Sales Cases First Batch

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was
entered into by and between the plaintiff, as party of the first part, and J. Parsons
(to whose rights and obligations the present defendant later subrogated itself), as
party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in
the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the
latter's establishment in Iloilo, and shall invoice them at the same price he
has fixed for sales, in Manila, and, in the invoices, shall make and allowance
of a discount of 25 per cent of the invoiced prices, as commission on the
sale; and Mr. Parsons shall order the beds by the dozen, whether of the
same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received,
within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M.
Quiroga, and the freight, insurance, and cost of unloading from the vessel at
the point where the beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment,
said payment when made shall be considered as a prompt payment, and as
such a deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr.
Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand
of any alteration in price which he may plan to make in respect to his beds,
and agrees that if on the date when such alteration takes effect he should
have any order pending to be served to Mr. Parsons, such order shall enjoy
the advantage of the alteration if the price thereby be lowered, but shall not
be affected by said alteration if the price thereby be increased, for, in this
latter case, Mr. Quiroga assumed the obligation to invoice the beds at the
price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga"
beds.
ART. 2. In compensation for the expenses of advertisement which, for the
benefit of both contracting parties, Mr. Parsons may find himself obliged to
make, Mr. Quiroga assumes the obligation to offer and give the preference to
Mr. Parsons in case anyone should apply for the exclusive agency for any
island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale
of "Quiroga" beds in all the towns of the Archipelago where there are no
exclusive agents, and shall immediately report such action to Mr. Quiroga for
his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated
by either of the contracting parties on a previous notice of ninety days to the
other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of
them constitute the subject matter of this appeal and both substantially amount to
the averment that the defendant violated the following obligations: not to sell the
beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to
pay for the advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of the obligation
on the part of the defendant to order the beds by the dozen and in no other
manner, none of the obligations imputed to the defendant in the two causes of
action are expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said obligations
are implied in a contract of commercial agency. The whole question, therefore,
reduced itself to a determination as to whether the defendant, by reason of the
contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for
the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In
the contract in question, what was essential, as constituting its cause and subject
matter, is that the plaintiff was to furnish the defendant with the beds which the
latter might order, at the price stipulated, and that the defendant was to pay the
price in the manner stipulated. The price agreed upon was the one determined by
the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25
per cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred,
and in these last two cases an additional discount was to be allowed for prompt
payment. These are precisely the essential features of a contract of purchase and
sale. There was the obligation on the part of the plaintiff to supply the beds, and,
on the part of the defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent received
the thing to sell it, and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he does not succeed
in selling it, he returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their
price within the term fixed, without any other consideration and regardless as to
whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the
defendant and the plaintiff is one of purchase and sale, in order to show that it was
not one made on the basis of a commission on sales, as the plaintiff claims it was,
for these contracts are incompatible with each other. But, besides, examining the
clauses of this contract, none of them is found that substantially supports the
plaintiff's contention. Not a single one of these clauses necessarily conveys the idea
of an agency. The words commission on sales used in clause (A) of article 1 mean
nothing else, as stated in the contract itself, than a mere discount on the invoice
price. The word agency, also used in articles 2 and 3, only expresses that the
defendant was the only one that could sell the plaintiff's beds in the Visayan
Islands. With regard to the remaining clauses, the least that can be said is that
they are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-
president of the defendant corporation and who established and managed the
latter's business in Iloilo. It appears that this witness, prior to the time of his
testimony, had serious trouble with the defendant, had maintained a civil suit
against it, and had even accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted the contract Exhibit A, and,
when questioned as to what was his purpose in contracting with the plaintiff,
replied that it was to be an agent for his beds and to collect a commission on sales.
However, according to the defendant's evidence, it was Mariano Lopez Santos, a
director of the corporation, who prepared Exhibit A. But, even supposing that
Ernesto Vidal has stated the truth, his statement as to what was his idea in
contracting with the plaintiff is of no importance, inasmuch as the agreements
contained in Exhibit A which he claims to have drafted, constitute, as we have said,
a contract of purchase and sale, and not one of commercial agency. This only
means that Ernesto Vidal was mistaken in his classification of the contract. But it
must be understood that a contract is what the law defines it to be, and not what it
is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it
could not sell; that, without previous notice, it forwarded to the defendant the beds
that it wanted; and that the defendant received its commission for the beds sold by
the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on
the part of both of them, there was mutual tolerance in the performance of the
contract in disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only the acts
of the contracting parties, subsequent to, and in connection with, the execution of
the contract, must be considered for the purpose of interpreting the contract, when
such interpretation is necessary, but not when, as in the instant case, its essential
agreements are clearly set forth and plainly show that the contract belongs to a
certain kind and not to another. Furthermore, the return made was of certain brass
beds, and was not effected in exchange for the price paid for them, but was for
other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's
prior consent with respect to said beds, which shows that it was not considered that
the defendant had a right, by virtue of the contract, to make this return. As regards
the shipment of beds without previous notice, it is insinuated in the record that
these brass beds were precisely the ones so shipped, and that, for this very reason,
the plaintiff agreed to their return. And with respect to the so-called commissions,
we have said that they merely constituted a discount on the invoice price, and the
reason for applying this benefit to the beds sold directly by the plaintiff to persons
in Iloilo was because, as the defendant obligated itself in the contract to incur the
expenses of advertisement of the plaintiff's beds, such sales were to be considered
as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle the
plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the
plaintiff and the defendant was one of purchase and sale, and that the obligations
the breach of which is alleged as a cause of action are not imposed upon the
defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So
ordered.
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-27044 June 30, 1975
THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX
APPEALS, respondents.
G.R. No. L-27452 June 30, 1975
ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX
APPEALS, respondent.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H.
Montalino for Commissioner of Internal Revenue, etc.
Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R.
Balonkita for Engineering and Supply Company.

ESGUERRA, J.:
Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA
Case No. 681, dated November 29, 1966, assessing a compensating tax of
P174,441.62 on the Engineering Equipment and Supply Company.
As found by the Court of Tax Appeals, and as established by the evidence on
record, the facts of this case are as follows:
Engineering Equipment and Supply Co. (Engineering for short), a domestic
corporation, is an engineering and machinery firm. As operator of an integrated
engineering shop, it is engaged, among others, in the design and installation of
central type air conditioning system, pumping plants and steel fabrications. (Vol. I
pp. 12-16 T.S.N. August 23, 1960)
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now
Commissioner, of Internal Revenue denouncing Engineering for tax evasion by
misdeclaring its imported articles and failing to pay the correct percentage taxes
due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol.
I). Engineering was likewise denounced to the Central Bank (CB) for alleged fraud
in obtaining its dollar allocations. Acting on these denunciations, a raid and search
was conducted by a joint team of Central Bank, (CB), National Bureau of
Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September 27,
1956, on which occasion voluminous records of the firm were seized and
confiscated. (pp. 173-177 T.S.N.)
On September 30, 1957, revenue examiners Quesada and Catudan reported and
recommended to the then Collector, now Commissioner, of Internal Revenue
(hereinafter referred to as Commissioner) that Engineering be assessed for
P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its
importation of air conditioning units and parts and accessories thereof which are
subject to tax under Section 185(m)
1
of the Tax Code, instead of Section 186 of
the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised
on January 23, 1959, in line with the observation of the Chief, BIR Law Division,
and was raised to P916,362.56 representing deficiency advance sales tax and
manufacturers sales tax, inclusive of the 25% and 50% surcharges. (pp. 72-80 BIR
rec. Vol. I)
On March 3, 1959. the Commissioner assessed against, and demanded upon,
Engineering payment of the increased amount and suggested that P10,000 be paid
as compromise in extrajudicial settlement of Engineering's penal liability for
violation of the Tax Code. The firm, however, contested the tax assessment and
requested that it be furnished with the details and particulars of the Commissioner's
assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The Commissioner
replied that the assessment was in accordance with law and the facts of the case.
On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and
during the pendency of the case the investigating revenue examiners reduced
Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R"
and "9" pp. 162-170, BIR rec.), based on findings after conferences had with
Engineering's Accountant and Auditor.
On November 29, 1966, the Court of Tax Appeals rendered its decision, the
dispositive portion of which reads as follows:
For ALL THE FOREGOING CONSIDERATIONS, the decision of
respondent appealed from is hereby modified, and petitioner, as a
contractor, is declared exempt from the deficiency manufacturers sales
tax covering the period from June 1, 1948. to September 2, 1956.
However, petitioner is ordered to pay respondent, or his duly
authorized collection agent, the sum of P174,141.62 as compensating
tax and 25% surcharge for the period from 1953 to September 1956.
With costs against petitioner.
The Commissioner, not satisfied with the decision of the Court of Tax Appeals,
appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other
hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a
motion for reconsideration of the decision abovementioned. This was denied on
April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed
as G.R. No. L-27452.
Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same
parties and issues, We have decided to consolidate and jointly decide them.
Engineering in its Petition claims that the Court of Tax Appeals committed the
following errors:
1. That the Court of Tax Appeals erred in holding Engineering
Equipment & Supply Company liable to the 30% compensating tax on
its importations of equipment and ordinary articles used in the central
type air conditioning systems it designed, fabricated, constructed and
installed in the buildings and premises of its customers, rather than to
the compensating tax of only 7%;
Equipment & Supply Company guilty of fraud in effecting the said
importations on the basis of incomplete quotations from the contents
of alleged photostat copies of documents seized illegally from
Engineering Equipment and Supply Company which should not have
been admitted in evidence;
Equipment & Supply Company liable to the 25% surcharge prescribed
in Section 190 of the Tax Code;
4. That the Court of Tax Appeals erred in holding the assessment as
not having prescribed;
Equipment & Supply Company liable for the sum of P174,141.62 as
30% compensating tax and 25% surcharge instead of completely
absolving it from the deficiency assessment of the Commissioner.
The Commissioner on the other hand claims that the Court of Tax Appeals erred:
1. In holding that the respondent company is a contractor and not a
manufacturer.
2. In holding respondent company liable to the 3% contractor's tax
imposed by Section 191 of the Tax Code instead of the 30% sales tax
prescribed in Section 185(m) in relation to Section 194(x) both of the
same Code;
3. In holding that the respondent company is subject only to the 30%
compensating tax under Section 190 of the Tax Code and not to the
30% advance sales tax imposed by section 183 (b), in relation to
section 185(m) both of the same Code, on its importations of parts
and accessories of air conditioning units;
4. In not holding the company liable to the 50% fraud surcharge under
Section 183 of the Tax Code on its importations of parts and
accessories of air conditioning units, notwithstanding the finding of
said court that the respondent company fraudulently misdeclared the
said importations;
5. In holding the respondent company liable for P174,141.62 as
compensating tax and 25% surcharge instead of P740,587.86 as
deficiency advance sales tax, deficiency manufacturers tax and 25%
and 50% surcharge for the period from June 1, 1948 to December 31,
1956.
The main issue revolves on the question of whether or not Engineering is a
manufacturer of air conditioning units under Section 185(m), supra, in relation to
Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the
same Code.
The Commissioner contends that Engineering is a manufacturer and seller of air
conditioning units and parts or accessories thereof and, therefore, it is subject to
the 30% advance sales tax prescribed by Section 185(m) of the Tax Code, in
relation to Section 194 of the same, which defines a manufacturer as follows:
Section 194. Words and Phrases Defined. In applying the
provisions of this Title, words and phrases shall be taken in the sense
and extension indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or chemical
process alters the exterior texture or form or inner substance of any
raw material or manufactured or partially manufactured products in
such manner as to prepare it for a special use or uses to which it could
not have been put in its original condition, or who by any such process
alters the quality of any such material or manufactured or partially
manufactured product so as to reduce it to marketable shape, or
prepare it for any of the uses of industry, or who by any such process
combines any such raw material or manufactured or partially
manufactured products with other materials or products of the same or
of different kinds and in such manner that the finished product of such
process of manufacture can be put to special use or uses to which such
raw material or manufactured or partially manufactured products in
their original condition could not have been put, and who in addition
alters such raw material or manufactured or partially manufactured
products, or combines the same to produce such finished products for
the purpose of their sale or distribution to others and not for his own
use or consumption.
In answer to the above contention, Engineering claims that it is not a manufacturer
and setter of air-conditioning units and spare parts or accessories thereof subject to
tax under Section 185(m) of the Tax Code, but a contractor engaged in the design,
supply and installation of the central type of air-conditioning system subject to the
3% tax imposed by Section 191 of the same Code, which is essentially a tax on the
sale of services or labor of a contractor rather than on the sale of articles subject to
the tax referred to in Sections 184, 185 and 186 of the Code.
The arguments of both the Engineering and the Commissioner call for a clarification
of the term contractor as well as the distinction between a contract of sale and
contract for furnishing services, labor and materials. The distinction between a
contract of sale and one for work, labor and materials is tested by the inquiry
whether the thing transferred is one not in existence and which never would have
existed but for the order of the party desiring to acquire it, or a thing which would
have existed and has been the subject of sale to some other persons even if the
order had not been given.
2
If the article ordered by the purchaser is exactly such
as the plaintiff makes and keeps on hand for sale to anyone, and no change or
modification of it is made at defendant's request, it is a contract of sale, even
though it may be entirely made after, and in consequence of, the defendants order
for it.
3

Our New Civil Code, likewise distinguishes a contract of sale from a contract for a
piece of work thus:
Art. 1467. 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 a contract for a piece of work.
The word "contractor" has come to be used with special reference to a person who,
in the pursuit of the independent business, undertakes to do a specific job or piece
of work for other persons, using his own means and methods without submitting
himself to control as to the petty details. (Araas, Annotations and Jurisprudence
on the National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true
test of a contractor as was held in the cases of Luzon Stevedoring Co., vs.
Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43,
Phil. 816, 819, would seem to be that he renders service in the course of an
independent occupation, representing the will of his employer only as to the result
of his work, and not as to the means by which it is accomplished.
With the foregoing criteria as guideposts, We shall now examine whether
Engineering really did "manufacture" and sell, as alleged by the Commissioner to
hold it liable to the advance sales tax under Section 185(m), or it only had its
services "contracted" for installation purposes to hold it liable under section 198 of
the Tax Code.
I
After going over the three volumes of stenographic notes and the voluminous
record of the BIR and the CTA as well as the exhibits submitted by both parties, We
find that Engineering did not manufacture air conditioning units for sale to the
general public, but imported some items (as refrigeration compressors in complete
set, heat exchangers or coils, t.s.n. p. 39) which were used in executing contracts
entered into by it. Engineering, therefore, undertook negotiations and execution of
individual contracts for the design, supply and installation of air conditioning units
of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"),
taking into consideration in the process such factors as the area of the space to be
air conditioned; the number of persons occupying or would be occupying the
premises; the purpose for which the various air conditioning areas are to be used;
and the sources of heat gain or cooling load on the plant such as sun load, lighting,
and other electrical appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I)
Engineering also testified during the hearing in the Court of Tax Appeals that
relative to the installation of air conditioning system, Engineering designed and
engineered complete each particular plant and that no two plants were identical but
each had to be engineered separately.
As found by the lower court, which finding
4
We adopt
Engineering, in a nutshell, fabricates, assembles, supplies and installs
in the buildings of its various customers the central type air
conditioning system; prepares the plans and specifications therefor
which are distinct and different from each other; the air conditioning
units and spare parts or accessories thereof used by petitioner are not
the window type of air conditioner which are manufactured, assembled
and produced locally for sale to the general market; and the imported
air conditioning units and spare parts or accessories thereof are
supplied and installed by petitioner upon previous orders of its
customers conformably with their needs and requirements.
The facts and circumstances aforequoted support the theory that Engineering is a
contractor rather than a manufacturer.
The Commissioner in his Brief argues that "it is more in accord with reason and
sound business management to say that anyone who desires to have air
conditioning units installed in his premises and who is in a position and willing to
pay the price can order the same from the company (Engineering) and, therefore,
Engineering could have mass produced and stockpiled air conditioning units for sale
to the public or to any customer with enough money to buy the same." This is
untenable in the light of the fact that air conditioning units, packaged, or what we
know as self-contained air conditioning units, are distinct from the central system
which Engineering dealt in. To Our mind, the distinction as explained by
Engineering, in its Brief, quoting from books, is not an idle play of words as claimed
by the Commissioner, but a significant fact which We just cannot ignore. As quoted
by Engineering Equipment & Supply Co., from an Engineering handbook by L.C.
Morrow, and which We reproduce hereunder for easy reference:
... there is a great variety of equipment in use to do this job (of air
conditioning). Some devices are designed to serve a specific type of
space; others to perform a specific function; and still others as
components to be assembled into a tailor-made system to fit a
particular building. Generally, however, they may be grouped into two
classifications unitary and central system.
The unitary equipment classification includes those designs such as
room air conditioner, where all of the functional components are
included in one or two packages, and installation involves only making
service connection such as electricity, water and drains. Central-
station systems, often referred to as applied or built-up systems,
require the installation of components at different points in a building
and their interconnection.
The room air conditioner is a unitary equipment designed specifically
for a room or similar small space. It is unique among air conditioning
equipment in two respects: It is in the electrical appliance
classification, and it is made by a great number of manufacturers.
There is also the testimony of one Carlos Navarro, a licensed Mechanical and
Electrical Engineer, who was once the Chairman of the Board of Examiners for
Mechanical Engineers and who was allegedly responsible for the preparation of the
refrigeration and air conditioning code of the City of Manila, who said that "the
central type air conditioning system is an engineering job that requires planning
and meticulous layout due to the fact that usually architects assign definite space
and usually the spaces they assign are very small and of various sizes. Continuing
further, he testified:
I don't think I have seen central type of air conditioning machinery
room that are exactly alike because all our buildings here are designed
by architects dissimilar to existing buildings, and usually they don't
coordinate and get the advice of air conditioning and refrigerating
engineers so much so that when we come to design, we have to make
use of the available space that they are assigning to us so that we
have to design the different component parts of the air conditioning
system in such a way that will be accommodated in the space assigned
and afterwards the system may be considered as a definite portion of
the building. ...
Definitely there is quite a big difference in the operation because the
window type air conditioner is a sort of compromise. In fact it cannot
control humidity to the desired level; rather the manufacturers, by hit
and miss, were able to satisfy themselves that the desired comfort
within a room could be made by a definite setting of the machine as it
comes from the factory; whereas the central type system definitely
requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II)
The point, therefore, is this Engineering definitely did not and was not engaged
in the manufacture of air conditioning units but had its services contracted for the
installation of a central system. The cases cited by the Commissioner (Advertising
Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs.
Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City
of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the
facts in all the cases cited are entirely different. Take for instance the case of
Celestino Co where this Court held the taxpayer to be a manufacturer rather than a
contractor of sash, doors and windows manufactured in its factory. Indeed, from
the very start, Celestino Co intended itself to be a manufacturer of doors, windows,
sashes etc. as it did register a special trade name for its sash business and ordered
company stationery carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO
CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc.,
Manufacturers of All Kinds of Doors, Windows ... ." Likewise, Celestino Co never put
up a contractor's bond as required by Article 1729 of the Civil Code. Also, 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 ready-made
doors and windows of standard sizes for the average home, which "sales" were
reflected in their books of accounts totalling P118,754.69 for the period from
January, 1952 to September 30, 1952, or for a period of only nine (9) months. This
Court found said sum difficult to have been derived from its few customers who
placed special orders for these items. Applying the abovestated facts to the case at
bar, We found them to he inapposite. Engineering advertised itself as Engineering
Equipment and Supply Company, Machinery Mechanical Supplies, Engineers,
Contractors, 174 Marques de Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186),
and not as manufacturers. It likewise paid the contractors tax on all the contracts
for the design and construction of central system as testified to by Mr. Rey Parker,
its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did
not have ready-made air conditioning units for sale but as per testimony of Mr.
Parker upon inquiry of Judge Luciano of the CTA
Q Aside from the general components, which go into
air conditioning plant or system of the central type which
your company undertakes, and the procedure followed by
you in obtaining and executing contracts which you have
already testified to in previous hearing, would you say
that the covering contracts for these different projects
listed ... referred to in the list, Exh. "F" are identical in
every respect? I mean every plan or system covered by
these different contracts are identical in standard in every
respect, so that you can reproduce them?
A No, sir. They are not all standard. On the contrary,
none of them are the same. Each one must be designed
and constructed to meet the particular requirements,
whether the application is to be operated. (t.s.n. pp. 101-
102)
What We consider as on all fours with the case at bar is the case of S.M. Lawrence
Co. vs. McFarland,Commissioner of Internal Revenue of the State of Tennessee and
McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of
whether one engaged in the business of contracting for the establishment of air
conditioning system in buildings, which work requires, in addition to the furnishing
of a cooling unit, the connection of such unit with electrical and plumbing facilities
and the installation of ducts within and through walls, ceilings and floors to convey
cool air to various parts of the building, is liable for sale or use tax as a contractor
rather than a retailer of tangible personal property. Appellee took the Position that
appellant was not engaged in the business of selling air conditioning equipment as
such but in the furnishing to its customers of completed air conditioning systems
pursuant to contract, was a contractor engaged in the construction or improvement
of real property, and as such was liable for sales or use tax as the consumer of
materials and equipment used in the consummation of contracts, irrespective of the
tax status of its contractors. To transmit the warm or cool air over the buildings,
the appellant installed system of ducts running from the basic units through walls,
ceilings and floors to registers. The contract called for completed air conditioning
systems which became permanent part of the buildings and improvements to the
realty." The Court held the appellant a contractor which used the materials and the
equipment upon the value of which the tax herein imposed was levied in the
performance of its contracts with its customers, and that the customers did not
purchase the equipment and have the same installed.
Applying the facts of the aforementioned case to the present case, We see that the
supply of air conditioning units to Engineer's various customers, whether the said
machineries were in hand or not, was especially made for each customer and
installed in his building upon his special order. The air conditioning units installed in
a central type of air conditioning system would not have existed but for the order of
the party desiring to acquire it and if it existed without the special order of
Engineering's customer, the said air conditioning units were not intended for sale to
the general public. Therefore, We have but to affirm the conclusion of the Court of
Tax Appeals that Engineering is a contractor rather than a manufacturer, subject to
the contractors tax prescribed by Section 191 of the Code and not to the advance
sales tax imposed by Section 185(m) in relation to Section 194 of the same Code.
Since it has been proved to Our satisfaction that Engineering imported air
conditioning units, parts or accessories thereof for use in its construction business
and these items were never sold, resold, bartered or exchanged, Engineering
should be held liable to pay taxes prescribed under Section 190
5
of the Code. This
compensating tax is not a tax on the importation of goods but a tax on the use of
imported goods not subject to sales tax. Engineering, therefore, should be held
liable to the payment of 30% compensating tax in accordance with Section 190 of
the Tax Code in relation to Section 185(m) of the same, but without the 50% mark
up provided in Section 183(b).
II
We take up next the issue of fraud. The Commissioner charged Engineering with
misdeclaration of the imported air conditioning units and parts or accessories
thereof so as to make them subject to a lower rate of percentage tax (7%) under
Section 186 of the Tax Code, when they are allegedly subject to a higher rate of tax
(30%) under its Section 185(m). This charge of fraud was denied by Engineering
but the Court of Tax Appeals in its decision found adversely and said"
... We are amply convinced from the evidence presented by
respondent that petitioner deliberately and purposely misdeclared its
importations. This evidence consists of letters written by petitioner to
its foreign suppliers, instructing them on how to invoice and describe
the air conditioning units ordered by petitioner. ... (p. 218 CTA rec.)
Despite the above findings, however, the Court of Tax Appeals absolved
Engineering from paying the 50% surcharge prescribe by Section 183(a) of the Tax
Code by reasoning out as follows:
The imposition of the 50% surcharge prescribed by Section 183(a) of
the Tax Code is based on willful neglect to file the monthly return
within 20 days after the end of each month or in case a false or
fraudulent return is willfully made, it can readily be seen, that
petitioner cannot legally be held subject to the 50% surcharge
imposed by Section 183(a) of the Tax Code. Neither can petitioner be
held subject to the 50% surcharge under Section 190 of the Tax Code
dealing on compensating tax because the provisions thereof do not
include the 50% surcharge. Where a particular provision of the Tax
Code does not impose the 50% surcharge as fraud penalty we cannot
enforce a non-existing provision of law notwithstanding the
assessment of respondent to the contrary. Instances of the exclusion
in the Tax Code of the 50% surcharge are those dealing on tax on
banks, taxes on receipts of insurance companies, and franchise tax.
However, if the Tax Code imposes the 50% surcharge as fraud
penalty, it expressly so provides as in the cases of income tax, estate
and inheritance taxes, gift taxes, mining tax, amusement tax and the
monthly percentage taxes. Accordingly, we hold that petitioner is not
subject to the 50% surcharge despite the existence of fraud in the
absence of legal basis to support the importation thereof. (p. 228 CTA
rec.)
We have gone over the exhibits submitted by the Commissioner evidencing fraud
committed by Engineering and We reproduce some of them hereunder for clarity.
As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co.
(Exh. "3-K" pp. 152-155, BIR rec.) viz:
Your invoices should be made in the name of Madrigal & Co., Inc.,
Manila, Philippines, c/o Engineering Equipment & Supply Co., Manila,
Philippines forwarding all correspondence and shipping papers
concerning this order to us only and not to the customer.
When invoicing, your invoices should be exactly as detailed in the
customer's Letter Order dated March 14th, 1953 attached. This is in
accordance with the Philippine import licenses granted to Madrigal &
Co., Inc. and such details must only be shown on all papers and
shipping documents for this shipment. No mention of words air
conditioning equipment should be made on any shipping documents as
well as on the cases. Please give this matter your careful attention,
otherwise great difficulties will be encountered with the Philippine
Bureau of Customs when clearing the shipment on its arrival in Manila.
All invoices and cases should be marked "THIS EQUIPMENT FOR RIZAL
CEMENT CO."
The same instruction was made to Acme Industries, Inc., San Francisco, California
in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.)
On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York,
U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from mentioning
or referring to the term 'air conditioning' and to describe the goods on order as
Fiberglass pipe and pipe fitting insulation instead. Likewise on April 30, 1953,
Engineering threatened to discontinue the forwarding service of Universal
Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p. 146, BIR rec.):
It will be noted that the Universal Transcontinental Corporation is not
following through on the instructions which have been covered by the
above correspondence, and which indicates the necessity of
discontinuing the use of the term "Air conditioning Machinery or Air
Coolers". Our instructions concerning this general situation have been
sent to you in ample time to have avoided this error in terminology,
and we will ask that on receipt of this letter that you again write to
Universal Transcontinental Corp. and inform them that, if in the future,
they are unable to cooperate with us on this requirement, we will
thereafter be unable to utilize their forwarding service. Please inform
them that we will not tolerate another failure to follow our
requirements.
And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co.
another letter, viz:
In the past, we have always paid the air conditioning tax on climate
changers and that mark is recognized in the Philippines, as air
conditioning equipment. This matter of avoiding any tie-in on air
conditioning is very important to us, and we are asking that from
hereon that whoever takes care of the processing of our orders be
carefully instructed so as to avoid again using the term "Climate
changers" or in any way referring to the equipment as "air
conditioning."
And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953,
suggesting a solution, viz:
We feel that we can probably solve all the problems by following the
procedure outlined in your letter of March 25, 1953 wherein you stated
that in all future jobs you would enclose photostatic copies of your
import license so that we might make up two sets of invoices: one set
describing equipment ordered simply according to the way that they
are listed on the import license and another according to our ordinary
regular methods of order write-up. We would then include the set
made up according to the import license in the shipping boxes
themselves and use those items as our actual shipping documents and
invoices, and we will send the other regular invoice to you, by
separate correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.)
Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C"
p. 141 BIR rec.)
In the process of clearing the shipment from the piers, one of the
Customs inspectors requested to see the packing list. Upon presenting
the packing list, it was discovered that the same was prepared on a
copy of your letterhead which indicated that the Trane Co.
manufactured air conditioning, heating and heat transfer equipment.
Accordingly, the inspectors insisted that this equipment was being
imported for air conditioning purposes.To date, we have not been able
to clear the shipment and it is possible that we will be required to pay
heavy taxes on equipment.
The purpose of this letter is to request that in the future, no
documents of any kind should be sent with the order that indicate in
any way that the equipment could possibly be used for air
conditioning.
It is realized that this a broad request and fairly difficult to accomplish
and administer, but we believe with proper caution it can be executed.
Your cooperation and close supervision concerning these matters will
be appreciated. (Emphasis supplied)
The aforequoted communications are strongly indicative of the fraudulent intent of
Engineering to misdeclare its importation of air conditioning units and spare parts
or accessories thereof to evade payment of the 30% tax. And since the commission
of fraud is altogether too glaring, We cannot agree with the Court of Tax Appeals in
absolving Engineering from the 50% fraud surcharge, otherwise We will be giving
premium to a plainly intolerable act of tax evasion. As aptly stated by then Solicitor
General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the
50% surcharge because in any case whether it is subject to advance sales tax or
compensating tax, it is required by law to truly declare its importation in the import
entries and internal revenue declarations before the importations maybe released
from customs custody. The said entries are the very documents where the nature,
quantity and value of the imported goods declared and where the customs duties,
internal revenue taxes, and other fees or charges incident to the importation are
computed. These entries, therefore, serve the same purpose as the returns
required by Section 183(a) of the Code.'
Anent the 25% delinquency surcharge, We fully agree to the ruling made by the
Court of Tax Appeals and hold Engineering liable for the same. As held by the lower
court:
At first blush it would seem that the contention of petitioner that it is
not subject to the delinquency, surcharge of 25% is sound, valid and
tenable. However, a serious study and critical analysis of the historical
provisions of Section 190 of the Tax Code dealing on compensating tax
in relation to Section 183(a) of the same Code, will show that the
contention of petitioner is without merit. The original text of Section
190 of Commonwealth Act 466, otherwise known as the National
Internal Revenue Code, as amended by Commonwealth Act No. 503,
effective on October 1, 1939, does not provide for the filing of a
compensation tax return and payment of the 25 % surcharge for late
payment thereof. Under the original text of Section 190 of the Tax
Code as amended by Commonwealth Act No. 503, the contention of
the petitioner that it is not subject to the 25% surcharge appears to be
legally tenable. However, Section 190 of the Tax Code was
subsequently amended by the Republic Acts Nos. 253, 361, 1511 and
1612 effective October 1, 1946, July 1, 1948, June 9, 1949, June 16,
1956 and August 24, 1956 respectively, which invariably provides
among others, the following:
... If any article withdrawn from the customhouse or the
post office without payment of the compensating tax is
subsequently used by the importer for other purposes,
corresponding entry should be made in the books of
accounts if any are kept or a written notice thereof sent
to the Collector of Internal Revenue and payment of the
corresponding compensating tax made within 30 days
from the date of such entry or notice and if tax is not paid
within such period the amount of the tax shall be
increased by 25% the increment to be a part of the tax.
Since the imported air conditioning units-and spare parts or accessories thereof are
subject to the compensating tax of 30% as the same were used in the construction
business of Engineering, it is incumbent upon the latter to comply with the
aforequoted requirement of Section 190 of the Code, by posting in its books of
accounts or notifying the Collector of Internal Revenue that the imported articles
were used for other purposes within 30 days. ... Consequently; as the 30%
compensating tax was not paid by petitioner within the time prescribed by Section
190 of the Tax Code as amended, it is therefore subject to the 25% surcharge for
delinquency in the payment of the said tax. (pp. 224-226 CTA rec.)
III
Lastly the question of prescription of the tax assessment has been put in issue.
Engineering contends that it was not guilty of tax fraud in effecting the importations
and, therefore, Section 332(a) prescribing ten years is inapplicable, claiming that
the pertinent prescriptive period is five years from the date the questioned
importations were made. A review of the record however reveals that Engineering
did file a tax return or declaration with the Bureau of Customs before it paid the
advance sales tax of 7%. And the declaration filed reveals that it did in fact
misdeclare its importations. Section 332 of the Tax Code which provides:
Section 332. Exceptions as to period of limitation of assessment and
collection of taxes.
(a) In the case of a false or fraudulent return with intent to evade tax
or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun
without assessment at any time within ten years after the discovery of
the falsity, fraud or omission.
is applicable, considering the preponderance of evidence of fraud with the intent to
evade the higher rate of percentage tax due from Engineering. The, tax assessment
was made within the period prescribed by law and prescription had not set in
against the Government.
WHEREFORE, the decision appealed from is affirmed with the modification that
Engineering is hereby also made liable to pay the 50% fraud surcharge.
SO ORDERED.

THIRD DIVISION

ENRICO S. EULOGIO,
Petitioner,

- versus -

SPOUSES CLEMENTE
APELES
[1]
and LUZ APELES,
Respondents.
G.R. No. 167884

Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
AZCUNA,
*

CHICO-NAZARIO, and
NACHURA, JJ.

Promulgated:

January 20, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CHICO-NAZARIO, J.:

Petitioner Enrico S. Eulogio (Enrico) filed this instant Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court assailing the
Decision
[2]
dated 20 December 2004 of the Court of Appeals in CA-G.R. CV No.
76933 which reversed the Decision
[3]
dated 8 October 2002 of the Regional Trial
Court (RTC) of Quezon City, Branch 215, in Civil Case No. Q-99-36834. The RTC
directed respondents, spouses Clemente and Luz Apeles (spouses Apeles) to
execute a Deed of Sale over a piece of real property in favor of Enrico after the
latters payment of full consideration therefor.

The factual and procedural antecedents of the present case are as follows:

The real property in question consists of a house and lot situated at No. 87
Timog Avenue,Quezon City (subject property). The lot has an area of 360.60
square meters, covered by Transfer Certificate of Title No. 253990 issued by the
Registry of Deeds of Quezon City in the names of the spouses Apeles.
[4]

In 1979, the spouses Apeles leased the subject property to Arturo Eulogio
(Arturo), Enricos father. Upon Arturos death, his son Enrico succeeded as lessor
of the subject property. Enrico used the subject property as his residence and
place of business. Enrico was engaged in the business of buying and selling
imported cars.
[5]

On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a
Contract of Lease
[6]
with Option to Purchase involving the subject
property. According to the said lease contract, Luz Apeles was authorized to enter
into the same as the attorney-in-fact of her husband, Clemente, pursuant to a
Special Power of Attorney executed by the latter in favor of the former on 24
January 1979. The contract purportedly afforded Enrico, before the expiration of
the three-year lease period, the option to purchase the subject property for a price
not exceeding P1.5 Million. The pertinent provisions of the Contract of Lease are
reproduced below:

3. That this Contract shall be effective commencing
from January 26, 1987 and shall remain valid and binding for THREE
(3) YEARS from the said date. The LESSOR hereby gives the LESSEE
under this Contract of Lease the right and option to buy the subject
house and lot within the said 3-year lease period.

4. That the purchase price or total consideration of the
house and lot subject of this Contract of Lease shall, should the
LESSEE exercise his option to buy it on or before the expiration of the
3-year lease period, be fixed or agreed upon by the LESSOR and the
LESSEE, Provided, that the said purchase price, as it is hereby agreed,
shall not be more than ONE MILLION FIVE HUNDRED THOUSAND
PESOS (P1,500,000.00) and, provided further, that the monthly
rentals paid by the LESSEE to the LESSOR during the 3-year lease
period shall form part of or be deducted from the purchase price or
total consideration as may hereafter be mutually fixed or agreed upon
by the LESSOR and the LESSEE.

5. That if the LESSEE shall give oral or written notice to
the LESSOR on or before the expiry date of the 3-year lease period
stipulated herein of his desire to exercise his option to buy or purchase
the house and lot herein leased, the LESSOR upon receipt of the
purchase price/total consideration as fixed or agreed upon less the
total amount of monthly rentals paid the LESSEE during the 3-year
lease period shall execute the appropriate Deed to SELL, TRANSFER
and CONVEY the house and lot subject of this Contract in favor of the
LESSEE, his heirs, successors and assigns, together with all the
fixtures and accessories therein, free from all liens and encumbrances.

Before the expiration of the three-year lease period provided in the lease
contract, Enrico exercised his option to purchase the subject property by
communicating verbally and in writing to Luz his willingness to pay the agreed
purchase price, but the spouses Apeles supposedly ignored Enricos manifestation.
This prompted Enrico to seek recourse from the barangay for the enforcement of
his right to purchase the subject property, but despite several notices, the spouses
Apeles failed to appear before the barangay for settlement proceedings. Hence,
the barangay issued to Enrico a Certificate to File Action.
[7]

In a letter dated 26 January 1997 to Enrico, the spouses Apeles demanded
that he pay his rental arrears from January 1991 to December 1996 and he vacate
the subject property since it would be needed by the spouses Apeles themselves.

Without heeding the demand of the spouses Apeles, Enrico instituted on 23
February 1999 a Complaint for Specific Performance with Damages against the
spouses Apeles before the RTC, docketed as Civil Case No. Q-99-
36834. Enricos cause of action is founded on paragraph 5 of the Contract of Lease
with Option to Purchase vesting him with the right to acquire ownership of the
subject property after paying the agreed amount of consideration.

Following the pre-trial conference, trial on the merits ensued before the RTC.

Enrico himself testified as the sole witness for his side. He narrated that he
and Luz entered into the Contract of Lease with Option to Purchase on 26 January
1987, with Luz signing the said Contract at Enricos office in Timog Avenue, Quezon
City. The Contract was notarized on the same day as evidenced by the Certification
on the Notary Publics Report issued by the Clerk of Court of the RTC of Manila.
[8]

On the other hand, the spouses Apeles denied that Luz signed the Contract
of Lease with Option to Purchase, and posited that Luzs signature thereon was a
forgery. To buttress their contention, the spouses Apeles offered as evidence Luzs
Philippine Passport which showed that on26 January 1987, the date when Luz
allegedly signed the said Contract, she was in the United States of America. The
spouses Apeles likewise presented several official documents bearing her genuine
signatures to reveal their remarkable discrepancy from the signature appearing in
the disputed lease contract. The spouses Apeles maintained that they did not
intend to sell the subject property.
[9]

After the spouses Apeles established by documentary evidence that Luz was
not in the country at the time the Contract of Lease with Option to Purchase was
executed, Enrico, in rebuttal, retracted his prior declaration that the said Contract
was signed by Luz on 26 January 1996. Instead, Enrico averred that Luz signed the
Contract after she arrived in the Philippines on 30 May 1987. Enrico further related
that after Luz signed the lease contract, she took it with her for notarization, and by
the time the document was returned to him, it was already notarized.
[10]

On 8 October 2002, the RTC rendered a Decision in Civil Case No. Q-99-
36834 in favor of Enrico. Since none of the parties presented a handwriting expert,
the RTC relied on its own examination of the specimen signatures submitted to
resolve the issue of forgery. The RTC found striking similarity between Luzs
genuine signatures in the documents presented by the spouses Apeles themselves
and her purportedly forged signature in the Contract of Lease with Option to
Purchase. Absent any finding of forgery, the RTC bound the parties to the clear and
unequivocal stipulations they made in the lease contract. Accordingly, the RTC
ordered the spouses Apeles to execute a Deed of Sale in favor of Enrico upon the
latters payment of the agreed amount of consideration. The fallo of the RTC
Decision reads:

WHEREFORE, this Court finds [Enricos] complaint to be
substantiated by preponderance of evidence and accordingly orders

(1) [The spouses Apeles] to comply with the provisions of
the Contract of Lease with Option to Purchase; and upon payment of
total consideration as stipulated in the said CONTRACT for [the
spouses Apeles] to execute a Deed of Absolute Sale in favor of
[Enrico], over the parcel of land and the improvements existing
thereon located at No. 87 Timog Avenue, Quezon City.

(2) [The spouses Apeles] to pay [Enrico] moral and
exemplary damages in the respective amounts ofP100,000.00
and P50,000.00.

(3) [The spouses Apeles] to pay attorneys fees
of P50,000.00 and costs of the suit.
[11]

The spouses Apeles challenged the adverse RTC Decision before the Court of
Appeals and urged the appellate court to nullify the assailed Contract of Lease with
Option to Purchase since Luzs signature thereon was clearly a forgery. The
spouses Apeles argued that it was physically impossible for Luz to sign the said
Contract on 26 January 1987 since she was not in the Philippines on that date and
returned five months thereafter. The spouses Apeles called attention to Enricos
inconsistent declarations as to material details involving the execution of the lease
contract, thereby casting doubt on Enricos credibility, as well as on the presumed
regularity of the contract as a notarized document.

On 20 December 2004, the Court of Appeals rendered a Decision in CA-G.R.
CV No. 76933 granting the appeal of the spouses Apeles and overturning the
judgment of the RTC. In arriving at its assailed decision, the appellate court noted
that the Notary Public did not observe utmost care in certifying the due execution of
the Contract of Lease with Option to Purchase. The Court of Appeals chose not to
accord the disputed Contract full faith and credence. The Court of Appeals held,
thus:

WHEREFORE, the foregoing premises considered, the appealed
decision dated October 8, 2002 of the Regional Trial Court of Quezon
City, Branch 215 in Civil Case No. Q-99-36834 for specific performance
with damages is hereby REVERSED and a new is one entered
dismissing [Enricos] complaint.
[12]

Enricos Motion for Reconsideration was denied by the Court of Appeals in a
Resolution
[13]
dated 25 April 2005.

Enrico is presently before this Court seeking the reversal of the unfavorable
judgment of the Court of Appeals, assigning the following errors thereto:

I.

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN
IT BRUSHED ASIDE THE RULING OF THE COURT A QUO UPHOLDING
THE VALIDITY OF THE CONTRACT OF LEASE WITH OPTION TO
PURCHASE AND IN LIEU THEREOF RULED THAT THE SAID CONTRACT
OF LEASE WAS A FORGERY AND THUS, NULL AND VOID.

II.

THE COURT OF APPEALS COMMITTED (sic) REVERSIBLE ERROR WHEN
CONTRARY TO THE FINDINGS OF THE COURT A QUO IT RULED THAT
THE DEFENSE OF FORGERY WAS SUBSTANTIALLY AND
CONVINCINGLY PROVEN BY COMPETENT EVIDENCE.

Simply, Enrico faults the Court of Appeals for disturbing the factual findings
of the RTC in disregard of the legal aphorism that the factual findings of the trial
court should be accorded great weight and respect on appeal.

We do not agree.

Enricos insistence on the infallibility of the findings of the RTC seriously
impairs the discretion of the appellate tribunal to make independent determination
of the merits of the case appealed before it. Certainly, the Court of Appeals cannot
swallow hook, line, and sinker the factual conclusions of the trial court without
crippling the very office of review. Although we have indeed held that the factual
findings of the trial courts are to be accorded great weight and respect, they are
not absolutely conclusive upon the appellate court.
[14]

The reliance of appellate tribunals on the factual findings of the trial court is
based on the postulate that the latter had firsthand opportunity to hear the
witnesses and to observe their conduct and demeanor during the proceedings.
However, when such findings are not anchored on their credibility and their
testimonies, but on the assessment of documents that are available to appellate
magistrates and subject to their scrutiny, reliance on the trial court finds no
application.
[15]

Moreover, appeal by writ of error to the Court of Appeals under Rule 41 of
the Revised Rules of Court, the parties may raise both questions of fact and/or of
law. In fact, it is imperative for the Court of Appeals to review the findings of fact
made by the trial court. The Court of Appeals even has the power to try cases and
conduct hearings, receive evidence and perform any and all acts necessary to
resolve factual issues raised in cases falling within its original and appellate
jurisdiction.
[16]

Enrico assiduously prays before this Court to sustain the validity of the
Contract of Lease with Option to Purchase. Enrico asserts that the said Contract
was voluntarily entered into and signed by Luz who had it notarized herself. The
spouses Apeles should be obliged to respect the terms of the agreement, and not
be allowed to renege on their commitment thereunder and frustrate the sanctity of
contracts.

Again, we are not persuaded. We agree with the Court of Appeals that in
ruling out forgery, the RTC heavily relied on the testimony proffered by Enrico
during the trial, ignoring blatant contradictions that destroy his credibility and the
veracity of his claims. On direct examination, Enrico testified that Luz signed the
Contract of Lease with Option to Purchase on 26 January 1987 in his
presence,
[17]
but he recanted his testimony on the matter after the spouses Apeles
established by clear and convincing evidence that Luz was not in the Philippines on
that date.
[18]
In rebuttal, Enrico made a complete turnabout and claimed that Luz
signed the Contract in question on 30 May 1987 after her arrival in the
country.
[19]
The inconsistencies in Enricos version of events have seriously
impaired the probative value of his testimony and cast serious doubt on his
credibility. His contradictory statements on important details simply eroded the
integrity of his testimony.

While it is true that a notarized document carries the evidentiary weight
conferred upon it with respect to its due execution, and has in its favor the
presumption of regularity, this presumption, however, is not absolute. It may be
rebutted by clear and convincing evidence to the contrary.
[20]
Enrico himself
admitted that Luz took the document and had it notarized without his
presence. Such fact alone overcomes the presumption of regularity since a notary
public is enjoined not to notarize a document unless the persons who signed the
same are the very same persons who executed and personally appeared before the
said notary public to attest to the contents and truth of what are stated therein.

Although there is no direct evidence to prove forgery, preponderance of
evidence inarguably favors the spouses Apeles. In civil cases, the party having the
burden of proof must establish his case by a preponderance of
evidence. Preponderance of evidence is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be synonymous with
the term greater weight of the evidence or greater weight of the credible
evidence. Preponderance of evidence is a phrase which, in the last analysis,
means probability of the truth. It is evidence which is more convincing to the court
as worthier of belief than that which is offered in opposition thereto.
[21]
In the case
at bar, the spouses Apeles were able to overcome the burden of proof and prove by
preponderant evidence in disputing the authenticity and due execution of the
Contract of Lease with Option to Purchase. In contrast, Enrico seemed to rely only
on his own self-serving declarations, without asserting any proof of corroborating
testimony or circumstantial evidence to buttress his claim.

Even assuming for the sake of argument that we agree with Enrico that Luz
voluntarily entered into the Contract of Lease with Option to Purchase and
personally affixed her signature to the said document, the provision on the option
to purchase the subject property incorporated in said Contract still remains
unenforceable.

There is no dispute that what Enrico sought to enforce in Civil Case No. Q-
99-36834 was his purported right to acquire ownership of the subject property in
the exercise of his option to purchase the same under the Contract of Lease with
Option to Purchase. He ultimately wants to compel the spouses Apeles to already
execute the Deed of Sale over the subject property in his favor.

An option is a contract by which the owner of the property agrees with
another person that the latter shall have the right to buy the formers property at a
fixed price within a certain time. It is a condition offered or contract by which the
owner stipulates with another that the latter shall have the right to buy the
property at a fixed price within 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.
[22]
An option is not of itself a purchase, but merely
secures the privilege to buy. It is not a sale of property but a sale of the right to
purchase. It is simply a contract by which the owner of the property agrees with
another person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to sell it;
but he does sell something, i.e.,the right or privilege to buy at the election or
option of the other party. Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside from the consideration
for the offer.
[23]

It is also sometimes called an unaccepted offer and is sanctioned by Article
1479 of the Civil Code:

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.

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.
[24]

In the landmark case of Southwestern Sugar and Molasses Company v.
Atlantic Gulf and Pacific Co.,
[25]
we declared that for an option contract to bind the
promissor, it must be supported by consideration:

There is no question that under Article 1479 of the new Civil
Code an option to sell, or a promise to buy or to sell, as used in
said article, to be valid must be supported by a consideration distinct
from the price. This is clearly inferred from the context of said article
that a unilateral promise to buy or to sell, even if accepted, is only
binding if supported by a consideration. In other words, an
accepted unilateral promise can only have a binding effect if
supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if the same is not
supported by any consideration. Here it is not disputed that the
option is without consideration. It can therefore be withdrawn
notwithstanding the acceptance made of it by
appellee. (Emphasis supplied.)

The doctrine requiring the payment of consideration in an option contract
enunciated inSouthwestern Sugar is resonated in subsequent cases and remains
controlling to this day. Without consideration that is separate and distinct from the
purchase price, an option contract cannot be enforced; that holds true even if the
unilateral promise is already accepted by the optionee.

The consideration is the why of the contracts, the essential reason which
moves the contracting parties to enter into the contract. 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.
[26]

We have painstakingly examined the Contract of Lease with Option to
Purchase, as well as the pleadings submitted by the parties, and their testimonies
in open court, for any direct evidence or evidence aliunde to prove the existence of
consideration for the option contract, but we have found none. The only
consideration agreed upon by the parties in the said Contract is the supposed
purchase price for the subject property in the amount not exceeding P1.5 Million,
which could not be deemed to be the same consideration for the option contract
since the law and jurisprudence explicitly dictate that for the option contract to be
valid, it must be supported by a consideration separate and distinct from
the price.

In Bible Baptist Church v. Court of Appeals,
[27]
we stressed that 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 option contract. 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, it is indubitable that no consideration was given by
Enrico to the spouses Apeles for the option contract. The absence of monetary or
any material consideration keeps this Court from enforcing the rights of the parties
under said option contract.

WHEREFORE, in view of the foregoing, the instant Petition
is DENIED. The Decision dated20 December 2004 and Resolution dated 25 April
2005 of the Court of Appeals in CA-G.R. CV No. 76933 are hereby AFFIRMED. No
costs.

SO ORDERED.

SUPREME COURT
Manila
EN BANC

G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

VITUG, J.:
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 a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject
to the following modification: The court a quo 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 certiorari. 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 lis
pendens 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 theNotice of Lis Pendens 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.
1

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 a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be
held bound by the writ of execution by virtue of the notice of lis pendens, 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 (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential elements
thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts, quasi-contracts,
delicts and quasi-delicts); (b) the object which is the prestation or conduct;
required to be observed (to give, to do or not to do); and (c) the subject-
persons 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. Negotiation covers the period from the
time the prospective contracting parties indicate interest in the contract to the time
the contract is concluded (perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on the cause thereof. A
contract which requires, in addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly referred to as
a real contract. In a solemn contract, compliance with certain formalities prescribed
by law, such as in a donation of real property, is essential in order to make the act
valid, the prescribed form being thereby an essential element thereof. The stage
of consummationbegins 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 not absolute but conditional, 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.
2
In Dignos vs. Court of Appeals (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 proviso 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.
3
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).
4

An unconditional mutual promise 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.
5

An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the
price, is what may properly be termed a perfected contract ofoption. 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)
6

Observe, however, that the option is not the contract of sale itself.
7
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.
8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) 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 Art. 1324, Civil Code; see
also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to
a unilateral promise to sell under Art. 1479, modifying the previous decision
in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil
Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). 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 perfected, 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 withdraws the offer before its acceptance(exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance 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 consideration 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 (Art. 1482,
Civil Code).
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, per se be brought within the purview of an option
under the second paragraph of Article 1479, aforequoted, or possibly of an offer
under Article 1319
9
of the same Code. An option or an offer would require, among
other things,
10
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 vinculum juris 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.
11
It is not to
say, however, that the right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19
12
of 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 lis pendens 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
13
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 a
quo. Costs against petitioners.
SO ORDERED.

FIRST DIVISION

SPOUSES GOMER and G.R. No. 145330
LEONOR RAMOS,
Petitioners, Present:
Davide, Jr., C.J.,
Chairman,
Quisumbing,
- versus - Ynares-Santiago,
Carpio, and
Azcuna, JJ.

SPOUSES SANTIAGO and
MINDA HERUELA, and Promulgated:
SPOUSES CHERRY and
RAYMOND PALLORI,
Respondents. October 14, 2005

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

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review
[1]
assailing the Decision
[2]
dated 23
August 2000 and the Order dated 20 September 2000 of the Regional Trial Court
(trial court) of Misamis Oriental, Branch 21, in Civil Case No. 98-060. The trial
court dismissed the plaintiffs action for recovery of ownership with damages.

The Antecedent Facts

The spouses Gomer and Leonor Ramos (spouses Ramos) own a parcel of
land, consisting of 1,883 square meters, covered by Transfer Certificate of Title
(TCT) No. 16535 of the Register of Deeds of Cagayan de Oro City. On 18
February 1980, the spouses Ramos made an agreement with the spouses Santiago
and Minda Heruela (spouses Heruela)
[3]
covering 306 square meters of the land
(land). According to the spouses Ramos, the agreement is a contract of
conditional sale. The spouses Heruela allege that the contract is a sale on
installment basis.

On 27 January 1998, the spouses Ramos filed a complaint for Recovery of
Ownership with Damages against the spouses Heruela. The case was docketed as
Civil Case No. 98-060. The spouses Ramos allege that out of
the P15,300
[4]
consideration for the sale of the land, the spouses Heruela paid
only P4,000. The last installment that the spouses Heruela paid was on 18
December 1981. The spouses Ramos assert that the spouses Heruelas unjust
refusal to pay the balance of the purchase price caused the cancellation of the Deed
of Conditional Sale. In June 1982, the spouses Ramos discovered that the spouses
Heruela were already occupying a portion of the land. Cherry and Raymond Pallori
(spouses Pallori), daughter and son-in-law, respectively, of the spouses Heruela,
erected another house on the land. The spouses Heruela and the spouses Pallori
refused to vacate the land despite demand by the spouses Ramos.

The spouses Heruela allege that the contract is a sale on installment basis.
They paid P2,000 as down payment and made the following installment payments:

31 March 1980 P200
2 May 1980 P400 (for April and May 1980)
20 June 1980 P200 (for June 1980)
8 October 1980 P500 (for July, August and part
of September 1980)
5 March 1981 P400 (for October and
November 1980)
18 December 1981 P300 (for December 1980 and
part of January 1981)

The spouses Heruela further allege that the 306 square meters specified in
the contract was reduced to 282 square meters because upon subdivision of the
land, 24 square meters became part of the road. The spouses Heruela claim that in
March 1982, they expressed their willingness to pay the balance of P11,300 but the
spouses Ramos refused their offer.

The Ruling of the Trial Court

In its Decision
[5]
dated 23 August 2000, the trial court ruled that
the contract is a sale by installment. The trial court ruled that the spouses Ramos
failed to comply with Section 4 of Republic Act No. 6552 (RA 6552),
[6]
as follows:

SEC. 4. In case where less than two years of installments were
paid, the seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due. If the buyer
fails to pay the installments due at the expiration of the grace period,
the seller may cancel the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act.

The dispositive portion of the Decision reads:

WHEREFORE, the complaint is hereby dismissed and plaintiff[s]
are ordered to execute the corresponding Deed of Sale in favor of
defendants after the latter have paid the remaining balance of Eleven
Thousand and Three Hundred Pesos (P11,300.00).

Plaintiffs are further ordered to pay defendants the sum
of P20,000.00, as Attorneys fees andP10,000.00 as litigation
expenses.

SO ORDERED.
[7]

In an Order
[8]
dated 20 September 2000, the trial court denied the spouses
Ramos motion for reconsideration.
Hence, this petition.

The Issues

The spouses Ramos raise the following issues:

I. Whether RA 6552 is applicable to an absolute sale of
land;

II. Whether Articles 1191 and 1592 of the Civil Code are
applicable to the present case;

III. Whether the spouses Ramos have a right to cancel the
sale;

IV. Whether the spouses Heruela have a right to damages.
[9]

The Ruling of the Court

The petition is partly meritorious.

The Agreement is a Contract to Sell

In its Decision, the trial court ruled on whether the contract made by the
parties is a conditional sale or a sale on installment. The spouses Ramos premise is
that since the trial court ruled that the contract is a sale on installment, the trial
court also in effect declared that the sale is an absolute sale. The spouses Ramos
allege that RA 6552 is not applicable to an absolute sale.

Article 1458 of the Civil Code provides that a contract of sale may be
absolute or conditional. A contract of sale is absolute when title to the property
passes to the vendee upon delivery of the thing sold.
[10]
A deed of sale is absolute
when there is no stipulation in the contract that title to the property remains with
the seller until full payment of the purchase price.
[11]
The sale is also absolute if
there is no stipulation giving the vendor the right to cancel unilaterally the contract
the moment the vendee fails to pay within a fixed period.
[12]
In a conditional sale,
as in a contract to sell, ownership remains with the vendor and does not pass to the
vendee until full payment of the purchase price.
[13]
The full payment of the
purchase price partakes of a suspensive condition, and non-fulfillment of the
condition prevents the obligation to sell from arising.
[14]

In this case, the agreement of the parties is embodied in a one-page,
handwritten document.
[15]
The document does not contain the usual terms and
conditions of a formal deed of sale. The original document, elevated to this Court
as part of the Records, is torn in part. Only the words LMENT BASIS is legible on
the title. The names and addresses of the parties and the identity of the property
cannot be ascertained. The agreement only provides for the following terms of the
sale:

TERM[S] OF SALE:

PRICE PER SQM P50.00 X 306 SQM
P 15,300.00
DOWN PAYMENT (TWO THOUSAND PESOS) 2,000.00
BALANCE PAYABLE AT MINIMUM OF P200.00 P 13,300.00
PER MONTH UNTIL FULLY PAID =======

In Manuel v. Rodriguez, et al.,
[16]
the Court ruled that to be a written
contract, all the terms must be in writing, so that a contract partly in writing and
partly oral is in legal effect an oral contract. The Court reiterated
the Manuel ruling in Alfonso v. Court of Appeals:
[17]

xxx In Manuel, only the price and the terms of payment were in
writing, but the most important matter in the controversy, the alleged
transfer of title was never reduced to any written document.[] It
was held that the contract should not be considered as a written but
an oral one; not a sale but a promise to sell; and that the absence of
a formal deed of conveyance was a strong indication that the parties
did not intend immediate transfer of title, but only a transfer after full
payment of the price. Under these circumstances, the Court ruled
Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code)
to be inapplicable to the contract in controversy a contract to sell or
promise to sell where title remains with the vendor until fulfillment
of a positive suspensive condition, such as full payment of the price x
x [x].

The records show that the spouses Heruela did not immediately take actual,
physical possession of the land. According to the spouses Ramos, in March 1981,
they allowed the niece of the spouses Heruela to occupy a portion of the land.
Indeed, the spouses Ramos alleged that they only discovered in June 1982 that the
spouses Heruela were already occupying the land. In their answer to the
complaint, the spouses Heruela and the spouses Pallori alleged that their
occupation of the land is lawful because having made partial payments of the
purchase price, they already considered themselves owners of the land.
[18]

Clearly, there was no transfer of title to the spouses Heruela. The spouses Ramos
retained their ownership of the land. This only shows that the parties did not
intend the transfer of ownership until full payment of the purchase price.

RA 6552 is the Applicable Law

The trial court did not err in applying RA 6552 to the present case.

Articles 1191
[19]
and 1592
[20]
of the Civil Code are applicable to contracts of
sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals,
[21]
the
Court declared:

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

Sections 3 and 4 of RA 6552 provide:

Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-
eight hundred forty-four as amended by Republic Act Numbered Sixty-
three hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned
by him, which is hereby fixed at the rate of one
month grace period for every one year of installment
payments made: Provided, That this right shall be
exercised by the buyer only once in every five years
of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund
to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent
of the total payments made and, after five years of
installments, an additional five per cent every year
but not to exceed ninety per cent of the total
payments made: Provided, That the actual
cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of
the cash surrender value to the buyer.

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

Sec. 4. In case where less than two years of installments
were paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due. If the
buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act.

In this case, the spouses Heruela paid less than two years of installments.
Thus, Section 4 of RA 6552 applies. However, there was neither a notice of
cancellation nor demand for rescission by notarial act to the spouses Heruela.
In Olympia Housing, Inc. v. Panasiatic Travel Corp.,
[22]
the Court ruled that
the vendor could go to court to demand judicial rescission in lieu of a notarial act of
rescission. However, an action for reconveyance is not an action for rescission.
The Court explained in Olympia:

The action for reconveyance filed by petitioner was predicated
on an assumption that its contract to sell executed in favor of
respondent buyer had been validly cancelled or rescinded. The records
would show that, indeed, no such cancellation took place at any time
prior to the institution of the action for reconveyance. xxx

xxx

xxx Not only is an action for reconveyance conceptually different from
an action for rescission but that, also, the effects that flow from an
affirmative judgment in either case would be materially dissimilar in
various respects. The judicial resolution of a contract gives rise to
mutual restitution which is not necessarily the situation that can arise
in an action for reconveyance. Additionally, in an action for rescission
(also often termed as resolution), unlike in an action for reconveyance
predicated on an extrajudicial rescission (rescission by notarial act),
the Court, instead of decreeing rescission, may authorize for a just
cause the fixing of a period.
[23]

In the present case, there being no valid rescission of the contract to sell,
the action for reconveyance is premature. Hence, the spouses Heruela have not
lost the statutory grace period within which to pay. The trial court should have
fixed the grace period to sixty days conformably with Section 4 of RA 6552.

The spouses Heruela are not entirely fault-free. They have been remiss in
performing their obligation. The trial court found that the spouses Heruela offered
once to pay the balance of the purchase price. However, the spouses Heruela did
not consign the payment during the pendency of the case. In the meanwhile, the
spouses Heruela enjoyed the use of the land.

For the breach of obligation, the court, in its discretion, and applying Article
2209 of the Civil Code,
[24]
may award interest at the rate of 6% per annum on the
amount of damages.
[25]
The spouses Heruela have been enjoying the use of the
land since 1982. In 1995, they allowed their daughter and son-in-law, the spouses
Pallori, to construct a house on the land. Under the circumstances, the Court
deems it proper to award interest at 6% per annum on the balance of the purchase
price.

The records do not show when the spouses Ramos made a demand from the
spouses Heruela for payment of the balance of the purchase price. The complaint
only alleged that the spouses Heruelas unjust refusal to pay in full the purchase
price xxx has caused the Deed of Conditional Sale to be rescinded, revoked and
annulled.
[26]
The complaint did not specify when the spouses Ramos made the
demand for payment. For purposes of computing the legal interest, the reckoning
period should be the filing on 27 January 1998 of the complaint for reconveyance,
which the spouses Ramos erroneously considered an action for rescission of the
contract.

The Court notes the reduction of the land area from 306 square meters to
282 square meters. Upon subdivision of the land, 24 square meters became part of
the road. However, Santiago Heruela expressed his willingness to pay for the 306
square meters agreed upon despite the reduction of the land area.
[27]
Thus, there
is no dispute on the amount of the purchase price even with the reduction of the
land area.

On the Award of Attorneys Fees and Litigation Expenses

The trial court ordered the spouses Ramos to pay the spouses Heruela
and the spouses Pallori the amount of P20,000 as attorneys fees
and P10,000 as litigation expenses. Article 2208
[28]
of the Civil Code provides that
subject to certain exceptions, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered in the absence of stipulation. None of the
enumerated exceptions applies to this case. Further, the policy of the law is to put
no premium on the right to litigate.
[29]
Hence, the award of attorneys fees and
litigation expenses should be deleted.

WHEREFORE, we AFFIRM the Decision dated 23 August 2000 of the
Regional Trial Court of Misamis Oriental, Branch 21, dismissing the complaint for
Recovery of Ownership with Damages, with the following MODIFICATION:

1. The spouses Heruela shall pay the spouses Ramos P11,300 as balance
of the purchase price plus interest at 6% per annum from 27 January
1998. The spouses Heruela shall pay within 60 days from finality of this
Decision;
2. Upon payment, the spouses Ramos shall execute a deed of absolute
sale of the land and deliver the certificate of title in favor of the spouses
Heruela;
3. In case of failure to thus pay within 60 days from finality of this
Decision, the spouses Heruela and the spouses Pallori shall immediately
vacate the premises without need of further demand, and the down
payment and installment payments of P4,000 paid by the spouses
Heruela shall constitute rental for the land;
4. The award of P20,000 as attorneys fees and P10,000 as litigation
expenses in favor of the spouses Heruela and the spouses Pallori is
deleted.

SO ORDERED.

SECOND DIVISION
[G.R. No. 158646. June 23, 2005]
HEIRS OF JESUS M. MASCUANA, represented by JOSE MA. R.
MASCUANA,petitioners, vs. COURT OF APPEALS, AQUILINO BARTE,
and SPOUSES RODOLFO and CORAZON LAYUMAS, respondents.
D E C I S I O N
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision
[1]
of the Court of
Appeals (CA) in CA-G.R. CV No. 53117 affirming the Decision
[2]
of the Regional Trial
Court (RTC) of San Carlos City, Negros Occidental, which ordered the dismissal of
the petitioners complaint for recovery of possession and damages.
The Antecedents
Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of
land identified as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre,
with an area of 1,729 square meters and covered by Transfer Certificate of Title
(TCT) No. 1453-R (T-29937)-38.
[3]
Over time, Gertrudis and two other co-owners
sold each of their one-seventh (1/7) shares, or a total area of 741 square meters,
to Jesus Mascuana. The latter then sold a portion of his 140-square-meter
undivided share of the property to Diosdado Sumilhig. Mascuana later sold an
additional 160-square-meter portion to Sumilhig on April 7, 1961. However, the
parties agreed to revoke the said deed of sale and, in lieu thereof, executed a Deed
of Absolute Sale on August 12, 1961. In the said deed, Mascuana, as vendor, sold
an undivided 469-square-meter portion of the property for P4,690.00,
with P3,690.00 as down payment, and under the following terms of payment:
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the
VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have
been surveyed in the name of the VENDEE and all papers pertinent and necessary
to the issuance of a separate Certificate of Title in the name of the VENDEE shall
have been prepared.
[4]

On December 31, 1961, Mascuana and Jose G. Estabillo executed a Deed of
Exchange and Absolute Sale of Real Estate,
[5]
in which Estabillo deeded to
Mascuana a portion of his property abutting that of Sumilhig on the southeast.
In the meantime, a survey was conducted for the co-owners of Lot No. 124 on
July 9, 1962. The subdivision plan of the said lot was approved by the Director of
Lands on August 2, 1962. The portion of the property deeded to Sumilhig was
identified in the said plan as Lot No. 124-B.
[6]

Meanwhile, Mascuana died intestate on April 20, 1965 and was survived by his
heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opea, Marilou Dy and Jose
Ma. R. Mascuana.
On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property
[7]
on a
portion of Lot No. 124-B with an area of 469 square meters and the improvements
thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo Layumas, for the
price of P11,000.00. The spouses Layumas then had the property subdivided into
two lots: Lot No. 124-B-2 with an area of 71 square meters under the name of
Jesus Mascuana, and Lot No. 124-B-1, with an area of 469 square meters under
their names.
[8]
The spouses Layumas took possession of the property and caused
the cutting of tall grasses thereon. Upon the plea of a religious organization, they
allowed a chapel to be constructed on a portion of the property.
[9]
In January 1985,
the spouses Layumas allowed Aquilino Barte to stay on a portion of the property to
ward off squatters.
[10]
Barte and his kin, Rostom Barte, then had their houses
constructed on the property.
On October 1, 1985, the spouses Layumas received a Letter
[11]
from the counsel
of Renee Tedrew, offering to buy their share of the property for US$1,000.00. For
her part, Corazon Layumas wrote Pepito Mascuana, offering to pay the amount
of P1,000.00, the balance of the purchase price of the property under the deed of
absolute sale executed by Mascuana and Sumilhig on August 12,
1961.
[12]
However, the addressee refused to receive the mail matter.
[13]

Unknown to the spouses Layumas, TCT No. 8986
[14]
was issued over Lot No.
124-B in the name of Jesus Mascuana on March 17, 1986.
On November 17, 1986, the heirs of Mascuana filed a Complaint
[15]
for
recovery of possession of Lot No. 124-B and damages with a writ of preliminary
injunction, alleging that they owned the subject lot by virtue of successional rights
from their deceased father. They averred that Barte surreptitiously entered the
premises, fenced the area and constructed a house thereon without their consent.
Attached as annexes to the complaint were TCT No. 8986 and a certification
[16]
from
the Office of the City Treasurer, Land Tax Division, vouching that the property in
question was owned by the petitioners and that they had paid the taxes thereon
until 1992.
In his answer to the complaint, Barte admitted having occupied a portion of Lot
No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the
owner of the subject property. He added that he did not fence the property, and
that the petitioners did not use the same as a passageway in going to Broce Street
from their house. Barte raised the following special defenses: (a) the petitioners
were estopped from asserting ownership over the lot in question because they did
not object when he occupied the said portion of the lot; (b) neither did the
petitioners protest when a church was built on the property, or when residential
houses were constructed thereon; (c) the petitioners still asked Barte and the other
occupants whether they had notified Rodolfo Layumas of the constructions on the
property; and (d) the heirs of Mascuana, through the lawyer of Mrs. Renee M.
Tedrew, even wrote a letter
[17]
to Rodolfo Layumas on October 1, 1985, expressing
her willingness to buy the subject property for US$1,000.00.
On April 8, 1991, the spouses Layumas filed a Motion for Leave to
Intervene,
[18]
alleging therein that they had a legal interest in Lot No. 124-B-1 as its
buyers from Sumilhig, who in turn purchased the same from Mascuana. In their
answer in intervention,
[19]
the spouses Layumas alleged that they were the true
owners of the subject property and that they had wanted to pay the taxes thereon,
but the Land Tax clerk refused to receive their payments on account that the
petitioners had already made such payment. The spouses Layumas further
maintained that the petitioners had no cause of action against Barte, as they had
authorized him to occupy a portion of Lot No. 124-B-1. The spouses Layumas also
averred that the petitioners were estopped from denying their right of ownership
and possession of the subject lot, as one of them had even offered to repurchase a
portion of Lot No. 124-B via letter. The said spouses interposed a counterclaim for
damages, claiming ownership over the property, and prayed, thus:
WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render
judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering:
1. That the complaint against Aquilino Barte be dismissed with costs
against the plaintiff;
2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A.
Layumas be declared as the legal and true owners of Lot 124-B;
3. That the plaintiffs should deliver immediately to the Intervenors, TCT
No. 8986 which is in their possession;
4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY
THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND
(P10,000.00) PESOS attorneys fees plus THREE HUNDRED (P300.00)
PESOS as appearance fee per hearing.
Intervenors pray for such other relief and remedies as may be deemed by this
Honorable Court as just and equitable in the premises.
At the trial, intervenor Rodolfo Layumas testified that he and his wife bought
the subject property in 1968, and that nobody objected to their possession of the
land, including the petitioners. In 1970, a religious organization asked his
permission to construct a chapel on the disputed lot; he allowed the construction
since the same would be used for the fiesta. He further declared that part of the
chapel still stood on the property. In 1985, a fire razed the towns public market,
thereby dislocating numerous people. Barte was one of the fire victims, who also
happened to be a good friend and political supporter of Rodolfo. Out of goodwill,
Barte was allowed to occupy a portion of the said lot, along with some other fire
victims. Rodolfo clarified that the others were to stay there only on a temporary
basis, but admitted that Bartes children also stayed in the subject property.
[20]

Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the
petitioners-heirs, Pepito Mascuana, requesting that the title of the lot be
transferred in Sumilhigs name so that they could likewise arrange for the
conveyance of the title in their names. Pepito failed to claim the letter, and
thereafter, filed a case of ejectment against Barte and Rodolfo Layumas brother-in-
law, Pepito Antonio. The case, the witness added, was dismissed as against the
two parties. Offered in evidence were the following: a Sworn Statement on the
Current and Fair Market Value of the Real Property issued in 1973 as required by
Presidential Decree No. 76, and tax receipts.
[21]

Rodolfo Layumas admitted on cross-examination that at the time they bought
the property from Sumilhig, the title was still in the possession of the Wuthrich
family. He added that he filed an adverse claim before the Register of Deeds of San
Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after the case
had already been filed in court. Lastly, the witness deposed that he did not fence
the property after buying the same, but that his brother-in-law constructed a coco-
lumber yard thereon upon his authority.
[22]

On January 30, 1996, the trial court rendered judgment in favor of Barte and
the spouses Layumas. Thefallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
Intervenors-counterclaimants and defendant and against plaintiffs-counterclaim
defendants ordering as follows:
1. The dismissal of the plaintiffs complaint with costs against them;
2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge
Rodolfo S. Layumas and Corazon A. Layumas:
(a) P10,000.00 for attorneys fees; and
(b) P30,000.00 as moral damages;
3. The plaintiffs, as counterclaim defendants, to comply with the above-
stated obligation of their late father, Mr. Jesus Mascuana, under the
Deed of Absolute Sale, Exh. 3, pp. 92-93, Exp., thru plaintiff Mr. Jose
Mascuana, including the desegragation (sic) survey to desegregate the
469-square-meter portion of said Lot No. 124-B, San Carlos Cadastre,
this province, sold to the late Diosdado Sumilhig, if the same has not yet
been done despite what has been said herein earlier to said effect, and
the execution of the Final Deed of Sale in their capacity as the heirs and
successors-in-interest of the late Mr. Jesus Mascuana, thru Mr. Jose
Mascuana, covering the 469-square-meter desegregated portion of said
Lot No. 124-B, within sixty (60) days counted from the finality of this
Decision, in favor of the Intervenors-spouses, after which the said
Intervenors-spouses shall pay them, thru Mr. Jose Mascuana,
the P1,000.00 balance due to them as successors-in-interest of the late
Mr. Jesus Mascuana;
4. In case plaintiffs fail to comply with what are herein ordered for them to
do, the Clerk of Court V of this Court to do all that they were to do as
herein ordered in the text and dispositive portion hereof, at the expense
of Intervenors spouses to be later reimbursed by plaintiffs, including the
desegragation (sic) survey of said 469-square-meter portion of said Lot
[No.] 124-B, San Carlos Cadastre, Negros Occidental, if the same has not
yet been done and the execution of the Final Deed of Sale on behalf of all
the plaintiffs as heirs and successors-in-interest of the late Mr. Jesus
Mascuana covering the said desegregated portion of 469 square meters
of the aforesaid lot, in favor of Intervenors spouses, to the end that
separate title therefor may be issued in their names, after they shall
have paid the P1,000.00 balance due plaintiffs under said Deed of
Absolute Sale, Exh. 3.
SO ORDERED.
[23]

Forthwith, the petitioners appealed the case to the CA, raising the following
issues of fact and law:
a. Whether or not the contract of alienation of Lot No. 124-B in favor of
Diosdado Sumilhig in 1961 was a contract to sell or a contract of sale;
b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in
favor of intervenor Corazon Layumas in 1968.
[24]

On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the
contract between the petitioners father and Sumilhig was one of sale. Foremost,
the CA explained, the contract was denominated as a Deed of Absolute Sale. The
stipulations in the contract likewise revealed the clear intention on the part of the
vendor (Mascuana) to alienate the property in favor of the vendee (Sumilhig). In
three various documents, the late Mascuana even made declarations that Sumilhig
was already the owner of the disputed land. The CA added that the admission may
be given in evidence against Mascuana and his predecessors-in-interest under
Section 26, Rule 130 of the Revised Rules on Evidence. As to the argument that
the contract between Mascuana and Sumilhig was not effective because it was
subject to a suspensive condition that did not occur, the CA ruled that the condition
referred to by the petitioners refers only to the payment of the balance of the
purchase price and not to the effectivity of the contract.
As to the petitioners contention that even if the contract were one of sale,
ownership cannot be transferred to Sumilhig because Mascuana was not yet the
owner of the lot at the time of the alleged sale, the appellate court ruled that the
registration of the land to be sold is not a prerequisite to a contract of sale.
The Present Petition
Aggrieved, the petitioners filed the instant petition for review on certiorari with
this Court, where the following lone legal issue was raised:
WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUANA IN FAVOR OF
DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?
[25]

We note that the original action of the petitioners against Aquilino Barte was
one for recovery of possession of Lot No. 124-B. With the intervention of the
respondents Rodolfo and Corazon Layumas who claimed ownership over the
property, and the acquiescence of the parties, evidence was adduced to prove who,
between the petitioners (as plaintiffs) and the respondents (as defendants-
intervenors) were the lawful owners of the subject property and entitled to its
possession.
The petitioners resolutely contend that the Deed of Absolute Sale dated August
12, 1961 between their father and Sumilhig was a mere contract to sell because at
the time of the said sale, the late Mascuana was not yet the registered owner of
Lot No. 124 or any of its portions. They assert that Sumilhig could not have
acquired any rights over the lot due to the fact that a person can only sell what he
owns or is authorized to sell, and the buyer can acquire no more than what the
seller can transfer legally. Finally, the petitioners insist that the document in
controversy was subject to a suspensive condition, not a resolutory condition, which
is a typical attribute of a contract of sale.
The petition is denied for lack of merit.
The issues raised by the petitioners in this case are factual, and under Rule 45
of the Rules of Court, only questions of law may be raised in this Court, the reason
being that this Court is not a trier of facts. It is not to re-examine the evidence on
record and to calibrate the same. Moreover, the findings and conclusions of the
trial court as affirmed by the CA are conclusive on the Court, absent of any
evidence that the trial court, as well as the CA ignored, misinterpreted and
misconstrued facts and circumstances of substance which, if considered, would alter
or reverse the outcome of the case.
[26]

We have reviewed the records and find no justification for a reversal or even a
modification of the assailed decision of the CA.
Even on the merits of the petition, the Court finds that the decision of the trial
court as well as the ruling of the CA are based on the evidence on record and the
applicable law.
The petitioners reiterated their pose that the deed of absolute sale over the
property executed by their father, Jesus Mascuana, as vendor, and Diosdado
Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert
that on its face, the contract appears to be a contract to sell, because the payment
of the P1,000.00 balance of the purchase price was subject to a suspensive
condition: the survey of the property, the segregation of the portion thereof subject
of the sale, and the completion of the documents necessary for the issuance of a
Torrens title over the property to and in the name of Sumilhig who was the
vendee. The petitioners assert that Sumilhig never paid the aforesaid amount to
the vendor; hence, the obligation of the latter and his predecessors-in-interest
(herein petitioners) to execute a final deed of sale never arose. As such, they aver,
title to the property remained reserved in the vendor and his heirs even after his
death. There was no need for the vendor to rescind the deed or collect the said
amount of P1,000.00 under Article 1191 of the New Civil Code because such a
remedy applies only to contracts of sale. The petitioners insist that Sumilhig never
acquired title over the property; he could not have transferred any title to the
respondents. Sumilhig could not have transferred that which he did not own.
The petitioners contention has no factual and legal bases.
The deed of absolute sale executed by Jesus Mascuana and Sumilhig,
provides, thus:
That the VENDOR is the true and absolute owner of a parcel of land known as Lot
No. 124 of the Cadastral Survey of San Carlos, situated at Broce Street and is free
from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of
Reg. of Deeds, Negros Occ.
That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED
NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in the
manner hereinafter stated, the VENDOR does hereby sell, transfer, cede and
convey, a portion of the above-described property containing an area of 469 square
meters, the sketch of which can be found at the back of this document and having
a frontage at Broce Street of around 14 meters, and from the Broce Street to the
interior on its Southwest side with a length of 30.9 meters, with a length of 24.8
meters on its Northeast side where it turned to the right with a length of 2.8 meters
and continuing to Northwest with a length of 6.72 meters, the backyard dimension
is 17.5 meters to the Northwest, unto the VENDEE, his heirs and assigns, by way of
Absolute Sale, upon the receipt of the down payment of THREE THOUSAND SIX
HUNDRED NINETY PESOS (P3,690.00), which is hereby acknowledged by the
VENDOR as received by him.
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the
VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have
been surveyed in the name of the VENDEE and all papers pertinent and necessary
to the issuance of a separate Certificate of Title in the name of the VENDEE shall
have been prepared.
The evidence on record shows that during the lifetime of vendor Jesus
Mascuana, and even after his death, his heirs, the petitioners herein,
unequivocably declared that Diosdado Sumilhig was the owner of the property
subject of this case, and that the respondents acquired title over the property,
having purchased the same via a deed of absolute sale from Diosdado Sumilhig.
Thus, on December 31, 1961, Jesus Mascuana and Jose Estabillo executed a Deed
of Exchange and Absolute Sale of Real Estate, in which both parties declared that
they were co-owners of portions of Lot No. 124 abutted by the property owned by
Diosdado Sumilhig.
[27]

In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land
Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf of
Jesus Mascuana, et al., it appears that Lot No. 124-B with an area of 540 square
meters belonged to Diosdado Sumilhig,
[28]
which is abutted by Lot No. 124-C,
owned by Jesus Mascuana.
On October 1, 1985, long after the death of Jesus Mascuana, one of his heirs,
petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas
offering to buy the property occupied by his overseer Aquilino Barte for
US$1,000.00:
ATTY. RODOLFO S. LAYUMAS
San Carlos City
Negros Occidental
Dear Atty. Layumas:
This has reference to the lot located at Broce Street, portions of which are presently
occupied by Mr. Barte.
Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to
offer the amount of $1,000.00 to buy your share of the said lot.
If you are amenable, kindly inform the undersigned for him to communicate [with]
Mrs. Tedrew in California.
Very truly yours,
(Sgd.)
SAMUEL SM LEZAMA
[29]

It was only after the respondents rejected the proposal of petitioner Renee
Tedrew that the petitioners secured title over the property on March 17, 1986 in the
name of Jesus Mascuana (already deceased at the time), canceling TCT No. 967
issued on July 6, 1962 under the name of Jesus Mascuana, who appears to be a
co-owner of Lot No. 124 with an undivided two-seventh (2/7) portion thereof.
[30]

While it is true that Jesus Mascuana executed the deed of absolute sale over
the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and
that it was only on July 6, 1962 that TCT No. 967 was issued in his name as one of
the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless
acquired ownership over the property. The deed of sale executed by Jesus
Mascuana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected
contract of sale over the property. It is settled that a perfected contract of sale
cannot be challenged on the ground of the non-transfer of ownership of the
property sold at that time of the perfection of the contract, since it is consummated
upon delivery of the property to the vendee. It is through tradition or delivery that
the buyer acquires ownership of the property sold. As provided in Article 1458 of
the New Civil Code, when the sale is made through a public instrument, the
execution thereof is equivalent to the delivery of the thing which is the object of the
contract, unless the contrary appears or can be inferred. The record of the sale
with the Register of Deeds and the issuance of the certificate of title in the name of
the buyer over the property merely bind third parties to the sale. As between the
seller and the buyer, the transfer of ownership takes effect upon the execution of a
public instrument covering the real property.
[31]
Long before the petitioners secured
a Torrens title over the property, the respondents had been in actual possession of
the property and had designated Barte as their overseer.
Article 1458 of the New 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.
Thus, there are three essential elements of sale, to wit:
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.
[32]

In this case, there was a meeting of the minds between the vendor and the
vendee, when the vendor undertook to deliver and transfer ownership over the
property covered by the deed of absolute sale to the vendee for the price
of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down
payment. The vendor undertook to have the property sold, surveyed and
segregated and a separate title therefor issued in the name of the vendee, upon
which the latter would be obliged to pay the balance of P1,000.00. There was no
stipulation in the deed that the title to the property remained with the vendor, or
that the right to unilaterally resolve the contract upon the buyers failure to pay
within a fixed period was given to such vendor. Patently, the contract executed by
the parties is a deed of sale and not a contract to sell. As the Court ruled in a
recent case:
In Dignos v. Court of Appeals (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 proviso 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)
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. In Peoples Industrial and Commercial
Corporation v. Court of Appeals, 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. Thus,
Art. 1477 provides that the ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof.
[33]

The condition in the deed that the balance of P1,000.00 shall be paid to the
vendor by the vendee as soon as the property sold shall have been surveyed in the
name of the vendee and all papers pertinent and necessary to the issuance of a
separate certificate of title in the name of the vendee shall have been prepared is
not a condition which prevented the efficacy of the contract of sale. It merely
provides the manner by which the total purchase price of the property is to be
paid. The condition did not prevent the contract from being in full force and effect:
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.
[34]

In a contract to sell, ownership is retained by a seller and is not to be
transferred to the vendee until full payment of the price. Such payment is a
positive suspensive condition, the failure of which is not a breach of contract but
simply an event that prevented the obligation from acquiring binding force.
[35]

It bears stressing that in a contract of sale, the non-payment of the price is a
resolutory condition which extinguishes the transaction that, for a time, existed and
discharges the obligation created under the transaction.
[36]
A seller cannot
unilaterally and extrajudicially rescind a contract of sale unless there is an express
stipulation authorizing it. In such case, the vendor may file an action for specific
performance or judicial rescission.
[37]

Article 1169 of the New Civil Code provides that 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 this case, the vendor
(Jesus Mascuana) failed to comply with his obligation of segregating Lot No. 124-B
and the issuance of a Torrens title over the property in favor of the vendee, or the
latters successors-in-interest, the respondents herein. Worse, petitioner Jose
Mascuana was able to secure title over the property under the name of his
deceased father.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
Costs against the petitioners.
SO ORDERED.

FIRST DIVISION
[G.R. No. 97347. July 6, 1999]
JAIME G. ONG, petitioner, vs. THE HONORABLE COURT OF APPEALS,
SPOUSES MIGUEL K. ROBLES and ALEJANDRO M.
ROBLES, respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari from the judgment rendered by
the Court of Appeals which, except as to the award of exemplary damages, affirmed
the decision of the Regional Trial Court of Lucena City, Branch 60, setting aside the
Agreement of Purchase and Sale entered into by herein petitioner and private
respondent spouses in Civil Case No. 85-85.
On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent
spouses Miguel K. Robles and Alejandra Robles, on the other hand, executed an
Agreement of Purchase and Sale respecting two parcels of land situated at Barrio
Puri, San Antonio, Quezon. The terms and conditions of the contract read:
1. That for and in consideration of the agreed purchase price of TWO MILLION
PESOS (P2,000,000.00), Philippine currency, the mode and manner of payment is
as follows:
A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as
verbally agreed by the parties, shall be broken down as follows:
1. P103,499.91 shall be paid, and as already paid by the BUYER to
the SELLERS on March 22, 1983, as stipulated under the Certification of
undertaking dated March 22, 1983 and covered by a check voucher of even date.
2. That the sum of P496,500.09 shall be paid directly by the BUYER to the
Bank of Philippine Islands to answer for the loan of the SELLERS which as of March
15, 1983 amounted to P537,310.10, and for the interest that may
accrued (sic) from March 15, 1983, up to the time said obligation of
the SELLERS with the said bank has been settled, provided however that the
amount in excess of P496,500.09, shall be chargeable from the time deposit of
the SELLERS with the aforesaid bank.
B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND
(P1,400,000.00) PESOS shall be paid by theBUYER to the SELLERS in four (4) equal
quarterly installments of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00),
the first to be due and payable on June 15, 1983, and every quarter thereafter,
until the whole amount is fully paid, by these presents promise to sell to said
BUYER the two (2) parcels of agricultural land including the rice mill and the
piggery which are the most notable improvements thereon, situated at Barangay
Puri, San Antonio Quezon, x x x.
2. That upon the payment of the total purchase price by
the BUYER the SELLERS bind themselves to deliver to the former a good and
sufficient deed of sale and conveyance for the described two (2) parcels of land,
free and clear from all liens and encumbrances.
3. That immediately upon the execution of this document, the SELLERS shall
deliver, surrender and transfer possession of the said parcels of land including all
the improvements that may be found thereon, to the BUYER, and the latter shall
take over from the SELLER the possession, operation, control and management of
the RICEMILL and PIGGERY found on the aforesaid parcels of land.
4. That all payments due and payable under this contract shall be effected in the
residence of the SELLERS located at Barangay Puri, San Antonio, Quezon unless
another place shall have been subsequently designated by both parties in writing.
x x x x x x x x x.
[1]

On May 15, 1983, petitioner Ong took possession of the subject parcels of land
together with the piggery, building, ricemill, residential house and other
improvements thereon.
Pursuant to the contract they executed, petitioner paid respondent spouses the
sum of P103,499.91
[2]
by depositing it with the United Coconut Planters
Bank. Subsequently, petitioner deposited sums of money with the Bank of
Philippine Islands (BPI),
[3]
in accordance with their stipulation that petitioner pay
the loan of respondents with BPI.
To answer for his balance of P1,400,000.00 petitioner issued four (4) post-
dated Metro Bank checks payable to respondent spouses in the amount of
P350,0000.00 each, namely: Check No. 157708 dated June 15, 1983,
[4]
Check No.
157709 dated September 15,1983,
[5]
Check No. 157710 dated December 15,
1983
[6]
and Check No. 157711 dated March 15, 1984.
[7]
When presented for
payment, however, the checks were dishonored due to insufficient funds. Petitioner
promised to replace the checks but failed to do so. To make matters worse, out of
the P496,500.00 loan of respondent spouses with the Bank of the Philippine
Islands, which petitioner, as per agreement, should have paid, petitioner only
managed to dole out no more than P393,679.60. When the bank threatened to
foreclose the respondent spouses mortgage, they sold three transformers of the
rice mill worth P51,411.00 to pay off their outstanding obligation with said bank,
with the knowledge and conformity of petitioner.
[8]
Petitioner, in return, voluntarily
gave the spouses authority to operate the rice mill.
[9]
He, however, continued to be
in possession of the two parcels of land while private respondents were forced to
use the rice mill for residential purposes.
On August 2, 1985, respondent spouses, through counsel, sent petitioner a
demand letter asking for the return of the properties. Their demand was left
unheeded, so, on September 2, 1985, they filed with the Regional Trial Court of
Lucena City, Branch 60, a complaint for rescission of contract and recovery of
properties with damages. Later, while the case was still pending with the trial
court, petitioner introduced major improvements on the subject properties by
constructing a complete fence made of hollow blocks and expanding the
piggery. These prompted the respondent spouses to ask for a writ of preliminary
injunction.
[10]
The trial court granted the application and enjoined petitioner from
introducing improvements on the properties except for repairs.
[11]

On June 1, 1989 the trial court rendered a decision, the dispositive portion of
which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered:
a) Ordering that the contract entered into by plaintiff spouses Miguel K. Robles and
Alejandra M. Robles and the defendant, Jaime Ong captioned Agreement
of Purchase and Sale, marked as Exhibit A set aside;
b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are
the subject matter of Exhibit A together with the improvements thereon to the
spouses Miguel K. Robles and Alejandro M. Robles;
c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to
Jaime Ong the sum of P497,179.51;
d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as
exemplary damages; and
e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles
and Alejandra Robles the sum of P20,000.00 as attorneys fees and litigation
expenses.
The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles for the
appointment of receivership is rendered moot and academic.
SO ORDERED.
[12]

From this decision, petitioner appealed to the Court of Appeals, which affirmed
the decision of the Regional Trial Court but deleted the award of exemplary
damages. In affirming the decision of the trial court, the Court of Appeals noted
that the failure of petitioner to completely pay the purchase price is a substantial
breach of his obligation which entitles the private respondents to rescind their
contract under Article 1191 of the New Civil Code. Hence, the instant petition.
At the outset, it must be stated that the issues raised by the petitioner are
generally factual in nature and were already passed upon by the Court of Appeals
and the trial court. Time and again, we have stated that it is not the function of
the Supreme Court to assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties to an appeal, particularly where, such as
in the case at bench, the findings of both the trial court and the appellate court on
the matter coincide. There is no cogent reason shown that would justify the court
to discard the factual findings of the two courts below and to superimpose its
own.
[13]

The only pertinent legal issues raised which are worthy of discussion are: (1)
whether the contract entered into by the parties may be validly rescinded under
Article 1191 of the New Civil Code; and (2) whether the parties had novated their
original contract as to the time and manner of payment.
Petitioner contends that Article 1191 of the New Civil Code is not applicable
since he has already paid respondent spouses a considerable sum and has therefore
substantially complied with his obligation. He cites Article 1383 instead, to the
effect that where specific performance is available as a remedy, rescission may not
be resorted to.
A discussion of the aforesaid articles is in order.
Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a
remedy granted by law to the contracting parties and even to third persons, to
secure the reparation of damages caused to them by a contract, even if this should
be valid, by restoration of things to their condition at the moment prior to the
celebration of the contract.
[14]
It implies a contract, which even if initially valid,
produces a lesion or a pecuniary damage to someone.
[15]

On the other hand, Article 1191 of the New Civil Code 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.
[16]
They are to be performed simultaneously such that the performance of
one is conditioned upon the simultaneous fulfillment of the other. Rescission of
reciprocal obligations under Article 1191 of the New Civil Code should be
distinguished from rescission of contracts under Article 1383. Although both
presuppose contracts validly entered into and subsisting and both require mutual
restitution when proper, they are not entirely identical.
While Article 1191 uses the term rescission, the original term which was used
in the old Civil Code, from which the article was based, was
resolution.
[17]
Resolution is a principal action which is based on breach of a party,
while rescission under Article 1383 is a subsidiary action limited to cases of
rescission for lesion under Article 1381 of the New Civil Code, which expressly
enumerates the following rescissible contracts:
1. Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one fourth of the value of the
things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
3. Those undertaken in fraud of creditors when the latter cannot in any
manner collect the claims due them;
4. Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants
or of competent judicial authority;
5. All other contracts specially declared by law to be subject to rescission.
Obviously, the contract entered into by the parties in the case at bar does not
fall under any of those mentioned by Article 1381. Consequently, Article 1383 is
inapplicable.
May the contract entered into between the parties, however, be rescinded
based on Article 1191?
A careful reading of the parties Agreement of Purchase and Sale shows that it
is in the nature of a contract to sell, as distinguished from a contract of sale. In a
contract of sale, the title to the property passes to the vendee upon the delivery of
the thing sold; while in a contract to sell, ownership is, by agreement, reserved in
the vendor and is not to pass to the vendee until full payment of the purchase
price.
[18]
In a contract to sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a breach, casual or serious, but a
situation that prevents the obligation of the vendor to convey title from acquiring
an obligatory force.
[19]

Respondents in the case at bar bound themselves to deliver a deed of absolute
sale and clean title covering the two parcels of land upon full payment by the buyer
of the purchase price of P2,000,000.00. This promise to sell was subject to the
fulfillment of the suspensive condition of full payment of the purchase price by the
petitioner. Petitioner, however, failed to complete payment of the purchase
price. The non-fulfillment of the condition of full payment rendered the contract to
sell ineffective and without force and effect. It must be stressed that the breach
contemplated in Article 1191 of the New Civil Code is the obligors failure to comply
with an obligation already extant, not a failure of a condition to render binding that
obligation.
[20]
Failure to pay, in this instance, is not even a breach but merely an
event which prevents the vendors obligation to convey title from acquiring binding
force.
[21]
Hence, the agreement of the parties in the case at bench may be set
aside, but not because of a breach on the part of petitioner for failure to complete
payment of the purchase price. Rather, his failure to do so brought about a
situation which prevented the obligation of respondent spouses to convey title from
acquiring an obligatory force.
Petitioner insists, however, that the contract was novated as to the manner and
time of payment.
We are not persuaded. Article 1292 of the New Civil Code states that, In order
that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
Novation is never presumed, it must be proven as a fact either by express
stipulation of the parties or by implication derived from an irreconcilable
incompatibility between the old and the new obligation.
[22]
Petitioner cites the
following instances as proof that the contract was novated: the retrieval of the
transformers from petitioners custody and their sale by the respondents to
MERALCO on the condition that the proceeds thereof be accounted for by the
respondents and deducted from the price of the contract; the take-over by the
respondents of the custody and operation of the rice mill; and the continuous and
regular withdrawals by respondent Miguel Robles of installment sums per vouchers
(Exhs. 8 to 47) on the condition that these installments be credited to
petitioners account and deducted from the balance of the purchase price.
Contrary to petitioners claim, records show that the parties never even
intended to novate their previous agreement. It is true that petitioner paid
respondents small sums of money amounting to P48,680.00, in contravention of
the manner of payment stipulated in their contract. These installments were,
however, objected to by respondent spouses, and petitioner replied that these
represented the interest of the principal amount which he owed them.
[23]
Records
further show that petitioner agreed to the sale of MERALCO transformers by private
respondents to pay for the balance of their subsisting loan with the Bank of
Philippine Islands. Petitioners letter of authorization reads:
x x x x x x x x x
Under this authority, it is mutually understood that whatever payment received
from MERALCO as payment to the transformers will be considered as partial
payment of the undersigneds obligation to Mr. and Mrs. Miguel K. Robles.
The same will be utilized as partial payment to existing loan with the Bank of
Philippine Islands.
It is also mutually understood that this payment to the Bank of Philippine Islands
will be reimbursed to Mr. and Mrs. Miguel K. Robles by the undersigned.
[Underscoring supplied]
[24]

It should be noted that while it was agreed that part of the purchase price in
the sum of P496,500.00 would be directly deposited by petitioner to the Bank of
Philippine Islands to answer for the loan of respondent spouses, petitioner only
managed to deposit P393,679.60. When the bank threatened to foreclose the
properties, petitioner apparently could not even raise the sum needed to forestall
any action on the part of the bank. Consequently, he authorized respondent
spouses to sell the three (3) transformers. However, although the parties agreed
to credit the proceeds from the sale of the transformers to petitioners obligation,
he was supposed to reimburse the same later to respondent spouses. This can only
mean that there was never an intention on the part of either of the parties to
novate petitioners manner of payment.
Petitioner contends that the parties verbally agreed to novate the manner of
payment when respondent spouses proposed to operate the rice mill on the
condition that they will account for its earnings. We find that this is
unsubstantiated by the evidence on record. The tenor of his letter dated August
12, 1984 to respondent spouses, in fact, shows that petitioner had a little
misunderstanding with respondent spouses whom he was evidently trying to
appease by authorizing them to continue temporarily with the operation of the rice
mill. Clearly, while petitioner might have wanted to novate the original agreement
as to his manner of payment, the records are bereft of evidence that respondent
spouses willingly agreed to modify their previous arrangement.
In order for novation to take place, the concurrence of the following requisites
is indispensable: (1) there must be a previous valid obligation; (2) there must be
an agreement of the parties concerned to a new contract; (3) there must be the
extinguishment of the old contract; and (4) there must be the validity of the new
contract.
[25]
The aforesaid requisites are not found in the case at bench. The
subsequent acts of the parties hardly demonstrate their intent to dissolve the old
obligation as a consideration for the emergence of the new one. We repeat to the
point of triteness, novation is never presumed, there must be an express intention
to novate.
As regards the improvements introduced by petitioner to the premises and for
which he claims reimbursement, we see no reason to depart from the ruling of the
trial court and the appellate court that petitioner is a builder in bad faith. He
introduced the improvements on the premises knowing fully well that he has not
paid the consideration of the contract in full and over the vigorous objections of
respondent spouses. Moreover, petitioner introduced major improvements on the
premises even while the case against him was pending before the trial court.
The award of exemplary damages was correctly deleted by the Court of Appeals
inasmuch as no moral, temperate, liquidated or compensatory damages in addition
to exemplary damages were awarded.
WHEREFORE, the decision rendered by the Court of Appeals is hereby
AFFIRMED with the MODIFICATION that respondent spouses are ordered to return
to petitioner the sum of P48,680.00 in addition to the amounts already
awarded. Costs against petitioner.
SO ORDERED.

THIRD DIVISION
[G.R. No. 103577. October 7, 1996]
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,
ANNABELLE C. GONZALES (for herself and on behalf of Floraida C.
Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A.
ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE
COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA
PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-
fact, respondents.
D E C I S I O N
MELO, J.:
The petition before us has its roots in a complaint for specific performance to
compel herein petitioners (except the last named, Catalina Balais Mabanag) to
consummate the sale of a parcel of land with its improvements located along
Roosevelt Avenue in Quezon City entered into by the parties sometime in January
1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this
wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter
referred to as Coronels) executed a document entitled Receipt of Down Payment
(Exh. A) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
------------------------------------------
P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of Quezon City, in the total amount
of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of
the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute
the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos
upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of the Fifty
Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and the latter will pay the
former the whole balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the Coronels
father was transferred in their names under TCT No. 327043 (Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043
to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for
One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter
has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A) with
Ramona by depositing the down payment paid by Concepcion in the bank in trust
for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific
performance against the Coronels and caused the annotation of a notice of lis
pendens at the back of TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim
covering the same property with the Registry of Deeds of Quezon City (Exh. F;
Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon
City) the parties agreed to submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered
their documentary evidence accordingly marked as Exhibits A through J,
inclusive of their corresponding submarkings. Adopting these same exhibits as
their own, then defendants (now petitioners) accordingly offered and marked them
as Exhibits 1 through 10, likewise inclusive of their corresponding
submarkings. Upon motion of the parties, the trial court gave them thirty (30)
days within which to simultaneously submit their respective memoranda, and an
additional 15 days within which to submit their corresponding comment or reply
thereto, after which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo
Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of
Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from
his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as
follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a deed of absolute sale covering that
parcel of land embraced in and covered by Transfer Certificate of Title No. 327403
(now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all
the improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and
upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance
of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of
Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor
is hereby canceled and declared to be without force and effect. Defendants and
intervenor and all other persons claiming under them are hereby ordered to vacate
the subject property and deliver possession thereof to plaintiffs. Plaintiffs claim for
damages and attorneys fees, as well as the counterclaims of defendants and
intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new presiding
judge of the Quezon City RTC but the same was denied by Judge Estrella T.
Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the
following reasons: (1) The instant case became submitted for decision as of April
14, 1988 when the parties terminated the presentation of their respective
documentary evidence and when the Presiding Judge at that time was Judge
Reynaldo Roura. The fact that they were allowed to file memoranda at some future
date did not change the fact that the hearing of the case was terminated before
Judge Roura and therefore the same should be submitted to him for decision; (2)
When the defendants and intervenor did not object to the authority of Judge
Reynaldo Roura to decide the case prior to the rendition of the decision, when they
met for the first time before the undersigned Presiding Judge at the hearing of a
pending incident in Civil Case No. Q-46145 on November 11, 1988, they were
deemed to have acquiesced thereto and they are now estopped from questioning
said authority of Judge Roura after they received the decision in question which
happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was
merely a Judge-on-detail at this Branch of the Court, he was in all respects the
Presiding Judge with full authority to act on any pending incident submitted before
this Court during his incumbency. When he returned to his Official Station at
Macabebe, Pampanga, he did not lose his authority to decide or resolve cases
submitted to him for decision or resolution because he continued as Judge of the
Regional Trial Court and is of co-equal rank with the undersigned Presiding
Judge. The standing rule and supported by jurisprudence is that a Judge to whom
a case is submitted for decision has the authority to decide the case
notwithstanding his transfer to another branch or region of the same court (Sec. 9,
Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the
undersigned Presiding Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge dated March
20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the
Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its
decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last
pleading, private respondents Reply Memorandum, was filed on September 15,
1993. The case was, however, re-raffled to undersigned ponenteonly on August
28, 1996, due to the voluntary inhibition of the Justice to whom the case was last
assigned.
While we deem it necessary to introduce certain refinements in the disquisition
of respondent court in the affirmance of the trial courts decision, we definitely find
the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the
other issues in the case at bar is the precise determination of the legal significance
of the document entitled Receipt of Down Payment which was offered in evidence
by both parties. There is no dispute as to the fact that the said document
embodied the binding contract between Ramona Patricia Alcaraz on the one hand,
and the heirs of Constancio P. Coronel on the other, pertaining to a particular house
and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of
the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some
service.
While, it is the position of private respondents that the Receipt of Down
Payment embodied a perfected contract of sale, which perforce, they seek to
enforce by means of an action for specific performance, petitioners on their part
insist that what the document signified was a mere executory contract to sell,
subject to certain suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract could not possibly
ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is brought about by
the way each interprets the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and admissible evidence may be
available on record, this Court, as were the courts below, is now called upon to
adjudge what the real intent of the parties was at the time the said document was
executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by
mere consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking. In a contract to sell,
the prospective seller 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 Roque vs. Lapuz (96 SCRA 741
[1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to
pass until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach, casual or serious, but simply an
event that prevented the obligation of the vendor to convey title from acquiring
binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, the prospective sellers 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 of the promise is supported by a
consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition, because
in a conditional contract of sale, the first element of consent is present, although it
is conditioned upon the happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the perfection of the contract of
sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals,
133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had already been previous
delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act
having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is
the full payment of the purchase price, ownership will not automatically transfer to
the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional
contract of sale specially in cases where the subject property is sold by the owner
not to the party the seller contracted with, but to a third person, as in the case at
bench. In a contract to sell, there being no previous sale of the property, a third
person buying such property despite the fulfillment of the suspensive condition such
as the full payment of the purchase price, for instance, cannot be deemed a buyer
in bad faith and the prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the property will transfer to
the buyer after registration because there is no defect in the owner-sellers title per
se, but the latter, of course, may be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will definitely affect the
sellers title thereto. In fact, if there had been previous delivery of the subject
property, the sellers 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
sellers 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
buyers title. In case a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners and private
respondents.
It is a canon in the interpretation of contracts that the words used therein
should be given their natural and ordinary meaning unless a technical meaning was
intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners
declared in the said Receipt of Down Payment that they --
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by
TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount
ofP1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the
natural and ordinary idea conveyed is that they sold their property.
When the Receipt of Down payment is considered in its entirety, it becomes
more manifest that there was a clear intent on the part of petitioners to transfer
title to the buyer, but since the transfer certificate of title was still in the name of
petitioners father, they could not fully effect such transfer although the buyer was
then willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in
their names from that of their father, after which, they promised to present said
title, now in their names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein
made no express reservation of ownership or title to the subject parcel of
land. Furthermore, the circumstance which prevented the parties from entering
into an absolute contract of sale pertained to the sellers themselves (the certificate
of title was not in their names) and not the full payment of the purchase
price. Under the established facts and circumstances of the case, the Court may
safely presume that, had the certificate of title been in the names of petitioners-
sellers at that time, there would have been no reason why an absolute contract of
sale could not have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not
merely promise to sell the property to private respondent upon the fulfillment of the
suspensive condition. On the contrary, having already agreed to sell the subject
property, they undertook to have the certificate of title change to their names and
immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers,
after compliance by the buyer with certain terms and conditions, promised to sell
the property to the latter. What may be perceived from the respective
undertakings of the parties to the contract is that petitioners had already agreed to
sell the house and lot they inherited from their father, completely willing to transfer
ownership of the subject house and lot to the buyer if the documents were then in
order. It just so happened, however, that the transfer certificate of title was then
still in the name of their father. It was more expedient to first effect the change in
the certificate of title so as to bear their names. That is why they undertook to
cause the issuance of a new transfer of the certificate of title in their names upon
receipt of the down payment in the amount of P50,000.00. As soon as the new
certificate of title is issued in their names, petitioners were committed to
immediately execute the deed of absolute sale. Only then will the obligation of the
buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly
entered into so as to protect the seller against a buyer who intends to buy the
property in installment by withholding ownership over the property until the buyer
effects full payment therefor, in the contract entered into in the case at bar, the
sellers were the ones who were unable to enter into a contract of absolute sale by
reason of the fact that the certificate of title to the property was still in the name of
their father. It was the sellers in this case who, as it were, had the impediment
which prevented, so to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is
that when the said Receipt of Down Payment was prepared and signed by
petitioners Romulo A. Coronel, et. al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to the successful transfer of
the certificate of title from the name of petitioners father, Constancio P. Coronel, to
their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled
on February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the conditional
contract of sale between petitioners and private respondent Ramona P. Alcaraz
became obligatory, the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed of absolute sale in a
public instrument, which petitioners unequivocally committed themselves to do as
evidenced by the Receipt of Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly
applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioners names was fulfilled on February 6, 1985, the
respective obligations of the parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to present the transfer
certificate of title already in their names to private respondent Ramona P. Alcaraz,
the buyer, and to immediately execute the deed of absolute sale, while the buyer
on her part, was obliged to forthwith pay the balance of the purchase price
amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their
petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer
in our names from our deceased father Constancio P. Coronel, the
transfer certificate of title immediately upon receipt of the downpayment
above-stated". The sale was still subject to this suspensive
condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale
subject to a suspensive condition. Only, they contend, continuing in the same
paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring
the title to the property under their names, there could be no perfected contract of
sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of the
Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling
than these mere hypothetical arguments is the fact that the condition herein
referred to was actually and indisputably fulfilled on February 6, 1985,
when a new title was issued in the names of petitioners as evidenced by TCT No.
327403 (Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as Receipt of Down Payment (Exh. A; Exh. 1), the
parties entered into a contract of sale subject to the suspensive condition that the
sellers shall effect the issuance of new certificate title from that of their fathers
name to their names and that, on February 6, 1985, this condition was fulfilled
(Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which pertinently
provides -
Art. 1187. The effects of conditional obligation to give, once the condition has
been fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of
sale became mutually due and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19,
1985 because they were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property,
rights and obligations to the extent and value of the inheritance of a person are
transmitted through his death to another or others by his will or by operation of
law.
Petitioners-sellers in the case at bar being the sons and daughters of the
decedent Constancio P. Coronel are compulsory heirs who were called to succession
by operation of law. Thus, at the point their father drew his last breath, petitioners
stepped into his shoes insofar as the subject property is concerned, such that any
rights or obligations pertaining thereto became binding and enforceable upon
them. It is expressly provided that rights to the succession are transmitted from
the moment of death of the decedent (Article 777, Civil Code; Cuison vs.
Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession may not be declared
unless the creditors have been paid is rendered moot by the fact that they were
able to effect the transfer of the title to the property from the decedents name to
their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of
capacity to enter into an agreement at that time and they cannot be allowed to now
take a posture contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly
states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon.
Having represented themselves as the true owners of the subject property at the
time of sale, petitioners cannot claim now that they were not yet the absolute
owners thereof at that time.
Petitioners also contend that although there was in fact a perfected contract of
sale between them and Ramona P. Alcaraz, the latter breach her reciprocal
obligation when she rendered impossible the consummation thereof by going to the
United States of America, without leaving her address, telephone number, and
Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
petitioners conclude, they were correct in unilaterally rescinding the contract of
sale.
We do not agree with petitioners that there was a valid rescission of the
contract of sale in the instant case. We note that these supposed grounds for
petitioners rescission, are mere allegations found only in their responsive
pleadings, which by express provision of the rules, are deemed controverted even if
no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The
records are absolutely bereft of any supporting evidence to substantiate petitioners
allegations. We have stressed time and again that allegations must be proven by
sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De
Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on February 6, 1985, we cannot justify petitioners-sellers act of
unilaterally and extrajudicially rescinding the contract of sale, there being no
express stipulation authorizing the sellers to extrajudicially rescind the contract of
sale. (cf.Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132
SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona
P. Alcaraz because although the evidence on record shows that the sale was in the
name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramonas mother, who had acted for and in behalf of her
daughter, if not also in her own behalf. Indeed, the down payment was made by
Concepcion D. Alcaraz with her own personal Check (Exh. B; Exh. 2) for and in
behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever
questioned Concepcions authority to represent Ramona P. Alcaraz when they
accepted her personal check. Neither did they raise any objection as regards
payment being effected by a third person. Accordingly, as far as petitioners are
concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind
the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar
as her obligation to pay the full purchase price is concerned. Petitioners who are
precluded from setting up the defense of the physical absence of Ramona P. Alcaraz
as above-explained offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their names and signified their
willingness and readiness to execute the deed of absolute sale in accordance with
their agreement. Ramonas corresponding obligation to pay the balance of the
purchase price in the amount of P1,190,000.00 (as buyer) never became due and
demandable and, therefore, she cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving
reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
x x x
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfill his obligation,
delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale
between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will
apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof to the person
who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25,
1985 as proof of the second contract of sale was registered with the Registry of
Deeds of Quezon City giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of
Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to
the buyer, the exceptions being: (a) when the second buyer, in good faith,
registers the sale ahead of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good faith, acquires possession
of the property ahead of the first buyer. Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the prejudice of the first
buyer.
In his commentaries on the Civil Code, an accepted authority on the subject,
now a distinguished member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first
buyers rights except when the second buyer first registers in good faith the second
sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the
second buyer of the first sale defeats his rights even if he is first to register, since
knowledge taints his registration with bad faith (see also Astorga vs. Court of
Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No.
56232, 22 June 1984, 129 SCRA 656), it was held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second realty buyer must act in
good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69
SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was
annotated on the title of the subject property only on February 22, 1985, whereas,
the second sale between petitioners Coronels and petitioner Mabanag was
supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is
that at the time petitioner Mabanag, the second buyer, bought the property under a
clean title, she was unaware of any adverse claim or previous sale, for which reason
she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or
not the second buyer in good faith but whether or not said second buyer registers
such second sale in good faith, that is, without knowledge of any defect in the title
of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not
have in good faith, registered the sale entered into on February 18, 1985 because
as early as February 22, 1985, a notice of lis pendens had been annotated on the
transfer certificate of title in the names of petitioners, whereas petitioner Mabanag
registered the said sale sometime in April, 1985. At the time of registration,
therefore, petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged with
knowledge that a previous buyer is claiming title to the same property. Petitioner
Mabanag cannot close her eyes to the defect in petitioners title to the property at
the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired knowledge that
there was a previous sale of the same property to a third party or that another
person claims said property in a previous sale, the registration will constitute a
registration in bad faith and will not confer upon him any right. (Salvoro vs.
Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146;
Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P.
Alcaraz, perfected on February 6, 1985, prior to that between petitioners and
Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts
below.
Although there may be ample indications that there was in fact an agency
between Ramona as principal and Concepcion, her mother, as agent insofar as the
subject contract of sale is concerned, the issue of whether or not Concepcion was
also acting in her own behalf as a co-buyer is not squarely raised in the instant
petition, nor in such assumption disputed between mother and daughter. Thus, We
will not touch this issue and no longer disturb the lower courts ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED
and the appealed judgment AFFIRMED.
SO ORDERED.

Supreme Court
Manila

THIRD DIVISION

JULIE NABUS,
*
MICHELLE
NABUS
*
and BETTY TOLERO,
Petitioners,

- versus -

JOAQUIN PACSON and JULIA
PACSON,
Respondents.
G.R. No. 161318

Present:

CORONA, J., Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:
November 25, 2009
x-----------------------------------------------------------------------------------------x

D E C I S I O N

PERALTA, J.:

This is a petition for review on certiorari
[1]
of the Decision
[2]
of the
Court of Appeals in CA-G.R. CV No. 44941 dated November 28, 2003. The Court of
Appeals affirmed with modification the Decision of the Regional Trial Court of La
Trinidad, Benguet, Branch 10, ordering petitioner Betty Tolero to execute a deed of
absolute sale in favor of respondents, spouses Joaquin and Julia Pacson, over the
lots covered by Transfer Certificate of Title (TCT) Nos. T-18650 and T-18651 upon
payment to her by respondents of the sum of P57,544.[8]4 representing the
balance due for the full payment of the property subject of this case; and
ordering petitioner Betty Tolero to surrender to respondents her owners duplicate
copy of TCT Nos. T-18650 and T-18651.

The facts, as stated by the trial court,
[3]
are as follows:

The spouses Bate and Julie Nabus were the owners of parcels of land with a
total area of 1,665 square meters, situated in Pico, La Trinidad, Benguet, duly
registered in their names under TCT No. T-9697 of the Register of Deeds of
the Province of Benguet. The property was mortgaged by the Spouses Nabus to
the Philippine National Bank (PNB), La Trinidad Branch, to secure a loan in the
amount of P30,000.00.

On February 19, 1977, the Spouses Nabus executed a Deed of Conditional
Sale
[4]
covering 1,000 square meters of the 1,665 square meters of land in favor
of respondents Spouses Pacson for a consideration of P170,000.00, which was duly
notarized on February 21, 1977. The consideration was to be paid, thus:

THAT, the consideration of the amount of P170,000.00 will be
paid by the VENDEE herein in my favor in the following manner:

a. That the sum of P13,000.00, more or less, on or
before February 21, 1977 and which amount will be paid
directly to the PNB, La Trinidad Branch, and which will form
part of the purchase price;

b. That after paying the above amount to the PNB, La
Trinidad, Benguet branch, a balance of aboutP17,500.00
remains as my mortgage balance and this amount will be
paid by the VENDEE herein at the rate of not less
than P3,000.00 a month beginning March 1977, until the
said mortgage balance is fully liquidated, and that all
payments made by the VENDEE to the PNB, La Trinidad,
Benguet branch, shall form part of the consideration of this
sale;

c. That, as soon as the mortgage obligation with the PNB as
cited above is fully paid, then theVENDEE herein hereby
obligates himself, his heirs and assigns, to pay the amount of
not less thanP2,000.00 a month in favor of the VENDOR, his
heirs and assigns, until the full amount ofP170,000.00 is fully
covered (including the payments cited in Pars. a and b
above);

THAT, as soon as the full consideration of this sale has been
paid by the VENDEE, the corresponding transfer documents shall be
executed by the VENDOR to the VENDEE for the portion sold;

THAT, the portion sold is as shown in the simple sketch hereto
attached as Annex "A" and made part hereof;

THAT, a segregation survey for the portion sold in favor of the
VENDEE and the portion remaining in favor of the VENDOR shall be
executed as soon as possible, all at the expense of the VENDEE
herein;
THAT, it is mutually understood that in as much as there is a
claim by other persons of the entire property of which the portion
subject of this Instrument is only a part, and that this claim is now the
subject of a civil case now pending before Branch III of the Court of
First Instance of Baguio and Benguet, should the VENDOR herein be
defeated in the said civil action to the end that he is divested of title
over the area subject of this Instrument, then he hereby warrants that
he shall return any and all monies paid by the VENDEE herein whether
paid to the PNB, La Trinidad, Benguet Branch, or directly received by
herein VENDOR, all such monies to be returned upon demand by the
VENDEE;
THAT, [a] portion of the parcel of land subject of this instrument
is presently in the possession of Mr. Marcos Tacloy, and the VENDOR
agrees to cooperate and assist in any manner possible in the ouster of
said Mr. Marcos Tacloy from said possession and occupation to the end
that the VENDEE herein shall make use of said portion as soon as is
practicable;

THAT, finally, the PARTIES hereby agree that this Instrument
shall be binding upon their respective heirs, successors or assigns.
[5]

Pursuant to the Deed of Conditional Sale, respondents paid PNB the amount
of P12,038.86 on February 22, 1977
[6]
and P20,744.30 on July 17, 1978
[7]
for the
full payment of the loan.

At the time of the transaction, Mr. Marcos Tacloy had a basket-making shop
on the property, while the spouses Delfin and Nelita Flores had a store. Tacloy
and the Spouses Flores vacated the property after respondents paid
them P4,000.00 each.

Thereafter, respondents took possession of the subject property. They
constructed an 80 by 32-feet building and a steel-matting fence around the
property to house their truck body-building shop which they called the Emiliano
Trucking Body Builder and Auto Repair Shop.

On December 24, 1977, before the payment of the balance of the mortgage
amount with PNB, Bate Nabus died. On August 17, 1978, his surviving spouse,
Julie Nabus, and their minor daughter, Michelle Nabus, executed a Deed of Extra
Judicial Settlement over the registered land covered by TCT No. 9697. On the
basis of the said document, TCT No. T- 17718
[8]
was issued on February 17,
1984 in the names of Julie Nabus and Michelle Nabus.

Meanwhile, respondents continued paying their balance, not in installments
of P2,000.00 as agreed upon, but in various, often small amounts ranging from as
low as P10.00
[9]
to as high asP15,566.00,
[10]
spanning a period of almost seven
years, from March 9, 1977
[11]
to January 17, 1984.
[12]

There was a total of 364 receipts of payment,
[13]
which receipts were mostly
signed by Julie Nabus, who also signed as Julie Quan when she remarried. The
others who signed were Bate Nabus; PNB, La Trinidad Branch; Maxima Nabus;
Sylvia Reyes; Michelle Nabus and the second husband of Julie Nabus, Gereon
Quan. Maxima Nabus is the mother of Bate Nabus, while Sylvia Reyes is a niece.
The receipts showed that the total sum paid by respondents to the Spouses
Nabus wasP112,455.16,
[14]
leaving a balance of P57,544.84. The sum
of P30,000.00 which was the value of the pick-up truck allegedly sold and delivered
in 1978 to the Spouses Nabus, was not considered as payment because the
registration papers remained in the name of its owner, Dominga D. Pacson, who is
the sister of Joaquin Pacson. The vehicle was also returned to respondents.

During the last week of January 1984, Julie Nabus, accompanied by her
second husband, approached Joaquin Pacson to ask for the full payment of the
lot. Joaquin Pacson agreed to pay, but told her to return after four days as his
daughter, Catalina Pacson, would have to go over the numerous receipts to
determine the balance to be paid. When Julie Nabus returned after four days,
Joaquin sent her and his daughter, Catalina, to Atty. Elizabeth Rillera for the
execution of the deed of absolute sale. Since Julie was a widow with a minor
daughter, Atty. Rillera required Julie Nabus to return in four days with the
necessary documents, such as the deed of extrajudicial settlement, the transfer
certificate of title in the names of Julie Nabus and minor Michelle Nabus, and the
guardianship papers of Michelle. However, Julie Nabus did not return.

Getting suspicious, Catalina Pacson went to the Register of Deeds of
the Province of Benguetand asked for a copy of the title of the land. She found
that it was still in the name of Julie and Michelle Nabus.

After a week, Catalina Pacson heard a rumor that the lot was already sold
to petitioner Betty Tolero. Catalina Pacson and Atty. Rillera went to the Register of
Deeds of the Province of Benguet, and found that Julie Nabus and her minor
daughter, Michelle Nabus, represented by the formers mother as appointed
guardian by a court order dated October 29, 1982, had executed a Deed of
Absolute Sale in favor of Betty Tolero on March 5, 1984, covering the whole lot
comprising 1,665 square meters.
[15]
The property was described in the deed of
sale as comprising four lots: (1) Lot A-2-A, with an area of 832 square meters;
(2) Lot A-2-B, 168 square meters; (3) Lot A-2-C, 200 square meters; and (4) Lot
A-2-D, 465 square meters. Lots A-2-A and A-2-B, with a combined area of 1,000
square meters, correspond to the lot previously sold to Joaquin and Julia Pacson in
the Deed of Conditional Sale.

Catalina Pacson and Atty. Rillera also found that the Certificate of Title over
the property in the name of Julie and Michelle Nabus was cancelled on March 16,
1984, and four titles to the fours lots were issued in the name of Betty Tolero,
namely: TCT No. T-18650
[16]
for Lot A-2-A; TCT No. 18651
[17]
for Lot A-2-B; TCT
No. T-18652
[18]
for Lot A-2-C; and T-18653
[19]
for Lot A-2-D.

On March 22, 1984, the gate to the repair shop of the Pacsons was
padlocked. A sign was displayed on the property stating No Trespassing.
[20]

On March 26, 1984, Catalina Pacson filed an affidavit-complaint regarding
the padlocking incident of their repair shop with the police station at La Trinidad,
Benguet.

On March 28, 2008, respondents Joaquin and Julia Pacson filed with the
Regional Trial Court of La Trinidad, Benguet (trial court) a Complaint
[21]
for
Annulment of Deeds, with damages and prayer for the issuance of a writ of
preliminary injunction.
[22]
They sought the annulment of (1) the Extra-judicial
Settlement of Estate, insofar as their right to the 1,000-square-meter lot subject
of the Deed of Conditional Sale
[23]
was affected; (2) TCT No. T-17718 issued in
the names of Julie and Michelle Nabus; and (3) the Deed of Absolute Sale
[24]
in
favor of Betty Tolero and the transfer certificates of title issued pursuant
thereto. They also prayed for the award of actual, moral and exemplary damages,
as well as attorneys fees.

In their Answer,
[25]
Julie and Michelle Nabus alleged that respondent Joaquin
Pacson did not proceed with the conditional sale of the subject property when he
learned that there was a pending case over the whole property. Joaquin proposed
that he would rather lease the property with a monthly rental of P2,000.00
and apply the sum of P13,000.00 as rentals, since the amount was already paid to
the bank and could no longer be withdrawn. Hence, he did not affix his signature to
the second page of a copy of the Deed of Conditional Sale.
[26]
Julie Nabus alleged
that in March 1994, due to her own economic needs and those of her minor
daughter, she sold the property to Betty Tolero, with authority from the court.

During the hearing on the merits, Julie Nabus testified that she sold the
property to Betty Tolero because she was in need of money. She stated that she
was free to sell the property because the Deed of Conditional Sale executed in
favor of the Spouses Pacson was converted into a contract of lease. She claimed
that at the time when the Deed of Conditional Sale was being explained to them by
the notary public, Joaquin Pacson allegedly did not like the portion of the contract
stating that there was a pending case in court involving the subject
property. Consequently, Joaquin Pacson did not continue to sign the document;
hence, the second page of the document was unsigned.
[27]
Thereafter, it was
allegedly their understanding that the Pacsons would occupy the property as
lessees and whatever amount paid by them would be considered rentals.

Betty Tolero put up the defense that she was a purchaser in good faith and
for value. She testified that it was Julie Nabus who went to her house and offered
to sell the property consisting of two lots with a combined area of 1,000 square
meters. She consulted Atty. Aurelio de Peralta before she agreed to buy the
property. She and Julie Nabus brought to Atty. De Peralta the pertinent papers
such as TCT No. T-17718 in the names of Julie and Michelle Nabus, the
guardianship papers of Michelle Nabus and the blueprint copy of the survey plan
showing the two lots. After examining the documents and finding that the title
was clean, Atty. De Peralta gave her the go-signal to buy the property.

Tolero testified that upon payment of the agreed price of P200,000.00, the
Deed of Absolute Sale was executed and registered, resulting in the cancellation of
the title of Julie and Michelle Nabus and the issuance in her name of TCT Nos. T-
18650 and T-18651
[28]
corresponding to the two lots. Thereafter, she asked her
common-law husband, Ben Ignacio, to padlock the gate to the property and hang
the No Trespassing sign.

Tolero also testified that as the new owner, she was surprised and shocked
to receive the Complaint filed by the Spouses Pacson. She admitted that she knew
very well the Spouses Pacson, because they used to buy vegetables regularly from
her. She had been residing along the highway at Kilometer 4, La Trinidad, Benguet
since 1971. She knew the land in question, because it was only 50 meters away
across the highway. She also knew that the Spouses Pacson had a shop on the
property for the welding and body-building of vehicles. She was not aware of the
Deed of Conditional Sale executed in favor of the Pacsons, and she saw the
document for the first time when Joaquin Pacson showed it to her after she had
already bought the property and the title had been transferred in her name. At the
time she was buying the property, Julie Nabus informed her that the Pacsons were
merely renting the property. She did not bother to verify if that was true, because
the Pacsons were no longer in the property for two years before she bought it.

In a Decision dated September 30, 1993, the trial court ruled in favor of
respondents. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiffs, ordering defendant Betty Tolero to
execute a deed of absolute sale in favor of the Spouses Joaquin and
Julia Pacson over the lots covered by Transfer Certificates of Title Nos.
T-18650 and T-18651 upon payment to her by the plaintiffs of the sum
of P57,544.[8]4 representing the balance due for the full payment of
the property subject of this case. In addition to the execution of a
deed of absolute sale, defendant Betty Tolero shall surrender to the
plaintiffs her owners duplicate copy of Transfer Certificates of Title
Nos. T-18650 and T-18651.
Defendants Julie Nabus, Michelle Nabus, and Betty Tolero shall
also pay the plaintiffs damages as follows: P50,000.00 for moral
damages; P20,000.00 for exemplary damages; and P10,000.00 for
attorneys fees and expenses for litigation.
[29]

Two issues determined by the trial court were: (1) Was the Deed
of Conditional Sale between the Spouses Pacson and the Nabuses converted into a
contract of lease? and (2) Was Betty Tolero a buyer in good faith?

The trial court held that the Deed of Conditional Sale was not converted into
a contract of lease because the original copy of the contract
[30]
showed that all the
pages were signed by all the parties to the contract. By the presumption of
regularity, all other carbon copies must have been duly signed. The failure of
Joaquin Pacson to sign the second page of one of the carbon copies of the contract
was by sheer inadvertence. The omission was of no consequence since the
signatures of the parties in all the other copies of the contract were
complete. Moreover, all the receipts of payment expressly stated that they were
made in payment of the lot. Not a single receipt showed payment for rental.

Further, the trial court held that Betty Tolero was not a purchaser in good
faith as she had actual knowledge of the Conditional Sale of the property to the
Pacsons.

The trial court stated that the Deed of Conditional Sale contained reciprocal
obligations between the parties, thus:

THAT, as soon as the full consideration of this sale has been
paid by the VENDEE, the corresponding transfer documents shall be
executed by the VENDOR to the VENDEE for the portion sold;

x x x x

THAT, finally, the PARTIES hereby agree that this Instrument
shall be binding upon their respective heirs, successors or assigns.
[31]

In other words, the trial court stated, when the vendees (the Spouses
Pacson) were already ready to pay their balance, it was the corresponding
obligation of the vendors (Nabuses) to execute the transfer documents.

The trial court held that [u]nder Article 1191 of the Civil Code, an injured
party in a reciprocal obligation, such as the Deed of Conditional Sale in the case at
bar, may choose between the fulfillment [or] the rescission of the obligation, with
the payment of damages in either case. It stated that in filing the case, the
Spouses Pacson opted for fulfillment of the obligation, that is, the execution of the
Deed of Absolute Sale in their favor upon payment of the purchase price.

Respondents appealed the decision of the trial court to the Court of Appeals.

In the Decision dated November 28, 2003, the Court of Appeals affirmed the
trial courts decision, but deleted the award of attorneys fees. The dispositive
portion of the Decision reads:

WHEREFORE, finding no reversible error in the September 30,
1993 Decision of the Regional Trial Court of La Trinidad, Benguet,
Branch 10, in Civil Case No. 84-CV-0079, the instant appeal is hereby
DISMISSED for lack of merit, and the assailed Decision is hereby
AFFIRMED and UPHELD with the modification that the award of
attorneys fees is deleted.
[32]

Petitioners filed this petition raising the following issues:

I
THE [COURT OF APPEALS] ERRED IN CONSIDERING THE
CONTRACT ENTERED INTO BETWEEN THE SPOUSES BATE NABUS AND
JULIE NABUS AND SPOUSES JOAQUIN PACSON AND JULIA PACSON TO
BE A CONTRACT OF SALE.

II
THE COURT A QUO ERRED IN FINDING THAT THERE ARE ONLY
TWO ISSUES IN THE CASE ON APPEAL AND THEY ARE: WHETHER THE
DEED OF CONDITIONAL SALE WAS CONVERTED INTO A CONTRACT OF
LEASE; AND THAT [WHETHER] PETITIONER BETTY TOLERO WAS A
BUYER IN GOOD FAITH.

III
THAT THE TRIAL COURT ERRED IN HOLDING THAT
[RESPONDENTS] BALANCE TO THE SPOUSES NABUS UNDER THE
CONDITIONAL SALE IS ONLY P57,544.[8]4.

IV
THAT ASSUMING WITHOUT ADMITTING THAT PETITIONER
BETTY TOLERO WAS AWARE OF THE EXISTENCE OF THE DEED
OF CONDITIONAL SALE, THE TRIAL COURT, AS WELL AS THE [COURT
OF APPEALS], ERRED IN ORDERING PETITIONER BETTY TOLERO TO
EXECUTE A DEED OF ABSOLUTE SALE IN FAVOR OF THE
[RESPONDENTS] AND TO SURRENDER THE OWNER'S DUPLICATE
COPY OF TCT NOS. T-18650 AND T-18651, WHICH WAS NOT PRAYED
FOR IN THE PRAYER IN THE COMPLAINT.

V
THAT THE [COURT OF APPEALS] ERRED IN FINDING BETTY
TOLERO [AS] A BUYER [WHO] FAILED TO TAKE STEPS IN INQUIRING
FROM THE [RESPONDENTS] THE STATUS OF THE PROPERTY IN
QUESTION BEFORE HER PURCHASE, CONTRARY TO FACTS
ESTABLISHED BY EVIDENCE.

VI
THE [COURT OF APPEALS] ERRED IN CONSIDERING
PETITIONER BETTY TOLERO A BUYER IN BAD FAITH, IGNORING THE
APPLICATION OF THE DOCTRINE IN THE RULING OF THE SUPREME
COURT IN THE CASE OF RODOLFO ALFONSO, ET AL. VS. COURT OF
APPEALS, G.R. NO. 63745.
[33]

The main issues to be resolved are:

1) Whether or not the Deed of Conditional Sale was converted into a
contract of lease;

2) Whether the Deed of Conditional Sale was a contract to sell or a
contract of sale.

As regards the first issue, the Deed of Conditional Sale entered into by
the Spouses Pacson and the Spouses Nabus was not converted into a contract of
lease. The 364 receipts issued to the Spouses Pacson contained either the phrase
as partial payment of lot located in Km. 4 or cash vale or cash vale (partial
payment of lot located in Km. 4), evidencing sale under the contract and not the
lease of the property. Further, as found by the trial court, Joaquin Pacsons non-
signing of the second page of a carbon copy of the Deed of Conditional Sale
was through sheer inadvertence, since the original contract
[34]
and the other copies
of the contract were all signed by Joaquin Pacson and the other parties to the
contract.

On the second issue, petitioners contend that the contract executed by the
respondents and the Spouses Nabus was a contract to sell, not a contract of
sale. They allege that the contract was subject to the suspensive condition of
full payment of the consideration agreed upon before ownership of the subject
property could be transferred to the vendees. Since respondents failed to pay the
full amount of the consideration, having an unpaid balance of P57,544.84, the
obligation of the vendors to execute the Deed of Absolute Sale in favor of
respondents did not arise. Thus, the subsequent Deed of Absolute Sale executed in
favor of Betty Tolero, covering the same parcel of land was valid, even if Tolero
was aware of the previous deed of conditional sale.

Moreover, petitioners contend that respondents violated the stipulated
condition in the contract that the monthly installment to be paid was P2,000.00,
as respondents gave meager amounts as low asP10.00.

Petitioners also assert that respondents allegation that Julie
Nabus failure to bring the pertinent documents necessary for the execution of the
final deed of absolute sale, which was the reason for their not having paid the
balance of the purchase price, was untenable, and a lame and shallow excuse for
violation of the Deed of Conditional Sale. Respondents could have made a valid
tender of payment of their remaining balance, as it had been due for a long time,
and upon refusal to accept payment, they could have consigned their payment to
the court as provided by law. This, respondents failed to do.

The Court holds that the contract entered into by the Spouses Nabus and
respondents was a contract to sell, not a contract of sale.

A contract of sale is defined in Article 1458 of the Civil Code, 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.
Ramos v. Heruela
[35]
differentiates a contract of absolute sale and a contract
of conditional sale as follows:

Article 1458 of the Civil Code provides that a contract of sale
may be absolute or conditional. A contract of sale is absolute when
title to the property passes to the vendee upon delivery of the thing
sold. A deed of sale is absolute when there is no stipulation in the
contract that title to the property remains with the seller until full
payment of the purchase price. The sale is also absolute if there is no
stipulation giving the vendor the right to cancel unilaterally the
contract the moment the vendee fails to pay within a fixed period. In a
conditional sale, as in a contract to sell, ownership remains with the
vendor and does not pass to the vendee until full payment of the
purchase price. The full payment of the purchase price partakes of a
suspensive condition, and non-fulfillment of the condition prevents the
obligation to sell from arising.
[36]

Coronel v. Court of Appeals
[37]
distinguished a contract to sell from a
contract of sale, thus:

Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a contract of
sale are the following:
a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price;

Under this definition, a Contract to Sell may not be considered
as a Contract of Sale because the first essential element is lacking. In
a contract to sell, the prospective seller 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-
fulfilment 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.

x x x x
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, the
prospective sellers obligation to sell the subject property by entering
into a contract of salewith the prospective buyer becomes demandable
as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to
the prospective buyer upon fulfillment of the condition agreed upon,
that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of salewhere 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. However, if the
suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the
suspensive condition which is the full payment of the purchase
price, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to
him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute
sale.
[38]

Further, Chua v. Court of Appeals
[39]
cited this distinction between a contract
of sale and a contract to sell:

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.
[40]

It is not the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties. In this case, the
contract entitled Deed of Conditional Sale is actually a contract to sell. The
contract stipulated that as soon as the full consideration of the sale has
been paid by the vendee, the corresponding transfer documents shall be
executed by the vendor to the vendee for the portion sold.
[41]
Where the vendor
promises to execute a deed of absolute sale upon the completion by the vendee of
the payment of the price, the contract is only a contract to sell.
[42]
The aforecited
stipulation shows that the vendors reserved title to the subject property until full
payment of the purchase price.

If respondents paid the Spouses Nabus in accordance with the stipulations in
the Deed of Conditional Sale, the consideration would have been fully paid in June
1983. Thus, during the last week of January 1984, Julie Nabus
approached Joaquin Pacson to ask for the full payment of the lot. Joaquin Pacson
agreed to pay, but told her to return after four days as his daughter, Catalina
Pacson, would have to go over the numerous receipts to determine the balance to
be paid.

When Julie Nabus returned after four days, Joaquin Pacson sent Julie
Nabus and his daughter, Catalina, to Atty. Elizabeth Rillera for the execution of the
deed of sale. Since Bate Nabus had already died, and was survived by Julie and
their minor daughter, Atty. Rillera required Julie Nabus to return in four days with
the necessary documents such as the deed of extrajudicial settlement, the transfer
certificate of title in the names of Julie Nabus and minor Michelle Nabus, and the
guardianship papers of Michelle. However, Julie Nabus did not return.
As vendees given possession of the subject property, the ownership of which
was still with the vendors, the Pacsons should have protected their interest and
inquired from Julie Nabus why she did not return and then followed through with
full payment of the purchase price and the execution of the deed of absolute sale.
The Spouses Pacson had the legal remedy of consigning their payment to the
court; however, they did not do so. A rumor that the property had been sold to
Betty Tolero prompted them to check the veracity of the sale with the Register of
Deeds of the Province ofBenguet. They found out that on March 5, 1984, Julie
Nabus sold the same property to Betty Tolero through a Deed of Absolute Sale, and
new transfer certificates of title to the property were issued to Tolero.

Thus, the Spouses Pacson filed this case for the annulment of the contract
of absolute sale executed in favor of Betty Tolero and the transfer certificates of
title issued in her name.

Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale
executed in their favor was merely a contract to sell, the obligation of the seller to
sell becomes demandable only upon the happening of the suspensive
condition.
[43]
The full payment of the purchase price is the positive suspensive
condition, the failure of which is not a breach of contract, but simply an
event that prevented the obligation of the vendor to convey title from
acquiring binding force.
[44]
Thus, for its non-fulfilment, there is no contract to
speak of, the obligor having failed to perform the suspensive condition which
enforces a juridical relation.
[45]
With this circumstance, there can be no rescission
or fulfilment of an obligation that is still non-existent, the suspensive condition not
having occurred as yet.
[46]
Emphasis should be made that the breach contemplated
in Article 1191 of the New Civil Code is the obligors failure to comply with an
obligation already extant, not a failure of a condition to render binding that
obligation.
[47]

The trial court, therefore, erred in applying Article 1191 of the Civil
Code
[48]
in this case by ordering fulfillment of the obligation, that is, the execution
of the deed of absolute sale in favor of the Spouses Pacson upon full payment of
the purchase price, which decision was affirmed by the Court of Appeals. Ayala
Life Insurance, Inc. v. Ray Burton Development Corporation
[49]
held:

Evidently, before the remedy of specific performance may be
availed of, there must be a breach of the contract.

Under a contract to sell, the title of the thing to be sold is
retained by the seller until the purchaser makes full payment of the
agreed purchase price. Such payment is a positive suspensive
condition, the non-fulfillment of which is not a breach of
contract but merely an event that prevents the seller from conveying
title to the purchaser. The non-payment of the purchase price
renders the contract to sell ineffective and without force and effect.
Thus, a cause of action for specific performance does not arise.
[50]

Since the contract to sell was without force and effect, Julie
Nabus validly conveyed the subject property to another buyer, petitioner Betty
Tolero, through a contract of absolute sale, and on the strength thereof, new
transfer certificates of title over the subject property were duly issued to Tolero.
[51]

The Spouses Pacson, however, have the right to the reimbursement of their
payments to the Nabuses, and are entitled to the award of nominal damages. 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.

As stated by the trial court, under the Deed of Conditional Sale, respondents
had the right to demand from petitioners Julie and Michelle Nabus that the latter
execute in their favor a deed of absolute sale when they were ready to pay the
remaining balance of the purchase price. The Nabuses had the corresponding duty
to respect the respondents right, but they violated such right, for they could no
longer execute the document since they had sold the property to Betty
Tolero.
[52]
Hence, nominal damages in the amount of P10,000.00 are awarded to
respondents.

Respondents are not entitled to moral damages because contracts are not
referred to in Article 2219
[53]
of the Civil Code, which enumerates the cases when
moral damages may be recovered. Article 2220
[54]
of the Civil Code allows the
recovery of moral damages in breaches of contractwhere the defendant acted
fraudulently or in bad faith. However, this case involves a contract to sell,
wherein full payment of the purchase price is a positive suspensive condition, the
non-fulfillment of which is not a breach of contract, but merely an event that
prevents the seller from conveying title to the purchaser. Since there is no breach
of contract in this case, respondents are not entitled to moral damages.

In the absence of moral, temperate, liquidated or compensatory damages,
exemplary damages cannot be granted for they are allowed only in addition to any
of the four kinds of damages mentioned.
[55]

WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 44941, dated November 28, 2003,
is REVERSED and SET ASIDE. Judgment is hereby rendered upholding the
validity of the sale of the subject property made by petitioners Julie Nabus and
Michelle Nabus in favor of petitioner Betty Tolero, as well as the validity of Transfer
Certificates of Title Nos. T-18650 and T-18651 issued in the name of Betty
Tolero. Petitioners Julie Nabus and Michelle Nabus
are ORDERED to REIMBURSE respondents spouses Joaquin and Julia Pacson the
sum of One Hundred Twelve Thousand Four Hundred Fifty-Five Pesos and
Sixteen Centavos (P112,455.16), and to pay Joaquin and Julia Pacson nominal
damages in the amount of Ten Thousand Pesos (P10,000.00), with annual interest
of twelve percent (12%) until full payment of the amounts due to Joaquin and
Julia Pacson.

No costs.

SO ORDERED

SECOND DIVISION

HEIRS OF EDUARDO MANLAPAT, G.R. No. 125585
represented by GLORIA MANLAPAT-
BANAAG and LEON M. BANAAG, JR.,
Petitioners, Present:

PUNO, J.,
*

Chairman,
- versus - AUSTRIA-MARTINEZ,
Acting Chairman,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
HON. COURT OF APPEALS,
RURAL BANK OF SAN PASCUAL,
INC., and JOSE B. SALAZAR,
CONSUELO CRUZ and Promulgated:
ROSALINA CRUZ-BAUTISTA,
and the REGISTER OF DEEDS of
Meycauayan, Bulacan, June 8, 2005
Respondents.

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

D E C I S I O N

TINGA, J.:

Before this Court is a Rule 45 petition assailing the Decision
[1]
dated 29
September 1994 of the Court of Appeals that reversed the Decision
[2]
dated 30 April
1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial court
declared Transfer Certificates of Title (TCTs) No. T-9326-P(M) and No. T-9327-P(M)
as void ab initio and ordered the restoration of Original Certificate of Title (OCT) No.
P-153(M) in the name of Eduardo Manlapat (Eduardo), petitioners predecessor-in-
interest.

The controversy involves Lot No. 2204, a parcel of land with an area of 1,058
square meters, located at Panghulo, Obando, Bulacan. The property had been
originally in the possession of Jose Alvarez, Eduardos grandfather, until his demise
in 1916. It remained unregistered until 8 October 1976 when OCT No. P-153(M)
was issued in the name of Eduardo pursuant to a free patent issued in Eduardos
name
[3]
that was entered in the Registry of Deeds of Meycauayan, Bulacan.
[4]
The
subject lot is adjacent to a fishpond owned by one

Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and
Rosalina Cruz-Bautista (Cruzes).
[5]

On 19 December 1954, before the subject lot was titled, Eduardo sold a
portion thereof with an area of 553 square meters to Ricardo. The sale is evidenced
by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo
(Kasulatan)
[6]
which was signed by Eduardo himself as vendor and his wife
Engracia Aniceto with a certain Santiago Enriquez signing as witness. The deed was
notarized by Notary Public Manolo Cruz.
[7]
On 4 April 1963, the Kasulatan was
registered with the Register of Deeds of Bulacan.
[8]

On 18 March 1981, another Deed of Sale
[9]
conveying another portion of the
subject lot consisting of 50 square meters as right of way was executed by Eduardo
in favor of Ricardo in order to reach the portion covered by the first sale executed
in 1954 and to have access to his fishpond from the provincial road.
[10]
The deed
was signed by Eduardo himself and his wife Engracia Aniceto, together with
Eduardo Manlapat, Jr. and Patricio Manlapat. The same was also duly notarized on
18 July 1981 by Notary Public Arsenio Guevarra.
[11]

In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his
father-in-law Eduardo, executed a mortgage with the Rural Bank of San Pascual,
Obando Branch (RBSP), for P100,000.00 with the subject lot as collateral. Banaag
deposited the owners duplicate certificate of OCT No. P-153(M) with the bank.

On 31 August 1986, Ricardo died without learning of the prior issuance of
OCT No. P-153(M) in the name of Eduardo.
[12]
His heirs, the Cruzes, were not
immediately aware of the consummated sale between Eduardo and Ricardo.

Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia
Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo, Corazon, Anselmo,
Teresita and Gloria, all surnamed Manlapat.
[13]
Neither did the heirs of Eduardo
(petitioners) inform the Cruzes of the prior sale in favor of their predecessor-in-
interest, Ricardo. Yet subsequently, the Cruzes came to learn about the sale and
the issuance of the OCT in the name of Eduardo.

Upon learning of their right to the subject lot, the Cruzes immediately tried to
confront petitioners on the mortgage and obtain the surrender of the OCT. The
Cruzes, however, were thwarted in their bid to see the heirs. On the advice of the
Bureau of Lands, NCR Office, they brought the matter to the barangay captain
ofBarangay Panghulo, Obando, Bulacan. During the hearing, petitioners were
informed that the Cruzes had a legal right to the property covered by OCT and
needed the OCT for the purpose of securing a separate title to cover the interest of
Ricardo. Petitioners, however, were unwilling to surrender the OCT.
[14]

Having failed to physically obtain the title from petitioners, in July 1989, the
Cruzes instead went to RBSP which had custody of the owners duplicate certificate
of the OCT, earlier surrendered as a consequence of the mortgage. Transacting with
RBSPs manager, Jose Salazar (Salazar), the Cruzes sought to borrow the owners
duplicate certificate for the purpose of photocopying the same and thereafter
showing a copy thereof to the Register of Deeds. Salazar allowed the Cruzes to
bring the owners duplicate certificate outside the bank premises when the latter
showed the Kasulatan.
[15]
The Cruzes returned the owners duplicate certificate on
the same day after having copied the same. They then brought the copy of the OCT
to Register of Deeds Jose Flores (Flores) of Meycauayan and showed the same to
him to secure his legal opinion as to how the Cruzes could legally protect their
interest in the property and register the same.
[16]
Flores suggested the preparation
of a subdivision plan to be able to segregate the area purchased by Ricardo from
Eduardo and have the same covered by a separate title.
[17]

Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla),
Land Registration Officer, Director III, Legal Affairs Department, Land Registration
Authority at Quezon City, who agreed with the advice given by Flores.
[18]
Relying on
the suggestions of Flores and Arandilla, the Cruzes hired two geodetic engineers to
prepare the corresponding subdivision plan. The subdivision plan was presented to
the Land Management Bureau, Region III, and there it was approved by a certain
Mr. Pambid of said office on 21 July 1989.

After securing the approval of the subdivision plan, the Cruzes went back to
RBSP and again asked for the owners duplicate certificate from Salazar. The Cruzes
informed him that the presentation of the owners duplicate certificate was
necessary, per advise of the Register of Deeds, for the cancellation of the OCT and
the issuance in lieu thereof of two separate titles in the names of Ricardo and
Eduardo in accordance with the approved subdivision plan.
[19]
Before giving the
owners duplicate certificate, Salazar required the Cruzes to see Atty. Renato
Santiago (Atty. Santiago), legal counsel of RBSP, to secure from the latter a
clearance to borrow the title. Atty. Santiago would give the clearance on the
condition that only Cruzes put up a substitute collateral, which they did.
[20]
As a
result, the Cruzes got hold again of the owners duplicate certificate.

After the Cruzes presented the owners duplicate certificate, along with the
deeds of sale and the subdivision plan, the Register of Deeds cancelled the OCT and
issued in lieu thereof TCT No. T-9326-P(M) covering 603 square meters of Lot No.
2204 in the name of Ricardo and TCT No. T-9327-P(M) covering the remaining 455
square meters in the name of Eduardo.
[21]

On 9 August 1989, the Cruzes went back to the bank and surrendered to
Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title they had
earlier given as substitute collateral. After securing the new separate titles, the
Cruzes furnished petitioners with a copy of TCT No. 9327-P(M) through
thebarangay captain and paid the real property tax for 1989.
[22]

The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director,
Supervision Sector, Department III of the Central Bank of the Philippines, inquiring
whether they committed any violation of existing bank laws under the
circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector sent a reply
letter advising the Cruzes, since the matter is between them and the bank, to get in
touch with the bank for the final settlement of the case.
[23]

In October of 1989, Banaag went to RBSP, intending to tender full payment
of the mortgage obligation. It was only then that he learned of the dealings of the
Cruzes with the bank which eventually led to the subdivision of the subject lot and
the issuance of two separate titles thereon. In exchange for the full payment of the
loan, RBSP tried to persuade petitioners to accept TCT No. T-9327-P(M) in the
name of Eduardo.
[24]

As a result, three (3) cases were lodged, later consolidated, with the trial
court, all involving the issuance of the TCTs, to wit:

(1) Civil Case No. 650-M-89, for reconveyance with damages
filed by the heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina
Cruz-Bautista, Rural Bank of San Pascual, Jose Salazar and Jose
Flores, in his capacity as Deputy Registrar, Meycauayan Branch of the
Registry of Deeds of Bulacan;

(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar
against Consuelo Cruz, et. [sic] al.; and

(3) Civil Case No. 644-M-89, for declaration of nullity of title
with damages filed by Rural Bank of San Pascual, Inc. against the
spouses Ricardo Cruz and Consuelo Cruz, et al.
[25]

After trial of the consolidated cases, the RTC of Malolos rendered a decision
in favor of the heirs of Eduardo, the dispositive portion of which reads:

WHEREFORE, premised from the foregoing, judgment is hereby
rendered:

1.Declaring Transfer Certificates of Title Nos. T-9326-
P(M) and T-9327-P(M) as void ab initio and ordering the
Register of Deeds, Meycauayan Branch to cancel said titles and
to restore Original Certificate of Title No. P-153(M) in the name
of plaintiffs predecessor-in-interest Eduardo Manlapat;

2.-Ordering the defendants Rural Bank of San Pascual,
Jose Salazar, Consuelo Cruz and Rosalina Cruz-Bautista, to pay
the plaintiffs Heirs of Eduardo Manlapat, jointly and severally,
the following:

a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.

3.Dismissing the counterclaims.

SO ORDERED.
[26]

The trial court found that petitioners were entitled to the reliefs of
reconveyance and damages. On this matter, it ruled that petitioners were bona
fide mortgagors of an unclouded title bearing no annotation of any lien and/or
encumbrance. This fact, according to the trial court, was confirmed by the bank
when it accepted the mortgage unconditionally on 25 November 1981. It found that
petitioners were complacent and unperturbed, believing that the title to their
property, while serving as security for a loan, was safely vaulted in the
impermeable confines of RBSP. To their surprise and prejudice, said title was
subdivided into two portions, leaving them a portion of 455 square meters from the
original total area of 1,058 square meters, all because of the fraudulent and
negligent acts of respondents and RBSP. The trial court ratiocinated that even
assuming that a portion of the subject lot was sold by Eduardo to Ricardo,
petitioners were still not privy to the transaction between the bank and the Cruzes
which eventually led to the subdivision of the OCT into TCTs No. T-9326-P(M) and
No. T-9327-P(M), clearly to the damage and prejudice of petitioners.
[27]

Concerning the claims for damages, the trial court found the same to be
bereft of merit. It ruled that although the act of the Cruzes could be deemed
fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless, was
clearly guilty of negligence in letting the Cruzes borrow the owners duplicate
certificate of the OCT. Neither the bank nor its manager had business entrusting to
strangers titles mortgaged to it by other persons for whatever reason. It was a
clear violation of the mortgage and banking laws, the trial court concluded.

The trial court also ruled that although Salazar was personally responsible for
allowing the title to be borrowed, the bank could not escape liability for it was guilty
of contributory negligence. The evidence showed that RBSPs legal counsel was
sought for advice regarding respondents request. This could only mean that RBSP
through its lawyer if not through its manager had known in advance of the Cruzes
intention and still it did nothing to prevent the eventuality. Salazar was not even
summarily dismissed by the bank if he was indeed the sole person to blame. Hence,
the banks claim for damages must necessarily fail.
[28]

The trial court granted the prayer for the annulment of the TCTs as a
necessary consequence of its declaration that reconveyance was in order. As to
Flores, his work being ministerial as Deputy Register of the Bulacan Registry of
Deeds, the trial court absolved him of any liability with a stern warning that he
should deal with his future transactions more carefully and in the strictest sense as
a responsible government official.
[29]

Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes
appealed to the Court of Appeals. The appellate court, however, reversed the
decision of the RTC. The decretal text of the decision reads:

THE FOREGOING CONSIDERED, the appealed decision is hereby
reversed and set aside, with costs against the appellees.

SO ORDERED.
[30]

The appellate court ruled that petitioners were not bona fide mortgagors
since as early as 1954 or before the 1981 mortgage, Eduardo already sold to
Ricardo a portion of the subject lot with an area of 553 square meters. This fact,
the Court of Appeals noted, is even supported by a document of sale signed by
Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo, and registered
with the Register of Deeds of Bulacan. The appellate court also found that on 18
March 1981, for the second time, Eduardo sold to Ricardo a separate area
containing 50 square meters, as a road right-of-way.
[31]
Clearly, the OCT was
issued only after the first sale. It also noted that the title was given to the Cruzes
by RBSP voluntarily, with knowledge even of the banks counsel.
[32]
Hence, the
imposition of damages cannot be justified, the Cruzes themselves being the owners
of the property. Certainly, Eduardo misled the bank into accepting the entire area
as a collateral since the 603-square meter portion did not anymore belong to him.
The appellate court, however, concluded that there was no conspiracy between the
bank and Salazar.
[33]

Hence, this petition for review on certiorari.

Petitioners ascribe errors to the appellate court by asking the following
questions, to wit: (a) can a mortgagor be compelled to receive from the mortgagee
a smaller portion of the originally encumbered title partitioned during the
subsistence of the mortgage, without the knowledge of, or authority derived from,
the registered owner; (b) can the mortgagee question the veracity of the registered
title of the mortgagor, as noted in the owners duplicate certificate, and thus,
deliver the certificate to such third persons, invoking an adverse, prior, and
unregistered claim against the registered title of the mortgagor; (c) can an adverse
prior claim against a registered title be noted, registered and entered without a
competent court order; and (d) can belief of ownership justify the taking of
property without due process of law?
[34]

The kernel of the controversy boils down to the issue of whether the
cancellation of the OCT in the name of the petitioners predecessor-in-interest and
its splitting into two separate titles, one for the petitioners and the other for the
Cruzes, may be accorded legal recognition given the peculiar factual backdrop of
the case. We rule in the affirmative.

Private respondents (Cruzes) own
the portion titled in their names

Consonant with law and justice, the ultimate denouement of the property
dispute lies in the determination of the respective bases of the warring claims.
Here, as in other legal disputes, what is written generally deserves credence.

A careful perusal of the evidence on record reveals that the Cruzes have
sufficiently proven their claim of ownership over the portion of Lot No. 2204 with an
area of 553 square meters. The duly notarized instrument of conveyance was
executed in 1954 to which no less than Eduardo was a signatory. The execution of
the deed of sale was rendered beyond doubt by Eduardos admission in
hisSinumpaang Salaysay dated 24 April 1963.
[35]
These documents make the
affirmance of the right of the Cruzes ineluctable. The apparent irregularity,
however, in the obtention of the owners duplicate certificate from the bank, later to
be presented to the Register of Deeds to secure the issuance of two new TCTs in
place of the OCT, is another matter.

Petitioners argue that the 1954 deed of sale was not annotated on the OCT
which was issued in 1976 in favor of Eduardo; thus, the Cruzes claim of ownership
based on the sale would not hold water. The Court is not persuaded.

Registration is not a requirement for validity of the contract as between the
parties, for the effect of registration serves chiefly to bind third persons.
[36]
The
principal purpose of registration is merely to notify other persons not parties to a
contract that a transaction involving the property had been entered into. Where the
party has knowledge of a prior existing interest which is unregistered at the time he
acquired a right to the same land, his knowledge of that prior unregistered interest
has the effect of registration as to him.
[37]

Further, the heirs of Eduardo cannot be considered third persons for
purposes of applying the rule. The conveyance shall not be valid against any person
unless registered, except (1) the grantor, (2) his heirs and devisees, and (3) third
persons having actual notice or knowledge thereof.
[38]
Not only are petitioners the
heirs of Eduardo, some of them were actually parties to theKasulatan executed in
favor of Ricardo. Thus, the annotation of the adverse claim of the Cruzes on the
OCT is no longer required to bind the heirs of Eduardo, petitioners herein.

Petitioners had no right to constitute
mortgage over disputed portion

The requirements of a valid mortgage are clearly laid down in Article 2085 of
the New Civil Code, viz:

ART. 2085. The following requisites are essential to the
contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a
principal obligation;
(2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage
have the free disposal of their property, and in the
absence thereof, that they be legally authorized for
the purpose.

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

For a person to validly constitute a valid mortgage on real estate, he must be
the absolute owner thereof as required by Article 2085 of the New Civil Code.
[39]
The
mortgagor must be the owner, otherwise the mortgage is void.
[40]
In a contract of
mortgage, the mortgagor remains to be the owner of the property although the
property is subjected to a lien.
[41]
A mortgage is regarded as nothing more than a
mere lien, encumbrance, or security for a debt, and passes no title or estate to the
mortgagee and gives him no right or claim to the possession of the property.
[42]
In
this kind of contract, the property mortgaged is merely delivered to the mortgagee
to secure the fulfillment of the principal obligation.
[43]
Such delivery does not
empower the mortgagee to convey any portion thereof in favor of another person
as the right to dispose is an attribute of ownership.
[44]
The right to dispose includes
the right to donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being
the owner of the property, cannot dispose of the whole or part thereof nor cause
the impairment of the security in any manner without violating the foregoing
rule.
[45]
The mortgagee only owns the mortgage credit, not the property itself.
[46]

Petitioners submit as an issue whether a mortgagor may be compelled to
receive from the mortgagee a smaller portion of the lot covered by the originally
encumbered title, which lot was partitioned during the subsistence of the mortgage
without the knowledge or authority of the mortgagor as registered owner. This
formulation is disingenuous, baselessly assuming, as it does, as an admitted fact
that the mortgagor is the owner of the mortgaged property in its entirety. Indeed,
it has not become a salient issue in this case since the mortgagor was not the
owner of the entire mortgaged property in the first place.

Issuance of OCT No. P-153(M), improper

It is a glaring fact that OCT No. P-153(M) covering the property mortgaged
was in the name of Eduardo, without any annotation of any prior disposition or
encumbrance. However, the property was sufficiently shown to be not entirely
owned by Eduardo as evidenced by the Kasulatan. Readily apparent upon perusal of
the records is that the OCT was issued in 1976, long after theKasulatan was
executed way back in 1954. Thus, a portion of the property registered in Eduardos
name arising from the grant of free patent did not actually belong to him. The
utilization of the Torrens system to perpetrate fraud cannot be accorded judicial
sanction.

Time and again, this Court has ruled that the principle of indefeasibility of a
Torrens title does not apply where fraud attended the issuance of the title, as was
conclusively established in this case. The Torrens title does not furnish a shied for
fraud.
[47]
Registration does not vest title. It is not a mode of acquiring ownership
but is merely evidence of such title over a particular property. It does not give the
holder any better right than what he actually has, especially if the registration was
done in bad faith. The effect is that it is as if no registration was made at all.
[48]
In
fact, this Court has ruled that a decree of registration cut off or extinguished a right
acquired by a person when such right refers to a lien or encumbrance on the
landnot to the right of ownership thereofwhich was not annotated on the
certificate of title issued thereon.
[49]

Issuance of TCT Nos. T-9326-P(M)
and T-9327-P(M), Valid

The validity of the issuance of two TCTs, one for the portion sold to the
predecessor-in-interest of the Cruzes and the other for the portion retained by
petitioners, is readily apparent from Section 53 of the Presidential Decree (P.D.)
No. 1529 or the Property Registration Decree. It provides:

SEC 53. Presentation of owners duplicate upon entry of new
certificate. No voluntary instrument shall be registered by the
Register of Deeds, unless the owners duplicate certificate is presented
with such instrument, except in cases expressly provided for in this
Decree or upon order of the court, for cause shown.

The production of the owners 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.

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
of the decree of registration on the original petition or application, any
subsequent registration procured by the presentation of a forged
duplicate certificate of title, or a forged deed or instrument, shall be
null and void. (emphasis supplied)

Petitioners argue that the issuance of the TCTs violated the third paragraph
of Section 53 of P.D. No. 1529. The argument is baseless. It must be noted that the
provision speaks of forged duplicate certificate of title and forged deed or
instrument. Neither instance obtains in this case. What the Cruzes presented before
the Register of Deeds was the very genuine owners duplicate certificate earlier
deposited by Banaag, Eduardos attorney-in-fact, with RBSP. Likewise, the
instruments of conveyance are authentic, not forged. Section 53 has never been
clearer on the point that as long as the owners duplicate certificate is presented to
the Register of Deeds together with the instrument of conveyance, such
presentation serves as conclusive authority to the Register of Deeds to issue a
transfer certificate or make a memorandum of registration in accordance with the
instrument.

The records of the case show that despite the efforts made by the Cruzes in
persuading the heirs of Eduardo to allow them to secure a separate TCT on the
claimed portion, their ownership being amply evidenced by
the Kasulatan andSinumpaang Salaysay where Eduardo himself acknowledged the
sales in favor of Ricardo, the heirs adamantly rejected the notion of separate titling.
This prompted the Cruzes to approach the bank manager of RBSP for the purpose
of protecting their property right. They succeeded in persuading the latter to lend
the owners duplicate certificate. Despite the apparent irregularity in allowing the
Cruzes to get hold of the owners duplicate certificate, the bank officers consented
to the Cruzes plan to register the deeds of sale and secure two new separate titles,
without notifying the heirs of Eduardo about it.

Further, the law on the matter, specifically P.D. No. 1529, has no explicit
requirement as to the manner of acquiring the owners duplicate for purposes of
issuing a TCT. This led the Register of Deeds of Meycauayan as well as the Central
Bank officer, in rendering an opinion on the legal feasibility of the process resorted
to by the Cruzes. Section 53 of P.D. No. 1529 simply requires the production of the
owners duplicate certificate, whenever any voluntary instrument is presented for
registration, and the same 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.
Quite interesting, however, is the contention of the heirs of Eduardo that the
surreptitious lending of the owners duplicate certificate constitutes fraud within the
ambit of the third paragraph of Section 53 which could nullify the eventual issuance
of the TCTs. Yet we cannot subscribe to their position.

Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes
went to the bank where the property was mortgaged. Through its manager and
legal officer, they were assured of recovery of the claimed parcel of land since they
are the successors-in-interest of the real owner thereof. Relying on the bank
officers opinion as to the legality of the means sought to be employed by them and
the suggestion of the Central Bank officer that the matter could be best settled
between them and the bank, the Cruzes pursued the titling of the claimed portion
in the name of Ricardo. The Register of Deeds eventually issued the disputed TCTs.

The Cruzes resorted to such means to protect their interest in the property
that rightfully belongs to them only because of the bank officers acquiescence
thereto. The Cruzes could not have secured a separate TCT in the name of Ricardo
without the banks approval. Banks, their business being impressed with public
interest, are expected to exercise more care and prudence than private individuals
in their dealings, even those involving registered lands.
[50]
Thehighest degree of
diligence is expected, and high standards of integrity and performance are even
required of it.
[51]

Indeed, petitioners contend that the mortgagee cannot question the veracity
of the registered title of the mortgagor as noted in the owners duplicate certificate,
and, thus, he cannot deliver the certificate to such third persons invoking an
adverse, prior, and unregistered claim against the registered title of the mortgagor.
The strength of this argument is diluted by the peculiar factual milieu of the case.

A mortgagee can rely on what appears on the certificate of title presented by
the mortgagor and an innocent mortgagee is not expected to conduct an exhaustive
investigation on the history of the mortgagors title. This rule is strictly applied to
banking institutions. A mortgagee-bank must exercise due diligence before entering
into said contract. Judicial notice is taken of the standard practice for banks, before
approving a loan, to send representatives to the premises of the land offered as
collateral and to investigate who the real owners thereof are.
[52]

Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, as their business is one affected with
public interest. Banks keep in trust money belonging to their depositors, which
they should guard against loss by not committing any act of negligence that
amounts to lack of good faith. Absent good faith, banks would be denied the
protective mantle of the land registration statute, Act 496, which extends only to
purchasers for value and good faith, as well as to mortgagees of the same
character and description.
[53]
Thus, this Court clarified that the rule that persons
dealing with registered lands can rely solely on the certificate of title doesnot apply
to banks.
[54]

Bank Liable for Nominal Damages

Of deep concern to this Court, however, is the fact that the bank lent the
owners duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a portion of
land covered by the title. Simple rationalization would dictate that a mortgagee-
bank has no right to deliver to any stranger any property entrusted to it other than
to those contractually and legally entitled to its possession. Although we cannot
dismiss the banks acknowledgment of the Cruzes claim as legitimized by
instruments of conveyance in their possession, we nonetheless cannot sanction how
the bank was inveigled to do the bidding of virtual strangers. Undoubtedly, the
banks cooperative stance facilitated the issuance of the TCTs. To make matters
worse, the bank did not even notify the heirs of Eduardo. The conduct of the bank
is as dangerous as it is unthinkably negligent. However, the aspect does not impair
the right of the Cruzes to be recognized as legitimate owners of their portion of the
property.

Undoubtedly, in the absence of the banks participation, the Register of
Deeds could not have issued the disputed TCTs. We cannot find fault on the part of
the Register of Deeds in issuing the TCTs as his authority to issue the same is
clearly sanctioned by law. It is thus ministerial on the part of the Register of Deeds
to issue TCT if the deed of conveyance and the original owners duplicate are
presented to him as there appears on theface of the instruments no badge
of irregularity or
nullity.
[55]
If there is someone to blame for the shortcut resorted to by the Cruzes, it
would be the bank itself whose manager and legal officer helped the Cruzes to
facilitate the issuance of the TCTs.

The bank should not have allowed complete strangers to take possession of
the owners duplicate certificate even if the purpose is merely for photocopying for
a danger of losing the same is more than imminent. They should be aware of the
conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank which
would necessarily hold it liable for damages under Article 1170 and other relevant
provisions of the Civil Code.
[56]

In the absence of evidence, the damages that may be awarded may be in the
form of nominal damages. 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.
[57]
This award rests on the mortgagors right to rely on
the banks observance of the highest diligence in the conduct of its business. The
act of RBSP of entrusting to respondents the owners duplicate certificate entrusted
to it by the mortgagor without even notifying the mortgagor and absent any prior
investigation on the veracity of respondents claim and
character is a patent failure to foresee the risk created by the act in view of the
provisions of Section 53 of P.D. No. 1529. This act runs afoul of every banks
mandate to observe the highest degree of diligence in dealing with its clients.
Moreover, a mortgagor has also the right to be afforded due process before
deprivation or diminution of his property is effected as the OCT was still in the
name of Eduardo. Notice and hearing are indispensable elements of this right which
the bank miserably ignored.

Under the circumstances, the Court believes the award of P50,000.00 as
nominal damages is appropriate.

Five-Year Prohibition against alienation
or encumbrance under the Public Land Act

One vital point. Apparently glossed over by the courts below and the parties
is an aspect which is essential, spread as it is all over the record and intertwined
with the crux of the controversy, relating as it does to the validity of the
dispositions of the subject property and the mortgage thereon. Eduardo was issued
a title in 1976 on the basis of his free patent application. Such application implies
the recognition of the public dominion character of the land and, hence, the five
(5)-year prohibition imposed by the Public Land Act against alienation or
encumbrance of the land covered by a free patent or homestead
[58]
should have
been considered.

The deed of sale covering the fifty (50)-square meter right of way executed
by Eduardo on 18 March 1981 is obviously covered by the proscription, the free
patent having been issued on 8 October 1976. However, petitioners may recover
the portion sold since the prohibition was imposed in favor of the free patent
holder. In Philippine National Bank v. De los Reyes,
[59]
this Court ruled squarely on
the point, thus:

While the law bars recovery in a case where the object of the
contract is contrary to law and one or both parties acted in bad faith,
we cannot here apply the doctrine of in pari delicto which admits of an
exception, namely, that when the contract is merely prohibited by law,
not illegal per se, and the prohibition is designed for the protection of
the party seeking to recover, he is entitled to the relief prayed for
whenever public policy is enhanced thereby. Under the Public Land
Act, the prohibition to alienate is predicated on the fundamental policy
of the State to preserve and keep in the family of the homesteader
that portion of public land which the State has gratuitously given to
him, and recovery is allowed even where the land acquired under the
Public Land Act was sold and not merely encumbered, within the
prohibited period.
[60]

The sale of the 553 square meter portion is a different story. It was executed
in 1954, twenty-two (22) years before the issuance of the patent in 1976.
Apparently, Eduardo disposed of the portion even before he thought of applying for
a free patent. Where the sale or transfer took place before the filing of the free
patent application, whether by the vendor or the vendee, the prohibition should not
be applied. In such situation, neither the prohibition nor the rationale therefor
which is
to keep in the family of the patentee that portion of the public land which the
government has gratuitously given him, by shielding him from the temptation to
dispose of his landholding, could be relevant. Precisely, he had disposed of his
rights to the lot even before the government could give the title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the
prohibition, as it was forged in December 1981 a few months past the period of
prohibition.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the
modifications herein. Respondent Rural Bank of San Pascual is hereby ORDERED to
PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages.
Respondents Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of
title to, and respondent Register of Deeds of Meycauayan, Bulacan is accordingly
ORDERED to segregate, the portion of fifty (50) square meters of the subject Lot
No. 2204, as depicted in the approved plan covering the lot, marked as Exhibit A,
and to issue a new title covering the said portion in the name of the petitioners at
the expense of the petitioners. No costs.

SO ORDERED.

SECOND DIVISION

WILFREDO T. VAGILIDAD G.R. No. 161136
and LOLITA A. VAGILIDAD,
Petitioners,
Present:

PUNO, J., Chairperson,
- versus - SANDOVAL -GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

GABINO VAGILIDAD, JR. Promulgated:
and DOROTHY VAGILIDAD,
Respondents. November 16, 2006
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

PUNO, J.:
This is a Petition for Review on Certiorari of the Decision
[1]
and
Resolution
[2]
of the Court of Appeals in CA-G.R. No. CV-68318 dated March 19,
2003 and November 13, 2003, respectively, reversing and setting aside the
decision of the Regional Trial Court of Antique, Sixth Judicial Region, Branch II, in
Civil Case No. 2825 dated January 26, 1999.
The facts are stated in the assailed Decision
[3]
of the appellate court, viz.:
A parcel of land, Lot No. 1253, situated in Atabay, San Jose,
Antique, measuring 4,280 square meters, was owned by Zoilo [Labiao]
(hereafter ZOILO) as per Original Certificate of Title No. RO-2301
issued onMarch 3, 1931. Sometime in 1931, ZOILO died.
Subsequently, on May 12, 1986, Loreto Labiao (hereafter LORETO),
son of ZOILO, sold to Gabino Vagilidad Jr. (hereafter GABINO JR.) a
portion of Lot No. 1253 (hereafter Lot 1253-B), measuring 1,604
square meters as evidenced by the Deed of Absolute Sale executed by
LORETO.

In view of the death of ZOILO, his children,
LORETO, Efren Labiao (hereafter EFREN) and
PriscillaEspanueva (hereafter PRISCILLA) executed an Extrajudicial
x x x Settlement of Estate dated January 20, 1987, adjudicating the
entire Lot No. 1253, covering 4,280 square meters, to LORETO.
On January 29, 1987, Transfer Certificate of Title (TCT) No. T-16693
was issued in favor of LORETO, EFREN and PRISCILLA, but on even
date, TCT No. T-16693 was cancelled and TCT No. T-16694, covering
the said property, was issued in the name of LORETO alone.

On July 31, 1987, GABINO JR., as petitioner, filed a Petition for
the Surrender of TCT No. T-16694, covering Lot No. 1253, with
the Regional Trial Court of San Jose City, Sixth Judicial Region, against
LORETO, docketed as Cadastral Case No. 87-731-A. The plaintiff
alleged that, being the owner of x x x Lot No. 1253-B, under TCT No.
T-16694, by virtue of the sale that took place on May 12, 1986, he is
entitled to ask for the surrender of the owners copy of TCT No. T-
16694 to the Register of Deeds of Antique in order to effect the
transfer of title to the name of the petitioner. However, as per motion
of both counsels[,] since the parties seemed to have already reached
an amicable settlement without the knowledge of their counsels, the
trial court issued an Order dated March 21, 1994 sending the case to
the archives.

On September 21, 1988, [GABINO JR.] paid real estate taxes on
the land he bought from LORETO as per Tax Declaration No. 1038
where the property was specified as Lot No. 1253-B. GABINO JR.
thereafter sold the same lot to Wilfredo Vagilidad (hereafter
WILFREDO) as per Deed of Absolute Sale dated December 7, 1989.
On even date, Deed of Absolute Sale of a Portion of Land involving the
opt-described property was also executed by LORETO in favor of
WILFREDO. The aforementioned deeds, which were both executed on
December 7, 1989 [and] notarized by Atty. Warloo Cardenal[,]
[appear] to have been given the same entry number in his notarial
books as both contained the designation Document No. 236, Page No.
49, Book No. XI, Series of 1989[.]

Corollarily, on February 14, 1990, the sale of Lot No. 1253-B to
WILFREDO was registered with the Registry of Deeds of
the Province of Antique under Entry No. 180425. Consequently, TCT
No. T-18023, cancelling TCT No. 16694, was issued in favor of
WILFREDO pursuant to the Deed of Absolute Sale datedDecember 7,
1989.

On October 24, 1991, spouses WILFREDO and LOLITA obtained
a loan from the Philippine National Bank (PNB for brevity) in the
amount of P150,000.00 and mortgaged Lot No. 1253-B as collateral of
the said loan and the transaction was inscribed at the back of TCT No.
18023 as Entry No. 186876. Subsequently, the xxx real estate
mortgage was cancelled under Entry No. 191053 as per inscription
datedNovember 17, 1992 in xxx TCT No. 18023.

Subsequently, WILFREDO obtained another loan from
Development Bank of the Philippines (DBP for brevity) in the amount
of P200,000.00 and mortgaged Lot No. 1253-B as collateral of the xxx
loan and the transaction was inscribed at the back of TCT No. 18023
as Entry No. 196268. The said loan was paid and, consequently, the
mortgage was cancelled as Entry No. 202500.

On September 29, 1995, spouses GABINO and Ma. Dorothy
Vagilidad (hereafter DOROTHY), as plaintiffs, filed a Complaint for
Annulment of Document, Reconveyance and Damages, with the
Regional Trial Court of Antique, Sixth Judicial Region, Branch 11,
against spouses WILFREDO and Lolita Vagilidad (hereafter LOLITA),
docketed as Civil Case No. 2825. The plaintiffs claimed that they are
the lawful owners of Lot No. 1253-B which was sold to him by LORETO
in 1986. They alleged that [GABINO JR.] is a nephew of defendant
WILFREDO. They likewise raised that when GABINO SR. died,
defendant WILFREDO requested GABINO JR. to transfer the ownership
of Lot No. 1253-B in defendant WILFREDOs name for loaning purposes
with the agreement that the land will be returned when the plaintiffs
need the same. They added that, pursuant to the mentioned
agreement, plaintiff GABINO JR., without the knowledge and consent
of his spouse, DOROTHY, executed the Deed of Sale dated December
7, 1989 in favor of defendant WILFREDO receiving nothing as payment
therefor. They pointed out that after defendant WILFREDO was able to
mortgage the property, plaintiffs demanded the return of the property
but the defendants refused to return the same. The plaintiffs claimed
that the same document is null and void for want of consideration and
the same does not bind the non-consenting spouse. They likewise
prayed that the defendant be ordered to pay the plaintiffs not less
than P100,000.00 as actual and moral damages, P10,000.00 as
attorneys fees andP5,000.00 as litigation expenses.

For their part, the defendants, on January 15, 1996, filed their
Answer, denying the material allegations of the plaintiffs. Defendants
claimed that they are the lawful owners of Lot No. 1253-B. They
alleged that LORETO, with conformity of his wife, sold to them Lot No.
1253 on December 7, 1989 for P5,000.00 and the transaction was
registered with the Register of Deeds of the Province of Antique under
Entry No. 180425. They added that, subsequently, TCT No. T-18023,
covering Lot No. 1253-B, was issued in favor of the defendants.
Hence, they claimed that the plaintiffs be directed to pay the
defendants P200,000.00 as moral damages, P50,000.00 as exemplary
damages, P20,000.00 as attorneys fees and P30,000.00 for litigation
expenses.
[4]

The trial court ruled in favor of petitioners WILFREDO and LOLITA and held
that LORETO did not validly convey Lot No. 1253-B to GABINO, JR. on May 12,
1986 since at that time, the heirs of ZOILO had not partitioned Lot No. 1253.
[5]
It
ruled that LORETO could only sell at that time his aliquot share in the inheritance.
He could not have sold a divided part thereof designated by metes and bounds.
Thus, it held that LORETO remained the owner of the subject lot when he sold it to
WILFREDO on December 7, 1989. It further found that there was no proof that
WILFREDO knew of the sale that took place between LORETO and GABINO, JR.
on May 12, 1986. The dispositiveportion of the decision states:
WHEREFORE, in view of the foregoing pronouncements and a
preponderance of evidence, judgment is hereby rendered:

1. FINDING the defendants WILFREDO VAGILIDAD and
LOLITA VAGILIDAD to have duly acquired ownership of Lot No. 1253-B
containing an area of 1,604 square meters, more or less, situated
in San Jose, Antique;

2. SUSTAINING the validity of Transfer Certificate of Title
No. T-18023 covering the subject Lot No. 1253-B and issued in the
name of the defendant WILFREDO VAGILIDAD, married to the
defendant LOLITA VAGILIDAD;

3. DISMISSING the complaint of the plaintiffs GABINO
VAGILIDAD, JR. and MA. DOROTHY VAGILIDAD, as well as the
counterclaims of the defendants WILFREDO VAGILIDAD and LOLITA
VAGILIDAD and of the defendants LORETO LABIAO and FRANCISCA
LABIAO; and

4. PRONOUNCING no cost.
[6]

GABINO, JR. and DOROTHY filed an appeal with the Court of Appeals. The
appellate court reversed and set aside the decision of the court a quo, viz.:
WHEREFORE, premises considered, the Decision dated January
26, 1999 of the Regional Trial Court of Antique, Sixth Judicial Region,
Branch 11, in Civil Case No. 2825, is hereby REVERSED and SET
ASIDE and a new one is entered: (1) declaring the Deed of Absolute
Sale [of Portion of Land] dated December 7, 1989 executed by
appellee LORETO in favor of appellee WILFREDO null and void; (2)
ordering the defendants-appellees WILFREDO and LOLITA to reconvey
Lot No. 1253-B to plaintiffs-appellants GABINO, JR. and DOROTHY;
and (3)
ordering the defendants-appellees to pay the plaintiffs-
appellants P100,000.00 as moral damages, P10,000.00 as attorneys
fees and P5,000.00 as litigation expenses.
[7]

The appellate court ruled that the sale made by LORETO in favor of GABINO,
JR. on May 12, 1986 is valid. The rights of LORETO to succession are transmitted
from the moment of ZOILOsdeath in 1931. Thus, when LORETO sold the 1,604-
square meter portion of Lot No. 1253 to GABINO JR., he already had the right as
co-owner to his share to Lot No. 1253, even if at that time the property had not yet
been partitioned. Consequently, the sale made by LORETO in favor of WILFREDO
on December 7, 1989 is void because LORETO and FRANCISCA were no longer the
owners of Lot No. 1253-B as of that time. The appellate court also held WILFREDO
and LOLITA liable for moral damages for falsifying the fictitious deeds of sale
on December 7, 1989.

WILFREDO and LOLITA moved for reconsideration but the motion was denied
in the questioned Resolution dated November 13, 2003. Hence, this petition for
review on certiorari raising the following errors:

I

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
ARTICLE 1349 AND ARTICLE 1460 OF THE NEW CIVIL CODE IN THE
CASE AT BAR.

II

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE
PROVISION OF ARTICLE 1544 OF THE NEW CIVIL CODE AND THE
DOCTRINE OF DOUBLE SALE THAT THE BUYER WHO IS IN
POSSESSION OF THE TORRENS TITLE AND HAD THE DEED
OF SALEREGISTERED MUST PREVAIL.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
ARTICLE 1391 OF THE NEW CIVIL CODE AND THE DOCTRINE THAT IN
CASE OF FRAUD, ACTION FOR RECONVEYANCE MUST BE BROUGHT
WITHIN FOUR (4) YEARS FROM THE DISCOVERY OF THE FRAUD.
IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PRIVATE
RESPONDENT MORAL DAMAGES, ATTORNEYS FEES AND LITIGATION
EXPENSES.
[8]

We deny the petition.
I
First, petitioners contend that the Deed of Absolute Sale between LORETO
and GABINO, JR. does not have a determinate object. They anchor their claim on
the following discrepancies: (1) the object of the Deed of Absolute Sale between
LORETO and GABINO, JR. is Lot No. 1253 with an area of 1,604 square meters;
(2) the object of the Deed of Absolute Sale of Portion of Land between LORETO and
WILFREDO is a portion of Lot No. 1253, known as Lot No. 1253-B, also with an
area of 1,604 square meters;
[9]
(3) the Deed of Absolute Sale between LORETO and
GABINO, JR. shows that its object, Lot No. 1253, is not registered under the Land
Registration Act nor under the Spanish Mortgage Law; and (4) the property subject
of this action, Lot No. 1253-B, was taken from Lot No. 1253 containing an area of
4,280 square meters previously registered in the name of ZOILO under Original
Certificate of Title (OCT) No. RO-2301.
[10]
With these discrepancies, petitioners
contend that either the Deed of Absolute Sale between LORETO and GABINO, JR.
does not have a determinate object or that Lot No. 1253-B, the subject parcel, is
not the object thereof. Hence, absent a determinate object, the contract is void.
They rely on Articles 1349 and 1460 of the Civil Code, viz.:
Art. 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.

Art. 1460. A thing is determinate when it is particularly
designated 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.

Petitioners err. The evidence on record shows that Lot No. 1253-B, the
subject parcel, and the lot described as Lot No. 1253 in the Deed of Absolute Sale
of May 12, 1986 between LORETO and GABINO, JR., are the same. In the Deed of
Absolute Sale, Lot No. 1253 is described, viz.:

A parcel of land (Lot No. 1253 of the Cadastral Survey of San
Jose), with the improvements thereon. Bounded on the North [by]
1254 and 1255; on the South by road; on the East by 1253 and road
on the West by 1240-Angel Salazar; containing an area of 1,604
square meters more or less declared under Tax Declaration No.
4159.
[11]

In the Deed of Absolute Sale of Portion of Land of December 7, 1989
between LORETO and WILFREDO, the subject parcel is described, viz.:

A parcel of land (Lot No. 1253. Ap-06-00271) of
the Cadastral Survey of San Jose, LRC Cad. Rec. No.
936), situated at Atabay, San Jose, Antique. Bounded on
the N. and E. along lines 1-2-3 by lot 1255; San Jose
Cadastre; on the S. along line 3-4 by Road; on the W.
along line 4-5 by Lot 1240; San Jose Cadastre; and on
the N. along line 5-1 by Lot 1254, San Jose Cadastre
containing an area of [Four] Thousand Two Hundred
Eighty (4,280) square meters, more or less.

of which a portion of land subject of this sale
is hereinbelow (sic) particularly described as follows, to wit:

A portion of Lot No. 1253-B of the Cadastral
Survey of San Jose, situated atAtabay, San Jose, Antique.
Bounded on the North by Lot No. 1254; South by Road;
West byLot 1253-A; and on the East by Lot No. 1253-C;
containing an area of 1,604 square meters, more or
less.
[12]

The description of Lot No. 1253, the object of the Deed of Absolute Sale, as
not registered under Act No. 196[,] otherwise known as the Land Registration Act,
nor under the Spanish Mortgage Law
[13]
is a stray description of the subject parcel.
It is uncorroborated by any evidence in the records. This description solely appears
on the Deed of Absolute Sale and the discrepancy was not explained by LORETO
who signed the Deed of Absolute Sale as vendor. LORETO does not, in fact, deny
the existence of the Deed of Absolute Sale. He merely counters that the Deed of
Absolute Sale was purportedly a mortgage. However, LORETOs claim that it was
one of mortgage is clearly negated by a Certification
[14]
issued by the Bureau of
Internal Revenue dated May 12, 1986. It certified that LORETO was not required to
pay the capital gains tax on the transfer of Lot No. 1253 to GABINO, JR. because
the property was classified as an ordinary asset.

To be sure, petitioners could have easily shown that LORETO owned
properties other than Lot No. 1253 to bolster their claim that the object of the Deed
of Absolute Sale was different from Lot No. 1253-B which is the object described in
the Deed of Absolute Sale of Portion of Land. They did not proffer any evidence.

The trial court itself comprehensively traced the origin of Lot No. 1253-B. It
clearly demonstrated that the subject parcel was originally part of the registered lot
of ZOILO. It also showed how the subject parcel was eventually bounded by Lot No.
1253-A on the West and by Lot No. 1253-C on the East, as the lot would be later
described in the Deed of Absolute Sale of Portion of Land.

The trial court found that ZOILO previously owned Lot No. 1253 under OCT
No. RO-2301 issued on March 3, 1931. On November 14, 1986, Entry No. 167922
was inscribed in the certificate of title, per Order dated March 30, 1978 of
Judge Noli Ma. Cortes of the then Court of First Instance of Antique, stating that it
was a reconstituted certificate of title.
[15]
Lot No. 1253 was subdivided by virtue of
a subdivision plan dated June 19, 1987. On January 20, 1987, an Extrajudicial
Settlement of Estate executed by LORETO, EFREN and PRISCILLA was entered as
Entry No. 170722. The OCT of ZOILO was cancelled by TCT No. T-16693 in the
names of LORETO, EFREN and PRISCILLA on January 29, 1987. TCT No. T-16693
was cancelled on the same day by TCT No. T-16694 in the name of LORETO alone.
The TCT was partially cancelled by the issuance of TCTs covering Lot Nos. 1253-A,
1253-C and 1253-D. The TCT of Lot No. 1253-B was issued in the name of
WILFREDO married to LOLITA on February 15, 1990. WILFREDOs TCT No. T-18023
appears to be a transfer from LORETOs TCT No. T-16694.

II
Next, petitioners contend that the appellate court should have upheld the
title of WILFREDO under Article 1544 of the Civil Code and the doctrine of double
sale where the buyer who is in possession of the Torrens Title must
prevail.
[16]
First, petitioners title was issued pursuant to the purported Deed of
Absolute Sale of Portion of Land dated December 7, 1989. Second, WILFREDO did
not see any encumbrance at the back of the title of the subject lot when he
purchased it from LORETO on December 7, 1989. Thus, since he is not bound to go
beyond the certificate of title, he has acquired the subject property in due course
and in good faith.

We disagree. Article 1544 of the Civil Code states, viz.:
Art. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to the person
who may have first taken possession thereof in good faith, if it should
be movable property.

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

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

Petitioners reliance on Article 1544 is misplaced. While title to the property
was issued inWILFREDOs name on February 15, 1990, the following circumstances
show that he registered the subject parcel with evident bad faith.
First, the Deed of Absolute Sale of Portion of Land dated December 7,
1989 between LORETO and WILFREDO is tainted with blatant irregularities. It is a
fact that the Deed of Absolute Sale of Portion of Land and the Deed of Absolute
Sale between GABINO, JR. and WILFREDO are of even date. Both Deeds had the
same object Lot No. 1253-B. Both deeds were notarized by Atty. Warloo Cardenal
and bear the same entry in his notarial register: Document No. 236, Page No. 49,
Book No. XI, Series of 1989.
Second, the testimony of a disinterested witness, Febe Mabuhay,
established the irregularity. Mabuhay used to work as secretary for Atty. Cardenal
and co-signed as witness in both Deeds. She stated that Atty. Cardenal instructed
her to prepare the two documents in the last week of November 1989. She was
present when GABINO, JR. signed the Deed of Absolute Sale. She testified that
after GABINO, JR. left, LORETO and his wife FRANCISCA arrived and signed the
Deed of Absolute Sale of Portion of Land.
[17]
The Decision of the court a quo further
states, viz.:
[Mabuhay testified that when she prepared the two
documents, she] noticed the similarity of Lot No. 1253 as technically
described in both documents but she did not call the attention of
Atty. Warlo[o] Cardenal. [She likewise stated that Atty. Cardenal]
specifically instructed her to assign the same document number to the
two documents notarized on December 7, 1989.
[18]

Third, the testimony of Atty. Ernesto Estoya, then Clerk of Court of the
Regional Trial Court of Antique, supports the claim that there was bad faith in the
execution of the Deed of Absolute Sale of Portion of Land. Atty. Estoya brought the
notarial record of Atty. Cardenal for the year 1989 pursuant to a subpoena. He
stated that he had not brought both Deeds as required in the subpoena because
Doc. No. 236; Page No. 49; Book No. XI; Series of 1989 as entered in the notarial
register of Atty. Cardenal could not be found in the files. He further explained that
the last document on page 48 of the notarial register of Atty. Cardenal is Document
No. 235, while the first document on page 49 is Document No. 239, leaving three
unexplained gaps for document numbers 236, 237 and 238. Atty. Estoya stated
that he was not the one who received the 1989 notarial register of Atty. Cardenal
when the latter surrendered it since he assumed office only in 1994.
[19]

Fourth, we give credence to the testimony of GABINO, JR. that LORETO and
WILFREDO had employed the scheme to deprive him and his wife of their lawful
title to the subject property. The facts speak for themselves. WILFREDO knew that
he could not use the Deed of Absolute Sale executed in his favor by GABINO, JR.
because the latter had no title to transfer. Without a title, WILFREDO could not use
the subject property as collateral for a bank loan. Hence, LORETO, who had refused
to surrender the title to GABINO, JR. and in whose name the land remained
registered, had to execute the Deed of Absolute Sale of Portion of Land in favor of
WILFREDO. Hence, it was convenient for WILFREDO to deny the existence of the
Deed of Absolute Sale of December 7, 1989between him and GABINO, JR. But the
evidence on record shows that after he was able to register the subject property in
his name on February 15, 1990, WILFREDO used the title as collateral in the loans
that he contracted with the Philippine National Bank on October 24, 1991 and the
Development Bank of the Philippines on December 1, 1993. This supports the claim
of GABINO, JR. that WILFREDO needed the lot for loaning purposes.

With these corroborating circumstances and the following irrefragable
documents on record, the evidence preponderates in favor of GABINO, JR. One, he
acquired Lot No.1253-B from LORETO onMay 12, 1986
[20]
by virtue of the Deed of
Absolute Sale. Two, the Bureau of Internal Revenue issued a Certification, also
on May 12, 1986, for the exemption from the payment of capital gains tax when
LORETO sold to him the subject parcel. Three, GABINO, JR. paid the real estate tax
on the subject parcel in 1987. Four, he filed a Petition for the Surrender
of LORETOs title on July 31, 1987 so he could transfer the title of the property in
his name.

Petitioners likewise err in their argument that the contract of sale between
LORETO and GABINO, JR. is void on the ground that at the time of the sale on May
12, 1986, LORETO had a right to dispose only an aliquot part of the yet undivided
property of ZOILO. The subject parcel, being an inherited property, is subject to the
rules of co-ownership under the Civil Code.

Co-ownership is the right of common dominion which two or more persons
have in a spiritual part of a thing, not materially or physically divided.
[21]
Before
the partition of the property held in common, no individual or co-owner can claim
title to any definite portion thereof. All that the co-owner has is an ideal or abstract
quota or proportionate share in the entire property.
[22]

LORETO sold the subject property to GABINO, JR. on May 12, 1986 as a co-
owner. LORETO had a right, even before the partition of the property on January
19, 1987,
[23]
to transfer in whole or in part his undivided interest in the lot even
without the consent of his co-heirs. This right is absolute in accordance with the
well-settled doctrine that a co-owner has full ownership of his pro-indiviso share
and has the right to alienate, assign or mortgage it, and substitute another person
for its enjoyment.
[24]
Thus, what GABINO, JR. obtained by virtue of the sale on May
12, 1986 were the same rights as the vendor LORETO had as co-owner, in an ideal
share equivalent to the consideration given under their transaction.
[25]

LORETO sold some 1,604 square meters of Lot No. 1253 to GABINO, JR.
Consequently, when LORETO purportedly sold to WILFREDO on December 7, 1989
the same portion of the lot, he was no longer the owner of Lot No. 1253-B. Based
on the principle that no one can give what he does not have,
[26]
LORETO could
not have validly sold to WILFREDO on December 7, 1989 what he no longer had. As
correctly pointed out by the appellate court, the sale made by LORETO in favor of
WILFREDO is void as LORETO did not have the right to transfer the ownership of
the subject property at the time of sale.

III
Petitioners contend that since the subdivision plan of Lot No. 1253 was only
approved onJanuary 19, 1987, the appellate court can not presume
that the aliquot part of LORETO was the parcel designated as Lot 1253-B.
[27]

Petitioners err. The mere fact that LORETO sold a definite portion of the co-
owned lot by metes and bounds before partition does not, per se, render the sale a
nullity. We held in Lopez v. Vda. De Cuaycong
[28]
that the fact that an agreement
purported to sell a concrete portion of a co-owned property does not render the
sale void, for it is well-established that the binding force of a contract must be
recognized as far as it is legally possible to do so.
[29]

In the case at bar, the contract of sale between LORETO and GABINO, JR.
on May 12, 1986could be legally recognized. At the time of sale, LORETO had an
aliquot share of one-third of the 4,280-square meter property or some
1,426
[30]
square meters but sold some 1,604 square meters to GABINO, JR. We
have ruled that if a co-owner sells more than his aliquot share in the property, the
sale will affect only his share but not those of the other co-owners who did not
consent to the sale.
[31]
Be that as it may, the co-heirs of LORETO waived all their
rights and interests over Lot No. 1253 in favor of LORETO in an Extrajudicial
Settlement of Estate dated January 20, 1987. They declared that they have
previously received their respective shares from the other estate of their parents
ZOILO and PURIFICACION.
[32]
The rights of GABINO, JR. as owner over Lot No.
1253-B are thus preserved. These rights were not effectively transferred by
LORETO to WILFREDO in the Deed of Absolute Sale of Portion of Land. Nor were
these rights alienated from GABINO, JR. upon the issuance of the title to the
subject property in the name of WILFREDO. Registration of property is not a means
of acquiring ownership.
[33]
Its alleged incontrovertibility cannot be successfully
invoked by WILFREDO because certificates of title cannot be used to protect a
usurper from the true owner or be used as a shield for the commission of
fraud.
[34]

IV
On the issue of prescription, petitioners contend that the appellate court
failed to apply the rule that an action for reconveyance based on fraud prescribes
after the lapse of four years.
[35]
They cite Article 1391
[36]
of the Civil Code and the
case of Gerona v. De Guzman.
[37]

We disagree. This Court explained in Salvatierra v. Court of
Appeals,
[38]
viz.:
An action for reconveyance based on an implied or
constructive trust must perforce prescribe in tenyears and not
otherwise. A long line of decisions of this Court, and of very recent
vintage at that, illustrates this rule. Undoubtedly, it is now well-settled
that an action for reconveyance based on an implied or constructive
trust prescribes in ten years from the issuance of the Torrens title over
the property. The only discordant note, it seems,
is Balbin v. Medalla, which states that the prescriptive period
for a reconveyance action is four years. However, this variance
can be explained by the erroneous reliance on Gerona v. de
Guzman. But in Gerona, the fraud was discovered on June 25,
1948, hence Section 43(3) of Act No. 190 was applied, the New
Civil Code not coming into effect until August 30, 1950 xxx. It
must be stressed, at this juncture, that Article 1144 and Article
1456 are new provisions. They have no counterparts in the old
Civil Code or in the old Code of Civil Procedure, the latter being
then resorted to as legal basis of the four-year prescriptive
period for an action for reconveyance of title of real property
acquired under false pretenses.
[39]

[Thus,] under the present Civil Code, xxx just as an implied or
constructive trust is an offspring of xxx Art. 1456, xxx so is the
corresponding obligation to reconvey the property and the title thereto
in favor of the true owner. In this context, and vis--vis prescription,
Article 1144 of the Civil Code is applicable[, viz.:]

Art. 1144. The following actions must be brought within
ten years from the time the right of action accrues:

1) Upon a written contract;
2) Upon an obligation created by law;
3) Upon a judgment.
[40]
(emphases
supplied)

Thus, in the case at bar, although the TCT of WILFREDO became indefeasible
after the lapse of one year from the date of registration, the attendance of fraud in
its issuance created an implied trust in favor of GABINO, JR. under Article
1456
[41]
of the Civil Code. Being an implied trust, the action for reconveyance of
the subject property therefore prescribes within a period of ten years fromFebruary
15, 1990. Thus, when respondents filed the instant case with the court a
quo on September 26, 1995, it was well within the prescriptive period.
V
On the issue of damages, petitioners contend that the grant is erroneous and
the alleged connivance between Atty. Cardenal and WILFREDO lacks basis.

We disagree. The evidence on record is clear that petitioners committed bad
faith in the execution of the purported Deed of Absolute Sale of Portion of Land
dated December 7, 1989between LORETO and WILFREDO. As stated by the
appellate court, viz.:
xxxx From the series of events, it can be reasonably inferred
that appellees WILFREDO, LORETO and Atty. Cardenal connived in
attempting to deprive appellants of Lot No. 1253-B, hence, the
appellants entitlement to moral damages. Further, it is a well-settled
rule that attorneys fees are allowed to be awarded if the claimant is
compelled to litigate with third persons or to incur expenses to protect
his interest by reason of an unjustified act or omission of the party for
whom it is sought. xxxx To protect themselves, the appellants
engaged the services of counsel and incurred expenses in the course
of litigation. Hence, we deem it equitable to award attorneys fees to
the appellant xxx.
[42]

IN VIEW WHEREOF, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. No. CV-68318 dated March 19,
2003 and November 13, 2003, respectively, are AFFIRMED in toto. Costs against
petitioners.

SO ORDERED.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 74470 March 8, 1989
NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners
vs.
THE INTERMEDIATE APPELLATE COURT and LEON SORIANO, respondents.
Cordoba, Zapanta, Rola & Garcia for petitioner National Grains Authority.
Plaridel Mar Israel for respondent Leon Soriano.

MEDIALDEA, J.:
This is a petition for review of the decision (pp. 9-21, Rollo) of the Intermediate
Appellate Court (now Court of Appeals) dated December 23, 1985 in A.C. G.R. CV
No. 03812 entitled, "Leon Soriano, Plaintiff- Appellee versus National Grains
Authority and William Cabal, Defendants Appellants", which affirmed the decision of
the Court of First Instance of Cagayan, in Civil Case No. 2754 and its resolution (p.
28, Rollo) dated April 17, 1986 which denied the Motion for Reconsideration filed
therein.
The antecedent facts of the instant case are as follows:
Petitioner National Grains Authority (now National Food Authority, NFA for short) is
a government agency created under Presidential Decree No. 4. One of its incidental
functions is the buying of palay grains from qualified farmers.
On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to
the NFA, through William Cabal, the Provincial Manager of NFA stationed at
Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-
qualifying as a seller, namely: (1) Farmer's Information Sheet accomplished by
Soriano and certified by a Bureau of Agricultural Extension (BAEX) technician,
Napoleon Callangan, (2) Xerox copies of four (4) tax declarations of the riceland
leased to him and copies of the lease contract between him and Judge Concepcion
Salud, and (3) his Residence Tax Certificate. Private respondent Soriano's
documents were processed and accordingly, he was given a quota of 2,640 cavans
of palay. The quota noted in the Farmer's Information Sheet represented the
maximum number of cavans of palay that Soriano may sell to the NFA.
In the afternoon of August 23, 1979 and on the following day, August 24, 1979,
Soriano delivered 630 cavans of palay. The palay delivered during these two days
were not rebagged, classified and weighed. when Soriano demanded payment of
the 630 cavans of palay, he was informed that its payment will be held in abeyance
since Mr. Cabal was still investigating on an information he received that Soriano
was not a bona tide farmer and the palay delivered by him was not produced from
his farmland but was taken from the warehouse of a rice trader, Ben de Guzman.
On August 28, 1979, Cabal wrote Soriano advising him to withdraw from the NFA
warehouse the 630 cavans Soriano delivered stating that NFA cannot legally accept
the said delivery on the basis of the subsequent certification of the BAEX technician,
Napoleon Callangan that Soriano is not a bona fide farmer.
Instead of withdrawing the 630 cavans of palay, private respondent Soriano
insisted that the palay grains delivered be paid. He then filed a complaint for
specific performance and/or collection of money with damages on November 2,
1979, against the National Food Authority and Mr. William Cabal, Provincial
Manager of NFA with the Court of First Instance of Tuguegarao, and docketed as
Civil Case No. 2754.
Meanwhile, by agreement of the parties and upon order of the trial court, the 630
cavans of palay in question were withdrawn from the warehouse of NFA. An
inventory was made by the sheriff as representative of the Court, a representative
of Soriano and a representative of NFA (p. 13, Rollo).
On September 30, 1982, the trial court rendered judgment ordering petitioner
National Food Authority, its officers and agents to pay respondent Soriano (as
plaintiff in Civil Case No. 2754) the amount of P 47,250.00 representing the unpaid
price of the 630 cavans of palay plus legal interest thereof (p. 1-2, CA Decision).
The dispositive portion reads as follows:
WHEREFORE, the Court renders judgment in favor of the plaintiff and
against the defendants National Grains Authority, and William Cabal
and hereby orders:
1. The National Grains Authority, now the National Food Authority, its
officers and agents, and Mr. William Cabal, the Provincial Manager of
the National Grains Authority at the time of the filing of this case,
assigned at Tuguegarao, Cagayan, whomsoever is his successors, to
pay to the plaintiff Leon T. Soriano, the amount of P47,250.00,
representing the unpaid price of the palay deliveries made by the
plaintiff to the defendants consisting of 630 cavans at the rate Pl.50
per kilo of 50 kilos per cavan of palay;
2. That the defendants National Grains Authority, now National Food
Authority, its officer and/or agents, and Mr. William Cabal, the
Provincial Manager of the National Grains Authority, at the time of the
filing of this case assigned at Tuguegarao, Cagayan or whomsoever is
his successors, are likewise ordered to pay the plaintiff Leon T.
Soriano, the legal interest at the rate of TWELVE (12%) percent per
annum, of the amount of P 47,250.00 from the filing of the complaint
on November 20, 1979, up to the final payment of the price of P
47,250.00;
3. That the defendants National Grains Authority, now National Food
Authority, or their agents and duly authorized representatives can now
withdraw the total number of bags (630 bags with an excess of 13
bags) now on deposit in the bonded warehouse of Eng. Ben de
Guzman at Tuguegarao, Cagayan pursuant to the order of this court,
and as appearing in the written inventory dated October 10, 1980,
(Exhibit F for the plaintiff and Exhibit 20 for the defendants) upon
payment of the price of P 47,250.00 and TWELVE PERCENT (12%)
legal interest to the plaintiff,
4. That the counterclaim of the defendants is hereby dismissed;
5. That there is no pronouncement as to the award of moral and
exemplary damages and attorney's fees; and
6. That there is no pronouncement as to costs.
SO ORDERED (pp. 9-10, Rollo)
Petitioners' motion for reconsideration of the decision was denied on December 6,
1982.
Petitioners' appealed the trial court's decision to the Intermediate Appellate Court.
In a decision promulgated on December 23, 1986 (pp. 9-21, Rollo) the then
Intermediate Appellate Court upheld the findings of the trial court and affirmed the
decision ordering NFA and its officers to pay Soriano the price of the 630 cavans of
rice plus interest. Petitioners' motion for reconsideration of the appellate court's
decision was denied in a resolution dated April 17, 1986 (p. 28, Rollo).
Hence, this petition for review filed by the National Food Authority and Mr. William
Cabal on May 15, 1986 assailing the decision of the Intermediate Appellate Court
on the sole issue of whether or not there was a contract of sale in the case at bar.
Petitioners contend that the 630 cavans of palay delivered by Soriano on August
23, 1979 was made only for purposes of having it offered for sale. Further,
petitioners stated that the procedure then prevailing in matters of palay
procurement from qualified farmers were: firstly, there is a rebagging wherein the
palay is transferred from a private sack of a farmer to the NFA sack; secondly, after
the rebagging has been undertaken, classification of the palay is made to determine
its variety; thirdly, after the determination of its variety and convinced that it
passed the quality standard, the same will be weighed to determine the number of
kilos; and finally, it will be piled inside the warehouse after the preparation of the
Warehouse Stock Receipt (WSP) indicating therein the number of kilos, the variety
and the number of bags. Under this procedure, rebagging is the initial operative act
signifying acceptance, and acceptance will be considered complete only after the
preparation of the Warehouse Stock Receipt (WSR). When the 630 cavans of palay
were brought by Soriano to the Carig warehouse of NFA they were only offered for
sale. Since the same were not rebagged, classified and weighed in accordance with
the palay procurement program of NFA, there was no acceptance of the offer which,
to petitioners' mind is a clear case of solicitation or an unaccepted offer to sell.
The petition is not impressed with merit.
Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby
one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party to pay therefore a price certain in
money or its equivalent. A contract, on the other hand, is a meeting of minds
between two (2) persons whereby one binds himself, with respect to the other, to
give something or to render some service (Art. 1305, Civil Code of the Philippines).
The essential requisites of contracts are: (1) consent of the contracting parties, (2)
object certain which is the subject matter of the contract, and (3) cause of the
obligation which is established (Art. 1318, Civil Code of the Philippines.
In the case at bar, Soriano initially offered to sell palay grains produced in his
farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's
Information Sheet a quota of 2,640 cavans, there was already a meeting of the
minds between the parties. The object of the contract, being the palay grains
produced in Soriano's farmland and the NFA was to pay the same depending upon
its quality. The fact that the exact number of cavans of palay to be delivered has
not been determined does not affect the perfection of the contract. Article 1349 of
the New Civil Code provides: ". . .. 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." In
this case, there was no need for NFA and Soriano to enter into a new contract to
determine the exact number of cavans of palay to be sold. Soriano can deliver so
much of his produce as long as it does not exceed 2,640 cavans.
In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further
contend that there was no contract of sale because of the absence of an essential
requisite in contracts, namely, consent. It cited Section 1319 of the Civil Code
which states: "Consent is manifested by the meeting of the offer and the
acceptance of the thing and the cause which are to constitute the contract. ... "
Following this line, petitioners contend that there was no consent because there
was no acceptance of the 630 cavans of palay in question.
The above contention of petitioner is not correct Sale is a consensual contract, " ...
, there is perfection when there is consent upon the subject matter and price, even
if neither is delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557,
560) This is provided by Article 1475 of the Civil Code which states:
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.
x x x
The acceptance referred to which determines consent is the acceptance of the offer
of one party by the other and not of the goods delivered as contended by
petitioners.
From the moment the contract of sale is perfected, it is incumbent upon the parties
to comply with their mutual obligations or "the parties may reciprocally demand
performance" thereof. (Article 1475, Civil Code, 2nd par.).
The reason why NFA initially refused acceptance of the 630 cavans of palay
delivered by Soriano is that it (NFA) cannot legally accept the said delivery because
Soriano is allegedly not a bona fide farmer. The trial court and the appellate court
found that Soriano was a bona fide farmer and therefore, he was qualified to sell
palay grains to NFA.
Both courts likewise agree that NFA's refusal to accept was without just cause. The
above factual findings which are supported by the record should not be disturbed
on appeal.
ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision
of the then Intermediate Appellate Court (now Court of Appeals) is affirmed. No
costs.
SO ORDERED.

THIRD DIVISION
[G.R. No. 104482. January 22, 1996]
BELINDA TAREDO, for herself and in representation of her brothers and
sisters, and TEOFILA CORPUZ TANEDO, representing her minor
daughter VERNA TANEDO, petitioners, vs. THE COURT OF APPEALS,
SPOUSES RICARDO M. TAREDO AND TERESITA BARERA
TAREDO, respondents.
D E C I S I O N
PANGANIBAN, J.:
Is a sale of future inheritance valid? In multiple sales of the same real property,
who has preference in ownership? What is the probative value of the lower courts
finding of good faith in registration of such sales in the registry of property? These
are the main questions raised in this Petition for review on certiorari under Rule 45
of the Rules of Court to set aside and reverse the Decision
1
of the Court of
Appeals
2
in CA-G.R. CV NO. 24987 promulgated on September 26, 1991 affirming
the decision of the Regional Trial Court, Branch 63, Third Judicial Region, Tarlac,
Tarlac in Civil Case No. 6328, and its Resolution denying reconsideration thereof,
promulgated on May 27, 1992.
By the Courts Resolution on October 25, 1995, this case (along with several
others) was transferred from the First to the Third Division and after due
deliberation, the Court assigned it to the undersigned ponenle for the writing of this
Decision.
The Facts
On October 20, 1962, Lazardo Taedo executed a notarized deed of absolute
sale in favor of his eldest brother, Ricardo Taedo, and the latters wife, Teresita
Barera, private respondents herein, whereby he conveyed to the latter in
consideration of P1,500.00, one hectare of whatever share I shall have over Lot
No. 191 of the cadastral survey of Gerona, Province of Tarlac and covered by Title
T-l3829 of the Register of Deeds of Tarlac, the said property being his future
inheritance from his parents (Exh. 1). Upon the death of his father Matias, Lazaro
executed an Affidavit of Conformity dated February 28, 1980 (Exh. 3) to re-
affirm, respect. acknowledge and validate the sale I made in 1962. On January 13,
1981, Lazaro executed another notarized deed of sale in favor of private
respondents covering his undivided ONE TWELVE (1/12) of a parcel of land known
as Lot 191 x x (Exh. 4). He acknowledged therein his receipt of P 10,000.00 as
consideration therefor. In February 1981, Ricardo learned that Lazaro sold the
same property to his children, petitioners herein, through a deed of sale
dated December 29, 1980 (Exh. E). On June 7, 1982, private respondents recorded
the Deed of Sale (Exh. 4) in their favor in the Registry of Deeds and the
corresponding entry was made in Transfer Certificate of Title No. 166451 (Exh. 5).
Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of
the deeds of sale executed by Lazaro in favor of private respondents covering the
property inherited by Lazaro from his father.
Petitioners claimed that their father, Lazaro, executed an Absolute Deed of
Sale dated December 29, 1980 (Exit. E), conveying to his ten children his allotted
portion under the extrajudicial partition executed by the heirs of Matias, which deed
included the land in litigation (Lot 191).
Petitioners also presented in evidence: (1) a private writing purportedly
prepared and signed by Matias dated December 28, 1978, stating that it was his
desire that whatever inheritance Lazaro would receive from him should be given to
his (Lazaros) children (Exh. A); (2) a typewritten document dated March 10, 1979
signed by Lazaro in the presence of two witnesses, wherein he confirmed that he
would voluntarily abide by the wishes of his father, Matias, to give to his (Lazaros)
children all the property he would inherit from the latter (Exh. B); and (3) a letter
dated January 1, 1980 of Lazaro to his daughter, Carmela, stating that his share in
the extrajudicial settlement of the estate of his father was intended for his children,
petitioners herein (Exh. C).
Private respondents, however presented in evidence a Deed of Revocation of a
Deed of Sale datedMarch 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in
favor of petitioners for the reason that it was simulated or fictitious - without any
consideration whatsoever.
Shortly after the case a quo was filed, Lazaro executed a sworn statement (Exh.
G) which virtually repudiated the contents of the Deed of Revocation of a Deed of
Sale (Exh. 6) and the Deed of Sale (Exh. 4) in favor of private respondents.
However, Lazaro testified that he sold the property to Ricardo, and that it was a
lawyer who induced him to execute a deed of sale in favor of his children after
giving him five pesos (P5.00) to buy a drink (TSN September 18, 1985, pp. 204-
205).
The trial court decided in favor of private respondents, holding that petitioners
failed to adduce a preponderance of evidence to support (their) claim. On appeal,
the Court of Appeals affirmed the decision of the trial court, ruling that the Deed of
Sale dated January 13, 1981 (Exh. 9) was valid and that its registration in good
faith vested title in said respondents.
The Issues
Petitioners raised the following errors in the respondent Court, which they
also now allege in the instant Petition:
I. The trial court erred in concluding that the Contract of Sale of October 20, 1962
(Exhibit 7, Answer) is merely voidable or annulable and not void ab initio pursuant
to paragraph 2 of Article 1347 of the New Civil Code involving as it does a future
inheritance.
II. The trial court erred in holding that defendants-appellees acted in good faith in
registering the deed of sale of January 13, 1981 (Exhibit 9) with the Register of
Deeds of Tarlac and therefore ownership of the land in question passed on to
defendants-appellees.
III. The trial court erred in ignoring and failing to consider the testimonial and
documentary evidence of plaintiffs-appellants which clearly established by
preponderance of evidence that they are indeed the legitimate and lawful owners of
the property in question.
IV. The decision is contrary to law and the facts of the case and the conclusions
drawn from the established facts are illogical and off-tangent.
From the foregoing, the issues may be restated as follows:
1. Is the sale of a future inheritance valid?
2. Was the subsequent execution on January 13, 1981 (and registration
with the Registry of Property) of a deed of sale covering the same
property to the same buyers valid?
3. May this Court review the findings of the respondent Court (a) holding
that the buyers acted in good faith in registering the said subsequent
deed of sale and (b) in failing to consider petitioners evidence? Are the
conclusions of the respondent Court illogical and off-tangent?
The Courts Ruling
At the outset, let it be clear that the errors which are reviewable by this Court
in this petition for review on certiorari are only those allegedly committed by the
respondent Court of Appeals and not directly those of the trial court, which is not a
party here. The assignment of errors in the petition quoted above are therefore
totally misplaced, and for that reason, the petition should be dismissed. But in
order to give the parties substantial justice we have decided to delve into the issues
as above re-stated. The errors attributed by petitioners to the latter (trial) court will
be discussed only insofar as they are relevant to the appellate courts assailed
Decision and Resolution.
The sale made in 1962 involving future inheritance is not really at issue here. In
context, the assailed Decision conceded it may be legally correct that a contract of
sale of anticipated future inheritance is null and void.
3

But to remove all doubts, we hereby categorically rule that, pursuant to Article
1347 of the Civil Code, (n)o contract may be entered into upon a future
inheritance except in cases expressly authorized by law.
Consequently, said contract made in 1962 is not valid and cannot be the source
of any right nor the creator of any obligation between the parties.
Hence, the affidavit of conformity dated February 28, 1980, insofar as it
sought to validate or ratify the 1962 sale, is also useless and, in the words of the
respondent Court, suffers from the same infirmity. Even private respondents in
their memorandum
4
concede this.
However, the documents that are critical to the resolution of this case are: (a)
the deed of sale of January 13, 1981 in favor of private respondents covering
Lazaros undivided inheritance of one-twelfth (1/12) share in Lot No. 191, which
was subsequently registered on June 7, 1982; and (b) the deed of sale dated
December 29, 1980 in favor of petitioners covering the same property. These two
documents were executed after the death of Matias (and his spouse) and after a
deed of extrajudicial settlement of his (Matias) estate was executed, thus vesting
in Lazaro actual title over said property. In other words, these dispositions, though
conflicting, were no longer infected with the infirmities of the 1962 sale.
Petitioners contend that what was sold on January 13, 1981 was only one-half
hectare out of Lot No. 191, citing as authority the trial courts decision. As earlier
pointed out, what is on review in these proceedings by this Court is the Court of
Appeals decision - which correctly identified the subject matter of the January 13,
1981 sale to be the entire undivided 1/12 share of Lazaro in Lot No. 191 and which
is the same property disposed of on December 29, 1980 in favor of petitioners.
Critical in determining which of these two deeds should be given effect is the
registration of the sale in favor of private respondents with the register of deeds
on June 7, 1982.
Article 1544 of the Civil Code governs the preferential rights of vendees in cases
of multiple sales, as follows:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
The property in question is land, an immovable, and following the above-quoted
law, ownership shall belong to the buyer who in good faith registers it first in the
registry of property. Thus, although the deed of sale in favor of private respondents
was later than the one in favor of petitioners, ownership would vest in the former
because of the undisputed fact of registration. On the other hand, petitioners have
not registered the sale to them at all.
Petitioners contend that they were in possession of the property and that
private respondents never took possession thereof. As between two purchasers, the
one who registered the sale in his favor has a preferred right over the other who
has not registered his title, even if the latter is in actual possession of the
immovable property.
5

As to third issue, while petitioners conceded the fact of registration, they
nevertheless contended that it was done in bad faith. On this issue, the respondent
Court ruled:
Under the second assignment of error, plaintiffs-appellants contend that
defendants-appellees acted in bad faith when they registered the Deed of Sale in
their favor as appellee Ricardo already knew of the execution of the deed of sale in
favor of the plaintiffs; appellants cite the testimony of plaintiff Belinda Tafledo to
the effect that defendant Ricardo Taedo called her up on January 4 or 5, 1981 to
tell her that he was already the owner of the land in question but the contract of
sale between our father and us were (sic) already consumated (pp. 9-10, tsn,
January 6, 1984). This testimony is obviously self-serving, and because it was a
telephone conversation, the deed of sale dated December 29, 1980 was not shown;
Belinda merely told her uncle that there was already a document showing that
plaintiffs are the owners (p. 80). Ricardo Taedo controverted this and testified that
he learned for the first time of the deed of sale executed by Lazaro in favor of his
children about a month or sometime in February 1981 (p. 111, tsn, Nov. 28,
1984). x x x
6

The respondent Court, reviewing the trial courts findings, refused to overturn the
latters assessment of the testimonial evidence, as follows:
We are not prepared to set aside the finding of the lower court upholding Ricardo
Tanedos testimony, as it involves a matter of credibility of witnesses which the trial
judge, who presided at the hearing, was in a better position to resolve. (Court of
Appeals Decision, p. 6.)
In this connection, we note the tenacious allegations made by petitioners, both
in their basic petition and in their memorandum, as follows:
1. The respondent Court allegedly ignored the claimed fact that respondent
Ricardo by fraud and deceit and with foreknowledge that the property
in question had already been sold to petitioners, made Lazaro execute
the deed of January 13, 1981;
2. There is allegedly adequate evidence to show that only 1/2 of the
purchase price of P10,000.00 was paid at the time of the execution of the
deed of sale, contrary to the written acknowledgment, thus showing bad
faith;
3. There is allegedly sufficient evidence showing that the deed of
revocation of the sale in favor of petitioners was tainted with fraud or
deceit.
4. There is allegedly enough evidence to show that private respondents
took undue advantage over the weakness and unschooled and pitiful
situation of Lazaro Tafledo . . . and that respondent Ricardo Taedo
exercised moral ascendancy over his younger brother he being the
eldest brother and who reached fourth year college of law and at one
time a former Vice-Governor of Tarlac, while his younger brother only
attained first year high school x x x ;
5. The respondent Court erred in not giving credence to petitioners
evidence, especially Lazaro TaedosSinumpaang Salaysay dated July 27,
1982 stating that Ricardo Taedo deceived the former in executing the
deed of sale in favor of private respondents.
To be sure, there are indeed many conflicting documents and testimonies as
well as arguments over their probative value and significance. Suffice it to say,
however, that all the above contentions involve questions of fact, appreciation of
evidence and credibility of witnesses, which are not proper in this review. It is well-
settled that the Supreme Court is not a trier of facts. In petitions for review under
Rule 45 of the Revised Rules of Court, only questions of law may be raised and
passed upon. Absent any whimsical or capricious exercise of judgment, and unless
the lack of any basis for the conclusions made by the lower courts be amply
demonstrated, the Supreme Court will not disturb their findings. At most, it appears
that petitioners have shown that their evidence was not believed by both the trial
and the appellate courts, and that the said courts tended to give more credence to
the evidence presented by private respondents. But this in itself is not a reason for
setting aside such findings. We are far from convinced that both courts gravely
abused their respective authorities and judicial prerogatives.
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goidrock
Construction and Development Corp.:
7

The Court has consistently held that the factual findings of the trial court, as well
as the Court of Appeals, are final and conclusive and may not be reviewed on
appeal. Among the exceptional circumstances where a reassessment of facts found
by the lower courts is allowed are when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; when the inference made is
manifestly absurd, mistaken or Impossible; when there is grave abuse of discretion
in the appreciation of facts; when the judgment is premised on a misapprehension
of facts; when the findings went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee. After a careful study of
the case at bench, we find none of the above grounds present to justify the re-
evaluation of the findings of fact made by the courts below.
In the same vein, the ruling in the recent case of South Sea Surety and
Insurance Company, Inc. vs. Hon. Court of Appeals, et al.
[8]
is equally applicable to
the present case:
We see no valid reason to discard the factual conclusions of the appellate court. x
x x (I)t is not the function of this Court to assess and evaluate all over again the
evidence, testimonial and documentary, adduced by the parties, particularly where,
such as here, the findings of both the trial court and the appellate court on the
matter coincide. (italics supplied)
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals is AFFIRMED. No Costs.
SO ORDERED.

SECOND DIVISION
[G.R. No. 131679. February 1, 2000]
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST
COMPANY,petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and
COURT OF APPEALS,respondents.
D E C I S I O N
MENDOZA, J.:
This is a petition for review on certiorari of the decision
[1]
of the Court of Appeals in
C.A. GR CV No. 42315 and the order dated December 9, 1997 denying petitioners
motion for reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company
(FEBTC) are banking institutions duly organized and existing under Philippine laws.
On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the
amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land
situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No.
300809 registered in his name. As Guansing defaulted in the payment of his loan,
CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the
mortgaged property was sold to CDB as the highest bidder. Guansing failed to
redeem, and on March 2, 1987, CDB consolidated title to the property in its name.
TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT
No. 355588 was issued in the name of CDB.
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named
Remedios Gatpandan, offered to purchase the property from CDB. The written Offer
to Purchase, signed by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro
Sts., La Loma, Quezon City for P300,000.00 under the following terms
and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal
occupants or tenants. Scjuris
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB
P30,000.00 as Option Money, for which she was issued Official Receipt No. 3160,
dated June 17, 1988, by CDB. However, after some time following up the sale, Lim
discovered that the subject property was originally registered in the name of
Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148.
Rodolfo succeeded in having the property registered in his name under TCT No.
300809, the same title he mortgaged to CDB and from which the latters title (TCT
No. 355588) was derived. It appears, however, that the father, Perfecto, instituted
Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the
cancellation of his sons title. On March 23, 1984, the trial court rendered a
decision
[2]
restoring Perfectos previous title (TCT No. 91148) and cancelling TCT
No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This
decision has since become final and executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its
mother-company, FEBTC, on their ability to sell the subject property, Lim, joined by
her husband, filed on August 29, 1989 an action for specific performance and
damages against petitioners in the Regional Trial Court, Branch 96, Quezon City,
where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the
complaint was amended by impleading the Register of Deeds of Quezon City as an
additional defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses.
It ruled that: (1) there was a perfected contract of sale between Lim and CDB,
contrary to the latters contention that the written offer to purchase and the
payment of P30,000.00 were merely pre-conditions to the sale and still subject to
the approval of FEBTC; (2) performance by CDB of its obligation under the
perfected contract of sale had become impossible on account of the 1984 decision
in Civil Case No. Q-39732 cancelling the title in the name of mortgagor Rodolfo
Guansing; (3) CDB and FEBTC were not exempt from liability despite the
impossibility of performance, because they could not credibly disclaim knowledge of
the cancellation of Rodolfo Guansings title without admitting their failure to
discharge their duties to the public as reputable banking institutions; and (4) CDB
and FEBTC are liable for damages for the prejudice caused against the
Lims.
[3]
Based on the foregoing findings, the trial court ordered CDB and FEBTC to
pay private respondents, jointly and severally, the amount of P30,000.00 plus
interest at the legal rate computed from June 17, 1988 until full payment. It also
ordered petitioners to pay private respondents, jointly and severally, the amounts
of P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00
as attorneys fees, and the costs of the suit.
[4]

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997,
affirmed in toto the decision of the Regional Trial Court. Petitioners moved for
reconsideration, but their motion was denied by the appellate court on December 9,
1997. Hence, this petition. Petitioners contend that - Jjlex
1. The Honorable Court of Appeals erred when it held that petitioners
CDB and FEBTC were aware of the decision dated March 23, 1984 of
the Regional Trial Court of Quezon City in Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering petitioners to pay
interest on the deposit of THIRTY THOUSAND PESOS (P30,000.00) by
applying Article 2209 of the New Civil Code.
3. The Honorable Court of Appeals erred in ordering petitioners to pay
moral damages, exemplary damages, attorneys fees and costs of suit.
I.
At the outset, it is necessary to determine the legal relation, if any, of the parties.
Petitioners deny that a contract of sale was ever perfected between them and
private respondent Lolita Chan Lim. They contend that Lims letter-offer clearly
states that the sum of P30,000.00 was given as option money, not as earnest
money.
[5]
They thus conclude that the contract between CDB and Lim was merely
an option contract, not a contract of sale.
The contention has no merit. Contracts are not defined by the parties thereto but
by principles of law.
[6]
In determining the nature of a contract, the courts are not
bound by the name or title given to it by the contracting parties.
[7]
In the case at
bar, the sum of P30,000.00, although denominated in the offer to purchase as
"option money," is actually in the nature of earnest money or down payment when
considered with the other terms of the offer. In Carceler v. Court of Appeals,
[8]
we
explained the nature of an option contract, viz. -
An option contract is a preparatory contract in which one party grants
to the other, for a fixed period and under specified conditions, the
power to decide, whether or not to enter into a principal contract, it
binds the party who has given the option not to enter into the principal
contract with any other person during the period designated, and
within that period, to enter into such contract with the one to whom
the option was granted, if the latter should decide to use the option. It
is a separate agreement distinct from the contract to which the parties
may enter upon the consummation of the option. Newmiso
An option contract is therefore a contract separate from and preparatory to a
contract of sale which, if perfected, does not result in the perfection or
consummation of the sale. Only when the option is exercised may a sale be
perfected.
In this case, however, after the payment of the 10% option money, the Offer to
Purchase provides for the payment only of the balance of the purchase price,
implying that the "option money" forms part of the purchase price. This is precisely
the result of paying earnest money under Art. 1482 of the Civil Code. It is clear
then that the parties in this case actually entered into a contract of sale, partially
consummated as to the payment of the price. Moreover, the following findings of
the trial court based on the testimony of the witnesses establish that CDB accepted
Lims offer to purchase:
It is further to be noted that CDB and FEBTC already considered
plaintiffs offer as good and no longer subject to a final approval. In his
testimony for the defendants on February 13, 1992, FEBTCs Leomar
Guzman stated that he was then in the Acquired Assets Department of
FEBTC wherein plaintiffs offer to purchase was endorsed thereto by
Myoresco Abadilla, CDBs senior vice-president, with a
recommendation that the necessary petition for writ of possession be
filed in the proper court; that the recommendation was in accord with
one of the conditions of the offer,i.e., the clearing of the property of
illegal occupants or tenants (tsn, p. 12); that, in compliance with the
request, a petition for writ of possession was thereafter filed on July
22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the
banks; and that no rejection of the offer was thereafter relayed to the
plaintiffs (p. 17); which was not a normal procedure, and neither did
the banks return the amount of P30,000.00 to the plaintiffs.
[9]

Given CDBs acceptance of Lims offer to purchase, it appears that a contract of sale
was perfected and, indeed, partially executed because of the partial payment of the
purchase price. There is, however, a serious legal obstacle to such sale, rendering it
impossible for CDB to perform its obligation as seller to deliver and transfer
ownership of the property. Acctmis
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what
one does not have. In applying this precept to a contract of sale, a distinction must
be kept in mind between the "perfection" and "consummation" stages of the
contract.
A contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.
[10]
It is, therefore, not
required that, at the perfection stage, the seller be the owner of the thing sold or
even that such subject matter of the sale exists at that point in time.
[11]
Thus,
under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at
that time, was not his, but later acquires title thereto, such title passes by
operation of law to the buyer or grantee. This is the same principle behind the sale
of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at
the time of delivery or consummation stage of the sale, it is required that the seller
be the owner of the thing sold. Otherwise, he will not be able to comply with his
obligation to transfer ownership to the buyer. It is at the consummation stage
where the principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals,
[12]
the subject contract of sale was held void as the
sellers of the subject land were no longer the owners of the same because of a prior
sale.
[13]
Again, in Nool v. Court of Appeals,
[14]
we ruled that a contract of
repurchase, in which the seller does not have any title to the property sold, is
invalid:
We cannot sustain petitioners view. Article 1370 of the Civil Code is
applicable only to valid and enforceable contracts. The Regional Trial
Court and the Court of Appeals 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 Dignos v. Court of Appeals, where the Court
held:
"Be that as it may, it is evident that when petitioners sold
said land to the Cabigas spouses, they were no longer
owners of the same and the sale is null and void."
In the present case, it is clear that the sellers no longer had any title
to the parcels of land at the time of sale. Since Exhibit D, the alleged
contract of repurchase, was dependent on the validity of Exhibit C, it is
itself void. A void contract cannot give rise to a valid one. Verily,
Article 1422 of the Civil Code provides that (a) contract which is the
direct result of a previous illegal contract, is also void and inexistent."
We should however add that Dignos did not cite its basis for ruling that
a "sale is null and void" where the sellers "were no longer the owners"
of the property. Such a situation (where the sellers were no longer
owners) does not appear to be one of the void contracts enumerated
in Article 1409 of the Civil Code. Moreover, the Civil Code itself
recognizes a sale where the goods are to be acquired x x x 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. Misact
In the present case, however, it is likewise clear that the sellers can no
longer deliver the object of the sale to the buyers, as the buyers
themselves have already acquired title and delivery thereof from the
rightful owner, the DBP. Thus, such contract may be deemed to be
inoperative and may thus fall, by analogy, under item No. 5 of Article
1409 of the Civil Code: Those which contemplate an impossible
service. Article 1459 of the Civil Code provides that "the vendor must
have a right to transfer the ownership thereof [subject of the sale] at
the time it is delivered." Here, delivery of ownership is no longer
possible. It has become impossible.
[15]

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo
Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to
the said property. To be sure, CDB never acquired a valid title to the property
because the foreclosure sale, by virtue of which the property had been awarded to
CDB as highest bidder, is likewise void since the mortgagor was not the owner of
the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance
with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced
seller, becomes obliged to transfer the ownership of the thing sold to the highest
bidder who, in turn, is obliged to pay therefor the bid price in money or its
equivalent. Being a sale, the rule that the seller must be the owner of the thing sold
also applies in a foreclosure sale. This is the reason Art. 2085
[16]
of the Civil Code,
in providing for the essential requisites of the contract of mortgage and pledge,
requires, among other things, that the mortgagor or pledgor be the absolute owner
of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale
should the mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract
and any foreclosure sale arising therefrom are given effect by reason of public
policy. This is the doctrine of "the mortgagee in good faith" based on the rule that
all persons dealing with property covered by a Torrens Certificate of Title, as buyers
or mortgagees, are not required to go beyond what appears on the face of the
title.
[17]
The public interest in upholding the indefeasibility of a certificate of title, as
evidence of the lawful ownership of the land or of any encumbrance thereon,
protects a buyer or mortgagee who, in good faith, relied upon what appears on the
face of the certificate of title. Sdjad
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not
required to make a detailed investigation of the history of the title of the property
given as security before accepting a mortgage.
We are not convinced, however, that under the circumstances of this case, CDB can
be considered a mortgagee in good faith. While petitioners are not expected to
conduct an exhaustive investigation on the history of the mortgagors title, they
cannot be excused from the duty of exercising the due diligence required of banking
institutions. In Tomas v. Tomas,
[18]
we noted that it is standard practice for banks,
before approving a loan, to send representatives to the premises of the land offered
as collateral and to investigate who are the real owners thereof, noting that banks
are expected to exercise more care and prudence than private individuals in their
dealings, even those involving registered lands, for their business is affected with
public interest. We held thus:
We, indeed, find more weight and vigor in a doctrine which recognizes
a better right for the innocent original registered owner who obtained
his certificate of title through perfectly legal and regular proceedings,
than one who obtains his certificate from a totally void one, as to
prevail over judicial pronouncements to the effect that one dealing
with a registered land, such as a purchaser, is under no obligation to
look beyond the certificate of title of the vendor, for in the latter case,
good faith has yet to be established by the vendee or transferee, being
the most essential condition, coupled with valuable consideration, to
entitle him to respect for his newly acquired title even as against the
holder of an earlier and perfectly valid title. There might be
circumstances apparent on the face of the certificate of title which
could excite suspicion as to prompt inquiry, such as when the transfer
is not by virtue of a voluntary act of the original registered owner, as
in the instant case, where it was by means of a self-executed deed of
extra-judicial settlement, a fact which should be noted on the face of
Eusebia Tomas certificate of title. Failing to make such inquiry would
hardly be consistent with any pretense of good faith, which the
appellant bank invokes to claim the right to be protected as a
mortgagee, and for the reversal of the judgment rendered against it
by the lower court.
[19]

In this case, there is no evidence that CDB observed its duty of diligence in
ascertaining the validity of Rodolfo Guansings title. It appears that Rodolfo
Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of
the Estate With Waiver where he made it appear that he and Perfecto Guansing
were the only surviving heirs entitled to the property, and that Perfecto had waived
all his rights thereto. This self-executed deed should have placed CDB on guard
against any possible defect in or question as to the mortgagors title. Moreover, the
alleged ocular inspection report
[20]
by CDBs representative was never formally
offered in evidence. Indeed, petitioners admit that they are aware that the subject
land was being occupied by persons other than Rodolfo Guansing and that said
persons, who are the heirs of Perfecto Guansing, contest the title of
Rodolfo.
[21]
Sppedsc
II.
The sale by CDB to Lim being void, the question now arises as to who, if any,
among the parties was at fault for the nullity of the contract. Both the trial court
and the appellate court found petitioners guilty of fraud, because on June 16, 1988,
when Lim was asked by CDB to pay the 10% option money, CDB already knew that
it was no longer the owner of the said property, its title having been
cancelled.
[22]
Petitioners contend that: (1) such finding of the appellate court is
founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a
party in the case where the mortgagors title was cancelled; (3) CDB is not privy to
any problem among the Guansings; and (4) the final decision cancelling the
mortgagors title was not annotated in the latters title.
As a rule, only questions of law may be raised in a petition for review, except in
circumstances where questions of fact may be properly raised.
[23]
Here, while
petitioners raise these factual issues, they have not sufficiently shown that the
instant case falls under any of the exceptions to the above rule. We are thus bound
by the findings of fact of the appellate court. In any case, we are convinced of
petitioners negligence in approving the mortgage application of Rodolfo Guansing.
III.
We now come to the civil effects of the void contract of sale between the parties.
Article 1412(2) of the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
. . . .
(2).......When only one of the contracting parties is at
fault, he cannot recover what he has given by reason of
the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
demand the return of what he has given without any
obligation to comply with his promise.
Private respondents are thus entitled to recover the P30,000.00 option money paid
by them. Moreover, since the filing of the action for damages against petitioners
amounted to a demand by respondents for the return of their money, interest
thereon at the legal rate should be computed from August 29, 1989, the date of
filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted
the payment. This is in accord with our ruling in Castillo v. Abalayan
[24]
that in case
of a void sale, the seller has no right whatsoever to keep the money paid by virtue
thereof and should refund it, with interest at the legal rate, computed from the date
of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that
the non-guilty party "may demand the return of what he has given" clearly implies
that without such prior demand, the obligation to return what was given does not
become legally demandable. Sccalr
Considering CDBs negligence, we sustain the award of moral damages on the basis
of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of
Appeals
[25]
that moral damages may be recovered even if a banks negligence is not
attended with malice and bad faith. We find, however, that the sum of P250,000.00
awarded by the trial court is excessive. Moral damages are only intended to
alleviate the moral suffering undergone by private respondents, not to enrich them
at the expense of the petitioners.
[26]
Accordingly, the award of moral damages must
be reduced to P50,000.00.
Likewise, the award of P50,000.00 as exemplary damages, although justified under
Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The
award of P30,000.00 attorneys fees based on Art. 2208, pars. 1, 2, 5 and 11 of the
Civil Code should similarly be reduced to P20,000.00.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION as to the award of damages as above stated.
SO ORDERED

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 167320 January 30, 2007
HEIRS OF SALVADOR HERMOSILLA, namely: ADELAIDA H. DOLLETON,
RUBEN HERMOSILLA, LOLITA H. DE LA VEGA, ERLINDA H. INOVIO, CELIA
H. VIVIT, ZENAIDA H. ACHOY, PRECILLA H. LIMPIAHOY, and EDGARDO
HERMOSILLA, Petitioners,
vs.
Spouses JAIME REMOQUILLO and LUZ REMOQUILLO, Respondents.
D E C I S I O N
CARPIO MORALES, J.:
Petitioners Heirs of Salvador Hermosilla, namely: Adelaida H. Dolleton, Ruben
Hermosilla, Lolita H. de la Vega, Erlinda H. Inovio,
1
Celia
2
H. Vivit, Zenaida H.
Achoy, Precilla
3
H. Limpiahoy, and Edgardo Hermosilla, assail the Court of Appeals
Decision
4
dated September 29, 2004 which reversed the trial courts decision in
their favor and accordingly dismissed their complaint.
Subject of the controversy is a 65-square meter portion of a lot located in
Poblacion, San Pedro, Laguna.
On August 31, 1931, the Republic of the Philippines acquired through purchase the
San Pedro Tunasan Homesite.
Apolinario Hermosilla (Apolinario), who was occupying a lot in San Pedro Tunasan
Homesite until his death in 1964, caused the subdivision of the lot into two, Lot 12
with an area of 341 square meters, and Lot 19 with an area of 341 square meters
of which the 65 square meters subject of this controversy form part.
On April 30, 1962, Apolinario executed a Deed of Assignment transferring
possession of Lot 19 in favor of his grandson, herein respondent Jaime
Remoquillo (Jaime). As the Land Tenure Administration (LTA) later found that Lot
19 was still available for disposition to qualified applicants, Jaime, being its actual
occupant, applied for its acquisition before the LTA on May 10, 1963.
On July 8, 1963, Apolinario conveyed Lot 12 to his son Salvador Hermosilla
(Salvador), Jaimes uncle.
Salvador later filed an application to purchase Lot 12 which was awarded to him by
the defunct Land Authority on December 16, 1971.
On February 10, 1972, Jaime and his uncle Salvador forged a "Kasunduan ng
Paglipat Ng Karapatan sa Isang Lagay na Lupang Solar" (Kasunduan) whereby
Jaime transferred ownership of the 65 square meters (the questioned property) in
favor of Salvador.
After Apolinario died, his daughter Angela Hermosilla filed a protest before the Land
Authority, which became the National Housing Authority (NHA),
5
contending that as
an heir of the deceased, she is also entitled to Lots 12 and 19. By Resolution of
June 10, 1981, the NHA dismissed the protest.
The NHA later awarded on March 16, 1986 Lot 19 to Jaime for which he and his
wife were issued a title, Transfer Certificate of Title No. T-156296, on September
15, 1987.
6

On May 25, 1992, petitioners filed an action for Annulment of Title on the ground of
fraud with damages against Jaime and his spouse, together with the Register of
Deeds, before the Regional Trial Court (RTC) of Bian, Laguna, alleging that by
virtue of the Kasunduan executed in 1972, Jaime had conveyed to his uncle
Salvador the questioned propertypart of Lot 19 covered by TCT No. T-156296
which was issued in 1987.
By Decision
7
of May 11, 1999, the RTC of Bian, Laguna, Branch 25, found
the Kasunduan a perfected contract of sale, there being a meeting of the minds
upon an identified object and upon a specific price, and that ownership over the
questioned property had already been transferred and delivered to Salvador.
On the alleged failure of consideration of the Kasunduan, the trial court held that
the same did not render the contract void, but merely allowed an action for specific
performance. The dispositive portion of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered declaring plaintiffs as co-owners of the
65 square meters of the 341square meters covered by TCT T-156296, registered in
the name of defendants. The Court hereby directs the Register of Deeds of Laguna,
Calamba Branch, to cancel said Transfer Certificate of Title, and in lieu thereof, to
issue another [to] plaintiffs [as] co-owners of the above portion.
No pronouncement as to costs.
SO ORDERED.
8
(Underscoring supplied)
The Court of Appeals, reversing the decision of the trial court, held that
the Kasunduan was void because at the time of its execution in 1972, the Republic
of the Philippines was still the owner of Lot 19, hence, no right thereover was
transmitted by Jaime who was awarded the Lot in 1986, and consequently no right
was transmitted by Salvador through succession to petitioners. And it found no
evidence of fraud in Jaimes act of having Lot 19, including the questioned property,
registered in his and his wifes name in 1987.
At all events, the appellate court held that the action had prescribed, it having been
filed in 1992, more than four years from the issuance to Jaime and his wife of the
Transfer Certificate of Title.
Hence, the present petition for review on certiorari.
Petitioners argue that the application of the law on prescription would perpetrate
fraud and spawn injustice, they citing Cometa v. Court of Appeals;
9
and that at any
rate, prescription does not lie against a co-owner. Cometa involves a different
factual milieu concerning the right of redemption, however. And petitioners
contention that prescription does not lie against a co-owner fails because only the
title covering the questioned property, which petitioners claim to solely own, is
being assailed.
While this Court finds that the action is, contrary to the appellate courts ruling, not
barred by the statute of limitations, it is still dismissible as discussed below.
Albeit captioned as one for Annulment of Title, the Complaint ultimately seeks the
reconveyance of the property.
From the allegations of the Complaint, petitioners seek the reconveyance of the
property based on implied trust. The prescriptive period for the reconveyance of
fraudulently registered real property is 10 years, reckoned from the date of the
issuance of the certificate of title,
10
if the plaintiff is not in possession, but
imprescriptible if he is in possession of the property.
An action for reconveyance based on an implied trust prescribes in ten years. The
ten-year prescriptive periodapplies only if there is an actual need to reconvey
the property as when the plaintiff is not in possession of the
property. However, if the plaintiff, as the real owner of the property also remains
in possession of the property, the prescriptive period to recover the title and
possession of the property does not run against him. In such a case, an action for
reconveyance, if nonetheless filed, would be in the nature of a suit for quieting of
title, an action that is imprescriptible.
11
(Emphasis and underscoring supplied)
It is undisputed that petitioners houses occupy the questioned property and that
respondents have not been in possession thereof.
12
Since there was no actual need
to reconvey the property as petitioners remained in possession thereof, the action
took the nature of a suit for quieting of title, it having been filed to enforce an
alleged implied trust after Jaime refused to segregate title over Lot 19. One who
is in actual possession of a piece of land claiming to be the owner thereof may
wait until his possession is disturbed or his title is attacked before taking steps to
vindicate his right.
13
From the body of the complaint, this type of action denotes
imprescriptibility.
As priorly stated, however, when the Kasunduan was executed in 1972 by Jaime in
favor of Salvador petitioners predecessor-in-interest Lot 19, of which the
questioned property forms part, was still owned by the Republic.Nemo dat quod
non habet.
14
Nobody can give what he does not possess. Jaime could not thus have
transferred anything to Salvador via the Kasunduan.
Claiming exception to the rule, petitioners posit that at the time the Kasunduan was
executed by Jaime in 1972, his application which was filed in 1963 for the award to
him of Lot 19 was still pending, hence, the Kasunduan transferred to Salvador
Jaimes vested right to purchase the same, in support of which they cite a law on
estoppel, Art. 1434 of the Civil Code, which provides that "[w]hen a person who is
not the owner of a thing sells or alienates and delivers it and later, the seller or
grantor acquires title thereto, such title passes by operation of law to the buyer or
grantee."
15

Petitioners reliance on Article 1434 of the Civil Code does not lie. The principles of
estoppel apply insofar as they are not in conflict with the provisions of the Civil
Code, the Code of Commerce, the Rules of Court and speciallaws.
16
1avvphi1.net
Land Authority Administrative Order No. 4 (1967), "Rules and Regulations
governing Disposition of the Laguna Settlement Project in San Pedro, Laguna,"
proscribes the conveyance of the privilege or preference to purchase a land from
the San Pedro Tunasan project before it is awarded to a tenant or bona fide
occupant, thus:
SEC. 6. Privilege of Preference to Purchase Intransferable; Waiver or Forfeiture
Thereof. From the date of acquisition of the estate by the Government and before
issuance of the Order of Award, no tenant or bona fideoccupant in whose favor the
land may be sold shall transfer or encumber the privilege or preference to purchase
the land, and any transfer or encumbrance made in violation hereof shall be
null and void: Provided, however, That such privilege or preference may be
waived or forfeited only in favor of the Land Authority . . .
17
(Italics in the original,
emphasis and underscoring supplied)
Petitioners insistence on any right to the property under the Kasunduan thus fails.
[T]he transfer "became one in violation of law (the rules of the PHHC being
promulgated in pursuance of law have the force of law) and therefore void ab
initio." Hence, appellant acquired no right over the lot from a contract voidab initio,
no rights are created. Estoppel, as postulated by petitioner, will not apply for it
cannot be predicated on an illegal act. It is generally considered that as between
the parties to a contract, validity cannot be given to it by estoppel if it is prohibited
by law or is against public policy.
18
(Emphasis and underscoring supplied)
Petitioners go on to postulate that if the Kasunduan is void, it follows that the 1962
Deed of Assignment executed by Apolinario in favor of Jaime is likewise void to thus
deprive the latter of any legal basis for his occupation and acquisition of Lot 19.
Petitioners position fails. Petitioners lose sight of the fact that, as reflected above,
Jaime acquired Lot 19 in his own right, independently of the Deed of Assignment.
In another vein, since the property was previously a public land, petitioners have
no personality to impute fraud or misrepresentation against the State or violation of
the law.
19
If the title was in fact fraudulently obtained, it is the State which should
file the suit to recover the property through the Office of the Solicitor General. The
title originated from a grant by the government, hence, its cancellation is a matter
between the grantor and the grantee.
20

At all events, for an action for reconveyance based on fraud to prosper, the plaintiff
must prove by clear and convincing evidence not only his title to the property but
also the fact of fraud. Fraud is never presumed. Intentional acts to deceive and
deprive another of his right, or in some manner injure him must be specifically
alleged and proved by the plaintiff by clear and convincing evidence.
21
Petitioners
failed to discharge this burden, however.
WHEREFORE, the petition is, in light of the foregoing ratiocination, DENIED.
SO ORDERED.

THIRD DIVISION

HEIRS OF ARTURO REYES,
represented by Evelyn R. San
Buenaventura,
Petitioners,

- versus -

ELENA SOCCO-BELTRAN,
Respondent.
G.R. No. 176474

Present:

YNARES-
SANTIAGO,J., Chair
person,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:

November 27, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the Decision
[1]
dated 31 January 2006 rendered by the Court of
Appeals in CA-G.R. SP No. 87066, which affirmed the Decision
[2]
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 andConstancia Socco (Spouses Laquian), who paid for the same
with Japanese money. When Marcelo died, the property was left to his
wife Constancia. Upon Constancias subsequent death, she left the original parcel
of land, along with her other property, with her heirs her siblings,
namely: FilomenaEliza Socco, Isabel Socco de Hipolito, Miguel R. Socco, and
Elena Socco-Beltran.
[3]
Pursuant to anunnotarized document entitled Extrajudicial
Settlement of the Estate of the Deceased Constancia R.Socco, executed
by Constancias heirs sometime in 1965, the parcel of land was partitioned into
three lotsLot 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 Soccos estate.
[5]

Petitioners herein, the heirs of the late Arturo Reyes, filed their protest to
respondents petition before the DAR on the ground that the subject property was
sold by respondents 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 I am to inheritas 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:

x x x x

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 conditional sale 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) 70s 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 Hipolitois
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 respondents
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 respondents 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 petitioners 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:

WHEREFORE, 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 2001Decision 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 petitioners appeal and affirming the DAR Secretarys
Decision.
[15]
The fallo of the Decision reads:

WHEREFORE, premises considered, judgment appealed from
is AFFIRMED and the instant appealDISMISSED.
[16]

Petitioners 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 petitioners 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 petitioners 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 respondents 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 respondents right over the
subject property, which was derived form the
original allocatees thereof.
[20]
The fallo of the said Decision reads:

WHEREFORE, premises considered, the instant PETITION
FOR REVIEW is DISMISSED. Accordingly, the Decision dated 30
June 2003 and the Resolution dated 30 December 2004 both issued by
the Office of the President are hereby AFFIRMED in toto.
[21]

The Court of Appeals denied petitioners Motion for Reconsideration of its
Decision in a Resolution dated 16 August 2006.
[22]

Hence, the present Petition, wherein petitioners raise the following issues:

I

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 LATTERS 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
WHATEVER 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. Petitioners 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 Constancias estate.
[24]
It was also declared in the Contract itself that Miguel
R. Soccos 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, citingSandoval v. Insular Government
[25]
and San Miguel
Corporation v. Court of Appeals.
[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 San Miguel Corporation, 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 conclusively established. Thus, the evidence offered by
petitioner therein tax declarations, receipts, and the sole testimony of the
applicant for registration,petitioners predecessor-in-interest who claimed to have
occupied the land before selling it to the petitioner 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 San Miguel Corporation that the open, continuous, exclusive, and
notorious occupation of property for more than 30 years must be no less
than conclusive, 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 letter
[30]
dated 4 February 2002 of Barangay 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 Barangay Captain Gapero that Arturo
Reyes occupied the premises for an unspecified period of time, i.e., since peace
time until the present, cannot prevail over Legal Officer Pinlacs more particular
findings in her Report/Recommendation. Legal Officer Pinlacreported 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 petitioners 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 Pinlacs 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, respondents 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 Constancias 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 respondents 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 petitioners right to purchase
the property, is flawed and may be assailed in the proper proceedings. Records
show that the DAR affirmed that respondents 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 Soccosinterest 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 respondents 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
CLOA
[36]
over the subject property in favor of Myrna Socco-Arizo. Respondents
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 Attorney
[37]
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-Arizocan take over the subject
property as owner thereof upon respondents death. That Miguel V. Socco,
respondents only nephew, the son of the late Miguel R. Socco, and Myrna Socco-
Arizos 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 respondents 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.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The
assailed Decision of the Court of Appeals in CA-G.R. SP No. 87066, promulgated
on 31 January 2006, is AFFIRMEDwith MODIFICATION. This Court withholds
the confirmation of the validity of title over the subject property in the name of
Myrna Socco-Arizo pending determination of respondents legal heirs in appropriate
proceedings. No costs.

SO ORDERED.

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