land situated at San Isidro Street,
Singalong, Manila, with an area of 1,000 square meters and covered by TCT No. 173114.
When private respondent acquired the property on March 17, 1987 through sale at public auction,
eleven (11) occupants were in possession of the property with their respective residential houses
built thereon, among whom are herein petitioners.
Private respondent had earlier negotiated with petitioners for the latter to buy the portions they
occupy but petitioners backed off. Private respondent subsequently informed the lessees to pay
their back rentals and to remove their houses because he needed the property for his own use and
that of the immediate member of his family.
For failure of petitioners to heed private respondent's demand, a complaint for ejectment was filed
against petitioners and the other occupants of the property in the Metropolitan Trial Court of
Manila, Branch 6, docketed as Civil Case No. 125830.
Petitioners and the other defendants filed their answer denying that there were negotiations for
them to buy the property and alleging as affirmative defense that private respondent has no cause
of action as the property is within the area for priority development, hence, eviction of the occupant
families is prohibited under P.D. 2016.
During the trial of the case, only petitioners adduced their evidence. The other defendants waived
their right to present evidence for failure to appear at the trial.
After trial, the Metropolitan Trial Court rendered% judgment dismissing the complaint for ejectment
on the ground that there was a perfected sale over the property between private respondent and its
occupants and, consequently, said court had no jurisdiction over the case because the rights of the
parties should be governed not by the law on lease but by the law on sales, more specifically Article
1475 of the Civil Code.
Private respondent appealed the MTC's decision to the Regional Trial Court, Branch 35, where the
case was docketed as Civil Case No. 91-58880. Thereafter, the RTC rendered its decision, reversing
that of the Metropolitan Trial Court.
Not satisfied with the RTC's decision, petitioners filed a petition for review with the Court of
Appeals on the following grounds:
THE LOWER COURT ERRED WHEN IT DISREGARDED THE PERFECTED SALE

BETWEEN THE PARTIES AND ORDERED THE EJECTMENT OF DEFENDANTS.
II
THE DECISION IS IN ERROR WHEN THE FATAL DEFECT OF MISJOINDER OF

PARTIES WAS IGNORED.
The Court of Appeals in dismissing the petition ratiocinated:
A contract of sale is perfected from the time there exists and agreement upon the
thing which is the object of the contract and upon the price (Article 1475, Civil
Code).
Here, the price fixed by respondent Quimson as alleged in paragraph 8 of the

complaint is P970.00 per square meter, although respondent testified that the exact
price is P980.00 per square meter (page 6, RTC decision). According to petitioners,
however, all the defendants agreed to pay the price of P850.00 only per square
meter (page 5, RTC decision). Clearly, therefore, there was no agreement reached
between the parties as to the price of the lot in question. Consequently, as no price
was agreed upon, there can be no perfected contract of sale within the
contemplation of Article 1475 of the Civil Code. That there indeed was no perfected
contract of sale is further bolstered by the letter of petitioners' lawyer to
respondent Quimson dated June 24, 1988 (Exhibit "C", also Exhibit "1", page 19,
MRT record), the relevant portions of which state:
Our clients revealed to us that they have not consented much less
entered into any agreement on a direct purchase from you of their
respective occupied lots especially on the price you mentioned.
There is yet another factor that militates against petitioners' pretended perfected
sale of the property. In their answer to the complaint, (page 45, MTC record),
defendants (including the petitioners herein) never alleged that there was a
perfected contract of sale of the portion they were occupying. Paragraphs 4 & 5 of
defendants' answer aver:
4. The allegations contained in paragraphs 6, 7 and 8 are vehemently

denied, the truth of the matter being, that plaintiff on several
occasions demands exhorbitant rentals or payments for the property
and harassed them with threats to eject them for their occupied
spaces if they refuse to accept and oblige with his terms.
5. Paragraphs 9 and 10 of the complaint, are likewise denied on the

ground that defendants never recognized plaintiff as the owner of
the property in issue and most of all advised the latter that the same
was covered by a proclamation placing it under Area priority
development pursuant to the Urban Reform Law.
All these established facts debunk petitioners' claim or a perfected contract of sale
between them and respondent Peter Quimson.
On the second ground, petitioners vehemently assail the RTC decision which
allegedly ignored the misjoinder of parties. Citing the case of
"

, 144 SCRA 377, petitioners contend that there is misjoinder of parties
because the claim against the defendants are separate and distinct.
The Flores decision,

, finds no application in this case. The Supreme Court
dismissed the complaint because the claim against Ignacio Binongcal for P11,643.00
on the first cause of action and the claim against Fernando Calion for P10,212.00 on
the second cause of action, are separate and distinct and neither of which falls
within the original exclusive jurisdiction of the Regional Trial Court under Section
19(8) of B.P. 129 where the amount of the demand is more than P20,000.00.
In the case at bar, the cause of action for the ejectment against all the defendants,
including the petitioners, is for non-payment of rentals from 1987 to the present.
The relief sought against all the defendants is the same, i.e., to vacate the premises
and to pay the rentals in arrears.
We thus agree with the trial court that Ȅ
Arrears in payment of rentals for a total of three months is a ground

for judicial ejectment (Sec. 5-b, Batas Pambansa Blg. 877, as
amended and extended by Rep. Act. No. 6828). In this case, the
defendants admitted among others, during the pre-trial, the
respective rates of rental they have been paying to the previous
owners; that the title to the land in question has been transferred to
the plaintiff in March 1987; that they have not been paying their
rentals since June 1985; and that they received the letters of demand
of the plaintiff (Record, p. 178). However, the plaintiff is entitled to
recover the unpaid rentals only from March 1987 when he became
the owner-lessor of the land in question.
This is a good example of how persons who have failed to adduce any legal grounds
for their continued stay on property belonging to another have nonetheless
managed to stave off eviction for more than four years although with respect to the
other defendants in the case, writs of execution had already been issued against
them.
In the instant recourse, petitioners assail the Court of Appeals' decision alleging as their lone
assigned error that Ȅ
THE LOWER COURT ERRED WHEN IT DID NOT CONSIDER AGAINST PLAINTIFF
FATAL ALLEGATIONS IN THE COMPLAINT WHICH CLEARLY INDICATES LACK OF
CAUSE OF ACTION BUT RATHER CURED THE SAME THROUGH DEFENDANTS
ANSWER.
The petition is devoid of merit.
As correctly found by both the Court of Appeals and the Regional Trial Court on the basis of the
evidence, there was no meeting of the minds between the parties regarding the offer by private
respondent to sell his property to the occupants. Private respondent wanted P980.00 per square
meter, but the occupants were willing to pay only P850.00.
In arguing that there was a perfected contract of sale, petitioners wrongly capitalize on the
allegations in the complaint, to wit:
8. That this time, upon receipt of Annex "D", defendants negotiated with the
plaintiff's offer to buy the area actually occupied by their houses at P970.00 a square
meter on easy monthly installment for five (5) years.
9. To consumate the agreement, plaintiff engaged the services of a Geodetic

Engineer who prepared a subdivision plan delineating the boundaries of the area to
be assigned to each of the defendants.
10. That however, after approving the proposed subdivision plan, the defendants
suddenly and abruptly changed their minds and repudiated the agreement which is
already a perfected contract, and deliberately and maliciously refused to continue
negotiating with the plaintiff as expressed in the attached letter of their counsel
marked as ANNEX "E" and made an integral part hereof.
However, as the Court of Appeals had appointed out in its decision, petitioners categorically denied
in paragraphs 4 and 5 of their answer whatever imputations there are in paragraphs 8 to 10 of the
Complaint of the alleged existence of a perfected contract. In other words, petitioners in their
answer never claimed ownership of the lot; they only put up the defense that the property is within
one of the areas proclaimed for priority development and, therefore, their eviction is prohibited
pursuant to P.D. 2016.
The phrase "perfected contract" in paragraph 10 of the complaint is used in its loose sense and does
not connote that there was a meeting of the minds between the parties. Observe that after the
statement in said paragraph that "after approving the proposed subdivision plan, the defendants
suddenly and abruptly changed their minds and repudiated the agreement which is already a
perfected contract," there immediately follows the qualifying allegation that "[defendants]
deliberately and maliciously refused to continue negotiating with the plaintiff as expressed in the
attached letter of their counsel marked as Annex 'E' and made an integral part thereof.
The words "refused to continue negotiating with the plaintiff" have no other meaning except that
there was a negotiation regarding the offer to sell, but the negotiation fell through because of the
refusal of petitioners and the other occupants to talk further as evidenced by the letter of their
counsel, which is Annex "C" of the complaint.
The letter referred to, which is dated June 24, 1988, states in part:
Our client revealed to us that the have not consented much less entered into by
agreement on a direct purchase from you of their respective occupied lots especially
on the price you mentioned.9
Finally, even granting that there was a perfected contract of sale, it can be implied that there was
subsequently a mutual withdrawal or "mutual backing out" from the contract. This conclusion may
be drawn from the fact of the filing by private respondent of the complaint for ejectment, in which
he alleged ownership of the property in question and from the averments in petitioners' answer
wherein they never claimed ownership of the property by purchase from private respondent.
In !" -, involving a sale of land mutually cancelled by both contracting parties, this
Court emphasized that the rescission of the contract between the plaintiff and the defendant was
not originated by any of the causes specified in Arts. 1291 and 1292 (now Arts. 1381 and 1832 of
the New Civil Code), nor is it a relief for the purposes sought by these articles; it is simply another
contract for the dissolution of the previous one, and its effects, in relation to the contract so
dissolved, should be determined by the agreement of the parties, or by the application of other legal
provisions, not by Article 1295 (now Art. 1385 of the Civil Code).
WHEREFORE, the petition is DENIED for lack of merit. No pronouncement as to costs.
#
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1 Original Records, pp. 388-396.

2 +., pp. 395-396.
3 ., pp. 1-6.
4 ., pp. 279-283.
5 ' , pp. 23-25.
6 Records, p. 4.
7 Exhibit "C", Records, p. 19.
8 Paras, Civil Code, Vol. IV, p. 659, 1989 Ed.
9 39 Phil. 517.

G.R. No. 156539 September 5, 2007
DOMINGO A. DIZON vs. ELPIDIO R. DIZON

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vs.
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Before us is the instant Petition for Review on #

under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, assailing the Decision1 dated October 18, 2002 and
Resolution2 dated January 7, 2003 rendered by the Court of Appeals in CA-G.R. SP No.
45492, entitled " '*,
":

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Domingo A. Dizon, petitioner, purchased from his nephew, Elpidio R. Dizon (herein
respondent), a house and lot located on Limay St., Tondo, Manila. However, respondent
failed to deliver the house and lot to petitioner. It appears that the co-owner of the lot,
respondentǯs brother Ricardo, did not give said respondent a written authority to sell his
½ share. Consequently, petitioner filed with the Regional Trial Court (RTC), Branch 41,
Manila a complaint for specific performance and sum of money with damages against
respondent, docketed as Civil Case No. 90-51838.
On March 20, 1992, the trial court rendered a Decision rescinding the contract of sale
between the parties, thus:
PREMISES CONSIDERED, judgment is hereby rendered:
1) declaring the contract of sale entered into by and between plaintiff and
defendant over that undivided portion of Lot 27-B-3 in the name of Ricardo Dizon
and the building constructed thereon rescinded;
2) ordering defendant to pay plaintiff as follows:
a) a sum of P207,000.00 with interest thereon at the legal rate from January 29,
1990 until the same is fully paid;
b) the sum of P350,000.00 with interest thereon at the rate of 3% a month from
January 29, 1990 until the same is fully paid; and
c) the sum of P50,000.00 as and by way of attorneyǯs fees and expenses of

litigation.3
On January 13, 1997, the trial court issued a writ of execution implemented by sheriff
Cesar Cabildo. He scheduled the auction sale of respondentǯs properties for the
satisfaction of the above judgment on April 3, 1997 at 10:00 a.m.
Petitionerǯs attorney-in-fact as well as respondent and his counsel participated in the

sale. Petitioner emerged as the highest bidder, having offered P180,000.00 for the two (2)
parcels of land owned by respondent which were attached by the sheriff.
The proceedings at the auction sale were duly recorded in the Minutes of Sheriffǯs Sale4
signed by the parties and their counsels.
In the afternoon of the same date, the sheriff went to the house of respondent and
showed him the "Supplemental Minutes on Sheriffǯs Sale" specifying that petitionerǯs
counsel arrived at 10:45 a.m. (after the auction sale at 10:25 a.m.) and offered a new bid
of P1,690,074.41 covering the same properties in lieu of the earlier bid of P180,000.00.
Respondent refused to sign the supplemental sale contending that it will be difficult for
him to redeem the property. Besides, the auction sale had already been perfected and,
therefore, the subsequent sale is "a new or second sale." Consequently, he filed a motion
to quash the "Supplemental Minutes on Sheriffǯs Sale" alleging inter alia that the
supplemental sale is void because it was prepared at 10:25 a.m. after the auction sale at
10:00 a.m.
In an Order dated May 5, 1997, the trial court denied respondentǯs motion to quash "it
appearing that the subject supplemental sale redounds to the benefit of movant-
defendant as it obviates the execution and/or garnishment of any other property, income,
or deposits of movant-defendant."5
Respondent filed a motion for reconsideration, but it was also denied by the trial court in
its Order dated August 12, 1997. He then filed a petition for

and prohibition
with the Court of Appeals alleging that the RTC judge committed grave abuse of
discretion in upholding the validity of the "Supplemental Minutes on Sheriffǯs Sale."
In its assailed Decision dated October 18, 2002, the appellate court granted the petition
and set aside the questioned Orders of the RTC dated May 5, 1997 and August 12, 1997,
thus:
The record shows that the auction sale begun on time, that is 10:00 AM of April 3,
1997, wherein .-&/'($/6$))/-$(''$&$2(;$2#$) appeared and
participated in the bid as reflected in the Minutes of Sheriffǯs Sale. As certified by
the respondent sheriff himself, the said sale was finished at exactly 10:25 oǯclock
in the morning of said date. The amended bid therefore of private respondentǯs
counsel made at 10:45 AM of even date could not be considered as valid as the
same was made after the perfection of the auction sale.
xxx
Consequently, the respondent judge is considered to have gravely abused his

discretion in upholding the validity of the Supplemental Minutes on Sheriffǯs Sale.6
Petitioner filed a motion for reconsideration but it was denied by the appellate court in
its Resolution dated January 7, 2003.
Petitioner contends that as the highest bidder, he has the option to amend his bid in order
to conform to the amounts awarded in his favor by the trial court.
Respondent maintains that since the auction sale had been perfected, its consideration
can no longer be modified; and that it will be difficult for him to redeem his properties
valued at P1,690,074.41 instead of only P180,000.00.
Article 1476, paragraph 2 of the Civil Code provides:
Article 1476. In the case of a sale by auction:
xxx
(2) A sale by auction is perfected when the auctioneer announces its perfection by
the fall of the hammer, or in other customary manner. Until such announcement is
made, any bidder may retract his bid; and the auctioneer may withdraw the goods
from the sale unless the auction has been announced to be without reserve.
During the public auction conducted on April 3, 1997 which ended at 10:25 a.m., the
sheriff declared petitioner the highest bidder. Considering that the auction sale had
already been perfected, a supplemental sale with higher consideration at the instance of
only one party (herein petitioner) could no longer be validly executed.
We therefore rule that in denying respondentǯs motion to quash the "Supplemental

Minutes on Sheriffǯs Sale," and declaring the supplemental sale valid, the trial court
gravely abused its discretion.
=4, we * the petition and the challenged Decision and Resolution
of the Court of Appeals in CA-G.R. SP No. 45492. Costs against petitioner.
m**
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1Penned by Associate Justice Eubulo G. Verzola (deceased) and concurred in by

Associate Justice Teodoro P. Regino (retired) and Associate Justice Sergio L.
Pestaño (deceased), Annex "A" of the petition, rollo, pp. 21-26.
2 Annex "C" of the petition, id., pp. 33-34.
3 Id., p. 47.
4 Id., p. 60.
5 Id., p. 62.
6 Id., p. 25.

G.R. No. 149734 November 19, 2004
DR. DANIEL VAZQUEZ, ET AL. vs. AYALA CORPORATION

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Manila
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The rise in value of four lots in one of the country's prime residential developments,
Ayala Alabang Village in Muntinlupa City, over a period of six (6) years only, represents
big money. The huge price difference lies at the heart of the present controversy.
Petitioners insist that the lots should be sold to them at 1984 prices while respondent
maintains that the prevailing market price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on Certiorari2
dated October 11, 2001 assailing the Decision3 of the Court of Appeals dated September 6,
2001 which reversed the Decision4 of the Regional Trial Court (RTC) and dismissed their
complaint for specific performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following
antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter,
Vasquez spouses) entered into a Memorandum of Agreement (MOA) with Ayala
Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all
of the latter's shares of stock in Conduit Development, Inc. (hereafter, Conduit).
The main asset of Conduit was a 49.9 hectare property in Ayala Alabang,
Muntinlupa, which was then being developed by Conduit under a development
plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente
Village." The development was then being undertaken for Conduit by G.P.
Construction and Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, less what was defined
as the "Retained Area" consisting of 18,736 square meters. This "Retained Area"
was to be retained by the Vazquez spouses. The area to be developed by Ayala
was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to
the "Retained Area" and Ayala agreed to offer these lots for sale to the Vazquez
spouses at the prevailing price at the time of purchase. The relevant provisions of
the MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining Property'
into a first class residential subdivision of the same class as its New Alabang
Subdivision, and that it intends to complete the first phase under its amended
development plan within three (3) years from the date of this Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option to purchase four
developed lots next to the "Retained Area" at the prevailing market price at the
time of the purchase."
The parties are agreed that the development plan referred to in paragraph 5.7 is
not Conduit's development plan, but Ayala's amended development plan which
was still to be formulated as of the time of the MOA. While in the Conduit plan, the
4 lots to be offered for sale to the Vasquez Spouses were in the first phase thereof
or Village 1, in the Ayala plan which was formulated a year later, it was in the
third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as
follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the
Company showing:
xxx
D. A list of all persons and/or entities with whom the Company has pending
contracts, if any.
xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to fulfillment prior
to or at the Closing, of the following conditions:
4.1. The representations and warranties by the SELLERS contained in this
Agreement shall be true and correct at the time of Closing as though such
representations and warranties were made at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the BUYER that at
the time of the execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of

the SELLERS, threatened against or affecting the SELLERS with respect to the
Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at

Closing in accordance with Par. 3.1.5 above, the SELLER jointly and severally
warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing,
the Company shall own the "Remaining Property", free from all liens and
encumbrances and that the Company shall have no obligation to any party except
for billings payable to GP Construction & Development Corporation and advances
made by Daniel Vazquez for which BUYER shall be responsible in accordance with
Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial

Statements of the Company as of Closing, and those disclosed to BUYER, the
Company as of the date thereof, has no liabilities of any nature whether accrued,
absolute, contingent or otherwise, including, without limitation, tax liabilities due
or to become due and whether incurred in respect of or measured in respect of
the Company's income prior to Closing or arising out of transactions or state of
facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for
any assertion against the Company as at closing or any liability of any nature and
in any amount not fully reflected or reserved against such Audited Financial
Statements referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the

Closing, the Company is not engaged in or a party to, or to the best of the
knowledge of the SELLERS, threatened with, any legal action or other proceedings
before any court or administrative body, nor do the SELLERS know or have
reasonable grounds to know of any basis for any such action or proceeding or of
any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due
performance and observance by the Company of any term, covenant or condition
of any instrument or agreement to which the company is a party or by which it is
bound, and no condition exists which, with notice or lapse of time or both, will
constitute such default or breach."
After the execution of the MOA, Ayala caused the suspension of work on Village 1
of the Don Vicente Project. Ayala then received a letter from one Maximo Del
Rosario of Lancer General Builder Corporation informing Ayala that he was
claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with Lancer, on
March 22, 1982, Lancer sued G.P. Construction, Conduit and Ayala in the then
Court of First Instance of Manila in Civil Case No. 82-8598. G.P. Construction in
turn filed a cross-claim against Ayala. G.P. Construction and Lancer both tried to
enjoin Ayala from undertaking the development of the property. The suit was
terminated only on February 19, 1987, when it was dismissed with prejudice
after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the
"Retained Area" within 3 years from the date of the MOA, the Vasquez spouses
sent several "reminder" letters of the approaching so-called deadline. However,
no demand after April 23, 1984, was ever made by the Vasquez spouses for Ayala
to sell the 4 lots. On the contrary, one of the letters signed by their authorized
agent, Engr. Eduardo Turla, categorically stated that they expected "development
of Phase 1 to be completed by February 19, 1990, three years from the settlement
of the legal problems with the previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be
offered for sale. The four lots were then offered to be sold to the Vasquez spouses
at the prevailing price in 1990. This was rejected by the Vasquez spouses who
wanted to pay at 1984 prices, thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which
states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and against

defendant, ordering defendant to sell to plaintiffs the relevant lots described in
the Complaint in the Ayala Alabang Village at the price of P460.00 per square
meter amounting to P1,349,540.00; ordering defendant to reimburse to plaintiffs
attorney's fees in the sum of P200,000.00 and to pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez spouses were not
obligated to disclose the potential claims of GP Construction, Lancer and Del
Rosario; Ayala's accountants should have opened the records of Conduit to find
out all claims; the warranty against suit is with respect to "the shares of the
Property" and the Lancer suit does not affect the shares of stock sold to Ayala;
Ayala was obligated to develop within 3 years; to say that Ayala was under no
obligation to follow a time frame was to put the Vasquezes at Ayala's mercy; Ayala
did not develop because of a slump in the real estate market; the MOA was
drafted and prepared by the AYALA who should suffer its ambiguities; the option
to purchase the 4 lots is valid because it was supported by consideration as the
option is incorporated in the MOA where the parties had prestations to each
other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that
petitioners did not breach their warranties under the MOA6 dated April 23, 1981; that it
was obliged to develop the land where the four (4) lots subject of the option to purchase
are located within three (3) years from the date of the MOA; that it was in delay; and that
the option to purchase was valid because it was incorporated in the MOA and the
consideration therefor was the commitment by Ayala Corporation to petitioners
embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to
the appellate court, Ayala Corporation was never informed beforehand of the existence of
the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on
May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals thus held that
petitioners violated their warranties under the MOA when they failed to disclose Lancer's
claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the
four (4) lots in question within three (3) years from the date of the MOA, the obligation
was suspended during the pendency of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala
Corporation committed to develop the first phase of its own amended development plan
and not Conduit's development plan. Nowhere does the MOA provide that Ayala
Corporation shall follow Conduit's development plan nor is Ayala Corporation prohibited
from changing the sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as
petitioners never made a demand for Ayala Corporation to sell the subject lots to them.
According to the appellate court, what petitioners sent were mere reminder letters the
last of which was dated prior to April 23, 1984 when the obligation was not yet
demandable. At any rate, the Court of Appeals found that petitioners in fact waived the
three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla,
stating that they "expect that the development of Phase I will be completed by 19
February 1990, three years from the settlement of the legal problems with the previous
contractor."7
The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option
contract but a right of first refusal there being no separate consideration therefor. Since
petitioners refused Ayala Corporation's offer to sell the subject lots at the reduced 1990
price of P5,000.00 per square meter, they have effectively waived their right to buy the
same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they
violated their warranties under the MOA; that Ayala Corporation was not obliged to
develop the "Remaining Property" within three (3) years from the execution of the MOA;
that Ayala was not in delay; and that paragraph 5.15 of the MOA is a mere right of first
refusal. Additionally, petitioners insist that the Court should review the factual findings of
the Court of Appeals as they are in conflict with those of the trial court.
Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002, contending
that the petition raises questions of fact and seeks a review of evidence which is within
the domain of the Court of Appeals. Ayala Corporation maintains that the subcontract
between GP Construction, with whom Conduit contracted for the development of the
property under a Construction Contract dated October 10, 1980, and Lancer was not
disclosed by petitioners during the negotiations. Neither was the liability for Lancer's
claim included in the Audited Financial Statements submitted by petitioners after the
signing of the MOA. These justify the conclusion that petitioners breached their
warranties under the afore-quoted paragraphs of the MOA. Since the Lancer suit ended
only in February 1989, the three (3)-year period within which Ayala Corporation
committed to develop the property should only be counted thence. Thus, when it offered
the subject lots to petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or proceeding against

them at the time of the execution of the MOA on April 23, 1981, Ayala Corporation avers
that the facts and circumstances which gave rise to the Lancer claim were already extant
then. Petitioners warranted that their representations under the MOA shall be true and
correct at the time of "Closing" which shall take place within four (4) weeks from the
signing of the MOA.9 Since the MOA was signed on April 23, 1981, "Closing" was
approximately the third week of May 1981. Hence, Lancer's claims, articulated in a letter
which Ayala Corporation received on May 4, 1981, are among the liabilities warranted
against under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just
against suits but against all kinds of liabilities not reflected in the Audited Financial
Statements. It cannot be faulted for relying on the express warranty that except for
billings payable to GP Construction and advances made by petitioner Daniel Vazquez in
the amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot
claim that Ayala Corporation should have examined and investigated the Audited
Financial Statements of Conduit and should now assume all its obligations and liabilities
including the Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the

development of the first phase of the property within three (3) years from the execution
of the MOA. The provision refers to a mere declaration of intent to develop the first phase
of its (Ayala Corporation's) own development plan and not Conduit's. True to its
intention, Ayala Corporation did complete the development of the first phase (Phase II-A)
of its amended development plan within three (3) years from the execution of the MOA.
However, it is not obliged to develop the third phase (Phase II-C) where the subject lots
are located within the same time frame because there is no contractual stipulation in the
MOA therefor. It is free to decide on its own the period for the development of Phase II-C.
If petitioners wanted to impose the same three (3)-year timetable upon the third phase of
the amended development plan, they should have filed a suit to fix the time table in
accordance with Article 119710 of the Civil Code. Having failed to do so, Ayala Corporation
cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the performance
of its alleged obligation. The letter dated October 4, 1983 sent when petitioners were
already aware of the Lancer suit did not demand the delivery of the subject lots by April
23, 1984. Instead, it requested Ayala Corporation to keep petitioners posted on the status
of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry as to the date
when the development of Phase 1 will be completed. More importantly, their letter dated
June 27, 1988 through Engr. Eduardo Turla expressed petitioners' expectation that Phase
1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first
refusal and not an option contract.
Petitioners filed their Reply11 dated August 15, 2002 reiterating the arguments in their
Petition and contending further that they did not violate their warranties under the MOA
because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight
(8) days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that
it received Lancer's claim before the "Closing" date. It therefore had all the time to
rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did
not consider the matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and

allowed an acquisition audit to be conducted by Ayala Corporation. Thus, the latter
bought Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the impending case against
Conduit at the time of the execution of the MOA. Further, the MOA makes Ayala
Corporation liable for the payment of all billings of GP Construction. Since Lancer's claim
was actually a claim against GP Construction being its sub-contractor, it is Ayala
Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of
its development plan, it is obliged under the MOA to develop the entire area where the
subject lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their
obligation under the MOA. Apart from their reminder letters dated January 24, February
18 and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a
categorical demand for Ayala Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution12
dated November 18, 2002. In compliance with this directive, petitioners submitted their
Memorandum13 dated February 14, 2003 on even date, while Ayala Corporation filed its
Memorandum14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of
Appeals by way of petition for review under Rule 45 is limited to reviewing or revising
errors of law imputed to it, its findings of fact being conclusive on this Court as a matter
of general principle. However, since in the instant case there is a conflict between the
factual findings of the trial court and the appellate court, particularly as regards the
issues of breach of warranty, obligation to develop and incurrence of delay, we have to
consider the evidence on record and resolve such factual issues as an exception to the
general rule.15 In any event, the submitted issue relating to the categorization of the right
to purchase granted to petitioners under the MOA is legal in character.
The next issue that presents itself is whether petitioners breached their warranties under
the MOA when they failed to disclose the Lancer claim. The trial court declared they did
not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly
breached when they failed to disclose the Lancer claim:
a) Clause 7.1.1. Ȃ that Conduit shall not be obligated to anyone except to GP

Construction for P38,766.04, and for advances made by Daniel Vazquez;
b) Clause 7.1.2. Ȃ that except as reflected in the audited financial statements

Conduit had no other liabilities whether accrued, absolute, contingent or
otherwise;
c) Clause 7.2. Ȃ that there is no basis for any assertion against Conduit of any
liability of any value not reflected or reserved in the financial statements, and
those disclosed to Ayala;
d) Clause 7.6.3. Ȃ that Conduit is not threatened with any legal action or other
proceedings; and
e) Clause 7.6.4. Ȃ that Conduit had not breached any term, condition, or covenant
of any instrument or agreement to which it is a party or by which it is bound.16
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners

substantially apprised Ayala Corporation of the Lancer claim or the possibility thereof
during the period of negotiations for the sale of Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala

Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of
Conduit, Ayala Corporation asked for and was given information that GP Construction
sub-contracted, presumably to Lancer, a greater percentage of the project than it was
allowed. Petitioners gave this information to Ayala Corporation because the latter
intimated a desire to "break the contract of Conduit with GP." Ayala Corporation did not
deny this. In fact, Mr. Duarte's letter18 dated March 6, 1984 indicates that Ayala
Corporation had knowledge of the Lancer subcontract prior to its acquisition of Conduit.
Ayala Corporation even admitted that it "tried to exploreǥlegal basis to discontinue the
contract of Conduit with GP" but found this "not feasible when information surfaced
about the tacit consent of Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim before the date of
Closing of the MOA. Lancer's letter19 dated April 30, 1981 informing Ayala Corporation of
its unsettled claim with GP Construction was received by Ayala Corporation on May 4,
1981, well before the "Closing"20 which occurred four (4) weeks after the date of signing
of the MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that
certain matters pertaining to the liabilities of Conduit were disclosed by petitioners to
Ayala Corporation although the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing,
the Company shall own the "Remaining Property", free from all liens and
encumbrances and that the Company shall have no obligation to any party except
for billings payable to GP Construction & Development Corporation and advances
made by Daniel Vazquez for which BUYER shall be responsible in accordance with
Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial

Statements of the Company as of Closing, and those disclosed to BUYER, the
Company as of the date hereof, has no liabilities of any nature whether accrued,
absolute, contingent or otherwise, including, without limitation, tax liabilities due
or to become due and whether incurred in respect of or measured in respect of
the Company's income prior to Closing or arising out of transactions or state of
facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for
any assertion against the Company as at Closing of any liability of any nature and
in any amount not fully reflected or reserved against such Audited Financial
Statements referred to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the

Closing, the Company is not engaged in or a party to, or to the best of the
knowledge of the SELLERS, threatened with, any legal action or other proceedings
before any court or administrative body, nor do the SELLERS know or have
reasonable grounds to know of any basis for any such action or proceeding or of
any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due
performance and observance by the Company of any term, covenant or condition
of any instrument or agreement to which the Company is a party or by which it is
bound, and no condition exists which, with notice or lapse of time or both, will
constitute such default or breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with
any legal action or proceeding is qualified by Ayala Corporation's actual knowledge of the
Lancer claim which was disclosed to Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction
and the advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of
the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility "for
the payment of all billings of the contractor GP Construction & Development Corporation
after the first billing and any payments made by the company and/or SELLERS shall be
reimbursed by BUYER on closing which advances to date is P1,159,012.87."22
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer
claim for which GP Construction is liable. Proof of this is Ayala Corporation's letter23 to GP
Construction dated before "Closing" on May 4, 1981, informing the latter of Ayala
Corporation's receipt of the Lancer claim embodied in the letter dated April 30, 1981,
acknowledging that it is taking over the contractual responsibilities of Conduit, and
requesting copies of all sub-contracts affecting the Conduit property. The pertinent
excerpts of the letter read:
In this connection, we wish to inform you that this morning we received a letter
from Mr. Maximo D. Del Rosario, President of Lancer General Builders
Corporation apprising us of the existence of subcontracts that they have with
your corporation. They have also furnished us with a copy of their letter to you
dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development,

Inc., we believe that it is necessary, at this point in time, that you furnish us with
copies of all your subcontracts affecting the property of Conduit, not only with
Lancer General Builders Corporation, but all subcontracts with other parties as
wellǥ24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25 dated July 9, 1992
a copy of the letter26 dated May 28, 1981 of GP Construction's counsel addressed to
Conduit furnishing the latter with copies of all sub-contract agreements entered into by
GP Construction. Since it was addressed to Conduit, it can be presumed that it was the
latter which gave Ayala Corporation a copy of the letter thereby disclosing to the latter
the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the
MOA. The Lancer sub-contract and claim were substantially disclosed to Ayala
Corporation before the "Closing" date of the MOA. Ayala Corporation cannot disavow
knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention
the filing of the Lancer suit as an obstacle to its development of the property, it never
actually brought up nor sought redress for petitioners' alleged breach of warranty for
failure to disclose the Lancer claim until it filed its Answer27 dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this
paragraph express a commitment or a mere intent on the part of Ayala Corporation to
develop the property within three (3) years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into
a first class residential subdivision of the same class as its New Alabang
Subdivision, and that it intends to complete the first phase under its amended
development plan within three (3) years from the date of this Agreementǥ.28
Notably, while the first phrase of the paragraph uses the word "commits" in reference to
the development of the "Remaining Property" into a first class residential subdivision, the
second phrase uses the word "intends" in relation to the development of the first phase of
the property within three (3) years from the date of the MOA. The variance in wording is
significant. While "commit"29 connotes a pledge to do something, "intend"30 merely
signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division who
assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point.
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the tentative
character of the period of development because it will be noted that the sentence
refers to and I quote "to complete the first phase under its amended development
plan within three (3) years from the date of this agreement, at the time of the
execution of this agreement, your Honor." That amended development plan was
not yet in existence because the buyer had manifested to the seller that the buyer
could amend the subdivision plan originally belonging to the seller to conform
with its own standard of development and second, your Honor, (interrupted)31
It is thus unmistakable that this paragraph merely expresses an intention on Ayala

Corporation's part to complete the first phase under its amended development plan
within three (3) years from the execution of the MOA. Indeed, this paragraph is so plainly
worded that to misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear reference to the
first phase of Ayala Corporation's amended development plan as the subject of the three
(3)-year intended timeframe for development. Even petitioner Daniel Vazquez admitted
on cross-examination that the paragraph refers not to Conduit's but to Ayala
Corporation's development plan which was yet to be formulated when the MOA was
executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows:

"The Buyer hereby commits that to develop the remaining property into a first class
residential subdivision of the same class as New Alabang Subdivision, and that they
intend to complete the first phase under its amended development plan within three
years from the date of this agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that the amended
development plan here is the amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in
1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of the
agreement, this amended development plan was still to be formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is crucial because while the
subject lots to be sold to petitioners were in the first phase of the Conduit development
plan, they were in the third or last phase of the Ayala Corporation development plan.
Hence, even assuming that paragraph 5.7 expresses a commitment on the part of Ayala
Corporation to develop the first phase of its amended development plan within three (3)
years from the execution of the MOA, there was no parallel commitment made as to the
timeframe for the development of the third phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to
offer the subject lots for sale to petitioners within three (3) years from the execution of
the MOA. It is not that Ayala Corporation committed or intended to develop the first
phase of its amended development plan within three (3) years. Whether it did or did not
is actually beside the point since the subject lots are not located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the obligation.
Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has
been fixed shall be demandable only when that day comes. However, no such day certain
was fixed in the MOA. Petitioners, therefore, cannot demand performance after the three
(3) year period fixed by the MOA for the development of the first phase of the property
since this is not the same period contemplated for the development of the subject lots.
Since the MOA does not specify a period for the development of the subject lots,
petitioners should have petitioned the court to fix the period in accordance with Article
119734 of the Civil Code. As no such action was filed by petitioners, their complaint for
specific performance was premature, the obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise be said to have delayed performance of
the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the
subject lots within three (3) years from date thereof, Ayala Corporation could still not be
held to have been in delay since no demand was made by petitioners for the performance
of its obligation.
As found by the appellate court, petitioners' letters which dealt with the three (3)-year
timetable were all dated prior to April 23, 1984, the date when the period was supposed
to expire. In other words, the letters were sent before the obligation could become legally
demandable. Moreover, the letters were mere reminders and not categorical demands to
perform. More importantly, petitioners waived the three (3)-year period as evidenced by
their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed that the
three (3)-year period should be counted from the termination of the case filed by Lancer.
The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was
undertaken by your goodselves to complete the development of Phase I within
three (3) years. Dr. & Mrs. Vazquez were made to understand that you were
unable to accomplish this because of legal problems with the previous contractor.
These legal problems were resolved as of February 19, 1987, and Dr. & Mrs.
Vazquez therefore expect that the development of Phase I will be completed by
February 19, 1990, three years from the settlement of the legal problems with the
previous contractor. The reason for this is, as you know, that security-wise, Dr. &
Mrs. Vazquez have been advised not to construct their residence till the
surrounding area (which is Phase I) is developed and occupied. They have been
anxious to build their residence for quite some time now, and would like to
receive assurance from your goodselves regarding this, in compliance with the
agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs.
Vazquez to exercise their option to purchase the two lots on each side (a total of 4
lots) adjacent to their "Retained Area". They are concerned that although over a
year has elapsed since the settlement of the legal problems, you have not
presented them with the size, configuration, etc. of these lots. They would
appreciate being provided with these at your earliest convenience.35
Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in
the development of Phase I was due to the legal problems with GP Construction, but also
their acquiescence to the completion of the development of Phase I at the much later date
of February 19, 1990. More importantly, by no stretch of semantic interpretation can it be
construed as a categorical demand on Ayala Corporation to offer the subject lots for sale
to petitioners as the letter merely articulates petitioners' desire to exercise their option
to purchase the subject lots and concern over the fact that they have not been provided
with the specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23,
198436 and February 18, 198437 can also not be considered categorical demands on Ayala
Corporation to develop the first phase of the property within the three (3)-year period
much less to offer the subject lots for sale to petitioners. The letter dated January 23,
1984 reads in part:
You will understand our interest in the completion of the roads to our property,
since we cannot develop it till you have constructed the same. Allow us to remind
you of our Memorandum of Agreement, as per which you committed to develop
the roads to our property "as per the original plans of the company", and that
1. The back portion should have been developed before the front portion Ȃ which
has not been the case.
2. The whole project Ȃ front and back portions be completed by 1984.38
The letter dated February 18, 1984 is similarly worded. It states:

In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of
Agreement which states respectively:ǥ39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make out a
categorical demand for Ayala Corporation to offer the subject lots for sale on or before
April 23, 1984. The letter reads in part:
ǥand that we expect from your goodselves compliance with our Memorandum of
Agreement, and a definite date as to when the road to our property and the
development of Phase I will be completed.41
At best, petitioners' letters can only be construed as mere reminders which cannot be
considered demands for performance because it must appear that the tolerance or
benevolence of the creditor must have ended.42
The petition finally asks us to determine whether paragraph 5.15 of the MOA can
properly be construed as an option contract or a right of first refusal. Paragraph 5.15
states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four
developed lots next to the "Retained Area" at the prevailing market price at the
time of the purchase.43
The Court has clearly distinguished between an option contract and a right of first refusal.
An option is a preparatory contract in which one party grants to another, for a fixed
period and at a determined price, the privilege to buy or sell, or to decide whether or not
to enter into a principal contract. It binds the party who has given the option not to enter
into the principal contract with any other person during the period designated, and
within that period, to enter into such contract with the one to whom the option was
granted, if the latter should decide to use the option. It is a separate and distinct contract
from that which the parties may enter into upon the consummation of the option. It must
be supported by consideration.44
In a right of first refusal, on the other hand, while the object might be made determinate,
the exercise of the right would be dependent not only on the grantor's eventual intention
to enter into a binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up.45
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and
not an option contract. Although the paragraph has a definite object, i.e., the sale of
subject lots, the period within which they will be offered for sale to petitioners and,
necessarily, the price for which the subject lots will be sold are not specified. The phrase
"at the prevailing market price at the time of the purchase" connotes that there is no
definite period within which Ayala Corporation is bound to reserve the subject lots for
petitioners to exercise their privilege to purchase. Neither is there a fixed or
determinable price at which the subject lots will be offered for sale. The price is
considered certain if it may be determined with reference to another thing certain or if
the determination thereof is left to the judgment of a specified person or persons.46
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to
buy the subject lots at the price which Ayala Corporation would be willing to accept when
it offers the subject lots for sale. It is not supported by an independent consideration. As
such it is not governed by Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as
something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price.
Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal

to the other party.47
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price
of P6,500.00/square meter, the prevailing market price for the property when the offer
was made on June 18, 1990.48 Insisting on paying for the lots at the prevailing market
price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation
reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and
instead made a counter-offer in the amount of P2,000.00/square meter.49 Ayala
Corporation rejected petitioners' counter-offer. With this rejection, petitioners lost their
right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first
refusal and should be compelled by an action for specific performance to sell the subject
lots to petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.
8#
9

,# .
# 3 ,
$$ concur.
#$
1 Alternatively spelled Vasquez.
2 Rollo, pp. 10-187 with Annexes.
3 Id. at 193-210; Penned by Associate Justice Perlita J. Tria-Tirona and concurred

in by Associate Justices Eugenio S. Labitoria and Eloy R. Bello, Jr.
4 Id. at 74-79; Dated September 11, 1995.
5 Id. at 193-198; Culled from the Decision of the Court of Appeals.
6 Id. at 50-62.
7 Id. at 206.
8 Id. at 240-289.
9 Id. at 53.
10Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
11 Supra, note 2 at 300-323.
12 Id. at 324-325.
13 Id. at 331-369.
14 Id. at 370-433.
15 Rosario v. Court of Appeals, 369 Phil. 729 (1999), citations omitted.
16 Supra, note 2 at 401-402.
18 Id. at 90-91
19 Id. at 77.
20 Supra note 2 at 53.
21 Id. at 58-60.
22 Id. at 52-53. The full text of paragraph 2 reads:

2. Purchase Price and Mode of Payment
The Purchase Price shall be FIFTY-SIX MILLION SIX HUNDRED TWENTY

THREE THOUSAND THREE HUNDRED THIRTY EIGHT PESOS AND
EIGHTY CENTAVOS (P56,623,338.80) and shall be paid at the Closing by
the BUYER by means of a manager's check(s) payable to Ma. Luisa M.
Vazquez in her own behalf and as representative of the other SELLERS,
less the earnest money of EIGHT MILLION PESOS (P8,000,000.00) herein
paid as mentioned below; provided, however, that on or before the
Closing, SELLERS shall deliver to the BUYER duly executed letters of
instruction from the other SELLERS specifically authorizing Ma. Luisa M.
Vazquez to receive on their own behalf their respective payments by
means of a manager's check for the entire Purchase Price stated in this
Paragraph payable to SELLERS. In addition to the foregoing, BUYER shall
be responsible for the payment of all billings of the contractor GP
Construction & Development Corporation after the first billing and any
payments made by the company and/or SELLERS shall be reimbursed by
BUYER on closing which advances to date is P1,159,012.87.
Earnest money in the sum of EIGHT MILLION PESOS (P8,000,000.00),

Philippine Currency, shall be paid upon signing of this document.
23 Supra, note 17 at 78.
24 Ibid.
25 Supra, note 17 at 69-76.
26 Id. at 81-82.
27 Id. at 32-38.
29 Black's Law Dictionary, Sixth Edition, p. 273.
30 Id. at 809.
31 TSN, November 18, 1993, pp. 35-36.
32 TSN, August 3, 1993, pp. 17-19.
334 A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines, 102 (1991).
34 Supra note 10.

36 Id. at 151.
37 Id. at 154.
38 Supra, note 36.
39 Supra, note 37.
40Supra, note 17 at 157-158.
41 Id. at 158.
42 A. Tolentino, op. cit. supra, note 33 citing 2 Castan 528 and 3 Valverde 104.
44Litonjua v. L&R Corporation, 385 Phil. 538 (2000); Carceller v. Court of Appeals,
362 Phil. 332 (1999); Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,
332 Phil. 525 (1996).
45Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2, 1994, 238
SCRA 602.
46 Art. 1469, Civil Code.
47 A. Tolentino, op. cit. supra, note 33 at 465.
49 Id. at 209-210.
The testimony of petitioner Daniel Vazquez on direct examination reads:
Q Mr. Witness, at the last hearing which was interrupted by the brown-
out, we were on Exhibit "L", which I am handing to you, upon receipt of
Exhibit "L" which is the June 18, 1990 letter of Ayala to you, what did you
do, if any?
A We contacted Ayala to tell them we wanted to exercise our option and

that we were not agreeable with the price they are mentioning here, sir.
Q Did you offer any price?
A Yes, sir, we offered them a price.
Q According to the complaint, the price in April 1984 could have been only
P460.00 pesos per square meter. Where did you get that price?
A One of our secretaries, Mr. Eusebio, I believe, contacted the Ayala
Corporation and that was the price the Ayala Corporation was selling it at
that time, sir.
Q Did the Ayala Corporation reduce this price for purposes of arriving in
an agreeable or acceptable offer?
A Yes, sir, we did.
Q How much did the Ayala Corporation dropped to?
A Ayala dropped, if I remember right, to I think P4,000.00 pesos, sir.
Q And how about you?
A We increased our price to P2,000.00 pesos based on the selling price of

Ayala at that time converted to dollars and reconverted to pesos at this
later dates of 1991. (TSN dated April 20, 1993, pp. 3-5).

m
Manila
THIRD DIVISION

+)?8%9
4 /#0 * +petitioner,

vs.
m /#0 ]respondents.
]p
A contract of repurchase arising out of a contract of sale where the seller did not have any title to
the property "sold" is not valid. Since nothing was sold, then there is also nothing to repurchase.
#
This postulate is explained by this Court as it resolves this petition for review on

assailing
the January 20, 1993 Decision of Respondent Court of Appeals8 in CA-G.R. CV No. 36473, affirming
the decision of the trial court% which disposed as follows:
WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of

action, and hereby:
1. Declaring the private writing, Exhibit "C", to be an option to sell,

not binding and considered validly withdrawn by the defendants for
want of consideration;
2. Ordering the plaintiffs to return to the defendants the sum of

P30,000.00 plus interest thereon at the legal rate, from the time of
filing of defendants' counterclaim until the same is fully paid;
3. Ordering the plaintiffs to deliver peaceful possession of the two

hectares mentioned in paragraph 7 of the complaint and in
paragraph 31 of defendants' answer (counterclaim);
4. Ordering the plaintiffs to pay reasonable rents on said two

hectares at P5,000.00
or at P2,500.00 per cropping from
the time of judicial demand mentioned in paragraph 2 of the
dispositive portion of this decision, until the said two hectares shall
have been delivered to the defendants; and
5. To pay the costs.
SO ORDERED.

The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as follows:
Two (2) parcels of land are in dispute and litigated upon here. The first has an area
of 1 hectare. It was formerly owned by Victorino Nool and covered by Transfer
Certificate of Title No. T-74950. With an area of 3.0880 hectares, the other parcel
was previously owned by Francisco Nool under Transfer Certificate of Title No. T-
100945. Both parcel's are situated in San Manuel, Isabela. The plaintiff spouses,
Conchita Nool and Gaudencio Almojera, now the appellants, seek recovery of the
aforementioned parcels of land from the defendants, Anacleto Nool, a younger
brother of Conchita, and Emilia Nebre, now the appellees.
In their complaint, plaintiff-appellants alleged

that they are the owners of
subject parcels of land, and they bought the same from Conchita's other brothers,
Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money,
they obtained a loan from the Ilagan Branch of the Development Bank of the
Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of
land, which were still registered in the names of Victorino Nool and Francisco Nool,
at the time, and for the failure of plaintiffs to pay the said loan, including interest
and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the
period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to
redeem the foreclosed properties from DBP, which the latter did; and as a result, the
titles of the two (2) parcels of land in question were transferred to Anacleto Nool;
that as part of their arrangement or understanding, Anacleto Nool agreed to buy
from plaintiff Conchita Nool the two (2) parcels of land under controversy, for a
total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and
upon payment of the balance of P14,000.00, plaintiffs were to regain possession of
the two (2) hectares of land, which amounts defendants failed to pay, and the same
day the said arrangement was made; another covenant9 was entered into by the
parties, whereby defendants agreed to return to plaintiffs the lands in question, at
anytime the latter have the necessary amount; that plaintiffs asked the defendants
to return the same but despite the intervention of the Barangay Captain of their
place, defendants refused to return the said parcels of land to plaintiffs; thereby
impelling them (plaintiffs) to come to court for relief.
In their Answer, defendants-appellees theorized that they acquired the lands in

question from the Development Bank of the Philippines, through negotiated sale,
and were misled by plaintiffs when defendant Anacleto Nool signed the private
writing, agreeing to return subject lands when plaintiffs have the money to redeem
the same; defendant Anacleto having been made to believe, then, that his sister,
Conchita, still had the right to redeem the said properties.
The pivot of inquiry here, as aptly observed below, is the nature and significance of
the private document, marked Exhibit "D" for plaintiffs, which document has not
been denied by the defendants, as defendants even averred in their Answer that
they gave an advance payment of P30,000.00 therefor, and acknowledged that they
had a balance of P14,000.00 to complete their payment. On this crucial issue, the
lower court adjudged the said private writing (Exhibit "D") as an option to sell not
binding upon and considered the same validly withdrawn by defendants for want of
consideration; and decided the case in the manner above-mentioned.
There is no quibble over the fact that the two (2) parcels of land in dispute were
mortgaged to the Development Bank of the Philippines, to secure a loan obtained by
plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said
loan, the mortgage was foreclosed and in the process, ownership of the mortgaged
lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became
the absolute owner of the two parcels of land, defendants negotiated with DBP and
succeeded in buying the same. By virtue of such sale by DBP in favor of defendants,
the titles of DBP were cancelled and the corresponding Transfer Certificates of Title
(Annexes "C" and "D" to the Complaint) issued to the defendants.
It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the one-year
redemption period was from March 16, 1982 up to March 15, 1983 and that the mortgagors' right
of redemption was not exercised within this period. Hence, DBP became the absolute owner of
said parcels of land for which it was issued new certificates of title, both entered on May 23, 1983
by the Registry of Deeds for the Province of Isabela. About two years thereafter, on April 1, 1985,
DBP entered into a Deed of Conditional Sale involving the same parcels of land with Private
Respondent Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on
February 8, 1988. 8
The Court of Appeals ruled:
WHEREFORE, finding no reversible error infirming it, the appealed Judgment is

hereby AFFIRMED . No pronouncement as to costs.
+
Petitioners impute to Respondent Court the following alleged "errors":
1. The Honorable Court of Appeals, Second Division has misapplied the legal import
or meaning of Exhibit "C" in a way contrary to law and existing jurisprudence in
stating that it has no binding effect between the parties and considered validly
withdrawn by defendants-appellees for want of consideration.
2. The Honorable Court of Appeals, Second Division has miserably failed to give legal
significance to the actual possession and cultivation and appropriating exclusively
the palay harvest of the two (2) hectares land pending the payment of the remaining
balance of fourteen thousand pesos (P14,000.00) by defendants-appellees as
indicated in Exhibit "C".
3. The Honorable Court of Appeals has seriously erred in affirming the decision of
the lower court by awarding the payment of rents
and the return of
P30,000.00 and not allowing the plaintiffs-appellants to re-acquire the four (4)
hectares, more or less upon payment of one hundred thousand pesos (P100,000.00)
as shown in Exhibit "D". %
#
H' &

+:
)ü#ü ü*ü
;
The petitioner-spouses plead for the enforcement of their agreement with private respondents as
contained in Exhibits "C" and "D," and seek damages for the latter's alleged breach thereof. In
Exhibit C, which was a private handwritten document labeled by the parties as 'C &
or Receipt of Agreement, the petitioners appear to have "sold" to private respondents the parcels of
land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the other hand, Exhibit
D, which was also a private handwritten document in Ilocano and labeled as C
private
respondents agreed that Conchita Nool "can acquire back or repurchase later on said land when she
has the money."
In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her co-
petitioner-husband) invokes Article 1370 of the Civil Code which mandates that "(i)f the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control." Hence, petitioners contend that the Court of Appeals erred
in affirming the trial court's finding and conclusion that said Exhibits C and D were "not merely
voidable but utterly void and inexistent."
We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to "

. The Regional Trial Court and the Court of Appeals ruled that the principal
contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both
void. This conclusion of the two lower courts appears to find support in *&".#
,
where the Court held:
Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.
In the present case, it is clear that the sellers no longer had any title to the parcels of land at the
time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of
Exhibit C, it is itself void. A void contract cannot give rise to a valid one. 9 Verily, Article 1422 of the
Civil Code provides that "(a) contract which is the direct result of a previous illegal contract, is also
void and inexistent."
We should however add that *&did not cite its basis for ruling that a "sale is null and void"
where the sellers "were no longer the owners" of the property. Such a situation (where the sellers
were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409
of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goods are to be
"acquired . . . by the seller after the perfection of the contract of sale," clearly implying that a sale is
possible even if the seller was not the owner at the time of sale, provided he acquires title to the
property later on.
In the present case however, it is likewise clear that the sellers can no longer deliver the object of
the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof
from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative 8 and may
thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: "Those which contemplate
an impossible service." Article 1459 of the Civil Code provides that "the vendor must have a right to
transfer the ownership thereof [object of the sale] at the time it is delivered." Here, delivery of
ownership is no longer possible. It has become impossible.
Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person who is
not the owner thereof, and who does not sell them under authority or with consent of the owner,
the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is
by his conduct precluded from denying the seller's authority to sell." Here, there is no allegation at
all that petitioners were authorized by DBP to sell the property to the private respondents.
Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is
authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally
transfer." 8No one can give what he does not have Ȅ ! . On the other hand,
Exhibit D presupposes that petitioners could repurchase the property that they "sold" to private
respondents. As petitioners "sold" nothing, it follows that they can also "repurchase" nothing.
Nothing sold, nothing to repurchase. In this light, the contract of repurchase is also inoperative Ȅ
and by the same analogy, void.
#
'

*
As borne out by the evidence on record, the private respondents bought the two parcels of land
directly from DBP on April 1, 1985 after discovering that petitioners did not own said property, the
subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim that they
can exercise their alleged right to "repurchase" the property, after private respondents had
acquired the same from DBP. 88 We cannot accede to this, for it clearly contravenes the intention of
the parties and the nature of their agreement. Exhibit D reads:
WRITING
N
o
v
.
3
0
,
1
9
8
4
That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of
four hectares (4 has.) in the value of One Hundred Thousand (100,000.00) Pesos. It
is our agreement as brother and sister that she can !

later
on said land when she has the money. [Emphasis supplied].
As proof of this agreement we sign as brother and sister this written document this
day of Nov. 30, 1984, at District 4, San Manuel, Isabela.
S
g
d

3

#
(

Ä

3
Ä
Ä
(
Sgd Emilio Paron
Witness
S
g
d
#

3

One "repurchases" only what one has previously sold. In other words, the right to repurchase
presupposes a valid contract of sale between the parties. Undisputedly, private respondents
acquired title to the property from DBP, and not from petitioners.
Assuming
& that Exhibit D is separate and distinct from Exhibit C and is not affected by the
nullity of the latter, still petitioners do not thereby acquire a right to repurchase the property. In
that scenario, Exhibit D ceases to be a "right to repurchase" ancillary and incidental to the contract
of sale; rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code,
however, provides that "an accepted unilateral promise to buy or sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a consideration distinct
from the price." In the present case, the alleged written contract of repurchase contained in Exhibit
D is bereft of any consideration distinct from the price. Accordingly, as an independent contract, it
cannot bind private respondents. The ruling in * vs. # 8% supports this. In that case, the
Court through Mr. Justice Hilario G. Davide, Jr. explained:
Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of
article 1616 and other stipulations which may have been agreed upon.
In
. . #
., decided on 29 November 1968, or barely
seven (7) days before the respondent Court promulgated its decisions in this case,
this Court, interpreting the above Article, held:
The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same instrument
of sale as one of the stipulations of the contract. Once the instrument of absolute sale
is executed, the vendor can not longer reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a separate instrument cannot be a
right of repurchase but some other right like the option to buy in the instant case. . . .
In the earlier case of ' . ". + ., decided in 1927, this Court had
already ruled that " &

&

!
&

&
"

&

.. In that case the vendor has not reserved to himself the
right to repurchase.
In . *#
, . ". C
& . this Court found another occasion to apply

the foregoing principle.
Hence, Ä'
)
"

&"

¢F #" #
which reads as follows:

certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.
'&'
%
:

3 )
Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land Act 8 and
(2) an implied trust relation as "brother and sister." 8
The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The brothers,
together with Conchita Nool and Anacleto Nool, were all siblings and heirs qualified to repurchase
the two parcels of land under Sec. 119 of the Public Land Act which provides that "(e)very
conveyance of land acquired under the free patent or homestead provisions, when proper, shall be
subject to repurchase by the applicant, his widow or legal heirs, within a period of five years from
the date of conveyance." Assuming the applicability of this statutory provision to the case at bar, it
is indisputable that Private Respondent Anacleto Nool already repurchased from DBP the contested
properties. Hence, there was no more right of repurchase that his sister Conchita or brothers
Victorino and Francisco could exercise. The properties were already owned by an heir of the
homestead grantee and the rationale of the provision to keep homestead lands within the family of
the grantee was thus fulfilled. 89
The claim of a trust relation is likewise without merit. The records show that private respondents
did not purchase the contested properties from DBP in trust for petitioners. The former, as
previously mentioned, in fact bought the land from DBP upon realization that the latter could not
validly sell the same. Obviously, petitioners bought it for themselves. There is no evidence at all in
the records that they bought the land in trust for private respondents. The fact that Anacleto Nool
was the younger brother of Conchita Nool and that they signed a contract of repurchase, which as
discussed earlier was void, does not prove the existence of an implied trust in favor of petitioners.
+: 3 +&&

#

Petitioners argue that "when Anacleto Nool took the possession of the two hectares, more or less,
and let the other two hectares to be occupied and cultivated by plaintiffs-appellant, Anacleto Nool
cannot later on disclaim the terms or contions () agreed upon and his actuation is within the
ambit of estoppel . . . 8 We disagree. The private respondents cannot be estopped from raising the
defense of nullity of contract, specially in this case where they acted in good faith, believing that
indeed petitioners could sell the two parcels of land in question. Article 1410 of the Civil Code
mandates that "(t)he action or defense for the declaration of the inexistence of a contract does not
prescribe." It is a well-settled doctrine that "as between parties to a contract, validity cannot be
given to it by estoppel if it is prohibited by law or it is against public policy (19 Am. Jur. 802). It is
not within the competence of any citizen to barter away what public policy by law seeks to
preserve." 8 Thus, it is immaterial that private respondents initially acted to implement the
contract of sale, believing in good faith that the same was valid. We stress that a contract void at
inception cannot be validated by ratification or prescription and certainly cannot be binding on or
enforceable against private respondents.

+: '
6????.??+

'
Petitioners further argue that it would be a "miscarriage of justice" to order them (1) to return the
sum of P30,000.00 to private respondents when allegedly it was Private Respondent Anacleto Nool
who owed the former a balance of P14,000.00 and (2) to order petitioners to pay rent when they
"were allowed to cultivate the said two hectares."
We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the void
contract of sale may not be enforced. Petitioners are the ones who have an obligation to return
what they unduly and improperly received by reason of the invalid contract of sale. Since they
cannot legally give title to what they "sold," they cannot keep the money paid for the object of the
sale. It is basic that "(e)very person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter without just or
legal ground, shall return the same." 8 Thus, if a void contract has already "been performed, the
restoration of what has been given is in order." Corollarily and as aptly ordered by respondent
appellate court, interest thereon will run only from the time of private respondents' demand for the
return of this amount in their counterclaim. % In the same vein, petitioners' possession and
cultivation of the two hectares are anchored on private respondents' tolerance. Clearly, the latter's
tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to
possess and cultivate the land ceased.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals affirming
that of the trial court is hereby AFFIRMED.
SO ORDERED.
3
" #$* "$

$$

#$
1 ' , pp. 20-25.
2 Second Division, composed of $. Fidel P. Purisima,and Chairman, and $$.

Asaali S. Isnani and Corona Ibay Somera, concurring.
3 In Civil Case No. Br. 23-242.
4 Regional Trial Court of Roxas, Isabela, Second Judicial Region, Branch 23, presided
by Judge Teodulo E. Mirasol.
5 Decision of the Regional Trial Court, p. 5; Record of the Regional Trial

Court, p. 180.
6 Exhibit C, executed in the parties' native dialect, Ilocano, dated November 30,
1984, Record of the Regional Trial Court, p. 95.
7 Exhibit D, executed in the parties' native dialect, Ilocano, dated November 30,
1984, Record of the Regional Trial Court, p. 97.
8 Decision of the Court of Appeals, pp. 2-3;

, pp. 21-22.
9 Affidavit of Non-Redemption, p. 1; Record of the Regional Trial Court, p. 27.
10 DBP Transfer Certificates of Title, Record of the Regional Trial Court, pp. 28-29.
11 Record of the Regional Trial Court, pp. 30-32.
12 Anacleto Nool's Transfer Certificates of Title, Record of the Regional Trial Court,
pp. 33-34.
13 +., p. 5;
, p. 24.
14 Petition, pp. 7-8;

, pp. 8-9.
15 Exhibit D-1, English translation of the document marked as Exhibit D; records,

p. 98.
16 158 SCRA 375, 383, February 29, 1988.
17 +., p. 732.
18 Article 1409 of the Civil Code provides.
Art. 1409. The following contracts are inexistent and

void from the beginning:
(1) Those whose case, object or purpose is contrary

to law, morals, good customs, public order or public
policy;
(2) Those which are absolutely simulated or

fictitious;
(3) Those whose case or object did not exist at the

time of the transaction;
(4) Those whose object is outside the commerce of

men;
(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by

law.
These contracts cannot be ratified. Neither can the

right to set up the defense of illegality be waived.
20 Cf. Vitug, Compendium of Civil Law and Jurisprudence (1993), p. 547.
21 Segura vs. Segura, 165 SCRA 368, 374, September 19, 1988.
22 Petitioners' Memorandum, pp. 14-15;

, pp. 58-59.
23 Records, p. 98. The original document in Ilocano reads as follows:
Kasuratan
Siak ni Anacleto Nool adda ginatang ko keni kabsat ko nga ni Conchita Nool nga daga
nga uppat nga hectarya (4 has.) nga aggatad iti One Hundred Thousand
(100,000.00) pesos. Ket nagtulagan mi nga agkabsat nga mabalin nanto nga
pasublien wenno repurchase nanto to nasao nga daga no maadaan iti kuwarta.
Kas pammaneknek iti daytoy nga katulagan agpirma kami nga agkabsat iti daytoy
nga kasuratan ita nga aldaw Nov. 30, 1984 ditoy Dist. No. 4 San Manuel, Isabela.
(Sgd.) Emilio Padron (Sgd.) Anacleto Nool
Testigo (Sgd.) Conchita Nool

24 206 SCRA 52, 60-61, February 7, 1992.
25 Memorandum, p. 12;
, p. 56.
26 +., p. 14;
, p. 58.
27 Ferrer vs. Mangente, 50 SCRA 424, April 13, 1973.
28 Petition, pp. 12-13;

, pp. 13-14.
29 Prudential Bank vs. Panis, 153 SCRA 390, 398, August 31, 1987; & Arsenal vs.
IAC, 143 SCRA 54, (1986) and Gonzalo Puyat & Sons, Inc. vs. De los Amas and Alino,

.
30 Tolentino, Arturo A., Commentaries and Jurisprudence on the Civil Code of the
Philippines, p. 633, Vol. IV, (1991).
31 Memorandum, p. 13;
, p. 57.
32 Article 22, Civil Code of the Philippines.
33 Tolentino,
, p. 632; &Perez Gonzales & Alguer; 1-I Ennecerus, Kipp &
Wolff 364-366; 3 Von Tuhr 311; 3 Fabres 231.
34 Answer with Counterclaim, p. 7; Record of the Regional Trial Court, p. 22.

G.R. No. 126454 November 26, 2004
BIBLE BAPTIST CHURCH, ET AL. vs. COURT OF APPEALS, ET AL.
m
Manila
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8%%;$1.$'88%
]] ]m4 4/#0m ]] petitioners,

vs.
m/#0
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respondents.
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"
This petition for review on certiorari seeks to annul the Decision1 dated August 7, 1996,
of the Court of Appeals in CA-G.R. CV No. 45956, and its Resolution2 dated September 12,
1996, denying reconsideration of the decision. In the questioned issuances, the Court of
Appeals affirmed the Decision3 dated June 8, 1993, of the Regional Trial Court of Manila,
Branch 3, in Civil Case No. 90-55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church) entered into a
contract of lease4 with Mr. & Mrs. Elmer Tito Medina Villanueva (respondent spouses
Villanueva). The latter are the registered owners of a property located at No. 2436
(formerly 2424) Leon Guinto St., Malate, Manila. The pertinent stipulations in the lease
contract were:
1. That the LESSOR lets and leases to the LESSEE a store space known as 2424
Leon Guinto Sr. St., Malate, Manila, of which property the LESSOR is the registered
owner in accordance with the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and shall be for the period of
Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5) days of each calendar month,
beginning Twelve (12) months from the date of this agreement, a monthly rental
of Ten Thousand Pesos (P10,000.00) Philippine Currency, plus 10% escalation
clause per year starting on June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of
Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said sum is to be
paid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of
redemption of said property which is mortgaged by the LESSOR.
5. That the title will remain in the safe keeping of the Bible Baptist Church, Malate,
Metro Manila until the expiration of the lease agreement or the leased premises
be purchased by the LESSEE, whichever comes first. In the event that the said title
will be lost or destroyed while in the possession of the LESSEE, the LESSEE agrees
to pay all costs involved for the re-issuance of the title.
6. That the leased premises may be renovated by the LESSEE, to the satisfaction of
the LESSEE to be fit and usable as a Church.
7. That the LESSOR will remove all other tenants from the leased premises no
later than March 15, 1986. It is further agreed that if those tenants are not
vacated by June 1, 1986, the rental will be lowered by the sum of Three Thousand
Pesos (P3,000.00) per month until said tenants have left the leased premises.
8. That the LESSEE has the option to buy the leased premises during the Fifteen
(15) years of the lease. If the LESSEE decides to purchase the premises the terms
will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8
million), Philippine Currency. B) A down payment agreed upon by both parties. C)
The balance of the selling price may be paid at the rate of One Hundred Twenty
Thousand Pesos (P120,000.00), Philippine Currency, per year.
x x x.5
The foregoing stipulations of the lease contract are the subject of the present controversy.
Although the same lease contract resulted in several cases6 filed between the same
parties herein, petitioner submits, for this Court's review, only the following errors
allegedly committed by the Court of Appeals:
a) Respondent Court of Appeals erred in finding that the option to buy granted
the petitioner Baptist Church under its contract of lease with the Villanuevas did
not have a consideration and, therefore, did not bind the latter;
b) [R]espondent court again also erred in finding that the option to buy did not
have a fixed price agreed upon by the parties for the purchase of the property;
and
c) [F]inally, respondent court erred in not awarding petitioners Baptist Church

and its pastor attorney's fees.7
In sum, this Court has three issues to resolve: 1) Whether or not the option to buy given
to the Baptist Church is founded upon a consideration; 2) Whether or not by the terms of
the lease agreement, a price certain for the purchase of the land had been fixed; and 3)
Whether or not the Baptist Church is entitled to an award for attorney's fees.
The stipulation in the lease contract which purportedly gives the lessee an option to buy
the leased premises at any time within the duration of the lease, is found in paragraph 8
of the lease contract, viz:
8. That the LESSEE has the option to buy the leased premises during the Fifteen
(15) years of the lease. If the LESSEE decides to purchase the premises the terms
will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8
million), Philippine Currency. B) A down payment agreed upon by both parties. C)
The balance of the selling price may be paid at the rate of One Hundred Twenty
Thousand Pesos (P120,000.00), Philippine Currency, per year.
Under Article 1479 of the Civil Code, it is provided:

certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
The second paragraph of Article 1479 provides for the definition and consequent rights
and obligations under an option contract. For an option contract to be valid and
enforceable against the promissor, there must be a separate and distinct consideration
that supports it.
In this case, petitioner Baptist Church seeks to buy the leased premises from the spouses
Villanueva, under the option given to them. Petitioners claim that the Baptist Church
"agreed to advance the large amount needed for the rescue of the property but, in
exchange, it asked the Villanuevas to grant it a long term lease and an option to buy the
property for P1.8 million."8 They argue that the consideration supporting the option was
their agreement to pay off the Villanueva's P84,000 loan with the bank, thereby freeing
the subject property from the mortgage encumbrance. They state further that the Baptist
Church would not have agreed to advance such a large amount as it did to rescue the
property from bank foreclosure had it not been given an enforceable option to buy that
went with the lease agreement.
In the petition, the Baptist Church states that "[t]rue, the Baptist Church did not pay a
separate and specific sum of money to cover the option alone. But the P84,000 it paid the
Villanuevas in advance should be deemed consideration for the one contract they entered
into Ȃ the lease with option to buy."9 They rely on the case of
"#
10
to support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid in order to release the
Villanuevas' property from the mortgage should be deemed the separate consideration to
support the contract of option. It must be pointed out that said amount was in fact
apportioned into monthly rentals spread over a period of one year, at P7,000 per month.
Thus, for the entire period of June 1985 to May 1986, petitioner Baptist Church's monthly
rent had already been paid for, such that it only again commenced paying the rentals in
June 1986. This is shown by the testimony of petitioner Pastor Belmonte where he states
that the P84,000 was advance rental equivalent to monthly rent of P7,000 for one year,
such that for the entire year from 1985 to 1986 the Baptist Church did not pay monthly
rent.11
This Court agrees with respondents that the amount of P84,000 has been fully exhausted
and utilized by their occupation of the premises and there is no separate consideration to
speak of which could support the option.12
Second, petitioners' reliance on the case of Teodoro v. Court of Appeals13 is misplaced.

The facts of the Teodoro case reveal that therein respondent Ariola was the registered
lessee of a property owned by the Manila Railroad Co. She entered into an agreement
whereby she allowed Teodoro to occupy a portion of the rented property and gave
Teodoro an option to buy the same, should Manila Railroad Co. decide to sell the property
to Ariola. In addition, Teodoro, who was occupying only a portion of the subject rented
property, also undertook to pay the Manila Railroad Co., the full amount of the rent
supposed to be paid by the registered lessor Ariola. Consequently, unlike this case,
Teodoro paid over and above the amount due for her own occupation of a portion of the
property. That amount, which should have been paid by Ariola as lessor, and for her own
occupation of the property, was deemed by the Court as sufficient consideration for the
option to buy which Ariola gave to Teodoro upon Ariola's acquiring the property.
Hence, in Teodoro, this Court was able to find that a separate consideration supported
the option contract and thus, its enforcement may be demanded. Petitioners, therefore,
cannot rely on Teodoro, for the case even supports the respondents' stand that a
consideration that is separate and distinct from the purchase price is required to support
an option contract.
Petitioners further insist that a consideration need not be a separate sum of money. They
posit that their act of advancing the money to "rescue" the property from mortgage and
impending foreclosure, should be enough consideration to support the option.
In
"#
,14 this Court defined consideration as "the why of the
contracts, the essential reason which moves the contracting parties to enter into the
contract."15 This definition illustrates that the consideration contemplated to support an
option contract need not be monetary. Actual cash need not be exchanged for the option.
However, by the very nature of an option contract, as defined in Article 1479, the same is
an onerous contract for which the consideration must be something of value, although its
kind may vary.
Specifically, in Villamor v. Court of Appeals,16 half of a parcel of land was sold to the
spouses Villamor for P70 per square meter, an amount much higher than the reasonable
prevailing price. Thereafter, a deed of option was executed whereby the sellers
undertook to sell the other half to the same spouses. It was stated in the deed that the
only reason the spouses bought the first half of the parcel of land at a much higher price,
was the undertaking of the sellers to sell the second half of the land, also at the same
price. This Court held that the cause or consideration for the option, on the part of the
spouses-buyers, was the undertaking of the sellers to sell the other half of the property.
On the part of the sellers, the consideration supporting the option was the much higher
amount at which the buyers agreed to buy the property. It was explicit from the deed
therein that for the parties, this was the consideration for their entering into the contract.
It can be seen that the Court found that the buyer/optionee had parted with something of
value, which was the amount he paid over and above the actual prevailing price of the
land. Such amount, different from the price of the land subject of the option, was deemed
sufficient and distinct consideration supporting the option contract. Moreover, the
parties stated the same in their contract.
Villamor is distinct from the present case because, First, this Court cannot find that
petitioner Baptist Church parted with anything of value, aside from the amount of
P84,000 which was in fact eventually utilized as rental payments. Second, there is no
document that contains an agreement between the parties that petitioner Baptist
Church's supposed rescue of the mortgaged property was the consideration which the
parties contemplated in support of the option clause in the contract. As previously stated,
the amount advanced had been fully utilized as rental payments over a period of one
year. While the Villanuevas may have them to thank for extending the payment at a time
of need, this is not the separate consideration contemplated by law.
Noting that the option clause was part of a lease contract, this Court looked into its
previous ruling in the early case of *â
"
,17 where the Court did say
that "in reciprocal contracts, like the one in question,18 the obligation or promise of each
party is the consideration for that of the other."19 However, it must be noted that in that
case, it was also expressly stated in the deed that should there be failure to exercise the
option to buy the property, the optionee undertakes to sell the building and/or
improvements he has made on the premises. In addition, the optionee had also been
paying an amount of rent that was quite high and in fact turned out to be too burdensome
that there was a subsequent agreement to reduce said rentals. The Court found that "the
amount of rentals agreed upon x x x Ȃ which amount turned out to be so burdensome
upon the lessee, that the lessor agreed, five years later, to reduce it Ȃ as well as the
building and/or improvements contemplated to be constructed and/or introduced by the
lessee, were, undoubtedly, part of the consideration for his option to purchase the leased
premises."20
Again, this Court notes that the parties therein clearly stipulated in their contract that
there was an undertaking on the part of the optionee to sell the improvements made on
the property if the option was not exercised. Such is a valuable consideration that could
support the option contract. Moreover, there was the excessive rental payments that the
optionee paid for five years, which the Court also took into account in deciding that there
was a separate consideration supporting the option.
To summarize the rules, an option contract needs to be supported by a separate

consideration. The consideration need not be monetary but could consist of other things
or undertakings. However, if the consideration is not monetary, these must be things or
undertakings of value, in view of the onerous nature of the contract of option.
Furthermore, when a consideration for an option contract is not monetary, said
consideration must be clearly specified as such in the option contract or clause.
This Court also notes that in the present case both the Regional Trial Court and the Court
of Appeals agree that the option was not founded upon a separate and distinct
consideration and that, hence, respondents Villanuevas cannot be compelled to sell their
property to petitioner Baptist Church.
The Regional Trial Court found that "[a]ll payments made under the contract of lease
were for rentals. No money [was] ever exchanged for and in consideration of the option."
Hence, the Regional Trial Court found the action of the Baptist Church to be "premature
and without basis to compel the defendant to sell the leased premises." The Regional
Trial Court consequently ruled:
WHEREFORE, judgment is rendered:
1) Denying plaintiffs' application for writ of injunction;
2) That defendant cannot be compelled to sell to plaintiffs the leased

premises in accordance with par. 8 of the contract of lease;
3) Defendant is hereby ordered to reimburse plaintiffs the sum of P15,

919.75 plus 12% interest representing real estate taxes, plaintiffs paid the
City Treasurer's Office of Manila;
4) Declaring that plaintiff made a valid and legal consignation to the Court
of the initial amount of P18,634.00 for the month of November and
December 1990 and every month thereafter.
All other claims of the plaintiffs are hereby dismissed for lack of merit.
SO ORDERED. 21
On appeal, the Court of Appeals agreed with the Regional Trial Court and found that the
option to buy the leased premises was not binding upon the Villanuevas for non-
compliance with Article 1479. It found that said option was not supported by a
consideration as "no money was ever really exchanged for and in consideration of the
option." In addition, the appellate court determined that in the instant case, "the price for
the object is not yet certain." Thus, the Court of Appeals affirmed the Regional Trial Court
decision and dismissed the appeal for lack of merit.22
Having found that the option to buy granted to the petitioner Baptist Church was not
founded upon a separate consideration, and hence, not enforceable against respondents,
this Court finds no need to discuss whether a price certain had been fixed as the purchase
price.
Anent the claim for attorney's fees, it is stipulated in paragraph 13 of the lease agreement
that in the event of failure of either of the parties to comply with any of the conditions of
the agreement, the aggrieved party can collect reasonable attorney's fees.23
In view of this Court's finding that the option contract is not enforceable for being
without consideration, the respondents Villanueva spouses' refusal to comply with it
cannot be the basis of a claim for attorney's fees.
Hence, this Court agrees with as the Court of Appeals, which affirmed the findings of the
Regional Trial Court, that such claim is to be dismissed for lack of factual and legal basis.
WHEREFORE, the Decision and Resolution of the Court of Appeals subject of the petition
are hereby AFFIRMED.
No costs.
SO ORDERED.
* "$
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1 Rollo, pp. 133-145.
2 Id. at 147-148.
3 Id. at 59-64.
4 Denominated as a "Lease Agreement;" Records, pp. 9-11.
5 Records, pp. 9-10; Emphasis supplied.
6A case for consignation (RTC Manila, Branch 46), a case for ejectment (Civil Case
No. 134279-CV, MeTC) and the instant case which originated in the RTC (Civil
Case No. 90-55437, RTC Manila, Branch 3).
7 Rollo, p. 20.
8 Rollo, pp. 9-10.
9 Id. at 22.
10 155 SCRA 547 (1987).
11 TSN, October 5, 1992, p. 12; TSN, January 26, 1993, p. 6.
12 Rollo, p. 155.
13 Supra, note 10.

14 202 SCRA 607 (1991).
15 Id. at 615.
16 Ibid.
17 29 SCRA 1 (1969).
18 Also a contract of lease.
20 Id. at 5.
21 Rollo, p. 64; Emphasis ours.
22 Rollo, pp. 143-144.
23 Records, p. 10.
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of the Decision[1] of the Court of Appeals (CA) in
CA-G.R. CV No. 69818, reversing the Decision of the Regional Trial Court (RTC) in Civil Case No.
2427-MN.
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Carmen Vda. De Cruz was the owner of a parcel of land located in Navotas, Rizal, with an
area of 13,999 square meters, covered by Transfer Certificate of Title (TCT) No. 81574.[2]
On October 5, 1966, Carmen Cruz, as lessor, and the Navotas Industrial Corporation (NIC),
through its president, Cipriano C. Bautista, as lessee, executed a contract of lease over one-half
portion of the said property, shown in the sketch appended thereto as Annex ǲA.ǳ The lease was for
the period of October 1, 1966 to midnight of October 1, 1990. The property was to be used for
shipyard slipways and the lesseeǯs other allied businesses. The NIC obliged itself to construct two
slipways, with all its accessories, within the first 10 years of the lease with a total value of not less
than P450,000.00.[3]
On March 14, 1973, the property was mortgaged to the China Banking Corporation (CBC) as
security for a loan by two of Carmen Cruzǯs children, Mariano and Gabriel.[4] The ownerǯs
duplicate of the title was delivered to and kept by the CBC as mortgagee.
On December 31, 1974, Carmen Cruz executed a Deed of Absolute Sale of Realty with
Assumption of Mortgage in which she, as vendor, sold and conveyed the property to her children,
namely, Serafin D. Cruz (married

to Adelaida Cruz), Mariano Cruz, Rogelio Cruz, Sr. Carmencita Cruz and Sr. Mary Carmela Cruz, for
the purchase price of P350,000.00 which the vendor acknowledged to have received from the
vendees.[5]
In a Letter[6] dated November 22, 1976, Mariano Cruz, in his behalf and in behalf of the
other vendees, requested CBC to conform to the sale of the property, a copy of which was attached
to the said letter. The CBC refused.
In the meantime, relations between Carmen Cruz and her children became strained. She
believed that her children had ignored her and failed to take care of her.
On June 27, 1977, Mariano Cruz, for himself and in behalf of the other vendees, presented
the said deed of sale to the Register of Deeds for registration purposes.[7] In the same letter, they
requested the Register of Deeds to request the CBC for the transmittal of the ownerǯs TCT No.
81574 for the annotation of the Deed of Sale with Assumption of Mortgage. However, on June 28,
1977, the CBC, through counsel, wrote Mariano Cruz, informing him that Carmen Cruz had
instructed it not to conform to the Deed of Sale with Assumption of Mortgage, and not to surrender
the ownerǯs duplicate of the said title.
In the meantime, the balance of the loan account secured by the mortgage was paid to the
CBC. Thus, on June 29, 1977, the CBC executed a Cancellation of Real Estate Mortgage over the
property.[8] However, the deed was not presented to the Register of Deeds for registration.
On the same day, Mariano Cruz executed an Affidavit of Adverse Claim[9] stating,
,
that he and the others named therein were the vendees of the property as evidenced by a Deed of
Sale with Assumption of Mortgage appended thereto, and that, to protect their rights and interests,
the said affidavit of adverse claim was being executed as a cautionary notice to third persons and
the world that the property had been sold to them. It was, likewise, stated that Carmen Cruz had
ordered the CBC not to surrender the ownerǯs duplicate of TCT No. 81574. The aforesaid affidavit
of adverse claim was inscripted at the dorsal portion of the title[10] on June 30, 1977 as Entry No.
22178.
In a Letter[11] dated July 1, 1977, the Register of Deeds requested CBC to surrender the
ownerǯs duplicate of TCT No. 81574, pursuant to Section 72 of Act 496, in order that proper
memorandum be made thereon. The Register of Deeds was obviously unaware that the CBC had
already executed the cancellation of real estate mortgage on June 29, 1977.
On July 30, 1977, Carmen Cruz, as lessor, and the NIC, as lessee, executed a Supplementary
Lease Agreement;[12] the October 5, 1966 Contract of Lease earlier executed by the parties was
modified, in that the terms of the

lease was extended for another 15 years to expire on October 1, 2005. The lessee was, likewise,
given up to October 1, 1982 within which to construct the two slipways at a cost of not less than
P600,000.00 and increasing the lease rental for the property. The lessee was granted the option to
buy the property for the price of P1,600,000.00. On the same day, the parties executed a Contract of
Lease[13] over an additional portion of the property, with an area of 590.58 square meters, as
shown in the sketch appended thereto. However, the said contracts were not presented for
registration to the Register of Deeds.
On September 14, 1977, the aforesaid Cancellation of Real Estate Mortgage the CBC had
earlier executed (on June 29, 1977) was presented to the Register of Deeds and annotated at the
dorsal portion of TCT No. 81574 as Entry No. 27796. The following were, likewise, presented to the
Register of Deeds for registration, and, thereafter, annotated at the dorsal portion of the said title:
the Contract of Lease dated October 5, 1966 (Entry No. 27797), the July 30, 1977 Contract of Lease
(Entry No. 27798), and the Supplementary Lease Agreement (Entry No. 27799).[14]
In the meantime, Mariano Cruz and the other vendees presented the Deed of Sale with
Assumption of Mortgage to the Register of Deeds for registration. On December 19, 1977, the
Register of Deeds cancelled the said title and issued TCT No. 11272 in the names of the new
owners. TCT No. 11272 was later cancelled by TCT No. R-11830.
In a Letter[15] dated October 20, 1978, Mariano Cruz, informed the NIC that the
property had been sold to them, and gave it 30 days from receipt of the letter to vacate the property
and return possession to them. The vendees, likewise, informed the NIC that since the October 5,
1966 Contracts of Lease and the July 30, 1977 Supplementary Lease Agreement were annotated at
the back of TCT No. 81574 only on September 14, 1977, after the affidavit of adverse claim of
Mariano Cruz, was annotated on June 29, 1977, such contracts were null and void. However,
the NIC refused to vacate the property.
In the meantime, the property was subdivided into three lots: Lots 1-A, 1-B and 1-C. Lot 1-A
had an area of 6,307 square meters, covered by TCT No. 85099[16] issued on July 5, 1982.
Carmen Cruz filed a complaint with the RTC of Navotas against Cipriano Bautista, in his
capacity as president of the NIC, for the declaration of nullity of the July 30, 1977 Supplementary
Lease Agreement and Contract of Lease, and for the cancellation of the annotation at the back of
TCT No. 81574 referring to the said contracts. The complaint was amended to implead the NIC as
party-defendant. Carmen Cruz alleged therein that she was the owner-lessor of the property
subject of the said contract; the NIC failed to construct the two slipways within the period stated in
the lease contract; it took advantage of the animosity between her and her children, and caused the
preparation of the July 30, 1977 Supplementary Lease Agreement and Contract of Lease; the NIC
was able to insert therein blatantly erroneous, one-sided and highly unfair provisions; and that the
said contracts were even extended for a period long beyond her life expectancy (the plaintiff was
then almost 80 years old). She further alleged that the provisions in the Contract of Lease and
Supplementary Lease Agreement which granted NIC the exclusive option to buy the property, was a
sham. She prayed that, after due proceedings, judgment be rendered in her favor:
WHEREFORE, it is respectfully prayed that judgment be rendered declaring

the Supplementary Contract of Lease dated July 30, 1977 as null and void ;
ordering the defendant and all persons claiming possession of the premises under it
to vacate and turn over the premises to the plaintiffs; ordering the defendant to pay
the reasonable monthly rental of P10,000.00 for the occupancy of the premises,
beginning October 1, 1990, until it vacates the premises; ordering the defendant to
pay the plaintiffs the sum of P30,000.00 as moral damages; the sum of P50,000.00 as
attorneyǯs fees, and the sum of P1,000.00 as appearance fee of the undersigned
counsel; to pay the sum of P5,000.00 as litigation expenses; plus costs of suit.
Plaintiffs further pray for such other relief and remedies they are entitled to
in the premises.[17]
Mariano Cruz and his siblings filed a complaint-in-intervention in the said case, alleging that
they were the co-owners of the property, and praying that judgment be rendered in their favor, as
follows:
WHEREFORE, it is respectfully prayed that judgment be rendered rescinding

the Contract of Lease dated October 5, 1966, (Annex ǲBǳ), declaring as null and void
the Supplementary Lease Agreement (Annex ǲCǳ), and the Contract of Lease (Annex
ǲDǳ), both dated July 30, 1977, for having been entered into by the plaintiff who had
long ceased to be the owner of the property in question, awarding the sum of
P450,000.00, actual damages, representing the value of the improvements which the
defendants bound themselves to introduce in the premises; awarding the plaintiffs-
intervenors the sum of P100,000.00 as exemplary damages; the sum of P150,000.00
as moral damages; P50,000.00 as attorneyǯs fees and P10,000.00 as litigation
expenses.
Plaintiffs-intervenors further pray for such other relief and remedies they
are entitled to in the premises.[18]
However, Carmen Cruz filed a motion to dismiss the amended complaint. On February 6,
1984, the trial court issued an Order[19] granting the motion and dismissing the amended
complaint and the complaint-in-intervention. The order became final and executory.
On June 23, 1990, Mariano Cruz, . wrote the NIC that they would no longer renew the
October 5, 1966 contract of lease which was to expire on October 1, 1990; as far as they were
concerned, the July 30, 1977 Supplementary Lease Agreement and Contract of Lease were null and
void, the same having been executed and annotated on September 14, 1977 at the back of TCT No.
81574 long after the annotation of the affidavit of the adverse claim of Mariano Cruz, . on June
30, 1977.[20]
In a Letter[21] dated January 11, 1991, Mariano Cruz, . wrote the NIC, demanding that it
vacate the property within 30 days from notice thereof, otherwise, a complaint for unlawful
detainer would be filed against it. However, the NIC refused to vacate the property.
On April 18, 1991, Mariano Cruz and his siblings filed a Complaint[22] against the NIC with
the Municipal Trial Court (MTC) of Navotas for ejectment. However, on June 11, 1992, the trial
court issued an Order[23]

dismissing the complaint, on the ground that it had no jurisdiction over the case, it appearing that
the validity of the July 30, 1977 Supplementary Lease Agreement and the Contract of Lease, in
relation to the deed of absolute sale with assumption of mortgage executed by Carmen Cruz, were
intertwined with the issue of NICǯs right of possession. The plaintiffs sought a motion for
reconsideration of the decision, which the MTC denied on September 15, 1992. The plaintiffs
appealed to the RTC, which rendered a decision granting the appealed decision.[24] The plaintiffs-
appellants filed a petition for review with the CA. On July 13, 1993, the CA affirmed the decision of
the RTC and dismissed the petition.[25] The decision became final and executory.
In the meantime, Mariano Cruz died intestate and was survived by his son Mariano Cruz, Jr.;
Rogelio Cruz, likewise, died and was survived by his children Sylvia, Rosyl, Rogelio, Jr., Sergio and
Estrella, all surnamed Cruz; Serafin Cruz also died and was survived by his wife Adelaida, and his
children Merceditas and Gabriel. TCT No. 81574 was reconstituted and TCT No. R-85099 was
issued.
On January 24, 1995, German and Marcelo Cruz, Rosalina Cruz-Laiz, Mariano Cruz, Jr. and
the said heirs filed a Complaint against Carmen Cruz, as unwilling plaintiff, and the NIC with the
RTC of Malabon for the nullification of the July 30, 1977 Supplementary Lease Agreement and
Contract of Lease. The complaint was amended to allege that they were the co-owners of the
property covered by TCT No. 85099 based on the Deed of Sale with Assumption of Mortgage
executed by Carmen Cruz on December 31, 1974; an affidavit of adverse claim was annotated at the
dorsal portion of TCT No. 81574 on June 30, 1977, despite which NIC caused Carmen Cruz to
execute, on July 30, 1977, a Supplementary Lease Agreement and Contract of Lease by taking
advantage of her age, mental weakness and lack of will; and that NIC failed to pay rentals for the
property. The plaintiffs prayed that:
WHEREFORE, it is respectfully prayed that, after trial on the merits,

judgment be rendered in favor of the plaintiffs as follows:
1. Under the First Alternative Cause of Action, declaring the Contract of

Lease dated 30 July 1977 and the Supplementary Lease Contract dated 30 July 1977,
Annex ǲDǳ hereof, as null and void ; or, alternatively,
Under the Second Alternative Cause of Action, annulling the said Contract of
Lease and Supplementary Lease Contract.
Under the Third Alternative Cause of Action, rescinding and canceling the
Contract of Lease and Supplementary Lease Agreement, ordering the defendants to
vacate the leased premises and to pay plaintiffs all unpaid rentals from 1 October
1991 until defendants vacate the premises.
2. Under the Second Cause of Action, ordering defendants NAVOTAS and

Bautista to vacate and surrender the possession of the subject property and all
improvements thereon to the plaintiffs;
3. Under the Third Cause of Action, ordering defendants NAVOTAS and

Bautista, jointly and severally, to pay plaintiffs the reasonable compensation for the
use of the premises in the amount of at least P10,000.00 a month from October 1990
up to the filing of this Complaint, totalling P500,000.00, as well as P10,000.00 every
month thereafter until defendants shall have vacated and surrendered the premises
to the plaintiffs.
4. Under the Fourth Cause of Action, ordering defendants NAVOTAS and

Bautista, jointly and severally, to pay the plaintiffs exemplary damages of at least
P50,000.00 or such amount as the Honorable Court may deem just and equitable in
the premises; and
5. Under the Fifth Cause of Action, ordering defendants NAVOTAS and

Bautista to pay plaintiff attorneyǯs fees and expenses of litigation in such amount as
may be established during the trial, but not less than P35,000.00.
Plaintiffs pray for such other reliefs just and equitable in the premises.[26]
In her answer with cross-claim, Carmen Cruz alleged,
, that she was willing to be
made a party-plaintiff, although she was initially reluctant to become one because of the burden of a
court hearing; she admitted that the plaintiffs were the co-owners of the property; Bautista was
granted an ǲexclusive option to buyǳ the leased property at the ridiculously low fixed price of
P1,600,000.00, which, according to Carmen Cruz, was an option unsupported by any consideration;
hence, null and void.[27]
Carmen Cruz prayed that, after due proceedings, judgment be rendered in her favor:
WHEREFORE, it is most respectfully prayed that the complaint as against

answering defendant be dismissed, and that:
AS TO THE CROSS-CLAIM
a) The Contract of Lease and the Supplemental Lease Contract be

declared null and void due to vitiated consent;
b) In the event that monetary judgment be rendered by this Honorable

Court against answering defendant in favor of the plaintiffs, her co-defendants,
Navotas Industrial Corporation and Bautista, be made to reimburse her for all or
part of the said judgment;
c) Co-defendants be ordered to pay her moral as well as exemplary

damages in the amount which this Honorable Court may deem just and proper;
d) Co-defendants, instead of answering defendants, be, likewise, ordered

to pay the plaintiffs, the rentals in arrears over the premises which now amounts to
P147,000.00.
BOTH AS TO COUNTERCLAIM AND CROSS-CLAIM
a) Plaintiffs and co-defendants be ordered, jointly and severally, to

reimburse answering defendant the sum of P30,000.00 which the latter paid her
counsel as and for attorneyǯs fees for unnecessarily dragging her into this suit
including the amount of P1,000.00 which she will pay her lawyer for every
appearance;
b) Likewise, the costs of suit and other litigation expenses.
Other reliefs and remedies reasonable under the premises are similarly
prayed for.[28]
In its amended answer, NIC alleged that its July 30, 1977 Supplementary Lease Agreement
and Contract of Lease were valid, whereas the deed of absolute sale with assumption of mortgage
executed by Carmen Cruz in favor of the plaintiffs was null and void for being simulated and
fraudulent. NIC and Bautista further alleged that it was exercising its option to buy the subject
property now covered by TCT No. 85099;[29] it, likewise, offered P1,600,000.00 as consideration
for the sale to be paid upon the execution of a deed of transfer.[30]
NIC and Bautista prayed that, after due proceeding, judgment be rendered in their favor,
thus:
WHEREFORE, premises considered, herein answering defendants

respectfully prayed that the complaint be dismissed for lack of merit.
On the Counterclaim: (a) that the ǲContract of Leaseǳ and the

ǲSupplementary Lease Agreementǳ be declared valid, legal and binding between
Carmen Vda. de Cruz and defendants Navotas and Bautista, as well as their
respective heirs, successors or assigns, while the ǲDeed of Absolute Sale with
Assumption of Mortgageǳ be declared null and void so far as it prejudiced and
adversely affected the rights of defendants Navotas and Bautista on the portion of
the property leased to it; (b) that the plaintiffs and Carmen Vda. de Cruz be ordered
to accept the sum of P1,600,000.00 representing the option money for the purchase
of the property subject of the lease contract specifically that which is now covered
by TRANSFER CERTIFICATE OF TITLE NO. R-85099 and to execute and sign the
necessary deed of conveyance therefore in favor of defendant Navotas and/or
Bautista; and (c) that plaintiffs and Carmen Vda. de Cruz be ordered and
condemned, jointly and severally, to pay defendants Navotas and Bautista moral and
exemplary damages of not less than P80,000.00, attorneyǯs fees and litigation
expenses of not less than P50,000.00, and the costs of suit.
Herein answering defendants further pray for such other reliefs and
remedies available in the premises.[31]
In the meantime, Carmen Cruz died intestate on November 20, 1995 at the age of 97. She
was survived by the plaintiffs as her heirs.[32]
On March 7, 2000, the trial court rendered judgment in favor of the NIC and Bautista. The
of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:
a) Affirming the validity of the Contract of Lease and the Supplementary

Lease Agreement, both dated 30 July 1977, including the provision granting
defendants exclusive option to buy the subject property.
b) Affirming the full rental payments made by defendants Navotas and

Bautista for the lease of the subject property until the expiration thereof.
c) Denying the claims for actual and compensatory, moral and

exemplary damages as well as attorneyǯs fees interposed by plaintiffs against
defendants.
d) Denying the claims for moral and exemplary damages interposed by

defendants Navotas and Bautista against plaintiffs.
e) The Deed of Absolute Sale with Assumption of Mortgage is hereby

declared null and void as far as it prejudiced and is adversely affecting the rights of
defendants Navotas and Bautista on the portion thereof leased to them. The
plaintiffs, as heirs of defendant Cruz, are hereby ordered to accept the sum of
P1,600,000.00 representing the option money for the purchase of the subject
property subject of the lease contract specifically that which is now covered by
Transfer Certificate of Title No. R-85099 and to execute and sign the necessary deed
of conveyance therefor in favor of defendants Navotas and/or Bautista.
f) Ordering plaintiffs to pay defendants Navotas and Bautista
P20,000.00 by way of reasonable attorneyǯs fees.
Costs against the plaintiffs.[33]
The trial court declared that when defendant Carmen Cruz executed the July 30, 1977
Supplementary Lease Agreement and Contract of Lease, she was still the owner of the property; as
such, NIC was not bound by the deed of sale with assumption of mortgage executed by Carmen Cruz
because it was not a party thereto; and that such deed was not registered with the Office of the
Register of Deeds. The trial court ruled that the plaintiffs failed to prove fraud and undue influence
on Carmen Cruz and/or that NIC took advantage of her mental weakness. The RTC ruled that only
Carmen Cruz had the right to rescind the contracts of lease and supplementary lease agreement.
The option to buy the property granted to NIC was supported by a consideration, more specifically
the P42,000.00 rental payment it made upon the execution of the said contracts.
The plaintiffs appealed the decision to the CA wherein they alleged that:
I
THE TRIAL COURT ERRED IN HOLDING THAT APPELLEES WERE NOT BOUND BY
THE DEED OF ABSOLUTE SALE OF REALTY WITH ASSUMPTION OF MORTGAGE
WHICH APPELLANTS ANNOTATED AS AN ADVERSE CLAIM ON THE CERTIFICATE
OF TITLE OF THE PROPERTY AS EARLY AS 30 JUNE 1977 BEFORE APPELLEES
REGISTERED THE QUESTIONED LEASE CONTRACTS ON 14 SEPTEMBER 1977.
II
THE TRIAL COURT ERRED IN COMPLETELY IGNORING THE OVERWHELMING
EVIDENCE ON RECORD SHOWING THAT APPELLEES HAD ACTUAL AND
CONSTRUCTIVE NOTICE OF THE SALE OF THE SUBJECT PROPERTY TO THE CRUZ
CHILDREN IN 1974, AND THUS KNEW OR OUGHT TO HAVE KNOWN THAT IN
EXECUTING THE QUESTIONED LEASE CONTRACTS WITH MRS. CRUZ IN 1977,
THEY WERE DEALING WITH ONE WHO WAS NO LONGER THE OWNER OF THE
PROPERTY WHO CAN BIND THE SAME UNDER THE QUESTIONED LEASE
CONTRACTS.
III
THE TRIAL COURT ERRED IN HOLDING THAT THE CONSENT OF MRS. CRUZ TO
THE SUBJECT LEASE CONTRACTS HAD NOT BEEN VITIATED BY UNDUE AND
IMPROPER PRESSURE AND INFLUENCE ON THE PART OF APPELLEES
CONSIDERING THAT:
A. THE UNDISPUTED EVIDENCE ON RECORD READILY BEARS OUT

THE UNDUE AND IMPROPER PRESSURE AND INFLUENCE
EXERTED BY APPELLEES ON MRS. CRUZ TO OBTAIN HER
CONSENT TO THE SUBJECT LEASE CONTRACTS;
B. THE VERY TERMS AND CONDITIONS OF THE LEASE

CONTRACTS, WHICH ARE GROSSLY DISADVANTAGEOUS TO
MRS. CRUZ, POINT TO APPELLEESǯ USE OF UNDUE PRESSURE
AND INFLUENCE ON HER TO OBTAIN HER CONSENT TO THE
SUBJECT LEASE CONTRACTS.
IV
THE TRIAL COURT ERRED IN NOT HOLDING, IN THE ALTERNATIVE, THAT THE
SUBJECT LEASE CONTRACTS WERE RENDERED RESCINDED BY REASON OF
APPELLEESǯ MATERIAL BREACHES OF THE TERMS AND CONDITIONS
CONSIDERING THAT:
A. APPELLEES HAD ADMITTEDLY FAILED TO CONSTRUCT THE

SLIPWAYS AS REQUIRED UNDER THE LEASE CONTRACT;
B. THE EVIDENCE FULLY ESTABLISHES THAT APPELLEES HAVE

NOT PAID THE RENTALS DUE ON THE PROPERTY SINCE 1991.
V
THE TRIAL COURT ERRED IN DECLARING THE DEED OF ABSOLUTE SALE WITH
ASSUMPTION OF MORTGAGE AS NULL AND VOID AS AGAINST APPELLEES
CONSIDERING THAT THE SAME HAS BEEN CONFIRMED AND RECOGNIZED IN
SUBJECT TRANSFERS AFFECTING THE SAME PROPERTY.
VI
THE TRIAL COURT ERRED IN HOLDING THAT THE OPTION CONTRACT FOR
APPELLEESǯ PURCHASE OF THE SUBJECT PROPERTY WAS SUPPORTED BY A
SEPARATE CONSIDERATION AND THUS VALID AND BINDING ON APPELLANTS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING APPELLEES LIABLE TO APPELLANTS
FOR ACTUAL AND COMPENSATORY DAMAGES CONSISTING OF THE REASONABLE
RENTALS ON THE PROPERTY FROM 2 OCTOBER 1990 UNTIL THE RETURN
THEREOF TO APPELLANTS.
VIII
THE TRIAL COURT ERRED IN ABSOLVING APPELLEES OF LIABILITY TO
APPELLANTS FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYǯS
FEES.[34]
On July 18, 2003, the CA rendered judgment granting the appeal, and reversing the decision
of the RTC. The CA ruled that the appellees had constructive notice of the Deed of Sale with
Assumption of Mortgage, which Carmen Cruz executed in favor of the appellants, based on the
affidavit of adverse claim annotated on June 29, 1977 at the dorsal portion of TCT No. 81574. The
CA declared that the adverse claim annotated at the dorsal portion of the said title continued to be
effective and remained a lien until cancelled. The CA held that the option granted to the appellee
NIC to purchase the property was not effective because there was no consideration therefor, apart
from NICǯs rental payments. Besides, the CA emphasized, when Carmen Cruz executed the July 30,
1977 Supplementary Lease Agreement and Contract of Lease, she was no longer the owner of the
property.
The CA denied NICǯs motion for reconsideration of the said decision; hence, it filed the
instant petition for review on

, alleging that:
A.
THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR WHEN
IT DECLARED THAT THE QUESTIONED LEASE CONTRACTS WERE NULL AND VOID,
IT APPEARING IN AN ADVERSE CLAIM ANNOTATED ON THE CERTIFICATE OF
TITLE OF CARMEN VDA. DE CRUZ THAT SHE WAS NO LONGER THE OWNER OF
THE PROPERTY SUBJECT MATTER THEREOF WHEN THE LEASE WAS EXECUTED
ON JULY 30, 1977.
B.
IT RULED THAT THE OPTION TO BUY THE LEASED PROPERTY CONTAINED IN THE
SUPPLEMENTARY LEASE CONTRACT IS NOT VALID AND BINDING FOR LACK OF
CONSIDERATION AND CAPACITY OF CARMEN VDA. DE CRUZ TO CONVEY THE
SAME.
C.
IT FAILED TO RECOGNIZE A PRIOR JUDGMENT BASED ON A COMPROMISE AS A
BAR TO THE PROCEEDINGS IN THIS INSTANT CASE.[35]
On the first issue, the petitioner avers that the adverse claim annotated at the dorsal portion of
TCT No. 81574 was ineffective because the respondents failed to submit to the Register of Deeds
the ownerǯs duplicate of TCT No. 81574, as mandated by Section 110 of Act No. 496. The
annotation of the adverse claim in the Office of the Register of Deeds on June 29, 1977 on TCT No.
81574 despite such failure to present the ownerǯs duplicate of the said title rendered such
inscription ineffectual, not binding on it and Carmen Cruz. Hence, the petitioner posits, Carmen
Cruz remained the lawful owner of the property. Even Carmen Cruz maintained that she was the
owner of the property in her complaint in Civil Case No. C-7040 filed after the execution of the deed
of absolute sale with assumption of real estate mortgage; she even executed the July 30, 1977
Supplementary Lease Agreement and Contract of Lease in its favor. According to the petitioner, the
said deed of sale was fictitious as, in fact, it was rejected by Carmen Cruz.
For their part, the respondents aver that the petitioner had constructive notice of the said
sale, based on the inscription of the affidavit of adverse claim on June 29, 1977 at the dorsal portion
of TCT No. 81574. Besides, the respondents posit, Cipriano Bautista even admitted having known
of the said adverse claim before the July 30, 1977 Contract of Lease and Supplementary Lease
Agreement were registered in the Office of the Register of Deeds. The respondents cited the ruling
of this Court in . "#

[36] to support their claim.
On the second issue, the petitioner avers that the exclusive option granted to it by Carmen
Cruz under the Supplementary Lease Agreement was essentially a mutual promise to buy and sell,
equivalent to a reciprocal contract under the first paragraph of Article 1479 of the New Civil Code.
But in the same breath, the petitioner argues that its exclusive option to buy the property for
P1,600,000.00 was supported by a consideration apart from the said amount. The petitioner insists
that the P42,000.00 which it paid to Carmen Cruz as rental upon the execution of the
Supplementary Lease Agreement was ǲadvance money,ǳ which motivated Carmen Cruz to grant the
option to the petitioner.
On the third issue, the petitioner argues that the respondentsǯ action was barred by the
order of the RTC in Civil Case No. C-7040 dismissing the complaint and complaint-in-intervention
therein, based on a compromise agreement of Carmen Cruz and petitioner NIC.
-$)(#<-$'

The annotation of an adverse claim is a measure designed to protect the interest of a person
over a part of real property, and serves as a notice and warning to third parties dealing with the
said property that someone is claiming an interest over it or has a better right than the registered
owner thereof.[37]
On the first issue, we agree with the ruling of the CA that the petitioner had constructive
notice of the Deed of Sale with Assumption of Mortgage executed by Carmen Cruz in favor of the
respondents. The affidavit of adverse claim the respondents executed on June 29, 1977 was
annotated at the dorsal portion of TCT No. 81574 on June 30, 1977, to wit:
A review of the facts and circumstances in the case at bar reveals that at the
time the Supplementary Lease Agreement and Contract of Lease both dated July 30,
1977 were executed by and between CARMEN and herein appellees, CARMEN was
apparently no longer the owner of the land covered by TCT No. 81574 subject of this
controversy. Obviously, appellees cannot turn a blind eye on the inscription found
on CARMENǯs certificate of title at the time the Supplementary Lease Agreement and
Contract of Lease were signed on July 30, 1977. Basic is the rule that the annotation
of an adverse claim is a measure designed to protect the interest of a person over a
piece of real property and serves as a notice and warning to third parties dealing
with said property that someone is claiming an interest on the same or a better right
than the registered owner thereof. A subsequent transaction involving the property
cannot prevail over the adverse claim which was previously annotated in the
certificate of title of the property. Here, the records are obvious, the notice of
adverse claim executed on June 29, 1977 was annotated on the title on June 30,
1977, that is, one month prior to the signing of the disputed lease contracts on July
30, 1977. Said contracts of lease were belatedly annotated two months after its
execution or on September 14, 1977 only, after appellees were allegedly warned by
CARMEN that her children are desirous of the property leased in their favor. To say
the least, this warning from CARMEN should have aroused appelleesǯ suspicion
regarding the status of the prime property they intend to lease for another fifteen
(15) years. ǥ[38]
Section 110 of Act No. 496 was the law in force when Carmen Cruz executed the Deed of Sale
with Assumption of Mortgage, and when the respondents executed the affidavit of adverse claim
and presented it to the Register of Deeds on June 30, 1977. The petitionerǯs reliance on the said
provision is misplaced. Indeed, the Register of Deeds acted in accord with Section 110 of Act No.
496 when he inscribed the affidavit of adverse claim at the dorsal portion of TCT No. 81574, despite
the non-production of the ownerǯs duplicate of TCT No. 81574 simultaneously with the
presentation of the affidavit of adverse claim. The law reads:
SEC. 110. Whoever claims any part or interest in registered land adverse to
the registered owner, arising subsequent to the date of the original registration,
may, if no other provision is made in this Act for registering the same, make a
statement in writing setting forth fully his alleged right or interest, and how or
under whom acquired, and a reference to the volume and page of the certificate of
title of the registered owner, and a description of the land in which the right or
interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse
claimantǯs residence, and designate a place at which all notices may be served upon
him. This statement shall be entitled to registration as an adverse claim, and the
court, upon a petition of any party-in-interest, shall grant a speedy hearing upon the
question of the validity of such adverse claim and shall enter such decree therein as
justice and equity may require. If the claim is adjudged to be invalid, the
registration shall be cancelled. If in any case the court, after notice and hearing,
shall find that a claim thus registered was frivolous or vexatious, it may tax the
adverse claimant double or treble costs in its discretion.
Irrefragably, the Deed of Sale with Assumption of Mortgage which Carmen Cruz executed on
December 31, 1974 was a voluntary act; and under Section 50 of the law, the act of registration
shall be the operative act to convey and affect the land. Indeed, Section 55 of Act No. 496 provides
that the presentation of the ownerǯs duplicate certificate of title for the registration of any voluntary
instrument is required:
SEC. 55. No new certificate of title shall be entered, no memorandum shall be

made upon any certificate of title by the register of deeds, in pursuance of any deed
or other voluntary instrument, unless the ownerǯs duplicate certificate is presented
for such indorsement, except in cases expressly provided for in this Act, or upon the
order of the court for cause shown; and whenever such order is made, a
memorandum thereof shall be entered upon the new certificate of title and upon the
ownerǯs duplicate:
""
That in case the mortgagee refuses or fails to
deliver within a reasonable time to the register of deeds the duplicate or copy of the
certificate of title surrendered by the owner, after advice by said officer, in order to
enable him to register or annotate thereon another real right acquired by said
owner, the record or annotation made on the certificate in the register book shall be
valid for all legal purposes.
The production of the ownerǯs duplicate certificate whenever any voluntary

instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instrument, and the new
certificate or memorandum shall be binding upon the registered owner and upon all
persons claiming under him, in favor of every purchaser for value and in good faith:

""
That in all cases of registration procured by fraud the owner may
pursue all his legal and equitable remedies against the parties to such fraud, without
prejudice, however, to the rights of any innocent holder for value of a certificate of
title:
"

That after the transcription of the decree of registration
under this Act procured by the presentation of a forged duplicate certificate, or of a
forged deed or other instrument, shall be null and void. In case of the loss or theft of
an ownerǯs duplicate certificate, notice shall be sent by the owner or by someone in
his behalf to the register of deeds of the province in which the land lies as soon as
the loss or theft is discovered.
This Court explained the rationale of the requirement in ( (" B # + "
3 . :[39]
The basis of respondent Villanuevaǯs adverse claim was an agreement to sell

executed in her favor by Garcia Realty. An agreement to sell is a voluntary
instrument as it is a willful act of the registered owner. As such voluntary
instrument, Section 50 of Act No. 496 expressly provides that the act of registration
shall be the operative act to convey and affect the land. And Section 55 of the same
Act requires the presentation of the ownerǯs duplicate certificate of title for the
registration of any deed or voluntary instrument. As the agreement to sell involves
an interest less than an estate in fee simple, the same should have been registered
by filing it with the Register of Deeds who, in turn, makes a brief memorandum
thereof upon the original and ownerǯs duplicate certificate of title. The reason for
requiring the production of the ownerǯs duplicate certificate in the registration of a
voluntary instrument is that, being a willful act of the registered owner, it is to be
presumed that he is
interested in registering the instrument and would willingly surrender, present or
produce his duplicate certificate of title to the Register of Deeds in order to
accomplish such registration. ǥ[40]
However, in this case, Carmen Cruz had ordered the CBC, the mortgagee and custodian of the
ownerǯs duplicate of TCT No. 81574, not to surrender the ownerǯs duplicate of the said title to the
Register of Deeds. The latter thus acted in accord with law when the affidavit of adverse claim was
inscribed at the dorsal portion of TCT No. 81574 on June 30, 1977. Indeed, this Court ruled in (
("B# +"3 . [41] that:
ǥ However, where the owner refuses to surrender the duplicate certificate

for the annotation of the voluntary instrument, the grantee may file with the
Register of Deeds a statement setting forth his adverse claim, as provided for in
Section 110 of Act No. 496. In such a case, the annotation of the instrument upon
the entry book is sufficient to affect the real estate to which it relates, although
Section 72 of Act No. 496 imposes upon the Register of Deeds the duty to require the
production by the Registered owner of his duplicate certificate for the inscription of
the adverse claim. The annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property where the registration
of such interest or right is not, otherwise, provided for by the Land Registration Act,
and serves as a notice and warning to third parties dealing with said property that
someone is claiming an interest on the same or a better right than the registered
owner thereof.[42]
Moreover, on June 29, 1977, the balance of Mariano Cruz and Gabriel Cruzǯs account with the
CBC had already been paid, presumably by Mariano Cruz; and the CBC had executed a cancellation
of real estate mortgage. However, the said deed was inexplicably not presented to the Register of
Deeds for registration.

The general rule is that a person dealing with registered land is not required to go behind the
register to determine the condition of the property. However, such person is charged with notice of
the burden on the property which is noted on the face of the register or certificate of title.[43] A
person who deals with registered land is bound by the liens and encumbrances including adverse
claim annotated therein.[44]
In the present action, the petitioner caused the annotation of the July 30, 1977 Supplementary
Lease Agreement and Contract of Sale only on September 14, 1977, long after the annotation of the
respondentsǯ adverse claim at the dorsal portion of TCT No. 81574 $6?¢ . Thus, as of that
date, the petitioner had constructive knowledge of the Deed of Sale with Assumption of Mortgage
Carmen Cruz executed on December 31, 1974 in favor of her children. Even before July 30, 1977,
the petitioner had knowledge that Carmen Cruz was no longer the owner of the property, and had
no more right to execute the July 30, 1977 Supplementary Lease Agreement and Contract of Lease.
The registration of the said lease contracts was of no moment, since it is understood to be without
prejudice to the better rights of third parties.[45]
While it is true that in the complaint and amended complaint in Civil Case No. C-7040, Carmen
Cruz alleged that she was the owner-lessor of the

property, such allegation cannot detract from the fact that the property had already been registered
under the names of the respondents under TCT No. 11272, later cancelled by TCT No. R-11830. The
petitioner was informed by the respondents that they were the registered owners of the property.
Moreover, the already aging Carmen Cruz and her children had a domestic quarrel, and animosity
that caused her to go into seclusion; she thought then that her children had abandoned her. The
attendant circumstances must have influenced Carmen Cruz to erroneously allege in her complaint
that she was the owner of the property.[46]
Even then, on February 23, 1988, Carmen Cruz executed an Affidavit in which she swore that
she had sold the property to her children:
3. That among the parcels of land which I have sold was that parcel
located in Barrio Almacen, Navotas, Rizal, then covered by Transfer Certificate of
Title No. 81574 of the Register of Deeds of Rizal in favor of my children Serafin D.
Cruz, Mariano D. Cruz, Rogelio D. Cruz, Sr. Carmencita Cruz and Sr. Mary Carmellas
as vendees, with the agreement that the then existing mortgage with the China
Banking Corporation shall be assumed and settled by said vendees, as embodied in a
document entitled ǲDeed of Absolute Sale of Realty with Assumption of Mortgage,ǳ
which I executed on December 31, 1974 and entered in the notarial register of
Notary Public P. Dario Guevarra, Jr. as Doc. No. 198, Page No. 41, Book No. 198,
Series of 1975.[47]
7. That in view of these developments and considering my advanced age

and present physical condition and now realizing that I may have been unduly taken
advantage of by some parties to promote their own selfish interests, I now hereby
execute this sworn statement and hereby affirm the validity of the sale of said parcel
of land covered by TCT No. 81574 of the Register of Deeds of Rizal and hereby state
that said sale was entered into by me of my own free will and for valuable
consideration.[48]
In her answer to the respondentsǯ amended complaint in the trial court, Carmen Cruz
reiterated that she had sold the property to her children:
2.5. On 31 December 1974, she sold the subject property to the plaintiffs
for valuable consideration, free from all liens and encumbrances and claim of third
parties, except that pertaining to a real estate mortgage with China Banking
Corporation as evidenced by a notarized ǲDeed of Absolute Sale of Realty with
Assumption of Mortgageǳ dated 31 December 1974, a photocopy of which is hereto
attached and made an integral part hereof as Annex ǲBǳ;
2.6. After she sold the subject lot to the plaintiffs herein, the latter tried to
effect the registration and annotation of the said transfer with the Registry of Deeds
of Rizal sometime in 28 June 1977 but China Banking Corporation, the mortgagee,
through its legal counsel, Atty. Arsenio Sy Santos, refused to release the title thus the
delay in the registration of the said ǲDeed of Sale with Assumption of Mortgageǳ
which she executed in favor of the plaintiffs involving the subject parcel of land with
the Registry of Deeds;
2.7. In order to protect their rights and interests over the subject property,
the plaintiffs, through their appointed attorney-in-fact, Mariano A. Cruz, annotated
an adverse claim on the title which was then still under answering defendantǯs
name, as a cautionary notice to third persons and the whole world that said title has
been transferred by answering defendant in favor of the plaintiffs herein and that
any voluntary dealing thereon shall be considered subject to the said adverse
claim.[49]
Carmen Cruz also alleged, in her amended complaint in Civil Case No. C-7040, that the July 30,
1977 Contract of Lease and Supplementary Lease Agreement she executed in favor of the petitioner
were fraudulent.[50]
In her answer to the amended complaint in the court !, Carmen Cruz alleged that the
defendant therein (now the petitioner) was granted an ǲexclusive option to buy the leased property
at the ridiculously low price of P1,600,000.00, payable over an unspecified period Ȃ an option
unsupported by any consideration Ȃ hence, null and void.ǳ[51] She elaborated that:
15. That the above-quoted provision is not only a foolery, trickery and a
product of deception because the exercise of the ǲoptionǳ is not fixed Ȃ the same
maybe conveniently exercised by the defendant at anytime up to the year 2005.
Even the fixing of the sum worded as ǲflat sumǳ of One Million Six Hundred
Thousand Ȃ the valuation fifteen (15) years, hence, (2005) without providing for the
ǲinflation and deflationǳ of the currency is grossly prejudicial and unfair. Moreover,
the provision which states that if and when defendants finally decides to exercise
their option during the lifetime of the Lessor, the lessee will continue paying the
rentals is not only illogical, untrue and deceptive, the same being used mainly as a
ploy to win the sympathy and titillate the ego of the old woman. It is rather
unbelievable that being already the owner, defendants will still pay the rentals.
This, to our mind, is the height of hyprocracy.[52]
On the second issue, we reject the petitionerǯs contention that the exclusive option granted to
it by Carmen Cruz under the Supplementary Lease Agreement is essentially a mutual promise to
buy and sell, equivalent to a reciprocal contract under the first paragraph of Article 1479 of the
New Civil Code, which reads:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is
An accepted unilateral promise to buy or to sell a determinate thing for a

price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
In the first place, the petitioner insisted in its pleadings in the court ! that under the
Supplementary Lease Agreement and Contract of Lease, it was granted the exclusive option to
purchase the property leased. The petitioner maintained its theory of the case in the CA. The
petitioner cannot change its theory, and claim this time that it and Carmen Cruz entered into a
promise to buy and sell the property leased.[53]

Considering that Carmen Cruz was no longer the owner of the property when she executed the
July 30, 1977 Supplementary Lease Agreement and Contract of Lease, and that the respondents had
acquired ownership over the property as of December 31, 1974 (which the petitioner had
constructive knowledge of since June 30, 1977), the petitionerǯs claim that it had the option to buy
the property or to compel the respondents to sell the property to it has no legal and factual basis.
Even after a careful study of the merits of the petition, the Court finds that the petitionerǯs
claim is untenable. The relevant portions of the Supplementary Lease Agreement read:
4. The LESSEE is hereby granted an exclusive option to buy the property

including all improvements already made by the LESSEE (slipways and camarines)
subject matter of this contract comprising SIX THOUSAND NINE HUNDRED FORTY-
NINE Point FIVE Square Meters (6,949.5) which is one-half portion of the area
covered by TCT No. 81574 and same property subject matter of this contract should
also be equally divided with one-half frontage along M. Naval Street and along the
Navotas River Bank shoreline during the period of the lease. The price of the
property is agreed to be fixed for the duration of the Option to Buy at a flat sum of
ONE MILLION SIX HUNDRED THOUSAND PESOS (P1,600,000.00), Philippine
Currency, payable over a period to be mutually agreed upon. Should the LESSEE
exercise the option to buy during the lifetime of the LESSOR, the LESSEE will
continue to pay the monthly rental to the LESSOR during her lifetime.
5. The LESSEE shall pay to the LESSOR the sum of FORTY-TWO

THOUSAND (P42,000.00) PESOS upon signing of this contract as consideration
thereof, to be applied as against the rental for the period from October 1, 1990 to
September 30, 1991.[54]
It must be stressed that an option contract is a contract granting a privilege to buy or sell
within an agreed time and at a determined price. Such a contract is a separate and distinct contract
from the time the parties may enter into upon the construction of the option.[55] In #

"
#
,[56] the Court held that an option contract is a preparatory contract in which one
party grants to the other, for a fixed period and under specified conditions, the power to decide,
whether or not to enter into a principal contract. The Court further stated that:
ǥ It binds the party who has given the option, not to enter into the principal
contract with any other person during the period designated, and, within that
period, to enter into such contract with the one to whom the option was granted, if
the latter should decide to use the option. It is a separate agreement distinct from
the contract which the parties may enter into upon the consummation of the
option.[57]
It is only when the option is exercised may a sale be perfected.[58] An option contract needs
to be supported by a separate consideration. The Court defined consideration for an option in %
% #
"#
,[59] as follows:
ǥ The consideration need not be monetary but could consist of other things
or undertakings. However, if the consideration is not monetary, these must be
things or undertakings of value, in view of the onerous nature of the contract of
option. Furthermore, when a consideration for an option contract is not monetary,
said consideration must be clearly specified as such in the option contract or clause.
In the present case, there was no given period for the petitioner to exercise its option; it had
yet to be determined and fixed at a future time by the parties, subsequent to the execution of the
Supplementary Lease Agreement. There was, likewise, no consideration for the option. The
amount of P42,000.00 paid by the petitioner to Carmen Cruz on July 30, 1977 was payment for
rentals from October 1, 1990 to September 30, 1991, and not as a consideration for the option
granted to the petitioner.
On the third issue, the respondentsǯ action in the court ! was not barred by the order of
the RTC dismissing the complaint of Carmen Cruz, and the respondentsǯ complaint-in-intervention
in Civil Case No. 5114. Contrary to the petitionerǯs claim, Carmen Cruz (the plaintiff therein) and
the petitioner (the defendant therein) did not enter into any compromise agreement in the said
case. Moreover, the dismissal of the complaint, and, consequently, the respondentsǯ complaint-in-
intervention was upon motion of plaintiff Carmen Cruz and without prejudice.
4 4 , the petition is ** for lack of merit. The Decision of
the Court of Appeals in CA-G.R. CV No. 69818 is *. Costs against the petitioner.
m**.

+
+m

Associate Justice
WE CONCUR:
m

Associate Justice
Chairman

m!*


4!
Associate Justice
m
I attest that the conclusions in the above Decision were reached in consultation before the case
m

Associate Justice
Chairman, Second Division

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmanǯs
Attestation, it is hereby certified that the conclusions in the above decision were reached in
consultation before the case was assigned to the writer of the opinion of the Courtǯs Division.
4
* *+
Chief Justice
[1] Penned by Associate Justice Mercedes Gozo-Dadole, with Associate Justices Conrado M.
Vasquez, Jr. and Rosmari D. Carandang, concurring; ' pp. 44-59.
[2] Exhibit ǲA.ǳ
[3] Exhibit ǲB.ǳ
[4] Exhibit ǲA.ǳ
[5] Exhibit ǲC.ǳ
[6] Exhibit ǲI.ǳ
[7] Exhibit ǲJ.ǳ
[8] Records, p. 997.
[9] Exhibit ǲM.ǳ
[10] Exhibit ǲA.ǳ
[12] Exhibit ǲ1.ǳ

[13] Exhibit ǲ2.ǳ
[14] Records, p. 997.
[15] Exhibit ǲP.ǳ
[16] Exhibit ǲH.ǳ
[17] Records, p. 102.
[18] Records, pp. 84-85.
[19] +. at 88-89.
[20] Exhibit ǲY.ǳ
[21] Exhibit ǲAA.ǳ
[22] Exhibit ǲBB.ǳ
[23] Exhibit ǲDD.ǳ
[24] Exhibit ǲFF.ǳ
[25] Exhibit ǲGG.ǳ
[26] Records, pp. 145-147.
[27] +. at 184-185.
[28] Records, pp. 189-190.
[29] +. at 209-219.
[30] Records, p. 216.
[31] Records, p. 217.
[32] +. at 311-313.
[33] Records, p. 994.
[34] CA ' pp. 129-131.
[35] ' pp. 20-21.
[36] G.R. No. 102377, 5 July 1996, 258 SCRA 79.

[37] . "#

p. 93.
[38] ' pp. 55-56.
[39] No. L-28529, 30 April 1979, 89 SCRA 520.
[40] (("B# +"3 .

p. 528.
[41] +.
[42] +. at 528-529.
[43] . "#

.
[44] Section 55 of Act 496.
[45] *
""

"+
G.R. No. 140398, 11 September 2001, 365
SCRA 1.
[47] +. at 90.
[48] +. at 91.
[49] Records, pp. 182-183.
[50] +. at 76-77.
[51] +. at 185.
[53] " G.R. No. 158057, 24 September 2004, 439 SCRA 94; %
+ "(

G.R. No. 137148, 18 November 2003, 416 SCRA 15.
[54] Records, pp. 1177-1178.
[55] (
, " G.R. No. 137552, 16 June 2000, 333 SCRA 643.
[56] G.R. No. 124791, 10 February 1999, 302 SCRA 718.
[57]+ at 724.
[58] # "*" % "( G.R. No. 131679, 1 February 2000, 324 SCRA 346.
[59] G.R. No. 126454, 26 November 2004, 444 SCRA 399.

m
Manila
SECOND DIVISION

9/?9
4 ]:petitioner,

vs.
m/#0* m mm
respondents.
p

of the Decision of the Court of Appeals affirming
the November 27, 1992 decision 8 of the Regional Trial Court of Makati, Branch 150 which disposed
of Civil Case No. 8109, "Industrial Enterprises, Inc. v.Marinduque Mining and Industrial
Corporation, Geronimo Velasco (in his capasity as the then Minister of Energy) and Philippine
National Bank," an action for rescission of contract and damages, as follows:
WHEREFORE, in the light of the foregoing, and as plaintiff Industrial Enterprises,

Inc. was able to establish by preponderant evidence the allegations in its Complaint
and causes of action against defendants Marinduque Mining and Industrial
Corporation and Philippine National Bank, the Court finds both defendants civilly
liable to plaintiff and, therefore, orders them to jointly and severally:
1. pay plaintiff the sum of P31.66 Million as of July 31, 1983, for the expenses
invested by plaintiff in the property subject of this case, as computed by Sycip,
Gorres, Velayo and Company and brought to current value per SGV formula, as
agreed in the Memorandum of Agreement;
2 pay plaintiff the sum of P37,569,733.00, for the indemnification and rehabilitation
cost, plus interest at the legal rate from March 31, 1991, until fully paid;
3. pay plaintiff the sum of P120 Million for unrealized profit for five (5) years from
August, 1983, the date of defendant MMIC's takeover of the property, to October,
1988, when plaintiff was re-awarded the contract, plus interest at the legal rate,
from the date of this decision, until fully paid;
4. pay plaintiff an amount not less than ten (10) percent of the losses it incurred and
its unrealized profits as indicated in Numbers 1 to 3, for the injury done to plaintiff's
business standing and commercial credit;
5. pay plaintiff an amount not less than five (5) percent of the above obligation as
reimbursement to plaintiff for litigation expenses and attorney's fees;
6. COST OF SUIT.
And finally, the extrajudicial foreclosure sale held on August 31, 1984, in Catbalogan,
Samar, over the property of plaintiff, part of the Giporlos Coal Project, is hereby
declared NULL and VOID.
SO ORDERED.
Marinduque Mining and Industrial Corporation (MMIC) was founded by Jesus S. Cabarrus in 1949.
Four years later or in 1953, Cabarrus established J. Cabarrus, Inc. which subsequently was renamed
Industrial Enterprises, Inc. (IEI). During the period when most of the facts relevant to this case
transpired, Cabarrus and his family owned about 12% to 14% of the shares of stock in the MMIC %
where he was the President. He was also the President of IEI.
On July 27, 1979, IEI entered into a coal operating contract with the Bureau of Energy Development
(BED), with Cabarrus and then Minister of Energy Geronimo Velasco as signatories. The contract
was pursuant to the Coal Development Act of 1976 (P.D. No. 972, as amended) and covered 2,000
hectares of two (2) coal blocks in Barrio Carbon, Magsaysay, Eastern Samar.
While exploring this area, IEI found the adjacent areas, comprising of three (3) coal blocks, to be
likewise coal potentials. Hence, upon confirmation by the BED that these three (3) adjacent coal
blocks were in the free area, IEI filed an application for another coal operating contract on August
12, 1981. Simultaneously, IEI applied for the conversion of its July 27, 1979 coal operating contract
from exploration to development/production. IEI also followed up its application on the three (3)
newly-discovered coal blocks. All of these coal blocks were collectively known as the Giporlos Coal
Project.
Sometime in April, 1982, Minister Velasco informed Cabarrus that IEI's application for exploration
of the three (3) coal blocks had been disapproved and that, instead, the contract would be awarded
to MMIC. Following Cabarrus' letter of May 4, 1982 requesting that the rejection of IEI's
application be made in writing, Minister Velasco wrote him a letter dated June 2, 1982, 9 where
Minister Velasco said:
We appreciate your desire to increase Industrial Enterprises, Inc.'s (IEI)

involvement in coal development. In line, however, with the objective of
rationalizing the country's overall coal supply-demand balance, we believe that coal
users who have the capability to go into coal production themselves should, as much
as possible, be encouraged and given the preference to do so. This ensures
maximum utilization of local coal and will be beneficial to coal producer/user in the
long run. In your area of interest, therefore, we believe that the logical coal operator
should be Marinduque Mining and Industrial Corporation (MMIC) which is now
developing the Bagacay coal deposit in order to support MMIC's coal conversion
program at the Nonoc Nickel Refinery. As a member of the board of MMIC, I am fully
aware that this coal conversion program is critical to the profitability and the
survival of the Nonoc Nickel Refinery. It is, therefore, imperative that MMIC secure
its own coal supply.
Consistent with the above rationale, you are aware that MMIC Board has in fact
taken concrete steps to consolidate the Giporlos and Bagacay coal areas under MMIC
and, for this purpose, has authorized Chairman Cesar C. Zalamea to create a
committee (of which I was asked to be Chairman) to evaluate the Giporlos coal
blocks of IEI to serve as basis for their acquisition by MMIC. As President of MMIC,
you are likewise aware that the Board has recently hired the services of SGV to
make an evaluation of the proper pricing for the IEI coal interest to be paid for by
MMIC. With these developments indicating the imminent formal acquisition of
Giporlos coal areas by MMIC, it would indeed be inconsistent now for us to award
additional coal blocks in the same area to IEI. We believe that these additional coal
areas, if at all, should be applied for and awarded direct to MMIC.
In view of the foregoing, please be advised that we are denying IEI's application, and
we suggest instead that MMIC apply for the same blocks.
On March 28, 1983, Minister Velasco informed Cesar Zalamea, Chairman of the Board of the
Development Bank of the Philippines (DBP) and of the MMIC, that IEI's application for the
conversion of its coal operating contract for the Giporlos area from exploration to
development/production had been put "under advisement in the light of the ongoing discussion for
the transfer of IEI's rights and obligations" to MMIC.
Thereafter, MMIC and IEI, through Chairman Zalamea and President Cabarrus, respectively,
entered into a Memorandum of Agreement (MOA) whereby IEI assigned to MMIC all its rights and
interests under the July 27, 1979 coal operating contract. The MOA provided as follows:
NOW, THEREFORE, the parties have agreed, as hereby they agree, one with the
other, as follows:
1. That IEI, subject and conformably with the whereas clauses hereinabove stated,
hereby assigns and transfers all its rights and interests on the Coal Operating
Contract described in the first whereas clause; and MMIC shall in consideration of
the above assignment and transfer Ȅ
(a) Undertake all the obligations required of IEI under said Coal
Operating Contract;
(b) Reimburse all costs and expenses actually incurred as of 31 July

1983 by IEI on the coal property and brought up to current values, as
shall be audited and confirmed by Sycip, Gorres and Velayo as of said
date of 31 July 1983; and
(c) Pay to IEI the total sum equivalent to P4.17 per ton of proven and
positive reserves of coal to be confirmed by an independent
geologist who shall be designated and appointed by mutual
agreement of the parties.
2. That the total sum due from MMIC to IEI under this agreement shall be paid upon
the effectivity of this agreement in the following manner Ȅ
(a) An assumption by MMIC of the outstanding loan obligation
(evidenced by Promissory Note No. 1516 for P3.3 Million and
Promissory Note No. 11098 for P5.0 Million) of IEI to Manila Banking
Corporation which as of 31 July 1983 stands at P8.3 Million.
(b) Payment in cash to IEI of the difference between the above

amount of P8.3 Million and the sum total of subparagraphs (b) and
(c) par. 1, above.
3. That this agreement shall only become binding and effective upon its approval by
the BED, which approval shall be secured jointly by MMIC and IEI.
MMIC and IEI, again through Zalamea and Cabarrus, respectively, jointly informed the BED on
August 10, 1983, that they had entered into the MOA "at the instance and suggestion of the Hon.
Minister of Energy in one of the earlier meetings of the Board of Directors of MMIC." MMIC and
IEI were informed of the approval of the MOA on August 29, 1983 by the then Acting BED Director
Wenceslao R. de la Paz.
MMIC took over possession and control of the two (2) coal blocks even before the MOA was
finalized. However, instead of continuing the exploration and development work actively pursued
by IEI, MMIC completely stopped all works and dismissed the work force thereon, leaving only a
caretaker crew.
Consequently, IEI made written demands to MMIC, pursuant to the MOA, for the reimbursement of
all costs and expenses it had incurred on the project which, as of July 31, 1983, had amounted to
P31.66 million as audited by the Sycip, Gorres and Velayo Company.
In view of MMIC's failure to comply with its obligations under the MOA, IEI filed a complaint against
MMIC and Minister Velasco on August 7, 1984, for rescission of the MOA and damages, before the
Regional Trial Court of Makati, Branch 137. Docketed as Civil Case No. 8109, the complaint alleged
that MMIC acted in gross and evident bad faith in entering into the MOA when it had no intention at
all to operate the two (2) coal blocks and of complying with any of its obligations under the said
agreement. It likewise alleged that Minister Velasco was instrumental in causing the assignment of
the coal operating contracts to MMIC when he did not act on complainant IEI's application for
conversion of its coal operating contract from exploration to development/production and in
rejecting its application for another coal operating contract for the exploration of additional three
(3) coal blocks which he had reserved for MMIC.
Meanwhile, on July 13, 1981, for various credit accommodations secured from the Philippine
National Bank (PNB), aggregating to four billion pesos (P4,000,000,000.00) excluding interest and
charges as of November 30, 1980, as well as from the DBP, amounting to two billion pesos
(P2,000,000,000.00), MMIC entered into a Mortgage Trust Agreement (MTA) 8 whereby it
constituted a mortgage
of its assets in favor of PNB and DBP. These assets are described
in the third "whereas clause" of the MTA as follows:
(1) all the MORTGAGOR'S assets described and covered under the Deed of Real
Estate and Chattel Mortgage executed by the MORTGAGOR in favor of PNB dated
October 9, 1978, acknowledged before Notary Public of Manila, Lucas R. Vidad, as
Dec. No. 1004, Page No. 94, Book No. VII, Series of 1978, as amended, which are
made integral parts of this Agreement by way of reference; and
(2) additional assets of the MORTGAGOR described and identified in the list hereto
attached as Annex "A", including assets of whatever kind, nature or description,
which the MORTGAGOR may hereafter acquire whether in substitution of, in
replenishment, or in addition thereto, (the "Mortgaged Properties").
Under the MTA, the PNB was constituted and appointed as the trustee tasked with holding in trust
the mortgaged properties "for the equal and ratable benefit of the Beneficiaries in proportion to the
amount of the obligation of the MORTGAGOR to each of them" as provided therein. % One of the
conditions of the mortgage was that:
. . . Should the MORTGAGORS fail to deliver said properties, as aforestated, the

TRUSTEE, through its duly authorized representative, is authorized to take
possession of said properties and bring the same to the location of any of their
respective offices or to any, other place and the expenses of locating and bringing
said properties to such place shall be for the account of the MORTGAGOR and shall
form part of the sums secured by this mortgage; Provided, however, that
'A " &

"

.
(Emphasis supplied.)
The MTA also provided that:
For the purpose of extra-judicial foreclosure, the MORTGAGOR hereby appoints the
TRUSTEE, through its duly authorized representatives, its attorney-in-fact to sell the
mortgaged properties in accordance with the provision of Act No. 3135, as
amended, and/or Act No. 1508, as amended, and subject to the stipulations herein
set forth, to sign all documents and perform any act requisite or necessary to
accomplish said purpose and to appoint their representatives or substitutes as such
attorneys-in-fact with all the powers herein conferred. In extra-judicial foreclosure
under Act No. 3135, as amended, the auction sale shall take place in the City or
Capital of the Province where the mortgaged properties are situated. +)

.

3. ¢7?
#
'A
"

"

&
#.
The MTA was amended on April 27, 1984 with PNB Senior Vice President Gerardo Agulto, Jr. and
MMIC Senior Vice President Jose Luis Javier as signatories. 9 Premised on the fact that the
mortgagor (MMIC) had "acquired additional personal and real properties, including, but not limited
to, leasehold rights on mining claims, which pursuant to the terms of the Mortgage Trust
Agreement are deemed covered by the mortgage as after-acquired assets," the MTA amended Sec.
2.01 thereof to read as follows:
As security for the prompt and full payment by the MORTGAGOR of the Secured
Obligations, the MORTGAGOR hereby establishes and constitutes in favor of the
MORTGAGEES a first lien and mortgage of the first rank in and to each and every
item of the Mortgaged Properties, &

&

8
& 9
Ä'Ä'

"
.
MMIC defaulted in the payment of its loan obligation with PNB and DBP which, as of July 15, 1984
stood at P23.55 billion. As a consequence thereof, PNB and DBP simultaneously filed in the
provinces of Rizal, Samar, Negros and Surigao, joint petitions for sale on foreclosure under Act Nos.
1508 and 3135, of the MMIC assets located at: (a) Island Cement in Antipolo, Rizal; (b) Sipalay
Copper Mine in Negros; (c) Bagacay and Giporlos Coal Projects in Samar, and (d) Nonoc Nickel
Project in Surigao. The petitions were premised on: (1) the MOA of July 13, 1984 which delineated
MMIC's mortgaged properties; (2) the April 27, 1984 amendment to the MTA in favor of DBP and
PNB which included in the mortgage MMIC's additional after-acquired assets; (3) the liabilities of
MMIC secured by the mortgage being past due, and (4) Presidential Decree No. 385 mandating PNB
and DBP to institute foreclosure proceedings when the arrearages of the borrower have exceeded
twenty percent (20%) of the principal obligation.
Deputy Sheriff Esteban G. Malindog of the Regional Trial Court in Catbalogan, Samar, Branch XXVII,
complied with the requirements of the law as to the posting and publication of the notice of sale.
Said notice, dated August 15, 1984, set for August 31, 1984 the auction sale of the various mining
equipment and other assets of MMIC, including the equipment at the Giporlos Project.
On August 15, 1984, IEI advised PNB and DBP at their respective Manila and Makati offices that the
purchase price of the Giporlos Coal Project that it had assigned to MMIC per the MOA, was still
unpaid. 8 However, despite said notice, the foreclosure sale proceeded as scheduled and the
various machineries and equipment of MMIC were sold to PNB as the sole bidder for
P33,940,940.00.
In its letter of September 20, 1984 to PNB and DBP, 8 IEI requested that the movable properties in
the Giporlos Coal Project which were detailed in a list attached to its August 15, 1984 letter to said
banks, be excluded from the foreclosed assets of MMIC as the purchase price thereof under the
MOA had remained unpaid. IEI further informed PNB and DBP that a suit for rescission of the
assignment of the Giporlos Coal Project to MMIC (and damages) had been filed before the Regional
Trial Court of Makati.
On June 24, 1985, in view of the inclusion of the mining equipment and other movable properties at
the Giporlos Coal Project in the foreclosure sale of the assets of MMIC, IEI filed an amended
complaint impleading the PNB as an additional defendant. 88 The amended complaint was admitted
by the trial court on September 23, 1985. 8
On April 23, 1986, the lower court 8% rendered a decision finding that:
With respect to the plaintiff's claim against the Philippine National Bank, the
evidence on record is clear that said defendant bank is equally guilty of bad faith
because it was advised beforehand that the heavy equipment and movable property
which are part of the Giporlos Coal Project were still unpaid; however, despite that
actual knowledge or information, the said defendant bank proceeded to
extrajudicially foreclose the mortgage on the said properties; moreover, the
foreclosure proceedings were held in Catbalogan, Province of Samar, although the
said movable properties are actually found or located at Giporlos, Eastern Samar
(Exhibit "ooo"), a province, distinct and separate from, and outside the jurisdiction
of, the Province of Samar; these foreclosure proceedings in Catbalogan, Samar, are
clearly contrary to the provisions of Act 1508, as amended; likewise, the inclusion of
the movable properties which are part of the Giporlos Coal Project is contrary to the
provisions of the last paragraph of Sec. 7 of said Act No. 1508, as amended, which
provides that a chattel mortgage shall be determined to cover only the properties
described therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally mortgaged,
anything in the mortgage to the contrary notwithstanding. 8
Noting the futility of proceeding with the trial of the case because there was "no genuine issue of
any material facts," the lower court rendered a summary judgment disposing of Civil Case No. 8109
as follows:
WHEREFORE, judgment is hereby rendered:
a Ȅ declaring the memorandum agreement, Exhibit "C" as rescinded or annulled

and without further force and effect between the parties thereto;
b Ȅ declaring and sustaining the continued efficacy and validity of the coal
operating contract, Exhibit "A" between plaintiff and defendant BED;
c Ȅ ordering the reversion or return of the two coal blocks covered by the coal
operating contract dated July 27, 1979, Exhibit "A", from the defendant MMIC to and
in favor of the plaintiff together with or including all the pieces of equipment MMIC
received by said defendant in virtue of the rescinded memorandum of agreement,
Exhibit "C";
d Ȅ ordering the defendant Bureau of Energy Development to issue its

corresponding formal written affirmation and confirmation of the coal operating
contract, Exhibit "A", and to expeditiously cause the conversion thereof from
exploration to development/production or exploitation contract in favor of the
plaintiff;
e Ȅ directing the Bureau of Energy Development and the Ministry of Energy to give
due course to plaintiff's application for a coal operating contract for the exploration
of the three additional coal blocks in the plaintiff's Giporlos Coal Project;
f Ȅ condemning the defendant MMIC to pay the plaintiff the amount of

P3,431,645.00 representing expenditures on the two coal blocks covered by Exhibit
"A" from July 31, 1983 up to May 1984 and such further amounts from said date up
to the finality of this decision to be computed in accordance with the formula
adopted in the report of Sycip, Gorres and Velayo referred to in paragraph 14 of the
Amended Complaint;
g Ȅ ordering the defendant MMIC to pay the plaintiff the sum of P6,500,000.00
representing rehabilitation expenses to be incurred by plaintiff in putting back the
two coal blocks and the pieces of equipment thereon in the same workable and
operating condition as they were at the time they were taken possession of by said
defendant MMIC and the defendant PNB shall be subsidiarily liable therefor;
h Ȅ condemning the defendants MMIC and PNB jointly and solidarily liable to pay
the plaintiff moral damages in the amount of P300,000.00, as exemplary damages of
P200,000.00 and the amount of P200,000.00 as and for attorney's fees;
i Ȅ declaring the extra-judicial foreclosure sale executed for and in behalf of the
defendant Philippine National Bank of the mining equipment and other movable
property which are enumerated in Exh. "ooo" and which are part of the Giporlos
Coal Project, as null and void and of no force and effect as against the plaintiff; in the
event of the loss or deterioration of the said mining equipment and other movable
property, the said defendants PNB and MMIC shall be held jointly and solidarily
liable to the plaintiff for the current market value thereof; and
j Ȅ ordering the defendants MMIC and PNB to pay the cost of this suit.
SO ORDERED. 8
PNB and IEI filed separately motions for the reconsideration of said summary judgment. 89 PNB
alleged that the lower court did not have jurisdiction over the subject matter and nature of the
action as the MOA between MMIC and IEI was an incident arising out of a mining claim which was
within the jurisdiction of the BED. Moreover, the validity of the extrajudicial foreclosure
proceedings which PNB effected on said properties was a genuine material issue which was not
determinable through summary judgment. Inasmuch as the merit of the case was resolved through
summary judgment, PNB was denied its constitutional right to due process. Furthermore, the
award of damages to IEI was improper as PNB was not a party to the MOA.
For its part, IEI contended that the decision failed to award consequential damages in its favor
considering the finding that MMIC and PNB acted in bad faith and that it failed to realize profits of
about P14.5 million on the confirmed coal reserves of 3,485,915 metric tons computed at P4.17 per
metric ton.
On the other hand, the public defendant and MMIC filed their respective notices of appeal to the
then Intermediate Appellate Court. 8
On July 14, 1986, IEI filed a motion for execution pending appeal 8 alleging that MMIC had failed
and refused to fulfill its obligations under the MOA and that it even allowed the PNB to unlawfully
foreclose the mortgage on the heavy equipment and other movable properties in the Giporlos Coal
Project. According to IEI, to allow this situation to persist would only aggravate the damages
suffered by all concerned parties. It added that the grant of the motion for execution pending appeal
would not only stop the continuing injury to the common weal but it would also hasten the day
when the coal blocks could be placed in useful production to provide gainful employment to the
people in the community. By the same token, IEI averred, granting of the motion would accelerate
realization of scarce foreign exchange savings occasioned by the local production of a substitute
energy source that would thereby contribute to the relief of an ailing economy.
This motion was opposed by the public defendant, the MMIC and the PNB. The public defendant
averred that the execution of the decision "would cause great irreparable damage and injury to
public interest" and that there were no "good reasons" of superior circumstance that demand
urgency of the execution pending appeal. MMIC opposed the motion on the ground that the court
had lost jurisdiction after the perfection of its appeal while PNB's objection was on the ground that
there were no good reasons to justify the issuance of a writ of execution and that the issuance
thereof was premature.
In its order of September 15, 1986, the lower court denied the motions for reconsideration of IEI
and PNB for lack of merit. It ordered the elevation of the records of the case to the Court of Appeals
considering that the MMIC and the public defendant had filed their notices of appeal on time. It
likewise directed the issuance of a writ of execution pending appeal to enforce the April 23, 1986
decision upon the filing of a bond in the amount of five million pesos (P5,000,000.00) conditioned
on the payment of damages the defendants might suffer should the court finally rule that the
plaintiff was not entitled to the writ.
In granting the writ of execution, the court held that "the immediate resumption of operation of the
two coal blocks in question became imperative and is of urgent necessity at this time when our
government is in dire need of capitalization to encourage the establishment of business to generate
employment and dollar-producing energy sources." In the court's perception, this was enough
reason to entitle IEI to execution pending appeal pursuant to Sec. 2, Rule 39 of the Rules of Court.
The corresponding writ having been issued on September 22, 1986, on September 26, 1986,
Pioquinto P. Villapana was appointed Special Sheriff to assist and cooperate with Deputy Sheriff
Arturo Flores in its enforcement. However, execution of the writ was curtailed.
The appeal to the Court of Appeals was docketed as CA-G.R. CV No. 12660. On October 14, 1988, IEI
filed a motion to dismiss the case against Minister Velasco on the grounds of IEI's reapplication for
the two coal blocks with the Office of Energy Affairs (OEA) and its loss of interest in pursuing the
case against Minister Velasco. 8 The motion was favorably acted upon by the Court of Appeals
thereby effectively dropping Minister Velasco as a defendant in Civil Case No. 8109 through the
decision of May 29, 1989, where the Court of Appeals disposed of the appeal as follows:
WHEREFORE, the judgment appealed from is hereby reversed and set aside and the
appeal of plaintiff Industrial Enterprises, Inc., is DISMISSED. The complaint against
the defendants Marinduque Iron Mines Corporation and Minister of Energy is
dismissed for lack of jurisdiction. The case against defendant PNB is remanded to
the lower court for further proceedings.
Cost against appellant Industrial Enterprises, Inc.
SO ORDERED. %
IEI elevated the decision to this Court through a petition for review on

under G.R. No.
88550 while the PNB filed in the Court of Appeals a motion for the reconsideration of the same
decision. On September 21, 1989, the Court of Appeals resolved the motion for reconsideration
with the following findings:
Considering, therefore, that PNB was impleaded as party defendant only in
connection with its foreclosure of the mortgages on the properties of the principal
defendant MMIC, and considering that the main action against MMIC has been
dismissed for lack of jurisdiction, there appears to be no cogent reason to continue
the case against PNB which is merely a secondary defendant. There is thus merit in
PNB's contention that since the case against MMIC has been dismissed, the case
against PNB should likewise be dismissed, considering that PNB merely stepped
into the shoes of MMIC.
Moreover, there is no privity of contract between PNB and IEI. Hence, there is no
direct cause of action by IEI against PNB independently of MMIC, it being merely a
foreclosing mortgage creditor of the latter. At any rate, the record shows that there
is an on-going litigation between MMIC stockholders and PNB before the Regional
Trial Court of Makati (Civil Case No. 9900) for the annulment of the PNB's extra-
judicial foreclosure of MMIC's mortgaged properties.
Accordingly, the Court of Appeals modified its decision of May 29, 1989 by dismissing the
case against the PNB.
Meanwhile, G.R. No. 88550 was eventually decided by this Court on April 18, 1990. In denying the
petition of IEI, the Court held:
Clearly, the doctrine of primary jurisdiction finds application in this case since the
question of what coal areas should be exploited and developed and which entity
should be granted coal operating contracts over said areas involves a technical
determination by the BED as the administrative agency in possession of the
specialized expertise to act on the matter. The Trial Court does not have the
competence to decide matters concerning activities relative to the exploration,
exploitation, development and extraction of mineral resources like coal. These
issues preclude an initial judicial determination. It behooves the courts to stand
aside even when apparently they have statutory power to proceed in recognition of
the primary jurisdiction of an administrative agency.
One thrust of the multiplication of administrative agencies is that the

interpretation of contracts and the determination of private rights
thereunder is no longer a uniquely judicial function, exercisable only
by our regular courts (Antipolo Realty Corp. v. National Housing
Authority, 153 SCRA 399, at 407).
The application of the doctrine of primary jurisdiction, however, does not call for
the dismissal of the case below. It need only be suspended until after the matters
within the competence of the BED are threshed out and determined. Thereby, the
principal purpose behind the doctrine of primary jurisdiction is salutarily served.
Pursuant to this Decision, IEI lodged a complaint against MMIC and PNB before the OEA. After due
hearing, a decision was issued by Executive Director W. R. de la Paz on January 25, 1991, with a
decretal portion which reads:
Wherefore, in the light of the foregoing, insofar as the Memorandum of Agreement is
concerned, such agreement may already be
and

in view of the re-award made in IEI's favor of the same coal areas subject of
this dispute. However, on the issue of the effects and consequences of the right to
claim damages for unpaid financial obligations and such other damages incidental
thereto, by one party as against the other, this matter may be referred to the regular
courts for appropriate adjudication.
Similarly, this likewise holds true insofar as the foreclosed properties involved in
this case are concerned where respondent Philippine National Bank was impleaded.
9
In accordance with this ruling of the OEA, on March 1, 1991, IEI filed in the lower court a motion to
set Civil Case No. 8109 for hearing. On June 17, 1991, PNB filed a motion to dismiss alleging
that the issue in this case, .., the validity of the foreclosure of MMIC's assets, was virtually the same
issue raised before the Regional Trial Court of Makati in Civil Case No. 9900, "Jesus S. Cabarrus,
Jesus Cabarrus, Jr., Jaime T. Cabarrus, Jose Miguel Cabarrus, Alejandro S. Pastor, Jr., Antonio U.
Miranda & Manuel M. Antonio v. Development Bank of the Philippines and Philippine National
Bank," a case filed by the plaintiffs as stockholders of MMIC in their behalf as well as in behalf of
other stockholders, which prayed, among others, that the foreclosures effected by DBP and PNB on
the assets of MMIC be declared null and void. %
The motion to dismiss was denied by the lower court on July 10, 1991 on the ground that there was
no substantial identity in the cause of action, the relief sought and the parties in the two cases. %
As aforestated, the lower court rendered the decision of November 27, 1992 finding MMIC and PNB
jointly and severally liable to IEI for damages and declaring null and void the August 31, 1994
extrajudicial foreclosure sale in Catbalogan, Samar. This was affirmed on December 20, 1994 by the
Court of Appeals under CA-G.R. CV No. 40836.
MMIC did not interpose an appeal from the Decision of the Court of Appeals but the PNB filed the
instant petition for review on

questioning the following "conclusions" of the Court of
Appeals:
(1) there was implied conspiracy or community of design among the defendants to
ruin IEI;
(2) PNB acted in bad faith in including the IEI Giporlos equipment at the
extrajudicial foreclosure sale on August 31, 1984, and
(3) PNB is liable for a ! .
Petitioner PNB also contends that the Court of Appeals erred in not holding that (a) because
Minister Velasco had been dropped as party defendant, PNB was also absolved from liability
because it was solidarily liable with Minister Velasco, and (b) IEI's claim against PNB for
actual, consequential and moral damages including attorney's fees, litigation expenses and
costs of suit, has neither legal nor factual bases. %8
In its comment on the petition, private respondent IEI contends in the main that the issues raised
by petitioner PNB are all factual in nature and, therefore, they have no place before this Court. We
hold otherwise.
At the core of the instant petition is the legal question of ownership of the chattels involved at the
time of foreclosure. This issue appears to have been glossed over by the courts below. Equally
appropriate for determination by this Court is the legality of the foreclosure proceedings on the
assets of the MMIC. These two issues are the keys to the resolution of the instant petition.
Privity between MMIC and private respondent was established by the execution of the MOA. An
important issue then is whether or not the chattels mortgaged to petitioner were covered by the
MOA so as to legally subject the same chattels to MMIC's ownership and, eventually, to the
foreclosure proceedings.
The MOA was an & of private respondent's "rights and interests on the Coal Operating
Contract described in the first whereas clause" thereof. In its most general and comprehensive
sense, an assignment is "a transfer or making over to another of the whole of any property, real or
personal, in possession or in action, or of any estate or right therein. It includes transfers of all
kinds of property, and is peculiarly applicable to intangible personal property and, accordingly, it is
ordinarily employed to describe the transfer of non-negotiable choses in action and of rights in or
connected with property as distinguished from the particular item or property." %
An assignment is a contract between the assignor and the assignee. It generally operates by way of
such contract or agreement. It is subject to the same requisites as to validity of contracts. %%
Whether or not a transfer of a particular right or interest is an assignment or some other
transactions depends, not on the name by which it calls itself, but on the legal effect of its
provisions. This rule applies in determining whether a particular transaction is an assignment or a
sale. %
As the aforequoted portions of the MOA state, its subject is described in the "whereas clauses"
thereof as follows:
WHEREAS, IEI is the duly authorized operator over two coal blocks over an area
outlined and more particularly described in Annex "A" of the Coal Operating
Contract entered into on the 27th day of July 1979 and between the Ministry of
Energy, through the Bureau of Energy Development ("BED"), and IEI; the Coal
Operating Contract and Annex A thereof being hereto attached and made an integral
part of this contract;
Annex "A" of the coal operating contract is the technical description of the 2,000-hectare
coal-bearing land in Carbon, Magsaysay, Eastern Samar. Therefore, as expressed in the
MOA, the subject of the assignment was only private respondent's
&
"

&
covering said coal-rich land in Eastern Samar.
However, a close scrutiny of the contract reveals that the MOA includes all tangible things found in
the coal-bearing land. Unquestionably, rights may be assigned as they are intangible personal
properties. The term "interests," on the other hand, is broader and more comprehensive than the
word "title" and its definition in a narrow sense by lexicographers as any right in the nature
of property less than title, indicates that the terms are not considered synonymous. % It is
practically synonymous, however, with the word "estate" which is the totality of interest which a
person has from absolute ownership down to naked possession. %9 An "interest" in land is the legal
concern of a person in the thing or property, or in the right to some of the benefits or uses from
which the property is inseparable. %
That the MOA conveyed to MMIC more than the title to or rights over the coal operating contract
but also the "things" covered thereby, is manifest in the manner by which the parties, particularly
private respondent IEI, implemented the MOA. It disclosed the intention to include in the MOA the
equipment and machineries used in coal exploration. This intention is evident in the following
letters of private respondent: (1) letter of April 16, 1984 to Alfredo Velayo, President of MMIC,
where private respondent, through Cabarrus, included in the conditions for the negotiated
rescission of the MOA, the payment to private respondent of the amount of ten million pesos
(P10,000,000.00) for expenses such as those for the "recondition (of) the equipment which have
been left to the elements;" % (2) letter of May 2, 1984 to Velayo, where private respondent
mentioned a "list of probable equipment(s) that IEI would be interested to apply as part payment in
the event of rescission of contract;" (3) letter of June 4, 1984 to Zalamea as Chairman of the
Board of the MMIC, where private respondent attached an updated statement of account and the
expenses for rehabilitation of equipment, and (4) letter of August 15, 1984 to petitioner and the
DBP where private respondent enclosed a copy of "the movable properties included in said
Memorandum of Agreement" of August 1983. 8 Notably, all these listed equipment were sold at the
foreclosure sale initiated by petitioner.
Also worth noting is the absence of proof that, like a good father of the family, private respondent
exerted some effort to take the chattels out of the premises upon the execution of the MOA. All that
private respondent proved, through the testimony of Cabarrus, was that the equipment and
machineries were "
by MMIC, piled up and left to rot that trees even grew on them. %
Coupled with this is private respondents' failure to prove the presence of insurmountable force
that would have prevented it from retrieving its equipment and machineries from the Giporlos
Project area. All these show that private respondent considered these chattels as subjects of the
MOA.
Private respondent had all the right to exclude these chattels from the MOA because they were not
expressly stipulated therein. However, its sheer inaction upon the execution of the MOA and its
subsequent admissions through the aforesaid letters, conclusively show that these equipment and
machineries were subjects of the assignment of rights to MMIC. It was only when the foreclosure
sale was about to take place that private respondent lifted a finger to object thereto on the ground
that the consideration stipulated in the MOA had not yet been paid by MMIC.
Moreover, while the MOA was expressly a contract for the assignment of rights and interests, it is in
fact a contract of sale. Under Art. 1458 of the Civil Code, by the contract of sale, one of the
contracting parties obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its equivalent. By the MOA, private
respondent obligated itself to transfer ownership of the coal operating contract and the properties
found therein. The coal operating contract is a determinate thing as it has been particularly
designated in the MOA. The subject of the coal operating contract was physically segregated from
all other pieces of coal-rich Eastern Samar property by the technical description attached to said
contract. A list of the equipment and machineries found on the property might not have been
attached to the MOA but these were itemized with specificity in private respondent's letter of
August 15, 1984.
Private respondent delivered the properties subject of the contract to MMIC, which immediately
gained control and possession of the Giporlos Project. This is explicit in private respondent's
numerous demand letters 9 which are exemplified by its letter of February 7, 1984 to Zalamea
which states:
Considering that all details necessary to determine the final purchase price are in
place;
&

; and
considering finally that cash payment is stipulated in the contract, demand is hereby
respectfully made for the payment of the purchase price soonest. (Emphasis
supplied.)
Another very telling letter of private respondent is that of April 16, 1984 to Mr. Alfredo
Velayo, President of MMIC, which partly reads:
After the Memorandum of Agreement was signed, BED promptly approved the
transfer from IEI to MMIC. After the price was fixed with the assistance of SGV and
BED, MMIC took over the entire project last July 1983. . . .
For its part, MMIC never denied that it had taken possession and control over the Giporlos Project.
In its replies to private respondent's demand letters, MMIC in fact acknowledged its obligations
under the MOA while professing incapacity to fulfill the same.
If the MOA merely embodied an assignment of rights over the coal-operating contract and the
properties found in the Giporlos Project and not a sale thereof, then private respondent would not
have insisted on the payment of MMIC's obligations under the MOA by attaching a statement of
account to most of its demand letters. In assignments, a consideration is not always a requisite,
unlike in sales. Thus, an assignee may maintain an action based on his title and it is immaterial
whether or not he paid any consideration therefor. Furthermore, in an assignment, title is
transferred but possession need not be delivered. 8 In this case, private respondent transferred
possession over the subjects of the "assignment" to MMIC.
Since the MOA was actually a contract of sale, MMIC acquired ownership over the Giporlos Project
when private respondent delivered it to MMIC. Under the Civil Code, unless the contract contains a
stipulation that ownership of the thing sold shall not pass to the purchaser until he has fully paid
the price, ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof. % In other words, payment of the purchase price is not essential to
the transfer of ownership as long as the property sold has been delivered. Such delivery (traditio)
operated to divest the vendor of title to the property which may not be regained or recovered until
and unless the contract is resolved or rescinded in accordance with law.
Consequently, the properties in the Giporlos Project were, therefore, owned by MMIC
notwithstanding its failure to pay the consideration stipulated in the MOA. Private respondent, after
such delivery and MMIC's continuous refusal to pay the consideration for the contract, correctly
opted to rescind the contract. 9 That private respondent did not succeed in collecting payment
prior to the filing of the complaint for rescission with damages is a fault entirely attributable to
MMIC which at the time, acted upon the orders of government authorities.
It is erroneous for private respondent and the courts below to impute bad faith on the part of
petitioner for foreclosing the properties in the Giporlos Project. Petitioner was simply acting in
accordance with its rights as mortgagee. The MTA, as amended, clearly provides that the mortgage
covers even "after-acquired" properties. Because petitioner was simply implementing this
contractual provision of the MTA, its knowledge that MMIC had not yet paid the consideration
stipulated in the MOA could not have resulted in foreclosure in bad faith. After all, petitioner was a
total stranger as regards the MOA.
Similarly, neither may petitioner be deemed to have conspired with MMIC and government
authorities in divesting private respondent of its rights over the Giporlos Project. Petitioner's
involvement consisted in its exercising its right to foreclose the mortgage only after the MOA, which
effectively wrenched the Giporlos Project from private respondent's control, had become a
. A lawful act, done in a lawful way, no matter how damaging the result, never lays the
basis for a claim of fraudulent conspiracy. That a scheme to favor the financially strapped MMIC
over private respondent had been hatched and was in existence when the MOA was executed is
now beyond this Court's adjudicatory power. Suffice it to state that an action may be maintained
against persons who falsely and fraudulently recommend an insolvent person as worthy of credit,
by reason of which plaintiff is induced to trust him.
In view of the noninvolvement of petitioner in the alleged conspiracy to strip private respondent of
the its rights over the Giporlos Project, petitioner cannot be made solidarily liable with the MMIC
for damages. However, although petitioner's rights to foreclose the mortgage and to subject the
equipment of private respondent to the foreclosure sale are unassailable, we find that the
foreclosure proceedings fell short of the requirements of the law.
The provision of the MTA vesting petitioner as trustee with the authority to choose the place where
the sale of the properties involved therein should be made is clearly in contravention of the
following provisions of Act No. 3135 as amended:
Sec. 2. Said sale cannot be made legally outside the province in which the property
sold is situated; and in case the place within said province in which the sale is to be
made is the subject of stipulation, such sale shall be made in said place or in the
municipal building of the municipality in which the property or part thereof is
situated.
The Giporlos Project is situated in Eastern Samar, a province separate and distinct from
Samar where the foreclosure sale took place. 9 Hence, the foreclosure sale is null and void.
Even the Chattel Mortgage Law (Act No. 1508) relied upon by private respondent in
assailing the propriety of the public auction sale in Samar, provides that the said sale should
be made "in the municipality where the mortgagor resides" or "where the property is
situated." 9 It has not been established that petitioner considered Catbalogan, Samar where
the foreclosure sale was conducted, as its "residence."
Moreover, the designation of a special sheriff to conduct the foreclosure sale is questionable.
According to Sheriff Malindog, he was designated as a special sheriff by the judge of the Regional
Trial Court of Samar, through the clerk of court, upon the request of petitioner's counsel, one Atty.
Aliena, even though there was a sheriff in Eastern Samar. 98
Appointment of special sheriffs for the service of writs of execution or for the purpose of
conducting a foreclosure sale under Act No. 3135 is allowed only when there is no sheriff in the
area where the property involved is located or when the sheriff himself is involved in the action.
This restriction is founded on the requirement of law that sheriffs who take delivery of money or
property in trust must be duly bonded. 9 The said situations calling for the appointment of a special
sheriff being absent in this case, the appointment of Malindog as a special sheriff by the judge of the
Regional Trial Court of Samar is unauthorized. Such lack of authority resulted in the nullification of
the foreclosure sale conducted by Malindog.
Ordinarily, by the nullification of the foreclosure sale, the properties involved would revert to their
original status of being mortgaged. 9% However, the situation in this case is an exception to that rule.
The MOA, the source of MMIC's right of ownership over the properties sold at the foreclosure sale,
has been rescinded. Consequently, petitioner should exclude said properties from the MMIC's
properties which were mortgaged
to the petitioner and DBP through the MTA. However,
since the foreclosed properties had been turned over to the Asset Privatization Trust, 9 petitioner
must reimburse private respondent the value thereof at the time of the foreclosure sale.
WHEREFORE, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE insofar as it
renders petitioner solidarily liable with Marinduque Mining and Industrial Corporation for
damages and AFFIRMED insofar as it nullifies the foreclosure sale of August 31, 1984. Petitioner
Philippine National Bank shall exclude the properties sold at the foreclosure sale from the
mortgaged properties of Marinduque Mining and Industrial Corporation and return the same to
private respondent Industrial Enterprises Inc. or, should such return be not feasible, reimburse said
private respondent the value thereof at the time of the foreclosure sale.
SO ORDERED.
'& ,
$
$$

#$
1 Penned by Associate Justice Ricardo J. Francisco and concurred in by Associate

Justices Ramon A. Barcelona and Godardo A. Jacinto.
2 Penned by Judge Zeus C. Abrogar.
3 TSN, October 21, 1991, p. 28.
4 +., p. 32-34.
5 Exh. A.
6 Exh. B.
7 Exh. B-l.
8 Exh. B-2.
9 Records show that at the time of the signing of the MOA, Cabarrus was also the
President of MMIC as he retired from that position on December 31, 1983 (MMIC
Report '83, Exh. DDD-2, pp. 3 & 34).
10 Exh. C.
11 Exh. W.
12 Exh. 1-PNB.
13 Exh. 1-B.
14 Sec. 3.01 of MTA.
15 Sec. 5.08, .
16 +., Exh. l-C.
17 Exh. 2-PNB.
18 Exh. 2-A.
19 Exh. 3-PNB.
20 Exh. KKK.
21 Exh. LLL.
23 +., p. 276.
24 Presided by Judge Benigno M. Puno.
25 Decision, p. 21; RTC Record, p. 369.
26 Record, pp. 370-371.
27 +., pp. 372-376 & 387-389.
28 +., pp. 378 & 391.
29 +., pp. 414-416.
30 +., pp. 419-447.
31 +., pp. 484-486.
32 ' , p. 79.
33 Penned by Justice Nicolas P. Lapeña, Jr. and concurred in by Justices Emeterio C.

Cui and Justo P. Torres, Jr.
34 RTC Record, p. 513.
35 +., pp. 514-515.
36 The Decision was penned by Associate Justice Ameurfina A. Melencio-Herrera

and concurred in by Associate Justices Edgardo L. Paras, Teodoro R. Padilla,
Abraham F. Sarmiento and Florenz D. Regalado. It is published in 184 SCRA 426.
37 Exh ZZZ; RTC Record, pp. 520-527.
38 +., pp. 517-518.
39 +., pp. 538-540.
40 By virtue of Administrative Order No. 14 dated February 3, 1987 and the Deeds
of Transfer both dated February 27, 1987, the National Government, thru the Asset
Privatization Trust, became the assignee and transferee of all the PNB and DBP
accounts pertaining to MMIC. Pursuant to the Compromise and Arbitration
Agreement entered into by the parties in Civil Case No. 9900 and APT, said case was
dismissed by the trial court on October 14, 1992 and submitted instead to
arbitration under R.A. 876. In its decision dated November 24, 1993 the Arbitration
Committee declared invalid the foreclosure on MMIC's assets. (C.A. ' , pp. 198-
263)
41 RTC Record, p. 566.
42 Petition, p. 40.
43 MORENO'S PHILIPPINE LAW DICTIONARY, 3rd ., p. 75.
44 6A C.J.S. 593.
45 +., p. 594.
46 22 WORDS AND PHRASES 87, & In re Baldwin's Estate, 134 P. 2d 259, 263,
21 Cal. 2d 586.
47 +., & Providence Washington Ins. Co. v. Pass, for use of Nalley, 12 S.E. 2d
460, 461, 64 Ga. App. 221.
48 +., at p. 92 & Bahls v. Dean, 170 N.W. 861, 866, 222 Iowa 1291.
49 Exh. MM.
50 Exh. RR.
51 Exh. TT.
52 Exh. KKK.
53 Exh. OOO.
54 TSN, October 7, 1991, p. 12.
55 When mention of the presence of the insurgents in the area was made, Cabarrus
claimed at the witness stand that they were never a problem to him and his
company. (TSN, January 15, 1992, pp. 29-30)
56 Art. 1460 of the Civil Code states that a thing is "determinate when it is
particularly designated or physically segregated from all others of the same class."
57 Exhs. Y, Z, BB, CC, EE, GG, II, KK, MM, PP, TT and WW.
58 Exh. Z.
59 Exh. MM.
60 Exhs. CC, CC-1, KK, KK-1, PP, PP-1, TT, TT-1.
61 6A C.J.S. 781.
62 4A WORDS AND PHRASES 106 & Paramount Building & Loan Ass'n of City of
Newark v. Sacks, 152 A. 457, 458, 107 N.J. Eq. 328.
63 Art. 1478.
64 Art. 1477.
65 Sampaguita Pictures, Inc. v. Jalwindor Manufacturers, Inc., L-43059, October 11,

1979, 93 SCRA 420, 425.
66 : Pingol v. Court of Appeals, G.R. No. 102909, September 6, 1993, 226 SCRA
118, 128.
67 Ocampo v. Court Of Appeals, G.R. No. 97442, June 30, 1944, 233 SCRA 551, 560.
68 15A C.J.S. 614.
69 +., at p. 615.
70 Exhs. MMM & OOO.
71 Sec. 14.
72 TSN, July 27, 1992, p. 37.

73 Commissioner of Public Highways v. San Diego, L-30098, February 18, 1970, 31
SCRA 616, 631-632.
74 : Seven Brothers Shipping Corporation v. Court of Appeals, G.R. No. 109573,
July 13, 1995, 246 SCRA 33, 40.
75 TSN, October 21, 1991, pp. 5-6; TSN; December 21, 1991, pp. 22-23; RTC,
decision, p. 18; Records, p. 751.

G.R. No. 99433 June 19, 2001
PROJECT BUILDERS, INC., ET AL. vs. THE COURT OF APPEALS, ET
AL.

m
Manila
4** m

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petitioners,
vs.
4 m/#0* m respondents.
p
"
This case has been re-raffled to herein ponente pursuant to the Courtǯs Resolution in A.M.
No. 00-9-03-SC of 27 February 2001. The petition for review on certiorari oppugns the
decision of the Court of Appeals in CA-G.R. CV No. 08582, entitled "Industrial Finance
Corporation vs. Project Builders, Inc., et al.," reversing the decision of Branch XX of the
Regional Trial Court of Manila in Civil Case No. 141774.
The antecedents of the case were capsulized by the trial court and cited by the appellate
court; ",:
"ǮThis collection suit was filed on July 17, 1981 by Industrial Finance Corporation
(IFC for short) against defendant Project Builders, Inc. (PBI for short), Galicano
Calapatia, Jr., Pablo Malasarte, Teodoro Banas and Leandro Enriquez, arising from
an alleged deficiency of P1,323,053.08, after the extrajudicial foreclosure of the
real estate mortgage.
ǮThe defendants deny liability and in their answer they allege that plaintiff
has no cause or right of action because the obligation is already fully paid
out of the proceeds of foreclosure sale of defendantsǯ property. Further,
defendants alleged that a proper accounting of the transaction between
the parties will show that it is the plaintiff who is liable to the defendants.
ǮThe facts, which led to the filing of the case, are as follows:
ǮOn August 21, 1975, plaintiff and defendant PBI entered into an
agreement (Exh. ǮAǯ) whereby it was agreed that plaintiff would provide a
maximum amount of P2,000,000.00 against which said defendant would
discount and assign to plaintiff on a Ǯwith recourse non-collection basisǯ its
(PBIǯs) accounts receivable under the contracts to sell specified in said
agreement. And on June 15, 1976, the same parties entered into an
agreement (Exh. ǮBǯ) whereby it was agreed that PBIǯs credit line with
plaintiff be increased to P5,000,000.00. It was stipulated that the credit
line of P5,000,000.00 granted includes the amount already
assigned/discounted.
ǮAgainst the above-mentioned Ǯcredit line,ǯ defendant PBI discounted with

plaintiff on different dates accounts receivables with different maturity
dates from different condominium-unit buyers. And each time a certain
account receivable was discounted, the covering Contract to Sell (Exh. ǮC-
1ǯ to ǮO-1ǯ) was assigned by defendant to plaintiff.
ǮThe total amount of receivables discounted by defendant PBI is

P7,986,815.38 and consists of twenty accounts. Of such receivables
amounting to P7,986,815.38 plaintiff released to defendant PBI the
amount of P4,549,132.72 and the difference of P3,437,682.66 represents
the discounting fee or finance fee.
ǮTo secure compliance with the terms and conditions of the agreement
dated June 15, 1976 (Exh. ǮBǯ), defendants on the same date executed a
Deed of Real Estate Mortgage (Exh. ǮQǯ) in favor of plaintiff. When
defendants allegedly defaulted in the payment of the subject account,
plaintiff foreclosed the mortgage and plaintiff was the highest bidder in
the amount of P3,500,000.00.ǯ
ǮThe foreclosed property was redeemed a year later (Exh. ǮTǯ), but after
application of the redemption payment, plaintiff claims that there is still a
deficiency in the amount of P1,323,053.08, hence, this complaint.ǯ
"The terms and conditions of the Agreement dated June 15, 1976 (Exh. ǮBǯ) which
are material to the present appeal state as follows:
"ǯ1. That the Assignor assigned all its rights and interests on several
Contracts to Sell executed by Assignor and the latterǯs customers.
Ǯ2. That the Assignor requested the Assignee to increase the formerǯs
credit line to FIVE MILLION (P5,000,000.00) PESOS, Phil. Currency, which
was granted by the Assignee subject to the following terms and
conditions:
Ǯa. It is hereby agreed that the credit line of P5,000,000.00 granted

includes the amount already assigned/discounted by Assignor to
Assignee as stated in paragraph 1 of this Agreement.
Ǯb. This assignment/discounting of the Contracts to Sell shall be

with recourse to Assignor and on a non-collection basis.
Ǯc. That Assignee will execute a Real Estate Mortgage on 3 lots

described as Transfer Certificate of Title Nos. 491702, 491703 and
491704 of the Registry of Deeds of Rizal to secure the faithful
performance of the terms and conditions of this agreement and
the Contracts to Sell assigned or which may be assigned to
Assignee.
Ǯd. Should there be a default on the part of the Assignor to pay

Assignee or should Assignor fail to pay Assignee the amount or
amounts due to Assignee arising from the assignment of the
accounts receivables or remit to Assignee a lesser amount, the
Assignor and/or PABLO MALASARTE, ROLANDO L. JUSTO,
LEANDRO D. ENRIQUEZ, TEODORO G. BANAS, GALICANO A.
CALAPATIA, JR. shall jointly and severally in their personal
capacities upon demand by the Assignee, repurchase the Contracts
to Sell or installment papers assigned and/or discounted by
Assignor in favor of Assignee and/or pay Assignee the remaining
balance of the amount of the receivables discounted and/or
assigned by Assignor to Assignee.
Ǯe. That the Performance Bond covering the condominium building

ǮJovanǯ located in Mandaluyong, Rizal shall be endorsed and
delivered by Assignor to Assignee.
Ǯf. That the Assignor shall comply with all the terms and conditions
specified on the said Contracts to Sell, executed by the assignor
and its individual purchaser or customers, and
assigned/discounted to Assignee whether the assignment is on a
with or without recourse basis.
Ǯg. Should it become necessary for the assignee to take any legal
action, the Assignor shall pay to the Assignee as attorneyǯs fee
allowed by the Rules of Court in the sum equivalent to Twenty
(20%) per cent of the total indebtedness then unpaid, plus
whatever legal costs incurred, and that any legal action arising out
of this agreement may be instituted in the courts of the City of
Manila.ǯ"1
After the joinder of issues, the trial court dismissed the complaint and ruled on the
counterclaim in this wise -
"1. Ordering plaintiff to return to the defendants the amount of P3,705.91 which
plaintiff charged on the account of Dr. Ricardo Ortiz and Olympic Engineering
Sales Corporation which had already been paid;
"2. Ordering plaintiff to pay to defendants the amount of P238,052.53,

representing the amount of the promissory note which was (sic) not been
compensated or applied to the account of defendants;
"3. Ordering plaintiff to return to defendants the amount of P425,833.33,

representing the interest collected by plaintiff from defendants from foreclosure
to redemption of the real estate mortgage;
"4. Ordering plaintiff to return to defendants the amount of P344,302.18,

representing the prepaid interests collected by plaintiff, since defendants were
not allowed to use the period of such prepaid interests;
"5. Ordering plaintiff to pay attorneyǯs fees in the amount of P20,000.00.
Costs is adjudged against the plaintiff."2
The Court of Appeals, in its decision of 14 May 1991, overturned the judgment of the trial
court and ruled thusly:
"WHEREFORE, the decision appealed from is REVERSED. Defendants are hereby

ordered to pay, jointly and severally, to the plaintiff the deficiency in the amount
of P1,237,802.48 with interest thereon at the rate of 12% per annum computed
from August 13, 1981 minus the amount of the promissory note in the sum of
P238,052.53 with interest thereon at the rate of 12% per annum computed from
September 14, 1976, the respective computation of the interest to end upon
execution of this decision. No special pronouncement as to costs of suit."3
Feeling aggrieved, Public Builders, Inc., and its officers, namely, Galicano Calapatia, Jr.,
Teodoro Banas and Leandro Enriquez, have come to this Court " a petition for review
on

, proffering the following issues:
1.) Whether Republic Act No. 5980 (Financing Company Act) is intended for the
benefit of financing companies or for the protection of public interests;
2.) Whether or not the above-mentioned Act should be made to apply even when
the design or scheme to make it appear that there was a purchase of receivables
or credit is only a
& to evade Republic Act No. 3765 (Truth in Lending
Act), particularly Section 4 thereof, and compound exorbitant interests under the
guise of Ǯpurchase discount;ǯ
3.) Whether or not said Republic Act No. 5980 should govern the transaction
between petitioners and private respondent which in reality was bilateral, not
trilateral, and respondent financing company was not really subrogated in the
place of the supposed seller or assignor; and
4.) If said Republic Act No. 5980 should govern the transaction of the parties,
should petitioners still answer for any deficiency after the mortgage with which
they guaranty the collection of the assigned credit, had been foreclosed?"4
At the pith of the controversy lies the question of whether or not the agreement forged by
petitioners and private respondent is a simple loan or a financing transaction governed
by the provisions of Republic Act No. 5980.5 Petitioners would have us convinced that the
transaction forged by them with private respondent is a simple loan. It is a contention
difficult to accept.
Petitioner corporation, the developer-builder of Jovan Condominium Building, in

obtaining a credit line of P5,000,000.00 from private respondent, assigned twenty (20)
contracts to sell with accounts receivable from its condominium unit buyers to the latter
with recourse to assignor and on a non-collection basis.
Succinctly, private respondent is a financing company as so defined by the Financing

Company Act.
(a) "Financing companies," x x x organized for the purpose of extending credit

facilities to consumers and to industrial, commercial, or agricultural enterprises,
either by & or
& commercial papers or accounts receivable, or by
& & contracts, leases, chattel mortgages, or other evidences of
indebtedness or by & of motor vehicles, heavy equipment and industrial
machinery, business and office machines and equipment, appliances and other
movable property."6
The assignment of the contracts to sell falls within the purview of the Act. The term credit
has been defined to -
"(c) x x x mean any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract, any contract to sell, or sale or contract of sale of
property or service, either for present or future delivery, under which, part or all
of the price is payable subsequent to the making of such sale or contract; any
rental-purchase contract; any option, demand, lien, pledge, or other claim against,
or for the delivery of, property or money, any purchase, or other acquisition of or
any credit upon the security of, any obligation or claim arising out of the
foregoing; and any transaction or series of transactions having a similar purpose
or effect;"7
An assignment of credit is an act of transferring, either onerously or gratuitously, the

right of an assignor to an assignee who would then be capable of proceeding against the
debtor for enforcement or satisfaction of the credit. The transfer of rights takes place
upon perfection of the contract,8 and ownership of the right, including all appurtenant
accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor
only upon acquiring knowledge of the assignment but he is entitled, even then, to raise
against the assignee the same defenses he could set up against the assignor. Where the
assignment is on account of pure liberality on the part of the assignor, the rules on
donation would likewise be pertinent; where valuable consideration is involved, the
assignment partakes of the nature of a contract of sale or purchase.9
Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of
the assignor and in a position to enforce the contract to sell to the same extent as the
assignor could.
An insistence of petitioners that the subject transaction should be considered a simple

loan since private respondent did not communicate with the debtors, condominium unit
buyers, to collect payment from them, is untenable. In an assignment of credit, the
consent of the debtor is not essential for its perfection,10 his knowledge thereof or lack of
it affecting only the efficaciousness or inefficaciousness of any payment he might make.11
In '
&,"#
,12 the Court has said:
"We have ruled in Sison & Sison v. Yap Tico and Avanceña, 37 Phil. 587 [1918]
that definitely, consent is not necessary in order that assignment may fully
produce legal effects. Hence, the duty to pay does not depend on the consent of
the debtor. Otherwise, all creditors would be prevented from assigning their
credits because of the possibility of the debtorsǯ refusal to give consent.
"What the law requires in an assignment of credit is not the consent of the debtor
but merely notice to him. A creditor may, therefore, validly assign his credit and
its accessories without the debtorǯs consent (National Investment and
Development Co. v. De los Angeles, 40 SCRA 489 [1971]). The purpose of the
notice is only to inform the debtor that from the date of the assignment, payment
should be made to the assignee and not to the original creditor."13
The assignment, it might be pointed out, was "with recourse," and default in the payment
of installments had been duly established when petitioner corporation foreclosed on the
mortgaged parcels of land. The resort to foreclosure of the mortgaged properties did not
preclude private respondent from collecting interest from the assigned Contracts To Sell
from the time of foreclosure to the redemption of the foreclosed property. The imposition
of interest was a mere enforcement or exercise of the right to the ownership of the credit
or receivables which the parties stipulated in the 1976 financing agreement. Thus -
"f. That the Assignor shall comply with all the terms and conditions specified on
the said Contracts to Sell, executed by the assignor and its individual purchaser or
customers, and assigned/discounted to Assignee."14
One of the provisions in the contracts to sell, subject matter of the assignment agreement,
related to the imposition of interest in the event of default by the debtor in the payment
of installments, to wit:
"All payments shall be made on or before their respective due dates without
necessity of demand therefor, and failure to make such payments on time shall
entitle the Developer to charge interest at the rate of one percent (1%) per month
without prejudice to the other remedies available to the Developer."15
As owner of the account receivables, private respondent was impressed with the
entitlement over such interest payment.
Petitionersǯ claim that private respondent is proscribed from imposing interest and other
charges beyond the limits set out by the Financing Company Act lacks merit. The law
states:
"SEC. 5. (

"
#
&. --- In the
case of assignments of credit or the buying of installment papers, accounts
receivables and other evidences of indebtedness by financing companies, the
purchase discount, ) "

&, shall be limited to
fourteen (14%) per cent of the value of the credit assigned or the value of the
installment papers, accounts receivable and other evidence of indebtedness
purchased based on a period of twelve (12) months or less, and to one and one-
sixth (1 1/6%) per cent for each additional month or fraction thereof in excess of
twelve months, regardless of the terms and conditions of the assignment or
purchase."
Clearly, the 14% ceiling provided for purchase discount is exclusive of interest and other
charges. A purchase discount is distinct from interest. The term purchase discount refers
to the difference between the value of the receivable purchased or credit assigned, and
the net amount paid by the finance company for such purchase or assignment, ) "

"
&

&)
,16 and it
is akin to "time price differential," or the increase in price to cover the expense generally
entailed by transactions on credit.17 There is thus no impingement of the Usury Law even
when the controversy might have arisen prior to the adoption by the Central Bank
Monetary Board on 03 December 1982 of its Resolution No. 224 on interest ceilings.
WHEREFORE, the petition is DENIED. The challenged decision of the Court of Appeals
reversing the decision of the trial court is AFFIRMED. No costs.
SO ORDERED.
8#
9 & , & ' "
,$$ concur.
#$
1 Rollo, pp. 57-60.
2 Rollo, p. 80.
3 Rollo, pp. 71-72.
4 Rollo, p. 29-30.
5 Also known as the Financing Company Act.
6 Sec. 3, R. A. No. 5980.
7 +.
8 Art. 1624, in relation to 1475, New Civil Code.
ART. 1624. An assignment of credits and other incorporeal rights shall be

perfected in accordance with the provisions of article 1475.
ART. 1475. The contract of sale is perfected at the moment there is a

meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment , the parties may reciprocally demand performance,

subject to the provisions of the law governing the form of contracts.
9Nyco Sales Corporation vs. BA Finance Corporation, 200 SCRA 637; Rodriquez
vs. CA, 207 SCRA 553.
10 See Art. 1624, New Civil Code.
11Art. 1626. The debtor who, before having knowledge of the assignment, pays
his creditor shall be released from the obligation. (New Civil Code.)
12 207 SCRA 553.
13 At p. 559.
14 Rollo, p. 59.
15 Rollo, p. 66.
16 par. (d), Section 2, R. A. 5980.
17 Emata vs. Intermediate Appellate Court, 174 SCRA 465.

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PHILIPPINE JURISPRUDENCE - FULL TEXT

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

 m   petitioner,

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Appeal from a decision of the Court of Tax Appeals.

To support his contention that his client is an ordinary contractor . . . counsel

The appealed decision is consequently affirmed. So ordered.

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Republic of the Philippines

( ) Resumiendo las condiciones de ambas escrituras de "arrendamiento," Exhibits

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On a date to be determined by the Company, the petitioner, as Distributor, was required to

All these circumstances are irreconcilably antagonistic to the idea of an independent

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1 L-25926, February 27, 1970, 31 SCRA 779.

6 +., par. 8, pp. 3 and 4.

8 +., par. 10, p. 4.

9 +., par. 12, p. 4.

10 +., par. 13, p. 4.

11 +., par. 14, p. 5.

12 +., par. 15, p. 5.

13 +., par. 19, p. 6.

14 Decision, Annex A to the Petition, pp. 10-11.

17 L-25926, February 27, 1970, 31 SCRA 779.

21 94 SE 117, 118 (1917).

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On October 11, 1990, petitioner and respondent executed a Deed of Assignment,4

In this petition for review, petitioner assigns the following errors:

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF

THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE

An assignment of credit is an agreement by virtue of which the owner of a credit, known

1 Exhibit "A," Records, p. 128.

2 Exhibits "B-B-8," Records, pp. 130-138.

3 Exhibit "C," Records, p. 139.

4 Records, pp. 142-143.

6 TSN, April 28, 1993, p. 25.

7 Exhibit "C," Records, p. 139.

8 Records, pp. 1-6.

9 Penned by Judge Teofilo L. Guadiz, Jr.

10Penned by Justice Hilarion L. Aquino with Justices Ma. Alicia Austria-Martinez

12 Rollo, pp. 9-14.

14 Petition, pp. 6-7, Rollo, pp. 24-25.

20 Civil Code, Art. 1231. Obligations are extinguished:

(1) By payment or performance; xxx.

own rights, are creditors and debtors of each other.

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6 +., par. 8, pp. 3 and 4.

8 +., par. 10, p. 4.

9 +., par. 12, p. 4.

10 +., par. 13, p. 4.

11 +., par. 14, p. 5.

12 +., par. 15, p. 5.

13 +., par. 19, p. 6.

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Id. at 615, citing , "

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13 #$, Contracts, Sec. 150, pp. 315, 316. See, also, :

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